State v. Department of Commerce
| Decision Date | 05 April 1928 |
| Docket Number | No. 26194.,26194. |
| Citation | 219 N.W. 81,174 Minn. 200 |
| Parties | STATE ex rel. HARDSTONE BRICK CO. v. DEPARTMENT OF COMMERCE, SECURITIES DIVISION, STATE OF MINNESOTA, et al. |
| Court | Minnesota Supreme Court |
Frank E. Wright, of Appleton, and George T. Simpson, of Minneapolis, for appellant.
G. A. Youngquist, Atty. Gen., for respondent.
Certiorari from this court to the Department of Commerce to review its order of January 12, 1927, confirming its order of October 19, 1926, denying the application of the relator, Hardstone Brick Company, of Appleton, to register its capital stock for sale in Minnesota. The petition asked for the registration of $185,000 in stock. Later the amount was reduced to $150,000.
By G. L. 1925, c. 192, § 5, it is provided:
"The commission shall have power to deny an application for registration if the securities are fraudulent or if it appears to the commission that the sale thereof would work a fraud on purchasers thereof, or if the applicant has violated any of the provisions of this act, or any registration or lawful order of the commission, or for good cause appearing to the commission."
The commission found that the relator had sold stock prior to registration in violation of section 4 of the act, and that the sale of its stock would work a fraud on purchasers.
1. This court can make but a limited review of the determination of the department. If it keeps within its jurisdiction and its action is not arbitrary or oppressive or unreasonable or without evidence to support it, the court cannot interfere. State v. State Securities Commission, 145 Minn. 221, 176 N. W. 759; State v. State Securities Commission, 149 Minn. 101, 182 N. W. 910.
2. Section 4 of the statute forbids the sale of securities unless or until they are registered.
Prior to the incorporation of the relator, $14,000 or $15,000 of gold notes of the Volkszeitung Printing & Publishing Company, with which one C. A. Cochran, also connected with the Hardstone Company, was concerned, were sold in the vicinity of Appleton with the understanding that the proceeds would be used for the purpose of purchasing from a German company the machinery for the manufacture of the brick, and that upon the incorporation the notes would be exchanged for stock. There is evidence that in addition some stock was sold after incorporation. There was no registration. The evidence is not very definite but it is sufficient. The sale of the Volkszeitung notes to be exchanged afterwards for stock was a subterfuge and a violation of section 4. Such an evasion is not to be tolerated and the sale of the notes with an arrangement for exchange for stock is treated as a sale in violation of the statute.
3. The department was justified in finding that the sale of stock would operate as a fraud on the purchasing public. Cochran was to have various commissions for the sale of the machinery which was to be used in the manufacture of the brick. He was to have a royalty on the product. There was evidence that the machinery was to be purchased at an exorbitant price. The commission could well find that there was no particular demand for brick in the vicinity and that a brick-making plant, especially with so large a capitalization, could not be successful. The incorporators, with one exception, were retired farmers in comfortable circumstances. They knew nothing of brick making. They had no valuable experience in business. The other incorporator knew nothing of brick making and his business experience was not such as to suggest that he would be useful in the management of the business. It is not necessary that an actual fraudulent purpose be found. We do not say that the evidence would not sustain a finding of such purpose. It is for the commission to find just what a corporation purposing to float its stock has behind it. And there was nothing here promising success.
4. The relator complains of the character of evidence received.
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