The opinion of the court was delivered by: SNYDER
After extended litigation in this case and its companion, SEC v. Investors Security Corporation, 415 F. Supp. 745 (W.D.Pa.),
the Court has now before it the question of the right, title and interest to certain securities, as between the Receiver for Investors Security Leasing Corporation and the individuals in whose names the securities were issued and registered. We determine that the individual investor's rights to the securities are superior to those of the Receiver.
At various times during 1973 and 1974, the individual investors involved in this case (Intervenors) turned over their securities to an unregistered corporation, Investors Security Leasing Corporation (ISLC). The agreements in each case were initiated by a salesman for Investors Security Corporation (ISC), a separate corporation and a registered securities broker-dealer, and called for the individual to deposit their securities in return for an obligation to pay interest thereon. Such an agreement was proposed to Paul A. Blake II on or about June 27, 1973 by Franklin Mowry, who had dealt with Mr. Blake, as a representative of ISC, in previous securities transactions. Similar proposals were made by Robert E. Lindsay to Helen A. and Margaret Kuzma in September of 1973, to James C. and Martha Jane Edwards on or about June 27, 1973, and to Enrico and Mary Ialongo in about May of 1973. The Kuzmas, the Edwards, and the Ialongos had dealt with Mr. Lindsey, as a representative of ISC, in previous securities transactions.
Paul A. Blake II, Margaret Kuzma, and Helen A. Kuzma, each received letters dated June 22, 1973, September 24, 1973, and September 24, 1973, respectively, on ISLC letterhead, signed by William H. Brown individually, although he was Vice-President of the corporation, acknowledging receipt of the securities and setting forth the terms and the amount of interest to be paid for the use of their securities deposited with ISLC. Mr. Blake and the Kuzmas accepted the stated terms by signing and returning copies of the letters.
The Receiver for ISLC (Receiver) is in possession of a copy of two letters addressed to Mr. and Mrs. Edwards, dated July 11 and July 20, 1973, respectively, also on ISLC letterhead and signed by William H. Brown, acknowledging receipt of the Edwards' securities, setting forth the terms and the amount of interest to be paid for the use of their securities deposited with ISLC, and bearing what purport to be the signatures of Mr. and Mrs. Edwards dated July 30, 1973. The Edwards have no present recollection of the receipt, signing, or returning of said letters, but it was stipulated and agreed that the letters correctly set forth the terms and conditions under which ISLC was permitted to retain possession of the Edwards' securities.
The Receiver is also in possession of a copy of two letters on ISLC letterhead, dated May 28, 1974, and signed by William H. Brown, acknowledging receipt of the Ialongos' securities, and setting forth the terms and the amount of interest to be paid for the use of their securities deposited with ISLC. The Receiver's records do not indicate return of the letters by the Ialongos, and Mr. and Mrs. Ialongo have no present recollection of signing or returning said letters. However, it was stipulated and agreed that the letters correctly set forth the terms of the agreement under which ISLC was permitted to retain possession of the Ialongos' securities.
The letters were all similar in substance to that addressed to James C. and Martha J. Edwards, dated July 11, 1973, which read as follows:
"This is to certify that I am in receipt of
25 Shares of General Public Utilities Corp. # FA132777,
25 Shares of GAF Corp. # J013617,
100 Shares of TraveLodge International, Inc. # NY12316,
100 Shares of Gulf Oil Corp. # E516593,
50 Shares of North American Rockwell Corp. # PO/C58849.
Should you have any need of these Securities, they will be refunded with interest due in 10 business days.
In exchange for the use of your securities, we agree to pay you $ 12.10 per month, reinvested, beginning August 1, 1973.
I am enclosing two (2) copies of this agreement. The original is for your files and the duplicate is to be signed by you and returned to me in the enclosed envelope.
Should you have any questions, I am sure Mr. Lindsay will be glad to be of service to you.