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CAMPBELL v. DEGENTHER

June 6, 1951

CAMPBELL et al.
v.
DEGENTHER



The opinion of the court was delivered by: GOURLEY

This is an action under the Securities Act of 1933, 15 U.S.C.A. § 77a et seq., to recover the consideration paid for undivided interest in oil well drilling operations. Jurisdiction is conferred upon the Court by Section 22(a) of the Act, 15 U.S.C.A. § 77v(a).

Defendant was engaged in the drilling for oil and gas in the State of Michigan. To finance the projects, undivided interests in the leases which he held were sold to various persons, among whom were the plaintiffs.

 The business venture was not advertised nor was any other means employed to disseminate the information to the general public. The parties became acquainted through mutual business associates and the investments of the plaintiffs with the defendant produced commercially productive wells in some instances.

 The problem here existing arises out of investments made by the plaintiffs with the defendant in the drilling of Howard Well No. 1. There were thirty-two shares sold in said well at a cost of $ 127.40 per share. Each of the plaintiffs purchased one share or a one thirty-second interest. The well was drilled in as a dry hole.

 Plaintiffs contend that prior to the sale of said interests there was no registration statement in effect nor any prospectus issued as required by Section 5 of the Securities Act. 15 U.S.C.A. § 77(e).

 Consequently, plaintiffs by the terms of the Securities Act ask to recover the consideration paid for said security, with interest thereon from April 9, 1948, less the amount of income received thereon, upon tender of such security.

 The purpose of the Act is to safeguard the investing public from fraudulent devices and tricks in the sale of securities by requiring publication of certain information concerning securities before offered for sale. A. C. Frost & Co. v. Coeur D'Alene Mines Corp., 312 U.S. 38, 43, 61 S. Ct. 414, 85 L. Ed. 500.

 Were the transactions conducted between the different parties herein subject to the provisions of the Securities Act of 1933?

 Under the subject 'Exempted transaction,' Section 4 of the Securities Act, 15 U.S.C.A. § 77d, it provides as follows:

 'The provisions of section 77e * * * shall not apply to any of the following transactions:

 '(1) Transactions by any person other than an issuer, underwriter, or dealer; transactions by an issuer not involving any public offering; * * *.'(Emphasis supplied.)

 An offering of securities under the Securities Act of 1933 may be public offering even though confined to stockholders of an offering company. Securities and Exchange Commission v. Sunbeam Gold Mines, 9 Cir., 95 F.2d 699.

 Undoubtedly, a person claiming to be within terms of the exception provisions has the burden of proof to establish that he belongs to the excepted class. Schlemmer v. Buffalo, Rochester & Pittsburgh ...


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