Appeals from judgments of conviction entered in the Southern District of New York after jury trial before Charles M. Metzner, J., finding all appellants guilty of conspiracy, mail fraud, and fraud in the purchase and sale of securities, finding appellants Koss and Koss Securities Corporation guilty of fraud in the offer and sale of securities and of failing to deposit proceeds of an "all or none" offering promptly in an escrow account, and finding appellant Koss guilty of submitting false documents to the Securities and Exchange Commission. Affirmed.
Lumbard, Feinberg and Oakes, Circuit Judges.
Theodore Koss, Koss Securities Corporation, Erwin Layne, and William McGee appeal from judgments of conviction for mail fraud and other offenses related to the sale of stock in Automated Information Systems, Inc. (AIS) entered on June 14, 1974, in the Southern District, following a thirteen-day trial before Judge Charles M. Metzner and a jury. Each appellant was convicted of conspiring to violate the federal securities and mail fraud laws, 18 U.S.C. § 371, and of committing fraud in the purchase and sale of securities, 15 U.S.C. §§ 78j(b), 78ff, and mail fraud, 18 U.S.C. §§ 1341-42. In addition, Koss and Koss Securities were convicted of fraud in the offer and sale of securities, 15 U.S.C. §§ 77q, 77x, and of failing to deposit proceeds from an "all or none" offering promptly in an escrow account, 15 U.S.C. §§ 78o (c)(2), 78ff; 17 C.F.R. § 240.15c2-4(b).*fn1 Koss was also found guilty of submitting false documents to the Securities and Exchange Commission (SEC) in the course of its investigation. 18 U.S.C. § 1001.*fn2
The indictment, filed on September 25, 1973, named the appellants and twelve others as defendants. In addition it named seven unindicted individuals and corporations as co-conspirators, including Michael Hellerman, the principal government witness, and Murray Levine, who also testified for the government. Nine of the defendants pleaded guilty before trial; of them Stephan Zardus, Robert Santis, Steven Adlman, and Robert Kolbert testified for the government. Of the three remaining defendants, besides appellants, the jury acquitted Stephen Hagler, and the court granted a severance to Samuel Weisman and Harold Lassoff.
Appellants raise numerous issues in challenging their convictions.*fn3 We find the various claims to be without merit, and we affirm the judgments of conviction.
Appellants Koss and Koss Securities Corporation challenge the sufficiency of the evidence. We find that the record viewed, as it must be, in the light most favorable to the government, United States v. Glasser, 315 U.S. 60, 80, 86 L. Ed. 680, 62 S. Ct. 457 (1942); United States v. Arroyo, 494 F.2d 1316 (2d Cir. 1974); United States v. McCarthy, 473 F.2d 300, 302 (2d Cir. 1972), amply supports the jury's verdict.
In late 1970 Koss and Koss Securities made an agreement with Robert Santis, the president and owner of AIS, to undertake the public offering of 65,000 shares of AIS common stock at one dollar per share. Koss was to receive fifteen percent of the proceeds, ten percent as commission and five percent for expenses. Santis was trying to raise capital for his small, computer consulting company which had just earned a small profit in its second year of operation. The underwriting was on an "all or none" basis: the moneys would be returned to subscribers and no commission paid to Koss unless all the shares were sold by a certain date. All of the proceeds Koss received from the sale of shares were to be deposited promptly in an escrow account pending completion of the offering, as required by SEC rule 15c2-4 and as indicated in the offering circular.
The offering circular became effective on December 2, 1970. During December Koss was unable to sell more than 15,000 shares. He began to receive payments in December, but did not open an escrow account until December 30, 1970, when he deposited $3000 -- comprised not of customers' checks for AIS shares, but $2875 from Koss Securities' own account at Shearson, Hammill, another brokerage firm, and $125 from the firm's own bank account. Although it was not clear when Koss received all the proceeds from the sale of the 15,000 shares, since some customers may have delayed payment until near the expiration date of the offer on March 2, 1971, Koss continued to receive payments in January and February. However, after the December 30 deposit, no deposit was made to the escrow account until March 5, 1971, several days after the offering was completed.
On February 1, 1971, Interstate Equity Corporation, headed by Stephan Zardus, was added as a co-underwriter and the offering circular correspondingly amended. Zardus, however, was able to place less than 4000 additional shares.
At that point Murray Levine, who had recently been an employee of Koss Securities and knew of Koss' difficulties in disposing of the stock, contacted Michael Hellerman and Murray Taylor, who agreed to sell the remaining 45,600 shares on two conditions: that they receive one-half of the proceeds of the offering, and that they be given complete control over all 65,000 shares so that the market could be manipulated. This required Levine to convince Koss to recommend to his customers that they sell their AIS stock to Hellerman soon after the offering was completed. Hellerman told Levine that he would pay $1.50 for those shares at that time -- a profit of fifty cents per share for Koss' customers.
Levine and Koss thereafter both told Santis that a group had been found to complete the offering. At a mid-February meeting with Levine, Taylor and Hellerman, Santis reluctantly agreed to the kickback arrangement, fearing that without the assistance of Taylor and Hellerman the offering would fail and AIS would receive no new capital. Santis and Levine also gave the required assurances that Koss would turn over the 15,000 shares at $1.50 per share.
Koss' involvement at that point was somewhat unclear. His later statement to Hellerman that he wanted to "renegotiate" suggests that he did promise Levine before this February meeting that he would turn over the shares at $1.50 per share to the new group. In any event, Koss, if not already, was soon well aware that the group completing the offering was involved in some kind of fraud. After Santis' first meeting with Hellerman, Santis called Koss several times to say that the group wanted the shares. Koss replied that he would not turn over control of the shares until he knew exactly what the deal was, who was involved, and what his participation would be.
Meanwhile Hellerman formed a partnership for the AIS promotion with Taylor and appellant Layne. By February 26, four days before the offering would have expired, the group had sold the remaining 45,600 shares. They purchased 27,600 of the shares themselves in the names of acquaintances and names taken from the telephone book. The cost of the purchases would be more than offset by the kickbacks they were to receive. On February 26, Hellerman and Taylor met with Santis and Zardus and gave them the names of most of the purchasers they had "found," as well as the payment for all the shares. Zardus was to send confirmations only to the legitimate purchasers.
Immediately after that meeting, Zardus called Koss and told him that the offering was going to be successful because of the involvement of Hellerman and Taylor. Zardus also stated that he was accepting a reduced commission because Santis had agreed to kick back one-half of the proceeds of the offering to Hellerman and Taylor. Koss now knew, before the offering was completed and any shares had been issued, not only that the group Levine had found planned to manipulate the ...