WATERMAN, Circuit Judge.
The appellants, Walter F. Tellier and Albert J. Proctor, were tried and convicted upon a thirty-six count indictment charging them with violations of the fraud section of the Securities Act of 1933, 15 U.S.C.A. § 77q(a); with violations of the mail fraud statute, 18 U.S. C. § 1341; and with a conspiracy to violate each of these statutes, 18 U.S.C. § 371. The charges in the indictment arise out of the public sale of four series of debentures during the years 1951 through 1955. Tellier, who received concurrent sentences of four and one-half years on each count and was fined a total of $18,000, does not contest the sufficiency of the evidence against him. He does contend, however, that reversal is required because of allegedly erroneous rulings made by the trial judge during the course of the trial. Specifically, it is claimed that the trial court erred in permitting testimony Tellier alleges was a violation of the attorney-client privilege, and also erred in the following: (1) the admission into evidence of the corporate records of Alaska Telephone Corporation (ATC), (2) the exclusion of evidence pertaining to the financial condition of ATC at the time of trial, (3) the failure of the trial judge to order production of a report made by a government witness, and (4) the failure of the trial judge to give a requested instruction. Proctor, who received suspended concurrent sentences of nine months on each of the counts in the indictment, contests only the sufficiency of the evidence to support the verdicts against him.
ATC was formed in 1948 to acquire and operate independent telephone and electric power systems in Alaska. Among the promoters was the appellant Proctor, who, upon incorporation, was elected a director of the corporation and, in 1951, its secretary. Proctor enlisted the services of the defendant Elton B. Jones, a Seattle attorney, who was also elected a director and became the company's counsel. After its incorporation ATC acquired several telephone exchanges, with approximately 700 subscribers, located in small Alaskan towns. This property was obtained partly for cash and stock, and partly on credit subject to mortgages. The corporation had insufficient funds to meet operating expenses and accruing mortgage obligations, and it was unsuccessful in several attempts to raise the needed capital.
In April 1951, Major William Maxey, the president and general manager of ATC, together with D. Sherman Starr, the vice-president, approached Tellier & Co., a securities firm located in New York City, concerning the possibility of raising needed funds. Tellier & Co. was owned and controlled by the appellant Tellier, who employed between twenty and thirty salesmen to sell over the telephone the securities handled by his firm. When Tellier was approached by the ATC representatives he retained Bernard D. Cahn, an attorney formerly employed by the Securities & Exchange Commission, to represent Tellier & Co. After some
Cahn's objection to the sale of debentures, rather than of common stock, was based upon the failure of ATC to prove that it had earning capacity. An unaudited financial statement prepared by ATC representatives disclosed that the corporation had barely passed the break-even point during the years 1948-1950.
In the meantime, Maxey and Starr had severed all connections with ATC, and Cahn who at one time had been elected a director of the corporation resigned his directorship. The need for additional capital continued to plague ATC, and Proctor and Jones spoke to Cahn about this. Cahn told them that additional public financing was inadvisable as long as the corporation continued to operate at a loss. At Cahn's suggestion attempts were made to obtain private financing. This project failed. ATC was now in debt to the Government for money withheld from employees' pay for employees' income taxes and for excise taxes which had been collected from subscribers. In addition, ATC had not turned over to Alaska Communications System long distance toll charges due it which had been collected from ATC subscribers. Finally, the trustee under the Series A trust indenture complained that, although sufficient deposits were made with it so as to enable it to make timely payment of the monthly interest charges, the corporation nevertheless was not maintaining a sufficient advance deposit to provide such payments for a six month period as it was required to do by the indenture.
In view of ATC's immediate need of funds and its inability to obtain them through a private financing, Proctor then approached Tellier to arrange additional public financing. Cahn repeated an earlier warning against public financing, but Proctor represented that ATC was reducing its losses, that it had reached the break-even point, and that the last quarter of 1952 would show a profit. Cahn's request for an audit was met with a reply by Proctor that this was not possible because ATC still owed the auditors a large fee. He insisted, however, that the corporation's financial status was considerably improved.
Then, before another month had passed, the anticipated audit report disclosed that ATC had not made the profit in the last quarter of 1952 that Proctor had represented would be made. In fact, its losses for that quarter were the greatest in its history, and its total loss for the year was nearly $100,000. In addition, contrary to Proctor's optimistic prediction, it lost money during the first quarter of 1953. This audit also showed, as of the date the report was made, that the Government had filed tax liens against substantially all of ATC's property.
So the proceeds of the Series B debentures appear to have benefited ATC no more than did the proceeds of Series A, and another year went by. Then, in December 1953 Proctor wrote Tellier, enclosing a financial statement for the first three quarters of that year, stating that there had "been little, if any, improvement over the previous period." After setting forth the financial difficulties which the company faced, Proctor again represented that "we believe the corporation is currently operating in the black, * * *"
The last one of the Series C debentures was sold approximately two months after the issue was offered. Shortly thereafter, Proctor assumed the presidency of ATC,
The chief witness for the Government was Cahn, Tellier's one-time attorney and one-time director of ATC. Cahn testified to numerous conversations and communications between Tellier, Proctor, Jones, himself and others. With one exception this testimony was admitted without objection by Tellier. The lone objection related to the telephone conversation between Cahn and Tellier in December 1953 in which Cahn warned Tellier against the proposed issuance of a third series of debentures. Tellier urges that this conversation, unlike the others to which Cahn testified, was intended as a confidential communication between an attorney and his client concerning the legal affairs of the client. Hence he contends reversible error was committed by the admission of this testimony into evidence. Proper evaluation of Tellier's position requires that we detail with greater specificity the circumstances relating to the conversation objected to.
On December 7, 1953 Proctor wrote Tellier outlining ATC's precarious financial position. He urged upon Tellier the necessity for obtaining additional funds and suggested another public sale of securities. Tellier, after reading Proctor's letter, sent it to Cahn with the following notation:
And then under that is another notation:
It is of the essence of the attorney-client privilege that it is limited to those communications which are intended to be confidential. "The moment confidence ceases," said Lord Eldon, "privilege ceases." Parkhurst v. Lowten, 2 Swanst. 194, 216 (1819). Consult 8 Wigmore on Evidence §§ 2311-2316 (3rd ed. 1940). Thus it is well established that communications between an attorney and his client, though made privately, are not privileged if it was understood that the information communicated in the conversation was to be conveyed to others. In re Fisher, D.C.S.D.N.Y.1931, 51 F.2d 424; Wilcoxon v. United States, 10 Cir., 1956, 231 F.2d 384, certiorari denied 351 U.S. 943, 76 S.Ct. 834, 100 L.Ed. 1469; United States v. Shibley, D.C.S.D. Cal.1953, 112 F.Supp. 734.
We conclude that Cahn's advice to Tellier was not privileged from disclosure at the trial, for, under the circumstances presented in the record, it is clear that this advice was not understood by either Cahn or Tellier to be confidential. The evidence establishes that Tellier expected Cahn to prepare a letter which was to set forth Cahn's objections to the issuance of additional debentures and which was to be forwarded to Proctor and Jones for their enlightenment. The letter which Cahn did in fact prepare and which was admitted into evidence without objection, is further evidence that Cahn and Tellier understood that the substance of their telephone conversation was to be communicated to Proctor and Jones. That letter recited the substance of what Cahn had told Tellier in the telephone conversation, i.e., that certain statements made in the Series B offering circular had proven false, that Proctor proposed to use the proceeds of the new issuance for the same purposes as the Series B proceeds were to have been used for, and that on the basis of several additional factors Cahn had "some trouble understanding how we can hold out any basis for the public to invest in more debentures." The letter contained Cahn's ultimate conclusion, as he had previously informed Tellier, that the proposed issuance raised "very serious legal problems" and that neither he nor Tellier "should participate in any further debenture financing for the Company, at least under present circumstances."
The fact that the copies of this letter prepared for them may never have been sent by Tellier to Proctor and Jones is of no relevance. The fact that it was prepared demonstrates the understanding which Cahn and Tellier had as to the confidentialness of the prior telephone conversation. Nor do we attach any significance to the fact that Cahn's letter did not refer to the proposed issuance
We conclude that the trial judge properly admitted Cahn's testimony concerning the telephone conversation between Tellier and him.
Tellier next assigns as error the admission into evidence of the books and records of ATC. These exhibits were admitted during the testimony of the Government's witness Casagrande who had prepared several schedules tracing the proceeds of the debenture sales. Counsel for Tellier objected to the Government's attempt to place these schedules in evidence on the ground that the books and records from which they had been taken were not in evidence. The Government's offer to place the underlying books and records in evidence was met with the objection that they had not been shown to have been kept in the regular course of business as required by 28 U.S.C. § 1732. The trial judge overruled the objection and admitted the books and records into evidence.
An examination of the record indicates that there was indeed insufficient competent evidence to establish that the books and records were kept in the ordinary course of business. Nevertheless, they were admissible under the rule laid down by this court in United States v. Feinberg, 2 Cir., 1944, 140 F.2d 592, 596, 154 A.L.R. 272, certiorari denied 322 U.S. 726, 64 S.Ct. 943, 88 L.Ed. 1562, where we held that if the defendant has made representations concerning the financial condition of a corporation, the books of that corporation are competent as evidence against him in a mail fraud prosecution. In Feinberg the authenticity of the corporate books and records was foreclosed. In the present case, however, Tellier, while not questioning the authenticity of the books and records introduced into evidence as those of ATC, urges that authenticity has not been established by competent evidence. Hence, he contends, they were not admissible even under the Feinberg rule. Tellier's contention appears to be based upon the assumption that the authenticity of the records was for the court to determine and, consequently, that they were inadmissible until the Government had established authenticity by competent proof. This assumption is erroneous. The issue of authenticity was for the jury once a prima facie case had been made by the Government. 7 Wigmore on Evidence § 2135 (3rd ed. 1940); Model Code of Evidence, Rule 601(a) (1942).
Consequently, we need only determine whether there was sufficient evidence of authenticity to make out a prima facie case for the genuineness of the documents. We have no hesitation in holding that there was. Some of the documents were identified by ATC's bookkeeper as being the records of the corporation. In addition, Casagrande's testimony was sufficient evidence from which the jury might have found that the books and records were authentic. Casagrande could not, of course, testify as to genuineness as did ATC's bookkeeper, from first hand knowledge. He could and did, however, testify of his own knowledge
The indictment charged Tellier and his co-defendants with having defrauded the purchasers of the Series A, B, C, and D debentures "* * * by means of untrue statements of material facts and omissions to state material facts necessary in order to make the statements made in the light of the circumstances under which they were made not misleading * * *". At the trial evidence was proffered by the defendants bearing upon the financial condition of ATC during the years 1956 and 1957, after it was in the hands of a trustee in bankruptcy. This evidence was excluded by the trial judge on the grounds of irrelevancy, and these rulings are now urged by Tellier as constituting error requiring reversal.
We cannot agree. To begin with, the gist of the charges against the defendants was not, as Tellier suggests, that they falsely represented that ATC would eventually be prosperous. The tenor of the false representations charged were the statements and omissions concerning the current condition of the corporation. The falsity of these representations and the misleading effect of the omissions could not be altered by proof that ATC was operating at a profit at the time of trial, or that rate increases had been granted at some time after the defendants had relinquished control to a trustee in bankruptcy. Similarly, Tellier's belief in the eventual prosperity of the corporation could not serve to lessen the culpability of his conduct. Even more important, however, is the fact that in November of 1955 ATC was placed in the hands of a trustee in bankruptcy, and, in reorganization, the corporation was operating under such radically altered conditions that it was in effect a different entity than that which it had been when the representations were made. It was not operating with the overwhelming burden of payments for debt-service which had so plagued it previously. No possible purpose could have been served by admitting evidence of the corporation's financial position during 1956 and 1957.
The remaining issues raised by Tellier need not detain us long, for they are clearly without merit. On cross-examination by Tellier's counsel, a witness for the prosecution referred to memoranda which the witness had prepared. Tellier's counsel inquired whether these memoranda were available, to which the witness replied that they were. Tellier's counsel did not, however, request that the memoranda be made available to him. Under the circumstances, Jencks v. United States, 1957, 353 U.S. 657, 77 S.Ct. 1007, 1 L.Ed.2d 1103, now modified by 18 U.S.C. § 3500, does not require reversal.
Nor is reversal required by the refusal of the trial judge to give the jury the following instruction Tellier requested:
This charge, insofar as it informs the jury that "each of you has the duty of arriving at your conclusions separately," is not a correct statement
We turn next to the evidence bearing upon the guilt of the appellant Proctor. An examination of the record indicates that the evidence against him is clearly sufficient to sustain the verdict of guilty. Proctor's attack upon the evidence is two-pronged. He contends first that the evidence does not warrant a jury finding that the offering circulars mailed to purchasers of the debentures were misleading. He also urges that there is insufficient evidence to justify a jury finding that he participated in and had knowledge of the fraud that was perpetrated upon the public.
The first of Proctor's contentions is frivolous, as appears from even a cursory reading of the record. The material misstatements of fact in the circulars, as well as the failure to disclose material facts that should have been disclosed, were misrepresentations of precisely the kind it is the purpose of the fraud statutes to protect the public against. And there was adequate evidence from which the jury could find that Proctor's knowledge of and participation in the fraud were proven beyond a reasonable doubt. Proctor was one of the founders of ATC, and, together with the defendant Jones whom he brought into the corporation, he controlled it from 1951 until 1955 when the bankruptcy petition was filed. As secretary of the corporation, and later as its president, he was the main link in communication between ATC and Tellier during all times relevant to the issuance and sales of the Series B, C and D debentures. Whether or not Proctor was aware of the high pressure tactics employed by Tellier to sell the debentures,
To be sure, Proctor never sold any of the debentures, and the jury was so charged. Nevertheless, his participation
We think it is unnecessary to recite the evidence against Proctor in further detail. The evidence which we have discussed and additional evidence in the record is wholly consistent with the jury's verdict that Proctor knowingly participated in a scheme whereby the public was fraudulently induced to invest over $700,000 in the debentures of an insolvent corporation which at no time during its history operated at a profit.
We conclude that the trial of the appellant Tellier was free of error and that there was sufficient evidence to sustain the verdicts against him and the appellant Proctor. The judgment below is affirmed.
LUMBARD, Circuit Judge (dissenting).
I dissent and vote to reverse Tellier's conviction as I cannot agree with Judge WATERMAN's conclusion that Cahn's "Ponzi scheme" warning to Tellier was properly admitted on the ground that Cahn's advice to Tellier was not understood to be confidential.
On the contrary, from the tone and content of the letter which Cahn immediately afterwards wrote to Tellier, for the purpose of forwarding to Proctor and Jones, it seems to me that the parties understood that what would be disclosed to them would be couched in terms of what was inadvisable rather than what might be fraudulent and criminal. The occasion required plain speaking by Cahn and he spoke to Tellier in terms which would be clearly understood by one in the business of selling securities. When he said that further selling of bonds would "involve [Tellier] in a Ponzi scheme" he was in effect saying that if he did this he could go to jail as Ponzi did.
Such a blunt warning is precisely the kind of advice that an attorney should give to a client who hovers on the brink of questionable financial practices. But from the very nature of the occasion which requires such a warning, it is well understood that it is the kind of speaking which usually does not take place before third persons and which is not intended for other ears or eyes. The majority opinion means that an attorney by his very act of warning a client against imprudent and unlawful action is placing himself in the position of principal witness against the client he seeks to aid. 8 Wigmore on Evidence § 2291, p. 550 (3d Ed. 1940).
Thus it seems to me that the reasoning of the majority sucks all the vitality and usefulness from the attorney-client privilege; it whittles the privilege to nothing and, worse still, it makes the attorney a witness against his client.
There is a great public interest in preserving this relationship and encouraging a frank exchange between attorney and client. In the overwhelming majority of cases the client follows the attorney's advice. Obviously frank expression of opinion, including such simile, metaphor and emphasis as seems appropriate, increases the likelihood that the attorney's advice will be heeded by the client. Any diminution of the protection which withdraws the veil of secrecy, where it is not crystal clear and explicit that both attorney and client understand that the very words of a private conversation are to be communicated to others, defeats the salutary purpose of the privilege.
Here it is abundantly clear that what was to be communicated to Proctor and Jones was to be a watered-down version couched in lawyer-like language. The letter did not say that issuing Series C debentures would be fraudulent and criminal; it merely pointed out that further issuance of similar debentures was highly inadvisable and unwarranted unless and until certain questions could be answered.
Cahn first related his telephone talk with Tellier on December 17 or 18, 1953. He advised Tellier not to become involved in the issue of a new series of bonds for the Alaska Telephone Corporation, since "* * * Alaska * * * is selling bonds to stay alive, to keep going, as a substitute for earning money." Cahn said he warned Tellier in these words: "On that basis, if you sell bonds, you are merely selling additional bonds instead of having the company make money. And this selling of bonds to pay back interest by the sale of new bonds will involve you in a Ponzi scheme."
This forceful language is a far cry from the detailed lawyer-like letter which Cahn sent to Tellier, dated December 23, 1953, and which may be quoted in part as follows:
"This will acknowledge receipt from you of the letter from Bert Proctor of Alaska Telephone Corporation dated December 7th requesting assistance in the current emergency confronting the company.
* * * * * *
"In your accompanying note you indicate that you will be unable to sell any common stock and inquire whether the company can issue some more debentures, in the maximum principal amount of $150,000, to $200,000.
"I am strongly of the opinion that it is unsound for this company to sell any more bonds.
"The company has demonstrated no ability whatsoever to earn anything, and in fact has sustained a startingly consistent record of losses since its inception. Under the circumstances, I think there are very serious legal problems as well as practical financial problems involved in selling any more debentures.
* * * * * *
"In any event, I feel very strongly that neither of us should participate in any further debenture financing for the company, at least under present circumstances.
* * * * * *
"In the event that you should write to Proctor and Jones, there are some questions which I think must be cleared up before we can even consider going ahead. As an example, I suggest that some of the following questions must be answered:" (The letter then listed five matters which required explanation or reconciliation.)
* * * * * *
While it may seem to be merely a matter of degree, the difference between the talk and the letter is of the essence. It is the difference between a warning against felonious conduct and measures which would raise "very serious legal problems," i. e. responsibility measured by a jail term rather than by dollars.
Cahn's letter was to take Tellier "off the hook," i. e. to give lawyer's reasons why the debentures should not be issued; it was not intended to be and it was not a warning to desist because of possible criminal prosecution. But in any event it was not intended to convey and it did not convey, the blunt prophetic language of the Cahn-Tellier telephone talk. Obviously it would serve no purpose, either of Tellier or Cahn, to pass along Cahn's colorful characterization of a further issue as a "Ponzi scheme." That he did not put "Ponzi scheme" or any intimation of possible criminal consequences in the letter seems to me to be conclusive proof of that.
The mere fact that some conclusions of the attorney-client exchange are to be conveyed to others is not an excuse or a reason for saying that the parties did not intend any part of the exchange to be confidential. Such reasoning is contrary to the facts of life and to the implicit nature of man-to-man speaking; it eats the heart out of the attorney-client relationship. The privilege of the attorney-client relationship attaches to the particular words used or it is no privilege at all.
The majority opinion makes the further argument that even if Cahn's "Ponzi scheme" warning had not been intended to be communicated further, nevertheless it was not privileged because what Cahn said to Tellier "was too closely connected with the information which was intended to be communicated to Proctor and Jones" to be severed from that concerning which they were to be informed.
Few talks between attorney and client could ever survive such a test. How could it ever be said that the connection was not a close one? It makes no difference how close the connection might be, what is said privately should be protected unless the client clearly consents to further communication. See Connecticut Mutual Life Insurance Co. v. Shields, D.C.S.D.N.Y.1955, 18 F.R.D. 448, 451; New York Civil Practice Act, § 354; People v. Patrick, 1905, 182 N.Y. 131, 175, 74 N.E. 843; Richardson on Evidence § 436 (8 Ed., Prince, 1955). Here, where a letter in writing followed the talk, that seems to me, absent further proof, to be confirmation that the client never intended or consented to further communication of the talk, other than as contained in the letter, and that the attorney so understood it.
If the admission of the evidence was error, I think it follows that it was so harmful to Tellier's defense that his conviction should be reversed. Whatever doubts the jury may have entertained (the first trial had resulted in a hung jury), may well have been resolved by the "Ponzi scheme" talk. The fact that Tellier's own lawyer gave so unequivocal and memorable a warning of what Tellier would be doing if he persisted with more such financing on the basis of such representations as were made in view of the facts known to him can hardly be said to be merely cumulative even in so lengthy a trial with its abundant evidence to support the verdict. I would reverse Tellier's conviction.
1948 ...................... $1,053 1949 ...................... 4,113 1950 ...................... 3,784