People v. First Meridian Planning Corp.

OPINION OF THE COURT

The 39-count indictment in this case arose out of an investigation by the Attorney-General of the investment promotional activities, commencing in 1982, of defendant First Meridian Planning Corp. (First Meridian), its officers and sales personnel. First Meridian portrayed itself to the investing public as

The Appellate Division reinstated count 1 of the indictment, concluding that it appropriately alleged and the Grand Jury could infer from the evidence, a single continuing scheme to defraud; thus, count 1 was not duplicitous ( 201 AD2d 145 ). The Appellate Division further held that there was sufficient evidence presented to the Grand Jury to support a prima facie finding that the sale of numismatic coin portfolios for investment purposes in this case constituted the sale of securities. Therefore, the Appellate Division reinstated the counts of fraud in the sale of securities against the coin dealer defendants. The Court also found the evidence sufficient to support a reasonable inference that the coin dealer defendants shared the larcenous intent of the First Meridian personnel and, hence, reinstated the larceny counts of the indictment against those defendants. As to two larceny counts, however, the Court found the proof of the value of the property taken insufficient to sustain charges higher than grand larceny in the fourth degree and modified those counts accordingly. Finally, the Appellate Division sustained County Court’s dismissal of counts 38 and 39 of the indictment charging defendants with failing to register as a commodity broker-dealer, and the Attorney-General has not sought to cross-appeal from that ruling.

We agree with the Appellate Division that count 1 of the indictment is not invalid for facial duplicity, that is, charging in a single count the commission of more than one offense (see, CPL 200.30 [1]). Duplicitous indictments are disallowed because of the danger that a jury may vote to convict on a count without having reached a unanimous verdict on the charges pleaded therein, and because it may undermine a subsequent double jeopardy defense (see, People v Keindl, 68 NY2d 410 , 418).

Where, however, a crime by its nature as defined in the Penal Law may be committed either by one act or by multiple

We likewise reject appellants’ alternative contention that count 1 is fatally duplicitous because the evidence before the Grand Jury would not support the existence of a single scheme to defraud but, at most, the existence of disparate, multiple schemes to defraud involving unrelated participants (i.e., separate conspiracies to fraudulently induce investments in coins, artworks and condominiums, respectively). As the Appellate Division correctly recognized, the Legislature in amending the Penal Law to add crimes based on a scheme to defraud (Penal Law §§ 190.60, 190.65; L 1976, ch 384), modeled the offenses upon the Federal mail fraud statute (see, Donnino, Practice Commentary, McKinney’s Cons Laws of NY, Book 39, Penal Law § 190.60, at 423). Therefore, we may look to Federal precedents applying similar statutory language which hold that, despite the presence of some diversity of criminal actors, modalities and victims, the evidence may yet support the existence of a single, unitary over-all scheme to defraud.

Thus, in United States v Morse ( 785 F2d 771 [9th Cir]), the court was presented with parallel facts to the instant case— the bilking of investors through the promotion of several different investment vehicles as income-producing tax shelters,

Under the foregoing precedents, the evidence before the Grand Jury in the instant case was prima facie sufficient to permit the Grand Jury reasonably to infer the existence of a unitary scheme to defraud. First, the proof disclosed, and the indictment alleged, common techniques, misrepresentations and omissions of material facts employed in all transactions. These included: the invariable sales methodology used with all First Meridian potential clients of a series of home visits in which investors were led to believe that an individualized investment plan was to be prepared; misrepresentations that leveraged purchases of numismatic coin portfolios, artworks and condominiums were each low-risk, high-yield, highly liquid investments (the coin dealer defendants participated in these misrepresentations as to coin portfolio purchases); assurances as to all three investment vehicles that the value of the investments would be monitored by experts in the field; the furnishing of false updated appraisals; and the concealment of material fact that First Meridian and the coin dealer defendants would be superimposing substantial commissions paid to them as additional transactional costs upon acquisition of the asset, making it even more remote that investors would ever realize a profit upon eventual resale. These common aspects of all transactions, through which some 800 First Meridian clients were induced to part with more than $64 million, strongly support the existence of a unitary scheme to defraud.

The Appellate Division, in our view, also correctly concluded that, based upon the evidence concerning the conduct of the promotions, the nature of the offers made and the promised results, the Grand Jury could find that the sale of numismatic coin portfolios here constituted the sale of securities so as to support the validity of the counts of the indictment charging the First Meridian and coin dealer defendants with fraud in the sale of securities. Under the Martin Act (General Business Law, art 23-A, § 352 et seq.) criminal liability may be imposed upon "[a]ny person * * * who intentionally engages in fraud * * * while engaged in inducing or promoting the * * * sale * * * within or from this state of any securities * * * as defined in this article” (General Business Law § 352-c [6] [emphasis supplied]). The Martin Act defines securities as "stocks, bonds, notes, evidences of interest or indebtedness or other securities” (General Business Law § 352 [1] [emphasis supplied]). In All Seasons Resorts v Abrams ( 68 NY2d 81 ), we expressly adopted as one set of criteria for "other securities” under the Martin Act the tripartite test enunciated in Securities & Exch. Commn. v Howey Co. ( 328 US 293 ) to determine whether a given property interest constituted a "security” when offered or sold. In Howey, the Supreme Court broadly equated securities under the Federal

The primary argument of the First Meridian defendants and defendants Kagin and Berman is that the sale of numismatic coins cannot be the sale of a security because the phrase "other securities” takes its meaning from the specific types of securities set forth in General Business Law § 352 (1), that is, "stocks, bonds, notes, evidences of interest or indebtedness”. They claim that "other securities” must therefore refer to some document, akin to a bond, note, etc., evidencing an interest in tangible or intangible property, and cannot refer to the property or commodity itself, in this case numismatic coins. We disagree. In Securities & Exch. Commn. v Howey (supra), the Supreme Court in articulating its three-fold functional test for an investment contract/security, specifically eschewed requiring the existence of some "paper” formally evidencing the interest offered or sold, "it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical asset employed in the enterprise” ( 328 US, at 299 [emphasis supplied]). In Securities & Exch. Commn. v Joiner Corp. ( 320 US 344 ), the Court rejected the same ejusdem generis argument appellants make here in their attempt to restrict the meaning of "other securities” (id., at 349; see also, id., at 351, n 8 ). The Court in Joiner also rejected a strict construction narrowly limiting the meaning of "security”, even in criminal prosecutions under the Federal securities laws (see, id., at 354-355 ) and held that these canons of construction will not be followed when their application would conflict with the general remedial purposes of the securities laws.

The Federal courts have repeatedly applied the teachings of Howey and Joiner to find that arrangements for the purchase of various tangible properties or commodities, under circumstances paralleling the sale of coin portfolios here, constituted the sale of securities (see, Miller v Central Chinchilla Group, 494 F2d 414 [chinchillas]; Glen-Arden Commodities v Costantino, 493 F2d 1027 [casks of scotch whiskey]; Kemmerer v Weaver, 445 F2d 76 [beavers]; Jenson v Continental Fin. Corp.,

Moreover, in People v Landes (84 NY2d, at 660, n 1, supra), we upheld a conviction under the Martin Act despite defendant’s contention that his failure to issue certificates evidencing the promised corporate stock precluded criminal liability based upon a sale of securities. Thus, to require in all Martin Act prosecutions that a fraudulently induced investment contract result in the issuance of some formal instrument evidencing the interest in the property sold would be inconsistent with the functional approach of the Howey case and would permit manipulation of investment transactions so as to thwart the protective and remedial purposes of the Act.

The evidence here was sufficient to meet the three elements of the Howey test. Uncontestably, the First Meridian clients were induced to purchase numismatic coin portfolios for the purpose and in the expectation of making a profit from ultimate resale, an investment of money satisfying the first prong of Howey. That investment was in a common enterprise, as the second element of Howey has been construed by the courts. It is not required that the investor acquires a share in a common fund. Rather, the common enterprise factor can be established by proof that "the fortunes of all investors are inextricably tied to the efficacy [of those seeking the investment or a third party]” (Securities & Exch. Commn. v Koscot Interplanetary, 497 F2d 473 , 479; see, Securities & Exch. Commn. v Turner Enters., 474 F2d 476 , 482, n 7, cert denied 414 US 821 ; see also, Glen-Arden Commodities v Costantino, 493 F2d, at 1035 , supra). We note in this regard that in the Howey case itself, the Court found that the common enterprise factor was established although investors purchased individual orange grove lots, rather than an interest in an undivided entire grove (see, Securities & Exch. Commn. v Howey Co., 328 US, at 295 , supra).

There was also evidence in the record before the Grand Jury to establish the final factor in the Howey definition of security, that the profits are expected to be derived "solely from the efforts of the promoter or a third party” (id., at 299, supra). In applying this element of the Howey test, the courts have not construed it literally, but realistically. It is sufficient if the promoter’s (or third person’s) efforts are "the undeniably significant ones, those essential managerial efforts, which

To conclude on this issue, a prima facie case was established before the Grand Jury that the sales of numismatic coins by the coin dealer defendants, through First Meridian, constituted the sales of securities, thus supporting the validity of the counts of the indictment charging fraud in the sale of securities. The counter argument of defendants Kagin, Berman and First Meridian, that they merely sold a commodity, the tangible coin portfolio itself, is unpersuasive. The sales pitch used to induce these purchases offered a package which included not only the tangible coins but a spectrum of supposedly profit-enhancing services, all part of an investment plan. The Second Circuit’s rejection of a similar claim in Glen-Arden Commodities v Costantino (supra) is especially apt here: "it ill behooves appellants, after enticing their customers with fancy brochures, touting their investment plan, now to claim that there was no investment plan but the mere sale of an unadorned commodity” ( 493 F2d, at 1034-1035 , supra). At the trial, of course, the People will have the burden of establishing beyond a reasonable doubt under jury instructions based on the criteria herein discussed, that defendants’ sales of coin portfolios constituted the sales of securities (Securities & Exch. Commn. v Joiner Corp., 320 US 344 , 355, supra; United States v Morse, 785 F2d, at 775-776 , supra; Roe v United States, 287 F2d 435 , 440, cert denied 368 US 824 ).

We also reject defendant Kagin’s claim that, if General Business Law § 352-c (6) is so construed to include the sale of numismatic coins as a sale of securities for purposes of criminal prosecution, the statute is unconstitutionally vague. The "void for vagueness” doctrine requires that a penal statute "provide the ordinary citizen with adequate notice of the exact conduct prohibited” (People v Bright, 71 NY2d 376 , 384), while at the same time affording law enforcement officials some objective standard to avoid "the possibility that the law will

As discussed above, well before defendants engaged in the conduct which is the subject of this indictment, the New York courts adopted the Howey test for determining whether the sale or offer to sell an interest in property constitutes the sale of a security. Moreover, as has been amply demonstrated, also well before defendants embarked on their investment promotion activities, an extensive body of precedent construing and applying the Howey definition of security had held that commodities and other forms of tangible personal property or even real property could constitute securities, if the circumstances of the offer or sale thereof met the three-pronged Howey test.

Thus, judicial construction of "other securities” was amply sufficient to meet the requirements of the void for vagueness doctrine in enforcing the Martin Act by providing adequate notice to the public, and objective standards for law enforcement officials. The vagueness doctrine is "not a principle designed to convert into a constitutional dilemma the practical difficulties in drawing criminal statutes both general enough to take into account a variety of human conduct and sufficiently specific to provide fair warning that certain kinds of conduct are prohibited” (Colten v Kentucky, 407 US 104 , 110).

We have considered the remaining contentions of the First Meridian defendants and defendants Kagin and Berman, including their claims regarding the sufficiency of the evidence to establish complicity in the larceny counts of the indictment, and the adequacy of the Grand Jury instructions, and find them also unpersuasive.

Chief Judge Kaye and Judges Simons, Titone, Bellacosa, Smith and Ciparick concur.

Order affirmed.