United States v. Porter

Decision Date13 May 1971
Docket Number19309,19310 and 19313.,No. 19290,19308,19290
Citation441 F.2d 1204
PartiesUNITED STATES of America, Appellee, v. Sidney E. PORTER, Appellant. UNITED STATES of America, Appellee, v. John M. HARRISON, Appellant. UNITED STATES of America, Appellee, v. Henry F. HARRISON, Appellant. UNITED STATES of America, Appellee, v. John R. SCHAEFER, Appellant. UNITED STATES of America, Appellee, v. Carl F. NEWLAND, Appellant.
CourtU.S. Court of Appeals — Eighth Circuit

COPYRIGHT MATERIAL OMITTED

Bernard Steinger, St. Louis, Mo., for Sidney E. Porter.

Murry L. Randall, St. Louis, Mo., for John M. Harrison and Henry F. Harrison.

Lester Watson, St. Louis, Mo., for John R. Schaefer.

Joseph J. Becker, Clayton, Mo., for Carl Newland.

Edward J. Barnes and Robert G. Clark, Special Attys., Department of Justice, Daniel Bartlett, Jr., U. S. Atty., Washington, D. C., for appellee.

Before MATTHES, Chief Judge, LAY, Circuit Judge, and REGISTER, District Judge.

LAY, Circuit Judge.

These appeals stem from convictions on jury verdicts finding five defendants guilty on four counts of securities fraud in violation of 15 U.S.C.A. § 77q(a), one count of use of the mails to offer to sell an unregistered security in violation of 15 U.S.C.A. § 77e(c), and three counts of mail fraud in violation of 18 U.S.C.A. § 1341. The illegal activities on which these counts were based took place in the State of Missouri from December 1964 through January 1966, during which time all petitioners engaged in the public sale of stock in the Presidential Investment Company, Inc. (hereinafter Presidential). The defendant Porter was also convicted on two counts of securities fraud in violation of 15 U.S.C.A. § 77q(a) for sales made in Illinois. Of the original 21 count indictment, 11 counts, including one for conspiracy, were withdrawn by the government at the close of its case-in-chief. The indictment was dismissed as to two defendants at that time. Two other defendants were acquitted by the jury. We affirm the convictions on appeal.

The defendants were charged with a scheme to sell securities through the use of misleading and false statements. Of the many false representations alleged, the basic criminal charges emphasize the following: (1) that Presidential at the time of its original application, January 4, 1965, to the State of Missouri to sell securities had $305,000 cash (paid-in capital); this sum was represented on the prospectus offered to potential purchasers; (2) that monies from the stock sales would be placed in an escrow account and that at the conclusion of the offering these funds less an 8 percent commission would be released to a life insurance company which Presidential would form; (3) that the only salaries to be paid were to the three officers of Presidential (Carl Newland, John Harrison and Jefferson Mitchell); that each would receive compensation of only $5,000 per year; and (4) that each of the officers had substantial cash investments in Presidential stock.1

The evidence disclosed that on January 4, 1965, the time of Presidential's initial application to sell securities, Presidential had on deposit, according to its own books, only $49,344.06 in the bank. The "trust account" in which the $305,000 was originally to have been deposited was shown to hold $232,175 as of February 24, 1965. This account had been depleted to $2,114.53 by October 1965. The evidence was not disputed that the defendants' affidavits filed with the State Commission that they had purchased shares for cash was false. From the inception of sales over $2,000,000 was realized from the public sale of stock; only $908,000 was ever deposited in the escrow account. The defendant Newland signed an escrow agreement with the Missouri Securities Commission on Presidential's behalf. Under this agreement the proceeds from the sale of stock was to be put in escrow, with release at the discretion of the Securities Commission. It provided that for each $500,000 of stock sold, $50,000 would be released to Presidential to cover expenses. The evidence was undisputed that throughout 1965 Newland withdrew over $70,000 in advances and commissions; John Harrison received over $45,000; Henry Harrison over $40,000; Porter over $29,000 and Schaefer a sum exceeding $200,000. The defendants were never successful in getting a new insurance company licensed in Missouri. Thereafter, Presidential purchased two existing companies, the St. Louis Union Insurance Co. and the Union Life Insurance Co. located in Chicago, Illinois. However, unable to obtain licenses for its agents in either Missouri or Illinois, Presidential never became active in the insurance field.

The government charged that the overall scheme included selling securities in Illinois at the same time the Missouri venture was going on. Since Presidential was not yet licensed in Illinois the modus operandi alleged was to sell interests in an investment trust owned by Porter. He in turn was to purchase the Presidential stock for the investor until such time as Illinois residents could hold the stock legally. The evidence showed that these sales exceeded $150,000 of which only one $10,000 check was ever deposited in Presidential's account. Porter claimed that this was his own venture and that the other defendants were unaware of these sales.

The trial encompassed more than seven weeks and consumed over 4,000 pages of transcript. It would serve little purpose to set forth the detail of facts other than in our discussion of the legal issues raised. After a thorough study of the record, we make the general observation that the defendants received a fair trial. The trial court's instructions fully left the ultimate decision of guilt to the jury. The defenses of good faith and lack of fraudulent intent were properly set out in the instructions. The trial court observed to the jury:

"A man may be visionary in his plans and believe they will succeed, and yet, in spite of their ultimate failure, be incapable of committing conscious fraud. Human credulity may include among its victims even the supposed imposter.
"Under our system of laws men are not punished criminally for mere mistakes, mere mismanagement, mere carelessness, or mere errors of judgment. They are punished only for intentional wrongdoing. The defendants here are not on trial for errors of judgment or mistakes or mismanagement, but are on trial for a criminal offense, and an essential element of that offense is an evil or criminal intent, which it is incumbent upon the government to prove to your satisfaction and beyond a reasonable doubt before you will be warranted in returning a verdict of guilty."

Under the evidence the jury could have adjudged the defendants completely innocent of wrongdoing on the basis of a good faith business failure. Instead, the jury chose to find these defendants guilty of cheating and defrauding innocent victims by devious and sundry means. It is not the province of this court to agree or disagree with the finding of guilt on this record. Guilt is basically a factual issue and the verdict of the jury will not be disturbed when there exists substantial evidence to support it. We pass only on the issues of law raised here.

Although each defendant assigns individual claims of error, many of their contentions may be grouped generally for discussion. In the main the defendants assert that: (1) there exists insufficient evidence to sustain their individual convictions; (2) the mailings used to substantiate the various counts occurred subsequent to the completion of the respective sales and therefore were improperly received in evidence; (3) there existed a variance in proof from the indictment, prejudicial misjoinder and inconsistent verdicts due to the admission of evidence concerning Porter's activities in Illinois and Newland's separate bank account in Missouri; and (4) the trial court made numerous prejudicial comments. Additional claims are made relating to improper rebuttal evidence, the jury charge, refusal to receive evidence as to deductions from Schaefer's advances and other minor points. We have examined the latter complaints and are fully satisfied they constitute no prejudicial error. We move directly to discussion of the basic claims of error.

1. SUFFICIENCY OF EVIDENCE

We find there exists substantial evidence to support the verdict of participation as to each of the defendants in a scheme to defraud investors.

Carl Newland

Carl Newland was the first president of Presidential and purportedly the main figure in the corporation's origination and perpetuation. Although Jefferson Mitchell (not indicted) was the secretary and treasurer, Newland and his wife maintained the company books. Newland executed the applications to sell securities publicly in Missouri and the escrow agreement with the Metropolitan National Bank in Kansas City, Missouri. He executed an affidavit as part of the state securities application that he had purchased $30,000 worth of stock. The evidence is undisputed that he gave no money for the stock. His signature was required on all bank accounts. He personally delivered $100,000 of Presidential funds to John Schaefer allegedly for influencing state officials to issue the state securities permit. Newland withdrew over $69,000 in advances. He personally made representations to purchasers of Presidential stock that the money received for the securities was being placed in escrow and that the company officers were receiving only small salaries. He was instrumental in representations that the company was actively selling insurance when in fact it was not licensed to do so.

Sidney Porter

Porter, one of the original incorporators of Presidential, stated in his affidavit that he had purchased $35,000 worth of stock in the company. In fact he put in no money. Instead he executed a $20,000 note to the company taking $4,000 in cash and the remainder in stock. The note was...

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