was having; and, moreover, each of them knew that the commercial notes being sold were the primary if not the sole source of income for the company. Indeed, they each knew or should have known that because of the vast expenses of A.F.M. which far exceeded gross income, as reflected in various balance sheets of the company, A.F.M. came to rely on the continued sale of commercial notes to meet the repayment schedule of previously sold notes. Defendants were certainly aware of all the efforts put forth by the company to accomplish the sale of these commercial notes. In fact, defendant Strobl, whose signature appears on the notes, supervised the deposit and use of the money received from the sales of the commercial notes.
Acceptance of a position as director of American Food Management, Inc., under Pennsylvania law carries with it a positive duty to manage the affairs of the corporation. See 15 Purdons Statutes §§ 1401, 1408. Failure to take positive steps to correct an illegal corporate action must be deemed equivalent to active participation in the selling scheme.
It is clear that Carl Strobl participated in the sale of the commercial notes directly by reason of his having signed the commercial notes and having supervisory power over the proceeds when received, and Martin Salkowe must be deemed to have also directly participated in selling the notes by reason of his position as a director and vice president of A.F.M.
Alternatively, liability exists by virtue of defendants being controlling persons. Both the 1933 Act and the 1934 Act impose liability on such persons to the extent that the defendant company has violated the Securities laws. See § 15 of the Securities Act of 1933 and § 20(a) of the Securities Exchange Act of 1934. It seems obvious to the Court that since defendants were officers and were two of the three directors of the company, they were definitely in a position of control as that term has heretofore been defined. Very simply stated, defendants Strobl and Salkowe were aware of the economically precipitous position of the company but failed to exert any power to prevent the fraud of selling worthless securities from being perpetrated on plaintiffs. The Court does not discern in any of their conduct any attempt to oppose management policies and thus must infer that they condoned and participated in a scheme to defraud. See United States v. Sherwood, 175 F. Supp. 480, 483 (S.D.N.Y.1959).
In view of the foregoing, the Court must conclude that plaintiffs are entitled to recover the amounts of their respective investments, along with any interest which has accrued thereon.
Findings of fact and conclusions of law have not been separately stated but are included in the body of the foregoing opinion as specifically authorized by Rule 52(a) of the Federal Rules of Civil Procedure.
An appropriate Order is entered.