it had no say or part in the sale of the seven securities.
The transaction is cited for two reasons:
(1) As evidencing the fact that the Independence Shares Corporation had, and exercised, sole control of the securities in the trust, and that The Pennsylvania Company, &c., had no control or authority whatsoever over the securties;
(2) That there were overwriting charges made against, and losses suffered by, the plan holders by the exercise of control and authority lodged in the Independence Shares Corporation, which was not only concealed from the plan holders, but which was deliberately misrepresented to the plan holders. (See Bulletin No. 18, page 10: "It costs you only $60 for each $2000 maturity"; Bulletin No. 2: "These funds cannot be removed from the safekeeping of the trustee except upon your order"; in the same Bulletin: "This is legally safeguarded by an old, reliable trustee and by them proportionately invested in trust shares.")
This loss of approximately $200,000 has another important significance.
According to its latest available financial statement, the Independence Shares Corporation as of February 28, 1939, had total assets of $84,364. Of the latter amount, $37,759 was carried as "good will." Deducting the $37,759 "good will" item, the actual assets of Independence Shares Corporation are approximately $47,000.
As against the approximately $47,000 of assets, there existed a contengent liability as of August 31, 1938, of $3,486,000 with respect to 1,104,869 Independence Trust Shares sold by the Independence Shares Corporation or its predecessor during the period from September 1, 1935, to June 14, 1938. This $3,486,000 represents actual receipts by the Independence Shares Corporation or its predecessor from the sale of such Shares.
Final determination that plan holders are entitled to the amount which they have paid in, plus interest, by reason of the fact that there was fraud in the sales made to them, raises the question as to whether it will be possible for the Independence Shares Corporation to satisfy awards made to the plan holders.
As has been stated, there has already been a $200,000 loss to the plan holders.
The complaint asserts that the Independence Shares Corporation is insolvent. At the very outset of these proceedings the attorneys were advised that in the event the motions to dismiss were denied, and that in the further event that this court was of the opinion that the prayer for the appointment of a receiver should receive further consideration, then the question of solvency or insolvency of the Independence Shares Corporation would be referred to a special master for his investigation and report.
The motions to dismiss having been denied, and the court being of the opinion that there should be further consideration of the prayer for the appointment of a receiver, this matter will be specially referred to John M. Hill, Esquire, as Special Master, to take testimony as to the solvency or insolvency of the Independence Shares Corporation and to make his report to the court at the earliest possible date.
The report of the special master as to the solvency or insolvency of the Independence Shares Corporation will be of material assistance in the final determination of the prayer for the appointment of a receiver.
Further disposition in the proceeding will await the Special Master's report.
All motions to dismiss this action are denied, and the above-entitled matter is referred to John M. Hill, Esquire, as Special Master, and the Special Master is hereby ordered, directed and authorized to hear and determine an issue raised in this case, to wit, the question of the solvency or insolvency of the defendant, Independence Shares Corporation (a Pennsylvania corporation), and to that end to take and hear testimony bearing upon that issue, the said testimony to be taken by a Court Stenographer, transcribed and submitted to this Court, together with the report of the Special Master. The said report of the Special Master shall be submitted as expeditiously and promptly as may be possible, and shall contain the Special Master's findings of fact and law upon the question of the solvency or insolvency of the said defendant, together with whatever discussion of law the Master deems proper and necessary. Jurisdiction of this entire case is meanwhile retained by this Court.
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