Before MOORE, Circuit Judge, and SMITH and HERLANDS, District Judges.
This is an appeal under 28 U.S.C.A. § 1292(a) from an order by the district court, 178 F.Supp. 418, granting a preliminary injunction to restrain the sale of 50,000 shares of Guild Films Company, Inc. common stock by two of the appellants, the Santa Monica Bank and The Southwest Bank of Inglewood. Pending a final determination of this action, the preliminary injunction was issued "unless and until" a registration statement should be filed under the Securities Act of 1933, 15 U.S.C.A. § 77a et seq.
Section 5*fn1 of the Act makes it unlawful for anyone, by any interstate communication or use of the mails, to sell or deliver any security unless a registration statement is in effect. Section 4 provides, however, that "the provisions of section 5 * * * shall not apply to * * * (1) Transactions by any person other than an issuer, underwriter, or dealer." The banks claim that they come within this exemption to the registration requirements. The district court rejected this claim, holding that the banks were "underwriters" within the meaning of the Act. While the issue involved can be simply stated, a rather complete discussion of the facts is necessary.
The Original Loans by the Banks and the Security Therefor
On September 17, 1958, the Santa Monica Bank and The Southwest Bank of Inglewood jointly agreed to loan Hal Roach, Jr., $120,000, represented by two notes. An unverified, undated financial statement submitted by Roach was relied upon in making the loan. The money was deposited in a joint checking account in the name of Roach and Charles H. Meacham. Roach's note for $60,000 to the Santa Monica Bank, which was to manage the loan for both banks, was dated September 17, 1958, and his note to The Southwest Bank for the same amount was dated September 25, 1958. Both notes were treated as due on December 15, 1958, although the note to The Southwest Bank was actually payable 18 days earlier.
The loans were initially secured by 34,475 shares of the Scranton Corp. (valued at $15 per share) and 2,000 shares of F. L. Jacobs Co. stock (valued at $8 per share). As agreed, this collateral was soon replaced by 30,000 shares of Jacobs stock. Roach had used a large part of the proceeds of the loans to purchase a substantial number of the 30,000 Jacobs shares put up as collateral.
The Jacobs Stock and the Renewal Notes
Roach was an officer, director, and the controlling shareholder of F. L. Jacobs Co., of which Alexander L. Guterma was president. This company controlled the Scranton Corp. which owned Hal Roach Studios, which in turn owned both W-R Corp. and Rabco T. V. Production, Inc.
W-R Corp. and Guild Films, Inc. had made an agreement on January 23, 1959, under which W-R Corp. was to obtain 400,000 shares of Guild Films common stock (the registration of 50,000 shares of this stock is here in dispute) and a number of promissory notes in exchange for certain film properties. The stock was not registered with the S. E. C., but Guild Films agreed to use its best efforts to obtain registration. However, seeking to come within an exemption provided in section 4 of the Securities Act, the parties provided the following in their agreement:
"Stock Taken for Investment: W-R warrants, represents and agrees that all of the said 400,000 shares of Guild's common stock being contemporaneously issued hereunder, whether registered in the name of W-R or in accordance with the instructions of W-R, are being acquired for investment only and not for the purpose or with the intention of distributing or reselling the same to others. Guild is relying on said warranty and representation in the issuance of said stock."
On February 5, 1959, for reasons discussed below, Roach directed that 100,000 shares of the Guild Films stock be issued in the name of W-R Corp. and 100,000 shares (represented by two 50,000 share certificates) in the name of Rabco. Meacham, the treasurer of Guild Films, directed that the transfer agent stamp this restriction on the stock certificates:
"The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares have been acquired for investment and may not be sold, transferred, pledged or hypothecated in the absence of an effective registration statement for the shares under the Securities Act of 1933 or an ...