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in the exploratory oil and gas business, 21 notifications covering offerings of $5,035,410 by mining companies and 16 notifications covering offerings of $3,414,548 by companies featuring new inventions, products or processes.
The following table sets forth various features of the Regulation A offerings during the past 3 fiscal years :
Commercial underwriters used.
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 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 1963 fiscal year, temporary suspension orders were issued in 53 cases, which, added to the 31 cases pending at the beginning of the year, resulted in a total of 84 cases for disposition. Of these, the temporary suspension order was vacated in 2 cases and became permanent in 55: in 27 by lapse of time, in 20 by withdrawal of the request for hearing, and in 8 after hearing. Thus, there were 27 cases pending at the end of the fiscal year.
One of the cases disposed of during the year is summarized below to illustrate the type of misrepresentations and other noncompliance with the regulation which led to the issuance of suspension orders.
General Aeromation, Inc.-General Aeromation filed a notification and offering circular under Regulation A in March 1960, relating to a proposed public offering of 84,450 shares of common stock at $3 per share. The company proposed to develop and market a selfpowered vehicle, invented by Henry J. Wiebe, the issuer's president, and named “Romatt,” which was designed to transport aircraft to and from various airport locations such as hangars and runways. One version of the vehicle was designed for commercial use and another for military use. The offering circular included a letter from the issuer's patent attorney to the effect that the Air Force and commercial airlines were "desperately” in need of ground handling equipment, and the circular stated that the device had been checked by competent industry sources, that no satisfactory ground equipment of comparable nature was available, and that no direct known competition existed employing the Romatt method of moving heavy aircraft on the ground. The offering circular projected a military market of up to 1,000 Romatt-type vehicles and stated that the issuer expected to market or lease a considerable number of units to commercial airlines "as they are manufactured and ... tested.”
In its order suspending the exemption for this offering, the Commission held that these representations were false or misleading. It found that, at the time of filing, both commercial and military aircraft were being handled by specially designed ground equipment which was considered to be reasonably adequate. During 1958, the Air Force had issued a request for proposals for the development of ground equipment which would meet certain performance specifications, but several proposals submitted by Wiebe and the issuer had been rejected. There was no tangible evidence of prospects of acceptance of the vehicle for commercial use, and at the time of the filing, no commercial model had been completed, tested or demonstrated in actual operation.
The Commission stated that, regardless of whether the issuer in good faith believed in the merits and potential success of its product, it must make an adequate, accurate and fair presentation of all material factors so that public investors may be able to decide for themselves whether to invest. It further stated that the presentation of an optimistic picture of the issuer's prospects, though qualified by certain general concessions, but without disclosure of significant adverse information, created a materially misleading picture even though individual representations in another context might not be objectionable.
& Securities Act Release No. 4536 (September 19, 1962).
The Commission rejected certain evidence proffered by the issuer after the recommended decision of the hearing examiner and exceptions thereto had been filed, which assertedly reflected certain favorable developments. It pointed out that its findings were based on the deficiencies of the offering circular at the time it was filed and that subsequent developments could not remedy prior misstatements and failures to state adverse material facts.
In addition to the misstatements discussed above, the Commission found that there were a number of other misstatements in the offering circular, that the aggregate offering price exceeded $300,000, and that offering circulars were mailed out earlier than permitted. Exempt Offerings Under Regulation B
During the fiscal year ended June 30, 1963, 231 offering sheets and 248 amendments thereto 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 1962 and 1961 fiscal years, 229 and 261 offering sheets, respectively, were filed. The following table indicates the nature and number of Commission orders issued in connection with such filings during the fiscal years 1961–63. The balance of the offering sheets filed became effective without order.
Action taken on offering sheets filed under Regulation B
Temporary suspension orders (under Rule 340(a)).
Total number of orders.
Exempt Offerings Under Regulation E
Regulation E provides a conditional exemption from registration under the Securities Act of 1933 for securities of small business investment companies which are licensed under the Small Business Investment Act of 1958, or which have received the preliminary approval of the Small Business Administration and have been notified by the Administration that they may submit an application for such a license.
The Regulation, which is similar in many respects to the general exemption provided by Regulation A, requires the filing of a notifica
tion with the Commission and, except in the case of offerings not in excess of $50,000, the filing and use of an offering circular containing certain specified information.
Regulation E provides for the suspension of the exemption in particular cases if the Commission finds that any of the terms and conditions of the regulation have not been met or complied with.
During the 1963 fiscal year, one notification was filed under Regulation E, covering a proposed offering of $264,000, and became effective. Exempt Offerings Under Regulation F
Regulation F provides an exemption from registration under the Securities Act for assessments levied upon assessable stock and for delinquent assessment sales in amounts not exceeding $300,000 in any one year. It requires the filing of a simple notification giving brief information with respect to the issuer, its management, principal security holders, recent and proposed assessments and other security issues. The Regulation requires a company to send to its stockholders, or otherwise publish, a statement of the purposes for which the proceeds from the assessment are proposed to be used. If the issuer should employ any other sales literature in connection with the assessment, copies of such literature must be filed with the Commission.
During the 1963 fiscal year, 35 notifications were filed under Regulation F, covering assessments of $937,425. Regulation F notifications were filed in three of the nine regional offices of the Commission: Denver, San Francisco and Seattle. Underwriters were not employed in any of the Regulation F assessments.
Regulation F provides for the suspension of an exemption thereunder, as in Regulation A, where 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.
One Regulation F filing was temporarily suspended in the fiscal year 1963. No hearing was requested and none was ordered by the Commission, with the result that the suspension order became permanent on the 30th day after its entry.
ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF
The Securities Exchange Act of 1934 provides for the registration and regulation of securities exchanges and the registration of securities listed on such exchanges and it establishes, for issuers of securities so registered, financial and other reporting requirements, regulation of proxy solicitations and requirements with respect to trading by directors, officers and principal security holders. The Act also provides for the registration and regulation of national securities associations and of brokers and dealers doing business in the over-the-counter market, contains provisions designed to prevent fraudulent, deceptive and manipulative acts and practices on the exchanges and in the over-the-counter markets and authorizes the Federal Reserve Board to regulate the use of credit in securities transactions. The purpose of these statutory requirements is to ensure the maintenance of fair and honest markets in securities transactions on the organized exchanges and in the over-the-counter markets.
REGULATION OF EXCHANGES AND EXCHANGE TRADING
Registration and Exemption of Exchanges
As of June 30, 1963, 14 stock exchanges were registered under the Exchange Act as national securities exchanges:
American Stock Exchange
New York Stock Exchange Boston Stock Exchange
Pacific Coast Stock Exchange Chicago Board of Trade
Stock Exchange Cincinnati Stock Exchange
Pittsburgh Stock Exchange Detroit Stock Exchange
Salt Lake Stock Exchange Midwest Stock Exchange
San Francisco Mining Exchange National Stock Exchange
Spokane Stock Exchange Four exchanges were exempted from registration by the Commission pursuant to Section 5 of the Act: Colorado Springs Stock Exchange Richmond Stock Exchange Honolulu Stock Exchange
Wheeling Stock Exchange