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Under § 21(d) of the 1934 Securities Exchange Act, the Securities and Exchange Commission (SEC) is authorized to seek injunctive relief whenever it appears that a person is engaged in or about to engage in acts or practices which constitute a violation of the federal securities laws. 15 U.S.C.S. § 78u(d). The district court is required to grant the requested injunction upon a proper showing by the SEC. 15 U.S.C.S. § 78u(e). To satisfy this "proper showing" requirement, the SEC must establish that the defendants are engaged in or about to engage in practices that violate the federal securities laws. In order to prove this likelihood of future violations, the SEC must go beyond the mere fact of past violations.
Defendant World-Wide Coin Investments Ltd., was engaged primarily in the wholesale and retail sale of rare coins, precious metals, gold and silver coins, bullion, and in the retail sale of camera equipment. Its operations also include the sale of Coca-Cola collector items and certain commemorative items. Defendant’s common stock was registered with the plaintiff Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, 15 U.S.C. § 78l(b), and was listed on the Boston Stock Exchange. At the time of filing of lawsuit, defendant company’s assets amounted to less than $500,000, and it had only three employees. Plaintiff began its investigation of the defendant’s activities. Defendant then filed its complaint against defendant company and individuals, seeking a full fraud accounting to trace the money that cannot be documented, a permanent injunction that would require the company to comply with the 1934 Securities Exchange Act, and return of any wrongfully received benefits to the company.
Should the plaintiff’s complaint seeking a full fraud accounting and to comply defendant with the Securities Exchange Act be granted?
The court issued a memorandum opinion constituting its findings of fact and conclusions of law as required by Fed. R. Civ. P. 52(a). The court held that the company and/or individual defendants: violated all provisions contained in the Foreign Corrupt Practices Act, 15 U.S.C.S. § 78m(b)(2) and the SEC's rules promulgated thereunder. The court also held that the defendants knowingly, recklessly, and materially violated the 1934 Securities Exchange Act and related Rules. Further, the court ordered that the individual defendants to return to the defendant company the shares of stock received in exchange for overvalued merchandise. Moreover, the court ordered the rest of the individual defendants' stock to be placed in escrow pending completion of a full fraud accounting by an independent auditor. And after the completion of the audit, the court would make a determination regarding disposition of the stock and other equitable relief.