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PART II

SECURITIES EXCHANGE AOT* OF 1934

BROKER-DEALER REGISTRATION CONTROL

Where power exists to direct management and policies of corporation, held "control" within meaning of Section 2 (11) of the Act exists even though persons who possess that power do not own majority of company's voting stock ... Page 1111. GROUNDS FOR REVOCATION, SUSPENSION, AND DENIAL Convictions for Crimes Involving Purchase or Sale of Securities

Where president of registrant was convicted of larceny as a result of conduct arising out of the business of broker and dealer in securities, and where registrant failed to inform the Commission of the conviction, held grounds for revocation of registration . . . Page 13. Failure to Report Prosecution by State Court for Misdemeanor Arising out of

Purchase or Sale of Securities Where a dealer was prosecuted on charge of selling securities in state without a license and pleaded guilty to the charge held failure to report prosecution constituted grounds for revocation of registration ... Page 336. Failure to Report Revocation of License by State Securities Commission

Where a broker-dealer has failed to inform the Commission of the cancelation of his license to sell securities by a state body, held that his registration should be revoked . . . Page 384. Failure to Report Suspension from Membership on an Exchange

Where dealer failed to report suspension from membership on an exchange for nonpayment of dues, held grounds for revocation of registration . . . Page 325. Violation of Securities Act or Securities Exchange Act

Where broker-dealer represented that corporation would deposit specified amount of proceeds from each sale in special account to be used "exclusively" for drilling and equipping wells, when he knew that this money was being diseipated for other purposes, held a willful misrepresentation ... Page 97.

Willful violation of Section 5 (a) of the Securities Act of 1933 in the sale of fractional undivided interests in oil, gas and other mineral rights held grounds for refusal of broker-dealer registration ... Page 97.

Where dealer charges his customers a price which bears no relation to the prevailing market price, held the inherent misrepresentation as to the value of the security is a fraud on the purchaser, and revocation of such dealer's registration is in the public interest ... Page 386.

*The term "Act" as used in Part II of this Digest refers to the Securities Exchange Act of 1534, amended.

6 S. E. C.

BROKER DEALER REGISTRATION-Continued

Where applicant gained the confidence of various customers by acting as their broker, and then without their knowledge, sold them securities from its own account at a profit far in excess of its ordinary commission and at a price greatly in excess of the market value thereof, held application for registration should be denied ... Page 391.

Where applicant pledged the securities of its customers for its own indebtedness and while it was admittedly insolvent, without the customers' knowledge or consent, held application for registration should be denied . . . Page 391.

Willful violation of Section 5 (b) of the Securities Act of 1933 held grounds for revocation of a broker-dealer registration . . . Page 631.

Where broker-dealer purchased securities from group in control of issuer, for resale to the public, held he became an underwriter, and securities should have been registered before resale to public . , . Page 1111. MISREPRESENTATION AND FRAUD

Where broker-dealer made representation that dividends would be forthcoming on issuer's stock at definite dates, whereas issuer would not start business unless and until $10,000 had been raised, held willful misrepresentation of a material fact . .. Page 631.

Where broker-dealer made representation that purchasers could withdraw their money at any time, but prospectus provided for return of only 80 percent of amount invested and such return was contingent upon issuer's failure to raise $40,000 within 6 months, held willful misrepresentation of a material fact ... Page 631.

Where broker-dealer represented that the amounts received for issuer's stock would become capital assets of issuer, whereas he was withholding large amounts for his business and personal use, held scheme operated as a fraud on purchasers ... Page 631.

Where broker-dealer represented that securities were being sold "at the market" without disclosing that the supply on the market was being artificially restrained by “stand-off” agreements, held violation of fraud provision of Securities Act of 1933 . . . Page 1111. REVOCATION PROCEEDINGS Lack of Personal Service

Where notice of a hearing to be held in a broker-dealer suspension proceeding was sent by registered mail and returned unopened, and where further notice was then given by publication in the Federal Register, and where it appeared that the registrant had willfully failed to report his change of address, held pending final determination on revocation, it is necessary and appropriate in the public interest and for the protection of investors that the dealer's right to use the mails and instruments of interstate commerce in securities transactions be suspended ... Pages 325, 327. WILLFULLNESS

Where applicant was advised by counsel for the Commission that in their opinion the interests applicant was offering were securities within meaning of Act, and where steps were thereafter taken to bring issue within terms of exemption from registration but before complying with provisions of exemption applicant sold the securities to the public, held sale in violation of Act was willful ... Page 97.

BROKER-DEALER REGISTRATION-Continued

Where materially false statements are made, with knowledge of their falsity, held willful violation even though the factors rendering the statements false are beyond the control of the party making the statements . . . Page 97.

Where activities in contravention of statutory provisions were allegedly undertaken on advice of counsel that they were legal, held registrant will be construed to have “willfully” violated Act but reliance on advice of counsel will be considered as mitigating factor in determining whether revocation is in public interest ... Page 1111.

PRACTICE AND PROCEDURE

Nonenforcement of an administrative rule or regulation does not deprive it of force and effect. Inaction of an administrative agency does not spell approval of any matter it fails specifically to reject . . . Page 268. MOTION FOR BILL OF PARTICULARS

Where Commission ordered proceedings to determine whether certain of registrant's representations were false and constituted grounds for revocation, registrant's motion requesting information as to whether representations were oral or written denied because either type of representation comes within purview of statute and nature of charge is the same . . . Page 152.

Where Commission ordered proceedings to determine whether certain of registrant's representations were false and constituted grounds for revocation, registrant's motion requesting names of party or parties making representations denied on ground that representations with which respondent is charged are clearly alleged . . . Page 152.

Where Commission ordered proceedings to determine whether certain of registrant's representations were false and constituted grounds for revocation, registrant's motion requesting persons to whom representations were made and dates thereof granted as to approximate dates, with addition of information regarding place at which each representation was made, denied as to actual names of persons to whom representations were made . . . Page 152.

PUBLIC INTEREST

A failure to satisfy accounting requirements under the Act does not necessitate suspension or withdrawal of the registration of securities on a national securities exchange unless it is necessary or appropriate for the protection of investors ... Page 268.

SCOPE OF COMMISSION'S POWER

Section 13 (b) of the Act does not prevent the Commission from examining reports filed by carriers to determine the substantive truth of their contents or whether they satisfy the Interstate Commerce Commission requirements; nor does it prevent the Commission from finding such reports deficient where, on conceded facts, they fail to comply with unambiguous provisions of the Interstate Commerce Commission classification of accounts . . . Page 268.

6 S.E.C.

UNLISTED TRADING PRIVILEGES

ADEQUACY OF DISTRIBUTION AND TRADING ACTIVITY WITHIN APPLI

CANT'S VICINITY Applicant held to have established sufficient public distribution and public trading activity within its vicinity (as previously determined) in securities for which unlisted trading privileges were sought to render the extension of such privileges thereto in the public interest and for the protection of investors . .. Pages 296, 310, 901.

Where securities for which unlisted trading privileges are sought are local issues held lower standards of trading activity may be consistent with the public interest, particularly if there is substantial local distribution . . . Page 296. ADEQUACY OF REPORTS FILED UNDER SECURITIES ACT OF 1933 TO SATISFY

SECTION 12 (f) (3) OF THE SECURITIES EXCHANGE ACT OF 1994 The registration of bonds under the Securities Act of 1933, apled with the "undertaking" required by Section 15 (d) of the Securities Exchange Act of 1934 will normally insure that information will be supplied substantially equivalent to that available for similar bonds duly listed and registered on a national securities exchange . . . Page 901. ADEQUACY OF TRADING PROCEDURE TO ESTABLISH EXCHANGE AS AN

INDEPENDENT SECONDARY MARKET The operating mechanics of an exchange held to establish that it maintains an independent secondary market ... Page 661.

METHOD OF DETERMINING DISTRIBUTION

Where a security is traded on both the San Francisco and Los Angeles Exchanges held that only 50 percent of the figures for distribution of such securities within the State of California will be held to be within the vicinity of the applicant exchange ... Page 310.

Where exchange asserts that cost to issuer or its transfer agent of obtaining statistical information relative to public distribution would be so high as to make it impractical, held the Commission may accept the number of shares registered in "street names" and credited to accounts carried by or for the exchange members since shares held in vicinity may be proved to be substantially in excess of this "floating supply" ... Page 310. SUFFICIENCY OF PROOF OF PUBLIC DISTRIBUTION

Requirement of a "sufficiently widespread distribution" cannot be satisfied by a mere showing of trading activity ... Page 661.

Policy of Commission to deny applications for unlisted trading privileges to bond issues whose outstanding amount was less than $10,000,000 held not to apply where distribution of such an issue was concentrated within vicinity of applicant exchange . . . Page 901. SUFFICIENCY OF PROOF OF TRADING ACTIVITY

The standards of sufficiency for local trading activity may be relaxed in situations where the subject security is issued by a local corporation, particularly where a substantial local distribution therein has been established . . . Page 661.

68. E. C.

UNLISTED TRADING PRIVILEGES—Continued

Page

Where no public record of trading activity in subject security exists, but where proceeds of distribution of subject security were used to redeem an issue of substantially similar securities, held Commission may consider record of trading in such predecessor securities which were admitted to unlisted trading privileges on applicant exchange . . . Page 901. VICINITY OF EXCHANGE Definition of Vicinity of Various Exchanges Cincinnati Stock Exchange...

661 Cleveland Stock Exchange.

296 Los Angeles Stock Exchange

310 New York Curb Exchange---

901 Determination of Vicinity of Exchange

In determining “vicinity", thoroughness with which area was covered by offices of members of exchange held important factor . . . Page 901.

WITHDRAWAL FROM REGISTRATION AND STRIKING FROM

LISTING

APPLICATION BY ISSUER OR EXCHANGE

Where an application under Section 12 (d) of the Act to strike securities from listing and registration is made by an issuer in accordance with the rules of the exchanges upon which it is listed and the Commission's regulations, and where its motives were not attacked, held, the Commission cannot refuse to grant the application and is limited to consideration of imposition of terms and conditions for the protection of investors ... Page 329.

Where an application under Section 12 (d) of the Act to strike securities from listing and registration is made by an exchange in accordance with its rules and the Commission's regulations, held, the Commission cannot refuse to grant the application and is limited to a consideration of the imposition of terms and conditions for the protection of investors . . . Pages 344, 636, 1059.

Where exchange seeks to block withdrawal of listing by an issuer on the ground that an alleged "settled practice” has not been met held where alleged "settled practice” was “adopted” by the committee on stock list less than 2 years previously, and has never before been raised as bar to withdrawal, it is not a "settled practice having the force of a rule" . .. Page 995.

Where exchange seeks to block withdrawal of listing by an issuer on the ground that its "rules” have not been complied with, held where governing committee of exchange alone has power to adopt rules and regulations, alleged "settled practice” of stock committee governing delisting does not have the force of a rule ... Page 995.

Where issuer applies for withdrawal from registration and listing on a national securities exchange, it is incumbent upon it to furnish information as to the purposes that prompted it to apply for delisting so that the Commission may determine what terms are required for the protection of investors ... Page 995.

68. E. C.

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