Securities Legislation – Fraud of Corporation Officers as Violation of Securities and Exchange Act of 1934

The plaintiffs brought a stockholders’ derivative suit in a federal district court, claiming that defendant directors had violated section 10 (b) of the Securities and Exchange Act of 1934 and rule X-10B-5 of the Securities and Exchange Commission. It was alleged that defendants who controlled as majority of the capital stock of the Algoma Coal and Coke Co., had purchased for the Algoma Company stock in two other corporations which they had formed and had manipulated the affairs of the Algoma Company so that business profits were diverted to those other corporations, thereby securing profits to themselves at the expense of plaintiff stockholders. On defendants’ motion to dismiss for failure to state a cause of action arising under the Securities and Exchange Act of 1934, held, motion granted. The Securities and Exchange Act of 1934 confers on the federal courts exclusive jurisdiction only over those actions involving a right of recovery that goes beyond the common law rights that could be fully adjudicated and enforced by an appropriate action in a state court. Beury v. Beury, (D.C. W.Va. 1954) 127 F. Supp. 786.