Securities and Exchange Commission v. Georgia-Pacific Corp.

66 Civil Action No. 1215 (1966)

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Securities and Exchange Commission v. Georgia-Pacific Corp.

United States District Court for the Southern District of New York
66 Civil Action No. 1215 (1966)

Facts

The Securities and Exchange Commission (SEC) (plaintiff) filed suit against Georgia Pacific Corp. (GP) (defendant), alleging violations of § 10(b) of the Securities Exchange Act and SEC Rule 10b-5. The complaint alleged that on multiple occasions, GP acquired substantially all the stock or assets of other corporations in exchange for stock in GP. Under the purchase agreements, the number of GP shares that would be issued in exchange for another corporation’s interests was often dependent on the value of GP stock on the New York Stock Exchange (NYSE) during specified valuation periods. During and immediately before such valuation periods, GP and certain individuals affiliated with GP would cause GP shares to be purchased by the GP treasury and GP’s stock-bonus trust. The result was that the price of GP stock rose on the NYSE and the number of shares GP was required to provide in exchange for the acquisition of another company’s assets decreased. An example of this conduct arose during GP’s acquisition of St. Croix Paper Company (St. Croix). GP’s agreement to purchase St. Croix stated that 470,172 shares of GP common stock would be issued to St. Croix’s shareholders at a rate of eight-tenths of a GP share for each St. Croix share. If the sale price of GP common stock on the NYSE during a specified valuation period did not average at least $50 per share, then GP was required to issue additional shares of GP common stock to the St. Croix shareholders. On multiple occasions during the valuation period, the trustees of GP’s stock-bonus plan authorized purchases of GP common stock by the trust. The effect of such purchases was that the market price of GP’s common stock increased from $49 to $52.75. Once the market price exceeded the $50 threshold, the trust stopped buying stock. GP therefore intentionally manipulated the market to avoid issuing additional shares of common stock to the St. Croix shareholders. [Editor’s Note: The casebook excerpt is from the SEC’s complaint against GP, not from a judicial decision.]

Rule of Law

Issue

Holding and Reasoning ()

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