Fed. Sec. L. Rep. P 92,530 Lee E. Tarvestad v. United States of America, George A. Wyum v. United States

418 F.2d 1043
CourtCourt of Appeals for the Eighth Circuit
DecidedFebruary 27, 1970
Docket19111_1
StatusPublished
Cited by47 cases

This text of 418 F.2d 1043 (Fed. Sec. L. Rep. P 92,530 Lee E. Tarvestad v. United States of America, George A. Wyum v. United States) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Fed. Sec. L. Rep. P 92,530 Lee E. Tarvestad v. United States of America, George A. Wyum v. United States, 418 F.2d 1043 (8th Cir. 1970).

Opinion

LAY, Circuit Judge.

Defendants were convicted under a 22-count indictment which included five counts of mail fraud in violation of 18 U.S.C. § 1341, ten counts of fraud in the sale of securities in violation of 15 U.S. C. § 77q(a), six counts of selling securities without registering them with the SEC in violation of 15 TJ.S.C. § 77e, and one count of conspiracy in violation of 18 U.S.C. § 371. Trial lasted for six weeks, 65 witnesses appeared for the government, five for the defendant Tarvestad and nine for the defendant Wyum. Over 400 exhibits were admitted into evidence. After the jury verdict the trial court, the Honorable Ronald N. Davies, sentenced both defendants to the custody of the Attorney General for a period of eighteen months with five years probation to follow on each and every count, the sentence to run concurrently. This appeal followed. We affirm.

The charges arose out of the sale of unregistered securities issued by Dalco American Enterprises, Inc., a North Dakota corporation; Dalco American Mortgage, a division of Dalco American Enterprises ; and Continental Mortgage Company, a wholly owned subsidiary of Dalco American Enterprises. The sales, which took place over a period extending from January of 1963 to October of 1964 were made to approximately 470 investors in North Dakota, South Dakota, Minnesota and Iowa.

Lee Tarvestad became president of Dalco American Enterprises, Inc. (hereinafter Dalco) in 1961 and chairman of the board of directors in 1963. George Wyum, began working for Dalco as a salesman in 1962, and later became its vice president. The two defendants were the company’s largest stockholders. Under their management the corporation expanded from the sale of lumber into the prefabrication of wall sections for homes and the construction of commercial buildings. They also set up a franchise system of dealerships, providing small contractors with architectural assistance, pricing information, guaranteed pricing and technical assistance.

In January of 1963 the defendants organized Dalco American Mortgage, with a separate downtown office, and sold 6 %% and later, 7% demand notes. Passbooks and signature cards were used. A large part of the sales campaign was launched through the mails, although both television and radio advertisements were also used. These promotional activities and a prepared brochure assured potential buyers that a large capital reserve insured by the federal government would be maintained. It was also represented that the investments would be protected by first mortgages, and that all the assets and resources of Dalco American would stand behind them. Employees who sold the notes were instructed to state that a *1046 40% reserve would be maintained. For a period from February to August of 1963, a reserve of $24,000 was maintained, although this was far less than the promised 40%. However, even this was eventually liquidated.

The second major revenue producing effort involved the sale of Dalco common stock at $2.25 a share with a promise of later repurchase at $3. Purchasers were told that their stock was made available for sale by the death of an officer of the corporation. In actuality the stock had not been previously issued. The defendants had in fact previously bought the stock of the deceased officer from his estate at $1 a share.

The final arrangement, implemented as the financial condition of Dalco worsened, involved the sale of fractional interests in the first mortgages of Continental. These sales by Continental were in large part conducted by mail. Brochures promised that money invested would be backed by first mortgages and that money could be withdrawn at any time. Many investors received only “ghost” mortgages which did not actually represent any interest in real estate.

Many of these sales were made at a time when the corporation was no longer solvent. Nevertheless, throughout the period all published financial information was done so as to give the appearance of financial health and solvency. On October 26, 1964, Dalco filed a voluntary bankruptcy petition under Chapter XI with the defendants included in the list of debtors-in-possession. When this-was unsuccessful the corporation was adjudicated a bankrupt on June 11, 1965.

Throughout this period no registration statement was ever filed for any of the securities sales. On at least two occasions the defendants were informed by an SEC inspector that such action was necessary. Sales continued, in four states, at the defendants’ direction. Before withdrawals of $204,634, $1,072,511 had been invested in the three companies.

The basic defense urged by Tarvestad was that he was mentally incompetent throughout the period covered by the indictments. The defendant Wyum asserted that the collapse of Dalco was an honest business failure and that he at all times acted in good faith.

Under the concurrent sentence rule as long as a conviction is proper upon at least one count, it will support the judgment. Barenblatt v. United States, 360 U.S. 109, 115, 79 S.Ct. 1081, 3 L.Ed.2d 1115 (1959). The concurrent sentence rule is still viable where prejudice does not patently appear, see Benton v. Maryland, 395 U.S. 784, 89 S.Ct. 2056, 23 L.Ed.2d 707 (1969), and collateral legal consequences are remote, Kauffmann v. United States, 414 F.2d 1022, 1024 (8 Cir.1969). We have explored the entire record and the multitude of contentions made by defendants and find no prejudicial error. Under the concurrent sentence rule we confine our written discussion to the six counts of selling securities without registration with the SEC in violation of 15 U.S.C. § 77e.

Instructions

The basic complaints related to non-registration are premised upon defendants’ exception to the instructions. Defendants assert that the trial court (1) failed to emphasize the requirement of “willfullness” in order to sustain a criminal violation of 15 U.S.C. § 77e; (2) failed to instruct upon the defense of “good faith”; (3) failed to instruct upon “evil motive” as a necessary proof to sustain conviction; (4) failed to properly instruct as to “advice of counsel”; (5) failed to properly instruct as to what is a “security”; (6) failed to properly instruct on “reasonable doubt”; and (7) failed to give defendant’s requested instruction as to the proper consideration to be given Wyum’s prior conviction of a felony.

In order to sustain a criminal prosecution under § 77e(a) it must be shown that the acts were done “willfully.” 15 U.S.C. § 77x. The district court *1047 instructed that the government must prove five elements:

“A sale of a security as charged.

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418 F.2d 1043, Counsel Stack Legal Research, https://law.counselstack.com/opinion/fed-sec-l-rep-p-92530-lee-e-tarvestad-v-united-states-of-america-ca8-1970.