United States v. Shurtleff, 273.

• Decision Date: 04 August 1930
• Docket Number: No. 273.,273.
• Citation: 43 F.2d 944
• Parties: UNITED STATES v. SHURTLEFF et al.
• Court: U.S. Court of Appeals — Second Circuit

43 F.2d 944 (1930)

UNITED STATES v. SHURTLEFF et al.

No. 273.

Circuit Court of Appeals, Second Circuit.

August 4, 1930.

DuBois J. Gillette, of New York City (David V. Cahill, of New York City, of counsel), for appellants.

Charles H. Tuttle, U. S. Atty., of New York City (Lowell Wadmond, Asst. U. S. Atty., and Elbridge Gerry, III, both of New York City, of counsel), for the United States.

Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

This is an appeal from judgments of conviction for conspiring to use and for using the mails in a scheme to defraud. The appellant Shurtleff was sentenced to four years and appellants Herbert C. Locke and John T. Locke for three years to the Atlanta Penitentiary. The trial occupied six weeks. Shurtleff himself testified, and the experienced judge who presided at the trial stated at the time of sentence that in his opinion the verdict was amply justified and that it would have been a matter of great regret to him had it been otherwise than it was.

The Canario Copper Company, an Arizona corporation, held all the capital stock of the El Canario Copper Company S. A. and 75 per cent. of the Copper Mountain Mining Company, S. A., which were both Mexican corporations owning certain lands in Mexico supposed to contain veins of copper. The total capitalization of the Arizona corporation was 2,000,000 shares of the par value of $1 each, all of which were issued to the owners of the capital stock of El Canario Copper Company and the Copper Mountain Mining Company, or a consolidated company into which they were merged in exchange for their stock. Of the 2,000,000 shares, 1,500,000 were donated back to the Arizona Company for working capital. Of the remaining 500,000 shares, Shurtleff retained 175,001 shares. The Arizona company was succeeded in 1919 by a Delaware corporation with 2,000,000 shares of the par value of $10, instead of $1, each. The old company went out of existence, and the new Delaware company purchased its shares from its stockholders by issuing its own stock therefor. To carry out this recapitalization, the value of the old stock was written up to ten times its par or original value by the direction of Shurtleff.

Finally the stock of the Canario Company of Delaware was all got into the hands of Cameron Michel & Co., a corporation with which Shurtleff was connected, and of which he became president in July, 1925, on the death of Michel. This concern purported to act as fiscal agent of Canario Copper Company. At an early period it had 800,000 shares of the Canario stock, and later acquired the 1,200,000 shares remaining. According to its books, the price for these shares was $2,488,743.15. The books showed credits upon the amount due for this stock of $809,578.08 representing disbursements for the Canario Copper Company and fees for services to it. This left a balance due Canario from Cameron Michel & Co. on December 31, 1926, of $1,679,165.07. The books also showed sales by Cameron Michel & Co. of 1,971,084½ shares of Canario stock to customers at $5,585,381.74, purchases from customers to the amount of $323,384.95 and balances due from customers to the amount of $128,163, making a net aggregate received from customers of $5,133,833.80. The disposition of this sum was not accounted for, and was sought to be explained only in the most inadequate and general way.

Cameron Michel & Co. conducted campaigns for the sale of the Canario stock. One circular was sent out through the mails to from 17,500 to 18,000 persons, and at one time about 57,000 pieces of mail were posted in a single night. One market letter (Exhibit 11a) from Cameron Michel & Co., under date of December 11, 1920, said: "The year's work has resulted in the blocking out of 200,000 tons of commercial ore and 20,000,000 tons of partially developed ore which can be blocked out by the extension of the workings above the 250 foot level."

The market letter of January 26, 1921 (Exhibit 11b), said: "Last year about twenty million tons of sulphide copper ore were developed in the Lillie Segunda mine and it is planned to complete the developments of a total of at least one hundred million tons of copper sulphide ore of good commercial grade this year."

It also said: "Canario has no problem of any sort confronting it. It already has excellent railroad transportation facilities which should be substantially improved in the near future."

Shurtleff himself admitted that none of the ore referred to was fully blocked out and that the railroad facilities were prospective and not actual, for they required the construction of a great many miles of road before there was access to the mines.

In the market letter of October 20, 1924 (Exhibit 61a), which puffed the Lillie, Batamoti, and Canario (so-called) mines, the following statement was made under the heading of "Earnings": "These are estimated to be 50% on par or nearly 150% on stock costing $4. Later as the Canario mine itself is made productive, this earning should materially increase. In other words, with all three properties in full operation the rate of earnings just mentioned should be exceeded."

Shurtleff admitted that there never were any earnings.

The market letter of March 28, 1925 (Exhibit 85), said that the "Lillie mine has developed an extensive sulphide copper ore zone estimated to contain from 20 to 30 million tons of commercial ore and its primary ore zone is well along in process of development with most excellent results accruing. * * *"

On cross-examination, Shurtleff testified that no work had been done on the Lillie mine for six years.

In the market letter of October 24, 1925 (Exhibit 123), was an admitted gross misstatement issued to the public and only sought to be excused because of haste in getting the letter out. It read as follows: "The time has arrived when there is no doubt as to achieving early and maximum results in the Batamoti mine. With the sampling mill in operation and the blocking of $6,000,000 gross per month shareholders can look for a decided change in the market situation of Canario."

The market was manipulated and the price of the stock advanced on many occasions by matched orders or "wash" sales. All this was directed by Shurtleff and Herbert Locke.

In July, 1925, one of the most flagrant misstatements in the whole case was made. In a market letter by Cameron Michel & Co., dated July 18, 1925, advocating investment in stocks of copper companies and setting forth in successive headings the capitalization, range of prices of stock, and other data of such leading companies as Anaconda, American Smelting & Refining, Calumet & Heckla, Chile, Cerro de Pasco, International Nickel, Kennecott, Miami, Nevada, and Old Dominion, appeared a paragraph devoted to Canario Copper Company in which that company was placed side by side with these established corporations. After some adulation of its properties and prospects was the recital that "the company is in a financial position to successfully carry out all its plans and to have remaining a substantial amount of operating capital," and in a foot-note appeared this false statement: "Funds on hand July 15, 1925, for development and equipment of properties and working capital, $1,860,539, consisting of $1,200,500, cash and $660,539, notes receivable."

This letter went to the public, and both by reason of its form and its substance was a most misleading circular. The $1,200,500 was a bank credit represented by a check of a company in which Shurtleff was interested, known as Copper Exploration Company. This company was supposed to have purchased 400,000 shares of Canario stock from Cameron Michel & Co. at $3 per share, its check to have been given to pay for it and then to have been passed by Cameron Michel & Co. to the Canario Copper Company to reduce their indebtedness to Canario for the 1,200,000 shares of its treasury stock which Cameron Michel & Co. had bought but not paid for. But the sale of 400,000 shares of stock by Cameron Michel & Co. to Copper Exploration Company was a mere myth and never took place. The Broadway Central Bank, through which the various checks passed, did allow a temporary credit of $100,000...