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United States v. Erb

decided as amended: October 1, 1976.


Appeal from judgments of conviction in the United States District Court for the Southern District of New York, Charles L. Brieant, Jr., J., in which jury found defendant Erb guilty on ten counts of filing false registration statements with the SEC, using the mail for that purpose, and sending false prospectuses. Defendant DeBoer was found guilty on one count of filing a false registration statement. Affirmed.

Kaufman, Chief Judge, Feinberg and Van Graafeiland, Circuit Judges.

Author: Feinberg

Feinberg, Circuit Judge:

Charles D. Erb and Franklin S. DeBoer appeal from judgments of conviction in the United States District Court for the Southern District of New York after a two-week trial before Charles L. Brieant, Jr., J. The jury found Erb guilty on four counts of filing false registration statements with the Securities and Exchange Commission (SEC) in connection with the public offering of the common stock of Xprint Corporation (Xprint), and DeBoer guilty on one of those counts. 15 U.S.C. § 77x, 18 U.S.C. § 2. In each instance, the false statement was that an alleged nominee rather than the defendant was the owner of shares of Xprint. The jury also found Erb guilty on one count of causing letters to be mailed on the same subject in furtherance of a scheme to defraud, 18 U.S.C.§§ 1341, 2, and on four counts of causing the transmission of prospectuses containing false statements on the same subject. 15 U.S.C. §§ 77e(b), 77j.*fn1 Judge Brieant sentenced Erb to concurrent terms of 18 months in prison followed by 31 months on probation. The judge fined DeBoer $5,000 and imposed a prison term of five months, followed by 31 months of probation. Both Erb and DeBoer appeal, making a variety of contentions. For reasons set forth below, we affirm.

I The Facts

The relevant facts, as the jury could have found them, are not very complicated, although the case is unusual in one respect. The false statements here, unlike those charged in most indictments involving securities fraud, were not meant to hide the true value of the Xprint stock being offered to the public. Rather, for reasons explained below, the false statements were designed to conceal the status of defendants as stockholders. Both defendants, along with George Van Aken, an unindicted accomplice and chief government witness, were partners in a New York Stock Exchange member firm, Baerwald & DeBoer. In April 1969, Erb and Van Aken agreed with Xprint to make a private placement of its stock in exchange for unregistered shares of Xprint common stock to be sold for a nominal sum. On April 22, Erb and Van Aken approached DeBoer about the private placement, and he too purchased shares at a substantially reduced price. By that time, however, Baerwald & DeBoer had also agreed to be Xprint's underwriter in a public offering. DeBoer pointed out that, as partners in the firm, if they registered their Xprint stock in their own names, they would run afoul of regulations of the SEC and the National Association of Securities Dealers (NASD), which barred excessive underwriters' compensation. DeBoer, therefore, wanted his stock registered in the name of James Lovelett, his nominee. Erb and Van Aken subsequently decided to use Dr. Scott Skillern and Donald Sedgwick, respectively, as their nominees, and they confirmed their decision in a May meeting with various representatives from Xprint.

The partners were then faced with SEC and NASD filing requirements. In June 1969, Baerwald & DeBoer received formal "investment letters" to be signed by Lovelett and Skillern. Van Aken gave the Lovelett letter to DeBoer who returned it with the necessary signature, and Erb forwarded his letter to Skillern. On August 20, 1969, the registration statement, falsely listing Lovelett as a selling shareholder and Skillern as owner of 50,000 shares, was filed with the SEC. Six weeks later DeBoer resigned from the firm.

While all of the criminal charges against the defendants were based on their false statements filed in 1969, they did conduct other transactions in Xprint stock. In January 1970, the Xprint public offering was cancelled because it was never completely sold to the public. Despite this, Erb managed to make a public market for the stock at prices in excess of the public offering price. DeBoer was one of the purchasers of Xprint stock in this "aftermarket."

II Contentions of Erb

Tape recordings of conversations

On appeal, Erb presses most strongly a number of arguments growing out of the receipt in evidence of three tape recorded conversations between Erb and his nominee, Skillern, in late 1969. Skillern testified that he recorded the conversations with Erb's permission "for a matter of record keeping" since "we are talking about such big money." The conversations were indeed replete with large numbers and references to complicated stock transactions, some of them suggestive of the use of Skillern's heavy losses for Erb's tax benefit. Erb maintains that this evidence denied him a fair trial because the conversations were irrelevant and "a classic example of inadmissible proof of other crimes,"*fn2 because the prosecutor in his summation was thus able to accuse Erb of trying to "cheat on taxes" and because the prosecutor violated Brady v. Maryland, 373 U.S. 83, 10 L. Ed. 2d 215, 83 S. Ct. 1194 (1963), when he deliberately withheld from the defense Skillern's pretrial denial of any intent to participate in a tax evasion scheme. These assertions were also the basis of a motion for a new trial in the district court, which Judge Brieant denied.*fn3

Taking these contentions in order, the claim of irrelevance is completely without merit. Whether Skillern was Erb's nominee for holding 30,000 shares of Xprint stock and whether Erb knowingly and wilfully misrepresented such ownership to the SEC and the NASD were vital factual issues. Skillern did testify that he was only Erb's nominee, but the taped conversations also bore directly on the relationship between the two and the reasons for it. Erb concedes that Skillern's several references to 20,000 shares of Xprint, coupled with Erb's apparent agreement, supported the Government's theory that Erb knew that Skillern only owned 20,000 out of the 50,000 Xprint shares attributed to him in the prospectus. But, appellant argues, the judge erred in in not excluding the remainder of the conversations. We do not agree. The entire conversation in each instance showed that Erb's use of Skillern was part of an overall pattern of conduct and similar acts. The cryptic references to other schemes were not so inflammatory that the likelihood of prejudice outweighed the probative value of the conversation. United States v. Papadakis, 510 F.2d 287, 294-95 (2d Cir.), cert. denied, 421 U.S. 950, 44 L. Ed. 2d 104, 95 S. Ct. 1682 (1975); United States v. Williams, 470 F.2d 915 (2d Cir. 1972).

Similarly, the prosecutor's comment in summation that in their discussions Erb and Skillern were "trying to cheat on taxes" did not deny Erb a fair trial. The trial judge immediately instructed the jury to "disregard the argument made."*fn4 This sufficiently limited the effect of what even appellant refers to as a "one-liner."*fn5 The judge's comment also effectively disposes of the Brady claim. If possible tax evasion was sufficiently ...

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