Securities and Exchange Commission v. Latta
| Decision Date | 26 April 1965 |
| Docket Number | Civ. A. No. 8619. |
| Citation | 250 F. Supp. 170 |
| Court | U.S. District Court — Northern District of California |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Estelle LATTA, Defendant. |
Arthur E. Pennekamp, Regional Administrator, F. E. Kennamer, Jr., Asst. Gen. Counsel, Jack Redden, San Francisco, Cal., for S. E. C.
Jack Leavitt, George T. Davis, Howard C. Ellis, San Francisco, Cal., for defendant Estelle Latta.
1. On March 11, 1963, the Securities and Exchange Commission filed its complaint to enjoin the defendant Estelle Latta from engaging in acts and practices in violation of Section 5(a) and (c) of the Securities Act of 1933 ("Act"), 15 U.S.C. § 77e(a) and (c), in the offer and sale of the securities described below.
2. On October 11, 1963, the Commission with the consent of the defendant and the approval of the court, filed an amended complaint adding allegations that the defendant was engaging in acts and practices in violation of Section 17 (a)(2) and (3) of the Act, 15 U.S.C. § 77q(a)(2) and (3).
3. The first count of the amended complaint, which is cast under Section 5(a) and (c) of the Act, 15 U.S.C. § 77e(a) and (c), alleges that since before July, 1959, the defendant has been making use of means and instruments of transportation and communication in interstate commerce and of the mails ("jurisdictional facilities") to offer, sell and deliver securities described as "investment contracts" and "certificates of interest and participation in profit-sharing agreements" issued in connection with the sale to members of the public of percentage interests in a purported Estate of Mark Hopkins, deceased, and that such securities have been and are being offered and sold on the basis of representations that litigation to recover such estate for the benefit of investors will be conducted by and at the direction of the defendant; and that no registration statement as to such securities has been filed or is in effect with the Commission.
and other similar affirmative misrepresentations.
5. The second count also alleges that in making the untrue and deceptive statements set forth above the defendant has omitted and is omitting to disclose that the defendant, acting on her own behalf and on behalf of other alleged heirs of Mark Hopkins, was a plaintiff in an action in the United States District Court for the Northern District of California, Northern Division, which was brought to invalidate the 1883 distribution of the Estate of Mark Hopkins; that the case was dismissed by the district court; that an appeal was taken in the United States Court of Appeals for the Ninth Circuit which, in 1949, in affirming the judgment of the district court, specifically held that the 1883 decree of distribution was valid, that the entire estate had been legally distributed, and that the claims asserted were barred by the statute of limitations and by laches.
6. The third count of the amended complaint, which is cast under Section 17(a)(2) of the Act, 15 U.S.C. § 77q(a) (2), alleges that since before July, 1959, the defendant has been making use of jurisdictional facilities in the offer and sale of the securities to obtain money and property by means of the untrue statements and omissions of material facts specified in the second count.
7. The demands for injunctive relief set forth in the amended complaint follow the language of the several counts and are designed to enjoin and restrain the defendant from engaging in the acts and practices described above.
8. The answer to the amended complaint, except for an admission that the defendant is a resident of Sacramento, California, consists of an unverified general denial.
1. On March 11, 1963, the day the original complaint was filed, this court entered an order temporarily restraining the defendant from violating Section 5 (a) and (c) of the Act, 15 U.S.C. § 77e (a) and (c) (the registration provisions). The temporary restraining order was continued in effect, with the consent of the defendant, until April 16, 1963, when it was superseded by a preliminary injunction which was also entered with the consent of the defendant.
2. On July 6, 1964, the Commission filed a motion for summary judgment, or in the alternative for an order narrowing the issues. The Commission's motion was accompanied by extensive affidavits and a deposition of the defendant.
3. Subsequently, on October 19, 1964, the defendant filed a motion for summary judgment. The defendant's motion was not accompanied by any affidavits countervailing those filed by the Commission.1
FINDINGS OF FACT
1. The fortune left by Mark Hopkins who died about eighty-five years ago was distributed some eighty years ago in accordance with a decree of distribution entered in 1883.
2. The defendant Estelle Latta claims to be a "double blood heir" of Mark Hopkins. She is the author of a book entitled Controversial Mark Hopkins, and regularly contributes a column headed "Mark Hopkins" in The Public Appeal, a publication issued weekly in Durham, North Carolina. This column frequently includes references to the defendant's efforts through the years to recover the Mark Hopkins Estate for the "rightful heirs".
3. For many years the defendant has been engaged in securing powers of attorney from the purported heirs of Mark Hopkins authorizing her to act as attorney-in-fact on their behalf in attempting to recover and arrange for the redistribution of the Mark Hopkins Estate.2
4. Also, for many years, the defendant has been engaged in offering and selling to alleged heirs of Mark Hopkins and their descendants, as well as to other individuals, instruments entitled "Contract in Event of Recovery", a specimen of which is set forth below:
CONTRACT
"In Event of Recovery"
For and in consideration of One Hundred Dollars ($100.00) to me in hand paid—the receipt for same is hereby acknowledged. I hereby assign and set over to
(NAME) Mr. Albert Sheppard (ADDRESS) 177 La Grange St Newnan, Georgia
a sum equal to One Per Cent of one-fifth (1/5) of one-sixth (1/6) of one-seventh (1/7) interest in the estate of Mark Hopkins and Moses Hopkins deceased.
The said assignment is given to the said (NAME) Mr. Albert Sheppard with no revocation what-so-ever to have and to hold as his and/or hers until the final distribution of the said estates.
It is further understood and agreed that the distribution is to be made as fast as the property is collected in by the administrator of said estates.
DATED IN Newnan, Georgia THIS 27th DAY OF December, 1963 (SEAL) Estelle Latta WITNESSES Mrs. L. C. Moore WITNESSES L. C. Moore
5. Many of these instruments (hereinafter referred to as "contracts") have been sold to members of the public. The contracts have been offered and sold not only to members of the constantly expanding group of alleged heirs of Mark Hopkins, but also to individuals connected by blood, marriage or mere friendship with the families of such heirs.
6. Each of the contracts which purports to assign a sum equal to 1 per cent of 1/5 of 1/6 of 1/7 "in the estate of Mark Hopkins and Moses Hopkins deceased" represents an undivided 1/21,000 distributive share. Thus, if sufficient contracts were sold at $100 per unit to dispose of distributive shares in 100 per cent of the alleged estate, the defendant would realize a total of $2,100,000.3
7. The defendant admits that she has never disclosed to investors whether she intended to use the money realized from the sale of the contracts for her own benefit, or to conduct litigation to recover the Mark Hopkins Estate, or whether she intended to disburse the money in some other way, because that is "none of their business".
1. The contracts which purport to assign undivided 1/21,000ths distributive shares in the Estate of Mark Hopkins "in event of recovery" are "investment contracts" and "certificates of interest and participation" and therefore securities within the meaning of Section 2(11) of the Act, 15 U.S.C. § 77b(11). The value, if any, of the contracts rests upon the ability of the defendant, as the promoter of this litigious enterprise, to establish in the courts the claims of the alleged heirs of Mark Hopkins and the contract claimants and to secure an accounting and redistribution of the estate. Unless the defendant is successful in that undertaking the contracts will remain scraps of worthless paper. This is a situation in which the economic welfare of investors is "inextricably woven" with the ability of the promoter to carry out a common enterprise for the benefit of those whose investments are solicited. Los Angeles Trust Deed & Mortgage Exchange v. S.E.C., 285 F.2d 162, 172 (C.A.9, 1960), certiorari denied 366 U.S. 919, 81 S.Ct. 1095, 6 L.Ed.2d 241; Farrell v. United States, 321 F.2d 409 (C.A. 9, 1963), certiorari denied 375 U.S. 992, 84 S.Ct. 631, 11 L.Ed.2d 478.
2. No registration statement relating to the securities issued by the defendant and sold by her to members of the public has been filed with the Securities...
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