The opinion of the court was delivered by: BYERS
The defendant Guterma seeks by this motion a dismissal of the indictment in this case, consisting of twenty-six counts, against him as to Counts 1 to 4 inclusive, 7 to 11 inclusive, 16, and 18 to 26 inclusive.
There are several categories of alleged offenses comprehended in the indictment, as to which some understanding should be stated at the outset.
The first six counts have to do with the purchase by the Bon Ami Company (to be called Bon Ami) of 678 shares of stock of the First National Bank of Greenport, at the ostensible price of $ 524,600, the actual price being $ 400,000, and the difference of $ 124,600 is said to have been eventually received by the defendant Guterma individually, and so retained. This transaction is characterized as a scheme and artifice to defraud Bon Ami, the dates involved being May 1, 1956 and May 7, 1957.
During that period the defendant Guterma was a director, chairman of the board of directors and an executive officer of Bon Ami, whereby he owed a duty of loyalty to protect the financial interests of Bon Ami and its stockholders, which duty he violated.
This transaction is described as a scheme and artifice to defraud Bon Ami, through false pretenses and representations as to the purchase price of the stock; this involved causing the books of account of the company to reflect the purchase price at the higher sum above stated while Guterma knew the actual cost; and the misappropriation by him of the difference.
As a part of the said scheme that Bon Ami would borrow $ 250,000 on August 23, 1956 from the Security National Bank to effect the stock purchase; that Bon Ami's check for $ 524,600 dated August 23, 1956 would be issued payable to the said bank, and that the latter under instructions from this defendant, would disburse the entire sum as follows:
To the Selling Shareholders $347,000.00
To Parker J. Lynch, for
commissions in connection
with the said sale 32,000.00
For the account of George
A. Heaney 21,000.00
Five cashier's checks payable to one Louis Levin,
who was not the owner of
any of the said stock, nor
entitled to any of the proceeds,
That a part of the scheme was that Guterma would cause that last mentioned five checks to be transported to Montreal, Canada, there to be cashed and the proceeds to be transported and delivered to Guterma in New York; also that Guterma would conceal from the auditors of Bon Ami and the stockholders of that company, the full facts involved. It is alleged (Count One, Para. 7) that on or about April 5, 1957, Guterma 'for the purpose of executing such scheme and artifice to defraud, knowingly caused to be delivered by mail, * * * a letter * * * to wit: The annual report of the Bon Ami Company for the year 1956, addressed to Anthony Musto, 659 Metropolitan Avenue, Brooklyn, New York, at the place at which it was addressed, within the Eastern District of New York.'
Counts Two and Three involve similar mailings on the same date to Erben A. Jenkins and Mrs. Elizabeth Halko.
Count Four alleges that for the purpose of executing the same scheme, etc., on September 4, 1956 Guterma mailed a letter from Security National Bank addressed to Lehrich, Secretary of Bon Ami, which letter acknowledged receipt of the check for $ 524,600 in payment of the said stock.
Count Five (three paragraphs) is that on August 23, 1956 Guterma caused Bon Ami to purchase the said stock, and to issue the said check, representing to the directors, officers, etc. of Bon Ami that the cost was as heretofore stated, and that he did cause the Security National Bank to issue cashier's checks as above tabulated, and that on August 29, 1956, knowing that the five checks totalling $ 124,600 payable to Levin had been taken by fraud from Bon Ami, 'willfully caused the aforesaid checks to be transported in interstate and foreign commerce from the Eastern District of New York to Montreal, Canada.'
Count Six is that Guterma, with knowledge of the foregoing, caused the said checks to be cashed in Canada, and the proceeds amounting 'to approximately One Hundred Twenty-four Thousand Dollars ($ 124,000) in United States currency to be transported back from Canada to the Eastern District of New York for delivery to the defendant, Alexander L. Guterma, on or about August 31, 1956.'
These offenses are said to violate the following statutes:
Title 18 U.S.C. §§ 2 and 1341 (Mail Fraud);
Title 18 U.S.C. §§ 2 and 2314 (Transportation of Stolen Monies).
This motion is addressed to the first four counts of this category and therefore questions the applicability of the mail fraud statute thereto. The subject will be discussed below.
The counts involved are Seven to Eleven inclusive, and the defendants implicated are Guterma and Eveleigh.
Count Seven involves the purported sale of 16,200 shares of Chatco Steel Products, Ltd. to Nevco, Inc. The period is the same; in addition to Guterma's official status, it is asserted that between the same dates the defendant Eveleigh was a director of the Bon Ami Company and Treasurer, and owed a like duty to protect the financial interests of the company and its stockholders.
Paragraph three covers the period between November 9, 1956 and May 7, 1957 and alleges that these same defendants devised a scheme to defraud Bon Ami and its stockholders and to obtain for their own use and benefit money and property of Bon Ami by false and fraudulent representations and pretenses, namely, to purport to sell on November 16 to 19, 1956 to Nevco, Inc., 16,200 shares of the common stock of Chatco Steel Products, Ltd. (to be called Chatco) which cost Bon Ami $ 249,608.79, and after trading in the Chatco stock had been suspended by the Toronto Stock Exchange; the purpose to deceive and defraud is said to have been shown in the conduct of these defendants 'by falsely making it appear to the auditors of the books and to the stockholders of The Bon Ami Company that the aforesaid Chatco stock had been sold to Nevco, Inc., for Two Hundred Fifty Thousand Dollars ($ 250,000), and that The Bon Ami Company had received One Hundred Fifty Thousand Dollars ($ 150,000) cash proceeds of such sale, whereas in truth and in fact there was no bona fide sale to Nevco, Inc., of the Chatco stock, and on December 31, 1956 The Bon Ami Company still owned such Chatco stock.'
That it was part of the said scheme that Guterma would cause Nevco to be incorporated in New York on December 27, 1956, and that he would arrange at about that date for Security National Bank to loan Nevco, and for the latter to borrow from it, the sum of $ 150,000 'on the deposit as collateral for said loan of Six Hundred Seventy-eight (678) shares of the common stock of the First National Bank of Greenport, Long Island, New York, owned by The Bon Ami Company.'
Further that the proceeds of that loan were to be deposited to the credit of Nevco in the same bank on December 28, 1956, and that 'Saul S. Nevins, as President, would draw a check on the account of Nevco, Inc., payable to The Bon Ami Company for One Hundred Fifty Thousand Dollars ($ 150,000), which check he would deposit in the account of The Bon Ami Company at the Security National Bank.'
Further that on January 15, 1957 Virgil D. Dardi (a defendant) for Bon Ami, and said Nevins as President of Nevco, Inc., 'would execute a contract predated, as of December 27, 1956, at the instance, request and command of the defendants, Alexander L. Guterma and Robert J. Eveleigh, stating that The Bon Ami Company had sold to Nevco, Inc., and Nevco, Inc., had purchased for Two Hundred Fifty Thousand Dollars ($ 250,000), Sixteen Thousand Two Hundred (16,200) shares of the capital stock of Chatco Steel Products, Ltd., owned by The Bon Ami Company, for One Hundred Fifty Thousand Dollars ($ 150,000) in cash at the date of the transaction, i.e., December 27, 1956, with the balance of One Hundred Thousand Dollars ($ 100,000) evidenced by a promissory note in the amount of One Hundred Thousand Dollars ($ 100,000), payable ninety days thereafter with interest at the rate of six per cent per annum.'
Further that these defendants would falsely, etc. misrepresent to the auditors of Bon Ami that the said 678 shares of First National Bank of Greenport stock 'had not been pledged on December 31, 1956, and that the financial statements in the annual report to the stockholders for the year 1956 would be incomplete, false and misleading, in that they would not show that One Hundred Fifty Thousand ($ 150,000) Dollars cash had been received on the hypothecation of the Six Hundred Seventy-eight (678) shares of the stock of the First National Bank of Greenport.'
That on December 27, 1956 the defendants Guterma and Eveleigh, for the purpose of executing the scheme, made a telephone call from the defendant Guterma in Florida, to George A. Heaney at the Security National Bank. The statute cited in this connection, in addition to the aiding and abetting statute, is Title 18 U.S.C. § 1343 (which in effect extends the mail fraud statute to cover telephone and other forms of communication in interstate and foreign commerce.)
The motion to dismiss is directed to this count and will be discussed below.
Count Eight is addressed to the same alleged scheme and involves a letter dated February 21, 1957 addressed to Peat, Marwick, Mitchell & Co., 70 Pine Street, New York, confirming that the said 678 shares of Greenport Bank stock were held by the Security National Bank in safekeeping for Bon Ami 'and were not subject to any liens, claims, warranties or guarantees direct or contingent.' (Mail fraud statute involved.)
Counts Nine, Ten and Eleven involve mailings on April 5, 1957 of a copy of the annual report of Bon Ami for the year 1956 to Musto, Jenkins and Halko referred to above.
The only relation between these two categories is the reference to the use of the Greenport Bank stock as collateral for the loan involving the purchase of the Chatco stock; otherwise the two alleged offenses are unrelated.
(Sale of Greenport Bank Stock.)
Count Twelve avers in detail the sale of the said 678 shares as follows:
That on or about January 25, 1957 Guterma and Eveleigh in violation of their corporate duties and the defendant Culpepper, Jr., who was president of Hazelhurst Corporation, devised a scheme to defraud Bon Ami and its stockholders 'and to obtain by means of false pretenses and fraudulent representations for their use and benefit and for the benefit of others not entitled thereto, from The Bon Ami Company, approximately three hundred forty-five thousand dollars ($ 345,000), the money and property of The Bon Ami Company, which scheme and artifice was more particularly as follows:'
That Bon Ami would sell the Greenport stock and Guterma and Eveleigh would falsely represent on the Bon Ami books that such sale was for $ 500,000 while in truth the actual figure was $ 525,450, and that Bon Ami received only $ 485,000.
Further that the three named defendants would case $ 559,350 'received from the sale of the Greenport Bank stock to be deposited in the account of Hazelhurst Corporation at the Security National Bank and that of such funds four hundred eighty-five thousand dollars ($ 485,000) would be transferred to the account of The Bon Ami Company at the Security National Bank in payment for the stock sold.' Incidentally the mention of $ 559,350 first occurs in the fifth paragraph of this count and is not presently understood.
A further part of the scheme ostensibly allocates the difference between $ 485,000 actually received by Bon Ami and the $ 525,450 above referred to (which is $ 40,450) to two checks for $ 15,000 each, one payable to Louis Levin and the other in which the payee is not named (which was to be considered by the defendants as repayment by Hazelhurst of a loan then owing to Levin), and $ 10,450 which was caused 'to be treated as the property of Hazelhurst Corporation and to be disbursed for the personal use and benefit of the defendant, Garland L. Culpepper, Jr., and others, despite the fact that neither the defendant Garland L. Culpepper, Jr. nor Hazelhurst Corporation were entitled to any of the proceeds of the sale of the Greenport Bank stock.'
Further that $ 305,000 (presumably deducted from the $ 485,000 above referred to) would be transferred from the Bon Ami account in the Security National Bank to the account of U.S. Totalisator Corp., in the Manufacturers Trust Company, from which $ 300,000 would be in turn transferred to the Security National Bank,
$ 150,000 thereof to the account of Anita McGrath Guterma,
$ 100,000 to the account of Alexander L. Guterma, and
50,000 to the account of Robert J. Eveleigh.
Meanwhile the sale of the Greenport Bank stock was not to be fully disclosed ...