United States v. Weinberger

• Decision Date: 21 April 1933
• Citation: 4 F. Supp. 892
• Parties: UNITED STATES v. WEINBERGER et al.
• Court: U.S. District Court — District of New Jersey

4 F. Supp. 892

UNITED STATES v. WEINBERGER et al.

District Court, D. New Jersey.

April 21, 1933.

George Z. Medalie, U. S. Atty., of New York City (Edmund L. Palmieri, of New York City, of counsel), for the United States.

Harry Weinberger, of New York City, pro se.

CLARK, District Judge.

This opinion and the appropriate order writes the last New Jersey chapter of a story which has not; in our judgment, been much of an advertisement for Jersey or any other sort of justice. The acts, whose repetition the courts are asked to deter by appropriate punishment, occurred in 1928. The intervening five years have been occupied by more or less constant efforts to apportion the responsibility therefor. How successful these endeavors have been will appear in the course of this opinion.

Our discussion may be and therefore is addressed to answering three questions: First, what did Weinberger, the petitioner-defendant, do to the innocent public (what happened in the world of finance)? Second, what did the state and nation do to him in return (what happened in the world of law)? Third, is this court equally impotent? To relieve the suspense let us reply in outline at once. Weinberger removed about $5,000,000 from the pockets of confiding investors and left them with only hope. The state and nation attempted a great deal and the nation has so far accomplished an indictment. This court is ordering his removal for trial on that indictment.

The petitioner herein, a member of the bar of this state and therefore by ancient ritual an officer of this court, was indicted on May 22 and June 5, 1931, by a grand jury sitting on the other side of the Hudson river. This indictment charges him with using the mails in a scheme to defraud in contravention of section 338, title 18, of the United States Code Annotated. The district attorney for the adjoining district (Southern of New York) desires, not unnaturally, the removal of our indicted officer that he may answer for his offenses, if any, before a jury of his peers. In pursuance of that purpose, he appeared before a commissioner of this court and requested the arrest and imprisonment (commitment) of the defendant Weinberger pending application to a district judge for a warrant of removal. This procedure is permitted by the terms of the governing statute (section 591, title 18, of the United States Code Annotated). As the actual removal is intrusted to the district judge and to him alone, we confess we can see little purpose in the prior application to the commissioner. The district judge is of course also empowered by the statute to commit, and the entire matter can, therefore, be adjudicated by him. Furthermore, as he has the duty to remove, the objecting defendant has the right to offer evidence before him. The double procedure has resulted in an additional year's delay in the case at bar.

The codefendant in the indictment is not an officer of any court, but is a banker and, therefore, we suppose, a member of our newly created untouchable (perhaps deservedly) class. He is also a resident of New York and seemed to prefer that state, even with an indictment, to this without one. At any rate, he surrendered to the United States marshal in the Southern District and pleaded not guilty.

Not much attention has so far been paid to the investment trust phase of the recent economic extravaganza. The use of the word "trust" seems a misnomer coined for the gullible. The so-called "trusts" are simply holding companies for various kinds of stocks whose selection is intrusted to the directors thereof — hardly the common interpretation of the word "trust," It may be some satisfaction to lose your money with the help of the "wise men" (page that ancient Greek, Samuel Insull). When we do start to search that part of the financial ruins, we suggest the investigation of the English investment trusts of the 1870's as a guide.

The current excuse for what has happened seems to be that the aforesaid "wise men" had "too much confidence in America" — an aphorism which it rather seems to this court would read more accurately if reversed. However that may be, the events now to be described happened long before that period of excessive optimism or excessive stupidity, depending on one's reading of the above. We mention this, because petitioner is now inclined to insist otherwise and to class himself with the other now discredited financial figures.

We shall have to concern ourselves in some detail with the particular acts of the defendants to which the government objects. As a background we might first give a general outline of the scheme which, it is charged, is one to defraud. Much of the background has been furnished by the petitioner's attempted justification. Certain facts, not essential to the charges but useful to a narrative understanding, are available in the records of the New Jersey Legislature and of the New Jersey courts.

The petitioner-defendant was, in addition to his other duties, president and a large stockholder of a trust company in the city of Passaic, N. J., dedicated like many other American institutions, in name at least, to Service (with a capital S). The examiners for the New Jersey department of banking and insurance had complained of indications that the loan policy of this institution favored the borrower rather than the depositor. The chill wind of stupidity or worse was already coating the surface of the subsequently frozen reservoirs of assets. President Weinberger accordingly suggested to a friend and fellow attorney that a merger of the Service Trust Company with some other, and presumably stronger, banking institution might provide warmth for the necessary thaw.

A principal bank in Passaic was and is, as might be expected from its name, the Hobart Trust Company. Petitioner and his friend Campbell, the codefendant and vice president at that time of a New York bank, obtained on August 12th an option on 2,000 shares of the stock of the Hobart at $650 a share. This stock was then sold to the Service Trust (petitioner's bank) at a profit of $200,000. This increment was tactfully distributed by the use of certificates of deposit payable at gradual intervals. (This transaction was the subject of indictment No. 489 of Passaic county.) The sale was accompanied by a guaranty running to the Service Trust Company that the stock would be repurchased at a profit to them of $100,000. The performance of this guaranty was quite simply accomplished by the repurchase of the stock from the Trust Company by Weinberger and Campbell at the advance agreed upon. One might be surprised at the willingness of the latter gentlemen to make an ostensibly unnecessary gift. The subsequent procedure makes it quite apparent that the generosity was entirely on the part of the alleged victims of the scheme to defraud.

On August 19, 1927, the New Jersey Bankers' Securities Company was incorporated. Its principal office was the aforementioned Service Trust Company building, and Weinberger was designated as its statutory agent. The first business of the infant corporation was to buy, on August 26th, from Weinberger and Campbell, the 2,000 shares of the Hobart Trust Company aforementioned and 1,100 shares of the Equitable Title & Mortgage Company, another Weinberger institution. This purchase was paid for by the issue to Weinberger of 250,000 at $10 per share. The directors allocated $1,799,000 of this amount to the purchase of the Hobart Trust Company stock. Thus Weinberger and Campbell were permitted a profit of $499,000 in addition to the $200,000 already recorded. Furthermore, they had no occasion for the use of money in the transaction because the company obligingly paid the original owners of the Hobart stock. So, in ten months, the stock of that bank increased in value in the amount of $400 a share approximately. The methods whereby our banks have earned money are becoming daily less mysterious. Nevertheless, such an appreciation would seem to require the immediate closing of all the other banks in the state and the simultaneous repeal of the laws against usury (that earliest of all legal checks on the natural law of supply and demand).

On September 15, 1927, the capital stock was increased to 2,000,000 shares of no par value. Of this amount it was agreed 150,000 might be purchased at $10 and 500,000 at $12.50 a share by Weinberger. This stock was not disposed of by any underwriting device but directly to the public. So no opportunity arose for the use of the "on certain information we believe to be reliable." We are not concerned with the campaign. We gather it to have been of the type now tiresomely familiar. It seems to have been assumed, and correctly as it turned out, that the residents of New York City would be those most interested in New Jersey banks. Distance lent enchantment to a view of bank stocks. The company forthwith entered into a contract with a selling organization, a corporation known as the Allied Bankshares, headed by one Cooke, who has now disappeared. After a quarrel with the latter, their own selling organization known as the New Jersey Continental Bankshares Corporation was set up with offices at 350 Madison avenue, New York City. Through the efforts of these organizations, the public ultimately paid approximately $7,000,000 into the treasury of the New Jersey Bankers' Securities Company.

With the funds thus obtained, the New Jersey Bankers' Securities Company then invaded the neighboring county of Essex. We use the military term because Weinberger voices the belief that some of the bankers in the commercial center of New Jersey objected to him and his methods. An impression which could be described in biblical phraseology, "and well they might." At any rate, the control of three small Newark trust companies, the Washington, the Weequahic, and the Liberty, was purchased at a price out of all conceivable relation to the book value of their stocks. The owners of the large...