Fed. Sec. L. Rep. P 95,560 United States of America v. David B. Charnay

This appeal from an order dismissing the indictment presents the question of whether the indictment, alleging a market manipulation artificially depressing the market price of a security on a national securities exchange, was sufficient to charge the defendants-appellees with a conspiracy to violate, and the violation of, the antifraud provisions of Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78ff, Rule 10-b promulgated thereunder, and the wire fraud statute, 18 U.S.C. § 1343 . We conclude that the indictment was sufficient to allege a criminal offense and reverse.

Charges against Defendants-Appeilees

Two indictments were returned against defendants-appellees. The first, filed December 27, 1973, alleged that conduct of Howard Hughes and his associates in taking over Air West, especially certain guarantees against trading losses given by Hughes, violated 15 U.S.C. §§ 78i(a)(2), 78j(b), 78ff and Securities and Exchange Commission (SEC) Rule 10b-5 (manipulation of security prices, employment of manipulative devices), and 18 U.S.C. §§ 2 , 3, 4, 371 and 1343 (aiding and abetting, accessory after the fact, misprision of a felony,…

(concurring):

I concur in Judge Jameson’s opinion which is written with his usual clarity and thoroughness. The law, as I read it, supports his conclusions.

However, I cannot let pass this opportunity to draw attention to the fact that so-called “public welfare offenses” 1 do not generally, and clearly not in this case, encounter the same demanding constitutional and interpretive standards applicable to other criminal offenses. .

As Judge Jameson’s opinion makes clear, neither section 10(b) of the Securities Ex *356 change Act, 15 U.S.C. § 78j(b), nor Rule 10b-5, 17 C.F.R. § 240 .10b-5, are interpreted narrowly when employed as a basis for criminal prosecution, even though a narrow interpretation is ordinarily considered proper with respect to statutes defining crimes. United States v. Campos-Serrano, 404 U.S. 293, 297 , 92 S.Ct. 471, 474 , 30 L.Ed.2d 457, 461 (1971); United States v. Braverman, 373 U.S. 405, 408 , 83 S.Ct. 1370, 1372 , 10 L.Ed.2d 444, 447 (1963). In this case, for example, we find an indictable offense charged in the indictment despite the fact that there exists no case, not even one imposing civil liability, in which substantially similar facts have been…

ON PETITION FOR REHEARING

Appellees Charnay, Davis and Maheu have petitioned for a rehearing, contending, inter alia, that the decision of this court entered May 7, 1976, is in direct conflict with the decision of the Supreme Court in Ernst & Ernst v. Hochfelder, 425 U.S. 185 , 96 S.Ct. 1375 , 47 L.Ed.2d 668 , entered March 30, 1976. Prior to filing its opinion this court considered the effect of Ernst & Ernst and concluded that our opinion was not in conflict with the holding in that case. After re-examination of the opinion in Ernst & Ernst in the light of the petition for rehearing, we reach the same result, but deem it advisable to enter this supplemental order explaining and clarifying the reasons for our conclusion.

Ernst & Ernst v. Hochfelder was a civil action for damages for alleged negligent conduct. The issues before the Court and *358 its conclusions are summarized in the following excerpts from the Court’s opinion:

This case obviously involves more than negligent conduct. Appellees argue, however, that in holding that the indictment was not fatally defective by reason of its purported failure to allege a specific intent to defraud our decision is contrary to the…

537 F.2d 341 Fed. Sec. L. Rep. P 95,560 UNITED STATES of America, Appellant, v. David B. CHARNAY et al., Appellees. No. 75-1222. United States Court of Appeals, Ninth Circuit. May 7, 1976. Rehearing and Rehearing En Banc Denied July 8, 1976. 1 David Ferber, Sol. (argued), Securities and Exchange Commission, Washington, D. C., for appellant. 2 Moses Lasky (argued), of Brobeck, Phleger & Harrison, San Francisco, Cal., for appellees. OPINION 3 Before BROWNING and SNEED, Circuit Judges, and JAMESON, * District Judge. JAMESON, District Judge: 4 This appeal from an order dismissing the indictment presents the question of whether the indictment, alleging a market manipulation artificially depressing the market price of a security on a national securities exchange, was sufficient to charge the defendants-appellees with a conspiracy to violate, and the violation of, the antifraud provisions of Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78ff, Rule 10-b promulgated thereunder, and the wire fraud statute, 18 U.S.C. § 1343 . We conclude that the indictment was sufficient to allege a criminal offense and reverse. Charges against…