f'G4556

L5A3

1945

ccp , 2

ELEVENTH ANNUAL REPORT

OF THE

SE,CURITIES AND EXCHANGE COMMISSION

FISCAL YEAR

JUNE 30,1945

J

•

LETTER OF TRANSMITTAL

SECURITIES AND EXCHANGE COMMISSION,

Philadelphia 3, Pa., Pebruarp 21, 1946.

Sir:

I have the honor to transmit to you the Eleventh Annual Report of the Securities and Exchange Commission, 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, 1935, Section 46 (a) of the

Investment Company Act of 1940, approved August 22, 1940, and Section

216 of the Investment Advisers Act of 1940, approved August 22, 1940.

Because of the extensive report made a year ago covering

the ten years of the Commission's existence, we have attempted to condense this report as much as possible.

In this first annual report following the cessation of

hostilities, it is appropriate to express our grateful appreciation

to the large number of Commission employees who entered the military

service of our country. The Commission's honor roll of 472 employees

is printed at the beginning of this report. It lists the names of

those members of our staff who gave their service and those who gave

their lives.

Respectfully,

Ganson Purcell,

Chaiman.

THE PRESIDENT OF THE SENATE

1HE SPEAKER OF THE HOUSE OF REPRESENTATIVES

Washineton, D. C.

(iii)
EMPLOYEES OF

THE SECURITIES AND EXCHANGE COMMISSION

IN THE ARMED SERVICES OF THE UNITED STATES

TO JULY 30,1945

THOMAS F. CULLEN

CHARLES W. CLAXON

GEORGE R. HANSEN

SHERLOCK DAVIS

HUGH D. WISE. Jr.

FARRAN D flOWERS

W. W. STICKNEY

THOMAS A. GAGAN

K. C. HAYCRAFT

A. L. BU LIIINKLE

RUTGERS B. JONES

C. SIDNEY COTTLE

EDWARD M. BASHISTA

EDMUND CElESK I

C. A. BENEDI CT

JAMES C. THOMAS

RALPH Eo WALDO

C. W. WEATHERFORD

S. T. McADAM. Jr.

WILLIAM V. HOLOHAN

KENNETH W. BRAND

LEO D. STONE

C. A. WOODRUM. Jr.

SALVATORE FRANZO

EDWARD J. MATUSZKO

ANDREW BARR

ROBERT MAPES

JOHN C. DAMON

JAMES P. GOODE

ANDREW J. KING

C. LeROY TENNYSON

PAUL N. CULP

FREDERIC M. CURRAN

EARL G. CULBERTSON

S. l. KAUFFMAN

JOHN STEPHENS, Jr.

JOHN R. YOUNG

LLOYD SMITH

C. LEWIS GRANT

J. l. D. MISIORA

H. P. GOTTSCHALL

l. J. PETERSEN

GEORGE E. STRONG

A. W. THOHPSON

C. STANLEY DUGGAN

A. RICHARD LEWIS

J. A. HcCAMBRIDGE

R. G. WILLIAMSON

ALBERT A. HUDAK

CHARLES J. NAGER

ALBERT F. NEUMANN

Eo J. DRYER, Jr.

EDGAR J. MELCHIONE

MILTON I. ZLOTIN

JACK D. EMRY

FRANCIS J. HENRY

EDWIN LEE FENTON

DONALD HcVICKAR

N. T. TADDONIO

WINSTON S. BROlIN

Oll VER L. APP

BERT l. WALLS

LESTER I. BOWMAN

JAMES P. CON 1IN

K. N. MORRISON

FRANK J. MANNO

ROBERT M. THORNER

FREDERICK G. MAIER

JOHN H. MATHIS

HORTON HALPRI N

ANTHONY P. FALDUTO

JEROME M. ALPER

ARTHUR A. BURCK

PETER M. DUDEK

G. D. CROWLEY. Jr.

T. W. SIMPSON. Jr.

R. EVERETTE MARTIN

BERNARD NESS

JOHN J. BOLAND

J. J. O'CONNOR

JAMES E. Hill

FRANK M. GRIFFITH

RALPH SUDJ IAN

W. J. COSGROVE

JAMES VERTA

A. K. TIGRETT

JAMES C. BERNHARDT

l. A. BOXLEI TNER

JEROME E. ROSS

AMERST E. HUSON

JAHES R. FLANNERY

C. J. INFOSINO

MORRIS BAILKIN

JOSEPH H. JOHNSON

JUN IOR WILSON

F. H. PENNY BAKER

C. DOYLE INNIS

W. A. PEDDLE, Jr.

R. J. WI NGERTER

J. RUSSEll CARNEY

FRED H. CUTTS

RA' "lND C. BLAINE

OS('~, BROTMAN

C. II. GIFFEN. Jr.

JOHN BARSAMI AN

WILLIAM T. WATSON

ARNOLD L. BECKER

ROGER KENT

FRANCIS M. DIVILIO

MORTON KOEPPEL

GERALD F. TREANOR

FRANCIS J. TRAINOR

WilliAM T. LESH

FRANK J. McNALLY

C. A. FILIPOWICZ

LOU IS J. FRASCELLA

G. G. SCHLEEPER

LESLIE C. GAUFIN

E. RUSSElL COOK

CARL R. FREEMAN

(Lv)

DONALD O. BOLANDER

l. L. MITCHElL

FRANCIS T. GREENE

W. R. McHANEY. Jr.

HARRY COOK

G. M. SMITH, Jr.

HERMAN CH ILL

JOHN E. McDONOUGH

AARON L. TRAISTER

JOHN J. TENNANT

CHARLES B. GREEN

FRANCIS H. WANDER

A. E. PENN EKAMP

OEAN J. ALMY

JAMES FISCHGRUND

ROLAND W. BROWN

WARREN HASTI NGS

SAMUEL J. EATON

LEWI S N. EVANS

JAMES E. KING

W. W. STEMMERMANN

E. M. WOLTZ, Jr.

H. B. BENEDICT

ARTHUR H. FRIBOURG

L. F. KELINSKY

LEON K. SMI TH

SILVIO ~. VALORE

J. P. O'SHAUGHNESSY

PAUL l. HOWELL

W. STANLEY DOLAN

RAYMOND G. McKNEW

HENRY S. HIGHT

ALBERT lITWIN

THOMAS A. SCHWARTZ

GORDON A. RARICK

VINCENT R. BROGNA

R. L. GRAHAM. Jr.

ALLAN M. PERKINS

THOMAS J. COX

GERALD E. SVEEGGEN

ROY LONG

EMIL T. LEJSEK

RAYMOND M. WALSH

JOHN M. McCAIN

J . WALTER DAUER

PEREGRINE WHITE

IRVING P. TURMAN

WILBER H. MACK

ROBERT S. WOOD

WILLIAM J. DEVINE

ROBERT E. JOHNSON

RICHARD J. KREPS

ROBERT W. CORY

DON MARCH

THOMAS J. O'BRIEN

ROGER J. LANG. Jr.

A. LEO LEVIN

WORTH C. WILEY

ROBERT H. BAGLEY

H. GARDNER PUTNAM

WALTER ....RUANE

JOHN P. KERWICK

HAROLD I. KAHEN

RUBEN B. GALVAN

MARTI N GREENS IDE

J. R. GREENWOOD

IRVING JACOBSON

MARTI N R IGER

EDWIN P. McMANUS

VERA F. OKERT

ROY LEON RAINWATER

EDWARD W. GRIFFIN

PAUL M. BROWN

E. FORREST TA~CER

F. W. CURLEY

THOMAS J. HOPKINS

JOHN G. SOBIESKI

DANIEL M. FRIEDMAN

RICHARD E. DOWLING

RUTH YOUNG

R. H. VAUGHTERS

JOHN J. FASO

G. M. PHilliPS

RAYFORD E. FRAZIER

HUGH CASEY

PAUL S. DAVIS

JOSEPH P. EQU I

CHARLES C. FERRALL

H ERMAN ODElL

NORMAN M. WALKER

RALPH C. HOCKER

LORENCE B. DIAMOND

HERBERT MEYER

JOHN R. O'CONNOR

ROBERT A. WEAVER

ROBERT H. WINN

JOHN l. CRAWFORD

D. F. HARRINGTON

HERBERT S. FRENCH

GILBERT C. MAXWELL

FITCH K. BISHOP

JOE M. BAKER

HERVEY C. LAWDER

HAROLD P. WELCH

RAYMOND J. WAGNER

WILLIAM P. MEYER

Willi AM TORAN

J. KIRK WINDLE

H. C. H. WILLIAMSON

HERBERT B. COHN

E. I. JAROSIEWICZ

C. M. JENKS

S. H. MENDELSOHN

HELEN l. CHUNN

RAY G. BENDER

WILLI AM C. CREE

JOHN M. PRITCHARD

LEO E. COVALESKI

LOU IS A. BENSON

ROBERT H. FIEDLER

COKTI Kif ED os N ErT

PAGE

•

•

•

•
EMPLOYEES OF 

THE SECURITIES AND EXCHANGE COMMISSION 

IN THE ARMED SERVICES OF THE UNITED STATES 

TO JULY 30, 1945 

BILL L. HALL 

/ H. C. COLES. Jr. 

EDWARD H. RAKOY 

GEOR6E ROSWBLATT 

JOHN Y. BLWDY 

Y. J. FITZGERALD 

LLOYD W. WLLET 

STANLEY DRELL 

JWES E. lVlWS 

JWES C. ROGERS 

YlLLlW H. FLEIG 

HOWARD E. KETTL 

CHESTER wumu 

ISIDORE LACHER 

R. S. 6ARRm0* 

FRANCIS X. McIIELlS 

MARCUS YANOFF 

JAMES T. 6UVIll 

I. L. FRIEDWD 

Y. H. OJRRERI 

HUNTER M. DePAIGE 

LESTER E. WALLCUEE 

LOUIS 0, MlllRO 

BEWARD mmow .DAY1 D C. BWDLETT 

MYER FELaUW 

N. P. KRMSER 

SIDNEY MUSTER 

J EM E. BRMISO* 

VANCE A. KNIGHT 

THEOWRE JACK90* 

H. J. YcCARTHY 

VILLIAM wvolslw 

J. T. SLATER. Jr. 

LOUIS KREVIS 

SFMOUR KLEINUUI 

LAURENCE T. ROGERS 

ROBERT S. HALYEY 

WLVlN L. PATTEN 

w. F. SWEID. Jr. 

SHELMm DRESSLER 

JEROME KASKEY 

ROBERT F. REUEY

.N. F. MlCHETTl 

J. T. YDIZEL, Jr. 

LWlS H. SIW 

IRME 8. FINK 

BILL J. LNER~ 

GEORGE S. PARLlII 

S. U. BRWWART. Jr. 

ABRAHAM A. RAIZU 

HARRY YDHLlN 

IRVING SWILLER 

ALLa ADDICKS 

E. J. ZNAl WKAS 

UARtO L. CLlMrn 

MAmn H. EPSTEIN 

RQBERT E. HCUE 

6. LYMAN URTQ 

JWES P. WIYY 

ARNOLD V. SNLTZ 

RVWLPH J. REHA 

J. RAYMOND WITH 

u. C. LEWIS. Jr. 

STANLEY KATZ 

F. W. RODRIGUEZ 

M. YI LLIAH LEVY 

JJAMES H. BISCOE 

UVERGIL W. TACY 

P. P. PAYNE. Jr. 

DonALo F. HILBERT 

CHARLES A. SMITH 

STEWART 0. HOVLAND 

ALBERT NAMEY 

JbMES A. PIKE 

c. 0. moo. ~r. 

JOHN A. JANTZ 

CLYCE Y. ASTON 

0. 1. SARSFIELD 

MARY S. NAZARENAII 

JEROME S. KATZIN 

R. RUSSEL TAYLOR 

RICHARD H. WELS 

ROBIN L. mx. Jr. 

CHARLES E. BOOTH 

ASHBROOK P. BRYANT 

COLIN H. WEIR 

YILLIW E. GOUlE 

: ROY F. COLEMAN 

SAWEL KAPLAN 

JOSEPH JEDLQYSKI 

PETER SZYEC 

JOHN J. KELLY 

G. W. FERlANCHlK 

MORTIMER W. KELLY 

GEORGE F. ANDERSON 

W. F. WILKINSDN. Jr. 

WNALD H. BURNS 

JOSEffl AUERBACH 

ARTHUR J. BUSYELt 

A. J. VENEZI&NO 

UlLLIW K. HANLEY 

H. L. McDADE, Jr. 

HlGUEL R. AWILAR 

WILTON P. KROLL 

MORRIS L. LlCHT 

H. WN CUMMINGS 

T. WAYNE BALL 

RALPH NORMAN. Jr. 

EUGENE H. KLllE 

LYSLE E. WINDERS 

LEE L. ClROS 

REDFORD BUkNEY - WARREN A. CASE! 

LEO TARTAKOU 

RUSSEL H. BORRY 

5. M. SCHREIBER ' 

LEON C. RUBIN 

ABRAHW J. ESSRICK 

MELVIN D. SANDY 

PETER J. COPPI 

EDWARD J. HeMURRAY 

F. P. PICKARD 

YILLIAN L. KURTZ 

F. E. KENNMER. Jr. 

ROBERT E. OLSON 

MARY J. ROORIWEZ 

YILLIAN T. HUNTER 

FRANCIS H. SPENCER 

ROBERT E. DUFFY 

RICHARD 5. RlES 

JAMES F. wrn 

NOWAY MICHIGAN 

RICHARD E. NAGEL 

U. Y. SIMPSON 

SAM SCHNEIDER 

ROBERT J. FOCHT 

T. E. PALCHO 

DEWAS POPE 

JMES J. WNYAY 

F. J. EISENHUT. Jr. 

JOHN R. 61LL 

HAROLD J. GRIFFIN 

CHARLES 8. HALTER 

RICHARD K. O'WNNELL 

ALLEN S. Kl LMER 

JOSEffl F. TROUT 

ROBERT Y. KING 

A. EUGENIA CRANFORO 

JAMES I.KLEES 

YINTHROP T. JOHNSON 

JOHN H. KOSTER 

LESTER NURICK 

JOSEPH A. LIA 

HERBERT ORENSTEIN 

SALVATORE FAUCl 

SIDNEY T. HARRISON 

P. J. GRIFFIN. Jr. 

G. L. RODGERS. Jr. 

AARON LEW 

EWER A. CARLSQN 

JOHN F. DAVIS 

JWES E. MURNANE 

ISAAC RUDEWAN 

SIDNEY J. SCANLAN 

JOHN F. BOYLE - -

JOSEPH - YOLPF ..- CYRIL A. BUEHRLE 

EDWARD McCOWlCK, Jr. 

BETTY WE JUDlN 

LEI F NNLANO 

L. Y. CORNISH. Jr. 

SPENCER 8. MEREDITH 

JOSEPH H. SATLOY 

K. J. NORDSTROM 

T. V. PARENT-LEU 

ROBERT H. MORGAN 

J. BARNES ABBOTT 

RlCHARO S. PORTER 

JOHN H. REDO. JR. 

FRANK J. NOODVORTH 

THELMA E. COX 

HERBERT E. MARTZ 

LEO J. MCCONNELL 

E. L. EISENBAUGH 

ALBERT FONTES 

MARG. T. MslNTYRE 

J. NOLAND FRANZ 

ARNE Y. PHI LPULA 

CHARLES A. MOORE 

J. CECIL PENLAUD 

EARL J. YOFSEY 

EWND H. WRTHY 

C. R. RUWLPH 

SIDNEY SHEMEL 

E. C. JAEGERHAN 

FREDERICK ZAZOVE 

JOHN K. McCLARE 

GEORGE K. SCULLY 

FRANCIS P. McKENNA 

LESTER A. SHATNCK 

MARTIN A. FORMAN 

FRANCES Dl DOMINIC0 

JOSEPH C. SMITH 

ADELINE R. KAMAN 

KARL C. SMELTZER 

H. H. LORLEBERG. Jr 

MARY L. STEWARTSON 

CHARLES C. ~ATES 

JACK I. ELIAS 

GORDON S. CHESSER 

MURRAY NIMM 

JEANNE M. SCHOLL 

ROSE M. SASSAMAN 

ERNEST L. DESSECKER 

MIRY F. KASSEL 

RONALD A. MCMAXES 

PAULINE L. MURPHY 

HELEN SELF 

H. KATHRYN MATHIS 

Y. A. BASSETT. Jr.

.ALBERT D. LUNDGREN 

ARTHUR Y. HAMPTOW 

BENJAMIN T. UNKLE 

THOMAS J. BRYSON 

JOSEPH C. KELLNER 

EUGENE A. BOZAY 

MARGl E Bl SHOP 

WALTER A. WASELCZYK 

SIDNEY H. WILLNER 

CONRAD Y. WEISER 

JULIAN MEER 

.DIED Ih SERVICE 

TABLE OF CONTENTS

PART I

ADMINISTRATION OF THE SECURITIES ACT OF 1933 0 • • • 0 0 0 0 • 0 • 0 0 • •

New Rules, Regulations and Forms for Registration of Securities. 0 • 0 0 • •

Simplification of registration procedure 0 • 0 0 0 • 0 0 0 •

Statistics of Securities Registered under the Acto 0 0 0 0 0 0 0 0

Exemption from Registration. • • • • • • • 0 • 0 • • • e e • • • • • •

Regulation A amended to raise exemption limit to $300,000.

Adoption of Rule 240 of Regulation A-M 0 • • • •

Exempt offerings under Regulation B. 0 • • • • 0 0 0 • • • • 0 • 0 •

Confidential written reports of sales under Regulation B 0

Oil and gas investigations • • 0 • • 0 •

Civil Actions Instituted by the Commission

1

1

1

2

4

5

6

6

7

7

8

PART II

9

9

9

9

9

9

10

10

11

11

11

11

12

12

13

13

14

14

15

15

16

16

16

17

18

18

19

19

20

20

20

20

20

21

22

22

00.

• 0 •

.00

o 0 0 0

o 0 0 0

o 000

00. 0

• 0 •

0 0

o • •

o 0 . ..

ADMINISTRATIOU OF THE SECURITIES EXCHANGE ACT OF 1934.

Regulation of Exchanges and Exchange Trading

Registration of exchanges •••••••••••••

Value and volume of trading ••

Exchange membership.

Disciplinary actions

Special offering plans

Floor trading ••••• Short selling. • • 0 0

Registration of Securities on Exchanges •• 0 0

New Rules, Regulations, and Forms for Registration

of Securities on Exchanges 0 • 0 • • • • • • • • • • 0 • • •

New rules requiring disclosure of certain war contract terminations.

Rule X-12A-5 expanded. • • • • • • • • • • • •

Rules X-13A-6 (e) and X-15C2-2 • • •••• 0 0 • • •••••

Termination of Registration under Section 19 (a) (2)

Investigation of Elastic Stop Nut Corp. of America

Statistics of Securities Registered on Exchanges • •

Securities Transactions of Corporate Insiders ••••••

Solicitation of Proxies, Consents, and Authorizations.

Modification of proxy rules. • • • • • • • •

Exemption from the proxy rules • • • • Unlisted Trading Privileges on Exchanges • • •

On registered exchanges. • • • • • 0

On exempted exchanges •• 0 •• 0 •• 0 • • •• 0

Applications for unlisted trading privileges in the fiscal year.

Changes in securities admitted to unlisted trading privileges ••

DeJisting of Securities from Exchanges •• Securities delisted by application • • • • • • • 0

Securities delisted by certification • • 0 0 • • •

Securities removed from listing on exempted exch~nges. 0 0 • 0 •

Temporary exemption of substituted or additional securities ••••••

Stabilization and Manipulation • • 0 0

Manipulation • , • • • • . • • 0 0 • 0 • 0 0

Stabilization. • • • 0 • • • 0 0 0 • 0 0 0 0

Regulation of Brokers and Dealers. 0 •• 0 ••• 0

Registration 0 0 • 0 0 0 0 0 • • 0 0

(vii)

•

•

•

•

•

•

•

•

•

• •

•

• • • • • ~
22

23

27

27

28

28

28

29

29

30

31

33

• e

e • 0

• • 0

o 0 0

• 0 0

. ..

. .. o 0 0 0

o • •

..

.0.

• • 0

• • 0 0

000 0

... ..

o 0 0 0

o 0 e

.. .

• • 0

o 0 0 0

o 0 0 0 ..

Broker-Dealer inspections 0 • • •

Administrative proceedings. • 0 • • • • 0 0 • • • • • • 0 0 0

Capital requirements. • • • • 0

Amendments to registration forms ••• 0 •••••••• 0 •••• 0 •• 0

Supervision of NASD Activity. • • • • • • •••

Disciplinary proceedings. • • 0 • • 0 ••• 0 • •

Appeals to the Commission from NASD disciplinary action • • • •

Denial of membership. • • • • • • • • e • • 0

Yne 5 percent mark-up policy.

rne PSI Case. • •

Litigation under the Act. • • • • • • •

Civil actions instituted by the Commission ••

PART III

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING C011PANYACT OF 1935. 35

35

38

38

42

43

44

45

46

48

50

51

52

52

54

55

55

56

57

57

58

59

60

62

62

66

66

66

66

67

67

68

68

69

69

o 0

. .

. ..

... • e •

• 0 0 0 •

.. o 0 0

00.00

• 0 •

• • e

. .

. .

..

00000

. . . Summa~ of Activities 0 • • • • • •

Integration and Simplification of Holding Company SysteIllS

Electric Bond and Share Company

The North American Company •••••••

The United Gas Improvement Company ••••

The Commonwealth & Southern Corporation • •

Cities Service Company. • • • • • • • • • •

Associated Gas and Electric Company • • • • • • • •

Standard Power and Light Corporation Standard Gas and Electric Company.

Columbia Gas &Electric Corporation 0 • • • • • • • • • • • • • • • • • • •

Niagara Hudson Corporation. • • • • • • 0 • • • • • • • • • • • •

International Hydro-Electric System • • • • • • • • • • • • • •

The Middle West Corporation • • • • • • 0 • • •

The United Light and Power Company. 0 • • • • • • • • • • • •••• 0

American Water Works and Electric Company, Inc •••••••••

Engineers Public Service Company ••• 0 •••• 0 •••••••••••••

The United Corporation. 0 • • • • • 0 • • • • • • • • • • • • • • • • •

Midland United Company and Midland Utilities Company.

New England Public Service Company ••••• 0 •••••••••••••••

Federal Water and Gas Corporation • • 0 • • 0 • • • • • • • • •• ••••

Ogden Corporation.. • • • • • 0 0 0 • • 0 • • • • • • • 0 •

Regulation of Security Issues • • • • • • 0 • 0 • • 0 0 •

Competitive bidding • • • • • • • • • • 0 • • 0 • • • • 0 • • • • • • • • 0

Cooperation between the Securities and EJcchange Commission and State

CODID'lissions 0 0 • • • • • • • 0 0 0 0 0 0 0 • •

Litigation un:ier the Act. • • • • • • • • • • • • • •• • 0 0 • 0 • • • • •

Constitutionality of Section 11 (b) • • ••••••••••

Proceedings under Section 11 (e). 0 • • • • • • • • ••••

Liquidation preferences and call premiums • • • • • • • • • 0 • • • 0 • 0

Discharge of debt securities by payment in kind • • •• •••

Fees an.dexpenses • • 0 • 0 • • • • • • • • 0 • 0 • • • • 0 0 0 0 0 0 • 0

Proceedings under Section 11 (f)••••••••• 0 ••••••• 0 0 •• 0

Judicial Review • • 0 0 • • • • • 0 0 • 0 • 0 • 0 0 0 • 0 • 0 0 0 0 0 0 • 0

Injunctive Relief • • • • • • • • 0 • • • • 0 0 0 • • • • 0 • 0 0 0 • 0 • •

Existence of Control or Controlling Influence 0 • • • • • • • • • • 0

PART IV

70

0 70

. .. .. . .. .. o 4) • 0 .. 00000

.. o • 0 0

PARTICIPATION OF THE COMMISSION IN CORPORATE REORGANIZATIONS UNDER CHAPTER X

OF THE BANKRUPTCY ACT, AS AMENDED

Summary of Activities • • • • • • • • • • • • • •

(viti)

•

•

•

•

•

•

- •

•

•
PA..1{T V

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939 • • • • • • •

Statistics of Indentures Qualified. • • • • • • • • 71

71

Summary of Activities • • • • • • • • • • • • • • • • • •

Statistics Relating to Registered Investment Companies. • •

Civil Actions Instituted by the Commission ••••••••

PART VI

ADMINISTRATION OF THE INVESTMENT COMPANYACT OF 1940. . . o • 0 • .... .

o • 0 0

73

73

75

76

PART VII

AilllIN'ISTRATION OF THE INVESTMENT ADVISERS ACT OF 1940

Registration. • • • • • • • • • • • 0 • • • •

Civil Actions Instituted by the Commissiono • • • •

PART VIII

o •

78

78

79

o 0

OTHER ACTIVITIES OF THE COMMISSION UNDER THE VARIOUS STATUTES 0 •• 0 •••••

Litigation. 0 0 0 0 • • • 0 • 0 0 0 • • 0 0 0 0 • • 0 • 0 • 0 0 0 0

Civil Proceedings • • • • • e • • • • 0 0 • • 0 •

Cri.."Ilinal Proceedings. • • • • • e • 0 0 • • 0 0 • • 0 • 0 0 • 0 e 0

Complaints and Investdgatdone v, 0 • • 0 • • 0 0 • • 0 e • • • 0

Activities of the Commission in the Field of Accounting and Auditing •••••

Effect of the War and the Prospect of Reconversion. 0 • • • 0 0 0 0 0 0 0 0

Accounting and Auditing • • • • ......• • • 0 0 0 0 .. 0 ..

Cooperation with Professional Societies and Others ... 0 • 0 ••••

Professional Conduct. • • • • • • • • • • • .. 0 • •

Informal Consideration of Accounting Problems Raised in the Case of

Individual Registrants •••• 0 0 0 • 0 0 •••• 0 .

Statistics and Special Studies... • • • • • • • • • • • 0 •

Capital Market Statistics • • 0 • • • • 0 0 0 •

Saving Study. • • 0 • 0 • 0 • 0 0 • 0 0 0 0 • 0 0 0 0 0 0 0 0

Financial Position of U.S. Corporations 0 • • • • 0 0 0

Survey of American Listed Corporations... e 0 0 • • 0 • • • •

Investment Company Data e e 0 0 0 0 0 0 0'0 0 0

Stock Market Statistics • • 0 • • • • • • • • • 0 • • • .. • • 0 • •

Special Studies 0 • • • 0 0 • 0 0 • • • 0 0 0 0 0 0 0 0 0 0 0

WarActivities. 0 0 0 • • • 0 • • 0 • • 0 • 0 • 0 0 0 • • 0 0 • • 0

Publications. 0 • • • • • 0 • 0 • 0 • • 0 •••• 0 0 •••

Public Releases 0 0 • • • • • • • • • 0 • 0.. • • • • • • • e

other Publications 0 0 0 • 0 • .. • • 0 •••• 0 0 •• 0

Confidential Treatment of Applications, Reports, or Documents • • • • •

Information Available for Public Inspection • • • • • • • • 0 0

Public Hearings • • • 0 0 0 • • • • 0 • • • • • • • • 0 0 •

Personnel • • • 0 II 0 • 0 • • • 0 0 • 0 0 0 0 • • 0 0 • 0 • 0 • 0 0 0 0 •

Fiscal Affairs. 0 0 • • • 0 • 0 0 • 0 0 0 0 0 0 0 0 • 0 0 0 0 • 0

(ix)

80

80

80

80

85

86

86

87

89

89

89

90

90

90

90

91

91

91

91

92

92

92

92

93

93

94

94

95

•

• • • " •

•

•

• • • • • • • • • • • ~ • •

•

•
PART IX

A-3

A-4

A-5

A-6

A-7

A-8

A-I

A-I

A-2

A-9

A-IO

A-II

A-12

A-13

A-14

.. o 0 0 0

APPENDIX--STATISTICAL TABLES

Table I. Registrations under the Securities Act of 1933 fully effective

during the fiscal year ended June 30, 1945

Part I. Distribution by Months • • • • • • • • • • • • • • • • • • • • •

Part 2. Breakdown by method of distribution and type of security of

the volume proposed for cash sale for account of the issuers

Part 3. Purpose of Registration and Industry of Registrant • • • • • Table 2. Classification by quality and size of new issues, exclusive of

investment trust issues, registered under the Securities Act of

1933 for sale to the general public through investment bankers

for the fiscal years 1939 to 1945

Part 1. Number of issues and aggregate value • • • • • •

Part 2. Compensation to distributors • • • • • • • • • • Table 3. New Securities Offered for Cash Sale in the United States

Part I. Type of Offering

Part 20 Type of Security • • • • • • • • • • • • • •

Part 3. Type of Issuer • • • • • • • • • • • •

Part 4. Private Placements of Corporate Securities •••••

Table 4. Proposed Uses of Net Proceeds from the Sale of New Corporate

Securities Offered for Cash Sale in the United States

Part I. All Corporate. • • • • • •

Part 2. Industrial... • • • •

Part 3. Public Utility. • • • • •••••••••

Part 4. Railroad.. • • 0 0 • 0 • • • • • • • • • • 0 0

Part 5. Real Estate and Financial. • • • 0 • • • • • • • • • • 0 • •

Table 5. Brokers and dealers registered under Section 15 of the Securities

Exchange Act of 1934--Effective registrations as of June 30, 1945,

classified by type of organization and by location of principal

affie e . • • 0 0 0 0 • 0 0 0 0 0 0 0 • 0 0 0 • 0 0 0 0 • 0 • 0 0 0

Table 6. Special Offerings Effected on National Securities Exchanges for

Fiscal Year Ended June 30, 1945. • • • • • • • • 0 • • • • • 0 • • A-16

Table 7. Market Value and Volume of Sales Effected on All Registered

Securities Exchanges •• ' ••••••••••••••••• 0 0 0 A-17

Table 8. Round-lot stock transactions effected on the New York Stock

Exchange for the accounts of members and nonmembers, weekly, June

26, 1944-June 30, 1945 •••••••••• 0 • • • • • • • • • A-18

Table 9. Round-lot and odd-lot stock transactions effected on the New

York Curb Exchange for the accounts of members and nonmembers,

weekly, June 26, 1944-June 30, 1945. • • • • • 0 • • • • 0 • • A-19

Table 10. Odd-lot stock transactions effected on the New York Stock Exchange

for odd-lot accounts of odd-lot dealers and specialists, weekly,

June 26, 1944-June 30, 1945, inclusive • • • • • • • • • • • • • • A-20

Table II. Basic forms used by issuers in registering securities on national

securities exchanges and, for each form, the number of securities

registered and the issuers involved as of June 30, 1944, and June

30, 1945 0 0 0 0 • 0 0 0 0 • 0 0 0 • 0 0 0 0 • 0 0 0 • 0 0 0 0 • 0 A-21

Table 120 Classification by industries of issuers having securities registered on national securities exchanges as of June 30, 1944 and

June 30, 1945. 0 • 0 0 0 0 0 0 0 0 • 0 0 • • 0 0 • • 0 0 0 0 0 A-21

Table 13. Number and amount of securities classified "according to basis

for admission to dealing on all exchanges as of June 30, 1945. A-22

(x) .

•

•
Table 14.

Part 1. Number and amount of securities classified according to the

number of registered exchanges on which each issue appears as

of June 30, 1945 0 • • 0 0 • • 0 • • • • 0 0 0 0 • • 0 • • 0 • • A-23

Part 20 Registered issues classified according to whether or not they

are also admitted to unlisted trading on other registered

exchanges as of June 30, 1945. • 0 0 • 0 0 • • • • • • • • 0 • 0 A-23

Part 3. Unlisted issues classified according to whether or not they

are also registered or temporarily exempted from registration

on other registered exchanges as of June 30, 1945. • 0 • 0 0 • • A-23

Part 4. All issues classified according to whether they are available

for trading on single or several registered exchanges as of

June 30, 1945. • • . • . • . • . . . . 0 0 • • D • 0 0 0 0 • • • A-23

Table 15. Number of issuers having securities admitted to dealing on all

exchanges as of June 30, 1945, classified according to the basis

for admission of their securities to dealing • • • 0 • • 0 0 0 • 0 A-24

Table 16. Number of issuers having stocks only, bonds only, and both stock

and bonds, admitted to dealing on all exchanges as of June 30,

Part 2.

Part 2.

Part 2.

Table 20.

Part 1.

A-24

A-24

A-25

A-26

A-25

A-27

A-29

A-26

A-30

A-36

A-32

Number of issuers and securities, basis for admission of securities to dealing, and the percentage of stocks and bonds, for

each exchange, admitted to dealing on one or more other exchanges

as of Jlme 30, 1945 D 0 0

1945 • • • • • • . • 0 0 • • • • • • • • • • • • • • • •

Number of Issues Admitted to Unlisted Trading Pursuant to

Clauses 2 and 3 of Section 12 (f) of the Securities Exchange

Act of 1934, and VolUJDes of Transactions Therein. 0 0 0 ••••

Reported. Volumes in Stocks Admitted to Unlisted Trading

Pursuant to Clauses 2 and 3 of Section 12 (f) of the Securities

~change Act of 1934 as Percent of Total Share Volume. • • 0

Reorganization cases instituted under Chapter X and Section

77B in which the Commission filed a notice of appearance and in

which the Commission was actively participating in the proceedings during the fiscal year ended June 30, 1945-Distribution

of debtors by type of industry 0 • • • 0 • 0 0 0 • 0 0 • 0 • • • Reorganization cases instituted under Chapter X and Section

77B in which the CoIlIllli.ssion filed a notice of appearance and

in "Whichthe Commission was actively interested during the

fiscal year ended June 30, 1945-Distribution of debtors by

amount of indebtedness • • • 0 • 0 • • • • • • • • 0 0 • • • • 0

Electric Utility Properties Divested by Registered Holding

Companies, July 1, 1944 to June 30, 1945 • 0 0 0 • 0 • 0 • 0 0 0

Gas Utility Properties Divested by Registered Holding Companies,

July 1, 1944 to June 30, 1945. • • 0 • • 0 0 0 • • 0 0 • 0 • • • Nonutility Properties Divested by Registered Holding Companies,

July 1, 1944 to June 30, 1945. 0 •••••• 0 0 •• 0 • 0 •• 0

Utility and other Properties Subject to Divestment under Section

11 (b) (1) Orders Outstanding as of June 30, 1945 ••••• : • 0 •

Public Utility Holding Companies Subject to Dissolution or

Liquidation and Subsidiaries Subject to Divestmant under Section

11 (b) (2) Orders Outstanding as of June 30, 1945 •• 0 •• 0 • 0 •

Part 30

Table 19.

Part 1.

Table 170

Table 18.

Part 1.

Table 220

Table 21.

(xi)

•••••• " •••••• •
Table 230 Number of applications and declarations received and dispose~

of during the fiscal year ended June 30" 1945 under the Public

utility Holding Company Act of 1935. • • • • • • • • • • • • • •• 11.-40

Table 240 Cases instituted 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 1940

and the Investment Advisers Act of 1940. 0 • • • • • • 0 0 0 0 o. 11.-41

Table 25. Cases instituted against the Commission and cases in which the

Commission was permitted to intervene. • • • • • 0 0 0 • • • • • 0 11.-41

Table 26. Injunctive proceedings brought by 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 1940 and the Investment Advisers Act of 1940, 'Which were pending during the fiscal year ended June 30, 1945 • 0 • 0 • 0 • • •• 11.-42-

Table 27. Indictments returned for violation of the Acts administered by

the Commission, the mail fraud statute (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 fiscal year ended June 30" 1945. • • • • • 11.-46

Table 28. Petitions for review of orders of Commission under the Securities

Act of 1933, the Securities EXchange Act of 1934" the Public

utility Holding Company Act of 1935, and. the Investment Company

Act of 1940, pending in circuit courts of appeals during the

fiscal year ended June 30, 1945. 0 • • • 0 0 0 0 • • • • 0 0 0 0 0 A-56

Table 29. Civil Contempt Proceedings pending during the fiscal year ended

Jun.e 30, 1945•••••.•. 0 a 0 0 0 0 0 0 0 0 0 A-61

Table 30. Actions against Commission or employees of the Commission to

enjoin enforcement under the Acts administered by th~ Commission"

fiscal year ended June 30" 1945. • • 0 0 0 • • 0 • 0 • • • • • 0 0 11.-61

Table 310 Cases (other than reorganization cases under Chapter X) in which

the Commission participated as intervener or as amicus curiae"

pending during the fiscal year ended June 30, 1945 0 • • • • • • 0 11.-62

Table 32. Action to carry out voluntary plans to comply with Sec. 11 (b)

of the Holding Company Act of 1935 • • • • 0 • • 0 0 • • • 0 • •• 11.-66

Table 33. Proceedings by Commission, pending during the fiscal year ended

June 30, 1945, to enforce subpoena under the Securities Act of

1933 and the Securities Exchange Act of 1934 • • • • • • • • • • • 11.-67

Table 34. Reorganization proceedings in which the Commission participated

during the fiscal year ended June 30, 1945 • • • • 0 • 0 • • • • • 11.-68

(Xii)

•• _ • • •••
PART I

ADMINISTRATION OF THE SECURITIES ACT OF 19))

Objectives of the Securities Act of 1933, as amended, and the general nature

and scope of registration and examination procedures developed by the Commission for

their effectuation are discussed in the Tenth Annual Report, pages 13-17 inclusive,

and previous annual reports. Driefly stated, the Act provides for full disclosure

by means of registration statements and prospectuses of pertinent informatlon regarding securities publicly offered for sale in interstate commerce or ~hrough the

mails, without conferring upon the Commission the power to approve or pass upon the

merits of any security. The Act is also designed to prevent misrepresentation,

deceit, and other fraudulent practices in the sale of securities. While the RCv

does not insulate investors against risk, it does make available to them Lnf'or-mat.Lr n

with which to gage the risk.

NEW RULES, R3GULATIONS AND FORMS FOR REGISTRATION OF SECURITIES

Simplification of registration procedure.--In continuance of its efforts to

simplify the registration sta~ements required to be filed under the Act, the Commission adopted, during the year, tlVO ne~ forms for use in registering certain classes

of securities. Limitations placed on the use of both forms have per.,littedconsiderable simplification of previous forms. The first of these additional forms is

designated as Form S-ll. It is designed to facilitate the registration of shares of

exploratory mining corporations. It is prOVided for the use of mining corporations

that have not engaged in active ore production and have no mining property developed

beyond the exploratory stage. Its use is limited to corporations that have not been

involved in recent successions and are without important subsidiaries. It is

believed that a large part of the registrants making offerings of unseasoned mine

securities will be able to use the form.

The form also involves several innovations. It dispenses with the requirement

for certification of financial statements by independent accountants, since the type

of corporation eligible t8 use the form will generally have had few important

financial transactions. In addition, a booklet has been designed for use in connection with the form to aid registrants in preparing registration statements. This

booklet, entitled "Supplement to Form S-ll under the Securities Act of 1933", contains quotations of the var .LOUS sect Ions of the Act and the rules thereunder which

are referred to in the form. It also contains a digest of certain views taken from

the Commission's formal opinions which bear on problems which may arise under the

Act in connection with primary mine financing. This compilation of applicable provisions of the Act, rules, and administrative decisions should greatly facilitate

the preparation of re~istration statements on Form S-ll.

The othar new registration .form is designated as Form S-12, and it is to be

used for the registration of shares of corporations not more advanced than the

development stage. This form may be used by such corporations (other than those in

the insurance, investment ~nd mining business) if they do not have and do not intend to acquire subsidiaries of importance, if they have not been involved in a recent succession, and if there is no long term debt. It is believed that the form

will prove of value, particularly to new small corporations already organized and

those to be organized in the postwar period.

The various items of Lhe form and the instructions have been reduced in number

and simplified in compar~son with previous formso A balance sheet is not required

but may be filed. A supplem8nt to the form has been prepared to facilitate the

preparation of the registration statement. It contains the parts of the Securities

Act and the ru~es thereunder that are generally pertinent to registration.
- 2 -

In keeping ldth the Commission's practice, draf't copies of the form were circulated to attorneys, accountants, and others interested in public financing. Their

commentsand euggestions proved most helpf'ul in preparing the final draft of the

form.

STATISTICS OF SECURITIES REGISTERED UNDER THE ACT

The number of registration statements filed under the Seeurities Act of 1933

during the past fiscal year-400--exceeds that for any- year since 1938 when 459 were

filed. The following table shol'l8 the dispol!lition of registration statements filed

and examined under the Act.

Prior to

July 1, 1944

Numberof statements

Disposition of Registration Statements

July 1, 1944 to

June 30, 1945

inclusive

Total as of

June 30, 1945

Filed

Effective net

Withdrawn net

Under stop or refusal

orders net

Pending June 30, 1944

Pending June 30, 1945

Dollar value of securities

5,420 400 5,820

4,337 344 4,680 (a)

855 22 877

182 0 182

46

81 (a)

Filed

Fully effective

$28,170,150,522

25,345,391,714

14,182,728,108

3,224,584,051

$32,352,878,630

28,569,975,765

(a) One statement which was effective prior to July 1, 1944 was lrl.thdralVIl

during the fiscal year ended June 30, 1945.

There were also filed and examined during the past fiscal year 1,571 amendments

to registration statements, of which amendments7S9 were classed as material amendments filed before the effective date of the registration statements concerned, 279

as material amendmentsfiled after such effective date, and 503 purely formal amendments filed for the purpose of del~ the statutory effective date of the re~istration statements.

In addition, 769 sets of supp1_ntal prospectus material, not classified as

amendmentsto registration statements, were filed during the year to comply with Rule

800 (b) or Section 10 (b) (1) of the Act, or for the purpose of showing material

changes occurring after the couunencementof the offering.

There were also examined during the year 377 annual and 300 quarterly reports

fUed by certain registrants pursuant to Section 15 (d) of the Securities Exchange

Act of 1934. Companiesregistered as investment companies under the Investment Company Act of 1940 accounted for 82 of these ammal reports and all of these quarterly

reports.

-

-

-

-

-
-3-

There were 340 11 registration statements that became fully effective under the

Securities Aot during the fiscal year ended June 30, 1945. These covered 508 issues

in the total amount of $3,224,584,000. The portion registered for sale for accounts

of the issuers amounted to $2,714,776,000, not including $229,719,000 which were to

be first offered in exchange for outstanding securities.

Bonds and notes accounted for $1,707,574,000, or 63 percent, of all types of

new issues registered for sale. Preferred stock amounted to $406,875,000, or 15 percent, common stock to $316,178,000, or 12 percent, and all other types, including

certificates of participation and face amount installment certificates, aggregated

$284,149,000, or 10 percent, of the volume of all types registered for sale for accounts of the issuers.

A breakdown of the new issues registered for sale - by method of issuance -

shows that $2,662,416,000, or 98 percent, were to be offered through investment

bankers: 81 percent by purchase and resale, and 17 percent on a "best-efforts"

basis. Only 2 percent of the total, or $52,360,000, were to be offered directly to

investors by the issuers.

An analysis of the industries represented shows that electric, gas, and water

companies registered $1,285,262,000, or 47 percent of the new issues registered for

sale for accounts of all issuers. Manufacturing concerns ~~re next with

$786,003,000, or 29 percent. Finance and investment companies registered

$505,274,000, or 19 percent, transportation and communication companies, $77,756,000,

or 3 percent, and all other issuers, $60,481,000, or 2 percent. 3/

Costs of flotation reported in the registration statements amounted to 3.7 percent of the aggregate value of the new issues registered for sale and this was divided

between 3.2 percent commissions and discounts and 0.5 percent for all other expenses

incidental to flotation (including costs related to registration). The proportion of

aggregate gross proceeds paid in commissions to investment bankers on issues registered for sale throu~h ~h2m to the general public 21 showed a downward trend over

recent years for each of the three principal types of security as shown in the following tabulation:

!IThis number of statements "fully effective" diSfers from the 344 shown as

"effective" in the above table in that the latter figure includes five statements

effective subject to amendments which were not made and excludes one statement

effective during the preceding fiscal year subject to Ghe L_ling of an amendment

covering receipt of competitive bidS, Which amendment became effective during the

fiscal year ended June 30, 1945.

3/ See Appendix Table 1 for various breakdowns of the dollar volume of Securities

Act registrations.

21 Not including investment trust certificates, on which costs are usually not reported in terms comparable with those of other is~ues.
Compensation % of Gross Proceeds 

Year Wed Preferred Common 

June 30 Bonds - Stock -Stock 

1939 2.0 6.4 16.9 

1940 1.9 7.2 16.4 

19W- 1.8 4.1 U.4 

1942 1.5 4.1 10.1 

1943 1.7 3.6 9.7 

1944 1.5 3.1 8.1 

1945 1.3 3.1 9.3 

mgistered corporate securities offered in amounts of more than $100,000 for 

cash sale during the fiscal year aggregated $2,026,589,000. Railroad issues accounted for $1,191,0W,000, or more than half of this total. Private placements in 

the amount of $743,666,000 accounted for most of the remainder. This was the 

largest volume of private placements since 19W. However, publicly offered corporate 

issues (both registered and unregistered) increased in volume even more, so that the 

relative importance of private placements actually declined. Gnly a little over 20 

percent of all issues of corporate bonds and notes were privately placed during the 

past fiscal year compared with 44 and 46 percent for the tm preceding years. 

The net proceeds to the issuers of all new corporate securities 2 offered for 

sale during the fiscal year amounted to $4,0n,648,000. Retirement o dbonds, other 

debt, and preferred stock absorbed $3,293,467,000, or 80.9 percent of all corporate 

net proceeds. The net proceeds from the sale of new securities issued by public 

utilities and railroads -re used almost entirely for that purpose, as was also a 

little over half of the proceeds from the sale of industrial issues. The amount of 

net proceeds destirqd for expansion of plant, equipment and mrking capital, 

$732,995,000, was the highest since the fiscal year ended June 30, 1942, and nas 

mainly from securities offered by industrial companies. 

ECEWTION FROM REGISTRATION 

The Commission is authorized under Section 3 (b) of the Securities Act of 1933, 

as amended, to provide, by rules and re,glations, conditional exemption from the 

registration requirements of that Act for Certain small security offerings. The Act 

imposed a maximum limitation of $100,000 upon the amount of an offering which the 

Commission could thus exempt from registration until, by amendment of the statute 

effective BBay 15, 1945, this lhitation was increased to $300,000. Promptly 

after the enactment of this amendment, the Commission on May 22 amended its Regulation A so as to extend the general exemption from the registration requirements 

which is provided thereby up to a maximum offering of $300,000. 

&/ 	 For greater detail, see Appendix Table 2, which gives the average compensation, 

as nell as the number of issues and dollar volume, for registered offerings of 

various degrees of size and quality. 

Including both registered and upregistered of more than $100,000 in sise of offering but excluding continuously offered investment trust certificates. 

3f 	See Appendix Tables 3 and 4 for a statistical breakdown of the volume of all securities offeringgincluding those exempt from registrationunder the Securities Act. 

4/ The Ccrmmission~s views on tbis araendment as given to the Congressional committees 

considering the bill -re a8 follows: We have naighed carefully the advantages 

to be gained by adoption of the amendment against its disadvantages and have come 

to the conclusion that balancing all the interests concerned the proposal merits 

a trial. We therefore favor its adoption. In reaching this conclusion, we have 

been Muenced by the fact that the exemption provided by the section remains 

permissive and that the ~ndmelrt.presemes the Collrmission~s authority in granting exemption to bupose tern18 and conditions found necessary to protect the 

public interest ." 
- 5 -

Regulation A amended to raise exemption limit to $3oo,OOO.--Under Regulation A

as thus amended by the COJIIIIlis15ion, issuers meeting the conditions of the Regulation

may make a public offering of securities not exceeding $300,000 in aggregate offeriTJg price without filing a registration statement with the Conunissiono Prior to

t.he enactment of this amendment, the limitation on offerings under Section 3 (b) was

$100,000. The new Regulation still permits an offering not exceeding $100,000 to be

made by, on behalf of, or for the benefit of any person controlling, controlled by,

or under common control with the issuer. However, the aggregate amount of such

offerings, and those by the issuer, cannot exceed $300,000 in any period of twelve

months. The amended Regulation provides that offerings may be made at the expiration of five days after a letter of notification is filed with the appropriate

regional office of the Commission.

Section 3 (b) as amended Yay 15, 1945 remains permissive and preserves the Commission' s authority, in granting exemption, to impose terms and conditions found

necess~ to protect the public interest.

It should be emphasized that the Commission's amendment of Regulation A is of a

0emporar,y nature and is not to be construed as indicating a final determination by it

that the requirements set forth in the new Regulation are regarded as adequate in the

case of all issues up to $300,000.

It is further pointed out that the exemption from registration permitted by Section 3 (b) is not complete exemption from all pr-ovi.s Lons of the Act. It is limited

by express provisions in Section 12 which impose civil liability on persons who sell

securities in interstate conmerce or through the mails by means of untrue statements

or misleading omissions, and by Section 17 which makes it unlawful to sell securities by such means or by other types of f'r-aud , Sections 12 and 17 are applicable

even though the securities involved are exempted under Section 3 (b).

In connection with small issues exempted under Regulation A, there were filed

with the Commission during the fiscal year a total of 578 letters of notification,

and 325 amendments thereto, representing an aggregate offering price of $38,848,8930

Included in this total were 46 letters of notification with an aggregate offering

price of $2,775,957, relating to oil and gas leases and securities of companies

engaged in various phases of the oil and gas business. Some idea of the increase

during the past 3 years in the number and dollar-amount involved in offerings under

Regulation A may be gained from the following comparison:

Fiscal year

1943

1944

1945

Number of letters of notification

353

427

578

Aggregate offering price

$17,986,987

21,933,944

38,848,893

The ra~s1Dg of the exemption limit under Regulation A to $300,000 does not account for all the increase shonn in the last line of this comparison. However, it

may be noted that, during the fi~t 5 weeks that the increased limit was in effect,

there were filed with the Commission 31 letters of notification for offerings in

amounts between $100,000 and $300,000 each, representing an aggregate offering price

of $6,866,372, which figures are included in the total shown for the year 1945. It

may be worthwhile to note fUrther below a classification of these 31 somewhat

larger offerings according to specif'ied size groups. Y

Y Some of these exempted offerings were made by large established companies. In

future reports, additional data will be presented as to the size and type of

offerings under Regulation A.
Size of offering

$100,001 to $150,000

150,001 to 200,000

200,001 to 250,000

250,001 to 300,000

Total ••

- 6 -

Number of offering~

7

7

6

11

3I

Aggregate offering price

$ 979,188

1,305,561

1,397,740

3,183,883

$6,866,372

Adoption of Rule 240 of Regulation A-M.--The Commission adopted on March 24,

1945 a new rule pursuant to Section 3 (b) of the Act, designated as Rule 240 of

Regulation A-ill,which provides under certain specified conditions a special exemption from registration for offerings of assessable shares of mining corporations to,

a maximum of $100,000 in one year. Pursuant to this rule, the aggregate offer~

price of the issuer's securities offered to the public (other than securities effectively registered under the Act) in each successive yearly period commencing with

the filing date of the latest prospectus required by the rule p'Ius the amount received in each such period as a result of all assessments must not exceed $100,000.

The aggregate amount of the securities proposed to be offered must not exceed

$100,000 less the aggregate amount of securities being currently offered to the public (other than effectively registered securities) and the aggregate sales price of

securities sold within one year (other than sales of effectively registered securities). Not more than one offering of securities by an issuer under the rule is

allowable in any period of one year.

While the adoption of such a rule had been urged by various members of the

mining industry, and the Commission benefited from the suggestions of various mining

men, mining organizations, attorneys, accountants, and others Who had been furnished

draft copies for review and criticism before it was promulgated, a number of objections to the rule were raised on the ground that it was contrary to public interest.

The Commission therefore adopted this rule on a trial basis. If abuses develop under

the rule to a point where it appears to the Commission that the public interest is

adversely affected, action will be taken to rescind or modify this rule.

During about three months that Rule 240 had been in effect up to the end of the

fiscal year, there were filed under the rule two prospectuses with an aggregate

offering price (including contemplated aesesanent.s for a period of one year) of

$117,000.

Exempt offerings under Regulatioll B.- Pursuant to Regulation B, which provides

for the conditional exemption from registration of fractional undivided interests in

oil or gas rights where the aggregate offering price does not exceed $100,000, the

Commission received and examined during the year 272 offering sheets, and 299 amendments to such offering sheets, with respect to which the following actions were

taken &

Various actions on filings under Regulation B.

Temporary Suspension Orders (Rule 340 (a)). • • • ••• • • • • • • • • •• 76

Orders Terminating Proceedings after Amendment. • •• • • • • • • • • • •• 64

Orders Consenting to Withdrawal of Offering Sheet and Terminating Proceeding.. 9

Orders Terminating Effectiveness of Offering Sheet (No Proceeding Pending). 17

Orders Consenting to Amendment of Offering Sheet (No Proceeding Pending). 137

Orders Consenting to Withdrawal of Offering Sheet (No Proceeding Pending) 11

Total Orders • • • • . .. . . . ••••• QO.OOOO. 314

•

•
- 7 -

Confidential written reports of sales under Regulation B.--The Commission also

received and examined during the year 2,770 confidential written reports required

pursuant to Rules 320 (e) and 322 (c) and (d) of Regulation B concerning sales made

by a broker-dealer or offeror to an individual, and from one dealer to another.

This total consisted of 1,930 reports on Form I-G and 840 on Form 2-G, representing

sales in the aggregate of $1,509,740 and $1,309,371, respectively. If the examination of these reports indicates that a violation of the law may have occurred, the

Commission makes appropriate investigations and, in instances where the facts are

deemed to warrant it, rescissions are required.

The Commission not only maintains an Oil and Gas Unit within th~ framework of

the Corporation Finance Division at headquarters, but has also established a

petroleum geologist at Tulsa, Oklahoma, to facilitate the making of field investigations and reports upon tracts with respect to which offering sheets have been

filed. The establishment of this additional field representative provides the Con~ission and its various regional offices with facilities for research at the source and

technical reports needed for the prompt disposition of offering sheets that are filed

as well as for the orderly conduct of investigations that may be opened. The importance of this source of supplemental technical information was particularly marked

last year when unusual activity occurred in the West Edmund field of Oklahoma and led

to the filing of many offering sheets relating to tracts in that field.

Oil and gas investigations.--The Commi~sion conducted a total of 125 investigations during the year in cases involving oil and gas properties or proposed offerings

of oil and gas securities. l~ost of these investigations arose out of complaints received by the Commission and were aimed at determining whether transactions in question were effected in violation of Sections 5 or 17 of the Securities Act of 1933.

Others related to the question of pos~ible violation of Section 15 of the Securities

Exchange Act of 1934. Five investigations were closed during the year and the remaining 120 were pending at the end of the year. A summary of these investi~ations

is tabulated below:

Oil and Gas Investigations

Pending at June 30, 1944

Opened 7-1-44 to 6-30-45:

New cases. • • • • • • •

Transferred from preliminary or

inform.al til 0 • 0 0 0 • 0 • 0 0

Total number of cases to be accounted

for. 0 •••

Closed • • • • • • • • •

Transferred to informal.

Transferred to formal. • •

Pending at June 30, 1945

Preliminary

16

15

31

1

2

28

Informal

40

27

2

69

4

1

64

Formal

27

1

28

28

Total

83

42

3

128

5

2

1

120

To illustrate the results of such investigations, it may be pointed out that

the persons concerned in 2 cases were enjoined from violating the registration or

fraud provisions of the Securities Act of 1933; the facts developed in another case

were referred to the Department of Justice for criminal prosecution, while in 3

~ases indictments were returned. It may also be noted that convictions obtained in

4 cases led to the following sentence~: (1) Roy E. Wilson was sentenced to 3 years

imprisonment and $5,000 fine, (2) four defendants in the case of S. S. Alexander, et

ale were imprisoned for periods ranging from,3 years to 2 months, 0) W. W. L:esel, Jr.

•

•
- 8 -

was fined $1,200, while (4) eleven derendante in the case of Frank Mansfield, et ale

were sent to prison for periods ranging from 5 to 3 years.

CIVIL ACTIO~S INSTITUTED BY THE COMMISSION

During the past fiscal year the Commission sought injunctions restraining violations of the fraud and registration provisions of the Securitie:5 Act of 1933 in a

number of cases. None of these cases, however, was of sufi'icient novelty to warrant

more than passing mention. y

y See Appendix, Table 26, Injunctive Proceedings brought by Commission. See also

~. v , Roy E. Wilson, et ala, under Administration of the Investment Advisers

Act of 1940 - Civil Actions Instituted by the Commis:5ion.
- 9 -

PART II

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF 1934

The Securities Exchange Act of 1934 is designed to eliminate fraud manipulation

and other abuses in the trading of securities both on the organized exchanges and in

the over-the-counter markets, vnlich together constitute the nation's facilities for

trading in securities; to make available to the public information regarding the condition of corporations whose securities are listed on any national securities exchange; and to regulate the use of the nation's credit in securities trading. The

authority to issue rules on the use of credit in securities transactions is lodged

in the Board of Governors of the Federal Reserve System, but the administration of

these rules and of the other provisions of the Act is vested in the Commission.

REGULATION OF EX.CHANGES AND EXCHANGE TRADmG

Registration of Exchanges

There was no change during the past fiscal year in the number of exchanges

registered with the Commission as national securities exchanges, nor in the number

of exchanges exempted from such registration; the numbers were ~9 and 5,respectively.

Various changes were effected by the exchanges in their rules, practices, and

organizations during the year, such changes being reflected in amendments to their

ap~lications for registration or exemption. A total of 99 amendments and supplements to these applications were filed by the exchanges and each was studied and

anal~ed for its effects upon the public interest and its compliance with the relevant regulatory provi.et.ons ,

Value and Volume of Trading

As shown in Appendix Table 7, trading on regist'Sred securities exchanges during

the fiscal year 1945 had an aggregate value of $15,160,875,000, as against

$10,746,044,000 in the preceding year. Stock trading had a value of $13,141,773,000

in the 1945 period, as against a value of $8,792,692,000 a year earlier. The volume

of stock trading was 595,133,000 shares in the twelve months ended June 30, 1945, as

compared with 410,940,000 shares for the preceding twelve months.

Exchange Membership

As of the close of the fiscal year, according to Commission records, 2,840 individuals and 975 firms (sole proprietorships, partnerships, and corporations) were

full or associate members of one or more of the registered exchanges, excluding The

Board of Trade of the City of Chicago which is primarily a commodities exchange.

Disciplinary Actions

In connection with the Commission's investigatory activities, the exchanges

report periodically to the Commission all cases of disciplinary action which they

ta~e against their membership for violations of the Securities Exchange Act of 1934,

any rule or reguJation thereunder, or any exchange rule. Dur-Ing the year, six

exchanges reported such actd.ons taken against a total of 29 members, member firms,

or partners of member :firms. The disciplinary- actd.ons included a six-month suspension of membership 1.'1 one case and fines up to $5,000 in other cases, while in some

instances the members involved were required t~ u~~e mvnetary adjustments to

customers or were 5imply censured or r-epr-imanded; Various infractions were involved

in these actions, the principal violations being of eXCh<LTlb8 ru.Les regarding minimum
- 10 -

capital, margin trading, partnership agreements, floor trading, splitting commissioll5

with non-members, and special of'f'er'Lngs , The individual who was suspended from membership ~~s found guilty of rebating commissions and of allocating transactions subsequent to their execution, such allocations having been made at the expense .of

customers over whose accounts he had discretion~ authority.

Special Offering Plans

Rule X-IOB-2 permits special offerings of blocks of securities on national securities exchanges where such offerings are effected pursuant to a plan filed with and

declared effective by the Commission. No new special offering plan became effective

during the year; the plans of seven exchanges, !Iwhich had previously been declared

effective, remained in effect throughout the yearo y

Special offerings on registered securities exchanges in the twelve months ended

June 30, 1945, produced sales of 1,ll5,201 shares of stock, as against 975,173 shares

in the preceding twelve months. Special commissions amounted to $626,000 as compared

with $593,000 in the preceding year. Offerings on the New York Stock Exchange accounted for 1,013,154 of the 1,J-l5,201 shares sold in special offerings in the fiscal

year 1945. Further details are given in Appendix Table 6.

Floor Trading

On -January 15, 1945, the Trading and Exchange Division reconrrnendedthe adoption

of a rule, pursuant to Section 11 (a) (1) of the Securities Exchange Act of 1934,

which would prohibit floor trading in stocks on the New York Stock Exchange and the

New York Curb Exchange. This recormnendation W3.S accompanied by a report which outlined the legislative background of the Comrrassion's powers with respect to floor

trading, discussed the steps which had been taken in the past to regulate that activity, and described the nature and effects of such trading in considerable

detail. V

A public conference was held on May 16, 1945, for the purpose of considering

the merits of the proposal. At the conference, the Commission heard statements from

all persons who wished to be heard; in addition, the Commission received various

coromunications and other documents, among them a supp.l.ement.ary report prepared by the

staff. Subsequent to the public conference, representatives of the Commission and

of t.heFew York Stock Exchange met from time to time for additional discussions.

Fin.ally, acceding to the request of the New York. Stock Exchange, the Cormnission

agreed to Ynt!h~old action on its staff's proposal and to permit the exchanges to

adopt experimentally certain rules restricting floor trading. The Commission is continuing its studies of floor trading as anno~~ced in its decision as follows:

y The seven exchanges were the Chicago Stock Exchange, Cincinnati Stock Exchange,

Detroit Stock Exchange, New York Curb Exchange, New York Stock Exchange,

Philadelphia Stock Exchange, and the San Francisco Stock Exchange.

V The Chicago Stock Exchange was the only exchange to file an amendment to its plan,

such amendment being declared effective by the Commission on September 21, 1944.

Y Report to the Commission by the Trading and Exchange Division on Floor Trading,

January 15, 1945.

Y Floor Trading on the New York Exchanges, May 8, 1945.

~
-11-

JI. e Weshall continue to study the operation of noor trading during the

trial period. in ~ich these rules are in effect. The Exchanges have undertaken to do the same. Weshall review the operation of these rules with

the Exchangee at frequent intervals and will recommendany changes in the

rules which our etudies indicate to be necessary for effective regulation.

Weshall also consider modifications the Exchanges may recommendas

likely to improve the effectiveness of their regulation. If at any time

it becomes evident to UI5 that the Exchanges' rules, either in the form now

proposed, or al!!they may be modified, are inadequate for the effective

regulation of noor trading, we shall reconsider the recommendations of

our l!ltaff, or any appropriate modification of those recommendations, and

take such action al!!, in our opinion, nil provide an adequate solution of

the problee created by noor trading. n y

Short Selling

The Commil!!sionadopted one minor amendmentto its short-selling rules under Section 10 (a) of the Act. In general, these rules prohibit short sales on a decline in

price, requ1re the marking of' orders for short sales, and require the covering of

short sales which have been improperly executed as long sales. Rule X-IOA-2 (b) provides an exemption from the requirements relating to the covering of iJIlproperly

marked orders f'or short sa'Les , :if the exchange upon which the sal.e was executed makes

certain findings. The amendmenthas the ef'fect of reducing the necessary findings

under certain cirC1JDlStances. Whereas exchanges fonnerly were required to make findings relating to good faith and due diligence and to the hardship which would be

incurred in covering the transaction, the amendmenteliminates the necessity for the

exchanger IS making alV finding relating to hardship in order to grant relief, where

the mistake in marking was made by a broker and the sale did not violate the price

restrictions of the short-selling rules.

REGISTRATION OF SECURITIES ON EXCHANGES

The general purpose and nature of the process of registering securities on,exchanges and the Commission's procedure in examining applications for registration,

and subsequent periodical and other repor-ta, for their compliance with the provisions

of Sections 12 and 13 of the Securitiel!! Exchange Act of 1934, have been described in

the Tenth Annual Report, pages 45-50, and previous annual reports. Brieny stated,

the purpose il!!to make available currently to Lnveat.ore reliable and comprehensive information regarding the affairs of campaniel!!who~e securities are regil!ltered on any

national securities exchange; and, in order to effectuate that purpose, each such company il!!required to file with the CODIlIlis:sionad the exchange, under the conditions

specified in those provisionl!l, an application for registration of itl!! securities, and

annual and other periodic reports, setting forth certain specified information about

its corporate affairs. All these applications and reports must be examined by the

Commissionto determine whether accurate and adequate disclosure has been made of the

information required by the Act and the r-ul.es and regulationl!l thereunder.

NewRules, RegulatiollB, and Forms for Registration of Securities on Exchanges

Newrules re disclosure of certain war contract termination:!!.-The Commis8ion a opted July ,1.5 2 ,just er he c'Lose of the past Lscal, year,

certain nell'rules providing for disclc3U..1"'8to investors and the public of current

information concerning changes in the dollar volume of war business held by companies

whose securities are registered on a national securities exchange.

17 Securities Exchange Act Release No. 3727, August 28, 1945.

Y Securities Exchange Act Release No. 3718.

•

~
-12-

Under a new subparagraph of Rule X-13A-6, lUsted companies must notify the Commi:ssion of the cancellation of any war contract if the dollar value of the buatness

covered by the terminated portion of the contract aaounte to 20 percent or more of

the total aal.es for the pre'Vious fiscal year. A current report is required in thUs

situation to be mailed under confidential cover before the close of the day following receipt of effective notice of the termination. The report will, however, be

placed in the public files unless in the opinion of the procurement agency involved

publication of the report would contravene the Code of Wartime Practices or the

secur-Lty regulations of the particular agency.

In addition, listed companies who"e war busfnese amountedto more than 25

percent of total sales in the last preceding fiscal year are required by a new rule,

desd.gna'ted X-13A-6A,to file a quarterly report on Form8-K. A new item II which

was added at the same time to Form8-K requires such coapani.es to report the dollar

volume of unfilled orders at the beginning and end of each fiscal quarter and the

dollar amount of sales during the quarter shOYdngseparately sales madepursuant to

war contracts. This report must be filed within 30 days after the close of each

fiscal quarter or within 30 days after the effective date of the };lew rule, whichever

is later.

Prior to adoption, drafts of the proposed rules were widely distributed for

COIIIIIlent to interested persons, as well as certain government agencies. COIIIIIlents were

received from many sources and a number'of staff discussions were held with interested

persons. In addition, the proposals were discussed lIith the Office of Censorship

and the War and NavyDepartments to ensure conformity to the requirements of the Code

of wartime Practices and the security regulations of these agencies.

As a result of these conferences and the cOBDJlentsreceived, the rules were

~implified and clarified in certain r-especte before they were adopted. In addition,

a number of special instructions were added to adapt the general requirements for

use where war business is conducted under special types of contracts. Finally, it

maybe pointed out that the revised instructions penuit the use of estimates where

by reason of the nature of the business it is impracticable to furnish exact information as to certain of the item:J in the report.

Rule X-12A-5enanded.-During the year the Commissionadopted an amendmentto

Rule X-la-5, effec i ve Dec€lllber29, 1944. This rule providel5 a temporary exemption

from the registration requirements of Section 12 (a) of the Act for certain new

securities arising out of old securitie15 previously listed or admitted to unlisted

trading privileges on a national securities exchange. The purpose of the amendment

'is to permit an exchange, under certain cirC1JDl.l5tancesnot previously covered by the

rule, to trade in the entire class of the new securities under the temporary exemption afforded by this rule where the entire c'laas of new securities has been lawfully admitted to dealing on another exchange.

RuLeex-13A-6 e and X-15C2-2.-The nature and purpose of Rules X-13A-6 (e)

and X-15C2- , promulgated a: t e beginning of the fi8cal year under review, were

Ji5C1.lS~edin the last annual report, page 49. The first of the15erules provides

that, whenever a companywith a security registered on a national Becurities exchange declares a dividend or distribution in a form other than cash or !Securities,

it shall promptly file a telegraphic report with the Commission,containing a: f'ull

and accurate description of the contemplated dividend. or distribution. If the Commission finds that the available information with reepect to the contemplated

dividend or distribution is inadequate to permit investors to make a proper appraisal

of tne value of the security, it may exercise its authority under Section 19 (a) (4)

of the Act to order a temporary suspensd.on o:f trading in the security on the exchange

on wh~ch it is registered, pending the availability of more adequate information.

The seccnd rule -providr.iSthe.t, whenever exchange trading i8 thus ~ suspended
- 1.3-

by the Commission, any act of a broker or dealer designed to effect or induce an

over-the-counter tr~actibn with a customer in the security during the period of

suspension is a fraudulent, deceptive or manipulative act. The~e rules were

designed to prevent potential abuses in trading in securities before adequate information was available as to the nature and amount of the dividend or distribution.

Termination of Registration under Section 19 (a) (2)

Two proceeQings for the termination.of registration pursuant to Section 19 (a)

(2) were pending at the beginning of the year. During the year an additional one was

instituted upon failure of an is~uer to file the annual report required by Section

13, while another was df.smi seed upon the filing by the Lssuer- of an amendment disclosing required information, leaving two such proceedings pending at the close of the

period.

Investigation of Elastic Stop Nut Corporation of America

On Decp.mber 8, 1940 the Commission authorized an investigation and public hearing to determine whether a registration statement filed under the Securities Act of

1933 and an application for registration filed under the Securities Exchange Act of

19.34were complete and accurate, and whether any violation of the anti-fraud provisions of those Acts had been connnitted.

The 19.3.3Act registration statement covering $3,500,000 of the company's 15-

Year 5% Sinking Fund Debentures became effective January 14, 1944. The application

for registration on the New York Stock Exchange of the company's $1 common stock

became effectivp. on September 29, 1944. Two months thereafter the president of the

company took his own life. On the same day, November 29, 1944, the Commission for

the first time issued an order under Section 19 (a) (4) of the Securities Exchange

Act of 1934 which summarily suspended trading in the company's common stock on the

New York Stock Exchange.

In a statement issued upon the conclusion of its hearings the Commission revealed that the 1933 Act registration statement had failed to disclose in full the

facts regarding a downward trend in the company's incoming orders and backlog of

orders, an abnormal inventory situation, and the company's increased costs of production. In addition, it appeared that the statement of the company regarding its

controlling stockholders was inadequate in material respects. 11

The Commission's release also pointed out that the application for registration

under the 19.34Act failed to disclose adequately the facts regarding the operating

losses in the months immediately preceding its filing, an excess and obsolete inventory condition, the surplus stocks in the hands of the industry which would constitute a block to new business, a drastic decline in the volume of incoming orders,

and in the amount of unfilled orders on the books of the company. Moreover, the

application for registration omitted to state that in 1944 its production was decreasing and that the demands of the aircraft industry were decreasing.

On December 4, 1944 the company filed a supplement to the prospectus issued in

connection with the 19.3.3registration statement which contained material additions to

the information theretofore supplied. On December 22 and 23, 1944 and Jan'J.ary1,

1945, while the Commission proceedings were in progress, the company filed amendments

to its 1934 application. In addition, on May 31, 1945 the company filed its annual

report, pursuant to the 1934 Act, for the fiscal year ended November 30, 1944.

11 Securities Act of 19.33Release No. 3072.

Securities Exchange Act of 1934 Release No. 3701.
-14-

The investigation into the trading in the company's securities did not disclose

any evidence of concentration of buying or selling or manipulation of securities of

the company. The Commission concluded that neither stop-order proceedings with respect to the registration statement covering the debentures, nor delisting proceedings with respect to the company's common stock would be in the public interest or

afford additional protection to the investorso

Statistics of Securities Registered on Exchanges

At the close of the fiscal year, 2,185 issuers had 3,675 security issues listed

and registered on national securities exchanges. These securities comprised 2,541

stocks representing a total of 2,302,066,187 ~hares and 1,134 bond issues in the

aggregate principal amount of $19,312,690,280.

During the past year alone, the following applications, reports, and amendments

were filed with the Commi5sion and examined for compliance with the requirements

which govern the listing and registration of securities on national securities exchanges and the listing of securities on exempted exchanges.

Number of applications, reports, and amendments relating to the list5ne

and registration of securities on exchanges -- Fiscal year 1945

Applications for registration of securities

Applications for "when issuedJf trading

Exemption statements for short-term warrants

Annual !'eports

Current reports

Amendments to applications and annual and current reports

Annual reports of issuers having securities listed on

exempted exchanges

351

22

19

2,167

2,752

741-

100

For those interested in more detailed statistics concerning securities registered

on exchanges, reference is made to Appendix Tables 11-17, inclusive.

SECURITY TRANSACTIONS OF CORPORATE INSIDERS

Each officer, director and principal stockholder 1/ of a company having equity

securi.t.ieslisted and registered on any national secur!ties exchange is required by

Section 16 (a) of the Securities Exchange Act of 1934 to file with the Commission

and the exchange an initial report showing his direct and indirect beneficial ownership of his company's equity securities and a report of transactions and holdings

each month thereafter in l'Ihichchanges in such beneficial. owner-ehdp occur. The provisions of Section 17 (a) of the Public utility Holding Company Act of 1935 and

Section 30 (f) of the Investment Company Act of 1940 require that corresponding security ownership reports be filed with the Commis~ion by officers and directors of

registered holding companies and by office~, directors, principal security holders,

members of advisory boards, investment advisers and certain other affiliated persons

of registered closed-end investment companies.

After these security ownership reports are received and examined by the Commission, the information they contain is extracted and published each month in the

Official Summary of Security Transactions and Holdings which is distributed to newspapers, individual security holders and other per-sons interested in the security

t.ransact.Lons and holdings of corporate insiders. Altogether during the past 11 years

11 A principal stockholder means a beneficial owner of more than 10% of the issued

amount of any class of listed and re~is1;-eredequity security.
- 15 -

more than 230,000 reports have been filed by more than 37,000 persons subject to

these requirements. All such reports are available for public inspection at the

Commission's main office in Philadelphia as ~ll as the exchange at which additional copies must also be filed; while complete sets of the summary may be.inspected

at each regional office of the Commission as well as each national securities

exchange.

Changes oc~g in the volume of reports filed during recent war years are reflected in these figures for the past four fiscal y-ears: 1942, 18,600; 1943, 14,972;

1944, 14,765; 1945, 16,613. It will be noted that the volume of these repu~ts last

year increase 12-1/2 percent over that of the preceding year. Details concerning the

reports filed last year are tabulated below.

Number of ownership reports of officers, directors, principal security

holders, and certain other affiliated persons filed and examined.

Description of report

Securities Exchange Act of 1934:

Original reports-Form 4, 11,756, Form 5, 608, Form 6, 1817

Amended reports--Form 4, 788, Form 5, 23, Form 6, 53

Public utility Holding Company Act of 1935:

Original Reports-Form U-17-l, 100, Form U-17-2, 371

Amended Reports-Form U-17-l, 3, Form U-17-2, 24

Investment Company Act of 1940:

Original Reports-Form N-30F-l, 170, Form N-30F-2, 848

Amended Reports-Form N-30F-l, 6, Form N-30F-2, 46

TOTAL --

SOLICITATION OF PROXIF3, CONSENTS, A1IDAUTHORIZATIONS

Fiscal Year

1945

14,181

364

471

27

1,018

52

16,613

The Commission's Regulation X-14, which was adopted pursuant to Sections 14 (a)

of the Securities Exchange Act of 1934, 12 (e) of the Public Utility Holding Company

Act of 1935 and 20 (a) of the Investment Company Act of 1940, prescribes information

which companies subject to these acts must make available to their security holders

whose proxies, consents or authorizations are solicited. !I

During the year the Commission received and examined under that regulation both

the preliminary and defini~ive material required with respect to 1,630 such solicitations, as well as nfollow-up" material employed in 263 instances.

Modification of Proxy Rules.--An amendment to Rule X-14A-l relating to the

solicitation of proxies was adopted February 1, 1945. Paragraph (b) of the rule as

originally adopted prevented the management of a corporation from soliciting

proxies for use at a meeting at which the election of directors was an item of business unless security holders had been furnished or were concurrently furnished with

an annual report including financial statements of the company. The effect of this

provision was to confine the management's solicitation to the period bet"l'v-een the

date on which the financial statements became available and the date of the stockholders' meeting while opposition solicitation was not similarly limited. The amendment permits manager.ent1s solicitation in advance of mailing the annual report in

cases in which solicitations are being made in opposition to the management provided

the management's proxy soliciting material contains an undertaking to furnish the

annual report at least twenty days before the meeting.

1/ For a detailed discussion of the Commission's proxy rules see the Tenth Annual

- Report, pp. 51-53.
- 16 -

EKception from the pray rnles.-Earlier in the year the Commi.s81onadopted, on

September 20, 1944, an amendmentto Rule 1-l4A-S extending the exceptions from the

pro~ rules to a solicitation of assurances of acceptance of a plan of adjustment of

a. railroad under Chapter IV of the Bankruptcy Act 1Vhennot more than 25 holders of

claims affected by the plan are solicited.

UNLISTED TRADING PRIVILEGES ON EXCHANGES 11

On Registered Exchanges

A.8 of June 30, 1945, 991 stock issues were admitted to unlisted trading on the

registered exchanges. Of these, 554 issues were fUlly listed and registered on exchanges other than those on which unlisted trading privileges existed, 4 issues lI9re

temporarily exempted from registration on anbther exchange and 433 issues had only

an unlisted trading status.

The 433 issues having only an unlisted trading status aggregated 386,275,951

shares, or about 14.3 percent of the entire 2,707,206,388 shares on these exchanges.

Reported trading volume in them for the calendar year 1944 was 24,059,373 shares, or

about 5.2 percent of the total share volume on these exchanges. This reported

volume included 22,450,306 shares on the NewYork Curb Exchabge or about 28.6 percent

of the total share volume on that Exchange, and 1,609,067 shares on the exchanges

outside NewYork City or about 3.7 percent of the total share volume on those

exchanges.

Of the 433 stock issues, 138 issues aggregating 117,088,390 shares were of

domestic issuers 1Vhichhad in effect registrations under one or more of the Acts

lIhich the Commissionadministers or had securitiee liB ted upon exempted exchanges.

All such issuers (or the exempted exchanges in case of the i8suers appearing thereon)

were required to file antlUal reports 'With the COJIIDIissionand most of them had to

comply fully or substantially with the reporting requirement8 under Section 13 of

the Securities Exchange Act. Most of them.were subject to the rules embodied in

Regulation 1-14 covering solicitation of proxies. Most of the shares were of issuers

wose officers and directors, and in some casee ...mose10%owners, were subject to the

reporting and penalty clauses of Section 16 of the Securities Exchange Act or eimilar

sections of other Acts with respect to corporate ineider8' transactions. A breakdown

of these issues according to their status under variOU8 Acts fol101f8: 31

Issuers registered under the Investment CompanyAct

of 1940

Issuers with voting shares registered under the

Securities Exchange Act of 1934

Issuers registered under tho Public Utility Holding

Canpany Act of 1935

Subsidiaries of companies registered under the Public

Utility Holding CompanyAct of 1935

Issuers 'With non-voting shares or bonds registered

under the Securities Exchange Act of 1934

Issuers with securities registered under the Securities

Act of 1933

Issuers having securities listed on exempted.

exchanges

No. of Stock

18sue8 Sharel!l

21 22,001,332

16 32,139,362

22 31,295,ll7

51 21,053,660

5 2,450,310

13. 4,845,844

10 3,302,765

US 117, 088, 390

Y For comprehensive data with respect to the status of issues on exchanges, see

Appendix Tables 13, 14, 15, 16, 17 and 18.

Y Some issuers are subject to the requirements of more than one of the Acts enumer"

ated in the compilation. In such cases, to avoid duplication, issuers have been

classi,fied under that. Act lIhich appears to ilIIpose the more extensive requirements.
- 17 -

Reported volUlle in this group of 138 issues for the calendar year 1944 was 11,125,195

shares, or about ~.4percent of the total share volume on the registered exchanges.

Of the remaJning stock issues with unlisted trading privileges 193, aggregating

126,590,508 shares, -wereof domestic)! issuers. Y The reported volume in these for

the calendar year 1944 -.as 9,839,507 shares or about 2.1 percent of the total share

volume on the registered exchanges.

The 433 issues also included 102 issues aggregating 142,597,053 shares of

Canadian stocks and Americandepositary receipts for foreign st.ocks , These were for

the most part listed and had their principal markets on Canadian or British stock

exchanges; their reported volume for the calendar year 1944 on our domestic exchanges

-was3,094,671 shares or about 0.7 percent of the total share volume.

As of June 30, 1945, 168 bond issues were admitted to unlisted trading on the

registered exChanges. Of these, 19 issues were fully listed and registered on exchanges

.other than those o~which unlisted trading privileges existed and 149 issues had only an

unlisted trading status. The 149 issues included 24 issues aggregating $572,335,500

principal amount admitted under requirements substantially equivalent to those for registered issues. 2V The remaining 125 issues, aggregating $1,008,932,035 principal amount,

represented original admissions made on the basis of the fact that unlisted trading

privileges in these ismes had existed prior to March 1, 1934. All of the 149 issues,

except 3 issues aggregating $4,860,000, were on the NewYork Curb Exchange.

The aggregate of stock and bond issues admitted only to unlisted trading haa

been diminishing through the years, in accordance with the expectation of Congress

whenit authorized continuance of such privileges in 1936. A survey of the stock

issues removedfrom unlisted trading since the passage of the Securities Exchange

Act indicates that if they were actively traded on the exchanges prior to their removal they or their successors for the most part subsequently becamefully listed

and registered. The principal exceptions were in cases of Lssues called for redemption or issues extinguished for one reason or another. In the latter category were

issues extinguished upon reorgan:i.zation or liquidation of issuers, rights and

warrants expired at the end of their term, and depositary receipts withdrawn on

termination of depositary agreements"

The decline in bond issues admitted only to unlisted trading has followed

pri.11cipally upon the listing of such issues or their successors and upon the retirement of issues by the private placing of new issues or by bank loans or otherwise.

Bondissues admitted to exchange trading on an unlisted basis have been principally

those of utility holding companysystems and the outlook is for a continuing decline

in such issues as the integration proceedings under the Holding CompanyAct continue.

On Exempted Exchanges

As of June 30~ 1945, 43 stock issues compr~s~ng11,273,924 shares and 1 bond

issue of $140,000 principal amountwere admitted to unlisted trading on the exempted

exchanges. Of the stocks, 6 issues comprising 4,109,596 shares were also registered

on one or another of the registered exchanges and 1 issue of 1,645,643 shares was

Y This fi.gore would be reduced well below 90,000,000 shares if controlling blocks

were excluded; e.g~over 37,600>000 shares of Creole Petroleum Corporation and

HumbleOil and Refining Companycapital stock two of the issues amongthe 193

-..ere reported to be owneddirectly or indirectly by Standard Oil Company

(N •. J.).

3.1 Pureuant to Clause 3 of Section 12 (f) of the Securities Ex:changeAct of 1934.

See AppeJJdjxTable 18.

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admitted to unlisted trading on a registered exchange. The residue consisted of' 36

issues comprising 5,51.8,685 shares, including 35 issues on the Honolulu Stock Ex:-

change and 1 on the Minneapolis-5t. Paul Stock Exchange. The bond issue was available for exchange trading only on the Honolulu Stock Exchange.

Applications for Unlisted Trading Privileges in the Fiscal Year 11

During the f'iscal year applications filed PUrsuant to Clause 2 of Section 12

(f') were granted to the Boston Stock Exchangewith respect to 3 issues} Cincinnati

Stock Exchange, 3 issues; Cleveland Stock Exchange, 1 issue; Philadelphia Stock Exchange, 21 issues; and San Francisco Stock Exchange, 6 issues. No applications

f'iled PUrsuant to this clause were denied and, nth the exception of 1 bond issue on

the San Francisco Stock Exchange, all the applications granted were for stocks.

Applications f'iled by the NewYork Curb Exchange pursuant to Clause 3 of Section

12 (f) lVeregranted with respect to 1 stock issue and denied with respect to 5

issues, 31 while an application of the Cleveland Stock Exchange involving 1 issue

was denied. Puget SoundPower & Light Companycommonstock, one of the issues denied

unlisted trading privileges on the NewYork Curb Elcchangepursuant to this clause,

had been traded on that exchange under the temporary exemption provided by Rule

X-12A-5prior to the COlIIIJlission1sdenial of the application f'or unlisted trading

privileges therein. Thereaf'ter the Commission,having been informed that the issuer

was considering the listing and registration of' the security on a national securities

exchange, extended the period of' exemption provided by the zul,e , 21 At the close of

the f'iscal year the security was still traded pursuant to this exemption 1fuich expired on December29, 1945 and the stock was accordingly removed fr~ trading on the

NewYork Curb Exchange,

Changes in Securities Admitted to Unlisted Trading Privileges

Whenevera security admitted to unlisted trading privileges is changed only with

respect to its title, maturity, interest rate, par value, dividend rate, or amount

authorized or outstanding, it is automatically deemedto be the same security previously admitted to SUCh.privileges 0 In such a case the exchange is required merely

to notify the Commission,pursuant to Rule X-12F-2 (a), of' the changes occurring in

the security promptly af'ter learning of' them. Numeroussuch notifications were received during the f'iscal year.

In the event changes more comprehensive than those enumerated above are effected

in an unlisted seeurity, however, unlisted trading privileges in the altered security

maybe continued only if' the Commissionfinds, upon application by the exchange pursuant to Rule X-12F-2 ("6), that such altered security is substantially equivalent to

the security previously admitted to such privileges. During the fiscal year applications pursuant to this rule lVeregranted with respect to 1 issue on the Boston Stock

11 For a discussion of Section 12 (f), pursuant to which unlisted trading privileges

are granted, see Tenth Annual Report, pp. 58-60.

31 Applications of NewYork Curb Exchange, Securities ExchangeAct Release No, 3658)

described briefly in Tenth Annual Report, P- 60.

Y In this instance the period of exemption provided by Rule X-12A-5would ordinarily

have terminated at the close of business on the tenth day after the Commission

had notified the exchange that its application for unlisted trading privileges in

the security had been denied.
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Exchange; 1 issue on the Chicago Board of Trade, and 13 issues on the New York Curb

Exchange. In addition, the New York Curb Exchange was permitted to ,Yithch'a1"r appIi.,

cations involving 3 issues upon being advised by the Commission that the applications would be denied.

DELISTllJG OF SECURITIES FROM EXCHANGES

Securities ~elisted by Application

Section 12 (d) of the Securities Exchange Act of 1934 defines the Commission's

powers with respect to application3 by an issuer or an exc~ange to delist securities

from an exchange. It provides that a security may be withdrawn or Btricken from

listing and registration L~accordance with the rules of the exchange and upon such

terms as the Commission may deem necessary to impose for the protection of investors.

Pursuant to this section and in accordance with the procedure prescribed by

Rule X-12D2-l (b:, 8 issues wore delisted upon application of issuers and 33 issues

were delisted upon application of exchanges during the fiscal year. In one instance

the'same issue v~s deJisted from two exchanges upon their applications; thus the

total delistings, ll,~ludingthis duplication, numbered 42. In each of these cases

the application was granted without the imposition of any terms upon the de1isting.

Of the 8 issueB delisted upon application of issuers, 4 had little or no exchange

activity during r~cent years, 1 remained listed and registered on another exchange,

and 1 had become very closely held with only a negligible number of shares remaining

in public hands; in the remaining cases, holders of more than two-thirds of the

shares had approved Lhe action pursuant to the requirements of the exchange from

which the securities ~e~e delisted.

During the fiscal year the Commission considered the application of TI1e

Torrington Company to Yd.thdraw its common stock from Boston Stock Exchange. The application was granted Bubject to the condition that the ~~thdrawal should not become

effective until the applicant had submitted the delisting proposal to its stockholders and obtained their consent thereto. y After the close of the year the Commission dismissed this application upon being advised that the company had determined

not to solicit its stockholders' consent to the proposed delistingq ;I

This was the second time that the Commission imposed material terms upon the

granting of a delisting application. The first such case occurred in May 1944, when

it granted the application of Shawmut Association to withdraw its common sto~k from

Boston Stock Exchange. 21 While the assent of stockholders to the proposed delisting was also required in that case, the precise terms differed. The Commission's

order in the Shawmut case required consent by a majority of the company's 4,000

stockholders and by the holders of a majority of its outstanding stock. In the

Torrington case, however, because of the apparent practical difficulties in obtaining assents from a majority of the company's 11,000 stockholders, the term imposed

was to require assents by a majority of the shares voted and a majority of the stockholders voting, provided not less than fifty percent of the outstanding shares ,vere

voted.

y Torrington Co.,

y Torrington Co.,

S.E.C.

S.E.C.

(1945), Securities Exchange Act Release No. 3687.

(1945), Securities Exchange Act Release No. 3735.

2/ Shawmut Ass'n S.E.C. (1944), Securities Exchange Act Release No. 3564,

aff'd sub~. Shawmut Assln v. S.E.C., 146 F. (2d) 791 (C.C.A. 1st, 1945). At

the close of the fiscal year Shawmut Association had not yet solicited its stockholders' assents to the proposed delistjng , I'

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Securities Delisted by Certification

Under Rule X-12D2-2 (a) an exchange, without the necessity of application and

hearing, may remove from listing and registration upon certification to the Commission securities which have been paid at maturity or are otherwise redeemed or retired in full, or issues which are exchangeable for other securities. During the

year 319 issues were delisted under this rule. Some of these issues were delisted

from more than one exchange; thus the total delis ting s, including these duplications,

numbered 354.

Rule X-12D2-1 (d) provides that an exchange may remove any security from listing and registration if tradin[ therein has been terminated pursuant to a rule of the

exchange requiring such termination whenever the security becomes listed and admitted

to trading on another exchange. Under this rule, 6 issues were. delisted frem the

New York Curb Exchange when they became listed and registered on the New York Stock

Exchange.

Securities Removed from Listing on Exempted Exchanges

The listing of a security upon an exempted exchange may be terminated upon the

filing by an exchange of an appropriate amendment to its applica.tion for exemption.

Two exempted exchanges filed such amendments during the year, terminating the listing

of 5 issues.

Temporary Exemption of Substituted or Additional Securities

In order to provide continuity of exchange trading in cases where securities

have come to evidence other securities, Rule X-12A-5 affords a temporary exemption

from the operation of Section 12 (a) of the ~ct to such securities to the extent

necessary to render law:ful the effecting of transactions therein on the exchange.

During the year, 67 issues were admitted to trading under this rule. In some instances the same issue was, admitted to trading on more than one exchange; the total

of such admissions, including these duplications, numbered S6.

STABILIZATION AND MANIPULATION

Manipulation

In its administration of the statutory provisions of the Securities Exchange

Act of 1934 relating to the manipulation of securities markets, the Commission's

policy is to attempt to detect manipulative practices at their inception, before the

public has been harmed. At the same time, it seeks to avoid interfering with the

legitimate functioning of the s ecurities markets. In brief, the Commission 1s investigations in this area take two forms. The "flying quiz", or preliminary investigation, is designed to detect and discourage incipient manipulation by a prompt

determination of the reason for unusual market behavior. If a legitimate reason for

the activity is ur..covered,the case is closed. If more extended investigation seems

required, a formal order is sought of the Commission under which members of the

staff are empowered to subpoena pertinent material and take testimony under oath.

These formal investigations often cover substantial periods of time, and trading

operations involving large quantities of shares are carefully scrutinized.

The Commission keeps confidential the fact that any security is under investigation so that the market in the security may not be unduly affected or reflections

be unfairly cast upon individuals or firms Whose activities are being investigated.

As a result, the Commission occasionally receives criticism for failing to investigate situations when, in fact, it is actually engaged in an intensive investigation

of those very matters.
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A tabular SlDIIIIIa.I"Y with respect to the Commission's trading investigations

follows:

Trading Investigations

Flying Informal Formal

Quizzes Investigations Investigations

Pending June 30, 1944 59 19

Initiated July 1, 1944 to June 30, 1945 306 5 14

Total to be accounted for !65 "5 ".

Changed to informal case or formal

investigation 15 2

Closed or completed !I 187 5

Total disposed of 252 2" 5"

Pending June 30, 1945 163 3 28

y Includes reference of cases to the Department of Justice or to a national

securities exchange.

Stabilization

During the fiscal year en:led June 30, 1945, the Commission continued the administration of Rules X-17A-2 and X-9A6-1. Rule X-17A-2 requires the filtng of detailed reports of all transactions incident to offerings in respect of which a

registration statement has been filed under the Securities Act of 1933 where any

stabilizing operation is undertaken to facilitate the offering. Rule X-9A6-1 governs

stabilizing transactions in securities registered on national securities exchanges,

effected to facilitate offerings of securities so registered, in which the offering

prices are represented to be "at the market" or at prices related to market prices.

During the eleventh fiscal year of the Commission 402 registration statements

were filed under the Securities Act of 1933. Of these, 276 contained a statement of

intention to stabilize to facilitate the offerings covered by such registration

statements. Because of the fact that a registration statement sometimes covers more

than one class of security, there were 325 offerings of securities in respect of

which a statement was made, as required by Rule 827 under the Securities Act,-to the

effect that a stabilizing operation was contemplated. Stabilizing operations were

actually conducted to facilitate 64 of these offerings. In the case of bonds, public offerings of $65,246,735 principal amount were stabilized. Offerings of stock

issues aggregating 9,866,465-1/6 shares and having an aggregate estimated public

offering price of $173,984,000 were also stabilized. In connection with these

stabiliZing operations, 16,000 stabilizing reports were filed with the COIIIIIlission

dUring the fiscal year. Each of these repcrts has been analyzed, thereby enabling

the staff to determine whether the stabilizing activities were lawful.

To facilitate compliance with the Commission's rules on stabilizing and to

assist issuers and underwriters to avoid violation of the statutory provisions dealing with manipulation and fraud, many conferences were held "With the representatives

of such issuers and underwriters and many written and telephone requests were

answered. A total of 1,611 letters and memoranda of such conferences and telephone

requests and memoranda to the regional offices of the Commission were written in

connection "With the adm:Inistration and enforcement of the stabilization and manipulation statutes and regulations.

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REGULATION OF BROKERS AND DEALERS

Registration

Section 15 (a) of the Securities Exchange Act of 1934 provides for the registration of a:ny broker or dealer lfhouses the mails or any other instrumentality of interstate commerce to effect over-the-counter transactions; brokers or dealers Whose

business is exclusive:q intrastate or exclusively in exempted securities are not required to register. Certain data are presented below with respect to the registration

of brokers and dealers in the fiscal year ended June .30, 1945.

Re istration of Brokers and Dealers

under Section 15 b of the Securities Exchange Act of 1934

Year ending June 30, 1945

Applications withdrawn during year. • • • • • • • • • • 0

Registrations withdrawn during year • • 0 • • • • • • 0 • • • • • • • • 0

Registrations cancelled during year • • • • • • • • 0 0 • • 0 0 0 • 0

Registrations denied during year. • • • • • • • • 0 0 0 • • • • 0 • •

Registrations suspended during year • • • • • • • • • • • • • • • • • • •

Registrations revoked during year • • • • • 0 • • • • • • 0 • • 0 • 0 0 •

Registrations expired by operation of Rule X-15B-3 •••• 0 • • 0 ••••••

Registrations made inactive during year 1/...............••.

Registrations effective at end of year (except those put on inactive status).

Applications pending at end of year • • • • • • • • • • • • • • • • • • • 0 0

Total 0 • • • • • • • • • • • • • • • • • • • 0 • • • • ( 0 • 0

Effective registrations at close of preceding fiscal year

Applications pending at close of preceding fiscal year. • • •

Applications filed during fisca;Lyear • • • • • • • • •

Total • • • • • • CJ • • • • • • 0 • 0 • • • 0 0 0

• 0 0 •

••••• 0

.. . •••• 000

4,278

29

383

4.690

4

546

54

2

1

9

1

7

4,046

20

4,690

Broker-Dealer Inspections

As authorized by Section 17 of the Securities Exchange Act, the Commission

regularly inspects the bocks and records of registered brokers and dealers to determine whether registrants' financial condition and business practices conform with

the requirements of law. The results of 825 broker-dealer inspections were reported

by the regional offices during the 1945 fiscal year. For the .first tilllein four

years, the number of inspections reported during a fiscal year showed an increase

over the number reported during the preceding year.

Among the situations reported in the inspections were: 27 cases of unsatisfactory .financial condition, ranging .from cases requiring immediate corrective action

to cases requiring merely continued surveillance; 137 cases in which the prices

charged by dealers may not have been reasonably related to the market; 119 cases of

.failure to comply nth the provisions of Regulation T relating to the extension of

credit; 47 cases o.fnon-compliance with the rules relating to hypothecation and commingling o.fcustomers' securities, or the use of customers' free fUnds or securities;

11 This figure represents the net registrations placed on inactive status during the

year. The registrations of eighteen brokers and dealers, whose lIhereabouts,

despite careful inquiry, could not be ascertained, were placed on inactive status.

Eleven such registrations were removed from this status either through cancellation or through restoration to active status.

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and 21 cases in which brokers took secret profits from customers by misrepresenting

prices at Which the customers' orders had been executed.

In accordance with established policy, minor infractions are called to the attention of the firm at the time of the inspection and corrective measures are generally agreed to. In some of these instances, a check-up is made within a reasonable time

to ascertain whether the promised corrections have been effected. When the circumstances indocate the infractions may be of a serious nature, further investigation is

made to dete.rm.lne whether action by the Commission may be necessary or appropriate.

In 50 inspections, matters were disclosed which required further inquiry or investigation. As a result of such investigations the Commission filed a bill in equity

against one firm to enjoin certain fraudulent practices and obtained a permanent injunction. The facts in five instances were referred to state agencies and in six

others to the National Association of Securities Dealers, Inc. (NASD). In eight other

cases, including one in which an injunction :was obtained, 1/ the Commission instituted

administrative proceedings to revoke the registration of the broker-dealer involved.

Administrative Proceedings

A of the administrative proceedings of the Commission with respect to

brokers and dealers is given bel~o

Record of Broker-dealer Proceedings and Proceedings

to Suspend or ~el from Membership in a Nation~ Securities Association

Instituted Pursuant to Section 15 of the Securities Exchange Act of 1934

Year ending June 30, 1945

o • •

. . .

o •

..

00000

Proceedings on revocation of registration pending at beginning of fiscal year.

Proceedings on revocation of registration and suspension ar expulsion from

NASD pending at beginning of fiscal year • • • • • • • • • • • • •

Proceedings on denial of registration pending at beginning of fiscal year.

Proceedings ordered during year on revocation of registration. • • • • • • •

Proceedings ordered during year on revocation of registration and suspension

or expulsion f'romNASD 0 • • • • • • • • • • • • • • • • • • • • • •

Proceedings ordered during year on denial of registration. 0 • •

Total.. • • .. • • . .. . 0 • • • • • .. 0 • • .. • 0 •

Revocation proceedings dismissed on withdrawal or cancellation of registration

Revocation proceedings dismissed--registration continued in effect 0 0 • • 0 • •

Revocation proceedings and proceedings to expel or suspend from NASD dismissedregistration and membership continued. • • • • • • • • 0 0

Denial proceedings dismissed on withdrawal of application.

Denial proceedings dismissed-registration permitted • • • • 0

Registrations denied • • • • • • • • • • • 0 • 0 • • • • 0 • 0 • • 0 •

Registrations revoked. 0 • 0 • • 0 • • 0 • • • 0 0 • • 0 0 0 • • • 0 0

Firms suspended from membership in NASD •• 0 • • • 0 •• 0 0 0 • 0 e

Revocation proceedings pending at end of fiscal year • • • 0

Revocation proceedings and proceedings to expel or suspend from NASD at end

of .fiscal year 0 • • 0 0 .. 0 0 • • • 0 • .. 0 0 • • 0 0 0 • • • 0 0 0

Denial proceedings pending at end of fiscal year • • 0 • 0 • • 0 • 0

Total. .. . 0 0 0 • • • Q • .. 0 ., 0 0 • 0 • 0 0 •

4

11

6

2

5

28

1

1

1

1

2

2

9

4

2

5

28

1/ Charles E. Greene & Compagr,

Release No. 3684.

S.E.C. - (1945), Securities Exchange Act

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Amongthe adJDinistrative proceedings decided by the Commissi'onduring the fiscal

year ended June 30, 1945, three are especially noteworthy. The proceeding against

E. H. Rollins & Sons, Inc. and Walter C. Rawls!Iinvolved the finn's and Rawls'

transactions wi.th the Board of Missions of the Methodist Episcopal Church, South, a

religious and charitable corporation organized tinder the laws of the State of

Tennessee. Since early in 1935 Rawls, on behalf of Rollins, had handled practically

all of the securities business in three funds of the Board of Missions of the

Methodist Episcopal Church, South. In 1940 he registered with the Commissionindividually as a broker-dealer and thereafter engaged in some transactions with the

Board for his own account., but he also continued to handle Rollins' business with

the Board. With respect to a great number of sales by Rollins to the three funds at

prices far exceeding the prevailing prices and beating no reasonable relation to such

prices, the Commissionfound that the Board had not been truthfully informed of the

differences between the current prices and the prices charged by Rollins, and that

without such disclosure the prices charged operated as a fraud on the funds. The

Commissionalso found that the excessive trading with one of the funds, in the light

of the ~~rounding circumstances, operated as a fraud. Holding that Rawls, L~ dealings with the Board on his own behalf and on behalf of Rollins, was guilty of

fraudulent conduct, the Commissionordered his registratr~tion revoked. On the further finding that Dryden, vice president in charge of Rollins' Chicago office

through which its transactions with the Board were effected, was or should have been

aware of the fraudulent nature of the firm's and Rawls' dealings with the Board of

Missions and that Rollins could not escape responsibility for the conduct of its

employees, the Commissionsuspended Rollins from membershipin the NASDfor a period

of 60 ~s commencingMarch 6, 1945.

The opinion stated, however, that a case for revocation of Rollins' registration had been made, far Section 15 (b) of the Securities ExchangeAct provides that

the Commissionshall revoke the registration of a broker or dealer if it finds that

such action is in the public interest and if it finds that any "officer, director

or branch manager" or "any person. .controlled by such broker or dealer" has

wilfully violated the Securities Act or the Securities ExchangeAct or the regulations thereunder. The Commissionsaid that this result might be avoided and hardship on any innocent persons be madeunnecessary if Rawls and Drydenwere separated

from the organization. SUbsequently, upon submission by Rollins of evidence showing

that the resignations of Rawls and Dryden from their respective positions had been

accepted, the Commissiondismissed the proceeding with respect to revocation of

Rollins' registration. A motion filed with the Commissionby Rollins on April 11,

1945, asking relief from the suspension order on the ground that the suspension had

resulted and would continue to result in large losses to Rollins both in current

earnings and through disruption of its sales organization, was denied. 3.1

In the proceeding against H~, Fales & Co., 21 the ultimate issue was Whether

a broker Whicheffects transactions on the order of an outside person holding discretionary powers over cuatomera J accounts is under the duty of making full disclosure to those customers of all material facts concerning the securities which are

the subject of such transactions. The issues arose out of the purchase of the

securities of two promotional companies by a limited group of customers, all of Whom

1/ E. H. Rollins & Sons, Inc. and Walter Cecil RawlS, S.E.C. (1945),

Securities ExchangeAct Release No. 3661. ----

y E. H. Rollins & Sons, Incorporated and Walter Cecil Rawls, S.E.C.

Securities ExchangeAct Release 'No. 3683.

21 William I. Hay, William Kiefer, Jr., et al. dba H~, Fales & Company,

S.E.C._ (1945), Securities Eichange Act Release No. 3697. --

(1945),

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were clients of R. C. M. Page. Page, who was not a registered broker or dealer,

held discretionary authority over a number of investment accounts and custo~arily

used registered firms in effecting transactions for these accounts. In 1939, in exchange for office space, Page transferred these accounts to the Hay, Fales firm.

Page initiated transactions for the accounts, and the orders were executed by Hay,

Fales as a broker; the firm confirmed transactions directly to the customers, sent

them monthly statements, and took full brokerage commissions on transactions so

executed.

Page was known by the firm to be president of the two promotional companies.

Hay, one of the members of the firm, was a director of one of these promotional companies and was aware of its precarious financial condition, but he did not disclose

the company's condition to customers whose orders, placed by Page, the firm executed.

Upon orders of Page, the firm also confirmed purchases of securities not yet issued,

and effected cross-trades between customers' accounts at prices which were obviously

not the best prices at which such securities could be obtained; these facts were not

disclosed to the customers.

In defense of its conduct, the firm insisted that it owed no duty of disclosure

to any of Page's clients. It pointed out that although its confirmations were made

out directly to Page's clients it neither recommended nor initiated the transactions

of such clients. The firm claimed that since Page had discretionary power to deal

with its clients' accounts the firm was fully authorized to accept his orders and

that it owed no duties as broker except to Page.

The Commission rejected these claims. The facts which imbued all of the transactions with fraud were apparent and known to the firm. By continuing with the

execution of Page's orders under these circumstances, the firm participated in and

made itself a part of Page's scheme. To avoid individual responsibility for this

fraud, the Commission said, the firm was obligated to make the fullest disclosure

directly to the customer, and it held that this conclusion would be applicable even

if the firm had dealt exclusively with Page and had not undertaken to make any direct

disclosures to customers.

!/ Revocation of registration under Section 15 (b) automatically disqualifies a firm

from membership in the NASD while the revocation is in effect.

31 Abe Abrahams, _S.E.C._ (1945), Securities Exchange Act Release No. 3645.

21 Rudolph H. Deetjenl et a.l'Vdba Emanuel & Co., ~.E.C. __ (1945), Securities

Exchange Act Release No.3 43.

While concluding that it was necessary in the public interest to revoke the

firm's registration under Section 15 (b), !I the Commission ordered that, because

the major pattern of the firm's conduct was one of carelessness and misunderstanding

rather than evasion or wilful violation of the Act, revocation would be without

prejudice to an application for re-registration after 30 days.

The proceedings against Abe Abrahams, y Emanuel & Company, 21 and BakeE.JWeeks

& Harden 4/ were companion cases and involved transactions effected for the Public

Administrator of New York County. The Public Administrator is an official who, under

the circumstances prescribed by state law, administers decedents' estates in New York

Courrty in the event that there is no private person qualified to perform that

function. In general these estates are small, but in the aggregate the assets in

y K. P. Tsolainosl et al'l dba Baker, Weeks & Harden,

Securities Exchange Act Release No. 3644.

S.E.C. (1945),

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the Public Administrator's hands, including securitie s, run to substantial amounts.

In liquidating estates, the Public Administrator sells seCurities through brokers.

In 1940, at the suggestion of Frank J. McCabe, then a member of the New York

Curb Exchange and a friend o:fthe Public Administrator, the latter employed Emanuel

& Company as its broker. In exchange for this business Deetjen, a general partner in

the Emanuel :firm, agreed that the firm would use McCabe in the execution of Curb floor

business and that it would give some over-the-counter business to Abra.luuns,a friend

of McCabe. This arrangement continued from 1940 to 1942. McCabe, dissatisfied with

the amount of his reciprocal Curb business from Emame1 & Company, had the Public

Administrator transfer his official account to Baker, Weeks & Harden Where it remained

for about three months.

While the account was with Emanuel & Company, Abrahams purchased about 170 lots

of listed and unlisted securities from the Public Administrator's official account

through the Emanuel firm. These lots had been delivered to the firm for sale flatthe

market." Abrahams, with a free hand in the account, milked it by devious methods.

He bought many listed securities from the account at prices substantially lower than

the lowest contemporaneous exchange quotations, and ma~ unlisted securities at

prices lower than the lowest reported bids, and resold these securities on the day

of the purchase or soon thereafter at substantial mark-ups, without risk and without

any considerable investment of his own funds.

After the account had been transferred to Baker, Weeks & Harden, Abrahams continued this course of conduct; in twenty transactions he purchased securities from

the Public Administrator's official account at prices below prevailing markets and

profited through immediate resales. Abrahams t continued course of business defrauded

not customers who could meet him face to face but the heirs of many small estates, in

the main helpless to protect themselves.

The Commission, on findings of wilful violations of the Act, revoked Abrahams'

registration as a broker and dealer. The Commission found, however, that Abrahams'

scheme was possible only through the lack of effective supervision by both Emanuel &

Company and Baker, Weeks &Harden over the handling of the Public Administrator's

official account, amounting to an abdication of responsibility by the firm and an

unwarranted delegation of control over the account to Abrahams.

Holding that four partners in Emanuel & Co. y knew or should have known what

was taking place and that it blinked at Abrahams I conduct, the Commission concluded

that the firm had wilfully violated the Act, and ordered its registration revoked

but without prejudice to an application for re-registration at the end of thirty days

following the effective date of revocation order.

As to Baker, Weeks & Harden, however, the Commission concluded that the evidence

did not establish that its violations were wilful and the proceedings, insofar as

they involved the question of revocation of the firm's registration, were dismissed.

But a violation of the Exchange Act need not be wilful for the purposes of discipl.ina:ryaction suspending or expelling an exchange member under Section 19 (a) (3) or

a member of a national securities association under Section 15A (1) (2) (A). The

finding that Baker, Weeks & Harden had violated the Act, although not wilfully,

resulted in an order suspending the firm from the NASD for a period of ten days.

!IThe firm of Emanuel & Co. included at the time of these proceedings five general

partners and Victor Emanuel, a limited partner. As a limited partner, Victor

Emanuel exercised no supervision over the firm. The evidence showed that he spent

practically no time with the affairs of Emanuel & Co. and that he was completely

unaware of the facts upon which this proceeding was based. No fjnding made with

respect to the firm or any of its partners applied to Victor Emanuel.
27-

Capital Requirements

On October 29, 1942 the Commissionadopted Rule X-15C3-l prescribing for brokers

and dealers a maximum ratio of aggregate indebtedness to net capital of 2,000 percent, but deferred the effectiveness of the rule pending adoption of definitions of

aggregate indebtedness and net capital. 1:1" Shortly after the rule was announcedja

draft of proposed definitions of these terms was submitted to the industry for comment. During 1943 and the early part of 1944 the Commissionexperimentally applied

a similar set of definitions to all financial statements filed under Rule X-17A-5,

for the purpose of testing them in actual practice. The final rule announced on

August ll, 1944 3/ and the amendmentadopted on November8, 1944 3/ reflect consideration of the commentsfrom interested persons on the proposed definitions and

of the results of the test applied to reports filed under Rule X-17.A.-5.

Exemption from the rule is given to brokers and dealers who do not extend credit

to customers and who hold the funds or securities of customers only temporarily as an

incident to the prompt consummationof cash transactions. Exemption is also given to

the membersof eight national securities exchanges whose rules and settled practices

are deemedby the C01J!D1issionto impose requirements more comprehensive than those of

the rule; however, suspension or withdrawal of the exemption as to the membersof any

of these exchanges may be effected on due notice if such action appears necessary or

appropriate in the public interest or for the protection of investors. The rule and

the amendmentbecame effective November9, 1944.

Amendmentsto Registr~tion Farms

On April 9, 1945 the Commissionadopted several amendmentsto Form3-M, one of

the forms on which applications are filed for broker-dealer registration pursuant to

Section 15 (b) of the Securities ExchangeAct, and an amendmentto Rule X-15B-2,

governing the filing of supplemental statements to such applications. y

Before adoption of the new amendments,Form3-Mhad required a disclosure of

certain relevant information concerning partners, officers, directors and branch office managers, including their buadness histories. The effect of the new amendments

is to require similar information, under specific circumstances, with respect to

salesmen and other emplOYees.

Section 15 (b) of the Securities Exchange Act requires the Commissionto de~

or revoke the registration of any broker or dealer if it finds (1) that such action

is in the public interest and !2) that such broker or dealer or any partner, officer, director, branch office manager, or any person controlling or controlled by

such broker or dealer, has been convicted within ten years of any felony or misdemeanorinvolving the purchase or sale of securities or arising out of the business

of a broker or dealer, or is enjoined from engaging in or continuing any acts or

practices involving the purchase or sale of securities,. or has wilfully violated any

provision of the Securities Act of 1933 or the Securities Exchange Act of 1934 or

any rule thereunder.

Y The-reasons lIhich impelled the adoption of the rule are described in National Association of Securities Dealers, Inc., 12 S.E.C. (1942), Securities Exchange

Act Rel;ease No. 3322.

3/ Securities Exchange Act Release No. 3602.

V Securities Exchange Act Release No. 3617.

y Securities Exchange Act Release No. 3674.

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A salesman or other employee of a broker or dealer is a person "controlled by"

him within the meaning of Section 15 (b), and the Commission has held that nen a

broker or dealer employs a.person who has been convicted or enjoined or who has been

found to have wilfully violated the Acts the broker or dealer is subject to denial

or revocation of his registration if the Commission finds that such action is in the

public interest. y'

The new disclosures, insofar as they relate to past business histories of salesmen and other employees, are designed both to give investors the benefit of such

disclosure and to facilitate enforcement of Section 15 (b). In announcing the rule

the Commission made it clear that the adoption of the new disclosure requirement does

not mark any departure from the Commission's policy of permitting persons who have

been convicted or enjoined, or are otherwise disqualified from registration as brokers

and dealers, to act as salesmen for other registered brokers and dealers under ap- .

propriate safeguards and proper supervision. The Commission further stated that it

would continue to act on a case-by-case basis as it has in the past in determining

whether denial or revocation of registration of a broker or dealer who retains such

an employee would be in the public interest.

In those cases in which it does not appear necessary in the public interest to

require registrants to disclose publicly any part of the business record of a salesman or other employee, consideration of confidential treatment under appropriate

application will be given.

The anendmerrt to Rule X-15B-2 adds to the requirement that every registered

broker and dealer must keep current the information furnished in his application the

new requirement that, within ninety days after the effective date of any amendment

to Form 3-M which requires additional information, each registrant shall report such

additional information as a supplement to his application.

SUPERVISION OF NASD ACTIVITY

The NASD (National Association of Securities Dealers, Inc.) continued to be the

only association registered with the Commission under Section 15A as a national

securities association. As of June 30, 1945 membership in the NASD stood at about

2,290, a gain of approximately 100 members during the year.

Disciplinary Proceedings

The NASD, in the year eIrling June 30, 1945, reported to the Commission final

action on 21 disciplinary cases against members. The decisions included: dismissal

or withdrawal of the complaint in 6 cases; acceptance of a statement pledging future

observance and compliance in 1 instance; penalty of censure in 3 cases; the imposition of fines in 9 instances, ranging from $50 to $500; and 2 expulsions. Of six

cases which the Commission referred to the NASD during the fiscal year, 3 had been

disposed of and 3 were still pending at the year-end;

Appeals to the Commission from NASD Disciplinary Action

On July 5, 1944 an NASD member appealed to the Commission for a review of a oneyear suspension imposed by the NASD. During the fiscal year hearings we'e held before

a trial examiner and oral argument was held before the Commission. At the year-end

y Bond & Goodwin, Inc., _S.E.C._ (19lJ..),Securities Exchange Act Release No.

3543 and E. H. Rollins & Sons, Inc., ~.E.C. (1945), Securities Exchange

Act Release No. 3661. -----------
- 29 -

the COllllTlittee had the matter under advisement. 11

Denial_of Membership

On November 1, 1944 the Commission after appropriate notice and hearing, denied

the application of J. A. Sisto & Co. for an order approving or directing its admission to the NASD. 31 A similar application for approval or direction had been denied

the same petitioner by the Commission on July 1, 1940. In its reconsideration, which

involved a review of the original application and of petitioner's conduct in the

intervening period, the Commission held that he b~d failed to establish any basis

which would warrant a change in the previous order.

The 5 Percent Mark-up Policy

On October 25, 1943 the Board of Governors of the NASD issued an interpretation

of Article III, Section 1, of the Rules of Fair Practice that:

"It shall be deemed conduct inconsistent with just and equitable principles

of trade for a member to enter into any transaction with a customer in any

security at any price not reasonably related to the current market price of

the security. II l!

In connection with this action, the Board pointed out, for the guidance of members

and of the committees whose duty it is to enforce the rules, that of a large number

of transactions effected in 1943, 71 percent had been effected at a gross mark-up

over the current market of not over 5 percent.

The Commission was petitioned to set aside this action by the Board on the grounds

that the interpretation was in fact a rule and as such was a nullity since it had not

been s ubmi tted to the membership for approval as required by the NASD' s By-laws. Public hearings were held on the petitions. On November 25, 1944 the Commission

11 On August 7, 1945 the Commission dismissed the review proceedings, finding that

the member had violated the Rules of Fair Practice designated and that his conduct was inconsistent l'Iithjust and equitable principles of trade. See Thomas

Arthur Stewart, S.E.C. (1945), Securities Exchange Act Release No. 3720.

3/ A controlling partner of the petitioner had been expelled from and by the New York

Stock Exchange on a finding that he had acted inconsistently with just and equitable principles of trade. That expulsion, by virtue of Section 15A (b) (4) of

the Securities Exchange Act of 1934 and of Article I, Section 2 of the By-laws of

the NASD, operates as a barrier to NASD membership on the part of any firm with

which such person is connected, unless the Commission finds it appropriate in the

public interest to approve or direct to the contrary. In denying the original

application the Commission held, on an independent review of the record of the

action by th~ Exchange and other evidence, that it was unable to find it appropriate

in the public interest to approve or direct the admission of the firm to membership

in the N!SD. See J. A. Sisto & Co., 7 S.E.C. 647, 1102 (1940).

2/ For a more detailed discussion of this action by the Board and of events prior

to the issuance of the Commission's opinion, see Tenth Annual Report, pp , 80-810
30-

dismissed the petitions on findings that the Board's action was well within the

sphere of interpretation and that the policies in question did not constitute a

rule. 11 The Commissionpointed out in its opinion that there were adequate safeguards in the Act against the improper use of the policy by the NASD'scommittees OT

its Board. The Commissionstated also that it could pass upon the merits of the

policy only upon review of an individual case "Wherepertinent facts were in evidence

and where the issue was whether, upon the whole record, the, acts and practices complained of were inconsistent with just and equitable principles of trade.

The PSI Case

In a decision announced on June 11, 1945, 2/ the Commission, one Commissioner

concurring and one dissenting, held that the NASDcould not discipline its members

for failure to complywith the terms of price-maintenance provisions contained in

contracts used in the underwriting and distribution of securities.

The result of the decision was to set aside fines levied by the NASDagainst

six of its memberswho, in the distribution in late 1939 and early 1940 of

$38,000,000 First Mortgage Bonds issued by Public Service Companyof Indiana (PSI),

failed to complywith minimumprice and maximumdiscount provisions contained in

the syndicate agreements.

The under~Titers of the issue and the dealers in the selling group, all members

of the NASD,had entered into agreements which provided that the bonds were to be

sold to the public at 102 percent of principal amount and which allowed concessions

of not more than 2 percent to underwriters, 1 percent to dealers, and 1/4 of 1 percent to non-participating NASDmembers. In the course of the offering numerous sales

were made at less than the specified amounts and complaints were filed by the NASD

against over 100 undemriters and dealers on the allegation that these off-price

transactions were in violation of the NASDrule providing that "a memberin the conduct of his business shall observe high standards of commercial honor and just and

equitable principles of trade.n

After hearings before various committees of the NASD,the Board of Governors

imposed fines of from $50 to $500 against 70 memberswhowere found to have violated

the rule. The Commissionthereupon called up for review six of the cases regarded

as typical of the various fact situations involved. The anonymity of these six

memberswas preserved in the Commission's proceedings.

The decision involved a review of the practices followed in the distribution of

securities, particularly price-maintenance agreements. While the proceedings before

the Commissionwere in progress, the Department of Justice intervened and argued

that the price-fixing provisions of ~dicate agreements violated the ShermanAct.

The legality of these agreements waS defended by the NASD.

The Commission's main opinion held that the pr ovisions of Section 15A (b) (7)

of the Securities ExchangeAct specifically limited the scope of the NASD'srules

so that they could not be used as a means of requiring membersto adhere to pricemaintenance contracts and that, consequently, the NASDcould not discipline its

membersunder the rules for failure to maintain the prd.ce" of the bonds during

!I National Association of Securities Dealers, Inc., __ SoEoC._ (1944),

Securities Exchange Act Release No. 3623.

V National Association of Securities Dealers1 Inc ., S.E.C. (1945),

Securities Exchange Act Release No. 3700.

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distribution. y The oparu.on included statements thet "a~!ld-::soci:ot Lon rul e desi.gned

to promot.e minimum prices and discounts runs directly counter ':.0 i.l.e sf,at~ltJor'J re-

~uirement that the association's rules be designed to re~ove iirr~eij~enl2to , 0

a f'r-ee and open market' II Elsewhere the opinion said: ''We emphasize th,:.:a::'-lwe

are holding is that the NASD erroneously construed its rule as authorization for the

c.isciplining of members for violating price-maintenance agreements."

Chairman Purcell and Commissioner Pike, while not deciding the point, expressed views to the effect that the price-maintenance contracts in question did

~ot violate the Sherman Act. Commissioner Healy expressed similar views and stated

he thought a deedsf.on en this queatd.on was necessary to a proper disposition of the

casco Commissioner McCo~~lghey agreed that the disciplinary actions co~ld not be

allowed to stand but expressed no view on the antitrust question, stating that it

was unnecessary to do so in deciding the case presented.

In his dissenting opinion, Commissioner Healy contended that the NASD was correct insofar as it held that an unexcused breach of the price-maintenance contract

involved was conduct inconsistent with just and equitable principles of trade, and

that there was nothing in Section 15A of the Securities Exchange Act which precluded

this interpretation. However, he disagreed wi~h the NASD's conclusion in three of

the six cases that the syndicate agreements had been breached, and in a fourth case

found that the dealer had been forced to sell by his bank and was thus not guilty

of conduct inconsistent with just and equitable principles of trade. He concluded

that the fines should be set aside in four cases and allowed to stand in two.

LITIGATION UNDER THE ACT

In Securities and Exchange Commission v , Charles E. Greene and Co. et 0.1. y

and Securities and Exchange Commission v. Thomas B. Greening 21 the Commission obtained injunctions against further violations of the Securities Act of 1933 and the

Securities Exchange Act of 1934 by broker-dealerso

In the Greene case, Which involved a registered firm, the Commission's complaint

charged the defendants, inter alia, with failing to reveal to customers that it was

doing business While insolvent; wrongful hypothecation of customers' securities;

making purchases and sales at prices bearing no reasonable relationship to the prevailing market prices, withollt.disclosing to customers the prevailing market prices;

and making various false representations. To insure the reimbursem8nt of defrauded

investors the Commission, in addition to seeking an injunction, asked that a receiver

of the defendants' assets be appointed. Y

11 That sect~on requires that the rules of an association be "designed 0 to

remove impediments to and perfect the mechanism of a free and open market" and

"not designed ••• to fix mi"'1imumprofits, to impose any schedule of prices, or

to impose aQ7 schedule or fix minim~~ rates, commissions, allowances, discounts,

or other chargeso"

Y N. D. IlL, E. Dtv, Decree of permanent injunction and order continuing receiver

entered November 11, 1944. See above for the Commission's administrative action

in this case 0

21 W. D. Wash., N. Div. Decree of permanent injutlction entered June 30, 1945.

Y On July ll, 1945, after the close of the fiscal year, a judgment in the amount of

$19,916.66 was entered by the court in favor of the receiver, for the use and

benefit of various customers of the firm.

• •

• •
- 32 -

In the Greening case, the Commission's complaint charged the defendant, inter

alia, with effecting transactions in securities in the over-the-counter market without reg;i.stering with the Commissionas a broker or dealer; failure to make prompt

delivery of securities WJ.d funds to customers; "WrOngfulhypothecation of customers'

securities; making various false representations; and failing to furnish customers

with written confirmations.

In Securities and Exchange Commissionv, Frank W. Bennett and Federal Corporation y the Commissionfiled a complaint in the United States District Court for

the Southern District of NewYork for a prelilllinary and final judgment enjoining

the defendants from violating Section 9 (a) (2) of the Securities Exchange Act of

19340 The Commissionalleged that the defendants had manipulated the market for

the commonstock of Red Bank Oil Companyon the NewYork Curb Exchange while a registration statement under the Securities Act of 1933, relating to a proposed offering

"at the marketll of a large block of that stock, was pendingo

American Distilling Coo et alo v, y and Clarence Fo Avery v , Ered C.

Moffatt et ala 11 were two cases in which the Commissionfiled briefs as amicus

curiae 0 The former was an action in the NewYork SupremeCourt which had been

brought by American Distilling Companyunder Section 16 (b) of the Securities Exchange Act of 1934 to recover certain profits alleged to have been made by some of

its officers and directors in connection with short-term trading in the plaintiff's

stock. The Commission's memorandumwas filed in connection with a motion by the

defendants to dismiss the action for want of jurisdiction, 'the contention being that

Section 27 of the Act vested jurisdiction of such actions in the federal courts;J to

the exclusion of the NewYork SupremeCourt. In its memorandumthe Commissionsupported that contention, and the Supreme Oour-t so held. Later in the year, this

decision was affirmed by the Appellate Division of the Supreme Court, two justices

dissenting. The Commissionhad likewise filed a memorandumas amicus curiae in that

court. !J

The Avery case was an action in the NewYork Supreme Court in which Avery, individually and as liquidating partner of Avery & Company,sought damages against

Moffatt, as acting president of the NewYork Curb Exchange, and others for alleged

illegal suspension of two of Avery's partners from the exchange and for refusal of

the exchange to permit a memberfirm to employ Avery. T'neCommission's brief as

amicus curiae was filed on the sale question whether membersof a governing board

of a national securities exchange whobring charges against a memberof the exchange

are necessarily disqualified from participating in the board's determination of

such charges. The Court held that Avery had failed to establish any cause of action

against the exchange and ordered judgment for the defendant.

1/ The action for a final injunction had not yet been decided at the end of the

fiscal year. On August 20, 1945 the Court denied the Commission's motion for a

nre1iminary injunction. F. Supp. (S.D.N Y. 1945). . -- 3/ 184 Misc. 431, 51 N.Y.S. (2d) 614 (Sup. Cto, Dec. 19, 1944)0

2/ _Misc. , 55 N.Y.S. (2d) 215 (Sup. Ct., April 16, 1945)0

Y _App. Div.__ , 54 N.Y.S. (2d) 855 (1st Dept t May4, 1945). liter the end

of the fiscal year, a further appeal was taken to the Court of Appeals of the

State of NewYorko The Commissionagain .filed a memorandumtaking the same

position.

~

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Civil Ac~ions Instituted by the Commission

During the past year the need for more drastic action in dealing with violations

of Rule X-IOB-5 led the Commission to invoke the aid of the courts to protect sellers

of securities from misrepresen~~tion and nondisclosure of material facts by prospe~-

tive purchasers. The usual pattern of such cases involved the attempt by management

of an issuer to purchase its securities from investors without disclosin~ pertinent

information regarding the compa.ry s financial condition.

In S.E.Co v. H. P. 1~ueller, et al., 1/ the president and controlling stockholder of the corporation so~:h'~to purchase its common stock from investors at $2

per share. In making the offer he failed to disclose that the net current asset

coverage per share was in excess of $16, that the net earnings per share for the previous year had been $4 and that during the two-month period immediately preceding

the offer the corporation's sales had increased 70 percent. He also failed to disclose that the cUrrent over-the-counter price of the stock was between $7 and $10

per share and that he had refused to sell his controlling block of stock at less than

its book value of $40 per share. Information contained in an annual report which

accompanied the offer was inadequate to enable investors properly to determine the

value of their stock. After the Commission filed its complaint alleging violation

of the Act and Rule X-IOB-5, the defendants, by stipulation, consented to an injunction permanently restraining them from effectuating the transaction without disclosure of all material facts necessary in order to make the statements made, in the

light of the circumstances under which they were made, not misleading.

A similar but perhaps more subtle device attempted by the controlling CODh1l0n

stockholders of Oils and Industries, Inc., a registered investment company, took

the form of the proposed exchange of certain of the company's portfolio securities

having a market value of approximately $4.50 per share for its outstanding preferred

stock on a share for share basis. y Two officers and directors of Oils and Industries who controlled more than 50 percent of its common stock caused the company to

propose the exchange with a view to retirement of the preferred stock thus repurchased. In making the offer preferred stockholders were not informed that their

shares, which had a liquidating value of $12.50 per share, then had an asset coverage

of $17 and a redemption value of $13.50 per share. The company also failed to point

out that retirement of the preferred would cause an increase in the asset value of

"he common and that if all the preferred were thus retired, the value of the common

stock would increase approximately $5 per share. Upon the filing of a complaint by

the Commission seeking an injunction the defendants, by stipulation, agreed to

rescission of the proposal and the return of all preferred stock tendered for

exchange.

In S.E.CL v , L. A. Y

ro et al., 21 the Commission made initial use of its

authority under Section 2~'to seek a mandatory injunction to require compliance

with Section 16 (a) of the Act. In the same action, also for the first time, the

Commission enjoined controlling persons from violating Section 20 (c) of the Act.

In that case Young, his wife and a corporation controlled by Young, each had owned

more than 10 percent of the OUtstanding common stock of the L. A. Young Spring &

Wire Corporation, which was registered on both the New York and.Detroit Stock Exchanges. All three disposed of their holdings but failed to file the reports,

1/ USDC ED Wis., April 20, 1945.

2/ SoE.C. v. Oils and Industries, Inc., et al., USDC SD NY (Comp1aint filed September 27, 1944).

2/ USDCEDMich., February 26, 1945.

'

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regarding changes in beneficial ownership of registered securities by controlling

persons, required by Section 16 (a)o The judgment ordered and directed the defendant~ to file such reports and in addition permanently enjoined them from hindering, delaying or obstructing the company's filing of reports regarding the beneficial

ownership of its common stock by defendants. The corporation was not a party to the

action.

In SoE.Co v. Samuel akin, 11 the Commission for the first time sought and obtained an injunction Which restrained the use of proxies obtained by akin in violation of Section 14 (a) of the Securities Exchange Act of 1934 and Regulation X-14

but did not at the same time restrain the holding of the stockholders' meeting 0

akin's sole purpose in obtaining proxies was to elect himself a director of Electric

Bond and Share Company, of which he was the owner of 9,000 shares of common stock.

Okin's proxies represented such a small fraction of the voting shares that his votes

could not have effected his election and adjournment of the stockholders' meeting

would have caused undue hardship to the corporation and the majority of its stockholders. The corporation was not in any way responsible for solicitation of proxies

by akin. The court,hawever, in its opinion 5/, expressed concern at the disen-

'ranchisement of those common stockholders who had given proxies to akin and suggested that they be given an opportunity to exercise the right to vote their stock.

!I58 Fed. SUppa 20, USDC SD NY, 19440

~/ Bright, Jo
- 35 -

PART III

ADMINISTRATION OF THE PUBLIC JTILITY HOLDING CO~FANY ACT OF 1935

The Public Utility Holding Company Act of 1935 deals with holding companies having subsidiaries which are electric utility companies, or which are engaged in the

retail distribution of natural or manufactured gas. The Act was passed for the express purpose of eliminating certain evils and abuses which the Congress had found

to exist in connection with the activities of such companies, and was intended for

the protection of both investors and consumers. It provides for the registration of

holding companies (Sec. 5); regulation of security transactions of holding companies

and their subsidiaries (Sees. 6 and 7); regulation of acquisitions of securities and

utility assets by holding companies and their subsidiaries (Sees. 9 and 10); the

regulation of payment of dividends, solicitation of proxies, intercompany loans and

other intra-S"'Jstemtransactions (Sec. 12); the control of service, sales, and construction oontracts (Sec. 13); and the control of accounting practices (Seco 15)0

The key provisions of the Act, however, are contained in Section 11, which requires

the limitation of holding company systems to an integrated system or systems and

related other businesses and the corporate simplification and eqlitable distribution

of voting power of companies in holding company systems 0

SUMMARY OF ACTIVITOO

The principal regulatory activities of the Commission under this Act in the

past fiscal year continued to center around the administration of Section 11 and

the disposition of applications designed to give effect to the Commission1s orders

under that section. In addition, an important segment of the Commission's work related to passing upon applications and declarations under Sections 6 and 7 of the

Act for the issuance of securities, mainly by the subsidiaries of registered holding companies, in the aggregate amount of $1,308,642,000.

As of June 30, 1945, there were registered under the Act 54 public utility

holding company systems, the aggregate consolidated assets of which amounted to approximately $16,200,000,0000 These systems include 118 registered holding companies

and 943 electric, gas and non-utility subsidiary companieso

Further significant progress was made during the past fiscal year in effectuating the requirements of Section 11 relating to integration, corporate simplification,

and reor-ganfaataon, At June 30, 1945, integration or simplification proceedings had

been instituted by the Commission in regard to practically all of the holding company sys'bems, Integration orders outstanding on June 30, 1945 require the divestment

of holding companies' nonretainable interests in 147 subsidiary compa...nies,having

aggregate assets of $4,352,000,0000 11 This figure is exclusive of divestments

already effected, as listed in Appendix Table 20 and discussed later in this section.

Similarly, prior to the end of the past fiscal year the Commission had issued 46

orders involving simplification of corporate structures and equitable redistribution

of voting power and there were 47 such proceedings pending in various stages of

completion 0

In the year ended June 30, 1945 the Commission instituted 7 new proceedings to

require public utility holding comparri.es to comply with Section 110 A classification of the proceedings instituted by the Commission under Section 11 (b) (1)

LIntegratio!y and Section 11 (b) (2) [Corporate simplificatio!y which were pending

at the close of the fiscal year is as follows:

11 See Appendix Tables 21 and 220
- 36 -

Section 11 Proceedings Pending as of June 30, 1945

No. of Pro- No. of

ceedings Systems

No. of Holding Cos.No. of

Sub. Cos.

Aggregate

Assets

Sec. 11 (b) (1) 16

Sec. 11 (b) (2) 34

Secs. 11 (b) (1) and

11 (b) (2) combined 13

63

2

10

21

33

3

28

61

92

29

223

516

768

$ 173,261,457

3,572,902,875

9,855,707,763

$13,601,872,095

Under Section 11 (e) of the Act, the Commission is authorized to approve

voluntary plans of reorganization submitted by registered holding companies and

their subsidiaries, and to seek court er..forcementof such plans if they are necessary or appropriate to effectuate the geographic and corporate simplification requtr-ement s and are fair and equitable to the persons affected. :Many such plans for

complete or partial compliance with Section 11 have been approved by the Commission

and have been or are being consummated. Others have been filed and are currently

being considered by the Commission. Up to June 30, 1945, a total of 146 plans had

been filed with the Commission under Section 11 (e). The Commission approved 56

of these plans, frequently after securing necessary modifications; 23 were withdrawn

or dismissed; 3 1rere denied; and 64 were pending before the Commission in various

stages of completion. As stated in the Commission's Tenth Annual Report, the filing, approval, and consunnna.tionof these plans represent major achievements in the

financial and operating reorganization of the utility industry.

The Commission's experience in enforcing the Act shows that compliance with

Section 11 (b) does not mean dumping or forced sale of securities on the markets.

On the contrary, it is now clear that the favorable market reception of the portfolio utility stocks that have been sold has been an important factor in strengthening the market for utility equities. Moreover, in addition to sales, there have

been other methods of compliance, such as exchanges of underlying portfolio securities for holding company securities, the issuance of subscription warrants to purchase portfolio securities, the distribution of portfolio stocks as dividends, and

exchanges of securities of soundly reorganized compro!ies for the old securities.

A factor of importance in facilitating the divestment of nonretainable properties and the reorganization of holding company systems has been the growing

confidence of investors in the stability of operating utility common stock earnings,

resulting in part from the more conservative capital structures of the operating

companies. This has been reflected in the strong investment demand for portfolio

utility common stocks which have been sold by holding companies in complying with

Section 11 of the Holding Company Act. The supply of operating utility equities

available for investors is still limited, although it is increasing steadily as the

holding companies consummate their Section 11 programs. For many months the market

for utility common stocks has been active and has been advancing. The current

dividend yield on the common stock of most electric utilities at prevailing prices

in the fall of 1945 was less than 5 percent. Since many of the holding companies

have senior securities bearing interest or dividend rates of more than 5 percent,

they have a net advantage in retiring their high-co~t senior securities through the

sale of portfolio securities at prevailing prices.

During the past fiscal Y8ar registered holding companies disposed of their nonretainable interests in 86 electric, [as, and other subsidiary companies, with total
- 37 -

assets of approximately $575,000,000. 11 This includes 40 electric utility companies, with assets o:f $384,000,000; 21 gas utility companies, with assets of

$112,000,000; and 15 other companies, with assets o:f $79,000,000. In addition, 17

companies sold a part o:f their assets in the total amount of $33,000,000. Ths :following table, which was prepared from the detailed data contained in Appendix Table

20, gives a summaryo:f the total divestment program from December1, 1935 to June

30, 1945.

SlDIIIARY

ELECTRIC, GAS AND NON-UTILITY PROPERTIES SOLD OR OTHERWISE DIVESTED

BY REGISTERED PUBLIC UTILITY HOLDING COIlPAHIES

December1, 1935 to June 30, 1945

Numberof Companies

Elec- Nontric Gas Utility Total

Assets of CompaniesDivested

(OOO,OOO omitted)

Elec- Nontric Gas Utili ty

Divested by Exchange or Distribution of Securities to Security

Nolonger subject to Holding C0mpany Act

Still subj ect to Holding Company

Act 11

Divested 1?y Sale of Property or

Securities if

II

5

7

-y

2 20

5

$1,155 21 $4ll $ 4

952 0 Y 0

$1,570

952

Nolonger subject to Holding Company Act y

Still subj ect to Holding Company

Act 11

TOTAL DIVESTED

Partial Sales of Property Not

Included in above Totals

Assets sold no longer subject to

the Act

Assets sold still subject to the

Act

Totals

100 79 93 272 1,029 335 zn 1,575

1l llY .J -.4i -62Q.

ill. 22- ..2id $3,341 JIll $235

NUIIlberof Companies

Making Such Sales Sale Price

50 8 22 80 $ 78 4 26 108

10 ..1z. -l:. 12- 4 1

60 12 .2i $ 8 i 27 It 124 -=

11 By raason of their relationship to other registered holding companies.

2J Northern Natural Gas Co., which was a subsidiary in 3 different companysystems and itself a

registered holding COlIIpllDyhaving consolidated assets of $63,178,222, was not included in the above

8UlIlIIIaI'y; Lone star Gab Corp. distributed its commonstock investment therein to its Oll'Il stockholders

and United Light & Power Co. sold its holdings for $10,533,612.

21 Includes all cases 1ihere total divestment was effected by sales of entire property to I or more

than I buyer.

!:/ In the case of sales to more than I buyer, the companywas classified in accordance with the

disposition of the majority of the assets sold.

!jJ Ranects divestment of Philadelphia Electric Co. by United Corporation. The divestment of Philadelphia Electric Co. by United Gas ImproVEllllentCo. is not included in the above SWlIIDar;y table figures.

11 It should be noted that this :figure represents the total assets of the divested

companies in order to reflect the size of such companies. In most instances, o:f

course, the parent holding companyownedonly the outstanding commonstocks o:f

the divested companies and not their total assets. See Appendix Table 20, which

gives details o:f the manner o:f divestment. and the consideration received as well

as the total assets o:f the divested companies.

~

~

~ ~ ~

~ ~

~ __ ~

~ ~ =-=
- 38 -

It may be noted that prior to June 30, 1945, 342 electric, gas, and other subsidia.ry companies, with assets aggregating apprOXimately 14,347,000,000 lrere

divested by registered holding companies. Of the total of these divested compard.es ,

292 companies, with total assets of $3,145,000,000, are no longer subject to the

provisions of the Holding CompanyAct or to the authority of the Commissionunder

that Act; and 51 companies, with to:;.al assets of $1,202,000,000, remain subject to

the Act by reason of their relation to other holding companies.

A classification of the foregoing divestments with reference to the propertie;,.

which lIere sold to municipalities and other public authorities, as contrasted with

those which remain under private owner-shtp, shows the following summary results i !/

Sales to municipalities, public authorities,

rural cooperatives, and the T.V.A.

Divested properties which continue under private

o19Ilership

Totals

No. of Cos.

51

291

342

=

Total Amounts

293,280,924

4,053,719,333

$4,347,0002257

More than half the properties which were sold to municipalities and other public authorities had total assets of less than a million dollars each. The largest

companythat was sold to a public authority was the Tennessee Electric Power Company with groBS book assets of $110,000,000. Strictly speaking, the sale of this

companyto the Tennessee Valley Authority,.in 1939, was not a Section 11 divestment

but was the culmination of a long period of negotiation for the purchase of this

and other properties in the Tennessee valley Authority area by the T.V.A. and its

wholesale distributors. The sale, therefore, liaS not effected pursuant to a Section

11 order, nor in contemplation of the provisions of Section Tl., A similar statement may apply to certain other divestments where the decision to sell was reached

independently of Section 11 requirements.

INTEGRATIONANDSIMPLIFICATIONOFHOLDINGCOMPANYSSTEMS

There follows a brief summary of the status of each of the major holding company systems under Section 11 at the .:108e of the past fiscal year. The summary

includes an outline of the principal developments which have been related in fuller

detail in the Commission's previous annual reports, together with an account of the

maJ or steps taken duriDg the past fiscal year.

1. Electric Bond and Share CompaIll

'l'he parent of this system, Electric Bond and Share Company(Bond and Share),

controls five major subho1ding companies. National Power and Light Company

(National), American Power and IJ.ght Company (American), Electric Power and Light

Corporation (Electric), American and Foreign Power Company,Inc. (American Foreign),

and American Gas and Electric Company(American Gas) 0

Y In the Report of the COJlIIIIitteeon Progress in the Regulation of Public Utilities,

Proceedings of the National Association of Railroad and Utilities Commissioners,

1945, the following statement was made concerning the trend to public ownershipl

"Wehave attempted to determine if there is any iJnportant trend toward public

ownership of utility property, and almost without exception we find that the commissions do not feel that there is any substantial change in this direction.~

•
- 39 -

Section 11 (b) (2) proceedings with respect to Bond and Share and certain of

its subsidiaries were commencedon Yay 9, 1940. Y In its Findings and Opinion of

August 23, 1941, Y the Commissionordered National to dissolve since it served no

useful function and constituted an undue and unnecessary complexity in the system.

National's debt and preferred stock have been retired and its only outstanding

security is now commonstock. Its principal remaining assets are the commonstocks

of BirminghamElectric Company,Carolina Power and Light Companyand Pennsylvania

Power and Light Compa.IJY".National proposed in plans filed with the Commission'JJ to

distribute these stocks to its own commonstockholders, together with its holdings

in two minor subsidiaries. The Commissionindicated to National that, prior to

distribution or any other disposition of its holdings in its subsidiaries, the accounts and corporate structures of such subsidiaries should be conformed to the requirements of the Act with respect to distribution of voting power and other

mattezos. y Plans to this end were filed by National and approved by this Commission with respect to Carolina Power and Light, 21 BirminghamElectric Company,6/

and Pennsylvania Power and Light Company.7J It may be noted that in each of these

cases, the State commission either alone or in conjunction with the Federal Power

Commission, ordered the elimination of certain write-ups (Account 107) and the

elimination or amortization of acquisition adjustment i tams (Account 100.5). Frequently in such cases, the accounting and structural reorganization of operating

utility subsidiaries of holding companies under the Holding CompanyAct is accompanied by or based upon accounting orders of the State commission, and frequently

also of the Federal Power Commission.

Two of the other subholding companies, American and Electric, were ordered to

dissolve for similar reasons as set forth for National. Appeals were taken by

these companies to the United States Circuit Court of Appeals for the First Circuit,

which affirmed the order of the Commissionon March 17, 1944. 2/ Application for

rehearing was denied by the court, 'Whereuponthe companies petitioned the United

States Supreme Court for a writ of certiorari, which was granted on May28, 19450

Argumentswere concluded on Kovember16, 1945 but no decision has been rendered by

the court. Certain major steps taken by Electric and American and their subsidiaries

in the over-a11 process of complying lri.th Section 11 are detailed below.

On July 13, 1944 American filed an application for approval of a plan under

Section 11 (e) of the Act for retirement of approximately $36,400,000 principal

amount of debentures at par plus accrued interest. Hearings were held and objections

heard with respect to the plan. Briefs were filed by American and by an objecting

debenture holder. On October 31, 1945 the Commissionissued its Findings and Opinion

disapproving the plan, the Commissionconcluding that the fair and equitable standards

of Section 11 (e) required that holders of American's debentures should receive 110:(

of principal amount plus accrued interest, and leaving for subsequent determination

Y Holding CompanyAct Release No. 2051-

31 Holding Comp&IJY" Act Release No. 2962.

y File No. 54-51.

Y Holding CompanyAct 'Release No. 3896.

'1/ Holding CompanyAct Release Nos. 3995 and 4746.

Y Holding CompanyAct Release No. 4955.

71 Holding CompanyAct Release Nos. 6080 and 6167.

Y Holding Compa.nyAct Release No. 3750.

21 American Power and ~t Companyv ; S.E.C.; Electric Power and Light Companyv.

S.E.C., i4i Fed. (2 606. -

~
- 40-

the precise amount-in no event less than 110%of principal amount p'lus accrued interest-which should be received by holders of certain assumed debentures (not

callable until 1947). 11 American was given 30 days to file an amendmentin accordance with the Commission's Findings and Opinion. An amendmentdesigned to comply

with this condition was filed on November5, 1945 and approved by the Commission on .

November8, 1945. 3/

Minnesota Power & Light Company,a subsidiary of American, filed an application

on August 14, 1944 for approval of a plan pursuant to Section 11 (e) of the Act.

The plan provided for correction of existing unfair and ineqlitable distribution of

voting power in the companyby increasing the equity represented by the commonstock

by means of capital contributions by American. The plan also provided for conversion of outstanding preferred stock into a new 5%preferred stock and the payment of

cash to preferred stockholders. The Commission's Findings and Opinion approving

the plan, as amended, were issued June 6, 1945, 3/ and the plan was subsequently enforced by the United States District Court for the District of Minnesota.

During the year American disposed of its interest in Nebraska Power Company

for approximately $14,000,000 and the oil properties of Glacier Production Company,

a subsidiary of The Montana Power Company,for approximately $9,600,000. !J

During the spring of 1945, two of American's subsidiaries, Texas Electric

Service Companyand Texas Power & Light Company,went through accounting reorganizations under which American made cash capital contributions of $15,500,000 to the two

companies, and under which approximately $50,000,000 of estimated inflationary items

were eliminated from the plant accounts of the two companies. 21 Subsequent to the

close of the fiscal year, American formed a new Texas holding companywhich acquired

the above-mentioned two companies and, in addition, acquired Electric's interest in

the commonstock of Dallas Power & Light Company,the latter for a cash consideration of $17,350,000. Y .Americanstipulated that it would dispose of Texas Utilities

Companywithin one year from October 1945.

On May5, 1941 United Gas Corporation, a subsidiary of Electric, filed an application proposing certain refinancing and in connection therewith the repayment

of $52,925,000 in debt claims held by Bond and Share. At the ti:me the Commission

ordered hearings on this application, it also instituted proceedings pursuant to Section 11 (b) (2) and other sections of the Act 7/ for the purpose of examining the

transactions proposed and exploring the Validity and rank of the debt claim of Bond

and Share. After the close of the hearing, a Section 11 (e) plan was filed which

provided for the reorganization of United Gas and a compromise settlement of the

!IHolding CompanyAct Release No. 6176. (Commissioner Healy dissenting).

Y Holding CompanyAct Release No. 6176. On November30, 1945, the Commissionapproved a supplemental amendmentproviding for the retirement of the assumed

debentures at 115%of principal amount plus accrued :futerest (Commissioner Healy

dissenting.) Holding CompanyAct Release No. 6258.

2/ Holding CompanyAct Release No. 5850.

Y Holding CompanyAct Release No. 5463.

21 Holding CompanyAct Release Nos. 5742 and 5798.

Y Holding CompanyAct Release No. 6158.

11 Holding CompanyAct Release No. 2790.
- 41-

claim of Bond and Share. At the conclusion of hearings on this voluntary plan, the

Commissionissued its order approving the plan as fair and equitable. y' At the

company's request, the Commissionapplied to the Federal Court for enforcement of

the plan, which was approved by the court on November20, 1944.3/

On March 8, 1943 utah Power and Light Company,a subsidiary of Electric, filed

an application proposing certain refinancing and the Commissioninstituted 11 (b)

(2) proceedings which were consolidated therewith. V The Commissionapproved the

refinancing and ordered a recapitalization of the companyinvolving, amongother

things, the conversion of its preferred and commonstock into a single class of new

commonstock and requiring certain other adjustments in its accounts. y The Commission 1s decision in this case was preceded by an order of the Federal Power Commission on August 2, 1943 directing the companyto elimihate from its property

accounts inflationary items aggregating $29,441,872 by charges to surplus; the

order was based on a stipulation of facts entered into between the Federal Power

Commission,the Public Service Commissionof utah, and utah Power and Light

Company.

On March 21, 1945 utah filed an application with the Commissionfor the approval of a plan of reorganization under Section 11 (e) of the Act, in l'ihich Electric joined. The plan provided, amongother things, that Electric would surrender

all of its holdings in utah, including its entire commonstock interest, and would

release utah and its subsidiaries from all claims in favor of Electric against utah

and its subsidiaries in consideration for which utah would (a) pay Electric

$650,000 cash, (b) release Electric from all claims in favor of Utah or any of its

subsidiaries against Electric, and (c) assign to Electric all claims of Utah and

its subsidiaries against Bond and Share of its wholly-owned subsidiaries. After hearings thereon, the Commissionissued its Findings and Opinion approving the plan on

November13, 1945. 2/ The plan was subsequently enforced by the United states District Court. for the District of utah. Onemajor result of the reorganization, in ad-

:lition to greatly improving utah's capital structure, 1ri.ll be to separate the company

entirely from the Bond and Share system.

On May18, 1943 hearings lreI'e reconvened with respect to the 11 (b) (2) proceedings of Bondand Share and its subsidiaries. Y The first issue to be considered

liaS Bond and Sharets relation to American Gas. Before the hearings were concluded,

Bondand Share requested that it be permitted to present a plan for its disposition

of its interest in American Gas. 71

il Holding CompanyAct Release No. 5271.

y In the Matter of United Gas Corporation, et al., 58 Fed. SUppa501.

V Holding Company Act Release No. 4157.

y Holding OompanyAct Release No. 4716.

21 Holding CompanyAct Release No. 6212. (CommissionerHealy dissenting as to the

payment of $650,000 to Electric and the assignment to Electric of Utah's claim

against Bondand Share.)

Y Holding CompanyAct Release No. 4305.

11 After the close of the past fiscal year, Bond and Share filed a series of three

plans for the stated purpose of enabling Bondand Share to complywith Section

11 (b) of the Act, including therein a plan for the disposition of its interest

in American Gas. (Holding CompanyAct Release No. 5970).

On OCtober 10, 1945, the Ccmmrl.ssionapproved Plan 1 which provided for a distribution by Bondand Share to its preferred stockholders of approxilnately

$31,000,000 or 130 per share in partial retirement of the stock, accompanied

by a 30 percent reduction in dividends. (Holding CompanyAct Release No. 6121).
-42-

On October 26, 1944 American Foreign filed a plan of reorganization under Section 11 (e) of the Act which was joined in by Bond and Share. Proceedings on the

plan were consolidated by the Commissionwith the proceedings directed to Bond am

Share and American Foreign under Section 11 (b) (2) of the Act. 11 Hearings on the

consolidated proceedings have been held and the matter is pending.

Proceedings pursuant to Section 11 (b) (1) directed to American Gas were instituted December 1, 1939. Proceedings on an application previously filed by

American Gas, requesting approval of the continuance of its Central System together

with continuance of alleged South Jersey and Northeast Pennsylvania systems, were

consolidated therewith. Hearings were held from time to time in such consolidated

proceedings. On February 6, 1945 this Commission issued its Statement of Tentative

Conclusions with respect to the properties of American Gas subsidiaries. 3.1 The

Commissiontentatively concluded that properties comprising the Central System could

be retained under commoncontrol under the standards of Section II (b) (1) of the

Act but that other properties must be divested if such Central System was to be retained. Hearings to consider mether such tentative conclusions should be adopted

as the final conclusions of the Commissionhave been held and the decision was

pending at the end of the fiscal year. J!

2. The North .AlD3ricanCompagr

Section 11 (b) (1) proceedings were commencedMarch 8, 1940 with respect to the

North American Company(North American) 4/ and its subsidiaries and II (b) (2) proceedings lrere initiated on December 2, 1941 with respect to North American Light and

Power Company(Light and Power), 21 a subsidiary holding companyof North American.

On April 14, 1942, the Commission's order and opinion lrere rendered in the

11 (b) (1) proceedings, directing North American to confine its operations to a

single integrated system built around. the Union Electric Companyof Missouri. Y

The order permitted the companyto file an alternative plan within 15 days, whereupon the companyrequested a modification of the order, which was denied. 7.1 North

American appealed the order to the United States Circuit Court of Appeals for the

Second Circuit, which court affirmed the order on January 12, 1943. W On March 1,

1943, the United State Supreme Court granted a writ of certiorari 2I'to review the

case, but on April 15, 1943 indefinitely deferred the case because of the lack of a

qualified quorum. Subsequent to the end of the fiscal year, November18, 1945, the

Supreme Court heard argument on the case but no decision has as yet been rendered.

Y Holding CompanyAct Release No. 5388.

Y Holding CompanyAct Release No. 5591.

'J/ On December 26, 1945, the Commissionissued its Findings, Opinion and Order in

this proceeding reaffirming in all essential respects its earlier tentative conclusions. Holding CompanyAct Release Noo 6333.

Y Holding CompanyAct Release No. 1960.

21 Holding CompanyAct Release No. 31680

Y Holding CompanyAct Release No. 3405 •

11 Holding OOlllPaDyAct Release No. 3630.

'Y 133 F. (2d) 148.

21 318 U.S. 750.

•
- 43 -

North American has continued its policy of p~ing commonstock dividends in

the stock of its subsidiary, Pacific Gas and Electric Company, and in addition has

sold 700,000 shares of Pacific commonstock in a public offering. The cash so

realized and conserved has been used to retire North American's entire issue of

6% Series preferred stock aggregating $30,317,950, and to reduce its debt obligations. North American sold its Pacific Gas stock on a 5.13 percent basis (on resale the yield was 5 percent) and used the proceeds to retire preferred stock on

which the dividend rate was 6 percent. y As a result of its disposition of holdings

in the Pacific Gas and Electric Company,the latter companyhas been declared not to

be a statutory subsidiary in the North American system. On May4, 1945, the Commission approved a voluntary plan filed under Section 11 (e) for the simplification of

the corporate structure of Union Electric Companyof Missouri, Y subholding company

of North American, 1VherebytlVOof Union's subsidiaries were eliminated.

On December30, 1941, the Commissionordered the dissolution of North American

Light & Power Company,21 a subsidiary of the North American Company,finding that

it constituted an undue and unnecessary complexity in the system and served no useful purpose. However, the determination of a fair and equitable plan of dissolution has been delayed pending the disposition of claims asserted by illinois Power

Compa~, an indirect subsidiary of tight and Power. Ertensive hearings have been

held with respect to these clai:IDsbut have not yet been completed. Meanwhile,

Light & Power has retired $3,376,500 principal amount of its publicly held debentures without the payment of redemption premiums. This action was approved by the

Commissionand was appealed by the trustees under the indenture securing such debentures to the United States Circuit Court of Appeals for the Seventh Circuit Which

upheld the CommissionJ s order. !tI

A plan for the dissolution of minois Traction Company,a subsidiary holding

companyin the Light & Power system, filed pursuant to the provisions of Section II

(e), 'Wasapproved by the Commissionon October 24, 1944 2.1 and was affirmed by the

U.S. District Court for the District of Maine on December19, 1945.

3. The United Gas ImprovementCompany

Section II (b) (1) proceedings with respect to this system were instituted on

March4, 1940. The United Gas ImprovementCompany(UGr) subsequently requested the

Commissionto state its views, whereupon the Commissionissued its tentative conclusions with respect to this system and defined its integrated system as the electric properties in the Permsylvania-Delaware-Maryland area. Orders of divestment

were issued y on July 30, 1941 and May7, 1942 on the basis of this interpretation. These orders were appealed by the companyto the United States Circuit

Court of Appeals for the Third Circuit, which court sustained the orders on

November17, 1943. 71

Y In December1945, North American borrowed $32,000,000 from certain banks at

1-3/4 percent interest and has used the proceeds, together with other funds, to

retire its remaining 5-3/4 percent preferred stock. The company's capitalization,

therefore, now consists solely of bank loans and commonstock.

y Holding CompanyAct Release No. 5776.

21 Holding CompanyAct Release No. 3233.

~ 134 F. (2d) 165.

Y Holding CompanyAct Release No. 5367.

EI Holding CompanyAct Release Nos. 2913 and 35ll.

71 138 F. (2d) 1010.
-44-

After argument before the court but prior to the issuance of its decision', UGI

and its subsidiary, Philadelphia Electric Company, filed voluntary plans under Section 11 (e) with a view to complying at least partially with the provisions of Section 11 (b). Briefly, the plan provided for the distribution to UGI stockholders

of $30,600,000 in cash and substantially all the stock holdings in two of its

subsidiaries, Philadelphia Electric Company and Public Service Corporation of New

Jersey. The plan was approved by the Commission on March 18, 1943 1/ and by the

common stockholders on April 19, 1943. In May 1944, UGI distributed to its stockholders its holdings of Delaware Power & Light Company and subsidiaries. During the

past fiscal year, UGr has disposed of its interests in three additional companies,

namely, Nashville Gas &' Heating Company, y Arizona Power Corporation V and

Manchester Gas Company.41 Subsequent to the close of the fiscal Year, UGI filed

another voluntary plan 51 under Section 11 (e), designed to effect further compliance with the requirements of Section 11. This plan provides for the voluntary

exchange of certain miscellaneous investments in public utility holding companies

having a present market value of approximately $25,000,000 for shares of UGI common stock. No decision has as yet been rendered by the Commission with respect to

this plan.

4. The Commonwealth & Southern Corporation

On March 6, 1940, Section 11 (b) (1) proceedings were begun with respect to

this system and on April 8, 1941 Section 11 (b) (2) proceedings were instituted and

consolidated with the former proceedings. In its order of April 9, 1942, Y the

Commission directed Commonwealth & Southern Corporation (Commonwealth) to reduce its

then outstanding preferred and common stock to a single class of new common stock.

The order was appealed by the company to the Cireuit Court of Appeals for the Third

Circuit which affirmed the Commission's order on March 31, 1943. 7.1

On April 20, 1943, Commonwealth filed a plan of recapitalization providing for

the reclassification of its stock into a new class of common stock and a distribution of its holdings of all the common stock of Consumers Power Company to stockholders of Commonwealth. On February 26, 1944, the company filed an amended plan

proposing a change in the allocation between its preferred and common stockholders

and fUrther proposing the distribution of its stock holdings in its other Northern

subsidiaries in addition to Consumers Power Company.

Hearings on the amended plan were concluded on March 27, 1944 and the staff

filed its proposed findings on May 29, 1944 approving the basic features of the

amended plan but recommending that certain further amendments be made. Briefs were

filed and oral argument held on the issues involved by various stockholders participating in the proceedings. On May 31, 1945, the Commission issued its Findings and

..

11 Holding Company Act Release No. 4173.

3:1 Holding Company Act Release No. 5896.

2.1 Holding Company Act Release No. 5882.

Y Holding Company Act Release No. 5130.

21 File No. 54-140.

Y Holding Company Act Release No. 3432.

11 134 F. (2d; 747.
- 45 -

Opinion y which stated that if the plan were amended in several respects, the Commission would approve ito Connnonwealth filed the amendments requested and thereupon

the Commission on June 30, 1945 issued its order 31 approving the amended plan.

Among the provisions of this amended plan was one requiring that the plan receive

the affirmative vote of the holders of a majority of each class of stock of Commonwealth at a special meeting, before the Commission applied to an appropriate federal

district court for an order approving and enforcing the plan. A period of several

months thereafter elapsed without arrangements having been completed for conducting

the vote contemplated in the plan. No vote having been taken, the Commission> by

order dated November 1, 1945, 3/ modified its previous order so as to approve the

plan on condition that the comnany delete that portion of the plan requiring a stockholders vote. On November 9, 1945, Commonwealth filed modifications of its plan

stating that it would eliminate the provision for a stockholders vote if the Commission would approve an extensive amendment of the plan which essentially altered

it. y

The Commission, in all these orders, has retained jurisdict~on to determine the

retainability of Commonwaal.th t s remaining subsidiaries and any of the utility operations and other businesses of the system under Section 11 (b) (1).

Commonwealth has continued to refinance and recast the security structure of

its utility subsidiaries and in the process has materially impro'Vedtheir financial

condition.

5. Cities Service Compagl

On May 5, 1944, the Commission issued its order in the Section 11 (b) (1) proceeding involving Cities Service Company (Cities), the top company in this system.

The order directed Cities to comply with Section 11 (b) (1)by reducing the operations of its system to certain gas distribution properties located in the MidContinent section, together with certain gas production and transmission properties.

The order, however, permitted the retention of the system1s nonutility properties

if Cities should choose to ccmply with Section 11 (b) (1) by disposing of all its

direct or indirect interests in utility companies. Cities elected to retain its

nonutility properties, whereupon the Commission, on October 12, 1944, entered a supplemental order Yproviding, in substance, that Cities might dispose of its interests in utility properties in lieu of complying with the provisions of the

Y Holding Company Act Release No. 5825.

31 Holding Company Act Release No. 5895.

21 Holding Company Act Release No. 61770

4/ On January 24, 1946,the Commission issued a memorandum oparn.on stating that the

modifications of the plan did not have sufficient merit to warrant scheduling of

hearings thereon in view of their highly complicated and confusing nature, aside

from difficult questions of fairness. The Commission indicated that further

proceedings in this case would be withheld for a period of 30 days in order to

afford an opportunity to Commonwealth and to any person having a bona fide interest in the reorganization to file a plan for compliance with the Commission's

order of April 9, 1942 based upon the principle of retiring the preferred stock

through the sale or other disposition of assets. Holding Comp~~y Act Release No.

6381.

21 Holding Company Act Release No. 50280

Y Holding Company Act Release No. 5350.

~

-
- 46 -

earlier order. Since the original order, Cities has disposed of its interests in 32

subsidiaries l! and has consummated a program effectu~ting various intercorporate

transfers preparatory to a divestment of its interest in Cities Service Power &

Light Company.

The order of May 5, 1944 also directed Arkansas Natural Gas Corporation, a subsidiary holding company of Cities, to confine its operations to the natural gas

business and dispose of its interest in its nonutility subsidiaries. Arkansas

Natural Gas Corporation appealed the order of the Commission to the U. S. Circuit

Court for the Fifth Circuit, which court had arguments on the case but has not yet

rendered a decision.

On August 17, 1943, the Commission ordered 31 Cities Service Power &Light

Company (Power & Light), a holding company subsidiary of Cities Service Company, to

dispose of its interest in 43 companies, including Federal Light & Traction 'Company

(Federal) and its 14 subsidiaries. Since this order was issued, Power & Light, as

indicated above, has disposed of its interests in 30 companies. The order of August

17, 1943 required that Federal confine its operations to the electric utility business conducted by subsidiaries in the States of New Mexico and Colorado, jurisdiction

being reserved with respect to certain properties in New Mexico and Arizona. On

March 30, 1944, Y the Commission granted Federal an option to retain as its utility

system either the properties in New Mexico and Colorado or in Arizona. Federal applied for a year t s extension to comply with the Oommi.ss.tont s order of March 30, 1944,

which was granted, and Federal1s option to elect to retain one of the two integrated

systems was continued until March 30, 1946.

6. Associated Gas and Electric Company

In 1940, Associated Gas and Electric Company (Ageco) and its subsidiary holding

company, Associat6d Gas and Electric Corporation (Agecorp), filed petitions in the

U. S. District Court for reorganization under Chapter X of the Bankruptcy Act. Both

companies are registered holding companies. The Trustees of Agecorp (Denis J.

Driscoll and Willard L. Thorp) also registered as a holding company. On August 13,

1942, th3 Commission issued an order Y pursuant to Section 11 (b) (1) in which it

directed the trustees, among other things, to dispose of their interest in 115 companies, reserving for further consideration questions relating to the retainability

of certain other properties. At the end of the first year, the trustees reported

that they had disposed of their interest in 60 of these companies. During the next

succeeding year, disposition was made of an additional 22 companies and 14 others

were under contract for sale. Of the original 115 companies, the trustees retained,

as at the close of the fiscal year, an interest in only 16. On February 9, 1945,

upon application of the trustees, the Commission modified its order of August 13,

1942 by removing Manila Electric Company, its subsidiary, Associated utilities Investing Corporation (an inactive corporation which is the original obligor under the

mortgage on the bonds of Manila Electric Company), and Escudero Electric Service

Company from the list of companies required to be divested. Both Mam.La Electric

Company and Escudero Electric Service Company operate properties in the Philippine

Islands.

!IOf these, 2 companies were direct subsidiaries and 30 companies were subsidiaries

of Cities Service Power & Light Company or of its subsidiary holding company:

Federal Light & Traction Company.

31 Holding Company Act Release No. 4489.

y Holding Company Act Release No. 4960.

Y Holding Company Act Release No. 3729.
- 47 -

on August 9, 1945, the Uo S. District Court for the Southern District of New

York confirmed a comprehensive c-eorganizaEon plan 1/ proposed by the trustees,

pursuant to Chapter X of the BclLtrl1ptCY Act ar d Section 11 (b) of the Holding Company Act, and which had been a.pprovedby the Comni.ss i.on on April 14, 1944. 3/ After

the close of the fiscal Year, the U. S. SupremeCourt dismissed a petition for

certiorari, and the plan was consummated. The new company, General Public utilities

Corporation, took over the affairs of Agecoand Agecorp in January 1946.

On February 3, 1941, the Commissioninstituted proceedings pursuant to Section

11 (b) (2) with respect to General Gas and Electric Corporation (Gengas) a subsidiary

holding companyof Agecorp. 21 Subsequently, Section 11 (e) plans for the reorganization of Gengaswere filed, the hearings on which were consolidated with the Section

11 (b) (2) proceedings. On August 12, 1944, a revised plan was filed jointly by

Agecorp and Gengas, which provided for the distribution by Gengas of certain assets

amongits public security holders, after which there would remain no claims against

Gengasexcept those held by the trustees of Agecorp, whowould turn in their holdings

and receive in exchange an entire issue of new commonstock of Gengas, This plan

was approved by the Commissionon July 25, 1945. 4/ By orders dated October 15,

1945 and October 22, 1945, the District Court of the United States for the Southern

District of NewYork approved and enforced the plano

Section 11 (b) (2) proceedings were instituted with respect to Georgia Power

and Light Company,another subsidiary of Gengas, on February 10, 1943. Or April 24,

1944, Georgia, Gengas, and Florida Power Corporation, an associated company, filed

a joint plan proposing, amongother things, the recapitalization of Georgia. The

proposal included the donation by Florida to Georgia of $1,400,000 in cash to be

used in part for the reduction of the mortgage debt of Georgia and for a cash payment in the amount of $150 per share in full satisfaction of the public holders of

the preferred stocks of Georgia. The proposed recapitalization, together with the

related donation and an issue and sale by Florida of preferred stock through competitive bidding, was approved by the Commissionon January 23, 1945 21 subject to the

condition that within one year Georgia divest itself of its water and ice properties.

On September 29, 1943, the Commissioninstituted Section 11 (b) (2) proceedings

with respect to Tide Water Power Company,a subsidiary of Gengas, raising the issue

as to whether the voting power of Tide Water was fairly and equitably distributed.

After appropriate hearings, the Commissionissued its order on August 25, 1944, Y

providing, amongother things, for a recapitalization of the companyby substituting

a single class of cammonstock for the then outstanding classes of stock. Thereafter, Tide Water filed a plan 11 to complywith the Commission's one-stock order.

The plan was approved on December22, 1944 V subject to reservation of jurisdiction

as to the percentage of newcommonstock to be received by Gengas,

!I61 Fed. Supp. 11.

Y Holding CompanyAct Release No. 4985.

21 Holding CompanyAct Release No. 2543.

Holding CompanyAct Release No. 59500

21 Holding Compan;rAct Release No. 5568.

Y Holding CompanyAct Release No. 5238.

11 Holding CompanyAct Release No. 5309.

Y Holding CompanyAct Release No. 5512.

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On March 30, 1945, a plan of reorganization was filed by York Railways Company,

a debtor in possession under Section 778 of the Bankruptcy Act, in proceedings which

had been pending since November 30, 1937. 11 The plan provided for the raising of

sufficient cash to pay all public creditors and preferred stockholders the full

amount of their claims and for the liquidation of York Railways Company. Hearings

were held in May 1945 and the matter was pending at the end of the fiscal year. y

On September 30, 1941, the Commission instituted proceedings under Section 11

(b) (2) with respect to New England Gas and Electric Association (Negea), a registered holding company. After hearings were held but prior to the final order of the

Commission, the trustees of Ageco and Agecorp and a subsidiary company in the Associated system instituted proceedings in both a State and Federal Court asserting

claims against Negea arising from various transactions in the years 1930 and 1932.

It appeared to the Commission that before a determination could be made with respect

to the recapitalization of Negea, the validity and rank of the asserted claims would

have to be resolved. Therefore, on February 17, 1943, the Commission instituted

further proceedings with respect to these claims. 1/ On March 29, 1945, Negea filed

a plan of recapitalization pursuant to the provisions of Section 11 (e). This

plan was based on the assumption that the aforementioned claims would be held not

valid. At the close of the fiscal year, the Commission had reached no decision with

respect to the claims but hearings were going forward in connection with the proposed plan on matters not related directly to the claims. 21

7. Standard Power and Light COrporation Standard Gas and Electric Company

Proceedings pursuant to Section 11 (b) (1) were instituted by the Commission on

March 6, 1940 with regard to Standard Power and Light Corporation (Standard Power)

and Standard Gas and Electric Company (Standard Gas) and their subsidiaries. On

June 5, 1940, the Commission instituted proceedings pursuant to Section 11 (b) (2)

with respect to Standard Power. After subsequent hearings, the Commission, on June

19, 1942, issued an order requiring the liquidation and termination of existence of

Standard Power. A dissolution plan for Standard Power was approved by the Commission on February 22, 1945. 7J

On March 24, 1943, Standard Gas filed a plan pursuant to Section 11 (e), to

comply with the provisions of Section 11 (b), and at the same time the Connnission

instituted proceedings pursuant to Sections 11 (b) (2), 15 (f), and 20 (a) and

directed consolidation of the two proceedings. The Commission issued its findings

and opinion on May 29, 1944, Y after hearings and oral argument, stating that it

could not make findings necessary for approval of the plan, and ldthheld entry of

!IHolding Company Act Release No. 5744.

y Subsequently th'3plan was approved by the Commission and by the U. S. District

Court (Del.).

2/ Holding Company Act Release No. 4124.

Y Holding Company Act Release No. 5730.

21 Holding Company Act Release No. 5799.

Y Holding Company Act Release No. 3607.

7J Holding Company Act Release No. 5625.

Holding Company Act Release No. 5070.

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an order for 90 days to afford Standard Gas the opportunity to file an amendmentin

accordance with the views of the Commission. In August 1944, Standard Gas submitted

an amendedplan, which was approved by the Commissionon November15, 1944. Y

On December20, 1944, the Commission, at the request of Standard Gas, applied

to the U. S. District Court for the District of Delaware for an order of enforcement

of the amendedplan. On Mar-ch 2, 1945, the District Court in an opinion stated that

the plan would not be approved as fair and equitable and appropriate to effectuate

compliance with the Act unless the note and debenture holders were paid off in cash,

although it would be approved as to stockholder participation. The Commission,

Standard Gas, and several other parties to the proceedings, took an appeal from the

judgment of the District Court to the United States Circuit Court of Appeals for the

Third Circuit. After the end of the fiscal year, on September 14, 1945, the latter

Court rendered a decision reversing the judgment of the District Court and upholding

the opinion of the Commissionthat the amendedplan was fair and equitable to the

note and debenture holders.

Subsequently, Standard Gas filed a motion with the District Court requesting an

order of the court disapproving the amendedplan for recapitalization as being unfair and inequitable because of changed conditions, and stating that it proposed to

borrow moneywith which, together with treasury cash, it would effectuate a call of

the notes and debentures and P8iYoff the bank notes then outstanding by the sale of

portfolio securities. A decree of the U. S. District Court for the District of

Delaware, issued on December29, 1945 and amendedJanuary 9, 1946, held that

Standard Gas had the right to call the notes and debentures and provided that such

call should be madewithin thirty days or within such further time as the Securities

and Exchange Commissionmight grant. y

On June 5, 1942, Northern States Power Co. (Delaware) filed its plan of liquidation pursuant to Section 11 (e) and on the same date the Commissioninstituted

proceedings pursuant to Section II (b) (2) and other sections of the Act with respect to that Companyand each of its subsidiary companies. Extensive hearings

were held, subsequent to which (March31, 1944) the Compcmysubmitted an amended

plan, upon which hearings were also held, briefs submitted, and argument heard. The

Commissionissued its Findings and Opinion on the Northern States Power COIIIfG.rIy

amendedplan on April 26, 1945, V stating that if an amendmentto the plan were made

in accordance with the views expressed therein, an appropriate order would be entered

approving the plan as so further amended. Subsequent to the end of the fiscal year

the required amendmentwas filed. The Commissionin a subsequent MemorandumOpinion,

dated October 12, 1945, required a further amendmentreducing the stated value of the

proposed new commonstock from $6.75 to $6.00 per share. Uponthe filing of this amendment, the Commissionissued its order on October 31, 1945, 21 approving the plan as

Y Holding CompanyAct Release No. 5430.

?J Holding CompanyAct Release No. 6385. Notice of appeal from the court order has

been filed with the Third Circuit Court of Ap~eals by a debenture holder.

2/ Holding CompanyAct Release No. 5745. (CommissionerHealy concurred in a separate

opinion stating his differences with the majority as to the meaning anGeffect of

the Uo S. SupremeCourt decision in Otis & Go. v , Securities and ExchangeCommission, 323 u. S. 624.)

Holding CompanyAct Release No. 6127.

2/ Holding CompanyAct Re:.ease No. 6173.

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amended, granting applications and declarations in connection therewith, subject to 

ceptain reservations of jurisdiction. 

On June 30, 1942, Southern Colorado Pmr Co., a subsidiary of Standard Gas, 

filed a plan pursuant to Section 11 (e) for recapitalization and, on July 2, 1942, 

the ~oiumission instituted proceedings under Section 11(b) (2) and ordered consolidated hearings thereon. On August 3, 1943, the Commission approved the plan 

subject to certain modifications, which were later satisfied by amendments to the 

plan. The amended plan was approvedJby the Codssion on November 24, 1943, 1/ 

and by the United States District Court in Colorado cm Decder 31, 1943- Appeal 

was taken therefrom to the United States Circuit Court of Appeals for the enth 

Circuit, which has rendered its decision upholding the Cdssionls approval of the 

plan. The Supreme Court denied writ of certiorari, and on June 26, 1945 the Mstrict Court for the District of Colorado entered its order declaring the plan effective as of June 30, 1945. 

3. Columbia Gas &Electric Corporation 

Section 11(b) (1) and Section 11 (b) (2) proceedings were commenced with respect to Columbia Gas & Electric Corporation (Columbia) and were consolidated with 

a Section 11(e) plan filed by the Company on July 14, 1942. !The plan involved, 

among other things, the sale by Columbia Oil & Gasoline Corp, a subsidiaq- of 

Columbia, of its interest in Panhandle Eastern Pipe Line Company, the transfer of 

its five oil and gasoline subsidiaries to Columbia Gas and the liquidation of 

Columbia Oil & Gasoline Corp. This voluntary plan was approved by the Cmmission 

on October 2, 1942. The ComLnissionts order was affirmed by the United States 

Circuit Court of Appeals for the Third Circuit, and the United States District 

Court for the District of Delamare entered its order appro* the plan. 

Further proceedings were instituted by the Commission on May 2, 194.4 with respect to subsidiaries not included in the Company's 11 (e) plan. At the close of 

the hearings in this matter, the Commission issued its Findings, Opinion and 

in which it stated which properties of Columbia might be retained and 

with respect to the retainability of the remaining properties. 

Columbia on December 21, 194.4 filed a plan pursuant to Section ll (e) providing for its recapitalization through the conversion of its Preferred and Common 

Stocks into one class of C-on Stock, the partial pawent and refinding of the 

remaininp debt of Columbia; and the distribution to the new common stocltholders of 

its interest in the Dayton and Cincinnati groups of companies. The plan also proposes certain inter-system transactions prior to its completion. Public hearings 

, 

J 	 On Januarg 22, 1946, the Connrission applied to the U. S. District Court (Idinn.) 

for enforcement of the plan. 

Holding Cqany Act Release No. 4501. 

3f EnPorced without opinion. 

Holding Company Act Release Nos. 3829 and 3885. 

2/ 	134 P. (2d) 822. 

,' 

50 P. Supp. 965. 

Holding Company Act Release No. 5455. 
- 51 -

-with respect to this plan were held from time to t:i.Jneand during said hearings the

plan was opposed The United Corporation, the holder of 19 percent of the voting

securities of Columbia. During a temporary adjournment of these hearings Columbia

asked for an indefinite postponement, stating that Columbia and United had agreed

upon a modified program which they intended to present to the Commission. The

program, as outlined, provided for the sale of the Dayton and Cincinnati groups of

companies after certain r efundings and inter-system transactions with respect

thereto, and the retirement for cash of the debt and preferred stock of Columbia.

Such cash would be obtained from the sale of the before-mentioned companies and

others covered by the Commission's divestment order and by the issuance of new debt

by the revised Columbia. The postponement was granted. Subsequent thereto Columbia

has completed the refinancing of the Dayton and Cincinnati groups of companies and

has completed the inter-system transactions related thereto.

9. Niagara HudsonPower COrporation

In 1942, the COIIIII1issionistituted proceedings pursuant to Section 11 (b) (2)

with respect to Niagara HudsonPower Corporation (Niagara Hudson), Buffalo, Niagara

and Eastern Power Corporation (BNE), and their subsidiary companies. A public conference was also held to explore means of resumption of dividend p3jymentson preferred stock of the two holding companies. A plan, pursuant to Section 11 (e), was

filed in June 1943, providing for the consolidation of principal public utility

companiesl'Iith BNE,the dissolution of Niagara Hudson, and payment in cash of all

accrued and unpaid dividends. The consolidation, as contemplated, was disapproved

by the NewYork Public Service Commissionon January 21, 1944.

On June 19, 1944, the Securities and Exchange Commissiondenied the application

of BNEfor exemption as a holding companyfrom provisions of the Act insofar as

applicable t-o Section 11 (b) (2). The C-ammission'sorder also required BNEto substitute commonstock for its then outstanding $1.60 cumulative preferred, Class A

and coimnonstocks, and the extension of appropriate voting rights to its $5 preferred

stock. 11

On OCtober 3, 1944, BNEand its parent company,Niagara HudsonPower Corporation, filed separate plans pursuant to Section 11 (e) providing for the reorganization of BNEin order that the companymight complywith the Commission's order of

June 19, 1944. Both plans were substantially the same, providing for the consolidation of BNEand three of its subsidiaries and the reclassification of ENE's

Second Preferred Stock, Class A Stock and Common~tockinto one new class of stock

namely, CommonStock. The difference in the two plans was in the allocation among

the various classes of security holders of the new CommonStock. Public hearings

were held from time to time with respect to this plan. On July 16, 1945, amended

plans we:re filed by BNEand Niagara Hudson. These amendedplans were identical insofar as they provided for the reorganization of BNE. They provided for the payment

of all arrears on the First Preferred Stock of ENE;the contribution by Niagara

Hudsonto BNEof $63,000,000 from treasury cash, the sale of portfolio securities

and a bank loan in the approximate amount of $40,000,000; the use of such funds

ENEfor the retirement of its $1.60 Preferred Stock at the redemption price thereof

plus accrued dividends; the consolidation of BNEand three of its subsidiaries; the

exchange of the 5 percent Preferred Stock or-the new company, share for share, for

the outstanding $5 First Preferred Stock of BNE;and the issuance to Niagara

Hudsonof all the CommonStock of the new company. The plan of Niagara Hudsonfurther provided for the subsequent divestment by Niagara Hudson of all of its holdings of the CommonStock of the new companyand set forth certain steps designed to

Y Holding CompanyAct Release No. 5115.

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accomplish further simplification of the corporate structure of Niagara Hudson and

its subsidiaries other than the new company. These plans were approved by the Commission on October 4, 1945. 1/

10. International Hydro-Electric System

On June 17, 1940, proceedings involving International Hydro-Elect-ric System

(IRES) were instituted pursuant to Section 11 (b) (2). After appropriate hearings,

the Commission, on July 21, 1942, ordered IRESto liquidate and dissolve, finding

that it performed no useful function. 2/ On March 17, 1943, the Commissionordered

that Massachusetts utilities Associates CommonVoting Trust be liquidated and dissolved and that certain other companies be eliminated from IRES. 2/ On September

19' and December20, 1942, Paul H. Todd, a stockholder and director of IRES, filed

petitions in the United States Circuit Court of Appeals for the Sixth Circuit for

review of the Commission's order of July 21, 1942, Which directed the dissolution of

rHES' This petition was dismissed, thereby sustaining the order of the Commission. y In July 1943, IRES-notified the Commissionthat, because of certain asserted claims against its former parent, International Paper Company,it would be

impossible for it to complywith the Commission's order of July 21 without the aid

of court enforcement. The Commissiontherefore, on August 12, 1943, instituted a

proceeding under Section 11 (d) to enforce compliance with its liquidation order

and on October 11, 1943 the court appointed BartholomewA. Brickley of Boston, u

Massachusetts, as special counsel, to investigate certain transactions alleged to

give rise to cause of action on behalf of IRESagainst International Paper Company.

On November13, 1944, the court appointed Mr. Brickley as trustee for IRESand he

has effectuated a settlement between the two companies, which settlement was approved by the Court on December26, 1945. 21

On March 6, 1944, NewEngland Power Association ani its subsidiary holding

companies filed an application for approval. of a plan of simplification of the New

England Power Association holding companysystem for the purpose of complying with

the provisions of Section 11 (b) (2) and with the Commission's order of March 17,

1943. After hearings on that plan were completed, the companywas informally advised that it would not serve to effectuate the provisions of Section 11 (b) (2)

and the Commission's previous order, whereupon the companyfiled an amendedplan,

upon which hearings have been completed, oral argument heard and briefs filed, but

decision has not been rendered by the Commission.

11. The Middle Wes_ COrporation

The Commissioninstituted Section 11 (b) (1) proceedings with respect to The

Middle west Corporation (Middle West) and its subsidiaries on March 1, 1940. On

January 24, 1944, the Commissionordered Middle West to sever its relations with its

!IHolding CompanyAct Release No. 6l0S.

Holding CompanyAct Release No. 3679.

2/ Holding CompanyAct Release ~o. 4l6S.

y 137 F. (2d) 475.

21 Notices of appeal to the Circuit Court of Appeals of the United States for the

First Circuit from the decree of this Court approving said settlement have been

riled by OsmondY. Ladd, Paul H. Todd, stockholders of IBES, and by J. Dudley

Clark and William Elwell, bondholders of IHES.

~
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subsidiary companies, except Central Illinois Public Service Company, and Kentucky

utilities Company and its subsidiaries. 11 On May 9, 1944, a further hearing was

ordered to perwit the introduction of additional evidence with respect to the question

of what constituted the integrated system of Central and South West utilities Company (Central) and with respect to the retainability of certain other businesses.

On February 16, 1945 31 and on July 4, 1945, 3/ the Commission entered its opinions

and orders with respect to the issues involved in the rehearing, finding that the

major electric utility properties of the subsidiaries of Central form a single integrated system retainable by Central. The electric utility properties of Oklahoma

Power and Water Company, a subsidiary of Middle West, were found to constitute a

part of Central's integrated system. Central ~~s ordered ~o dispose of its interest in its retail gas distribution properties as well as its interest in certain

small isolated electric properties and was further ordered to dispose of its

interest in certain of its nonutility properties. A substantial number of the nonutility properties have been disposed of in compliance with these orders. Sales by

},fiddleWest of its interest in Arkansas-Missouri Power Corporation and Missouri

Edison Company and the sale by Arkansas-Missouri Power Corporation of its subsidiary,

East Missouri Power Company, were approved by the Commission on June 1, 1945. 41

In February 1940, Central and American Public Service Company (American), two

subsidiaries of Middle West, filed a joint application proposing a consolidation of

the two companies. On December 5, 1940, the Commission instituted proceedings under

Section 11 (b) (2) and ordered that the hearings on the two cases be consolidated.

The proponents of the plan of consolidation contended that preferred stock was

necessary in the new company in order to preserve the priorities of the holders of

the prior lien and preferred stocks of Central and the preferred stock of American.

The Commission on June 4, 1942, ruled that the new corporation could have only

common stock. 21 The respondents filed a petition for review in the United States

Court of Appeals for the District of Columbia, which upheld the Commission in its

opinion of June 7, 1943. Y On August 2, 1943, Central and American filed an

amended plan of merger to be effectuated through the issuance of a single class of

capital stock. The plan also provided that 1riddle West would distribute to its

stockholders the new shares of Central allocated to Middle West. Hearings were held

on this matter and, subsequent to the close of the fiscal year, the plan was further

amended primarily with respect to the allocation of the new common stock to the

security holders of Central. Hearings are in progress on the present plan and the

companies have stated that due to present market conditions additional amendments to

the plan are being formulated.

The Commission on June 9, 1941, instituted proceedings pursuant to Section

11 (b) (2) which raised issues as to the equitable distribution of voting power

among security holders of the North West Utilities Company (North West) system, and

also as to the continued existence of North West, a subsidiary holding company in

the Middle West system. The proceeding was consolidated on June 11, 1941, with a

Y Holding Company Act Release No. 4846.

y Holding Company Act Release No. 5606.

2/ Holding Company Act Release No. 5906.

Y Holding Company Act Release No. 5845.

Holding Company Act Release No. 3580.

y 136 Fed. (2d) 273.

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54-

plan of recapitalization of North West which had been submitted by North West and

Middle West. The Commissionon September 10, 1943, held that the proposed plan of

recapitalization fell short of effectuating the provisions of Section 11 (b) and

ordered that North West be liquidated. Y Sale by North West of its subsidiary,

Lake Superior District Power Company,was approved by the Commissionon April 21,

1945~Y and recapitalization of another subsidiary~ Wisconsin Power and Light Company~ preparatory to its disposal, was approved on October 26, 1945. V

12. The United Light ana Power Company

Proceedings pursuant to Section li (b) (1) instituted on May8~ 1940~ together

with proceedings under Section li (b) (2) started on December6, 1940, involving The

United Light and Power Company(United Light), were consolidated in 1941. The

liquidation of United Light was ordered by the Commissionunder the standards of

Section Ll., An important step towards liquidation involved the distribution of the

commonstock of The United Light and Railways Company(Railways) to preferred and

commonstockholders of United. Light. On April 5, 1943~ the Commissiondisapproved

the distribution originally proposed Qy the companybut thereafter approved the

plan as amendedto allow the preferred stockholders approximately 95 percent of

Railways commonstock.!iI CommissionerHealy dissented on the ground that the preferred stockholders were entitled to receive all the assets. On June 30, 1943,

Judge Leahy, of the United States District Court of Delaware, confirmed the order

of the Commission, and on April 10, 1944, the United States Circuit Court of Appeals,

Third Circuit~ affirmed the order. A petition for certiorari in the United States

SapremeCourt was granted on June 12, 1944. On January 29, 1945, the SupremeCourt

rendered its decision affirming the Commission's approval of the plan. 21 Following this decision United Light accomplished its liquidation and dissolution in compliance with the Collllllission's order or March 20, 1941. Y Railways, which has two

subsidiary holding companies, AmericanLight & Traction Company(AmericanLight)

and Continental Gas & Electric Corporation (Oontlnent.al.}, thus became the top holding companyin the system.

On June 2, 1945, 'JJ the Commissionissued a MemorandumOpinion which concluded

that the most appropriate means for achieving compliance with its order of August

5, 1941 requiring Railways to dispose or its interests in certain subsidiaries was

the liquidation and dissolution of American Light and the disposition by Railways

of all securities received by it in such liquidation. To accomplish this and other

action recommendedby the Commissionin its MemorandumOpinion, AmericanLight on

July 2, 1945 filed an amendedplan or liquidation and dissolution. The principal

point at issue in this plan relates to the amountwhich should be paid to the

holders of the company's non-callable 6 percent prererred stock. Hearings were

concluded and oral argument was heard before the Commissionin December1945, but

no decision has been rendered.

y Holding CompanyAct Release No. 4552.

Y Holding CompanyAct Release No. 5747.

21 Holding Company Act Release No. 6169.

!tI Holding CompanyAct Release No. 4215.

21 Three Justices dissenting. otis & Co. v. Securities and Exchange Commission,

323 U. S. 624.

ij Holding CompanyAct Release No. 2636.

'JJ Holding Company Act Release No. 5840.

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Subsequent to the close of the fiscc~ year, Railw<~ysand Continental filed a

plan under Section 11 (e) proposing thB divestment 0: stock interest in four companies y to be received by Railways upon the liquidation of American Light, the

proceeds from Which are proposed to be used to retire senior securities. Other divestments and retirements are also proposed, together vnth intra-system adjustments

necessary to comply with the Commission's order of August 5, 1941.

Railways, through its subsidiary, Continental, was authorized on JUly 18, 1945,

to acquire st. Joseph Light & Power Company(St. Joseph). 2/ Negotiations are also

pending f'or the purchase by Continental of the commonstock of Missouri Power & Light

Company,a subsidiary of North American Light and Power Companyoperating in territory adjacent to that of st. Joseph.

13. American Water Works and Electric Company,Inc.

This was the first registered holding companyto HIe a corporate simplification

plan pursuant to Section 11 (e). The plan contemplated no divestments of any of the

utility properties or utility investments of' the system, but did provide for the

elimination of' several "second degreen holding companyrelationships and for certain

other intra-system readjustments. Consummationof the main features of the plan was

contingent upon the accomplishment of extensive refinancing.

The Commissionapproved the plan on December31, 1937, with various modifications and reservations. The Commissionheld that the applicant's interests in

certain argicultural properties in California and in an office building in NewYork

were not retainable, and that the distribution of voting power in the system was

not fair and equitable; it reserved jurisdiction with respect to the retention of

American's interest in a water subholding companyto afford it an opportunity to

increase its equity therein and to recapitalize it; and also reserved for future

consideration the question of' adjustments of l'I!'ite-ups of system properties and in

investments. 'J./ American recently announced a plan for divesting itself of all

the water companies in its system.

14. Engineers Public Service Company

Section II (b) (1) proceedings were instituted with regard to Engineers Public

Service Company(Engineers) and its subsidiaries on February 28, 1940. On July 23,

1941, the Commissionordered Engineers to dispose of its interest in Puget Sound

Power & Light Companyand The Key West Electric Company,and on the same date

initiated Section II (b) (2) proceedings with respect to The Western Public Service

Company(a Maryland corporation), a subsidiary of Engineers. Y On December29,

1941, the Commissionapproved the sale of' Western's Nebraska and South Dakota

properties. 2/ Western then redeemed its publicly-held seeuri ties and liquidated. Y

!IDetroit Edison Company,Madison Gas and Electric Company,Michigan Consolidated

Gas Companyand MilwaukeeGas Light Company.

Y Holding CompanyAct Release No. 1)943.

'J./ 2 S.E.C. 972.

!J Holding CompanyAct Release Nos. 2897 and 2898.

21 Holding CompanyAct Release Nos. 3230 and 3245.

Y For further details see Tenth Annual Repbrt, p , 135.
- 56-

On September 16, 1942, the COJlIIlissionordered the divestment of the reaaining properties in the Engineers system except the electric utility properties of Virginia

Electric and Power Comp~, allorlng Engineers, however, fifteen days within which

to petition for leave to retain instead the electric utility properties of Gulf

States utilities Company.1/ Engineers appealed to the United States Court of

Appeals for the District 01 ColUlllbia,which on November22, 1943 rendered an Opinion

upholding the Commission's order in most respects but setting it aside upon the

ground that the Commissionhad misinterpreted the so-called "incidental business

clausen of Section 11 (b) (1). The Court indicated also that Engineers must be given

a further right to designate the principal integrated utility system which it desired

to retain. Both Engineers and the Commissionfiled petitions for writs of certiorari

in the Supreme Court of the United States. On June 5, 1944, the petitions were

granted and on November14, 1945 the matter was argued before the SupremeCourt. No

decision has yet been rendered by the court.

Engineers has divested itself of its interest in Puget Sound Power & Light Company, The KeyWest Electric Company,El Paso Natural Gas Company,El Paso & Jaurez

Traction Company,Baton Rouge Bus Company,The North Kansas Power Company,Missouri

Service Company,Savannah Electric & Power Companyand the transportation businesses

conducted by El Paso Electric Company(Texas) and Virginia Electric & Power Company.

Subsequent to the close of the fiscal year (September 10, 1945), Engineers

filed a plan under Section 11 (e) proposing the disposition of its remaining subsidiaries and the dissolution of Engineers. Y Hearings have not been concluded on

the plan.

15. The United COrporation

On July 28, 1941, the Commissioninstituted proceedings under Sections II (b)

(1) and II (b) (2) with respect to the United Corporation, and consolidated such

proceedings for hearing with United's Section 11 (e) plan filed in March 19410 In

its plan, "United pr-oposed to reduce its holdings in each of its statutory subsidiaries to less than 10 percent of the outstanding voting securities and pending

such reduction, to refrain from Toting the securities without the prior approval

of the Commission. On August 14, 1943, after extensive hearings, the Commission

disapproved United's plan, and, pursuant to Section 11 (b) (2), ordered that United

change its existing capitalization to one class of stock and cease to be a holding

company.2/

On June 27, 1944, the United Corporation filed a plan pursuant to Section 11

(e) which provided for the exchange of substantially all of its holdings of the

commonstocks of Philadelphia Electric Companyand Delaware Power & Light Company,

plus cash for approximately one-half of its outstanding preferred stock. 4/ The

plan was subsequently amendedto provide for the exchange of only the phi.!'adelphia

Electric cOJllJllonstock and an increased amount of cash. The plan, as amended, was

Y Holding Company Act Release No. 3.796.

Y Holding CompanyAct Release No. 6131. The plan, however, referred to the review

proceedings pending in tm SupremeCourt of the United States wi.th respect to

Engineers and stated that it was not expected that any portion of the plan would

be consummateduntil after tm SupremeCourt's decision.

'J/ Holding CompanyAct Release No. 4478.

Y Holding CompanyAct Release No. 4870.
- 57 -

approved by the Commissionon November24, 1944, Y and has since been consummated.

The United Corporation on January 17, 1945 filed a plan pursuant to Section

II (e) providing for the exchange on a voluntary basis of two shares of the Common

Stock of Delaware Power &Light Companyand $5 in cash for outstanding shares of

United's $3 Cumulative Preferred Stock. The plan was subsequently amendedto provide for the payment of $6 in lieu of the $5 in cash as originall! proposed. The

plan, as amended, was approved by the Commissionon June 9, 1945Y and has been

consummated.

16. Midland United Companyand Midland Utilities Company

A plan of reorganization for Midland United Company(United) and its subsidiary, Midland Utilities Company(Utilities), both of which controlled important

operating utility subsidiaries in Indiana, was filed by the Trustee of United in

February 1943 under Section 11 (f). In September 1943, the Trustees of Utilities

filed a separate plan for its reorganization. In November1943, a joint plan for

both companies was filed by the Trustees of the two companies. The Commissionissued its preliminary findings on the joint plan approving it subject to certain conditions. 21 The Trustees then filed an amendedplan meeting the conditions, which

plan was approved by the Commissionby orders dated October 5, 1944 and October 24,

1944. 4/ The reorganization court also approved the amendedjoint plan on December

11, 194'4. OnApril 7, 1945, the Circuit Court of Appeals for the Third Circuit

dismissed an appeal taken from the order of the District Court. 'jj The plan was

consummatedas of May25, 1945.

The consummation of this plan, involving companies in the former Insull utility

empire, concluded one of the most difficult and complicated reorganization proceedings that the Commissionhas ever had to pass upon. Amongother issues, it included

the disposition of complex claims and counterclaims which had been the subject of

extended litigation and negotiation amongthe claimants.

17. NewEngland Public Service Company

A Section 11 (b) (2) order was issued on May2, 1941 with respect to New

England Public Service,Company directing it to recapitalize on a one-stock basis or

to liquidate. On December6, 1941 the companyfiled a plan for compliance with

this order. Onepublic utility companyof this system (CumberlandCounty Power &

Light Company)has been elilllinated by merger into Central Maine Power Companyand

another (Twin State Gas & Electric Company),through conveyance of its properties

to Public Service Companyof NewHampshire and Central VermontPublic Service

Corporation. y On December19, 1944, on the application of Central Maine Power

Company,the Commissionapproved a plan for the divestment of Portland Railroad Company, a nonutility subsidiary. 0n February 3, 1945 certain commonstockholders

filed a bill of complaint in the Supreme Judicial Court of Maine seeking a rescission of the sale of Portland Railroad Company. Hearings have been held and the

Y Holding CompanyAct Release No. 5440.

Y Holding CompanyAct Release No. 5859.

21 Holding CompanyAct Release No. 5317.

Holding CompanyAct Release Nos. 5335 and 5317A.

21 5B F. Supp. 667.

Y Holding CompanyAct Release No. 4711.

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58

matter is now pending before that court. Also, Maurice A. Bowers and Theron A.

Woodsum filed petitions in the Circuit Court of Appeals for the First Circuit to

review the Commission's order of December 19, 1944. These proceedings have been

dismissed on motion of the petitioners. On October 25, 1944, New England ~ablic

Service Company filed an amended plan of reorganization. 11 Hearings were held on

the amended plan in February and March, 1945. Subsequently, the company again

amended its plan to provide for the sale of its industrial subsidiaries. Extensive

hearings on this phase of the amended plan were held after the close of the fiscal

year. On October 11, 1945, the Commission approved the sale of the industrial subsidiaries to a banking group for a consideration of $16,500,000. 31 The sale by

NEPSCO of its industrial holdings was approved by the United States District Court

for the District of Maine (Southern Division). Allen L. Goldfine, an unsuccessful

bidder, and Harry C. Blatchley, a stockholder of NEPSCO, have filed petitions in

the United States Circuit Court of Appeals for the First Circuit for review of the

Commission's order of October 11, 1945. They have also appealed from the District

Court's order.

18. Federal Water and Gas Corporation

On December 31, 1942, proceedings were instituted by the Commission with respect to Federal Water and Gas Corporation (Federal) and its subsidiaries under

Section II (b) (1) and il (b) (:2). The Federal system at that time consisted of a

number of utility and non-utility companies conducting water, natural gas transmission and distribution, manufactured gas distribution, and electric operations in a

number of widely separated states. Federal's principal subsidiary was, and is,

Southern Natural Gas Company, a registered holding company controlling four gas

utility subsidiaries in Alabama and directly owning and operating a natural gas

pipeline extending from Texas into Georgia. On the same date, Federal and certain

of its subsidiaries filed a plan under Section 11 (e) which, among other things,

provided for the sale by Federal of its interests in Mississippi Public Service Company and Chattanooga Gas Company to Southern Natural, for the distribution of

Federal's interest in Southern Natural to Federal's stockholders, and for the

elimination of Federal as a separate corporation. The Commission reserved jurisdiction with respect to those provisions of the plan. The plan also provided for

the disposition by Federal of its interests in all its other subsidiary companies,

provided, however, that before disposing of its security holdings in Peoples water

and Gas Comparv, Scranton-Spring Brook Water Service Company and New York Water

Service Corporation, these companies be recapitalized. On February 10, 1943, the

Commission approved the latter provisions of Federal's plan and directed that steps

be taken to carry out those provisions. V In addition, Federal, Pennsylvania Water

Service Company, and ~cranton-Spring Brook were directed to cause the elimination of

Pennsylvania Water Service Company and the 63 inactive subsidiaries of ScrantonSpring Brook. Since the entry of the 1943 order, Federal has caused the elimination

of 62 inactive subsidiaries of Scranton-Spring Brook and has disposed of its interests in 15 companies and of the bulk of the properties of Alabama Water Service

Company. Extensive hearings have also been completed on Federal's plans for the

reorganization of Scranton-Spring Brook and New York Water, and these matters are

now pending before the Commission.

11 Holding Comp~ Act Release No. 5477.

Y Holding Company Act Release No. 6123.

21 Holding Company Act Release No. 4ll3.

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Federal itself was recapitalized in 1941; one aspect of the said reorganization,

relating to the Commission's decision therein that officers and directors of Federal

should not be permitted to profit on securities of Federal purchased by them during

the pendency of the reorganization, was appealed to the SupremeCourt, which set

aside the Commission's order and remandedit to the Oomad.ss Lon, y In February 1945

the Commissionissued its findings, opinion and order reaffirming its previous

determination. Y This order was reversed by the Uo S. Court of Appeals for the

District of Columbiain February 1946. 21

19. OgdenCorporation

OgdenCorporation (Ogden)is a successor corporation to Utilities Power &

Light Corporation which went into bankruptcy in 1937. A plan of reorganization approved by this Commission provided, amongother things, that Ogdenwould divest

itself of all its interests in utility companies. Section 11 proceedings were instituted with respect to Ogdenby the Commissionon March 22, 1943, and were consolidated with a Section 11 (e) plan of Ogden. On May20, 1943, the Commission

approved certain provisions of the plan and ordered Ogdento divest itself of all

its interests in public utility companies and eliminate itself as a public utility

holding company~21 Ogdenhas divested itself of its interests in Derby Gas &

Electric Corporation, Missouri Natural Gas Company,Laclede Gas Light Companyand

Missouri Electric Power Companywhich includes all of its interests in utility property except Interstate Power Companyand certain residual assets of Central states

Power and Light Corporation. Hearings are in progress on Ogden's plans for the

reorganization of Interstate preparatory to the divestment of its interests therein

and for the distribution of the remaining assets of Central States. The assets of

the latter company,consisting principally of cash, will be distributed upon the

determination of the rights of the various classes of security holders which involves the issue of whether any portion of the securities of Central States held by

Ogdenshould be subordinated to the claims of public security holders. In our previous report, we mentioned the reorganization plan of Laclede Gas approved by the

Commission6/ which provided, amongother things, for the redemption of the company's bonds by payment in cash of the principal amountbut without the payment of

premiumrequired in the event of "voluntary" redemption. The Order of the Commission approving the plan was affirmed by the United States District Court for the

Eastern Division of the Eastern District of Missouri. 21 Certain of the bondholders

indicated that they intended to appeal from the orders with respect to the bond

premium. In order that the plan might be carried ou~nevertheless, it was amended

to provide for the placing in escrow of sufficient cash to provide for the payment

of premiumin the event that the order was not upheld on appeal. On October 30,

1945, however, the Circuit Court of Appeals for the Eighth Circuit affirmed the

order of the Commissionand of the District Court and subsequently denied a petition

11 318 U. S. 80. For a discussion of the issues in this case see the Commission's

Tenth Annual Report, page 118.

Y Holding CompanyAct Release No. 5584.

21 Chenery Corp. v , S.E.C., __ F. (2d)__ (C.A.D.C. Feb, 4, 1946).

Y 5 S.E.C. 483.

21 Release No. 4307.

Y Holding CompanyAct Release Nos. 5062 and 5071.

y 57 F. Supp. 997.

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for rehearirig. The appellant has filed a petition for certiorari in the United

States Supreme Court.

REGULA.TION OFSECURI'l'YISSUES

In the fiscal year ended June 30, 1945, the Commissiondeclared effective 93

applications and declarations pursuant to Sections 6 and 7 of the Act, pertaining

to the issuance of securities totaling $1,308,641,520. y For the preceding year,

92 such applications were declared effective with respect to $985,981,951 of

securities. The following table classifies the securities involved in applications

made effective during the past fiscal year by type and purpose of issue.

Summary of Effective Security Issues under Sections

6 (b) and 7 of the Public Utili ty Ho1~ Company Act of 1935*

July 1, 1944 to June 30, 1945

Type of issue:

Bonds

Debentures

Notes

Preferred stock

Commonstock

Total

Purpose of issue:

Refunding and refinancing

Reorganization

Exchange for other securities

Acquisition of property or other assets

New financing

Total

Amount

$ 909,269,000

2,450,000

72,030,000

145,152,725

175,620,825

$1,304,522,550

$1,105,282,397

100,682,389

43,027,261

43,902,850

11,627,653

$1,3041522,550

Percent

69.7

0.2

505

1101

13.5

100.0

84.7

7.7

3.3

3.4

100.0

=

*These figures do not include outstanding issues whose rights were

altered under Sections 6 (a) (2) and 7 (e), nor do they include the

guarantee of other issues.

In the past year there was a continuance of the heavy refunding program that

has been in progress for the past ten years. Because of the declining rate of in- I

terest, many companies which refunded their bonds several years ago were able to

effect further interest savings by a second refunding. Tax:considerations facilitated this program since companies which were in the excess profits tax brackets

could reduce their excess profits taxable net income by the amount of unamortized

discount and expense and call premiums applicable to the refunded Lssue; In recent

months highest quality electric utility bonds have been refunded at an effective

interest cost of between 2.69 percent and 2.75 percent. Even the lowest bank

quality electric utility bonds are being consistent~ refunded on approximately

a 3.00 percent basis.

Y At the beginning of tm fiscal year ended June 30, 1945, 43 applications and

declarations under Sections 6 and 7 were pending and 179 were .filed during the

year. O.fthese, 124 were declared e.f.fective, 1 was withdrawn and 1 denied, leaving 96 pending at the close o.f the fiscal year. O.fthe 124 e.f.fective declarations

and applications, 93 pertained to security issuance, 30 to alteration o.f rights

and 1 to assumption of liability.

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An important development in the field of public utility finance in the past

year has been the increasing number of preferred stock refinancing cases to take

advantage of the lower yields prevailing for preferred stocks. As a result outstanding preferred stock issues bearing dividend rates of 5, 6 and 7 percent are

being refinanced on a 4 percen4 basis or lower. A variety of methods of refinancing preferred stocks has been used. In some cases the outstanding issue is called

at the contract redemption price and replaced by a new issue which, under the Holding CompanyAct, must be sold at competitive bidding. y A second method is a

direct exchange offer on a share for share basis without underwriting. 2/ Under

this method any stock not exchanged is retired at the call price from tile general

funds of the companyand without selling any of the unexchanged shares. In cases of

this type it has been cus'tomary for the companyto fix the dividend rate on the new

stock high enough to make an even exchange on the basis of the call price of the

outstanding stock. It is also the usual practice to engage the services of a securities dealer to assist the companyin carrying out the exchange plan and to manage

the dealer group organized to effect exchanges. A third'method, having someof the

characteristics of each of the methods mentioned above, involves an exchange offer

and a sale of any unexchanged stock in a public offering through underwriters. The

offering price and the choice of underwriters to solicit exchanges and underwrite

and sell the unexchanged stock are determined by competitive bidding. 3/ Still

another method involves a reclassification of outstanding stock. y There have been

further differences of detail with respect to such matters as premiums, cash differentials and the like. In its Findings and Opinion in a preferred stock refinancing case after the close of the fiscal year, the Commissioncommentedon the variety

of methods and problems presented in such cases as follows: 21

"Because of the large volume of preferred stock transactions which

have been proposed and the relative novelty of manyof the problems presented, we have thought it appropriate to give reasonably wide latitude

to issuers in determining the precise form of their transactions, so long

as no major difficulties appeared under the standards of the Act. On the

basis of experience gathered through this policy we maywell find it appropriate to limit more narrowly the methods of preferred refinancing to

be emplOYedin future-cases. Thus our present decision and other decisions

relating to preferred stock refinancing in this period should not be taken

as establishing general precedents for the future. II

Further progress was madeduring the past fiscal year in strengthening the

financial structures of public utility operating companies and their parent holding

companies. The manner in lfhich that has been accomplished in other years has been

3et forth in previous annual reports of the Commission(see, for example, the Tenth

Annual Report, pages 98-107).

11For example, see Holding CompanyAct Release No. 5763 (April 27, 1945), NewYork

Power and Light Corporation.

Y For example, see Holding CompanyAct Release No. 5713 (April 6, 1945), Carolina

Power & Light Company.

'}j E.g., Holding CompanyAct Release Nos. 5292 and 5308 (S~'Ptember1944), Gulf states

utilities Company.

Y E.g., Holding CompanyAct Release No. 6093 (October 1, 1945), Rochester Gas and

Electric Corporation.

21 Holding CompanyAct Release No. 6120 (October 13, 1945), The Cincinnati Gas &

Electric Company.
- 62 -

Speaking generally, the improvement in public utility capital structures has

resulted from debt reduction, made either at the time a refunding took place, or,

where that was impracticable, by provision for the retirement of debt through sinking fund or serial debt retirement programs, from the elimination of write-ups,

from increased provision far depreciation both as to current accruals and reserves,

from improved mortgage indenture provisions, and from the inclusion in corporate

charters of improved protective provisions with respect to preferred stock. All

this has been accompanied bya subst~~tial decrease in the burden of interest on

funded debt and preferred stock dividend requirements.

Competitive Bidding

During the past fiscal year an additional $862,000,000 of securities were sold

at competitive bidding pursuant to Rule U-50, which prescribes public invitation of

sealed bids in connection with the sale of securities by registered public utility

holding companies and their subsidiaries. This brings to $1,856,000,000 the total

amount thus sold from May 7, 1941, the date on which the rule became effective, to

July 1, 1945. 11 The rule permits exemption from competitive bidding under specified

or appropriate circumstances. A number of such exemptions have been granted since

the rule was adopted.

COOPERATION BETWEEN THE SECURITIES AND EXCHANGE COMMISSION

AND STATE COMMISSIONS

It is the established policy of the Securities and Exchange Commission to

foster effective cooperation with the State commissions in all matters where their

respective jurisdictions complement each other ani in all additional matters where

such cooperation is desirable and appropriate in the case under consideration. The

purpose of the Holding Company Act is, in large part, to free operating companies

from the absentee control of holding companies, thus permitting them to be regulated

more effectively by the State. This fundamental purpose of the Holding Company Act

--the facilitating of State regulation--underlies the Commission's efforts to work

cooperatively with the various State commissions in the administration of the Act.

A program of cooperation on a two-way basis is greatly to be desired in the interest

of effective regulation and a mutual understanding of the respective regulatory

duties and responsibilities.

The protection of State regulation is specifically provided for in several

sections of the Act. For example, Section 6 (b) of the Act directs the Commission

to exempt from the requirements of Section 7 an issue and sale of securities which

has been expressly authorized by a State commission of the State in which the issuer

is both organized and doing business and where the securities are solely for the

purpose of financing the business of the issuer. These provisions limit the Commission's powers over security issues where a State commission has full authority

over the subject matter and where the other conditions for exemption are met. In

granting a Section 6 (b) exemption, however, the Commission is empowered to impose

such terms and conditions as it deems appropriate in the public interest or for the

protection of investors and consumers. The Commission usually consults with the

State cOlllDlissionwith regard to the imposition of terms and conditions in Section

6 (b) cases. Certain security and utility asset acquisitions are likewise exempted

under Section 9 (b) from the provisions of Section 9 where they have been approved

11 For details relating to the bids received :for each issue sold under Rule U-50 to

December 31, 1944, see table beginning at page 21 in the report of the Commission's Public Utilities Division entitled ~Security Issues of Electric and Gas

utilities, 1935 - 1944."
- 63 -

by a State commission. Moreover, the Connnissionmay not authorize security issues

LSection 7 (g27 or the acquisition of assets /Section 10 (f27 unless applicable

State laws have been complied with. Section 8 prevents the o~mership of both electric and gas utility properties in violation of State law, while Section 20 (b) requires that accounting standards established by the Commissionshall not be inconsistent with the provisions of applicable State law.

A number of specific sections of the Act reflect the Congressional intent that

the Commission's work should be coordinated with the work of State commissions.

Section 19 of the Act, for example, expressly provides that in any proceeding before

the Commission,the Commission,in accordance with such rules of practice as it may

prescribe, shall admit as a party any interested State, State commission, municipalitY" or any political subdivision of the State. Pursuant to this provision, the

CommissionunifaMmlynotifies interested State commissions of proceedings before it

1Vhichma:y affect the work of such commission. Many State commissions have taken

advantage of this provision and have intervened in proceedings before the Commission

and in these and other cases there has been an interchange of ideas and information

between the Securities and Exchange Commissionand the State commissionconcerned.

The Act contains other provisions which look toward action by the S.E.C. and

state commissions on a cooperative basis. ~s Section 18 of the Act not only

authorizes the S.E.C. to make available to State commissions information obtained in

the course of its investigations under the Act ,LSection 18 (a)], but also makes

provision for~lacing the investigatory power of the S.E.C. at the disposal of State

commissionsLSection 18 (b)]. Further, the provisions of Section 13 of the Act,with

respect to the regulation by the S.E.C. of intrasystem service charges affords

significant assistance to state commissions in this field. Section 13 (d) empowers

the Commission,upon the request of a state commission, to require, after notice

and opportunity for hearing, the revision or elimination of inequitable servicing

arrangements amongmembercompanies of a mutual service company. Section 13 (g)

of the Act, which authorizes the Commissionto conduct investigations and make

recommendationswith respect to service sales and construction contracts, directs

that such recommendations be made available to State commissions.

There are listed below some of the specific instances during the past year in

which there have been interchanges of ideas between the S.E.C. and State commissions

or membersof their respective staffs:

Case State Commission

AmericanLight & Traction Company Michigan Public Service Commission

File No. 54-25

plan for liquidation and dissolution

Arizona Power Corporation Arizona Corporation Commission

File Nos. 70-888 and 70-889

proposed sale of its interest in this company

by The United Gas ImprovementCompany

Buffalo, Niagara & Eastern Power Corporation NewYork Public Service Commission

File Nos. 54-106 and 54-107

reorganization

Central Arizona Light & Power Company Arizona Corporation Commission

File No. 70-1156

proposed saJ..eby"AmericanPower & Light Company

of its interest in this company"

~
-64-

Case State Commission

Cities Service Power & Light Company Ohio Public Utilities Commission

File No. 70-1019

accounting matters in relation to proposed

sale of the Western Division of the MarionReserve Power Companyto Dayton Power & Light

Company

Consolidated Electric and Gas Company Georgia Public Service Commission

File Nos. 70-1145 and 54-131

proposed sale of its interest in Atlanta Gas

Light Companyto Southern Natural Gas Company

COIl3U1l1ersPower (;ompany Vichigan Public Service Commission

File No. zo-uiz,

accounting matters in connection nth

ref'inancing

Federal Light & Traction Company Arizona Corporation Commission

File No. 70-1163

proposed sale of' this company'B common

stock holding in The Tucson Gas, EJ.ectric

Light and Power Companyto the Arizona

Edison Company, Inc.

Georgia Power and Light Company Georgia Public Service Commission

File No. 54-95

acquisition by Florida Power Corporation

of this Companyfs commonstock and a

recapitalization of the company

Great Lakes Utilities Company

File No. 54-53

rate matter in connection with Section II (e)

plan of' reorganization

Indiana Service Corporation

File No. 59-58

Section 11 (b) (2) proceedings

Jersey Central Power &: Light Company

Section 11 problema

Long Island Lighting Caupany

File No. 31-7

exemption and recapitalization

NewEngland Public Service Company

File No. 70-986

accountdng problems in connection lIith

proposed sale of' gas properties by the

companyfs subsidiary, Public Service

Companyof' NewHampshi+e

Ohio Public Utilities Commission

Indiana Public Service Commission

NewJersey Board of Public Utility

COJIIlIlissioners

NewYork Public Service Commission

NewHaDpshire Public Service

Commission
,- 65

Case

New Hampshire Gas &Electric Company

File No. 70-1146

acquisition by it of the stocks of two

sU:Jsidiary companies of its parent,

New England Gas and Electric Association

Northern Natural Gas Company

File Nos. 59-10 and 54-93

acquisition by its wholly-owned subsidiary,

Peoples Natural Gas Company, of the assets

of another subsidiary, Argus Natural Gas Co.

Portland Electric Power Company

File No. 52-19

accounting matters in connection with plan

of reorganization

Portland General Electric Company

File No. 70-1084

accounting problems and maximum sales price

of securities in connection with a refunding

Rochester Gas and Electric Corporation

File No. 70-1091

plan for exchange of securities and

proxy matters in connection therewith

Seattle Gas Company

File No. 54-124

problem of capital structure in connection

1'liththe companyt e reorganization

South Carolina Power Company

File No. 70-1002

refinancing

Spokane Gas & Fuel Company

File No. 54-122

Sec. 11 (e) plan of reorganization

utah Power & Light Company

File No. 54-119

proposed plan of reorganization

State Commission

New Hampshire Public Service

Commission

Kansas State Corporation Commission

Oregon Public Utilities Commissioner

Oregon Public utilities Commissioner

New York Public Service Commission

Washington Department of Public

Utilities

South Carolina Public Service

Commission

Washington Department of Public

Utilities

utah Public Utilities Commi3sion

l,-enllontUtilities Company, et ale Vermont Public Utilities Commission

File No. 70-991

accGunting matters in relation to acquisitlQn

:y G0ntral Vermont Public Service Corporatl~n

of Vermont Utilities, Inc.

Virginia Electric and Power Company Virginia State Corporation Commis~ion

File No. 70-1047

accounting matters in relation to a refunding

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-00-

Case

Western Light & Telephone Company

File No. 70-865

accounting matters in connection with

company's acquistion of the commonstock

of The Kansas Power Compa11.y

York Railw.a.ysCompany

File No. 52-26

reorganization and related accounting

matters

State Commission

Kansas State Corporation Commission

Pennsylvanda Public Utility

Commission

LITIGATIONUNDERTHEACT

Constitutionality of Section II (b)

The Lssue of constitutionality of Section 11 (b) (1) has been upheld by the

Second and Third Circuits and the Court of Appeals for the District of Columbia, 1"

and that of Section 11 (b) (2) by the First and Third Circuits and the Court of

Appeals- for the District of Columbia. y Petitions for writs of certiorari were

filed only in the North American~ Engineersz .AmericanPower~ and Electric Power

cases. The Supreme Court granted certiorari in these cases and set them down for

oral argument on November13, 1945.

Proceedings under Sect~on 11 (e)

During the past fiscal year court decisions involving voluntary plans filed by

companies under Section II (e) of the Act have been of far-reaching importance in

the determination of the relative rights of interested security holderso

a. Liquidation preferences and call premiums

In the United Light & Power Companycase the Supreme Court for the .first time

had before it the question whether the nfair and equitable" standard of Section 11

(e) requires the Commissionto treat a preferred stockholder's liquidation

preference a~ though it ~re a claim matured by operation of Section llo 3/ The

majority opinion of the Supreme Court upheld the Commission's decision 4;-that a

preferred stockholder's rights must be measured on a going-basis without regard to

the impact o.f Section 11, giving proper emphasis to immediately operative rights

(rights to current dividende) as against inchoate rights (liquidation pre.ference~),

11 The North American Companyv ;,S(E.,. 133 F. (zd) 148 (1943); United Gas Improvement Companyv , S.E.C.~ 138 F. 2d 1010 (1943); Engineers Public Service Company

v. S.E.C., 138 Fo (2d) 936 (1943)0

Y American Power & ht C and Electric Power & Li ht C v ; SecUI'ities

and Exchange Comm:ission,141 r. 2d 0 1944; Commonwealth& Southern Corpo

v , Securities and Exchange Commission~134 Fo (2d) 747 (1943); Central and South-

~t Utilities Companyv. Securities and Exchange Commission~136 F. (2d) 273

(1943)

11 Plan approved and enforced, 51 F. Supp. 217 (D.C. Del.), aff'd sub nom, otis

& Co. v; Securities and ExChan,e Commission, 142 F. (2d) 411 (C.C.A:3'), 323

u. S. 624, 89 L. Ed. 460 (1945

Y Holding CompanyAct Release No. 4215.

~

•

•

•
- 67 -

and further held that the liquidation preference as contained in the charter of

United tight & Power was inoperative in a proceeding under Section 11 (b) (2). Y

In other Section 11 (e) plans providing for the retirement of senior secur-Lt.Lee ,

the Lseue presented was whether voluntary call premiums are necelSsarily payable as

such in connection with retirement of senior securities. The Commissionhas repeatedly held that the retirement of a senior :5ecurity compelled by the requirements

of Section 11 ilS not an exercise by a companyof a right of redemption which necessarily entitlelS the holder to receive a call premiumas such. 31

b. Discharge of debt securities by payment in kind

In the case of a Section 11 (e) plan providng for the satisfaction of a portion

of the claims of holding companydebenture holders with portfolio common:5tocks

ovmedby the applicant holding company, the U. S. District Court refused to enforce

the plan on the ground that there is no power under the Holding CompanyAct to require creditors of a solvent corporation to take eecur-Ltd.es in satisfaction of their

claims and on the further ground that no such plan could be fair and equitable. 2/

On appeal., the Third Circuit Court of Appeals reversed and remanded. Y The Circuit

Court held that the Holding CompanyAct permits a plan for satisfaction of the

claims of a holding companycreditor with securities, and further held that the

question whether such power.ought to be exercised in a particular situation was

essentia1J..y for the Commission1s determination.

c. Fees and expenses

The Commissionhas held that its approval, of plans of reorganization and recapitalization filed UIrler Section II (e), not providing for the payments of fees

and expenses incurred in connection with such proceedings, will be expressly conditioned upon an applicant companyundertaking to pay such fees and expenses as

are approved, allocated or awarded by the Commission. The only instance involving

litigation in the matter of fees and expenses occurred in the Columbia Gas &

nectric Corporation case where four applicants who opposed the plan filed by the

companyand whose requests for fees and expenses were disallowed by the Commission,

mademotions to resubmit the disallowances to the Federal District Court of

Delaware. The court denied the motions to resubmit. In re Columbia Gas & Electric

Corporation, __ F. Supp._ (1945).

y Commissioner Healy disagrees with much of this interpretation of the United

Light & Power decision. See his concurring opinion in the matter of Northern

States Power Co. (Del.), Holding CompanyAct Release No. 5745.

31 In re Central States Power & Light Corp., plan enforced (D.C. Del.) No. 354

(OCtober 30, 1944); In re Consolidated Electric and Gas C plan enforced

(D.C. Del.) No. 382 ~arch 20, 1945 ; In re The Laclede Gas Light Company,57

F. Supp, 997 (E.D. Mo. 1944). or, In re United Gas Corp., plan approved and

enforced, 58 F. Supp. 501 (D.C. ner., 1944), where the Commissionheld that if

a senior security could be left outstanding in a recapitalization of a compaIliY

under Section 11 (e) consistently with the requirements of Section 11 (b), the

retirement of such security, although provided for in a Section 11 (e) plan, 19i1l

be considered as a voluntary exercise of the redemption privilege rendering the

call premi.umpayable as such.

2/ In re Standard Gas and Electric Compaw, 59 F. Supp, 274 (1945).

~ 151 F. (2d) 326 (1945).
-68-

Proceedings under Section II (f)

Section 11 (r) of the Holding CompanyAct requires, amongother things, that

plans o.f reorganization under Chapter X o.f Section 7lB o.f the Bankruptcy Act .for

registered holding companies or their subsidiaries shall not become e.f.fecti ve unless such plans shall have been approved by the Commissionafter opportunity for

hearing prior to their submission to the Court. Several such plans have been

passed upon by the Commissionduring the past .fiscal ~ar, all of them involving

settlement o.f pending litigation relating to the rank or status o.f the various

classes o.f claims against the respective debtors. In considering whether these

plans were .fair and equd, table, the Commissionhas carefully weighed the legal merits

o.f the claims and contentions at issue, in order to determine whether the settlement

was reasonably consonant with litigation possibilities. In re Associated Gas and

Electric Company(Stanley Clarke, Trustee, et al.), Holding CompanyAct Release No.

4985, 61 Fed. Supp. II (D.C. S.D. N.Y., 1944), 149 F. 2d , certiorfiri denied{

u. S. ; In re Midland United Company, 58 F. Supp. 667 (D.C., Del., 1944;,

appeal dismissed 1r.l.thaut opiniont No. 81313,C.C.A. 3 (April 5, 1945). In another

case arising under Section 11 (.f), there was the unusual circumstance that the plan

was negotiated at arm's-length and agreed to by representatives o.f all classes o.f

claimants. In re Inland Power and Light COI}?oration (John E. Dwyer, Trustee),

Holding CompanyAct Release No. 5369. (D.C. N.D. rn, No. _, 1944).

Judicial Review

Section II (e) of the Act providee for the enforcement of' a Section II (e)

plan if' the District Court, "after notice and opportunity .for hearing", shall approve the plan as .fair and equitable and as appropriate to e.ffectuate the provisions o.f Section 11. Where the Commission's order approving a plan .filed under .

Section II (e) is only a preliminary step to approval and enforcement thereof by a

District Court, such order is not considered to be reviewable under the provisions

of' Section 24 (a) o.f the Act, lIhich provides that a "Person or party aggrieved by

an order issued by the Commission1f is entitled to obtain judicial review in a

Circuit Court of Appeals. 1/ In akin v, ~., 145 F. (2d) 206 (C.C.A. 2, 1944), Y

the Circuit Court dismissed a petItIOn .for review under Section 24 (a) on the

ground that this Section 11 (e) plan could be consummatedonly after hearing and

approval o.f such plan be.fore the Delaware District Court, 'Whichcourt was considering the plan at the time o.f this suit. 'J/

The Federal courts also had occasion during the period under consideration to

rule on the question whether the statutory provision for review at the instance of

a Jtperson or party aggrieved" under Section 24 (a) should be construed as transcending traditional limitations on the rights of stockholders to litigate on behalf o.f

11 Court enforcement under Section 11 (e) occurs only at a company's request, and

an order approving any plan which does not contemplate such court enforcement is

considered by the Commissionas immediately operative to license the transactions

proposed.

Y Certiorari granted, limited; judgment vacated and case remanded to Circuit Court

on other grounds, 324 D. S. _ (June 18, 1945).

21 See Gilbert v. ~., 146 F. (2d) 513 (C.C.A. 7, 1944), where the Circuit Court

dismissed a petition .filed under Section 24 (a) to review an order of the Commission approving a plan under Section 11 (f) of the Act, which plan lfaS subject

to approval and en.forcement by a District Court in a Chapter X proceeding. Cf.

Disman v. S.E.e., 147 F. (2d) 679 (C.e.A. 10, 1944), certiorari denied

u. S. --;-89 L. Ed. 1160 (1945); Phillips v. S.E.C. (C.C.A. 2), No. I962J

(Dec. 15, 1944). -
- 69-

a corporation i:IIaediately affected by an order of the Commission. A majority of

the Supreme Court held that it was not essential within the meaning of "person or

party aggrieved" under Section 24 (a) that a proceeding instituted by a stockholder

"had the character of a derivative suit" as long as the stockholder has a substantial financial am economic interest distinct from that of the corporation

which is directly and adversely affected by an order of the COlIIIIlission.y

Injunctive Relief

The Federal courts in past years have enjoined or staved the prosecution of

judicial proceedings in both state and Federal courts which might have interfered

nth the enforcement of a CommisSionorder under Section 11. 2j In S.E.C. v ;

Island Lighting C01l!?8DY,59 F. Supp. 610 (D.C. E.D. N.Y., 1944), the COIDmission

instituted an action seeking a preli:minary and final injunction to restrain

Island from directly or indirectly taking arw action to effectuate appending plan

of recapitalization until determination of certain proceedings then before the Commission. The District Court denied relief on the ground that as a matter of law it

was without the power to grant the injunctiV'e relief sought. The Circuit Court,

one judge dissenting, affirmed the District Court's ruling on the ground that the

Commissionlacked standing to sue and the Federal courts lacked jurisdiction to

grant the relief sought. 148 F. (2d.) 252 (C.C.A. 2, 1945). On application by the

Commission, certiorari 11&5 granted, but before the case was heard by the Supreme

Court, Long Island stipulated that the COJIIliBsioncould proceed promptly to dispose

of the proceedings before it, and the cause of action being moot, the Supreme Court

vacated the judgaent or the Circuit Court and remanded the case to the District

Court with direction to dismiss the complaint. 324 U. S. 837 (1935).

Existence ot oontro1 or controlling influence

Pacific Gas and Electric Companyapplied to the Commissionunder Section 2 (a)

(8) or the Act. for an order declaring it not to be a Bubsidiary of The North

American Company-, which held 17.71 percent of its voting stock. The Commission

having concluded after hearing that the record did not permit a finding that Pacific

1mS not subject to a controlling influence on the part of The North American Company, it denied the application. Holding CompanyAct Release No. 2988. Pacific

Gas and Electric Company petitioned the Ninth Circu::..t Court of Appeals for review

of the CODIDlission'sorder. That Court affirmed the COIIIIlission's order, one judge

dissenting (127 F. 2d. 378); upon reargwaent, the decision was affirmed by an

equally divided court. In Pacific Gas and Elecpric Company v. S.E.C., 324 u. S.

826, 65 SUp. ct. 855 (1945), the decision of the Court of Appeals was affirmed by

an equaJ.ly divided court. Petition for rehearing was denied, 324 u. S. 899,

65 Sup. os., 1010 (1945).

11 American Power & Light COIlIp!!'Yv. S.E.O.~ 143 F. (2d) 250 (1944); Okin v ; S.E.C.,

143 F. (2d) 945 (d.C.A. 2, 1944). The Supreme court heard argument and considered both cases together. American Power & Light Cffi~ v; ~. (No. 470)J

S.E.C. v. Okin (No. 815), 325 u. S. 385 (1945). ct. O~ S.E.C., 143 F. (2d)

No. 943 (C.O.A. 2, 1944). -- --

Y See SUsndard Power & ht C oration 48 F. Supp. 716 (D.O. Del.); minoisIowa Power v. No h rican Light &: Power Company,49 F. Supp. 277 (D.O.

•

~

~

•
- 70 -

PART IV

PARTICIPATION OF THE COMMISSION IN CORPORATE REORGANIZATIONS

UNDER CHAPTER X OF THE BANKRUPTCY ACT, AS AMENDED

Chapter X of the Bankruptcy Act, as amended in 1938, affords appropriate machinerJ for the reorganization of corporations (other than railroads) in the Federal

courts. The Commission's duties under Chapter X are, first, at the request or with

the approval of the court to act as a participant in proceedings thereunder in order

to provide, for the court and investors, independent expert assistance on matters

arising in such proceedings, and, second, to prepare, for the benefit of the courts

and investors, formal advisory reports on plans of reorg~~ization submitted to it

by the courts in such proceedings. The ColJllllission has no right of appeal in a:rrj

such proceeding, although it may participate in appeals taken by others.

SUMMARYOF ACTIVITIES

The Commission actively participated during tm year in 116 reorganization proceedings involving the reorganization of 141 companies (U6 principal debtor corporations and 25 subsidiary debtors) !/, with aggregate stated assets of $2,039,439,000

and aggregate indebtedness of $1,369,751,000. These debtors, together with their

assets and indebtedness, are classified according to their industries and the size

of their total indebtedness in Appendix Table 19. During the year, the Commission

filed its notice of appearance in 9 new proceedings under Chapter X, in 3 of which

the notice was filed at the request of the judge and in the remaining 6 it was

enterad upon approval by the judge of the Commission's motion to participate. These

9 new proceedings involved 9 companies with aggregate stated assets of $280,589,000

and aggregate stated indebtedness of $256,970,000. Proceedings involving 21

principal debtor corporations and 2 subsidiary debtors were closed during the year.

At the close of the year, the Commission was actively participating in 95 reorganization proceedings involving 118 companies (95 principal debtors and 23 subsidiary debtors)I with aggregate stated assets of $1,966,245,000 and stated

indebtedness of il,301,685,000.

For a more detailed account of the Commission's work under this statute, reference is made to the Tenth Annual Report, pages 141-152.

!IAppendix Table 34 identifies these proceedings, listing the names of 115 principal

debtors inasmuch as during the year two proceedings were consolidated.
-71-

PART V

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939

The standards of the Trust Indenture Act of 1939 outlawed many provisions previously incorporated in trust indentures to exculpate the trustee. The Act is

designed to insure that the trustee will act in the interest of the bond or debenture owners and to insure his complete independence of the issuer and the underwriters. To secure its objects, the Act requires that bonds, notes, debentures, and

similar debt securities publicly offered for sale, sold, or delivered after sale

through the mails or in interstate commerce, except as specifically exempted by the

Act, be issued under an indenture which meets the requirements of the Act ~~d has

been duly qualified with the Commission. The provisions of the Securities Act of

1933 and the Trust Indenture Act of 1939 are so integrated that registration pursuant to the Securities Act of 1933 of such securities to be issued under a trust

indenture shall not be permitted to become effective unless the indenture conforms

to the requirements expressed in the Trust Indenture Act of 1939, and such an

indenture is automatically "qualified" when registration becomes effective as to

the securities themselves. An application for qualification of an indenture covering securities not required to be registered under the Securities Act of 1933,

which is filed with the Commission under the Trust Indenture Act of 1939, must

expressly meet the same statutory requirements as though such application were a

registration statement filed pursuant to the Securities Act of 1933.

STATISTICS OF INDENTURES QUALIFIED

The number of indentures filed with the Commission during the year for qualification under the Trust Indenture Act of 1939, together with the disposition thereof

and the amounts of indenture securities involved, are shown in Tables I, II and III

below. It will be noted that Table III merely consolidates the figures set forth in

the other two tables.

Table I. Indentures Filed in Connection with Registration

Statements under the Securities Act of 1933

Indentures pending at June 30, 1944

Indentures filed during the year

Total to be accounted for

Indentures qualified

Principal amount reduced by amendment

Indentures deleted by amendment or witbdrawn

Indentures pending at June 30, 1945

Total accounted for

Number

6

97

103

82

2

19

103

Amount of Offering

$ 163,500,000

2,143,484,900

$2,306,984,900

$1,736,016,400

250,000

103,000,000

467,718,500

$2, 3D6, 984,900
-72-

Table II. Applications Filed for Qualification of Indentures Covering

Securities Not Required To Be Registered under the Securities Act of 1933

Indentures pending at June 30, 1944

Indentures filed during the year

Total to be accounted far

Indentures qualified

Indentures withdrawn

Indentures pending at June 30, 1945

Total accounted for

Number

20

20

16

1

3

20

Amountof Offering

$63,799,420

$63,799,420

$55,173,920

4,295,000

4,330,500

163,799,420

Table III. Total Numberof Indentures Filed Under the

Trust Indenture Act of 1939

Indentures pending at June 30, 1944

Indentures filed during the year

Total to be accounted for

Indentures qualified

Principal amount reduced by amendment

Indentures deleted by amendmentor withdrawn

Indentures pending at June 30, 1945

Total accounted for

Number

6

117

123

9S

3

22

123

Amountof Offering

$ 163,500,000

2,207,2S4,320

12,370,784,320

$1,791,190,320

250,000

107,295,000

472,0492°00

$2,370,784,320

During the year the following additional material relating to trust indentures

was filed and examined for compliance with the appropriate standards and

requirements:

16 indentures exempt :fromthe Trust Indenture Act of 1939 but subject to the

Public Utility Holding CompanyAct of 1935 and required to meet the standards

of too '!'rust Indenture Act of 1939.

137 trustee statements of eligibility and qualification under the Trust Indenture

Act of 1939.

55 amendmentsto trustee statements of eligibility and qualification.

96 Supplements S-T, covering special items of information concerning indenture

securities registered under the Securities Act of 1933.

44 amendmentsto Supplements S-T.

35 applications for findings by the Commissionrelating to exemptions from

special provisions of the Act.

247 annual reports of indenture trustees pursuant to Section 313.
- 73 -

PART VI

ADMINISTRATION OF THE INVESTMENT COMPANY ACT OF 1940

The Investment Company Act of 1940 requires the registration of and regulates

investment companies, that is, companies engaged primarily in the business of investing, reinvesting, and trading in securities. The Act requires, among other

things, disclosure of the finances and of the investment policies of these companies, to afford investors full and complete information with respect to their

activities; prohibits such companies from changing the nature of their business or

their investment policies without the approval of the stockholders; bars persons

guilty of security frauds from serving as officers and directors of such companies;

prevents underwriters, investment bankers, and brokers from constituting more than

a minority of the directors of such companies; requires management contracts in the

first instances to be submitted to security holders for their approval; prohibits

transactions between such companies and their officers and directors and other

insiders except on the approval of the Commission; forbids the issuance of senior

securities of such companies except in specified instances; and prohibits pyramiding of such companies and cross ownership of their securities. The Commission is

authorized to prepare advisory reports upon plans of reorganizations of registered

investment companies upon request of such companies or 25 percent of their stockholders and to institute proceedings to enjoin such plans if they are grossly unfair. The Act also requires face-amount certificate companies to maintain reserves

adequate to meet maturity payments upon their certificates.

S1J1EJffiYOF ACTIVITIES

During the past year the Commission in its administration of the Act concerned

itself pri:marily l'liththe disposition of the applicationsfiled pursuant to various

provisions of the Act. There were 70 such applications pending at the beginning of

the year and 59 additional ones filed during the year; 59 were disposed of in the

course of the year, and 70 were pending at its close. These applications are

classified beLow, together with an indication of the disposition made of them. It

should be noted that the detailed figures in this summary are not totaled for the

reason that some applications involved more than one section of the Act.

Nature and Disposition of Various Applications Filed under

the Investment Company Act of 1940 Fiscal Year 1945

Number Number

pending at Filed Disposed pending at

Section of the Act under June 30, during of during June 30,

~ch application was filed 1944 year year 1945

2 (a) (9) Determination of question

of control 5 1 withdrawn 4

3 (b) (2) Determination that applicant

is not an investment company 5 1 2 granted 4

6 (b) Employees' seeurity company

exemptions 1 1 denied

6 (c) Various exemptions not

specifically provided for by 1 wit.hdraan .

other sections of the Act 10 16 14 granted 11

-
Nature and Di

the Investment C

- 74-

osition of Various 1ications Filed under

Act of 1940 Fiscal Year 1945 Continued)

Number Number

pending at Filed Disposed pending at

Section of the Act under June 30, during of during June 30,

which application was filed 1944 year year 1945

6 (d) Exemption far small c1osedend investment companies

offering securities in intrastate commerce 1 1

8 (f) Determination that a registered investment companyhas

ceased to be an investment 1 denied

company 7 19 15 granted 10

9 (b) Exemption of ineligible persons

to serve as officers, directors,

etc. 37 37

11 (a) Approval of terms of proposed

security exchange offers 1 1 2

12 (g) Approval of acquisition of

control of existing insurance

companies 1 1 l'lithdrawn

17 (b) Exemption far proposed trans- 6 wi.thdrawn

actions between investment 1 denied

companyand affiliates 7 21 16 granted 5

23 (c) (3) Terms under which close~-end

investment companymay

purchase its outstanding 1 withdrawn

securities 1 2 1 granted 1

Newrule excludes certain guarantees as securities of the guarantor. -The Commission adopted during the year a rule dealing with the status of guaranteed

securities under the diversification provisions of Section 5 of the Investment

CompaqyAct of 1940, designated as Rule N-5B-2.

Under Section 5 (b) of the Act an investment companyis considered a "diversified company" if at least 75 percent of its total assets is represented by cash,

Governmentsecuri tie s, eecuri ties of other investment companies and securities

limited in respect of a~ one issuer to not more than 5 percent of the total assets

of such investment companyand to not more than 10 percent of the outstanding voting securities of such issuer. Since the term "security" is defined under the Act

to include a guarantee of a security, the securities of "any one issuer" dncLude

guarantees of securities of other companies by such issuer. This situation presents

dif!ieu1 t problems for the investment companyin the valuation of guarantees and

guaranteed securities in detendn;ng whether its investments meet the diversification

standards of the Act. These problems are further complicated by multiple guarantees,

guarantees solely of principal, or solely of interest, and guarantees which may

expire prior to the maturity date of the guaranteed security.

-
- 75 -

The new rule adopted by the Commissionalleviates these difficulties while retaining the basic diversification standards of the Act. The Fule provides, in

effect, that diversified investment companies may invest in guaranteed securities

on the basis that the guarantor is not the issuer of the securities provided that

the aggregate value of its investment in the direct issues of a companyand the issues guaranteed by such companydoes not exceed 10 percent of the value of the

total assets of the investment company. The rule does not affect the 5 percent and

10 percent limitations of Section 5 (b) as respects the direct obligations of

issuers. The rule also provides that guarantees by a railroad. of terminal, warehouse, switching or bridge companysecurities shall not be considered as securities

of the railroad if the guaranteed security is guaranteed by more than one railroad

no one of lfhich controls all of its co-guarantors. The rule also makes clear that

a lease or similar arrange~nt shall not be deemed in itself a guarantee.

STATISTICS RELATING TO REGISTERED INVESTMENT COMPANIES

At the beginning of the year 371 companies were registered as investment companies under the Act. Inasmuch as during the year 14 additional compa:niesbecame

registered., while the registration of 19 companies was terminated, there remained

366 companies registered at the close of the year, whose assets, it may be noted,

aggregated approximately $3,250,000,000. The comparative number of documents filed

under the Act during the past two fiscal years and certain other relevant statistics are ahosn in the following tabulation.

REGISTERED INVESTMENT COMPANIES

Numberof registered investment companies:

Beginning of year

Registered during year

Terminations of registration during year

Numberof companies registered at end of year

Notif'ications of registration

Registration statements

Amendmentsto registration statements

Annual reports

Amendmentsto annual reports

Quarterly reports

Periodic reports to stockholders containing financial statements

Reports of repurchases of securities by closed-end management

companies

Copies of sales literature

Applications for exemption from 'various provisions of the Act

Applications for determination that applicant has ceased to be

an investment company

Am,endmentsto applications

Total applications:

Pending at beginning of year

Filed during year

Disposed of during year

Pending at end of year

Fiscal year

1945 1944

371 390

14 a

19 27

366 371

14 8

8 5

26 47

235 248

41 53

768 809

671 706

134 111

1,489 910

41 34

18 21

35 57

70 95

59 55

59 8~

70 7~

*Adjusted figures.
- 76 -

CIVIL ACTIONS llISTITUTED BY THE COMMISSION

The Commission during the past year made use of its authority to file injunctive actions to restrain violations of the Investment Comp~~y Act of 1940 in three

cases. 11 In two of them, the Courts, acting under Section 36 of the Act, enjoined

officers and directors of registered investment companies from further serving in

such capacities on the ground that they had been guilty or gross misconduct and

gross abuse of trust in connection with their management of the companies involved.

In the case against British Type Investors, Inc., after the defendants by stipulation agreed to a reorganization of the company and to make restitution of benefits

acquired by them aggregating over $1,000,000 in value, the Commission agreed to a

dismissal of its complaint. In the case against Aldred Investment Trust, the Commission sought and obtained the appointment of receivers to safeguard the interests

of investors. In the case against First Investment Compa~ or Concord, New

Hampshire, a liquidating agent was appointed to wind up the affairs of the company.

In the Aldred case, Gordon B. Hanlon, for less than $20,000, acquired a

majori ty of Aldred's common stock which had no asset value but gave him control of

approximately $2,500,000 in assets. Aldred had a runded debt of $5,900,000 and had

been insolvent since 1937. Absent a derault in interest, the shareholders were not

entit.Led to put an end to the Trust until 2002. Earnings were insufficient to meet

the Trust's interest requirements. To prevent default in interest and possible

termination of the Trust, a large proportion of interest was paid out of capital.

Various plans of reorganization proposed by Hanlon, giving him an equity position,

were never ef'f'ectuated because they were considered by the Commission to be unfair

to the debenture holders. Thereafter, without adequately infonning the Trust's

security holders, Hanlon radically changed Aldred's investment policy by selling

approximately one-third of the Trust's choicest securities to acquire majority control of Suffolk Downs Race Track. Arter an extended trial the District Court

entered a judgment permanently enjoining Hanlon and certain other defendants from

serving as ofricers and trustees of Aldred. The judgment also provided for the appointment or receivers with power either to reorganize or liquidate the Trust in

the interest of investors. .

In S.E.C. v ; First Investment Company of Concord, New Hampshire, the CoIllIllissio

sought an injunction restraining Charles L. Jackman rrom serving or acting in the

capacity of ofrd.cer, director, member of the advisory board or investment adviser

of the company or any other registered investment company and permanently enjoining

all defendants from effectuating transactions in violation or Section 10 (b) of the

Securities Exchange Act of 1934 and Rule X-IOB-5 thereunder. The complaint alleged

that Jaclanan,while serving as president and director of the company, had been

guilty of gross misconduct and gross abuse of trust within the meaning of Section 36

of the Act. It was further alleged that Jackman operated and managed the company in

his own interest to the detrime~t of investors and caused First Investment's stockholders to sell their securities to his nominee under false and misleading information regarding the company's financial position. Jackman purchased the compa~'s

11 S.E.C. v. Otis, et al. (British Type Investors, Inc.) (U.S.~.C., S.D.N.Y.,

October 24, 1944).

S.E.C. v. Aldred, 58 Fed. Supp. 724, 151 F. 2d 254 (C.C.A. 1, September 17,

1945). On January 28, 1946, the Supreme Court denied certiorari.

S.E.C. v. First Investment Co

Administation of Securities

the Commission.)
77-

commonstock at prices ranging from $6 to $6.75 per share. He fai led to disclose to

stockholders, however, that he was in fact the purchaser and that, at the time of

the offer, the stock had an asset coverage of from $18 to $20 per share. In addition, stockholders were further misled by the company'sfailure to file with the

Commissionor to submit to its stockholders financial reports required by the Investment CompanyAct. The complete absence of financial information was of great as~istance to Jackmanin his stock acquisition program. It was further alleged that

Jackmancaused the companyto engage in numerousfinancial transactions with corporations controlled by him in violation of various sections of the Investment Company

Acto After the Commissioninstituted action, defendants consented to an injunction

under 1'ihichJackmanwas permanently enjoined from further serving the companyor any

other registered investment companyin any capacity and defendants were permanently

restrained from engaging in any acts or practices in violation of Section 10 (b)

of the Securities ExchangeAct and Rule X-10B-5in connection with the transactions

involved. Jackmanalso agreed to makerestitution.

In ~. v. otis, et al., the Commissionalleged that the officers and directors of British Type Investors, Inc., through control of Class B stock (which had

no asset value but carried all voting rights), engaged in a series of transactions,

the effect of which was to dilute the asset value of the Class A stock for their

own benefit. Class A stockholders had no voice in the managementof the company,

although they had the only equity position. It was alleged that Automatic Products,

Inc., an investment companycontrolled by British, had failed to register as an

investment companyin violation of the Act. After the Commissionfiled its complaint, defendants agreed to a reorganization of British to give its Class A stockholders the right to elect five of its seven directors, and to makerestitution.

Automatic also filed notification of registration. Thereafter, the action was dismissed on stipulation.

-
-?SPART VII

ADMINISTRATION OF THE INVESTMENT ADVISERS ACT OF 1940

The Investment Advisers Act of 1940 requires the registration of investment

advisers, that is, persons engaged for compensation in the business of advising

others with respect to securities. The Commission is empowered to deny or revoke

registration of such advisers if they have been convicted or enjoined because of

misconduct in respect of security transactions. The Act also makes it unlawfUl for

investment advisers to engage in practices which constitute fraud or deceit; requires investment advisers to disclose the nature of their interest in transactions

executed for their clients; prohibits profit-sharing arrangements; and, in effect,

prevents assignment of investment advisory contracts without the clientJs consent.

REGISTRATION

Figures are presented below wi.th respect to the registration of investment

advisers.

Investment Advisers' Registration Statistics

Year ending June 30, 1945

Effective registrations at close of preceding fiscal year

Applications pending at close of preceding fiscal year

Applicatio~ filed during fiscal year

Total

Registrations withdrawn during year

Registrations canceled during year

Registrations effective at end of year

Applications pending at end of year

Total

719

7

llS

844

51

4

780

9

844

As was pointed out in the Tenth Annual Report, the Commission is granted

authority to make investigations when it appears that the provisions of the Act

have been or are about to be violated, and by the use of its subpoena power may obtain information concerning such violations. However, the protections afforded

under the Act are not so extensive as those afforded with respect to the activities

of brokers and dealers under the Securities Exchange Act of 1934, chiefly because

the Advisers Act does not grant power to the Commission to inspect books and

records as does Section 17 (a) of the Exchange Act. The absence of such power

limits the effectiveness of the Act with respect to protection of investors. To

remedy this signal weakness as well as other related weaknesses in the Act, the

Commission, on January 31, 1945, sent a report to the Congress recommending certain

amendments to the Act. On July 5, 1945 the Honorable Clarence F. Lea, Chairman of

the Committee on Interstate and Foreign Commerce, introduced H. R. 3691, which contains the amendments recommended by the Commission. This bill has been referred to

the Committee on Interstate and Foreign Commerce.

To clarify the effect of Section 206 (3) of the Investment Advisers Act, as

well as the anti-fraud provisions of the 1933 and 1934 Acts, on transactions effected by investment advisers wi.th their own clients, the Commission, on February 5,

1945, made public an opinion by James A. Treanor, Jr., Director of its Trading and

Ex:change Division, to the effect that it is unlawful for an investment adviser

(whether or not registered under the Investment Advisers Act) to effect a transaction with or for a client, either as principal or as broker for another person,
- 79 -

unless he obtains the client's consent after having madefull df.sc'Losur-e of any adverse interest he may have. Y This disclosure, the opinion states, must include a

statement of the capacity in which the investment adviser proposes to act, the cost

of the security to the investment adviser where he proposes to sell, and the best

price at which the transaction could be effected by or for the client elsewhere if

such price is more advantageous to the client than the actual purchase or sale

price. The opinion states further that (except where no advice is rendered as to

the particular transaction) the Investment Advisers Act requires, in the case of a

registered investment adviser, that the disclosure of capacity be given in writing

and the client's consent obtained before the completion of each transaction of the

types in question.

CIVILACTIONSINSTlTU'!'EDBYTHECOMMISSION

During the fiscal period ending June 30, 1945 the Commissionfor the first time

invoked the aid of a court of equity in restraining violation of Section 203 (a) of

the Investment Advisers Act of 1940. Y That section prohibits any investment adviser from making use of the mails or any means or instrumentality of interstate

commerceunless he is registered with the Commissionin accordance with the Act.

The Commission's complaint alleged that one Charles A. Crowder, on a weekly broadcast over a small radio station for a considerable period of time, gave advice to

his listeners regarding the value of oil securities. At first his advice appeared

to be disinterested and.he built up a considerable following. He also solicited and

accepted moneyfrom his radio audience with which he purchased oil leases on their

behalf in which he retained interests in return for his advice and services.

Crowderwas not and had never been registered as an investment adviser under the Act.

Later Crowderwas approached by RoyE. Wilson, whoat the time was engaged in an

oil promotion with one Jom W.Myers. Wilson and 1!yers employedCrowderto adver»

tise their venture on the radio and to influence his listeners to purchase interests

in the promotion. Crowderdid so without disclosing that he was in the employof

Wilson and MYers. The complaint also alleged violations of Sections 5 (a) and 17

(a) and (b) of the Securities Act. All defendants consented to a permanent

injunction.

y Investment Advisers Act Release No. 40.

?:! S.E.C. v ; Roy E. Wilsonz et aI., U.S.D.C. E.D. rir., February 3, 1945.
BOPART VIII

OTHER ACTIVITIES OF THE COMMrSSION UNDER THE VARIOUS STATUTE'S

LITIGATION

Civil Proceedings

At the beginning of the fiscal year ending June 30, 1945, 30 civil proceedings

instituted by the Commissionwere pending; during the year, the Commissioninstituted

23 additional proceedings, including 14 injunctive actions brought against 45 persons to restrain them from fraudulent and otherwise illegal practices in the sale of

securities. Of this total of 53 proceedings, 27 were disposed of during the fiscal

year, including 13 cases which resulted in the entry of injunctions against 32

defendants. Twenty-six civil proceedings were pending at the end of the year.

Since its inception, the Commissionhas instituted a total of 531 civil proceedings and disposed of 505. Permanent injunctions have been obtained against 1008

firms and individuals.

Data with respect to civil cases and appellate proceedings commencedor pending

during the fiscal year and their status at the close of the year, together wi.th all

criminal proceedings, are included in AppendixTables 24 to 33. Someof the more

important of these .civil cases have been summarizedin the preceding parts of this

report.

Criminal Proceedings

The statutes which the Commissionadministers provide for the transmittal of

available evidence of statutory violations to the Attorney General who, in his discretion, mayinstitute appropriate criminal proceedings. The Commission,largely

through its ten regional offices, thoroughly investigates all suspected violations

and, whenever grounds from criminal prosecution are disclosed, transmits detailed

reports of investigation to the Attorney General. If criminal proceedings are decided upon, the Commissionassigns such of its employees as have participated in

the investigation to assist in preparing the case for presentation to the Grand

Jury, in conducting the trial, and in preparing briefs on appeal. Should the Commission's investigation disclose violations of statutes other than those which it

administers, the evidence is referred to an appropriate federal or state agency.

Up to June 30, 1945, a total of 365 criminal cases have been developed by the

Commissionand indictments against 2404 defendants have been obtained in these cases

by the Department of Justice. Of these, 23 indictments were returned during the

past year against BBdefendants. Convictions have been obtained against 1,173

defendants, 73 of lIhomwere convicted during the past year.

In the appeals decided during the past year, convictions were reversed as to

only 2. defendants. Judgments of conviction were affirmed as to 22 defendants, ap--

.peals were dismissed as to 4 defendants, and appeals voluntarily withdrawn by 2

others.

The status of all cases pending during the past fiscal year is set forth in

AppendixTable 27. As in previous years, the types of cases involved are varied.

'l'hua, they include frauds by and against broker-dealers; frauds in connection with

the sale of corporate securities, the exploitation of natural resources, the promotion of inventions, newbusinesses, and fraternal organizations; failure to keep

books and records as prescribed by the statutes; and the filing of false financial

statements and annual reports with the Commission.

-
- 81 -

Charges of fraud on the part of broker-dealers figured prominently in the cases

prosecuted during the year. In U.S. v, Guaranty Underwriters, Inc., et ale (S.D.

Fla. ), criminal sanctions were imposedfor the fraud involved in charging excessive

prices bearing no reasonable relation to prevailing market prices for securities

without appropriate disclosure to customers. This was the second successful prosecution based on this theory of fraud, the first being U.S. v , otto B. Dagg, et ala

(Dagg& Company,Inc.) (W.D.Wash.), convictions in lIhich were obtained in 1943. In

the Guraranty Underwriters case, defendants were also charged with numerousfalse

misrepresentations and the mak;ng of large secret profits on transactions in which

they represented investors in an agency capacity. The eight major defendants either

pleaded guilty or nolo contendere and were sentenced for violations of the fraud

provisions of the Securities Act of 1933, and other statutory offenses. y' Fraud

based upon the charging of excessive prices without adequate disclosure was also the

basis of the convictions in U.S. v. SamuelS. Alexander, et alo (S.D. N.Y.) where

fractional undivided trrtereste in oil, gas and other mineral rights in various

tracts of land were sold at prices ranging up to 328%of cost. Defendants also made

numerousfraudulent misrepresentations in the sale of these securities.

Fraudulent conduct of business as a broker-dealer is also charged by the indictments pending in U.S. v, MaxwellGoldberg, et ala (Maxwell& Co., Inc ,') (D.

Mass.), U.S. v , EdwinP. Woodman,et ala (Woodman& Coo) (D. Mass.), and UoS. v ,

W. R. HempsteadCo., et ale (D. R.I.). In the first case, the indictment 'charges

such practices as the unauthorized pledging of eustamers' securities, the fo~gery

of customers' checks, the forgery of signatures to assignments of customers'

securities, and the printing and sale of spurious stock certificates and debentures.

In the latter two cases, defendants are charged, inter alia, with practices such as

the acceptance of orders and deposits while insolvent and being unable to execute

customers' orders, the conversion of securities deposited by customers, the keeping

of false records, and the filing of false financial statements with the Securities

and ExchangeCommission.

other cases involving frauds by broker-dealers are U.S. v , RoyEo Crummer,et

ale (The Brown-CrummerInvestment 0-0.) (D. Kan, ) where the pending indictment

charges fraud in the collection of customers' securities in a municipal refunding, Y

and U.S. v. SamuelSo Alexander (S.D. N.Y.) which marks the first conviction of a

registered securities dealer for failure to keep and preserve accounts, correspondence,books and other records as required by Section 17 (a) of the Securities

ExchangeAct of 1934 and Rules X-17A-3and X-17A-4prescribed by the Commissionas

necessary and appropriate for the protection of investors.

U.S. v : Jom N. Landberg (E.D. Pa.) involved a conviction for frauds perpetrated

upon various securities brokers. Defendant would induce brokers to purchase securities for the account of his wife upon the false representation that other securities

of the latter would be deposited to secure payment. After the securities had been

purchased, defendant would refuse payment, and would direct that they be sold and

the profits turned over to hiln. If the newly purchased securities had declined in

value, he would then reveal his lack of authority to act for his wife.

Fraudulent misrepresentations in the sale of securities in connection with the

promotion of inventions or scientific discoveries were the basis for the convictions

11 The indictment was nolle prossed as to three minor defendants.

31 A second indictment against 13ubstantially the samedefendants alleging similar

frauds in connection with another municipal refunding was dismissed by the

District Court for vagueness and insufficiency to apprise defendants of the

nature of the charges. An appeal by the governmentis pending.
- 82 -

in U.S. v , Harvey H. Hevenor (General Ordnance Oo, , Inc.) (S.D. N.Y.) (newtype

mechanical fuses for anti-aircraft projectiles); U.S. v. August F. Slater (Automatic Engineering, Inc.) (S.D. Cal.) (newautomobile parking device); U.S. v , Leslie

G. Bowen,et a1. (BowenIndustries) Y (W.D.Mo.) (mechanical device for use in

the manufacture of bicycles); and U.S. v ; ChemicalResearch Foundation, Inc., et

ale (D. Del.) (pharmaceutical formulae).

A substantial number of the cases active during the past fiscal year involved

charges of fraudulent mining promotions and frauds in which oil and gas properties

were the underlying basis for investment. The oil and gas cases are U.S. v , Samuel

S. Alexamer, et ale (S.D. N.Y.) 3/; U.S. v ; Frcnk Mansfield, et al."lCentral

Securities Co.) (W.D.Tex.) 2/; U.S. v. Jacob M. Danziger, et ale (Trinidad International Petroleum, Ltd.) (S.D. Cal.) y; U.S. v ; George A. Earnhardt, et a1. (Big

BendRealty and DevelopmentOo, , Inc , ) (S.~Ind.) jj; U.S. v, James F. Boyer, et

a1. (S.D. Fla.) Y; U.S. v , Frank V. Raymond(D. Md.) JIJand U.S. v , GeorgeA.

King, et ale (CrowOil & Refining ce., Ltd.) (S.D. ru.). y In the Mansfield and

Earnhardt cases, the securities sold took the less commonform of deeds to lands

with collateral promises and agreements pertaining to the drilling of test wells and

otherwise developing markets for the properties involved.

Themining stock cases are .!hQ. v. Eldridge So Price (D. Kan.) 2/; U.S. vo

EdwardJ. Stoll, et ale (Multi Metals Corp.) (S.D. Iowa)-lO/; U.S. v , Franklin

Lamon;et a1. (Graphite Companyof America) (D. Del.) ll{;Q.S. v , James Ho Collins,

et a1. (Union Associated Mines os.) (S.,D. Cal.) 12/; aiiO U.S. v , E. M. McClean, et

~Devon Gold Mines, Ltd.) (E.D. Mich.) W. In the last mentioned case, which

Y The principal defendant was found guilty and has appealed. Twominor defendants

were acquitted.

3/ Four defendants pleaded guilty. The remaining defendant was convicted after

trial.

y Appeal pending from.judgments or conviction.

Y Onedefendant pleaded guilty. Three defendants were found guilty after trial and

have appealed from their convictions. Trial is pending as to the remaining two

defendants.

2.1 Both defendants convicted after trial. Onehas appealed.

Y Trial pending.

7J Idem.

Y Two defendants convicted after trial. Indictment dismissed as to remaining defendant. Convicted defendants filed notices of appeal, September 29, 19450

Y Trial pending.

10/ Idem.

!!/ Onedefendant plead nolo contendere. The other was convicted after trial.

E:I Appeals from judgments of conviction pending.

13/ Three indictments. Trial pending in .first. In the second, one de.fendant pleaded

guilty, two were convicted after trial, and trials are pending as to the remaining four defendants. In the third, one defendant pleaded guilty, two were convicted after trial, and trials are pending as to the remaining nine defendants.

Defendants convicted after trial have appealed.
- 83 -

involved the sale of Canadian gold mine stock to residents of the United States in

violation of tre registration and fraud provisions of the Securities Act of 1933

and other statutes, the defendant-manager of the Canadian securities concern was

sentenced to ten years r imprisonment and fined $5,000 and one of the principal salesmenwas sentenced to seven years r imprisomnent and fined $1,000. These are the

severest sentences which have been imposedduring the past fiscal year.

Convictions for fraudulent misrepresentations in the sale of insurance company

stock were obtained in U.S. v. George Howell, et ale (S.D. Tex.) (Texas National

Life Insurance Company),and in U.S. v , Wi1lllingtollFire Insurance Co., et ale (D.

Del.)

Fraudulent sales of securities of an alleged fraternal and educational association formed the basis of the conviction of the principal defendant in U.S. v , Hugh

G. Carruthers, et ale (N.D. rri.), According to the indictment, Carruthers

organized the Neological Foundation in 1936, purportedly for the spiritual improvement and economic self-betterment of its members. Its membershipconsisted chiefly

of persons whoby reason of distress could be persuaded that solace 'and selfbetterment would be obtained by joining the Foundation and adhering to its so-called

"neological" course of training. Thereafter, Carruthers obtained loans from members

for the alleged purpose of expanding the association's activities, furthering its

policies, and carrying on various business enterprises "to be operated by the Foundation including the manufacture and sale of hair shampoo,a tonic laxative, a course

of instruction in personal development, and a daily newspaper. Memberinvestors

were promised 6% interest plus a bonus of 4% with a dividend of 50% of principal at

the end of three years. Instead, Carruthers allegedly diverted substantial amounts

of the funds obtained for his own use and benefit. Verdicts of not guilty were

directed by the court as to two minor defendants. Carruthers appealed to the

Seventh Circuit Court of Appeals which, on December27, 1945, affirmed the judgment

of conviction.

A "front money"schemefor the defrauding of persons desirous of obtaining

capital for the financing of newbusinesses or the expanding of established ones

was involved in U.S. v ; AmsterLeonard, et ale (E.D. Mich), in which both defendants

were convicted. Defendants would contact persons seeking capital and offer aid in

the raising of the necess~ capital through their so-called "Founders Syndicate

Plan" and the sale of pre-organization certificates through 260 "key men". Victims

were induced to part with "advance fees" or "front money"under the representation

that defendants would obtain the desired capital although the latter knewthat they

could not and did not intend to raise newcapital through the "Planll

Other fraud cases are U.S. v. W.R. Frentzel, et ale (OceanCrab Pot Operators,

Inc.) (W.D.Wash.) involving profit-sharing agreements in connection with sales of

traps for ocean crab fishing Y; u.S. v , Federal F'yr-Ex Company,et ale (S.D. N.Y.)

involving the promotion of an allegedly non-existent fire extinguisher manufacturing

business y; and 1h.2. v. Charles T. Rice, et ale (Parquay Royalty ce., Inc.) (W.D.

Wash.) y-and .!!.&. v : Maurice N. Lea:vitt, et ale (LakemoorDevelopmentce.) (W.D.

Y Principal defendant pleaded guilty. Indictment dismissed as to co-defendant.

Y Trial pending.

2/ Defendants convicted after trial. Conviction of one defendant reversed on

appeal for admission of incompetent evidence and case remandedfor retrial.

•

•
- 84 -

Wash.) y, both involving fraudulent misrepresentations in the sales of securities

for corporate promotions.

The making of false and misleading statements in reports required to be filed

under the Securities Exchange Act of 1934 is charged by the indictment pending in

~. v. Liggett &Myers Tobacco C003 et ale (E.D. Pa.). According to the indictment, defendants conspired to conceal the existence of a profit-sharing plan, known

as the B Fund Bonus3 providing for the payment of a portion of designated net profits of the company to certain officers and employees other than th~ president and

vice-presidents. It is alleged that in filing application for registration pursuant to Section 12 of the Act, defendants set forth only one bonus plan-that provided by the company's by-laws affecting the president and vice-presidents--but

failed to disclose the B Fund Bonus plan. Moreover, in the companyt s Form 10-K

annual reports for the years 1935-1942, inclusive, defendants wou~d state "none" or

"no changes" in answering questions concerning bonus plans not previously reported

and would thereby fail to reveal the existence of this B Fund Bonus plan.

Of the criminal appeals decided during the past fiscal year, several are

worthy of mention. In U.S. v , H. B. Monjar? et al. (The Mantle Club), 147 'F. 2d

916 (C.C.A. 3, 1944), cert. den., 65 Sup. Ct. 1191 (1945), the court sustained the

convictions of 12 defendants on charges of defrauding members of a fraternal

organization in obtaining personal loans and the sale of investment contracts. The

Supreme Court denied certiorari in U.S. v. Minuse, et al., 323 U.S. 716 (1944),

where the Second Circuit Court of Appeals had upheld convictions for a stock "jiggle"

in the Class A capital stock of Tastyeast3 Iric , , a security listed on the New York

Curb Exchange [f.42 F. 2d 388 (1944)]. In U.S. v ; Edmond B. Bronson, et al. (Bagdad

Copper Corp.), 145 F. 2d 939 (C.C.A. 2, 1944)3 convictions were upheld for the sale

of treasury stock at prices greatly in excess of the amounts to be received by the

companY3 on the theo~ that such practices, just as in the case of the sale of a new

issue under similar circumstances, constitutes fraud per ~. 31 In U.S. v , Herman

Kadison, et ale (Commerical Underwriters, Inc.), 145 F. 2d 525 (C.C.~7, 1944),

the court sustained convictions for the sale of defendants' personally owned worthless stock under the misrepresentation that it was valuable treasury stock'and for

other fraudulent misrepresentations in the sale of the securities. In Louis J.

Ascher? et ale v. U.S. (Sentenal Corp.), 143 F. 2d 592 (C.C.A. 6, 1944), convictions

were sustained for fraud in the sale of vending machines under a "lease back"

arrangement involving servicing of the machines by the vendors and the sharing of

profits.

Y Two principal defendants pleaded guilty. Indictment dismissed as to two minor

defendants. Indictment pending as to one defendant.

Y The appeal was dismissed as to a minor defendant.
- S5 -

COMPLAINTS AND INVESTIGATIONS

The Commission received during the year approximately S,000 items of mail concerned with alleged securities violations which is classified administratively as

"complaint enforcement" correspondence. This material constitutes one of the Commission's chief sources of information concerning possible securities violations,

while investigations made by the Commission Is staff and contacts maintained with

other governmental (Federal, State, and local) or private agencies provide additional sources of such information. Where it appears on the basis of any such data that

any such violation may have occurred, the Commission conducts appropriate investigations by means of correspondence or the assignment of cases to field investigators

to ascertain the facts of the particular case. The extent of these investigatory

activities of the Commission during the past year, under the Securities Act of 1933,

the Securities Exchange Act of 1934, Sections 12 (e) and (h) of the Public Utility

Holding Company Act of 1935, the Investment Company Act of 1940 and the Investment

Advisers Act of 1940, is reflected in the following table:

Investigations of securities violations l!

Pending at J~e 30, 19~

Opened 7-1-~ to 6-30-45:

New cases

Transferred from preliminary

Total number of cases to be accounted for

Closed

Transferred to docketed

Pending at June 30, 1945

Preliininary y

136

129

265

43

33

lS9

Docketed 21

539

239

33

811

110

701

Total

675

36S

33

1076

153

33

S90

A list of the civil, criminal, and other actions resulting from certain of these

investigations is set forth in Appendix Tables 24 27, inclusive.

To assist its continuing enforcement and registration activities, and to provide a further means of preventing fraud in the purchase and sale of securities, the

Commission has established what is called for convenience a Securities Violations

File, consisting of a clearing house of information concerning persons who have been

charged with violations of various Federal and State securities statutes. This

clearing house has been kept up-to-date during the past year as in previous years

through the cooperation of the United states Post Office Department, the Federal

Bureau of Investigation, parole and probation officials, State securities commissions,

Federal and State prosecuting attorneys, police officials and other public agencies,

members of the National Association of Better Business Bureaus Inc ,, and members of

the United States Chamber of Commerce. By the end of the past fiscal year the Co~

mission had assembled in these files data concerning an aggregate of 45,77S persons

against whom Federal or State action had been taken in connection with securities

violations. During the past year alone additional items of information relating to

3505 such persons were added to these files, including information concerning 1459

persons not previously identified therein.

11 These investigations of securities violations include the oil and gas investigations lfhich are separately tabulated and discussed in Part I of this report.

y Investigations carried on through correspondence and limited field work.

21 Investigations assigned to field investigators.

-
- 86 -

The extensive use made of this clearing house of information is suggested by

the fact that during the past year the Commissionreceived in connection with its

maintenance approximately 2,500 ftsecurities violations" letters or reports (apart

from those mentioned above which are classified as t1complaint enforcement") and

dispatched about 3,000 communications in turn to cooperating agencies.

ACTIVITIES OF THE COMMISSION IN THE FIELD OF ACCOUNTING AND AUDITING

Effect of the War and the Pro~pect of Reconversion

The difficul tie s and uncertainties inlrerent in wartime accounting have been

commentedon in previous Annual Reports. During the past year, the major problem in

this area has been the application of procedures developed in prior years to the

special circumstances presented in individual registration statements and reports.

At the same time the rapid pIlogress of the war necessitated extensive consideration of the accounting and disclosure problems that would arise when war business

was cut back or terminated and the process of reconversion to peacetime operations

and markets began. As one step toward dealing with these problems, efforts were

begun in the fall of 1944 to provide for a system of current reporting which would,

first, enable investors to determine the extent to which cut-backs and terminations

consequent upon the approaching end of the war affected particular companies; and

second, furnish them with some indication of the speed with which particular companies were able to reconvert to peacetime production and to reenter the civilian

markets. Such financial information, by companies, seemed essential since general

announcements as to cut-backs and terminations rarely disclosed their effect on

particular companies and it was clear, in any event, that the end of war operations

would comeat different times and in different degrees so far as any individual

companywas concerned. Discussions were first had with the appropriate Federal

agencies to determine whether such modification of censorship and'secrecy restrictions as would be necessary to permit general publication of pertinent data could

be madewithout detriment to the war effort. At the same time, extended discussions

were undertaken with interested registrants, technical associations and others to

determine the most useful and practicable form for such current reports. As

finally developed, the program applies to all companies having a substantial amount

of war business and calls essentially for quarterly reports as to war and non-war

sales and as to war orders, beginning with the most recently ended fiscal year of

the company. In addition, an immediate report is obtained whenever a particular

termination cancelled a war contract the uncompleted portion of which amounted to

over 20%of the registrant's total sales for the previous fiscal yearo

A second important problem in this field was the treatment to be accorded

terminated war contracts in financial statements issued prior to the date of final

settlement. Fortunately, the development of Uniform Termination Procedures under

the Contract Settlement Act of 1944 so clarified the problem that it was possible,

well before volume termination of war contracts began, to reach general agreement,

both within the Commissionand amongaccountants and companies, as to howsuch

claims were to be reflected in financial statements. 3/

!IAnnouncedin Securities Exchange Act of 1934, Release No, 3718, July 23, 1945.

31 The Commission's position was established in December, 1944 by the issuance of

an internal staff memorandum, In April, 1945, the Committee on Accounting Procedure of the American Institute of Accountants issued its bulletin "Accounting

for Terminated War Contracts.

~
- 87 -

A third problem arising out of reconversion is the disposition of so-called

war reserves. During the war period, manycompanies established reserves as a protection against losses or expenses which registrants anticipated would be encountered

after the war ended but which they felt should be attributed to war operations. The

exact amounts of manysuch losses and expenses cannot, of course, be determined until

after cessation of war operations, and,in someinstances, many months thereafter.

However,it is essential that definite criteria be established to assure that only

true war expenses be charged against such reserves, either directly or indirectly.

If especial care is not exercised in this regard, the operations of post-war years

maybe relieved of charges and costs applicable to such operations with a conseqUent

inflation of reported net income. In view of its importance, this problem is being

given extensive consideration, and discussions have been had with respresentatives

of accounting societies and other interested persons, with a view to arriving at a

practicable solution.

Accounting and Auditing

During the past year the Commissionissued a numberof decisions or opinions

dealing with accounting or auditing matters. In the Leedy, Wheeler & Company

case 11 the respondent, a registered broker-dealer, had employeda pro-forma balance

sheet in selling securities to the public but had not disclosed the nature of the

assumedtransactions that had been reflected therein. Moreover, the assumptions

made in preparing the pro-forma statement were of questionable validity. Finally,

the balance sheet concealed an operating deficit by netting it against capital stock

accounts without disclosure. The Co1llIl1ission, after discussing the proper functions

and uses of pro-forma statements, found that the pro-forma balance sheet in question

was misleading and deceptive 0

In its findings and order in the Suburban Electric Securities Company31 case

the Commissionpointed out a numberof improper accounting practices followed by the

registrant, including its failure to recognize an apparently permanent impairment

in the value of its investments in certain subsidiary companies and its failure to

provide for depreciation on depreciable assets of a subsidiary. However,since just

prior to the conclusion of the hearings in the matter the registrant amendedits

financial statements to cure these improprieties the Commissiondetermined that it

was not necessary to suspend or withdraw the registration of the registrant!s

securities under the Securities ExchangeAct of 1934.

Several other accounting questions were dealt with in opanaons of the Chief

Accountant issued during the past year as part of the CommissionIs Accounting Series

releases. Release Noo 50 in this series concerned the practice of writing downor

writing off good1rlll by charges to capital surplus and served to draw attention to

the general applicability of the CommissionIs views expressed in a previous

opinion. Y The release pointed out that where intangible assets had been acquired

for cash or its equivalent their write-off to capital surplus was improper, inasmuch

!IIn the Matter of Leedy, 'Wheeler& Company,Securities ExchangeAct, Release No.

3593 _S.E.C._, July 29, 1944.

31 Securities ExchangeAct of 1934, Release No. 3655 S.E.Co (February

8, 1945).

Y In the Matter of Associated Gas and Electric Company, Securities ExchangeAct of

1934, Release No. 3285A, 11 S.E.C. 1025, August 5, 1942.
, I

- ssas it circumvented the charging to income or earned surplus of items which were

properly chargeable thereagainst, with a resulting overstatement of income and

earned surp'lus and an understatement of capital. The charge to capital surplus in

such circumstances, the release points out, is in violation of the fundamental accounting principle that a distinction should be maintained between capital and

income. Accounting Series Release No. 52 discussed certain problems relating to the

presentation in financial statements of Federal income and excess profits taxes in

cases where a company,for which individual financial statements are filed, pays

its tax as a memberof a consolidated group of coepantes ,

During the period of high, wartime rates of corporate income taxes, some companies and accountants have sought to reflect in the income statement not only

charges for the income taxes estimated to be actually payable but also additional

amounts representing so-called "tax-savingsH or "tax reductions" caused by

difrerences in the accounting treatment afforded certain items for tax purposes

and ror financial reporting purposes. This practice, the propriety of which is

supported or condoned by somepublic accountants and objected to by others, has

been the subject of extended discussion between the CollDllissionand representatives

or various professional accounting societies and other interested persons. These

discussions have indicated a reeling, both within and without the Commission,that

financial statements in 1¥hichthis practice is followed are frequently unsatisfactory, if not actually misleading, to the investor. It is expected that upon completion of these discussions the Commissionwill promulgate an opinion concerning

the marmerin which these Jttax-savingsJ1 or "tax reductions" should be dealt with in

financial statements filed with the Commission.11

One of the most perplexing of the accounting problems nowfacing the Commission is the question of whether there are circumstances under which certain items

of income, expense or loss may justifiably be excluded from the computation of net

Lncoae as shownby the profit and loss statement and carried directly to earned

surplus. Over the years, a great many cases involving this question have cometo

the attention of the Commission. A staff study of an extensive sample of such cases

discloses a very great disparity in treatment of items wholly similar in nature.

HeterogeneouBtreatment of such items obviously increases the difficulty of C'omparing income statements as between years and particularly as between competiti ve

companies. Accordingly, certain tentative changes in the Commission's regulations

have been prepared with a view to securing more uniform and intelligible income

statements through a requirement that, in the absence of very exceptional cf.rcumstances, all items of loss, expense and income shall be reflected in the income account. These proposed amendmentshave been sent for commentto many companies having financial statements on file with the Commission,to the various professional

accounting societies, and to other interested persons. While the responses received

indicated,. a general agreement with the proposed amendmentsin principle, it appears

necesB~ to establish reasonably clear-cut and objective criteria for determining

when, if at all, certain items maybe considered to be so extraordinary in nature

as to permit their exclusion from the computation of net income. The problem is

now undergoing f'urther study in light of' the suggestions received.

Additional staff consideration has been given during the past year to proposals

for a comprehensive revision of' the accounting requirements applicable to investment

companies under the 1940 Act. The proposed revision has been discussed in detail

with representatives of the industry, practicing accountants, and other interested

persons, but bas not yet been finally acted upon by the Commission.

The Commissionhas continued to give carefUl attention to its overall requirements as to financial statements with a view to their silJlplification and integration

11 Announcedin Accounting Series Release No. 53, November16, 1945.
-89-

with the requirements of other agencies, wherever practicable and feasible. During

the past year, for example, the staff has worked closely with another governmental

agency on a program for integrating the respective reports required of companies

subject to their commonjurisdiction.

Cooperation with Professional Societies and Others

As in previous years, the Commissionhas sought to add its full influence to

that of the professional accounting societies and others interested in maintaining

accounting and auditing standards at a high level. As in the past, the Commission

has, wherever practicable, invited professional accounting societies, Federal and

State agencies, and manyother interested persons to review and commentupon proposed

rules and regulations pertaining to accounting matters. In appropriate cases conferences of such persons with the Commissionor the staff have been arranged.

Reciprocally, the Commissioninformally has accepted the invitation of professional

accounting societies to make suggestions or commentsas to proposed actions or

bulletins of such organizations. Substantial benefits, Whichare reflected in all

types of financial statements whether comingunder the jurisdiction of the Commission

or not, have resulted from these activities.

Professional Conduct

Certification of financial statements, if it is to operate as an added protection to investors, must be based on an impartial and expert review of the financial

aff"airs of the company. Disregard of professional standards of conduct applicable

to such revievmfurnishes grounds for disbarring an accountant from fUrther practice

before the Commissionpursuant to Rule II (e) of the Rules of Practice. During the

past year the Commissioninstituted proceedings under this rule against an accountant whohad certified financial statements filed with the CoIlDDissionby a securities broker-dealer. Investigation disclosed that the accountant in question had

knowingly violated the Commission's accounting and auditing rules, had failed to

make an appropriate audit of the broker-dealer's accounts, and bad unqualifiedly

certified to financial statements that were grossly misleading. On the other hand,

the failure of the certified public accountant to perform a satisfactory audit did

not appear, in this instance, to have contributed to the fraud perpetrated by the

broker-dea1.er involved, nor did his extreme laxity appear to have occasioned losses

to investors of the brokerage firm. Under these circumstances the Commissiondiscontinued its proceedings upon receipt of a stipulation that the accountant would

never again practice before this Commission. In order to emphasize the importance

of the requirelllents for certification of broker-dealer financial statements, the Commission published Accounting Series Release No. 51 summarizing the facts of this

case.

Informal Consideration of A.ccountingProblems Raised in the Case of Individual

Registrants

The examitlation of rinancial statements riled by registrants pursuant to the

various Acts administered by the Commissionhas always accounted for a large part

of the Commission's activities with respect to accounting and auditing matters.

DP.f"icienciesin the statements disclosed by such examination are called to the

attention of registrants by correspondence, and,in maqy instances, the deficiencies

becomethe subject of" informal conferences between the COnmUssiont s staff and

representatives of particular registrants. It is a commonoccurrence, also, for

persons intending to file financial statements to arrange for pre-filing conferences

in an eff"ort to agree upon a solution to the more difficult accounting problems involved in proposed statements. These conferences have proved to be a particularly

expeditious Eans of resolving difficult or unusual questions where the problem

presented is not covered by a specifi.c rule or "Wherethe application of existing
90-

rUles is uncertain. They also play an important role in securing dependable and

informative financial statements for investors.

STATISTICS AND SPECIAL STUDIES

Capital Markets Statistics

The Commission in the fiscal year ended June 30, 1945 continued to compile and

analyze statistics on the volume and characteristics of offerings and retirements of

securities; the distribution of and the changes in ownership of securities between

different groups of institutional, corporate, and individual holders; and various

other aspects of capital markets statistics. Figures were released monthly showing

the volume of all new issues of securities known to have been offered within the

United States for cash sale in amounts of more than $100,000, together with breakdowns comparing the amounts of: public offerings and private placements; bonds,

preferred stocks, and common stocks; corporate and non-corporate issues; and the net

proceeds intended for refunding and for expansion of plant and equipment and working

capital of each principal industrial group.

It was possible to release regularly additional breakdowns of the dollar volume

of securities registered under the Securities Act to show: the amounts registered

for exchange, conversion, etc., as well as for cash sale; the volume of secondary

as well as prim~ distributions; the amounts offered through investment bankers and

directly by the issuers; the volumes expected to be absorbed primarily by the general

public, by security holders, and by other special groups; and the distribution by

investment banking firms of underwriting commitments and syndicate management

activities. A special study of the cost of flotation of stocks registered for sale

under the Securities Act by small companies was published during the Year, and data

were gathered for future analysis on the success of flotation of small nonunder--

written issues. In addition to information published on the capital markets, many

special adaptations of the basic data were made to problems met in the day-to-day

operations of the Commission and to questions raised by other governmental agencies

and by members of Congress.

Saving study

The Commission continued its series of quarterly releases on the volume and

composition of saving by individuals in the United States. These releases show the

aggregate volume of individuals' saving, that is, the increase in their assets less

the increase in their liabilities, exclusive of gains or losses from revaluation of

assets. The figures also show the components contributing to this total, such as

changes in securities, cash, insurance, consumers' indebtedness, and consumers'

durable goods.

Financial Position of U.S. COrporations

The series of quarterly releases on the working capital position of all United

States corporations , exclusive of banks and insurance companies, 1'laS continued.

These releases show the principal components of current assets and current liabilities and an abbreviated analysis of the sources and uses of corporate funds. In

addition, a series of supplementary tables was inaugurated in July 1944 showing a

detailed breakdown of current assets and liabilities for various industry and size

groups of corporations registered with the Commission. It is intended in subsequent

reports to present more detailed data on the sources and uses of corporate funds,

thus giving a complete pictUre of the volume and composition of corporate saving as

well as an up-to-date analysis of the financial condition of corporations.

-
- 91 -

Shortly after the close of the fiscal year the Connnission,together with the

Department of Commerce,initiated a regular quarterly survey of private plant and

equipment expenditures by U. S. business other than agriculture. It is planned to

publish shortly after the end.of each quarter industry totals on the actual capital

expenditures of that quarter and anticipated expenditures f'or the next two quarters.

These data should provide a useful index of present and future activity in the

capital goods industries and capital markets and a valuable barometer of business

activity in general.

Survey of AmericanListed Cory orations

During the past fiscal year, the Commissionagain released for public and

government use statistical data filed with the Commissionby registrants under the

Securities ExchangeAct of 1934 and the Securities Act of 1933. These data are

summarizedin a series of reports knownas the "Survey of AmericanListed Corporations" showing individual data for each companyas well as industry totals for

registered companies. Two series of reports 'were completed in the past fiscal year,

one covering "Data on Profits and Operations, 1942-1943" ani another "Balance Sheet

Data, 1939-1943". Principal items furnished in the reports on profits and operations are data on sales, costs and/or operating expenses, operating profits, net

profit before and after income taxes, depreciation, depletion, etc., maintenance

and repairs, selling, general and administrative expenses, and return on net worth

before and after taxes. Each of these companies' reports also shows data before and

after renegotiations of all contracts, the amounts and ef'fects of "c~-backsft of

taxes and data on tennination of contracts whenever reported. "Balance Sheet Data,

1939-1943" contains detailed balance sheets for the same industry groups which were

included in the reports on profits and operations nth condensed statements for each

of the individual companies. Covering five years, the principal items in the report

are current assets ani current liabilities, investments, land, buildings and equipment and applicable reserves, post-war refunds of excess-profits taxes, capital

surplus, earned surplus, total assets, total liabilities and net worth, and in

addition to these bal.ance sheet items preferred. and cODllllOndividends paid.

InvestDlent Company Data

Data for closed-end. and. open-end managementinvestment companies were compiled

and released quarterly showingpurchases and sales of their 01Il1 stocks and bonds and

changes in their portfolios and in their principal asset items.

Stock Market Statistics

The Commissioncontinued to publish indexes of weekly closing prices of common

stocks on the NewYork Stock Exchange, the monthly market value and volume of sales

on registered and exempted securities exchanges, daily and weekly round-lot stock

sales on the two NewYork Exchanges, weekly r-ound-Lot, stock transactions on the New

York Stock Exchange for accounts of membersard nonmembers,weekly round-lot and

odd-Lob transactions on the NewYork Curb Exchange for accounts of membersand nonmembers, and da~ odd-lot stock transactions on the NewYork Stock Exchange for

odd-lot accounts of odd-lot dealers and specialists.

Special Studies

The Commission's staff continued its studies on various aspects of trading in

securities, including a report on floor trading, an analysis of broker and dealer

trading, and a study of' the financial condition of brokers. other studies were conducted during the year on the methods of compensating customers' men, the division
- 92 -

of brokerage fees in special offerings, trading in certain foreign securities,

trading practices on two of the national securities exchanges, the volume of purchases and sales of security options, and general research on exchange rules and

practices.

War Activities

As a part of the Commission's war activities, several membersof the staff

were loaned to various war agencies and committees for special economic investigations in Germany.

PUBLICATIONS

Public Releases

The releases issued during the past fiscal year included 74 under the Securities

Act of 1933; 126 under the Securities Exchange Act of 1934; 768 under the Public

utility Holding CompanyAct of 1935; 123 under the Investment CompanyAct of 1940; and

2 under the Invest:uent Advisers Act of 1940. In addition, 3 releases were issued

concerning the Commission's activities in corporate reorganizations, and 4.releases

were issued under the Trust Indenture Act of 19390

The following is a partial classification by subject matter for the past fiscal

year:

Findings, Opinions and Orders

Orders, excluding those with

Findings and Opinions

Reports on Court Actions

Statistical data

Survey series

Accounting series

other Publications

Decisions and Reports of the Commission:

276

543

73

10

6

4

Buckram-Bound

Volume11 March 8, 1942 to August 31, 1942

(The Decisions and Reports of the Commissionmaybe purchased from the

Superintendent of Documents, GovernmentPrinting Office, Washington, D.C.,

and a price list will be furnished upon request.)

Twelvemonthly issues of the Official Summaryof Security Transactions

and Holdings of Officers, Directors and Principal Stockholders 0

List of Securities Traded on Exchanges under the Securities ExchangeAct of

1934, as of December31, 1944, together with Supplements thereto 0

Security Issues of Electric and Gas Utilities, 1935-44.

Financial Statistics for Electric and Gas Subsidiaries of Registered

Public utility Holding Companies, 1944.

Report on Floor Trading January 15, 19450

-

-
- 93 -

(A complete list of the Cammissionts publications, the Rules of Practice

or the Guide to FormslVill be sent upon request made to the o.ffice of the

Commissionin Philadelphia, Pennsylvania.)

CONFJDENTIAL TREATMENT OFAPPLICATIONS, REPORTS,ORDOCUMENTS

Conditions under which the Commissionmayprovide for the confidential treatment

of information contained in applications, reports or documents which registrants are

required to file under various Acts ~istered by it have been described in the

Tenth Annual Report, page 217. The Commission, in exercising this power, determines

whether disclosure of the information in question is in the public interest, or

lIhether it would be inconsistent with the standards of the Code of Wartime Practices

promulgated by the United states Office of Censorship.

The number of applications for such confidential treatment received and acted

upon during the past fiscal year is indicated below.

Applications for confidential treatment-Fiscal Year 1945

Number Number

pending pending

July 1, Number Number Numberdenied June 30,

Act under which filed 1944 received granted or withdra1lIl 1945

Securities Act of 1933 !I 1 55 50 3 3

Securities Exchange Act of

1934 EJ 10 94 66 14 24

Total II 149 ll6 1'7 27

!IThese figures represent applications filed under Rules 580 and 171.

EJ These figures represent applications filed under Rules X-24B-2 and x-6.

INFCRYATION AVAILABLE FOR PUBLIC INSPECTION

The Commissionmaintains public reference rooms at the central office in

Philadelphia, Pennsylvania, and in its regional offices in New York City and Chicago,

illinois.

Copies of all public information on file with .the Commission, contained in

registration statements, applications, reports, declarations, and other public documents, are available far inspection in the public reference room at Philadelphia.

During the past fiscal year 2,454 persons visited this public reference room seeking

such information. In addition to providing facilities for personal inspection of

registered public information, the public reference room received thousands of

letters and telephone calls from persons requesting registered information. (This

does not include requests for copies of releases, forms, publications, etc.) Through

the facilities provided for the sale of copies of public registered information,

2,312 orders, involving a total of 181,753 pages, were filled.

In its NewYork Regional o.ffice, located at 120 Broadway, facilities are provided for the inspection of certain public information on file with the Commission.

This includes copies of (1) applications for registration of securities on all

national securities exchanges, except the NewYork Stock Exchange and the NewYork

Curb Exchange, together with copies of annual reports, supplemental reports and

amendmentsthereto, and (2) annual reports filed pursuant to the provisions of
- 94 -

Section 15 (d) of the Securities Exchange Act of 1934, as amended, by issuers having securities registered under the Securities Act aT 1933, as amended, During the

past fiscal year 9,085 persons visited the New York public reference room, and more

than 4,388 telephone calls were received from persons seeking registered public

information, copies of forms, releases and other materiaL

In the Chicago Regional Office, located at 105 West Adams Street, copies of

applications for registration of securities on the New York Stock Exchange and the

New York Curb EXchange, together with copies of all annual reports, supplemental

reports and amendments thereto, are available for public inspection. During the

fiscal year ended June .30, 1945, 2,948 members of the public visited this public

room, and approximately 729 telephone calls were received, a total of 3,677 inquiries. Of this total, 3,593 were for registered public information, forms, releases and other material.

In addition to the material which is aVailable in the New York and Chicago

public reference rooms, there are available in each of the Commission's regional offices copies of all prospectuses used in public offerings of securities effectively

registered under the Securities Act of 19.3.3,as amended. Duplicate copies of applications for registration of brokers or dealers transacting business on over-thecounter markets, together with supplemental statements thereto, filed under the

Securities Exchange Act of 19.34 and duplicate copies of applications for registration of investment advisers and supplemental statements thereto filed under the

Investment Advisers Act of 1940, are available for inspection in the regional office having jurisdiction over the zone in which the registrant's principal office

is located. Also, inasmuch as letters of notification under Regulation A exempting

small issues of securities from the registration requirements of the Securities Act

of 19.33, as amended, may be filed with the regional office of the Commission for

the region in which the issuer's principal place of business is located, copies of

such material are available for inspection at the particular regional office where

filed.

In the Commission's San Francisco and Cleveland regional offices, in which are

provided complete facilities for registration of securities and qualification of

indentures, copies of registration statements and applications for qualifications of

indentures filed at those offices are available for public inspection.

Copies of all applications for permanent registrations of securities on

national securities exchanges are available for public inspection at the respective

exchange upon Which the securities are registered.

PUBLIC HEARINGS

The following statistics indicate the number of public hearings held by the

Commission from July 1, 1944 to June .30, 1945:

Securities Act of 193.3

Securities EXchange Act of 19.34

Public Utility Holding Company Act of 1935

Trust Indenture Act of 1939

Investment Advisers Act of 1940

Investment Company Act of 1940

PERSONNEL

2

.36

201

o

o

21

As of the close of the past fiscal year, the personnel of the Commission was

comprised of 5 Commissioners and 1,146 employees, 299 of whom were assigned to the

regional offices. This is exclusive of 439 .employees who were then in the military
- 95 -

service and who were carried on the rolls in a furlough status. This figure for

employees in the military service does not include the 25 employees who have received honorable discharges from the military service and who have returned to duty

with the Commission and 6 employees whose names were dropped from the rolls of the

Commissionbecause of death while in the military servt.ce ,

The total of 1,151 employees is segregated as to sex as follows: 582 males and

569 females.

FISC.i\L AFFAIRS

Appropriation Title

Salaries and Expenses

Printing and Binding

Total

Amount

$4,651,704

45,000

$4,696,704

Obligations

$4,509,813

44,918

$4,554,731

Unobligated

balance

$141,891

82

$141,973

Working Fund Advanced to Securities and Exchange Commissionby Foreign

Economic Administration to Cover Cost of Services Rendered by the Commission

Working fund, Securities and Exchange

Commission $ 150,000 $ 55,756 $ 94,244

Receipts for the Fiscal Year 1945 y

Character of Fee

Fees for registration of securities

Fees under Trust Indenture Act

Fees frODl Registered Exchanges

Fees :from sale of photo duplicates

Miscellaneous

Total

Amount

$398,575.51

1,800.00

235,604.34

17,201.86

994033

$654,176.04

Y This moneymust be turned into the general fund of the Treasury of the United

States and is not available for expenditure by the Commission.

PART IX

APPENDIX

STATISTICAL TABLES

Table I.-Registrations Ullder the Securities Act of 1933 !'ully effective during tbe Nsw year ended Jtme :30, 191,.5

Part. l.-Distribution 1:y lOOntha

(Amounts in thousands of dOllB.1"Sl!)

All Effectively Reg1~I"ed hope ee d for Sa'Le for /'ccOtmt of Issuers

Yeer and JIonth lI1Jmloer of !lullber AlDaunt Iiumber of l1UJ:'ber StatenlSnts of IBBllBB Ste. tements of Issues ],motmt

1944

July ~8 35 158,248 '27 30 125,483

August 18 20 65,932 13 13 37,656

Sept8lllber 20 27 252,457 19 23 245,641- October 33 44 7P1J,496 26 32 730,586 r.ovea:ber 33 42 218,266 25 28 193,6.49 Lec:etlber II 13 37 ,8!l6 8 9 28,584

1945

JlIDUIU7 18 45 218,208 16 40 19S,838 FebruBr7 14 39 85,Q50 II 33 80,101 Warch 32 40 26:;,16.4 23 25 199,627

April 49 74 370,01.9 39 54 243,422

1:&,- 62 89 481,665 46 59 374,556 June 22 40 293,263 18 31 259,631

Total Fiscal Ye6r 1945 34D?I 508 3,224,5!!L,. 271 377 2,71J.,776

Table 1. Part :?,...llreaIalown by _thad of d1atrlbution aDd

tn>e of aeeur1t,y of the 'flll..- proposed for cash sala far account at tbe iUllers

A-I

Type of Secur1107

-.thod of D1JstrtbIlt1CID

aDd Oroap to ..... ottered All Secured Unllecured Preferred Col!lllOll ot>:terit/

Tn- Bonds Bonds Stock Stack Types

All Mathoda of mat.r:lh~CID 2,7l4,776 1,386,788 320,786 406,875

I

316,178 284,149

To lJeDeral Pabllc 2,590,720 1,386,788 318,847 358,886 253,613 272,586

To Secur1 V BlI1derlI 104,736 - 250 44,761

I

59,725 .. To Otber Spec1aJ. Groupe 19,320 - 1,689 3,229 2,840 ll,563

n.n>ugh IlaDbra 2,662,~6 1,385,085 317,797 404,727 , 286,606 268,201

By 1'lIl'dlaIIe aDd Ilosale 2,187,844 1,384,235 317,797 399,385 86,428 - To GeDeral. PIJhUc 2,1l6,7l1 1,384,235 317,797 355,516 59,164 - To Secur1.107 IIa1der8 70,295 - - 43,031 27,264 - To other Spec1a1. Qro1Ip8 838 - - 838 - ..

Q1 Ben EftortB Bu1a 474,572 850 - 5,342 200,179 268,201

To am.ral Pabllc 461,925 850 .. 3,370 189,504 268,201

To Se"m:Q- IIoldera 12,404 - .. 1,730 10,674 .. To Otber Spec1.a1 Gro1lpll 244 - - 243 1 ..

ByI-. 52,360 1,704 2,989 2,149 29,571 15,948

To GealIra1 Pabl10 12,083 1,704 1,050 - 4,945 4,385

to s.c:.nv Halden 22,038 - 250 - 21,788 - to Otber Spec1.a1 Oro. 18,238 - 1,689 2,149 2,838 1l,563

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Rcr.md-lot transactions for the ecccuate of U1Etl1lbel"8 y. noansa.c_UODS 0 spec:1al.1SUl Other tra.nsact1ons Other transCCt.1003

h. stocks in which the)'" are ill! tiated on the noor initiated off the tloor

rog1etered V

Salee

Total Short 4

63 55 t 66

54 50 3 55

64 7.l 4 56

_~ 61

18 31 1-1}

44 45 9 31

:~ 31 26 4 34

30 32 2 23

24 26 5 20

38 a, I 'L 30 ;~-~-5--~~ 44 33 2 32

i~ i ~j 2. 27 1 40

31 35 2 35

4

57 50 5 37

62 '>J 2 39

70 52 4 56

~ Jt ~ ~ 11~ 1~

~; 92 Sl 8 91

56 60 4 74

as 2 77 53 52 1 53

38 42 1 35

~ ~ i ~%

% ~ ? ~

77 76 5 50

49 56 4 47

; 44 35 1 47

84 65 5 76

98 109 13 71

106 95 5 72

110 96 8 54

Odd-lot t.r&.nsacUons for

the aCCOl1nU of ~a t<mers

V

Salo.

I

Rourd-lot t,rnnMCt10n:l

[ror- the accm...nUl of

ncn-eeeber-e

Pur- S&le~ Pur- S&leo

cb&ees cha.sea

'!bULl Shor-t, 4 Total ISnort 4/' Total Short 4/_

105 2,127 2'0841 5" 52 70 /i- 8] 4 1,921 1,859 13 58 67 0

166 14 2,254 2,147 I 3 6010 0

68 <~ 1,552 1'5211 2 48 57 0

29 W99'Z-~ 1.m f --*~~-----__%_ 45 -; 1,311 1,290 3 36 51 0

2 l,le~ l'148

t

3 52 36 0

56 1J~ --l~i ~~5t-i~----g- 25 1 1,088 1,069 3 46 48 0

40 4 935 896 6, 33 40 0

35 716 781 2 30 49 0

~ ~~~~~4--::~~~:T-~1 -~~~----~- ~ ~ +.[@ -H~-~-~j- ------% ~---%- 24 1811 809 43141 0

39 1 1,179 1,162 3 43 56 0

V, 1 _~,g1~_f-_~6 _~2 11 43 i~ 46 1 1,445 1,435 3 43 63 0

65 1 1,793 1,770 6 51 78 0

61 3 1,746 1,713 2 57 81 0

38 1 1,464 1,473 3 39 67 0

~-f--i+~--{~--------i ;; g 92 :2 2,678 2,637 5 75 93 0

98 6 2,2,39 2,143 7 71 75 0

1"'- , 1 811 1 763 4 ~L o_~ 110 J 2,71J 2/705 10 74 91 0

154 8 2,543 2,416 8 77 92 0

1~ 8 2,598 2,638 7 88 1'19 0

~i 8 ~:fJ-f-~~ ~ ~ -9~- ---g- 106 2,080 2,043 84 96 0

fI! 3 1,194 1,149 1 51 54 0

*i i 1,~;% 1,~~ ~ i~ ~ g 44 3 980 960 2 35 4S 0

74 1 1,270 1,215 3 41 56 0

~~ ~~:~~ i'~~ i ~ ~ g 84 8 1,822 1,003 8 73 81 0

115 3 1,661 1,~3 12 70 79 0

1~ i:i,;~ ~ :1 _~ ~ 77 13 1,374 1,319 3 52 62 0

1.45 12 2,010 2,003 6 71 88 0

168 J 2,625 2,511 5 75 91 0

107 3 2,837 2,795 6 78 92 0

167 2 3,518 3,407 2 94 100 0

Purchases

Pur- Sales

cbaees

SbortJ!

15

10

5

8

8

6

4

4

$

6

5

7

6

11

9

8

5

9

8

12

10

8

13

16

,~

16

14

20

23

15

11

9

19

4

11

1~

11

10

11

28

27

14

16

Total

175

209

173

}~

126

124

119

127

77

116

S7

79

98

124

103

138

127

91

85

140

152

186

16

1<'<'

189

223

217

199

71

254

117

W.

116

90

134

217

132

147

180

lOO

163

141

213

231

236

282

163

171

185

136

126

81

118

S9

102

82

101

72

75

106

1~

U5

95

84

76

101

12<

132

152

140

15

118

142

204

172

166

217

156

177

2lS

19.

226

110

134

114

92

117

161

187

i~~

107

176

225

218

270

Purcbe.5a8

Short 4

3

35

31

14

12

9

22

15

1

15

10

20

13

18

19

11

23

18

13

12

17

1

21

19

17

24

35

29

22

37

34

38

7

2S

14

14

12

22

36

17

32

29

25

17

2S

51

48

28

28

Total

2,419

2,201

2,5:11

i:~

1,122

1,504

1,328

l>;oq

1,140

1,242

1,051

919

1,486

1,175

1,347

1 312

1,158

953

l,3n

1 220

1,671

2,046

2,012

i:~

2,193

3,068

~,~~

3,m

2,829

2,en

2 827

2,808

2,412

1,377

i'~

1,129

1,471

~,~

2,110

1,944

1,762

17SS

1,572

2,426

3,019

3,233

3,952

we.k

erded

Sat=-

dq

1944 July 1

8

15

22

20

Aug. 5

12

Sept. 2

9

16

23

30

Oet. ?

14

21

28 _.411

18

2<

Dee. 2

9

16

23

1O

1945 Jan. 6

13

;'; !>lb. 3

lD

;Z liar. 3

10

17

24

11

Apr. 7

14

21

2S

Ila7 5

12

19

26

June 2

9

16

23

30

'Y ~-lot. tramactions are transacb.ans in t.bB unit of trading or IiUltiples thereof, 'tIh1leodd-lot transactions are tra.nsact1ons inYolrlng less UIID the

unit of tn.d1ng. '!he unit of trading on the New York Curb Exchange is not the S&llle in all stoeb, b.1t ranges fi"cm 10 to 100 shares. Tranl!act1ona 10 rights

and warrants are not included in theae data, a1thoogb. t1ck8r volumes for the He.. York Curb Excban~ include such transactions.

On tb8 Nft' Iork Curb Exchatee aid-lot transactions are hlm:::l1edsolely by specialist.! in stocks 10 which too)" are regl::ltered and. the round-lot t.ransactione

of apecialiata resulting !rcI::l such end-lot tran58ct.1ons are not segregated fTa:: specialists' oUler round-lot t~lI8.

y 1'be term -'-beraB includes all "gular and assocl&te eeecere, their fires and their partneu.

V

Y Short sales -.b1ch are 8%8IlIpted 1'rcm restrict.1on by the Coc=:1esionls and ExetBngets roles are not included in those data.

SOC aha",s or leall.

NOTE.-Jlbr earller data see the Seventh ltullal Report of the Ca:.missioo., p , 298; the Sixth Annual Report, p, 285j the Firth Annual FIoport, p, 230; the Fourth

Anwal Report, p, 164-; and the '%bird Annual Report, p, 154. Statistics for the pericx:l July 5, 1941 to June 24, 1944 mar be obtained fl"ClD the Trad1nc and Exchange Division of t.hh CCIlIlIl1saion upon requelJt ..

_

~ ~~

- -~

~

-

~ ~ ~ ~ ~ - -~

~

~

~ ~ ~ ~

~ ~ ~ ~ ~

~ ~ ~ ~ ~

~ ~ ~ ~ '" ~ ~ ~

~

~ ~ ~ ~ ~

~ ~ ~~ ~~ ~ ~

~
A-20

Table 10.~d-lot stock transactions effected on the NewYork Stock Exchange for odd-lot accowtts of odd-lot dealsrB

and specialists, weekly, Jwte 26, 1944-JW1e 30, 1945, inclusive

sales by customers to odd-lot

dealers and ecialiBts

Purcbasee by customers from odd-lot

dealers and s islists

Total Customers' short

sales Y

Week ended

1944 July 1

8

15

22

______ 29

Aug. 5

12

19

26 ----Sept. 2

9

16

23 ______ 30

Oct. -7

14

21

28

Nov. 4

11

18

25

Dec. 2

9

16

23 __ 30

1945 Jan. 6

13

20

2

Feb. 3

10

17

24 liar. 3

10

17

24 ____ -3~

Apr. 7

14

21

28

, \lay 5

12

19

26

Jwte 2

9

16

23

30

Number

of

orden

Number

of

shares

Varl<et

Ylllue

(dollars)

Number

of

orders

Number

of

shares

Varl<et

Ylllue

(dollars)

Number of

orders

352

163

157

2'18

188

liD

156

106

W!

81

261

184

139

1!2

175

122

105

224 ---339

193

306

153

230

289

403

275

2

191

285

190

21

275

229

225

191

250

289

221

224

208

142

143

347

357

241

255

194

201

187

188

192

226

206

Number

of shares

8,796

8,053

7,766

6 b7l

8,715

10,184

7,424

7,984

5,299

4,727

11,320

12 060

8,143

9,104

6,743

? 141

6,451

7,055

6,716

7,907

8,300

11 Short sales which are exenpt from restrictions by the Commission's and Exchange's rules are not included in these e1ata.

/Iote, For earlier data see Seventh Annual Report of the Commission, p, 300; Sixth Annual Report, p, 287; hfth Annual Report,

p. 232; and "Selected Statist1cs on Securit1es and on Exchange IIarkets,. table 66. Statistics for the period

July 5, 1941 to June 24, 1944 may be obtained fran the Trading and Exchange Division of the Collllllisdon upon reqUElllt.
A-21

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A-23

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A-2L.

Table 15.-lhmber of issue .... having securi ties adm1t.ted te dea11ng on all exchanges as of kne 30, 1945,

classified aceo rdt ng te tho basis for admission of their securities to dealing

Basis of a<b1seion of eecuri ties te dealing

ColuJln I (1)

!limber of issue ....

ColuJln II (2)

Number 0 t i asue ....

Regietered. • • • • • • • • • • • • • • • • • • • • 2,185

Temporarily elWl::pted 1'rom registration. • • • • • • • • 46 Admitted te unlisted trading priv:J.leges on registered exchanges 931

Listed on exeepted exchanges_ . 117

Admitted to unlisted trading privileges on exempted exchanges 41

Tote1 number of issue .... having seeuri tie. adm tted to dealing on sl1 exchanges. • •

2,185

31

379

75

-1i..

2,705

(1) The purpose of Co1Ull1nI is to sho" the wmber of issuers having MOUrities edmi tted to dealing under the vari",s hasss for

the admission of securities to desline under the Act. Each issuer is coonted once under each basis for admission of 1te

secun ties to deal1ne. For example. an issuer haVing securi ties registered on one or more exchanges and a.1so admltted to

unlisted t.radi ng privileges on one or more exchanges i8 ceunted once uIX!er -Registered" an1 once under -Adrrltted to unlisted

trading prlnleges on registared exchanges". Th1s column 15 not totaled because of such duplicatJ.om..

(2) The parpose of Column II 10 to shoe the unQuplicated to te.L rumber of lssuers having securit1es adm1tted to dealinp, on all

exchanges. Each lssuer ls cocn ed once, and only once, and the e11J:lination of the duplications ln COluM I is made m the

order- ln which the vari""s bases fnr admission of securi ta es to dealing 15 given. "or eX8l:lp1e,of the 46 lssuers shown in

COluliUlI as hanng securities temporanly exeap ted from reg1stration 15 also have securities registered, leaving the 31 shown

in Column II; of the 931 issuers sh01lIlin Column I as havrng securities admitted to unlisted trading privileges on registered

exchangss 549 also have seOlri ties registered and 3 a1eo have seeuri ties temporara ly exempted froe registration, leaving the

379 shown in ColumnII; of the 117 issue .... sho1min Column I as having securi tie8 listed on exeepted exchanges 32 also have

8ecuri ties registered and 10 also have securities smitted to unlisted trading privileges on repstered exchanges, leaving

the 75 shown in Column IT; and of the 41 issuer. shown ln Column I as hava.ng securities admitted to unj.Leted trading privUeges

on exempted exchanges 5 also hBve 8eOlri ties repstered and I also has seC1.rities edet.t.ted to unlisted trading privileges on

a registered exchange, leaving the 35 shown in Colwm II.

Tab18 16.-lIumber of iBSlers hBving stocks only, bonds only, and both stock and bonds,

edrd tted to dealing on sl1 exchanges ae of JUM 30, 1945.

Classi!'l. ce tion Number of issuers :r: of tote1 issu8rs

1. Issuers haVing only stocks adm1tted to trading on exchanges •••••

2. Issuers haVing only bonds admitted to tradlllg on exchanges. • • • • •

3. Issuers ha\"ing both stocks and bonde admitted to trading on exchanges

Total issuers. • • • • • • • • • •

4. Issuers haVlng stocks admitted to trading on exchanges (Classification 1 plus 3)

5. Issuers having bonds admitted to trading on exhhange8 (Classifies to.on 2 plu8 3)

2,084

346

275

2,705

2,351 621

77.0

12.8

10.2

100.0

f!!7.7

23.0

Table 17.-~'u,,*,er of issuers and secuzt ties, basis for admission .of securities to dealing, and the percentags of

stocks and bondS, fbr each exchange, admitted to dealing on one or core other exchanges as of June 30, 1945.

25.0

7.8

8.5

63.5

33.3

95.0

100.0

35.0

100.0

9

9

28

33

1

23

4

20

% traded on

1 or more

other exTotal changes

4

181

1,043

63

2

1

10

6 1

I XL XU

8

u

BONDS

X

1

1

3 2 156

16

1

11

1

9

9

19

20

33

1

12

3

10

1

23

1,027

62

2

% traded on

1 or more

other exchanges R

66

343

321

321'

821

92

151

1~1' 212

18

17,

895

1,293

470

119

27

04

96

39

331

32

40

2]

I

I

Tcta1

I

I

37

I~I _. ,

I~ !

5'7

15

5'7

STOCKS

15

1

R : X lui XL

231 - 206'

51 191

9

20

94 41

376 137

33 27

344 287

86 72

92 72

15

158 101

101

221 124

18

21 1

1,0?6 435

2,336 1,290

533 66 121 1'J

28

74 63

96 89

39 39

351 165

32 21

49 31

23

I

, Totel

I issues

[ Total

I issuers

r--

I 3~

I 30 , 260

\

63

80

I ~ I 190

I it ! 821

1,195

435

10<.

21

44

94

39

280

30

34

20

Name of exchange

Baltimore

Boston

Chicago Beam of Trade

Chlcago Stock Exchange

Cincinnati

Cleveland

Colorado Springs (1)

Detroit

Honolulu (1)

LoB Angeles

lI1nneapolis-St.Pau1 (1)

New Orleans

IIew York Curb

Ne_ York Stock

Ph1lade 1phia

Pittslurgh

Ricl1nond (1)

s-; laJlf1

Sal. lake

San Francisco ~1ninlj

San Franct sec stock

Spoksne

Washington, D.C.

1ihec1ir.g (1)

(1) Exeo;>ted frOlll registration as a natiom1 securitles exchange.

R, registered; X, tenpcr-ar-L'ly exempted from registration; U, adJ:Iitte1 'to ur.listed trading nrivi1eges on a registered exchange;

XL, listed on an exenpted exchange] and XU, admitted to unlisted trl!.dine privileges on an exenpted exchange.

• • • • • • • • • • '" '" • • • •

•

-

-

-

-

-

-

-

-

-

-

-

-

-

-
A-25

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Table 19, Rrt 1.-Fmorgmi%ltim Eaaaa inatituted mdar Chapter 1 and S&im 77B in rhtch the ma

of appamse and in lhieh the mi~sionna active4 prtidpting in the proceedingo during 

ded me 30, 19I.5-mstribotim of ddbtam type of indwtw 


Aubsr of debtom Total assets 

mdwtry Am,mt (thoussnds PereeJt of p6d 

.- - r of dollars) total 

Riocid- Subaidlam 

~grlault~ 1 - 180 - (8) 

Mining and other &dive la 6 M,BP 6.6 

yrmueaoturing ll - W.oj 3.8 

mdaland innstmet 11 1 1U3 3x3 5.1 

YsreheldisiQg 1 - 2: 106 .I 

~mlaatate % 3 2'37.683 U.l 

Oondnrotim and allied 1 - 9.106 .b 

fmswatim ad &&ion 11 8 ' 384245 18.1 

Sen508 4 - 21.712 1.1 

Gtilitiast light, -r and la 7. 1.042856 (b) 51.1 

~rendt~tal-	 n6 25 2.09.439 m.0 

(a) 	lass th 0.05 -&. 

(b) 	 Appnx3~Wt.4 m.000.000 of rsaets ad $kW,bM),OW of liabilities wau ac~tedfor by Ilssooiated Ou & Eleetllo W. 

El.3Otl.l~ Corpontion. 


TW19, Rrt 2.-rganisation -as instituted dm Chapter 1 md Ssotion 77B in rblch the Ocm

of nppea-s and in *oh the cmalssim ras &itrely interested dmbg the fiscal rw tarde

Z%striDutim of debtors by mmt of indebtdaas. 

umber of debtors 	 

hmt 

mnrin.1 subsldirm at d

.-, ---- . . ~~~ ~~ ~ 

(b) 	~ppmwte4$803,035,035 -sets and $kW,OW,MX) of liebilitiaa were socomted for by &soelated Oas & Elgtrio CO

COrpo~tion. 
A-27

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A-28

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