In December 1960, Milton Mende purchased several vintage corporations. One of whom was the shell company, Star Midas Mining Co., Inc., whose 964,000 outstanding shares were mostly owned by the Mahoney Group. It was purchased for $6,500. Star Midas was previously sold in 1919 before the implementation of the Securities Act of 1933. The Securities Act of 1933 was designed, along with the Securities Exchange Act of 1934, to require full disclosure of securities, provide for regulation about issues and trading, and to prevent fraud (Cheeseman, 2016, pg. 688). In Section 3a of the Securities Act of 1933, there was an exception regarding company stock that was sold prior to May 27, 1933, if the stock was not sold by a new issuer (Smith, 2010, pg. 505). Martin Benjamin, Mende’s lawyer, may not have understood the Securities Act of 1933 exemption, but he supported Mende by promising potential shareholders that the stocks did not require registration under the exemption (Smith, 2010, pg. 505). There were no securities regulations or required disclosures prior to the Securities Act of 1933 and therefore, fraud was quite common (Cheeseman, 2016, pg. 688). Mende decided to buy stock certificates and a seal before the purchase was complete and before he even acquired the shares, he started selling …show more content…
He was given the falsified proforma balance sheet and relied on that as opposed to doing his research and finding out the truth. This included: 1. $700,000 worth of an asset of which was dormant and had gone through bankruptcy, 2. Placed companies that American Equities did not own on their Profit & Loss Statement, and 3. Spoke of information regarding American Equities that he knew nothing about (United States v. Benjamin, Howard, Mende,