SECURITIES & EXCH. COM'N v. Micro-Moisture Controls, Inc.

• Decision Date: 31 March 1958
• Citation: 167 F. Supp. 716
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. MICRO-MOISTURE CONTROLS, INC., Louis Levin, John Herschorn, Gershon Kaplan, Garland L. Culpepper, Jr., Albert J. Grayson, George Phillip Barton, Rudolph V. Klein, doing business as R. V. Klein Company, Jack Gold, Robert C. Leonhardt, Rockwell Securities Corporation, A. J. Grayson & Co., Incorporated, Brown, Barton & Engel, I. W. Page & Co., Incorporated, World Wide Investors Corporation and McGrath Securities Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

167 F. Supp. 716

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. MICRO-MOISTURE CONTROLS, INC., Louis Levin, John Herschorn, Gershon Kaplan, Garland L. Culpepper, Jr., Albert J. Grayson, George Phillip Barton, Rudolph V. Klein, doing business as R. V. Klein Company, Jack Gold, Robert C. Leonhardt, Rockwell Securities Corporation, A. J. Grayson & Co., Incorporated, Brown, Barton & Engel, I. W. Page & Co., Incorporated, World Wide Investors Corporation and McGrath Securities Corporation, Defendants.

United States District Court S. D. New York.

March 31, 1958.

Edward O. B. Reid, New York City, Robert F. Muir, Security Investigator, New York City, for plaintiff.

Colton & Pinkam, New York City, by Spencer Pinkam, New York City, for Robert C. Leonhardt & McGrath Securities Corp.

Lichtig, Colton & Greenfield, New York City, by Max M. Greenfield, New York City, for Albert J. Grayson and A. J. Grayson, Inc.

John H. Kelley, New York City, by Lee Feltman, New York City, for Garland L. Culpepper and Rockwell Securities Corp.

Gordon, Brady, Caffrey & Keller, New York City, by Stephen Bermas, New York City, for George P. Barton & Brown, Barton & Engel.

Levy & Nevins, New York City, by Saul Nevins, New York City, for Louis Levin & Micro-Moisture.

John T. Sullivan, New York City, for Jack Gold and I. W. Page & Co. Inc.

John J. McKenna, New York City, for World Wide Investors Corp.

EDELSTEIN, District Judge.

Findings of Fact

1. Defendant Micro-Moisture Controls, Inc. was organized on or about January 16, 1953, in the State of Delaware, has an authorized capitalization of 7,000,000 shares of a one cent common stock of which approximately 5,512,983 shares were issued and outstanding during the period involved.

2. (a) Defendant I. W. Page & Co., Inc. has been registered with the plaintiff as a broker and dealer in securities since September 6, 1956. Majority stock control of this defendant corporation is owned by the defendant Jack Gold, who is the president, treasurer, and a director, and it maintains its principal place of business at 37 Wall Street, New York City, New York.

(b) Defendant Brown, Barton & Engel has been registered with the plaintiff as a broker and dealer in securities since March 18, 1956. The capital stock of this defendant corporation is owned or controlled by defendant George Phillip Barton, who is the president and a director, and it maintains its principal place of business at 24 Commerce Street, Newark, N. J.

(c) Defendant McGrath Securities Corporation has been registered with the plaintiff as a broker and dealer in securities since March 12, 1953. The capital stock of this defendant corporation is owned by defendant Robert C. Leonhardt, who is the president and a director, and it maintains its principal place of business at 70 Wall Street, New York City, N. Y.

(d) Defendant A. J. Grayson & Co., Inc. has been registered with the plaintiff as a broker and dealer in securities since February 25, 1956. The capital stock of this defendant corporation is owned by the defendant Albert J. Grayson, who is the president and a director, and it maintains its principal place of business at 92 Liberty Street, New York City, N. Y.

(e) Defendant Rockwell Securities Corporation has been registered with the plaintiff as a broker and dealer in securities since July 20, 1956. The capital stock of this defendant corporation is owned by the defendant Garland L. Culpepper, Jr., who is the president and a director, and it maintains its principal place of business at 70 Wall Street, New York City, N. Y.

(f) Rudolph V. Klein, defendant, doing business as R. V. Klein Company, has been registered with the plaintiff as a broker and dealer in securities since September 14, 1942, and maintains his principal place of business at 170 Broadway, New York City, N. Y.

(g) Defendant World Wide Investors Corporation has been registered with the plaintiff as a broker and dealer in securities since July 9, 1955, and during the period material to the issues maintained its principal place of business at 231 Washington Street, Hoboken, N. J 3. On December 20, 1955, defendant Micro-Moisture Controls, Inc. issued and delivered to the Peeby Company, Inc. 1,200,000 shares of its common stock in consideration of all of the assets of the latter. Peeby Company, Inc. thereupon delivered the 1,200,000 shares to its own stockholders, who were twenty in number. None of the 1,200,000 shares was registered with the plaintiff. In issuing these shares to Peeby Company, Inc., defendant Micro-Moisture Controls, Inc. claimed to rely upon the provisions of Rule 230.133 of the General Rules and Regulations of the plaintiff under the Securities Act of 1933. Immediately after the transaction defendant Micro-Moisture Controls, Inc. had outstanding 2,947,355 shares of its common stock. (Exhibit 4 of plaintiff.)

4. At about the same time as the Peeby Company, Inc. transaction, the defendants Robert C. Leonhardt, Louis Levin and Albert J. Grayson each borrowed $100,000 from a New York Bank. Pursuant to the authority granted by certain powers of attorney delivered to him by the former Peeby stockholders, defendant Louis Levin pledged 600,000 of the 1,200,000 shares received by the Peeby Company, Inc. stockholders as collateral security for the loans. (Exhibit 4 of plaintiff.)

5. The defendant Louis Levin, pursuant to the powers of attorney, sold the 1,200,000 shares through broker-dealers in New York, including the defendant McGrath Securities Corporation. (Exhibit 4 of plaintiff.)

6. In April 1956 defendant Garland C. Culpepper, Jr., resigned as the president and a director of defendant Micro-Moisture Controls, Inc. and defendant Louis Levin became the president and a director. (Exhibit 4 of plaintiff.)

7. On June 21, 1956 the defendant Micro-Moisture Controls, Inc. had outstanding 3,071,498 shares of its common stock. (Exhibit 4 of plaintiff.)

8. Defendant Micro-Moisture Controls, Inc., under the direction of defendant Louis Levin, on or about June 21, 1956, caused to be issued to nominees of Converters Acceptance Corporation Limited, a Canadian corporation, 2,396,485 shares of the common stock of the corporation in exchange for the assets of Converters Acceptance Corporation.

9. Converters Acceptance Corporation distributed the 2,396,485 shares of common stock to its 31 stockholders.

10. Defendant John Herschorn of 5 Bridge Street, Montreal, Province of Quebec, Canada, acquired of record in his own name 424,697 shares of the common stock and the defendant Gershon Kaplan of the same address became owner of record of 353,080 shares. Moreover, defendant Kaplan and at least 25 other owners of an additional 1,477,840 shares of the total of 2,396,485 shares of common stock granted defendant John Herschorn irrevocable powers of attorney to possess and sell at his sole discretion these shares. Further, defendant Herschorn, in the manner hereinafter particularly described, disposed of 710,623 shares of that common stock.

11. No registration statement for the 2,396,485 shares was in effect or filed with the plaintiff. Defendant Micro-Moisture Controls, Inc. and other defendants claimed to rely on Rule 230.133 in connection with the issuance of these 2,396,485 shares by defendant Micro-Moisture Controls, Inc. to Converters Acceptance Corporation. Immediately after the transaction, defendant Micro-Moisture Controls, Inc. had 5,467,983 shares of its common stock outstanding. (Exhibit 4 of plaintiff.)

12. On July 27, 1956 defendant Micro-Moisture Controls, Inc. issued and delivered in a private transaction to defendant Louis Levin a total of 44,000 shares of its common stock as payment for moneys due and owing to him. Immediately after this transaction defendant Micro-Moisture Controls, Inc. had 5,512,983 shares of its common stock outstanding. (Exhibit 4 of plaintiff.)

13. Defendant Micro-Moisture Controls, Inc. made the following additional issuances of its common stock which were not registered under the Securities Acts:

(a) 450,000 shares to the organizers of the corporation early in 1953;

(b) 299,000 shares to the public pursuant to Regulation A in 1953;

(c) 33,000 shares to stockholders of All Weather Windows Corporation in February of 1954;

(d) 318,007 shares to Eastern Koolvent Aluminum Awning, Inc., on May 27, 1954;

(e) 10,000 shares to Jack Carmel in August 1954;

(f) 107,143 shares to its subsidiary company, Comfort Zone Corporation, and an additional 88,500 shares to the eight stockholders of that company in October 1954;

(g) 430,000 shares to the 14 stockholders of Koolvent Awning, Limited, on November 30, 1954;

(h) 11,705 shares in February 1956 to the public holders of convertible bonds which were qualified under Regulation A;

(i) 44,360 shares to 6 persons in February and March, 1956;

(j) 32,972 shares on March 12, 1956 and an additional 46,811 shares on September 10, 1956 as stock dividends.

14. The relative positions, as Micro-Moisture Controls, Inc. stockholders, of each of the following persons, after the distribution of the 2,396,485 shares of common stock on or about July 5, 1956 was as listed except for the possibility that members of the general public, whose names are not known to either the defendant, Micro-Moisture Controls, Inc., or plaintiff, because their shares may have been held in street names of broker nominees, may be the owners of more than 14,000 shares of said common stock:

                 1. Defendant John Herschorn      424,697
                 2. Defendant Gershon Kaplan      353,080
                 3. R. Boyer                      282,555
                 4. H. Salinsky                   254,345
                 5. I. Glouberman       98,735 |
                                                > 197,470
                    M. Glouberman       98,735 |
                 7. H. Benjamin                   120,120
                 8. C. D. Hyman         77,350 |
                                                >  81,900
                    F. R. Hyman          4,550 |
                10. A. Schactman                   60,652
                11. P. L. Hyland                   60,652
                12. P. R. Goodkin

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