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F. McD. Spencer and S. M. Johnstone, both of Los Angeles, Cal., for plaintiffs in error.

Albert Schoonover, U. S. Atty., of Los Angeles, Cal., for the United States.

Before GILBERT, MORROW, and HUNT, Circuit Judges.

HUNT, Circuit Judge. The defendants Chas. A. Elder, W D. Deeble, and George M. Derby (plaintiffs in error), together with eight others, were indicted under section 37 of the Criminal Code (Act March 4, 1909, c. 321, 35 Stat. 1096 (Comp. St. 1916, § 10201]) for conspiracy to violate section 215 (Comp. St. 1916, § 10385), in using the mails in furtherance of a scheme to defraud. The plaintiffs in error were convicted, and the other defendants were acquitted.

The indictment charged, in substance, that in January, 1911, Elder, Deeble, Derby, and others were in exclusive control of the affairs of the Los Angeles Investment Company, a California corporation at Los Angeles; that defendants conspired to defraud divers persons, inducing them by false and fraudulent representations to purchase of shares and bonds in the corporation at prices greatly in excess of their value, and for the purpose of executing the scheme would place, and cause to be placed, letters, .circulars, etc., in the mail of the United States, in which mail matter they would pretend that the earnings of the company were grossly in excess of what they actually were, and that the cash balances on hand were grossly in excess of the actual balances; that the stock was increasing in actual value at the rate of 5 per cent. of its par value per month; that a so-called "Guarantee Fund” was maintained under the control of the Globe Savings Bank of Los Angeles for the protection of the stock purchasers, and that there were and would be in this fund amounts grossly in excess of what it actually contained, and that no one ever had or could buy a single share of stock in the company except upon payment of the full purchase price in cash or by a one-third cash payment with the remainder in notes; that the payment of certain so-called “Gold Notes” was secured by a first lien on the treasury and real estate of the corDoration, and that the entire stock premium's were held for the future benefit of stockholders, and that the dividends declared upon the stock were paid out and would be paid out of the earnings and profits of the corporation, and if a balance was due the corporation from stockholders, including defendants, all dividends payable to such stockholders would be applied on the amount owing by them; that the defendants, as a part of the conspiracy, would issue to themselves about 1,000,000 shares of the stock of the corporation without consideration therefor, and would pay to themselves dividends upon it, and would divert money of the corporation to the "Guarantee Fund," and would divert money to “Home Makers," a corporation controlled and managed by defendants.

The overt acts charged consisted of mailing of letters and copies of “Homes of Los Angeles," a paper published each month by defendants in the name of the Los Angeles Investment Company. These alleged published representations related to "Gold Notes as safe and

sure investments secured by first lien on the treasury and real estate of the corporation. One of the advertisements pertained to dividends and expenses as being paid out of actual profits, not for premiums on sales of stock, and the surplus was published as over $7,800,000 in November, 1912. Another copy of the paper, in April, 1913, published that the guarantee fund of the company, held as a separate fund and managed by officers of the Globe Savings Bank, amounted to $252,242.51, a gain of 128 per cent. during the year next preceding publication. In October, 1913, the paper published that the balances due, mortgages, loans, etc., amounted to over $10,000,000, and that these loans were made on security much in excess of the amount of the loan. Another overt act charged was mailing a letter to Mrs. Carns in Los Angeles, telling her that, if she bought stock and left it for reinvestment, at each time dividends would be sufficient to buy five shares or more the reinvestment would be made, and she would be sent a notice together with an order for the stock certificate, and when this was signed and returned the certificate would be mailed to her; that, if the dividend did not amount to enough to purchase five shares, she would be sent a credit memorandum each quarter, and that she would not lose by her investment, as the “Guarantee Fund” of $100,000 was an assurance of her protection. This letter contained other alluring statements concerning the proposed investment.. Other letters are set forth in the overt acts alleged, but it is enough to say that they represented that the notes and obligations of the company were amply secured, and that the stock would be advanced in price after December 31, 1912. In one letter mailed under date of October 13, 1913, addressed to the stockholders, they were told that the company had sufficient profits to warrant a dividend. The stockholders were asked as to their advice in the premises, and told that the stock was worth more if a dividend was not declared.

The testimony is voluminous, but the gist of much of it is as follows: Elder, Deeble, and Derby were the president, secretary, and treasurer, respectively, of the Los Angeles Investment Company, and all three were directors and in control. Elder was also director and president of “Home Makers,” a corporation owned by the defendant, and was trustee of the “Guarantee Fund,” and also director and president of the Globe Savings Bank. Deeble and Derby were also directors and officials in the “Home Makers” and in the Globe Savings Bank. They sold 5,000,000 shares of the capital stock of the Los Angeles Investment Company, of the par value of $1 each, for over $16,000,000. They also sold the obligations of the “Gold Notes," of more than $2,000,000, and certificates of over $500,000. 670,588 shares of the capital stock of the Investment Company were issued to the 11 persons who had been included in this indictment, at an aggregate price of $1,306,305.75, charged against the 11, leaving $18,246,622.81, for which the stock and obligations of the company were sold to the public. Counsel for the United States accepts the statement of counsel for defendants, that the "company had throughout its history paid a quarterly cash dividend amounting to 7 per cent. per annum, upon the market value of the stock at the time of the dividend. The company had also advanced in each of the eight nondividend months every year

the selling price of its stock five cents per share." The evidence showed that a vigorous campaign of advertising was carried on through the paper “Homes," the paper having large circulation by mail and personal delivery. Pamphlets, entitled "Seventeen Miles of Dividends," were also mailed to prospective investors. In the publications the company stated that stock could be bought at the price quoted until after the first day of the ensuing month, when the price would be advanced five cents a share, and it was published that 7 per cent. interest on the market value of the stock at the time the dividend was declared was justified as payable out of the actual earnings and profits of the company, emphasis being laid on the statement that the company was not paying any portion of its dividends from the profits on the sales of the stock, all such profits being carried to the surplus account, in which, for instance, in July, 1912, there were over $6,000,000. The method of making such announcements was by publishing in “Homes” a "Question Box.” For example, in the issue of January, 1911, in the "Question Box," we find :

“Question: From what source can you pay 28 per cent. a year in cash dividends?"

“Answer: All dividends are paid from profits on real estate, interest on loans, building profits, architectural, rental, and insurance departments, etc. The last annual statement showed profits for the preceding year to be, for real estate, $261,319.69; for interest, $180,000.00; and for building construction, $10,191.89.”

At a directors' meeting held on May 7, 1901, the directors present, Elder, Deeble, Derby, and Fay, declared a dividend of 200 per cent. on the paid-up capital stock of the corporation "out of the surplus earnings of the corporation already accrued and hereafter to accrue, payable to the stockholders in proportion to their several holdings. A resolution passed the same day also provided that the stockholders might purchase with the dividends treasury stock to the entire amount of the dividends, at $1 per share if purchased on or before May 31, 1901, and the president and secretary were authorized to sell treasury stock to the amount of $1,000 to pay the debts of the company. There was evidence to the effect that when this 200 per cent. dividend was declared the outstanding capital stock was 2,000 shares, which made the dividend $4,000; but it appears that at that time there was a deficit on the books of the company amounting to $696.57. In August, 1901, this deficit was covered by “surplus earnings of the corporation hereafter to accrue," in this way: 2,081 shares of stock in a corporation called the Automatic Tool Company was placed on the books as worth 40 cents a share, a total of $771.44, which covered the deficit and left a small excess. But the evidence showed that 46 shares of stock in the tool company cost the Los Angeles Investment Company 10 cents a share, that 522 shares cost 5 cents a share, and 1,513 shares cost 2 cents a share; that the 1,513 shares were acquired on July 31, 1901, one day before the deficit created by the dividend was covered by putting the tool company stock at 40 cents a share. Subsequently the stock of the Automatic Tool Company was charged off to profit and loss in installments. Notwithstanding such conditions, the company continued to advertise that cash dividends had been declared, and that


the company had paid 677 per cent. in quarterly cash dividends, and in May, 1913, in "Homes," tables were published showing enormous profits to investors. Advertisements at different times also elaborated upon the security of the “Guarantee Fund” as giving a positive guarantee to the small stockholder that he could not lose his money. was represented that the “Guarantee Fund” was made up of the contributions of the officers of the company and maintained independently of possible control by such officers, thereby perpetually assuring to the investor that the company was a practically perfectly safe concern. In one issue of "Homes," March, 1913, it was said, in speaking of the guarantee fund, "It is a trust fund

for one purpose, to protect the small stockholder against loss. This fund is a perpetual trust,” etc. Letters purporting to come from stockholders expressing satisfaction with the "Guarantee Fund” were published in "Homes, and it was stated that the "Guarantee Fund” in December, 1911, contained over $100,000 in money ready to buy back stock from those who wished to sell, whereas the evidence goes to show that in 1911 there was in the "Guarantee Fund” only $20,156 cash, together with debts due to it by the directors amounting to over $54,800, and stock in the Los Angeles Investment Company carried at over $25,700. In January, 1913, the representation in “Homes" was that the “Guarantee Fund” amounted to over $219,000, but the evidence is that there was then only $4,268 in cash in the fund, that the indebtedness of the directors was $144,115, and that the Los Angeles Investment Company stock was carried at $317,658. Elder, one of the directors, then owed the “Guarantee Fund” $58,904.08, Deeble owed it $32,868.05, and Derby owed $40,226.34.

When the adoption of the proposed "Blue Sky Law" was being advocated in California, "Homes" in February, 1913, and in subsequent issues, opposed such proposed legislation ; but stated that, before the law could be effective, the Los Angeles Investment Company would be a closed corporation, with no stock for sale, and therefore would not be brought within the provisions of the proposed law. The contemplated disposition of the stock of the company was advertised in an interview had with Elder, wherein Elder spoke of expected sale of the property of the company, 6,000 acres, to certain capitalists at $3,000 per acre. Another effort to sell stock seems to have been made, by advertising to the effect that a bankers' syndicate was being formed to buy all the shares of the Investment Company remaining unsold on the last day of May, 1913. Stockholders were advised that the syndicate was open for them to come into, and that the syndicate intended to buy at $4.35 a share. But on June 1st over 200,000 shares of the capital stock of the company were still unsold. The officers of the Investment Company then as of date of May 31, 1913, transferred these 200,000 and more shares from the Investment Company to the "Guarantee Fund,” at $4.30 per share, in acceptance of an offer of the "Guarantee Fund” to the company, spread upon the minutes of the director's meeting of the Investment Company of May 7, 1913. The consideration named for this transfer was $860,176.30, upon terms, one-third cash, and the balance by note executed by Elder and Derby as trustees of the "Guarantee Fund,” dated May 31, 1913, due three

years after date. There is evidence that on May 31, 1913, the "Guarantee Fund” had a cash balance of $14,998.42. On June 4, 1913, the Investment Company advanced to the fund $255,000, and on June 5, 1913, the fund gave its check to the Investment Company for a cash payment of $286,725.45. In the issue of “Homes" published in June, 1913, it was stated that the bankers' syndicate had vanished into "thin air," as the stock of the company was completely sold on the last day of May, "making an immense addition to the paid-up capital and surplus of the company, an addition of $1,172,695.16, bringing the total up to the stupendous sum of $16,884,964.53.” It appears, however, that in 1913, when the "Guarantee Fund" purchased the shares of the Investment Company's stock, there was a decline in the shares of the Investment Company, and certain stockholders became suspicious. Between January 1, 1913, and May 31, 1913, the company sold 860,363 shares of its stock, but the price dropped from $4.121/2 to $1.151/2. For the stock charged to Elder, Deeble, and Derby, the par value of which represented $947,000, they did not pay even a third in cash, nor did Deeble, Derby, and Elder apply dividends received by them upon their debts to the company, and the evidence tends to show that the defendants diverted over $2,000,000 of the money of the Investment Company to the "Guarantee Fund,” and over $230,000 to the "Home Makers.

[1] The issues tried called for a verdict predicated upon the question whether or not the prosecution proved that defendants devised and entered upon the scheme charged with intent to defraud stockholders and made use of the mails in the execution of the scheme. The defendants contend that the evidence was insufficient to warrant conclusion of guilt. But where there is as much substantial evidence as the foregoing statement shows there was, to sustain the allegations of fact in tne indictment, and the trial court has declined to grant a new trial based upon the ground of insufficiency of evidence to sustain the verdict, it is not for the appellate court to disturb the conclusion of the jury, either as to the existence of the facts or as to the inferences drawn from the facts. Humes v. U. S., 170 U. S. 210, 18 Sup. Ct. 602, 42 L. Ed. 1011.

[2] It is argued that the court erred in not quashing the indictment because of misconduct on the part of a grand juror. One of the grand jurors, Mr. A. S. Gear, had been a practicing attorney at law, and was interested in some of the "Gold Notes” issued by the Los Angeles Investment Company, and on different occasions in 1913 had called upon some of the defendants, officials of the Investment Company, concerning the payment of the obligations of the company held by him. Defendant Derby, in support of his motion to quash, filed an affidavit wherein he said that on November 8, 1913, Col. Gear called upon him, and, after inquiring about getting the notes cashed, said that he was on the grand jury, and that if the matter came up before the grand jury he (Derby) might need a friend ; that he did not pay the note, and that he told Mr. Gear that as a member of the grand jury he would get no special favors. On November 10, 1913, Col. Gear left with Deeble, the secretary of the company, a note setting forth grievances which his client had against the Investment Company, and stating that his

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