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United States v. Finkelstein

decided: December 1, 1975.

UNITED STATES OF AMERICA, APPELLEE,
v.
HOWARD FINKELSTEIN, A/K/A ROBERT HOWARD, ANTHONY SCARDINO, ALAN SEGAL, EDWARD ZUBER, APPELLANTS



Appeals from judgments of conviction of conspiracy to violate certain securities laws (appellants Scardino and Segal); of interstate transportation of unregistered stock (appellants Scardino and Segal); of sale of unregistered stock using interstate communications facilities (appellants Segal and Scardino); and of securities fraud (appellants Finkelstein, Scardino and Zuber). The judgments of conviction were entered after a jury trial in the United States District Court for the Southern District of New York, Lloyd F. MacMahon, Judge. Affirmed as to all appellants.

Moore, Feinberg, and Oakes, Circuit Judges.

Author: Moore

MOORE, Circuit Judge:

Viewed, as it must be, in a light most favorable to the government, the evidence introduced below established that from early 1969 until the spring of 1970 Alan Segal ("Segal"), Anthony Scardino ("Scardino"), Burney Acton ("Acton"), Michael Clegg ("Clegg") and others devised and executed a fraudulent scheme to amass and distribute to unsuspecting buyers thousands of shares of worthless stock of Pioneer Development Corporation ("Pioneer"), swindling them out of over three hundred thousand dollars in the process. To facilitate examination of the various alleged errors raised by appellants on appeal the salient aspects of their cabal are set forth as follows.

In early 1969 Acton and Clegg became interested in obtaining control of the outstanding shares of Pioneer, a dormant shell corporation whose stock was originally issued prior to the passage of the 1933 Securities Act. By July 31, 1969, they had accumulated enough shares to control Pioneer.

During the spring and summer of 1969, Acton and Clegg met and talked with Scardino at his recently acquired Riverside Hotel in Reno, Nevada. They explained their interest in initiating trading in the Pioneer stock which they were in the process of acquiring. Scardino told them that Alan Segal, a partner in the Riverside Hotel and a New York promoter, was very adept at stock trading and suggested that Clegg contact Segal. Shortly afterwards, Scardino arranged a meeting in Dallas. Scardino, Acton, Clegg and Segal were present. Clegg explained to Segal that Acton and he controlled the majority of outstanding Pioneer stock and presented Segal with documentary material about Pioneer, Lone Tree Mining, and Precise Power, the latter two being companies which Pioneer had options to purchase. Segal took some of the stock and agreed that he would provide them with $500,000 in operating capital by trading it in New York. He stated that he would determine the price at which it would open and support the stock to make sure it did not decline in value. He also stipulated that the stock remaining with Acton and Clegg in the West was not to be sold on the open market. After the Dallas meeting, Acton, Scardino, Segal and others met at the Riverside Hotel in Reno and discussed their scheme further.

In late September or early October, Segal, Acton, Clegg, Schiffman (Segal's attorney), and others met in Los Angeles. Segal repeated his promises and assurances, reminding his co-conspirators that he had to "keep the shoe box" to be able to keep the price of the stock where he wanted it. Another meeting took place on October 23, 1969 at the Riverside Hotel, at which Segal received over 50,000 Pioneer shares to take to New York and begin trading.

By October 30, 1969, Segal had commenced trading in Pioneer stock in New York at Karen & Co. through Joseph Azzerone, a broker, using a nominee, Francine Zahl, who was Segal's secretary. He arbitrarily selected $5.00 as the stock's opening price, and by means of directed trades, touting, misrepresentations, and a host of other incriminating misdeeds, he manipulated the price of the stock upward until it reached $9.00 per share. To sustain market activity in the stock he guaranteed purchases which he arranged to be made by personal friends. He also used nominees to procure loans by pledging Pioneer stock as collateral.

When, in early November, the $500,000 that Segal had promised to send to Acton and Clegg had not been received, Acton turned to Scardino for assistance. He informed Scardino that he needed money and that although he had promised Segal that he would not sell the stock, Segal would allow him to use it as collateral for a loan. Scardino agreed to secure a loan by pledging Pioneer stock which Acton would issue to him. However, upon receiving the stock Scardino and his employee, McKibbon, sold it. Part of the proceeds were given to Acton; Scardino and McKibbon split the rest. Not realizing the shares were being sold, Acton subsequently asked Scardino to arrange another "loan", using additional shares. Either Scardino or McKibbon sold these shares as well.

When these shares began to reach the eastern market, Segal reacted quickly. He contacted an associate, Gardner, told him the people he was working with in the West were robbing him, and asked him if he knew anyone who could resolve his problem. Gardner suggested Howard Finkelstein ("Finkelstein") and arranged for him to meet Segal. At the meeting Segal informed Finkelstein of the situation, and Finkelstein agreed to act as Segal's enforcer.

Finkelstein went West to investigate the "backdooring", bringing along Anthony Zuber ("Zuber") who, according to at least some of the testimony, carried a gun with him. Zuber confronted Clegg and demanded to know who had been selling Pioneer in the West. Clegg denied having sold any stock and telephoned Segal to tell him as much. Clegg then handed the phone to Zuber who conversed with Segal. Shortly thereafter, Zuber forced Acton to enter a car and accompany him and Finkelstein to the Holiday Inn in Reno. By way of explanation, he informed Acton that "we got to get the stock situation straightened out". Upon arriving at the motel, Zuber, Finkelstein, and Acton met with Scardino and McKibbon. Scardino professed amazement when he was probed about the western sales. McKibbon also denied knowing anything about them, but under physical coercion confessed to having made the sales and agreed to repay Segal. Thereupon, Scardino also promised to give Segal the proceeds which he had received from the western sales.

Upon returning to New York, Finkelstein and Zuber evidenced interest in profiting personally from the fraudulent scheme. Finkelstein asked Gardner if he knew a furrier who would be willing to deal in stock rather than cash. Gardner suggested Allen Grant and arranged for them to meet Grant at his shop, which they did the same day. Zuber offered to exchange Pioneer stock for coats but stipulated that he would not make any deal unless Grant gave him a 60-day repurchase option at $10 a share. Zuber proceeded to make various misrepresentations about the stock. Grant agreed to exchange seven fur coats valued at $15,000 for $42,000 of Pioneer stock, and Zuber and Grant executed the option, which Finkelstein initialled. It was understood that as part of the arrangement Finkelstein was to receive "something", although there is no evidence of what, if anything, was his ultimate reward.

Throughout the duration of this conspiracy, Pioneer remained an empty shell. It possessed options to purchase a Nevada mercury mine and a company called Precise Power, and on October 29, 1969, Acton and Clegg exercised the Precise Power option and acquired that company in exchange for 600,000 shares of restricted Pioneer stock. However, Precise Power's assets were worth less than $5,000 and it never produced any revenues. Pioneer also acquired the Nevada mercury mine on December 3, 1969, several weeks after trading in Pioneer stock had begun, but it never produced any revenues either.

PREJUDICIAL VARIANCE

Having sketched the background, we may now delineate appellants' contentions. We first consider the claim of appellants Scardino and Segal that the government's proof demonstrated the existence of multiple conspiracies. They interpret the indictment narrowly and assert that it does not encompass the western sales made by Scardino and McKibbon in violation of Segal's instructions. They argue that the western sales constitute a separate conspiracy because those sales threatened to undermine Segal's control over the market for Pioneer stock by bloating its supply and depressing its price. Proceeding from the premise of separate conspiracies, they maintain that the evidence concerning the western sales should not have been received and that its reception constituted a prejudicial variance substantially affecting the appellants' rights. We do not agree.

While the western sales may have had the potential to undermine Segal's New York operations, both groups of stock sales manifested a unifying purpose - namely bilking the unsuspecting public by foisting worthless stock upon it. The consummation of each particular fraudulent transaction, whether it be in New York or the West, was dependent upon the successful exploitation of the illusion of legitimate market activity - an illusion to which each transaction contributed its share. That certain defendants were eager to cheat each other for a large slice of the spoils does not obscure the unifying means used by all of them to defraud the public in the first place. See, United States v. Torres, 519 F.2d 723 (2d Cir. 1975); United States v. Salazar, 485 F.2d 1272, 1276-77 (2d Cir.), cert. denied, 415 U.S. 985, 94 S. Ct. 1579, 39 L. Ed. 2d 882 (1974).

"ALL-OR-NOTHING" CHARGE

The question whether there are one or more conspiracies is primarily for the jury, since it is a question of fact as to the nature of the agreement. Torres, supra, citing with approval United States v. Crosby, 294 F.2d 928, 945 (2d Cir. 1961), cert. denied, 368 U.S. 984, 82 S. Ct. 599, 7 L. Ed. 2d 523 (1962). Judge MacMahon's instructions properly submitted that question to the jury in this case.

Appellant Scardino argues that, on the contrary, the judge's instructions constitute the type of "all-or-nothing" charge condemned in United States v. Kelly, 349 F.2d 720 (2d Cir.), cert. denied, 384 U.S. 947, 86 S. Ct. 1467, 16 L. Ed. 2d 544 (1966); and United States v. Borelli, 336 F.2d 376, 386 n.4 (2d Cir. 1964), cert. denied, 379 U.S. 960, 85 S. Ct. 647, 13 L. Ed. 2d 555 (1965). To support his contention, he relies on a fragment of the entire charge, which, if viewed in isolation, arguably supports his position. However, viewed in its entirety, the charge adequately stressed the need to consider the guilt or innocence of each defendant individually. See United States v. Cohen, 518 F.2d 727, slip op. at 4420-21 (2d Cir. 1975).

The jury considered the facts in light of the judge's instructions and determined that appellants Segal, Scardino, and other unindicted co-conspirators, participated in a single conspiracy. Even the most cursory review of the proof adduced below amply supports their determination, and while the evidence implicating Scardino may appear less damning when compared with Segal's machinations, it satisfies the applicable standard for reviewing the sufficiency of the evidence of a party's participation in a conspiracy. Scardino led Acton and Clegg to Segal and sat at their side as the conspiracy was spawned. He had ...


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