Kreutzer v. Westfahl

• Citation: 187 Wis. 463,204 N.W. 595
• Parties: EX PARTE KREUTZER. KREUTZER v. WESTFAHL.
• Decision Date: 22 June 1925
• Court: United States State Supreme Court of Wisconsin

187 Wis. 463

204 N.W. 595

EX PARTE KREUTZER.KREUTZER

v.WESTFAHL.

Supreme Court of Wisconsin.

June 22, 1925.

Error to Circuit Court, Milwaukee County; Otto Breidenbach, Judge.

Habeas corpus proceeding by A. L. Kreutzer against Phillip C. Westfahl. To review order and judgment of circuit court quashing writ, plaintiff brings error. Order affirmed.

This is a writ of error to review an order and judgment of the circuit court for Milwaukee county, quashing a writ of habeas corpus, sued out by the plaintiff in error. He was bound over for trial to the municipal court of Milwaukee county upon four preliminary examinations held at the same time upon four different complaints for violations of the statute known as the Blue Sky Law. The complaints are substantially alike; all charge in separate counts three different offenses, sale of stock without a permit, sale of the same stock as a broker without a broker's permit, and sale of the same stock as an agent without an agent's permit. In one of the complaints it was alleged that on the 6th of February, in the county of Milwaukee, the defendant unlawfully and knowingly sold and negotiated a sale for value to the complainant, naming her, shares of stock in a Wisconsin corporation, naming them; that no permit for such sale had been issued by the Railroad Commission of Wisconsin or applied for, authorizing the sale under bond as provided in subsection (4) of section 183.27; that the securities were not sold as securities outstanding prior to August 1, 1919, under statement to said Railroad Commission, as provided in subsection (5) of section 183.27, being contrary to subsection (1) of section 183.27, Statutes of 1923; and that on the same day the defendant unlawfully acted as a broker in the sale of securities, naming them, without having first applied for and secured from the Railroad Commission of Wisconsin a permit authorizing him to act as such broker, in violation of section 183.29(3); and that on the same day he unlawfully acted as an agent in the sale of securities, naming them, without having first applied for and secured from the Railroad Commission of Wisconsin a certificate authorizing him to act as such agent, in violation of the provisions of section 183.29(4) of the Statutes. The complaints closed in the usual form, and are alike, except that in some of them the offenses are charged to have been contrary to the Statutes of 1921 instead of 1923. It is conceded by counsel, however, that in all substantial respects, so far as this writ of error is concerned, the statutes are alike, except that the Statutes of 1923 contain two sections with respect to procedure, which will be later set forth. Since in both briefs counsel refer wholly to the Statutes of 1923, the references will be made for convenience to that statute.

The statute is very long, and no attempt will be made to give the details of its provisions. The most that will be attempted will be a general summary, and for those details reference must be made to the statute itself. Section 183.25 consists of definitions of certain words used in the statute. Section 183.26 provides, “except as hereinafter provided the provisions of sections 183.25 to 183.44, inclusive, shall not apply to” certain classes of securities therein named. In very general terms these are as follows: (a) Securities issued, which are guaranteed by the United States, any foreign government or any state or territory thereof, and by certain classes of municipalities, which are named; (b) commercial paper, if the entire issue matures not more than one year from the date thereof, and bears a date not later than the day of sale; (c) securities of corporations operating railroads or public utilities, where the issue is regulated by the Public Service Commission therein named, and equipment securities under specified conditions; (d) securities listed on the New York, Boston, or Chicago Stock Exchanges, pursuant to official authorization; (e) securities issued by banks, trust companies, building and loan associations, or land mortgage associations, whose business is subject to the control of the banking commission, and there are also exempted securities issued by national banks or other corporations existing by virtue of acts of Congress, and the sale of securities to any such corporation; (f) securities of corporations organized under laws of this state without capital stock, or exclusively for educational, fraternal, or similar purposes; (g) the sale of notes and bonds secured by mortgages on Wisconsin real estate, where the total amount of the indebtedness does not exceed $15,000 nor 60 per cent. of the fair market value of the land, and where the entire mortgage is sold with the notes or bonds; (h) notes or bonds of a specified class, which are secured by a deposit with a bank or trust company of certain classes of securities on the conditions prescribed; (i) the distribution of stock dividends paid out of surplus to stockholders; (j) “the sale of any securities by the owner thereof for the owner's account, exclusively, such sale not being made in the course of continued or repeated transactions of a similar nature by the owner thereof and such owner not being the underwriter of such securities;” (k) judicial sales made by executors and other trustees named, and sales by receivers and trustees in insolvency and bankruptcy; (l) sale by a pledge holder in good faith in the ordinary course of business; (m) sales legally made by a company of its stock for delinquent assessments; (n) securities of co-operative associations under sections 185.01 to 185.22 inclusive; (o) sales by corporations of this state, of stock of their own issue or their securities, where the holders do not exceed 25 in number, and the expenses in connection with such issue and commissions do not exceed 2 per cent. of the selling price; (p) the sale of an interest in any partnership, pool, or other company, not a corporation, where the total membership will not exceed 10 in number and the organization expenses do not exceed 2 per cent. of the invested capital; (q) an issue of securities by a company in the process of a bona fide reorganization under certain conditions.

At the end of this subsection (q) there is a provision that, if it shall appear to the Commission that the sale of any issue of securities described in paragraphs (b), (g), (h), (j), or (q) may be unfair or inequitable or work a fraud on the purchaser, it shall require the person issuing or selling the same to file a verified statement with the Commission, giving such information concerningthe assets, liabilities, earnings, plan of business, contracts, organization, promotion expenses, articles of association, or other organization agreement, and any other facts relating to the security, person, or company issuing the same, as the Commission may deem necessary to determine whether the securities may be sold; and the Commission may make further investigation, requiring the expenses to be paid by the person issuing or selling the securities, and may issue an order temporarily prohibiting such sale. It is further provided that, before any final order, there may be a public hearing, if requested. If the Commission determine that such securities or the methods of sale are unfair or inequitable or will work a fraud, or that it is to evade the statute, the sale may be prohibited in this state or the terms of the sale may be fixed. If it appears to the Commission that misrepresentations are being made, or unfair or fraudulent practices are resorted to in the sale of the securities named in subsection (1), it may require persons selling the securities to file such information as it may deem necessary to determine those matters, and may require the discontinuance of false representations or practices, and, if the acts are deemed unlawful, it may present the facts ascertained to the Attorney General or the district attorney for action.

By subsection (2) of 183.26 all securities not mentioned or described in subsection (1) are divided into two classes as follows: (a) Securities based upon established value or income, which shall be known as securities in class A. Class A securities comprise the following: Notes or bonds issued by a person or company, secured by a mortgage or deed of trust upon real estate or leasehold, where the total amount of securities with prior incumbrances does not exceed 60 per cent. of the fair market value of the lands and buildings. Provision is made for securities to be issued upon land and buildings to be erected, where the Commission is satisfied that the total amount will not exceed 60 per cent. of the fair market value, and where provisions are made satisfying the Commission as to the financing and completion of the building, and as to the net income from such securities. There are included in this class equipment trust certificates or notes or bonds to be issued by public service corporations on the conditions specified; also serial bonds or notes on a vessel or vessels on the conditions named, and securities issued by persons or companies owning a property, business, or industry which has been in continuous operation not less than 2 years, and has earned the net profits therein specified. Provision is also made as to preferred and common stock which have paid dividends specified, and it is provided that, under certain conditions affecting the soundness of the security or company, the Commission may, notwithstanding compliance with one or more of the standards of this subsection, refuse to classify such securities as class A, and may classify them in class B, or deny a permit for the sale thereof. (b) “Securities based on prospective income shall be known as securities in class B. All securities not included in subsection (1) or in paragraph (a) of subsection (2) of this section shall be known as securities in class B.”

Section 183.27(1) states:

“Except as provided...