Court Opinion

ID: 9474720
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:06:58.465085+00
Date Added: 2024-06-11T17:44:17.810598
License: Public Domain

MERRITT, Circuit Judge,
dissenting.
This case is a disparate mass of confused facts in search of a theory of criminal liability. I do not believe the Court in its struggle to uphold the verdict has found one that hangs together.
The government asserts that the defendant engaged in a “free rider” securities scheme in which he placed an order for Cook securities and an order for Nord securities causing the broker on the date of purchase to extend credit for five days until the date of settlement. The fraud is said to consist of defendant’s knowledge of his inability to pay the difference between the purchase price and the market price on the settlement date if the price declined. I cannot find in the record the false statement of fact by defendant on which the broker relied as inducement to place the orders and extend the credit for five days. The broker extended the credit because the defendant placed the orders. No false financial statement was given, and I can find no false statement of fact which induced the credit when the purchase was made. The fact that defendant later paid for all the Cook stock and some of the Nord stock with funds obtained from friends by devious means seems to me irrelevant to the charge that he obtained by fraud the extension of credit at the time of purchase. A five year prison sentence should stand on a more solid foundation of fraud than this.
United States v. Naftalin, 441 U.S. 768, 99 S.Ct. 2077, 60 L.Ed.2d 624 (1979), is not in point because there the customer induced the broker to engage in a short sale of stock by falsely representing that he owned the stock sold. Here there was no similar false statement of ownership or financial ability which induced the broker to take the order and extend credit until the settlement date.
District Judge Aldrich permitted large quantities of government evidence on defendant’s previous federal income tax problems, the unsuccessful bank delivery of the stock and the defendant’s relationship with various individuals and corporations with whom he did business. Presumably the evidence was relevant to show that when the defendant placed the two orders for *356stock he had no money to meet the five day credit deadline. This evidence apparently convinced the jury that the defendant was a hustler and a man of devious character who did not have assets to pay for the securities when he ordered them. But this evidence should not be allowed to obscure the point that the government failed to prove a false statement of fact made by defendant to the broker as an inducement for the extension of credit. The fact that the broker was “convinced that defendant was a substantial, knowledgeable and sophisticated investor” when he sold him the stock (opinion, 350) does not prove the kind of clear misrepresentation of fact needed to send a man to prison for five years for securities fraud.