PART I

SECURITIES ACT* OF 1933

DISTRIBUTION.

DEFINITION

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.

WILLFULLNESS.

.

Page 589.

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) EXEMPTION.

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

UNDERWRITER.

Broker-dealer who sells as broker on exchange for person controlling issuer 90,000 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

PART II

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.

PART III

PUBLIC UTILITY HOLDING COMPANY ACT* OF 1935

ACQUISITION OF SECURITIES

ACQUISITION OF COMMON STOCK OF A SUBSIDIARY BY PARENT.

Application by registered holding company regarding the acquisition of com-
mon stock of subsidiary through exchange, granted, the Commission finding that
such acquisition conforms to the applicable standards of Section 10 of the
Act. .. Page 625.

ACQUISITION OF SECURITIES BY ISSUER.

Declaration pursuant to Section 12 (c) regarding the acquisition, redemption
and retirement of first preferred and second preferred stocks of the declarant,
permitted to become effective, the Commission making no adverse findings.
Page 84.

Joint declaration filed by subsidiaries of registered holding company pursuant
to Section 12 (c) of the Act and Rule U-42 thereunder regarding acquisition
of outstanding preferred stock, permitted to become effective. .. Page 286.
Declarations regarding acquisition for cancelation of shares of presently out-
standing capital stock by redemption or in exchange for new capital stock, per-
mitted to become effective, the Commission making no adverse findings.
Page 391.

Declaration filed by registered holding company pursuant to Section 12 (c)
of the Public Utility Holding Company Act of 1935 and Rule U-42 promulgated
thereunder with respect to its acquisition of its own securities, permitted to
become effective... Page 759.

ACQUISITION OF SECURITIES BY REGISTERED HOLDING COMPANY.

Acquisition by registered holding company of common stock of an operating
public utility company, approved, the Commission finding that such acquisition
is a step required for the distribution of such securities, and otherwise meets
the standards of Section 10 of the Public Utility Holding Company Act of
1935... Page 314.

Application filed pursuant to Sections 9 (a) and 10 of the Public Utility
Holding Company Act of 1935 with regard to the acquisition by a registered
holding company from its subsidiary, also a registered holding company, of the
securities held by the latter company, granted, when such securities are to be
acquired in connection with the dissolution of the subsidiary registered holding
company, the liquidation of which company will simplify the structure of the
holding company system of the parent registered holding company. Page 759.

*The term "Act" as used in Part III of this Digest refers to the Public Utility Holding
Company Act of 1935.

23 S. E. C.

771

REDEMPTION OF SECURITIES BY REGISTERED HOLDING COMPANY.

Proposed redemption under the Public Utility Holding Company Act of 1935
of an outstanding debenture by a registered holding company, permitted to be-
come effective, subject to conditions.
. Page 656.

ACQUISITION OF SECURITIES OF SUBSIDIARY BY REGISTERED HOLDING
COMPANY FROM AFFILIATE.

Sale by a subsidiary of a registered holding company and acquisition by its
parent of a portion of the outstanding second preferred stock of another sub-
sidiary of the parent holding company, approved. . . Page 330.

ACQUISITION BY A REGISTERED HOLDING COMPANY AND BY AN AFFIL-
IATE OF SUBSIDIARY PUBLIC UTILITY HOLDING COMPANY OF SE-
CURITIES OF SUCH SUBSIDIARY.

Application regarding the acquisition of new common stock of subsidiary by
parent, a registered holding company, under previous order of divestment, and
by an affiliate, granted, the Commission finding that such acquisition conforms
to the applicable provisions of Section 10 of the Act as a temporary expedient
in aid of effectuating the divestment order and severing affiliation of affili-
ate... Page 391.

ACQUISITION OF UTILITY SECURITIES.

Application filed by a subsidiary of a registered holding company pursuant to
Sections 9 (a) and 10 of the Act regarding its acquisition from a non-affiliate of
the capital stock of a utility company, granted the Commission finding that
such acquisition has the tendency required by Section 10 (c) (2) of the Act
and that the other applicable provisions of Section 10 are satisfied... Page 54.

ALTERATION OF RIGHTS OF SECURITY HOLDERS

Declaration regarding changes in the charter provisions of a public utility
subsidiary company affecting the common and preferred stock of subsidiary,
permitted to become effective, the Commission making no adverse findings under
Section 7 (e) of the Act. . Page 625.

Declaration, filed pursuant to Section 6 (a) (2) of the Public Utility Holding
Company Act of 1935, by a public-utility subsidiary of a registered holding com-
pany regarding changes in charter provisions affecting the rights and privileges
of its stockholders, permitted to become effective, the Commission observing no
basis for adverse findings under Section 7 (e) of such Act... Page 84.

CHANGES IN CHARTER PROVISIONS.

Declaration regarding changes in charter provisions affecting new capital
stock, permitted to become effective, the Commission making no adverse findings
under Section 7 (e). . . Page 391.

MOTION TO DEFER ACTION UPON DECLARATION.

Motion by certain stockholders of parent company and certain stockholders
of company owning shares of stock of parent company to defer action upon
declaration filed by subsidiary company proposing plan to refinance the out-
standing preferred stock of said subsidiary company in view of the relation of
such refinancing to a plan for the liquidation of the parent which has been
suggested by such stockholders in proceedings pending before us, denied.
Page 358.