Reporter's Statement of the Case 103 C. Cls. informed opinion in financial circles considered the outlook for future earnings of these corporations to be unfavorable. 17. As shown by findings 11 and 14, by November 1933 stock-market prices for Great Western and South Porto Rico common stocks had staged a good recovery from depression lows and there was brisk trading in the shares of both corporations. During November 1933 sales of Great Western on the New York Stock Exchange were 115,000 shares at prices between 392 and 3234. Prices and volume of trading declined thereafter and during November 1934 the volume of trading was 26,900 shares at prices from 2934 to 265%. In November 1933, 35,000 shares of South Porto Rico common were sold at prices ranging from a high of 431⁄2 to a low of 34, whereas in November 1934 the volume was 19,600 shares at prices ranging from 27 to 2314. During the same period, November 1933 to November 1934, the better grade industrial stocks did better than hold their position in the market. The proportion of the volume of trading in Great Western and South Porto Rico common stocks to their respective total outstanding shares compared favorably with the corresponding proportion of volume of trading in the Dow-Jones Industrials, and with the ten most active stocks on the New York Stock Exchange on November 19, 1934, both on that date and for the year 1934. 18. The markets for Great Western and South Porto Rico stocks on or about November 19, 1934, were reasonably good from the standpoint of volume of trading, free from misrepresentation or manipulation, and were free open markets where prices were determined by supply and demand. The prevailing prices of these stocks on the New York Stock Exchange on November 19, 1934, were fair prices for the volume of stock being traded on the market at that time. In general the buying public which was dealing in these stocks was fully informed as to all factors affecting their values and gave full effect thereto in the market prices prevailing on November 19, 1934. 19. The donees of the separate gifts which plaintiff made on November 19, 1934, in the total amount of 160,000 shares of Great Western stock and 20,000 shares of South Porto Rico stock, did not sell these shares or any part thereof at or about 564 Reporter's Statement of the Case that time or anywhere near that time. There is no evidence in the record that they ever offered all or any part of such stock for sale at any time, or that blocks of such stock of comparable size were offered for sale at one time at or about November 19, 1934. 20. On November 19, 1934, an additional 160,000 shares of Great Western common stock or 20,000 shares of South Porto Rico common stock could not have been sold on the New York Stock Exchange without depressing the price. The size of a block of corporate shares becomes an important element in determining the amount that can be realized from the sale of those shares on a given date when the block is larger than the current market can absorb without price dislocation. On occasion the amount which can be realized from the individual shares making up the block may be enhanced if the block carries with it control of the corporation and a purchaser anxious to secure that control can be found. The element of control stock did not prevail with respect to the stock involved in this case since the 160,000 shares of Great Western was equal to only 8.89 percent of a total of 1,800,000 shares outstanding, and the 20,000 shares of South Porto Rico was equal to only 2.68 percent of a total of 745,735 shares outstanding. 21. The method of marketing these blocks of Great Western and South Porto Rico stocks which would have yielded the greatest return to a seller on November 19, 1934, would have been a sale to a group of investment bankers forming an underwriting syndicate for the purchase of the shares with the intention of reselling them to the public. In the case of the Great Western stock two or three bankers would probably have constituted the original purchasing group who would associate with them a secondary group of ten or twelve to spread the risk. A third or selling group of several times that number would have been assembled. The syndicate would plan to offer the stock to the public through the facilities of its selling group at a price fractionally under the market in order to stimulate sales. For the Great Western stock on November 19, 1934, the offering price to the public would have been in the neighborhood of 271⁄2 as against a low for the day on the Exchange of 27. Reporter's Statement of the Case 103 C. Cls. after staged a substantial recovery. Actual sales of Great Western common stock on the New York Exchange for the periods indicated below were as follows: (a) Daily sales for the month of November, 1934 The value of the total number of shares sold from November 1 to November 30, 1934, inclusive, 27,200, based upon the mean of the high and low prices for the month (286) was $766,700. |