UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
_______________
CRIMINAL NUMBER 80-00080-1
_______________
UNITED STATES OF AMERICA,
Plaintiff
V.
JACK HALPERIN,
Defendant
_______________
GOVERNMENT'S TRIAL MEMORANDUM
_______________
CARLON M. O'MALLEY, JR.
United States Attorney
ALBERT R. MURRAY, JR.
Assistant United States Attorney
426 Post Office Building
Scranton, Pennsylvania 18501
_________1
The first thirteen counts of the Indictment charges
that during the period between February 5, 1975, and contin-
uing through December of 1978, the Defendant Jack Halperin,
perpetrated a scheme and artifice to defraud. These counts
also charge that the Defendant by means of material misrepre-
sentations obtained money and property and that the Defendant
engaged in certain transactions, practices, and courses of
business that operated or would have operated as a fraud or
deceit upon Durchasers of land at the Valley of Lakes sub-
division located in Luzerne and Schuylkill counties.
In setting out the substance of this scheme or arti-
fice to defraud, the Introduction to Counts I through XIII
and specifically, paragraphs 1 through 3 describe the fraudu-
lent representations and promises made by the Defendant in
Housing and Urban Development Property Reports, Property Reports
filed with the New York Department of State, Office of Land
Sales, and other written material disseminated to prospective
purchasers. These misrepresentations were that the Defendant
would construct and/or complete Lake Algonquin a proposed 80
acre lake, complete with dams, no later than January 1, 1980,
a nine-hole golf course and/or eighteen hole golf course, com-
plete with all fairways and greens, by December 31, 1978,
central sewer service and central sewage disposal plant, lift
station and treatment olant with pumps and sewer lines to be
extended to all lots located in the sub-division by January 1,
1978, that all completed and existing amenities would be
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maintained by the developer, that all monies paid by property
owners for general maintenance of the roads and other amen-
ities would be used for the general maintenance of the amen-
ities, that a special escrow account would be maintained to
insure completion of the aforesaid amenities and that various
deposits and payments with respect to lots in the subdivision
would be placed in a real estate brokers escrow acccunt until
recording of the prospective purchaser's deed.
Counts XIV through XXXIII charge the Defendant with
violation of 18 United States Code, Section 1341. These counts
each allege separate violations of the mail fraud statute and
also incorporate the allegations of the scheme to defraud and
the misrepresentations contained in the Introduction to Counts
I through XIII of the land sales section of the Indictment.
In addition, and as a further part of the scheme to defraud
paragraphs 1 through 16 aver that the Defendant borrowed and
caused to be borrowed from various lending institutions certain
sums of money to be used for the general improvement of the
development, including the completion of existing and proposed
amenities, and working capital for the continuation of the
development. Furthermore, these counts as consistent with
the land fraud counts indicate that the Defendant wilfully and
knowingly and for the purpose of executing the scheme and
artifice to defraud made willful use of the means and instru-
ments of transportation and communication in interstate commerce
and specifically, did make use of the United States Postal
Service in forwarding or receiving mail in connection with the
Defendant's unlawful purposes.
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QUESTIONS OF LAW, EVIDENCE AND PROCEDURE
A. Fraud in General
The indictment charges that the defendant violated
Title 15, United States Code Sections 1703(a)(2) and 1717 of the
Interstate Land Sale Full Disclosure Act ("Land Sales Act"), by
usincr a fraudulent scheme to sell Valley of Lakes subdivision
lots to the public. The Indictment also charges violation of
18 U.S.C. 1341 (Mail Fraud). Both of the violations involve
fraudulent schemes and essentially connected in evidentiary
proof. The word "scheme" has the connotation of a plan or
pattern. Fabian v. United States, 358 F.2d 187 (8th Cir. 1966)
cert. denied, 385 U.S. 821. It is the fraudulent nature of the
scheme coupled with use of the mails or other jurisdicational
facilities which constitutes a violation of the anti-fraud pro-
vision of the Land Sales Act. As to the fraudulent nature of
the scheme, it should be recognized that "the forms of fraud
are as multifarious as human ingenuity can devise; that courts
consider it difficult, if not impossible, to formulate an exact,
definite and all-inclusive definition thereof; and that each
case must be determined on its own facts." Isaacs v. United
States, 301 F.2d 706, 713 (8th Cir. 1962) cert. denied 370 U.S.
818. "To try to delimit 'fraud' by definition would tend to
reward subtle and ingenious circumvention and is not done."
Foshay v. United States, 68 F.2d 205, 211 (8th Cir.. 1933). The
statutes condemning fraud "must deal with the practicalities of
the outside business and social world." Blachly v. United
States, 380 F.2d 665, 672 (5th Cir. 1967). While the law does
not offer a precise definition of fraud, it is recognized that
"[l]aw puts its imprimatur on the accepted moral standards and
condemns conduct which fails to match the reflection of moral
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uprightness, of fundamental honesty, fair play and right dealing
in the general business life of members of society." Blachly v.
United States, supra. at 671. It dictates that "honesty should
govern competitive enterprises and that the rule of caveat emptor
should not be relied upon to reward fraud and deception."
Charles Hughes & Company v. Securities and Exchange Commission,
139 F.2d 434, 437 (2d Cir. 1943). "The law does not define
fraud; it needs no definition; it is as old as falsehood and as
versable as human ingenuity." For a scheme to be fraudulent,
all that is necessary is that it be a "scheme reasonably calcu-
lated to deceive persons of ordinary prudence and comprehension"
Blachly v. United States, supra. at 671, Elbel v. United States,
364 F.2d 127, 134 (10th Cir. 1966).
The courts have considered the meaning of "scheme to
defraud" under other statutes which are similar to the Land
Sales Act. Under the Mail Fraud statute, Title 18, United
States Code Section 1341, the fraudulent aspect of a scheme to
defraud is measured by a non-technical standard. Blachly v.
United States, supra. at 671; Gregory v. United States, 253
F.2d 104, 109 (5th Cir. 1958). Likewise it well established
that under the Securities Act of 1933, Title 15, United States
Code Section 77q(a), it is not necessary to establish the ele-
ments of common law fraud and deceit in order to prove the
violation. Hughes v. Securities and Exchange Commission, 174
F,2d 969, 975 (D.C. Cir. 1949); Norris & Hirshberg, Inc. v.
Securities and Exchange Commission, 177 F.2d 228,.233 (D.C. Cir.
1949); Charles Hughes and Co. v. Securities and Exchange Com-
mission, supra. at 437. Thus, the mere misstatement of a
material fact, without any reliance on the misstatements by a
prospective purchaser, is sufficient to constitute a violation
of either statute.
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The Indictment as supplemented by the Bill of
Particulars, sets out in detail, the fraudulent scheme by which
the defendant operated. But, in order to establish the existence
of the scheme, the government does not have to establish every
allegation contained in the Indictment. The government need
only prove the scheme substantially as alleged. "All the alle-
gations relative to false representations need not be proved as
a part of the scheme. A scheme to defraud is necessarily made
up of numerous elements, no particular one of which need be
proved if sufficient evidence is shown to constitute the scheme."
Holmes v. United States, 134 F.2d 125 (8th Cir. 1943) cert.
denied 319 U.S. 776.
Title 15, United States Code Section 1703(a)(2) out-
laws fraudulent offers and attempts to defraud as well as
fraudulent sales actually consumated, since it applies to the
use of such a scheme "in selling . . . or offering to sell . .
. . " It has long been the law under the mail fraud statute
that in order to prove a violation it is not necessary to prove
that any person was actually defrauded or that anyone actually
sustained a loss. It need only be shown that the mails were
used or caused to be used in furtherance of a fraudulent scheme.
Atkinson v. United States, 344 F.2d 97 (8th Cir. 1965); Baker v.
United States, 115 F.2d 533 (8th Cir. 1940) cert. denied, 312
U.S. 692. But evidence that victims did, in fact, suffer a loss
is admissible in prosecutions under the Land Sales Act as it is
in prosecutions under the Securities Fraud statute, Farrell v.
United States, 321 F.2d 409 (9th Cir. 1963), and the Mail Fraud
Statute, Lyndon v. United States, 254 F.2d 560 (4th Cir. 1958).
In interpreting the Interstate Land Sales Full Dis-
closure Act, it is persuasive for the court to look to cases
decided under the Securities Act of 1933 since the Land Sales
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Act was modeled after the Securities Act. Schenker v. United
States, 529 F.2d 96 (9th Cir. 1976). In addition, it has long
been settled that the principles governing fraud in civil se-
curities cases are equally applicable to criminal securities
prosecutions. The only difference is that in criminal cases,
the government must establish guilt beyond a reasonable doubt,
while in civil cases the party need only establish his case by
a preponderance of the evidence. United States v. Buckner, 108
F.2d 921, 926 (2d Cir. 1940). In Foshay v. United States, supra.
at pp. 210-211, the court restated the same rule:
"It is well settled that the criteria of fraud
evolved in civil cases are applicable to prose-
cutions under the mail fraud statute. Dis-
cussion of what amounts to fraud is found in
greater volume in the reports of civil cases,
but the principles are no different."
Thus the cases cited herein on the question of what constitutes
fraud are applicable to the case at bar whether they be civil
or criminal cases.
B. Fraudulent Schemes
The Indictment charges that the defendant engages in
a scheme to defraud prospective purchasers. The defendant is not
only bound by his acts, but also is bound by the acts of his
agents acting within the scope of their authority. Las Vegas
Merchant Plumber's Assn. v. United States, 210 F.2d 732, 751
(9th Cir. 1954), cert. denied, 348 U.S. 817, rehearing denied
348 U.S. 889. Thus in Proffer v. United States, 288 F.2d 182,
183 (5th Cir. 1961), the court held that the president of a
company could be responsible for false representations made by
the company's employees. In Beck v. United States, 305 F.2d 595
(10 Cir. 1962) the court, discussing the admissibility of state-
ments made by sales men who were not co-schemers in that case
stated:
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"It is agreed the general rule permits the
admission of such statements, if they have
been expressly or impliedly authorized, or
have been ratified by the persons against
whom they are offered."
In order to prove the defendant's participation in
the scheme charged, the government does not have to prove that
the defendant was aware of every representation made by his
agents. Proof of participation in a scheme is sufficient if a
common purpose and plan "may be inferred from a development and
a collocation of circumstances." Glasser v. United States, 315
U.S. 60, 80, (1942), Pereira v. United States, 347 U.S. 1, 12
(1954), Isaacs v. United States, supra. at 725. Thus, the court
in Tellier v. United States, 255 F.2d 441, 450 (2d Cir. 1958)
held that even if one defendant might not have been aware of the
high pressure tactics used to sell securities, the active role
which he played in the affairs of the corporation issuing the
securities "justified the jury in believing he was aware of the
fraud perpetrated upon the purchasers." It is not necessary that
a defendant know exactly how the securities sold pursuant to a
scheme are being sold. Van Riper v. United States, 13 F.2d 961
(2d Cir. 1926) cert. denied, 273 U.S. 702. So long as the de-
fendant, with a fraudulent intent, did associate himself with
the scheme and did do some acts in furtherance of the scheme's
illegal purpose, he is liable for all of the acts committed by
all of his agents. Blumenthal v. United States, 332 U.S. 539
(1947).
The making of misrepresentations and the circumstances
under which they were made may also tend to establish the exist-
ence of a fraudulent shceme:
"Where the scheme to defraud included making
sales by means of certain false representations
conveyed through salesmen, proof of the same
misrepresentation being made at widely different
places to different persons by numerous agents
in the same period, tends to prove that the
scheme existed and that the particular salesman
was carrying it on."
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Reistroffer v. United States, 258 F.2d 379, 387 (8th Cir. 1958);
Grell v. United States, 112 F.2d 861, 873 (8th Cir. 1940).
This rule is consistent with the general rule that a
fraudulent scheme may be and usually is established by circum-
stantial evidence, by inferences from the evidence of relation-
ship of the parties and by overt acts, conduct and other pro-
bative circumstances. Marbs v. United States, 250 F.2d 514,
522 (8th Cir. 1957); Isaacs v. United States, supra; Coolish v.
United States, 340 F.2d 513 (8th Cir. 1965).
A sales agent is not warranted in relying on sales
information where it is suspicious or inconsistent on its face.
United States v. Ross, 321 F.2d 61, 65 (2nd Cir.) cert. denied,
375 U.S. 894 (1963). When provided with such information by
his employer a sales man has a duty to make reasonable and
adequate inquiry into its validity. Irwin v. United States,
338 F.2d 770, 74 (9th Cir. 1964), cert. denied, 381 U.S. 911
(1965); United States v. Schaefer, 299 F.2d 625, 629 (7th Cir.),
cert. denied, 370 U.S. 917 (1962); Peel v. United States, 316
F.2d 907 (5th Cir. 1963)., Stone v. United States, 113 F.2d 70,
75 (6th Cir. 1940).
C. Willfulness and Intent
In a prosecution under the anti-fraud provision of
the Land Sales Act, Title 15, United States Code, Section 1703
(a)(2), as in a criminal prosecution under Section 17(a) of the
Securities Act, Title 15, United States Code, Section 77q(a),
the government must prove intent to defraud. Troutman v.
United States, 100 F.2d 628, 632 (10th Cir. 1938), cert. denied
306 U.S. 649 (1939). The government must establish that de-
fendant participated in the alleged scheme willfully and with
the intent to defraud.
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"An act is done wilfully if done voluntarily and
purposely and with a specific intent to do that which the law
forbids; that is to say, with evil motive or bad purpose whether
to disobey or disregard the law." United States v. Rabinowitz,
327 F.2d 62, 77 (6th Cir. 1964) quoting Beck v. United States,
305 F.2d 595, 599 (10th Cir. 1962). This does not, however,
require establishing by direct evidence that the defendant had
actual knowledge of the falsity of the material misrepresenta-
tions or of the scheme. Circumstantial evidence is sufficient
to sustain a criminal conviction. Holland v. United States,
348 U.S. 121, 139-140 (1954); Wall v. United States,
384 F.2d 758, 762 (10th Cir. 1967); Swallow v. United States, 307 F.2d
81, 83 (10th Cir.), cert. denied, 371 U.S. 950 (1963), United
States v. Brown, 236 F.2d 403, 405 (2d Cir. 1956); United
States v. Vasen, 222 F.2d 3, 7-8 (7th Cir.), cert. denied, 350
U.S. 834 (1955).
In Wall, a securities fraud prosecution, evidence
showed that the defendants:
". . .participated in a plan to extract money
from the public by means of specific repre-
sentations and then used that money with heed-
less and reckless indifference to those
representations."
The Tenth Circuit held that this was enough to justify a
reasonable inference of an intent to defraud. Id., at 762.
Schemes to defraud by their nature are seldom susceptible to
proof by direct evidence. Proof of participation in the scheme
to defraud is sufficient if a common purpose or plan to devise
and accomplish the scheme may be inferred from the "development
and a collocation of circumstances". Glasser v. United States,
supra. at 315 U.S. 68, 80 quoting United States v. Manton, 107
F.2d 834, 939 (2d Cir. 1938); Periera v. United States, supra.
at 347 U.S. 1, 12 (1954); Beck v. United States, 305 F.2d 595
(10th Cir.), cert. denied 371 U.S. 895 (1962); Isaacs v. United
States, 301 F.2d 706, 725 (8th Cir.), cert. denied 371 U.S. 818
(1962). Intent may thus be inferred solely from the conduct of
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the defendant and the determination of willful participation
in a scheme to defraud under Section 1703(a)(2) of the Land
Sales Act is a question of fact before the jury, as it is under
Section 77q(a) of the Securities Act. Elbel v. United States,
364 F.2d 127 (10th Cir. 1966), cert. denied, 385 U.S. 1014 (1967).
A defendant is entitled to have his alleged "good
faith" defense "squarely presented to the jury" either in the
trial judge's instructions to the jury or otherwise. Kroll v.
United States, 433 F.2d 1282, 1290 (5th Cir. 1970); Sparrow v.
United States, 402 F.2d 826, 282-29 (10th Cir. 1968); New
England Enterprises, Inc. v. United States, 400 F.2d 58, 71
(lst Cir. 1968), cert. denied 393 U.S. 1036 (1969); Beck v.
United States, supra at 599. In Frank v. United States, 220
F.2d 559 (10th Cir. 1955), the Court held that the defendant,
in attempting to establish good faith, was entitled to show
that he relied on statements of others which he believed to be
true, in making representations to investors. Id. at 563-64.
While proof of "good faith" is a defense to the se-
curities fraud charge, and therefore by analogy to the land
sales fraud charge, honest belief in the ultimate success of a
venture will not justify false statement made in connection
with sale of lots or securities. Sparrow v. United States,
supra. at 828; United States v. Painter, 314 F.2d 939, 943
(4th Cir. 1963); Greenhill v. United States, 298 F.2d 405, 411
(5th Cir. 1962); Frank v. United States, supra. at 564; Foshay
v. United States, 68 F.2d 205, 210 (8th Cir. 1934), cert.denied
291 U.S. 674 (1934). Reckless disregard to indifference as to
whether the statements are true, can constitute sufficient
"Willfulness" to sustain a conviction even absent proof that a
defendant had actual knowledge of the falsity of the statements.
Wall v. United States, 384 F.2d 758, 762 (10th Cir. 1967);
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Elbel v. United States, supra. at 134; United States v.
Benjamin, 328 F.2d 854 (2d Cir. 1964). In a securities fraud
prosecution, in Benjamin, the court said that:
. . . the government can meet its burden
by proving that a defendant deliberately
closed his eyes to facts which he had a
duty to see . . . or recklessly stated as
facts things of which he was ignorant.
Id. at 862.
There is nothing unusual in our system of juris-
prudence in holding that a person's willful act constitutes a
criminal violation even though the person claims he is unaware
of the statute. Competent adults are presumed to know the law
pertaining to their conduct and are charged with the duty to
obey it. Ignorance of the law, generally will not be a valid
defense in a criminal case, "the word 'willful', even in crim-
inal statutes, means no more than that the person charged with
the duty knows what he is doing. It does not mean, in addition,
he must suppose that he is breaking the law." American Surety
Co. v. Sullivan, 7 F.2d 605, 605 (2d. Cir. 1925). The term
"willful" means only that the act was done deliberately, as
opposed to accidentally. c.f. Ellis v. United States, 206 U.S.
246, 257 (1907). And see Hughes v. Securities and Exchange
Commission, 174 F.2d 969, 977 (D.C. Cir. 1949), a civil case
in which the court used the American Surety definition of
"willful". And see McBride v. United States, 225 F.2d 249,
254 (5th Cir. 1955), cert. denied 350 U.S. 934 (1956); Nabob
Oil Co. v. United States, 190 F.2d 478P 480 (10th Cir. 1951).
D. History and Purpose of the Interstate
Land Sales Full Disclosure Act
In 1968 Congree enacted the Interstate Land Sales
Full Disclosure Act as a response to what it perceived, after
a long series of hearings, as the exploitation of the public,
including large numbers of elderly purchasers, by disreputable
real estate sellers. See generally, Hearings Before the Sub-
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comm. on Frauds and Misrepresentations Affecting the Elderly
of the Senate Special Comm. on Aging, 88 Cong., 2d Sess. 343
(1964), Hearings on S. 2672 Before the Subcomin. on Securities
of the Senate Comm. on Banking and Currency, 89th Cong., 2d
Sess. 2 (1966), Hearings Before the Senate Special Comm. on
Aging, 88th Cong., lst Sess. (1963). Congress chose in enact-
ing the Land Sales Act to avoid more substantive, paternalistic
regulation of the land sales industry and to implement instead
a "full disclosure" philosophy of regulation together with an
anti-fraud statute. As the court said in Shenker v. United
States, 529 F.2d 96, 97 (9th Cir. 1976):
"The Act was originally introduced in response
to an increase in fraudulent sales that were
eroding public confidence in the land sales
industry. The original senate bill was modeled
on the Securities Act of 1933 (15 U.S.C. 77a
et seq.) which makes it illegal to sell any
security interstate without first filing a
registration statement (15 U.S.C. 77e); and
also makes it illegal to sell securities
interstate by any fraudulent means (15 U.S.C.
77q)."
Shenker quotes Senator Williams' statement in the legislative
history of the Land Sales Act in which he stated that under the
then proposed legislation "[i]t would be illegal to sell the
land unless the registration statement was in effect." And
later in the same comments stated "in addition, this bill
would make it unlawful to sell lots in a subdivision by the use
of fraudulent devices or practices, or by using misstatements
of facts or misleading facts." 113 Cong. Rec. 316 (1967). The
Shenker court went on to explain:
"In enacting the Act, Congress was trying to
supplement the existing fraud statutes (18
U.S.C. 1341 (1948) et seq.) by imposing a
separate affirmative duty on land dealer to
disclose all information, good and bad, about
the property to be let or sold. This was to
be achieved by requiring statements of record
to be filed." Id. at 98
The court also quoted from the remarks from Senator Mondale,
a co-sponsor of the original senate bill who described the
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Congressional intent in the Land Sales Act as going beyond the
provisions of the existinc, fraud statutes:
"Fraud statutes meet a fundamental problem
here of the person who affirmatively mis-
represents a fact, who openly lies about
something that is false. The fraud statute
will help reach that problem, but we are
trying to act at a different objective here,
one in addition to fraud. That is the af-
firmative responsibility on one who sells
real estate in interstate commerce, in most
cases sight unseen, to affirmatively tell
all of the facts, the bad as well as the
good, and it is a different principle that
we are trying to achieve in this measure
that has to be clearly understood."
113 Cong. Rec. 317.
As the legislative history discloses, it was Congress'
intention, on the one hand, to put purchasers in a position to
deal intelligently with developers mass-marketing subdivision
lots by requiring developers and sales agents to provide suf-
ficient information so that the potential lot purchaser has the
same amount of knowledge as the seller does about the propertv.
This way the purchaser would be able to make a reasonable
decision as to whether to buy the lot. On the other hand,
Congress sought to prevent unscrupulous developers from taking
advantage of an already lopsided bargaining position by mis-
representing the true facts about the lots they were selling or
by outlawing the use of fraud in lot sales. These congressional
aims were achieved by Section 1703(a)(1), which outlaws the sale
of lots without registration and delivery of a property report
prior to the execution of the contract and Section 1703(a)(2),
which outlaws the use of fraud in the sale of lots.
E. Violation of the Anti-Fraud Provision
Counts 1 through 13 of the Indictment charge the
defendant with 13 separate violations of Title 15, United States
Code Section 1701(a)(2) and Section 1717.
Title 15, United States Code Section 1703(a)(2) provides:
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"It shall be unlawful for any developer
or agent, directly or indirectly, to
make use of any means or instruments of
transportation or communication in inter-
state commerce, or of the mails--
(2) In selling or leasing, or offering
to sell or lease any lot in a
subdivision--
(A) to employ any device, scheme,
or artifice to defraud, or
(B) to obtain money or property
by means of a meterial
misrepresentation with respect
to any information included in
the statement of record or other
property report or with respect
to any other information
pertinent to the lot or the
subdivision and upon which the
purchaser relies, or
(C) to engage in any transaction,
practice, or course of business
which operates or would operate
as a fraud or deceit upon a
purchaser.
In order to prove a violation of this statute, the government
must establish beyond a reasonable doubt that the defendants,
acting wilfully and with an intent to defraud:
First: Offered or sold a lot in a sub-
division and in connection with that offer
or sale either:
(a) Employed a device, scheme or
artifice to defraud; or
(b) Obtained money or property by
means of a material misrepresentation with
respect to any information pertinent to the
lot or the subdivision upon which the purchaser
relied; or
(c) Engaged in transactions, practices or
a course of business which would or did operate as
a fraud or deceit upon purchasers of lots offered
or sold; and
Second: In connection with the offer or sale
directly or indirectly made use of the mails or
other instruments of transportation or communi-
cation in interstate commerce; and
Third: The defendant is a developer or agent
or employee of the developer.
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The government must prove willfulness, an offer or sale, and
use of the prescribed jurisdictional means and that defendant
was an agent or developer. A fraudulent scheme, misrepre-
sentations or a fraudulent course of buinsess are alternative
elements, however, and the government need not prove all three.
Proof of any one of these last elements is enough to establish
a violation of the statute. The governemnt may prove the single
Section 1703(a)(2) crime by complying with any one of three
slightly different modes of proof as set out in subsections (A),
(B) and (C). Troutman v. United States, 100 F.2d 628, 631 (10th
Cir. 1938): United States v. Amick, 439 F.2d 351) 359 (7th Cir.
1971). See 6, Loss, Securities Regulation, 3531-32 (2d ed. 1961).
As a practical matter however, a scheme to defraud, misrepre-
sentation and a fraudulent course of business usually exist side
by side in most land fraud cases.
1. Offer or Sale. Each of the first 13 counts alleges
a separate offer and sale of a subdivision lot or lots.
2. Fraudulent Scheme or Misrepresentations or Fraudu-
lent Course of Business. Although the law does not set out pre-
cise criteria that can be used in determining whether fraud is
present in a particular case, false promises or opinions, par-
ticularly those involving present and future value, as well as
false statements of existing facts, are clearly prescribed by
the statute, and mere "puffing" can constitute fraud in the
criminal context. See United States v. Herr, 338 F.2d 607 (7th
Cir. 1964), cert. denied, 375 U.S. 894 (1963); United States v.
Grayson, 166 F.2d 863, 866 (2d Cir. 1948); Holmes v. United States
134 F.2d 125 (8th Cir.), cert. denied, 319 U.S. 776 (1943);
United States v. Cotter, 60 F.2d 689 (2d Cir. 1932); United States
v. Whitmore, 97 F. Supp. 733 (S.D. Cal. 1951); 3 Loss, Secur-
ities Regulation 1436-38; 6 Loss 3537-38, 3541-43; cf. Henderson
v. United States, 202 F.2d 400 (6th Cir. 1953). While "good
faith" is a defense to a fraud charge, the defendant's belief
in eventual prosperity of the venture will not excuse false
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representations or material omissions whether made knowingly or
recklessly. Greenhill v. United States, 298 F.d 404, (5th Cir.).
cert. denied 371 U.S. 830 (1962); Walters v. United States 256
F.2d 840 (9th Cir.) cert. denied, 358 U.S. 833 (1958); United
States v. Tellier, 255 F.2d 441 (2d Cir.) cert. denied, 358 U.S.
821 (1958); Frank v. United States, 220 F.2d 559 (10th Cir. 1955);
Curley v. United States, 160 F.2d 229, 235-236 (D.C. Cir.), cert.
denied, 331 U.S. 837 (1947); United States v. Oldenberg, 135 F.2d
616 (7th Cir. 1943); Foshay v. United States, 68 F.2d 205, 210
(8th Cir. 1933).
One who acts with reckless indifference as to whether
the representation is true or false is chargeable as if he had
knowledge of its falsity. United States v. Schaefer, 299 F.2d
625 (7th Cir.1962) (Securities fraud); Irwin v. United States,
338 F.2d 770, 774 (9th Cir. 1964) (mail fraud).
It is expected that the defendant will offer the de-
fense that they intended to see the promises they made through
to completion. This will raise the issue of the reasonableness
of those expectations. This type of defense has been raised in
a securities fraud context where a defendant has defended on
the basis that he believed the company will succeed is no de-
fense where stock is sold by false representations. Foshay v.
United States, 68 F.2d 205 (8th Cir.1933). It is not a good
defense for defendant to attemt to show that if he had gotten
money from the purchasers they would have been able to make
good on their promises. It is proper for a trial court to re-
ject evidence of a defendant's good faith belief as to the
eventual success of a business venture. Elbel v. United States,
364 F.2d 127, 132 (10th Cir. 1966).
3. Use of the Mails or Means of Interstate Commerce.
Each of the first 13 counts alleges a separate use of the mails
or the means or instruments of communication and transportation
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in interstate commerce. The use of the jurisdictional facil-
ities merely confers jurisdiction under the Land Sales Act and
is not central to the offense since it is the scheme to defraud
which is outlawed by the Land Sales Act rather than the use of
the mails. Little v. United States, 331 F.2d 287 (8th Cir.1964).
Any use of the mails even though incidental or collateral to
the scheme will confer jurisdiction. United States v. Cashin,
281 F.2d 669 (2d Cir. 1960).
The question of the use of the mail and other juris-
dictional facilities will be discussed in more detail below.
4. Each of the first 13 counts alleges that the
individual defendant was the agent, employee, and chief cor-
porate officer of High Vista, Inc., a developer which caused
High Vista, Inc. to violate Title 15 U.S.C. 1703(2). Title 15,
United States Code Section 1701(5) defines "agent":
"'Agent' means any person who represents, or
acts for or on behalf of, a developer in
selling or leasing, or offering to sell or
lease, any lot or lots in a subdivision;
but shall not include an attorney at law
whose representation of another person
sonsists solely of rendering legal services."
Section 1701(4) defines "developer"-
"'Developer' means any person who, directly or
indirectly, sells or leases, or offers to
sell or lease, or advertises for sale or
lease any lots in a subdivision."
Section 1703(a) of Title 15, United States Code sets
out the jurisdiction of the Land Sales Act. In enacting this
statute Congress exercised its powers under the Commerce Clause
and its postal authority to prohibit the use of these facilities
in the land sales industry in any way violative of the provisions
set forth in the Land Sales Act. In Section 1703(a)(1), Congress
has provided that a developer or agent may not "make use of any
means or instruments of transportation or communication in inter-
state commerce, or of the mails to sell or lease any lot in any
subdivision" without that subdivision being registered with HUD
- 15 -
and a printed property report being furnished to the purchaser
in advance of the signing of any contract or agreement. In the
anti-fraud provision, Section 1703(a)(2), Congress, in slightl y
different language, outlawed the use of the same jurisdictional
faciflities "in selling . . . or offering to sell . . . any lot
in a subdivision" by fraudulent means.
In order for land sales activities to be subject to the
jurisdiction of the Land Sales Act, then, two factors must be
present. First, the developer or agentmust utilize the means or
instruments of transportation or communication in interstate
commerce or the mails in his sales activities; and second, the
subdivision must be a "subdivision" within the meaning of the
statute.
1. Use of the Mails or the Means or
Instruments of Transportation or
Communication in Interstate Commerce
For defendant's violation of the Land Sales Act to be a
crime within federal jurisdiction, it must be shown that defendant
made use of the mails or the other jurisdictional facilities "di-
rectly or indirectly". The use of the mails need not be inter-
state and if the mails were used to transport a letter from one
place to another, wholly within the borders of one state, it is
sufficient to confer jurisdiction on the federal court and invoke
the Drovisions of the Act. Holmes v. United States, 134 F.2d 125,
135 (8th Cir.) cert. denied 319 U.S. 776 (1943); Shaw v. United
States, 131 F.2d 476 (9th Cir. 1942). The defendant need not have
done the mailing himself nor need it be shown that a defendant
had clear knowledge of the fact that the mails would be used.
McDaniel v. United States, 343 F.2d 785, 788 (5th Cir. 1962);
Sherwood v. United States, 300 F.2d 603, 605 (th Cir. 1962);
Danser v. United States, 281 F.2d 492 (lst Cir. 1960). The
government need only show that the defendant knew or had reason
to believe that the mails or other jurisdictional facilities
- 16 -
would be used in connection with the illegal transaction or
the scheme alleged. In other words, it need only be demonstrated
that the use of the mails would follow in the ordinary course of
business, or that the use of the mails could have been reasonably
foreseen to follow from defendant's act. Price v. United States,
200 F.2d ;652 (5th Cir. 1953); Danser v. United States, supra.
The use of the mails by one participant in a scheme to defraud
is attributable to all of the other participants if it was such
an integral part of the transactions that the use of the mails
should have been foreseen and contemplated. McDaniel v. United
States, 343 F.2d 785, 787 (5th Cir. 1965).
The cases in the securities fraud area show that in a
scheme to defraud the defendant's use of the mails or the other
jurisdictional facilities need not be central to the scheme but
may be entirely collateral and incidental. For example, it is
not necessary for the government to prove that the mailed matter
transmitted to the victim is itself fraudulent in any respect
whatsoever. United States v. Earnhardt, 153 F.2d 471 (7th Cir.)
cert. denied, 328 U.S. 858 (1946); Holmes v. United States, 134
F.2d 125, 134 (8th Cir. 1943). The use of the mails or other
jurisdictional facilities merely confers jurisdiction. United
States v. Cashin, 281 F.2d 669 (2d Cir. 1960).
There is a somewhat different standard to be applied,
however, in the case of a charge alleging an unregistered sale.
The securities cases interpreting Section 5 of the 1933 Secur-
ities Act, Title 15, United States Code Section 77e, have held
that the words "to sell" require a somewhat more central use of
the mails in the illegal sales transaction than owuld be re-
quired in the case of fraudulent scheme. See United States v.
Robertson, 181 F. Supp. 158 (S.D.N.Y. 1959) aff'd in part and
rev'd, 298 F.2d 739 (2d Cir. 1962); Darwin v. Jess Hickey Oil
Corp., 153 F. Supp. 667 (N.D. Tex. 1957); and United States v.
Crosby, 294 F. 2d 928, 932n.4 (2d Cir. 1961). The government
believes that the evidence in this case will show that the
- 17 -
sales were installment sales and that the mails or other juris-
dictional facilities were used "to sell" the lots in that con-
tracts and Dayments were sent through the mails or otherwise
transported in interstate commerce. Such evidence would show
that the defendant's use of the mails and the other jurisdictional
facilities was adequate to come within the jurisdiction of the
Land Sales Act.
2. Definition of Subdivision
The second component of jurisdiction under the Land
Sales Act is that the land sales activities of the developer or
agent be for the purpose of selling or offering to sell lots in
"subdivisions". Section 1701(3) defines the term "subdivision"
as follows:
"'Subdivision' means any land, located in any
State or in a foreign country which is
divided or proposed to be divided into fifty
or more lots whether contiguous or not, for
the purpose of sale or lease as part of a
common promotional plan and where the sub-
divided land is contiguous or is known,
designated, or advertised as a common unit
or by a common name such land shall be
presumed, without regard to the number of
lots covered by each individual offering,
as being offered for sale or lease as part
of a common promotional plan;"
The government expects the evidence to show in this case that the
defendant, Jack Halperin, operating through the High Vista, Inc.
maintained a common inventory of lots in the Valley of Lakes
Subdivision. The evidence will show that Jack Halperin and High
Vista, Inc. maintained a sales office and a sales force to sell
that inventory of lots. He utilized common advertisements and
promotional materials and his salesmen were authorized to sell
lots in the subdivisions which had lots available.
CARLON M. O'MALLEY,
United States Attorney
By /s/
ALBERT R. MURRAY, JR.
Assistant United States Attorney
Dated: November 10, 1980
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