Rice v. United States

35 F.2d 689, 1929 U.S. App. LEXIS 3051
CourtCourt of Appeals for the Second Circuit
DecidedNovember 4, 1929
Docket55
StatusPublished
Cited by21 cases

This text of 35 F.2d 689 (Rice v. United States) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Rice v. United States, 35 F.2d 689, 1929 U.S. App. LEXIS 3051 (2d Cir. 1929).

Opinion

MANTON, Circuit Judge.

The appellants were convicted of violations of the United States Criminal Code. The indictment contained ten counts charging breaches of section 215, United States Criminal Code *691 (title 18, § 338, United States Code [18 US CA § 338]), and one count a violation of section 37 of the United States Criminal Code (title 18, § 88, United States Code [18 USCA § 88]). Other defendants were named in the indictment. One was acquitted, and the indictment dismissed as to one. The defendants were acquitted, by a directed verdict, of counts 5, 6, 7, and 8. Appellants Rice, Yorston, Idaho Copper Corporation, and Wall Street Iconoclast, Inc., were found guilty of counts 1, 2, 3, 4, 9, 10, and 11. Both individuals were sentenced to prison terms and the corporate appellants were fined.

In February, 1925, the Idaho Copper Corporation owned mine property or mining claims in Idaho, where it was said there were deposits of copper which might be mined with profit. The appellant Yorston became its president, and undertook to sell 1,299,000 shares' of preferred stock. He gave an option to purchase these shares to one Werblin, a broker amongst brokers, at 10 cents per share. It was agreed that, if Werblin sold or placed this stoek, he was to receive 200,000 shares. Appellant Rice was interviewed, and, after some conferences, on March 14, 1925, contracted for an option to purchase the 1,299,000 shares of preferred stoek and 526,-500 shares of the directors’ stoek at the same price. These latter are referred to as the ownership shares. Rice’s nominee in the transaction was his brother-in-law, Silva. Rieei agreed to pay Werblin a commission of 2 cents on each share taken up by Rice under the agreement. The option ran for three years and Rice was required to take a minimum of 50,000 shares a month, and it was agreed one share of ownership stoek should be taken up with one share of preferred stock. Further, it was agreed that all the stoek be escrowed for 90 days after the expiration of the option agreement, and if, for any reason, the stock was suspended from trading on the Boston Curb Exchange, the option would be extended. The agreement has the earmarks of an effort to sell stoek; little is said about mining copper.

The Wall Street Iconoclast was a publication owned and edited by appellant Rice. He used it, amongst other things, to give misinformation. as to the Idaho Copper Corpora^ tion stoek, and as a medium of advertising to sell the stoek which he had under option. A conspiracy, charged in the eleventh count of the indictment and as found by the jury, existed between January 21,1924, and April 6, 1926, in violation of section 37 of the United States Criminal Code (18 USCA § 88), the scheme of which was to acquire the mining properties and defraud purchasers or prospective purchasers in the sale of the stock by the use of the United States mails. The plan of the conspiracy was to misrepresent as to the property, its value, prospects, and returns. The United States mails were used in furtherance of this scheme to defraud in the instances set forth in other counts on which convictions have been had. These constitute the crimes charged in violation of section 215 of the United States Criminal Code (18 US CA § 338).

It will be necessary to state the further facts at some length for the proper consideration of the numerous assignments of errors argued. Three days after the option contract was signed, March 17, 1925, the Iconoclast began boosting the Idaho Copper Corporation stock. The write-ups featured two reports on the property. The properties are mining claims referred to as South Peacock. One report is dated March 29, 1905, by one Hancock, and the other, dated March 13, 1925, is by the appellant Yorston, as president. These reports in substance extol the prospects and Yorston’s particularly estimates the ore body down to the 200-foot level as giving “a net valuation of 22 million dollars as and when mined, milled or smeltered.” The reports were used as the basis of articles in the Iconoclast on five separate dates.

When Haneock’s report was “published in full,” it omitted a paragraph which stated, contrary to the Iconoclast’s article, that returns could not be expected from “grass roots” down, as represented by the appellant Rice in the Iconoclast. Yorston had never been inside the mine before “his report” was made and used. It was stated in the Iconoclast that Hancock was an engineer beyond repute. He had been convicted of fraudulent use of the mails in a similar scheme. The appellant Rice employed a Boston Curb Exchange broker to buy and sell the stock for the Iconoclast and himself after the signing of the option contract. By Rice’s instructions, three fictitious names were used; as a result of these sales there was remitted to Rice, up until April, 1926, between $3,000,-000 and $4,000,000. Rice dictated the price at which stock was to be bought and at which it was to be sold, and became both buyer and seller of the same block of stock in many transactions.

Without disclosing who was doing it on September 23, 1925, the Iconoclast said: “Remarkably enough, manipulation is still absent. A broker representing one of the leading Stoek Exchange houses stated to-day that no very active stoek market in the his *692 tory of Boston had probably shown such freedom from manipulation.” The first sales were for 56 cents a share. A reaction set in, whereupon the Iconoclast said on April 21, 1925: “The reaction uncovered many stop-loss orders, and shook out an unwelcome overnight speculative following. Short sellers on the dip, however, have received an unmerciful trimming, and indications are as the days roll by that the trimming will develop into real carnage.” ■ These articles were a clear indication that there was little desire to develop the mine, but a stock-selling campaign was on. While this effort to sell stock was on, there was little cash in the treasury.

On April 25, 1925, while the stock was selling at 93 cents, the inspector of mines of Idaho telegraphed to the Boston Curb Exchange, where the stock was listed, that the mine the Idaho Copper Corporation professed to own was involved in two failures; that it had been idle for 24 years; that the underground workings were practically inaccessible ; that the advertising matter circulated in the sales stock was grossly misleading and in conflict with the Idaho laws, and there was a request that the Exchange remove the listing and trading in the stock until the company complied with the Idaho laws, and an offer was made to give further information, if asked. The stock was suspended. A suit by the Idaho Copper Corporation, instituted by the Iconoclast against Campbell for libel, resulted -from these telegrams. The case was tried, and there was a verdict for Campbell.

In explaining the suspension, the Iconoclast said, on April 28, 1925, that, when the original listing was ordered by the board of governors, the company made an application to list 750,000 in bonds as well as 2,500,000 shares of capital stock, and the application blank named the price at which the bonds and stock would net the treasury; that the bonds were withdrawn and put back into the-.company’s treasury and the financing contract in force abrogated; that the corporation did not notify the Curb Exchange of this and its new financing; that prompt action was being taken, and a new application blank was being forwarded to the Curb Exchange, and the officials of the company believed that reinstatement would follow promptly.

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Bluebook (online)
35 F.2d 689, 1929 U.S. App. LEXIS 3051, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rice-v-united-states-ca2-1929.