United States v. Parrott

• Decision Date: 06 December 1965
• Docket Number: Crim. No. 830-64.
• Citation: 248 F. Supp. 196
• Parties: UNITED STATES of America v. Forrest PARROTT, Donald Parrott, John V. Holmes, Durward E. Willis, Harry Kaskowitz.
• Court: U.S. District Court — District of Columbia

248 F. Supp. 196

UNITED STATES of America v. Forrest PARROTT, Donald Parrott, John V. Holmes, Durward E. Willis, Harry Kaskowitz.

Crim. No. 830-64.

United States District Court District of Columbia.

December 6, 1965.

COPYRIGHT MATERIAL OMITTED

Edward J. Barnes, Sp. Asst. U. S. Atty., Washington, D. C., for the United States; David B. Bliss, Securities and Exchange Commission, Washington, D. C., of counsel.

Murray A. Kivitz and F. Joseph Donohue, Washington, D. C., for defendants Forrest Parrott and Donald Parrott.

Delmar W. Holloman and John Henry Brebbia, Washington, D. C., for defendant Holmes.

Lawrence J. Bernard, Jr., Washington, D. C., for defendant Willis.

Sol Zael Rosen, Washington, D. C., for defendant Kaskowitz.

GASCH, District Judge.

Motions to dismiss this twenty-count indictment, as well as motions to suppress and to sever certain defendants, are before the Court following the filing of extensive memoranda, affidavits, and proffers of proof respecting witnesses said to be no longer available. From this material it appears that the facts are as follows:

The indictment alleges that from about February 1, 1960, and continuing to the date of the indictment, September 10, 1964, these defendants did commit certain acts in violation of the criminal provisions of the Securities and Exchange Act¹ and did also conspire to violate this Act.² The investigation which culminated in this indictment began on or about August 28, 1961, when defendant Holmes was examined by agents of the Securities and Exchange Commission (SEC) concerning his relationship with Hydramotive Corporation. On September 1, 1961, the SEC issued a formal order of investigation into the matter of Hydramotive Corporation, and obtained records and papers in the possession of defendants Donald Parrott and Durward E. Willis.³ In the following months several of the defendants were subpoenaed and testified before SEC representatives and produced records relating to the matter under investigation.⁴

On December 13, 1961, the SEC sought a temporary restraining order and preliminary and permanent injunctions in the United States District Court for the Western District of Oklahoma. In the interim, defendants offered to escrow their Hydramotive stock. After perpetuation of the preliminary injunctions by the consent of the defendants, the SEC obtained a permanent injunction on December 30, 1963.⁵ The following defendants indicted in the instant criminal case were also parties defendant in the Oklahoma civil action: Forrest Parrott, Donald Parrott, John V. Holmes, Durward E. Willis, Jules Arfield, and Robert L. Allen.⁶ The trial of the injunctive action commenced on July 15, 1963, and consumed five days, at which defendants Donald Parrott, Forrest Parrott, Willis and Holmes testified fully as adverse Government witnesses. Several depositions were taken in preparation of this trial both of and by the defendants. It is significant that at this trial defendants were not informed of the fact that the SEC had recommended criminal prosecution, nor were they warned of their constitutional rights against self-incrimination.

The recommendation of criminal prosecution occurred on or about November 13, 1962, when the SEC criminal reference report was forwarded to the United States Attorney for the District of Columbia. This report lay in an inactive status for approximately one year until it was reassigned to present Government counsel. In the early Spring of 1964, present Government counsel began to devote his attention to the matter. The case was presented to the grand jury in August, 1964; on September 10, 1964, the indictment was returned.

Another civil proceeding involving some of the present defendants concerns this Court. On August 8, 1962, the SEC initiated broker-dealer revocation proceedings against one of the brokers who sold Hydramotive stock on the open market. Defendant Forrest Parrott was named as a "probable cause" for the revocation. After several court proceedings involving the question of whether they could be compelled to appear at these revocation proceedings in Washington, the Parrotts testified in early June, 1964. Present Government counsel attended the hearing and listened to the Parrotts' testimony; his identity was purposefully concealed.⁷ In connection with these same proceedings, a more significant action on the part of the Government is noteworthy. The SEC attorney denied that criminal proceedings had been instituted against any of the persons involved.⁸ This denial appeared in the transcript of the proceedings and preceded the testimony of the Parrotts.

In summation, the SEC initiated civil and administrative proceedings against some of the defendants herein. Although the defendants received general warnings at some of these proceedings, at no time were they informed of the fact that the matter had been referred to the U. S. Attorney's Office for criminal prosecution.

Two separate but related principles of law are involved in the consideration of these motions. First: May the Government by bringing a parallel civil proceeding avail itself of the almost unlimited opportunity that a civil litigant has to take extensive depositions of the other party to the civil proceeding and then utilize the fruits of this interrogation, as well as seizures without a warrant of books and records of certain of these defendants, in the preparation of the criminal case? Second: Is the delay which occurred between the discovery of this alleged scheme to defraud and the bringing of the indictment in violation of the Sixth Amendment right to a speedy trial or Rule 48(b) of the Federal Rules of Criminal Procedure?

With respect to the first point, the Court recalls that the Supreme Court has made it clear that Federal courts do have supervisory authority (see Rule 41 (e)) over the manner in which Federal agents exercise their powers.⁹ A defendant charged with a crime may seek an injuction to prevent civil proceedings if his testimony at those proceedings would disclose evidence which might be used against him at the criminal trial.¹⁰ The theory which underlies the granting of such an injunction is the recognition

"that due process is not observed if an accused person is subjected, without his consent, to an administrative hearing on a serious criminal charge that is pending against him. His necessary defense in the administrative hearing may disclose his evidence long in advance of his criminal trial and prejudice his defense in that trial."¹¹

In the Silver case, petitioner was aware of the pending criminal action, whereas in the instant case, defendants were not. However, the Court is of the opinion that the danger of prejudice flowing from testimony out of a defendant's mouth at a civil proceeding is even more acute when he is unaware of the pending criminal charge. It should be remembered that some of the defendants herein testified freely at the Oklahoma civil action without the benefit of warning or knowledge of the fact that the very matters that they were testifying to were contained in a criminal reference report in the hands of the U. S. Attorney.¹²

The instant case is not unlike Nelson v. United States.¹³ Nelson, who was believed to have extensive gambling interests in this area, was called before a congressional committee and directed to turn over to that committee certain papers and records. He was uncounseled and unwarned; he subsequently produced the requested materials. Thereafter he was indicted, the records and papers having been forwarded to the U. S. Attorney's Office by the committee. These papers were introduced in evidence, and he was convicted in a criminal prosecution, which was subsequently reversed by the Court of Appeals. The Court of Appeals found that Nelson's constitutional rights had been violated and that the evidence so obtained should not have been used at all.¹⁴ The defendants in the instant case, as did Nelson, produced records and gave testimony in proceedings at which they were often without counsel and often not warned of their constitutional rights.¹⁵

In Smith v. Katzenbach,¹⁶ a recent decision in this circuit, the Court of Appeals discussed a number of cases which are helpful to the resolution of this controversy. In Smith, Internal Revenue agents first sought to make an audit of petitioner's books, records and papers. Subsequently, special agents, whose responsibilities were in the criminal field, entered the investigation. Although the Court of Appeals was not required to resolve the difficult issue arising from the participation of the criminal investigators, Judge Leventhal observed

"that if evidence is taken by Government officials in violation of a person's rights under either the Fourth Amendment or the Fifth Amendment, he is entitled to institute proceedings to restrain the use of the evidence against him, and to do so in anticipation of the indictment, by restraining presentation to the grand jury, without being subject to the objection of prematurity."¹⁷

Naturally, before such proceedings can be initiated the petitioner must know that the matter is about to be presented to the grand jury. However, such lack of knowledge need not result in a complete lack of remedy, for courts have granted motions to suppress when the discovery was not made until after the indictment had been returned.

In United States v. Lipshitz,¹⁸ defendant moved to suppress certain materials which he had voluntarily relinquished to Internal Revenue agents under the mistaken assumption that those agents were merely concerned with civil proceedings. The agents had not informed the defendant of the criminal investigation which was being conducted, nor did they warn him of his constitutional rights. The District Judge granted the motion to suppress relying upon United States v. Guerrina,¹⁹ where Judge Clary observed:

"I can see no difference between a search conducted after entrance has been gained by stealth or in the

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