Court Opinion

ID: 6832809
Source: CourtListenerOpinion
Date Created: 2022-07-23 19:57:30.632018+00
Date Added: 2024-06-11T16:04:36.590031
License: Public Domain

RUDKIN, Circuit Judge.
I dissent. The charge to the jury was largely argumentative in form and favored the government throughout. Inferences of fact were placed on the same footing as inferences of law, and no distinction whatever was made between implied fraud and actual fraud. In the end the verdict was made to turn upon the abstract legal right of the accused to pay commissions on sales of shares out of the proceeds of such sales, regardless of his belief or good faith in the premises. Indeed, no attempt was made on the oral argument to uphold the charge of the court, but the government pleaded for affirmance on the sole ground that the proof of guilt was so overwhelming that errors committed during the progress of the trial were not prejudicial. With such a contention I am unable to agree, A fair and impartial *878trial by jury is tbe constitutional right of every person accused of crime, whether guilty or innocent, and that constitutional guaranty is not satisfied by a partisan, one-sided charge to the jury.
To show that my characterization of the charge is not overdrawn, I quote therefrom as follows:
“Now, furthermore, the object of this syndicate and joint adventure — I can make it more simple to you — you are not to be confused by words or talk of stock, joint adventure or trust estate. But, while you, gentle•men, were secluded for the past few days, let us suppose that one of you had proposed to the others, that, ‘if each of you will give $1,-000 apiece, I will go out and buy sheep and run them; you are not to ask or know anything about it, but, when there are any profits, I will distribute them around amongst you/ That would be just the kind of joint adventure or syndicate as is involved in this ease, and that joint adventure would be all right providing he made no false representations to you, and dealt faithfully with you, though' in such ease there* is a large opening for a dishonest man to work dishonestly if he wanted to. But, gentlemen of the jury, that simple ease is exactly, in every respect, from the standpoint of law, common sense, and the facts, as the case that you have before you today.
“Now, here is another obligation on the part of this manager of the joint adventure; He is not entitled under the law, to appropriate one cent of that money to his own uses or for any purposes, until he has gotten into that enterprise all those that every one expects to come in. For instance, in this case, he advertised $250,000 capital, 2,500 so-called units, at $10 — 25,000 units, at $10. He was not entitled to take.that money and spend it for the purpose of inducing others to come in. He had no right to pay $1 in commissions to Bloomhuff, or for advertising, to pay for expenses, or to mail out letters, or anything of that sort, because a promoter or a 'manager, the same as in a corporation, who undertakes ■to get together joint adventurers, if that sort, to that extent is in the nature of a trustee who must deal honestly with the others. And it is his duty to bring the parties and money together at his own expense, if he wants to promote it. He cannot spend it getting it together. Why, if he can spend half, he could spend all, and, the thing Would be broke the moment he has got in the 25,000 investors, from the 25,000 units. So by that you can see that the law is only common sense. So, in this case, when this money was taken out to pay Bloomhuff and taken out to pay the advertising, mailing, and expenses of this sort, that was a misappropriation. That was never made known to the joint adventurers. They were told, to all intents and purposes by this advertising, that, when all the units were sold, there would be a capital of $250,000 to operate with. There was nothing of the sort. Now, you ask yourselves whether that was not intended from the very beginning, whether that was not the very foundation from the beginning. The arrangement between the defendant and Bloomhuff was to have 50 per cent, for commissions and expenses for getting the people in.
“Another thing to be remembered is the defendant knows the method. One who promotes an enterprise of this sort to-day knows that it will be done by advertising and through the mails. You will presume that he had that knowledge. ' Every man of sense knows that. The court takes judicial notice of that fact, that those things are done by advertising and mailing; you don’t sell shares in ventures by personal solicitation. Advertising and mailing are commonly done, are the constant practice, so it is to be inferred that the defendant knew it. That is not enough, however, of course, to make him guilty; that is, so far as it was to be done by advertising and by mailing, if it was done honestly. So, right there, gentlemen of the jury, if you find it was the intent of the defendant in- selling these interests, in inviting these people to come in and join him, to use a large part of their money to advertise and to pay commissions to Bloomhuff and Dailey to induce them to come in, that was an injury to those who bought units, was a fraud against them, and was intended from the beginning, that, in connection with the rest of the government’s ease, is enough to warrant you to find the defendant guilty accordingly. As I say, the law forbids that it shall be done. You cannot use the investors’ money to bring in other investors. He undertakes to do that when he sets it on foot, at his own expense. As I said before, you can readily see why. The law will not permit it. He must not touch that fund at all for any purpose until it is gathered together and then is to be used to buy properties, and to operate.
“Another fact in the case that you will consider, in connection with the question of whether there was an intent, scheme, or artifice to defraud, is that it was advertised that, after a certain amount had been sold, the rest of the units, as they call it — and mind, while we use that term, or stock, it is just the 'same sort of a ease or enterprise that you might *879have organized while in seclusion, as I have already told you — it was generally advertised that the balance was underwritten, and that held out to the public, to every one who had read it, that they were sure to have the $250,000 capital. In other words, you would not contribute $10 for a unit and another man contribute $10 for a unit, if he did not feel some assurance that finally the full amount would be gotten together to buy property and operate. So when, of course, it was advertised to .the world that all outstanding and not yet sold was underwritten, that meant to them that some one had agreed to take and pay for all that had not yet been sold, and it was an assurance that this full amount, $250,000 would be in the treasury, and that the project. would then proceed under the care and management of the defendant.
“Of course, that was not true. There is no denial that that was not true. There was no Eastern concern in the case. All there was was Bloomhuff, Dailey, and Wertheimer, who were partners and had a contract of agency to sell as much as they could at $10 a share, they to keep $5 and turn $5 into the treasury. So, in any event, there was no possibility of there'ever being more than $125,000 in the treasury, while the enterprise held out to the world that there would be $250,000 when all the joint adventurers would get together and proceed to do business.
“So, gentlemen of the jury, that really is practically all of the ease from that standpoint. Now, the defendant admits all of this, and his counsel seeks to justify it. So far as paying out a portion to Bloomhuff for expenses, etc., as I said, that is against the law. But, beyond that, the defense is not denying that the advertisements were sent out. The defendant said he knew nothing about it and was not responsible. There is a disputed question of fact, though perhaps not a material and vital one from the view of the law taken in the case, as I have already presented it to you. He will not be heard to deny that he did not know that whatever was sent out would be mailed, because every one knows that was commonly being done. Whether he can successfully deny that he knew anything of the nature of the advertising, is for you. But the fact remains that, if there was this understanding in the beginning, as there was, that a certain amount, a large part, half of this money, would be taken out and spent to get the adventurers together, he knew that, of course, because he had agreed to that. And, since the titles were not what were advertised, only half interest in tracts, he knew that, and that was not advertised. Now, did he know the advertising? That is one of the questions for you. to decide also. Bloomhuff says he does. It was a campaign carried on for months. Advertising appeared in numbers of your prominent, leading daily papers. Letters not delivered returned to his office in Kevin, at least, and Bloomhuff says they were sent out from there. And do you believe it reasonable, gentlemen of the jury? Do you believe that, as a common sense proposition that is entitled to credit, that advertising could continue to be sent out as long as it was and he not know of it, clear from the begin • ning?' Ah, yes; there was another person-who was it — testified that he kept a scrapbook of it for the defendant, as it came out. The defendant says he did not know the nature of the advertising. He did testify, however, that, in respect to the fac simile of his signature on the letters, he knew that when the letters came back to Kevin; but five minutes later he testified that he did not know any letters returned to Kevin until it was disclosed here in’eourt on yesterday. Now, why that great discrepancy then and there I do not assume to know, but you can take that into consideration in connection with the whole case.
“But if the original plan, as he admits, was that Bloomhuff was to take half of this money for selling the stock, and he paid for the advertising and the like out of it, he knowing that the mails would be used to send out invitations, even though they themselves have been fair, that would have been a scheme or artifice to defraud, misappropriation of the funds, and the mails used, as he must have known, to further it he would be guilty of the charge for that reason alone.
“Well, gentlemen of the jury, that is the ease for you. Men qannot carry on enterprises of this sort at the expense of the investing public on misrepresentations, and with the intent to misappropriate money. That is what the law forbids. It cannot be done through and by way of the mails and when it is done through and by way of the mails, he who does it intentionally, knowingly,' as I have read .the law from the Supreme Court to you, is guilty of the intent or artifice to defraud, -and using the mails to execute it, as charged in the indictment.
“I do not believe there is anything further that the court needs to say to you. The ease is not at all an involved or difficult one, if you .will just remember the simple illustration of the nature of the project which I have stated to you, and the obligations of the promoter of it, as I have stated them to you, by reason of the law. The law demands that be conserve the funds and keep them all togeth*880er, and'not spend them for the purpose of paying expenses for getting it together.”
The judgment should he reversed.