Securities & Exch. Com'n v. Glenn W. Turner Enter., Inc.

• Decision Date: 30 August 1972
• Docket Number: Civ. No. 72-390.
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. GLENN W. TURNER ENTERPRISES, INC., a Florida corporation, et al., Defendants.
• Court: U.S. District Court — District of Oregon

348 F. Supp. 766

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. GLENN W. TURNER ENTERPRISES, INC., a Florida corporation, et al., Defendants.

Civ. No. 72-390.

United States District Court, D. Oregon.

August 30, 1972.

COPYRIGHT MATERIAL OMITTED

James E. Newton, Jack H. Bookey, Francis N. Mithoug, Jerry King, Securities and Exchange Commn., Seattle, Wash., Richard E. Nathan, Asst. Gen. Counsel, Securities and Exchange Commn., Washington, D. C., Sidney I. Lezak, U. S. Atty., Jack G. Collins, First Asst. U. S. Atty., Portland, Or., for plaintiff.

Charles R. Mowry, Dardano, Mowry & Hanson, Portland, Or., for defendants Glenn W. Turner Enterprises, Inc., Dare to be Great, Inc., Donald Ray (Pete) Monroe, Gene Earl Arthur, William C. Sant, Harry Bryant Atkinson, Jack E. O'Brien, Alfred W. (Al) Smith, Le Roy Beale, and Harry D. Everard.

Jeffrey Allen Tew, Tew, Tew, Rozen & Murray, Miami, Fla., for defendants Glenn W. Turner Enterprises, Inc., Donald Ray (Pete) Monroe, Gene Earl Arthur and William C. Sant.

Clarke C. Brown, Salem, Or., and Theodore I. Koskoff, Bridgeport, Conn., for defendant Glenn Wesley Turner.

Bruce E. Jarman, Salem, Or., John A. Burgess, Montpelier, Vt., for defendant Hobart Wilder.

OPINION WITH FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER

SKOPIL, District Judge:

On May 17, 1972, the Securities and Exchange Commission filed the complaint against defendants, seeking an injunction against violation of the federal securities laws, and other relief. The SEC contended that what defendants were selling were securities within the meaning of the statutes. The defendants denied that they were securities and, consequently, moved to dismiss on the grounds that the Court had no jurisdiction over this action. Various memoranda were filed, numerous affidavits and exhibits were presented, and the Court held hearings on the application for a preliminary injunction, appointment of a receiver and an accounting on July 11, 12, 13 and 14, 1972. After the hearings were concluded, the Court heard oral argument on August 14, 1972. Before that hearing, the Court had indicated to the parties that all reserved rulings on the admissibility of evidence would be decided in favor of admissibility and the parties were instructed to argue with that understanding. Both sides rested with respect to the request for a preliminary injunction at the conclusion of oral argument. Accordingly, this matter is now ripe for decision.

I FINDINGS OF FACT

A. THE DEFENDANTS.

1) Glenn W. Turner Enterprises, Inc. is a Florida corporation.

2) Dare to be Great, Inc., also a Florida corporation, is a wholly-owned subsidiary of Glenn W. Turner Enterprises, Inc.

3) The individual defendants, Turner, Wilder, Atkinson, O'Brien, Smith, Monroe, Everard, and Arthur are, or were, officers, directors or employees of the defendant corporations.

4) The defendant Sant has not been linked to these proceedings.

B. THE ADVENTURES.

5) Dare to be Great, Inc. offers to sell to the public a series of contracts which it calls "Adventures" and classifies as motivational or self-improvement courses.

The purchaser of Adventure 1 receives a portable tape recorder, 12 lessons contained in 12 tape recordings, and certain written material in notebooks. He is entitled to attend a 12 to 16-hour group session. The cost of Adventure 1 is $300.

Adventure 2 contains, in addition to the materials offered in Adventure 1, twelve additional lessons with tape recordings. It offers approximately 80 additional hours of group sessions. Adventure 2, which necessarily includes Adventure 1, costs $700. In other words, a purchaser of Adventure 1 must pay an additional $400 for Adventure 2. Adventure 2 is not sold without Adventure 1.

The purchaser of Adventure 3 receives, in addition to the material from Adventures 1 and 2, six additional tape recordings, one notebook of written material called "The Fun of Selling," and a limited amount of written instructions and material. The purchaser of Adventure 3 is also entitled to 30 additional hours of group sessions. This Adventure costs $2,000, or $1,300 in addition to the cost of Adventures 1 and 2, which are necessarily included in Adventure 3. The purchaser of Adventure 3, however, receives an additional benefit different in kind from those available in Adventures 1 and 2. After fulfilling relatively nominal requirements, he becomes an "Independent Sales Trainee" and is empowered to "sell" the Adventures. He receives $100 for each Adventure 1, $300 for each Adventure 2, and $900 for each Adventure 3 which he "sells."

The purchaser of Adventure 4 receives six additional tapes, may or may not receive a movie projector with six cartridge-type films, and has the opportunity for 30 additional hours of group sessions. He is also entitled to attend two other week-long courses at his own expense in Florida. For this he pays an additional $3,000, or a total of $5,000 for Adventure 4, which includes the preceding Adventures. He also becomes designated as an "Independent Sales Agent," entitled to "sell" all of the Adventures to others. He receives the same return as does the purchaser of Adventure 3. However, in addition, he is entitled to "sell" Adventure 4, for each of which he receives $2,500, or half the purchase price.

Defendants offer a variation on the Adventures which was referred to in testimony as the "$1,000 Plan." The purchaser of this plan receives the tape cassettes sold in Adventure 2 but without the written material which accompanies them. In addition, a purchaser of this plan receives some additional sales instruction and may be entitled to a 24-hour group session. Unlike a purchaser of Adventure 2, however, he has an opportunity to make money from this plan if he brings two additional individuals to the one who sold him his plan. If those additional individuals purchase the plan, he then becomes entitled thereafter to receive $400 out of each $1,000 paid for the purchase of the plan by any further additional purchasers of the plan who purchase through him. Each additional purchaser, of course, must in turn bring him yet three more in order for that additional investor to become entitled to income from this plan.

It is possible to enter this plan without making an investment by bringing in one extra person, i. e., three rather than two.

C. THE SYSTEM IN OPERATION.

6) Salesmen of these Adventures seek new customers anywhere. They accost strangers in stores, streets and elsewhere and make no attempt to search out persons with sales ability, financial acumen or other skills. Those who eventually do make purchases appear to have fairly limited resources and education.

7) Salesmen must not explain to prospects anything about what they are selling. Their duty is strictly limited to arousing curiosity in the prospect and persuading him to attend an "Adventure Meeting," organized by defendants. One of the principal methods of arousing curiosity which is demanded by defendants is that the salesmen make a display of great wealth. A salesman should drive an expensive car, wear expensive clothing and display large amounts of currency in high denominations, while intimating that the prospect also can have an opportunity for great wealth. Despite the display, the salesman may, in fact, be nearly destitute.

8) The principal selling effort occurs at meetings and other functions organized by defendants. The salesman has no control over these meetings. The atmosphere is one of potential overwhelming financial return, dramatized by the appearance of large numbers of expensive cars, expensively-dressed individuals, and stories of great riches achieved through defendants' operations.

9) Meetings are conducted with an appearance of great spontaneity. Speakers talk loudly and rapidly with great emotional fervor. There are cheers and chants from the audience. The speakers, however, follow a strict script written by defendants' central organization, and they are not permitted to depart from it. The cheers and chants are prearranged. The speakers make somewhat passing reference to the motivational courses and what they will do for individuals. The major emphasis, however, is on the opportunities for earning money by purchasing Adventure 4. The script followed by defendants' speakers carefully avoids actually guaranteeing a return and does contain a statement that the prospect must expect to work. The impression which is fostered, however, by emphasis and psychological technique, is on the near inevitability of success achieved by anyone who follows defendants' directions. For example, it is said that one individual earns $50,000 per month, which is described as an unusual achievement, although the salesman was an ordinary person. A housewife's earnings of $16,000 per month are called "good." Some people earn nothing, which is described as "very poor," and is attributed to their failure to "believe in the philosophy of millionaires."

10) At no time do defendants' agents make any effort to explain potential difficulties of saturation and pyramiding. It is not revealed that those who make the pitch are far from earning the amounts which they say are ordinary results.

11) After the speakers have finished, salesmen attempt to persuade the prospect to buy one of the Adventures, with emphasis on Adventure 4. Sometimes the individual salesman makes this offer, but at other times, agents of defendants who are specialists at the required techniques of psychological hard-sell take over and accomplish the sale. On occasion the sale has been accomplished in the name of the individual who gets credit for it, without the latter even having been present. Sales tactics which are employed are calculated to ignore and bypass rational objections and analysis. The emphasis is, again, on large amounts of easy money. The technique is so strictly prearranged that it contains, for example, instructions how to write $130,000 and other sums on the...