United States v. Sanders

• Decision Date: 26 January 1967
• Docket Number: Crim. A. No. 17697.
• Citation: 266 F. Supp. 615
• Parties: UNITED STATES of America v. John B. SANDERS, Jr., Charles A. Landry, Jr., Thomas W. Moss, Jr., Irwin L. Gitz, Ellis S. Joubert, Jr., Stephen J. Dinneen, and Joseph Ryan Missett.
• Court: U.S. District Court — Western District of Louisiana

266 F. Supp. 615

UNITED STATES of America v. John B. SANDERS, Jr., Charles A. Landry, Jr., Thomas W. Moss, Jr., Irwin L. Gitz, Ellis S. Joubert, Jr., Stephen J. Dinneen, and Joseph Ryan Missett.

Crim. A. No. 17697.

United States District Court W. D. Louisiana, Lake Charles Division.

January 26, 1967.

Edward L. Shaheen, U. S. Atty., and E. V. Boagni, Asst. U. S. Atty., Shreveport, La., for plaintiff.

Philip J. Shaheen, Jr., Lake Charles, La., for Landry.

R. C. Baldwin, New Orleans, La., for Gitz and Joubert.

William M. Schultz, Houston, Tex., for Moss.

Harold P. Barkas, Miami, Fla., for Dinneen and Missett.

P. R. Covington, and C. A. King, II, Lake Charles, La., for Sanders.

PUTNAM, District Judge.

These seven defendants are charged in a single indictment with fraud in the sale of securities in violation of Section 17(a) of the Securities Act of 1933, 15 U.S.C.A. § 77q(a), with using the mails to defraud under 18 U.S.C. § 1341, 18 U.S.C.A. § 1341, and with conspiracy to violate these laws. Counts 1 through 12 deal with the securities violations, 13 through 24 with mail fraud, and count 25 with conspiracy.

Motions have been filed to dismiss on grounds of duplicity. It is the position of defendants that the indictment on its face shows two separate and distinct schemes to defraud or fraudulent courses of conduct charged in counts 1 through 24, and two separate and distinct conspiracies in count 25.

Additionally, defendants contend that fraudulent conduct in the offer or sale of securities, as defined in subsections (1), (2) and (3) of 15 U.S.C.A. § 77q (a), is the crux of the offense, or corpus delicti, and the use of instrumentalities of commerce merely incidental thereto for jurisdictional purposes. Thus, even conceding that only one device, scheme, plan or course of conduct is alleged and, further, that it embodies the characteristics of the fraudulent conduct prescribed by and meets the requirement of each of these three subsections, there is a single continuing offense committed between November 22, 1957 and March 15, 1965, the dates charged in this indictment. Counts 1 to 12 should, therefore, be dismissed, or, alternatively, consolidated into one count for purposes of this prosecution, for multiplicity.

MULTIPLICITY

(Counts 1-12)

This motion presents the most serious problem. Defendants place their principal reliance on the holdings in United States v. Cashin, 281 F.2d 669 (2 Cir. 1960), United States v. Hughes, 195 F. Supp. 795 (S.D.N.Y.1961) and United States v. Greenberg, 30 F.R.D. 164 (S.D.N.Y.1962).

In Cashin, on a motion to transfer, the Court held that even though all mailings charged in that indictment occurred in the Southern District of New York and had their impact in the Western District of that state, since the fraudulent scheme is the gravamen of the offense under Section 17(a), 15 U.S.C.A. § 77q(a),¹ venue was proper in the Southern District of Alabama where the fraudulent scheme was hatched, where the defendants resided and where all steps taken in the execution of the scheme, other than the mailings charged in the indictment, took place. The Court distinguished the Securities Act from the mail fraud statute, where the mailing is considered to be the gravamen of the crime and venue proper only where mailed, received or in a district through which the mailed matter passes.² This holding in respect to venue was primarily a construction of Rule 21(b) Federal Rules of Criminal Procedure and the general venue statute for continuing offenses, 18 U.S.C.A. § 3237(a), with which we are not here concerned.

In Hughes, under the indictment there before the Court, it was held that under Section 17(a) (1) the fraudulent course of conduct was the crime, not individual mailings in furtherance thereof, and, there being but a single "device, scheme or artifice" to defraud alleged, the Court ordered consolidation of all counts for trial and dismissed all but the first for multiplicity, applying the policy of lenity announced in United States v. Universal C. I. T. Credit Corp., 344 U.S. 218, 73 S.Ct. 227, 97 L.Ed. 260 (1952). In Greenberg, another Judge of that district followed Hughes. But, in United States v. Binstock, 37 F.R.D. 13 (S.D. N.Y.1965), a third said:

"Whether these decisions were right or wrong as to the particular indictments there involved is not presently of importance. It does seem to me that if there are separate offers or sales of securities to different persons, there are separate offenses under 15 U.S.C.A. § 17q(a) even though there may be a single scheme." (37 F.R.D. at p. 16. Emphasis supplied.)

In our opinion, the decisions of United States v. Universal C. I. T. Corp., supra, and the later cases of Bell v. United States, 349 U.S. 81, 75 S.Ct. 620, 99 L.Ed. 905 (1955); and Ladner v. United States, 358 U.S. 169, 79 S.Ct. 209, 3 L.Ed.2d 199 (1958) do not require the result reached in Hughes and Greenberg.

In this circuit it has long been established that fraud in the sale of securities is the core of the offense proscribed by the Securities Act of 1933, and that use of the mails in furtherance of this evil is incidental and a requirement for jurisdictional purposes. Seeman v. United States, 90 F.2d 88 (5 Cir. 1937). Pace v. United States, 94 F.2d 591 (5 Cir. 1938); Freeman v. United States, 96 F.2d 13 (5 Cir. 1938); Kopald-Quinn & Co. et al. v. United States, 101 F.2d 628 (5 Cir. 1939); Getchell v. United States, 282 F.2d 681 (5 Cir. 1960); Greenhill v. U. S., 298 F.2d 405 (5 Cir. 1962) and McDaniel v. United States, 343 F.2d 785 (5 Cir. 1965).

In the McDaniel case, supra, in disposing of the argument that defendant had not used the mails until after the sales had been consummated, the court said:

"The evil at which the Securities Act is directed is fraud in the sale of securities. That being the congressional purpose and intendment to be covered, the impact of fraud in relation to sales should be considered in making practical application of the Act to a given set of facts. In other words, a scheme to defraud in relation to a sale of securities, and the use of the mails in consummation thereof, is the gist of the crime. The use of the mails need not be central to the scheme to defraud. United States v. Sampson, 371 U.S. 75, 83 S.Ct. 173, 9 L.Ed. 2d 136 (1962); Pereira v. United States, 347 U.S. 1, 74 S.Ct. 358, 98 L. Ed. 435 (1954); United States v. Sheridan, 329 U.S. 379, 67 S.Ct. 332, 91 L.Ed. 359 (1946), reh. den. 329 U.S. 834, 67 S.Ct. 628, 91 L.Ed. 706; United States v. Cashin, 281 F.2d 669 (2 Cir. 1960); United States v. Monjar, 47 F.Supp. 421 (D.C.Del.1942), aff'd 147 F.2d 916 (3 Cir. 1944), cert. den. 325 U.S. 859, 65 S.Ct. 1192, 89 L.Ed. 1979 (1945)." (Emphasis supplied.)

Stated still another way, in footnote 2 of Greenhill v. United States, supra, 298 F.2d at page 406, the Court said: "Title 15 U.S.C.A. § 77q(a) (1) makes it unlawful, and subject to the penalties set out in Title 15 U.S.C.A. § 77x, in the sale of securities by the use of the mails to employ any device, scheme or artifice to defraud."

Professor Louis Loss, Securities Regulation, 1961, p. 1521-1522, following an exhaustive study of the authorities, concludes:

"In fact, there is some authority that under § 17(a) of the Securities Act (and presumably the other SEC fraud provisions) the use of the mails (or presumably of interstate facilities) is the `gist' of the offense — the corpus delicti — as it is under the mail fraud statute. Whether it is the use of the mails or the fraud which is the gist of the offense assumes some importance in the drafting of indictments. Thus, it has long been settled under the mail fraud statute that each mailing in furtherance of a scheme to defraud constitutes a separate offense. Hence each count is limited to one `count mailing' so that the indictment will not be void for duplicity. This practice has been followed as a matter of course under the SEC fraud provisions. At the same time, the Government has always taken the position that the gist of the offense there is the fraud rather than the jurisdictional means. Its purpose was to make sure that incidental mailings not essential to the execution of the scheme would suffice. But, since that is now quite clear even under the mail fraud statute (as we shall see in a moment), there is no longer much point to the search for the corpus delicti under the SEC fraud provisions.

In short, except for the fact that use of the designated interstate facilities is an alternative to use of the mails in the SEC fraud provisions, there is nothing in the language of the mail fraud statute or the SEC provisions `which would justify the requirements that the fraud or device must be more intimately related to the use of the mails or instruments of interstate commerce under one statute than under the other.' Consequently, the several statutes may be discussed interchangeably.

The Supreme Court early settled the proposition under the mail fraud statute that, if the use of the mails is in furtherance of the scheme to defraud, it need not be essential, or even effective, in the execution of the scheme." (Emphasis supplied.)

Whether fraud in the sale of securities by use of the mails or other facilities of interstate commerce, or such use itself, constitutes the gravamen of the offense, as in mail fraud, would not affect the rule that each fraudulent offer or sale accompanied by mailing is a separate crime.³ In either case, both elements are essential to conviction, and the use of the mails or other facilities of commerce is sufficient if it is shown to be in furtherance of the scheme, although not central thereto. A wholly collateral mailing or use, not in furtherance of the fraud, will not suffice. Getchell v. United States, 282 F.2d 681, p. 684 (5 Cir. 1960).

It is difficult to see how there is any remaining room for doubt as to the meaning of Section 17(a) of the Act to bring into play the doctrine of the C.I.T., Bell, and...