SECURITIES AND EXCHANGE COM'N v. Resch-Cassin & Co., Inc.

Citation362 F. Supp. 964
Decision Date21 May 1973
Docket NumberNo. 71 Civ. 541.,71 Civ. 541.
PartiesSECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. RESCH-CASSIN & CO., INC., et al., Defendants.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

COPYRIGHT MATERIAL OMITTED

Paul Chernis, Dennis J. Block, Marc N. Epstein, Kevin Thomas Duffy, Regional Administrator, New York City, for plaintiff.

Morton S. Robson, Stanger & Robson, New York City, for defendants.

OPINION

TENNEY, District Judge.

Plaintiff, Securities and Exchange Commission (hereinafter the "Commission"), has applied for a permanent injunction enjoining Nagler-Weissman & Co., Inc. (hereinafter "Nagler-Weissman"), Robert Nagler (hereinafter "Nagler"), Adolph Weissman (hereinafter "Weissman") and Maxwell Forster (hereinafter "Forster") from further violations of the anti-fraud and anti-manipulation provisions of the Securities Act of 1933 (hereinafter "Securities Act") and the Securities Exchange Act of 1934 (hereinafter "Exchange Act"), and also from further violations of the net capital and bookkeeping provisions of the Exchange Act. The background of this litigation is the public offering of the stock of Africa, U.S.A., Inc. (hereinafter "Africa").1

Facts

It appears that in the summer of 1970, Africa, a Delaware corporation located in Fillmore, California, registered 150,000 shares of its stock with the Commission for sale to the public at $10 per share on a "best efforts, all or none" basis. The underwriter for the offering was Resch-Cassin & Co., Inc. (hereinafter "Resch-Cassin"). The registration statement was made effective by the Commission on October 21, 1970, and under the terms of the offering all 150,000 shares had to be sold within 60 days or the funds would be returned to the subscribers. Prior to the effective date of October 21, 1970, Resch-Cassin had engaged in efforts to sell the Africa issue. As part of this effort, a selling group was formed of which Yarnall-Biddle, Andresen & Co., New Dimension Securities, Pasternack Securities and Nagler-Weissman were members. Nagler-Weissman originally agreed to distribute 15,000 shares, which later was increased to 17,500 shares. The principal inducement employed by Resch-Cassin in building interest in the stock focused on the anticipated after-market price. For example, Solon Patterson of the Alpha Fund of Atlanta, Georgia, which purchased 10,000 shares, was told both orally and in writing by defendant George Resch, Jr. (hereinafter "Resch") that the after-market price was expected to be well over $20 per share and increased its order on the basis of this representation; Irby Bright, vice president of the First American National Bank in Nashville, Tennessee, which also purchased 10,000 shares, was told by defendant Michael Cassin (hereinafter "Cassin") that the after-market price would be at least $22 per share.

On Friday, October 23, 1970, trading commenced in Africa stock. Resch-Cassin, however, was having severe difficulty in completing the underwriting.2 Yarnall-Biddle, a member of the selling group, indicated prior to October 21, 1970, that it wanted 2,500 shares but cancelled this order shortly thereafter. It subsequently purchased 8,500 shares — on October 30, 2,500 shares; November 11, 1,500 shares; and November 13, 4,500 shares — at a time when the stock was trading at levels above the $10 offering price and still prior to the closing of the original offering.

It was, of course, crucial to Resch-Cassin that the after-market open at a premium in order to fulfill the promises made to Bright and Patterson and in order to induce purchasers such as Lloyd Zeiderman (hereinafter "Zeiderman") and Yarnall-Biddle's customers to buy the unsold portion of the issue. Zeiderman and Leo Kolack, partners of Kaufman, Kolack & Co., financial advisers and accountants for Africa, purchased 15,000 shares through the Bank of New York on the effective date, October 21, 1970. Subsequent to this purchase, Zeiderman attended four or five abortive closings starting on November 13, 1970, at each of which funds to close the issue were unavailable. In order to establish the price at the desired level, on Friday, October 23, 1970, Resch asked Peter Lewitin (hereinafter "Lewitin"), a trader at Smith, Jackson & Co., Inc. (hereinafter "Smith Jackson"), to trade the Africa stock, and Resch-Cassin gave Lewitin an order to buy 3,000 shares at $20 per share. As a result of this order, Lewitin made his "pink sheet"3 market at $18 bid and $21 asked. At the same time other brokers were also trading in Africa stock. Among these were Mandelbaum Securities (hereinafter "Mandelbaum") and A. P. Montgomery & Co., Inc. (hereinafter "Montgomery"). The trader at Mandelbaum, Jeffrey Greenstein (hereinafter "Greenstein"), learned about Africa stock from Lewitin and, after meeting with Resch and Cassin, decided to trade. At approximately noon on October 23, 1970, Greenstein received a call from Lewitin who informed him that the stock was "ready for trading" and that his market was $18-$21 by reason of the buy order for 3,000 shares at $20 referred to above. Lewitin also informed Greenstein that Greenstein could sell him at $19¾ any stock he was able to purchase. Therefore, Greenstein's opening quote for Africa was also $18-$21.

During the first day of trading, October 23, 1970, both Lewitin (Smith Jackson) and Greenstein (Mandelbaum) received only sell orders for Africa stock.4 As a result of large sell orders and lack of demand for Africa stock, they both continued to buy Africa stock, each time lowering their market, so that Lewitin quoted the stock as low as $14 bid, and Greenstein bought stock at as low as $14. Although Lewitin had limited experience he realized that there was something wrong with the way the stock was trading, and discontinued his efforts after only a half-hour or forty-five minutes, during which time the bid price had dropped from $18 to $14. He also had some apprehension about Resch-Cassin's ability to pay for the $60,000 worth of Africa stock they had ordered from Smith Jackson. Richard Friedman (hereinafter "Friedman"), president of Montgomery and an expert in the new issue field, noted very little public demand, his opening being based on the market of $18-$21 established by Lewitin (Smith Jackson). Since the latter was supplying most, if not all, of the demand for Africa stock, Lewitin's decision to stop trading the issue, together with the absence of any other demand, caused the market for the stock to collapse; by the close of the market on Friday, October 23, 1970, it was selling at the $11 level.

On Tuesday morning, October 27, 1970, the pink sheets reflected prices of $9½ to $11 and $9 to $12 with only two market-makers in the sheets. Unless Resch-Cassin wanted to abandon the Africa underwriting and return whatever funds had been raised to the subscribers, a trader had to be found who could establish and maintain the price of Africa stock at a sufficient premium to induce the public to purchase the unsold portion of the issue at the $10 offering price stated in the prospectus. Therefore, on either Monday, October 26, or Tuesday, October 27, Resch approached defendant Forster, the trader for Nagler-Weissman, and asked him if Nagler-Weissman would become a market-maker in the Africa stock. Resch had had prior dealings with Forster in a security called Systems Liaison. Forster had been anxious to trade the Africa stock and, furthermore, Resch-Cassin shared offices with Nagler-Weissman, which would minimize the chances of any misunderstandings arising in the trading and would enhance Resch-Cassin's ability to control it. Before Forster agreed to become a market-maker in Africa, however, he discussed the situation with Weissman who gave his approval. On Monday, October 26, trading in Africa stock had been slight with only 1,100 shares traded and these all purchased by Montgomery at prices ranging from $10 to $11 per share. By the next morning, Tuesday, October 27, trading activity decreased even further. Between the opening of the market at 10:00 A.M. and 1:00 P.M. there were only two trades: at 11:18 A.M. Hornblower & Weeks-Hemphill Noyes bought 100 shares at $11 from Montgomery, and at 12:16 P.M. Montgomery bought 100 shares at $10½ from Pasternack Securities. Thus, as of the morning of October 27, 1970, the price of Africa stock remained depressed.

Resch followed the same pattern he had with Smith Jackson by giving Nagler-Weissman a purchase order on October 27, 1970, this time for 1,000 shares of Africa stock for the account of Elsie Himes, a customer of Resch-Cassin. In fact, Mrs. Himes had ordered only 500 shares from Resch-Cassin.5 Resch-Cassin turned this customer order over to Nagler-Weissman and gave up the commission. With this order, Forster (Nagler-Weissman) could go into the market to buy Africa stock.

Starting at 1:14 P.M. on October 27, 1970, Forster made his first trade in Africa stock, purchasing 100 shares at $11 from Associated Investors. Following this transaction, he continued to buy the stock and between 1:16 P.M. and 1:50 P.M. he purchased 900 additional shares at prices ranging from $11½ to $16, the final price. Thus he moved the price from $11 to $16 in 34 minutes. All but 300 shares of the 1,000 were purchased from Montgomery, Forster always purchasing at the price offered by Montgomery without attempting to negotiate a better price. Indeed, only two minutes after Forster purchased 300 shares from Montgomery at $16, the latter was able to purchase 200 shares at $14 per share. Furthermore, Forster did not need the stock quickly. Although Resch told Forster that he wanted a good price for the stock, he gave no instructions as to time, nor were there any special instructions from the customer, Mrs. Himes.

On the morning of Tuesday, October 27, 1970, there were only two brokers, Montgomery and Associated Investors, quoting Africa in the pink sheets. The next day there were five. From then until the beginning of December...

To continue reading

Request your trial
21 cases
  • U.S. S.E.C. v. Sierra Brokerage Services Inc.
    • United States
    • U.S. District Court — Southern District of Ohio
    • March 31, 2009
    ...367 (S.D.N.Y.2007). Manipulation of securities prices violates Section 10(b) and Rule 10b-5 and Section 17(a). SEC v. Resch-Cassin & Co., 362 F.Supp. 964, 975 (S.D.N.Y.1973). Section 10(b) of the Exchange Act makes it illegal for any person to "use or employ, in connection with the purchase......
  • S.E.C. v. First Jersey Securities, Inc.
    • United States
    • U.S. Court of Appeals — Second Circuit
    • December 10, 1996
    ...& Co. v. SEC, 139 F.2d 434, 437 (2d Cir.1943), cert. denied, 321 U.S. 786, 64 S.Ct. 781, 88 L.Ed. 1077 (1944); SEC v. Resch-Cassin & Co., 362 F.Supp. 964, 978 (S.D.N.Y.1973). Hence, a broker-dealer who charges customers retail prices that include an undisclosed, excessive markup violates § ......
  • SEC v. Graystone Nash, Inc.
    • United States
    • U.S. District Court — District of New Jersey
    • April 21, 1993
    ...security is `the reflection of genuine demand instead of a mirage.'" Kimmes, 799 F.Supp. at 859 (quoting SEC v. Resch-Cassin & Co., 362 F.Supp. 964, 975 (S.D.N.Y.1973)), such as: (1) efforts of an acquiring group to artificially reduce a target company's stock price through organized large-......
  • Walck v. American Stock Exchange, Inc.
    • United States
    • U.S. District Court — Eastern District of Pennsylvania
    • December 18, 1981
    ...§ 10(b) of the Exchange Act when the same activities are conducted with respect to an over-the-counter security. SEC v. Resch-Cassin & Co., 362 F.Supp. 964, 975 (S.D.N.Y.1973). In plaintiff's view, to assume such a degree of over-lap renders the remedial provisions of §§ 9(a)(2) and 9(e) re......
  • Request a trial to view additional results
3 books & journal articles
  • Table of cases
    • United States
    • ABA Antitrust Library Energy Antitrust Handbook
    • January 1, 2017
    ...U.S. App. LEXIS 18834 (4th Cir. 2015), 67 SEC v. Hopper, 2006 U.S. Dist. LEXIS 17772 (S.D. Tex. 2006), 237 SEC v. Resch-Cassin & Co., 362 F. Supp. 964 (S.D.N.Y. 1973), 220 SEC v. Steadman, 967 F.2d 636 (D.C. Cir. 1992), 225 SEC v. Zandford, 535 U.S. 813 (2002), 226 Seminole Energy Servs., 1......
  • Market Manipulation Statutes and Rules
    • United States
    • ABA Antitrust Library Energy Antitrust Handbook
    • January 1, 2017
    ...subjective intent to affect the stock price thereby.” Nanopierce , 2002 U.S. Dist. LEXIS 24049, at *21. 44 . SEC v. Resch-Cassin & Co., 362 F. Supp. 964, 976 (S.D.N.Y. 1973). 45. 419 F.2d 787 (2d Cir. 1969), cited in Energy Transfer Partners, 120 F.E.R.C. ¶ 61,086, 61,456 (2007) (order to s......
  • Deepa Nayini, the Toxic Convertible: Establishing Manipulation in the Wake of Short Sales
    • United States
    • Emory University School of Law Emory Law Journal No. 54-1, 2005
    • Invalid date
    ...Sec. 78i). 72 See id. (noting that the two activities are alternative grounds to satisfy Sec. 9(a)(2)). 73 SEC v. Resch-Cassin & Co., 362 F. Supp. 964, 978 (S.D.N.Y. 1973). Section 9(a)(2) "was aimed at preventing an individual from dominating the market in a stock for the purpose of conduc......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT