Most of the offerings which were underwritten were made by commercial underwriters, who participated in 251 offerings in 1959, 185 offerings in 1958, and 252 offerings in 1957. The remaining cases where commissions were paid were handled by officers, directors, or other persons not regularly engaged in the securities business.

Suspension of Exemption

Regulation A provides for the suspension of an exemption thereunder where, in general, the exemption is sought for securities for which the regulation provides no exemption or where the offering is not made in accordance with the terms and conditions of the regulation or in accordance with prescribed disclosure standards. Following the issuance of a temporary suspension order by the Commission, the respondents may request a hearing to determine whether the temporary suspension should be vacated or made permanent. If no hearing is requested within 30 days after the entry of the temporary suspension order, and none is ordered by the Commission on its own motion, the temporary suspension order becomes permanent.

During the 1959 fiscal year, temporary suspension orders were issued in 87 cases as compared with 88 in the 1958 fiscal year. Of the 87 orders, 2 were later vacated. Requests for hearing were made in 26 cases. In 11 of such cases the requests were later withdrawn, and as of June 30, 1959, the proceedings in the remaining 15 cases were still pending.13 The names of the companies involved in the orders issued during the 1959 fiscal year are set forth in table 7 of the appendix. As indicated in the 24th annual report, 11 cases were pending as of June 30, 1958, in which a hearing was requested after a temporary suspension order had been issued. In four of such cases the issuers withdrew their hearing requests and consented to the entry of permanent suspension orders and in three cases permanent suspension orders were entered by the Commission after hearings. The remaining four cases were pending on June 30, 1959.

Certain of the above cases are summarized below to illustrate the misrepresentations and other noncompliance with the regulation which led to the issuance of suspension orders.

Brookridge Development Corporation.-The temporary suspension order alleged that the terms and conditions of regulation A were not complied with in that the notification failed to disclose all sales of unregistered securities by the issuer or any principal security holder within one year prior to filing. It was asserted, moreover, that the amount of securities proposed to be offered and the amount sold during the past year in violation of section 5 of the act would exceed the regulation A $300,000 limitation. It was also alleged that the offering circular was materially misleading in failing to disclose:

13 Shortly after the end of the fiscal year, the suspension orders in three of these cases were made permanent.

(1) Options to which officers of the issuer were entitled; (2) security holdings of the officers and directors; and (3) the effect of the underwriter's participation in the market on the price of the issuer's securities. In addition, the offering circular was alleged to be materially misleading in its inclusion of $176,478.86 described as "Investment in Subsidiaries" in the December 31, 1958, consolidated balance sheet, and by the inclusion in the consolidated income statement of dividends received from subsidiaries. The Commission's order further averred that the use of the offering circular without appropriate disclosure would be in violation of section 17 of the Securities Act of 1933. The issuer requested a hearing, but this request was subsequently withdrawn and the suspension order became permanent with the lapse of time.

Empire Oil Corporation. The order temporarily suspending the regulation A exemption alleged that the terms and conditions of regulation A had not been complied with in that escrow arrangements for certain shares had not been made with an independent escrow agent and information was not supplied as to the issuer's predecessors and affiliates. Moreover, it was asserted, the offering circular was materially misleading in failing to disclose information with respect to the offering of securities for additional properties, the net production of crude oil and natural gas, estimated oil reserves, and existing or threatened litigation against the issuer. Also, the offering circular was alleged to be materially misleading in its use of appraisal valuations. Violation of section 17 of the Securities Act, in addition, was asserted. No hearing was requested, and the suspension order became permanent with the lapse of time.

Florida National Development Corporation.-The temporary suspension order alleged that the regulation A terms and conditions had not been complied with in that, among other things, the $300,000 ceiling was exceeded and the issuer failed to disclose that one MacElrod was a promoter or predecessor, or both, of the issuer. The issuer's offering circular was averred to be false and misleading in its failure to disclose: (1) the exact amount paid for the issuer's properties and whether such properties were acquired by the issuer in arms-length transactions; (2) the facts surrounding certain brokerage commissions; (3) the circumstances concerning a $759,660 mortgage and note; and (4) the status of an option on 1,860 acres of land. Further, the financial statements included in the offering circular were materially misleading. The temporary suspension order also asserted violation of section 17 of the Securities Act. No hearing was requested and the temporary suspension order became permanent with the lapse of time.

Gob Shops of America.-The Commission temporarily suspended the regulation A exemption because it had reason to believe that the

issuer's notification failed to comply with the terms and conditions of regulation A and that the offering circular contained false and misleading statements concerning the market and the market price of the stock and the underwriter's activities in the maintenance, domination and control of the market and market price of the stock. A hearing was held at the issuer's request. The issuer moved to dismiss the proceedings on the ground that its withdrawal had become effective and in the alternative requested that withdrawal be permitted, asserting that its failings involved "inadvertent and empty infractions of technical rules or mistaken acts." The Commission held that there was no right under the circumstances to withdrawal of a notification and denied the motion to dismiss. The Commission concluded that the omission to state that the price of the stock was artificially inflated and that the market was not free and open was a serious deficiency. Accordingly, the issuer's request for withdrawal was denied and a permanent suspension order was entered by the Commission.14

Inspiration Lead Company, Inc.-The temporary suspension order alleged numerous deficiencies in the issuer's offering circular concerning, among other things, the issuer's past operations, ore reserves, mining costs, and assets. A hearing was held pursuant to the issuer's request. At the hearing the issuer conceded that the offering circular was inadequate and incomplete in a number of respects, but asserted that the deficiencies were the result of inadvertence and mistake and asked that it be permited to withdraw its filing for the purpose of revision and correction. The Commission, however, found the deficiencies and omissions to be serious and extensive. It stated, "We have previously indicated that an opportunity to amend a deficient filing cannot be permitted to impair the required standards of careful and honest filings or to encourage a practice of irresponsible or deliberate submission of inadequate material to be followed by correction of deficiencies found by our staff in its examination." The Commission concluded that there was not such a showing of good faith or other mitigating circumstances in connection with the deficiencies as to justify a further opportunity to present an adequate filing in lieu of a permanent suspension. The issuer's request for withdrawal was denied and an order was issued permanently sus pending the exemption.15

Macinar, Inc.-The order of temporary suspension in this case alleged that the notification failed to disclose that Automatic Table Co. was an affiliate of the issuer; that it failed to disclose securities sold by Paul Gaston, an affiliate; and that the $300,000 regulation A ceiling would have been exceeded by the offering. It was also averred that the offering circular contained untrue statements of material facts

14 Securities Act Release No. 4075 (May 6, 1959). 15 Securities Act Release No. 4076 (May 7, 1959).

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.

Action taken on offering sheets filed under regulation B

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.

LITIGATION UNDER THE SECURITIES ACT OF 1933

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.,16 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

17

10 S.E.C. v. Bellin, et al., U.S.D.C. S.D.N.Y. No. 139–301.

17 S.E.C. v. Josephson, et al., U.S.D.C. S.D.N.Y. No. 140-193.

18 S.E.C. v. Phoenix 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.

20 Bellin and Josephson filed notice of appeal on April 8, 1959.