Walters v. United States, 15483.

• Decision Date: 26 June 1958
• Docket Number: No. 15483.,15483.
• Citation: 256 F.2d 840
• Parties: Wilson H. WALTERS, Charles P. Cain and Keith Terry, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

256 F.2d 840 (1958)

Wilson H. WALTERS, Charles P. Cain and Keith Terry, Appellants, v. UNITED STATES of America, Appellee.

No. 15483.

United States Court of Appeals Ninth Circuit.

April 11, 1958.

Rehearing Denied June 26, 1958.

Paul Stocker, Max Kosher, Everett, Wash., Kenneth MacDonald, Seattle, Wash., for appellants.

William B. Bantz, U. S. Atty., Riner E. Deglow, Spokane, Wash., for appellee.

Before FEE and HAMLEY, Circuit Judges, and SOLOMON, District Judge.

JAMES ALGER FEE, Circuit Judge.

From a conviction of the crime of violating the fraud provisions of the Securities Act of 1933,¹ the Mail Fraud Statute² and for conspiring to violate these statutes,³ each of defendants appeals. All defendants contend that the evidence against each severally was not sufficient to convict. They claim that the government failed to prove criminal intent on the part of any defendant, that it was error to allow consideration of certain misrepresentations alleged, that the testimony of the wife of one of defendants was competent substantively, that the trial court did not give an adequate instruction relating to good faith and that an instruction that later efforts to avoid detection of a scheme to defraud might be a material part of the original scheme was erroneous.

Appellants were jointly indicted with one Jensen. All pleaded not guilty. After the commencement of the trial and after several witnesses had testified, Jensen entered a plea of guilty to counts charging mail fraud and conspiracy. Thereafter, Jensen testified for the government.

The remaining counts were dismissed against Jensen after the trial. Walters was found guilty on all counts and was sentenced to one year and six months' imprisonment; Cain was convicted on mail fraud, sale of securities fraudulently, and conspiracy, and not guilty on the others. He was sentenced to eight months' imprisonment on one mail fraud count, and imposition of sentence was postponed as to the others. Terry was found guilty of all counts except one relating to mail fraud. He received a three months' sentence on another count of mail fraud. Imposition of sentence was postponed as to all other counts.

The indictment is not challenged. It sets forth an elaborate scheme to defraud by sale of securities and use of the mails, and alleges all defendants conspired to commit these crimes.

The chief defense is that appellants acted severally and in good faith. There are, as is usual in these cases, certain expressions of the witnesses which might be a basis for such a conclusion. But, obviously, good faith is an operation of the mind of the individual and can be proven only by inference.⁴ The voluminous record contains adequate evidence of criminal intent as to each appellant. Walters did not testify. Cain and Terry did. The jury found the existence of a criminal intent upon the part of each. This finding is conclusive unless there were no evidence upon which it could be based or there were error of law. The evidence is sufficient as to each of the defendants, and will not be reviewed in detail.

All the defendants were experienced in the insurance business and advised as to the requirements of the insurance laws of Washington. The persons to whom the stock was sold were generally laymen uninformed of these matters. The existence of a uniform pattern of misrepresentation used by all defendants is patent. There is substantial evidence that each of defendants knew that the statements made to prospective investors were false. Of course, the appellants Cain and Terry denied this, and all appellants produced evidence to the contrary, but the question was for the jury. The record shows each of appellants profited substantially over the period while the operation lasted.

A brief résumé of the evidence as to the plan may be of value in understanding the contentions. Walters conceived the idea of taking over an existing "broken down insurance company" and using this shell to raise money for the purpose of financing a new insurance agency to sell insurance to motels at a reduced rate and to provide a surplus for the broken down company. The desired instrument was found by Walters in Washington Insurance Company (Mutual), of which Jensen was president. Walters, Cain and Jensen discussed the formation of a new insurance company and abandoned the idea because of the drastic provisions of Washington state law. Thereupon, at the insistence of Walters, a complicated agreement, never shown to any investor so far as the record shows, was drawn up and executed by Walters, Cain and Jensen, to raise sufficient finances to put Washington Insurance Company (Mutual) "in good shape." By its terms, there would be sold to the public $25,000.00 of surplus certificates previously authorized to permit that company to obtain additional reserve capital and $30,000.00 of outstanding surplus certificates issued by that company to a corporate agency thereof. Walters and Cain enlisted Terry upon the possibility of allowing him to get promotional stock in the proposed agency company. Later he saw the agreement above referred to. Jensen explained to Terry, as he had previously to Walters and Cain, the limitations on writing insurance on motels. Walters drew up a sales kit, and Cain and Terry made most of the sales. The campaign was successful, partially at least owing to untrue representations made by Cain and Terry to prospects. When the supply of surplus certificates had been sold, Walters, Jensen and Terry determined not to give the money back to investors, and to continue the sale of unauthorized certificates. Terry suggested they could pick up the surplus certificates and give the investors receipts to be held until the stock should be issued. The Washington Insurance Department commenced an investigation. After that date, there were no more sales of surplus certificates, but the evidence shows strenuous efforts to conceal the unauthorized sales by Terry and Jensen, and the latter also performed a bookkeeping operation to conceal the oversale from the examiners.

The fraudulent misrepresentations and omissions related to the pretended approval of the adventure by the Washington Insurance Commissioner, the financial advantages of investing in the surplus certificates, the personal sacrifices of former positions and financial obligations of the salesmen in personally investing in the company. The evidence clearly showed the making of such representations and omissions, and also demonstrated these were made falsely and recklessly...