The Securities Act of 1933, 15 U.S.C.S. § 77e, broadly prohibits sales of securities irrespective of the character of the person making them. The exemption provided for in § 77d is limited to "transactions" by persons other than "issuers, underwriters or dealers." It does not in terms or by fair implication protect those who are engaged in steps necessary to the distribution of security issues.
Plaintiff Securities and Exchange Commission sued defendant association to enjoin it from violating the Securities Act of 1933, 15 U.S.C.S. § 77a et seq., prohibiting the sale of unregistered securities, for defendant's solicitation of offers to purchase unregistered Chinese government bonds. The trial court granted defendant's and denied plaintiff's motions for judgment on the pleadings, and entered judgment dismissing plaintiff's complaint because the Chinese government did not authorize defendant to act for it.
Did defendant violate section 5 (a) of the Securities Act when read in connection with section 2 (3)?
The court reversed, holding that under § 77e, a sale included the "solicitation of an offer to buy" a security "for value," regardless of whether the solicitor was authorized by the issuer. Further, it held that defendant was not a person other than an issuer, underwriter or dealer exempt from § 77e since it was an "underwriter," defined as one who sold for an issuer in connection with the distribution of a security. Section 5 of the Act provides: (a) Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly. Defendant has violated section 5 (a) of the Securities Act when read in connection with section 2 (3) because it engaged in selling unregistered securities issued by the Chinese government when it solicited offers to buy the securities "for value." The solicitation of offers to buy the unregistered bonds, either with or without compensation, brought defendant's activities literally within the prohibition of the statute. Whether the Chinese government as issuer authorized the solicitation, or merely availed itself of gratuitous and even unknown acts on the part of the defendant whereby written offers to buy, and the funds collected for payment, were transmitted to the Chinese banks does not affect the meaning of the statutory provisions which are quite explicit. In either case the solicitation was equally for the benefit of the Chinese government and broadly speaking was for the issuer in connection with the distribution of the bonds.