17(a) and even if these claims are not barred by the applicable statutes of limitation, defendant Cohen is entitled to a judgment as a matter of law.
The plaintiffs argue that the defendants are liable under Section 12(2) and 17(a) for wilfully and with knowledge of the facts omitting to inform the plaintiffs, at the time of the purchase and delivery of the 32,000 shares of common stock, that the issuer corporation had failed to comply with the registration requirements of both the Securities Act of 1933 and the Pennsylvania Securities Act of 1939.The plaintiffs admit that at the time of the sale and delivery, defendant Cohen was unknown to them and made no fraudulent representations concerning the shares. The plaintiffs, however, assert that as a director of Bio-Med Computer Services, Inc. at the time of the allegedly fraudulent January 8, 1971 rescission letter, Cohen knowingly engaged in a cover-up, thereby becoming an aider and abettor in the original illegalities.
The court fails to see how Cohen's participation as a director in the sending of the rescission offer can make him an aider and abettor in the alleged failure to disclose that the 32,000 shares were not registered under the Securities Act of 1933. The January 8, 1971 letter was sent pursuant to an Order of the Pennsylvania Securities Commission in an attempt to cure any illegality under the Pennsylvania Securities Act of 1939 stemming from the issuance of the shares. Whether or not the rescission offer was fraudulent as alleged by the plaintiffs, it had nothing to do with registration requirements of the Securities Act of 1933.
The court also fails to see how the rescission offer can make Cohen liable for an alleged failure to disclose that the shares were illegally issued under the Pennsylvania Securities Act of 1939. The plaintiffs claim that the allegedly fraudulent rescission offer was a subterfuge to cure some of the illegalities of the original issue and thereby dispose of some of the defendants' liabilities connection thereto. Rather than serving to aid and abet any prior failure to inform the plaintiffs that their shares were not issued in compliance with the Pennsylvania Securities Act of 1939, the January 8, 1971 letter put them on notice that the Pennsylvania Securities Commission discovered some irregularity. Defendant Cohen, moreover, could have no liability to the plaintiffs under the applicable state securities law because unlike the present law which became effective on January 1, 1973, the Pennsylvania Securities Act of 1939 has no provision for civil liability.
Finally, the plaintiffs argue that defendant Cohen is liable under Sections 12(2) and 17(a) because the January 8, 1971 rescission letter failed to state that the corporation was in no financial position to pay any stockholder his original contribution to the company and that the only real purpose of the rescission offer was, by subterfuge, to improperly secure exemption as a dealer from the Pennsylvania Securities Commission. Unlike plaintiffs' other claims in which they argued that Cohen acted through the rescission offer to aid and abet the cover-up of prior illegalities, the plaintiffs allege that the letter independently provides a basis for recovery under Sections 12(2) and 17(a) because it allegedly omitted material facts. Aside from the question of how the allegedly fraudulent rescission offer harmed the plaintiffs, the key fact in connection with this claim is that the corporation was offering to purchase the 32,000 shares from the plaintiffs by its letter of January 8, 1971. Only purchasers have standing to sue for violations of Section 17(a), and as to this particular claim the plaintiffs were potential sellers not purchasers. See Kellman v. ICS, Inc., 447 F.2d 1305 , 1309, 1309 (6th Cir. 1971); In re Penn Central Securities Litigation, 357 F. Supp. 869 , 877 (E.D. Pa. 1973), aff'd 494 F.2d 528 (3d Cir. 1974). Likewise, the language of Section 12(2) grants relief only to the person purchasing a security.
AND NOW, to wit, February 10, 1975, after consideration of the briefs of the parties and arguments by counsel with respect to defendant Cohen's motion for summary judgment, for reasons set forth in the foregoing memorandum .
IT IS ORDERED that said motion be and the same hereby is granted and summary judgment is hereby entered in favor of the defendant Donald L. Cohen and against the plaintiffs.