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UNITED STATES v. WOLFSON

March 20, 1968

UNITED STATES of America, Plaintiff,
v.
Louis WOLFSON, Elkin Gerbert, Joseph Kosow, Alexander Rittmaster and Marshall Staub, Defendants


Palmieri, District Judge.


The opinion of the court was delivered by: PALMIERI

The Charges

PALMIERI, District Judge.

 The defendants stand indicted for conspiracy to violate the federal securities laws (15 U.S.C. §§ 78j(b), 78m and 78ff(a)) and regulations of the Securities and Exchange Commission (S.E.C.) promulgated thereunder (17 C.F.R. §§ 240.10b-5 and 240.13a-1), to commit perjury (18 U.S.C. § 1621), to suborn perjury (18 U.S.C. § 1622), and to obstruct justice (18 U.S.C. § 1505). 18 U.S.C. § 371. In addition the defendants Wolfson and Gerbert are charged in substantive counts with perjury before competent officers of the S.E.C. and the defendants Wolfson, Gerbert and Staub are charged with substantive violations of the aforementioned securities laws and regulations.

 In the conspiracy count the indictment alleges that the defendants would do the following. Wolfson, Gerbert and Staub would control Merritt-Chapman and Scott Corporation (Merritt-Chapman) Along with the defendant Rittmaster they would cause Merritt-Chapman to embark on a program of buying substantial amounts of its outstanding common stock and to enter agreements with the defendant Kosow whereby Kosow and his nominees would purchase hundreds of thousands of shares of Merritt-Chapman common stock on the open market upon a secret undertaking by Merritt-Chapman to purchase this stock from them at a future date at a substantially higher price. Wolfson would personally give his guarantee with respect to the agreements with Kosow. In addition the defendants would conceal the agreements from Merritt-Chapman's stockholders. The defendants, other than Kosow, would conceal the agreements from the S.E.C. by failing to mention them in reports required by law to be filed by Merritt-Chapman with the S.E.C. There is a further allegation that the defendants would conceal or destroy all documents relating to the agreements with Kosow, that they would commit perjury as to them in testifying before S.E.C. officers, and that Gerbert and Kosow would influence and attempt to influence witnesses subpoenaed to testify before S.E.C. officers.

 Substantive violations of the securities laws are charged against Wolfson, Gerbert and Staub. It is alleged that they made false and misleading statements of a material fact in the balance sheets of Merritt-Chapman in its 1962 and 1963 annual reports. The alleged violations relate to the fact that the balance sheets in those reports did not disclose the contingent liability of Merritt-Chapman the Government contends arose from the agreements with Kosow.

 These are pre-trial motions (1) for suppression of any evidence possibly obtained through wiretapping or electronic eavesdropping and the holding of an evidentiary hearing in connection therewith; (2) for the severance of the trials of the defendants Kosow and Staub; (3) for a change of venue of the trial; (4) for a continuance of the date of trial; (5) for disclosure of any statements made by defendants in possession of the Government; (6) for enlargement of the Government's bill of particulars furnished pursuant to the order of Judge Cooper of this court; (7) for pre-trial disclosure of any information favorable to the defendants; and lastly, (8) for permission to renew defendants' motions challenging the Grand Jury selection.

 Motion for Suppression

 All of the defendants have moved pursuant to Rule 41(e), Fed.R.Crim.P., for an order granting an evidentiary hearing with a view to suppressing evidence which may have been obtained by the Government by means of eavesdropping or wiretapping devices. Upon the hearing of this motion on February 26, 1968, this Court stated:

 
"* * * [The] court is entitled and the defendants are entitled to clear and unequivocal statements in an affidavit form by those responsible for the investigation and prosecution of this case to the effect that no electronic eavesdropping, no wiretapping of any kind was used at any point.
 
"If it was used and if such activity was indulged in, then it is for the court to determine how best it can eliminate * * * any taint of the evidence, or what should be done for the purpose of protecting the defendant's rights."

 The Government is therefore advised of its obligation in the premises, and this motion is deemed to be disposed of for the time being and abiding the submission of the affidavit as directed. No evidentiary hearing is justified since no defendant has submitted anything more than a suggestion that wiretapping or eavesdropping devices may have been used. Compare United States v. Desist, 277 F. Supp. 690, aff'd, 384 F.2d 889 (2d Cir. 1967), cert. granted, 390 U.S. 943, 88 S. Ct. 1030, 19 L. Ed. 2d 1131 (March 4, 1968) and Lawn v. United States, 355 U.S. 339, 78 S. Ct. 311, 2 L. Ed. 2d 321 (1958), affirming United States v. Giglio, 232 F.2d 589 (2d Cir. 1956), affirming 16 F.R.D. 268 (S.D.N.Y.1954).

 Motions of Kosow and Staub for Severance

 Both Kosow and Staub have moved for separate trials. Fed.R.Crim.P. 14. This is concededly a motion addressed to the Court's discretion. Opper v. United States, 348 U.S. 84, 95, 75 S. Ct. 158, 99 L. Ed. 101 (1954); United States v. Aviles, 274 F.2d 179, 194 (2d Cir. 1960), cert. denied, [Evola v. U.S., Santora v. U.S., Lessa v. U.S., Capece v. U.S., Di Palermo v. U.S., Genavese v. U.S., Palizzano v. U.S., Barcellona v. U.S.] 362 U.S. 974, 982, 80 S. Ct. 1057, 1058, 1059, 1068, 1071, 1073, 4 L. Ed. 2d 1009, 1010, 1015, 1016, (1960); United States v. Echeles, 392 F.2d 892, 896 (7th Cir. 1965). The burden is upon the movant to come forward with facts which demonstrate that he will be prejudiced by a joint trial so that it would in effect be a denial of a fair trial altogether. United States v. Wallace, 272 F. Supp. 838 (S.D.N.Y. 1967); United States v. Haim, 218 F. Supp. 922 (S.D.N.Y. 1963); United States v. Van Allen, 28 F.R.D. 329 (S.D.N.Y. 1961).

 Kosow bases his argument largely on the assertion that he was not an "insider" and was not a member of the management of Merritt-Chapman, the activities of which constitute, presumably, a large part of the evidence in the case. Since he was not in a fiduciary or managerial relationship with Merritt-Chapman, Kosow claims he will be prejudiced by a joint trial in which the Government will probably demonstrate that the other four defendants occupied such positions. The argument continues that Kosow would be prejudiced by unfavorable inferences which might stem from any evidence that the other defendants, all "insiders", breached duties of trust. However, if the Government's proof of conspiracy is sufficient, Kosow may well be held equally responsible, as a co-conspirator, with corporate fiduciaries and managers even in areas affecting the latter's corporate duties.

 Kosow also suggests that a joint trial will prevent him from calling the co-defendants as witnesses in his behalf and from commenting on their failure to take the stand, if such be the case.

 The motion by Kosow is a renewal of a similar motion made approximately one year ago and denied by Judge Cooper of this court. (See opinion of Judge Cooper dated April 11, 1967, 282 F. Supp. 772). There is no significant difference between the motion now made by Kosow and that previously made before Judge Cooper. It is urged that a difference lies in the fact that the defendants Wolfson and Gerbert have, in the meantime, been convicted in another case before this Court, the Continental case, 66 Cr. 720. However, at the time Judge Cooper decided the motion, the indictment in the Continental case had been handed down and the problems of calling Wolfson or Gerbert in connection with the trial of this indictment were apparent.

 Staub makes contentions similar to Kosow. He asserts that he will be obliged to call the co-defendants as witnesses in order properly to present a defense. He states that he proposes to take the stand and to swear that he never knew of any agreement between Merritt-Chapman and Kosow whereby the corporation undertook to buy its common stock from Kosow at a fixed price at a future date. Although he was president of Merritt-Chapman, Staub takes the position that he had no connection with or knowledge of any of the alleged stock-purchasing agreements.

 The general rule in conspiracy cases is that defendants indicted together should be tried together. United State v. Echeles, supra. This rule is particularly appropriate when the conspiracy may be proved against the defendants by the same evidence resulting from the same or a similar series of acts. United States v. Echeles, supra; United States v. Lebron, 222 F.2d 531, 535 (2d Cir. 1955), cert. denied, 350 U.S. 876, 76 S. Ct. 121, 100 L. Ed. 774 (1955); United States v. Wallace, supra. Despite assertions to the contrary, this is the situation in this case. A severance of the trial of Kosow or Staub would compel the Government to conduct several trials involving substantially the same evidence and the same witnesses for a period of presumably five weeks in each instance. This heavy burden would not be justified except under very special circumstances, none of which appears to be present here. Although both Kosow and Staub suggest a sharp cleavage in the probable evidence between themselves and the co-defendants, the indictment does not support this contention. The allegations of perjury and obstruction of justice relate directly to Staub and Kosow. Additionally, the allegations of subornation of perjury relate directly to Kosow. These allegations are part of the alleged means of furthering the conspiracy with which they are charged. A defendant charged with conspiracy but not directly involved in one aspect of the conspiracy charged in the indictment does not merit severance of his trial on this account. Each member of a conspiracy is bound by the acts of the co-conspirators done in furtherance of the conspiracy. The allegations of the indictment do not appear to attribute minor roles to Kosow and Staub, nor do these allegations place them on the outer edges of the conspiracy. This is not a case like United States v. Kelly, 349 F.2d 720 (2d Cir. 1965), cert. denied, 384 U.S. 947, 86 S. Ct. 1467, 16 L. Ed. 2d 544 (1966), where there was no reference to the defendant Shuck, whose case was held to be severable, during the first three months of a nine month trial. In addition, that case involved another infirmity. Extensive statements inculpatory of Shuck which had been made by the co-defendants after the conspiracy had ended and which were clearly inadmissible against Shuck were admitted into evidence with only mild cautionary instructions.

 The rule that defendants indicted together should be tried together is a salutary rule based upon the orderly administration of criminal justice, see United States v. Wallace, supra; United States v. Verra, 203 F. Supp. 87, 90-91 (S.D.N.Y. 1962), and a fair regard for the convenience and the interests of persons not directly involved but whose presence is needed at ...


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