SEC v. Fifth Avenue Coach Lines, Inc.

Fifth Avenue Coach Lines, Inc. (Fifth Avenue) (defendant); its subsidiary Surface Transit, Inc. (Surface); and Surface’s subsidiary Westchester Street Transportation Company, Inc. (Westchester) operated bus lines in New York City. New York City acquired all bus lines of Fifth Avenue and Surface through condemnation, and Fifth Avenue ultimately received a condemnation award of $11.5 million. Prior to receiving the award, Fifth Avenue’s president made general statements about using the award money for investments. Once it received the award, Fifth Avenue initially deposited the money into several interest-bearing accounts. Thereafter, Fifth Avenue purchased stock while it attempted to acquire other companies, mostly unsuccessfully. During this time, Fifth Avenue still had substantial cash. However, Fifth Avenue continued to purchase stock and ultimately ended up with substantially more securities and substantially less cash. At that time, the securities were Fifth Avenue’s main expenditure and main source of income. The Securities and Exchange Commission (SEC) (plaintiff) sought an injunction against Fifth Avenue, arguing that Fifth Avenue was an investment company within the meaning of § 3(a)(1) of the Investment Advisers Act at the time Fifth Avenue received the condemnation award because of the president’s statements about investing, or at least thereafter when it held its cash in interest-bearing accounts or when it began purchasing stock. Conversely, Fifth Avenue argued that it had never been primarily engaged in the business of investing securities but rather was in the business of acquiring companies, which was its reason for purchasing stock.