## Facts

- The SEC instituted an administrative proceeding under § 15 of the Securities Exchange Act of 1934 against a registered broker-dealer partnership and its two partners based on their participation in transactions involving Crowell-Collier Publishing Company securities.
- The securities consisted of 5% convertible debentures and common stock issued upon conversion.
- The debentures and resulting common stock were distributed without an effective registration statement under the Securities Act of 1933.
- Petitioners acquired substantial amounts of the securities from a primary source under circumstances the SEC treated as part of a broader distribution, and they resold substantial quantities into the market.
- The parties stipulated to the facts and waived an evidentiary hearing; the SEC decided the case on the stipulated record after oral argument.
- The SEC found the partnership had wilfully violated the Securities Act’s registration provisions by acting as an underwriter in a public offering of unregistered securities.
- As a sanction, the SEC suspended the firm from NASD membership for five days and found each partner to be a “cause” of the order.
- Petitioners sought judicial review, challenging the underwriter and wilfulness findings, the sanction, and the fairness of the proceeding based on an alleged prejudicial SEC press release.

## Issues

1. Whether substantial evidence supported the SEC’s finding that petitioners were “underwriters” because their conduct was part of an unregistered public offering of Crowell-Collier securities.
2. Whether substantial evidence supported the SEC’s finding that petitioners’ violation of the Securities Act registration provisions was “wilful.”
3. Whether the five-day suspension from NASD membership was arbitrary, capricious, or an abuse of discretion.
4. Whether petitioners were denied an impartial administrative adjudication due to alleged SEC prejudgment reflected in a pre-hearing press release.

## Decision

- The court denied the petition for review and affirmed the SEC’s order.
- The court held there was substantial evidence supporting the SEC’s conclusions that the transactions constituted a public offering and that petitioners were underwriters.
- The court upheld the SEC’s determination that the violations were wilful and that the suspension was proper.
- The court rejected the claim that the proceeding was invalid due to alleged prejudgment arising from the press release.

## Legal Principles

- Participation in a distribution of unregistered securities can render a broker-dealer an “underwriter” when the broker-dealer acquires securities with a view to distribution or otherwise participates in a distribution to the investing public.
- Whether an offering is “public” for Securities Act exemption purposes is determined by the substance of the transaction, including the scale and pattern of resales and the relationship of the trades to a broader distribution.
- In SEC administrative review, appellate courts apply substantial-evidence review to factual findings and give deference to the SEC’s choice of sanction when it is supported by a proven violation and is within statutory authority.
- A finding of “wilful” violation in this context may rest on intentional commission of the acts constituting the violation, without requiring proof that the respondent specifically intended to break the law.
- Allegations of agency bias or prejudgment require a sufficient showing on the record; a prior public statement, without more, does not necessarily establish denial of an impartial hearing.

## Conclusion

The Second Circuit upheld SEC discipline against a broker-dealer and its partners for participating as underwriters in an unregistered public offering of convertible debentures and resulting common stock, sustaining both the wilfulness finding and a brief suspension as a permissible exercise of the SEC’s enforcement authority.


Gilligan, Will & Co. v. SEC, 267 F.2d 461 (2d Cir. 1959)