The Greenville journal. [volume] (Greenville, Ohio) 1850-1918, 1908-01-09
Ho1U Swindlers Dodge the LauO
Schemes of Fleeing the Public Have Evolved from the
Shell Game to Gigantic Frauds, Wearing the Cloak
of Legitimate Business Enterprises
United States District Attorney, Chicago Formerly Solicitor of the De-
partment Of Commerce and Labor, Washington
By EDWIN w. SIMS,

Other kind OF fake corporation, tnere
will be some show of activity. Under
this scheme, the victim has his share
of stock, and the mine, or the oil well,
or the plantation, or whatever it is,
is there; and, according to the swind-
Ter, all the stockholder has to do is
to wait until the property is 'devel-
oped" This tends to keep the victim
from prosecuting. for, of course, a
prosecution would destroy the value
of the business, and it affords a de-
fense in court.
Another scheme allied to this was
one in which a number of clever
swindlers cleaned up large amount
of money. A man would advertise
that he had ample capital to invest
in the securities of corporations pro-
vided competent examiner after
thorough investigation, makes fav-
orable report upon the proposition.
The victim is led to choose as the ex-
aminer a confederate of the man with
capital. The examiner will receive
$500 to S2,500 for making the exam
ination, according to the size of the
business Whose securities are to be
marketed; then, after getting the
money, he will make the examination
! and return an unfavorable re-
port which releases the first swind-
Ter of his obligation to take the bonds
under the contract Then, of course,
| the two divide the fee for the exam
ination between them. This scheme
and one or two others very closely al
lied in principle were flourishing until
they fell into the hands of the federal
authorities here in Chicago.
This latter scheme, it will be OBJ
served, is more dangerous than the
selling of worthless stocks and bonds
to the public, for the reason that it
can be proved that the sWindler was
not in the position to purchase these
bonds even if a favorable report had
been made. In the case of these cor
porations which exist in large mum.
bers and who are robbing the people
of the country of millions every year,
| it is very difficult to secure conviction
of their promoters IN a majority of
cases. When they are arrested and
brought into court, they are ready to
show that they were really carrying
on some kind Of business, and that
they have been simply unfortunate,
that expectations had not been realiz-
ed, and that a business failure is not
crime. The great difficulty is to
prove criminal intent.
In the past both our state and fed
eral courts have so interpreted the
law against schemes to defraud that
they have been able to suppress or
curb these schemes, whatever form
they took. Just what is to be the at
titude of the courts towards the
swindler who poses as q promoter,
and whether they are to so interpret
the law that 1t can deal adequately
with this form of fraud, is at the
present time uncertain, as the courts
differ widely upon the subject. Some
of our courts are now holding that
! even if a promoter does issue a false
prospectus, and thereby induces peo-
pie to invest in the securities of a
corporation, that this does not consti-
tute scheme to defraud, and that it
must appear beyond all reasonable
doubt that the defendant intended to
put the money thus obtained into his
pocket, and not into the business.
The difficulty of making this proof
has already been indicated. In Eng
land, this difficulty was met by a stat
ute Oath and 25th Wet, So, S. 94),
which is as follows:
Whoever, being a director, man
ager, or public officer of any body
corporate or public company, shall
make, circulate or publish, or concur
in making, circulating, Or publishing
any written statement or account
which he shall know to be false in
any material particular, with intent
to deceive or defraud any member,
shareholder or creditor of such body
corporate or public company, or with
intent to induce any person to become
a shareholder or partner therein, or
to entrust or advance any property to
such body corporate or public COM
pany, or to enter into any security
for the benefit thereof, shall be guilty
of a misdemeanor, and being con-
victed thereof, shall be liable at the
discretion of the court to any of the
punishments which the court may
award, as hereinbefore last men
toned"
Under this statute, the difficulty is
met by making it crime to issue a
false prospectus. Some of our courts
have held that the issuing of false
prospectus is a scheme to defraud
within section $3.50 of the United
States revised statutes. Other courts
! however, hold to the contrary; but,
whether by judicial Interpretation or
by legislation, 1t is absolutely essen.
tial that the issuing of false pros
| pectus be made crime before 1t Is
| possible to deal effectively with the
largest class of swindlers that now
prey upon the public.
While the United States govern
ment cannot directly prosecute
schemes to defraud, yet, if the mails
are used in the furtherance of the
scheme, the government can act. AS
most of these schemes contemplate
the use of mails. 1t is possible for the
government TO proceed against them
under sections $3.50 and $40 of the
United States revised statutes. Sec.
tion 54SO provides that whoever de,
i vises a scheme to defraud and pro.
notes it by opening correspondence
through. the mails. shall be guilty of
a misdemeanor: section $40 provides
that II two or more. conspire to com.
init the offense denounced in section
/ kA20 thaw shall roanis.o N staIl sz.oaA