Waterman, Friendly and Feinberg, Circuit Judges.
McGuire, Blumner and Perry appeal from judgments of conviction entered against them in the United States District Court for the Southern District of New York after a trial without jury. The indictment against appellants contains 12 counts. Count one charges that the three appellants conspired with certain other individuals to violate the federal securities laws by impeding the lawful governmental function of the Securities and Exchange Commission by selling unregistered securities in interstate commerce and by utilizing fraudulent practices in the sale of these securities. Counts two through eight charge all the appellants with using the mails for specific sales of unregistered stock in violation of 15 U.S.C. §§ 77e(a) (1), 77x; 18 U.S.C. § 2. Counts nine through twelve charge appellant Perry with selling securities in interstate commerce by fraudulent means in violation of 15 U.S.C. §§ 77q(a), 77x.
After the Government's case was presented, counts five and eight were dismissed by the court with the consent of the Government. At the end of the trial the court found all the appellants guilty on counts 1, 2, 3, 4, 6 and 7. Appellant Perry also was found guilty on counts 9 and 10, but was acquitted on counts 11 and 12. McGuire was sentenced to three years imprisonment and to a $1,000 fine on each of the six counts upon which he was convicted, the prison sentences to run concurrently. Blumner was sentenced to concurrent two year prison terms on the same six counts, the counts on which he was convicted, and Perry was sentenced to concurrent one year terms on the eight counts on which he was convicted. The opinion of the trial court appears at 249 F. Supp. 43 (USDCSDNY 1965).
The evidence presented by the Government showed that the conspiracy among the appellants was conceived by appellant McGuire in late 1957. McGuire, who held oil and gas leases on 300,000 to 500,000 acres of land in Northern Ohio, needed cash to pay the annual rental on the leases covering this acreage and to finance wildcat drilling on the land to establish its value. On November 1 and 2, 1957 McGuire met with Blumner, Perry and others in McGuire's office in Erie, Pennsylvania, to discuss methods of raising the necessary money. Blumner suggested that McGuire put the leases into one corporation and secure full registration of the corporation's securities, but McGuire rejected this proposal when he was informed that a full registration would take six months. McGuire then proposed that the needed capital be raised by selling the securities of a series of small corporations which would be small enough to be exempt from full registration under Securities and Exchange Commission Regulation A*fn1 because the conspirators could "grind these small registrations out in thirty days."
The conspirators agreed to this plan and proceeded to work out some of the details. McGuire was to control the various corporations so to be formed by controlling their corporate officers who were to be his relatives and employees who had good reputations and who would be amenable to his direction of the affairs of their corporations. McGuire was to furnish oil and gas leases and cash to the officers so that they could contribute to the corporations and obtain stock. Blumner, an attorney, was to undertake the legal work necessary to organize the various corporations and to file the required notifications with the SEC for the Regulation A security offerings. Perry would participate in the sale of the securities of the various corporations to the public.
The proposed plan was swiftly put into operation. On November 22, 1957 three Delaware corporations were organized by appellants. They were originally named Asta-King Petroleum, Inc. (Asta-King), Conneaut-King Petroleum, Inc., and Erie-King Petroleum, Inc., but the names of the latter two were changed to Tamarac Gas and Oil Company, Inc. (Tamarac), and The Haratine Gas and Oil Company, Inc. (Haratine) respectively. The officers of the three corporations were selected by McGuire, but it is clear that all important corporate decisions were made not by them, but by appellants, none of whom were designated as corporate officers; and it is also clear that the nominal corporate officers not only did not participate in these decisions but often were totally unaware that they had been made. The oil and gas leases and the cash contributed to the corporations by their officers were furnished by McGuire. Large blocks of each company's stock were issued to its officers in exchange for their "contributions" to the corporations, the officers in turn each gave McGuire options to purchase large portions of their stockholdings in the companies.
On January 8, 1958 Asta-King's notification of a Regulation A issue of securities was filed by Blumner. The offering circular filed with the notification contained significantly false statements about the company, particularly because it failed to show that the company was controlled by appellants, not its officers. The Asta-King offering began on January 23, 1958 and was completed on April 8, 1958, with the sale of 222,200 shares of its stock to the public for $299,970. Perry was employed as a salesman of the underwriter of the issue and personally sold at least part of the issue over the telephone in "boilerroom" fashion.
On May 16, 1958, shortly after the completion of the Asta-King offering, Blumner mailed notification to the SEC that Tamarac would be offering a Regulation A issue of stock to the public. Again the notification was accompanied by an offering circular which contained no mention of the fact that McGuire controlled the company. The Tamarac offering began on June 5, 1958 and was completed on July 29, 1958 when the entire offering of 266,640 shares had been sold to the public for $299,970.
The Haratine offering followed closely after the Tamarac offering. Notification was filed with the SEC on June 23, 1958, with an offering circular which gave no indication that McGuire controlled Haratine or that the company was in any way connected with Asta-King or Tamarac. At this point the SEC became suspicious of a possible connection between the three companies and a series of communications between John Mayer of the SEC and Blumner commenced. Blumner ended the inquiry at this time by a letter dated July 29, 1958 in which he falsely stated that the companies were independent of each other and that there were no understandings between the "director-officer-promoters" of any of the companies. Blumner did not mention McGuire's name in the letter although McGuire was in actual control of all three companies.
The sale of the Haratine stock was commenced on August 5, 1958, and continued until October 29, 1958 when approximately 67,000 shares of the issue had been sold to the public at $1.50 a share for a total of $100,500. The various substantive counts in the indictment relate to sales of Haratine stock made during this period, which sales we set forth in the margin.*fn2 The trial court found that Perry made these five sales and that in making the sales set forth in count 2 to Riley and in count 3 to Lauro he made material misrepresentations (counts 9 and 10).*fn3
On October 29, 1958 the SEC temporarily suspended Haratine's Regulation A exemption under Regulation A, Rule 261, 17 C.F.R. § 230.261, on the ground that the company had failed to file certain promotional material with the SEC as required by Regulation A, Rule 258, 17 C.F.R. § 230.258, and that the material which had been filed contained false statements and omitted material facts. The false statements and omissions involved were not based on the control by appellants of the three companies, a fact not yet discovered by the SEC at the time of the suspension, and are not relevant here. The suspension was made final on May 21, 1959 pursuant to a stipulation among the interested parties.
The evidence also reveals other activities of appellants. McGuire proceeded systematically to loot the three companies of the funds obtained from the public offerings by exchanging these funds for practically worthless paper such as participations in the drilling of oil wells which already had proved to be dry holes. It is not clear whether Blumner and Perry were aware of this looting, but this is unimportant here because this activity of McGuire is not a necessary element of any of the crimes for which appellants have been convicted.
Appellants also established a broker-dealer corporation, Herbert Perry & Co., Inc., which was charged with being a co-conspirator of appellants in the indictment in this case. The company was established to avoid paying underwriting fees to outsiders on the conspirators' Regulation A stock offerings and acted as underwriter of the Haratine issue. As with Asta-King, Tamarac, and Haratine, Herbert Perry & Co., Inc. was actually owned and controlled by McGuire although his ...