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August 13, 1962.

Securities and Exchange Commission
Bennett & Company, et al.

The opinion of the court was delivered by: AUGELLI

AUGELLI, District Judge: This matter is before the Court on motion of the plaintiff Securities and Exchange Commission ("SEC") for a temporary injunction and the appointment of a receiver. This relief is sought pursuant to section 20(b) of the Securities Act of 1933, as amended ("ACT"), 15 U.S.C. 77t(b), and jurisdiction is invoked under section 22(a) of the Act, 15 U.S.C. 77v(a).

Defendant Bennett & Company is a partnership and is registered with SEC as a broker-dealer in securities; defendant Bennett Davies is the sole general partner of said Company; and defendant Frederick Davies is the 22 year old son of Bennett Davies, employed by Bennett & Company as a securities salesman. Frederick is also secretary-treasurer and a director of Financial Development Corporation ("FDC"), and the owner of 40% of the Class B (voting) common stock of that corporation.

These defendants are charged with a violation of section 17(a) of the Act, 15 U.S.C. 77q(a). An order, temporarily restraining defendants from engaging in the alleged unlawful activity and from disposing of any assets of FDC or Bennett & Company, was entered on May 21, 1962. By consent, the restraining order was continued in force, pending determination of plaintiff's motion. The matter was subsequently argued and a number of affidavits have been filed by the parties.

 The complaint alleges that since on or about March 27, 1962, defendants have been offering for sale and selling Class A shares of FDC by use of means and instruments of transportation and communication in interstate commerce and by the use of the mails; that in the offers and sales of such shares, defendants made untrue statements of material facts concerning the security, and also omitted to state material facts that should have been disclosed to prospective purchasers of the stock; that by reason of such untrue statements and omissions of material facts, purchasers of the stock have been defrauded; and that unless enjoined, defendants will continue their unlawful practices. In addition to injunctive relief, plaintiff asks for the appointment of a receiver of the assets of Bennett & Company under the control or in the possession of the defendants.

 The affidavits filed in this case disclose the following:

 FDC was incorporated under the laws of the State of New Jersey on March 26, 1962, for the purpose of carrying on the business of making loans to builders and contractors engaged in the construction of housing, principally in Ocean and Monmouth Counties, and investment in and development of real estate. It has an authorized capitalization of 1,000,000 shares of Class A common stock, par value $.01 per share, with no voting rights, and 1,000 shares of Class B common stock, par value $1.00 per share, with voting rights. Of the Class B stock, 450 shares are owned by defendant Frederick Davies; 450 shares by Jacob Edelstein; and the remaining 100 shares by Florence Pattyson. Jacob Edelstein is in the building construction and real estate development business. He is the president and a director of FDC. Florence Pattyson is a limited partner of Bennett & Company, and a director of FDC.

 The idea of engaging in the business for which FDC was ultimately formed appears to have originated with Frederick Davies and Jacob Edelstein. They discussed the proposed venture with Edelstein's two brothers, E. Alexander Edelstein and Benjamin Edelstein, members of the Bar of this State, practicing law under the firm name of Edelstein & Edelstein. E. Alexander Edelstein appears to be the law partner who took an active interest in this matter. He attended to the incorporation of FDC and advised his clients with respect to the capitalization of the corporation, classification of its stock, the need for an offering circular, and so forth.

 On April 5, 1962, FDC acquired, at no cost, two options for the purchase of undeveloped real estate. One property, subject to a 60 day option, was to cost $40,000.000, plus interim survey costs. The second property, subject to a 45 day option, was to cost $35,000.00. This property was owned by a corporation, all of the stock of which was wholly owned by Jacob Edelstein and members of his family. In the absence of a contrary indication in the record, it is assumed that neither option was exercised.

 As of May 1, 1962, the records of Bennett & Company reflected that 73,175 shares of Class A non-voting common stock of FDC had been sold, and that 57,125 shares had been paid for. Bennett & Company has retained for itself, on each share sold, the sum of $.24, representing commission and service charges. In addition to these sales, options to purchase Class A shares of FDC are held by Bennett & Company and the officers and directors of FDC.

 SEC alleges that during the course of the distribution and subsequent trading of FDC Class A stock by Bennett & Company, offers to sell were made over the telephone by Frederick Davies and others in the employ of Bennett & Company, under the supervision of Bennett Davies. Some of the purchasers of the stock were past customers of Bennett & Company. It is stated that false and misleading statements of material facts were made in connection with the offer and sale of FDC stock, and also that certain material facts relating to FDC were not disclosed to prospective purchasers of the stock. An offering circular, which allegedly was not mailed to purchasers until after a sale had been consummated, appears to contain a full disclosure of the highly speculative nature of the offering, and sets forth the material facts which SEC claims were omitted in the telephone solicitations.

 SEC has filed with the Court a number of statements it produced from purchasers of FDC stock from Bennett & Company. In substance, these and other statements hereinafter referred to, indicate the nature of the alleged misrepresentations and omissions of material facts.

 One purchaser claims he was told by Frederick Davies that the stock could be "expected to double its income within 180 days"; and that "it would possibly double or triple in value in possibly 180 days".

 Another purchaser says he was told by Frederick Davies that Davies thought the price of FDC stock "would double in value within six months to a year". This purchaser also claims that when he bought his stock he was not told he was getting Class A non-voting stock of FDC, nor that Frederick Davies and Florence Pattyson owned Class B voting stock, nor that these people were principals in both Bennett & Company and FDC. He learned about ...

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