Kalvar Corporation

The officers and directors of the Kalvar Corporation were the subject of a stockholders' suit in 1965 alleging that the company was preparing to buy another company, Standard Office Systems (SOS), at a grossly inflated price by exchanging the stock of Kalvar for stock in SOS, a California corporation. Mr. Casey was a director of Kalvar and the Chairman of its executive committee. The Commissioner of Corporations in the State of California announced that he would schedule public hearings on the proposed exchange offer following a complaint by minority Kalvar Shareholders that the proposed exchange was unfair. Under California law, the stockholders of SOS would be prevented from exchanging their stock for Kalvar stock until the hearing had taken place. One of the items in the complaint alleges that Mr. Casey advised the California stockholders to travel outside the State to New Orleans to exchange their stock for Kalvar stock, thereby circumventing the need for a California hearing.

Following the exchange of stock in May of 1965, a Federal District Judge in New Orleans enjoined the directors of Kalvar from voting approximately 19,000 newly issued shares arising from the SOS exchange at the next stockholders meeting. The Judge appeared somewhat critical of the manner in which the exchange took place. He is quoted as saying: "It wasn't until the minority stockholders got busy that suddenly it became important to get the people of S. O. Systems to bring their stock to New Orleans when they knew an application had been made to the California authority. It is a question of good faith on the part of the directors."

The issue to be resolved is whether Casey's role in the exchange was contrary to the letter or the spirit of the California securities law.

Roosevelt Raceway

The following is excerpted from an SEC letter dated February 26, 1971: "The other matter in which Mr. Casey's name appears involves Roosevelt Raceway. Mr. Casey became a director of this company in 1967. Both prior to that time and afterwards, the law firm of Hall, Casey, Dickler & Howley, of which he was a member, acted as counsel to Roosevelt Raceway.

"It appears that in 1967 an understanding was reached between Roosevelt Raceway and the law firm that the firm would be paid, in installments, a total fee of $240,000 for legal services rendered prior to that date, primarily involving two pieces of litigation. $60,000 of this fee was paid in 1967 and the balance was to be paid in installments of $60,000 in January of 1968, 1969 and 1970. A review of certain proxy statements and annual reports on Form 10-K filed by Roosevelt Raceway indicates that the disclosure concerning this fee arrangements may have been inadequate and not in compliance with the instructions for the applicable forms. A principal problem was that Roosevelt Raceway reported in 1967 and 1968 that Hall, Casey, Dickler & Howley had received fees of $60,000 for past services together with various smaller amounts for current services. So far as has presently been ascertained, it appears that Mr. Casey was not responsible for the preparation or filing of these documents, although in at least one instance a document was prepared by his law firm. The Commission proposes to deal with this matter by requesting Roosevelt Raceway to file a corrected annual report form for 1969.

"It appears that members of Hall, Casey, Dickler & Howley believed at the time these documents were filed that they were fully responsive to the requirements of the form but they have indicated that they now recognize that this might not have been the case. In 1970 Roosevelt Raceway became a subsidiary of the Madison Square Garden Corporation. A proxy statement and a registration statement under the Securities Act of 1933 filed by Madison Square Garden Corporation contained certain information about Roosevelt Raceway and in that connection referred to the legal fees paid to Hall, Casey, Dickler & Howley. There is some problem as to the adequacy of these disclosures as well. The responsibility for these matters rested with another law firm which was counsel for Madison Square Garden Corporation. That firm has indicated its belief that Madison Square Garden's disclosures were adequate, but our staff has some questions as to this. The staff will pursue the matter further."

The issue to be resolved is whether Casey, his law firm or Roosevelt Raceway

Agro Resources

The following is excerpted from the same SEC letter of February 26, 1971: "There are no Commission actions pending in the courts or before the Commission in which Mr. Casey is involved. His name does, however, appear in two matters which are the subject of inquiries by the staff although no action has been taken by the Commission. One of these involved a company known as Agro Resources, Inc., which was engaged in operating a farm in Texas and New Mexico. In March, 1970, Argo Resources sold its assets to the subsidiary of a publicly-owned corporation which in turn, almost simultaneously, resold the property to a corporation known as Hobbs & Cattle Co., purportedly at a substantial profit. There are indications that this transaction is not exactly what it purported to be. Mr. Casey was a stockholder of Agro owning about 5.4 percent of its stock and some 8.3 percent of its indebtedness for all of which he paid a total of $70,000. Our staff has interviewed all of the stockholders of Agro including Mr. Casey and on the basis of those interviews has concluded that Mr. Casey did not participate in any active way in the above described transaction and, indeed, it appears that he did not learn of the transaction until after it had been completed. There is no indication of any violation of the securities laws by Agro in this transaction but there is a possibility of a violation by the publicly-owned corporation and the chief officer of Agro. The matter is still under review by our staff."

The issue to be resolved is whether Casey had knowledge of the transaction and to what extent he concurred in it following its completion.

Casey's Stock Holdings

A review of Mr. Casey's financial statement indicates that he holds a large number of highly speculative issues of companies specializing in advanced technology. His holding will be managed by a New York investment adviser. However, Mr. Casey will receive quarterly reports on all transactions. Moreover, his letter to the Committee indicates that purchases of stock will be beyond his control. However, his letter says nothing about sales. Thus, it is possible that he could sell a stock in his portfolio if he learned of an SEC investigation affecting the stock in question.

Senate Committee on Banking, Housing, and Urban Affairs

STAFF MEMORANDUM

From: Timothy D. Naegele, Assistant Counsel.

Date: March 8, 1971.

Subject: Hearings on the nomination of William J. Casey, to be Chairman of the SEC, March 9, 1971, 2 p.m.

1. Senator Proxmire presented you with a statement of "Items Requiring Further Clarification" at the executive session which was held on February 10, 1971. A copy if this statement is set forth on pages 317-22 of the attached "Compilation of Material Relevant to Considering the Nomination of William J. Casey to be a Member of the Securities and Exchange Commission" (Attachment 1).

2. I am attaching a copy of an analysis of Senator Proxmire's statement which I prepared for your information. You will note that additional information has come to the Committee's attention since Senator Proxmire's statement was prepared (e.g. alleged striking of Fields' attorney by Mr. Casey, revocation of Mr. Thornton's broker-dealer registration in the Boggs case, DuPont case) (Attachment 2).

3. I am also attaching press accounts which have appeared since the executive session (Attachment 3).

4. Please let me know if I can provide any additional information to either you or your staffs.

CASEY NOMINATION

ANALYSIS OF ITEMS REQUIRING FURTHER CLARIFICATON

(Note: Unless otherwise indicated, page numbers refer to the Senate Banking Committee print entitled "Compilation of Material Relevant to Considering the Nomination of William J. Casey to be a Member of the Securities and Exchange Commission", dated March 8, 1971.)

Fileds vs. Casey

1. The first issue raised is whether Mr. Casey misrepresented the settlement of this case to the Committee. It should be noted Mr. Casey indicated that his statements before the Committee represented his "recollection", rather than a statement of fact.

Mr. Casey stated that the jury's verdict was "something like $40,000." The actual verdict which was divided into compensatory and punitive damages amounted to $41,425. Twenty thousand dollars of this amount represented compensatory damages for which Mr. Casey and the Prentice-Hall subsidiary were jointly and severally liable: while $12,850 and $8 575 were assessed against Mr. Casey and the subsidiary, respectively, for punitive damages (p. 120).

Having set forth an estimated dollar value for the jury's verdict, Mr. Casey then went on to tell the Committee the following:

"In any event, the judge who presided over the case did a highly unusual thing he called in the two attorneys and he said to them that the verdict was not supported by the evidence in the case, and that he would set it aside, and he recommended that the parties get together and settle it. He was going to set this verdict aside. Unless the attorneys could settle it, he would call for a new trial" (p. 38, Casey nomination hearing transcript, February 10, 1971).

The judge who presided over the case, J. Braxton Craven, Jr., stated the following in a letter to Senator Proxmire, dated February 18, 1971:

"I. I do not recall telling the two attorneys, or anyone else, after the trial that the verdict was not supported by the evidence, and I am as reasonably sure as one can be after nine years that I made no such statement.

"II. I did not indicate that I would set the verdict aside and order a new trial unless the parties got together and settled the case. In five years as a state trial judge and five years as a federal trial judge, I do not recall ever having done that.

"III. The sealing of the transcript of the trial from public view was not done at my initiative" (pp. 72-73).

The transcript of the Fields' case indicates that Mr. Casey's attorney, Mr. Diskin, moved to set aside the verdict as "grossly excessive, wholly against the evidence that was submitted to the jury, and.. a clear indication . . that the jury was wholly beyond their comprehension of the issues that were submitted to them. . ." (p. 121). The judge responded by saying that he was going to "think a long time about it" and was "not going to attempt to decide it at 9:15 or 9:30 p.m. at night" (p. 130). Accordingly, the Court deferred action on the defendant's motion to set aside the verdict and other motions.

When the case was resumed two days later, the judge announced that he had conferred in chambers with the attorneys and "after so doing, it having been indicated by counsel for both parties that they were able to reach agreement and to settle the entire matter in controversy, thereupon, . . . the parties themselves were invited into chambers . . . and the . . . agreement was reached ..." (p. 138). The agreement was as follows: the plaintiff settled for $20,500 and the parties stipulated that the verdict of the jury should be expunged from the Court record.

At no time did the judge indicate in the transcript that the verdict was not supported by the evidence; nor did he indicate that he would set it aside and order a new trial unless the attorneys agreed to a settlement.

As to why the record was sealed, Mr. Casey stated the following to the Committee:

"My lawyer, the fellow that represented us in this case, tells me that the plaintiff's attorney had made some inflammatory remarks in his summation about big corporations exploiting the work of his poor clients.

"After the matter had been settled, the plaintiff asked the judge if he could get a copy of this summation that his lawyer had made. Apparently the judge didn't like this, and he said that since the case had been settled and there would be no appeal and no need to transcribe the record, that he was ordering the record sealed.

"This was done by, my attorney tells me, the judge's initiative" (pp. 40–1, Casey nomination transcript).

The Court's transcript indicated that after all parties agreed to destroy the special interrogatories submitted to the jury and inquiries of the plaintiff and the defendants, Mr. Casey stated: "I wonder if we can go further" (p. 144). He then went on to state: "I would like to have the record sealed entirely" (p. 145). Mr. Casey and his attorney then indicated that certain arguments were made during the course of the summation that, in effect, he sought to frame his employee, Cuddahy, and that he sought to sabotage "this and that evidence". The Court subsequently read the following statement:

"In view of the foregoing settlement and the consent of all parties and their counsel, that the verdict be expunged from the record, the Court orders and directs the court reporter that no transcript of any portion of the trial whatsoever shall be made, sold, or delivered to any person whomsoever" (p. 145).

All the parties consented to this order.

2. While it is argued that "a review of the trial transcript will show that Casey himself and not his employee was responsible for the plagiarism", a reading of the transcript does not bear this out. Even if the accusation had some basis in fact, it is not within the Committee's prerogatives to retry this case. It would be inappropriate for this Committee to attempt to take evidence on the issue of plagiarism or delve into the jury's decision-making process.

3. It is my understanding that additional information will be raised in the hearing to the effect that Mr. Casey struck Mr. Fields' attorney during the taking of Mr. Casey's deposition on April 27, 1960. I am attaching the relevant pages from the Court transcript for your information (Attachment A).

Boggs vs. Casey

1. It should be noted at the outset that Mr. Casey furnished a statement and supporting documents regarding this case to Senator Sparkman on February 22,

has been furnished to your offices. One of the more pertinent documents was a letter from the attorney for the plaintiff, Mr. Robert S. Persky, which stated as follows:

"William J. Casey was named as defendant because we were of the opinion that he was a controlling person of Advancement Devices, Inc., and was therefore statutorily liable to plaintiff. In the course of the litigation, particularly during the oral depositions and through the exchange of written interrogatories, it became apparent that Mr. Casey was not a direct participant in the sale of the securities of Advancement Devices, Inc., to plaintiff . . . (pp. 149, 160).

"The answers to defendant's interrogatories confirm that plaintiff did not meet Mr. Casey until a time subsequent to the sale of the securities of Advancement Devices, Inc., to plaintiff. The liability asserted against Mr. Casey was an imputed liability and the evidence disclosed no personal wrongdoing on his part" (pp. 150, 161).

2. Certain issues are being raised as to whether the securities sold to the plaintiff involved a "public offering" and hence whether registration was required under the Securities Acts. It would be inappropriate for the Committee to make a determination as to whether a "public" or "private" offering was involved. Assistant Attorney General William H. Rehnquist correctly stated the following in a letter to Chairman Sparkman, dated February 26, 1971:

"Since the lawsuit was settled without trial, and the contested factual issues were never resolved by the court, it is simply not possible to give an opinion as to the merits of the litigation. The grounds relied upon by the plaintiff do present a number of legal issues, which are described below.

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"Assuming that the court had ultimately determined that the securities issue was a 'public offering' and that registration was required, or that there had been misrepresentation or failure to state a material fact, there would remain the issue of Casey's personal liability. The complaint did not allege any personal involvement by Casey in the sale of shares to Boggs, Casey denied making any statements to Boggs in connection with his purchase of shares, and it is apparently agreed that he did not do so. His alleged liability, then, rested not on his personal involvement in the sale, but on his alleged relationship with Advancement Devices, Inc. and those who acted on its behalf.

"Section 15 of the Act, 15 U.S.C. 770, imposes liability in some circumstances on any person who through stock ownership or otherwise 'controls' any person liable under the provisions discussed above. The complaint alleged that Casey was such a controlling person, an allegation denied by Casey. Thus even if the company or those acting on its behalf did violate either section 5 or 17 of the Act, Casey's liability would depend on the resolution of other highly technical questions: whether, by virtue of his ownership of the shares of Advancement De vices, Inc. he exercised control within the company; and whether, by virtue of his relationship with the company he was under a duty to Boggs which he failed to meet. Section 15 of the Act provides that a controlling person is not liable if 'the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.' 15 U.S.C. 770. This, of course, presents another question of fact.

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"Finally, the decision of a defendant in a civil action to settle the case with the plaintiff is not necessarily an admission of the strength of the plaintiff's case" (pp. 5-8).

It should be noted, however, that in advising clients, most lawyers dealing in securities law use the Ralston Purina case as a rule of thumb. This case held that whether a transaction involves a public or private offering is a question of fact. The number of offerees involved is not determinative, but rather the requisite information available to the offerees must be such that the furnishing of a prospectus would serve no useful purpose.

3. In passing, it might be noted that while Boggs' attorney portrayed him as an unsophisticated investor who invested in "substantial companies such as A. T. & T.", Mr. Boggs had been interested in Kalvar stock (see below) prior to his investment in Advancement Devices, Inc. (p. 276).

4. Mr. Boggs stated in answers to interrogatories dated February 26, 1963, that