The opinion of the court was delivered by: BARTELS
Defendants in this case are charged with violations of anti-fraud provisions of Section 17 of the Securities Act of 1933 (Act), [15 U.S.C.A. § 77q(a)], in connection with the offer and sale of the stock of Precision Metal Products, Inc. (Precision). The first 17 counts of the indictment charge all of the defendants with violations of Section 17 of the Act. Count 18, however, charges only the defendants Robert B. Edens (Edens) and Robert Schwartz (Schwartz) with conspiracy to violate Sections 78h(c) and 78o(c) of Title 15 of the United States Code by means of an illegal pledge of the stock of Triangle Instrument Co., Inc. (Triangle). The sale of the Precision stock was effectuated through the brokerage firm of Armstrong & Co., Inc. (Armstrong), allegedly organized by Schwartz as attorney and Edens as the president and controlling stockholder, of which company the defendant Martin Lasher (Lasher) subsequently became vice-president. A number of salesmen were hired by Armstrong, among them the defendants Benjamin Saporta, Howard Cohen and Albert Wasserman (Saporta).
Count 1 of the indictment contains five paragraphs and alleges the use of the mails in offering and selling securities by employing a device and scheme to defraud and to obtain money from purchasers by means of untrue statements of material facts and by engaging in transactions operating as a fraud upon purchasers of said securities, setting forth the scheme and device and the transactions in paragraphs 2 to 5, inclusive, as follows:
Paragraph 2 - Defendants Lasher, Edens and Schwartz at all times controlled the affairs of the brokerage firm of Armstrong, and Saporta and three others were at all times salesmen for Armstrong.
Paragraph 3 - Saporta knowingly made certain false and misleading statements for the purpose of deceiving and defrauding purchasers in connection with the offer and sale of Precision stock.
Paragraph 4 - (a) All the defendants caused the Precision stock to be sold at a time when Armstrong was unable to meet is obligations and was in violation of the rules and regulations of the Securities and Exchange Commission as set forth in 17 C.F.R. § 240.15c3-1 (net capital ratio formula); (b) Edens, Lasher and Schwartz pledged the stock of Triangle, then being carried for the account of Armstrong's customers, for an amount in excess of the amount owed by said customers in violation of 15 U.S.C.A. §§ 78h(c)(3) and 78o(c); and (c) Edens, Lasher and Schwartz diverted payments received from purchasers of precision stock to pay the general corporate obligations of Armstrong, and failed to pay over to Precision $125,000 of the proceeds of the public sale of Precision stock received by Armstrong.
Paragraph 5 - All the defendants caused a confirmation of sale of the Precision stock to be placed in the United States mails in an envelope addressed to a customer thereon named.
Counts 2 through 17 incorporate by reference the allegations of paragraphs 1 through 4 of Count 1 and then allege sixteen other separate mailings of confirmations of the sale of Precision stock to customers, a list of names of which is therein specified.
Count 18 charges Edens and Schwartz with conspiracy to violate 15 U.S.C.A. §§ 78h(c) and 78o(c) by pledging certain stock of Triangle to Sterling Factors Corp., which stock was carried for the account of Armstrong's customers, for an amount in excess of the amount owed by Armstrong's customers.
Defendants Saporta, Cohen and Wasserman make five motions pursuant to Rules 7(d), 7(f), 8, 14, 16 and 12(b), respectively, Fed.Rules Crim.Proc., 18 U.S.C.A., two of which have already been decided, leaving open motions under Rules 7(d), 8, 14 and 12(b) as follows:
(1) That Counts 1 through 17 should be dismissed
for duplicity, in that each count charges more than one offense, i.e., a securities fraud in violation of 15 U.S.C.A. § 77q(a) and an unlawful pledge of Triangle stock in violation of 15 U.S.C.A. §§ 78h(c)(3) and 78o(c), and that in the alternative, the allegation as to the unlawful pledge of the Triangle stock should be stricken as prejudicial surplusage;
(2) That Counts 2 through 17 should be dismissed and consolidated into Count 1 because multiplicitous, in that they repeat and reallege the allegations of Count 1 except that they set forth sixteen additional persons to whom various confirmations of sale of the Precision stock were forwarded through the United States mails; and
(3) That Count 18 should be severed from Counts 1 through 17 upon the ground that there has been a misjoinder of offenses and of defendants in violation of Rules 8(b) and 14, Fed.Rules Crim.Proc., 18 ...