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United States v. Otto

August 27, 1984

UNITED STATES OF AMERICA, APPELLEE
v.
HERBERT E. OTTO, APPELLANT



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

Author: Weis

Before: WEIS and BECKER, Circuit Judges, and ACKERMAN, District Judge.*fn*

Opinion OF THE COURT

WEIS, Circuit Judge.

In this appeal from mail fraud convictions, we reject the defendant's contention that the prosecution was required to account for a forty-one month pre-indictment delay. Although convictions on two counts will be affirmed, a third must be vacated because the cited mailing was not in furtherance of the scheme.

Defendant Herbert Otto was indicted on six counts of mail fraud. A jury acquitted him of three counts and convicted him on counts one, five and six. Concurrent prison terms of five years were imposed.

During the period from January 1976 through June 1979, defendant induced investors to entrust him with substantial sums to trade in stock options, a field in which he asserted some expertise. Defendant represented that the money was to be combined with that of others in a pool account he maintained at a local brokerage house. He further assured participants a return of 16 to 30 percent per year.

Defendant gave each victim a promissory note for the principal amount plus the guaranteed return. When the note came due, he often was able to persuade his customers to "roll over" the investment in to a new one. In some instances, investors would commit additional sums, and at times defendant would offer "special opportunities," a term used to described a venture that would realize an attractive return in a shorter time.

Contrary to outward appearances, defendant used funds received from one person to pay others whose notes had come due. In 1977 and 1979, he did no trading through the pool account, although he represented otherwise to his investors.

In 1978, several of the defendant's customers simultaneously demanded payment of the monies due them, and in September investor Edward Ging retained a lawyer to bring suit. Defendant contacted Ging, told him that business was going well, and in a letter promised to pay the money due on a specified schedule. That letter, prepared by Ging but signed and mailed by defendant, was the subject of count one of the indictment.

When defendant was unable to meet the schedule, he and Ging engaged in further negotiations. Ging mailed a letter to defendant on February 16, 1979, setting out the terms of a revised settlement. This letter was the basis for the charge in count five.

In May 1979, Robert and Irene Houston, having invested in one of the "special opportunities," were expecting a check in excess of $30,000 from defendant. Instead, they received a check for $7,000. After unsuccessful attempts to communicate with defendant, the Houstons finally received a telephone call from him during which he said they should not attempt to cash the check because the bank account had been closed.

Nevertheless, Mrs. Houston attempted to cash the check; it was not honored. Frustrated in her further efforts to contact defendant by telephone, she sent him a letter dated June 19, 1979, advising that the check had been returned by the bank. She concluded, "Please make the proper arrangements with the bank so this check can be made good." This letter formed the basis for count six.

At some point the Securities and Exchange Commission commenced an investigation into the defendant's activities. Although that inquiry ended in 1979, defendant was not indicted until March 18, 1983. He contended that the forty-one month delay between the completion of ...


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