Securities And Exchange Commission v. Guild Films Company, Inc.

279 F.2d 485 (2nd Cir. 1960)

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Nature of the Case

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Facts

Santa Monica Bank and The Southwest Bank of Inglewood jointly agreed to loan Hal Roach, Jr., $120,000, represented by two notes. The loans were initially secured by 34,475 shares of the Scranton Corp. (valued at $15 per share) and 2,000 shares of F. L. Jacobs Co. stock (valued at $8 per share). This collateral was soon replaced by 30,000 shares of Jacobs stock. Roach had used a large part of the proceeds to purchase a substantial number of the 30,000 Jacobs shares put up as collateral. Roach was an officer, director, and the controlling shareholder of F. L. Jacobs Co. This company controlled the Scranton Corp., which owned Hal Roach Studios, which in turn owned both W-R Corp. and Rabco T. V. Production, Inc. W-R Corp. and D had made an agreement under which W-R Corp. was to obtain 400,000 shares of D common stock (the registration of 50,000 shares of this stock is here in dispute) and a number of promissory notes in exchange for certain film properties. The stock was not registered with P. D agreed to use its best efforts to obtain registration. Seeking a section 4 exemption, the agreement contained a statement that the stock is being acquired for investment only and not for the purpose or with the intention of distributing or reselling the same to others. Roach directed that 100,000 shares of D stock be issued in the name W-R Corp. and 100,000 shares (represented by two 50,000 share certificates) in the name of Rabco. The treasurer of D directed that the transfer agent stamp this restriction on the stock certificates: 'The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares have been acquired for investment and may not be sold, transferred, pledged or hypothecated in the absence of an effective registration statement for the shares under the Securities Act of 1933 or an opinion of counsel to the company that registration is not required under said Act.' The Santa Monica Bank learned that the Jacobs stock had been suspended from trading and called in its loan to Roach. The Santa Monica Bank agreed to renew Roach's note for 90 days upon deposit of 10,000 additional shares of Jacobs stock, or an equivalent in value in Scranton stock or upon payment of $30,000. Roach sent 50,000 shares of D stock to the Santa Monica Bank. Eventually, Roach defaulted on the loans, and both Banks decided to sell their D stock. P learned of the sale and notified the bank and D that the stock could not be sold without registration. The bank then sought a P ruling that the stock was exempt. P did not allow the exemption and P sued D to restrain the delivery of the shares and the sale of the remainder of the stock. The district court granted a preliminary injunction against delivery and further sale. D appealed.