Thе Securities and Exchange Commission commenced this action against appellant and seven other defendants, seeking injunctions for violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. The other defendants cоnsented to the entry of permanent injunctions against them. Following a trial in the Southern District of New York, Judge Tenney found that appellant had aided and abetted his client, Universal Major Industries Corporation (U.M.I.), in selling over three million shares of unregistered stock in violation of Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e, and permanently enjoined him from further violations. We affirm.
U.M.I. became a publicly held corporation in 1954, and appellant was its general counsel from 1959 through 1973. In Marсh 1967, U.M.I. sought to raise capital to expand its petroleum exploration and development operations. To avoid the registration requirements of the Securities Act of 1933 (the Act), U.M.I. decided to engage in a private placement of debentures, exempt from registration under Section 4(2) of the Act, 15 U.S.C. § 77d(2). Appellant advised that no registration would be required for the debentures so long as the number of transferees was small, they were provided with substantial information abоut U.M.I. operations and they possessed sufficient expertise to evaluate that information.
Instead of complying with appellant’s restrictive admonitions, the company issued almost $3,500,000 of its 6% convertible debentures to approximаtely 425 persons and $440,000 of its 7% convertible debentures to 26 persons. Realizing that U.M.I. had transgressed the boundaries of the Section 4(2) exemption requirements, appellant instructed it to have the debentures registered with the S.E.C. U.M.I. retained attorney Edward Gedalecia to process this registration, but this was never accomplished.
Between March 1967 and February 1973, U.M.I. also issued roughly three million shares of unregistered common stock. These were used for the conversion of the debentures аnd the payment of interest, in lieu of cash thereon; for the purchase of interests in oil and gas properties; and in exchange for services and cash. In addition, over one-half million shares, issued to controlling shareholders, were sold by them to 134 investors. Before U.M.I.’s stock could be transferred in any of these transactions, its stock transfer agent, Continental Stock Transfer Corporation (Continental), required an opinion letter from U.M. I.’s designated counsel stating that the transfer wаs legal. The charges against appellant are based on the letters which he, as designated counsel, wrote in compliance with Continental’s requirement.
Appellant wrote some 118 letters in connection with U.M.I. transfers of stock tо debenture holders who exercised their conversion privilege or consented to receive stock in lieu of cash interest payments, of which the following is a typical example:
I refer to the attached letter of instructions from the authorized officers of Universal dated May 13th, 1968, with reference to the issuance of common stock of Universal upon a conversion of certain outstanding debentures of Universal. With respect to the issuance of shares in accordance with the conversion provisions *1046 of the debentures, I am enclosing herewith copy of a letter of opinion from (Gedalecia), who (is) special counsel for Universal, bearing date March 11th, 1968. The undersigned renders no opinion as to the original sale or issuance of the debentures which are presently presented for conversion, but I rely on the opinion of (Gedalecia) to the effect that the conversion of the debentures and the issuаnce of the stock upon such conversion, in and of itself, does not constitute a violation of the Securities Act.
However, I call to your attention that it will be necessary to place an appropriate investment stoр on your records and to place an appropriate legend upon the face of the certificates of stock to be issued. (Emphasis added).
Each of these letters was accompanied by a letter from attorney Gedalecia to U.M.I. containing, in substance, the following opinion:
In view of the fact that the debentures and the underlying stock into which they are convertible were in our opinion, sold in transactions violative of Section 5 of the Seсurities Act of 1933, as amended (as well as the Trust Indenture Act) the conversions at this time, as proposed, would not constitute additional violations of the Act.
Despite appellant’s obvious attempt to avoid a personal commitment in these letters, the District Court rejected his contention that they were simply letters of transmittal. The District Judge said that, if they were not expressions of opinion, “it is difficult to understand why such letters were written on Homans’ stationery (or, indeed, why Homans, an аttorney, wrote any such letters), why such letters directed the issuance of restricted and appropriately legended stock, and why such letters contained a statement indicating that Homans relied upon the opinion of another.” The District Judge found thаt the letters could reasonably have been understood by their recipients as an expression of appellant’s own opinion concerning the legality of the issuances which they covered, and this finding was not clearly erroneous.
Appellant also wrote 88 letters in connection with other stock transfers, which were unaccompanied by a letter from Gedalecia and in which appellant clearly stated his own opinion as to the legality of the transactions. These letters, the District Judge said, speak for themselves. We agree.
Appellant’s principal argument in this Court is based upon a footnote in the recent case of
Ernst & Ernst v. Hochfelder,
In view of our holding that an intent to deceive, manipulate, or defraud is required for civil liability under § 10b(5) and Rule 10b-5, we need not consider whether civil liability for aiding and abetting is appropriate under the section and the rule, nor the elements necessary to establish such a cause of action.
Appellant construes this statement to mean that the Court feels (a) there should be no liability for aiding and abetting a Section 5 violation, or (b) if such liability may be found to exist, it must be based upon scienter, rather than negligence. We think that appellаnt reads more than was written.
In order to accomplish the broad remedial purposes of the Securities Acts,
Affiliated Ute Citizens of Utah v. United States,
Our prior decisions clearly establish that injunctive relief is proper against aid
*1047
ers and abetters of Section 5 violations.
See SEC v. Management Dynamics, Inc.,
In these same decisions, we also made it clear that, in SEC proceedings seeking equitable relief, a cause of action may be predicated upon negligence alone, аnd scienter is not required. While this rule has not met with universal approval,
see, e. g., SEC v. Coffey,
Appellant also contends that, before he can be held liable for aiding аnd abetting, there must be proof, not only that securities were offered for sale, but also that such sales were made as part of a single, definable and integrated offering. He says that, because the sales in the instant case were mаde as a series of “separate, isolated and individually-negotiated transactions over a period of six years”, they did not meet this latter test.
The integrated offering concept sometimes is relied upon where partial exemption from registration is claimed under §§ 3(a)(9) and 3(a)(11), 15 U.S.C. § 77c(a)(9) and § 77c(a)(11).
2
See
1 Loss Securities Regulations, 577-78, 591-95 (1961);
Hill York Corp. v. American Int’l Franchises, Inc.,
It does not follow, howevеr, that the Commission must establish the existence of an integrated offering where a Section 5 violation is claimed. The focus of inquiry in such cases is not so much upon the nature of the offering as upon the need for protection of the class of offerees;
i. e.,
whether they have the information which a registration would disclose, or have access to it.
Gilligan Will & Co. v. SEC,
Finally, appellant argues that the District Court abused its discretion in issuing the permanent injunction because the SEC failed to make the required showing of a reasonable likelihood that the wrong would be repeated.
SEC v. Manor Nursing Centers, Inc.,
A District Judge is vested with a wide discretion when an injunction is sought to prevent future violations of the securities laws,
SEC v. Manor Nursing Centers, Inc., supra,
The judgment is affirmed.
Notes
. Appellant argues with some plausibility that courts should not seek to eliminate negligent behavior by enjoining against it, because, by definition, negligence is inadvertеnt and unintended. Moreover, if the intent or knowledge required for a finding of contempt is no greater than that required for the initial violation of the statute,
see United States v. Hill,
. Section 3(a)(9) exempts securities exchanged by the issuer with existing security holders involving no payment or commission or similar remuneration, and Section 3(a)(ll) exempts securities which are part of an exclusively intrastate offering.