National Presto wins assets case
SEC ruled too harsh in pushing investment status
Posted: May 16, 2007
National Presto Industries Inc. has won its legal battle with the
Securities and Exchange Commission over whether the Eau Claire creator of
the Salad Shooter was really an investment company.
The U.S. Court of Appeals for the Seventh Circuit on Tuesday reversed a
district court decision from 2005 that required Presto to register as an
investment company because it held more than 40% of its assets in investment
securities.
In its decision, the appeals court suggested that the SEC was treating
Presto harshly.
"Why is the SEC bent on grinding down a corporation that it appears to
acknowledge would not mislead or otherwise injure investors by using the
governance and reporting devices appropriate to an operating company?" the
court wrote.
After losing in district court on the merits of the case, Presto
registered as an investment company and replaced enough of its existing
portfolio with government securities and cash items to bring its investment
securities under the 40% threshold.
In a draft injunction submitted to the district court, the SEC had
proposed that the court allow Presto to do this or to seek an administrative
exemption to the 40% rule, as other companies have done.
But District Judge Charles Norgle deleted these options from the SEC's
draft and instead ordered Presto to register as an investment company,
without explanation.
Presto filed for permission to de-register in January 2006, but the SEC
has not acted on Presto's request.
"One senses from this prolonged silence, and the tenor of the SEC's brief
and oral argument, that the agency (or its senior staff) is in a snit
because Presto declined to do what many other firms with excess liquid
assets have done - apply to the agency for an exemption," the court wrote.
SEC lawyers implied during oral arguments that Presto could have had an
exemption if the company had asked, the court said.
"Yet a firm's refusal to kowtow to an agency is not a good reason to
force its investors to bear unnecessary costs," the court wrote.
After losing the case in district court in Chicago, Presto lost its
longtime auditor, Grant Thornton, which withdrew its opinions for 2005 and
several past years. Presto had trouble finding another auditor, and even
with a new firm in place, faces a large expense and delays to recreate past
audits.
Presto fell out of compliance with SEC reporting rules when it missed the
deadline for filing its annual report. As a result, the New York Stock
Exchange has warned Presto that it could be delisted from the exchange
within the next year.
In the opinion issued Tuesday, the appeals court noted that Presto is in
the business of making products and has never held itself out as an
investment company. Investors do not consider Presto an investment company,
the court said.
The court said Presto is free to drop its registration as an investment
company and file reports as an operating company, "whether or not the SEC
gives it formal approach to that step."
"We have no immediate comment," an SEC spokesman said Wednesday.
Presto Chief Executive Officer Maryjo Cohen said in a statement: "We are
delighted with both the decision and the outcome. The court's opinion is
logical and well-reasoned and is a valuable legal precedent which will no
doubt be cited in future cases."
Cohen said the company was reviewing the ramifications of the decision
with its lawyers and auditors.
Presto shares closed up 69 cents, at $57.69 Wednesday.
From the May 17, 2007 editions of the Milwaukee Journal Sentinel
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