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File No8. 2–5754, 1-342.

Promulgated January 3, 1947

(Securities Act of 1933—Section 8 (d), Securities Exchange Act of 1934

Section 19 (a) (2)) STOP ORDER PROCEEDINGS

Effect of Institution of Stop Order Proceedings. The institution of a stop order proceeding under Section 8 (d) has the effect of suspending effectiveness of the registration statement until final determination of the issues raised therein ...

Suspension of Trading on National Securities Exchange. Where, after correction by amendment of deficiencies in financial statements in registration statement filed under Securities Act respecting stock issue, deficiencies which remained in financial statements in annual reports filed under Securities Exchange Act, were not of such materiality as to require suspension of trading in the stock until correction of the deficiencies, and where a national securities exchange had of its own motion continued existing suspension of trading and it appeared that such trading would not be resumed until investors had sufficient time to assimilate the information supplied in the revised financial statements, held, no action by Commission was needed to prevent trading in the stock on the exchange. APPEARANCES:

L. Theodore Reinoehl and Manuel F. Cohen, for the Corporation Finance Division of the Commission.

William Biel, for the Registrant.

FINDINGS AND OPINION OF THE COMMISSION This is a consolidated proceeding under Section 8 (d) of the Se

а curities Act of 1933 and Section 19 (a) (2) of the Securities Exchange Act of 1934. The proceeding under the Securities Act was instituted to determine whether the registration statement filed by Red Bank Oil Company, covering 990,793 shares of its common stock, contains false or misleading information and omits to state material facts required to be stated therein, as alleged in the order for hearing.'

1 Prior to the institution of this proceeding the effective date of the registration statement, Aled May 31, 1945, was postponed by the filing of delaying amendments. The institution of the proceeding under Section 8 (d) has the effect of suspending effectiveness of the registration statement until final determination of the issues raised therein. Jones v. Becurities and Exchange Commission, 298 U.S. 1 (1936). of the 990,793 shares covered by the registration statement 630,823 shares are already 25 S. E. C.-83—8184; 84_3902


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The proceeding under the Securities Exchange Act was instituted to determine whether Red Bank Oil Company, in filing its annual reports, as amended, for the years 1940-44 under Section 13 of that Act, failed to comply with the provisions of the Act or the rules and regulations thereunder, and, if so, whether it is necessary or appropriate for the protection of investors to suspend or withdraw the registration of its common stock on the New York Curb Exchange.

A hearing on the consolidated proceedings was begun on October 1, 1945. During the pendency of the proceeding we issued orders under Section 19 (a) (4) of the Securities Exchange Act, suspending trading on the New York Curb Exchange and, by effect of Section 15 (c) (2) and Rule X-15C2-2, over the counter, for successive 10-day periods. The last of these orders suspended trading until 10 a. m. on January 6, 1946.

On November 2, 1945, we ordered an advance hearing and determination on two of the issues raised: (1) the independence of the accountants who certified the financial statements of the registrant included in its registration statement under the Securities Act of 1933 and in its annual reports for the years 1940–44, filed under the Securities Exchange Act of 1934, and (2) the scope of the audits made by the accountants in connection with such financial statements.

In our Findings and Opinion of January 4, 1946, which dealt with the two severed issues, we found that Ulan Hill & Company, the firm which had certified the financial statements under consideration, was not an independent public accountant with respect to the registrant during the period covered by the financial statements and that its audits had not conformed to generally accepted auditing standards.' In view of the serious nature of the deficiencies thus found in the annual reports, and in view of the fact that numerous other material deficiencies had been alleged to exist in the annual reports and the financial statements filed therein, with respect to which deficiencies the hearings had not been completed, we found it necessary and appropriate to order the suspension of the registration of the Red Bank common stock on the New York Curb Exchange during the pendency of the consolidated proceedings herein and until the issuance of a final order and final disposition thereof, but not to exceed a period of 12 months, as provided in Section 19 (a) (2) of the Securities Exchange Act. No action was taken with respect to the registration staternent under the Securities Act since it had not become

outstanding and were registered on the New York Curb Exchange prior to our suspension of that registration. Of the 459,970 shares which are to be issued for the first time, 859,970 are to be issued in exchange for stock delivered to the company in connection with its acquisition of two subsidiaries in 1943. * Jack Goldberg, 10 S. D. C. 976 (1942); Red Bank Oil Company 21 S. B. C. 695 (1946).

effective and could not become effective during the pendency of proceedings under Section 8 (d).

Further hearings were held with respect to the remaining deficiencies alleged to exist in the annual reports for the years 1940-44 and in the Securities Act registration statement. The company has had new audits for the period 1940-44 performed by Arthur Squyres & Co. and revised financial statements, certified by that firm, have been filed as amendments to the registration statement and to the annual reports. Certified financial statements for the year 1945 have also been submitted for the first time and uncertified statements for the nine months ended September 30, 1946 have been filed.

The hearings have been closed, counsel for the Corporation Finance Division have submitted requested findings and counsel for registrant has filed a request that the suspension of registration on the New York Curb Exchange be terminated. Oral argument and a trial examiner's report or other intermediate decision have been waived. On the basis of the record made we make the following finding: 5


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Red Bank Oil Company (Red Bank), a Maine corporation organized in 1917, owns and operates oil and gas leases in Louisiana and Illinois and is otherwise engaged in the oil and gas business. In addition, the Company holds all of the stock of Red Bank Refining Company (Red Bank Refining) and 54% of the stock of Seatex Oil Company (Seatex). Red Bank Refining and Seatex are engaged in the oil and gas business, principally in Texas. On August 12, 1946, Red Bank sold its entire interest in Federal Steel Products Company (Federal Steel Products), a corporation owning and operating a steel foundry and machine shop in Houston, Texas, and a wood and metal products factory in Dallas, Texas. In considering the registration statement and annual reports for the years 1940-44, the company will generally be referred to as an existing subsidiary. Red Bank's interest in

. See note 1, supra.

. Certain of the amendments were fled on December 16, 1946, and the remainder on December 24, 1946.

. In order to issue this Opinion at as early a date as possible prior to the resumption of trading on the New York Curb Exchange, we are confining these Findings to deficiencies in the annual reports for 1940-44 and in the various financial statements certified by Ulan Hill & Company which were fled in such annual reports and in the Securities Act registration statement. We shall deal with the remaining deficiencies alleged in the registration statement under the Securities Act in a Supplemental Findings and Opinion to be Issued shortly.

• Federal Steel Products is the present name of the corporation formerly called Dallas Enameling Company, and for a short time before the acquisition by Red Bank, called Dallas Manufacturing Company. Under the latter name the company purchased Dedman Foundry and Machine Company of Houston, Texas.

Seatex and Federal Steel Products was acquired in 1943. Red Bank Refining was organized in 1943 to operate a refinery which had been leased by Red Bank. The lease has since been terminated and Red Bank Refining now holds the oil and gas leases and royalties in Texas formerly owned by Red Bank.

Red Bank has issued and outstanding 2014 shares of 7% cumulative preferred stock, with a par value of $100 and dividend arrearages at September 30, 1946 of $191 per share, and 947,182 shares of $1 par value common stock.

During almost all of the period discussed herein, Frank W. Bennett was the dominant figure in the affairs of Red Bank and its subsidiaries. Bennett has been associated with various phases of the oil business since 1925. A number of companies and partnerships have been organized by him for the purpose of holding or dealing in stocks, oil lands and royalties. Among these are Bennett Investment Corporation, organized in 1940 but now inactive, owned by Bennett and his wife, Mrs. Anna Belle A. Bennett;? Frank W. Bennett & Company, a partnership now in liquidation formed by Bennett, his wife and R. C. Rochelle in 1943 to deal in stocks and oil properties; Bennett & Company, Inc., organized in 1944 to deal in stocks and oil properties and owned by Bennett and his wife; and the Federal Corporation organized under Delaware laws by Bennett to engage in the brokerage business. Other companies with which Bennett is associated include Bennett Oil Corporation, Bennett Oil and Gas Company and The Federal Oil Company. Bennett is president and a director, as well as a principal stockholder, of The Federal Oil Company, which engages in the general oil business.

BENNETT'S ASSOCIATION WITH THE REGISTRANT (1940–43) In the years immediately preceding 1940, the dominant stockholders of Red Bank were members of the Blumenthal family of New York, principally H. Walter Blumenthal. In addition to their stockholdings, the Blumenthals also advanced substantial amounts to Red Bank which were secured by notes. The Blumenthals had been associated with the investment banking firm of Hallgarten & Company.

Charles Allen of the firm of Allen & Company in New York telephoned Bennett in Texas early in 1940 in an endeavor to interest Bennett in Red Bank. Bennett became interested in Red Bank because it had a large invested capital base which might be advantageous from a tax standpoint. Accordingly, when he later was introduced to the

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"A. C. Hamilton, an officer and director of most of the companies with which Bennett is affiliated, characterized Mrs. Bennett as a housewife who did not participate in the business affairs of the companies.

Blumenthals by Allen, he entered into negotiations with Walter Blumenthal to purchase a substantial interest in Red Bank. In June 1940, Bennett purchased 101,480 shares of Red Bank and also acquired a Red Bank note for the principal amount of $216,000, with accrued interest of $54,000, held by the Blumenthal interests. The total consideration given was $125,000; Bennett paid $50,000 in cash and gave notes amounting to $75,000 to Hallgarten & Company for the balance. Hallgarten & Company held the Red Bank stock and note as security for Bennett's note. Bennett reduced the note to approximately $50,000, and then had the notes and the security therefor taken over by Allen & Company.

Although Bennett stated that it was not his understanding at the time, he discovered later that pursuant to the purchase contract with the Blumenthals, he had agreed to take the Red Bank stock for investment. Bennett did not sell the stock himself; instead, he pledged it with Allen & Company under the circumstances indicated above. When he defaulted on his loan, Allen & Company sold the stock, disposing of the entire block during the next few years.

As a finder's fee in connection with his acquisition of Red Bank stock, Bennett agreed to pay Allen 25,000 shares of Red Bank to be delivered upon the consummation of a proposed recapitalization of the company. Allen allocated 10,000 of such shares to one A. N. Adelson for services to be performed in working out the plan of recapitalization. Allen agreed to take the 15,000 shares he received for investment. Adelson, however, disposed of the 7,000 shares of stock which he received."

After his purchase of Red Bank stock in June 1940, Bennett exercised effective control over the company. On June 19, 1940, R. C. Rochelle, who was closely associated with Bennett in the conduct of his business until the beginning of 1945, became president of Red Bank at Bennett's designation. M. F. Reid and L. R. Thompson were named vice-presidents shortly thereafter. Of the five directors of Red Bank holding office in January 1942, Earl V. Massey, A. C. Hamilton, Reid and Rochelle were designated by Bennett; H. W. Blumenthal represented the Blumenthal interests.10 Of the four di

Notes to the revised financial statements state that Bennett purchased the stock and note from Hallgarten & Company. Bennett testified that the stock and note were held in pledge by Hallgarten & Company to secure a loan to Blumenthal. These securities were transferred to Bennett Investment Corporation by Bennett in August 1940. Bennett purchased the Red Bank note with the intention of recapitalizing Red Bank and Issuing stock for this note.

• When Adelson sold this stock, Bennett arranged to have old stock Issued prior to the 1943 recapitalization and held by Bennett Investment Corporation, substituted for the shares held and sold by Adelson.

20 The Blumenthals still beld in excess of 50,000 shares of Red Bank stock after Bennett's purchases in June 1940.

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