## Facts

- Universal Camera Corporation planned a recapitalization and public distribution of newly created non-voting Class A common shares while existing shareholders retained voting Class B shares and warrants.
- Existing shareholders had invested about $30,000 and structured the transactions so that most Class A shares (book value about $1.21 per share) would be sold to the public at $5 per share.
- The plan would yield existing shareholders over $2 million in proceeds from the public sale while they retained exclusive voting control via Class B stock and additional upside through retained Class A shares and warrants.
- The prospectus described the Class A shares as speculative but also predicted strong postwar competitive position based on design improvements, wartime binoculars production success, and mass-production methods.
- The SEC alleged the registration materials omitted material facts, including:
  - manufacturing methods generally lacked patent protection and the company would need third-party patent licenses to execute postwar plans;
  - uncertainty and timing needed to develop and market described products; and
  - how insider warrants could impair future capital raising and reflected terms less favorable to the issuer than other potential financing.
- During the stop-order proceeding, Universal proposed to modify the offering and sought dismissal of the proceeding.

## Issues

1. Whether the registration statement and prospectus contained untrue statements of material fact or omitted material facts necessary to make statements not misleading, including matters bearing on patent/licensing dependence, product development timing, warrant effects, and the control-and-cash-out structure for insiders.
2. Whether the issuer’s stated intent to modify the offering required dismissal of the pending Securities Act § 8(d) stop-order proceeding.

## Decision

- The SEC concluded the registration statement and prospectus were materially deficient due to misleading statements and material omissions.
- The SEC declined to dismiss the stop-order proceeding based on the issuer’s proposed modifications.
- The SEC determined a stop order was warranted unless and until the issuer cured the deficiencies through appropriate amendments and effective corrective disclosure.

## Legal Principles

- A registration statement is materially misleading if it contains untrue statements of material fact or omits material facts needed to make affirmative statements not misleading when read as a whole.
- When an issuer makes optimistic or predictive claims about future prospects, it must disclose countervailing material facts so the disclosure is not misleading by half-truth.
- Material facts can include dependence on third-party rights (such as patent licenses), expected timing and uncertainty of product development, and features of securities (such as warrants) that affect dilution and future financing flexibility.
- Where offering structures permit insiders to receive large cash proceeds while retaining voting control, the economic consequences and control arrangements must be clearly disclosed to allow informed evaluation by public investors.
- In a Securities Act § 8(d) stop-order context, an issuer’s intent to modify an offering does not moot the proceeding; corrective disclosure must be made through amendments to the registration statement before effectiveness can continue.

## Conclusion

The SEC held that Universal’s offering disclosure was materially misleading because it promoted strong postwar prospects without disclosing licensing and development risks and failed to explain warrant-related financing constraints and the insider-favoring control-and-cash-out structure; the Commission therefore refused to dismiss the stop-order proceeding and required corrective amendments as a condition to avoiding or lifting a stop order.


In re Universal Camera Corp., 19 S.E.C. 648 (1945)