Matter of Hazel Bishop, Inc.

Starting in late 1959, certain investors provided Hazel Bishop, Inc. (Hazel) (defendant) with capital by purchasing unregistered Hazel shares that were to be registered and offered to the public. In doing so, these investors effectively performed the role traditionally performed by a professional underwriter. In June and October 1960, Hazel filed a registration statement and amended registration statement with accompanying prospectuses (collectively, the prospectus) for the stock to be sold by at least 112 people (the selling shareholders). This offering encompassed approximately 60 percent of Hazel’s outstanding stock, almost twice the Hazel stock previously available on the open market. The selling shareholders played various roles with respect to Hazel and had various interrelationships among themselves. For example, some of the selling shareholders (1) controlled Hazel’s business and its disclosure of financial and other company information, (2) had profit-sharing and loss-protection agreements with each other, or (3) had option agreements to buy certain shares below the market price. In addition, one selling shareholder was the American Stock Exchange (ASE) specialist responsible for maintaining an orderly market for Hazel stock. The prospectus stated that the offering would be “at the market” and suggested that the shares could be sold on the ASE. The prospectus did not refer to any professional underwriter, nor did it disclose any procedures for the selling shareholders to coordinate their activities or protect against unlawful activities. The Securities and Exchange Commission (SEC) brought an administrative proceeding pursuant to § 8(d) of the Securities Act of 1933 to determine whether to issue a stop order preventing the registration from taking effect based on the alleged grave danger that the offering would violate the law (even if only inadvertently).