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March 22, 1973


Parker, District Judge.

The opinion of the court was delivered by: PARKER

Parker, District Judge.

 Alleging violations and aiding and abetting in violations of the anti-fraud, *fn1" proxy *fn2" and reporting *fn3" sections of the securities laws, the Securities and Exchange Commission ("SEC" or "Commission") has brought suit for injunctive relief *fn4" against National Student Marketing Corporation ("NSMC"), *fn5" its officers, directors, outside legal counsel and independent auditors and the officers, directors, and legal advisers of Interstate National Corporation ("Interstate"), a company which was merged into NSMC, seeking to prevent future violations of those laws.

 Defendants White & Case, a New York City law firm which at all relevant times was NSMC's outside legal adviser, and Marion Jay Epley, III ("Epley"), a partner in that firm, have requested this Court pursuant to Rule 12 of the Federal Rules of Civil Procedure and 28 U.S.C. § 1406 to enter an order dismissing the proceedings on the grounds that venue is improper as to them in the District of Columbia and that in personam jurisdiction is lacking. Alternatively, these defendants pursuant to Rule 21 of the Federal Rules of Civil Procedure and 28 U.S.C. §§ 1406(a) and 1404(a) have moved to sever and transfer the claims against them to the United States District Court for the Southern District of New York.

 Defendants Cameron Brown ("Brown"), at all relevant times the president and a director of Interstate, Lord, Bissell & Brook, a Chicago Law firm which represented Interstate, Max E. Meyer ("Meyer"), a partner in that firm and a director of Interstate, and Louis F. Schauer ("Schauer"), also a member of Lord, Bissell & Brook, have moved pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the proceedings for failure to state a claim upon which relief can be granted. Alternatively these defendants move for summary judgment in their favor pursuant to Rules 12(b) and 56 of the Federal Rules. Defendants Paul E. Allison ("Allison"), Robert P. Tate ("Tate") and William J. Bach ("Bach"), all of whom were directors of Interstate, have likewise requested this Court to grant summary judgment in their behalf pursuant to Rules 12(b) and 56.

 The Court, after careful consideration of the memoranda of points and authorities, affidavits, exhibits and the representations of counsel during oral argument and for the reasons set forth below, denies the motions of White & Case, Epley, Brown, Lord, Bissell & Brook, Meyer and Schauer. The motions of Allison, Bach and Tate are granted and summary judgment is entered in their favor. *fn6"

 The Background

 In this proceeding the Commission has set forth a pleading, the First Amended Complaint For Injunctive and Other Relief, which contains four claims. The First Claim of the Amended Complaint, which does not involve any of the movants, recounts an alleged mammoth securities fraud scheme perpetrated by the principal officers, directors and accountants of NSMC and details the purchase and sale of over eleven million shares of NSMC stock between 1968 and 1970. Lying at the heart of this alleged scheme is the preparation, issuance, dissemination and promotion of false and misleading financial statements *fn7" which artificially inflated the price of NSMC stock and enabfed NSMC to fraudulently acquire approximately twenty-five companies in exchange for its own stock.

 A significant portion of the remainder of the Amended Complaint concerns the October, 1969 acquisition of Interstate by NSMC. During the spring and summer of 1969 Interstate, an Illinois corporation, explored the possibility of merging with NSMC, which at the time was a District of Columbia corporation. *fn8" Interstate engaged the investment banking firm of White, Weld & Company ("White, Weld") to make an investigation into the background, history and finances of NSMC, and to make recommendations as to the advisability of the merger. A preliminary report on NSMC, presented to the Interstate Board of Directors on August 12, 1969, and a final draft, dated September 22, 1969, were generally favorable to the merger. *fn9" An Agreement and Plan of Merger ("Merger Agreement") was executed by the Interstate Board of Directors on August 15, 1969. The Merger Agreement, which was subject to Interstate and NSMC shareholder approval, contained, inter alia, the following significant provisions: Interstate was to receive from NSMC's counsel, White & Case, an opinion letter satisfactory to Lord, Bissell & Brook, that NSMC had taken all actions required of it by law and that all transactions in connection with the merger had been duly and validly taken; NSMC would receive from Lord, Bissell & Brook, a similar letter satisfactory to White & Case, that Interstate had taken all necessary steps to effectuate the transaction and that the merger was reached in accordance with law; and Peat, Marwick, Mitchell & Co. ("PMM") as NSMC's independent accountants would issue to Interstate a "comfort letter" stating that there was no reason to believe that NSMC's unaudited nine month financial statements for the period ending May 31, 1969 were not prepared in accordance with standard and accepted accounting procedures or that any material adjustments in those financials were required. It was further understood that the letter would indicate that NSMC had experienced no material adverse change in its financial posture from May 31, 1969, until five days prior to the effective date of the merger.

 After receiving and having the opportunity to review the proxy material mailed to them, which included copies of the proposed agreement, shareholders of each corporation approved the merger at specially held meetings in early October, 1969. The material mailed to Interstate stockholders included the required nine month financial statements of NSMC which reflected a profit of approximately $700,000.

 The closing meeting took place at the office of White & Case in New York on Friday afternoon, October 31, 1969. In attendance were representatives of NSMC; officers and directors of Interstate, including Brown, Allison, Bach and Tate; Meyer, Schauer representing Lord, Bissell & Brook; and Epley on behalf of White & Case. During the progress of the meeting PMM telephonically transmitted from its Washington, D.C. office to White & Case an unsigned draft of the comfort letter which was to be prepared in accordance with the Merger Agreement. Providing less than the anticipated degree of comfort, the letter, which had been typewritten and distributed to those present at the closing, noted in pertinent part that:

"our examination in connection with the year ended August 31, 1969 which is still in process, disclosed the following significant adjustments which in our opinion should be reflected retroactive to May 31, 1969:
1. In adjusting the amortization of deferred costs at May 31, 1969, to eliminate therefrom all costs for programs substantially completed or which commenced 12 months or more or prior, an adjustment of $500,000 was required. Upon analysis of the retroactive effect of this adjustment, it appears that the entire amount could be determined applicable to the period prior to May 31, 1969.
2. In August 1969 management wrote off receivables in amounts of $300,000. It appears that the uncollectibility of these receivables could have been determined at May 31, 1969 and such charge off should have been reflected as of that date.

 On the date of closing but prior to consummation of the merger PMM allegedly informed White & Case and Epley of its desire to add to the draft letter an additional paragraph to the effect that with the noted adjustments properly made, NSMC's unaudited consolidated statement for the nine month period would not reflect a profit as had been indicated but rather a net loss and the consolidated operations of NSMC as it existed at May 31, 1969, would show a break-even as to net earnings for the year ended August 31, 1969. It is averred that White & Case and Epley did not inform the others of this information. Despite the unexpected revelations of the comfort letter, and without its contents being disclosed by any of the defendants who had knowledge of such, the merger was completed on schedule and the Articles of Merger were filed and recorded in the Corporation Division of the Office of the Recorder of Deeds of the District of Columbia. The final copy of the comfort letter which was received by White & Case approximately one hour after the closing was consummated and by the Interstate representatives several days after closing did in fact contain two supplemental paragraphs:

"Your attention is called, however, to the fact that if the aforementioned adjustments had been made at May 31, 1969, the unaudited consolidated statement of earnings of National Student Marketing Corporation would have shown a net loss of approximately $80,000. It is presently estimated that the consolidated operations of the company as it existed at May 31, 1969, will be approximately a break-even as to net earnings for the year ended August 31, 1969.
In view of the above mentioned facts, we believe the companies should consider submitting corrected interim unaudited financial information to the shareholders prior to proceeding with the closing." *fn10"

 After receiving the contents of the comfort letter counsel for both companies rendered legal opinions, as required of them by the Merger Agreement, that all transactions in connection ...

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