In re Carl M. Loeb, Rhodes & Co.

33 S.E.C. 843 (1959)

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In re Carl M. Loeb, Rhodes & Co.

Securities and Exchange Commission
33 S.E.C. 843 (1959)

Facts

In May and June 1958, Arthur Davis retained broker-dealers Carl M. Loeb, Rhoades & Co. and Dominick & Dominick (registrants) (defendants) as managing underwriters for a public offering of securities to be issued by Arvida Corporation. To maximize publicity, on September 18, the media was contacted about a press release, and reporters were provided with price data for the offering. The release was issued on September 19. It discussed real estate Davis would invest in Arvida, Arvida’s development plans for the real estate, and Arvida’s plan to raise $25–30 million within the next 60 days through a public offering to be led by the registrants. The release further stated that after the offering, Arvida would have assets in excess of $100 million. A federal court ruled that despite their good faith, the registrants’ actions with respect to the release and its publicization constituted an offer to sell or a solicitation of an offer to buy securities prior to the effective date of a registration statement in violation of § 5(c) of the Securities Act of 1933; it thus granted the request of the Securities and Exchange Commission (SEC) (plaintiff) for an injunction against further violations. The SEC also brought administrative proceedings to determine whether the registrants should be disciplined for violating § 5(c). The registrants responded that § 5(c) did not apply to their actions regarding the press release because Davis’s plans for his real estate was newsworthy and that several factors mitigated against discipline.

Rule of Law

Issue

Holding and Reasoning ()

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