SEC v. Jos. Schlitz Brewing Co. - 452 F. Supp. 824 (E.D. Wis. 1978)

Rule:

More than one governmental agency may investigate the same conduct simultaneously and bring simultaneous civil and criminal actions based on such conduct so long as the respective remedies are not mutually exclusive and there is an otherwise rational basis for their individual proceedings.

Facts:

This was an action brought by the Securities and Exchange Commission (Commission) against the Jos. Schlitz Brewing Company (Schlitz) pursuant to section 20(b) of the Securities Act of 1933, 15 U.S.C. § 77t(b) and sections 21(d) and 21(e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78u(d) and 78u(e), to restrain and enjoin Schlitz from engaging in practices alleged to violate the federal securities laws. Schlitz was a Wisconsin corporation engaged in the business of selling beer and malt beverages whose securities are registered with the Commission and are publicly traded. The complaint sets forth three causes of action. The first cause of action alleges violations of section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a) and section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. 240.10b-5. Schlitz was alleged to have failed to disclose a nationwide scheme to induce retailers of beer and malt beverages to purchase Schlitz' products by making payments or furnishing things of value of at least $3 million in violation of federal, state and local liquor laws. It was also charged that the defendant failed to disclose its alleged participation in violations of Spanish tax and exchange laws in connection with transactions with certain Spanish corporations described as affiliates. Schlitz allegedly falsified its books and records with respect to these payments and transactions. By failing to disclose these matters, Schlitz' financial statements, registration statements, periodic reports and proxy solicitation materials filed with the Commission were said to be materially false and misleading. Schlitz was also charged with aiding and abetting violations of sections 17(a) and 10(b) by the public companies which allegedly received unlawful inducement payments. The second and third causes of action incorporate the allegations of the first cause of action and allege, respectively, violations of section 13(a), 15 U.S.C. §§ 78m(a) and 14(a), 15 U.S.C. § 78n(a) of the Securities Exchange Act of 1934. Schlitz contended that the Commission lacks the jurisdiction to bring this action because the acts and practices upon which the action is predicated fall outside its regulatory jurisdiction which is limited to "acts or practices which constitute or will constitute a violation" of the federal securities laws. 15 U.S.C. §§ 77t(b); 15 U.S.C. § 78u(d). The inducement payments which Schlitz is alleged to have made to its customers may violate the Federal Alcohol Administration Act, 27 U.S.C. § 201 et seq., the enforcement of which rests exclusively with the secretary of the treasury, through the bureau of alcohol, tobacco and firearms and the attorney general. 

Issue:

Did the Commission act beyond its jurisdiction?

Answer:

No.

Conclusion:

The Commission sought by this action to enforce the disclosure requirements of the federal securities laws for the protection of shareholders and the investing public generally, a function clearly within the Commission's regulatory authority. Since the basis for this action by the Commission is the alleged failure of Schlitz to disclose its potentially criminal marketing practices in its filings with the Commission, mailings to shareholders and press releases, the Commission had a rational basis for instituting this enforcement proceeding.