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UNITED STATES v. MAHLER

May 10, 1966

United States
v.
Arnold Mahler, et al.


Palmieri, District Judge.


The opinion of the court was delivered by: PALMIERI

PALMIERI, District Judge.

This is a motion by defendants Michael F. Dermer, Arthur Kapplow, Michael Light, Hugh Strump, and Charters & Co. of Miami, Inc., pursuant to Fed. R. Crim. P. 41(e) for the suppression of evidence. The indictment charges the defendants with conspiracy to violate the anti-fraud provisions of the Securities Act of 1933, the mail and wire fraud statutes, 18 U.S.C. § 371, and with a scheme to defraud in the sale of securities in violation of § 17 of the Securities Act of 1933. 15 U.S.C. § 77q.

 The moving defendants seek to have suppressed as evidence books and records of defendant Charters & Co. of Miami, Inc. (Charters) and "all oral and written evidence obtained" therefrom. The question raised by this motion is the frequently thorny one raised by the existence of parallel civil and criminal investigations and proceedings. The defendants rely expressly on e.g., United States v. Parrott, 248 F. Supp. 196 (D.D.C. 1965); United States v. Lipshitz, 132 F. Supp. 519 (E.D.N.Y. 1955).

 The defendants allege, in affidavits of defendant Michael F. Dermer and A. Chester Abney, Esq. (counsel to defendants Dermer, Strump, Kapplow, and Charters), that, when the books and records were turned over to the SEC, it was agreed that "they would not be out of the possession of Charters any longer than was absolutely necessary for the then purposes that the SEC Miami branch office needed them." Dermer Affidavit, p. 3. *fn1" From this allegation, it is argued that the Government has violated the constitutional rights of the defendants - presumably the Fourth Amendment's guarantee against unreasonable searches and seizures. It is urged that the Government obtained the documents by subterfuge which is the equivalent of force.

 The Government strenuously denies that an agreement for restricted investigation of the records was reached, and, in fact, the defendants do not contend that any representation with respect to the nature of the investigation was made to them.

 What follows is intended to demonstrate that the defendants' motion must be denied.

 Charters was registered with the SEC as a broker dealer. As such, it was required to maintain and make available for inspection and examination by the SEC extensive books and records. 15 U.S.C. § 78q (a); 17 C.F.R. 240.17a-3-4. The constitutionality of this requirement is beyond cavil. E.g., Shapiro v. United States, 335 U.S. 1, 92 L. Ed. 1787, 68 S. Ct. 1375 (1948); SEC v. Olsen, 354 F.2d 166 (2d Cir. 1965); Cooper's Express, Inc. v. ICC, 330 F.2d 338 (1st Cir. 1964); United States v. Pine Valley Poultry Distributors Corp., 187 F. Supp. 455 (S.D.N.Y. 1960). There is no allegation here that the records and documents in question are other than "public records" of the type involved in the Shapiro case. Cf. SEC v. Olsen, supra at 169. Here, the SEC was conducting an investigation pursuant to provisions of Section 20 of the Securities Act of 1933, 15 U.S.C. § 77t and Section 21 of the Securities Exchange Act of 1934, 15 U.S.C. § 78u.

 The pertinent portions of Section 21 of the Exchange Act provide:

 
(a) The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated or is about to violate any provision of this chapter or any rule or regulation thereunder . . . .
 
. . .
 
(e) Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this chapter, or of any rule or any regulation thereunder, it may in its discretion bring an action in the proper district court of the United States . . . to enjoin such acts or practices, and upon the proper showing a permanent or temporary injunction or restraining order should be granted. The Commission may transmit such evidence as may be available concerning such acts or practices to the Attorney General, who may, in his discretion, institute the necessary criminal proceedings under this chapter. 15 U.S.C. § 78u. (Almost the identical provision is found in 15 U.S.C. § 77t a and b.)

 It is clear that the SEC and the Attorney General possess the authority to conduct civil and criminal investigations of the type undertaken here. The defendants had no privilege to assert with respect to these documents. This was not a case where the defendants were led down the path to perjury, United States v. Thayer, 214 F. Supp. 929 (1963), pressed into turning over material, Lord v. Kelley, 223 F. Supp. 684 (D. Mass. 1963), *fn2" or permitted to testify without counsel and perhaps not warned of their privilege against self-incrimination Cf., United States v. Parrott, supra.

 The investigators had an absolute right to examine the documents, and they were allowed to do so by the defendants acting voluntarily and on advice of counsel.

 The defendants have not asserted that they were assured that there would be no criminal investigation. The thrust of their contentions is simply their claim that they were told the books would not be kept any longer than necessary and, further, that ...


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