Opposition Brief — Allen v. United States

Gnthe Supreme Court of the United States

OcToBER TERM, 1950

No. 684

JAMES ANTHONY ALLEN, PETITIONER

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE NINTH

CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

The opinion of the Court of Appeals (R. 1359-

1373) is reported at 186 F. 2d 439.

JURISDICTION

The judgment of the Court of Appeals was

entered on January 4, 1951 (R. 1374), and a peti-

tion for a rehearing was denied on February 19,

1951 (R. 1375). On March 16, 1951, the time for

filing a petition for a writ of certiorari was ex-

tended by order of Mr. Justice Douglas to April 20.

(1)

2

1951, on which date the petition was filed. The

jurisdiction of this Court is invoked under 28

U.S.C. 1254(1). See also Rules 37(b)(2) and

45(a), F.R. Crim. P.

QUESTIONS PRESENTED

1. Whether petitioner’s conviction of con-

spiracy to violate the Mail Fraud Act and the

Securities Act of 1933 could properly be affirmed

when the jury acquitted him of the substantive

offenses, the commission of which was realleged in

the conspiracy count in addition to various other

overt acts in furtherance of the conspiracy.

2. Whether evidence as to petitioner’s activities,

with respect to his disposition of some of the fruits

of the conspiracy, subsequent to its termination,

was competent.

STATUTES INVOLVED

18 U.S.C. 88? (35 Stat. 1096) provided:

If two or more persons conspire either to

commit any offense against the United States,

or to defraud the United States in any manner

or for any purpose, and one or more of such

parties do any act to effect the object of the

conspiracy, each of. the parties to such con-

spiracy shall be fined not more than $10,000,

or imprisoned not more than two years, or

both.

1This statute was repealed by the Act of June 25, 1948,

c. 645, sec. 21 (62 Stat. 862), effective Septeraber 1, 1948, and

is now covered by 18 US.C. 371.

3

18 U.S.C. 338” (35 Stat. 1130) provided in perti-

nent part as follows:

Whoever, having devised or intending to

devise any scheme or artifice to defraud, or for

obtaining money or property by means of false

or fraudulent pretenses, representations, or

promises, * * * shall, for the purpose of exe-

cuting such scheme or artifice or attempting

so to do, place, or cause to be placed, any letter,

postal card, package, writing, circular, pam-

phlet, or advertisement, whether addressed to

any person residing within or outside the

United States, in any post office, or station

thereof, or street or other letter box of the

United States, or authorized depository for

mail matter, to be sent or delivered by the post-

office establishment of the United States, or

shall take or receive any such therefrom,

whether mailed within or without the United

States, or shall knowingly cause to be delivered

by mail according to the direction thereon,

or at the place at which it is directed to be

delivered by the person to whom it is ad-

dressed, any such letter, postal card, package,

writing, circular, pamphlet, or advertisement,

shall be fined not more than $1,000, or im-

prisoned not more than five years, or both.

15 U.S.C. 77e (48 Stat. 77, as amended, 48 Stat.

906) provides in pertinent part as follows:

2 This section was also repealed by the Act of 1948 (see

fn. 1, supra) and is now covered by 18 U.S.C. 1341.

4

(a) Unless a registration statement is in

effect as to a security, it shall be unlawful for

any person, directly or indirectly—

(1) to make use of any means or instru-

ments of transportation or communication in

interstate commerce or of the mails to sell or

offer to buy such security through the use or

medium of any prospectus or otherwise ; or

(2) to carry or cause to be carried through

the mails or in interstate commerce, by any

means or instruments of transportation, any

such security for the purpose of sale or for

delivery after sale.

15 U.S.C. T7q (48 Stat. 84) provides:

(a) It shall be unlawful for any person in

the sale of any securities by the use of any

means or instruments of transportation or

communication in interstate commerce or

by the use of the mails, directly or indirectly—

(1) to employ any device, scheme, or artifice

to defraud, or

(2) to obtain money or property by means

of any untrue statement of a material fact or

any omission to state a material fact necessary

in order to make the statements made, in the

light of the circumstances under which they

were made, not misleading, or

(3) to engage in any transaction, practice,

or course of business which operates or would

operate as a fraud or deceit upon the pur-

chaser.

(b) It shall be unlawful for any person, by

the use of any means or instruments of trans-

5

portation or communication in interstate :com-

merce or by the use of the mails, to publish,

give publicity to, or circulate any notice, circu-

lar, advertisement, newspaper, article, letter,

investment service, or communication which,

though not purporting to offer a security for

sale, describes such security for a considera-

tion received or to be received, directly or in-

directly, from an issuer, underwriter, or

dealer, without fully disclosing the receipt,

whether past or prospective, of such considera-

tion and the amount thereof.

(c) The exemptions provided in section 77¢

shall not apply to the provisions of this section.

STATEMENT

An indictment, containing seven counts (R.

2-13), was returned jointly against petitioner and

two others, Keane and Grismer, in the United

States District Court for the Eastern District of

Washington. The first three counts (R. 2-7)

charged that, between 1945 and 1946, they unlaw-

fully used the mails, in furtherance of a scheme to

defraud stockholders by false representations, in

violation of 18 U.S.C. 338. The succeeding three

counts (R. 7-10) charged that, during the same

period, in the sale of securities pursuant to a

fraudulent scheme, they unlawfully used the mails

in violation of 15 U.8.C. 77q. Count 7 (R. 10-13)

charged that, between 1945 and 1948, they con-

spired to violate the Mail Fraud Act and the

Securities Act of 1933 by agreeing to sell and

6

deliver by mail securities, without first effecting

their registration, in accordance with a scheme to

defraud the purchasers thereof and to obtain

money by false pretenses and representations.

The charge relative to the fraudulent scheme

alleged in part that the conspirators would and

did promote and organize Lucky Friday Extension

Mining Company and Pilot Silver-Lead Mines,

Inc., both Idaho corporations (hereinafter re-

ferred to as ‘‘Extension’’ and ‘‘Pilot’’, respec-

tively), and issue ‘‘a large portion of the stock of

these corporations to themselves, but would and

did conceal the fact that defendant Allen was a

promoter of these corporations or was to receive

any part of the stock to be taken by defendants;

that defendants * * * [would and did] conceal

the true amount of stock issued to them * * *;

that defendants would and did cause these corpo-

rations to sell stock to investors upon the repre-

sentation that the proceeds therefrom would be

used by these corporations for the exploration and

development of the mining properties of Extension

and Pilot respectively; that defendants * * *

would and did conceal from the stockholders * * *

information concerning the receipt and expendi-

ture of moneys * * *; that defendants would and

did appropriate and divert from these corporations

a large amount of such corporate moneys to their

own use and benefit”’ (R. 3-4).

7

Petitioner was tried alone.* He was acquitted

on the first six counts and found guilty on count

seven (R. 88, 1283), on which he was sentenced to

18 months’ imprisonment (R. 93-94, 1290-1291).

On appeal, the judgment of conviction was affirmed

(R. 1373). After a meticulous review of the evi-

dence, the court below stated, ‘‘Our only reason for

thus outlining in such detail the Government’s

proof of Allen’s participation in these diversions,

is that counsel for appellant have so earnestly

argued that there is a total want of evidence that

Allen participated in an admittedly fraudulent

scheme. In our view this complaint is without

merit’’ (R. 1367).

The evidence adduced by the Government gener-

ally tended to prove the following: |

In the summer of 1943, petitioner and Keane

incorporated the Montana Leasing Company,

which they later conducted as a partnership, for

the purpose of operating some mining dumps ad-

3 Keane, with the trial court’s consent, entered a plea of

nolo contendere as to all counts of the indictment save count

six (R. 27-48), and Grismer entered a similar plea as to count

seven (R. 49-54). Petitioner also had entered a plea of nolo

contendere as to all counts except count six, which the court

had dismissed (R. 55-57). However, on the date set for

sentence, petitioner, after inquiring of the court whether

a jail term could be expected and being advised that the court

had the power to prescribe a prison term on the plea entered,

moved for a withdrawal of his plea of nolo contendere and the

substitution of a plea of not guilty (R. 58-65). The court

granted the motion (R. 67) and reinstated count six (R. 66),

and the judge disqualified himself from presiding at peti-

tioner’s trial (R. 64-69). Keane and Grismer testified on

behalf of the Government during petitioner’s trial (R. 381-

482, 607-793). Subsequently, Keane was sentenced to pay a

8

joining the property of Lexington Mining Com-

pany (R. 414-415, 609-610, 680, 684, 739, 741).

The money for the operation of the Montana Com-

pany was derived from Independence Lead Mines

Company, through the intercession of Keane (R.

690-694). In the spring of 1945, when Independ-

ence Company funds were almost depleted (R.

610), petitioner proposed to Keane that they organ-

ize and promote a new company, dispose of its

stock, and ‘‘bail ourselves out’’ of the indebted-

ness created through the Montana Leasing opera-

tions (R. 385, 611-612, 709, 712-713). As a result,

the Lucky Friday Extension Mining Company was

incorporated in Idaho and promoted in the State

of Washington under the supervision of petitioner

and Keane (R. 150-153, 523-525, 537-539, 540-542,

549-550, 614-615, 744-746).

Petitioner was under a court injunction, which,

in effect, precluded any corporation of which he

might be a promoter, from filing under the exemp-

tive regulations of the Securities Act in conjunc-

tion with any public offering of its securities (R.

541, 591-592, 609, 612-613; Ex. 121, R. 881).

Therefore, Grismer, who had worked for peti-

tioner, was made to appear as the principal

promoter of Extension and became its nominal

president (R. 382-383, 385, 390, 612-614). At peti-

fine of $1500, the imposition of the imprisonment portion of

the sentence was suspended, and he was placed on probation

for four years (R. 117). Imposition of sentence on Grismer

was entirely suspended and he was placed o2 probation for

two years (R. 118).

SOE BO ELIE LONE AS PRT ARE OE ORLA IRL NH aN BE IE RAINS ANN i

9

tioner’s direction, mining claims in land contiguous

to that of Lucky Friday Silver Mining Company

(known as Big Friday), were staked out in

Grismer’s name (R. 385-387, 541).

According to copies of the prospectus mailed to

the public, the proceeds from the proposed sale of

Extension stock were to be expended in the devel-

opment of this property (R. 483-490, 526, 541-544,

1363; Ex. 69, R. 490). Petitioner and Keane

agreed, however, that Grismer was to receive

1,229,700 shares of Extension promotion stock,

purportedly for the mining claims, but that he was

to endorse these shares and turn them over to the

corporation (R. 388, 399, 614). Grismer actually

received only 100,000 shares, the balance going to

petitioner and Keane,‘ subject to their commit-

ments made to parties actually having an interest

in the mining claims conveyed to Extension (ibid).

Likewise, out of 500,000 shares purportedly issued

as a fee to the attorney who arranged for the public

offering of the stock, 425,000 shares were to be

endorsed by the attorney and returned to petitioner

and Keane (R. 544-547, 559-560, 614). Out of all

the promotion stock issued by Extension, about

790,000 shares found their way into petitioner’s

hands. Admittedly, these shares were sold at in-

4 Petitioner and Keane had a long standing agreement that

they were to be equal partners in all their enterprises (R. 725,

726-727, 741).

10

creased market prices,’ thus affording petitioner

a substantial income (R. 870-872, 1139).°

Almost immediately after Extension’s first stock

offering, petitioner and Keane began to divert

Extension’s funds for their personal expenses and

unrelated ventures (R. 149, 151, 163-171, 202, 328-

339, 644-647).7 Between July 1945 and May 1946,

$113,000 of the $178,000 received by Extension

5 During the organization of Extension, petitioner com-

menced negotiations on its behalf with the Big Friday.

Shortly after the first issue of Extension stock, two contracts

were conciuded whereby Big Friday would develop and ex-

ploit the Extension land by projecting its shaft into Exten-

sion’s adjoining property at the latter’s expense, which

eventually amounted to about $80,000. The ore mined was

to be shared mutually by the parties (R. 258-264, 391-392,

658-659, 712-713). The news of these contracts greatly in-

creased the market value of Extension stock. At that time

petitioner and Keane unloaded at the increased price 300,000

of the original shares of promotion stock which had been held

rar the corporation $78,000 (R. 392, 447, 549-550,

-605).

6 At least 455,000 shares returned by Grismer were sold at

increased prices through brokerage accounts in the names of

petitioner, his wife, or on his behalf (R. 344-353, 490-492,

496-505, 1134-1135; Ex. 47, R. 350; Ex. 50a, R. 824; Ex. 74,

R. 500; Ex. 116, R. 883). Also about 335,000 of the 425,000

shares of Extension stock purportedly issued for attorney fees

were sold, at increased prices, by petitioner or Keane directly

or through petitioner’s or his wife’s brokerage accounts (R.

501-503, 794-801, 815-825, 870-872; Ex. 9-a, R. 640; Ex. 75,

R. 501; Ex. 96, R. 800; Ex. 104, R. 825; Ex. 105, R. 825; Ex.

114, R. 853; Ex. 118, R. 877).

7 The secretary in Keane’s law firm was an assistant secre-

tary of Extension with authority to sign Extension checks

(R. 149, 151). In August 1945, she signed a blank Extension

check, at the request of petitioner, who made it payable in

the amount of $10,000 to Delaware Mines Corporation, which

he controlled (R. 163-171, 202, 328-339, 643, 675, 1028-1029;

Ex. 6a, R. 166, 642). Later, petitioner used Delaware checks

to cover various obligations, including personal expenditures

(R. 328-339).

11

from its two stock offerings, was diverted to Mon-

tana Leasing Company, or its successor, Lexington

Silver-Lead Mines, Inc.,* corporations wholly

owned and controlled by petitioner and Keane.

Part of the money so diverted was used for per-

sonal expenses (R. 157, 173, 233-234, 615-618, 658,

662-664, 1115, 1160; Ex. 108, R. 836; Ex. 118, R.

878; Ex. 119, R. 878; Ex. 120, R. 880).

In December 1945, petitioner and Keane were

instrumental in organizing, along the same lines as

Extension, Pilot Silver-Lead Mines, Inc., which,

presumably, was to develop in Idaho certain min-

ing claims and patents assigned to the corporation

(R. 285-289, 296, 393-398, 400, 414, 551-556, 565-

569, 620-623). The Pilot prospectus (Ex. 68, R.

490) stated that out of 670,000 shares to be issued

to Keane he was to retain 550,000 shares ‘‘for his

promotional efforts in connection with the acquisi-

tion’’ of mining claims for the company (R. 622).

However, it was agreed between petitioner and

Keane that they were to be co-owners of these

shares, and were to own 400,000 shares out of the

900,000 issued to Grismer for the mining patents

transferred by him (R. 622-624). Also, only 25,000

shares out of the 150,000 shares purportedly issued

for legal services were to be retained by the attor-

ney, the balance to be returned, duly endorsed,

8 The prevalent practice was to cover all overdrafts on

Montana Leasing and Lexington Silver-Lead bank accounts

by the transfer of Extension or Pilot funds (R. 617-619).

12

to petitioner and Keane (R. 277-283, 624). In

May 1946, Pilot offered to the investing public

1,000,000 shares (R. 180-182, 190-193, 327, 342-343,

526, 527-530, 532-535, 575-578; Ex. 110, R. 840)

which netted the company $100,000 (Ex. 10, R. 534,

Ex. 11, R. 529; Ex. 12, R. 524; Ex. 13, R. 507). By

September 12, 1946, this sum was depleted to about

$10,000 as a result of petitioner’s and Keane’s mis-

appropriations (R. 185-187, 617-619, 662-663 ; Ex.

112, R. 840; Ex. 113, R. 840).”°

As a result of these diversions, Extension and

Pilot ran out of working capital and their mining

operations ceased in December 1946 (R. 406-407).

Keane and petitioner had a falling-out at that time

(R. 461, 660-662).

ARGUMENT

1. Petitioner does not deny that the evidence

adduced by the Government proves a conspiracy

® Petitioner and Keane quickly disposed of most of the

stock by sale through their brokerage accounts (Ex. 31,

R. 508; Ex. 3la, R. 508; Ex. 117, R. 883).

10 The diversion of Pilot funds was as follows: Between May

and August 1946, $61,300 went to Lexington Silver-Lead

Mines, Inc., the successor to Montana Leasing Company

(R. 657; Ex. 15, R. 641; Ex. 112, R. 840; Ex. 113, R. 840) ;

on May 22, 1946, $15,000 went to Coeur d’Alene Consolidated

Silver Lead Mines, Inc. (jointly controlled by petitioner and

Keane (R. 411)), in payment of that company’s obligation

under a development contract with another mining company

(R. 313-316, 324-326, 626-629, 657) ; on June 25, 1946, $10,000

went to Independence Lead Mines, Inc., in which Keane exer-

cised control, but petitioner had no controlling interest. How-

ever, previously, Independence had advanced large sums of

money to Montana Leasing (R. 656-657, 690, 1123-1124) and

had given $1,200 to War Eagle Silver-Lead Mines, Inc., in

which petitioner and Keane each owned one-third interest, in

order to cover an overdraft of that company’s bank account

(R. 199-200, 655-656; Ex. 15a, R. 200; Ex. i5b, R. 200).

13

to use the mails to defraud the investing public by

a scheme involving the organization and operation

of the two corporations, accompanied by all the

fraudulent elements charged in the indictment. He

argues, however, that, since the jury acquitted him

of the offenses charged in the first six counts, which

offenses were alleged to be the object of the con-

spiracy, the verdict of guilty on the conspiracy

count is necessarily inconsistent with and repug-

nant to its findings on the substantive counts; that

this inconsistency was occasioned by the Govern-

ment through its misuse of the conspiracy statute ;

and that this Court’s ruling in Dunn v. United

States, 284 U.S. 390, should be reversed (Pet.

15-27).

There is abundant evidence to prove beyond a

reasonable doubt that, during the time charged in

the indictment, petitioner participated in a sus-

tained concert of action with Keane and Grismer

in the organization and promotion of both Exten-

sion and Pilot, in the sale of their securities to the

public by means of prospectuses containing false

and misleading representations, in the unloading

on the market of personally-owned promotion

stock at enhanced prices, and in the misappropri-

ation and diversion of the funds of these corpora-

tions. Not only is the accomplices’ testimony (R.

381-482, 608-793) sufficient in itself to prove peti-

tioner guilty of conspiracy, but, as the court below

painstakingly pointed out, there is additional testi-

14

mony of independent witnesses and documentary

evidence ™ which, independently, sustain the guilty

verdict.

The acquittal on the substantive counts and the

conviction on the conspiracy count are not incon-

sistent, because the offense of conspiracy is not the

commission of the crime which it contemplates and

neither violates nor arises under the statute whose

violation is its object. Pinkerton v. United States,

328 U.S. 640; Braverman v. United States, 317

U.S. 49. The acquittal on the substantive counts

does not negative any of the elements charged in

the conspiracy count, especially since the con-

spiracy count in its allegations of overt acts did not

rely merely on the substantive offenses alleged

in the first six counts, but, in addition, alleged

other overt acts. Substantive counts require the

proving of completed acts, whereas a con-

spiracy count can be proved by showing an agree-

ment plus one overt act. Samuel v. United States,

169 F. 2d 787 (C.A. 9); Heskett v. United States,

58 F. 2d 897 (C.A. 9), certiorari denied, 287 U.S.

643. The jury might very well have believed that

petitioner did combine, confederate and agree with

Keane and Grismer to divert and embezzle funds

of Extension and Pilot and to commit certain

overt acts, but they may not have been satisfied

11 See R. 148-209, 258-263, 279-283, 285-286, 295-298, 368-

381, 537-555, 957-971.

15

as to his connection with the jurisdictional mail-

ings alleged in the substantive counts.” __

Moreover, assuming, arguendo, that there was

an inconsistency in the verdict, the short reply

is that under the ruling of this Court in Dunn v.

United States, 284 U.S. 390, 393, consistency in the

verdict is not necessary. This ruling was recently

reaffirmed by this Court in United States v. Dotter-

weich, 320 U.S. 277, 279, and there is no occasion

to reconsider it. See also Langford v. Umited

States, 178 F. 2d 48, 52 (C.A. 9), certiorari denied,

339 U.S. 938.

2. Petitioner also contends (Pet. 28-31) that the

trial court erred in receiving in evidence (Ex. 48,

R. 771) stock broker’s checks (proceeds from

which went to petitioner (R. 344-349)), given

in payment of Extension promotion stock origi-

nally issued to Grismer, since these checks were

issued for the sale of the stock subsequent to De-

cember 26, 1946, the date of the alleged termination

of the conspiracy. We submit that the date of

12 As to the contention that the prosecution involved an

abuse of the conspiracy statute, the court below stated (R.

1373): “We think it sufficient to say that we find no evidence

of any misuse of the statute in this case. So long as this

statute remains law, this argument against use of a con-

spiracy charge is not one properly addressed to us.” Indeed,

in its revision in 1948 of Title 18 of the United States Code,

Congress had occasion to consider the wisdom of retaining

this crime on our statute books. Congress not only retained

it, but gave it added importance by increasing the punish-

ment provided thereunder for a felony from two years to five

years.

18 The mere fact that Keane had a falling-out with peti-

tioner and Grismer did not necessarily terminate the con-

spiracy unless definite and affirmative steps were taken to that

16

the termination of the conspiracy is irrelevant to

this issue since the evidence objected to did not

involve any statements by a co-conspirator which

must have been made during the course of the con-

spiracy in order to be admissible as an exception

to the hearsay rule. These cancelled broker’s

checks were properly received, regardless of the

termination of the conspiracy, as direct evidence

tending to prove petitioner’s participation in the

promotion of Extension and Pilot and his disposi-

tion of stock after exhausting the corporate funds.

As the court below held (R. 1370), this ‘‘evidence,

of Allen’s later sales of promotion stock, was

clearly properly received for the purpose of show-

ing Allen’s earlier acquisition of the stock which

he was thus undertaking to dispose of. We find no

error in the receipt of this evidence, or in the

court’s refusal to strike it, regardless of whether

the conspiracy did, or did not, end on the date

mentioned.”’

end. Baldwin v. United States, 72 F. 2d 810 (C.A. 9), cer-

tiorari denied, 295 U.S. 761. Furthermore, Keane may have

been expelled and the conspiracy between petitioner and

Grismer may have continued.

17

CONCLUSION

The judgment below is correct, and the petition

for certiorari presents no question requiring fur-

ther review by this Court. We therefore respect-

fully submit that the petition should be denied.

Puuivip B. PERLMAN,

Solicitor General.

JAMES M. McINERNEY,

Assistant Attorney General.

BEATRICE ROSENBERG,

Epwarp 8S. SZUKELEWICZ,

Attorneys.

May 1951,

WU. S. GOVERNMENT PRINTING OFFICE: 1981 947242 e438