## Facts

- In May and June 1958, Arthur Vining Davis retained broker-dealers Carl M. Loeb, Rhodes & Co. and Dominick & Dominick as managing underwriters for a contemplated public offering of securities to be issued by Arvida Corporation.
- Before any registration statement was filed, the underwriters and others sought extensive public attention for Arvida and the planned financing.
- On September 18, 1958, members of the media were contacted in advance of a planned press release, and reporters were provided information that included price-related data about the contemplated offering.
- On September 19, 1958, a press release was issued describing (i) real estate Davis planned to invest in Arvida, (ii) Arvida’s development plans for that real estate, and (iii) Arvida’s plan to raise approximately $25–30 million within about 60 days through a public offering to be led by the two broker-dealers.
- The press release also stated that, after the offering, Arvida would have assets in excess of $100 million.
- The release and related media activity occurred before any registration statement for the offering was filed with the SEC.
- The SEC brought a federal court action, and the court permanently enjoined further violations of Securities Act § 5(c) based on the September 1958 publicity, finding that the broker-dealers appeared to have acted in good faith and without intent to violate the statute, but that the conduct still violated § 5(c).
- The SEC then instituted an administrative proceeding to determine whether the broker-dealers should be disciplined (including possible revocation or suspension of broker-dealer registrations and related NASD membership sanctions).
- In the administrative proceeding, the broker-dealers argued, among other things, that the release reflected newsworthy developments about Davis’s real-estate plans and that mitigating circumstances weighed against disciplinary sanctions.

## Issues

1. Whether the broker-dealers’ pre-filing press release and related media contacts regarding Arvida and its planned public offering constituted an “offer to sell” or “solicitation of an offer to buy” prohibited by Securities Act § 5(c) before a registration statement was filed.
2. If § 5(c) was violated, whether the public interest required broker-dealer disciplinary sanctions (including revocation/suspension and NASD suspension/expulsion) or whether the circumstances warranted no additional sanctions beyond the injunction.

## Decision

- The SEC found that Carl M. Loeb, Rhodes & Co. and Dominick & Dominick violated Securities Act § 5(c) by engaging in pre-filing publicity that amounted to an unlawful offer in connection with Arvida’s planned public offering.
- The SEC rejected the contention that the press release was outside § 5(c) because it was “newsworthy”; the Commission looked to the content, timing, and surrounding circumstances showing the communications were tied to the contemplated distribution.
- Despite finding a violation, the SEC concluded that, because of mitigating circumstances and in light of the existing federal injunction, it was not necessary in the public interest to revoke or suspend the firms’ broker-dealer registrations or to suspend or expel them from NASD membership.

## Legal Principles

- Section 5(c) prohibits using interstate means to make offers to sell (or solicit offers to buy) securities before a registration statement is filed, absent an exemption.
- For § 5(c), “offer” is read broadly to prevent pre-filing communications that can condition the market for a planned registered distribution.
- Coordinated pre-filing publicity by prospective underwriters—especially communications that identify an imminent financing, expected offering timing, and price-related information—can be treated as part of the selling process and therefore as an unlawful offer.
- Labeling a communication as ordinary business news does not remove it from § 5(c) when, in context, it functions as a step toward a public distribution.
- Good faith, lack of intent, and reliance on counsel do not negate a § 5(c) violation, but they may be considered in determining whether broker-dealer discipline is required in the public interest.
- The SEC may decline registration or NASD sanctions where deterrence and investor protection are sufficiently served by other remedies (such as an injunction) and where the overall circumstances mitigate against additional penalties.

## Conclusion

In re Carl M. Loeb, Rhodes & Co. held that managing underwriters violated Securities Act § 5(c) by arranging and disseminating pre-filing media publicity—including a press release and related press contacts describing Arvida’s planned near-term public offering and related financial information—before any registration statement was filed. Although the SEC found the conduct amounted to an unlawful offer and rejected a “newsworthiness” defense, it determined that further broker-dealer or NASD sanctions were not required in the public interest given mitigating circumstances and the prior federal injunction.


In re Carl M. Loeb, Rhodes & Co., 33 S.E.C. 843 (1959)