## Facts

- The Securities and Exchange Commission (SEC) filed a civil enforcement action against Georgia-Pacific Corp. (GP) in 1966, alleging violations of Exchange Act § 10(b) and SEC Rule 10b-5.
- The SEC’s complaint described GP’s practice of acquiring substantially all of the stock or assets of other companies in exchange for GP common stock.
- Many acquisition agreements tied the number of GP shares GP had to deliver to the market value of GP stock on the New York Stock Exchange (NYSE) during specified “valuation periods.”
- Under these formulas, if GP’s NYSE price averaged below a stated level during the valuation period, GP would be required to issue additional shares; if the market price was higher, GP would issue fewer shares.
- The SEC alleged that during and immediately before these valuation periods, GP and affiliated individuals caused GP shares to be purchased in the market by (1) the GP treasury and (2) GP’s stock-bonus trust (an employee benefit-related vehicle).
- The SEC alleged that these purchases increased demand for GP stock, raised its NYSE price, and thereby reduced the number of shares GP had to issue to the selling shareholders in the acquisitions.
- As an example, the complaint focused on GP’s acquisition of St. Croix Paper Company (St. Croix).
- In that transaction, GP agreed to issue 470,172 shares of GP common stock to St. Croix shareholders at an exchange ratio of 0.8 GP share per St. Croix share.
- The agreement also provided that if the NYSE sale price of GP common stock did not average at least $50 per share during a specified valuation period, GP would have to issue additional GP shares to St. Croix shareholders.
- During the valuation period, the trustees of GP’s stock-bonus plan authorized purchases of GP common stock by the trust on multiple occasions.
- The SEC alleged these purchases contributed to the market price increasing from about $49 to $52.75, and that once the price exceeded the $50 threshold, the trust stopped buying.
- The excerpted materials describing the facts come from the SEC’s complaint, not from a reported judicial opinion on the merits.

## Issues

1. Whether coordinated purchases of an issuer’s own stock—directly through the issuer and indirectly through an affiliated stock-bonus trust—timed around contractual valuation periods can constitute a manipulative or deceptive scheme under Exchange Act § 10(b) and Rule 10b-5.
2. Whether trading intended to affect a valuation-period market price that determines share consideration in stock-for-assets acquisitions is “in connection with” the purchase or sale of securities for purposes of § 10(b) and Rule 10b-5.
3. What forward-looking injunctive relief is appropriate where the SEC alleges market-price manipulation through issuer and benefit-plan purchases, but the matter is resolved without a litigated merits ruling.

## Decision

- The case did not result in a reported judicial opinion resolving the merits of the SEC’s allegations.
- The matter was resolved by a consent judgment (consent decree) entered on May 24, 1966.
- The consent judgment imposed restrictions on GP’s future purchases of its own shares, including purchases carried out through affiliated arrangements such as the stock-bonus trust.

## Legal Principles

- Exchange Act § 10(b) and Rule 10b-5 reach schemes and practices alleged to manipulate market price, not only false statements or omissions.
- Purchases by an issuer (or by an affiliated employee benefit or stock-bonus trust acting in coordination with the issuer) may be treated as potentially manipulative when timed and sized to affect the market price during a contractually defined pricing window that determines the issuer’s share-delivery obligation.
- When an acquisition agreement uses an exchange ratio or adjustment mechanism based on an exchange-traded price during a valuation period, conduct aimed at moving that price can be framed as fraud or manipulation connected to securities transactions.
- A consent judgment provides injunctive and conduct-based relief without a court finding of liability; the case’s significance lies in the SEC’s pleaded theory and the agreed limits on future repurchases, not in judicial reasoning set out in an opinion.

## Conclusion

In Securities and Exchange Commission v. Georgia-Pacific Corp., Civil Action No. 66-1215 (1966), the SEC alleged that GP used issuer repurchases and stock-bonus trust purchases to raise GP’s NYSE price during valuation periods in stock-for-assets acquisitions, thereby reducing the number of GP shares owed to sellers; the matter ended without a reported merits decision, through a May 24, 1966 consent judgment that restricted GP’s future purchases of its own stock.


Securities and Exchange Commission v. Georgia-Pacific Corp., 66 Civil Action No. 1215 (1966)