stockholdings were material facts. The failure to disclose these material facts in annual reports and proxy materials filed and disseminated from 1965 through 1975 also rendered them materially misleading to GRX's shareholders in violation of Sections 13(a) and 14(a) of the Exchange Act and Rules 13a-1 and 14a-9 thereunder and Rule 12b-20.
41. H. Mayer, Dan Mayer and the foreign corporate defendants exercised a degree of influence and control over GRX and concealed the amount of their stockholdings from GRX and accordingly have caused GRX and have aided and abetted GRX in the concealment of such stockholdings and business transactions. SEC v. Kalvex, Inc., supra; Brennan v. Midwestern United Life Insurance Co., 417 F.2d 147 (7th Cir. 1969).
Section 13(d) Violations
42. Defendants H. Mayer, Dan Mayer, Sanbil, Refrax, Magnesit Holding and Aldo have violated and are continuing to violate Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder by failing to timely file and deliver and by failing to file or deliver with the SEC and to GRX and the New York and PBW Stock Exchanges the Schedules 13D required of them. Defendants also violated and continue to violate such section and rules by making false statements and omitting to make disclosures in a Schedule 13D and two amendments thereto filed by Sanbil.
43. Section 13(d) was enacted for the purpose, among other things, of informing the investing public, as well as the issuer itself, of important information concerning any person or group of persons who acquire more than five percent of the outstanding securities of a public company whose securities are registered under Section 12 of the Exchange Act, as is GRX stock. Full Disclosure of Corporate Equity Ownership and in Corporate Takeover Bids, S. Rep. No. 550, 90th Cong., 1st Sess. (1967); Disclosure of Corporate Equity Ownership, H.R. Rep. No. 1711, 90th Cong., 2d Sess. (1968). Section 13(d)(3) was enacted in order to identify to the public market place those persons acting as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding, or disposing of securities of an issuer. Such a syndicate or group is deemed to be a "person" for purposes of the Section 13(d) reporting requirements.
44. A group was formed for the purpose of acquiring and/or holding GRX securities. That group consisting of H. Mayer, Dan Mayer, Sanbil, Refrax, Magnesit Holding and Aldo was under the common control and/or ownership of H. Mayer, who, with Dan Mayer, directed the stock purchasing activities of the foregoing entities.
45. At least as early as October 12, 1972, H. Mayer, Dan Mayer, Refrax, Sanbil, Magnesit Holding and Aldo held or purchased, as a "group", in excess of five percent of GRX's outstanding common shares, and were therefore required by at least October 22, 1972, to have filed a Schedule 13D with the Commission and delivered it to GRX and the New York and PBW Stock Exchanges. None was filed in violation of Section 13(d) and Rule 13d-1. Substantial increases in holding of GRX shares acquired by Sanbil and Refrax from February 1973 through 1974 constituted material changes in the facts required to have been disclosed in the original required Schedule 13D, and, therefore, pursuant to Rule 13d-2, amendments to the original required Schedule 13D were required to be filed and delivered. None was filed in violation of Section 13(d) and Rule 13d-2.
46. Sanbil's three 13D filings misstated and omitted to state facts required under items of the Schedule itself, and omitted to state such further material information as was necessary to make the required statements, in the light of the circumstances under which they were made, not misleading. Rule 12b-20. All information set forth in a Schedule 13D must be true and accurate and cannot contain a false or misleading statement. GAF Corp. v. Milstein, 453 F.2d 709 (2d Cir. 1972). The Schedule 13D filed by Sanbil on or about December 23, 1974 was not true and accurate in that it failed to disclose the existence and identities of members of the "group" consisting of Sanbil, Refrax, H. Mayer, Dan Mayer, Magnesit Holding and Aldo which acquired an amount of GRX shares in excess of the amount disclosed in the Sanbil filing, failed to disclose the true amounts of Sanbil's and the "group's" purchases and holdings, failed to disclose the relationships of members of the group to H. Mayer and to each other, failed to disclose the control person's, i.e., H. Mayer's, material occupations, positions, offices and employments during the past 10 years, failed to disclose the identities of the controlling persons of Sanbil, failed to disclose the extensive business dealings between H. Mayer's and H. Mayer's companies and GRX and its subsidiaries and failed to disclose that H. Mayer was represented on GRX's board since 1965. The subsequent filings by Sanbil on February 10, 1975, and on March 25, 1975, were also deficient.
47. The SEC has made a strong prima facie showing that there is a substantial likelihood of future violations of the Federal securities laws on the part of the defendants, and that there are ongoing violations of the Federal securities laws by these defendants sufficient to warrant the grant of a preliminary injunction enjoining defendants H. Mayer, Dan Mayer, Refrax, Sanbil, Magnesit Holding and Export from further violations of Sections 10(b), 13(a) and 14(a) of the Exchange Act and Rules 10b-5, 13a-1, 14a-3 and 14a-9 thereunder and Rule 12b-20 and enjoining defendants H. Mayer, Dan Mayer, Refrax, Sanbil and Magnesit Holding from further violations of Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder.
48. In addition to preliminarily enjoining the defendants from further violations of the Federal securities laws, the SEC has also shown a need for certain ancillary relief, including a prohibition against any further acquisitions of GRX stock by the defendants, sales of GRX stock owned and/or controlled by the defendants and a sterilization of voting rights as to those shares. See, Twin Fair, Inc. v. Reger et al., 394 F. Supp. 156 (W.D.N.Y., 1975).
49. Defendants contend that De Beers Consolidated Mines, Ltd. v. United States, 325 U.S. 212, 65 S. Ct. 1130, 89 L. Ed. 1566 (1945) prohibits restrictions on their ability to dispose of their GRX shares. Defendants' reliance on De Beers, supra, is misplaced and the requested ancillary relief should be granted. The United States, in De Beers, sought to freeze assets to provide security to assure that assets would be available in the event a fine was imposed for contempt of the injunctive decree the United States was seeking. The United States was not there seeking the return of monies to any party from whom monies were wrongfully deprived or the disgorgement of benefits from parties who had wrongfully obtained them. The Supreme Court noted that the district court had no jurisdiction under the Sherman Act to order a money judgment but only had power to restrain conduct in violation of the Act. However, the SEC is seeking disgorgement of benefits wrongfully obtained. Preliminarily, the SEC is seeking the freezing of certain specific assets that are clearly related to the alleged scheme in order to assure a source to satisfy that part of the final judgment which might be ordered specifically by this Court. It appears likely that the SEC will show at a full trial on the merits that GRX was injured and wrongfully deprived of benefits by the defendants. While in De Beers defendants may have been irreparably harmed in that they may not have been able to do business while their bank accounts and machinery were frozen, no such showing has been made here that the defendants' business would be similarly affected.
50. It has long been recognized that courts, pursuant to their general equity powers, may order ancillary relief, including disgorgement of monies or other benefits received, in SEC injunctive actions brought pursuant to Section 21(e) of the Securities Exchange Act of 1934 so as to prevent defendants from profiting from their illegal conduct. Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341 (2d Cir. 1973); SEC v. Shapiro, 494 F.2d 1301 (2d Cir. 1974); SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1105-06 (2d Cir. 1972); SEC v. Texas Gulf Sulphur, 446 F.2d 1301, 1307 (2d Cir. 1971); SEC v. S & P National Corp., 360 F.2d 741, 750 (2d Cir. 1966); SEC v. Weisberger, CCH Fed. Sec. L. Rep. para. 95,108 [Current Binder] (S.D.N.Y. May 29, 1975); SEC v. R. J. Allen & Associates, Inc., 386 F. Supp. 866 (S.D. Fla. 1974); SEC v. Gerson Blatt, et al., 74-1139-Civ.-JLK (S.D. Fla., July 24, 1975). It has been specifically recognized that a freeze of assets may be appropriate to assure compensation to those who are victims of a securities fraud. International Controls Corp. v. Vesco, supra; SEC v. R. J. Allen & Associates, Inc., supra.
51. The prohibition against the sale of the defendants' GRX shares pending a hearing on the final judgment of permanent injunction also serves to maintain the status quo pendente lite which is one of the primary functions of preliminary injunctive relief. Any dividends paid on such shares during the pendency of the preliminary injunction will not be subject to any restrictions imposed by that order.
John H. Pratt / UNITED STATES DISTRICT JUDGE
Dated: September 23, 1975
JUDGMENT OF PRELIMINARY INJUNCTION AND OTHER RELIEF
Plaintiff Securities and Exchange Commission, having filed a complaint for injunction and other relief in this matter and having moved for preliminary relief and the Court having considered the pleadings, the affidavits, the exhibits, the evidence and having heard argument at a hearing in this matter on September 18 and 19, 1975 and for the reasons assigned in the Court's Findings of Facts and Conclusions of Law filed on September 23, 1975.
IT IS ORDERED, ADJUDGED AND DECREED that pending a final determination upon the merits of this action, the defendants Hermann Mayer ("H. Mayer"), Dan Mayer, Sanbil Handels Anstalt ("Sanbil"), Refrax Handels Anstalt ("Refrax"), Magnesit Holding A.G. ("Magnesit Holding"), and A.G. Fuer Magnesit Export ("Export"), their officers, directors, agents, servants, partners, employees, successors, assigns, affiliates and subsidiaries and each of them and those persons in active concert or participation with them, are hereby restrained and enjoined from, directly or indirectly, singly or in concert, making use of the mails or the means and instruments of transportation or communication in interstate commerce, or of any facility of any national securities exchange, in connection with the purchase or sale of the securities of General Refractories Company ("GRX") or any other issuer by:
1. Employing any scheme, device or artifice to defraud;
2. Making any materially false and misleading statement or omitting to state any material fact necessary in order to make statements made, in the light of the circumstances under which they were made, not misleading; and