The opinion of the court was delivered by: BONSAL
Plaintiffs instituted this action for damages and rescission arising out of defendants' alleged violations of sections 5, 12 and 17 of the Securities Act of 1933 (15 U.S.C. §§ 77c, l & q) (the "1933 Act"), sections 10(b) and 15(c) of the Securities Exchange Act of 1934 (15 U.S.C. §§ 78j(b), o) (the "1934 Act"), Rules 10b-5 and 15c1-2 promulgated thereunder by the Securities and Exchange Commission ("SEC") (17 C.F.R. §§ 240.10b-5, 240.15c1-2), and applicable state law (N.Y. Gen'l Bus. Law § 352-c (McKinney 1968)).
Plaintiff Bernard Aronson ("Aronson"), suing on his own behalf and as a trustee of a trust for his own benefit, owns the majority interest in and is principal executive officer of Bernard Aronson & Co., Inc. ("Aronson & Co."), a broker/dealer in securities and member of the New York Stock Exchange, the American Stock Exchange and the National Association of Securities Dealers. Aronson has been in the securities industry since 1928.
Plaintiff Audrey Aronson, Bernard Aronson's wife, sues personally and as trustee of trusts for their children.
Plaintiff J. William Rosenbluth sues as trustee of a trust for the benefit of Bernard Aronson.
Plaintiff Neil Sellin ("Sellin") was a vice president and registered representative of Aronson & Co. in 1970 and 1971, and has been in the securities business for 22 years.
Defendant TPO Incorporated ("TPO") is a broker/dealer in securities and until May 3, 1973 was a member firm of the New York Stock Exchange, the American Stock Exchange and the National Association of Securities Dealers.
Defendant Arthur Paturick ("Paturick") was Chairman of the Board and controlling shareholder of TPO and is sued herein personally and as TPO's chief executive officer.
This action arises out of the purchase by plaintiffs from TPO on March 4, 1971 of warrants entitling them to purchase at $7 per share 10,000 shares of the common stock of Leemick Industries, Inc. ("Leemick") for which warrants plaintiffs paid TPO $50,000 as follows:
WARRANTS FOR PURCHASE
PURCHASER NUMBER OF SHARES PRICE
Bernard Aronson 1,000 $5,000
Audrey Aronson 1,000 $5,000
Audrey Aronson, as Trustee of a
Trust for the Benefit of Joan Poster 1,000 $5,000
Audrey Aronson, as Trustee of a
Trust for the Benefit of Ronney
A. Berinstein 1,000 $5,000
Bernard Aronson and J. William
Rosenbluth, as Trustees of a Trust
for the Benefit of Bernard Aronson 1,000 $5,000
Neil Sellin 5,000 $25,000
On May 29, 1971, Leemick filed a petition under Chapter XI of the Bankruptcy Act (In Matter of Leemick Industries, Inc., 71 B 498 (S.D.N.Y.)) and the warrants became worthless.
The action was tried to the Court without a jury.
In August, 1969 TPO was the underwriter of a public offering of 100,000 shares of Leemick common stock sold at $7 per share pursuant to a registration statement on Form S-1 filed with the SEC. In partial compensation for its services, TPO (upon payment of $100) received warrants to purchase 10,000 shares of Leemick common stock, exercisable at $7 per share. The underwriting agreement gave TPO the right of first refusal to underwrite any public or private offering of any Leemick security by either Leemick or its principal shareholders for a period of five years. In addition, TPO was entitled on request to receive current financial information from Leemick.
Leemick common stock was traded over-the-counter and TPO was a market maker in the stock from the end of August, ...