SEC v. Continental Commodities Corp.

SEC v. Continental Commodities Corp.

Opinion

 [*517]  GEWIN, Circuit Judge:

This appeal is taken from a district court order denying a preliminary injunction sought by the Securities and Exchange Commission (SEC) against Continental Commodities Corporation (Continental Commodities), Charles Long, and Continental Commodities Trading Company. ¹ The complaint filed by the SEC sought to enjoin Continental Commodities from committing alleged violations of various registration provisions of the Securities Act of 1933, 15 U.S.C. §§ 77e(a), 77e(c), and 77q(a) (1970), ² [**3]  and of the anti-fraud provisions  [*518]  of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b) (1970) and Rule 10b-5 thereunder, 17 CFR § 240.10b-5 (1973), ³ [**4]  and petitioned for the appointment of a receiver of all assets and property belonging to or in its possession. The district court deemed jurisdiction of the subject matter to be lacking, reasoning that none of the transactions engaged in by Continental Commodities involved [**2]  a security within the meaning of the two aforementioned Acts. In view of our disagreement with this conclusion, we reverse and remand for consideration by the district court of the propriety of granting the relief requested by the SEC. ⁴ 

According to the verified complaint, Continental Commodities, a Texas corporation incorporated in November of 1972, Charles Long, its President, and Continental Commodities Trading Company, a partnership formed in California by Long in mid-January 1973, offered to sell and sold to public investors interests denominated options on commodities futures contracts. ⁵ Headquartered at a Los Angeles office in which all options were written, the trading enterprise was a member firm of the West Coast Commodity Exchange and hence subject to rulings of the California Commissioner of Corporations. On February 22, 1973, the Commissioner issued notice that the West Coast Commodities Exchange had classified all commodity options as securities and suspended trading in these options pending their registration as such. Compliance with this ruling dictated that Continental [**5]  Commodities and Continental Commodities Trading Company cancel each option that they had underwritten and take steps to mollify their disappointed customers. Since from its inception until February 22, 1973, the Dallas office had attracted approximately 80 customers with 40 open  [*519]  accounts and the Los Angeles office had attracted approximately 40 customers with 20 open accounts, the appeasement efforts required of Continental Commodities were substantial. The failure of these efforts left disgruntled customers whose affidavits appear in the abbreviated record.

The complaint filed by the SEC asserted that jurisdiction could be grounded upon one of two bases. The first base was the trading enterprise itself, the second, promissory notes issued as partial reimbursement to customers who held open accounts with Continental Commodities at the time trading was [**6]  suspended.

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