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, 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 fiscal year. S.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. 8.E.C. v. Loomis, et al., U.S.D.C. D. Mass. No. 58-1210. 8.E.C. v. Philip Newman Associates, Inc., et al., N.Y. 3113, U.S.D.C. D. N.J., 1397–58. 529523-597 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. 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 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.29 to restrain sales of stock of Goldfield Mines Co. of Nevada. In S.E.C. v. Gravity Science Foundation, et al.,30 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 Co.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. 20 S.E.C. v. Lincoln Securities Corp., et al., U.S.D.C. N.Y. No. 135-79. 27 U.S.D.C. D. Utah C-56-59. 29 U.S.D.C. N.Y. No. 142-167. 29 U.S.D.C. S.D.N.Y. No. 141-337. 30 U.S.D.C. N.D. Ill. 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. for violation, inter alia, of the prospectus provisions. 34 36 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. 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. O.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.E.C. v. J. H. 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. 1142-58. 8.E.C. V I. B. Morton & Co., U.S.D.C. S.D. N.Y. No. 138-399. obtained by the Commission permanently enjoining defendants from further sales or offers of sales.37 Among other cases in which fraudulent misrepresentations were enjoined were: S.E.C. v. General Associates, Inc., S.E.C. v. The Angelique Co.,39 S.E.C. v. J.P. Lord, Inc., S.E.C. v. Walker-Stevens, Inc., S.E.C. v. Consolidated Enterprises, Inc., S.E.C. v. Kimball Securities, Inc.13 and S.E.C. v. International Corp., et al. 44 In S.E.C. v. Arvida Corporation 5 the Commission's complaint charged two broker-dealers with violation of section 5(c) of the Securities Act prohibiting public offerings of securities before the filing of a registration statement. In enjoining any further violation, the court held that the issuance of a press release giving a number of facts concerning the development of Arvida Corporation and the proposed stock offering, and the convening of a press conference at which additional facts were given, including the proposed price, constituted an offer to sell within the meaning of the act and was in violation of the act because a registration statement covering the securities offered had not been filed with the Commission. Judgment was entered upon consent of defendants. In related broker-dealer proceedings (see p. 103, infra) the Commission also concluded that defendants had violated the registration provisions of the 1933 act willfully, but held that no sanction was required in the public interest under the particular circumstances of the case. Securities Exchange Act Release No. 5870 (February 9, 1959). After the institution of these proceedings a registration statement was filed and became effective. In a case still pending, the Commission has brought suit to enjoin John Addison, Niles White, White, Green & Addison Associates, Inc., Trans-world Mining Corporation, Murchison Ventures, Inc., and numerous individual officers and employees, from further violating the registration provisions of the Securities Act of 1933, and to enjoin the defendants, their banks and depositories from dissipating or disbursing the assets or funds of these defendants, and particularly the sum of $146,625 found in a suitcase left by Addison in a public carrier terminal. The Commission's complaint charges that since 1955 the defendants have been selling securities, namely, notes, evidences of indebtedness, participation in profit-sharing agreements, investment 37 U.S.D.C. W.D. Okla. No. 8452. 45 U.S.D.C. S.D. N.Y. No. 136-67. 40 S.E.C. v. Addison et al., U.S.D.C. N.D. Texas No. $224. contracts, and fractional undivided interests in oil, gas, and other mineral rights, by use of the mails and in interstate commerce, without having first registered with the Commission. In a supporting affidavit filed with the complaint, it was alleged that Addison and his associates obtained loans from approximately 400 individuals in 23 States, the total of such loans amounting to nearly $1 million. A preliminary injunction has been entered and the sum of $146,625 ordered impounded in the registry of the Court pending a hearing on the merits of the case. Permanent injunctions restraining sales in violation of the registration provisions were decreed by consent in the following cases: S.E.C. v. Pettyjohn, et al.," S.E.C. v. Justus, et al., S.E.C. v. Hillsborough Investment Corp., S.E.C. v. Robbins, S.E.C. v. Bonanza Oil Corp., et al., S.E.C. v. Hinsdale Raceway, Inc.,52 S.E.C. v. Vanco, Inc., et al., and S.E.C. v. Mono-Kearsarge Consol. Permanent injunctions were also entered in S.E.C. v. Southwest Securities Inc., et al.,5 and S.E.C. v. Ben Franklin Oil and Gas Corp., et al., both discussed in the 24th Annual Report.57 In the Hillsborough case, supra, the court granted a preliminary injunction against defendants Hillsborough Investment Corporation and Roger Mara, its manager. The defendant corporation, incorporated in New Hampshire, advertised in the newspapers, offering to sell its stock to New Hampshire residents. A few advertisements contained no such limitation. About a dozen sales were made to nonresidents, in some cases after being held in the name of a resident for 30 days. Defendants resisted the motion for a temporary injunction on the ground that a small number of interstate sales, where no future interstate sales were contemplated, should not take the issue out of the intrastate exemption contained in section 3(a) (11) of the 1933 act. The court held that even a single sale to a nonresident, whether directly or through the device of selling to a resident intermediary, destroyed the exemption as to the whole issue, and required registration in order to make future sales to residents. U.S.D.C. D. Alaska No. 10,470. "U.S.D.C. S.D. Fla. No. 8779-M. U.S.D.C. D. N.H. No. 1965. U.S.D.C. S.D. Texas No. 12,644. U.S.D.C. D. Nev. No. 259. U.S.D.C. D. N.H. No. 1970. "U.S.D.C. D. N.J. No. 737-58. "U.S.D.C. D. Utah No. C-58-58. U.S.D.C. N.D. Ark. No. 3566. |