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Chenery Corp. v. SEC
United States Court of Appeals for the District of Columbia Circuit
154 F.2d 6 (1946)
The Federal Water Service Corporation (Water Service) sought approval by the Securities and Exchange Commission (SEC) (defendant) for a complex corporate reorganization. Chenery Corporation (plaintiff) owned a controlling block of stock that included voting rights, which allowed Chenery to select Water Service’s corporate management. In order to maintain a controlling interest in Water Service’s voting rights, Chenery obtained additional stock during Water Service’s reorganization. The SEC determined that Chenery had to divest this recently obtained stock. The SEC held that purchases of stock of a corporation in the process of reorganization are unlawful when made by officers or employees of the corporation. The SEC held that this rule applied regardless of good or bad faith, or any other factor that might impute special knowledge. Chenery then brought the issue to federal court.
Rule of Law
Holding and Reasoning (Groner, C.J.)
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