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UNITED STATES v. BROOKS

May 10, 1972

UNITED STATES of America
v.
Frederic H. BROOKS, Defendant


Brieant, District Judge.


The opinion of the court was delivered by: BRIEANT

BRIEANT, District Judge.

Defendant was brought to trial on February 22, 1972 before the Court and jury, pursuant to an indictment filed August 28, 1969. After five days of trial and after the jury had three times confirmed to the Court that it was hopelessly deadlocked and unable to agree upon a verdict, the Court declared a mistrial and discharged the jury.

 Defendant now moves pursuant to Rule 29(c) of the Federal Rules of Criminal Procedure for a judgment of acquittal as to counts 3, 4 and 5 of the indictment. Count 1 was dismissed during the trial, with consent of the Government, and the Court directed a judgment of acquittal as to that count, and count 2 of the indictment before the case was submitted to the jury. Defendant's trial motions, at the close of the case, to dismiss the other counts were denied. *fn1"

 Argument has been had on this motion, answering and reply affidavits have been filed and considered, and the Court has reviewed the record and exhibits.

 To determine the motion, the Court must search the record, and find whether ". . . there is sufficient evidence from which it could be found that the essential elements of the charges . . . have been proven", United States v. Cascade Linen Supply Corp., 160 F. Supp. 565, 568 (S.D.N.Y., 1958). As stated in Neaderland v. Comm. of Internal Revenue, 424 F.2d 639 (2d Cir.), cert. den. 400 U.S. 827, 91 S. Ct. 53, 27 L. Ed. 2d 56 (1970):

 
"The rule which the trial judge was required to apply in this Circuit in deciding the motion was that a criminal case must be submitted to the jury unless the prosecution has failed to present 'substantial evidence' to support a guilty verdict."

 Obviously, the standard remains unchanged where, as here, the motion is made after all of the proof has been taken and after the matter has been submitted to a jury, and a mistrial resulted because of jury deadlock. While it is said that "in most jurisdictions it is likely that the motion was granted because the judge was convinced that no reasonable man could find the defendant guilty beyond a reasonable doubt," Neaderland v. C.I.R., supra, the rule in this Circuit remains more restrictive. Numerous cases applying the Second Circuit rule have been denied certiorari by the Supreme Court. See, for example, United States v. Masiello, 235 F.2d 279 (2d Cir.), cert. den. Stickel v. United States, 352 U.S. 882, 77 S. Ct. 100, 1 L. Ed. 2d 79 (1956); United States v. Gonzales Castro, 228 F.2d 807 (2d Cir.), cert. den. 351 U.S. 940, 76 S. Ct. 838, 100 L. Ed. 1467 (1955); United States v. Feinberg, 140 F.2d 592 (2d Cir.), cert. den. 322 U.S. 726, 64 S. Ct. 943, 88 L. Ed. 1562 (1944). As stated in United States v. Wapnick, 202 F. Supp. 712 (D.C., 1962):

 
"* * * 'the standard of evidence necessary to send a case to the jury is the same in both civil and criminal cases'. No distinction is made between evidence which would satisfy reasonable men, and evidence which would satisfy reasonable men beyond a reasonable doubt. * * * '[The] test for the judge to apply in determining what rational inferences of fact a jury may be permitted to draw from the testimony is the same in civil and criminal cases * * *.' But in determining the existence of 'substantial evidence' the Court must construe the evidence most favorable to the Government. Glasser v. United States, 315 U.S. 60, 80, 62 S. Ct. 457, 86 L. Ed. 680 (1942)." (Footnotes Omitted.)

 Substantial evidence is defined as "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion," Consolidated Edison Co. of N.Y. v. N.L.R.B., 305 U.S. 197, 59 S. Ct. 206, 83 L. Ed. 126 (1938).

 A higher threshold of proof seems to be implied from a literal reading of Rule 29 of the Criminal Rules, which requires the Court to grant the motion for judgment of acquittal "if the evidence is insufficient to sustain a conviction." In Mortensen v. United States, 322 U.S. 369, 374, 64 S. Ct. 1037, 1040, 88 L. Ed. 1331 (1944), cited with approval in American Tobacco Co. v. United States, 328 U.S. 781, 90 L. Ed. 1575, 66 S. Ct. 1125 (1946), fn. 4, p. 787, 66 S. Ct. 1125, 1128, 90 L. Ed. 1575 it is stated that:

 
"The verdict in a criminal case is sustained only when there is 'relevant evidence from which the jury could properly find or infer, beyond a reasonable doubt,' that the accused is guilty."

 The Mortensen rule was followed in United States v. Lefkowitz, in this Circuit, 284 F.2d 310, 315 (1960), in which the Court said:

 
"the question is whether, taking all the evidence, this was 'substantial enough to establish a case from which the jury may infer guilt beyond a reasonable doubt.'" (Italics Added.)

 Also, in a footnote to the opinion in United States v. Glasser, 443 F.2d 994 (2d Cir., 1971, Lumbard, J.) it is stated that "the standard (followed in American Tobacco and Lefkowitz, supra] is the correct one." To the same effect is United States v. Melillo, 275 F. Supp. 314 (E.D.N.Y., 1967) in which Judge Weinstein reviews the authorities and suggests (p. 317) that the "single test approach" which "has long been the established doctrine in the Second Circuit" is precluded by the provisions of Rule 29. However, that rule originally stated in United States v. Feinberg, 140 F.2d 592, 594 (2d Cir. 1944, per L. Hand, J.)* may still have vitality, and, because the government cannot appeal if a judgment of acquittal is granted, it seems the single test approach should be followed with respect to this application.

 Issues of credibility are jury questions not reached on this motion, unless testimony is so in conflict or improbable as to be incredible as a matter of law. The Court must view the evidence in the light most favorable to the Government.

 The indictment comprises 11 pages with 13 numbered paragraphs. Apparently, it was drafted with extreme care, and is replete with words of art, the meaning of which is well known to lawyers, such as "agreement" and "consideration."

 The indictment contains seven paragraphs of preamble. Summarized briefly, the preamble indicates that between May 15, 1968 and August 28, 1969, the date of filing of the indictment, defendant Brooks was a Vice President and registered representative of First Hanover Corporation, a Member Firm of the American Stock Exchange. From about July 12, 1968, to on or about October 30, 1968, he was a principal member of "The Stockholders' Committee for New Management of Defiance Industries, Inc." It is charged that he unlawfully, wilfully and knowingly devised and, intended to devise a scheme and artifice to defraud and to obtain money and property by means of false and fraudulent pretenses, representations and promises, in violation of 15 U.S.C. § 78j(b) and 78ff, and 17 CFR § 240.10b5. In connection with the scheme, he is charged (Count 3) with making false and fraudulent representations and by trick, scheme and device, falsifying, concealing and covering up material facts during testimony concededly given before certain staff members of the Securities and Exchange Commission on July 15, 1968. The facts of a material nature, alleged to have been concealed, are that defendant, Lerner and Gardner had each bought one-third of approximately 60,000 shares of Defiance Industries, Inc., Class B Common Stock from "a certain person" *fn2" at $9.00 per share on the American Stock Exchange, whereas in truth and in fact, as defendant then and there well knew, "he had arranged with the aforesaid Buyers and Seller for the payment by Buyers to him in behalf of the aforesaid Seller, and for the payment by himself to said Seller of material amounts of additional consideration, in exchange for, and in connection with the purchase of the stock. (Italics Added). By a Bill of Particulars, dated June 23, 1971, this additional consideration said to have been arranged is specified as $45,000.00.

 Count 4, arising out of the same state of facts, charges defendant with having filed with the Securities and Exchange Commission and with the American Stock Exchange, proxy solicitation materials and Schedules 14-b in connection with a proposed proxy solicitation contest to be conducted with respect to Defiance, which documents contained false and misleading statements of material facts, failed to include required information, and omitted to state material facts necessary in order to make the statements therein not false and misleading.

 The false and misleading material is said to have been statements "to the effect that Frederic H. Brooks and the aforesaid Buyers had paid $9.00 per share * * * but failed to disclose, describe and otherwise provide details concerning the contracts, arrangements and agreements * * * for the payment of material consideration beyond the disclosed price of $9.00 per share for the aforesaid shares of Defiance stock, and whereby said Buyers did in fact pay to Frederic H. Brooks additional consideration in behalf of the Seller for said stock." Count 4 alleges use of the United States mails.

 Count 5 of the indictment, also arising out of the same state of facts, charges defendant "directly and indirectly, unlawfully, wilfully and knowingly did use the mails and means and instrumentalities of interstate commerce and did use and employ, in connection with the purchase and sale" of Defiance stock a "manipulative and deceptive device and contrivance in contravention of 17 CFR § 250.10b-5" in that he did "make untrue statements of material facts and omit to state material facts necessary in order to make the statements made in the light of the circumstances under which they were made, not misleading, and did engage in acts, practices and a course of business which would and did operate as a fraud and deceit upon certain persons, agencies and organizations." (15 U.S.C. § 78j(b) and 78ff; 18 U.S.C. § 2.)

 Count 5 charges that the same allegedly untrue statements of material facts, and omissions to state material facts would, by reason of the false statement, filings and omissions to disclose, operate as a fraud and "deceipt" (sic) upon, among others, the Securities and Exchange Commission, the American Stock Exchange and its officials and membership, shareholders of Defiance, and particularly, such shareholders who had as of June 5, 1968, at 1:00 P.M.,E.S.T. (sic), outstanding orders with brokers and others to sell Defiance stock at prices between $9 1/8 and $10.00 per share, and upon persons interested in replacing the management of Defiance Industries.

 Pursuant to defendant's motion made December 9, 1969, the Government amplified the indictment by a Bill of Particulars. That Bill, filed June 22, 1971, contained the following particularizations, among others:

 
"5. 'The manipulative and deceptive device and contrivance' is a concealment from the SEC, American Stock Exchange, shareholders of Defiance stock and persons interested in replacing the management of Defiance Industries of the agreement to pay undisclosed consideration and the payment of that consideration to the seller of the approximately 60,000 shares of Defiance stock by the defendant and the other two buyers."
 
* * *
 
7. The additional undisclosed consideration is $45,000.00." ...

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