Securities And Exchange Commission v. National Student Marketing Corp

457 F. Supp. 682 (1978)

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Nature of the Case

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Facts

National Student Marketing Corporation (D) was incorporated in the District of Columbia. White & Case served as its outside legal counsel, with Marion J. Epley, III, as the partner immediately in charge of the firm's representation. Peat Marwick served as its outside accountant. Interstate National Corporation, a Nevada corporation, was an insurance holding company. D discussed the possibility of acquiring an Interstate subsidiary that specialized in selling insurance to students. D then expressed interest in acquiring its entire insurance holding company operation. D proposed a merger of the two corporations. An agreement in principle for the merger was reached. D then provided a nine-month financial statement. As part of the merger, the parties agreed to do everything that was lawfully required and that each representative party’s law firm would provide an opinion letter and a comfort letter from an independent accounting firm would provide credence to the unaudited financial statements that were made part of the merger. As for law firms, White and Case represented (D), and Lord Bissell represented Interstate. Peat Marwick did a once over but concluded that the financials provided by D were in need of adjustment. D has suffered a loss, not a profit over the past nine months. The merger meeting was taking place, and the comfort letter was not yet delivered. A call was made to Peat Marwick wherein a partner in that firm dictated a letter that said nothing was wrong and no material adjustments were required except with the info about D, which would require significant adjustments. All parties present at the closing read the letter, and it was in part explained away and that what Peat Marwick wanted done had been done. The comfort letter was kept in house between the parties and not revealed to shareholders or anyone else in a re-solicitation of the merger. The merger occurred. Peat Marwick was concerned that the merger took place in light of the adjustments and without shareholder re-solicitation. The stock of D took off but then tanked on rumors that the financials were false. P sued D, Interstate, the law firms, Peat Marwick and corporation officers for violation of securities law. P sought injunctive relief.