United States v. Pope

• Decision Date: 27 October 1960
• Parties: UNITED STATES of America v. Fortune POPE and Anthony Pope, Defendants.
• Court: U.S. District Court — Southern District of New York

189 F. Supp. 12

UNITED STATES of America v. Fortune POPE and Anthony Pope, Defendants.

United States District Court S. D. New York.

October 27, 1960.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

S. Hazard Gillespie, Jr., U. S. Atty., New York City, Robert B. Fiske, Jr., Peter H. Morrison, New York City, of counsel, for United States.

Cahill, Gordon, Reindel & Ohl, New York City, John T. Cahill, Thomas C. Mason, Immanuel Kohn, New York City, of counsel, for defendants.

WEINFELD, District Judge.

These are motions by the defendants to dismiss a twelve-count indictment or, in the alternative, to strike portions thereof. Eleven counts charge substantive violations of the Securities Act of 1933 and the Securities Exchange Act of 1934, relating generally to misstatements or omissions of material facts in registration and proxy statements filed under the Acts and in proxy solicitations. One count charges a conspiracy to defeat the lawful functions of the Securities and Exchange Commission and to commit violations of the Acts.

All counts of the indictment are challenged on the ground that they are vague and insufficient as a matter of law. Constitutional infirmities are also advanced against the section of the 1934 Act and the regulations upon which the counts are based. In addition to this broadside attack, individual counts are challenged upon specifically enumerated grounds including, in the instance of Count II, lack of proper venue.

The Motions To Dismiss For Vagueness And Insufficiency

(a) Count II

The principal thrust of the defendants' motion based upon vagueness is directed against Count II, the first substantive count, which charges a violation of section 24 of the Securities Act of 1933.¹ The provision imposes criminal penalties upon:

"any person who willfully, in a registration statement filed under this subchapter, makes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading * * *."

Count II centers about a registration statement filed with the Securities and Exchange Commission by the defendants, as officers and directors of Colonial Sand & Stone Co., wherein they described certain transactions between Colonial and other corporations in which they owned majority interests, as follows:

"Interest Of Management And Others In Certain Transactions

"Messrs. Anthony Pope and Fortune Pope own majority interests in each of the following enterprises: Empire Sand & Stone Corp., * * * and other named corporations. In addition to dealings with their other customers and suppliers, each of these enterprises carries on business with * * * Colonial, selling to * * * Colonial in the ordinary course of business various items and services needed in the operation of the business of * * * Colonial, or purchasing from * * * Colonial in the ordinary course of business various items which * * Colonial regularly sells to the trade. In these transactions, each of these enterprises deals with * * * Colonial on terms at least as advantageous to * * * Colonial as those which would be available to it on the open market. * *"

Count II then charges that in the foregoing registration statement the defendants, willfully and knowingly, (1) made untrue statements of material facts, (2) omitted to state material facts required to be stated therein, and (3) omitted material facts necessary to make the statements therein not misleading. It alleges that the misstatements or omissions concerned facts relating to material interests, direct and indirect, of the defendants and their associates,² in material transactions to which Colonial and its subsidiaries were and were to be parties;³ that such transactions related to the sale, transportation and delivery of rock salt and solar salt. Count II further charges that in these transactions the associates of the defendants did not deal with Colonial on terms at least as advantageous to Colonial as those which would have been available to it in the open market, but that such associates were used by the defendants as devices to conceal the diversion of business, moneys and profits from Colonial for the benefit and enrichment of the associates and ultimately the defendants.

It may be acknowledged that the indictment is not a model pleading. But the test of its sufficiency is not whether it could have been more artfully drawn, or made more definite and certain.⁴ The true test is whether the indictment sufficiently apprises the defendants of the crimes charged against them so as to enable them to prepare their defense and to plead any judgment entered thereunder as a bar to further prosecution for the same offense.⁵

So tested, the count here in question meets the basic requirements.⁶ The allegations substantially follow the language of section 24 of the Act, 15 U.S.C.A. § 77x, which contains the essential elements of the crime charged.⁷ In particularizing the generic terms of the statute, the count then specifies (1) the date and place of the filing of the registration statement, (2) the precise paragraph of the registration statement wherein it is alleged the defendants misstated, and omitted to state, material facts, and (3) that such misstatements and omissions concerned material interests of the defendants and their associates in certain transactions relating to the sale, transportation and delivery of salt. Colonial and associates of the defendants are named as parties to the transactions. Finally, falsity is delineated in that, contrary to the defendants' statements in the registration form, the associates of the defendants in such transactions did not, in fact, deal with Colonial on terms at least as advantageous as was available to it in the open market. This analysis of the allegations of the count makes it clear that not only are the essential elements of the crime charged set forth, but that sufficient detail is given to enable the defendants to defend against the charges.

The defendants' complaint that the indictment fails to specify "the nature, amount, place, dates, or any other identification of the `transactions' allegedly not reported" or "the description of property allegedly diverted," can readily be resolved by a bill of particulars to which they may be entitled under the Federal Rules of Criminal Procedure.⁸

The defendants next urge that Count II is defective in other respects. One phase revolves essentially about the charge that the defendants "did omit to state material facts required to be stated therein." It is acknowledged that this portion of the accusation is bottomed upon the requirement of Item 20 of Registration Form S-1⁹ that the registrant state:

"the approximate amount of any material interest, direct or indirect, of any of the following persons in any material transactions * * * to which the registrant or any of its subsidiaries was, or is to be, a party:

"(a) Any director or officer of the registrant;

* * * * * *

"(c) Any associate of any of the foregoing persons."

Defendants' argument here, as the Court understands it, is that a diversion of business, moneys or profits from Colonial cannot be considered a transaction to which Colonial "was, or is to be, a party." However, the substance of the allegation is that the diversion arose from, and was effected through, material transactions to which Colonial was a party. Whether the proof upon a trial will support the charge, as further amplified in the count, is not the issue here. For the purposes of this motion the allegations of the count must be accepted as true.¹⁰

So, too, with respect to the contention that Count II is fatally defective because the facts alleged to be material are not identified. This disregards the specific allegations which charge that the misstatements and omissions related to material interests of the defendants and their "associates" in material transactions with Colonial, involving rock salt and solar salt.¹¹ This averment of materiality is sufficient;¹² it is not required that the indictment recite all the circumstances which render a fact material.¹³

In its further attack upon that portion of Count II which alleges an omission of material facts "required to be stated," defendants urge that Item 20 of Form S-1 specifies that no information need be given as to any transaction or interest therein, where:

"(iv) the interest of the specified persons, including all periodic installments in the case of any lease or other agreement providing for periodic payments or installments does not exceed $30,000."

Relying upon this provision, the defendants ask dismissal of the count upon the ground that there is no allegation that the transactions exceeded the amount of $30,000 and so came within the embrace of the rule. The contention is without merit. The rule is that an indictment need not negative a statutory exception¹⁴ unless the exception is so inseparable from a true definition of the offense that the ingredients of the offense cannot accurately be described if the exception is omitted.¹⁵

Item 20 fully defines the duty of the registrant. The exception is distinct and in no sense forms an integral part of the offense. It does not change the general duty imposed, but merely exempts a limited class of transactions which fall within its terms. Therefore, it need not be negatived.¹⁶ Whether or not the transactions come within the exception must await trial.

(b) Counts III through XII

Counts III through XII are also attacked for vagueness and the immateriality of misstatements or omissions therein on the same general grounds advanced against Count II.

The charges in these counts revolve about a paragraph in substantially identical form contained in a proxy statement filed with the Commission each year, from 1956 through 1960, and used in annual proxy solicitations from security holders. Indeed, the relevant paragraph in each proxy statement is essentially similar...