Before SWAN, AUGUSTUS N. HAND, and CLARK, Circuit Judges .
AUGUSTUS N. HAND, Circuit Judge .
The Securities and Exchange Commission seeks to enjoin the defendant from the use of any instruments of interstate commerce or of the mails in disposing, or attempting to dispose, of Chinese Government bonds for which no registration statement has ever been made.
The defendant is a New York corporation organized for benevolent purposes having a membership of 25,000 Chinese. On September 1, 1937, the Republic of China authorized the issuance of $500,000,000 in 4 percent Liberty Bonds, and on May 1, 1938 authorized a further issue of $50,000,000 in 5 percent bonds. In October, 1937, the defendant set up a committee which has had no official or contractual relation with the Chinese Government for the purpose of:
(a) Uniting the Chinese in aiding the Chinese people and government in their difficulties.
(b) Soliciting and receiving funds from members of Chinese communities in New York, New Jersey and Connecticut, as well as from the general public in those states, for transmission to China for general relief.
All the members of the committee were Chinese and resided in New York City. Through mass meetings, advertising in newspapers distributed through the mails, and personal appeals, the committee urged the members of Chinese communities in New York, New Jersey, and Connecticut to purchase the Chinese government bonds referred to and offered to accept funds from prospective purchasers for delivery to the Bank to China in New York as agent for the purchasers. At the request of individual purchasers and for their convenience the committee received some $600,000 to be used for acquiring the bonds, and delivered the moneys to the New York agency of the Bank of China, together with written applications by the respective purchasers for the bonds which they desired to buy. The New York agency transmitted the funds to its branch in Hong Kong with instructions to make the purchases for the account of the various customers. The Hong Kong bank returned the bonds by mail to the New York branch which in turn forwarded them by mail to the purchasers at their mailing addresses, which, in some cases, were in care of the defendant at its headquarters in New York. Neither the committee, nor any of its members, has ever made a charge for their activities or received any compensation from any source. The Bank of China has acted as an agent in the transactions and has not solicited the purchase of bonds or the business involved in transmitting the funds for that purpose.
No registration statement under the Securities Act, 15 U.S.C.A. § 77a et seq., has ever been made covering any of the Chinese bonds advertised for sale. Nevertheless the defendant has been a medium through which over $600,000 has been collected from would-be purchasers and through which bonds in that amount have been sold to residents of New York, New Jersey, and Connecticut.
Motions for judgment were made by both parties upon pleadings setting forth the foregoing facts. As a result the court below entered a decree denying complainant's motion, granting defendant's motion and dismissing the complaint. The Commission has taken an appeal from the decree, which, in our opinion, ought to be reversed.
It should be observed at the outset that the Commission is not engaged in preventing the solicitation of contributions to the Chinese government, or its citizens. Its effort is only to prevent the sale of Chinese securities through the mails without registry. If that can not be prevented there is nothing to stop Germany, Italy, Japan or any other nation, as well as China, from flooding our markets with securities without affording purchasers the information which the Securities Act intends to render available for investors in foreign bond issues.
Section 5 of the Act provides as follows:
Section 5 [ § 77e]. (a) Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly - :
(1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell or offer to buy such security through the use or medium of any prospectus or otherwise; or
(2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the ...