The South Dakota "Blue Sky Law," Laws of 1915, c. 27a, is the
same in principle as the laws of Ohio and Michigan involved in
Hall v. Geiger-Jones Co., ante, 242 U. S. 539, and
Merrick v. Halsey & Co., post, 242 U. S. 568, and
is sustained over constitutional objections for the reasons
assigned in those cases, as applied to a Colorado corporation
seeking to raise capital by sales of its own shares, and to
individuals dealing in such shares.
When a statute regulating complainant's business is alleged to
be unconstitutional
Page 242 U. S. 560
and its effect, if the business be continued in disregard of it,
will be to visit him with repeated criminal prosecutions involving
heavy fines and imprisonment, the remedy at law is not
adequate.
A suit to enjoin state officials from instituting criminal
proceedings in enforcement of such a statute is not a suit against
the state.
Reversed.
For decree below,
see 230 F. 236, note.
The case is stated in the opinion.
Page 242 U. S. 562
MR. JUSTICE McKENNA delivered the opinion of the Court.
This case was argued and submitted with Nos. 438-440, just
decided,
ante, 242 U. S. 539, and
with No. 413,
post, 242 U. S. 568,
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, ยง 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. Transportation Co. v.
Doyle, 210 F. 173;
William R. Compton Co. v.
Page 242 U. S. 563
Allen, 216 F. 537, and
Bracey v. Darst, 218 F.
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 stockyard 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 stockyard, 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 Fourteenth
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 complainants
Page 242 U. S. 564
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
Page 242 U. S. 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
Page 242 U. S. 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
Page 242 U. S. 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 Fourteenth 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
Page 242 U. S. 568
the Michigan statute. Therefore, we shall rest this case upon
our opinion in Nos. 438, 439, and 440, 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.