Imágenes de páginas

Investment Adviser Registrations1963 Fiscal Year Effective registrations at close of preceding fiscal year... Applications pending at close of preceding fiscal year. Applications filed during fiscal year..

--. 1, 836

16 285

[merged small][merged small][ocr errors][merged small][merged small][merged small][merged small]

An extensive program pursued during the year resulted in the withdrawal or cancellation of the registrations of several hundred investment advisers who failed to file supplements to their registration as required by the Act.


At the beginning of the fiscal year, 10 revocation proceedings and 1 denial proceeding were pending. With respect to these, the Commission during the year revoked 5 registrations; 2 in the denial proceedings, it held that denial of the application for investment adviser registration was not required in the public interest and permitted the application to become effective, subject to certain conditions designed to ensure that the applicant would confine his activities exclusively to those of an investment adviser. During fiscal 1963, the Commission instituted revocation proceedings against 7 registered investment advisers. These proceedings, and the remaining 5 revocation proceedings previously instituted, were pending at the close of the year.

Owen K. Taylor, Ino., Edward Blatt, Walter Rosenbush, Financial Forecaster, Inc., Investment Advisers Act Release No. 129 (July 9, 1962); Seymour J. Schlesinger, latestment Advisers Act Release No. 130 (October 4, 1962).

William H. Biesel, Investment Advisers Act Release No. 145 (May 21, 1963).




The several statutes administered by the Commission authorize the Commission to seek injunctions against continuing or threatened violations of such statutes. Such violations may involve a wide range of illegal practices, including the purchase or sale of securities by fraud, and the sale of securities without compliance with the registration requirements of the Securities Act. The Commission also participates in various other types of proceedings, including appearances as amicus curiae in litigation between private parties where it is important that its view regarding the interpretation of the statutes be furnished to the court.

At the beginning of the fiscal year 1963 there were pending in the courts 105 injunctive and related enforcement proceedings instituted by the Commission to prevent fraudulent and other illegal practices in the sale or purchase of securities. During the year 121 additional proceedings were instituted and 105 cases were disposed of, leaving 121 such proceedings pending at the end of the year. In addition the Commission participated in a number of corporate reorganization cases under Chapter X of the Bankruptcy Act, in 10 proceedings in the district courts under Section 11(e) of the Public Utility Holding Company Act, and in 14 miscellaneous actions. The Commission also participated in 46 civil appeals in the United States courts of appeals. Of these, 19 came before the courts on petition for review of an administrative order, 15 arose out of corporate reorganizations in which the Commission had taken an active part, 2 were appeals in actions brought by or against the Commission, 3 were appeals from orders entered pursuant to Section 11(e) of the Public Utility Holding Company Act, and 6 were appeals in cases in which the Commission appeared as amicus curiae. The Commission also participated in 9 petitions for or memoranda in opposition to certiorari before the United States Supreme Court resulting from these or similar actions.

Complete lists of all cases in which the Commission appeared before a Federal or state court during the fiscal year, either as a party or as amicus curiae, and the status of such cases at the close of the year are contained in the appendix tables. This section describes a few of the more noteworthy cases, not including, however, any cases arising under the Public Utility Holding Company Act or Chapter X of the Bankruptcy Act; cases arising under those statutes are discussed in the sections of this report dealing with such statutes.

Since publication of the last Annual Report, the United States Supreme Court has rendered two significant decisions in the field of securities regulation, one relating to the permissible scope of regulation by a stock exchange of its members, the other to the interpretation of anti-fraud provisions of the Investment Advisers Act of 1910.

In Silver v. New York Stock Exchange, the Supreme Court, reversing the court of appeals, held that the stock exchange violated Section 1 of the Sherman Act in ordering several of its member firms to remove telephone wire connections previously in operation between their offices and those of a nonmember—a broker-dealer trading in over-the-counter securities—without giving the nonmember notice, assigning him any reason for the action or affording him an opportunity to be heard. The court found that such action by the exchange would constitute a per se anti-trust violation had it occurred in a context free from other Federal regulation, but agreed with the court of appeals that the exchange's rules governing its members' relationships with nonmembers are within its duty of self-regulation under the Securities Exchange Act, even where the particular nonmember deals only in "unlisted” securities. The court held, however, that particular applications of these rules by the exchange are outside the purview of the anti-trust laws only when justified by its self-regulatory duty and that the Exchange Act affords no justification for anti-competitive collective action taken without according fair procedures.

In Securities and Exchange Commission v. Capital Gains Research Bureau, Inc., decided subsequent to the end of the fiscal year, the Supreme Court held that it was fraudulent and deceptive within the meaning of Sections 206 (1) and (2) of the Investment Advisers Act of 1940 for a registered investment adviser to fail to disclose to his clients a practice—known in the trade as "scalping"-of purchasing shares of a security for his own account shortly before recommending that security for long-term investment and then immediately selling the shares at a profit upon the rise in the market price following the recommendation. The court pointed out the conflict of interests present in such a situation by noting that "[a]n adviser who, like respondents, secretly trades on the market effect of his own recom

1373 U.S. 341 (1963). Earlier stages of the litigation in this case are discussed in the 28th Annual Report, pp. 126-127.

» 32 U.S.L. Week 4029 (1963). Earlier stages of the litigation in this case are discussed in the 28th Annual Report, p. 129, and the 27th Annual Report, p. 163.


mendation, may be motivated-consciously or unconsciously—to recommend a given security not because of its potential for long-run price increase (which would profit the client), but because of its potential for short-run price increase in response to anticipated activity from the recommendation (which would profit the adviser).” The court rejected the interpretations of the lower courts to the effect that the Act requires the Commission to establish intent to injure and actual injury to the adviser's clients in order to obtain preliminary injunction requiring disclosure of such practices. It pointed out that "Congress intended the Investment Advisers Act of 1940 to be construed like other securities legislation enacted for the purpose of avoiding frauds, not technically and restrictively, but rather flexibly to effectuate its remedial purposes.” [Footnote omitted.]

Among the numerous actions instituted in the Federal district courts by the Commission, seeking injunctions against continuing or threatened violations of the Securities Act or Securities Exchange Act, and related types of proceedings, the following were of particular interest or significance:

In Securities and Exchange Commission v. Chamberlain Associates, et al., the Commission sought to enjoin an issuing corporation and a person retained as public relations counsel for the issuer from offering and selling securities without registration in violation of Section 5 of the Securities Act and from engaging in practices operating as a fraud upon purchasers in violation of Section 17(a) of that Act. The public relations counsel had prepared a "Report to Stockholders” which was a verbatim copy of a letter by the company's president. The letter contained false and misleading statements concerning the issuer. The public relations counsel displayed the report and other material to various broker-dealers, encouraged them to establish markets at prices he suggested and on one occasion placed a purchase order for 200 shares. In this manner, the broker-dealers were induced to buy and sell some 3,000 shares, most of which emanated from a Canadian source and as to which no registration statement had been filed and no exemption appeared to be available.

The district court concluded that the Commission was entitled to a permanent injunction. It held that the activities of the public relations counsel amounted to a solicitation of offers to buy and thus constituted offers to sell, as defined in Section 2(3) of the Securities Act, and that he was an underwriter as defined in Section 2(11) of that Act. The court concluded that his activities were therefore in violation of Section 5 of that Act. It further held that the counsel also

[ocr errors]

.S.D. N.Y., No. 61 Clv. 2150, CCH Fed. Sec. L. Rep. 1 91,228.

717-943–64 9

violated the anti-fraud provisions of Section 17 (a) of the Act, stating that he could not shirk responsibility for the misleading statements in the Report to Stockholders by claiming that he relied upon the representations of others. The court made it clear that since it was through his efforts that the stock was to pass to the public, he had s duty to investigate further.

In Securities and Exchange Commission v. Tenn-Tex Land and Cattle Co., et al., the Commission sought to enjoin a corporation, its president and certain other officers from offering and selling investment contracts and profit-sharing agreements without registration in violation of Section 5 of the Securities Act of 1933. The securities took the form of grazing lease agreements between the corporation and investors who placed cattle with the defendants for care, feeding and breeding. Th investors agreed to pay a stipulated service charge per head of cattle plus one-half the calf crop or a monthly fee. While the defendants neither sold cattle to investors nor purchased from them, defendants offered to arrange purchases and sales for investors. The court entered a preliminary injunction, and a permanent injunction was consented to.

The case of Securities and Exchange Commission v. Electronics Security Corp., was an action for injunction against further violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(c)(1) of the Securities Exchange Act and Rules 10b-6 and 15c1-8 thereunder by a registered broker-dealer corporation and its president. The defendants consented to the entry of a preliminary injunction. At the time of the hearing on the permanent injunction the defendants urged that no injunction be entered on the ground of mootness, inasmuch as the defendant corporation had previously surrendered its dealer's license to the state authorities and had ceased to exist as an active corporation. The district court, however, issued an injunction, citing United States v. Parke, Davis & Co., 365 U.S. 125 (1961); 362 U.S. 29 (1960), where the Supreme Court had rejected similar arguments.

In Securities and Exchange Commission v. American Trailer Rentals Company, the Commission petitioned for leave to intervene in proceedings for an arrangement under Chapter XI of the Bankruptcy Act to show that an offering of securities of Capitol Leasing Corpora tion, pursuant to the plan of arrangement proposed by the debtor. violated the anti-fraud provisions of Section 17(a) of the Securities Act of 1933. The Commission stated to the bankruptcy court that its

N.D. Tex., C.A. 3-63-103.

D. Minn., No. 4-61 Civ. 237.

• CCH Fed. Sec. L. Rep. 91,213. D. Colo., No. 33276.

« AnteriorContinuar »