The opinion of the court was delivered by: HANNUM
On January 14, 1971, plaintiffs filed a Complaint charging various defendants, including Paul H. Rose, with violations of Section 17(a) of the Securities Act of 1933, as amended, 15 U.S.C. § 77q(a),
and Section 10(b) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78j(b),
and Rule X-10B-5 of the Rules and Regulations of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5.
District Court jurisdiction was asserted under Section 22 of the Securities Act of 1933, as amended, 15 U.S.C. § 77v,
and Section 27 of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78aa.
Pendent jurisdiction was asserted over certain non-federal claims, however, for purposes of the motions presently before the Court we will only consider the claims raised under Section 10(b) of the Securities Exchange Act of 1934, and Rule X-10B-5.
On February 16, 1971, defendant Paul H. Rose and Naomi Patricia Rose filed a motion to intervene and dissolve the attachment. They assert that the accounts attached are held by them as tenants by the entireties and therefore are not subject to attachment.
On March 27, 1972, the plaintiff filed a motion for summary judgment pursuant to Rule 56 of the Fed. R. Civ. P., 28 U.S.C.
Rose and defendant Bitting entered into a pre-incorporation agreement in which it was agreed that they would retain complete control of the corporation and that the corporation would pay Bitting a salary of $75,000 a year and Rose a salary of $100,000 a year. In addition, the agreement provided that the corporation would "reimburse" Rose for research expenses of $100,000 plus pay him $100,000 and 10% of the royalties for assignment of the patent application. It was further agreed that Rose was to be paid for assignment of the patent application out of the proceeds from the sale of stock.
Defendants Rose and Funfer admit their failure to disclose the following information:
1. That Pharmaco was to pay Rose $100,000 for assignment of the patent application;
2. That Pharmaco was to pay Rose 10% of the royalties from the patent application;
3. That Pharmaco was to pay Rose $100,000 "reimbursement" for research expenses;
4. That Pharmaco was to pay Rose a salary of $100,000 a year;
5. That Pharmaco was to pay Bitting a salary of $75,000 a year;
6. That Rose and Bitting were to receive a special class of shares that had 1000 times as many votes as the class of shares sold to plaintiffs;
7. That Rose was to be paid $100,000 for the assignment of the patent application out of the proceeds from stock sales.
"Q. Okay. And what did you do when you took the subscription to the stock?
Q. Did you go to the people's homes or meet them someplace, and what did you say?
A. Oh, I told them that the doctor had a good product that was going to make money.
Q. What did you tell them about the drug?
A. Well, it was effective.
Q. You told them that the drug was effective?
Q. Did you tell them that there was a patent on it or you assumed there would be a patent on it?
A. I told them there was a patent pending.
What did you tell them about the effectiveness of the drug?
A. Well, it stopped the pain of arthritis, and it removed -- removed all symptoms of arthritis -- swelling, pain --
Q. -- Pharmacodynamics, Incorporated had agreed to pay Dr. Rose $100,000.00 for research?
Q. Did you tell them that Dr. Rose was going to have the controlling stock interest ...