## Facts

- On May 26, 1977, Las Vegas Hawaiian Development Company (LVH) filed a Securities Act registration statement with the SEC for a proposed public offering of limited partnership interests, attaching a delaying amendment.
- The SEC staff issued a lengthy comment letter; on December 23, 1977, LVH filed an amended registration statement, again with a delaying amendment.
- On May 15, 1978, the SEC sent a second comment letter and stated it might have additional comments.
- On July 7, 1978, LVH filed a second amended registration statement, but this time did not attach a delaying amendment, allowing the statement to become effective by passage of time unless the SEC intervened.
- On July 25, 1978, the SEC issued an order authorizing its staff to conduct a public examination under Securities Act § 8(e) to determine whether to begin a stop-order proceeding under § 8(d).
- At the time of the § 8(e) order, SEC staff had not recommended a stop order, and the Commission could not predict when it might act on any recommendation.
- LVH’s second amended registration statement became effective on July 27, 1978 because there was no delaying amendment and no stop order issued.
- Even after effectiveness, the July 25 § 8(e) examination order had legal consequences: under Securities Act §§ 5 and 8, LVH could not lawfully offer to sell or accept offers to buy while the offering was the subject of a public examination ordered before the effective date.
- LVH alleged the § 8(e) examination created an indefinite freeze on the offering without the hearing procedures that would accompany a § 8(d) stop-order proceeding.
- Additional plaintiffs Tauri Investment Corporation and Alfred G. Bladen claimed they were unable to proceed with a desired purchase because LVH was barred from offering the interests during the examination.
- The dispute arose in a real-estate-related context involving affiliated entities; the opinion describes relationships among individuals associated with Paradise Hills Corporation (the intended general partner) and other related partnerships.
- On November 7, 1978, plaintiffs sued in federal district court seeking declaratory relief limiting the SEC’s use of § 8(e), including a declaration that the SEC could not use § 8(e) to delay sales indefinitely without initiating a stop-order proceeding.

## Issues

1. Whether the SEC’s decision to order and conduct a § 8(e) examination, before deciding whether to institute a § 8(d) stop-order proceeding, was “final agency action” suitable for judicial review and ripe for declaratory relief in district court.
2. Whether, even if review were available, the SEC acted outside its statutory authority or abused its discretion by using § 8(e) in a way that prevented sales after the registration statement became effective.
3. Whether § 8(e) permits examination that reaches beyond the face of the registration statement to review prior or related transactions bearing on the accuracy and completeness of the required disclosures.

## Decision

- The court granted the SEC’s motion to dismiss, or in the alternative for summary judgment, and denied declaratory relief.
- The court held the controversy was not ripe because the § 8(e) examination order was not a final agency action; the Commission had not decided to institute a § 8(d) stop-order proceeding or entered a definitive order determining rights.
- The court further concluded that, on the undisputed record, plaintiffs had not shown the SEC abused its discretion or grossly exceeded its statutory authority by ordering the § 8(e) examination.
- The court rejected the request to impose judicial limits on the timing or scope of the ongoing § 8(e) examination at this preliminary stage.

## Legal Principles

- An agency’s decision to begin an investigatory or preliminary step, such as a Securities Act § 8(e) examination to decide whether to pursue a § 8(d) stop order, is generally not “final agency action” subject to immediate review.
- Ripeness requires a sufficiently concrete, definitive agency position; courts typically will not supervise an ongoing administrative inquiry before the agency completes the statutory process.
- Where the securities laws provide specific procedures for stop-order proceedings and review of final Commission action, a district court ordinarily will not grant declaratory relief that would bypass that scheme.
- Securities Act §§ 5 and 8 can bar offers and sales even after a registration statement becomes effective when, before effectiveness, the Commission has ordered a public examination under § 8(e); the resulting delay is a consequence of the statutory framework.
- Section 8(e) gives the SEC discretion to examine matters reasonably related to whether a registration statement is materially incomplete or misleading, which may require inquiry into prior and related transactions connected to the offering and its disclosures.
- A claimed deprivation based on delay during a statutorily authorized examination does not, without more, establish a due process violation where the issuer may obtain procedural protections if and when the Commission initiates a stop-order proceeding and issues a final order.

## Conclusion

The district court dismissed the plaintiffs’ declaratory judgment action because the SEC’s § 8(e) examination order—issued to determine whether a § 8(d) stop-order proceeding should be started—was a nonfinal, preliminary step and therefore not ripe for judicial review, and because the plaintiffs did not show the Commission acted beyond its authority or abused its discretion by conducting an examination that temporarily prevented offers and sales notwithstanding the registration statement’s effectiveness.


Las Vegas Hawaiian Development Co. v. Securities and Exchange Commission, 466 F. Supp. 928 (1979)