The name of Eugene England is known among two different (if sometimes overlapping) population groups: Mormon studies scholars, and securities lawyers. For the former, the name brings to mind images of a scholar, writer, and teacher. For the latter, the name brings to mind an example of what not to do with section 2(a)(11) of the Securities Act.
For the unitiated, 2(a)(11) defines who is considered an underwriter for purposes of the securities laws. This is an important inquiry. Underwriters must meet a number of requirements (registration, prospectus, and so on) if they are involved in the sale of any non-exempt security. Non-underwriters (unless they are issuers or dealers) need not trifle with such nonsense.
2(a)(11) reads, in part and with emphasis added:
The term “underwriter” means any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking . . . .
Thus, one important inquiry in determining whether an entity is an underwriter for securities law purposes is whether that entity purchases securities for investment purposes or with a view to distribution. If the former, then the entity is not an underwriter. If the latter — if the entity purchases with a view to distribute — then the Securities Act requirements kick in. One of the leading cases in this area is G. Eugene England Foundation v. First Federal Corp., 663 F.2d 988 (10th Cir. 1973).
In 1969, the G. Eugene England Foundation* took on an investment in oil. It acquired 125,000 shares in Kashmir Oil, from one Norman Hays, through his vehicle First Federal Corp.; in exchange for this consideration, the foundation ceded land to Hays. Hays had himself had acquired the shares sixteen months prior from the Kashmir Oil company itself.
Within a year the investment soured, and the Foundation sought rescission of the deal. Among other things, the Foundation argued that First Federal had sold them an unregistered security. First Federal counterargued that it had no obligation to register the securities, because it was not an issuer, underwriter, or dealer.
The Tenth Circuit ruled for the Foundation. The court held that, because First Federal (and Hays) had only owned the securities for sixteen months, they had acquired them “with a view to distribute” rather than for investment purposes. And since First Federal was acting as a securities distributor, rather than an investor, it was liable as an underwriter for its violations of the securities laws.
Now, doesn’t that just make you want to talk about God’s perfection in different spheres?
*The case discusses testimony by England himself, but it’s not at all clear from the text whether this case refers to Eugene England Sr. or Jr. The younger England — who is the well-known scholar — would have been 36 at the time of the litigation. Because of the court’s discussion of the business acumen of the businessman England, I suspect that the England mentioned in the case is actually Eugene England Sr.