Securities and Exchange Commission v. RA Holman & Co.

• Decision Date: 21 September 1966
• Docket Number: Docket 30039.,No. 418,418
• Citation: 366 F.2d 456
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. R. A. HOLMAN & CO., Inc., Richard A. Holman and Irving Bienenstock a/k/a Irving Burns, Defendants-Appellants, and Ben F. Harburger and Henry N. Budoff, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

366 F.2d 456 (1966)

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. R. A. HOLMAN & CO., Inc., Richard A. Holman and Irving Bienenstock a/k/a Irving Burns, Defendants-Appellants, and Ben F. Harburger and Henry N. Budoff, Defendants.

No. 418, Docket 30039.

United States Court of Appeals Second Circuit.

Argued June 21, 1966.

Decided September 21, 1966.

Sidney P. Howell, Jr., New York City (Marie V. Driscoll, Richard A. Holman, and Rogers, Hoge & Hills, New York City, with him on the brief), for appellants.

David Ferber, Solicitor, Securities and Exchange Commission, Washington, D. C. (Philip A. Loomis, General Counsel, and Martin D. Newman, Attorneys, Securities and Exchange Commission, Washington, D. C., with him on the brief), for appellee.

Before WATERMAN, MOORE and KAUFMAN, Circuit Judges.

MOORE, Circuit Judge:

The case at bar was commenced on March 15, 1963, by the filing in the District Court for the Southern District of New York of a complaint by the Securities and Exchange Commission (SEC), charging that R. A. Holman & Co., Inc., a New York securities firm; Richard A. Holman, its president; and three salesmen of the firm, Irving Bienenstock (also known as Irving Burns), Ben F. Harburger, and Henry Nathan Budoff; had violated § 17(a) of the Securities Act of 1933 15 U.S.C. § 77q (a) and § 15(c) (1) of the Securities Exchange Act of 1934 15 U.S.C. § 78o (c) (1), in connection with the offer and sale to the public of stock in Pearson Corporation during the preceding six months. The relief requested was an injunction against further violations. After trial without a jury, the trial judge adopted as his own the findings of fact, conclusions of law, and judgment proposed by the SEC, and entered a permanent injunction against each of the defendants except Budoff, who had consented to the entry of a separate permanent injunction against him before trial. From this judgment R. A. Holman & Co., Holman, and Bienenstock appeal.

The basic question on appeal is the sufficiency of the evidence before the trial court that appellants had violated the cited statutory provisions, which proscribe, in connection with the purchase, offer, or sale of any securities which involves the use of the mails or of any instrumentality of interstate commerce, the employment of any fraudulent or deceptive device or contrivance, and the obtaining of money or property "by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading * * *."

Appellants also challenge the verbatim adoption by the trial court of the SEC's proposed findings and conclusions. Although this practice has been criticized, e. g., Roberts v. Ross, 344 F.2d 747 (3d Cir. 1965); see United States v. El Paso Natural Gas Co., 376 U.S. 651, 656-657, 84 S.Ct. 1044, 12 L.Ed.2d 12 (1964), it is not grounds for reversal, and the findings of fact and conclusions of law thus adopted will stand if supported by the evidence. See United States v. El Paso Natural Gas Co., supra. For reasons discussed below, we conclude that the evidence before the trial court justified most, if not all, of his findings, and warranted the issuance of the injunction under appeal.

We should state at the outset that Pearson Corporation, whose stock appellants sold, was not, in contrast to the companies involved in many securities fraud cases, a "fly-by-night" company. Pearson, a Rhode Island corporation, produced and still produces an outstanding line of fiberglass boats. Its sales had grown rapidly since its organization in 1956. On January 1, 1961, the company merged with the aluminum-boat manufacturer Grumman Boats, Inc., a subsidiary of Grumman Aircraft Engineering Corp. The merger resulted in Grumman Aircraft's ownership of over 61% of the outstanding capital stock of Pearson. Around this time, Grumman Aircraft helped Pearson obtain much-needed long-term financing. Although Pearson suffered a net operating loss of $272,003 in 1961, it had shown modest profits in 1958, 1959 and 1960. A return to profitable operation was a distinct possibility.

We may also state at the outset that we are not convinced that all of the statements and omissions described by the trial court were materially misleading under the circumstances in which they were made (or not made). For example, appellants never disclosed that some of the Pearson stock they were selling had been acquired for investment and not with a view towards distribution to others. The shares in question had been obtained in 1960 through the exercise by Holman & Co. of warrants it had been given in connection with a 1959 offering of Pearson stock under Regulation A. See R. A. Holman & Co. v. SEC, 2 Cir., 366 F.2d 446, decided this day. At the time Holman & Co. exercised the warrants, it furnished a certificate that it was acquiring the shares for investment and not with a view to resale. The SEC maintains, and the trial court held, that appellants should have told their customers not only that Holman & Co. was acting as "principal" in selling Pearson stock — a disclosure appellants did make — but also that Holman & Co. had taken the stock for investment. The SEC maintains that a prospective purchaser might well want to know why a stock originally taken for investment was now being sold. We do not believe that this omission was materially misleading. Holman & Co. had already...