These are appeals from convictions by a jury of 18 counts of mail fraud, 18 U.S.C.A. § 1341.1 The original indictment charged Blachly, McMillen and Hockensmith2 with use of the mails to effect sales of water softeners under a fraudulent referral selling plan to various persons in the area of Morgan City, Louisiana. Hockensmith pleaded guilty. Blachly, charged as a direct principal, was convicted on 17 counts of mail fraud and sentenced to 3 years' imprisonment on one count, sentencing on the remaining counts suspended with 5 years' supervised probation. McMillen, in 2 counts charged in effect as an aider and abettor, 18 U.S.C.A. § 2(a),3 was convicted on only one count and sentenced to one year imprisonment. Both appeal.

Substantively, Blachly questions whether the mechanics of the referral selling plan here involved constitutes a mail fraud within the meaning of § 1341, specifically whether any intent to defraud was shown. He denies the requisite causal connection between use of the mails and carrying out the scheme. Various procedural errors are also urged. McMillen's asserted errors relate to the District Court's actions in denying his motion for severance, for acquittal following the close of the Government's case, and for new trial after the verdict of guilty had been rendered. We find all of these contentions without merit and affirm.

The nature of the offense here involved and the questions presented make it necessary to set out in some detail the factual background of the alleged scheme to defraud and its method of execution. We do this in the light of what the jury could, and from the verdict of guilty presumably did, infer.

The events which form the basis for the indictment occurred in and around Morgan City, Louisiana, between February or March and October of 1964. Blachly operating under the trade name of Pioneer Products or Pioneer Marketing, Inc., employed McMillen and Hockensmith as salesmen to assist him in selling water softeners under a "Referral Selling Plan" (Plan). The jury could assume, in the face of a silent record, that the Plan was originally set in motion by using some method to select potential purchasers who were then contacted by telephone to arrange an appointment for a demonstration of the product. The key was this "potential purchaser." But the moment the Plan worked, he was no longer a "potential" purchaser. By then he had bought. From that point on, the mechanics of the Plan rendered the scheme self-perpetuating, and a steady flow — indeed, an overflow — of further customers was assured.4

Ordinarily the appointments with these potential purchasers were arranged for evenings so that both husband and wife could be present. At that time a demonstration of the product was given by means of a miniature model of the water softener, and the advantages of using the treated, demineralized water in the home were explained. At the conclusion of the demonstration the parties who expressed an interest were then informed of the mechanics of the Plan. They were told that as a result of a promotional advertising plan of the manufacturer, the family — i. e., the potential purchaser — could not only acquire the water softener at no cost to themselves but also would have the opportunity to earn a profit. This was possible, it was said, since, under the Plan, each sale thereafter made to a prospective customer whose name had been supplied by the potential purchaser would entitle such purchaser to a referral sales commission of $40. No limit was placed on the number of referred parties that the purchaser could give. The right to an additional $40 sales commission also extended to secondary sales, i. e., each sale to a third level customer whose name had been given by the prospective customers of the potential purchaser (see note 4, supra, 6, infra).

At this point, two steps remained to effectuate the Plan. First, the sale had to be consummated by the execution of three instruments. The first was the Commission Agreement, the existence of which was recognized and acknowledged by all the witnesses. It set out the cash sales price, including tax, of $610,5 and provided for payment in 36 monthly installments of $23.04, a total of $829.44 as a time price. Also included were provisions for sales commissions on referrals.6 The agreement was to be signed by the husband and wife and witnessed by the salesman.

In this first step two other instruments had to be signed by the husband and wife. One was a promissory note, the other a real estate mortgage. The note was for the amount of the installment time price, $829.44, and was witnessed by two persons and notarized.7 While some of the purchasers testified that they knowingly executed the note, the majority disclaimed such knowledge. Their story was that it was represented to them that their signatures on the other papers were merely for purposes of record keeping or for obtaining credit references.

The mortgage was a real estate mortgage on the purchaser's home, and contained a clause waiving any homestead rights that might exist under Louisiana law. The instrument was signed in blank, and later filled in with the description of the mortgaged property, witnessed, and notarized (but in the absence of the mortgagors). The purchasers uniformly testified that at no time had they known, or for that matter had it been represented to them, that they were executing a real estate mortgage on their home to secure the note.8

The second step was to obtain the names of further prospective customers. This was an essential, integral part of every transaction, and was quite involved itself. The potential purchaser was furnished a number of duplicated letters9 written in nice, readable handwriting which referred to "an advertising program that has increased both our family's income and standard of living," and advising the recipient that he would be contacted to arrange an appointment. It was represented as a "wonderful opportunity * * * to earn some extra money" and that "no cash investment" was required. The predrafted letters required only the insertion of the name — personalized of course — of the reference and the signature of the purchaser. The potential purchaser was urged to add a brief postscript to the letter adhering to the same general theme, the representation being that this would increase the possibility of a successful sale and hence their commissions. Along with the letter, the potential purchaser was requested to fill in a "memo slip" which besides the name of the purchaser contained the name of the specified referred party, his address, telephone and occupation.10 The letter, completed with postscript (if any), and memo slip were then inserted in an envelope addressed to the referred party. But the envelope was left unsealed. The letters were not to be mailed by the potential purchaser, but were either picked up by one of the salesmen or mailed in a large envelope to the office of Pioneer Products in Morgan City.11

It bears emphasis that no limit was placed on the number of referred parties whose names could be furnished by the potential purchaser. The potential purchaser was admonished, however, that should any of the referred parties attempt to make a direct contact (as, e. g., a telephone call) regarding the "program" mentioned in the letter, they should explain nothing but rather leave this to the salesman. This, it was implied, if not expressed, would give a better chance of consummating a sale. At the office of Pioneer Products, the memo slips were removed and filed, the names of referred parties presumably checked to minimize duplications, and the selected envelopes sealed and mailed. The mailing of the letter was followed up shortly by a telephone call by Blachly or one of the salesmen to arrange an appointment to demonstrate the water softener and present the Plan. The circle was complete. But more so, if it worked again the circle was repeated. And so on and on and on.

The promissory notes were discounted to a third-party finance company12 without recourse. The mortgages were completed and placed of record. Some of the purchasers received commissions as a result of referral sales. But the most received by any one of them was $200 — not even enough to cover the interest and carrying charges of the installment sale. Most received nothing.

As his activities bear upon challenges here made, it is appropriate to point out that the postal investigation was under the direction of Inspector L. W. Robertson, a specialist in mail fraud cases. Inspector Robertson's preliminary investigation included backtracking the public records which disclosed the recorded mortgages in favor of the finance company.

In subsequent interviews with many of the purchasers, he gathered most of the documentary evidence that was introduced at the trial. His preliminary investigation also included an interview with Blachly at his office in Morgan City on October 1, 1964.

At this late date no need exists to more than capsulate severely the elements of an offense under the mail fraud statute, 18 U.S.C.A. § 1341. They are (1) the forming of a scheme to defraud and (2) use of the mails for the purpose of executing the scheme. Pereira v. United States, 1953, 347 U.S. 1, 8, 74 S. Ct. 358, 362, 98 L. Ed. 435, 444; Adjmi v. United States, 5 Cir., 1965, 346 F.2d 654, 657; Milam v. United States, 5 Cir., 1963, 322 F.2d 104, 109, cert. denied sub nom. Kimball v. United States, 377 U.S. 911, 84 S. Ct. 1174, 12 L. Ed. 2d 181; Gregory v. United States, 5 Cir., 1958, 253 F.2d 104, 109; Kreuter v. United States, 5 Cir., 1955, 218 F.2d 532, 533, cert. denied, 349 U.S. 932, 75 S. Ct. 777, 99 L. Ed. 1262; Gusow v. United States, 10 Cir., 1965, 347 F.2d 755, 756; Silverman v. United States, 5 Cir., 1954, 213 F.2d 405. If these elements are satisfied, more is not required. Gregory v. United States, supra.

Blachly strongly urges that the referral selling plan here in question is not a "scheme" within the statutory proscription, and that it has not been shown that any specific intent to defraud existed. The crime of mail fraud is board in scope. Gusow v. United States, supra, 347 F.2d at 756; Deaver v. United States, 1946, 81 U.S.App.D.C. 148, 155 F.2d 740, 744. The fraudulent aspect of the scheme to "defraud" is measured by a nontechnical standard. Gregory v. United States, supra, 253 F. 2d at 109. Law puts its imprimatur on the accepted moral standards and condemns conduct which fails to match the "reflection of moral uprightness, of fundamental honesty, fair play and right dealing in the general and business life of members of society." Ibid. This is indeed broad. For as Judge Holmes once observed, "[t]he law does not define fraud; it needs no definition; it is as old as falsehood and as versable as human ingenuity." Weiss v. United States, 5 Cir., 1941, 122 F.2d 675, 681, cert. denied 314 U.S. 687, 62 S. Ct. 300, 86 L. Ed. 550; Abbott v. United States, 5 Cir., 239 F.2d 310 at 314. All that is necessary is that it be a "scheme reasonably calculated to deceive persons of ordinary prudence and comprehension." Silverman v. United States, supra; Gusow v. United States, supra.

Applying there precepts to the mechanics and method of execution of the Plan, we have no doubts that the first requirement — a scheme to defraud — has been satisfied. This is so for two readily identifiable reasons. First, the Plan, as conceived by the parties and represented to the purchasers, could not possibly work. Second, the execution of the Plan was accomplished by the most base form of deceit — a misrepresentation of the true nature of the obligation being assumed by the purchaser.

With regard to the Plan, representations, both oral and written, were made to prospective purchasers, that the water softener could be acquired by them with "no cash investment," that through commissions that would be earned by the purchaser as a result of the unlimited referral sales, both original and secondary, it would "pay for itself" and perhaps make an additional profit. This was a key inducement to the purchaser to submit as many referred names as possible since in theory at least, this would increase his referral commission earnings to achieve the maximum return. Yet only in theory is the scheme the least bit sound. Its operation could achieve success only in a theoretical unlimited universe. The mail fraud statute — and inescapably Judges, Tomlinson v. 1661 Corp., 5 Cir., 1967, 377 F.2d 291, 300 — must deal with the practicalities of the outside business and social world. As a practical matter, the inherent and patent impossibility of such a plan working is plain.13 Its impossibility is manifested by the amazing letter-spread potential achieved with each successive step in the referral sequence. The number of references spiral in a geometric progression14 so that, as pointed out by the Government, "In a small city such as Morgan City, in which the defendants operated, not to mention the smaller towns and villages, the saturation point of prospective purchasers of the water softeners would quickly be reached. Relatively few sales of the water softeners would be made and few commissions would indeed be earned by the victims of the scheme."15

In a nutshell, the vice of this referral scheme was twofold. The first was the strong representation, most frequently expressed and always implied, that from the referral commissions the purchaser would not have to pay for the machine being bought and might even make a profit. The second was the demonstrable impossibility of the first being achieved.16 Referral selling schemes like this have been uniformly condemned by the Courts.17 Contrary to Blachly's assertions, whether any of the victims of the scheme suffered a material loss is immaterial, for success of the scheme is not essential to completion of the offense. Gregory v. United States, supra, 253 F.2d at 109; Kreuter v. United States, 5 Cir., 218 F.2d 532 at 535; Adjmi v. United States, supra, 346 F.2d at 657. Thus, although the burden is on the Government to establish the essential elements of the offense, Kreuter v. United States, supra, this does not entail or require proving that the victims of the scheme were actually defrauded or that they suffered damage or pecuniary loss. Hermansen v. United States, 5 Cir., 1956, 230 F.2d 173.

Besides the inherent impossibility of the Plan, the method used in its execution also serves to condemn this scheme and bring it within the statutory prohibition. The record amply supports the implied jury conclusion that the representations made in consummating the sale were designed to delude the purchaser regarding the nature of the obligations assumed. Very few purchasers knew or were informed that they were executing a promissory note for the balance of the installment contract price, and not one realized that he had executed as security for the debt a real estate mortgage on his home which also had the incidental but necessary effect of waiving all homestead rights under Louisiana law. All testified that had this been known, the purchase would not have been made. The fraud condemned by the statute is not limited to active misrepresentation. Indeed a scheme may be fraudulent even though no affirmative misrepresentation of fact be made, Kreuter v. United States, supra; Gregory v. United States, supra. The deceitful concealment of material facts may also constitute actual fraud. Gusow v. United States, supra, 347 F.2d at 756; Cacy v. United States, 9 Cir., 1961, 298 F.2d 227, 229. This then is but another circumstance which the jury could consider in arriving at a determination of whether the scheme as a whole was fraudulent within the statutory meaning.

Blachly's assertion that there was no causal connection between the use of the mails and effectuation of the scheme is patently frivolous. The statutory requirement is satisfied if use of the mails is an "incident to an essential part" of the scheme, Pereira v. United States, supra, and if use of the mails should have been reasonably contemplated, Adams v. United States, 5 Cir., 1963, 312 F.2d 137; Hart v. United States, 5 Cir., 1940, 112 F.2d 128; Everitt v. United States, 5 Cir., 1962, 306 F.2d 839. Here the mailing of the predrafted personalized letters to the referred parties was part and parcel of the scheme. Its deceptive, alluring appeal of big profits rested on the mailing of more and more letters. That is enough. Brown v. United States, 5 Cir., 1964, 328 F.2d 652, 654. And either personally or through his fellow participants, Blachly was sufficiently tied into the use of the mails. Sherwood v. United States, 5 Cir., 300 F.2d 603 at 605; Steiner v. United States, 5 Cir., 1943, 134 F.2d 931, 934.

Blachly's remaining contentions are meritless.18 He fails to make out any denial of his constitutional rights because of the investigative activities of Inspector Robertson. Robertson's interview with Blachly in October 1964 was during the investigatory stage and prior to his determination that sufficient evidence of mail fraud existed to conclude that a crime had been committed. Cf. Myricks v. United States, 5 Cir., 1967, 370 F.2d 901, 905. Robertson made no attempt to conceal his identity or the purpose of his interview, cf. Milam v. United States, supra, 322 F.2d 104, 111-112, and advised Blachly that he had a right to counsel and need say nothing. There is no violation of Escobedo v. State of Illinois, 1964, 378 U.S. 478, 84 S. Ct. 1758, 12 L. Ed. 2d 977. Miranda v. State of Arizona, 1966, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694, is inapplicable. Johnson v. State of New Jersey, 1966, 384 U.S. 719, 86 S. Ct. 1772, 16 L. Ed. 2d 882. Contrary to Blachly's assertions, the documentary exhibits gathered by Robertson were not obtained from Blachly but rather from the defrauded purchasers interviewed by Robertson. Consequently, the exclusionary rule of Mapp can have no application. Mapp v. Ohio, 1961, 367 U.S. 643, 81 S. Ct. 1684, 6 L. Ed. 2d 1081.

(a) Motion for Severance

It is now well established that the grant or denial of severance is a matter within the sound discretion of the trial Judge, and his decision will not be overturned unless there is an affirmative showing of abuse of discretion.19

Here, the trial Judge was careful clearly to admonish the jurors that they were to consider only the record evidence relating to the actions of the particular defendant being considered. That the jurors understood this instruction is manifested, we think, by the fact that, although McMillen was charged in the indictment with two distinct and separate counts of aiding and abetting Blachly in committing the substantive offense, he was found guilty on only one of the counts. The connection between Blachly and McMillen was adequately established by the testimony of the accomplice Hockensmith. It was reinforced by the admissions made by the confederate Blachly to Inspector Robertson. Both parties were represented by their own retained, independent counsel. The trial Court's action met the standards.20 We can find no abuse of discretion. Everitt v. United States, 5 Cir., 1960, 281 F.2d 429, relied upon by McMillen does not compel a contrary result.

(b) Motion for Acquittal and for New Trial

In considering the motion for judgment of acquittal, F.R.Crim.P. 29 (a), the District Judge must consider the evidence in the light most favorable to the Government, McFarland v. United States, 5 Cir., 1960, 273 F.2d 417; United States v. Carter, 6 Cir., 1963, 311 F.2d 934, together with all inferences which may reasonably be drawn from the facts, Cartwright v. United States, 10 Cir., 1964, 335 F.2d 919. The determining inquiry is whether there is substantial evidence upon which a jury might reasonably base a finding that the accused is guilty beyond a reasonable doubt.

An examination of the record reveals that competent, credible testimony was introduced which established the working relationship of McMillen with Blachly, McMillen's knowledge of the scheme and his active participation in presenting it to potential purchasers. The testimony of the accomplice Hockensmith categorically identified McMillen as one of the salesmen employed by Blachly in the Morgan City operation, and equally established McMillen's knowledge of the method of sales presentation of the Plan. Again this was reinforced by Inspector Robertson's testimony that Blachly stated McMillen was employed by him as a salesman in Franklin, Louisiana, a short distance from Morgan City. The promissory note of one of the purchasers bore McMillen's signature as one of the witnesses, although he had not been present at the sale. Most important, the testimony of the Comeaux's — the victims named in the count of which McMillen was convicted — clearly identified and established McMillen as the salesman who had presented the mechanics of the Plan to them and effected a sale. The method of presentation of the scheme closely paralled that testified to by the other purchasers. In sum, the record evidence of McMillen's knowing and active participation in the scheme was more than sufficient to withstand the motion for acquittal.

McMillen strongly urges that the evidence is insufficient to show that he acted with any intent to defraud. In particular, he points to the testimony of the Comeaux's, the only witnesses in the trial to whom he had made a sale and from which formed the basis for the only count on which he was convicted. The record shows that McMillen informed them that they were executing a promissory note and further that they were "completely satisfied with McMillen's sale." This, of course, ignores two things. The first is their equally explicit testimony that at no time was it made known to them that they were executing a real estate mortgage with homestead waiver to secure the note.21 Second, as we earlier pointed out, that they were satisfied with the sale is no defense, for success of the scheme is immaterial to the offense charged and the pattern here was the visionary referral scheme of astronomic profits. Of course, direct proof of willful intent to defraud is not necessary. It may be inferred from the activities of the parties involved. Gusow v. United States, supra; Henderson v. United States, 6 Cir., 1953, 202 F.2d 400. Based upon the record evidence before the Court, we think it was clearly a jury question whether there was a scheme to defraud and whether each defendant was a party to it.22

Under applicable standards so well known to all, we find no error in the trial Court's denial of the motion for new trial which raised substantially these same matters.

Affirmed.