Las Vegas Hawaiian Development Co. v. Securities and Exchange Commission

On May 26, 1977, Las Vegas Hawaiian Development Company (LVH) (plaintiff) filed a registration statement with an attached delaying amendment with the Securities and Exchange Commission (SEC) (defendant) regarding a proposed public offering of LVH limited partnership interests. On December 23, LVH filed an amended registration statement with an attached delaying amendment responding to the SEC’s 16 pages of comments to its May 26 submission. The SEC sent LVH a second comment letter on May 15, 1978; this letter noted that the SEC might have additional comments. LVH responded on July 7 with a second amended registration statement, this time without attaching a delaying amendment. On July 25, the SEC issued an order authorizing its staff to conduct an examination pursuant to § 8(e) of the Securities Act of 1933 to determine whether to commence a stop-order proceeding pursuant to § 8(d) of the act. The SEC’s staff had not made a recommendation regarding a stop order, and the SEC could not predict when it might consider any staff recommendation. On July 27, LVH’s second amended registration statement became effective because LVH did not attach a delaying amendment and the SEC did not issue a stop order. Nevertheless, pursuant to §§ 5 and 8 of the act, LVH could not offer to sell or accept offers to buy the limited partnership interests because the SEC’s July 25 order made the offering the subject of a public examination before the registration statement’s effective date. On November 7, LVH sued the SEC seeking a declaration that the SEC could not use a § 8(e) examination to delay indefinitely the sale of securities with an effective registration statement without providing LVH with the hearing to which it would be entitled in the event of a stop-order proceeding. LVH’s complaint recited the chronology of LVH’s dealings with the SEC and the legal effect of the SEC’s July 25 examination order. The SEC responded that, among other things, (1) its decision to conduct an examination is not a reviewable final agency action and (2) its conduct of an examination is reviewable only for abuse of discretion or for exceeding its authority.