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and failed to disclose required information concerning a note payable in the sum of $17,400 held by the wife of the issuer's principal security holder. Moreover, there was a failure to set forth the issuer's assumption of an affiliate's $12,854.82 note and to disclose all material transactions of officers, directors, and controlling persons with the issuer, its predecessors, and affiliates. The issuer filed a request for hearing and a motion to vacate the temporary suspension order. Both the request for hearing and the motion to vacate were subsequently withdrawn and the temporary suspension order became permanent.
Sports Arenas (Delaware) Inc.—The temporary suspension order asserted that the issuer failed to disclose all promoters, controlling persons and affiliates and their backgrounds; that the aggregate public offering price of the securities and the aggregate gross proceeds actually received from the sale of securities to the public exceeded the $300,000 regulation A limitation; that an offering circular was not used in the offering of shares to the public; that certain sales material was used which was not filed with the Commission; and that the issuer failed to file a complete and accurate report of sales as required by regulation A. The issuer's offering circular, in addition, was alleged to be materially misleading in its failure to disclose the method of offering, whereby the issuer's securities would be sold to the public at a price higher than the $1.25 stated offering price, and to disclose the profits of those participating in the distribution. Violation of section 17 of the Securities Act was also alleged. No hearing was requested and the suspension order became permanent. Exempt Offerings Under Regulation B
During the fiscal year ended June 30, 1959, 160 offering sheets were filed pursuant to regulation B and were examined by the Oil and Gas Section of the Commission's Division of Corporation Finance. During the 1958 fiscal year, 109 offering sheets were filed and during the 1957 fiscal year, 133 were filed. The following table indicates the nature and number of Commission orders issued in connection with such filings during the fiscal years 1957–59. The balance of the offering sheets filed became effective without order.
Reports of sales.—The Commission requires persons who make offerings under regulation B to file reports of the actual sales made pursuant to that regulation. The purpose of these reports is to aid the Commission in determining whether violations of law have occurred in the marketing of such securities. The following table shows the number of sales reports filed under regulation B during the past 3 fiscal years and the aggregate dollar amount of sales during each of such fiscal years.
Reports of sales under regulation B
The Commission is authorized by the Securities Act to seek injunctions in cases where continued or threatened violations of the act are indicated. Many such actions were brought by the Commission during the past year. Generally these involved violations of both the registration and anti-fraud provisions of the act. Litigation Involving Violations of the Registration and Anti-Fraud Provisions
Among the more important of such litigation was a complex of four cases involving the sale of common stock of General Oil and Industries, Inc. in violation of the registration and anti-fraud provisions. The company was originally organized in 1931 under the name of Pacific Gold Placers, Inc. All of its stock was issued prior to July 27, 1933, the effective date of the Securities Act. In 1958 the company was purchased by one Sidney B. Josephson, who changed its name, and increased the capitalization by 2 million shares. Thereafter, the complaints alleged, Josephson, a defendant in all of the cases, caused many of these unregistered shares to be sold in interstate commerce to the public by means of various misrepresentations. The Commission brought suits against A. G. Bellin Securities Corp., Stratford Securities Co., Inc.,"? Phoenix Securities Corp.,18 Stanley Brown,19 registered broker-dealers, and numerous individual defendants, along with Josephson, to enjoin the sale of these securities. Orders of preliminary injunction have been entered in the first two cases for violation of the registration provisions, and the cases set for hearings.20
16 S.E.C. v. Bellin, et al., U.S.D.C. S.D.N.Y. No. 139-301. 17 8.E.C. v. Josephson, et al., U.S.D.C. S.D.N.Y. No. 140-193. 18 S.E.O. y. Phoenir Sec., U.S.D.C. S.D.N.Y. No. 141-36. 19 S.E.C. v. Brown, U.S.D.C. S.D.N.Y. No. 141-35.
Bellin and Josephson filed notice of appeal on April 8, 1959.
Two cases involved the sale of Canadian Javelin Limited stock in violation of both the antifraud and registration provisions of the act. In the first case,21 the Commission brought suit against Canadian Javelin, European Fiduciary Corp., and various officers and employees of these corporations. The complaint charged the defendants with selling the securities by telephone and through the mails in the United States without filing a registration statement. It further charged that the securities were being sold by concealing the identity of the sellers, the consideration being paid to the brokers and dealers for recommending the securities, and also by misrepresenting their value. The corporations and three of the defendants consented to entry of final judgment enjoining further sales.22 In the second case, 23 a U.S. investment adviser and an associate were charged with similar violations in the sale of Canadian Javelin. A permanent injunction was entered against them by consent.
In another case involving the sale of Canadian securities in this country,24 the Commission charged Philip Newman Associates, a registered broker-dealer, with selling securities of the Monarch Asbestos Co., Ltd., through the mails and by telephone to persons in the United States without filing a registration statement. The Newman firm and its officers were also charged with misrepresenting the securities with respect to the value of the stock and the business expectations of the company. A permanent injunction was entered against the Newman firm and its officers and employees by consent, and a preliminary injunction was granted as to Monarch Asbestos and others by default.
In S.E.C. v. Los Angeles Trust Deed and Mortgage Exchange et al., 264 F. 2d 190 (C.A. 9, 1959), the district court granted the Commission's motion for a preliminary injunction and the appointment of a receiver in an action brought by the Commission based on violations of the registration and fraud provisions of the Securities Act and the Securities Exchange Act in connection with the sale of trust deeds on individual parcels of property. See the 24th Annual Report at pages 51-52 for a discussion of the district court action. The judgment was reversed by the Court of Appeals for the Ninth Circuit, which did not reach the issue of whether the trust deeds constituted securities. It felt that this question, as well as others, including the matter of the appointment of a receiver, should await trial on the merits, particularly since the Court believed that certain procedural errors had occurred on the hearing. Accordingly, the Court remanded the case for trial, and trial was pending at the end of the
a 8.E.C. v. Canadian Javelin Ltd., U.S.D.C. S.D.N.Y. No. 138-85. * The matter is pending as to the other defendants. 28.E.C. v. Loomis, et al., U.S.D.C. D. Mass. No. 58-1210. * S.E.C. v. Philip Nerman Associates, Inc., et al., N.Y. 3113, U.S.D.C. D. N.J., 1397–58.
As in past years, many cases involved fraud in the sale of securities of mining companies. In S.E.C. v. Gotham Securities 25 the Commission's complaint charged the defendants with fraud in the sale of Saskalon Uranium and Oil, Ltd. common stock. The purchasers were told that they would "reap rich rewards,” that the shares would be listed on a national exchange, and that the company was about to pay a dividend. A permanent injunction was entered against the defendants by consent.
Permanent injunctions were also entered against the Lincoln Securities Corp.26 and its officers and salesmen, for fraud in the sale of shares of Shoreland Mines, Ltd., a Canadian mining company. Judgment was entered upon consent of defendants. In S.E.C. v. Del Marva Oil and Gas, et al.27 a final judgment was entered by consent against five oil and gas companies and their controlling stockholders. The judgment permanently enjoined defendants from making misleading statements of the value of mining properties, the ownership of leases, the probability of discovery of oil, etc. In S.E.C. v. Scott Taylor and Co., Inc.28 a temporary restraining order has been issued
a to restrain the sale of shares of Atomic Mining Corp., a Canadian corporation, pending a hearing of the case. A temporary restraining order has also been issued in S.E.C. v. Webster Securities Corp.20 to restrain sales of stock of Goldfield Mines Co. of Nevada. In S.E.C. v. Gravity Science Foundation, et al.,3o the complaint charged defendant with selling investment contracts and undivided interests in oil and gas leases without registering under the Securities Act. Various misrepresentations concerning the operations of the company were also alleged to have been made. The Commission moved against the sale and offering of investment contracts without registration in S.E.C. v. The Donna-June С0.31 In this case the investment contracts were represented by limited partnership interests plus a profit-sharing agreement. In both cases, a permanent injunction was ordered with consent of defendants.
Two important cases involved failure of defendants to meet the prospectus requirements of the 1933 act. In S.E.C. v. North American Finance Co.,32 the complaint charged defendant with offering for sale 500,000 shares of common stock by transmitting through the mails a prospectus which did not meet the statutory requirements. The Commission alleged, among other things, that numerous misrepresentations were made as to the value of the shares, that the Commis
* U.S.D.C. S.D.N.Y. No. 886–58. * 8.E.C. v. Lincoln Seourities Corp., et al., U.S.D.C. N.Y. No. 135–79. 27 U.S.D.C. D. Utah C-56-59. * U.S.D.C. N.Y. No. 142–167. 20 U.S.D.C. S.D.N.Y. No. 141-337. 20 U.S.D.C. N.D. III. No. 594C484. 31 U.S.D.C. E.D, Okla. No. 4520. 82 U.S.D.C. D. Ariz. No. 2925.
sion had approved the price at which the securities were being sold, and that the stock was insured. The case is particularly significant in that it is the first to hold that a prospectus does not meet the requirements of section 10(a) of the Securities Act if the financial statements therein represent that an accountant is independent when in fact he is not. A permanent injunction was entered upon consent of defendants. A permanent injunction was entered against Universal Drilling Co., Inc. and its president, Louis J. Roussel 33 restraining defendants from transmitting any prospectus relating to the sale of common stock in Universal until the prospectus met the requirements of the Securities Act. Counsel for these defendants informed the court of their intention to make an offer of rescission to customers who purchased the stock from the defendants J. H. Lederer Co., Inc. and Jean R. Veditz Co., Inc., registered broker-dealers. The court continued the restraining order previously entered against the latter, to prevent dissipation of funds until determination of the Commission's application for appointment of a receiver. A permanent injunction was also entered by consent in S.E.O. v. Universal Service Corp.84 for violation, inter alia, of the prospectus provisions.
A permanent injunction by consent was entered against the VariPac Corporation for numerous fraudulent representations in violation of the 1933 act.35 In a companion case, the Commission later succeeded in obtaining a permanent injunction against the defendant I. B. Morton & Co., Inc.36 for violation of the antifraud provisions of the 1933 act and the registration provisions pertaining to broker-dealers in the Securities Exchange Act of 1934. Two other dealers in Vari-Pac stock were also enjoined from making further offers or sales.
In S.E.C. v. 0.T.C. Enterprises, Inc. the defendants were offering shares in a company purportedly developing a spaceship to fly through the universe utilizing “free energy.” A public inaugural flight of the prototype at Oklahoma City, scheduled for April 19, 1959, failed to materialize. Otis T. Carr, president of the company, publicly announced that a space craft designed by him would be constructed in which a flight to the moon would be made on December 7, 1959, returning to earth on December 15, 1959. In addition to selling shares to hundreds of investors, the promoters obtained additional income by selling plans for the spaceship and toy models at prices ranging from $5 to $10 a piece, and by organizing groups to study unidentified flying objects. They also attempted to promote a Space City, to be located near Washington, D.C., and to maintain direct contact with communities on other planets and stars. At least half a million dollars was obtained from hundreds of investors. Final judgment was
* 8.B.C. v. J. A. Lederer Co., Inc., et al., U.S.D.C. S.D. N.Y. 140-328, NY 3103. * U.S.D.C. S.D. Texas No. 11,608. * 8.E.C. v. Albert & Co., U.S.D.C. D.N.J. No. 1142-68. * 8.E.O. v I. B. Horton & 00., U.S.D.C. S.D. N.Y. No. 138–399.