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United States v. Stirling

decided: February 2, 1978.


Appeals from judgments entered in the United States District Court for the Southern District of New York, Marvin E. Frankel, Judge, after a six-week jury trial, convicting appellants of securities and mail fraud and conspiracy in connection with sales of stock in the Stirling Homex Corporation. The government charged that Homex's reported earnings had been fraudulently inflated and that material information adverse to Homex had been withheld from the investing public. 15 U.S.C. §§ 77q(a), 77x, 78ff; 18 U.S.C. §§ 371, 1001, 1341. All convictions are affirmed.

Lumbard, Oakes and Meskill, Circuit Judges. Lumbard, Circuit Judge (concurring).

Author: Meskill

MESKILL, Circuit Judge:

This is an appeal by David Stirling, Jr., William G. Stirling, Harold M. Yanowitch, Edwin J. Schulz, and Rubel L. Phillips from judgments of conviction entered on March 11, 1977, in the United States District Court for the Southern District of New York, Marvin E. Frankel, Judge, after a six-week jury trial. Appellants were convicted of securities and mail fraud and conspiracy in connection with sales of stock in the Stirling Homex Corporation ("Homex"). Specifically, appellants were convicted of violating and, under 18 U.S.C. § 371, conspiring to violate §§ 17 and 24 of the Securities Act of 1933, 15 U.S.C. §§ 77q(a) and 77x, and 18 U.S.C. § 1341. Appellants were also convicted of conspiring to violate 15 U.S.C. § 78ff and 18 U.S.C. § 1001. We affirm.

Homex manufactured and assembled prefabricated multi-family modular housing. Its operations consisted of mass-producing individual apartment units, or "modules," using assembly-line production techniques, shipping them to a construction site and installing them in a previously-constructed concrete and steel frame so as to form multi-unit apartment buildings. Each of the appellants served Homex in one or more official capacities, and each had a considerable stake in Homex's financial success. David Stirling, Jr., was Chairman of the Board and Chief Executive Officer; he owned approximately two million shares of Homex common stock. William G. Stirling was President, Chief Operating Officer and a member of the Board; he, too, owned approximately two million shares. Harold M. Yanowitch was Executive Vice-President, Chief Legal Officer and a member of the Board; he owned approximately 160,000 shares. Edwin J. Schulz was Senior Vice-President of Operations, Controller and Principal Accounting Officer; he owned 3,200 shares. Rubel L. Phillips was Southern Region Vice-President; he owned an option to purchase 40,000 shares.

Count One of the nine-count indictment charged that the appellants defrauded Homex shareholders, officers, directors, auditors and others in registration statements filed in 1970 and 1971 with the Securities Exchange Commission ("SEC") covering the public offer and sale of common and preferred Homex stock. The government charged that this was accomplished by inflating reported earnings and by falsifying and concealing adverse material information in violation of 15 U.S.C. § 77q(a)*fn1 and 15 U.S.C. § 77x.*fn2 Count Two charged that appellants wilfully and knowingly made and caused to be made untrue statements of material facts, and failed to disclose material facts necessary to correct the misleading statements, in the 1971 registration statement filed with the SEC covering the public offer and sale of Homex preferred stock, also in violation of 15 U.S.C. § 77x. Counts Three through Eight charged that appellants devised a scheme to defraud Homex securities purchasers and others, to obtain money and property by means of fraudulent representations, and to implement the scheme by using the United States Postal Service, all in violation of 18 U.S.C. § 1341.*fn3 Specifically, appellants were charged with mailing on separate occasions two prospectuses, two annual reports and two quarterly reports to shareholders. Finally, Count Nine charged that appellants conspired to defraud the United States and the SEC and to violate 18 U.S.C. § 1001*fn4 and 15 U.S.C. § 78ff*fn5 as well as 18 U.S.C. § 1341 and 15 U.S.C. §§ 77q(a) and 77x, such conspiracy being in violation of 18 U.S.C. § 371.*fn6 The jury found each appellant guilty of each charged violation.*fn7

The story is a complicated one, involving land transactions that were not what they were claimed to be, labor relations that were not only inappropriately "cozy" but undisclosed, contracts for module sales based upon guile and trickery rather than agreement, and deceptive bookkeeping practices for which appellants have finally been held accountable. The record shows that appellants engaged collectively in a calculated and multifaceted plan to give the investing public the false impression that Homex was in a sound and steadily improving financial position and at the same time withhold adverse information that was material to an accurate appraisal of the company's prospects. The enterprise began in 1968; in 1970 and 1971 Homex stock was sold to the public for a total of $39 million; in 1972 the company was bankrupt. The jury could permissibly have found the following.



Homex was incorporated as a close corporation in Delaware in 1968; its principal offices and factory were located in Avon, New York, a suburb outside Rochester. The Stirling brothers were its founders, officers and principal owners. Shortly after incorporation, Homex made a private offering, selling 1.6 million shares at $1 each. It thus began as a relatively small concern, doing business primarily with private residential projects developed by the Stirlings. It soon became clear, however, that it would be in the best business interests of Homex to exploit the then-budding public housing market. Accordingly, Homex focused its efforts on sales to public housing authorities in federally-financed housing programs.

In late 1968, the Stirlings decided to explore the possibility of "going public" and approached R. W. Pressprich & Co. as a prospective underwriter. Pressprich agreed to underwrite the public sale of Homex common stock on the condition that Homex's annual net earnings totaled $1 million, as projected by the Stirlings. In January of 1969, when the agreement with Pressprich was reached, Homex was reporting profits at the end of the second quarter of approximately $390,000 from the sale of modules and gross land sales totaling $4.7 million.

By April 30, 1969, however, the end of the third quarter, it became obvious that year-end profits would fall far short of the $1 million required for the underwriting, third quarter gross sales totaling only $900,000. At this point Homex arranged two "sales" of land holdings in order to boost total sales and profits to the amount required for the Pressprich underwriting.

The Kece Land Sale.

Peter Thun was the general partner of a limited partnership called Hollyrood Park Associates, located in Clay, New York; the Stirlings were limited partners. In May, 1969, David Stirling offered Thun two parcels of land owned by a Homex landholding subsidiary, Hollyrood Park II, Inc. Thun had a right of first refusal on both parcels. He indicated that he was interested in only one of the parcels -- the one adjacent to his Hollyrood Park project -- but only if it were part of an economically reasonable package consisting of both the purchase of the land for $325,000 and the development by Homex of a plan to build a 330-unit modular apartment building. In other words, he was interested in the land only if apartment units could profitably be built on it. Because Stirling was unable to quote a price for the development of such an apartment complex, Thun arranged to have the land purchased by Kece Associates, Ltd., a newly-formed shell corporation, in such a way as to maintain control over the land and at the same time incur minimal risk. Kece Associates made a 10 percent down payment, assumed existing mortgages on the property and gave a purchase-money mortgage that required interest payments and an annual principal reduction of $10,000 for the first five years.

In practical effect, as the government suggests, this $325,000 "sale" was a purchase by Thun of an "option" on the land. Indeed, Thun himself so characterized the practical effect of the arrangement. He stated that if it had been otherwise he would not have considered entering into it at all. Under the agreement, if Thun were to decide that the construction of a 330-unit apartment project would not or could not be financially advantageous, he could merely order the termination of mortgage payments and, while relinquishing all rights to the land, shed all mortgage responsibilities. The mortgage itself included exculpatory language of the sort commonly found in non-recourse loan agreements. It provided that, upon default by Kece, the Homex subsidiary could foreclose only on the property and could not pursue Kece's or Thun's assets to satisfy the mortgage. Thun viewed the arrangement as one in which he paid money to control the land and, if the arrangement proved ill-fated, one in which his liability was limited.

The transaction was closed on June 3, 1969. Subsequently, appellant Yanowitch wrote a letter on behalf of Kabeth Properties, Inc., another wholly-owned subsidiary of Homex, to Riverbend Estates, Inc., formed by Thun to hold title to the land, confirming the understanding between Kabeth and Riverbend that the Homex units would be designed and manufactured at published prices and that the cost of installing them would be one that the parties agreed upon in the future as reasonable. Thun, meanwhile, told the other Hollyrood Park partners that he had purchased the land at his own personal risk and that, if the apartment complex materialized, he would sell the developed land to the partnership at cost.

The Reseac Land Sale.

Also in June, 1969, appellant Yanowitch spoke to Cesare Falcone, Donald Barbato and Dr. Morris Shapiro about purchasing the parcel of Hollyrood Park II land that Peter Thun did not want. Homex sought $435,000 for the parcel and was willing to accept an $80,000 down payment and a purchase-money mortgage. Yanowitch made assurances that the land could be zoned so as to allow for the construction of a financially productive shopping center. Added to these generally favorable investment conditions was the fact that Gulf Oil Corporation owned an option on 3/5 of an acre of the parcel, the exercise price of which was $100,000. Still, the prospective purchasers expressed reluctance. Yanowitch, and eventually David Stirling, then assured them that, if anything went "awry," Homex would either repurchase the land or find another purchaser. In effect, the purchasers were assured that they would not lose money on their investment. This assurance was repeated prior to closing when complications developed regarding a zoning ordinance that prohibited the type of shopping center facilities the purchasers were interested in constructing. Yanowitch assured them that a variance would be obtained. Yanowitch also told them that they would be "getting some stock in Stirling when it went public." Homex declined to enter into a written indemnification agreement, but it is clear that Falcone, Barbato and Shapiro believed that, if they agreed to enter into the purchase agreement, Homex would protect them from losses.

The deal was closed on August 18, 1969, after the end of the fiscal year; the deeds were back-dated to June 30, 1969. Falcone, Barbato and Shapiro had created Reseac Realty, Inc. ("Reseac"), to purchase the land, which it did by transferring $80,000 as down payment, assuming $30,000 and $13,000 mortgages on the property and granting a $302,000 purchase-money mortgage. No principal payments were required for the first three years.

HKF Audits the 1968-1969 Fiscal Year.

On August 27, 1969, the accounting firm of Harris, Kerr, Foster & Company ("HKF") certified the Homex financial records for the 1968-1969 fiscal year. HKF certified for inclusion as income the $325,000 receivable from the Kece transaction and the $425,000 receivable from the Reseac transaction. The inclusion of these two "sales" boosted Homex's net income after taxes slightly above the $1 million required for the Pressprich underwriting.

During the audit, Yanowitch told HKF that he had personal knowledge of Reseac's ability to honor its mortgage commitment and that, in the event of a default by either Kece or Reseac, the land could easily be sold to satisfy the mortgages. Yanowitch told HKF that the agreed-upon design and manufacture of modules for the Kece property would be at published prices; he failed to tell HKF that the parties had not agreed upon the cost of installing the modules other than to say it would be reasonable. In other words, he did not tell HKF that the completion of the "sale" depended upon certain conditions being met by Homex in the future. Yanowitch also neglected to tell HKF of the assurances made to Reseac regarding the zoning restriction and of the commitment by Homex to repurchase the land or arrange for a purchaser if anything went wrong. Finally, although he told HKF that Homex and Reseac had no stockholders in common, he did not tell HKF that promises had been made to Falcone, Barbato and Shapiro that arrangements would be made for them to purchase Homex stock at the anticipated public offering for the issue price.

The 1970 Registration Statement.

On October 1, 1969, Homex filed a registration statement with the SEC in connection with the issuance of Homex common stock. It made scant mention of the Kece and Reseac land transactions:

Two sales of undeveloped land acquired at the time of organization of the Company accounted for approximately 18% of the Company's net income during its first fiscal year. The larger parcel was purchased by a developer who subsequently entered into an agreement with the company to purchase modular housing for installation on such land.

The registration statement became effective on February 19, 1970, for a total sale of 1,175,000 shares of Homex common stock at $16.50 per share, netting Homex approximately $20 million.


HKF Audits the 1969-1970 Fiscal Year.

During August and September, 1970, HKF again met with Homex, this time to certify the financial records of Homex for the 1969-1970 fiscal year. In connection with this audit, Paul Kuveke, then Executive Vice-President and Treasurer of Homex, wrote a letter to HKF stating that, although both the Kece and Reseac mortgages were in default in the amount of $559,624 as of the end of the fiscal year, Homex nevertheless considered them "collectible" and properly recognizable as income for auditing purposes. He cited as reasons for this belief the receipt from Kece on September 27, 1970, of a payment that brought its obligations up to date; the expectation that a Reseac payment would also be received, given what appeared to be favorable business conditions for Reseac; and a recent appraisal of the parcels that placed the fair market value of the Kece land at $310,000 and the Reseac land at $403,650.

The Kece Mortgage Payment

The Kuveke letter failed to disclose to HKF the rather complicated set of transactions that "facilitated" the September 27, 1970, Kece mortgage payment. Thun and the Stirlings were involved in a number of enterprises besides Hollyrood Park Associates. Among these were Fairway Associates, the owner of an apartment development in Rochester, New York; Mobile Townes Corporation, the owner of a mobil home park in Syracuse, New York; and Pennscott Properties, a management company for Mobile Townes.

In September, 1970, a dispute arose regarding claims by Homex that Thun and his various enterprises owed approximately $90,000 to Homex and its subsidiaries. From the record, it appears that this $90,000 consisted of approximately $34,000 due Homex for the construction of a clubhouse on Hollyrood Park property, approximately $35,000 on a demand note held by Homex and, apparently, approximately $23,000 due on September 2, 1970, as mortgage payment on the Kece-Riverbend parcel. It was Thun's opinion that the best way to clear up the confusion was for his enterprises to buy out the Stirlings' interests in Mobile Townes and Pennscott, thereby simplifying the ownership of the various corporations and at the same time providing payment to the Stirlings.

Jack Doerge, a director of Mobile Townes, indicated to Thun that he was interested in acquiring additional Mobile Townes stock and would transfer $90,000 for that purpose. $90,000 was delivered to Al Bartz of Homex in exchange for Pennscott and Mobile Townes shares held by the Stirlings. The Mobile Townes stock was not, however, delivered that day. Instead, it was placed in escrow until Thun confirmed to HKF the authenticity of the purchase-money mortgage on the Kece-Riverbend property. On October 5, 1970, Thun confirmed to HKF that the mortgage was authentic. In effect, then, the same $90,000 that was used to purchase the Stirlings' stock in Pennscott and Mobile Townes was used to satisfy the disputed $90,000 indebtedness. At the same time, and in the same transaction, ownership of valuable stock was transferred, $90,000 worth of debts was forgiven, and Homex could present to its auditors a confirmed and therefore arguably collectible mortgage to support its recognition as income.*fn8

Reseac Developments

The Kuveke letter to HKF also failed to reveal significant background information regarding the Reseac land transaction. On July 16, 1970, Gerald Beckerman, the attorney for Falcone, Barbato and Shapiro, met with Carl Wren, Homex's Director of Market Research, and Ruben Davis, assistant to Yanowitch, in an effort to resolve problems that had developed regarding the property sold to Reseac. The problems were considerable: contrary to Homex's assurances, the zoning restriction had not been lifted; Falcone, Barbato and Shapiro had become "quite disillusioned" with the property and were no longer inclined to develop or retain it; Reseac had no cash and could not make the interest payment due on July 1, 1970; and, finally, Reseac could not pay the real estate taxes or the obligations on the assumed mortgages. In short, Falcone, Barbato and Shapiro wanted Homex to make good on its promises either to repurchase the land or arrange for another purchaser.

Wren and Davis made it clear to Beckerman that, although the land was considered to be a good financial value, Homex would not repurchase it. They did, however, offer to assist in the sale or development of the property. Beckerman indicated that Falcone, Barbato and Shapiro would be willing to continue in the arrangement as long as there was a waiver by Homex of the mortgage payments, a condition that Homex found unacceptable. The meeting was amicable, but it clearly met neither the hopes nor the expectations of the Reseac principals. Kuveke's letter mentioned none of this.*fn9

Accounting Practices

The HKF audit of Homex's 1969-1970 financial condition prompted Homex again to shade the truth, this time in connection with the accounting methods utilized by the corporation. Typically, a Homex contract would state one price for the design and manufacture of modules and another price for their installation. At one time, Homex used sales contracts that transferred title and risk of loss to the buyer upon delivery of the finished apartment module to an independent carrier. When this contract was used, Homex recorded income from the sale of the module as of the moment the module was delivered to the carrier. During the 1969-1970 fiscal year, however, Homex changed to a "turn key" contract under which Homex retained title and risk of loss until installation was complete and a closing had occurred. Thus, the sale was not complete until after the closing, when the new owner could actually claim possession and "turn the key." For obvious reasons, waiting to recognize income until the day that the key was turned troubled Homex officials. Homex, through Schulz, wanted HKF to certify as income the value of sales contracts for modules that, although not yet delivered or installed, had been "manufactured and assigned to specific contracts." This method of calculation allowed Homex to recognize the manufacture price of a module as income long before it actually received any cash for that module.

During the 1969-1970 fiscal year, Homex also changed the provisions of its contracts dealing with installation. Where once Homex had not recorded any portion of the installation price as income until the installation was complete, Homex now wanted HKF to recognize as income that proportion of the installation price equal to the proportion of the installation completed. This system of recognition is called the "percentage of completion" method.

To support these methods of recognizing income, Schulz contacted and eventually retained Dr. Joseph A. Mauriello, an accounting professor at the New York University Graduate School of Business Administration. As a result of the conversations with Schulz, Dr. Mauriello submitted to HKF an opinion supporting Homex's income recognition system, and HKF approved of its use. What Schulz did not reveal to Dr. Mauriello, or to HKF, however, was the so-called "Christman Incident." Earlier in 1970, David Christman, an assistant controller in Homex's installation division, had discovered that profits for the installation phase of Homex operations were going to be one-half million dollars less than what they had been projected to be. Schulz instructed Christman to "delay recordation of the accounting entry embodying that calculation" until after the close of the fiscal year. This delay prevented the reduction of the installment division's 1969-1970 profits by 60 percent and the reduction of Homex profits for that period by 11 percent. According to Dr. Mauriello, had the delay been disclosed to him, it would have altered his opinion regarding the propriety of the income reporting methods of the installation division.

The Route 57-31 Land Sale.

In December, 1970, Harold L. Wynn, Jr., and William Grago, Jr., partners in the Empire Pipeline Corporation, and their attorney, Carmen Grasso, met with David Stirling to discuss the purchase of 138 acres of land at the intersection of routes 57 and 31 in Clay, New York. The land was owned by Homex's land-holding subsidiary, Kabeth Properties, Inc. The purchase price of the land was $2.1 million. A 30-acre portion of the land was then the subject of a state condemnation proceeding, for which an award of $1 million was anticipated.

Wynn told Stirling that, although the purchase price seemed fair, the three of them could not afford to make the investment. Stirling suggested that the condemnation award could go toward the purchase price and that he would accept a 10 percent down payment of $210,000 and a purchase-money mortgage with no principal or interest due for five years. Wynn responded that they could not even afford the down payment. Stirling then proposed that Homex arrange financing in such a way as to enable them to "purchase" the land without transferring any money whatsoever to Homex, and went so far as to assure sufficient business activity to enable payment of obligations that did arise. Although Stirling declined to give a requested corporate guarantee against any investment losses, he did give his personal guarantee to that effect. The parties agreed.

In order to facilitate the "sale" without the transfer of funds, Stirling and Yanowitch instructed Charles Marshall, former banker and then Homex employee, to arrange a bank loan to Route 57-31 Development Corporation ("Route 57-31"), a shell corporation set up by Wynn and Grago to take title to the property. He was instructed to negotiate the loan with First National Bank of Rochester, New York, and to assign the condemnation award due Homex as collateral. First National then loaned $250,000 to Route 57-31, requiring the personal guarantees of Wynn and Grago on the note. This was in turn paid over to Kabeth Properties. No closing occurred and no deed was transferred.

On January 6, 1971, Yanowitch, Schulz and Ruben Davis, then Assistant Vice President and Associate General Counsel of Homex, met with Dr. Mauriello to discuss recognizing as income the $1.4 million profit on the "sale" of land to Route 57-31 for $2.1 million. The purpose of the meeting was to secure Dr. Mauriello's favorable opinion for use during the audit of the 1970-1971 fiscal year. In particular they discussed SEC Accounting Series Release No. 95, which commented on the propriety of real estate transaction accounting methods that recognized as income any profits not received at the time the transaction was recorded.*fn10 Dr. Mauriello eventually advised HKF that the sale of land by Homex to Route 57-31 was a bona fide sale for which income could and should be recognized as of the date of the sale. Neither the true scope of the agreement between Homex and Route 57-31 nor the nature of the background financial arrangements supporting the agreement was disclosed to Dr. Mauriello. Nor were the Homex auditors, HKF and its eventual successor, Peat, Marwick, Mitchell & Co. ("Peat Marwick"), told of those details.

In fact, David Stirling, Yanowitch and Schulz tailored the Route 57-31 "sales contract" so as to avoid possible auditor objections, and ultimately represented that there were no undisclosed "assets pledged or assigned as security for liabilities" and "that the officers and directors of [Homex] had no direct or indirect relationship with Route 57 and 61 [sic] Development Corporation."

The Greater Gulf Coast Housing Development Corporation.

In late 1970, appellant Rubel Phillips, a Mississippi attorney, helped organize on Homex's behalf a group of Mississippi citizens into a non-profit public benefit corporation that would be eligible for federal, state and local financing of housing projects. The corporation was called the Greater Gulf Coast Housing Development Corporation ("Greater Gulf"). In December, 1970, Greater Gulf and Homex entered into two agreements. The first, for $100 million, called for the construction of a 5,000-unit housing project over a 6-year period, and was conditioned upon the modules being constructed in a Mississippi factory. The second, for $15 million, called for the construction of an 800-unit modular housing project over an 18-month period. These agreements, however, were effectively worthless unless and until Greater Gulf was successful in obtaining a funding commitment from appropriate government agencies.

Originally, the Greater Gulf projects were to be funded by the United States Department of Housing and Urban Development. By January, 1971, however, this plan was changed and funding was sought from the Farmers' Home Administration of the United States Department of Agriculture ("FHA"). During February, Phillips arranged for two FHA officials, S. B. Wise and W. T. Richardson, to visit Avon, New York, and to discuss with Yanowitch and David Stirling the commitment of FHA funds to Greater Gulf for the purchase of Homex modules. Wise and Richardson, however, were unable to authorize the funding commitment, a matter of some concern to Homex officials in that Homex had already chosen Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch") to underwrite a July, 1971, issuance of Homex stock. This issuance required the filing of a second registration statement with the SEC, which in turn required a certification by Homex auditors of the financial records for the fiscal year up to January 31, 1971. About that time, Homex discharged HKF and retained Peat Marwick as auditors.

On February 24, 1971, Phillips secured the signature of Greater Gulf's volunteer President Kenneth Caron on a series of documents, including a sales contract between Homex and Greater Gulf which was backdated to December 28, 1970. Phillips explained to Caron that the backdating was merely for funding purposes. Phillips also told Caron that the contract was the same as an earlier $100 million agreement that Caron actually had signed in December, 1970, except that it provided for fewer units. Phillips did not call to Caron's attention the absence of the contract clause requiring the modules to be manufactured in Mississippi. Phillips also gave Caron a letter from Greater Gulf to the FHA requesting a $15 million loan and a response from the FHA, purportedly signed by Richardson, committing the FHA to the loan. Caron signed the FHA response in order to accept the loan. Richardson's signature on the FHA commitment was in fact forged at Phillips' instruction by his secretary. On the next day, February 25, 1971, Schulz instructed the Homex accounting department to credit Homex with the sale to Greater Gulf of 566 modules for $6,786,900. Later in the year, still without a valid contract or a genuine government funding commitment, Homex assigned another 60 modules to the Greater Gulf project in order to boost reported year-end revenues.

The forged commitment letter was kept by Yanowitch and used to the benefit of Homex on three important occasions. First, it was used to "assist" Dr. Mauriello in arriving at an opinion regarding the propriety of recognizing income from the Greater Gulf transaction. Second, it was shown to Homex's commercial bankers. Third, it was shown to Peat Marwick on March 19, 1971, to "aid" them in their audit of the financial records for purposes of the approaching issuance. The Greater Gulf sale was described to Peat Marwick verbally and supported by the backdated December 28, 1970, contract. It was also supported by a contract between Greater Gulf and the U.S. Shelter Corporation ("U.S. Shelter"), a wholly-owned financing subsidiary of Homex, in which Greater Gulf agreed to pay a finder's fee of $300,000 to U.S. Shelter for securing the $15 million federal funding commitment.

Accounting Practices During the 1970-1971 Fiscal Year.

Three incidents during the 1970-1971 fiscal year make it clear that Homex accounting practices during that time were considerably less than straightforward. First, a significant proportion of the modular sales recorded for the first quarter was based upon the assignment of modules to purported sales with housing authorities in Clay, New York, and Southbridge, Massachusetts. These sales were reported as income notwithstanding the fact that there existed neither written contracts nor funding commitments to support the assignments. The unaudited ...

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