United States v. Deutsch

451 F.2d 98 (1971)

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United States v. Deutsch

United States Court of Appeals for the Second Circuit
451 F.2d 98 (1971)

Facts

Realty Equities Corporation (Realty) sold 15-year notes to institutional investors to raise money. Each note was $500,000 and entitled the holder to purchase 37,500 Realty shares at a specified price. Jerome Deutsch (defendant) was Realty’s executive vice president and was responsible for selling the notes. After having difficulties selling the notes, Deutsch was able to find a buyer in Frank Mills, who was a senior officer of Fidelity and various Fidelity funds, including Puritan Fund and Trend Fund. Mills was the account manager of the Puritan Fund and had the Puritan Fund buy two Realty notes. This purchase gave Realty credibility with other investors, and Deutsch soon sold the rest of the notes. Realty’s share price rose, and the value of the notes increased to over $900,000 per note. Deutsch let Mills himself buy a note for $537,000. Three days later, Trend Fund bought notes for $928,125 each. The United States (plaintiff) brought criminal charges against Deutsch under § 17(e)(1) of the Investment Company Act. Deutsch testified that he sold the note to Mills according to an oral agreement made months prior to the rise in the market price of the notes. A jury convicted Deutsch for aiding and abetting Mills’s receipt of unlawful compensation. Deutsch appealed.

Rule of Law

Issue

Holding and Reasoning (Timbers, J.)

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