73 F. Supp. 798
PROCEDURAL POSTURE: Plaintiffs stockholders sued defendant stockholders and corporation in the United States District Court for the Eastern District of Pennsylvania for violation of the Securities and Exchange Act of 1934, 15 U.S.C.S. § 78j.
OVERVIEW: Plaintiff stockholders sued defendant stockholders for violating § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C.S. § 78j(b), alleging that defendant stockholders purchased plaintiffs' stock without disclosing material facts. Prior to purchases, plaintiffs and defendant stockholders had been equal owners of defendant corporation; after purchases, defendant stockholders were sole owners. Significantly, defendant stockholders had, prior to purchasing plaintiffs' stock and without their knowledge, entered into an agreement to sell the company after acquiring plaintiffs' stock.
Federal district court ruled that plaintiffs need not prove that defendant stockholders profited from their deceptive transaction, as this was a § 78j action and not a common law deceit suit; plaintiffs' remedy - requiring defendant stockholders to provide an accounting of their profits - was reasonable.
It is not necessary that a plaintiff alleging violation of § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C.S. § 78j(b), establish that a defendant profited from a material misstatement.
-A plaintiff's case is established when the defendant's duty and its breach were proved.
-When a defendant, as an officer and director of a corporation, dispose of the bulk of the corporation's assets to an outsider, for his own benefit, without disclosing the transaction to the plaintiff or giving him an opportunity to participate in it, the remedy is an accounting to ascertain and restore to the plaintiff his proportionate share of the profits, if any.
OUTCOME: Judgment for plaintiffs; defendant stockholders plainly kept their planned transaction secret, in violation of federal law, and plaintiffs need not have proven that defendant stockholders profited thereby.
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