The opinion of the court was delivered by: CROAKE
This is an action brought by the Securities and Exchange Commission ("Commission") to enjoin further violations by defendants of §§ 5(b)(2) and 17(a) of the Securities Act of 1933 and § 10(b) of the Securities Exchange Act of 1934. The jurisdiction of the court is invoked under § 22(a) of the Securities Act of 1933 and § 27 of the Securities Exchange Act of 1934. The facts of the case are as follows.
Defendant Globus International, Ltd. ("Globus") is a Delaware Corporation. Its common stock is traded on the over-the-counter market, and there are 250,000 shares of Globus common stock outstanding. Defendant John M. Lewin is President and Chairman of the Board of Directors of Globus. Defendants Andrew Nelson and Andrew Zimmer are Vice Presidents of Globus and members of its Board of Directors. Defendants Michael Hellerman, Joseph Bald, Stephen Schustek, George Silberfein, Mayer Laufer, Mayer Laufer Company, and RLM Services, Ltd., are all alleged participants in the activities now under investigation by the Commission.
On November 13, 1970, the Commission filed a complaint alleging that the defendants singly and in concert had, from September 15, 1970 on, been engaged in a scheme to defraud the public by selling 100,000 shares of Globus stock in a manipulated market; that they commenced trading and continued to trade Globus common stock at prices which were totally arbitrary, bore no relation to the true market value of the stock, and were not determined in a free, open or competitive market. More specifically, it is alleged that the defendants, after causing to be issued 100,000 shares of Globus stock in the names of 100 fictitious persons (including one "Potter Stewart"):
1. Caused purchase orders to be placed with various brokerage firms for over 40,000 shares of Globus stock when they had no intention of paying for the stock and, in fact, did not pay for it.
2. Made false statements concerning the value of said stock.
3. Failed to disclose the true identity of the beneficial owners of said stock, and effected sham transactions which involved no change in the beneficial ownership of the stock.
4. Filed a false prospectus, and then consummated the offer, sale, and delivery of shares without an accompanying prospectus.
On November 16, 1970, Judge John F.X. McGohey, of this Court, signed a temporary restraining order enjoining defendants from further committing the acts in question. Subsequent to this, defendants Nelson, Laufer, and Laufer Company consented to preliminary injunctions against them and, on December 1, 1970, the Commission moved before the undersigned for a preliminary injunction against the remaining defendants. On that same day, the temporary restraining order signed by Judge McGohey was continued by the undersigned pending resolution of the matter at hand. This Court now grants plaintiff the preliminary injunction it seeks.
Both § 20(b) of the Securities Act of 1933 and § 21(e) of the Securities Exchange Act of 1934 state --
"Whenever it shall appear to the Commission that any person is engaged * * * in any acts or practices which constitute * * * a violation of the provisions of this subchapter or of any rule or regulation prescribed under authority thereof, it may in its discretion, bring an action in any district court of the United States * * * to enjoin such acts or practices, and upon a proper ...