In The Matter Of Ira Haupt & Company

23 S.E.C. 589 (1946)

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Nature of the Case

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Facts

D is a partnership, and it conducts a commission business in stocks, bonds, and commodities. It has registered with the SEC (P) as a broker-dealer and is a member of the NASD. David A. Schulte, a director, and president of Park & Tilford, Inc., has maintained various accounts with D. Substantial blocks of securities were bought and sold in these accounts, including Park & Tilford common stock. On November 30, 1943, there were 243,731 shares of Park & Tilford common stock outstanding. Of this amount, the public held 18,249 shares or 9%. Schulte in some form or another held over 90% of the common stock. Schulte came up with a plan to promote the stock. He called it the liquor plan. Schulte offered a dividend on the stock of a case of whiskey at cost. This was during WWII at a time when there were shortages of whiskey. Schulte sought to sell 93,000 shares of stock. Schulte publicly announced that Park & Tilford was contemplating a distribution of whiskey at cost to its shareholders. The stock advanced 13-1/4 points, from 57-5/8 to a closing price of 70-7/8 on December 16; during those two days Schulte sold 15,700 shares through D. The price declined between December 18, 1943, and January 19, 1944, and Schulte sold only 200 shares while purchasing 3,300 shares. The price began rising again by January 20, and Schulte resumed selling. By May the price had reached $95 plus. All told, D sold approximately 93,000 shares of stock for the account of the Schulte interests, from December 15, 1943, to May 31, 1944. P contends that the foregoing facts show a willful violation of Section 5 (a) of the Securities Act. D asserts that its transactions were exempt from registration and that, in any event, it lacked the requisite intent for a 'willful' violation.