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Lefco v. United States

June 27, 1934


Appeal from the District Court of the United States for the Eastern District of Pennsylvania; George A. Welsh, Judge.

Author: Woolley

Before WOOLLEY, DAVIS, and THOMPSON, Circuit Judges.

WOOLLEY, Circuit Judge.

A grand jury in the District Court of the United States for the Eastern District of Pennsylvania returned an indictment containing four counts framed under section 215 of the Criminal Code (18 USCA § 338) for devising schemes to defraud and using the mail to execute the schemes, and one count under section 37 of the Criminal Code (18 USCA § 88) for conspiring to commit an offense against the United States denounced by section 215. The indictment was directed against twenty persons. Four pleaded guilty; one pleaded nolo contendere; eleven pleaded not guilty; four did not answer. The eleven who pleaded not guilty were tried, convicted, and sentenced. Of these, ten have appealed.

The record, which we have been required to examine at length because of the court's refusal of the defendants' motions for a directed verdict, calls for comment. It contains 497 pages of testimony for the government and none for the defendants; and 226 assignments, covering 90 pages, charging error in the government's case. While it is possible to find among the assignments bases for the questions presented in the appellants' briefs, they contain so much about every phase of a highly controversial trial and so much that is clearly unobjectionable that they tend to confuse rather than to define the issues to be decided. Local 167, International Brotherhood of Teamsters v. United States, 291 U.S. 293, 54 S. Ct. 396, 78 L. Ed. 804. Rather than taking up the unconscionable number of assignments seriatim, we have reviewed this case on the lines marked out and on the questions raised by the appellants' briefs and have given our main consideration to the rulings of the court in admitting testimony discussed in the briefs, to the sufficiency of the evidence to sustain the verdict as disclosed by the record and to the validity of the court's instructions in its charge, keeping in mind all the while that it is not every technical error but only prejudicial error which, after an examination of the entire record, justifies reversal. Judicial Code, § 269 (28 USCA § 391).

To avoid confusion which would be inevitable and interminable, were we to recount each of the acts of the ten defendants in the several offending undertakings, we shall tell the story of the case not with the particularity of the charges of the indictment or in the words of the witnesses but in general terms as gathered from the uncontradicted testimony.

William Lefco, alias Bill Wanamaker; Doc Farrell, who died before the indictment; Moe Feit, alais Moe Green alias Moe Rosen alias Max Goodman; and perhaps Maxwell Davis (called the main conspirators) conceived a way of making money by the fraudulent means of setting up a new merchandise business, establishing credit, buying goods on that credit, doing away with the goods, and upon default in payments going into bankruptcy, and repeating the transactions so long as fortune favored them. The scheme, long familiar to federal courts, was old and possessed novelty only in its scope and in the means set afoot to carry it out.

some one or more of the main conspirators would approach a merchant in a small Pennsylvania city with a proposition that they go into business together. The local man afterwards became known as manager, really the "front man." The scheme of the business was fully unfolded to him so that he was in no way deceived as to its workings or as to its plainly fraudulent character.

When the proposition was accepted some one of the defendants would lease a store and pay rent in advance; another would loan the new firm some money; others would loan them merchandise. When thus established, the firm would make at least one purchase of goods and pay for them. They would then have visible assets and no visible liabilities.

The main conspirators would make a financial statement of the business and have it certified by a reputable public accountant. It would, so far as the accountant knew, be correct, but as the assets had been falsified the statement was necessarily false. The manager or front man would then sign many copies of the statement and send them through the mail to wholesalers and jobbers. Very promptly thereafter the merchandise and money borrowed for the purpose of building up a technically correct financial statement were returned to the defendants who had made the loans. In due course purchases of merchandise were made from and credit extended to the firm by wholesalers and jobbers on the faith of the statement. When goods were received all identifying marks and labels were removed from the packages and other defendants would be summoned who (called "fence members" of the conspiracy) would purchase the goods at about fifty per cent of the invoice prices and truck them away. Thus one group of defendants was able to purchase merchandise at about half price and, as the bills were never paid, another group obtained a clear profit on the sales and divided it among themselves. And so things went along until bankruptcy ensued. Then the main conspirators transferred their activities to another city, then to another city, and then to still another city, where the same proceedings were repeated except (there then being several businesses) new men entered into the scheme. Thus the roster grew.

Coming to particulars, the Weiss Department Store was opened in Allentown, Pennsylvania, in July, 1930. A false financial statement was issued on September 19, following. From that date to May 8, 1931, when a petition in bankruptcy was filed, $70,000 worth of merchandise was abstracted from creditors resulting in a total loss.

On September 27, 1930, with the Weiss Department Store still in operation, Wagner's Variety Store was established in Chester, Pennsylvania, and continued in business until April, 1931, when a petition in bankruptcy was filed, resulting in a loss of $65,000 to creditors.

Immediately following the bankruptcy of Wagner's Variety Store, a branch store was opened in Pottstown, Pennsylvania, which continued operations until August, 1931, resulting in a loss of $50,000 to creditors.

In May, 1931, still another branch store was established, this time in Wilkes-Barre, Pennsylvania, and did business in the same way until bankruptcy intervened in ...

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