The opinion of the court was delivered by: SUGARMAN
Barnet Joseph and Max Felshin, 'on behalf of themselves and in a representative capacity on behalf of all former and present stockholders of the defendant, Farnsworth Radio and Television Corp.', commenced an action in this Court against Farnsworth Radio and Television Corp., Jesse B. McCargar, Edwin M. Martin, Lloyd S. Gilmour, Philo T. Farnsworth, George Everson and Paul H. Hartman.
As I read the complaint, it alleges, all upon information and belief except the first paragraph, that:
1st.- The action is brought under 15 U.S.C.A. 78j(b) and Rule X-10(b)(5) of the Securities and Exchange Commission;
2nd.- At the times involved, the individual defendants were directors and/or officers of the corporate defendant;
3rd.- The corporate defendant is a Delaware corporation; with its principal place of business in this district;
4th.- The individual defendants, for themselves and others, between March 19th, 1948 and October 30th 1948, sold certain enumerated shares of the stock of the corporate defendant;
5th.- The plaintiff, Felshin, on November 12, 1948 bought 100 shares of the corporate defendant's stock at 5 5/8 and the plaintiff, Joseph, on December 13, 1948 bought 700 shares of the corporate defendant's stock at 7 7/8 ;
6th.- The individual defendants, in connection with their sales (emphasis supplied) of stock enumerated in paragraph 4th, using interstate commerce and the mails, made false statements of material facts and omitted to state material facts necessary to make the statements made not misleading and employed devices, schemes and artifices to defraud and engaged in acts, practices and courses of business which were a fraud and deceit upon Joseph and Felshin and 'all others of said class in connection with the purchase and sale of the common stock of' the corporate defendant in that:
(a) (1) False statements were made as to the corporate defendant's inventory value, financial condition and net losses;
(2) Statements of material fact were omitted that the corporate defendant had suffered substantial losses during the six month period ending October 31, 1948 and that its inventory had become obsolete and substantially less valuable;
(b) All defendants, on November 12th, 1948, issued a financial statement of the corporate defendant falsely reflecting the latter's financial condition as of October 31, 1948 and earnings for the six month period prior thereto;
(c) The individual defendants knew or could have ascertained and should have known that the statement of the corporate defendant's condition as of October 31, 1948 was materially false and misleading;
(d) The defendants, in publishing the said financial statement, knew that 'persons such as the plaintiffs and other similarly situated' would rely upon the truth and accuracy thereof, in purchasing the corporate defendants' stock;
(e) The individual defendants, as insiders, with full realization prior to the first sale by them of the corporate defendant's stock, obtained and used information as to the real condition of the corporate defendant to sell their stock in it, at prices in excess of that which would have been obtainable had the true financial condition of the corporate defendant been ...