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Securities and Exchange Commission v. Children’s Hospital

United States District Court for the District of Arizona
214 F. Supp. 883 (D. Ariz. 1963)


Facts

From July 1961 to November 1962, Children’s Hospital (Children’s) (defendant), along with two members of the first board of directors of Children’s, James Jennings and Ernest Ross (defendants), offered and sold over $1,300,000 in 8-percent first-mortgage bonds to residents of several states. The proceeds from the bonds were to be used to construct the hospital. Jennings and Ross were the only salaried directors of the hospital and had plans to withhold 10 percent of the proceeds from the bonds as compensation. The hospital was contracted to be constructed by a contractor in which Jennings and Ross had a significant interest, and on July 8, 1962, the hospital opened. Jennings and Ross each continued to receive a salary of $1,000 per month. The Securities and Exchange Commission (SEC) (plaintiff) brought an action to enjoin the sale of the bonds for violating § 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a).

Rule of Law

Issue

Holding and Reasoning (Davis, J.)

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