Vause v. United States

• Citation: 53 F.2d 346
• Decision Date: 13 August 1931
• Docket Number: No. 411.,411.
• Parties: VAUSE et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — Second Circuit

53 F.2d 346 (1931)

VAUSE et al. v. UNITED STATES.

No. 411.

Circuit Court of Appeals, Second Circuit.

August 13, 1931.

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Blau, Perlman & Polakoff, of New York City (Robert H. Elder, Otho S. Bowling, and Louis Masheb, all of New York City, of counsel), for appellant Vause.

Lind, Shlivek, Marks & Brin, of New York City (George H. Combs, Jr., and Simon Rosenzweig, both of New York City, of counsel), for appellant Schuchman.

George Z. Medalie, U. S. Atty., of New York City (Elbridge Gerry, Livingston Hall, Edmund L. Palmieri, and Arthur H. Schwartz, Asst. U. S. Attys., all of New York City, of counsel), for the United States.

Before MANTON, SWAN, and CHASE, Circuit Judges.

CHASE, Circuit Judge.

The two defendants who have appealed were indicted with eight others. The indictment contained thirteen counts. Each of the first twelve counts charged the fraudulent use of the mails in the same language, but alleged mailing to a different person. The thirteenth count charged conspiracy. Defendant Vause was found guilty on each count. Defendant Schuchman was convicted on the first six and the thirteenth count. Both appealed. Of the other defendants, some pleaded guilty, some were acquitted, and one was convicted but did not appeal.

There is no doubt of the use of the mails, and that feature of the case is not now an issue. The questions involved relate to numerous rulings on the evidence; to refusal to instruct the jury as requested; to the summation of the district attorney who tried the case, and his conduct during the trial; to refusal to grant defendant Vause a continuance and to grant a motion for a mistrial on the ground of the disqualification of a juror.

The scheme to defraud, alleged in the indictment and proved at the trial, consisted in the organization and operation of an investment corporation which solicited and accepted deposits of money in the guise of selling its so-called certificates of indebtedness and its stock. The misrepresentations were in statements that the company was solvent when it was known it was not; that its funds were being used to finance sound business ventures only after they had been thoroughly investigated, when in fact the defendants knew the money was being risked or squandered in highly speculative ventures, to pay the salaries of the men in control, to pay unearned dividends on the stock, and unearned interest on the certificates of indebtedness; that the corporation was a bank operated in accordance with the banking laws of the state of New York and the supervision of its banking department; that men in control were experienced, competent, and capable — all of which was false as the defendants well knew.

The scheme was carried out as follows: The defendants Schuchman and Vause had had business relations with each other and with some of the other defendants. Schuchman was a trader in securities. Vause was a county judge. One of the other defendants was a private banker on the lower East Side; another was his brother; another the brother of Vause; and the others were useful friends. One of these friends controlled the charter of the Pharmaceutical Finance Corporation which had been organized under the laws of New York in 1925 and was not subject to supervision by the banking department. He contributed this charter. The name of the corporation was changed to Columbia Finance Corporation. Almost enough money was raised and made available to the Columbia Finance Corporation to obtain a place of business at 296 Grand street, New York, and to pay for equipping it so that it had an appearance similar to a bank. This office was opened December 17, 1927. The plan was to sell 7 per cent. stock of the Columbia Corporation and to sell its certificates of indebtedness which bore interest at the rate of 6 per cent. These certificates were printed to look like bonds, and were offered for cash and on an installment plan. When purchased on installments, a book in which payments were entered was given to each purchaser. These books looked like those issued to depositors by banks. They were the product of the brain of Vause. To accommodate purchasers who held such books showing payments made toward the purchase of certificates and who desired to withdraw all or part of their money without causing the Columbia Finance Corporation outwardly, at least, to adopt a practice which would subject it to supervision by the New York banking department, a corporation called Columbia Factors, Inc., was organized with officers from the Columbia Finance Corporation and its place of business in the Columbia establishment. When a book holder wanted money on his book, he would present it at the Columbia office; Columbia Factors, Inc., using Columbia Finance funds, would take up the book, give the holder the money desired, and, if a balance still remained, Columbia Finance Corporation would issue a new book for that amount in the name of the original holder, and that would be delivered to him. Soon large amounts of money came in from numerous people. This was used to maintain the office, pay salaries, and make loans to the insiders, pay interest on the stock and on the certificates, and for investment in highly speculative business which did not turn out well. Columbia Finance Corporation was started without enough money to be solvent when it opened its doors for business and never was solvent and these defendants knew it. It seemed to prosper, however, because it could, and did, continue to take in money from the public for its stock and certificates which were falsely represented in circulars and other matter sent through the mails to be desirable and safe investments.

At the opening of the Grand street office Schuchman introduced Vause as one of those interested in the business and Vause made a speech. Another office was opened in the Bronx, and Vause contributed another speech in which he said that, if he had another $100,000 to invest, he would safely invest it in the corporation. He had not then, nor did he ever, invest a first $100,000, or, in fact, anything in the business. In March, 1928, another office was opened on Seventh avenue in Manhattan and another speech was contributed by Vause.

The Columbia Finance Corporation continued for some time to pay its expenses, its interest charges, and bear its losses out of money received from the sale of its stock and certificates. Vause was not an officer nor did he appear to be interested except as an investor. He was always behind the scenes, however, giving advice, knowing the facts, urging the visible actors on, drawing his salary in the name of his brother, and encouraging the others with the thought that the failure of a business so conducted would amount to nothing but an ordinary commercial bankruptcy from which all would emerge with no other legal entanglement.

When the situation became desperate, a financial adventurer named Montgomery was given the chance to apply his methods. He was well known to Vause, who had been his attorney and interested in some of his ventures. The law firm in which Vause had formerly been a partner had unsuccessfully defended Montgomery in a criminal fraud action and he had for a time been a fugitive from justice. Vause, knowing all this, recommended Montgomery to his associates in the Columbia Finance Corporation as a good man to put in charge. Montgomery, of course, found the business hopelessly insolvent. He owned 80 per cent. of the stock in a corporation called the Western Pennsylvania Syndicate, which owned what had been, and could be, represented to be oil and coal bearing land in Pennsylvania. He transferred this stock to the Columbia for $2,000 in cash, and $13,000 of its certificates. This acquisition was then entered on the books of the Columbia as an asset valued at $455,000 without the use of anything but ink to make it that, and in this way the Columbia was made to appear solvent on the books. Schuchman, like Vause, drew a salary from Columbia and helped to do what was being done. He also drew his salary in the name of another. Columbia Finance Corporation did business for exactly two years from the date of the opening of its Grand street office. It was then closed by officials of the state of New York. It then had liabilities of $304,308.41 on its outstanding certificates of indebtedness, had sold stock to the amount of $90,047.50, and had practically no assets.

The history of this financial misadventure has been sketched only in the barest outline, but that will do for present purposes, with such amplification in spots as will be given to show the setting in the general scheme of the particular points raised in this appeal.

Of the men who were indicted with these defendants, Solomon Cruso, Abraham Rayman, and Joseph P. Barmak pleaded guilty and testified at the trial for the government. Cruso had stepped back to let Montgomery work out his schemes for relief when hope of financial salvation for the Columbia was placed on the efforts and methods of Montgomery. The unsavory reputation of the latter and the thorough knowledge Vause had of it when he urged placing the corporation's affairs in Montgomery's hands did, no doubt, tend to tar Vause and Schuchman somewhat with the same brush in the eyes of the jury. They both objected to evidence showing the kind of a man Montgomery was and Vause now urges especially what is termed error tainting the reception of such evidence. For instance, Rayman testified that he went to see Vause late in September or in October, 1929. He told Vause they had about $60,000 the week before and about 50,000 people taking out money, with no money coming in. Vause said to him: "Don't worry, money will still come in. Don't fear anything, nothing will happen, go back." A few days later, when there was $40,000 left, he went to Vause again and reported the situation. Vause then suggested putting a thirty-day withdrawal clause into effect. Rayman...