Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

SEC v. MICRO-MOISTURE CONTROLS

March 31, 1958

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
MICRO-MOISTURE CONTROLS, INC., Louis Levin, John Herschorn, Gershon Kaplan, Garland L. Culpepper, Jr., Albert J. Grayson, George Phillip Barton, Rudolph V. Klein, doing business as R. V. Klein Company, Jack Gold, Robert C. Leonhardt, Rockwell Securities Corporation, A. J. Grayson & Co., Incorporated, Brown, Barton & Engel, I. W. .page & Co., Incorporated, World Wide Investors Corporation and McGrath Securities Corporation, Defendants



The opinion of the court was delivered by: EDELSTEIN

Findings of Fact

1. Defendant Micro-Moisture Controls, Inc. was organized on or about January 16, 1953, in the State of Delaware, has an authorized capitalization of 7,000,000 shares of a one cent common stock of which approximately 5,512,983 shares were issued and outstanding during the period involved.

 2. (a) Defendant I. W. Page & Co., Inc. has been registered with the plaintiff as a broker and dealer in securities since September 6, 1956. Majority stock control of this defendant corporation is owned by the defendant Jack Gold, who is the president, treasurer, and a director, and it maintains its principal place of business at 37 Wall Street New York City, New York.

 (b) Defendant Brown, Barton & Engel has been registered with the plaintiff as a broker and dealer in securities since March 18, 1956. The capital stock of this defendant corporation is owned or controlled by defendant George Phillip Barton, who is the president and a director, and it maintains its principal place of business at 24 Commerce Street, Newark, N.J.

 (c) Defendant McGrath Securities Corporation has been registered with the plaintiff as a broker and dealer in securities since March 12, 1953. The capital stock of this defendant corporation is owned by defendant Robert C. Leonhardt, who is the president and a director, and it maintains its principal place of business at 70 Wall Street, New York City, N.Y.

 (d) Defendant A. J. Grayson & Co., Inc. has been registered with the plaintiff as a broker and dealer in securities since February 25, 1956. The capital stock of this defendant corporation is owned by the defendant Albert J. Grayson, who is the president and a director, and it maintains its principal place of business at 92 Liberty Street, New York City, N.Y.

 (e) Defendant Rockwell Securities Corporation has been registered with the plaintiff as a broker and dealer in securities since July 20, 1956. The capital stock of this defendant corporation is owned by the defendant Garland L. Culpepper, Jr., who is the president and a director, and it maintains its principal place of business at 70 Wall Street, New York City, N.Y.

 (f) Rudolph V. Klein, defendant, doing business as R. V. Klein Company, has been registered with the plaintiff as a broker and dealer in securities since September 14, 1942, and maintains his principal place of business at 170 Broadway, New York City, N.Y.

 (g) Defendant World Wide Investors Corporation has been registered with the plaintiff as a broker and dealer in securities since July 9, 1955, and during the period material to the issues maintained its principal place of business at 231 Washington Street, Hoboken, N.J.

 3. On December 20, 1955, defendant Micro-Moisture Controls, Inc. issued and delivered to the Peeby Company, Inc. 1,200,000 shares of its common stock in consideration of all of the assets of the latter. Peeby Company, Inc. thereupon delivered the 1,200,000 shares to its own stockholders, who were twenty in number. None of the 1,200,000 shares was registered with the plaintiff. In issuing these shares to Peeby Company, Inc., defendant Micro-Moisture Controls, Inc. Claimed to rely upon the provisions of Rule 230.133 of the General Rules and Regulations of the plaintiff under the Securities Act of 1933. Immediately after the transaction defendant Micro-Moisture Controls, Inc. had outstanding 2,947,355 shares of its common stock. (Exhibit 4 of plaintiff.)

 4. At about the same time as the Peeby Company, Inc. transaction, the defendants Robert. C. Leonhardt, Louis Levin and Albert J. Grayson each borrowed $ 100,000 from a New York Bank. Pursuant to the authority granted by certain powers of attorney delivered to him by the former Peeby stockholders, defendant Louis Levin pledged 600,000 of the 1,200,000 shares received by the Peeby Company, Inc. stockholders as collateral security for the loans. (Exhibit 4 of plaintiff.)

 5. The defendant Louis Levin, pursuant to the powers of attorney, sold the 1,200,000 shares through broker-dealers in New York, including the defendant McGrath Securities Corporation. (Exhibit 4 of plaintiff.)

 6. In April 1956 defendant Garland C. Culpepper, Jr., resigned as the president and a director of defendant Micro-Moisture Controls, Inc. and defendant Louis Levin became the president and a director. (Exhibit 4 of plaintiff.)

 7. On June 21, 1956 the defendant Micro-Moisture Controls, Inc. had outstanding 3,071,498 shares of its common stock. (Exhibit 4 of plaintiff.)

 8. Defendant Micro-Moisture Controls, Inc., under the direction of defendant Louis Levin, on or about June 21, 1956, caused to be issued to nominees of Converters Acceptance Corporation Limited, a Canadian corporation, 2,396,485 shares of the common stock of the corporation in exchange for the assets of Converters Acceptance Corporation.

 9. Converters Acceptance Corporation distributed the 2,396,485 shares of common stock to its 31 stockholders.

 10. Defendant John Herschorn of 5 Bridge Street, Montreal, Province of Quebec, Canada, acquired of record in his own name 424,697 shares of the common stock and the defendant Gershon Kaplan of the same address became owner of record of 353,080 shares. Moreover, defendant Kaplan and at least 25 other owners of an additional 1,477,840 shares of the total of 2,396,485 shares of common stock granted defendant John Herschorn irrevocable powers of attorney to possess and sell at his sole discretion these shares. Further, defendant Herschorn, in the manner hereinafter particularly described, disposed of 710,623 shares of that common stock.

 11. No registration statement for the 2,396,485 shares was in effect or filed with the plaintiff. Defendant Micro-Moisture Controls, Inc. and other defendants claimed to rely on Rule 230.133 in connection with the issuance of these 2,396,485 shares by defendant Micro-Moisture Controls, Inc. to Converters Acceptance Corporation. Immediately after the transaction, defendant Micro-Moisture Controls, Inc. had 5,467,983 shares of its common stock outstanding. (Exhibit 4 of plaintiff.)

 12. On July 27, 1956 defendant Micro-Moisture Controls, Inc. issued and delivered in a private transaction to defendant Louis Levin a total of 44,000 shares of its common stock as payment for moneys due and owing to him. Immediately after this transaction defendant Micro-Moisture Controls, Inc. had 5,512,983 shares of its common stock outstanding. (Exhibit 4 of plaintiff.)

 13. Defendant Micro-Moisture Controls, Inc. made the following additional issuances of its common stock which were not registered under the Securities Acts:

 (a) 450,000 shares to the organizers of the corporation early in 1953;

 (b) 299,000 shares to the public pursuant to Regulation A in 1953;

 (c) 33,000 shares to stockholders of All Weather Windows Corporation in February of 1954;

 (d) 318,007 shares to Eastern Koolvent Aluminum Awning, Inc., on May 27, 1954;

 (e) 10,000 shares to Jack Carmel in August 1954; (f) 107,143 shares to its subsidiary company, Comfort Zone Corporation, and an additional 88,500 shares to the eight stockholders of that company in October 1954;

 (g) 430,000 shares to the 14 stockholders of Koolvent Awning, Limited, on November 30, 1954;

 (h) 11,705 shares in February 1956 to the public holders of convertible bonds which were qualified under Regulation A;

 (i) 44,360 shares to 6 persons in February and March, 1956;

 (j) 32,972 shares on March 12, 1956 and an additional 46,811 shares on September 10, 1956 as stock dividends. 14. The relative positions, as Micro-Moisture Controls, Inc. stockholders, of each of the following persons, after the distribution of the 2,396,485 shares of common stock on or about July 5, 1956 was as listed (except for the possibility that members of the general public, whose names are not known to either the defendant, Micro-Moisture Controls, Inc., or plaintiff, because their shares may have been held in street names of broker nominees, may be the owners of more than 14,000 shares of said common stock): 1. Defendant John Herschorn 424,697 2. Defendant Gershon Kaplan 353,080 3. R. Boyer 282,555 4. H. Salinsky 254,345 5. I. Glouberman 98,735 197,470 M. Glouberman 98,735 7. H. Benjamin 120,120 8. C. D. Hyman 77,350 81,900 F. R. Hyman 4,550 10. A. Schactman 60,652 11. P. L. Hyland 60,652 12. P. R. Goodkin 54,964 13. E. R. Mellenger 34,489 14. J. Selinger 34,398 15. H. Levine 34,398 16. W. Saks 28,210 17. D. Metrick 28,210 18. Claude Ducharme 28,210 19. B. Pigeon 21,294 20. R. Kempton 21,294 21. W. Cohen 21,294 22. D. Cohen 21,294 23. I. Pichl 21,294 24. Kurt Koenig 21,294 25. B. Soloway 21,294 26. H. Yates 14,105 27. George Hoffman 14,105

 Paul Saks of Montreal, Canada, who received 120,120 shares of the common stock as a liquidating dividend from Converters Acceptance Corporation was the sixth largest stockholder of record; the defendant Garland L. Culpepper Jr. was the eighth; and the defendant Louis Levin was thirteenth on the list of stockholders. Besides these stockholders there were and still are no other substantial stockholders of record of the defendant Micro-Moisture Controls, Inc., because the average holding of the more than 4,000 remaining stockholders is less than 1,000 shares of common stock. (Exhibits 1A, 1B and 2 of plaintiff.)

 15. The transfer company, pursuant to the instructions of Micro-Moisture Controls, Inc. on July 3, 1956 issued and delivered by mail stock certificate of that defendant J30118 for 1,178,814 shares of common stock in the name of the defendant John Herschorn, 5 Bridge Street, Montreal 29, Province of Quebec, Canada, and certificate J30119 for 1,217,671 shares of common stock in name of P.L. Hyland, 595 Westluke Street, Montreal 29, Province of Quebec, Canada, as nominees for the Converters Acceptance Corporation of the city of Montreal. (Exhibit 1A, 1C and 2 of plaintiff.) 16. Stock certificates J30118 and J30119 were shortly thereafter surrendered to the transfer company and cancelled. Simultaneously, the total of 2,396,485 shares of common stock were reissued as a liquidating dividend to defendants John Herschorn and Gershon Kaplan and 29 other stockholders of Converters Acceptance Corporation. The stock certificates issued were as follows: Owner of Record Certificate Nos. Total Shares John Herschorn, Defendant J30120/J30141 Incl. 424,697 Gershon Kaplan, Defendant J30161/J30178 Incl. 353,080 Ralph Boyer J30321/J30244 Incl. 282,555 H. Salinsky J30200/J30224/J30286 254,345 Incl. Paul Saks J30155/J30160 120,120 H. B. Benjamin J30225/J30230 Incl. 120,120 I. Glouberman J30245/J30254 Incl. 98,735 M. Glouberman J30255/J30264 Incl. 98,735 C. D. Hyman J30151/J30153 Incl. J30285 77,350 P. L. Hyland J30180/J30182 Incl. 60,651 A. Schactman J30183/J30185 Incl. 60,652 P. Goodkin J30189/J30191 Incl. 54,964 E. R. Mellenger J30145/J30146 Incl. 34,489 H. Levine J30269/J30270 Incl. 34,398 J. Selinger J30147/J30148 Incl. 34,398 D. Metrick J30194/J30196 Incl. 28,210 W. Saks J30197/J30199 Ingl. 28,210 Claude Ducharme J30265/J30267 Ingl. 28,210 B. Pigeon J30154 21,294 R. Kempton J30179 21,294 I. Pichl J30188 21,294 N. Cohen J30192 21,294 B. Soloway J30142 21,294 D. Cohen J30143 21,294 Kurt Koenig J30144 21,294 Hyman Yates J30149 14,105 George Hoffman J30150 14,105 Jack Rudner J30193 11,648 F. R. Hyman J30268 4,550 Celia Cohen J30186 4,550 Catherine Allin J30187 4,550 Total 2,396,485

 (Exhibits 1A, 1C and 2 of plaintiff.)

 17. The issuance and transfers of its common stock were effected by action of certain employees and officers in behalf of Micro-Moisture Controls, Inc., and that such employees and officers acted within the scope of their employment and authority, an authority approved by the Board of Directors of the corporation. Defendant Louis Levin became president of the defendant Micro-Moisture Controls, Inc. sometime during the month of April 1956. (Exhibits 1A and 2 of plaintiff.)

 18. Defendants Louis Levin, John Herschorn and Gershon Kaplan, together with 25 other persons, who granted defendant John Herschorn irrevocable powers of attorney to sell their shares of stock, each waived payment of the installment of the dividend payable at a rate of two cents per share in cash, together with a stock dividend of three per cent in common stock, paid on September 10, 1956 to stockholders of record August 15, 1956. (Exhibits 1A, 1D and 2 of plaintiff.)

 19 Defendant Micro-Moisture Controls, Inc. was regularly furnished information by the Registrar and Transfer Company, its securities transfer agent, which maintains places of business at 50 Church Street, City and State of New York, and 15 Exchange Place, Jersey City, State of New Jersey. (Exhibits 1A, 1E and 2 of plaintiff.)

 20. In a circular letter to stockholders of Micro-Moisture Controls, Inc., dated January 10, 1957, signed by the defendant Louis Levin as president of defendant corporation, it was announced that:

 (a) The annual stockholders meeting which was set for February 28, 1957, was to be held at the corporation's office of Plotnick Brothers, Ltd., 5 Bridge Street, Montreal. The Board of Directors scheduled the meeting at Montreal to afford an opportunity to inspect the Canadian operations of the defendant corporation, and because the major operations and defendant's assets are located in Canada.

 (b) The defendant corporation had recently moved its local place of business to 132 Front Street, Farmingdale, New York. (Exhibits 1A, 1E and 2 of plaintiff.)

 21. Since the issuance of the 2,396,485 shares of common stock in July 1956 for the assets of Converters Acceptance Corporation, the executive management and principal business of Micro-Moisture Controls, Inc. has been located in the environs of the city of Montreal, Province of Quebec, Dominion of Canada. (Exhibits 1A and 2 of plaintiff.)

 22. Some of the 26 stockholders of Converters Acceptance Corporation who granted the defendant John Herschorn powers of attorney, were associated as stockholders for a number of years prior to June 21, 1956, in the four private manufacturing corporations which were absorbed by Micro-Moisture Controls, Inc. through the acquisitions of the assets of Converters Acceptance Corporation. (Exhibits 1A and 2 of plaintiff.) 23. The following stock transfers were effected on the dates indicated: New Record Certificate Number Date of Ctf. New Record Owner Numbers of Shares transfer Nos. Owner P. L. Hyland J30180 20,000 11/ 2/56 J36109/28 Crawford & Co. H. Salinsky J30200/04 50,000 12/10/56 J46359/412 Crawford & Co. H. B. Benjamin J30225/27 Crawford & Co. J30230 80,120 12/14/56 J46828/61 Crawford & Co. I. Glouberman J30245/47 30,000 12/17/56 J45775/804 J. Herschorn J30248/49 J30254 20,735 12/17/56 J45805/32 I. Glouberman J. Herschorn J45778/804 17,000 12/20/56 J47414/16 King & Co.

 (Exhibits 1A and 2 of plaintiff.) 24. It is a fact that 998,210 of the 2,396,485 shares of common stock were placed under the voting control of defendant Louis Levin, president of defendant Micro-Moisture Controls, Inc., pursuant to the terms of two voting trust agreements dated June 21, 1956, as follows: Shares In Voting Name Owned Trust Herschorn (defendant) 424,697 200,000 Kaplan (defendant) 353,080 250,000 Salinsky 254,345 200,000 Benjamin 120,120 40,000 Boyer 282,555 200,000 Saks, W. 28,210 28,210 Glouberman, I. 98,735 40,000 Glouberman, M. 98,735 40,000 Cohen & Metrick 49,504 Pichl 21,294 Schatman 60,652 Goodkin 54,964 Hyland 60,651 Hyman, F. 4,550 Kempton Mellinger 133,133 Hyman, C. Cohen, D. 21,294 Pigeon 21,294 Selinger 34,398 Yates 14,105 Hoffman 14,105 Levin 34,398 Koenig 21,294 Others 190,372 2,396,485 998,210

 (Exhibit 4 of plaintiff; Exhibit A of defendants McGrath Securities Corporation and Robert C. Leonhardt.)

 25. On July 9, 1956 the defendant Albert J. Grayson borrowed $ 100,000 from a New York bank and defendant Robert C. Leonhardt borrowed $ 50,000 from the same bank. Pursuant to the powers of attorney referred to, the defendant John Herschorn delivered as collateral security for these loans, 300,000 shares out of the 2,396,485 shares of common stock of defendant Micro-Moisture Controls, Inc. received by the 31 stockholders of Converters Acceptance Corporation. (Exhibit 4 of plaintiff.)

 26. In addition to these loans (Finding of Fact 25) the defendant Louis Levin borrowed at the same time from the same bank an additional $ 60,000 and pledged as collateral 120,000 shares of the stock of the defendant Micro-Moisture Controls, Inc. received by the 31 stockholders of Converters Acceptance Corporation. 27. The defendant John Herschorn received payment, at prices from 75 Cents to $ 1.00 per share, from the registered broker-dealer defendants, for a total of at least 710,623 shares of the 2,396,485 shares of common stock of defendant Micro-Moisture Controls, Inc. which were received by the 31 stockholders of Converters Acceptance Corporation, as indicated: Purchasing No. of Date of Defendant Shares Last Purchase McGrath Securities 447,614 10/30/56 I.W. Page & Co. Inc. 150,014 12/12/56 Brown, Barton & Engel 66,945 12/5/56 World Wide Investors 23,550 12/10/56 R V. Klein 17,500 12/18/56 Rockwell Securities 5,000 9/18/56 710,623 shares (exhibit 4 plaintiff)

 28. Of the 447,614 shares purchased by the McGrath Securities Corporation and Robert C. Leonhardt from defendant John Herschorn, they sold 140,114 at retail to various of their customers; sold 207,000 of the 2,396,485 unregistered shares to defendants Albert J. Grayson and A. J. Grayson & Co. Inc.; sold 35,500 shares to defendant Rudolph V. Klein; sold 8,500 shares to defendant World Wide Investors Corporation and repaid 45,000 shares to defendant Garland L. Culpepper, Jr. in payment for a similar number of shares previously borrowed by defendant Robert C. Leonhardt from defendant Culpepper. The last retail sales of these shares by defendant McGrath Securities Corporation was on October 31, 1956; last sale to defendants Albert J. Grayson and A. J. Grayson & Co., Inc. was on October 10, 1956; last sale to defendant Rudolph V. Klein was on October 31, 1956; last sale to defendant World Wide ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.