[242 U.S. 559, 560] Mr. Clarence C. Caldwell, Attorney General of South Dakota, in propria persona, and Mr. Byron S. Payne for appellants.
Messrs. George J. Danforth, Hugh S. Gamble, Frank McLaughlin, and Edward E. Wagner for appellees.
Mr. Justice McKenna delivered the opinion of the court:
This case was argued and submitted with Nos. 438, 439, and 440, just decided [ 242 U.S. 539 , 61 L. ed. 480, 37 Sup. Ct. Rep. 217], and with No. 413 [ 242 U.S. 568 , 61 L. 498, 37 Sup. Ct. Rep. 227], which concerns a statute of Michigan of like kind, the opinion in which is to follow. It involves the same general questions as those cases, and is presented to review a decree of the district court enjoining appellants from enforcing a statute of the state of South Dakota relating to the sale of securities. The act ([Sess. Laws 1915, chap. 275] 23) makes violations of its provisions a misdemeanor, and criminal prosecutions under the act were the particular actions of the officers of the state that the appellees prayed to be enjoined.
After a consideration of the pleadings and argument the court, consisting of three judges, expressed the view that the statute violated the Constitution of the United States, and cited in confirmation Alabama & N. O. Transp. Co. v. Doyle, 210 Fed. 173; William R. Compton Co. v. [242 U.S. 559, 563] Allen, 216 Fed. 537; and Bracey v. Darst, 218 Fed. 482.
The court decreed that the appellants be enjoined from instituting and prosecuting any actions, civil or criminal, against complainants ( appellees) under the statute for alleged violations thereof, and from taking any proceedings for its enforcement except such as might be deemed proper by them in the criminal actions already pending.
The Sioux Falls Stock Yards Company is a Colorado corporation, having its principal place of business at the city of Denver, and the Morleys are residents and citizens of Iowa.
The Stock Yards Company was at the times mentioned in the bill engaged in building and constructing a stock yard in Sioux Falls, South Dakota, and in selling a certain amount of its capital stock for raising sufficient capital for that purpose. The Morleys, at such time, were engaged in the buying and selling of stock and especially in selling the stock of the Stock Yards Company to various farmers and other purchasers, such sales being necessary to complete the construction of the stock yard, and also necessary to enable the Morleys to earn a livelihood.
Six informations were filed against appellees at the instigation of appellants for violations of the statute, and it is alleged that appellees will be prosecuted immediately under such informations and will be further prosecuted.
The statute, it is alleged, is an infraction of the 14th Amendment of the Constitution of the United States, and imposes a burden upon and practically amounts to a prohibition of interstate commerce, and hence offends the commerce clause of the Constitution of the United States; and 'that it attempts to vest in and delegate to the State Securities Commission judicial powers unauthorized by law.'
Against the bill appellants urge, besides asserting the validity of the statute, three defenses: (1) That com- [242 U.S. 559, 564] plainants have a plain, speedy, and adequate remedy at law; (2) the suit is one against the state; (3) that the plea of the unconstitutionality of the statute was made in the criminal actions.
The three defenses are without merit. Six informations have already been filed against appellees and as many more may be brought as there may be violations of the statute, and a conviction of each may bear a fine of $ 1,000 or imprisonment, or both.
The suit manifestly is not one against the state, and the decree appealed from does not enjoin criminal actions commenced before the filing of the bill. We therefore pass to the merits.
A summary of the statute is all that is necessary. Its purpose as declared in its title is to prevent fraud in the sale and disposition of stocks, bonds, or other securities sold or offered for sale within the state. It creates a commission, called the State Securities Commission, of which the appellants-except Hanson, who is prosecuting attorney of Turner county-are members.
Those dealing in securities-and they may be persons, corporations, copartnerships, companies, or associations, incorporated or unincorporated- shall be known, it is provided, 'as a domestic investment company.' Those resident of or organized in any other state, territory, or government shall be known 'as a foreign investment company.'
Certain securities are exempt from the provisions of the act, and information as to those to which it applies must be furnished to the Commission as follows: If the securities are of the dealer's own issue, a statement must be filed with the Commission, showing in full detail (1) the plan upon which it proposes to transact business; (2) a copy of all contracts, stocks, and bonds which it proposes to make with or sell to contributors or customers, together with a copy of its prospectus and of the proposed advertisements of its [242 U.S. 559, 565] securities; which statement shall also show the names and location of its main office; (3) the names and addresses of its officers and an itemized account of its financial condition and the amount of its assets and liabilities; (4) such other information as the Commission may require; (5) if a foreign corporation, a copy of the law under which it was incorporated; (6) a copy of its charter and certain other papers relating to its constitution and organization. A filing fee is provided for of not less than $10 nor more than $100. The described papers are to be verified, and, if of record, certified to. If a foreign corporation, the applicant must file its irrevocable consent to suits against it by service of summons upon the public examiner.
The Commission is authorized to require further information than that mentioned above, and to make an appraisal of the property of the applicant at the expense of the applicant.
If the Commission find from the statements filed and the reports of the investigations conducted by it that the securities or investment contracts offered for sale would, in its opinion, work a fraud upon the purchaser, the Commission shall disapprove of their sale and notify the company by registered mail of its findings and disapproval, and it shall be unlawful for the company to sell such securities, and they shall not be sold in the state. If, however, the proposed plan of business and the securities are not of that character their sale shall be approved and a certificate issued of permission to sell.
The person who is authorized to sell the securities designated in the act is termed a 'dealer' in them, and he shall not sell or offer them for sale until he shall have filed a list of the same in the office of the Commission. The term 'dealer,' it is provided, shall not include an owner nor issuer of securities when the sale of them is not made in the course of continued and successive transactions of a similar nature, nor one who, in a trust capacity created [242 U.S. 559, 566] by law, lawfully sells securities 'impressed with such trust.' A 'dealer' is required to furnish practically the same information as that required of corporations. All authorized agents of a 'dealer' or investment company shall be registered with the Commission, and if the 'dealer' be a nonresident or a corporation other than a domestic corporation, he shall, at the time he registers with the Commission, file with it a written, duly authenticated appointment of the public examiner of the state as his or its agent in the state upon whom process or pleadings may be served for or on behalf of the 'dealer,' which appointment shall be irrevocable. Upon compliance with the terms of the act, the Commission shall issue to such 'dealer' a license which shall be good until revoked by the Commission for good cause upon notice to the 'dealer,' and after a hearing duly had.
There is a provision for keeping accounts, payment of fines, and other details, and it is provided that if, after permission has been issued authorizing the sale of the designated securities, it shall be made to appear to the Commission, from an examination of an investment company, that the further sale of the securities would work a fraud upon the purchaser, the Commission may make an order revoking the license of the company, and, pending the hearing, suspend the right of the company.
It is unlawful for a dealer or investment company to sell or offer for sale securities other than those approved by the Commission, or to transact business on any other plan than that set forth in the statements and papers required to be filed with the Commission; or to circulate advertisements or other documents in the state differing in any way from the copy filed with the Commission; or until the same has been approved by the Commission. And no dealer shall sell or offer for sale securities of an investment company until such company has complied with the act. He may, however, if such investment company has not [242 U.S. 559, 567] itself complied with the act, make application for a license.
Records of the Commission shall be public records, and they shall be so arranged and preserved as to facilitate their examination, except that the Commission may, in its discretion, withhold information relating to the private affairs of persons or corporations when, in its judgment, the same shall not be required for the public welfare, or any information relative to any matter that may be at issue in any court, unless upon an order of the court. Except as so provided, the Commission may furnish to those who may apply therefor any information regarding any investment company or its affairs.
Annual statements are required to be filed by investment companies, domestic or foreign, in such form and containing such information as the Commission may demand; and failure to do so forfeits its permit.
The supreme court of the state, upon petition of any person aggrieved, may review by certiorari any final order or determination of the Commission. The issue of the writ shall not, however, unless specifically ordered by the court, operate as a stay of proceedings.
Violations of the act are made misdemeanors punishable by a fine of not more than $1,000 or imprisonment for not more than one year, or both fine and imprisonment. And it is provided that if any section of the act be declared unconstitutional or unauthorized, the other sections shall not be vacated thereby.
The statute of South Dakota differs in some details from the statute of Ohio, but in its purpose and general provisions it is the same. There is urged against it, as was urged against the Ohio statute, that it violates the 14th Amendment and the commerce clause of the Constitution of the United States. The argument to support these contentions, while affluent in citation of cases, is not so circumstantial as that which is presented against [242 U.S. 559, 568] the Michigan statute. Therefore, we shall rest this case upon our opinion in Nos. 438, 439, and 440 [ 242 U.S. 539 , 61 L. ed. 480, 37 Sup. Ct. Rep. 217], reserving to the Michigan case our reply to the more specific objections.
Decree reversed and cause remanded for further proceedings in conformity with this opinion.
Mr. Justice McReynolds dissents.