he knew it had been in existence for more than eight years; that the stock of the corporation was scarce, when he held an option on a very large block of the stock; and that he was selling it at cost, whereas his profits ranged from 50 cents to $1.75 a share. Mengarelli also falsely represented that the Italian Government had deposited $250,000 in escrow in a New York bank for the right to use the process, whereas, even if the representation had been true, the investors would not have benefited because Ozonide Corporation did not own the foreign rights to the process.

The United States District Court of the Northern District of New York sentenced Mengarelli to 18 months imprisonment. The sentence was suspended and he was placed on probation for 3 years.

United States v. Buckhorn Mining Company and James R. Davies.-This case resulted in the first convictions where the indictment was predicated solely upon the use of the mails and the instrumentalities of interstate commerce in the sale of securities without compliance with the registration provisions of the Securities Act of 1933.

In April 1938, the Commission obtained an injunction against James R. Davies and the Buckhorn Mining Company enjoining them from further violations of Section 5 of the Securities Act of 1933 in connection with the sale of the common stock of Buckhorn Mining Company. Despite the injunction, the sale of stock was wilfully continued. On May 15, 1940, an indictment was returned by a Federal grand jury at Pocatello, Idaho, charging that the stock of the Buckhorn Mining Company, of which Davies was the president and promoter, was sold to investors in Idaho and neighboring States in violation of the registration provisions of the Securities Act of 1933. Davies was sentenced, in the United States District Court for the District of Idaho, to 15 months in prison and the company was fined $1,000.

United States v. David A. Smart et al.-In this case, twelve individuals were charged with conspiracy to violate the anti-manipulation section of the Securities Exchange Act of 1934 in connection with trading on the New York Curb Exchange in the common stock of Esquire-Coronet, Inc., between May and September 1938. The indictment, which was returned in the United States District Court at Chicago on May 2, 1941, named as defendants David A. Smart, Alfred Smart, Arthur Greene, A. D. Elden, Jeannette Kilmnick, and Alfred R. Pastel, all of Chicago, Walter Lyon and Walter Stein, of Walter Lyon and Co., David Van Alstyne, J. J. Hindon Hyde, and Walter Winfield of Van Alstyne, Noel and Company, and Leo G. Seisfeld, all of New York City.

The indictment charged that the defendants conspired to create a rise in the price of the Esquire-Coronet stock on the New York Curb Exchange by means of a series of transactions designed to induce the

purchase of that stock by others, in violation of Section 9 (a) (2) of the Securities Exchange Act of 1934. It was alleged in the indictment that the defendants David A. Smart and Alfred Smart granted an option on 200,000 shares of Esquire-Coronet stock to the defendant Greene, who, in turn, optioned the shares to Walter Lyon and Co. According to the indictment Van Alstyne, Noel and Company joined in the distribution of these shares.

Among the devices alleged in the indictment to have been employed by the defendants in stimulating activity in the stock and thereby causing its rise, were agreements to guarantee persons against loss, and the domination of the volume of trading and over-bidding in order to raise the price of the stock on the exchange. Another device used by the defendants for the same purpose, the indictment alleged. was to sell certain individuals shares of Esquire-Coronet stock at a price substantially under the prevailing market price for the stock in order to compensate such persons for purchasing the stock on the Curb Exchange at prices above the last sales price. Some of these trades, the indictment charged, were strategically placed at the opening and closing of the trading session.

The defendants have filed demurrers to the indictment, which are set for argument in the United States District Court for the Northern District of Illinois on September 8, 1941.

Appellate Decisions in Criminal Cases.

In Sidney J. Dillon et al. v. United States, Sidney J. Dillon and Lewis E. Crowley had been convicted upon their pleas of nolo contendere to an indictment charging violations of the fraud provisions of the Securities Act of 1933 and the mail fraud statute.43 On July 16, 1940, the Circuit Court of Appeals for the Eighth Circuit affirmed the convictions, holding that "the pleas of nolo contendere were confessions of guilt for the purpose of the case." The court also decided that there was no impropriety in joining in one indictment counts charging violations of the Securities Act of 1933 and the mail fraud statute. The defendants filed a petition for a writ of certiorari, which was denied by the Supreme Court on October 28, 1940.

In John J. McKee and Moe Platt v. United States, McKee and Platt had been convicted of conspiracy to defraud the United States in connection with its governmental functions of administering the Securities Act of 1933 and the Securities Exchange Act of 1934.“ Both defendants appealed to the circuit court of appeals, which court dismissed the appeal on October 25, 1940.

In Robert M. Thompson v. United States, Thompson had been convicted of fraud in connection with the sale of contracts to stockholders of Atlas Holding Company. An appeal was taken to the Circuit

48 Sixth Annual Report, p. 154.

Sixth Annual Report, p. 160.

Court of Appeals for the Fifth Circuit. The court dismissed the appeal on the grounds that the defendant had failed to perfect the appeal within the prescribed time limit.

In Alva Brown Davis v. United States, Davis had been convicted of fraud in connection with the operation of the Santa Fe Land Trust & Title Company of Dallas, Texas. The Circuit Court of Appeals for the Fifth Circuit affirmed the conviction and, on October 14, 1940, the Supreme Court denied a petition for a writ of certiorari.

In Leo S. Holmes v. United States, Holmes had been convicted of violations of the fraud provisions of the Securities Act of 1933 in the sale of securities of First Mortgage Acceptance Corporation of Omaha, Nebraska.45 On November 27, 1940, the Circuit Court of Appeals for the Eighth Circuit affirmed the conviction.

In John H. McGloon v. United States, McGloon, a former vice president and comptroller of McKesson & Robbins, Inc., was convicted of falsifying reports filed with the Securities and Exchange Commission." The conviction was affirmed by the Circuit Court of Appeals for the Second Circuit on December 30, 1940. On March 17, 1941, the Supreme Court denied certiorari.

In Paul B. Roubay v. United States, and M. E. Waggoner v. United States, both Roubay and Waggoner had been convicted of fraud in connection with the sale of trade acceptances by Comanche Mining and Reduction Company against nonexistent gold and silver bullion. The Circuit Court of Appeals for the Ninth Circuit affirmed the conviction of Roubay on October 25, 1940, and affirmed the conviction of Waggoner on July 26, 1940. A petition for certiorari by Waggoner was denied by the Supreme Court on November 12, 1940.

In Norman W. Minuse et al. v. United States, Norman W. Minuse and Joseph E. H. Pelletier had been convicted of conspiracy to violate the anti-manipulation provisions of the Securities Exchange Act of 1934 in transactions on the New York Curb Exchange involving the stock of Tastyeast, Inc." On August 7, 1940, the Circuit Court of Appeals for the Second Circuit reversed the convictions and ordered a new trial on the grounds that error had been committed in rulings of the lower court on matters of trial procedure.

In Andrew G. Ilseng et al. v. United States, Andrew G. Ilseng, Andrew G. Ilseng, Jr., and Leslie A. McKercher had been convicted of fraud and conspiracy to defraud in connection with the promotion of various mining ventures. On June 13, 1941, the Circuit Court of Appeals for the Ninth Circuit affirmed the convictions on all but one count, but reversed the conviction on that count because there had not been sufficient proof of the jurisdictional basis for that particular

45 Sixth Annual Report, p. 157. Sixth Annual Report, p. 155. "Sixth Annual Report, p. 158.

charge. The case was remanded to the district court for resentencing because the sentences imposed were to run concurrently with the sentence under the invalid count.

In Hiram R. Edwards v. United States, Edwards had been convicted of violations of the fraud and registration provisions of the Securities Act of 1933 and of mail fraud and conspiracy in connection with the sale of interests in five trusts having assets consisting of oil and gas leases. The conviction was affirmed by the United States Circuit Court of Appeals for the Tenth Circuit on June 29, 1940.

The Supreme Court granted certiorari and on March 3, 1941, reversed the conviction and remanded the case to the district court for trial of issues raised by a plea in abatement of the defendant in which he claimed that immunity had been conferred upon him in the course of hearings before the Securities and Exchange Commission. The court held that the district court erred in refusing the defendant an opportunity to be heard on that point.

The court sustained the Government's contention that an indict ment, charging a violation of the registration provision of the Securities Act of 1933, need not negative the availability of an exemption. The court also ruled that the fraud provisions of the Securities Act of 1933 did not impliedly repeal the mail fraud statute in the field of securities sales and that the two statutes could be useful side by side.

In Joshua F. Simons et al. v. United States, Joshua F. Simons, Samuel Markowitz, and William Markowitz had been convicted of violations of the mail fraud provisions of the Securities Act of 1933 in the sale of oil and gas leases. An appeal was taken to the Circuit Court of Appeals for the Ninth Circuit, which court affirmed the convictions on April 21, 1941. A petition for certiorari has been filed.

In Thomas W. Benson v. United States, Benson had been convicted of violations of the fraud provisions of the Securities Act of 1933 in the sale of stock of the Suwannee Life Insurance Company. The Circuit Court of Appeals for the Fifth Circuit affirmed the conviction and, on October 21, 1940, a petition for certiorari was denied by the Supreme Court.

In Joseph R. Rossignol v. United States, Rossignol had been convicted of fraud in connection with the operation of a general security brokerage and investment business in Atlanta, Ga.18 The conviction was affirmed by the Circuit Court of Appeals for the Fifth Circuit. On October 14, 1940, the Supreme Court denied a petition for a writ of certiorari.

In Edward J. Hartenfeld v. United States, Hartenfeld had been convicted of fraud in the sale of securities of the American Terminal and Transit Company.49 The conviction was affirmed by the Circuit Court of Appeals for the Seventh Circuit. On October 14, 1941, the Supreme Court denied certiorari.

48 Sixth Annual Report, p. 157.

Sixth Annual Report, p. 153.

i

In Joseph J. Mascuch v. United States, Mascuch was convicted of perjury committed before officers of the Commission during an investigation into the stock market trading and the common stock of Breeze Corporations, Inc., of which he was president. The Circuit Court of Appeals for the Second Circuit affirmed the conviction and a petition for certiorari was denied by the Supreme Court on October 14, 1940.

FORMAL OPINIONS

The Opinions and Research Section of the General Counsel's Office prepares drafts of the Commission's formal opinions in contested cases arising under the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. The work of this section is done by a group of approximately 30 attorneys, who are also engaged from time to time in rendering interpretative and advisory assistance to the public. While engaged in the preparation of opinions, these attorneys work under the direction of the Supervising Attorney in Charge of the Opinions and Research Section and are completely isolated, with respect to this work, from persons actively participating in the proceedings. It is an invariable rule that the attorney assigned to prepare an opinion must not have had any connection with any previous phase of the case with respect to which the opinion is to be prepared. In addition, the attorney is subject to the following instructions:

"In no cases assigned for the preparation of opinions should the attorney confer with the attorneys who have been responsible for the preparation or prosecution of the proceeding. * * * It is just as improper to consult employees of the Commission who have taken part in the proceedings as it would be to consult attorneys for the respondent. Even on formal or procedural matters not concerned with the merits of the case, attorneys should consult the supervising attorney and allow him to make any inquiries from other divisions of the Commission which may be necessary. The same inflexible rule must apply to consultation with the trial examiner."

After hearings have been held, and after consultation with the Commission, an attorney in this section analyzes the entire record and prepares a draft of the formal opinion in accordance with the Commission's instructions. In most cases he also prepares a narrative abstract of the record. Commission experts are from time to time consulted on technical problems arising in the course of the preparation of the opinion, but these experts are never individuals who have participated in the preparation of the case or testified at the hearing. When the draft of the opinion and the abstract of the record have been completed, they are submitted to the supervising attorney, who reviews the entire case and, in conjunction with the opinion attorney,