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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
FIRST AMENDED COMPLAINT FOR INJUNCTION AND OTHER RELIEF NATURE OF THE COMPLAINT Plaintiff, United States Securities and Exchange Commission ("Plaintiff" or "the Commission"), for its Complaint against National Presto Industries, Inc. ("National Presto" or "the Defendant"), alleges as follows: 1. As described below, since at least 1994, Defendant, National Presto, has been operating as an unregistered investment company in violation of Section 7(a) of the Investment Company Act of 1940 ("Investment Company Act") [15 U.S.C. § 80a-1-et seq.]. To date, National Presto has failed to register with the Commission as required by Section 8 of the Investment Company Act. [15 U.S.C. § 80a-8]. 2. National Presto, directly or indirectly, has engaged, and unless enjoined, will continue to engage in acts, practices and courses of business which constitute violations of Section 7(a) of the Investment Company Act [15 U.S.C. § 80a-7(a)]. 3. The Commission brings this action to restrain and enjoin the Defendant from engaging in such acts, practices and courses of business pursuant to Section 42(d) of the Investment Company Act [15 U.S.C. § 80a-41(d)]. JURISDICTION AND VENUE 4. This Court has jurisdiction over this action pursuant to Sections 42 and 44 of the Investment Company Act [15 U.S.C. §§ 80a-41, 43]. 5. Venue is proper in this Court pursuant to Section 44 of the Investment Company Act. 6. The acts, practices and courses of business constituting the violations alleged herein occurred within the jurisdiction of the United States District Court for the Northern District of Illinois (the "Northern District of Illinois") and elsewhere. 7. Defendant, directly and indirectly, made use of the means and instrumentalities of interstate commerce and of the mails in connection with the acts, practices and courses of business alleged herein in the Northern District of Illinois and elsewhere. 8. Defendant transacts business within the Northern District of Illinois. THE DEFENDANT 9. Defendant, National Presto, is a publicly traded company incorporated under the laws of Wisconsin with its headquarters in Eau Claire, Wisconsin. In addition to its primary business of investing, reinvesting or trading in securities, National Presto designs, manufactures and markets small appliances and house wares that are sold by retailers to customers. 10. As of March 31, 2002, Defendant National Presto had 6,840,103 shares of common stock outstanding. National Presto's common stock is registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act") and is traded on the New York Stock Exchange. Count I Violations of Section 7(a) of Investment Company
11. The allegations set forth in Paragraph 1 through 10 above are realleged and incorporated herein by reference. 12. From at least January 1, 1994 to the present, National Presto has been primarily engaged in the business of investing, reinvesting or trading in securities, as demonstrated by, among other things: (1) its historical development; (2) the nature of its assets; (3) the sources of its income; (4) its public representations of policy; and (5) the activities of its officers and directors. 13. In addition, from at least January 1, 1994 to the present, National Presto's investment securities have had a value exceeding 40 per centum of the value of National Presto's total assets (exclusive of Government securities and cash items) on a consolidated basis. Moreover, during at least 1999 and 2000, National Presto's investment securities have had a value exceeding 40 per centum of the value of National Presto's total assets (exclusive of Government securities and cash items) on an unconsolidated basis. 14. As a result of National Presto's failure to register as an investment company pursuant to Section 8 of the Investment Company Act, shareholders have been denied the benefits of the Investment Company Act, including several provisions designed to protect them from, among other things, theft, self-dealing, fraud, excessive fees, and breach of fiduciary duty. (1) National Presto's Historical Development 15. Prior to World War II, National Presto manufactured small appliances. During WWII, National Presto became engaged in the defense business and remained in this business until approximately 1980. Around this same time, National Presto sold certain of its subsidiaries. As a result, National Presto's manufacturing operations decreased significantly during this period of time. Its number of employees also decreased significantly. 16. As a result of the sale of certain of its subsidiaries in the late 1970's and early 1980's, National Presto accumulated cash in an amount in excess of the needs of its operating business. Rather than paying out this excess cash as dividends to shareholders, reinvesting in its existing manufacturing operations or acquiring other operating businesses, National Presto used these funds to buy and hold investment securities. 17. In or about 1979, National Holding Investment Company ("National Holding"), a Delaware Holding Company, was created as a separate subsidiary of National Presto and assumed responsibility for the maintenance and management of corporate finances. National Holding received its funds largely from the sale of certain National Presto subsidiaries and the reinvestment of these funds. National Holding holds the bulk of National Presto's investment securities. National Holding currently has three officers. 18. Over time, National Presto added to its portfolio of investment securities, and such investment securities became an increasing percentage of the company's total assets. 19. Since at least 1994, National Presto has been primarily engaged in the business of investing, reinvesting, owning, holding or trading in securities. 20. National Presto has recently announced that it will close its manufacturing facilities in Mississippi and New Mexico in 2002. Following these closures, National Presto will no longer manufacture small appliances in the United States. The Nature of National Presto's Assets 21. At each year-end during the period 1994 through 2001, National Presto's investment securities have exceeded 40 percent of National Presto's total assets (exclusive of Government securities and cash items) on a consolidated basis as follows: (a) As of December 31, 1994, National Presto's total assets were approximately $291.036 million, of which approximately $210.245 million or 76% were investment securities; (b) As of December 31, 1995, National Presto's total assets were approximately $285.385 million, of which approximately $206.238 million or 72% were investment securities; (c) As of December 31, 1996, National Presto's total assets were approximately $284.927 million, of which approximately $230.266 million or 81% were investment securities; (d) As of December 31, 1997, National Presto's total assets were approximately $291.870 million, of which approximately $228.468 million or 80% were investments in securities; (e) As of December 31, 1998, National Presto's total assets were approximately $294.542 million, of which approximately $242.630 million or 82% were investment securities; (f) As of December 31, 1999, National Presto's total assets were approximately $299.393 million, of which approximately $241.623 million or 80% were investment securities; (g) As of December 31, 2000, National Presto's total assets were approximately $288.707 million, of which approximately $235.468 or 79% were investment securities; (h) As of December 31, 2001, National Presto's total assets were approximately $284.900 million, of which approximately $210.782 million or 69% were investment securities; 22. At each year-end during at least 1999 and 2000, National Presto's investment securities have exceeded 40 percent of National Presto's total assets (exclusive of Government securities and cash items) on an unconsolidated basis as follows: (a) As of December 31, 1999, National Presto's adjusted total assets on an unconsolidated basis were approximately $282.940 million, of which approximately $254.605 million or 90% were investment securities; (b) As of December 31, 1999, National Holding's adjusted total assets on an unconsolidated basis were approximately $237.095 million, of which approximately $216.374 million or 91% were investment securities; (c) As of December 31, 2000, National Presto's adjusted total assets on an unconsolidated basis were approximately $274.085 million, of which approximately $254.912 million or 93% were investment securities; (d) As of December 31, 2000, National Holding's adjusted total assets on an unconsolidated basis were approximately $238.630 million, of which approximately $203.702 million or 85% were investment securities. (a) The Sources of National Presto's Income 23. For each fiscal year during the period 1994 through 2001, and for each of the past four fiscal quarters, a significant percentage of National's Presto's net income was derived from investing, reinvesting, owning, holding or trading in securities. Moreover, for at least four of the fiscal years during the period 1994 through 2001, and for each of the past four fiscal quarters, more than 45% of National Presto's net income after taxes was derived from investing, reinvesting, owning, holding, or trading in securities. 24. National Presto's pretax investment income derived from investing, reinvesting or trading in securities accounted for approximately 51% of National Presto's net income in 1996, approximately 51% of National Presto's net income in 1997, approximately 62% of National Presto's net income in 2000, and approximately 127% of National Presto's net income in 2001. (2) National Presto's Public Representations of Policy 25. National Presto's Forms 10-K filed with the Commission represent that National Presto's "marketable securities" and "cash equivalent securities" together constitute approximately 76%, 72%, 81%, 80%, 82%, 80%, 79%, and 69% of the value of National Presto's total assets on a consolidated basis at December 31, 1994, 1995, 1996, 1997, 1998, 1999, 2000, and 2001, respectively. The Investment Activities of National Presto Officers and Directors 26. During the period 1994 through the present, National Presto's officers and directors have directed National Presto's investment activities. 27. During the period 1994 through 2001, Melvin Cohen, now National Presto's Chairman Emeritus, served as National Presto's Chairman of the Board. His daughter, Maryjo Cohen, now Chairwoman of the Board, has been National Presto's President and CEO since 1994. 28. The Cohens comprise two of the three officers of National Presto's wholly owned subsidiary, National Holding Investment Company, which holds the bulk of National Presto's investment securities. 29. National Presto does not employ a professional investment manager. 30. From at least January 1994 to the present, National Presto's Treasurer has invested National Presto's assets at the direction of and pursuant to the policies set by the Cohens. Such investment decisions are also discussed from time to time with National Presto's Board of Directors ("the Board"). 31. The Cohens and the Board were aware of the facts and circumstances described in paragraphs 11 through 30 above. In addition, by no later than 1996, a member of National Presto's Board of Directors questioned whether National Presto was an investment company. The Cohens and the Board were both aware of the board member's concern. 32. The Cohens and the Board did not cause National Presto to comply with the Investment Company Act. Prohibited Transactions 33. From at least January 1, 1994 to the present, National Presto has been an investment company within the meaning of Section 3(a)(1)(A) of the Investment Company Act [15 U.S.C. § 80a-3(a)(1)(A)] in that it has engaged primarily in the business of investing, reinvesting, or trading in securities all as more fully set forth herein. 34. From at least January 1, 1994 to the present, National Presto has been an investment company within the meaning of Section 3(a)(1)(C) of the Investment Company Act [15 U.S.C. § 80a-3(a)(1)(C)] in that it has engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of its total assets (exclusive of Government securities and cash items). 35. From at least January 1, 1994 to the present, while an investment company organized or otherwise created under the laws of the United States or of a state and having a Board of Directors, National Presto, has:
36. Despite having been an investment company from at least 1994, as set forth above in Paragraphs 1 through 34 above, National Presto has not registered pursuant to Section 8(a) of the Investment Company Act [15 U.S.C. § 80a-8(a)]. 37. While an unregistered investment company, National Presto pursued the activities set forth in Paragraph 35, above, in violation of Section 7(a) of the Investment Company Act [15 U.S.C. § 80a-7(a)]. PRAYER FOR RELIEF Wherefore, the Commission respectfully requests that this Court: I. Find that National Presto has committed the violations alleged above. II. Issue an Order requiring National Presto to comply with Section 7 of the Investment Company Act by: (a) Registering as an Investment Company pursuant to Section 8 of the Investment Company Act; or, in the alternative, (b) Restructuring or reducing its securities holdings such that National Presto shall come into compliance with the Investment Company Act; or (c) Taking such other steps such that National Presto shall come into compliance with the Investment Company Act. III. Issue an Order of Permanent Injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, enjoining Defendant National Presto, its officers, agents, servants, employees, assigns, attorneys and those persons in active concert or participation with them who receive actual notice of the Order of Permanent Injunction by personal service or otherwise, and each of them, from, directly or indirectly: (a) offering for sale, selling or delivering after sale, by the use of the mails or any means or instrumentality of interstate commerce, any security or any interest in a security, whether the issuer of such security is National Presto or another person; or offering for sale, selling, or delivering after sale any such security or interest, having reason to believe that such security or interest will be made the subject of a public offering by the use of the mails or any means or instrumentality of interstate commerce; or (b) purchasing, redeeming, retiring, or otherwise acquiring or attempting to acquire, by the use of the mails or any means or instrumentality of interstate commerce, any security or any interest in a security, whether the issuer of such security is National Presto or another person; or (c) controlling any investment company which does any of the acts enumerated in (a) or (b) above; or (d) engaging in any business in interstate commerce, in violation of Section 7(a) of the Investment Company Act. IV. Retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that may be entered or to entertain any suitable application or motion for additional relief within the jurisdiction of this Court. V. Grant Orders for such further relief as the Court may deem appropriate.
DATED: July 25, 2002 http://www.sec.gov/litigation/complaints/comp17647.htm
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