The opinion of the court was delivered by: WYATT
This indictment was tried to the Court without a jury. Each of the defendants in writing waived a jury trial, to which the government consented and which the Court approved. Fed. R. Crim. P. 23(a).
The indictment was returned on August 8, 1963 and contains twelve counts.
At the close of the government's case, motions to dismiss counts 5 and 8 were granted, with the consent of the government.
The evidence establishes beyond a reasonable doubt, and this Court finds, that the three defendants are each guilty on counts 1, 2, 3, 4, 6 and 7; and that defendant Perry is guilty on counts 9 and 10 in which he was the only defendant named.
The evidence does not establish beyond a reasonable doubt that defendant Perry is guilty on counts 11 and 12, in which he was the only defendant named, and this Court finds defendant Perry not guilty on counts 11 and 12.
The Court finds that the testimony of defendants McGuire and Blumner is in material respects not worthy of belief; to the extent that their testimony is in conflict with testimony offered by the government, their testimony is rejected and the testimony offered by the government is accepted. Defendant Perry did not testify and no inference of any kind has been drawn from this fact.
In October and November 1957, defendants McGuire, Blumner and Perry willfully and knowingly formed a conspiracy to violate certain laws of the United States, specifically Section 5(a) of the Securities Act of 1933 (the "1933 Act") dealing with registration of securities and Section 17(a) of the 1933 Act, an antifraud provision. These laws are found in Title 15 of the United States Code as Sections 77e(a) and 77q(a), respectively.
There were other members of the conspiracy later becoming such from time to time but the important and significant members were McGuire, Blumner, and Perry - their importance and significance having been in the order in which they are just named. The conspiracy lasted until at least October 29, 1958.
In reaching a conclusion as to the existence of a conspiracy and its membership, I have first made such determination from the acts and statements of each defendant before considering as against him the acts and statements of any other member of the conspiracy.
The prime object of the conspiracy was to evade the registration requirements of the 1933 Act, to deceive the Securities and Exchange Commission (the "Commission") as to the control of corporations purporting to qualify for an exemption under Regulation A of the Commission (17 C.F.R. §§ 230.251 and following), and to cause shares of stock of the corporations to be sold by the use of fraud.
Since it was a part of the agreement between the defendants that the Commission be deceived, the conspiracy was one also to defraud the United States within the meaning of 18 U.S.C. § 371. Glasser v. United States, 315 U.S. 60, 66, 86 L. Ed. 680, 62 S. Ct. 457 (1942); Haas v. Henkel, 216 U.S. 462, 479, 54 L. Ed. 569, 30 S. Ct. 249 (1910); see United States v. Manton, 107 F.2d 834, 839 (2d Cir. 1939).
So far as McGuire was concerned, it was a part of the plan that he would use his control of the corporate vehicles to take away their moneys and apply them to his own purposes; whether Blumner and Perry knew of this plan of McGuire and of his later actual diversion of funds is not established and is in any event irrelevant.
The formation of the conspiracy was at the initiative of McGuire who at all times was the chief figure. Blumner and Perry, however, knowingly and willfully entered into a criminal partnership with McGuire, and assisted its plans in every way they could. Blumner as a lawyer was more active and more helpful in promoting the objects of the conspiracy than Perry, but Perry as a salesman of stock did whatever he could to advance the common purposes. When it is stated herein that "defendants caused" something to be done, it will be understood that McGuire was the dominant force, aided in their respective fields by Blumner and Perry.
Defendants caused to be organized on November 22, 1957, three Delaware corporations: Asta-King Petroleum, Inc. ("Asta-King"), Tamarac Gas and Oil Company, Inc. ("Tamarac"), and The Haratine Gas and Oil Company, Inc. ("Haratine").
At the time of their organization and at all relevant times thereafter, and up to at least October 29, 1958, defendant McGuire controlled Asta-King, Tamarac, and Haratine and this fact was at all relevant times known to defendants Blumner and Perry.
Between January 23 and April 8, 1958, defendants caused Asta-King to sell to the public 22,200 shares of its stock for $299,970.
Between June 5 and July 29, 1958, defendants caused Tamarac to sell to the public 266,640 shares of its stock for $299,970.
Between August 5 and October 29, 1958, defendants caused Haratine to sell to the public approximately 67,000 shares of its stock for approximately $100,500.
Asta-King, Tamarac and Haratine each purported to qualify for the exemption from registration provided by Regulation A. Notifications as required by the Commission (17 C.F.R. § 230.255) were filed by each corporation, together with the necessary exhibits, including an offering circular. Such notification and other material were filed by Asta-King on January 8, 1958; by Tamarac on May 20, 1958; and by Haratine on June 23, 1958. No registration statement was ever in effect as to any shares of Asta-King, Tamarac, or Haratine (15 U.S.C. §§ 77e, 77f).
Regulation A is issued by the Commission under Section 3(b) of the 1933 Act, as amended, (15 U.S.C. § 77c(b)) which empowers the Commission to exempt from the registration requirements of the 1933 Act any class of securities so long as the aggregate amount at which any issue of securities is offered to the public does not exceed $300,000.
The Commission in Regulation A has in effect exempted from registration all issues on the condition that they do not exceed $300,000.
To prevent the obvious abuse illustrated in the case at bar, the regulations of the Commission, specifically Rule 254 (17 C.F.R. § 230.254), provide that in determining whether the condition is met that the "aggregate offering price" may not exceed $300,000, there must be included not only all securities offered by the issuer itself but all securities sold "within one year prior to commencement of the proposed offering" by all of the "affiliates" of the issuer.
The definition of "affiliate" includes a "person . . . under common control" with the issuer. Rule 251 (17 C.F.R. § 230.251).
It was, of course, essential to their plans that the conspirators suppress and conceal the fact that Asta-King, Tamarac and Haratine were under the common control of McGuire; otherwise the non-exempt character of the Tamarac and Haratine offerings would be revealed.
The offering circulars of the three corporations and the other papers filed with the Commission were deceptive, false, and fraudulent to the knowledge of each of the defendants. In the case of each corporation, there was a fictitious appearance created that the corporation was managed and controlled by its directors, whereas in truth and in fact the corporation was managed and controlled by McGuire.
Neither the Tamarac offering nor the Haratine offering was entitled to any exemption from the registration requirements of the 1933 Act (15 U.S.C. §§ 77e and 77f). This was because Asta-King, Tamarac and Haratine were "affiliates" (17 C.F.R. § 230.254) since they were under the common control of McGuire. The offering price for Tamarac added to the $299,970 realized from sales to the public of Asta-King stock obviously exceeded the $300,000 limit, and the later Haratine offering further increased the excess.
Under date of October 29, 1958, the Commission made an order under its Rule 261 (17 C.F.R. § 230.261) temporarily suspending the exemption of the Haratine offering; by order made July 14, 1959, and on stipulation the suspension was made permanent. These orders, however, were not in any way based on the common control of McGuire because the Commission had not then discovered such common control. The suspension was based entirely on a failure by Haratine to file certain sales material as required and also because the sales material being used was in certain respects (not having to do with control) found to be and ...