Pagel, Inc. v. SEC

Pagel, Inc. (Pagel) (defendant) was a registered broker-dealer operated by its president, Jack W. Pagel (Jack) (defendant), and vice president, Duane A. Markus (defendant). Jack and Markus also directed Pagel’s trading activities. Pagel served as the principal underwriter for FilmTec Corporation’s initial public offering. In the offering, Pagel retained over 90 percent of FilmTec’s shares. On the day after the offering was completed, Pagel’s opening prices for its FilmTec stock were approximately 40 percent above the initial offering price, and, partly through Markus’s use of nominee accounts, Pagel purchased more shares from its customers than it sold. Over the next week or so, Pagel continued to raise the price of FilmTec’s shares—despite a lack of customer demand—and kept the price constant at a price significantly above the initial offering price for about a year. Thereafter, Pagel steadily lowered the price, despite the fact that there was no longer a lack of customer demand. Shortly before the close of the fiscal year, Jack used a bonus he had received from Pagel to purchase all of Pagel’s FilmTec shares, and Pagel recognized a $180,000 tax loss, which offset its trading profits. An administrative-law judge determined that Pagel, Jack, and Markus had violated provisions of securities laws, in part because they had manipulated the price of FilmTec stock in the initial offering and thereafter. Pagel, Jack, and Markus appealed to the Securities and Exchange Commission (SEC) (plaintiff), which upheld the administrative-law judge’s determination and revoked Pagel’s broker-dealer registration. Pagel, Jack, and Markus appealed.