pre-effective period in the form of checks and the proceeds of the sale of other securities owned by the customers, and thereby went beyond the permissible scope of the Act. In addition, the business card which Costa enclosed with the preliminary prospectus and covering letter solicited an offer to buy and was therefore a prospectus within the meaning of Section 2 (10) of the Securities Act. Obviously the card did not comply with the detailed requirements for a preliminary prospectus prescribed in Rule 433.

On the basis of the foregoing we find that Costa, Lustig, Schnur, and Thompson willfully violated Section 5 (a) (1) of the Securities Act. While we make no similar findings with respect to Hickey and Frank, we note that these salesmen have joined in stipulating that the record in this proceeding and the findings of fact in this opinion may be used against them in any future proceeding concerning any other matter which may be instituted by us against either of them.

It is clear that registrant, Meyer, Barnett, and Zoref failed to exercise adequate supervision over the salesmen's activities. Registrant admittedly adopted no safeguards to prevent the mailing of unauthorized material, nor were any effective procedures set up to make it reasonably certain that the registration provisions of the Securities Act and the rules thereunder were otherwise complied with. It is clear that if adequate supervisory procedures had been employed by registrant and the partners involved, the improper acceptance of offers to buy could have been detected and appropriate steps taken for the customers' protection. We conclude that registrant, Meyer, Barnett and Zoref willfully violated Section 5 (a) (1) of the Securities Act.

THE PUBLIC INTEREST

Registrant has undertaken to put into effect immediately all necessary measures of control and supervision required to prevent a recurrence of the violations found or similar violations. As we have seen, the three partners connected with the Holly underwriting did not directly participate in the violations, and they have asserted that this is the first disciplinary proceeding involving them. Under these circumstances we do not think that revocation of registrant's registration is required, and we conclude that suspension of registrant from membership in the NASD for a period of 10 days as provided in the offer of settlement is in the public interest. We further conclude that Meyer, Barnett, Zoref, Costa, and Lustig are each a cause of such

Section 2 (10) of the Securities Act defines the term "prospectus" to include any communication which offers any security for sale, with two exceptions which are not applicable.

suspension, but that Schnur and Thompson, in view of the fact that the record indicates that each of them participated in only one transaction which violated the Securities Act, are not such causes.

An appropriate order will issue.

By the Commission (Chairman Armstrong and Commissioners Adams, Orrick, and Patterson).

37 S. E. C.

IN THE MATTER OF

SEARCHLIGHT URANIUM CORPORATION

File No. 248F-2119. Promulgated March 5, 1956

(Securities Act of 1933-Section 3 (b) and Regulation A)

EXEMPTION FROM REGISTRATION

Denial of Exemption

Prior Conviction and Injunction in Connection With Securities Transactions Request that Commission set aside order issued pursuant to Rule 223 (a) of Regulation A temporarily denying exemption of proposed public offering, denied, where within past 5 years officer and promoter of issuer had been convicted and he and affiliate of issuer had been enjoined in connection with securities transactions.

APPEARANCES:

Homer C. Mills, for Searchlight Uranium Corporation and pro se. Arthur E. Pennekamp, of the San Francisco Regional Office, for the Division of Corporation Finance.

MEMORANDUM OPINION

Searchlight Uranium Corporation (“Searchlight") and its promoter and president, Homer C. Mills, have filed an application for an order modifying and rescinding our order issued on August 8, 1955 pursuant to Rule 223 (a) of Regulation A, adopted under Sections 3 (b) and 19 (a) of the Securities Act of 1933 ("Act"), temporarily denying

1 Section 3 (b) of the Act provides:

"The Commission may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed therein, add any class of securities to the securities exempted as provided in this section, if it finds that the enforcement of this title with respect to such securities is not necessary in the public interest and for the protection of investors by reason of the small amount involved or the limited character of the public offering; but no issue of securities shall be exempted under this subsection where the aggregate amount at which such issue is offered to the public exceeds $300,000."

Section 19 (a) of the Act authorizes the Commission, inter alia, "to make, amend, and rescind such rules and regulations as may be necessary to carry out the provisions of" the Act.

37 S. E. C.-33- -3619

an exemption from the registration requirements of the Act of a proposed public offering by Searchlight of 500,000 shares of common stock at 10¢ per share.2

Our order of August 8, 1955, alleges that Mills and Searchlight Consolidated Mining and Milling Co., an affiliate of Searchlight, are permanently enjoined by a decree entered by the United States District Court for the District of Nevada on June 30, 1953, from further violations of the registration requirements of the Act in connection with the sale of securities of the affiliate, and that Mills was found guilty by that Court on October 7, 1954, of criminal contempt for having violated the terms of the injunction.3

We gave notice of the entry of our order and opportunity to request a hearing to determine whether the temporary denial order should be vacated or made permanent. Applicants did not request a hearing but instead filed the instant application and a supporting brief, the Division of Corporation Finance filed a brief in opposition, and applicants filed a reply brief.

Applicants contend that Section 3 (b) of the Act requires that we make a finding adding the stock proposed to be issued by Searchlight to the classes of securities exempted by that section because, they assert, enforcement of the Act with respect to that stock is not necessary in the public interest and for the protection of investors. They further contend that Rule 223 (a) (6) of Regulation A, upon which they allege the temporary denial is based, should be rescinded on the ground that that rule is not authorized by Sections 3 (b) or 19 (a) of the Act, is arbitrary, and represents an exercise of legislative

Rule 223 (a) of Regulation A provides in pertinent part:

The Commission may, at any time after the filing of a notification enter an order temporarily denying the exemption, . . . if it has reason to believe that

"(1) No exemption is available under the regulation for the securities purported to be offered hereunder..."

* The proposed offering was the subject of a notification filed with us on July 20, 1955 for the purpose of obtaining an exemption under Regulation A.

* Rule 216 (b) of Regulation A, which is made applicable by Rule 223 (a) (1), upon which our temporary order under Rule 223 (a) was based, provides in pertinent part:

"No exemption under this regulation shall be available for any of the following securities:

"(5) Securities of any issuer if such issuer or any of its directors, officers, affiliates or predecessors, [or] any of its promoters presently connected with it in any capacity if the issuer was organized within the past 3 years . . .

"(1) has been convicted within 5 years prior to the filing of the notification required by Rule 218 of any crime or offense involving the purchase or sale of any security... ; [or]

"(11) is subject to any order, judgment or decree of any court entered within 5 years prior to such filing, enjoining or restraining such person from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security..."

power in contravention of Section 1 and Section 8, Clause 18, of Article I of the Constitution of the United States. They also point out that Searchlight was not organized until August 9, 1954, after the injunction was entered against Mills and the affiliate.

There is no substance to applicants' contentions. Section 3 (b) of the Act provides that this Commission may promulgate rules and regulations, subject to such terms and conditions as may be prescribed therein, to "add any class of securities to the securities exempted" under Section 3 (a) of the Act, if it finds that enforcement of the Act with respect to such securities is "not necessary in the public interest and for the protection of investors by reason of the small amount involved or the limited character of the public offering." Section 3 (b) does not in our opinion give this Commission authority to grant a special exemption to a particular security issue of an individual issuer. This is indicated not only by the language of Section 3 (b) and the general nature of the exemptions expressly granted by Section 3 (a), which relate to various categories of securities, but also by the fact that our authority under Section 3 (b) to add new classes of securities may be exercised only through the adoption of rules and regulations, which normally deal with matters of general applicability, and not by orders, which normally treat individual situations. The inclusion in Regulation A of rules providing for the denial of an exemption with respect to securities of any issuer if such issuer or designated associates or related companies have been convicted or enjoined within 5 years prior to the filing of notification in connection with the purchase or sale of securities, irrespective of the fact that the public offering may be limited or the amount involved may be small, is not in our opinion arbitrary. We think it clear that provisions such as these implement the objective of the Acts designed by the Congress for the protection of investors. They are comparable for example to Section 15 (b) of the Securities Exchange Act of 1934 and Section 203 (d) of the Investment Advisers Act of 1940 which require this Commission, if we find it to be in the public interest, to deny or revoke registrations as a broker-dealer and as an investment adviser, respectively, because of a conviction within the past 10 years of a felony or misdemeanor or an injunction in connection with the purchase or sale of a security.

Rule 223 (a) (6) is similar to Rule 216 (b) (5), except that it covers the situation where the Commission has reason to believe that the persons named "shall be" indicted, convicted or enjoined.

Article I, Section 1 vests all legislative powers granted by the Constitution in Congress. Article I, Section 8, Clause 18, gives Congress the power to make all laws necessary and proper for carrying out its powers.