Contemporary Business Law Study Set 1

Business

Quiz 32 :
Investor Protection, E-Securities, and Wall Street Reform

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Quiz 32 :
Investor Protection, E-Securities, and Wall Street Reform

Facts of the Case The case pertains to DG which is a subsidiary of GW. TE Inc. based out of city F offers to sell a series of contracts called "Adventures" to the general public. It aimed at improving the motivation skills and sales ability of people. The people who bought these "adventures" were given certain tapes, records and written material. The Sales team of these Adventures seeks new customers anywhere and in any form. They look for strangers in stores and streets, leaves no attempt to search out persons who have any sales ability, financial acumen or other skills. In addition, as per the policy of the company, salesman is not authorized to explain the prospects of anything about what they are selling. The role is limited to generate curiosity in the prospect and persuading him to attend an "Adventure Meeting," organized by defendants. One of the mechanisms of generating curiosity adopted by the company was that the salesmen make a display of great wealth. A salesman should drive an expensive car, wear expensive clothing. They should be able to display large amounts of currency in high denominations signaling that the prospect can also have an opportunity of accumulating the same quantum of wealth. Despite the display, the salesman may, in fact, be nearly destitute. It was all frivolous in nature. In fact when purchasers tried to sell these "Adventures" to others they could not.This is because the tapes and records were worthless in the market. Thus, later on it was declared that security should have been registered under the SEC. The reason was that companies entered in contract and exchanged it in form of securities within the federal statutes.

Facts of the Case The case is related to MCD Investment Company situated and incorporated in the State of M on November 6, 1968. The books, correspondence and other records of the company are placed in their office in city of M. The company had 80 percent of its assets located in M and close to 80 percent of its income was derived from the same location. The company approached Securities Division of the State of M for the registration of its installment notes to the amount of $4,000,000. They would be made available to M residents only. This offer plan was considered as a general unsecured debt liability for the company books. Although the money mopped up from the installment notes will be given as a debt to land developers.The land developers would provide security in form of mortgages.The individual investor in the notes will not be holding any form of direct ownership in the mortgaged property. The company did not file for any registration with the SEC. However the company uses different means and instruments of transportation and communication in interstate commerce and for all the business related mails. Issue The issue is whether this issue of promissory notes is exempt from the filing of a registration statement under Securities Act. Findings and Decision of the Court The promissory notes need to be registered under the federal law of government. The notes should be issued to the single person, residing in same state. Thus, the McD investment company needs to buy the security under the commissioner of city M.

Facts of the Case The case is related to LEW and his immediate family.They together owned more than 40 percent of the shares of the company named Enterprise C.They were the largest shareholder in the company and gave directions to control the company's officers. Over a period of six month, they sold 55 percent of their holdings through 6 different brokerages.This action was concealed in open market transaction.They did not file the registration statement with the SEC for this sales transaction. Issue The issue before the court, is if this sales transaction qualify for an exemption of registration with SEC. This case was undertaken by the issuer, underwriter or a dealer of C Enterprises. Findings and Decision W and his family was charged on voilating the SEC act o 1933. This happened for the following reasons - • The stocks were sold in arge quantities without registration • The firm was not aware of the legislation This declaration at the end stated, firm to be charged with the duty and registration charges with penalty.

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