SECURITIES & EXCH. COM'N v. General Refractories Co.
| Decision Date | 23 September 1975 |
| Docket Number | Civ. A. No. 75-0809. |
| Citation | 400 F. Supp. 1248 |
| Parties | SECURITIES & EXCHANGE COMMISSION, Plaintiff, v. GENERAL REFRACTORIES COMPANY et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
COPYRIGHT MATERIAL OMITTED
Richard S. Kraut, Benjamin Greenspoon, Harold L. Halpern, Michael F. Perlis, Washington, D. C., for plaintiff.
Edward F. Glynn, Jr., Marshall Cox, Jerome I. Chapman, Charles N. Brower, Mario V. Mirabelli, Washington, D. C., Anthony F. Phillips, New York City, James R. McAlee, Washington, D. C., for defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The above-styled action came on for evidentiary hearing before the Court without a jury on September 18 and 19, 1975. The Securities and Exchange Commission ("SEC") brought the present action to preliminarily and permanently enjoin alleged violations of Sections 10(b), 13(a), 13(d) and 14(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-1, 13d-1, 13d-2, 14a-3 and 14a-9 thereunder and Rule 12b-20 and for other relief.
Pursuant to a motion made by the SEC the Court issued a Temporary Restraining Order on May 30, 1975, extended on June 9, 1975, temporarily restraining defendants Hermann Mayer ("H. Mayer"), Dan Mayer, Refrax Handels Anstalt ("Refrax"), Sanbil Handels Anstalt ("Sanbil"), Aldo Handels Anstalt ("Aldo"), Magnesit Holding, A. G. ("Magnesit Holding") and Jorg Haemmerli from, in essence, acquiring, disposing, or voting of any securities of General Refractories Company ("GRX") owned, directly or indirectly, of record or beneficially and/or controlled by said defendants.1
Having considered the record and the briefs and argument of counsel, and the testimony had herein on September 18 and 19, 1975, and the affidavits and exhibits thereto received into evidence, the Court makes the following findings of fact and conclusions of law.
1. GRX is a Pennsylvania corporation primarily engaged in the business of manufacturing and distributing fire brick for the steel industry. The common shares of GRX are listed for trading on the New York Stock Exchange and the PBW Stock Exchange and are registered pursuant to Section 12(b) of the Exchange Act. Since approximately 1966, GRX has had approximately 3.8 million shares of common stock outstanding. During and at times prior to 1966, GRX had approximately 2.9 million shares of common stock outstanding.
2. H. Mayer, an Austrian citizen residing in Switzerland, owns and/or controls various European companies, including Refrax, Sanbil, Magnesit Holding, Aldo and A. G. Fuer Magnesit Export ("Export"). Dan Mayer is H. Mayer's son. In April 1971, Dan Mayer became a director of GRX. H. Mayer has for at least 45 years engaged in the ore brokerage and related businesses. Since approximately 1950, H. Mayer has engaged in business transactions with GRX and its subsidiaries.
3. Since at least 1965, H. Mayer has been a substantial stockholder in GRX. He has owned GRX shares through Refrax since at least the 1950's. In late 1964, H. Mayer purchased 44,100 GRX shares in a private transaction directly from GRX. In 1971, when Dan Mayer became a director of GRX, H. Mayer gave Dan Mayer 10,000 GRX shares. Since at least October 1972 H. Mayer beneficially owned and/or controlled, in conjunction with Dan Mayer and Refrax, Sanbil, Magnesit Holding and Aldo more than 5% of GRX's outstanding common shares.
4. From February 1973 through 1974, Refrax and Sanbil purchased substantial amounts of GRX shares on the New York Stock Exchange through orders placed, directly and indirectly, by H. Mayer and Dan Mayer with Bache & Co. Such shares were delivered against payment to Swiss Bank Corporation ("SBC") in New York. By March 8, 1974, H. Mayer, Dan Mayer and the aformentioned H. Mayer-controlled defendants held more than 10% of GRX's outstanding common stock at SBC and elsewhere.
5. As of January 31, 1974, approximately 432,586 GRX shares were held of record in the name of Gunther & Co., a nominee for SBC. Such shares represented more than 10% of GRX's outstanding common stock.
6. In connection with the preparation of GRX's proxy materials for its proposed annual meeting in April 1974, questions arose concerning the beneficial ownership of the shares registered in the name of Gunther & Co. and required disclosures pertaining thereto. Upon noticing the disclosure of Gunther & Co.'s holdings in GRX's proxy materials, U. S. counsel to SBC advised SBC not to vote the GRX shares unless prior disclosure was made of the identities of the beneficial owners of such shares. H. Mayer directed SBC, in April 1974, that he did not want, under any circumstances, to run the risk of disclosure of the identities of the beneficial owners of the GRX shares held by SBC to any U. S. regulatory authorities and reproached SBC for holding his shares and the shares of his controlled entities in one nominee name. Following H. Mayer's instructions, SBC did not reveal his or his companies' identities and the shares were not voted. Accordingly, H. Mayer, Refrax, Sanbil, Magnesit Holding and Aldo concealed from the SEC, GRX and GRX's shareholders their ownership of GRX shares and the nature and amount of business transactions between them and GRX and its subsidiaries.2
7. Following H. Mayer's instructions that he did not want the identity of the beneficial owners of the Gunther & Co. GRX shares to be revealed, SBC instructed its New York City branch to break up the block of GRX shares and to deliver portions to various correspondent institutions to be held in blocks of less than 5% of GRX's outstanding shares in different nominee names. H. Mayer also advised SBC that he proposed to purchase additional GRX shares.
8. From May 1974 through the balance of the year, Refrax and Sanbil purchased an additional 135,000 shares, which shares were delivered to Brown Brothers Harriman & Co. for the account of SBC. Portions of such shares were redelivered to institutional correspondents of SBC to be held in various nominee names to further conceal the identity of the beneficial owners of such shares.
8a. H. Mayer currently owns 5,300 GRX shares. Refrax currently owns 97,300 GRX shares. Magnesit Holding currently owns and/or controls 74,100 GRX shares. Sanbil currently owns 274,600 GRX shares. Dan Mayer currently owns 10,000 GRX shares. H. Mayer currently owns and/or controls 144,000 GRX shares purchased in October 1972 through Wertheim and Co. H. Mayer currently owns and/or controls 53,226 GRX shares purchased in the SBC Lausanne Special Account at Bashe & Co.
9. For many years, H. Mayer and H. Mayer-controlled companies, including Refrax and Export, have purchased magnesite ore from GRX subsidiaries and have resold such ore, in addition to others, to GRX and to GRX subsidiaries. Such transactions have involved payments of many millions of dollars. H. Mayer, Refrax and Export have realized substantial mark-ups and commissions in connection with such transactions.
10. H. Mayer-controlled companies, including subsidiaries of Magnesit Holding and Export, have sold finished products on behalf of GRX in amounts involving many millions of dollars and have realized substantial mark-ups and commissions in connection with such transactions. H. Mayer acquired Magnesit Holding in 1962 from General Magnesit Handels Anstalt ("GMHA"), a wholly owned subsidiary of GRX based in Zurich, Switzerland, for $293,000.
11. Also in 1962, Aldo, an H. Mayer owned and/or controlled company, acquired from GMHA for approximately $8 million, paid for in Aldo 3¾% long term debentures, in circuitous, convoluted and questionable transactions through Minerex Handels Anstalt ("Minerex"), another Liechtenstein Anstalt, rights to receive royalties from licenses of various patents and portions of commissions realized by H. Mayer-companies in transactions with GRX and subsidiaries which were being rebated to GMHA. Substantial amounts of royalties and previously rebated commissions were paid to Aldo following the sale of such rights. For example, one GRX subsidiary alone, Grefmex, paid royalties to Aldo totalling approximately $1.5 million during the period 1965-1969.
12. In June 1965, certain of the rights were sold by Aldo, through Minerex, and repurchased by GMHA, in transactions which were essentially a reversal of the transactions whereby GMHA had sold the rights to Aldo. Aldo redeemed $1,250,000 of its debentures from GMHA to fund GMHA's repurchase of the rights.
13. In 1969, GRX repurchased additional rights for approximately $3 million and, again, obtained such funds through Aldo's redemption of debentures in a like amount. Funds were channeled from GMHA to a GRX bank account in New York and then to Aldo which transferred the funds to GMHA in Switzerland in redemption of the debentures.
14. The foregoing transactions were of such a questionable nature that, in view of the absence of any probative evidence to the contrary advanced by the defendants at the evidentiary hearing, it appears that GRX was injured and wrongfully deprived of benefits and assets by such transactions.
15. From 1965 until April 1971, H. Mayer was represented on the Board of Directors of GRX by Otto Griesser. Subsequently, from April 1971 until April 1975, H. Mayer was represented on the Board of Directors of GRX by Dan Mayer.
16. Since at least 1965 and continuing to date, GRX has filed and H. Mayer, Dan Mayer, Refrax, Sanbil, Magnesit Holding, Export and Aldo have caused GRX to file annual reports and proxy materials with the SEC and GRX has disseminated and H. Mayer, Dan Mayer, Refrax, Sanbil, Magnesit Holding, Export and Aldo have caused GRX to disseminate such reports and materials to GRX shareholders and the investing public which failed to disclose the amounts of GRX shares owned by H. Mayer, Dan Mayer,...
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