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Jury Told of Fraud in Radio Telephone
The New York Times - Thursday, November 27, 1913

Jury Told of Fraud in Radio Telephone - RF CafeMotivated by the series of articles about Lee de Forest in the January 1947 issue of Radio-Craft magazine, I did a search of U.S. newspapers from 1905 through 1947 looking for news items on him. In particular, I was hoping to find something about the lawsuit levied by the Marconi Company against Lee de Forest wherein the judge was reported to have told him, "...to forever desist from the manufacture, sale or operation of any system of wireless telegraph" (see "Lee de Forest - Father of Radio" January 1947 Radio-Craft). Alas no such information was discovered, but the search will continue. I did find this piece and many other interesting items that will be posted as time permits. Here, Mr. de Forest sued, with the assistance of the U.S. Government, an investment company for defrauding investors in regard to company stock sales, using a charge of mail fraud to assist in prosecution. Mail fraud, tax evasion, interstate commerce and other such non-state related charges were (and still are) routinely used by the Feds to enjoin lawsuits in which they might not otherwise have standing. Recall that Chicago mobster Al Capone was finally imprisoned based on tax evasion charges when massive attempts to get him on various vice offenses failed (much to Eliot Ness' Untouchables' chagrin).

The New York Times - Thursday, November 27, 1913

Jury Told of Fraud in Radio Telephone

Government Opens Case Against Companies Which Exploited De Forest Invention

Halt Case for Foreman

Who is Excused Because of Death in His Family - Witnesses Here from Many States.

The government outlined in its case yesterday in the Federal District Court before Judge Hunt and a jury in the prosecution of the Radio-Teletype Company and the Fiscal Agency Company, Samuel E. Darby, Lee de Forest, the electrical engineer, and Elmer E. Burlingame, agent of the Ellsworth Company, for having used the mails to defraud in the sale of wireless telephone stock. Assistant United States Attorney Robert Stephenson set forth the facts, which the prosecution hopes to be able to prove, but he had hardly begun the examination of witnesses before a recess had to be taken on account of the arrival of news of illness in the family of the foreman of the jury, Milton Walker.

When the court reassembled at 2 o'clock Judge Hunt announced that the father-in-law of Mr. Walker had just died. It was decided to adjourn the case and to communicate with Mr. Walker to see if he could resume hie place in the box on Monday. If he cannot do that, the trial will be resumed at 11 o'clock tomorrow morning and a new foreman will be selected.

The Radio-Telephone company, Mr. Stephenson said in his address tot e jury, was incorporated in New Jersey in 1907 with $2,000,000 capital. It was formed in order to exploit the patents of the De Forest Company and in return for that right it turned over to the De Forest Company one-half of its capital stock. Of the other $1,000,000, $300,000 was transferred to the Fiscal Agency Company as the selling agency and the rest was retained in the treasury.

Lee De Forest and Samuel A. Darby, tow of the defendants, Mr. Stephenson explained, were then Directors of the De Forest Company and the Radio-Telephone Company, and the agreement with the Fiscal Agency Company granted that concern 50 per cent commission on the sale of the stock up to $10 a share.

When President Roosevelt sent his battleship fleet round the world it was announced that the vessels were fitted with Radio-Telephone Company's instruments for communication between the units of the fleet. This, Mr. Stephenson said, sent the stock up to $30 a share, but in spite of that, the prosecutor will endeavor to show, the Fiscal Agency Company turned into the Radio-Telephone Company only $5 for each share it sold.

It was found, counsel went on to say, that the wireless telephone was quite useless in board the ships, and the Navy Department, after trying all sorts of experiments, dropped it altogether. Nevertheless it is charged the defendants kept on representing that the company was doing a flourishing business, and, in order to keep up the deception to the public, proceeded to pay dividends of 12 per cent out of the proceeds of the sale of the $700,000 of treasury stock.

To carry on this system, Mr. Stephenson went on, the defendants went on to organize subsidiary companies. the united capital of which accounted to $50,000,000. the first of these concerns to be set going was the Great Lakes Telephone Company, counsel charged, with capital of $1,000,000 and from the proceeds of the sale of its stock dividends were paid until the time of the Government raid in 1911.

Just as Mr. Stephenson began to examine the first witness, Granville T. Ivory, who was a dummy Director in one of the subsidiary companies, the news about Mr. Walker's father-in-law caused the adjournment.

With Mr. Stephenson for the Government is Assistant United States District Attorney Gordon Auchincloss. for the defense Martin W. Littleton represents Samuel E. Darby, Horace Deming appears for Lee De Forest, and Clarence S. Houghton for Elmer E. burlingame.

The courtroom was crowded with more than 100 witnesses whom the Government has summoned. they came from nearly every State in the Union, and it is expected that they will testify that after they had bought stock they received a few small dividends; that these encouraged them to invest more heavily, and that when they were in fairly deeply the dividends ceased and the found that they had lost all they had invested."

See also "Lee de Forest and the Navy" in the January 1947 issue of Radio-Craft magazine.

 

Posted February 19, 2020

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