Securities and Exchange Commission
Litigation Release No. 18141 / May 16, 2003
Securities and Exchange Commission v. John Benjamin Stewart, Jr., Stewart Finance Company and Stewart National Finance Company, Civil Action No. 3:03-CV-42 (HL).
SEC Charges John B. Stewart, Jr., Stewart Finance Company and Stewart National Finance Company with Violating the Registration Provisions of the Securities Act
The Securities and Exchange Commission (the "Commission") announced that on May 9, 2003, it filed a complaint in the United States District Court for the Middle District of Georgia, against John Benjamin Stewart, Jr. ("Stewart"), Stewart Finance Company ("Stewart Finance") and Stewart National Finance Company ("Stewart National"). Stewart owns and controls Stewart Finance and Stewart National, both of which are consumer finance companies headquartered in Union Point, Georgia. The complaint alleges that the defendants conducted unregistered offers and sales of securities, without an exemption from registration, in violation of the federal securities laws.
The Commission's complaint alleges that in 1989, Stewart Finance commenced a continuous series of offerings to Georgia investors of its subordinated debentures and senior demand notes, and in 1998, Stewart Finance sold preferred stock to Georgia investors. According to the complaint, although the initial offers and sales of securities by Stewart Finance were purportedly exempt from registration pursuant to the intrastate offering exemption set forth in Section 3(a)(11) of the Securities Act of 1933 ("Securities Act"), by 1999, Stewart Finance could no longer rely on that exemption and was, in fact, engaging in unregistered offers and sales of securities without an exemption from registration. The complaint alleges that in or about August 1999, after learning that Stewart Finance could no longer issue securities, Stewart began personally issuing promissory notes to investors and transferring the proceeds of those notes to Stewart Finance. The complaint further alleges that the offers and sales of Stewart's promissory notes were not registered with the Commission and were not exempt from registration. Moreover, the complaint alleges that in January 2002, Stewart National began offering $25 million in variable rate subordinated debentures in a purported private placement pursuant to Regulation D of the Securities Act. The Stewart National offering was not exempt from the registration requirements of the Securities Act because the facts and circumstances of the offering required it to be integrated with the prior and contemporaneous non-exempt offerings by Stewart Finance and Stewart.
According to the complaint, the offerings of Stewart, Stewart Finance and Stewart National were a single offering because: (1) the offerings were part of a single plan of financing and were made for the same general purpose of funding the consumer finance businesses owned and operated by Stewart; (2) Stewart Finance and Stewart National each offered the same type of securities subordinated debentures; (3) Stewart Finance's, Stewart's and Stewart National's offerings overlapped during the same time period; and (4) the offerings all involved the same type of consideration cash. Further, the complaint alleges that Stewart Finance and Stewart National are integrated issuers because, among other things, they are under common ownership and control and are engaged in the same business, and the success of both Stewart National and Stewart Finance is dependent upon the same individual Stewart.
The complaint alleges that by their conduct, Stewart, Stewart Finance and Stewart National violated the registration provisions set forth in Sections 5(a) and 5(c) of the Securities Act. The Commission seeks, with respect to each defendant, permanent injunctions, disgorgement, prejudgment interest and civil penalties pursuant to Section 20(d) of the Securities Act. The Commission also seeks a sworn accounting from Stewart.