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THE
MUSIC TRADE
REVIEW
Sending Fake Financial Statements Is Criminal Misuse of the Mails
S
EVERAL months ago I discussed in one of these articles the
different ways in which a man in commercial business could
get into trouble for misuse of the mails. In the course of the
article I said that the United States Government had just brought
a criminal prosecution against a New York business house for
alleged misuse of the mails by sending through the mails false
statements of financial standing in order to obtain credit. It was
stated that this was the first case in which the law against misuse
of the mails had been extended to mailing false statements as to
one's financial condition, and 1 speculated somewhat as to what
the outcome would be. This case has just been tried in the New
York courts, as has another one exactly like it in the courts of
Mississippi.
In both of them it was decided that a man who sends by mail,
to prospective creditors, or to anyone else of whom he is desirous
of obtaining credit, statements or representations that he is better
off financially than he actually is, has committed a criminal offense
entirely separate from the crime and the civil offense of obtaining
property under false pretenses—that is, he has committed the crime
of misusing the United States mails.
Obviously this is of the highest importance to all business
men, who even if they do not themselves send false credit state-
ments by mail may at any time receive them. I have therefore
obtained a record of the proceedings in both of these cases.
The law under which this new ground is broken is Section
215 of the Federal penal law of 1873, which reads as follows:
"Whoever, having devised or intending to devise any scheme oi
artifice to defraud, or for obtaining money or property by means
of false or fraudulent pretenses, representations or promises
* * * shall, for the purpose of executing such scheme or arti-
fice or attempting so to do, place, or cause to be placed, in any
letter, postal card, package, writing, circular, pamphlet or adver-
tisement, whether addressed to any person within or outside the
United States, in any postoffice, or station thereof, or street or
other letter box of the United States, or authorized depository for
mail matter, to be sent or delivered by the postoffice establishments
of the United States, or shall take or receive any such therefrom,
whether mailed within or without the United States, or shall know-
ingly cause to be delivered by mail according to the direction
thereon, or at the place at which it is directed to be delivered by
the person to whom it is addressed, any such letter, postal card,
package, writing, circular, pamphlet or advertisement, shall be
fined not more than $1,000, or imprisoned not more than five years,
or both."
As stated, this law has never before been used against any-
thing except crimes in the nature of gold brick, green goods, fake
medicine advertisements, etc. The defendant in the New York
case was Joseph Scheinberg, a partner in the firm of A. &. J.
Scheinberg, wholesale dry goods people. Scheinberg sent to two
commercial agencies and a commission house, in January I, 1910,
a statement showing the firm to be perfectly solvent and to be
worth net about $60,000. The agencies sent out this information
to their clients, with the result that the Scheinbergs obtained a
considerable amount of credit and bought large quantities of mer-
chandise on the strength of it.
Then they went into bankruptcy.
When the Government accountants got to work on the books
they found that the Scheinbergs were worth $65,000 less than they
had claimed to be; in other words, instead of a net worth of $60,-
000, they were insolvent by $5,800. Even making the most gen-
erous allowance for all mistakes and exaggerations as to the value
of stock on hand, bills receivable, and so on, there was a discrep-
ancy of $47,000 between the claim and the truth, which was ex-
plainable only on the ground of intentional fraud.
The defendant's attorneys raised and stood on every conceiv-
able technicality, but the judge ruled as follows: "If it was the
intent of the defendant to defraud creditors, or those about to be-
come creditors of A. & J. Scheinberg by making false representa-
tions of the firm, then it is the duty of the jury to bring in a verdict
of 'guilty'; a false or misleading statement made through gross
carelessness or lack of knowledge of figures, to mislead others in
order to secure property belonging to others is a false representa-
tion ; it is not necessary that the Government should prove the
defendant's firm was bankrupt at the time the said alleged false
statements were made; it was enough to prove whether or not
there was a present intent to get other's property by false repre-
sentation."
The jury found the defendant guilty and he was sentenced to
one year and three months in prison, for the first time in the his-
tory of the United States. The case gives a new remedy to any
firm defrauded by a customer by false financial statements.
The Mississippi case was in principle practically the same. The
defendant there was T. J. Roberts, secretary and treasurer of Rob-
erts, Beard & Co. Like Scheinberg, Roberts, in an effort to obtain
credit, mailed false statements of his firm's financial standing to
creditors in Lynchburg, Va., who relied on them and shipped a
large bill of goods. Here also the claim was proven false and the
defendant found guilty. Luckily he escaped with a fine of $100
and costs.
These cases both showed the importance of preserving the en-
velopes in which the false credit statements went through the
mails. Usually envelopes are destroyed, which would have en-
tirely defeated the prosecution, unless some witness could have
sworn, months after its receipt, that the communication came by
mail. This, of course, would be quite unlikely. In a prosecution
for misuse of the mails, it is obvious that evidence must be pro-
duced showing that the mails were used. This evidence can be
presented in no other way so clearly and conveniently as by the
envelopes in which the statements were mailed.—Copyright, May,
1912, by Elton J. Buckley.