Appendix — Securities Investor Protection Corp. v. Barbour
Supreme Court brief1975
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IN THE |
'
Supreme Court of the United States
OCTOBER TERM, 1974
No. 73-2055
Securities Investor Protection Corporation,
Petitioner,
v.
JaMes C. Barsour, as Recetver ror Guaranty Bonp anp
Securities CorPoRATION AND GuarANTy Bonp Company, INc.,
Respondent,
and
SECURITIES AND ExcHaANGE CoMMISSION,
Respondent.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
APPENDIX
PETITION FOR CERTIORARI—FILED JULY 20, 1974
CERTIORARI GRANTED—-OCTOBER 21, 1974
List of Relevant Docket Entries .0..0000000000000000000c
Complaint of the Securities and Exchange Commis-
sion, Filed December 22, 1970 ;
Application for Appointment of Receiver, Filed Janu-
ary 21, 1971 cicenlbscteies
Receiver’s Petition No. 22 for an Order to Show
Cause, Filed Mareh 31, 1972 .
Order No. 49 Requiring SEC and SIPC to Show
Cause, Entered April 6, 1972
Answer to Petition No, 22 of Respondent Securities
Investor Protection Corporation, Filed May 17,
1972 sis
Response of Securities and Exchange Commission to
Receiver’s Petition No. 22, Filed May 17, 1972 ........
Memorandum No. 54, Entered January 10, 1978 ........
Order No. 55, Entered February 8, 1973
Opinion of Court of Appeals, Filed April 23, 1974 ....
Judgment of Court of Appeals, Filed April 23, 1974 ....
Order of the Supreme Court, Filed October 21, 1974 ....
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LIST OF RELEVANT DOCKET ENTRIES
December 22, 1970
January 6, 1971
January 21, 1971
January 29, 1971
February 9, 1971
March 31, 1972
April 6, 1972
April 19, 1972
May 17, 1972
May 17, 1972
June 7, 1972
January 10, 1973
February 6, 1973
February 8, 1973
February 9, 1973
April 23, 1974
July 20, 1974
October 21, 1974
—Filed complaint of Securities and Exchange Commission.
—Filed Findings of Fact and Conclusions of Law—Mor-
ton, J.
—Filed application by Securities and Exchange Commission
for appointment of receiver.
--:ntered agreed order appointing receiver, Morton, J.
I:ntered memorandum of court re appointment of receiver,
Morton, J.
—Filed receiver’s petition no. 22 for a show cause order.
—Entered order no. 49 that Securities and Exchange Com-
mission and Securities Investor Protection Corporation
show cause why Securities Investor Protection Act not
available.
-—FEntered order no. 50 adjourning return date on show
cause order.
~-Filed answer of Securities Investor Protection Corpora-
tion (exhibits).
Filed response of Securities and Exchange Commission
(exhibits).
Before Morton, J., hearing on order to show cause.
— Entered memorandum no. 54 dismissing Securities Inves-
tor Protection Corporation as a party—Morton, J.
—Filed receiver’s motion to amend memorandum mo. 54.
— Entered order no. 55 stating that memorandum no. 54
constituted the entry of a final judgment as to Securities
Investor Protection Corporation.
—Filed notice of appeal by receiver.
—-Filed opinion and judgment of the Court of Appeals
reversing the District Court’s order as to Securities Inves-
tor Protection Corporation.
~-Filed petition for writ of certiorari by Securities Investor
Protection Corporation with the Supreme Court of the
United States.
—Filed order of Supreme Court granting petition for writ
of certiorari.
SEC Complaint
IN THE
United States Bistrict Court
For tHe Mippie District or TENNESSEE
NASHVILLE Drvtston
Civil Action No. 5989
nn
SecuRITIFS AND EXCHANGE COMMISSION
vs,
GvuaRANTY Bonp anp Securities CorPoRATION, et al.
—_—_—_——eell- ieee
(Filed December 22, 1970)
1. It appears to the plaintiff that the defendants are en-
gaged and are about to engage in acts and practices which
constitute and will constitute violations of Sections 10(b),
15(b) (10), 15(e)(1), 15(¢)(3) and 17(a) of the Securities
Exchange Act of 1934 (Exchange Act) [15 U.S.C. 780(b),
780(b) (10), 780(e) (1), 780(c)(3) and 78q(a)], Sections 17
(a)(2) and 17(a)(3) of the Securities Act of 1933 (Seeu-
rities Act) [15 U.S.C. 77q(a) (2) and 77q(a)(3)] and Rules
10b-5, 15b10-5, 15¢1-2, 151-4, 15¢1-6, 15¢3-1 and 17a-3 [17
CFR 240.10b-5, 15b10-5, 15¢1-2, 15c1-4, 15¢1-6, 15¢3-1 and
17a-3] which rules were promulgated and prescribed by the
p!aintiff pursuant to the Exchange Act, were in effect at all
times herein alleged and are now in effect. Plaintiff, pur-
suant to Section 21(e) of the Exchange Act [15 U.S.C.
2
SEC Complaint
78u(e)] and Section 20(b) of the Securities Act [15 U.S.C.
77t(b) | brings this action to enjoin such acts and practices.
2. This Court has jurisdiction of this action under Sec-
tion 27 of the Exchange Act [15 USC 78aa) and Section
22(a) of the Securities Act [15 U.S.C. 77v(a)].
3. Defendant Guaranty Bond and Securities Corpora-
tion (hereinafter sometimes referred to as “registrant”) is a
corporation organized under the laws of Tennessee on April
16, 1962, and has its principal place of business at 2312
West End Avenue, Nashville, Tennessee. Since June 20,
1962, registrant has been and is now registered as a broker
and dealer in securities pursuant to Section 15(b) of the
Exchange Act [15 U.S.C. 780(b)]. Defendant Henry Jere-
miah Huey, Jr., hereinafter sometimes referred to as “H.
J. Huey”, is President and a director of registrant, and
resides at 132 Carnavon Parkway, Nashville, Tennessee.
Defendant Brooks Thomas Huey (hereinafter sometimes
referred to as “B. T. Huey”) is Secretary, Treasurer and
a director of registrant, and resides at 6668 Jocelyn Hollow
Road, Nashville, Tennessee. Defendant Guaranty Bond
Company, Inc. (hereinafter sometimes referred to as “par-
ent”) is a corporation organized under the laws of Ten-
nessee, has its principal place of business at 2312 West End
Avenue, Nashville, Tennessee, and owns all of the out-
standing stock of registrant. Parent is owned principally
hy a partnership composed of H. J. Huey and B. T. Huey.
Count One
4. During the period from approximately March 31,
1970, to the date hereof, registrant as a broker and dealer
in securities, aided and abetted by the other defendants,
Ble. on) eclineatlinn
3
SEC Complaint
has made and is making use of the mails and of means and
instrumentalities of interstate commerce to effect transac-
tions in and induce the purchase and sale of securities
(other than an exempted security or commercial paper,
bankers’ acceptances, or commercial bills) otherwise than
on a national securities exchange while and at times when
the net capital of registrant was and is less than $5,000 and
its aggregate indebtedness to all other persons exceeded
and exceeds two thousand (2,000) per centum of its net
capital in contravention of Section 15(c)(3) of the Ex-
change Act [15 U.S.C. 780(c)(3)] and Rule 15¢3-1 [17
CFR 240.15¢3-1].
Count Two
5. During the period from about May 1, 1969, to che date
hereof, registrant, as a securities broker and dealer regis-
tered pursuant to Section 15(b) of the Exchange Act [15
U.S.C. 780(b)], aided and abetted by the other defendants,
has failed and is failing to make and keep current books
and other records relating to its business in contravention
of Section 17(a) of the Exchange Act [15 U.S.C. 78q(a) ]
and Rule 17a-3 [17 CFR 240.17a-3], in that it did not main-
tain a position record for all securities long and short and
their locations; it did not maintain ledger accounts for cus-
tomers itemizing purchases, sales, receipts and deliveries
of securities for such accounts or correctly and accurately
reflect the condition of such accounts; its inventory of
securities was inaccurate; its income account failed to
reflect all income received; its net capital computations were
incorrect; and it did not have personnel questionnaires for
certain associated persons.
4
SEC Complaint
Count Three
6. During the period from approximately May 1, 1969,
to the date hereof, registrant, as a securities broker and
dealer, aided and abetted by the other defendants, has made
and is making use of the mails and means and instruments
of interstate commerce to effect transactions in, and to
induce the purchase and sale of, securities (other than com-
mercial paper, bankers’ acceptances, or commercial bills)
otherwise than on a national! securities exchange, by means
of manipulative, deceptive and other fraudulent devices
and contrivances, practices and courses of business as
specified in paragraphs numbered 7 and 8 hereof, in con-
travention of Section 15(¢)(1) of the Exchange Act [15
U.S.C. 780(¢)(1)] and Rules 15e1-4 [17 CFR 240.15c1-4
and 15¢c1-6 [17 CFR 240.15c1-6].
7. Registrant, aided and abetted by the other defendants,
has effected and is effecting with or for the accounts of
customers transactions in, and has induced and is inducing
the purchase and sale by customers of, securities (other
than U. S. Tax Savings Notes, U. S. Defense Savings
Stamps or U.S. Defense Savings Bonds, Series E, F and G)
without at or before the completion of each such transaction
giving or sending to such customers written notification
disclosing: (a) whether registrant was acting as a broker
for such customers, as a dealer for its own account, as a
broker for some other person, or as a broker for both such
customers and some other person; and (b) in cases where
registrant was acting as a broker for such customers or as
a broker for both such customers and some other person,
either the name of the person from whom the security was
purchased or to whom it was sold for such customer and
the date and time when such transaction took place or the
5
SEC Complaint
fact that such information would be furnished upon the
request of such customers, and the source and amount of
any commission or other remuneration received or to be
received by registrant in connection with the transaction
as provided in Rule 15el-4 [17 CFR 240.15c1-4].
8. Registrant, aided and abetted by the other defendants,
as a securities broker acting for customers and for cus-
tomers and other persons, has engaged and is engaging in
acts designed to effect with or for the accounts of such
customers, transactions in and purchases and sales by such
customers of securities in the primary or secondary dis-
tributions of which registrant was and is participating and
was and is financially interested without, at or before the
completion of each such transaction, giving or sending to
such customers written notification of the existence of such
participation or interest as prescribed in Rule 15e1-6
[17 CFR 15cel1-6].
Count Four
9. During the period from approximately May 1, 1969,
to the date hereof, registrant, as a securities broker and
dealer not a member of a national securities association,
aided and abetted by the other defendants, has effected
and is effecting securities transactions in contravention of
Section 15(b)(10) of the Exchange Act [15 U.S.C. 780(b)
(10)] and Rule 15b10-5 [17 CFR 240.15b10-5], in that
registrant exercised and is exercising discretionary power
or authority for customers without such customers having
given their prior written authorization to exercise sneh
power or authority to a stated associated person or persons,
and having indicated their reasons for giving such authori-
zations.
6
SEC Complaint
Count Five
10. During the period from approximately May 1, 1966,
to the date hereof, registrant has been and is a securities
broker and dealer engaged in the business of effecting
transactions for the accounts of others and for its own ac-
count and, as such, aided and abetted by the other defend-
ants, has made and is making use of the mails and of means
an instrumentalities of interstate commerce to effect
transactions in, and to induce the purchase and sale of,
securities (other than commercial paper, bankers’ accep-
tances, or commercial bills) otherwise than on a national
securities exchange, by means of manipulative, deceptive
and other fraudulent devices and contrivances, including
the acts, practices and courses of business specified in
paragraphs numbered 6 through 14 hereof, in contraven-
tion of Section 15(¢)(1) of the Exehange Act [15 U.S.C.
780(¢c)(1)] and Rule 15c1-2 [17 CFR 240.15e1-2].
11. Defendants solicited and are soliciting churches and
other religious institutions to employ registrant as under-
writer for the public offering of their bonds under a pro-
gram in which registrant guaranteed and guarantees the
sale of all the bonds on the representation that registrant
was and is able to make such firm commitments for the
purchase and/or sale of such securities, was and is able to
meet all obligations and liabilities arising in connection
therewith and was and is operating within the jurisdiction
of the federal and state authorties charged with regulating
the securities industry, when in fact registrant was and
is unable to meet the net capital requirements of Section
15(¢)(3) of the Exchange Act [15 U.S.C. 780(e)(3)] and
Rule 15¢3-1 [17 CFR 240.15¢3-1], registrant’s repert on
Form 17A-5 as of March 31, 1970, filed with the Commis-
7
SEC Complaint
sion, was misleading in that it failed to accurately reflect
registrant’s assets and liabilities and indicated that reg-
istrant had sufficient net capital to meet the requirements
of said Rule, registrant omitted and is omitting to disclose
to, and concealed and is concealing from, issuers for which
it acted and is acting as tnderwriter its financial condition
and its inability to meet the financial responsibility require-
ments of Rule 15¢e3-1 [17 CFR 240.15c3-1] and its failure
to comply with applicable federal laws and regulations
relating to the securities industry as alleged in paragraphs
numbered 4 through 16 hereof.
12. Defendants have induced and are inducing churches
and other religious institutions (hereinafter sometimes re-
ferred to as “horrowers”) to execute underwriting agree-
ments of Rule 15¢3-1 [17 CFR 240.15¢3-1] and its failure
their bonds and custodian of funds received from sales
thereof and which contain a provision that registrant may
invest such funds in religious institutional bonds for such
borrowers, as necessary, liquidate such investments, make
disbursements and deliver funds for payment of such bor-
rowers’ obligations incurred in their construction and other
programs, and return to such borrowers 5% simple interest
earned on such funds. On the basis of this general au-
thority defendants have exercised and are exercising dis-
eretionary authority over funds received from sales of
bonds issued by such borrowers and over such borrowers’
accounts with registrant, effecting transactions therewith
and therein, including sales to such borrowers of bonds
issued by other churches and religious institutions having
maturities of from one to fourteen years, without sending
to such borrowers confirmations advising them of the secu-
rities sold to them and placed in their accounts, the date
8
SEC Complaumt
and amount of each such transaction and the source and
amount of commission and other remuneration received or
to be received by defendants in connection with each such
transaction. Registrant has credited and is crediting to the
accounts of such borrowers only 5% simple interest on the
amounts invested for such borrowers in the bonds of other
churches and religious institutions even though the inter-
est rates on the bonds placed in such borrowers’ accounts
have been and are considerably greater and defendants
have retained and treated and are retaining and treating
as income to registrant the interest differential between the
oye vate paid to such borrowers and the substantially
higher vields on the bonds placed in their accounts, thus
obtaining secret profits from such borrowers while acting
in the capacity of their agent, custodian and fiduciary.
Registrant has been and is, in some instances, investing
funds held as custodian for a particular religious institution
in such institution’s own bonds with the result that the
institution pays interest on such bonds at a rate in excess
of 5% per annum but receives a credit to its account with
registrant of only 5% per annum, registrant retaining the
interest differential as a secret profit.
15. During the period from about May 1, 1966, to the
date hereof, registrant, as a securities broker and dealer,
aided and abetted by the other defendants, solicited and is
soliciting churches and other religious institutions to em-
ploy registrant as underwriter of their bonds and has solic-
ited and is soliciting investors to purchase such bonds, on
the representations that the sale of all bonds so under-
written by registrant is guaranteed by it and that regis-
trant will purchase or sell any bonds remaining after the
church has put forth its best effort, without disclosing that
registrant had placed and is placing a substantial portion
9
SEC Complaint
of such bonds in the accounts of other churches and re-
ligious institutional issuers for which it was and is acting
as underwriter and for which it is holding funds as cus-
todian by recording buy and sell transactions in securities
on registrant’s books between various of such religious
institutions; that availability of funds for a particular
issuer’s construction or other program could be dependent
upon registrant’s ability to dispose of secarities in which
such funds were thus invested; that there is no independ-
ent market for such securities; and that issuers whose
funds are invested by registrant in securities of other
institutions may bear the risk of loss resulting from default
or failure of an issuer of a security in which their funds
are invested.
14. During the period from about May 1, 1966, to the
date hereof, registrant, as a securities broker and dealer,
aided and abetted by the other defendants, offered and is
offering to sell and sold and is selling religious institutional
bonds through the use of prospectuses prepared by regis-
trant which are materially false and misleading in that
each contained the representation that the proceeds from
the sales of the religious institutional bonds described
therein shall be disbursed by registrant in accordance with
the purposes of the bond issue as set out in the particular
prospectus—i.e. for such expenditures as consolidati n and
retirement of existing indebtedness, purchase of land for
new buildings, and construction, expansion and remodeling
of churches, sanctuaries, educational buildings and other
facilities—without disclosing: That such proceeds would be
turned over to registrant as custodian; that registrant in
its diseretion would invest them in other religious institu-
tion bonds having extended maturites of from one to four-
teen years; the amounts of such proceeds to be paid to
10
SEC Complaint
registrant and the other defendants as fees, commissions
and other remunerations; and the use by registrant of such
proceeds in completing other underwritings in which it and
the other defendants would receive substantial fees, com-
missions and other remunerations.
Count Six
15. During the period from about May 1, 1966, to the
date hereof, registrant, as a securities broker and dealer.
aided and abetted by the other defendants, by use of means
and instrumentalities of interstate commerce and of the
mails, direetly and indirectly, used and employed and is
using and employing manipulative and deceptive devices
and contrivances in contravention of Section 10(b) of the
Exchange Act [15 U.S.C. 78j(b)] and Rule 10b-5 [17 CFR
240.10b-5], in that registrant was and is:
(a) Engaging in acts, practices and courses of busi-
ness which operated and would operate as a fraud
and deceit upon customers of registrant as
described more particularly in paragraphs 11
through 14 of Count Five hereof! :
(b) Making untrue statements of material facts,
namely, the statements set forth in paragraphs 11
through 14 of Count Five hereof; and
(¢) Omitting to state the facts specified in paragraphs
1] through 14 of Count Five hereof relating to
registrant’s financial condition, its lack of suffi-
cient capital to meet the requirements of the fed-
eral laws and rules relating to financial responsi-
bilities of securities brokers and dealers, its mode
of operations, its secret profits from transactions
in discretionary accounts, and details of transac-
owed & Ge sees oe
11
SEC Complaint
tions in which funds and securities were trans-
ferred between accounts of customers on the books
of registrant, which facts were material in order
to make the statement made, in the light of the
cireumstances under which they were made, not
misleading.
Count Seven
16. During the period from about May 1, 1966, to the
date hereof, in contravention of Sections 17(a)(2) and 17
(a)(3) of the Securities Act of 1933 [15 U.S.C. 77q(a) (2)
and (3)], registrant, as a securities broker and dealer,
aided and abetted by the other defendants, in offers and
sales of securities by use of means and instruments of
transportation and communication in interstate commerce
and by use of the mails, directly and indirectly:
(a) Obtained money and property by means of the
untrue statements of material facts as set forth in
paragraphs 11 through 14 of Count Five hereof ;
(b) Obtained money and property by means of the
omissions to state material facts as set forth in
paragraphs 11 through 14 of Count Five hereof,
which facts were necessary in order to make the
statements made, in the light of the circumstances
under whic! they were made, not misleading; and
(c) Engaged in the transactions, practices and courses
of business described in paragraphs 11 through 14
of Count Five hereof, which operated and would
operate as a fraud and deceit upon the purchasers
of such securities.
12
SEC Complaint
17. Defendants will unless restrained and enjoined con-
tinue to engage in the acts and practices set forth in this
complaint.
Wherefore, the plaintiff demands:
A. A preliminary injunction and a final judgment
enjoining defendant Guaranty Bond and Securities Corpo-
ration, its officers, agents, servants, employees and attor-
neys, and each of them, from, and defendants Henry
Jeremiah Huey, Jr., Brooks Thomas Huey and Guaranty
Bond Co., Ine., their officers, agents, servants, employees
and attorneys, and each of them, from aiding and abetting
defendant Guaranty Bond and Securities Corporation in:
(!) Making use of the mails or any means or instru-
mentality of interstate commerce to effect trans-
actions in or to induce the purchase or sale of
securities (other than an exempted security, or
cominereial paper, bankers’ acceptances or ‘com-
mercial hills) otherwise than on a national seeuri.
ties exchange, while and at a time when the net
capital of registrant is less than $5,000 and its
aggregate indebtedness to all other persons exceeds
two thousand (2,000) per centum of its net capital
in contravention of Seetion 15(¢)(3) of the
Exchange Act [15 U.S.C. 780(e)(3)] and Rule
15¢3-1 [17CFR 240.15¢3-1] thereunder.
(2) Failing to make and keep current books and rec-
ords of registrant relating to its business as a
securities broker and dealer registered pursuant to
Section 15 of the Exchange Act [15 U.S.C. 780] in
contravention of Section 17(a) of the Exchange
Act [15 U.S.C. 78q(a)] and Rule 17a-3 [17 CFR
240.17a-3] thereunder,
ee ee
ee ee ee eS eee
13
SEC Complaint
(3) Making use of the mails and means and instru-
mentalities of interstate commerce to effect trans-
actions in, and to induce the purchase and sale of,
securities (other than commercial paper, bankers’
acceptances, or commercial bills) otherwise than
on a national securities exchange by:
(a) Effecting with or for the accounts of custom.
ers transactions in and inducing the purchase
or sale by customers of securities (other than
U.S. Treasury Savings Notes, U.S. Defense
Savings Stamps or U.S. Defense Savings
Bonds, Series f, F and G), without registrant
at or before the completion of each such trans-
action giving or sending to the customer a
written notification disclosing the information
prescribed in Rule l5e1-4 [17 CFR 240.15e1-4]
in contravention of Section 15(¢c)(1) of the
Exchange Act [15 U.S.C. 780(e)(1) 1];
(b) Engaging in acts designed to effect with or
for the accounts of customers for whom regis-
trant is acting, any transaction in, or purchase
or sale of, a security in the primary or second-
ary distribution of which registrant is partici-
pating, or is otherwise financially interested,
without registrant at or before the completion
of each such transaction giving or sending to
the customer written notification of the exist-
ence of such participation or interest as pre-
scribed in Rule 15¢e1-6 [17 CFR 15c1-6] in
contravention of Section 15(c)(1) of the
Exchange Act [15 U.S.C. 780(e)(1)].
(+)
(>)
14
SEC Complaint
Effecting transactions in, or inducing the purchase
or sale of, any security (otherwise than on a
national securities exchange) in which registrant,
while a nonmember broker or dealer, shall exereise
any discretionary power or authority for any cus-
tomer unless such customer has given prior written
authorization to exercise such power and authority
to a stated associated person or persons. and has
indicated the reasons for such authorization as pro-
vided in Rule 15b10-5 [17 CFR 15b10-5] in con-
travention of Section 15(b)(10) of the Exchange
Act [15 U.S.C. 780(b) (10) }.
Making use of the mails or of any means or instru-
mentalities of interstate commerce while registrant
is a securities broker or dealer engaged in the
business of effecting transactions in securities for
the accounts of others or for its own account, to
effect any transaction in, or to induce the purchase
or sale of, any security (other than commercial
paper, bankers’ acceptances, or commercial bills)
otherwise than on a national securities exchange,
by means of any manipulative, deceptive or other
fraudulent device or contrivance in contravention
of Section 15(¢)(1) of the Exchange Act [15 U.S.C.
78o0(e)(6)) and Rule 15e1-2 [17 CFR 240.15e1-2]
thereunder, including
(a) Any act, practice or course of business which
operates or would operate as a fraud or deceit
upon any person in connection with:
(i) the solicitation or acceptance of under-
writing agreements for the purchase
and/or sale of securities while registrant
id ieee tes 2 eT te
(b)
(ii)
(iii)
(i)
(ii)
15
SEC Complaint
is unable to meet the requirements of the
net capital rule, Rule 15¢3-1 [17 CFR
240.15¢3-1] ;
the exercise of discretionary authority
over the accounts of customers for the
purchase and/or sale of securities;
the use of monies paid by customers for
the purchase of securities or the use of
funds received as proceeds from the sale
of securities by issuers;
(iv) registrant’s use of funds held as custo-
dian from sales of securities for which it
is acting as underwriter.
Any untrue statement of a material fact or
omission to state a material fact necessary in
order to make the statements made, in the
light of the circumstances under which they
are made, not misleading concerning:
the financial condition of registrant;
registrant’s compliance with the require-
ments of federal and state laws and rules
applicable to the securities industry;
(iii) service charges, fees, commissions and
interest differentials received by regis-
trant and its parent;
(iv) the use of monies paid by customers for
the purchase of securities;
(v) investments of monies received from or
through the sale of securities; or
16
SEC Complaint
(vi) benefits to registrant and/or its parent
from the exercise of discretionary author-
itv over the accounts of customers.
(§) Directly or indirectly, by use of any means or
any instrumentality of interstate commerce or of
the mails, to use or employ, in connection with
the purchase or sale of any security, any manipu-
lative or deceptive device or contrivance in contra-
vention of Section 10(b) of the Exchange <Act
[15 U.S.C. 78j(b)] and Rule 10b-5 [17 CFR 240.10
b-5], more particularly:
(a) Engaging in any act, practice or course of
business which operates or would operate as
a fraud or deceit upon any person in connee-
tion with the matters described in paragraphs
(a)(i) through (iv) of Demand A(5) hereof,
or engaging in any other act, practice or
course of business of similar purport or object
which operates or would operate as a fraud
or deceit upon any person: ‘
(hb) Making any untrue statement of a material
fact or omitting to state a material fact neces-
sary in order to make the statements made,
in the light of the cireumstances under which
they were made, not misleading concerning
the matters described in paragraphs (b) (i)
through (b)(vi) of Demand A(5) hereof, or
making any other untrue statement of a
material fact or 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 similar
to those specifically referred to herein above
or of similar purport or object.
17
SEC Complaint
(7) Making use of any means or instruments of trans-
portation or communication in interstate com-
merece or of the mails, in the offer or sale of any
security, directly or indirectly:
(a) To obtain 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 concerning the
matters specified in paragraphs (b) (i) through
(b)(v), inelusive, of Demand A(5), hereof, or
any other untrue statement or omission of
similar purport or object;
(hb) To engage in any transaction, practice or
course of business which operates or would
operate as a fraud or deceit upon any pur-
chaser in connection with the matters de-
scribed in paragraphs (a)(i) through (a) (iv),
inclusive, of Demand A(5) hereof, or to en-
gage in any other transaction, practice or
course of business of similar purport or object
which operates or would operate as a fraud
or deceit upon the purchaser. .
B. Such other and further relief as the nature of the
case may require and as this Court may deem proper.
Jute B. Greene
J. Cecm, Pentanp
Jennie H. Ranpotpr
Joun M. Ketry
Attorneys for the Securities and
Exchange Commission
Suite 138, 1371 Peachtree Street, N.E.
Atlanta, Georgia 30309
18
Application for Appointment of Receiver
IN THE
UNITED STATES DISTRICT COURT
For tHe Mippre District or TENNESSEE
NASHVILLE DrvisIon
l\Caprion Omirren |
(Filed January 21, 1971)
Plaintiff applies to the Court for an order appointing a
receiver for defendant Guaranty Bond and Securities Cor-
poration (registrant) and all funds, securities and other
assets and property of, belonging to, or in possession of it
and authorizing, empowering and directing such receiver to
collect, take possession of and take charge of all and singu-
lar thereof, to hold the same subject to the further order of
the Court, to obtain an accounting of all funds and securi-
ties entrusted by customers and other persons to registrant
and with the usual powers of receivers.
As grounds therefor plaintiff states that receivership of
registrant is apparently the only remedy that will ade-
quately protect the interests of the churches and other
religious institutions for which registrant has heen acting
as underwriter and the interests of the other customers
and creditors of registrant.
Jue B. Greene
J. Cecm, Pentanp
Jennie H. Ranpoipx
Attorneys for Securities and
Exchange Commission
Suite 140
1371 Peachtree Street N.F.
Atlanta, Georgia 30309
— ee
19
Receiver’s Petition No. 22
IN THE
UNITED STATES DISTRICT COURT
For tHe Mippie District or TENNESSEE
NasHvitte Drvision
[Caption Omirrep]
(Filed March 31, 1972)
Petitioner, James C. Barbour, Receiver, would respect-
fully show to the Court that:
1. Shortly after his appointment, he was advised by a
representative of the Atlanta Regional Office of plaintiff,
Securities and Exchange Commission, that customers of
Guaranty Bond and Securities Corporation might be
entitled to protection under the provisions of the Securities
Investor Protection Act of 1970 (15 USCA {978 aaa, et
seq.).
2. On or about May 5, 1971, plaintiff’s representative
mentioned the matter to petitioner again and stated that
the Atlanta Regional Office had transmitted to its Wash-
ington Office the required notice under the statute but that
it might have been delayed in reaching the Securities
Investors Protection Corporation (hereinafter referred to
as SIPC).
3. Thereupon petitioner instructed his attorney to make
inquiry of SIPC and to demand protection under the Act.
A copy of the letter addressed to Honorable Byron D.
Woodside, Chairman, with copy to Mr. Jule B. Greene and
20
Receiver’s Petition No. 22
Mr. J. Cecil Penland, Securities and Exchange Commission
in Atlanta, Georgia is made Exhibit No. 1 hereto.
4. During the next several months the Receiver and his
attorney supplied voluminous information and a long list
of documents requested by the corporation, including an
opinion of petitioner’s attorney with respect to application
of the Act to the instant proceeding. A copy of the letter
to Mr. Theodore Focht, General Counsel of SIPC dated
June 24, 1971 is made Exhibit No. 2 hereto.
5. By letter dated October 5, 1971, the General Counsel
indicated that while SIPC required certain additional
information, “based on the information presently available,
this corporation has no plans for filing an application for
the appointment of a trustee in this proceeding.”
6. On November 1, 1971, in response to an inquiry from
petitioner’s counsel as to the basis for this determination
the General Counsel advised that it involved “the question
of retroactive application of the statute and the question
of the ability of a SIPC trustee to carry out the purposes
of the 1970 Act at this point in the liquidation of this com-
pany.”
7. On November 24, 1971, the Chairman of SIPC advised
that the “protections provided by that Act are not un-
limited, however, and we are of the present opinion that
the limitations contained in the Act make it necessary for
this Corporation to decline te intervene in the Guaranty
Bond and Securities case.”
8. Petitioner’s counsel then wrote to plaintiff’s Regional
Office in Atlanta in an effort to determine the date upon
which it had advised its Washington Office of the possible
application of the Act to Guaranty Bond and Securities
a a a alas
ke Oat a) ee ee ee
te er ly
ee ee
ie a
21
Receiver’s Petition No. 22
Corporation but the letter was forwarded to the Washing-
ton Office for reply and petitioner has been unable to obtain
any information as to whether or not and on what date
notice was given by plaintiff to SIPC as required by the
statute.
9. Petitioner is advised and believes that the customers
of Guaranty Bond and Securities Corporation are entitled
to the protection of the Act. Guaranty Bond and Securities
Corporation was a registered broker dealer when the Act
took effect on December 30, 1970 and engaged in the invest-
ment and securities business until at least January 6, 1971
when a temporary injunction was entered herein at the
request of plaintiff.
10. Plaintiff had a statutory duty under § 5(a)(1) of the
Act to notify SIPC that Guaranty Bond and Securities Cor-
poration was in or was approaching financial difficulty on
on about December 30, 1970 when the Act took effect since
it had already filed the Complaint in the instant action on
December 22, 1970 alleging among other things that the
broker dealer was in violation of net capital requirements
established under SEC regulations.
11. If so notified, SIPC had an opportunity to intervene
in the present proceeding before the injunction was issued
and before the appointment of a Receiver. Even after
the appointment of petitioner as Receiver, SIPC had the
opportunity to intervene and seek the appointment of a
Trustee under the Act as it has done in other proceedings,
ineluding one action pending in this Court.
12. If SIPC was not notified of the financial difficulties
of Guaranty Bond and Securities Corporation, it was
because of the failure of plaintiff to discharge its statutory
22
Receiver’s Petition No. 22
duty and not because of any neglect on the part of peti-
tioner.
13. While the Receiver has done everything within his
power to protect the interests of the customers of Guaranty
Bond and Securities Corporation, including the return of
their bonds and excess credit balances, it appears that such
customers will sustain a loss at least equal to that portion
of the 5% reserve fund established under Order No. 22
herein which may be required in order to defray part of
the costs, fees and expenses of this receivership.
14. SIPC is subject to the jurisdiction of this Court
because it is engaged in business in the Middle District of
Tennessee in that it collects assessments under the Act
from broker dealers operating in the District.
Wherefore, Premises Considered, Petitioner Prays:
|. That a copy of this Petition be served upon plaintiff
and SIPC and that an Order be entered requiring respond-
ents to show cause on or before a day certain why SIPC
should not be required to intervene herein and afford to
the customers of Guaranty Bond and Securities Corpora-
tion the benefits of the Act.
2. For general relief.
James C. Barsour
Receiver
W. Ovip Cotiiys, Jr.
Attorney for the Receiver
Nk ee Oe ae ET. 2 aR ome I me
£8 OO
_—
es
Receiver’s Petition No. 22
State of Tennessee
County of Davidson
James C. Barbour, being first duly sworn, makes oath
that the statements contained in his foregoing Petition are
true to the best of his knowledge, information and belief.
James C. Barsour
Sworn to and subscribed before me this 30th day of
March, 1972.
Patricia R, Sms
Notary Public
My Commission Expires: November 24, 1974
24
Recewers Petition No, 22
EXHIBIT NO. 1
May 27, 1971
Honorable Byron D. Woodside, Chairman
Securities Investors Protection Commission
000 North Capitol Street
Washington, D. C. 20549
Re: Guaranty Bond and Securities Corporation
Dear Sir:
The undersigned is attorney for James C. Barbour,
Receiver for the above named registered dealer pursuant
to appointment on January 29, 197L by the United States
District Court for the Middle District of Tennessee,
Nashville Division, in the cause styled Securities and
Kxchange Commission v. Guaranty Bond and Securities
Corporation, et al., Civil Action No. 5989.
lt appears that the registrant qualifies as a member of
the Securities Investor Protection Corporation under Sec-
tion 3(a) (2) (A) of the Securities Investor Protection Act
of 1970. While the District Court proceeding was filed
without reference to the Act, there has been a finding of
insolvency by the District Judge and the cause has pursued
a course very similar to that contemplated. by the Act,
including the distribution of identifiable securities to their
owners.
It further appears, however, that investors will lose some
portion of their net equities in money credit balances and
this letter is to make application to the Commission for
assistance and such advances to the Receiver as may be
required to satisfy the claims of each customer within the
limitations of the Act.
25
Recewer's Petition No. 22
We will, of course, be happy to supply such additional
information as you may request and we will appreciate
your acknowledging receipt of this letter as a claim on
behalf of the Receiver.
Yours very truly
W. Ovid Collins, Jr.
WOC :ke
ec: Mr. James C. Barbour, Receiver
(iuaranty Bond and Securities Corporation
2312 West End Avenue
Nashville, Tennessee 37203
Mr. Jule B. Greene
Mr. J. Cecil Penland
Securities and Exchange Commission
Suite 138
1371 Peachtree Street, N.E.
Atlanta, Georgia 30309
26
Receiver's Petition No. 22
EXHIBIT NO. 2
June 24, 1971
Mr. Theodore Focht
Securities Investor Protection Corporation
Suite 104 Astral Building
955 North L’Enfant Plaza, S.W.
Washington, D. C. 20024
Re: Guaranty Bond and Securities Corporation
Civil Action No. 5989
Dear Mr. Focht:
In accordance with your telephone conversation on June
21, 1971 with Mr, James C. Barbour, Receiver for Guaranty
Bond and Securities Corporation, I am writing this letter
as a statement of facts which in my opinion justifies the
conclusion that the Securities Investor Protection Act of
1970 is applicable to the above proceeding.
(juaranty Bond and Securities Corporation is a registered
broker-dealer and therefore automatically a member of the
Securities Investor Protection Corporation.
It has been declared insolvent and is in receivership in
the United States District Court for the Middle District of
Tennessee, Nashville Division.
While all securities on hand have been delivered or
tendered to the registrant’s investors and customers, they
were required to deposit 5% of the face amount of the
securities in a reserve fund, some part of which will neces-
sarily be utilized for the payment of the costs of the
receivership since the assets of the insolvent corporation
are not sufficient.
Tt thus appears that the investors and customers will
lose a portion of their equity in cash and it is my under-
27
Receiver’s Petition No. 22
standing of the Act that it is designed to protect them
against such a loss. The Receiver can be designated as
Trustee and given the powers, duties and responsibilities
set forth in the Act. If the necessary funds are advanced
to the Trustee, reimbursement may be made to the
investors and customers at this time of the 5% deposit
made by each and at the conclusion of the receivership
proceeding, the Securities Investor Protection Corporation
will be reimbursed by that portion of the reserve fund
remaining unexpended.
I trust that the foregoing is in compliance with your
request but if further information or statements are
required, lease advise.
Yours very truly
W. Ovid Collins, Jr.
WOC :ke
ee: Mr. James C. Barbour, Receiver
Order No. 49
IN THE
UNITED STATES DISTRICT COURT
For THE Mippie District or TENNESSEE
NASHVILLE Drtvision
Civil Action No. 5989
a a
Secvritirs AND ExcHancre COMMISSION
vs.
(iUARANTY Bonp anbD Securities Corporation, et al.
a
(Entered April 6, 1972)
This cause came on to be heard under the Receiver’s
Petition No. 22 alleging that the eustomers of Guaranty
Bond and Securities Corporation are entitled to the pro-
tection and benefits afforded by the Securities Investor
Protection Act of 1970 (15 USCA §§ 78aaa, et seq.) when,
it appearing to the Court that the question as to the appli-
eability of the Act should be adjudicated without undue
delay.
It is Ordered that plaintiff, Securities and Exchange Com-
mission, and the Securities Investors Protection Corpora-
tion he served with a copy of the Petition and that they
show cause, if any they have, on or before the 20th day
of April, 1972 at 9:00 o’clock A.M. why the remedies
afforded by the Act should not be made available in this
proceeding.
/s/ LL. Cuure Morton
United States District Judge
Approved for Entry:
W. Ovin Cours, Jr.
Attorney for the Receiver
Answer of the
Securities Investor Protection Corporation
IN THE
UNITED STATES DISTRICT COURT
For THE Mippte District or TENNESSEE
NASHVILLE Dtvision
[Caption OmITrTep |
(Filed: May 17, 1972)
Respondent, Securities Investor Protection Corporation
(hereinafter sometimes referred to as “SIPC”), for answer
to Petition No, 22 herein, respectfully alleges and shows
to the Court as follows:
1. Alleges that it is without knowledge or information
suflicient to form a belief as to the truth of the allegations
contained in paragraphs “1,” “2,” “8” and “13” of the peti-
tion herein.
2. Alleges that it is without knowledge or information
sufficient to form a belief as to the truth of the allegations
contained in paragraph “3” of the petition herein, except
admits that it received the letter referred to therein, a
copy of which is attached thereto as Exhibit No. 1.
3. Denies each and every allegation contained in para-
graph “4” of the petition herein, except admits that it
received certain information and papers from the petitioner
or his attorney, and further admits that it received the
letter referred to therein, a copy of which it attached there-
to as Exhibit No. 2.
30
Answer of the
Securities Investor Protection Corporation
4. Answering the allegations contained in paragraph “5”
of the petition herein, admits that its General Counsel sent
a letter dated October 5, 1971 to the attorney for the peti-
tioner herein, a copy of which is hereto annexed as Exhibit
A, hut otherwise denies each and every allegation contained
in said paragraph “5,”
». Answering the allegations contained in paragraph “6”
of the petition herein, admits that its General Counsel sent
a letter dated November 1, 1971 to the attorney for the
petitioner herein, a copy of which is hereto annexed as
exhibit B, but otherwise denies each and every allegation
contained in said paragraph “6.”
6. Answering the allegations contained in paragraph “7”
of the petition herein, admits (hat its Chairman sent a let-
ter dated November 24, 1971 to the Honorable William E.
Brock, Jr., a copy of which is hereto annexed as Exhibit
C, but otherwise denies each and every allegation contained
in said paragraph “7.”
7. Answering the allegations contained in paragraph “9”
of the petition herein, admits that a temporary injunction
against the defendants was entered herein at the plain-
tiff’s request on or about January 6, 1971, but otherwise
denies it has knowledge or information sufficient to form a
belief with respect to the truth of the remaining allega-
tions contained in said paragraph “9,” including the peti-
tioner’s alleged advice and belief regarding the protection
available to customers of Guaranty Bond and Securities
Corporation (hereinafter referred to as “Guaranty Bond”).
8. Admits each and every allegation contained in para-
graph “10" of the petition herein, except alleges that
eR ee Se eet a ot OD Begs me me:
31
Answer of the
Securities Investor Protection Corporation
Guaranty Bond was in or was approaching financial diffi-
eulty on a date substantially prior to December 30, 1970.
9, Denies each and every allegation contained in para-
graph “11” of the petition herein.
10. Admits each and every allegation contained in para-
graph “12” of the petition herein, except denies that SIPC’s
lack of timely knowledge or notice of the financial diflieul-
ties of Guaranty Bond was not attributable to the neglect
or other act or omission on the part of petitioner.
11. Denies each and every allegation contained in para-
graph “14” of the petition herein, except admits that it
receives payments upon assessments from certain broker-
dealers doing business in the Middle District of Tennessee.
First Defense
12. The petition fails to state a claim against SIPC
upon which relief can he granted.
Second Defense
13. Upon information and belief, on December 30, 1970
and prior thereto Giuaranty Bond was guilty of numerous
substantial violations of the Securities Exchange Act of
1934 (“Exchange Act”) and the Securities Act of 1933
(“Securities Act”), and rules promulgated thereunder,
more particularly violations of sections 10(b), 15(b) (10), 15
(e)(1), 15(e)(3) and 17(a) of the Exchange Act, sections
17(a)(2) and 17(a)(3) of the Securities Act, and Rules
10b-5, 15b10-5, 15¢1-2, 15e1-4, 15¢1-6, 15¢3-1 and 17a-3
promulgated thereunder.
32 ,
* Answer of the
Securities Investor Protection Corporation
14. Upon information and belief, as a result of the vio-
lations aforesaid on or about December 22, 1970 the plain-
tiff herein commenced an action to enjoin Guaranty Bond
from the commission of further violations, and to enjoin
the other defendants herein from aiding or abetting Guar-
anty Bond in the commission thereof. On or about Janu-
ary 6, 1971 this Court granted a preliminary injunetion as
prayed for in the plaintiff's complaint.
5. Upon information and belief, in granting the afore-
sak preliminary injunction this Court made and filed its
Findings of Fact and Conclusions of Law, a copy of which
is hereto annexed as Exhibit D, whieh Findings of Fact
‘ . .
and Conclusions of Law are hereby incorporated herein by
reference,
16, Upon information and belief, on December 30 1970
and prior thereto Guaranty Bond's violation of Section
1o(e)(3) of the Exehange Act, and Rule 15e3-1 promul
gated thereunder, was substantial and impossible of nan
rection by Guaranty Bond, and its capital deficieney ex
ceeded three million dollars. a
17. Upon information and belief, on December 30 1970
and prior thereto Guaranty Bond was in or was enuecesh
ing serious financial diflieulty, and had failed or was in inn
ger of failing to meet its obligations to its customers.
18, By reason of the foregoing, the Securities Investor
Protection Aet of 1970 (84 Stat. 1636; Pubiie Law 91-598
Sst Congress, H. R. 19333) (hereinafter referred aoe
“1970 Act”) does not apply to Guaranty Bond, and the
remedies and benefits provided therein may not he invoked
by, or for the benefit of, its customers or any other person
Answer of the
Securities Investor Protection Corporation
Third Defense
19. Repeats and realleges each and every allegation
heremabove contained in paragraph “14.”
“0. Upon information and belief, on January 27, 1971
this Court made an order appointing the petitioner as re-
ceiver for Guaranty Bond and its parent, Guaranty Bond
Co., Inc. (hereinafter referred to as “Guaranty Bond's
Parent”), and conferring upon said receiver the powers,
authority, rights and obligations therein contained. In
that order the court found, in part, that receivership was
the only remedy that would adequately protect the inter.
ests of churches and other religious institutions for which
Guaranty Bond had been acting as underwriter, and the
interests of other customers and creditors of both eorpora-
tions. A copy of that order is hereto annexed as Exhibit
E and incorporated herein by reference.
1. Upon information and belief, in making the aforesaid
order the Court handed down its Memorandum Decision
dated January 27, 1971, a copy of which is hereto annexed
as Exhibit F and incorporated herein by reference, In that
decision the Court found as facts, among other things, that
hoth defendant corporations could not pay their obligations
as they matured, could not pay their current obligations,
and further found that their liabilities far exeeeded their
realizable assets. As that decision recites, in the course of
the hearing the corporate defendants unsuccessfully sought
leave to proceed under Chapter X of the Bankruptey Act,
and in that connection admitted that no new capital could
he obtained by them, that their hank accounts had already
heen applied to outstanding debts due their hank, that they
had no funds with which to pay their obligations, eurrent
34
” Answer of the
Securities Investor Protection Corporation
or otherwise, and that there were no lawful methods to
obtain other funds.
22. Upon information and belief, on December 30, 1970
and prior thereto Guaranty Bond was insolvent within the
meaning of Seetion 1(19) of the Bankruptey Act, or was
unable to meet its obligations as they matured, or both.
oo
25. By reason of the foregoing, the 1970 Aet does not
apply to Guaranty Bond, and the remedies and benefits pro-
vided therein may not be invoked by, or for the benefit of,
its customers or any other person.
Fourth Defense
»
24. Repeats and realleges each and every allegation
hereinabove contained in paragraphs “13” through “23”
inclusive,
25. By reason of the foregoing, the 1970 Act does not
apply to Guaranty Bond, and the remedies and benefits pro-
vided therein may not be invoked by, or for the benefit of,
its customers or any other person.
Fifth Defense
26. Repeats and realleges each and every allegation here-
inabove contained in paragraphs “13” through “17” inelu-
sive, and paragraphs “20” through “22” inclusive.
27.
Upon information and belief, at or about the time of
his appointment as receiver herein on or about January 27.
1971, the petitioner knew of the existence and provisions
of the 1970 Act, as admitted by him in paragraph “1” of the
petition herein, and had full opportunity to make a prompt
determination respecting the applicability thereof in the
et et etm ein os
35
Answer of the
Securities Investor Protection Corporation
circumstances of this case and take appropriate legal or
other action to invoke the 1970 Act procedures and remedies.
28. Despite his aforesaid knowledge or notice of the 1970
Act, the petitioner herein elected to execute the duties of
his office as receiver and to proceed with the administration
and liquidation of Guaranty Bond and Guaranty Bond’s
Parent.
29. Upon information and belief, the receivership herein
embraces both Guaranty Bond and Guaranty Bond's Par-
ent, and the proceedings taken herein relate to the assets
and liabilities of both corporations and the liquidation
thereof although Guaranty Bond’s Parent was not at any
time material herein a broker or dealer within the meaning
of the 1970 Act or the Exchange Act.
30. On or about May 31, 1971 SIPC received a letter
dated May 27, 1971 from the attorney for the receiver
herein, a copy of which is hereto annexed as Exhibit G and
incorporated herein by reference. Prior thereto S!PC had
no knowledge or notice of any of the facts, matters or pro-
ceedings hereinabove alleged in paragraphs “13” through
“99” inelusive, or any other matters relating to the financial
condition of Guaranty Bond or its ability to meet its obliga-
tions to its customers or other creditors, or any other mat-
ters relating to the administration and proceedings by the
petitioner as receiver herein.
31. STPC’s lack of notice or knowledge as aforesaid
was not the result of any act or omission on its part, but
was caused solely by the failure of others having knowl-
edge of the facts, including the receiver herein, to give
SIPC timely notice thereof.
36
Answer of the
Securities Investor Protection Corporation
32. Prior to the time SIPC acquired its first notice or
knowledge of the circumstances and proceedings herein
and had an opportunity to determine its responsibilities,
if any, in the circumstances, the receivership herein had
progressed to a point of substantial completion, including
but not limited to the disposition of various assets belong-
ing to the defendant corporations or certain principals
thereof, the return of all or substantially all of the seeur-
ities in the possession or under the control of the corporate
defendants, the resolution of certain claims made against
the estates herein, the establishment of a reserve fund to
be applied in payment of the expenses of administration,
and the approval of a plan for partial liquidation. SIPC
begs leave to refer to all of the petitions, orders, decisions,
findings of fact and conclusions of law, and other docu-
ments and other matters and proceedings which are a
matter of record in this Court establishing the status of
the receiver’s proceedings at a time or at times material
to this defense.
33. At no times were the acts, transactions, powers, lia-
bilities or responsibilities of the receiver herein governed
or controlled by the 1970 Aet.
34. By reason of the foregoing, subsequent to its acqui-
sition of knowledge or notice of the financial difficulties of
(iuaranty Bond or of the proceedings heretofore had
herein, SIPC had no legal right to take any action under
the 1970 Act for the protection of customers or other
creditors of Guaranty Bond because of the impossibility
of accomplishing the purposes of the 1970 Act ineluding
the proper liquidation of Guaranty Bond only by a duly
appointed trustee in accordance with the terms and provi-
sions of the 1970 Act.
37°
Answer of the
Securities Investor Protection Corporation
Sixth Defense
35. Repeats and realleges each and every allegation
hereinabove contained or realleged in paragraphs “26”
through “34” inclusive.
36. Under the 1970 Act SIPC is vested with discretion
to determine whether, in a particular case, it shall make
an application for a decree adjudicating that customers of
a broker-dealer, which is a member of SIPC, are in need of
the protection provided by the 1970 Act, and upon such
adjudication apply for the appointment of a trustee to
liquidate such broker-dealer in accordance with the terms
of the 1970 Act.
37. Kven if SIPC had the legal authority under the
1970 Act, in the circumstances of this case, to invoke the
provisions of the said Act and initiate the procedures
therein provided for the protection of customers, which it
denies as hereinabove alleged, nevertheless its decision not
to do so was a fully justified, proper and required exercise
of the discretion vested in SIPC under the 1970 Act as
aforesaid, and may not be lawfully superseded or set aside
in the circumstances of this case by an order or decree
compelling it now to proceed under the 1970 Act.
Seventh Defense
38. This Court lacks jurisdiction in this proceeding.
Wherefore, respondent Securities Investor Protection
Corporation demands judgment dismissing the petition
herein.
Tueopore H. Focur
General Counsel
Securities Investor Protection Corporation
485 L’Enfant Plaza, S. W.
Washington, D. C. 20024
Telephone: 202—484-5400
Dated: Washington, D. C., May 15, 1972.
38
Answer of the
Securities Investor Protection Corporation
EXHIBIT A
October 5, 1971
W. Ovid Collins, Jr., Esquire
Cornelius, Collins, Higgins & White
Third National Bank Building
Nashville, Tennessee 37219
Re: Guaranty Bond and Securities Corporation,
Your File No, 5989
Dear Mr. Collins:
This is in response to your letter of September 23, 1071,
addressed to Chairman Woodside with regard to Guaranty
Bond and Securities Corporation.
As you are aware, the staff of this Corporation has been
reviewing this matter for some time, and we have at-
tempted to gather together pertinent information and
data. Although we still do not have certain information
which would be very helpful to us, for example, informa-
tion with respect to investigations of the activities of the
principals of this company and any reports made by the
Receiver on those matters, we can understand your inter-
est in learning the intentions of this Corporation with
respect to this company.
Based on the information presently available, this Corpo-
ration has no plans for filing an application for the
appointment of a Trustee in this proceeding.
Very truly yours
Theodore H. Focht
General Counsel
THF :py
Te Se
39
Answer of the
Securities Investor Protection Corporation
EXHIBIT B
November 1, 1971
W. Ovid Collins, Jr., Esquire
Cornelius, Collins, Higgins & White
Third National Bank Building
Nashville, Tennessee 37218
Dear Mr. Collins:
This is in response to your recent letter inquiring as to
the basis for this Corporation’s determination that it should
not intervene in the matter of Guaranty Bond and Secur!-
ties Corporation. Le
There are a number of reasons for our determination,
and they are complex and interrelated. Briefly, | would
say they involve the question of retroactive application of
the statute and the question of the ability of a SIPC trustee
to carry out the purposes of the 1970 Act at this point in
the liquidation of this company.
Very truly yours
Theodore H. Focht
General Counsel
THF :py
Carbon copy to Mr. James C. Barbour
936 J. C. Bradford Building
Nashville, Tennessee 37219
40)
Answer of the
Securities Investor Protection Corporation
INHIBIT ©
November 24, 1971
The Honorable William i. Broek, Jr.
United States Senate
304 Old Senate Office Building
Washington, D. C. 20510
Re: LEG:1
Dear Senator Brock:
This is in response to your recent letter concerning
Guaranty Bond and Securities Corporation.
As you are aware, the Counsel to the Receiver and the
General Counsel of this Corporation have been in com-
munication with cach other concerning this matter. |
believe that the intentions of this Corporation are set forth
in two recent letters addressed to W. Ovid Collins, Jr., Eisq.,
Counsel to the Receiver, from Theodore H. Focht, General
Counsel for SIPC. These letters are dated October 5 and
November 1, 1971, and [ enclose copies of them for your
information,
| note, of course, the comments contained in the last para-
graph on page two of Mr. Barbour’s letter. T assure vou
that the Directors and staff of this Corporation have made
every attempt to provide protection to public customers
of brokeralealer firms consistent with the provisions of the
Securities Investor Protection Act of 1970. The protections
provided by that Act are not unlimited, however, and we
are of the present opinion that the limitations contained
in the Act make it necessary for this Corporation to decline
to intervene in the Guaranty Bond and Securities ease.
Sincerely
Byron D. Woodside
THF :py Chairman
Enclosures
CE
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Roi cus
41
Answer of the
Securities Investor Protection Corporation
EXHIBIT D
In the U.S. District Court for the Middle District
of Tennessee, Nashville Division
Securities & Exchange Commission
Plaintiff,
(iuaranty Bond and Securities Cor-
poration, Henry Jeremiah Huey, Civil Action File
Jr. Brooks Thomas Huey and No. 5989
(iuaranty Bond Co., Inc. 2512
West End Avenue, Nashville,
Tennessee 37203,
Defendants.
Findings of Fact and Conclusions of Law
(Entered January 6, 1971)
This cause coming on to be heard upon plaintiff’s motion
for a preliminary injunction, and upon consideration of
said motion, the complaint, affidavits, other evidence ad-
duced and arguments of counsel, the Court makes the fol-
lowing Findings of Fact and Conclusions of Law:
Findings of Fact
1. That defendant Guaranty Bond & Securities Corpora-
tion, a Tennessee corporation, is engaged in business as
a broker and a dealer in securities and for this purpose
maintains an office in Davidson County, Tennessee.
» That since June 20, 1962, defendant Guaranty Bond &
Securities Corporation (hereinafter sometimes referred to
42
Answer of the
Securities Investor Protection Corporation
as “registrant”) has been and is now registered with the
Securities and Exchange Commission as a broker and a
dealer in securities pursuant to Section 15(b) of the Secu-
rities Exchange Act of 1934 [15 U.S.C. 78e(b) J.
3. That registrant is a wholly owned subsidiary of
defendant Guaranty Bond Company, Inc., a Tennessee cor-
poration (hereinafter sometimes referred to as “parent”)
with an office in Davidson County, Tennessee; and that
defendant Henry Jeremiah Huey, Jr. (H. J. Huey) is Presi-
dent and a director and Brooks Thomas Huey (B. T. Huey)
is Secretary, Treasurer and a director of both registrant
and parent, and they reside in Davidson County, Tennessee.
4. That since March 31, 1970, registrant has made use of
the mails and of means and instrumentalities of interstate
commerce to etfect transactions in and to indnee the pur-
chase and sale of securities (other than un exempted
security or commercial paper, bankers’ acceptances, or
commercial bills) otherwise than on a national securities
exchange while and at times when the net capital of reg-
istrant was less than $5,000 and its aggregate indebted-
ness to all other persons exceeded two thousand (2,000)
per centum of its net capital in contravention of Section
15(c)(3) of the Exchange Act [15 U.S.C. 780(¢)(3)] and
Rule 15¢3-1 [17 CFR 240.15¢3-1].
d. That since about May 1, 1969, registrant has failed to
iuake and keep current books and other records relating
to its business as a broker and dealer in contravention of
Section 17(a) of the Exchange Act [15 U.S.C. 78q(a)] and
Rule 17a-3 [17 CFR 240.17a-3], in that it has not main-
tained a position record for ail securities long and short
and their locations except for the period since November
a a ee re |
FO ee eee
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Answer of the .
Securities Investor Protection Corporation
17, 1970; it has not maintained ledger accounts for custom-
ers itemizing purchases, sales, receipts and deliveries of
securities, all receipts and disbursements of cash and all
other debits and credits; its inventory of securities has
heen inaccurate; its income account has failed to reflect all
income received; its net capital computations have been
incorrect; and it has not had personnel questionnaires for
certain associated persons.
§. That since about May 1, 1969, registrant has made use
of the mails and means and instruments of interstate com-
meree to effect transactions in, and to induce the purchase
and sale of, securities (other than commercial paper, bank.
ers’ acceptances, or commercial bills) otherwise than on
a national securities exchange, by means of manipulative,
deceptive and other fraudulent devices and contrivances,
practices and courses of business as specified in paragraphs
numbered 7 and 8 hereof, in contravention of Section 15
(c)(1) of the Exchange Act [15 U.S.C. 780(¢e)(1)] and
Rules 15¢e1-4 [17 CFR 240.15¢c1-4] and 15¢e1-6 [17 CFR
240.15¢1-6].
7. That since about May 1, 1969, registrant has effected
with and for the accounts of customers, transactions in, and
has induced the purchase and sale by customers of, securi-
ties (other than U. S. Tax Savings Notes, U. S. Defense
Savings Stamps or U. S. Defense Savings Bonds, Series
E, F and G@) without at or before the completion of each
such transaction giving or sending to such customers writ-
ten notification disclosiig, in cases where registrant was
acting as a broker for such customers or as a broker for
both such eustomers and some other person, either the
name of the person from whom the security was purchased
44.
Answer of the
Securities Investor Protection Corporation
or to whom it was sold for such customers and the date
and time when such transaction took place or the fact that
such information would be furnished upon the request of
such customers, and the source and amount of any com-
mission or other remuneration received or to be received
hy registrant in connection with the transaction as pre-
seribed in Rule 15¢e1-4 [17 CFR 240.15e1-4].
8. That since ahout May 1, 1969, registrant, as a broker
acting for customers and for customers and other persons,
has engaged in acts designed to effect with or for the
accounts of such customers, transactions in, and purchases
and sales by such customers of, securities in the primary
or secondary distributions of which registrant was par-
ticipating and was financially interested without, at or
before the completion of each such transaction, giving or
sending to such customers written notification of the exist-
ence of such participation or interest as prescribed in Rule
15e1-6 [17 CFR 15e1-6].
9. That since about May 1, 1969, registrant, as a broker
and dealer not a member of a national securities associa-
tion, has effected securities transactions in contravention
of Section 15(b)(10) of the Exchange Act [15 U.S.C. 780
(b)(10)] and Rule 15b10-5 [17 CFR 240.15b10-5], in that
registrant has exercised discretionary power or authority
for customers without such customers having given their
prior written authorizations to exercise such power or
authority to a stated associated person or persons, and
having indicated their reasons for giving such authoriza-
tions.
10. That since about May 1, 1966, registrant has been
a broker and dealer engaged in the business of effecting
————~ -
45
Answer of the
Securities Investor Protection Corporation
securities transactions for the accounts of others and for
its own account, has been making use of the mails and of
means and instrumentalities of interstate commerce to
effect transactions in, and to induce the purchase and sale
of, securities (other than commercial paper, bankers’
acceptances, or commercial bills) otherwise than on a
national securities exchange, by means of manipulative,
deceptive and other fraudulent devices and contrivances,
including the acts, practices and courses of business speci-
fied in paragraphs numbered 6 through 14 hereof, in con-
travention of Section 15(c)(1) of the Exchange Act [15
U.S.C. 780(¢e)(1)] and Rule 15e1-2 [17 CFR 240.15e1-2].
ll. That since about May 1, 1966, defendants have been
soliciting churches and other religious institutions to
employ registrant as underwriter for the sale of their bonds
under a program in which registrant guarantees the sale
of such bonds on the representation that registrant is
able to make such a firm commitment for the purchase
and sale of such securities, is able to meet all obligations
and liabilities arising in connection therewith and in oper-
ating within the jurisdiction of the federal and state
authorities charged with regulating the securities industry,
while and at times when registrant was unable to meet
the net capital requirements of Section 15(c)(3) of the
Exchange Act [15 U.S.C. 78o(e)(3)] and Rule 15¢3-1
[17 CFR 240.15¢3-1], registrant’s report on Form 17A-5
as of March 31, 1970, as filed with the Commission, inac-
curately reflected registrant’s © sets and liabilities and
inaccurately indicated that registrant had sufficient net
capital to meet the requirements of said Rule, and regis-
trant omitted to disclose to such churches and other reli-
gious institutions its financial condition and its inability
46
Answer of the
Securities Investor Protection Corporation
to meet the financial responsibility requirements of said
Rule and its failure to comply with applicable federal laws
and regulations relating to tive securities industry as found
in paragraphs numbered 4 through 16 hereof.
12. That since about May 1, 1966, defendants have been
inducing churches and other religious institutions (here-
inafter sometimes referred to as “borrowers”) to execute
underwriting agreements in which registrant is desig-
nated underwriter of their bonds and custodian of funds
received from sales thereof and which contain a provision
that registrant may invest such funds in religious insti-
tutional bonds for such borrowers, as necessary liquidate
such investments, make disbursements and deliver funds
for payment of such borrowers’ obligations incurred in
their construction and other programs, and return to such
borrowers 5% simple interest earned on such funds. On
the basis of this authority defendants have been exer-
cising discretionary authority over funds received from
sales of bonds issued by such borrowers and over such
borrowers’ accounts with registrant, effecting transactions
therewith and therein, including sales to such borrowers of
bonds issued by other churches and religious institutions
having extended maturities without sending to such bor-
rowers confirmations advising them of the securities sold
to them and placed in their accounts, the date and amount
of each snech transaction and the source and amount of com-
mission and other remuneration received or to be received
by defendants in connection with each such transaction.
Registrant has been crediting to the accounts of such bor-
rowers 5% simple interest on the amounts invested for
such borrowers in the bonds of other churches and religious
institutions even though the interest rates on the bonds
«tll
47
Answer of the
Securities Investor Protection Corporation
placed in such borrowers’ accounts have been substantially
higher and defendants have retained and treated as income
to registrant the interest differential between the 5% rate
paid to such borrowers and the substantially higher yields
on the bonds placed in their accounts, thus obtaining secret
profits from such borrowers while acting in the capacity
of their agent, custodian and fiduciary. Registrant has
been, in some instances, investing funds held as custodian
for a particular religious institution in such institution’s
own bonds with the result that such institution has been
paying interest on such bonds at a rate in excess of 5%
per annum while receiving a credit to its account with
registrant of only 5% per annum, registrant retaining the
interest differential as a secret profit.
13. That since about May 1, 1966, registrant, as a broker
and dealer, has been soliciting churches and other religious
institutions to employ it as underwriter of their bonds and
has solicited investors to purchase such bonds on the rep-
resentations that the sale of all bonds so underwritten
by registrant is guaranteed by it and that registrant will
purchase or sell any such bonds remaining after the church
has put forth its best effort, without disclosing that regis-
trant has been placing a substantial portion of such bonds
in the accounts of other churches and religious institutional
issuers for which it has been acting as underwriter and for
which it has been holding funds as custodian by recording
buy and sell transactions in securities on registrant’s books
among various of such churches and other religious insti-
tutional issuers; that availability of funds for a par-
ticular such issuer’s construction or other program could
be dependent upon registrant’s ability to dispose of the
48
Answer of the
Securities Investor Protection Corporation
securities in which such funds were thus invested; that
there is no independent market for such securities; and
that such issuers whose funds are invested by registrant
in securities of other churches and religious institutions
may suffer the loss resulting from any default on the part
of an issuer of a security in which their funds are invested.
14. That since about May 1, 1966, registrant, as a broker
and dealer, has been offering to sell and selling religious
institutional bonds through the use of prospectuses pre-
pared by registrant which are materially false and mis-
leading in that such prospectuses contained the represen-
tation that the proceeds from the sale of the religious
institutional bonds described in such prospectus would be
disbursed by registrant in accordance with the purposes
of the bond issue as set out in such prospectus—i.e., for
such expenditures as consolidation and retirement of exist-
ing indebtedness, purchase of land for new buildings and
construction, expansion and remodeling of churches, sanc-
tuaries, educational buildings and other facilities—with-
out disclosing: that registrant in its discretion would
invest portions of such proceeds in other religious institu-
tional bonds having extended maturities of from one to
more than eleven years; the amounts of such proceeds to
he received by registrant and the other defendants as fees,
commissions and other remunerations; and that registrant
would use such proceeds in completing other underwrit-
ings in which it and the other defendants would receive
substantial fees, commissions and other remuneration.
15. That since about May 1, 1966, registrant, as a broker
and dealer, by use of means and instrumentalities of inter-
state commerce and of the mails, directly and indirectly,
has been employing manipulative and deceptive devices
49
Answer of the
Securities Investor Protection Corporation
i i j i b) of the
and contrivances in contravention of Section 10(
Exchange Act [15 U.S.C. 78j(b)] and Rule 10b-5 [17 CFR
°40,10b1-5], in that registrant has been:
(a) Engaging in acts, practices and courses of busi-
ness which operate and would operate as a frand
and deceit upon customers of registrant as
described more particularly in paragraphs 11
through 14 hereof;
(b) Making untrue statements of material facts,
namely, the statements set forth in paragraphs 11
through 14 hereof; and
(c) Omitting to state the facts specified in para-
graphs 11 through 14 hereof relating to regis-
trant’s financial condition, its lack of sufficient
capital to meet the requirements of the federal
laws and rules relating to financial responsibili-
ties of securities brokers and dealers, its mode of
operations, its secret profits from transactions in
diseretionary accounts, and details of transactions
in which funds and securities are transferred
among accounts of customers on the books of reg-
istrant, which facts are material in order to make
the statements made, in the light of the cir-
cumstances under which they are made, not mis-
leading.
16. That since about May 1, 1966, registrant, as a broker
and dealer, in offers and sales of securities by use of means
and instruments of transportation and communication in
interstate commerce and by use of the mails, directly and
indirectly has been:
50
7 Answer of the
Securities Investor Protection Corporation
(a) Obtaining money and property by means of the
untrue statements of material facts as set forth
in paragraphs 11 through 14 hereof:
(b) Obaining money and property by means of the
omissions to state material facts as set forth in
paragraphs 11 through 14 hereof, which facts are
necessary in order to make the statements made,
in the light of the cireumstaneces under which they
are made, not misleading; and ,
(c) Engaging in the transactions, practices and
courses of business described in paragraphs 11
through 14 hereof, which operate and would op-
erate as u fraud and deceit upon the purchasers of
such securities.
17. That in a letter dated September 24, 1970, from the
Atlanta Regional Office of the Securities and Bushenge
Commission, defendants were advised of the net capital
requirements of Rule 15¢3-1, the bookkeeping requirements
of Rule 17a-3 and the confirmation requirement of Rule
Viet -4 and were further advised that according to an ex.
amination made of registrant’s business, it was apparently
violating these rules; but that subsequent to receipt of such
letter, registrant continued to effect transactions without
complying with the requirements of said rules.
12. That defendants Guaranty Bond Company, Inc.
H. J. Huey and B. T. Huey aided and abetted registrant in
the acts, practices and transactions set forth i
rth in pa
4 through 17 hereof. paragraphs
19. It was of interest to the Court that the defendants
admitted all of the enumerated violations except thev
Ce aan me
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Answer of the
Securities Investor Protection Corporation
stated their disagreement with the method of computation
of the 20 to 1 capital requirement rule but submitted no
alternate method of computation even though they called
as a witness a certified public accountant who claimed to
have expertise in the field of compliance with the require-
ments of the law and those of the regulations of the Secu-
rities and Exchange Commission. The defendants admitted
that by corporate resolutions the earnings of Guaranty
Bond and Securities Corporation were diverted to its par-
ent and sole stockholders, Guaranty Bond Co., Inc. They
admitted taking secret profits as a fiduciary but had no
plans to make any restitution.
The principal defenses of the defendants were that they
were not vicious persons and that the security investigators
for the Securities and Exchange Commission should have
furnished more help to defendants in their attempt to com-
ply with the law and regulations.
Furthermore, as late as January 2, 1971, the defendants
withdrew from circulation certain advertising matter. At
the same time it solicited from its customers a discretion-
ary account authorization. The defendants did not advise
its customers as a part of said solicitation that this injune-
tion suit was pending nor that its illegal representations
previously made to them were not effective.
The defendants contend that they are entitled to another
chance. However, they admit that they cannot comply with
the capital requirements.
In addition, the defendants have as of January 2, 1971
prepared a confirmation form to be sent to their customers
confirming a sale. This form will not show, and the de-
fendants so admit, the dollar amount of the commission
charged by the defendants. Their excuse is that it is too
“Oz
Answer of the
Securities Investor Protection Corporation
diffeult to compute the amount of commission. Further-
more, they contend that the confirmation form is eoded
so as to refer to 33 separate formulas printed in numerical
order on the reverse side of the confirmation form. The
defendants do not attempt to explain how a layman can
determine, from the applicable formula, the amount to the
commission when it is difficult for the defendants to com-
pute same,
It is obvious that the defendants cannot and will not
comply with the applicable laws and regulations. Further-
more, defendants will, unless restrained and enjoined, con-
tinue to engage in the acts and practices described here-
inbefore.
Conciusions of Law
|. That the acts and practices set forth in the preceding
Findings of Fact constitute violations of Sections 10(b),
l(b) (10), 15(e) (1), 15(e)(3) and 17(a) of the Securities
Exchange Act of 1934 [15 U.S.C. 78j(b), 780(b)(10), 780
(c)(1), 780(e)(3) and 78q(a)], Sections 17(a)(2) and 17
(a)(3) of the Securities Act of 1933 [15 U.S.C. 77q(a) (2)
and 77q(a){3)} and Rules 10b-5, 15b10-5, 15c1-2, 15¢1-4,
15e1-6, 15e3-1 and 17a-3 [17 CFR 240.10b-5, 15b10-5, 15e1-2,
15e1-4, 15e1-6, 15¢3-1 and 17a-3}.
2. That plaintiff is entitled to a preliminary injunction
against defendant Guaranty Bond and Securities Corpora-
tion, its officers, agents, servants, employees and attorneys,
and each of them, restraining and enjoining them from fur-
ther violations of Sections 10(b), 15(b) (10), 15(¢) (1), 15(e)
(3) and 17(a) of the Securities Exchange Act of 1934 [15
U.S.C. 78j(b), .780(b) (10), 780(e)(1), 78e(e)(3) and 78q
(a)], Sections 17(a)(2) and 17(a)(3) of the Securities Act
”
Ak
Answer of the
Securities Investor Protection Corporation
of 1933 [15 U.S.C. 77q(a)(2) and 77q(a)(3)] and Rules
10b-5, 15b10-5, 15e1-2, 15¢e1-4, 15¢1-6, 15¢3-1 and 17a-3 [17
CFR 240.10b-5, 15b10-5, 15e1-2, 15c1-4, 15¢1-6, 15¢3-1 and
17a-3], and against defendants Henry Jeremiah Huey, Jr.,
Brooks Thomas Huey and Guaranty Bond Co., Inc., their
officers, agents, servants, employees and attorneys, and each
of them. restraining and enjoining them from aiding and
abetting defendant Guaranty Bond and Securities Corpora-
tion in any further violations of said sections and rules.
/s/ L. CLure Morton
United States District Judge
-— «
ot
Answer of the
Securities Investor Protection Corporation
EXHIBIT E
In the U. S. District Court for the
Middle District of Tennessee
Nashviile Division
Securities and Exchange Commis-
mission i
Giuaranty Bond and Securities Cor-
poration; Henry Jeremiah Huey, No. 5989
Jr.; Brooks Thomas Huey; and
(ruaranty Bond Co., Ine., 2312
West End Avenue, Nashville,
Tennessee 37203
Agreed Order
(Entered January 29, 1971)
This cause came on to be heard on January 27, 1971
upon defendants’ motion to amend the preliminary injune-
tion entered herein on January 6, 1971, and plaintiffs’ appli-
cations for appointment of a Receiver for Guarantv
Bond and Securities Corporation and Guaranty Bond Co.
Ine.; and upon consideration of said motion and applica.
tions, the record made in this cause, and arguments of
counsel; and the Court being fully advised in the premises :
1. It is ordered, adjudged and decreed that defendants’
motion be and it hereby is denied.
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Answer of the
Securities L[nvestor Protection Corporation
2. It appearing to the Court that Receivership is the
only remedy that will adequately protect the interests
of churches and other religious institutions for which
Guaranty Bond and Securities Corporation has been act-
ing as underwriter and the interests of other customers
and creditors of the aforesaid corporations, and the said
corporations concurring in the request for and agreeing
to the appointment of a Receiver, it is ordered, adjudged
and decreed that James C. Barbour of Nashville, Tennes-
see is appointed Receiver of said corporations subject to
the submission of a good and sufficient bond in the amount
of One Hundred Thousand Dollars ($100,000.00), con-
ditioned upon the faithful performance of his duties as
said Receiver, having taken the oath required by law, and
being otherwise qualified.
3. It is further ordered, adjudged and decreed that the
said Receiver shall take immediate custody, control and
possession of all funds, property, premises and other assets
of or in the possession or under the control of said
corporations, wherever constituted, with full power to
collect, receive, and take into possession all goods, chat-
tels, rights, credits, monies, effects, securities, lands, books
and records of account, and other papers and documents
of said corporations ; to preserve and protect all such assets,
pending further order of this Court, in order to pre-
vent the irreparable loss, damage and injury to customers
and other creditors, to conserve and prevent withdrawal
and misapplication of funds and other properties entrusted
to said corporations; and upon the Court’s approval,
to determine, adjust and protect the equities of creditors,
customers and investors whose funds and other properties
have been entrusted to or invested with said corporations.
ae
Answer of the
Securities lnevestor Protection Corporation
4+. It is further ordered, adjudged and decreed that the
Receiver shall not surrender, sell, or otherwise dispose
of any of the assets within his care, custody, and control
or properties entrusted to him, including but not limited
to the right to sell securities for cash to meet construction
requirements, except wpon notice to all parties of record
and the opportunity to be heard thereon, unless such imme-
diate disposition be required in order to prevent irrepar-
able damage, and then only upon prior approval of the
Court.
» It is further ordered, adjudged and decreed that the
corporations, their officers, agents, managers and employees
be and they hereby are commanded and required to
deliver over to sald Receiver POSSesslon and custody of all
funds, securities, property, premises and other assets, an
all books and records of accounts, title, documents and
other papers of said corporations, and that its officers,
agents, managers and employees be and they hereby are
enjoined and restrained from interfering with said Receiver
taking such custody, control and possession, and from inter-
fering in any manner, directly or indirectly, with such eus-
tody, possession and control by said Receiver.
6. It is further Ordered, Adjudged and Deecreed that
(reneral Insurance Underwriters, a division of Guaranty
Bond Co., Inc., be and the same hereby is enjoined from
making any disbursements except for weekly payroll checks
to those employees of General Insurance Underwriters who
are now employees of said insurance business, except that
no such pay nents are to he made to the defendants, Henrv
Jeremiah Huey, Jr. and Brooks Thomas Huey. .
:
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Answer of the
Securities Lnvestor Protection Corporation
7. It is further Ordered, Adjudged and Decreed by the
Court that said Receiver shall have full power and author-
ity until further order of this Court:
(a) To employ, discharge and fix the compensation of
such employees as he may deem necessary and advisable
for the preservation and protection of the within estate;
(b) To acquire for cash or on credit such supplies, ser-
vices or other property as he may deem necessary and
advisable in connection with the preservation and protection
of the said estate ;
(c) To enter into any contracts incidential to the preser-
vation and protection of the said estate;
(d) To collect and receive all monies or other properties
due or to become due to the said estate, and to hold and
retain the same, subject to further orders of Court.
(e) To do such things and to incur such expenses as may
be necessary and advisable in the preservation and pro-
tection of the said estate.
(f) To institute and maintain legal action for the preser-
vation and protection of said estate upon prior Court
approval.
8 It is further ordered, adjudged, and decreed that upon
prior approval of the Court, the Receiver is authorized to
retain counsel for the purpose of representing him in this
cause.
9 It is further ordered, adjudged and decreed that all
parties, firms, corporations, partnerships and other per.
sons are hereby enjoined and restrained from instituting
or maintaining any action of any kind or character, includ-
of
Answer of the
Securities Investor Protection Corporation
ing but not limited to any action that might impose a lien
on the assets of the corporations, against the said corpora-
tions and the said Receiver, until further order of Court;
provided, however, that any action presently pending in
state courts is hereby restrained for sixty (G0) days, after
which time judgement may be obtained if proper, but the
enforcement of said judgment is enjoined and said judg-
ment creditor is required to come in and file his claim in
this Court.
10. It is further ordered, adjudged and decreed that the
Receiver, after making an investigation of the affairs of
the said estate shall submit a recommendation to this Court
for appropriate steps to be taken to protect the diversified
interests of religious institutions for which said corpora-
tions have been acting as underwriter, and the interests of
creditors and other persons dealing with the said corpora-
tions.
11. It is further ordered, adjudged and decreed that the
defendants, Henry Jeremiah Huey, Jr. and Brooks Thomas
Huey, without objection by them, be and they are hereby
enjoined from disposing of any of their assets without
obtaining the Court's prior approval except for reasonable
living expense,
12. It is further ordered, adjudged and decreed that the
Receiver make publication in a newspaper of general cir-
eulation in Davidson County, Tennessee, notifying all
the creditors of said corporations of this Receivership, and
requiring them to file and prove their respective claims
ag. inst the corporations on or before September 1, 1971, or
they may be excluded from the benefits of this proceeding,
D9
Answer of the
Securities Investor Protection Corporation
13. It is further ordered, adjudged and decreed that the
Court reserves the right to make and enter such further
orders or decrees, upon application of said Receiver or
otherwise, that may be necessary for the guidance of said
Receiver in his administration of the Receivership herein
established. ;
intered this the 27th day of January, 1971.
/s/ L. Ciure Morton
United States District Judge
Approved for Entry
J. Cecm Pentann
Jennizt H. RaNpoLPH
Attorneys for Securities and
Exchange Commission
Bourr, Cummuines, Conners & Derry
By Eb R. Davies
By Roserr P. (Tllegible)
Attorneys for Intervenors
Frank S. Kine
Attorney for the Defendants
60;
. Answer of the
Securities Investor Protection Corporation
EXHIBIT F
In the United States District Court for the
Middle Distriet of Tennessee
Nashville Division
Securities & Exchange Commission,
vs, Civil Action
No, 5989
(iuaranty Bond amd Seeurities Cor-
poration, et al.
Memorandum
(Entered February 9, 1971)
This cause came on to be heard upon the petition of the
Securities & Exchange Commission for the appointment of
a receiver for the corporations Guaranty Bond and Seeuri-
ties Corporation and Guaranty Bond Co., Inc. The defend-
ants made an oral application for permission to proceed
under Chapter X of the Bankruptey Act. However, they
admitted that (1) no new capital could be obtained: (2)
their bank accounts had been applied to outstanding debts
due their hank; (3) they had no funds to pay their obliga-
tions, current or otherwise; and (4) there were no lawful
methods to obtain other funds.
On denial of their request for leave to proceed under
Chapter X of the Bankruptey Act, and the denial of their
motion of January 13, 1971, the corporate defendants
orally joined in the petition of the plaintiffs for the appoint-
61
Answer of the
Securities Investor Protection Corporation
ment of the receiver to take possession of the assets of the
defendant corporations and to wind up their affairs. These
defendants asserted to the Court that any delay in such ap-
pointment and administration would severely prejudice the
defendants and their creditors.
The intervenors requested that the individual defendants,
Huey, be enjoined from disposing of any of their personal
assets pending the outcome of this litigation. These defend-
ants, through their attorney, orally agreed for such injune-
tion to issue.
The testimony of the witnesses and the records of the
defendant corporations filed in this case clearly reflect that
the defendant corporations cannot pay their obligations
as they mature, cannot pay their current obligations and
that their liabilities far exceed their realizable assets and
this Court so holds. :
A receiver will be appointed and, absent any bankruptcy
proceedings, he will conserve, administer and liquidate the
affairs and assets of the defendant corporations. An
injunction will issue restraining the individual defendants,
Huey, from disposing of their personal assets. All creditors
and parties having claims will be permitted, without fur-
ther order, to intervene.
An appropriate order will be prepared and entered.
This the 27th day of January, 1971.
/s/ WL. Cuure Morton
United States District Judge
62
Response of the
Securities and Exchange Commission
IN THE
UNITED STATES DISTRICT COURT
For tHE Mippie District or TENNESSEE
NasuHvViILLe Drviston
[Carrion Omirrep]
(Filed: May 17, 1972)
rhe Securities and Exchange Commission files this
Response to Receiver’s Petition No. 22:
1. ‘The Commission admits the allegations of Paragraph
1 of the Petition, in that the Atlanta Regional Office a
a letter dated February 4, 1971, to the Receiver, advising
him of the possible applicability of the Securities Investor
Protection Act (“SIPA”). ;
o S : :
& The Commission admits the allegations of Paragraph
of the Petition, in that the Atlanta Regional Office sent
information on February 2, 1971, to the Commission’s beod-
quarters in Washington, D. C., on the cireumstances of
Guaranty Bond and Securities Corporation, except that it
denies that the Atlanta Regional Office purported to send
“required notice” to Washington, D. C., under SIPA por
except that the Atlanta Regional Office did not state on
May , 1971, that the information might have been delayed
in reaching the Securities Investor Protection Corporation
(“SIPC”) but mentioned the possibility to the Receiver at
a later date, perhaps as late as October 1971.
3. The Commission admits the allegations of Para-
graphs 3 and 4 of the Petition, except that it is without
3
$
q
|
pe CP De Basie aaatss at ONE oie Dems. 2
ae
7 a
63
Response of the
Securities and Exchange Commission
knowledge or information sufficient to form any belief as to
the nature and extent of the information supplied to SIPC,
as alleged in the first sentence of Paragraph 4 of the Peti-
tion.
4. The Commission admits the allegations of Para-
graphs 5 through 7 of the Petition.
5. The Commission admits the allegations of the first
five lines of Paragraph 8 of the Petition. The Commission
denies the last three lines of the Paragraph, in that a let-
ter dated February 10, 1972, from David Ferber, Solicitor
of the Commission, was sent to Receiver’s counsel, enclos-
ing a copy of a letter dated July 1, 1971 from Sheldon
Rappaport, Associate Director of the Division of Trading
and Markets, to Mr. Woodside, Chairman of SIPC, together
with a memorandum attached to the letter, describing the
cireumstances of Guaranty Bond and Securities Corpora-
tion. Copies of this correspondence are attached hereto
as Exhibit A. The letter dated July 1, 1971 did not purport
to be the statutory netice required by Section 5(a)(1) of
SIPA and was sent at SIPC’s request following an inquiry
which Receiver’s counsel made to SIPC.
6. The Commission, as to the allegations contained in
Paragraph 9 of the Petition, admits that Guaranty Bond
and Securities Corporation was a registered broker-dealer
when SIPA took effect on December 30, 1970, and appears
to have continued to be engaged in the securities business
until at least January 5, 1971.
As to the allegations that SIPA coverage should be
extended to customers of Guaranty Bond and Securities
Corporation, the Commission is of the view that SIPA
coverage should not be withheld merely because the Com-
O4
Response of the
Securities and Exchange Commission
mission filed this action prior to the effective date of SIPA,
or because the firm was in net capital violation in 1970,
since it appears that the firm continued to engage in the
securities business until at least January 5, 1971. Action
by SIPC is necessary, however, only if it appears that the
firm will otherwise fail to meet its obligations to customers.
There has been no demonstration that the customers of
(iuaranty Bond and Securities Corporation will in fact
sustain any losses. Tn this connection, from information
obtained from SIPC, it appears that the Receiver, as
Receiver of Guaranty Bond and Securities Corporation,
may have causes of action for damages or restitution
against either the parent, Guaranty Bond Co., Ine., or
against individual principals of the parent, which could
redound to the benefit of the customers of Guaranty Bond
and Securities Corporation.
7. The Commission admits as to the allegations of Para-
graphs 10 through 12 of the Petition that it has a duty
under Section 5(a)(1) of SIPA to notify SIPC that a mem-
ber of STPC is in or approaching financial difficulty. The
Commission, however, is of the view that it is irrelevant
to whether SIPA coverage is applicable whether the Com-
mission formally advised STPC under Section 5(a)(1) of
the Act. The Commission is of the view that notification is
not a condition precedent to coverage under SIPA and does
not constitute either authorization to or compulsion on
STPC to bring action.
8. The Commission is without knowledge or information
sufficient to form a belief as to the allegations of Paragraph
13 of the Petition.
we Pb Be ret. ol
ee Oe ew RS RT ee oom
65
Response of the
Securities and Exchange Commission
9. Paragraph 14 of the Petition states a legal conclusion,
as to which the Commission takes no position at this time.
Respectifully submitted
Davip FEeRBER
Solicitor
Rosert E. KusHNER
Assistant General Counsel
MicuaEL A. MACCHIAROLI
Attorney
Securities and Exchange Commission
500 North Capital Street
Washington, D.C. 20549
(202) 755-1170
J. Crecr, PENLAND
Assistant Regional Administrator
Securities Exchange Commission
Atlanta Regional Office
Suite 138
1371 Peachtree Street, N.E.
Atlanta, Georgia 30309
May 15, 1972
66
Response of the
Securities and Exchange Commission
INHIBIT A
February 10, 1972
W. Ovid Collins, Jr. Esq.
Cornelius, Collins, Higgins & White, Esqs.
18th Floor, Third National Bank Building
Nashville, Tennessee 37219
Re: Guaranty Bond & Securities Corporation
Dear Mr. Collins:
This is in reply to your letter of January 31, 1972.
lam enclosing a copy of a letter dated July 1, 1971, from
Sheldon Rappaport to Mr. Woodside, chairman of SIPC,
together with the memorandum attached to the letter. The
letter and memorandum constitute the only reference to
the condition of Guaranty Bond & Securities Corporation
made by the Commission to STPC. As you will note from
the letter, it was sent at SIPC’s request following an
inquiry which von made to STPC.
You ask our advice as to the proper venue of a proceed-
ing to raise the issues regarding STPC. IT am sorry, but
we have not researched this question.
In considering the merits of the issnes you raise, we
would appreciate your advice as to whether Guaranty
Bond and Securities Corporation did business with eus-
tomers subsequent to December 30, 1970. Tf so, could you
furnish us a schedule showing the eustomers’ names and
addresses, the securities purchased or sold, the dollar
amounts of the purchases or sales, and the present indebt-
edness owed to such customers?
Thank you very much,
Your truly
David Ferber, Solicitor
Office of General Counsel
Oe ee eS ee ee
67
Response of the
Securities and Exchange Commission
July 1, 1971
Mr. Byron D. Woodside, Chairman
Securities Investor Protection
Corporation
Suite 104
955 North L’Enfant Plaza
Washington, D.C. 20004
Dear Mr. Woodside:
Enclosed is the data you requested concerning Guaranty
Bond and Securities Corp. (“Registrant”), a registered
broker-dealer and member of SECO. Pursuant to Com-
mission authorization the Atlanta Regional Office, on Jan-
uary 6, 1971, obtained an order in the United States
District Court for the Middle District of Tennessee enjoin-
ing the Registrant from violations of applicable financial
responsibility and bookkeeping requirements. On January
29, 1971 a receiver was appointed by the court. The Com-
mission has authorized me to notify you of these facts.
We are advised that vou are already in contact with the
receiver. If we can be of further help in this matter please
let us know.
Sincerely
Sheldon Rappaport
Associate Director
Enclosure
6S
Response of the
Securities and Exchange Commission
MEMORANDUM
Re Guaranty Bonn & Securities Corp. (8-10785)
This is a case in which a church bond dealer was operating
in violation of the net capital, bookkeeping, confirmation
and other rules. As an underwriter of religious institu-
tional bonds, it acted in a fiduciary capacity for churches
as custodian of funds raised and made investments for
them on a discretionary basis in other securities being
underwritten by Registrant without making required dis-
closures of its adverse interests and its secret profits. It
did not disclose to churches what securities were placed
in their accounts under its discretionary authority. It
entered into firm commitinents for underwritings of large
amounts of church bonds at a time when it had insufficient
capital to meet the requirements of the net capital rule.
Guaranty Bond and Securities Corp. (“Registrant”) has
been registered with the Commission as a broker-dealer
since June 20, 1962. It is a SECO broker-dealer, not being
a member of a national securities association registered
with the Commission.
Registrant was primarily engaged in underwriting such
honds through a program, referred to as Plan TIT, “which
guarantees churches the complete sale of all bonds.” Gen-
erally, under this plan, Registrant first supervises a 30
day solicitation of the church membership. Upon comple-
tion of the initial drive among members of the church, a
report was submitted to Registrant together- with all the
proceeds of the bonds to be issued and the unsold portion
of the bonds. Registrant, in its underwriting contract,
agreed to sell the remaining bonds and to deliver funds
to the church for the institution’s obligations incurred in
its construction or other programs. In the meantime, Reg-
istrant acted as custodian of all funds raised through sale
of bonds, both those sold by the church and through Reg-
ee ei
6)
Response of the
Securities and Exchange Commission
istrant’s separate efforts. Registrant’s usual form of under-
writing contract contained a clause to the effect that “the
underwriter as custodian will invest such funds in rel.gious
institutional bonds for the borrower (church) and, as nec-
essary, liquidate investments, make disbursements, and
deliver funds in accordance with” the agreement to pay the
churchs’ obligations under their construction programs,
ete. On the basis of this general authority, Registrant
exercised complete discretionary authority over all funds
received from sales of such bonds and over the churchs’
accounts, effecting transactions therein at will including
purchases and sales of bonds between the various religious
institutions’ accounts for whom it acted as underwriter.
The church customers usually were credited with only
5% interest on the funds invested by Registrant in bonds
for their accounts even though many of such bonds yield
6% to 714%, or more, and Registrant retained the interest
differential as income to itself without advising the cus-
tomer-church of the amount thereof.
Registrant received a basic service charge and commis-
sions on transactions which were transferred immediately
to Registrant’s parent, Guaranty Bond Company, Inc.,
through a transfer account without such fees being taken
into the income account of Registrant. Parent is owned
principally by a partnership made up of H. J. Huey, T. B.
Huey and the estate of their deceased brother FE. E. Huey.
At times Registrant placed bonds in the account of its par-
ent and resold church bonds for its parent.
Registrant was licensed in 16 states, employed over 50
people and had a large volume of business including 80
underwritings of bonds having a face value of over
$15,000,000 for the year ended in May 1970.
7
| Response of the
Securities and Exchange Commisston
A finaneial inspection of Registrant as of September 30,
1970 disclosed Registrant’s financial position to be as
follows:
Aggregate Indebtedness $ 782,531.54
Re _ ? ore by . a 39,126.58
~~ Capital Before Deduction on (—359,53 1.72)
roprietary Securities (Deficit)
Deduction of Unrealized Loss on Open 3,127,700.00
Contractual Commitments
Net Capital (Deficit) (—3,481,231.72)
Net Capital Required 39,126.58
Additional Capital Required 3,926,350.30
Excess of Total Assets Over 116,857.35
Total Liabilities
The amount of open contractual commitments, $3,127,700.00
included in these calculations represent 100% of the
amounts of securities having no market value taken
by Registrant as underwriter on consignment in which it
“agrees to underwrite the purchase and/or placement” of
all bonds of the particular issue, which remained unsold and
unplaced. It does not include any amount for the addi-
tional obligation Registrant has to eventually resell bonds
it has placed in church accounts so as to provide them with
funds as needed to meet their construction projects. As of
September 30, 1970, bonds with a face amount of $8,948,200
had been placed in and were being held by Registrant for
the accounts of such issuer-customers.
On September 24, 1970, a letter from the Atlanta Regional
Office sent to Registrant and each of its officers and direc-
71
Response of the
Securities and Exchange Commission
tors advised them of the net capital and bookkeeping
requirements of Rules 15¢3-1 and 17a-3 as well as various
other rules and of the firm’s failure to comply with such
requirements as indicated by an inspection of its records.
A written response to the Atlanta Regional Office’s letter
of September 24 was requested. A telegram, dated October
1, 1970, was later received from Registrant stating that the
firm had employed a national accounting firm to upgrade
its accounting system and in the interim the deficiencies
called to its attention were being corrected. Even though
the letter of September 24 advising the Registrant that
any further business might be deemed willful violations,
Registrant effected numerous transactions.
Qn the basis of these facts the Commission obtained an
injunction and a receiver.
District Court Opinion
In THE
UNITED STATES DISTRICT COURT
Kor THE Mippte District or TENNESSEE
NASHVILLE Drvision
Civil Action No. 5989
en
SECURITIES AND ExcHancre CoMMIssIon
vs.
GUARANTY Bonp AND Securities CorporaTION, et al
ee
MreMoraANDUM—No, 54
( m December 22, 1970, the Securities and Exchange Com-
mussion (hereinafter the “Commission”) filed a complaint
and moved for a preliminary injunction against Guarant
Bond and Securities Corporation (hereinafter “Guarenty”)
on the basis of alleged violations of the Securities Exchan e
Act of 1934 and of the Securities Exchange Act of 1933 On
January 6, 1971, the injunction was granted, and this out
found, among other things, that Guaranty had violated the
Commission’s net capital rule by doing business (1) while
its net capital was less than $5,000, and (2) while its aggre-
xate indebtedness exceeded 2,000 per centum of it net 7 i
tal, see § 15(e)(3) of the lixchange Act, 15 U.S.C § 780(e)
(3) and Rule 15¢3-1, 17 C.F.R. 240.15¢3-1, and that the net
capital violation had existed for a substantial period of time
prior to the filing of the complaint by the Commission. |
the period from December 22, 1970, to January 6 1971,
(Guaranty continued to do business, and prior to Janus 6,
handled 101 transactions during 1971. Then, forme
TEC RO TPO eee et ee Yi 2
73:
District Court Opinion
the Commission’s motion, a receiver was appointed by
agreed order entered on January 29, 1971.
On May 27, 1971, the receiver made demand upon the
Securities Investor Protection Corporation (hereinafter
“SIPC”) for protection of Guaranty’s customers under the
Securities Investor Protection Act of 1970, 15 U.S.C.
§ 78aaa, et seq. (hereinafter the “Act”), but SIPC refused.
The Commission had not given SIPC a formal notice as
provided by §5(a)(1) of the Act that Guaranty was
approaching financial difficulty, and had taken no other
action to see that SIPC intervened. On April 6, 1972, pur-
suant to the receiver’s petition, an order was entered requir-
ing the Commission and SIPC to show cause wiy the
remedies afforded by the Act should not be made available
in this situation. Guaranty has been registered with the
Commission as a broker-dealer under § 15 of the Secvrities
Exchange Act, 15 U.S.C. § 780, since June 20, 1962, and was
therefore a member of SIPC on December 30, 1970, the date
the Act became effective. See §3(a) of the Act, 15 U.S.C.
§ 78eee(a). The case is now before the court upon SIPC’s
response, which asserts three principal reasons why the
relief requested should be denied : (1) lack of personal juris-
diction over SIPC: (2) lack of subject matter jurisdiction ;
and (3) exclusion of Guaranty by the terms of the Act.
PERSONAL JURISDICTION
SIPC alleges that it is a non-resident foreign corporation
created by Congress and that effective service of process
can only be achieved in accordance with Rule 4(d)(7), 4(e)
and 4(f) of the Federal Rules of Civil Procedure, which in
turn would require application of Tennessee law governing
service of process on foreign corporations. SIPC asserts
that since it is not doing business in Tennessee, it is not
subject to service of process issued in Tennessee.
74
District Court Opinion
This contention must be rejected. The Act plainly pro-
vides that SIPC will impose assessments on its members,
collect these assessments through its collection agent, and
extend protection to customers of its members. Since many
members of SIPC are located within the state of Tennessee, it
necessarily follows that the execution of these statutory ac-
tivities anticipates a continuing relationship between SIPC
and its members and customers, and the doing of these acts
within the state of Tennessee necessary to achieve the pur-
poses for which the Act was conceived. The nature of this
relationship and the protection which SIPC affords Ten-
nessee investors is sufficient in this court’s opinion to war-
rant the exercise of in personam jurisdiction consistent with
due process, and to be “.. . such that maintenance of the
suit does not offend traditional notions of fair play and
substantial justice.” International Shoe v. State of Wash-
ington, 326 U.S. 310, 316 (1945). See alse, McGhee v. Inter-
national Life Insurance Co., 355 U.S. 220 (1957).
The court finds this holding to be consistent with the
‘Tennessee long-arm statute, T.C.A. § 20-235, et seq., which
has been construed by the Tennessee courts as conferring
“ . jurisdiction over non-resident defendants to the
extent permitted by the due process clause,” Darby y.
Superior Supply Co., 224 Tenn. 540, 458 S.W.2d 423, 426
(1979), and in accord with this cireuit’s interpretation of
that statute’s permissible breadth under the due process
clause of the Fourteenth Amendment. See King v. Hailey
Chevrolet, 462 F.2d 63 (6th Cir. 1972): Southern Machine
Company v. Mohasco Industries, Inc., 401 F.2d 374 (6th
Cir. 1968). Certainly it can be said that “. . . Tennessee
has an interest in resolving the conflict at issue... .”
Southern Machine Company v. Mohasco Industries, Inc.,
supra, at 384.
7
District Court Opinion
Sussect Matrer JURISDICTION
SIPC asserts that although by 43 of the Act it is made
subject to and granted all the powers conferred upon a non-
public corporation by the District of Columbia Non-Profit
Corporation Act, and is granted additional powers under
subsection (b) to sue and be sued in any court, state or fed-
eral, there is a clear congressional mandate that enforce-
ment actions against SIPC must be brought where its
principal office is located. This assertion is based upon
the fact that 4 7(b) provides that in the event of the refusal
of SIPC to commit its funds or otherwise to act for the
protection of customers of any member, the Commission
may apply to the district court of the United States in which
the principal office of SIPC is located for an order requir-
ing SIPC to discharge its obligation under the Act, and
that had the Commission elected to seek enforcement in this
case, the action would have to have been brought in Wash-
ington, D. C., the location of the principal and only office of
SIPC.
For this reason, SIPC asserts that the court lacks sub-
ject matter jurisdiction to adjudicate the relief sought. The
court finds this contention without merit, for the effect of
such a proposition would not only be to substantially frus-
trate a principal goal of the Act—protection of public
investors, but would also render meaningless the language
of §3(b)(1) which confers upon SIPC the right to sue and
be sued in any court, state or federal. Had the instant
proceeding been instituted in this court by the Commission
rather than the receiver, then under §7(b) of the Act dis-
missal of the action for improper venue if not lack of sub-
ject matter jurisdiction might logically be required. How-
ever, the fact that the receiver’s enforcement action here is
of the same type which, under §7(b), the Commission may
76
District Court Opinion
institute in the district court coterminous with the locale of
SIPC’s principal office does not compel the conclusion that
the receiver must do likewise, nor that district courts other
than those of the Distriet of Columbia lack subject matter
jurisdiction over claims arising under the Act. If substance
and meaning are to be given to the Act and to the legisla-
tive goal of investor protection, then the default or neglect
of the Commission to institute eaforcement proceedings
under §7(b) should give rise to a similar cause of action
by a receiver in behalf of a member’s customers. When
such an occasion arises, § 7(b) must be read in pari materia
with $3(b)(1) so as to provide a forum of practical utility
to the parties involved and which can give meaningful effect
to the Act as a whole in the protection of SIPC’s members
and their customers located throughout the country.
Since the jurisdictional interpretation sought by SIPC
would, in severely limiting access to the courts, run counter
to these considerations, the court finds that the provisions
of <7(h) do not limit this court’s power to adjudicate an
enforcement action brought by a receiver of an insolvent
member of SIPC.
Exciusion or Guaranty Unper tar Act
SIPC contends that the application of the Act to this
case would be to give it an unlawful retroactive effect.
There is no dispute that the Act was intended to operate
prospectively only. As stated by the court in Lohf v. Casey,
330 F. Supp. 356, 358 (D. Colo. 1971), aff'd. 446 F.2d 618
(10th Cir. 1972):
“... it is equally clear that Congress expressed an
intention of refusing to make the Act retroactive.
The record is replete with comments to that effect,
the most cogent example being the report of the
Committee on Interstate and Foreign Commerce:
77
District Court Opinion
“*Tt is the clear intention of your committee that
SIPC assume no liability for firms either in net
capital violation, in liquidation, or in bankruptcy
at the time of creation of SIPC. H. R. Rep. No.
1613, 91st Cong., 2nd Sess. 4 (Oct. 21, 1970), re-
printed in 3 U.S. Code Cong. & Admin. News 70
at 5268.’
“This language is frequently echoed in the debates
on this bill, and it seems clear that Congress did
not intend the bill to operate retroactively.”
As further evidence of the scope of coverage envisioned
hy Congress, Representative Moss, one of the proponents of
the Act and a member of the Conference Committee stated :
“This is not anticipated as bailing out those firms
or their customers. This would be outside the scope
of this bill. This bill does not cover retroactively.”
116 Cong. Ree. 39,362 (1970).
Notwithstanding the prospective provisions of the Act,
there remains the problem of whether the relief sought
here would constitute a retroactive application. The Act
provides that the rights of claimants are fixed as of the
“filing date”. In explanation of this term, §5(b)(4)(B)
provides:
“(B) Filing date-—The term ‘filing date’ means
the date on which an application with respect to any
debtor is filed under subsection (a)(2); except that
|
(i) a petition was filed before such date by or
against the debtor under the Bankruptey Act, or
(ii) the debtor is the subject of a proceeding
pending in any court or before any agency of the
United States or any State in which a receiver,
trustee, or liquidator for such debtor was
appointed which proceeding was commenced
before the date on which such application was filed,
78
District Court Opinion
then the term ‘filing date’ means the date on
which such petition was filed or such proceeding
commenced.”
In terms of the instant proceeding, a receiver was not
appointed until January 29, 1971. SIPC contends, however,
that this receivership was merely an ancillary action taken
pursuant to the injunction proceeding which was com-
menced on December 22, 1970, eight days prior to the Act’s
effective date. Although § 5(b)(4)(B) (ii) is rather equivo-
eal, the court is inclined to agree with SIPC that the
injunetion proceeding commenced on December 22, 1970,
determined the filing date by reason of the receiver subse-
quently appointed. Furthermore, there is another per-
suasive factor present which compels the same conclusion.
The injunction sought by the Commission was based in part
upon the failure of Guaranty to meet the net capital
requirements of Rule 15¢3-1, 17 C.F.R. 240.15¢3-1. As pre-
viously reflected by the legislative history, the Act was not
intended to cover firms in such violation prior to December
30, 1970. This faet, coupled with the inescapable conclu-
sion, drawn from evidence precipitated by the injunction
proceeding, that Guaranty was hopelessly insolvent prior
to December 30, 1970, persuades the court that to grant the
requested relief would be a retroactive application of the
Act and a clear frustration of legislative intent. Therefore,
the court holds that customers of Guaranty are not entitled
to protection under the Act, and it is hereby ORDERED
that SIPC be dismissed as a party to this cause.
L. Cure Morton
L. Clure Morton
United States District Judge
79
Order No. 55
IN THE
UNITED STATES DISTRICT COURT
For THE Mippie District or TENNESSEE
NASHVILLE Division
Civil Action No. 5989
SECURITIES AND ExcHANGE CoMMISSION
vs.
Guaranty Bonp anp Securities Corporation, et al.
(Entered February 8, 1973)
The Memorandum filed in this cause on January 10,
1974, dismissing Securities Investor Protection Corpora-
tion (hereinafter “SIPC”) as a party is amended as
follows: .
Said Memorandum constitutes the entry of a final judg-
ment as to SIPC in view of the fact that the court spe-
cifically finds that there is no just reason for delay for
the entry of a judgment as to this defendant. In view of
the fact that the Memorandum is serving both as a memo-
randum and as an order, this amendment constitutes both
a determination of the fact that there is no just reason
for delay and an express direction for eutry of the judg-
ment as provided in Rule 54(b), Federal Rules of Civil
Procedure.
/s/ L. CLURE MORTON
United States District Judge
80)
Court of Appeals Opinion
No. 73-1451
UNITED STATES COURT OF APPEALS
For THe Sixte Crrecurr
a
SECURITIES AND EXCHANGE CoMMISSION,
Appellee,
vs.
Guaranty Bonp anp Securities Corp., ET AL.,
Defendants,
James C. Barsour, Receiver,
Appellant.
ApreaL from the United States District Court for the
Middle District of Tennessee, Nashville Division.
er >
Decided and Filed April 23, 1974.
Before: Pures, Chief Judge CreLeprezze and Mixer,
Circuit judges.
Mier, Circuit Judge. Guaranty Bond and Securities
Corporation was registered with the S.E.C. as a broker and
dealer in securities as required by Section 15(b) of the
Securities Exchange Act of 1934. As part of its business,
it promoted the sale of church bonds. On December 22,
1970, the S.E.C. filed in the court below a complaint against
Guaranty alleging net capital violations contrary to the
federal securities laws, including Section 15(¢)(3) of the
Securities Exchange Act, 15 U.S.C. 780(c)(3). Injunetive
relief was sought against the alleged violations.
The district court, finding that Guaranty had violated the
S.E.C.’s net capital rule and that such violation had existed
81
Court of Appeals Opinion
for a substantial period of time prior to the filing of the
complaint by the S.E.C., granted a preliminary injunction.
The court further found that between the filing of the com-
plaint on December 22, 1970 and the granting of the injunc-
tion on January 6, 1971, Guaranty had continued to engage
in substantial business, handling 101 transactions after the
effective date of the Act creating the Security Investor
Protection Corporation. On application of S.E.C., a re-
ceiver was appointed for Guaranty to take charge of all of
its assets subject to the further orders of the court.
On March 31, 1972, the receiver filed a petition for an
order directed to the S.E.C. and the Securities Investor Pro-
tection Corporation requiring each of them to show cause
why 8S.I.P.C. should not be required to intervene in the
action and afford to the customers of Guaranty the benefits
of the Act. The show cause order was issued accordingly
and both S.E.C. and S.1.P.C. responded. The court, without
an evidentiary hearing. filed its memorandum opinion in
which it found the Act (S.1.P.A.) was inapplicable to cus-
tomers of Guaranty for the reason that Guaranty was
insolvent and in financial difficulties before the effective
date of S.I.P.A. To hold otherwise, it was said, would be
to give the Act a forbidden retroactive effect. The court
accordingly ordered that S.I.P.A. should be dismissed from
the action. This order was certified as a final judgment for
purposes of appeal.
The Security Investor Protection Act was enacted in
response to the need to protect the customers of securities
brokers and dealers which might fail, thereby jeopardizing
the cash and securities that customers had left on deposit
with the firm’ S.I.P.A. accordingly created the Securities
1. The legislative history shows the purpose of the S.LP.A.
The serious and persistent financial problems besetting the
securities industry in recent months have led to the voluntary
82
Court of Appeals Opinion
Investor Protection Corporation as a “non-profit corpora-
tion,” not designed to “hc an agency or establishment of the
United States Government,” but rather to be “a member-
ship corporsiion,’? consistent with the self-regulatory
naturc of the securities industry. 15 U.S.C. 78 ece (a). The
S.L.P.C.’s role is primarily one of consultation and coopera-
tion with the self-regulatory organizations which remain
subject to the federal securities laws and the rules of the
S.E.C. By mandating membership in the 8.1.P.C. for cer-
tain members of the securities industry and by granting the
S.LP.C. general assessment authority over the members in
order to establish an S.1.P.C. fund, Congress accomplished
its intention that the cost of providing protection to cus-
liquidations, mergers, receiverships or, less f
ruptcies of a substantial cumber' of Rides tee "Such
failures may lead to loss of customers’ funds and securities
with an inevitable weakening of confidence in the U. S. secu-
rities markets. Such lessened confidence has an effect on the
entire economy. Whatever other steps must be taken to
improve these conditions, one objective of the bill, as reported
is to provide investors protection against losses caused by the
insolvency of their broker-dealer. The need is similar, in
roy! respects to that which prompted the establishment of
e Federal Deposit Insurance Corporation and the Federal
Savings and Loan Insurance Corporation.
4 U. S. Code Congressional and Administrative News 5255 (1970).
?
2. The members of S.I.
(a) (2), are: rs of S.I.P.C., as defined by 15 U.S.C. Sec. 78 cece
_ (A) all persons registered as b
tion 780(b) of this title, ae as brokers or dealers under sec-
ox all persons who are members of a national securities
ae 7 edn we say as a broker or dealer consists
1) the distribution of shares of registered o
. . . end
—— t companies or unit investment trusts, (ii) the a of
- " annuities, (iii) the business of insurance, or (iv) the busi-
es a! of rendering investment advisory services to one or more regis-
tered investment companies or insurance company separate pn
83
Court of Appeals Opinion
tomers under S.I.P.C. was to be borne by the securities
industry itself.’
Under 15 U.S.C. See. 78 eee (a) (1), if the S.E.C. or any
self-regulatory organization believes that a broker or dealer
subject to its regulations in, or approaching, financial diffi-
culty, it must notify immediately the S.I.P.C. If the S.1.P.C.
determines that a member broker or dealer has failed or is
in danger of failing to meet its obligations to customers, it
is authorized to seek a decree in an appropriate court
adjudicating that the customers of a member of S.L.P.C. are
in need of the protection of the Act. 15 U.S.C. Sec. 78 eee
(a)(2). Upon so finding, the district court shall grant the
decree and appoint a trustee for the liquidation of the busi-
ness and an attorney for the trustee. The objectives of the
proceeding, in addition to operating the business for a
limited purpose, completing the open contractual commit-
ments of the dealer, enforcing rights of subrogation and
liquidecing the business of the dealer, are “as promptly as
possible” (1) to return specifically identifiable property to
the customers of a firm, (2) to distribute the “single and
separate fund,” and (3) to pay to customers monies
advanced by S.LP.C. 15 U.S.C. 78 fff(a). To provide for
prompt satisfaction of the net equities of the dealer’s cus-
tomers, S8.I.P.C. must advance to the trustee such monies as
may be required to satisfy the full claims of each customer
not to exceed $50,000. 15 U.S.C. 78 fff(f).
3. S.1.P.C.’s first responsibility under the Act was to establish a
fund which would consist of all amounts received by S.I.P.C. and from
which all expenditures would be paid. 15 U.S.C. Sec. 78 ddd(c). If
the fund should become insufficient for the purposes of the Act, the
S.E.C. is authorized, i’ necessary for the protection of the customers
of brokers and dealers and for the maintenance of confidence in the
United States securities markets, to issue notes under certain con-
ditions to the Secretary of the Treasury in an amount up to one
billion dollars, which then may be lent to S.LP.C. 15 U.S.C. 78
ddd (g).
S4
Court of Appeals Opinion
If S.LP.C. refuses to act, the S.E.C. is authorized by 15
U.S.C. 78 ggg(b),* to apply to the court for an order requir-
ing the S.I.P.C. to discharge its obligations under the Act.
The present appeal involves a unique situation. The
appellant, as mentioned earlier, urges, contrary to the dis-
trict court’s decision, that the Act is applicable to Guaranty
Bond. The S.E.C. agrees with the appellant’s contention
that the Act is applicable, but challenges the court’s decision
that the receiver has standing to petition the court to apply
the Act. The S.I.P.C. agrees with the district court as to
the inapplicability of the Act but challenges, along with the
S.E.C., the receiver-appellant’s standing to obtain compli-
ance with the Act.
The S.LP.A. was effective on December 30, 1970. In two
eases, Lohf v. Casey, 330 F.Supp. 356 (D. Colo. 1971), aff'd.
466 F.2d 618 (10th Cir. 1972) and Bohart-McCaslin Ven.
tures, Inc. vy. Midwestern Securities Corp., 352 F.Supp. 937
(N.D. Texas 1973), courts have held that S.LP.A. was not
intended to apply to a broker-dealer who had failed prior
to that date. The district court in Lohf, supra at 358 stated:
“ .. it is equally clear that Congress expressed an
intention of refusing to make the Act retroactive.
The record is replete with comments to that effect,
the most cogent example being the report of the Com-
mittee on Interstate and Foreign Commerce:
5 U.S.C. 78 ggg (b) provides that:
~~ in the ont of he stand of SIPC to commit its funds
or otherwise to act for the protection of customers of any
member of SIPC, the Commission may apply to the district
court of the United States in which the principal office of
SIPC is located for an order requiring SIPC to discharge its
obligations under this chapter and for such other relief as the
court may deem appropriate to carry out the purposes of this
chapter.
mentioned above, this section is hardly couched in terms o
PR es ee feat easily accomplished had it been the intent of
Congress.
85
Court of Appeals Opinion
‘It is the clear intention of your committee that
SIPC assume no liability for firms either in net
capital violation, in liquidation, or in bankruptey
at the time of creation of SIPC. H.R. Rep. No.
1613, 91st Cong., 2nd Sess. 14 (Oct. 21, 1970), re-
printed in 3 U.S. Code Cong. & Admin. News ’70
at 5268.’
This language is frequently echoed in the debates on
this bill, and it seems clear that Congress did not
intend the bill to operate retroactively.”
Congress seemed to be concerned that S.I.P.C. not be
used to compensate customers of members firms of the
New York Stock Exchange which “have closed their doors
and begun liquidation,” when the Exchange had not ad-
vanced money from its existing trust fund to protect the
customers of those firms. As mentioned earlier in the Lohf
quote, the Committee Report did use very broad language
when it stated that coverage be withheld from firms “either
in net capital violation, in liquidation, or in bankruptcy at
the time of the creation of S.I.P.C.” H.R. Rep. No. 91-1613,
YIist Cong., 2d Sess. p. 14 (1970). The meaning of this
broad language was subsequently clarified by Representa-
tive Moss, sponsor of the Bill, on the floor of the House,
when he stated:
“Finally, we have been concerned all along with the
problem of providing protection to the customers of
firms that might fail before enactment of the bill into
law. We early anticipated this possibility but we
have specifically declined to make the bill retroactive
in its application. The bill is prospective from the
date of its enactment.” [emphasis supplied] 116
Cong. Rec. 39350-39351, 12-1-70.
Congress, lacking precise information on the condition of
the industry, was concerned with the impact that S.I.P.C.
86
Court of Appeals Opinion
coverage might have on the Treasury. The losses that had
already been experienced by the industry were regarded by
Congress as the industry’s responsibility. 8S. Rep. No. 1218,
91st Cong. 2d Sess. 6 (1970); H.R. Rep. No. 91-1613, 91st
Cong., 2d Sess. 14 (1970).
Clearly to apply S8.I.P.C. to a firm that was bankrupt
prior to the Act would be to give the Act a retroactive ap-
plication that runs counter to the Act’s clear purpose as
reflected by its legislative history. However, application of
the Act to Guaranty would not be in our view a retroactive
application. “A statute is not rendered retroactive merely
because the facts or requisites upon which its subsequent
action depends are drawn from a time antecedent to its
enactment.” Coa v. Hart, 260 U.S. 427 (1922). The time
period of the financial difficulties of the broker-dealer bears
more on the status of the broker within the meaning of the
Act than upon the issue of retroactivity.
The court in Lohf found the absence of business activity
subsequent to the effective date of the Act as determinative
of the non-coverage issue when it stated:
However, it is apparent that plaintiff was not con-
ducting its business as a broker or dealer at the
effective date of the Act. The business was in the
jurisdiction of the bankruptcy court, and the day to
day decisions were being made by the trustee. We
cannot consider plaintiff then to be a “broker or
dealer,” whether registered or not, as contemplated
by the Act. It makes no difference for these pur-
poses that plaintiff’s registration had not been of-
fically terminated, and thus the automatic member-
ship in the Securities Investor Protection Corpora-
tion may have continued in form. It could not be
expected that the Act could be applied to firms which
had already gone out of business. Plaintiff thus did
not have the status of a broker or dealer for the pur-
poses of the Act. 466 F.2d at 620.
87
Court 0; Appeals Opinion
The district court in Bohart-McCaslin Ventures, Inc.,
supra at 940 made a similar determination when it stated:
For purposes of determining coverage under the
Act, this Court discerns no legal difference between
a firm in bankruptcy and a firm in the financial and
legal condition which Midwestern suffered prior to
the effective date of the Act. Midwestern, prior to the
effective date of the Act, had ceased to be a broker-
dealer in any real sense of that terms and has not
resumed the normal activities of a broker-dealer even
at the present time.
These determinations are not applicable to Guaranty
since it actually conducted a substantial business after the
effective date of the Act. In light of the purposes of the
Act, the 101 transactions conducted by Guaranty after
the effective date are sufficient, we believe, to qualify
Guaranty’s customers for the protection provided by the
Act. As the Tenth Cireuit stated in Lohf concerning the
coverage of the Act:
We must take this to mean firms or persons which
were actually in business in the usual sense at the
critical date were the “brokers or dealers” referred
to. Congress was willing to extend coverage to then
financially weak institutions and those of unknown
strength, but the line was drawn to exclude those
which had failed and were thus in fact not brokers
or dealers. Supra at 621.
We hold that Guaranty, though financially weak, was, in
fact, a broker or dealer at the effective date of the Act.
The court below focused on the filing date of the action
against Guaranty by the S.E.C. which was prior to the
effective date of the Act. However, the S.E.C. did not
88
Court of Appeals Opinion
seek to foree (iuaranty into receivership until after the
effective date Therefore, the filing of the original S.E.C.
action did not prevent Guaranty from conducting normal
business after the effective date of the Act and thus quali-
fying as a broker-dealer.
The S.LP.C. and the S.C. challenge the receiver's
standing to bring an action to compel either of them to act
under the S.L.P.A. The court below held that the provi-
sions of the Act “do not limit this court’s power to adjudi-
cate an enforcement action brought by a receiver of an
insolvent member of S.LPLCL" We agree. The appellees
point to an absence of express language providing for an
enforcement action by the customers of a securities com-
pany or their representatives as prohibiting such an action.
We are persuaded, however, that the lack of express lan-
guage of exclusivity in providing for an enforcement action
by the S.F.C., coupled with a general provision allowing
for suits against the S.1.P.C.. evidences an intent by Con-
gress that the statute should not be as narrowly construed
as the appellees urge.
The customers of Guaranty have a definite interest in
the application of the S.1.P.A. to the present litigation. The
receiver, the representative of the customers of Guaranty,
seeks to have the S.1.P.C. meet its obligations to the eus-
tomers under the broad purposes of the S.I.P.A. Appar-
ently, the S.I.P.C. has not attempted to obtain an adjudica-
tion of the necessity for providing the protections of the
S.1.P.A. to the customers of Guaranty. Nor has the S.E.C.
moved to compel the S.1.P.C. to meet its obligations. We
do not believe that Congress intended under such cireum-
5. 15 U.S.C. 78 cce (b) (1) provides that the S.I.P.C. has the
power “to sue and be sued, complain and defend, in its corporate
name, through its own counsel, in any court, State or Federal.”
tie Rap ties i te Bits wba
89
Court of Appeals Opinion
stances to leave the customers of securities firms without
remedy under the S.L.P.A. Furthermore, despite the
appellees urgings, we find no constitutional® or statutory
prohibition’ to the maintenance of an enforcement action
by the receiver in this case.*
The judgment of the district court holding the S.1L.P.A.
inapplicable and dismissing the action as to S.1.P.C. must
therefore be reversed for the reasons stated herein. Since
we reject the premise on which the S.L.1.C. was dismissed
as a party to the action—inapplicability of the S.LP.A. to
a company of Guaranty’s status—the action is remanded to
the district court for processing consistent with this opin-
ion and specifically to determine and enforce any rights of
(Giuaranty’s customers under the S.1L.P.A.
6. To meet the “case or controversy” requirement of the Constitu-
tion, the Supreme Court has formulated a standard for ascertaining
those persons with “standing” for maintaining an action in a federal
court. The standard as defined by the Supreme Court in Sierra
Club v. Morton, 405 U.S. 727 (1971), is that one must have suffered
“injury in fact” and the injury must be an “interest arguably within
the zone of interests to be protected.” The customers of Guaranty
and their representative clearly meet this broad standard. See also
Data Processing Service v. Camp, 397 U.S. 150.
7. As mentioned earlier, there are no terms of exclusivity of
enforcement in the statute.
8. The S.I.P.C. also attacks the jurisdiction—both subject mat-
ter and in personam—of the district court to entertain this action.
We find that the district court sufficiently disposed of these conten-
tions in its memorandum opinion.
FILED
Apnait 23, 1974
James A. Hiccens, Clerk
Court of Appeals Judgment
UNITED STATES COURT OF APPEALS
For THK Sixree Crrevuir
No. 73-1451
rl
Secuniries AND ExcHaANGe COMMISSION,
Plaintiff,
ns,
Guaranry Boxp anp Securiries Corporation, Mr. Ax,
Defendants,
James C. Barsnourn, Recriver,
Appellant.
ee
Before: PHituips, Chief Judge, CeLesrezze and MiLuEr,
Circuit Judges.
JUDGMENT
AppraL from the United States District Court for the
Middle District of Tennessee.
Tuts Cause came on to be heard on the record from the
United States District Court for the Middie District of
Tennessee and was argued by counsel.
On Constveration Wuenreor, It is now here ordered and
adjudged by this Court that the judgment of the said Dis-
7 eae
el t
ate teen
91
Court of Appeals Judgment
trict Court in this cause be and the same is hereby reversed
and the case is remanded for further proceedings.
It is further ordered that Appellant recover from Appel-
lee, the costs on appeal, as itemized below, and that execu-
tion therefor issue out of said District Court.
Enterep By Orper or THE Court
J oHuN P. HeHMan
Clerk
A True Copy.
Attest:
John P. Hehman, Clerk
Issued as Mandate:
Costs To be recovered by
Appellant
Filing fee .................. $25.00
,.. eee $ —
Total 00
92
SUPREME COURT OF THE UNITED STATES
No. 73-2055
Er
Securities Investor Protection CorPoRATION,
Petitioner,
v.
James C. Barsour, et al.
rr
ORDER ALLow1ne CrrTIoRaRt. Filed October 21, 1974.
The petition herein for a writ of certiorari to the United
States Court of Appeals for the Sixth Circuit is granted,
limited to the following questions:
“1, Whether customers of a Member have an implied
private right to action to compel SIPC to meet its alleged
obligations to them under the Act, despite Section 7(b)
thereof which grants that right only to the Securities and
Iixchange Commission?
“9. If such a right of action can be implied, whether a
receiver of a Member has standing to maintain it?”
ee
=
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.