SEC v. World-Wide Coin Investments, Ltd.

• Citation: 567 F. Supp. 724
• Decision Date: 23 May 1983
• Docket Number: Civ. A. No. C 81-1642 A.
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. WORLD-WIDE COIN INVESTMENTS, LTD., Joseph H. Hale, and Floyd W. Seibert, Defendants.
• Court: U.S. District Court — Northern District of Georgia

567 F. Supp. 724

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. WORLD-WIDE COIN INVESTMENTS, LTD., Joseph H. Hale, and Floyd W. Seibert, Defendants.

Civ. A. No. C 81-1642 A.

United States District Court, N.D. Georgia, Atlanta Division.

May 23, 1983.

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Barton S. Sacher and Walter E. Jospin, S.E.C., Atlanta, Ga., for plaintiff.

Oliver Lee, Hurt, Richardson, Garner, Todd & Cadenhead, Atlanta, Ga., for defendant World-Wide Coin.

C.B. Rogers, Rogers & Hardin, Atlanta, Ga., for defendants Hale and Seibert.

MEMORANDUM OPINION AND ORDER

VINING, District Judge.

This is a securities fraud action in which the Securities and Exchange Commission (SEC) seeks a permanent injunction against World-Wide Coin Investments, Ltd. (World-Wide) and the individual defendants¹ as well as an order for a full accounting and disclosure of wrongfully received benefits. In an order entered March 29, 1983, this court directed the clerk to enter judgment for the SEC on all counts of the complaint and further directed defendants Hale and Seibert to (1) retain an independent auditor to perform a full accounting of World-Wide of all receipts and disbursements of cash and all purchases and sales and other acquisitions and dispositions of inventory and assets since July 1, 1979, and (2) return whatever shares of World-Wide stock they might hold to World-Wide. Finally, the court ordered World-Wide to make a full disclosure to its present shareholders with respect to all material information relating to its operations since July 1, 1979. The following memorandum opinion will constitute this court's findings of fact and conclusions of law as required by Fed.R.Civ.P. 52(a).

Factual Background

World-Wide Coin Investments, Ltd., is a Delaware corporation with its principal offices in Atlanta, Georgia, and is engaged primarily in the wholesale and retail sale of rare coins, precious metals, gold and silver coins, bullion, and, until 1979, in the retail sale of camera equipment. Its operations also include the sale of Coca-Cola collector items and certain commemorative items. Its inventory of rare coins comes from its purchases of collections from estates and private individuals, purchases from dealers, purchases on domestic commodities exchanges, and purchases at coin shows. Sales are transacted at the Atlanta office and at many major coin shows held in the United States. For some time it published a trade journal, The Coin Wholesaler, which carried both news and feature stories of special interest to coin collectors and investors, who comprised the majority of subscribers. Until August 1979, through its subsidiary World-Wide Camera Fair, Inc.,² World-Wide operated retail stores in Augusta, Athens, Savannah, Columbus, Georgia, and Jacksonville, Florida, selling camera and photographic equipment. All five stores were sold during the first quarter of fiscal year 1980.

World-Wide's common stock is registered with the SEC pursuant to the Securities Exchange Act of 1934, 15 U.S.C. ? 78l(b), and until late 1981 was listed on the Boston Stock Exchange. Prior to July 1979, the company's assets totaled over $2,000,000, and it had over 40 employees. In August 1981, the time of the filing of this lawsuit, the company's assets amounted to less than $500,000, and it had only three employees.

Defendant Joseph H. Hale took over the management and control of World-Wide on July 24, 1979, as the controlling shareholder, chairman of the board, chief executive officer, and president.³ He was formerly a national bank examiner with the United States Treasury Department and was employed as an accountant and auditor for General Motors and the Glidden Company, where he obtained an understanding of the importance of internal controls and the concept of "GAAP" (generally accepted accounting principles). Following these experiences, he became a broker-dealer and is registered with the National Association of Securities Dealers (NASD) and the New York Stock Exchange.

Defendant Floyd Seibert is an employee of Health-Care International, Inc., a member of the board of directors of Florafax, Inc., and in September 1979 became a member of World-Wide's board of directors; he also constitutes World-Wide's one-man audit committee.

I. HALE'S TAKEOVER OF WORLD-WIDE

Prior to 1979, World-Wide was managed by John Hamrick, who held the positions of president, chief executive officer, and chairman of the board. During his tenure at World-Wide, Hamrick was involved in the rare coin business and operated two subsidiaries, World-Wide Camera Fair and Chattanooga Coin and Stamp, both of which significantly contributed to World-Wide's profits. Hamrick met Hale in 1979, when Hale made an offer of 25? a share to purchase control of World-Wide. This offer was not accepted, but Hale subsequently increased his offer to 75? a share, and on July 24, 1979, Hale acquired 51% of the common stock of World-Wide from Hamrick, approximately 290,000 shares. Hamrick then resigned as chairman of the board, president, and chief executive officer, and Hale was elected as his successor at a board meeting of the company on that date. Shortly thereafter, the remaining directors of World-Wide resigned, and on September 1, 1979, Hale appointed Jones and Seibert to comprise, in addition to himself, the three member World-Wide board.

As part of Hale's purchase of the controlling block of World-Wide stock, he and Hamrick entered into a consulting agreement, which contained the following terms and conditions: (1) World-Wide would pay Hamrick a consulting fee of $1,000 per month for 15 months, (2) in consideration of this consulting fee, Hamrick's employment contract with World-Wide would be cancelled, and Hamrick would provide Hale with information concerning World-Wide on an as needed basis during the 15-month consulting agreement, (3) Hamrick would resign as the chairman of the board, chief executive officer, and president of World-Wide, (4) Hamrick would remain on the World-Wide payroll at the rate of $5,000 per month until certain loans from him to World-Wide were repaid in full, and until his name was removed from certain guarantees, (5) Hamrick would not open any type of retail coin or bullion business in the five county Atlanta area comprising Fulton, DeKalb, Cobb, Gwinnett, and Clayton Counties for a period of 24 months, and (6) Hamrick would not hire any of World-Wide's current employees for a period of 24 months.

Prior to Hale's acquisition of the controlling shares of World-Wide stock, he met with Robert Whitley, a securities attorney who had assisted Hamrick during his years at World-Wide. In a letter dated July 11, 1979,⁴ Whitley set forth the requirements under the federal securities laws with respect to Hale's planned takeover. In that letter, Whitley advised Hale that a Schedule 13D form⁵ would have to be filed with respect to the purchase of stock and the proposed tender offer, as well as a Form 3 and Form 4 regarding the change in ownership of stock, a Form 8K⁶ and a press release. With respect to the tender offer, a Form 14D⁷ would have to be filed, and Whitley enumerated some of the information that Hale would have to disclose. Notwithstanding this advice, Hale failed to file a Scheduled 13D form with the SEC. He did file a Form 3 statement as required by section 16(a) of the 1934 Securities Exchange Act⁸; however, it was filed a month late. World-Wide did not file a Form 8K to disclose a change in control of ownership, nor did it file with the SEC or transmit to World-Wide shareholders the information required by section 14(f) of the 1934 Act⁹, indicating that the three directors had been selected without shareholder approval. In his letter to Hale, Whitley also set forth his billable rate and other information should Hale wish to retain him and his law firm as counsel for World-Wide. Hale did not retain Whitley as counsel, and he testified at trial that the company did not have a lawyer on retainer until the initiation of the instant lawsuit.

In addition to acquiring control of World-Wide on July 24, 1979, Hale also persuaded the board of directors to adopt a resolution that authorized the issuance of 300,000 additional shares of common stock at the price of $225,000 (75? per share). Hale stated that he would pay for the stock in cash, coins, or rare medals and that if he paid in coins or medals they would be appraised by two outside appraisers.

The minutes of this meeting¹⁰ state that George Humphries, one of the former World-Wide directors, made the motion to approve this swap of stock for medallions and that the motion was seconded and approved. Humphries, now a coin dealer marketing silver medallions, testified at trial that these minutes are incorrect and that there was no vote on the swap of medallions for stock. When asked who recorded the minutes, Humphries stated that no one took them, although Sue Woods is listed as secretary for the meeting. Humphries also testified that he did not recall any discussion of the proposed appraisal of the medallions. Daniel Anderson, also a former World-Wide director and an investor in rare coins and medallions, testified that although he attended the July 24, 1979, meeting, he did not recall anyone taking the minutes. With respect to the swap of medallions for stock, Anderson testified that no action or vote was taken by the directors on this proposal. The possibility that these minutes were falsified is further substantiated by Hamrick, who testified that no approval was given for the medallion/stock swap while he was present; if a vote was taken by the board, it was done after he had resigned his position with World-Wide. There is substantial testimony to support a finding that the minutes of this July 24, 1979, directors' meeting were falsified, and this court is convinced that approval of the stock swap was expressly conditioned on Hale's obtaining an...