United States v. Smallwood

Decision Date14 June 1971
Docket Number20001,20010.,No. 20000,20000
Citation443 F.2d 535
PartiesUNITED STATES of America, Appellee, v. Donald P. SMALLWOOD, Appellant. UNITED STATES of America, Appellee, v. Roy E. LAY, Appellant. UNITED STATES of America, Appellee, v. Harold F. CONELL, Appellant.
CourtU.S. Court of Appeals — Eighth Circuit

Stephen H. Gilmore, Daniel V. O'Brien, St. Louis, Mo., for appellants, Donald P. Smallwood and Roy E. Lay.

Hiram W. Watkins, St. Louis, Mo., for appellant, Watkins.

Harold E. Zahner, Asst. U. S. Atty., St. Louis, Mo., Daniel Bartlett, Jr., U. S. Atty., for appellee.

Before MATTHES, Chief Judge, GIBSON, Circuit Judge, and HENLEY, District Judge.*

MATTHES, Chief Judge.

These appeals stem from judgments of conviction entered upon jury verdicts in the United States District Court for the Eastern District of Missouri. Appellants Smallwood and Lay were found guilty on all 15 counts submitted to the jury — seven counts of securities fraud in violation of 15 U.S.C. § 77q(a), seven counts of mail fraud in violation of 18 U.S.C. § 1341, and one count of mailing an unregistered security in violation of 15 U.S.C. § 77e(a) (2). Appellant Conell was found guilty only of the count charging a violation of 15 U.S.C. § 77e(a) (2).1

The illicit activities which formed the basis for these convictions took place from 1965 to 1969. In November of 1965, Diversified Brokers Company was incorporated under the laws of the State of Missouri by appellant Smallwood, his wife, and appellant Lay, all of whom were also shown by the corporate records to be the shareholders and directors of the company. Smallwood was the President of Diversified, Lay the Vice President and Secretary. Minutes of an annual meeting of the Board of Directors in November of 1967 show that Conell was at that time elected Treasurer of the corporation.

The basis of the fraudulent scheme engaged in consisted of selling promissory notes to investors for cash received. The sales were induced by representing to prospective investors that they would receive exorbitant rates of return on these investments ranging up to 100% interest per annum. In addition to promising to pay these unusually high rates of interest, appellants also induced persons to loan money to Diversified by misleading and false representations including statements that each investment was assigned to a specific "project" identified by number, that the business projects engaged in consisted of buying and reselling government surplus and distressed merchandise at huge profits, when, in fact, the amount of Diversified's business in distressed merchandise was infinitesimal compared to the total sum received from investors. Instead of using the funds so obtained to purchase surplus merchandise for resale, large sums were wrongfully and unlawfully diverted to purchase personal property consisting of jewelry, objects of art, luxury automobiles and expensive yachts which were taken possession of in large part by appellants Smallwood and Lay.2 The result was inevitable — the company was operated at a substantial loss each year. The record shows that literally thousands of persons from a number of states loaned millions of dollars to Diversified under the impression that the company operated a highly profitable and legitimate business. As might be expected, many of the investors were those persons most likely to succumb to appellants' misrepresentations — clergy and active members of religious organizations, elderly persons investing life savings in the venture, laborers, and generally those elements of society unsophisticated in the ways and means of financial enterprise. While it is difficult to determine the amount that will eventually be restored to the investors, for the reason that the assets recovered by the receiver are now being liquidated in bankruptcy proceedings, it is apparent that a substantial over-all loss will be sustained.

Appellants Smallwood and Lay have consolidated their assignments of error on appeal. They do not contest the sufficiency of the evidence to support the jury verdict except as to Count Twenty-one which charged the mailing of an unregistered security. In addition, they assert that the trial court erred: (1) in overruling their second supplemental motion to suppress evidence; (2) in admitting into evidence certain government exhibits; (3) in overruling their motion for a bill of particulars; (4) in imposing the punishments assessed. As seen below, appellant Conell limits his assignment of error on appeal to issues which relate to the sufficiency of the evidence to support his conviction on the charge of mailing an unregistered security. Each of these contentions will be considered seriatim.


In their second supplemental motion, appellants Smallwood and Lay sought to suppress from evidence Grand Jury Exhibits Nos. 10 and 11 consisting of 20 files of documents, including invoices and sales contracts evidencing purchases of automobiles, boats, real estate, insurance policies, diamonds and contracts for the painting of a home and installation of a burglar alarm system.

On February 17, 1969, the Securities and Exchange Commission filed a complaint in the United States District Court, Eastern District, Missouri (Civil Action No. 69C57(2)) against Diversified Brokers Company and appellants charging violations of the Securities Act of 1933. On February 27, 1969, Diversified and all three appellants consented to a final judgment enjoining and restraining Diversified from violating the Securities Act and to the appointment of a receiver to take charge of all the assets and property of Diversified. After his appointment, the receiver took possession of the corporate offices and their contents and also obtained numerous files and records from the offices of Satz and Ponfil, attorneys for Diversified. On March 19, 1969, the receiver was served with a subpoena to appear before the Grand Jury and to bring all the records of Diversified. Pursuant to that subpoena, the records which appellants sought to suppress in their second supplemental motion were turned over to agents of the government.

In the district court, appellants alleged that Grand Jury Exhibits Nos. 10 and 11 consisted of personal, not corporate, records, and that they therefore had standing to challenge the admissibility of these records into evidence on the ground that they were obtained as the result of an unlawful search and seizure. Alternatively, appellants maintained that even if the records were corporate, they still had standing to object to the search and seizure under the doctrine of Mancusi v. DeForte, 392 U.S. 364, 88 S.Ct. 2120, 20 L.Ed.2d 1154 (1968).

Assuming they had such standing, appellants contended that the search and seizure was unreasonable because made without a warrant and without their consent. This argument was premised upon the theory that attorneys Satz and Ponfil who voluntarily turned over many of the files to the receiver, could not validly consent to or waive appellants' right to contest the search and seizure.

After an evidentiary hearing, the district court denied appellants' motion, finding that the records sought to be suppressed were corporate records3 and holding that appellants had no standing to attack their search and seizure and that the records were properly obtained. In asserting that the district court erred, appellants rely upon the same arguments presented in support of their motion in the trial court.

We find no merit in appellants' contention that these records were personal. Appellants offered absolutely no evidence to support their allegation that the papers in question were their personal files. On the contrary, the government presented the testimony of an accountant for the Securities and Exchange Commission who tied in all of the documents in question with the corporate records which clearly showed that the files referred to were property of Diversified Brokers Company.

We next consider whether appellants nevertheless had standing to object to the search and seizure of these corporate records. Appellants rely heavily upon the Supreme Court's holding in Mancusi v. DeForte, supra, which involved the seizure of records from an office shared by the defendant and other union officials. Even though the papers seized were union records and not personal records, the Supreme Court found that the defendant had standing to object to the search of his office and the seizure of these records. However, the facts upon which the Supreme Court premised its holding in Mancusi differed substantially from those in the case before us. First, in Mancusi, the union official was legitimately on the premises when state officers conducted the search and seizure. See Jones v. United States, 362 U.S. 257, 80 S.Ct. 725, 4 L.Ed.2d 697 (1960). Moreover, it was stipulated by the parties that the official had custody of the papers at the moment of their seizure. Mancusi v. DeForte, supra at 368-369, 88 S.Ct. 2120.

In the case before us, the records were obtained by government agents pursuant to a Grand Jury subpoena directed toward the court-appointed receiver for Diversified. At the moment the files in question were turned over, the receiver had actual, lawful custody of the records, and appellants were not, nor did they have a right to be, present either when the records were turned over in compliance with the subpoena or when the receiver initially took possession of the files at the corporate offices of Diversified and at the offices of Satz and Ponfil.

Secondly, the records seized in the Mancusi case were union records, and were taken as the result of a physical search. It has long been the established rule that corporate records may be subpoenaed and that the privilege of the Fourth Amendment is not available to a corporate officer to prevent the use of these records against him. Wilson v. United States, 221 U.S. 361, 31 S.Ct. 538, 55 L.Ed. 771 (1911); ...

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    ...numbers 1, 3, 4d, and 30b, the government objects on the ground that the defendants seek definitions, citing United States v. Smallwood, 443 F.2d 535, 540-41 (8th Cir.), cert. denied, 404 U.S. 853, 92 S.Ct. 95, 30 L.Ed.2d 93 (1971). However, simply because the defendants seek definitions is......
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    ...Ahmad, 53 F.R.D. 194 (D.C.Pa.1971). Motions for particulars are directed to the sound discretion of the court. See United States v. Smallwood, 443 F.2d 535 (8th Cir. 1971), cert. denied, 404 U.S. 853, 92 S.Ct. 95, 30 L.Ed.2d Courts in the past have provided particulars where necessary to pe......
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