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November 9, 1976;


The opinion of the court was delivered by: DUFFY



 This action is brought by the Securities and Exchange Commission (hereinafter "SEC" or "the Commission") against Parklane Hosiery Co., Inc. and Herbert N. Somekh under Section 17(a) of the Securities Act of 1933, 15 U.S.C. 77q(a) and Sections 10(b), 13(a) and 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. ยงยง 78j(b), 78m(a) and 78n(a) and the various rules promulgated thereunder. The SEC has moved this Court for a preliminary injunction against the ongoing violations and for ancillary relief to remedy those which it claims have already occurred. Rule 65, Fed.R.Civ.Proc.

 Both parties have requested that the hearing on the preliminary injunction be consolidated with the trial of this action. Rule 65(a), Fed.R.Civ.Proc. That request is granted. This opinion will constitute findings of fact and conclusions of law as required by Rule 52, Fed.R.Civ.Proc.

 The facts are relatively simple. The defendant, Herbert N. Somekh, was the guiding force behind the expansion of the corporate defendant Parklane Hosiery Co., Inc. which has approximately 400 retail outlets selling various articles of women's apparel.

 At some point during December 1968, shares in Parklane Hosiery Co., Inc. were offered to the public pursuant to a complete registration with the SEC. Somekh, however, retained effective control of the corporation in that he and others affiliated with him owned 71.6 per cent of the stock. Apparently, after the public offering the price of the shares advanced, or at least remained firm, but with the recession which occurred thereafter, the price of the public shares was drastically reduced. The decision was made by Somekh and his affiliates to have the corporate defendant "go private" by purchasing the public shares. The mechanics of this was to have Somekh and those associated with him, transfer their shares to a new corporation called "New PLHC Corp." which would also attempt to obtain the outstanding public shares and eventually merge with the corporate defendant, thus eliminating the public shareholders. New PLHC Corp. effectively made the tender for the public shares. Proxy material was circulated which stated that there would be a meeting of the shareholders of the corporate defendant on October 14, 1974 for the purpose of considering and acting upon "a proposal to approve and adopt a plan of merger between the company and New PLHC Corp. pursuant to which the company will become a privately held company, and each outstanding share of common stock of the company (other than shares owned by New PLHC Corp.) will be exchanged for $2 in cash . . . ." The proxy statement also indicated that the dissenting shareholders had the right to appraisal under the New York Business Corporation Law.

 The SEC's complaint is that the proxy statement did not go far enough in disclosing that the true underlying purpose of having Parklane Hosiery Co., Inc. go private was to bail out Herbert Somekh from certain personal transactions. The Commission also alleges that the proxy material was inadequate in that it failed to reveal that the corporate defendant was actively engaged in attempting to negotiate the release of a lease in lower Manhattan to the Federal Reserve Bank of New York, which release could have produced sizeable cash flow to the corporation. It is further charged that these facts were not disclosed to the appraisers. The Commission also seeks injunctive relief for the failure of Parklane Hosiery Co., Inc. to file certain 10-K reports and that certain other quarterly and annual reports which were filed were false and misleading in that they did not adequately disclose the purposes of the defendants in going private and the Federal Reserve Bank negotiations.

 The SEC contends that Somekh and Parklane should now be enjoined:

". . . it is requested that this Court (i) enjoin defendants Parklane and Somekh from further violations of the anti-fraud, proxy, and reporting provisions of the federal securities laws, (ii) order the appointment of a Special Counsel armed with all necessary powers and authority to make a determination as to the proper value of Parklane's stock, and as to the proper mode and extent of relief to be afforded former public Parklane shareholders, (iii) order Parklane to amend its prior public filings with the Commission so as to correct and adequately disclose all material matters relating to Parklane's financial and other affairs, (iv) order the defendant Parklane to file a Form 10K for the year ending September 30, 1975, and (v) order any other relief as to this Court shall deem necessary and appropriate."

 Before considering the factual issues presented, it is helpful to note that this action is but one of five now pending regarding the Parklane-New PLHC merger. Although the information provided to me regarding the other actions is at best sketchy, it appears that a private action under Rule 10b-5 is now pending before Judge Wyatt of this Court, Shore v. Parklane Hosiery Co., Inc., 74 Civ. 4986, a class action in the Eastern District of New York, a class action in New York Supreme Court and an appraisal proceeding in Nassau County Supreme Court. It must also be noted that the SEC has not sought to challenge the act of going private as a per se violation of Rule 10b-5. See Green v. Santa Fe Industries, Inc., 533 F.2d 1283 (2d Cir. 1976), rev'd., 430 U.S. 462, 97 S. Ct. 1292, 51 L. Ed. 2d 480 (1977); Marshel v. AFW Fabric Corp., 533 F.2d 1277, judgment vacated for possible mootness, 429 U.S. 881, 97 S. Ct. 228, 50 L. Ed. 2d 162, 45 U.S.L.W. 3279 (1976). *fn1"


 Thomas E. Baggott, a vice-president of Bankers Trust Company, testified that sometime in 1971 the bank made a loan of $750,000 to Parklane Hosiery and a two year personal loan to Mr. and Mrs. Somekh of $900,000. The collateral for the personal loan consisted of the stock in Parklane held by Mr. and Mrs. Somekh, assignment or mortgaging of certain real estate, and assignment of other securities and negotiable instruments. Baggott testified that the collateral package exceeded $2 million.

 Sometime in late 1971 or early 1972, Mr. Somekh made a payment in the amount of $80,000. No other payment was ever made and no attempt was made by the bank to foreclose on the collateral. On several occasions, Baggott urged Somekh to reduce the outstanding balance. Although Mr. Somekh met with bank officials to discuss selling certain of his properties, no such sales took place.

 From January 1974 through that summer, Bankers Trust persisted in seeking a reduction of the outstanding balance. By March, an informal understanding had been reached that Somekh would sell off a mortgage note from the Rite-Aid Company and obtain a mortgage on his home in order to repay Bankers Trust. Although a buyer was found for the Rite-Aid mortgage, the arrangement fell through, apparently due to practical and legal problems associated with the closing.

 While repayment requests were being made by Bankers Trust, the National Bank of North America stepped up efforts to obtain payment from Somekh on a guarantee obligation in the amount of $150,000. Somekh and three others had personally guaranteed a demand loan to a real estate partnership, 433 JV, of which each was a member. The bank had unsuccessfully sought repayment from Harold Strauss, one of the partners, in July 1973 and from Somekh in February 1974. On May 15, 1974, the bank wrote Somekh informing him that repayment was being demanded as of May 24, 1974, and that failure to repay by that date would result in legal action.

 During the same period of time, Somekh had a demand note outstanding with First National City Bank (FNCB) in the amount of $125,000. This loan was called in as of July 2, 1974. Since no payment was made an action was commenced in New York Supreme Court on September 20, 1974, Index No. 14881-1974.

 Pressed with repayment demands, Somekh began to consider having Parklane go private. Somekh testified that he first gave thought to going private in late June or early July of 1974. About a month later, he began serious discussions with his attorneys, regarding the advisability and feasibility of such a course.

 In or about August 1974, Baggott, Fried, another bank official, Somekh, and Somekh's accountant, had a meeting at which Somekh indicated that he intended to bring Parklane private as an alternative means of liquidating the personal obligation. These plans were reiterated to Baggott at a September 5th meeting with Somekh.

 The proxy statement was issued as of September 24, 1974. On October 14, 1974 the merger converting the company to privately owned status took place.

 Following the merger, at a December 30, 1974 meeting, Somekh's salary was increased from $90,000 to $150,000, retroactive to October 1973. *fn2" The Board authorized the corporate officers to purchase a parcel of land owned by Somekh in Pennsauken, New Jersey, and his interest in a limited partnership known as ...

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