At your request we have reviewed the record in Roland H. Boggs vs. William J. Casey, a civil action instituted In November, 1962. The complaint in the action contained two counts. In substance, the first count alleged that in late 1961 and early 1962 you and Advancement Devices, Inc. (the "Company") used the mails to sell stock of the Company to the plaintiff that should have been, but was not, registered under the Securities Act of 1933 (the "Act"), and the second count alleged that in connection with the sale of shares of the Company to the plaintiff, misrepresentations were made (but not by you) to him. The complaint further alleged that you were a "controlling person" of the Company. Judgment was demanded for $10,000 plus interest and costs. Your answer denied all of the material allegations of the complaint. Plaintiff's counsel, in a letter dated February 19, 1971, addressed to Hon. John Sparkman, states that in the course of the litigation it became apparent that you were not a direct participant in the sale to the plaintiff of the stock of the Company and that you were sued, pursuant to the provisions of Section 15 of the Act, only on the basis that you were a "controlling person" of the Company. SHRA GALLOP CLIMENEO & GOULD Section 15 provides that a person who controls a corporation which sells its securities shall be liable under the Act, jointly and severally with and to the same extent as the corporation, to any person to whom the corporation is liable, unless the controlling person had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability of the corporation is alleged to exist. The existence of control is a question of fact, and you denied that you controlled the Company. The action was instituted after the Company had gone into receivership and it is apparent from the record that the plaintiff was aware that you were a financially responsible individual. The Securities and Exchange Commission was not involved in the action. We understand that after extended pretrial proceedings the action was settled by the payment of $1,500 in cash to the `plaintiff and the issuance of notes to the plaintiff aggregating $6,500 payable annually over a period of seven years. The payment of the $1,500 was made, and the notes were issued, by a new corporation organized by the President of the Company. You guaranteed payment by the new corporation of the notes. You agreed to the settlement in order to avoid the expense, loss of time and annoyance of continuing the litigation, particularly in view of the small amount involved. The new corporation and the President of the Company each made some payments on account of the notes and you, pursuant to your guarantee, paid the remaining notes. You believe that in time the new corporation will be in a position to repay you the amounts which you paid. Our examination of the record in the action discloses that the offering by the Company consisted of 100 shares of its stock to be sold at an offering price of $1,000 per share; that the offering was made to not more than 12 offerees; that the offering memorandum expressly stated that the stock was to be acquired for investment only and not for resale; and that the offerees consisted of existing shareholders of the Company, friends and acquaintances of the President of the Company, and certain selected customers of a brokerage firm which assisted in the offering. Based upon the foregoing, we advise you that: (1) In connection with the offering by the Company of its stock as described above, we would have given our opinion to the Company that the offering and sale of the stock were exempted |