People v. Comstock

Defendant appeals his conviction on the charges of conspiring with Winifred June Clark (who died prior to the trial of the action) to cheat and defraud by criminal means, to make false promises with the fraudulent intent not to perform them, to commit grand theft, to violate the Corporate Securities Law, Corporations Code, sections 25000 et seq., and to violate section 3020, subdivision (b) of the Corporations Code relating to the falsification of corporate records (Count I); commission of grand theft (Counts II, III, IV, V, VI, X and XI); and fraudulently falsifying corporate records (Counts VII, VIII and IX).

The basic facts underlying the perpetration of the foregoing offenses may best be set forth in the consideration of the evidence supporting the conspiracy count. Appellant advises us that in considering the record we should not apply

The Conspiracy

Appellant promoted the organization and incorporation of a company known as Finance Control of Long Beach in July 1952. The primary business purpose of the corporation was purportedly to factor automobile accounts receivable paper.

Approximately one year later, appellant promoted the formation of a concern known as Finance Clearing of Beverly Hills to engage in the business of “buying and selling notes, conditional sales contracts, and other negotiable paper and choses in action of all kinds. ” It is his activities in the management of this corporation which provide the substance of the information filed against him.

In promoting these ventures, appellant refrained from occupying an openly official status in the corporations. They were formed by dummy incorporators. Appellant “appointed” officers of the several concerns without regard to the legal amenities that are customarily observed in the elec

. Appellant’s coconspirator Clark was employed by Finance Clearing sometime in October or December 1953. Thereafter, she became vice president of that company. Whatever might be said for the activities of Miss Clark, she was not wholly devoid of previous experience in financial management.

In order to do any business, it was essential for Finance Clearing to obtain money from lenders, or investors as the case may be, so that accounts receivable could be purchased from various merchants. However, a balance sheet of December 31, 1953, probably prepared, by Comstock, showed a deficit of $9,000. At least one potential investor informed appellant that he would not consider risking his funds with an organization whose financial statement showed so poor an earnings record. A response to this invitation to do something about the adverse earnings record was not long delayed.

An accountant, Yawdick, hired by Finance Clearing testified that had a balance sheet been prepared for the months of January and February, a deficit would no doubt have been revealed. However, statements prepared by the accountant for March, April, May and June of 1954 on the basis of information furnished on transmittal sheets prepared in the office of Finance Clearing showed a remarkable enhancement in the affairs of the corporation. Earnings multiplied rapidly and a surplus soon mounted. Subsequent investigation revealed that this surplus was entirely the result of fabrication.

The first instance of outright fiscal skullduggery occurred in

In subsequent months, similar false transactions with Businessmen’s Association, Maxwell’s Department Store, Central Chevrolet and Utter-McKinley Morticians were recorded. By this time, Miss Ferrera had been employed by Finance Clearing. She testified that both appellant and Miss Clark directed her to copy the accounts directly from the blue and green sheets onto the account cards and the transmittal sheets prepared for the accountant. Therefore, appellant knew that accounts in large sums purchased for an incredibly small consideration were being carried into the books. Furthermore, Miss Ferrera testified that this procedure was not normal in the case of the purchase of accounts. Ordinarily the account cards and transmittal sheets were prepared directly from the very contracts assigning the accounts rather than from a list prepared upon some scratch paper. Appellant was well aware of this highly irregular circumstance. Appellant insists that this very important testimony of the witness Ferrera must be accorded the usual limitations placed upon the testimony of an “accomplice.” However, if it may reasonably be inferred that a witness is not an accomplice, it is for the trier of fact to determine the question of complicity. (People v. Santo, 43 Cal.2d 319 , 326, 327 [ 273 P.2d 249 ].) It will be presumed that the witness was found not to be implicated in the crime where such presumption would further tend to effect affirmation of the judgment. (Ibid.) Here

Appellant subsequently employed these falsely inflated financial statements to impress investors with the stability of his enterprise. Although he was the individual primarily responsible for inducing prospects to lend or invest money, Miss Clark accompanied him at least once to the home of a prospect for the purpose of inducing the victim to part with his funds.

However, the Corporation Commissioner had ordered appellant in November 1953 to cease and desist from the sale of securities without a permit. As the commissioner began a closer and closer investigation of appellant’s activities, the latter apparently became alarmed about the bogus accounts on the books. At any rate, he attempted a very transparent scheme to cleanse them from his records without affecting his statement of earnings. Miss Perrera testified that appellant instructed her to draw checks upon the Finance Clearing account, to record those checks as payments upon the fictitious accounts whereby to reduce their credit balance, and then to deposit the checks in the very same account upon which they were drawn. In other words, total “wash” transactions whose effect would be to reduce the valuation of the fictitious assets without affording a corresponding increase in cash. When his accountant asked him what he hoped to accomplish by these transactions appellant answered that he wished to credit the accounts with these sums but not to charge them against profit and loss. When the accountant told him that it could not be done, appellant told him to “forget it.” The “wash” transactions were treated as void and were not entered on the books.

Finally, appellant decided that the accounts must be removed from the books. He instructed Miss Ferrera to prepare a transmittal sheet which would show these accounts, totaling more than $123,000, entirely charged off as bad debts. The charge-off was made as. of July 31, 1954. The resultant balance sheet as of that date showed an $89,000 deficit. Although no statements were prepared during intervening months, a subsequent balance prepared as of December 31,

Further to demonstrate appellant’s intimate connections with his coconspirator Clark, upon at least one occasion he showed considerable largesse in siphoning funds of the corporation into her hands. Upon learning that Miss Clark desired to own a certain collection agency in Palm Springs, appellant without further ado instructed her to write two cheeks totaling $5,000 against the account of Finance Clearing. The checks were signed by appellant and Clark, payable to appellant, endorsed by him and used by Clark to purchase the agency. Appellant told Miss Ferrera that he was giving Clark the sums so that she could “have something in her hip pocket.” Although he took her promissory note for the sums, he did not expect Miss Clark to repay it and never demanded that she do so.

In order to establish a conspiracy, there must be proof of a corrupt agreement between at least two persons (People v. Gem Sang, 131 Cal.App.2d 69 , 71-72 [ 280 P.2d 28 ] ; People v. Frankfort, 114 Cal.App.2d 680 , 688 [ 251 P.2d 401 ]) since the gist of conspiracy is the enhanced danger to society from wrongful combination of purpose. (Comment, 26 So.Cal.L. Rev. 64, 68.) Appellant argues that there is no evidence that he and Miss Clark ever combined forces to defraud investors or falsify corporate records; that each operated in a vacuum without common agreement or purpose. But direct evidence of a formal understanding between confederates is not essential to the proof of a conspiracy. It is not necessary to prove that the parties actually met, discussed their mutual design and understanding, and reached a formal agreement. The extent to which the minds of conspirators are in accord with respect to their conspiracy must usually, from the secrecy of the crime, be deduced from the circumstances which, when taken together, indicate that they are parts of the same complete whole. (People v. Rissman, 143 Cal.App.2d 488 , 494 [ 299 P.2d 944 ]; Lorenson v. Superior Court, 35 Cal.2d 49 , 57-58 [ 216 P.2d 859 ].) The actions of the

Appellant was in sole command of Finance Clearing operations, surrounded only by those subservient to him. He knew that $123,000 worth of assets were added by Miss Clark to the corporate books upon the payment of a ridiculously petty consideration. He knew that they were incorporated into the records in a highly irregular fashion from a list prepared by Miss Clark on scratch paper. He supervised the inclusion of some of those accounts on the corporation records. He subsequently attempted to “wash” them out gradually by improperly juggling the accounts. He finally charged them off altogether while withholding the resultant deficit statements from his investors. He used the bloated balance sheets to encourage new investment. “So interrelated and harmonious were the operations of defendants as disclosed by the documents and the testimony . . . that . . . honest deduction could not but reasonably have inferred their conscious collaboration with a definite purpose.” (People v. Gordon, 71 Cal.App.2d 606 , 627 [ 163 P.2d 110 ].)

It must be conceded that the above factual statement reveals a “prima facie” showing of a conspiracy between appellant and Clark and therefore justifies admission into evidence of an extrajudicial utterance of one conspirator to the prejudice of the other. (People v. Steccone, 36 Cal.2d 234 , 238 [ 223 P.2d 17 ]; People v. Brown, 131 Cal.App.2d 643 , 655 [ 281 P.2d 319 ]; People v. Sica, 112 Cal.App.2d 574 , 583 [ 247 P.2d 72 ].) Two witnesses, Swinford and Perrera, stated that Miss Clark admitted to them her preparation of the bogus accounts, and further that her activities had taken place under the knowing direction of appellant.

Grand Theft

Appellant was convicted also of cozening several investors out of substantial sums of money by means of false pretenses. Their investments were not returned.

Louis Q. Sims invested $9,000 in Finance Clearing after having been shown by appellant the fraudulently bloated April balance sheet. Appellant had not informed him that

E. L. Landgarten responded to a newspaper advertisement inserted by appellant on behalf of Finance Clearing. He was promised by appellant that his funds would be safe and that at all times they would be secured by 50 per cent in cash and 75 per cent in automobile paper. The true balance sheets, minus the fictitious accounts, indicate that this promise was never kept. Appellant’s dealings throughout the existence of Finance Clearing justify an inference that he never intended to live up to his promise.

Norman Jensen relied upon appellant’s false representations that an investment in Finance Clearing was safer' than in building and loan because the investment would be secured to 125 per cent of the money invested; that it would be backed by 50 per cent cash and 75 per cent paper; and that Mr. Jensen could get his money back upon demand. At no time was the victim informed of the cease and desist order.

Appellant was also convicted of the theft of $1,500 from Finance Clearing (Count VI). Miss Ferrera testified to the following events: By the time this transaction occurred she had discovered appellant’s prior falsification of corporate records; she came to be in urgent need of $1,500; she was aware that appellant knew that she had discovered his misdeeds ; she asked appellant while driving with him to the airport whether she might have a loan or an advance of the sum she needed; he told her to take a cheek from a pad of checks which he had presigned, make it out for $1,500 in favor of a fictitious payee, countersign it in her own name, indorse and cash it and enter the credit in the petty cash and miscellaneous account; she followed these instructions. The check was introduced into evidence.

It is clear from the above account that Miss Ferrera

The quantum of evidence required to corroborate the testimony of an accomplice has been detailed repeatedly by the courts (e.g. People v. Morris, 115 Cal.App.2d 312 , 316 [ 252 P.2d 36 ]) usually for the purpose of pointing out how minimal it may be and yet suffice. However, as recently and workably stated, the corroboration is sufficient if it tends to connect the defendant with the commission of the crime in such a way as may reasonably satisfy the jury that the witness who must be corroborated is telling the truth. (People v. MacEwing, 45 Cal.2d 218 , 224 [ 288 P.2d 257 ].) The attorney general offered the following independent items of evidence to connect appellant with the theft:

(1) Appellant’s signature on the check as a drawer along with Perrera is a signature upon an incriminating document, a fact which has been held sufficient corroboration. (People v. Morris, supra.) However, the witness’ own testimony established that appellant was not even present when the cheek was prepared and that Perrera used a check from a pad of checks presigned by him. In this light, how can it be said that his signature in any way “connected defendant with the commission of the crime” as required by the MacEwing case? We must rely wholly upon Miss Herrera’s unsupported word that appellant told her to use that presigned check.

(2) Evidence was introduced to prove that appellant had diverted corporate funds to other than corporate uses upon other occasions. Hor example, appellant “loaned” funds belonging to the corporation to Miss Clark for -her use

Proof that a defendant committed other recent and similar offenses tending to show a consistent plan or method of misconduct is admissible to prove the particular crime charged. (People v. Thorne, 10 Cal.2d 705 , 708 [ 76 P.2d 491 ].) Such evidence may corroborate the testimony of an accomplice. (People v. Gallardo, 41 Cal.2d 57 , 64 [ 257 P.2d 29 ]; People v. Solano, 48 Cal.App.2d 126 ,130 [ 119 P.2d 381 ].) However, it might well be said that when a situation exists as in this case where one out of several guilty parties is caught in one or two transgressions, caution should be exercised in allowing those transgressions to justify the unloading by his confederates of their wrongdoing upon his head in exchange for leniency. Certainly the past misdeeds must unfold some characteristic technique or modus operandi before they “connect defendant with the commission of the crime.” (See People v. Gallardo, supra.) The other acts proved here establish merely that appellant was loose with corporate funds; none of the other transactions show any marked similarity to one another or to the Perrera transaction. The transfer of the funds to Miss Clark was recorded as a loan. The yacht was purchased without any deception in books of Finance Clearing. Other than the fact that these instances disclose appellant’s general misconduct, nothing connects appellant with this crime save the testimony of Miss Perrera that he directed her actions. Thus, the judgment of conviction under Count VI must be reversed.

Falsification op Corporate Records

“Every . . . agent ... of any corporation . . . who, with intent to defraud . . . falsifies any of the books, papers, writings, or securities belonging to the corporation, or makes or concurs in making any false entries, or omits or concurs in omitting to make any material entry in any book of accounts or other record or document kept by the corporation is guilty of a public offense.” (Corp. Code Ann., §3020, subd. (b).)

Count VII involves the entry by Perrera of the $1,500 check prepared as a gift or “bonus” to her in the “petty cash, furniture, fixtures, and miscellaneous” account at the direction of appellant. This matter has likewise been discussed above under the heading "Grand Theft” (Count VI). For the same reasons there presented, this count must be reversed.

Denial of the Right to Counsel !

Appellant’s former counsel chose, with the consent of his client, to submit the case on the preliminary transcript with very little additional evidence presented by the defense to the trial court. Appellant now claims that the submission of a case as complex as this upon the preliminary transcript constituted such gross neglect on the part of his attorney as effectively to deprive him of the right to counsel. Three answers to this contention are: (1) An abundance of case law holds that, under ordinary circumstances, an accused may not complain for the first time on appeal- of the inept conduct of trial counsel of his own choosing. (People v. Daniels, 145 Cal.App.2d 615 , 619 [ 302 P.2d 831 ] ; People v. Hood, 141 Cal.App.2d 585 , 587-590 [ 297 P.2d 52 ].) (2) Submission on the preliminary transcript may have been the wisest course under the circumstances. If appellant had no true defense to present, he was entitled to avail himself of his right to have the People prove him guilty beyond a reasonable doubt. The prosecution’s case may appear much less convincing in a “cold” transcript than when unfolded before a trial judge. (3) The nature of appellant’s crimes indicates that he is not an “ignorant” defendant likely to remain still while his counsel fails to present a bona fide defense.

Although the wisdom of submitting cases on preliminary transcripts has been seriously questioned (e.g. People v. Stinchcomb, 92 Cal.App.2d 741 , 743-744 [ 208 P.2d 396 ]), it cannot be said that such practice denies the right of the

The judgment of conviction on Counts VI and VII of the information is reversed.

In all other respects, the judgment is affirmed.

Pox, J., and Ashburn, J., concurred.