28th :AnnualReport /., -

of the

r; '_ ") ,- ---

II ( c : ..),

" Securities and Exchange

Commission

Fiscal Year Ended June 30, 1962

UNITED STATES GOVERNMENT PRINTING OFFICE, WASHINGTON , 1963

For eale by the Superintendent of Documents, U.S. Government Printing Office

Wublngton 25, D.C. Price 60 Cente (paper eov..r)

-

-
II

SECURITIES AND EXCHANGE COMMISSION

Headquarters Office

425 Second Street NW.

Washington 25, D.C.

COMMISSIONERS

January 8, 1963

WILLIAM L. CARY, Chairman

BYRON D. WOODSIDE

J. ALLEN FREAR, JR.

MANUEL F. COHEN

JACK M. WHITNEY II

ORVAL L. DuBOIS, Secretary
LETTER OF TRANSMl'lTAL 

SE~RITIES AND EXCHANGE CO~~~ION,

Washington $5, D.G. 

SIR: On behalf of the Securities and Exchange Commission, I have 

the honor to transmit to you the Twenty-Eighth Annual Report of 

the Commission covering the fiscal year July 1,1961,to June 30,1962, 

in accordance with the provisions of Section 23(b) of the Securities 

Exchange Act of 1934, approved June 6,1934; Section 23 of the Public Utility Holding Company Act of 1935, approved August 26,1936; 

Section %(a) of the Investment Company Act of 1940, approved 

August 22,1940; Section 216 of the Investment Advisers Ac5 of 1940, 

approved August 22, 1940; Section 3 of the Act of June 29, 1949, 

amending the Bretton Woods Agreement Act; and Section ll(b) of 

the Inter-American Development Bank Act. 

Respectfully, 

WILUABCL. CARY, 

Chairman. 

THE PRE~~ENT OF THE SENATE,

THE SPEAKEROF THE HOUSEOF REPRESENTATIVES, 

Wmhington, D.C. 

111 


TABLE OF CONTENTS

Page

Commissioners and staff officers _____________________________________ XI

Regional and branch offiees , ________________________________________ XII

Biographies of Commlssloners, ______________________________________ XIII

PART I

CURRENT PROBLEMS BEFORE THE COMMISSION_________ 1

Foreword_____________________________________________________ 1

Special Study of securities markets; ________ _______________ 2

The Wharton School study of investment companies., , _____________ 3

Registration of new security offerings , __ _________________ 4

Enforcement activity _ _ ________________________________________ 5

Delegation of functions______ _ __ _______________________ 6

PART II

LEGISLATIVE ACTIVITIES_ _ _______ _______________ i

PART III

REVISION OF RULES, REGULATIONS AND FORMS_______ 9

The Securities Act of 1933___ ____________ _____ ____ ____ q

Adoption of Ru1e 152A_____________________________________ 9

Adoption of Ru1e 155______________________________________ 10

Adoption of Ru1e 236 ______________________________________ 11

Amendment of Ru1e 458 ____________________________________ 11

Adoption of Ru1es 462 and 263_ _____________________________ 12

Adoption of Revised Form 8-8______________________________ 12

Adoption of Form 8-1L___________________________________ 12

The Securities Exchange Act of 1934_____________________________ 13

Adoption of Ru1es 13a-15 and 15d-15 and Form 7-K__________ 13

Adoption of Ru1e 15d-21 and Form 11-K; Amendment to Form lo-I{__________________________________________________ 13

Proposed Ru1e 19a2-L___ __ _____________________ 14

Proposed Amendments to Form 8-I{_________________________ 14

Adoption of Ru1e 15c2-4___________________________________ 15

Adoption of Ru1e 15c2-5 _ __________________________________ 15

Amendment of Ru1e 15c3-L____________ ____________________ 16

Amendment of Ru1es 17a-3 and 17a-4____________________ 16

Amendment of Ru1e 15ag-L____________ _____ _______________ 17

The Trust Indenture Act of 1939________________________________ 18

Amendment of Form T-3___________________________________ 18

The Investment Company Act of 1940_ __ ___ _____________ 18

Amendments to Ru1es 31a-l and 31a-2; adoption of Ru1e 31a-3_ 18

Adoption of exemptive ru1es applicable to licensed small business

investment eompanies.L, , _____________ _______ _____ 19

v
VI TABLE OF CONTENTS

REVISION OF RULES, REGULATIONS AND FORMS-Continued Page

The Investment Advisers Act of 1940____________________________ 19

Adoption of Rules 206(4)-1 and 206(4)-2____ ______ _______ 19

Proposed amendment to Rule 204-2_ ________________________ 20

PART IV

ADMINISTRATION OF THE SECURITIES ACT OF 1933____ 22

Description of the registration process.L, , ___ _________________ 22

Registration statement and prospectus; ______________________ 22

Examination procedure.L, , _______________________ 23

Time required to complete registration __________________ ____ 23

Volume of securities registered_________________________________ 25

Registration statements filedc , , ____ _______________ __________ _ 27

Stop order proceedings _________________________________________ 28

Examinations and investigations________ __ _______________________ 33

Exemption from registration of small issues; ______________________ 34

Exempt offerings under Regulation A_________________________ 35

Suspension of exemption.Lc , , _______________________________ 36

Exempt offerings under Regulation B_________________________ 38

Exempt offerings under Regulation E_ _____________________ 39

Exempt offerings under Regulation F_________________________ 39

PART Y

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF

1934___________________________________________________________ 40

Regulation of exchanges and exchange trading___________________ 40

Registration and exemption of exchanges 40

Disciplinary aetion., _______________________________________ 41

Registration of securities on exchanges , _____________ _____________ 41

Statistics relating to registration of securities on exchanges, _____ 42

Market value of securities traded on exchanges__________ _ _ 43

Fiscal year share values and volumes_________________________ 44

Foreign stock on exchanges _________________________________ 45

Comparative exchange statistics_________ _______ _______ 46

Comparative over-the-counter statistics , _ _______ ___ __ 47

Reporting under Section 15(d)____ ______________________ _____ 48

Delisting of securities from exchanges ____________________________ 49

Delisting proceedings under Section 19(a) _____________________ 50

Unlisted trading privileges on exchanges_________________________ 51

Applications for unlisted trading privileges____________________ 52

Block distributions reported by exchanges 53

Manipulation and stabilisation, _________________________________ 54

Manipulauon_____________________________________________ 54

Stabilization , _______ __ ____________ _ 55

Insiders' security holdings and transactions., __________________ ____ 56

Ownership reports.L, , 56

Recovery of short-swing trading profits by issuer 57

Regulation of proxies________ 57

Scope of proxy regulation___________________________________ 57

Statistics relating to proxy statements________________________ 52

Stockholders' proposals, ____________________________________ 59

_

- __

- _

_______ _ _________

_ _____________

____ _____ __ ___________
TABU. 01<' CO.\'TEN1'S VII

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF

1934-Continued

Regulation of proxies-Continued Page

Ratio of soliciting to nonsoliciting companies__________________ 59

Proxy contests____________________________________________ 60

Investigations_____ __ ______ __ ___ 60

Regulation of broker-dealers and over-the-counter markets__________ 60

Registrative , ____ ____ __________ 60

Administrative proceedings; __ ____ ______________ 61

Revocation and denial proceedings_______________________ 63

Suspension proeeedings..c , , __ ___ ___ ____ 67

Other sanctions________ ________________________________ 68

Net capital rule , __ ____________ ________ _____ 69

Financial statements__ __________________ ______ ____ 70

Broker-dealer Inspeetions., _____________ ___ 71

Supervision of activities of National Association of Securities Dealers,

Inc_________________________________________________________ 72

NASD disciplinary actions_____ ____ ____________ 73

Commission review of N ASD action on membership __ _________ 75

Commission review of N ASD disciplinary action, ______________ 7i

PART VI

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935____________________________________________ 81

Composition of registered holding company systems________________ 82

Section 11 matters and other significant developments in active registered holding company systems________________________________ 84

Section 11 matters_____ _______ _______ __ _ __ _______ 84

Other developments_______ ______ __ __ ___ ____ 86

Financing of active registered public utility holding companies and

their subsidiaries., __ ___________ ____________ _ 87

Competitive bidding , __ __ __ ____________ _ 88

Protective provisions of first mortgage bonds and preferred stocks of

public utility eompanies; __ ___ ____ ________ 89

Othermatters_________________________________________________ 93

Request for declaratory order_______________________________ 93

"Bottled Gas" companies___________________________________ 94

PART VII

PARTICIPATION OF THE COMMISSION IN CORPORATE REORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCY ACT____ ______ _ _ __________________________ 95

Summary of actlvities.L; _________________________________ ___ 96

Procedural and administrative matters___________________________ 97

Trustee's investlgatlon , __ ___ __ __ ____________________ 98

Advisory reports on plans of reorganization; ______________________ 98

Activities with regard to allowances______________________________ 100

Intervention in Chapter XI proceedings__________________________ 102

Publication of bar dates________________________________________ 104

PART VIII

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939__ 105
VIII TABLE OF CONTENTS

PART IX

Page

ADMINISTRATION OF THE INVESTMENT COMPANY ACT OF

1940___________________________________________________________ 107

Companies registered under the AcL_____________________________ 107

Growth of investment company assets_____ _______________________ 108

Inspection program________________________ ______________ ___ 109

Study of size of investment companies , __ ________________________ 110

Current information , _ ____ ___________________ 112

Applications and proceedings________ ______ ___________________ 113

PART X

ADMINISTRATION OF THE INVESTMENT ADVISERS ACT OF

1940___________________________________________________________ 117

Administrative proceedings., ____________________________________ 119

PART XI

OTHER ACTIVITIES OF TIlE COMMISSION____________________ 120

Civil Iitigation , _ _ ________ ________________________ 120

Criminal proceedings____ __ _ ________ _______________ 135

Complaints and investigations______ _____________________________ 140

Enforcement problems with respect to Canadian securities, _________ 143

Canadian restricted lisL_______ ________ _________________ 144

Section of securities violations.L; , _______ _________ 146

Applications for nondisclosure of certain Information, ______________ 147

Activities of the Commission in accounting and auditing_____ _______ 148

International Bank for Reconstruction and Developrnent , __________ 155

Inter-American Development Bank___ __ _ ____ ___________ 156

Statistics and special studies; __ ___ _____________ 157

Issues registered under the Securities Act of 1933______________ 157

New securities offerings , __ _________________________________ 157

Individuals' saving , __ ___ ___ ______ _ 158

Corporate pension funds.i...L, _______________________________ 158

Financial position of corporations____________________________ 15S

Plant and equipment expenditures., , _________________________ 158

Directory of registered companies____________________________ 159

Stock market data_________________________________________ 159

Opinions of the Commission____________________________________ 159

Dissemination of information , __ ________________ 160

Information available for public inspection____________ 161

Publioations . __________ ___ _______________________ 162

Organizatioll__________________________________________________ 162

Personnel and financial management- ____________________________ 164

PART XII

APPENDIX-STATISTICAL TABLES

Table 1. A 28-year record of registrations fully effective under the Securities Act of 1933_ ___________________________ _ 171

Table 2. Registrations fully effective under the Securities Act of 1933, fiscal

year ended June 30, 1962_ ________________________________ 172

Part 1. Distribution by months , ________________________________ 172
TABLE OF CONrENTS IX

Table:2-Continued Page

Part 2. Purpose of registration and type of security________________ 172

Part 3. Purpose of registration and industry of registranL__________ 173

Part 4. Use of proceeds and industry of registrant., ________________ 174

Table 3. New securities offered for cash sale in the United States________ 1i5

Part 1. Type of offering____________________ __ ____ 175

Part 2. Type of security________________________________________ 176

Part 3. Type of issuer__________________________________________ 177

Part 4. Private placement of corporate securities__________________ 178

Table 4. Proposed uses of net proceeds from the sale of new corporate

securities offered for cash in the United States______________ 180

Part 1. All corporate___________________ _____________ 180

Part 2. Manufacturing, ________________________________________ 180

Part 3. Extractive____________________ __ _________________ 181

Part 4. Electric, gas and water., ; ________________________________ 181

Part 5. Railroad _ _________________ ____________________________ 182

Part 6. Other transportation____________________________________ 11'2

Part 7. Communieation. ___________________________________ 183

Part 8. Financial and real esta te _ _ ______________ ________________ 183

Part 9. Commercial and other ___ _ _____________ _________________ 184

Table 5. A summary of corporate securities publicly offered and privately

placed in each year from 1934 through June ]962___________ 185

Table 6. Brokers and dealers registered under the Securities Exchange Act

of 1934:--Effective registrations as of June 30. 1962, classified

by types of organization and by location of principal office , _ _ 186

Table 7. Number of issuers and security issues on exchanges___________ lSi

Part 1. Unduplieated number of stock and bond issues admitted to

trading on exchanges and the number of issuers involved, as of June 30,1962__ 18i

Part 2. Number of stock and bond issues on each exchange and

number of issuers involved, as of June 30, 1962_ _ _ _ ___ 187

Table 8. Unlisted stocks on stock exchanges. ____ _ 188

Part 1. Number of stocks on the exchanges in the various unlisted

categories as of June 30, 1962__________________________ 188

Part 2. Unlisted share volume on the exchanges-calendar year 196L_ 188

Table 9. Dollar volume and share volume of sales effected on securities

exchanges in the calendar year 1961 and the 6-month period

ended June 30,1962_____________________________________ 189

Part 1. 12 months ended December 31, 196L_____________________ 189

Part 2. 6 months ended June 30,1962___________________________ 1S9

Table 10. Comparative share sales and dollar volumes on exehanges 190

Table 11. Block distributions, 1942-196L____________________________ 191

Table 12. Reorganization proceedings under Chapter X of the Bankruptcy Act in which the Commission participated during the

fiscal year 1962_________________________________________ UH

Table 13. Summary of criminal cases developed by the Commission which

were pending at June 30,1962___________________________ 193

Table 14. Summary of cases instituted in the courts by the Commission

under the Securities Act of 1933, the Securities Exchange Act

of 1934, the Public Utility Holding Company Act of 1935,

the Investment Company Act of ]940, and the Investment

Advisers Act of 1940_ ___________________________________ 191

c c c ..,
TABLE OF CONTENTS

Page

Table 15. Summary of cases instituted against the Commission, cases in

which the Commission participated as intervenor or amicus

curiae, and reorganization cases on appeal under Chapter X

in which the Commission participated_____________________ 194

Table 16. Indictments returned for violation of the Acts administered by

the Commission, the Mail Fraud statute (Section 1341,

formerly Sec. 338, Title 18, U.S.C.) and other related Federal statutes (where the Commission took part in the investigation and development of the case) which were pending

during the 1962 fiscal year ______________________________ 195

Table 17. Injunctive proceedings brought by the Commission which were

pending during the fiscal year ended June 30, 1962__________ 205

Table 18. Proceedings by the Commission to enforce subpoenas pending during the fiscal year ended June 30, 1962_________ 218

Table 19. Actions pending during fiscal year ended June 30, 1962, to

enforce voluntary plans under Section l1(e) to comply with

Section l1(b) of the Public Utility Holding Company Act

of1935________________________________________________ 219

Table 20. Contempt proceedings pending during the flseal year ended

June 30, 1962__________________________________________ 220

Table 21. Petitions for review of orders of Commission pending in courts

of appeals during the fiscal year ended June 30, 1962______ 221

Table 22. Miscellaneous actions involving the Commission or employees

of the Commission during the fiscal year ended June 30,

1962__________________________________________________ 223

Table 23. Cases in which the Commission participated as intervenor or as

amicus curiae, pending during the fiscal year ended June 30,

1962__________________________________________________ 224

Table 24. Reorganization cases under Chapter X of the Bankruptcy Act

pending during the fiscal year ended June 30, 1962, in which

the Commission participated when District Court orders

were challenged in appellate courts, _____________________ 226

Table 25. A 29-year summary of criminal cases developed by the Commission-fiscal years 1934-1962_________________________ 227

Table 26. A 29-year summary classifying all defendants in criminal cases

developed by the Commission-1934 to June 30, 1962______ 227

Table 27. A 29-year summary of all injunction cases instituted by the

Commission-1934 to June 30, 1962, by calendar year ____ 228
COMMISSIONERS AND STAFF OFFICERS

(As of January 1, 1963)

TCI'm expires

Commissioners June 5

WILLLI.M L. CARYof New York, Ohairman______________________________ 1966

BYROND. WOODSIDEof Virginia________________________________________ 1967

J .ALLENFREAR,JR., of Delaware 1965

MANUEL F. COHEN of Maryland______________________________________ 1963

JACK M. WHITNEY II of Illinois_______________________________________ 1964

Secretary: ORVALL. DuBOIS

Staff Officers

EDMUNDH. WORTHY,Director, Division of Corporation Finance.

WALTERWERNER,Associate Director .

.ALLANF. CONWILL,Director, Division of Corporate Regulation.

SOLOMONFREEDMAN,Associate Director.

PHILIP A. LoOMIS,Jr., Director, Division of Trading and Exchanges.

IRVINGM. POLLACK,Associate Director.

MILTONH.COHEN,Director, Special Study of Securities Markets.

RALPH S. SAUL,Associate Director.

RICHARDH. PAUL, Chief Counsel.

PETERA. DAM}{ANN,General Counsel.

DAVIDFERRER,Associate General Counsel.

WALTERP. NORTH,Associate General Counsel.

ANDREWBARR, Ohief Accountant.

LEONARDHELFENSTEIN,Director, Office of Opinion Writing.

W. VICTORRODIN,Associate Director.

WILLLI.ME. BECKER,Management Analyst.

FRANK J. DONATY,Comptroller.

ERNESTL.DESSECKER,Records and Service Officer.

HARRy POLLACK,Director of Personnel.

ARTHURFLEISCHER,J'r., Executive Assistant to the ChaIrman.

XI

• --------------------------------
REGIONAL AND BRANCH OFFICES

Regional Administrators

Region 1. New York, New Jersey.-Llewellyn P. Young; John J. Devaney,

Associate Regional Administrator, 225 Broadway, New York 7, N.Y.

Region 2. Massachusetts, Connecticut, Rhode Island, Vermont, New Hampshire, Maine.-Philip E. Kendrick, Federal Building, Post Office Square,

Boston 9, Mass.

Region 3. Tennessee, North Carolina, South Carolina, Georgia, Alabama,

Mississippi, Florida, and that part of Louisiana lying east of the Atchafalaya River.-William Green, Suite 138, 1371 Peachtree Street, NE.,

Atlanta 9, Ga.

Region 4. Illinois, Indiana, Iowa, Kansas City (Kans.) , Kentucky, Michi.

gan, Minnesota, Missouri, Ohio, Wisconsin.-Thomas B. Hart, Bankers

Building (Room 630),105 West Adams Street, Chicago 3, Ill.

Region 5. Oklahoma, Arkansas, Texas, and that part of Louisiana lying

west of the Atchafalaya River, and Kansas (except Kansas City).-Oran

H. Allred, United States Courthouse (Room 301), 10th and Lamar Streets,

Fort Worth 2, Tex.

Region 6. Wyoming, Colorado, New Mexico, Nebraska, North Dakota, South

Dakota, Utah.-Donald J. Stocking, 802 Midland Savings Building, 444

17th Street, Denver 2, Colo.

Region 7. California, Nevada, Arizona, Hawaii.-Arthur E. Pennekamp,

Pacific Building, 821 Market Street, San Francisco 3, Calif.

Region 8. Washington, Oregon, Idaho, Montana, Alaska.-James E. Newton, Hoge Building (9th floor), 705 Second Avenue, Seattle 4, Wash.

Region 9. Pennsylvania, Maryland, Virginia, West Virginia, Delaware, District of Columbia.-Alexander J. Brown, Jr., Courts Building, 810 6th

Street, N.W., Washington 25,D.C.

Branch Offices

Cleveland 13, Ohio. Standard Building (Room 1628), 1870 Ontario Street.

Detroit 26, Mich. Federal Building (Room 1074).

Houston 2, Tex. Federal Office and Court Building (Room 226), 515 Rusk

Avenue.

Los Angeles 28, Calif. Guaranty Building (Room 809), 6381 Hollywood

Boulevard,

Miami 32, FIa. Ainsley Building (Suite 1112), 14 Northeast First Avenue.

St. Louis, Mo. Federal :Building (Room 4266A), 1520 Market Street.

St. Paull, Minn. Main Post Officeand Customhouse (Room 1027), 180 East

Kellogg Boulevard,

Salt Lake City, Utah. Newhouse Building (Room 1119),10 Exchange Place.

xn
COMMISSIONERS

William L Cary, Chairman

Chairman Cary was born in Columbus, Ohio, on November 27,1910.

He received an A.B. degree in 1931 and an LL.B. degree in 1934 from

Yale University and an M.B.A. degree from the Harvard Graduate

School of Business Administration in 1938. He is a member of Phi

Beta Kappa and Phi Delta Phi. Following admission to the Ohio

bar in 1934, he was associated with a Cleveland law firm for 2 years.

Upon completion of 2 years of graduate study at the Harvard Graduate School of Business in May 1938, he joined the legal staff of the

Securities and Exchange Commission where he served for nearly 2

years in the General Counsel's Officeand the Reorganization Division.

He served as a Special Assistant to the Attorney General in the Tax

Division of the Department of Justice from March 1940 until January

1942, and as Counsel, Officeof Coordinator of Inter-American Affairs,

in Rio de Janeiro until January 1943. After WorId "Val' II service

with the U.S. Marine Corps Reserve and the Officeof Strategic Services in Rumania and Yugos1avia, he became a lecturer in finance and

law at the Harvard Graduate School of Business Administration

(1946-47). From 1947 to 1955, he served as professor of law at

Northwestern University School of Law, except for service as Deputy

Department Counsellor for Procurement, Department of the Army,

during the Korean "Val', and at Columbia University School of Law

from 1955 to March 1961. He is coauthor of several books in the

corporate field, and until his appointment served as special counsel to

a New York law firm. He took officeas a member of the Securities

and Exchange Commission on March 27,1961, for the term expiring

June 5, 1961. His appointment also covered the succeeding 5-year

term ending June 5, 1966. He was designated Chairman of the

Commission.

Byron D. Woodside

Commissioner Woodside was born in Oxford, Pa., in 1908, and is a

resident of Haymarket, Va. He holds degrees of B.S. in economics

from the University of Pennsylvania, A.M. from George .Washington

University, and LL.B. from Temple University. He is a member of

the bar of the District of Columbia. In 1929 he joined the staff of

the Federal Trade Commission, and in 1933, following the enactment

XIlI
XIV COM:MISSIONERS

of the Federal Securities Act, was assigned to the Securities Division

of that Commission which was charged with the administration of the

Securities Act of 1933. He transferred to the Securities and Exchange Commission when the Securities Exchange Act of 1934 was

enacted. In 1940 he became Assistant Director and in 1952 Director

of the Division (now Division of Corporation Finance) responsible

for administering the registration and reporting provisions of the

Securities Act, Securities Exchange Act, the Trust Indenture Act of

1939, and, in part, the Investment Company Act of 1940. For 14

months commencing in May 1948, he was on loan to the Department

of the Army and assigned to duty in Japan as a member of a five-man

board which reviewed reorganization plans of Japanese companies

under the Occupation's decartelization program; and beginning in

December 1950,he served 17 months with the National Securities Resources Board and later with the Defense Production Administration

as Assistant Deputy Administrator for Resources Expansion. He

took office as a member of the Securities and Exchange Commission

on July 15, 1960,for the term of officeexpiring June 5,1962. He was

reappointed effective June 5,1962 for the term expiring June 5, 1967.

J. Allen Frear, Jr.

Commissioner Frear was born on a farm near Rising Sun, Del., on

March 7, 1903, where he attended a rural school, graduated from the

Caesar Rodney High School, and obtained a B.S. degree from the

University of Delaware in 1924. He also holds an honorary degree

:from Bethany College. An agriculturist by vocation, he has been

active in civic and political affairs. For the 12-year period from

January 3, 1949, he served two 6-year terms as a Senator from the

State of Delaware in the Senate of the United States. He was a

member of the Committee on Banking and Currency, which has jurisdiction over legislative and other matters affecting the Commission,

and the Committee on Finance. From 1940to 1948he was a member

of the Board of Directors, Farm Credit Administration, Second Farm

Credit District, except for a period of service with the U.S. Army

from 1943to 1946in World War II. He also served on the Delaware

Old Age Assistance Commission and on the board of trustees for

Delaware State College. At present he is a director of two banks in

Delaware, and a member of the board of trustees of the University of

Delaware. He holds membership in the Rotary Club, Sigma Nu

Fraternity, and the American Legion and the Veterans of Foreign

Wars. On March 15, 1961, he took the oath of office as a member

of the Commission for the term expiring June 5, 1965.
COMMISSIONERS

Manuel F. Cohen

xv

Commissioner Cohen was born in Brooklyn, N.Y., on October 9,

1912. He holds a B.S. degree in social science from Brooklyn College of the College of the City of New York. He received an LL.B.

degree, cum laude, from Brooklyn Law School of St. Lawrence University in 1936, and was elected to the Philonomic Council. He is a

member of the New York bar. In 1933-1934 he served as research

associate in the Twentieth Century Fund studies of the securities

markets. He joined the Commission Staff as an attorney in 1942

after several years in private practice, serving first in the Investment

Company Division and later in the Division of Corporation Finance,

of which he was made Chief Counsel in 1953. He was named Adviser

to the Commission in 1959 and in 1960 became Director of the Division of Corporation Finance. He was awarded a Rockefeller Public Service Award by the trustees of Princeton University in 1956 and

for a period of 1 year studied the capital markets and the processes

of capital formation and of government and other controls in the

principal financial centers of Western Europe. In 1961 he was

appointed a member of the Council of the Administrative Conference

of the United States and received a Career Service Award of the

National Civil Service League. From 1958 to 1962 he was lecturer in

Securities Law and Regulation at the Law School of George Washington University and he is the author of a number of articles on

securities regulation published in domestic and foreign professional

journals. In 1962,he received an honorary LL.D. degree from Brooklyn Law School. He took officeas a member of the Commission on

October 11, 1961, for the term expiring June 5, 1963.

Jack M. Whitney II

Commissioner Whitney was born in Huntington Beach, Calif., on

May 16, 1922. He attended Millsaps College in Jackson, Miss., for

2 years, and Northwestern University School of Commerce, from

which he received a B.S. degree in 1943. From 1943 to 1946 he was

on active duty in the U.S. Naval Reserve, achieving the rank of

Lieutenant (junior grade) in the Supply Corps. He was graduated

from Northwestern University School of Law in 1949 with the degree

of J.D. In law school he was an editor of the law review, and he is

a member of Beta Gamma Sigma and Order of the Coif. Following

graduation he became associated with the Chicago law firm of Bell,

Boyd, Marshall & Lloyd, of which he was a member at the time of his

appointment to the Commission. His practice was primarily in the

field of corporate finance. He took officeas a member of the Commission on November 9, 1961, for the term ending June 5, 1964.

PART I

CURRENT PROBLEMS BEFORE THE COMMISSION

Foreword

Fiscal year 1962 witnessed extraordinary activity in all aspects of

the Commission's responsibilities. The peaks reached during fiscal

1961 in the flotation of new issues of securities, in broker-dealers and

investment advisers registered with the Commission, and in the number of customers men employed and branch offices maintained by

securities firms were equalled or exceeded. The sustained high level

of activity and the wide public participation in the securities markets

continued to attract untrained salesmen as well as those who seek to

take advantage of greater interest in investment by new and inexperienced investors. These factors compelled increased vigilance in regulatory matters and more vigorous enforcement effort by the Commission and by the self-regulatory agencies of the securities industry.

During the year the Commission adopted a number of significant

statements of policy and rules. At the end of the fiscal year other

rules which had been published for public consideration were under

study in the light of the comments received. The number of enforcement actions taken---eivil, criminal and administrative---eontinued

to rise.

Apart from the problems arising in the course of the regular activities of the Commission, fiscal 1962saw the commencement of the Commission's Special Study of Securities Markets, the first comprehensive

study of the securities markets in more than 25 years. A sharp break

in securities prices toward the end of the fiscal year has also required

an examination in depth of the events which preceded and accompanied this dramatic price decline as well as the performance of important market mechanisms and those professionally responsible for

their operation.

During the fiscal year, the Commission also received a report of a

study of certain facets of open-end (mutual) investment company

operations conducted for the Commission by the Wharton School of

Finance and Commerce, University of Pennsylvania. This is the first

detailed study made of an increasingly important investment medium

since the Commission's studies which preceded passage of the Investment Company Act of 1940.

1 672175-6~2
2 SECURITIES AND EXCHANGE COMMISSION

In the paragraphs and chapters which follow we refer in somewhat

greater detail to these and other matters which received the attention

of the Commission and its staff in fiscal 1962.

Special Study of Securities Markets

The Study was authorized by Public Law 87-196, enacted early in

September 1961, which directed the Commission to make a study and

investigation of the adequacy, for the protection of investors, of the

rules of stock exchanges and national securities associations and to

report to the Congress, on or before January 3, 1963,the results of its

study together with its recommendations. Following organization of

the Study unit and preliminary analysis of the topics to be investigated, it became apparent that the thorough examination and reassessment of the securities markets which were contemplated by the

Congress could be completed only if the reporting date were extended.

Public La w 87-561 extended the Study to April 3, 1963.

The Study, as the Congress intended, is extremely broad in scope.

The effectiveness of industry self-regulation through the stock

exchan ges and the National Association of Securities Dealers, Inc. is

undergoing thorough examination. Intensive inquiries are being conducted into the rules and practices of the stock exchanges, including

those relating to the role of specialists, floor traders and odd-lot

dealers.

The structure of the over-the-counter market and the adequacy of

its regulation, such as controls over quotations systems, are the subject

of a detailed review. Information is also being gathered regarding

the character of issuers whose securities are traded in that market.

Under existing law, a large number of these issuers in whose securities

there is a substantial public interest are not subject to any of the

reporting or other regulatory requirements imposed on companies

whose securities are listed on an exchange. On the basis of the information gathered, the Commission expects to determine the appropriateness of existing distinctions in the regul ation of these two

categories of issuers.

The Study is also conducting an investigation into the process by

which corporations distribute their securities to the public, and into

the over-the-counter trading in these securities after distribution,

including the problem of so-called "hot issues." Other major subjects

of scrutiny include the adequacy of the existing pattern of securities

credit regulation and any gaps and inconsistencies with respect to the

types of lenders and securities covered; the techniques and uses of

financial publicity; standards of entrance into the securities business;

and sales practices, including those relating to mutual funds. Substantial progress has been made in gathering information in all these
TWENTY-EIGHTH AN:r-."'UALREPORT 3

areas, through questionnaires, interviews and public hearings, and in

analyzing such information. .

It is anticipated that upon completion of the Study, the present

regular staff of the Commission, and additional personnel from the

Study, will be assigned the task of implementing the findings and

recommendations made.

The Commission believes that the Study has already had a beneficial

effect by stimulating significant developments in the form of rule

changes, the establishment of internal control procedures and new or

improved testing and training programs by broker-dealers, and

vigorous disciplinary actions by the self-regulatory agencies of the

industry. These steps reflect an increased awareness by the financial

community of its responsibilities and have assisted in establishing a

more salutary climate in the securities markets. The most dramatic

illustration of this new climate is the reorganization of the American

Stock Exchange. An investigation of that Exchange, which had commenced prior to the authorization of the Study, was completed with

the participation of personnel from the Study, and a report was issued

on January 6, 1962. The report concluded, on the basis of detailed

findings, that in the case of that Exchange the statutory scheme of

self-regulation had not worked in the manner envisioned by Congress.

Since that time, substantial changes have occurred in the staff, organization and constitutional structure of the Exchange. This reorganization was effected by the Exchange itself, consistent with the

Commission's belief that self-regulation could be revitalized on a

realistic basis. The Commission maintained close coordination with

the Exchange throughout the process of reorganization.

The Wharton School Study of Investment Companies

As reported previously, the Commission engaged the Wharton

School of the University of Pennsylvania to conduct a fact-finding

study of the problems created by the growth in size of investment

companies. Shortly after the close of fiscal year 1962, the study was

completed and was transmitted to the Commission which in turn submitted it to the Committee on Interstate and Foreign Commerce,

House of Representatives. The study constitutes the most comprehensive analysis of the mutual fund industry since the Commission's

study made more than 20 years ago, prior to the adoption of the

Investment Company Act of 1940. It analyzes the growth, organization and control, investment policy, and performance of open-end

investment companies or mutual funds, their impact on securities

markets, the extent of control of portfolio companies, and the financial

and other relationships of mutual funds with their investment

advisers and principal underwriters,
4 SECURITIES AND EXCHA-1'\'GE COMMISSION

The staff of the Commission is now engaged in an evaluation of the

conclusions and comments contained in the Wharton School Study, in

a study of the structure of the investment company industry generally,

and in a reassessment of the provisions of the Investment Company

Act and the Commission's rules and regulations thereunder. This

detailed analysis, together with related Commission studies now in

progress, will aid the Commission in determining whether specific

legislative recommendations should be made to the Congress with

respect to the Act and what action, if any, should be taken to

strengthen the rules and regulations under the Act.

Registration of New Security Offerings

Although the number of registration statements filed under the

Securities Act of 1933 with respect to securities issues proposed to be

publicly offered dropped off as a result of the market decline toward

the end of the fiscal year, the total number of statements filed during

the year, 2,307, far exceeded that for any previous year in the Commission's history. This figure represents an increase of 26 per cent

over the record number of statements filed in the preceding year. The

dollar amount represented by these statements aggregated $21.6 billion, or 4.4 per cent more than the corresponding figure for the previous year. During fiscal year 1962, 1,815 statements relating to

offerings of $19.5 billion of securities became effective, also a record

both in number and dollar amount, as graphically shown in the

chart on page 5.

The unprecedented number of registration statements filed placed

a heavy burden upon the Commission's staff. Aside from the sheer

volume of statements, a record number of 1,377 statements representing 60 percent of all those filed, related to companies that had not

previously been subject to the registration process. The examination

of such statements tends of necessity to be more time-consuming than

that of filings by issuers which have previously gone through the registration process.

In an effort to reduce the record backlog of registration statements

on file, the staff of the Commission was forced to work :frequently on

an over-time basis and the Commission effected a number of changes

in processing procedures during the fiscal year. Among other things,

it was decided to reduce the amount and layers of review, particularly

with respect to statements relating to high grade debt securities and

those filed by public utility companies, by established companies which

have filed financial information with the Commission within recent

periods, and by other established companies where the registration

statement is meticulously prepared and the financial statements are

unexceptionable. The Commission also took steps to dispose of a
'fWENTY-EIGHTH ANNUAL REPORT

SECURITIES EFFECTIVELY REGISTERED WITH S.E.C. DOllARS BilliONS 1935 1962

20

DOLLAR VOLUME

16

12

NUMBER OF REGISTRATIONS

15

10

5

1935 40 45 50

(FIscal Years)

55 60

0$.4126,

large group of statements which had been unsatisfactorily prepared,

and had been on the docket for a long time without any corrective

amendments having been filed.

Enforcement Activity

During the fiscal year, fraudulent sales of securities and other illegal

practices in connection with securities transactions presented, as in

past years, a major problem for the Commission and occupied the time

of a large portion of its staff. As described in more detail in subsequent portions of this report, the Commission continued to pursue a

vigorous enforcement program. Thus, it referred 64 cases to the

Department of Justice for criminal prosecution during the year, constituting the largest number of referrals in a single year in the Commission's history, and brought 89 injunction actions. In addition,

a total of 503 investigations of securities transactions involving pos-

-
6 SECURITIES AND EXCHANGE COMMISSION

sible violations of the antifraud or other provisions of the securities

acts were instituted, and 51 orders suspending the exemption from

registration provided for small security issues were issued.

Delegation of Functions

The enactment in August 1962 of Public Law 87-592, authorizing

the Commission to delegate to staff members certain of its functions,

should have the effect of strengthening the Commission's administration of the various acts administered by it. When implemented, the

proposed delegation will relieve the Commissioners from certain routine matters with which they now deal and free them to devote more

attention to major matters of policy and planning.

In December 1962, following extensive work by the Commission

and at the staff level with a view to implementation of the law, the

Commission published notice that it had under consideration the adoption of rules which would accomplish delegation of various routine

functions to certain of its staff officials, including Division and Office

heads and regional administrators, to be performed by them or under

their direction by such persons as might be designated from time to

time by the Chairman.
PART II

LEGISLATIVE ACfIVITIES

Early in the fiscal year, the Congress passed and the President

signed Public Law 87-196, which directed the Commission to make a

study and investigation of the adequacy of the rules of national

securities exchanges and national securities associations." Subsequently, Public Law 87-561 extended, from January 3, 1963 to

April 3, 1963,the date by which the Commission is required to report

to the Congress the results of its study and investigation, together

with its recommendations.

Because of the extensive study of the securities markets which is

still in progress under these laws, the Commission did not recommend any legislative program of its own during the Second Session

of the 87th Congress. Several items of legislation suggested by the

Commission in recent years which have not as yet been enacted may

now be merged in broader legislative recommendations growing out

of the Market Study, and it was thought best not to make any piecemeal recommendations during the pendency of the Study. It is

unlikely that the Commission will make substantial legislative proposals prior to the completion of the Study in April 1963,unless the

results of portions of the Study should suggest certain legislative

changes or additions which might lend themselves to separate treatment in advance of completion of the entire Study.

Apart from the authorization of the Special Study and the extension of time for its completion, the legislation enacted during this

past year which has the most direct effect upon the work of the Commission is S. 2135 which became Public Law 87-592 subsequent to

the close of the fiscal year. This law is the legislative version of

Reorganization Plan No.1 which was disapproved at the First Session of the 87th Congress.

Prior to the adoption of S. 2135 by the Senate on September 1,

1961,the Commission submitted comments on the bill, recommending

its adoption subject to certain suggested amendments. After its

adoption by the Senate with amendments suggested by the Commission, a memorandum of comment was submitted by the Commission

to the House Committee on Interstate and Foreign Commerce and

1 See the Commission's 27th Annual Report, p R-ll. for a dtseusslon ot--H.. J. B~.... 411s;.

which, as moditled, became PubUc Law 87-196.

7
8 SECURITIES AJ.'I"DEXCHANGE COMMISSION

Chairman Cary appeared before that Committee in support of the

bill.

In essence, Public Law 87-592 expressly permits the Commission

to delegate to one or more members of the Commission or to its staff

certain functions which were previously performed by the full Commission. The statute requires the Commission to retain a discretionary right to review delegated action within a time and in a manner

to be prescribed by rule, although in certain situations a person or

party adversely affected by delegated action is entitled to review bJ

the Commission as a matter of right. In addition, it provides that

the vote of one Commissioner shall be sufficient to bring any delegated action before the Commission for review, and that delegated

action shall become the action of the Conunission for all-purposes.

including review by the appellate courts if no Commission review of

the delegated action is sought within the time specified by rule, or if

the Commission declines review.

A substantial amount of time was devoted during the fiscal year to

matters pertaining to legislative proposals referred to the Commission

for comment and to Congressional inquiries. A total of 47 legislative proposals was analyzed, and numerous Congressional inquiries

relating to matters other than specific legislative proposals were

reviewed and answered.
PART m

REVISION OF RULES, REGULATIONS AND FORMS

The Commission maintains a continuing program of reviewing its

rules, regulations, and forms under the various statutes administered

by it in order to determine whether any changes are appropriate in

the light of changing conditions, methods and procedures in business

and in the financial practices of business. Certain members of the

staff are specifically assigned to this task, but changes are also suggested, from time to time, by other members of the staff who are

engaged in the examination of material filed with the Commission,

and by persons outside of the Commission who are subject to the

Commission's requirements or who have occasion to work with those

requirements such as underwriters, attorneys, accountants, and other

representatives. With a few exceptions provided for by the Administrative Procedure Act, proposed new rules, regulations, and forms

and proposed changes in existing rules, regulations, and forms are

published in preliminary form for the purpose of obtaining the views

and comments of interested persons, including issuers and various

industry groups.'

During the 1962 fiscal year, the Commission adopted a number of

changes in its rules, regulations, and forms. Other changes which

the Commission published in preliminary form for the purpose of

obtaining public comments thereon were pending at the end of the

fiscal year. The changes made during the fiscal year and those pending at the end of the year are described below.

THE SECURITIES ACT OF 1933

Adoption of Rule 152A

The Commission adopted Rule 152A which provides that the offering or sale of securities, evidenced by scrip certificates, order forms

or similar documents, which represent fractional interests resulting

1The rules and regulations of the Commission are publtshed in the Code of Federal

Regulations, the rules adopted under the various acts administered br the Commission

appearing In the following parts of Title 17 of that code:

Securities Act of 1933, pt. 230

Securities Excbange Act of 1934, pt. 240.

Public UtlIlty Holding Company Act of 1935. pt 250.

Trust Indenture Act of 1939, pt. 260.

Investment Company Act of 1940, pt. 270.

Investment Advisers Act of 1940, pt. 275.

9
10 SECURITIES AND EXCHANGE C01.1MISSION

from a stock dividend, stock split, reverse stock split, conversion,

merger or similar transaction is deemed to be a transaction by a person other than an issuer, underwriter or dealer within the meaning

of the first clause of Section 4(1) of the Act, and therefore exempt

from registration under the Act. The rule applies only to offers

and sales involved in the matching and combination of fractional

interests among security holders and the sale of whole shares representing the remaining fractional interests not so combined. The

rule applies whether the transactions are effected on behalf of the

security holders by the issuer or an affiliate of the issuer or by a

bank or other independent agent,"

Adoption of Rule 155

During the fiscal year the Commission adopted a new Rule 155.3

The new rule relates to the interpretation of the exemptions afforded

by Section 4 (1) in the context of public offerings of convertible

securities by or on behalf of any person who purchased such securities

directly or indirectly from the issuer in a non-public transaction, or to

a public offering of the securities received. upon conversion of the

securities so placed. Of course, where there is an initial public

offering of convertible securities, immediate registration is required

in the absence of some exemption, and the rule has no application to

such a situation.

The new rule defines the phrase "transactions by an issuer not

involving any public offering" in Section 4(1) of the Act, as not

including certain public offerings of convertible securities or of securities received upon such a conversion. The rule excludes from the

quoted exemption two types of public offerings. The first is a public

offering of a security, which is immediately convertible into another

security of the same issuer, by or on behalf of any person or persons

who purchased the convertible security directly or indirectly from the

issuer in a non-public transaction. The other type of offering excluded

from the quoted exemption is one by or on behalf of any such person

or persons of the security acquired upon conversion, unless the person

or persons making the public offering are not underwriters within the

meaning of that term as defined in Section 2(11) of the Act. In

determining whether any such person is an underwriter, the usual

statutory tests are to be applied, as in other situations.

In order that intermediate persons who are not connected with any

public offering of such securities may not be treated as underwriters,

the rule provides that any such intermediate holder of the convertible

secur-ity or of the underlying security who has not acquired it with a

'Securities Act Release No. 4470 (March 28,1962).

1 Securities Act Release No. 4450 (Feb. 7, 1962).
TWENTY~EIGHTH ANNUAL REPORT 11

view to its distribution and is not instrumental in making or arranging

a public offering is not to be deemed an underwriter for the purpose of

the rule. Of course, even though a person is instrumental in making

or arranging a public offering of the underlying security, the rule does

not apply if the acquisition, retention and disposition of such security

are such that the person is not an underwriter within the meaning of

the term as defined in Section 2 (11) of the Act.

The rule applies only with respect to convertible securities issued

after the effective date of the rule.

Adoption of Rule 236

The Commission adopted Rule 236 which exempts from registration

under the Securities Act, under certain conditions, shares of stock or

similar security which are publicly offered to provide funds to be

distributed to security holders in lieu of issuing fractional shares,

scrip certificates, order forms, or other evidences of such fractional

interest, in connection with a stock dividend, stock split, reverse stock

split, conversion, merger or similar transaction. The conditions of

the exemption are that the issuer is required to file and has filed

reports with the Commission pursuant to Section 13 or 15 (d) of the

Securities Exchange Act of 1934, that the aggregate gross proceeds

from the sale of the shares do not exceed $100,000 and that the issuer

furnish certain information to the Commission at least 10 days prior

to the offering of the shares.'

From the date of adoption of the rule to the end of the 1962 fiscal

year, 11 companies furnished notices to the Commission pursuant to

the rule.

Amendment of Rule 458

Rule 458, which deals with the payment of fees in connection with

the registration of securities under the Securities Act, and prescribes

the manner in which the required fees shall be paid, was amended

during the fiscal year." The amendment to the rule provides that

payments of fees may be rounded to the nearest dollar and that the

Commission will waive any deficiency in the fee amounting to less

than $1. However, in no case may the amount of the registration fee

be less than $25. The amendment also provides that refunds to issuers

of excess payments amounting to less than $1 will be made only upon

the request of the issuer and that refunds of $1 or more may be waived

by the issuer. The purpose of the amendment is to reduce the time

and clerical work involved in collecting or refunding insignificant

amounts. However, as indicated above, the rule preserves the right

of an issuer to receive a refund of any amount due it, if it so desires.

Securities Act Release 1\'0. 4470 (March 28. 1962).

Securities Act Release No 4381 (.July 3, 1961).

•

•
12 SECURITIES AXD EXCHAKGE COMMISSION

Adoption of Rules 462 and 263

The Commission adopted Rule 462 which requires that if a bona fide

effort is not made to proceed with the offering and sale of registered

securities to the public within 3 business days after the registration

statement becomes effective, or if the offering or sale is suspended

within 15 days after the effective date, telegraphic or air mail notice

of the delay or suspension must be filed with the Commission. A

similar rule, designated as Rule 263, has been added to Regulation A

with respect to offerings under that regulation. The new rules are

intended to apply to situations where an offering is delayed or suspended by the issuer or principal underwriters and information with

respect to such delay or suspension and the reasons therefor are not

contained in the prospectus or offering circular."

Adoption of Revised Form S-8

During the fiscal year, the Commission published notice that it had

under consideration certain proposed amendments to Form S-8 which

is the form authorized for use in registering securities under the

Securities Act to be offered pursuant to certain stock purchases,

savings or similar plans, and for registering the interests in such plans

where such registration is required," A number of comments were

received in regard to the proposed amendments and shortly after the

close of the fiscal year the Commission adopted a revised Form S-8.8

The rule as to the use of the form has been simplified and clarified

in certain respects and has been amplified to permit use of the form for

securities other than "equity" securities and for securities to be offered

pursuant to restricted stock options. The transmittal of annual reports and other material to employees is now required by undertakings

set forth at the end of the form and the provisions making such transmittal a condition to the use of the form have been deleted. General

Instruction E which defined the term "transactions within 1 year" as

previously used in the third clause of Section 4 (1) of the Securities

Act, has been amended to define the term "transactions prior to the

expiration of 40 days," which is the present language of the statute.

Additional items calling for information with respect to securities to

be offered pursuant to restricted stock options have been added to the

form.

Adoption of Form 8-11

During the fiscal year the Commission adopted a new form, designated Form S-11, for registration under the Securities Act of securities of certain real estate companies." The form is to be used for

Securttu-s .h,t Release No. 4427 (November 14, 1961\.

, Securities Act Release No. 4440 (January 15, 1962).

8 Securities Act Release No. 4533 (August 30, 1962).

Securities Act Release No. 4422 (October 26,1961).

•

•
TWEXTY-EIGHTH AJ.,NUAL REPORT 13

securities issued by real estate investment trusts, as defined in Section

856 of the Internal Revenue Code, or securities issued by other issuers

whose business is primarily that of acquiring and holding for investment real estate or interests in real estate or interests in other issuers

whose business is primarily that of acquiring and holding real etate

or interests in real estate for investment. The new form is not to be

used, however, for securities of any investment company which isregistered or required to register under the Investment Company Act of

1940.

THE SECURITIES EXCHAN.GEACT OF 1934

Adoption of Rules 13a-15 and lSd-IS and Form 7-K

During the fiscal year, the Commission adopted two new rules with

regard to the periodic reporting requirements and a new quarterly

report form. The new rules, designated Rules 13a-15 and 15d-15, require certain real estate companies to file with the Commission, pursuant to Sections 13 and 15(d) of the Act, quarterly reports with respect

to distributions made to shareholders. Such reports are required to

be filed on the new Form 7-K 'within 45 days after the end of the fiscal

quarter for which they are filed. However, investment companies

registered under the Investment Company Act of 1940, and partnerships all of whose properties are under long term lease to other

persons, are not required to file such reports."?

Adoption of Rule ISd-21 and Form Il-K; Amendment to Form IO-K

Shortly after the end of the fiscal year, the Commission adopted

regulations governing the filing of annual reports pursuant to Section

15(d) of the Securities Exchange Act, relating to employee stock purchase, savings and similar plans. Proposed regulations relating to the

filing of such reports were published for comment on June 13, 1961.11

As a result of further consideration of these proposals and the COIDments and suggestions received in regard thereto, certain changes have

been made in the proposed regulations. A new Form ll-K has been

adopted for use in filing annual reports with respect to such plans. A

new Rule 15d-21 has been adopted which provides that separate annual and other reports need not be filed with respect to any plan if the

issuer of the stock or other securities offered to employees through

their participation in the plan files annual reports on Form 10-K or

U5S and furnishes to the Commission as a part of its annual report on

such form the information, financial statements and exhibits required

by Form ll-K and furnishes to the Commission copies of any annual

report submitted to employees in regard to the plan. A new general

instruction has been added to Form 10-K which specifies the procedure

10 Securities Exchange Act Release No. 6820 (June 12,1962).

U Securities Exchange Act Release No. 6576 (June 13, 1961).
14 SECURITIES AND EXCHANGE COMMISSION

to be followed where an issuer elects to file information and documents

pursuant to Rule 15d-21.12

Proposed Rule 19a2-1

During the 1960fiscal year the Commission invited public comments

on a proposed Rule 19&2-1under the Act, which would provide that

the failure or refusal of an issuer or its officers,directors, employees, or

controlling persons to cooperate with the Commission in proceedings

under Section 19(a) (2) or investigations under Section 21 of the Act

with respect to compliance with Section 12 or 13 of the Act shall be

deemed a failure to comply with the provisions of the Act or the rules

and regulations thereunder for the purpose of Section 19(a) (2),13

The proposed rule would provide a basis for the issuance of an order

under Section 19(a) (2) denying, suspending, or withdrawing the

registration of a security in such cases. This matter was pending at

the end of the fiscal year.

Proposed Amendments to Form 8-K

Form 8-K is the form prescribed for current reports filed pursuant

to Section 13 or 15(d)' of the Securities Exchange Act. During the

fiscal year, the Commission announced that it has under consideration

certain proposed amendments to Form 8-K and invited public comments.> The amendments are intended to supersede proposed amendments previously published for comment." They are designed to

bring promptly to the attention of investors information regarding

material changes affecting the company or its affairs when it appears

that the changes are of such importance that they should be reported

promptly rather than at the end of the fiscal year. The amendments relate to matters such as the pledging of securities of the issuer

or its affiliates under circumstances that a default will result in a

change in control of the issuer, changes in the board of directors

otherwise than by stockholder action, the acquistion or disposition of

significant amounts of assets otherwise than in the ordinary course of

business, interests of management and others in certain transactions,

and the issuance of debt securities by subsidiaries.

The proposed amendments were still under consideration at the

close of the year.

"Securities Excbange Act Release No. 6851 (July 23,1962).

1$ SecurIties Excbange Act Release No. 6291 (June 211,1960) : see 26tb Annual Report,

p. 21 ; 21tb Annua) Report, p. 18.

I< Securities Excbange Act Release :"1"0.6170(April 5, 1962).

,. Securities Exchange Act Release No. 1i979 (June 9, 1959), see 26th Annual Report,

n. 22 ; 21th Annual Report. p. 19
TWENTY-EIGHTH ANNUAL REPORT 15

Adoption of Rule 15c2-4

There have been instances where, as a result of financial reverses or

for other reasons, underwriters and other broker-dealers participating

in distributions have failed to remit amounts collected to the issuer, or

to return payments made by customers to them where such return

was required unless the distribution was completed within a specified

period of time. Rule 15c2-4 was adopted to deal with this type of situation. The rule makes it a "fraudulent, deceptive, or manipulative act

or practice" for any broker or dealer participating in any distribution other than a firm-commitment underwriting, to accept any part

of the sale price of any security being distributed unless (1) it is

promptly transmitted to the persons entitled thereto, or (2) if the

distribution is being made on an "all-or-none" basis, or on any other

contingent basis, the money is put into a trust or agency account, or

delivered to an escrow bank, until the event or contingency has

occurred, and it is then promptly transmitted or returned to the

persons entitled thereto."

Adoption of Rule 15c2-5

Shortly after the close of the fiscal year, the Commission adopted

Rule 15c2-5 to prevent fraudulent practices by brokers or dealers

in connection with the offer or sale of securities under a program

which contemplates that the securities sold to the customer will

be used as collateral for a loan, whose proceeds will be used to pay the

premium on a life insurance policy sold to the customer at or about

the same time (an activity which in various forms has come to be

known as "equity funding," "secured funding," or "life funding")."

The Commission had previously expressed the view that such a plan

generally involves the offer and sale of an additional security, i.e., an

investment contract, which is required to be registered under the

Securities Act of 1933.18 Some dealers were offering this type of

program without adequate consideration of whether it was suitable

for particular customers, and they failed to furnish customers with

adequate information concerning the nature and extent of the obligations and risks involved and the commissions and other remuneration

which the dealer and his associates would receive in connection with

the transactions.

The rule makes it unlawful for any broker or dealer to offer, sell

or attempt to induce the purchase of any security by any person if

the broker or dealer, in connection therewith, offers to extend any

credit to or to arrange any loan for such person, or participates in

,. Securities Exchange Act Release No. 6737 (February 21, 1M2)

11 SecurIties Exchange Act Release No. 6851 (July 17, 1962).

18 Securities Act Release No. 4491 (May 22, 1962).
16 SECURITIES AND EXCHANGE COMMISSION

arranging any such loan or credit, unless, before any part of the

transaction is entered into, the broker or dealer delivers to him a

written statement setting forth certain material information concerning the arrangement being offered. In addition, the broker or dealer

is required to obtain from each customer information concerning the

latter's financial situation and needs, to reasonably determine that

the entire transaction, including the loan arrangement, is suitable for

the customer, and to deliver to him a written statement setting forth

the basis upon which this determination was made. If, in connection

with the transaction, it is contemplated that the prospect will cancel

existing life insurance, the written statement delivered to the prospect

before the transaction is entered into will have to disclose the disadvantages, if any, which the prospect will incur because of this.

Among other things, this may require disclosure that the premium

on the new life insurance is higher than the premium on the old

insurance; that the purchaser may be incurring additional expense

because he is paying the "acquisition costs" twice; that it may take

a specified additional period of time for the dividends or the cash

value of the new policy to equal those under the old policy; and that

the prospect may lose the benefits of the "incontestability provision"

because the period during which the insurer may contest the policy

for specified reasons may have expired under the old policy and the

prospect may be required to "wait through" this period again under

the new policy.

Amendment of Rule 15c3-1

Rule 15c3-1, which provides that no broker or dealer shall permit

his aggregate indebtedness to exceed 2,000% of his net capital,

exempts from its requirements the members of specified exchanges

whose "rules and settled practices" were deemed by the Commission

to impose requirements more comprehensive than the requirements

of the rule. However, a condition precedent to the continuation of

any such exemption is that the exchange conduct such inspections and

maintain such other procedures as are necessary to be reasonably sure

that members are complying with its capital requirements. The Salt

Lake Stock Exchange requested termination of the exemption for

its members because it was burdensome for it to conduct the inspections and other procedures necessary to a continuation of the exemption. Accordingly, the Commission amended Rule 15c3-1 to delete

the exemption previously available to members of that exchange."

Amendment of Rules 17a-3 and 17a-4

Rule 17a-3 specifiesthe books and records which must be maintained

by certain members of national securities exchanges and other brokerIt Securities Exchange Act Release No. 6691 (Dec. 21, 1961).
TWENTY-EIGHTH ANNUAL REPORT 17

dealers, and Rule 17a-4 requires the preservation of such books and

records for specified periods.

The amendment of Rule 17a-3 requires each exchange member,

broker or dealer subject to the rule to maintain a questionnaire or

application for employment executed by each "associated person,"

as defined in the rule. This questionnaire or application must contain certain specified information and be approved in writing by an

authorized representative of the member, broker or dealer. Under

the amendment of Rule 17a--4, this information is required to he

maintained until at least 3 years after such associated person terminates his employment and any other connection with the member,

broker or dealer."

There were two principal reasons for the adoption of the amendments. First, good business practice makes it appropriate for members, brokers and dealers to maintain fairly detailed data concerning

the experience and past record of partners, officers,salesmen, traders,

and other employees handling funds, securities or transactions for

the firm. Secondly, the availability of such information in the firm's

records will be of value to the Commission in its broker-dealer inspections and enforcement activities.

Since the National Association of Securities Dealers, Inc., and

various national securities exchanges require all personnel engaged

in managing, supervising or handling securities transactions for their

members to be registered with or approved by the Association or the

exchange, and also require the execution of applications for registration or for approval by such persons which contain information

similar to the information required under Rule 17a-3, as amended,

the amendment provides that the retention of copies of such applications made to the Association or to the specified exchanges shall constitute compliance with Rule 17a-3 so far as those persons are

concerned.

Amendment of Rule 15ag-1

Rule 15ag-l sets out the procedures to be followed in connection

with Commission review of disciplinary action, or of denial of membership, by a national securities association, 011 the application of a

person aggrieved by such action or denial. Amendments to the rule

adopted during the fiscal year 21 are designed to facilitate and

expedite the handling of review proceedings.

The amendments make it mandatory for the applicant to file a

brief or statement in support of his application, specifying the basis

of the appeal and the relief sought, within a specified period, and

.. Securities Exchange Act Release No. 6646 (October 6, 1961).

21 Securities Exchange Act R~lenBeNo. 6606 (July 211,1l161).

672175-63-3
18 SECURITIES AND EXCHANGE COMMISSION

authorize summary dismissal of an application where a timely brief

is not filed. The filing of an answering brief by the association or

of a reply by the applicant to an answering brief is optional. The

amendments also provide that oral argument will be heard only with

special Commission permission. The former provision which specified that oral argument would take place in all cases except where

waived by the parties resulted in uncertainty and undue delay where

an applicant failed to appear or where it was not possible to obtain a

waiver.

THE TRUST INDENTURE ACT OF 1939

Amendment of Form T-3

Form T-3 is used for applications for the qualification of indentures in cases where the indenture securities are not required to be

registered under the Securities Act of 1933. An amendment to this

form, adopted during the fiscal year, requires that there be filed as

an exhibit to such applications a cross reference sheet showing the

location in the indenture of the provisions which the Trust Indenture

Act requires to be included in all qualified indentures." The purpose

of the amendment is to facilitate the examination of indentures to

determine whether they meet the requirements of the Act.

THE INVESTMENT COMPANY ACT OF 1940

Amendments to Rules 31a-l and 31a-2; Adoption of Rule 31a-3

During the fiscal year, the Commission issued a notice of proposal

to amend its existing Rules 31a-1 and 31a-2 under the Investment

Company Act, and to adopt a new Rule 31a-3 under the Act.23 The

existing rules relate to records required to be maintained and preserved by registered investment companies, certain majority-owned

subsidiaries thereof, and other persons having transactions with

registered investment companies. As a result of the experience

gained by the Commission in its administration and enforcement of

the Act, including the experience derived from staff inspections of

registered investment companies and certain affiliated persons, it appeared to the Commission that the public interest and the interest of

investors required that Rules 31a-l and 31a-2 should be amended to

prescribe with greater specificity and detail the records of securities

transactions required to be kept, and to prescribe the keeping of certain memoranda and documents not previously required. It also

appeared that a new Rule 31a-3 should be adopted setting forth certain requirements in circumstances where the records called for in

Rules 31a-l and 31a-2 are prepared or maintained by others on

behalf of the person required to maintain them .

.. Trust Indenture Act Relefl~pNo. 170 (MflY7. 1962)

.. Investment Company Act Relllllse No. 8868 (November 28. 1961).
TWENTY-EIGHTH ANNUAL REPORT 19

Subsequent to the end of the fiscal year, the Commission adopted

the amendments and the new rule.u

Adoption of Exemptive Rules Applicable to Licensed Small Business Investment

Companies

In the fiscal year, the Commission adopted rules and a related form

applicable to small business investment companies licensed by the

Small Business Administration, to provide exemptions from certain

requirements of Sections 11(a), 17(d), and 18(c) of the Investment

Company Act.25 Rule 11a-6 exempts from the prohibitions of Sections 11(a) (1) and 11(a) (3) of the Act, subject to certain conditions, loans and other securities transactions which would be prohibited by those Sections solely because an SBIC owns, holds, or controls

with power to vote the voting securities of a small business concern.

At the same time the Commission adopted, pursuant to Section 17(d)

of the Act, an amendment to Rule 17d-1 which exempts from that

rule's requirements certain transactions where banks and an affiliated

SBIC make investments in the same small business concern, and a

new Rule 17d-2 which prescribes a related reporting Form N-17D-1.

The Commission has adopted a new Rule 18c-1 which exempts a

small business investment company from the requirements of Section

18(c) so as to permit it to issue more than one class of senior security

representing indebtedness so long as all such indebtedness is privately

held and the company does not have outstanding any publicly held

indebtedness.

THE INVESTMENT ADVISERS ACT OF 1940

Adoption of Rules 206(4)-1 and 206(4)-2

Section 206(4) of the Investment Advisers Act, which was enacted

in September 1960, prohibits an investment adviser from engaging in

any act, practice, or course of business which is fraudulent, deceptive,

or manipulative, and gives the Commission the power by rules and

regulations to define and prescribe means reasonably designed to prpvent such acts, practices, and courses of business.

The Commission during the fiscal year adopted Rule 206(4)-1,

effective January 1, 1962, defining certain advertisements by investment advisers to be fraudulent, deceptive, or manipulative within the

meaning of Section 206(4) of the Act.26 The rule is intended to implement the statutory mandate by foreclosing the use of advertisements

which have a tendency to mislead or deceive clients or prospective

clients.

"'Investment Company Act Release No. 3578 (November 28. 1962) .

.. Investment Company Act Release No. 3361 (November 17. 1061) .

.. Investment Advisers Act Release No. 121 (Nov. 2. 1961).
20 SECURITIES A...'W EXCHANGE COMMISSION

The rule prohibits advertisements which contain testimonials or

which call attention to specific past recommendations made by the investment advisers which would have been profitable. Other provisions

of the rule specify the circumstances under which advertisements

offering graphs, charts, formulas, or other devices may be used, and

prohibit advertisements which represent that any report, analysis, or

other service can be obtained free or without charge unless it is entirely free and subject to no conditions or obligations. The rule also

includes a general prohibition against the use of advertisements containing untrue or misleading statements.

The Commission also adopted Rule 206(4)-2, effective April 2,

1962.21 The new rule is designed to implement the provisions of

Section 206(4) of the Act, by requiring an investment adviser who

has custody of funds or securities of any client to maintain them in

such a way that they will not be jeopardized by financial reverses of

the investment adviser.

The rule makes it a fraudulent, deceptive or manipulative act,

practice or course of business for any investment adviser who has

custody or possession of funds or securities of clients to take any

action with respect to any such funds or securities unless (1) the

securities of each client are segregated, and held in safekeeping in a

reasonably safe place; (2) clients' funds are deposited in bank accounts which contain only such funds, maintained in the name of the

investment adviser as agent or trustee, and the latter maintains a

separate record for each such account containing specified information; (3) the adviser, immediately after accepting custody or possession, notifies the client in writing of the place and manner in which

the funds and securities will be maintained; and (4) the adviser sends

each client, at least once every 3 months, an itemized statement of the

funds and securities in his custody or possession and of all transactions in the client's account; and (5) at least once each calendar year

the funds and securities are verified by an independent public accountant in a surprise examination and his certificate is sent to the Commission promptly thereafter.

Since certain members of national securities exchanges and registered broker-dealers must maintain specified standards of financial

responsibility under the Commission's Ru1e 15c3-1 under the Securities Exchange Act, or applicable rules of the exchanges of which they

are members, Rule 206(4)-2 exempts from its requirements registered

broker-dealers subject to and in compliance with Ru1e 15c3-1, and

members of exchanges whose members are exempt from Rule 15c3-1,

and who are in compliance with exchange requirements with respect

If Investment Advisers Act Release No. 123 (Feb. 27, 1962).
TWENTY-EIGHTH ANNUAL REPORT 21

to financial responsibility and the segregation of customers' funds or

securities.

Proposed Amendment to Rule 204-2

During the fiscal year the Commission invited public comment 011

a proposed amendment to Rule 204-2, which would require investment advisers to maintain records containing specified information

concerning securities transactions in which they or their key personnel have any beneficial interest." The proposed amendment, which is

designed to prevent fraudulent, deceptive and manipulative acts and

practices, was pending at the end of the fiscal year.

"lnv(~tment Advisers Aet Release No. 120 (October 16, 19M).
PART IV

ADMINISTRATION OF THE SECURITIES ACT OF 1933

The Securities Act of 1933 is designed to provide disclosure to investors of material facts concerning securities publicly offered for

sale by the use of the mails or instrumentalities of interstate commerce, and to prevent misrepresentation, deceit, or other fraudulent

practices in the sale of securities. Disclosure is obtained by requiring

the issuer of such securities to file with the Commission a registration

statement which includes a prospectus containing significant financial

and other information about the issuer and the offering. The registration statement is available for public inspection as soon as it is filed.

Although the securities may be offered after the registration statement is filed, sales may not be made until the registration statement

has become "effective." A copy of the prospectus must be furnished

to each purchaser at or before the sale or delivery of the security. The

registrant and the underwriter are responsible for the contents of the

registration statement. The Commission has no authority to control

the nature or quality of a security to be offered for public sale or to

pass upon its merits or the terms of its distribution. Its action in

permitting a registration statement to become effective does not constitute approval of the securities, and any representation to a prospective purchaser of securities to the contrary is made unlawful by

Section 23 of the Act.

DESCRIPTION OF THE REGISTRATION PROCESS

Registration Statement and Prospectus

Registration of securities under the Act is effected by filing with

the Commission a registration statement on the applicable form containing the prescribed disclosure. When a registration statement

relates, generally speaking, to a security issued by a corporation or

other private issuer, it must contain the information, and be accompanied by the documents, specified in Schedule A of the Act; when it

relates to a security issued by a foreign government, the material

specified in Schedule B must be supplied. Both schedules specify in

considerable detail the information which should be made available

to an investor in order that he may make an informed decision whether
TWENTY-EIGHTH A.."i'NUAL REPOR'l' 23

to buy the security. In addition, the Act provides flexibility in its

administration by empowering the Commission to classify issues,

issuers, and prospectuses, to prescribe appropriate forms, and to

increase, or in certain instances vary or diminish, the particular items

of information required to be disclosed in the registration statement,

as the Commission deems appropriate in the public interest or for

the protection of investors.

In general, the registration statement of an issuer other than a

foreign government must describe such matters as the names of persons who participate in the direction, management, or control of the

issuer's business; their security holdings and remuneration and the

options or bonus and profitsharing privileges allotted to them; the

character and size of the business enterprise, its capital structure, past

history and earnings, and its financial statements, -certified by independent accountants; underwriters' commissions; payments to promoters made within 2 years or intended to be made; the interest of

directors, officers,and principal stockholders in material transactions;

pending or threatened legal proceedings; and the purpose to which

the proceeds of the offering are to be applied. The prospectus constitutes a part of the registration statement and presents the more important of the required disclosures.

Examination Procedure

The staff of the Division of Corporation Finance examines registration statements for compliance with the standards of accurate and

full disclosure and usually notifies the registrant by an informal

letter of comment of any material respects in which the statement

appears to fail to conform to those requirements. The registrant is

thus ordinarily afforded an opportunity to file a curative amendment.

In addition, the Commission has power, after notice and opportunity

for hearing, to issue an order suspending the effectiveness of a registration statement. In certain cases, for example where a registration

statement is so deficient as to indicate a willful or negligent failure

to make adequate disclosure, no letter of comment is sent and the Commission either institutes an investigation to determine whether stop

order proceedings should be instituted or immediately institutes stop

order proceedings. Information about the use of this stop-order power during 1962 appears below under "Stop Order Proceedings."

Time Required to Complete Registration

Because prompt examination of a registration statement is important to industry, the Commission endeavors to complete its analysis

in as short a time as possible. The Act provides that a registration

statement shall become effective on the 20th day after it is filed. How-
24 SECURITIES AXD EXCHAJ.,GE COMMISSION

ever, the filing of any amendment thereto establishes a new filing

date. This waiting period affords investors an opportunity to become familiar with the proposed offering. Information disclosed in

the registration statement is disseminated during the waiting period

by means of the preliminary form of prospectus. The Commission

is empowered to accelerate the effective date so as to shorten the 20

day waiting period where the facts justify such action. In exercising this power, the Commission is required to take into account the

adequacy of the information respecting the issuer theretofore available to the public, the facility with which investors can understand

the nature of and the rights conferred by the securities to be registered, and their relationship to the capital structure of the issuer,

and the public interest and the protection of investors. The note

to Rule 460 under the Act indicates, for the information of interested persons, some of the more common situations in which the Commission considers that the statute generally requires it to deny acceleration of the effective date of a registration statement.

The number of calendar days which elapsed from the date of the

original filing to the effective date of registration for the median

(average) registration statement with respect to the 1,6461 registration statements that became effective during the 1962 fiscal year was

78, compared with 55 days for 1,389 registration statements in fiscal

year 1961 and 43 days for 1,275 registration statements in fiscal year

1960. The increase in the elapsed time has been due primarily to the

cumulative effect of the unprecedented volume of registration statements filed, particularly those filed by issuers that had never before

filed under the Act, and the lack of sufficient personnel to process

such a volume. The number of registration statements filed during

fiscal year 1962 was 2,109, as compared with 1,667 and 1,469 in fiscal

years 1961and 1960,respectively,"

The following table shows by months during the 1962 fiscal year

the number of calendar days elapsed in each of the three principal

stages of the registration process for the median registration statement, the total elapsed time and the number of registration statements effective.

1This figure does not Include the 198 registration statements of mutual fund companies

that became effective during fiscal year 1962 that were filed pursuant to the provisions of

Section 24(e) of the Investment Company Act of 1940. The total elapsed time on these

198 statements was 21 calendar days for the average registration statement.

2 These figures do not Include 198, 163, and 159 registration statements, respectively,

tlled by mutual fund companies pursuant to the provisions of Section 24(e) of the Investment Company Act of ] 940 during fiscal years 1962, 1961, and 1960.
'l'WENTY-EIGHTH ANNUAL REPORT 25

Time in regi8trati<m under the seourtue« .act of 1988 by month8 during the fi8cal

year ended June 80, 196Z

NUMBER OF CALENDAR DA YB

From date of From date of From amend- Total num-I Number of origlna111ling letter of com- ment aCter ber of days regtstration Months to date of ment to date letter to in reglstra- statements staff's letter of filing effective date tion effective- of comment amendment of registrathereafter tion

July 196L _______________________: 41 10 7 58 121

~~;~~~~:~HH~~-:::] 47 13 7 67 146 46 16 8 70 136

50 14 7 71 153 60 13 8 81 157 65 11 7 83 12'2 January 1962___________________ I 77 14 10 101 116

~t;~~::::::::::: :::::::::: ::: 88 13 8 109 98 87 14 7 108 156 70 13 8 91 211 May ___________________________ , 37 15 7 59 141 June ____________________________ 40 26 9 75 89

FIscal 1962 for median enecuve registranon statement _________ 57 14 7 78 1,646

Spe footnote 1, supra

VOLUME OF SECURITIES REGISTERED

During the fiscal year 1962, 1,815statements in the amount of $19.5

billion became fully effective under the Securities Act of 1933, a

record both in number and dollar amount. The number of statements

increased 20 percent over the preceding year while dollar amount increased only 3 percent or $477 million, reflecting a further increase

in the volume of smaller issues. The chart on Page 5 shows the

number and dollar amounts of fully effective registrations from 1935

to 1962.

These figures cover all registrations which became fully effective

including secondary distributions and securities registered for other

than cash sale, such as exchange transactions and issues reserved for

conversion. Of the dollar amount of securities registered in 1962,83.3

percent was for account of issuer for cash sale, 7.8 percent for the

account of issuers for other than cash sale and 8.9 percent was for the

account of others, as shown below.

Account for which securitiee were regi8tered under the Secul'Hies Act of 1983

dul'ing the /iBcal year 1962 compared with the fiscal years 1961 aM 1960

1962m Percent 1961 ill - Percent 1960 in - Percent

millIons of total millions of total millions of total

--- ---

Registered for account of Issuer for cash sale _____________________________________ $16,286 83_3 $16,260 85_3 $11,738 81.7

~~e~hf~:~~~:_~~_~~:~_~~~_~~~~~_ 1,523 7.8 1,504 79 1,623 11.3 Registered for at count of others than Issuer ___________________________________ 1,738 89 1,306 6.8 1,006 7.0

Total _______________________________ --- --- ------ --- --- 19,547 100.0 19,070 100.0 14,367 100 0

Revised. Bee footnote 2 to appendix table 2.

•

•
26 SECURITIES AND EXCHANGE COMMISSION

Securities to be offered for cash sale for account of issuer amounted

to $16.3 billion, unchanged from the previous year. However, common stock increased by $1.7 billion and debt securities decreased by

almost that amount. Debt securities made up $4.5 billion of the 1962

volume, preferred stock $250 million and common stock $11.5 billion.

More than 80 percent of the common stock was to be offered for sale

over an extended period, including stock of investment companies,

stock for employee plans and stock called for by warrants and options.

Appendix Table 1 shows the number of statements which became

effective and total amounts registered for each of the fiscal years 1935

through 1962, and contains a classification, by type of security, of

issues to be offered for cash on behalf of the issuer during those years.

More detailed information for 1962 is given in Appendix Table 2.

Of the issues scheduled for immediate offering following effective

registration, two industry groups, communication and financial and

real estate, showed marked decreases in amounts as compared with

fiscal year 1961. Communication companies, which had registered $2.4

billion for public sale in the fiscal year 1961, registered only $840

million in the fiscal 1962 but in the latter period also registered a

major-sized issue to he sold to employees over an extended period.

Financial and real estate companies registered $770 million compared

with $1.3 billion in fiscal 1961. Manufacturing companies registered

$1.8 billion in fiscal 1962 and electric and gas companies $2.3 billion,

almost the same as in the previous fiscal year.

1962m Percent 1961 in Percent 1960 in Percent millions of total millions of total millIOns of total

------ ------ --- Issues offered for Immediate sale' Corporate. Manufacturmg _______________________ $1,818 11.2 $1,979 12. 2 $841 7.2 Extraetlve ____________________________ 92 .6 105 .6 126 1.1 Electnc, l(8S and water _______________ 2,327 14.3 2,385 147 2,307 19.7 Transportatron, other than rallroad ___ 57 .4 221 1.4 95 .8 Communlcatlon 1 S40 5.2 2,389 14. 7 1,000 8.5 FInancial and real estate______________ 772 4.7 1,264 7.8 1,009 8.6 Trade ______________________ ._________ 287 1.8 258 1.6 163 1.4 service, _________________ _____________ 111 .7 82 .5 100 .9 Construction and mlsc ________________ 15 .1 36 .2 8 .1

TotaL______________________________ 6,319 38.8 8,718 53.6 5,648 48.1 Foreign government ___________.________ 247 1.5 155 1.0 369 3.2

--- Total for Immediate sale 6,566 40.3 8,873 54.6 6,018 51.3 Issues offered over an extended perlod. ___ 9,721 59.7 7,387 45.4 5,720 48.7

------ --- --- ------ Total for cash sale for account of issuer_. _. 16,286 100.0 16,260 100.0 11,738 100.0

________• _____________

j

___• ________

______•________•• ________
TWENTY-EIGHTH ANNUAL REPORT 27

The amount of issues to be offered over an extended period are

classified as follows:

Investment company Issues

gr.:t~~;:_~=============: ::: ::::::: ::::: :::::::::::= ::::::::::::: .: Face amount certl.ticates__________ _ _

Totaliuvestment companies

Employee saving plan certl.ticates

Securities for employee stock option plans

Other, including stock for warrants or options

10621n 1961 in 1960 in mllllons mlIllons mlIUons

.....-- --- ---

ss, 471 $4, 908 $4, 198

300 239 52

176 2M 246

--- --- --- 5, 956 6, 401 4, 497

1m 487 386

1.814 1,299 686

1,879 200 isi

See Footnote 9 of Appendix Table 2.

Includes periodic payment plans or their underlying securities.

Of the $6.1 billion expected from the immediate cash sale of corporate securities for the account of issuers in fiscal 1962,.89 percent was

designated for new money purposes, including plant, equipment and

working capital, 4 percent for retirement of securities and 7 percent

for all other purposes including purchases of secucit'ies. '}'1' (

REGISTRATION STATEMENTS FILJi:D

During the 1962 fiscal year, 2,307 registration statements were filed

for offerings of securities aggregating $21.6 billion, as compared with

1,830 registration statements £led during the' n)6i'~fiscal year for

offerings amounting to $20.7 billion. This represents' an increase of

26 percent in the number of statements filed and 4.4 percent in the

dollar amount involved.

Of the 2,307 registration statements filed in the 1962 fiscal year,

1,377, or 60 percent, were filed by companies that had not previously

filed registration statements under the Securities -A<ft of '1933. Comparable figures for the 1961 and 1960 fiscal years- ;~~ 9~8,or 52 percent, and 774, or 47 percent, respectively.

A cumulative total of 21,695 registration statements has been filed

under the Act by 10,506 different issuers covering proposed offerings

of securities aggregating over $225 billion from the effective date of

the Securities Act of 1933 to June 30, 1962.

Particulars regarding the disposition of all registration statements

•

_

_

_

• _

•

•

"
28 SECURITIES A-~D EXCHANGE CO!Y1J.\1ISSION

filed under the Act to June 30, 1962, are summarized in the following

table:

Number and disposition of registration statements filed

Prior to July 1,1961, Total June

July I, 1961 to June 30, 30,1962 1962

Registration statements: Filed _____________________________________________________19,388 02,307 21,695

Disposition: Effective (net) ________________________________________ 16,807 I '1,833 <18,628 Under stop or refusal order ____________________________ 212 7 219 Wlthdrawn ___________________________________________ 1,854 264 2,118 Pending at June 30, 1961. 515 Pending at June 30,1962 730

Total 19.388 21,695

Aggregate dollar amount: $225.4 As filed (In billions) _______________________________________$203.8 $21 6 As effective (In billlons) $196.4 ~19.5 $215.9

o Includes 201reglsttatlon statements covering proposed offermgs totaling $5,235,031,546filed by invest- ment companies under Section 24(e) ofthe Investment Company Act of 1940which permits regtstratton by amendment to a previously effective registration statement . Excludes 11registration statements that became effective during tho year but were subsequently Withdrawn; these 11statements are counted in the 264statements withdrawn during the year. , Excludes I registration .statement that became effective prior to July 1,1961, which was placed under

stop order during the 1962 fiscal year, and also excludes 11 regtstration statements effective pnor to July I, 1961, that were withdrawn during the 1962 fiscal year; these statements are counted under stop orders and withdrawn, respectively.

The reasons given by registrants for requesting withdrawal of the

264 registration statements that were withdrawn during the 1962

fiscal year are shown in the following table:

Number of Percent

Reason tor registrant's withdrawal request statements of total

withdrawn withdrawn

l. Withdrawal requested after receipt of the staff's letter of comment ____________ 61 23

2. Registrant was sdvised that statement should be withdrawn or stop order pro8=!~::lt~il~:::~ ~~ ~~~~~~~~~=~ =:::=::::: =::~:: :::::~~~=::

24 9

3. 95 36

4. 56 21

5. Financing obtained elsewhere _________________________________________________ 15 6

b. Regulation A could be used ___________________________________________________ 3 1

7. Regtstrant was unable to negonate acceptable agreement with underwriter ____ 10 4

TotaL _. 264 100

STOP ORDER PROCEEDINGS

Section 8(d) provides that, if it appears to the Commission at any

time that a registration statement contains an untrue statement of a

material fact or omits to state any material fact required to be stated

therein or necessary to make the statements therein not misleading,

the Commission may institute proceedings looking to the issuance of

a stop order suspending the effectiveness of the registration statement.

'Where such an order is issued, the offering cannot lawfully be made,

or continued if it has already begun, until the registration statement

_____________________________ -~-----~------ ---~---------- ______________________________ -------------- -------------- ______•________________________________________ --------------

••_________________________________

•

____________________________ •_________•__________________________
TWEI><TY-EIGHTH ANNUAL REPORT 29

has been amended to cure the deficiencies and the Commission has

lifted the stop order.

The following table indicates the number of proceedings under

Section 8(d) of the Act pending at the beginning of the 1962 fiscal

year, the number initiated during the year, the number terminated

and the number pending at the end of the year.

Proceedings pending at beginning of fiscal year 6

Proceedings initiated during fiscal year___________________________ 7

13

Proceedings terminated during fiscal year by issuance of stop orders.L; 7

Proceedings terminated othe~'ise___________________________________ 1

8

Proceedings pending at the end of the 1962 fiscal year___________________ 5

Several of the proceedings which were terminated during the fiscal

year are described below.

American Finance Company, Inc.-The registrant, a Delaware

corporation organized in 1955,engages in the automobile sales finance

business primarily with overseas members of United States Armed

Forces. It filed a registration statement covering a proposed offering

of 2,500 units, each consisting of 1 $200 debenture, 30 shares of common stock, and 10 warrants, with the price of $500 per unit, for which

Myron A. Lomasney (Lomasney) was named as the managing underwriter. The registration statement also covered 60,000 shares of

common stock held by Lomasney and 17 persons associated with it,

proposed to be offered from time to time at such prices as may prevail

on the market following the completion of the offering of the Units.

In the course of the proceeding the registrant stipulated to certain

facts and consented to the entry of a stop order. Some of the more

important deficiencies found in the registration statement are

described below."

The Commission held than an accountant's relationship as attorney

for the registrant during the same period covered by his accounting

firm's certification disqualified him and the accounting firm of which

he was a partner from certifying registrant's financial statements as

independent accountants. The Commission stated that "though

owing a public responsibility, an attorney, in acting as the client's

advisor, defender, advocate, and confidant enters into a personal relationship in which his principal concern is with the interest and rights

of his client. The requirement of the Act of certification by an independent accountant, on the other hand, is intended to secure for the

benefit of public investors the detached objectivity of a disinterested

person. The certifying accountant must be one who is in no way

• Securities .ActRelease No. 4465 (:March 19, 1962).
30 S:!1:CURITIElS ANt> ElXCHANGE COMMISSION

connected with the business or its management, and who does not have

any relationship that might affect the independence which at times

may require him to voice public criticisms of his client's accounting

practices."

Prior to the filing of the registration statement, Lomasney had

purchased the 60,000 shares of registrant's common stock for its own

account at an advantageous price, and passed some of these shares on

to certain favored customers so that they too might benefit from the

planned public offering of shares at a higher price. In offering these

60,000 shares to the public, Lomasney and his favored customers, a

group of 17 persons, would be statutory underwriters participating

in the distribution of a large block of the registrant's stock. The

Commission found that in view of the large number of shares proposed to be offered in relation to the limited floating supply of shares,

the apparent lack of cohesiveness in the selling group, and the absence

of a prior market, the registration statement should have identified

the sellers and their relationship to each other, the registrant, and

Lomasney; and it should have disclosed that such distribution would

not be coordinated or controlled by a managing underwriter and that

the selling group had not provided the contractual safeguards for the

protection of buyers and sellers usually provided in a conventional

distribution. Accordingly, the Commission required undertakings

similar to those required in Hazel Bishop, Inc»

Standard Savings and Loan Association, a wholly-owned subsidiary

of the registrant, was described in the registration statement as an

operating savings and loan association. The Commission found that

Standard was organized and operated merely as a collection agency

for the registrant, in that it received allotment payments from military persons in connection with registrant's automobile sales financing

business and forwarded such allotments to registrant for application

on the unpaid balances of the automobile loans. The Commission

held that the opening of shareholders' savings accounts, evidenced by

pass books, involved the sale of unregistered securities in violation of

Section 5 of the Act; that based on the facts there was not available

for such securities the exemption provided by Section 3(a) (5) of the

Act for securities issued by a savings and loan association "substantially all the business of which is confined to the making of loans

to members."

Faradyne Electronics Corp.-Faradyne Electronics Corp., a New

Jersey corporation formed in 1959, offered and sold to public investors in December 1959, while in a promotional stage, 200,000shares

of its common stock at $5 per share pursuant to a registration state-

• Seeurlttes Act R..!t'UM' Xo 4:{71(June 7, 1961) ; See 27th Annual Report, p, 81,
TWENTY-EIGHTH ANNUAL REPUR'f 31

mont filed under the Securities Act of 1933. The four promoters

together received 300,000 Class A common shares for a cash investment of $20,000. A second registration statement filed in January

1961, as amended, covered a $2 million offering of convertible

debentures.

The prospectus included in the 1959 registration statement was

found by the Commission to be materially false and misleading in

several respects. One was in conveying the false impression that

Faradyne intended to proceed promptly with plans to develop and

produce capacitors whereas its officialsin fact contemplated that they

might develop an entirely different type of business through the

acquisition of the assets or stock of other companies and might use a

substantial part of the proceeds from the public offering for that

purpose. Faradyne in fact used a substantial portion of the proceeds

to acquire the assets or stock of six other companies within a period

of several months after the effective date of the registration statement,

including the assets and business of Mansel Ceramics Company, of

which two of Faradyne's promoters were the principal partners.

The prospectus filed as part of the 1961 registration statement was

also found materially misleading. It stated that Faradyne, through

a subsidiary, Mansel Corporation, had paid $150,000cash in March

1960, for the assets and business of Mansel Ceramics Company and

that it had agreed to make further fixed payments of $1,200,000and

$200,000 plus an additional maximum contingent payment of

$2,500,000, payable in annual installments comprised of 50% of

Mansel Corporation's annual net profit after taxes beginning with

the fiscal year ending January 31, 1961. The prospectus further

stated that the obligation to make contingent payments "will terminate on February 1, 1980," and that if such payments are not completed by that date "any balance contingently due will be forgiven."

These statements were found misleading in failing to disclose material provisions of the sale agreement. First, under the sale agreement Mansel Corporation could have at any time after January 31,

1962, anticipated all or any part of the obligation to pay the

$2,500,000,in which event the two promoters from whom the ceramics

company was acquired might receive more than would have been payable on the basis of annual payments of 50% of Mansol Corporation's

net profits. Second, the agreement also provided that in the event

Mansol Corporation should incur losses for any fiscal year ended

January 31, 1966, or thereafter, the period ending in 1980 would be

extended 1 year £01' each such loss year.

Moreover, the prospectus set forth a summary of consolidated

earnings of Faradyne and its subsidiaries for the fiscal year ended

January 31, 1961, which showed net income, after provision for
32 SECURITIES AND EXCHANGE COMMISSION

income taxes, of $387,000 in the aggregate or 74 cents per share.

Based upon the Commission's findings, the earnings figure on a pro

forma basis should have been only $108,000or 21 cents per share for

the same period.

The assets acquired, consisting of machinery, inventories, and written technical information, and carried on the books of the seller at

$364,000,were recorded initially on the books of the subsidiary at the

contract price of $1,550,000. However, there was no evidence to support the allocation of 100% of this amount to fixed assets and no

part thereof to good will. Further, Faradyne proposed to increase

the carrying value of plant assets as the amounts of the contingent

payments were accrued, which would result in a continuing increase

in book value of fixed assets without any actual change in assets.

The Commission found the transaction to be "actually a profit-sharing

or division-of-earnings arrangement-or to put it another way-it

provided for the receipt of net earnings after 50% reserved to the

sellers. Indeed, no contingent payments can ever be said in any

realistic sense to become the property of the registrant." The Commission held that the contingent payments should have been shown

as a deduction before arriving at net income, and concluded that

Faradyne's failure to deduct the $134,696 of contingent payments

from earnings resulted in a misleading overstatement of earnings by

that amount.

The Commission further held that the summary of earnings was

rendered materially misleading by the failure to present a pro forma

earnings statement to reflect debenture interest chargeable to the

replacement of a $1,200,000interest-free obligation with an interestbearing obligation, to provide adequately for income taxes, and to

explain that net earnings for the fiscal year 1961 were higher because

of the utilization of nonrecurring tax loss benefits.

The Commission concluded that the issuance of a stop order with

respect to both registration statements was required in the public

interest," Faradyne subsequently filed amendments to the 1961 registration statement changing the offering to one of stock, and correcting the deficiencies, and on October 30, 1962, the Commission lifted

the stop order,"

Miami Window Corporation.- The registrant, a Florida corporation organized in 1947, engages in the manufacture of various types

of windows and other products. It filed a registration statement

with the Commission on February 24, 1959, covering $3,500,0006%

percent sinking fund debentures with detachable common stock purchase warrants, 150,000 shares of convertible preferred stock, and a

Securities .Act Release No. 44.69 (March 21. 1962)

S..curltles Act Release No. 41151.

•

•
TWE::-<TY-EIGHTH ANNUAL REPORT 33

total of 1,075,000shares of common stock issuable upon exercise of the

warrants and the conversion of the preferred stock. The registration statement became effective on March 24, 1959, and the offering

of the debentures and the preferred stock was completed shortly

thereafter. The Commission subsequently instituted stop order

proceedings.

The Commission found that registrant's consolidated inventory,

as shown in the balance sheet included in the registration statement.

was materially overstated and included material amounts which had

no adequate basis in fact.

It further found that the certifying accountants failed to comply

with generally accepted auditing standards in auditing the inventory,

thereby rendering false and misleading the representations in their

certificate that their examination was made in accordance with such

standards and that the financial statements fairly presented registrant's financial position and results of operations.

The Commission noted that subsequent to the filing of the registration statement, registrant had submitted periodic reports to the

Commission and to its stockholders, including certified financial

statements for the 9 months ended February 29, 1960, and the fiscal

year ending February 28, 1961.

It concluded that in view of the distribution of the recent financial

statements, investors would be adequately informed of the facts upon

distribution of the Commission's opinion to all security holders of

the registrant, and that, under all the circumstances, issuance of a

stop order was not necessary, provided such distribution were made.

Accordingly, the Commission dismissed the proceedings, subject to

the condition noted."

EXAMINATIONS AND INVESTIGATIONS

The Commission is authorized by Section 8(e) of the Act to make

an examination in order to determine whether a stop order proceeding should be instituted under Section 8(d) . For this purpose the

Commission is empowered to subpoena witnesses and require the production of pertinent documents. The Commission is also authorized

by Section 20(a) of the Act to make an investigation to determine

whether any provision of the Act or of any rule or regulation prescribed thereunder has been or is about to be violated. In appropriate cases, investigations are instituted under this section as an expeditious means of determining whether a registration statement is false

or misleading or omits to state any material fact. The following

7 Securities Act IMpa<eNo. 4503 (June 21, 1962).

672171>-6::--4
34 sscuurrres A..\' J) EXCHA..."'GE COMMISSION

table indicates the number of such examinations and investigations

with which the Commission was concerned during the fiscal year.

Cases pending at the beginning of the fiscal yeflL_____________________ 17

Cases initiated during the flsca] year 18

85

Cases in which stop order procedings were authorized during the fiscal year_______________________________________________________ 1

Other cases closed during the fiscal year____________________________ 7

8

Cases pending at the end of the fiscal year_______________________________ 27

EXEMPTION FROM REGISTRATION OF SMALL ISSUES

Under Section 3(b) of the Securities Act, the Commission is

empowered to exempt, by its rules and regulations and subject to

such terms and conditions as it may prescribe therein, any class of

securities from registration under the Act, if it finds that the enforcement of the registration provisions of the Act with respect to such

securities is not necessary in the public interest and for the protection

of investors by reason of the small amount involved or the limited

character of the public offering. The statute imposes a maximum

limitation of $300,000 upon the size of the issues which may be

exempted by the Commission in the exercise of this power.

Acting under this authority the Commission has adopted the following exemptive rules and regulations:

Rule 234: Exemption of first lien notes.

Rule 235: Exemption of securities of cooperative housing corporations.

Rule 236: Exemption of shares offered in connection with certain transactions.

Regulation A: General exemption for United States and Canadian issues

up to $300,000.

Regulation B: Exemption for fractional undivided interests in oil or

gas rights up to $100,000.

Regulation F: Exemption for assessments on assessable stock and for

assessable stock offered or sold to realize the amount of assessment thereon.

Under Section 3(c) of the Securities Act, which was added by Section 307(a) of the Small Business Investment Act of 1958, the Commission is authorized to adopt rules and regulations exempting

securities issued hy a company which is operating or proposes to
TWENTY-EIGHTH ANNUAL REPORT 35

operate as a small business investment company under the Small Business Investment Act. Acting pursuant to this authority, the Commission has adopted a Regulation E which exempts upon certain terms

and conditions limited amounts of securities issued by any small

business investment company which is registered under the Investment

Company Act of 1940. This regulation is substantially similar to

the one provided by Regulation A adopted under Section 3(b) of

the Act.

Exemption from registration under Section 3(b) or 3(c) of the Act

does not carry any exemption from the civil liabilities for false and

misleading statements imposed upon any person by Section 12(2) or

from the criminal liabilities for fraud imposed upon any person by

Section 17of the Act.

Exempt Offerings Under Regulation A

The Commission's Regulation A implements Section 3(b) of the

Securities Act of 1933 and permits a company to obtain needed capital

not in excess of $300,000 (including underwriting commissions) in

anyone year from a public offering of its securities without registration, if the company complies with the regulation. Regulation A

requires that the issuer file a notification supplying basic information

about the company, certain exhibits, and an offering circular which

must be used in offering the securities. However, in the case of a company with an earnings history which is making an offering not in

excess of $50,000 an offering circular need not be used. A notification

is filed with the Regional Office of the Commission in the region in

which the company has its principal place of business.

During the 1962 fiscal year, 1,065 notifications were filed under

Regulation A, covering proposed offerings of $237,238,600compared

with 1,057 notifications covering proposed offerings of $239,920,549

in the 1961fiscal year. Included in the 1962total were 17notifications

covering stock offerings of $4,406,907 with respect to companies

engaged in the exploratory oil and gas business, 28 notifications covering offerings of $5,891,302by mining companies and 23 notifications

covering offerings of $5,226,927by companies featuring new inventions, products or processes.
36 SECURITIES AND EXCHA-.1\GE CO~:1MISSION

The following table sets forth various features of the Regulation A

offerings during the past 3 fiscal years:

Offerings under Regulation A

2'20

216

613

165

201

691

160

208

697

,

FIscal year 1 --. -...--

1

I 1962 1961 1960

~j---------

I:lJZe: I $100,000 or less J

Over $100,000 but not over $200,000 I Over $200,000 but not over $300,000

I 1,065 1,057 1,049

1-===

Und-ffs:J~~~~~_____________________ I 528 511 450 Not used 1 537 546 599

,---------

I i.oes 1,057 1,049

Ofierors, ,

~~E~o!~~rt~;~~id~~ij~i~~ii:::::::::::::::::::::::::::::::::::::::1 1'11 I'll l,~I 1----------

I 1,065 1,057 1,049 , .

Most of the offerings which were underwritten were made by commercial underwriters, who participated in 528 offerings in 1962, 511

offerings in 1961, and 398 offerings in 1960. The remaining offerings

in which commissions were paid were handled by officers, directors,

or other persons not regularly engaged in the securities business.

Suspension of Exemption

Regulation A provides for the suspension of an exemption thereunder where, in general, no exemption IS available for the securities

purported to be offered thereunder, or where the offering is not made

in accordance with the terms and conditions of the regulation or

with prescribed disclosure standards. Following the issuance of a

temporary suspension order by the Commission, the respondents may

request a hearing to determine whether the temporary suspension

should be vacated or made permanent. If no hearing is requested

within 30 days after the entry of the temporary suspension order and

none is ordered by the Commission on its own motion, the temporary

suspension order becomes permanent.

During the 1!)()2 fiscal year, temporary suspension orders were

issued in 51 eases. These cases together with 28 cases pending at the

beginning of the Iiscn] year resulted in a total of 79 cases for disposition. Of these 79 eases, the temporary suspension order became permanent in 48: ill 27 by lapse of time, in 9 by withdrawal of the

request for heuring, and in 12 after hearing. Thus, there were 31

cases pending at the end of the fiscal ;year.

--~-~~---

i

'

__

-----

__ __

__ _

,
'l'WEXTY-EIGHTH ANNUAL REPORT 37

Two of the above cases are summarized below to illustrate the type

of misrepresentations and other noncompliance with the regulation

which led to the issuance of suspension orders.

Chrislin Photo Industries Corp.-The Commission, in ordering

the exemption permanently suspended, found that the issuer's offering

circular was misleading in not disclosing all the material circumstances under which the offering was made, including the following

facts: that no shares were to be sold at the $6 per share offering price

until after a market was established at a level well above that price;

that immediately prior to any sales at $6 per share there were transactions in the over-the-counter market at prices ranging from $17 to

$22.50 per share; that a substantial number of shares were reserved

for sale at $6 per share to persons related to or associated with the

issuer and the underwriter; that a number of persons who acquired

shares at $6 per share almost immediately resold them at substantially

higher prices; and that there were persons who acted as underwriters

although not named as such in the offering circular.

In addition, statements in the offering circular that a camera developed by the company was ready for marketing, that it would be in

production within a reasonable time after the completion of the offering, and that the company was of the opinion that the camera with

accessories could profitably be retailed for $20 were found to be false

and misleading because in fact the camera was not expected to be

ready for marketing until March 1962,at which time additional funds

would be required.

The Commission further found that the terms and conditions of

Regulation A were not complied with in that the issuer sold securities

without furnishing an offering circular as required by Rule 256(a)

and the aggregate offering price exceeded the $300,000 limitation

prescribed by Rule 254.8

Mainco Electronics and Marine Development Corporation.-According to the Commission's temporary suspension order in this case,

the issuer's offering circular failed to disclose, among other things,

that it was not producing the fiberglass products referred to; that it

had no inventory of the electronic products described therein, was

not currently producing those items and had little or no facilities to

produce them; that it had cancelled a lease agreement pertaining to

expansion of production facilities; and that the proceeds would not

be used in the stated order of priority. The order also alleged that

the offering circular named various persons as directors when in fact

such persons had not consented to serve, that the description of the

educational background of the general manager and projects engineer

• Securities Act Release No. 4484 (May 8, 1962).
38 SECURITIES AND EXCHANGE COMMISSION

was false and misleading, and that the amended offering circular contained untrue statements regarding the reasons for the resignations

of certain directors. 9 No hearing was requested and the suspension

became permanent.

Exempt Offerings Under Regulation B

During the fiscal year ended June 30, 1962, 229 offering sheets were

filed pursuant to Regulation B and were examined by the Oil and Gas

Section of the Commission's Division of Corporation Finance. During the 1961 fiscal year, 261 offering sheets were filed and during the

1960 fiscal year, 328 were filed. The following table indicates the

nature and number of Commission orders issued in connection with

such filings during the fiscal years 1960-62. The balance of the

offering sheets filed became effective without order.

Action taken on.offering sheets filed under Regulation B

Fiscal years

1962 1961 1960

--- --- Temporary suspension orders . ._. .. ._. ••••••.. 34 16 7 Orders terminating proceeding after amendment, . ._..• _. 9 6 6 Orders fixmg effective date of amendment (no proceeding pending) , ___._. 1a8 158 138 Orders consenting to WIthdrawal of offerina sheet (no proceeding pending). 11 7 11 Orders consenting to withdrawal of offering sheet and ternnnatmg pro- ceeding •..•.• . , .• ..• ._.. _,_,_" , ,_,_, , 5 1

--- --- --- Total number of orders. _._. . . . .. _. . 197 188 164

Reports of saIes.-The Commission requires persons who make

offerings under Regulation B to file reports of the actual sales made

pursuant to that regulation. The purpose of these reports is to aid

the Commission in determining whether violations of laws have occurred in the marketing of such securities. The following table

shows the number of sales reports filed under Regulation B during

the past 3 fiscal years and the aggregate dollar amount of sales duringeach of such fiscal years.

Reports of sales under Regulation B

Fiscal years

1962 1961 1000

Number of sales reports tIIed .••••• _. _. . 4, 615 2,091 4,425 Aggregate dollar amount of sales reported. ____. _____________•. __. ___ $2, 921, 591 $1,894,018 $2,833,451

Secnrltles .ActRelease No. 4466 (March 20, 1962).

____•__••______•• __ _____ _ __ _ ••• ___ __ _____•• __

_ __•• __ __•• _ ____ ____ ______" _ ___ __

___•____ ___ _______•• __ ____ ___ __•

__•• __ ______•_______••• ___•• _

•
TWENTY-EIGHTH ANNUAL REPORT 39

Exempt Offerings Under Regulation E

Regulation E provides a conditional exemption from registration

under the Securities Act of 1933,for securities of small business investment companies which are licensed under the Small Business Investment Act of 1958 or which have received the preliminary approval of

the Small Business Administration and have been notified by the

Administration that they may submit an application for such a license.

The regulation, which is similar in many respects to the general

exemption provided by Regulation A, requires the filing of a notification with the Commission and, except in the case of offerings not in

excess of $50,000,the filing and use of an offering circular containing

certain specified information.

Regulation E provides for the suspension of exemption in particular

cases if the Commission finds that any of the terms and conditions of

the regulation have not been met or complied with.

There were no filings under Regulation E during the 1962 fiscal

year.

Exempt Offerings Under Regulation F

Regulation F provides an exemption from registration under the

Securities Act for assessments levied upon assessable stock and for

delinquent assessment sales in amounts not exceeding $300,000 in any

one year. It requires the filing of a simple notification giving brief

information with respect to the issuer, its management, principal

security holders, recent and proposed assessments and other security

issues. The regulation requires a company to send to its stockholders,

or otherwise publish, a statement of the purposes for which the proceeds from the assessment are proposed to be used. If the issuer

should employ any other sales literature in connection with the assessment, copies of such literature must be filed with the Commission.

During the 1962 fiscal year, 36 notifications were filed under Regulation F, covering assessments of $1,300,246. Regulation F notifications were filed in three of the nine regional officesof the Commission:

Denver, San Francisco, and Seattle. Underwriters were not employed

in any of the Regulation F assessments.

Regulation F provides for the suspension of an exemption thereunder, as inRegulation A, where the regulation provides no exemption

or where the offering is not made in accordance with the terms and

conditions of the regulation or in accordance with prescribed disclosure

standards.

One Regulation F filing was temporarily suspended in the fiscal year

1962. A request for hearing was made but was later withdrawn and

the issuer consented to the issuance of a permanent suspension order.
Pacific Coast Stock Exchange

Philadelphia-Baltimore Stock

ExcDange

Pittsburgh Stock Exchange

Salt Lake Stock Exchange

San Francisco Mining Exchange

~lKJkane Stock Exchange

PART V

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT

OF 1934

The Securities Exchange Act of 1934 is designed to ensure the maintenance of fair and honest markets in securities transactions on the

organized exchanges and in the over-the-counter markets. Accordingly, the Act provides for the registration and regulation of securities exchanges and the registration of securities listed on such exchanges, and it establishes for issuers of securities so registered, financial and other reporting requirements, regulation of proxy solicitations

and requirements with respect to trading by directors, officers and

principal security holders. The Act also provides for the registration

and regulation of brokers and dealers doing business in the over-thecounter market, contains provisions designed to prevent fraudulent,

deceptive and manipulative acts and practices on the exchanges and in

the over-the-counter markets and authorizes the Federal Reserve

Board to regulate the use of credit in securities transactions.

REGULATION OF EXCHANGES AND EXCHANGE TRADING

Registration and Exemption of Exchanges

As of June 30, 1962, 14 stock exchanges were registered under the

Exchange Act as national securities exchanges:

Amertcan Stock Exchange

Boston Stock Exchange

Chicago Board of Trade

Cincinnati Stock Exchange

Detroit Stock Exchange

Midwest Stock Exchange

National Stock Exchange

New York Stock Exchange

There have been no sales of securities on the Chicago Board of

Trade since 1953. The National Stock Exchange was granted registration as a national securities exchange on August 16, 1960, and commenced to operate on March 7, 1962.

Four exchanges were exempted from registration by the?Commission

pursuant to Section 5 of the Act:

Colorado Springs Stock l';xchange

Honolulu Stock Exchange

40

Richmond Stock Exchange

Wheeling Stock Exchange

-
TWE~TY-EIGHTH ANNUAL REPORT 41

Disciplinary Action

Each national securities exchange reports to the Commission disciplinary actions taken against its members and member firms for violation of the Securities Exchange Act of 1934 or of exchange rules.

During the year 9 exchanges reported 96 cases of such disciplinary

actions, including imposition of fines aggregating $48,575in 57 cases;

the suspension from membership of 13 individuals and 5 member

firms; the expulsion of 1 individual from associate membership and

another from allied membership; and the censure of a number of

individuals and firms.

REGISTRATION OF SECURITIES ON EXCHANGES

It is unlawful for a member of a national securities exchange or a

broker or dealer to effect any transaction in a security on such

exchange unless the security is registered on that exchange under the

Securities Exchange Act or is exempt from such registration. In

general, the Act exempts from registration obligations issued or guaranteed by a State or the Federal Government or by certain subdivisions

or agencies thereof and authorizes the Commission to adopt rules and

regulations exempting such other securities as the Commission may

find necessary or appropriate to exempt in the public interest or for

the protection of investors. Under this authority the Commission has

exempted securities of certain banks, certain securities secured by

property or leasehold interests, certain warrants and, on a temporary

basis, certain securities issued in substitution for or in addition to

listed securities.

Section 12 of the Exchange Act provides that an issuer may register a class of securities on an exchange by filing with the Commission

and the exchange an application which discloses pertinent information

concerning the issuer and its affairs. This must include information

in regard to the issuer's business, capital structure, the terms of its

securities, the persons who manage or control its affairs, the remuneration paid to its officersand directors, the allotment of options, bonuses

and profit-sharing plans, and financial statements certified by independent accountants.

Form 10 is the form used for registration by most commercial and

industrial companies. There are specialized forms for certain types

of securities, such as voting trust certificates, certificates of deposit

and securities of foreign governments.

Section 13 requires issuers having securities registered on an

exchange to file periodic reports keeping current the information furnished in the application for registration. These periodic reports

include annual reports, semiannual reports, and current reports. The

principal annual report form is Form 10-K which is designed to keep
42 :-;ECL:HITIE:-; AND EXCHANGE COMMISSIOX

up-to-date the information furnished in Form 10. Semiannual reports

required to be furnished on Form 9-K are devoted chiefly to furnishing mid-year financial data. Current reports on Form 8-K are

required to be filed for each month in which any of certain specified

events have occurred. A report on this Form deals with matters

such as changes in control of the registrant, important acquisitions

or dispositions of assets, the institution or termination of important

legal proceedings and important changes in the issuer's capital securities or in the amount thereof outstanding.

Statistics Relating to Registration of Securities on Exchanges

As of June 30, 1962, a total of 2,390 issuers had 4,013 classes of

securities listed on registered national securities exchanges, of which

2,821 were classified as stocks and 1,192 as bonds. Of these totals,

1,286 issuers had 1,564 stock issues and 1,142 bond issues listed on the

New York Stock Exchange. Thus, 54 percent of the issuers, 55 percent of the stock issues and 96 percent of the bond issues were on the

New York Stock Exchange.

During the 1962 fiscal year, 185 issuers listed securities on a registered national securities exchange for the first time, while the registration of all securities of 130 issuers was terminated. The total

number of applications for registration of classes of securities on

exchanges filed during the 1962fiscal year was 319.

The following table shows the number of annual, semiannual, and

current reports filed during the fiscal year by issuers having securities listed on registered national securities exchanges, and the number of such reports filed by issuers obligated to file reports under

Section 15(d) of the Securities Exchange Act of 1934, by virtue of

having registered securities under the Securities Act of 1933. The

securities of issuers filing reports under Section 15(d) are generally

traded in the over-the-counter market. As of June 30, 1962, there

were 2,726 such issuers, including 350 that were also registered as

investment companies under the Investment Company Act of 1940.

The table also includes the number of annual reports, quarterly

reports and reports to stockholders filed by issuers subject to the

reporting requirements of Section 30 of the Investment Company Act.
TWENTY-EIGHTH ANNUAL Rl!]POR'I' 43

Number of annual ana other periodiG reports filed by issuers under tM Securities

Ea:ohange AGt of 1934 and the Investment Oompany Act ot 1940 during the

fiscal year en4ed June 30, 1962

Number of reports filed byIssuers

Listed Over-the- filing Total

Issuers counter reports reports Type of reports filing Issuers under flied

reports tiling Sec. 30

under reports of InvestSec.13 under ment Sec.15(d) Company Act

--- --- --- Aunual reports on Forms I~K, N-30A-l, etc ___________________ 2,326 1,700 458 4,580 Senuaunual reports on Form 9-K ______________________________1,958 1,458 ---------- 3,416 Current reports on Form &-K__________________________________4,025 2,206 ------262- 6,231 Quarterly reports on Form N-30B-L __________________________ 262 Reports to stockholders Isectlon 30(d» 1,391 1,391

Total reports tIled______________________________________ --- --- --- --- 8,309 5,460 2,111 15,880

MARKET VALUE OF SECURITIES TRADED ON EXCHANGES

The market value on December 31, 1961, of all stocks and bonds

admitted to trading on one or more stock exchanges in the United

States was approximately $531,833,403,000.

Number Market value of issues Dec. 31, 1001

Stocks: New York Stock Exchange ____________________________________________1,541 $387,841,207,000 American Stock Exch~e------------------------- ._. 1,001 33,010,870,000 Exclusively on other exc anges________________________________________ 499 5, 132,176,000

Total stocks _________________________________________________________ 3,041 425, 984, 253, 000

Bonds: New York Stock Exchange 1,186 104,634,327,000

~~~I~~~fft~he~ges=============================== ======:== 73 1,087,260.000

25 127,563,000

Total bonds. ____________________ 1,284 105,849,150,000

Total stocks and bonds ______________________________________________4,325 631,833,403,000

Bonds on the New York Stock Exchange Included 47 U.S. Government and New York State and City Issues WIth $73,903,178,000aggregate market value.

The New York Stock Exchange and American Stock Exchange

figures were reported by those exchanges. There was no duplication

of issues between them. The figures for all other exchanges were for

the net number of issues appearing only on such exchanges, excluding the many issues which were also traded on one or the other of the

New York exchanges. The number and market value of issues as

shown excluded those suspended from trading and a few others for

______•_________________

_________•___ ____

• __________________________________________

•___________________________________

•
44 SECURITIES AXD EXCHAI\GE Co.MMISSION

which quotations were not available. The number and market value

as of December 31, 1961, of preferred and common stocks separately

was as follows:

Preferred stocks Common stocks

Number Market value Number Market value

Listed on registered exchanges 575 $8, 980, 105,000 2,198 $401,085,368, 000 All other stocks G_______________________________ 50 457,666,000 218 15,461,114, 000

I 625 9,437,771,000 2,416 416, 546. 482, 000

G Stocks admitted to unlisted trading privrleges ani)" or listed on exempted exchanges.

The New York Stock Exchange has reported aggregate market

values of all stocks thereon monthly since December 31, 1924, when

the figure was $27.1 billion. The American Stock Exchange has

reported December 31 totals annually since 1936. Aggregates for

stocks exclusively on the remaining exchanges have been compiled

as of December 31 annually by the Commission since 1948.

Share values on eectumaee, in billions of dollars

New York American EXclUSiVelyl December 31 each year Stock Stock on other Total G

Exchange Exchange exchanges

1936 . . $59.9 $14 8 ----_._----. $74 7 1937_.• . . .• ._ .. 38.9 10.2 .----------- 49 1 1q38 ._ .• . ... •. _. _. _" -. -. 47 5 10 8 58 3 1939 _. . . •. _. . 46 5 10 1 56 6 1940 _., _. . .. . . 41 9 8 6 .----------- 50.5 1941 . . 35 8 7.4 ---.-------. 43 2 1942 . . •. . _. _. ._ 38.8 7.8 --------- ...-. 46 6 1943. . . . . _. .. ._ 47 6 9 9 ---.-------. 57.5 1944 . . . .. _._ .• . 55.5 11 2 -----------. 66 7 1945 . . . . •.. . •. 73.8 14. 4 88 2 1946 .. _. •. . _. .• 68.6 13 2 -.-.-------- 81 8 1947 .. ._ .. •. . .. . 68 3 12 1 ----.--$3-ii. 80 4 1948. _. . •. . 67 0 11 9 81. 9 1949._. ._. . . ._. -_ 76 3 12 2 3 1 91 6 1950___. ______.• ____. ___________. _____. _____. ______.. ___ 93 8 13 9 3 3 111 0 1951_____.. _____. _____. ___•. _. _______•. _' ____.. _________ lOll 5 16 5 3 2 129 2 1952 . . .. . .. 120 5 16.9 3.1 140 5

I~JJ:1[[~111111:i[;;;:[;\[;1111

117 3 15.3 2 8 135 4

169 1 22.1 3.6 194.8

207 7 27.1 4 0 238 8

219 2 31 0 3 8 254 0

195 6 25.5 3.1 224 2

276.7 31. 7 4 3 312 7

307.7 26.4 4.2 338 4

307 0 24 2 4 1 335 3

387.8 33.0 5 1 426 0

Total values 193&-47inclusive are for the New York Stork Exchange and the American Stock Exchange

only

Fiscal Year Share Values and Volumes

The aggregate market values of all stocks on the exchanges as of

.Tune 30 annually, and the volumes of shares traded on the exchanges

in years to -Iune 30, hare been as follows:

____• __________• __

______________________________ ________ ___• ________

__________• ________ __ _____ ____ ___________

__ ________ ___ _- _ _- - _- _- _- - - - --- ---------~-- __• ___' _______ __ ____• _______ _______• __• ____ ------------ _____• __• _______ __• __________ ____ _____ ____ ____ ____________ _________________• __________• _____

_____• _____ ____• __ ____ _________• ______ ___

_____ ____ __ ___________ ________• __• __ _____ _____• __ ____ __• _____ _________ _______• ____

__ _______ ____ ___• __ _______________ ____ ___ _ ------------ ___ ___• ______• ___• _____ ____ ____• _______ __

___ ___• __________ _______ __ ____ ____ ___• __ _____• _________________ ___ _____ ___• __' _______

______ ________ ________________ ___ ___-- _

_____ _____• ________' ___ ____ __• _________ _____ _

•
TWEXTY-EIGHTH AXXUAL REPORT 45

lone 30 Volumes In years to Jone30

values

(bllUons)

Sbare volume Dollar volume

1955 -------. --.---- $222.8 1,324,383,000 $36, 878, MO, 000 1956___________________________________________________________ 250.0 1,217,935,000 36, 226, 682, 000 1957___________________________________________________________ 262.0 1,210,807,000 32, 929, 671, 000 1958___________________________________________________________ 257.9 1,209,274,000 30, 862, 129, 000 1959___________________________________________________________ 337.6 1,806.810,000 61, ~77. 195, 000 1960. __________________________________________________________ 327.8 1,456,919,000 47,795,837,000 1961. __________________________________________________________ 381.0 I, 971, 608, 000 67,029,271,000 1962. 330.0 I, 796, 8111,000 58, 348, 768, 000

The June 30 values were as reported by the New York Stock Exchange and as estimated for all other exchanges. Volumes include

shares, warrants and rights. Comprehensive statistics of volumes on

exchanges are included among the appendix tables in this Annual

Report.

Aggregate market values over the years are not strictly comparable,

since they do not indicate to what extent they reflect new listings,

mergers into listed companies, and removals from listing. The net

increment from these sources during the year ending June 30, 1962,

may be estimated at 4 to 5 billion dollars.

Foreign Stock on Exchanges

The market value on December 31, 1961, of all shares and certificates representing foreign stocks on the stock exchanges was reported

at about $13.8 billion, of which $12.7 billion represented Canadian and

$1.1 billion represented other foreign stocks. These figures include

the total market value of the Canadian stock issues traded on the

exchanges; most of the other foreign stocks were represented by

American Depositary Receipts or American shares, only the outstanding amounts of which were used in determining market value.

Foreign steeles on exchanges

Canadlan Other foreign Total Dec. 31, 1961

Issues Value Issues Value Issues Value

Excbanges: New York $5, 217, 161,000 ________________ 12 12 $894, 192, 000 24 $6,111,353,000 Amerlcau _________________ 103 7,434,040,000 39 213,832,000 142 7,647,872,000 Otbers only _______________ 1 1,057,000 2 8,600,000 3 9,657,000

Net total _______________ 116 12, 652, 258, 000 53 I, 116,624,000 169 13, 768, 882, 000

The number of foreign stocks on the exchanges has declined somewhat in recent years, owing principally to a reduction in issues traded

on the American Stock Exchange from 152 in 1956 to 142 in 1961.

Trading in foreign stocks has fallen from 42.4 percent of the reported

share volume on this Exchange in 1956 to 17.8 percent in 1961.

-

_________________________________________ -

_____________• ______•• ______________________________• _____
46 SECURITIES AND EXCHANGE COMMISSION

Trading in foreign stocks on the New York Stock Exchange was

about 3.4 percent of the reported share volume thereon in 1956 and

about 2.8percent in1961.

Reported volumes in foreign shares during 1961 included about

74,200,000Canadian and 12,800,000other foreign shares on the American Stock Exchange and about 10,200,000 Canadian and 18,100,000

other foreign shares on the New York Stock Exchange. The 87

million share volume on the American was over 3 times the 28,300,000

share volume on the New York Stock Exchange. However, in view

of the higher average share prices on the latter Exchange, its dollar

volume in the foreign shares would appear to have exceeded that on

the American Stock Exchange.

Comparative Exchange Statistics

The number of stocks on the New York Stock Exchange and on the

American Stock Exchange has continued to increase, and the aggre.

gate number of stocks exclusively on the other exchanges has continued to decline inrecent years.

Net number of stook» on elCchanges

New York American Exclusively Total

June 30 Stock Stock on other stocks on Excbange Excbange exchanges exchanges

1940 -_ 1,242 1,079 1,289 3,610 1945 ... -_I 1,293 895 951 3,139

mL:::::: ::::::::::::::::::::::::::::::::::::::::I 1,484 179 775 3,038

1,543 815 686 3,044

I5t= :===:: :====== ========:: :::========= =:: :== I

1,532 931 555 3,018

1,546 977 619 8,042

1,565 1,033 493 8,091

Aggregate share values on the New York Stock Exchange have

become an increasing proportion of total share values on all the exchanges, at least since 1948, when our series on total share values on

the exchanges was established.

Share values on el1Jchanges. in percentages

New York American Exclusively DecemberSl Stock Stock on otber

Exchange Exchange exchanges

1948. . _. _. . _._. 81.81 14. 58 8.66 1950 . ._. 84.50 12.52 2.98 1952 . •. .• ., "_"'_ .• _" _. 85.77 12.02 2 21 1954._._ _. .• .• _. . _. _. •. _. 86.81 11.84 1.85 1956 "_"'" e ,_ 86.80 12.20 r.so 1958 _._. _.,._. ._. _. ._. 88.49 10.14 1.37 1960_ .... -. _._ ••.•••• -.-. --" 91.56 7.22 1.22

The ratio of share volume on the regional exchanges to the total on

all exchanges has continued to decline over the years. The regional

exchange percentage of dollar volume has remained fairly constant.

In the following presentation, shares, warrants and rights are in-

_____• _______________________ -------------------- ________________• _ _____________________________

= =======

___• _________________' ___• ___• ____••••• __ ___••• ____ __• _____ ______________• ___• __________ ___• ________________••• _•••

__ _ __• __ _• ______ • __ _•• ______•••••••••••• ___• ••• ____•• __ ____ _•• ___• ___• ___ __• _ _•• _• _____•

•••••• ____• ___ •••• ••••••••••••• ______ •• •••••• , __ •• ____

••• _••• __' ___••••• __• __ _•• __• __• ________•• __•• _

•• _•• _ •• _•• _ _•• _••• _•• __ -•• - •••••• " __"
TWENTY-EIGHTH ANNUAL REPORT 47

eluded. Annual data since 1935 are shown in an appendix table in

this Annual Report.

Annual sales 0/ stock on ewchanges

Peroont of share volume Percent of dollar volume Calendar year

New York American All other New York American All other

1940___________________________

194fi___________________________ 7544 1320 11.36 85.17 7.68 7.M

65 87 21.31 12.82 82 75 10 81 644 1950._________________________ 76.32 13.04 10 14 85.91 685 724 1950 ___________________________ 68.85 19 19 11.96 86 31 6.98 671 1960___________________________ 68. 48 22.27 925 83 81 9.35 684 1961.________________ 6!.99 25 58 943 82.44 1071 685 1st 6 months 1%2.. __::::::::: 09.87 21.31 8.82 85 51 704 6.95

Comparative Over-The-Counter Statistics

So far as can be ascertained from the standard securities manuals

and from reports to the Commission, there are about 4,165 stocks

with 300 holders or more, of about 3,840 domestic companies, quoted

only in the over-the-counter market. The aggregate market value of

these stocks on December 31, 1961, was about $105.8 billion. TIns

number ineludes a few instances where it was assumed, because of

active dealer interest, that there were 300 holders or more.

The $105.8 billion market value included $26.2 billion for bank

stocks, $22.1 billion for insurance stocks, and $57.5 billion for industrial, utility, and other miscellaneous stocks. Stock issued by

registered investment companies was not included in this compilation.

Substantial percentages of over-the-counter stocks are ordinarily

held by officers, directors, and other controlling persons, and in some

instances the percentages are extreme. For example, Western Electric

Company stock, which has recently come to have over 300 holders, has

added about $8.7 billion market value to the group of stocks issued by

companies not reporting to the Commission. However, 99.82 percent of such stock was held by American Telephone and Telegraph

Company and only about $15.7 million was in public circulation.

Over-the-counter stocks referred, to in the teet, as 0/ Dec. 81, 1961

stocks Issuers Market values

Reporting pursuant to section 15(d): Miscellaneous __________________________________________________ Insurance _______________________________________________________ 1,737 1,045 $31,132,640,000 117 108 5, 634, 340, 000 Reporting for other reasonsr- Miscellaneous ________________________ 134 111 4, 608, 950, 000

1,988 1,764 41,375.930,000

Not reporting to the Commission: MisceIJaneous ._ _. _._. '_' 1,189 1,096 21,747.927,000 Insurance ••_____________________ •_______________________________ 171 165 16, 525, 250, 000 Banks i 817 815 26, 178, 400, 000

--- I 2,177 2,076 64.451,577,000

Total. ------------.-----1 4,165 3,840 105,827,507.000

Th_ eompanlCII have other issues listed on stock exohaneee.

= •• _••••• _•• _______ •••••••• _' __ __• _____

___________ -- __---------------- ____-- ------ ____________-- -

_________________________________•

•
48 SECURITIES AND EXCHANGE COMMISSION

In addition to the stocks mentioned above, there is a large number

of actively quoted stocks of companies so small as not to require continuous reporting to the Commission, and whose coverage by the

standard securities manuals is generally limited to brief announcements of the circumstances of the offerings. Their number was in

excess of 1,000 on December 31, 1961, at which time they constituted

about 25 percent of the actively quoted stocks in the National Quotation Bureau services.

A comprehensive view of the number of securities quoted over-thecounter at anyone time is afforded by data supplied by the National

Quotation Bureau, which is the principal purveyor of over-the-conntel' quotations in the United States. The following table shows the

number of stocks quoted in the daily service and the corresponding

aggregate number of dealer listings, as reported for a day at approximately January 15th annually.

Number of stocks and dealer listings on or about January 15th

Stocks. Dealer listings

1959

196(1- . .

1961. .. 1962 .

6,121

6,551

6,918

8,127

23,964

25,950

28,270

35,050

The number annually since 1925is shown ou p 72of our 26th Annual Report (1960).

About half of the stocks show substantial concentration of dealer

listings, including both bids and offers. Many of the remainder are

quoted only on the bid side, indicating sporadic dealings, and some

are listed on domestic or Canadian stock exchanges.

Reporting Under Section 15(d)

Issuers reporting pursuant to Section 15(d) of the Exchange Act

continue to increase in number despite the numerous reductions occasioned by listing on the exchanges or absorption into other companies by purchase of assets or mergers. They increased from 2,017on

December 31, 1960,to 2,435on December 31, 1961. The 2,435reporting

issuers included 1,720 having $42.5 billion aggregate market value of

stocks. The remaining 715 issuers included partnerships, voting

trusts duplicative of listed shares, stock purchase and employees savings plans, companies with only bonds in public hands, registered

investment companies, and numerous issuers for whose shares no quotation was available, including a considerable number registering in

1961but not offering their shares until 1962.

_

• __' _

_

_

•
TWENTY-EIGHTH ANNUAL REPORT

188uer8reporting under 8ection 15(d) ae of Dec. 31,1961 a

49

Stocks Issuers Market values

OverMiscellaneous the counter: ___________________________________________________ 1,737 1,545 $31, 132, 640, 000 Insurance _______________________________________________________ 117 108 6, 634, 340, 000 Forelgn _________________________________________________________37 34 2, 181, 900, 000

---1,891 1.687 38, 948, 880, 000

--- On stock M exchanges' • iscellaneous ___________________________________________________30 28 708, 400, 000 Insurance _______________________________________________________3 3 1,267,000.000 Foreign _________________________________________________________2 2 I, 532, 400, 000

---35 33 3,507,800,000

TotaL ________________________________________________________ ---1,926 1,720 42, 456, 680, 000

Includes only Issuers WIth stocks for which quotations were available . These issuers had stocks with only unlisted trading privileges on exchanges. They also had 31 stocks

aggregatmg $937,440,000 which were only over the counter, and which have been mcluded In the over-the- counter showing of stocks and market values above

DEUSTING OF SECURITIES FROM .E¥CHANGES

Applications may be made to the Commission by exchanges to

strike any securities or by issuers to withdraw their securities from

listing and registration on exchanges pursuant to Rule 12<12-1(b)

under Section 12(d) of the Exchange Act. During the fiscal year

ended June 30, 1962, the Commission granted applications by

exchanges and issuers to remove 60 stock issues and 45 bond issues

from listing and registration. There were 64 total stock removals,

since 4 stocks were each delisted by 2 exchanges. The number of

issuers of stock involved was 54. The removals were as follows:

A.pplications filed by:

New York Stock Exchange

~erican Stock Exchange

Boston Stock Exchange

:Midwest Stock Exchange

Pacific Coast Stock Exchange

Pittsburgh Stock Exchange

Salt Lake Stock Exchange

San Francisco Mining Exchange Issuers

Stock Bond

issues issues

23 44

6 0

2 1

6 0

11 0

1 0

8 0

3 0

4 0

Total__________________________________________________ 64 45

In accordance with the practice in recent years, nearly all of the

delisting applications were filed by exchanges. Only four of the

applications were filed by issuers, in each instance for the purpose of

reducing multiple expenses by delisting from one exchange stocks

which remained listed on other exchanges.

The applications by exchanges were based on factors such as

limited distribution, sale of assets, or precarious financial condition.

The 45 bond issues were all of foreign origin, including 17 issues of

61211~

•

•

_

_

_

_

_

_

_

_

_
50 SECURITIES AND EXCHANGE CO:MMISSION

"iron-curtain" countries suspended from trading in 1941, and 28

small residues of offers in exchange and settlement. The 23 stock

delistings by the New York Stock Exchange were in accordance with

its delisting criteria established in 1914, and expanded from time to

time thereafter. During the year, it obtained complete observance

of its policy requiring solicitation of proxies for meetings of stockholders. The eight delistings by the Salt Lake Stock Exchange

resulted from its adoption on February 16, 1962, of new requirements for retention of listed status. The American Stock Exchange

on April 5, 1962, adopted new delisting rules and criteria with

respect to lack of earnings, limited distribution of securities and disposal of principal operating assets.

DeIisting Proceedings Under Section 19(a)

Section 19(a) (2) authorizes the Commission to suspend for a period

not exceeding 12 months, or to withdraw, the registration of a security

on a national securities exchange if, in its opinion, such action is necessary or appropriate for the protection of investors and, after notice

and opportunity for hearing, the Commission .findsthat the issuer of

the security has failed to comply with any provision of the Act or the

rules and regulations thereunder. The following table indicates the

number of such proceedings with which the Commission was concerned during the 1962 fiscal year.

Proceedings pending at the beginning of the fiscal year________________ 3

Proceedings initiated during the fiscal year__________________________ 1

4

Proceedings terminated during the fiscal year:

By order withdrawing security from registration_________________ 2

2

Proceedings pending at the end of the fiscal year_____________________ 2

Section 19(a) (4) authorizes the Commission summarily to suspend

trading in any registered security on a national securities exchange

for a period not exceeding ten days if, in its opinion, such action is

necessary or appropriate for the protection of investors and the

public interest so requires. During the 1962 fiscal year the Commission found it necessary and appropriate in four instances to use its

authority to suspend summarily trading in securities registered on a

national securities exchange. All of these suspensions remained in

effect at the end of the fiscal year. In addition, two of the three suspensions which were in effect at the beginning of the fiscal year

remained in effect at the end of the fiscal year.

One of the two cases in which an order was issued under Section

19(a) (2) during the fiscal year withdrawing securities from registration on a national securities exchange is described below.
TWENTY-EIGHTH ANNUAL REPORT 51

Consolidated Development Corporation.- Registrant, a Delaware

corporation organized in 1956under the name of Consolidated Cuban

Petroleum Corporation to engage in the operation, development and

production of oil and gas in Cuba, registered its common stock on

the American Stock Exchange in 195-6. It adopted its present name

in 1959, after the petroleum ventures had sustained severe financial

losses. Itthen decided to engage in the acquisition and development

of real estate in the State of Florida.

Registrant admitted that it had violated Section 13 of the Exchange

Act and rules thereunder, in that its application for registration of

its common stock on the exchange, its annual reports for the years

1956 through 1959, inclusive, and a number of current reports filed or

required to be filed were inaccurate or inadequate. Among other

things, the reports failed to set forth that registrant exchanged stock

with three corporations in which officers and directors of registrant

were promoters, officers, directors, and major stockholders; that it

issued stock to certain persons in Cuba for oil leases and services;

and that in the years 1956 through 1959, several controlling shareholders and officersdisposed of a large amount of stock of registrant,

which was not registered under the Securities Act, to residents of

and broker-dealer firms in the United States.

Further, registrant admitted that its reports were materially

inaccurate in representing that all sales and exchanges of 2,147,457

shares of outstanding stock were made in Cuba and did not require

registration under the Securities Act as not involving public offerings in the United States, and in representing that it had 1,086stockholders when in fact it had only about 766. Registrant also omitted

to disclose that in November 1959, a new Cuban law was published

cancelling all applications for petroleum exploration and exploitation

concessions, permitting continuation of explorations in progress where

certain minimum drilling requirements were met and providing for

payment to Cuba of a 60 percent royalty on petroleum produced, and

the effect of such law on registrant's operations.

On the basis of these and other deficiencies the Commission issued

an order withdrawing the registrant's common stock from registration on the exchange, which had suspended trading in the stock in

December 1959.1

UNUSTED TRADING PRIVILEGES ON EXCHANGES

Stocks with only unlisted trading privileges on exchanges continued to decline in number, falling from 212 on June 30,1961, to 187

on June 30, 1962. The American Stock Exchange accounted for 12

1Securities Exchange Act Release No. 6672 (November 24,1961).
52 SECURITIES AND EXCHANGE COMMISSION

of the 25 removals. This Exchange now applies to its unlisted issues

the same requirements for retention as it applies to listed issues, pursuant to rules and criteria established April 5, 1962. The Pacific

Coast Stock Exchange also accounted for 12 removals, leaving only

5 stocks remaining in the unlisted category on that exchange. The

distribution of unlisted stocks and share volumes among the exchanges

is shown in Appendix Table 8 of this report.

The reported volume of trading on the exchanges in stocks with

only unlisted trading privileges, for the calendar year 1961,was about

45,427,000shares or about 2.1 percent of the total share volume of all

the exchanges. About 83.2 percent of this volume was on the American Stock Exchange, 15.3 percent was on the Pacific Coast Stock

Exchange, and three other exchanges contributed the remaining

1.5 percent. The share volume in these stocks was about 6.9 percent

of the total share volume on the American Stock Exchange and about

10.8 percent of that on the Pacific Coast Stock Exchange in the

calendar year 1961.

Unlisted trading privileges on some exchanges in stocks listed and

registered on other exchanges numbered 1,532 on June 30, 1962. The

volume of unlisted trading in these stocks, for the calendar year 1961,

was reported at about 57,900,000shares. About one-fifth of this volume was on the American Stock Exchange in stocks listed on regional

exchanges, and about four-fifths was on regional exchanges in stocks

listed on the New York or American Stock Exchanges. While the

57,900,000 shares amounted to only about 2.7 percent of the total

share volume on all the exchanges, they constituted substantial portions of the shares traded on the leading regional exchanges, reaching

about 78 percent on Boston, 12 percent on Philadelphia-Baltimore, 68

percent on Cincinnati, 53 percent on Detroit, 44 percent on Pittsburgh,

::10percent on Midwest, and 17 percent on Pacific Coast Stock

Exchange.

Applications for Unlisted Thading Privileges

Applications by exchanges for unlisted trading privileges in stocks

listed on other exchanges, made pursuant to Rule 12f-1 under Section

12(f) of the Exchange Act, were granted by the Commission during

the fiscal year ended June 30, 1962,as follows:

Number

01 stocks

9

1

1

Total__________________ 85

Stock exchange-Con.

Philadelphia-Baltimore

Pittsburgh

Spokane

Number

Stock exchange: 01 stocks

Boston 24

Cincinnati 10

I>etroit 24

~idvvest 12

Pacific COasL_____________ 4

_

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TWENTY-EIGHTH ANNUAL REPORT 53

During the fiscal year, the Commission granted applications by the

American Stock Exchange pursuant to Rule 12f-2 under Section

12(f) of the Exchange Act for continuance of unlisted trading, on

the ground of substantial equivalence, in the stock of Dominion Tar

& Chemical Co., Ltd., after the number of its shares was more than

doubled through offers of exchange for other common stocks, and in

the stock of Wagner Baking Corporation in substitution for voting

trust certificates upon expiration of the voting trust.

BWCK DISTRIBUTIONS REPORTED BY EXCHANGES

The usual method of distributing blocks of listed securities considered too large for the auction market on the floor of an exchange

is to resort to "secondary distributions" over the counter after the

close of exchange trading.

In an effort to keep as much as possible of this business on their

floors, Special Offering Plans were adopted by leading exchanges

commencing in 1942, and the somewhat more flexible Exchange Distribution Plans commencing in 1953. The plans, declared effective

by this Commission, include an exemption from the anti-manipulative

Rule 10b-2, as set forth in paragraph (d) thereof, with respect to

payment of compensation in connection with the distribution of

securities.

The largest number of Special Offerings was 87 in 1944,with $32,-

454,000aggregate value. The number has declined through the years,

there being only two in 1961,aggregating $1,503,750.

Block distributions reported, by exchanges

Number I Sbares In I Sbares sold I offer

12 months ended Dec 31, 1961.

Value

Special offerings

Exchange dtstrtbunons

Secondary distributlons

35, ()(J() I 35, ()(J() I $1,503,750 1,229,811 1,127,266 58,072,418

19,575,631 19,910,013 1l26,514, 2114

6 months ended June 30, 1962

Special offermgs

Exehange dtstributtons

Secondary distributions ~I 366,043 11, 400 I

6,933,570

11, 400 j $458, 850 323, 165 9,010, 256

6,064,711 365,916,367

Details of tbese distributions appear In the Commission's monthly Btatrstleal Bulletins. Data for prior

years are sbown In an appendix table In this Annual Report.

The largest number of Exchange Distributions was 57 in 1954,compared with 33 in 1961. However, the $58,072,418total in 1961 was

considerably larger than in any previous year.

Secondary distributions, as reported since 1942, reached a peak of

$926,514,000during the calendar year 1961. Totals for recent half-

_

_

_

_

_

_

•
54 SECURITIES AND EXCHANGE COMMISSION

year periods were $455,764,000for the first 6 months and $366,572,-

000 for the last 6 months of 1959, $176,345,000and $248,343,000for

the respective periods in 1960, $559,924,000and $366,590,000for 1961,

and $365,915,000 for the first 6 months of 1962. The $559,924,000

total for the 6 months ending June 30, 1961 is the largest on record.

<, MANIPULATION AND STABILIZATION

Manipulation

The Exchange Act describes and prohibits certain forms of manipulative activity in any security registered on a national securities

exchange. The prohibited activities include wash sales and matched

orders effected for the purpose of creating a false or misleading

appearance of trading activity in or with respect to the market for

any such security; a series of transactions intended to raise or depress

the price of such security or to create actual or apparent active trading for the purpose of inducing purchases or sales of such security by

others; circulation by a broker, dealer, seller, or buyer, or by a person

who receives consideration from a broker, dealer, seller or buyer, of

information concerning market operations conducted for a rise or a

decline in the price of such security; and the making of any false

and misleading statement of material information by a broker, dealer,

seller, or buyer regarding such security for the purpose of inducing

purchases or sales. The Act also empowers the Commission to adopt

rules and regulations to define and prohibit the use of these and other

forms of manipulative activity in any security registered on an

exchange or traded over the counter.

The Commission's market surveillance staff in its Division of Trading and Exchanges in Washington and in its New York Regional

Office and other field offices observes the tickertape quotations of

securities listed on the New York Stock Exchange and on the American Stock Exchange, the sales and quotation sheets of the various

regional exchanges, and the bid and asked prices published by the

National Quotation Bureau for about 6,000 unlisted securities to

observe any unusual and unexplained price variations or market

activity. The financial news ticker, leading newspapers, and various

financial publications and statistical services are also closely followed.

When unusual and unexplained market activity in a security is

observed, all known information regarding the security is examined

and a decision made as to the necessity for an investigation. Most

investigations are not made public so that no unfair reflection will be

cast on any persons or securities and the trading markets will not be

upset. These investigations, which are conducted by the Commission's regional offices,take two forms. A preliminary investigation

or "quiz" is conducted to rapidly discover evidence of unlawful

,
TWENTY-EIGHTH ANNUAL REPORT 55

activity. If it appears that more intensive investigation is necessary,

a formal order of investigation, which carries with it the right to

issue subpoenas, is issued by the Commission. If violations by a

broker-dealer are discovered, the Commission may institute administrative proceedings to determine whether or not to revoke his registration or suspend or expel him from membership in the National

Association of Securities Dealers, Inc., or from a national securities

exchange. The Commission may also seek an injunction against any

person violating the Exchange Act and it may refer information

obtained in its investigation to the Department of Justice recommending that persons violating the Act be criminally prosecuted. In some

cases, where state action seems likely to bring quick results in preventing fraud or where Federal jurisdiction may be doubtful, the

information obtained may be referred to state agencies for state

injunctive action or criminal prosecution.

The following table shows the number of quizzes and formal investigations pending at the beginning of fiscal 1962, the number initiated

in fiscal 1962, the number closed or completed during the same period,

and the number pending at the end of the fiscal year:

Trading investigations

Quizzes Formal In- vestigattons

Pending June 30, 196L 91 16 Inltlated ____________________________________________________________________ 76 5

TotaL 167 21

Closed or completed during f1sea1 year _______________________________________ 84 9 Changed to formal during f1sea1 year. 5

TotaL 89 9

Pending at end or f1sea1 year 78 12

When securities are to be distributed to the public, their markets

are watched very closely to make sure that the price is not unlawfully

raised prior to or during the offering period. Registered offerings

numbering 1,815,having a value of over $19 billion, and 1,065offerings

exempt under Section 3(b) of the Securities Act, having a value of

about $237 million, were so observed during the fiscal year. Other

offerings numbering 141, such as secondary distributions and distributions of securities under special plans filed by the exchanges, having

a total value of $382million, were also kept under surveillance.

Stabilization

Stabilization involves open-market purchases of securities to prevent or retard a decline in the market price in order to facilitate a

distribution. It is permitted by the Exchange .Act subject to the

_________________• ____________________________________

______________________________________________________• __________

___• ____________________________________ -------------- ____• ___• __________•• ___••• _________• _________• __________________

••• __••••• _•• _____•_______•• _____________________
56 SECURITIES AND EXCHANGE COMMISSION

restrictions provided by the Commission's Rules 10b-6, 7, and 8.

These rules are designed to confine stabilizing activity to that necessary for the above purpose, to require proper disclosure and to prevent

unlawful manipulation.

During 1962 stabilizing was effected in connection with stock offerings totaling 65,028,432 shares having an aggregate public offering

price of $1,536,800,426 and bond offerings having a total offering

price of $153,991,500. In these offerings, stabilizing transactions resulted in the purchase of 1,803,713 shares of stock at a cost of

$46,092,610and bonds at a cost of $2,069,243. In connection with the

stabilizing transactions, 10,241 stabilizing reports showing purchases

and sales of securities effected by persons conducting the distribution

were received and examined during the fiscal year.

INSIDERS' SECURITY HOLDINGS AND TRANSACTIONS

Section 16 of the Act is designed to prevent the unfair use of information by directors, officers and principal stockholders by giving

publicity to their security holdings and transactions and by removing

the profit incentive in short-term trading by them in securities of their

company. Such persons by virtue of their position may have

knowledge of the company's condition and prospects which is unavailable to the general public and may be able to use such information to

their personal advantage in transactions in the company's securities.

Provisions similar to those contained in Section 16 of the Act are also

contained in Section 17 of the Public Utility Holding Company Act of

1935and Section 30 of the Investment Company Act of 1940.

Ownership Reports

Section 16(a) of the Securities Exchange Act requires every person

who is a direct or indirect beneficial owner of more than 10 percent of

any class of equity securities (other than exempted securities) which

is registered on a national securities exchange, or who is a director or

officer of the issuer of such securities, to file reports with the Commission and the exchange disclosing his ownership of the issuer's

equity securities. TIllS information must be kept current by the filing

of subsequent reports for any month in which a change in his ownership occurs. Similar reports are required by Section 17(a) of the

Public Utility Holding Company Act of officers, and directors, of

public utility holding companies and by Section 30(f) of the Investment Company Act of officers, directors, principal security holders,

members of advisory boards and investment advisers or affiliated

persons of investment advisers of registered closed-end investment

companies.
TWENTY-EIGHTH ANNUAL REPORT 57

Ownership reports are available for public inspection at the Commission's officein Washington and those filed under Section 16(a) of

the Securities Exchange Act may also be inspected at the appropriate

exchange. In addition, for the purpose of making the reported information available to interested persons who may not be able to inspect

the reports in person, the Commission summarizes and publishes such

information in a monthly "Official Summary of Security Transactions and Holdings," which is distributed by the Government Printing

Office on a subscription basis. Subscriptions to this publication

exceed 16,000.

During the fiscal year, 42,983 ownership reports were filed, as compared with 40,869 reports filed during the 1961 fiscal year. The

number of reports filed has more than doubled during the past 10

yeai-s-21,061 reports having been filed during the 1952 fiscal year.

Recovery of Short-Swing Trading Profits by Issuer

In order to prevent insiders from making unfair use of information which may have been obtained by reason of their relationship

with a company, Section 16(b) of the Securities Exchange Act, Section 17(b) of the Public Utility Holding Company Act, and Section

30(f) of the Investment Company Act provide for the recovery by

or on behalf of the issuer of any profit realized by insiders from

certain purchases and sales, or sales and purchases, of securities of

the company within any period of less than 6 months. The Commission has certain exemptive powers with respect to transactions not

comprehended within the purpose of these provisions, but is not

charged with the enforcement of the civil remedies created thereby.

REGULATION OF PROXIES

Scope of Proxy Regulation

Under Sections 14(a) of the Securities Exchange Act, 12(e) of the

Public Utility Holding Company Act of 1935, and 20(a) of the

Investment Company Act of 1940,the Commission has adopted Regulation 14 requiring the disclosure in a proxy statement of pertinent

information in connection with the solicitation of proxies, consents

and authorizations in respect of securities of companies subject to

those statutes. The regulation provides, among other things, that

when the management is soliciting proxies, any security holder desiring to communicate with other security holders for a proper purpose

may require the management to furnish him with a list of all security

holders or to mail his communication to security holders for him.

A security holder may also, subject to reasonable prescribed Iimita-
58 SECURITIES AND EXCHANGE COMMISSION

tions, require the management to include in its proxy material any

appropriate proposal which such security holder desires to submit

to a vote of security holders. Any security holder or group of security holders may at any time make an independent proxy solicitation

upon compliance with the proxy rules, whether or not the management is making a solicitation.

Copies of proposed proxy material must be filed with the Commission in preliminary form prior to the date of the proposed solicitation. Where preliminary material fails to meet the prescribed disclosure standards, the management or other group responsible for

its preparation is notified informally and given an opportunity to

avoid such defects in the preparation of the proxy material in the

definitive form in which it is furnished to stockholders.

Statistics Relating to Proxy Statements

During the 1962 fiscal year, 2,259 proxy statements in definitive

form were filed under the Commission's Regulation 14: for the solicitation of proxies of security holders; 2,253 of these were filed by

management and 6 by nonmanagement groups or individual stockholders. These 2,259 solicitations related to 2,135 companies, some

124 of which had more than 1 solicitation during the year, generally

for a special meeting not involving the election of directors.

There were 2,063 solicitations of proxies for the election of directors, 183 for special meetings not involving the election of directors,

and 13 for assents and authorizations for action not involving a

meeting of security holders or the election of directors.

In addition to the election of directors, the decisions of security

holders were sought through the solicitation in the 1962 fiscal year

of their proxies, consents and authorizations with respect to the

following types of matters:

Mergers, consolidations, acquisitions of businesses, purchases and sales of

property, and dissolutions of companies______________________________ 139

Authorizations of new or additional securities, modifications of existing

securities, and recapitalization plans (other than mergers, consolidations, et~)__________________________________________________________ 346

Employee pension and retirement plans (including amendments to existing plans)__________________________________________________________ 44

Bonus, profit-sharing plans and deferred compensation arrangements (including amendments to existing plans and arrangements)______________ 41

Stock option plans (including amendments to existing plans)_____________ 273

Stockholder approval of the selection by management of independent

auditors____________________________________________________________ 934

Miscellaneous amendments to charter and bylaws, and miscellaneous other

matters (excluding those involved in the preceding matters) 453
TWENTY-EIGHTH ANNUAL REPORT 59

Stockholders' Proposals

During the 1962fiscal year, 44 stockholders submitted a total of 242

proposals which were included in the 122 proxy statements of 122

companies under Rule 14a-8 of Regulation 14.

Typical of such stockholder proposals submitted to a vote of security holders were resolutions relating to amendments to charters or

bylaws to provide for cumulative voting for the election of directors,

limitations on granting stock options and their exercise by key

employees and management groups, sending a postmeeting report

to all stockholders, changing the place of the annual meeting of

stockholders, and the approval by stockholders of management's selection of independent auditors.

The managements of 25 companies omitted from their proxy statements under the Commission's Rule 14a-8 a total of 62 additional

proposals submitted by 25 individual stockholders. The principal

reasons for such omissions and the numbers of times each such reason

was involved (counting only one reason for omission for each proposal

even though it may have been omitted under more than one provision

of Rule 14a-8) were as follows:

(a) 22 proposals were withdrawn by the stockholders;

(b) 14 proposals were not a proper subject matter under state

law;

(c) 11 proposals related to the ordinary conduct of the company's business;

(d) 6 proposals involved the election of directors;

(e) 3 proposals concerned a personal grievance against the

company;

(f) 3 proposals involved substantially the same matters as had

previously been submitted to security holders;

(g) 2 proposals were not timely submitted;

(h) 1 proposal and reasons therefore was deemed misleading.

Ratio of Soliciting to Nonsoliciting Companies

Of the 2,388 issuers that had securities listed and registered on

national securities exchanges as of June 30, 1962, 2,221 had voting

securities so listed and registered. Of these 2,221 issuers, 6 listed and

registered voting securities for the first time after their annual stockholders' meeting in fiscal 1962; of the remaining 2,215 issuers with

voting securities, 1,807,or 82 percent, solicited proxies under the Commission's proxy rules during the 1962 fiscal year for the election of

directors.
60 SECURITIES AND EXCHANGE COMMISSION

Proxy Contests

During the 1962 fiscal year, 17 companies were involved in proxy

contests for the election of directors. A total of 253 persons, both

management and nonmanagement, filed detailed statements as participants under the requirements of Rule 14a-11. Proxy statements in

10 cases involved contests for control of the- board of directors and

those in 7 cases involved contests for representation on the board.

Management retained control of the board of directors in 4 of the

10 contests for control, 1 was settled by negotiation, nonmanagement

persons won 3 and 2 were pending as of June 30, 1962. Of the 7 cases

where representation on the board of directors was involved, management retained all places on the board in 5 cases.

INVESTIGATIONS

Section 21(a) of the Act authorizes the Commission to make such

investigations as it deems necessary to determine whether any person

has violated or is about to violate any provision of the Act or any

rule or regulation thereunder. The Commission is authorized, for this

purpose, to administer oaths, subpoena witnesses, compel their attendance, take evidence and require the production of records. In addition

to the investigations undertaken in enforcing the anti-fraud, brokerdealer registration, and other regulatory provisions of the Act, which

are discussed in Part XI of this report under "Complaints and Investigations," the following investigations were undertaken in enforcing

the reporting provisions of Sections 12, 13, 14 and 15(d) of the Act

and the rules thereunder, particularly those provisions relating to the

filing of annual and other periodic reports and proxy material:

Investigations pending at beginning of the fiscal year______________ 27

Investigations initiated during the fiscal year______________________ 13

40

Investigations closed during the fiscal year_____________________________ 19

Investigations pending at the close of the fiscal year 21

REGULATION OF BROKER-DEALERS AND OVER-THE-COUNTER

MARKETS

Registration

Section 15(a) of the Securities Exchange Act of 1934 requires the

registration of all brokers and dealers who use the mails or instrumentalities of interstate commerce to effect or induce transactions in

securities in the over-the-counter market. Brokers and dealers conducting an exclusively intrastate business or dealing only in exempted

securities, commercial paper, commercial bills or bankers' acceptances

are exempt from registration.
TWENTY-EIGHTH ANNUAL REPORT 61

The table below sets forth statistics on broker-dealer registrations

and applications for fiscal 1962.

Effective registrations at close of preceding flseal year 5,500

.Applications pending at close of preceding fiscal year 126

.Applications filed during fiscal year 1,133

Total 6,759

.Applications denied__________________________________________________ 2

.Applications withdra wn_____________________________________ 15

.Applications cancelled________________________________________________ 0

Registrations withdra wn____ __ 705

Registrations cancelled____________________ _____ 43

Registrations revoked________________________________________________ 47

Registrations suspended______________________________________________ 5

Registrations effective at end of fiscal year 5,868

.Applications pending at end of fiscal year______________________________ 81

Total 6,766

Less: Suspended registrations revoked during year_____________________ .7

Total 6,759

.29 registrations were In suspension at close of the fiscal year.

Administrative Proceedings

The Commission is given the power to deny or revoke the registration of a broker-dealer by Section 15(b) of the Securities Exchange

Act. An order of denial or revocation will be issued, after notice and

opportunity for hearing, if the Commission finds that such sanction

is in the public interest and the applicant or registrant, or any partner, officer, director, or other person directly or indirectly controlling

or controlled by the applicant or registrant is subject to a statutory

disqualification. The statutory disqualifications are:

(1) willful false or misleading statements in the application for

registration or document supplemental thereto;

(2) conviction within the previous 10 years of a felony or misdemeanor involving the purchase or sale of securities or arising out of

the conduct of business as a broker-dealer;

(3) injunction by a court of competent jurisdiction against engaging in any practices in connection with the purchase or sale of

securities; and

(4) willful violation of the Securities Act of 1933 or the Securities Exchange Act of 1934 or any of the Commission's rules or

regulations thereunder.

The Commission has no authority to deny or revoke registration

without finding a disqualification of the types set forth. Therefore,

bad reputation or character, or inexperience in the securities business,
62 SECURITIES AND EXCHANGE COMMISSION

or even conviction of a felony unrelated to transactions in securities

is not a basis for ordering denial or revocation of registration.

Section 15A of the Securities Exchange Act empowers the Commission to suspend or expel a broker-dealer from membership in a

registered securities association upon a 'finding of violation of the

Federal securities laws or regulations thereunder. The National Association of Securities Dealers, Inc. ("NASD"), is the only such

association. Section 19(a) (3) of the Act gives the Commission

power to take similar action against members of national securities

exchanges. .

Pursuant to the provisions of Section 15A(b) (4) of the Securities

Exchange Act, in the absence of Commission approval or direction,

no broker or dealer may be admitted to or continued in membership

in the NASD if the broker or dealer or any partner, officer,director, or

controlling or controlled person of such broker or dealer was a

cause of any order of denial or revocation of registration or suspension or expulsion from membership which is in effect. An individual

named as a cause often is subject to one or more statutory disqualifications under Section 15(b) and his employment by any other brokerdealer thus could also become a basis for broker-dealer revocation or

denial proceedings against such employer.

Set forth below are statistics on administrative proceedings instituted during fiscal 1962 to deny and revoke registration and to

suspend and expel from membership in an exchange or the NASD.

Proceedings pending at start of fiscal year to :

Revoke registration_______________________________________________ 51

Revoke registration and suspend or expel from N.ASD or exehangesc., 61

Deny registration________________________________ 12

Total proceedings pending at start of fiscal year__________________ 124

Proceedings instituted during fiscal year to :

Revoke registration______________________________________________ 29

Revoke registration and suspend or expel from N.ASD or exchanges.,., 55

Deny registration________________________________________________ 11

Total proceedings instituted____________________________________ 95

Total proceedings current during fiscal year_____________________ 219

Disposition of proceedings:

Proceedings to revoke registration:

Dismissed on withdrawal of registration___________________________ 1

Registra tion revoked_____________________________________________ 27

Registration cancelled____________________________________________ 2

Total__________________________________________________________ 30
TWENTY-EIGHTH ANNUAL REPORT 63

Proceedings to revoke registration and suspend or expel from NASD or

exchanges:

Registration revoked_____________________________________________ 15

Registration revoked and firm expelled from NASD_________________ 5

Dismissed on withdrawal of registration___________________________ 2

Suspended from NASD___________________________________________ 1

Partner of firm suspended from stock exchange____________________ 1

Total ~---------_______ 24

Proceedings to deny registration:

Registrationdenied_______________________________________________ 2

Dismissed on withdrawal of application____________________________ 1

Total__________________________________________________________ 3

Total proceedings disposed of___________________________________ 57

Proceedings pending at end of fiscal year to :

Revoke registration______________________________________________ 50

Revoke registration and suspend or expel from :KASD or exehanges.,., 92

Deny registration__________________ 20

Total proceedings pending at end of fiscal year 162

Total proceedings accounted for_________________________________ 219

Revocation and Denial Proceedings

The cases in which the Commission revoked or denied brokerdealer registrations during the 1962fiscal year are briefly summarized

at the end of this section of the report, with the exception of a few

cases of unusual interest or significance which are set forth in some

detail in the following paragraphs:

Rosensonand Baumann.- The Commission found that registrant,

a partnership, and its two partners, directly and through various

salesmen, made numerous misrepresentations in the sale of nonvoting common stock of North American Finance Company, which

had been organized by the partners. Respondents recruited inexperienced young men as salesmen, provided no program of instruction for them, and directed them to concentrate their sales efforts on

unsophisticated persons and to use high pressure selling methods. In

addition, the Commission found that a registration statement filed by

North American falsely stated that the financial statements which

were included had been examined by an independent public accountant, when in fact the accountant who certified the financial statements

was not independent, since he had served as North American's principal bookkeeper so that his certification was merely an authentication

of his own accounting procedures. The Commission held that the two

partners, who signed the registration statement as directors and prin-
64 SECURITIES AND EXCHANGE COMMISSION

cipal officers of North American and who admittedly controlled that

company, knew or should have known that the accountant was not

independent, and that, by filing an untrue registration statement, they

willfully violated those Sections of the Securities Act which specify

the information to be included in a registration statement and prospectus. Respondents had been enjoined from offering or selling North

American stock in violation of the registration or anti-fraud provisions of the Securities Acts. On the basis of the injunction, the

willful violations and respondents' consent, the Commission revoked

registrant's registration and found each of the partners a cause of

the revocation."

Theodore A. Landau, doing business as Landau Company, and

Scott Taylor & Co., Inc.-The registrations of both firms were

revoked because of manipulative practices in the sale of Anaconda

Lead & Silver Company stock. Scott Taylor, before acquiring a large

block of Anaconda stock from Landau and proceeding to a retail distribution, had asked Landau to insert quotations for the stock in the

daily sheets of the National Quotation Bureau, Inc. In March and

April 1959, blocks of stock of Anaconda, which had been an inactive

company since 1952, were sold at 15 cents and 20 cents per share.

Landau inserted bids, generally at $4.25 per share, in the daily sheets

from April to mid-August 1959, and Scott Taylor made a distribution of the Anaconda shares in at least 29 states. The Commission

found that Scott Taylor represented that the stock was being offered

at the market when in fact the market was one made and controlled

by Scott Taylor or by Landau. The Commission further found that

Scott Taylor violated Rule 10b-6 under the Exchange Act by placing

bids for the stock through an intermediary while distributing it.

Sales were made by Scott Taylor through long distance telephone

solicitations in which purchasers were not informed that Anaconda

had been inactive since 1952,and that it had no income, machinery or

equipment and practically no funds. Scott Taylor and Stephen N.

Stevens, its president, consented to revocation of Scott Taylor's registration and a finding that Stevens was a cause of the revocation, based

on the market manipulation and on false and misleading statements

made in the sale of the stock. Landau's registration was revoked

because of his participation in creating a false impression of market

activity in the stock and he was also held responsible for Scott

Taylor's acts in furtherance of the fraudulent enterprise.'

Aldrich, Scott & Co., Inc.-In this proceeding, the registrant and

Edward L. Benedict, Jr., who owned 80 percent of its stock and was its

Securities Exchange Act Release No. 6684 (Dec. 15, 1961).

Securities Exchange Act Release No. 6792 (Aprll 30, 1962).

•

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TWENTY-EIGHTH ANNUAL REPORT 65

president at the time, admitted violations of the anti-fraud provisions

of the Securities Acts and of the Commission's net capital requirements and consented to revocation of registrant's registration and a

finding that Benedict was a cause of such revocation. The principal

issue was whether Walter Scott Aldrich, who was registrant's vicepresident, secretary, and director and a 20 percent stockholder during

the time of the violations, should also be found a cause. Aldrich

contended, among other things, that he was inexperienced in the

securities business and did not take an active part in registrant's

business during this period. The Commission rejected his contention

and found him a cause of registrant's revocation. It held that he was

accountable for registrant's engaging in the securities business while

insolvent and with a net capital deficiency, stating that a principal

officer,director, and stockholder of a registered broker-dealer has at

the least a duty to keep himself informed of the registrant's financial

condition and to take those steps necessary to insure compliance with

the Exchange Act,"

False and misleading statements made in the sale of securities in

willful violation of the anti-fraud provisions of the Securities Acts

were the bases for revocation of broker-dealer registrations in Murray

Securities Corporation,S Barclay Securities Corporations' Lindsay

Securities Corporation/ Hanover Securities Corporation (formerly

known as Webster Securities Corp01'ation),S Irving Kastner,9 Biltmore Securities Corp./o D. H. Victor &: Company, lnc.,ll Luther L.

Bost; doing business as L. L. Bost Company/2 Francis J. Brenek: and

Co., Inc./3 Jacwin &; Costa,14J[ichael J. Bogan, Jr., doing business as

M. J. Bogan, Jr. &: CO.,15and for denial of registration in Union

Securities (Iorporationr"

Willful violation of both the anti-fraud and securities registration

provisions were the bases for revocation in International Investments,

Inc.,17 Empire Underwriters Corporation, Inc.,ls C. H. Abraham &:

Securities Exchange Act Release No. 6597 (.July 18. 1961).

Securities Exchange Act Release No. 6635 (Sept. 22, 1961).

Securities Exchange Act Release No 6648 (Oct. 9, 1961).

'Securities Exchange Act Release No. 6649 (October 9,1961).

Securities Exchange Act Release No. 6659 (Oct. 25, 1961)

Securities Exchange Act Release No. 6659 (Oct. 25, 1961).

reSecurities Exchange Act Release No. 6673 (Nov. 24,1961).

11 Securities Exchange Act Release No. 6700 (Jan. 5, 1962).

12 Securities Exchange Act Release No. 6703 (Jan. 8. 1962).

13 Securities Exchange Act Release No. 6735 (Feb. 20,1962).

"Securities Exchange Act Release No. 6788 (Apr. 24, 1962).

's Securities Exchange Act Release No. 6810 (May 23,1962).

1. Securities Exchange Act Rplease No. 6749 (May 23,1962).

11 Securities Exchange Act Release No. 6598 (.July 18, 1961) .

.. Securities Exchange Act Release No. 6651 (Oct. 10, 1961).

672175--6.3-6

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66 SECURITIES AND EXCHANGE COMMISSION

00., Inc./9 A. G. Bellin Securities Oorp., 20 Phoenix Securities OOrp.,21

L. J. Mack ill Oompany, Inc.,22 Oarlton Securities, Inc.,23 Philip Newman Associates, Inc.,24 and Allstate Securities, Inc.25 The registration

of D. Earle Hensley 00., Inc.26 was revoked because, among other

things, registrant had engaged in the securities business before becoming registered as a broker-dealer, made misrepresentations in the sale

of its stock, misappropriated customers' funds and securities, and was

enjoined from various acts and practices.

'Willful violation of the securities registration provisions was the

principal basis for revocation in Pauline Zipperman; doing business as

German American Trading 00mpany,27 and Rockwell Securities 001'-

poration/s where the registrant had also been enjoined against further

violations of such provisions.

The use of customers' funds or securities for registrant's own purposes, accompanied in most cases by willful violations of the Commission's net capital rule or the anti-fraud provisions of the securities

acts by broker-dealers doing business while insolvent, were the causes

of revocation in Miller Smith ill 00., Inc.,29 Ohampion &: 00., Inc.,so

and Florida Underwriting and Securities Services Oorp.": The registration of Dayton Oompany S2 was revoked because it improperly

hyopthecated customers' securities and in addition failed to disclose

a controlling person in its registration application. Willful violation

of the net capital requirements was a basis for revocation in Lambert,

M. W., Inc.,sB H. S. Simmons ill 00., Inc.,s4 Strand Investment Oompany,35 Whitney ill Oompany, Inc.,36 and Auld &- 00., Lno." In the

last-named case, the registrant was also found to have made false

statements in the financial statement filed with its registration application and in an annual financial report.

111 Securities Exchange Act Release No. 6652 (Oct. 10, 1961).

20 Securltles Exchange Act Release No. 6654 (Oct. 18, 1961).

21 Securities Exchange Act Release No. 6657 (Oct. 25, 1961).

22 Securities Exchange Act Release No. 6658 (Oct. 25, 1961)

.. Securities Exchange Act Release No. 6661 (Oct. 31,1961) .

.. Securities Exchange Act Release No. 6708 (Jan. 17, 1962)

.. Securities Exchange Act Release No. 6733 (Feb. 14, 1962) .

.. Securities Exchange Act Release No. 6611 (Aug. 4, 1961).

:IT Securities Exchange Act Release No. 6804 (May 15. 1962) .

.. Securities Exchange Act Release No. 6751 (Mar. 9,1962) .

.. Securities Exchange Act Release No. 6663 (Oct. 31,1961).

aoSecurities Exchange Act Release No. 6687 (Dec. 26,1961).

31 Securities Exchange Act Release No. 6789 (Apr. 24,1962) .

.. Securities Exchange Act Release No. 6616 (Aug. 17, 1961).

lI# Securities Exchange Act Release No. 6633 (Sept. 21,1961)

.. Securities Exchange Act Release No. 6662 (Oct. 1, 1961)

.. Securities Exchange Act Release No. 6705 (Jan. 10, 1962) .

.. Securities Exchange Act Release No. 6787 (Apr. 24, 1962).

If Securities Exchange Act Release No. 6618 (Aug. 21.1961).

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TWENTY-EIGHTH ANNUAL REPORT 67

Failure to file required financial reports, coupled in some instances

with failure to amend the application for registration to reflect changes

of names or business address, caused revocation of the broker-dealer

registrations of Robert Lee Long, 38 Howell, Kraft &: Cummings, I nc.,39

William Douglas Bradford,40 Benjamin Brown Gilbert, doing business

as Gilbert &: CO.,41and William Conley Grafton:" Registration was

revoked or denied because of false and misleading statements in the

application for registration or statements of financial condition supplemental thereto, and failure to correct them in subsequent amendments

in Long Island Securities Co., Inc.,43 and Harry James Van Buskirk,

doing business as Associated Loan Counsellors." Failure to maintain

current and accurate books or to produce them for Commission inspection were among the grounds resulting in revocation in Quinn, Neu &:

00., Inc.,45 and Vincent Associates, Ltd.46 Filing a misleading annual

financial report was the basis for the revocation of the registration of

Norman Lemmons, IncY Willful violations of Regulation T of the

Board of Governors of the Federal Reserve System regulating the

extension of credit by brokers and dealers were the basis for revocation

in Empire Securities 0orporation. 48 The registration of Gibbs &I Company 49 was revoked on the basis of a permanent injunction against

further violations of the anti-fraud and recordkeeping provisions of

the securities acts and Regulation T.

Suspension Proceedings

Section 15 (b) of the Securities Exchange Act authorizes the

Commission to suspend a broker-dealer's registration pending final

determination as to whether registration should be revoked. In order

to suspend registration, the Commission must find, after notice and

opportunity for a hearing, that suspension is necessary or appropriate

in the public interest or for the protection of investors. The registrations of five broker-dealers were suspended during the past fiscal year

after hearings at which the evidence revealed that they were engaging

.. Securities Exchange Act Release No. 6602 (July 20,1961) .

.. Securities Exchange Act Release No. 6599 (July 20,1961) .

.. Securities Exchange Act Release No. 6603 (July 25, 1961).

C1 Securities Exchange Act Release No. 6603 (July 25,1961)

.. Securities Exchange Act Release No. 6616 (Aug. 17,1961) .

.. Securities Exchange Act Release No. 6612 (Aug. 4,1961) .

.. Securities Exchange Act Release No. 6612 (Aug. 4,1961) .

.. Securities Exchange Act Release No. 6650 (Oct. 9, 1962) .

.. Securities Exchange .ActRelease No. 6806 (May 16, 1962).

<f Securities Exchange Act Release No. 6725 (Feb. 7, 1962).

.. Securities Exchange Act Release No. 6791 (Apr. 27, 1962)

.. Securities Exchange Act Release No. 6717 (Jan. 29,1962).

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68 SECURITIES AND EXCHANGE COMMISSION

in serious misconduct." To prevent further harm to investors the

Commission determined that it was in the public interest to suspend

those registrations pending determination of the question of revocation. The entry of a suspension order is not determinative of the ultimate questions of willful violations or revocation itself.

Other Sanctions

In one instance during the fiscal year the Commission suspended a

registrant from membership in the National Association of Securities

Dealers, Inc. for a period of 30 days." In addition to revoking their

registrations, the Commission also expelled the following broker-dealers from the NASD: Barclay Securities Oorporationr? O. H. Abraham mOo., Inc.,53 D. H. Victor &: Oompany, Inc.,54 Luther L. Bost,

doing business as L. L. B08t 00mpany,55 and Allstate Securities, Inc. 56

In Oady, Roberts &: 00.,57 the Commission suspended Robert M.

Gintel, a partner of this New York Stock Exchange member, from

the exchange for 20 days. Gintel had placed shares of Curtiss-

",Yright Corporation stock in the discretionary accounts of about 30

customers of registrant. On November 25, 1959, the Curtiss-Wright

directors voted for a reduced dividend for the fourth quarter. A

registered representative of Cady, Roberts, who was a director of

Curtiss-Wright, called registrant's office with the news before the

dividend reduction was made public on the exchange. Immediately

on receiving this information Gintel entered two orders on the exchange, one to se112,000shares of Curtiss-Wright for 10 customers' accounts, the other to sell 5,000 shares short for 11 accounts. These

orders were executed on the exchange before news of the dividend cut

appeared there on the Dow Jones Ticker Service. 'When the news was

made public the exchange suspended trading in Curtiss-Wright stock

because of the large number of sell orders and when trading resumed

the price was approximately $3.'15per share lower.

00 Alexander Reid & 00., Inc., Securities Exchange Act Belease No. 6727 (Feb. 8. 1962) ;

Fred L. Oan:alho, doing business as Oapital Investment 00., Securities Exchange Act

Release No. 6741 (Feb. 21, 1962) ; Johnston & 00., Securities Exchange Act Release No.

6760 (Mar. 22. 1962) ; Brown, Barton & Engel, Securities Exchange Act Release No. 6821

(June 8, 1962) ; and Smythe Bouiere, Hilliard tE 00., Inc., Securities Exchange Act Release

No. 6831 (June 20, 1962). The U.S. Court of Appeals for the Third Circuit, subsequent

to the end of the fiscal year, denied a motion of Brown, Barton & Engel to stay the

effectiveness of the suspension order pending determination of an appeal from that

«rder, (C.A. 3, Civil No. 14,080.)

6t Brown, Barton & Engel, Securities Exchange Act Release No. 6751 (Mar. 9, 1962).

.. Securities Exchange Act Release No. 6648 (Oct. 9, 1961).

58 Securities Exchange Act Release No. 6652 (Oct. 10. 1961).

.. Securities Exchange Act Release No. 6700 (Jan. 5, 1962).

.. Securities Exchange Act Release No. 6703 (Jan. 8, 1962).

.. Securities Exchange Act Release No. 6733 (Feb. 14, 1962).

51 Securities Exchange Act Release No. 6668 (Nov. 8, 1961).
TWENTY-EIGHTH ANNUAL REPORT 69

The Commission held that under the circumstances Gintel's conduct operated as a fraud and deceit upon the purchasers from his

customers' accounts and constituted a willful violation of the antifraud provisions of the securities acts. It found that Gintel had the

responsibility of an "insider" to disclose material facts which were

known to him by virtue of his position but which were not known to

persons with whom he dealt and which, if known, would have affected

their investment judgment. The Commission said that the director

of Curtiss-Wright who had informed Cady, Roberts of the dividend

cut would have been prohibited from selling the securities without

disclosure, and that by logical sequence Gintel, a partner of registrant, was also prohibited from selling without disclosure. Gintel

argued that his sales after receiving news of the dividend action were

part of a continuing program of liquidating the Curtiss-Wright holdings in his discretionary accounts and that he was carrying out a

fiduciary responsibility to his customers. The Commission rejected

these arguments. Itfound that Gintel's sales after receiving the news

were in contrast to his previous moderate rate of sales of CurtissWright stock, and that he allocated short sales to his wife's account

and to the account of a customer with whom he had had no prior

dealings. The Commission ruled that although Gintel occupied a

fiduciary relationship to his customers, that relationship could not

justify his use of inside information at the expense of the general

public. With respect to the argument that a disclosure requirement

applicable to exchange transactions would present substantial practical difficulties, the Commission stated that such problems are easily

avoided where, as here, all the registered broker-dealer need do is to

keep out of the market until the established procedures for public

release of the information on the exchange are carried out. The

Commission took no action against the registrant because it found

that there was no evidence of a preconceived plan to "leak" the advance information, that Gintel had acted spontaneously, and that

registrant had had no opportunity to prevent the transactions.

Net Capital Rule

The basic purpose of Rule 1503-1, promulgated by the Commission

under Section 15(c) (3) of the Exchange Act, is to safeguard funds

and securities of customers dealing with registered broker-dealers.

This rule, commonly known as the net capital rule, limits the amount

of indebtedness which may be incurred by a broker-dealer in relation

to its capital. It provides that the "aggregate indebtedness" of a

broker-dealer may not exceed 20 times the amount of its "net capital"

as computed under the rule,
70 SECURITIES AND EXCHANGE COMMISSION

If it appears from an examination of the reports filed by a registered broker-dealer with the Commission, or through inspection of its

books and records, that the ratio is exceeded, the Commission normally

notifies the broker-dealer of the deficiency and affords an opportunity

for compliance. Unless the capital situation is promptly remedied,

injunctive action may be taken by the Commission and in addition

proceedings may be instituted to revoke the broker-dealer's registration. During the past fiscal year, violations of the net capital rule

were charged in 25 injunctive actions and in 23 revocation proceedmgs instituted against broker-dealers.

Registered broker-dealers who participate in "firm commitment"

underwritings must have sufficient capital to permit the participation

provided by the underwriting contract without impairing the capitaldebt ratio prescribed by the rule. For the protection of issuers and

customers of the broker-dealer, the Commission's staff carefully analyzes the latest available information on the capital position of the

participants to determine whether they will be in compliance with the

rule upon assumption of the new obligations involved in the underwritings. Acceleration of the effective date of registration statements

filed under the Securities Act will be denied where underwriting commitments may engender violations of the net capital rule by any

participating underwriter. A participant found to be inadequately

capitalized to take down his commitment is notified and given an

opportunity to adjust his financial position to meet the requirements

of the rule without reducing his commitments. If he is unable to

meet such requirements, he must decrease his "firm commitment" until

compliance with the rule is reached. If necessary he may have to withdraw from the underwriting or participate on a "best efforts" basis

only.

Financial Statements

Rule 17a-5 under Section 17 (a) of the Exchange Act requires

registered broker-dealers to file annual reports of financial condition

with the Commission. Such reports must be certified by a certified

public accountant or public accountant who is in fact independent,

with certain specified limited exemptions applicable to situations

where certification does not appear necessary for customer protection.

Under certain circumstances member firms of national securities

exchanges are exempt from the necessity of certification and an exemption is available for a broker-dealer who, since his previous report, has

limited his securities business to soliciting SUbscriptions as an agent

for issuers, has transmitted funds and securities promptly, and has

not otherwise held funds or securities for or owed monies or securities

to customers. Also exempt is a broker or dealer who, from the date of
TWENTY-EIGHTH ANNUAL REPORT 71

his last report, has confined his business to buying and selling evidences of indebtedness secured by liens on real estate and has carried

no margin accounts, credit balances or securities for any customers.

After his registration, a broker-dealer's first financial report must

reflect his condition as of a date between the end of the 1st and 5th

months after the effecive date of the registration. All reports must

be filed within 45 days after the date as of which the report speaks.

Through these reports the Commission and the public may evaluate

the financial position and responsibility of broker-dealers. The financial report is one means by which the staff of the Commission determines whether the registrant is in compliance with the net capital rule.

Failure to file the required reports may result in the institution of

revocation proceedings. However, it is the policy of the Commission

first to advise the broker-dealer of his obligations under the rule and

to give him an opportunity to filethe report.

During the fiscal year 5,228 reports of financial condition were

filed with the Commission compared to the 1961 total of 5,060.

Broker-Dealer Inspections

Section 17(a) of the Exchange Act provides for regular and periodic inspections of registered broker-dealers. During the fiscal year

the number of such inspections totaled 1,515. The inspection device

is a most useful instrument in protecting investors and detecting violations of the Federal securities laws. The inspection, among other

things, determines a broker-dealer's financial condition, reviews his

pricing practices, evaluates the safeguards employed in handling customers' funds and securities, and determines whether adequate and

accurate disclosures are made to customers.

The Commission's inspectors also determine whether brokers and

dealers are keeping books and records as required by the Exchange

Act and the Commission's rules thereunder and conforming to the

margin and other requirements of Regulation T of the Federal Reserve Board. Inspectors also look for excessive trading or switching

in customers' accounts. Inspectors frequently find evidence of the

sale of unregistered securities or of fraudulent practices such as use

of improper sales literature or sales techniques.

When inspections reveal that a broker-dealer is violating the

statutes or rules, consideration is given to the type of violation and

the effect on the public. The Commission does not take formal action as a result of every infraction discovered. Inspections frequently reveal inadvertent violations which are discovered before becoming

serious and before customers' funds or securities are in danger. When

no harm has come to the investing public the registrant is informed

of the violations and advised to correct the improper practices. If
72 SECURITIES AND EXCHANGE COMMISSION

the violation appears to be willful and the public interest is best

served by formal action against the broker-dealer, the Commission

will institute appropriate proceedings.

The table below shows the types of infractions uncovered by the

inspection program during the fiscal year:

Type Number of broker3

Financial difficulties________________________________ 204

IIypothecation rules__________________________________________________ 15

Unreasonable prices in securities purchases and sales__________________ 188

Regulation T of the Federal Reserve Board____________________________ 181

"Secret profit" 6

Confirmation and bookkeeping rules___________________________________ 889 Other________________________________________________________________ 315

Total indicated violations 1, 798

The National Association of Securities Dealers, Inc., and the

principal stock exchanges also conduct inspections of their members,

and some states have inspection programs. Each inspecting agency

conducts inspections in accordance with its own procedures and with

particular reference to its own regulations and jurisdiction. Consequently, inspections by other agencies are not adequate substitutes

for Commission inspections since they are not primarily concerned

with the detection of violations of the Federal securities laws and the

Commission's regulations. These other inspection programs, however.

do afford added protection to the public. The Commission and certain other inspecting agencies coordinate their inspections to avoid

duplication and to obtain the widest possible coverage of brokers and

dealers. This program, however, does not prevent the Commission

from inspecting any broker-dealer that has also been inspected by another agency, and such inspections are made whenever reason therefor exists. Agencies now participating in this coordination program

include the New York Stock Exchange, the American Stock Exchange, the Boston Stock Exchange, the Midwest Stock Exchange,

the Pacific Coast Stock Exchange, the Philadelphia-Baltimore Stock

Exchange, the Pittsburgh Stock Exchange, and the National Association of Securities Dealers, Inc.

SUPERVISION OF ACTIVITIES OF NATIONAL ASSOCIATION OF

SECURITIES DEALERS, INC.

Section 15A of the Securities Exchange Act of 1934, known as the

Maloney Act, provides for the registration with the Commission of

national securities associations and establishes standards for such as.

sociations, The rules of such associations must be designed to promote

just and equitable principles of trade, to prevent fraudulent and rna-
TWENTY-EIGHTH ANNUAL REPORT 73

nipulative acts and practices and to moot other statutory requirements. Such associations are essentially disciplinary in purpose and

serve as a medium for the cooperative self-regulation of over-thecounter brokers and dealers. They operate under the general supervision of this Commission which is authorized to review disciplinary actions and decisions which affect the membership of members,

or of applicants for membership, and to consider all changes in their

rules. The National Association of Securities Dealers, Inc. (NASD),

is the only Association registered under the Act.

In adopting legislation permitting the formation and registration

of such associations, Congress provided an incentive to membership

by permitting such associations to adopt rules which preclude a member from dealing with a nonmember, except on the same terms and

conditions as the member affords the investing public. The NASD

has adopted such rules. Accordingly, membership is necessary to the

profitable participation in underwritings and over-the-counter trading since members may properly grant price concessions, discounts

and similar allowances only to other members. Loss or denial of

membership due to expulsion or suspension or other ineligibility due

to a statutory disqualification, or to failure to meet standards of qualification established in NASD rules, thus imposes a severe economic

sanction.

Membership in the NASD reached an all time month-end high of

4,925 at June 30,1962. During the year net membership increased by

314, as a result of 721 admissions to and 407 terminations of membership. At. the same time there were registered with the NASD as

registered representatives 102,405individuals, also an all time monthend high, including generally all partners, officers,traders, salesmen,

and other persons employed by or affiliated with member firms in

capacities which involved their doing business directly with the public. The number of registered representatives increased by 8,365during the year as a result of 25,510 initial registrations, 15,014 reregistrations and 32,159terminations of registrations.

NASD Disciplinary Actions

The Commission receives from the NASD summaries of decisions

in all disciplinary actions against members. Each such action

must be based on allegations that a member has violated specified provisions of the NASD Rules of Fair Practice, although registered

representatives of members and persons controlling or controlled by

members may also be cited for having boon the cause of a violation.

Where violations are found one or more of the available sanctions

may be imposed. These include expulsion or suspension from membership, revocation or suspension of registration as a registered rep-
74 SECURITIES AND EXCHANGE COMMISSION

resentative, fine and censure. An individual may also be found to

have been the cause of a violation and of the penalty imposed on another party for such violation. Such a cause finding can have farreaching effects, particularly in the case of expulsion or suspension of

a member from membership or suspension or revocation of registration

as a registered representative. A person found to be a cause of

suspension or expulsion from membership cannot be employed by

any NASD member while such suspension expulsion is in effect, except

with the approval of the Commission. Where an individual should

have been, but was not, registered as a representative, a finding that

the unregistered person was a cause of an effective expulsion, suspension or revocation acts as a disqualification from membership, or control of or by a member, just as if such a penalty had been imposed

directly on the person found a cause. In many cases more than a

single penalty may be imposed; thus, expulsion, suspension or revocation might be accompanied by a fine and/or censure. In cases where

the penalty is a fine, censure is customarily added.

All decisions by district business conduct committees of the NASD

are reviewable by the NASD board of governors on its own motion,

or on the timely application of an aggrieved party. On review the

board may affirm, modify, or reverse such decisions or remand them

for further consideration.

During the year the Association reported to the Commission its

final disposition of 411 disciplinary complaint actions against 368

different member firms and 196 registered representatives. 58 With respect to 49 members and 26 representatives, complaints were dismissed

on the basis of findings that the allegations had not been sustained.

Violations were found, and some penalty was imposed, with respect to

362 members and 170 representatives.

The maximum penalty of expulsion from membership was imposed

in 47 decisions (one member being expelled in each of two decisions),

and 9 members were suspended from membership for periods ranging

from 15 days to 2 years. Fines ranging from $50 to $5,000 were imposed on members in 236 cases, including 6 in which members were

suspended and 2 in which members were expelled. In '78 cases the

only penalty was censure, although members subjected to fines were

usually also censured.

Registered representatives found in violation of Association rules

were also subjected to a wide variety of sanctions. The registrations

of 74 representatives were revoked and 19 were suspended for periods

ranging from 15 days to 2 years. Nine representatives were found to

.. A total of 34 members was Involved In 2 reported cases each; 3 were Involved In 8;

and 1 was Involved In 4.
TWENTY-EIGHTH ANNUAL REPORT 75

have been causes of penalties imposed on their firms. Fines ranging

from $50 to $5,000 were imposed on 33 representatives, including 5

whose registrations were suspended and 9 whose registrations were

revoked. Censure was the only penalty imposed on 49 representatives

found in violation.

The NASD decisions during the year included 168 solely involving

the NASD's so-called "free-riding" interpretation which states, in

essence, that a member who fails to make a bona fide public offering of

securities acquired for distribution is in violation of the NASD Rules

of Fair Practice." In 15 of these "free-riding" cases, the complaints

were dismissed. With respect to the remainder, fines ranging from

$50 to $4,000 were imposed on members in 110 cases, while censure was

the only penalty in the other 43 cases. Registered representatives

were named as respondents in only 9 "free-riding" cases. In 1 such

case, 13 representatives were named, but the allegations as to them

were dismissed, although the firm was fined. Eight representatives

were fined amounts ranging from $500 to $5.000, and 6 of these were

also suspended for periods ranging from 30 days to 6 months.

Commission Review of NASD Action on Membership

Section 15A(b) of the Act and the bylaws of the NASD provide

that, except where the Commission finds it appropriate in the public

interest to approve or direct to the contrary, no broker or dealer may

be admitted to or continued in membership if he, or any controlling or

controlled person, is under any of the several disabilities specified in

the statute or the bylaws. By these provisions Commission approval

is a condition to admission to or continuance in Association membership of any broker-dealer who, among other things, controls or is controlled by a person whose registration as a broker-dealer has been

revoked or who has been and is suspended or expelled from Association membership or from a national securities exchange, or whose

registration as a registered representative has been revoked by the

NASD or who was found to have been a cause of such an effective

order.

A Commission order approving or directing admission to or continuance in Association membership, notwithstanding a disqualification

under Section 15A(b) (4) of the Act, or under an effective Association

rule adopted under that Section or Section 15A(b) (3), is generally

entered only after the matter has been submitted initially to the Association by the member or applicant for membership. Where, after

consideration, the Association is favorably inclined, it ordinarily files

with the Commission an application on behalf of the petitioner. A

.. See First OaUfornw. Oompanll. infra. p. 78.
76 SECURITIES AND EXCHANGE COMMISSION

broker-dealer, however, may file an application directly with the Commission either with or without Association sponsorship. The Commission reviews the record and documents filed in support of the

application and, where appropriate, obtains additional relevant and

pertinent evidence. At the beginning of the fiscal year 3 such petitions were pending before the Commission. During the year 6 petitions ",'ere filed; decisions were issued in 8 cases; and 1 petition was

pending at the year end.

The Commission found it appropriate in the public interest to

approve 6 petitions for continuance in Association membership

notwithstanding employment of a disqualified person.f" In 2 other

decisions the Commission by order remanded the applications to the

Association for reconsideration.

In remanding to the NASD, for further consideration, an application by the Association for approval of the continuance of a firm in

membership while employing N. Sims Organ, the Commission stated,

in an opinion written by Chairman Cary, that such an application

"must be weighed in the light of our basic objective of raising standards in the securities industry."

In March 1961, the Commission had revoked the broker-dealer

registration of a firm of which Organ was president, because of

Organ's "fraudulent conduct" in the sale of Continental Mining Exploration stock in 1958, while he was employed by J. H. Lederer Co.,

Inc., whose registration had been revoked in December 1958. Organ

had represented, among other things, that the Continental stock

would be a "tremendous money-maker" without disclosing that the

company had suffered some $584,000 of losses. In addition to this

prior violation of the Federal securities laws, the Commission took

official notice of the fact that in March 1952, the Ontario Securities

Commission had cancelled Organ's registration as a securities salesman in Canada. In that proceeding, Organ, in direct contradiction

of the other evidence developed, had testified under oath that he did

not make sales across the border to U.S. investors, and the Chairman

of the Ontario Commission had stated, "... his attempt to mislead

the Commission when under oath, fairly indicates the type of representations he would resort to over the telephone, when there is little

risk, if any, of his being held accountable for his actions."

In applying for approval of Organ's employment by the member

firm in question, the NASD took into consideration the fact (among

others) that he would be subject to effective supervisory controls by

60 Securities Exchange Act Releases Nos. 6604 (J"uly 26, 1961) ; 6610 (August 2, 1961) ;

6707 (J"anuary 11, 1962) ; 6766 (March 27, 1962) ; 6783 (April 18, 1962) ; and 6805 (May

15,1962).
TWENTY-EIGHTH ANNUAL REPORT 77

the new employer. In view of the basic objective of improving

standards, the Commission asked: "Would approval now give proper

recognition to the nature of his violations? If standards are to be

raised, can fraud once painfully established through extended proceedings be so swiftly ignored?" In remanding this case, the Commission stated that there should be a "penetrating review" of the

employee's history by the prospective employer, the NASD and the

Commission, and that the nature and activities of the firms with which

he was associated could properly be taken into account in evaluating

his training, experience and character."

The other remanded case concerned an application filed by the

Association seeking approval of the continuance of a member firm in

NASD membership while employing Edgar R. D'Abre as a controlled

person.

D'Abre's registration with the NASD as a registered representative

of another firm was revoked by the NASD in March 1961,because of

certain irregularities, including "free-riding" and the "manufacture"

of fictitious accounts and records in an effort to deceive his former

employer and to conceal violations of NASD rules. "If we accept,

as the NASD apparently did," the Commission stated, "the correctness

of the original findings of the District Business Conduct Committee,

it 'would follow that, insofar as the records reveal, D'Abre has never

been candid with his former employer, his prospective employer, or

the NASD. A securities firm must rely to a considerable extent on the

willingness of responsible employees to disclose their activities

accurately and forthrightly, if it isto properly discharge its important

responsibilities of supervision. If D'Abre is unwilling to make such

disclosures, even now, then it would appear doubtful that he fully

appreciates the professional obligations to his employer and to the

public that further participation in the securities field entails. If so,

the necessary finding that it is in the 'public interest' to approve the

continuance of a firm in membership with D'Abre as a controlled

person can hardly be made. A much different record than the one now

before us will be needed to warrant approval of the application." 62

Commission Review of NASD Disciplinary Action

Section 15A(g) of the Act provides that disciplinary actions by the

NASD are subject to review by the Commission on its own motion or

on the timely application of any aggrieved person. This section also

provides that the effectivenessof any penalty imposed by the NASD is

automatically stayed pending determination in any matter which

01 Securities Exchange Act Release No. 6798 (May 4, 1962).

12 Securities Exchange Act Release No. 6817 (June 8,1962).
78 SECURITIES AND EXCHANGE CO:MMISSION

comes before the Commission for review. Section 15A(h) of the Act

defines the scope of the Commission's review in proceedings to review

disciplinary action of the NASD. If the Commission finds that the

disciplined person engaged in such acts or practices, or has omitted

such acts, as found by the NASD and that such acts, practices, or

omission to act are in violation of such rules of the Association as

have been designated in the determination, and that such conduct

was inconsistent with just and equitable principles of trade, the Commission must dismiss such proceedings unless it finds that the penalties

imposed are excessive or oppressive, having due regard to the public

interest, in which case the Commission must, by order, cancel or reduce

the penalties. At the beginning of the fiscal year 15 such review

cases were pending before the Commission. During the year 9 additional such petitions were filed, and decisions were issued in 9 cases,

certain of which are discussed below, leaving 15 petitions pending at

the year end.

The Commission sustained disciplinary action by the NASD against

First Oalifornia Oompany. The NASD had found that First California had violated the Rules of Fair Practice, in that it had failed to

make a bona fide public offering of shares of stock which it had acquired as a member of a selling group participating in a distribution

of such stock. The NASD had fined the company $500 and assessed

costs of $41.89 against it.

The basic facts, which were not in dispute, showed that First California, as a selling group member participating in a public offering of

Permanent Filter Corporation stock at $15 per share, was allotted

1,500 shares on May 7, 1959, and on that day sold 400 shares at the

$15 offering price to its Employees Profit-Sharing Retirement Plan,

an account in which its officers and employees had a beneficial interest.

The stock was quoted on May 7 at 19 to 19% and on the following day

the high bid was 20%. Thus, on the basis of the low bid on May 7,

there was a potential profit on the 400 shares of $1,600 exclusive of the

price concession to members of the selling group. The shares were

held in the account until August 10, when they were sold at prices of

15% and 15%" representing a profit to the Plan of $22.50.

The NASD rested its determination that its rules were violated

solely on its finding that the amount of stock sold to the Plan,

representing 26.6 percent of the 1,500-share allotment, was disproportionate to that sold to public investors. Thus, the sale was held to be

in violation of the NASD's published interpretation with respect to

"free-riding and withholding" in connection with public distributions

of securities. This announced interpretation was to the effect that a

member is obligated to make a bona fide public offering of securities
TWENTY-EIGHTH ANNUAL REPORT 79

acquired for distribution and that, among other things, sales to

insiders, including accounts in which the member or its officershave an

interest, in excess of their normal investment practice (unless otherwise provided in a prospectus), or withholding or refraining from

making a public offering of all or any part of its participation to make

an extra profit, are contrary to high standards of commercial honor

and just and equitable principles of trade. With respect particularly

to a practice of sales to such accounts primarily of new issues at a

time when they are being quoted or sold above the offering price

(so-called "hot issues"), and therefore may be resold at a profit, the

NASD had pointed out that such a practice is questionable and should

be the subject of careful consideration. A March 1959 clarification of

the policy stated: ". . . it becomes apparent that allotments of a

member's participation in a 'hot issue' to insider accounts (bona fide

investments or other) in disproportionate amounts, as opposed to

allotments to the public, would hardly indicate a genuine effort to sell

such participation to public investors. Consideration should be given

to the fairness of such ratios in the fulfillment of the member's obligation as a participant."

In its decision, representing its first ruling on the NASD's interpretation with respect to "free-riding" in connection with the distribution of a "hot issue," the Commission expressed agreement with the

NASD position that the basic requirement under the NASD's "freeriding" interpretation that a bona fide public offering be made is

violated, regardless of the investment history or normal investment

practice of an insider account, if a sale of a "hot issue" is made to

such an account in an amount which is disproportionate in comparison with the amount being offered to the public by the member. The

effect of such withholding, the Commission observed, is "not only to

give to the insiders the opportunity for a profit on the shares withheld, which appears highly likely under the circumstances, and

thereby deprive public investors of such opportunity, but also to restrict the supply and tend to raise the market price further and enable

the insiders to realize an increased profit upon subsequent sale of the

shares retained by them."

The Commission concluded that the NASD properly found that

the sale by First California to its own Plan account of 26.6 percent of

its allotment of Permanent Filter stock, at a time when the offering

price of these shares was at least $1,600less than the contemporaneous

market price, was disproportionate in relation to the amount sold to

public investors, and that the NASD rules had been violated." It

.. Securities Exchange Act Release No. 6586 (July 6, 1961).
80 SECURITIES AND EXCHANGE COMMISSION

also found that the penalty imposed by the Association was not . . excessive or oppressive,

The Commission sustained an order of the Association which suspended for 12 months the registration of Leonard H. Zigman as a

registered representative. Zigman had appealed the action of the

NASD, which found that he had engaged in a "serious breach" of his

obligations to his employer and as a securities salesman, and that his

conduct was inconsistent with just and equitable principles of trade.

The violation of NASD rules involved the maintenance by Zigman of

an account with his employer in a fictitious name so as to conceal its

true identity and on two occasions allocating to such account portions

of the employer's participation in public offerings being quoted at

above the offering price and immediately thereafter disposing of the

shares at a profit. The Commission rejected Zigman's explanation of

his conduct as an "implausible excuse" and sustained the 12-month

suspension as not excessive or oppressive."

.. Securities Exchange Act Release No. 6701 (January 5, 1962).
PART VI

ADMINISTRATION OF THE PUBUC UTILITY HOLDING

COMPANY ACT OF 1935

In administering the Public Utility Holding Company Act of 1935

the Commission regulates interstate public-utility holding company

systems engaged in the electric utility business and/or in the retail

distribution of gas. The Commission's jurisdiction also extends to

natural gas pipeline companies and other nonutility companies which

are subsidiaries of registered holding companies. Although the matters under the Act dealt with by the Commission and its staff embrace

a variety of intricate and complex questions of law and fact generally

involving more than one area of regulation, briefly there are three

principal regulatory areas. The first covers those provisions of the

Act, contained principally in Section 11(b) (1), which require the

physical integration of public utility companies and functionally related properties of holding company systems and those provisions,

contained principally in Section 11(b) (2), which require the simplification of intercorporate relationships and financial structures of

holding company systems. The second covers the financing operations of registered holding companies and their subsidiaries, the

acquisition and disposition of securities and properties, and certain

accounting practices, servicing arrangements and intercompany

transactions. The third includes the exemptive provisions of the Act,

the provisions covering the status under the Act of persons and companies, and those regulating the right of a person affiliated with a

public utility company to acquire securities resulting in a second such

affiliation. Matters embraced within this area of regulation frequently come before the Commission and its staff. Many such matters do not result in formal proceedings and others are reflected in

such proceedings only in an indirect manner when they are related to

issues principally under one of the other areas of regulation.

The Branch of Public Utility Regulation of the Commission's

Division of Corporate Regulation performs the principal functions

under the Act. It observes and examines problems which arise in

81

6721715--63-7
82 SECURITIES AND EXCHANGE COMMISSION

connection with transactions which are or may be subject to regulation under the Act and discusses such problems with interested persons and companies and advises them as to the applicable sections of

the Act, the rules thereunder and Commission policy with respect

thereto. Questions are raised with and problems are presented to the

staff daily. These include questions raised by security holders and

problems presented by companies contemplating transactions requiring the filing of an application or declaration, particularly financing

operations and the acquisition and disposition of securities and properties. This day-to-day activity includes prefiling discussions and

conferences, in person and by telephone, with company representatives and with other persons where the matter under consideration

affects their interest. Members of the staff of this Division actively

participate in hearings and often aid the Commission in the preparation of its decision on a particular matter. The staff continually reexamines the status of exempt companies, examines the annual

reports filed with the Commission and those sent to stockholders and

must keep abreast of new technical developments in the electric and

gas industry, including the use of atomic energy as a source of power.

COMPOSITION OF REGISTERED HOLDING COMPANY SYSTEMS

At the close of the fiscal year there were 25 holding companies

registered under the Act. Of these, 19 are included in the 17 remaining active registered holding company systems, two of which each

have one subsidiary holding company.' In these 17 active systems,

there are 90 electric and/or gas utility subsidiaries, 40 nonutility

subsidiaries and 13 inactive companies, totaling 162 system companies.

The following table shows the number of holding companies, the number of subsidiaries, classified as utility, nonutility and inactive, in each

of the active systems as of June 30, 1962, and their aggregate assets,

less valuation reserves, as of December 31, 1961, which amounted to

$11,788,576,000 :

1Registered holding companies excluded from the active list are: C. E. Burlingame

Corp.; Colonial Utilities Corp.; British American Utilities Corp.; Kinzna 011 Gas

Corp. and its subholdlng company. Northwestern Pennsylvania Gas Corp.; and Standard

Gas Electric Co.

"

"
TWENTY-EIGHTH ANNUAL REPORT 83

Olassi{ication of companies as of June 30, 1962

Solely Regis- Electric A!tgregate regts- tered and/or Non- Inac- system tered holding. gas utility tlve Tots! assets, less System holding operat- utllJ~ subsld- com- com. valuation eom- Ing subsl larles panles panles reserves at panles com- larles Dec. 31,19611

panles (thousands)

--------- I. Allegheny Power System, Inc ________ 1 1 13 5 2 22 $604,07C 2. American Electric Power Oo., Inc ____ 1 0 12 8 2 23 1,561,11( 3. American Natursl Gas Co ____________ 1 0 2 5 0 8 905,714 4. Central and South West Corp ________ I I 4 1 I 8 767,081 5. Columbia Gas System, Ine., The _____ 1 0 11 8 2 22 1,287,321; 6. Consolidated Natural Gas Co ________ 1 0 4 3 0 8 812,184 7. Delaware Power'" Light Co _________ 0 1 2 0 0 3 210,4114 8. Eastern Utilities Assoetates ___________ 1 0 5 0 2 8 112,764 9. General Pnbllc Utillties Corp ________ 1 0 6 3 0 10 986,456 10. Granite Clty Generating Co. (Voting Trustees) _. I 0 0 0 0 I .397 11. Middle South Utilities, Inc __________ 1 0 5 0 3 9 828,204 12. Nat!onal Fuel Gas Co ________________ 1 0 4 5 0 10 224,268 13. New England Electric System ________ I 0 17 I 0 19 650,571 14. Ohio Edison Co ______________________ 0 1 3 0 0 4 706,753 15. Philadelphia Electric Power Co ______ 0 1 1 0 I 3 39,385 16. Southern Co., The ___________________ 1 0 5 2 0 8 1,497,313 7. Utah Power'" Light Co ______________ 0 1 2 0 0 3 270,280

Subtotals _______________________--------------- 13 a 96 41 13 169 11,464. 370 ~: Adjustment to eliminate dupllcation In count resulting from 3 companIes baing subsidiaries In 2 systems and

2 companies baing subsidiaries In 3 systems .• 0 0 -6 -I 0 -7

dd: Adjustment to Include the assets

of these 5 Jointly owned subsidiaries and to remove the parent companies' Investments therein which are Ineluded In the system assets above .. 324,206

--------------- Total companies and assets In active systems ___________________ 13 6 90 40 13 162 11,788,676

Le

A

I Represents the consolldated assets, less valuation reserves, of each system as reported to the Commission ou Form U5S for the year 1961, except as otherwise noted. S Represents total net assets, as of March I, 1962, after deducting cstlmated reserves for miscellaneous fefs and expenses In eonneetlon with proposed liqUidation of the voting trust. S These 6 companies are Beech Bottom Power Co., Inc. and Windsor Power House Coal Co., which are

indirect subsidiaries of American Electric Power Co., Inc. and AlIelrheny Power System, Inc.; Ohio Valley

Electric Corp. and Its subsidiary, Indiana-Kentucky Electric Corp. which are owned 37.8 percent by AmerIcan Electric Power Co., Ine., 16.5 percent by Ohio Edison Oo., 12.6 pereent by Allegheny Power System,

Inc., and 33.2 percent by otber com panics; and The ArkIahoma Oorp., which Is owned 32 percent by Central

and South West Corp. System, 34 percent by Middle South Utilities, Inc. system and 34 pereent by an

electric ut11lty company not associated with a registered system.

The largest number of companies subject to the Act as components

of registered holding company systems at anyone time was 1,620

in 1938. Altogether 2,419 companies have been subject to the Act as

registered holding companies or subsidiaries thereof at one time 01

another during the period from June 15, 1938, to June 30, 1962.

Included in this total were 223 holding companies (holding companies

and holding-operating companies), 1,040 electric and/or gas utility

companies, and 1,156 nonutility enterprises. From June 15, 1938, to

June 30, 1962, a total of 2,235 of these companies have been released

from the regulatory jurisdiction of the Act or have ceased to exist

as separate corporate entities. Of the remaining 184 companies, 162

-

___________-- -- - _________

______________________• ________ ------------

______________ -------- -------- -------- -------- -------- --- ----
84 SECURITIES AND EXCHANGE COMMISSION

are members of the 17 active systems listed in the table above, and

22 are members of systems excluded from the active list.

Of the above-mentioned 2,235 companies, 928 with assets aggregating approximately $13 billion at their respective dates of divestment

have been divested by their respective parents and are no longer

subject to the Act as components of registered systems. The balance

of 1,307 companies consists of 793 which were released from the regulatory jurisdiction of the Act as a result of dissolutions, mergers and

consolidations and 514 which ceased to be subject to the Act as components of registered systems as a result of exemptions granted under

Sections 2 and 3 of the Act or orders pursuant to Section 5(d) of the

Act finding that such companies had ceased to be holding companies.

SECTION II MATI'ERS AND OTHER SIGNIFICANT DEVELOPMENTS

IN ACTIVE REGISTERED HOLDING COMPANY SYSTEMS

Section 11 Matters

At the close of fiscal year 1961, there was pending before the Commission a plan filed by Middle South Utilities, Inc. under Section

11(e) providing for the exchange of its common stock for the 3.18

percent publicly held shares of common stock of New Orleans Public

Service Inc., a public utility subsidiary of Middle South. The

plan provided for the exchange of each share of common stock of

New Orleans for 2% shares of common stock of Middle South. During the current fiscal year the Commission approved the plan and it

was ordered enforced and carried out by a Federal Court,"

Also at the close of the previous fiscal year there was pending

before the Commission a plan filed by National Fuel Gas Co. for

the elimination of the 5.95% minority interest in its subsidiary,

Pennsylvania Gas Company. On February 19, 1962, the Commission approved the plan," and in April 1962, an order was entered by

a Federal court enforcing the plan.'

During this fiscal year Granite City Generating Company (Voting

Trustees) filed a plan under Section 11(e) of the Act with respect

to distribution of the cash remaining from the sale of Granite City's

assets, after retirement of mortgage bonds. The plan proposed that,

after the payment of fees of the Voting Trustees and all liquidating

and other expenses, the balance would be distributed to the holders

of the voting trust certificates of the electric utility company. Subsequent to the close of the fiscal year, the Commission approved the

plan 5 and in December 1962 it was ordered enforced and carried out

Holding Company Act Release No. 14533 (October 19, 1961), enforced by order of

District Court, E.D. La., December 1,1961 (Clv. No. 11646)

Holding Company Act Release No. 14575.

W.D. Pa., Clv. No. 62--140.

Holding Company Act Release No. 14739 (November 5,1962).

•

•

•

•

•
TWENTY-EIGHTH ANNUAL REPORT 85

by a Federal court," Prior proceedings in this matter are reported

at page 110 of the 27th Annual Report.

During the fiscal year C. E. Burlingame Corporation, a registered

holding company, filed a plan of dissolution purusant to Section

11(e) of the Act. Subsequent to the close of the fiscal year, the

Commission approved the plan and issued an order under Section

5(d) declaring that Burlingame would cease to be a holding company

and that its registration would no longer be in effect upon the consummation of specified transactions,"

Just before the close of the fiscal year, Eastern Utilities Associates

filed Step 2 of a Section 11(e) plan which contemplates the sale of

the common stock of Valley Gas Co. to the public common stockholders of Blackstone Gas & Electric Co. and the shareholders of

Eastern Utilities Associates. This is the final step to be taken to

divest the gas properties from the System. Prior proceedings are

discussed at page 109 of the 27th Annual Report.

On February 20, 1958,the Commission issued its Findings, Opinion

and Order pursuant to Section l1(b) (1) permitting the retention of

all of the New England Electric System's electric properties," Jurisdiction was reserved to consider at later hearings the retainability

of the gas properties. During the present fiscal year briefs were

filed and exchanged by New England Electric System and the Commission's Division of Corporate Regulation. Oral argument was

heard by the Commission on June 12, 1962, and at the close of the

fiscal year the matter was under advisement.

There exists a problem under Section 11(b) (1) in the Middle

South Utilities system relating to the retainability of gas and transportation properties together with electric properties by New Orleans

Public Service Inc. On March 21 and 22, 1962,two bills were introduced in the Congress (H.R. 10872 and H.R. 10898, 87th Cong., 2d

Sess.) which provided generally that no law of the United States

shall be held to require or to authorize any department or agency

of the Federal Government to require New Orleans Public Service

Inc. to divest itself of control of, or any interests in, its facilities for

the transportation of passengers and the distribution of gas in the

City of New Orleans. No action was taken on these bills by the

Congress and no proceedings have been instituted by the Commission."

On December 20, 1961, the Commission issued its order approving

a substantial number of the fees and expenses incurred in connection

S.D. Ill. Civil Action No. 3234.

1Holding Company Act Release No. 14616 (July 30, 1962).

38 S.E.C. 193.

No further action was taken during this fiscal year with respect to certain Section 11 (b)

problems of several other registered holding company systems noted at pages 104, 105 and

108 of the 27th Annual Report.

•

•

•
86 SECURITIES AND EXCHANGE COMMISSION

with a Section l1(d) proceeding resulting in approval of a plan

requiring the elimination of the minority interest in Arkansas Fuel Oil

Corporation, a subsidiary of Cities Service CO.l0 Hearings were held

with respect to the remaining fees and expenses, briefs were filed, and

the Commission heard oral argument. At the close of the fiscal year,

the matter was under advisement.

The Commission has held with court approval that the existence

of a public minority interest in the common stock of a subsidiary of

an integrated registered public utility holding company system constitutes an inequitable distribution of voting power within the meaning of

Section l1(b) (2). Such minority interests have been eliminated in

several systems by plans filed under Section 11(e). There still remain

several systems where minority interests exist as to which no proceedings have been instituted by the Commission or proposed by

holding company systems. These include one or more subsidiaries of

Allegheny Power System, Columbia Gas System and Eastern Utilities

Associates. New England Electric System has minority interests in

several of its gas utility subsidiaries. As noted above, the retainability

of the gas properties is under advisement by the Commission.

Other Developments

Reargument was heard on January 9, 1962 on an application by

Union Electric Company for exemption from the Holding Company

Act pursuant to Section 3(a) (2), and on April 2, 1962, the Commission issued its Findings, Opinion and Order granting the

application.v

On January 3, 1962,the Commission approved the proposed acquisition by General Public Utilities of $52,500,000 face amount of letters

of credit issued through a group of banks as consideration for the

sale by that company of its entire holdings of securities in Manila

Electric Company to Philippine private interests." As a result, the

operations of the General Public Utilities are now confined to

the States of Pennsylvania and New Jersey.

On April 2, 1962, New England Electric System filed a declaration

regarding the issuance and sale of 872,786 of its common shares pursuant to a rights offering on the basis of one new share for each 15

10 Holding Company Act Release No. 14551. For the previous history of the proceeding,

see the Commission's 27th Annual Report, page 107, and the 26th Annual Report at pages

134-135.

11 Holding Company Act Release No. 14615.

U Holding Company Act Release No. 14566.
TWENTY-EIGHTH ANNUAL REPORT 87

shares held. It proposed that bids be invited pursuant to Rule 50

promulgated under the Act for standby compensation during the

subscription period. The Commission permitted the declaration to

become effective," and bids were invited, the subscription price being

set at $21 a share. A bid was submitted for standby compensation of

$1,658,293 or $1.90 per share to purchase the unsubscribed shares at

the subscription price. The company rejected the bid and filed an

amended declaration proposing to proceed with the rights offering

at the same subscription price but without any underwriting, which

the Commission authorized." Subscriptions were received for 612,440

of the 872,786 shares offered, or approximately 70%. On August 1,

1962, a further amendment proposing to offer the remaining 260,346

shares to the public at competitive bidding was filed and was approved

by the Commission." Under this proposal 4 bids were received, the

highest bid specifying a price of $22.97 to the company and an offering

price to the public of $23.50 per share. The company accepted this

bid and thereby completed the marketing of the offering.

FINANCING OF ACTIVE REGISTERED PUBLIC UTIUTY HOLDING

COMPANIES AND THEIR SUBSIDIARIES

During the fiscal year 1962, 11 of the active registered holding

company systems issued and sold for cash, by public distribution or

directly to stockholders, 17 issues of long-term debt and capital stocks

aggregating $295 million 16 pursuant to authorizations granted by

the Commission under Sections 6 and 7 of the Act.17 All of the

financing in 1962 was for the purpose of raising additional capital,

except that in one case a portion of the funds obtained was used to

refund a $3 million issue of preferred stock having a higher dividend

rate.

The following table shows the amounts and types of securities

issued and sold by registered holding companies and their subsidiaries

during 1962:

:IIHolding Company Act Release No. 14639 (May 16, 1962).

"Holding Company Act Release No. 146153(June 14. 1962).

111 Holding Company Act Release No. 14679 (August 3, 1962).

11 Dollar amounts of all securities are computed at gross proceeds (the amounts paid tor

the securities by investors).

17 The systems which did not sell stock or long-term debt securities to the public are:

Central & South West Corp. ; Delaware Power & Light Co. ; General Public Utllities Corp. ;

Granite City Generating Co.; National Fuel Gas Co.; Ohio Edison Co.; and Philadelphia

Electric Power Co.
88 SECURITIES AND EXCHANGE COMMISSION

Securities issued ancl sold for cash, to the public aOO financial instituti0n8 by

active registered holding companies aOO their subsidiaries, jlscalyear 1962

[In millions]

Holding company system Bonds Deben- Preferred Common tures stock stock

$18

12 ._

$80 -_.

8

20

17

10 7 ._

6

30

23

AlleghenyPower System, Inc.: West Penn Power Co

American Electric Power Co, Ine.: Appalachian Power Co ._. ._. _. ._ _. .___ 25 $20 _._. American Natural Gas Co.: Milwaukee Gas Light Oo, 15 _.

g~~~~d~t~dasN~~fG:cCo========================== Eastern Utllitles ASSOCiates:Brockton Edison Co ============ .____ ~ ============ $4 ============ Middle South Utihttes, Inc.: New Orleans Public Service Inc

New England Electric System' New England Power Co ._

Southern Co , The: Alabama Power Co._.

Georgia Power Co ._. Mississipp! Power Co_.

Union Electric Co

Utah Power & Light Co

TotaL ._. ._. 184 70 23 18

These securrties were sold on July 25,1961,at which tune Union Electric Co was subject to the Act as a registered holding company. On Apr. 2, 1962,the Commission granted the company an exemption from the provisions of the Act pursuant to Bection 3(a)(2) thereof Holding Company Act Release No. 14615.

The table does not include securities issued and sold by subsidiaries

to their respective parent holding companies, issuance of short-term

notes to banks, portfolio sales by any of the system companies, or

securities issued for stock or assets of non-affiliated companies. These

issuances and sales also required authorization by the Commission

except in the case of the issuance of notes having a maturity of less

than 9 months where the aggregate amount does not exceed 5% of the

total capitalization of the company. The issuance of such securities

is exempt by the provisions of Section 6(b) of the Act.

Competitive Bidding

All of the 17 issues of securities sold for cash in 1962, as shown in

the preceding table, were offered for competitive bidding pursuant to

the requirements of Rule 50 promulgated under the Act, although one

of such issues ultimately wassold by other means.IS

As described at pages 109-110 of the 27th Annual Report, Valley

Gas Company was organized for the purpose of acquiring and operating the gas properties formerly owned by Blackstone Valley Gas and

Electric Company, a subsidiary of Eastern Utilities Associates, a

registered holding company. In payment for the gas properties,

Valley issued $4.5 million of its :firstmortgage bonds and $1.5million

of its long-term promissory notes to Blackstone. At that time the

Commission granted an exception from the competitive bidding

18 This one issue was that of the common shares of New England Electric System as to

which see page 86-87, supra.

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• _ •__•••••

•__ •••• •• _

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•

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TWENTY-EIGHTH ANNUAL REPORT 89

requirements of Rule 50 with respect to any subsequent sale by Blackstone of the first mortgage bonds and long term notes of Valley and

reserved jurisdiction with respect to the prices to be received and the

other terms and provisions of the first mortgage bonds and long-term

promissory notes of Valley." During fiscal year 1962, the Commission released the jurisdiction formerly reserved and the securities

were sold to institutional investors."

During the period from May 7, 1941, the elective date of Rule 50,

to June 30, 1962, a total of 839 issues of securities with aggregate

sales value of $12,300million were sold at competitive bidding under

the rule. These totals compare with 231 issues of securities with an

aggregate sales value of $2,371million which have been sold pursuant

to orders of the Commission granting exceptions from the competitive

bidding requirements of the rule under paragraph (a) (5) thereof."

Of the total amount of securities sold pursuant to orders granting

exceptions under this paragraph, 126 issues with total sales value of

$1,888 million were sold by the issuer and the balance of 105 issues

with a value of $483 million were portfolio sales. Of the 126 issues

sold by issuers, 70 were in amounts of from $1 million to $5 million

and 2 bond issues were inexcess of $100million each.22

PROTECTIVE PROVISIONS OF FIRST MORTGAGE BONDS AND

PREFERRED STOCKS OF PUBUC UTIUTY COMPANIES

Statements of policy were adopted by the Commission in 1956,

codifying the standards to which provisions covering first mortgage

bonds and preferred stocks issued under the Act must conform for the

protection of investors in such securities." Prior to 1956 these

standards had been established by the Commission on a case-by-case

basis. In passing upon the issuance of first mortgage bonds and preferred stocks under the Act, the Commission examines the applicable

mortgage indentures and charter provisions to insure a continuing

substantial conformity with the codified standards of the respective

statements of policy. Such conformity has been uniformly required

except where, in particular circumstances, deviations from the statements of policy are clearly justified."

111 Holding Company Act Release No. 14266 (Aug. 10, 1960).

.. Holding Company Act Release No. 14485 (July 24,1961).

21 Paragraph (a) (5) of Rule 50 provides for exception from the competitive bidding requirements of the rule where the Commission finds such bidding Is not necessary or appropriate under the particular circumstances of the individual case

.. Ohio VaHey Electric Corp., a '360 million issue of bonds, and United Gas Corp., a

$116 million issue.

.. Holding Company Act Releases Nos. 13105 (Feb. 16, 1956) and 13106 (Feb. 16, 1956)

as to first mortgage bonds and preferred stocks, respectively .

.. The application of the statements of policy to ftIings through June 30, 1961, is discussed in the 23d, 24th, 25th, 26th and 27th Annual Reports at pp. 141-143, 128-181,

187-141,148-151 and 123-126, respectively.

•
90 SECURITIES AND EXCHANGE COMMISSION

During the fiscal year, applications or declarations were filed by

public utility companies subject to the Act with respect to nine first

mortgage bond issues involving an aggregate principal amount of

$153,000,000,and three preferred stock issues with a total par value

of $23,000,000.

The statement of policy with respect to first mortgage bonds requires,

among other things, that dividends or other distributions to common

stockholders be limited so as to preserve an "equity cushion" beneath

the claims of the bondholders. This requirement was adequately

provided for in the existing indentures covering three of the nine

bond issues filed by public utility companies. In the other six bond

issues, additional restrictions were required, and were provided for

either at the issuers' initiative or as a result of informal discussions

between the Commission's staff and representatives of the issuer.

Since the bulk of bondholders' security consists of mortgaged

depreciable plant and equipment, the statement of policy for bonds

also requires the periodic renewal and replacement of such property

so as to preserve the book value of the underlying security. This

requirement, in substance, obligates the issuing company to provide

for new property additions (or, alternatively, to deposit cash or outstanding bonds with the trustee) in an amount which over the

estimated useful life of the mortgaged depreciable property, will

maintain the original book cost of the mortgaged property. The

statement of policy requires that the mortgage indenture express the

periodic renewal and replacement obligation as a percentage of the

book cost of the mortgaged depreciable property, but where existing

indentures express the provision on some other basis (usually, as a

percent of operating revenues) such alternate provision is permitted

to remain unchanged if the issuer can satisfactorily demonstrate to the

Commission that the existing provision affords substantially the same

protection as that based on a percent-of-property basis. To insure

observance of this standard of the statement of policy, the Commission's staff conducts a continuous study of the depreciation requirements of the various issuers subject to the Act.

Of the nine bond issues sold during the fiscal year, the indentures

of six expressed the renewal and replacement provision as a percentage

of depreciable property deemed adequate by the Commission. The

indentures covering the other three bond issues expressed the provision as a percentage of revenues which the Commission found

afforded no less protection to the bondholders than that which would

be afforded on an appropriate percent-of-property basis.

With respect to the three preferred stock issues aggregating

$23,000,000as to which applications or declarations were filed during
TWENTY-EIGHTH ANNUAL REPORT 91

the fiscal year, all had charter provisions in substantial conformity

with the statement of policy for preferred stock.

The Commission has continued to require adherence to the provision

contained in both the bond and the preferred stock statements of

policy that the securities be freely refundable at the option of the

issuer upon reasonable notice and payment of a reasonable redemption

premium, if any.25 An exception was allowed in the case of Valley

Gas Company, a new company organized for the purpose of facilitating the divestment by the Eastern Utilities Associates holdingcompany system of the gas utility properties owned by one of the

public utility companies in that system. In light of the unusual

circumstances present, the Commission in fiscal year 1961had granted

an exception from the competitive bidding requirements of Rule 50

under the Holding Company Act, and in fiscal year 1962, the Commission approved an indenture covenant negotiated by Valley Gas

Company with the bond purchasers providing that if any of the bonds

were redeemed during the first five years after issuance through the

issuance of other debt securities bearing a lower interest rate, the company would be required to pay higher redemption premiums than

customary under the Commission's usual standards, but that following

such five-year period the bonds would be freely refundable by the

company upon payment of the normal lower scale of redemption

premiums."

Continuing studies made by the Commission's staff for fiscal year

1962 with respect to electric and gas utility bond issues sold at competitive bidding, whether or not subject to the Act, indicate that the

presence or absence of a restriction on free refundability has not

affected the number of bids received by an issuer at competitive bidding or the ability of the winning bidder to market the bonds. This

finding coincides with that described in the 27th Annual Report, at

pages 125-126, containing a summary of the results of an examination

of all electric and gas utility bond issues (including debentures) sold

at competitive bidding between May 14, 1957, and June 30, 1961, by

companies subject to the Act as well as those not so subject. This

study has been extended to include fiscal year 1962.

During the period from May 14, 1957, to June 30,1962, a total of

361 electric and gas utility bond issues, aggregating $7,838.6 million

principal amount, was offered at competitive bidding. The refundable issues numbered 273 and accounted for a total of $5,036.6million,

while the nonrefundable issues-all except one being nonrefundable

.. The slgnl1lcance of the refunding privilege. both as a matter of conformity with the

standards of the Act and as a matter of practical finance. was dlscnssed at some length

In the 24th Annual Report. at pp. 13(}-131.

soHolding Company Act Release No. 14485 (July 24. 1961).
92 SECURITIES AND EXCHANGE COM:MISSION

for a period of five years, and that one being nonrefundable for a

period of seven years-numbered 88 and totaled $2,802million principal amount. The number of refundable issues thus represented 15.6

percent of the total number of issues, while, in terms of principal

amount, the refundable issues accounted for 64.3percent."

The weighted average number of bids received on the refundable

issues for the period. was 4.57, while on the nonrefundable issues it

was 4.20. The median number of bids was five on the refundable and

four on the nonrefundable issues." With respect to the success of the

marketing of the bond issues, an issue was considered to have been

successfully marketed if at least 95 percent of the issue was sold at

the syndicate price up to the date of termination of the syndicate. On

this basis, 73.3 percent of the refundable issues were successful, while

61.0 percent of the nonrefundable ones were successful." In terms of

principal amount, 70.8 percent of the refundable issues were successful, while 65.4 percent of the nonrefundable ones were successful."

Extension of the comparison to include the aggregate principal

amounts of all issues which were sold at the applicable syndicate

prices up to the termination of the respective syndicates, regardless

of whether a particular issue met the definition of a successful marketing, indicates that 88.2 percent of the combined principal amount of

all the refundable issues were so sold, as compared with 81.9 percent

for the nonrefundable issues." These statistics developed in respect

of the two groups of bond issues support the Commission's policy of

requiring free refundability of utility bond issues subject to the Act.

In connection with this policy of the Commission, it may be noted

that, on July 13, 1961, Brockton Edison Company, a public utility

subsidiary of Eastern Utilities Associates, a registered holding company, issued and sold, at competitive bidding pursuant to the requirements of Rule 50, a total of 40,000 shares of its $100 par value 5.48%

preferred stock at a dividend cost to the company of 5.44%. Approximately $3,264,000of the net proceeds from the sale of this preferred

stock was used by Brockton to redeem its outstanding $3,000,000par

27 During fiscal year 1962, a total of 51 bond issues was offered, aggregating $1,275.5

million principal amount, consisting of 33 refundable issues totaling $602.5 million and

18 nonrefundable Issues totallng $673 million. The number of refundable issues represented

64.7 percent of all the issues, while, In terms of principal amount, the refundable issues

accounted for 47.2 percent.

28 During fiscal year 1962, the weighted average number of bids was 4.58 on the refundabies and 4.11 on the nonrefundables, while the median number of bids was 4 on both the

rcfundables and nonrefundables.

20 During fiscal year 1962. 69.7 percent of the refundable issues were successful, as against

55.6 percent for the nonrefundables.

3D During the fiscal year 1962, in terms of principal amount, 70.8 percent of the refundabies were successful, as against 61.7 percent for the nonrefundables.

81 During fiscal year 1962, the appllcable percentages were 92.1 vereent for the refundabies and 76.0 percent for the nonrefundables.
TWENTY-EIGHTH ANNUAL REPORT 93

value 6.40% preferred stock at $108.80 per share and accrued dividends at a cost to call of 5.88% and which had been sold in December

1957. If the 6.40% preferred stock had been nonredeemable for a

five-year period, the company would have been unable to effectuate the

refinancing.

In the 27th Annual Report, at page 126, reference was made to a

comprehensive study of redemption provisions of corporate bonds

being conducted at the Wharton School of Finance and Commerce of

the University of Pennsylvania. The final results of this study were

publicly released by the Wllarton School during fiscal year 1962.32

The study, which covers the period 1926-1959 (including in certain

respects data extending to June 30, 1960), indicates that it was not

until the second half of the calendar year 1959 that some differences

appeared in interest costs as between immediately refundable bonds

and those carrying refunding restrictions. These differences, indicating somewhat lower interest costs on bonds having refunding restrictions, were found by the Wllarton School not to have been materialat least when measured against the advantage to the issuer of being

able to refund its bonds at any time. The Commission considers that

the Wharton School study supports the position of the Commission

that issuers of immediately refundable bonds have, on the whole, not

been penalized in the market place as compared with those issuers

which accepted a refunding restriction. In fact, the evidence appears

to point to the contrary, namely, that a refunding restriction does not

provide the issuer with a reduction in interest cost even approximating

what one might reasonably expect as being the financial equivalent of

a refunding restriction."

OTHER MATrERS

Request {or Declaratory Order

Pacific Northwest Power Oompany has pending an application

filed pursuant to Section 5(d) of the Administrative Procedure Act

for a declaratory order stating at what point in the construction of

a hydro-electric plant it will become an electric utility company

within the meaning of Section 2(a) (3) of the Act. Pacific Northwest's common stock is owned equally by Pacific Power and Light

Company, Montana Power Company, Washington Water Power

.. See Arlelgh P. Hess, Jr. and WlIIis J. Wlnn, THE VALUE OF THE CALL PRIVI.

LEGE (University of Pennsylvania), 1962. lIIembers of the Advisory Committee of the

study included a stair member of the Commission, a staii member of the Federal Power

Commission, representatives of insurance companies, banks which administer pension

trusts funds, and Investment banking firms, and several members of the faculty of the

University of Pennsylvania.

33 ta., pp. 80-82.
94 SECURITIES AND EXCHANGE COMMISSION

Company, and Portland General Electric Company. The company

has not proceeded with its application pending the outcome of a proceeding before the Federal Power Commission in which the granting

of a license to Pacific Northwest is being contested by certain Public

Utility Districts. After the close of the fiscal year an examiner of

the Federal Power Commission issued a decision and order, subject

to review, granting the license to Pacific Northwest. It is expected

that the company will now proceed with its application before this

Commission.

"Bottled Gas" Companies

Unusual problems have arisen from time to time involving various

so-called "bottled gas" companies which distribute gas (usually propane or butane) in portable tanks or containers. A number of companies have aggressively expanded in this field by acquiring the capital

stocks o.f bottled gas companies which previously were operated

independently or by organizing new subsidiary companies to engage

in the business. One parent company, for example, recently had

about 150 such subsidiary companies and another had more than 70.

The operations of the subsidiaries are conducted in many different

States. So long as a company distributes gas only in portable containers, it is not a "gas utility company" as defined in the Holding

Company Act, and if all the subsidiaries of a parent company are

strictly "bottled gas" companies or other nonutility companies, the

parent company is not a "holding company" as defined in the Act.

However, some subsidiary companies in bottled gas systems have

changed their character by undertaking the distribution of liquefied

petroleum gas or natural gas at retail through pipes, thereby becoming "gas utility companies" within the meaning of the Act. The parent company of any such subsidiary automatically becomes a "holding

company," if it is not one already.

The staff of the Commission has found it necessary to observe

closely the operational changes which have been occurring in bottled

gas systems. Where changes of the kind described have been

observed, the staff has sought to assure that the parent company

either registers under the Act, or applies for an exemption from the

Act, if available.
PART VII

PARTICIPATION OF THE COMMISSION IN CORPORATE REORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCY

ACT

The Commission's role under Chapter X of the Bankruptcy Act,

which provides a procedure for reorganizing corporations in the

United States district courts, differs from that under the various other

statutes which it administers. The Commission does not initiate

Chapter X proceedings or hold its own hearings, and it has no authority to determine any of the issues in these proceedings. The Commission participates in such proceedings in order to provide independent, expert assistance to the court, the participants, and investors on

matters arising therein. Thus, the facilities of the Commission's

technical staff and its disinterested recommendations are placed at

the service of the judge and the parties in a highly complex area of

corporate law and finance. The Commission pays special attention

to the interests of public security holders, who may not otherwise be

effectively represented.

Where the scheduled indebtedness of a debtor corporation exceeds

$3 million, the judge under Section 172 of Chapter X must, before

approving any plan of reorganization, submit it to the Commission

for its examination and report. If the indebtedness does not exceed

$3 million, the judge may, if he deems it advisable to do so, submit

the 'Plan to the Commission before deciding whether to approve it.

Where the Commission files a report, copies or a summary must be

sent to all security holders and creditors when they are asked to vote

on the plan. The Commission has no authority to veto or require the

adoption of a plan of reorganization and is not obligated to file a

formal advisory report on a plan.

The Commission has lawyers, accountants and financial analysts in

its New York, Chicago and San Francisco regional offices who are

actively engaged in Chapter X cases in which the Commission has

filed its appearance. Supervision and review of the regional offices'

Chapter X work is the responsibility of the Division of Corporate

Regulation of the Commission, which, through its Branch of Reorganization, also serves as a field officein cases arising in the Atlanta

and Washington, D.C., regional areas.

95
96 SECURITIES AND EXCHANGE COMMISSION

SUMMARY OF ACTIVITIES

The Commission's activities in Chapter X this year increased over

the previous year and will probably be even more extensive in the

fiscal year 1963. In fiscal year 1962, the Commission actively participated in 64 reorganization proceedings involving 101 companies (64

principal debtor corporations and 37 subsidiaries of those debtors).'

The stated assets of these 101 companies totalled approximately $612,-

400,000 and their indebtedness totalled approximately $572,300,000.

The proceedings were scattered among district courts in 27 states and

the District of Columbia as follows: 9 proceedings in New York; 5

each in Illinois and California; 4 each in Maryland, Kentucky and

North Carolina; 3 each in Colorado, Oklahoma, Florida and Texas;

2 each in Pennsylvania, Michigan and Nevada; and 1 each in Washington, Iowa, Virginia, Kansas, Georgia, New Jersey, Louisiana,

Wyoming, Indiana, Mississippi, Montana, Arizona, New Mexico,

Arkansas and the District of Columbia.

During the year, the Commission entered its appearance in 18 new

proceedings under Chapter X involving companies with aggregate

stated assets of approximately $108,292,000and aggregate indebtedness of approximately $85,786,000. They involved the rehabilitation

of corporations engaged in the operation of such varied businesses as

a deluxe resort hotel, real estate development, fertilizer plant, automobile race track, retail discount stores, :farmers cooperative, cement

manufacturing, chain food stores, heavy construction contracting,

mining, real estate and mortgage investment and machine products

manufacturing.

Proceedings involving 5 principal debtor corporations were closed

during the year. At the end of the year, the Commission was actively

participating in 59 reorganization proceedings involving 95 companies.

The Commission has not considered it necessary or appropriate to

participate in every Chapter X case. Apart from the excessive administrative burden, many of the cases involve only trade or bank

creditors and few public investors. The Commission seeks to participate principally in those proceedings in which a substantial public

investor interest is involved. However, the Commission may also

participate because an unfair plan has been or is about to be proposed,

the public security holders are not adequately represented, the reorganization proceedings are being conducted in violation of important

provisions of the Act, the facts indicate that the Commission can perform a useful service, or the judge asks the Commission to

participate.

'Appendix table 12 contains a complete list of reorganization proceedings in which the

Commission participated during the fiscal year ended June 30, 1962.
TWENTY-EIGHTH ANNUAL REPORT 97

PROCEDURAL AND ADMINISTRATIVE MATTERS

When it has participated in Chapter X proceedings, the Commission has urged upon the court the procedural or substantive safeguards

to which all parties are entitled. The Commission also has attempted

in its interpretations of the statutory requirements to encourage uniformity in the construction of Chapter X and the procedures thereunder.

In Oal-West Aviation, Ino./ the Court appointed as co-trustee the

president of the debtor, who was also a stockholder and director.

After he was advised that he was disqualified from serving as such

under Section 158(1) of Chapter X, he resigned but was retained as

general manager.

In Flora Sun Oorporation.: the Commission objected to the retention of the "additional trustee" on the ground that he was not disinterested. The additional trustee had, in effect, secured an option

to acquire control of the debtor on behalf of a corporation of which he

was president. However, the Court rejected the Commission's contention that retention of the trustee would be contrary to Section

158(4) of the Bankruptcy Act.

In Pickman Trust Deed Oorporation.» investors who had acquired

notes and second deeds of trust through the debtor were classified by

the Court as creditors, each secured by the deed assigned and allocated

to him. On this basis, the creditors supported certain compromises

proposed by the trustee and approved by the Court," After the time

for appeal had run, the trustee sought to have investors with unrecorded assignments reclassified as unsecured creditors. The Court

agreed with the Commission that the trustee was estopped since

investors had relied on the prior classification order.

The Court also accepted the view of the Commission that funds

received from investors and held in separate accounts pending investment should be treated as trust funds rather than general assets.

Since there was a deficiency in these accounts, the Court fixed the

manner of distribution by the adaptation of a formula approved by

Judge Learned Hand in In re Sohmidt.s

In U.S. Duro» Oorp. of Colorado.' the District Court confirmed a

plan of reorganization providing for the liquidation of the debtor.

The highest bidder for all of the debtors' assets was the Small Business Administration, which bid the approximate amount of the balIn the Matter of Oal-West Aviation, 111,0.(N.D. Calif.. No. 62708).

In the Matter of Flora Sun oorporauo» (S.D. Fla., No. 55-62-Bk).

'111,the Matter of Piokman Trust Deed Oorporation (N.D. Calif., No. 57469).

See the discussion of this case in the 27th Annual Report, pp. 132-3.

298 Fed. 314 (S.D. N.Y., 1923).

T In the Matter oj U.S. Duro» Oorp. of Oolorado (D. Colo., No. 22895).

672175-63-8

•

•

•

•
98 SECURITIES AND EXCHANGE COMMISSION

ance of its first mortgage on the debtor's assets. The Court adopted

the Commission's position that the costs of the Chapter X administration should be paid out of the mortgaged assets, and the Court of

Appeals denied the petition of the SBA for leave to appeal,"

TRUSTEE'S INVESTIGATION

A complete accounting for the stewardship of corporate affairs

by the old management is a requisite under Chapter X. One of the

primary duties of the trustee is to make a thorough study of the

debtor to assure the discovery and collection of all assets of the

estate, including claims against officers, directors, or controlling

persons who may have mismanaged the debtor's affairs. The staff

of the Commission often aids the trustee in his investigation.

In Texas Portland Oement Oompany,9 a comprehensive investigation by the trustees, assisted by the Commission's staff, led to a reduction in the debtor's total indebtedness from approximately $5,200,000

to about $3,150,000, and almost 215,000 shares of capital stock were

cancelled or surrendered. The plan of reorganization, confirmed by

the Court, provided for the subordination of the stock claims of certain of the debtor's directors who had not settled with the trustee.

In confirming the plan, the Court found that these directors had been

negligent "to the degree that it constitutes a breach of their fiduciary

duty in the management of the corporate affairs." 10

In Shawano Development Oorporationr? as the result of an investigation in which the staff of the Commission is participating, the

trustee has filed a plenary action in the United States District Court

in Jacksonville, Florida, against twenty-two named defendants, seeking compensatory damages in the amount of approximately

$3,000,000.12 In DePaul Educational Aid Sooiety,13 as previously

reported," both the Commission and the trustee urged that DePaul

University's first mortgage claim should be subordinated to that of

the public bondholders. A settlement was effected whereby DePaul

University agreed to reduce its claim by 45%.

ADVISORY REPORTS ON PLANS OF REORGANIZATION

During the fiscal year, the Commission issued two advisory reports

and one supplemental advisory report. Generally speaking, an advis-

(C.A. 10. No. 6949).

In the Matter oj Tezas Portland Oement Oompany (E.D., Tex., No. 1606). 10205 F. Supp. 159, 162.

U In the Matter oj Shawano Development Oorporation (D.C. Wyo., No. 3163).

12 Reynclers v. Foremost Dairies, Inc., et at (S.D. Fla., No. 4892 Clv.•J).

II In the Matter oj DePaul Educational Aid Society (N.D. m.. No. rill B 41).

If 27th Annual Report, p. 133.

•

•
TWENTY-EIGHTH ANNUAL REPORT 99

ory report is prepared only in a case involving a substantial public

investor interest and presenting significant problems. On occasion,

because of the exigencies of time or for other reasons, no written

report is filed but, instead, Commission counsel is authorized to make

an oral or written presentation detailing the Commission's views.

In Windermere Hotel 00./5 the Commission filed an advisory

report on amended plans for the reorganization of the debtor, which

owned and operated the Windermere Hotel in Chicago. The trustee's

plan, as amended, which was sponsored by a bondholder, gave the

bondholders the alternative of receiving $70 in cash per $100 principal amount of bonds, or 5% 20-year subordinated debentures and

new common stock in exchange for the outstanding bonds. The

other plan, proposed by two bondholders named Shlensky, afforded

the bondholders the option of receiving either $70 in cash or $20 ill

cash plus $50 principal amount of new 5% 15-year first mortgage

bonds of the reorganized company for each $100 principal amount of

bonds then held. The Shlenskys would receive all of the common

stock of the reorganized company. Neither plan accorded the stockholders any participation.

The Commission concluded that both plans were fair, equitable and

feasible in their provision for cash payment to the bondholders, but

that the alternative proposals were not feasible, since no ceiling was

placed upon the proposed debt of the reorganized company and because of the failure of the proposals to provide adequately for the

payment of costs of administration and to include an undertaking by

the respective sponsors to make the cash payment to bondholders.

The proposal in the trustee's plan to issue securities was found in the

advisory report to be unfair since it failed to classify separately the

bondholders, other than the plan sponsor, for purposes of voting

thereon; to indicate clearly the manner of selecting directors; to establish a proper voting procedure; and to provide proper safeguards in

the provisions of the proposed indenture pursuant to which the new

debentures would be issued. The proposal to issue securities under

the Shlensky plan was found to be unfair because of its failure to

indicate the terms of the new first mortgage indenture and to limit

the amount of debt securities of the reorganized company.

The Shlensky plan, as amended, also proposed a public auction of

the debtor's stock and guaranteed a bid which would give the bondholders $70 per $100 principal amount of bonds. The trustee's plan

was amended to provide for a public auction of the debtor's assets at

a minimum upset price of $2,285,000. Inits Supplemental Advisory

Report the Commission recommended that the prospective bidders

1JI In the Matter 01 Windermere HoteJ 00. (N.D. m.•No. 60 B 8818).
100 SECURITIES AND EXCHANGE COMMISSION

should be permitted to designate their preference as between a bid for

the debtor's assets directly or for appropriate new securities of a reorganized company, so that effective competitive conditions could be

maintained.

The Court approved the Referee's recommendation that only the

trustee's plan be approved. The Shlenskys filed a notice of appeal,

but dismissed their appeal when the Court of Appeals required them

to post a $2,000,000bond. At the public auction sale the plan sponsor

acquired the debtor's assets with a bid of $2,285,000.

In Texas Portland Oement Oompany,16 the Commission filed an advisory report recommending approval of a plan based upon the offer

of Alpha Portland Cement Company to purchase all of the debtor's

fixed assets and good-will for $4,250,000,to be paid partly in cash, and

the balance in debentures of Alpha and by the assumption of a large

claim allowed against the debtor. After payment of creditors' claims

in :full by cash and Alpha debentures, the remaining assets were to be

distributed to stockholders, other than those whose stock was to be

subordinated." The plan was confirmed by the Court.

In TMT Trailer Fe1'1'"!fInc.,ls two plans for the reorganization of

the debtor were found worthy of consideration by the Court, and submitted to the Commission for its examination and report. One plan

provided for the internal reorganization of the debtor, vesting ownership and control in the unsecured creditors, the other for the sale of

the debtor's assets for cash. Neither plan accorded participation to

stockholders, since the debtor was said to be insolvent.

The Commission advised by letter that both plans were objectionable. In a memorandum, it was pointed out, inter alia, that the

evidence on valuation was not adequate to justify the exclusion of

stockholders, particularly since both plans allowed some $2,000,000

of seriously contested claims. The Commission also objected to the

provisions in the internal plan which would permit the trustee to

become the president of the reorganized company.

ACflVITIES WITH REGARD TO ALLOWANCES

Every reorganization case ultimately presents the difficult problem of determining the allowance of compensation to be paid out of

the debtor's estate to the various parties for services rendered and

for expenses incurred in the proceeding. The Commission, which

under Section 242 of the Bankruptcy Act may not receive any allowance from the estate for the services it renders, has sought to assist

18 In the Matter of TUJa8 Portland Oement Oompany (E.D. Texas, No. 1606).

11 See the discussion of the subordination point at p. 98, 8upra.

lB In the Matter of TMT Trailer FerTlI tno. (S.D. Fla.• No. 86li9-M-Bk.
TWENTY-EIGHTH ANNUAL REPORT 101

the courts in protecting debtors' estates from excessive charges and

at the same time in equitably allocating compensation on the basis of

the claimants' contributions to the administration of estates and the

formulation of plans. A summary of interesting developments follows:

In Mason Mortgage dbInoestment Oorp.,19 the trustee and his attorney filed applications for interim fees calculated on the basis of a

percentage of their estimate of the value of their services for the total

time devoted to the debtor's affairs. The Court held that it was impossible to determine what the value of any services rendered might

be until the proceeding had been completed, and that any interim

award based upon a percentage of a hypothetical amount assumed

by an applicant to be the reasonable or full value of the services rendered to date would be improper.

In the Ohamber of Commerce of the Oity of Newark/O a proceeding

in which the Commission was not participating, the Commission was

granted permission to file a memorandum and present oral argument,

amicus curiae, to oppose the petition of a firm of attorneys for the

debtor which sought the Court's approval of a prior transfer of the

debtor's bonds by a partner of the firm, as well as to oppose the firm's

petition for allowance for legal services. During the Chapter X proceeding, the partner, who was co-executor of his father's will, and a

beneficiary under the will, had sold $2,000 of the debtor's bonds

which his father had owned. The Commission urged, and the Court

agreed, that such sale was an absolute bar to compensation under

Section 249.

In Selected In/oestments Uorporatiorc" an attorney who had represented the debtor in the Chapter X proceeding and the debtor's two

principal officersin a pending action by the trustees against them for

an accounting, 22 requested an allowance of $35,000. The District

Court, in accordance with the Commission's recommendations, denied

the request on the grounds that the attorney's services were not of

benefit to the estate, and that he had represented conflicting interests.

After obtaining leave to appeal, 23 the attorney later moved to dismiss

his appeal, stating that he had accepted a $4,000 settlement from the

reorganized debtor. The Commission objected to the settlement on

"In the Matter of Mason Mortgage IEInvestment oors., et aZ. (D.C. DC., Nos. 98-60

through 101-60).

"In the Matter 01 Chamber 01 Commerce of the City of Newark, New Jersey (D.C. N.J.

No. B-73-60)

., In the Matter Of Selected Investments Corporation (W.D. Okla., No. 10680)

.. The trustee eventually recovered a judgment In excess of $12,000,000. In addition,

one of the clients was convicted of a violation of Section 17 of the Securities Act of 1933.

See Burns v, U.S., 286 F. 2d 152 (C.A. 10, 1960)

.. B. H. Carey v. Selected Investment OQrporation (C.A. 10. No. 6804).

•

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•
102 SECURITIES AND EXCHANGE COMMISSION 

the ground that all compensation was subject to approval by the 

reorganization court. Upon remand, the District Court again decided 

that no compensxtion should be paid. The attorney's appeal from 

such action was pending at the close of the fiscal year. 

In Inland Gas the Commission object,ed to the 

application by a member of a committee for reimbursement of advances 

to the committee attorney, because the committee member had traded 

in the securities of one of the debtors in reorganization. The Commission argued that in Chapter X a committee xnd its attorney each 

had autonomous standing to apply for compensation for services rendered and for reimbursement of expenses incidental to such services, 

and that in seeking recovery from the estate for advances to his 

attorney, the committee member was requesting in effect to be subrogated to the attorney's rights. The commission further argued that 

subrogation, as an equitable remedy, should not be permitted in this 

case in view of the substantial trading by the committee member. The 

District Conrt agreed and the Court of Appeals affirmed, stating that 

"we do not think the District Judge erred in enforcing the public 

policy inherent in the pro~<sions of Section W9 of the Act:' and in 

refusing to permit subrogation. 25 

Appellant also argued that tlle Comu~ission was estopped from 

/ reversing its om prior recommedation that reimbursement be allo~ed. 

The Court of Appeals held that the doctrine of equitable estoppel was 

not applicable to the Commission's correction of a mistake of law and 

that in any erent the Commission's prior vievs were not binding upon 

thedistrict judge. The Conrt also noted the statement of the Commission that it "necessarily acts in the ligbt of its continuing experience 

and that it vould be remiss in its duties if . . . it failed to advise the 

District Court of what it believes to be the correct view of the fack and 

lam . . ." because at an earlier stage in the proceeding "it may have 

expressed a different view." 

INTERVENTION IN CHAPTER XI PROCEEDINGS 

Chapter XI of the Bankruptcy Act prorides a procedure by nhlch 

debtors can effect arrangements with respect to their unsecured debts 

under court supervision. Where a proceeding is brought under that 

chapter but the facts indicate that it should hax-e been brought under 

Chapter X,Section 328 of Chapter XI authorizes the Commission to 

make application to the court to dismiss the Chapter XI proceeding 

unless the dehtor:s petition is amended to comply with the requirements 

of Cbapter X, or a creditors' petition under Chapter X is filed. 

In the Jfatter of Inland Gas Cornoration, et at. (D. Kg.,No. 9894) 


'areen Committee r. Wltliamsm, 309 R.26 176 (C.A. 8,lOeZ). 

TWENTY-EIGHTH AWY u..- . 103 

Davega Stores Corporation filed a petition for an arrangement 

under Chapter XI of the Bankruptcy Act in Fsbruary 1962.26 This 

company is engaged in the sale of sporting goods, photographic equipment and electrical appliances through a chain of 25 retail stores in 

the New York City area and concessions in discount centers in two 

other states. Davega's convertible debentures and its preferr 

common stocks are publicly held and listed on the America& v ock 

Exchange. The debtor had suffered substantial operating losses and 

had undergone several changes in management since 1959, and several 

attempts had been made to effect a merger or other hancial arrangements with outside interests. In March 1962, the Commission fled 

a motion under Section 328 to dismiss the Chapter XI petition, and 

after lengthy hearings the motion mas gnnted by the Court. Thereafter, the indenture trustee for the convertible debentures Ned an involuntary Chapter X petition, the Chapter X petition was approved, 

and a disinterested trustee was appointed. 

In Cal-West Aviatwrz, Inc.,Z7 the debtor, which owns and operates 

an airport and associated facilities in San Mateo County, California, 

filed a petition for an arrangement under Chapter XI. The Commission moved to dismiss the petition, urging that a thorough reorganization and an independent investigation into the acts of former 

management were necessary and that Chapter XI did not provide 

adequate means for snch a reorganization or proper safeguards &or 

the interests of the debtor's 2,300 public investors. The debtor's 

amended Chapter X petition was thereafter approved by the Court. 

Los Angeles Twt Deed & Mortgage Eachamge ZB was in the business of purchasing second trust deed notes which it sold to investon 

in the form of ''investment contracts." It was tlie subject of an 

injunctive action brought by the Commission and a receiver was 

appointed. An involuntary petition in bankruptcy was fled in 

November 1960, an order of adjudication was entered in December 

1960, and thereafter the debtor filed a Chapter XI petition. At the 

time the petition was filed, approximately $40,000,000 had been 

invested by some 10,000 investors in second deeds of trust. All the 

stock of the debtor was held by former o5cers. 

In November 1961, the Commission filed a motion pursuant to 

Section 328, stressing the need for an independent investigation in 

order to protect the public investors and the fact that Chapter XI 

made no provision for snch investigation. The District Court denied 

*In the Hotter ol Dovega Btores Corporation (S.D. N.Y., No. 62 B 147). 

*In the matter of Cal-Weat Auiatianinc. (N.D. Calif., No. 62708). 

1% the Matter oy Lo8 Angelee Tr~st Deed & Mortgage BJoohange (S.D. CdIL, No. 118. 

17&Pl. 
104 SECURITIES AND EXCHANGE COMMISSION

the motion, and the Commission appealed. While the appeal was

pending, the Chapter XI proceeding was dismissed and the bankruptcy proceeding was reinstated, thus rendering the appeal moot.

PUBUCATION OF BAR DATES

Substantial sums could be lost by public investors who fail to

exchange outstanding securities of corporations which have been

reorganized in recent years for new securities or cash distributable

pursuant to the plans for reorganization of such corporations. To

facilitate these exchanges, the Commission has published a list of

securities of 125 corporations which have been reorganized, informing

the public as to the cut-off or "bar date" after which the right to

exchange such securities for cash or new securities will be lost.29

.. "SecurIties Required To Be Exchanged For Cash Or New SecuritIes," Corporate ReorganIzation Releases Nos. 163,164,172 (1962).
PART vm

ADMINISTRATION OF THE TRUST INDENTURE ACT OF

1939

The Trust Indenture Act of 1939 requires that bonds, notes,

debentures and similar securities publicly offered for sale, except as

specifically exempted by the Act, be issued under an indenture which

meets the requirements of the Act and has been duly qualified with

the Commission. The Act requires that indentures to be qualified

include specified provisions which provide means by which the rights

of holders of securities issued under such indentures may be protected

and enforced. These provisions relate to designated standards of

eligibility and qualification of the corporate trustee to provide reasonable financial responsibility and to minimize conflicting interests.

The Act outlaws exculpatory provisions formerly used to eliminate

all liability of the indenture trustee and imposes on the trustee, after

default, the duty to use the same degree of care and skill "in the exercise of the rights and powers invested in it by the indenture" as a

prudent man would use in the conduct of his own affairs.

The provisions of the Trust Indenture Act are closely integrated

with the requirements of the Securities Act. Registration pursuant

to the Securities Act of securities to be issued under a trust indenture

subject to the Trust Indenture Act is not permitted to become effective

unless the indenture conforms to the requirements of the latter Act,

and necessary information as to the trustee and the indenture must

be contained in the registration statement. In the case of securities

issued in exchange for other securities of the same issuer and securities issued under a plan approved by a court or other proper authority

which, although exempted from the registration requirements of the

Securities Act, are not exempted from the requirements of the Trust

Indenture Act, the obligor must file an application for the qualification of the indenture, including a statement of the required

information concerning the eligibility and qualification of the

trustee.

105
106 SECURITIES AND EXCHANGE COMMISSION

Indenture« {lled under the Truat Indenture Act of 1939 during the fiacal gear

ended June 30, 196f

Number Aggregate filed amount

~==~l~~~t~~s:~:::=======::::::::::=:::::::::=:====::::::::::= 48 $747, 166,650 268 4, 125,m, 611

Total ._. e ••• • ••• •••• 306 4,872, 434. 261

Dls~J:=;~~~::~: ...--.-----.------------.---- ..------- ..__.._....._ 232 4, 264, 793, 741 Indentures eleted bit amendment or withdrawn 20 160, 847, 800 Indentures pending une 30, 1962._-.____________•____••___•• __•• __•• _.___•__ 64 446, 792, 720

TotaL. ._ 306 4, 872, 434, 261

••__••••••••• ____•___•••• _______' ___ ___•___ __ ___ ._._ __ _

_____•___•____•_____•______•

____•• ___•____________••• __•• __••___•• ______••• ______••• ___•___ •••
PART IX

ADMINISTRATION OF THE INVESTMENT COMPANY ACT

OF 1940

Companies primarily engaged in the business of investing, reinvesting, owning, holding, or trading in securities are subject to

registration and regulation under the Investment Company Act of

1940. This Act, among other things, prohibits such companies from

changing the nature of their business or their investment policies

without the approval of their stockholders, requires disclosure of

their finances and investment policies, regulates the means of custody

of the companies' assets, requires management contracts to be submitted to security holders for their approval, prohibits underwriters,

investment bankers, and brokers from constituting more than a

minority of the directors of such companies, and prohibits transactions between such companies and their officers, directors, and affiliates except with the approval of the Commission. The Act also

regulates the issuance of senior securities and requires face-amount

certificate companies to maintain reserves adequate to meet maturity

payments upon their certificates.

The securities of investment companies which are offered to the

public are also required to be registered under the Securities Act of

1933 and the companies must file periodic reports. Such companies

are also subject to the Commission's proxy rules and closed-end companies are subject to "insider" trading rules. The Division of Corporation Finance and the Division of Corporate Regulation both

assist the Commission in the administration of the statute, the former

being concerned with the disclosure provisions and the latter with

regulatory provisions.

COMPANIES REGISTERED UNDER THE ACT

As of June 30, 1962, there were 727 investment companies registered under the Act, including 78 small business investment companies, and the estimated aggregate market value of their assets on

that date was approximately $27.3 billion. These figures represent an

overall increase of 64 registered companies, but a decrease of roughly

$1.7 billion in the market value of assets compared with the corresponding totals at June 30, 1961.1 The total registered companies by

classification are as follows:

1The decrease In asset values as of June 80. 1962 was due primarlly to the May 1962

market decllne.

107
108 SECURITIES AND EXCHANGE COMMISSION

]{anagernent open-end__________________________________________________ 340

]Janagernent closed-end_________________________________________________ 228

Unit invesbnent trust 149

Face-amount certificate_________________________________________________ 10

Total 727

During the fiscal year, 97 new companies, including 37 small business investment companies, registered under the Act while the

registrations of 33 companies were terminated. The breakdown of

these companies by classification is as follows:

Registered Registration dunng the terminated

fiscal year dunng the

fiscal year

Management open-end ______________________________________________________ 22 13 Management closed-end_____________________________________________________ 62 19 Unit investment trust _______________________________________________________ 13 0 Face-amount certificate ______________________________________________________ 0 1

TotaL _________________________________________________________________97 33

GROWTH OF INVESTMENT COMPANY ASSETS

The following table illustrates the striking growth of investment

company assets during the past 22 years, particularly in recent years:

Kumber of investment companies registered under the Investment Oompany Act

and the estimated aggregate assets at the end of each tieoai ycM, 1941 through

1962

Number of companies Estimated

FIScal year ended June 30

aggregate

market value

Registered Registered Registration Registered of assets at at beginning durmg terminated at end of end of year of year year during year year (in millions) 1

1941. ____________________________ 0 450 14 436 $2,500 1942 436 17 46 407 2,400 1943. ____________________________ 407 14 31 390 2,300 1944 390 8 27 371 2,200 1945 371 14 19 366 3,250 1946_____________________________ 366 13 18 361 3,750 1947_____________________________ 361 12 21 352 3,500 1948_____________________________ 352 18 11 359 3,825 1949_____________________________ 359 12 13 358 3,700 1950 358 26 18 366 4,700 1951 366 12 10 368 5,600 1952_____________________________ 368 13 14 367 6,800 1953_____________________________ 367 17 15 369 7,000 1954. 369 20 5 384 8, 700 1955 384 37 34 387 12,000 1956 -_ 387 46 34 399 14,000 1957 399 49 16 432 15,000 1958_____________________________ 432 42 21 453 17,000 1959_____________________________ 453 70 11 512 20,000 1960_____________________________ 512 67- 9 570 23,500 1961_____________________________ 570 118 25 663 29,000 1962 _____________________________ 663 97 33 727 27,300

TotaL ---~---------- 1,172 445 ------._---....

1 The increase in aggregate assets refiects the sale of new securities as well as capital appreciation. By

way of Illustration, the Investment Company Institute reported that during the 1iscal year ended June 30,

1962, its open-end investment company members, numbering 172 and representing the bulk of the industry had net sales of their securities amounting to $2.1 billion.

__________________- ___-- - _- --

__________________- ________--

__________________- ___- - __- __

______________________- ______

_________________• ____- ______

_________________- ___-- - __-- ______________- ________-- ____ _____________ •____- ___ - __-- ______________- ______________

_____________________ - -------------- -
TWENTY-EIGHTH ANNUAL REPORT 109

INSPECTION PROGRAM

In 1957 the Commission initiated a program for the periodic inspection of investment companies pursuant to the statutory authority conferred under Section 31 (b) of the Investment Company Act.

Under this program, 52 companies were inspected in fiscal 1962

in comparison with a total of 113 inspections in all prior years. While

the primary responsibility for making the inspections in fiscal year

1962 rested on the field offices, teams consisting of attorneys and

analysts from the Division of Corporate Regulation, as in previous

years, assisted the respective field offices in a number of instances.

Itis expected that in the fiscal year 1963 most of the inspections will

be made exclusively by personnel of the field offices, which have

become increasingly familiar with the regulatory provisions applicable

to investment companies.

In recognition of the importance of the inspection program, a new

branch has been created in the Division of Corporate Regulation

charged with the responsibility of planning and supervising the

program, and reviewing the reports initially prepared by the field

offices.

A majority of the inspections made during the fiscal year brought

to light violations of the Investment Company Act of 1940, as well

as violations of other statutes administered by the Commission. While

many of the violations uncovered have been of a minor nature which,

when called to the attention of the investment company, its underwriter, or adviser, have been corrected by amending the company's

prospectus, filing additional documents or changing the company's

operations to comply with the law, serious violations have also been

disclosed. Instances were discovered in which the investment advisory contract was not renewed in accordance with the provisions of

Section 15 of the Investment Company Act with the consequence that

the investment adviser received money under a void contract. In one

such situation, the inspection and investigation which followed

resulted in an investment adviser returning a total of $250,000 in

settlement of claims by two investment companies which had been

making payments to the investment adviser under an invalid contract. In another instance, the inspection and investigation which

followed resulted in the resignation of the investment company's

officers and directors and the installation of a completely new interim

management.

Inanother situation, the inspection program uncovered such serious

violations of the Act that the Commission instituted an injunction

action, alleging, among other things, gross abuse of trust on the part
110 SECURITIES AND EXCHANGE COMMISSION

of the officers and directors of that company," In addition, possible

serious violations of Section 17 of the Act and possible gross abuse

of trust have been uncovered in at least two inspections in which it

was found that officers and directors had been causing the company

with which they were associated to enter into transactions which

benefitted such officers and directors or other affiliated persons. At

the end of the fiscal year one of these cases was under active investigation and the other was being considered for possible injunctive

action.

STUDY OF SIZE OF INVESTMENT COMPANIES

Pursuant to Section 14(b) of the Act) the Commission engaged the

Securities Research Unit of the Wharton School of Finance and Commerce of the University of Pennsylvania to conduct a fact-finding

study of the problems created by the growth in size of open-end investment companies.

Data for the study were obtained by means of two comprehensive

questionnaires. The first was mailed in December 1958 to all active

registered open-end investment companies with gross assets of over

$1 million. It covered the 5,%-year period from December 31,1952 to

September 30, 1958, and analyzed the growth, organization and

control, investment policy, and performance of open-end investment

companies; their impact on securities markets; and the extent of their

control of portfolio companies. In 1960 the study was enlarged to include various aspects of the organizational, operating, and financial

relationships existing among the open-end investment companies and

their investment advisers and principal underwriters. This further

area of study was surveyed by means of a second questionnaire, covering the year 1960, which was mailed in December 1960 to registered

open-end investment companies and their investment advisers and

principal underwriters.

Shortly after the close of fiscal year 1962,the Wharton School submitted its report to the Commission entitled "A Study of Mutual

Funds." The report was in turn transmitted to the Committee on

Interstate and Foreign Commerce, House of Representatives," The

SoE.C. v. MldtD68t Technlcal Development Corp., D.C. Minn., No. 4--62 Civ. 142. ThIs

case is discussed in Part XI, infra, under "Civil Litigation."

a See Investment Company Act Release No. 3530 (August 24, 1962). The release contains copies of the letters of transmittal from the Wharton School to the Commission and

from the Chairman of the Commission to the Chairman of the House Committee on Interstate and Foreign Commerce. The study consists of approximately 600 pages, and copies

may be purchased from the Superintendent of Documents, Washington 25, D.C., at $UIO

each.

•
TWENTY-EIGHTH ANNUAL REPORT 111

study concludes that there is little evidence that size per' se of individual funds or companies is a problem at the present time, and that

the more important current problems in the mutual fund industry appear to be those which involve potential conflicts of interest between

fund management and shareholders, the possible absence of arm'slength bargaining between fund management and investment advisers,

and the impact of fund growth and stock purchases on stock prices.

Itfound these problems to be unrelated to company size, except to the

extent that questions arise concerning the allocation between fund

shareholders and investment advisers of the benefits resulting from

large-scale operations.

The study found that the rates of turnover of portfolio securities

were inversely related to size of fund, with the smallest funds generally having the highest turnover rates throughout the period studied

and the largest funds the lowest turnover rates. It also found that,

on the average, the performance of the funds did not differ appreciably

from what would have been achieved by an unmanaged portfolio consisting of the same proportions of common stocks, preferred stocks,

corporate bonds, government securities, and other assets as the composite portfolios of the funds. About half of the funds performed

better, and half worse, than such an unmanaged portfolio. With respect to the investment policies of mutual funds, the study found that

approximately 75 percent of the total net assets of the funds was held

in United States common stocks, and that at December 31, 1961 such

common stockholdings were equal to approximately 4% percent of

the value of all stocks listed on the New York Stock Exchange.

With respect to portfolio company control, the study states that,

despite the growth of large holdings of mutual funds, outright control of portfolio companies by the funds is a rarity and is confined

mainly to small portfolio companies. It also concludes that the

growth in the funds' net purchases of common stock which accompanied the great extension of the mutual fund industry has probably

contributed significantly to the increase of stock prices over the past

decade. The study stated that there is some but not strong evidence

that net purchases by mutual funds significantly affect the month-tomonth movements in the stock market as a whole; and that there is

stronger evidence that fund net purchases significantly affect the daily

movements in the stock market, with the statistical data suggesting that

this latter effect may be fairly substantial.

In commenting upon the typical management structure of the industry under which a significant part of the funds' activities are performed by affiliated organizations such as advisers, underwriters and

brokers, who control or are represented on the boards of directors of
112 SECURITIES AND EXCHANGE COMMISSION

the funds, the study draws attention to the potential for divided loyalties arising from these arrangements. It also comments upon the role

of, and in general questions the effectiveness of, the "unaffiliated"

directors of the typical fund.

The study raises questions as to the relationship or lack of relationship between the growth, size and performance of funds and sales commissions and other sales incentives, and it questions whether the

apparent historical emphasis upon constantly increasing fund assets by

intensive sales efforts has always been in the interest of fund investors.

It also draws attention to the relationship or lack of it between growth,

size and performance of funds, on the one hand, and, on the other

hand, advisory fees and costs of operation of the funds and of the advisers, including fees charged by advisers to other clients. It states

that, for comparable asset levels, advisory fee rates charged mutual

funds tend to be substantially higher than those charged by the same

advisers to the aggregate of their clients other than investment companies. The study found that the expenses involved in advising

mutual funds were less than those incurred in advising other clients.

Inthe letter of transmittal to the Chairman of the House Committee

on Interstate and Foreign Commerce, the Chairman of the Commission pointed out that many of the practices of which the Wharton

School appears critical may be attributable to an industry structure

which is clearly contemplated by the Investment Company Act of

1940, but that many of the comments in the study implicitly raise

questions of broad policy whether some of the practices and patterns

which originated in an earlier time and under different conditions

and which have become conventional within the broad tolerances of

the Act should be reconsidered. Accordingly, the Commission has

directed its staff to undertake a detailed analysis of the Wharton

School study, and on the basis of such analysis, together with consideration of material being developed in related Commission studies

now in progress, to make such recommendations to the Commission

regarding the provisions of the Investment Company Act and the

rules and regulations thereunder as may seem appropriate. The

Commission will then be in a position to determine and formulate

such legislative, rule and enforcement proposals, if any, as may be

desirable and thereafter to report to the Congress.

CURRENT INFORMATION

The Commission's rules promulgated under the Act require that

the basic information contained in notifications of registration and in
TWENTY-EIGHTH ANNUAL REPORT 113

registration statements of investment companies be kept current,

through periodic and other reports, except in cases of certain inactive

unit trusts and face-amount companies. The following reports and

documents were filed during the 1962fiscal year:

llnnual reports______________________________________________________ 458

Quarterly reports____________________________________________________ 262

Periodic reports to stockholders (containing financial statements) 1,391 Copies of sales literature 2,477

The foregoing statistics do not reflect the numerous filings of

revised prospectuses by open-end mutual funds and unit investment

trusts making a continuous offering of their securities. These prospectuses, which must be checked for compliance with the Act, are

required to show material changes which have occurred in the operations of the companies since the last effective date of the prospectuses

on file. In this respect registration statements under the Securities

Act of 1933 covering securities of such companies are essentially

different from registration statements relating to the usual type of

corporate securities.

APPUCATIONS AND PROCEEDINGS

Under Section 6(c), the Commission, by rules and regulations,

upon its own motion or by order upon application, may exempt any

person, security, or transaction from any provision of the Act if

and to the extent that such exemption is necessary or appropriate

in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions

of the Act. Other Sections, such as 6(d), 9(b), 10(f), 17(b), and

23(c), contain specific provisions and standards pursuant to which

the Commission may grant exemptions from particular sections of

the Act or may approve certain types of transactions. Also, under

certain provisions of Sections 2, 3, and 8 the Commission may determine the status of persons and companies under the Act. One of the

principal activities of the Commission in its regulations of investment companies is the consideration of applications for orders under

the sections referred to.

During the fiscal year, there were 221 applications under various

sections of the Investment Company Act before the Commission.

The sections of the Act with which these applications were concerned

and their disposition are shown in the following table:

672175-63-9
114 SECURITIES .AND EXCHANGE COMMISSION

Applications filed, with and. acted upon bll rhe Oommi.88ion und.er the Investment

0lYmPany Act of 1940 during the fiscalllear ended June 3D, 1962

Pend- PendSections Subjeet involved ing Filed Closed

July I, J~e

1961 30,1962

l'-________________ -- -- -- Definition of controlled person ______________________ 0 4 0 4 3 and 6___________Status and exemptton ______________________________ 16 Ii 9 12 7(d) ______________Reglstratlon otforelgn investment companies _______ 2 1 1 2 8<0 ______________ Termination ofregistration _________________________ 20 as 33 Zl 9, 10, 16__________Regulation of affiliations of directors, officers, em- 3 6 7 2

ployees, investment advisers, underwriters and

others.

12, 13, 14(a), IIi___Regulation offunctlons and activitIeS oflnvestment 6 13 11 8 eompanles, 11, 20_____________ Regulation ofsecurity exchange offers and reorgant- 1 1 0 2

mtlon matters. 17________________Regulation of transeetlons with affiliated persons ___ 22 IiO 42 30

IS, 19,21, 22, 23___ Requirements as to capital structures, loans, distri- 6 13 19 s buttons and redemptions, and related matters. 20,30_____________Proxies and reports _________________________________ 1 2 1 2 28________________ Regulation of tace-amount certlficate companies ____ 2 2 2 2

TotaL ________________________________________84 137 l2li 96

Some of the more significant matters in which applications were

considered are summarized below:

The Commission denied an application by I'11JVestoT8DweTsified

Services, Inc. ("IDS")4 for an exemption from Section 18(j) (1) of

the Act which prohibits the issuance by a registered face-amount

certificate company of non-voting shares of stock. IDS has out.

standing some 879,000 shares of non-voting stock and 574,540 shares

of voting stock and, in order to effect a 10-for-one split of both classes

of stock, an exemption order was required as to the non-voting stock.

The Commission noted that the holders of the voting stock, who

owned only 39.52% of the proprietary interest in the company,

possessed 100% of the voting power, thus creating an inequitable

distribution of voting power. Applicant contended that since the

stock split would result in lowering the market price of the stock,

which ranged from $181 to $310 per share in 1961, it would create

a broader and more stable market. However, the Commission noted

that the split would also potentially enlarge the absolute number of

shareholders without voting rights, thereby furthering an inequitable

distribution of control contrary to the aims and purposes of the Act.

Commissioner Frear, in a separate opinion, concured in the denial

of the application for the stock split because it carried no assurance

that the non-voting stock would be eliminated to carry out the "basic

reforms of providing equal voting rights."

In a dissenting opinion, Commissioner Whitney expressed the view

that (1) the Act does not require the elimination of the non-voting

stock of IDS which was outstanding on the effective date of the ~Act,

• Investment Company Act Release No. 8414 (April 21, 1I1U).
TWENTY-EIGHTH ANNUAL REPORT 115

and (2) the stock split would only be a technical and formalistic

issuance of shares which would not have any aggravating effect on the

existing distribution of voting power. He concluded that an exemption was warranted under the statutory pattern contemplating

exemptions where the result would not be inconsistent with the

policies and purposes of the Act and where the adverse effect on the

market attributable to the existence of a relatively small supply of

IDS shares, coupled with a high unit price, would be relieved.

On June 11, 1962, pursuant to the provisions of Section 25(b) of

the Act, the Commission invited interested persons to submit their

views with respect to the fairness of a plan of recapitalization proposed by IDS under which each share of non-voting stock would

become a share of voting stock. IS As of the end of fiscal 1962 no

definitive action had been taken by the Commission.

During the fiscal year applications were filed pursuant to Section

2(a) (9) of the Act by shareholders of Fundamentai Lnoestore, Ino.,

Investors Mutual, Imc., and Television-Electronics Fwnd, Ino., registered open-end investment companies, alleging that certain directors

who were represented to be unaffiliated with the respective investment advisers in fact had been and were now controlled by such

investment advisers. Prior to ordering a hearing on the factual

questions raised by the applications, the Commission directed that

the parties and other interested persons file briefs and reply briefs

with respect to certain specified common legal issues raised by the

applications," These issues relate to the Commission's jurisdiction,

power and duty under Section 2(a) (9) to determine that a natural

person, e.g., a director of a registered investment company, is controlled, and if so, under what circumstances, for what purposes and

with what effect. In addition the Commission requested that the

briefs consider the effect on its jurisdiction, if any, of the pendency

in courts of competent jurisdiction of suits allegedly involving the

same issues and parties, and also whether an investment company

shareholder is an "interested person" within the meaning of Section

2(a) (9) so as to have standing to file applications under that Section. Oral argument was held on these issues on June 14, 1962, and

the matter was under advisement at the close of the fiscal year.

After publication of the Commission's notice of the filing of the

above applications, an application was filed by a shareholder of AxeHoughton Fund B, Ino., seeking a determination by the Commission

pursuant to Section 2(a) (9) that certain directors of that investment

company are controlled by other directors who also allegedly COl1-

• Investment Company Act Release No. 34811•

• Investment Company Act Releue No. 3468 (Apri118. 1962).
116 SECURITIES AND EXCHANGE COMMISSION

trolled the investment company. Subsequent to the close of the fiscal

year this application was dismissed by the Commission on the ground

that it failed to state a basis for the requested determinations under

Section 2(a) (9). Applicant thereafter filed a petition to review the

Commission's action in the Court of Appeals for the Second Circuit.

The petition was dismissed on October 5, 1962.

The Commission's Annual Report for fiscal 1961 referred to an

application filed by The Prudential Insurance 00. of America for

exemption from the Act or, in the alternative, for exemption from

certain provisions thereof, in connection with its proposed plan for

the sale of variable annuity contracts," During fiscal year 1962 the

hearing inthis matter was completed, briefs were filed by the interested

parties, and oral argument was had before the Commission. At the

end of the fiscal year the matter was awaiting a decision by the Commission.

• 27th Annual Report, p. 152.
PART X

ADMINISTRATION OF THE INVESTMENT ADVISERS ACT

OF 1940

The Investment Advisers Act of 1940 requires the registration of

persons engaged for compensation in the business of advising others

with respect to securities. Certain advisers are exempt from the

requirement of registration, including those who advise only investment companies or insurance companies and those who, within the

last 12 months, had fewer than 15 clients and who do not hold themselves out generally to the public as investment advisers. Furthermore, the registration requirements do not apply to an adviser whose

investment advice is given only to persons resident in the state in

which he maintains his principal place of business, as long as the

advice does not concern securities listed on a national securities

exchange or admitted to unlisted trading privileges on such an

exchange.

As discussed in the last Annual Report 1 Section 206 of the Act,

which prohibits certain unlawful practices by investment advisers,

was amended in September 1960 by the addition of subsection (4).

That subsection prohibits any investment adviser from engaging in

fraudulent, deceptive or manipulative acts or practices and gives the

Commission authority, by rules and regulations, to define and to

prescribe means reasonably designed to prevent such acts and practices. In accordance with this provision the Commission during the

fiscal year adopted Rule 206(4)-1, effective January 1, 1962,2 which

defines certain advertisements by investment advisers as fraudulent,

deceptive or manipulative. It also adopted Rule 206(4)-2, effective

April 2, 1962,3which requires an investment adviser who has custody

of funds or securities of any client to segregate them, maintain them

in the manner provided in the rule, and to comply with other conditions specified in the rule.

Investment advisers who also effect transactions as brokers and

dealers must disclose any interest they may have in transactions

effected for clients if acting as an investment adviser with regard to

such transactions. The Act prohibits any investment adviser not

127th Annual Report, p. 159 .

Investment Advisers Act Release No. 121.

Investment Advisers Act Release No. 123.

117

•

•
118 SECURITIES AND EXCHANGE COMMISSION

exempt from registration from basing his compensation upon a share

of the capital gains or appreciation of his client's funds. The Act

also makes it unlawful for any such investment adviser to enter into,

extend or renew any investment advisory contract or to perform such

contract if the contract provides for compensation to the investment

adviser on the basis of a share of capital gains or capital appreciation

of the funds or any portion of the funds of the client or fails to

provide that no assignment of such contract shall be made by the

investment adviser without the consent of the other party to the

contract.

Prior to the 1960 amendments, the Act did not require investment

advisers to keep and preserve books and records, nor was the Commission empowered to inspect books and records kept by investment

advisers. Section 204 of the Act, as amended, now requires every

investment adviser who is not exempt from registration to make, keep

and preserve such books and records as may be prescribed by the

Commission and empowers the Commission to inspect such books and

records. In accordance with this provision, the Commission adopted

Rule 204-2, effective July 1, 1961,.specifying the books and records to

bemaintained by investment advisers.

Inspection procedures have been revised to obtain information

concerning compliance with the new rules. These rules are more

fully discussed in Part III of this report.

Investment advisers who violate any of the provisions of the Act

are subject to appropriate administrative, civil or criminal remedies.

With respect to administrative remedies, the Act provides, in Section

203(d), that the Commission shall deny, revoke, or suspend for not

more than 12 months, the registration of an investment adviser if

it finds that such action is in the public interest and that the investment adviser or any partner, officer, director or controlling or controlled person of the investment adviser is subject to a specified

disqualification. These disqualifications include willful misstatements in an application or report filed with the Commission, the

existence of a conviction or injunction based on or related to specified

types of misconduct, willful violation of any provision of the Securities Act, Securities Exchange Act or Investment Advisers Act or any

rule or regulation thereunder, or aiding and abetting any other

person's violation of such provisions, rules or regulations.

At the close of the fiscal year, 1836 investment advisers were registered with the Commission. The following tabulation contains statistics with respect to registrations and applications for registration

during fiscal year 1962:

• Investment Advisers Act Release No. 114.
TWENTY-EIGHTH ANNUAL REPORT 119

Inv68tment Adviser Registrations-1962 Fiscal Year

Effective registrations at close of preceding fiscal year 1,855

Applications pending at close of preceding fiscal year____________________ 24

Applications filed during fiscal year____________________________________ 315

Total__________________________________________________________ 2, 194

Registrations cancelled or withdrawn during year____________________ 338

Registrations denied or revoked during year____________________________ 0

Applications withdrawn during year___________________________________ 4

Registrations effective at end of year 1,836

Applications pending at end of year ~_______________________________ 16

Total 2,194

ADMINISTRATIVE PROCEEDINGS

During fiscal 1962, the Commission instituted revocation proceedings against six registered investment advisers and in another instance

instituted proceedings to determine whether an application for registration should be denied. These proceedings, and four revocation

proceedings previously instituted, were pending at the close of the

year. The proceedings instituted during the year included the

following:

Oarroll Tillman and John Francis Ryan, Jr. each doing business as

The Tillman Survey-The Commission instituted proceedings to determine whether the registrants had engaged in fraudulent and

deceptive acts including the distribution of advertising material

which was "lurid and flamboyant" contrary to Rule 206(4)-1 under

the Act and whether the public interest required that their registrations as investment advisers be revoked. The Commission's staff

charged that Tillman, aided and abetted by Ryan, published and distributed advertising material which contained untrue statements and

was false and misleading. The alleged misrepresentations in the advertisements involved comparisons between the securities recommended by Tillman and other securities without adequately disclosing

the material differences between the securities, and representations

that a list of 10 stocks which Tillman offered was selected in accordance with 7 tests prescribed by him and that these tests could "dig up"

securities which eventually could be enormously profitable. The

staff charged that the advertising material created false and misleading impressions by referring to 25%, 50% and 100% increases in

market values, by falsely representing that certain subscription offers

were available only to a selected group and by guaranteeing that a

refund would be made to subscribers unless a group of 10 stocks rose

175 points before September 7, 1962, while omitting to disclose Tillman's complex and misleading method of determining the dates and

figures used in ascertaining the availability of such guarantee,"

• Investment Adv1sers A~ Release No. 128 (June 20,1962).
PART XI

OTHER ACTIVITIES OF THE COMMISSION

CIVIL LITIGATION

The several statutes administered by the Commission authorize the

Commission to seek injunctions against continuing or threatened violations of such statutes. Such violations may involve a wide range of

illegal practices, including the purchase or sale of securities by fraud,

and the sale of securities without compliance with the registration

requirements of the Securities Act. The Commission also participates

in various other types of proceedings, including appearances as

amicus curiae in litigation between private parties where it deems important that its views regarding the interpretation of the statutes be

furnished to the court.

At the beginning of the fiscal year 1962 there were pending in the

courts 96 injunctive and related enforcement proceedings instituted by

the Commission to prevent fraudulent and other illegal practices in

the sale or purchase of securities. During the year 89 additional proceedings were instituted and 80 cases were disposed of, leaving 105

such proceedings pending at the end of the year. In addition the

Commission participated in a number of corporate reorganization

cases under Chapter X of the Bankruptcy Act, in 9 proceedings in the

District Courts under Section 11 (e) of the Public Utility Holding

Company Act, and in 9 miscellaneous actions. The Commission also

participated in 50 civil appeals in the United States Courts of Appeals.

Of these, 14 came before the courts on petition for review of an administrative order, 9 arose out of corporate reorganizations in which the

Commission had taken an active part, 11 were appeals in actions

brought by or against the Commission, 2 were appeals from orders

entered pursuant to Section 11(e) of the Public Utility Holding Company Act, and 10 were appeals in cases in which the Commission appeared as amicus curiae. The Commission also participated in 6

appeals or petitions for certiorari before the United States Supreme

Court resulting from these or similar actions.

Complete lists of all cases in which the Commission appeared before

a Federal or state court during the fiscal year, either as a party or as

amicus curiae, and the status of such cases at the close of the year are

contained in the appendix tables. This section describes a few of the

more noteworthy cases, not including, however, any cases arising

120
TWENTY-EIGHTH ANNUAL REPORT 121

under the Public Utility Holding Company .Act or Chapter X of the

Bankruptcy .Act; cases arising under those statutes are discussed in

the sections of this report dealing with such statutes.

InSE.O. v. Herbert Rapp, et al.,' the Commission sought a permanent injunction against Rapp, a registered broker-dealer, and certain

of his salesmen for violating Section 17 (a) of the Securities Act, by

making false and misleading statements in the offer and sale of the

stock of an aircraft manufacturing company. The District Court,

after trial, dismissed the complaint for failure of proof, finding,

among other things, that expressions of opinion by salesmen that the

stock would soon increase significantly in value did not constitute a

material misrepresentation.s The Court made no reference to the distribution of misleading sales literature, and it further apparently exonerated Rapp because he had made no oral representations. It also

denied the Commission's motion at the end of the trial, pursuant to

Rule 15 (b) of the Federal Rules of Civil Procedure," to conform the

pleadings to the proof.

The Court of .Appeals for the Second Circuit reversed the District

Court, ordering that a permanent injunction issue as to Rapp and

remanding as to the salesman involved in the appeal.' The .Appellate

Court held that where the defendants failed to object to the trial of

issues not raised by the pleadings, the District Court was required

to grant the Commission's motion to conform the pleadings. It

further held that since the salesmen had no know ledge of the securities

business and their statements were in accord with the sales literature

which Rapp instructed them to follow, the District Court erred in

stating that the latter was not responsible for the misrepresentations

made by them. Furthermore, it held that Rapp was responsible for

misrepresentations in a brochure mailed to prospective investors, and

that he also violated Section 17(a) by leading customers to believe he

was acting as agent in the sale of the stock, when in fact he was acting

as principal. The action as to the salesman was remanded for further

proceedings since the findings of fact were insufficient to determine

whether his predictions of future value were opinions without basis

in fact.

In S.E.O. v. Ouster Ohannel Wing Oorporation, et al.5 the Commission sought to enjoin an issuing corporation, its president and a

trustee from offering and selling securities without registration in

violation of Section 5 of the Securities Act, and from engaging in

practices operating as a fraud upon purchasers in violation of Sec1S.D.N.1:. No. 132-344.

CCH Sec. L. Rep. ,,/91048.

29 U.S.C.A. Rule 15(b).

'304F. 2d 786 (1962).

D. Md. No. 13,500 Civil.

•

•

•
122 SECURITIES AND EXCHANGE COMMISSION

tion 17(a) of that Act. Defendants had represented that treasury

shares of the corporation were available for sale. However, as to

those treasury shares which were sold, no registration statement was

in effect, and other shares sold were not treasury shares but shares

which had been placed in a trust by the president. By the terms of

the trust, the shares were to be returned to the president within 1 year

or, if the shares were sold, the proceeds were to be paid over to him

within 2 years and in the interim they were to be loaned to the corporation. These shares were also unregistered. Rejecting the defendants' contention that the shares sold were exempt from registration

because they had at one time been sold as part of an intrastate distribution exempt from the registration requirements by Section

3 (a) (11) of the Act, or as part of a small issue exempt under Section

3(b) and Regulation A thereunder, the District Court declared that

the exempt status of the securities did not continue indefinitely or, as

claimed by the defendants, until such time as there was a fundamental

change in the corporate structure. The Court stated that once such

stock came into the hands of the issuer or persons controlling the

issuer, its subsequent offering constituted a new issuance as to which

the registration requirements again became applicable. The District

Court also found violations of Section 17(a) of the Act, in the sale of

the trust shares to investors accepting the offer of treasury shares,

holding that disclosure should have been made regarding the existence of the trust and the fact that under its terms the money received

for the shares was to be loaned to the corporation, such loan to be

secured by a chattel mortgage on airplanes manufactured by it.

In S.E.C. v, Federal Shopping Way, !rw.,s where the Commission

charged numerous defendants with violations of the registration and

anti-fraud provisions, the defendants sought leave to file a counterclaim against the Commission and to join Seven named Commission

employees as llarties to such proposed counterclaim. The 'Proposed

counterclaim alleged that defendants had been defamed and tortiously

aggrieved by statements contained in Commission litigation releases

and statements made by Commission employees during their conduct

of investigations, and sought damages and injunctive relief. The

Court denied defendants such leave, holding that "Federal officials are

privileged against suit for acts done within the scope of their official

duties," and "(e) xamination of the record and the proposed crosscomplaint clearly shows that the alleged misconduct . . . . (of defendants to the counterclaim) entirely consists of actions wholly

within the course and scope of their official duties."

• W.D. Wash. No. 2671.
In-S.E;(J. v. Bloom~e7'g;7 which -arose out-of the reorganization of

Bettinger Gorpomtion 'Wider Chapter X'of tHe Bankruptcy Act, rthe

tJrustees "proposed 'lbS part-of their .plan '0£ !reorganization to issue 'at

stated ratios new common Stock ifor the old stock-of the 'company plus

'8 certain "3moWl'tof cash, They wok the position that the rssuanee

of 'tlhe ~ew stock Was ~xem.pt from the registration provisions of

Seceion "5'Of the Seourieies Act :by virtue of Section ~64 (a (2) of

Chapter X, which provides an exemption for "any transaction ill any

secUri.ty issued pursuant to "3 plan in exchange for -securities of or'

Claims against the 'debtor or partly in such exchange and partly for

cash and/or property." It 'was the 'Commission's view, on the 'other

hand, that since the company was insolvent, the old Stock was worthless and there could be no true '~xchange" within the ineanmg and

spiI,'it of Section 264 (a) (2), and that accordingly the new stack 'could

not the lawfully distributed without registration.

However, the COmmission's 'attempts to raise the issue 'Were nnsueoessful. The Commission :first moved to intervene in the Chapter

K proceedings, but the District Court denied the motion. Thereafter,

it sought to enjoin the ;proposed distribution, but the Court dismissed

the injunctive action. In an opinion issued later, the Court assigned

R1'l one .ground for its orders that the Commission's actions were not

timely. It also indicated that it considered the distribution Of the

hew stock to be exempt.

On appeal by the Commission, the Court of Appeals for the First

Circuit, without reaching the SUbstantive issue, affirmed solely on the

ground that the trial court had not abused its discretion in ruling

that the Comtnission's actions were not timely." The Appellate

Court's opinion did expressly reject the intimation Of the District

Court that the nonregistration of stock could be excused on the basis

that the time requirements of registration would be inimical to a

proposed plan of reorganization. Of significance in the opinion,

also, is the Appellate Court's implicit agreement that an application

to intervene by the Commission as the agency administering the

Securities Act was the proper method of raising the issue of registration; wholly apart from the Commission's role as Chapter X adviser,

in which latter capacity its right of appeal is express~ circumscribed

by statute,

In KtJlcatu8h Miiling (J'orp. v. S;E.O., plaintiff sought to enjoiri

the Commission from continuing its name on the Canadian Restricted

List,P alleging that the Commission's action was arbitrary and conr D.C. Mass. No. 61-72ll-lS.

8299 F. 2d 315 (1962). ., .

This list and a descr1ptlon of ita purposes "IIi Ife tliilnll els~*lti!r~iii thlS report,

pages 144-146. '''Ira.

~

•
124 SECURITIES AND EXCHANGE COMMISSION

stituted a black-listing of the company without notice or opportunity

to be heard. Plaintiff's complaint also alleged that it had suffered

irreparable injury. The Commission moved to dismiss the action on

the ground that plaintiff had not exhausted its administrative

remedies, that issuance of the List was within the Commission's

authority and discretion, that the District Court had no jurisdiction,

and that plaintiff had not suffered any injury which entitled it to

relief.

The District Court for the District of Columbia granted the Commission's motion to dismiss 10 and subsequent to the end of the fiscal

year the Court of Appeals for the District of Columbia affirmed the

lower court's action.P

S.E.O. v. Union Oorporation of America 12 is an action by the Commission to compel the filing of annual reports by the corporation pursuant to Section 15 (d) of the Securities Exchange Act. In granting

a mandatory injunction, the District Court held that once the aggregate value of a company's registered and outstanding stock of the same

class exceeds $2 million, its undertaking to file reports becomes and

remains operative, and the fact that the value of those shares actually

sold plus those previously outstanding never exceeds $1 million does

not suspend the duty to file reports in the absence of a deregistration

reducing the value of the registered and outstanding shares to less

than $1 million. Following the close of the fiscal year, the Court of

Appeals affirmed;"

In Stanley E. Henwood, et d. v, S.E.O.,14 the Commission sought

to have the court enjoin 17 stockholders of United Industrial Corporation, associated together as the Stockholders' Protective Committee,

from making false and misleading statements in material distributed

in solicitation of proxies which were to be voted at the 1961 annual

stockholders' meeting. After entering orders temporarily enjoining

further solicitation, the voting of proxies already obtained and the

holding of any stockholders' meeting, the District Court upon trial

held that the failure of the Committee to disclose the full extent of the

participation of two resigned officers and directors of the corporation

in the organization of the Committee and its solicitation of proxies

violated Section 14(a) of the Securities Exchange Act of 1934, and

the Commission's Rule 14a-9 thereunder. The Court found that the

former president and executive vice president, who had resigned following announcement of discrepancies of $7 million in the corpora10198 F. Supp. 1108(1961).

n309 F. 2d 647 (C.A.D.C., 1962.)

12205 F. Supp.1I18 (E.D. Mo., 1962).

18 C.A. 8, October 19,1962 (No. 17,048),

l' S.D. Calif., No. 98IHlI-TC.
TWENTY-EIGHTH ANNUAL REPORT 125

tion's accounts, had in fact organized the Committee and participated

in the solicitation of proxies," The Court of Appeals for the Ninth

Circuit modified and affirmed the order enjoining proxy solicitation

by the Committee unless the activities of the two former officers were

disclosed and enjoining the voting of proxies already obtained." The

enjoined defendants petitioned the Supreme Court for a writ of

certiorari, asserting that Section H(a) of the 1934 Act, as applied

through the Conunission's proxy rules, is constitutionally objectionable

as being so vague and ambiguous as to constitute an unauthorized

delegation of legislative powers and as invading rights of free speech

and contract, and that the District Court could not enjoin the voting

of proxies obtained through unlawful solicitation where an opportunity for resolicitation was allowed. The Commission filed a brief in

opposition, pointing out that the terms of the statute are comparable

to many other statutory provisions which have been held to be

sufficiently definite, that the Commission has no power of "censorship"

over proxy material and that an injunction against voting proxies

obtained through unlawful solicitation is relief traditionally ancillary

to the restraint against continued violation of the proxy rules. Subsequent to the close of the fiscal year, the Supreme Court denied

certiorari.l6a

In Brown, Barton & Engel v, S.E.O.,l1 the Court of Appeals for

the Third Circuit denied a motion to stay the enforcement of a

Commission order suspending petitioner's registration as a broker

and dealer pending final determination of the issue as to whether such

registration should be revoked. The suspension order had been

issued on the basis of the Commission's findings that petitioner had

engaged in a fraudulent course of conduct and was subject to two

injunctions. Court review of the Commission's decision was pending

at the close of the fiscal year.

In Hansen v, S.E.O.,lS plaintiff sought to enjoin the Commission

from taking his testimony in an administrative proceeding against a

broker-dealer, in which plaintiff was named as a cause, and to compel

the Commission to consider any charges against him in separate proceedings. He also alleged that the Commission wrongfully withheld

his papers and that publication of the Commission's order instituting

proceedings against the broker-dealer caused him irreparable injury.

The Commission moved to dismiss the complaint or alternatively for

judgment on the pleadings on the grounds that it had authority to

bring public proceedings against the broker-dealer and to name plain16 CCH Fed. Sec. L. Rep. f 91, 125.

0298 F. 2d 641 (C.A. 9, 1962).

'0. 371 U.S. 814 (1962).

11 Civil No. 14080, C.A. 3, August 9. 1962.

1B D.D.C. Civil Action No. 3829-61.

•
126 SEcuRlTIES AND IDtti.Er.lNG'E ~ION

tiff & cause therein, that pla.i»1iffhad not exhausted his administrative

remedies and that the District Court had no jurisdiction OWl' plaintiff~sclaim. The District Court granted the Commission's motion for

judgment on the pleadings.

Two cases, Berko v. SE.O.,l. and Kahn Y. S.E.O.,20 arose from

an order issued by the Commission revoking the broker-dealer registration of Ml.I.CRobbins & Co., Inc. and finding that nine salesmen,

including Berko and Kahn, were each a cause of the revocation, 21

Mac Robbins had been co-underwriter of an issue of stock of Sports

Arenas, Ine., and after the offering had been completed, its principal

business was trading in Sports Arenas stock. The Commission found

tha.t Berko and Kahn had made highly optimistic statements about

Sports, although they knew that there was no adequate basis for such

statements or were "grossly careless or indifferent" in fa.iling to

determine whether or not such basis existed.

The Court of Appeals for the Second Circuit remanded the casesto

the Commission, on the ground that the factual and legal basis for

the Commission's decision was not stated with sufficient clarity.

A.mong other things, it held that the fact that the issuer had sustained initial operating losses did not in and o.f itself mean that there

was no adequate basis for optimistic statements regarding the stock.

The Court asked the Commission to express its views, among other

things, regarding the significance of participation by salesmen in

a so-called "boiler-room" operation, the right of salesmen to rely on

information given to them hy their employer, and the extent to

which the salesmen'sspecialization in Sports stock created or increased

the duty to investigate and disclose.

Judge Clark, concurring in the result, concluded that the 'Commission had not made clear whether it relied upon the so-called

"shingle" theory or some other legal theory.

Shortly after the close 6f the fiscaJ; year, the Commission issued

an Opinion and Order reaffirming its previous findings that Berko

and Kahn were each a cause of the revocation (Securities Exchange

Act Release No. 6846 (July 11, 1002)}. In September 1962, Berko

filed a petition for review in the Court of Appeals for the Second

Circuit. Kahn has not sought such review, and the statutory period

for seeking review has expired.

In SiVuer v. New YQrk St.ock EaJ<ihange,!l!lthe E.x:cl1ange, after a

confidential investigation, had directed its. member firms to discontinue private wire connections with Silver, a securities dealer, aDd

,. 297 F. 2d 116 (C.A. 2, 1961)

eo 297 F. 2d 112 (C.A. 2, 1961).

21 Securities Exchange Act Release Nos. 6462 (February 6, 1961) and 6!W1i (Mlireh 16.

1961)

.. 196 F. SuPP. 209 (S.D.N.Y••1961.).

•

•
TWENTY-EIGHTH AL""rnUAL REPORT 127

Silver brought an action for damages and injunctive relief alleging

violations of the anti-trust laws. The District Court granted Silver's

motion for summary judgment, permanently enjoining the Exchange

under Section 16 of the Clayton Act from interferring with private

wire and telemeter connections between its members and Silver and

holding that the Exchange was liable for damages under Section 4

of the Clayton Act. The Exchange appealed from this decision and

the Commission, because of language in the opinion of the District

Court suggesting that a registered stock exchange has no right or

duty to discipline its members on the basis of their transactions in

unlisted securities, filed a memorandum as amicus curiae. The Court

of Appeals reversed, 28 holding that "the action of the Exchange

in bringing about the cancellation of the private wire connections

with members of the Exchange was within the general scope of the

authority of the Exchange as defined by the 1934 Act and therefore

outside the coverage of the Sherman Act," and expressly rejecting

the suggestion that the authority of the Exchange in disciplining its

members is limited to transactions in securities listed on the Exchange.

Silver's petition for a writ of certiorari is pending in the Supreme

Court.24

In the last Annual Report, the case of Blau v. Lehman was

described and it was stated that the Supreme Court had granted

certiorari.25 That was a derivative suit by a stockholder of Tidewater

Associated Oil Company against an investment banking partnership

to recover "short swing" profits realized by the firm through transactions in Tidewater's securities while one of the partners was serving

on the company's board of directors. The Supreme Court 26 affirmed

the decrees of the Court of Appeals 21 and the District Court 28 which,

while awarding the plaintiff a judgment for that portion of the

defendant's profits which were chargeable to the partner-director's

income account, refused to hold that the firm itself violated Section

16(b) of the Securities Exchange Act, thus permitting the firm to

retain over 96 percent of its "short swing" profits. The Court took

cognizance of the Commission's position, as advocated in its amious

curiae brief, that while the literal language of Section 16(b) limited

liability to "directors," considerations of policy were present which

made it appropriate to expand that Section to cover partnerships

of which a director is a member. However, the majority was of the

opinion that if Section 16(b) were to be so expanded, it should be

18 802 F. 2d 714 (C.A. 2, 1962)

.. No. 150. 1962 Term

.. 27th Annual Report, p. 96.

.. 368 U.S. 408 (1962).

W1286 F. 2d 786 (C.A. 2, 1960).

18178 F. Supp. 590 (S.D.N.Y., 19(9).

•

•
128 SECURITIES AND EXCHANGE COMMISSION

accomplished by remedial legislation, rather than by judicial construction. In a strong dissent, charging that the majority opinion

resulted in a ". . . mutilation of the Act," Justice Douglas, with

whom Chief Justice Warren concurred, stated that there should be

no difficulty in charging the partnership with liability as an "insider"

in cases where it is determined, as a factual matter, that the partnership has either "deputed" or informally instructed its partner to

represent its interests on the corporate board of directors.

At the request of the United States District Court for the Southern

District of New York, the Commission filed a memorandum of law

as amicus curiae in Silverman v. Landa and Fruehauf Trailer 00.29

The action was brought by a stockholder of Fruehauf to recover on

behalf of Fruehauf the profits realized by defendant Landa, a director

of the company, in transactions in Fruehauf common stock. While

the beneficial owner of 2000 shares of Fruehauf common stock, Landa

had issued simultaneously two "call" options and one "put" option,

each for 500 shares. Plaintiff claimed that the issuance by the

defendant of a "straddle," i.e, the simultaneous issuance of a put

option and a can option, constituted a purchase and sale of the underlying security for the purposes of Section 16(b) of the Securities

Exchange Act of 1934, and that the issuance of the unmatched call

violated Section 16(c) of the Act, since the underlying security was

not delivered within 20 days of the date of the issuance of the call.

The Commission took the position that the issuance of a straddle

constituted a purchase and sale of the underlying security for the

purpose of Section 16(b) of the Act, but that no violation of Section 16(c) occurred since the defendant at all times owned sufficient

shares of the underlying security to deliver in satisfaction of any

obligation under the unmatched call. However, the District Court

held that no purchase or sale of the underlying security occurs until

such time as the options are exercised, and accordingly found no

liability under Section 16(b) and no violation of Section 16(c).

The case was appealed to the Court of Appeals for the Second Circuit and the Commission filed a brief as amicus curiae, taking the

same position it took in the District Court. Subsequent to the end

of the fiscal year, the Court of Appeals affirmed the decision of the

District Court.so -'

The case of Warshow v, H. Hentz &: 00.,31 was an action for

rescission or damages brought by a customer against a broker who

arranged for the purchase of securities in violation of the margin

.. S.D.N.Y .• No. 61 Clv. 1115.

80306 F. 2d 422 (C.A. 2, 1962).

11199 F. SUPP. 581 (S.D.N.Y ••1961).
T~ENTY-EIGHTH ~AL REPORT 129

requirements of the Securities Exchange Act of 1934. Plaintiff's

loss was discovered and suit instituted when the moneylender, with

whom plaintiff's shares were pledged, went into receivership and

such shares were not among the assets.

Defendant moved to dismiss the complaint, contending that the

facts alleged in the complaint failed to set forth a cause of action.

The Commission filed a brief amicus curiae urging that the plaintiff

was entitled to rescission or to recover damages because the contract

for the purchase of securities was in violation of the Act and hence

void under Section 29 (b) . Alternatively, the Commission argued that

the plaintiff had an implied private right of action against the brokerdealer for the latter's violation of the margin requirements where the

losses were not caused by fluctuation of the market, but by the insolvency of the moneylender selected by the broker.

The Court denied the motion to dismiss, accepting the positions

urged by the Commission, and the suit was subsequently settled by

compromise.

The case of S.E.O. v. Oapital Gain8 Research Bureau, Inc., is

described in the last Annual Report." The Commission had charged

an investment adviser and its president with violating Sections 206 (1)

and (2) of the Investment Advisers Act. The trial court's denial of

a preliminary injunction" was affirmed by a divided panel of the

Court of Appeals for the Second Circuit," and the Commission

petitioned for a rehearing en bane which was granted. The Court

of Appeals en bane has affirmed the trial court's decision by 5 to 4

decision."

Sutro Brothers & 00. v. 8.E.0.,36 Amos Treat &: 00., v. SE.0.,S7

and R. A. Holman & 00. v. S.E.0.38 are three actions brought by

broker-dealers to enjoin the Commission from continuing an investigation or administrative proceedings against them. Sutro Brothers

sought to enjoin the Commission from continuing an investigation

into violations of the Securities Exchange Act during the pendency

of broker-dealer revocation proceedings based upon evidence previously developed in the same' investigation. In denying plaintiff's

motion for a preliminary injunction, the District Court held that

neither Section 21 of the Securities Exchange Act, nor any provision

of the Administrative Procedure Act, limits the Commission's invesIII 27th Annual Report, p. L63.

13191 F. SuPp. 897 (S.D.N.Y., 1961)

•• 300 F. 2d 745 (C.A. 2,1961).

311306 F. 2d 606 (C.A. 2, 19(2).

00199F. Supp. 438 (S.D.N.Y., 1961).

81 D.D.C., No. 1340-62.

IS D.D.C., No. 1888-62.

672175-63-10

•
130 SECURITIES AND EXCHANGE COMMISSION

tigative power during the pendency of broker-dealer revocation

proceedings.

In Amos Treat the plaintiff sought to enjoin the Commission from

continuing broker-dealer revocation proceedings, claiming that one

of the members of the Commission who had participated in several

preliminary rulings was disqualified from adjudicating in the case

because he had previously been Director of the Commission's

Division of Corporation Finance at a time when that Division had

investigated a matter factually related to the administrative proceeding. It was claimed that his participation violated due process

and Section 5(0) of the Administrative Procedure Act. The District

Court denied plaintiff's motion for a preliminary injunction on the

grounds that the administrative remedies had not been exhausted,

review of any final decision could be had in a court of appeals, and

there was no showing of irreparable injury. The Court of Appeals

reversed and remanded the case,39holding that there had been a

showing of a violation of due process and that the District Court had

jurisdiction on this basis alone. The Commission's petition for

rehearing en bono was denied.

The Commission, following an alternative suggestion of the

Court of Appeals, thereafter terminated the proceedings, but without

prejudice to the subsequent institution of new proceedings. In its

order, the Commission made it clear that this result should not be

regarded as a precedent since the Commission disagreed with the

Court's decision, but that the Commission was of the view that to

seek further court review would entail delay in the determination of

the issues in the proceedings and would not be in the public interest.

The H olmasi case involved the same contention as in Amos Treat,

in this instance regarding two members of the Commission, and the

additional contention that the hearing examiner who had presided

at the administrative hearings was also disqualified because he lacked

the requisite independence from the Commission since he had passed

the age of mandatory retirement and served at the will of the Commission. The District Court granted plaintiff's motion for a preliminary injunction, basing its order solely upon the participation of

one of the members of the Commission and relying entirely upon the

Amo8 Treat case. The Commission's appeal from that order is

pending.v

During the fiscal year, the Commission participated in a number

of important cases under the Investment Company Act. In S.E.O. v.

.. 806 F. 2d 260 (C.A.D.C.• 1962).

"C.A.D.C ••No. 17.202.
TWENTY-EIGHTH ANNUAL REPORT 131

Midwest Tealmical Development Oorp., et al.,u the Commission

brought an injunctive action alleging that the directors and officers

of the defendant investment company had caused it to violate various

provisions of the Investment Company Act and were committing gross

misconduct and gross abuse of trust. The complaint contains detailed

charges of simultaneous personal investments by several of the officers

and directors in the portfolio companies in which Midwest invested,

resulting in large private profits for them to the detriment of the

fund's interests.

The Commission seeks not only to enjoin the various violations,

but to freeze the private investments of the individual defendants to

prevent further deterioration of the situation, to obtain an accounting

for profits and to have a receiver appointed to preserve the public

interest in Midwest.

All of the individual defendants have entered stipulations agreeing

not to change their present investment position in the portfolio companies, pending trial on the merits. Upon the filing of these stipulations, the Commission withdrew its motion for a preliminary injunction. The Commission has dismissed the case against two corporate

defendants which have entered final stipulations undertaking not to

engage in any transactions with Midwest without first obtaining an

exemption under Section 17(a) of the Investment Company Act.

The case with respect to the remaining defendants was pending at

the close of the fiscal year.

In Ohabot v, Empire Trust 00. and Schwartz v. National Securities

Se1"lJwe,42the shareholders of a mutual fund, organized as a common

law trust, brought an action against the trustee and others for restoration to the fund of fees paid to the trustee. The trustee moved to

stay the proceedings until the plaintiffs had delivered a bond to

indemnify it against the cost and expenses of defending the action.

The District Court 43 held applicable the provision of the trust agreement to the effect that no shareholder of the fund should have the

right to an accounting except upon furnishing indemnity to the

trustee against costs and expenses, with such indemnity to be payable

unless it should be established that the trustee had been guilty of

fraud, misfeasance, or gross negligence. The District Court therefore stayed the action pending the posting of security.

On appeal from that decision, the Court of Appeals for the Second

Circuit upheld the right of appeal from the order of the District

COurt.44 Subsequently, the Commission filed a brief as amicus

41 D.C. Minn., No. 4-62 Civ. 142

.. 301 ll'. 2d 458 (C.A. 2.1962). 43189 ll'. Supp. 666 (S.D.N.Y., 1960)

.. 290 ll'. 2d 657 (C.A. 2, 1961).

•

•
132 SECURITIES AND EXCHANGE COMMISSION

curiae expressing the view that the provision of the trust agreement

requiring the posting of the security before the shareholders could

commence their action was void under Section 17(h) of the Investment Company .Act, which prohibits an investment company from

operating under any instrument which contains "any provision which

protects or purports to protect any director. . .." The Court of

Appeals agreed with the Commission's position and reversed the District Court, holding that the indemnity provision was violative of

Section 17(h) and further stating that "any provision that renders

litigation substantially less likely 'protects or purports to protect'

directors and officers from liability under the .Act," and is therefore

invalid."

During the year progress was made in another case involving

implied private rights of action under the Investment Company Act,

At the time of the last Annual Report, the Commission had filed

a brief supporting the petition for certiorari in Brouk v. Managed

Funds, contending that the Court of Appeals decision in that case

was in conflict with numerous court of appeals and district court

decisions holding that the Investment Company Act gives rise to

implied private rights of action." Subsequently the Supreme Court

granted certiorari." and the Commission filed a brief on the merits.

However, before oral argument in the Supreme Court, the companion

state court case 48 was settled by, among others, the respondents before

the Supreme Court, for an amount in excess of $1 million. The

Supreme Court, in a per curiam opinion, mooted the case, vacated

the judgment of the Court of Appeals for the Eighth Circuit (whose

reversal the Commission had urged), and remanded the case to the

District Court for dismissal as to the respondents who were before

the Supreme Court on certiorari." While no final Supreme Court

decision on the existence of implied rights of action was obtained, the

opinion of the Court of Appeals to the contrary was vacated, and its

value as contrary precedent nullified.

Willheim v. Murchison 50 was a case brought both derivatively and

representatively by two stockholders of Investors Mutual, Inc., a

registered investment company, seeking to enjoin Investors Diversified Services, Inc. (IDS) from acting as principal underwriter and

investment adviser to Investors Mutual pursuant to written contracts. The plaintiffs contended that these contracts were "assigned"

•• 301 F. 2d at 461.

.. 27th AnnUal Report. pp. 156-157.

4T 366 U.S. 958 (1961) .

.. Lutz v. Boas, 171 A. 2d 381 (Del. 1961).

'.369 U.S. 424 (1962).

GO 203 F. Snpp. 478 (S.D.N.Y.), aD'd Bub nom. Willheim v. Investors DiverBlfled ServiceB,

Ine., 303 F. 2d 276 (C.A. 2, 1962).
TWENTY-EIGHTH ANNUAL REPORT 133

within the meaning of the Investment Company Act and therefore

automatically terminated when control of Alleghany Corporation,

which held approximately 47.6 percent of the voting stock of IDS,

passed from Allan P. Kirby to John D. Murchison and his associates

as a result of a proxy contest. The District Court, in denying the

request for a preliminary injunction, rejected this contention and,

while not grounding its decision on this point, indicated that a transfer of a controlling block of Alleghany voting stock would be insufficient to cause termination of the contracts.

Plaintiffs took an appeal from this decision, and the Commission

filed a brief amiou« curiae urging the Court of Appeals, if it should

reach the merits, to hold that an investment advisory contract is automatically terminated whenever a controlling block of stock of the

investment adviser or of a corporation which controls the investment

adviser is transferred.

The Court of Appeals affirmed the denial of the preliminary injunction, holding that neither the plantiff nor the corporation would

suffer irreparable injury by delay until a hearing on the merits, but

that a sudden termination of the service contracts would precipitate

corporate chaos. Since the merits were not reached, the Court reserved its decision with respect to the position urged by the CommisSIOn.

In Nadler v, 8E.0., the earlier history of which is discussed in the

1961 Annual Report," the Court of Appeals for the Second Circuit 52

affirmed in a per curiam opinion the Commission's order refusing to

revoke a previous order granting an exemption pursuant to Section

17(b) of the Investment Company Act for transactions between a

registered investment company and certain affiliates and permitting

it to acquire its own preferred stock pursuant to Section 23(c) (3) of

the Act.

A stockholder had sought review of the Commission's second order

on the ground that the investment company's directors who had authorized the filing of the application for the exemption had not been

elected in accordance with the provisions of Section 16(a) of the Act,

contending that this made the application and the Commission order

void. The Commission had held that the acts of the directors were

voidable only and that under all the circumstances the order should

not be revoked.

The Court, in affirming, held that there is no basis for declaring

void all acts by a board not chosen as required by Section 16(a), and

a 27th Annual Report, p. 1116.

8296 F. 2d 68 (1961), cerfforarl denied, 869 U.S. 849 (1962).
134 SECuRITIES AND EXCHANGE .coMMISSION

that "it would be an unsound policy, frwught wit:h harm to the shareholders, to have everything done by such :a boar-d to carry 'on the

corporation's normal business, especially within the statutory period,

declared invalid."

Tau&ig et al. v, "Wellington Fund, 17fW.et al.~ a suit by stockholders of a.n investment company, Wellington Fund, Inc., against

its corporate investment adviser aad another investment company,

Wellington Equity Fund aad its adviser, in which the District Court

enjoined the advisers and Wellington Equity Fund from -employing

the name 'Wellington" in the investment company field, but denied

damages. GI The District Court ruled that the goodwill attached to

the word "Wellington" resulting from the successful operacion 'Of

Wellington Fund, Inc., was the property 'Of that fund and that :the

use of the name by Wellington Equity Fund was likely to confuse

investors, constituted trading on the success and goodwill of W~llington Fund, Inc., and would hinder that fund. should it desire to

change its investment policies to those followed by Wellington Equity

Fund. Diversity jurisdiction being questionable, the District Court

found pendent jurisdiction, stating that Section 35(d) of the Investment Company Act conferred an implied private right of action, and

based its decision on common law principles of unfair competition.

Both sides have appealed. The plaintiffs assert that the facts show

violations of Sections 15, 20(a), 34(b), 35(d), 36 and 31 1)£ the Investment Company Act, and claim that implied rights 'of action and

appropriate remedies including damages should How therefrom, The

defendants urge that the goodwill resulting from the successful operation of the investment company is the property 'Of the adviser, th.at

the use of "Wellington" by the second investment company does not

mislead investors and that neither common Iaw unfair competition

nor violations of the prohibitions of the various sections of the Investment Company Act are shown by the facts. The Commission is

appearing in this appeal as amicus curiae, and has filed a brief which

takes the position that implied rights of action flow from violations

of provisions of the Investment Company Act, including Section 36.

The brief also points out that no inferences should be dra Wil from

the nonaction of the Commission or from its acceleration of the registration of shares as to whether names, proxy material or other material is deceptive or misleading. The Commission takes no position

on the merits of the case.

C.A. 3 NOB.13702, 13703, 13704 and 13705.

.. Tau8Big v. Wellington FUnd. l"o.~ IIF F. Supp. 179 (Del. 1960),

~

~
TWENTY-EIGHTH ANNUAL REPORT

CRIMINAL PROCEEDINGS

135

The statutes administered by the Commission provide that the Commission may transmit evidence of violations of these statutes to the

Attorney General, who, in turn, may institute criminal proceedings.

The regional offices and, at times, the main office of the Commission

prepare, after investigation, detailed reports where the facts appear

to warrant criminal prosecution. After careful review by the General Counsel's Office, the recommendations of the regional offices

and the General Counsel's Office are considered by the Commission

and, if the Commission believes criminal prosecution is appropriate,

the case is referred to the Attorney General and to the appropriate

United States Attorney. Commission employees familiar with the

case generally assist the United States Attorney in the presentation

of the facts to the Grand Jury, the preparation of legal memoranda

for use in the trial, the conduct of the trial, and the preparation of

briefs on appeal. The Commission also submits parole reports prepared by its staff relating to convicted offenders.

During fiscal 1962, the Commission referred more cases to the Department of Justice for prosecution than in any other year in the

Commission's history. In addition to the 60 cases referred for prosecution, 4 cases were referred for institution of criminal contempt

proceedings for violations of injunctive decrees secured by the Commission in civil actions. As a result of these and prior referrals, 42

indictments were returned against 205 defendants during the fiscal

year. There were also 67 convictions in 20 cases. Convictions were

affirmed in 2 cases, and appeals were still pending in 13 other criminal

cases at the close of the period. Of 4: criminal contempt cases handled during the year, 1 case was dismissed and 3 cases are still pending.

From 1934, when the Commission was established, until June 30,

1962,3,187 defendants have been indicted in the United States District

Courts in 710 cases developed by the Commission and 1,577 convictions

have been obtained. The record of convictions obtained and upheld

in completed cases is over 86 percent for the 28-year life of the

Commission."

As in prior years, the majority of the criminal cases prosecuted

involved the offer and sales of securities by fraudulent representations

and other fraudulent practices. These activities included high-pressure long-distance telephone "boiler-room" frauds, conversion of

.. A condensed statistical summary of all criminal cases developed by the Commission

from the fiscal year 19S4 through the fiscal year 1962, is set forth in Appendix Table 25.

The status of criminal cases developed by the Commission which were pendin&,at the

end of the fiscal year Is set forth in Appendix Table 16.
136 SECURITIES AND EXCHANGE COMMISSION

customers' funds and securities by broker-dealers or their salesmen,

frauds involving the sale of securities by new as well as established

businesses, and fraudulent securities sales relating to the promotion of

insurance companies, mortgage companies, oil and gas and other

mining ventures, alleged inventions and other spurious investment

schemes. Because of the large volume of cases, it is impossible to

report in detail all the criminal matters, but some of the more

important and novel fraudulent devices and techniques are described

in the specific cases discussed below.

The past fiscal year has seen the culmination of the Commission's

intensive investigations and prosecutions of a large number of fraudulent mortgage and trust deed promotions. The principal and perhaps

the largest of these promotions was the subject of the prosecution in

United States v. David Farreli et al, (S.D. CaL). In that case some

9,000 investors paid in excess of $40 million into an alleged "Secured

10% Earnings Program" by purchasing securities of the Trust Deed &

Mortgage Exchange, Los Angeles Trust Deed & Exchange, Trust

Deed & Mortgage Markets, and Colorado Trust Deed & Mortgage

Markets. David Farrell and Oliver J. Farrell were convicted on 32

counts of violating the anti-fraud provisions of the securities acts

and the Mail Fraud Statute by falsely representing that investors

were assured of 10% earnings and a degree of liquidity equivalent to

that of insured bank deposits or insured savings and loan certificates,

and failing to disclose that the issuing companies were insolvent and

that funds entrusted to them by investors were in constant jeopardy.

David Farrell received a 10 year jail sentence and was fined $86,000;

Oliver J. Farrell was sentenced to 4 years in jail and was fined

$52,000.56

Numerous convictions also have been obtained and several indictments are pending in the Southern District of Florida, in similar cases

involving the "8% racket," the sale of unregistered mortgage notes to

the public by fraudulently guaranteeing interest payments of between

8 and 15 percent. "Interest" was normally paid from capital contributed by purchasers of mortgage notes and not from income derived

from operations.

As a result of the extensive prosecutions, this type of promotion

seems to have been substantially eliminated. Among the convictions

obtained were those of five defendants in United States v. Joseph A.

Peel, Jr., who were each sentenced to 18 years' imprisonment for violating the anti-fraud provisions of the Securities Act of 1933 and the

Mail Fraud Statute in the sale of 8% notes of Insured Capital Corporation of Orlando, Florida. These defendants had received more

,. Appellls are presently pending,
TWENTY-EIGHTH ANNUAL REPORT 137

than a quarter of a million dollars from public investors. Inanother

case, United States v. Gradsky, et al., 10 defendants were convicted

shortly after the close of the fiscal year of violating the anti-fraud

provisions of the Securities Act and the Mail Fraud Statute in the

promotion and sale of 8% and 12% short-term notes of Credit Finance

Corporation, and received prison sentences ranging from 6 to 20 years.

This past fiscal year has seen a substantial number of casesinvolving

manipulation of securities on national stock exchanges or in the overthe-counter market. In United States v. Talenfeld (W. D. Pa.), Edward H., Maurice A. and Burton M. Talenfeld were adjudged guilty

of manipulating the market price of Cornucopia Gold Mines stock on

the American Stock Exchange to aid distribution of their own shares

of Cornucopia in the over-the-counter market. Maurice and Burton

Talenfeld received I-year sentences and were each fined $10,000.

Edward H. Talenfeld was fined $7,500. Charles C. Bales and John C.

Buckley, Jr., among others, pleaded guilty and nolo contendere in

United States v, Bales (W.D. Ky.), to manipulating the market price

of the stock of Cardinal Life Insurance Co., and concealing this and

other facts from investors to whom they distributed over 71,000shares

of their own Cardinal stock. The defendants were fined amounts up

to $15,000and placed on probation.

In United States v, Garfield, et al. (S.D.N.Y.), still in progress at

the close of the fiscal year, 22 individuals and 7 broker-dealer firms

were charged with manipulating the market price of the common stock

of United Dye and Chemical Corporation, and with distributing this

stock in violation of the registration requirements of the Securities

Act. A number of the defendants have entered pleas of guilty during

the trial. Sentencing has been deferred until its completion. Some

of the same defendants and others are charged, in United States v.

Garfield, et al. (S.D.N.Y.), with fraud and market manipulation in

connection with the sale of more than 5 million shares of Shawano

Development Corporation stock to the public through J. H. Lederer

Company, Inc., by means of an intensive telephone sales campaign

utilizing false and misleading statements and literature.

Manipulation on the San Francisco Mining Exchange was the basis

of two indictments returned near the close of the fiscal year. In

United States v. McDaniel (S.D. Tex.), Paul E. McDaniel, George A.

Mellen and others are charged with manipulating the market price of

Ambrosia Minerals stock to facilitate the fraudulent distribution of

their own stock. George J. Flach, president of the Exchange, is

named as a co-conspirator but not as a defendant. And in United

States v. Oarroll (S.D. Calif.), the defendants are charged with

manipulation and fraudulent sale of the stock of Comstock, Ltd.
138 SECURITIES AND EXCHANGE COMMISSION

In addition to the Ambrosia Minerals and Comstock promotions

noted above, a number of other oil, gas and mining ventures provided,

as in past years, a fertile field for fraudulent stock promotions .

.Among the cases involving such promotions was United States v.

Oolumbus ReaJallOonsolidated Mine 00. (S.D. Fla.), where Irwin C.

Glaser and 12 other defendants were found guilty of merging various

corporations with insubstantial or spurious assets into Columbus Rexall, issuing over 12 million shares to themselves or associates, manipulating the price of the stock upwards on the Salt Lake Stock Exchange, and distributing large blocks of the stock to the public through

"boiler-room" tactics.

A number of broker-dealers and securities salesmen were convicted

in the past year for converting either their customers' securities or

funds obtained from the sale of these securities. Thus, in United

States v. Pruett, (N.D. Ga.), Carl and Gertrude Pruett were each convicted and sentenced to 9 years imprisonment for converting securities

and funds belonging to customers, totaling about one and a half million dollars. In United States v. Ficken (N.D. Ohio), the defendant

was sentenced to 18 years imprisonment after pleading guilty to

charges of converting clients' funds by "bucketing" their orders.

A number of indictments have been returned in the Southern District. of New York against Lowell M. Birrell and his associates charging fraud, manipulation and registration violations. InUnited States

v. Gerardo A. Be (S.D.N.Y.), it is alleged that Birrell and others, including Jerry and Gerard Re in their capacity as specialists on the

American Stock Exchange, manipulated the price of Swan-Finch

Oil Company stock on that Exchange while distributing large unregistered blocks of the stock to the public through "boiler-rooms"

and the Exchange at artificially inflated prices.

In United States v. J. A. Winston & 00., Inc. (S.D.N.Y.), Joel

Alfred Winston, Birrell and others are charged with the manipulation and sale of unregistered stock of Jeanette Minerals, Ltd. The

indictment alleges that while Birrell and other defendants manipulated the price of Jeanette stock on the Toronto Stock Exchange,

Winston distributed 400,000 shares beneficially owned by Birrell to

the American public through J. A. Winston & Co. The same defendants are also charged with fraud and registration violations in connection with the sale of the stock of American LeDuc Petroleums,

Ltd. in United States v. Albert Bernstein, et ale (S.D.N.Y.). The

indictment alleges that Birrell and the other defendants fraudulently

distributed to the public, through J. A. Winston & Co., over 3 million

unregistered shares of American LeDuc. Winston, J. A. Winston

& Co. and others are also charged with violating the registration
TWENTY-EIGHTH ANNUAL REPORT 139

and anti-fraud provisions of the Securities Act of 1933 in fraudulently distributing over 600,000 shares of Canuba Manganese Mines,

Ltd. stock to the public.

Morris Mac Schwebel, an attorney who has been barred from practicing before this Commission, was charged, in United States v. M orris

Black, et al. (S.D.N. Y.), with rendering fraudulent legal opinions concerning the applicability of the registration requirements of the Securities Act to the sale of the common stock of Great Sweet Grass Oils,

Ltd. and Kroy Oils, Ltd. The indictment also charges Schwebel and

the other defendants with arranging for the issuance of approximately

3 million shares of Great Sweet Grass stock which were placed in the

names of nominees and thereafter fraudulently distributed to the

public. It is alleged that the defendants manipulated the price of

the stock on the American Stock Exchange to facilitate the

distribution.

Several cases involving the promotion of insurance companies and

the sale of their stock were prosecuted during the past fiscal year.

Among these is United Statee v. Lelferdink (D. Colo.), where an

IS-count indictment was returned charging Allan J. Lefferdink and

5 others with defrauding the purchasers of the stock of Denver

Acceptance Corporation which was organized purportedly to engage

in the insurance business. The indictment alleges that proceeds from

the sale of the stock were diverted to other companies belonging to

Lefferdink, after investors had been told the money would be used

to promote one or more insurance companies.

Dr. Curtis L. Attaway, Sr. was one of the more "successful" promoters prosecuted this year. He is charged in United States v.

Attaway (W.D. La.), with fraudulently obtaining over $6 million in

the sale of notes to approximately 4,000 investors. The indictment

alleges that the defendant represented that the profits from his

various business ventures were so large and placed him in such a high

federal income tax bracket that he could afford to pay interest at

rates as high as 120 percent per year. It further alleges that the

defendant issued to purchasers of his notes checks for the dollar

amounts of the loans, and represented that, as long as the investors

did not cash such checks, he would pay interest ranging from 3 percent to 10 percent per month.

At least $22 million worth of securities are alleged to have been

converted to defendants' own use in United Statee v. Eichler

(S.D.N.Y.). Defendants Leo Sinsheimer, who operated First Discount Corporation, a factor of security purchases by customers of

New York broker-dealers, Arthur Katz, Robert Eichler and William
140 SECURITIES AND EXCHANGE COMMISSION

Mulligan are charged with converting and selling securities which

were pledged by such customers with First Discount Corporation.

Near the close of the fiscal year, Edward M. Gilbert was indicted

in the Southern District of New York for violating the anti-fraud

provisions of the Securities Act by selling stock of E. L. Bruce Company to the public without disclosing that he had converted up to

$1,953,000 of Bruce's funds. He was also charged with violating the

registration provisions of the Securities Act, the insider reporting requirements of the Securities Exchange Act and the Federal Wire

Fraud and Mail Fraud Statutes in connection with his diversion of

Bruce's funds.

COMPLAINTS AND INVESTIGATIONS

Each of the Acts administered by the Commission specifically

authorizes investigations to determine whether specific violations of

the Federal securities laws have occurred.

The nine regional offices of the Commission, with the assistance of

their respective branch offices, are chiefly responsible for the conduct

of investigations. In addition, the Office of Enforcement of the

Division of Trading and Exchanges of the Commission's headquarters

office conducts investigations dealing with matters of particular interest or urgency, either independently or assisting the regional offices.

The Office of Enforcement also exercises general supervision over

and coordination of the investigative activities of the regional offices.

Its staff examines and analyzes the investigative findings and recommendations of the regional offices and recommends appropriate action

to the Commission.

Prior to the organization of the Office of Enforcement in September

1962, certain of these functions were performed by a Branch of

Special Investigations, Trial and Enforcement, which had been established in October 1961 within the Division of Trading and Exchanges.

This Branch was set up to assist particular regional officesin certain

cases, to coordinate investigations affecting several regional offices,

and in some cases to assume responsibility for prosecuting multiregional investigations. Among other things, the Branch collaborated with the Washington Regional Office in dealing with the serious

enforcement problem in the Washington, D.C. area, resulting in

injunctive and administrative proceedings against numerous brokerdealers; and it cooperated with several regional offices in an investigation leading to the return of an indictment in the Southern District

of Texas, charging four defendants with fraud in the sale of stock of

Ambrosia Minerals, Inc.
TWENTY~EIGHTH ANNUAL REPORT 141

There are available to the Commission several sources of information concerning possible violations of the provisions of the Federal

securities laws. The primary source of information is complaints by

members of the general public concerning the activities of certain

persons in securities transactions. The Division of Trading and

Exchanges and the regional officesgive careful consideration to this

information and, if it appears that violations of the Federal securities

laws may have occurred, an investigation is commenced. Other

sources of information which are of assistance to the Commission in

carrying out its enforcement responsibilities are the national securities exchanges, brokerage firms, state and Canadian securities authorities, better business bureaus, the National Association of Securities

Dealers, Inc. and various law enforcement agencies.

It is the Commission's general policy to conduct its investigations

on a confidential basis. Such a policy is necessary to effective law

enforcement and to protect persons against whom unfounded or

unconfirmed charges might be made. The Commission investigates

many complaints where no violation is ultimately found to have

occurred. To conduct such investigations publicly would ordinarily

result in hardship or embarrassment to many interested persons and

might affect the market for the securities in question, resulting in

injury to investors with no countervailing public benefits. Moreover,

members of the public would have a tendency to be reluctant to furnish information concerning violations if they thought their personal

affairs would be made public. Another advantage of confidential

investigations is that persons under suspicion of having violated the

law are not made aware that their activities are under surveillance,

since such awareness might have the effect of frustrating or obstructing the investigation. Accordingly, the Commission does not generally divulge the result of a nonpublic investigation unless it is made

a matter of public record in proceedings brought before the Commission or in the courts.

When it appears that a serious violation of the Federal securities

laws has occurred or is occurring, a case is opened and a full investigation is conducted." Under certain circumstances it becomes necessary for the Commission to issue a formal order of investigation

which appoints members of its staff as officers to issue subpoenas, to

take testimony under oath and to require the production of documents.

Usually this step is taken when the subjects of the investigation and

others who may be involved are uncooperative and it becomes neces-

/If Prior to January I, 1962, Information concerning a possible violation of the Federal

securities laws was carried In a preliminary investigation 1Ile until a full scale investigation was begun or no violation was found. A.a of .January 1. 1962, the category of

prellm1nary Investigations has been el1m1nated.
142 SECURITIES AND EXCHANGE COMMISSION

sary to use the subpoena power to complete the investigation of

the case. During the past year 140 formal orders were issued in connection with investigations handled through the Division of Trading

and Exchanges. In addition, there were 23 formal orders issued upon

recommendation of the Division of Corporation Finance. That Division also conducts certain investigative work in connection with the

processing of filings made with that Division under the Securities

.Act of 1933 and the Securities Exchange .Actof 1934.

When an investigation has been completed and enforcement action

appears appropriate, the Commission may proceed in one of several

ways. Itmay refer the case to the Department of Justice for criminal prosecution. The Commission may also, when appropriate, authorize the institution of civil proceedings for injunctive relief to halt

further violations of the Federal securities laws. In such event the

complaint is filed with the appropriate United States District Court

and the case is presented by a member of the Commission's staff.

Finally, the Commission may institute administrative proceedings

when its investigation indicates that a registration statement or report

filed with it is false or misleading or omits required information, or

that a broker-dealer or investment adviser registered with this Commission is violating the Federal securities laws.

The following table reflects in summarized form the investigative

activities of the Commission during fiscal 1962:

Investigations of possible violationJJ of the Acts administered by the Oommission

Preliminary Docketed Total

~~:~~~ --~~::::::::::::::: :::::::::::::: :::::::::::: 123 1,003 1,126 50 453 soa Transferred from prelimlnary _________________________________ '"------------- 128 128

Total . 173 1,584 1,757

Closed___________________________________________________ 45 599 644 Transferred to docketed ___________________________________ . ___ 128 ----------085- -128

Pending at June 30, 1962______________________________________ 0 lI85

The preliminary Investigation category was eliminated by tbe transfer December 31,1961,of alI pending

P .L'a (120)to docketed cases.

__________•___________________ •_ ____-___________

•____

-
TWENTY-EIGHTH ANNUAL REPORT

ENFORCEMENT PROBLEMS WITH RESPECT TO CANADIAN

SECURITIES

143

Continued progress was made during fiscal 1962 in reducing the

unlawful offer and sale of Canadian securities in the United States.

The continuing cooperation of responsible Canadian officials and

segments of the Canadian securities industry has greatly reduced

enforcement problems.

However, the problem has by no means ceased to exist. During

the past fiscal year two former Toronto promotions were transferred

to Nassau, British West Indies, and postal fraud orders were obtained

against them at their new location. There are also indications that

some Ontario promoters are transferring their base of operations to

the Northwest Territories and British Columbia. .As new developments become known, the Commission has instituted vigorous enforcement procedures including steps resulting in issuance of postal fraud

orders.

Although the volume of violations has decreased, jurisdictional

problems, including the status of the Supplementary Extradition

Convention with Canada, remain troublesome."

The Commission continues to maintain its Canadian Restricted

List, which is a list of Canadian companies whose securities the Commission has reason to believe currently are being, or recently have been,

distributed in the United States in violation of the registration

requirements of the Securities Act of 1933. Failure to comply with

the registration requirements deprives investors of material information and facilitates false claims as to the worth of such securities.

Thus investors are denied the essential protections provided by the

Securities Act.

The list and supplements thereto are issued to and published by the

press and copies are mailed to all registered broker-dealers and are

available to the public. The list serves as a warning to the public

and alerts broker-dealers to the fact that transactions in the securities of the companies named therein may be unlawful. Most United

States broker-dealers refuse to execute transactions in such securities.

Twelve supplements to the list were issued in fiscal 1962. .As a result

of more effective enforcement activities, it was necessary to add only

9 names to the list during the year, compared to the 82 names added

in fiscal 1960 and 47 in fiscal 1961. After deletion, upon compliance

with established procedures, of 4 names during the year, the number of

names on the list as of June 30, 1962,was 258.

The current list, as of September 30, 1962follows:

.. See 26th Annnal Report, pp. 202-208 for a description or some of these problems.
144 SECURITIES AND EXCHANGE COMMISSION

CANADIAN RESTRICTED LIST

Abbican Mines Ltd.

Adonis Mines Ltd.

Alaska-Canadian Mining & Exploration Co. Ltd.

Alaska Highway Beryllium Venture

Aldor Exploration and Development

Co. Ltd.

A. L. Johnson Grubstake

Alouette Mines, Ltd.

Amador Highland Valley Coppers,

Ltd.

Ambassador Mining Developments,

Ltd.

Americanadian Mining & Exploration

Co., Ltd.

Amican Petroleum & Natural Gas

Oorp., Ltd.

Anthony Gas and Oil Explorations,

Ltd.

Anuwon Uranium Mines, Ltd.

Apollo Mineral Developers, Inc.

Associated Livestock Growers of

Ontario

Atlantis Industrial Development Oo.,

Ltd.

Atlas Gypsum Corp., Ltd.

Ava Gold Mining ce, Ltd.

Baranouri Minerals, Ltd.

Barite Gold Mines, Ltd.

Basic Lead and Zinc Mines, Ltd.

Bengal Development Corp., Ltd.

Black Crow Mines, Ltd.

Blue Springs Explorations

Bonwitha Mining Co., Ltd.

Burbank Minerals, Ltd.

Cable Mines and Oils, Ltd.

Caesar Minerals, Ltd.

Oairngorm Mines, Ltd.

Cameron Copper Mines, Ltd.

Canada Radium Oorp., Ltd.

Canadian Alumina Oorp., Ltd.

Canford Explorations, Ltd.

Canol Metal Mines, Ltd.

Cartier Quebec Explorations, Ltd.

Oasgoran Mines, Ltd.

Central & Eastern Canada Mines,

(1958) Ltd.

Centurion Mines, Ltd.

Cessland Oorp., Ltd.

Cessland Gas and Oil Corp., Ltd.

Colville Lake Explorers, Ltd.

Consolidated Easter Island Mines,

Ltd.

Consolidated Exploration & Mining

Co., Ltd.

Consolidated St. Simeon Mines, Ltd.

Consolidated Woodgreen Mines, Ltd.

Continental Consolidated Mines &

Oils Corp., Ltd.

Copper Prince Mines, Ltd.

Courageous Gold Mines, Ltd.

Cove Uranium Mines, Ltd.

Cree Mining Corp., Ltd.

Crusade Petroleum Oorp., Ltd.

Davian Exploration, Ltd.

Day jon Explorers, Ltd.

Dempster Explorations, Ltd.

Derogan Asbestos Corp., Ltd.

Devonshire Mining Co., Ltd.

Devonshire Mining Syndicate

Diadem Mines, Ltd.

Dolmac Mines, Ltd.

Dolsan Mines, Ltd.

Dominion Fluoridators, Ltd.

Dominion Granite and Marble, Ltd.

DuMaurier Mines, Ltd.

Dupont Mining Oo., Ltd.

Eagle Plains Developments, Ltd.

Eagle Plains Explorations, Ltd.

East Trinity Mining Corp.

Eastern-Northern Explorations, Ltd.

Elk Lake Mines, Ltd.

Embassy Mines, Ltd.

Explorers Alliance, Ltd.

Export Nickel Corp. of Canada, Ltd.

Fairmont Prospecting Syndicate

Federal Chibougamau Mines, Ltd.

File Lake Explorations, Ltd.

Fleetwood Mining and Exploration,

Ltd.

Flint Rock Mines, Ltd.

Font Petroleums, Ltd.

Foreign Exploration Corp., Ltd.

The Fort Hope Grubstake

Franksin Mines, Ltd.

Gasjet Oorp., Ltd.

Genex Mines, Ltd.

Georay Prospecting Syndicate

Golden Algoma Mines, Ltd.

Golden Hope Mines, Ltd.

Goldmaque Mines, Ltd.

Granwich Mines, Ltd.
TWENTY-EIGHTH ANNUAL REPORT

CANADIANRESTRICTED LIST-Continued

145

Guardian Explorations, Ltd.

Haitian Copper Mining Corp., Ltd.

Hallmark Explorations, Ltd.

Hallstead Prospecting Syndicate

Jack Haynes Syndicate

Hoover Mining and Exploration, Ltd.

Ibsen Cobalt-Silver Mines, Ltd.

Inlet Mining Corp., Ltd.

International Ceramic Mining, Ltd.

International Claim Brokers, Ltd.

Irando Oil and Exploration, Ltd.

J acmar Explorations, Ltd.

Jaylac Mines, Ltd.

Jilbie Mining co, Ltd.

J omac Mines, Ltd.

Kateri Mining Co., Ltd.

Kelkirk Mines, Ltd.

Kelly-Desmond Mining Corp., Ltd.

Kennament Development Corp., Ltd.

Key West Exploration ce, Ltd.

Kimberly Copper Mines, Ltd.

Kipwater Mines, Ltd.

Kordol Explorations, Ltd.

Korich Mining Co., Ltd.

Kukatush Mining Corp.

Kuskokwim Grubstake

Ladysmith Explorations, Ltd.

Lake Kingston Mines, Ltd.

Lake Otter Uranium Mines, Ltd.

Lama Explorations and Mining Co.,

Ltd.

Lambton Copper Mines, Ltd.

Larutan Petroleum Corp., Ltd.

Lavandin Mining Co.

Lavant Mines, Ltd.

Leader Mining Corp., Ltd.

Lee Gordon Mines, Ltd.

Lindsay Explorations, Ltd.

Lucky Creek Mining Co., Ltd.

Lynwatin Nickel Copper, Ltd.

Mack Lake Mining Corp., Ltd.

Magni Mining Corp., Ltd.

Mallen Red Lake Gold Mines, Ltd.

Maple Leaf Investing Oorp., Ltd.

March Minerals, Ltd.

Marian Lake Mines, Ltd.

Marpic Explorations, Ltd.

Marpoint Gas & Oil Corp., Ltd.

Mattagami Explorers Corp.

Megantic Mining Corp.

l\ferrican International Mines, Ltd.

6721711-63---11

Mexicana Explorations, Ltd.

Mexuscan Development Corp.

Midas Mining Co., Ltd.

Mid-National Developments, Ltd.

Mile 18 Mines, Ltd.

Milldale Minerals, Ltd.

Mina-Nova Mines, Ltd.

Minden Land Enterprises, Ltd.

Mineral Exploration Corp., Ltd.

Missile Metals and Mining Corp., Ltd.

Monarch Asbestos Co., Ltd.

Monitor Gold Mines, Ltd.

Monpre Mining Co., Ltd.

Montclair Mining Oorp., Ltd.

Mylake Mines, Ltd.

National Telepix (Canada), Ltd.

Nationwide Minerals, Ltd.

Natto Mining ce., Ltd.

Neeland Flin Flon Mining and

Explorations, Ltd.

New Campbell Island Mines, Ltd.

New Faulkenham Mines, Ltd.

New Hamil Silver-Lead Mines, Ltd.

New Mallen Red Lake Mines, Ltd.

New Metalore Mining Co., Ltd.

New Spring Coulee Oil and Minerals,

Ltd.

New Surpass Petrochemicals, Ltd.

Norbank Explorations, Ltd.

Korcopper and Metals Corp.

Normalloy Explorations, Ltd.

Norsco Mines, Ltd.

Norseman Nickel Oorp., Ltd.

North American Asbestos Co., Ltd.

North Gaspe Mines, Ltd.

North Lake Mines, Ltd.

North Tech Explorations, Ltd.

Northport Mineral Explorers, Ltd.

Nortoba Mines, Ltd.

Nu-Gord Mines, Ltd.

Nu-Reality Oils, Ltd.

Nu-World Uranium Mines, Ltd.

Olympus Mines, Ltd.

Outlook Explorations, Ltd.

Palliser Petroleums, Ltd.

Pantan Mines, Ltd.

Paramount Petroleum & Minerals

Corp., Ltd.

Peace River Petroleums, Ltd.

Pick Mines, Ltd.

Plexterre Mining Corp., Ltd.
146 SECURITIES AND EXCHANGE COMMISSION

CANADIAN RESTRICl'ED LIST-Continued

Prestige Lake Mines, Ltd.

Primary Gold Mines, Ltd.

Prudential Petroleums, Ltd.

Quebec Graphite Corp.

Queensland Explorations, Ltd.

Quinalta Petroleum, Ltd.

Rambler Exploration Co., Ltd.

Red River Mining & Exploration, Ltd.

Regal Mining & Development, Ltd.

Resolute Oil and Gas Co., Ltd.

Revere Mining Oorp., Ltd.

Riobec Mines, Ltd.

Roberval Mining Corp.

Rockroft Explorations, Ltd.

Rothsay Mines, Ltd.

Roxton Mining & Development Co.,

Ltd.

St. Anthony Mines, Ltd.

St. Lawrence Industrial Dev. Corp.

St. Stephen Nickel Mines, Ltd.

Saskalon Uranium and Oils, Ltd.

Sastex Oil and Gas, Ltd.

Savoy Copper Mines, Ltd.

Seaboard Industries, Ltd.

Senvil Mines, Ltd.

Sheba Mines, Ltd.

Sheraton Uranium Mines, Ltd.

Shoreland Mines, Ltd.

Sico Mining Corp., Ltd.

Sinclair Prospecting Syndicate

South Seas Mining, Ltd.

Space Age Mines, Ltd.

Stackpool Mining Co., Ltd.

Strathcona Mines, Ltd.

Sturgeon Basin Mines, Ltd.

Success Mines, Ltd.

Sudbay Beryllium Mines, Ltd.

Sudbay Exploration and Mining, Ltd.

Swift Cooper Mines, Ltd.

Tabor Lake Gold Mines, Ltd.

Taiga Mines, Ltd.

Tamicon Iron Mines, Ltd.

Taurcanis Mines, Ltd.

Temanda Mines, Ltd.

Territory Mining Oo.,Ltd.

Trans Nation Minerals, Ltd.

Trans-Oceanic Hotels Corp., Ltd.

Trenton Petroleum & Minerals Corp.,

Ltd.

Tri-Cor Mining Co., Ltd.

Triform Explorations, Ltd.

Triform Explorations (B.C.), Ltd.

Trio Mining Exploration, Ltd.

Trojan Consolidated Mines, Ltd.

Tumac Mining & Development Co.,

Ltd.

Turbenn Minerals, Ltd.

Turzone Explorations, Ltd.

Tyndal Explorations, Ltd.

Upper Ungava Mining Oorp., Ltd.

Val Jon Exploration, Ltd.

Val Ray Explorations, Ltd.

Venus Cbibougamau Mines, Ltd.

Ver-Million Gold Placer Mining, Ltd.

Vico Explorations, Ltd.

Vimy Explorations, Ltd.

Viscount Oil and Gas, Ltd.

Wakefield Uranium Mines, Ltd.

Webbwood Exploration ce., Ltd.

Western Allenbee Oil and Gas Co.,

Ltd.

Westwind Explorations, Ltd.

Windy Hill Mining Corp.

Wingdam & Lightning Creek Mining

Co., Ltd.

Yukon Prospectors' Syndicate

SECTION OF SECURITIES VIOLATIONS

A Section of Securities Violations is maintained by the Commission as a part of its enforcement program to provide a further means

of detecting and preventing fraud in securities transactions. The

Section maintains files providing a clearinghouse for other enforcement agencies for information concerning persons who have been

charged with violations of various Federal and state securities statutes. Considerable information is also available concerning violators

resident in the Provinces of Canada. The specialized information in
TWENTY-EIGHTH ANNUAL REPORT 147

these files is kept current through the cooperation of the U.S. Post

Office Department, the Federal Bureau of Investigation, parole and

probation officials, state securities authorities, Federal and state

prosecuting attorneys, police officers, better business bureaus, chambers of commerce and other agencies. At the end of the fiscal year

these records contained information concerning 79,000 persons

against whom Federal or state action had been taken in connection

with securities violations. In keeping these records current, there

were added during the fiscal year items of information concerning

8,761 persons, including 2,601 persons not previously identified in these

records.

The Section issues and distributes quarterly a securities violations

bulletin containing information received during the period concerning violators and showing new charges and developments in pending

cases. The bulletin includes a "wanted" section listing the names and

references to bulletins containing descriptive information as to persons wanted on securities violations charges. The bulletin is distributed to a limited number of officials of cooperating law enforcement

and other agencies in the United States and Canada.

Extensive use is made of the information available in these records

by regulatory and law enforcing officials. Numerous requests are

received each year for special reports on individuals in addition to

the information supplied by regular distribution of the quarterly

bulletin. All available information is supplied in response to

inquiries from law enforcement agencies. During the fiscal year the

Commission received and disposed of 1,920 "securities violations"

letters or reports and dispatched 450 communications to cooperating

agenCIes.

APPUCATION FOR NONDISCLOSURE OF CERTAIN INFORMATION

The Commission is authorized under the various Acts administered

by it to grant requests for nondisclosure of certain types of information which would otherwise be disclosed to the public in applications,

reports or other documents filed pursuant to these statutes. Thus,

under paragraph (30) of Schedule A of the Securities Act of 1933,

disclosure of any portion of a material contract is not required if the

Commission determines that such disclosure would impair the value

of the contract and is not necessary for the protection of investors.

Under Section 24 (a) of the Securities Exchange Act of 1934, trade

secrets or processes need not be disclosed in any material filed with

the Commission. Under Section 24(b) of that Act, written objection

to public disclosure of information contained in any material filed

with the Commission may be made to the Commission which is then
148 SECURITIES AND EXCHANGE COMMISSION

authorized to make public disclosure of such information only If in

its judgment such disclosure is in the public interest. Similar provisions are contained in Section 22 of the Public Utility Holding Company Act of 1935 and in Section 45 of the Investment Company Act

of 1940. These statutory provisions have been implemented by rules

specifying the procedure to be followed by applicants seeking

determination that public disclosure is not necessary in a particular

case.

The number of applications granted, denied or otherwise acted

upon during the year are set forth in the following table:

Applications for 1Wndisclosure during 1962 fiscal gear

Number Number Number pending Number Number denied ~dlng July I, received granted or with- une 30, 1961 drawn 1962

--- --- --- --- Securities Act of 1933 G______________________________ 5 61 43 19 4 Securities Exchange Act ofl934 , ____________________ 8 11 2 1 16 Investment Company Act of 1940 ,__________________ 0 15 15 0 0

Totals _________________________________________--- --- --- --- --- 13 87 60 20 20

Filed under Rule 485. Filed under Rule 24b-2.

Filed under Rule 458-1.

ACTIVITIES OF THE COMMMISSION IN ACCOUNTING AND AUDITING

The several Acts administered by the Commission recognize the

importance of dependable informative financial statements which

disclose the financial status and earnings history of a corporation or

other commercial entity. These statements, whether filed in compliance with the requirements under those statutes or included in other

material available to stockholders or prospective investors, are indispensable to investors as a basis for investment decisions. The Congress, cognizant of the fact that such statements lend themselves

readily to misleading inferences or even deception, whether or not

intended, included express provisions with respect to disclosure

requirements. Thus, for example, the Securities Act requires the

inclusion in the prospectus of balance sheets and profit and loss statements "in such form as the Commission shall prescribe" 59 and authorizes the Commission to prescribe the "items or details to be shown

in the balance sheet and earnings statement, and the methods to be

followed in the preparation of accounts ... " 60 Similar authority

is contained in the Securities Exchange Act,61and even more compreOIl Sections 7 ancl10(a) (Schedule A, pars. 25.26).

eoSeetlon 19(a).

11 Sect10D 1S(b).

•

•

•
TWENTY-EIGHTH ANNUAL REPORT 149

hensive power is embodied in the Investment Company Act 62and

the Public Utility Holding Company Act.63

Pursuant to the broad rule-making power thus conferred with

respect to the preparation and presentation of financial statements,

the Commission has prescribed uniform systems of accounts for companies subject to the Holding Company Act; 64has adopted rules

under the Securities Exchange Act governing accounting and auditing of securities brokers and dealers; 65and has promulgated rules

contained in a single comprehensive regulation, identified as Regulation S_X,66 which govern the form and content of financial statements filed in compliance with the several Acts. This regulation is

supplemented by the Commission's Accounting Series Releases, of

which 93 have so far been issued. These releases were inaugurated in

193'7 and were designed as a program for making public, from time

to time, opinions on accounting principles for the purpose of contributing to the development of uniform standards and practice in

major accounting questions. The rules and regulations thus established, except for the uniform systems of accounts which are regulatory reports, prescribe accounting principles to be followed only in

certain limited areas. In the large area of financial reporting not

covered: by such rules, the Commission's principal means of providing

investors protection from inadequate financial reporting, :fraudulent

practices and over-reaching by management is by requiring a certificate of an independent public accountant based on an audit performed

in accordance with generally accepted auditing standards which

expresses an opinion as to whether the financial statements are presented fairly in conformity with accounting principles and practices

which are recognized as sound and which have attained general

acceptance.

The Securities Act provides, that the financial statements required

to be made available to the public through filing with the Commission

shall be certified by "an independent public or certified accountant." 61

The other three statutes permit the Commission to require that such

statements be accompanied by a certificate of an independent public

accountant," and the Commission's rules require, with minor excep-

.. Sections 30, 31.

53 Sections 14, 15.

M Uniform System of Accounts for Mutual Service Companies and Subsidiary Service

Companies (effective August 1, 1936); Uniform System of Accounts for Public Utility

Holding Companies (effective January 1, 1937; amended effective January 1, 1943; revised

November 24, 1959). (Accounting Series Release No. 84)

.. Rule 17a-5 and Form X-17 A-5 thereunder .

.. Adopted February 21, 1940 (Accounting Series Release No. 12) ; revised December 20,

1950 (Accounting Serles Release No. 70).

lIT Sections 7 and 10(a) (Schedule A, pars. 25, 26).

esSecurities Exchange Act, Section 13(a)I(2) ; Investment Company Act, Section 30(e) ;

Holding Company Act, Section 14.

•
150 SECURITIES AND EXCHANGE COMMISSION

tions, that they be so certified. The value of certification by qualified

accountants has been conceded for many years, but the requirement

as to independence, long recognized and adhered to by some individual

accountants, was for the first time authoritatively and explicitly introduced into law in 1933. The Commission's rules accept an accountant

who is qualified to practice in his own state as qualified to practice

before the Commission unless he has entered into disqualifying relationships with a particular client, such as becoming a promoter, underwriter, voting trustee, director, officer, employee, or stockholder; 69 or,

in rare cases, has demonstrated incompetence, subservience to the management, or has engaged in unethical or improper professional conduct." The Commission endeavors to encourage and foster the independence of the accountant in his relationships with his client so that

he may better be able to perform the service to the public contemplated by the Congress in the various Acts.

The Commission had occasion during the year to issue for the first

time an opinion 71 regarding the independence of a certifying accountant who also acts as counsel for the registrant. The Commission's

opinion included the following statements:

Though owing a public responsibility, an attorney in acting as the client's

advisor, defender, advocate and confidant enters into a personal relati6Dship in

which his principal concern is with the interests and rights of his client. The

requirement of the Act of certification by an independent accountant, on the

other hand, is intended to secure for the benefit of public investors the detached

objectivity of a disinterested person. The certifying accountant must be one

who is in no way connected with the business or its management and who does

not have any relationship that might affect the independence which at times

may require him to voice public criticisms of his client's accounting practices.

In our opinion, the partner's relationship as attorney for the registrant here

during the same period covered by his firm's certification disqualified him and

the firm of which he was a partner from certifying registrant's financial statements as independent accountants.

The Commission is vigilant in its efforts to assure itself that the

audits which it requires are performed by independent accountants;

that the information contained in the financial reports represents

full and fair disclosure and that appropriate auditing and accounting

practices and standards have been followed in their preparation. In

addition it recognizes that changes and new developments in financial

and economic conditions affect the operations and financial status

of the several thousand commercial and industrial companies required

.. See, for example, Rule 2-01 of Regulation S-X .

0 See, for example, Securities Exchange Act Release No. 3073 (1941); 10 S.E.C. 982

(1942); Accounting Series Release No. 68 (1949); Accounting series Release No. 82

(1959) ; and Accounting Series Release No. 88 (1961). See also Accounting 8erIes Release

Nos. 91 and 92 (1962) which are discussed at page 154, .,,1,.11. "American Finance OO1nflanll,Ino., Securities Act Re1eIuIe No. 4465 (March 19, 1962).

•
TWENTY-EIGHTH ANNUAL REPORT 151

to file statements with the Commission and that accounting and auditing procedures cannot remain static and continue to serve well a

dynamic economy. The Commission's accounting staff, therefore,

studies the changes and new developments for the purpose of establishing and maintaining appropriate accounting and auditing policies,

procedures and practices for the protection of investors. The primary responsibility for this program rests with the Chief Accountant

of the Commission, who has general supervision with respect to

accounting and auditing policies and their application.

Progress in these activities requires continuing contact and consultation between the staff and accountants both individually and

through such representative groups as, among others, the American

Accounting Association, the American Institute of Certified Public

Accountants, the American Petroleum Institute, the Financial Analysts Federation, the Financial Executives Institute, and the National

Association of Railroad and Utilities Commissioners, as well as many

Government agencies. Recognizing the importance of cooperation

in the formulation of accounting principles and practices, adequate

disclosure and auditing procedures which will best serve the interests

of investors, the American Institute of Certified Public Accountants,

the Financial Analysts Federation and the Financial Executives Institute appoint committees which maintain liaison with the Commission's

staff. The Commission on its part has authorized its Chief Accountant to continue to serve as a member of an advisory committee to the

accounting principles board of the American Institute of Certified

Public Accountants.

The many daily decisions to be made require the attention of some

of the Chief Accountant's staff. These include questions raised by

each of the operating divisions of the Commission, the regional offices,

and the Commission. As a result of this day-to-day activity of the

Commission and the need to keep abreast of current accounting problems, the Chief Accountant's staff continually reexamines accounting

and auditing principles and practices. From time to time members

of the staff are called upon to assist in field investigations, to participate in hearings and to review opinions insofar as they pertain to

accounting matters.

Prefiling and other conferences, in person or by telephone, with

officials of corporations, practicing accountants and others are also an

important part of the work of the staff. Resolution of questions and

problems in this manner saves registrants and their representatives

both time and expense.

Many specific accounting and auditing problems are disclosed in

the examination of financial statements required to be filed with the
152 SECURITIES AND EXCHANGE COMMISSION

Commission. Where examination reveals that the rules and regulations of the Commission have not been complied with or that applicable generally accepted accounting principles have not been adhered

to, the examining division usually notifies the registrant by an informal letter of comment. These letters of comment and the correspondence or conferences that follow continue to be a most convenient and

satisfactory method of effecting corrections and improvements in

financial statements, both to registrants and to the Commission's staff.

Where particularly difficult or novel questions arise which cannot be

settled by the accounting staff of the divisions and by the Chief

Accountant, they are referred to the Commission for consideration

and decision.

These procedures are particularly appropriate in resolving the

problems which arise in connection with initial filings made by new

corporate entities and by corporations whose securities had been

closely held or traded over the counter. During the past year many

such filings were made by companies whose business is closely associated with rapidly growing technological and scientific developments

and with our expanding population, as in real estate and recreational

activities.

Certain special problems related to real estate filings and the increase in their number indicated the need for a new form designed to

provide adequate disclosure of the problem areas. The Chief

Accountant and his staff cooperated with other divisions of the Commission in the preparation of a new Form 8-11 for this purpose which

was adopted effective December 1, 1961.12

The Commission also adopted, on June 12, 1962, new Rules 13a-15

and 15d-15 under the Securities Exchange Act, and new Form 7-K to

require real estate companies to file quarterly reports of gross income,

expense and net income; cash available for distribution; and

distributions to shareholders."

Difficulties often arise in connection with initial filings because

accountants and other advisers who serve the registrant have not had

any prior experience with the Commission. In some cases these persons have not familiarized themselves with the rules and regulations

of the Commission-particularly the instructions as to financial statements required by the forms, the rules relating to independence

of the certifying accountant, and those relating to the form and content

of financial statements as set forth in Regulation 8-X.

Some of the current problems in initial filings are created because

audits had not been made in years preceding the filing of a registration

.. Securities Act Release No. 4422.

.. Securities Exchange Act Release No. 6820 and Securities Act Release No. 4499

(June 12, 1962).
TWENTY-EIGHTH ANNUAL REPORT 153

statement or the audits for prior years did not measure up to generally

accepted auditing standards and procedures, particularly with

respect to verification of inventories and receivables. These standards

require the observation of inventory taking and the confirmation of

receivables where practicable and reasonable if either of these assets

represents a significant proportion of the current assets. Where these

procedures have not been applied, the auditor must satisfy himself as

to the reasonableness of inventories for prior years by other appropriate auditing procedures. In some instances this is very difficult because the client may not have taken an inventory at the end of any

prior year or because inventory records for such years are incomplete

or may have been destroyed. Failure to adequately verify inventories

and receivables may preclude expression of an opinion as to the fairness of the financial statements taken as a whole since discrepancies

may exist which would materially affect the income, earned surplus,

and working capital.

During the year it came to the attention of the Commission that

wide variations had developed in the certificates of independent accountants with respect to representations concerning the verification

of inventories of prior years in first audits. In some cases such

representations have raised a question as to whether the certifying

accountant intended to limit his opinion regarding the fairness of presentation of the income statements. Accordingly, an Accounting

Series Release 14 was issued to reemphasize that our rules under the

Securities Act require that registration statements contain a certificate

of an independent accountant based on an audit conducted in accordance with generally accepted auditing standards and procedures.

The Chief Accountant and his staff cooperated with other divisions

of the Commission and the industry in the preparation of proposals

to amend Articles 7 and 12 of Regulation S-X governing the form

and content of financial statements and schedules filed by insurance

companies other than life and title insurance companies. The revision

of Articles 7 and 12 which was adopted July 26, 1961/5 reflects

changes in requirements of the annual statement filed with state

regulatory authorities and developments in insurance reporting since

those articles were originally adopted. Details of these changes were

discussed in last year's report. Similar cooperative effort during the

year resulted also in the development of a proposed amendment to

Regulation S-X which would add to that regulation provisions governing the form and content of financial statements and related schedules to be filed by life insurance companies."

.. Accounting Series Release No. 90 (March 1, 1962).

7S Accounting Series Release No. 89.

... Securities Act Release No. 4525 (August 20,1962).
154 SECURITIES AND EXCHANGE CO~SffiON

During the year the Chief Accountant and his staff participated in

the determination of requirements regarding disclosures and financial

statements pertaining to employee stock purchase, savings or similar

plans. On July 23, 1962, a new Form ll-K was adopted for use in

filing annual reports with respect to such plans, and Regulation S-X

was amended by the addition of a new Article 6C which prescribes the

form and content of the financial statements to be filed"11

Shortly after the close of the fiscal year, the Commission issued its

findings, opinions, and orders in two proceedings under Rule 2 (e) of

its Rules of Practice. In Arthwr Levison,18 the Commission found

that Levison, a certified public accountant, was not in fact independent with respect to a registrant and was therefore disqualified under

Rule 2-01(b) of Regulation S-X from certifying its financial statements. Levison's lack of independence resulted from the facts that

he had been an employee of the registrant and had served as a director

of an associated company during the period under report. In addition he certified materially false and misleading financial statements

of the registrant and an affiliated company without having audited

or ever having seen the books and records of either company. Because Levison's conduct constituted a serious breach of the standards

of his profession and of his responsibilities to the Commission and

to the public, he was denied the privilege of practicing before the

Commission.

In Morton I. Myers,19 the Commission held that Myers, a certified

public accountant, engaged in unethical and improper professional

conduct when he prepared a balance sheet for a "proposed corporation" on the basis of information supplied over the telephone by a

client and sent the statement to the client with a covering letter addressed to the "Board of Directors," which falsely stated that he had

examined the books and records of the "corporation." The balance

sheet was used to obtain a bank loan, the proceeds of which were used

to purchase control of a company whose stock was listed on the

American Stock Exchange. After consideration of several factors

urged by Myers in mitigation of his conduct, the Commission ruled

that Myers should be denied the privilege of appearing or practicing

before the Commission without its prior approval and that no application for approval would be entertained for a period of 1 year from

the date of the order.

'IT Accounting Series Release No. 93 (July 23,1962)

.. Accounting Series Release No. 91 (luly 20. 1962)

.. Accounting Series Release No. 92 (July 20, 1962).

•

•
TWENTY-EIGHTH ANNUAL REPORT 155

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Section 15 of the Bretton Woods Agreements Act, as amended, exempts from registration under both the Securities Act of 1933 and

the Securities Exchange Act of 1934 securities issued, or guaranteed

as to both principal and interest, by the International Bank for

Reconstruction and Development. The Bank is required to file with

the Commission such annual and other reports with respect to such

securities as the Commission shall determine to be appropriate in view

of the special character of the Bank and its operations and necessary

in the public interest or for the protection of investors. The Commission has, pursuant to the above authority, adopted rules requiring

the Bank to file quarterly reports and also to file copies of each annual

report of the Bank to its board of governors. The Bank is also required to file reports with the Commission in advance of any distribution in the United States of its primary obligations. The Commission, acting in consultation with the National Advisory Council on

International Monetary and Financial Problems, is authorized to

suspend the exemption at any time as to any or all securities issued

or guaranteed by the Bank during the period of such suspension.

During the Bank's last fiscal year ending June 30, 1962, the Bank

made 29 loans totaling the equivalent of $882.3million, compared with

a total of $610 million last year. The loans were made in Argentina,

Australia, Austria, Colombia (2 loans), Costa Rica (2 loans), Ethiopia (2 loans), Finland, Ghana, Iceland, India (5 loans), Israel,

Japan, Kenya, Mexico (2 loans), Peru, Philippines (2 loans), South

Africa (2 loans), Trinidad and Tobago and Venezuela. This

brought the gross total of loan commitments at June 30 to $6,672.8

million. By June 30, as a result of cancellations, repayments, sales

of loans and exchange adjustments, the portions of loans signed still

retained by the Bank had been reduced to $4,665.4million.

During the year the Bank sold or agreed to sell $318.8 million

principal amount of loans. On June 30, the total sales of loans

amounted to $1,332 million, of which all except $69 million was

without the Bank's guarantee.

The outstanding funded debt of the Bank amounted to $2,520.8

million on June 30, 1962, reflecting a net increase of $292.3 million

in the past year. During the year there was a gross increase in

borrowings of $463 million. This increase consisted of three public

bond issues, including an Italian lire issue in the amount of Lit. 15

billion (U.S. $24million), a $100million U.S. dollar issue, and a Swiss

franc issue in the amount of Sw F 100 million ($23.3 million) ; the
156 SECURITIES AND EXCHANGE COMMISSION

private placement of an issue of $100 million of U.S. dollar bonds;

the drawing down of the Swiss franc borrowing of Sw F 100 million

($23.2 million) of October 1961; the drawing down of U.S. $120

million and the balance of DM 250 million ($62.5 million) of the

German borrowing of August 1960, and the delivery of $10 million of

bonds which had been subject to delayed delivery arrangements. The

funded debt was decreased by $1'70.'7million as a result of the maturing

of $122.'7 million of bonds, the redemption of Sw F 100 million

($23.2 million), the revaluation of the Canadian dollar issues by $3.2

million, $4.5 million of unissued bonds which were subject to delayed

delivery, and sinking and purchase fund transactions amounting to

$17.1 million.

During the fiscal year, Laos (with a capital subscription of $10

million), Liberia ($15 million), New Zealand ($166.7 million), Nepal

($10 million) and Cyprus ($15 million) became members ofthe Bank;

the Dominican Republic was readmitted to membership in the Bank

with a capital subscription of $8 million; and Syria resumed separate

membership in the Bank with a capital subscription of $20 million.

At June 30, 1962, the Bank had '75members with capital subscriptions

totaling $20,484.8million.

INTER.AMERICAN DEVELOPMENT BANK

The Inter-American Development Bank Act, which authorizes the

United States to participate in the new Inter-American Development

Bank, provides an exemption for certain securities which may be

issued by the Bank similar to that provided for securities of the International Bank for Reconstruction and Development. Acting pursuant

to this authority, the Commission adopted Regulation IA, which

requires the Bank to file with the Commission substantially the same

information, documents and reports as are required from the International Bank for Reconstruction and Development. The Bank is also

required to file a report with the Commission prior to the sale of any

of its primary obligations to the public in the United States. Up to

June 30, 1962, no such sales had been made.

During the year ending June 30, 1962, the Bank made 3'7 loans

totaling the equivalent of $131,607,014 from its ordinary capital

resources, bringing the gross total of loan commitments at June 30,

to 49 loans aggregating $156,102,014,including $4501000representing

one loan which was cancelled. During the year, the Bank sold or

agreed to sell $4,19'7,632in participations in the aforesaid loans, all of

such participations being without the guarantee of the Bank. The

loans from the Bank's ordinary capital resources were made in Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, EI Salvador, Guatemala, Honduras, Mexico, Nicaragua, Paraguay, Peru and Uruguay.
TWENTY-EIGHTH ANNUAL REPORT 157

During the year the Bank also made 14 loans from its Fund for

Special Operations totaling the equivalent of $39,035,000, bringing

the gross total of loan commitments at June 30,to 21 loans aggregating

$68,185,000, including $150,000 representing one loan which was

cancelled. The Bank made 36 loans from the Social Progress Trust

Fund, which it administers for the United States, aggregating $223,-

787,000. Lending operations of the Trust Fund commenced during

the period.

The outstanding funded debt of the Bank on June 30, 1962, was

Italian lire equivalent to $24,193,548 resulting from the sale of its

bonds in Italy.

The subscribed capital of the Bank on June 30, 1962, was the

equivalent of $813,160,000, of which $431,580,000 represented callable

capital.

STATISTICS AND SPECIAL STUDIES

During the past fiscal year the Branch of Economic Research continued its regular work in connection with the statistical activities of

the Commission and the overall Government statistical program under

the direction of the Office of Statistical Standards, Bureau of the

Budget. In addition, the Branch of Exchange Regulation continued

its compilation of data on the stock market.

The statistical series described below are published in the Commission's Statistical Bulletin and in addition, except for data on

registered issues, on corporate pension funds, and on the stock market,

current figures and analyses of the data are published in quarterly

press releases.

Issues Registered Under the Securities Act of 1933

Monthly statistics are compiled on the number and volume of

registered securities, classified by industry of issuer, type of security,

and use of proceeds. Summary statistics for the years 1935-62 are

given in Appendix Table 1 and detailed statistics for the fiscal year

1962 appear in Appendix Table 2.

New Securities Offerings

This is a monthly and quarterly series covering all new corporate

and noncorporate issues offered for cash sale in the United States.

The series includes not only issues publicly offered but also issues

privately placed, as well as other issues exempt from registration

under the Securities Act such as intrastate offerings and railroad

securities. The offerings series includes only securities actually offered

for cash sale, and only issues offered for account of issuers. Annual

statistics on new offerings for recent years as well as monthly figures
158 SECURITIES AND EXCHANGE COMMISSION

from January 1961 through June 1962, are given in Appendix Tables

3,4, and 5.

Estimates of the net cash flow through securities transactions are

prepared quarterly and are derived by deducting from the amount of

estimated gross proceeds received by corporations through the sale

of securities the amount of estimated gross payments by corporations

to investors for securities retired. Data on gross issues, retirements

and net change in securities outstanding are presented for all corporations and for the principal industry groups.

Individuals' Saving

The Commission compiles quarterly estimates of the volume and

composition of individuals' saving in the United States. The series

represents net increases in individuals' financial assets less net

increases in debt. The study shows the aggregate amount of saving

and the form in which the saving occurred, such as investment in

securities, expansion of bank deposits, increases in insurance and

pension reserves, etc. A reconciliation of the Commission's estimates

with the personal saving estimates of the Department of Commerce,

derived in connection with its national income series, is published

annually by the Department of Commerce as well as in the Securities

and Exchange Commission Statistical Bulletin.

Corporate Pension Funds

An annual survey is made of pension plans of all United States

corporations where funds are administered by corporations themselves, or through trustees. The survey shows the flow of money into

these funds, the types of assets in which the funds are invested and the

principal items of income and expenditures.

Financial Position of Corporations

The series on the working capital position of all United States

corporations, excluding banks, insurance companies and savings and

loan associations, shows the principal components of current assets

and liabilities, and also contains an abbreviated analysis of the sources

and uses of corporate funds.

The Commission, jointly with the Federal Trade Commission, compiles a quarterly financial report of all United States manufacturing

concerns. This report gives complete balance sheet data and an

abbreviated income account, data being classified by industry and

size of company.

Plant and Equipment Expenditures

The Commission, together with the Department of Commerce, conducts quarterly and annual surveys of actual and anticipated plant

and equipment expenditures of all United States business, exclusive
~ENTY-EIGHTH ~AL REPORT 159

of agriculture. After the close of each quarter, data are released on

actual capital expenditures of that quarter and anticipated expenditures for the next two quarters. In addition, a survey is made at the

beginning of each year of the plans for business expansion during

that year.

Directory of Registered Companies

The Commission annually publishes a listing of companies required

to file annual reports under the Securities Exchange Act of 1934.

In addition to an alphabetical listing, there is a listing of companies

by industry group classified according to The Standard Industrial

Classification Manual.

Stock Market Data

The Branch of Exchange Regulation regularly compiles statistics

on the market value and volume of sales on registered and exempted

securities exchanges, round-lot stock transactions on the New York

exchanges for accounts of members and nonmembers, odd-lot stock

transactions on the New York exchanges, special offerings and

secondary distributions. It also computes indexes of stock market

prices each week based upon the closing market prices of common

stocks listed on the New York Stock Exchange. This stock price index

and data on round-lot and odd-lot trading on the two New York

exchanges are released weekly. The other statistical data mentioned

above, as well as these weekly series, are published regularly in the

Commission's Statistical Bulletin.

OPINIONS OF THE COMMISSION

Administrative proceedings arising under the statutes administrated by the Commission and under its Rules of Practice generally

culminate in the issuance of an opinion by the Commission, which includes findings of fact and conclusions of law. The extent to which

the factual and legal issues are discussed in these opinions depends

largely on their importance and novelty. The Commission's findings

are based on evidence taken at hearings which are in almost all cases

before a hearing examiner, or on stipulated facts or admissions.

In the preparation of opinions, the Commission, or the individual

Commissioner to whom a case may be assigned for the preparation of

an opinion, is assisted by the Office of Opinion Writing. This Office

is directly responsible to the Commission and is completely independent of the operating divisions, consistent with the principle of

separation of functions embodied in the Administrative Procedure

Act. Where the parties to a proceeding waive their right to such
160 SECURITIES AND EXCHANGE COMMISSION

separation, the operating division of the Commission which participated in the proceeding may assist in the drafting of the Commission's

decision.

The Commission's opinions are publicly released and are distributed to the press and to persons on the Commission's mailing list. In

addition, they are printed and published periodically by the Government Printing Office in bound volumes entitled "Securities and

Exchange Commission Decisions and Reports."

During the fiscal year 1962, the Commission issued 164 opinions

and other rulings of an adjudicatory nature.

DISSEMINATION OF INFORMATION

Various activities of the Commission supplement the underlying

objective of the securities laws of providing for the dissemination of financial and other information about securities offered for

public sale or traded on exchanges. All registration statements and

other corporate reports filed pursuant to the requirements of these

laws are public documents and available for inspection by investors

and other interested persons. Much of the data included therein is

reprinted and receives general circulation through the medium of

published securities manuals, which are standard reference material

for securities analysts, investment advisers and trust departments

throughout the country.

To facilitate public dissemination with respect to corporate financing and other proposals filed with the Commission and actions

taken by it in its administration of the laws, the Commission issues a

daily News Digest containing a resume of each filing, as well as

a summary of each order, decision or rule issued by or other actioR--Gf

the Commission. In addition to its distribution to the press, the

Digest is distributed on a subscription basis by the Government

Printing Office and some 3,500 investors, securities firms and other

interested persons are currently subscribing to this service. During the year the Digest included a resume of each of the 2,106 registration statements filed with the Commission (not including investment company filings which added additional securities by way of

amendments to previous statements) ; and it also included summaries

of the 1,250 orders, decisions, rules and other actions of the Commission. Much of the information reflected in the Digest is published in

the daily press and in financial and other periodicals. A more limited

distribution of the full text of the Commission's decisions or other

pronouncements is made to registrants, practicing lawyers and others.
TWENTY-EIGHTH ANNUAL REPORT 161

Members of the Commission and its staff frequently deliver addresses before professional, business, and other groups, and participate in "briefing" and other conferences in order to explain the

Commission's functions and activities, explain important rules and

policies, and otherwise contribute to a better understanding by individuals and firms subject to its jurisdiction as well as the investing

public of the role of the Commission.

Information Available for Public Inspection

The many thousands of registration statements, applications, declarations, and annual and other periodic reports filed each year are

available for public inspection at the Commission's principal officein

Washington, D.C. In addition, copies of recent reports filed by

companies having securities listed on exchanges other than the New

York Stock Exchange and the American Stock Exchange, and copies

of current reports of many nonlisted companies which have registered securities for public offering under the Securities Act, may be

examined in the Commission's New York regional office; and recent

reports filed by companies whose securities are listed on the New York

and American Stock Exchanges may be examined in the Commission's Chicago regional office. Moreover, there are available for

examination in all regional offices copies of prospectuses relating to

recent public offerings of securities registered under the Securities

Act; and all regional officeshave copies of broker-dealer and investment adviser registration applications, broker-dealer annual financial

reports and Regulation A letters of notification filed in their respective regions. Reports of companies whose securities are listed on the

various exchanges may be seen at the respective exchange offices.

Photocopies of reports or portions thereof and other material in the

public files of the Commission may be obtained upon request directed

to the Commission's public reference room in Washington. The

charge per page for photocopies varies from 14 to 25 cents, depending

upon the size of the page being copied. A minimum charge of $1 is

made for less than seven pages (legal size). The charge for each

certification of any such document by the Commission is $2.

Each year many thousands of requests for photocopies of and

information from the public files of the Commission are received by

the public reference room in Washington, D.C. During the year 6,565

persons examined material on file in the Washington office,and several

thousand others examined files in the New York and Chicago regional

offices. About 289,907 photocopy pages were sold pursuant to 4,361

individual orders.

672175-68-12
162 SECURITIES AND EXCHANGE COMMISSION

PUBUCATIONS

Publications currently being issued include:

Weekly: Index of Weekly Closing Prices.

Monthly:

Statistical Bulletin.'

Official Summary of Security Transactions and Holdings of Officers, Directors and Principal Stockholders."

Quarterly:

Financial Report, U.S. Manufacturing Corporations. (jointly with the

Federal Trade Commission).

Plant and Equipment Expenditures of U.S. Corporations (jointly with the

Department of Commerce).

New Securities Offerings.

Volume and Composition of Individuals' Saving.

Working Captial of U.S. Corporations.

Annually:

Annual Report of the Commission.'

Seeurittes Traded on Exchanges under the Securities Exchange Act of 1934.

Companies Registered under the Investment Company Act of 1940.

Corporate Pension Funds.

Directory of Companies Filing Annual Reports.

Other publications:

Decisions and Reports of the Commission."

The Work of the Securities and Exchange Commission.

ORGANIZATION

The Commission's staff consists of attorneys, security analysts,

accountants, engineers, investigators, and administrative and clerical

personnel.

The following organizational changes have been made since June

30, 1961, in accordance with the Commission's policy of continuing

review of its organization and functional alignments:

In August 1961, the Commission established three additional

Branches of Corporate Analysis and Examination in the Division of

Corporation Finance, to handle the increased volume of filings on

proposed new financing under the Securities Act of 1933.

In October 1961, the Commission established a, Special Study of

Securities Markets to conduct the study and investigation of the

adequacy of the rules of the national securities exchanges and national

securities associations provided for by Public Law 87-196, dated.

September 5, 1961.

Must be ordered from the Superintendent of Documents, Government Printing Office,

Washington 25, D.C.

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Also in October 1961, the Commission established two new branches,

the Branch of Special Investigations, Trial and Enforcement, and the

Branch of Criminal References, in the Division of Trading and Exchanges. This action was designed to consolidate in one division the

Commission's investigation and enforcement activities in the headquarters office and to contribute to more effective coordination of such

activities in the several regional offices. Subsequently, in September

1962, the enforcement activities of the Division of Trading and

Exchanges were reorganized to centralize the responsibility for all

enforcement matters other than criminal references in an Office of

Enforcement, with two Branches of Enforcement. The Branch of

Criminal References was renamed the Office of Criminal Reference.

In December 1961, the Division of Administrative Management was

abolished and the three branches in that Division were established

as separate organizational units, as the Office of the Comptroller,

Office of Personnel, and Office of Records and Service. The heads of

these officesare responsible directly to the Chairman.

In July 1962, a Branch of Investment Company Inspections was

established in the Division of Corporate Regulation to plan and supervise the Commission's investment company inspection program. In

December 1962, this Branch was assigned the responsibility for investigations and enforcement actions with respect to investment

companies.

Also in December 1962, the Assistant Director of the Division of

Corporate Regulation with responsibility for the Commission's functions under the Public Utility Holding Company Act of 1935 was also

given responsibility for its functions under Chapter X of the Bankruptcy Act; and a staff unit was established to assist the Commission

in policy planning under the Investment Company Act of 1940.

Finally, there was a realignment of functions in the New York

Regional Office in August 1962, involving principally the consolidation of enforcement activities under an Assistant Regional Administrator and the appointment of another Assistant Regional Administrator with responsibility for the Commission's functions under

Chapter X of the Bankruptcy Act and for the investment company

and investment adviser inspection programs.

PERSONNEL AND FINANCIAL MANAGEMENT

In fiscal 1962, the Commission continued its intensive efforts to

recruit outstanding law and business graduates. Several on-campus

visits to law schools and to colleges offering undergraduate and

graduate programs in finance were made by Commission representa-
TWENTY-EIGHTH ANNUAL REPORT 165

tives. A number of high-caliber graduates were appointed to the

staff as a result of these visits.

The enactment of Public Law 87-196 by the Congress, authorizing

the Commission to conduct a special study of the securities markets,

required the recruitment of a specialized staff in as short a time as

possible. Authority to appoint employees without regard to Civil

Service laws, rules and regulations and to establish pay without

regard to the Classification Act of 1949, as amended, materially

assisted the Commission in expediting the appointment of wellqualified individuals to the Special Study staff. A general staffing

policy to fill positions created under Public Law 87-196 was approved

by the Chairman on October 6, 1961.

The Commission was authorized by the Civil Service Commission

to examine and rate stenographers and typists in Grades GS-2, GS-3,

and GS-4 and clerical applicants in Grades GS-2 and GS-3. This

authority enabled the Commission to staff its clerical vacancies under

a field recruiting program conducted instates surrounding the )Vashington Metropolitan Area.

The Commission found it necessary to supplement its on-the-job

training of newly appointed professional employees with more formalized training sessions. The Divisions of Corporation Finance

and Trading and Exchanges demonstrated the feasibility of conducting their training sessions outside of office hours. This permitted

them to use senior officials as lecturers or instructors, to solve classroom space problems and to continue work production during office

hours. The New York Regional Office also conducted instructional

sessions for new attorneys and investigators employed during the

fiscal year. Clerical training for stenographic and typing personnel

covering telephone etiquette, correspondence procedures, mail, files

and records, etc., was conducted in the Headquarters Officeunder the

direction of a special secretarial committee recruited from experienced staff employees.

In its seventh annual service and merit awards ceremony in October

1961, the Commission recognized the long service of its career

employees by presenting pins to 31 employees with 25 years of S.E.C.

service. In addition, 52 employees were presented 20,15, and 10-year

service pins, respectively. In recognition of those members of the

staff whose terms of Government service include service in other

Federal agencies, 8 employees received 30-year pins, 15 received 25-

year pins, 24 received 20-year pins, 33 received 15-year pins, and 43

received 10-year pins. Cash awards totaling $7,650 and certificates

of merit were presented to 73 employees and 6 employees received a

total of $250 for suggestions which were adopted.
166 SECURITIES AND EXCHANGE COMMISSION

The following comparative table shows the personnel strength of

the Commission as of June 30, 1961 and 1962:

lune30. 1962 lune30, 1001

Oommlssioners _., ..... , ._ .---_ 5 5

Staff:Headquarters office_. . ..• lIlI2 675 Regional offices ._ T" _, 469 407

Tlltal staff ..... _. ._ ..... .,_ ._ 1,331 1,082

Grand total , _. ,_ _. .. 1,336 1,087

The table on page 167 shows the status of the Commission's

budget estimates for the fiscal years 1958 to 1963, from the initial

submission to the Bureau of the Budget to final enactment of the

annual appropriation.

The Commission is required by law to collect fees for registration

of securities issued, qualification of trust indentures, registration of

exchanges, and sale of copies of documents filed with the

Commission.sa

The following table shows the Commission's appropriation, total

fees collected, percentage of fees collected to total appropriation, and

the net cost to the taxpayers of Commission operations for the fiscal

years 1960, 1961, and 1962:

Apprapria- Fees col- Pereent8ge l!f fees collected Net cost af Year tton looted. to total commission

apprllprla. operntlon t10n (percent)

1900._. .. _._._- _._ ., _. $8, 100.000 $2,631.498 32 $5,468.502 lOOL ._ •. _. ._ .. .. T- 9,517,600 2, 927.407 31 6, 690,099 1962_. ,_, ._. "_" _. ._ 11. 412,liOO 3. 42Z, 403 30 7.990.097

Fees are deposited In the general fund of the Treasury and are not aVll!lable far expenditure by the

Oommtssion,

10Principal rates are (1,) '*00 at 1 percent at the maxImum aggregate pzlee at securIties

proposed to be offered but Dot less than '25; (:I) of 1 percent ot fbI! aggregate <Jollar

amount of stock transactions. Fees tor other servtces are only nomtnal,

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APPENDIX

STATISTICAL TABLES

TABLE i.-A. 28-gear reCQrCZof registrations tuny effective unCZer the Securities

A.ct ot 1933

1935-1961.

[AmountsVnfmilllons of dollars]

For cash sale for account oC Issuers Number Fiscal year ended June 30 of All regis.

state- tratlons Bonds, PreCerred Common ments I Total deben tures, stock stock and notes

1935 ._._. 284 $913 $686 $400 $28 $168 1936___________________________ 689 4,835 3,936 3,153 252 531 1937___________________________ 840 4,851 3,635 2,426 406 802 1938___________________________ 412 2, 101 1,349 666 209 474 1939 344 2, 579 2,020 1,593 109 318 1940 306 1,787 1,433 1,112 110 210 1941 313 2,611 2, 081 1,721 164 196 1942 _. 193 2,003 1,465 1,041 162 263 1943 123 659 486 316 32 187 19« 221 1,760 1,347 732 343 272 1945 340 3,225 2,715 1,851 407 456 1946 ., 661 7,073 5,424 3,102 991 1,331 1947______________________._._. 493 6,732 4,874 2, 937 787 1,150 1948 435 6,405 5,032 2,817 537 1,678 1949 429 5,333 4,204 2,795 326 1,083 1950 487 5,307 4, 381 2,127 468 1,786 1951 487 6,459 5,169 2,838 427 1,004 1952 635 9,500 7,529 3,346 851 3,332 1953 593 7,507 6,326 3,093 424 2,808 1964 ._ 631 9,174 7,381 4,240 631 2,610 1955 779 10,960 8,277 3,951 462 3,864 1956___________________________ 833 13,096 9,206 4,123 639 4,544 1957 _' 860 14,624 12, 019 5,689 472 5,858 1958 ._ 809 16,400 13,281 6,857 427 5,998 1959 1,055 15,657 12,095 5,265 443 6,387 1960 1,398 14,367 "11,738 4,224 253 7,260 1961 ._. 1,507 19,071) "16,260 6,162 248 9,850 1962 1,816 19,647 16,286 4, 512 253 n.sai

I Statements registering American Depositary Receipts against outstanding foreign securities as provided

by Form S-12 are not Included.

I For 10 months ended June 30,1935 . Revised. Sec footnote 2 to Appendix Table 2.

171

"______ ______________

________• ____________• _____ ________• ______• ___________

__________• ______•• ________

________• ___________• ____

___________• ________• ___• __

__________________• ________ ___________________• __• ____

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__________________••• __••• _ _________________• __•• _____

____________________• ______

_____" ____________• __•• __' ________• __________________

_____ •• __________________ ____________• ____• ____• ____

_____________•• _________•

_______•• _______• __• _____

___• ___•• __________________ _•_________________________

___ _____________• _______ ______•• ____________• ___•__

•
172 SECURITIES AND EXCHANGE COMMISSION

TABLE 2.-Registraticms fully effective under the Securities Act of 1999, fiscaZ

year endedJune 30,1962

PART I.-DISTRIBUTION BY MONTHS

[Amounts In thousands 01dollars 1]

All registrations Proposed for sale for account of Issuers I

Total Corporate Year and month Number Number

ofstate- of Amount ments Issues I Number Number

of Amount of Amount

issues issues

1961 July ______________________ August 124 157 $1,094,105 126 $949,340 89 $490,952 ___________________ 155 180 1,383,324 149 1,112, 785 114 401,615 September _______________ October 142 164 1,127,472 126 615,382 100 328,707 __________________ 172 204 1,272,335 165 932, 773 117 580,640 November

December 168 197 1,287,853 155 1,062,274 121 580,248 ________________ 135 160 1,302, 148 133 1,160,510 104 353,637

196B January __________________ 135 150 1,329,093 125 1,238,289 81 335,027 February ________________ March 106 116 1,192, 759 97 ll76,651 69 563,5116 ___________________ 171 198 1,871,553 160 1, 544, 528 118 777,16ll

tfar:.-::::::::::::::: ::::: 251 305 4,826,701 244 4, 194,029 133 729,250

159 183 1,978,842 164 1,698,308 87 646,803 J une ll7 1211 880,826 91 811,454 59 531,194

--- Totel, fiscal year 1962 ______________ 11,815 2, 134 19,647,011 1,725 16,286,325 1,1112 '6,318,737

PART 2.-PURPOSE OF REGISTRATION AND TYPE OF SECURITY

[Amounts In thousands of dollars 1]

Type 01security

Purpose of registration All types

Bonds, de- Preferred Common

bentures, stock stock'

and notes I

All registrations (estimated value) __________________$19,647,011 $4,617,856 $4211,644 $14, 508, 511

For account of issuer for cash sale______________ 16,286,325 4,512,471 252,664 11,521,190

For Immedlate offering

Corporate 6,318,737 4,088,483 251,526 l,ll78,728

Offered to: General publlc _________________ 5,298,634 3,822, 150 149,751 1,326,734 Security holders ________________ 1165,485 262,319 96,431 606,735 Other special groupS___________ 54, 618 4,014 5,344 45,260

Foreign governments ___________________ 246,875 246,875 0 0

For extended cash sale and other Issues 1___ ll.7211,713 177,113 1,138 9,542,462

For account ofIssuer for other than cash sale ___ 1,523,179 86,331 164,829 1,272,019

For account of other than Issuer. _______________ 1,737,508 Ill,054 3.151 1, 715,303

For cash sale_______________________________ Other 1,418,475 8,322 113 1,410,041

319,032 10,732 3,038 305,261

See footnotes at end of part 4 of table.

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TWENTY-EIGHTH ANNUAL REPORT 177

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TWENTY-EIGHTH ANNUAL REPORT 179
180 SECURITIES AND EXCHANGE COMMISSION

TABLE 4.-Proposoo uses of net proceeds from the sale of new corporate securities

offered for cash in the United States

PART l.-ALL CORPORATE

[Amounts In thousands of dollars I]

Proceeds New money

Calendar year Or Retire- Other

month' ment of purposes

Total gross Total net Total new Plant and Working securIties proceeds , proceeds' money equipment capital

1957 12883,533 12,661,300 11,783,879 9,039,778 2. 744.101 214,294 663,127 1958______________________ 11,558,343 11.371.563 9,907.135 7,792,008 2.115,127 548,952 915,475 1959______________________ 9.748.069 9 526,631 8,577,764 6,084,152 2,493,612 134,548 814,319 1960__________. ___________ 10,153,980 9,923,779 8,758,240 5,661,567 3,096,673 270,784 894,755 1961- 13,147,279 12,874,167 10,829,087 7,539,489 3,289,598 895,231 1,149,849

196/ January _. 600,616 590,250 551,575 359,176 192,399 10,346 28,328 February ________________ 695,413 681,810 611,885 304,253 307.632 14,327 55,598 March ___________________ 696,272 679,178 484,111 288,762 195,349 117,655 77,412

~~_-:=======:===:=:=:=::I U~Urh2. 202,858 2,055,451 1,780,209 275,242 84,749 62, 658

1,314,344 1.090,014 883,809 256,205 55.279 169,051 June 1,778,662 1,743,947 1,126,731 758.816 367,915 426,340 190,877 July -_ 1,075,335 1,049,287 845,655 560,086 285,569 21,590 182,042 August ___________________ 813,335 792,866 662,165 433,982 228,183 30,512 100,189 September 677,511 658,487 611,683 402,121 209,562 11.204 35,600 October _. 1,155,464 1,129,133 951,815 641,013 310,802 39,609 137,709 November. 987,193 960,647 907,977 670,790 237,187 12,615 40,055 December 1,094,227 1,071,359 930,024 506,472 423,552 71,004 70,330

1961 January. ., ,_ 647,264 631,924 507,166 326,198 180,968 39,479 85,279 February _. 883,533 865,820 792,001 641,865 150,136 6,851 66,968 March 846,906 822, 607 709,407 458,250 251,157 15,916 97,284

A

ErlL.-------.----------j1, 216, 982 1,185,003 1,032, 903 753,421 279,482 72, 016 80,084

1\ ay.____________________ 801,097 784,966 620 950 435,248 185,703 24,963 139,053

June.____________________ 1,232,496 1,214,338 952, 698 712,791 239,906 81,930 179,710

PART 2.-MANUFACTURING

1957. _____________________ 4,233,708 4,153,534 3,764,423 2.644,460 1.119,963 49,131 339,980 1958_. 3,515,407 3,459,399 2,851,033 2.027,328 823,705 194,629 413,738 1959 2, 072, 820 2,011,306 1,684,071 863,709 820,362 70,419 256,815 1960______________________ 2.152,419 2,076,267 1,710,743 944,632 766,111 79,327 286,196 1961. _______________-. ____ 4,111,683 4,014,274 3,059,739 1,921,751 1,137,988 305,925 648,611

1961 January ._. ._ 173,177 169,784 155.356 97,322 58,034 1.246 13,183 February 106,322 103,654 75,114 29,653 45,461 4, 739 23,801 March ._. 285,626 279,351 182, 692 79,230 103,462 31,736 64,923

tl':~__::= .: .; .: .:

601,932 590,049 543,257 439,882 103,375 16,380 30,412

480,831 468,993 339,003 203,516 135,487 22,449 107,542 June. 584,897 573,715 340,098 170,549 169.549 127,677 105,939 July 451,725 440,363 312, 156 229,874 82, 282 12, 184 116,023 A ugust, 287.658 280.188 179,244 92,849 86,395 25,302 75,641 September. ______________ 268,437 260,457 232,913 154,286 78,627 8,254 19,290 October 308,272 299,576 234.258 141,671 92,587 28,301 37,017 November 232,576 224,675 189,278 127,558 61,720 9,857 25,540 December 330,229 323,469 276,370 155,363 121,008 17,800 29,298

1961 January 224,512 219,178 186.402 103,186 83.216 13.812 18,964 February 138,538 133,086 89.316 52, 650 36,665 2,069 41,702 March. 329,406 320,657 280,036 141,567 138.469 2,412 38,209

~----:_~~~~~~~:~~~~~~~~~ 462,666 450,814 355,095 206,238 148,857 67.250 28,468278,633 274,816 1M,895 72,674 82,221 5,104 114,817 June 361,224 355,611 290,167 198,477 91,690 13,938 51,005

See footnote at end of table.

__________• ___________

____________• _______•

_••• ___• ________

•• ___________________ •• __________________

____________• __

______- ______• __ _• ____________ •• ______________

___••• ____ ___ ___• __________

•• _________________

_________•__________

____________- ___-- ____

__• __ __••• ___ •• _________• ____

•• _•• ___ ________

_____= •=______________ === === = ___• _________• ________

•• ________________

•••• ______________

•• ___•• __• ____• •____________•••

____________•• ___• ____ • _____• _____

" __•• ____• __••• __

•• ___•• ____' __•• __•••
TWENTY-EIGHTH ANNUAL REPORT 181

TABLE 4.-Proposed uses of net proceeds from the sale of new corporate securities

offered for cash in the United States--Continued

PART 3.-EXTRACTIVE

[Amounts In thousands of dollars I)

Proceeds New money

Calendar~ar or Retlre- Other mon t ment of purposes

Total gross Total net Total new Plant and Working securities proceeds I proceeds I money equipment capital

1957______________________ 1958______________________ 288,574 276,809 242,826 159,783 83,042 6,838 27,145

246,565 239,274 184,092 95,221 88, 871 2,033 53,149 1959______________________ 161,396 154,495 119,555 39,190 80,365 12,245 22,695 1960______________________ 245,682 239,469 154,216 71,338 82.879 8, 476 76,777 196L _____________________ 261,386 256,241 181,842 88, 106 93,536 2, 724 71,875

1061 1anuary __________________ 15,171 15,105 13,282 6,414 6,867 593 1,230 February ________________ March 28,283 27,682 25,071 9,024 16,047 817 1,794 ___________________ 16,756 16,130 15,136 6,387 8,749 249 745 .April _____________________ May 9,935 9,762 5.852 2,828 3,024 286 3,623 _____________________ 1une _____________________ 34,168 33,644 32,017 24,791 7,226 514 1,113

10,675 9,005 9,476 3,822 5,654 32 458 July _____________________ 32,912 32,549 15,420 575 14,846 37 17,092 August ___________________ 15292 14,826 14, 033 6,628 7,405 196 596 September _______________ 15,287 14, 975 14,825 3,669 11,156 ° October 150 __________________ 36,844 36,521 6,551 1,420 5,131 ° 29,970 November _______________ 4, 427 4,264 4, 089 1,050 3,039 ° 175 December ________________ 41,636 40,817 25,889 21,497 4,391 ° 14,929

1961 January __________________ 15,388 15,066 13,373 5,164 8, 209 500 1,194 February ________________ 12.614 11,994 7,402 2,432 4.969 ° March 4, 592 ___________________ 15,528 14, 999 14,881 3,260 11.620 ° 118

tfar;.I:::::::::::::::::::::

14, 691 14,049 10,229 2,021 8,208 ° 3,820

36,867 36,204 34,811 29,631 5,179 150 1,244 J une _____________________ 23,099 23,027 20,418 8, 412 12,006 652 1,957

PART 4.-ELECTRIC, GAS AND WATER

1957______________________ 3, 938,087 3,871,899 3, 6~9, 189 3,645,919 13,271 51,280 161,430 1958______________________ 3,804,105 3,743,395 3,441,074 3,411,355 29,719 138,392 163,928 1959 3,257,790 3.204,090 3,056,634 3,036,644 19,990 15,250 132,205 1960______________________ 2,851,215 2.805,315 2,655,559 2,624,059 31.500 51,170 98,587 1961_. ____________________ 3,039,442 2,996,763 2,808, 861 2,792,792 16,070 104, 394 83,507

1anuary __________________ 1961 139,643 137,23.5 134,198 134,160 37 ° 3, 037 Febmary 162,751 159,999 159,961 159,923 38 0 38 March ___________________ 85,067 83,693 81,912 81,046 366 0 1,782

tfar:::::::::::::::::::::: 278,098 274, 984 247,393 247,116 277 21,442 6,149

461,286 455,732 408,095 406,670 1,425 16,757 30,880 J une _____________________ 408, 145 401,912 387,411 385,859 1,552 13,174 1,327 July _____________________ 275,744 272,092 255,551 255,299 251 3,378 13,164 .August ___________________ 219,670 216,800 214,307 213,466 841 1,696 797 September

October 112,674 111,315 110,909 105,319 5,589 203 203 __________________ 318,050 313,608 281,887 280,479 1,407 7,721 24,000 November _______________ 367,029 361,721 361,1.i97 359,626 1,971 ° 123 December ________________ 211,284 207,672 165,842 163,327 2, 315 40,023 2,006

1anuary __________________ 1061 115,747 113,414 83,859 83,822 37 24, 000 6,554 February ________________ 152,837 151,303 147,545 146,710 836 3,757 0 March 196,541 104,078 191,920 191,588 332 1,082 1,077

!1~-:::::::::=::::=::::: 382,753 376,726 376,72ft 376,495 231 216,943 213,600 195,122 192,911 2,211 15,940

°

2,537

°

472,9711 466,3118 332,996 332,1134 62 56,161 77,241

See footnotes at end of table.

___________________• __

_____________• __

___• ___________

__• ________________
182 SECURITIES AND EXCHANGE COMMISSION

TABLE 4.-Proposed uses of net proceeds from the sale of new corporate securities

offered for cash in the United States-Continued

PART 5.-RAILROAD

[Amounts In thousands of dollars IJ

Proceeds New money

Calendar year or Retire. Other month I ment of purposes Total gross Total net Total new Plant and Working secunttes proceeds 3 proceeds 3 money equiprnent eaprtal

---- 1957 34~, 647 340,244 326.409 326,409 0 13,835 0 1958 . ._ 238,352 235,542 206,381 188,784 17,597 29,161 0 1959______________________ 173,913 172,244 172,244 169,314 2,930 0 0 1960 211,244 209,146 174.485 174,485 0 34,661 0 1961.. 178,693 176,868 148,348 148,148 200 21,271 7,2DO

1961 January __________________ 27,620 27,384 27,384 27,384 0 0 0 February ________________ 17,063 16,848 10,374 10,175 200 6,473 0 March, __________________ 22,537 21,984 13,171 13,171 0 8,812 0

tfa~:::::::::::::::::::: 10 404 10,300 10,300 10,300 0 0 0 14,204 14,065 14,065 14.065 0 0 0 June. 13,237 13,185 7,200 7,200 0 5,985 0 July _____________________ 8,647 8,481 8,481 8,481 0 0 0 August ___________________ 16,433 16,276 16,276 16,276 0 0 0 September _. _____________ 0 0 0 0 0 0 0 October __________________ 19,444 19,360 12,110 12,110 0 0 7,2DO November 2-3,771 23,608 23,608 23,608 0 0 0 December . 5,432 5,378 5,378 5,378 0 0 0

196e January_. ___. ____________ 11,822 11,727 n,727 11,727 0 0 0 February 17,396 17,239 17,239 17,239 0 0 0 March_. ______________. __ 19,501 19,330 19,330 19,330 0 0 0 A pnl., 7.248 7,191 7,191 7,191 0 0 0 May. 11,565 11,472 11,472 11,472 0 0 0 June ___________ . ____. ____ 17,514 17,347 17,347 17,347 0 0 0

PART 6.-0THER TRANSPORTATION

1957______________________ 479,921 475.421 465,095 456,665 8.430 204 10,122 1958. _____________________ 585,539 5RO,031 474,4311 458,345 16,093 8,505 97,088 1959 . 792,82') 784,469 747,347 699,873 47.474 15,077 22.045 1960________. _____. ______. 507,286 501,031 451,064 423,993 27,071 3,908 46,059 1961.. .• •. 534,318 529,020 477,680 453,943 23,737 4,839 46,501

1961 January . . 55,123 54,396 53,544 51,236 2,308 322 529 February ._. __. __. _______ 44,615 44,230 44,051 43,108 943 90 90 March_ . . ._ 60,434 59,653 58.210 53,084 5,125 722 722 AprIL . . 2-3.623 2~,524 20,871 19,259 1.611 830 1,823 May _•. _________. ______._ 54,134 53,181 52,959 49,297 3,662 111 111 J'une _________ .• _________. 109.741 lOQ,656 67,842 66,975 867 708 40,106 July ._. . 3,051 2,976 2,876 2,316 660 50 50 Aucust, _____.. ___. __. __._ 53,910 53,434 52,137 50,643 1,494 649 649 September __________.. ___ 27,907 27.783 27.783 26,638 1,145 0 0 October ___. ___. ____. ___._ 41,601 41,327 39,270 as.ess 632 497 1,561 November __. __. ___. _____ 32,249 32,047 32,047 27,691 4,356 0 0 Decem ber _______.. _.. ____ 27,931 27,812 26.090 25,057 1,034 861 861

1962 J anuary_. ______.. ______._ 12,323 12,076 10,933 10,233 700 509 634 February . 27,903 27,670 27.268 26,771 497 160 242 March_. . . 56,630 64,944 64,396 53,574 822 345 203 A prl!..

May 21,238 20,601 20,601 20.511 90 0 0 _________._. __. _____. 26,816 26,736 26,736 25;459 1,27R 0 0 une _____________________ J 31,272 31,147 30,392 30,015 377 377 377

See footnotes at end of table.

_____________________•

_____• ___ __________

•• ________________• ___ ___• ____• ___________

________• ___________

__________• ____

•___ _______•• __

_____________ • __

_____• _____________ _____• ______________

__________ ______• ____

__ _____• _______ _

______•__•______

•• __ ________ __ •••• _______ ______

•____• ___ ______ ___

___• _________ __

_____• __ _____ __

_____•________ •___
TWENTY-EIGHTH ANNUAL REPORT 183

TABLE 4.-P1'OPOSe4 uses of net proceeds from the scie of new corporate securities

offered for cash in the United States-Continued

PART 7.-CO~fMUNICATION

[Amounts ill thousands of dollars ']

Proceeds New money Calendar year or Retire- Other month 2 ment of purposes Total gross Total net Total new Plant and WorkIng secunties

proceeds' proceeds 3 money equipment capital

1957. 1,461, 748 1,444,446 1,427.977 1,425,696 2,281 3,904 12,566 1958_ .• _. 1.423.776 1,411,831 1,265,315 1.262,382 2,933 118.112 28,404 1959 . 717,101 707,265 702,959 701,347 1,612 113 4,192 1960 1,049,810 1,036,460 1,031,659 1,022,870 8,790 632 4,119 1961. _. 1,820,801 1,804,593 1,407,979 1,397,898 10,081 377,656 18,958

1981 January ._ . 21,300 21,140 17,857 17,588 270 0 3,283 February; 41,306 40.527 38,700 36,914 1,786 0 1,827 March . 90,200 88,994 18,885 18,709 176 69,933 176

t.f:~:::=.: .: .;

1,044.870 1,038,794 993,779 991,649 2,130 44,973 42 97.929 97,193 84,881 84.723 158 12,154 158 June .. 269,544 266,613 13,948 13,778 169 250,531 2,134 July ____. _. ___________. ___ 16,095 15,694 14,980 13,627 1,353 66 648 August.; . 13,250 13,191 4534 4.348 186 0 8,657 September .• .. 76,946 7.5,179 74088 73,503 585 0 1,091 October ____________._. ___ 25,630 25,181 24,444 23,188 1,256 0 737 November _________. _____ 81,498 80,272 80,066 78,054 2.012 0 206 December ________________ 42,234 41,816 41,816 41,816 0 0 0

196Z January _. . . 74,673 73,084 71,304 71,304 0 0 1,780 February ________._. _____ 365,906 362,342 360,804 360,741 62 0 1.539 March. . 21,098 20.873 20,719 20,565 154 0 154 Aprll. .• •. 89,514 88,608 86,745 86,711 34 112 1,750 May . .• 65,071 63,544 63,148 62,724 424 0 396 June; ._ 80,372 79,352 77,602 77,602 0 0 1,750

PART8.-FINANCIAL AND REAL ESTATE

1957______________________ 1,795,413 1,768,353 1,635,740 241,464 1,394.276 67,314 65,298 1958___•. ______.. _________ 1,088,299 1,060,792 900,109 186,773 713,336 46,887 113,796 1959__________.• _____. ____ 1,852,906 1,807,390 1,563,990 300,592 1,268,398 6,116 232,285 1960_. ... 2.524,619 2.472,229 2,143,135 267,586 1,875,549 71,366 257,728 1961.. ••. 2,274,833 2,212,051 2,014,989 499,49.5 1,515,494 35,572 161,490

1961 January ..•. 148,570 146,232 132,005 18.781 113,224 8,106 6,121 February . 227,664 223,842 220,843 7,215 213,628 1,022 1,977 March_. ..• . 97,401 93,643 85,816 27,044 58,772 1,400 6,427 Aprll. ________.• _____.. ___ 190,836 186,144 168,987 59,420 109,566 410 16,748 May. __. ___.•.• ___.. _____ 117,686 113,014 90,146 27,308 62,837 1,834 21.034 J'une., , _____. ____.. _______ 243,233 236,587 203,184 77,870 125,314 5,442 27,962 July _. 217,518 210,382 182,322 33,010 149,313 4,165 23,895 August., .•. _. 132,982 128,808 116,276 22,665 93,611 1,849 10,683 September _. 110,045 106,559 100,840 23,162 77,678 1,4.52 4,268 October _____________._. __ 290,932 282,344 260,039 108,834 151,206 1,760 20,54.5 November. 183,355 176,646 163,531 32,160 131,371 2,372 10,743 December 314,612 307,848 291,000 62,026 228,975 5,761 11.087

198Z January ____________. _____ 104,315 102,750 59,465 30,493 28.972 558 42,728 February .. ._. 126,041 122,477 108,726 11,114 97.612 755 12 99.; March ._. 143,426 136.414 76,576 9,683 66,892 10,414 49,425 AprI1.. _. 142,035 135,196 97,399 27,312 70,087 1,405 36,392 May . . 96,496 93,815 78,354 16,808 61,546 2.744 12,717 June 172,656 170,049 137,869 21,884 115,985 7,493 24,687

See footnotes at end of table.

______________•___•••

•• ____• __________ _____• ____ __________•

_________•• ________•••

_________• ________•

______ ________•

___••______•__• ____• __ ___________

•• ____ ===_____________ = = = === =

____ _____•______

_• _____ ___ _

__ _______•__ __

_ __________• _____

__ _ ____________• ____• _______ _____ _

•__•______________

_____________ ___•

_________• ______ _

_____ ____• ____

_ • ___• ____ ____• ____ ____ ____•

______•• ____________

••_____ __• __ __________• __

___________• __

__• ___• ____• ____

_ ____ _____• •• __• _______ __•• •• __• ________• __•• __ __• ___ ______• ____ ____•• _______________
184 SECURITIES AND EXCHANGE COMMISSION

TABLE 4.-Proposed uses of net proceeds from the sale of new corporate securities

offered for cash in the United States--(Jontinned

PART 9.-COMMERCIAL AND OTHER

[Amounts In thousands of dollars 1]

Proceeds New money

Calendar year or Retire- Other month S ment of purposes Total gross Total net Totslnew Plant and Working securities proceeds S proceeds money equipment capital

1957______________________ 342,435 330,593 262,220 139,382 122,838 21,788 46,585 1958______________________ 656,299 641,298 584,692 161,819 422,873 11,234 45,372 1959______________________ 719,314 685,374 525,963 273,483 252,480 15,328 144,082 1960______________________ 611,705 583,860 437,378 132,604 304,774 21,194 125,288 1961______________________ 926,123 884,356 729,849 237,357 492,492 42,850 111,657

1981 January __________________ 20,012 18,975 17,950 6,291 11,659 80 945 February ________________ 67,410 65,028 37,771 8,242 29,530 1,186 26,070 March ___________________ 38,251 35,730 28,289 9,590 18,699 4,803 2,638 M:~:~~~~.; ..

71,738 69,300 65,013 9,754 55,258 428 3.860

81,577 78,521 68,848 23,439 45,409 1,460 8,213 June _____________________ 139,190 133,315 97,573 32,764 64,809 22,792 12,951 July ___._. ________________ 69,744 66,750 53.869 16,904 36,ll65 1,711 11,170 AugusL __________________ 74,140 69,344 65,358 27,107 38,251 820 3,166 September _______________ 66,215 62,218 50,325 15.544 34,781 1,295 10,598 October __________________ 114,690 111,216 93,250 34,672 58,583 1, 331 16,629 November _______________ 62,288 57,414 53,761 21.043 32,718 386 3,267 December ________________ 120,868 116,546 97,838 32,008 65,830 6,559 12,150

1961 January __________________ 88,485 84,628 70,103 10,269 59,834 100 14,425

K£:~~r::.-..-..-~= .:

42,298 39,709 33,702 24, 207 9,494 110 5,898

6t,776 61,312 51,550 18,683 32,867 1,664 8,098

t!it~~ .:

96,836 91,819 78,ll17 26,1l41 51,975 3,248 9,654

68,705 64,779 56,411 23,567 32,844 1,025 7,342

73,379 71,407 45,906 26,121 19,785 3,309 22,192

I Slight discrepancies between the sum of figures Inthe tables and the totals shown are due to rounding.

S For earlier data see 25th annual report,

Total estimated gross proceeds represent the amount paid for the seeurrtles by Investors, while total

estimated net proceeds represent the amount received by the issuer after payment of compensation to dis- tributors and other costs of flotation.

'

===== =======

=========

=~ == =====~=~= == =

•
TWENTY-EIGHTH ANNUAL REPORT 185

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____ _____ __ ~ ____ __ _
186 SECURITIES AND EXCHANGE COMMISSION

TABLE 6.-Brokers and dealers registered under the Securities Exchange Act of

1934 '-effective registrations as of June 30, 1962, classified by type of organization and by location ot principal office

Number of registrants Number of proprietors, partners,

officers, etc. U

Location of principal office Sole Sole pro. Part- Cor- pro- Part- Cor- Total pne- ner- fo°m- Total pne- ner- pora- tor- ships tons 4 tor- ships tions 4

ships ships

--------------------- Ala bama 37 12 6 19 117 12 18 87 Alaska. 5 4 0 1 7 4 0 3 Arlzona 32 6 3 23 127 6 8 113 Arkansas ____________________________ 30 5 2 23 115 5 4 106 Californla 474 182 85 207 1,809 181 564 1,064 Colorado ____________________________ 98 27 5 66 352 27 19 206 Connectlcut. 46 15 12 19 196 15 59 122 Delaware. 20 7 5 8 73 7 25 41 Dlstrret of Columbia, 111 30 18 63 473 30 119 324 Florrda, _____________________________ Georgia 145 43 9 93 452 43 22 387

40 12 6 22 219 12 29 178 HI'wan, _________________ 35 9 5 21 162 9 12 141 Idaho 17 9 1 7 45 9 3 38 I1hnols 200 40 57 103 983 40 299 644 Indiana 59 28 4 27 181 28 8 145 Iowa 39 13 5 21 125 13 14 98 Kansas 34 9 5 20 146 9 15 122 Kentucky 20 5 6 9 71 5 22 44 Louisiana 47 24 10 13 117 24 41 52 Malne.., 31 12 2 17 80 12 7 61 Maryland 77 23 16 38 271 23 98 150 Massachusetts 226 91 35 100 975 91 246 638 Miehtgan., 61 10 17 34 320 10 100 210 Minnesota 80 8 7 65 428 8 31 389

~~~~f~:======= .; 21 7 6 8 62 7 16 39

90 25 17 4ll 539 25 138 381 Montana ._ 17 8 2 7 39 8 4 27 N ebraska., ._ 38 10 0 23 121 10 0 III Nevada. ._ 7 2 1 4 24 2 2 20 New Hampslnre., ._ 11 7 1 3 24 7 2 15 New Jersey ._ 246 123 38 90 552 123 83 346 New Mextco , , ._ 10 4 3 3 30 4 10 16

New York State (excluding Ncw York Clty) 523 274 49 200 1,093 274 140 679 North Carolina 40 11 4 25 212 11 10 191 Nortb Dakota 10 2 1 7 30 2 2 26 Ohio 135 2ii 36 73 636 26 201 409 Oklahoma, 44 18 4 22 120 18 9 93 Oregon _. 29 5 6 18 104 5 12 87 Pennsylvania 246 67 83 96 1.032 67 404 561 Rhode Island 24 3 9 12 63 3 24 36 South Carolma 28 6 4 18 87 6 9 72 South Dakota 6 2 0 4 17 2 0 15 Tennessee 52 12 7 33 224 12 27 185 Texas 210 90 21 99 672 90 76 506 Utah. 48 15 8 25 135 15 31 89 vermont.; 5 3 0 2 15 3 0 12 Virginia 64 18 12 24 200 18 64 118 W ashmgton 85 45 3 37 277 45 6 226 West Virgmla 16 10 2 4 34 10 5 19 Wlsconsln , _. 50 6 3 41 255 6 24 225 W yommg. ., _. 11 7 0 4 24 7 0 17

--- ------------------ Total (excluding New York

1,949 City) 4,015 1,430 636 14,465 1,429 3,057 9,979 New York C,ty 1,749 376 585 788 8,075 376 3,823 3,876

TotaL --------- --------- 5,764 1,806 1,221 2,737 22,640 1,805 6,880 13,855

I Does not Include 104 registrants whose prlnclpal offices are located in foreign countries Or other terrrtorial [unsdrctlons not listed .

Includes directors, officers, trustees, and all other persons occupymg simllar status or performing smnlar tunenons . Allocations made on the basis of location of principal offices of registrants, not actual location of persons. Informatron taken from latest reports filed prior to June 30, 1962. Includes all forms of organizations other than sole proprietorships and partnerships.

_______________• ____________

________• ____________________

________• ________• ________• __

______• ________• ________• __

____________• ________• __ ______• ________•• _______• __

___• __• ________

___ • _________________________

•___________ ________________________• ______

______________• ________• ______

____ • ________• ________• _____• _______• ________• _______________

_____• ________• ____________•

____________________• ___•

__

_•• ____•• __• ________• ______ ___________________________

_____• _______•_______________

__• ________• _______________ _______________________

__________________________

___________________ •___•__

________•=________ ==== =• ________ ========== ______• ___________• _____

________• _______•• ________

________• ________ ______• ________• ________

_______• ___• ________

_____________• __________ __________• ___________

_______________________ ___• ___________••• ______________

________•_________________

_____• _______• ______________

________ • ________• _____ _________• ____• _________

______________________

________• ______________

__•• ________• ________• _____ _______________________________

__•• __• ________________________ ___________ •______________ ____•• _______________________

_________________________

______________________•

__•• __•• ___• ____• ______•

__ _••• _____•• __• _____•

--- ___________• _______• ____

__________• __________

--- ---

•

•

•
TWENTY-EIGHTH ANNUAL REPORT 187

TABLE 7.-Number of issuers and security issues on eecnanoee

PART 1.-UNDUPLICATED NUMBER OF STOCK AND BOND ISSUES ADMITTED TO

TRADING ON EXCHANGES AND THE NUMBER OF ISSUERS INVOLVED, AS OF JUNE

30,1962

I Total Issuers

Status under the Act I Stocks Bonds stocks involved

and bonds

Registered pursuant to Section 12 (b), (e), and (d) _____ 2,821 1,192 4,013 2,390

TemporarIly exempted from registration by Oommis- sion ru1e 8 6 14 5

Admitted to unlisted trading prrv ileges on registered exchanges pursuant to Seotion 12(f) ._ 173 26 199 159

LISted on exempted exchanges under exemption orders of the Conumssion . ._._ 75 8 83 60 Admitted to unlisted trading Privileges on exempted

exchanges under exemptton orders of the Commission , 14 0 14 14

TotaL. ._ 3,091 I 1,232 4,323 1 2,628

I Registered: Seetion 12(b) of the Act provides that a security may be registered on a national securities

exchange by the issuer filing an appheetlon with the exchange and With the CommISSIOn containing certain

types of specifled mjormatton Section 12(e) authorizes the Commission to require the submission of Information of a comparable character If m its judgment mtorrnanon speerfled under Section 12(b) ISmappheable

to any specified class or classes of issuers. Section 12(d) provides that II the exchange authortties certify to

the Commission that the security has been approved by the exchange for hstlng and registration, the registration shall become effectrve 30 days after tbe receipt of such eernncanon by the Oomnussion or wrtlun such shorter period of tune as the oomrmsston may determine Temporarily exempted These are stocks of certain banks and other securrnes resultmg from mergers,

eonsohdatrons, ete., which the Oomrmssion has by published rules exempted from regrstration under SpeCIfied conditions and for stated penods. Adrnitted to unlisted trading privileges: Section 12(f) provides, in effect, that seounuos which were

admitted to unlisted trading privileges on Mar 1, 1934 (I e., Without applications for Iistmg filed by the

ISSuers), may eontmue such status. Additional securities may be granted unlisted tradmg prrvileges on

exchanges only If they are listed and registered on another exchange or the ISSuer IS subject to the reporting

requirements of the Act under Section 15(d), LISted on exempted exchanges: Certain exchanges were exempted from full registration under Section 6

of the Act because of the hmrtad volume of transactions. The CommISSIOn's exemption order specifies that securities which were listed on the exchange at the date of such order may continue to be listcd thereon, and

that thereafter no additional securities may be hsted except upon compliance \\ ith Section 12 (b), (c), and (d)

Unlisted on exempt exchanges The Comrrnssion's exemption order specifies that securmes WhICh were

admitted to unlisted trading Privileges thereon at the date of such order may continue such prtvileges, and

that no additional securines may be admitted to unhsted trading privileges except upon compliance WIth

Section 12(f).

PART 2.-NUMBER OF STOCK AND BOND ISSUES ON EACH EXCHANGE AND ;\Ul\1BER

OF ISSUERS INVOLVED, AS OF JUNE 30, 1962

51

1

... .___ 8 8

15 .. .. 15

1,143 10 1,153 26 . ._ 26

51

1

10

163

11

259

65

5119 1,565

570

626

117

27

84

40

29

15

4

121

Stocks

6

42 .. 11

101 2 155

.____ 50 15

390 1 120 9

1,564 1 _._•. 339 _.____ 231

174 5 447

40 1 75 __. .____ 27

~523 ~~~~~~ .__ 3

6 ~~~~~~1~~~~~~ _. .__ 12 3

I Bonds

R X U XL XU ToWI I R I XU, XL I Total

~--2-~== 1,033 ~--2--;1=~

62 ._____ 348 .__ 410 10 ,'._____ 10 ,

970

400

10

156

10

250

53

459

8 1,321

499

537

110

18

83

40

26

13

Exchanges Issuers

Amenesn

Boston

Ohicago Board of Trade.

Olncinnati,

Colorado Springs Detroit;

Honolu1u

MidwesL . N anonal. ,

New York Stock . Pacific Coast .

Philadelplna-Baln- more_ ... Pittsburgh

Richmond

Salt Lake. .

San FrancISCO Minmg, Spokane, . Wheeling

Symbols. R-regIStered; X-temporarily exempted; U-admltted to unlisted trading privlleges, XLlisted on an exempted exchange; XU-admItted to unlisted trading prrv ileges on an exempted exchange.

NOTE.-Issues exempted under Section 3(a) (12) of the Act, such as obligations of the U.S Government,

the States and CIties, are not included m this table,

__•••• ___•• ___•• ______________________• _____•

________•________

•• _•• __• _____ __•_____•_____•__

___________•__•••• _____________•___•____

_

__

• • __ _

__• • _ _ _

• _ • _ •• _ _ __

__• • • •• • • _

• __ __

• _ •

•• •__

_ • _ • • _

__• __• • • ___ • • __• _

•

__

_

_ •

_
188 SECURITIES AND EXCHANGE COMMISSION

TABLE B.-Unlisted stocks on stock ea:cnanges1

PA.RT I.-NUMBER OF STOCKS ON THE EXCHANGES IN THE VARIOUS UNLISTED

CATEGORIES J AS OF JUNE 30, 1962

Unlisted only J Listed and registered on another exchange

Exchanges

Clause 1 Clause 3 Clause 1 Clause 2 Clause3'

American ________________________ 162 2 26 4 1 Boston -_ 0 0 123 225 0 C~lI~O Board of Trade _________ 1 0 3 0 0 Cineinnatl, ______________________ 0 0 0 121 0 Detroit __________________________ 0 0 13 142 0 Honolulu IS 0 0 0 0 Mid west. _______________________ 0 0 0 120 0 Paeifle Coast. ___________________ 5 0 57 169 0 Phtladelplua-Baltunore __________ 2 0 213 232 0 Pittsburgh 0 0 16 60 0 Salt Lake ________________________ 2 0 0 0 1 Spokane _________________________ Wheelmg 3 0 1 2 0 ________________________ 0 0 0 3 0

Total' 190 2 452 1,078 2

PA.RT 2.-UNLISTED SHARE VOLUME ON THE EXCHANGES-CALENDAR YEAR 1961

Unlisted only J Listed and registered on another exchange

Exchanges

Clause 1 Clause 3 Clause 1 Clause 2 Clause 3'

American 37,787,647 21,300 6,554,040 4,868,100 18,300 Boston 0 0 2,395,263 2,492,278 0 Ohreago Board of Trade. 0 0 0 0 0 Oinemnati.; _____________________ 0 0 0 611,501 0 Detroit 0 0 348, 695 3,085,888 0 Honolulu ________________________ 91,306 0 0 0 0 Midwest. _______________________ 0 0 0 13,349,58.'\ 0 Paciflc Coast. ___________________ 6,937,171 0 4,772,588 7,396,614 0 Plnladelplua- Baltrrnore __________ 1,314 0 5,497,421 6,021.088 0 Pittsburgh ______________________ 0 0 259,988 196,358 0 Salt Lake ________________________ 0 0 0 0 0

m~~g=:== .: .:

588,001 0 31,100 100 0 0 0 0 1,400 0

Total ______________________ 45,405,439 21,300 19,862,093 38,022,912 18,300

I Refer to text under heading "Unlisted Tradmg Privileges on Exchanges." Volumes are as reported

by the stock exchanges or other reporting agencies and arc exclusive of those in short-term rights. ! The categories are according to Clauses I, 2, and 3 of SectIOn 12(0 of the Secuntles Exchange Act.

I None of these Issues bas any listed status on any domestic exchange.

, These Issues became listed and registered on other exchanges subsequent to their admission to unlisted

tradmg on the exchanges as shown. , Duplication of Issues among exchanges brings the figures to more than the actual number of issues

Involved.

___________________ - ____

___________________- ____

___• __________________

___________ • ________

___________________- ____

___________________• ______

___• ____

____• _____________________

==== = ====== =====
TWENTY-EIGHTH ANNUAL REPORT 189

TABLE 9.-Dollar volume and share volume ot sales effected on securities C3JchOJn{lesin the calendar year 1961 and the 6-month period ended June SO, 1962

[Amounts In thousands)

PART 1.-12 MONTHS ENDED DEC. 31, 1961

Stocks Bonds Rights and warrants Total

dollar

volume Dollar Share Dollar Principal Dollar Num- volume volume volume amount volume ber of

units

--- Registered exchanges _____ 66.067,691 63.802.355 2,010,314 2,022,766 1,953,823 242,571 130,842

American ________________._ --- 6,921,020 6,751,977 525.289 57,910 44,622 111,133 22,872 Boston 318,944 318,520 6,269 0 0 424 283 Chicago Board of Trade ____ 0 0 0 0 0 0 0 Otnelnnatt, ______________ ._ 46,607 46,539 894 60 84 8 14 Detroit ___________________._ Mid west. 240,617 240,532 6,533 0 0 se 58 __________________

N 1,764,807 1,761,746 43,951 158 176 2,003 3,734 atlonal ___________________ 0 0 0 0 0 0 0 New York 54,784,685 52,698,552 1,292,280 1,964,379 1,908,552 121,754 100,293 Pacific Coast _______________ 1,279,840 1,275,109 70,639 24 17 4,707 2,559

Philadelphia-Baltlmore ____ 655,110 663,320 16,003 233 272 1,557 1,029 PIttsburgh _________________ 35,400 35,400 1,026 0 0 0 0 Salt Lake _____. ____________ 3,049 3,049 19,573 0 0 0 0 San Franclsco ______________ 2,894 2,894 20,129 0 0 0 0 Spokane ___________________ 4,718 4.718 7,729 0 0 0 0

Exempted exchanges _____ 26,726 26,453 1,225 28 30 245 142

Colorado Sprlngs ___________ Honolulu 80 80 313 0 0 0 0 __________________ 25,635 25,361 889 28 30 245 142 Richmond_. _______________ Wheellug 686 686 16 0 0 0 0 __________________ 325 325 7 0 0 0 0

PART 2.-6 MONTHS ENDED JUNE 30, 1962

Stocks Bonds Rights and

warrants Total

dollar

volume Dollar Share Dollar Principal Dollar Num- volume volume volume amount volume ber of

units

--- Registered exchanges_. ___ 30,976,514 29,918,948 883,373 1,000,666 1,005,348 56,900 34,282

Amerlcan __________________ 2,294,181 2,216,710 189,314 32,393 33,085 45,078 6,386 Boston. 147,567 147,567 2,940 0 0 1 29 ChIcago Board of Trade ____ 0 0 0 0 0 0 0 ClnclllIlatL. _______________ 23,395 23,325 440 58 84 12 16 Detrolt

Midwest 127,702 127,702 3,241 0 0 0 0 ___________________ 848,156 848,109 20,683 7 7 40 122 Natlonal _____________.. __._ New York 319 319 138 0 0 0 0 _________________ 26,610,733 25,631,842 614.392 967,812 971,506 11,079 27,301 Pacific Coast _______________ 581,134 580,463 27,706 7 5 655 328 PhUadelphia-BaltinIore ____ 321,987 321,572 7,976 389 662 26 99 Plttsburgh _________________ 18,121 18, 121 425 0 0 0 0 Salt Lake __________________ 929 929 5,864 0 0 0 0 San Francisco Mlnlng ______ 1,139 1,139 8,613 0 0 0 0 Spokane ___________________ 1,152 1,162 1,642 0 0 0 0

--- Exempted Exchanges ____ 13.608 13,605 749 3 3 0 0

Colorado Sprlngs. __________ --- 36 36 228 0 0 0 0 Honolulu .••• ______________ 12,914 12.911 607 3 3 0 0 Richmond.

Wheellng. 504 504 7 0 0 0 0 _________________ 153 153 6 0 0 0 0

NOTE.-Data on the value and volume ofsccuritles sales are reported In connection with fees paid under Section 31 of the Securities Exchange Act of 1934. They Include all securities sales effected on exchanges

except sales of bonds of the U.S. Government which are not subject to the fee. The data cover odd-lot as

well as round-lot transactions. Reports of most exchanges for a given month cover transactions cleared

during the calendar month; clearances occur for the most part on the 4th day after that on which the trade

actually was affeet~d.

______________• ______

___ - _____________

________• ___________

________• ____________

_• ____• _________

=
190 SECURITIES AND EXCHANGE COMMISSION

TABLE lO.-Oomparative share sales and dollar volumes on eechonsee

(Annual sales, Including stocks, warrants and rights, as reported by all U.S. exchanges to the Comrmssion.

Figures for merged excbanges are included in those of the exchanges mto WhICb tbey were merged]

Year Share sales NYS AMS MSE PCS PBS BSE DSE PIT CIN Other

% % % % % % % % % %

-- -- ---- ---- -- -- -- 1935__________ 681,970,500 73.13 1242 1 91 269 076 0.96 0.85 034 003 691 1936__________ 962. 135.940 7302 1643 2 18 296 .69 .72 .74 .32 .04 290 1937__________ 838,469,889 7319 14 75 1. 79 323 .70 .83 .59 .38 .03 4.51 1938__________ 543.331.878 78.08 10 55 2.27 267 .79 103 .75 .25 .04 357 1939__________ 468,330. 340 78.23 11 39 2.26 235 .93 1 18 .76 .25 .05 2.60 1940__________ 377,896,572 7544 1320 211 2 78 1 02 1 19 .82 .31 .08 205 1941 __________ 311, 150.395 7396 1273 272 269 1.24 150 .87 .36 .14 379 1942______•. __ 221, 159,616 7649 1164 270 262 108 1.39 .90 .29 12 277 1943_________ 4S6.290,926 7458 16 72 220 1 92 .85 .76 .64 .20 .07 206 1944__________ 465,523. 183 7340 1687 207 240 .79 81 .86 .26 06 248 1945._________ 769.018. 138 fJ5 87 21.31 1.77 298 .66 .66 .79 .40 .05 5.51 1946__________ 803,076,532 66 07 1937 1.74 3 51 .68 .84 .63 .28 .05 683 1947__________ 1i13.274.867 6982 1698 167 422 .90 1.05 .66 .19 .08 4.43 1948__________ 571, 107,842 7242 1507 163 395 .87 .76 .68 .18 .08 436 1949__________ 516.408.706 7351 14 49 1.67 372 1 21 .93 .73 .18 .09 347 1950__________ 893,320,458 7632 1354 2 16 311 .79 .65 .55 .18 .09 261 195L_. _______ 863.918,401 7440 1460 210 354 .76 .70 .58 .16 .08 3.08 1952__________ 732,400,451 71. 21 1608 243 385 .85 .73 .55 .16 .09 405 1953__________ 716, 732,406 7264 1585 228 390 .83 .81 .55 .15 .11 2.88 1954. 1,053,841,443 7104 1687 2.00 324 .88 .50 .53 .13 07 4.74 1955__________ I, 321,400, 711 6885 19.19 209 308 .75 .48 .39 .10 .05 502 1956__________ I, 182,487.035 6631 21.01 232 325 .72 .47 .49 .11 .05 5.27 1957__________ 1,293.021,856 7070 18 14 233 273 .98 .40 .39 .13 .06 4 14 1958__________ 1,400.578,512 71. 31 19 14 2 13 299 .73 .45 .35 .11 .05 274 1959__________ 1,699,696,619 65 59 24 50 200 281 90 .37 .31 07 .04 341 1960__________ 1.441,047,564 68 48 2227 220 311 .89 .39 .34 .06 .05 2.21 196L _________ 2, 142,523,490 64 99 25 58 222 3.42 .79 .31 .31 .05 .04 2.29

Six months

to June 30, 1962________ 918,400.496 6987 2131 226 305 .88 .32 .35 .05 .05 1.86

Dollar volume (000 omitted) 1935__________ $15.396, 139 8664 783 1.32 1.39 .68 1.34 .40 .20 .04 .16 1936__________ 23.640,431 8624 869 1.39 1.33 .62 1.05 .31 .20 .03 .14 1937__________ 21,023,865 87.85 756 106 125 .60 1.10 .24 .20 .03 .Il 1938__________ 12.345.419 8924 557 103 J 27 .72 151 37 18 04 .07 1939_. ________ ll, 434,528 87.20 656 1 70 137 .82 1.70 .34 .18 .06 .07 1940__________ 8,419.772 85.17 7.68 207 152 .92 191 .36 .19 .09 09 194L _________ 6,248,055 8414 745 259 1 67 110 227 .33 .21 .12 .12 1942__________ 4,314,294 85 16 660 243 1.71 .96 233 .34 .23 .13 .11 1943__________ 9,033.907 84 93 890 202 1.43 .80 1 30 .30 .16 .07 09 1944__________ 9,810,149 84 14 930 2Il 1 70 .79 129 .34 .15 .07 .11 1945__________ 16,284,552 8275 10 81 200 1. 78 .82 1.16 .35 .14 .06 .13 1946 18,828,477 8265 10 73 200 1.87 .79 123 .33 .16 .07 .17 1947____. _____ 11,596,806 84 01 8.77 1.82 226 .91 1.51 .36 .14 .n .11 1948 12,911,665 84 67 807 1.85 253 .88 133 34 .14 .10 .09 1949__________ 10,746,935 83.85 844 195 249 1 11 1.43 .39 .13 .12 .09 1950__________ 21.808.284 85 91 685 235 219 .92 1.12 .39 .11 .11 .05 195L _________ 21,306.087 85.48 7.56 230 206 .89 106 .36 .11 .11 .07 1952__________ 17,394,395 84 86 1.39 267 220 .99 1.11 .43 .15 .12 .08 1953__________ 16,715,533 8525 679 284 220 1.06 104 .46 .16 .13 .07 1954__________ 28,140.117 8623 6 79 242 202 .94 .89 .39 .14 .10 .08 1955__________ 38,039,107 86 31 698 244 1.90 .90 .78 .39 .13 .09 .08 1956__________ 35,143,115 84 95 177 275 208 .96 .80 42 .12 .08 .07 1957__________ 32,214,846 85 51 1.33 269 202 100 .76 .42 .12 .08 .07 1958__________ 38,419,560 8542 7.45 271 211 1.01 .71 .37 .09 .08 .05 1959__________ 52,001,2-15 8366 953 267 1.94 1 01 .66 .33 .08 .07 .05 1960__________ 45,306,603 83 81 935 273 195 1 04 .60 .34 .06 .08 .04 196L _________ 64,071,623 8244 1071 2.75 200 1.04 .50 .37 .06 .07 .06

SIX months

to June 30, 1962._______ 29,989,453 85.51 7.54 2.83 1.94 107 .49 .42 .06 .08 .06

Symbols: NYS, New York Stock Exchange: AMS, American Stock Exchange; MSE, Midwest Stock

Excbange; PCS, Pacific Coast Stock Exchanl(e; PBS, PhIladelpbla-Baltimore Stock Exchange; BSE,

Boston Stock Exchange; DSE, Detroit Stock Exchange; PIT, Pittsburgh Stock Exchange; CIN, Cincinnati Stock Exchange,

_____• ___

___-______

__• _______
TWENTY-EIGHTH ANNUAL REPORT

TABLE ll.-Block dutributions

[Value in thousands of dollars]

191

Special offerings Exchange dtstnbuttons Secondary distrrbutrons

Calendar year Num- Shares Value Num- Shares Value Num- Shares Value

her sold her sold her sold

1942 , 79 812,390 22,694 116 2,397,454 82,840 1943_. 80 1,097,338 31,054

I

81 4,270,580 127,462 1944 87 1,053,667 32,454 94 4,097,298 135,760 1945 79 947,231 29,878 115 9,457,358 191,961 1946 23 308,134 11,002 100 6,481,291 232,398 1947 24 314,270 9,133 -.-----.---- .------- 73 3,961,572 124, 671 1948 21 238,879 5,466 -------.---- 95 7,302,420 175,991 1949 32 500,211 10,956 86 3,737,249 104,062 1950 20 150,308 4,940 -------.---- 77 4, 280, 681 88,743 1951- 27 323,013 10,751 -----.-- 88 5,193,756 140,459 1952 22 357,897 9,931 76 4,223,258 149,117 1953 17 380,680 10,486 -------- .. 705~78i--24~6M- 68 6,906,017 108,229 1954 14 189,772 6,670 57 84 5,738,359 218,490 1955 9 161,850 7,223 19 258,348 10,211 116 6,756,767 344,871 1956 8 131,755 4,557 17 156,481 4,645 146 11,696,174 520,966 1957 5 63,408 1,845 33 390,832 15,855 99 9,324,599 339,062 1958_ 5 88,152 3,286 38 619,876 29,454 122 9,508,505 361,886 1959 3 33,500 3,730 28 545,038 26,491 148 17,330,941 822,336 1960 3 63,663 5,439 20 441,664 11,108 92 11,439,065 424,688 1961. 2 35,000 1,504 33 1,127,266 58,072 130 19,910,013 926,514

, The first special offermg plan was made effective Feb. 14, 1942; the plan of exchange distribution was made effective Aug. 21 1953; secondary distrrbutions are not made pursuant to any plan but generally

exchanges require members to obtain approval of the exchange to participate m a secondary and a report

on such distrlbution is filed WIth this Comrmssron.

TABLE 12.-Reorganization proceedings under Ohapter X of the Bankruptcy .Act

in which the Oommission participated during the fiscal year 1962

Securities and

Petition Exchange

Debtor DIStrict court Petiuon filed approved Comnnssion

notice of appearance tiled

Alaska Telephone Corp ____________________ W.D. Wash ___ Nov. 2,1955 Nov. 21,1955 Nov. 7,1956 Amencan Fuel & Power Co ________________ E.D. Ky ______ Dec. 6,1935 Dec. 20, 1935 May 1,1940 Buckeye Fuel Co do Nov. 28,1939 Nov. 28,1939 Do. Bnckeye Gas Service Co _______________ do do .do Do. Carbreath Gas Co ___________________________do _________ _____do _____________do ________ Do. Inland Gas Dlstributmg Co ____________ do do do Do.

AmerIcan Seal Savmgs & Loan Associa- tIon 1 D. Md ________ June 23, 1961 June 30,1961 Aug. 8,1961 Astrotherm Corp.' S.D. Ind Jan. 18,1962 Jan. 18,1962 Feb. 23,1962 Automatic Wasber Co_. S.D. Iowa Oct. 17,1956 Nov. 2,1956 Nov. 2,1956 Brookwood Country Olub _________________ N.D. ill_______ Feb. 17,1959 Mar. 3,1959 Mar. 19, 1959 Cal. West Aviation Inc.' ____________________ N.D. Oaln.; __ Oct. 26,1961 Oct. 26,1961 Oct. 26,1961 Central States Electric Corp E.D. Va Feb. 26,1942 Feb. 27,1942 Mar. 11,1942 Charlotte Motor Speedway Inc.' ___________ W.D N.Car __ Nov. 3,1961 Nov. 3,1961 Nov. 3,1961 Coastal Finance Corp D. Md. Feb. 15,1956 Feb. 18,1956 Apr. 16,1956

Coffeyville Loan & Investment Co, Inc ___ D. Kans ______ July 17,1959 July 17,1959 Aug. 10,1959 Colorado Trust Deed Funds , D. Colo Sept. 5,1961 Pending Nov. 2,1961 Davegs Stores Corp.' ______________________ S.D. N.Y _____ June 5,1962 June 11,1962 June 6,1962 DePaul Educational Aid Society ___________ N.D. ill___.___Jan. 5,1959 Jan. 13,1959 Feb. 4,1959 Dixie Aluminum Corp _____________________ N.D. Ga.., ____ Dec. 12,1960 Dec. 16,1960 Dec. 21,1960 Dixie Fertlllzer Co., Inc.' S.D. Miss ... __ July 21,1961 July 22,1961 Aug. 18, 1961

Dumont-Airplane & Marine Instruments Nov. 10, 1958 Inc .. S.D. N.Y Oct. 27,1958 Oct. 27,1958 Le Jobn Manufacturing Co ____________ do Oct. 31,191\8 Oct. 31,1958 Do. Edlund Engineered Products Inc.t S.D. Fla. Oct. 19,1961 Oct. 19,1961 Nov. 6,1961 EI-Tronles Inc ... ._. E.D. Pa., ._ Nov. 25,1958 Nov. 25, IJ58 Jan. 16,1959 Equitable Plan Co S.D. Calif Mar. 18,1958 May 29,1958 Mar. 27. 1958 Farmers Federation Cooperative , W.D. N.Caf-_ Feb. 6,1962 Feb. 7,1962 A,IJr. 13,1962 Fleetwood Motel Corp D. N.J. Sept. 26, 1960 Sept. 27, 1960 Nov. 3,1960 Flora Sun Corp., et al. (6 subsldlanes) S.D. Fla, _____ Feb. 27,1962 Apr. 25,1962 June 6,1962 Food Town Inc _. D. Md ._ July 29,1959 July 29, 1959 Aug. 13,1959 General stores Corp S.D. N.Y_. Apr. 30,1956 May 1,1956 May 23,1956 Great American Development Co.' _________ W.D. TeL ____ June 1,1961 June 3,1961 July 28,1961 Hudson & Manhattan Railroad Co ______.. S.D. N.Y_ •• _. Aug. 11, 1954 Dec. 14, 1954 Jan. 7,1955

See footnotes at end of table.

__________• -------- -------~---- -------- ___________ _____________ -------- _______• _____

____•

• _____•

________

____ __

-------- ============ ------------ ==== -------- ==== -------- ------------ -------- _____________ --------

-------- -------- _____________

______• ______ -------- ------------ -------- -------- -------- ____________ ------------ -------- _____________ • -------- ------------ -------- ___ _________

_____________ -- _________• ___

__•• _________

__• __________

•• __________ _____________

_____________

___________

___• ___• ______________ _• ___ ___• _____ _____ _________ _____ ____•• __ ___• ________

_____ _________ _____ ____••• _ _•• __ _____•• _

________________ •••• _________________

_________________• _______ ______

_______________• ___ _____

___ • ___• _______ ______

_________• ____________ _______

______________ ______•

______•• __________

__•• ____•• ___• _______________• _______ ____• _____ ______•• _

•__• _____ _____ ______• ___ ___ __• __• __•• ___ ____• ____________________ _____

_____• ____ _____________________ _____••

' __•• _ _________• __••• ____• ___• __ __ •• __ _________• __• ___••••• ___ ___
192 SECURITIES AND EXCHANGE COMMISSION

TABLE 12.-Reorganization proceedings under Chapter X of the Bankruptcy Act

in which the Commission participated during the fical year 1962-Continued

T

Securities and

Petition Excbange

Debtor District court Petition filed approved Comnussion

notice of appearance filed

Hughes Homes Inc.' _______________________ D. MonL ____ Sept. 8,1961 Sept. IS, 1961 Oct. 19,1961

Hngbes Homes Acceptance of Iowa '. __ _____do .•. ______ Sept. 15, 1961 ____.do .•______ Do.

Hughes Homes Acceptance of Mon- tana 1 do . do .do Do.

Hughes Homes Acceptance of WasbH~~n :::romes-icooPtanoo-oi'Wyom:-

____.do_________ .do do Do.

InlanJ"d~-corp============

____.do_________. ____do ___________._do. _______ Do. E.D. Ky ______ Oct. 14, 1935 Nov. 1,1935 Mar. 28, 1939 F. L. Jacobs Co_. ___._._. ____________. _____ E D. Mlcb ____ Mar. 17,1959 Mar. 18,1959 Mar. 20,1959 Keesbln Freight Lines Inc _________________ N.D. IlL ______ Jan. 31,1946 Jan. 31,1946 Apr. 25,1940 Keesbin Motor Express Co., Inc .. _____ _____do _____________.do_____________do ________ Do. Seaboard Freight Lines Inc _________________do ______________do. ___________.do________ Do. National Freight Lines Ine., ________________do ______________do. ____________do ________ Do. Kentucky Fuel Gas Corp. ___. ________. ____ E.D. Ky ______ Oct. 25, 1935 Nov. 1.1935 Mar. 28, 1939 Kentucky Jockey Club Inc. _______________ W.D. Ky._. __ Dec. 9,1959 Dec. 9,1959 Jan. 18,1960 Klrchofer & Arnold Inc ____________________ E.D. N.Car ___ Nov. 5,1959 Nov. 5,1959 Nov. 9,1959 Liberty Baking Corp ______________________ S.D. N.Y. ____ Apr. 22,1957 Apr. 22,1957 May 2,1957 Magic Mountain Inc _______________________D. Colo _______ Oct. 3,1960 Dec. 15,1960 Oct. 20,1960 Magnolia Park Inc ._. E.D. La Oct. 16,1957 Feb. 26, 1958 Oct. 24,1957 Mason Mortgage & Investment Co ________ D. D.C _______ Oct. 31,1960 Oct. 31, 1960 Nov. 9,1960 Mason Mortgage Fund of Florida Inc __ _____do. _____________do. ___. ___ _____do ________ Do. Mason Acceptance Corp ___. ________________do do _____do ________ Do. Southern Mortgaee CI)., Inc. ________. __ _____do ______________do., ____. _ ____.do________ Do. Morehead City Sblpbullding Corp. ________ E.D. N.Car. __ Nov. 5,1959 Nov. 5, 1950 Nov. 9,1959 H. H. Mundy Corp ________________________N.D.Okla ____ Apr. 17,1961 Apr. 17,1961 May 22,1961 Rutang Corp .... ________. _______. ___________do _____________.do _____. __ _____do ..• _____ Do. Muskegon Motor Speclaltles _____________._ E.D. Mlch ____ May 11,1961 May 11,1961 May 12,1961 Parker Petroleum Co., Inc _________________ W.D. Okla. ___ May 6,1958 May 6,1958 June 9,1958 Pickman Trust Deed Corp _________________ N.D. Callf ____ June 13,1960 June 13,1960 June 13,1960 Republic Cement COrp.II_. ________________ D. Anz _______ Sept. 3,1957 Sept. 3,1957 Sept. 18, 1961 Reynolds Engineering & Supply Inc. D. Md ________ Feb. 1,1960 Feb. 1,1960 Feb. 17,1960 San Soucl Hotel Inc .. ______________________ D. Nev _______ Aug. 1,1958 Aug. 1,1958 Sept. 16,1958

s~~nR~~~ -Studios::::::::: ::::: ::::::: M.D. Pa, _____ Apr. 3,1959 Apr. 3,1959 Apr. 15,1950 _____do ________. _. ___do __. _____ _____do. _______ Do. Chemical & Rubber Corp of America _____do _________ July 17,1959 July 17,1959 Do. Rabco TV _. . _____do _________ Oct. 1,1950 Oct. 1,1959 Do. Selected Investments Trost Fund '. ______. N.D. Okla ____ Mar. 3,1958 Mar. 3,1958 Mar. 17,1958 Selected Investmcnts Corp .. ____.do ______________do._. _____ _____do_._._. __ Do. Shawano Development Corp __________. ____ D. Wyo _______ Apr. 3,1959 Apr. 13,1959 May 20,1950 Soutbcrn Enterprise Corp _____________. ____ S.D. Tex .. _. __ Oct. 31, 1958 Nov. 3,1958 June 18, 1960 West American Corp ___._do __. ______ May 18,1961 May 18,1961 Do. outhwest Foundation Inc.I ___________. ____ D. N.Mex. ___ May 19,1960 June 22, 1960 Oct. 31,1961 tardust Inc _______________________________D. Nev _______ July 19,1956 Sept. 10,1956 Sept. 7, 1956 wan-Fincb 011 Corp _______. ______________ S.D. N.Y _____ Jan. 2,1958 Jan. 2,1958 Jan. 27,1958 Keta Gas & 011 Corp._._. ________. ___. ____.do Oct. 20, 1959 Oct. 28,1959 Oct. 29,1959 exas Portland Cement Co ________________ E.D. Tex _____ July 7,1958 July 7,1958 Aug. 12,1958 bird Avenue Transit Corp ________________S.D. N.Y _____ Oct. 25,1948 June 21, 1949 Jan. 3,1949 Surface Transportation Corp ______. ____ _____do _________ June 21,1949 _____do __. _____ July 7,1949

Westchester St. Transportation Co., Inc. _______________________________________do ______________do _____________do __. _____ Do. Westchester Electric Railroad Co ______ _____do ______________do., ______. ____do ______._ Do. Warontas Press Inc. _____do Sept. 8, 1949 Sept. 8, 1949 Sept. 8,1949 Yonkers Railroad Co _____do _________ June 21,1949 June 21,1949 July 7,1949 MT Trailer Ferry Inc S.D. Fla ______ June 27, 1957 Nov. 15,1957 Nov. 25, 1957 Trans-Carlbbean Transport Inc. ____________do ______________do __. _____ _____do ________ Do. Trans-Canbbean Motor Transport _________.do ______________do _____________do ________ Do. TraIleI Manne Transportation Inc _________.do _____do _______ do. Do.

Commonwealth Co., Inter-Island 'I'owing Inc ___________________________________do .do __._.do. Do. ownsend Growth Fund Inc _______________ S.D. N.Y _____ May 10,1961 May 10,1961 May 10,1961

rInlty Bulldings Corp. of New York ______ S.D. N.Y _____ Jan. 18,1945 Jan. 18,1945 Feb. 19,1945 r's Corp.' ____________________________N.D. CalIf ____ Sept. 14,1961 Oct. 9,1961 Oct. 17,1961 wentleth Century Foods Corp.' __________ E.D. Ark _____ Oct. 30, 1961 Nov. 9,1961 Feb 21,1962 .S. Durox Corp. of Colorado ______________ D. Colo _______ Feb. 4,1959 Feb. 9,1950 Mar. 31,1950 aleo Bullding Corp.' _____________________ N.D. IlL _____ July 31, 1961 Sept. IS, 1961 Sept. 15, 1961 indermere Hotel Co .. N.D. IlL _____ Sept. 13, 1960 Oct. 12, 1960 Oct. 24, 1960 uba Consolidated Industries Inc.' ________ N.D. CalIf ____ Mar. 21,1962 Mar. 21,1962 Mar. 23,1962

S

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I Commission ftled notice of appearance in fiscal year 1962 Reorganization proceeding closed during fiscal year 1962.

___ • ___________________ • __ • _____ _____

===============

____• ________ _________

'

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_ ___________ _______• _______

___•_______

______________•____

_______________•___

______________•____ __•_________________

__ ___________• ______

•

___ _____ _____ _______• ____ ••______

____ ___•_________ ________

__• ___

______________ _______•

__•______

_____• ___

_________ _____ __•____

_____________ ••_____• _______

•

•
TWENTY-EIGHTH ANNUAL REPORT 193

TABLE IS.-Summary of criminal cases developed by the Oonl.11lMsion which were

pending at June SO, 1962

Number of Number of such defendants

such de- as to whom cases are pend- Number of fendantsas Ing and reasons tberefor

Cases defendants to whom

In such cases have cases been com- Not yet Awaiting Awaiting pleted appro- trial appeal hended

--- ---- Pending, referred to Department of

Jnstlce 1938_______________________________ In the fiscal year- 1 2 1 1 0 0 1939______________________________ 0 0 0 0 0 0 1940_______________________________ 0 0 0 0 0 0 194L ______________________________ 0 0 0 0 0 0 1942_______________________________ 2 18 4 13 1 0 1943_______________________________ 1 5 2 2 J 0 1944_______________________________ 1 7 2 5 0 0 1945_______________________________ 1 1 0 1 0 0 1946. ______________________________ 4 16 1 15 0 0 1947.. ____________ 1 5 1 4 0 0 1948... ____________:::::::::::::::: 0 0 0 0 0 0 1949_______________________________ 0 0 0 0 0 0 1950____________________________ 0 0 0 0 0 0 1951.. ___________________________:: 0 0 0 0 0 0 1952_______________________________ 0 0 0 0 0 0 1953_______________________________ 1 11 JO 1 0 0 1954... _____________________________ 1 16 9 7 0 0 1955______________________________ 0 0 0 0 0 0 1956_______________________________ 1 1 0 0 1 0 1957 7 45 0 0 42 3 1958___ 2 3 0 0 0 3 1959_____::::: :::::::::::::: ::::: .. 12 114 8 26 77 3 1960_ 16 87 19 9 50 9 196L_. ____________________________ 27 238 38 11 176 13 1962 26 75 6 0 67 2

TotaL __________________________ --- ---- 1104 '644 JOI 95 415 33

SUMMARY

~~~~~~r~~u:~: ==::::~::::::::::::::::::::::::: :::::::::::::::::::::::::::::::::::::::::::::::: ~g Total defendants as to whom cases are pending , 739

, As of the close of the fiscal year, indictments had not yet been returned as to 196 proposed defendants

In 41 cases referred to the Department of Justice. These are reflected only in the recapitulation of totals at the bottom of the table.

672176--68----14

__________________________ • ___

•• ____________________________

••• ____________________________
194 SECURITIES AND EXCHANGE COMMISSION

TABLE 14.-Summary of cases instituted in the courts by the Oommission under

the Securities Act of 1933, the Securities EUJchangeAct of 1934, the Public

Utility Holding Oompany Act of 1935, the Investment Oompany Act of 1940,

and the Investment Advisers Act of 1940

Total Total Cases Cases Cases in. Total Cases cases in. cases pending pending stttuted cases closed

stituted closed at end at end durmg pending during

Types of cases up to end up to end of 1962 ofl961 1962 during 1962 of 1962 of 1962 fiscal fiscal fiscal 1962 fiscal fiscal fiscal year year year fiscal year

year year year

----------- --- Actions to enjoin vtolations of the above Acts............... 1,163 1,061 103 96 87 103 80

Actions to enforce subpoenas

under the socunnes Act and

the Securrtles Exchange Act.. 79 77 2 0 2 2 0

Actions to carry out voluntary

plans to comply WIth Section

~;~~ A~t~~.~.~~~~~! •.:~~. 142 136 61 6 3 6 3 Miscellaneous actious.......... 35 33 2 5 2 7 5

Total.................... 1,419 1,307 --1-1-31----w7---9-4-'-m 88

TABLE l5.-Summary Of cases instituted against the Oommission, cases in which

the Oommission participated as intervenor or amicus curiae, and reorganizatiow cases on appeal under Ohapter X in which the Oommieslon. participated

Total Total Cases Cases Cases in. Total Cases

cases In- cases pending pending stltuted cases closed

stituted closed at end at end during pending during

Types of cases up to end up to end of 1962 of 1961 1962 during 1962

of 1962 of 1962 fiscal fiscal fiscal 1962 fiscal

fiscal fiscal year year year ,"",,,I year

year year year

--- --- --- ----------- Actions to enjoin enforcement

of SecuritIes Act, Seourrties

Exchange Act and Pubhc

UtilIty Holding Company

Act WIth the exception of subpoenas Issued by the

Comnnsslon •.•...•.•••..•.... 64 64 0 0 0 0 0 Actions to enjoin enforcement

of or compliance with subpoenas Issued by the Commisslon .•••.••...•••......... 9 9 0 0 0 0 0 Petitions for review of Com. miSSion's orders by courts of

appeals under the various

Acts admmtstered by the Commission •.•• , .. , ......••.. 244 239 5 10 4 5 9

M Iscellaneons actions against

the Commission or officers of

the Commission and cases in which the Commission par.

tielpated as Intervenor or amIcus curiae _________________ 244 230 14 9 15 14 10

Appeal cases under Chapter X

In which the Oomrmsslon parttctpated.; ••.. '_"" ••.••• 182 177 D 2 7 5 4

-1- ---- ---------- ---- Total •••••••. _••• _••••••• 743 719 24 21 26 24 23
TWENTY-EIGHTH ANNUAL REPORT 195

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TABLE 24.-Reorganizatwn casesunder Ohapter X of the Bankruptcy Act pending during the fiscaZyear endedJune 30, 1962, in which the Oommissionparticipated when district court orders were challenged in appellate courts

Name of case and U.S. Court of Appeals

Ooffeyville Loan and Investment

Co .• Ine .• debtor; Harlow King.

Sebree, Shook. Hardy and

Ottman; and Claud L. Rice.

appellants (10th Cireurt).

Colorado Trust Deed Funds. Inc.,

Appellant vs, James Thomas,

III. Boyd Thomas and Securities and Exchange Commission. appellees (10th Circuit).

General Stores Corp., debtor;

LeWlS J. Ruskin. appellant (2d

Circuit).

Inland Gas Corp .. et al .• debtors;

Green Committee, et al., appellants (6th Cireurt).

Los Angeles Trust Deed ell Mortgage Exchange. debtor; Securities

and Exchange Commission, appellants (9th Circuit).

Parker Petroleum Co .. Inc. (Occidental Petroleum Corp. v, Hon- orable Stephen S. Chandler)

(10th Clrcurt),

Selected Investments Corp .• debtor:

B. H. Carey, appellant (10th

Circuit).

TMT Trailer Ferry. Inc .. debtor;

Protective Committee for Independent Stockholders. Arthur H.

Shaffer. M. James Spitzer. appellants (5th Circuit) USSC.

Scranton Corp. and Hal Roach

Studios. debtors; State of Call.

fornia. appellant (3d Circuit).

Nature and status of case

Apppal from order of Sept. 20. 1961. denymg certain portions of appellant's claim against debtor Commission's response ill opposinon filed Dec. 15. 1961. Order Dee. 26. 1961. denymg petition for allowance of appeal. Closed.

Notice of appeal filed by Colorado Trust Deed Funds. Inc .• from an

order entered Nov. 6. 1961. disnussing its pennon for reorgamzatron

under Chapter X of the Bankruptcy Act. Bnefa filed and hearing set for July 27,1962. Pending,

Appeal from order of Mar. 6.1961, awardma supplemental allowances.

DeCISIOn rendered affirmmg the order denyinz an additional allowance for services and expenses of the collateral trustee's application for certiorari. Closed.

Appeal from order of Apr. 8. 1961. limiting the recovery of expenses

by the Green Comnnttee. Bnef and appendix of appellee filed

Nov. 2. lQ61. Brief of the Oommission filed Nov. 9. 1961. Oral

argument held Mar. 26. 1962. Decision nendine.

N otlce of appeal filed by Commission from order of the district

court denying motion to dismiss Chapter XI proceedings under an

amended petition to comply with provisions of Chapter X. Pending

Petition for wnt of mandamus and/or prohrbition flied by Occidental

Petroleum Corporation for an order disquahfying Judge Chandler

from proeeedmgs on grounds of personal bias and prejudice. Peti- tion for leave to amend and supplement petinon for Writ of man.

damns filed Mar 12.1962. and granted Mar. 13.1962. Memorandum

of the Commission in opposition filed Apr. 9. 1962. Opinion per

curiam granting petition Apr. 20. 1962. Petition for rehearing filed

and denied June 1. 1962 Closed.

Appeal from order of the distriet court denying appellant's compensation for legal services and reimbursement of expenses as attorney

for debtor. Motion for dismissal of appeal filed by appellant due to satisfactory settlement negotrations. Commission's objections filed Nov. 1,1961. Order Nov. 20, 1961, remanding case to district court. Pendmg,

Appeal from order of Mar. 6. 1959, confirming trustee's plan of reorgamzatlon and various other orders dated Aug. 12. 1960. Aug. 15,

1960, Sept. 30, 1960. Dec. 22. 1960. Feb. 6, 1961. and Apr. 27. 1961.

CA-5 on Sept. 9. 1960, denied motion of trustee to disrmss appeal.

Order Oct. 4. 1960. consolldating appeals Commission's telegram

to the Court Jan. 25.1961, in opposition to appellants' motion to file

petition for writ of prohibition and/or mandamus. CA-5 Jan. 26. 1961. denied motion for leave to file petition. Commission's brief as

appellee May 15. 1961. stating that the order of the District Court

entered Aug. 15. 1960. vacating the order of confirmation of Mar. 6. 1959. should be affirmed or the order of confirmation of the Distrret Court entered Mar. 6. 1959. should be reversed, filed. Briefs and

reply briefs filed. Opimon July 7.1961. by CA-5 affirming the order

of the distrett court vaeatmg a previous order confirming a plan of

reorganization under Chapter X. Petition for rehearing filed July

7. 1961. and denied Aug. 18. 1961. Motion by appellants to stay ISsuance of mandate and denied Sept. 19. 1961. Petition for writ of

certiorari filed Nov. 13, 1961, and denied Jan. 8. 1962. Closed.

Appeal filed March 9. 1962. from order of Court anprovmg sale of

assets of Hal Roach Studies pursuant to Sec. 116(3) of Chapter X proceedings. Pending.
TWENTY-EIGHTH ANNUAL REPORT 227

TABLE 25.-..4. 29-year summary of criminaZ casesde1JeZopetl btl the Oommissionji8cal years 1984-1962

[See table 26 for olassiflcetron of defendants as broker-dealers. ete.l

Number Number Number Number of persons of such of these of cases as to cases in Number defend- Number referred wbom wblch of de- Number Number ants as to of these to De- prosecu- indict- fendants of these of these whom defend- FisC8l year partment tion was ments indicted defend- defend- proceed- ants as to

of Justrce reeom- were in such ants con- ants se- mgs were whom

in each mended obtained cases I vlcted quitted disrmssed eases are year in each by U S. on motion pending' year attorneys of U.S.

attorneys

---------------------------- 1934 7 36 3 32 17 0 15 0 1935_________________ 29 177 14 149 84 5 60 0 1936_________________ 43 379 34 368 164 46 158 0 1937_____... _________ 1938_________________ 42 128 30 144 78 32 34 0

40 113 33 134 75 13 45 1 1939_________________ 52 245 47 292 199 33 60 0 1940 59 174 51 200 96 38 66 0 1941. ________________ 54 150 47 145 94 15 36 0 1942_. _______________ 50 144 46 194 108 23 49 14 1943_________________ 31 91 28 108 62 10 33 3 1944 27 69 24 79 48 6 20 5 1945 . 19 47 18 61 36 10 14 1 1946_________________ 16 44 14 40 13 8 4 15 1947_________________ 20 50 13 34 9 5 16 4 1948_. 16 32 15 29 20 3 6 0 1949________. ________ 27 44 25 57 19 13 25 0 1950_________________ 18 28 15 27 21 1 5 0 1951.. _______________ 29 42 24 48 37 5 6 0 1952_________________ 14 26 13 24 17 4 3 0 1953_________________ 18 32 15 33 20 7 5 1 1954. ________________ 19 44 19 52 29 10 6 7 1955. ________________ 8 12 8 13 7 0 6 0 1956_________________ 17 43 16 44 28 5 10 1 1957_________________ 26 132 19 86 30 5 7 44 1958__________. ______ 15 51 13 31 12 5 11 3 1959_________________ 45 217 37 235 98 21 10 106 1960 53 281 43 188 84 9 28 67 1961. ________________ 42 240 41 275 61 6 8 200 1962_________________ 360 191 27 73 6 0 6 61

Tota!.. ________ -------------------------------- 896 3.262 '732 3.195 1.572 338 '752 533

I The number of defendants m a case is sometrmes increased by the Department of Justice over the number azarnst whom prosecution was recommended by the Commission. Also more than 1 indictment may result from a single reference. , See table 13 for breakdown of pending cases 3 32 of these references as to 121 proposed defendants were still bemg processed by the Department of Justice as of the close of the fiscal year. and also 8 of the prior years references as to 74 proposed defendants. '638 of these cases have been completed as to 1 or more defendants. Convictions have been obtained

in 548 or 86 percent of such cases Only 91, or 14 percent, of such cases have resulted in acquittals or dismissals as to all defendants, this includes numerous cases in which mdictments were dismissed without

trial because of the death of defendants or for other adnnnrstratrce reasons. See note 5. infra Includes 72 defendants who died after indictment.

TABLE 26.-..4. 29-year summary cla88ifying all defendants in criminaZ cases tleveZopetlby the Oommi88iQn-1984 to June 80, 1962

Number as to whom Number as

Number Number Number cases were to whom

Indicted convicted acquitted dismissed cases are

on motion pending

of U.S.

attorneys

Registered broker-dealers I (meluding prin- cipals of such nrms) _____________________ 501 265 33 III 92

Employees of such registered broker-dealers. 256 109 17 52 78

Persons m general seeuntres business but not as registered broker-dealers (includes

395 93 prmcipals and employees) _______________ 816 65 263 All others , ________________________________ 1,622 803 223 326 270

TotaL _______________________________ 3,195 1,572 338 752 533

I Includes persons registered at or prior to time of rndrctment,

, The persons referred to III this column, while not engaged in a general business in securities, were almost

without exception prosecuted for VIolations of law mvolving seeunnes transactions,

________• ________

___• ____• ________

________• _______•

___ __________•__

______• ________

_________• ___• ___

• •
228 SECURITIES AND EXCHANGE COMMISSION

TABLE 27.-A B9-gearsummary of all injunction casesimtittltetJ b~ tAe OommiB8Um, 1984c to June SO, 196B, 'by calendar gear

Number of cases Instituted Number of cases In which by the Commlsslon and injunctions were granted the number of defend- and the number of de- Calendar Year ants involved fendants enjoined I

Cases Defendants Cases Defendants

1934 7 24 2 4 1935

1936 36 242 17 56

1937 42 116 36 10&

1938 96 240 91 211

1939 70 152 73 153

1940 57 154 61 165

1941 40 loo 42 99- 40 112 36 90 1942 21 73 20 54 1943

1944 19 81 18 72

1945 18 80 14 35

1946 21 74 21 57 21 45 15 34 1947

1948 20 40 20 47 19 44 15 26 1949

1950 25 59 24 55

1951. 27 73 26 Tl

1952 22 67 17 43

1953 27 103 18 50

1954 20 41 23 68

1955 22 59 22 62

1956 23 54 19 43

1957 53 122 42 89

1958 58 192 32 93

1959 71 408 51 158

58 206 Tl 179 1960

1961. 99 270 84 222 84 368 85 272"

1962 (to June 30) 47 204 41 10&

TotaL 1,163 3,803 ,1,036 2,721

SUMMARY

Cases Defendants

Actions mstltuted 1,163 3,8O~ Injunctions 0btained 1,010 2.721

~~i~~~~iitfns-c==========:===:===================:================

49 '400 104 682"

TotaL 1,163 3,803

I These colunms show drsposition of cases by year of disposition and do not necessarily reflect the dis- position of the cases shown as havmg been mstltuted in the same years. , Includes 26 cases which were counted twice in this column because injunctIOns against difierent defend- ants in the same cases were granted In dlfierent years Includes 94 defendants in 13 cases m which injunctions have been obtained as to 36 codefendants Includes (a) aetions dismissed (as to 611 defendants); (b) actions discontinued, abated, vacated aban- doned, stipulated, or settled (as to 55 defendants); (0) actions in which judgment was denied (as to 12 defend- ants); (d) actions In Which prosecution was stayed on stlpulation to discontinue miseonduct charged (as to 4 defendants).

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