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Jenkins v. Dearborn Securities Corp.

OPINION FILED SEPTEMBER 30, 1976.

CURTIS E. JENKINS ET AL., PLAINTIFFS-APPELLEES,

v.

DEARBORN SECURITIES CORPORATION ET AL., DEFENDANTS-APPELLANTS. — FRANK H. PAUSE ET AL., PLAINTIFFS-APPELLEES,

v.

DEARBORN SECURITIES CORPORATION ET AL., DEFENDANTS-APPELLANTS.



APPEAL from the Circuit Court of Logan County; the Hon. JOHN T. McCULLOUGH, Judge, presiding.

MR. PRESIDING JUSTICE TRAPP DELIVERED THE OPINION OF THE COURT:

The plaintiffs, Jenkins and Pause, each filed complaints seeking relief under section 13 of the Illinois Securities Law of 1953 (Ill. Rev. Stat. 1973, ch. 121 1/2, par. 137.13). Following a bench trial of the consolidated cases, the court ordered judgment for Jenkins in the sum of $3700 and for Pause, in the sum of $5000. Each judgment awarded interest and attorneys fees.

Upon appeal, defendants argue that each judgment is against the manifest weight of the evidence and that the trial court abused its discretion in denying defendants' motions for retrial under section 68.3 of the Civil Practice Act (Ill. Rev. Stat. 1973, ch. 110, par. 68.3) which alleged:

"Additional evidence has come to the attention of the Defendants since the trial of this cause and which has not been presented to the Court for hearing * * *."

The trial court filed a memorandum finding that the defendants engaged in the sale of securities in a manner which "[w]orked or tended to work fraud and deceit upon the Plaintiffs in violation of Sections 12(f) and 12(g) * * *," i.e.:

"* * * by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; * * *." Ill. Rev. Stat. 1973, ch. 121 1/2, par. 137.12(G).

Defendants, Gaffey and Higginbotham, are the principal shareholders and officers of Dearborn Securities Corporation (hereinafter designated Securities), which is authorized and registered to engage in security and commodity transactions. Defendant, Gleason, was employed as a salesman to sell the shares of securities in the transaction at issue.

The evidence is that the plaintiffs were respectively solicited initially by Gleason as persons from a "select few" to buy shares as "post-corporators" of securities at one dollar per share.

The essential scheme of the defendants was that: A holding company would be formed which would be called Dearborn Equity Corporation. Dearborn Securities and an insurance company which would be bought later would be put together under the holding company. This corporate arrangement would make possible the marketing of the "Dearborn Plan," which would be a combination of annuity insurance and a mutual fund. Following the formation of the holding company, there would be a public offering of Dearborn Equity stock at $3 per share and Dearborn Securities stock would be exchanged for Dearborn Equity stock on a 4-for-1 basis. If the public offering were successful, the stock purchased by plaintiffs would be worth 12 times what they paid for it. However, the holding company was never formed, and the stock became worthless.

One exhibit tendered by plaintiffs is a hand-drawn diagram of the corporate structure prepared by Gleason including hand-written notes showing that the shares of securities would be exchanged at 4-for-1, and that the shares of securities would be sold at $3 per share so that upon the incorporation of Equity plaintiffs could receive $3 for a share with an adjusted value of 25 cents.

The evidence conflicts upon the question of whether Gleason and Gaffey told the plaintiffs that the money invested would be held in escrow. The subscription agreement did not provide for an escrow and no such agreement was given. Defendant, Gleason, testifying under section 60 of the Civil Practice Act and Gaffey, each denied stating that the proceeds of the sale would be held in escrow, but it appears agreed that there was a considerable discussion of an escrow of the stock in Securities during the period of the public sale of shares in Equity. It also appears that plaintiffs were told that Securities was registered with SEC (Securities and Exchange Commission), but that in the discussion there was little or no differentiation between such registration of Securities as a business entity dealing in stocks and commodities and the shares proposed to be sold to plaintiffs. Such shares were not so registered.

The testimony and the exhibits reflect that in defendants' presentation to plaintiffs, there was no discussion of Securities as a going corporation in which plaintiffs were investing, but rather the presentation was directed to the expectations of profit in Equity by its sale of insurance and annuity or mutual funds. The literature on such plans frequently referred to guaranteed income or savings and the return of investment under the "Dearborn Plan." It is not contended that the plaintiffs were advised how the money provided by the "post-corporators" was to be used.

Because it frames the issue of the manifest weight of the evidence contention argued, we first consider the question of the abuse of discretion in denying defendants' motion for retrial.

Following the trial on July 13, 1973, the trial court allowed defendants to present additional evidence on July 19 relevant to a notation appearing on the back of Jenkins' check given for the purchase of shares. The findings of the trial court were filed on September 11, 1973, and the judgment order September 28. The motion at issue was ...


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