SEC v. INTERN. MIN. EXCHANGE, INC.

• Decision Date: 02 June 1981
• Docket Number: Civ. A. No. 80-K-1198.
• Citation: 515 F. Supp. 1062
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. The INTERNATIONAL MINING EXCHANGE, INC., Mansion Properties Corp., Mansion Properties Management Corp., Trenton H. Parker & Associates, Inc., and Trenton H. Parker, Defendants.
• Court: U.S. District Court — District of Colorado

515 F. Supp. 1062

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. The INTERNATIONAL MINING EXCHANGE, INC., Mansion Properties Corp., Mansion Properties Management Corp., Trenton H. Parker & Associates, Inc., and Trenton H. Parker, Defendants.

Civ. A. No. 80-K-1198.

United States District Court, D. Colorado.

May 21, 1981.

As Amended June 2, 1981.

COPYRIGHT MATERIAL OMITTED

John J. Kelly, Jr., Edward A. Lewkowski, S.E.C., Denver, Colo., for plaintiff.

William C. Waller, Jr., Denis H. Mark, Wagner & Waller, Englewood, Colo., for defendants.

ORDER

KANE, District Judge.

This is an action to prevent further violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, as amended 15 U.S.C. § 77e(a), 77e(c), and 77q(a), Section 10(b) of the Securities Exchange Act of 1934, as amended 15 U.S.C. § 78j(b) and Rule 10b-5 promulgated thereunder 17 C.F.R. § 240.10b-5 by defendants International Mining Exchange, Inc., Mansion Properties Corp., Mansion Properties Management Corp., Trenton H. Parker & Associates, Inc., and Trenton H. Parker, individually; and Sections 15(b) and 17(a) of the Securities Exchange Act 15 U.S.C. § 78o (b) and 78q(a), and Rules 15b3-1 and 17a-5 promulgated thereunder 17 C.F.R. § 240.15b3-1 and § 240.17a-5 by defendants Trenton H. Parker & Associates, Inc., and Trenton H. Parker. Upon filing the complaint, plaintiff moved for a preliminary injunction to halt further violations of the Acts, pursuant to Section 20(b) of the Securities Act 15 U.S.C. § 77t(b) and Section 21(d) of the Exchange Act 15 U.S.C. § 78u(d). After a five day hearing this motion was denied. The case is now before me on plaintiff's motion for summary judgment.

Summary judgment, pursuant to Fed.R.Civ.P. 56(c) is a drastic remedy, Jones v. Nelson, 484 F.2d 1165, 1168 (10th Cir. 1973), by which movants are given the opportunity to pierce the allegations in the pleadings. However, "the power to pierce the flimsy transparent factual veil should be temperately and cautiously used lest abuse reap nullification." Avrick v. Rockmont Envelope Co., 155 F.2d 568, 571 (10th Cir. 1946). Summary judgment is appropriate only where there exists no genuine issue of material fact. Adickes v. S. H. Kress & Co., 398 U.S. 144, 157-59, 90 S.Ct. 1598, 1608-09, 26 L.Ed.2d 142 (1970); Luckett v. Bethlehem Steel Corp., 618 F.2d 1373, 1383 (10th Cir. 1980). As a matter of law, the movant must show entitlement to summary disposition beyond all reasonable doubt. Norton v. Liddel, 620 F.2d 1375, 1381 (10th Cir. 1980).

In order to determine the propriety of summary judgment I must construe all pleadings, affidavits, and depositions liberally in favor of the party against whom the motion is made. Id.; Accord, Otteson v. United States, 622 F.2d 516, 519 (10th Cir. 1980); Commercial Iron & Metal Co. v. Bach & Co., 478 F.2d 39 (10th Cir. 1973). Summary judgment is not a substitute trial by affidavit. Ando v. Great Western Sugar Co., 475 F.2d 531 (10th Cir. 1973). Under the rule, no margin exists for disposition of factual issues, and it does not serve as a substitute trial of the case nor require the parties to dispose of the litigation through affidavits. Commercial Iron & Metal Co. v. Bach & Co., 478 F.2d at 41. Where different inferences can be drawn from conflicting affidavits, depositions and pleadings, summary judgment should not be granted. United States v. Diebold, Inc., 369 U.S. 654, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962); Romero v. Union Pac. R. R., 615 F.2d 1303, 1309 (10th Cir. 1980). For the reasons that follow I find that plaintiff has carried its burden as to Counts I, II, III, V, and VI of the complaint and on those counts summary judgment is granted. However, there are material issues of fact as to Count IV and therefore on this count summary judgment is denied.

The undisputed facts are as follows: Parker is involved in two investment programs. One involves selling gold mining concessions and the other buying and renovating various mansion properties in Denver. From September 1979 through December 10, 1979 Parker and The International Mining Exchange (Mining) offered and sold contracts for a "Gold Tax Shelter Investment Program" based on placer gold mining concessions located in the Paul Isnard area of French Guiana, South America. Beginning on or about December 20, 1979 and continuing to the present, Parker and Mining offered and sold an identical program based on unpatented gold mining claims located near Juneau, Alaska.¹

To invest in these programs, investors executed a check made payable to a payee designated by Mining, and signed various closing documents. As a result of these steps investors: (1) acquired a leasehold interest in a placer gold mine with proven reserves; (2) authorized Mining to arrange for the sale of options to purchase gold to be mined from the claim; and (3) authorized Mining to make payment from the proceeds of the sale of the options, along with the investor's check to a mining development company to develop the claim. Thus, the investor acquired an opportunity to profit from any gold mined and a federal tax deduction based upon the total cost of developing the mine, which is 500% or five times the investor's actual cash outlay.

Between September 1974 and December 1975 Parker organized and sold limited partnership interests in four partnerships, formed to renovate various mansions in the Denver area. Parker and his wholly owned corporation, defendant Mansion Properties Corporation (Mansion Properties), were the general partners. The general partners had complete control over all aspects of management and had the right to employ persons, firms, or corporations in which Parker was an employee, director, or shareholder. Parker hired and paid himself or his corporations as a real estate broker, broker-dealer, general contractor, leasing agent and building manager.

Investors in three of the mansions have received no return on their investments, while investors in the fourth have received a return of 80%. Parker has failed to distribute the proceeds of the sales to date, refused to make available books and records to the limited partners, failed to disclose the disposition of certain promissory notes and contested the limited partners' attempts to remove him and his corporate entities as general partners.

"SECURITIES" WITHIN THE SECURITIES ACTS

Since the defendants have admitted that the limited partnership interests are securities, the threshold question is whether the gold mining contracts are securities under the Securities Exchange Act and the Securities Act. Since this circuit has held that the term "security" is not to be defined differently under the 1934 Act and the 1933 Act, in as much as the acts are to be considered in pari materia, both intended to cover similar interests, Ballard & Cordell Corp. v. Zoller & Danneberg Exploration, Ltd., 544 F.2d 1059 (10th Cir. 1976), cert. denied, 431 U.S. 965, 97 S.Ct. 2921, 53 L.Ed.2d 1060 (1977), they will be discussed together.

Section 2(1) of the Securities Act 15 U.S.C. § 77b(1) defines securities to include investment contracts. In Securities & Exchange Com. v. W. J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), the Supreme Court held that "an investment contract," for purposes of the Securities Act, is a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party. The Supreme Court and the Tenth Circuit have reiterated and reaffirmed this test many times. See, e. g., United Housing Foundation v. Forman, 421 U.S. 837, 852, 95 S.Ct. 2051, 2060, 44 L.Ed.2d 621 (1975); Woodward v. Terracor, 574 F.2d 1023 (10th Cir. 1978); McGovern Plaza Joint Venture v. First of Denver Mort. Investors, 562 F.2d 645 (10th Cir. 1977).

The primary purpose of the acts was to eliminate serious abuses in a largely unregulated securities market. The focus of the acts is on the capital market of the enterprise system, the sale of securities to raise capital for profit-making purposes, ..., and the need for regulation to prevent fraud and to protect the interests of investors. United Housing Foundation v. Forman, 421 U.S. at 849, 95 S.Ct. at 2059. In applying acts of this general purpose ... the test is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out for the prospect. Securities & Exchange Com. v. C. M. Joiner Leasing Corp., 320 U.S. 344, 352, 64 S.Ct. 120, 124, 88 L.Ed. 88 (1943). Accord, Continental Marketing Corp. v. Securities & Exchange Com., 387 F.2d 466 (10th Cir. 1967). Therefore, in searching for the meaning and scope of the word "security" in the acts, form should be disregarded for substance and emphasis should be on economic reality. Securities & Exchange Com. v. W. J. Howey, Co., 328 U.S. at 298, 66 S.Ct. at 1102. See also, e. g., Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 553, 19 L.Ed.2d 564 (1967); Woodward v. Terracor, 574 F.2d at 1024.

In deciding whether defendants' activities come within the Howey definition of "securities," with the above standards in mind, the following factors will be examined: (1) whether there is an investment of money; (2) whether the scheme in which the investment is made functions as a common enterprise; and (3) whether profits are derived solely from the efforts of others.

INVESTMENT OF MONEY

Investment of money means that the investor must commit his assets to an enterprise or venture in such a manner as to subject himself to financial loss. Stowell v. Ted S. Finkel Invest. Services, Inc., 489 F.Supp. 1209, 1220 (D.Fla.1980). It is clear that investors furnished checks to Parker and/or his corporations in both deals and neither side contends that there is any genuine issue of fact on this issue.

COMMON ENTERPRISE

There is debate on whether a horizontal or vertical relationship between...