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(A) 65, 384

1

Preferred stocks, Gas and Electric Associates.....

20,000 Convertible obligations, Associated Real Properties, Inc..

65, 384 Notes receivable, Gas and Electric Associates....

$17, 165, 244 Securities of, and advances to, majority-owned nonconsolidated and statutory subsidiary companies: Common stock, Keuka Lake Power Co.....

2, 450 Bonds and debentures, Keuka Lake Power Co., 6 percent bonds, due 1960... $245, 000 Notes receivable, Utilities Investment Trust...

$18, 687, 300 Advances on open account, Utilities Investment Trust..

$114, 909

1 50,000

(4) (A)

Other investments:

New England Gas and Electric Association, $5.50 cumulative dividend series

preferred stock. Schenectady Railway Co., 5 percent sinkingfund incomo notes, due 1958.

6,000 $73, 200

208,000 62, 220

Total other investments..

270, 220

Total investment portfolio..

917, 608

NOTES: (A) Included in a commingled investment account at a nominal amount of $1 and shown as notes receivable from Gas and Electric Associates.

23 S. E. C.

INDEX.DIGEST

The following digest of decisions presents a consolidated summary of the case headnotes arranged alphabetically according to topic headings. The digest is divided into five parts:* Part I, containing decisions under the Securities Act of 1933; Part II, the Securities Exchange Act of 1934; Part III, the Public Utility Holding Company Act of 1935; Part IV, the Investment Company Act of 1940; and Part V, the Investment Adviser Act of 1940.

The case headnotes have not been carried over verbatim into this digest. To facilitate the grouping together of decisions standing for a similar proposition under a single digest heading, it has been necessary in some cases to delete from the headnotes all matter not pertinent to the general proposition for which the headnote stood, i. e., the names of companies, the principal amounts of security issues, etc. To the same end, certain case headnotes have been entirely redrafted for the digest so as to conform to a uniform statement of the general proposition. In a few instances, case headnotes, which were not considered important for the purposes of this digest, have been omitted from the digest altogether.

a

•During the period covered by this volume there were no opinions containing case head. notes under the Trust Indenture Act of 1939. 23 S. E. C.

767

PART I

SECURITIES ACT* OF 1933

DEFINITION DISTRIBUTION.

Distribution is entire process by which in the course of a public offering the block of securities is dispersed and ultimately comes to rest in the hands of the investing public. . Page 589.

EXEMPTIONS

.

Exemptions to Section 5 of the Securities Act must be strictly construed against claimants of their benefits, who have burden of proving that they are included within the exemption... Page 589. WILLFULLNESS.

Where broker-dealer was fully aware of what it was doing in transactions found to constitute violation of Securities Act held that such violation was willful. · Page 589. BROKERAGE TRANSACTIONS BY UNDERWRITER-SECTION 4 (2) EXEMPPART II

TION. Where underwriter distributes unregistered securities over the exchange on behalf of person controlling issuer held Section 4 (2) exemption inappli. cable... Page 589. UNDERWRITER.

Broker-dealer who sells as broker on exchange for person controlling issuer 30,000 shares under circumstances indicating dispersal of large amount among the public, held to be an “underwriter" under Section 2 (11) of the Securities Act.

Page 589.
NEW PUBLIC OFFERING BY UNDERWRITER.

Broker-dealer who, by selling on New York Stock Exchange, distributes for person controlling issuer a large block of unregistered securities held to be underwriter making new public offering of securities within meaning of Section 3 (a) (1) of Securities Act. .. Page 590.

*The term “Act" as used in Part I of this Digest refers to the Securities Act of 1933.

23 S. E. C.
768

SECURITIES EXCHANGE ACT* OF 1934

BROKER-DEALER REGISTRATION

GROUNDS FOR REVOCATION-VIOLATIONS OF SECURITIES EXCHANGE ACT.

Secret Profits.

Books and Records. Where controlling partner in predecessor of registered broker and dealer firm, with the aid of another partner of the registrant, purported to act as agent for customers, but acted adversely to them, dealing for his own interest and taking secret profits, the transactions being effected without the making of required records, held Sections 10 (b), 15 (c) (1) and 17 (a) of the Securities Exchange Act and the rules promulgated thereunder were willfully violated and revocation of registration and expulsion from national securities association are in the public interest. Page 461. VIOLATIONS OF SECURITIES ACT AND SECURITIES EXCHANGE ACT.

Manipulation of Over-the-counter Securities Market. Where respondent acquired the floating supply of a security and, in addition to entering OW-BW listings in the sheets of the National Quotation Bureau, Inc., and furnishing its own quotations for effecting purchases and sales of the security at successively increased prices, caused an ostensibly independent broker and dealer to publish and furnish quotations and to effect purchases and sales of the security on respondent's behalf at increasing prices without disclosing respondent's control over that broker and dealer or respondent's other activities in the security including respondent's employment of brokers to effect a "wash sale” transaction, all of which created a false and misleading appearance of activity and raised the price of the security for the purpose of inducing purchase by others, held, that such conduct constituted willful violation of Section 17 (a) of the Securities Act and Sections 10 (b) and 15 (c) (1) of the Securities Exchange Act and rules thereunder

... Page 735. REVOCATION OF REGISTRATION.

Where registered broker-dealer willfully violated provisions of Securities Exchange Act of 1934 and Rule promulgated thereunder by failing to file required reports of financial condition, held that it is in the public interest to revoke such registration as broker-dealer. Page 729. PUBLIC INTEREST.

Where respondent firm willfully violated the Securities Act and the Securities Exchange Act by manipulation of the over-the-counter securities market and by fraud in repurchases of securities, but only one partner was actively in charge

*The term "Act" as used in Part II of this Digest refers to the Securities Exchange Act of 1934.

769

of the firm's activities in the securities involved and there was no evidence that
the other partners knew of or acquiesced in the fraud in the repurchases held
it is in the public interest to revoke broker-dealer registration of the firm, with-
out prejudice to reapplication for registration after a 30-day period if the partner
who committed the fraud shall have withdrawn from firm and become disasso-
ciated from its business. .. Page 735.
FRAUD UPON SELLERS.

Where respondent repurchased securities from dealers by means of false rep-
resentations concerning the estimated market value of the issuer's property
and omissions of facts relating to the imminence of an invitation for tenders
by the issuer, the price at which tenders would probably be accepted and the
likelihood that the repurchased securities could be disposed of at a profit, and
where respondent's duty to make full disclosure was underscored by the de-
pendence it induced in the dealers through its representations both at the time
of its original sales to them and at the time of the repurchases, and by its solici-
tation of proxies to stockholders' meetings at which the undisclosed information
was obtained, held, respondent willfully violated Sections 10 (b) and 15 (c) (1)
of the Securities Exchange Act and rules thereunder. · · Page 735.

NATIONAL SECURITIES ASSOCIATION

REVIEW OF DISCIPLINARY PROCEEDINGS.

Relevancy of Additional Evidence.
Where, in a proceeding to review disciplinary action of a national securities
association, applicant moves to open record to admit evidence of business prac-
tices adopted after completion of transactions forming basis of disciplinary ac-
tion, held that such evidence is not relevant to issue whether transactions were
in violation of national securities association's rules and that motion must be
denied... Page 301.
CONTINUANCE IN MEMBERSHIP.

Where national securities association applied pursuant to Section 15A (b) (4)
for approval of continuance in membership of broker-dealer employing individ-
ual previously expelled from association, held that continuance in membership
is appropriate in the public interest. Page 429.
SUSPENSION FROM REGISTERED SECURITIES ASSOCIATION.

Violation of Securities Act.
Where Respondent broker-dealer used the mails and means of interstate com-
merce to sell as broker on exchange and to deliver after sale unregistered se-
curities in connection with a distribution on behalf of a person controlling
issuer held that such transactions constitute a willful violation of Section 5
of the Securities Act and that it is in the public interest to suspend respondent's
membership in the National Association of Securities Dealers Inc. for a period
of twenty days. Page 589.

23 S. E. C.

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