Seventeenth Annual Report

of the

Securities and Exchange

Commission

Fiscal Year Ended June 30, 1951

UNITED STATES GOVERNMENT PRINTING OFFICE, WASHINGTON: 1952

For sale by the Superintendent oC Documents, U. S. GoYernment Prlntlne Office

Washlneiou 25,D. C. • Price 75cents (Paper C...yer)
u

SECURITIES AND EXCHANGE COMMISSION

Headquarters Office

425 Second Street NW.

Washington 25, D. C.

COMMISSIONERS

HARRY A. McDoNALD, Chairman

DONALD C. COOK, Vice Chairman

RICHARD B. McENTIRE

PAUL R. ROWEN

ROBERT 1. MILLONZI

ORVAL L. DuBOIs, Secretary
LETTER OF TRANSMITTAL 

SECURITIES AND EXOHANLIECOMMIS~ION, 

Washington,D.C., January 11,196g. 

SIR:I have the honor to transmit to you the Seventeenth 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 1955, approved August 26, 1935; sect,ior~ 

46 (a) of the Investment Company Act of 1940, approved ~ugusd22, 

1940, section 216 of the Investment Advisers Act of 1940, approved 

August 22,1940, and 'section 3 of the act of April 25, 1949, amending 

the Bretton Woods Agreement Act. 

Respectfully, 

HARRYA. MCDONBLD, 

Ohinnan. 

THEPRESIDENT OF THE SENATE,

THESPEAKER OF THE HOUSE OF REPREBENTATIVEB,

Washington,D. C. 

. 111 

TABLE OF CONTENTS

Page

Foreword________________________________________________________ XI

Commissioners and staff officers_____________________________________ XII

Regional and branch offieas., ________________________________________ XIII

PART I

ADMINISTRATION OF THE SECURITIES ACT OF 1933 The registration process

The registration statement and prospectus

Effective date of registration statement

Examination procedure

Time required for registration

Volume of securities registered

Number of statements

Type of industry

Type of registration

Type of security

~~~:~ri~~~=========================================== Cost of flotation

All new securities offered for cash sale

Registered securities

Unregistered securities

Use of net proceeds of corporate securities

Registration statements filed

Exemption from registration under the act

Exempt offerings under regulation A

Exempt offerings under regulation B

Confidential reports of sales under regulation B

Oil and gas investigations

Formal action under section 8

Disclosures resulting from examination of registration statements

Changes in rules, regulations, and forms

Litigation under the actPARt' II

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF

1934

Regulation of exchanges and exchange trading

Registration and exemption of exchanges

Disciplinary actions by exchanges against members

Registration of securities on exchanges

Nature and purpose of registration

Statistics of securities registered on exchanges

Temporary exemption of substituted or additional securities

Formal action under section 19 (a) (2)

Market value of securities traded on exchanges Special offerings on exchanges

Secondary distributions approved by exchanges

Unlisted trading privileges on exchanges

Applications for unlisted trading privileges

Changes in securities admitted to unlisted trading privileges Delisting of securities from exchanges

Securities delisted by application

Securities delisted by certilication

Securities removed from listing on exempted exchanges Manipulation and stabilization

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ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF

1934-Continued. Page

Security transactions of corporation Insiders. _____________________ 41

Purpose of regulation , _ ____ ______ __________________ __ 41

Reports of transactions and holdings, ________________________ 42

Publication of data reported , _______________________________ 42

Volume of reports filed and examined; _______________________ 42

Preventing unfair use of inside information __ _________________ 43

Solicitations of proxies, consents, and authorizations _______________ 43

Statistics relating to proxy statementsc. , , ____________________ 44

Examination of proxy material; _____________________________ 44

Regulation of brokers and dealers; ______________________________ 49

Registration_ _ ____________________________________________ 49

Administrative proceedings , ________________________________ 49

Broker-dealer inspeetions., __________________________________ 53

Investigations..; ___________________________________________ 54

Financial reports , _________________________________________ 54

Supervision of N ASD activity _ _ ________________________________ 54

Melllbership______________________________________________ 54

DIsciplinary actions, _______________________________________ 55

Commission review of actions on membership _________________ 56

Changes in rules, regulations, and forma., , _______________________ 57

Litigation under the act, _______________________________________ 59

PART III

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

Integration and slmplifieatdon-e-over-all sUllllllary ______________ 63

Integration and simplifieation-c-survey of individual systems_____ ___ 72

American Power & LIght Co________________________________ 74

American & Foreign Power Co., Inc; _ _ ______________________ 75

Cities Service Co_________ __ __________________________ 76

Eastern Utilities Associates , ___ __________________________ 77

Electric Bond and Share Co ________________________________ 78

General Public Utilities Corp , _______________ ___ 81

International Hydro-Electric System; __ _____________________ 82

Koppers Co., Inc.-Eastern Gas & Fuel Assooiates , _ __________ 83

Mission Oil Co.-Southwestern Development Co_ _____________ 84

New England Public Service Co______ __ _ _____________ 85

Pennsylvania Gas & Electric Corp , , _________________________ 86

Standard Power & Light Corp.-Standard Gas & Electric Oo-., , 87 The United Corp ._ ______ 89

Washington Gas & Electric Co______________________________ 90

Wisconsin Electric Power Co.L. 91

Progress of continuing holding company systema, _________________ 92

American Gas & Electric Co_________ ____________ __ _____ 93

American Natural Gas Co__________________________________ 94

The Columbia Gas System, Inc; _ _ __________________________ 94

Interstate Power Co_ _ ___ ____ ____________ __ 95

Middle South Utilities, Inc; _ _______________________________ 96

New England Electric System, ______________________________ 97

New England & Electric Association . __ 98

Northern Natural Gas Co_ _ _ ____________ 99

Northern States Power Co___ __ __________ _____________ 99

Ohio Edison Co_ _ _ ______ ____ ________ ___ 100

The Southern Co__________________________________________ 101

Southern Natural Gas Co___________________________________ 101

Union Electric Co. of MissourL_____________________________ 102

United Gas Improvement ce. ______________________________ 103

Utah Power & Light Co____________________________________ 103

The West Penn Electric Co __~______________________________ 104

A!lqUls~tlOns of securities, utility assets, and other Interests; _ _ ______ 105

Flnanclng____________________________________________________ 106

Competitive bidding , _______________________________________ 110

Revision of regulatory procedures_____ ___________________________ 111

Investment Bond and Share Corporation; ________________________ 112

Original cost studies _ __________________________________________ 112
TABLE OF CONTENTS vn

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935-Continued Page

Cooperation WIth State and local regulatory authorrties _ _ __________ 113

LItigation under the act_________ __ _____ _ ______________ 115

Actions to enforce voluntary plans under section 11 (e)_________ 116

Petitions to review orders of the Commission__________________ 118

PART IV

PARTICIPATION OF THE COMMISSION IN CORPORATE REORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCY ACT, AS AMENDED

Commission's functions under chapter X_ _ _______________________ 121

Summary of activities_______________ ____ ___________ 121

Activitaes relating to the trusteeship , _ ___ __ __ ____ _____ 122

Problems in the administration of the estate , _________________ 124

Responsibilities of fiduciaries___________ ______________ 126

Actlvrties with respect to allowances; ________________________ 127

Plans of reorganization under chapter X__________________________ 130

Fairness of plan__________________ __ ____________________ 130

Feasibility of plan , _ ____________ __________ 136

Consummation of plan , _____ _ ___ _______ 136

PART V

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939

Nature of trust indenture regulation _ ____________________________ 139

Integration with Becurities Act of 1933__ _________________________ 139

Statistics of indentures qualified_______ _________ __ ________ _______ 140

Change in form______ __ ______________________________ 140

PART VI

ADMINISTRATION OF THE INVESTMENT COMPANY ACT OF

1940

Registration under the act______________________________________ 141

Character of investment compames registered during fiscal year _ ____ 142

Sellingliterature_______________________________________________ 142

Statistical data____ _ ___ ________________ _________ 143

Applications filed., , __ _ ________ ____________________ 143

Changes in rules, regulations, and forms____ __________________ 144

PART VII

ADMINISTRATION OF THE INVESTMENT ADVISERS ACT OF

1940

Registration statistics__ ____ ______ ___ 147

PART VIII

OTHER ACTIVITIES OF THE COMMISSION Courtproceedings

Civil proceedings

Criminal proceedings

Complaints and investigations

Sale of Canadian securities in the United States

Section of securities violations

Activities of the Commission in accounting and auditing Examination of financial statements

. Amendment of regulation S-X

DIVISIon of opimon wrrting

Foreign financial and economic matters-International Bank

Advisory and interpretative assistance

Confidential treatment of applications, reports, or documents Statistics and special studies

Operational statistics

Savingstudy

Fmaneial position of corporations Osprtal markets

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OTHER ACTIVITIES OF THE COMMISSION-Continued Page

Personnel_____________________________________________________ 173

FisrnUaffairs__________________________________________________ 174

Publications__________________________________________________ 174

Information available for public inspection_____ ___________________ 175

Pubhe hearings____ _______________ __________________________ 177

PART IX

APPENDIX-STATISTICAL TABLES

Table 1. Registrations fully effective under the Securities Act of 1933____ __ 180

Part 1. Distribution by months_________________________________ 180

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

the volume proposed for cash sale for account of issuers _____ 180

Part 3. Purposeofregistration and industry of registrant____________ 181

Table 2. Classification by quality and size of new bond issues registered

under the Securities Act of 1933 for cash sale to the general

public through investment bankers during the fiscal years 1949,1950, and 195L___________________________________ 183

Part 1. Number of bond issues and aggregate value; ________________ 183

Part 2. Compensation to distributors____________________________ 184

Table 3. New securities offered for cash sale in the United States.;, _______ 185

Part 1. Type of offering 185

Part 2. Type of security _ __ ____________________________________ 186

Part 3. Type of issuer_________________________________________ 187

Part 4. Private placements of corporate securities_________________ 188

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

securities offered for cash sale in the United Btates , _ _ 190

Part 1. All corporate; __ ______________ ____ ______ ____ 190

Part 2. Public utility __ _____________________ ______ _____________ 191

Part 3. IndustriaL _ ___________________________________________ 193

Part 4. Railroad , _ _ ____________ ________________ ____ ________ 195

Part 5. Real estate and financiaL_______________________________ 196

Table 5. An 18-year summary of corporate bonds publicly offered and

privately placed in each year-1934 through 1951-by calendar

year___________________________________________________ 197

Table 6. An 18-year summary of new securities offered for cash in the United States 198

Table 7. Brokers and dealers registered under section 15 of the Securities

Exchange Act of 1934-effective registrations as of June 30,

1951, classified by type of organization and by location of principal office , __ ______________________________ 199

Table 8. Market value and volume of sales effected on securities exchanges

for the three 6-month periods ending June 30, 195L_________ 201

Part 1. SIX months ended June 30,1950__________________________ 201

Part 2. Six months ended December 31,1950_____________________ 202

Part 3. Six months ended June 30, 195L_________________________ 203

Table 9. Special offerings effected on national securities exchanges for

fiscal year ended June 30, 195L___________________________ 204

Table 10. Secondary distributions of listed stocks approved by national

securities exchanges for fiscal year ended June 30, 195L____ 205

Table 11. Classification by industry of issuers having securities registered on national securities exchanges as of June 30, 1950, and as of June 30, 195L_______________________________________ 206

Table 12. Number and amount of securities classified according to basis

for the admission to dealing on all exchanges as of June 30, 1951__________________________________________________ 207

Table 13:

Part 1.

Part 2.

Part 3.

Number and amount of securities classified according to the

number of registered exchanges on which issue was admitted

to dealing as of June 30, 195L

Proportion of registered issues that are also admitted to

unlisted trading privileges on other exchanges as of June 30, 1951

Proportion of issues admitted to unlisted trading privileges

that are also registered on other exchanges as of June 30, 1951

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TABLE OF CONTENTS IX

Table 13-Continued Page

Part 4. Proportion of all issues admitted to dealing on registered

exchanges that are admitted to dealing on more than

1 registered exchange as of June 30, 195L_______________ 208

Table 14. Number of issuers having securities admitted to dealings on exchanges as of June 30, 1951, classified according to the basis

for admission of their securities to dealing , ________________ 209

Table 15. Number of issuers having stocks only, bonds only, and both

stocks and bonds admitted to dealings on exchanges as of

June30,1951__________________________________________ 209

Table 16. For each exchange as of June 30, 1951, the number of issuers and

securities, basis for admission of securities to trading, and the

percentage of stocks and bonds admitted to trading on one or moreotherexchanges___________________________________ 210

Table 17. 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 volume of transaetions therein_____ 211

Table 18. Electric, gas and nonutility companies and properties divested

by registered public utility holding company systems December 1,1935, to June 30, 195L_____________________________ 212

Table 19. Reorganization cases instituted under chapter X and section

77-B in which the Commission has filed a notice of appearance

and in which the Commission actively participated during the

fiscal year ended June 30, 195L -______ ________ 258

Table 20. Reorganization proceedings in which the Commission participated during the fiscal year ended June 30, 195L _________ 258

Table 21. Summary of cases instituted in the courts by the Commission

under the Securities Act of 1933, the Securities Exchange Act

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

Investment Company Act of 1940, and the Investment Advisers Act of 1940 259

Table 22. Summary of cases instituted against the Commission, cases in

which the Commission participated as intervenor or amicus

curiae, and reorganization cases on appeal under chapter X in

which the Commission participated-pending during the

fiscal year ended June 30, 195L__________________________ 260

Table 23. Injunctive proceedings brought by Commission, under the

Securities Act of 1933, the Securities Exchange Act of 1934,

the Public Utility Holding Company Act of 193~ the Investment Advisers Act of 1940, and the Investment vompany Act

of 1940, which were pending during the fiscal year ended June 30, 195L__ ___________________ _________________ 261

Table 24. Indictments returned for violation of the acts administered by

the Commission, the Mail Fraud statute (sec. 1341, formerly sec. 338, title 18, U. S. C.), and other related Federal statutes

(where the Commission took part in the investigation and

development of the case) which were pending during the 1951

fiscalyear_____________________________________________ 263

Table 25. Petitions for review of orders of Commission under 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 courts of appeals during the

fiscal year ended June 30, 195L__________________________ 267

Table 26. Contempt proceedings pending during the fiscal year ended June 30, 195L__ _____ _______ __ _ _ ____ 268

Part 1. Civil contempt proceedings______________________________ 268

Part 2. Criminal contempt proceedings___________________________ 268

Table 27. Cases in which the Commission participated as intervenor or as

amicus curiae, pending during the fiscal year ended June 30, 1951__________________________________________________ 269

Table 28. Proceedings by the Commission, pending during the fiscal year

ended June 30, 1951, to enforce subpenas under the Securities

Act of 1933 and the Securities Exchange Act of 1934________ 271

Table 29. Miscellaneous actions involving the Commission or employees

of the Commission during the fiscal year ended June 30, 195L 272

Table 30. Actions to enforce voluntary plans under section 11 (e) to comply

with section 11 (b) of the Public Utility Holding Company Act of 1935____ _____________ 272

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Table 31. Actions under section 11 (d) of the Public Utility Holding

Company Act of 1935 to enforce compliance with Commission's order issued under section 11 (b) of that act__________ 274

Table 32. Reorganization cases under chapter X of the Bankruptcy Act

in which the Commission participated when appeals were taken from district court orders; ______ ________________ 275

Table 33. An 18-year summary of criminal cases developed by the Commission-1934 through 1951, by fiscal year________________ 277

Table 34. Summary of criminal cases developed by the Commission which were still pending at June 30, 1951-by fiscal year__________ 278

Table 35. An 18-year summary classifying all defendants in criminal cases developed by the Commission-1934 to June 30, 195L_ 278

Table 36. An 18-year summary of all injunction cases instituted by the

Commission-1934 to June 30, 1951, by calendar year .._____ 279
FOREWORD

This is the seventeenth annual report to the Congress of the Securities and Exchange Commission, summarizing the work of the Commission during the fiscal year July 1, 1950,to June 30, 1951.

The year has been an extremely active one for the Commission. The

raising of new capital by industry, particularly for use in connection

with the defense effort, has continued at a high rate. In all, approximately $6,400,000,000 of securities were registered during the year.

The processing of registration statements and other documents filed

by various companies in connection with their financing programs

constitutes a major work load of the Commission. This large amount

of work, the volume and timing of which is entirely beyond the control

of the Commission, requires thorough and prompt attention for the

protection of investors and the accommodation of the issuing companies in their efforts toward successful financing.

In addition, the Commission, under the statutes which it administers, is charged with many other important duties, such as the surveillance of the securities markets, the regulation of the activities of

brokers and dealers, and the direction and supervision of the integration and simplification of public utility holding company systems.

The report dISCUSSesthese and the other activities of the Commission. In connection with the discussion of the Commission's activities

under the Public Utility Holding Company Act of 1935, the report

contains a cumulative tabulation of all companies and properties divested by registered public utility holding company systems since

December 1, 1935,the effective date of that Act.

The Commission has endeavored to maintain a high standard of

accomplishment in connection with its major work notwithstanding

successive drastic reductions in its staff in recent years made necessary

by budget limitations. T~number of employees of the Co~ission.

today is about one-half of the number employed III 1941. Since the

end QftIle fiscal year the over-all staff was reduced by 12' percep.t, from

1027to 904, up to December 31, 1951, and because of the unavailability

of funds a further decrease to about 875 is likely by July 1, 1952. Despite the streamlining of procedures and the deferment and elTmination of various routine activities, the reduction in staff has reached a

point of being a serious threat to the Commission's ability to carry

out its essential duties under the statutes which it has the responsibility of administering and to cooperate promptly and fully in the

financing of the defense effort.

XI
COMMISSIONERS AND STAFF OFFICERS

(as of December 31, 1951) Term

e:z:pire3

June 5

Commissioners

HARRYA. McDoNALD, of Mlchigan, Cbairman______________________ 1956

DONALDC. CooK, of Micbigan, Vice Cbairman_______________________ 1954

RICHARDB. McENTIRE, of Kansas__________________________________ .1953

PAUL R. ROWEN, of Massacbusetts________________________________ 1955

ROBERTI. MILLONZI, of New York 1_______________________________ 1952

Secretary: ORVALL. DuBOIS

Staff Officers

BALDWIN B. BANE, Director, Division of Corporation Finance. ANDREW

JACKSON,Associate Director.

MORTONE. YOHALEM, Director, Division of Public Utilities. JEROME S.

KATzIN, Associate Director.

ANTHON H. LUND, Director, Division of Trading and Excbanges. SHERRY

T. MCADAM,Jr., Associate Director.

RoGERS. FOSTER,General Counsel. LoUIS Loss, Associate General Counsel.

EARLEC. KING, Chief Accountant.

LEONARDllELFENSTEIN, Director, Division of Opinion Writing.

ALFREDHILL, Executive Assistant to the Chairman.

'VALTEBC. LoUOHHEIM, Jr., Foreign Economic Adviser to the Commission.

HASTINGS P. AVERY,Director, Division of Administrative Services.

WILLIAME. BECKER,Director, Division of Personnel.

JAMES J. RIORDAN,Director, Division of Budget and Finance.

1Appointed June 21, 1951, to fill the vacancy created by the resignation of Edward T.

McCormick, effective March 31, 1951.

XII
REGIONAL AND BRANCH OFFICES

Regional Administrators

Zone I-Peter T. Byrne; Equitable Building (Room 20(6), 120 Broadway,

New York 4. N. Y.

Zone 2-Philip E. Kendrick, Post Office Square Building (Room 501) 79

Milk Street, Boston 9, Mass.

Zone 3-William Green, Peachtree Seventh Building (Room 350), Atlanta

5, Georgia.

Zone 4---Charles J. Odenweller, Jr., Standard Building (Room 1608), 1370

Ontario Street, Cleveland 13, Ohio.

Zone 5-Thomas B. Hart, Bankers Building (Room 630), 105 West Adams

Street, Ohicago 3, Ill.

Zone 6--0ran H. Allred, United States Courthouse (Room 103), Tenth and

Lamar Streets, Fort Worth 2, Tex.

Zone 7-William L. Cohn; Midland Savings Building (Room 822), 444 Seventeenth Street, Denver 2, Colo.

Zone 8-Howard A. Judy, Appraisers Building (Room 308), 630 Sansome

Street, San Francisco 11. Calif.

Zone 9-James E. Newton, 1411 Fourth Avenue Building (Room 810),

Seattle 1, Wash.

Zone rc--e, Russel Kelly, 425 Second Street NW., Washington 25, D. C.

Branch Offices

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

United States Post Office and Courthouse (Room 1737), 312 North Spring

Street, Los Angeles 12, Calif.

Pioneer Building (Room 400), Fourth and Roberts Streets, St. Paul, Minn.

1Scheduled for move to 42 Broadway, New York 4, N. Y., in February 1952.

Appointed December 18, 1951, to fill the vacancy created by the death of John L.

Geraghty on November 27, 1951.

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COMMISSIONERS APPOINTED DURING FISCAL YEAR

Robert I. Millonzi

Mr. Millonzi was born in Buffalo, N. Y., on July 12, 1910. He received an A. B. degree in 1932 and an LL. B. degree in 1935 from

the University of Buffalo. He was admitted to practice before the

New York State Supreme Court in 1935, and subsequently admitted

to practice before the Federal Courts and the Tax Court of the

United States. Until his appointment as a member of the Securities

and Exchange Commission in 1951, he was engaged in private practice in New York, associated with the firm of Diebold and Millonzi.

From 1940 to 1943 he was Counsel to the New York State Department of Agriculture and Markets. On June 21, 1951, he was appointed a member of the Securities and Exchange Commission for

a term of officeending J nne 5, 1952.

XIV
PART I

ADMINISTRATION OF THE SECURITIES ACT OF 1933

The Securities Act of 1933 is designed to provide investors with

the protection of full and fair disclosure, by means of registration

statements and prospectuses, of pertinent information regarding securities publicly offered for sale through the mails or other instrumentalities of interstate commerce, and to prevent misrepresentation,

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

Act requires in general that every security which is to be offered for

sale by the use of the mails or other instrumentalities of interstate

commerce must first be registered with this Commission unless it is

entitled to one of the exemptions from registration provided in the

statute. Securities so exempted consist, in general, of United States

government and municipal securities and issues of banks, railroads,

cooperatives and other organizations and associations specified in

section 3 (a) of the Act or covered by exemptions in rules and regulations adopted by the Commission, as discussed elsewhere in this

report, pursuant to section 3 (b) thereof. The registration provisions also do not apply to certain transactions specifically exempted by

section 4 of the Act. However the anti-fraud provisions of both Acts

apply to exempted securities and transactions. The fact that a registration statement has been filed under the Act, or that it has been

examined by the Commission's staff, or that it is in effect, does not

imply any approval or disapproval by the Commission of the merits

of the security as an investment, and the statute makes any representation to the contrary a criminal offense. While registration, therefore,

does not insulate Investors against risk, the requirement that registrants must furnish investors at or before a sale with a full disclosure

of material facts essential to the formation of an intelligent investment

judgment makes available to them information with which to gage

the risk.

THE REGISTRATION PROCESS

The Registration Statement and Prospectus

Any security may be registered with the Commission by filing a

registration statement under the terms and conditions specified in the

Act, and it is one of the Commission's most important functions to

examine these statements for their compliance with the statutory requirements. An integral part of each statement is the prospectus,

consisting of pertinent information from the registration statement

proper. Unless a registration statement is in effect as to a security, the

Act makes it unlawful to sell or offer to buy the security through the

mails or in interstate commerce, and it is also made unlawful to sell

or deliver any security unless accompanied or preceded by a prospectus

meeting the requirements of the Act.

1
2 SECURITIES AND EXCHANGE COMMISSION

While as a practical matter it is the prospectus that brings all the

pertinent information contained in the registration statement directly

to the attention of the investor, it should be pointed out that the event

of filing any registration statement, which IS immediately made public by the Commission pursuant to the statute, gives rise to widespread

publicity released by financial news services, financial writers, and

newspapers generally, covering various items of information selected

by them from the registration statement.

Effective Date of Registration Statement

In order to permit the information contained in a registration statement to become known to the investing public, the Act provides a

20-day waiting period after the filing of the registration statement

before the registration statement becomes effective and the security

may be offered for sale. If the registration statement is amended

after it is filed but before it has become effective, the 20-day waiting

period starts anew from the time of the amendment, unless the amendment is filed with the consent of or by order of the Commission. The

Commission is empowered at its discretion to accelerate the effective

date of a registration statement, in cases where the facts justify such

acceleration, so that a full 20-day period need not expire before the

securities may be offered for sale. The Act directs that, in the exercise of this power, the Commission must give due regard to the adequacy of the information about the security already available to the

public, to the complexity of the particular financing, and to the public

interest and the protection of investors.

Examination Procedure

The Commission's work of examining registration statements and

prospectuses filed in connection with public offerings of securities

under the Securities Act of 1933 is conducted by the examining sections of the Division of Corporation Finance. If a registration statement presents problems of an oil and gas, mining, or engineering

nature, appropriate technical experts on the staff cooperate with the

examiner, accountant and attorney of the examining section in processing that document. Not infrequently the staff may have occasion

to consult with other departments or agencies of the Government in

completing the examination of a particular filing.

In order to simplify the preparation of registration statements

calculated to meet the requirements of the statute and the rules, the

Commission has continued to make available to the registrant the

assistance of alrefiling conference with its staff of expert analysts,

accountants an lawyers. The prefiling conference is employed most

usually to advise the prospective registrant concerning appropriate

methods of simplifying any material required to be filed in a registration statement or other document, or to help solve any other problemwhether legal, statistical, or accounting-anticipated in connection

therewith. A large number of these prefiling conferences deal mainly

with methods of simplifying the presentation of required financial

data. Failure to take advantage of the latitude permitted by the

Commission's rules to omit duplicate material or to substitute comparable material in more compact form may result in a confusing mass

of financial statements particularly when dealing with complicated

cases such as those involving mergers, reorganizations and the acquisi-
SEVENTEENTH ANNUAL REPORT 3

tion of other companies and businesses. In such situations the prefiling conference may result in avoiding the delay, inconvenience and

expense that would otherwise be caused by the need of furnishing

substantial revisions or amendments of material after the original

filing. Thus in one recent case the number of pages of financial statements proposed to be included in a prospectus of a company operating

a chain of hotels was reduced by half mainly by adopting a suggestion

of eliminating unnecessary financial statements and repetitious financial footnotes. In another case, involving a new company formed to

take over the businesses of several other companies, the number of

pages of financial statements included in the prospectus was reduced

to less than half the number originally proposed by adopting a suggestion to arrange several similar financial statements on the same

page in columnar form and eliminate certain duplicate financial

footnotes.

Where examination discloses any omission or incomplete statement

of material fact or inaccuracy in the registration statement, the staff

relies for enforcement mainly upon another informal procedure, that

of sending the registrant a "letter of comment," which points out the

inadequacies found upon examination. Such letter is sent as soon

as possible after the statement is filed and affords an opportunity for

the filing of a correcting amendment before the indicated effective

date of registration. This device avoids the necessity for the Commission to exercise its little-used authority under section 8 of the Act

to institute formal proceedings against the registration statement.

While the statute does not specifically authorize such a procedure,

perhaps no other device adopted in connection with the registration

process has equal capacity to accomplish a common-sense administration of the Act in a manner calculated to afford fair treatment to

registrants and cause a minimum of interference with financing plans.

Time Required for Registration

While the Commission makes every effort to complete the registration process within the statutory 20-day waiting period, accomplishment of this objective is often impeded by a number of variable factors

largely beyond its control. For example, experience has shown that

the time required by the staff to complete examination of the registration statement and send out the letter of comment regarding indicated

deficienciesto the registrant cannot generally be reduced in the average

case below a recently achieved low of 10 calendar days. In the 1949

fiscal year the actual time required for this step averaged such 10 days

in each month of the year. However, in the 1950fiscal year, while for

two of the early months of the period this average was bettered with

a showing of 9 days each, in two of the later months the average rose

to 11 days and in the closing month reached 12 days. During the 1951

fiscal year, as may be seen from the table below, this average rose to

11 days in four separate months of the year. Another important

variable factor in the time required to complete the registration

process is the time elapsing between the date of the letter of comment

and the date the registrant's correcting amendment is filed, which of

course is wholly beyond the control of the Commission. Then follows

the necessarily variable factor of time required by the staff to examine

such amendment in the same manner as the original filing. The

975942-52-'-2
4 SECURITIES AND EXCHANGE COMMISSION

average time required in each month of the 1951 fiscal year for each

of these principal stages as well as for all steps combined in the registration process is shown in the accompanying table. The total elapsed

time, which was as high for the average case as 30112days for the whole

of the year 1947, and which had dropped to an all-time low of 21YJ.2

days for 1950, showed the same low figure of 21YJ.2days for 1951.

Time elapsed in registration process-1951 fiscaZ year

1900 1951

July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June

------------ ---- Total reglstmtion statements effeo- trve during month (number) ._ 22 32 36 33 47 28 31 31 61 66 38 66

- ---- ---- ------ Elapsed time (median number of days)'

From date of filing reglstmtlon

statement to first letter of cornmenL_ ••. ._._ 10 10 10 11 10 10 10 11 11 11 10 10

From date ofletter of comment

to first amendment by regis.

5 trant, . . 7 10 8 5 7 6 6 7 6 7 5

From date of first amendment

to the effective date of regis. tmtion _. 6 7 4 4 4 3 4 5 4 4 4 4

- -- ---------- --- Total median elapsed time (days) ._. 23 27 22 20 21 19 20 23 21 22 19 1

VOLUME OF SECURITIES REGISTERED

The amount of securities effectively registered during the 1951

fiscal year was $6,459,333,000, making the sixth consecutive period

of registrations in excess of $5,000,000,000 each and averaging over

$6,200,000,000 per fiscal year. This average is more than three times

the approximate annual average of $2,000,000,000 for the previous

six fiscal years. More than three-quarters of the effective registrations

are for cash sale for account of issuers, and the comparatively high

current registration rate is equally apparent in this principal item and

its components.

Effective registrations 1

For cash sale for aeeoun t of issuers

Fiscal year ended June 30 All reels- tmtlons

Total Bonds Preferred Common

1951. _________________________._._ .. ___.... $6,459 $5,169 $2,838 $427 $1,904 1900_. _____________. _______________________ 5,307 4,381 2,127 468 1,786 1949____ . _____._. ___________. ______________ 5,333 4,204 2,795 326 1,083 1948____. _______________________________.. _ 6,405 5,032 2,817 537 1,678 1947. 6,732 4,874 2,937 787 1,100 1946_. .• 7,073 5,424 3,102 991 1,331

37,3OIl 29,084 16,616 3,536 8,932

1945. __________________. ___________. _______ 3,225 2,715 1,851 407 456 1944_____ . __. ______________________________ 1,760 1,347 732 343 272 1943_____________________. _________________ 659 486 316 32 137 1942 . 2,003 1,465 1,041 162 263 1941. ______________________________________ 2,611 2,081 1,721 164 196 1940 . .. . . . 1,787 1.433 1,112 110 210

12,045 9,527 6,774 1,219 1,534

Avemge' 1946-51 ...• ._._ /1,218 4,847 2,769 58Il 1,489 1940-45_ .. ." _. . 2,008 1,588 1,12\! 203 256

I Figures m nnlhons of dollars, rounded to even millions. Bonds include taoe-emount certificates. Com.

mon stock Includes certificates of participation and all other equity securities except preferred stock. Earlier years are shown on page 5 of the SIXteenth Annual Report.

-- -- -

__

- -- - -

_____••• ___

•• __________________

•• _____•• ________•

__• _____

___

________

-- - --

________________________________• _____ ___•• _____ _______________________••

•• ___________• _____ ___________________

••• ___________ __ ___ _____ _______ __

________' ________ _______

____ _____ __________••• _
SEVENTEENTH ANNUAL REPORT 5

1951 1950

$5,169,092,000 $4,381,314,000

146,912,000 304,736,000

1,143,330,000 621,027,000

Electric,gas,and water _ Financialand investment; _

~anufacturing-------------------------- Foreign government- _ Transportationand communication _

~erchandising-------------------------- Extractive _

Real estate

Service _

Number of Statements

The amount registered in the 1951 fiscal year was distributed over

487 statements covering 702 issues, compared with the same number

(487) of statements covering 647 issues during the previous fiscal

year. The number differs slightly from that shown under "Registration Statements Filed" on a subsequent page, as explained in footnote

2 of appendix table 1.

Type of Registration

About 80 percent of the amount registered in the 1951 fiscal year

was for cash sale for account of issuers, 2.3 percent was for cash sale

for account of others than issuers, and 17.7 percent was for other than

cash sale as itemized in part 3 of appendix table 1. Comparative

figures are as follows:

Registered for

Cash saleforaccount of issuers ---- _ Cash saleforothersthan issuers ----__-- Other than cash sale_--__----------------

TotaL 6,459,333,000 5,307,077,000

Type of Industry

The industries represented by the securities registered for cash sale

for account of issuers were as follows:

1951 1950

$1,692,604,000 $2,038,227,000

1,319,707,000 1,067,692,000

680,950,000 506,304,000

678,484,000 175,950,000

667,351,000 522,753,000

64,239,000 25,370,000

57,076,000 33,027,000

5,700,000 4,409,000

2,980,000 7,582,000

Total____________________________ 5,169,092,000 4,381,314,000

From similar tables in recent annual reports, it can be ascertained

that of approximately $29.1 billion effective registrations for cash

sale for account of issuers during the past six fiscal years, $10.0

billion were electric, gas, and water, $5.85 billion were transportation and communication, $5.75 billion were manufacturing, $5.47

billion were financial and investment, $1.13 billion were foreign

government, and all others were less than $1.0 billion. "Transportation" does not include issues subject to Interstate Commerce Commission filings and therefore exempt from registration.

Recent trends have been for electric, gas and water issues to head

the list, for financial and investment issues to rise into second place,

and for manufacturing issues to drop from first place in 1946 and

1947 to third place in 1951 fiscal year. Foreign government registrations for 1951 are unusually large by reason of inclusion of the $500,-

000,000 State of Israel bonds.

Type of Security

Bonds amounted to 54.9 percent of the total registered in the 1951

fiscal year for cash sale for account of issuers, preferred stocks to 8.3

_
6 SECURITIES AND EXCHANGE COMMISSION

Bonds1

Preferredstock _ All other equity securities _

percent, and all other equity securities to 36.8 percent, as shown by

the following figures:

1961 1960

$2,838,001,000 $2,127,330,000

426,649,000 46~ 929,000

1,904,441,000 1,786,056,000

TotaL 5,169,092,000 4,381,314,000

1 Bonds include face-amount certificates.

4,381,314,000

1950

$2,927,787,000

962,830,000

490,698,000

1951

$2,547,477,000

1,744,573,000

877,041,000

5,169,092,000

• TotaL _

Type of Offering

Over 49 percent of the securities registered for cash sale for account

of issuers in the 1951 fiscal year were to be sold through investment

bankers pursuant to agreements to purchase for resale. About 34

percent (including $0.84 billion open-end investment company issues)

were to be sold on a "best-efforts" basis. The term "best-efforts" as

used here means all offerings through investment bankers other than

those pursuant to agreements to purchase for resale. The remaining

17 percent were to be sold direct by issuers to investors. Comparative

figures follow:

Through investment bankers:

Under agreements to purchase for re- sale _

On "best-efforts"basis _ By issuersto investors _

Purpose of Issue

Nearly 51 percent of the net proceeds of the securities registered

for cash sale for account of issuers in the 1951 fiscal year were for

new money purposes including plant, equipment, working capital, etc.

About 12 percent were for the retirement of debt and preferred stock.

About 25 percent were for the purchase of securities, principally by

investment companies. The remaining 12 percent were for use of

foreign governments. The figures are shown in detail in part 3 of

appendix table 1.

Cost of Flotation

Commissions and discounts to investment bankers, in the case of

new issues effectively registered for cash sale through them to the

general public, have amounted to approximately the following percents of gross proceeds:

Fiscal year to Bonds Pre- Com- FIScal year to I Pre- Com- June 30 lerred mon June 30 Bonds ferred mon

--- --- --- 1942_________________ 1 5 4.1 10 1 1947______________. 09 2.8 93 1943_________________ 1.7 36 97 1948_. __. ________._ .6 4.5 102 1944_________________ I 5 3 1 8 1 1949_________._. __. .8 38 7.1 1945_____________. __. 1.3 3 1 93 1950_______________ .6 27 64 1946__________._. ____ .9 3 1 80 1951.______________ .8 3.6 6 1

The above showing is exclusive of investment company securities,

offerings through rights to existing stockholders, securities sold to

special groups such as officersand employees, and securities registered

for other than cash sale. The commissions and discounts shown on

bonds in the above table are broken down by quality and size of issue

in appendix table 2 of this report and its predecessors.

_
SEVENTEE~ ANNUAL REPORT 7

Early in 1951, the Commission published a report entitled "Cost

of Flotation, 1945-49" covering all secuirties effectively registered

under the Securities Act of 1933during those five calendar years. The

total was nearly $30 billion and represented nearly 3,500 issues. The

primary purpose was to present basic factual data on a matter of public

interest which had been regarded as a trade secret prior to 1933, and

to provide more complete coverage and detail on cost of flotation than

can as yet be found elsewhere. The cost of flotation of the approximately $30 billion securities aggregated a figure equal to $2.64 for

every $100 of' gross proceeds, including $2.12 commissions and disconnts to investment bankers and $0.52 other expenses. New issues of

securities for cash sale through investment bankers to the general

public, not including issues of investment companies, came to about

half of the $30 billion, and produced the following aggregate costs

in percent of gross proceeds:

NumberoC Commls- Other Total cost Calendar years 194IH9 sionand issues discount expenses oCflotation

Bonds __________________________________________________ 360 0.78 0.52 1.30 Preferred. ______________________________________________ 236 3. 46 .75 4.21 Common _______________________________________________ 257 8 47 1.14 9.61 Combination _. 182 2.52 .73 3.24

New issues of securities for cash sale through subscription rights to

stockholders constituted the second largest group, about 13 percent

of the total, and produced the following aggregate costs in percent

of subscriftion prices and without taking into consideration as an

element 0 cost the discount from market prices at which the subscriptions were invited:

NumberoC Commls- Other ex- Total cost Calendar years 1945-49 ISSUes sionand penses oCflotation discount

Through investment bankers. Bonds ______________________________________________ 6 0 38 1.20 1.58 PreCerred ___________________________________________ 41 1.56 .92 2.48 Common 112 2 48 1 25 3 72 Combination. . _. _. . or 1 36 1 68 3 04 Direct by issuers: Bonds ___________. ___. _. ______________________. _. ___ 6 None .51 51 Preferred _______._. _______. _______._ ._. _. ___________ 8 None 1 25 1 25 Common 80 None .69 .69 Combination ___. _______. _. ___. _. ___. _____________._ 1 Noue .38 .38

Securities of investment companies amounted to about 11 percent

of the total dollar amount of securities effectively registered for cash

sale during the five-year period 1945-49. About 70 percent of this

amount was of open-end companies, 4 percent of closed-end companies, and 26 percent of fixed trusts, face-amount certificates and

investment plans. The cost of marketing securities of open-end companies is called the "sales load" and averaged 7.88 percent of the

gross proceeds of 246 flotations over the five years.

The publication referred to shows comparable figures for the remaining groups: new issues for cash sale directly to the general public, to special groups such as officers and directors, and in exchange

for outstanding securities, secondary distributions registered for ae-

_________• _______________________________

_____• ____• _____________• __________________

_______________ ______• _______• __

___________• _______________________________
8 SECURITIES AND EXCHANGE COMMISSION

count of selling security holders, and securities for future issuance in

conversions and other purposes. Itis implemented by another quarterly publication of the Commission styled "Cost of Flotation" which,

commencing with the first quarter of 1950, presents data on the cash

cost of marketing individual issues of securities registered during

each period, including details of offering, underwriting compensation, other expenses of flotation divided into (1) cost of professional

services, (2) taxes and fees, and (3) printing and other expenses, and

supplementary data reported by registrants on the outcome of issues

involving subscription rights or offers of exchange. Current copies

of the quarterly "Cost of Flotation" may be obtained from the Superintendent of Documents, Government Printing Office, Washington

25,D.C.

ALL NEW SECURITIES OFFERED FOR CASH SALE

Registered Securities

Securities effectively registered under the Securities Act of 1933

which were offered for cash sale for account of issuers during the 1951

fiscal year amounted to $3,135,000,000,approximately the same amount

as for the preceding fiscal year. Three-fourths of these offerings of

registered securities during the fiscal year took place in the first six

months of 1951. The amounts of such offerings III the last two years,

valued at actual offering prices, were as follows:

1951 1950

Corporate $2,957,000,000 $2,98GOOO,000

Foreign government- _ __ ___ ______ ___ 178,000,000 176,000,000

TotaL___________________________ 3,135,000,000 3,163,000,000

These totals exclude securities sold through continuous offering,

such as issues of open-end investment companies, employee purchase

plans, and the $500,000,000 State of Israel bonds in process of sale

at the close of the fiscal year.

Unregistered Securities

CORPORATE

During the 1951 fiscal year, $3,953,000,000of unregistered corporate

securities are known to have been offered for cash sale for account of

issuers, including a record volume of securities placed privately. The

basis for exemption of these securities from registration is as follows:

1950

$2,177,000,000

557,000,000

110,000,000

107,000,000

4,000,000

6,000,000

2,961,000,000

121,000,000

6,000,000

o

3,953,000,000

Basis for exemption from registration

1951

$3,373,000,000

328,000,000

125,000,000

Total

Pri vately placed issues

Issues of railroads and other common carriers __ Commercial bank issues

Offerings between $100,000 and $300,000 in

size under regulation A

Intrastate offerings

Other exemptions - - -_

NONCORPORATE

Unregistered government and eleemosynary securities offered for

cash sale in the United States for account of issuers during the 1951

_

_

_ - __

_
SEVENTEENTH ANNUAL REPORT 9

17,000,000

o

101,000,000

15,678,000,000

49,000,000

50,000,000

33,000,000

13,318,000,000

1951 1950

$10,284,000,000 $12,068,000,000

2,902,000,000 3,492,000,000

Total

fiscal year amounted to $13,318,000,000 as compared with $15,678,-

000,000 in the 1950 fiscal year. These totals consisted of the

following:

Issuer:

United States Government

State and local governments

Foreign governments (privately placed)

International Bank

Miscellaneous nonprofit organiza- tions

Use of Net Proceeds of Corporate Securities

Proceeds from corporate securities flotations for cash sale for account of issuers, both registered and unregistered, were mainly to

be used for expansion of fixed and working capital, approximately

$5,263,000,000 being raised for these purposes. This amount was considerably higher than the $3,843,000,000 for new money purposes during the 1950 fiscal year, but was approximately $500,000,000 less than

in the 1949 and 1948 fiscal years. Electric and gas companies accounted for 34 percent of the new money financing, manufacturing

for 32 percent, communication for 10 percent, real estate and financial

for 9 percent, railroad and other transportation for 8 percent, and

commercial and miscellaneous companies for 7 percent. Corporate

securities offered for cash sale for retirement of outstanding securities and bank debt totaled only $1,204,000,000 as compared with

$1,651,000,000 in the 1950 fiscal year.

Appendix tables 3, 4, and 5 give a detailed statistical breakdown

of all securities offered for cash sale in the United States for account

of issuers.

REGISTRATION STATEMENTS FILED

A considerable increase occurred last year in the number and dollar

amount of new financing involved in registration statements. Thus,

as set forth in the table below, there were filed and examined in the

1951 fiscal year 544 registration statements covering proposed offerings in the aggregate of $6,371,827,423, compared with figures of 496

registration statements and proposed offerings in the aggregate of

$5,220,654,010 in the 1950 fiscal year.

Number and disposition of registration statements filed

Prior to July 1, July I, 1950, to Total as of 1950 June 30, 1951 June 30, 1951

Registration stetements: Filed_. _____________________________________________8,539 544 9,083

ElIective-net ______________________________________ 7,144 1490 J 7,629 Under stop or refusal order--uet, ___________________ Wlthdrswn.. 182 1 183 ________________________________________ 1,168 34 1,202 Pending at June 30,1950 45 .--------------- ..-.._---- Pending at June30,195L. -.-.-. ---. 69

Total _____________________________________________ 8,539 .--------------- 9,083

Aggregate dollar amount: As lUed _____________________________________________

As $63, 183, 325, 159 $6, 371, 827, 423 $69,555, 152, 582 elIectlve _________________________________________ 59,440, 775, 254 6, 459, 333, 000 65,900, 108, 254

1 Excludes 4 regJStration statements which became elIectlve and were subsequently wlthdrswn.

5 registration stetements which became elIectlve prior to July I, 1950, were wlthdrswn and are counted In the nnmber wlthdrswn.

_

_

_

_

_

_

____________________________ ------ ___________________________ ------ --------- -------

•
10 SECURITIES AND EXCHANGE COMMISSION

Additional decuments filed in the 1951 fiscal year under the Act

Nature of document: Number

Material amendments to registration statements filed before the

effective date of registration__________________________________ 777

Formal amendments filed before the effective date of registration for

the purpose of delaying the effective date________________________ 476

Material amendments filed after the effective date of reglstratlon.L, 642

Total amendments to registration statements 1,895

Supplemental prospectus material, not classified as to amendments to registration statements 1,074

Reports filed under section 15 (d) of the Securities Exchange Act of

1934 pursuant to undertakings contained in registration statements

under the Securities Act of 1933:

Annual reports______________________________________________ 735

Current reports 2,996

EXEMPTION FROM REGISTRATION UNDER THE ACT

The Commission is authorized by section 3 (b) of the Act to adopt

rules and regulations granting exemptions from the registration

requirements for security offerings not exceeding $300,000 in aggregate offering price to the public. The most important of the regulations adopted under this section are Regulation A, which provides a

general exemption for small issues up to the statutory maximum permissible amount of $300,000, and Regulation B, which affords an

exemption for fractional undivided interests in oil or gas rights and

is limited to a maximum aggregate offering price of $100,000.1

These regulations granting exemption from registration pursuant

to section 3 (b) carry no exemption from the civil liabilities for misstatements or omissions imposed by section 12 or from the criminal

liabilities for fraud imposed by section 17. They simply permit the

making of a small offering on the basis of less complete disclosure

than in the case of a registered security and require the filing of certain

minimum information with the nearest regional officeof the Commission a certain number of days before the offering may be made," If

any sales literature is to be used, it must be filed in advance of its use.

Exempt Offerings Under Regulation A

After three successive years had shown a slight decrease in the

amount of small financing undertaken pursuant to Regulation A, the

1951 fiscal year shows a slight increase therein and reflects at least

a halt to any such previous trend.

Fiscal year

1947 ... 1948. . . 1949_.

1950

1951

Number of

lettersof

notification flIed

1,513

1,610

1,392

1,357

1.358

Aggregate

offering

price

$210, 791, 114

209, 485, 794

186, 782. 661 171,743,472

174.277,762

1Under another such exemption, that provided by Regulation A-M for assessable shares

of stock of mining companies, the Commission received and examined 8 prospectuses cover- ing securities having an aggregate offering price of $475.688 durmg the 1951 fiscal year. . An offering may be made under Regulation A five business days after the letter of notification is filed with the Commission. An offering sheet complying with the requirements of Regulation B becomes effective on the eighth calendar day after it is filed with the

Commission.

• _ _ • • • __ • _

_

_

_

•
SEVENTEENTH ANNUAL REPORT 11

Included in the 1951 fiscal year totals are 141 letters of notification

covering stock offerings filed by companies engaged in some phase of

the oil and gas business.

In addition to the total of 1,358 letters of notification, there were

received and examined during the past fiscal year 1,212 amendments

to these letters of notification and also 1,741 filings of sales literature

to be used in connection with such offerings.

Information available as to 1,351 of these offerings in the 1951

fiscal year shows that 751 covered proposed offerings of $100,000 or

less; 251 more than $100,000 and less thjm $200,000; and 349 more

than $200,000but not more than $300,000. Issuing companies made

1,122of these offerings; stockholders 215; and issuers and stockholders

jointly, the remaining 14. Less than half, or 588of them, were underwritten, 452 by commercial underwriters and 136 by officers and

directors and other persons not regularly engaged in the underwriting

business.

Regulation A provides a means whereby small businessmen may

seek from public investors the relatively small amounts of venture

capital which they ordinarily require; and it may be of interest to

note, from the filings made ill the 1951 fiscal year as distributed by

regional offices,how this regulation is used by issuers located in every

part of the nation.

Number of Aggregate letters of Regional office notrfleation offering

filed pnce

Atlanta _____________________________________________________________________ 75 $11,526, 403 Boston ______________________________________________________________________ 89 10,844,052 Chicago _____________________________________________________________________ 132 18,590,277 Cleveland ___________________________________________________________. _______ 89 12,026,985 Denver ____________________________________________. _________________________ 102 12,650,509

Fort Worth __________________________________ . _. ____________________________ 80 11,751,293 New York __________________________________________________________________ 372 45,669,680 an Francisco ________________________________________________. ______________ 208 25,846,180 cattle _______________________________________ . ______________________________ 117 15,649,244 ashington _________________________________________________________________ 94 9,723,139

TotaL ________________________________________________. ________________ 1,358 174, 271, 762

s

s

w

Exempt Offerings Under Regulation B

The exemption from registration provided by Regulation B for

fractional undivided interests in oil or gas rights is limited, as previously indicated, to a maximum offering price of $100,000. A person

intending to sell securities under this regulation must file with the

nearest regional officeof the Commission an offering sheet which calls

for a brief summary of pertinent information regarding the security

being offered.

During the 1951fiscal year, the Commission received and examined

96 offering sheets together with 76 amendments to such offering sheets.

These filings are in addition to the 141 offerings under Regulation A
12 SECURITIES AND EXCHANGE COMMISSION

which covered oil and gas securities. The following actions were

taken on these Regulation B filings:

Action taken on filing8 under Regulation B

Temporary suspension orders (rule 340 (a) )___________________________ 18

Orders terminating proceedings after amendmenL_____________________ 12

Orders consenting to withdrawal of offering sheet and terminating pro- ceeding____________________________________________________________ 5

Orders terminating effectiveness of offering sheeL_____________________ 3

Orders consenting to withdrawal of offering sheet (no proceeding pending) 3

Orders accepting amendment of offering sheet (no proceeding pending) __ 44

Total orders___________________________________________________ 85

Of the 76 amendments received during the year, approximately 44

were filed as a result of informal letters of comment sent by the staff

rather than of formal suspension orders. The Commission maintains

a specialized oil and gas unit in the Division of Corporation Finance

at its headquarters to administer Regulation B and to advise and

assist with technical phases of all offerings of oil and gas securities

arising under various provisions of the Securities Act and other

statutes administered by the Commission. For example, during the

year this unit participated in the examination of 78 registration statements, and 57 amendments thereto, filed under the Securities Act,

and reviewed 47 broker-dealer inspection reports made pursuant to

the Securities Exchange Act, which involved securities of oil producing, natural gas, or refining companies. Petroleum geologists conduct field investigations of tracts and wells and furnish advisory

reports thereon in connection with investigations made by the Commission and its regional offices. Development activity in the Rocky

Mountains which was noted in the 1950fiscal year has been extremely

marked during the 1951fiscal year.

aonfidentUil written reports of sales under RegUlation B.-The

Commission received and examined under rules 320 (a) and 320 (c)

and (d) during the 1951 fiscal year 1,922 confidential written reports

on Forms 1-G and 2-G relating to actual sales made pursuant to

Regulation B in the aggregate amount of $1,127,226. This total may

be compared with $829,875during the preceding year. These reports

are of assistance to the Commission in determining whether violations

of law occur in sales of oil and gas securities exempted from

registration.

Oil and gas investigati0118.-The Commission conducts a considerable number of oil and gas investigations, arising largely out of complaints received from the public, to determine whether there has been

any violation of any other provision of law in the sale of securities

exempted under Regulation B, with particular attention to the registration requirements of section 5 and the fraud prohibitions contained in section 17 of the Securities Act. Not infrequently in such

an investigation it may be necessary to conduct extensive field trips

in the ascertainment of certain material facts. Depending upon the

circumstances of the particular case, 'a field trip may Involve an

inspection of well locations, a study of the productive history or oil

possibilities of the areas under consideration, interviewing and taking

•
8EVENTEENTH ANNUAL REPORT 13

depositions of persons who worked on the wells, getting affidavits

from the purchasers of oil where there has been actual production,

obtaining authenticated statements by State officials of well logs, plugging records, tax records and production records that have been filed

pursuant to the statutes of the States in which the operations took

place, the preparation of maps and similar activities.

Often investigation is directed to highly objectionable sales literature which greatly overemphasizes the possibilities of success from

the proposed security purchase. So it was in the case of Oil Prospectors, Inc. and Ralph Malone, which offerors had made a number of

filings under Regulation A, and in virtually all instances used such

literature. In this situation the Commission made a field examination

of a lease and well in Texas and filed a complaint in the United States

District Court, Northern District of Texas, against the offerors, charging violation of the anti-fraud provisions of section 17 (a) in the

sale of capital stock of Oil Prospectors, Inc. A temporary restraining order was issued immediately after the close of the fiscal year, on

July 2,1951, and a hearing was expected on the Commission's motion

for a permanent injunction shortly thereafter.

As suggested above, a substantial number of these oil and gas investigations grow out of violations of the registration requirements of

section 5. In one such case, J. Stacey Henderson, and others, sold

fractional working interests in test wells located in Caddo Parish,

Louisiana, without making any attempt to comply with the registration provisions of section 5. A Commission engineer visited the immediate location of the test wells and Shreveport where he gathered

necessary geological and production data. At the separate trial of

Henderson which ensued, where the Commission engineer gave expert

testimony as to the geological conditions and productive possibilities

of the area, Henderson was found guilty on one count of an indictment charging violation of the Mail Fraud Statute in connection with

the sale of fractional undivided interests in oil and gas rights and was

sentenced to serve five years in prison and to pay a fine of $1,000

and costs.

An additional case illustrates the fact that often an oil and gas

investigation is of important assistance to other regulatory work of

the Commission. As discussed elsewhere in this annual report, the

Commission issued during the 1951 fiscal year a stop' order under section 8 (d) against the grossly inaccurate, misleadi~ and incomplete

registration statement of Ralph A. Blanchard and George P. Simons

doing business as Northwest Petroleum. Eight days after the filing

of that registration statement the Commission obtained an injunction

from the United States District Court for the District of Oregon

against these registrants from selling the shares or interests they proposed offering the public until such time as a registration statement

with respect thereto became effective. Contributing largely to the

facts upon which this injunction was granted was a technical report

resulting from an investigation made by the oil and gas staff, especially

regarding the productive capacity and other technical characteristics

of the oil wells involved in the offering.

FORMAL ACTION UNDER SECTION 8

In almost all instances the Commission's informal examination

procedures, such as the prefiling conference and the letter of comment,
14 SECURITIES AND EXCHANGE COMMISSION

are sufficient to insure that the registration statement meets the standards of fair disclosure prescribed by the statute. However, there are

infrequent instances when it becomes necessary to exercise its powers

under section 8 in order to prevent a registration statement from

becoming effective in deficient, misleading or inaccurate form or to

suspend the effectiveness of one which has already become effective.

Under section 8 (b) the Commission may institute proceedings to

determine whether it should issue an order to prevent a registration

statement from becoming effective. Such proceedings are authorized

if the registration statement as filed is on its face inaccurate or incomplete in any material respect. Under section 8 (d) proceedings may

be instituted at any time to determine whether the Commission should

issue a stop order to suspend the effectiveness of a registration statement if it appears to the Commission that the registration statement

includes any untrue statement of a material fact or omits to state any

material fact required to be stated or otherwise necessary to make the

statements included not misleading. Under section 8 (e) the Commission may make an examination to determine whether to issue a stop

order under section 8 (d).

Stop-order Proceedings Under Section 8 (d)

One stop order was issued during the year and another stop-order

proceeding was instituted just before the close of the year (where the

hearing was scheduled after such close) pursuant to section 8 (d).

The former case is described below.

Ralph A. Blanchard. and George P. Simons-doing business as

Northwest Petroleum-File No. 2-8243.-This case was completed

during the 1951 fiscal year although instituted previously.

Prior to the filing of the registration statement about $300,000 had

been raised by sales of shares to public investors, of which about

$30,000was retained by the promoters and about $270,000was turned

over to Mon-O-Co Oil Corporation for drilling operations. With the

exception of one well, which had a rated capacity of 20 barrels per day,

the wells which were drilled were completely unproductive.

In the registration statement as origmally filed it was represented

that 350 shares were being offered; as amended during the course of

the proceedings, the registration statement recited that 447 shares, of

which 330 were "company shares" and 117 shares were "personal

shares," were being offered at $500 a share, or an aggregate of $223,500.

However, the amendment did not specify the order in which company

shares or personal shares would be sold. The Commission, in its disposition of this case, found that the failure of the registrants to include a definite undertaking with respect to the order in which the

company and personal shares were to be sold, in order adequately to

inform prospective purchasers of the order in which proceeds of a

sale of less than all of the shares were to be applied, rendered the

registration statement as amended materially misleading.

The Commission also found that, in view of the extensive experience

of Mon-O-Co and the promoters in attempting to exploit the tracts in

question, the registrants knew that in all probability further drilling

operations would not result in a return sufficient to warrant the investment of funds by the public on the basis contemplated by registrants,

and that the failure of the registrants to make the disclosures neces-
SEVENTEENTH ~~UAL REPORT 15

sary to a full understanding by prosJ?ective shareholders of the actual

prospects of return rendered the registration statement misleading.

The Commission concluded that the registration statement was

grossly inaccurate, misleading and incomplete, and issued a stop order

suspending its effectiveness. At the close of the 1951 fiscal year the

registrants had not attempted to correct the deficiencies found in the

registration statement and the stop order was still in effect.

DISCLOSURES RESULTING FROM EXAMINATION OF REGISTRATION

STATEMENTS

The result of the Commission's work in the examination of registration statements may be illustrated by the cases described below.

Misleading security description revised-Dividend rights and earnings prospects clarified-Position of promoters and new investors contrasted.-A company operating a life, health and accident insurance

business filed its first registration statement under the Securities Act

of 1933purporting to cover an issue of "Special Stock Debentures" to

be offered in units of $500 each. It appeared to the staff upon examination of the statement that these securities were not debentures at

all, as the term is commonly understood, but were essentially contracts

for the purchase of capital stock. Thus, the purchaser of the "debenture" agreed to pay $500 (all at one time or in installments) and the

company agreed in consideration thereof to deliver at the end of five

years 25 shares of common capital stock. In each of these five years

the purchaser was entitled to receive the equivalent of such dividends

as would be paid on 25 shares of .,took were such shares already

issued; and he was entitled to an additional distribution based upon

a percentage of the amount of life insurance renewal premiums paid

to the company by its policy holders in each such year. The company referred to this latter distribution as a "bonus." Apart from

making use of such misleading nomenclature as "debentures" and

"bonus," the prospectus as originally filed was so prepared as to make

it virtually impossible for even a skilled analyst to form a reasonable

judgment of the investment merits of the securities.

In the ensuing examination process the prospectus and the security

instrument itself were amended to substitute the term "Special Investment Contract" for "Special Stock Debenture"; and the term "bonus,"

which ordinarily means something given beyond what is strictly due,

and which did not appear to be applicable to any feature of these

securities, was dropped.

To provide investors with some indication of what the purchaser's

right to dividend equivalents might be worth, the amended prospectus also pointed out that earnings per share during the past four years

had amounted to 30 cents, 62 cents, 12 cents, and 13 cents, respectively,

and, to provide them with an indication of what the right to distributions based on the life insurance renewal premium business done by

the company might be worth, it was furthermore pointed out in the

amended prospectus that, if the amount of such business done in 1950

were applied, total distributions over the five-year period would

amount to some $28.14. Itthus becomes apparent that, notwithstanding the specification in the investment contract that $25 of the $500

purchase price was to be attributed to the 25 shares of stock which the
16 SECURITIES AND EXCHANGE COMMISSION

contract called for, and the remaining $475 was to be attributed to

the rights to dividend equivalents and distributions based on life insurance renewal business, the cost of the stock should properly be regarded as very much greater than $25 ($1 per share). In this connection the amended prospectus states: "It should be noted, therefore,

that very substantial increases in earnings will be necessary if purchasers of the investment contracts are to enjoy a satisfactory return

on the stock they will receive at the price they are paying."

The amended prospectus also introduces an explanation that, assuming eventual issuance of all of the stock called for by the investment contracts in accordance with the terms of the contracts, the original incorporators will hold some 72 percent of the outstanding stock

for which they paid approximately $37,500, in contrast to the position

of incoming investors who will receive only an 18 percent interest in

the company in exchange for a total contribution of $1,200,000.

In addition, the amended prospectus discloses that one of the company's two largest stockholders has repeatedly borrowed substantial

sums from the company and that a presently outstanding loan (originally $600,000 but at the date of the prospectus reduced to $378,000)

admittedly was under-collateralized by about 50 percent. This stockholder, the amended prospectus further discloses, profited to the extent of some $59,000, on a $500 investment, in the sale of property to

the company, and to the extent of some $15,000 in connection with

the purchase by the company of the business of another insurance

company.

Besides, this registrant was called upon to file very substantial

amendments to the financial statements included in the registration

statement proper which were deemed by the staff to be necessary in

order to meet the standards of disclosure imposed by the Act. The

more significant of the deficiencies in these financial statements as

originally filed involved the inclusion in income of (1) proceeds from

the sale of the securities, (2) amounts received as contributed surplus,

(3) borrowed money received and repaid, and (4) payments and adjustments for retirement of outstanding bonds. Following discussions with the staff, the company filed financial statements which

were appropriately amended to reflect generally accepted accounting

principles, resulting in a reduction of 1950 reported net income from

$124,000 to $33,000 (approximately), and a reduction of earned surplus as of December 31, 1950, from $231,000 to $102,000 (approximately).

Events after date of j1Jna:nci{llstatements reaognized.-When a

utility c0!Upanyfiled its registration statement for an offer of common

stock in March 1951, the 1949 and 1950 income statements included

approximately $125,000 and $415,000 ($75,000 and $228,000 after

taxes), respectively, and the balance sheet included a deferred credit

for contingent revenues of approximately $412,000 (equivalent to

$227,000 after taxes) for revenues billed by the registrant pursuant

to a rate increase granted by the local regulatory commission. At the

time of filing the statement the United States Court of Appeals had

affirmed the action of the United States District Court in vacating

the regulatory commission's order and had ordered amounts collected

after a certain date impounded. The court had ordered that the registrant refund to its customers all monies collected under the increased
SEVENTEENTH ~AL REPORT 17

rates but had granted a stay of its judgment pending appeal to the

Supreme Court.

The above situation was fully disclosed in the financial statements

and matters requiring amendment had been corrected to put the statement in final form. However, at about the time the registration statement was to become effective the Supreme Court of the United States

refused to review the appellate court's findings that the order of the

local regulatory commission be vacated. The registrant and its accountants then proposed to expand the footnote describing the litigation to explain the effect of the Supreme Court's action but without

eliminating from the income statements the revenues then to be refunded or correcting the balance sheet to show the liability for the

ordered refund. However, the registrant was requested by the staff

to adjust the income statements and balance sheet in respect of the

refundable amounts, since, under the circumstances, no accounting

justification then existed for including in the income statements

amounts which clearly were not proper revenue items and for failing

to show the proper current liabilities.

The statements were amended to remove the amounts in question

from the income statements and to show them in the balance sheet,

together with the $412,000 originally shown as a deferred credit, as a

current liability ($614,000) after deducting impounded funds of

$336,000. The effect of the change on earnings and earned surplus

was as follows:

1949 net income - -_- _ 1950netincome _ Earnedsurplus _

As originally filed As amended

$1,471,000 $1,398,000

2,489,000 2,261,000

7,434,000 7,133,000

Earnings restated to refleot taxes and loss carry-over.-A registrant's prospectus as originally filed included a summary of earnings

showing a net loss of $142,000for the first fiscal year of its operations

(certified by independent public accountants) and net profits of $110,-

000 and $216,000 for the succeeding two months (unaudited). No

franchise, income and excess profits taxes had been deducted and the

registrant was therefore asked to make appropriate provision for such

taxes. The summary, as then amended, showed the net loss of $142,000

for the company's first full year, and set forth net profit for the succeeding three months combined of $168,000, after deducting a provision of $218,000for franchise, income and excess profits taxes. However, the staff discovered that, in computing the income and excess

profits taxes for the three-month period, the company had deducted

the full amount, rather than one-quarter of the amount, of allowable

net operating loss carry-over from the first fiscal year. Pursuant to

the request of the staff, the summary was again revised, on the presumption of continuing profitable operations which the registrant

did not disclaim, to show the taxes for the first quarter of the second

. year computed on the basis of deducting only one-quarter of the first

year's allowable net operating loss carry-over. As finally revised, the

summary showed net profit (after taxes) of $116,000for the quartercompared with the profit figure of $168,OQOfor the same period as

shown in the first revision and that of $326,000 for two months only

of such period as set forth in the original filing.

Restatement of balance sheet to eliminate unearned rents and roy-
18 SECURITIES AND EXCHANGE COMMISSION

allies as a8setB.-In the course of an examination of an amendment

to an effective registration statement of a machine manufacturer

it was noted that the proportion of rental income to sales of products had increased materially and that the items of "Trade Receivables with Extended Maturities" and "Deferred Rental Income" had

become major elements in the balance sheet. In response to a request

that the method of accounting be explained, a representative of the

company disclosed to the Commission that the former account represented payments not due within the ensuing year on notes and contracts receivable covering rentals of leased machines and that the

leases normally called for payment of rentals over a period of fortyeight months. Further explanation revealed that it was the practice

of the company to record the full amount of rent receivable upon execution of the leases and to credit an equal amount to deferred income

from which transfers were made to profit and loss on a straight-line

basis over the useful life of the machines, then estimated at five years.

Since this method of accounting appeared to be unique among companies doing business on a similar basis, the staff requested that the

financial statements be amended to eliminate from the accounts the

rents and royalties not earned at the balance sheet date except to the

extent that collections had been made in advance of the due dates.

Further discussions with representatives of the registrant and its

independent accountants brought concurrence with the staff's views

and resulted in an amendment the significance of which may be seen

from the following figures. "Rentals and Royalties Receivable under

Machinery Lease Agreements" listed under current assets were reduced from $3,500,000 to $800,000 and "Trade Receivables with

Extended Maturities" were reduced from $4,730,000 to $24,000,

accounting for a total of $7,400,000applied as a contra reduction of

"Deferred Rental Income" from $9,100,000to $1,700,000. The above

adjustments reduced total current assets from $17,300,000to $14,600,-

000, with a resulting reduction in the current ratio from 1.61-to-1 to

1.34-to-1, and reduced the balance sheet totals from $40,900,000 to

$33,500,000. Since the statements on the former basis had been published, the change in presentation was referred to in the "Accountants'

Report" and explained in the following "Supplemental Note" added

to the financial statements by way of amendment to the registration

statement:

Since the closing of the accounts for the fiscal year ended November 30, 1950,

and the issuance of the annual report to stockholders, the company has revised

its procedure with respect to accounting for rentals on leased machines. Here.

tofore, the full amount of such rentals was recorded as receivable at the time

of execution of the leases, with a corresponding credit to deferred income which

was transferred to profit and loss over a period of five years, the estimated life

of the machines. Under the revised procedure, rentals are recorded only as they become due for payment and are credited initially to deferred income, thereafter being transferred to profit and loss as earned over the life of the machines.

This change in policy has been given effect in the accompanying balance sheet

with the result that $7,385,000 has been eliminated from asset classifications and

from deferred income; the balance of deferred income as stated under the

revised procedure represents that portion of rentals received or now due, not

yet transferred to profit and loss. Of the aggregate amount of unrecorded

rentals yet to be received under the terms of existing machine lease agreements

$7,385,000, approximately $2,600,000 is scheduled for payment within the ensuingyear.
SEVENTEENTH ANNUAL REPORT 19

Failure to disolose history of the enterprise, its principal promoter,

and the denial of a patent applioation under iohich. an allegedl'!{ valuable license was granted registrant.-An Ohio company organized in

the latter part of 1949 filed a registration statement in .Tune 1950 covering a proposed public offering of 30,000 shares of its Class A stock

at $100 per share. The registrant indicated that it was formed for

the purpose of manufacturing, selling, leasing, and operating apparatus to be used particularly in connection with steel refining and in

production of steel ingots for mills in the district in which Its plant

might be established. An exhibit in the registration statement set

forth that for each Class A share sold to the public, a share of Class B

stock would be given to another Ohio corporation in consideration of

the latter's grant to the former of an exclusive license to manufacture,

sell, lease and operate equipment developed by it, but such information was omitted from the prospectus. Both classes of stock had equal

voting rights. Investigation by the staff developed that the Ohio

corporation which granted the license to the registrant had only one

patent and that it related to an emulsion process or no apparent commercial value which would expire in about three years. It was also

ascertained that the principal promoter had filed a patent application covering a combustion chamber or "unit" employing a special

fuel which was to be used in various furnace applications such as the

steel open hearth. Apparently this patent was to be transferred to the

corporate holder of the Class B stock which was to grant registrant a

license thereon. The registration statement failed to disclose either

the facts regarding its emulsion 1?rocess or that the claims in the

patent application relating to the' combustion chamber" it proposed

to manufacture had been disallowed in full by the United States

Patent Office. In addition the prospectus failed to disclose that the

Ohio corporation which purported to grant licenses was under the

control of the registrant's principal promoter. Furthermore the

prospectus omitted to state that it appeared from an exaniination of

the latter's books by the Ohio authorities that $60,000 of its funds

had been transferred to the principal promoter of the registrant and

was unaccounted for. The registration statement also failed to state

that the principal promoter had been indicted in 1948 for violating

the Ohio Securities Act in the sale of promissory notes, that he had

been a fugitive from justice during 1949 and that he was awaiting

trial after having been released on bail. After the registrant had

become aware that the investigation had been instituted it withdrew

its registration statement in July 1950.

Failure to make material disclosures including the possible effect

on enterprise of the Defense Production Act 011950 and the mobilization of the national economy.-A company in the electronics field

recently discharged in bankruptcy proceedings pursuant to Chapter

XI of the National Bankruptcy Act filed a registration statement

covering 400,000 shares of convertible Class A stock to be offered to

the public at $2.50 per share. The prospectus failed to disclose adequately that one of the principal purposes of the offering was to repay

a substantial loan made to the registrant by a principal and possibly

controlling stockholder. In addition, the prospectus failed to set forth

adequately the use which would be made of the proceeds in the event

that a smaller amount than 400,000 shares was sold and to indicate

975942-52-3
20 SECURITIES AND EXCHANGE COMMISSION

the position in which purchasers of the shares might find themselves

in such event. The prospectus also failed to disclose clearly that the

cost of financing would represent at least thirty-one percent of the

gross proceeds if all the shares were sold. Moreover, the registrant

failed to indicate its relatively poor competitive position and failed

to point out the effect of the mobilization of the national economy and

the impact of the Defense Production Act of 1950 upon its ability to

obtain materials and components needed for the manufacture of its

proposed product. Finally, the registrant omitted to set forth a substantial contingent liability to the United States Government and to

make adequate provision therefor in the balance sheet. After these

failures in disclosure were directed to the registrant's attention, it

withdrew its registration statement.

CHANGES IN RULES, REGULATIONS AND FORMS

Rules 171, X-6, and U-105-Disclosure detrimental to the national

security.-The Commission adopted during the past year rules providing for the omission or confidential treatment of informationf, if

publication of the information would, in the opinion of the Commission, acting in consultation with other executive departments or agencies of the United States, be detrimental to the national security,"

Such rules are applicable to all filings under the Securities Act of

1933, the Securities Exchange Act of 1934, and the Public Utility

Holding Company Act of 1935.

Procedure has been established whereby the Commission, upon

request, will render advance, informal opinions in cases where issuers,

underwriters, or other persons are in doubt as to the extent to which,

or the manner in which, particular information may be disclosed in

a registration statement, prospectus, application for registration, report, proxy statement, notification, or other document filed with the

Commission or an exchange pursuant to any of those Acts.

The general types of information which will be treated confidentially

under the new rules are as follows:

(1) The number, size, character, and location of ships in construction, or advance information as to the date of launchings or commissionings; or the physical set-up or technical details of shipyards.

(2) Specific information about war contracts, such as the exact

type of production, production schedules, dates of delivery, or J?rogress of production; estimated supplies of strategic and critical

material available; or nationwide "round-ups" of locally published

procurement data except when such composite information is officially

approved for publication.

(3) Specific information about the location of, or other information

about, sites and factories already in existence, which would aid

saboteurs in gaining access to them; information other than that

readily gained through observation by the general public disclosing

the location of sites and factories yet to be established, or the nature

of their production.

(4) Any information about new or secret military designs, or new

factory designs for war production.

(5) Any information of a classified nature dealing with any atomic

project, construction or product.

• Securities Act release no. 8!l09.
SEVENTEENTH ANNUAL REPORT 21

Amendmea» of Rules ~~oand ~22 of Regulation A.-Qn September 8, 1950, the Commission invited comments on proposed amendments to rules 220 and 222, which are a part of Regulation A under

the Securities Act of 1933. After considering the comments received

the Commission amended those rules, effective January 8, 195.1, to

provide a new method for determining public offering price in connection with certain offerings through rights and warrants under

Regulation A.4

In the past there has been some difficulty in determining in advance

how the price limitations of Regulation A apply to certain rights

offerings by issuers, which may be accompanied by sales of the rights

and of the offered securities made at varied prices by underwriters

and controlling persons. In order to minimize these difficulties, the

Commission added a new paragraph (i) to rule 220. This paragraph

provides generally that, for the purposes of Regulation A, the offering price of securities offered through rights or warrants shall be

either (1) their market value as determined prior to the filing of the

letter of notification or (2) the price to be received by the offeror,

whichever is higher, and that no separate consideration shall be given

to any sale of the rights or warrants by any person. In addition, rule

222 is amended to provide that the letter of notification filed in such

cases shall state the market value, as well as the take-down price, of

the securities.

Where additional shares of an outstanding class are to be offered

through rights, it will normally be appropriate for the person preparing the letter of notification simply to set forth the current market

value of the oustanding shares of the class to be offered. However,

if it can be demonstrated that the offering will result in a dilution of

the value of the outstanding shares, it will be permissible for the person filing the letter of notification to compute the dilution and to base

the computation of market value of the offered securities on the diluted

value.

Where the market value of securities to be offered through rights

or warrants cannot be determined prior to the offering, the new provisions that have been added to the rule will not be applicable. In

such cases, the application of the price limitations of paragraphs (a),

(b), and (d) will turn on the take-down price, the amount received

by controlling persons who sell their rights, and, if there are any

underwriters, any amounts received from the public by such

underwriters.

Amendment to Rule ~¥J of Regulation A-M.-During the year the

Commission also adopted certain amendments to rule 240 under Regulation A-M.5 That regulation exempts certain offerings of assessable

mining securities from registration under the Act. The amendments,

by deletion of paragraph (c) of the rule, removed the restriction which

prevented issuers from commencing more than one offering under the

regulation each year; and, by revision of paragraph (f), require the

reporting to the Commission of assessments received by an issuer.

However, the regulation as amended continues to limit the aggregate

of unregistered offerings and assessments received to not more than

$100,000in each yearly period.

Securities Act release no. 3399.

SecurIties Act release no. 3384. ••
22 SECURITIES AND EXCHANGE COMMISSION

Proposed revision of Form S-1 designed to shorten and improve

prospeatus.-The Commission had under consideration at the end of

the year a proposed revision of Form S-1, which is one of the forms

for registration of securities under the Securities Act of 1933. The

purpose of this revision is mainly to shorten and improve the prospectus and thereby facilitate its distribution and make it more useful

to investors. Notice of the proposal was published in detail and the

Commission also invited comments and suggestions from all interested persons," Some of the items of information currently required

to be shown in the prospectus would be omitted from the prospectus

under this proposal but would be otherwise filed with the registration

statement. For example, the prospectus would include very limited

information as to the nature of the underwriting commitment. Details of the underwriting arrangements would be omitted from the prospectus but would be otherwise filed as a part of the registration

statement. Certain other items of information would be similarly

treated. The Commission's experience has been that, to a considerable

extent, detailed items and instructions result in unnecessarily detailed

answers in the prospectus. Accordingly, the revised items and instructions of the proposed form have been somewhat streamlined for the

purpose of producing more concise statements in the prospectus without sacrificing essential information. A revised form was adopted

after the end of the fiscal year.

LITIGATION UNDER THE SECURITIES ACT

It is sometimes necessary to obtain compliance with the Securities

Act by resort to the courts. Where continued violation of the Act and

consequent damage to the public is threatened, the Commission acts

promptly to safeguard the public interest by instituting injunctions.

Several of the actions in which the Commission has obtained injunctions during the last fiscal year involved the sale of mining securities. In SEC v, Francis D. Graves (JfJ1,(J Earl E. Brown,7 the defendants were enjoined from further violations of the registration

and fraud provisions of the Act in the sale of undivided participating

interests in two mining leases, one of which they did not own. The

Commission's complaint alleged that they had told investors, among

other things, that samples taken from the properties contained monazite, thorium, gold and other minerals in commercial quantities when

no sampling had been conducted, that monazite would be produced

in the near future when they had made no arrangements to exploit the

properties, and that they had invested $30,000 in the enterprise when

their total investment was approximately $1,500. SEC v. Carl I.

Addison and Joe W. Black s is another action in which the Commission

obtained an injunction against further violations of the registration

and fraud provisions of the Act in the sale of mining securities. This

case involved the sale of stock in a Canadian company organized for

the purpose of producing uranium ore. SEC v. Marvin C. Meddoak,9

SEC v. Yankee Mines Inc. et al.10 and SEC v. Alhambra Gold Mines

Corporation. 11 are other cases in which sales of securities of mining

Securities Act release no. 3406. 7 Civil Action No. 548, E. D. Wash. 8 Civil Action No. 1251. E. D. Tex.

Civil Action No. 913. E D. Wash. ,. Civil Action No. 2755, D. Idaho. U Civil Action No. 11820, S. D. Calif.

•

•
SEVENTEENTH ANNUAL REPORT 23

companies in violation of the Act were enjoined. The M eddock case

involved violation of the fraud provisions; the last two cases charged

violation of the registration provisions.

A number of the cases in which the Commission successfully sought

injunctions against violations of the Act involved the sale of securities

in oil and gas companies. In SEO v, Penner Oil and Gas, Ino., et al.,12

a permanent injunction was entered against all defendants. Criminal

proceedings were also brought in connection with this promotion,

which involved a widespread solicitation by mail campaign. A description of the fraud involved is contained elsewhere in this report."

In SEO v, Gold Oreek Mining Oompany,H the company and two individual defendants consented to the entry of an 'injunction against

further violations by them of the fraud and registration provisions

of the Act in the sale of various types of securities in oil properties

located in Oklahoma. Among the misrepresentations alleged to have

been made in the sale of the securities were statements that the proceeds of the sales of stock would accrue to the company when in fact

the shares being offered were personally-owned shares of one of the

individual defendants and the proceeds from the sales were largely

used by him, and that the company's leases were surrounded by producing oil wells when in fact most of the surrounding wells had been

abandoned.

Injunctions were also obtained during the last fiscal year in the

following cases which involved the sale of securities in oil and gas

companies or interests in oil and gas leases: SEO v. Western Osage

Oil Oompany.15 SEO v. Avonwold Oil Cor-poration." SEO v. William

R . Justice and Adrian J. B elislef and SEO v. Western Oil Fields, Inc.,

et al.18 The first three cases charged violation of the registration

provisions; the last violation of the fraud provisions. Violations of

the registration provisions were also charged in SEO v. Sierra Nevada

Oil Oompany.19 In that case, after the court had orally announced

that it was prepared to issue a preliminary injunction, a voluntary

petition under Chapter X of the Bankruptcy Act was filed by the

defendant corporation in another jurisdiction and defendants argued

that the stay of proceedings in the order approving the petition prohibited entry of an injunction order. After the close of the fiscal

year, the Chapter X court, on motion of the Commission, clarified its

order, and a preliminary injunction was thereafter entered. A complaint filed against Spearoui Oompany Inc., et al.20charging noncompliance with the Act's registration provisions is still pending.

During the year, the Commission obtained injunctions against further violations of the Act in many cases involving sales of securities

of other types of businesses. One such case was SEO v. Oo-op Insuranoe Oompany et al.,21where the Commission charged, inter alia, that

the defendants had obtained an option to purchase certain of the stock

of the insurance company at $1.00 per share and had then proceeded

to make a public offering of these securities at successively higher

12 Civil Action No. 2841, N. D. Okla. 13 See discussion of U. 8. v, 8. E. J. 00:» et at. at page Hil, infra.

Civil Action No. 1888. D. Utah. ,. Civil Action No. 12986, S. D. Calif. ,. er-n Action No. 61-191l-S, D. N. Y. 11 Civil Action No. 11-50, lJ. Neb. 18 er-n Action No. 3463-1D. Colorado. ,. Civil Action No. 130!)\),S. D. Calif. .. Civil Action No. 6010, D. Oregon. 21 CiVil Action No. 1496, D. Ariz."
24 SECURITIES AND EXCHANGE COMMISSION

prices of $2.50, $3.50, and $5.00 per share without disclosing to purchasers the fact of the option agreement or that the price at which

the stock was being sold had been arbitrarily established by the

defendants.

In SEO v. Patrick F. O'i.l8Wk,First Guardian Securities Corporation and Leonard S. Baum,22 it was alleged that First Guardian, a

registered broker-dealer, acting through Vice President Baum, bought

for resale a substantial amount of Mr. Cusick's personally owned

shares of Standard Brewing stock and thereafter offered the stock to

the public. No registration statement with respect to the Standard

Brewing shares was in effect with the Commission. After obtaining

a temporary restraining order, the Commission discovered evidence

which indicated additional violations of its Acts by First Guardian

and instituted action to revoke its registration as a broker-dealer.

Inasmuch as First Guardian consented to the revocation of its license

and proceeded to liquidate, the Commission subsequently agreed to

a dismissal of the injunction action.

The defendant in SEO v. Robert J. Oottle 23 consented to the entry

of a permanent injunction against further violations of the fraud

provisions of the Act. The Commission alleged that Cottle sold securities by falsely representing, among other things, that he was a

member of the New York and Boston Stock Exchanges, that he was

operating a successful trading account with a large brokerage firm in

Boston, that he was earning and paying large profits to investors, and

that a prominent Boston banker was associated with him in connection with such account. Actually Cottle was using the money received

from investors to bet on horse and dog races and for other personal

purposes. Later he was convicted and sentenced to a term of three

years for violations of the Act and the Mail Fraud Statute.

In SEO v. Mercer Hicks Oorporationr: the defendants consented

to the entry of a permanent injunction against further violations by

them of the fraud provisions of the Act on the basis of a complaint

filed against them during the previous fiscal year. While this action

was pending, proceedings were instituted which concluded in the

revocation of the broker-dealer registration of the corporation."

An injunction against violation of the registration and fraud provisions of the Act was obtained in SEO v, Northnoest Aooeptance Oorporaiion. and Robert M. Hawley.26 The alleged representations included a statement that the company had substantial earnings when,

in fact, severe losses had been suffered and the company showed a

net loss for the year ending September 30, 1950. It was also alleged

that defendants stressed the company's past dividend record without

disclosing that a dividend paid during the promotion was, in fact, a

return of capital and that they assured investors that the company

would repurchase the stock at any time without loss to them when, in

fact, such repurchase would impair the corporation's capital in violation of the law of the State of Washington where it was incorporated.

In SEO v. Atlas Tack Oorporationr' an injunction was entered directing the defendant, its officers and directors to file reports as re22 Civil Action No. 59-354, S. D. N. Y. saCivil Action No. 913, E. D. Wash. U Civil Action No. 5896, S. D. N. Y.

See page 51, infra.

Civil Action No. 2774, W. D. Wash. 27 Civil Action No. 50-143, D. Mass.

'"

'"
SEVENTEE~ ~AL REPORT 25

quired by the statute and to correct the deficiencies contained in the

reports which had been filed.

InSEO v. Evergreen Memorial Park Association, et al./i the Commission's original complaint charged defendants with selling unregistered securities in the nature of "investment contracts" in violation

of Section 5 of the Securities Act of 1933. After the close of the fiscal

year, the Commission sought leave to amend the complaint in order to

charge, in addition, violations of the antifraud provisions of Section

17 (a). The "investment contracts" allegedly involved sales of cemetery lots in wholesale quantities coupled with representations and

agreements that investors would obtain large profits within stated

periods from the resale of these lots at retail, that the defendant vendors would improve the cemetery as a whole and also lots of particular investors to facilitate their resalability, and that said defendants

would resell the lots for investors within stated periods at specified

profits.

The Commission participated as amicus curiae during the past fiscal

year in only one case involving the proper interpretation of the Securities Act of 1933. In (Irummer v. 01"l1Jl'fl1ey 29 the plaintiff instituted

an action under sections 12 (1), 12 (2) and 17 (a), charging that

defendants sold him unregistered stock in violation of the Act, and

that he had been induced to buy this stock by fraudulent misrepresentations and statements of half-truths. In January 1951, the court

denied a motion of defendants to dismiss the complaint with respect

to the section 12 (1) cause of action and reserved judgment on the

motion with respect to the remaining causes of action. Subsequently,

the Commission filed a brief as amicus curiae expressing the following

views: (1) that jurisdiction of the section 12 (2) cause of action was

not dependent upon a showing, as defendants contended, that the

alleged misrepresentations and half-truths were communicated by use

of the mails or instruments of interstate commerce, but that it would

suffice if either the mails or interstate facilities were used in the sale

of the stock; and (2) that the federal jurisdictional requirements of

sections 12 (2) and 17 (a) would be satisfied if it were shown, as

plaintiffs alleged, that the mails were used to effect collection of plaintiff's check in partial payment for the stock, to demand completion

of the purchase agreement, and to deliver the stock. The Commission

expressed the opinion that it was unnecessary for the court to decide

whether plaintiff could also base his private action on the alleged violation of section 17 (a), since it believed that any wrong which plaintiff suffered could be redressed under section 12. The case was pending

at the close of the fiscal year.

PART II

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT

OF 1934

The Securities Exchange Act of 1934 is designed to insure the

maintenance of fair and honest markets in securities transactions both

on the organized exchanges and in the over-the-counter markets, which

together constitute the Nation's facilities for trading in securities .

.. Civil Action No. 1821. E. D. Pa ...D. Nev., Civil Action No. 900. •
26 SECURITIES AND EXCHANGE COMMISSION

Accordingly the Act provides in general for the regulation and control

of transactions in such markets and of practices and matters related

thereto, including solicitations of proxies of stockholders and transactions by officers,directors, and principal stockholders. It requires

specifically that information as to the condition of corporations whose

securities are listed on any national securities exchange shall be made

available to the public; and provides for the registration of such

securities, such exchanges, brokers and dealers in securities, and associations of brokers and dealers. It also regulates the use of the

Nation's credit in securities trading. While the authority to issue

rules on such credit use is lodged in the Board of Governors of the

Federal Reserve System, the administration of these rules and of

the other provisions of the Act is vested in the Commission.

REGULATION OF EXCHANGES AND EXCHANGE TRADING

Registration and Exemption of Exchanges

Section 5 of the Act requires each securities exchange within the

United States or subject to its jurisdiction to register with the Commission as a national securities exchange or to apply for exemption

from such registration. Exemption from registration may be granted

to an exchange which has such a limited volume of transactions effected thereon that, in the opinion of the Commission, it is not practicable and not necessary or appropriate in the public interest or for

the protection of investors to require its registration. During the

fiscal year no change occurred in the number of exchanges registered

as national securities exchanges or in the number granted exemption

from such registration.

At the close of the 1951fiscal year the following 16 exchanges were

registered as national securities exchanges:

Boston Stock Exchange New York Stock Exchange

Chicago Board of Trade Philadelphia-Baltimore Stock Exchange

Cincinnati Stock Exchange Pittsburgh Stock Exchange

Detroit Stock Exchange Salt Lake Stock Exchange

Los Angeles Stock Exchange San Francisco Mining Exchange

Midwest Stock Exchange San Francisco Stock Exchange

New Orleans Stock Exchange Spokane Stock Exchange

New York Curb Exchange Washington Stock Exchange

Four exchanges were exempted from registration at the close of the

1951fiscal year. These were:

Colorado Springs Stock Exchange Richmond Stock Exchange

Honolulu Stock Exchange Wheeling Stock Exchange

Information pertinent to the organization, rules of procedure, trading practices, membership requirements and related matters of each

exchange is contained in its registration or exemption statement, and

any changes which are effected in such information are required to

be reported promptly by the exchanges. During the year numerous

changes in their rules and trading practices were reported by the

various exchanges, each of which was reviewed to ascertain whether

the change effected was in the public interest and complied with the

provisions of the Act. The nature of these changes varied considerably; some of the more significant which occurred are briefly outlined below :

Boston Stock Exchange amended its rules relating to commissions

for the purpose of making it clear that the rates of commission pre-

~
SEVENTEENTH ~AL REPORT 27

scribed by the Constitution of the exchange are minimum rates and

that, so far as the Constitution and rules of the exchange are concerned, members are free to charge greater commissions if the conditions and circumstances warrant, provided that if the commission

being charged exceeds the minimum rate, that fact must be disclosed

in writing to the customer.

Cincinnati Stock Exchange amended its rules to prohibit the selling

of a lot of stock (all or none) at a lower price than the best bid on

the Exchange, which may be for a smaller lot. Likewise the amendment also prohibits the purchase of a larger lot of stock at a higher

price without taking small lots offered at lower prices. The revised

rule does not, however, prevent a buyer or seller from going around

smaller lots at the same price but having precedence as to the time

the order was received.

San Francisco Mining Exchange increased its schedule of commission rates on stocks selling up to 29 cents per share.

San Francisco Stock Exchange adopted a rule which provides that

when a member firm holds securities for customers which have been

fully paid for, or holds securities for customers the market value of

which is in excess of the amount required under the Exchange's margin

maintenance rules, such securities are to be segregated and marked

in such a manner as to clearly identify the owners of such securities.

Disciplinary Actions by Exchanges against Members

Each national securities .exchange, pursuant to a request of the

Commission, reports to the Commission any action of a disciplinary

nature taken by it against any of its members, or against any partner

or employee of a member, for violation of the Securities Exchange

Act of 1934, of any rule or regulation thereunder, or of any exchange

rule. During the year four exchanges reported taking disciplinary

action against 16members, member firms, and partners and employees

of member firms.

The nature of the actions reported included fines ranging from $100

to $5,000 in 8 cases with total fines aggregating $8,850; suspension of

an individual member from exchange membership for a period of

three months; censure of individuals or firms for infractions of the

rules, and warnings against further violations. The disciplinary actions resulted from violations of exchange rules, principally those

pertaining to handling of customers' accounts, capital requirements,

floor tradrng, commission rates, and conduct inconsistent with just

and equitable principles of trade.

REGISTRATION OF SECURITIES ON EXCHANGES

Nature and Purpose of Registration

An issuer may register a security on a national securities exchange

by filing with the Commission and the exchange an application for

registration which sets forth on a prescribed form reliable and comprehensive information about the affairs of the issuer and its securities

which is available for public inspection. The law also requires the

registrant to file annual, quarterly, and other periodic reports in order

to keep this information up to date. The statute makes it unlawful

to trade in a security on the exchange unless it is so registered (except
28 SECURITIES AND EXCHANGE COMMISSION

where it has been admitted to unlisted trading privileges, or is

exempt).

Examination of Applications and Reports

The work of examining applications and reports filed under the

Securities Exchange Act is integrated with the examination work

arising under the Securities Act and certain other statutes administered by the Commission. All applications and reports are examined to determine whether accurate and adequate disclosure has been

made of the specific types of information required by the Act and

the rules and regulations promulgated thereunder. Where such disclosure has not been made, necessary correcting amendments are

obtained from the registrant. The result of this examination work

may be illustrated by a description of a few actual cases arising during

the 1951 fiscal year.

Loss from eurre1UJYdevaluation charqed. to profit and loss instead

01 surplus.-The annual report required of a company with wide foreign operations must include financial statements not only with respect

to the registrant separately and the registrant and its domestic subsidiaries combined but also with respect to the foreign subsidiaries

of such company. During the 1951 fiscal year the staff noted from

the annual report filed by one such registrant-a large manufacturer

of specialized machinery-that a charge had been made to surplus of

$4,911,325.31in the combined statements of its foreign subsidiaries as

a result of devaluation of foreign currencies and of the translation of

working capital and reserves of foreign subsidiaries into United

States dollars at current exchange rates.

The Division of Corporation Finance took the position that this

amount represented the loss from the devaluation of foreign currencies during the year and should be reflected in the profit and loss statement. The Division also called the attention of this company to the

reports to stockholders which had been published by other large corporations with substantial foreign activities and which had applied

the method of accounting for such loss suggested by the staff in this

instance. The combined profit and loss statement of foreign subsidiaries was thereupon amended, changing the final credit figure of

$3,126,335.98net income to a final debit figure of $1,784,989.33which

was, pursuant to the Commission's recently amended Regulation S-X,

captioned "Net income less Special charge (net charge)."

Losses of subsidiaries and adjustments of depreciation transferred

from surplus to income statement.-At the beginning of its 1949 fiscal

year a registrant, engaged in the manufacture of aircraft parts, owned

71 percent of the voting stock of one subsidiary, and 100 percent of

the common stock along with approximately 61.5 percent of the preferred stock (which had voting rights) of another subsidiary.

Through the year 1948 its consolidated financial statements had included these companies. A merger agreement between the two subsidiaries subsequently became effective in the latter part of 1949 and

under its terms the registrant early in 1950 received 75,000 shares of

new second preferred stock of the surviving company for its investment in the two companies. The surviving company ceased to be a

subsidiary as a result of the exchange of stock.

The investment in the new preferred stock was thereafter in the

registrant's annual report shown in the balance sheet at the cost of the
SEVENTEENTH ~AL REPORT 29

investments surrendered in exchange therefor, and the sum of $1,400,-

000 was provided from earned surplus as a reserve for the revaluation

of the new stock to approximately its par value. The financial statements also reflected adjustments of accumulated depreciation for prior

years (less applicable additional income taxes) as a credit to earned

surplus in the amount of $62,346.78. For 1949 the merged subsidiaries

sustained losses of $741,164.61 and of $230,394.88, respectively, or a

combined loss of the two companies (consolidated with the parent in

the previous year) of $971,559.49, no portion of which was reflected in

the statement of income of the parent. However, the above-mentioned

reserve against the combined investment created by a charge to earned

surplus appeared to reflect the management's opinion as to the loss

in the investment.

It was the opinion of the staff that in this situation the losses sustained by the subsidiary companies, to the extent of the registrant's

equity therein, were an incident of the year 1949, and that the losses

as well as the adjustment relating to depreciation should be reflected

in the statement of income. The statement of income as it was subsequently amended to reflect these views showed a loss of $589,560.76

for 1949 as compared to the statement as originally filed which

showed a net income of $428,199.91.

Ohange made in method 01 computing depletion.-For many years,

including the year 1949, a large copper mining company had followed

the practice of computing unit depletion of metal mines at separate

rates per pound of copper from individual properties, charging such

depletion direct to su~lus. The following note was appended to the

statement of surplus: ' ... The unit rates used are based on the mine

values included In the balance sheets . . . and the ore reserves of the

respective mines as estimated as of March 1, 1913, or at the date of

acquisition, or in the case of a subsidiary company at a subsequent

date ... Part of the depletion charge is based on United States

Treasury Department valuations as of March 1, 1913, determined for

depletion purposes in connection with Federal income taxes." The

reason given in a note and in the certificate of the independent certified

public accountants for using this method of treatment of depletion

read: "While it is recognized that charges made for the amortization

of cost of fixed assets are generally shown as deductions in profit and

loss statements, the difficulty of determining the extent of ore reserves

and of allocating the depletion charges between cost and appreciation.

the variance in the amount of the charge during the different periods

depending upon the particular properties operated, and other uncertainties and variables, have caused the registrant to follow consistently

the practice above mentioned .... "

Inasmuch as some years had passed and distinct progress had been

made in the method of preparing financial statements since this matter

was first discussed with the registrant, a suggestion was made by the

staff during the 1951 fiscal year that the problem be reexamined.

Accordingly in February 1951 representatives of the registrant and

its independent certified public accountants met with members of the

staff and reviewed the question of accounting for depletion and other

matters in order to secure an over-all improvement in the presentation

of the company's financial statements for the benefit of investors. As

a result of these co-operative prefiling discussions, in its annual report

for the year 1950, filed on April 27, 1951, the registrant changed its
30 SECURITIES AND EXCHANGE COMMISSION

practice with respect to depletion so that the deduction was computed

on the basis of an over-all unit rate applied to the pounds of copper

sold from the registrant's own production except that depletion of a

consolidated subsidiary was computed separately as heretofore. The

over-all rate is deemed by the company to be sufficient in amount to

provide for the amortization of the net book value of mines on or

before the exhaustion of the mines. The charge for depletion of

mines as thus calculated was shown as a deduction in the profit and

loss statement for the year 1950. The company added this note to its

1950 financial statements: "The registrant makes no representation

that the deduction represents the depletion actually sustained or the

decline, if any, in mine values attributable to the year's operations

(which amounts are not susceptible of determination), or that it

represents anything other than a general provision for the amortization of the remaining book value of mines. Depletion used in estimating United States taxes on income has been computed on a

statutory basis and differs from the amount shown in these accounts."

The accountants made appropriate reference in their certificate to

the change in procedure and hereafter will be able to omit a cumbersome explanation from the company's financial accounts.

Statistics of Securities Registered on Exchanges

At the close of the 1951 fiscal year, 2,188 issuers had 3,523 security

issues listed and registered on national securities exchanges. These

securities consisted of 2,581 stock issues aggregating 3,477,564,645

shares, and 942 bond issues aggregating $20,896,324,569in principal

amount. This represents an increase of 329,880,327shares and a decrease of $2,394,222 principal amount of bonds, respectively, over the

aggregate amounts listed and registered at the close of the 1950 fiscal

year.

The following table shows the number of applications and reports

filed during the fiscal year in connection with the registration of securities on national securities exchanges:

Applications for registration of securities on national securities exchanges; 559

Applications for registration of unissued securities for "when issued"

trading on national securities exchanges_____________________________ 83

Exemption statements for trading subscription rights on national securities

exchanges_________________________________________________________ 88 Annual reports 2,148

Current reports 8,792

Amendments to applications, annual and current reports 1, 139

During the fiscal year ended June 30, 1951, 58 new issuers registered

securities on national securities exchanges, and the registration of all

securities of 52 issuers was terminated, principally by reason of retirement and redemption and through mergers and consolidations.

The annual and current reports listed above are in addition to the

corresponding reports filed under section 15 (d) of the Securities

Exchange Act pursuant to undertakings contained in registration

statements, reported in the preceding chapter. The total of both

classes of such reports is 2,883 annual reports and 11,788 current

reports.

Additional statistical information concerning securities registered

on national securities exchanges is contained in the appendix tables.
SEVENTEENTH ANNUAL REPORT 31

Temporary Exemption of Substituted or Additional Securities

Rille X-12A-5 provides a temporary exemption from the registration requirements of section 12 (a) of the Act for securities issued in

substitution for, or in addition to, securities previously listed or

admitted to unlisted trading privileges on a national securities exchange. The purpose of this exemption is to enable transactions to

be lawfully effected on an exchange in such substituted or additional

securities pending their registration or admission to unlisted trading

privileges on an exchange.

The exchanges filed notifications of admission to trading under

this rule with respect to 165 issues during the year. In some instances, the same issue was admitted to trading on more than one

exchange, so that the total admissions to such trading, including

duplications, numbered 317.

Formal Action Under Section 19 (a) (2)

In case any issuer of a security listed and registered on an exchange

fails to comply with any provision of the Act or the rules and regulations, the Commission is empowered under section Hl (a) (2) to

institute formal proceedings looking to the termination of such registration. Specifically, the Commission may, after giving appropriate

notice and opportunity for hearing, deny, suspend the effective date

of, suspend for a period of not exceeding 12 months, or withdraw,

the registration of such security.

Pursuant to this authority during the 1951 fiscal year the Commission after a public hearing ordered withdrawn from registration on

the San Francisco Mining Exchange the common stock of New

Sutherland Divide Mining Company. This company had failed to

file its annual report for 1949, the exchange had consequently suspended. trading in the stock of the company, and officers of the company had stated to representatives of the Commission that the company had no assets or funds with which to file such report or with

which to file a petition in bankruptcy or effect dissolution of the

company.

MARKET VALUE OF SECURITIES TRADED ON EXCHANGES

The unduplicated total market value on December 31, 1950, of all

securities admitted to trading on one or more of the twenty stock

exchanges in the United States was $228,087,813,000:

Stocks: Market value

New York Stock Exchange $93,807,269,000

New York Curb Excbange_____________________________ 13,874,294,000

~ll otber exchanges____________________________________ 3,314,772,000

110,996,335,000

Bonds:

New York Stock Excbange 115,951,939,000

New York Curb Excbange______________________________ 957,839,000

~ll otber exchanges____________________________________ 181,700,000

117,091,478,000

Total stocks and bonds 228,087,813,000
32 SECURITIES AND EXCHANGE COMMISSION

New York Stock Exchange and Curb figures are as set forth by

those exchanges. There is no duplication of issues between those two

exchanges, but many of the issues traded on them are also admitted to

trading on one or more of the eighteen other exchanges and are not

included in the amounts shown above for such other exchanges only.

The market value of bonds on New York Stock Exchange includes

$96,899,382,000 of United States Government and subdivision issues.

SPECIAL OFFERINGS ON EXCHANGES

Rule X-10B-2 under the Securities Exchange Act permits special

offerings of large blocks of securities to be made on a national securities exchange provided such offerings are effected pursuant to a plan

which has been filed with and approved by the Commission. A security may be the subject of a special offering when it has been determined that the auction market on the floor of the exchange cannot

absorb a particular block within a reasonable period of time without

unduly disturbing the current price of the security. A special offering of a security is made at a fixed price consistent with the existing auction market price of the security, and members acting as

brokers for public buyers are paid a special commission by the seller

which ordinarily exceeds the regular brokerage commission. Buyers of the security are not charged any commission on their purchases and obtain the security at the net price of the offering.

Since February 6, 1942, the date on which rule X-10B-2 was

amended to permit special offerings, the Commission has declared effective special offering plans of the following nine exchanges on the

date shown opposite each:

New York Stock Exchange Feb. 14,1942

San Francisco Stock Exchange Apr. 17,1942 New York Curb Exchange ~ay 15,1942

Philadelphia-Baltimore Stock Exchange Sept. 23, 1943

Detroit Stock Exchange Nov. 18, 1943

Midwest Stock Exchange Mar, 27, 1944

Cincinnati Stock Exchange June 26, 1944

Los Angeles Stock Exchange May 28,1948

Boston Stock Exchange; ____________________________________ Sept. 15, 1948

On June 30, 1951, the Commission declared effective for an indefinite period of time the amended special offering plans of the Midwest Stock Exchange, New York Curb Exchange, New York Stock

Exchange, and San Francisco Stock Exchange. These are the same

special offering plans which the Commission previously declared effective for an experimental period expiring on June 30,1951. These

amended special offering plans were discussed in last year's annual

report.'

Each exchange with a special offering plan in effect has been requested to report certain information to the Commission on each offering effected on the exchange under the plan. Such reports showed

a total of 19 offerings effected on the Midwest Stock Exchange, New

York Stock Exchange and San Francisco Stock Exchange during the

1See 16th SEC Annual Report 21).-30. The amended special oft'erlng plans of the New

York Stock Exchange, New York Curb Exchange and San Francisco Stock Exchange were Initially declared effective for an experimental period on August 24, August 25 and November 7, 1949, respectively; similar action was taken on November 1, 1950, with respect to the amended plan filed by the Midwest Stock Exchange. The experimental period for all

four exchanges was subsequently extended. See Securities Exchange Act releases nos. 4299, 4309, 4343, 4410, 4437, 4457. 4510, 4535, and 4622.
SEVENTEENTH ANNUAL REPORT 33

fiscal year ended June 30, 1951. These offerings involved the sale of

160,384shares of stock with an aggregate market value of $5,073,000

and ranging in market value from $41,200 to $1,601,200. Special

commissions paid to brokers participating in these 19 offerings totaled

$99,000. By comparison, in the precedmg fiscal year a total of 29

offerings involving 430,955 shares of stock having a market value of

$11,129,000were effected on two exchanges with special commissions

paid to brokers totaling $266,000. Further details of special offerings

during the year are given in appendix table 9.

During the period February 19, 1942,through June 30,1951, a total

of 454 offerings have been effected. These offerings totaled 5,507,239

shares with a market value of $160,537,000and brokers have been paid

special commissions totaling $3,180,800.

SECONDARY DISTRIiBUTIONS APPROVED BY EXCHANGES

A "secondary distribution," as the term is used in this section, is a

distribution over the counter by a dealer or group of dealers of a

comparatively large block of a previously issued and outstanding security listed or admitted to trading on an exchange. Such distributions take place when it has been determined that it would not be in

the best interest of the various parties involved to sell the shares on

the exchange in the regular way or by special offering. The distributions generally take place after the close of exchange trading. As in

the case of special offerings, buyers obtain the security from the dealer

at the net price of the offering, which usually is at or below the most

recent price registered on the exchange. It is generally the practice

of exchanges to require members to obtain the approval of the exchange before participating in such secondary distributions.

During the fiscal year ended June 30, 1951, 5 exchanges reported

having approved a total of 80 secondary distributions under which

4,664,187shares of stock with a market value of $128,017,000were sold.

Further details of secondary distributions of exchange stocks are given

in appendix table 10.

UNLISTED TRADING PRIVILEGES ON EXCHANGES

The number of stocks available for trading on an unlisted basis on

each of the stock exchanges can be visualized and compared with the

number available for trading on a listed basis by reference to the

table on the following page.

Clause 1 of section 12 (f) of the Securities Exchange Act of

1934 provides for continuance of unlisted trading privileges to which

a security had been admitted on an exchange prior to March 1, 1934.

Historically, admission of securities to trading on stock exchanges

upon application of members-the so-called 'unlisted trading" on

exchanges-eame first. Any member could have any security added

to the roster. As the stock exchanges grew in importance and public

interest in them increased, it became necessary to require reports and

disclosures from the issuers along with various other actions for

protection of the security holders, and it also became possible to

charge issuers a fee for listing, Consequently, listing by agreement

between the issuers and the exchanges, stipulating what data and

actions were required of the issuers, gradually succeeded the process

of adding issues to the trading roster upon members' requests. Thus,
34 SECURITIES AND EXCHANGE COMMISSION

Number of stocks available for trading I

On an unlisted basis pursuant to the

Status on each stock exchange June 30, 1951 Ona following clauses of section 12 (0 of

Iisted the Securities Exchange Act of 1934.

basIS

Olause 1 Clauso2 Clause 3

--- Luted Unlisted (I) (') (') (') (0) Boston ._ 110 162 2 122 0 Chieago Board of Trade 14 2 3 0 0 CincinnatI. 61 0 0 45 0

g~~~~t~_~~~~~~.'~~==:: :==:=:::=.: ==:=:.: ::: .:=.: 15 0 0 0 0

118 14 0 79 0 Honolulu' 57 1 34 0 0 Los Angeles 147 40 1 97 0 Midwest 397 0 0 75 0 New Orleans 4 4 10 2 0 New York Curb 434 61 265 2 3 New York Stoek 1,495 0 0 0 0 Philadelphia. Baltimore 108 267 5 109 0 Pittsburgh 54 17 0 54 0 Richmond 29 0 0 0 0 Salt Lake 96 0 3 0 1 San Francisco Mlnlng 41 0 0 0 0 San FranCISCO Stock 193 71 38 55 0 Spokane. 25 1 7 0 0 Washington, D. C. 39 0 0 2 0 Wheeling' 16 0 0 3 0

--- --- --- 3,453 640 368 645 4

I Duplication of Issues among exchanges Increases the total of each but the last column to more than the

actual number of Issues involved. , Exempted from registration as a national securities exchange .

Includes registered ISSues, ISSUes temporarily exempted from registration, and Issues listed on the 4 exempted exchanges . In addition to the unlisted status as shown, these Issues are listed on one or more of the registered ex.

changes. , None of these Issnes has any listed status on any domestic stock exchange, except that 9 of the 38 Ban FrancISCO Stock Exchange Issues are also hsted on an exempted exchange. o One of the New York Curb ISSues and the Salt Lake Issue have also become listed on a registered ex. change.Jeaving ouly 2 Issues with ouly an unlisted status.

New York Stock Exchange abolished unlisted trading in 1910. Other

leading exchanges such as Boston and Philadelphia continued to

allow unlisted trading on their floors in issues listed on some other

principal exchange, on the ground that listing on such other exchange

afforded the necessary background of reports and actions by issuers.

A few exchanges continued to extend unlisted trading privileges to

issues not covered by listing agreements between issuers and any

domestic stock exchange. New York Curb Exchange is the principal

surviving representative of this group and continues to have most

of the "clause I" issues which have no domestic listed status. As

anticipated by Congress, when it amended section 12 (f) on May

27, 1936, to provide for limited continuance of unlisted trading on

exchanges, there has been a considerable shrinkage in number of

"clause I" issues over the years, as they became listed or were retired,

refunded, exchanged for other issues, or otherwise disappeared from

exchange trading.

Clause 2 of section 12 (f) provides for the extension of unlisted

trading privileges to securities already listed on some other national

securities exchange. Most of the trading privileges pursuant to this

clause have been applied for and obtained with respect to stock

issues by 8 leading regional stock exchanges. Most of the stocks involved are listed on New York Stock Exchange. The total reported

volume in "clause 2" stocks during 1950was about 13,000,000shares" an

important figure to the regional exchanges but equivalent to less than

•• __ •• ______________________________________

_____________________________ ______________________________________

__• __• _____________________________________ _________________________________________

____• ________________________________- ______ •• ______________________________________

_____________________________________

____________________________________

______________________________ ••• __• _______• ____________________________ ' _________• __• ____________________________

__•• ___________• ____________________________

_______________________________

_________________________________ ___•_________________________________• ______

___________________________• ______ ___ • _______________________________• ______

--- ---

•

•
SEVENTEENTH ANNUAL REPORT 35

2% of the share volume on New York Stock Exchange during that

vear. Admissions of bond issues pursuant to clause 2 have been 8,

of which only 2 are extant.

Clause 3 of section 12 (f) provides for the further extension of

unlisted trading privileges to unlisted securities. In these cases,

information substantially equivalent to that filed in respect of an

issue listed on a national securities exchange must be available. Applications covering stocks have been approved by the Commission III

11 instances and with respect to 9 issues, 2 of which were admitted

to trading on several exchanges. Only 4 stock issues continue their

status under clause 3, and 2 of these have become listed on another

exchange leaving only 2 with dependence for status on clause 3.

Bond admissions have been 45, but all the issues except 13 have been

retired or listed.

The status of stock and bond issues admitted to unlisted trading

pursuant to clauses 2 and 3, and the reported volumes of trading

therein for the calendar year 1950, are shown in appendix table 17.

The unduplicated number of stock issues admitted to unlisted trading on the exchanges, and which are not listed on some national securities exchange as well, was 354 as of June 30, 1951, aggregating

342,084,643shares or less than 9 percent of all shares on the 20 exchanges. Reported exchange volumes therein for the calendar year

195'0came to 34,310,513shares or less than 4 percent of the total reported exchange volumes for that year. New York Curb Exchange

alone accounted for 32,054,348or 93.4 percent of the 34,310,513share

volume. In considering these figures, it should be recalled that reported ticker volume of New York Curb Exchange is less than 90 percent of the true total, and that volume of trading in stocks removed

during the year is not included.

Bond issues admitted to unlisted trading on the exchanges have

become reduced over the years to a very small number. As of June 30,

1951,there were 59 pursuant to clause 1, 2 'pursuant to clause 2, and

13 pursuant to clause 3. All but 3 of the Issues were on New York

Curb Exchange. Of the total 74 issues, 6 were listed on another

national securities exchange and 68 were not so listed.

Applications for Unlisted Trading Privileges

As a result of applications filed pursuant to clause 2 of section 12 (f)

and approved by the Commission during 'the 1951fiscal year, unlisted

trading privileges were extended as follows:

Stock exchange applying: Number ot stock« Boston 18

Cincinnati____________________________________________________ 1

I>etroit______________________________________________________ 3

Los Angeles_______________________________________ ____ ____ 23

]lid'Vest____________________________________________________ 2

Ne'V Orleans________________________________________________ 2

Ne'V York Curb-_____________________________________________ 1

Philadelphia-Baltimore __ 8

Pittsburgh___________________________________________________ 1

Sun Francisco_______________________________________________ 8

67

975942-52-4
36 SECURITIES AND EXCHANGE COMMISSION

The actual number of issues involved is less than 61 since applications by different exchanges are often with respect to the same issue,

resulting in duplication.

No applications were made or approved during the fiscal year for

unlisted trading privileges in bond issues pursuant to clause 2, nor

for unlisted trading privileges in either stock or bond issues pursuant

to clause 3 of section 12 (f).

Changes in Securities Admitted to Unlisted Trading Privileges

The usual considerable number of notifications of minor changes

in securities admitted to unlisted trading was received during the

year from the stock exchanges pursuant to paragraph (a) of rule

X-12F-2.

Applications for continuance of trading in unlisted issues after

more important changes than those contemplated under paragraph

(a) of rule X-12F-2 are made under paragraph (b) of that rule, and

were limited during the last fiscal year to one by New York Curb

Exchange in the case of Nippon Electric Power Company, Ltd., 61/2

percent bonds due 1953 which was withdrawn when the Curb obtained

a listing of the bonds, and one by Boston Stock Exchange in the

case of Chicago, Milwaukee, St. Paul & Pacific Railroad Company

common stock which was withdrawn upon approval of unlisted trading in that issue pursuant to clause 2 of section 12 (f). Accordingly,

no denials and no grants of applications pursuant to paragraph (b)

of rule X-12F -2 were made during the last fiscal year. The Commission prefers that application for trading be made pursuant to clause

2 of section 12 (f) rather than paragraph (b) of rule X-12F -2 whenever this course is possible.

DELISTING OF SECURITIES FROM EXCHANGES

Securities Delisted by Application

The granting of applications filed by New York Stock Exchange

pursuant to rule X-12D2-1 (b) resulted in the delisting of 3 bond and

2 stock issues from that exchange during the fiscal year. The applications covering the bonds and 1of the stocks declared the amounts in

public hands were no longer sufficient to warrant exchange trading,2

and the application covering the remaining stock was based on bankruptcy and termination of transfer facilities,"

The granting of applications filed by issuers pursuant to rule

X-12D2-1 (b) resulted in the delisting of 9 stock issues of 6 issuers

during the fiscal year. Inactivity on the exchange was given as a

reason for delisting 4 stock issues of 3 issuers on the Chicago Board

of Trade 4 and 3 stock issues of an issuer on Cincinnati Stock ExIllinois Central R. R. Co., 4 percent Leased Line Stock, Securities Exchange Act release no 4507 (1950). Adriatic Electric Co., 7 percent bonds due 1952, Securities Exchange Act release no. 4511 (1950). Illinois Central R. R. Co., sterling 3 percent bonds due 1951.

Securities Exchange Act release no. 4554 (1951). Ernesto Breda Co., 7 percent bonds due

1954. Securities Exchange Act release no. 4554 (1951).

Norwalk Tire & Rubber Co., common stock, Securities Exchange Act release no. 4496

(1950).

Knickerbocker Fund for the Diversification, Supervision and Safekeeping of Investments, shares of beneficial Interest, Securities Exchange Act release no. 4496 (1950). Corn

Products Refining Co., preferred and common, Securities Exchange Act release no. 4587

(1951). Allied Mills, Inc., common stock, Securities Exchange Act release no. 4595 (1951).

Corn Products Refining Co. preferred and common and Allied Mills, Inc. common stock rr-matn listed on New York Stock Exchange.

•

•

•
SEVENTEENTH ANNUAL REPORT 37

change," Concentrated ownership was the basis of application with

respect to an issue on Midwest Stock Exchange," and acceptance of

an offer to exchange into stock of another company except for a small

residue was the basis with respect to an issue on San Francisco Stock

Exchange.'

Securities Delisted b". Certification

Securities which have been paid at maturity, redeemed, or retired in

full, or which have become exchangeable for other securities in substitution therefor, may be removed from listing and registration on

a national securities exchange if the exchange files a certification with

the Commission to the effect that such retirement has occurred. The

removal of the security becomes effective automatically after the interval of time prescribed by rule X-12D2-2 (a). The exchanges filed

certifications under this rule effecting the removal of 183 separate

issues. In some instances the same issue was removed from more than

one exchange, so that the total number of removals, including duplications, was 226. Successor issues to those removed became listed and

registered on exchanges in many cases.

In accordance with the provisions of rule X-12D2-1 (d), New York

Curb Exchange removed 3 issues from listing and registration when

they became listed and registered on New York Stock Exchange. This

rule permits a national securities exchange to remove a security from

listing and registration in the event trading therein has been terminated pursuant to a rule of the exchange which requires such termination if the security becomes listed and registered and admitted to

trading on another exchange. Removal under this rule is automatic,

the exchange being required merely to notify the Commission of the

removal.

Securities Removed from Listing on Exempted Exchanges

A security may be removed from listing on an exempted exchange

merely upon notification by such an exchange to the Commission setting forth the reasons for such removal. Honolulu Stock Exchange

removed five issues from listing thereon during the year due in one

case to the call of the security for redemption and in two cases due

to the liquidation of the issuers. In the remaining two cases the securities became exchangeable for other securities which subsequently

became listed on the same exchange.

MANIPULATION AND STABIUZATION

One of the evils which the Securities Exchange Act of 1934 was

primarily designed to prevent is the manipulation of security markets

by practices which are deceptive or otherwise improper. Sections 9,

10, and 15 of the Act prohibit certain specifically described forms

of manipulative activity such as wash sales, if effected for the purpose

of creating a false or misleading appearance of the market and

matched orders, if entered for a like pur.(>ose; effecting a series of

transactions in which the price of a security is raised or depressed,

Carthage Mills Incorporated, Preferred uA", Preferred "B" and common stock, Securities Exchange Act release no. 4558 (1951) . W. H. Barber Co., common stock, Securities Exchauge Act release no. 4486 (1950). ~Hale Bros. Stores, Inc., common stock, Securities Exchange Act release no. 4566 (1951).•

•
38 SECURITIES AND EXCHANGE COMMISSION

or in which the appearance of active trading is created, for the purpose of inducing purchases and sales by others; circulation by a

broker, dealer, seller or buyer, or by a person who receives a consideration from a broker, dealer, seller or buyer, of information concerning

market operations conducted for a rise or a decline; and the making

of material false and misleading statements by brokers, dealers, sellers

and buyers, or the omission of material information regarding such

securities, for the purpose of inducing purchases or sales. . .

Pursuant to its statutory authority, the Commission has adopted

rules and regulations to aid it in carrying out the expressed will of

Congress. Sections 9, 10, and 15 as augmented by the Commission's

rules and regulations are aimed at freeing our securities markets from

artificial influence and maintaining fair and honest markets, where

prices are established by supply and demand and are uninfluenced

by manipulative activity.

Manipulation

The manipulation of security prices in years prior to the enactment

of the Securities Exchange Act took millions of dollars annually

from the public and was one of the principal reasons for the adoption

of the Act. In the early days of the Commission's existence, some

market operators attempted to continue their manipulative activities.

The Commission uncovered these activities and caused the imposition

of various penalties upon certain operators, including expulsions from

exchanges, revocation of broker-dealer registrations, fines and jail

sentences.

As a result of the administration of the Act, manipulation has been

reduced to a point where it is no longer an appreciable factor in our

markets. However, sporadic attempts artificially to raise or depress

the prices of securities are still encountered, and it is evident that

any relaxation of market surveillance on the part of the Commission

would create a danger of reestablishment of many of the manipulative

practices the Act was designed to prevent.

The staff regularly scrutinizes price movements in approximately

8,200 securities, including about 3,600 issues traded on exchanges and

about 4,600 of the most active over-the-counter issues. The volume

of transactions of listed securities and the number of dealers making

a market in over-the-counter issues are also closely observed. An

observation is made on a daily basis of all listed securities as they

appear in such publications as the Wall Street Journal and of overthe-counter issues as they appear in The National Daily Quotation

Service. Complete records are kept on a weekly basis (with the exception of about 600 inactive issues which are kept on a monthly

basis) of all of the above-mentioned securities. In addition unusual

activity in stock transactions on the New York Stock Exchange and

the New York Curb Exchange is observed from the ticker as soon as

it occurs.

Information maintained concerning all these securities includes

not only data reflecting the market action but also includes the latest

news items, earnings figures, dividends, options and other facts which

might explain price and volume changes. Trained analysts daily

scan the Wall Street Journal, Standard and Poor's, Moody's and

other financial publications and record any items that might be reflected in the market price of these securities. Reports required by
SEVENTEENTH ANNUAL REPORT 39

the Securities Acts from corporations or their officers, directors and

10 percent stockholders and from registered broker-dealers are

studied. Important information contained in these reports is recorded on the securities' weekly price and volume record. All possible known information regarding a security is maintained on a

current basis. Dates of public releases of any news regarding a compll,nyare carefully recorded. At the inception of any unusual volume

of trading or price fluctuations in a security, all this information is

reexamined. The market action of the security is compared with the

action of other securities in the same industry group and with the

action of the general market and a conclusion drawn as to the necessity

for an investigation.

The markets for securities about to be sold to the public are watched

very closely. In this connection the markets for 1,370 issues in the

amount of $173,209,739 offered under Regulation A, were carefully

checked for improper pricing or market grooming. Over 500 other

securities were kept under special daily observation during the 1951

fiscal year for periods from 10 to 90 days, largely because a public

offering under a registration statement was proposed with the right

to stabilize reserved by the underwriter or issuer. Issues actually

offered during the fiscal year had a public offering price in excess of

$3,380,000,000.

In administering the anti-manipulative provisions of the Act there

is a premium on prompt action to prevent harm before it occurs, and

at the same time to avoid interference with the legitimate functioning of the markets. To accomplish this the Commission has continuously modified and sought to improve its procedures for the systematic surveillance of trading in securities. Methods used to detect

manipulation have necessarily been flexible, since techniques employed

by manipulators change constantly, increasing in subtlety and

complexity.

The Commission operates on the premise that manipulation should

be, and in most cases can be, suppressed at its inception. Losses suffered by the public are seldom recoverable, even though the perpetrator of a fraud is brought to justice. Therefore, it is believed

that it is more important to prevent a possible manipulation than to

allow unlawful market operations to continue until it appears that

sufficient evidence for a successful prosecution is available.

It has been found that many would-be violators of the regulations

prohibiting manipulation have been halted by prompt inquiries by

the Commission. The fact that trading in a given security is under

investigation is kept confidential by the Commission, as public knowledge of the existence of such investigations may unduly affect the

market or reflect unfairly upon individuals whose activities are being

investigated. As a result, the Commission occasionally receives

criticism for failure to investigate certain cases when in fact it is

actually engaged in an investigation. However, while the general

public is unaware that an inquiry is being made, any person or group

of persons conducting unusual market activity in a security will

be made aware by questions asked either their brokers or themselves

after the brokers have supplied the names of their principals. In

this connection the Commission receives excellent cooperation from

the stock exchanges and from brokers and dealers.

The Commission's surveillance of unusual market activity may
40 SECURITIES AND EXCHANGE COMMISSION

take the form of a simple inquiry, addressed to an exchange or broker

by our nearest Regional Office, asking for an explanation or the names

of the buyers and sellers. This type of inquiry is used when the

market activity is limited to a brief period during a day's trading or

at most a single day's transactions. 1£ the explanation is logical and

devoid of manipulative features, no further investigation is made.

If the explanation is considered unsatisfactory, an investigation is

initiated and conducted by our Regional Office located nearest the

exchange or market on which the transactions were made.

Investigations take two forms. The "quiz" or preliminary investigation is designed to detect and discourage incipient manipulation by a prompt determination of the reasons for unusual market

behavior. Often the quiz discloses no violations of the anti-manipulative provisions of the Securities Acts. The quiz is then closed. If

possible violations of other sections of the Securities Acts or violations of other statutes are revealed, the information obtained in the

"quiz" is made available to the proper division of the Commission

or to the appropriate agency for any action that they might consider

necessary. When facts are uncovered which require more intensive

investigation, formal orders are issued by the Commission. In a

formal investigation, members of the Commission staff are empowered

to subpena pertinent material and to take testimony under oath. In

the course of such investigations, data on purchases and sales over

substantial periods of time are compiled and trading operations involving considerable quantities of securities are often scrutinized.

Trading investigations

Formal

"Quizzes" InvestIgations

Pending June 30, 1950 77 11 Initiated in period July 1, 1950-June 30, 195L ___________________________________ 144 2

Total to be accounted for__________________________________________________221 13

Closed or completed during llscal year ___________________________________________ 105 3 Changed to formal during fiscal year' ___________________________________________ 3 ---------- ....

Total disposed or, _________________________________________________________108 3

Pending at end of fiscal year _____________________________________________________113 10

1During the fiscal year 2 "quizzes" were combined into 1 Formal.

Stabilization

In administering those provisions of the Securities Exchange Act

prohibiting manipulation of securities prices certain stabilizing transactions are permitted. Stabilizing is a word which is frequently misunderstood. The law prohibits injection of artificial activity into the

market. One exception is stabilization. But stabilizing is permissible only when it is used to prevent or retard a price change, usually

a decline. No moving around of the market under the label of stabilizing is permitted. Stabilization means maintenance of a price independently reached in the market.

Prudent regulation by this Commission has permitted the investment industry to change its methods with changmg conditions and to

achieve its primary function-which is to supply industry with the

___________________________ --- --_____-- -----__-- --- -- -- ---
SEVENTEENTH ANNUAL REPORT 41

capital it needs. For this purpose formal Commission rules dealing

with stabilization relate only to offerings "at the market" or at prices

related to a changing market price. The practice applicable to fixed

price offerings is embodied in a wealth of interpretative material. It

is the Commission's experience that issuers and underwriters place

great value on the immediate service which the Commission is able to

render them by being at all times available to give them responsible

advice as to the proper stabilizing techniques in the offerings of securities. Also the same policy of the Commission extends to both manipulation and stabilization in that it seeks to prevent violations of the

law rather than to allow them to develop to the point where monetary

losses occur. The investor naturally wants to see a violator of the

law brought to justice, but this does not insure the return of any financial loss that he may have suffered.

The law requires that all issuers or underwriters must file with

the Commission a notice of intent to stabilize if an issue is to be

stabilized. Thus the staff is able to observe and assist the registrant

before and during an offering.

Of 554 registration statements filed during the fiscal year, 231 contained a statement of intention to stabilize to facilitate the offerings

covered by such registration statements. Each of these latter filings

was examined critically as to the propriety of the proposed method

of distribution, market support and the full disclosure thereof.

Stabilizing operations were conducted in offerings of stock issues

aggregating 19,461,164shares with an aggregate public offering price

of $402,878,038. Bonds stabilized had a total face amount of

$64,500,000. In connection with these stabilizing operations over 350

conferences were held with representatives of issuers and underwriters. Many more written and telephone requests were answered to

assist them to avoid violations of the rules. 9,210 reports from these

representatives were received, listed, examined and filed.

SECURITY TRANSACfIONS OF CORPORATION INSIDERS

Purpose of Regulation

In the Congressional hearings which led to the passage of the Securities Exchange Act of 1934,a common practice among some officers,

directors, and large stockholders of engaging in short-term speculation in the listed stocks of their companies was revealed. For example, four of the officers and directors of a company were participants

in a pool which made a profit of some $200,000 in less than 3 months

in 1933through trading IIIthe company's common stock. In another

instance the president of a company together with his brothers controlled the company through ownership of a little more than 10 percent of its stock. They sold their holdings for upward of $16,000,000

shortly before the company passed a dividend and later repurchased

the stock for about $7,000,000, making a profit of approximately

$9,000,000on the transaction. In these instances not only were the

insiders profiting by transactions based on information available to

them solely because of their privileged position and not available to

the public, but the stockholders and the investing public were

unaware and had no way of knowing that they were trading in their

companies' stocks. Such abuses as these and others led to the in-
42 SECURITIES AND EXCHANGE COMMISSION

elusion of the provisions of section 16 in the Securities Exchange

Act. The basic Congressional objectives sought in the provisions of

section 16 are twofold: (1) to provide public stockholders with information as to the prospects of their company which may be implicit in the security transactions of the insiders; and (2) to prevent

corporation insiders from using inside information to unfair advantage in security trading.

Reports of Transaclions and Holdings

For the purpose of affording to the public information as to the

transactions and holdings of insiders, section 16 (a) provides that

every person who is directly or indirectly the beneficial owner of

more than 10 percent of any class of any equity security which is

listed and registered on a national securities exchange, or who is an

officer or director 'of the issuer of such a security, shall file with the

exchange and the Commission, at the time of the registration of such

security or within 10 days after the time he becomes such beneficial

owner, officer or director, a statement of the amount of all equity securities of such issuer of which he is directly or indirectly the beneficial owner, and within 10 days after the close of each month thereafter in which there has been any change in his beneficial ownership a statement indicating such changes and his holdings at the close

of the month. Similar provisions are contained in section 17 (a) of

the Public Utility Holding Company Act of 1935 covering officers

and directors of registered public utility holding companies and in

section 30 (f) of the Investment Company Act of 1940 covering officers, directors, principal security holders, members of advisory boards,

investment advisers, and affiliated persons of investment advisers of

registered closed-end investment companies.

Publieation of Data Reported

The originals of these reports are available for public inspection

from the moment they are filed. Recognizing, however, that a relatively limited number of investors have the opportunity to inspect the

reports at the Commission's central office or at exchanges where additional copies of section 16 (a) reports must also be filed, the Commission condenses and publishes the information contained in the

reports in a monthly Official Summary of Security Transactions and

Holdings for distribution to investors, newspaper correspondents,

press services and other interested members of the public. The elimination, of certain items of nonessential data and slight changes in the

format of the Summary have made it possible during the 1951 fiscal

year to reduce the size of the Summary more than a third, with a corresponding reduction in printing and related costs.

Volume of Reporls Filed and Examined

The number of reports filed during the 1951 fiscal year, as shown

in the following table, represents an increase of more than 11 percent

over the number filed during the preceding year. In fact, it is the

largest number of such reports filed in any fiscal year since 1938.
SEVENTEENTH ~AL REPORT 43

Number of security ownership reports of ot/iCers, directors, principal security

holders, and certain other affiliated persons ttled and eaiamineti during the

jiscalllear ended June 30,1951

Description ofreport I

Securities Exchange Act of 1934: Form 4 Form 5 . . Form 6 . ..

Public Utility Holding Company Act of 1935: Form U-17-L . . Form U-17-2 ..

Investment Company Act of 1940: Form N-30F-L . . . . Form N-30F-2 .

TotaL

Original Amended Total reports reports

--- --- ---

16,784 908 17,692

618 10 628

2,401 55 2,456

86 0 86

408 15 423

125 7 132

656 45 701 --- --- --- 21.078 1,040 22,118

IForm 4 is used to report changes in ownership; Form 5,to report ownership at the time any equity security is first listed and registered on a national seeunties exchange; and Form 6, to report ownership of persons who

subsequently become officers, directors, or principal stockholders of the Issuer ofsuch a listed and registered equity seeunty, under see. 16 (a) of the Seeurities Exchange Act of 1934. Form U-17-1 is used for Inrtial

reports and Form U-17-2 for reports of changes ill ownership of securines under sec. 17 (a) of the Public

Utility Holding Company Act of 1935. Form N-30F-l is used for Initial reports and Form N-30F-2 for

reports of changes In ownership ofseeurities under see. 30 (f) ofthe Investment Company Act of 1940.

Preventing Unfair Use of Inside Information

For the purpose of preventing the unfair use of information which

may have been obtained by an insider by reason of his relationship

to his company, section 16 (b) of the Securities Exchange Act of

1934 provides for the recoverability by or in behalf of the issuer of

any profit he may realize from any purchase and sale, or any sale and

purchase, of any equity security of the company within any period

of less than six months. Corresponding provisions are contained in

section 17 (b) of the Public Utility Holding Company Act of 1935

and section 30 (f) of the Investment Company Act of 1940. While the

Commission is not charged with the enforcement of the civil remedies

created by these provisions, which are matters for determination by

the courts in actions brought by the proper parties, it is interested in

seeing that information with respect to possible profits by insiders

is made available to issuers and public stockholders.

SOLICITATION OF PROXIES, CONSENTS, AND AUTHORIZATIONS

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 the Commission

has adopted Regulation X-14 which is designed to regulate the solicitation of proxies, consents and authorizations in connection with

securities of companies subject to those statutes in order to protect

investors by requiring the disclosure of certain information to them

at the time their proxies are solicited. The information prescribed

for such disclosure is calculated to enable the investor to act intelligently upon each separate matter with respect to which his vote

or consent is sought. The regulation also contains provisions enabling security holders who are not allied with the company's management to communicate with other security holders when management

is soliciting proxies, either by arranging for the distribution of

their own proxy statements or through the inclusion of their proposals in the proxy statements of management.

_ _

_

_

_

_

_
44 SECURITIES AND EXCHANGE COMMISSION

Statistics Relating to Proxy Statements

A slight increase occurred in the number of proxy solicitations

made pursuant to Regulation X-14 during the 1950 calendar year

when the staff of the Division of Corporation Finance received and

examined material relating to 1,737 proxy solicitations including

"follow-up" material in 185 instances, compared with 1,653 solicitations made in the preceding calendar year,"

The number of solicitations made by management during the 1950

calendar year accounted for 1,713 or nearly 99 percent of all proxy

statements filed that year; nevertheless, there were 24 solicitations

made during the same period by non-management groups. Besides,

57 of the 1,713 proxy statements filed by management contained 97

proposals of 24 different stockholders. Certain of these stockholders

arranged for the inclusion of their proposals in the proxy statements

of more than one company. The number of management proxy statements including such stockholder proposals has increased from 19 in

1946 to 57 in 1950, while such stockholder proposals have grown from

34 to 97 and the number of different stockholders making these

proposals has correspondingly risen from 9 to 24.

The election of directors overshadows in its frequency all other

items of business combined for which proxies are sought. Thus in

1950 there were proxy statements covering 1,523 stockholders' meetings at which the election of directors was one of the items of business, and 191 meetings not involving the election of directors, along

with 23 remaining solicitations seeking assents and authorizations

which did not involve any meeting or any voting upon directors.

The items of business other than that of election of directors for

which stockholders' action was sought in the 1950 calendar year

covered many specific proposals, the wide range and frequency of

which may be noted in the following tabulation.

Item of business otber than election of directors

Mergers. consolidations, acqursitions of businesses, and purchases and sales of properties

Issuance of new securities, modification of existing seounties, reeapitahzation plans other than mergers or consolidations

Employees pension plans

Bonus and profit-sharing plans. Including stock options Indemnification of officers and directors

Change in date of annual meeting

Misce!laneous amendments to bylaws and other matters Approval of Independent auditors

Number

of proxy

statements

33

229

152

52

8

18

187

385

A remarkable increase is reflected above in the number of proxies

submitting employees pension plans to the vote of stockholders. Thus,

the 152 such proxies filed in the 1950 calendar year may be compared

with 49 in 1949; 59 in 1948; 66 in 1947; and 75 in 1946. This increase

IS due largely to the negotiation of a number of plans recently on an

industry-wide basis.

Examination of Proxy Malerial

Copies of proposed proxy material must be filed in preliminary

form with the Commission, for its information and processing only,

8 On a fiscal year basis 1,788 sollcitatlons were made in 1951 as compared with 1,668 in

1950. "Follow-up material was used in 192 instances during the 1951 liscal year.

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_

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SEVENTEE~ ~AL REPORT 45

at least 10 days prior to the date the definitive copies are first sent or

given to security holders; and copies of the statement in definitive form

must be filed at the time proxy material is furnished to security

holders. The Commission's proxy examination work must be completed during this comparatively brief interval between the filing of

the material in its preliminary and definitive forms. Where a preliminary proxy statement fails to set forth information meeting the

disclosure standards of the statute and the regulation, the parties concerned are notified immediately to that effect and given an opportunity

to correct any such discrepancy before the definitive proxy statement

is prepared. Illustrations of changes made in proxy material as a

result of the Commission's examination procedure arising in actual

cases during the 1951 fiscal year are given below.

Oonsolidated financial statements required.-Under the regulation

a proxy statement may incorporate by reference any financial statements contained in an annual report sent to security holders in connection with the same meeting as that to which the proxy statement

relates, provided such financial statements substantially meet the requirements of the Commission's regulations governing the form and

content of financial statements. A large grocery chain-store corporation, as a part of the preliminary proxy material relating to a proposal

to increase its authorized preferred stock, included the financial statements that had been used in its annual report to stockholders for the

preceding year. However, the accounts of three major subsidiaries,

one financing fixture and equipment purchases, the second purchasing

merchandise for the registrant, and the third operating a chain in

Canada, were not included in the consolidated financial statements in

that annual report, the accounts of the parent and certain other subsidiaries having been consolidated in those statements. The effect was

that neither a substantial amount of property and other assets used

in the registrant's business nor senior securities of the unconsolidated

subsidiaries were shown in the consolidated balance sheet proposed to

be submitted to stockholders with the proxy solicitation.

The staff took the position that in view of the importance of the

three unconsolidated subsidiaries to the integrated operations of the

registrant the financial statements to be made part of the proxy material to be furnished stockholders should be on a complete consolidated

basis. As a result the definitive proxy material as sent to stockholders

contained financial statements on that basis.

Oertain problems eoloed in accounting for acquisition of business

and a88et8.-Proxy statements prepared in connection with plans for

acquisition, merger or recapitalization of corporations frequently

raise special problems as to what financial statements will adequately

reveal the proposed action. For example, a steel manufacturing company in its offer to acquire the business and assets of another company

in a related business proposed to pay for the net assets to be acquired

with additional issues of its senior and junior capital shares in an

aggregate amount which the acquiring company considered represented fair value for the acquisition. These securities were to be

distributed to the holders of the senior and junior securities of the

company beinz acquired according to a fixed pro rata basis, thereby

effecting the dissolution of the company. The purchase price of the

assets being acquired, paid by the issuance of capital stock, was substantially in excess of the book value of the assets. This excess was
46 SECURITIES AND EXCHANGE COMMISSION

allocated to fixed assets since the amount was approximately equivalent to the difference between independent currently appraised values

and book values.

In the preliminary proxy material proposed to be submitted to the

stockholders of the respective companies, statements of earnings and

of assets, liabilities and capital of the respective companies were furnished in conventional form. However, the proposed data did not

readily demonstrate the impact of the acquisition upon the acquiring

company as affected (1) by the new capital structure and (2) by the

new valuation placed upon the fixed assets to be acquired. Specifically,

the stockholders would be unable to determine readily (1) the coverages of liquidating values and of dividend requirements of the preferred shares as increased, and (2) the earnings per share of the

common stock as increased and as affected by the increased amount

of the preferred stock. Accordingly, the respective companies were

requested by the staff to furnish in the proxy statements a pro forma

consolidating balance sheet giving effect to the recapitalization and

acquisition, together with a pro forma statement of profit and loss

for the year 1950 of both companies combined, calculating the income

and excess profits taxes under the Revenue Act of 1950 for the entire

year, and calculating depreciation charges upon the basis of the increase in valuation of the fixed assets. Also upon such request the

pro forma net income, applicable to common stock in the aggregate

and in per share amounts after provision for preferred stock dividends, was stated and accompanied by an explanation that this information was not necessarily indicative of the results of future

operations or the availability of net income for dividend purposes.

Oomplete financial statements required in order to show results of

significant corporate proposals.-A registrant engaged in real estate

operations submitted preliminary draft copies of proxy solicitation

material, without complete financial statements, seeking among other

matters authorization of stockholders to amend the company's certificate of incorporation so as to reduce the par value of capital stock

by a split-up from $10 per share to $1 per share; to reduce correspondingly the capital of the company from $4,255,690to $425,569;

to execute eighteen separate mortgages, together covering all of the

company's real properties and aggregating $5,000,000 in principal

amount to mature in 10 years, with interest at the rate of 4 percent

per annum; to distribute forthwith to stockholders the $5,000,000 of

mortgage proceeds and other funds of the company aggregating

$5,250,252. The company stated that financial statements had not

been included for the reason that they were not deemed material for

the exercise of prudent judgment in regard to the matters to be acted

upon at the meeting. The company had included a summary of the

balance sheet at the close of its last fiscal year and a table showing for

ten years the "net income after operating expenses, adjusted to exclude

interest on indebtedness, depreciation, and income taxes."

The first letter of comment issued by the Division of Corporation

Finance indicated the need to furnish to stockholders in this connection certified financial statements for three fiscal years, unaudited

statements of a more recent date, and a pro forma balance sheet as of

such recent date showing the effect of the proposed transactions covered by the proxy statement. The company was also requested to
SEVENTEENTH ~AL REPORT 47

furnish to stockholders a complete summary of earnings for the last

ten fiscal years.

The most recent balance sheet indicated a stockholders' equity of

$6,236,210.30; and the pro forma balance sheet, as of the same date"

after giving effect to mortgaging of properties, reduction of capital

and distribution to stockholders, indicated a stockholders' equity of

$835,951.10. The table of "adjusted income" originally submitted

averaged $729,000 per year (with a minimum of $688,000 and maximum of $787,000) compared with interest and amortization on the

proposed mortgages of $385,000, which latter figure was changed to

$350,000 in the revised material. The revised summary of earnings

for ten years and six months afforded adequate material for analysis

of the effect of the change in capital structure of the company by

showing in separate columns "Rental and Other Income"; "Operative,

Admimstrative, and General Expense"; "Depreciation" (revealed as

being in excess of $200,000 per year); "Interest on Indebtedness"

(none in the last six months shown); "Income Taxes"; and "Net

Income."

Failure to disclose certain essential information including the names

of persons acquiring a controlling block of common stock from the

iS8Uer.-The registrant filed preliminary proxy soliciting material to

be used in connection with a forthcoming annual meeting at which it

was proposed (1) to vote upon a proposal to lease the registrant's

plants and equipment for a term of years to a corporation controlled

by an outside group and (2) to elect nine directors for the coming

year. Five directors were to be elected by holders of the registrant's

preferred stock because of defaults in the payment of dividends, and

four by holders of registrant's common stock. The management and

control of the registrant had been changed some months previously.

The financial position of the registrant was very weak due to continued

losses in its peacetime operations and large indebtedness which was

past due. The material indicated it was anticipated that within six

months there would be submitted to stockholders for their approval

a plan of recapitalization, including the issuance of a large block of

common stock, in exchange for the outstanding stock of the lessee

corporation. Such stock would -have represented control of the

registrant.

No disclosure was made of the names of the persons financially interested in the lessee corporation who might succeed to control of the

registrant. This and other deficiencies were brought to the attention

of the registrant, after which revisions of the preliminary soliciting

material were filed. The proposal to lease the plants was ultimately

abandoned, among other reasons because the registrant was unable

to obtain the required consents of its mortgage creditors. The revised material proposed a plan of recapitalization which involved the

issue of common stock for cash to the same outside group. The

obligation to purchase such additional stock was subject to various

material conditions which had to be met by the company. These proposals would have substantially reduced the interests of the old common and preferred stockholders, and would have given control of the

company to the outside group, who for the first time were named.

A few years earlier, the Commission had obtained an order enjoining

the central figure in this group from the purchase of certain securities

in violation of the Securities Exchange Act of 1934. Certain other
48 SECURITIES AND EXCHANGE COMMISSION

questionable activities of this individual had been brought to the

Commission's attention in the course of its earlier investigation of investment companies. Because of continued material deficiencies in

the revised proxy soliciting material, the Commission ordered a private

investigation under section 21 (a) of the Securities Exchange Act

of 1934. During the course of the investigation the registrant made

numerous revisions to reflect facts disclosed by the investigation.

The registrant apparently was reluctant, however, to disclose the

existence of the injunction against the principal promoter as well

as other adverse facts regarding him developed during the course

of the investigation.

Subsequently, the registrant abandoned the proposed plan of recapitalization, including the sale of common stock, and confined its

deferred annual meeting to the election of directors, for which a committee acting on behalf of holders of preferred stock had solicited

sufficient proxies to elect a majority of the board.

Problem arising in 'U8eof inventory reserves to equalize reported

inoome-r- The Commission's 14th Annual Report 9 referred to the adoption by the American Institute of Accountants of research bulletins

recommending that inventory reserves created in anticipation of

losses not yet incurred should not enter into the determination of

income. These bulletins assisted in correcting a troublesome practice

that had arisen during and immediately after World War II. While

this problem was largely corrected in recent years, it arose in the

1951fiscal year in connection with the examination of a proposed proxy

statement soliciting authority to dispose of all of the assets of that

part of the company's business to which the inventories in question

applied. The independent public accountants of this particular company, a leading processor of certain raw materials, had noted in their

certificate accompanying the registrant's first annual report following

the publication of the Institute's bulletins that the net income for the

fiscal year had benefited through return to income of previously created

reserves and that under recently accepted accounting principles the

amount should have been restored directly to surplus. That annual

report and the subsequent year's annual report submitted on the

same basis were amended at the request of the staff to eliminate the

Qualification in the certificate of the accountants and to return the

reserve directly to surplus.

Despite the fact that the Commission had required such amendment

of those annual reports, the company included in a preliminary

proxy filed in the 1951 fiscal year a summary of earnings for ten years

prepared on the original baSIS. In this summary the first seven years

reflected deductions for additions to the inventory reserve and the

years 1948 and 1949 reflected partial return of the reserves to income.

Results for 1950 were not furnished in this preliminary proxy material. When complete financial statements including a new summary

were then furnished at the instance of the Commission, it was discovered that while data for two of the years summarized, 1948 and

1949, were restated to conform to the amended annual reports, a

footnote was appended to the net profit item for the year 1947 which

read: ". . . after appropriation of $1,500,085-800 Consolidated Statement of Profit and Loss." In the opinion of the Commission's staff,

• 14th Annual Report. page 110.
SEVENTEENTH ANNUAL REPORT 49

which corresponds with the Institute's recommendation noted above,

the amount of $1,500,085 was an appropriation of surplus and not a

proper charge in the profit and loss statement. Accordingly, the

issuer was advised that the net profit for the year in question should

be reported before making the $1,500,085 deduction, and that the footnote should be deleted. The issuer was further advised that, to the

extent that other deductions in prior years represented appropriations

of income similar to that made in 1947, the earnings summary should

be recast to show results for all years on a uniform basis.

As a result of the amendments secured in this case, the net profit

for each of the seven years 1941 through 1947 was reflected in the

summary as revised at a substantially higher figure, the effect of

which was to increase the net profit shown for the seven-year l?eriod

from approximately $7,000,000 to $12,000,000. That no losses III the

amount of this difference had been sustained over the period seems

clear by a statement in the definitive proxy material that the market

value of inventory early in 1951 was approximately $5,000,000 in

excess of (or about double) the book value, which value represented

cost under the last-in-first-out method of pricing.

REGULATION OF BROKERS AND DEALERS IN OVER-THE-COUNTER

MARKETS

Registration

Section 15 (a) requires the registration of brokers and dealers using

the mails or instrumentalities of interstate commerce to effect transactions in securities on over-the-counter markets, except those brokers

and dealers whose business is exclusively intrastate or exclusively in

exempt securities.

Statistics relating to registrations of brokers and dealers

fiscal year ending June 30, 1951

Effective registrations at close of preceding fiscal year 3, 930

Effective registrations carried as inactive '____________________________ 70

Registrations placed under suspension during preceding fiscal year______ 0

Applications pending at close of preceding fiscal year____________________ 23

Applications filed during fiscal year____________________________________ 464

Total 4,487

Applications withdrawn during year 16

Applications cancelled during year __ 0

Registrations withdrawn during year_________________________________ 363

Registrations cancelled during year___________________________________ 43

Registrations denied during year______________________________________ 0

Registrations suspended during year___________________________________ 0

Registrations revoked during year_____________________________________ 85

Registrations expired by Rule X-15B-3________________________________ 0

Registrations effective at end of year 3,945

Registrations effective at end of year carried as inactive '______________ 9

Applications pending at end of year___________________________________ 26

Total 4,487

1 'Registrations on inactive status because of Inabll1ty to locate registrant despite careful

nquiry,

Administrative proceedings

Registration may be denied or revoked by authority of section 15 (b)

of the Act, and brokers and dealers may be suspended or expelled from

national securities associations and exchanges for specific types of
50 SECURITIES AND EXCHANGE COMMISSION

misconduct on the part of the firm, its partners, officers, directors or

employees. To carry out these provisions of the Act, applications for

registration must be examined in the light of the information contained therein and information obtained from numerous other sources

available to the Commission in order to determine whether the firm

is entitled to registration for which it has applied. When it appears

that an applicant may be disqualified under such standards, proceedings are ordered by the Commission to determine whether on the

evidence adduced it IS consistent with public interest to permit registration. The applicant is, of course, given notice of the issues to be considered and afforded full opportunity to be heard thereon. Similar

procedures are followed in proceedings brought against registered

brokers and dealers to determine whether registration should be revoked or the firm suspended or expelled from membership in a national

securities exchange or association. The following tabulation reflects

the number of such proceedings pending during the fiscal year:

Record, of broker-deale»: proceel1ings to l1eny registration, proceel1ings to revoke

registration, anl1 proceel1ings to suspenl1 or expel from membership in a national securities exchange or assooiation institutel1 pursuant to the Securities

Exchange Act of 1984 for the fiscal year 1951.

Proceedings pending at start of fiscal year to:

Revoke registra tion______________________________________________ 11

Revoke registration and suspend or expel from NASD, or excbenges..; 12

Deny registration to applicanL___________________________________ 2

Total proceedings pending______________________________________ 25

Proceedings instituted during fiscal year to : Revoke registra tion______________________________________________ 88

Revoke registration and suspend or expel from NASD, or excnanges..; 4

Deny registration to applicanL___________________________________ 5

Total proceedings instituted____________________________________ 97

Total proceedings current during fiscal yeaL_____________________ 122

DISPOSITION OF PROCEEDINGS

Proceedings to revoke registration: Dismissed on withdrawal of registration___________________________ 4

Registra tion revoked_____________________________________________ 81

Cancelled-proceedings dismissed_________________________________ 8

Total______________________________________________________________ 88

Proceedings to revoke registration and suspend or expel from NASD or exchanges: 1

Suspended from NASD-registration not revoked__________________ 1

Registration revoked and firm expelled from NASD________________ 2

Registration revoked-no action taken on NASD membership________ 2

Total__________________________________________________________ 5

Proceedings to deny registration to applicant:

Dismissed on withdrawal of application____________________________ 2

Dismissed-registra tion permitted______________________________ __ 4

Total__________________________________________________________ 6

Total proceedings disposed of___________________________________ 99

1The National Association of Securities Dealers, Inc., is the only national securities

association registered with the Commission.
SEVENTEENTH ANNUAL REPORT 51

Proceeedings pending at end of fiscal year to:

Revoke reglstration______________________________________________ 11

Revoke registration and suspend or expel from NASD, or exehangesc., 11

Deny registration to applicanL___________________________________ 1

Total proceedings pending at end of fiscal year__________________ 23

Total proceedings accounted fOI"_________________________________ 122

As shown in the above table, there were pending at the beginning of

the fiscal year two proceedings to determine whether applications

for registration should be denied or granted, and five such proceedings were instituted during the year. Of these seven, four registrations were granted and the proceedings dismissed; two applicants

withdrew their applications; one proceeding remained pending at the

end of the year.

At the beginning of the fiscal year, there were 23 pending proceedings to revoke registration, 12 of which also involved consideration

of suspension or expulsion from the NASD. During the year, 92

revocation proceedings were instituted, three of which involved also

the question of suspension or expulsion from the NASD, and one

suspension or expulsion from an exchange. A total of 84 of the

proceedings instituted concerned the failure to file financial reports

as required by rule X-17A-5, and eight concerned alleged fraudulent conduct. A total of 93 revocation proceedings were decided during the year, leaving 22 pending at the end of the year.

In seven proceedings the Comnxission revoked registration on findings of fraudulent conduct prohibited by the Securities Act and the

Securities Exchange Act, including such frauds as misappropriation of customers' funds and securities, misrepresentations in the

sale of securities, manipulation of the market price of securities on

national securities exchanges, the sale of unregistered securities in

violation of section 5 of the Securities Act, false and fictitious entries

on books and records and filing of false financial reports with the

Commission.

Proceedings against W. F. Coley & Company, Inc., and Wade F.

Coley, its president and controlling stockholder, resulted in an order

revoking the registration of the firm, expelling the firm from the

NASD, and the finding that Wade F. Coley, personally, was the

cause of such order. ,. The Commission found that the firm, aided

and abetted by Coley, had misappropriated customers' securities and

funds~ had concealed such misappropriations by false or deficient

records, and had filed false financial reports with the Commission.

In proceedings against Mercer Hicks Corporation and Mercer Hicks,

its president and controlling stockholder, the Commission revoked

the registration of the firm, expelled it from the NASD, and found

Mercer Hicks, personally, a cause of such revocation and expulsion,

'0 In the matter oj W. F. Ooley tf. Oompany Inc. Securities Excbange Act release No.

4470, JUly 18, 1950. On Oct. 30, 1950, Wade F. Coiey was convicted in tbe United States

District Court at Greenville, S. C., on a plea of gUilty, to an Indictment cbarging violations

of tbe anti-fraud provisions of the Securities Act of 1933, tbeMail Fraud Statute, section

17 (a) of tbe Securities Exchange Act and Rule X-17A-3 thereunder requiring registered brokers and dealers to keep public books and records, the Perjury Statute, and the False

Statement Section (Section 1001) of tbe Criminal Code in connection witb his operation of W. F. Coley & Company, IDe., and tbe ell'ecting of securities transactions on behalf of customers of that firm.

975942-52-5
52 SECURITIES AND EXCHANGE COMMISSION

the respondents consenting thereto." On the respondents' admission

of the facts alleged, the Commission found that Mercer Hicks Corporation and Mercer Hicks, individually, had made false and misleading representations in the sale of the corporation's stock, that

purchasers were told that the corporation was being operated at profit

but were furnished with no financial data, and that purchasers were

not informed of the corporation's operating deficits or the fact that

dividends were paid out of capital surplus obtained from the sale of

the stock. The Commission also found that the corporation and Hicks

appropriated funds and securities held for customers and substituted

therefor the stock of the corporation, without the knowledge of these

customers.

It is customary, when adequate evidence of violations can be obtained in time, to institute court action promptly to enjoin further

violations, deferring until later consideration of other remedial or

punitive action. Thus in the instance of Mercer Hicks Corporation,

the Commission's action to revoke its broker-dealer registration was

instituted after the district court, Southern District of New York,

had enjoined the fraudulent acts and practices later alleged in the

revocation proceedings." In two other instances during the current

year, registration was revoked on findings of fraudulent conduct by

the registrants after a court had enjoined them from further

violations."

In proceedings resulting in the revocation of the broker-dealer

registration of Lawrence R. Leeby," the Commission rejected the contention that a broker-dealer, conducting a securities business as a sole

proprietor, may engage in "personal transactions" as distinguished

from "company transactions" without recording them on his business

books. This proceeding is also significant because it is the only

instance in which the Commission has twice revoked the registration

of a broker-dealer. Leeby first became registered in 1936. In 1943,

the Commission revoked his registration on findings of fraudulent

practices in the sale of oil royalties. In 1946, he again applied for

registration, and after hearings the Commission granted him the limited registration he requested. He was permitted to do business as a

broker, but his dealer activities were limited to the sale of investment

companies' shares.

On October 21, 1948, he petitioned the Commission to remove the

restriction with respect to his dealer activities so that he might do a

general securities business. At a hearing on his petition he testified

12 In the matter of Mercer Hicks Corp. and Mercer Hicks, Securities Exchange Act release

No. 4557. Jan. 31. 1951.

12 SEC v. Mercer Hicks Corp. and Mercer Hicks, S. D. N. Y. No. 5896. Litigation re- lease 632, Dec. 26, 1950.

18 In May 1949, S. H. Junger, George T. Anderson and Robert S. Junger, Individually, and as co-partners In Junger. Anderson and Company. were enjoined on complaint of the

Commission from engugtng In certain fraudulent practices discovered during an Investl-

~atlon. SliJC. v. Caplan, Junqer, Anderson and comoon«, Civil No. 49-138 S. D. N. Y.

Litigation release 514, May 14. 1949. On July 27, 1950, the Commission revoked the

registration of Jun~er. Anderson and Company on findings of fraudulent conduct. but

specifically flndlng' that as to Robert S. Junger. there was no evidence that he knowingly participated in the scheme. S. H. Jungoer and Company. a partnership, consisting of

Samuel H. Junger and his wife. Frances Junger. was later permitted to register as broker

and dpaler. Securities ExchanJ'(eAct release No. 4563. Feb. 8. 1951.

In SEC Y. Howard F. Hansell, Jr., Civil 62-240 S D N. Y., the court on complaint filed

by the Commission enjoined Hansell from further violations of section 9 (a) (2) of the

Securities Exchange Act. Litigation release 627, November 22. 1950. Later. the Commission revoked Hunse'll'a registration on findings of fraudulent conduct. Securities Exchange

Act release No. 4536. Dec. 18, 1950.

.. In the matter of Lawrence R. Leebu, doing bu.'liness 08 Lawrence R. Leebl/ cE Company.

Secnrltles Exchange Act release No. 4601.
SEVENTEENTH ~AL REPORT 53

that he had fully complied with the conditions of 1946 registration

and had not effected any transactions as a dealer except in investment

companies' shares. Since an examination of his books and records

made by the Commission's staff reflected nothing to the contrary, the

Commission removed the restriction. When it was later discovered

that Leeby had purchased and sold Ribbonwriter shares during the

period when his registration as a dealer was limited to investment

companies' shares and that these transactions were not recorded on

his books, proceedings to revoke his registration were instituted.

During the hearings, he sought to defend the exclusion of the transactions in Ribbonwriter stock from his broker-dealer books on the

ground that these Were "personal transactions" unrelated to his

securities "business."

In its findings, however, the Commission held as artificial any

attempted distinction between "personal transactions" and "company

transactions" where the "company" is a sole-proprietorship, and held

that all securities transactions of the proprietor are required to be

recorded on his broker-dealer books whether they are for so-called

personal investment for what is termed "firm trading account" for

which business capital is employed. The Commission made the finding that Leeby's failure to enter his "personal" transactions in an

account on his broker-dealer books was in wilfull violation of the

bookkeeping rules prescribed for brokers and dealers under section

17 (a) of the Securities Exchange Act, and the further finding that

the representation in his application and testimony, in connection with

his 1948 petition for unconditional registration as a dealer, that he

had fully complied with the conditions of his limited registration was

false and misleading.

Broker-Dealer Inspections

Section 17 (a) of the Securities Exchange Act empowers the Commission to make periodic, special, and other examinations of the books

and records of brokers and dealers. Such inspections have become

the principal means by which the Commission detects and prevents

violations of law by brokers and dealers. Inspections are frequently

limited to a particular phase of the firm's business, but generally they

encompass examination of all characteristic activities.

During the fiscal year the Commission's regional offices, the staff

of which conducts these inspections, reported on 922 such examinations, 696 of which were inspections of NASD members. A.sin previous years, a substantial number of violations of the rules and

regulations were discovered, including non-compliance ~ith the

capital rule, the hypothecation rule, and Regulation T prescribed by

the Board of Governors of the Federal Reserve System. There were

a few instances of secret profits, a good many transactions in which

the reasonableness of the price to the customer in relation to current

market was questionable, and a fairly large number of infractions too

scattered to classify separately.

Consistent with accepted standards of administrative procedure,

those violations which appear to be inadvertent or the result of misinformation or innocent misinterpretation, and not "wilful," are

called to the attention of the firm involved to afford it an opportunity

to "put its house in order." Other remedies which may be invoked
54 SECURITIES AND EXCHANGE COMMISSION

against violations are discussed in detail under the preceding caption

"Administrative Proceedings."

Investigations

Investigations of brokers and dealers stem from various sources.

When an inspection discloses conduct or practices the full facts with

reference to which must be obtained and analyzed to determine

whether any remedial or punitive action is necessary investigation is

promptly undertaken. Investigations are also made when complaints

from customers are received. Other investigations may be commenced as a result of information supplied by cooperating agencies

such as state securities commissions, securities exchanges and associations, or "better business bureaus." When investigations are completed and the evidence has been analyzed, the staff makes recommendations to the Commission for such further action as appears

appropriate. In some instances the recommendation may be for injunctive relief, in some for administrative action such as discussed

above and in some for notice, as contemplated by the Administrative Procedure Act to achieve compliance with the Act.

The following schedule reflects the number of such investigations

during the fiscal year.

Pending July 1, 1950____________________________________ 137

Commenced during year__________________________________ 213

'350

Closed during year_____________________________________ 186

Pending June 30, 195L___________________________________ 2164

350

1This fi~ure includes 122 administrative proceedings as shown in the schedule set forth

under "Administrative Proceedings" supra. 2 This figure includes 23 administrative proceedings pendmg at the end of the year as shown in the schedule set forth under "Administrative Proeeedlnga" supra, and 71

such proceedings on which the Commission had issued its final determmation before the

end of the fiscal year but the investigative files on which had not been closed of record.

Financial Reports

One of the Commission's rules, X-17A-5, requires brokers and

dealers to file financial reports each calendar year. During the 1951

fiscal year, 3,705 such reports were filed. Examination of the financial report filed by a broker-dealer affords the staff an opportunity

to determine whether, as of the date of the report, the firm is in compliance with the capital resuirements prescribed by rule X-15C3-1,

and if it is not, the firm is given an opportunity to bring its financial

condition up to the required standards. Failure to do so may, of

course, require more drastic measures to enforce the rule.

SUPERVISION OF NASD ACFIVITIES

Membership

At June 30, 1951, there were 2,846 members of the National Association of Securities Dealers, Inc. (NASD), the only national securities association registered as such with the Commission. This represented an increase of 62 members in the year as a result of 212 admissions to, and 150 terminations of, membership. At the same

date there were registered with NASD as registered representatives

30,922 individuals, including generally all partners, officers, traders,

salesmen and other persons employed by member firms in capacities
SEVENTEENTH ~AL REPORT 55

which involved their doing business directly with the public. This

represented an increase of 2,128 registrations during the year as a

result of 5,128 initial registrations or re-registrations and 3,000 terminations of registrations.

Disciplinary Actions

During the 1951 fiscal year the Commission received from the

NASD reports of final action in 22 disciplinary cases in which formal

complaints had been filed against members. One of these complaints

was dismissed on the finding by the NASD District Business Conduct Committee of initial jurisdiction that there had been no violation of the Rules of Fair Practice as alleged in the complaint. In the

remaining 21 cases the appropriate Business Conduct Committee

found that the members or registered representatives of the members

cited in the complaints, had acted in violation of the Rules of Fair

Practice and imposed various penalties as a consequence of those

infractions.

Of the 21 disciplinary decisions which included findings of violations against those named in the complaints, eight cases were directed

solely against member firms who were subjected to the following

penalties: Two member firms were expelled; two member firms were

each fined $500 and censured; one member firm was fined $300; one

member firm was fined $100 and censured; and two member firms were

censured.

In nine other cases findings of violations of the Rules of Fair Practice, and the consequent penalties, were directed not only against member firms but also against registered representatives of such members

who had been named, together with their employers, in the complaints.

One such case resulted III expulsion of the member firm involved and

revocation of the registration with the NASD as registered representative of one individual and suspension of such registration of two

other individuals. This decision, which had been affirmed by the

Board of Governors on appeal, was appealed to the Commission by

R. H. Johnson and Co., the member firm, and at the year-end was in

process before the Commission." In two unrelated cases the member

involved was expelled from the Association and the registration with

the NASD of two registered representatives of each of the two firms

were revoked." In another case both a member and a representative

of that member were each fined $500; in another, fines of $200 were

imposed both on the member and on the member's representatives.

The only other such case involving a fine resulted in a fine of $5,000

on the member firm, six months' suspension of registration of one representative, three months' suspension and a fine of $1,000 with respect

to another and three months' suspension and a fine of $100 with respect to a third representative. In three other cases against both

IT Securities Exchange Act release No. 4571 (1951). This appeal, pursuant to the pro- visions of section 15A (g) of the Securities Exchange Act of 1934, operates as a stay of

the eft'ectlveness of the NASD's action pending the Commission's declslon. There was also

pending at the year-end, Its status not SUbstantially changed during the year, another

such appeal to the Commission from an NASD decision which imposed on Otis & Co., the

appellant, a two-year suspension from membership In NASD. This action arose from a shtoCkoft'ering of kaiser-Fraser Corporation In 1948 as described In considerable detail In t e Commission's 15th Annual Report, pages 73-77, and 16th Annual Report, pages 58-59.

1

18 After the close of the fiscal year one of these decisions was appealed to the Commls- s on by George J. Martin Co., the member, and Alfred and Irving Shayne. the repre- sentatives.
56 SECURITIES AND EXCHANGE COMMISSION

member firms and representatives of the firms, the firms were censured

and in addition the representatives were respectively suspended for 30

days, fined $100 and fined $25.

A third category of cases consisted of those in which a finding of

violations, and the imposition of penalties, was directed solely against

a representative of a member with a concurrent finding that the member had not acted in violation of the Rules of Fair Practice and dismissal of that portion of the complaint directed againt the member.

In this type of action revocation of the representative's registration

resulted in three cases and, in a fourth, the penalty was a five-year

suspension of registration.

The Commission continued its practice of referring to the NASD

for appropriate action facts disclosed in the course of its brokerdealer inspection program which tend to indicate possible violations

of the Association's Rules of Fair Practice, At the end of the last

fiscal year there were four such references in process before the Association and, in this year, ten additional references were made. At the

end of the year nine of these references were in process, reports of disposition having been received by the Commission from the Association on five of the cases. Four of these five cases were disposed of by

informal means without invoking formal complaint procedure; the

formal complaint case resulted in a fine of $100 and censure of the

member involved, as mentioned above.

Commission Review of Action on Membership

Under section 15A (b) (4) of the Securities Exchange Act of 1934,

and NASD by-laws, except in cases where the Commission ap'proves or

directs admission to or continuance in membership as appropriate in the

public interest, no broker or dealer may hold NASD membership if he

controls a person who has been, among other things, expelled from a

registered securities association for violation of an association rule

prohibiting conduct inconsistent with just and equitable principles of

trade, or is subject to an order of the Commission revoking his registration or expelling him from NASD membership.

Pursuant to this authority, and with consideration to the affirmative recommendation of the Board of Governors of the NASD, the

Commission approved the admission to membership of O. H. Hecht,

who was under a disqualification arising from expulsion by and from

the NASD of Mutual Investments, Ltd., a broker-dealer firm of which

Hecht had been a partner, on findings that the firm had been guilty of

conduct inconsistent with just and equitable principles of trade." The

Commission also approved a similar petition by the NASD for the

continuance in NASD membership of Oscar F. Kraft & Co. while

controlling Carter Harrison Corbrey, who was under disqualification

as a consequence of expulsion from NASD membership and revocation of broker-dealer registration by the Commission."

During the year two other petitions were filed with the Commission

under this same section of the statute by or on behalf of firms seeking

to retain NASD membership while controlling a disqualified person.

Each of these petitions was withdrawn prior to a decision on the

merits by the Commission.

10 Securities Exchange .Act release No. 4619 (1951) .. Securities Exchange .Act release No. 4562 (1951).•
SEVENTEENTH ANNUAL REPORT 57

CHANCES IN RULES, REGULATIONS, AND FORMS

.As stated elsewhere in this report, section 16 (b) of the Act

provides in general that where any director or officer of the issuer of

a listed and registered equity security or the beneficial owner of more

than 10 percent of any class of such security has realized any profit

from any purchase or sale, or sale and purchase, of any equity security

of the issuer, such profit inures to and may be recovered by the issuer,

or by any security holder acting in its behalf. The section authorizes

the Commission to adopt rules exempting therefrom any transactions

not comprehended within its purpose. Various rules adopted during

the 1951 fiscal year under this authority, after consideration of all

comments and suggestions invited and received in the premises, are

briefly described below.

Rule X-1BB-f. Exemption from sectioti 16 (b) of certain transactions by reaistered investment companies.- This new rule, in the

form of a revision of rule X-16B-1 which in its previous form had

become obsolete, exempts transactions which the Commission has, by

order entered pursuant to section 17 (b) of the Investment Company

Act, exempted from 17 (a) ofthat Act.

Rule X-16B-3. Exemption from section. 16 (b) of certain acquisitions of seouritiee under stock bonus 01' similar plans.-Rule

X-16B-3 was amended so as to exempt from section 16 (b) acquisitions

by directors or officers of securities received under certain types of

bonus, profit-sharing, retirement or similar plans not previously exempted by this rule. Itshould be noted that the rule exempts only

certain acquisitions of securities under plans of the types specified.

Sales of securities so acquired are not exempted by the rule and are,

therefore, within the purview of section 16 (b) of the Act if within six

months before or after such sales the director or officer effects other

acquisitions which can be matched against them.

Rule X -16B-5. Exemption from section 16 (b) of certain transactions in which securities are received by redeeming other eeouritiee>«

This new rule was adopted to exempt from the operation of section

16 (b) those transactions in which one security is surrendered for

another, where both the old and the new securities are substantially

and in practical effect equivalents and where the transaction does not

require the payment of any consideration.

Rule X-16B-6. Exemption of long-term profits inciden» to sales

within six months of the eeercise of an option.-This new rule grants

partial exemption with respect to profit which might otherwise be

deemed to have been realized and recoverable, where there is a purchase by an "insider" of an equity security pursuant to the exercise of

an option or a similar right and a sale of that equity security within

six months thereof. A statement of the considerations which led to

the adoption of this rule accompanied its promulgation in Securities

Exchange Act release No. 4509.

As set forth more fully in that statement, the Commission had been

aware for some time of a controversy concerning the proper method of

computing profits under section 16 (b) where there is a sale of an

equity security acquired pursuant to an option. The Act makes such

profits recoverable in private litigation, thus placing upon the courts

the ultimate responsibility for the interpretation of section 16 (b),

but gives the Commission, as pointed out above, responsibility for
58 SECURITIES AND EXCHANGE COMMISSION

exempting by rule transactions which it may determine to be "not

comprehended within the purposes of section 16 (b)."

Uncertainty as to just what profits would, as a matter of legal interpretation, be recoverable in the absence of a rule, as well as uncertainty whether the Commission should attempt by rule making to

affect pending litigation, had previously induced the Commission to

refrain from adopting such a rule. The Commission determined to

express its understanding of the relationship between such transactions and the underlying purpose of section 16 (b), as set forth in the

published statement; and to exercise its rule-making power in the

light of that understanding, as reflected in this new rule.

Rule X-160-3. Exemption of sales of securities to be acquireds-«

The Commission adopted a new rule, designated rule X-16~,

exempting certain sales from the provisions of section 16 (c) of the

Securities Exchange Act of 1934.

Section 16 (c) provides that it shall be unlawful for any beneficial

owner of more than 10 percent of any class of equity security registered on a national securities exchange, or a director or officer of the

issuer of such a security, to sell any equity security of the issuer (other

than an exempted security), (1) if he does not own the security sold,

or (2) if, owning the security, he does not either deliver it within 20

days or deposit it in the mails or other usual channels of transportation within five days, unless he was unable to do so nothwithstanding

the exercise of good faith or it would cause undue inconvenience or

expense.

The purpose of the rule is to permit persons who are entitled to

receive a security "when issued" or "when distributed" as an incident

of ownership of another security to sell the new securit;v subject to the

same restrictions as would apply if the "when issued' or "when distributed" security were already in their possession. This rule assumes,

of course, that the "when issued" or "when distributed" sale is otherwise lawful under the Securities Act of 1933 and the Securities Exchange Act of 1934.

Revised Form U5S.-During the fiscal year the Commission adopted

substantial revisions in the annual reporting requirements applicable

to public utility holding companies registered under the Public Utility

Holding Company Act of 1935.21

The object of these changes was to reduce the over-all reporting

requirements for registered holding companies under both the 1935

Act and the Securities Exchange Act of 1934. A new Form U5S

was promulgated as the annual report form for registered holding

companies. The Commission has abolished Form U-14-3, heretofore required to be filed annually under the 1935 Act by registered

holding companies, and Forms U5-K and U5-MD which registered

holding companies formerly had the option of filing in lieu of Form

10-K under section 13 or 15 (d) of the 1934 Act. Whereas each

registered holding company in a system has heretofore been required

to file separate annual reports on Form U5S, the revised requirements provide that only one annual report shall be filed by the top

registered holding company for all registered holding companies in

the system. Registered holding companies required to file annual

21 Publlc Utility Holding Company Act release No. 10432.
SEVENTEENTH ANNUAL REPORT 59

reports under Section 13 or 15 (d) of the 1934Act (formerly on Form

10-K) may now satisfy these requirements in full by filing copies of

their annual reports prepared on the new Form U5S.

LITIGATION UNDER THE SECURITIES EXCHANGE ACT

Brokers and Dealers

Although the Commission's sanctions against brokers and dealers

violating the Securities Acts include administrative proceedings and

references to the Attorney General for criminal prosecution, it is

often necessary to seek court injunctions to afford immediate protection to investors.

In S. E. O. v. Lloyd Beuersdorf." the Commission obtained a final

judgment by consent enjoining the defendant from further violations of the broker-dealer registration provisions. The Commission

charged that he was engaging in a broker-dealer business without

having registered with the Commission in accordance with section

15 (b) of the Securities Exchange Act.

In S. E. O. v. Aamms &} Oompany 23 during the fiscal year the individual defendants consented to the entry of a judgment restraining

them from further violations of the fraud provisions of the Securities

Act and of the Securities Exchange Act. A similar judgment was

entered against Adams & Company by default. In that case a temporary receiver had been appointed for the protection of customers

during the previous fiscal year when the Commission had filed its

complaint. The complaint had charged that the defendant Adams

& Company, a registered broker-dealer, and three of its officers violated the fraud provisions of both the Securities Act and the Securities Exchange Act in soliciting and accepting customers' orders for

the purchase and sale of securities while its liabilities exceeded its

assets; in inducing customers to purchase securities by representing that such securities would be held in safekeeping when~in fact,

the securities were being hypothecated to secure loans made to the

firm; and in soliciting customers to purchase securities and accepting

payment therefor upon the representation that the securities would

be delivered when, in fact, the defendants used the customers' money

for their own benefit.

In 8. E. O. v. Frank 8. Kelly,24 the Commission's complaint sought

to enjoin the defandant, a registered broker-dealer, from further violations of certain of the fraud provisions of the Securities Exchange

Act of 1934. The complaint charged that the defendant effected

transactions in securities for the accounts of customers and, as a part

of such business, solicited and accepted orders from customers for the

purchase of when-issued securities, using money received from customers to purchase securities for hIS own account and for other purposes without disclosing that fact to his customers. The court granted

a temporary restraining order and appointed a receiver for the defendant. Subsequently, the defendant consented to a final injunction.

In8. E. O. v. Howard V. Hansell,25 the defendant consented to the

.. E. D. Mich. Civil Action No. 10290. .. N. D. m. Civil Action No. 49 C 1145 .. N. D. m. Civil Action No. 50 C 1798 .. S. D. N. Y. Civil Action No. 62-240.

•

•
60 SECURITIES AND EXCHANGE COMMISSION

entry of a final judgment enjoining him from further violations of

the anti-manipulative provisions of the Securities Exchange Act.

The Commission's complaint charged that the defendant, in trading

in securities on the New York Stock Exchange and the New York

Curb Exchange, induced other persons to purchase said stock by raising the market price of such stocks by means of purchasing the stock

through other persons, recommending the stock to brokerage firms

and friends on the representation that the stocks would increase in

price, asking brokerage firms and friends to purchase the stock as

a favor to him and, in connection with one of the stocks, engaged a

public relations man to induce brokerage firms and others to purchase

such securities. Subsequently, Hansell's broker-dealer registration

was revoked.

Injunctive action was also brought against Mercer Hicks and Mercer

Hicks Oorporation, a broker-dealer, for alleged violations of the Securities Act of 1933. This case is discussed above at pages 51 and 52.

Amicus Curiae Cases

In addition to the cases in which it is a party, the Commission frequently participates as amicus curiae upon Important questions of law,

but not on factual issues, arising in suits between private parties involving construction of the Acts administered.

An important issue involved in all of the private actions in which

the Commission participated as amicus curiae under section 10 (b)

of the Securities Exchange Act of 1934 and rule X-10B-5 thereunder

during the past year is whether that section and rule are applicable

to transactions in securities not traded by professionals on the ex-

-changes or in the over-the-counter markets of brokers and dealers.

The Commission has repeatedly expressed the view that the section

and rule are applicable to such transactions. The Commission's view

was upheld in J'uly 1950 by the United States District Court for the

Eastern District of Pennsylvania in Robinson v. Difford.26 The question, among others, is also involved in Speed v. Transamerica Oorp.,21

Pratt v. Robinson,2S and Northern Trust 00. v. ES8ane88 Theatres

Oorp.,29all of which were pending at the close of the fiscal year.

In the Fratt and Northern Trust 00. cases, the Commission also

expressed the view that the applicable statute of limitations in an

action for damages for the violation of rule X-10B-5 is that of the

state of the forum. Moreover, in the Northern Trust 00. case the

Commission presented argument to the following effect: (1) that

section 10 (b) and rule X-10B-5 apply to intrastate transactions in

securities involving the use of the mails, irrespective of whether the

securities are registered for trading on an exchange or whether the

issuer conducts an interstate business, (2) that under rule X-10B-5

it is sufficient that the mails or facilities of interstate commerce are

used in connection with a particular sale or purchase of securities,

and that it is not necessary that misrepresentations or misleading

statements be communicated through the mails or facilities of interstate commerce, and (3) that rule X-10B-5 was not rendered inapplicable to the securities purchases in that case by virtue of the fact, if

established, that the purchases were made pursuant to conditions re-

•• 92 F. Supp. 145. .. D. Del., Civil Action No. 480. See 13th Annual Report of S. E. C., p. 63, 15th Annual

Report of S E. Coon, 72, and 16th Annual Report of s. E. C., p. 58. .. W. D. Wash., Civil Action No. 2765. III N. D. m, Civil Action Nos. 50 C 1750 and 50 C 1762.
SEVENTEE~ ~AL REPORT 61

specting directors' and shareholders' consent contained in an agreement and corporate by-law predating the rule.

The Commission also participated during the past fiscal year as

amicus curiae in a number of cases which involved a construction of

section 16 (b) of the Act, wherein there is accorded to a corporation

the right to recover profits realized by officers,directors or large stock.

holders from purchases and sales or sales and purchases of the corporation's equity securities within a six months' period. In all of

these cases, the courts were concerned with the problem of computing

the profits which might be recovered by or for the particular corporation involved.

In Steinberg v, Sharpe, et al.,1l()a stockholder of Bendix Home Appliances, Inc., sued an officer of the company, to recover profits that

the officer allegedly made in the sale of certain shares of stock which

he had purchased less than six months before. The securities had

been purchased by the defendant pursuant to earlier employment

agreements which allowed him to buy a specific number of Bendix

shares at a specified price which was lower than the market price.

The plaintiff claimed $11,571.20,the difference between the sales price

and the cash actually paid under the terms of the option contracts.

Recognizing, however, that the option itself had certain values, Judge

Medina concluded that the cost basis of the stock was the cash actually

paid pursuant to the option plus the value of the option on the date

that it accrued and therefore allowed a judgment for the plaintiff in

the amount of the difference between the sale price and the market

price of the stock on the date the option accrued. The Commission had urged the conclusion reached by the court. On appeal,

the Commission filed a memorandum in support of the findings of the

district court and the court of appeals rendered per curiam a memorandum opinion affirming the decision of the lower court."

In Blau v, Hodgkinson, 32 et al., a security holder of Federated

Department Stores brought an action to recover profits realized by

directors of the company as a result of certain transactions in the

company's securities. One of the defendants, acting pursuant to a

stock warrant granted to him on October 2, 1944, had purchased a

number of Federated's common shares at substantially less than the

market price and then sold them within 6 months at the current market price. On May 24 1951, the Commission filed a memorandum

wherein it argued that the new rule X-16B-6,33 effective since November 30, 1950, should be applied in computing the cost basis of the

securities, rather than the formula used in the Steinberg case. Under

that rule, the recovery would be much less than that claimed by the

plaintiff. The application of the rule was attacked on the ground

that its retroactive feature was unconstitutional. The Commission

also urged that an earlier payment by the defendant of less than that

owed to the corporation was immaterial, the corporation being unable

to satisfy a claim so as to prevent stockholders' actions arising under

section 16 (b) ; and that the acquisition, by other defendants, of shares

of Federated's common stock by the exchange of their holdings in

Federated's subsidiaries for shares in Federated, would constitute a

"purchase" of stock within the meaning of section 16 (b). After the

1095 F. Supp, 32 (S. D. N. Y. 19110).

11190F. 2d 82 (C. A. 2, 1951). .. S. D. N. Y. Civil Action No. 63-51. a See page 57, supra.
62 SECURITms AND EXCHANGE COMMISSION

close of the fiscal year, the court rendered a decision upholding the

Commission's contentions.

The case of Gratz, et al. v, Olaughton84 reaffirmed the principle of

computation established in Smolouie v, Delendo Oorporatioa 35 to the

effect that, in the case of trading subject to section 16 (b), maximum

profits are required to be returned to the corporation. The court also

upheld the Commission's contention that a proper venue was New

York where the securities were traded on the New York Stock Exchange, as well as in a district where the defendant is found or is

an inhabitant or transacts business. Certiorari was denied by the

Supreme Court.

In Rattner v, Lehman, et al.,36the question arose as to what portion

of the profits of a partnership earned by trading in the securities of

a corporation in which one of the partners was a director, was recoverable. It was decided that the partnership's profits, except for

the director's proportionate share, could not be recovered by the corporation. An appeal was taken subsequent to the close of the fiscal

year. Similar problems were involved in Euersharp, Inc., et al. v.

Robbins,s1 but negotiations between the parties resulted in a settlement

of the case.

PART m

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING

COMPANY ACT OF 1935

The Public Utility Holding Company Act of 1935 was passed by

the Seventy-fourth Congress following an extensive investigation by

the Federal Trade Commission. That investigation disclosed a variety of abuses in public-utility holding company finance and operations, the more significant of which are enumerated in section 1 (b)

of the act: (1) Inadequate disclosure to investors of the information

necessary to appraise the financial position and earning power of the

companies whose securities they purchase; (2) the issuance of securities against fictitious and unsound values; (3) the overloading

of operating companies with debt and fixed charges thus tending

to prevent voluntary rate reductions; (4) the imposition of excessive

charges upon operating companies for various services such as mansgement, supervision of construction and the purchase of supplies

and equipment; (5) the control by holding companies of the accounting practices and rate, dividend and other policies of their operating

subsidiaries so as to complicate or obstruct State regulation; (6) the

control of subsidiary holding companies and operating companies

through disproportionately small investment; (7) the extension of

"187 F. 2d 46 (C. A. 2, 1951) cere. denied, 341 U. S. 920 (1951).

"136 F. 2d 231 (C. A. 2, 1943) cert denied. 320 U. S. 751 (1943).

"98 F. Supp. 1009 (D. C. S. D. N. Y. 1951). IT S. D. N. Y. Civil Action No. 46-225, Nov. 20, 1950.
SEVENTEENTH ANNUAL REPORT 63

holding company systems without relation to economy of operations

or to the integration and coordination of related properties.

In this section the Congress expressly stated that it was the policy

of the act, in accordance with which all other sections are to be construed, to meet the problems and eliminate the evils enumerated above.

The regulatory provisions of the Holding Company Act fall principally into three basic categories: (1) Those designed to bring about

geographical integration and the financial and corporate simplification of public-utility holding company systems; (2) the day-to-day

surveillance of the financing, servicing arrangements, intercompany

transactions and other operations of those registered holding company groups which will continue under the active regulatory jurisdiction of the Commission as integrated regional utility systems; and

(3) miscellaneous provisions of the act, not concerned with regulation of the continuing systems, but designed principally to control

the growth of additional holding company situations. The act does

not confer any rate-making authority upon the Commission; in the

over-all its purpose is not to conflict with but to supplement and

strengthen State regulation.

INTEGRATION AND SIMPLIFICATION-QVER-AIL SUMMARY

By the time the statute was enacted in 1935, the holding company

device had attained a position of dominance over the major portion of

the electric and gas utility industry of the country. Fifteen holding

companies controlled 80 percent of all electric energy generation; 20

controlled 98.5 percent of all transmission of electric energy across

State lines; and 11 controlled 80 percent of all natural gas pipeline

mileage. The properties acquired by these vast combinations, not only

in the utility field, but also in many other types of business, were frequently widely scattered and bore little or no functional relationship

to one another. The over-all impact of the act upon this structure has

been reflected in the return to independent ownership of large numbers of electric and gas utility and other utility companies, the elimination of large numbers of multi-tiered holding companies, the consolidation of many corporations, and the dissolution of many others.

At one time or another from June 15,1938, to June 30,1951, a total

of 2,175 companies have been subject to the active regulatory jurisdiction of the Commission as components of registered holding company systems. Of this number 211 were holding companies, 925 were

electric or gas utility companies, and 1,039 were utilities other than

electric or gas and a wide variety of other enterprises. The latter

included brick works, ice plants, movie theatres, laundries, and even

a baseball club. By the close of the past fiscal year there were but

444 companies subject to regulation, including only 64 holding companies, 195 electric and gas utilities, and 185 non-utility companies.

The following tables summarize these developments.
64 SECURITIES AND EXCHANGE COMMISSION

Oompanies released from active regulato1j/ jurisdiction of the Oommission

Divest.

ments Total by Dissolu- Absorb- Com. com- holding nons not ed by Miseel- Exemp- panles panies com. parts of merger laneous tion by subject subject panles divest. or con. other rule or Total to act to act of non- ment sohda- disposals order' as of during retain. trans- penod t able actions tlon June 30

com.

panles

--- --- --- --- --- Fiscal vear ending June SO, 1951

Holding companles ... ... 68 1 3 4 64 Eleetrre and/or gas com- panles, •..•. .. 229 6 6 21 1 1 34 196

Nonutilltles plus utilities other than electric and/or gas companles, 256 9 11 45 6 71 185

--- --- --- --- --- Total eompanles, .. 1091 444 , 553 16 16 66 7 4

Fiscal vear ending June SO, 1950

Holdlog eompantss.; 73 2 2 2 6 67 Electric and/or gas com. panies . 275 38 11 4 63 222 Nonutillties plus utlhttes other than electric and/or gas compames. 307 38 12 1 2 63 254

------- --- --- Total companies ... 655 78 12 14 8 112 , 543

--- --- --- --- Period/rom June 15, 19S8, to June 80, 1951

Holding companies 211 13 61 25 9 39 147 64 Electric and/or gas com. panles, . 925 377 70 168 50 65 730 195

Nonutihtres plus utrlitres

other than electric and/or gas companies. 1,039 363 180 148 98 65 854 185

--- --- --- Total companies s.... 2,175 763 311 341 157 169 1,731 444

I Reflects company additrons and classification adjustments during the period mdicated Includes companies which have ceased to be holding companies by virtue of Commission order under section 5 (d).

A few companies have been subject and not subject to the Public Utility Holding Company Act anum- ber of trmes These Instances contribute some msrgmfieant duplication to the reported company totals. , Ten additional companies became subject to act during fiscal year 1951.

~ctric, gas and 1l01lutiUty companies and assets divested as not retainable

rr::': under the Public Utility Holding Oompany Act of 1935 and not subject to the

act as of June 30, 1951

Dec. I, 1!l35, to June 30,1951 July 1,1950, to June 30,1951

Type of companies Number of Assets I Number of Assets I companies companies

Electric utility _._ .... __.. ____.................... 239 $8,451,893,000 4 $84, 171,000 Gas utility ... _..........•. _...•.•. _•••.• _._ ..•... 138 569, 890, 000 2 3,564,000 Non utility ..• __.••. _........... _..... _.. _...•••• _ , 376 I, 298, 724, 000 '10 16,005,000

Total. __.......• _.. __. __. ___._._._ .. _.... _. 763 10,310,507,000 16 103,740,000

I As of year end next preceding date of divestment and before deduction of valuation reserves.

Includes 13 holding companies. , Includes 1 holding company.

--- ---

__ __ --------- --------- ---------

___ ________ __

____________

--- ____

---------

________

__• _________________

---------

---------

---------

---------

____________

--- ____

=

--- ---

---

---------

---------

= =

---

__________

_________________ __

____________

---

__ --- --- --- ---

•

•

' _

•

•
SEVENTEENTH ~AL REPORT 65

Divestments by sales of partial segments of properties not reiainable under the

Public Utility Holding Oompany Act of 1935 and not subject to the act as of

June 30, 1951

Dec. 1,1935,to June 30,1951July 1,1950,toJune30,1951

Type of property Number of Considers- Number of Considers.

drvesttng tion received drvestmg tion received

companies companies

Electric utility. _____________•• ____________•________ 123 $97,007,000 0 Gas utility _._______________________________________ 34 14,726,000 1 ------ii97;iiOO Nonutility _________________________________________ 67 37,994,000 2 845,000

Total. _____________________________: 224 149,727,000 3 1,042,000

An even more revealing aspect of this achievement is the elimination from the national scene of holding company scatteration, stretching in some instances from coast to coast and from the Canadian border to the Gulf. This drastic realignment is reflected in the following

table setting forth the number of states in which registered holding

company systems conducted utility. operations as of July 1, 1940, when

the section 11 program was getting under way, and as of June 30,

1951. Upon completion of section 11 cases now in progress, the latter

figures will be reduced still further.

Number ofregistered public utility holding company systems providing electric or gas service in July 1, 1940 June 30, 1951

20or more States

IS to 19States 10 to 14States 5 to 9 States

3 or 4 States

lor 2 States

2 None

3 None

7 None

17 '7 17 16

9 15

551 138

IExcluded from this group is 1registered holding company system having' no domestic utility subsldiarles,

and 1system all ofwhose utility properties are leased to another system.

While the scaling down of holding company systems during the

past 15 years has been spectacular, the properties subject to the act

on June 30, 1951, continued to represent an Important segment of the

electric and gas utility industries of the nation. As of that date, there

were registered with the Commission 40 holding company systems

with aggregate system assets of approximately $12,913,000,000, before

deduction of valuation reserves. These figures may be compared with

4'6 registered systems and assets of $12,822,000,000 on June 30, 1950.

The net increase of $91,000,000 during the year despite divestments

of $104,782,000 is accounted for by the continuing growth of the industry. This high rate of expansion of plant facilities was occasioned

initially by the almost uninterrupted increase in business activity since

the close of World War II and more recently by the defense expenditures touched off by the Korean conflict. Itis not expected to diminish

to any great extent in the immediate years ahead.

The release from active regulatory jurisdiction of 1,731 corporate

entities, however, falls far short of accounting for all of the progress

achieved in the integration and simplification of holding company

systems under section 11 of the act. From December 1, 1935, to June

30, 1951, 240 companies with aggregate assets of $6,099,111,000, before

deduction of valuation reserves, have been divested by holding com-

•________

• _

_ ' _

_ • _

_
66 SECURITIES AND EXCHANGE COMMISSION

panies, but, because of their relationships to other holding companies,

remain subject to the jurisdiction of the Commission.

Electric, gas and nonutiUty companies and assets divested under the Public

Utility Holding Oompany Act of 1935 and stm subject to its prOVisions as ot

June 30, 1951

Dec. 1, 1935,to June 30, 1951 July 1,1950,to June 30,1951

Type of companies Number of Assets 1 Number of Assets 1 companies companies

Electric utility ___________________________________ 125 $4,220,799,000 4 $73,203,()fll) Gas utih ty _______________________________________ 40 1,395,557,000 3 65,126,()()I, Nonutihty ____________________ 75 482,755,000 '15 148,993,000

TotsL _____________________________________ 240 6,099,Ill, 000 22 'J87, 322,000

I As of year end next preceding date of divestment and before deduction of valuation reserves. Includes 12holding companies, 6 combination holding and utility operating companies and 3 combinetion holding and nonutility operatmg comparnes. 'Includes 1 holding company and 1 combination holding and nonutllity operattng company.

Divestments by sales of partial segments of properties under the Public Utility

Holding Oompany Act of 1935 and still subject to the act as of June 30, 1951

Dec. 1,1935,toJtme30, 1951July I, 1950,to June 30,1951

Type of property

Number of Considers- Number of Oonsldera- divesting tion received divesting' tion received companies companies

Electric utlllty _______________________ 9 $4,426,000 0 Gas utihty _________________________________________ 7 6,718,000 1 ----$2;"4i8~OOO Nonutility ____._. __________________________________ 4 369,000 1 250,000

TotsL. ______________________________________ 20 11,513,000 2 2,668,000

The great bulk of these companies and properties represents yarts of

holding company systems, such as American Gas and Electric Company, which either have achieved or are expected to achieve full compliance with the geographical integration and corporate simplification

requirements of the act. It is not yet possible to calculate the final

results of all section 11 problems which remain to be solved, but it is

estimated that approximately 20 holding companies will emerge as

streamlined, regional systems with some 250 companies and aggregate assets of $7,000,000,000,before deduction of valuation reserves.

In addition there will be a number of other systems, such as Texas

Utilities Company, which not only have complied with the standards

of section 11, but also qualify for exemption under section 3 from

nearly all of the provisions of the act.

In addition to the drastic simplification of complicated corporate

superstructures and the nation-wide realignment of utilities on an

efficient, integrated, regional basis, the financial integrity of the industry has been greatl! strengthened and utility investors have received

"down-to-the-rails' income-paying securities of sound utility enterprises.

Operating utilities, which have been subject to the active regulatory

jurisdiction of the Commission, have removed $1,500,000,000of inflationary items from their property accounts as a result of the combined

efforts of this Commission, the Federal Power Commission, and the

various State commissions. Assuming an average allowed rate of

•__________________ •

•

•_____________
SEVENTEENTH ANNUAL REPORT 67

return for rate-making purposes of 6 percent, this represents an aggregate annual saving to consumers of $90,000,000and, in addition, has

removed fictitious values which were misleading to investors.

Depreciation accruals and depreciation reserves have also been increased to more adequate levels thus strengthening the over-all asset

protection of security holders. Summary data for all Class A and B

electric utilities show an increase in depreciation and amortization

reserves from 11.6 percent of total utility plant in 1938 to 20.5 percent

at the close of 1950.1 Significant as this increase is, these figures do

not reflect the full improvement-the earlier figure being weighted

by the large metropolitan companies most of whom had adequate

reserves even at that time, while the latter figure relates to properties

a substantial proportion of which has been added during the past

decade and therefore possessing a much longer anticipated life than

the relatively old plant which the industry possessed in 1938, comparatively little capacity having been added during the depression

years.

Despite the drastic elimination of inflationary items from plant

accounts and increases in depreciation reserves, both of which tended

to reduce common stock equity to an actual investment basis, the capital

structures of many companies have undergone substantial improvement.

An adequate equity cushion to absorb the vagaries of business conditions is an important attribute of a good security. A computation

has been made of the capital ratios of 18 electric utility companies released from Commission jurisdiction showing the marked improvement from 1940 to the date of release in the period 1946-48.2 As of

1940,and after adjustment for plant write-up eliminations, these companies had an average debt ratio of 61 percent, preferred stock 22

percent, and common stock and surplus of 17 percent. At the close

of the year of their respective divestments, the average proportion of

debt was reduced to 55 percent, preferred stock 16 percent, and common stock and surplus had increased to 29 percent.

The generally excellent financial condition of the electric and gas

utility mdustries at the present time is indicated by the average capitalization percentages of the Class A and Class B electric utilities and

straight natural gas operating utilities as of December 31, 1950, set

forth in the following table:

Class A and B

electric

utilities I

Percent Long-term debt- __ _ 48 9

Preferred stock, _ _____ 13.7

Common stock and surplus .__________________ 37.4

(298companies)

Straight natural

gas operatmg

utilities 2

Percent 51.7

5.7

42.6

(161companies)

1 F. P. C. Statistics of Electric Utilities in the U. S. 1950. 2 Gas Facts, 1950-American Gas Association. (While this group of companies by no means embraces

the entire gas industry It constitutes a slzeahle and representative portion. Capltalizatlon ratios for other

classifications of gas companies do not deviate materially from those reported above.)

1Statistics on Class A and B privately owned electric utilities are prepared by the Fed.

eral Power CommIssIon and generally cover all companies having annual electric revenues of $250,000 or more. S Eight other electric companies with higher common equity ratios were also divested in

the same perIod. However, because of their stronger eqUity position no corrective action

in respect to capital structure was necessary.

975942-52--6
68 SECURITIES AND EXCHANGE COMMISSION

One of the most unhealthy abuses uncovered by the Federal Trade

Commission in its exhaustive investigation of holding company practices was the pyramiding device which enabled a few individuals to

acquire control of large sections of the gas and electric utility industry.

The real investors in the system who supplied the capital for the

growth of the industry were effectively disfranchised by the pyramiding of holdings, and by such devices as voting trusts, the control of

proxy machinery, interlocking directors and officers,management contracts, etc. This inequitable distribution of voting power was one of

the evils which section 11 (b) (2) of the act was designed to eliminate.

It led to excessive leverage and made it practically impossible for a

security holder near the top of the pyramided structure to evaluate

his holdings or to estimate the impact upon him of a slight change in

the earnings of the underlying operating companies. Investors in

the holding companies were in effect trading on the equity or buying

on margin. Sometimes they made substantial profits during the

1920-1929 period of rising markets; but after the stock market crash

of 1929 they had to pay dearly. Prior to the passage of the act in

1935,holding companies such as Foshay Company, Middle West Utilities Company, Tri-Utilities Corporation, Atlantic Gas and Electric

Corporation, American Commonwealth Power Corporation, Utilities

Power and Light Corporation, North American Gas and Electric Company, Midland United Company, Midland Utilities Company, Standard Gas and Electric Company, Associated Gas and Electric Company,

etc., were either in acute distress or in bankruptcy or receivership.

The failure of the pyramiding device is illustrated graphically in

the fate of investors who placed their funds in "preferred" stocks of

holding companies. As of December 31, 1940,3preferred stocks of

holding companies had a total face value (on the basis of involuntary

liquidation preference) of $2,501,723,000; of this total, more than

half, or $1,442,168,000were in default. The total outstanding arrears

on holding company preferred stocks, as of this date, aggregated

approximately $476,000,000.

Mismanagement and exploitation of operating companies by holding companies, through excessive service charges, excessive common

stock dividends, upstream loans, other extortionate inter-company

transactions, and an excessive proportion of senior securities, led to

serious defaults even on operating company preferred stocks. Of

preferred stocks of operating companies in holding company systems

totaling $1,658,677,000 (involuntary liquidation preference) at December 31, 1940, approximately $453,434,000were in default. Total

outstanding arrears on such operating company preferred stocks

aggregated $165,176,000.

By June 30,1951, this condition had been largely cured and, at the

operating company level, there are virtually no preferred dividend

arrearages or defaults on indebtedness in the electric and gas utility

industries today. Furthermore, both industries have been able to

finance successfully a post-war expansion program of unpredecented

proportions now running at over $2,500,000,000per year.

There have been some securities, of course, which never had any

real basis of value even at the time of their original issuance, and quite

Because of the delay In registration, the Commission was not In a position to tabulate

figures for registered companies for several years after the act was passed. It Is fair to say that enforcement of section 11 of the act did not really commence untU about 1940.

•
SEVENTEENTII~AL REPORT 69

naturally these received no participation in the final stages of reorganization of the holding company systems. On the whole, however,

most holders of the junior and senior securities of holding companies

not only have not lost in the reorganization and realignment process,

but they have reaped substantial gains in the bargain.

Perhaps the best means of illustrating this is to examine the situations with respect to some of the larger holding company systems

which have undergone drastic reorganization, including, in some instances, dissolution of the holding company. The following table

shows the market values of their common stocks as of the date when

each such holding company registered under the act, and of a recent

date, September 24,1951. In the table the figure for the earlier of the

two dates represents the market price per share of common stock multiplied by the number of common shares then outstanding. The

figures relating to the current date represent the market price per

common share as of such date multiplied by the number of common

shares then outstanding (excluding additional shares, if any, issued

between the two dates), plus (1) the amounts of cash distributions of

capital to the holders of such shares; (2) the market values, as of the

current date, of portfolio securities distributed to the common stockholders as capital distributions (excluding dividends in kind distributed in lieu of ordinary cash dividends); (3) the excess of the

current market value of portfolio securities offered to security holders

on rights over the price at which such rights could have been exercised by the security holders; and minus (4) amounts paid to the holding company by the common stockholders, in several instances, directly

in cash or indirectly as withheld dividends, in order to procure a

capital distribution. The table also sets forth comparative increases

in the Dow Jones Utilities Averages and the Dow Jones Composite

Averages (based on industrials, rails and utilities).

As noted, the percentages of increase in market values. of the common

stocks listed in the table are derived from a comparison of market

values obtaining at different dates of registration with those obtaining

at a single current date. In some cases, general market conditions

varied materially at the different registration dates, as indicated by

the varying Dow Jones index figures. Accordingly, the comparative

performances of these common stocks should not be measured against

one another. Rather, they should be compared with the performance')

of the Dow Jones index figures for the same periods of time, thereby

eliminating the effects of general market improvement during such

periods. . It is quite apparent from the foregoing table that common stockholders of holding companies have generally benefited from the reorganizations accomplished pursuant to section 11 of the Holding

Company Act. The lower percentage increases in some cases may be

explained, at least in part, by the relatively better flnancial-condition

of those systems at the time of registration.

The benefits of reorganization, however, have not been limited only

to common stockholders. Senior security holders have likewise been

materially aided by these same reorganizations. To demonstrate this,

there is tabulated below the market values of the debt securities and

preferred stocks of these same holding companies as at the dates the

companies registered under the act, and the capital distributions of

cash and securities, taken at market values as at September 24, 1951,
70 SECURITIES AND EXCHANGE COMMISSION

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SEVENTEE~~H ANNUAL REPORT 71

made to these senior security holders in retirement of their securities.

The notes appearing at the end of the table show accumulated dividend

arrears on the preferred stocks which were eliminated in the course

of the reorganizations.

Tabulation showing (1) market values of senior seourtties of certain public

utility holding companies as at dates of registration under the Public Utility

Holding Company Act of 1935, and (2) present values attributable to such

senior securtue« as indicated by amounts of capital distributions of cash and

securttiee received by the holders thereof, with market values computed as

at Sept. 2.4, 1951

Cash and mar- Market ket values of

Name Increases of holding company and date-registered under values at capital distri- in market Holding Company Act registra- bu trons com- values tion date puted as at Sept. 24, 19511

1. American Power & Light Co -4-8-38: Debentures • • $29,780,185 $51,477,000 $21,696,815 Preferred stocks. _____________•____________•_________ , 37,913,679 , 277,421,065 239,507,386

TotaL --.- -----.~---- --.- 67,693,864 328,898,065 261,204,201

2. Columbia Gas System, Inc.-1-13-38: Debentures . 101,352,297 106,552,158 5,199,861 Preferred stocks. ___________________ •.______. _________ 81,834,093 119,702,815 37,868,722

Total_. _. .• 183,186,390 226,254,973 43,068,583

3. Commonwealth & Southern Corp, The-3-28-38: Debentures 40,236,513 56,358,917 16,122,404 Preferred stock_._. .. I 43,500,000 I 170,720,403 127,220,403

TOtal_ -_-_ _' -.- 83,736,513 227,079,320 143,342,807

4. Electric Bond and Share Co.-4-4-38. Preferred stocks __ 65,910,130 145,054,962 79,144,832

5. Electric Power and Light Corp.-4-7-38' Bonds and debentures _____________._. ________...• _____ 19,385,450 33,712,696 14,327,246 Preferred stocks ._. . 20,757,368 200,229,915 179,472,547

Total 40,142,818 233,942,611 193,799,793

6. Engineers Public Service Co.-2-21-38 Preferred stocks. 19,382,527 45,953,871 26,571,344

7. Middle West Oorp., The-12-1-35. No senior secuntres .. -------.-._--- (') ----------- ..--

8. National Power & Light Co.-4-8-38: Debentures. ____________________________________15,345,000 25,619,216 10,274,216 Preferred stock -. --. 12,447,362 43,282,092 30,834,730

Total _. ... 27,792,362 68,901,308 41,108,946

9. Niagara Hudson Power Corp.-' 3-28-38. Preferred stocks ._ -. 33,986,224 49,040,508 15,054,284 j

1 Represents cash and portfolio and holding company common stocks, taken at closing prices as at Sept 24,

1951,paid to the holders ofthe bonds, debentures, and preferred stocks in redemption of, or exchange for, or other retirement of such securities

At Dec. 31, 1937, dividend arrears on the preferred stocks of American Power & JAght Co. totaled

$26,547,180. By the date of consummation 01the plan of reorganization in 1950,the arrears had Increased

by $43,562,076,to a total of $70,109,256. These arrears were eJumnated under the plan of reorganization. IAt Dec. 31, 1937,divldend arrears on the 1,500,000shares of preferred stock of The Commonwealth & Southern Corp. amounted to $9 per share, or a total of $13,500000. During 1943and 1946,the company repurchased for cash 18,000and 40,753shares, respectIvely, on which the arrears amounted to ad estimated

$28 and $26.75per share, respectively, or totals of $504,000and $1,090,143,respectively. By the date of

consummation ofthe plan ofreorganization ofthe company in 1949,arrears on the remamine 1,441,247shares

outstanding amounted to $17per share, or a total of $24,501,199. These arrears were eliminated under the

plan of reorganization. I At Dec. 31, 1937,dividend arrears on the preferred stocks of Electric Power and Light Corp. totaled

$29,741,370. By the date of consummation olthe plan ofreorganization in 1949,the arrears had increased hy $44,409,112,to a total of $74,150,482. These arrears were ellmmated under the plan of reorganization. I Not applicable. IThe date ofregistration shown for Niagara Hudson Power Corp. represents the date on which Its parent

company, The United Oorp., registered under the act. Niagara Hudson Power Corp. Itself registered as a boldlng company on June 23,1948.

_______________________-___________--____

___• ___•• ___________ -- ----

____•_________-- _________-__-___ _____-- -__

___________' ____•_________-- -____-- __----

_________•_____________•_______•____•_____ _______-__________-__________-- ---

•••••••••• __• --___-- - -----____--- ----

____ ___•___•_________________•_____ • •

___•• _____•__•______•__•____-_________-__••_---

___• • • __•__•• ____•-_________-__•_____---_

____• _____•_____" _____-____-- ____--------

___ •• ________•____•_____••• _--- ____•--__-----

• •
72 SECURITIES AND EXCHANGE COMMISSION

Tabulation showing (1) market values of senior securities of certain publiC

utility holding companies as at dates of registration under the Public Utility

Holding Oompany Act of 1935. and (2) present values attributable to such

senior securities as indicated by amounts of capital distributions of cash and

securities received by the holders thereof. with market values computed as

at Sept. 24. 1951-Continued

Cash and mar.

Market ket values of Increases

Name of holdlnz company and date registered under values at espital distri- In market Holding Company Act registra- buttons rom. values

tlon date puted as at Sept. 24, IMI 1

10. North American oe., The-2-25-37' Debentures ($119,565) ..•. ... . , , $24, 869, 520 $24, 749, 955 Preferred stock . ._. 33,956,104 33,349,745 (606,359)

TotaL .••• ., . 758, 825, 624 7 58. 0CJ9,700 7 (725.924)

11. United Corp, The-3-28-38 Preference stock. .• 65, 328, 694 138, 766, 251 73,437,557 12. United Gas Improvement Co., The-3-29-38: Preferred stock ., . _. 77.382.468 91,664,611 14,282.143

Subtotals (unoonsohdated): Bonds and debentures ._._. 230, 968, 965 298, 469, 942 67,500,977 Preferred stocks. .•.• . 492,398, 649 1,315,186,238 822, 787, 589

Grand totals (unconsolidated). ._. .• . 723,367,614 1,613,656, 180 890, 288. 566

7 The debentures and preferred stock of The North American Co. on]Feb. 25, 1937, were seiling above the prices at which they were subsequently redeemed. There were no dividend arrears on the preference stock of The Umted Corp. at Dec. 31,1937, or at March 28,1938. With respect to the arrears which accumulated subsequent to the latter date, an estimated $8,281." 085 accumulated ill respect of 1,274,013 shares retired ill 1944 and 1945 pursuant to exchange plans. The retirement of these shares under exchange plans resulted ill the concomitant elimination of the arrears applicable to such shares. The arrears which accumulated during the period In respect of the remaming

preference shares retired ill 1949 were paid off In cash. Such cash payments are not Included In the above

table.

( ) Denotes decrease.

INTEGRATION AND SIMPLIFICATION-SURVEY OF INDIVIDUAL

SYSTEMS

During the past fiscal year the program of enforcement of the integration and simplification requirements of section 11 has continued

unabated. A major portion of this streamlining and realignment

process which has contributed so much to the revitalization of the

utility industry is now complete and many of the accomplishments of

the past year represent the final culmination of several previous years

of work. For example, National Power & Light Company completed

the divestment of its subsidiary companies and is no longer a registered

holding company. Reorganization of Washington Gas and Electric

Company was effected in the fall of 1950 with the divestment of its

holdings in Southern Utah Power Company through distribution of

the common shares to its bond holders and general creditors. After

five years of intermittent proceedings under section 11 (b) (2), Eastern Gas & Fuel Associates consummated its financial reorganization

plan, and its parent holding company, Koppers Company, Inc., has

reduced its stockholdings in Eastern to less than 5 percent. Long

Island Lighting Company also completed its reorganization into a

single operating company and, since the close of the fiscal year, has

been granted an order under section 5 (d) thereby ceasing to be a

registered holding company. Another accomplishment of the year

was the successful reorganization of Pittsburgh Railways Company

with the newly reorgamzed company replacing more than 50 predecessor companies.'

This contraction is not reflected in the divestment data tahulated above. but it is reflected in the dissolutIons and consolidations of companies shown in the table on page 4

supra. It accounted for half of the total reduction in the numhers of companies subject to the act from 543 on June 30. 1960, to 444 on June 30. 19111.

________•

• •

__•• _________• __•

_____ __ _______ __ ________

_________ ______ _____ ______ ________

__________ _______ _____

•• _______"____ ____• _________

__ _____•

___________• _____

• •

_______________ • ___• • _____•• _ ____•

___•

________ ______ ______________

___ ____ ____ __

•

•

•
SEVENTEENTH ~AL REPORT 73

The number and asset volume of divestments for the past fiscal year

was substantially smaller than for the previous period which had

witnessed the consummation of reorganization and dissolution plans

in several of the largest systems. A decline in the volume of divestments can be expected as the work of integration and simplification

nears completion. During fiscal year 1951, 16 companies with assets

of $103,740,000were divested and are no longer subject to the Holding

Company Act. In comparison, 78 companies with assets of $2,231,-

000,000 were divested in the preceding year.

Despite the overall progress witnessed during the past 15 years,

however, a substantial volume of work remains to be accomplished.

Final disposition is yet to be worked out with respect to nearly

200 companies with aggregate assets of almost $6,000,000,000.5

Among the systems which still presented major section II problems

on June 30, 1951,were the followmg :

American Natural Gas Company (retainability of Milwaukee

Solvay Coke Company).

American Power & Light Company (disposition of Washington

Water Power Company and Portland Gas & Coke Company).

Central Public Utility Corporation (merger of Consolidated

Electric & Gas Company into Central Public Utility Corporation and other problems).

Cities Service Company (simplification of the corporate structure

of Arkansas Natural Gas Company and redistribution of voting

power among its security holders; retainability of other gas

utility properties in the Cities Service system).

Eastern Utilities Associates (reorganization of the system).

Electric Bond and Share Company (retainability of its holdings

in United Gas Corporation; reorganization of American & Foreign Power Company).

General Public Utilities Corporation (divestment of properties

not retainable under the provisions of section 11).

International Hydro-Electric System (section 11 (d) proceedings) .

New England Electric System (disposition of non-retainable gas

properties) .

New England Public Service Company (liquidation and dissolulution) .

Pennsylvania Gas & Electric Corporation (liquidation and dissolution).

Southwestern Development Company (simplification and integration) ..

Standard Power & Light Company and Standard Gas & Electric

Company (numerous problems including the retirement of the

preferred stocks of Philadelphia Company and the preferred

of Standard Power and Standard Gas; final disposition of all

holding companies in the system).

Wisconsin Electric Power Company (problem related to the retainability of the system gas properties).

Several additional ~y~tems have unresolved sec.tio? 11 problems

relatmg to the retainability of gas or transit properties m combination

with electric operating facilities.

A review of accomplishments of the major systems in effecting

• Before deduction of valuation reserves.
74 SECURITIES AND EXCHANGE COMMISSION

compliance with section 11 during the past fiscal year is set forth in

the following summary descriptions.

American Power & Light Company

On August 22, 1942, American Power & Light Company ("American") then a subholdin& company subsidiary of Electric Bond and

Share Company ("Bond and Share"), was ordered to dissolve, because its existence constituted an undue and unnecessary complexity

in the Bond and Share system. At the time of the issuance of this

dissolution order American controlled directly or indirectly 35 subsidiaries, 16 of which were public utility companies. American's

capital structure then consisted of long term debt, two classes of cumulative preferred stock with heavy dividend arrearages, and common

stock. By the beginning of the fiscal year American had completed

the major phases of its program of compliance with section 11. The

steps taken are reported in the 15th and 16th Annual Reports. At

present American controls only two utility subsidiaries, The Washington Water Power Company ("Washington") and Portland Gas &

Coke Company ("Portland").

On February 15, 1951, American notified the Commission of its intention to negotiate for the sale of either the common stocks or the

utility assets of Washington to Public Utility Districts located in the

State of Washington. American was prevented from consummating

the proposed sale, however, by the issuance of a decree by the Superior

Court of the State of Washington on March 28,1951, prohibiting the

Public Utility Districts from acquiring the common stock of Washington under the proposed transaction.

Subsequent to the close of the fiscal year American filed a section

11 (e) plan proposing a cash distribution of $2 per share to each of its

common stockholders. In setting a hearing date on this new proposal the Commission specified that certain additional issues were to

be considered. These issues include (a) what further steps should be

taken by American in order to comply with the Commission's order

of August 22, 1942, directing its dissolution, (b) whether the Commission should apply to an appropriate U. S. district court pursuant to

section 11 (d) to enforce this order and (c) whether the Commission

should approve some plan which would provide, among other things,

for the distribution of American's holdings of the common stock of

Washington to its stockholders.

After the close of the fiscal year (October 15, 1951) the Commission approved this plan and, in addition, ordered American to file

within 20 days a plan providing for the distribution' of Washington's.

stock, as proposed by resolution of the board of directors promptly

after January 1, 1952, in the event that American had not by that

date filed a notification of a proposed sale of such stock pursuant to

Rule U-44 (C).6

Portland, the other utility subsidiary of American, has had on file

with the Commission an extensive plan of reorganization which would

materially reduce the interest of American in this enterprise. After

the close of the fiscal year (August 29,1951) the Commission issued its

findings and opinion on this plan indicating that it would approve the

proposal if amended to provide, among other things, that 90 percent

• Holding Company Act release No. 10820.
SEVENTEE~ ~AL REPORT 75

of the new common stock of the reorganized company be allocated to

the preferred stockholders, the balance to be allocated to American,

owner of all of Portland's presently outstanding common stock: The

plan was so amended and later approved by the Commission."

American & Foreign Power Company, Inc.

American & Foreign Power Company, Inc., ("Foreign Power"),

is a sub-holding company in the Electric Bond and Share Company

("Bond and Share") system. It controls a mutual service company

and more than 60 holding and operating utility companies located

throughout Central and South America, Cuba, Mexico, and India.

Since the operations of all of Foreign Power's subsidiaries are outside

of the United States, the Commission's principal concern is with respect to simplification of the company's corporate structure and its

relationship to its parent, Bond and Share. Foreign Power's capital

structure at December 31, 1950,consisted of debentures, notes payable

to Bond and Share, notes payable to banks, three classes of preferred

stock with dividend arrearages aggregating more than 433 million

dollars, common stock and option warrants.

Foreign Power and Bond and Share jointly filed a plan for the

reorganization of the former in October 1944, which after extensive

hearings and amendments was approved by the Commission on November 19, 1947." The plan was subsequently approved by the United

States District Court for the District of Maine but the company was

unable to effectuate the financing necessary to consummate the plan.

For this reason both the district court and the Commission subsequently vacated their orders approving it. On May 2, 1949,the Commission issued an order pursuant to section 11 (b) (2) reguiring Bond

and Share and Foreign Power to take steps to reorganize the latter

company in such a manner that its resulting capital structure would

consist only of common stock plus such an amount of debt as would

meet the applicable standards of the act.' On January 16, 1951, Foreign Power, joined by Bond and Share,

filed a new plan of reorganization under section 11 (e) of the act,"

Extensive hearings were held during the fiscal year. Shortly after

the close of the year, and after extensive negotiations between the

companies and the organized security holders' committees who have

appeared in the proceedings, a compromise was agreed to and an

amendment to the plan was filed reflecting that compromise. The

plan, as amended, provides for the following allocations for security

holders other than Bond and Share; for each share of $7 Preferred

stock-$90 principal amount of new 4.8 percent Junior Debentures

and 3.75 shares of new common stock; for each share of $6 Preferred

stock-$80 principal amount of new 4.8 percent Junior Debentures

and three shares of new common stock; for each share of Second Preferred stock, Series (A) $7-0.85 of a share of new common stock; for

each share of outstanding common stock-1/50th of a share of new

common stock.

The option warrants are to be cancelled. Bond and Share would

receive 3,856,723shares (55.7 percent) of the new common stock for its

present holdings of Foreign Power securities, including $49,500,000

Holding Company Act release No. 10740.

Holding Company Act release No. 10812.

"Holding Company Act releases Nos. 7815 and 7849. ,. Holding Company Act release No. 9044. 11 Holding Company Act release No. 10362.

•

•

•
76 SECURITIES AND EXCHANGE COMMISSION

of notes due 1955 and sizeable amounts of the various classes of preferred stock, common stock and option warrants presently outstandmg. .

Hearings on the plan, as amended, were completed after close of

the fiscal year and the Commission thereafter approved the plan.

Cities Service Company

Cities Service Company ("Cities") at the time of its registration

in 1941 was the top holding company in a system containing 125

companies of which 4~ were electric and gas utility companies. Consolidated assets totaled approximately one billion dollars. This system owned or operated properties in each of the 48 States and in

several foreign countries. Utility properties were held by three subholding companies, Cities Service Power & Light Company, Federal

Light & Traction Co. and Arkansas Natural Gas Corp., each controlling one or more utility systems.

In proceedings under section 11 (b) of the act the Commission

found that Cities should be limited in Its operations to those of a single

integrated gas utility system and required the disposition of its other

interests," However, Cities expressed a desire to retain instead its

non-utility businesses and, accordingly, the Commission modified its

section 11 (b) (]) order so as to permit Cities to effectuate compliance

by disposing of all of its utility interests,"

Cities Service Power & Light Company was liquidated and dissolved in August 1946, and its portfolio holdings were at that time

transferred to Cities. Federal Light & Traction Company had also

substantially completed liquidation proceedings.

On February 9, 1949, the Commission instituted proceedings with

respect to Arkansas Natural Gas Corp., the third subholding company, and Cities under section 11 (b) (2) and other sections of the

act raising issues among others, with respect to the corporate structure of Arkansas Natural, distribution of voting power among its

security holders, and with respect to the organization and history of

Arkansas Natural and the relation of Cities Service thereto." Arkansas Natural filed a plan under section 11 (e) on January 26, 1950,

desi~ned to effectuate compliance with the requirements of section

11 (0) .15 It provided, among other things, for simplification of the

company's corporate structure and for the disposition by Arkansas

Natural Gas, as a partial liquidating dividend, of its stockholdings in

Arkansas-Louisiana Gas Company. Its other subsidiary, Arkansas

Fuel Oil Company, will be merged into Arkansas Natural Gas. The

plan treats the holdings of Cities on the same basis as the holdings of

the public security holders in Arkansas Natural Gas. One of the

issues presently being considered in connection with the fairness of

the proposal is whether there is any basis for requiring the subordination of the interest of Cities or of any other stockholder to the interests

of other security holders of Arkansas Natural Gas. .A number of

hearings have been held, but at the close of the fiscal year the record

had not been completed.

Cities consummated the simplification of its capital structure in

1947, and eliminated three series of preferred and preference stocks

12 Holding Company Act releases Nos. 4489 and 4551. 13 Holding Company Act release No. 5350. H Holding Company Act release No. 8842. 10 Holding Company Act release No. 10372.

-
SEVENTEE~ ~AL REPORT 77

with accumulated dividend arrears of approximately $50,000,000.

Since that time it has disposed of its direct interest in the common

stock of several utilities including Public Service Company of New

Mexico, Ohio Public Service Company and The Toledo Edison Company, applying the proceeds derived from the sales of these holdings

to the reduction of its debenture indebtedness. At the close of the

fiscal ~ear the Cities system included 59 corporate entities. However,

of this number only seven companies were engaged in utility

operations.

Eastern Utilities Associates

Eastern Vtilities Associates ("EVA:') is a Massachusetts voluntary

association having three direct subsidiary companies, Blackstone Valley Gas & Electric Company ("Blackstone"), Brockton Edison Company ("Brockton") and Fall River Electric Light Company ("Fall

River") and one indirect generating subsidiary company, Montaup

Electric Company ("Montaup"). During the past fiscal year the

corporate changes and expansion program of this system were closely

associated with the major reorganization plan now on file with the

Commission.

After extensive proceedings, the Commission issued an order under

section 11 (b) on April 4, 1950, which provided, in part, that EVA

shall, within one year, terminate its existence and distribute its assets

to its shareholders pursuant to a fair and equitable plan or, within one

year, acquire a minimum of 90 percent of the outstanding common

stock of all of its subsidiary companies and reclassify its common and

convertible shares into a single class of stock. The order further

provided, in effect, that in the event of the adoption of the latter

alternative, EVA, within the one year period, would sever its ownership or control of the gas utility properties owned by Blackstone."

On May 17, 1950, EVA filed its reorganization plan under section

11 (e) for the purpose of complying with this order. After public

hearings, step 1 of the plan was approved by the Commission on

August 17,1950.17 EVA borrowed $9,094,000 on short term promissory notes and, with the proceeds, acquired from the New England

Electric system its interest in Fall River consisting of 118,161 shares

of capital stock. In addition, it acquired 11,721 shares held by the

public. As a result EVA now holds 98.5 percent of the total voting

power of Fall River. EVA has also caused to be organized a new

holding-operating company, named Eastern Edison Company, for the

purpose of acquiring the properties and assets of EVA, Brockton, Fall

River and Montaup and holding the securities of Blackstone.

The subsequent permanent financing of Eastern Edison Company

will require the issuance of approximately $44 million of securities.

The plan contemplates that $28 million will be raised through the

public sale of bonds, $12,500,000 through the sale of preferred stock,

and $3,500,000 through bank borrowing. Eastern Edison Company also proposes to acquire the capital stock held by minority stockholders of its subsidiary companies. Thereafter EVA proposes to

distribute to its common and convertible shareholders the new common

stock of Eastern Edison. EVA will then transfer its remaining assets

to Eastern Edison and dissolve.

,. Holding Company Act release No. 9784. If Holding Companr Act release No. 10040.
78 SECURITIES AND EXCHANGE COMMISSION

Hearings on the amended reorganization plan were reconvened in

May, 1951.

Electric Bond and Share Company

The Electric Bond and Share Company ("Bond and Share") system

was the largest to register under the act. At the time of its registration in 1938, it controlled 121 domestic subsidiaries including five

major subholding companies with combined assets of nearly $3,500,-

000,000. These subholding companies were American & Foreign

Power Company, Inc. ("Foreign Power"), American Gas and Electric

Company ("American Gas"), American Power & Light Company

("American Power"), Electric Power & Light Corporation ("Electric

Power") and National Power & Light Corporation ("National

Power"). Bond and Share has disposed of its holdings in American

Gas and National Power. Electric Power has been dissolved and has

been succeeded by Middle South Utilities, Inc., which like American

Gas is expected to remain as a registered holding company;" American Power has been partially liquidated and Bond and Share now

holds 7.R percent of its new common stock. Proceedings with respect

to Foreign Power, in which Bond and Share continues to hold a substantial interest, are pendin~ before the Commission and are described

above under a separate heading.

As indicated in the 16th Annual Report, the Commission issued an

order on June 19, 1950, directing the Bond and Share pay to holders

of certificates issued in respect to the $6 preferred stock an amount of

$10 per share plus interest of 5.45 percent as compensation for delay

in payment and that no further payment should be made to holders of

certificates issued in respect to the $5preferred stock. Payments totaling $100 per share had previously been made to holders of both classes

of preferred stock. Following unsuccessful appeals from the Commission's order by the company, Bond and Share paid an aggregate of

$12.34 per share to certificate holders in respect to the $6 preferred

stock, thus completing the final step in the reorganization of the company's capital structure to a one-stock basis.>

In the past Bond and Share had filed plans with the Commission

contemplating the divestment of all of its public utility holdings in

the United States in order that its status might be changed to that of

an investment company. It has applied for relief, however, from its

commitment to dispose of the stock of United Gas Corporation

("United"), a large gas utility system, received by it in connection

with the dissolution of Electric Power. Hearings with respect to this

request have been concluded and the matter has been submitted to the

Commission for decision.

In February 1950,Bond and Share acquired upon the reorganization

of American Power common stocks of that company's subsidiaries,

Florida Power & Light Company ("Florida"), Montana Power Company ("Montana"), Minnesota Power & Light Company ("Minnesota"), Texas Utilities Company ("Texas") and new common stock of

American Power with a commitment to dispose of all of these holdings

within one year. During the past fiscal year all shares of Texas Util-

,. These companies are discussed In the following section entitled "Progress of ContinUing Holding Compan,v Systems." lOIn re ElectrIC Bond and Share 00., 95 F. Supp. 492 (S. D. N. Y., 1951), cert. denied.

Electric Bond and Share 00. v. S. E. o., 341 U. S. 950 (1951).
SEVENTEENTH ANNUAL REPORT 79

ities and Minnesota Power and a portion of its holdings in Florida and

Montana have been sold or distributed. At June 30, 1951, Bond and

Share still held 18,709shares of Florida and 138,708shares of Montana

which it expects to dispose of before the close of 1951. An extension

of time has been requested in respect to the disposition of its holdings

of 183,050shares of American Power.

United and its subsidiaries are presently engaged in a construction

program which will require the expenditure of approximately $170

million during the years 1951 and 1952. The major item of this program relates to the construction of more than one thousand miles of

large diameter pipe line to be built as a grid over the present system

in order to provide a more balanced withdrawal and distribution of

gas supply from presently connected and newly developed fields, to

increase the flexibility of the present system, and to enable United

to meet increased gas requirements of present customers and new customers which it proposes to serve.

On March 23, 1951, the Commission approved a joint application

of United and its subsidiary, United Gas Pipe Line Company ("Pipe

Line"), permitting United to undertake temporary short term bank

borrowing up to $25 million, the proceeds to be used to purchase $25

million of Pipe Line's first mortgage bonds." In May 1951, approval

was given to certain proposals of United and its two subsidiaries, Pipe

Line and Union Producing Co. ("Union"), providing for the issuance by Pipe Line to United of $48,127,000 of mortgage bonds due

in 1971,in exchange for United's holdings of similar amount due 1962.

United also extended to 1971 the due date on $34 million of outstanding debentures issued by Union and owned by United."

On June 21,1951, a number of major financing transactions designed

to finance a portion of the proposed construction program were

approved by the Commission," It authorized (1) the issuance and

sale by United, pursuant to a rights offering to its stockholders, of

1,065,330shares of new common stock; (2) the issuance and sale by

United of $50 million principal amount of first mortgage bonds; (3)

the issuance and sale by Pipe Line to United of $25 million principal

amount of Pine Line's first mortgage bonds and $45million of its sinking fund debentures; (4) the repayment by Pipe Line to United from

the proceeds of the sales of securities of $7 million of unsecured indebtedness.

The rights offering to United stockholders was made on June 29,

and Bond and Share was permitted to acquire its proportionate share

of the new offering, 287,065 shares, and to exercise Its oversubscription privilege if available. The offering was heavily oversubscribed.

The public offering of $50million of United first mortgage bonds was

consummated on July 26,1951.

On June 28,1950, Bond and Share and United entered into a contract with National Research Corporation ("National Research"), a

non-affiliated company engaged in industrial research. The contract

was not to become effective, however, until either approved by the

Commission or declared not subject to its jurisdiction. Under the

terms of the contract, which will expire on December 31, 1955,National

Research will engage in certain research work in an effort to develop

20 Holding Company Act release No. 10463. 21 Holding Company Act release No. 10581 .. Holding Company Act release No. 1068'6. •
80 SECURITIES AND EXCHANGE COMMISSION

new processes or products based on natural gas and its constituents.

Such services are to be performed by National Research at cost plus

certain amounts for overhead, such costs to be shared equally by Bond

and Share and United. The contract provides that Bond and Share

and United, between them, are committed to expend in each year on

work to be done by National Research minimum amounts ranging from

$150,000 in 1950 to $250,000 in 1955.

Bond and Share, while urging approval of the contract on its merits,

questioned the jurisdiction of the Commission in this matter. The

Commission found, however, that the venture provided for by the contract and the interests of Bond and Share and United therein clearly

fall within the purview of sections 9 (a) (1) and 12 (f) of the statute.

As previously indicated, the retention of United common stock by

Bond and Share is before the Commission for determination. In advance of such determination, the Commission approved the proposed

research program on condition that if Bond and Share is subsequently

denied relief from its commitment to dispose of the common stock of

United it will forthwith withdraw from and terminate all interest

in the research contract,"

On July 11, 1950, Bond and Share entered into an agreement with

a non-affiliated holding company, The Southern Company ("Southern"), which provided for the acquisition by Southern and the sale by

Bond and Share of the latter's holdings of 254,045 shares of the common stock of Birmingham Electric Company ("Birmingham") in

exchange for 331,067-1/2 shares of the common stock of Southern.

Southern proposed to merge the electric properties of Birmingham

with those of its subsidiary, Alabama Power Company and cause

Birmingham to divest itself of its transportation properties to nonaffiliated interests. The proposal-would not constitute a complete

divestment by Bond and Share of Birmingham since it would permit

Bond and Share to continue with an indirect interest in that company

through ownership of Southern's common stock.

On August 24, 1950, the Commission issued an order approving the

proposed transaction but requiring, among other things, that Bond

and Share divest itself of any direct or indirect interest in the common stock of Southern within one year from the date of acquisition.

The order also required the disposition of Birmingham's transportation properties within one year from the date of the acquisition by

Southern of the Birmingham stock."

In January 1951, Bond and Share's subholding company subsidiary,

National Power & Light Company ("National Power") effected the

divestment of its subsidiary, Lehigh Valley Transit Company, together with its four subsidiary transportation companies. The properties were sold for $810,500 to the Cincinnati, Newport and Covington

Railway Company, a non-affiliated enterprise. During subsequent

months National Power also disposed of its remaining stockholdings

in Pennsylvania Power & Light Company and, reduced its assets to

a limited amount of cash and cash items. On June 26,1951, the Commission issued an order approving a plan by which Bond and Share

sold its common stock holdings of National Power to Phoenix Industries Corporation ("Phoenix").25 This corporation is a closely-

.. Holding Company Act release No. 10287. 24 Holding Company Act release No. 10055. .. Holding Company Act release No. 10640.
SEVENTEENTH ~AL REPORT 81

held corporation formed primarily to engage in, or to invest in, other

companies which engage in commercial activities considered to have

good prospects for growth, development and expansion. Its desire

to acquire a controlling interest in National Power was related to the

large number of the latter company's stockholders, its listing on the

New York Stock Exchange and the fact that its assets consisted entirely of cash available for investment. Itwas indicated that Phoenix

upon acquisition of National Power would cause National Power to

invest in companies of the same general character as those in which

Phoenix plans to invest and that neither company will, directly or indirectly, invest in public utility companies.

In its order approving the sale of stock by Bond and Share the

Commission modified the dissolution order directed to National Power

so as to permit the continued existence of that company and indicated

that, upon consummation of the sale, National Power will have ceased

to be a holding company pursuant to section 5 (d) of the act.

General Public Utilities Corporation

This company is the top holding company emerging from reorganization of the former Associated Gas and Electric Company system.

Reference is made to the 15th and 16th Annual Reports which outline

briefly the steps taken in earlier years to bring about integration and

simplification of this highly complex structure. In 1938 this system

consisted of 164 companies including 11 subholding companies operating in 26 States and in the Philippine Islands. While the present

holding compa!!)' system controlled by General Public Utilities Corporation ("GPU") represents but a segment of the former Associated

system, certain problems remain to be resolved before it can be brought

into complete conformity with the standards of section 11.

In May 1951, hearings on the company's section 11 (b) (1) proceedings were concluded. The Division of Public Utilities of the Commission at that time indicated its view: (1) that the electric, coal mining,

water, and steam heating properties of Jersey Central Power & Light

Company, Metropolitan Edison Coml?any, New Jersey Power & Light

Company, and Pennsylvania Electric Company (other than minor

steam heating properties of the latter company located at Clearfield,

Pa.) constitute a single integrated electric utility system and reasonably incidental businesses, and are retainable by GPU; (2) that the

properties of Northern Pennsylvania Power Company and of its subsidiary, The Waverly Electric Light & Power Company, the gas

properties of Jersey Central Power & Light Company, and the steam

heating properties of Pennsylvania Electric Company referred to

above are not retainable under the standards of section 11 (b) (1) of

the act; and (3) that the Commission's order of August 13, 1942, directing, among other things, the divestment by GPU of its interest in

the Philippine subsidiaries should be reinstated forthwith. At the

same time, GPU indicated that it was not opposed to the prompt

entry by the Commission of an order embodying the views of the

division. After the close of the fiscal year the Commission entered

such an order.

Construction requirements during the past year have made it necessary for the GPU system to undertake the issue and sale of 504,657

shares of its common stock through a rights offering to its common

stockholders. This offering was made on June 16, 1951. Gross pro-
82 SECURITIES AND EXCHANGE COMMISSION

ceeds amounted to approximately $8,365,000.26 These funds, less fees

and expenses, are bemg employed by GPU for investment in the common stocks of its domestic utility subsidiaries to meet their expansion

requirements. GPU has also made capital contributions to certain

subsidiaries from treasury cash. In addition, its domestic subsidiaries

sold to the public $5,750,000 of mortgage bonds and $2 million of preferred stock. Virtually all of the proceeds derived from these sales

have also been applied to meet construction requirements.

International Hydro-Electric System

At the time of registration International Hydro-Electric System

("IHES"), a Massachusetts voluntary association, owned directly

Gatineau Power Company ("Gatineau"), a Canadian public utility

company, and two wholesale electric utilities operating in the United

States. It also owned the equity in New England Power Association

which, since its reorganization, is known as New England Electric

System. IHES is now in process of liquidation and dissolution under

section 11 (d) of the act. It functions under the authority of Bartholemew A. Brickley as trustee, who was appointed by the United

States District Court for the District of Massachusetts in November1944.

Earlier steps taken toward the eventual liquidation and dissolution

of IHES are described briefly in the 15th and 16th Annual Reports.

On April 19, 1949, the Trustee submitted a "Second Plan" of four

parts to effect the eventual liquidation and dissolution of IRES and

on July 1, 1949, after approval of the Commission, Part I of the plan

was consummated." This consisted of a partial payment on outstanding 6 percent debenture indebtedness in default since 1944, reducing

the outstanding principal amount of each $1,000 debenture from $700

to $600. At the close of the last fiscal year the trustee was also authorized to consummate Part II of the plan and retired the company's

6 percent debentures by repaying the balance of $15,940,800 ($600 per

debenture) which was then outstanding. The requisite amounts of

cash were obtained through the exchange or sale of 340,000 common

shares of Gatineau and through consummation of a bank loan of

$9,500,000.28

Hearings were resumed in November 1950, on Part III of the Trustee's Second Plan in which it is proposed to retire the preferred and

class A stocks of IHES by issuing in exchange therefor eight trustee

certificates for each preferred share and one trustee certificate for each

class A share. Under Part IV of the Trustee's plan, a 60 day takedown privilege would be afforded to the certificate holders, under which

each certificate holder would be permitted to pay his aliquot share of

the Trustee's net obligations including the bank debt and receive his

aliquot share of the portfolio assets. Thereafter, the balance, if any,

due on the bank debt would be satisfied by a sale of assets, the expenses

of administration would be paid, the remaining assets would be ratably

distributed and the holding company would be dissolved.

Hearings on Part III of the Trustee's plan and various counterproposals were closed on February 20, 1951. At the end of the fiscal

year the staff filed its recommendations indicating that Part III would

.. HoldIng Company Act release No. 10622 .. HoldIng Company Act release No. 9120. 18 Holding Company Act releases Nos. 9535 and 9917.•
SEVENTEE~ ~AL REPORT 83

be fair and equitable if amended to provide seven trustee certificates

in exchange for each preferred share and one trustee certificate for

each class A share. It was recommended that other counter-proposals

be disapproved. All parties have been given an opportunity to file

objections to the staff recommendations and at the close of the fiscal

year the matter had not yet been argued orally before the Commission.

In a collateral proceeding, the Trustee applied for authorization to

make quarterly payments of 87% cents per share to the preferred stockholders pending final liquidation. No dividends have been paid on

the preferred stock since July 15, 1934. This request is pending before

the Commission.

Koppers Company, Inc.

Eastern Gas & Fuel Associates

Koppers Company, Inc., is a large industrial organization engaged

in the production, manufacture, and sale of coal tar products, forest

products, coke and gas, machine shop and foundry products, and in

the design and construction of various types of coke ovens, chemical

plants and other structures. It has been a public utility holding

company by virtue of its stock ownership of Eastern Gas & Fuel

Associates ("Eastern"). The latter company, which is engaged in a

large measure in the J?roduction, transportation, sale and conversion

of coal, is a public utility holding company because of its ownership

of the outstanding voting securities of two gas utility companies

operating in the Boston area.

Both Koppers and Eastern filed applications pursuant to section 3

of the act for orders exempting them and their subsidiaries from all

provisions of the act because of the intrastate character of their utility

operations and on the ground that they were only incidentally public

utility holding companies. Subsequently, however, Eastern filed a

notification of registration as a holding company which filing purported in substance to limit the effect thereof to the corporate simplification provisions of the act and Koppers filed a notification of registration purporting to limit its effect to the geographic integration

provisions of the act.

In proceedings subsequently instituted under section 11 (b) (1) of

the act, the Commission, in June 1945, ordered Koppers with its consent to sever its relationship with Eastern and its subsidiaries by

disposing of its security holdings of those companies."

In May 1945 the Commission also instituted proceedings under

section 11 (b) (2) against Eastern and these proceedings were consolidated with those involving a plan filed by that company in the

same year.so The plan as originally filed provided for the retirement

of Eastern's outstanding 6 percent cumulative preferred stock and

common stock through the issuance of a new common stock, 85 percent

of which was to be allocated to the preferred holders and 15 percent

to the common stockholders. At the close of the hearings in January

1947, the allocation was amended to provide 79.01 percent for the

preferred holders and 20.99 percent to the common stockholders. The

record was closed in March 1947, but because of changed circumstances- the hearings were reconvened in 1948 for the purpose of

adducing additional evidence." On December 31,1948, arrearages on

.. Holding Company Act release No. 11888. .. Holding Company Act releases Nos. 5827 and 11877. 11Holding Company Act release No. 8096.

975942-52-7
84 SECURITIES AND EXCHANGE COMMISSION

the preferred stock amounted to $35.50 per share, aggregating

$13,281,899.

In January 1949, Eastern again amended its plan by further reducing to 73.08percent the proposed allocation of new common stock

to the 6 percent preferred stockholders. The proceedings were the

subject of vigorous disputes by various contending: stockholder representatives. In February 1950, the Commission directed Eastern to

reclassify the 6 percent preferred stock and common stock into one

new class of stock and indicated that an 87 percent-13 percent allocation plan could be approved." Because of the wide fluctuations in

Eastern's earnings due to changing conditions in the coal business,

the Commission was confronted with a most difficult task in its evaluation of past and future prospects of the company necessary to determine the fairness of the allocation. The plan was subsequently

amended to meet suggestions of the Commission and was approved in

March 1950.33 In June the United States District Court for the

District of Massachusetts entered its order approving the plan which

was consummated in October 1950.

As a result of the plan Koppers' holdings of about 78 percent of

Eastern's common stock and 13 percent of its preferred stock were

converted into 22 l?ercent of the new common stock. Through subsequent sales to varIOUSpurchasers Koppers has reduced its holdings

to 4.6 percent and is under order to divest itself of this remaining

interest. The matter of Eastern's application for exemption from all

provisions of the act is still pending before the Commission.

Mission Oil Company

Southwestern Development Compan:,..

The stock of Southwestern Development Company ("Southwestern") is owned 47.28 percent by Mission Oil Company ("Mission"),

representing virtually the only assets of that company; 51 percent

by Sinclair Oil Corporation ("Sinclair") and 1.72percent by minority

interests. Sinclair also holds about four percent of the stock of Mission. Mission and Southwestern are registered holding companies;

Sinclair, primarily engaged in the production and refining of petroleum products, has been granted an exemption from the provisions of

the act.34

At the time of its registration in 1936, the Southwestern system

proper comprised seven wholly rownad subsidiaries (four gas utilities, two small gas transmission companies and one natural gas production company) which supplied the natural gas requirements of

about 50 communities in the Panhandle area of Texas. In addition

to these operations, Southwestern had substantial interests in other

important natural gas production and transmission companies. It

held all of the capital stock of Canadian River Gas Company ("Canadian River") and a substantial interest in Colorado Interstate Gas

Company ("Colorado"). These two companies are known asthe "Denver line," constituting in effect a single operating and business unit.

Southwestern also had at that time I1ninterest in Texoma Natural

Gas Company and Natural Gas Pipeline Company of America. These

two companies, sometimes described as the "Chicago line," constitute

32 Holding Company .Act release No. 9633. asHolding Company .Act release No. 9725. s. 2 S. E. C. 165. sub nom. ooneoudotea OIl Oorporatfon . •
SEVENTEE~~H ANNUAL REPORT 85

a natural gas transmission system furnishing gas to Chicago and certain intermediate cities enroute.

The Southwestern holdings remained without substantial change

until 194:7when its interest in the two companies comprising "Chicago line" was sold to a non-affiliated company.

In June 1951, after numerous conferences with the staff, Mission

and Southwestern filed with the Commission a section 11 (e) plan

designed to conform its system to the integration and simplification

requirements of the statute. In substance the plan provides that (a)

Mission will be liquidated and Sinclair will divest itself of its stockholdings in Southwestern, (b) the rights to the natural gasoline in

the natural gas reserves of Canadian River, "in place", will be transferred to a new company, the stock of which will be issued to Southwestern and distributed by it to its stockholders, (c) the two companies, Colorado and Canadian River, constituting the "Denver line,"

will be merged, (d) Southwestern will also distribute its holdings of

stock in the merged Colorado-Canadian River Company to its stockholders and (e) for purposes of facilitating these proposed distributions, Southwestern and Colorado will reclassify their outstanding

common stocks. The Commission has instituted cross-proceedings

under sections 11 (b) (1) and 11 (b) (2) and hearings upon the consolidated matters were initiated early in August 1951.35

If this plan is successfully consummated Southwestern will remain

with its wholly owned subsidiaries including four gas utilities with

a field of operations confined generally to the north Texas area. The

stock of Southwestern will be publicly held.

New England Public Service Company

New England Public Service Company ("NEPSCO"), at the

time of its registration, had five major operating subsidiaries of

which two operated in Maine, one in New Hampshire and two in

New Hampshire and Vermont. It also owned through an industrial

subsidiary, five textile mills, a paper company and a forest products

manufacturing company. As a result of simplification proceedings

instituted by the Commission under section 11 (b) (2), the company

was directed in 1941 to reorganize on a one stock basis or in the alternative to liquidate and dissolve. The management of NEPSCO elected

to liquidate and subsequent steps have been taken toward this end.

On June 19, 1950, the Commission reached its decision as to the

amounts to be paid on the certificates of contingent interest issued in

connection with the retirement of NEPSCO's Prior Lien Preferred

Stock and it ordered that the $7 Series receive an additional payment

of $12.25 J?er share and the $6 Series $2.25 per share, together with

compensation for delay in payment at the rate of 5.5 percent per

annum from October 10, 1947.36 The findings of the Commission with

respect to these amounts were subsequently approved and enforced by

the United States District Court for the District of Maine in Novembel' 1'950. These sums represented the final payments in connection

with retirement of the Prior Lien Preferred Stock.

Subsequently, the Commission and the court approved an amendment to the section 11 (e) plan of NEPSCO which provided for the

reduction of its outstanding bank loan by the USeof proceeds derived

.. Holding Company Act release No. 10668 .. Holding Company Act releases Nos. 99'31 and 9982. •
86 SECURITIES AND EXCHANGE COMMISSION

from the sale of 260,000 shares of common stock of Central Maine

Power Company, renewal of the unpaid balance, and a program for

full payment by October 11, 1952. The changes also included removal of restrictions on the payment of dividends on NEPSCO preferred stock and an accounting quasi-reorganization." Proceeds derived by NEPSCO from the sale of Central Maine Power Company

common stock permitted a reduction in its bank loan of approximately $4 million. The company also applied $2,132,000returned to

it from funds deposited in escrow for payment of amounts found due

on the preferred stock certificates of contingent interest. These payments, together with funds generated from current earnings, have

brought the outstanding amount of the loan down to $1,310,000 at

June 30, 1951.

In June 1951, NEPSCO filed a new plan providing for the distribution of its remaining assets to the holders of its junior preferred

and common stocks and for its liquidation and dissolution. This

plan is intended to effectuate complete compliance with the Commission's order of May 2, 1941. Superimposed on NEPSCO is Northern New England, a voluntary association, which owns approximately one-third of NEPSCO's common stock. Northern New England is under Commission order to liquidate and dissolve, but it is

awaiting consummation of a final plan by NEPSCO in which the participation to be accorded to the common stock of the latter company

will be determined, before it can take the required steps to complete

liquidation.

Pennsylvania Gas & Electric Corporation

Pennsylvania Gas & Electric Corporation ("Penn Corp"), which

filed its registration statement with the Commission in November

1936, had at that time 19 subsidiary companies. Its utility operations were conducted in sections of New York, Pennsylvania, Massachusetts, Rhode Island and Virginia. The system included 15 gas

utility companies, three wholesale gas companies and one service company. Three of the utility subsidiaries, North Penn Gas Company

("North Penn"), Pennsylvania Gas & Electric Company, name later

changed to York County Gas Company ("York County"), and Saugerties .Gas Light Company ("Saugerties") were also subholding

companies,

In January 1942, the Commission instituted a proceeding under

section 11 (b) (2) with respect to York County and Penn Corp."

Thereafter, two subsidiaries were merged into York County and a recapitalization plan of that company was approved by the Commission in December 1944 providing for corporate simplification and a

program of debt reduction." The plan was consummated during

1945after approval by the United States District Court for the Middle

District of Pennsylvania. Two of Penn Corp's Virginia subsidiaries

were combined in 1944 and, in July 1946, this company was divested

by Penn Corp." .

In September 1948, the Commission issued an order pursuant to

sections 11 (b) (1) and 11 (b) (2) directing Penn Corp to sever its

relations with its subsidiaries, Newport Gas Light Company, York

11 Holding Company Act release No. 10087 .. Holding Company Act release No. 3251. II Holding Company Act release No. 5480 .. Holding Company Act release No. 6769.•

•
SEVENTEENTH ANNUAL REPORT 87

County and North Shore Gas Company, and to change its preferred

and common stock to a single class of stock."

Penn Corp disposed of its interest in North Shore shortly thereafter

and, in 1949 and 1950,sold its holdings of York County and Newport.

Its investment in another subsidiary, New Penn Development Corporation, was also sold during 1950. Subsidiaries in New York were

merged into Crystal City Gas Company. An order of the Commission, dated December 22, 1949, approved this merger and also directed that Penn Corp liquidate and dissolver" As a result of successive divestments and the merger, Penn Corp's holding company

system was reduced to four gas companies operating in Pennsylvania,

one company, Crystal City, operating in New York, and a mutual

service company. The Pennsylvania companies were merged, as of

December 31, 1950, into a single company, North Penn, with Crystal

City as its sole subsidiary.

In the latter part of 1950, Penn Corp. sought the approval of this

Commission with respect to a proposed sale of the capital stock of

Crystal City to certain non-affiliated interests. After hearings thereon

the Commission found that there had not been a maintenance of competitive conditions in the negotiations for such sale and disapproved

the proposed transaction."

The final portion of Penn Corp's section 11 plan contemplates the

liquidation and dissolution of that company and distribution of capital stock of North Penn pursuant to a proposed allocation to holders

of Penn Corp preferred and Class A common stock. A cash payment of $0.10 per share is proposed for holders of the Class B common. Hearings on this proposal were concluded in July 1951.

Standard Power & Light Corporation

Standard Gas & Electric Company

The Standard holding company system p'resented, at the time of its

registration, an extreme example of the evils of corporate pyramiding

and scatteration of properties. In 1936,it consisted of 105 active companies operating in 20 states and in Mexico, including the two top

holdin* compames, Standard Power & Light Corporation ("Standard

Power') and its subsidiary, Standard Gas & Electric Company

("Standard Gas"). By June 30, 1951, the system had been reduced

to 15 companies and further contraction is in prospect.

As reported in the 16th Annual Report, Standard Gas, in 1949,

filed an amended plan for the simplification of the corp'orate structure

of the system of its holding company subsidiary, Philadelphia Company ("Philadelphia"). Several provisions of the plan have already

been carried out including the reorganization of the gas properties

in the Philadelphia system under the ownership of Equitable Gas

Company ("Equitable"), the sale of Equitable common stock and $11

million of debentures of Equitable held by Philadelphia, the retirement of Philadelphia's outstanding funded debt, amountin~ to approximately $36 million and the redemption of Philadelphia's $6

Preference stock, aggregating $10 million in par value." Pursuant to

an amendment to the plan submitted on July 11, 1950, Duquesne

Light Company ("Duquesne"), a subsidiary of Philadelphia, issued

.. Holding Company Act release No. 8490. ., Holding Company Act release No. 9574. to Holdmg Company Act releases Nos. 10322 and 10613. .. Holding Company Act releases Nos. 9740 and 9766.
88 SECURITIES AND EXCHANGE COMMISSION

$19,500,000 of bonds and preferred stock to the public the proceeds of

which were used to finance its construction program and to repay outstanding bank loans. The Duquesne five percent preferred stock,

aggregating $27,500,000,was refunded by the issuance to Philadelphia

of a new series of four percent preferred stock in consideration of

$27,200,000in cash and the transfer to Duquesne of all of the stock of

Philadelphia's direct subsidiary, Cheswick and Harmer Railroad

Company."

The amended plan as it now stands proposes that the Duquesne four

percent preferred stock be used by Philadelphia in an exchange program to retire its own six percent preferred stock and the six percent

preferred of Consolidated Gas Company of the City of Pittsburgh,

an inactive subsidiary of Philadelphia, on which Philadelphia has

guaranteed certain dividends. The proposed bases of exchange are:

one share of Duquesne's four percent preferred stock together with

$3.50 in cash, for each share of Philadelphia's six percent preferred

and 0.85 of one share of Duquesne's four percent preferred for each

share of Consolidated Gas preferred. The plan also provides that

Philadelphia five percent preferred stock shall be retired by the payment of $11 in cash for each share and that its $5 preference stock

be retired in a manner not yet specified. Aggregate par values of

these various preferred stock issues is approximately $31,700,000.

Hearings belore the Commission relating to the retirement of the

six percent and five percent preferred stocks of Philadelphia and the

preferred stock of Consolidated Gas were completed in April 1951 and

the matter is now awaiting the decision of the Commission.

During the fiscal year, both Standard Gas and its parent Standard

Power, were permitted by the Commission to withdraw their 1943

and 1944 section 11 (e) plans, which had been previously approved

but never consummated. The Standard Gas plan which had provided for its recapitalization was allowed to be withdrawn because of

changes in conditions occurring during the course of litigation. The

Standard Power plan was allowed to be withdrawn because its provisions were linked to the consummation of the Standard Gas

recapitalization."

In February 1951,Standard Gas filed a new section 11 (e) plan with

the Commission. The plan includes four steps. Step I would effect

the retirement of Standard's $7 and $6 Prior Preferred stock; Step

II is intended to effectuate the liquidation and dissolution of Standard

Gas and the delivery to the holders of its $4 cumulative preferred stock

and common stock, shares of Philadelphia Company common stock;

Step III will eliminate the minor subsidiaries of Philadelphia and,

if feasible, Pittsburgh Railways Company; and Step IV proposes

either the dissolution of Philadelphia and the distribution to its

common stockholders of its holdings of Duquesne or, if Pittsburgh

Railways is not disposed of as part of Step III, the disposition by

Philadelphia of most of its holdings in Duquesne and its continuance

primarily as a holding company for Pittsburgh Railways until disposition of that company is accomplished. Hearings are currentJy

being held on Step I of the plan.

Pursuant to Step III of the plan, the Commission, on July 3, 1951,

.. Holding Company Act release No. 10044 .. Holding Company Act releases Nos. 9960 and 10385. •
SEVENTEE~ ~AL REPORT 89

approved a joint application by Philadelphia and Equitable Real

Estate, a non-utility subsidiary, which provided for the transfer of

all of Equitable's assets to Philadelphia and dissolution of the subsidiary." In a prior decision the Commission also approved the dissolution of Equitable Sales Company, another subsidiary of Philadelphia. That step was effected in December 1950.48

In December 1950, Standard Gas finally liquidated its investments

in Market Street Railway Company ("Market Street") after step one

of a modified plan of liquidation and dissolution of Market Street

had been approved by the Commission and the United States District

Court for the Northern District of California." Pursuant to that

plan Market Street paid Standard Gas $512,500in cash in settlement

of its open account indebtedness amounting to $707,189 plus a substantial amount of accrued interest, and it executed a full and complete

release of all claims which it held against Standard Gas and Standard

Power and any of their subsidiaries. The Standard Gas holdings of

junior preferred and common stocks of Market Street were declared

worthless since there were not sufficient assets to satisfy the claims

of the senior preferred stock.

Standard Gas completed its divestment of Louisville Gas and Electric Company in October 1950by disposing of its remaining holdings

of 137,857shares of common stock for $4,331,329.50

The United Corporation

The United Corporation ("United") registered as a holding company in March 1938, at which time its portfolio was comprised principally of the common stocks of four holding company subsidiaries.

These subsidiaries, together with the percentage of voting control held

by United, were as follows: The United Gas Improvement Company,

26.2 percent; Public Service Corporation of New Jersey, 13.9 percent;

Niagara Hudson Power Corporation ("Niagara Hudson"), 23.4 percent; and Columbia Gas & Electric Corporation (now the Columbia

Gas System, Inc.), 19.6 percent. United also had other substantial

interests, principally in utility holding and operating companies.

In 1941, United filed a plan pursuant to section 11 (e) for divest.

ment of control of its statutory subsidiaries whereby United would

not vote the securities of any of its statutory subsidiaries or have any

interlocking officersor directors and would proceed when advantageous

to it, to reduce its holdings in each of its statutory subsidiaries to less

than 10 percent of the outstanding voting securities of such subsidiaries. Proceedings on that plan were consolidated with proceedings

instituted by the Commission under sections 11 (b) (1) and 11 (b) (2) . .After the development of an extensive record, the Commission found

that the plan was not appropriate nor fair and equitable and could not

be approved." While it found that dissolution of United would be

appropriate it noted the management's expressed desire to change the

nature of United's business to that of an investment company. Under

the circumstances, the issuance of a dissolution order was withheld

but the Commission directed that United correct the inequitable dis-

•• Holding Company Act release No. 10652. •• Holding Company Act release No. 10190. .. Holding Company Act release No. 10172. eoHolding Company Act release No. 10136. 11 The Unsted Corporation, 13 S. E. C. 854.
90 SECURITIES AND EXCHANGE COMMISSION

tribution of voting power by recapitalizing with a single class of stock

and cease to be a holding company.

Shortly before the entry of the Commission's order in 1943 and

subsequent thereto, various subsidiary as well as non subsidiary holding companies of United underwent extensive reorganizations under

section 11. A large number of indirect subsidiaries of United have

been divested and United has effectuated the retirement of all of its

outstanding preference stock largely through the exchange of securities of reorganized subsidiaries. Substantial blocks of portfolio

securities have also been disposed of through market sales.

In October 1949, the Commission approved a plan filed by United

by which it substantially reduced its investment in Niagara Hudson

through the distribution of a special dividend of Niagara Hudson

stock to its own shareholders.P Approval of that plan was conditioned by the Commission upon a prompt filing by United of a comprehensive and detailed program under section 11 (e). Pursuant to

this requirement United submitted a new proposal in November 1949

and after successsive modifications, the Commission on June 26,1951,

issued its final order approving- the plan as amended." It provided

that holders of less than 100 shares of United common stock may

surrender their shares for cash in the amount equal to the average net

asset value of such stock based on the average of the closing market

prices of United's portfolio during the term of the offer. Holders

of 100 or more shares of United common stock were offered the opportunity during the same period to exchange their stock for an amount

of Niagara Mohawk Power Corporation ("Niagara Mohawk") common stock having an average market value equal to 97 percent of the

average net asset value of the United stock surrendered. Such average

net asset value was also based on the closing market prices of United's

portfolio securities during the period of the exchange offer. Up to

700,000 shares of common stock of Niagara Mohawk were offered for

exchange by United under this plan. United also proposes to sell its

entire interest in its common stock in South Jersey Gas Company and

to reduce its remaining holdings of voting securities of public utility

companies to an amount not to exceed 4.9 percent of the outstanding

voting stock of such companies.

Shortly after the close of the fiscal year United undertook the

exchange offer approved by the Commission and 362,616 shares of

United common stock were exchanged for 69,566.6 shares of Niagara

Mohawk common stock. In addition, 95,051 shares of United common

were surrendered for cash at a purchase price of $4.43 per share.

Approximately 557,130 shares of United were held by holders of less

than 100 shares and hence were eligible for the cash purchase offer.

Proceedings to review certain aspects of the plan are pending in the

Court of Appeals for the District of Columbia.

Washington Gas and Electric Company

Washington Gas and Electric Company ("Washington") registered

as a holding company on December 1, 1935, and at that time it was a

subsidiary of North American Gas and Electric Company. Subsequently, North American Gas and Electric was liquidated pursuant

to a section 11 (e) plan which was approved by the Commission in

.. Holding Company Act release No. 9431. OJ Holding Company Act releases Nos. 10614 and 10643.
SEVENTEE~~H ~~AL REPORT 91

1943 and enforced in the United States District Court for the District

of Delaware." Washington had filed a petition in bankruptcy in

the United States District Court for the Southern District of New

York on September 29, 1941, and, pursuant to order of the District

Court for the District of Delaware, the common stock of Washington

was turned over to its trustee to be held by him subject to order of

the District Court for the Southern District since the common stock

had been found to be valueless by the Commission and the District

Court of Delaware.

At the time of the filing of its petition in bankruptcy, Washington

had three subsidiaries, Oregon Gas and Electric Company, Southern

Utah Power Company and Dominion Electric Power, Limited.

Washington was also engaged directly in the electric and gas utility

business in the State of Washington. The principal electric properties of Washington had been taken by Public Utility Districts III

condemnation proceedings in November 1940 and, in the course of

reorganization, the remainder of its electric properties were taken

in similar proceedings in 1942. Subsequently, the trustee of Washington sold the assets of Oregon Gas and Electric and additional

assets of Washington, including its interest in Dominion Electric.

During the proceedings, Washington paid its First Mortgage Bonds

in full and caused Southern Utah to refund its debt and to recapitalize

on the basis of one class of common stock. As a result Washington

received new common stock of Southern Utah in exchange for its

former holdings of three classes of that company's stock. On J anuary 24, 1949, the Commission approved a plan submitted under

section 11 (f) by the trustee of Washington. 55 The plan was accepted

by the bondholders and general creditors of Washington and confirmed by order of the United States District Court for the Southern

District of New York on October 5, 1949. Itwas subsequently directed

to be consummated by orders of the court dated April 14, 1950, and

July 27,1950. Pursuant to the plan, Washington has divested itself

of its interest in Southern Utah, and retains only its gas utility operations. The common stock of Washington is being distributed to the

holders of WaShington's First Lien and General Mortgage Bonds

and to its general creditors. No participation was accorded to its

preferred or common stockholders.

On May 29, 1951,the Commission issued an order pursuant to section

5 (d) declaring that Washington had ceased to be a holding company

and cancelling the effectiveness of its registration subject to a condition reserving jurisdiction over the terms, provisions and amount of

all debt securities which may be issued in connection with the plan

of reorganization." The order also provided that such jurisdiction

would be deemed to have been released upon the filing with the Commission of due proof that Washington had obtained approximately

$150,000 through the issuance and sale of additional common stock.

A statement filed on June 28, 1951,by counsel for Washington indicates

that this stock offering has since been successfully consummated.

Wisconsin Electric Power Company

Wisconsin Electric Power Company ("Wisconsin") is an operatingholding company controlling a utility system serving electricity in

.. 14 S. E. C. 835. .. Holding Company Act release No. 8801 .. Holding Company Act release No. 10585. •
92 SECURITIES AND EXCHANGE COMMISSION

Wisconsin and Michigan and natural gas in Wisconsin. Steam heating service is provided in Milwaukee and Waukesha, Wisconsin. The

company also has a transportation subsidiary operating transit facilities in Milwaukee and adjoining suburbs.

On August 15, 1950, the Commission issued an order pursuant to

section 11 (b) (1) instituting proceedings to determine what properties

may be retained in Wisconsin's electric holding company system.

Hearings are presently in progress on these matters. The company

recently offered its transportation properties for sale to the City of

Milwaukee. In the event these properties are sold the major remaining problem will concern the retainability by Wisconsin of its natural

gas utility business. Representatives of the City of Milwaukee and

of the WIsconsin Public Service Commission are participating in the

proceedings before the Commission.

PROGRESS OF CONTINUING HOLDING COMPANY SYSTEMS

The utility holding company groups expected to continue under the

jurisdiction of the Commission as completely integrated, regional

systems consist in general of three major types. The first is the electric

holding company system, which usually consists of one holding company above a number of interconnected electric operating companies.

In this category are included such systems as American Gas and

Electric Company, Central and South West Corporation, The Southern

Company, and Middle South Utilities, Inc. A significant characteristic of this type of system is the efficient use of large-scale, centralized

generation coupled with economical long-distance transmission of

energy.

The second type is the natural gas holding company system, which

frequently controls gas-transmission as well as gas-distribution properties. Systems of this class include the Columbia Gas System, Inc.,

American Natural Gas Company, and Consolidated Natural Gas

Company. The third type is the operating-holding company system.

In these instances the holding company derives a substantial proportion of its income from its own utility operations but also retains one

or more subsidiary operating companies. Examples of this type

include the Delaware Power & Light Company, Ohio Edison Company,

and Interstate Power Company.

In order to achieve the degree of integration contemplated in section

11 and to justify their continuing existence, these holding companies

must do more than simply establish physical interconnections among

their subsidiary companies. There must be a realization of important

economic and engineering benefits obtainable only by the knitting

together of a compact group of operating properties having basic

functional relationships with one another. In addition, the parent

holding companies must be in a position to furnish sound and constructive assistance to their operating subsidiaries in the financing

of expansion programs. The strength of each system rests heavily

upon the underlying financial stability of its subsidiaries.

The following summaries provide a review of the more important

actions taken by the Commission during the past fiscal year in respect

to operations of a number of the contmuing systems. It should be

noted that several of these systems are still faced with residual problems under section 11 (b) (1) and 11 (b) (2) of the act, and during
SEVENTEE~ ~AL REPORT 93

the past year they have made several property dispositions intended

to eliminate some of their nonretainable holdings. In a limited number

of cases, registered holding companies may eventually be able to

qualify for exemption from the act pursuant to the provisions of

section 3 (a).

Certain of the holding companies described in the preceding section

may also remain as parts of continuing systems upon resolution of

their existing section 11 problems.

American Gas and Electric Company

American Gas and Electric Company ("American Gas") is the

largest of the continuing regional holding company systems with consolidated assets in excess of $678,000,000. Its operations, almost

wholly electric, extend over a seven state area from Kentucky to

Michigan.

In December 1950, the Commission permitted American Gas to

undertake an exchange offer designed to acquire all of the outstanding

common stock (162,030 shares) of Central Ohio Light & Power Company ("Central Ohio") in exchange for American Gas common stock

on the basis of 0.72 of a share of American Gas common stock for each

share of Central Ohio common stock." Central Ohio, an independent

electric operating utility, had service areas in two sections of Ohio

about 100 miles apart and not interconnected. Under the plan outlined by American Gas, expenditures of almost $1,500,000 were proposed in order to interconnect the facilities and coordinate the operations of Central Ohio with The Ohio Power Company, an operating

subsidiary of American Gas. The exchange proposal proved highly

successful and American Gas reported that as of March 12, 1P51, it had

acquired 98 percent of the outstanding common stock of Central Ohio.

American Gas, with Commission approval, has also eliminated one

subsidiary from its system, Union City Electric Company ("Union

City"). Since the power requirements of Union City were furnished

entirely by The Ohio Power Company, Union City no longer served a

useful purpose in the system as a separate corporate entity. Its property therefore was transferred to Ohio Power and the company was

dissolved.

The American Gas system serves a territory which, within the last

two years, has experienced a tremendous expansion in the tempo and

scope of defense production. The system has therefore been carrying

on an extensive construction program to meet the additional demands

for service and to replace existing properties with more efficient facilities. Its construction program will require expenditures during the

years 1951 through 1953 of approximately $288 million. During the

past fiscal year the Commission has approved system financings aggregating in excess of $68 million. This was accomplished by advances

to subsidiaries, bank loans and mortgage debt and common stock offerings. Among these was a successful rights offering made by American

Gas to its stockholders of 339,674 shares of common stock without the

aid of underwriting or dealer solicitation. A substantial portion of

the net proceeds of $17,619,000 derived from this offering has been

reinvested in the equities of the subsidiary operating companies,"

IT Holding Company Act release No. 10294. .. Holding Company Act releases NOB.10453 and 10475.
S.clCURITIES AND EXCHANGE COMMISSION

American Natural Gas Company

American Natural Gas Company ("American") and its subsidiaries

now constitute an integrated gas transmission and distribution system bringing natural gas from the Hugoton field in Texas to areas in

the States of Michigan and Wisconsin.59 The development of the

American system was effected by the parent company's divestment of

certain non-retainable holdings and the application of cash proceeds

derived from these sales to investment in a newly organized gas transmission pipe line, the Michigan-Wisconsin Pipe Line Company. The

latter enterprise serves to link the gas utility subsidiaries of American

with a source of fuel some eight hundred miles to the south.

The past four years have witnessed the rapid growth of the Michigan-Wisconsin Pipe Line Company as a major long distance transmission system. The first and second phases of the project have been

substantially completed and now permit an annual gas delivery capacity of 110 billion cubic feet, the maximum presently authorized by the

Federal Power Commission. Capitalization of the pipe line company

includes $66 million of bonds, $25 million of common stock owned by

American and $20million of bank loans due July 1,1952.

On April 5, 1951, Michigan Consolidated Gas Company, one of the

principal gas utility subsidiaries of American, acquired the assets of

its wholly owned subsidiary, Austin Field Pipe Line Company, in

exchange for the cancellation of $7,295,039of advances, the surrender

of all of the outstanding stock and the assumption of all liabilities of

the Austin company."

Inorder to meet a continually increasing demand for fuel the American system has undertaken a substantial amount of new financing

during the past year. At June 1951 total system construction requirements were estimated at approximately $45 million. In November

1950, Milwaukee Gas LIght Company, another subsidiary, issued ana

sold at competitive biddin~ $27 million of mortgage bonds and $6

million of sinking fund debentures to the public and $3 million of

common stock 61 to its parent, American. In early July 1951, Michigan Consolidated Gas Company sold publicly $15 million of bonds

at competitive bidding and to its parent, American, $5 million of common stock, which, it was estimated, would meet its requirements

through 1951.

In order to preserve a balanced capital structure within the system

it has been necessary for the parent holding company, American, to

make several offerings of its own common stock from time to time.

In August 1950, it Issued and sold, pursuant to a rights offering,

304,406 additional common shares. In June 1951, another rights offering to its common stockholders resulted in the sale of 334,935

shares of common stock." Aggregate proceeds of the two offerings

were $15,900,000.

The Columbia Gas System, Inc.

The Columbia Gas System, Inc. ("Columbia Gas") is the parent

holding company in an integrated natural gas utility system providing service in seven states. Its properties embrace both distribution

•• The status of one non-utility subsidiary, Milwaukee Solvay Coke Company, remains to be determined. , eoHolding Company Act release No. 10327. 111 Holding Company Act releases Nos. 10169 and 10188. 82 Holding Company Act releases Nos. 10054 and 10610.
SEVENTEENTH ANNUAL REPORT 95

and transmission facilities. To meet a continuously increasing demand for natural gas as a house-heating fuel and for new defense requirements, construction expenditures totaling over $37 million were

made by the system in 1950, and projected expenditures for 1951 involve an additional amount of $68 million. The completion of this

program is dependent, however, upon the availability of certain critical materials. Cash requirements for these undertakings have been

met, in part, through the sale at competitive bidding by Columbia Gas

of $90 million principal amount of debentures in July 1950. Although

a portion of this offering was used to retire $58 million of debentures

outstanding, the balance was made available for construction needs.

The indenture under which these debentures were issued permits the

company to issue debt to the extent of 60 percent of its total capitalization. Columbia Gas indicated that, while it is presently of the opinion that a debt ratio of not more than 50 percent is desirable, it felt

that a substantial amount of additional borrowing capacity might be

necessary in periods of heavy construction which would temporarily

bring the debt ratio above this level. The Commission recognized the

desirabilitl of such flexibility and permitted the declaration covering

issuance 0 the debentures to become effective. Itindicated, however,

that it considered 50 percent to be the desirable proportion of debt for

the system and noted that its approval was not to be construed as an

indication that the issuance of debt to the full limit permitted by the

indenture would be approved under all circumstances."

Cash derived by Columbia Gas from its sale of securities has been

reinvested in several of its subsidiary operating companies through

the purchase of instalment promissory notes. The aggregate of such

investments during the fiscal year 1951 was $25,600,000. Columbia

Gas has also purchased 122,000additional shares of the common stock

of its subsidiary holding company, Atlantic Seaboard Corporation.

The proceeds of this financing have been applied to meet construction

requirements."

Interstate Power Company

Interstate Power Company is an operating-holding company which,

together with its two subsidiaries, is engaged principally in the electric

utility business in Minnesota, Iowa, Wisconsin, Illinois, and South

Dakota.

Following a complete financial reorganization of the company in

1948 pursuant to a section 11 (e) plan Interstate's rapidly expanding

business necessitated the raising of substantial amounts of additional

capital. The company's financial structure at that time was still far

from ideal and, in the process of meeting its new capital requirements,

the company and the Commission were faced with the problem of effecting steady improvement in the system's equity ratio so that future

financmg could be facilitated on a sound and economical basis. This

objective has been achieved with marked success. Interstate's common equity has increased from 17 percent of total capitalization and

surplus at the time of its 1948 reorganization to about 27 percent by

the middle of 1950.

To finance its 1951 construction program Interstate arranged for

short term bank borrowings in the aggregate amount of $4,500,000.

.. Holding Company Act releases Nos. 9993 and 10012. eoHolding Company Act release No. 10648
96 SECURITIES AND EXCHANGE COMMISSION

By order dated February 16, 1951, the Commission approved borrowings to the extent of $2,500,000, reserving jurisdiction over the remaining portion pending consideration by the company of plans to

effect additional common stock or other equity financing in the near

future."

During the past fiscal year the Commission also approved an Adjusted Compromise Plan with respect to the distribution of 944,961

shares of Interstate's new common stock which had previously been

placed in escrow pending determination as to whether the holdings

of Ogden Corporation (former parent company of Interstate) should

be subordinated to those held by the public." The plan was directed

to be enforced by the United States District Court for the District of

Delaware in its order dated March 16, 1951. Distribution of the escrowed assets to the holders of Interstate's formerly outstanding

securities was initiated a month later.

Middle South Utilities, Inc.

Middle South Utilities, Inc. ("Middle South") controls a utility

system serving the three state area embracing Arkansas, Louisiana and

western Mississippi. The company was organized in May 1949 to acquire from Electric Power & Light Corporation the latter's holdings

in Arkansas Power & Light Company, Louisiana Power & Light Company, Mississippi Power & Light Company and New Orleans Public

Service, Inc., and a small land company. Middle South is now an

integrated regional holding company system deriving the major portion of its revenues from sales of electricity. Certain of its nonretain-.

able natural gas and transportation operations, and its interest in the

land company, have been disposed of during the past fiscal year.

On September 6, 1950, the Commission approved the sale by Arkansas Power & LIght Company of its entire gas utility assets, can

sisting of distribution systems in 23 small towns and cities in Arkansas," These properties were sold to the newly formed Midsouth

Gas Company ("Midsouth") which was organized by a group of investment banking firms. Midsouth agreed to pay Arkansas Power

in cash an amount equal to the net book cost as of December 31, 1949,

of the gas properties and also for other assets transferred and conveyed under the purchase contract.

On December 20, 1950, the Commission also approved the sale by

Arkansas Power & Light Company of its holdings of common stock of

Capital Transportation Company. The sale was made to a non-affiliated transit company for a total consideration of $575,000.68

The Middle South system has estimated that its construction expenditures for the year 1951 will total approximately $48,450,000, of

which $25,000,000 is to be raised by new financing. In November 1950,

the Commission approved the sale at competitive bidding of $10

million of mortgage bonds by Louisiana Power & Light Company,

and in March 1951 approval was granted for the issuance and sale

by the parent holding company of 450,000 shares of its own common

stock at competitive bidding." Middle South has employed the proceeds of this offering, together with other available cash, to purchase

.. Holding Company Act release No. 10398. .. Holding Company Act release No. 10400. fl'f Holding Company Act release No. 10077. .. Holding Company Act release No. 10300. .. Holding Company Act releases Nos. 10193, 1022B, 10438 and 10458.
SEVENTEENTH ANNUAL REPORT 97

$8 million of additional common stock of Arkansas Power & Light

Company.

New England Electric System

New England Electric System ("NEES") and its subsidiary companies constitute the largest utility organization in New England.

The system's total revenues from operations for the year 1950

amounted to approximately $107 million, 82 percent of which was

derived from the sale of electricity, 10 percent from gas and 8 percent from transit operations. The system has 35 subsidiary companies of which 21 furnish electricity, at retail, in Massachusetts and

Rhode Island. Two generating companies and a transmission company operating in New Hampshire and Vermont supply electricity

on a wholesale basis.

During the past fiscal year, Narragansett Electric Company, a subsidiary operating company, acquired the property of its own subsidiary, Rhode Island Power Transmission Company, which was subsequently dissolved. In October 1950, NEES sold its interest in Fall

River Electric Light Company to Eastern Utilities Associates, a nonaffiliated holding company, for $7,608,000. In March 1951, NEES

also disposed of its investment in the United Electric Railways Company which operates in the Providence, Rhode Island, area.

NEES has made considerable progress during the year with respect

to its plan for the consolidation of certain electric properties into

larger operating companies. This plan is closely associated with the

separation and disposal of the system's gas properties. The merger

of the electric properties of eight subsidiary companies located in the

central part of Massachusetts into one electric company was consummated in February 1951 and, at the same time, the gas properties of

certain combination gas and electric companies in this area were

separated and regrouped into four gas companies. On July 14, 1951,

NEES invited proposals for the purchase of all or part of the system's

gas properties.

After many modifications, the reorganization plan of Green Mountain Power Corporation ("Green Mountain"), a subsidiary of NEES,

was approved by the Commission and ordered enforced by the United

States District Court for the District of Vermont at the close of the

fiscal year.70 The plan, among other things, provided for the exchange of new common stock for the company's then outstanding

preferred stock, the issuance and sale, for cash, of additional shares

of new common stock and the settlement of possible intra-system

claims. Since NEES was allowed no participation in the reorganized

company, Green Mountain is now an independent operating utility.

Itis estimated that construction expenditures for the NEES system

for the years 1949 to 1952 inclusive will total $122 million. In addition cash demands to meet sinking fund requirements and short term

debt maturities require an additional $29 million. Of direct concern

to the Commission has been the system's temporary and permanent

financing program for this construction.

To provide temporary financing for the construction program,

system companies from time to time have borrowed from commercial

banks with indications that they expect to do permanent bond and

capital stock financing and use the proceeds to retire the bank debt

'10 Holding Company Act releases Nos. 10524, 10595 and 10625.
98 SECURITIES AND EXCHANGE COMMISSION

and to pay for construction. During the fiscal year, New England

Power Company ("NEPCO") and Worcester County Electric Company ("Worcester County"), subsidiaries of NEES, each sold $12

million principal amount of bonds," Although during the period

certain subsidiary companies issued capital stock to NEES and used

the proceeds thereof to retire bank debt, short term promissory notes

to banks authorized or outstanding as at the end of the period aggregated $22 million. During July 1951, other subsidiaries had pending

applications for Commission approval of an additional $6,175,000 of

bank loans. Proceeds to be derived from the contemplated sale by

NEES of its investments in gas and transportation properties are

to be reinvested in the equity of its subsidiary companies in order to

effect an improvement in the system's capitalization ratios.

New England Gas and Electric Association

New England Gas and Electric Association ("NEGEA") is a Massachusetts trust holding the common stocks of 11 utility companies all

of which, except New Hampshire Electric Company ("New Hampshire") and Kittery Electric Light Company ("KIttery"), are engaged

in the electric or gas utility business in Massachusetts. In February

1951, NEGEA and New Hampshire filed an application with the

Commission proposing the issuance by New Hampshire of 15,000 shares

of preferred stock and 140,000 shares of common stock and the exchange of such stocks for all of its presently outstanding common stock

which is held by NEGEA. The application further proposed the

sale by NEGEA of New Hampshire's preferred stock to the public

and the new common shares of New Hampshire to NEGEA's stockholders, both at competitive bidding. NEGEA also proposed to donate

to New Hampshire its holdings of all of the common stock of Kittery

prior to the issuance and exchange of the new securities. The Commission approved the proposed transactions in March 1951, but no

bids were received for the purchase of the new preferred and common

stocks of New Hampshire."

NEGEA is continuing the extensive construction program commenced prior to the past fiscal year. Gas plant additions have included

facilities to utilize natural gas when it becomes available in the New

England area. Estimated expenditures for the calendar years 1951

and 1952 aggregate $12,200,000, of which $2,200,000 represents expenditures necessitated by the introduction of natural gas. To finance

this construction program the operating subsidiaries will use general

corporate funds in the aggregate amount of $8,500,000, borrow $1 million from banks, and sell additional common stock to NEG EA in the

amount of $2,700,000. The cost of adjusting customer-owned appliances for natural gas is to be financed through the issuance by subsidiary companies of 10-year unsecured sinking fund notes.

In June 1951, the Commission approved the issue and sale by

NEGEA of 197,394 additional common shares in the form of a rights

offering to holders of its common stock." The proceeds, amounting

to $2,566,000, were used to repay bank loans in the amount of $1 million and to purchase additional common stocks of subsidiaries

n Holding Company Act releases NOB.10380, 10402, 10468, 10488. .. Holding Company Act release No. 10424. .. Holdlng Company Act release No. 1()592.
SEVENTEENTH ~AL REPORT 99

NEGEA is planning to raise approximately $3 million through the

issue and sale of additional common shares during 1952.

The cash requirements of NEGEA during the past fiscal year have

included the purchase of additional shares of common stock of Algonquin Gas Transmission Company, a natural gas pipeline company to

be engaged in transporting natural gas to the New England area.74

NEGEA's interest in this subsidiary will be limited to $3 million or

37.5 percent of the total initial equity of the company. Participating

with NEGEA are Eastern Gas and Fuel Associates, Texas Eastern

Transmission Corporation, and Providence Gas Company. To finance

the Algonquin purchase NEGEA has negotiated short-term bank loans

which will be refinanced on a permanent basis as soon as the line is

in operation.

Northern Natural Gas Co.

Northern Natural Gas Company ("Northern") is engaged in the

purchase, transmission and distribution of natural gas, which is

carried from fields in Texas, Oklahoma, and Kansas to utility companies located principally in Minnesota, Iowa, and Nebraska. The

company has one wholly owned gas utility subsidiary, Peoples Natural

Gas Company, and is therefore a registered holding company. On

September 25, 1950, however, Northern filed an application with this

Commission pursuant to section 3 (a) (3) seeking exemption for itself

as a holding company and for each subsidiary thereof as such from

the provisions of the act. Hearings have been held on this application and the Division of Public Utilities has recommended denial of

the application. The Commission has heard oral argument of the

question and has taken the matter under advisement.

Since the end of World War II, increased demands on this system

have necessitated large increases in its pipe line capacity, which at

the end of 1950 stood at approximately 600,000 mcf a day. Additional construction planned and undertaken for the year 1951 contemplates a further addition of 225,000 mcf of daily capacity. The

Commission has constantly urged that the financing of this construction be designed with a view to preserving as far as possible the substantial equity ratio which has been a characteristic of the system for

many years. During the past two years the company has sold an

aggregate of 810,000 shares of common stock by means of rights offerings with gross proceeds of $21,578,750,75 and has also sold $40 million of 2% percent serial debentures." The company estimates that

its 1951 construction program will cost approximately $60 million

and contemplates-financing these expenditures on a long-term basis

through the sale of $51 million of securities to the public, Temporary financing through $30 million of bank loans was permitted by

the Commission on April 26, 1951.77

Northern States Power Company

Northern States Power Company ("Northern States") is a holding-operating company engaged, either directly or through subsidiaries, in the electric and gas utility business in the states of Minne-

•• Holding Company Act release No. 10504• ...Holding Company Act releases Nos. 8963 and 9833. 'II Holding Company Act releases Nos. 9890 and 9921. '1'1 Holding Company Act release No. 10517.

975942-52-8
100 SECURITIES AND EXCHANGE COMMISSION

sota, Wisconsin, North Dakota and South Dakota. Although the

system is expected to achieve ultimate compliance with the standards

of section 11 (b), it is faced with some residual problems.

In this connection, the Commission in June 1950 authorized the

sale of all of the physical properties of Interstate Light & Power

Company (Ill.) a wholly-owned subsidiary of Northern States, to

Northwestern Illinois Gas & Electric Company, a non-affiliated company, for the base price of $549,900.18 Inthe same order the Commission also authorized the sale by Interstate Light & Power Company

(Wisc.) , another wholly-owned subsidiary, of that part of its electric properties comprising its Platteville division to Wisconsin Power

& Light Company, another non-affiliate, for the base price of $560,-

500. These property sales effected the disposition of outlying electric

properties in northwest Illinois and southern Wisconsin which did

not constitute a part of the Northern States' principal electric system.

By order entered October 13, 1950, the Commission authorized the

sale by Northern States of 175,000 shares of new preferred stock to

provide a part of the capital required for completion of the system's

post-war construction program, estimated to aggregate $163,500,000

to the end of 1951.19

The company stated that further financing of approximately $25

million would be required for the completion of the current construction program in connection with which a material amount of common

stock would be sold contingent upon market conditions. It is expected that Northern States will inaugurate another large scale construction schedule, to provide for rapidly growing demand.

Ohio Edison Company

Ohio Edison Company ("Ohio Edison"), formerly a subsidiary of

The Commonwealth & Southern Corporation, IS now an independent

operating-holding company having one utility subsidiary, Pennsylvania Power Company ("Pennsylvania Power"). During the past

year, the company and its subsidiary have undertaken several financing

operations to provide funds for construction expenditures for the

years 1951 and 1952 estimated to aggregate $57,800,000in the case of

Ohio Edison and $14,900,000for Pennsylvania Power.

Ohio Edison has made two offerings of common stock. The first

took place in October 1950 when it offered 396,571 shares through a

rights offering to stockholders. This was followed in May 1951 by

an additional rights offering of 436,224 common shares," The proceeds derived from these two sales totaled over $23 million which

materially increased the company's common stock equity. As a result,

Ohio Edison made a further investment of $1,200,000in Pennsylvania

Power by the purchase of 40,000 shares of the latter's common stock,

all of which is owned by the 'parent company. In addition, Pennsylvania Power sold at competitive bidding in March 1951, $4 million

par value of preferred stock." Shortly thereafter, Ohio Edison proposed the sale of its own preferred stock in the amount of $15 million,

but because of unfavorable market conditions the offering was postponed.

71 Hnldlng Company Act release No. 9927. 79 HoldIng Company Act releases Nos. 10157 and 10174. 80 Holdmg Company Act releases Nos. 10133, 10508, and 10540. 81 HoldIng Company Act releases Nos. 10426 and 10459.
SEVENTEENTH~AL REPORT 101

The Southern Company

The Southern Company ("Southern Company") is the parent holding company of a system which survives the former Commonwealth &

Southern group. The integrated system, which it controls, furnishes

service through four electric utility subsidiaries in Georgia, Alabama,

Florida and Mississippi. It is second largest of the continuing

systems.

On August 24, 1950, the Commission approved the acquisition of

Birmingham Electric Company ("Birmingham") through an exchange of common shares of the Southern Company and preferred

shares of Alabama Power Company {"Alabama"}, a subsidiary of

the Southern Company, for common and preferred shares of Birmingham. The Commission's order required that the Southern Company

and Alabama, which became the immediate parent of Birmingham,

bring about the disposal of all interest in the transportation properties

of the latter company not later than August 31, 1951.82 The sale of

these properties was accomplished in June 1951.83

During the calendar year 1950, capital expenditures of the Southern Company system totalled $70 million and present plans call for

further additions to plant during the period 1951-1953 sufficient to

effect a 38 percent increase in generating capacity over that installed

by the end of 1950. In October 1950 the Southern Company sold

one million shares of its common stock at competitive bidding 84 and

another sale of the same amount was consummated in April 1951.85

Total proceeds derived from these offerings aggregated approximately $21,900,000. These funds, together with additional amounts

of treasury cash, were invested by the parent company in the common stock of its subsidiaries. In addition to this common stock financing, operating subsidiaries sold bonds and preferred stocks to the

public yielding cash proceeds of over $34 million.

Southern Natural Gas Company

Southern Natural Gas Company {"Southern Natural"} operates a

natural gas pipeline system extending from gas fields in Texas, Louisiana and MIssissippi to markets in Mississippi Alabama and Georgia.

Two of the company's subsidiaries are engaged in the distribution of

gas in Mississippi and Alabama. Another subsidiary operates a 35

mile gas pipeline in Louisiana.

During 1950 Southern Natural commenced the largest program in

its history for the expansion and extension of its pipelme system.

Funds for the major portion of the cost of this construction were

obtained initially from short-term bank loans in the amount of $20

million." Early in 1951 the Southern Natural sold $17,500,000 of its

first mortgage bonds due in 1970, and 155,546 shares of additional common stock to yield aggregate proceeds of $22,666,250,87which were

used to repay the bank loans. Upon consummation of this financing,

the ratio of common equity to total capitalization and surplus of the

system was approximately 44percent.

Over the past five years, Southern Natural's gross plant account

has doubled from about $50 million over $100 million .

.. Holding Company Act release No. 10055. II Holding Company Act releases Nos. 10551 and 10588 . .. Holding Company Act releases Nos. 10114 and 10129 . .. Holding Company Act releases Nos. 10454 and 10484 .. Holding Company Act release No. 9935 . ., Holding Company Act releases Nos. 10338 and 10351.

•
102 SECURITIES AND EXCHANGE COMMISSION

Union Electric Company of Missouri

Union Electric Company of Missouri ("Union Electric") is an operating-holding company serving a sizeable area in the State of Missouri,

including the City of St. Louis, and through its utility subsidiary,

Union Electric Power Company, the southwest portion of illinois.

Union Electric is at present a subsidiary of The North American

Company, a registered holding company, which, at one time, controlled

36 utility and 46 non-utility companies and through them operated in

10 States and the District of Columbia. Union Electric is the sole

remaining direct utility subsidiary of The North American Company.

On December 29,1950, North American Light & Power Company,

a wholly-owned subsidiary of The North American Company, transferred pursuant to Commission approval its holdings of all of the

common stock of its subsidiary, Missouri Power & Light Company,

to The North American Company, in partial liquidation. Immediately thereafter, The North American Company transferred these

holdings to Union Electric Company of Missouri, its direct subsidiary, in return for 600,000 shares of the latter's common stock."

Union Electric, as a part of the transaction, agreed to dispose of several utility properties not capable of integration with its own properties and certain non-utility properties all of which were owned by

Missouri Power & Light Company. Sales of an electric distribution

system and of some ice manufacturing equipment were consummated

prior to the close of the fiscal year.

Union Electric and its subsidiaries are engaged in an extensive

construction program which will require expenditures for the years

1951 through 1955 of approximately $161 million. The funds required for the fiscal year were derived principally from the sale by

Union Electric, in April and June 1950, of 700,000 shares of its common stock to The North American Company for $10 million and the

sale, in December 1950, of $25 million of mortgage bonds to the

public."

During the past year, Union Electric, together with four other

utility companies, participated in the formation of a new corporation

known as Electric Energy, Inc. This represented a significant development in the utility industry and in the history of administration of the act. The new company was organized to build and own

a 500,000 Kw generating station at Joppa, Illinois, for the purpose

of supplying one half of the power requirements of the Paducah,

Kentucky, plant of the Atomic Energy Commission. The main question presented to the Commission for determination was whether,

under the standards of the act, the common stock of Electric Ener~,

Inc., amounting to $3,500,000,might be acquired by the organizers III

the following proportions: Union Electric, 40 percent; Middle South

Utilities, Inc., 10 percent; Kentucky Utilities Company, 10 percent;

and Illinois Power Company, 20 percent. The first two of these companies were registered holding companies and the latter two were

exempt holding companies. The remaining stock was to be acquired

by Central Illinois Public Service Company, which was not a holding

company subject to the act. The type of showing required of the

applicants to support their proposed acquisitions would ordinarily

necessitate extensive proof, consuming considerable time. Due to the

.. Holding Company Act release No. 10320 .. Holding Company Act releases Nos. 9778, 9944, 10239, and 10268. •
SEVENTEENTH ANNUAL REPORT 103

importance of this project to the national defense and the expedition

required in its building, the Commission decided that, since the project

was not "business as usual", it merited postponement of "regulation

as usual"; accordingly, it postponed to more normal times the taking

of evidence which would be required to justify the acquisition of the

stock and permitted the acquisition on an interim basis,'?

The proposed financing of this project by means of the sale of not

more than $100 million of first mortgage bonds to two insurance companies and the sale of the $3,500,000 of common stock to the organizers

also raised a serious question as to the propriety of such a capital

structure. The Commission expressed the view that the problem

raised by this unbalance in the capital structure could be resolved

favorably, in view of the financial commitments of the Atomic Energy

Commission which have the effect of guaranteeing repayment of a substantial portion of the indebtedness.sThe United Gas Improvement Co.

The United Gas Improvement Company ("UGI") is a registered

holding company, incorporated under the laws of Pennsylvania, having nine subsidiaries. Six are gas utility companies, one is a gas and

electric utility company, and two are non-utilities. The operations

of all subsidiaries are conducted within the State of Pennsylvania.

In April 1951, UGI disposed of its only subsidiary having out-ofstate operations when it accepted a $1 million note from Delaware

Coach Company in exchange for 10,000 shares of that company's common stock and sold the balance of 26,000 outstanding shares to an

unaffiliated person for $400,000.92 Delaware Coach Company conducts a transportation business in Wilmington, New Castle, and

Newark, Delaware. It also has two wholly-owned subsidiaries, Delaware Bus Company and Southern Pennsylvania Bus Company.

On June 15, 1951, the Commission approved a voluntary exchange

plan, submitted by UGI, intended to reduce the substantial amount

of minority interest investments in the portfolio of UGI.93 A substantial portion of these holdings had been received by UGI in exchange for the latter's investments in holdi!1$ companies which were

reorganized under section 11 of the act. under the plan, UGI offered to exchange for each unit of five shares of its own stock (to the

extent of 363,285 shares), three shares of common stock of Philadelphia Electric Company and two shares of common stock of Consumers

Power Company. Stockholders tendering from one to four shares

of UGI stock received a cash payment in lieu of stock on an equivalent

basis. Shareholders of VGI stock tendered 329,940 shares eligible for

the exchange offer and 5,691 additional shares were retired by cash

payment. As a result of these transactions, the outstanding capital

stock of UGI has been reduced from 1,566,371 shares to 1,230,740

shares. UGI is under order to dispose of all of its remaining nonsubsidiary security holdings.

Utah Power & Light Co.

Utah Power & Light Company ("Utah"), formerly a subsidiary

of Electric Power & Light Corporation, IS a registered operating90 Holding Company Act release No. 10340. 11 HoIding Company Act release No. 10639 . .. Holding Company Act release No. 10477 . .. Holding Company Act release No. 10624.
104 SECURITIE3 AND EXCHANGE COMMISSION

holding company subject to the active regulatory jurisdiction of the

Commission by virtue of its ownership of voting securities in Western

Colorado Power Company. Utah and its subsidiary are presently

engaged in a construction program which will entail expenditures of

approximately $44 million in the years 1951 to 1953, inclusive. Expenditures for the calendar year 1951 are estimated at approximately

$18 million.

On August 29, 1950,the Commission approved the issuance by Utah

of $8 million of first mortgage bonds, as well as 166,604 shares of

common stock,94and, on March 8, 1951, it permitted the company to

borrow from certain banks amounts not to exceed $12 million evidenced by notes payable on December 15,1951.95 This note indebtedness was expected to be retired after the close of the fiscal year through

the sale of $9 million of additional mortgage bonds and 175,000shares

of new common stock.96 During the year the Commission also approved the company's proposal to amend its certificate of organization and by-laws so as to effect, among other things, an increase in

the number of authorized shares of capital stock, an adjustment of

its preemptive rights provisions, and a change in the date of stockholders' annual meeting." On April 30, 1951, the Commission approved an application by Utah to purchase from the Village of Area,

Idaho, the electrical distribution lines and facilities, together with a

transmission line owned by Arco, for a cash consideration of $100,000.98

The West Penn Electric Company

The West Penn Electric Company ("West Penn") is the parent

holding company in a utilitv system deriving about 90 percent of its

revenues from sales of electric power and servicing a territory located

principally in Pennsylvania, West Virginia, and Maryland. Small

adjacent sections of Ohio and Virginia are also served. West Penn

was formerly a subsidiary of American Water Works & Electric Company, Inc., which was liquidated in January 1948.

The West Penn system presently has in progress a construction

program, which for the calendar years 1951 and 1952 contemplates the

expenditure of more than $75 million. On February 21, 1951, the

Commission approved the sale by West Penn of 320,000 shares of its

common stock, at competitive bidding, with proceeds in excess of

*8,500,000.99 In April 1951, bond financings undertaken by two of

the subsidiary operating companies furnished additional funds of

over $20 million.'

The Commission now has before it a residual problem deriving

from the liquidation of West Penn's former parent company, American 'Vater Works & Elertic Company, Inc. In October 1947, American Water Works & Electric Company, Inc., undertook to retire its

outstanding publicly-held preferred stock. This was accomplished

by cash payment of the liquidation preference of $100 per share and

accrued dividends to October 15, 1947. Furthermore, at the direction

of the Commission and with the approval of the United States District Court for the District of Delaware, escrow certificates were issued

.. HoldIng Company Act releases Nos. 10063, 10096, and 10148 .. HoldIng Company Act release No. 10429 .. Holding Company Act release No. 10759.

Holding Company Act release No. 9976 . .. Holding Company Act release No. 10535. .. Holding Company Act releases Nos. 10403 and 10431 1HOlding Company Act releases Nos. 10428, 10476, 10487, and 10522.

• •

'"
SEVENTEENTH ANNUAL REPORT 105

to the holders of the preferred stock as evidence of claims for such

additional payments as the Commission might subsequently determine

in fairness and equity should be made. In December 1950, after

public hearings and the submission of briefs, the Division of Public

Utilities submitted a recommended decision to the Commission proposing an additional payment of $10 per share plus compensation for

delay in payment at the rate of 5.45 percent from October 15, 1947.

On March 15, 1951, oral argument was heard and the Commission now

has the matter under advisement.

ACQillSITIONS OF SECURITIES, UTILITY ASSETS AND OTHER

INTERESTS

Under the provisions of sections 9 and 10 of the Holding Company

Act the Commission passes upon numerous applications covering

acquisitions of securities, utility assets or other interests. The major

portion of these applications reflect the acquisitions by parent holding

companies of securities issued by their subsidiaries. In this area, the

Commission exercises jurisdiction over the manner in which parent

holding companies finance the expansion of their subsidiary companies.

This is one of the most important functions of the modern holding

company. During the past fiscal year, for example, holding companies purchased securities of their subsidiaries totaling $216 million.

The review of these intercompany security sales is important because

of their effect u'pon the ultimate financial mtegrity of the utility operating subsidiaries, The maintenance of sound and balanced financial

programing at this level is also an important aspect of the Commission's assistance to State regulatory commissions in preserving the

stability of utility enterprises operating within their jurisdiction.

Public utilities, unlike most other industries, are usually faced with

the problem of expanding plant facilities in periods of depression as

well as prosperity. A high degree of financial flexibility is therefore

essential in order to insure maintenance of adequate service to

consumers.

A smaller proportion of the applications under section 10 relates to

the acquisition of securities, assets or other interests outside the previous scope of operation of the applicant systems. In many cases

these acquisitions reflect the growing trend of positive integration

reported in earlier years. Important examples during the fiscal year

1951 included the American Gas and Electric Company's acquisition

of the common stock of Central Ohio Light & Power Company, acquisition of the stock of Birmingham Electric Company by The Southern

Company from Electric Bond and Share Company and other holders,

the acquisition by Niagara Mohawk Power Corporation of certain

properties from two non-affiliated companies in the State of New York,

the purchase by Eastern Utilities Associates of additional common

stock of Fall River Electric Light Company from New England Electric System, and the acquisition by a subsidiary in the Consolidated

Natural Gas Company system of gas utility assets from a subsidiary of

West Penn Electric Company. An exchange of property was also

consummated between Louisiana Power & Light Company, a subsidiary of Middle South Utilities, Inc., and Gulf Public Service Company, Inc., a subsidiary of an exempt holding company.

Well over $1 billion of utility assets have been acquired by holding
106 SECURITIES AND EXCHANGE COMMISSION

company systems and utility operating companies over the past several

years thereby effecting a greater degree of integration of facilities.

FINANCING

During the 12 months ending June 30, 1951, 313 questions were

presented to the Commission for determination pursuant to sections 6

and 7 of the act, under which the Commission is required to pass upon

the issuance of securities, and assumptions of liability and alterations

of rights of securities, by registered holding companies and their subsidiaries. A total of 326 questions were disposed of during the year,

including a few carried over from the latter part of the preceding year.

All but 37 of these related to issues of securities. In the fiscal year

1950,337 questions were disposed of under sections 6 and 7.

Following the pattern established in 1948,financing during the past

year has been predominantly for the purpose of meeting very heavy

construction expenditures. On an industry-wide basis, expenditures

of electric and gas utilities for the past year, exclusive of investment in

natural gas transmission facilities, are estimated to have been in excess

of $2,400,000,000. However, public offerings of securities for the

fiscal year 1951 did not match in volume the total for 1950which established a peak level for the industry. The tabulation set forth below

includes all security sales for cash, plus refunding exchanges, by electric and gas utility operating companies which have been approved

under sections 6 and 7 of the act. The table also includes similar

security sales by all other electric and gas utility companies in the

United States which have registered their issues with the Commission

under the Securities Act of 1933. The data for gas utilities cover

only those companies which are engaged in the retail distribution of

natural or manufactured gas. Private placements of securities not

subject to either the Holding Company Act or the Securities Act of

19~3 are separately identified, although the figures are at best rongh

estimates,

Security issues sola for cash or issuea in ellJchange for refunaing purposes by

electric ana gas utilities" fiscal years 19-49-51

July I, 1948, to Percent July 1, 1949, to Percent July 1,1950, to Percent June 30, 1949 of total June 30, 1950 of total June 30, 1951 of total

Bonds ••••..•.••. ..... ... $899,434, 729 47 $953, 782, 240 43 $785,947, 640 43 Debentures. _. •............ 241, 238, 500 13 104, 700. 235 5 69,080,740 4 Preferred stock._ .•........ 192, 779, 280 10 362, 015, 050 16 137, 434, 438 8 Common stock ....•...• 364, 016, 666 19 v 601,460,071 23 413, 292, 773 23

Total sales subject to

the 1933, the 1935 act, or both statutes; •.. .. 1, 697, 469, 175 89 1, 921, 957, 596 87 1,405,755,591 78 Private placements not sub-

[ect to either act (estimates). 200, 000, 000 11 300, 000, 000 13 400, 000, 000 22

Total security sales _. 1, 897, 469, 175 100 2,221,957,596 100 1, 805, 755, 591 100

I In addrtion, utl~lty operating companies subject to the Holdmg Company Act sold notes With maturities of 5 years or more in the Iollowmg amounts:

~~L:::::::::::::::::: ::::::::::::::::::::::::::::::::::::~:~:~ 1951.••••••••••. •.•••• ••••.••••• ....•••• ...••••..•. ..••••• ••. 39, 934, 912

The over-all decline in financing volume can probably be attributed

to the less favorable security markets prevailing since March 1951

when the Federal Reserve System withdrew support from the Gov~

_•• _

_

__• __

_

_

__

___

_

•••

- _ _ _ • __ _
SEVENTEENTH ANNUAL REPORT 107

ernment bond market, thereby inducing a substantial reduction in the

prices of corporate bonds and preferred stocks. Market receptivity

for preferred issues has been affected to a much greater degree than

was the case with bonds and debentures, and the growth of private

placements may also be traced, in part, to the same causes. An encouraging aspect of the over-all pattern of utility financing has been

the sustained employment of common stock offerings, which contributes to the long-term stability of the industry.

With the further contraction in the numbers of companies subject

to active regulatory jurisdiction under the act, as a result of divestments under section 11, there has been some corresponding decline in

the volume of financing approved under sections 6 and 7, although

the trend seems to be levelling off as the program of integration and

simplification approaches completion. The expansion of the continuing systems is proceeding at a rapid pace, and their financing

requirements account for approximately one-third of the total for the

industry. Furthermore, the intensification of defense preparations

and the persistence of a tense international situation suggest continuation of heavy cash requirements for an extended period.

The following tables analyze in detail the volume of securities sold

for cash, or issued in exchange for refunding, by registered holding

companies and their subsidiaries pursuant to authorization of the

Commission under sections 6 and 7. Portfolio sales and issues in connection with reorganization are excluded. Significantly, these data

reflect the use of a higher proportion of common equity financing by

utility companies subject to regulation under the act than is the case

for the industry as a whole, as reflected in the preceding tabulation.

Sales ot securities and application ot net proceeds approved under the Public

Utility Holding Oompany Act of 1985 dUring the fiscal year July 1, 1950 to June

80,1951

Appllcatlon of net proceeds I

Num- Total

ber of security Refinancing Issues sales 1 New money ofshort-term Refunding purposes bank loans'

Sales by electric and gas utilltles:

$170, 692, 179 Bonds .• _____________________________ 32 $344, 794, 268 $138,457,932 $31,507,623 Debentures..; _____________________ .. 2 8.868,900 1,657,773 4,332,203 2,633,147 Notes 1______________________________40 39,934,912 36,090,421 3,750,000 - -28; 2S5~959 Preferred stock ______________________ 8 74,402,178 34,402,899 10,500.000 Common stock ______________________ 69 188, 618, 085 151,023,604 34,598,631 1,399,230

TotaL ______________________ . ______ 151 656,618,343 393, 866, 876 191, 648, 766 63,825,959

Bal~~b~=~_~~~~~: ___________.. Common 2 142,827,200 60,207,355 81,550,000 stock. 8 75,331,584 69,189,099 4,500,000 ------ ...._--- TotaL 10 218,158,784 129,396,464 4,500,000 81,550,000

8aleh~be~~~~_t_:.~~~~~~~ _____.• _._ 1 34,000,000 --'-2;000;000' Notes 33.962,100 1. ___ _______________

Common 2 2,000,000 ... .. .. --....-------- stock 10 3,415,000 3,261,708 150.000 ------------

TotaL_ . 13 39,415,000 5,261,708 150,000 33,962,100

I Differences between total secunty sales and total proceeds Isrepresented by flotation costs to the lssulng companies. Notes and bank loans of less than 5 years maturity, usually for construction purposes . Includes sales by registered operating-holding companies which derive a substantial proportion of

Income from their own operations, but which also may have 1 or more utility subsidIarIes. 1With maturities ofIiyears or more.

•

____________________ • --------~-----

____•___••••• _•• ____•________

______•• •• • -------------- ••• _•• ________________ _ - ----- ----

•• _____•____ __' __•________•

•

•
108 SECURITIES AND EXCHANGE COMMISSION

Sales of securities and application of net proceeds approved under the Public Utility

Holding Company Act of 1935 during the fiscal year July 1, 1949, to June 30, 1950

Sales by electric and gas utillties , Bonds

Debentures

Notes , Preferred stock

Common stock

TotaL

Sales by holding companies: Bonds (collateral trust} Debentures

Notes , Common stock

TotaL

Sales by nonutility companies' Bonds

Notes , Common stock

TotaL

Application of net proceeds I

Num- Total

ber of security Refinancing issues sales I New money of short-term Refunding purposes bank loans'

39 $402, 095, 635 $219,628,040 $103,853,561 $73, 618, 144 2 45,523,735 41,011,210 4,100,000 ------.-_.-- 21 23,200,000 23,173,710

15 58,064,970 42,812,177 ----9;869;959- ---4;iii8;743 73 235, 380, 176 182,875,058 46,016,170 3,006,452

150 764,264,516 509, 500, 195 163,839,690 80,643,339

1 31,783,060 8,633,353 -------------- 22,751,416

2 125,883,050 30,990,034 ------._------ 93,750,000

1 27,259,568 53,887 ------._------ 26,978,530

12 114,983,705 87,911,631 3,492,201 19,717,423 I

16 299,909,383 127,588,905 3,492,'201 163,197,369

4 48,010,000 43,891,620 4,001,850 ----.---.- .. 12 17,600,000 17,594,779 ------498;ii5ii- -----675;000 4 6,812,500 5,566,660

20 72,422,500 67,053,059 4,499,900 675,000

I Differences between total security sales andftotal proceeds is represented by f1otationl:cost:(to the issnIng companies.

Notes and bank loans of less than 5 years maturity, usuallyl'for'construction"purposes. , Includes sales by registered operating-holding companies which derive a substantial proportion ofincome

from their own operations, but Which also may have 1 or more UtilIty subsidiaries. , WIth maturities of 5 years or more.

In the fiscal year 1950, debt offerings of the electric and gas utilities

in registered holding company systems represented 61.6 percent

of the total financing of these companies, preferred stock accounted

for 7.6 percent and common stock 30.8 percent. In 1951 the proportions were as follows: debt, 60.0 percent; preferred stock, 11.3 percent;

common stock, 28.7 percent.

One of the most important functions of the public utility holding

company is the furnishing of capital to its subsidiaries. During the

fiscal year 1951 holding companies registered under the act purchased

for cash $119,389,000 of common stocks issued by their subsidiaries, In

addition they purchased $102,290,000 of subsidiary debt securities and

preferred stocks. To raise the cash required for the assistance, registered holding companies sold $218,159,000 of their own securities to the

public, including $75,332,000 of common stock and $142,827,000 of debentures. In 1950 holding companies raised $299,909,000 through the

sale of $114,984,000 of their common stocks and $184,925,000 of senior

securities. With the proceeds they purchased $139,600,000 of the common stocks of their subsidiaries and $60,300,000 of subsidiary senior

securities. With respect to both years the sales of debt securities by

registered holding companies represent for the most part parent company financing in systems where the subsidiaries have little or no senior

securities in the hands of the public thereby enabling the holding

companies to issue senior securities without impairing the consolidated equitYfosition of the system.

The role 0 holding companies in the financing of their subsidiaries

today is in sharp contrast with the situation found by the Congress

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SEVENTEENTH ANNUAL REPORT 109

in the investigation which it conducted prior to passage of the act.

During the seven-year period from 1924 to 1930 inclusive, public

utility holding companies sold approximately $4,856 million of their

securities to the public. The proceeds from this financing were devoted almost entirely to the purchase of outstanding securities. Only

a negligible portion went into the construction of plant facilities,"

Furthermore, for a period of many years up to 1928, it was the general

practice of holding companies to furnish capital to their subsidiaries

in the form of demand notes or open account advances bearing interest of from 6 to 8 percent and in some large systems the holding companies followed the regular practice of compounding interest

monthly or quarterly," By comparison, registered holding companies

have invested in excess of $540,000,000 in the common stocks of their

subsidiaries in the period from July 1,1947, to June 30, 1951.

Another important aspect of the financing of registered holding

company systems during the past year has been the predominance of

the rights offering as a vehicle for raising common equity money.

Total sales of common stocks to the public by registered holding companies and their subsidiaries in 1951 aggregated $144,560,000, of which

holding companies accounted for $75,331,000 and subsidiaries, $69,-

229,000. Of this amount 14 issues totalling $117,395,000 were sold by

means of rights offerings. In one instance there was a substantial

exercise of rights by a parent holding company. Stockholder acceptance was less than 100 percent in only three of the offerings.

Probably the most significant development in this group of issues

was the growing importance of the non-underwritten rights offering.

Only five offerings aggregating $37,897,000 were made with the aid

of firm underwriting commitments. Four issues totalling $22,065,000

were offered without underwriting, but had the benefit of dealer solicitation. The remaining five rights offerings, amounting to $57,433,-

000 were sold without the benefit of underwriting or dealer solicitation assistance. All five were subscribed in percentages ranging from

106 to 188. In each of these cases the oversubscription privilege made

an important contribution to the success of the sale.

The utility bond market suffered a sharp decline in the last four

months of the fiscal year. No perceptible change in rates was

evident until March 1951, when prIces of outstandmg utility issues

began to weaken along with the prices on long term government

bonds. The resulting uptrend in yields of outstanding issues, however, did not fully reflect the impact of the change upon new offerings. This becomes evident from a comparison of several successive

utility offerings, all classified by the investment rating agencies as of

generally comparable quality.

On December 7, 1950, an electric utility company offered $6 million

of 30 year mortgage bonds at a cost of money to the company of 2.87

percent. On April 5, 1951, some time after the decline in government

bond prices had set in, another electric utility of comparable credit

sold $10 million of mortgage bonds of similar maturity at a cost to

the company of 3.345 percent. This increase of almost one-half of

28. Rep. No. 621, 74th Cong., 1st sess., p. 15.

8. Doc. 92, 70th Cong., 1st sess., pt. 72-A., cbs. 5 and 6'/8. Doc. 92, 70th Cong., 1st sess., pts, 23 and 24, pp. 218 et seq, The parent, in the exercise ot Its rights, purchased 56.2 percent ot this Issue. There were four other rights oll'erlngs not included In the above totals for the fiscal year 1951

in which 94 or more percent of the issue was purchased by parent holding companies. The amounts taken by outside stockholders were, in each case, negl1g1ble.

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110 SECURITIES AND EXCHANGE COMMISSION

one percent brought interest costs to the highest level in several r,ears.

Although there was some leveling off in new money rates in April, the

relief was only temporary. On June 28, 1951, another offering of

electric utility bonds bearing the same credit rating and maturity

was made at a cost 3.675 percent. This issue represented the high

point of interest costs for the period and the issue was quickly absorbed by institutional purchasers. Subsequent offerings in the same

quality group were made at more favorable rates until early in

September 1951, when yields again turned upward.

This marked change in money costs may have a considerable impact

upon the industry. For a long period the low rates available on

senior security offerings were a significant offset to increased operating expenses and, in the financing of new construction, they provided

added assurance of an adequate return on new equity investment.

Further increases in the cost of raising new capital may result in

greater pressure on the utility rate structure, although throughout

this period of weakness in the prices of debt securities and preferred

stocks, utility common stocks have been readily saleable in substantial

amounts, and utility managements on the whole have taken advantage of the opportunities presented.

COMPETITIVE BIDDING

Offerings of securities by issuing companies under sections 6 (b) and

7 of the act and portfolio sales by registered holding companies under

section 12 (d) are required to be made at competitive bidding in

accordance with the provisions of rule U-50. Certain special types

of sales, including issues of less than $1 million, short term bank

loans, issues the acquisition of which have been authorized under section 10 and pro rata issues to existing security holders are automatically exempt under clauses (1) through (4) of paragraph (a) of

the rule. In paragraph (a) (5) the Commission retains the right

to grant exemptions by order where it appears that competitive bidding is not necessary or appropriate to carry out the provisions of the

act.

Securities sold at competitive bidding under rule U-50 from its

effective date, May 7, 1941, to June 30, 1951, total in excess of $6,-

770,000,000. A tabular presentation showing the various classes of

securities, number of issues and amounts, for the entire period and for

the past fiscal year is set forth below:

Sales of securities pursuant to rule U-50

May 7, 1941, to June 30, 1951 July 1, 1950, to June 30, 1951

Number Amount Number Amount of Issues of Issues

Bonds 284 I $4, 593, 029, 000 24 I $302, 850, 000 Debentures . 34 I 765, 938, 000 3 I 146, 000, 000 N otes _____•. _______________. ____. ________________ 6 1 56, 500, 000 1 13,750,000 Preferred stock 82 1 720,727,700 6 1 45,000, 000 Common stock ___________________________________ 70 1 634,691,236 8 169,883,400

Total. ._ 476 6, 770, 885, 936 42 M7,483, 400

1 Principal amount. 2 Par value. a Proceeds to company.

________________________________•__- ______--

___• __• ___________________ __•• _______

__________•______________-- ________

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SEVENTEENTH ANNUAL REPORT 111

The experience of the Commission in administering rule U-50 has

adequately demonstrated its workability and effectiveness in maintaining competitive conditions and in achieving minimum costs of

flotation. The Commission has always recognized, however, that

flexibility in administration was a necessity and it has granted a

considerable number of exemptions in cases where unusual circumstances were present. In the 10-year period since the rule became

effective, 202 security issues totalling in excess of $1,566,000,000 have

been exempted by Commission order from the competitive bidding

requirements. Ten issues with a value of $151,772,000were exempted

in fiscal 1951. These are exclusive of the automatic exemptions. The

following table summarizes these exempted sales by type of security

and also shows the numbers and amounts of issues sold with and without underwriting arrangements.

Bales Of securities pursuant to orders of the Oommission granting exemptions

from competitive bidding requirements under the provisions of paragraph (a)

(5) of rule U-50 '-May 7,1941, to June 30,1951

Underwritten Nonunderwrltten Total-all Issues transactions transactions

Number Amount. Number Amount. Number Amount' of Issues of issues of Issues

Bonds ____________________ 4 $27,027,500 58 $592, 461, 768 62 $619,489,268

Notes Debentures. ______________ 3 83,425,000 5 36,7i9,939 8 120, 204, 939 _____________________ ---------- -------------- 19 32,894,158 19 32,894,158 Preferred stock ___________ 10 60,868,703 24 261, 610, 344 34 322,479,047 Common stock ___________ 32 276,427,322 47 194, 834, 081 79 471,261,403

TotaL ______________ 49 447,748,525 153 I I, 118, 580, 290 202 I 1,566,328,815

I Exclusive of automatic exemptions afforded by clauses (1) through (4) of paragraph (a) of rule U-50. I Proceeds to seller before expenses. IIncludes four proposed transactions not yet consummated; proceeds are estimated.

REVISION OF REGULATORY PROCEDURES

Now that the task of integration and simplification of many of the

holding company systems has been substantially completed, steps have

been taken to streamline the procedures employed in regulation of the

continuing systems down to the simplest possible dimensions. As a

starting point, the Commission undertook during the past year a

thorough-going revision of its Form U5S which is required to be filed

annually by registered holding company systems. The modifications

which were incorporated in the new form were designed to minimize

reporting requirements and adjust its provisions to the pattern of the

surviving holding company systems. Under the revised form all

registered holding companies in the same system may join in the

filing of a single report. Another change permits copies of this report

(less certain exhibits) to be filed by registered holding companies in

complete satisfaction of all annual reporting requirements under sections 13 and 15 (d) of the Securities Exchange Act of 1934. Furthermore, the Commission abolished Form U-l4-3, an additional filing

heretofore required to be made annually by re~stered holding companies, as well as Forms U5-K and U5-MD which registered holding

companies formerly had the option of filing in lieu of Form 10-K.

Eighteen of the 31 registered holding companies required to file reports under the Securities Exchange Act of 1934 elected to satisfy the
112 SECURITIES AND EXCHANGE COMMISSION

requirements of that act for the calendar year 1950 by filing duplicate

copies of the revised Form U5S. Additional systems are expected to

take advantage of this procedure in the coming year.

The Commission presently has under study the revision of Form

U-13-60 which is the annual filing required to be made by the service

companies associated with holding company systems. The objective of

this revision will likewise be maximum simplification, although it

should be noted that the opportunities for integration with the reporting requirements under other statutes administered by the Commission

are not nearly as great as in the case of Form U5S, because the utility

service company is a device peculiar to the registered holding company

system.

INVESTMENT BOND AND SHARE CORPORATION

In the spring of 1951,the staff of the Commission. made an investigation to secure additional details on the published story that three

officersof Investment Bond and Share Corporation ("IBS") proposed

to sell 80,000shares of common stock of Eastern Kansas Utilities, Inc.,

to Kansas City Power and Light Company, both of which companies

were formerly subsidiaries of United Light and Railways Company, a

registered holding company. The investigation disclosed that the

80,000shares proposed to be sold included 15,299shares owned by IBS,

a Delaware corporation whose principal officesare located in Chicago,

Illinois. Itfurther revealed that IBS, though a holding company as

defined by the statute, for a number of years had taken no steps to effect

its registration or to apply for exemption.

As a direct result of the investigation, IBS registered on July 2,

1951, and on August 8, 1951, submitted a plan under section 11 (e)

designed to effect its ultimate liquidation and dissolution in compliance

with the provisions of section 11 (b).

ORIGINAL COST STUDIES

On April 21, 1941, the Commission adopted rule U-27 which, as

amended on:November 17, 1943,provides that every registered holding

company and every subsidiary thereof, which is a public utility company and which is not required by the Federal Power Commission or a

State commission to conform to a classification of accounts, shall keep

its accounts in accordance with the designated systems adopted by the

Commission for electric and gas utility companies. These systems

specifically provide that utility plant accounts shall be stated at the

original cost incurred by the persons who first devoted the property to

utility service.

Some field examinations of the utility companies' original cost and

reclassification studies were begun in 1945,but it was not until later in

1946 that a staff of accountants was organized for this work and field

audits undertaken on a comprehensive scale. As of June 30, 1951,

the staff had completed the field audits of sixteen companies in various

States which do not have regulatory commissions. During the intervening years, some of the reports filed with this Commission were

transferred to other regulatory authorities for audit due to changes in

applicable jurisdiction as a result of mergers, consolidations and

divestments.

Formal proceedings have been completed and orders of the Commission have been issued with respect to nine of the sixteen companies
SEVENTEENTH ANNUAL REPORT 113

examined. Amendments giving effect to the recommendations of the

Commission's staff have been filed by five companies, and these matters

will be closed at an early date. Recommended adjustments affecting

accounts of the other two companies are still under discussion.

The results of examinations conducted by the Commission disclosed

that the utility plant of the companies involved had an original cost

value of approximately two-thirds of the amounts recorded per books

prior to reclassification. The remaining one-third of the recorded

amounts was transferred to adjustment accounts. Almost 75 percent

of the difference between the amount recorded per books and original

cost has been classified as Account 107, Plant Adjustments, and required to be written off immediately. The balance has been classified

as Account 100.5, Plant Acquisition Adjustments, and will be amortized over a period of years, except in those cases where the company

has elected to dispose of all adjustments immediately.

COOPERATION WITH STATE AND LOCAL REGULATORY AUTHORITIES

The policy of the Commission always has been to cooperate to the

fullest extent with State and local regulatory authorities. Aside from

the many informal contacts and conversations between the Commission

and other agencies, which are too numerous to detail, there were several instances of cooperation during the past year which are worthy of

mention.

An example of the type of cooperation which is possible between the

Federal agency and a State Commission is an investigation which was

conducted by this Commission at the request of a State Commission

during the past year. Because of the confidential nature of the investigation it is possible to give the facts here only in outline. The investigation was conducted under powers granted by the act which, in part,

authorizes the Commission at the request of a State Commission to

... investigate, or obtain any information regarding tbe business, financial

condition, or practices of any registered holding company or subsidiary company

thereof of facts, conditions, practices, or matters affecting the relations between

any such company and any other company or companies in the same holding

company system.

The State Commission had pending before it a rate proceeding, in the

course of which question had arisen as to the cost of a power plant

which had been constructed for a public utility company by a supplier

of equipment. The equipment supplier, through the indirect ownership of securities, was an affiliate of the public utility company. The

State Commission had doubts as to its jurisdiction over the equipment

supplier and accordingly requested this Commission to conduct an

investigation of the relationships between the utility and the supplier.

The Commission ordered a private investigation and designated four

senior staff members to conduct the inquiry. Hearings were held both

in Washington and elsewhere. The State Commission was invited to

have a representative attend the hearings, which were not open to the

public, and a member of the State Commission did attend a portion of

the hearings. Thereafter the Commission transmitted a confidential

report of its investigators to the State Commission.

American Power & Light Company, a registered holding company in

the Electric Bond and Share COmpany system, is under an order to

liquidate and dissolve. On February 15, 1951, American notified the

Commission of its intention to sell its entire interest in one of its sub-
114 SECURITIES AND EXCHANGE COMMISSION

sidiaries, Washington Water Power Company, to certain public utility

districts. Under the provisions of rule U-44 (c) promulgated under

the act, the proposed divestment could be consummated without further proceedings unless, within 10 days after filing of the notice of

intention, the Commission notified American that a declaration or

other formal filing should be filed with respect to the proposed transaction. Thereupon the Commission issued an order to show cause in

which, among other issues, the question was raised as to whether the

Commission had jurisdiction to require American to file a declaration

with respect to the sale of Washington Water Power to public utility

districts. At the request of the State Commissions of Washington and

Idaho the Commission moved its hearings to the territory affected in

order to facilitate the presentation by local people of their views.

Hearings were held in Spokane, Washington, at which a Commissioner

of the Securities and Exchange Commission presided. The hearings

were well attended, and anyone who desired to be heard on the subject

was given an opportunity to appear.

Green Mountain Power Corporation, a Vermont public utility company and a subsidiary of New England Electric System, made application pursuant to section 11 (e) of the act for apJ?roval of a plan of

reorganization. The Vermont Commission was vitally interested in

the whole program, and during the course of the proceedings its chairman and staff experts conferred with members of the Commission staff,

resulting in a mutually helpful exchange of ideas. The AttorneyGeneral of the State of Vermont appeared on behalf of the Vermont

Commission at the hearings on the plan.

In August 1950 the Commission instituted proceedings pursuant to

section 11 (b) (1) of the act directed to WIsconsin Electric Power

Company and its subsidiaries. Wisconsin Electric Power Company

is both a holding company and an electric utility operating company,

with its property located in the State of Wisconsin. It also has a

gas utility subsidiary and a transportation subsidiary, both operating

III that state. Prior to a hearing in these proceedings representatives

of the Commission's staff visited the officesof the Public Service Commission of Wisconsin and discussed the matter with members of its

staff. Since the proceedings have been in progress, the scheduling of

adjourned hearings has been made after determining what dates would

be convenient for representatives of the State Commission, and copies

of the transcript of testimony have been forwarded to it.

In connection with the preparation for hearing of proceedings under

section 11 (b) (1) directed to General Public Utilities Corporation,

to determine whether or not the company might retain its gas 1?roperties along with its electric properties, members of the Commission's

staff visited the officesof the State Commissions of Maryland, Pennsylvania, New Jersey, New York, Massachusetts, Rhode Island, and

Connecticut. This field trip was made for the purpose of obtaining

statistical and other data regarding comparative cost of operations of

manufactured gas utilities versus manufactured gas departments of

predominantly electric utility companies. The Commission staff members were afforded full cooperation.

In the same case, but involving the question of the extent of the

principal integrated electric utility system of General Public Utilities

Corporation, an attorney and an engineer of the Pennsylvania Commission attended the Securities and Exchange Commission hearings
SEVENTEE~ ~AL REPORT 115

as observers and had discussions with members of the latter Commission's staff with regard to the questions involved.

UTIGATION UNDER THE PUBUC UTIUTY HOLDING COMPANY ACT

During the fiscal year 1951 the Commission participated in 18 judicial proceedings involving issues arising under the Holding Company

Act. Eleven of these proceedings concerned the enforcement of voluntary" plans filed under section 11 (e) of the act, and the other seven

were initiated by petitions to review orders of the Commission. Fifteen of these cases were finally adjudicated favorably to the Commission and the remaining three were pending at the close of the fiscal

year. Over the 16 years since enactment of the Holding Company Act,

a total of 274 civil and criminal proceedings, exclusive of Bankruptcy

Act proceedings, in which the validity or enforcement of the statute

was in issue, have been initiated in the courts. Three proceedings

were pending on June 30, 1951, and of the 271 which have been litigated to finality, only one case was terminated adversely to the Commission. In two other cases, decisions adverse to the Commission were

vacated as moot. The Commission's activity in the courts during the

1951 fiscal year is shown in the following tables:

ACl'IONS TO ENFORCE VOLUNTARY PLANS UNDER SECTION 11 (e)

Applications pending in United States district courts, July 1, 1950______ 2

Applications filed, July 1, 1950, to June 30, 195L_____________________ 5

Plans approved and not appealed___________________________________ __ 4

Plans approved and appeal taken to court of appeals_________________ __ 1

Plan disapproved in part and approved in part, and appeals taken to

court of appeals_________________________________________________ __ 1

Applications pending, June 30, 1951-________________________________ __ 1

Totals______________________________________________________ 1 1

Appeals from orders of district courts pending in courts of appeal, July 1, 1950_____________________________________________________ 2

Appeal from order of district court approving plan, July I, 1950, to

June 30, 1951___________________________________________________ 1

Appeals from orders of district court disapproving plan in part and

approving it in part_____________________________________________ 1

Orders of district courts affirmed and petitions for writs of certiorari

denied_________________________________________________________ __ 2

Appeals pending, June 30, 195L____________________________________ __ 2

Totals______________________________________________________ 4 4

Petition for writ of certiorari to review decision of court of appeals

revising in part order of district court approving plan, pending at JUly 1, 1950 1

Decision of court of appeals reversed and plan approved____________ __ 1

Totals______________________________________________________ 1 1

PETITIONS TO REVIEW ORDERS OF THE COMMISSION UNDER SECTION 24 (A)

Petitions pending in courts of appeals, July 1, 1950___________________ 3

Petitions filed July I, 1950, to June 30, 195L_________________________ 3

Orders of Commission affirmed_____________________________________ __ 4

Petitions dismissed_______________________________________________ __ 2

Totals______________________________________________________ 6 16

1In a seventh case where the Commission's order wall afBrmed during the preceding fiscal year, petition for a writ of certiorari was denied.

975942-52-9
116 SECURITIES AND EXCHANGE COMMISSION

Actions to Enforce Voluntary Plans Under Section 11 (e)

Two applications for enforcement of voluntary plans were pending

in United States district courts at the beginning of the fiscal year 1951.

One of these plans related to the liquidation of Market Street Railway

Co. The Commission had found that counsel for a preferred stockholders' committee was not entitled to receive a fee for his services

since he had been acting in his own interest primarily rather than in

the interests of the committee and of the company and that, although

he had rendered valuable services, his failure to devote his time and

efforts solely to the interests of his clients precluded him from being

compensated for such services," The district court agreed with the

Commission on all phases of the plan except that which denied the

attorney's fee and remanded the plan to the Commission for reconsideration," The Commission took an appeal from the court's refusal

to approve the denial of a fee, and a cross-appeal was also filed. The

plan was then amended to separate into Step One the settlement of

claims and the distribution of the major assets of Market Street, and

into Step Two the attorney's application for a fee and certain other

matters. The Commission approved Step One of the plan and reserved jurisdiction over Step Two. Upon application the district

court approved Step One.' An appeal from the district court's order

was taken and was consolidated with the pending appeals. A stay

was denied and Step One was consummated. These appeals were pending at the close of the fiscal year. The second plan provided for a

partial liquidation of American Power and Light Company. The

district court approved the plan without opinion and no appeal was

taken.

Five applications for enforcement of voluntary plans were filed in

United States district courts during the fiscal year. The first of these

plans involved the question of what additional amounts, if any, should

be paid to holders of certificates representing claims on $6 and $5 preferred stock of Electric Bond and Share Company which had been

retired. The Commission decided, and the district court agreed," that

the holders of the $6 certificates were entitled to an additional $10 plus

compensation for delay in receipt of that amount, and that the $5 certificates were entitled to nothing more. Appeals were taken from the

order of the district court and Bond and Share petitioned the Supreme

Court to review the district court order. The Supreme Court denied

Bond and Share's petition 0 and after the close of the fiscal year, the

appeals were dismissed on stipulation of the parties.

One of the remaining four plans paralleled the Bond and Share

case and presented the question what additional amounts, if any,

should be paid to $7 and $6 prior lien preferred stockholders of New

England Public Service Company. Th.e Commission's determination

that they should receive, respectively, $12.25 and $2.25 per share, plus

compensation for delay, was confirmed by the district court and no

appeals were taken from the enforcement order."

The third of these plans concerned the distribution of escrowed

common stock of Interstate Power Company. The principal question

Holding Company Act release No. 9376 (Sept. 30. 1949).

"In re Market Street Railway Oo., Unreported (N. D. Calir., No. 29.723, July 11,1950) . Unreported (N. D. csur., No. 29,723. Nov. 21, 1950).

In re Electric Bond and Share Oo., 95 F. Supp.492 (S. D. N. Y., 1951). Electric Bond and Share Co. v. S. E. C., 341 U. S. 950 (1951). ac In re New England Public Service Co.• 94 F. SuPP. 843 (D. Me., S. D., 1950).

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SEVENTEENTH ANNUAL REPORT 117

presented was what participation should be accorded Ogden Corporation in its dual position as creditor and stockholder of Interstate visa-vis public security holders. The Commission found fair and equitable a compromise of the issues and the plan was approved by the

district court," No appeal was taken from the Commission's order.

A plan providing for a recapitalization of Green Mountain Power

Corp. and a settlement of claims between Green Mountain and its

parent, New England Electric System, was enforced without opposition. The remaining plan was pending in the district court at the

close of the fiscal year.

Shortly before the close of the preceding fiscal year a plan of recapitalization of Eastern Gas & Fuel Associates had been approved by

a district court. At the time of approval the court reserved jurisdiction to approve the amount at which the common stock of the company

might be surrendered for which the stockholders would be paid in cash.

The company petitioned for and was granted a supplemental order

approving an amount of $11.00per share as the settlement price.

Two plans were pending in United States courts of appeal at the

beginning of the fiscal year. The first of these plans, approved by the

Commission and the district court, involved the liquidation of The

Commonwealth & Southern Corporation (Del.) in which the holders

of option warrants were denied any participation. As originally submitted to the Commission this plan left undecided the disposition of

residual assets of Commonwealth. Prior to consummation of the plan,

it was amended to provide that the residual assets should be transferred

to The Southern Company, a subsidiary holding company created to

own the capital stock of certain former subsidiaries of Commonwealth.

An investment banker's petition to intervene in the district court was

denied. During the fiscal year the court of appeals affirmed orders

of the district court denying intervention" and approving the plan,"

and petitions for writs of certiorari were subsequently denied.>

The second plan which was pending at the beginning of the fiscal

year and which was affirmed related to an order of a district court

which approved and enforced a plan for the dissolution of Federal

'Water and Gas Corporation. The appellants were officers, directors

and controlling stockholders of a predecessor company, Federal Water

Service Corporation. They asserted that the district court erred in

approving that part of the plan which excluded them from participation as stockholders in the distribution of the assets of Water and

Gas with regard to preferred stock of Water Service which they had

acquired during the course of reorganization of Water Service. The

'Vater Service plan had provided that they receive cash representing

their cost of the Water Service preferred, and not new stock of Water

and Gas, and the Commission's approval of that plan had been upheld

by the Supreme Court." The court of appeals held that the prior

decision was res judicata and affirrred the district court enforcement

11 In re Interstate Power 00., Unreported (D. Del" No. 1003, 3-16-51). The Commission

had approved and had applied for enforcement or a prior plan, but had requested and

obtained a district court order remanding the proceeding for consideration of ehanged circumstances. See In re Interstate Power 00., 89 F. Supp, 68 (D. Del, 1950). 12 In re OommonweaUh & Southern Oorp., 186 F. 2d 708 (C. A. 3, 1951). 13 In re OommonweaZth & Southern Oorp., Adelaide H. Knight, Appellant, 184 F. 2d 81

(C. A. 3, 1950). u. Knight v. OommonweaZth & Southern Oorp., et aZ., 340 U. S. 929 (1951).

»e. E. O. v. Ohenerg Oorp.,832 U. S. 194 (1947), rehearing denied 382 U. S. 783 (1947).
118 SECURITIES AND EXCHANGE COMMISSION

order." The Supreme Court denied petitions for certiorari seeking

review of the district court order 17 and of the court of appeals order.Is

At the end of the preceding fiscal year a court of appeals had reversed an order of a district court approving a plan for the reorganization of Long Island Lighting Company.w Appellants had asserted on

appeal that the Commission, in passing upon the plan of Long Island,

had not given consideration to earnings which would accrue as the

result of the reorganization and that in determining the fairness of

the allocation of new securities the Commission had erred. The Commission petitioned for a modification of the decision of the court of appeals and for approval of the plan on the basis of a supplemental

opinion showing that full consideration had been given to such benefits. The petition was granted during the fiscal year 1951,2° One

proceeding involving reorganization plans of Niagara Hudson Power

Corporation was pending in the Supreme Court at the beginning of the

fiscal year. The Commission had held that the holders of option warrants were not entitled to participate in the reorganization. The

district court had approved the plans, and the court of appeals had

reversed the district court order on this one point." Petitions for a

rehearing had been denied and the Commission and the company had

petitioned for certiorari, which had been granted by the Supreme

Court. During the fiscal year the Supreme Court reviewed the plan,

reversed the order of the court of appeals and affirmed the order of the

district court."

Petitions to Review Orders of the Commission

Three petitions to review orders of the Commission were pending in

United States courts of appeals at the beginning of the fiscal year and

three petitions were filed during the fiscal year. In four cases the

Commission's order was affirmed, and in the other two cases the appeals

were dismissed.

Two of the petitions which were pending were from orders of the

Commission approving various matters collateral to the reorganization of the Niagara Hudson Power Corporation system. The Commission had approved an application of The United Corporation to

distribute approximately half of its holdings of Niagara Hudson

common stock to its own common stockholders. The Commission's

order was affirmed." The other such petition sought review of an

order of the Commission approving the exchange by United of common stock of Niagara Hudson for the capital stock of Niagara Mohawk Power Corporation, the surviving top company in the reorganization of the Niagara Hudson system. The appeal was dismissed

without opinion."

The third pending petition sought review of those provisions of

an order of the Commission which denied a petition of a stockholder

of International Hydro-Electric System for modification of a prior

... In re Federal Water" (Jas Oorp., Ohenerll GorP., Appellants, 188 F. 2d 100 (C. A. S.

19111). 11 (JheMrll Oorp. et al. v. S. E. O. et al., 340 U. S.831 (19110). 18 341 U. S. 831 (1951). U Gammon Stockholders Gommittee v. S. E. 0 .• 183 F. 2d 411(C. A. 2, 1950).

""183 F. 2d 112(C. A. 2, 19110); certiorari denied 340 U. S. 834 (1950). 21 Leventritt v. S. E. G., 179 F. 2d 6111(C. A. 2, 19110) .. s. E. a. v. Leventritt ...340 U. S. 336 (1951) . .. PMllips v. S. E. O:t,iss F. 2d 746 (C. A. D. C., 1950) .. Phillips v. S. E. u., Unreported (C. A. D. C., No. 10,601. June 28, 19111).

•

•
SEVENTEENTH ANNUAL REPORT 119

order directing the liquidation and dissolution of mEs.25 The Commission's order was affirmed,"

One of the three petitions filed during the fiscal year sought review

of an order of the Commission which had denied a committee authority to solicit stockholders of The United Corporation for proxies in

connection with a yending- plan. The Commission found that the

solicitation materia contained false and misleading statements, and

that the proposed solicitation would be detrimental to the pending

reorganization proceeding. The Commission's order was affirmed,"

Another review proceeding was initiated by two petitions seeking

review of an order which granted to preferred stockholders of Federal Light and Traction Company an additional amount over that

previously received, together with interest for delay in receipt of

the payment. These petitions were consolidated on appeal. The court

of appeals affirmed the Commission's order and certiorari was denied."

The third petition for review initiated during the fiscal year sought

reversal of a Commission order which had denied the application of

a registered holding company for an examiner's report with respect

to the petition of the company in opposition to solicitation of stockholders. The appeal was dismissed for lack of jurisdiction." During the preceding fiscal year a United States court of appeals had

affirmed an order of the Commission which prohibited a solicitation

of voluntary contributions from stockholders to defray expenses of

a committee." During the fiscal year 1951the Supreme Court refused

to review the case upon a petition for a writ of certiorari,"

.. The order also approved a plan tiled by the Trustee of IRES . .. Protective Gommittee for Ola8S A Stock7wlaers v. S. E. G., 184 F. 2d 646 (C. A. 2, 1950). 2'1 Committee for Gammon Stockholders v. S. E. C., 188 F. 2d 897 (C. A. 2, 1951). •• Federal Liquidating Gorp. v. S. E. 0., 187 F. 2d 804 (C. A. 2, 1951), certiorari denied

341 U. S. 949 (1951) . .. North American 00. v. S. E. 0., Unreported (C. A. 2 (1950». &0 Halstead v. S. E. G., 182 F. 2d 660 (C. A. D. C. 1950). 11 Gommon Stockholders Gommittee v. S. E. C., 340 U. S. 834 (1950).

PART IV

PARTICIPATION OF THE COMMISSION IN CORPORATE RE.

ORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCY ACI', AS AMENDED

Chapter X of the Bankruptcy Act provides a procedure for reorganizing corporations (other than railroads) in the Federal courts.

The Commission's duties under Chapter X are, at the request or with

the approval of the court, to participate in proceedings to provide

the court and investors with independent expert assistance on the

various legal and financial questions that arise in the proceeding and

to prepare for the benefit of the courts and investors advisory reports

on plans of reorganization. The Commission has no statutory right

of appeal in a Chapter X proceeding, but it may participate in appeals

taken by others.

COMMISSION'S FUNCTIONS UNDER CHAPTER X

The role of the Commission under Chapter X is different from that

under the statutes which it administers. The Commission does not

administer Chapter X. It acts in a purely advisory capacity. It has

no authority either to veto or to require the adoption of a plan of

reorganization or to render a decision on any other issue in the :proceeding. The facilities of its technical staff and its recommendations

are at the service of the judge and the security holders, affording

them the views of experts in a highly complex area of corporate law

and finance.

Generally, the Commission has sought to participate only in proceedings in which there is a public investor interest; $250,000 of publicly

held securities is the rough guide used in deciding whether there is

enough public interest to make it worth while for the Commission to

participate. Sometimes the Commission has entered smaller cases,

particularly when requested by the court, where public security holders are not adequately represented, where it appears that the proceedings are being conducted in violation of important provisions of the

Act, or where the Commission may otherwise be useful by participatmg.

Even where the public interest is too small to warrant active intervention by the Commission, the staff may follow a case and watch the

course taken by the proceedings in order to make suggestions or comments on an informal basis when requested or when it is deemed desirable. Because of its nation-wide activity and its experience in

Chapter X cases the Commission is able to respond to requests for help

in the interpretation and application of the provisions of Chapter X.

The Commission and its staff are often called upon by trustees or their

counsel, other parties, referees, special masters, and judges for advice

or comments.

SUMMARY OF ACTIVITIES

The Commission actively participated during the 1951 fiscal year

in 64 reorganization proceedings involving the reorganization of 87

121
122 SECURITIES AND EXCHANGE COMMISSION

companies with aggregate stated assets of $774,252,000 and aggregate

stated indebtedness of $498,184,000. During the year the Commission, with court approval, filed notices of appearance in 5 new proceedings under Chapter X.l These proceedings involved 5 companies

with aggregate stated assets of $3,243,000 and aggregate stated indebtedness of $3,028,000. At the close of the year, the Commission

was actively participating in 53 reorganization proceedings involving

75 companies with aggregate stated assets of $129,402,000and aggregate stated indebtedness of $454,852,000.

Some of the more important matters and issues with which the

Commission was concerned during the last fiscal year in connection

with its Chapter X functions are discussed in the following paragraphs:

Activities Relating to the Trusteeship

A fundamental feature of Chapter X is that in every case involving

a corporation of substantial size an independent trustee is appointed

to be primarily responsible for the operation of the corporation's business during the proceeding, to examine and evaluate the reasons for

the debtor's financial difficulties, to appraise the ability and fidelity

of its management and to formulate and file a plan of reorganization.

The success of the reorganization depends largely on the thoroughness,

skill, and loyalty with which he and his counsel perform their tasks.

The Commission customarily examines the qualifications of trustees

in the light of the standards of disinterestedness prescribed by the

statute for trustees and their counsel.

In M 088er v. Darrow, a broadly significant case emphasizing the

high fiduciary standards applicable to trustees, the Commission was

upheld by the United States Supreme Court. As reported in the

Sixteenth Annual Report, the Commission had sought to surcharge

a former trustee for profits made by his employees through trading

in securities of the debtor's subsidiaries. The Court of Appeals for

the Seventh Circuit reversed an order of the district court insofar

as it surcharged the trustee. The Supreme Court in turn reversed the

Court of Appeals and held that the trustee should be surcharged to

the extent of the profits made by the trustee's employees," In its

opinion the Court pointed out that bankruptcy trustees are permitted

no interest adverse to the trust because such interests "are always corrupting." Equity seeks, the Court stated, to avoid "delicate inquiries"

into the conduct of trustees by exacting forbearance of all opportunities to advance their self-interest. Recognizing that "these strict

prohibitions would serve little l?urpose if the trustee were free to

authorize others to do what he IS forbidden," the Court said: "We

think that which the trustee had no right to do he had no right to

authorize." To permit such conduct would, in the Court's opinion,

open up opportunities for devious dealings in the name of others by

the trustee. Answering the argument that a surcharge here creates

a very heavy liability upon one who did not personally profit, the

Court stated that, while courts are likely to protect trustees from disinterested mistakes in business judgment, a trusteeship is a serious business and is not to be undertaken lightly or so discharged, and that the

A list of reorganization proceedings in which the Commission participated during the

year ended June 30, 1951, is set forth in appendix table 20. Appendix table 19 class1ftes

these debtors according to industry Mouer v. Darrow, 341 U. S. 267. 272 (19111).

•

• •
SEVENTEENTH ANNUAL REPORT 123

most effective sanction for good administration is personal liability

for the consequences of forbidden acts.

Inone case,a the Commission objected to the retention in officeof a

trustee who was also the court-appointed trustee of the debtor's parent

corporation. The Commission pointed out that, since the parent company owned all the stock of the debtor, its position was adverse to that

of the bondholders of the debtor and that the trustee stood in the position of the parent company and was thus subject to a conflict of interest. The Commission's recommendations were not taken by the district

court. An appeal from the court's ruling was filed by a bondholder

and is pending.

The statute permits the appointment of an "additional trustee" who

may be a director, officeror employee of the debtor for the limited purpose of participating with the disinterested trustee in the operation

of the business and the management of the debtor's property. The

Commission has always held the view that this exception to the rule

requiring a trustee to be completely independent and disinterested

should not be used freely or loosely. It has been the Commission's

position that the provision was intended only for the exceptional case

where the services and experience of such a person are essential to the

business operations of the trusteeship and would not otherwise be

available; it was certainly not intended to detract in any degree from

the fundamental purpose of eliminating management control of reorganization proceedings. During the past fiscal year, in the Chapter

X case involving Ooeasi Oit'VAutomobile Bridge Oompany;' the Commission had occasion to reiterate this position as amicus curiae in a

brief before the Court of Appeals for the Third Circuit. The Commission also pointed out the dangers inherent in the appointment of

additional trustees: the conflicts which may arise when business

decisions affecting the interests of the management must be made,

the difficulties and embarrassment when the independent trustee must

investigate the past conduct of such persons or their associates either in

evaluating management or in determining whether causes of action

exist. In accord with the Commission's ~ew, the Court stated:

The legislative history indicates that it was the intention of Congressthat an additional operating trustee should be appointed only in those exceptional cases where the services of an individual who had been a director, officeror employee

of the debtor were necessary to operate its business and manage its property and

it was not feasible for the trustee to secure the services of the individual in

question by employinghim in the ordinary way. It was only in an unusual case of that kind that a director, officer,or employeeof the debtor was to be appointed as an additional operating trustee.

The Court went further and held that, while an additional trustee

may be an officer,director or employee of the debtor, he may not have

any other conflicting relationship or interest as enumerated in the

statute. Thus he may not be a creditor, stockholder, underwriter or

attorney for the debtor or underwriter, or have any material interest

adverse to any class of creditors or stockholders. The Court believed

the exception for an "additional trustee" was not intended to open

the door to persons who had a financial stake in the debtor's future

which might make it difficult for them to act independently.

The Commission is also interested in assuring that the appointment

of trustees does not in itself operate as a drain on the debtor's assets.

"In re Dallas Parcel Poet 8tatll/f1, Ino., N. D. TIl.

'184 F. 2d 726 (C. A. S, 1950).
124 SECURITIES AND EXCHANGE COMMISSION

In one case during thelast fiscal year, the Commission felt that the

continuation in office 0 two trustees was an unnecessary expense to

the debtor. The two trustees had been appointed when the company

was still in operation. Eventually, however, the business activities

were terminated and the duties of the trustees became ministerial in

nature. The business of the reorganization had become primarily a

matter of the disposition of various claims in litigation. For this

reason the Commission petitioned the court to reduce the number of

trustees to one. The district court denied the petition and the question was appealed. The Court of Appeals for the Third Circuit reversed the lower court and directed that one of the trustees be removed,"

Problems in the Administration of the Estate

One of the objectives of Chapter X is that judicial supervision of

the reorganization process and creditor and stockholder participation

therein is based upon complete and impartial information regarding

the affairs of the debtor. Thus, the independent trustee, at the direction of the court, is required to investigate the acts, conduct, property,

liabilities, and financial condition of the debtor, the operation of its

business, and the desirability of the continuance thereof, and to transmit a report of his investigation to creditors and stockholders. Such

reports aid the court in considering problems in the administration

of the estate as well as the fairness and feasibility of a plan of reorganization, enable security holders and other parties to a proceeding

to make helpful and effective suggestions for a plan of reorganization

and give security holders the necessary information to determine the

desirability of accepting a proposed plan. .

The Commission has continued its policy of consultation through

its staff with trustees in connection with their investigations and the

preparation of their reports. On the basis of its own investigations

and its wide experience the Commission has been able to supply data

and suggestions useful to the trustee. It has also continued to assist

trustees in their investigation of possible claims against the old management and other persons.

In the Chapter X proceedings involving South Bay Oonsolidated

Water 00., Inc.,s questions have been raised regarding the allowance

of large debt claims asserted by New York Water Service Corporation,

parent company of the debtor. These issues are still unresolved and

may not require determination in view of the probable payment in full

of the claims and interests of all public bondholders and preferred

stockholders under a plan of reorganization with cash obtained from

the condemnation of the debtor's property and from operations., The

claims asserted by New York Water Service are based IIIpart uJ?on advances made to South Bay by New York Water Service and III part

upon a note issued in 1931 by South Bay to Federal Water Service

Corporation, which was the parent company of New York until 1947.

New York Water Service acquired the note from Federal in 1947 as

part of a divestment plan of Federal under the Public Utility Holding

Company Act. New York Water Service paid $1,000 for the note,

the principal amount of which was $227,000 with accrued interest of

over $200,000. In addition to other defenses and counterclaimsz investigation by the trustee, with the active assistance of the Commission's

"In re Solar Manufacturing Corp., 190 F. 2d 273 (C. A. 3, 1951), certiorari denied, December 3, 1951.

'S. D. N. Y.
SEVENTEENTH ANNUAL REPORT 125

staff, revealed that if Federal had not made certain alleged excessive

service charges, had not entered into certain real estate transactions

in which South Bay sustained losses, and had paid to South Bay for

certain properties the same price at which it contemporaneously sold

those properties to New York Water Service, the large advances to

South Bay would have been unnecessary and South Bay would not be

faced with claims of over $1,000,000,including interest charges.

Claims directly against Federal arising out of the transactions

mentioned above were asserted by the trustee and were settled by the

payment of a substantial sum to South Bay. While the trustee and the

Commission's staff were engaged in investigating the relationship of

the debtor to New York Water Service and to Federal, the trustee

was informed that Federal had proposed to compromise various claims

that New York Water Service was asserting against Federal before

the Commission under the Holding Company Act in connection with

the liquidation and distribution of Federal's assets. The proposal

was to pay New York Water Service $250,000, including $7,000 to

reflect minor claims presented by New York Water Service on behalf

of South Bay. The trustee thereupon asserted his own claims on behalf of South Bay, based upon allegations respecting excessive service

charges, over-payments for real estate sold to South Bay, underpayments for securities purchased from South Bay, and claims that

certain advances should have been made as equity capital investment.

Negotiations ensued and an independent settlement was reached between Federal and the trustee of South Bay under which South Bay

was to receive $250,000. The settlement was approved by the Commission after a hearing upon notice under the Holding Company

Act and by the District Court in the Chapter X proceeding.

During the past fiscal year one case presented a novel question arising out of the provisions of New York law. New York statutes

provide that a corporate director who is the successful defendant in an

action involving his directorship may assess his litigation expenses

against the company. A director who had successfully defended an

action brought by the trustee moved, under the authority of the

statute, to assess his expenses against the trustee. The court 7 held

that assuming the statute to be applicable to an action brought pursuant to Chapter X the assessment could not be made because the statutory language did not provide for assessment against a trustee. The

court did not, therefore, reach the question whether the statute constituted an encroachment on the jurisdiction of the bankruptcy court.

A recurrent question is whether the enterprise should be liquidated

through a sale or continued as a going concern through an mternal

plan of reorganization. The Commission does not support the sale

type of reorganization merely because of its simplicity or certainty

of result, but urges a decision based upon what will yield the greatest

benefit for creditors and stockholders. Where the decision has been

made to sell the assets of the debtor there has been some tendency to

attempt to complete the sale as an a~strative matter prior to, and

not as part of, a plan of reorganization with its attendant safeguards

for investors. The Commission has urged that where substantially

all of the assets of the debtor are sold the sale should be a part of a

plan of reor~anization, unless some emergency is involved, such as

the need to dispose of perishable property .

• FInn v. EmpIre Tnat 00., S. D. N. Y. (July 24.1950).
126 SECURITIES AND EXCHANGE COMMISSION

The Court of Appeals for the Third Circuit upheld the Commission's theory in In re Solar Manufacturing Corp.,s holding that no

emergency is created when a prospective purchaser imposes a condition that his offer of purchase must be accepted within a short time.

The Solar case was followed during the fiscal year in In re American

Bantam Oar 00.9 where the court, after hearing the Commission's argument, refused to set a hearing on a proposed sale. The judge advised the trustee that a plan of reorganization should be filed and if

possible the purchase offer should be included in the plan. The Commission has consistently taken the position that when a sale is contemplated the trustee should develop competitive bidding by taking

active affirmative steps in making known the availability of the property. Despite the fact that maintenance of competitive conditions,

through public auction or otherwise, is called for in the best interests

of security holders, the Commission has had occasion to overcome

reluctance on the part of some trustees to develop real competition.

The Commission has pointed out that even where the plan does not

call for a public sale and competitive bidding, the plan may be successively improved by higher offers even after approval by the court

and security holders.

Responsibilities of Fiduciaries

Assuring adherence to the high standards of conduct required of

fiduciaries has continued to be one of the important activities of the

Commission in Chapter X proceedings. We have indicated above

our concern that the independent trustee be free from any conflicts of

interest. The Commission is concerned also with the qualifications of

other fiduciaries in the proceeding, such as indenture trustees, committees, attorneys, and other representatives of security holders.

In one case during the past fiscal year the Commission objected

to the allowance of any fees to a firm of attorneys who had been

subject to conflicting interests. The Commission pointed out that

they had not only represented the petitioning creditors but also the

debtor and the mortgagee in possession of the debtor's plant who was

the debtor's landlord. In addition they represented the president of

the debtor against whom the estate had a claim. The referee, following the Commission's suggestions, recommended that the attorneys De denied any fees. The court agreed that the rule of law required the disallowance of the attorneys' requests for fees.10 The

same case also presented a different and unique question as to the

allowance of fees. The president of the debtor requested compensation for his services as additional trustee of the debtor for the

period up to his resignation. The Commission argued that there existed valid bases for the estate to assert claims against him because of

his conduct as president prior to the proceeding and that the primary

reason these claims were not pressed was the doubt that any judgment

would be collectible. Itwas urged that the court had summary jurisdiction on an application for fees, in the circumstances here, to consider the clear liability of the president to the estate as offsetting any

fee he might be entitled to. Both the referee and the court agreed

with the Commission, and a fee was denied as in effect a set-off

8176 F. 2d 493 (C. A. 3. 1949)

w. D. Pa. 10 In re American Accou8tic8, 97 F. Supp. 1S86 (D. N. J. 19151).

• •
SEVENTEENTH ~AL REPORT 127

against the claims of the estate. The determinations in this case were

affirmed after the close of the fiscal year.ll.

Activities With Respect to Allowances

The Commission in its advisory capacity endeavors to protect the

estate from excessive and inequitable charges for fees and expenses

while at the same time providing fair treatment to applicants which

will adequately compensate them for services rendered and encourage

legitimate creditor and stockholder participation in the reorganization process.

The Commission itself receives no allowances from estates in reorganization. It attempts to obtain a limitation of the aggregate

fees to an amount which the estate should fairly and can feasibly pay.

In each case, the applications are carefully studied and recommendations are made in the light of applicable legal standards and, in

general, on the basis of beneficial contributions to the administration

of the estate and to the adoption of a plan of reorganization. Specific recommendations are made to the courts in cases in which the

Commission has been a party and in which it is familiar with the

services of the various parties and all significant developments in the

case.

The Childs 00.12 case aptly illustrates the contribution the Commission may make in recommending allowances. Fees totaling $1,-

400,000 were requested; the Commission recommended approximately

$750,000. The District Court originally awarded approximately

$965,000, but on appeal the Court of Appeals for the Second CirCUIt

reversed those allowances and, in remanding the case for further consideration, indicated that the Commission's recommendations, if

adpoted, would be considered affirmatively reasonable and properly

allowable." At subsequent hearings in the District Court a substantial dispute existed over the proper interpretation of the opinion of

the Court of Appeals. Itwas urged by various applicants that under

the appellate court's decision, the District Court had discretion to

allow more than the amounts recommended by the Commission if

special findings were made showing the necessity therefor. The District Judge, however, doubted the propriety of increasing the recommended allowances and, following the suggestion of the appellate

court, adopted the Commission's recommendations. The Court pointed

out that there were no new facts or conclusions presented to him

but that there was simply a disagreement as to the value of the

services rendered, a matter upon which the Court of Appeals had

plainly issued its mandate.

The matter of allowances frequently involves the application of

Section 249 which prohibits compensation or reimbursement of expenses where an attorney or other fiduciary has purchased or sold the

securities of the debtor. Inproceedings in the chiea{/o Surface Lines

and Ohica{/oRapid Transit 14 cases, the Commission objected to the

allowance of fees and expenses for some participants on various

grounds, among which was the fact that they had bought or sold securities during the proceedings. The Commission argued that these

transactions were in contravention of the equitable rule which was

:J:1 In re American Accouatics, per curiam opinion (October 17, 1951, C. A. 3).

uS. D. N. Y. 1.Finn v. ouu« 00., 181 F. 2d 431 (C. A. 2, 1950).

"N. D. Ill. E. Div.
128 SECURITIES AND EXCHANGE COMMISSION

codified by Section 249. The special master, overruling these objections, allowed fees and expenses to many of these applicants, and the

District Court later affirmed the master's conclusions. The Court's

action was based on its position that the reorganization proceeding

had commenced as an equity receivership proceeding, had not come

under Chapter X until 1944, and that, absent the strict application

of Section 249, the Court had discretion as to whether to bar or permit

compensation. Inthis respect, the decision is in conflict with other

decisions,"

The Commission has sought a rigid adherence to the provisions of

Section 249 in a field where the underlying principles might easily

be whittled away by exceptions and hardship cases. Supporting the

Commission's position, strict application of Section 249 was made by

the District Court in Norwalk Tire &: Rubber OO'lTl/Panycase,"

The Commission urged that the application of the secretary of a debenture holders' committee be denied because his firm participated

in several transactions involving securities of the debtor during the

reorganization. The court stated that, while it felt that these transactions generally could be considered de minimis, the rigidity of Section 249 required that the request for fees be rejected.

We have mentioned above the matter of denial of fees to attorneys

who represented conflicting interests in the American Acoustics case.

In such cases, the denial of fees is a prophylactic measure designed

to implement the basic rule against/divided loyalties and to assure

that services will be rendered in the proceeding by those with a

single-minded devotion to their cause. Inthe International Railway

Oompany 17 case, at the instance of the Commission, a bondholders

committee had been held to be disqualified and was forced to withdraw

because it had been organized by a management group with interests

adverse to those of the public bondholders. Upon the presentation

of applications for final allowances, members of this committee and

their counsel were denied any fee for their services or reimbursement

of expenses by the District Court in affirmation of the principle prohibiting fees to those subject to a conflict of interest in the reorganization proceeding.

During the past fiscal year, several cases presented the question of

the propriety of awarding interim allowances prior to the completion

of the reorganization proceedings. The matter of interim allowances

presents the court with the difficult task of determining whether and

in what amount the estate may safely make payments on account of

administration costs prior to the completion of the reorganization.

Since the extent of beneficial contribution to the administration of

the estate or to the adoption of a plan of reorganization is the primarl

measure of the value of services rendered to the estate, an applicant s

efforts cannot properly be evaluated until the proceeding is substantially completed. This fact militates against the allowance of interim

fees except in the most unusual circumstances, and then only in a small

amount. Where the trustee and his counsel devote a substantial por-

.. See In re Paramount-Publill: coro., 12 F. Supp. 823 (D. C. S. D. N. Y. 1935) ; In re Mountain Btates Power Corp., 118 F. 2d 405 (C. A. 8, 1941) ; In re Republio Gas Corp.,

85 F. SuPP. 300 (1936) ; In re Minnesota cE Ontario Paper 00., D. C. Minn. (November 19,

1941). 18 96 F. Supp. 274 (D. CODn. 1951). "w. D. N. Y.
SEVENTEENTH ANNUAL REPORT 129

tion of their time to the reorganization, they may require, as a matter

of necessity, the payment of some money as current income. To secure

adequate services by them it may be desirable to permit interim allowances, but even in such cases the Commission feels that interim payments ought not to be generous, otherwise procrastination and unnecessary work will be encouraged against the best interests of the debtor.

This position was upheld by the Court of Appeals for the Third

Circuit in In re McGann Mfg. 00.18 The District Court had allowed

interim fees and expenses to the trustee and his counsel, to counsel

for the debtor, and to a committee. The Commission was not a party

to the proceedings, On appeal, the Commission presented its views as

omicue curiae. Inreversing the District Court, the Court of Appeals

stated that interim allowances are justified only where a trustee or his

counsel regularly devotes a portion of his time, daily or weekly, to

the affairs of the estate, especially where the trustee operates a business, but that interim allowances are not justified where the duties

performed by them are not substantial. Pointing out that the trustee's

activities were routine and ministerial in nature, the Court of Appeals

held that the grant of interim allowances to the trustee and his counsel

was an abuse of discretion. As to applicants other than the trustee

and counsel, the Court agreed that only under extraordinary circumstances should interim allowances be granted to them, particularly

since the proper measure of compensation to them is the benefit derived

by the estate from their services which can normally be evaluated only

after consummation of the reorganization. Hence the Court reversed

the lower court on this point also.

Subsequently, in the Solar M anufactwring Oompany 19 case, the

Court of Appeals for the Third Circuit upheld, as a matter of judicial

discretion, an allowance by the district judge of interim allowances to

the trustees and their counsel. In its opinion, however, the Court

stated that if it were exercising its own judgment in the first instance

it would not have made an allowance to the trustees although it would

to counsel who, it found, had done a great deal of work during the

year. The trustees, on the other hand, were no longer operating a

business and their duties had become simpler. However, the Court

of Appeals did not feel it could substitute its own judgment for the

District Court because the trustees had expended a great deal of time

on the case.

An instance where unusual circumstances may warrant the awarding of interim allowances is represented by the American Fuel &Power

Oompatny case.20 There, the efforts of a committee and its counsel contributed substantially to the recovery of assets for the benefit of the

estate. A great amount of time was spent over a period of many years,

the services partook of the nature of trustee's services because the committee and its counsel took the laboring oar in the litigation, the efforts

were successful, and, although a plan of reorganization had yet to be

approved, the recovery of the fund was assured. In these circumstances the Commission felt that an interim allowance well below what

might be allowed as a final fee could properly be made. The District

Court has not yet acted upon the application.

18 188 F. 2d 110 (1951).

1lI190F. 2d 273 (c. A. 3, 1951).

:IOE.D.Ky.
130 SECURITIES AND EXCHANGE COMMISSION

PLANS OF REORGANIZATION UNDER CHAPTER X

The formulation and consummation of a fair and feasible plan of

reorganization is, of course, the primary purpose of the proceeding

under Chapter X. Accordingly, the most important function of the

Commission under Chapter X is to aid the courts in achieving this

objective.

Fairness of Plan

Basic to the Commission's approach to questions involving the

fairness of reorganization plans under Chapter X is the fixed principle, firmly established by Supreme Court decisions, that full recognition must be accorded to claims in the order of their legal and

contractual priority either in cash or in the equitable equivalent of

new securities and that junior claimants may participate only to the

extent that the debtor's properties have value after the satisfaction

of prior claims or to the extent that they make a fresh contribution

necessary to the reorganization of the debtor. A valuation of the

debtor is essential to provide a basis for judging the fairness as well

as the feasibility of proposed plans of reorganization. In its oral

statements and in its advisory reports the Commission continues to

urge that the proper method of valuation for reorganization purposes

is primarily an appropriate capitalization of reasonably prospective

earnings.

In connection with the fairness of plans and the treatment of

claims against the estate, the Commission has given careful consideration to situations where, because of mismanagement or other misconduct on the part of a parent company or a controlling or affiliated

person, the claims of the parent or affiliate should be subordinated to

the claims of the public investors or these claims limited to cost. All

the facts and circumstances in these instances are investigated since

they form an integral part of the concept of the "fair and equitable"

plan. Questions of this kind assumed importance in several proceedings during the past fiscal year. InIn re Inland Gas Oorporation, the

Court of Appeals for the Sixth Circuit had rendered a decision directing subordination of the claims of Columbia Gas System, Inc. to

those of all other creditors. In the subsequent formulation of a plan

the question arose whether Columbia's claims in Inland Gas Corporation should be subordinated to those of the public creditors of American

Fuel & Power Co. and Kentucky Fuel Gas Co., which companies

owned almost all of the stock of Inland Gas Corporation but practically no other assets. The District Court read the mandate of the

Court of Appeals to require only that Columbia's interest in each

corporation be subordinated to the other creditors of such corporation.

ThIS determination was appealed to the Court of Appeals and that

Court was asked to interpret its prior holdings.

The Commission's position that the American Fuel system should

be viewed as an integrated enterprise was upheld by the Court. The

Commission urged that all pubhc security holders of the three companies had been injured by Columbia's conduct and that the Court

should interpret its former mandate to require the subordination of

Columbia's claims not only to the claims of Inland's own creditors

but also to those of American Fuel and Kentucky Fuel. The Court

found that the holders of the notes secured by Inland stock were,
SEVENTEE~ ~AL REPORT 131

in a very true sense, creditors or quasi-creditors of Inland and as

such were entitled to participate in Inland's assets as creditors prior

to Columbia." Having found a creditor status in Inland Gas for

the American Fuel and Kentucky Fuel creditors, the Court did not

make any provision for the slight Inland Gas stock interest (1.4

percent) held by public investors, as recommended by the Commission.

The Commission took the opposite position with respect to a contention, in the Inland Gas Oorporation case, that the claims of American

Fuel against Inland Gas, its majority-owned subsidiary, be subordinated or treated as capital contributions because of the undercapitalization of Inland Gas. Except for a single situation calling for

limitation to cost,22the Commission pointed out that the relationship

between the two companies did not call for treatment of American

Fuel's claims different from that of other creditors. No mismanagement or overreaching was shown; American Fuel was organized by

the promoters of the system after Inland Gas was created and the

American Fuel creditors were in the position of advancing funds

to Inland Gas at a time when it needed capital badly; American

Fuel creditors ought not equitably to be charged with the conduct of

the promoters. The Court of Appeals agreed that this did not present a case for subordination and affirmed the holding of the District

Court.

In the International Power Securities Oorp. case an issue regarding

subordination and limitation to cost was resolved by a settlement incorporated in a plan of liquidation which was recommended as fair

and feasible by the Commission and approved by the Court in May

1951. The debtor had been' organized to finance the development of

hydro-electric power in Northern Italy and deal generally in the investment of funds. Its major assets became mortgages on the property of an Italian public utility, Societa Edison of Milan, and its

income was largely the interest paid on those obligations. In 1940

it became impossible for the Societa Edison to make dollar payments,

and the debtor consequently could not make interest payments on

its own bonds, outstanding in the principal amount of more than

$16,000,000. A petition for reorganization was filed in February

1941. After World War II Societa Edison sent a representative to

this country to discuss that company's affairs and settlement of the

debtor's claims against it. It was then learned that Societa Edison

had acquired a large amount of the debtor's bonds at a substantial

discount. It was subsequently alleged that while the representative

was in this country, Societa Edison had purchased $1,250,000 principal amount of the debtor's bonds. These and other purchases would

bring the total holding of Societa Edison in the debtor's bonds to

$6,543,000 principal amount. Meanwhile agencies of the Italian government acquired $1,098,000 principal amount of the bonds from

Italian nationals.

It was contended by a bondholders' committee that these bondholdings should be limited to cost or subordinated completely to pubn tn r« Inland GasOorp.,187 F. 2d 813 (C. A. 6, 1951). .. In this instance, American Fuel acquired Inland Gas bonds for Inland Gas sinking fund purposes. The Commission argued that American Fuel, as parent of Inland Gas,

could not make a profit on the acqutsttton of bonds where Inland Gas was "in the field" to acquire them itself though it lacked funds to do so, distinguishing ManUfacturers Trust

00., Trustee v. Becker, 338 U. S. 304. The Court held that the transaction was in essence a loan and no profit should be realized thereon by the parent company.

975942--52----10
132 SECURITIES AND EXCHANGE COMMISSION

licly held bonds or applied as a set-off because Societa Edison's relationship to the debtor and its bondholders was such that it could be

considered the real obligor of the debtor's bonds, or at least a guarantor of them. Proceedings were commenced to determine the ownership and status of the bonds and orders were obtained from the court

directing Societa Edison and the Italian Government to file claims.

An application to restrain the transfer of the $1,250,000 of bonds

in the custody of a bank in this country, however, was denied. On

appeal the Court of Appeals for the Third Circuit reversed, holding

that the injunction was within the jurisdiction of the court and that

it was error for the court not to prevent the transfer of the bonds

until the issues respecting their ownership and status were determined." Societa Edison did not file its claims, but proceeded with an

offer of settlement. After extensive negotiations, a proposal was made

under which the Italian Public Credit Institute would settle Societa

Edison's obligations by the issuance of $26,600,000 of bonds, equal

to principal and interest of the Italian company's mortgage debt.

For their holdings of the debtor's bonds of about $11,000,000including interest, Societa Edison and the Italian Government agencies were

to be allowed a credit of only $8,600,000, leaving $18,000,000 of Institute bonds to go to the American bondholders. In addition, interest and amortization terms of the proposal were made more favorable than other Institute bond issues as part of the settlement.

The trustee's plan, based upon acceptance of this settlement, contemplates issuance of liquidation trust certificates to bondholders

upon which payments will be made by a trustee out of the funds received upon the Institute bonds held by"the trustee until the bondholders are fully paid, principal and interest. The balance of payments starting in 1967, which would normally have been paid to the

preferred stockholders of the debtor, in accordance with their priority, will, under the plan, become the property of the holders of

subordinated liquidation trust shares. These suhordinated shares will

be purchased for investment by Italian interests for a net sum of

$1,190,000which, under the plan, will be apportioned between bondholders and preferred stockholders in compromise of their claims to

this cash. The Commission did not render a formal advisory report,

but informed the Court in a full oral presentation that it considered

the plan fair and equitable. Thereafter the Court approved the plan.

The required majorities of the bondholders and preferred stockholders

voted in favor of the plan and in June 1951 it was confirmed by

the Court.

In our Sixteenth Annual Report, we described in some detail the

proceedings involving Silesian-American Corporation. We discussed

the trustee's plan which incorporated a proposal by Swiss banks for

the acquisition by them of securities of the proposed reorganized

company, the transfer to the debtor of certain funds held by them

to enable a cash distribution to be made to public bondholders, and

the release of claims of the debtor against the banks. We also discussed the Commission's advisory report which concluded that the

trustee's plan was unfair and unfeasible in important respects and

that other plan proposals were either not fair or not feasible. We

pointed out that the District Court had overruled our recommenda-

.. In re International Power Securities Corp., 170 F. 2d 399 (C. A. 3, 1948).
SEVENTEENTH ANNUAL REPORT 133

tions except for some minor points and that appeals had been taken

~y a bondholders' committee and other parties from the District

Court's order approving the trustee's plan.

During the past fiscal year, the Commission actively participated

in this appeal before the Court of Appeals for the Second Circuit,

urging that the District Court committed error in approving the

trustee's plan. In an elaborate detailed opinion, the Court of Appeals reversed the lower court's order." The case is of particular

significance in the field of bankruptcy reorganizations because of

the clear statement of the important weight which should be accorded advisory opinions of the Commission. The Court stated:

* * * Since decision here is so highly a matter of judgment, indeed of shrewd

appraisal of what may be the possibilities of lengthy litigation as against

an immediate smaller payment in hand, we obviously cannot find any sure or pat answer. The trustee naturally urges that we must give strong weight

to the decision below, suggesting that it must be sustained as a finding of fact

based on the preponderance of credible evidence, and therefore not "clearly

erroneous" under F. R. 52 (a). But we are not justified in thus oversimplifying

this difficult problem, so much more one of forecasting the future than of restating the past. Naturally careful consideration is due the conclusion of the

able district judge who has had this lengthy reorganization so long under his

control. At the same time we cannot overlook the fact that the governmental

agency charged with substantial responsiblllty in the premises, the Securities

and Exchange Commission, has made an extensive investigation resulting in a detailed and helpful report with a reasoned conclusion which the trial judge

has rather summarily rejected. If the considered findings of this agency, with so much better faclllties for investigation than those possessed by either this

or the trial court, are to have any force beyond their initial impact below,

then we think that they will largely offset the usual presumption accorded a decision of first instance. Otherwise much of the statutory purpose in creating

an expert body for the consideration of technical problems will be set at

naught. Compare 6 Collier on Bankruptcy Par. 7.30, 14th Ed. 1947. We have

elsewhere stressed the importance of due regard for Commission findings,

Finn v, Ohilds 00., 2 Cir. 181 F. 2d 431, 438; and we are clear that here, too,

we must give weight to the detailed evaluation of the facts made by this reliable and experienced public agency and the conclusion reached, even though

this was not accepted by the trial judge.

After discussing the history of the debtor and its affairs and the

terms of the Swiss offer and the trustee's plan, the Court set forth

the Commission's position at length "both because of its statutory

responsibility and because of the thoroughness with which it has

worked out its position." The Court then analyzed the principal

issue in the case, the causes of action against the Swiss banks, and

concluded, as had the Commission, that there was lack of an adequate

showine that the adjustment with the Swiss banks embodied in the

trustee s plan was fair or just, particularly in the light of what seemed

to be strong indications to the contrary. The case was therefore remanded for further proceedings. The Court did not prescribe what

these should be, indicating that a new plan might be substituted or

action against the Swiss banks instituted here or in Switzerland.

In any event, the Court directed that some detailed examination be

made of the Swiss transactions, Swiss law and the position of the

Swiss Government agency in charge of the transactions.

Inview of this conclusion, the Court did not finally determine other

issues in the case but as an aid to a reappraisal of those issues, commented upon them. The Court felt that certain claims of the debtor

against a German mining company were uncollectible in point of fact .

.. Oonway v. SileBian.il.merican Oorporation, 186 F. 2d 201, 202-203 (C. A. 2, 1950).
134 SECURITIES AND EXCHANGE COMMISSION

As to the correctness of the trustee's decision not to sue promoters of

the debtor, the Court was divided in view, stating that it was clear

that the promoters realized large profits but that it was not clear from

the record whether the promoters, as charged by the Commission, were

liable for a misleading bond circular, a write-up of the debtor's Polish

assets and overvaluation of those assets and prospects. The suggestions of the Commission not followed by the lower court as to the details of the plan, including the issuance of contingency certificates

to those who gave value for their securities, seemed to the Court to

have merit.

In our Sixteenth Annual Report, we outlined the status of the reorganization proceedings involving Central States Electric Corporation, an investment company owning and controlling directly and

through two subsidiaries assets of over $50,000,000. We mentioned

the important problems involved in the effectuation of a plan of reorganization for the Central States system; the treatment of some

of these problems in our advisory report on five proposed plans of reorganization j the adoption by the District Court of the Commission's recommendation that the trustees' plan be approved and other

plans be disapproved; and the denial by the District Court of a request to stay a preliminary step involving the dissolution of American

Cities Power & Light Corporation, one of the subsidiaries, pending an

appeal to the Court of Appeals for the Fourth Circuit. Briefs were

filed and argument held on this appeal during the past fiscal year in

July 1950. The Court of Appeals upheld the Commission's view of

the case in a detailed opinion handed down in August 1950.25

The Court dismissed the plans of reorganization proposed by certain junior security holder groups as objectionable "for reasons which

the Commission has very clearly pointed out."

As to the contention of common stockholders that the case should be

delayed until litigation against the former management shall be terminated, the Court quoted from the Commission's advisory report that

"to request delay when immediate reorganization is practicable is to

disregard the rights of creditors, as well as senior stockholders, '" '" '" and to continue to subject them to the risk of loss." As to the argument that the trustees' plan of reorganization proposing a single openend investment company for the system was a "liquidation," the

Court agreed with the Commission that there was no basis for this

conclusion, stating "This is just the sort of matter as to which the

Securities and Exchange Commission is best qualified to judge and no

good reason is suggested which would warrant the courts in substitutmg their judgment as to this for the expert judgment of the Commission." That stockholders might exercise their option under the

charter of the reorganized company to redeem their stock was found

not objectionable for another reason, since, as the Court stated, it is

not the purpose of Chapter X to compel security holders to continue

a business if they, the owners, desire otherwise.

On the question of valuation, the Court upheld the Commission's

view that the proper method of valuing the assets of an investment

company such as Central States is not prospective earnings but the

realizable market value of the securities on hand. The Court pointed

out that the case was to be distinguished from that of a business

corporation where the value of the unit as a whole often exceeds the

IIIn r« Oentral Stat68 Electrio Oorporatlon. 183 F. 2d 879 (C. A.. 4, 1950).
SEVENTEENTH ANNUAL REPORT 135

value of the separate parts due to the unitary functioning of all parts

as a whole. The Commission's advisory report and brief were quoted

from with approval.

The Court affirmed the holding that the senior preferred stockholders were entitled to share in the assets of the debtor on the basis

of their liquidating preferences prior to junior stockholders and

distinguished the line of cases under the Public Utility Holding Company Act where the rights of preferred stockholders are generally not

considered 'matured. The Court also approved the plan provision

which allocated additional compensation to the bondholders amounting

to 5 percent of their claim because of their loss of seniority in the

reorganized company through the issuance to them of new common

stock.

The Commission filed a brief in opposition to petitions to the Supreme Court for writs of certiorari. The same contentions were raised

by the junior interests, excluded from participation in the physical

assets of the debtor, that they raised in the courts below. Certiorari

was denied in January 1951.26 In the meantime, the trustees' plan of

reorganization was confirmed by the District Court as recommended

by the Commission over the objection of the junior interests. An

appeal to the Court of Appeals from the order of confirmation was

dismissed. Thereafter certain common stockholders moved to dismiss

the entire proceeding on the ground that the debtor was solvent and

could pay its debts (debentures of $22,000,000,principal plus interest)

through a sale of assets or by borrowing or a combination of both.

The Commission opposed the motion to dismiss on the grounds that

this issue had been decided in the prior appeal; that the need for and

practicability of reorganization is the basic test to determine whether

a case should be dismissed or not and not whether a debtor is or has

become solvent; and that the reorganization of solvent debtors in need

of rehabilitation is expressly contemplated by Chapter X. The District Court denied the motion, On appeal, the Commission filed a

brief and argued in support of the order denying the motion. The

Court of Appeals affirmed on several ~ounds. Of broad import in

Chapter X is the Court's opinion that' the idea that jurisdiction over

reorganization proceedings is lost because of a fortunate administration of the corporation's assets under the Court's direction is supported

neither in law nor in common sense and is violative of the well settled

rule that a court of equity, having once taken jurisdiction, will do

complete justice in the premises." The Court of Appeals also pointed

out that to dismiss the proceedings would have meant turning back

control of the company to the former management against whom suit

for a substantial sum was pending and that such a course was "hardly

thinkable." 26a

The Court of Appeals refused a stay of the proceedings, stating

that for persons holding insignificant interests in so large an enterprise to liold up and delay a plan where the security holders having

substantial interests had given their approval and the Commission,

the District Court and that Court had likewise given their approval,

is an abuse to which the Court would lend no encouragement. The

mandate was directed to be issued in fifteen days unless application

for certiorari were made to the Supreme Court. The common stockholders did apply for certiorari and the Commission, among other

... OhlUltl v, 4u8trlan, 189 F. 2d 555 (C. A. 4, 1951).
136 SECURITIES AND EXCHANGE COMMISSION

parties, filed a brief in opposition. Certiorari was denied in Juna

1951.21

Thereafter the plan of reorganization was speedily consummated.

A new open-end investment company, called Blue Ridge Mutual

Fund, Inc., emerged as the reorganized company, resulting from the

merger of Central States Electric Corporation and its subsidiary,

Blue Ridge Corporation. American Cities Power and Light Corporation, another subsidiary, had been dissolved during the previous year.

Common stock of the new company was distributed to the bondholders

and 7 percent preferred stockholders of Central States and to the

common stockholders of Blue Ridge in accordance with their interests. The new company commenced operations with about $45,000,-

000. Requests for redemptions, which will substantially reduce the

assets of the company, may be offset by sales of new stock. As permitted by the plan, an underwriting arrangement and a management

contract were entered into, with the approval of the Court, with

Reynolds and Company, an investment banking and securities firm.

The new contracts were reviewed by the Commission, not only from

the point of view of Chapter X standards, but also to assure compliance with the Investment Company Act of 1940. It is contemplated that the new company will make a continuous offering of

Its stock as is the practice of other investment companies of this

type. The Commission also closely reviewed the charter and bylaws of the new company to see that proper safeguards in the interests

of investors were incorporated therein.

Feasibility of Plan

A prerequisite to the court's approval of a plan of reorganization is its feasibility. In order to assure a sound reorganization, which

will not result in the debtor's return to Chapter X because of financial

difficulties, the Commission gives a great deal of attention to the

various factors affecting feasibility. Generally speaking, these factors involve the adequacy of working capital, the relationship of

funded debt and the capital structure as a whole to property values,

the adequacy of corporate earning power for interest and dividend

requirements, the possible need for capital expenditures, and the

effect of the new capitalization upon the company's prospective

credit. The Commission's views of feasibility as relating to various

types of enterprises have been announced in some detail in its advisory

reports. Although no advisory reports were issued durin~ the past

fiscal year, the Commission's views on the subject of feasibility were

expressed orally in several cases along lines previously set forth in

its published reports.

Consummation of Plan

The Commission gives detailed scrutiny to the corporate charters,

by-laws, trust indentures, and other instruments which are to govern

the internal structure of the reorganized debtor. In general the

Commission strives to assure to investors the inclusion of protective

features and safeguards which its experience has shown to 00 desirable.

The Commission's interest in the entire reorganization process includes not only the consummation of the plan and the winding up

1'7341 U. S. 91$2.
SEVENTEENTH ANNUAL REPORT 137

of the affairs of the trusteeship (which may occur many years after

a plan has been consummated) but may also extend to the interpretation and enforcement of the terms of the plans by the reorganized

company. The value of such continued interest was shown by the

decision of the Third Circuit Court of Appeals in In Be Pittsburgh

Terminal Ooal 00rp.,28 discussed at length in the Sixteenth Annual Report. During the past fiscal year, application for, certiorari to the

Supreme Court from this decision was opposed by the Commission

on the ground that the decision of the Court of Appeals was correct

in applying to the facts of this case the established principle that a

bankruptcy court has jurisdiction to protect its decrees, to interpret,

enforce and carry out the plan of reorganization and to prevent interference with the plan or its operation. The Commission also urged

that the decision was not in conflict with other decisions and distinguished the decisions relied upon by the petitioner which held in

general that the Chapter X Court has no power to interfere in the

affairs of a corporation after a plan has been consummated. The

Supreme Court denied certiorari."

Another matter in connection with the consummation of plans of

reorganization which has been of concern to the Commission is the

problem of unexchanged securities. The Commission found that

many security holders had not submitted their old securities in exchange for new securities or cash distributable under the plan. Chapter X provides that a period of not less than 5 years may be fixed by

the judge within which security holders may make the exchange under

the plan, after which they are barred. After some experience with

the operation of this provision, the Commission concluded that, in

the larger cases, 5 years may be too short a period, depending on the

facts, and recommended a bar period of 10 years.

More important than the lengthening of the exchange period, the

Commission believes that efforts to locate security holders must be

intensified in order to reach as many investors as possible. The Commission has, therefore, urged trustees, exchange agents, and others

who have the responsibility for distributing the new securities or

cash, to send registered letters with return receipts requested, to

publish notices in leading newspapers, and to retain professional

tracers in the business of locating missing security holders.

28183 F. 2d 520 (C. A. 3, 1950) .. Pittsburgh Terminal Realization Corp. v. Heiner, 340 U. S. 904 (1950). •

PART V

ADMINISTRATION OF THE TRUST INDENTURE

ACT OF 1939

NATURE OF TRUST INDENTURE REGULATION

The Trust Indenture Act of 1939 requires that bonds, notes, debentures, and similar 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 and which has been qualified

with the Commission.

Individual holders of bonds, notes, debentures, and similar debt

securities often find it difficult and expensive to enforce their rights

under indentures and generally must rely upon the trustee named in

the trust indenture to protect them. The Trust Indenture Act of 1939

requires the inclusion in the trust indenture of specified provisions

which facilitate the protection and enforcement of such rights. Thus

there must be a corporate trustee free from stated conflicts of interest;

such trustee must not after default, or within 4 months prior thereto,

improve its position as a creditor to the detriment of the indenture

securities; it must make annual and periodic reports to bondholders;

it must maintain bondholders lists to provide a method of communication between bondholders as to their rights under the indenture and

the bonds; and it must be authorized to file suits and proofs of claims

on behalf of the bondholders. The Act prohibits exculpatory clauses

used in the past to eliminate the liability of the indenture trustee to

the indenture security holders and imposes on the trustee, after default, the duty to exercise the rights and powers vested in it, and

to use the same degree of care and skill in their exercise as a prudent

man would use or exercise in the conduct of his own affairs. Specified

evidence must be supplied by the obligor to the indenture trustee with

respect to the recording of the indenture and with respect to conditions precedent to action to be taken by the trustee at the request of

the obligor.

INTEGRATION WITH SECURITIES ACT OF 1933

The exemption provisions of the Trust Indenture Act of 1939 incorporate most of the exemptions contained in the Securities Act of

1933 and include certain other exemptions. The provisions of these

Acts are so integrated that registration pursuant to the Securities Act

of 1933 of securities to be issued under a trust indenture and not

exempt from the Trust Indenture Act of 1939, is not permitted to become effective unless the indenture conforms to the requirements of

the latter Act, 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 is processed

139
140 SECURITIES AND EXCHANGE COMMISSION

substantially as though such application were a registration statement filed pursuant to the Securities Act of 1933.

STATISTICS OF INDENTURES QUALIFIED

The Commission's work involved in the examination and qualification of indentures, like other phases of its securities regulatory activities mentioned elsewhere in this report, increased in volume during

the 1951 fiscal year. During the year there were filed for qualification under the Trust Indenture Act 109 new indentures representing

an aggregate amount of $2,025,131,091of debt securities, compared

with 96filings representing $1,741,775,670in the 1950fiscal year. More

detailed statistics follow:

Number of tnacnture« filed under the Trust Indenture Act of 1939

Number Aggregate

amount

~~:=Ef:d~~~t~ ~~r:~~::~:::::::::::::::::::::::::::::::::::::::4 $55, 000, 000109 2, 025, 131, 091

TotaL ______________________ 113 2,080, 131,091

Disposition during fiscal year:

~a:~~~a~I~jl;y'amendnieiiior'witiidmWii:::::: ::::: ::: :::: ::::: ::: 103 I, 922, 371. 091 4 118, 760, 000 Indentures pending June 30, 1951 6 39,000,000

TotaL. . _. 113 2, 080, 131, 091

During the 1951 fiscal year the following additional material relating to trust indentures was filed and examined for compliance with

the appropriate standards and requirements:

Statements of eligibility and qualification under the Trust Indenture Act__ 128

Amendments to trustee statements of eligibility and qualification_________ 5

Supplements S-T, covering special items of information concerning indenture securities registered under the Securities Act of 1933______________ 98

Applications for findings by the Commission relating to exemptions from

special provisions of the Trust Indenture AcL_______________________ 6

Reports of indenture trustees pursuant to sec. 313 of the Trust Indenture

Act________________________________________________________________ 659

CHANGE IN FORM

Amendment of Form T-3.-During the 1951fiscal year the Commission amended Form T-3 to add a requirement that there be filed as an

exhibit to applications for qualification of indentures on this form a

copy of each prospectus, notice, circular, letter or other written communication which is to be distributed to security holders generally

in connection with the issuance or distribution of the indenture securities. The reason for requiring the filing of this material is to facilitate the Commission's examination of such applications.

•____________________________________________

________ •• ________________________________

_____•_________•• ________________ •_______________• __•_________
PART VI

ADMINISTRATION OF THE INVESTMENT COMPANY

ACT OF 1940

The Investment Company Act of 1940 requires registration of, and

provides for certain types of regulation of, investment companiescompanies engaged primarily in the business of investing, reinvesting,

and trading in securities. Among other things, the Act requires disclosure of the finances and investment policies of these companies in

order 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

their stockholders; bars persons guilty of security frauds from serving

as officers and directors of such companies; regulates the means of custody of the assets of investment companies and requires the bonding

of officers and directors having access to such assets; prevents underwriters, investment bankers, and brokers from constituting more than

a minority of the directors of such companies; requires management

contracts in the first instance to be submitted to security holders for

their approval; prohibits transactions between such companies and

their officers and directors except with 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 the request of such companies

or 25 percent of their stockholders and to institute proceedings to

enjoin such ,elans if they are grossly unfair. The Act requires face

amount certificate companies to maintain reserves adequate to meet

maturity payments upon their certificates.

REGISTRATION UNDER THE Acr

During the 1951 fiscal year, 12 new investment companies registered

under the Investment Company Act of 1940, of which 5 were open-end

management companies (companies which redeem their shares on

presentation by the stockholders) and 7 were closed-end management

companies (companies in which the shareholder can realize on his

security only by selling it in the open market). During the nearest

comparable period for which data are available, the 12 months ended

March 31, 1951, about 211 registered open-end management and closedend management investment companies reported to the Commission

sales to the public of approximately $594,000,000 of their securities and

redemptions and retirements of approximately $336,000,000, leaving a

net investment by the public in such companies over the period of

approximately $258,000,000. As of June 30, 1951, 368 investment

companies were registered under the Act, and on that date it is estimated that the value of their total assets was approximately $5,600,-

000,000. This represents an increase of approximately $1,000,000,000

in such valuation over the corresponding total at the beginning of the

year.

141
142 SECURITIES AND EXCHANGE COMMISSION

The 368 investment companies registered at June 30, 1951, are classified as follows:

Management open-end 154

~lanagement closed-end___________________________________ 105 Unit_____________________________________________________ 94

Faceamount_____________________________________________ 15

Total ~_________________________ 368

CHARACTER OF INVESTMENT COMPANIES REGISTERED DURING

FISCAL YEAR

As indicated, 12 investment companies registered under the Act

during the fiscal year. Of these, five were open-end management

investment companies actively offering their securities to the public.

One of these companies stressed as an advantage the fact that it

charged no sales load in the purchase of its shares. Another proposed

a so-called formula of investment designed to require purchase and

sales of securities on the happening of specified events. As a result

of examination by the Commission's staff, the prospectus of the company as finally used makes it clear that the so-called 'formula is not

infallible and that losses can result from investment in the company.

None of the closed-end management companies registered during

the year is offering or intends to offer its securities to the public. One

of such companies was created in connection with a merger of companies manufacturing locomotives and other heavy machinery as a

repository for certain securities not necessary to the operation of the

business of the combined companies. The stock of the investment

company so formed was distributed to the stockholders of the locomotive company. Thus the investment company became publicly

held and was required to register under the Act. Some others of the

newly registered companies were created for similar reasons.

The remaining companies were required to register because of the

fact that during the fiscal year the number of their stockholders

reached 100 or more, thus removing the exemption in the Act for

investment companies having less than 100 stockholders. The most

interesting of these companies is Delaware Realty and Investment

Company which owned approximately 33 percent of the voting securities of Christiana Securities Company, which in turn owned 27 percent of the common stock of E. I. du Pont de Nemours & Company,

one of the country's largest industrial concerns.

SELLING LITERATURE

The Act requires literature (other than the statutory prospectus)

used by issuers or underwriters in selling open-end investment company shares to be filed with the Commission within 10 days after such

literature is first employed as selling material. During the preceding

1950 fiscal year there had been a substantial increase in the use of both

literature purporting to describe investment companies generally and

literature purporting to describe a specific company. Of considerable

concern to the Commission was the fact that in a substantial number

of cases this literature used by issuers, underwriters, and dealers to

attract investors might be materially misleading in many respects.

In addition, there was serious doubt that certain of such literature

could be generally circulated under the Securities Act of 1933. Accordingly, before the beginning of the 1951 fiscal year the Commission
SEVENTEENTII ~AL REPORT 143

STATISTICAL DATA

The number of documents filed under the Act by registered investment companies during the fiscal years ended June 30, 1950 and 1951,

together with other related statistics, are tabulated below:

with the cooperation of the National Association of Securities Dealers

undertook a study of such literature in an attempt to eliminate any

misleading elements contained therein. During the 1951 fiscal year

there was promulgated, as a result of the cooperative effort of the

Commission and the National Association of Securities Dealers, a

Statement of Policy governing the contents of such literature. In

addition, during the 1951 fiscal year, the Commission and the National Association of Securities Dealers worked out a procedure for

submission of selling literature to staff members for scrutiny as to

compliance with the Statement of Policy before such literature is used.

Furthermore, after considerable discussion the Commission permitted the use under certain circumstances of charts indicating the

performance of investment companies as selling literature provided

such charts were contained in a standard book of reference, reflected

the performance of a substantial number of investment companies,

were prepared uniformly on a non-misleading basis, and were exhibited as a book to investors.

During the 1951 fiscal year, discussions were initiated between the

National Association of Investment Companies and the Commission

with a view to simplifying the registration requirements for such

companies under the Securities Act and Investment Company Act,

the objective being to obtain a short readable prospectus which would

nevertheless fully inform investors as to the facts with respect to the

particular company.

Fiscal year ended 1une30-

1950 1951

Number ofregistered Investment companies:

1~~JtC::~year~~:~~:~:~:::::~:::::::::::::::::::::: ::::::::::::::::: Terminations ofregistration during year

Number of companies registered at end of year Notification of reglstratlon

=~~:~~~~~tioi;st8temeniS~~~::::: ::::::::::::::::::::::::::: .Annual reports -_ Amendments to annual reports Quarterly reports .

Periodic reports, containing financial statements, to stockholders

Reports of repurchase of securities by closed-end management companles Copies of sales lltarature

Applications for exemption from various provisions of the Act

Applications for determination that registered Investment company has ceased to be an Investment company

Total applications:

Pending ~a~:dai~::::::::::::::::::::::::: at end of year :::::::::::::::.:::::::::::

358

26

18

366

26

26

51

224

23

818

637

73 2,121

77

18

32

95

93

34

366

12

10

368

12

10

22

251

35

869

673

71 2,596

62

16

34

78

71.1

APPLICATIONS FILED

One of the functions of the Commission under the Act is to pass

on applications by investment companies for exemptions which the

Act permits under appropriate standards.

Some of the most complex problems arise out of the provisions of

the statute which forbid, in the absence of approval by the Commis-

-

_

_

_

---- ---_---__- --- _ -- - _

_

_

_ -- _

_

_

_
144 SECURITIES AND EXCHANGE COMMISSION

sion, purchases or sales of property or securities among investment

companies and their affiliated persons. To approve such transactions

the Commission must find that they are fair as to price and involve

no overreaching. As a result, the applications in many instances

involve unusual questions of valuation and inside influence. During

the year 21 applications of this type were filed.

During the fiscal year 78 applications were filed under the various

provisions of the Act, 62 of these for orders of the Commission relating to exemption from requirements of the Act, and the remaining

16 for a determination of the Commission that the applicant has

ceased to be an investment company within the meaning of the Act.

At the beginning- of the fiscal year 34 applications were pending.

These pending applications, together with the 78 filed during the year,

totaled 112 applications which required the appropriate examination

and consideration of the Commission during the year. As a result

of the Commission's action 71 of these applications were disposed of

during the year and 41 were pending on June 30, 1951. The various

sections of the Act under which these applications were filed, and the

disposition of the applications during the fiscal year, are shown in

the following table (since an application may involve more than one

section of the Act, the numbers are not totaled) :

Nature and disposition of various applications fileil under the Investment

Company Act of 1940 iluring year enaea June 30, 1951

Number Filed Number

Section of the act under which application pending during D~ofduringyear pending was flied at June at June

30,1951 year 30,1951

2 (a) (9) Determination of question of contrul., ___ 0 1 .0 ______________________ 1

3 (b) (2) Determination that applicant ISnot an 2 0 1withdrawn __________ 1

investment company. 6 (b) Employees' security company exemption ___ 1 2 2 granted ______________ 1

6 (c) Vanous exemptions not specifically provided 7 25 21 granted, 2 with- 9

for by other sections of the Act. drawn.

7 (d) Allow foreign company to register ___________ 0 1 0______________________ 1

8 (0 Determination that a registered investment 3 16 10 granted, 1 with- 8

company has ceased to be an investment com- drawn. pany,

9 (b) Exemption of ineligible persons to serve as 14 0 0______________________ 14

directors, officers, etc. 10 (0 Exemption of certain underwriting trans- 0 1 1 granted ______________ 0

actions.

11 (a) Approval of terms of proposed security 0 2 0______________________ 2

exchange offers.

17 (b) Exemptron of proposed transactions be. 5 21 19 granted, 2 with- 5 tween investment companies and affiliates. drawn.

17 (d) Approval of certain bonus and profit- 4 9 12granted _____________ 1

sharing plans. 17 (e) Permit larger commission to an afliliated 0 1 1 granted ______________ 0

person than allowed by act. 18 (I) Allow company to issue nonvoting securltles. 0 2 1 granted ______________ 1

23 (c) (3) Terms under which closed-end invest- 1 4 4granted, 1withdrawn, 0 ment company may purchase Its outstanding securities.

CHANGES IN RULES, REGULATIONS, AND FORMS

Bonus. profit 8haring and pension. plans.-Section 17 (d) of the

Act authorizes the Commission to promulgate rules designed to prevent unfair use of their position by insiders to engage in joint transactions with the investment companies they manage or with companies controlled by such investment companies. To carry out this

purpose the Commission in 1946 enacted rule N-17D-1 which in effect

required submission to and approval by the Commission of bonus,

profit sharing and pension plans granted by investment companies
SEVENTEENTH ANNUAL REPORT 145

or their controlled companies for the benefit of officers or employees,

prior to their adoption. During the last fiscal year, as a result of

the Commission's experience with the original rule, it was amended

to eliminate the necessity of prior submission to the Commission of

a variety of bonus, profit sharing and pension plans. .Among such

plans no longer required to be submitted to the Commission for approval are pension plans for employees of investment companies in

which the company's contributions are based on a percentage of

annual payroll and the plan has been qualified as non-discriminatory

under section 165 of the Internal Revenue Code. Similarly, all bonus,

pension or profit sharing plans of companies controlled by investment companies (other than other investment companies) are exempted if no affiliated persons of the controlling- investment company

participate in the plans. Finally, payments of bonuses up to 5 percent

of the net income of the investment company, giving effect to any

net unrealized depreciation in its assets, may be paid without the

necessity of approval by the Commission. It is believed that these

amendments to the rule will substantially lessen the administration

burden of both the Commission and registered investment companies,

without sacrifice of adequate protection to investors in such companies.

Registration form to'/' face-amount oertificate oom.pamies-s-The

Commission during the year adopted a form of registration statement

to be filed under the Act by registered face-amount certificate companies. These companies offer to investors certificates entitling their

holders to a definite sum of money at the end of a prescribed period

upon payments by the investor during such period, usually in monthly

installments, of sums aggregating less than the amount to be paid

by the company at maturity. The Act requires the companies to

maintain reserves invested in qualified investments sufficient to meet

the face amount of certificates held by investors at maturity. The

new form, among other things, requires pertinent information to

enable the Commission to determine whether such reserves are being

maintained by the companies.

In addition to the new form a rule was adopted permitting the

use of information previously filed by face-amount certificate companies with the Commission under the Securities Act of 1933 or section 15 (d) of the Securities Exchange Act of 1934. Both the form

and the rule were previously published in draft form for comments

and suggestions by the companies affected and other interested persons. Extended conferences were held with the representatives of

some of the companies affected and the form adopted by the Commission reflects the incorporation of a number of comments and suggestions so received.

Bonding of office'/'s and employees of investment oompamies-«

The Act empowers the Commission to require the bonding of officers

and employees of registered investment companies who have access

to securities owned and other assets of such companies. Pursuant to

such statutory authority the Commission had adopted rule N-17G-1.

During the fiscal year the Commission amended rule N-17G-1 by

adding to such rule a definition of the terms "officers" and "employees."

The amendment provides that for the purposes of this rule such terms

shall include the depositor or investment adviser and its officers and

employees incases where the investment company is an unincorporated

company managed by a depositor or investment adviser.

PART vn

ADMINISTRATION OF THE INVESTMENT ADVISERS

ACT OF 1940

The Investment Advisers Act of 1940 requires the registration as

investment advisers of persons engaged :for compensation in the

business of advising others with respect to securities. The Commission is empowered to deny registration to or revoke registration

of any adviser who, after notice and opportunity for hearing, is

found by the Commission to have been convicted or enjoined because

of misconduct in connection with security transactions or to have

made false statements in his application for registration. The Act

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

client's consent.

Stati8tws relating to registration of investment advisers, fiscal year

ending June 30, 1951

Effective registrations at close of preceding fiscal year 1,043

Applications pending at close of preceding fiscal year__________________ 13

Applications filed during fiscal year__________________________________ 121

Total 1,177

Registrations cancelled or Withdrawn during year_____________________ 107

Registrations denied or revoked during year_________________________ 0

Applications withdrawn during year_________________________________ 3

Registrations effective at end of year 1,057

Applications pending at end of year___________________________________ 10

Total 1,177

Approximately 258 registered investment advisers represent in

their applications that they engage exclusively in supervising their

clients' Investments on the basis of the individual needs of each

client. The services of about 341 others are chiefly through publications of various types. 235 investment advisers are registered also

as brokers and dealers in securities. Most of the remainder offer

various combinations of investment services.

147

97~942~2----11

PART VIII

OTHER ACTIVITIES OF THE COMMISSION

COURT PROCEEDINGS

Civil Proceedings

Complete lists of all cases in which the Commission appeared before

a Federal or State court, either as a party or as amicus curiae, during

the fiscal year, and the status of such cases at the close of the year, are

contained in the appendix tables.

At the beginning of the 1951 fiscal year there were pending in the

courts 18 injunctive and related enforcement proceedmgs instituted

by the Commission to prevent fraudulent and other illegal practices in

the sale of securities, 21 additional proceedings were instituted during

the year and 19 cases were disposed of, so that 20 of such proceedings

were pending at the end of the year. In addition the Commission

participated in a large number of reorganization cases under Chapter

X of the Bankruptcy Act; in 15 proceedings in the district courts under

section 11 (e) of the Public Utility Holding Company Act and in 14

miscellaneous actions, usually as amicus curiae, to advise the court of

its views regarding the construction of J?rovisions of statutes administered by the Commission which were mvolved in private lawsuits.

The Commission also participated in 41 appeals. Of these, 8 came

before the courts on petition for review of an administrative order;

17 arose out of corporate reorganizations in which the Commission

had taken an active part; 2 were appeals in actions brought by or

against the Commission; 9 were appeals from orders entered pursuant

to section 11 (e) of the Public Utility Holding Company Act; and 5

were appeals in cases in which the Commission appeared as amioue

curiae,

Certain significant aspects of the Commission's litigation during the

year are discussed in the sections of this report devoted to the statutes

under which the litigation arose.

Criminal Proceedings

The statutes administered by the Commission provide for the transmission of evidence of violations to the Attorney General who may

institute criminal proceedings. The Commission, largely through its

regional offices, investigates suspected violations and, in cases where

the facts appear to warrant criminal proceedings, prepares detailed

reports which are forwarded to the Attorney General. Commission

employees familiar with the case often assist the United State attorneys in the presentation to the grand jury, the conduct of the trial,

and the preparation of briefs on appeal. The Commission also transmits parole reports prepared by its investigators relating to convicted offenders. Where an investigation discloses violations of

statutes other than those administered by the Commission, the Commission advises the appropriate Federal or State agency.

Indictments were returned against 2,133 defendants 1 in 477 cases

1In dtseusslons of criminal cases in previous annual reports the figure used for the

number of defendants indicted was the sum of the number of defendants in all indictments

returned. The figure currently used refiects an adjustment for the situation occasionally occurring where Indictments Which included common defendants were tried together. A

similar adjustment has been made for the figure used for the number of defendants con- victed. These adjustments eliminate seeming inconsistencies between fi~res prevtouslv appearing in the text and comparable figures contained in the appendices.

149
150 SECURITIES AND EXCHANGE COMMISSION

developed by the Commission prior to June 30, 1951.2 These figures

include 48 defendants in 24 cases in which indictments were returned

during the past fiscal year. At the close of the fiscal year 436 cases

had been disposed of as to one or more defendants. Convictions had

been obtained in 381 of these cases," over 87 percent, against a total

of 1,135defendants. Convictions were obtained against 15 defendants

in 12 cases during the past fiscal year! In addition, one defendant

was convicted of criminal contempt during this period," A judgment

of conviction was affirmed on appeal as to one defendant during the

year, and two cases, each involving a single defendant, remained pending on appeal at the close of the fiscal year.

As in prior years, the criminal cases during the past year which

were developed and prosecuted covered a wide variety of promotions.

They included fraudulent securities sales in connection with the operation of purported investment plans, in connection with the promotion of various mining, oil and gas ventures, and in connection with

the promotion of inventions and other new businesses. They also included frauds perpetrated by securities brokers and dealers and their

representatives upon customers. In many of these fraudulent schemes,

the defendants wilfully avoided compliance with the registration provisions of the Securities Act of 1933, which are designed to provide

investors with a full and fair disclosure of material facts about the

securities being sold. As a result, a number of fraud cases involved

violation of these registration provisions. In addition, in two indictments returned during the past year the charges were based solely

on the violation of these registration provisions.

The fraudulent sale of securities in connection with the operation

of purported investment plans was involved in the following criminal

proceedings during the past year: U. S. v. Frederick F. March (N. D.

Ill.) ("secret" financing plan) ; 6 U. S. v. Robert J. Dottle (D. Mass.)

(securities trading account); 7 U. S. v. Jim May (S. D. Tex.) (grain

trading venture); U. S. v. Russell D. Hanson (N. D. Ill.) (securities tradi.!!g financing plan); and U. S. v, Mercedes Buschman et al.

(W. D. Wash.) (note discounting plan). The defendants in the

first two cases were convicted on charges of obtaining funds from

investors upon the representation that they would be used for legitimate investment purposes, whereas in fact the defendants converted

such funds and used them in large part for gambling purposes. Similar fraudulent conduct is alleged in the Hanson case, in which an

indictment was returned during the past year. The conversion of

investors' funds also was involved in the May case, where the defendant was convicted during the past fiscal year. The indictment..

pending in the Buschman case, charges, among other things, that the

defendants induced investors to purchase accommodation notes which

the defendants had fraudulently obtained from various persons, upon

the false representation that such notes had been issued by financially

The status of all criminal cases pending during the past fiscal year Is set forth In the

appendix. Condensed statistical summaries of all criminal proceedings developed by the

Commmission are also set forth in the appendix. I The 115remaining cases, which resulted in acquittals or dismissals as to all defendants.

included a number where the indictments were dismissed because of the death of defendants

nvolved . One of these cases Is still open a8 to one defendant.

The criminal contempt proceedings are set forth in the appendix. See 16th Annual Report of S. E. C., pp, 1110-1111. , For a more complete description of the fraUd InTolved In this case, see the discussion

of S. E. C. v. Robert J. Cottle, p. 24, 8upra.

•

•

•

•
SEVENTEENTH ANNUAL REPORT 151

responsible persons and represented payments due on stock sold to

these persons. In all of these cases the defendants also were charged

with employing the fraudulent "Ponzi" technique, in that, in order to

induce investors to make further investments, they returned to them

as "profits" a portion of their capital contributions.

Convictions involving mining promotions were obtained during the

past year in U. S. v. Charles Phillips (W. D. Tex.) ; U. S. v. Lawrence

L. Kelling (D. Kan.) and U. S. v, James Reese Davis, Sr. et al. (D.

Idaho) . The sale of securities in Mexican gold mining and lumber

ventures known as Orozona, S. A. & Transconstruccion, S. A. was

involved in the first case and the second case related to the sale of preorganization subscriptions of a corporation to be organized to develop

a coal mine in Colorado. The indictments in these cases charged the

defendants with misrepresenting the use which was to be made of the r funds received from the sale of these securities and various other

matters. In the last case, Davis pleaded guilty to charges of violation

of the registration provisions of the Securities Act in the sale of notes

issued by him and secured by an interest in the production from certain

mining properties located in Idaho and Oregon. Indictments were

returned during the year in two other mining promotion cases: U. S. v,

ErnestR. Henmefer et al. (D. Utah) and U.S. v. WilliamB. LaVeyet

al. (D. Mont.). The former case related to the development of phosphate properties and involved the sale of stock of Utah Phosphate

Company. The latter case involved the sale of stock of Victory Divide

Mining Company in connection with a gold mining venture. The

defendants in these cases were charged with making false representations with respect to the nature, amount and value of the ore deposits

controlled by these companies, the value of the stock, the profits which

investors would receive and other matters. After the close of the fiscal

year, convictions were obtained against certain defendants in each of

these cases.

The fraudulent sale of securities relating to the promotion of

various oil and gas properties resulted in convictions during the year

in U. S. v. GeorgeE. Baldwin (N. D. Ill.); U. S. v. J. Stacey Henderlion (W. D. Term.) is and U. S. v, Emory Stokes (E. D. Tex.), The

indictments in the first two cases alleged misrepresentations with respect to such matters as the quantity of oil production being obtained,

the period in which investors would receive repayment of their investments and the amount of profits which they would receive. In

the Stokes case, the defendant was charged with falsely representing,

among other things, that he would act as agent for investors in purchasing oil and gas leases and that the amounts paid by investors for

such leases represented the amounts he had paid to landowners to

obtain these leases. The indictment returned during the year in

U. S. v. Lawrence L. Kelling et al. (D. Kan.), a pending case, includes

charges of misrepresentation with respect to the amount of oil being

produced~ Lt

After the close of the fiscal year, a conviction was obtained in Ua.nt

v, S. E. J. 00(1) et ai. (N. D. Okla.)," another oil promotion fraud~fter

in which an indictment was returned during the past year. T!Jy oil

fendant Cox, who had a record of four previous federal conv' ---- six other 8 Appeal pending. Two co-defendants in this case were not tried. Itted,

As noted above, the defendant Kelllng was convicted during the year in an f T :Ill The co-detendant in thill ease was acquitted. .e 0 esas, •
152 SECURITIES AND EXCHANGE COMMISSION

for oil and mining frauds, was convicted of fraudulently selling stock

of Penner Oil & Gas, Inc. by means of a large scale mail campaign.

Proof at the trial showed that at one time during the course of this

promotion some 28 stenographers were employed to work on the company's sales literature and that orders for the printing of such literature called for as many as 58,000 pieces per 'printing. According to

the indictment some of the false representations made in these sales

letters were that one block of leases controlled by the company should

produce over 6,000,000 barrels of oil having a value in excess of $15,-

000,000, that another block of leases should yield a net profit of $7,000

per acre and that a net profit of $3,000,000 could be obtained from still

other acreage. It was further charged that the defendant failed to

disclose to investors that the "special process," which was represented

as having been used in locating wells drilled by the company, was an

instrument commonly known as a "doodle bug," based upon no scientific principle.

The fraudulent sale of stock in connection with the promotion of

so-called "Road-A-Scopes," a device proposed to be installed along

highways which purportedly would enable motorists to see around

curves and over hills, resulted in the indictment during the year in

U. S. v, James P. Anderson et al. (D. Ariz.). Among other things,

it was charged that the defendants falsely represented that the proceeds from stock sales would be deposited in a trust account to be

used only for the purpose of manufacturing and installing the RoadA-Scope device and that the defendants made false and extravagant

statements regarding the income to be received from advertising placed

on the Road-A-Scope device and failed to disclose to investors that

the promotional company had never received any advertising revenues

or other income except III a nominal amount. The promotion of an

allegedly new type of lawnmower was involved in U. S. v, James D.

Bobbrof] et ai. (D. Nev.)," where the indictment charged misrepresentations, among other things, with respect to the use which was to be

made of the funds received from investors and the status of production

of the lawnmowers involved. Convictions were obtained after the

close of the fiscal year in both of these cases.

Misrepresentations with respect to the use of funds as well as numerous other matters are included in the fraud charges contained in the

indictment in U. S. v. Siegfried Bechbold et al. (S. D. Fla.) a pending

case, which involved the sale of stock and franchises of Ribbonwriter

Corporation of America in connection with the promotion of a typewriter attachment device, known as "Rib-N-Rite," which allegedly

would make duplicate copies by means of ribbons and thus eliminate

the use of carbon paper.

The promotion of a small loan business at Jackson, Mississippi, resulted in a conviction during the year in U. S. v, Paul A. Schumpert

et al. (S. D. MisS.),12where the indictment charged fraud in the sale

.~f stock of the National Acceptance Corporation. Among other

tIr,ings, this case involved payment of purported dividends to facili-

?~bbrOt'f' was eonvlcted on 4 counts. He and his co-defendants were acquitted on one co:nt\and the jury was unable to reach a verdict on the remaining counts in which both

of thena were named as defendants. to The~e were two co-defendants in this case; one was acquitted and the other was not tried. s\ee 15th and 16th Annual Reports of S. E. C., p. 165, and p, 150, respectively, for a discusston of a simllar promotion which also resulted in the conviction of the defendant,

Paul A. Sc.:humpert.
SEVENTEENTH ANNUAL REPORT 153

tate the sale of stock, without disclosure that such dividends had not

been earned but were being paid out of capital and actually represented a partial return of the investors' own funds.

After the close of the fiscal year convictions were obtained against

a number of defendants in U.S. v. Alejandro D. Llanos (D. Hawaii) /3

in which the indictment alleged a wide-spread scheme to defraud

residents of the Territory of Hawaii, principally plantation laborers,

in connection with the sale of securities issued by the defendant

Alejandro D. Llanos and others associated with him in what was

loosely called "Llanos and Company." Inthe sale of these securities,

it was charged that the defendants falsely stated to investors that

the funds received from them would be wagered on "fixed" volley ball

games or, in other instances, would be invested in various business

enterprises with a guarantee against loss, or that the funds were

needed to meet expenses in order to accomplish the withdrawal and

distribution of millions of dollars among the "members of Llanos &

Company." In this connection, according to the indictment, the defendants falsely represented, inter alia, that the defendants controlled a prominent California shipbuilding company, which was indebted to Llanos in the amount of $6,000,000 and that the Llanos

group also had on deposit in an Hawaiian bank an additional $6,-

500,000 and that these tremendous sums ultimately would be distributed among the persons investing in "Llanos & Company."

Convictions involving securities brokers and dealers and their representatives were obtained during the year in V. S. v. Wade F. Ooley

(W. D. S. C.), where it was charged that the defendant while insolvent

operated a securities business, converted customers' funds and securities, maintained false and fraudulent books and records, made false

representations to representatives of the Commission and filed false

and misleading financial statements with the Commission; and in

U. S. v, EugeneF'. Luok (S. D. Fla.) 14 and U. S. v. Paul R. Warwick,

Jr. (N. D. Tex.), in which cases the conversion of customers' monies

or securities constituted a part of the frauds charged. Similar fraudulent conversions are charged in the indictments returned during the

year in U. S. v. Iiiohard E. Slaugenhaupt (W. D. Pa.) and U. S. v.

Sidney W. Tuttle (E. D. Pa.). After the close of the fiscal year, the

defendant in the latter case was convicted.

In V. S. ewrel S. E. O. v. Josiah Marshall Kirby (N. D. Ohio), the

defendant Kirby was convicted of criminal contempt, for continuing

to act as an over-the-counter securities broker and dealer, without

being registered under section 15 (a) of the Securities Exchange Act

of 1934, in violation of preliminary and final injunctive decrees obtained in 1948and 1949,respectively.

The indictment returned during the year in V. S. v. Eldridge S.

Price (N. D. Ohio) ,15 charged violations solely of the registration provisions of the Securities Act of 1933, in connection WIth the sale in

large amount of investment contracts involving oil and gas lease assignments on lands located in Runnels County, Texas, In this case it

was charged that during a period of almost three years the defendant

had caused to be carried through the mails for sale and delivery after

sale to numerous purchasers investment contracts, evidenced by oil

11 Notices of appeal have been filed on behalf of Alejandro D. Llanos and six other

co-defendants who were eonvleted. Two other defendants In the case were acquitted. JA See 16th Annual Report of S. E. C.• pp. 150-151. Appeal pendIng. 11 This case was subsequently transferred tor trial to the Northern District ot Texas.
154 SECURITIES .AND EXCHANGE COMMISSION

and gas lease assignments, coupled with collateral promises that oil

wells would be drilled to prove the acreage involved, when no registration statement was in effect as to such securities with the Commission. After the close of the fiscal year, the defendant was convicted

on these charges. In U. 8. v. O. L. Lloyd (N. D. Ill.) , a pending case,

involving the former Chairman of the Board of Nu Enamel Corporation, an indictment was returned during the year, charging violations

by Lloyd of the registration provisions of the Act in connection with

sales of his stock of this corporation.

In the only appellate case involving criminal prosecution decided

during the fiscal year, Allen v. U. S., 186 F. 2d 439 (C. A. 9, 1951),

certiorari denied 341 U. S. 948, the defendant's conviction for the

fraudulent sale of securities in connection with the promotion of a

number of mining companies was sustained.

COMPLAINTS AND INVESTIGATIONS

The Commission is authorized to conduct investigations and, except

in criminal prosecutions, to institute and pursue its own remedies. In

the main, these are injunctive actions in the United States District

Courts or administrative proceedings before the Commission. Where

criminal prosecution is sought the evidence is referred to the Department of Justice and the United States attorneys.

Information leading to investigations comes from varied sources.

Frequently, violations are indicated by material required to be filed

with the Commission, such as registration statements, annual and

quarterly reports, ownership reports, etc. Other Federal agencies,

State authorities and official and unofficial bodies concerned with

finance and law enforcement cooperate in informing the Commission

of suspected violations. However, members of the investing public

who write to the Commission or call at its officesto make inquiry or

register complaints account for the bulk of the Commission's investigations. During the 1951 fiscal year, 10,100 letters were received relating to possible violations of the Securities Act and the Securities

Exchange Act. In addition, many complaints were received by telephone and by personal interviews.

Letters and calls received and handled by the ten regional offices

are not included.

The ~rimary responsibility for investigation rests with the Commission s regional administrators whose investigators conduct most

of the field work. The principal office also temporarily assigns personnel to assist regional officesin investigations.

Investigations are classified by the Commission as preliminary investigations and docketed cases. A preliminary investigation is one

of limited scope for the purpose of determining whether a full scale

investigation is warranted. If so, it becomes a docketed case. In

many situations, it is determined at the outset that an extensive investigation is warranted and a docketed investigation file is opened.

During the fiscal year, 1951, the Commission instituted a total of 665

new investigations. Of these, 367 were preliminary and 298 were

docketed. In addition, 60 cases which were opened as preliminary

were later docketed. During the same period, 413 investigations were

closed, leaving 1,109 as the total of all investigations pending at the

end of the fiscal year.
SEVENTEENTH ANNUAL REPORT 155

Many preliminary investigations are carried on by telephone,

through correspondence, officeresearch or limited interviews and often

disclose violations of a minor nature not necessitating further investigation or the use of any sanction. Such violations, for the most

part, occur either because of a lack of knowledge of the Federal securities laws or misinterpretation of these Acts. When such persons

learn they are violating the law, they usually are quite willing to agree

to take necessary corrective steps without the use of sanctions. This

procedure serves the dual purpose of effectively preventing the contmuance of minor violations and at the same time educating the public concerning the requirements of the Securities Acts. The following

are examples, among many, of this type of case:

The controlling interest in a large chain of grocery stores was held

by members of the same family. The chief stockholders, through

underwriters, sold a considerable portion of their stock although not

enough to transfer control out of the family. While the distribution

was continuing, the chief stockholders were informed by representatives of the Commission that they were violating the law. They immediately cancelled all sell orders and, at considerable expense to themselves, were able to reverse most of the transactions. One of the

brokers also bought back a considerable block of stock at a loss. In

view of the good faith of the subjects in attempting to correct their

error and the lack of substantial damage to the public, no action was

taken.

In another instance, information reached the Commission that a

committee representing a minority group of a Central European

country was offering bonds for sale within the United States to ex-nationals of that country. Investigation disclosed that, while some of

such persons had been solicited to purchase bonds, actual sales were

de minimu..<;. Those responsible denied any intent to violate the law,

discontinued solicitation and returned the purchase price to the few

who had responded to the offering. Hence the Commission took no

action.

If the preliminary investigation shows the need of further inquiry,

a case is docketed and a full and detailed investigation is made. The

Commission has power to issue subpoenas and administer oaths to

witnesses for the purpose of conducting investigations and may delegate such power to members of its staff. This power is used only when

the investigation could not otherwise proceed. In each such instance,

the facts disclosed by preliminary investigation and the reasons why

subpoena power is necessary are presented orally to the Commission.

If the Commission decides that proceeding by subpoena is justified,

it issues an order which designates officers with the power to subpoena

records, administer oaths and take testimony. Such power is limited

to the specific subject matter of a particular investigation.

During the fiscal year 1951 the Commission delegated subpoena

power by issuance of formal orders of investigation in 47 cases. Of

these, 32 related solely to possible violations of the registration and

anti-fraud provisions of the Securities Act of 1933 and possible violations of the Securities Act were included in seven other orders which

also involved indicated violations of the Securities Exchange Act

of 1934, the Investment Company Act of 1940 and the Investment

Advisers Act of 1940. Seven orders related only to possible viola-
156 SECURITIES AND EXCHANGE COMMISSION

tions of the Securities Act of 1934 and one solely to the Investment

Advisers Act.

When an investigation has been completed, a report is submitted

to the appropriate Regional Administrator who, after review, forwards it to the principal officewith his recommendation. That recommendation may take anyone of several forms, among which are (1)

reference to the Department of Justice for criminal action, (2) the

institution of injunctive or other proceedings in the civil courts, (3)

administrative action by the Commission, or (4) reference to another

agency or department of the Federal Government or to State authorities, for appropriate action. In each instance, the report and recommendation of the Regional Administrator is reviewed by the staff

of the Commission's principal office and the matter is then presented

to the Commission in detail. All formal investigations (where subpoena power has been authorized) or where the Commission has officially taken some other action such as reference to the Department

of Justice, are again presented to the Commission and reviewed by

them before the files are ultimately closed. .

In some instances, complaints appeared to involve violations of law

but, upon investigation, did not justify action. As an example, the

Commission received several letters from stockholders of a longestablished oil and gas producing company claiming that its management had entered into a deal to sell its stock to another company at a

price which was inadequate. The minority stockholders had received

the same offer but had not been given adequate information on which

to base an informed judgment as to the acceptance of the offer. Investigation established that the price offered to minority stockholders

was substantially over the market, that the deal between the controlling stockholders and the buyers had been negotiated at arms' length

on the basis of competent reports by geological engineers as to the

value of the underlying assets and that no VIolation of the Securities

Act was involved.

In another case, information reached the Commission that the bonds

of a Central American republic had been sold within the United

States in violation of the registration provisions of the Securities Act

of 1933. Various persons in the securities industry and others reported rumors that a large amount of such bonds were being sold or

were about to be sold within the United States. Investigation disclosed that, while various American firms had from time to time submitted proposals to finance, by the sale of bonds, a program to develop

the natural resources of the country, none had, as yet, materialized and

no public offering of bonds had been made. The interested parties

were instructed concerning applicability of the Securities Act to any

future transactions involving public distribution of bonds in the

United States. Some contractors and others who had received bonds

for work and services apparently had contemplated disposing of them

in this country without registration. Their plans were abandoned

when it became known that the Commission was investigating the

matter. The Commission's files in the matter were made available

to the Bureau of Internal Revenue at its request in connection with

possible violations of the tax laws.

In another instance the Commission received information that

Chinese Communist interests, through their sympathizers in this country, were conducting a campaign to sell their bonds in the United
SEVENTEENTH ANNUAL REPORT 157

States. This was reported to be a part of a larger movement throughout the world to force the sale of these bonds to persons of Chinese

extraction under threat of reprisal against their relatives in China.

Detailed investigation failed to disclose concrete evidence of the public offering or sale of such bonds within the United States, and therefore the matter was not subject to the jurisdiction of this Commission.

However, in the course of the investigation, the Commission cooperated with the Federal Bureau of Investigation and other agencies

charged with security protection and made its files available to them

for security purposes.

Complainants sometimes seek personal retaliation rather than public benefit. A typical case occurred when an attorney complained to

one of the Commission's regional officesthat the stock of a cooperative

apartment corporation had been sold in violation of the registration

and fraud provisions of the Securities Act of 1933. The statement

was sufficiently convincing to require detailed examination of books

and records of the corporation and the taking of testimony from various witnesses. However, it turned out that no violations of law or

other irregularities were involved, that the complainant was a discharged employee of the corporation who had stated that he would

"get even--if it took all his life" and had made complaints not

only to the Commission but to the Attorney General of the State and

the District Attorney of the County.

The Commission enforcement investigations are confidential and

no information may be divulged to persons other than Commission

employees unless the Commission itself makes it public. Private litigation often arises from the same subject matter as Commisison investigations. Frequently, litigants ask for the Commission's evidence

to assist their causes. Such requests are denied unless unusual and

compelling reasons require a contrary course. Such cases are extremely rare. However, the Commission, upon request, in proper

cases makes its evidence available to Federal and state law enforcement authorities. Also, Committees of Congress have been provided

with evidence touching upon subjects under their inquiry. Among

these were the Senate Committee to Investigate Organized Crime in

Interstate Commerce.

The Commission maintains constant liaison with other Federal and

state enforcement agencies in the securities field. During the past

fiscal year, the Commission opened its confidential investigation files

in 19 cases to such agencies. In other cases, where the subject matter

involves apparent violations of both Federal and state laws, the Commission's investigators and those of state securities authorities jointly

conduct the investigation which may result in both state and Federal

action. Also, a constant exchange of information as to securities

enforcement action is maintained with state and Canadian authorities. The following are concrete examples of this type of cooperation:

In a typical case the subject of investigation who had formerly been

convicted of grand larceny in New York in connection with a securities

transaction and was also permanently enjoined from-engaging in the

securities business in that state was found to have sold approximately

$15,000 worth of oil royalties to persons with whom he had come in

contact in his business of sending food packages and cash to persons

in Germany as agent for their friends. In these sales, the value of the

oil royalties had been grossly misrepresented. The state authorities
158 SECURITIES AND EXCHANGE COMMISSION

requested that the Commission turn its evidence over to them. While

technically a violation of the fraud provisions of the Securities Act

of 1933 was involved, essentially it was a local matter and lent itself

to prosecution in the state courts. The Commission opened its files

to the state authorities and permitted one of its investigators to testify,

as a result of which charges were preferred against the defendant in

the New York State Court, charging various violations of the state

securities laws.

In another case, the Commission's investigation disclosed that the

subject had swindled a Nebraska farm widow of approximately

$18,000 in the sale of securities. Concurrently, the Nebraska authorities learned of the incident and requested access to the Commission's

files. It appeared that the matter was one which lent itself more

readily to state than Federal prosecution and the Commission made

its evidence available to and otherwise cooperated with the state. As

a result, the Governor appointed a special prosecutor who obtained

a conviction of the defendant, who was sentenced to twelve years in

the State Penitentiary. The Assistant Director and Counsel of the

Bureau of Securities in Nebraska described the cooperation between

the Commission and his Bureau in part as follows:

There has always been a fine relationship and cooperation between the two

agencies and the Securities and Exchange Commission has rendered a very

valuable service in all of these matters which has permitted the obtaining of

evidence beyond our control.

In summary, during the fiscal year, the Commission's investigative

staff processed thousands of complaints and other communications,

as a result of which 665 new investigations were undertaken. At the

beginning of the period, 857 investigations were carried over. Within

the year, 413 investigations were closed, leaving a total of 1,109

il!.vestigations pending at the end of the year. While only a comparatively small percentage of such investigations resulted in the

imposition of coercive sanctions or reference for criminal prosecution,

the effectiveness of the Commission's investigative activities may not

be measured by this standard alone.

One of the principal results of the Commission's investigative

activity has been the prevention of violation of the Federal Securities

laws and the continuing education of the public and the investment

industry in the application of those statutes and coercive sanction

in all casesinvolving technical violations of the law has been found not

to be necessary adequately to protect investors and serve the public

interest.

Investigatirms of violatiom of the Acts administered by the Oommission

Prelim- Docketed Totel lnary

Pending June 30_________________________________________________ New 316 541 857 cases__________________________________________________________367 298 665 Transferred from preliminary _______________________________________ ------------ 60 60

Totel _________________________________________________________683 899 1,582

Closed 2M 209 'I3 Tmnsferred to docketed _____________________________________________ 60 --------600- 60

Pending at June 30, 1951. ___________________________________________ .19 1,109

'___

_____•________________________________________________________
SEVENTEENTH ANNUAL REPORT 159

Sales of Canadian Securities Within the United States

For many years, the Commission has attempted to stop the sale

of unregistered Canadian securities in the United States. In all cases

involving mass-mailing campaigns and telephone selling of such securities that we have been able to investigate fully, we have found the

sales to be attended by fraudulent methods; in virtually all such cases

the securities have proved to be worthless. Although evidence sufficient to convict the sellers of violations of the registration and fraud

provisions of the Securities Act of 1933 is obtained in these instances,

the Commission's efforts have been in a large measure thwarted because the existing extradition treaty with Canada does not permit

rendition of the violators to the United States authorities for

prosecution.

Practically all such illegal offerings emanate from Toronto, Ontario,

and the securities are sold through intensive mail and telephone campaigns over the border to all parts of the United States. During the

past two years, the Commission has obtained evidence establishing

that upwards of 200 such unregistered Canadian issues have been

offered for sale within the United States. The sales pattern is uniform and simple, though apparently convincing to many United States

investors. The victim is first solicited by mail, told of the great moneymakin~ possibilities of the mine or oil well involved, and asked merely

to sena. his name and address on a prepaid post card. Within a few

days he receives a telephone call from Toronto in which he is promised

large and immediate profits if he invests at once. The salesman

usually tells the victim that oil, gold or uranium (depending on the

promotion) has just been discovered in large quantities and he is being

let in "on the ground floor." The victims are almost always inexperienced in investment matters and persons who can ill afford the

inevitable loss of their savings.

Complaints from the public, Better Business Bureaus and state

authorities have been received in large number from all parts of the

United States. Securities commissions and other authorities of many

states have continued to issue cease and desist orders and injunctions

where solicitations have been made in violation of their securities laws.

Various newspapers, magazines and radio commentators, both American and Canadian, have performed a valuable service in educating the

public to the danger involved in responding to such solicitations. The

Post OfficeDepartment has continued to give full cooperation to the

Commission in attempting to protect the public from these illegal mass

mail campaigns. During the fiscal year, the Commission has provided

the Post OfficeDepartment with evidence which resulted in the issuance

of fraud orders against 41 such persons, and fictitious name orders

against 4 individuals and firms. While this campaign has been partially successful, the ingenuity of the fraudulent brokers and dealers

in Canada and the lack of sufficient personnel in the Post OfficeDepartment adequately to screen the mail has detracted from its efficiency.

During the fiscal year, the principal office of this Commission received 4,488 letters from persons who had been solicited to purchase

unregistered Canadian securities. Each day the principal office and

the ten regional officesreceive telephone calls and personal visits from

victims of this vicious "racket." Unfortunately, many such victims

have parted with their savings prior to contacting the Commission.

Despite the failure of earlier attempts to negotiate a suitable extra-
160 SECURITIES AND EXCHANGE COMMISSION

dition treaty to cover these cases, the Commission, in conjunction

with the State Department, continued to press for necessary treaty

revisions. After the close of the fiscal year, in October 1951, such a

supplementary treaty was signed. If ratification is obtained and

the treaty is implemented, as we expect it to be, by cooperative action

on the part of local Canadian authorities, we should be in a position to

provide adequate and much needed protection to our investors.

SECTION OF SECURITIES VIOLATIONS

In the first year of its existence the Commission established a section

of Securities Violations for assistance in the enforcement of the various statutes which it administers and to provide a further means of

preventing fraud in the purchase and sale of securities. This section

has developed files which provide the basis of maintaining a clearing

house of information concerning persons who have been charged with

violations of various Federal and State securities statutes. The

specialized information in these files has been kept current 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

officers, Better Business Bureaus, and members of the United States

Chamber of Commerce. By the end of the 1951 fiscal year these records

contained data concerning 54';887 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 5,168 persons were added to the records of this section, including

information concerning 1,725 persons not previously identified therein.

Extensive use is made of this clearing house of information. During

the past year, in connection with the maintenance and preventive application of these records, the Commission received 4,454 "securities

violations" letters or reports (apart from those which are classified

as "complaint enforcement") and dispatched 2,654 communications in

turn to cooperating agencies.

ACTIVITIES OF THE COMMISSION IN ACCOUNTING AND AUDITING

The detailed provisions of the several Acts administered by the

Commission contain wide recognition of the fact that much of the data

necessary to investment or other financial decisions consists of financial

statements and related material and that, accordingly, accountants

and accounting perform a vital role in achieving the statutory objectives of full and fair disclosure, the prevention of fraud or inequitable

and unfair practices, and control and regulation. Thus, for example,

the Securities Act provides not only for inclusion in the registration

statement and prospectus of data as to financial structure and other

similar material but also provides for the furnishing of balance sheets

and profit and loss statements." Similar provisions as to registration

statements and periodic reports are contained in the Securities Exchange Act,l1 the Holding Company Act 18 and the Investment Company Act.IO In order to ensure that in the furnishing of such financial

information the statutory objectives as to investors and public pro11 Sees. 7. 10 (Sebedule A. par. 25, 26), 17 Sees.12 (b) (1),13 (a), 15 (d). 11 Sees.5 (b) (2),14.' 1JI Sees. 8 (b), 30.
SEVENTEENTH ANNUAL REPORT 161

tection are met, the Acts vest the Commission with broad authority in

matters of accounting and financial statement presentation. The

Securities Act, for example, authorizes the Commission to define

accounting terms, to prescribe, among other matters, "the form or

forms in which required information shall be set forth, the items or

details to be shown in the balance sheet and earning statement, and

the methods to be followed in the preparation of accounts ... " 20

Substantially equivalent authority is contained in the Securities Exchange Act,21 and more comprehensive powers are embodied in the

Holding Company Act 22 and the Investment Company Act.23

The Securities Act provides that the required financial statements

shall be certified by "an independent public or certified accountant." 24

The other three statutes above mentioned provide that the Commission

may require, and its rules do require, that such statements be accompanied by a certificate of independent public accountants," The value

of certification has for many years been conceded but the requirement

as to independence, long recognized by some individual accountants,

was for the first time authoritatively and explicitly stated by its introduction into the statutes. Out of this initial provision in the Securities

Act and the resulting rules established by the Commission 26 there

have grown concepts that have materially strengthened the protection

afforded investors by eliminating certain unhealthy accountant-client

relationships which theretofore were quite common.

Although the statutes administered by the Commission give it wide

rule-making power, accounting, based as it is largely upon convention

and existing financial and business concepts, is of such a nature that

the Commission has not yet found it necessary or desirable in most

areas to establish extensive accounting rules and regulations dealing

with accounting problems. The Commission has prescribed uniform

systems of accounts for certain public utility holding companies and

for public utility mutual and subsidiary service companies. It has

adopted rules under the Securities Exchange Act governing accounting and auditing of exchange members, brokers, and dealers. In the

wider area dealing with industrial, commercial, and investment companies under the Securities Act, Securities Exchange Act, and Investment Company Act the form and content of most financial statements

are governed by the Commission's Regulation S-X.

The rules and regulations thus established do not prescribe the

accounting to be followed except in certain basic respects. In the

large area not covered by such rules the Commission's principal reliance for the protection of investors is on the determination and

application of accounting standards which are recognized as sound

and which have come to have general acceptance. This policy of the

Commission is expressed in Accounting Series release No.4 (1938)

(one of the series of such releases, of which there are now seventy-two,

inaugurated in 1937 for the purpose of contributing to the development of uniform standards and practice in major accounting

questions) .

.. Sec. 19 (a). 21 Sec. 13 (b) .. Secs. 14, Hi. .. Sees. 30, 31. .. Sec. 10 (a) (1) (Schedule A, par. 25, 26) . .. Securities Exchange Act, sec. 13 (a) (2); Investment Company Act, sec. 30 (e);

Holding Company Act. sec. 14. :II See, for example, rule 2-01, Regulation S-X.

•
162 SECURITIES AND EXCHANGE COMMISSION

One of the inevitable results of this policy has been constant contact

and cooperation between the Commission and accountants, both individually and through such groups as the American Institute of Accountants, the American Accounting Association, the Controllers

Institute of America, the National Association of Railroad and Utilities Commissioners and others, and other regulatory agencies. The

importance of, and necessity for, this cooperation is emphasized by the

great influence and responsibility inherent in the Commission's authority over the several thousand financial statements filed every year with

it by most of the important commercial and industrial companies in

the United States.

The accounting staff of the Commission is organized to handle the

many day-to-day accounting problems that arise in the course of its

work and to provide central responsibility for aiding the Commission

in matters of accounting policy. The chief accountant has general

supervision with respect to accounting and auditing policy and its

application. He is assisted directly by a staff of trained accountants,

and, in addition, by assistant chief accountants assigned to and responsible for the examination of financial data and other operating

work in the Division of Corporation Finance, Division of Public

Utilities, and Division of Trading and Exchanges.

Examination of Financial Statements

The majority of the accounting problems with which the Commission is concerned arise from examination of financial statements or

other data required to be filed with the Commission. In general,

deficiencies revealed by examination are called to the attention of the

registrant by letter. These letters of comment and the correspondenc-e

or conferences that follow have proved to be a most convenient aid in

effecting corrections and improvements in financial reporting. Few

matters involve prolonged discussion or dispute in spite of the tremendous volume of financial data reviewed each year by the Commission; and it is only in rare instances that formal procedures are

necessary in order to procure disclosure.

Many problems arise as a result of inquiry by representatives of

registrants, their accountants or counsel in advance of the actual filing

of the material involved. Advance discussion of this kind is encouraged and experienced practitioners regularly follow this procedure in dealing with unique problems, thus saving valuable time for

themselves and their clients. As a natural outgrowth of the fact

that the Commission is the repository of a vast amount of financial

data, the staff is frequently called on to aid in the preparation of

studies of current problems such as those involved in formulating the

background of legislative proposals.

Amendment of Regulation S-X

During the year a general revision of Regulation S-X, the Commission's principal accounting and auditing regulation relating to the

form and content of financial statements filed with it, was accomplished. This regulation was originally adopted in February 1940

after extensive reconsideration of the predecessor requirements theretofore contained in the respective registration and annual report

forms.

In the Commission's annual reports for the last two years reference

has been made to the relatively infrequent (but important) new provisions added to the regulation since adoption and to the apparent
SEVENTEENTH ANNUAL REPORT 163

need for a complete reappraisal of the regulation that would include

within its scope reconsideration of all rules." These reports reviewed

the efforts made, from the preliminary proposal sent out in September

1949 to the formally announced proposal on July 12, 1950, to obtain a

wide expression of views not only as to staff suggestions but as to

possible amendments to the regulation not sponsored by the staff.

Following the formal announcement of proposed amendments under

the Administrative Procedure Act, as to which more than 3,000 persons received copies, again approximately 175 persons commented

upon the proposals. The suggestions were carefully considered and

in a number of instances formed the basis of changes incorporated

in the final amendments. In addition, a special committee of the

American Institute of Accountants, at its request, was informally

heard by the Commission in support of its views on certain points it

believed should be reflected in the revision. The final amendments

were promulgated December 20, 1950, in Accounting Series release

No. 70.

Among the amendments to Regulation S-X that are of major importance to registrants filing financial statements with the Commission

and also to professional accountants whose reports must accompany

such statements is a new provision contained in rule 1-01 (a) that

in effect makes the previously referred to A.ccounting Series releases

a part of the regulation. Many of such releases contain highly significant statements the applicability of which, under the amended rule,

is not now likely to escape the attention of interested persons, and

which, it should be clear, continue to reflect considered Commission

policy. This is particularly important with respect to release No.4,

to which reference has been made above, because of its controlling

provisions in areas where the largest volume of accounting problems

fall.

The definitions of terms used in the regulation have now been made

complete by bringing into rule 1-02 a substantial group of terms for

which previously a reference to other regulations was necessary.

In Article 2 which deals with the certification of financial statements

the provisions contained in rules 2-01 (b) and 2-01 (c) relating to

the certifying accountant's independence as to a person were extended

to any affiliate of the person, and the previous specification, in rule

2-01 (b), as to the interest in such person (or affiliate) that will result

in the accountant being considered not independent was changed from

"any substantial interest" to "any financial interest," thus conforming

the rule to established Commission policy and to the prevailing practice in professional circles.

An important change was effected in rule 3-11 of the regulation.

Before amendment the rule exempted public utility companies from

the requirement, and otherwise universal practice, of deducting, on the

balance sheet, depreciation, depletion, amortization or retirement reserves from the specific assets to which they apply. The amendment,

adopted after full consideration of the conflicting views of interested

parties, removes the exemption. Opposition to this change was confined to representatives of the public utility industry who were concerned about the possible effect in certain jurisdictions upon utility

:n 115thAnnual Report, p. 1715; 16th Annual Report, p. 1156.

9715942-151-12
164 SECURITIES AND EXCHANGE COMMISSION

rate-making of showing utility plant accounts net of related reserves.

The elimination of the exemption was predicated upon the belief that

there was no necessary relationship between balance sheets prepared

for investors or the public generally and the processes of regulating

rates for utility services.

Previous Commission policy as to disclosure of certain commitments

is now codified in rule 3-18 of the regulation. In addition to the provision in paragraph (a) for a statement of material firm commitments

involving permanent investments and fixed assets there is required by

paragraph (b) appropriate disclosure of annual rentals and other

pertinent facts in cases where rentals or obligations under long-term

leases are material. The development of policy in this respect was

referred to in the annual reports of the last two years.28

The rapid expansion of the number of corporate pension and retirement plans that began during World War II and continued to the

present time focused considerable attention upon the proper accounting for the much enlarged liabilities and payments associated with the

plans. The Commission's views were first discussed in the thirteenth

annual report after extensive experience with the many pension plan

problems that arose." Later, after additional experience and reconsideration of views, due in part to special problems introduced by the

pension-plan results of union-company negotiations in several industries, notably the steel producing industry, the Commission's policy

was again indicated in the sixteenth annual report." With this background, and after the benefit of discussion among leaders in finance

and of comment prompted by announced proposals, there was included

in rule 3-19 (e) the requirement that balance sheets should be accompanied by (1) a brief description of the essential rrovisions of any

such plan; (2) an indication of the estimated annua cost of the plan ;

and (3) if the plan is not funded or otherwise provided for, a diselosure of the estimated amount that would be necessary to accomplish

this. . One of the principal responsibilities of the Commission is to obtain for the investing public financial statements that are the most

informative and which are the least likely to mislead, especially,

those who are not experienced in the significance of such statements.

In previous annual reports 81 reference was made to a problem which

has long been under consideration and which has been the subject

of repeated exchanges of views between the Commission's staff and

representatives of the American Institute of Accountants and other

interested parties, namely, the concept of income and the proper form

of income or profit-and-loss statement.

The main point of difference has been the propriety of excluding

from the determination of Net Income, and the inclusion thereof in

Earned Surplus, major items which are extraordinary in nature or

which had their origin in prior years. A workable solution to this

problem was commented upon as follows in Accounting Series release No. 70, issued on December 20, 1950, which announced the revision of Regulation S-X:

.. Fifteenth Annual Report. pp. 181-182; Sixteenth Annual Report. pp. 156-157 .. Pp, 128-129 . .. PP. 157-158. 81Eleventh Annual Report. p. 88; Twelfth Annual Report, pp. 117-118; Fourteenth

AnnUal Report. pp. 111-112 ; Sixteenth Annual Report. p, 159.

•
SEVENTEENTH ANNUAL REPORT 165

The principal new requirement pertains to Profit and Loss or Income Statements and is contained in Rule 5-03 (a) which states:

"All items of profit and loss given recognition in the accounts during

the period covered by the profit and loss or income statements shall be

included."

The inclusion of this requirement, which states a long established policy of

the Commission,is deemed necessary because of the not always consistent practice followed by some registrants of excluding certain items from the profit and

loss or income statements with the result that the amount shown thereon as net incomeor loss has been susceptible to misinterpretation by investors. Recog- nizing that there might be exceptional circumstances which would make it appropriate to deviate from this rule, but keeping in mind the Commission'sre- sponsibility for prohibiting the dissemination of financial statements which

might be misleading to investors, Rule 5-03 was amended to read:

"Except as otherwise permitted by the Commission,the profit and loss

or income statements ftled for persons to whom this article is applicable shall complywith the provlstonsof this rule." [Underscoredphrase added

in revision.]

The purpose of this revision is to make clear to registrants that they are not

forestalled from giving exceptional treatment to exceptional items when both

the representatives of the registrant and the Commission are convinced that

such treatment is appropriate.

Notwithstanding this provision, representatives of the Executive Committee

ot the American Institute of Accountants appeared before the Commissionand

proposed that either Rule 5--03(a) be eliminated from the regulation or the

requirements with respect to the presentation of the final section of profit and

loss or income statements be amended to permit, where appropriate, the ex- clusion of extraordinary items from those making up the caption net income or loss.

To accomplish this, additional items, described in Rules 5-03 (17) and 5-03

(18), were added to those previously set forth in the regulation, and the last

three items of the section pertaining to profit and loss or income statements

(Rule 5-03) now appear as follows:

"16. Net income or loss.

"17. Special items.-State separately and describe each item of profit

and loss given recognition in the accounts, included herein pursuant to

Rule 5-03 (a), and not included in the determination of net income or loss (Item 16).

"18. Net income or loss and special items."

Captions 17 and 18 are to be used in those instances where it is believed

that the showing of a single unqualified figure of net income or loss might be

misconstrued.

DIVISION OF OPINION WRITING

The Division of Opinion Writing aids the Commission in the preparation of findings, opinions, and orders promulgated by the Commission in contested and other cases arising under the Securities Act of

1933, the Securities' Exchange Act of 1934, the Holding Company Act

of 1935, the Trust Indenture Act of 1939, the Investment Company Act

of 1940, and the Investment Advisers Act of 1940. These statutes

provide for a wide variety of administrative proceedings which require quasi-judicial determination by the Commission. Formalopinions are issued in all cases where the nature of the matter to be decided,

whether substantive or procedural, is of sufficient importance to warrant a formal expression of views.

The Division of Opinion Writing is an independent staff officewhich

is directly responsible to the Commission. Itreceives all assignments

and instructions from and makes recommendations and submits its

work to the Commission directly. Itis headed by a director, who is
166 SECURITIES AND EXCHANGE COMMISSION

assisted by an assistant director, supervising attorneys, and a staff of

drafting attorneys and a financial analyst.

While engaged in the preparation of opinions assigned to the Division of Opinion Writing, the members of this division are completely

isolated from members of the operating division actively participating in the proceedings and it is an invariable rule that those assigned

to prepare such an opinion must not have had any prior participation

in any phase of the proceedings with respect to which the opinion is

to be prepared, Commission experts are from time to time consulted

on techmcal problems arising in the course of the preparation of opinions and findings, but these experts are never individuals who have

participated in the preparation of the case or testified at the hearing.

The director or assistant director of the Division of Opinion Writing, together with the members of the staff of the division who are

assigned to work on a particular case, attend the oral argument of the

cases before the Commission and frequently kee;p abreast of current

hearings. Prior to the oral argument, the division makes a preliminary review of the record and prepares and submits to the Commission

a summary of the facts and Issues raised in the hearings before the

hearing officer, as well as in any proposed findings and supporting

briefs, the hearing officer's recommended decision, and exceptions

thereto taken by the parties. Following oral argument or, if no oral

argument has been held, then at such time as the case is ready for

decision, the Division of Opinion Writing is instructed by the Commission respecting the nature and content of the opinion and order to

be prepared.

In preparing the draft of the Commission's formal opinion, the

entire record in the proceedings is carefully read by at least one member of the staff of the Division of Opinion Writing and in some cases a

narrative abstract of the record is prepared. Upon completion of a

draft opinion and abstract of the record, and after review and revision

of the opinion within the Division of Opinion Writing, they are submitted to the Commission. If the study of the record in the case by

the Division of Opinion Writing has revealed evidence of violations

warranting a reference to the Attorney General for criminal prosecution, or has disclosed the desirability or the need for any changes in

administrative procedures or techniques, appropriate recommendations are made to the Commission at the time the draft opinion in the

case is submitted.

The draft opinion as submitted may be modified, amended, or completely rewritten in accordance with the Commission's final instructions. When the opinion accurately expresses the views and conclusions of the Commission, it is adopted and promulgated as the official

decision of the Commission. In some cases concurring or dissenting

opinions are issued by individual Commissioners who wish to express

their separate views on matters covered by the opinion adopted by

the majority of the Commission. Insuch cases the Division of Opinion Writing is occasionally instructed to prepare drafts of such concurring or dissenting opinions and confers respecting them with the

individual Commissioners involved, submits drafts directly to them,

and makes such modifications and revisions as are directed.

The findings of fact, opinions, and orders adopted and promulgated

by the Commission serve as an aid and guide to the bench and bar.

With minor exceptions (e. g., certain opinions dealing with requests
SEVENTEENTH ANNUAL REPORT 167

for confidential treatment) all are publicly released and ~ist;ibut~~ to

representatives of the press and persons on the Commission s mailing

list. In addition, the findings and opinions are printed and published

by the Government Printing Office in bound volumes under the title

"Securities and Exchange Commission Decisions and Reports."

The creation of the Division of Opinion Writing as an independent

staff unit in 1942 was based on the view that the fair exercise of the

Commission's adjudicatory functions in many types of cases made it

appropriate that it be assisted in that function by members of its staff

who were independent of units engaged in investigation or prosecution of cases. Originally initiated as a matter of Commission policy,

the desirability of this arrangement was subsequently given express

recognition in specific provisions of the Administrative Procedure

Act, which in certain types of cases requires that there be a complete

separation of function between quasi-prosecutory functions and quasijudicial functions. The existence of the Division of Opinion Writing

thus made it possible for the Commission, even before the passage of

the Administrative Procedure Act, to meet fully the separation of

function requirements contained in sections 5 (c), 7, and 8 of that Act,

The Commission, through its revised rules of practice, has sought

to provide a flexible procedure which will be suited to the needs and

desires of the participants in the proceeding before it, as well as

guarantee to them the procedural safeguards required by the general

principles of due process and the provisions of the Administrative

Procedure Act. Thus, at the request of some participants, the Commission has in many cases availed itself of the assistance of the Division of Opinion Writing in the preparation of its findings even though

separation of functions was not required by law.

In addition to its primary function, the Division of Opinion Writing is also given assignments of a general nature which are not inconsistent WIththe objective of the separation of the investigatory and

quasi-judicial functions. Thus, the division has been assigned continuing joint responsibility with the office of the General Counsel

in dealing with problems arising under the Administrative Procedure

Act. It has also been given the responsibility of preparing a compilation of administrative decisions and other authorities under the

various statutes administered by the Commission.

The Division of Opinion Writing assists the operating divisions of

the Commission in the preparation of opinions in certain uncontested

cases where participation by the operating division in the decisional

process is proper under the Administrative Procedure Act. In some

instances members of the Division of Opinion Writing are assigned

to assist the Office of the General Counsel in connection with court

appeals taken from Commission decisions initially drafted in the

division.

Some of the more significant opinions issued by the Commission

during the year are commented upon in this report under the discussions of the various statutes. .

FOREIGN FINANCIAL AND ECONOMIC MATl'ER8-THE INTERNATIONAL

BANK.

During the fiscal year 1951 registration statements covering $730,-

760,812 of securities issued by foreign issuers, governmental and
168 SECURITIES AND EXCHANGE COMMISSION

private, were filed under the Securities Act of 1933. The largest of

these issues was that of the State of Israel amounting to $500,000,000.

Issues of the Government of Canada and Canadian provinces and

municipalities aggregated $180,468,000. Canadian private issues

accounted for most of the balance.

Following extended negotiations with the Ministry of Finance of

the Japanese Government, through the Supreme Commander for the

Allied Powers, the Japanese Government in November 1950 filed with

the Commission a report under the Securities Exchange Act of 1934

relating to the status of the outstanding bonds. Upon the filing of

this report the Commission withdrew its request that brokers and dealers refrain from effecting transactions in Japanese bonds, and dealings

in these bonds were resumed on the New York Stock and New York

Curb Exchanges.

Upon the announcement of the West German Government inMarch

1951 of its recognition of prewar external debts, the Commission consulted with the Department of State as to the eventual resumption of

trading in bonds of German issues. In view of events which have

taken place in Germany since these bonds were suspended from dealings and the lack of current information on the status of the bonds, the

Department of State and the Commission concluded that it would not

be IIIthe interest of United States foreign policy or of public investors

to approve the resumption of trading III German bonds at this time.

The Commission in a public statement of March 6, 1951 advised that

"it does not intend to withdraw its request that brokers and dealers

refrain from effecting transactions in German securities until assurances can be given to investors through validation procedures now

under consideration that only bonds which will constitute 'good delivery' will be afforded a market in the United States and appropriate

reports are filed under the Securities Exchange Act of 1934."

The Commission has participated in discussions which have been

held by the Department of State with representatives of the holders

of German dollar bonds and of the trustees and paying agents for these

bonds on drafts of German legislation for the validation of all outstanding bonds of German public and private issuers denominated in

foreign (non-mark) currencies. The Commission has also participated in the drawing up of an Executive Agreement between the

United States and the Republic of Germany to implement this legislation as to dollar bonds. These drafts are having the consideration of

the German authorities.

Through its representation on the Interdepartmental Committee

on German Debts, the Commission has contributed to the establishing

of principles and procedures for bringing about a settlement of the

public and private prewar debts of Germany. The Commission is

represented on this Committee and at conferences on the German debt

problem by its Foreign Economic Adviser.

The Commission has also continued its representation on the Staff

Committee of the National Advisory Council on International Monetary and Financial Problems and has continued to cooperate with

other agencies concerned with the development and administration

of the Government's foreign economic program. During the year

its Foreign Economic Adviser has had frequent discussions with
SEVENTEENTH ANNUAL REPORT 169

representatives of foreign governments who were seeking information

upon the regulations, procedures and practices of the United States

capital markets applicable to the raising of private capital by foreign

companies through the issuance of securities.

By amendment to the Bretton Woods Agreements Act securities

issued or guaranteed as to principal and interest by the International

Bank for Reconstruction and Development are deemed to be exempted

securities under the Securities Act of 1933 and the Securities Exchange Act of 1934. The Commission in consultation with the

National Advisory Council on International Monetary and Financial

Problems is authorized to suspend the provisions of this amendment

at any time. The amendment requires the Commission to include in

its annual reports to Congress such information as it shall deem

advisable with regard to the operation and effect of the amendment,

and in connection therewith to include any views submitted for such

purpose by any association of dealers registered with the Commission.

The Commission has received no views from such association of

dealers.

In February 1951 the International Bank offered in the United

States a new issue of $50 million 3 percent bonds due in 1976. In the

distribution of these bonds the Bank did not, as in its previous bond

issue, employ the method of competitive bidding but it formed a

"sponsoring group" of commercial banks and investment firms whose

function was to advise the Bank on its financing, arrange for sales

to larf,e institutional investors and for subscriptions by the "selling

group' which consisted of 421 brokers and dealers. Of the $50 million of bonds offered, it is estimated that 98 percent was purchased by

institutional investors such as insurance companies, pension and trust

funds, savings and commercial banks. In this distribution the Bank

made available to members of the sponsoring and selling groups a

prospectus relating to the new bonds giving information about the

Bank's structure and operations. It also filed with the Commission

pursuant to regulation BW adopted by the Commission under the

amendment to the Bretton Woods Agreements Act information comparable to that which would be required if its securities had been registered under the Securities Act of 1933 and the Securities Exchange

Act of 1934.

ADVISORY AND INTERPRETATIVE ASSISTANCE

The importance of the advisory and interpretative service maintained by the Commission is emphasized by the continued volume

of inquiries received from attorneys, accountants, persons engaged

in the securities business and members of the general public. Requests

relate to the applicability of the provisions of the various Acts administered by the Commission and the regulations thereunder to every

phase of corporate financing.

While this informal advice primarily is intended to assist the public

it is equally valuable to the Commission. Many problems which appear complicated to those persons unfamiliar with securities legislation can readily be solved by the staff attorneys who are expert in

these matters. Those seeking help, however, are not confined to the
170 SECURITIES AND EXCHANGE COMMISSION

uninformed and many novel situations arise which give concern to

the veteran corporate lawyer. Often, by reason of this timely advice,

violations of certain provisions of the Acts or the pursuit of improper

procedure which otherwise might unwittingly result are avoidedthus saving the Commission as well as the public much time and

expense.

The Commission's readiness to render all possible assistance has

encouraged the solicitation of preliminary advice to such an extent

that it is not possible to determine to any degree of accuracy the number of possible violations that may have been avoided. However,

during the 1951 fiscal year several thousand letters of an advisory

nature were written by the Commission's central office. Many more

questions were answered in personal or telephone conferences between

members of the staff and the public. In addition, the Commission's

ten regional officesanswer thousands of inquiries during the year.

Uniformity of interpretations is maintained through a procedure

whereby each regional officeis advised concerning inquiries received

in the central office originating from persons located in the region

served by that office and whereby the central office reviews interpretations given by the regional offices. Also, all regional offices are

advised by the central office concerning any unprecedented interpretation made at headquarters which has any general applicability or

which relates to any unique situation.

CONFIDENTIAL TREATMENT OF APPUCATIONS, REPORTS, OR

DOCUMENTS

The Commission is empowered to grant confidential treatment,

upon application by registrants, to information contained in reports,

applications, or documents which they are required to file 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. Under the Securities Act of 1933 the Commission has adopted rule 485, which provides

that information as to material contracts, or portions thereof, will

be held confidential by the Commission if it determines that disclosure

would impair the value of the contracts and is not necessary for the

protection of investors. The other four statutes, in general, empower

the Commission to hold confidential under certain conditions any

information contained in any reports required to be filed under those

statutes. Disclosure of information confidentially filed under the

latter statutes is made only when the Commission determines that

disclosure is in the public interest. As described elsewhere in this

report, the Commission has adopted rules reintroducing the procedures followed under the former rules 171, X-6, and U-105, which

were in effect during World War II, to permit the omission or confidential treatment of certain information as called for in all filings

under the first three named statutes where its disclosure would be

detrimental to the national security.

Substantially over a hundred applications for confidential treatment were received and acted upon by the Commission during the 1951

fiscal year as indicated below.
SEVENTEENTH ANNUAL REPORT

Applications for conttdentiaJ treatment-1951 (iscalllear

171

Number Number Number

Act under which 1I1ed pending Number Number denied or pending

July 1, recelved granted withdrawn June 30,

1950 1951

Securities Act of 1933,... __.....•........ __ 0 15 13 1 1

Securities Exchange Act of 1ll3i '._ ... .... 8 30 25 10 3

Investment Company Act of 19{()'. __. __.. 0 68 68 0 0

Tota!. .. ..... _._.... 8 113 106 11 • I Filed under rule .85. , Filed under rules X-24B-2, X-13A-llB, and X-ll.

'Filed under rule N45A-I.

STATISTICS AND SPECIAL STUDIES

In general, the statistical activities of the Commission relate to

(a) operational data derived from officialfilings with the Commission

and (b) data of general application on groups of companies subject

and not subject to the legislation administered by the Commission.

Operational Statistics

In order to meet the Commission's responsibilities to the public, it

is essential to organize and present in meaningful and convenient

form, out of the masses of information filed with the Commission, pertinent data on registered issues and issuers. Much of these data are

not available elsewhere, nor in such complete form. Filed under strict

requirements, they are notable for accuracy. Extending over the years,

they present an ever widening base for comparisons and aggregates.

Data made available by the Commission are availed of in many forms

by the investing public, by the registrants themselves, by investment

advisers, accountants, trade organizations, and by numerous government agencies, national and state. Numerous reports have been compiled and tabulated contributing materially to the satisfaction of the

needs of the Congress and defense agencies during the present national emergency.

Survey of American Listed Corporations

Corporate data have been published annually by the Commission

for the years 1934-1947, under the title "Survey of American Listed

Corporations" covering well over half of all national manufacturing

based on asset size. More recent figures are in many cases available

or in course of preparation.

Registration Statistics

Data are published quarterly in the Statistical Bulletin and yearly

in the Annual Report of the Commission, covering registration of all

securities under the Securities Act of 1933. The data, taken from the

filings made by registrants with the Commission, include purpose of

registration, method of offering, compensation to distributors, total

expenses, intended use of proceeds, type of security, and industry

classification.

Underwriting Statistics

Underwriting statistics cover participations of investment bankers

in effectively registered issues, a showing of the leading underwriters,

and of firms managing the groups. The data carryon a series commenced in 1938, and are reported quarterly in the Statistical Bulletin.

_

_••__ ____________
172 SECURITIES AND EXCHANGE COMMISSION

Cost of Flotation

Data on the cost of flotation of issues effectively registered with the

Commission under the Securities Act of 1933 have been published for

the years 1945-1949, inclusive, under the title "Cost of Flotation,"

dated in February 1951. Quarterly compilations under the same title

have been made and published separately commencing with the first

quarter of 1950. While these studies are prepared primarily for the

operational uses of the Commission's staff, they are also available to

issuers and distributors of securities and other interested persons.

Investment Companies

Investment company data are published quarterly in the Statistical

Bulletin, on about 200 registrants, segregated by open and closed-end

types. The coverage includes purchases and sales of their own securities, portfolio changes, and aggregates of securities and assets.

Saving Study

The Commission continued its series of guarterly releases on the

volume and composition of individuals' savmg in the United States.

These releases show the aggregate volume of individuals' saving as

well as the components contributing to the total, such as changes in

securities, cash, insurance and consumers' indebtedness, etc. These

data have been extremely useful in the determination of fiscal policy

and as a measurement of the inflationary potential.

Financial Position of Corporations

The Commission together with the Department of Commerce continued the joint series of quarterly releases on the plant and equipment expenditures of United States business other than agricultural.

Shortly after the close of each quarter these releases present industry

totals on the actual capital expenditures of that quarter and anticipated expenditures for the next two quarters, In addition a survey

is made at the beginning of each year of the plans of business as regards expansion during that year. These data have provided a useful

index of present and future activity in the capital markets and of business in general. In view of the volatile nature of capital expenditures and their relation to the level of production and employment,

the series has been of considerable importance for business management and in the formation of government policy.

The series of quarterly releases on the working capital position of

all United States corporations exclusive of banks and insurance companies was also 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. These data are

important in measuring the liquid position of the corporate segment

of the economy taken as a whole.

The Commission together with the Federal Trade Commission continued the joint series of quarterly industrial financial reports. These

reports developed as an extension of the working capital series and

present a complete balance sheet and an abbreviated income account

for manufacturing corporations as a whole. In addition the data

are shown for various size groups of corporations and for minor industry groups. The financial report program includes data on manufacturers' profits, which are extremely Important m the formulation

of a tax program and renegotiation policy. The data are basic to
SEVENTEENTH ANNUAL REPORT 173

any appraisal of corporate financial position and any analysis of corporation finance and the capital markets.

During the past fiscal year the report on manufacturing was adapted

to the needs of the Office of Price Stabilization in connection with the

determination of price policy. The program was also expanded at

their request to cover wholesale and retail trade.

Capital Markets

The Commission has also continued its monthly series on new securities offerings published in the Statistical Bulletin, and a quarterly

series published together with a brief analysis in release form. These

data show the volume and character of all securities offerings in the

United States, both registered and unregistered, public offerings and

private placements. Collateral studies based on these data have been

undertaken from time to time pursuant to the Commission's needs and

requests from other branches of the government, and the public.

These included a study of the cost of flotation of privately placed

securities and a survey of issues offered under Regulation A.

PERSONNEL

As of June 30, 1951, the personnel of the Commission consisted of

the following:

Cornrnissioners_______________________________________________________ '4

Staff:

Headquarters office_____________________________________ 690

llegional offices_________________________________________ 333 1,023

Total 1,027

, Vacancy.

During the fiscal year, the Commission lost a considerable number

of its experienced employees whose specialized skills were in great

demand by newly created or rapidly expanding defense agencies.

Some 80 employees transferred to other agencies, and 10 employees

entered on full time active duty in the military service. In addition,

about 20 employees were granted leave for tours of military training

duty.

The loss of these employees, representing almost 10 percent of the

entire staff, created serious problems for the Commission in carrying

out its important role in the Nation's economy. However, inasmuch

as the needs of the defense agencies for the services of these employees

were even more urgent, no objections to their release were interposed

by the Commission.

Two major revisions in the Commission's personnel management

program were effected during the year. A Performance Rating Plan,

designed to strengthen work performance and employee morale, was

developed pursuant to the Performance Rating Act of 1950 and put

into operation. To facilitate the identification and recognition of

employees having a potential for development, and to further insure

that its capable employees would have a real opportunity for career

service, the Commission revised and formally restated its promotion

policy, incorporating in it certain standards prescribed by the Civil

Service Commission.

Staff assistance on all personnel matters is provided by the Commission's Division of Personnel. The regular work of this Division
174 SECURITIES AND EXCHANGE COMMISSION

embraces employment, placement and separation; job evaluation and

classification; employee relations and services; training; operation of

various committees and boards such as the Committee of Expert E.xaminers (which conducts examinations for positions peculiar to the

Securities and Exchange Commission); wage administration; the

performance rating program; administration of Commission regulations governing the [ersonal securities and commodities transactions

of its personnel; an processing, recording and reporting of all personnel matters. A staff of eight employees is assigned to this work,

representing a ratio of one personnel employee to each 130 Commission employees.

In addition, the Division of Personnel is responsible for the conduct

of pre-appointment character investigations, leave administration and

accounting, retirement counseling, and the maintenance of an emergency medical unit. Four additional employees, including a registered nurse, are assigned to the Division of Personnel to carry out

these functions.

FISCAL AFFAIRS

Appropriation and Expenditnres

The following is a summary of the appropriation and expenditures

for the fiscal year 1951.

Appropriation $6,230,000

Expenditures 6,031,820

lJnexpendedbalance 198,180

$612,505

700

456,800

13,275

3,742

Fees and Revenue

The Commission receives fees (a) for the registration of securities

under the Securities Act of 1933 (71ooth of 1 percent of the maximum

price at which the securities are proposed to be offered); (b) from

registered national securities exchanges representing Ycioothof 1 percent of the aggregate dollar volume of the sales of securities on such

exchanges; (c) for applications for the qualifications of indentures

under the Trust Indenture Act of 1939 ($100 for each application) ;

(d) for the sale of photocopies of documents or portions thereof filed

by corporations under one or more of the Acts the Commission administers; and (e) various receipts, such as the proceeds of the sale

of excess or surplus Government property, the sale of waste paper, etc.

The following is the amount of the fees received in fiscal 1951:

Character of fees: Registration of securities issued

Qualification of trust indentures

From registered exchanges

Sale of copies of documents or portions thereof Miscellaneous receipts

Total 1,087,022

Fees and other receipts must be turned in to the General Fund of the

Treasury and are not available for expenditure by the Commission.

PUBLICATIONS

Public Releases

Releases of the Commission consist primarily of official announcements of filings under and actions taken pursuant to the several Acts

_

_

_

_

_

_
SEVENTEENTH ANNUAL REPORT 175

which it administers. These include notices of filings, hearings,

orders, decisions, regulations, and related Commission matters. The

Commission is continuing to improve its service and to effect economies

in connection with its mailing lists through the continuation of procedures which avoid the full-scale distribution of the complete releases

except to those persons who are sufficiently interested to make a special

request therefor.

The announcements issued during the past fiscal year included 37

releases under the Securities Act of 1933; 159 under the Securities

Exchange Act of 1934; 691 under the Public Utility Holding Company

Act of 1935; 142 under the Investment Company Act of 1940; and

3 under the Investment Advisers Act of 1940. In addition, 2 releases

were issued concerning the Commission's activities in corporate reorganization under Chapter X of the Bankruptcy Act, and 5 releases

were issued under the Trust Indenture Act of 1939.

The following breakdown of the releases for the month of June,

1951 is fairly illustrative of the general nature of the releases issued

throughout the year:

Announcements of filings, orders for hearing, and notices giving opportunity

to request hearing____________________________________________________ 27

Interim and final decisions and orders___________________________________ 61

The balance of the Commission's releases are of an informational

nature, the following having been issued during the year: 74 announcements of publication of reports on corporate survey and statistical

studies; 66 reports of court actions in injunction and criminal prosecution cases initiated by the Commission; and 8 miscellaneous announcements regarding appointments of Commissioners, staff officials, and

related matters.

Other publications issued during the 1951 fiscal year:

Daily Registration Record.

Monthly Statistical Bulletin.

Bound Volumes 17 and 18 of the Decisions and Reports (October I, 1944

to December 31,1944, and January 1, 1945 to April 26, 1945).

Twelve monthly issues of the Official Summary of Securities Transactions

and Holdings of Officers, Directors, and Principal Stockholders.

The Sixteenth Annual Report of the Commission.

List of Securities Traded on Exchanges under the Securities Exchange Act

of 1934, as of December 31, 1950.

List of Companies Registered under the Investment Company Act of 1940,

as of December 81, 1950.

Working Capital of 1,275 Registered Corporations, quarterly.

Registered Public Utility Holding Companies, June 80, 1950.

Securities Registered under the Securities Act of 1933, Cost of Flotation.

Second, third, and fourth quarters, 1950, and first quarter, 1951.

Cost of Flotation, 1945-1949.

Quarterly Industrial Financial Report Series. Second, third, and fourth

1950, and first, 1951.

The Work of the Securities and Exchange Commission, January 1, 1951.

INFORMATION AVAILABLE FOR PUBUC INSPECTION

The Commission maintains public reference rooms at the central

office in Washington, D. C., and in its regional offices in New York

City and Chicago, IlJiD;ois.. . . . Copies of all public information on file WIth the CommISSIOn.contained in registration statements, ap'plication~, repo~, ~eclaratlOn.s,

and other public documents are available for inspection In the public
176 SECURITIES AND EXCHANGE COMMISSION

reference room in Washington. In addition to providing facilities for

personal inspection of registered public information, there were received in the public reference room thousands of letters and telephone

calls from persons requesting registered public information and copies

of forms, releases, and other material of a public nature. There were

2,633persons who visited this public reference room seeking such information during the fiscal year 1951. Through the facilities provided

for the sale of photocopies of public registered information, 1,610

orders involving a total of 99,586 pages were filled. In addition to

the sale of photocopies, the Commission mailed 291,779 pieces of mail

containing releases, forms, Acts, etc., to persons requesting them.

In its New York Regional Office,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 New York Stock Exchange and the New York Curb Exchange,

together with copies of annual reports, supplemental r.eports and

amendments thereto and (2) annual reports filed pursuant to the provisions of section 15 (d) of the Securities Exchange Act of 1934 by

issuers having securities registered under the Securities Act of 1933,

as amended. During the fiscal year 1951, 12,166 persons, visited the

New York public reference room and more than 6,500 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

1951,2,679 members of the public visited this public reference room,

and approximately 1,734 telephone calls were received from persons

seeking registered public information, forms, releases, and other material of a public nature.

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 officescopies of all prospectuses used in public

offerings of securities effectively registered under the Securities Act

of 1933. Duplicate copies of applications for registration of brokers

or dealers transacting business on over-the-counter markets, together

with supplemental statements thereto, filed under the Securities Exchange Act of 1934 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 officehaving 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 registration requirements of the Securities Act of 1933, as

amended, may be filed with the regional officeof 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 officewhere filed.

Copies of all applications for registration of securities on national

securities exchanges and annual reports, supplemental reports and
SEVENTEENTH ~AL REPORT 177

amendments are available for public inspection at the respective exchanges upon which the securities are registered.

PUBLIC HEARINGS

The following public hearings were held by the Commission under

the Acts indicated during the fiscal year 1951:

Securities Exchange Act of 1934________________________________________ 10

Public Utility Holding Company Act of 1935____________________________ 58

Trust Indenture Act of 1939____________________________________________ 1

Investment Company Act of 1940_______________________________________ 3

Total hearings during year_______________________________________ 72

PART IX

APPENDIX

STATISTICAL TABLES

975942--52----13

179
180 SECURITIES AND EXCHANGE COMMISSION

TABLE i.-Registrations fully effective under the Securities Act of 1988

PART I.-DISTRIBUTION BY MONTHS, FISCAL Y~AR ENDED JUNE 30, 1951

[Amounts in thousands of dollars] I

All effectively registered Proposed for sale for account of issuers

Year and month Number of Number of Amount Number of Number of Amount statements issues statements issues

1950 July __________________________ 21 53 213,475 19 46 198,689 August _______________________ 31 37 323,711 25 29 263,396 September ____________________ 35 39 291,671 22 24 262,067 October _______________________ 36 45 318,235 31 39 290,663 November ____________________ 42 48 218,009 33 36 177,690 December ____________________ 33 40 178,143 25 28 134, on

1951 January ______________________ 29 37 1,352,691 26 29 691,336 February _____________________ 32 96 369,774 29 88 304,201 March 56 71 1,471,767 50 62 1,436,984 ApnL ________________________ 66 75 648,619 61 67 526,489 May __________________________ 40 54 365,590 33 41 331,127 June __________________________ 66 107 707,647 59 88 552,373

Total fiscal year 1951.. 487 702 6,459,333 413 577 5,169,092

PART2.-BREAKDOWN BY METHOD OF DISTRIBUTION AND TYPE OF SECURITY OF

THE VOLUME PROPOSED FOR CASH SALE FOR ACCOUNT OF THE ISSUERS, FISCAL

YEAR ENDED JUNE 30, 1951

[Amounts in thousands of dollars].

Type of security

Metbod of distribution and group

to whom offered Secured Unsecured Preferred Oommon Other AIl types bonds bonds stock stock types

All methods of distribution __________ 5,169,092 823,054 1,745,851 426,649 1,468,218 705,320

To general public ________________ 3,857,800 823,054 1,230,550 309,329 817,464 677,403 To security holders ______________ 1,221,533 ----------- 484,301 116,320 620,912 .--------- To other special groups __________ 89,758 ----------- 31,000 1,000 29,841 27,917

Through mvestment bankers ________ 4,292,050 823,054 1,262,181 421,549 1,128,193 657,074

By purchase and resale __________ 2,547,477 822,804 735,681 414,885 574,104 3

To geneml public ____________ 2,124,858 822,804 720,730 299,585 281,737 3 To secur1ty holders __________ 422,591 ----------- 14,951 115,300 292,340 .--------- To other special groups ______ 28 ----------- ----------- -------._-- 28 .---------

On best efforts basis _____________ 1,744,573 250 526,500 6,664 554,088 657,071

To general public ____________ 1,676,945 250 501,500 6,664 511,460 657,071 To security holders 42,535 42,535 .-._------ To other special groups ______ 25,094 ----------- 25,000 ----------- 94 ---------- By issuers ___________________________ 877,041 ----------- 483,670 5,100 340,025 48,246

To general public 55,997 8,320 3,080 24,268 20,329 To security holders 756,408 469,350 1,020 286,038 To other special groups __________ ----2i;lii7 64,637 ---------.- 6,000 1,000 29,719

See footnotes at end of table.

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TABLE4.-Propoaed uses of net proceeds from the sale of new corporate aerurrner"Je

*..-:,:.- -m

PART 2-PUBLIC UTILITY-Continued 

COYY~OATIOA1948.18511 


[Amounts in thousands of dollsr~lI 


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SEVENTEENTH ~AL RE~ORT 197

TABLE 5.-An l8-year summary of corporate bonds 1publicly offered and privately

placed in each, year--1934 tnrough 1951-by calendar year

[Millions of dollars]

Total Pubhcly Placed Percent of Year total placed offerings offered privately privately

1934____________________________________________ 372 280 D2 24.7 1935____________________________________________ 2,225 1,840 385 17.3 1936____________________________________________ 4,029 3,660 369 9.2 1937____________________________________________ 1,618 1,291 327 20.2 1938____________________________________________ 2,044 1,353 691 33.8 1939____________________________________________ 1,979 1,276 703 35.5 1940____________________________________________ 2,386 1,628 758 31. 8 1941. ___________________________________________ 2,389 1,578 811 33 9 1942____________________________________________ 917 506 411 44 8 1943____________________________________________ 990 621 369 37.3 1944____________________________________________ 2,670 1,892 778 29.1 1945____________________________________________ 4,855 3,851 1,004 20.7 1946____________________________________________ 4,882 3,019 1,863 38.2 1947____________________________________________ 5,036 2,889 2,147 42.6 1948____________________________________________ 5,973 2,965 3,008 50.4 1949____________________________________________ 4,890 2,437 2,453 50 2 1950____________________________________________ 4,920 2,361 2,559 52 0

1951 2

---- --------------------------------------- 6,046 2,660 3,386 56.0

1 Bonds, notes, and debentures.

1Prehmlnary figures esthuated on basis of figures through July 1951.
198 SECURITIES AND EXCHANGE COMMISSION

TABLE 6

AN EIGHTEEN-YEAR SUMMARY OF NEW SECURITIES

OFFERED FOR CASH IN THE UNITED STATES

.srgTYPE: OF ISSUER, TYPE OF SECURITY, WHETHER PUBLICLY OFFERED DR PRIVATELY PLACED,

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SEVENTEENTH ANNUAL REPORT 199

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SEVE'NTE!E~NTHANNUAL REJ'ORT 201

TABLE S.-Market value and volume of sales effected on securities exchanges

for the three (J,month periods ended June 80,1951

PART 1.--6 MONTHS ENDED JUNE 30, 1950

ON ALL REGISTERED EXCHANGES

[In thousands I

Stocks I Bonds 2 RIghts lind warrants Total

Exchange market

value Market Number Market Prineipal Market Number (dollars) value of shares value amount value of units (dollars) (dollars) (dollars) (dollars)

---- Total all exchanges 10,876,458 10,330,057 421,268 527,270 652,446 19,131 25,156

Boston 117,833 117,817 2,895 13 10 3 3 Chicago Board 18 18 2 ------78:5- -_.---~-_. Omcinnati. 13,129 12,344 316 0 0 163 Detroit 41,446 41,443 2,427 3 17 Los Angeles Midwest lOS, 417 lOS, 143 7,371 141 131 133 282 243,990 243,593 9,114 9 10 388 189 New Orleans 392 389 18 3 3 New York Curb ----ii;787- -----4;isi 792,088 762,413 58,045 19,888 27,364 New York Stock 9.317,797 8,804,105 319,418 506,262 623,767 7,430 18,878 Phrladelphla-Baltlmore 96,784 96, 357 3,115 349 615 78 195 Pittsburgh 12,425 12,423 778 1 1 1 1 Salt Lake 795 795 8,161 ----.----- San FranCISCO Minmg 185 185 2,364 ------427- --.------- San Francisco Stock 127,571 126,643 6,373 370 501 998 Spokane

Washington 549 549 735 .--_.----- ------.--- 3,039 2,840 136 177 175 22 249

Breakdown of s-montb totals by months

1950 January 1,770,941 1,662,224 71,911 107,958 144,088 759 1,895 February

March 1,441,483 1,373,027 57,261 67,512 84,939 944 1,979

1,778,561 1,687,944 67,872 88,493 116, 471 2,124 5,682 April

May 1,885,373 1,8C-Q,503 81,301 77, 922 97,114 6,948 5,038

1,950,917 1,860,689 73,184 84, 941 96,720 5,287 7,905 June 2,049,183 1, 945, 670 69,739 100,444 113,114 3,069 2,657

ON ALL EXEMPTED EXCHANGES

Total all exchanges 3,161 3,127 471 34 39 ---------. --------.-

Colorado Springs 131 131 185 -.-------- ------.--- Honolulu 2,443 2,409 272 34 39 --------.- Richmond 374 374 8 0 0 Wheeling 213 213 6 -------.--

Breakdown of s-month totals by months

1950 January 450 448 61 2 2 February 550 546 78 4 4 March

April 670 670 129 0 0 --------.- . 358 358 41 0 0

~~::::::::::::::::::.:;.: 541 539 97 2 2 ------._-- 592 566 65 26 31 --_._-----

See footnotes at end of table.

--- ---- --- _____

--- --- --- ---- _______________________

_______________ ---------- __________________ ______________________ ---------- ---------- __________________ _____________________ _________________

_____________

_____________

______ ___________________

____________________ ---------- ---------- ---------- ________ ---------- ---------- __________ _____________________ ---------- ---------- __________________

______________________

____________________ _______________________

_________________________

_________________________

_________________________

_____

--- ---- --- --- __________ ---------- ____________________ ---------- ___________________ ---------- ---------- ____________________ ---------- ---------- ---------~

______________________ ---------- ---~------ ____________________ ---------- ---------- ____• __________________ ---------- ________________ _______ ---------- ---~------ ----------

----------
ON ALL REGISTERED EXCHANGES

202

TABLE

SECURITIES AND EXCHANGE COMMISSION

B.-Market value and volume of sales effected on security

for three 6-month periods ended June 80, 1951--Continued

PART 2.-6 MONTHS ENDED DEC. 31, 1950

)

[In thousands]

eiCchanges

Stocks I BondsJ Rights and warrants Total

Exchange market

value Market Market Principal Market "(dollars) value Number value amount value Number

(dollars) of shares (dollars) (dollars) (dollars) ofunlts

--- --- --- Total all exchanges ••... 11,963,522 11,447,318 435,863 510,700 626,024 5,414 10,198

--- --- --- --- Boston . .• 125,695 125,690 2,934 ° ° 5 23 Chicago Board, ...• . 17 17 2 .'--.- .. 0- -.----.-0- .. ---.-51- ------."8 CincinnatI. .. . ._ .• _. 11,548 11,497 299 Detrolt_. ._ ._ •. ._._ .•. .. 44,356 44,337 2,323 19 203 Los Angeles. ... _. 111,631 111,569 5,679 24 22 33 59 Midwest .. ._. 268,864 268,843 9,905 ° ° 21 49 New Orleans ..• ._._ •. .. 680 678 20 2 2 New York Ourb, ._. ---."1;858 737,464 718,533 56,824 15,957 20,936 2,969 New York Stock . . . 10,417,334 9,921,006 335,861 494,145 604,092 2,183 7,649

Philadelphia. Baltimore 98,272 97,852 2,997 316 660 104 222 Pittsburgh . ... . _. 11,875 11,874 791 1 1 ----('r-.- _._.'--.-9 Salt Lake_._ .. .... . 955 955 8,349 -_.------- San Francisco Minlng •••...• 135 135 1,743 San Francisco Stock ••. . .. ---i70- ----.-149- .---.'-24- -'-----118 130,916 130,722 6,884

&~~tOn~~================ 613 613 1,093 ------162- ------._-- 3,167 2,992 159 175 ----._----

Breakdown of 6-month totals by months

1950

July .. . 2,036,822 1,929,503 71,253 106,847 132,672 472 773 AultUSt. . . --. -_ 1,782,726 1,699,195 65,127 82,962 100,627 569 850 September .• .. .. .• 1,676,206 1,606,710 61,932 68,654 84,250 842 1,780 October . . _. ... . 2,168,153 2,088,834 80,206 77,833 93,748 1,486 4,245 November. _. . .. 1,940,740 1,863,191 66,302 76,914 94,708 635 384 December .. .•• 2,358,875 2,259,885 91,043 97,580 120,019 1,410 2,156

ON ALL EXEMPTED EXCHANGES

Total all exchanges ._. 3,346 3,237 364 109 121 -_.------- --- --- --- Colorado Springs_. ._ 106 106 72 Honolulu . .-----121- 2,907 2,798 283 109 Richmond ._. . 225 225 5 w

Wheeling _. .• . 108 108 4 w_

Breakdown of 6-month totals by months

1950 July 536 521 55 15 17 ..... August_ •. 567 547 60 20 24 -------_ ... September. .. . 541 525 65 16 18 October. _. . 491 455 50 36 40 _w_

November 547 538 57 9 9 December . 664 651 77 13 13 --------_ ..

See footnotes at end of table.

---

••• _______ ___••• ___ _

___ ______ ___ __ ____

__ __ __ __ ~ __ ~_w __

-------~-- ________ ____ ________ ________

_____ _ ---------- •• ___ __•• __ ___ _____

•••• __ ___ __ _____ __

_______ ___ ---------- _ - __ ____

----------

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•••• __• _______ ______ ___

______ ______ - --

____ _ _____ _ ___ __ _____ ____

____ ________ _ ________ _______

---------- __

--- ____•• ___ ---------- ---------- •• ______________ ___ ---------- ---------- ___________ __ __ ---------- ____ _____

---------- ---------- __• _•• ______ ___ ---------- ---------- ---------- ________

_•• _••••• ________• ________ ---------- -------- •• __________ ________ ---------- - _________ ______ ---------- ---------- __•________• _•• ___ .. ______

---------- ________•••• _______ ---------- ---------- _•• _______ ___•• ____ ----------
SEVENTEENTH ~AL RE~ORT 203

TABLE S.-Market value and volume of 8ale8 effected on seourttte« ercchange8

for three 6-month period8 ended June 30, 1951-Continued

PART 3-6 MONTHS ENDED JUNE 30, 1951

ON ALL REGISTERED EXCHANGES

[In thousands)

Stocks I Bonds' Rights and warrants Total

Exchange market

value Market Market Principal Market (dollars) value Number value amount value Number

(dollars) ofsbares (dollars) (dollars) (dollars) or umts

--- ------- --- Total all excbanges 12, 145,137 11,625,026 432, 841 493,137 557,532 26, 974 37,323

Boston --- 121,914 119,995 2, 742 (') (') 1,919 916

g~~~~i~~~===============

15 15 2 ----.----- ----.----- ---------- 12, 532 12, 407 314 0 0 125 111 Detroit 43,365 43,198 2, 478 ------32:f --.------- 167 679

k£i~~:t~l~== ..

114,347 113,684 6,796 262 340 385 264, 677 264, 015 8, 913 5 5 657 543 New Orleans 1,414 1,407 45 7 6 ----.-._.- --.-.-.-.- New York Curb. 852, 294 832, 704 61,470 14,138 18,366 5,452 1,958 New York Stock 10,491,460 9,997,032 324,756 477, 251 537,391 17,177 30,278 Phlladelphla-Baltlmore 97,529 96,827 2, 921 320 532 382 495 Pittsburgb 13,607 13,558 811 0 0 49 26 Salt Lake 1,479 1,479 9,070 ----.----- .-._------ ----.----- ---------- San Francisco Mining 277 277 2, 691 ----.-984- ----.-.--- ---_.-.-.- San FranciBco Stock 126,329 124, 639 7,835 864 706 1,932 Spokane 779 779 1,843 ------ioo- W .-._--.--- ---------- ashlngton ._. 3,119 3,010 154 106 .-.-.----- ----------

Breakdown of 6-montb totals by months

1951 January 3,081,669 2, 966, 087 119,775 112,608 135,822 2,974 2, 589

r;~r~= .: .: ..

2, 163, 217 2, 077, 235 77,286 77,203 86,108 8, 779 5,345

1,755,966 1,676, 044 63,729 72,842 83,272 7,080 7,751

tfa~=========== .:;

1,653,914 1,544,688 57,018 106,614 108, 793 2, 612 10,006

2,099,057 2,026,859 69,152 69,822 SO,270 2, 376 6,058 1une. 1,391,314 1,334,113 45,881 64,048 63,267 3,153 6,574

ON ALL EXEMPTED EXCHANGES

Total all exchanges 3,914 3,841 617 73 79 ----------

--- --- Colorado Springs 191 191 170 ---_.----- ------.--- ~~-~-~---- Honolulu _. 3,298 3,225 440 73 79 -~-~------ Richmond.

Wheeling. 282 282 5 ---------- ._._ 143 143 2 ----------

Breakdown of 6-month totals by montbs

1951 1anuary 972 962 100 10 10 ----------

r;~rr~ .: .: .;

631 606 117 25 28 ---------- 675 660 131 15 17 -~.----~---~-~._.~--

tfa~.-=== .: .: .;

547 538 85 9 9 ------.-.- 580 573 131 7 8 ---------- 1une. ._. _. _. 609 502 53 7 7 --.-.---.- .-.-.-.-.-

I "Stocks" includes voting trust certificates, American depositary receipts, and certificates of deposits .

"Bonds" includes mortagsge certificates and certificates of deposit for bonds. Smce March 18, 1944,

United States Government bonds bave not been included in tbese data,

I Five hundred dollars or less.

NOTE.-Value and volume of sales effected on registered securities exchanges are reported in connection with fees paid under section 31 of the Securities Exchange Act of 1934. For most exchanges the figures represent transactions cleared during the calendar month, Figures may di1fer from comparable data in the BtatistIcaI Bulletin due to revisions of data by exchanges.

_____

_______________________ --- --- ---

___________• ___________

----------

============= =

_____•

•

____•

_________________

____________

_____________

______ _____________ ____________________

________

_________ ________________ ____

______ ____

----------

______• _______________

====== == ====

_____________•=__________ =========

_____

__• • __• ___• _• ___•__________ ____ ______ ____________ _______________ ----------

----------

----------

----------

----------

----------

---

--~~~----- ----------

----------

_________________•

== = ========= =

======= ========

____

______________ ___

----------

----------

----------

----------

•
204 S'ECURITIES AND EXCHANGE COMMISSION

TABLE 9.-Special offerings effected, on national securities ea:cluMf,gesfor fiscal

year end,ed,June 80, 1951

Number of shares Value Aggre- Number of offerings by

of gate duration

shares special

Num- sold com- I

Excbange ber (thou- mission Termi- Others Not ter- made In orlg- Sub- sands (thou- nated termi- mi- Inal scnbed Sold of dol- sands in 15 nated nated

offer of dol- min .. same same lars) lars) utes day day

------ --- AIl exohanges: TotaL 19 168,743 160,384 160,384 5,073 99 4 II 4

------ ------ --- Completed 17 141,243 142,163 142,163 4,124 82 4 10 3 Not completed 2 27,500 18, 221 18,221 949 17 0 1 I

--- --- --------- Midwest Stock Exchange. TotaL I 3,100 3,100 3,100 90 2 0 I 0

--------------- --- Completed 1 3,100 3,100 3,100 90 2 0 1 0 Not completed 0 0 0 0 0 0 0 0 0

--- --- ------ New York Stock Exchange: Total 17 150,643 142, 284 142, 284 4,942 95 S 10 4

------------ --------- Completed 15 123,143 124, 063 124,063 3,993 78 3 9 3 Not completed 2 27,500 18,221 18,221 949 17 0 I I

--- --- --- --- San Francisco Stock Exchange: Total. 1 15,000 15,000 15,000 41 2 I 0 0

--- ------ Completed 1 15,000 15,000 15,000 41 2 1 0 0 Not completed 0 0 0 0 0 0 0 0 0

--- --- --- --- ---

__________________

--- --- --- --- __________

______

--- --- --- --- __________________

--- --- --- __________

______

--- --- --- --- --- ___________________

--- --- _________

______

--- --- --- --- ---

_____________- - - __

--- --- --- --- --- - __________ ______
SEVENTEENTH ~AL RE~ORT 205

TABLE 10.-Secondarv distributions of listed stocks approved by national securities eaJchangesfor fiscal year ended June SO, 19511

Number of shares Value Number of secondaries

of by duration

Num- shares

Exchange ber sold Others Not

made AvaJ.\able (thou. 'I'ermi- ternn- termi- In orlgi- for dIS' Sold sands nated nated nated naloffer trrbutlon of dol- same next next lars) day day day

--- ------ All Exchanges: TotaL 80 4,798,277 4,872,014 4,664,187 128,017 57 12 11

Completed. 76 4.679,354 4,748,938 4,601,466 125.791 57 11 8 Not Completed 4 118,923 123,076 62,721 2,226 0 1 3

Cincinnati Stock Exchange: TotaL 2 50,667 53,820 46,820 1,218 0 1 1

Completed --- I 9,000 9,200 9,200 230 0 1 0 Not Completed 1 41,667 44,620 37,620 988 0 0 1

Detroit Stock Exchange: TotaL. 1 6,700 6,700 6,700 146 1 0 0

Completed 1 6,700 6,700 6,700 146 1 0 0 Not Completed 0 0 0 0 0 0 0 0

Midwest Stock Exchange: TotaL 7 448,979 465,699 457,604 7,974 3 2 2

Completed 6 430,979 447,699 447,699 7,512 3 1 2 Not Completed._. 1 18,000 18,000 9,905 462 0 1 0

New York Curb Exchange: TotaL 16 1,088,922 1,097,416 1,097,416 14,850 12 3 1

Completed 16 1,088,922 1,097,416 1,097,416 14,850 12 3 1 Not Oompleted., 0 0 0 0 0 0 0 0

--- New York Stock Exchange: TotaL_. _._. 54 3,203,009 3,248,379 3,055,647 103,829 41 6 7

Completed. 52 3,143,753 3,187,923 3,040,451 103,053 41 6 5 Not COmpleted 2 59,256 60,456 15,196 776 0 0 2

ISecondary distributions which exchanges have approved for member parnmpatlon and have reported to the Commission.

---- --- --- ---

______________•______

--- --- ---- --- --- --- --- --- ___________ ________

--- --- ---- --- --- --- --- --- _____________________

--- ---- ---- --- --- --- --- ____________ ________

--- ---- ---- --- --- --- --- ---

____________________

--- --- --- --- --- --- --- --- ____________ ________

--- ---- ---- --- --- --- --- --- _______•_____________

--- ---- --- --- --- --- --- --- ____________

_____

--- ---- ---- --- --- --- --- ---

_______•___•_________

--- --- --- --- --- --- --- --- ____________ ••____

--- --- ---- --- --- --- ---

_______________

--- ---- ---- --- --- --- --- --- ___________ ________
206 &ECURITIES AND EXCHANGE COMMISSION

TABLE ll.-Olassification by industry of issuers having securities registered on nationaZ securities e(l)changesas of June 90, 1950, and as of June 90, 1951

Industry As of June As of June

30,1950 30,1951

Agriculture ______________________________________________________________________6 6 Beverages (distilleries, breweries, soft drinks) ___________________________________ 45 45 Building and related companies (meludmg lumber buildlng materials, and construction) __________________________________________________________________94 96 Chemicals, drugs, and alhed products ___________________________________________ 87 91 FinanCIal and mvestment companies ____________________________ 130 126 Food and related products _______________________________________________________102 104 Foreign governments and political subdivisions thereoL ________________________ 72 68 Foreign private Issuers other than Canadian, Cuban, and Philippine ____________ 55 48 Iron and steel (excluding machinery) ____________________________________________ 76 76 Machinery and tools (excluding transportation equipment) ______________________ 207 210 Merchandising Mining, (chain stores, department stores) _________________________________ 162 165 coaL____________________________________________________________________20 20 Mming, other than coal_________________________________________________________224 22:J Miscellaneous manutaeturlng ______________________________ 40 41 011and gas wells________________________________________________________________52 51 011reflnmg and distributlng ____________________________________________________ 36 37 Paper and paper products _______________________________________________________ 42 43 Printing, publishing, and allied Industries _______________________________________ 21 21 Real estate _____________________________________________________________________ . 15 16 Rubber and leather products ____________________________________________________ 34 33 Services (advertising, amusements, hotels, restaurants) __________________________ 51 53

~~~~~~~J~~~~~~~~:~~~ ~ .: .:

66 68

18 18

Transportation and communication (railroads, telephone, radio) _________________ 228 222 Transportation equipment ______________________________________________________169 175 UtIhty holding companies (electric, gas, water) __________________________________ 27 27 Utility operatlng-holdmg eompanles _____________________________________________ 13 8 Utlllty operating ________________________________________________________________ 90 97

Total ______________________________________________________________________ 2,182 2,188

•_______________

•_____________________

~~~== : = === = ~ = ~ ~ = = = = = : = = = = = = = = = = = = = = = = ~ = = = = ~
SEVENTEENTH ANNUAL RE:PORT 207

TABLE 12.-Number and amount of securities classified according to basis for

the admission to dealing on all exchanges as of June 80,1951

STOCKS

Column Lt ColumnIIt

Issues Number of Issues Number of

shares shares

Registered : 2,581 3,477,564,645 2,581 3,477,564,645 Temporarily exempted from registration 18 12,706,854 18 12,706,854

Admitted to unlisted trading privileges on registered exchanges 879 2,252,677,684 321 338,970,436 Listed on exempted exchanges 117 135,346,816 79 35,358,785 AdmItted to unlisted trading pnvileges on exempted exchanges 38 6,702,020 33 3,114,207

Undupllcated total of stock Issues and number-of

shares admitted to dealing on all exchsnges.,' 3,032 3,867,714,927

BONDS

Issues Principal Issues Principal amount amount

Registered 942 $20,896,324,569 942 $20,896,324,569 Tempomrily exempted from registration 4 51,848,000 4 51,848,000

Admitted to unItsted trading privileges on registered exchanges 74 620,598,200 68 468,733,000 Listed on exempted exchanges 8 21,000,000 8 21,000,000

Admitted to unlisted trading privileges on an exempted exchange None .-.-.----------- --.---------.---

Unduplicated total of bond issues and principal amount admitted to dealmg on all exchanges ------.- .------- 1,022 21,437,905,569

IThe purpose of column I is to show the number and amount of securities admitted'lo dealing under the

variouslibases for tbe admission of securities to dealing on exchanges under the act. (Issues exempted from

registration under sec. 3 (a) (12) of the act, such as obhgations ofthe Umted States, States, counties, CIties,

and United States-owned corporations, are not shown In this table) Each security Is counted once under

each basis for Its admission to dealing. Thus a security which Isregistered on 2exchanges and also admitted to unlisted trading privileges on 3 exchanges would be counted once under "regIstered" and once under

"admitted to unlisted trading privileges." Because ofsnch duplieatrons, column I ISnot totaled. t The purpose of column II Is to show the undupheated total of all secunties admitted to dealing on all

exchanges. Each security Is counted only once, and the elimmation of the duplication In column I ISmade In column II In the order In which the various bases for admission to dealing ISgiven above . Includes securities for which the Commission has granted, by general rules, temporary exemption from

registration for stated periods and under certain conditions, such as stock issues of certain operating banks

and seeuritles resuItlng from modiflcatlon of previously listed securities . Includes 7bond IssuesInpounds sterling m the aggregate amount of £15,712,860 This amount Insterling has been excluded from the amount In dollars given above.

____________________________________________

•______________

____________________________________________

__________________________

____________________________________________

___-------- ----------------

•____________________________________________

•______________

____________________________________________

__________________________

_____________________________________________ --------

___ --------

•

•
208 SECURITIES AND EXCHANGE COMMISSION

TABLE 13

PART I.-NUMBER AND AMOUNT OF SECURITIES CLASSIFIED ACCORDING TO THE

NUMBER OF REGISTERED EXCHANGES ON WHICH EACH ISSUE WAS ADMITTED

TO DEALING AS OF JUNE 30, 1951

Stocks Bonds

Issues Shares Issues Principal

amount

1. Registered on 1 exchange _______________•• _. __•_____ 1,594 I, 189,784,744 865 $17,646,298,869 2. UnliSted on 1 exchange ______________________ ._ 312 319,572,426 68 468,733,000

3. Registered on 2 or more exchanges ________________._ 430 376,918,444 71 3, 098,160,500

4. Unlisted on 2 or more exchanges 9 19,398,010

5. Registered on 1exchange and unlisted on 1exchange, 206 228,926,184 5 82,333,000

6. Registered on 2 or more exchanges and unlisted on 1 exchange 68 138,910,041 1 69,532,200

7. Registered on 1 exchange and unlisted on 2 or more exchanges 171 779,397,275 .-- 8. Registered on 2 or more exchanges and unlisted on 2 or more exchanges 112 763,627,957

9. Temporanly exempted from registration on 1 exchange _________________________ 17 9,861,063 3 45,106,000

10. 'I'emporanly exempted from registration on 2 or more exchanges 1 6,742,000

11. Temporarily exempted on 2 or more exchanges and unlisted on 1 exchange 1 2,845,791

Totals_. 2,920 3, 829,241,935 1,014 21,416,905,569

PAST 2.-PROPORTION OF REGISTERED ISSUES THAT ARE ALSO ADMITTED TO UN.

LISTED TRADING PRIVILEGES ON OTHER EXCHANGES AS OF JUNE 30, 1951

1. All registered Issues (part l,lines 1,3, 5, 6, 7, and 8) ___ 2,581 3,477,564,645 942 $20,896,324,569

2. Registered issues that are also admitted to unlisted

trading privileges on other exchanges (part 1, Imes 5,6,7, and 8)_. 557 1,910,861,457 6 151,865,200

3. Percent ofregistered issues that are also admitted to unlisted trading privileges on other exchanges______ 21.6 54.9 0.6 0.7

PART 3.-PROPORTION OF ISSUES ADMITTED TO UNLISTED TRADING PRIVILEGES

THAT ARE ALSO REGISTERED ON OTHER EXCHANGES AS OF JUNE 30, 1951

1. All issues admitted to unlisted trading privileges (part 1, lines 2, 4, 5,6,7,8, and 11)________________ 879 2,252,677,684 74 $620,598,200

2. Unlisted ISSUesthat are also registered on other

exchanges (part 1, lines 5,6,7, and B) 557 1,910,861,457 6 151,865,200

3. Percent of issues admitted to unlisted trading prlvl- leges that are also registered on other exchanges ____ 63.4 84.8 8.1 24.5

PART4.-PROPORTION OF ALL ISSUES ADMITTED TO DEALING ON REGISTERED

EXCHANGES THAT ARE ADMITTED TO DEALING ON MORE THAN 1 REGISTERED

EXCHANGE AS OF JUNE 30, 1951

1. All issues admitted to dealing on registered ex- changes (part 1, total) __________________ 2,920 3,829,241,D35 1,014 $21,416,905,569

2. Issues on more than 1 exchange (part 1, all lines except I, 2, and 9)________________________________997 2,310,023,702 78 3, 256,767,700

3. Percent of all Issues admitted to dealing on all regis- tered exchanges that are admitted to dealing on more than one registered exchange ________________ 34.1 60.3 7.7 15.2

•____

____________________ -----~-- -------- --------

____•________________________ •___________

________________________________________ -----~-- ----- --- ----- ________________________________ -------- ------------ ---- •_______________

________________________ -------- ---------------- •__________

__________________________ -------- ---------- ------ •

__•___________•_________•_________________

______•• ______________________

____ • ________

•_________
SEVENTEENTH ~AL REPORT 209

TABLE 14.-Number ot issuers having securities admitted to dealint1s on all ee- changes as ot June 30, 1951, classified according to the Oasis tor admission

ot their securities to dealing

Column I 1 Column II ,

Basis of admission ofsecurities to dealing

Number of Number of

Issuers Issuers

1. Registered ____________________________________________________________________ 2,188 2,188

2. Temporarily exempted from registration ______________________________________ 18 14

3. Admitted to unhsted trading privileges on registered exchanges_______________ 847 296 4. Listed on exempted exchanges ________________________________________________ 99 67 5. Admitted to unhsted trading prrvileges on exempted exchanges_______________ 35 31

6. Total number of issuers having securities admitted to dealing au all ex- changes_______________________________________________________________ ------------ 2,596

1 The purpose of column I Is to show the number of issuers having securities admitted to dealing on ex- changes under the various bases for the admission of securities to dealing under the act. (Issuers whose

securities are exempted under sec. 3 (a) (12)of the act, such as obligations ofthe United States, States, coun- ties, cities, and United States-owned corpomtions, are not shown in this table.) Each issuer IS counted once under each basis for admission of secunties to dealing. Thus an Issuer having securities registered on 2 or more exchanges and unhsted on 2 or more exchanges Is counted once under "registered" and once under

"unlisted." Because of these duplications, column I Is not totaled. , The purpose of column II Isto show that the net number of Issuers having securities adnntted to dealmg on all exchanges under the act. Each Issuer IS counted only once, and the eltmmatron ofthe duplieatrons in

column I is made In column II 10 the order of the various bases for admission to dealmg given above.

TABLE 15.-Number ot issuers havinu stock ontu, bonds only. and both stocks

and bonds admitted to dealings on all eecnanoee as ot June 80, 1951

INumber of Percent of ISSuers total ISsuers

1. Issuers having only stocks admitted to dealmgs on exchanges_________________ 2,140 82.4 2. Issuers having only bonds adnutted to deahngs on exchanges__________________ 236 91

3. Issuers havmg both stocks and bonds adnutted to dealings on exchanges ______ 220 8 5

Total issuers______________________________________________________________ 2,596 100.0

4. Issuers having stocks admitted to dealing on exchanges (lmes 1 plus 3)________ 2,360 909

5. Issuers having bonds admitted to dealmgs on all exchanges (lines 2 plus 3)____ 456 17.6
210 SECURITIES AND EXCHANGE COMMISSION

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SEVENTEENTH ~AL RE~ORT 211

TABLE 17.-Number at issues admitted to unlisted trading pursuant to clauses

2 ana 3 at Section 12 (f) at the Securities Exchange Act at 1934 ana volume at

transactions therein 1

[Stock volumes In shlll'eS; bond volnmes in face amounts]

Number of Issues Percent of Volumere- total 1950 ported for the stock or Name of stock exchange Remainmg calendar bond Admitted June 30, year 1950 volume

total 1951 on each exchange

Stocks pursuant to clause 2. Boston 136 '122 1,247,320 21. 4 CincinnatI. 41 45 284,127 46.2 Detroit 88 79 1,318,165 27 8 Los Angeles 105 97 2, 001, 475 15 3 Midwest '106 75 5,669,152 29.8 New Orleans 2 2 0 .0 New York Curb 1 2 281,100 .2 Pbilsdelphia-Baltimore 125 'J09 1,101,321 18.0 Pittsburgh 11 54 187,961 12.0 Salt Lake 1 0 0 0 San Franeiseo Stock 163 55 928,930 1.0 Washington 2 2 19,118 6.7 Wheelmg 6 3 643 6 6

TotaL , 159 645 13,040,578

Stocks pursuant to clause 3 Mldwest 1 0 14,401 08 New York Curb 9 3 1,092,615 I 0 Salt Lake, I I 3,301 .02

Total stocks 110 649 14,150,895

Bonds pursuant to clause 2 $25,900 16 4 Los Angeles I I New York Curb 3 I $885,000 1.8 San Francisco Stock 4 0 $351,000 61 6

Bonds pursuant to clause 3: 28 9 New York Curb 45 13 sn, 527, 000

Total bonds 53 15 $12, 788, 900

1 See text under "Unlisted Trading Privileges on Exchanges."

Only odd-lot trading is permitted in 6 of these ISSues. 1Includes figures for exchanges merged into the present exchange .

Only odd-lot trading is permitted in I of these issues 5 The number of stocks includes duplication arising from admission of varlons ISSues to unlisted trading

on more than 1 exchange.

975942-52--15

___________________________• • ____________________•

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TABLE 19.-Reorganization cases instituted under ch. X and sec. "I1-B of the

National. Bankruptcy Act in which the Oommission has filed a notice of appearance and in which the Oommission actively participated during the fiscal

year ended June 30, 1951

DISTRIBUTION OF DEBTORS BY TYPE OF INDUSTRY

Number of debtors Total assets Total indebtedness

Industry

Principal S~bsid.

lary

Amount

(thousands

omitted)

Percent

of grand

total

Amount

(thou.

sands

omitted)

Percent

or grand

total

Agricultural, .____

MIning and other extraetrve .____ 3 1 $1,440° 19 $1,76.,° 36 Manufacturing .______________ 13 ° 20,549 2.65 15,546 312

Ftnaneial and investment .____ 5 1 128,210 16 56 88,131 17.69 Merchandising .____ 2 1 1,452 19 2,236 45

Real estate ._. ._ 16 1 70,483 9.10 63,231 12 69 Construction and allied ._ .. ._ ._._ .. __.. . . __._ ... ._ .. . __. __

Transportation and eommunlcation .. _.. __ 9 12 323,833 41 83 263,994 52 99 Service. ._._. __.... _•. _._. __ 7 1 24, 237 3 13 11,313 2 27

Uttlitres- Electrte, water, and gas ! __.__ 9 6 204,048 26.35 51,958 1043 Other' Religious, charitable, etc .. _. ... __.. .. __ ••.. __..• _ . __. ...• . .. _. __

Grand total ._. __.... __... ---64- ---23- 774,2521---;:00001 498,184 -----wooo

IIncludes no electrie utrhty comparnes. Represents pnneipally investment and holding companies and

gas pipeline compames and a few gas distnbutmg compames.

TABLE 20.-Reorganization proceedings in which the Oommission. participated

during the fiscal year ended June 80, 1951

Seeuritres and

Exchange

Comrmsson

notice of appearance filed

Petition

Debtor I Distriet court

Filed \ Approved

Amenean Acoustrcs, Inc. __. __ D N.J. .. _ Mar 21,1947 May 5,1947 Apr. 21,1~47 Amencan Bantam Car Co. __ ._._. W. D Pa .. ._ Apr. 19,1950 Apr. 19,1950 May 29,1950 .Arnencan Fuel & Power Co. ... E D. Ky __._. __ Dee 6,1935 Dec. 20,1935 May 1,1940

Buckeye Fuel Co._ .. _.. .. __. __._ .•. __do .. . ._ Nov.28,1939 Nov. 28,1939 Do Buckeye Gas service Co_ .. ._ .... __._.do_._. . do. __. .. .do., ... _.. Do. Carbreatb Gas Co ..... _.. _. __. . __do .. .do . . __. __do ._._. Do.

Inland Gas Drstributmz Co._._. __.... _.do __. . __. .do ._. __._.do ._.__ Do.

Amencan SilIca-Sand Co., The .. N. D. IlL . Feb 16,1951 Mar. 5.1951 May 10,1951

Bankers Buildmg.Tne, __ _ ..... do .. __.... Sept.21,1943 Oct. 5,1943 Oct. 19,1943 .Bellevue-Stratford Co. _. . E D Pa . Oet. 31,1936 Oet. 31,1936 Feb. 24,1939

Brand's Restaurant Control Corp, ... S. D N Y. __._. Aug. 2,1939 Aug. 10,1939 Aug 30,1939

Broadway Garage, Inc .. _.... _... __.. __ S D.OhlO . Apr. 26,1946 Apr. 26,1946 June 24,1946

Calumet & South Chicago Rarlway Co .. N D IlL ... June 29.1944 Sept. 18,1944 Oct. 20,1944 Central States Electnc Corp __ E. D. Va __.. Feb. 26,1942 Feb. 27,1942 Mar. 11.1942 Chicago City Railway Co __ N D IlL .. _.__ Nov.27,1939 Sept 18,1944 Oct. 20,1944

Chicago Railways Co . .. ._do_. Oct. 15,1938 do •. ... _. do ..

Chicago & West Towns Railways, Inc .. .. do __._. . June 30,1947 July 1,1947 July 24,1947 Childs Co ... __. __._ ... _.. _. . __... __._ S D. N. Y. .. Aug. 26,1943 Aug. 27,1943 Aug. 26,1943

Dallas Parcel Post Station, Inc. ._ N. D. IlL .. Sept. 22,1950 Sept. 22,19.'iO Oct. 26,1950

DickBrothersBrewingCo __ __ S D IlL__..__. June 22,1950 June 22,1950 Aug. 4,1950

Douglas MIll, Inc .. _ __.. __ _. N D. Ga __. . Sept 7,1949 Sept. 7,1949 Oct. 12,1949

Drake Stadium & Field House Corp . S D Iowa . Dec 27,1947 Dec. 27,194/ Feb. 16,1948

80 Jolm Street Corp __._ ... __... .. __. S. D N Y. . Sept 14,1945 Sept. 14,1945 Oct. 8,1945

Equitable Office Building Corp. _ ___do .... _. __.__ Apr. 10,1941 Apr. 10,1941 Apr. 14,1941

.Federal Facilities Realty 'Trust, N. D IlL Dec. 26,1934 Apr. 25,1935 Oct. 29.1940

Franklin Building Co. .. .. __. E D. Wi"-- May 5,1947 May 5,1947 Aug. 18,1947

General Public Utihties Corp ...... S. D N. Y . __ Jan. 10,1940 Jan. 10,1940 Jan 15,1940 Associated Gas & Electric Corp .. _. do • • •. do . '_' .do ... . Do .

HotelMartin Co oiUtlCa. .. .. N. D. N. Y June 6,1935 June 19,1935 June 24,1939

Industrial Office Building Corp .. . D.N.J. Oct. 3,1947 Oct 3,1947 Oct 10,1947

.Inland Gas Corp .. .... .. . •. E D. Ky Oct. 14,1935 Nov. 1,1935 Mar. 28,1939

International Mining & MIllIng Co D Nev June 29,1939 June 29,1939 Aug 7,1939 Mount Gaines Minmg Co .. _._._ .• .. do _. .do_._._ .. ... .do.. .. Do.

InternatlOnaIPowerSecuntiesCorp D.N.L . Feb. 24,1941 Feb 24,1941 Mar. 3,1941 International Railway Co .. . .. __ W. D. N. Y July 28,1947 July 28,1947 Aug. 4,1947

Keeshm Frelgbt Lines.Inc ... N. D. IlI_. Jan. 31,1946 Jan. 31,1946 Apr. 25,1949 Keesbin Motor Express Co , Inc do.. do. •. do________ Do.

~:~~~1 ::1:~:tl:::;;;._._::::::: :::::~g::::::::::::::~g::::::::::::~g:::::::: gg: Kellett Aircraft Corp .. _. .____ E. D. Pa________ Oct. 18,1946 Oct. 18,1946 Dec 4,1946

.Kentucky Fuel Gas Corp __. E. D. Ky . Oct. 25,1935 Nov. 1,1935 Mar. 28,193.

Majestic Radio & Television Corp ._ N. D. III . __ Mar. 31,1948 June 24,1948 Sept. 15,1948 Manutacturers Trading Oorp, N. D. Ohio.____ Oct. 15,1948 Oct. 15,1948 Oct 25,1948 Manufacturers Discount Oorp., , do ._. do. do., ._ Do.

• • • _ • _

•

_

__ __ __ __• __ _

• __ __ •

__ • _ __ •

_ • • __ __ __ __

•• __ __• ••
SEVENTEENTH ANNUAL RE~ORT 259

TABLE 20-Reorganization proceedings in which the Commission particrpnted

during the fiscal year ended June 30, 1951-Continued

Petition Seounties and

Exchange Debtor District court

I

Comnnssion

Filed Approved notice of appearance filed

'Midland United Co ___. _________________ D. DeL ____.. __ June 9,1934 June 9,1934 Jan 10.1940 'Midland Utilities Co _____________________do ________________do ________ _____do ________ Do Momence Milk Cooperative Association. KD TIL ______ June 18,1~9 June 18,1949 Sept. 12, 1949 Moorhead Kmtting Co __________________ M.D.Pa _______ June 19,1941 June 24,1941 Aug 6,1941 'NatIOnal Realty Trust __________________ N D.TIL ______ Dec 26,1934 Apr. 25,1935 Oct. 29,1940 Neville Island Glass Co, Inc ____________ W.D Pa _______ Mar. 1, 1948 Mar. 1,1948 Mar 17,1948 New Union Building Co ________________ E D Mteh _____ May 5,1949 May 6,lW9 June 20,1949 Northwest Carolina Utilities Co ________ W D. N. Car ___ July 8,1942 July 8,19'2 Mar 3,1£43 Norwalk Tire & Rubber Co., The ______ D. Conn ________ May 20,1949 May 20,1949 June 8,1949 Novo Engine Co ________________________ E D. Mieh _____ Mar. 14,1949 Mar. 14,1£49 Apr 25, 194~ "Pittsburgh Railways Co ________________ W.D Pa _______ May 10,1938 May 10,1938 Jan. 4, 1~3~ 'Pittsburgh Motor Coach Co ________ _____do ________________do. _______ _____do ________ Do. Pittsburgh Terminal Coal Corp _________ . ___do __________ Dec 4,1939 Jan. 2,1940 Jan 6,1940 Portland Electric Power Co ________. ____ D Oreg _________ Apr. 3,1939 Apr. 3,1939 Apr 16,19:1Q Pratt's Fresh Frozen Foods, Inc _______ D. N.J _________ Apr. 13,IV48 Apr 13,1948 May 29,1948 Pratt's Distributors, Inc ____________ _____do ___________ May 17,1948 May 17,1948 Do Quaker City Cold Storage Co ___________ E.D Pa _______ Dec 17,1941 Feb. 13,1942 Jan 28,1942

Quincy Station Post Office Building N.D.ill ________ July 18,1950 July 24,1950 Feb. 28,1951

Corp.

R A Security Holdings, Inc ____________ E.D N.y ____. May 7,1942 July 31,1£42 May 22,1942

Realty Associates Securities Corp _______ _____do ___________ Sept 28, 194J Sept 28,1943 Oct 4,1943 Espade Realty Corp ________________ _____do .. _. _____. ___._do _____________do ________ Do. Silesian Amencan Corp _________________ S D N Y ______ July 29,1941 July 29,1941 Aug. 1,1941 Solar Manufacturtne Corp. _____________ D N 1.________Dec. 14,19-18 Dec. 14, 1948 DC<' 27,1948 South Bay Consolidated Water Corn- S D.N Y ______ Apr. 26,1949 Apr. 26,1949 May 23,1949 pany, Inc Third Avenue 'I'ransit Corp. _________________do _____. _____ Oct. 25,1948 Oct. 25,1948 Jan. 3,1949 Surface 'I'ransportatron Corp ________ _____do ___________ June 21,19-19 June 21,19-19 July 7,19-19

Westchester Street Transportation _____do ________________do ________ _____do ________ Do.

Co, Inc Westchester Electric Railroad Co ___ . ____do. .. _______. _____do ________ _____do __. ____. Do. Warontas Press, Inc _____do. __________ Sept 8,19-19 Sept. 8,1~~ Oct 24,19i9 Yonkers Railroad Co ____________________.do.__________June 21,1949 June 21,1949 July 7,1£49 Thomascolor Inc. ______________._. ______ S.D Cali!... ___ June 20,19-19 ____.do .. __._._ Aug 5,19-19

Trmity Buildings Corp of New York ___. S_D.N Y_-_._- Jan 18,19-15 Jan. 18,1945 Feb 1~,19-15 Union League Club of Chicago __________ N.D.TIL ______ Feb. 14,1950 Feb 14,1950 Apr 10,1950 U S. Realty & Improvement Co ________ S.D N.Y ______ Feb. 1,1944 Feb. 1,1944 Feb 7, 1~44 "Van Bwermgen Corp ____________________ N. D. Ohio _____ Oct. 13,1936 Oct 15,1936 Jan 23,19-10 Wade Park Manor Corp ________________ S-

.do___._______June 28,1947 June 30,1947 July 28.1947 Warner Sugar Corp _____________________ D.N Y_----- June 7,19-10 June 9,1940 July 9,19-10

Washlngton Gas & Electric Co __________ ?Vi'

do ___________ Sept 29,1941 Sept 29,1941 Oct 14,1911 Wilkes Barre Railway Corp., ___________ D.Pa July 1,1943 July 1,19-13 July 15,1943 Wilkes-Barre Railway Co ____. _____. _____do __________. . ____do ____________.do., ______ Do Wilkes-Barre Trackless Trolley Co __ _. ___do _____. ____. ____.do _______. _____do ________ Do Wyoming Valley Autobus Co _______ _____do ___________ _____do ___.____ . ____do ________ Do

Wyoming Valley Public Service Co, _____do ___________ _____do _______. _._._do ________ Do

"Instituted under sec 77-B.

TABLE ~l.-Summary or cases tnstituted in the courts by the Oommission under

the Securities Act Of 1933, the Securities Beotuinoe Act of 1934, the Public

Utility Holding Oompany Act Of 1935, the Investment Oompany Act of 1940,

and the Investment Advisers Act Of 1940

Total Total Cases Cases Cases in- Total Cases cases in- cases pending pending stituted cases closed sutured closed pending

Types of cases up to end up to end at end at end during during during

ofl951 of 1950 1951 1951 of 1951 of 1951 fiscal fiscal fiscal 1951 fiscal fiscal fiscal fiscal

year year year ycar year year year

---- ---- -------- --------

Actions to enjoin violations of the above acts. _______________ 590 571 19 16 20 36 17

Actions to enforce subpenas under the Securities Act and the Securities Exchange Act. ____ 52 51 1 2 1 3 2

Actions to carry out voluntary

plans to complv with section

11 (b) of the Holding Com- 9

M~~ll~~~Us-actions:::::::::: 86 80 6 12 3 15

13 11 2 2 0 2 0

---------------------------- Total ______. _________. ___ 741 713 28 32 24 56 28

975942--51----18

____________-_____

___• ___
260 SECURITIES AND EXCHANGE COMMISSION

TABLE 22.-Summary 0/ cases instituted against the Commission, cases in which

the Commission participated as interenor or amicus curiae, and reorganization

cases on appeal under ch, X in which the Oommission participated

Total Total Cases Cases Cases in- Total Cases eases m- cases pending pending statuted cases closed stltuted closed pending Types of cases up to end up to end at end at end during during durmg of 1951 of 1950 1951 1951 of 1951 of 1951 fiscal year fiscal year fiscal year 1951 fiscal year fiscal year fiscal year fiscal year

---- -------------------- Actions to enjoin enforcement

of Securities Act, Securrties

Exchange Act and Puhlic

Utility Holdmg Company

Act with the exception of

subpenas issued by the CommISSIon.___... _..... __.... ___ 64 64 0 0 0 0 0 ActIOns to enjoin enforcement

of or compliance with subpenas ISSued by the Com- misston, __..•• _.. __. ___.. __._ 8 8 0 0 0 0 0 Petitions for review of Commission's orders by courts of appeals under the various acts adminlstered by the Com- IIllSSion_______.... ________.. ,_ 157 157 0 4 4 8 8 Miscellaneous actions against the Oommlssion or officers of

the Commission and esses m which the Commission par- tlelpated as intervenor or amicus curiae; ..... ___... __.. 148 141 7 5 12 17 10 Appeal cases under X ch, In

which the Commission partlc- Ipated, __•.• ___.. ____... ____•. 117 112 5 7 10 17 12 -------- -------- ---- -------- TotaL •. _._.... __•...• _._ 494 482 12 16 26 42 30
SEVENTEE~ ~AL RE~ORT 261

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SEVENTEENTH ANNUAL RE~ORT 275

TABLE 32.-Reorganization cases under oh, X of the Bankruptcy Act pendipg

during the fiscal year ended June 30,1951, in which the Oommission participated

when appeals were taken from district court orders

Name of caseand United States

Court of Appeals

Ameri~41nAcoustics, Inc , debtor

(third),

Central States Electric Corp, debtor

(fourth).

Central States Electric Corp, debtor;

Berner, et 01. v; Am/nan ana Butcher, trustees (fourth).

Central States Electric Corp, debtor;

Chase, et 01. v. A us/rian and

Butcher, trustees (fourth).

Childs Company, debtor; Childs

Co., petitioner-appellant (second).

Dallas Parcel Post Station, Inc.,

debtor; Income Investment Co.,

appellant (seventh). Inland Gas Corp., debtor (sixth)

International Mining & Millmg Co.,

debtor; ROSin V.Hart (ninth).

National Realty Trust, debtor;

Darrow v; Mauer; Guild v. Darrow

(seventh).

Nature and status of case

Appeals from order of Apr. 26, 1951,disallowing appllcatlons of

appellants for allowancesIn the ch. X proceedingsforreorganiza- tion of the debtor. Pending. Consolidated appeals from order of Apr. 24, 1950,approving plan of reorganization and order of May 24, 1950,authonzing trustees of Central States to proceed wuh Ilquidatlon of Amenean Cities, a subsidiary holding company of Central States. On June 14,

1950,CA-4 granted stay of order of May 24, 1950. Orders of

dIstrict court affirmed Aug. 16, 1950,and stay order dissol..ed.

Petitions for writs of certiorari filed by all appellants. Com.

mission's brief in opposition filed Dec 29. 1950. All petitions for writs of certiorari denied Jan. 8, 1951. Closed.

Oonsohdated appeals from order of Nov 28, 1950,confirming the

plan of reorganization. On Mar. 12, 1951,the appeals of the

debtor and the Central States Electric Corp. 6 percent preferred stockholders committee were dismissed pursuant to stipulations ofFeb. 26,1951,and the appeals ofT. Roland Berner and Reynald H. Chase were dismissed, the appellants having failed to tile

briefs, etc. Petitions of Reynald H. Chase and T. Roland

Berner, et al., for writs of certiorari filed May 22,1951. Petition- ers sought review of decrees of CA-4 entered Mar. 12, 1951,and

May 11,1951. (Case consolidated In Supreme Court with appeal from order affirmmg district court order denying motion to dISmiss reorgamzation proceedings. See below) Certiorari denied

June 4. 1951. Closed

Appeal from order of Mar. 13, 1951,denying motion to dismiss

reorganization proceedings. Commission filed brief May 10,

1951,in support of distnct court order. Order May 11, 1951.

affirming order of district court and denying application for stay pending application for certioran. Petitions for writs of certr- orari tiled May 22,1951. Petitioners sought review of decrees of

CA-4 entered Mar 12, 1951,and May 11, 1951. (Case eonsohdated In Snpreme Court with appeal from order affirming district court order confirming plan of reorganization. See above) Certiorari denied June 4, 1951. Closed.

Appeal from order ofAng. 5,1949,fixingfinal allowancesforservices.

Commission filed brief taking position that total allowances were too high and that compensation shonld be wholly denied to certain applicants. On Apr. 5, 1950,CA-2 reversed order of

the district court in part and remanded cause for further pro- ceedings. Closed.

Appeal from order of Jan. 31, 1951,approving report of special master recommending the retention in officeofJoseph Schwartz as trustee. Pending. Consolidated appeals from order of Oct. I, 1949,approving plan of reorganization. Comnussion tiled brief m support of appel- lants primarily with regard to the claims of Columbia Gas

System, Ine., which were subordinated under the plan only to clauns of otber creditors ofInland and not to creditors ofInland's

parent companies, Amencan Fuel & Power Co. and Kentucky Fuel Gas Corp. The reply brief of the Oommisslon covered

several other issues. Opmion Mar. 19, 1951,directing that the

order of the district court be amended by a direction, among other things. to subordinate the clarmsof Columbia to the public holders of Kentucky and American Fuel obligations secured

by pledges of Inland in reeogrutron of their creditor statns and

remanding case to district court forfurther proceedings. Closed

Appeal from order of June 28, 1949,disallowing attorney fees to appellant. Commission tiled brief Mar. 3, 1950,in support of

distnct court order. On May 29, 1950,CA-9 affirmed order of

dIstrict court. Petition for rehearing denied June 21, 1950.

Closed.

Appeal from order of Apr. 12, 1949,affirming the flndmgs and rec- ommendations of the special master surcharging Darrow for

profits realized by his confidential employees from dealing in

securities of the debtors' subsidiaries during Darrow's tenure of

office. Commission filed brief in support of distnct court order.

District court orderreversed Aug. 14,Ig50,by CA-7 insofar as It

surcharged Darrow and affirmed in all other respects Petrtion

for rehearing by Mosser, et al , demed Sept. 21, 1950. Petition

for writ of eernoran filed Dec. 18,1950. Commission's brief urg- ing reversal filed Mar. 28, 1951. Judgment of CA-7 reversed by Supreme Court May 7, 1951,and cause remanded to distnct court. Closed.

_
276 SECURITIES AND EXCHANGE COMMISSION

TABLE 32.-Reorganization ooses under ch, X of the Bankruptcy A.ct pending

during the fiscal year ended June 30,1951, in which the Commission participated

when appeals were taken from distf'ict court orders-Continued

Name of case and United States

Court of Appeals

Norwalk Tire'" Rubber Co., debtor;

L. Drexsage Co., Inc., et al.,

appellants (second).

Pittsburgh Terminal Coal Corp.,

debtor; Pittsburgh Terminal Real- ization Corp., appellant (third).

Silesian-American Corp., debtor;

(second).

Solar Manufacturing Corp., debtor;

(third).

Solar Manufacturing Oorp., debtor;

Ben Mintz, appellant (third).

Solar Manufacturing Oorp., debtor,

Ben Mintz, appellant (third).

Thtrd A venue Transit Oorp., debtor;

Melniker, et al, appellants (second).

Washington Gas and Electric Co.,

debtor (second).

Nature and status of case

Appeal from order of July 6, 1950, granting motion of trustee for

summarg [udgment disallowing claims of L. Dressage 00., Inc.

and L. Drexsage Co. on the grounds that such claims were barred by order of July 7, 1949, as they had not been tiled by

Sept. I, 1949, and from order of July 12, 1950, in ald of the consummation of the plan of reorganization. Commission's brief

tiled Oct. 3, 1950, in support of district court order. Order of

district court affirmed. Closed.

Appeal from order of Dec. 9, 1949, preliminanly enjoining, pending

final hearing, proposed action of the Reahzatron Corp. at a stockholders' meeting and authorizing the trustee to conduct an investigation of the business and affairs of the Realization Corp. Comnussion tiled brief in support of district court order. District court order affirmed July 17, 1950, by OA-3. Petition for writ of

eertloran tiled Oct. 11, 1950. Commission tiled brief in opposition. Certiorari denied Dec. 11, 1950. Closed.

Apoeal from order of May 29, 1950, approving the trustee's amended

plan of reorganization. Commission tiled brief Nov. I, 1950,

taking position that district court order should be reversed.

Order reversed Dec. 26, 1950, by CA-2, and cause remanded to

lower court. Closed.

Appeal from order of Dec. 11, 1950, approving special master's

report and denymg petitron for immediate partial distribution

to debenture holders. Partial dlstributlon made to all creditors on Apr. 14, 1951. Appeal, therefore, has become moot. Closed. Appeal from order of Dec. 28, 1950, which awarded interim allowance to the 2 trustees oC the debtor and their counsel. Oomnns- sion's brief tiled in May 1951, took position that district court

orders of Dec 28 1950, and Jan. 4, 1951 (see below concerning

this appeal), shoUid be reversed. Opinion rendered June 28, 1951,

reversing the order of Jan 4, 1951, as to the denial of the motion

to reduce the number of trustees to 1 and affirminJ: the order of

Dec. 28, 1950, as to interim allowances, and directing that

the case be remanded to the district court for further proceedings.

Pending.

Appealfrom order oC Jan. 4,1951, denying motion oCthe Commission

to reduce the number oC trustees of 1. CommissIon's brieC tiled in May 1951, took POSitIOn that distriot court orders of Dec. 28, 1950

(see above concerning this appeal), and Jan. 4, 1951, should

be reversed. Opinion rendered June zs, 1951, reversing the order

of Jan. 4, 1951, as to the denial of the motion to reduce the number oC trustees to 1 and affirming the order of Dec. 28, 1950, as to

interim allowances and directing that the case be remanded to

the district court for Curther proceedings. Pending.

Appeal from order of Apr. 29, 1950, which directed a loan of $350.000

Crom cash held by indenture trustee under a first mortgage inden- ture. Pending

Appeal from order of Dec 18, 1950, granting final allowances to certain fee appbcants. Comprormses were reached between re organized company and fee apphcants regarding amounts to be

received as fees. Upon consent of parties and approval by the judge. appeals were withdrawn Olosed,

'" '"

'"
SEVENTE~VTH ANNUAL RE~ORT 277

TABLE 33.-An 18-year summary of criminal cases developed, by the aOmmissivn1994 through 1951 bV fiscal year

[See separate char(for classlficationIof defendants as broker-dealers, etc 1

o

o

o

o

2

o

o

o

15

4

7

2

16

8

1

20

10

32

Hi

Number

of these defend.

nts as to whom

cases are pending'

i

Number Number Number of such of these

Number of persons cases m defend.

of eases as to which Number Number Number ants as to

referred whom of de- whom to De- proseeu- indict- fendants of these of these proceed. Fiscal year ments defend- defend- a partment non was wereob- indicted ants con- ants ao- mgs were

ofJustice reeom- tained by in such victed QUitted dismissed

meach mended Umted cases 1 by

year meach States United year attorneys States

attorneys

---------------- ---- ---- 1934_________________ 7 36 3 32 17 0 15 1935.. _______________ 29 177 14 149 84 5 60 1936.. _______... _____ 43 379 34 368 164 46 158 1937___ .. __.. _._ ..... 42 128 30 144 i8 32 34 1938... ______________ 40 113 33 134 75 13 44 1939_______ .. ___. __.. 52 245 47 292 IG9 33 60 1940. ____._ ......... _ 59 174 51 200 G6 38 66 1941.._. ____. ___. ____ 54 150 47 145 94 15 36 1942_ .. ________._._._ 50 144 46 194 108 23 48 1943__. _____._ ....... 31 91 28 108 61 10 33 1944___ .. ____________ 27 69 24 79 47 6 19 1945_________________ 19 47 18 61 36 10 13 1946_. _______________ 16 44 14 40 13 8 3 1947. _____________. __ 20 50 13 34 9 5 12 1948__. _________... __ 16 32 15 29 20 3 5 1949_. _______________ 27 44 25 57 16 12 9 1950_________________ 18 28 15 27 13 1 3 1951. ______________.. '29 42 20 40 5 1 2

---- ---- ---- -------- ---- ---- Totals _________ 579 1,993 477 2,133 1,135 261 '620

I The number of defendants in a case is sometimes increased by the Department of Justice over the num ber

against whom prosecution was recommended by the Commission For tbe purpose of this table, an Illdividual named as a defendant m 2 or more indictments in the same case IS counted only as a single de- fendant. , See separate chart for breakdown of pending cases.

35 of these references as to 5 proposed defendants were still being processed by the Department of Justice

as ofthe close of the fiscal year .

436 of these cases have been completed as to 1 or more defendants. Convictions have been obtained III

381 or 87.3 percent of such cases. Only 55 or 12.7 percent of such cases have resulted ill acquittals or dismissals

Ito all defendants.

, Includes 42 defendants who died after indictment.

•

•
278 SECURITIES AND EXCHANGE COMMISSION

TABLE 34.-Summary of criminal caees developed by the Oommission which were

still pending at June 30, 1951-by {t8cal year

I Number Number of such defendants as to

Number of such whom cases are still pending and

of defendants reasons therefor

Cases defendants as to whom

in such cases have Not yet cases been Awaitmg Awaiting completed appre- trial appeal hended I

ending, referred to Department of Justice in.' 1938.... ___...... ____....• ___._ 1 2 0 2 0 0 1939... . _." .... .• 0 0 0 0 0 0 1940.... _.. _' __._.• ______.... __ 0 0 0 0 0 0 1941._..... __... __. __._. _•. ___. 0 0 0 0 0 0 1942.......... _.. ___..... _. ____ 2 18 3 14 1 0 1943... _.. ____..... __._..•. __.. 2 8 4 3 1 0 1944... .. . ._ ... ... 2 8 1 7 0 0 194.'L.................. ___.... _ 2 4 2 1 1 0 1946.__.. _.. _.__. __.. __.... ____ 4 16 0 16 0 0 1947.. ____..... _.___.... _____.. 3 9 1 8 0 0 1948.. __._ ..... ____._.. _.__.. __ 1 1 0 0 1 0 1949.. __._.... __...... ___... _._ 8 22 2 7 13 0

1950....... _._..... __._.. __.... 6 10 0 1 7 2

1951... ___....... _...... ___.... 14 32 0 0 32 0

TotaL ....... _.. __..... ___._ a 45 130 13 59 56 2

P

SUMMARY Total cases pending'. .. _.' .. •. ._ _...... 50

Total defendants '_. .... _._ ... ..... _._ .. .. ', _._ 135

Total defendants as to whom cases are pending .• ...• .. ._ 122

I Almost Without exception these defendants are residents of Canada and cannot be extradited. , Fiscal year ended June 30 of the year mdleated. , Except for 1951,mdictments have been returned m all pending cases. Indietments have not yet been

returned as to 5 proposed defendants in 5 cases referred to the Department of Justice in 1951. These are reflected only in the reeapltulatron of totals at the bottom of the table.

TABLE 35.-An is-year summary classifying all defendants in criminal cases

aereioped by the Commission--1934 to June 80, 1951

I

Number as to whom Number as Number Number Number cases were to whom

indicted convicted aequitted dismissed cases are by United

States pending

attorneys

Registered broker-dealers 1 (including principals of such firms)._._ .... _.____... 332 204 23 93 12

Employeesot such registered broker-dealers. III 56 15 36 4

Persons m general securities business but not as registered broker-dealers (includes prmerpals and employees) __•... ___._. ___ 692 350 57 254 31

All others '_. __... _._._. _..... _"_" _...•.. 998 525 166 237 70

TotaL .. .... .... ... _. 2,133 1,135 261 620 lI7

IIncludes persons registered at or prior to time of indictment. , The persons referred to in this column, whtle not engaged in a general business m seouritres, were almost

Without exception prosecuted for violations of law involving secunties transactions.

__ _____ __•___

" ___' _ __ __ __

'

_ _ __

__ __ __ __ __ ___ _" _ " ___

' __ __

__ ___ " _ ___ __••

'
SEVENTEENTH ~AL RE~ORT 279

TABLE 36.-An 18-year summary of all injunction cases tnstituted by the

Oommission 1984 to June 80, 1951, by calendar year

Calendar year

1934 _ _ _.

1935 ............•.....................

1936•.....................•............ _._ .

1937•........ _ _ _

1938 _ __ .

1939•...... _. ............•.....................

1940 _ _

1941. _ _ .

1942 . 1943 __ . __._. •..... .. _

1944._. •.. •... __._ .. __._. .. 1945__._ .. . __. ._. . _ 1946_. . . 1947 ..

1948

1949 . ._. 1950 . . .

1951 (to June 30) . ._. __

Total. . ...

Number of cases instituted Number of cases in which by the Oommisston and Injunetions were granted the number of defend- and the num ber of defend. ants involved. ants enjoined.'

Cases Defendants Cases Defendants

------ 7 24 2 4 36 242 17 56 42 116 36 lOS 96 240 91 211 70 152 73 153 57 154 61 165 40 100 42 99 40 112 36 90 21 73 20 54 19 81 18 72 18 80 14 35 21 74 21 57 21 45 15 34

20 40 20 47 19 44 15 26

25 59 24 55

27 73 26 71

11 31 10 25

590 1.740 541 1,362

SUMMARY

Cases Defendants

Aetions instituted _______________. _______. ____. ________________. ____. ________ 590 1, 740 Injunctions obtained .. 534 1,362 Actions pending ______________... ____________________________. _____:: :::: 7 • 19 Other dispositions , . .. _. 49 359

TotaL ________________. ___._. _____. _____________________________. ______ 590 1,740

I These columns show drsposition of cases by year of disposition and do not necessarily reflect the disposition of the cases shown as having been institnted in the same years.

2 Includes 7 cases which were counted twice in this column because injunctions agamst different defendants

in the same cases were granted in different years. 2 Includes 2 defendants in 2 cases in which injunctions have been obtained as to 11 codefendants. 'Includes (a) actions dismissed (as to 298 defendants); (b) actions drsoontmued, abated, vacated, aban- doned, or settled (as to 51 defendants); (c) actions m which judgment was denied (as to 7 defendants); (d) actions in which prosecution was stayed on stipulation to discontinue misconduct charged (as to 3 defen- dants).

o

_

_

_ • _

• _

_ • _

_ •

_______________ _____________________• ______

____-- _____ ___________________________ ___________