298 U.S. 1 (1936), 640, Jones v. Securities & Exchange Commission

Docket Nº:No. 640
Citation:298 U.S. 1, 56 S.Ct. 654, 80 L.Ed. 1015
Party Name:Jones v. Securities & Exchange Commission
Case Date:April 06, 1936
Court:United States Supreme Court
 
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298 U.S. 1 (1936)

56 S.Ct. 654, 80 L.Ed. 1015

Jones

v.

Securities & Exchange Commission

No. 640

United States Supreme Court

April 6, 1936

Argued March 10, 11, 1936

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

1. The day before a registration statement filed with the Securities and Exchange Commission would have become "effective" under the Securities Act of 1933, as amended, the Commission began a proceeding under § 8(d) of the Act challenging the truth and sufficiency of the statement and notified the registrant to appear at a hearing some weeks later and show cause why a stop order should not issue suspending its effectiveness. Thereafter, the Commission's subpoena was served on the registrant commanding him to appear and testify and bring designated books and papers. The registrant then gave formal notice that his statement was withdrawn and submitted motions to quash the subpoena, which he declined to obey, and to dismiss the proceeding. The Commission, however, persisted in the investigation and obtained from the District Court, under § 22(b) of the Act, an order requiring the registrant to appear before the Commission and answer questions.

Held:

(1) That the stop order proceeding was analogous to a suit for an injunction, so that, while it was pending, the effectiveness of the registration statement was suspended, and the registrant, if he acted under it, would act at his peril. P. 15.

(2) Arbitrary power to forbid withdrawal of such statements is not conferred upon the Commission by the statute. P. 18.

(3) The power of the Commission to prevent withdrawal is no greater than that of the courts to prevent dismissal by a plaintiff of his complaint at law or bill in equity. P. 18.

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(4) A rule of the Commission declaring that any registration statement may be withdrawn "if the Commission consents" and that such consent shall be given "with due regard to the public interest and the protection of investors" implies that withdrawal of a statement not as yet effective is of right if no prejudice will result to the public or to investors. P. 21.

(5) The filing of a registration statement under the Securities Act is, in effect, an ex parte application for a license to use the mails and the facilities of interstate commerce for the purposes recognized by the Act. Withdrawal of the application before it has become effective cannot affect any right of the general public, nor can it be said to prejudice investors, when, as in this case, no step towards the issuance of the securities sought to be registered has been taken and no investor, actual or potential, in such securities is shown to exist. P. 22.

(6) The registrant's right to withdraw his statement was unqualified, and the Commission's proceeding, limited to the purpose of determining whether the effectiveness of the statement should be suspended, was terminated by the withdrawal. P. 23.

(7) After the withdrawal, no authority for the enforcement of the subpoena could be exercised by court order under § 22(b) of the Act. P. 23.

(8) The stop order proceeding, having been ended by the withdrawal, could afford no basis for continuing the inquisition under a general power claimed by the Commission under § 19(b). P. 25.

2. After a defendant has been notified of the pendency of a suit seeking an injunction against him, even though a temporary injunction be not granted, he acts at his peril and subject to the power of the court to restore the status quo ante wholly irrespective of the merits as they may be ultimately adjudged. P. 15.

3. In the federal tribunals, a plaintiff has the unqualified right, unless otherwise provided by a specific rule of court, to dismiss his complaint at law or bill in equity, if no plain legal prejudice will result to the defendant other than the mere prospect of a second litigation upon the same subject matter. P. 19.

4. To the extent that the mere will of an official or of an official body is permitted to take the place of allowable official discretion, or to supplant the standing law as a rule of conduct, the Government ceases to be one of laws and becomes an autocracy. The courts, in the performance of their duties, must be ever vigilant to detect and turn aside this danger at its beginnings. P. 23.

5. Arbitrary power and the rule of the Constitution cannot both exist. Our institutions must be kept free from all assumptions of such power, whether by the three primary departments of the Government or by lesser agencies. P. 24.

6. An official inquisition to compel disclosures of fact is not an end, but a means to an end, and it is a mere truism to say hat the end must be a legitimate one to justify the means. P. 25.

7. A citizen, when interrogated about his private affairs, has a right before answering to know why the inquiry is made, and if the purpose disclosed is not a legitimate one, he may not be compelled to answer. P. 25.

8. An investigation not based upon specified grounds is quite as objectionable as a search warrant not based upon specific statements of fact. Such an investigation, or such a search, is unlawful in its inception and cannot be made lawful by what it might bring, or by what it actually brings, to light. P. 27.

9. The philosophy that constitutional limitations and legal restraints may be brushed aside upon the plea that good, perchance, may follow, finds no countenance in the American system of government. P. 27.

10. The constitutionality of the Securities Act of 1933 is not considered in this case. P. 28.

79 F.2d 617 reversed.

Certiorari, 297 U.S. 699, to review the affirmance of an order of the District Court, 12 F.Supp. 210, requiring the present petitioner to appear and testify before the Securities & Exchange Commission.

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SUTHERLAND, J., lead opinion

MR. JUSTICE SUTHERLAND delivered the opinion of the Court.

This case arises under the Securities Act of 1933, c. 38, 48 Stat. 74, as amended by Act of June 6, 1934, c. 404, 48 Stat. 881, U.S.C. title 15, § 77a et seq.. Prior to the

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amendment, the act was administered by the Federal Trade Commission; but by Securities Exchange Act of 1934, § 210, 48 Stat. 908, the administration was transferred to the respondent.

The act, § 2(4), defines the term "issuer" as including every person who issues or proposes to issue any security, with certain exceptions. Section 6(a) of the act provides:

Any security may be registered with the Commission under the terms and conditions hereinafter provided, by filing a registration statement in triplicate, at least one of which shall be signed by each issuer.

The filing of the registration statement must be accompanied by the payment to the commission of a fee measured by the maximum aggregate price at which the securities are to be offered. The information contained in the statement is to be made available to the public under such regulations as the commission may prescribe. The act prescribes in detail the character of information which is to be set out in the statement. Elaborate provisions are made in respect of liability on account of false registration statements, etc., and penalties are imposed for willful violations of any of the provisions of the act, or the rules and regulations promulgated by the commission under authority thereof, and for willfully untrue statements of material facts or omissions to state material facts. Section 5(a), provides that, unless a registration statement is in effect as to a security, it shall be unlawful for any person directly or indirectly to make use of the instrumentalities of interstate commerce or of the mails to sell or offer to buy such security, etc., or to transport any such security for sale or for delivery after sale.

Sec. 8(a) The effective date of a registration statement shall be the twentieth day after the filing thereof, except as hereinafter provided, . . .

* * * *

(d) If it appears to the Commission at any time that the registration statement includes any untrue statement of a material fact or omits to state any material fact

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required to be stated therein or necessary to make the statements therein not misleading, the Commission may, after notice by personal service or the sending of confirmed telegraphic notice, and after opportunity for hearing (at a time fixed by the Commission) within fifteen days after such notice by personal service or the sending of such telegraphic notice, issue a stop order suspending the effectiveness of the registration statement. . . .

(e) The Commission is hereby empowered to make an examination in any case in order to determine whether a stop order should issue under subsection (d). In making such examination, the Commission or any officer or officers designated by it shall have access to and may demand the production of any books and papers of, and may administer oaths and affirmations to and examine, the issuer, underwriter, or any other person, in respect of any matter relevant to the examination, and may, in its discretion, require [56 S.Ct. 656] the production of a balance sheet exhibiting the assets and liabilities of the issuer, or its income statement, or both, to be certified to by a public or certified accountant approved by the Commission. If the issuer or underwriter shall fail to cooperate, or shall obstruct or refuse to permit the making of an examination, such conduct shall be proper ground for the issuance of a stop order.

Section 19(b) provides that, for the purpose of all investigations which the commission think necessary and proper for the enforcement of the act, any member of the commission or any designated officer may administer oaths and...

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