Moore, Smith and Anderson, Circuit Judges.
The defendants Louis Wolfson, Elkin Gerbert, Joseph Kosow and Marshal Staub appeal from their respective convictions after a jury trial upon charges contained in a five-count indictment.
Count I alleged a conspiracy to violate specific enactments, namely, 15 U.S.C. §§ 78j(b), 78m and 78ff(a), 18 U.S.C. §§ 1505, 1621 and 1622, and Rules 10b-5 and 13a-1 promulgated by the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (17 C.F.R. §§ 240.10b-5 and 13a-1).
Wolfson, Gerbert, Kosow and Staub (and Alexander Rittmaster who pleaded guilty, served as the principal government witness and who is not an appellant) were named as the conspirators. The conspiratorial acts charged were explicitly stated. They were:
(1) that in connection with the purchase and sale of common stock of Merritt Chapman and Scott Corporation (MCS), the defendants, using instrumentalities of interstate commerce, employed a scheme to defraud and engaged in a course of business "which would operate as a fraud and deceit upon the shareholders of Merritt Chapman and Scott Corporation.";
(2) that they would make and cause to be made false and misleading statements to the New York Stock Exchange and the SEC;
(3) that they, under oath, would testify falsely before the SEC;
(4) that they would suborn others to commit perjury; and
(5) that they would obstruct the proper administration of the law under which the case before the SEC was being conducted.
The means by which the defendants carried out the conspiracy are also specifically stated, namely, that
a. Wolfson, Gerbert and Staub would control MCS;
b. Wolfson, Gerbert, Rittmaster and Staub would cause MCS to purchase a substantial amount of its outstanding stock;
c. Wolfson, Gerbert, Kosow, Rittmaster and Staub would cause MCS to enter into agreements with Kosow whereby Kosow would purchase hundreds of thousands of shares of MCS stock on the open market and MCS would purchase such stock from Kosow at a fixed price substantially in excess of the market price at the time of the agreements;
d. Wolfson would personally guarantee this obligation;
e. Gerbert, Rittmaster and Kosow would open brokerage accounts in the names of Kosow and his nominees and purchase said stock on the New York Stock Exchange;
f. Wolfson, Gerbert, Staub and Kosow would cause MCS to purchase said stock from Kosow;
g. Wolfson, Gerbert, Kosow, Rittmaster and Staub would conceal such agreements and MCS's attendant liabilities from the MCS stockholders;
h. Wolfson, Gerbert, Rittmaster and Staub would fail to disclose said agreements to the SEC;
i. Wolfson, Gerbert, Kosow, Rittmaster and Staub would destroy the agreements to prevent their discovery by the SEC;
j. Wolfson, Gerbert, Kosow, Rittmaster and Staub would testify falsely under oath before the SEC in order to conceal the agreements; and
k. Gerbert and Kosow would influence witnesses before the SEC to testify falsely under oath.
Count II charged Wolfson with perjury in connection with his testimony before the SEC.
Count III charged Gerbert with perjury before the SEC.
Count IV alleged that Wolfson, Gerbert and Staub on April 30, 1963 caused a balance sheet to be filed with the SEC and the New York Stock Exchange as part of MCS's annual report of 1962 which was false and misleading in that it failed to disclose MCS's liabilities under the stock repurchase agreements.
Count V was the same as Count IV except that the filing date was April 30, 1964 and the report was for 1963.
Wolfson, found to have been guilty under Counts I, II, IV and V, was sentenced to imprisonment for eighteen months (concurrent) and to fines of $10,000 on each of Counts I, IV and V and $2,000 on Count II, with costs; Gerbert, eighteen months' imprisonment (concurrent) on Counts I, III, IV and V and fines of $10,000 each on Counts I, IV and V and $2,000 on Count III; Kosow, one year imprisonment and a $10,000 fine on Count I; and Staub, one year (concurrent) on Counts I, IV and V and fines of $10,000 each on Counts I, IV and V, execution of prison sentence suspended, probation one year.
Before trial Kosow, who was only charged with conspiracy in Count I, moved for a severance on the ground that a joint trial with his co-defendants, who were also charged with perjury, subornation of perjury and obstruction of justice in the substantive counts and who were officers of MCS, would greatly prejudice him and deprive him of a fair trial. The motion was denied. The decision did "not preclude the possibility that facts may develop which would compel a different result." (Cooper, D.J., April 11, 1967, 282 F. Supp. 772.)
Approximately a year later and before trial, Kosow again moved for a severance stating as a new development the conviction of Wolfson and Gerbert in the Continental Enterprises*fn1 case which might affect their willingness to take the witness stand in support of Kosow's defense. Staub made a similar motion in which Wolfson and Gerbert joined. In a lengthy opinion dealing with many pre-trial motions, 289 F. Supp. 903, Judge Palmieri denied the severance motions but said that "should prejudice become apparent during the course of the trial, the present disposition of the motions does not foreclose their renewal at trial for good cause."
The Motion to Strike Count I
Prior to trial Wolfson and Gerbert moved to strike the conspiracy count (Count I) on the ground that the indictment as supplemented by the government's bill of particulars did not charge the commission of a crime under SEC Rule 10b-5. Again the motion was denied "without prejudice to its renewal upon the trial."
The court said: "Only the evidence at trial can spell out the duties of the defendants in connection with the alleged improper purchases and a determination of the validity of that aspect of the conspiracy dealing with Rule 10b-5 must necessarily await the trial."
The trial against Wolfson, Gerbert, Kosow, Staub and Rittmaster commenced on June 17, 1968. On June 19th Rittmaster pleaded guilty. The trial continued against Wolfson, Gerbert, Kosow and Staub, and ended on August 8, 1968.
Just as the first item of the conspiracy allegations and the first seven (a-g) means by which the conspiracy was carried out stressed the "fraud and deceit upon the stockholders of Merritt Chapman and Scott Corporation," so did the government's opening statement. Thus the jury were told with respect to the purchase of MCS stock by Kosow pursuant to repurchase agreements that "The charge is that [Wolfson, Gerbert and Staub] entered into contracts with this defendant, Mr. Joseph Kosow"; that as a result Kosow made over three million dollars; that "It was a fraud upon those stockholders who sold it to him not to be told that he [Kosow] had those contracts" enabling Kosow to sell at 50% higher prices; and that although it was not wrong for MCS to buy stock or make contracts with Kosow to do so "It was wrong for Mr. Kosow and the others not to disclose these contracts when they were buying the stock. That's what was criminal."
The major time portion of the long trial was consumed by the MCS stock purchase transactions which were developed at length through witnesses and exhibits. Little time was required for the perjury, subornation of perjury, ...