490 F.2d 1334 (2nd Cir. 1974), 462, International Controls Corp. v. Vesco
|Docket Nº:||462, 463, 539, 73-2202, 73-2255, 73-2568.|
|Citation:||490 F.2d 1334|
|Party Name:||INTERNATIONAL CONTROLS CORP., Plaintiff-Appellee, v. Robert L. VESCO et al., Defendants, and Andean Credit, S.A., Intervenor-Appellant. INTERNATIONAL CONTROLS CORP., Plaintiff-Appellee, v. Robert L. VESCO et al., Defendants, and Fairfield General Corporation et al., Defendants-Appellants. INTERNATIONAL CONTROLS CORP., Plaintiff-Appellee, v. Robert|
|Case Date:||January 15, 1974|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued Dec. 10, 1973.
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A. Dennis Terrell and Matt A. Farley, Newark, N.J. (J. William Barba, Shanley & Fisher, Newark, N.J. on the brief), for defendants-appellants Fairfield
Gen. Corp., Fairfield Aviation Corp., and Skyways Leasing Corp.
Laurence B. Orloff, Newark, N.J. (Gary S. Freedman, Hannoch, Weisman, Stern & Besser, Newark, N.J., Arum, Friedman & Katz, New York City, on the brief), for defendant-appellant Vesco & Co., Inc.
Arthur H. Christy, New York City (Robert S. Appel, David P. Steinmann, Christy, Frey & Christy, New York City, on the brief), for intervenor-appellant Andean Credit S.A.
Milton S. Gould, C. Leonard Gordon, and Sheldon D. Camhy, New York City (Daniel L. Carroll, Shea Gould Climenko & Kramer, David M. Butowsky, New York City, on the brief), for plaintiff-appellee.
The Securities and Exchange Commission, Washington, D.C. (David Ferber, Sol., Robert E. Kushner, Asst. Gen. Counsel, Alan J. Blank, Sp. Counsel, and David K. Ginn, Atty.), as amicus curiae.
Before KAUFMAN, Chief Judge, and MANSFIELD and MULLIGAN, Circuit Judges.
IRVING R. KAUFMAN, Chief Judge:
A mere glimpse into the multifarious financial manipulations of Robert Vesco reveals a web of corporate and personal transactions of astonishing intricacy. Although the appellants before us do not include Mr. Vesco, himself, who we note parenthetically has refused to return to the Southern District of New York 1 and seems to be safely ensconced in Nassau, the Bahamian capital, beyond the reach of the United States, 2 we cannot ignore his pervasive presence in the litigation which precipitated these appeals. Having allegedly utilized appellee International Controls Corp. (ICC) as a financial source and vehicle for his purported securities manipulations, Vesco, and his individual and corporate associates, have now become the objects of ICC's strenuous efforts to recover whatever assets remain-- assets ranging from, (1), a Boeing 707 aircraft, owned by appellant Skyways Leasing Corp., a wholly-owned subsidiary of appellant Fairfield Aviation Corp., in turn wholly-owned by appellant Fairfield General Corp. (Fairfield Group), to (2), 846,380 shares of ICC common stock transferred by Vesco and his children to appellant Vesco & Co., Inc. (Vesco & Co.), to (3), a pleasure yacht, the Patricia III, which, although used exclusively by Vesco and his family, is claimed by intervenor-appellant Andean Credit S.A. (Andean). Thus, we are asked by appellants Fairfield Group, Vesco & Co., and Andean, in three separate appeals, to review the propriety of preliminary injunctions issued by Judge Stewart restraining the disposition of these various assets claimed by ICC, injunctions which, with some modification, we affirm.
On November 27, 1972, the Securities and Exchange Commission (SEC) filed a complaint in the Southern District of New York, SEC v. Vesco et al., 72 Civ. 5001, against 42 individual and corporate defendants 3 alleging a scheme of
extraordinary magnitude, deviousness, and ingenuity in violation primarily of the anti-fraud provision of the Securities and Exchange Act of 1934 (1934 Act), Section 10(b) (15 U.S.C. § 78j(b)), and Rule 10b-5 (17 CFR § 240.10b-5). In brief, the SEC charged that Robert Vesco masterminded and, with his cohorts, implemented a plan involving the manipulation of the assets and securities of a number of corporations controlled by Vesco including ICC, also a defendant in this SEC suit. In the course of this purported scheme, Vesco and his group were alleged to have defrauded the public investors in ICC, as well as investors in four mutual funds, managed by subsidiaries of IOS, Ltd., a corporation which had been acquired by ICC, through the creation of a number of corporate entities and the subsequent transfer to these corporations of the assets of ICC and the mutual funds. The SEC asserted that as a result of this elaborate shell game, clothed in the garb of securities transactions, Vesco and others had secured control of over $200 million deposited in banks located in countries ranging geographically from Luxembourg to Costa Rica. The complaint closed with a prayer for permanent injunctive relief against future violations and a demand that receivers be appointed for several defendant corporate vehicles, including ICC.
On March 16, 1973, ICC, without admitting or denying the allegations in the Commission's complaint, consented to the entry of final judgment against it in the SEC action. 4 Pursuant to this consent judgment, ICC was permanently enjoined from future violations of the Securities Exchange Act. Judge Stewart further ordered that, in lieu of the appointment of a receiver sought by the SEC, a Special Counsel and a new interim board of directors be appointed by the Court to represent ICC. The order provided that
Special Counsel shall have the power and be directed to (inter alia):
. . . .
(b) take all appropriate action, including but not limited to, the institution and prosecution of suits on behalf of International Controls to recover all assets or monies improperly used, taken, wasted, misappropriated, dispensed, obligated or paid to anyone (i) without appropriate authorization, approval or ratification of the board of directors of International Controls or (ii) in breach of duties owed to defendant International Controls or its subsidiaries by present or former officers, directors or employees of International Controls or any other person.
The Special Counsel shall consult with plaintiff Commission and the board of directors of International Controls in the resolution of all claims International Controls may have. He shall neither decline to pursue any claim . . . nor settle any claims against the recommendation of plaintiff Commission and without the approval of this Court;
. . . .
(d) pending the investigation and accounting by the Special Counsel, he shall take immediate, necessary or appropriate action to protect International Controls' claims, interests and rights and pursue all possible claims against the defendants herein or any other persons including, but not limited to, the commencement of legal proceedings to prevent the dissipation or flight of any funds or other assets, the placing of a stop transfer order on securities beneficially owned or controlled by said defendants and/or the institution of appropriate action to freeze and preserve the assets of said defendants or others who may be obligated to International Controls . . ..
The order also provided that the newlyappointed board of directors 'shall replace the existing board of directors of International Controls, and shall have full power under applicable corporate law to conduct the affairs of International Controls in conjunction with the Special Counsel . . ..'
Given this mandate, Special Counsel David Butowsky, on June 7, 1973, filed a complaint on behalf of ICC against 32 individual and corporate defendants, 5 22 of whom were defendants in the pending SEC action, and 10 of whom, including Vesco & Co. and the Fairfield Group were not. The complaint contained eleven 'counts' alleging various violations of the 1934 Act, principally of Section 10(b) and Rule 10b-5, and charged fraud, self-dealing, waste of corporate assets and breach of fiduciary duty. Much of the complaint paralleled the SEC's charges of securities manipulation by Vesco and his associates at the expense of ICC and its stockholders. The Fairfield Group, the ICC complaint alleged, had been the vehicle for the diversion of ICC's assets in the form of a Boeing 707 aircraft, purchased and leased to ICC by Skyways at a time when Skyways was a wholly-owned subsidiary of ICC. ICC charged also that Vesco had caused ICC to spend over $1 Million in refurbishing the plane, including the installation of a discotheque and sauna for Vesco's private use, and that Vesco and certain other directors of ICC had fraudulently induced the remaining ICC directors to approve a dividend in kind of ICC's stock in the Fairfield Group, thereby establishing the Fairfield Group as corporate entities independent of ICC. Appellant Vesco & Co. was referred to in the complaint only once and quite simply as 'a Delaware corporation to which defendant Vesco and his children have transferred certain of their assets.'
Since Robert L. Vesco, the principal orchestrator of the alleged fraud, had already fled the United States and resisted efforts to induce him to return, ICC moved quickly to prevent the dissipation of assets to which it would be entitled if its lawsuit should be successful. Accordingly, ICC first obtained temporary restraining orders and then, on July 3, 1973, secured preliminary injunctions against Vesco & Co. and the Fairfield Group. Vesco & Co. was enjoined from disposing of the 846,380 shares of ICC
common stock and from prosecuting a pending state court derivative suit instituted by Vesco & Co. on behalf of ICC against certain former and current directors of ICC. The Fairfield Group was similarly enjoined from selling...
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