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State v. West

Decided: March 10, 1959.


On appeal from the Superior Court, Law Division.

For reversal -- Chief Justice Weintraub, and Justices Heher, Burling, Jacobs and Francis. For affirmance -- None. The opinion of the court was delivered by Weintraub, C.J. Heher, J., concurring in result.


Defendant was convicted of a misdemeanor under R.S. 49:1-4 and 25 of the New Jersey Securities Law. We certified his appeal on our motion while it was pending in the Appellate Division.

The indictment ran against defendant West, Richard J. Hannaway, and his wife Marion C. Judd Hannaway. West alone was brought to trial.

The charge grew out of the sale to Mrs. Rose Werner of shares of stock of American General Oil & Gas Company (herein called American General), a Delaware corporation. Defendant, who operated under the name of West and Company in Jersey City, was the underwriter of the stock issue. The prospectus stated that 800,000 shares were offered for public sale at 12 1/2 cents per share. Defendant sold 125,000 shares at that price to Mrs. Werner through his general manager, Hannaway. Hannaway thereafter persuaded Mrs.

Werner to return the shares on the plea that the authorized public issue had been oversold. According to her, she was promised 67 1/2 cents per share. She testified that after she pressed defendant for payment, he and Hannaway induced her to accept 125,000 shares of American General in discharge of the obligation upon the representation that these shares were as good as the shares she had returned. The substituted shares were delivered to her on January 28, 1952, and the alleged illegal practice relates to that transaction.

The shares originally sold to Mrs. Werner were part of the 800,000 shares authorized for public sale. Those she accepted in return were part of 1,500,000 shares issued to Robert C. Jones, president of American General. The prospectus stated that Jones would hold these shares (referred to as "founders' stock") for investment and not for distribution. They were not registered for public sale or exempt from registration, and hence their distribution by public sale would violate the Securities Act of 1933. 15 U.S.C.A., ยง 77 e.

Some of the shares here involved were endorsed in blank by Jones and the remainder were so endorsed by Marion C. Judd, who in fact was Mrs. Hannaway. We need not recount the story of the intermediate transaction between Jones and Mrs. Hannaway. It is sufficient to say that the representative of the transfer agent of American General testified that if the shares had been presented (Mrs. Werner in fact retained them in the form received), transfer would have been refused unless counsel for American General gave an opinion that the transfer was proper or a court directed it.

The illegal practice alleged in the indictment was defendant's representation that the shares were marketable and negotiable, and his concealment of the fact that they were founders' stock, not to be sold to the public without prior registration. The evidence in support of the affirmative misrepresentation was Mrs. Werner's testimony that defendant assured her that the substituted shares were as good as the ones originally sold to her.


Defendant urges he was entitled to an acquittal as a matter of law. This contention revolves about the allegation that the shares were not marketable or negotiable. He argues correctly that despite the penalties which may be experienced by those who publicly sell unregistered shares, Mrs. Werner, being innocent of the tainting facts, acquired good title. See A.C. Frost & Co. v. Coeur D'Alene Mines Corp., 312 U.S. 38, 61 S. Ct. 414, 85 L. Ed. 500 (1941). Hence, he says, the shares were fully marketable and negotiable by her. The indictment was quite inartistically drawn, but its fair meaning was not that Mrs. Werner's title was defeasible but rather that the shares were not marketable or negotiable in the market place sense, in that their transfer was subject to the block we have described and hence, had Mrs. Werner sought to sell, she would have experienced a delay or perhaps a law suit, with the possibility of dollar loss in a falling market. Thus the shares were not as good as the original shares, contrary to defendant's alleged statement. The evidence would support a jury finding upon the State's thesis. The trial court properly refused to order an acquittal.


Defendant next claims a failure to prove that the crime was committed in Jersey City as alleged in the indictment. The pertinent facts are that the representation was made in a telephone conversation between defendant in Jersey City and Mrs. Werner in New York City and that the shares were physically delivered to her by Hannaway in the latter city.

Summarized for the immediate purpose, the indictment alleged that defendant and the Hannaways on January 28, 1952 "in the City of Jersey City" employed fraud, deception and concealment "in connection with the issuance and sale to and the purchase thereof by one Rose B. ...

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