## Facts

- Africa, U.S.A., Inc. registered 150,000 shares at $10 per share in a “best efforts, all or none” offering underwritten by Resch-Cassin & Co., Inc., with a 60-day deadline to sell all shares or refund subscriber funds.
- A selling group was formed that included Nagler-Weissman & Co., Inc., which agreed to place 15,000 shares, later increased to 17,500.
- Sales efforts emphasized promised aftermarket performance; investors were told Africa stock was expected to trade well above the offering price (including predictions exceeding $20 per share).
- After the offering began trading over-the-counter, Resch-Cassin engaged in aftermarket purchases and orders intended to support or increase the stock price, including buying roughly 3,000 shares around $20 per share.
- When the market price later declined toward approximately $11, Resch-Cassin enlisted Nagler-Weissman and its principals to assist in price support, including placing an order that led Nagler-Weissman to purchase shares in the market to help move the price upward (at points near $16).
- The coordinated trading helped keep the stock trading at or above the $10 offering price during the distribution period; after the underwriting period ended, the price fell substantially (later trading around $4).
- The SEC also alleged Nagler-Weissman operated while out of compliance with Exchange Act net-capital and recordkeeping requirements and failed to disclose those deficiencies to customers while recommending or effecting transactions in Africa stock.
- The SEC sought permanent injunctive relief; the matter proceeded to trial as to Nagler-Weissman and its principals.

## Issues

1. Whether Nagler-Weissman and its principals participated in a manipulative and deceptive scheme, in violation of Securities Act § 17(a) and Exchange Act § 10(b) and Rule 10b-5, by combining promotional price predictions with undisclosed coordinated price-support trading.
2. Whether net-capital and books-and-records violations, and nondisclosure of those violations to customers while transacting in the security, constituted deceptive conduct under the antifraud provisions.
3. Whether the SEC established a reasonable likelihood of future violations warranting a permanent injunction.

## Decision

- The court granted the SEC’s request for a permanent injunction against Nagler-Weissman & Co., Inc., and its principals Robert Nagler, Adolph Weissman, and Maxwell Forster.
- The court found these defendants violated antifraud and anti-manipulation provisions by participating in a scheme to maintain an artificial aftermarket price level while promoting the stock based on expected price performance.
- The court also found net-capital and recordkeeping violations and treated the failure to disclose those deficiencies to customers as an additional deceptive practice.
- The court concluded that the nature and circumstances of the misconduct showed a reasonable likelihood of recurrence absent injunctive relief.

## Legal Principles

- Market manipulation under Exchange Act § 10(b) and Rule 10b-5 may be shown by coordinated trading designed to peg or support a security’s price, particularly when paired with promotional statements that induce purchases without disclosure of the price-support activity.
- Specific, confident price forecasts may be actionable when they function as part of a plan to create the forecasted price through undisclosed trading and other conduct that misleads investors about genuine market demand.
- Broker-dealer violations of net-capital and books-and-records rules can be material to customers; nondisclosure of serious compliance and financial-condition deficiencies while recommending or executing trades may constitute an omission or deceptive practice under the antifraud provisions.
- In SEC enforcement actions, a permanent injunction requires more than proof of past wrongdoing; the SEC must show a reasonable likelihood of future violations, evaluated by factors including the deliberateness and repetition of misconduct, the level of scienter, and the defendants’ roles in the securities industry.

## Conclusion

The court permanently enjoined Nagler-Weissman and its principals after finding they participated in an aftermarket price-support scheme that, together with sales inducements centered on predicted price increases, constituted manipulative and deceptive conduct, and that their net-capital and recordkeeping deficiencies and nondisclosure further supported antifraud relief because the violations indicated a likelihood of future misconduct.


Sec. & Exch. Comm’n v. Resch-Cassin & Co., 362 F. Supp. 964 (S.D.N.Y. 1973)