## Facts

- Hazel Bishop, Inc., a New York cosmetics company, filed a registration statement (and amendments) covering a secondary public offering of 1,274,823 outstanding shares, about 60% of its total outstanding common stock, to be sold by approximately 112 selling shareholders.
- Beginning in late 1959, certain investors purchased unregistered shares with the understanding that the shares would later be registered and resold publicly; the SEC found these investors functionally performed an underwriter-like distribution role.
- The planned offering was “at the market” and contemplated sales on the American Stock Exchange (AMEX), yet the prospectus did not identify a professional underwriter or explain controls to coordinate selling-shareholder activity and limit abusive trading.
- The selling shareholders had significant interrelationships, including insiders with influence over corporate information, profit-sharing or loss-protection arrangements, options to acquire shares below market, and inclusion of the AMEX specialist for the stock.
- The prospectus presented an earnings summary showing a profit for the fiscal year ended October 31, 1959, but the SEC found the presentation materially misleading because of accounting treatment and inadequate reflection of adjustments.
- A major advertising claim (over $1 million) by Television Industries, Inc. was settled when the company’s chairman transferred 150,000 shares to the claimant; the SEC concluded the prospectus’s accounting for this settlement improperly supported a profit presentation.
- The SEC found additional disclosure deficiencies concerning the business and market price information and noted that a substantial portion of the shares proposed for resale had previously been distributed in violation of Securities Act registration requirements, which the registrant later conceded by stipulation.

## Issues

1. Whether the registration statement and prospectus contained materially false or misleading statements or omissions warranting suspension of effectiveness under Securities Act § 8(d).
2. Whether post-filing amendments and stipulations cured the defects such that the registration statement should be permitted to become effective without stop-order relief.
3. Whether the offering’s structure—large “at the market” sales by numerous interrelated selling shareholders who functioned as distributors—required clearer disclosure of distribution roles, conflicts, and procedures to address market-abuse risks.

## Decision

- The SEC suspended the effectiveness of Hazel Bishop’s registration statement under § 8(d), preventing the offering from proceeding as filed and amended.
- The SEC found the prospectus’s earnings and financial presentation materially misleading, including its accounting treatment of the advertising-claim settlement and related adjustments.
- The SEC determined that the registration materials failed to provide required disclosures about material aspects of the business and market information.
- The SEC relied on the widespread prior public distribution of unregistered shares as an aggravating factor supporting stop-order relief.
- The SEC rejected the registrant’s request to allow effectiveness based on late corrective amendments, concluding the violations and disclosure failures were too serious to be addressed solely through post-hoc revisions.

## Legal Principles

- The SEC may suspend effectiveness of a registration statement under Securities Act § 8(d) when the registration statement or prospectus contains materially false or misleading statements or omits material facts required to make statements not misleading.
- Financial disclosure that misstates earnings by improper accounting for significant transactions (including settlement of major claims through stock transfers) is materially misleading and warrants remedial action.
- Prior widespread distribution of unregistered shares is material to the offering and weighs against permitting a later registration statement to become effective without Commission intervention.
- In large secondary offerings sold “at the market” by numerous related selling shareholders—especially where insiders and market professionals participate—disclosure must adequately describe distribution roles, conflicts, and arrangements affecting trading incentives, and should address mechanisms (if any) designed to reduce risks of abusive market activity.
- Corrective amendments and stipulations do not necessarily cure a registration statement when the underlying disclosure failures and unlawful distribution conduct are extensive and serious.

## Conclusion

The SEC suspended Hazel Bishop’s registration statement because the offering involved a large-scale “at the market” resale by interrelated shareholders following unlawful unregistered distributions, and because the prospectus contained materially misleading financial disclosures and other omissions that were not adequately remedied by later amendments.


Matter of Hazel Bishop, Inc., 40 S.E.C. 718 (1961)