The opinion of the court was delivered by: MCLAUGHLIN
McLAUGHLIN, District Judge
This securities fraud action arises out of the sale of all the capital stock of Twentieth Century Cosmetics, Inc. ("Twentieth Century"), a small cosmetics company. Plaintiff, who purchased the stock in August 1984, claims that, in connection with the sale, defendants made several material misrepresentations and omissions of fact in violation of the federal and state securities laws and the common law. The case was tried before me without a jury.
The following facts are undisputed:
Twentieth Century is a New York corporation located in Brooklyn, New York. It is principally engaged in the manufacture and packaging of cosmetics and toiletries. Prior to August 1984, defendants Abe and Sandra Antman, husband and wife, each owned 50% of the corporation's stock and were its sole officers and directors.
In recent years, Twentieth Century had achieved a level of gross sales of approximately $200,000-$300,000 annually. A large portion of this business was attributable to one account -- Gardner Marketing Corporation ("Gardner") -- for which Twentieth Century packaged a product known as "Mona Nails." In October 1983, however, Gardner ceased doing business with Twentieth Century. Thereafter, Twentieth Century experienced a substantial decline in sales.
Sometime thereafter, defendants decided to sell the business and retire to Florida. Accordingly, on June 24, 1984, they placed an advertisement in the New York Times, indicating that the business was for sale. The plaintiff, Michael Wollins, who had no prior experience in the cosmetics business, responded to the advertisement.
In the ensuing weeks, plaintiff and defendants engaged in several conversations -- both in person and by telephone. Plaintiff visited the premises of Twentieth Century on at least two occasions. On one of these visits, plaintiff was accompanied by his accountant. The nature and degree of the representations made by defendants during this period form the basis of this lawsuit.
In any event, on July 24, 1984, the parties signed a contract wherein plaintiff agreed to purchase 100% of the Twentieth Century stock from defendants for the sum of $90,000.00. See Plaintiff's Ex. 5. The parties closed the deal on August 15, 1984.
Shortly thereafter, plaintiff demanded rescission. Upon defendants' refusal to rescind the agreement, this action ensued.
Plaintiff contends that in connection with the stock sale, defendants made several material misrepresentations and omissions with respect to the viability of the company and the nature and effect of the Gardner departure. Specifically, plaintiff alleges that defendants misrepresented the following: (a) that the Gardner account was "given up," when, in fact, it was "lost"; (b) that this account constituted only about 10-15% of the corporation's gross sales, when, in fact, it comprised nearly 70% of the business; and (c) that the lost business had been "more than" replaced by several smaller accounts, when, in fact, only a small fraction of the business had been replaced.
Plaintiff does not allege that the tax returns and records he was shown were inaccurate or fraudulent. Rather, he contends that his accountant was denied access to many of defendants' books and records. In particular, plaintiff and his accountant assert that they were never shown the defendants' "cash book," which, concededly, would have instantly revealed the precise impact of the loss of the Gardner account.
Plaintiff's version of the facts is, for the most part, supported by the testimony of his accountant and his lawyer, and to some extent, by the accounts of two disinterested individuals who had also visited defendants' premises as prospective purchasers, and to whom defendants allegedly made similar representations.
Not surprisingly, however, defendants and their accountant provided a dramatically different version of the parties' discussions.
Defendants contend that they informed plaintiff of the circumstances surrounding the loss of the Gardner account; that they described Gardner as a "major" or "large" account, and that they never said the lost business had been replaced. More importantly, defendants contend that they provided plaintiff with access to all their books and records, and that plaintiff's accountant actually reviewed these records, including the cash book, on two occasions -- during his visit to the corporation ...