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United States v. Armantrout

decided: May 16, 1969.


Waterman, Moore and Friendly, Circuit Judges. Friendly, Circuit Judge (concurring in the result).

Author: Moore

MOORE, Circuit Judge:

William J. Armantrout (appellant) appeals from a judgment of conviction entered in the United States District Court for the Southern District of New York after a jury verdict. Appellant was found guilty on the first seven counts of an eight-count indictment charging him with use of the mails to defraud and to obtain money by false representations in violation of 18 U.S.C. §§ 2, 1341 and 3237. The eighth count, charging appellant and three co-defendants with conspiracy to violate the mail fraud statute, was dismissed at the close of the Government's case. The trial court sentenced appellant to one year on each count to run concurrently.

We are again faced with a "chain referral scheme" repeatedly held fraudulent under 18 U.S.C. § 1341. See United States v. Sterngass, Docket No. 32704 (2d Cir. December 18, 1968), where this Court unanimously affirmed a conviction involving a somewhat similar "chain referral scheme." Blachly v. United States, 380 F.2d 665 (5th Cir. 1967); Nickles v. United States, 381 F.2d 258 (10th Cir. 1967); Fabian v. United States, 358 F.2d 187, 194 (8th Cir. 1966). Appellant was the president and owner of Modern Floor Fashions, Inc. (Modern), which employed a method of chain referral for selling carpets to customers in the New York area. The scheme, which experience has shown varies only slightly from case to case and from product to product, was disclosed by the testimony of Government witnesses who included a former salesman of appellant, one Robert Mellor, an employee of the bank which financed Modern's sales, and a number of former customers, in addition to exhibits used by Modern's salesmen in seeking to interest potential customers.

The operation of the scheme generally was as follows: prospective customers would be referred to Modern by a friend or neighbor who was already a Modern purchaser. The neighbor or friend would show the prospective customer new carpeting previously received from Modern and would state that he was getting it without having to pay for it. The prospective customer was then told that he too could receive carpeting at no cost if he "qualified" and, if he so desired, the friend would send his name to Modern.

Once the name was referred to Modern, three steps were required to effectuate the plan. First, Modern telephoned the prospective customer and arranged an appointment, most often for the evenings when both the husband and wife would be present. The second step was the interview. When the salesman arrived at a home, he was generally asked to be seated in the living room and he would, at that point, ask them who referred them to Modern. They would respond by saying that they saw the carpet at the home of a friend. The salesman would then ask whether the friend had told them anything else and in most cases they would say that the friend told them that they had received the carpeting or were getting it at no cost. The salesman would then inquire whether they were interested in carpeting and, if so, what particular area of their home they would consider carpeting. If an affirmative response was made, the salesman would explain the chain referral system to them.

By referring friends to Modern, customers were to receive commissions which would go to the payment of their rugs. Customers were paid $60 for each sale to a person recommended by them, $40 for each sale to a person recommended by the second customer and $25 for each potential customer who listened to a full presentation. The Government's principal witness and a former Modern salesman, Mellor testified as to how the referral method was explained to prospective customers and how they were told it worked in paying for the carpet, as follows:

"Let's use an example that * * * 'A's' carpet cost $1,000. If he were to introduce us to ten people, five of who would qualify based on past sales performance, for each of the five people who took carpet in their home, he would receive $60, so five times $60 would be $360 [sic] for his effort there.

"In effect at that point his job is done because these five people now as they go out and each speak to * * * ten, of which five qualify, he receives $40 five times from each one of these five, $200 from each one or $1,000 which would give him a grand total of 1,360, which would in effect be more than the cost of say a $1,000 carpet.

"Now if his carpeting ran $1,500, obviously he would be short and he would have to go out and speak to more people in order to earn it or pay the difference."

Testimony at the trial also disclosed that salesmen used a printed booklet with customers entitled "The New Dimension -- YOU in Advertising" which stated:


1% YOU, 99% WE, 100% RESULTS.

Booklets, also given to customers at the time of the original sales pitch and labelled "A PUBLIC SERVICE BULLETIN -- YOUR MAGIC CARPET PLAN," with a picture of a ...

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