Opinion
March 6, 1953 —
March 31, 1953.
CERTIFICATION of questions by the municipal court of Milwaukee county: HERBERT J. STEFFES, Judge. The questions are answered "Yes."
For the plaintiff there was a brief by the Attorney General and William A. Platz, assistant attorney general, and William J. McCauley, district attorney of Milwaukee county, and Joseph E. Tierney, deputy district attorney, and oral argument by Mr. Platz.
For the defendant there was a brief and oral argument by Francis H. Reiske of Milwaukee.
Prosecution for violation of ch. 189, Stats. Defendant is the president of Eisbach Insurance Agency, Inc. Articles of incorporation filed with the secretary of state provide for an authorized capitalization of $25,000 consisting of 150 shares of common stock and 100 shares of preferred stock, each having a par value of $100 per share. The certificate of incorporation was duly issued. At the time of defendant's arrest he had sold 187 shares of common stock and 156 shares of preferred stock to 28 persons. Warrants for the sale of unregistered securities were issued against the defendant on complaint of two purchasers of the overissued stock; the two cases were consolidated for trial and the defendant was convicted on the three counts charged in the informations.
The trial court, being of the opinion that questions of law were involved so important and so doubtful as to require the decision of this court before the imposition of sentence, certified the following questions:
"1. If a corporation issues shares of stock in excess of the number of shares authorized by the articles of incorporation, would the holders for value of such stock certificates be holders of securities for the purposes of section 189.07 (1) (a), Wisconsin statutes?
"2. Where an officer of a corporation sells stock in excess of the authorized capitalization in reliance by the purchasers that the certificates are legally issued is he estopped from denying the legality of such issuance in a prosecution for the sale of unregistered stock under section 189.19 (2) (a), Wisconsin statutes?"
Sec. 189.07, Stats., provides:
"Subject to section 189.11, the following transactions may be consummated without registration of the security under section 189.13:
"(1) (a) The sale by a domestic corporation of its securities if the aggregate number of holders of all its securities, after the securities to be issued are sold, does not exceed 15, . . ."
Sec. 189.19 (2), Stats., provides:
"Every director, officer, agent, or employee of any issuer and every dealer, agent, or other person shall be punished by imprisonment in the state prison not exceeding five years, or in a county jail not exceeding one year, or by a fine not exceeding $5,000, or by both, who shall directly or indirectly
"(a) Authorize, direct, aid in, or consent to the issue or sale of, or issue, execute, sell, or offer for sale, or cause or assist in causing to be issued, executed, sold, or offered for sale any security contrary to the provisions of this chapter. . . ."
These statutes are part of ch. 189, Stats., the Wisconsin Securities Law, the purpose of which is to protect the public by preventing the sale of worthless and fraudulent securities. Klatt v. Columbia Casualty Co. (1933), 213 Wis. 12, 250 N.W. 825; State v. Rogers (1937), 226 Wis. 39, 275 N.W. 910. The several sections must therefore be considered in the light of that fundamental purpose.
There is no question that the securities sold by defendant in excess of the authorized amount are invalid. Defendant contends that the holders of certificates representing such stock are not holders of "securities" as defined in sec. 189.02 (1), Stats. The definitions there set forth include "any stock, treasury stock, bond, note, debenture, or evidence of indebtedness; . . . and . . . any instrument commonly known as a security." Although this section does not state that it contemplates both valid and invalid securities, it is clear that it would defeat the purpose of the law to hold that it applies only to legally issued stock.
Defendant relies heavily upon First Avenue Land Co. v. Parker (1901), 111 Wis. 1, 86 N.W. 604, where the court said that overissued stock represents nothing, is wholly valueless and void, and the certificates so much wastepaper. It is because such stock gives to the innocent purchaser none of the stockholders' rights that he believes he is acquiring, that ch. 189, Stats., was enacted — to prevent just such a fraud as the defendant perpetrated upon the complainants in this case.
In holding that such purchasers are "holders" of securities for the purposes of sec. 189.07 (1) (a), Stats., we are not conferring upon them any rights of ownership in the corporation contrary to the First Avenue Land Co. Case, supra, and other similar cases. The statutes involved in this case deal exclusively with the subject of offering and selling securities. Defendant sold stock which he impliedly represented to be legally issued, and delivered to the complainants certificates in a form approved by the corporation and bearing its seal. Their validity is immaterial.
It is not necessary to go into the second question in any detail, but we may say that defendant cannot argue that the stock was void because he had illegally issued it, and thus take advantage of his own wrongful act. See Whitewater T. P. B. Mfg. Co. v. Baker (1910), 142 Wis. 420, 125 N.W. 984.
By the Court. — The questions are answered "Yes."