Securities and Exchange Commission

“ Congress has seen fit to subject to judicial review such orders of the Securities and Exchange Commission as the one before us. That the scope of such review is narrowly circumscribed is beside the point. For the courts cannot exercise their duty of review unless they are advised of the considerations underlying the action under review. ”

“ The Commission shall ensure that rules of the Exchange and the Depository
provide fair and open access to membership, facilities and services and impose no
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burdens on competition except insofar as required to promote transparency,
efficiency and financial responsibility in the trading of securities, and that such
rules provide for fair and reasonable procedures for the denial, revocation or
restriction of access to such membership, facilities or services. ”

“ NOTICE TO DIRECTORS, EXECUTIVE OFFICERS, AND THE COMMISSION— In any case in which a director or executive officer is subject to the requirements of this subsection in connection with a blackout period (as defined in paragraph (4) ) with respect to any equity securities, the issuer of such equity securities shall timely notify such director or officer and the Securities and Exchange Commission of such blackout period. ”

“ We may concede that even though the preferred is to be paid in cash and thus should receive cash sufficient to purchase a comparable investment with a comparable yield, the Commission would be wrong in selecting, as a basis for valuation, abnormal or highly speculative market values of a transient nature. ”

“ Bond & Share's exchange of its securities for the new securities was a 'sale' under the Act, for 'sale' includes 'exchange.' § 2 (a) (23) . Bond & Share is a registered holding company. No 'sale' of securities can be made by a registered holding company without Commission approval. That is the command of § 12 of the Act. [2] That approval is obtained, as § 12 shows, [3] by a procedure which submits the fees in connection with the sale to the scrutiny and approval of the Commission. ”

“ The reversal of the position of this Court is due to a fundamental change in prevailing philosophy. The basic assumption of the earlier opinion as therein stated was, 'But before transactions otherwise legal can be outlawed or denied their usual business consequences, they must fall under the ban of some standards of conduct prescribed by an agency of government authorized to prescribe such standards.' Securities and Exchange Commission v. ”

“ Turning to the various factors which should have been taken into consideration in arriving at the equitable equivalent to the rights surrendered by the preferred shareholders, the Court of Appeals criticized the Commission for finding the investment value of the preferred as if there were no Holding Company Act while omitting to evaluate the common by the same standard, and for failing to consider factors other than the investment value. ”

“ The Commission may permit as reasonably incidental, or economically necessary or appropriate to the operations of one or more integrated public-utility systems the retention of an interest in any business (other than the business of a public-utility company as such) which the Commission shall find necessary or appropriate in the public interest or for the protection of investors or consumers and not detrimental to the proper functioning of such system or systems. ”

“ The Commission first applied the investment value standard in a series of cases holding common stock entitled to participate with preferred in the new securities given to satisfy claims in the dissolving corporation, although in each case the book value of the corporation's assets was exceeded by the charter claims of the preferred. ”

“ Application of the Investment Value Theory: The Commission's Alleged Failure to Take Account of Prior Divestment Losses Sustained by Engineers; Its Alleged Failure to Value the Common Stock by the Same Method as Was Used in Valuing the Preferred; 'Colloquial Equities.' It was the Commission's duty in passing upon the fairness and equity of the plan to accord each security holder, in the order of his priority, the investment or going-concern value of his security. Here, as in the Otis case, the manifest solvency of Engineers 'simplifies the problem of stockholers' rights * * *. ”

“ The Commission in its enforcement of the policies of the Act should not be hampered in its determination of the proper type of holding company structure by considerations of avoidance of harsh effects on various stock interests which might result from enforcement of charter provisions of doubtful applicability to the procedures undertaken. ”

“ The SEC has wide latitude in deciding how to gauge and compute 'substantial economies' and it has used that freedom in the past. [27] What the Commission has no right to do, however, is to substitute to the detriment of business interests and the public alike a quite different standard for the one enacted by Congress. Neither does this Court have that right. I would affirm the Court of Appeals' well considered decision. ”

“ Insofar as there may be some redistribution of the securities of operating companies through investment banking channels, this will not result in a substantial net increase in the supply of utility securities on the market because for every block of operating securities distributed there will be a corresponding block of holding-company securities retired. The net effect of such changes will be to strengthen the market for utility securities generally by replacing holding-company securities with sound operating-company securities. ”

“ The Board of Governors shall establish the above-mentioned fees, commissions and
charges for services offered by the Exchange, subject to Commission approval,
recognizing that the continued operating and development needs of the Exchange
shall be taken into consideration, but that accumulation of unnecessary surplus
funds is to be avoided. ”

“ They could not have been made out of some general desire on the part of Congress to avoid any concurrent regulation by both the Federal Government and the States of investments or companies subject to the two Acts. On the contrary, § 18 of the Securities Act and § 50 of the Investment Company Act preserve generally the jurisdiction of state officials over their subject matter ”

“ The Court interpreted the Commission's order approving this amended plan as grounded solely upon judicial authority. The Commission appeared to have treated the preferred stock acquired by the management in accordance with what it thought were standards theretofore recognized by courts. If it intended to create new standards growing out of its experience in effectuating the legislative poliy, it fail ed to express itself with sufficient clarity and precision to be so understood. Hence the order was judged by the only standards clearly invoked by the Commission. ”

“ In ascertaining whether the terms of issuance of the new common stock were 'fair and equitable' or 'detrimental to * * * the interest of investors' within § 7 of the Act, the Commission found that it could not approve the proposed plan so long as the preferred stock acquired by the respondents would be permitted to share on a parity with other preferred stock. ”

“ The Committee Report, highly authoritative but unilluminating, says merely that there must be 'a real economic need' to justify retention of an additional system. Indisputably, substantial savings can be labeled a real economic need, the more so since Congress was sharply concerned with the lack of economic justification for many utility combinations. That the Committee's language is also compatible with the SEC's reading of 'substantial economies' does no more than make that language a useless guidepost. ”

“ Create the Exchange’s rules and submit them to the Commission for approval,
including rules to prevent conflicts of interest from influencing the work of the
Board and the Exchange and providing for the withdrawal of Governors from
voting when a conflict of interest arises. ”

“ B. We have observed that the standard of compensation to be accorded security holders does not depend upon whether their security interests are to be retired by exchanging them for new securities in a continuing enterprise or by payment in cash. However, these different methods of compensating the security holder determine which of varying methods of arriving at investment value will be employed by the Commission. Where the security holder is to receive new securities, the Commission is faced with a dual valuation problem. ”

“ North American claims that its sole and continuous business has been that o acquiring and holding for investment purposes stocks and other securities of the subsidiaries, its relationship being essentially that of "a large investor seeking to promote the sound development of his investment." Active intervention on North American's part in the activities of these companies, it is true, has been of a limited character. Operations and operational policies, the Commission found, have been left entirely to the local managements. ”

“ Since Congress intended that investment values should be preserved in each liquidation or divestiture required by the Act, we may assume that it intended the Commission to value securities in a particular liquidation as if that liquidation were not taking place, but not as if the Act had never been passed; for if investment values have been preserved in th early divestitures, it is useless to reconstitute the balance sheet as if the divestitures had not taken place. ”

“ It was thought that the Commission should have estimated the future earning power of Engineers, absent a Holding Company Act, and apportioned that power between preferred and common stockholders in accordance with their respective claims. ”

“ Whether this characterization of the Commission's action may be thought to render it more palatable to the preferred stockholders whose lawful contract has been set aside by the Commission, it is plain that in the absence of some controlling direction of the statute there are no circumstances here which call for the exercise of any implied power of the Commission or court to readjust or restate the rights of the stockholders without regard to their contract. ”

“ The grounds upon which the Commission made its findings seem clear enough to me. Accepting as the Court does the fiduciary relationship of these respondents in managing the Commission proceedings, it follows that their peculiar information as to the stock values under their proposed plan afforded them opportunities for stock purchase profits which other stockholders did not have. While such fiduciaries, they bought preferred stock and then offered a reorganization plan which would give this stock a book value of four times the price they had paid for it. ”

“ Rejecting the assertion that any saving beyond a wholly nominal one would do, the SEC stated: 'The normal and usual meaning of the word 'substantial' is a meaning connoting 'important.' And we think that this normal and usual meaning is compelled here.' Id., at 209. At least four subsequent decisions cite North American and adopts its 'importance' test, a natural reading of the Act rather the unusual and specialized one adopted today. ”

“ Certainly the fixing of rates is part of this business; that is what South-Eastern Underwriters was all about. The selling and advertising of policies, FTC v. National Casualty Co., 357 U.S. 560, 78 S.Ct. 1260, 2 L.Ed.2d 1540 (1958) , and the licensing of companies and their agents, cf. Robertson v. People of State of California, 328 U.S. 440, 66 S.Ct. 1160, 90 L.Ed. 1366 (1946) , are also within the scope of the statute. ”

“ That the Commission saw fit to draw support for its own administrative conclusion from decisions of courts should not detract from the validity of its findings. Entrusted as the Commission is with the responsibility of lifting the standard of transactions in the market place in order that the managers of financial ventures may not impose upon the general investing public, it seems wholly appropriate that the Commission should have recognized the influence of admonitory language like the following it approvingly quoted from Meinhard v. ”

“ Before securities can be bought and sold on the Exchange, they must be examined. The committee on Stock List is one of the most important parts of the organization, since public confidence depends upon the honesty, impartiality, and thoroughness of its work. While425 the Exchange does not guarantee the character of any securities, or affirm that the statements filed by the promoters are true, it certifies that due diligence and caution have been used by experienced men in examining them. ”

“ They fix the admission fees, appoint almost all the officials, and look after the building and the property in general, while the thirty committeemen enforce the rules and regulations, adjudicate differences, and regulate the admission of securities. They are elected every year by the members, and they choose from their number a chairman and vice-chairman. In March of each year, before retiring from office, the committee elects all the old Stock Exchange members who wish to be re-elected, membership on the London Exchange being granted for one year only. ”

“ The outside market on the curb could not exist if it were not for the stringency of the requirements in the interest of the public which the Stock Exchange imposes in respect of the admission of securities to trading within its walls and jurisdiction. ”

“ In addition, in making a reasoned determination of the costs and benefits of a potential regulation, the Commission shall, to the extent that each is relevant to the particular proposed regulation, take into consideration the impact of the regulation on—
(i) investor choice; (ii) market liquidity in the securities markets; and (iii) small businesses. ”