United States v. Rollnick

• Decision Date: 16 August 1937
• Docket Number: No. 400.,400.
• Citation: 91 F.2d 911
• Parties: UNITED STATES v. ROLLNICK et al.
• Court: U.S. Court of Appeals — Second Circuit

91 F.2d 911 (1937)

UNITED STATES v. ROLLNICK et al.

No. 400.

Circuit Court of Appeals, Second Circuit.

August 16, 1937.

David G. Haskins, of New York City (Samuel H. Kaufman and Eugene M. Parter, both of New York City, of counsel), for appellant Rollnick.

Emanuel Harris, of New York City, for appellant Werblin.

Paul J. McCauley, of New York City (Harold L. Fisher, of New York City, of counsel), for appellant Marshall Ward.

Robert P. Levis, of New York City, for appellant Herbert Smiler.

Jesse B. Messitte, of New York City, for appellant Samuel Halpert.

Godfrey & Marx, of New York City (Walter E. Godfrey, of New York City, of counsel), for appellant Gold.

Irving Spieler, of New York City (Ben Herzberg and Edward J. Ross, both of New York City, of counsel), for appellant Theodore Tetelman (Baldwin).

William J. Millard and Samuel L. Miller, both of New York City, for appellant Steinberg.

Raphael L. Elias, of New York City, for appellant Manchel.

Lamar Hardy, U. S. Atty., of New York City (Leo C. Fennelly and Richard J. Burke, Asst. U. S. Attys., and Frank H. Gordon, Sp. Asst. to U. S. Atty., all of New York City, of counsel), for the United States.

Before MANTON, SWAN, and CHASE, Circuit Judges.

CHASE, Circuit Judge.

The indictment contained nineteen substantive counts, in each of which was alleged a separate use of the United States mails in furtherance of a scheme to defraud and an additional count 20 in which a conspiracy to defraud by using the mails was alleged. On motion at the close of the evidence of the prosecution, count 5 was dismissed as to all the defendants and counts 4, 10 and 12 as to appellants Baldwin and Steinberg. Before the trial began, a severance was granted as to defendants Straus, Hennigan, and Dinter. The first two, consequently, were not tried and Dinter, after pleading guilty, testified at the call of the government. All of the defendants tried, except Lazar and Schwartz as to whom the jury disagreed, were convicted and sentenced on all the counts left in the case as to them. Levin, however, received a suspended sentence and has not appealed. Berman was resentenced after the first sentence was imposed upon him. He attempted to appeal each time, and both his appeals were dismissed before this cause came on for argument.

The scheme to defraud, in which the use of the mails was clearly shown, developed out of opportunities which were seized upon by the conspirators to sell watered stock which they succeeded in getting listed and keeping listed for a time on the New York Produce Exchange.

Rollnick was a promoter. In February, 1932, he caused a Delaware corporation, called the National Investment Transcript, Inc., to be organized for the publication of a financial newspaper. It started publication at 23 Broadway in Camden, N. J., on April 14, 1932, with appellant Congdon, an elderly man of previous experience as a financial writer, as editor, and continued publication as a weekly until about the middle of September, 1934. Until Rollnick became interested in the scheme to sell the stock herein involved, it seems that National Investment Transcript, Inc., devoted its attention to the building up of a circulation of about 15,000 subscribers at $10 per year and to attempting to gain their good will and that of the public. Rollnick was accustomed to read the proofs of the paper before publication and to keep in touch with what Congdon did in its management. Appellant Smiler was the treasurer, acting under the alias of "Samuel Harris," until appellant Manchel succeeded him in April, 1933, in that office. Thereafter Smiler was continued on as office manager and known as "Mr. Herbert." Other persons under aliases were employed, some perhaps using such names for reasons of their own, but some at least doing so to prevent their previous connection with Rollnick being an indication that he had to do with National Investment Transcript, Inc. After the paper had been published some months, it began a build-up of interest in low-priced stocks, using questions prepared by Rollnick which purported to come from subscribers and were printed and answered by the paper in its columns. This continued into March, 1933, and included warnings against the textile industry as a field for investment until a little later when the scheme with which this prosecution is concerned was ripe for treatment and the paper became a full-fledged tipster sheet in respect to it and more as will be seen presently.

Defendant Levin had been for many years engaged in the textile business. In 1929 he became a pioneer in selling rayon goods on commission under the trade name of S. Levin & Co. His business requiring additional sources of supply, in 1930 he decided to engage in the manufacture of rayon and to that end organized, with the aid of Norfolk citizens, a corporation known as Norfolk Weavers, Inc., which took over a closed silk mill in Norfolk, Va., and began operations. Levin subscribed to the class B preferred stock to the amount of $20,000 and invested additional money in machinery and equipment. This venture was apparently soundly financed and profitably operated. Levin, needing still more manufactured rayon to meet his sales requirements, organized College Weavers, Inc., which took over, in March, 1932, another closed silk mill; this time in Northampton, Mass. He invested $55,000 and acquired all of its capital stock. Finding that he required more prepared rayon yarn than could readily be obtained, Levin soon organized another corporation called College Throwsters, Inc., all of whose capital stock he took over. That corporation leased a mill in Haydenville, Mass., whose capacity was enlarged and it began spinning rayon yarn to its production limit. The business Levin was building up was then further expanded by the addition of two corporations in Michigan known as Beldray Industries and Beldray Throwsters into which he put more of his money. By this time, however, Levin had about reached the end of his ability to increase his investment and, though his business was apparently such as to justify the expansion, that required more capital than he could readily supply. He then consulted one Caiden, a wholesaler in silks, and appellant Werblin. They brought him into touch with appellant Rollnick and one Vance who had been the president of a bank in Philadelphia and was considering entering the investment banking business himself.

At the instigation of Rollnick, the First Continental Corporation was organized to acquire the title to the real estate leased or owned by Levin, or the corporations he controlled, as well as some other property; the scheme being to transfer everything to a holding company in exchange for its stock and to sell that through the market operations which followed. Vance became the president of First Continental Corporation which was dominated by Rollnick.

According to plan, Rayon Industries Corporation, the holding company, was organized on May 20, 1933, having capital stock of 1,500,000 shares of the par value of $1 divided into two classes. Class A, consisting of 1,000,000 shares, was entitled to prior noncumulative dividends of 10 per cent. of par, and class B, consisting of 500,000 shares, was entitled to share equally with class A in any surplus available for dividends.

The details of the manipulation of properties and stock need not be stated. It is enough for present purposes to know that the contemplated transfers were made so that even when the really substantial assets in the Levin business were put into the pot the stock of the holding company was of a par value so much in excess of the value behind it that it represented a great deal of water. Only unwarranted optimism could arrive at any other conclusion and an appraisal made by Ford, Bacon & Davis, an unquestionably reputable concern in that business, lends no real support to a contrary view, though the figures set up were used for such a purpose. Indeed, although Ford, Bacon & Davis had been employed to make both an appraisal and a report on the business, the request for a business report was withdrawn after preliminary investigation indicated that it would show expected earnings of Rayon Industries Corporation much less than would meet the needs of Rollnick and his confederates in the scheme to sell the stock.

The stock of the holding company was acquired in accordance with the promotional contract, as modified, by Levin and First Continental. For the properties he transferred to the corporation Levin received 500,000 shares of class A stock which he donated to the treasury of the company, 500,000 shares of class B stock, and 75,000 shares of class A in lieu of $150,000 in cash which was to be paid him under the original terms. As a further consideration, now of little moment, he was to be employed for three years as general manager of Rayon Industries Corporation at an annual salary of $24,000. First Continental Corporation agreed to turn over to the holding company the Levin properties and stock it had and to purchase from it the 425,000 shares of treasury stock and the 75,000 shares from Levin at $2 per share, in addition to which it was to receive the remaining 500,000 shares of class A stock, putting it in position to dispose of the entire issue of 1,000,000 shares through the contemplated selling operations.

No money was actually paid by First Continental Corporation for the stock until after receipt of the proceeds of the public offering which was brought about through the action of Marshall Ward & Co., a New York brokerage firm of which appellant Marshall Ward was the man in control; Patton & Co., Inc., a Philadelphia company organized and financed by Rollnick to act as the broker for his National Investment Transcript, Inc., and of appellant Congdon, who touted the stock through the columns of the National Investment Transcript and in two brochures which he either wrote or helped write.

Marshall Ward, as ...