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24th/Annual Report

of the

)J"~' Securities and Exchange

Commission

Fiscal Year Ended June 30, 1958

UNITED STATES GOVERNMENT PRINTING OFFICE. WASHINGTON. 1959

For .ale by the Superintendent or Documents. U. S. GoYerDDlent Printing Omce

W.. ~n 25. D. C. - Price '75cents (paper coYer)
II

SECURITIES AND EXCHANGE COMMISSION

Headquarters Office

425 Second Street, N.W.

Washington 25, D. C.

COMl\fiSSIONERS /" (.')

January 5, 19~

EDWARD N. GADSBY, Chairman

ANDREW DOWNEY ORRICK

HAROLD C. PATI'ERSON

EARL F. fuSTINGS

JAMES C. SARGENT

ORVAL L. Dullors, Secretary

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LETfER OF TRANSMITrAL

/)

SEOURITIES AND EXOHANGE CoMMISSION, .~

washington,D.O.,January5,1989./A

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

the honor to transmit to you the Twenty-Fourth Annual Report of tl{e

Commission covering the fiscal year July 1, 1951, to June 30, 195~, in

accordance with the provisions of section 23 (b) of the Securities

Exchange Act of 1934, approved June 6, 1934; section 23 of the

Public Utility Holding Company Act of 1935, approved August 26,

1935; section 46 (a) of the Investment Company Act of 1940, approved

August 22, 1940; section 216 of the Investment Advisers Act of 1940,

approved August 22,1940; and section 3 of the act of June 29, 1949,

amending the Bretton Woods Agreements Act.

Respectfully,

EDWARD N. GADSBY,

Uhairmam.

THE PRESIDENT OF THE SENATE,

THE SPEAKER OFTHE HOUSE OF REPRESENTATIVES,

Washitngton,D. O.

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TABLE OF CONTENTS

Page

Forevvord_________________________________________________________ xi

Commissioners and staff officers, ____________________________________ xii

Regional and branch offices , ___________________________________ _____ xiii

Biographies of commissioners .______ xiv

PART I

CURRENT ENFORCEMENT PROBLEMS AND PROGRAl\L

The problem of "boiler rooms" _______________ ___________________ 2

Sales of unregistered securities based on claimed exemptions; _______ 3

Evasion of registration requirements through the "no sale" theory___ 5

Promotional stocks __ __________________________________________ 5

Manipulation of the securities markets., __________________________ 6

Stop order and suspension proceedings for new issues_______________ 7

Broker-dealer inspections, ______________________________________ 7

Summary____________________________________________________ 8

PART II

LEGISLATIVE ACTIVITIES_ ___________ ___________________ 9

Statutory amendments proposed by the Commission, ______________ 9

Other legisla ti ve proposals, __________________ ___________________ 10

Congressional hearings _________________________________________ 11

PART III

REVISION OF RULES AND FORMS .________________ 14

The Securities Act of 1933:

Proposed revision of rule 133________________________________ 14

Amendment of rules 134 and 433____________________________ 15

Proposed rule changes relating to assessable stock, ____ 16

Amendment of rule 16L __________ ___ _________ 17

Amendments to Regulation A . ___ _______________ 17

Revision of Forms 8-2 and 8-3______________________________ 18

Amendment of Forms 8-4 and 8-5 _ _________________________ 18

The Securities Exchange Act of 1934:

Amendment of rule 15b-8_ _________________________________ 18

Adoption of rule 15d-20____ ________________________________ 18

Amendment of rule 17a-3_ _________________________________ 19

Amendment of rule 17a-5_ __ ____ ______ ____ ___ 19

Amendments to Form 8-C ._ _____ _____________ 20

Proposed amendments to Form 8-K_ ______ __ 21

Amendment to Form X-17 A-L_ _____________________ _ 21

The Public Utility Holding Company Act of 1935:

Rescission of rule 9_ _______ ___ 21

Amendment of rule 70 __ _ __________________________________ 22

The Investment Company Act of 1940;

Amendment of rule 5______________________________________ 22

Proposal to adopt rule 10F-3________________________________ 23

Proposal to adopt rule 22D-L ____ 23

Amendments to Form N-8B-L_____________________________ 26

V

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VI CONTENTS

REVISION OF RULES AND FORMS-Continued Page

Other Matters:

Amendments to statement of policy relating to investment com- pany sales Iiterature , ____________________________________ 26

Proposed amendment of rules regarding incorporation by reference.. 26

PAR'l IV

ADMINISTRATION OF THE SECURITIES ACT OF 1933________ 28

Description of the registration process:

Registration statement and prospectus ______________________ _ 28

Examination procedure________ ___ _____________ ____ 29

Time required to complete registration Co _ _ _ _ 29

Volume of securities registered; ________________ __ 30

Registration statements filed, ___________________________________ 32

Results obtained by the registration process_____ __________________ 34

Stop order proceedings. ____________ __ ____ ____ 35

Examinations and investigations_________________________________ 41

Exemption from registration of small issues, ______________________ 41

Exempt offerings under Regulation A, 42

Suspension of exemption____________________________________ 43

Exempt offerings under Regulation B________________________ 45

Litigation under the Securities Act of 1933________________________ 46

Litigation involving violations of registration and anti-fraud

r........ provisions_ -__ 46 I'A ~ ..gubfle8fl8 8B€orQQHlefl:L - ----------------------------------- 53 \ J / mae, lit.l{!;atl6n:-___________________________________________ 54

PART V

ADl\IINISTRATION OF THE SECURITIES EXCHANGE ACT OF

1934___________________________________________________________ 56

Regulation of exchanges and exchange trading____________________ 56

Registration and exemption of exchanges_____________________ 56

Disciplinary actlonsr. , , _ _____ __ _ 56

Commission rate study ____ __ __ _ 57

Registration of securltles on exchanges , __________________________ 57

Statistics Relating to Registratiou, __________________________ 58

Market value of securities traded on exchanges____________________ 59

Assets of companies with listed common stocks________________ 60

Foreign stock _____________________________________________ 61

Comparat.ive over-tho-counter statistics., _ ____________________ 61

Delisting of securities from exchanges____________________________ 62

Delisting proce-edings under section 19 (a)____________________ 64

Unlisted trading priv ileges on exchanges__________________________ 71

Unlisted trading categories_____ _____________ _____________ 71

Volume of unlistod trading in stocks on excbanges_____________ 72

Ap-plications for unlisted trading privilegea.c , , ________ _____ 72

Block distributions reported by exchanges , 73

Manipulation and stabillsation., _________________________________ 74

Manipulation 74

Stabilization______________________________________________ 76

Insiders' security transactions and holdings _______________________ 76

Recovery of short swing trading profits by issuer _ _____________ 78

- - __-- - - - - - _- -- - __- - - - - __- - - - _--- - __- - _

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-- - - _______ __
CONTENTS vn

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF Page

1934-Continued

Regulation of proxies , _ _________________ __ _________________ 79

Scope of proxy regulation___ ________________________________ 79

Statistics relating to proxy statements __ __ ___________________ 79

Stockholder proposals; _____________________________________ 80

Ratio of soliciting to non-soliciting eompanles . ________________ 80

Proxy contests____________________________________________ 80

Regulation of broker-dealers and over-the-counter markets__________ 81

Registration ___ ___________________________________________ 81

Administrative proceedings _________________________________ 81

Net capital rule ___________________________________________ 90

Financialstatements_______________________________________ 91

Broker-dealer inspections_____ _______________ _ 92

Supervision of activities of National Association of Securities Dealers,

Inc________________________________________________________ 94

Disciplinary actions__________ ___ ________________________ 95

Commission review of NASD disciplinary actioll_______________ 96

Commission review of N ASD action on membership , _ _________ 98

Litigation under the Securities Exchange Act of 19:H ___ ___________ 99

Anti-fraud litigation _______________________________________ 100

Cases involving the net capital rule__________________________ 101

Delisting cases ____________________________________________ 102

Litigation involving broker-dealer registration and reporting

requirements____ ____ ________________ lO:{

Proxy litigation ___________________________________________ 104

Participation as amicus curiae.i, , ____________________________ 105

PART VI

ADMINISTRATION OF THE PUBLIC UTILITY HOLDI:\G

COMPANY ACT OF 1935_ _ __________________________ 107

Composition of registered holding company systems-summary of

changes____________________________________________________ 107

Developments in individual registered systems; ___________________ 110

Financing of registered public utility holding company systemstrends in electric and gas utility industriea.,., ____________________ 124

Protective provisions of first mortgage bonds and preferred stocks of

public utility companies , _____________________________________ 128

PART VII

PARTICIPATION OF THE COMMISSIOX IN CORPORATE Rf;-

ORGANIZATIONS UNDER CHAPTER X OF THE BAXKRUPTCY

ACT, AS AMENDED__________________________________________ 1:{2

Summary of aetivitiea.; . ____ ________ ________ 1;{3

The Commission as a party to proceedings________________________ 133

Procedural matters , ___ __ _ ___________________ 134

Trustee's investigations ___ _____________________________________ 136

Problems regarding protective commlttees , _ __________________ 137

Activities with regard to allowanoes.L, , __________________________ 138

Advisory reports on plans of reorganization_______________________ 141
vm CONTENTS

PART VIII Page

AD~nI:\ISTRATION OF THE TRUST INDENTURE ACT OF 1939__ 145

PART IX

ADMINISTRATION OF THE INVESTMENT COMPANY ACT OF

1940___________________________________________________________ 146

Companies registered under the Act______________________________ 146

New companies registered and registrations terminated_____________ 147

Growth of investment company assets___________________________ 147

Study of size of investment companies; __________________________ 147

Inspection program, ___________________________________________ 148

Current information , __________________________________________ 150

Applications and proceedings_____ _______________________________ 150

Registration of foreign investment companies_____________________ 155

Unregistered investment companies-securing compliance with the

Investment Company Act- ____ ___ _ 156

Litigation under the Investment Company Act of 1940_____________ 158

PART X

ADl\II7\ISTRATION OF THE INVESTMENT ADVISERS ACT OF

1940___________________________________________________________ 160

Administrative proceedlngs..; _ _____________ _______ __ 161

Litigation under the Investment Advisers Act of 1940_____________ 161

PART XI

OTHER ACTIVITIES OF THE COMMISSION____________________ 163

Court proceedings, ____________________________________________ 163

Civil proceedings; _________________________________________ 163

Criminal prooeedinga.c.,., ______________________________ __ 163

Disciplinary proceedings against persons practicing before the Commmsion_____________________________________________________ 174

Complaints and investlgations.L.L, ______________________________ 175

Enforcement problems with respect to Canadian securities, _________ 177

Section of securities violations .; , _______ ______________________ 180

Activities of the Commission in accounting and auditing____________ 181

Opinions of the Commission; _ __________________________________ 187

Applications for non-disclosure of certain information ______________ 188

Statistics and special studies; ___________________________________ 188

Public dissemination of inforrnation..., ____________________________ 191

Information available for public Inspeetion.c ,., ________________ 193

Publioations.. ________ _______________ ___________ _____ 194

Organization__________________________________________________ 195

Personnel, Budget and Finance.; , __ _ _____ __________ 195

Personnel program.L , , ___ _ ________________________ 196

Canons of ethics for members of the Commission______________ 199
CONTENTS

PART XII

APPENDIX-STATISTICAL TABLES

IX

Page

Table 1. A 24-year record of registrations fully effective under the Securities Act of 1933_______________________________________ __ 203

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

fiscal year 1958_ _ _ _ __ _ ___ 204

Part 1. Distribution by months, 204

Part 2. Purpose of registration and type of security _____________ 204

Part 3. Purpose of registration and industry of registranL__________ 205

Part 4. Use of proceeds and industry of registrant, ________________ 206

Table 3. New securities offered for cash sale in the United States________ 207

Part 1. Type of offering________________________ 207

Part 2. Type of security________________________________________ 208

Part 3. Type of issuer_____ ___ _______________________________ 209

Part 4. Private placement of corporate securities__________________ 210

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

securities offered for cash in the United States______________ 211

Part 1. All corporate___________________________________________ 211

Part 2. Manufacturing., , ___ ______________________________ 211

Part 3. Mining______ ___ ___________________________________ 212

Part 4. Electric, gas, and water_________________________________ 212

Part 5. Railroad., __ __ _ __ 213

Part 6. Other transportation____________________________________ 213

Part 7. Communlcation, _______________________________________ 214

Part 8. Financial and real estate , _______________________________ 214

Part 9. Commercial and otbE'r__________________________________ 215

Table 5. Summary of corporate securities publicly offered and privately

placed from 1934 through June 1958_______________________ 216

Table 6. Suspension orders issued pursuant to Regulation A under the

Securities Act of 1933 during the fiscal year 1958___________ 217

Table 7. Brokers and dealers registered under the Securities Exchange Act

of 193~effective reglstrations as of June 30, 1958, classified

by type of organization and by location of principal office, ___ 221

Table 8. Number of issuers and security issues on exchanges, as of June

30, 1958________________________________________________ 222

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

trading on all exchanges and number of issuers Involved.L; 222

Part 2. Number of stock and bond issues on each exchange and number of issuers involved________________________________ 222

Table 9. Unlisted stocks on securities exchanges_______________________ 223

Part 1. Number of stocks as of June 30,1958_____________________ 223

Part 2. Volume of trading-calendar year 1957____________________ 223

Table 10. Market value and volume of sales effected on securities exchanges in the 12-month period ended December 31, 1957,

and the 6-month period ended June 30, 1958______________ 224

Table 11. Block distributions , _______________ ____ _____________ 225

Table 12. Comparative share sales and dollar volumes on exchangea.Lc 226

Table 13. Reorganization proceedings in which the Commission participated during the fiscal year 1958_________________________ 227

Table 14. Summary of cases instituted in the courts by the Commission, 228

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Table 15.

Table 16.

Table 17.

Table 18.

Table 19.

Table 20

Table 21.

Table 22.

Table 23.

Table 24.

Table 25.

Table 26.

Table 27.

Table 28.

Table 29.

Table 30.

CONTENTS

Summarv of cases instituted against the Commission, cases in

which'the Commission participated as intervenor or amicus

curiae, and reorganization cases on apneal under Chapter X

in which the Commission participated

Injunctive proceedings brought by the Commission which were

pending during the fiscal year 1958_- -_ -- -- -- -- ---- -- -- ---

Indictments returned for violation of acts administered by the

Commission and related Federal statutes which were pending

during the fiscal year 1958

Petitions for review of orders of the Commission which were

pending in courts of appeals during the fiscal year 1958

Contempt proceedings pending during the fiscal year 1958

Cases in which the Commission participated as intervenor or as

amicus curiae pending during the fiscal year 1958

Proceedings by the Commission to enforce subpoenas pending

during the fiscal year 1958

Miscellaneous actions involving the Commission or its employees pending during the fiscal year 1958

Actions to enforce voluntary plans under seetion 11 (e) of the

Public Utility Holding Company Act pending during the

fiscal year 1958

Actions under section 11 (d) of the Public Utility Holding Company Act pending during the fiscal year 1958

Reorganization cases under Chapter X of the Bankruptcy Act

pending during the fiscal year 1958 in which the Commission

participated when district court orders were challenged in

appellate courts

A 25-year summary of criminal cases developed by the Com- mission

Summary of criminal cases developed by the Commission which

were still pending on June 30, 1958

A 25-year summary classifying all defendants in criminal eases developed by the Commission

A 25-year summary of all injunction eases instituted by the

Commission

Canons of Ethics for Members of the Securities and Exchange Commission

Page

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247

248

249

251

252

253

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FOREWORD

This 24th Annual Report of the Securities and Exchange Commission to the Congress for the fiscal year July 1, 1957 to June 30, 1958

describes the Commission's activities during the year in discharging its

duties under the statutes which it administers. These include supervision of the registration of securities for sale to the public by the use

of the mails and in interstate commerce, enforcement of the anti-fraud

provisions of the federal securities laws, surveillance of the exchange

and over-the-counter markets in securities, regulation of the activities

of brokers and dealers and investment advisers, and regulation of

registered public utility holding company systems and investment

companies.

In the fiscal year 1958 new issues of securities registered for public

sale totalled $16.5 billion, the largest amount in the Commission's history. The amount of such issues has increased at least $1.5 billion in

each year since 1953, when the total amount registered was $7.5 billion,

less than half the present amount.

With a continued high level of financial activity in the security

markets, the Commission has continued an intensified enforcement

program of discovering, preventing and punishing fraudulent and

other illegal activities in securities transactions. An important aspect

of this enforcement program during the fiscal year was an increase of

approximately 20% in the number of inspections conducted of securities brokers and dealers registered with the Commission.

During the fiscal year the Commission submitted to the Congress

proposals for a comprehensive revision of various of the acts which

it administers. These proposals were described in the Commission's

23rd Annual Report. Additional legislative proposals of the Commission, as well as other bills affecting the Commission, are discussed

in this report.

All phases of the Commission's activities have been under study

during the fiscal year by the Special Subcommittee on Legislative

Oversight of the House Committee on Interstate and Foreign Commerce. The Commission has endeavored to cooperate fully with the

Subcommittee in its work. At its request, the Chairman, members of

the Commission and members of the staff have appeared before it and

a substantial amount of information requested by the Subcommittee

has been supplied.

XI ~
COMMISSIONERS AND STAFF OFFICERS

(As of October IS, 1958)

Term ezpir68

Commissioners June 5

EDWARD N. GADSBY of Massachusetts, Ohairman_________________________ 1963

ANDREW DOWNEY ORRICK of California_________________________________ 1962

HAROLD C. PATTERSON ofVirginia 1960

EARL F. HASTINGS of Arizona__________________________________________ 1959

JAMES C. SARGENT of New York________________________________________ 1961

Secretary : ORVAL L. DuBOIS

Staff Officers

ALBERT K. SCHEIDENHELM, Executive Director.

CHARLES T. KAPPLER. Associate Executive Director!

BYRON D. WOODSIDE,Director. Division of Corporation Finance.

SHARON C. RISK, Associate Director.

JOSEPH C. WOODLE, Director, Division of Corporate Regulation.

JOHN E. LOOMIS, Associate Director.

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

RALPH S. SAUL, Associate Director.'

THOMAS G. :MEEKER, General Counsel.

DANIEL J. :MCCAULEY, Jr., Associate General Counsel.

ANDREW BARR, Chief Accountant.

LEONARDHELFENSTEIN. Director, Office of Opinion Writing.

W. VICTOR RODIN. Associate Director.

1Designated Associate Executive Director, July 1, 1958.

Designated Augnst 4, 1958.

XII

•
REGIONAL AND BRANCH OFFICES

Regional Administrators

Region 1. New York, New Jersey.-Paul Windels, Jr.; Edward Schoen, Jr.,

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

Region 2. Massachusetts, Connecticut, Rhode Island, Vermont, New Hampshire, Maine.-Philip E. Kendrick, United States Post Office and Courthouse, Post OfficeSquare, Boston 9, Massachusetts.

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

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

Atlanta 9, Georgia.

Region 4. Illinois, Indiana, Iowa, Kansas City (Kansas). Kentucky, Michigan, Minnesota, Missouri, Ohio, 'Visconsin.-Thomas B. Hart, Bankers

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

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

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

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

Fort Worth 2, Texas.

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

South Dakota, Utah.-Milton J. Blake, 802 Midland Savings Building,

44417th Street, Denver 2, Colorado.

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

Pacific Building (Room 339), Fourth and Market Streets, San Francisco

3, California.

Region 8. Washington, Oregon, Idaho, Montana, Alaska.-James E. Newton, 905 Second Avenue Building (Room 304), Seattle 4, Washington.

Region 9. Pennsylvania, Maryland, Virginia, "'est Virginia, Delaware, District of Columbia.-William J. Crow, Courts Building, 310 Gth Street,

NW., Washington 25, D. C.

Branch Offices

Cleveland, Ohio. Standard Building (Room 1628), 1370 Ontario Street.

Detroit, Michigan. Federal Building (Room 1074).

Houston, Texas. First National Bank Building (Room 324), 201 Main

Street.

Los Angeles, California. Guaranty Building (Room 309), 6331 Hollx wood

Boulevard.

Miami, Florida. Plaza Building (Room 440), 245 South East First Street.

St. Louis, Missouri. Arcade Building (Room 1025), 812 Olive Street.

St. Paul, Minnesota. Main Post Office and Courthouse (Room 1027), 180

East Kellogg Boulevard.

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

xm
COMMISSIONERS

Edward N. Gadsby, Chairman

Chairman Gadsby was born in North Adams, Mass., on April 11,

1900. He received an A. B. degree from Amherst College in 1923

and a J. D. degree from the New York University School of Law in

1928. From 1929 to 1937 he was associated with the law firm of

Mudge, Stern, Williams & Tucker of New York City. From 1937

to 1947 he practiced law in North Adams, Mass. In 1947 he was

appointed a Commissioner of the Massachusetts Department of Public

Utilities and held that position until 1952, serving as Chairman from

1947 to 1949. From 1952 to 1956 he served as General Counsel of

the Massachusetts Department of Public Utilities and thereafter was

u member of the law firm of Sullivan & Worcester of Boston, Mass.

On August 20, 1957, he took office as a member of the Securities and

Exchange Commission for a term expiring June 5, 1958 and was

designated Chairman of the Commission. He was reappointed effective June 5, 1958 for a term expiring June 5, 1963 and was again

designated as Chairman.

Andrew Downey Orrick

Commissioner Orrick was born in San Francisco, Calif., on October 18, 1917. He received his B. A. degree from Yale College in

1940 and an LL. B. degree from the University of California (Hastings College of Law) in 1947. From 1942 to 1946 he was on active

duty with the United States Army and was separated from the

service as a captain in the Transportation Corps. After being admitted to practice in California in 1947 he was associated with the

law firm of Orrick, Dahlquist, Herrington & Sutcliffe, in San Francisco, until February 1954, when he became Regional Administrator

of the San Francisco Regional Office of the Securities and Exchange Commission. He served in that capacity until May 25, 1955,

when he was sworn in as a member of the Commission for a term of

office expiring June 5, 1957. On June 12, 1957, he was reappointed

as a member of the Commission for a term of office expiring June 5,

1962. During the periods from :May 27, 1957 to June 6, 1957 and

from June 12, 1957 to August 20, 1957 he was designated as Acting

Chairman of the Commission.

XIV
COMMISSIONERS

Harold C. Patterson

xv

Commissioner Patterson was born in Newport, R. 1., on March 12,

1897, and attended public schools in Massachusetts and Maryland.

He attended George Washington University after graduating from

Randolph Macon Academy. In 1918 he enlisted in the United States

Naval Reserve for service in WorId War I, was commissioned ensign,

United States Naval Reserve, in 1918; in June 1919 commissioned

ensign United States Navy; and resigned in 1923. Prior to 1954, he

had for many years been a partner of Auchinc1oss, Parker & Redpath,

members of the New York Stock Exchange, in \Vashington, D. C.

He resigned from the firm June 1, 1954. He served as a Board Member of the National Association of Securities Dealers, Inc., and was

active over the years in its securities industry policing work. On

June 15, 1954, he was appointed Director of the Division of Trading

and Exchanges of the Securities and Exchange Commission and

served in that capacity until August 5, 1955, when he took office as

a member of the Commission for a term of officeexpiring June is, 1960.

Earl F. Hastings

Commissioner Hastings was born in Los Angeles, Calif., on April

27, 1908, and resides in Glendale, Ariz. He attended Texas Western

University and the University of Denver. He is a registered professional engineer. During the years 1932 to 1941 he served as a consulting engineer with mining and industrial firms. From 1941 to 1942

he worked with Hawaiian constructors on a military installation on

Oahu, T. H. From 1942 to 1947 he served in various engineering and

managerial capacities. At that time he became a general partner of

the firm, Darlington, Hastings & Thorne, which served as industrial

consultants and managers. In 1949 he was appointed Director of

Securities, Arizona Corporation Commission, Phoenix, and he served

in that capacity until March 1, 1956, when he was appointed a member of the Securities and Exchange Commission for a term of office

expiring June 5, 1959.

James C. Sargent

Commissioner Sargent was born in New Haven, Conn., on February 26, 1916, and holds degrees of B. A. and LL. B. from the University of Virginia. He was admitted to the New York Bar in 1940 and

became associated with the firm of Clark & Baldwin, New York City.

From January 1941 to July 1951, except for military service, he was

employed as a trial attorney by Consolidated Edison Company of

New York. He enlisted in the United States Army Air Force in

1942 and served in this country as an Air Intelligence school instructor and as a combat and special intelligence officer in the South-
XVI COMMISSIONERS

west Pacific. He was separated to inactive duty in January 1946

with the rank of captain. In the fall of 1948,he served as an Assistant

Attorney General of the State of New York in the Election Frauds

Bureau in New York City. From July 1951 to August 1954 he was

employed as law assistant to the Appellate Division, First Department, Supreme Court, State of New York. He was associated with

the firm of Spence & Hotchkiss, New York City, from August 1954

until November 1955. In November 1955he was appointed Administrator of the Commission's New York Regional Office. He served

in that capacity until June 29,1956, when he was sworn in as a member

of the Commission for a term of officeexpiring June 5, 1961.
PART I

CURRENT ENFORCEMENT PROBLEMS AND PROGRAM

A stated purpose of Congress in enacting the Federal securities laws

was to provide full and fair disclosure with respect to securities sold

in interstate and foreign commerce and to prevent fraud and inequitable and unfair practices in the securities markets. Under present conditions, the enforcement program of the Commission is an

essential instrument in attaining these objectives. That program has

been carried out, under the day-to-day direction of the Commission,

by its operating divisions in Washington and by its nine regional

and eight branch officesin principal cities throughout the country.

Recent years have witnessed a continuing surge of interest and

activity in the securities markets without parallel under the depressed

conditions of the thirties or under the circumstances of war and reconversion. Despite recent fluctuations in business volume, the dollar

amount of new securities registered with the Commission in fiscal

1958 totaled $16.5 billion-the largest amount in the history of the

Commission. This compares with $7.5billion of new financing during

fiscal 1953and $6.4billion in fiscal 1948. The aggregate market value

of all stock on all stock exchanges, which never exceeded $100 billion

between 1933 and 1945,was $250billion at June 30, 1956,$262 billion

at June 30, 1957 and $258 billion at June 30, 1958.

The increased activity in the securities markets has reflected in part

the extraordinary increase in the number of holders of shares in publicly owned corporations. The number of holders of shares of publicly owned corporations was estimated by the New York Stock Exchange to have increased from 6,490,000in early 1952 to 8,650,000at

the end of 1955and has further increased since then.

The size of the securities markets is reflected in the fact that

there were on June 30,1958,4,752 broker-dealers and 1,562investment

advisers registered with the Commission, 2,997 stock issues traded

on stock exchanges and approximately 4,500 stock issues (excluding

investment company issues) each having more than 300 stockholders

which are traded over-the-counter. There are also thousands of

smaller issues which trade to some extent in the over-the-counter

market.

Conditions such as these have now persisted for several years and

produced enforcement problems of the first magnitude for the Com1 486867-59-2
2 SECURITIES AND EXCHANGE COMMISSION

mission. These conditions have attracted into the securities field a

fringe element of confidencemen who are determined to take whatever

advantage they can of the American public. The operations of these

confidence men have been encouraged by the expectations of a substantial segment of the public that it is possible for the unsophisticated

investor to reap large and quick profits in the securities markets. Uninformed investors are often willing to purchase unknown and speculative securities which are represented as offering unusual opportunities for gain.

Indeed, somewhat paradoxically, declines in the prices of seasoned

securities may increase the public appetite for such speculative offerings. Conditions in the capital market have been favorable for

mergers, acquisitions and programs of expansion, including not only

the great majority which result from legitimate economic forces, but

also a substantial number which appear to be designed largely to reap

profits for promoters and speculators at the expense of the public.

Opportunities for illicit profit by the illegal or fraudulent sale of

securities have multiplied, and inevitably the number, resources and

ingenuity of violators seeking to capitalize upon these opportunities

have likewise multiplied.

Illustrative of the enforcement problems now confronting the Commission are the matters briefly summarized below:

THE PROBLEM OF "BOILER ROOMS"

The term "boiler room", which unfortunately has become quite

familiar in the last few years, refers to an organization engaged in the

sale of securities primarily over the telephone, particularly the longdistance telephone, by high pressure methods ordinarily accompanied

by misrepresentation, deception and fraud. Such organizations generally concentrate on the distribution of one or a few issues of speculative securities at a time, seeking to sell these issues in quantity by

whatever misrepresentations are necessary to make a sale.

The "boiler room" continues to raise difficult enforcement problems

but these have recently taken a somewhat different form. Most of the

larger "boiler rooms" have disappeared due to the vigorous enforcement program of the Commission and state agencies. In the place

of the old-fashioned "boiler room" has appeared a group of small

firms which spring up suddenly, sell one or two spurious issues quickly

and then disperse, their fraudulent purpose accomplished. This

method of operation has made speed and alertness on the part of the

Commission and its staff essential to enforcement activities.

The operators of these small "boiler rooms" have recently shown

a tendency to operate not only in the large financial centers but also

in other locations around the country. There has been a noticeable
TWENTY-FOURTH ANNUAL REPORT 3

increase, for example, in migratory operators moving from state to

state, particularly in the Western part of the country. Not infrequently, long-distance telephone salesmen work out of hotel rooms,

apartments and alleged business offices. Extensive use is made of intermediaries, often in foreign countries, to conceal the nature of transactions and the identity of individuals. Payments are often made in

cash rather than by check.

The Commission has utilized all available enforcement techniques to

meet the problem. It has found, however, that resort to the civil injunction and administrative proceeding, no matter how vigorously

employed, is not completely effective in halting the operation of "boiler

rooms". The Commission believes that imposition of the sanctions

resulting from a criminal prosecution is necessary to stop effectively

this "cancerous diffusion". In carrying out its statutory duties, the

Commission will continue to press for criminal prosecution of

violators of the Federal securities laws where the facts warrant such

prosecution.

In addition to its enforcement powers the Commission has sought

through the dissemination of information to alert the investing public

to the risks involved in the purchase of securities from unknown highpressure telephone salesmen. In the last resort the problem of "boiler

rooms" can be eliminated only if the investing public in dealing with

unknown stock salesmen evaluate their representations with an attitude of hard-headed skepticism.

SALES OF UNREGISTERED SECURITIES BASED ON CLAIMED

EXEMPTIONS

It appears that a substantial but undetermined number of securities

have been sold in violation of the registration, prospectus and antifraud provisions of the Securities Act of 1933 pursuant to claimed

exemptions from registration which in fact were not available.

These sales have been made, in the main, under claims to exemption

based upon the intrastate exemption of section 3 (a) (11) and the

so-called "private offering" exemption of section 4 (1) of the Act.

The improper use of these exemptions to evade registration requirements usually occurs where an issue, or the sales procedures to be

employed, would not stand the light of the full disclosure requirements of registration. The Commission ordinarily learns of these

offerings only after they have been commenced and has no means of

ascertaining whether or not the exemption is available except by initiating an investigation. The staff of the Commission is now studying measures for remedying this situation, some of which may involve

legislative proposals to the 86th Congress.
4 SECURITIES AND EXCHANGE COMMISSION

Various devices have been employed in an effort to evade registration by abuse of the intrastate exemption under section 3 (a) (11) of

the Securities Act of 1933. The issuer may attempt to use a resident

of the state as a nominee for non-resident beneficial owners, or the

alleged sales to residents may be merely a step in a planned distribution in interstate commerce.

One of the most frequently used devices to bring a distribution

within the "private offering" exemption is the use of the so-called

"investment intent" letter given by purchasers. In some cases an attempt is made to evade the basic policy of registration under the Securities Act by the technique of mechanically obtaining "investment

intent" letters from successive groups of purchasers when, in fact,

these purchasers buy with a view to distribution.

Further complicating the Commission's problems in this area has

been the fact that an increasingly large number of securities claimed

to have been issued pursuant to these exemptions have been transferred to United States citizens through Canadian, Swiss, Lichtenstein and other foreign financial institutions. When this occurs the

Commission has been handicapped in tracing transactions and determining the facts upon which the proof of availability or non-availability of the claimed exemption depends, particularly where the laws

of a particular foreign country preclude disclosure of the pertinent

information. There is reason to believe that in many instances these

channels are utilized for the deliberate purpose of complicating or

frustrating the Commission's enforcement effort although there is no

evidence of complicity on the part of foreign banks which may be

involved.

The Commission ordinarily receives no notice of a distribution for

a foreign account unless and until the matter comes to its attention

either as a result of a complaint from a public investor or in the

course of its inspection or investigation work.

In order to cope with illegal distributions made through the use

of such foreign devices, the Commission has recently proposed a rule

requiring members of national securities exchanges and brokers and

dealers to report to the Commission orders received from non-resident

persons to purchase a significant amount of a security as well as

purchases of a significant amount of a security from a foreign

source, if the purchase is made for the account of the member, broker

or dealer or is made for the account of any other person who, to the

knowledge of the member, broker or dealer, proposes to sell or is

selling the securities in the United States.' A rule of this nature

would give the Commission prompt notice of significant transactions

for foreign accounts, insofar as brokers and dealers in the United

1Securities Exchnnge Act Relense No. 5774.
TWENTY-FOURTH ANNUAL REPORT 5

States are involved in the transactions, and this in turn should facilitate the efforts of the Commission to deal more effectively with illegal

distributions of securities through foreign sources.

EVASION OF REGISTRATION REQUIREMENTS THROUGH THE

"NO-SALE" THEORY

Under Rule 133,which embodies an interpretation of long standing,

the issue of securities in connection with certain types of corporate

mergers, consolidations, reclassifications of securities and acquisitions

of corporate assets is not deemed to constitute a "sale" of securities

to stockholders of corporate parties to the transactions. This rule

has the effect of exempting issues of securities in these transactions

from the registration requirements of the Securities Act. Ithas been

relied upon in a very large number of corporate transactions consummated without registration of the securities involved. A substantial number of transactions ostensibly entered into under the rule

may, in fact, involve violations of the registration requirements.

The Commission considers that Rule 133 provides no exemption

from the registration and prospectus requirements of the Securities

Act with respect to any public distribution of securities received in

such a transaction by a security holder who may be deemed to be a

statutory underwriter. Recently the staff of the Commission proposed an amendment to Rule 133 designed to restate the purpose and

effect of that rule and to clarify its application and Iimitations." The

Commission has published the proposed amendment for comment by

all persons having an interest in the matter. The staff of the Com.

mission also is preparing a proposed form for registration of securities publicly distributed following transactions of the character

referred to in the rule, in order to simplify compliance with the registration requirements in such cases. Such a form may permit the use

of a prospectus in the form of a proxy statement meeting the requirements of Regulation 14 under the Securities Exchange Act of 1934

where such proxy statement has been employed in connection with the

transaction under Rule 133 supplemented by certain necessary additional information.

PROMOTIONAL STOCKS

Recent economic conditions have been relatively favorable for the

sale of promotional stocks of new ventures, particularly in fields in

which the securities of established enterprises have shown marked

gains. For example, many new insurance and finance ventures have

been promoted, particularly in the South Central, Southwestern,

and Southeastern parts of the country, and their securities have been

• Securities A.ct Release No. 3965.
6 SECURITIES AND EXCHANGE COMMISSION

distributed interstate either through registration or under Regulation

A or, more commonly, in reliance upon the intrastate exemption.

Many of these issues and the sales techniques employed in their distribution appear to involve abuses and possible violations of the antifraud and other provisions of the Securities Act or the Securities

Exchange Act, which require extensive investigation. The large

number of these promotions and the rapidity with which they have

increased has placed most serious burdens on the Commission's

field enforcement personnel charged with the conduct of such

investigations.

MANIPULATIONOF THE SECURmES MARKETS

Increased activity on the Nation's securities markets has tempted

some to engage in manipulation of these markets. Devious schemes

may be employed to conceal both the fact of a manipulation and the

identity of the persons actually responsible. These include schemes

to increase the quoted over-the-counter prices for relatively obscure

issues being distributed without registration in reliance upon some

exemption, or the creation of fictitious markets for such issues. Such

schemes are not uncommon in connection with distributions effected

by "boiler rooms". These activities when conducted with ingenuity

through numerous intermediaries are difficult to detect. Persons engaged in, or proposing, a distribution of a security not outstanding

in the hands of the public may place orders for the purchase and

sale of small amounts of a security with numerous brokers and dealers,

or arrange to have others do this, with the result that such brokers

and dealers will publish quotations for the security at prices specified

in the orders, thus creating the appearance of an active over-thecounter market for the security, when in fact no such market exists

except as generated by the distributors. Wnen the distribution is

completed the orders are withdrawn and the "market" disappears.

Other apparent manipulations have occurred in issues in which

there is a substantial public stockholder interest, particularly issues

of companies engaged in expansion and diversification programs designed largely to reap profits for promoters and speculators at the

expense of the public. Here the motive is to facilitate the financing

of such programs, or to make the issuer's stock more attractive as a

mechanism of payment for other businesses, by creating the appearance of an active and rising market in such stock. The techniques

employed are various, including the dissemination of favorable information, the placing of buy orders at strategic moments and prices

so as to have the stock close each day with a rise, and encouraging

others to buy by giving them assurances against loss or lending money

to finance the purchase. Efforts are, of course, made to conceal the

identity of the persons ultimately responsible for the activity.
TWENTY-FOUR'l'H ANNUAL REPORT 7

The investigation and prosecution of a manipulation case requires

careful and painstaking work usually over a period of many months.

Investors must be identified and interviewed. Books and records of

brokers, dealers and others must be examined and analyzed. The

information thus obtained then has to be developed in a form which

would permit its introduction in evidence in legal proceedings. That

this is a difficult matter is illustrated by the fact that one of the Commission's experienced investigators has been engaged for almost a

year in assisting the United States Attorney in preparing one of

these casesfor trial.

With the increasing tempo of activities in the securities markets,

the Commission has noted a growing number of instances of unusual

or unexplained market activity in particular securities. In some of

these cases a preliminary investigation has revealed that no violations

of law had occurred but in others the Commission has found it necessary to obtain an injunction or recommend criminal prosecution. The

Commission is much concerned with the increase in manipulative

activities and it is expected that it will be required to devote more of

its enforcement effort to this area.

STOP ORDER AND SUSPENSION PROCEEDINGS FOR NEW ISSUES

There continue to be numerous instances where issuers filing either

under the registration requirements of the Securities Act or under the

Commission's exemptive Regulation A do not appear to be making

an effort to comply in good faith with the disclosure and other

standards required for such filings. Consequently, it is necessary that

the Commission, for the protection of investors, institute stop order

proceedings or suspension orders. Each of these has been preceded

by an investigation and in many instances has required a formal administrative hearing. While the collection, presentation and analysis

of evidence imposes a substantial burden on the Commission's enforcement staff, nevertheless it has been possible in this way to prevent

the public sale of certain securities under circumstances likely to involve fraud upon the investing public.

BROKER-DEALER INSPECTIONS

Increased activity in the securities markets has also resulted in a

significant increase in the number of brokers and dealers. There were

4,752 registered broker-dealers on June 30, 1958 and the Commission

presently estimates that at the end of the fiscal year 1959 there will

be 4,900 registered broker-dealers. It is estimated that this number

will increase to 5,100 at the close of the fiscal year 19M. The Commission's concern with this increase in the number of registered brokers

and dealers arises from the fact that many of them are inexperienced
8 SECURITIES AND EXCHANGE COMMISSION

and un:familiar with the ethical and legal obligations owed to their

customers and that, therefore, there is a greater risk that injury may

result to public investors dealing with such persons. In order to

protect investors against possible abuses the Commission has intensified its broker-dealer inspection program. In the fiscal year 1958,

1,452inspections were completed-the greatest number since the Commission was organized.

SUMMARY

The Commission believes that an adequate and effective enforcement program is necessary not only to the discharge of its statutory

responsibilities but also, and perhaps more important, to the preservation of that investor confidencein the capital :formation process which

is so necessary to the continued progress and prosperity of an economy

based on the free enterprise system. To that end the Commission

has vigorously employed, and will continue to employ, all of its

enforcement weapons to protect the investing public.
PART n

LEGISLATIVE ACTIVITIES

Statutory Amendments Proposed by the Commission

In July and August 1957 the Commission submitted to the Congress

its proposals to amend an aggregate of 87 provisions of the Securities

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

Act of 1939, the Investment Company Act of 194:0and the Investment

Advisers Act of 1940. These proposals, together with requests for

hearings thereon, were submitted to the Committee on Banking and

Currency of the Senate and the Committee on Interstate and Foreign

Commerce of the House of Representatives, to which Committees was

assigned the duty of exercising watchfulness over the execution of

the securities laws by section 136 of the Legislative Reorganization

Act of 1946. The proposals were introduced in the Senate by Senator

Frank: J. Lausche of Ohio, the then Chairman of the Subcommittee

on Securities of the Committee on Banking and Currency, as S. 2544,

S. 2545, S. 2546, S. 2547 and S. 2796. Subsequently, they were introduced in the House of Representatives by Representative Oren Harris

of Arkansas, Chairman of the Committee on Interstate and Foreign

Commerce, as H. R. 9326, H. R. 9327, H. R. 9328, H. R. 9329 and H. R.

9330. The Senate bills were referred to the Committee on Banking

and Currency and the House bills to the Committee on Interstate and

Foreign Commerce. No action was taken on these bills by either

Committee.

The overall purpose of the Commission's proposals was to

strengthen the safeguards and protections afforded the public by

tightening the jurisdictional provisions, correcting certain inadequacies revealed through administrative experience and facilitating criminal prosecutions and other enforcement activities. A discussion of

the more significant of these proposals is contained in the Commission's

23rd Annual Report, pp. 10-12.

On March 18, 1958, the Commission also submitted to Congress

proposals to amend various sections of the Bankruptcy Act in the

form of nine draft bills filed with the Committee on the Judiciary of

the Senate and the Committee on the Judiciary of the House of Representatives,' These proposals are concerned with Chapters X and XI

1 For a discussIon ot the CommIssIon's duties under Chapter X of the Bankruptcy Act

see Part VII of thIs report.

9
10 SECURITIES AND EXCHANGE COMMISSION

of the Bankruptcy Act. Chapter XI affords a means of effecting a

composition of unsecured debts of debtors, including corporations.

Chapter X, on the other hand, affords a means for the reorganization

of corporations alone and has special safeguards to protect the interests of public security holders which are not provided in Chapter

XI. The more significant of the proposed amendments would permit

the Commission to appeal in a Chapter X proceeding if leave to appeal

is granted by the appropriate Court of Appeals; make Chapter XI of

the Bankruptcy Act unavailable to corporations whose outstanding

securities are beneficially owned by more than 100 persons; permit

the district judge to transfer proceedings brought under Chapter XI

of the Bankruptcy Act to Chapter X upon application of a party in

interest or the Commission, if the judge finds that the interest of

creditors and stockholders would best be served by a Chapter X proceeding; and allow the judge in a Chapter X proceeding to approve

a plan of reorganization which provides for less than full compensation to certain types of creditors, other than public investors, as is

now permitted in a proceeding under Chapter XI. '

These proposals were introduced in the House of Representatives

by Representative Emanuel Celler of New York, Chairman of the

Committee on the Judiciary as H. R. 11585-,H. R. 11586, H. R.

11587, H. R. 11588, H. R. 11589, H. R. 11590, H. R. 11591, H. R.

11592, and H. R. 11593 and were referred to the Committee on the

Judiciary. They were referred to the Judicial Council of the United

States Courts for review and a conference was held by the Commission with the Council in August, 1958, at Denver, Colo. No further

action was taken on these bills by the Congress.

The Commission expects to request further consideration of these

or similar proposals during the 86th Congress.

Other Legislative Proposals

H. R. 11050, introduced by Representative Abraham Multer of

New York, would remove the exemption provided by section 3 (a)

(11) of the Securities Act for a security offering confined to the residents of the state within which the issuer is both incorporated and

doing business. The Commission has not submitted its views on this

proposal. No hearings have been held on the bill.

H. R. 7671, which was introduced by Representative John Flynt

of Georgia and enacted into law, amends Section 116 (4) of Chapter

X of the Bankruptcy Act by depriving the district judge of power

to enjoin a lessor or conditional seller of aircraft equipment from

commencing a foreclosure action against an air carrier operating pursuant to a certificate of convenience and necessity issued by the Civil

Aeronautics Board. Since the assets of air lines consist principally of

equipment, the practical effect of the bill is to make reorganization
TWENTY-FOURTH ANNUAL REPORT 11

under Chapter X unavailable to certified corporate airline carriers

which lease their equipment or purchase it under conditional sales

contract. The Commission therefore filed a comment with the Congress opposing this hill, as well as a companion bill, S. 2205, introduced in the Senate by Senator John Butler of Maryland. The

Commission pointed out that the primary purpose of Chapter X

is to maintain the debtor as a going concern in order to protect the

public security holders, and that this is accomplished in part by

empowering the judge to restrain efforts to dismember the business

while the reorganization is in process.

The Commission devoted a substantial amount of time to matters

pertaining to other legislative proposals referred to it for comment.

During the fiscal year, a total of fifty-eight legislative proposals were

analyzed, as compared with thirty-three during the preceding fiscal

year. In addition, numerous congressional inquiries relating to matters other than specific legislative proposa:ls were received and

answered."

Congressional Hearings

Small Business Subcommittee of the Senate Committee on Banking and Currency.-On April 28, 1958,Chairman Gadsby and other

members of the Commission appeared before the Small Business

Subcommittee of the Senate Committee on Banking and Currency

which was considering a number of bills designed to furnish financial

assistance to small business," The Commission had previously furnished the Committee with comments on S. 2160,S. 2185, S. 2286 and

S. 3191 and consequently the Chairman restricted his comments to

S. 3643 and S. 3651 which were the focal point of the hearings. The

latter bills provided for the establishment of small business investment companies for the purpose of providing financial assistance to

small business concerns, and for the regulation of certain aspects of

the organization and management of such proposed investment companies. Under both S. 3643and S. 3651the small business investment

companies would be authorized to purchase convertible debentures of

small business concerns and would obtain funds with which to make

the purchase by issuing their own securities to the public and by

borrowing funds from the Federal government.

S. 3643 provided an outright exemption from the Securities Act

and the Investment Company Act for the proposed small business

investment companies. S. 3651 granted the Commission authority to

No action was taken In the second session or the 85th Congress with respect to the

proposals to Increase the registration fees under the Securities Exchange .Act or 1934 and

to Increase to '500,000 the exemptive limit or Section 3 (b) or the Securities Act or 1933

which were passed by the Senate and are discussed at pages 12-13 and 15 or the 23rd

Annual Report.

Hearings betore a Subcommittee or the Commlttes on Banking and Currency, United

States Senate, 85th Congress, 2d Session, April 21, 22, 23, 24, 25, 28, 29, 30 : May I, and 2,

1958, pp. 195-233.

•

•
12 SECURITIES AND EXCHANGE COMMISSION

exempt, by rule or regulation, from the provisions of the Securities

Act and the Trust Indenture Act, securities issued by the small business investment companies. The Commission opposed the exemptions

granted by S. 3643, pointing out the need for disclosure to investors

of information necessary for the formulation of an informed judgment

J,S to the investment merit of the securities of the small business investment companies offered to the public. With respect to S. 3651, it was

pointed out that the bill did not establish any definitive standards to

guide the Commission in the exercise of its discretionary exemptive

powers. The Commission was of the further view that the proposed

small business investment companies should be subject to the provisions

of the Investment Company Act, which provides needed additional

protections for investors (see Part IX infra). As S. 3651 was reported

out by the Committee on Banking and Currency and later passed by

the Congress, it made the small business investment companies subject

to the provisions of the Investment Company Act, except for section

18 of that Act, relating to asset coverage :for indebtedness. Authority

to grant exemptions :from the provisions of the Securities Act and the

Trust Indenture Act remained unchanged in the final draft.

Suhcommittee on Legislative Oversight of the House Committee

on Interstate and Foreign Commerce.-Since June 1957, all phases

of the Commission's activities have been under study and investigation

by the Special Subcommittee on Legislative Oversight o:f the House

Committee on Interstate and Foreign Commerce. The Subcommittee

was organized in 1957, after Speaker Rayburn had recommended that

the Committee on Interstate and Foreign Commerce set up a Subcommittee with authority to go into the administration of the laws by

agencies subject to the oversight of the House Committee on Interstate

and Foreign Commerce, "to see whether or not the law as we intended

it is being carried out or whether a great many of these laws are being

repealed or revamped by those who administer them." 4

The Chairman and members of the Commission, as well as several

members of the Commission's staff, appeared before the Subcommittee

during January and June of 1958. In addition, the Commission has

furnished the Subcommittee with answers to several detailed questionnaires. At least one attorney :from the Subcommittee's staff has

been working on matters involving this Commission on a full-time

basis since September 1957, and the Commission has :furnished working

space to the Subcommittee for the convenience of its staff. The Commission has cooperated with the Subcommittee in every possible way,

devoting approximately 10,000 man hours to the inquiry, which was

still pending at the end of the fiscal year.

• Congressional Record, February 5, 1957, p. 1383.
TWENTY-FOURTH ANNUAL REPORT 13

During its investigation the Subcommittee has inquired into various

matters including questions whether certain inadequacies exist in the

Acts administered by the Commission and budgetary limitations upon

the Commission's ability to act, its conduct of particular cases, its internal administrative policies, and its relationships with other

branches of government. During June and July of 1958, the Subcommittee conducted lengthy hearings on the conduct of the Commission

inthe case of S. E. O. v. The East Boston Oompany (reported at page

124 of the Twenty-Second Annual Report). The Commission appeared only once during these hearings,"

Since the end of the fiscal year the Commission made three additional appearances

before the Subcommittee on September 16, 17 and 18 to complete Its testimony In tbe

East Boston. Company case and to dtscuss other matters.

•
PART ill

REVISION OF RULES AND FORMS

The Commission maintains a continuous program of reviewing its

rules and forms under the various statutes administered by it in order

to determine whether any changes are appropriate in the light of

changes in techniques and conditions in the securities field. Certain

members of the staff are assigned the task of maintaining an overall

review of rules and forms, and the need for changes therein are

brought to the attention of the Commission. Changes are also suggested, from time to time, by other members of the staff who are

engaged in the examination of material filed with the Commission, as

well as by persons outside of the Commission, such as issuers and

underwriters and their attorneys, accountants or other representatives.

With a few exceptions provided for by the Administrative Procedure

Act, proposed new rules and forms and proposed changes in existing

rules and forms, are published in preliminary form for the purpose of

obtaining the views and comments of interested persons, including

issuers and various industry groups. During the 1958 fiscal year, the

Commission published a number of proposed changes for comment

and adopted certain other changes in its rules and forms. These are

described below.'

THE SECURITIES Acr OF 1933

Proposed Revision or Rule 133

Rule 133 provides in general that for the purpose of determining

the application of the registration and prospectus provisions of Section

5 of the Securities Act, no "offer" or "sale" shall be deemed to be

involved so far as stockholders of a corporation are concerned, where,

pursuant to provisions of a statute or the certificate of incorporation

there is submitted to the vote of such stockholders a plan involving a

statutory merger, consolidation, reclassification of securities or

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

Regulations, tbe rules adopted under the various Acts administered by the Commission

appearing in the following parts of Title 17 of that Code:

Secur1ties Act of 1933, part 230.

Securitles Exchange Act of 1934, part 240.

Public Utility Holding Company Act of 1935, part 250.

Trust Indenture Act of 1939, part 260.

Investment Company Act of 1940, part 270.

Investment Advisers Act of 1940. part 275.

14
TWENTY-FOURTH ANNUAL REPORT 15

transfer of assets of the corporation in consideration of the issuance

ofsecurities of another corporation.

On October 2, 1956, the Commission invited comments on a proposal, the effect of which would have been to rescind rule 133 and to

provide that transactions of the character referred to in the rule

involve an "offer" and "sale" of a security subject to the registration

and prospectus provisions of the Act," The Commission received

numerous comments and a public hearing was held on January 17,

1957. On March 15, 1957, the Commission announced that it was

deferring action on the proposal pending further study of the problem

and questions raised and that any future modification of the rule

would be undertaken only after opportunity for further public

commentthereon.

On September 15, 1958the Commission issued a release S which recited that its staff had been engaged in a comprehensive review of

all relevant legislative and other statutory materials, prior Commission and staff actions, and the views expressed by those who appeared

at the Commission's public hearing on the 1956proposal or had otherwise commented on the question, and that on the basis of this study

the staff had recommended that the Commission abandon the 1956

proposal for revision of Rule 133, restate the purpose and effect of

Rule 133, and adopt rules designed to clarify the applications and

limitations of the rule.

The release invited comment on a proposed amendment of the rule

designed to implement the recommendations of the staff. This amendment would retain the existing rule but would incorporate into it

certain additional provisions which would make clear that registration is required in certain cases where a public distribution of securities initially required in transactions exempted by the rule is subsequently made by a person defined as a statutory underwriter. The

release stated that there was in preparation a proposed form which

could be used for registration of securities issued in distribution

transactions of the character referred to in the proposed amended

rule.

~dmenlofRw&134and433

Rule 134 specifies the information required and the information

permitted to be included in an advertisement which is not deemed to

be a prospectus with respect to a security when published or transmitted to any person after a registration statement has been filed.

Rule 433 relates to the use of preliminary prospectuses prior to the

effective date of the registration statement. Both of these rules reSecurities Act Release No. 8698.

Securities Act Release No. 89611.

•

•
16 SECURITIES AND EXCHANGE CO:MMISSION

quire the inclusion of legends calling attention to the fact that a registration statement has been filed and cautioning the reader that offers

or sales may not be made until there has been compliance with State

and Federal requirements. These rules were amended during the fiscal

year to make minor verbal changes in the required legend to avoid conflict with the wording of the legend required by State securities administrators and make possible the use in such advertisements and preliminary prospectuses of a single legend meeting both Federal and

State requirements.'

Proposed Rule Changes Relating to Assessable Stock

During the fiscal year the Commission invited public comments on

a proposed new Rule 136 and a proposed amendment of Rule 140 with

respect to assessable stock and the levying of assessments thereon." In

connection with these proposals the Commission is also considering

further changes in its exemption rules under the Act so that the levying of small amounts of assessments may be effected pursuant to an

exemption, upon appropriate terms and conditions, from registration

under the Act. Action on the proposed new Rule 136 and the proposed

amendment of Rule 140 has been deferred pending the publication of

proposed rule changes to provide such exemption and consideration of

comments thereon.

The proposed new Rule 136 would operate to make the levying-of

assessments on assessable stock subject to the disclosure requirements

of the Act, either by way of registration under the Act or through

compliance with the terms and conditions of an appropriate exemption which is presently under study by the staff. The amendment to

Rule 140 is intended to clarify its application and specifically define

as an underwriter any company which is chiefly engaged in levying

assessments on its assessable stock in order to purchase the securities

of another issuer or of two or more affiliated issuers.

The above proposals are being considered because of continuing

complaints received by the Commission from the public as to the existence of abuses in connection with the levying of assessments by various

companies on their outstanding assessable stock. Certain companies

having assessable stock outstanding continue to levy assessments

against their stockholders without disclosing the status of the company or the purpose for which the proceeds are to be used. Insome

instances stockholders who seek to obtain information from their companies receive very little information or even meet with a flat refusal

by company officialsto furnish any information whatever. Itappears

that in some cases proceeds received from the assessments will not be

• Secnritles Act Release No. 38811(January 7, 19(8) •

• Secnrltles Act Release No. 3903 (March II, 19(8).
TWENTY-FOURTH ANNUAL REPORT 17

productive of any present or potential benefit to the stockholders

against whom they are levied. In fact, somesuch companies appear to

be operated largely, if not solely, for the personal benefit of insiders.

There are indications that some companies having assessable stock

outstanding are being used as vehicles for raising funds for other

companies which are unable or unwilling to seek funds directly from

the public.

Amendment of Rule 161

Rule 161 provides that securities offered in conformity with the

rules and regulations under section 3 (b) of the Act may continue

to be offered in accordance with the rules and regulations in effect

at the time the offering commenced, notwithstanding subsequent

amendments to such rules and regulations. This rule was amended

during the fiscal year to provide that it shall not apply to offers

after January 1, 1959 of securities under Regulation D, which was

rescinded July 23, 1956, or under Regulation A as in effect prior

to its revision on July 23,1956.6 The purpose of the amendment was

to require any offerings under the previously existing Regulation

A or D to comply with the revised Regulation A if the offering is

continued after January 1,1959.

Amendments to Regulation A

Regulation A provides an exemption from registration for issues

of securities not in excess of $300,000which are offered in accordance

with the terms and conditions of the regulation. A number of amendments to this regulation were adopted during the fiscal year.' One

of these amendments provides that where the securities to be offered

are interests in an unincorporated real estate syndicate there need

not be included in computing the amount of securities which may

be offered, the amount of interests in other unincorporated real estate

syndicates affiliated with the issuer. Another amendment to the regulation provides procedures for the filing of amendments to notifications and for the withdrawal of such notifications. There was also

added a requirement that underwriters must furnish a certification

that the information given in the notification and in the offering

circular with respect to underwriters, their directors, officersor partners is accurate and complete and does not omit any required information or any information necessary to make the statements made not

misleading. The remaining amendments were chiefly of a technical

or clarifying nature.

Securities Act Release No. 3935 (;ruue 11,1958).

Securities Act Release No. 3935 (;rune 11, 1958).

486867-59-3

•

•
18 SECURITIES AND EXCHANGE COMMISSION

Revision of Fol'llUlS-2 and S-3

During the fiscal year revisions of Forms 8-2 and 8-3 were

adopted," Form 8-2 is used for registration under the Securities Act

of securities of commercial and industrial companies in the promotional and development stage. Form 8-3 is a similar form for mining companies in the exploratory or development stage. The revisions were for the purpose of bringing the forms up-to-date in the

light of the Commission's experience and current administrative practice. Form 8-11, another form for mining companies in the exploratory stage, was merged into Form S-3 so that there is now only

one form for use by this type of mining company.

Amendment of Forms S-4 and S-5

These forms are used for registration under the Securities Act of

securities of investment companies registered under the Investment

Company Act of 1940. A registration statement on either of these

forms includes certain of the information and documents which would

be required in a registration statement under the Investment Company Act of 1940 if such a statement were currently being filed.

Forms 8-4 and S-5 were amended during the fiscal year to adapt the

requirements of these forms to the Commission's amended Form

N-8B-1, described below, which is the corresponding basic form for

registration under the Investment Company Act,"

THE SECURITIES EXCHANGE Acr OF 1934

Amendment of Rule lSb-8

Rule 15b-8 requires every broker-dealer who files an application for

registration to file with his application duplicate original statements

of financial condition disclosing, as of a date within 30 days of such

filing, the nature and amount of his assets, liabilities and net worth.

The amendment, effective September 15,1957, deleted from the rule an

exemption from this requirement formerly available to a partnership

succeeding to and continuing the business of another partnership registered as a broker-dealer at the time of such succession.w

Adoption of Rule lSd-20

During the fiscal year the Commission adopted a new rule, designated rule 15d-20, which provides for the granting of an exemption

from the reporting requirements of section 15 (d) of the Act to certain issuers,v

Securities Act Releases Nos. 8828 and 8829 (August 19, 1957).

• Securities Act Release No. 3854 (October 30,1957) •

.. Securities Exchange Act Release No.lili60.

U Securities Exchange Act Release No.li692 (May 6, 1958).

•
TWENTY-FOURTH ANNUAL REPORT 19

Section 15 (d) requires each issuer of securities registered under

the Securities Act of 1933 to include in its registration statement an

undertaking to file annual and other periodic reports corresponding

to those required to be filed pursuant to-section 13 by issuers having

securities listed and registered on a national securities exchange, if

the aggregate offering price of the issue covered by the registration

statement plus all of the outstanding securities of the same class,

computed on the basis of the offering price, amounts to $2,000,000or

more. The obligation to file reports is suspended under certain conditions not pertinent here.

The new rule provides that the Commission may, upon application

and subject to appropriate terms and conditions, exempt an issuer

from the duty to file such reports if the Commission finds that all of

the outstanding securities of the issuer are held of record, that the

number of such record holders does not exceed 50 persons and that

the filing of such reports is not necessary in the public interest or

for the protection of investors.

The exemption expires if any of the issuer's securities cease to be

held of record, if the number of record holders increases to more

than 50 persons, or if the issuer fails to comply with any of the

terms or conditions upon which the exemption was granted. Provision is also made for termination of the exemption by the Commission, after an opportunity for a hearing, if the Commission finds

the termination to be necessary or appropriate in the public interest

or for the protection of investors.

Amendment of Rule 17a-3

Rule 17a-3 specifies the books and records required to be maintained and kept current by certain members, brokers and dealers.

The amendment, effective July 1, 1958/2 requires such persons to

prepare and maintain a record of the proof of money balances of all

ledger accounts in the form of trial balances currently at least once

a month.

Amendment of Rule 17a-5

Rule 17a-5 designates the members, brokers and dealers required

to file reports of financial condition containing the information called

for by Form X-17A-5, specifies the time when such reports must

be filed, and provides certain other requirements with respect to such

reports. Prior to the amendment, paragraph (a) required each member, broker and dealer subject to the rule to file the report within each

calendar year, except that reports for any two consecutive years could

a SecurIties Exchange Act Release No. 117011.
20 SECURITIES AND EXCHANGE COMMISSION

not be filed within lessthan four months of each other. As amended,

this paragraph requires the report to be filed as of a date within each

calendar year, except that the first report (by others than successors)

must be as of a date not less than one nor more than five months after

the member, broker or dealer becomes subject to the rule. It also

provides that a member, broker or dealer who succeeds to and continues the business of a predecessor need not file a report as of that

year if the predecessor has filed the required report as of that year.

Paragraph (b) (1) of the rule describes the circumstances under

which a report must be certified. Prior to the amendment, there

was an exemption from the certification requirements for a member, broker or dealer who was not required to file a certified financial

statement with any State agency or any national securities exchange

and who, during the preceding calendar year, had not made a practice of extending credit to or holding funds or securities for customers except as an incident to transactions promptly consummated

by payment or delivery. The amendment to this paragraph provides that every Form X-17A-5 report must be certified by an independent accountant unless one of three limited exemptions is available. The first exemption is for a member of a national securities

exchange who, from the date of his previous report, has not transacted business with the public, has not carried any margin account,

credit balance or security for any person other than a general partner,

and has not been required to file a certified financial statement with

any national securities exchange. The second exemption is available

to a broker whose securities business is so limited that he has been

exempt from the Commission's aggregate-indebtedness-net-capitalratio rule 15c3-1. The third exemption is for a broker or dealer

whose securities business has been limited to buying and selling evidences of indebtedness secured by liens on real estate and who has

not carried margin accounts, credit balances or securities for securities customers."

Amendments to Form 8-C

Form 8-C is used for registration under the Act of a class of securities on a national securities exchange on which the registrant has no

securities registered, if such class is already listed and registered on

another national securities exchange. An application on Form 8-C

consists chiefly of copies of applications, reports and proxy statements filed with the original exchange, together with copies of the

required exhibits. This form was amended during the fiscal year to

provide for a considerable reduction-in the amount of material required to be filed in cases where the issuer intends to continue list11 Securities Exchange Act Release No, 5560.
TWENTY -FOURTH ANNUAL REPORT 21

ing and registration of the securities on the original exchange>

Certain other changes in wording were also made in the form in

the interest of clarity.

Proposed Amendments to Form 8-K

During the fiscal year the Commission invited public comments

on certain proposed amendments to Form 8-K which is the form

prescribed for current reports filed pursuant to sections 13 and 15

(d) of the Act.15 The proposed amendments relate to Item 11 of

the form which requires information in regard to matters submitted

to a vote of security holders either at a meeting of such security

holders or otherwise. The purpose of the proposed amendments is

to clarify the item and the instructions thereto in certain respects.

The matter was still under consideration at the end of the fiscal

year."

Amendment to Form X-17 A-I

Form X-17A-1 is the form required to be used under rule 17a-2

by a "manager" of a distribution of securities and by other persons

subject to the rule who have a participation in an account for which

stabilizing purchases are effected. The amendments to the form

consist of a restatement of the instructions for use of the form, to

simplify and clarify its use, and of a requirement that the totals

of certain reported transactions be shown."

THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

Rescission of Rule 9

On March 14, 1957 the Commission issued notice of It proposal

to rescind rule 9, which provides for the exemption of holding company systems having gross utility revenues not over $350,000 for

the preceding calendar year or having net utility assets not

over $1,000,000currently or at December 31, 1946.18 After careful consideration of all the data, views and comments received in

response to its notice, the Commission concluded that adequate legal

basis for such exemption was lacking, and, on February 5, 19!'i8,

announced the rescission of the rule." The effective date of the

rescission, initially fixed at September ~O, IVfJ8,was postponed to

December 31, 1958.20

1< Securities Exchange Act Release No. 5701 (May 26,1958).

U Securities Exchange Act Release No. 5699 (May 20, 1958).

18 The amendments were adopted shortly after the end of thc IIscal year. See Securities

Exchange Act Release No. 5734 (July 16, 1958).

It Securities Exchange Act Release No. 5638.

BHolding Company Act Release No. 13414.

BHolding Company Act Release No. 13670.

• Holding Company Act Release No. 13833.
22 SECURITIES AND EXCHANGE COMMISSION

Amendment of Rule 70

During the fiscal year, the Commission amended rule 70 promulgated under the Public Utility Holding Company Act of 1935. Section 17 (c) of that Act prohibits any registered holding company

or any subsidiary company thereof from having as an officer or

director any executive officer, director, partner, appointee or representative of any bank, trust company, investment banker, or banking

association or firm except as permitted by rules and regulations of

the Commission as not adversely affecting the public interest or the

interest of investors or consumers. Rule 70 defines those persons

or situations to which the Commission has granted- exception from

section 17 (c). Prior to the adoption of the amendment the rule

provided in effect that no holding company or subsidiary could have

as many as one-half of its directors persons with financial connections within the scope of section 17 (c). After issuing a notice of

proposal to amend the rule and requesting comments thereon," the

Commissionadopted the amendment as circulated for comment;" As

amended, the rule exempts from the "less than one-half" limitation

a person whose only financial connection is that of a director, and

who is not an officeror employee, of one or more commercial banks

each having combined capital and surplus not in excess of $2,500,000

and who proposes to act as a director, but not as an officer or employee, of a registered holding company or subsidiary which is a

public utility company. In no event, however, may the number of

directors with financial connections proscribed by section 17 (c) exceed two-thirds of the total.

THE INVESTMENT COMPANY ACT OF 1940

Amendment of Rule 5

On October 25, 1957,the Commission adopted a clarifying amendment to rule 5 under the Act.23 This rule provides a simplified general procedure designed to expedite the disposition of proceedings,

initiated by application or upon the Commission's own motion, pursuant to any section of the Act or any rule or regulation thereunder

except in cases involving sections of the Act where specified rules

prescribe a different procedure. Paragraph (c) of the rule prior to

the amendment was subject to the interpretation that the Commission

was required to order a hearing on a matter upon the request of any

interested person whether or not it appeared that a hearing was

necessary or appropriate. The amended rule makes it clear that the

Commission will order a hearing only if it determines that such is

.. Holding Company Act Release No. 13530 (August 19, 1957).

II Holding Company Act Release No. 13585 (November 4, 1957).

II Investment Company Act Release No. 2620.
TWENTY-FOURTH ANNUAL REPORT 23

necessary or appropriate in the public interest or for the protection

of investors.

Proposal to Adopt Rule 10F-3

In a proposed rule considered during the fiscal year the Commission sought, among other things, to alleviate the problems and administrative burdens involved in processing applications for

exemptions under section 10 (f), particularly in view of the tight

time schedules usually present in these cases. Notice of this proposal was issued on July 15, 1958.24

Section 10 (f) of the Act provides that an investment company,

unless exempted by rule, regulation or order, is prohibited from

purchasing a security during the existence of an underwriting syndicate, if any of the principal underwriters are affiliated persons of the

investment company. As a consequence, in such cases investment

companies must either first obtain an exemptive order of the Commission or purchase the securities conditioned on obtaining such

exemptive order within such periods of time as a particular underwriter might be willing to grant even though extending beyond the

date of the public offering. The proposed rule would permit the

investment company to make such purchases under certain conditions without having to obtain an order of exemption.

The experience of the Commission in its consideration of requests

for orders of exemption under its exemptive authority over the years

indicates that the protection of investors in such situations may be

adequately insured by the conditions and safeguards specified in the

rule. These include limitations with respect to the consideration paid,

as related both to the 'amount of the offering and the assets of the

investment company, the amount of underwriters' commissions, purchases from an affiliated underwriter, and effective registration of the

offering under the Securities Act of 1933. These conditions are designed to permit purchases where the circumstances are such as to

make it unlikely that such purchases would not be consistent with

the protection of investors.

Comments received on the proposal unanimously favored adoption

of the rule although they included a number of suggestions for modification of the conditions and prerequisition contained therein.

The Commission has taken the various comments under advisement,"

Proposal to Adopt Rule 220-1

On May 28, 1958, the Commission issued notice of a proposal to

adopt Rule 22D-l relating to permissible variations in the sales charge

.. Investment Company Act Release No. 2744.

The Commission adopted RnIe 10F-3 on December 2, 1958. Investment Company Act

Release No. 2797.

'"
24 SECURITIES AND EXCHANGE COMMISSION

made upon the sale of redeemable securities of registered investment

companies." This action followed a comprehensive review of. t~e

legislative history of section 22 (d) of the Act, and all past administrative interpretations and exemptive orders issued under that section.

Section 22 (d) prohibits a registered investment company, its principal underwriter or a dealer in its shares from selling such shares

to any person except at a current public offering price described in

the prospectus. Its purpose is to prevent discrimination among purchasers and to provide for the orderly distribution of such shares

by preventing their sale at a price less than that fixed in the prospectus.

One objective of the proposed rule is to lessen the burden on the

Commission and the industry of preparing and processing exemption applications under section 6 (c) in cases identical to those where

such relief had been previously granted. An equally important objective of the rule is to codify and make public the Commission's

interpretation of section 22 (d), made on a case-by-case basis over

the past years, with such changes as believed necessary, and thus

ensure uniform compliance with its provisions.

The proposed rule would require some changes in current industry

practices, particularly with respect to the availability of so-called

"quantity discounts" for group purchases. The Commission in 1941

determined that section 22 (d) permitted the sale of an investment

company's redeemable securities to be made to "any person" on the

basis of a scale of reducing prices dependent upon the quantity of

shares purchased at a single time. Thereafter, the term "any person" was construed to include a trustee or other fiduciary, or a custodian or agent purchasing for more than one account. It was

particularly noted that the prohibitions of the statute apply only

to an investment company, its underwriters, and dealers in its shares,

and not to individuals who might form a group, such as members

of a medical society or college faculty, to purchase through an agent

in a quantity sufficient to entitle them to a discount.

A review of industry practices and complaints, showed a growing

tendency on the part of investment companies, underwriters and

dealers to organize, promote or solicit the formation of such groups.

Such activity raises a serious question as to whether these persons

were not in fact creating a favored "class" of individuals to effect

sales at a price less than that generally available to other members

of the public purchasing a like number of shares, contrary to the

purpose and intent of section 22 (d).

"Im"estment Company Act Release No. 2718.
TWENTY-FOURTH ANNUAL REPORT 25

ill addition, such sales made to the group's agent or 'representative,

as opposed to a fiduciary with investment discretion, 'involve the

danger that prospectuses will not be furnished to all members of

the group, contrary to the requirements of the Investment Company

Act of 1940 and the Securities Act of 1933.

The proposed rule would ,limit the granting of a quantity discount

to (i) a single individual purchasing shares with his own funds for

himself or as a gift to others, or (ii) a trustee or other fiduciary

purchasing for a single trust estate, although there may be more

than one beneficiary.

Another change in current practices which the proposed rule would

require relates to the use of so-called "letters of intent" pursuant

to which a purchaser is entitled to 'receive the discount applicable

to the total quantity of shares purchased within a stated period,

usually 13 months. The proposed rule does not sanction this method

of pricing, and the Commission stated that it was tentatively of the

opinion that the mere intent to purchase shares in the future would

not be a sufficient basis for computing a quantity discount.

The proposed rule also does not include any provision permitting

sales at reduced sales loads to officersand employees of an investment

company, its principal underwriter, and its investment adviser. The

Commission in the past has issued orders exempting such sales where

made for investment purposes, on the ground that they promoted

employee incentive and good will. The Commission's release announcing the proposed rule stated that upon reconsideration of this

matter it was tentatively of the opinion that the business purposes

to be served by reduced sales loads to such persons are insufficient to

warrant continuation of this practice in the light of the policy and

intent of section 22 (d).

Over forty-five comments were received in response to the Commission's notice. Most of the comments favored adoption of the

rule, although there was strenuous objection to its failure to sanction

use of letters of intent and a number of suggestions were made for

changes in language. Some comments also contended that the Commission should continue to sanction sales to employees of investment

companies at a reduced sales load.

The Commission heard oral argument on the proposed rule on

July 23, 1958, and took the matter under advisement."

:rr Upon reconsideration, the Commission determined to include provisions in the rule

permitting sales at a reduced sales load pursuant to letters of intention and to officers

and employees of an Investment company, Its underwriter and Investment adViser subject

to appropriate safeguards. The Commission adopted RUle 22D-1 on December 2, 1958.

Investment Company Act Release No. 2798.
26 SECURITIES AND EXCHANGE COMMISSION

Amendmentsto Form N-8B-I

Form N-8B-1 is prescribed for registration statements filed under

the Act by all management investment companies except those which

issue periodic payment plan certificates. This form was amend~d

during the fiscal year to require the furnishing of a table which In

effect shows on a per-share basis a ten-year comparative summary of

earnings and capital changes together with certain ratios." Itis the

purpose of the new requirement to provide for investors a more

informative presentation of the operations of the registrant than

was provided by the table required previously.

OTHER MA1TERS

Amendments to Statement of Policy Relating to Investment Company Sales

Literature

The Commission, during the 1958 fiscal year, adopted certain

amendments to its Statement of Policy relating to sales literature

used by investment companies registered under the Investment Company Act of 1940.29 The Statement of Policy is designed to serve

as a guide for issuers, underwriters and dealers in the preparation of

such sales literature so as to avoid violation of the anti-fraud provisions of section 17 of the Securities Act of 1933. Itwas adopted in

1950 and was amended in 1955. The amendments adopted during

the past fiscal year were published in preliminary form and a public

hearing was held thereon. The amended Statement of Policy permits a more liberal use of charts and tables, provided they meet

certain standards of disclosure and arrangement.

Proposed Amendment of Rules Regarding Incorporation by Reference

The rules of the Commission permit filings with the Commission

to incorporate by reference rather freely papers and documents previously filed with the Commission under the same statute or under

different statutes administered by the Commission. This practice,

however, has interfered with the Commission's disposal of out-ofdate records since many filings made in recent years incorporate by

reference papers and documents filed in earlier years. As a necessary

step to conforming the Commission's Records Program to the overall

Federal Records Legislation, the Commission, during the 1958 fiscal

year, published for comment certain proposed amendments to its

rules regarding incorporation by reference." The effect of the proposed amendments would be to limit incorporation by reference to

documents which have been in the Commission's files not more than

III Investment Company Act Release No. 2618 (October 30, 1957)

.. Securities Act Release No. 3856 (October 31,1957)

.. Securities Act Release No. 3867 (December 2, 1957).

•

•
TWENTY-FOURTH ANNUAL REPORT 27

10 years, and to require reference to specific prior filings. This time

limit would remove one of the conditions which now prevent the :final

disposition of many original records, and the specific filing reference

would substantially reduce the research now necessary to assemble

previously filed documents for consideration in connection with current filings. A number of letters of comment were received in regard

to the proposed amendments which pointed out certain practical difficulties which such amendments might create. At the end of the

fiscal year, the staff was preparing for the Commission's consideration

a revised proposal which would accomplish the objective desired and

would also obviate the mechanical problems indicated in the comments.
PART IV

ADl\DNISTRATION OF THE SECURITIES ACT OF 1933

The Securities Act of 1933 is designed to provide disclosure to

investors of material facts concerning securities publicly offered for

sale by use of the mails or instrumentalities in interstate commerce,

and to prevent misrepresentation, deceit, or other fraudulent practices in the sale of securities. Disclosure is obtained by requiring

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

statement and related prospectus containing significant information

about the issuer and the offering. These documents are available for

public inspection as soon as they are filed. The registration statement must become "effective" before the securities may be sold to the

public. In addition the prospectus must be furnished to the purchaser at or before the sale or delivery of the security. The registrant and the underwriter are responsible for the contents of the

registration statement. The Commission has no authority to control

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

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

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

23 of the Act.

DESCRIPTION OF THE REGISTRATION PROCESS

Registration Statement and Prospectus

Registration of any security proposed to be publicly offered may

be effected by filing with the Commission a registration statement on

the applicable form containing prescribed disclosures. When a registration statement relates, generally speaking, to a security issued,

by a corporation or other private issuer, it must contain the information, and be accompanied by the documents, specified in Schedule A

of the Act; when it relates to a security issued by a foreign government, the material specified in Schedule B must be supplied. Both

schedules specify in considerable detail the disclosure which should

be made available to an investor in order that he may make an informed decision whether to buy the security. In addition, the Act

provides flexibility in its administration by empowering the Commission to classify issues, issuers and prospectuses, to prescribe ap28
TWENTY-FOURTH ANNUAL REPORT 29

propriate forms, and to increase or in certain instances vary or

diminish the particular items of information required to be disclosed

in the registration statement as the Commission deems appropriate

in the public interest or for the protection of investors.

In general the registration statement of an issuer other than a

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

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

or bonus and profit-sharing privileges alloted to them; the character

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

and earnings, and its financial statements, certified by independent

accountants; underwriters' commissions; payments to promoters made

within two years or intended to be made; acquisitions of property not

in the ordinary course of business, and the interest of directors, officers,

and principal stockholders therein; pending or threatened legal proceedings; and the purpose to which the proceeds of the offering are to

be applied. The prospectus constitutes a part of the registration

statement and presents the more important of the required disclosures.

Examination Procedure

The staff of the Division of Corporation Finance examines each

registration statement for compliance with the standards of accurate

and full disclosure and usually notifies the registrant by an informal

letter of comment of any material respects in which the statement

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

thus afforded an opportunity to file a curative amendment. In addition, the Commission has power, after notice and opportunity for

hearing, to issue an order suspending the effectivenessof a registration

statement. In certain cases, such as where a registration statement is

so deficient as to indicate a willful failure to make adequate disclosure,

no letter of comment is sent and the Commission either institutes an

investigation to determine whether stop-order proceedings should be

instituted or immediately institutes stop-order proceedings. Information about the use of this "stop-order" power during 1958 appears

below under "Stop Order Proceedings."

Time Required to Complete Registration

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

shortest possible time. Congress provided for 20 days in the ordinary

casebetween the filing date of a registration statement or of an amendment thereto and the time it may become effective. This waiting

period is designed to provide investors with an opportunity to become

familiar with the proposed offering. Information disclosed in the
30 SECURITIES AND EXCHANGE COMMISSION

registration statement is disseminated during the waiting P?ri?d ~y

means of the preliminary form of prospectus. The COmmISSIOnIS

empowered to accelerate the effective date so as to shorten the 20-day

waiting period where the facts justify such action. In exercising

this power, the Commission is required to take into account the adequacy of the information respecting the issuer theretofore available

to the public, the facility with which investors can understand the

nature of and the rights conferred by the securities to be registered,

and their relationship to the capital structure of the issuer, and the

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

460 under the Act indicates, for the information of interested persons, some of the more common situations in which the Commission

feels that the statute generally requires it to deny acceleration of the

effective date of a registration statement.

The median time which elapsed between the date of filing and the

effective date with respect to 685 1 registration statements that became effectiveduring the 1958fiscal year was 24 days, compared with

23 days for the 1957 and 1956 fiscal years. This time was divided

among the three principal stages of the registration process, approximately as follows:

(a) From the date of filing the registration statement to the date

of the letter of comment, 14 days;

(b) From the date of the letter of comment to the date of filing

the first material amendment, 6 days; and

(c) From the date of filing the first amendment to the date of

filing the final amendment and effective date of registration, 4 days.

All of these periods include Saturdays, Sundays and holidays.

This increased average lapsed time is a matter of concern to the

Commission. It is being carefully watched, and all appropriate steps

are being taken to reduce the time lapse as much as possible, including

steps to cure personnel shortages.

VOLUME OF SECURITIES REGISTERED

Securities effectively registered under the Securities Act during fiscal 1958totalled $16.5billion, the highest volume for any fiscal year in

the 24-year history of the Commission. Registrations have more than

doubled since 1953, when $7.5 billion of securities were registered,

reflecting annual increases of at least $1.5 billion. The chart below

shows the dollar amount of effective registrations from 1935 to 1958.

1Does not include 130 registration statements of investment companies filed and elfective as post-elfective amendments to previously elfective registration statements pursuant

to section 24 (a) of the Investment Company Act of 1940. The median elapsed time

for these 130 registration statements was 23 calendar days.
20

TWENTY-FOURTH ANNUAL REPORT

VOLUME OF SECURITIES REGISTERED WITH THE S. E. C.

1935.1958

(00110,. Billion. )

31

15

10

5

o

1935 1940 1945

(Fiscol Yeo,.)

1950 1955

os. 3972

These figures cover all securities effectively registered, including

new issues sold for cash by the issuer, secondary distributions, and

securities registered for other than cash sale, such as exchange transactions and issues reserved for conversion of other securities.

Of the dollar amount of securities registered in 1958, 80.5 percent

was for the account of issuers for cash sale, 18.3 percent for account

of issuers for other than cash sale and 1.2 percent was for account of

others, asshown below:

Account for which securities were registered under the Securities Act of 193:1

during the fiscal year 19.')8 oomparetl with the fiscal yeal's 1957 and 1956

1958 in Percent 1957 in Percent 1956ln Percent

milhons of total rmlhons of total millions of total

-- -- -- Registered for acconnt of ISSuers for cash sale $13.281 805 $12.019 822 $9.206 703 Registered for account of ISSuers for other than cash sale. .. . ...... . ......• •. .. 3,008 183 2,225 152 2,819 21 5

Registered for account of others than the issuers. 201 1.2 380 2.6 1,071 8.2

--- -- TotaL .. ...• .. . 16,490 1000 14,624 1000 13,096 100 0

The most important category of registrations, issues to be sold for

cash for account of the issuer, amounted to $13.3 billion in 1958, an

increase of about 10 percent over the previous year. Most of the

difference was due to the large volume of debt securities, $6.9 billion

as compared with $5.7 billion in 1957. There was little change in

the amount of either common or preferred stock registered. Of the

--- ---

____

__ ____ __ __ _ _

_ • ____• • __•

____

--- __ __ _____ _____ __ -- --- --
32 SECURITIES AND EXCHANGE COMMISSION

1958 volume, 52 percent was made up of debt securities, 45 percent

common stock and 3 percent preferred stock. Close to half of the

total for common stock represented securities of investment companies.

The number of statements, total amounts registered, and a classification by type of security for issues to be sold for cash for account of

the issuing company in each of the fiscal years 1935 through 1958 are

shown in appendix table 1. More detailed information for 1958 is

given in appendix table 2.

The classification by industries of securities registered for cash

sale for account of issuers in each of the last 3 fiscal years is as

follows:

1958 In Percent 1957 in Percent 1956 In Percent

millions of tot a! millions of total millions oftota!

-- --- -- --- -- ~I annfactnring ......•.......• _•. _.. _.. _. __._ ... $2,239 16 9 $2,674 222 $1,788 194

Mirung , ___._ .... _..•• _... _._ .. __..•••....... _.. UO 8 283 24 148 1.6 Electric, g-a.1) and water __________________________3,373 254 2,951 24. 5 1,802 196

'1'1 ansportatlon, other than railroads ----------- 52 .4 112 9 118 13

Commumcanon ------- 2978 224 2,030 169 1,294 141

Investment COmp3Il1e-S~~ ==============_ ----- 2~19 22.0 2,614 21 8 2,890 31 4

Other financial and real estate. _' ......... ----- 1 109 84 952 7.9 852 9.2

Trade __..... __....••.. _.. _.. _._ ... _..... _. --.-- 34 .2 84 .7 73 .8

Service .. __... __...• __.... _............ _ ------ 29 .2 33 3 41 .4

Construction ... ... .......... .... ... 2.1 2 .. ---_.----- ------_. --- -- --- -- --- -- Forelg~o:~~;=:~~::::::::::: :::: :::::: ::::::

12,868 969 11,733 97.6 9,006 97.8

412 31 286 24 200 22

--- -- --- -- --- -- TotaL ., ........ _..... __.... _. __.•.••... _. 13,281 1000 12,019 100.0 9,206 100.0

The investment company issues referred to in the table above were

classified as follows:

1958 ill 1957 in 1956 in nullions millIOns millions

gro~~j~~J~~J:~:e.~::: :::::::::::::::::::::::::::::::::::::::: $2,784 $2,361 $2,675

12 -------.---- 42

Face amount certrfleate compames .....• _•...••....••....••....•... _ 123 253 173

TotaL ..... _....... _......... _...•.•...•.....••..•.•.......•.. 2,919 2,614 2,890

I Periodie payment plans or their underlying securities are included.

Of the net proceeds of the corporate securities registered for cash

sale for the account of issuers in 1958,more than 70 percent was designated for new money purposes, including plant, equipment, and

working capital, close to 3 percent for retirement of securities, and. 27

percent for other purposes, principally the purchase of securities by

investment companies.

REGISTRATION STATEMENTS FILED

During the 1958 fiscal year, 913 registration statements were filed

for offerings of securities aggregating $16,913,744,964,compared with

943 registration statements filed during the 1957 fiscal year covering

offerings amounting to $14,667,282,319.

= =

_ _ _ _ ------ -------- --
TWENTY-FOURTH ANNUAL REPORT 33

Of the 913 registration statements filed in 1958,254, or 28 percent,

were filed by companies that had not previously filed any registration

statement under the Securities Act of 1933,compared with 305, or 32

percent, of the corresponding total during the 1957fiscal year und 415,

or 42 percent, for the 1956fiscal year.

The growth in the volume of proposed financing under the registration provisions of the Securities Act of 1933 is shown by the following tabulation, which reflects a 4-year increase in 1958 of 88 percent over 1954in the aggregate dollar amount of offerings as stated in

the registration statements filed.

Number

I Number

FIscal year of state- Aggregate dol- FIScal year of state- AglITegate dol- ments lar amount ments Iar amount

filed I filed

1954 ____________________ 649 $8, 983, .172,623 ( ]957 ____________________ 943 $14,667,282,319

J~g~:::::::::::::::::=:1 8i9

1

11,009,7,7, 113 1958 ------------------- 913 16, 913, 744, 964

981 Id. 097, 787, 623 I I I

A cumulative total of 14,704 registration statements has been filed

under the Act by 6,925different issuers covering proposed offerings of

securities aggregating almost $151 billion during the 25 years from

the date of the enactment of the Securities Act of 1933 to June 30,

1958.

Particulars regarding the disposition of all registration statements

filed under the Act to June 30, 1958 and the aggregate dollar amounts

of securities proposed to be offered which were reflected in the registration statements both as filed and as effective, are summarized in

the following table.

Number and disposition of registration statements filed

Prior to July 1, July I, 1957 to Total as of June 1957 June 30, 1958 30, 1958

Registration statements. FIled _________________________________________ 13,791 '913 14,704

Disposition: EffectIve-net 12,024 2810 12, 823 Under stop or-i-;;iusaiorde;-neC_:::::::::: 193 3 196 Wlthdrawn. ______________________________ 1,469 71 1,540 Pending at June 30,1957 105 Pending at June 30,1958 145

Total. ______________________________________ 13,791 14,704

Aggregate dollar amount As filed _______________________________________ $133, 757, 747, 284 $16,913, 744, 964 $150,671,492, 248 As effectlve ___________________________________ $130, 759, 374, 732 $16,489,735,521 $147, 249, 110, 254

I Includes 134 registration statements covermg proposed offerings totalling $2,601,069,370 which were filed by Investment companies under section 24 (e) of the Investment Company Act of lOW.

I Excludes 5 registration statements that became effective during the year but were withdrawn; these 5 statements are counted In the 71 statements withdrawn during the year. I Excludes 11 statements that were etfectrve prior to Jnly 1, 1957 but were withdrawn; these 11 statements are counted m the 71 statements withdrawn during the year.

486867-59--4

•

__________________ ------------------ ------------------ __________________ ----------- ------- ----------- -------
34 SECURITIES AND EXCHANGE COMMISSION

The reasons for requesting withdrawal of the 71 registration statements withdrawn during the 1958 fiscal year are shown in the following table:

Number of Percent of

Reason for registrant's withdrawal request statements total withwithdrawn drawn

1. Withdrawal requested after receipt of staff's letter of comment _________________ 13 19

2. Registrant ad vised that statement should be withdrawn or stop order pro13 19 ceedlngs would be necessary ________________________________________________

3. Change in flnanemg plans ___________________________________________________ 16 22 4. Change in market condruons 14 m 5. Financing was obtained elsewhere. _. 3 4 6. Regulation A could be used __________________________________._. _____________ 3 4 7 Insufflcient funds raised under an escrow agreemenL. ________________________ 5 7 8. Registrant could not comply with the Trust Indenture Act of 1939 1 1 9. Registrant unable to negotiate acceptable underwriting agreement, __________ 3 4

Total. _. _________________________________________________________________ 71 100

RESULTS OBTAINED BY THE REGISTRATION PROCESS

As the result of the staff's examination of registration statements,

numerous significant changes were effected in the disclosures made

to the investing public. Among these results were changes in accounting presentation, as illustrated by the following examples:

Stock Issued in Exchange for Partnership Assets.-Several partners organized a corporation to which they transferred certain

partnership assets in exchange for some 1,900,000shares of $1 par

value common stock of the new company. The number of shares

issued was based principally on appraised values assigned to the assets

transferred.

A registration statement was filed by the new corporation in which

its assets were stated at such appraised values. In view of the absence of an arm's length relationship between the partners and the

corporation the registrant was requested to amend its financial statements so that the assets would be stated on the basis of the cost to

the partners.

As a result of this request the assets were restated and the equity

section of the balance sheet showed as a deduction from the aggregate

par value of shares outstanding about $1,400,000representing the excess of par value of shares issued and other consideration over incorporators' cost of assets acquired at or since incorporation. This

change reduced the total assets of the corporation from $2,700,000to

$1,300,000.

Subsequently the company was recapitalized, with the 1,900,000

shares of $1 par value common stock being converted into 425,000

shares of $1 par value Class A stock, a reduction in capital more than

sufficient to eliminate the excess item from the equity section of the

balance sheet.

•

____• ________________________________• ___________

__________• ___________•• _________________

____________•

•
TWENTY-FOURTH ANNUAL REPORT 35

Pooling of Interests vs, Purchase Accounting.-The principle of

"pooling of interests" accounting permits the combining of the earned

surplus accounts of companies involved in a merger or combination

and avoids the recording of goodwill or an upward revaluation of

other assets as would be required in many purchase or acquisition

transactions under "acquisition" accounting.

In a recent registration statement in which an exchange offer was

described, acquisition accounting was proposed for the combination

of two companies, of which the proposed parent company was onefifth the size of the company being acquired. The smaller company,

which had some 400,000 shares of stock outstanding, was to issue

1,600,000 shares of its $.25 par value common stock for the entire

outstanding stock of the larger company, assigning to its own shares

a value of $2 per share. The prospectus also carried a public offering

of 250,000 shares at a price to net the company $2.10 per share.

As originally proposed in the registration statement, $2,600,000 of

the excess of the ascribed. value of the new shares was to be assigned

to certain undeveloped real estate owned by the larger company.

After reviewing the terms of the proposed combination, our staff objected to the use of acquisition accounting and the resulting substantial write-up in the value of the land. Certain unusual features of the

plan prompted this position. The registrant's previously outstanding common shares were redesignated as Class A convertible stock

which was convertible into debentures until a specified date, after

which it automatically became common stock. Both Class A stock

and the debentures had voting rights for the election of five directors,

and the new common stock to be issued under the plan of exchange was

limited to the right to elect five directors, making a total of ten directors. Two members of the new group in the organization were to

become president and secretary of the parent company.

After discussions, an amended registration statement was filed in

which the pooling of interests concept was applied to the combination

and the investment in the subsidiary was recorded on the books of the

parent at the underlying book value based on cost, and hence no revaluation of the real estate emerged.

STOP ORDER PROCEEDINGS

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

time that a registration statement contains an untrue statement of a

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

therein or necessary to make the statements therein not misleading,

the Commission may institute proceedings looking to the issuance of

a stop order suspending the effectiveness of the registration statement.

Where such an order is issued, the offering cannot lawfully be made,
36 SECURITIES AND EXCHANGE COMMISSION

or continued if it has already begun, un~il the registration .st~tement

has been amended to cure the deficiencIes and the COmmISSIOnhas

lifted the stop order. During the 1958fiscal year, 8 new proceedings

were authorized by the Commission under section 8 (d) of the Act

and 7 such proceedings were continued from the preceding year. Two

of such cases were thereafter consolidated. In connection with these

14 proceedings 5 stop orders were issued during the year, one of which

was subsequently vacated when the registration statement was appropriately amended. In 2 other cases the registration statement was

withdrawn. The remaining 7 cases were pending as of June 30, 1958.

A proceeding in which a stop order was issued with respect to a

registration statement filed by Republic Cement Corporation was described in the 23rd Annual Report." The other 4 proceedings which

resulted in the issuance of stop orders during the fiscal year are described below as well as 1 proceeding in which a stop order was issued shortly after the end of the fiscal year.

Horton Aircraft Corporation.- This registrant, a Nevada corporation, was organized for the purpose of manufacturing and selling a so-called Horton Wingless Airplane. The company filed two

registration statements with the Commission. The first statement,

filed in 1955,covered a proposed offering of 500,000shares of no par

value common stock of which 400,000shares were to be offered by the

registrant and 100,000shares by the president, William E. Horton,

at $1.00 per share or the market price, whichever was higher. The

other registration statement, filed in 1956, covered 100,000shares of

commonstock of the registrant held by Horton which was to be offered

at $25.00per share. A consolidated hearing was held asto both registration statements and the Commission issued a stop order suspending the effectiveness of both statements.

The Commission :found the registration statements false and misleading in the following material respects, among others,"

The representation in the registration statements that Horton had

assigned to the registrant a patent with respect to the wingless airplane was materially misleading in view of the :fact that Horton had

previously assigned all of his right, title and interest in his "invention"

to another person. The description in the registration statements of

the Horton Wingless Airplane, the aeronautical principles involved,

and the coverage of the patent obtained by Horton, was also materially false and misleading. False and misleading statements were

also made with respect to the performance of Horton's model of the

wingless plane. The registration statements also contained false and

misleading statements with respect to the use of the proceeds from the

Pp. 46-47.

SecurIties Act Release No. 3855 (October 29,1957).

•

•
TWENTY-FOURTH ANNUAL REPORT 37

previous sale of unregistered securities, the price of the securities

being registered and the proposed use of the proceeds therefrom.

In addition, the Commission found that while the second registration statement disclosed the entry of an injunction against registrant

and Horton based on false and misleading claims and the return of

an indictment against Horton based on fraud, registrant nevertheless

omitted to disclose the nature of the false and misleading statements

and the fraud involved.

Columbia General Investment Corporation.- The registrant, a

Texas corporation organized for the purpose of engaging in the investment business, filed a registration statement covering 100,000

shares of its common stock, $1 par value, to be offered to its stockholders at $4.50 per share. The Commission, finding that the registration statement contained materially misleading statements, denied

a request for withdrawal of such statement and issued a stop order.

The registration statement stated, among other things, that 42,000

shares of the common stock of Columbia General Life Insurance

Company, acquired from the promoters of the insurance company

and registrant in exchange for 210,000shares of registrant's common

stock, and representing a substantial portion of registrant's assets,

had an "estimated fair value" of $420,000. The $420,000value was

stated to be based on the fact that at and prior to such acquisition,

shares of such stock had been sold at prices of $10 and more by the

insurance company in the course of a public offering and by one of

the promoters through a company established for the purpose of

maintaining and stabilizing the market in that stock. However, the

Commission held that the prices paid in such sales could not be considered a true reflection of the market or fair value of the stock at

such time in view of the materially misleading statements employed

in connection with the sales. The Commission found that the failure

to disclose the facts surrounding the insurance company offering

rendered the statements regarding the value of the 42,000 shares

misleading.

The Commission further found that registrant had sold 53,059of

its own shares to stockholders of the insurance company at $9 per

share, and 10,07'7shares to the general public at $12per share, without

disclosing that such prices had been arbitrarily determined, that there

had been recent sales of such stock at $2 per share to insiders and

others, and that registrant's capital and surplus figures included the

misleading $420,000valuation attributed to the 42,000shares of insurance company stock. As a result of such sales, the Commission

ruled, a contingent liability to the purchasers was created which

should have been disclosed in the registration statement .•

Securities Act Release No. 3901 (March 5, 1958). A petition for review of the Commission's order has been filed in the United States Court of Appeals for the Fifth Circuit.•
38 SECURITIES AND EXCHANGE COMMISSION

Lewisohn Copper Corporation.-This registrant, a Delaware corporation, was organized for the purpose of exp!oring, devel?ping a~d

operating mining properties in Arizona. PrIOr to ~he £?mg of Its

registration statement, the company had, commencmg m October

1955 sold 200000 shares of its commonstock at a stated public offering , , .. . price of $1.50 a share under claim of exemption from registration

under Regulation A. The registration statement, filed in March

1956, covered a proposed offering of 100,000shares at a price to be

determined prior to the effective date of the registration statement

and which had tentatively been estimated at at least $10 a share. Stop

order proceedings, instituted in August 1956, with respect to the

registration statement were consolidated with proceedings under

Regulation A, instituted in June 1956,with respect to suspension of

the exemption thereunder of the earlier 200,000share offering.

More than half of the 200,000 share offering was sold to a few

broker-dealer firms, including one firm closely connected with the

underwriter, for their own accounts, or for the accounts of members

or their families, at the stated offering price of $1.50 a share. Such

firms and persons in turn resold a large part of the stock, mostly at

prices in excess of $1.50 and ranging as high as $9.50 or more. The

Commission found the offering circular used in connection with the

offering false in stating that the public offering price was $1.50 a

share and deficient in failing to disclose that profits would be received

by the various firms and individuals, upon the resale of the stock

by them at higher prices. The Commission found that such resales

constituted part of the public distribution of the stock. Since most

of the resales were at prices in excess of $1.50, the aggregate offering

price to the public exceeded the $300,000 maximum prescribed by

section 3 (b) of the Act and Regulation A and accordingly '110 exemption under the regulation was available. On this and other

grounds, including misleading publicity circulated by the issuer and

underwriter in connection with the offering, the Commission permanently suspended the exemption of the offering under Regulation A.

With respect to the registration statement, the Commission issued

a stop order, finding the prospectus deficient in failing to disclose the

facts as to the 200,000share offering referred to above and the contingent liability resulting from the sale of the 200,000 shares when

no exemption from registration was available. The Commission

further found the prospectus misleading in failing to disclose the

activities of the issuer, the underwriter and others having a tendency

to influence the market price of the company's stock. These activities included market activities by the underwriter and others and

publicity circulated by the company and the underwriter, which
TWENTY-FOURTH ANNUAL REPORT 39

gave the misleading impression that there had been an immediate

public demand for and acceptance of the stock and which contained

optimistic and misleading statements about the company's drilling

program, results of assays, possible tonnages of ore on its properties

and am. application for a certificate of tax necessity on a large concentrating mill, and did not disclose that the existence of a mineable

ore body had not been established. Additional deficiencies found

in the prospectus included the failure to disclose the underwriter's

profit in the resale of 33,000 shares of the issuer's stock purportedly

purchased by the underwriter for investment and the contingent

liability of the issuer for the sale of these shares without registration.

In view of the serious nature of the deficiencies in the registration

statement the Commission denied the registrant's request to be allowed

to withdraw it. The Commission indicated that the fact that the

company had a substantial amount of stock outstanding in the hands

of investors distinguished the situation presented ill this case from

that involved in Jones v. S. E. 0., 298 U. S. 1 (1936) where

withdrawal was required,"

The Fall River Exploration and Mining Company.-The registrant, a Colorado corporation, then named The Fall River Power

Company, filed a registration statement covering a proposed public

offering of 500,000 shares of its no par value common stock at $2.00

per share. After hearings illstituted pursuant to section 8 (d) of

the Act, the Commission ordered suspension of the effectiveness of

the registration statement. The company consented to the entry of

the stop order. 6

Among the deficiencies constituting the grounds for the issuance

of the Commission's stop order were: (1) representations that the

registrant's business was in part that of a public utility, notwithstanding the fact that there was no demand for power from the longidle hydro-electric plant owned by the registrant, (2) the use of an

appraisal of the hydro-electric plant, based on estimated replacement

cost, where the appraisal was not prepared in accordance with accepted

standards and failed, among other things, to consider the lack of demand for power, (3) the use of an appraisal of water rights not

founded on a basis sufficient to sustain it, (4) the representation that

a portion of the proceeds from the sale of the stock would be applied

toward the purchase of milling facilities, without disclosing that there

were no known ore bodies and no present need for milling facilities,

and (5) the inclusion in the financial statements of an appraisal, at

present day cost, of tunnels represented as development work on minSecurities Act Release No. 8907 (March 18, 1958). A petition for review of the Commission's order has been filed In the United States Court of Appeals for the Ninth Circuit.

Securities Act Release No. 8932 (June 4,1958).

•

•
40 SECURITIES AND EXCHANGE COMMISSION

ing claims, which were constructed by prede~essors of the registr~nt

in large part to transport ore from mines which were no longer bemg

worked.

Shortly after the close of the fiscal yeWl'under review the registration statement was amended. In ,its amended form, the statement

disclosed that the registrant's name, which in its original form suggested the company was an operating 'Publicutility, had been changed

to indicate that the business was exploration and mining. Since the

amended statement had been revised to meet the various objections

previously cited, the Commission vacated the stop order, and the

registration statement was ordered effective."

Woodland Oil & Gas Co., Inc.-The registrant, a Delaware corporation, filed a registration statement covering a proposed public

offering of 700,000shares of its common stock at $1.50 per share, of

which 600,000shares were to be offered on behalf of the registrant

and 100,000shares were to be offered on behalf of the principal promoter and general manager of the registrant. The company was

organized for the purpose of exploring, developing and operating oil

and gas properties. Its assets consisted of interests in certain partially

developed Pennsylvania properties, and an interest in some wildcat

acreage in Western Kentucky. The proceeds of the issue were

intended for drilling and testing on both properties.

After examination of the registration statement and hearings, pursuant to section 8 (d) of the Securities Act, the Commission found

that the registrant had failed to make adequate disclosures with

respect to (1) its poor production record which had resulted in sustained operating losses, (2,) its recoverable reserves and the extent to

which they could be produced profitably, (3) the remote possibilities

of investors realizing income from or a return of their investment,

(4) unsuccessful drilling tests on the Kentucky property, and

(5) certain underwriting agreements. The Commission found that

misleading statements were contained in (1) the statements regarding

use of the proceeds, (2) references to large quantities of oil in the

Western Kentucky general area, and (3) the geologist's report. The

Commission found that in order to make the speculative features of

the enterprise "plainly evident" to the ordinary investor, they had to

be set forth in summary fashion in one place in the early part of the

prospectus under an appropriate heading.

A stop order was issued by the Commission shortly after the close

of the fiscal year under review,"

T Securities Act Release No. 3957 (August 15, 1958).

• Securities Act Release No. 3942 (July 11, 1958).
TWENTY-FOURTH ANNUAL REPORT

EXAMINATIONS AND INVESTIGATIONS

41

The Commission is authorized by section 8 (e) of the Act to make

an examination in order to determine whether a stop order proceeding

should be instituted under section 8 (d). For this purpose the Commission is empowered to subpena witnesses and require the production of pertinent documents. Four such examinations were initiated

during the 1958 fiscal year and one examination was pending from

the previous fiscal year. In two cases the examination led to proceedings under section 8 (d) of the Act, in two others the registration

statements were withdrawn and in the fifth the registration statement

was amended and the examination closed. No examinations under

section 8 (e) of the Act were pending at the end of the fiscal year.

The Commission is also authorized by section 20 (a) of the Act to

make an investigation to determine whether any provisions of the Act

or any rule or regulation prescribed thereunder have been or are about

to be violated. The Commission has instituted investigations under

this section as an expeditious means of determining whether a registration statement is false or misleading or omits to state any material

fact. During the 1958 fiscal year 16 such investigations were instituted. Eight such investigations were pending from the previous

fiscalyear. Five investigations resulted in the institution of stop order

proceedings under section 8 (d) of the Act, five were closed, in one

the registration statement was withdrawn and in the remaining case a

permanent suspension order was entered under Regulation A. Twelve

investigations were pending at the end of the 1958fiscalyear.

EXEMPTION FROM REGISTRATION OF SMALL ISSUES

Under section 3 (b) of the Securities Act, the Commission is empowered to exempt, by its rules and regulations and subject to such

terms and conditions as it may prescribe therein, any class of securities from registration under the Act, if it finds that the enforcement

of the registration provisions of the Act with respect to such securities

is not necessary in the public interest and for the protection of investors by reason of the small amount involved or the limited character of the public offering. The statute imposes a maximum

limitation of $300,000 upon the size of the issues which may be

exempted by the Commission in the exercise of this power.

Acting under this authority the Commission has adopted the following exemptive regulations:

Regulation A:

General exemption for United States and Canadian issues up to

$300,000.

Regulation A-M:

Special exemption for assessable shares of stock of mining companies

up to $100,000.
42 SECURITIES AND EXCHANGE COMMISSION

Regulation A-R:

Special exemption for first lien notes up to $100,000.

Regulation B:

Exemption for fractional undivided interests in oil or gas rights up

to $100,000.

Regulation B-T:

Exemption for interests in oil royalty trusts or similar types of trusts

or unincorporated association up to $100,000.

Exemption from registration under section 3 (b) of the Act does

not carry exemption from the civil liabilities for false and misleading

statements imposed upon any person by section 12 (2) or from the

criminal liabilities for fraud imposed upon any person by section

17 of the Act.

Exempt Offerings Under Regulation A

The Commission's Regulation A permits a company to obtain not

exceeding $300,000 (including underwriting commissions) of needed

capital in anyone year from a public offering of its securities without

registration if the company complies with the regulation. Regulation A requires the filing of a notification with the appropriate

Regional Office of the Commission, supplying basic information about the company, certain exhibits, and except in the case of a

company with an earnings history which is making an offering not

in excess of $50,000, an offering circular which is required to be used

in offering the securities.

During the 1958 fiscal year, 732 notifications were filed under Regulation A, covering proposed offerings of $133,889,109, compared with

919 notifications covering proposed offerings of $167,269,900 in the

1957 fiscal year. Included in the 1958 total were 71 notifications

covering stock offerings of $14,433,379with respect to companies engaged in the exploratory oil and gas business and 69 notifications

covering offerings of $14,257,615by mining companies.

The following table sets forth various features of the Regulation A

offerings during the past three fiscal years :

Offermgs under Regulation A

Fiscal year

1958 1957 1956

Size:~100,OOOor less 231 307 481 Over $100,000 but not over $200,000 ______________________________ 165 163 246 Over $200,000 but not over $300,000 ______________________________ 336 449 736

732 919 1,463

Underwriting: U sed ____________________________________________________________ Not used 243 328 630 489 591 833

732 919 1,463

Offerors: Issuing eornpanles 704 865 1,38ll Stockholders. _. _. 28 52 62 Issuers and stockholders jointly 0 2 12

732 919 1,463

-

_______________________________________• __________

____ • _________________________________• ________________

______ • ___________________• _________• ___•• ____

___• _____• ______________________• ___• ______• ___

________________• ________________
TWENTY-FOURTH ANNUAL REPORT 43

Most of the offerings which were underwritten were undertaken by

commercial underwriters, who participated in 185 offerings in 1958,

252 in 1957, and 528 in 1956. The remaining cases where commissions were paid were handled by officers,directors, or other persons not

regularly engaged in the securities business.

Suspension of Exemption

Regulation A provides for the suspension of an exemption thereunder where, in general, the exemption is sought for securities for

which the regulation provides no exemption or where the offering is

not made in accordance with the terms and conditions of the regulation or in accordance with prescribed disclosure standards. Following

the issuance of a temporary suspension order by the Commission, the

respondents may request a hearing to determine whether the temporary suspension should be vacated or made permanent. In the case

of filings made under Regulation A as revised in July 1956, if no

hearing is requested within thirty days after the entry of the temporary suspension order, and none is ordered by the Commission on

its own motion, the temporary suspension order becomes permanent.

During the 1958 fiscal year, temporary suspension orders were issued in 88 cases as compared with 132 in the 1957fiscal year. Of the

88 orders, 3 were later vacated. Requests for hearing were made in

18 cases and in 7 of such cases the requests were later withdrawn; proceedings in the remaining 11 cases are pending. The names of the

companies involved in the orders issued during the 1958 fiscal year

are set forth in table (6) of the appendix. A few cases are summarized below to illustrate the misrepresentations and other noncompliance with the regulation which led to the issuance of suspension

orders.

Washington Planning Corporation of Maryland.- In its order

temporarily suspending the Regulation A exemption, the Commission

alleged that the offering circular contained untrue statements of material facts and failed to disclose required information concerning the

net loss sustained from the issuer's business operations. There was

also a failure to disclose that the offering of securities was being made

on an installment payment basis, that commissions were paid for the

sale of the securities despite statements in the offering circular to the

contrary, and that part of the proceeds from the offering were used

to pay expenses and make advances to companies other than the issuer. The Commission's order further alleged that the use of the

offering circular without appropriate disclosure had been and would

be in violation of section 17 of the Securities Act of 1933. In addition, the terms and conditions of Regulation A were not complied

with in that the issuer failed to file a complete and accurate report
44 SECURITIES AND EXCHANGE COMMISSION

of the sales of its securities. No hearing was requested and the suspension order became permanent.

Seaboard Drug Company, Inc.-The Commission temporarily

suspended the exemption because the terms and conditions of Regulation A were not complied with since the aggregate offering price of

shares sold by stockholders in the market and shares sold on behalf of

the issuer exceeded the $300,000ceiling. The Commission also stated

that the offering circular operated as a fraud and deceit upon the purchasers and contained untrue statements of material facts and omitted

to state certain material facts with respect to the issuer's assumption

of expenses of certain affiliates and predecessor companies, and the

utilization of proceeds of the offering for a personal loan to an officer,

director and principal security holder of the issuer. No hearing has

been requested and the suspension order remains in effect.

Tejanos Mining Corporation.-In its order temporarily suspending the exemption, the Commission alleged that the notification failed

to disclose the issuance of certain shares within one year prior to the

subject filing, and failed to disclose the identity of the underwriter.

The Commission further alleged that the Regulation A exemption was

not available since the president of the issuer had been indicted for

selling unlicensed securities and selling securities without registering

as a dealer in the State of Texas. The order also alleged that misleading statements were made concerning the use of proceeds and the

interests of the officers, directors and promoters in the issuer. No

hearing was requested and the suspension order became permanent.

Microveer, Incorporated.-The Commission's temporary suspension order alleged that the offering circular was misleading and contained untrue statements of material facts with respect to statements

made concerning the physical properties of the issuer's product, a thin

wood veneer, the existence of potential purchasers of the company's

product and the amount of funds needed to equip the issuer's plant

adequately with machinery. No hearing was requested and the suspension order became permanent.

Central Oils, Incorporated.- The Commission suspended the

Regulation A exemption for an offering of the above company because

of misleading, inaccurate and incomplete statements in the offering

circular concerning, among other matters, the interests of the directors and promoters in the company's properties, the past and prospective productivity of the company's oil properties, and the misleading nature of the geological materials. A request for hearing was

filed and later withdrawn, and the suspension became permanent.

Gem State Securities Corporation.- In its order temporarily suspending the Regulation A exemption, the Commission alleged that

the Regulation A exemption was unavailable because securities were
TWENTY-FOURTH ANNUAL REPORT 45

sold prior to the time permitted by the regulation, at a different price

from that stated in the offering circular, and without delivery of an

offering circular. No hearing was requested and the suspension order

became permanent.

Garner Aluminum Corporation.-The Commission temporarily

suspended the Regulation A exemption because it had reasonable

cause to believe that oral misrepresentations were made in the sale

of securities under the offering which operated as a fraud and deceit

upon the purchasers, particularly with respect to statements made

concerning the refunding of investors' money, the amount of securities already sold, and the use of proceeds received therefrom. No hearing has been requested and the suspension order remains in effect.

The Commission is given discretionary authority in rule 252 (f)

of Regulation A to determine upon a showing of good cause that certain disabilities, arising in general from past conduct of the issuer,

underwriter or others associated with them in the purchase or sale

of securities, and which ordinarily have the effect of making the Reg.

ulation A exemption unavailable, shall not operate to bar an exemption under the regulation. During the 1958 fiscal year, 14 applications for relief from various disabilities were granted under rule 252

(f) by the Commission.

Exempt Offerings Under Regulation B

During the fiscal year ended June 30,1958,109 offering sheets were

filed pursuant to Regulation B and were examined by the Oil and Gas

Unit of the Commission's Division of Corporation Finance. During

the 195'7fiscal year, 133 offering sheets were filed and during the 1956

fiscal year, 114 were filed. The following table indicates the nature

and number of Commission orders issued in connection with such

filings during each of the fiscal years referred to:

Action taken on offering sheets (iled under Regulation B

Fiscal years

1958 1957 1956

--------------------1--- ------ Temporary suspension orders ._____________________________________ 9 12 5

Permanent suspensIOn orders .______ 1

Orders terminating proceeding after amendment; ._____________ 1 7 5

Orders accepting amendment of offering sheet (no proceeding pending) ___ 60 72 60

Orders consenting to withdrawal of offerme sheet (no proceedmg pending) 3 3 4

Orders consenting to withdrawal of offering sheet and termlnatmg pro- ceeding. .____________ 2 _.

Order terminating effectiveness of offering' sheet ._ 1

Total nnmber of orders ! 94 76

Reports of sales.-The Commission requires persons who make offerings under Regulation B to .file reports of the actual sales made

pursuant to that regulation. The purpose of these reports is to aid

•

•

_

_• • • _ • • __

•
46 SECURITIES AND EXCHANGE COMMISSION

the Commission in determining whether violations of law have occurred in the marketing of securities offered under the regulation.

The following table shows the number of sales reports filed under

Regulation B during the past three fiscal years and the aggregate

dollar amount of sales during each of such fiscal years:

Reports of eales undm' Regulation B

Fiscal years

1958 1957 1956

Number of sales reports filed__________________________________ 1,712 1,318 1,419 Aggregate dollar amount of sales reported _____________________$1,093.362 $1,154, 792 $1,234,541

UTIGATION UNDER THE SECURITIES ACT OF 1933

The Commission is authorized by the Securities Act to seek injunctions in cases where the continued or threatened violations of

the Act may result in damage to members of the public. Many such

actions were brought by the Commission during the year in cases

involving violations of the registration and anti-fraud provisions of

the Act.

Litigation Involving Violations of Registration and Anti.fraud Provisions

The Commission obtained injunctions against :further violations of the registration provisions in actions in which it was found

that the defendants were selling fractional interests in oil leases or

in oil and gas properties without registration. Permanent injunctions were obtained in S. E. O. v, Gerald L. Reasor and John O. Karstrom, Jr.,9 S. E. O. v. Horace E. Watkins, doing business as Watkins

Oil 00. et al./o both referred to in the 23rd Annual Report,u and

S. E. O. v. Edward J. Prestonr? In S. E. O. v, Ben Franklin Oil and

Gas Corporation; et al.,14 a preliminary injunction was obtained prohibiting the sale of shares of Ben Franklin Oil and Gas Corporation

without registration.

Sales of unregistered securities in mining companies also required

Commission action within the year. In S. E. O. v, Tannen and 00.,

Inc., et al.15 a permanent injunction was obtained against 8 defendants

to prevent further sales of unregistered stock. Similar injunctions

were obtained in S. E. O. v, Cataract Mining Oorporatioti. et al.,10

N. D. Illinois, No. 56-C-2038 (December 4, 1956).

]JJ D. Colorado No. 1)533 (November 9, 1956).

np.54.

12 D. Montana No. 765 (December 20, 1957).

U D. New Jersey, No. 601-57 (June 19, 1957).

S. D. New York No. 123-115 (August 2, 1957).

,. S. D. New York No. 126-173 (October 30, 1957).

•

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TWENTY-FOURTH ANNUAL REPORT 47

S. E. O. v. OolwmlJus-RewaZlOil Oompany, et al.,l1S. E. O. v, Oreswell-Keith Mining Trust, et al.r S. E. O. v, Dawn Uranium and

Oil Oompany, et al.r S. E. O. v. William J. Owen and Leonard S.

Fo», doing business as Uinta Basin Oil and Gas Leasing Oompany,

et al.,20and S. E. O. v. Strategic Minerals Oorporation of America,

et al.21 Injunctions were entered by consent in the last four of the

above cases. A preliminary injunction was obtained in S. E. O. v.

Royal Drift Mining Oompany, et al.22

Final judgments were also entered in S. E. O.v. Arkansas Securities

Oorp, et al.,23S. E. O. v, Great Fidelity Life Insurance 00., et al.,24

S. E. O. v. Oregon Timber Products Oo; In(J.,et al.,25S. E. O. v. Farm

and Home Agency, Ino., et al.,26S. E. O. v. Television and Radio

Broadcasting Corporation. and James D. Asher27 and S. E. O. v.

Franois Distributing 00., Inc., et al.r enjoining further sales of unregistered shares. The injunctions were entered by consent in the

Farm and Home, Great Fidelity Life and Television and Radio cases.

In S. E. O. v. Backers Discount and Finance Oompany and James

Sorce, Jr.29 the defendant, who was in the business of purchasing

installment notes received by contractors, offered to investors participating certificates in these installment notes guaranteeing 12%

net return on the investment and purportedly assigning a mortgage

to the investor. The amount invested had in fact no relation to

the face amount of the mortgage assigned, and if the mortgagor

defaulted, another mortgage was substituted. In some instances

no mortgage was assigned to the investor but rather a participation

in general portfolio holdings of Backers. These "guarantee saving certificates" were found not to be guaranteed by any outside

independent guarantor, but merely secured by Backers. Notwithstanding assurances by Backers that it would discontinue interstate

sales until such time as it had complied with the registration requirements of the Act, over $10,000 of the certificates were sold to

residents of 6 states. A final injunction was entered by the Court

to enjoin further sales of these securities.

"D. Utah, No. C-167-57 (October 9,1957).

mw. D. Arkansas No. 733 (January 9,1958).

"E. D. Washington No. 1395 (June 1,1956).

"D. Colorado No. 5749 (July 24,1957).

lIlN. D. Texas No. 7889 (June 6, 1958).

"N. D. Callfornla No. 7706 (March 5, 1958)

.. W. D. Arkansas No. 734 (January 9, 1958).

IN S. D. Indiana No. IP-58-C19 (January 16, 1958).

llISD.Nevada No. 1280 (October 8, 1956)

.. S. D. Indiana No. IP 58 C83 (April 16,1958).

lI7D. Massachusetts No. 57-640 A (July 1, 1957). -D. Massachusetts No. 58-424-8 (Aprll22, 1958).

-D. New :Jersey No. 14-58 (January 7, 1858).

•

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48 SECURITIES AND EXCHANGE COMMISSION

In S. E. O. v. Micro-Moisture Oontrols, et al.3016 defendants, including 7 registered broker-dealer firms, were permanently enjoined

from further violations of the registration requirements of the Act

in the offer and sale of common stock of Micro-Moisture Controls,

Inc. This action, which was also referred to in the 23rd Annual Report," involved an increased number of outstanding shares resulting

from an exchange of assets of Converters Acceptance Corporation of

Canada for stock of Micro-Moisture. A subsequent public distribution by certain controlling stockholders of Micro-Moisture was made

through the defendant broker-dealer firms and 2 residents of Canada,

also named as defendants.

In S. E. O. v. Land Development Oompany of Nevada, et al.,32the

complaint charged, among other things, that the defendants had been

offering and selling the capital stock of Land Development Company

of Nevada and certain evidences of indebtedness, investment contracts

and profit sharing agreements when no registration statement was

in effect as to such securities. The defendants consented to the entry

of a preliminary injunction.

Violations of the registration provisions of the Securities Act were

also charged in S. E. O. v. Roy B. Kelly, et al.,33 S. E. O. v, TrlUJkee

Showboat, fnc.,34 and S. E. O. v. Doctors' Motels, Inc.35 In the Kelly

case the complaint was dismissed by agreement of the parties, subject

to a stipulation effectively preventing sale of the stock without registration. In the Truckee Showboat case the application for a preliminary injunction was denied, the court indicating that it was convinced

that the defendant was not threatening to violate the law and that an

injunction was therefore unnecessary. In the Doctor'S' Motels case the

complaint. was dismissed by stipulation of the parties subsequent to

the filing of a registration statement.

A final injunction was obtained by consent in S. E. O.v. Edward L.

Elliott, et al.36 to prevent distribution of unregistered securities of

Crowell-Collier Publishing Company. The related administrative

proceedings are discussed in this report under the Securities Exchange

Act of 1934.37

Sales of unregistered mining stock, which also violated the antifraud provisions of Section 17 of the Securities Act in that false and

misleading statements were used in such sales, brought about the entry

.. S. D. New York No. 116-190 (January 9. 1957). Notice of appeal from this injunction

was filed by four corporate defendants and five individual defendants before the end of the

fiscal year .

.. P. 54.

.. D. Nevada. No. ~4 (September 27,1957).

33 District of Columbia. No. 2635-57 (October 18, 1957) .

.. S. D. California. No. 901-57 WB (July 23,1957).

35 D. Kansas. No. KC907 (June 27, 1957)

.. S. D. New York No. 123-234 (August 12, 1957)

....Infra, page 83.

•

•
TWENTY-FOURTH ANNUAL REPORT 49

of a final injunction in S. E. O. v. Triwmph Mines, Ltd., et aZ.aa and

resulted in a preliminary injunction in S. E. O. v. Alan Russell Securities, Incorporated, et al.39 Preliminary injunctions to prevent further

violations of Section 5 and 17 of the Securities Act were also entered

in S. E. O. v. Franklin Atlas Oorp., et al.,40 and S. E. O. v. American

Founders Life Insurance Oompany of Denver, Colorado, et al.41 In

the latter case an injunction was entered against the corporate defendants, American Founders Life Insurance Company of Denver,

Colorado and Colorado Management Corporation. Among other

statements found to be misleading by the Court were the omission to

disclose the intercorporate relationships existing between the corporate defendants; for example, that Colorado Management Corporation

entered into a management contract with American Founders for a

consideration equal to at least 5% of the gross income of the insurance

company for a 10-year period.

A permanent injunction was entered against Judson I. Taggart in

S. E. O. v. Ada:ms Bond and Share, Inc. and Judson I. Taggart.42

The complaint alleged that Taggart as vice president of defendant

company had, in the sale of stock in that company, made false and misleading statements by, among other things, omitting to state to purchasers that another company, whose business his company was purchasing, had been continually operating at substantial losses, amounting to over $46,000 within a specified SIx-month period. In S. E. O.

v, Evergreen Memorial Park Association, et al.,43 the defendants consented to the entry of an injunction restraining further violations of

Section 17 of the Securities Act.

False and misleading statements in violation of Section 17 of the

Securities Act as well as sales in violation of the registration provisions were alleged in the Commission's complaint in S. E. O. v.

Crusader Oil and Uraniwm Oompany, et al.44 In that case, the Commission alleged that in connection with the offer and sale of unregistered common stock of the Wyoming Oil Company (Delaware) the

defendants had represented that the selling price of 20~ to 50~ per

share was a special price offered to a few stockholders, whereas in fact

it was far in excess of the market price, and the offering was not

limited to a few stockholders. A final judgment was entered by consent permanently enjoining Crusader Oil and Uranium Company and

James R. Macon, president and controlling person, from further vioasW. D. Washington No. 4555 (March 18, 1958) .

.. S. D. New York No. 130-358 (March 7, 1958).

40 S. D. New York No. 120-172 (September 4, 1957) .

.. D. Colorado No. 6021 (April 1, 1958)

.. D. Idabo No. 3413 (January 11, 1958)

.. E. D. Pennsylvania No. 24. 424 (April 3,1958)

.. D. Colorado No. 5769 (August 19. 1957).

486867-li9-5

•

•

•
50 SECURITIES AND EXCHANGE COMMISSION

lations of Sections 5 (a) and (c) and 17 (a) of the Act, and Robert W.

Wilson, a broker-dealer, from further violating Section 17 (a) of the

Act.

In S. E. O. v. Southwest Securitiee, Ino., et al.4IJ a permanent injunction was entered enjoining General Insurance Investment Company,

Harvey E. Smith, Margaret Brand Smith, and Bennie L. Dean from

further violations of the registration provisions of the Securities

Act. At the same time the Court entered an order extending until

further order the effectiveness of a temporary restraining order which

had been previously entered against Southwest Securities, Inc., Allen

Goldsmith and Faye Goldsmith, restraining them from further violations of the registration and anti-fraud provisions of the Securities

Act, as well as of the broker-dealer registration requirements of the

Securities Exchange Act of 1934.

S. E. O. v. Robinson Development Oorporation, Skid Oonirot 001'-

poration, et al.46 also involved violations of Section 5 (a) and (c) and

Section 17 (a) of the Securities Act. The Commission's complaint

alleged, in addition to the fact that the securities being offered and

sold were unregistered, that the defendants employed a scheme to defraud by means of displaying a false and misleading motion picture

and made false and misleading statements regarding, among other

things, the identity of the inventor, the guarantee against competition, acceptance of the skid-control device by trucking and taxicab

companies, profits to result, success of tests and future value of dividends. The court granted a final injunction against the defendants,

Robinson Development Corporation, Louis M. Robinson, Skid-Control Purchasing, Inc., Robinson Skid-Control Associates, Inc. and

Cedar-Vale Development Corporation.

Universal Service Corporation had been the subject of a Commission stop order issued February 5, 1957 following the :filing of a false

and misleading registration statement and prospectus. The stop

order was lifted when Universal filed amendments purportedly correcting the original filings. However, the Commission found it necessary to institute action to enjoin Universal Service Corporation and

its officers from proceeding to sell under the amended :filing. The

Commission's complaint in S. E. O. v. Unive1'salSe1'Vice Oorporation,

et al.47 alleged that the registration statement and prospectus of the

defendant contained untrue statements of material facts and that they

omitted to state facts required to be stated, in violation of the antifraud and registration provisions of the Act. As an example, Universal had asserted ownership of 253 mining claims in the State of

Texas, when in fact the claims had been forfeited to the State of Texas

'IS E. D. Arkansas No. 3566 (May 19, 1958).

W. D. Pennsylvania No. 16203 (September 11, 1957).

t7 S. D. Texas No. 11608 (March 6, 14158).

'"
TWENTY-FOURTH ANNUAL REPORT 51

:for failure to pay rentals. A final injunction was entered against

Universal and its board chairman Bert Thompson, and the temporary

restraining order already in effect was continued against the remaining

defendants.

InS. E. O. v. Mississippi Valley Portland Oement,48the defendant

was permanently enjoined from further violation of Sections 17and 23

of the Securities Act. One of the allegations of the Commission's

complaint was that the defendant had falsely stated that the fact that

a registration statement had become effective meant that the Commission and its "cement consultant" had determined that cement could be

economically produced from materials owned by the defendant near

Vicksburg, Mississippi.

The defendant was also enjoined in S. E. O. v. James O. Gl'aye,

doing business as J. O. Graye 00.,49 from further violations of Section 17 of the Securities Act. He had been selling stock of Atlas

Gypsum Corporation, Ltd. largely on the strength of an untrue and

misleading statement announcing a proposed merger between Atlas

Gypsum Corporation, Ltd. and Johns-Manville. Another permanent

injunction was obtained at about the same time against the same defendant as a broker-dealer in an earlier action charging violation of

the Commission's net capital rule.50

In S. E. O. v. Los Angeles Trust Deed and Mortgage Exchange,

et al.51 the defendants sold securities described in the complaint as

evidences of indebtedness, investment contracts, and receipts for or

guarantees of such securities arising out of the sale of promissory

notes secured by deeds of trust covering real estate in California. The

complaint alleged violations of the registration provisions of the Securities Act as well as violations of the anti-fraud provisions of that

Act and of the Securities Exchange Act of 1934. Charges were made

in the complaint that the advertising and selling literature contained

incomplete, ambiguous, flamboyant, misleading, untrue and deceptive

statements of material facts, such as a statement to the effect that the

plan affords investors an opportunity to buy an income for life without reducing their principal and that the plan constitutes a safe and

secure method of realizing rapid capital appreciation through the

"magic of compound interest", omitting to disclose, among other

things, the speculative nature of investments in second trust notes,

and the differences between trading securities listed and registered

on national securities exchanges and the open-market trading in deeds

of trust conducted by the defendants. After the close of the fiscal

year a temporary injunction was obtained against all but one of the

48 D. C. No. 3187-57 (December 20, 1957)

.. S. D. New York No. 129-145 (.January 23, 1958).

EO S. D. New York No. 126-144 (October 29, 1957).

01 S. D. California No. 261-58 TC (March 24, 1958).

•
52 SECURITIES AND EXCHANGE COMMISSION

defendants and a receiver appointed. The Court of Appeals for the

Ninth Circuit subsequently granted a stay pending appeal.

The Commission has been very much concerned in recent years with

the high-pressure tactics of broker-dealer firms which use long distance telephone calls to prospective investors to sell unregistered securities. The salesmen for these securities firms frequently make

claims of a spectacular future for the security they are attempting

to sell.

During the fiscal year, the Commission secured preliminary injunctions in 8. E. O. v. Globe Securitie« Corporation; et al.52 and in 8. E. O.

v. Herbert Rapp, doing business as Webster Securitie« Corporation;

et al.53 These broker-dealer firms were offering and selling unregistered common stock of Taylorcraft, Inc. to United States residents by

means of long distance telephone calls. They made many misleading

and extravagant claims as to the present and future merits of an investment in Taylorcraft, Inc. stock; among them, (1) that Taylorcraft,

Inc. had received a multi-million dollar government contract for

guided missiles research, (2) that Taylorcraft, Inc. had enough government contracts to keep them busy three to five years, (3) that

they anticipated an annual volume for Taylorcraft, Inc. in excess of

$5 million and (4) that Taylorcraft, Inc. stock, at the time selling for

$1 a share would rise to $3, $4, $8 or $15 per share in short periods of

time.

The defendants in 8. E. O. v, J. H. Lederer 00., Inc.; et al.54 consented to the entry of a permanent injunction restraining them from

further violations of the registration provisions of the Securities Act

in the offer and sale of unregistered common stock of Continental

Mining Exploration, Ltd., a Canadian corporation. The Commission

had alleged that practically all of the shares of Continental acquired

by J. H. Lederer Co., Inc. were sold by means of long distance telephone calls to thousands of residents of the United States.

In 8. E. O. v. Mono-Kearsarge Oonsolidated Mining Oompany,

Jean R. Vedite 00., Ino., et al.55 the Commission's complaint alleged

that the individual defendants, who were persons closely connected

with the corporate defendants, acted as conduits to facilitate the public distribution of nearly a million unregistered shares of MonoKearsarge stock. It was further alleged that 380,000 of such shares

had already been offered and sold to U. S. residents by means of long

distance telephone calls and the United States mails. After the close

of the fiscal year certain of the defendants consented to the entry of a

.. S. D. New York No. 132-343 (April 29, 1958)

.. S. D. New York No. 132-344 (April 29, 1958)

.. S. D. New York No. 135-81 (;rune 25, 1958).

GO D. Utah No. C-58-58 (June 2, 1958).

•

•
TWENTY-FOURTH ANNUAL REPORT 53

permanent injunction, and permanent injunctions were entered against

other defendants, including the companies named above.

The Commission .filed a complaint near the close of the fiscal year

in S. E. O. v. Linooin: Securities Oorporation; et 01.56 charging that

defendants had been offering and selling by means of long distance

telephone solicitations unregistered shares of Shoreland Mines, Ltd.

The complaint further charged that the defendants in order to induce

sales of Shoreland Mines, Ltd. used false and misleading statements,

among others, (1) that the company had iron ore claims adjacent

to iron mines actually in operation by one or more large steel corporations (2) that Shoreland Mines, Ltd. was engaged in the exploration and development of newly discovered resources, and (3)

that the price of Shoreland Mines, Ltd. would substantially increase

in the near future. The affidavits .filed in support of the Commission's motion for preliminary injunction stated that there had been

no exploration work on the claims allegedly owned by Shoreland

Mines, Ltd.; that Shoreland Mines, Ltd. had no working capital; that

no mines are in operation adjacent to Shoreland Mines property; and

that the claims of Shoreland Mines, Ltd. were not owned outright

but subject to a payment of $15,000to the president of the company.

A temporary restraining order was entered and the action is still

pending.

The Commission's complaint and supporting affidavits in S. E. O.

v. Alan RU8selZSecurities, Ina.57 charged that the defendants had been

offering International Ceramics Mining, Limited stock, which is listed

on the Canadian Stock Exchange in Montreal, to residents of the

United States by means of long-distance telephone calls. The defendants in these telephone calls had falsely represented to prospective

investors that International Ceramics had large government contracts;

that it was producing a product for use in the guided missile and

rocket field; and that individuals associated with the Office of the

President of the United States had invested in the stock. In addition

to asserting the falsehood of such representations and others, the affidavits averred that International Ceramics for the past ten years had

been a pilot operation and operated at a deficit. A permanent injunction was entered restraining the defendants from further antifraud violations. .

Subpoena Enforcement

During the past fiscal year the Commission on several occasions

was obliged to resort to the courts to seek enforcement of subpoenas

issued in connection with investigations of violations of the Securities

110 s, D. New York No. 135-79 (June 25.1958).

IT Supra, p. 49.
54 SECURITIES AND EXCHANGE COMMISSION

Act. In S. E. O. v. Linda Lord 58 the Commission applied for an order

to require obedience to the subpoena issued in an investigation of defendant's activities in the sale, by telephone, of the stock of Shoreland Mines, Ltd. An order to show cause was issued on June 2,1958

to which defendant failed to respond. On July 30, 1958 a criminal

information was filed against the defendant for violation of Section

19 (b) of the Securities Act and Section 21 (b) of the Exchange Act

for willful failure to respond to the subpoena. She is presently a

fugitive and a bench warrant has been issued for her arrest. The injunctive action initiated subsequent to the investigation is described

at page 53, S'Wpra.59

InS. E. O. v. Doeskin Products, Inc., et al.,60 the Commission sought

court enforcement of a subpoena duces tecum calling for the production

of certain records of Doeskin Products, Inc., charging that the refusal

to produce the information was impeding the Commission's investigation of whether the Securities Act had been violated in the issuance

and sale of securities of Swan-Finch Oil Corporation and Doeskin

Products, Inc. This action was subsequently dismissed by consent,

the records having been produced after the action was commenced.

For an account of related litigation, see pp. 54--55,infra. In S. E. O.

v. Dudley P. South,61 the District Court ordered the production of

certain books and records of the Surinam Corporation in obedience

to the Commission's subpoena duces tecum.

Other Litigation

In S. E. O. v. Doeskin Produote, Inc.,62 the Commission's complaint

was dismissed against two of the seven defendants, final judgment

having been entered by consent against the other five. This litigation,

which involved violations of Section 5 of the Securities Act, is discussed, together with the related proceedings in S. E. O. v, SwanFinch Oil Oorporaiion, et. al., on pages 52-3 of the 23rd Annual Report. In addition to the subpoena enforcement proceedings discussed

above on this page, there arose, in connection with the proceedings,

a civil suit against the Commission and various members of the Commission's staff. In that action Doeskin Products, Inc., filed a complaint in the New York Supreme Court," claiming damages of

$1,000,000 as a. consequence of the alleged unwarranted interference

by the Commission and its staff with the sale and transfer of plain-

~iff's~mmon stock in connection with the Commission's investigation

III this case and the related Swan-Finch case.

liB S. D. New York No. M-18-304 (May 28, 1958).

GO S. E. O. v. Lincoln Securities Corporation, et al.

GO S. D. New York (March 18, 1958).

Its. D. Texas No. 11, 517 (February 5,1958).

ell S. D. New York, No. 119-301 (Aprll11, 1957)

ell Doe8kin Products, Inc. v. WindelB, et aJ., New' York Supreme Court New York County

(December 17, 1957). "
TWENTY-FOURTH ANNUAL REPORT 55

Upon petition by the Commission and individual defendants the

case was removed to the Federal District Court for the Southern

District of New York.64 Defendants subsequently filed a motion to

dismiss, on the ground that the complaint failed to state a claim

upon which relief could be granted as against the individual

defendants, in that the acts complained of were performed in discharge of their duties as governmental officials and consequently no

liability attached, and further as against the Commission, in that

the Court lacked jurisdiction over the subject matter. The motion to

dismiss was granted and a notice of appeal was filed but subsequently

withdrawn. .

The Commission has been alert to the need to use all possible means

to protect investors from fraudulent promotions originating in foreign

countries. To this end a Foreign Fraud Order was obtained against

several companies and indiv:iduals engaged in a fraudulent distribution from Cuba into the United States of Latin American Exploration Company stock. The fraud order was based upon evidence

supplied by the Commission that the United States mails were being

used in. the conduct of the scheme to obtain money by means of

false and fraudulent representations concerning the geological nature

of the area in which the companies' property was located; the likelihood of bringing in profitable oil production from wells to be drilled

on such properties; anticipated increases in the value of stock; the probability of a big strike in oil on the property of the company and various

other similar lJ.'epresentations. The fraud order, which is directed to

all postmasters authorized to dispatch mail to Cuba, instructs them

to stamp "FRAUDULENT" on all mail directed to any of the companies or persons listed in the order, and to return the same to the

sender.

In Oomico Oorporation v. S. E. 0.,65 a petition was filed for review

of the Commission's order denying petitioner's application for withdrawal of the registration statement. The Commission moved to

dismiss the petition on the ground that the court lacked jurisdiction.

A per curiam order was subsequently entered dismissing the petition.

Doeski.n Product8, Inc. v, Wi.nde18.et al S. D. New York, No. 128-271

.. C. A. D. C. No. 14.344.

'" •• •
Richmond Stock Exchange

Wheeling Stock Exchange

PART V

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT

OF 1934

The Securities Exchange Act of 1934 provides for the registration

and regulation of securities exchanges, and the registration of securities listed on such exchanges and it establishes, for issuers of securities

so registered, financial and other reporting requirements, regulation

of proxy solicitations and requirements with respect to trading by

directors, officers and principal security holders. The Act also provides for the registration and regulation of brokers and dealers doing

business in the over-the-counter market, contains provisions designed

to prevent fraudulent, deceptive and manipulative acts and practices

on the exchanges and in the over-the-counter markets and authorizes

the Federal Reserve Board to regulate the use of credit in securities

transactions. The purpose of these statutory requirements is to ensure the maintenance of fair and honest markets in securities.

REGULATION OF EXCHANGES AND EXCHANGE TRADING

Registration and Exemption of Exchanges

At the close of 1958, 14 stock exchanges were registered under the

Exchange Act as national securities exchanges:

American Stock Exchange Pacific Coast Stock Exchange

Boston Stock Exchange Philadelphia-Baltimore S to c k ExChicago Board of Trade change

Cincinnati Stock Exchange Pittsburgh Stock Exchange

Detroit Stock Exchange Salt Lake Stock Exchange

Midwest Stock Exchange San Francisco Mining Exchange

New Orleans Stock Exchange Spokane Stock Exchange

New York Stock Exchange

The following 4 exchanges have been exempted from registration

by the Commission pursuant to section 5 of the Act:

Colorado Springs Stock Exchange

Honolulu Stock Exchange

Disciplinary Actions

Each national securities exchange reports to the Commission disciplinary actions taken against their members for violation of the

Securities Exchange Act of 1934or of exchange rules. During the year

56
TWENTY-FOURTH ANNUAL REPORT 57

7 exchanges reported 44 cases of such disciplinary action. The actions taken included the imposition of .finesaggregating $18,430 in 10

cases; the suspension of 1 individual and 2 firms from exchange

membership; cancellation of the registration of 1 individual as a

specialist; and censure of a number of individuals and firms.

Commission Rate Study

Section 19 (b) of the Exchange Act imposes on the Commission

certain responsibilities and duties with respect to the rules of national securities exchanges including rules in respect of such matters

as the fixing of reasonable rates of commission and other charges.

Under an amendment to its Constitution, effective May 1, 1958, the

New York Stock Exchange provided for an increase in the minimum

commission rates to be charged by members and member firms. On

April 14, 1958, the Commission announced that it had directed its

staff to conduct a study of such commission rates and to report to the

Commission whether such commission rates and other charges are

reasonable and in accord with the standards contemplated by applicable provisions of the Exchange Act.' Pursuant to the directive of

the Commission the staff is now making a comprehensive study of

commission rates on the New York Stock Exchange.

Nine other registered national securities exchanges, including the

American Stock Exchange, have recently adopted scheduIes of commission rates identical with that of the New York Stock Exchange.

REGISTRATION OF SECURITIES ON EXCHANGES

It is unlawful for a member of a national securities exchange or a

broker or dealer to effect any transaction in a security on such exchange unless the security is registered on that exchange under the

Securities Exchange Act or is exempt from such registration. In

general, the Act exempts from registration obligations issued or guaranteed by a State or the Federal Government or by certain subdivisions or agencies thereof and authorizes the Commission to adopt

rules and reguIations exempting such other securities as the Commission may find necessary or appropriate to exempt in the public interest or for the protection of investors. Under this authority the

Commission has exempted securities of certain banks, certain securities secured by property or leasehold interests, certain warrants and,

on a temporary basis, certain securities issued in substitution for or

inaddition to listed securities.

Section 12 of the Exchange Act provides that an issuer may register

a class of securities on an exchange by filing with the Commission and

1SecurIties Exchange Act Release No. 5678.
58 SECURITIES AND EXCHANGE COMMISSION

the exchange an application which discloses pertinent information

concerning the issuer and its affairs. An application requires the

:furnishing of information in regard to the issuer's business, capital

structure, the terms of its securities, the persons who manage or control its affairs, the remuneration paid to its officers and directors, the

allotment of options, bonuses and profit-sharing plans, and financial

statements certified by independent accountants.

Form 10 is the form used for registration by most commercial and

industrial companies. There are specialized forms for certain types

of securities, such as voting trust certificates, certificates of deposit

and securities of foreign governments.

-Section 13 requires issuers having securities registered on an exchange to file periodic reports keeping current the information furnished in the application for registration. These periodic reports include annual reports, semi-annual reports, and current reports. The

principal annual report form is Form 10-K which is designed to keep

up-to-date the information furnished in Form 10. Semi-annual reports required to be furnished on Form 9-K are devoted chiefly to

furnishing mid-year financial data. Current reports on Form 8-K

are required to be filed for each month in which any of certain specified events have occurred. A report on this form deals with matters

such as changes in control of the registrant, important acquisitions

or dispositions of assets, the institution or termination of important

legal proceedings and important changes in the issuer's capital securities or in the amount thereof outstanding.

Statistics Relating to Registration

eAs of June 30, 1958, a total of 2,236 issuers had 3,795 classes of securities listed and registered on national securities exchanges of which

2,663 were classified as stocks and 1,132 as bonds. Of the total 2,236

issuers, 1,28~ had 1,526 stock issues and 1,087 bond issues listed and

registered on the New York Stock Exchange. On a percentage basis,

the New York Stock Exchange had listed 57% of the issuers, 57% of

the stock issues and 96% of the bond issues.

During the 1958 fiscal year, a total of 54 issuers listed and registered

securities for the first time on a national securities exchange and the

listing and registration of all securities of 74 issuers was terminated

during the year. The number of applications filed during the fiscal

year for registration of classes of securities on national securities exchanges was 207.

The following table shows the number of annual, semi-annual and

current reports filed during the year by issuers having securities listed

and registered on national securities exchanges. The table also shows

the number of such reports filed under section 15 (d) of the Securities
TWENTY-FOURTH ANNUAL REPORT 59

Exchange Act of 1934 by issuers obligated to file such reports by reason of their undertaking contained in one or more registration statements filed and effective under the Securities Act of 1933 for the public

offering of securities. As of June 30, 1958, there were 1,365 such issuers, including 184 also registered under the Investment Company

Act of 1940.

Number of annual and other periodic reports filed by issuers under the Securities

Exchange Act of 1934- during the fiscal year ended June 30, 1958

Number of reports filed

byTotal

Type of report Listed Over-the- reports

Issuers counter is- filed

tI1mgreports suers tI1mg

under sec. reports

13 under sec. 15 (d)

Annual reports on Form lQ-K, etc ______________________________ 2,269 1,270 3.539 Semiannual reports on Form 9-K _______________________________ 1,884 886 2,770 Current reports on Form 8-K _________________________________ 3,427 1,405 4,832

Total reports filed_______________________________________ 7,580 3,561 11,141

MARKET VALUE OF SECURITIES TRADED ON EXCHANGES

The market value on December 31, 195'7,of all stocks and bonds admitted to trading on one or more stock exchanges in the United States

was approximately $331,2'7'7,155,000as reported below.

Number Market value

of issues Dec. 31, 1957

Stocks: New York Stock Exchange ____________________________________________1,522 $195.570,176,000 American Stock Exchange ____________________________________ 855 25.545,238, 000 Exclusively on other exchanges ________________________________________ 584 3,097,925,000

Total stocks ___________________________ 2,961 224,213,339,000

Bonds: New York Stock Exchange , 1,106 106,071,744,000 American Stock Exchange 59 860,410,000 Exclusively on other exchanges __________________ 28 131,662,000

Total bonds _________________________________________________________1,193 107,063,816,000

Total stocks and bonds ______________________________________________4,154 331,277,156,000

1Bonds on the New York Stock Exchange.1ncluded:54~U.~S. Government'and New York State and City

Issues wIth $80,795,454,000aggregate market value.

The New York Stock Exchange and American Stock Exchange

figures were reported by those exchanges. There is no duplication of

issues between them. The figures for all other exchanges are for the

net number of issues appearing only on such exchanges, excluding the

many issues on them which were also traded on one or the other of

the New York exchanges. The number of issues as shown excludes

•________

_______ ~ _________ R _ • ___ • _____

____•_____________________________________ __•__________________________________________ •_____________________
60 SECURITIES AND EXCHANGE CO:M:MISSION

those suspended from trading and a few others for which quotations

were not available. The number and market value as of December

31,1957, of stock issues alone are shown below:

Preferred stock Issues Common stock Issues

Number Market value Number Market value

Listed on registered exchanges _____________ 580 $7,948,896,000 2.053 $197,177,312,000 Unllsted on all exchanges __________________ 50 542, 204, 000 207 18, 133, 145, 000 Listed on exempted exchanges 1 13 16,975,000 58 394,807,000

Total stocks . 643 8. 508, 075, 000 2,318 215, 705, 264, 000

1 ExcludJng Issues also traded on registered exchanges.

Reported market values for all stocks on the New York Stock

Exchange and estimated unduplicated market values for all stocks

on the other exchanges on June 30 of each year commencing in 1949,

in billions of dollars, have been as follows:

New York American All other June 30 each year Stock Stock exchanges Total Exchange Exchange

1949 _. ._. . _. $63.9 $12.0 $3.0 $78.9 1950 . 80.7 13.0 3.2 96.9 1951. . ._ 97.9 15.2 3.2 116.3 1952 114.5 16.7 3.1 134.3 1953__________________________________. _________________ 113 3 16.1 3.0 132.4 1954 . . 139.2 18.7 3 2 161.1 1955. . . 194.4 24. 6 3.8 222.8 1956 . 218.6 27.6 3.8 250.0 1957 227.9 30.5 3.6 262 0 1958 _. _. 224.9 30.0 3.0 257.9

No deductions have been made from the market values in the three

preceeding tables for intercompany investments tending toward duplication of values. The leading example of this duplication is the

Standard Oil (New Jersey) ownership of more than $10 billion market

value of shares of Creole Petroleum Corp., Humble Oil & Refining

Co., Imperial Oil Ltd., and International Petroleum Co., Ltd. This

ownership comprises well over half of the total value of all unlisted

shares admitted to trading on the American Stock Exchange. It is

reflected, of course, in the market value of the Standard Oil shares on

the New York Stock Exchange.

The number of shares admitted to trading on the stock exchanges

on December 31,1957, was approximately 6,773,000,000,compared with

6,334,500,000 on December 31, 1956. Some 6,246,900,000 shares, or

92.2% of the total, were listed on registered exchanges, and included

170,500,000preferred and 6,076,400,000common shares.

Assets of Companies With Listed Common Stocks

As shown above, there were 2,053 common stock issues with an

aggregate market value of about $197 billion listed on registered

________ • ___

_____ • _______ _______• ___

_______•• _ __•••• ___• ___________ _____________ ________• _______ ___________________________________

_____________• _____________ _____________________ ___• _____• ______________________ -~----------------- ____ _________• ______________________ ______________ ____• __________________ ___________________ _______

____• _________________________ _____________________

____•• __________•• _________________________________•

__• __• __•• ___•••• ___• _______________• ___________
TWENTY-FOURTH ANNUAL REPORT 61

exchanges as of December 31, 1957. The assets of the issuers involved

were about $273 billion, based on a showing of $255.2 billion by the

New York Stock Exchange and an estimate as to issuers represented

on other exchanges. The figures represent a conglomerate of individual and consolidated company reports and various treatments of

such matters as reserves for depreciation.

Foreign Stock

The market value on December 31, 1957, of all shares and certificates representing foreign stocks on the stock exchanges was reported

at about $9.7 billion, of which $8.9 billion represented Canadian and

$0.8 billion represented other foreign stocks. The market values of

the entire Canadian stock issues were included in these aggregates.

Most of the other foreign stocks were represented by American

Depositary Receipts or American Shares, only the outstanding

amounts of which were used in determining market values.

Comparative Over-we-Counter Statistics

Section 15 (d) of the Securities Exchange Act of 1934 requires that

registration statements filed pursuant to the Securities Act of 1933

contain undertakings by the issuers to file the reports required by

section 13 of the Securities Exchange Act when the class of securities

offered and outstanding exceeds $2,000,000. The number of issuers

required to file these reports increased from 1,086 to 1,151 during the

fiscal year, excluding issuers also filing under the Investment Company Act of 1940. These issuers had securities outstanding with a

market value in excess of $20 billion on June 30, 1958.

The number of issuers registered under the Investment Company

Act of 1940 increased from 432 to 453, and their aggregate assets

increased roughly from $15 billion to $17 billion during the fiscal

year. Of the 453 issuers, 37, having assets totalling about $1.8 billion,

had their stocks listed on an exchange and the stocks of 3 whose

assets totalled about $56 million, were traded on an exchange on an

unlisted basis. The securities of the remaining 413 issuers were traded

exclusively in the over-the-counter market.

The number of active domestic issuers of over-the-counter stocks

(exclusive of registered investment companies) reporting 300 or more

holders appears not to have changed materially in recent years from

the estimated total of 3,500mentioned in previous annual reports. The

numerous annual additions have been substantially offset by removals

due to listing, merger or other causes. The growth in issuers of

over-the-counter stocks appears more with respect to assets, market

values and number of shares outstanding and shareholders, than in

number of companies. In this respect they resemble issuers having

securities listed and registered on exchanges, whose number was 2,210
62 SECURITIES AND EXCHANGE COMMISSION

on June 30, 1953 and 2,236 on June 30, 1958, but whose aggregate

assets, market values, shares outstanding and shareholders have greatly

increased. The aggregate market value on December 31, 1957 of

the over-the-counter domestic stocks with 300 or more reported holders,

was about $44 billion or about 20% of the $224.2 billion market value

for all stocks on the exchanges on that date. The approximate number

of issuers and the aggregate market values of their over-the-counter

stocks were: for 700 bank issuers, $12 billion; for 275 insurance issuers,

$8 billion; for 300 utility issuers, $6 billion; and for 2,225 industrial

and miscellaneous issuers, $18 billion. The principal estimate in the

above amounts is the inclusion of about $1 billion in stock values for

500 issuers not found in the standard securities manuals nor reporting

to the Commission. The data are exclusive of issuers registered under

the Investment Company Act of 1940 and of foreign issuers.

The principal dollar volume in bonds of the United States and its

political subdivisions, in high-grade corporate bonds and preferred

stocks, and in bank, insurance, and investment trust shares is consummated in the over-the-counter market. The principal dollar volume

in stocks, other than those noted above, is consummated on the exchanges.

DELISTING OF SECURITIES FROM EXCHANGES

Pursuant to Section 12 (d) of the Securities Exchange Act a security registered on a national securities exchange may be withdrawn

or stricken from listing and registration in accordance with the rules

of the exchange and, upon such terms as the Commission may deem

necessary to impose for the protection of investors, upon application

by the issuer or the exchange to the Commission.

During the fiscal year 1958, the Commission granted applications

by exchanges and issuers to remove 42 securities from listing and registration pursuant to section 12 (d) and rule 12<12-1(b) thereunder,

as follows:

Applications filed by:

New York Stock Exchange

Aunerican Stock Exchange

Midwest Stock Exchange

Pacific Coast Stock Exchange

Philadelphia-Baltimore Stock Exchange

Salt Lake Stock Exchange

San Francisco ]dining Exchange Issuers

Stock Bond

fBsues isslIes

10 2

8 0

1* 0

2 0

5 0

2 0

3 0

10 0

~otal rernovals _

*Th1s stock was also delisted by New York Stock Exchange.

41 2

The New York Stock Exchange has adopted a revised policy with

respect to delisting, It has stated that it will consider initiation of a

_

_

_

_

_

_

_

_

-
TWENTY-FOURTH ANNUAL REPORT 63

delisting application where the size of a company has been reduced to

$2,000,000 or less in aggregate market value of the common stock

outstanding or net tangible assets applicable to common stock and the

average net earnings after taxes for the last three years is below

$200,000; or where distribution of the listed issue is limited to such an

extent that, in the case of common stock, there are 250 or fewer stockholders of record discounting holders of odd lots, or the stock

outstanding exclusive of concentrated holdings amounts to 30,000

shares or less or has a market value of $500,000 or less, or, in the case

of other listed securities, the issue outstanding exclusive of concentrated holdings has a market value of $200,000 or less or totals 2,000

shares or less in the case of stock or $200,000 or less of principal

amount in the case of bonds. The exchange has also stated that it will

consider initiation of a delisting application in instances, among

others, where stockholders have authorized liquidation or where sale

of assets has been made without authorizing liquidation. All of the

delisting applications filed by the New York Stock Exchange were

initiated in accordance with this policy. The revised policy with

respect to delisting of securities on the New York Stock Exchange

was at issue in two cases described on p. 96 of last year's Annual

Report,"

The 8 delistings by the American Stock Exchange included 4:

closely-held stocks, 3 stocks suspended for failure to meet reporting

requirements among other reasons, and 1 stock following upon distribution of the company's principal assets. The 13 delistings by the

regional exchanges included 6 stocks with small volumes on the exchanges, and 7 stocks of issuers (including 5 mining companies) failing to meet reporting requirements among other things.

Of the 10 delistings upon applications by issuers, 5 were for the

purpose of reducing multiple listings, 3 were by mining companies

of uncertain financial condition, 1 was for long absence of exchange

transactions, and 1 followed a stockholder vote heavily in favor of

delisting.

During the fiscal year 1958 the Salt Lake Stock Exchange and the

San Francisco Mining Exchange adopted rules providing for suspension of trading in issues of companies which have not filed the

annual reports required under section 13 of the Securities Exchange

Act within 60 days after such reports are required to be filed, and

for the filing of delisting applications with the Commission if the

failure is not cured within 90 days after suspension. There were 8

delistings upon application of these exchanges and issuers of securities listed thereon during fiscal 1958, based principally on failure or

2 EllJchangeBuffet Oorporation v, New York Stock EllJchangfl,and S. E. 0., 244 F. 2d 507

(C. A. 2, 1957) ; Atla8 Tack Gorp. v. New York Stock EllJchange,et aI., 246 F. 2d 811 (C. ..l.

I, 1957).
64 SECURITIES AND EXCHANGE COMMISSION

inability to comply with the new rule. The Spokane Stock Exchange

also adopted a similar rule during the fiscal year.

The Philadelphia-Baltimore Stock Exchange on April 9, 1958,

established a rule similar to that of the New York Stock Exchange

and several other exchanges, providing that, in the absence of special

circumstances, there must be a vote of security holders on delisting

proposals by issuers. Insuch cases, proxy statements must be cleared

through the Commission in accordance with its proxy rules. The

Salt Lake Stock Exchange adopted a substantially similar rule on

August 2,1957.

Delisting Proceedings Under Section 19 (a)

Section 19 (a) (2) authorizes the Commission to suspend for a

period not exceeding twelve months, or to withdraw, the registration

of a security on a national securities exchange if, in its opinion, such

action is necessary or appropriate for the protection of investors and,

after notice and opportunity for hearing, the Commission finds that

the issuer of the security has failed to comply with any provision

of the Act or the rules and regulations thereunder. Section 19 (a)

(4) authorizes the Commission summarily to suspend trading in any

registered security on any national securities exchange for a period

not exceeding ten days if in its opinion such action is necessary or

appropriate for the protection of investors and the public interest

so requires.

Seven cases were pending under section 19 (a) (2) at the beginning

of the fiscal year and two cases were initiated during the fiscal year.

One case was closed during the fiscal year and eight cases were

pending at the end of the year. The case which was closed during

the year and six cases which were closed shortly after the end of the

year are described below.

In the past the Commission has used the power under section 19

(a) (4) infrequently. However, during the year it found it necessary and appropriate in connection with proceedings under section

19 (a) (2) involving Bellanca Corporation to use its authority summarily to suspend trading in that corporation's securities registered

on the American Stock Exchange.

Bellanca Corporation.- Bellanca Corporation, a Delaware corporation, was a small manufacturer of aircraft parts until February

1955 when Sydney L. Albert, a buyer and liquidator of failing businesses, acquired over 80% of its stock. Soon after Albert's acquisition

the market price of Bellanca stock rose to a peak of 30%, but in

early June, 1956, the market price of the stock broke sharply and

continued to decline through 1956 to about $2.00 per share. The

Commission instituted proceedings under section 19 (a) (2) of the
TWENTY-FOURTH ANNUAL REPORT 65

Act to determine whether the common stock of Bellanca should be

suspended or withdrawn from registration on the American Stock

Exchange.

In ordering the withdrawal of the registration of the common

stock of Bellanca on the American Stock Exchange, the Commission

found that the company violated sections 13 and 14 of the Act which

require, respectively, the filing of reports with the Commission and

the exchange, and the filing of preliminary proxy soliciting material

with the Commission," The Commission ruled that Bellanca's failure

to file certain required information as well as its filing of false information with respect to a number of securities transactions reflected

a "flagrant disregard for its responsibilities to public investors."

The Commission found that beginning in March, 1955, and continuing until June, 1956, Bellanca through Albert, who had become its

president, and others engaged in a program of acquiring interests

in other companies by means of a series of complex transactions

many of which resulted in benefits to the insiders rather than to

Bellanca. It was held that the reports that were filed through June,

1956, served only to mislead the public and obscure the facts by failing

to disclose unfavorable aspects of Bellanca's transactions and related

financing arrangements.

Among the reporting deficiencies discussed by the Commission

were those relating to N. O. Nelson Company and Automatic Washer

Company. According to the decision, Bellanca failed to report that

its purchase of N. O. Nelson Company in 1955 was accomplished

by means of a $4,000,000 loan for which a premium of $500,000 was

paid in addition to interest of 6%, nor was the subsequent refinancing

of the Nelson purchase disclosed. Bellanca exchanged its Nelson

stock for a controlling block of stock of Automatic Washer Company,

at a time when Bellanca's president was in a controlling position

with respect to Automatic. The Commission found that Bellanca

should have filed a current report to disclose the agreement with

Automatic, and that a subsequently filed current report was misleading and inadequate in failing to disclose the interest of Bellanca's

president and others in the transactions. In addition, the Commission found that the financial statements in the annual report for 1956

and in preliminary proxy soliciting material filed with the Commission in 1957 were misleading and inadequate with respect to the

value placed on Bellanca's shares of Automatic stock.

The Commission further found that securities owned or held by

Bellanca or a subsidiary were used by the president for his own

personal benefit and that such information should have been disclosed

Securities Exchange Act Release No. 5706 (June 2,1958).

486867-59-6

•
66 SECURITIES AND EXCHANGE COMMISSION

in the company's annual report for 1956and in the preliminary proxy

soliciting material, as required under the Commission's rules. Although all such shares were eventually returned or replaced, it was

noted that in some instances the market value of the shares when

they were returned was considerably lower than at the time they

were taken.

The Commission held that the evidence showed a "course of conduct over an extended period involving flagrant violations of the

reporting and proxy provisions of the Act. The purpose of the

reporting provision is to inform existing and potential investors of

material corporate activities as they occur and the purpose of the

proxy provisions is to enable stockholders to exercise their voting

rights upon the basis of an informed judgment." The Commission

concluded that the record established that the protection of investors

required the withdrawal of the registration of Bellanca's securities

on the Exchange and pointed out that such withdrawal would conform with the Congressional intent reflected in section 19 (a) (2) as

well as the Commission's previous decision in the Great Sweet Grass

Oils case.'

Eureka Company.-In the Eureka Oompany case, the Commission

found that reports filed by the company with the San Francisco

Mining Exchange and the Commission during 1956 and 1957pursuant

to section 13 of the Securities Exchange Act were false and misleading. In addition, the company failed to file an annual report

for 1955 and semi-annual reports for the periods ending June 30,

1955 and June 30, 1956, and filed a false and misleading proxy statement with respect to its annual meeting of stockholders for November

14,1955.

The reports filed, some of which were filed late, were found to contain false and misleading statements concerning the acquisition of

significant amounts of oil, gas and mining properties and other physical assets. Morover, the reports misrepresented that certain securities

sold and issued by the company in exchange for various assets were

exempt from the registration requirements of the Securities Act of

1933 pursuant to the provision of section 4 (1) of the Act which exempts "transactions by an issuer not involving any public offering."

The Commission found that in a series of transactions from J anuary to February, 1957, the company issued a substantial amount .of

its common stock in exchange for various interests in oil, gas and mining properties and related machinery and equipment. Current reports

required to be filed to reflect these transactions were filed late, and no

reports were filed with respect to certain acquisitions of assets. Fur4 Securities Exchange Act Release No. 5483 (April 8, 1957).
TWENTY-FOURTH ANNUAL REPORT 67

thermore, the reports which were filed did not furnish required information regarding the date and manner of acquisition, a description

of the assets involved, the nature and amount of consideration given

therefor, the identity of the persons from whom the assets were acquired and the nature of the material relationships which existed between such persons and the company, its directors and officers, and

associates thereof.

Each of the current reports filed concerning the issuance of common stock in exchange for assets stated that such securities were not

registered under the Securities Act and that such "securities were

taken for investment by the purchaser." In this connection, the

Commission held that representations by a purchaser that he is acquiring securities for investment or that he will not transfer them for

a certain period are not of themselves sufficient to establish a private

offering exemption pursuant to section 4: (1) of the Securities Act. In

this case the Commission found that the number and nature of the

purchasers and the manner of distribution were such as to clearly involve a public offering. The stock issued by the company in 1956 for

properties and services were distributed to about 35 original purchasers. By February 1957, a large number of shares issued to the

original recipients were transferred to 70 other persons or firms, including more than 15 broker-dealer firms. A substantial number of

such shares eventually were widely distributed to the public.

The Commission found that the transfers and distributions were

known or should have been known to Eureka, and held that the current reports were false and misleading in representing that the shares

listed insuch reports were exempt from registration under the Securities Act and were taken for investment by the purchasers. Such reports should have disclosed that the shares were sold in violation of

section 5 of the Act.

The Commission stated that use of the facilities of a national securities exchange by an issuer is a privilege involving important responsibilities under the Securities Exchange Act, including compliance with

the reporting and proxy solicitation requirements. It pointed out

that Congress has specified that when violations occur, such privilege

may be withdrawn if necessary or appropriate for the protection of

investors, and decided that under the circumstances of the case, the

protection of investors required that the registration of the common

stock of Eureka on the San Francisco Mining Exchange be withdrawn,"

Nev-Tah Oil and Mining Company.-In the case of Nev-Tah Oil

and Mining Company the Commission found that the company had

failed to file current reports giving information as to acquisition of

S Securities Exchange Act Release No. 5729 (July 7. 1958).
68 SECURITIES AND EXCHANGE COMMISSION

certain interests and the subsequent loss thereof and also as to a judgment for $100,000 in connection with one of the transactions.

Moreover certain current reports represented that large issues of

stocks were registered under the Securities Act of 1933 whereas, in

fact, such shares were not registered and were offered to the public

in violation of the Act. Neither the sales of such shares nor an injunction obtained by the Commission by consent in the United States

District Court for the District of Nevada enjoining the registrant and

certain officers from further sales, were disclosed in current reports.

A vigorously contested issue in this case was whether control was exercised by the principal promoter who was the manager and generally

the largest single stockholder, who selected the president, two directors and the general counsel, who controlled the finances and operations, negotiated most of the acquisitions 'and dispositions and determined the prices and participated in a substantial way at board meetings although not a director. The Commission found that such

person in fact controlled and was the parent of the registrant and

that the required reports not only failed to disclose such control but

also falsely denied it existed. The registrant asked for a 90-day delay

of the Commission's determination so as to permit it to submit a plan

of rehabilitation, but the Commission found that the record did not

indicate any basis on which such a plan could be achieved and ordered

that the registration of the common stock on the Salt Lake Stock

Exchange be withdrawn,"

Nevada Monarch Consolidated Mines Corporation.- In the Nevada

Monarch case, the company had not filed annual reports for the years

1951 through 1956. Its report for 1956 was ultimately filed some five

months after it was due. In addition, the company failed to file until March, 1958, (after institution of delisting proceedings by the Commission) a current report due in July, 1957, reporting that in June,

1957, it had executed a three-year lease on all its properties coupled

with an option to the lessee to purchase the properties. Moreover, the

annual report finally filed for 1956 contained a balance sheet which

stated that proceeds of $50,000 from a government loan had been expended by the lessee for the development of a tungsten ore body, when

as a matter of fact the lessee received only $4,875 from such a loan

and in addition expended a maximum of $18,000 "in connection with"

such loan.

Inreaching the conclusion that the protection of investors required

the withdrawal of registration from the Salt Lake Stock Exchange,

the Commission pointed out that the purpose of the reporting provisions of the Act is to inform existing and potential investors of ma-

• Securities Exchange Act Release No. 5738 (July 22, 1958).
TWENTY-FOURTH ANNUAL REPORT 69

terial corporate activities and the corporation's financial condition,

and found that the registrant had ignored its obligations under these

provisions. The Commission also pointed out that the company's

asserted belief that the loan had been granted in its full amount could

not absolve the company of responsibility for the substantial overstatement of assets in its financial statement.'

Intermountain Petroleum, Inc.-In the Intermountain Petroleum,

Inc. case the Commission found that reports filed by the company with

the Salt Lake Stock Exchange and the Commission pursuant to section 13 of the Securities Exchange Act were not filed within the prescribed time and, when filed, were false and misleading. These

reports were found to contain false and misleading statements regarding the availability of exemptions from registration under the Securities Act, the recipients of stock issues and the value of mining and

oil claims.

The Commission in its opinion held that she record did not establish that the claimed exemption under section 4 (1) of the Securities

Act was available for the issuance of about 1,400,000 shares to approximately 90 persons in one transaction and the issuance of 274,500

shares to about 58 persons in another transaction. The opinion

points out that in the proceedings, and in amended reports for the

months in question, the company abandoned its contention that private offering exemptions under section 4 (1) of the Securities Act

were available and instead urged that registration was not required

because no sale of the securities occurred within the meaning of Rule

133 under the Securities Act. The Commission, in holding that this

position was without substance, stated that the theory of Rule 133 is

that no sale of securities to stockholders is involved where the distribution of securities to them results from the authorization by them,

voting as a group, of a corporate act such as a transfer of assets for

stock of another corporation, a merger or a consolidation, because in

such situations there is not present the element of individual consent

ordinarily required for a "sale" of securities in the contractual sense.

However, it was found in this case that the conditions of Rule 133, including the requirement of a vote of stockholders, were not met. It

was further stated that, even if the terms and conditions of that rule

had been literally met, no exemption would have been available under

that rule if a vote by the shareholders of the acquired company would

have been merely a formal act due to its affairs being controlled by a

single individual who negotiated the exchange.

The Commission also found that the reports in question were misleading with respect to mining and oil claims which had not been the

'Securities Exchange .Act Release No. 5146 (July 30. 1958).
70 SECURITIES AND EXCHANGE COMMISSION

subject of geological appraisals or exploratory drillings. The Commission stated that the use of the terms "appraised value" and

"valued" in connection with unexplored and undeveloped mining and

oil prospects was misleading since such terms carried with them an

implication that value had been determined by a scientific method.

Moreover, it was especially important that there be no misleading

implications as to the "value" of the claims covered by one of the reports, since those claims were sold to the company by an officer and

controlling person of the company.

The company asserted that there was no intent to mislead or withhold information and that the deficiencies were the result of a lack

, of understanding of the requirements and the failure to consult

counsel. The Commission concluded that while the company's asserted

lack of understanding of applicable law and regulations and its lack

of legal counsel did not condone the violations which it had found, it

appeared that such violations did not stem from any plan or intent

to defraud investors and that the company now fully appreciates its

obligations and exhibited a willingness to file accurate information.

Under all the circumstances, the Commission concluded, the protection of investors would be satisfied without withdrawal of the registration of the company's stock on the exchange if complete and

accurate reports were filed. Accordingly, the registration of the company's stock on the exchange was suspended shortly after the end of

the fiscal year for a period of 60 days, with the provision that if within

such time the company filed corrected current reports, an order terminating the suspension and discontinuing the proceedings would be

entered. If no such reports were filed within the stated period, an

order withdrawing the registration on the exchange of the company's

stock would be entered,"

Verdi Development Company.-The Commission found that the

company had failed to file current reports required to be filed pursuant

to section 13of the Act and the rules and regulations thereunder and to

report material dispositions of the company's assets, defaults on its

debt securities, the institution and termination of material litigation

and the granting by the company of stock options. In addition, the.

Commission found that annual reports filed by the company after

the institution of proceedings against the company failed to include

required financial statements, and concluded that the company's stock

should be withdrawn from registration on the San Francisco Mining

Exchange,"

North American Resources Corp.-The North American Resources

Corp. case involved the question of misrepresentations in a proxy

SecurIties Exchange .Act Release No. 5753 (.August 11, 1958). Subsequently In October,

1958, the company filed corrected reports and the suspenston proceedIngs were discontinued.

Securities Exchange .Act Release No. 5754 (August 14, 1958).

•

•
TWENTY-FOURm ANNUAL REPORT 71

statement. The company filed a proxy statement with the Commission, which was mailed to stockholders, indicating that one of the

matters to be acted on at the meeting was a proposal to increase the

amount of authorized common stock from 2,000,000 shares to 10,000,000

shares and that a portion of the new shares would be traded or

exchanged for oil and gas leases, royalties and mining properties. In

this connection it stated: "However no negotiations in this respect

have been undertaken and the Board of Directors does not presently

have in mind any specific properties for acquisition. In addition,

there have been no plans, agreements or discussions concerning the

present program of expansion or acquisitions in which the company

or its officers and directors or any prospective officer or director have

been or are now engaged."

The Commission found, however, that the evidence adduced at

the hearing established that at the time the proxy statement was

issued, the company's controlling person did in fact have in mind

specific properties for acquisition, and that there had been plans

and negotiations with respect thereto. The Commission concluded

that the proxy statement was materially false and misleading and

that the company in its use of such proxy materiel violated section

14 (a) of the Act and rule X-14a-9 thereunder, This fact, plus

the failure to file a current report on Form 8-K in connection with

the dssuance of 6,'750,000 shares of the company's stock for assets

acquired, led the Commission to find that it was necessary and appropriate for the protection of investors to withdraw the registration

of the company's common stock on the Salt Lake Stock Exchange,'?

UNLISTED TRADING PRIVILEGES ON EXCHANGES

Unlisted Trading Categories

Under the provisions of section 12 (f) of the Securities Exchange

Act of 1934, the Commission may approve applications by national

securities exchanges to admit securities to unlisted trading privileges

without action on the part of the issuers, if it finds such admissions

are necessary or appropriate in the public interest or for the protection of investors. Such admissions dmpose no duties-on issuers

beyond any they may already have under the Act. Section 12 (f)

provides for three categories of unlisted trading privileges.

Clause (1) of section 12 (f) provides for continuation of unlisted

trading privileges existing on the exchanges prior to March 1, 1934.

The number of unlisted trading privileges under Clause (1) inissues

listed 0'11 other exchanges has declined Hom '75 bond and 991 stock

admissions on December 31, 1935, to 2 bond and 536 stock admissions

on June 30, 1958. The number of unlisted trading privileges in

20 Securities Exchange .Act Release No. 5756 (.August 20, 1958).
72 SECURITIES AND EXCHANGE COMMISSION

issues not Iisted on other exchanges has declined from 496 bond

and 817 stock admissions to 20 bond and 246 stock admissions duning

the same period."

Clause (2) of section 12 (f) provides for granting by the Commission of applications by exchanges for unlisted trading privileges

in securities listed on other exchanges. There were 926 unlisted trading privileges in effect under Clause (2) on June 30, 1958, of which

925 involved stocks and 1 a bond issue.

Clause (3) of section 12 (f) provides for granting by the Commission of applications for unlisted trading privileges conditioned,

among other things, upon the availability of information substantially equivalent to that required to be filed by listed issuers. On

June 30, 1958, unlisted trading privileges existed pursuant to clause

(3) in only 12 bond and 4 stock issues, and 2 of the stock issues

have also become listed on other exchanges. There have been no

applications under clause (3) since 1949.

Volume of Unlisted Trading inStocks on Exchanges

The reported volume of shares traded on an unlisted basis on the

stock exchanges during the calendar year 1957 included approximately 28.8 million shares in stocks admitted to unlisted trading only

and 29.2 million shares in stocks listed on exchanges other than where

unlisted trading occurred. These amounts were respectively about

2.69 and 2.73 percent of the total share volume reported on all exchanges. Appendix table 9 shows the distribution of share volume

among the various categories of unlisted trading privileges on exchanges.

Applications for Unlisted Trading Privileges

Pursuant to applications filed by exchanges with respect to stock

listed on other exchanges, unlisted trading privileges were extended

during the year ended June 30, 1958, as follows:

Stock Exchange: Number oj stock« Boston 19

I>etroit 2

Philadelphia-Baltimore .___ 13

Pacific Coast 3

Total 31

The Commission's rule 12f-2 provides that when a security admitted to unlisted trading privileges is changed in certain minor

respects it shall be deemed to be the security previously admitted to

11 Trading privileges may exist in the same issue on numerous stock exchanges. Accordingly, the number of trading privileges is greater than the net number of issues concerned.

Exempted exchanges are excluded.
TWENTY-FOURTH ANNUAL REPORT 73

unlisted trading privileges, and, if it is changed in other respects,

the exchange may file an application requesting the Commission to

determine that, notwithstanding such change, the security is substantially equivalent to the security theretofore admitted to unlisted trading privileges. During the fiscal year, the Commission granted an

application by the Pacific Coast Stock Exchange for continuance of

unlisted trading in a stock under this rule.

BillCK DISTRIBUTIONS REPORTED BY EXCHANGES

Rule 10b-2 under the Securities Exchange Act of 1934 in substance

prohibits any person participating or otherwise financially interested

in the primary or secondary distribution of a security from paying

any other person for soliciting a third person to buy any security of

the same issuer on a national securities exchange. This rule is an

anti-manipulative rule adopted under section 10 (b) of the Act which

makes it unlawful for any person to use any manipulative or deceptive device or contrivance in contravention of Commission rules prescribed in the public interest or for the protection of investors. Paragraph (d) of rule 10b-2 exempts transactions where compensation

is paid pursuant to the terms of a plan, filed by a national securities

exchange and declared effective by the Commission, authorizing the

payment of such compensation in connection with the distribution.

The Commission in its declaration may impose such terms and conditions upon such plan as it deems necessary or appropriate in the public interest or for the protection of investors.

At the present time two types of plans are in effect to permit a block

of securities to be distributed through the facilities of a national securities exchange when it has been determined by the exchange that the

regular market on the floor of the exchange cannot absorb the particular block within a reasonable time and at a reasonable price or prices.

These plans have been designated the "Special Offering Plan," essentially a fixed-price offering based on the market price, and the "Exchange Distribution Plan," which is a distribution "at the market".

Both plans contemplate that orders will be solicited off the floor but

executed on the floor. Each of such plans contains certain antimanipulative controls and requires specified disclosures concerning

the distribution to be made to prospective purchasers.

In addition to these two methods of distributing large blocks of

securities on national securities exchanges, a third method is commonly employed whereby blocks of listed securities may be distributed

to the public on the over-the-counter market. This method is commonly referred to as a "Secondary Distribution" and such a distribution usually takes place after the close of exchange trading. It is

generally the practice of exchanges to require members to obtain the
74 SECURITIES AND EXCHANGE COMMISSION

approval of the exchange before participating in such secondary

distributions.

The following table shows the number and volume of special

offerings and exchange distributions reported by the exchanges having

such plans in effect, as well as similar figures for secondary distributions which exchanges have approved for member participation and

reported to the Commission.

Totalsale8--12 months ended December 31, 19571

Shares In Value (thou- Number offer Shares sold sands of

dollars)

Special offerlngs 5 68,016 63,408 1,845 Exchange distributions •••. ______________________ --- 33 448,394 390,832 16,855 Secondary dlstributions ____._______________________ 99 9,327,228 9,324,699 339,062

6 montbj! ended June 30, 19581

Special offerings, __________________________________

MI 93,

4451 88,

152

1 3,286 Exchange distrlbutlons 347,605 347,315 10,686 Secondary dlstnbutions ____________________________ 4,464,850 4,544,297 199,592

1Details of tbese dlstrlbntions appear In the Commission's monthly Statistical Bulletin. For data for

prior years see appendix table.

MANIPULATION AND STABILIZATION

Manipulation

The Exchange Act describes and prohibits certain forms of manipulative activity in any security registered on a national securities

exchange. The prohibited activities include wash sales and matched

orders effected for the purpose of creating a false or misleading appearance of trading activity in, or with respect to the market for, any

such security; a series of transactions in which the price of such security is raised or depressed, or in which actual or apparent active

trading is created for the purpose of inducing purchases or sales of

such security by others; circulation by a broker, dealer, seller, or

buyer, or by a person who receives consideration from a broker,

dealer, seller or buyer, of information concerning market operations

conducted for a rise or a decline in the price of such security; and

the making of any false and misleading statement of material information by a broker, dealer, seller, or buyer regarding such security

for the purpose of inducing purchases or sales. The Act also empowers the Commission to adopt rules and regulations to define and

prohibit the use of these and other forms of manipulative activity

in any security registered on an exchange or traded over the counter.

The Commission's market surveillance staff in its Division of

Trading and Exchanges in Washington and in its New York Regional

Office and other field offices observes the tickertape quotations of

securities listed on the New York Stock Exchange and on the Ameri-

_

_______•__________________________

••__________________________
TWENTY-FOURTH ANNUAL REPORT 75

9

1

can Stock Exchange, the sales and quotation sheets of the various

regional exchanges, and the bid and asked prices published by the

National Daily Quotation Service for about 6,000 unlisted securities

to observe any unusual or unexplained price variations or market

activity. The financial news ticker, leading newspapers, and various

financial publications and statistical services are also closely followed.

When unusual or unexplained market activity in a security is observed, all known information regarding the security is examined and

a decision made as to the necessity for an investigation. Most investigations are not made public so that no unfair reflection will be

cast on any persons or securities and the trading markets will not be

upset. These investigations, which are conducted by the Commission's regional offices,take two forms, A preliminary investigation

or "quiz" is designed to discover rapidly evidence of unlawful activity.

If no violations are :found, the preliminary investigation is closed.

If it appears that more intensive investigation is necessary, a formal

order of investigation, which carries with it the right to issue subpenas

and to take testimony under oath, is issued by the Commission.

If violations by a broker-dealer are discovered, the Commission may

institute administrative proceedings to determine whether or not

to revoke his registration or to suspend or expel him from membership in the National Association of Securities Dealers, Inc., or from

a national securities exchange. The Commission may also seek an

injunction against any person violating the Act and it may refer information obtained in its investigation to the Department of Justice

recommending that persons violating the Act be criminally prosecuted.

In some cases, where State action seems likely to bring quick results

in preventing fraud or where Federal jurisdiction may be doubtful,

the information obtained may be referred to State agencies for State

injunction or criminal prosecution.

The following table shows the number of quizzes and formal investigations pending at the beginning of fiscal 1958, the number initiated

in fiscal 1958, the number closed or completed during the same period,

and the number pending at the end of the fiscal year:

Trading investigations

Quizzes ItI:~~~ tlons

Initiated Pending June during30,fiscal 1957----------------------------------------------------------- year 66661

TotaL . . ._ 1321 10

Closed

Changedorto

completed formalduringdurlngllscal 1Iscal year--_-_---------------------------------------year -----.----------.-------------------------

I 86

85

_1

B-------.----2

Total .-_

Pending at end of 1Iscal year ---.-------------------.---------------------------- 461 8

-

• - --- _-----
76 SECURITIES AND EXCHANGE COMMISSION

When securities are to be offered to the public, their markets are

watched very closely to make Sure that the price is not unlawfully

raised prior to or during the distribution. Eight hundred and nine

registered offerings having a value of $16,489,700,000 and 732 offerings exempt under section 3 (b) of the Securities Act, having a value

of about $134 million were so observed during the fiscal year. One

hundred and ninety seven other offerings, such as secondary distributions and distributions of securities under special plans filed by

the exchanges, having a total value of $446 million, were also kept

under surveillance.

Stabilization

Stabilization involves open-market purchases of securities to prevent or retard a decline in the market price in order to facilitate a

distribution. It is permitted by the Exchange Act subject to the

restrictions provided by the Commission's rules 10b-6, 7 and 8. These

rules are designed to confine stabilizing activity to that necessary for

the above purpose, to require proper disclosure and to prevent unlawful manipulation.

During 1958 stabilizing was effected in connection with stock offerings aggregating 18,221,647 shares having an aggregate public

offering price of $453,580,132 and bond offerings having a total offering price of $201,138,350. In these offerings, stabilizing transactions resulted in the purchase of 316,945 shares of stock at a cost of

$8,335,724and bonds at a cost of $3,755,794. In connection with these

stabilizing transactions, 4,445 stabilizing reports showing purchases

and sales of securities effected by persons conducting the distribution

were received and examined during the fiscal year.

INSIDERS' SECURITY TRANSACTIONS AND HOLDINGS

A corporate "insider," by virtue of his position, may have knowledge of the company's condition and prospects which is not available

to the general public and may be able to use such information to

advantage in transactions in the company's securities. Section 16 of

the Securities Exchange Act of 1934 and similar provisions contained

in section 17 of the Public Utility Holding Company Act of 1935

and section 30 of the Investment Company Act of 1940 were designed

to provide other stockholders and investors with information as to

the transactions and holdings of insiders and to prevent the unfair

use of confidential information by insiders to profit from in-and-out

trading in a company's securities.
TWENTY-FOURTH ANNUAL REPORT 77

Section 16 (a) of the Securities Exchange Act requires every person

who is a direct or indirect beneficial owner of more than 10 percent

of any class of equity securities (other than exempted securities)

which is registered on a national securities exchange, or who is a

director or officer of the issuer of such securities, to file reports with

the Commission and the exchange disclosing his ownership of the

issuer's equity securities. This information must be kept current by

filing subsequent reports for any month in which a change in his

ownership occurs. Similar reports are required by section 17 (a) of

the Public Utility Holding Company Act of officers and directors

of public utility holding companies and by section 30 (f) of the

Investment Company Act of officers, directors, principal security

holders, members of advisory boards and investment advisers or

affiliated persons of investment advisers of registered closed-end investment companies.

All ownership reports are available for public inspection as soon

as they are filed at the Commission's officein Washington and reports

filed pursuant to section 16 (a) of the Securities Exchange Act may

also be inspected at the exchanges where copies of such reports are

filed. In addition, for the purpose of making the reported information available to interested persons who may not be able to inspect

the reports in person, the Commission summarizes and publishes such

information in a monthly "Official Summary of Security Transactions

and Holdings," which is distributed by the Government Printing Office on a subscription basis. The increasing interest in this publication is evidenced by the increase of more than 1,000 in subscriptions

during the past year. The total circulation is now nearly 6,000.

The number of ownership reports filed continued at a high level33,126 for the fiscal year. This is a decline from the record high of

34,443 reports filed during the 1957 fiscal year. The following table

shows the number of such reports filed during each of the last five

fiscal years.

Number of oumerstut: reports filed during tile last five fiscal years

Numbero!

reports

Fiscal year: filed 1958 33,126

1957 34,443

1956 32,001

1955 2~975

1954 23,199
78 SECURITIES AND EXCHANGE COMMISSION

The following table shows details concerning reports filed during

the fiscal year ended June 30, 1958.

Number of reports fileiL iLuring fiscalllear 1958

Securities Exchange Act of 1934: 1

lrorm 4 28,524

lrorm 5_________________________________________________________ 633

lrorm 6 3,133

Total 32,290

Public Utility Holding Company Act of 1935: 2

lrorm U-17-1___________________________________________________ 29

lrorm U-17-2___________________________________________________ 332

Total_________________________________________________________ 361

Investment Company Act of 1940 :a

Form N-30F-1__________________________________________________ 159

Form N-30F-2__________________________________________________ 316

Total_________________________________________________________ 475

Grand Total 33,126

1Form 4 is used to report changes in ownership; Form 5 to report ownership at the

tIme an equity security of an issuer is first registered on a national securities exchange;

and Form 6 to report ownership of persons who subsequently become officers, directors or

principal stockholders of the issuer.

2 Form U-17-1 is used for initial reports and Form U-17-2 for reports of changes of

ownership.

a Form N-30F-l is used for initial reports and Form N-30F-2 for reports of changes of

ownership.

Recovery of Short-Swing Trading Profits hy Issuer

In order to prevent insiders from making unfair use of information

which may have been obtained by reason of their relationship with a

company, section 16 (b) of the Securities Exchange Act, section 17 (b)

of the Public Utility Holding Company Act, and section 30 (f) of

the Investment Company Act provide for the recovery by or on behalf

of the issuer of any profit realized by insiders from certain purchases

and sales, or sales and purchases, of securities of the company within

any period of less than six months. The Commission has certain exemptive powers with respect to transactions not comprehended within

the purpose of these provisions, but is not charged with the enforcement of the civil remedies created thereby. The Commission has,

however, filed briefs as amicus curiae in several suits instituted by

private parties where the construction of applicable statutory provisions or rules was involved.

-
TWENTY-FOURTH ANNUAL REPORT

REGULATION OF PROXIES

Scope of Proxy Regulation

79

Under sections 14 (a) of the Securities Exchange Act, 12 (e) of the

Public Utility Holding Company Act of 1935, and 20 (a) of the Investment Company Act of 1940 the Commission has adopted Regulation 14 requiring the disclosure in a proxy statement of pertinent information in connection with the solicitation of proxies, consents and

authorizations in respect of securities of companies subject to those

statutes. The regulation also provides means whereby any security

holders so desiring may communicate with other security holders when

management is soliciting proxies, either by distributing their own

proxy statements or by including their proposals in the proxy statements sent out by management.

Copies of proposed proxy material must be filed with the Commission in preliminary form prior to the date of the proposed solicitation.

Where preliminary material fails to meet the prescribed disclosure

standards, the management or other group responsible for its preparation is notified informally and given an opportunity to avoid such defects in the preparation of the proxy material in the definitive form in

which it is furnished to stockholders.

Statistics Relating to Proxy Statements

During the 1958 fiscal year a total of 1,929 proxy statements in definitive form were filed under the Commission's Regulation 14 for the

solicitation of the proxies of security holders; 1,897 of these were filed

by management and 32 by non-management groups or individual stockholders. These 1,929 solicitations related to 1,769 companies, some 110

of which had more than one solicitation during the year, generally

for a special meeting not involving the election of directors.

Of the 1,929 proxy statements filed during the 1958 fiscal year, 1,780

involved the solicitation of proxies for the election of directors, 134

were for special meetings not involving the election of directors and 15

solicited assents and authorizations for actions not involving a meeting of security holders or the election of directors.

In addition to the election of directors, stockholders' decisions were

sought in the 1958 fiscal year with respect to the following types of

matters:

Mergers, consolidations, acquisitions of businesses, purchases and sales

of property and dissolutions of companies___________________________101

Authorizations of new or additional securities, modifications of existing

securities and recapitalization plans (other than mergers, eonsollda- tlo~ etc)_________________________________________________________ 208

Employee pension and retirement plans (including amendments to e:x:-

istu1g~)--------------------------------------------------_____ 79
80 SECURITIES AND EXCHANGE COMMISSION

Bonus, profit-sharing plans and deferred compensation arrangements

(including amendments to existing plans and arrangements) 30

Stock option plans (including amendments to existing plans)__________ 183

Stockholder approval of the selection by management of independent auditors 574

Miscellaneous amendments to charters and by-laws and other matters

(excluding those involved in the preceding matters)________________ 402

Stockholder Proposals

During the 1958 fiscal year, 39 stockholders submitted a total of

165 proposals which were included in the 95 proxy statements of 95

companies under rule 14a-8 of Regulation 14.

Typical of such stockholder proposals submitted to a vote of security holders were resolutions relating to amendments to charters or

by-laws to provide for cumulative voting for the election of directors,

limitations on the granting of options to and their exercise by key

employees and the management group and limitations on salaries

and pensions. Other resolutions related to such matters as the sending of a post-meeting report to all stockholders and the approval by

stockholders of the selection by management of the independent

accountants.

The management of 24 companies omitted from their proxy statements, under the conditions specified in rule 14a-8, a total of 51 additional proposals submitted by 32 individual stockholders. The

principal reasons for such omission and the number of times each

such reason was involved were as follows: (a) eight proposals were

not a proper subject matter under state law; (b) twelve proposals

related to the ordinary conduct of the company's business; (c) twelve

proposals involved a personal grievance; (d) six proposals were not

timely submitted to the company; (e) three proposals did not receive sufficient votes at the previous stockholders' meeting; (f) two

proposals involved the nomination of particular candidates for election as directors; (g) two proposals were based on reasons considered

to be misleading; (h) the company determined not to solicit proxies

after receipt of one proposal; and (i) five proposals were withdrawn

by the stockholder.

Ratio of Soliciting to Non-solioiting Companies

Of the 2,236 issuers which had securities listed as of June 30,1958, 2,001 had voting securities so listed. Of these 2,001 issuers, 1,551 or

78 per cent solicited proxies under the Commission's proxy rules for

the election of directors during the 1958 fiscal year.

Proxy Contests

During the 1958 fiscal year, 34 companies were involved in proxy

contests for the election of directors, 22 of which contests were for
TWENTY-FOURTH ANNUAL REPORT 81

control of the company and 12 for representation on the board of

directors. In these contests a total of 968 persons filed detailed statements as participants, or proposed participants, under the requirements of rule 14a-ll.

Of the 22 contests where control was involved, the management won

control in 14, the opposition in 3, 3 were settled prior to the meeting

of stockholders, and 2 were pending at June 30, 1958. Of the 12

contests where representation on the board of directors was involved,

the management won control in 8, the opposition in 1, 1 was settled,

and 2 were pending at June 30, 1958.

REGULATION OF BROKER.DEALERS AND OVER-THE.COUNTER

MARKETS

Registration

Section 15 (a) of the Securities Exchange Act of 1934 requires

registration of brokers and dealers using the mails or instrumentalities

of interstate commerce to effect transactions in securities on the overthe-counter market, except those brokers and dealers whose business

is exclusively intrastate or exclusively in exempt securities. Set

forth below are certain data with respect to registration of brokers

and dealers and applications for such registration during the fiscal

year 1958:

Effective registrations at close of preceding fiscal year 4,771

Applications pending at close of preceding fiscal year___________________ 69

Applications filed during fiscal year____________________________________ 704

Total 5,544

Applications denied___________________________________________________ 5

Applications vvitbdravvn_______________________________________________ 15

Applications cancelled________________________________________________ 0

Registrations withdrawn 609

Registrations cancelled_______________________________________________ 65

Registrations revoked________________________________________________ 38

Registrations effective at end of year 4,752

Applications pending at end of year____________________________________ 60

Total- 5.544

Administrative Proceedings

Under section 15 (b) of the Securities Exchange Act of 1934, the

Commission shall deny broker-dealer registration to an applicant or

revoke such registration if, after appropriate notice and opportunity

for hearing, it finds that such action is in the public interest and that

the applicant or registrant or any partner, officer, director or other

person directly or indirectly controlling or controlled by 'such

486867-59-7
82 SECURITIES AND EXCHANGE COMMISSION

applicant or broker-dealer is subject to one or more of the disqualifications set forth in the Act. These disqualifications, in general, are

(1) willful false or misleading statements in the application or documents supplemental thereto, (2) conviction within ten years of a

felony or misdemeanor involving the purchase or sale of securities or

any conduct arising out of the business as a broker-dealer, (3) injunction by a court of competent jurisdiction from engaging in any practices in connection with the purchase or sale of securities and (4) willful violation of the Securities Act of 1933or the Securities Exchange

Act of 1934or any of the Commission'srules or regulations thereunder.

Inaddition, brokers and dealers may be suspended or expelled by the

Commission from membership in the National Association of Securities Dealers, Inc. and national securities exchanges for participating

in violations of the various federal securities laws or the regulations

thereunder. The Commissionmay not deny registration to any person

who applies therefor absent evidence of misconduct of the specified

types enumerated in the Act. Bad reputation or character, lack of

experience in the securities business or even conviction of the registrant of a felony not involving the sale of securities do not constitute

.statutory bars to registration as a broker-dealer.

Below are set forth statistics respecting administrative proceedings

to deny and revoke registration and to suspend and expel from membership in a national securities association or an exchange.

Proceedings pending at start of fiscal year: Proceedings to revoke registration ~___________ 22

Proceedings to revoke registration and suspend or expel from NASD orexchanges 25

Proceedings to deny registration to applicants________________________ 9

Total proceedings pending 56

Proceedings instituted during fiscal year:

Proceedings to revoke registration__________________________________ 33

Proceedings to revoke registration and suspend or expel from NASD orexchanges 20

Proceedings to deny registration to applicants________________________ 4

Total proceedings instituted______________________________________ 57

Total proceedings current during fiscal year 113

Proceedings disposed of:

Proceedings to revoke registration:

ltegistratlon revoked___________________________________________23

Dismissed on withdrawal of registration________________________ 8

Begistratlon cancelled, proceedings discontinued_________________ 3

. Dismissed-registration permitted to continue in effecL__________ 1-

TOtal-_______________________________________________________ 85

~---------------------------------~-
TWENTY-FOURTH ANNUAL REPORT 83

Proceedings disposed ot-Continued

Proceedings to revoke registration and suspend or expel trom NASD

or exchanges:

Registration revoked and firm expelled from NASD______________ 15

Dismissed on withdrawal of registration_________________________ 1

Dismissed-registration and membership permitted to continue in effect-____________________________________________________ 1

Suspended for a period of time from NASD_____________________ 3

TOtal________________________________________________________ 20

Proceedings to deny registration to applicant: Registration denied '-_____________________________ 5

Dismissed on withdrawal of application_________________________ 1

Dismissed-application permitted to become effective_____________ 2

Total-_______________________________________________________ 8

Proceedings pending at end of fiscal year:

Proceedings to revoke registration___________________________________ 20

Proceedings to revoke registration and suspend or expel from NASD or exchanges____________________________________________________25

Proceedings to deny registration to applicants_______________________ 5

Total proceedings pending at end of fiscal year____________________ 50

Total proceedings accounted for 113

Proceedings in which action was taken during the year included the

following :

The distribution to the public of unregistered securities of CrowellCollier Publishing Company Ied to proceedings by the Commission

in which the broker-dealer firm of Elliott & Company was suspended

from the National Association of Securities Dealers, Inc. ior a period

of twenty days," and the firms of Gilligan Will & CO.13and Dempsey

& Company 14 were similarly suspended for periods of five days each.

Elliott & Company had sold convertible debentures on behalf of

Crowell-Collier to a. small group, including Gilligan, Will & Co.

and Dempsey & Company, and had obtained from these purchasers

statements of intention to hold the securities for investment. However, a number of the original purchasers, including those two firms"

shortly thereafter resold portions of their purchases to additional

persons, who also furnished statements of investment intent. Elliott

& Company claimed the exemption from registration provided by

the Securities Act of 1933 for private offerings, and the other two

firms in addition claimed that they were not underwriters and were

U Securities Exchange Act Release No. 1168S(May 7, 19118).

... Securities Exchange Act Release No. 11689 (May 7, 19118); petition for review of

Commission Order filed May 14, 19118,CA-2 No. 211,171; pending at close of fiscal year.

"'Securities Exchange Act Release No. 11690 (May 7, 1958). -
84 SECURITIES AND EXCHANGE COMMISSION

therefore exempt. The Commission ruled that these exemptions

were not available. Although Elliott & Company denied that it had

had knowledge of the resales, the Commission stated that actual

knowledge of resale was not essential to a finding of violation of section 5 of the Securities Act, there being many factors sufficient to put

persons experienced rill securities matters on notice of the probability

of further sales, including the speculative nature of the securities,

the fact that the debentures were issued in bearer form and in small

denominations, the establishment of a conversion price below the

market price of the common stock and the listing of the common

stock on the American Stock Exchange. The Commission 3;180 held

that the basic policy of registration under the Securities Act could

not be frustrated by the technique of mechanically obtaining socalled ''investment intent" Ietters from successive groups of purchasers.

The firm of Batkin & 00.15 was found by the Commission to have

practiced fraud in the purchase and sale of securities, failed to

comply with bookkeeping and net capital requirements, and sold

unregistered securities. The registration of Batkin & Co. as a brokerdealer was revoked and 'it was expelled from the National Association of Securities Dealers, Inc.

The application of Gregory & Oompany, lno.,I6 a Canadian brokerdealer, for registration as a broker-dealer was denied by the Commission and Kenneth H. Gregory, president, director and controlling

stockholder, was found to be the cause of the denial. The Commission

found that Gregory & Company, Inc. had made false and misleading

statements in its application for registration and had been effecting

transactions rill interstate commerce in unregistered securities while

it was not registered as a broker-dealer. The Commission also found

a violation of the antd-fraud provisions of section 17'of the Securities

Act of 1933 in that the applicant and Gregory offered securities to

customers at prices substantially higher than, and bearing no reasonable relationship to, the market price.

The application for broker-dealer registration of P. J. Gruber &

00., lno.l1 was denied where it was found that the applicant used

the mails and interstate facilities in the sale of 49,500 shares of

Acoustica Associates, Inc. stock when no registration statement was

in effect. In addition, false and misleading entries were found in the

blotters and ledgers maintained by the Gruber office. The Com-

:us Securities Exchange Act Release No. 5709 (June 9, 1958).

14 Securities Exchange Act Release No. 5680 (April 18, 19M).

11 Securities Exchange Act Release No. 5627 (January 15, 1958) ; petition for review of

Commission order lIIed March 17, 1958, C. A. D. C. No. 14,381; pending at close of fiseal

year.
T1VENTY-FOURTH ANNUAL REPORT 85

mission found Peter J. Gruber, controlling stockholder, and Phil

Sacks, president, to be the cause of such denial.

The registrations of four broker-dealer firms were revoked by the

Commission on the basis of injunctions issued against each of these

firms for selling unregistered securities. The broker-dealers so revoked were Harold L. Nielsen, doing business as Nielsen Investment

00.,18 Battery Seourities Oorporation,19 W. &: M. Oil Oompany,20

and Percy Dale Lanphere, doing business as Dale Lamphere.": Battery Securities Corporation was also expelled from the National Association of Securities Dealers, Inc.

In a number of cases the Commission revoked broker-dealer registrations on the basis of injunctions against further violations of the

Commission's net capital rule which requires that a broker-dealer

maintain for the protection of customers a prescribed ratio between

aggregate indebtedness and net capital. Revocations were based on

such injunctions in the following cases: Milton J. Shuck, doing business as M. J. Shuck Oompany/2 Quintin Securities, Inc.,23..4.. J. Gould

&: 00., Inc.,24Foster-Mann, Inc.,25and W. L. Mast &: 00.26 The last

named broker-dealer firm was also expelled from the National Association of Securities Dealers, Inc. The broker-dealer registration of

Stein, Botwinick &: Oompany,IncP was revoked by the Commission

on a finding that the broker-dealer firm was enjoined from engaging

in the securities business for effecting securities transactions while

insolvent and making false statements in the purchase and sale of

securities.

The broker-dealer registration of Wendell Elmer Kindley, doing

business as Wendell E. Kindley 00.28was revoked for failure to keep

books and records and to comply with the net capital requirements, as

well as for doing business while insolvent. It was found by the Commission that in eight transactions in one month the registrant had purchased securities from broker-dealers through the use of the mails and

other means of interstate commerce when he was not in a position to

:18 Securities Exchange Act Release No. 5545 (July 10, 1957).

,. Securities Exchange Act Release No. 5592 (October 25, 1957).

Securities Exchange Act Release No. 5622 (January 13, 1958).

n Securities Exchange Act Release No. 5546 (July 10, 1957).

22 Securities Exchange Act Release No. 5574 (September 13, 1957) ; petition for review

of Commission order filed November 12, 1957, C. A. D. C. No. 14,208; pending at close of

fiscal year.

Securities Exchange Act Release No. 5654 (March 13, 1958).

•• Securities Exchange Act Release No. 5606 (November 25, 1957) ; petition by William

Fisher to review Commission order in which petitioner was found to be a cause of the

revocation of broker-dealer registration of ..t. J. Gould <£ 00., Inc., filed December 26, 1957,

CA-2 No. 24957 ; pending at close of fiscal year.

215 Securities Exchange Act Release No. 5613 (December 12, 1957).

.. securtttes Exchange Act Release No. 5632 (January 27, 1958).

Securities Exchange Act Release No. 5542 (July 8, 1957),

.. Securities Exchange Act Release No. 5559 (August 7, 1957).

""

""

'"
86 SECURITIES AND EXCHANGE COMMISSION

pay for such securities, that he was unable to pay for them upon delivery, and that some sellers suffered losses because of his failure to

consummate the purchases.

The broker-dealer registration of Roberts Securities Corporation. 29

was revoked on the grounds that its president and controlling stockholder had 'been enjoined by the Supreme Court of the State of New

York from engaging in the securities business in that state, and that

the firm had failed to disclose the issuance of the injunction by

amendment to its application.

The Commission revoked the registration of Branch. Oarden &: 00.,

Ina.30 and found Branch J. Carden, Jr., its president, to be the cause

of such revocation. The firm and its president had been permanently

enjoined by the U. S. District Court for the Western District of Virginia from engaging in and continuing certain conduct in connection

with the purchase and sale of securities. The decree entered with the

consent of both defendants enjoined violations of the anti-fraud, net

capital, and bookkeeping provisions of the Act. Following pleas of

guilty, both defendants had been convicted by the same court of violations of these provisions of the Act.

O. J. Montague, Ina.31 was enjoined by the Supreme Court of the

State of New York from engaging in the securities business in that

state, on the basis of a complaint alleging the firm's insolvency, fraudulent concealment of such insolvency, and misappropriation of customer's funds and securities. The Commission revoked the firm's

registration as a broker-dealer on the basis of the injunction, false and

misleading statements in the application for registration, fraud in the

purchase and sale of securities, and failure to comply with the net

capital and bookkeeping rules under the Securities Exchange Act.

Revocations of the broker-dealer registrations of Ha7'1"!J B. Simon,

doing business as H. B. Simon 00.,32 William T. Bowler, doing business as William T. Bowler &J Oompany,aa a sole proprietorship, William T. Bowler and OompUJny,34a partnership, and Obrietopulo« &:

Nichols Brokerage Oompany, Ina.3s were based on convictions in connection with securities transactions. Simon had been convicted on

April 30, 1957 in the Federal District Court for the Southern District

of New York on his plea of guilty of violating section 17 (a) of the

Securities Act of 1933 and the mail fraud and conspiracy provisions

of the United States Criminal Code by making fraudulent representa-

.. Securities Exchange Act Release No. 5569 (August 27, 1957).

aoSecurities Exchange Act Release No. 5722 (Juue 26,1958).

"Securities Exchange Act Release No. 5717 (June 17, 1958) .

.. Securities Exchange Act Release No. 5614 (December 12, 1957)

.. Securltles Exchange Act Release No. 5675 (April 11, 1958).

I. Securities Exchange Act Release No. 5675 (April 11, 1958)

.. Securities Exchange Act Release No. 5703 (May 27. 1958).

•

•
TWENTY-FOURTH ANNUAL REPORT 87

tions in connection with the sale of common stock of Bostona Mines

Company between January 1, 1952and October 1, 1956.

On September 4, 1957 William T. Bowler had pleaded guilty and

was convicted in the Court of Quarter Sessions of McKean County,

Pennsylvania, of (1) embezzlement of a customer's securities; (2)

larceny in failing to return securities held by him as bailee; (3) fraudulent failure to disclose to the Pennsylvania Securities Commission

that he sold certain securities without informing purchasers that

neither he nor the issuer had any authorization from that Commission

to sell them; (4) sale of certain securities without filing a notice of

intention to sell such securities with that Commission; and (5) participation and assistance in the sale of certain securities by salesmen

who were not registered with that Commission. It was also found

that both the sole proprietorship and the partnership had violated

the record-keeping requirements of the Securities Exchange Act of

1934and the rules thereunder.

Christopulos & Nichols Brokerage Company, Inc., had been enjoined from improperly extending credit, failing to send confirmations

of transactions to customers and failing properly to record transactions, in violation of sections 7, 15, and 17 of the Securities Exchange Act of 1934,and had also been convicted of criminal contempt

of that injunction.

The revocations of the broker-dealer registrations of Horace Linson

Michener 86 and Cobb and Oompany, hW.,31 were based on findings of

misappropriation of customers' funds and the Commission found that

Michener had bought and sold securities without delivering the securities sold or paying for the securities purchased, in violation of sections

10 (b) and 15 (c) (1) of the Securities Exchange Act and the rules

thereunder. Cobb and Company, Inc., induced certain persons in 68

transactions to order securities and to make payment therefor, but,

instead. of purchasing the securities ordered, appropriated such payments to its own use. In connection with six of these transactions

Cobb and Company falsely represented that it had purchased the

securities ordered. 21 of the 68 transactions took place when the firm

was insolvent. In these transactions, registrant accepted monies and

securities upon the false representation that it was able to execute the

orders and appropriated such monies and securities to its own use.

Mclnnes & 00., Ina.,3s a registered broker-dealer, was also found to

have accepted customers' funds and securities without disclosing its

insolvency. The Commission also found, among other things, that in

the sale of securities of Alabama General Insurance Co., the firm made

Securities Exchange Act Release No. M05 (November 25. 1957) .

., Securities Exchange Act Release No. 5621 (January 7, 1958).

Securities Exchange Act Release No. 5552 (July 23, 1957).

•

•
88 SECURITIES AND EXCHANGE COMMISSION

false and misleading statements, with respect to the return on the investment in such securities and the government contracts of 'a subsidiary of that company, and that it sold unregistered securities of that

company. The Commission revoked the broker-dealer registration of

McInnes & Co., Inc. expelled it from the National Association of

Securities Dealers, Inc. and further found Raymond McInnes to be a

cause of such revocation and expulsion.

The Commission denied the application of F. W. Horne & 00.,

Ina.3D for registration as a broker-dealer because of the methods it

utilized to effect purchases and sales of securities of First New Hampshire Corporation. The Commission found that violations of the

anti-fraud provisions had been committed and that the firm had

effected securities transactions while not registered.

Looper and Oompany40 was found to have induced customer transactions which were excessive in volume and frequency in view of the

character of the accounts, and took secret profits and improperly

extended and arranged for credit in cash accounts, in willful violation

of the Securities Act and Securities Exchange Act and the rules

thereunder. Its broker-dealer registration was revoked.

The application of Indiana State Securities Oorporatioiu" for registration as a broker-dealer was denied by the Commission upon a

finding that applicant had willfully violated the anti-fraud provisions of the Securities Exchange Act and the Securities Act in sales of

stock of Insurance Corporation of America. Applicant's sales were

made with the use of a prospectus which indicated that the stock was

offered by the issuer at a public offering price of $6.00 per share, but

applicant failed to disclose that there was an over-the-counter market

for the stock at a substantially lower price and that some of the stock

so offered was owned by the applicant and the proceeds of its sale

would not be received by the issuer. The Commission further found

Charles E. Johnson, Marvin H. Weisman, and Rudy Klapper, officers

and directors of subject corporation, to be the causes of the denial.

The application of The Whitehall Corporation.42 for registration

as a broker-dealer was also denied by the Commission upon a finding

that the applicant had been selling unregistered securities, had used

false and misleading statements in connection with such sales, had

submitted as part of its application a misleading financial statement

and had engaged in interstate transactions in securities without being

registered. A petition for rehearing filed by The Whitehall Corporation was denied .

... Securities Exchange Act Release No. 0097 (November 7, 1907) .

.. Securities Exchange Act Release No. 0676 (April 10, 1908).

41 Securities Exchange Act Release No. 0602 (November 18, 1907) .

.. Securities Exchange Act Release No. 5667 (April 2, 1958).
TWENTY-FOURTH ANNUAL REPORT 89

False and misleading statements on the part of a broker-dealer

representing the prices charged for certain securities to be the market

price and failure to disclose that the market for the securities was

maintained and dominated by it was the basis for the revocation of

the broker-dealer registration of Daniel &: 00., Ltd.43 and its expulsion from the National Association of Securities Dealers, Inc.

The registration of Allen E. Beers Oompany 44 was revoked and

Allen E. Beers, the controlling partner, was found to be a cause of

the revocation. The Commission found in part that the company's

salesmen sold stock of Minerals Processing Company to customers by

means of false and misleading representations that, among other

things, the company's profits would be substantial because of the

discovery of rich mica and beryl, there would be increases in the

company's production, profits and earnings, and the value of its

stock and that the company and its stock would be the object of

favorable magazine and television publicity. Registrant was also

found .to have unlawfully extended credit in violation of section

7 (c) (1) of the Securities Exchange Act and Regulation T adopted

thereunder.

The broker-dealer registrations of Alfred D. Laurence &: 00.,45

Kenneth E. Goodman &: 00.,46 Cornelle de Vroedt, doing business

as Oornelu de Vroedt 00mpany47 and Oornelis de Vroedt, Inc.48

were revoked and the broker-dealers were expelled from the National

Association of Securities Dealers, Inc. for failure to comply with

the Commission's net capital rule and because of false entries or

omissions of material facts in records or in papers filed with the

Commission.

The broker-dealer registration of Oharles R. Morgan 49 was revoked for failure to file financial reports with the Commission as

required under section 17 (a) of the Securities Exchange Act.

The broker-dealer registrations of Utah Uranium Brokers, Inc. 50

and Joseph Ernest Murray, doing business as Murray &: Oompany,51

were revoked and they were expelled from the National Association

of Securities Dealers, Inc. for failure to make and keep current books

and records.

The broker-dealer registration of Bryan Halbert Kyger, Jr., doing

business as Kyger &: 00.,52was revoked upon findings that it had filed

.. SecurIties Exchange Act Release No. 5549 (July 18, 1957).

(4 Secnrities Exchange Act Release No. 5558 (August 7, 1957)

.. Securities Exchange Act Release No. 5655 (March 14, 1958).

.. SecuritIes Exchange Act Release No. 5684 (AprU 23, 1958).

"SecurIties Exchange Act Release No. 5628 (January 17, 1958) .

... Securities Exchange Act Release No. 5628 (January 17, 1958) .

.. Securities Exchange Act Release No. 5565 (August 13, 1957).

liO Securities Exchange Act Release No. 5579 (September 23, 1957).

111 Securities Exchange Act Release No. 5717 (June 13, 1958) .

.. Securities Exchange Act Release No. 5712 (June 6, 1958).

•
90 SECURITIES AND EXCHANGE COMMISSION

a false financial report and had failed to deliver securities for which

customers had paid, to comply with net capital requirements and to

maintain required books and records.

The Commission also found it to be in the public interest to revoke

the broker-dealer registration of Harold L. Nielsen, doing business

as Nielsen Investment 00.53 on the basis of an injunction entered

against the registrant prohibiting him from further net capital and

bookkeeping violations as well as from selling unregistered securities

and engaging in business while insolvent. The broker-dealer registration of Michael Raymond 00., Ina.54 was revoked following a

New York State injunction restraining it from further engaging in

security transactions while insolvent, making fraudulent representations and defrauding customers.

During the year, the broker-dealer registrations of William Mal-

.oolm. Ellsworth,55 Elmer Allen Haley, doing business as Elmer A.

Haley,56 Maxwell M. Sacks, doing business as Maxwell Brokerage

:00.,51 and Tasch &: 00., Ina.56 were revoked for failure to file the

annual reports of financial condition required by rule 17a-5.

:Net Capital Rule

Rule 15c3-1 adopted under section 15 (c) (3) of the Securities Ex-

'Change Act, commonly known as the net capital ru1e, provides safeguards for funds and securities of customers dealing with brokerdealers. This rule restricts the amount of indebtedness which may be

incurred by a broker-dealer in relation to his capital. Under the

ru1e, no broker-dealer subject thereto may permit his "aggregate

indebtedness" to exceed 20 times his "net capital" as those terms

are defined in the ru1e.

Prompt action is taken by the Commission whenever it appears

that any broker-dealer fails to meet the capital requirements prescribed by the rule. Unless the broker-dealer takes necessary steps

forthwith to correct any capital deficiency found to exist either by

inspection or by reports filed with the Commission, injunctive action

may be taken and proceedings instituted to determine whether or not

the broker-dealer registration should be revoked. During the fiscal

year, violations of the net capital ru1ewere alleged in injunctive actions

filed against 15 broker-dealers and in revocation proceedings

instituted against 12.

Where a broker-dealer participates in "firm commitment" underwritings, a carefu1 check, based upon latest available information, is

A Securities Exchange Act Release No. 5545 (July 10, 1957)

.. Securities Exchange Act Release No. 5543 (July 9, 1957).

GIS Securities Exchange Act Release No. 5719 (June 19, 1958)-

... Securities Exchange Act Release No. 5719 (June 19, 1958).

Bl Securities Exchange Act Release No. 5719 (June 19, 1958)

.a Securities Exchange Act Release No. 5719 (June 19, 1958).

•

•
TWENTY-FOURTH ANNUAL REPORT 91

made to determine whether he has adequate net capital to be in compliance with the rule. Acceleration of effectiveness of registration

statements under the Securities Act is not permitted if it appears

that any underwriter would as a result of his commitment be in violation of the net capital rule. In a number of instances during the

past year, broker-dealers who were named as underwriters appeared

to be inadequately capitalized to take down their commitments in

conformity with the rule. The broker-dealers were informed of the

situation and the effect it would have on a pending registration statement, and they thereupon obtained sufficient capital so that full compliance with the rule could be had, reduced their commitments to

the extent to which they could be undertaken without violating the

rule or withdrew entirely as underwriters.

Financial Statements

During the year the Commission adopted an amendment to rule

17a-5 under the Securities Exchange Act requiring brokers and

dealers to :filereports of financial condition. The amendment became

effective on November 15, 1957 and was deemed necessary (1) to

eliminate administrative difficulties which arose from the requirement

that a report be :filledwithin each calendar year, but that reports for

two consecutive years could not be :filedwithin less than 4 months

of each other and (2) to provide more protection to customers by requiring that more reports be certified. As amended, the rule now

requires a report to be :filedas follows: (A) as of a date within each

calendar year, except that the first report (other than in the case

of successors) must be as of a date not less than one, nor more than

five months after the broker or dealer becomes subject to the rule,

and a broker or dealer who succeeds to and continues the business

of a predecessor is not required to :filea report if the predecessor has

filed one as of that year; (B) reports may not be as of dates within

four months of each other; and (0) a report must be :filednot more

than 45 days after the date of the report.

Under the amended rule, every report must be certified by a certified

public accountant or a public accountant who is in fact independent

except a report filed by (1) a member of a national securities exchange

who, from the date of his previous report, has not transacted business

in securities directly with or for others than members, has not carried

any margin account, credit balance or security for any person other

than a general partner and has not been required to :filea certified

financial statement with any national securities exchange; (2) a broker

who, from the date of his previous report, has limited his securities

business to soliciting subscriptions as an agent for issuers, has transmitted funds and securities promptly and has not otherwise held

-
92 SECURITIES AND EXCHANGE COMMISSION

funds or securities for or owed monies or securities to customers; and

(3) a broker or dealer who, from the date of his last report, has limited

his securities business to buying and selling evidences of indebtedness

secured by liens on real estate and has not carried margin accounts,

credit balances or securities for securities customers.

The reports of financial condition filed under rule 17ar-5 serve to

inform the Commission and the public as to the financial responsibility of broker-dealers and they are analyzed by the staff to determine whether the registrant is in compliance with the Commission's

net capital rule. Revocation proceedings are brought against registrants who fail to make the necessary filing. During the year 4,473

reports of financial condition were filed, representing an increase of

145 over fiscal 1957.

Broker-Dealer Inspections

During 1958, the Commission continued to place increased emphasis

upon its inspection program. Regular and periodic inspections of

registered broker-dealers as provided for in section 17 (a) of the Securities Exchange Act are a vital part of the Commission's activities

for the protection of investors. The purpose of these inspections is to

assure compliance by broker-dealers with the Federal securities acts

and the rules and regulations promulgated by the Commission and to

detect and prevent violations.

An inspe-tion ordinarily includes, among other things, (1) a determinatioi of the financial condition of the broker-dealer; (2) review of pr ,ing practices; (3) review of the treatment of customers'

funds and ecurities ; and (4) a determination whether adequate disclosures a made to customers. The inspectors also determine

whether tL required books and records of the broker-dealers are

adequate r ' 1 currently maintained, and whether broker-dealers are

conformir with the margin and other requirements of Regulation

T, as prescribed by the Federal Reserve Board. They also check for

excessive trading in customers' accounts involving "churning" and

"switching," sale of unregistered securities, use of improper sales

literature or sales methods and other fraudulent practices. Inspections frequently discover situations which, if not corrected, might

result in losses to customers.

The policy inaugurated in fiscal year 1956 of increasing the number

of inspections was continued in fiscal year 1958. Inspections completed during the year numbered 1,452, an increase of more than 19%

over the previous year.

While an inspection may disclose violations of the Commission's

statutes or rules, formal action is not taken against every broker-

~
TWENTY-FOURTH ANNUAL REPORT 93

dealer found to be in violation. In determining whether to institute

action against a broker-dealer found as a result of an inspection to

be in violation, consideration is given to the nature of the violation

and to the effect it has upon members of the public. Inspections usually reveal a number of inadvertent violations which are discovered

before they 'becomeserious and before they jeopardize the rights of

customers. In such situations, where no harm has come to the public,

the matter is usually called to the attention of the registrant and arrangements made to correct the improper practices. Where, however,

the violation appears to be willful and the public interest or the protection of investors is best served by instituting proceedings against

the broker-dealer, such action is promptly taken.

The following table shows the various types of violations disclosed

as a result of the inspection program during the fiscal year 1958:

Type Number

FInancial dtlticulties__________________________________________________ 130

lIypothecation rules__________________________________________________ 108

Unreasonable prices for secUIities purchases__________________________ 226

Regulation T of the Federal Reserve Board____________________________ 163

Secret proftts__ ~_____________________________________________________ 8

Confirmation and bookkeeping rules 1,016

]{isce1laneous 86

Total indicated violations 1, 737

Total number of inspections 1,452

In addition to the Commission's inspection program, the National

Association of Securities Dealers, Inc. and the principal stock exchanges also conduct inspections of their members and some of the

States also have inspection programs. Each inspecting agency conducts inspections in accordance with its own procedures and with

particular reference to its own regulations and jurisdiction. Consequently, inspections by other agencies are not an adequate substitute

for Commission inspections since the inspector will not be primarily

concerned with the detection and prevention of violations of the

Federal securities laws and the Commission's regulations thereunder.

The Commission and certain other inspecting agencies, however, maintain a program of coordinating inspection activities for the purpose

of avoiding unnecessary duplication of inspections and to obtain the

widest possible coverage of 'brokers and dealers. This seems appropriate in view of the limited number of inspections which it is possible for the Commission to make. The program does not prevent

the Commission from inspecting any person recently inspected by

another agency, and such an inspection by the Commission is made

whenever reason therefor exists, but it has been necessary because of

budget limitations for the Commission to rely to a considerable extent
94 SECURITIES AND EXCHANGE COMMISSION

upon the inspection programs of the major exchanges, such as the

New York Stock Exchange.

Inspecting agencies now participating in the coordination program

include the New York Stock Exchange, the American Stock Exchange, the Boston Stock Exchange, the Midwest Stock Exchange, the

Pacific Coast Stock Exchange, the Philadelphia-Baltimore Stock Exchange, the Pittsburgh Stock Exchange and the National Association

of Securities Dealers, Inc.

SUPERVISION OF ACTIVITIES OF NATIONAL ASSOCIATION OF

SECURITIES DEALERS, INC.

Section 15A of the Securities Exchange Act of 1934 ("the Maloney

Act") provides for registration with the Commission of national securities associations. The statute requires that the ru1es of such associations must be designed, among other things, to promote just and

equitable principles of trade, to prevent fraudulent and manipu1ative

acts and practices and to perfect the mechanism of a free and open

market. Such associations serve as a medium for the cooperative selfregu1ation of over-the-counter brokers and dealers. They operate

under the general supervision of this Commission, which is authorized

to review disciplinary actions and decisions which affect the membership of members or applicants for membership and to consider all

changes in the rules of associations. The National Association of Securities Dealers, Inc. (NASD) is the only association registered with

the Commission under the Act.

In adopting legislation to authorize the formation and registration

of such associations, Congress provided an incentive to membership

by permitting such associations to adopt, and the NASD has adopted,

ru1es which preclude a member from dealing with a non-member, except on the same terms and conditions as the member affords the general public. As a consequence, membership is necessary to the profitable participation in underwritings and over-the-counter trading in

general and for price concessions. Discounts and similar allowances

may properly be granted by members only to other members.

On June 30, 1958, there were 3,820 NASD members, a decrease of 36

during the year as a resu1t of 419 admissions to and 455 terminations

of membership. There were also registered with the NASD as registered representatives on that same date, 65,314 individuals, including

all partners, officers, traders, salesmen and other persons employed by

or affiliated with member firms in a capacity which involve their doing

business directly with the public. The number of registered representatives increased by 8,211 during the year as a result of 15,278 initial

registrations, 7,246 re-registrations and 14,313 terminations of registrations.
TWENTY-FOURTH ANNUAL REPORT 95

DisciplinarT Actions

The Commission receivesfrom the NASD summaries of decisions on

all disciplinary actions against members and registered representatives

of members. Each such decision is reviewed by the Commission's staff

to determine whether the underlying facts indicate conduct violative

of the statutes administered by the Commission or the rules adopted

thereunder. This consideration often includes an examination of the

Association's files on particular cases. Where the facts appear to

indicate actionable violations of the Commission's rules or statutes,

independent Commission enforcement inquiry or action is initiated

through the appropriate Regional Office.

During the fiscal year the Association reported to the Commission

final action on 116formal complaint cases. Each such action involved

charges that a member firm had violated specifiedrules of fair practice.

In addition, however, 48 of these complaints included charges that 75

different registered representatives had also violated one or more such

rules.

Of the 116 complaints on which final Association action was taken,

10 were withdrawn or dismissed on findings that the allegations in the

complaints had not been sustained. In the remaining cases, one or

more violations were found as alleged in the complaint and the members and registered representatives found to have committed the violations were subjected to penalty. The penalties imposed covered a

wide range of available sanctions and in many casesmore than a single

penalty was imposed on a firm or registered representative. Thus, 32

firms were expelled and six were suspended for periods ranging from

30 days to 3 years; 48 firms were fined amounts ranging from $50 to

$8,240 and aggregating $28,765; and 13 were censured. Moreover,

the registrations of 37 registered representatives were revoked;

one representative was suspended for six months; nine representatives

were fined sums ranging from $50 to $5,000 and aggregating $9,400;

and 16 representatives were censured. In 56 of the complaints, costs

were assessed in amounts aggregating $16,349.61during the year.

In addition to disciplinary action by formal complaint procedure as

described above, action was also taken against members pursuant to

a minor violation procedure as specified in the NASD Code of Procedure and as described in the last annual report. Under this procedure, in a disciplinary action where the facts are not disputed and

the matter involves only minor or technical violations of the rules and

no significant damage to customers, other parties or the public interest, the member may waive a hearing and accept a penalty not to exceed censure and a fine of $100. The respondent is not required to

accept this procedure and may elect to have a hearing as in the case of

a complaint involving more serious violations.
96 SECURITIES AND EXCHANGE COMMISSION

In all, reports were received from the Association descriptive of 47

cases handled by the minor violation procedure. One case was subsequently remanded by the Board of Governors to the District Business Conduct Committee of initial jurisdiction for consideration pursuant to the ordinary complaint procedure. The remaining 46 cases

resulted in censure in 29 instances, fines in 2 instances, and censure

and fines in 15 instances. The fines ranged from $25 to $100 and

aggregated $1,175.

Commission Review of NASD Disciplinary Action

Section 15A (g) of the Act provides that disciplinary actions of the

NASD are subject to review by the Commission on its own motion or

on the timely application of any aggrieved party. The effectiveness

of any penalty imposed by the Association is automatically stayed

pending determination of any matter before the Commission on review. At the beginning of the fiscal year, three such review cases were

pending before the Commission, and during the year three other applications for review were filed. One such application, filed by G.

Wayne Gibbs, doing business as Gibbs & Company, was withdrawn

prior to determination. Another application, filed by Daniel M.

Sheehan, Jr., doing business as Sheehan & Company, was considered

unacceptable by the Commission as it had not been filed within sixty

days of the date the action was taken and because there were then

pending against the firm administrative proceedings under section

15 (b) of the Act to determine whether the Commission should find it

in the public interest to revoke the firm's registration as a brokerdealer. Inrejecting this application the Commission advised the firm

that it would reconsider accepting the case for review after completion of the section 15 (b) proceedings should the firm then decide

to file a new petition. Two review cases were decided by the Commission during the year and two were pending at the end of the fiscal

year.59

The Commission set aside disciplinary action taken by the Board of

Governors of the Association against Samuel B. Franklin & Co. for

alleged violation of the NASD rule of fair practice that requires a

member to observe high standards of commercial honor and just and

equitable principles of trade in the conduct of his business." The

case was an outgrowth of a dispute between Franklin & Co. and

Pledger & Co., Inc., the complainant, and involved a transaction in

stock of Western Oil Fields sold by Franklin & Co. to Pledger & Co.,

'"'The pending cases concerned applications filed by Batkin & Co. (File 16-1A67) and

Churchill Securities Corp. (File 16-1A71). The Batkin appeal was dismissed as moot

shortly after the close of the fiscal year. Securities Exchange Act Release No. 5763 (August

22,1958).

eoSecurities Exchange Act Release No. 5603 (November 18, 1957) and File 16-1A65.
TWENTY-FOURTH ANNUAL REPORT 97

Inc. at $2.70 per share. After delivery and payment, Pledger returned the shares on the grounds that the shares delivered were certificates which had been the subject of a 1 for 4 reverse stock split.

Pledger refused to cancel the original transaction since the price of

the stock had advanced to 318 per share. Franklin suggested the

purchase of new shares and agreed to pay the attendant loss of about

$225, but Pledger advised against such a purchase at that time since

it believed the price would go down. However, the price of the stock

continued to advance. Pledger subsequently bought the stock in at

4% and requested that Franklin make good an asserted loss to

Pledger of $1,282.50. Pledger first accepted the suggestion of Franklin that the matter be arbitrated, but then withdrew its consent and

filed a complaint before the NASD. The Board of Governors affirmed a decision of the District Business Conduct Committee that

Franklin had violated the NASD rule by failing to make a good

delivery of the stock and failing to reimburse the buyer for damages. The Board of Governors censured Franklin, assessed costs in

the amount of $441.22 and directed the firm to make good the loss

sustained by Pledger.

In its opinion the Commission observed that it was not its function,

nor that of the NASD, in applying the rule, to decide private contract rights between the parties, and that "not every failure to perform a contract violates the NASD rule; it must appear that such

failure was unethical or dishonorable." The Commission concluded

that the facts here present did not justify a finding that Franklin

had violated the NASD rule. In support of this conclusion, it

pointed out that there was no evidence of an intention to mislead

Pledger or that the delivery of the old certificates was anything but

an unintentional error. Nor could the Commission find that Franklin sought to evade responsibility arising from the delivery of the

old certificates, as evidenced by its immediate acceptance of the return

of the old certificates and its refund to Pledger of the purchase price,

its prompt offer to buy in shares of the new stock and accept the $225

loss resulting from the increase in the market price thereof, its

reliance on Pledger's advice in not making delivery of new stock at

that time, and its offer to submit to arbitration after Pledger had

bought in new stock at a much higher price some six months after

the return of the old certificates. The Commission noted that its

action reversing the NASD action was in no way a determination

regarding the validity or the amount of Pledger's claim against

Franklin.

In the other decided case, the Commission affirmed a six-month

suspension, $3,000 fine and censure imposed by the National Association of Securities Dealers, Inc., upon Graham & Co., of Pittsburgh,

486867-59-8
98 SECURITIES AND EXCHANGE COMMISSION

Pennsylvania, and the censure of E. W. Sterling Graham, its only

active partner, for violation of NASD rules requiring the maintenance of high standards of commercial honor and just and equitable

principles of trade."

The NASD's disciplinary action was based largely upon sales of

securities of Texas Adams Oil Co. by Graham & Co. to its customers

at a price which was "unfair and not reasonably related to the current

market price." The Commission also sustained the additional rulings

of the NASD that Graham & Co. have violated its rules (1) by failure

to register salesmen employed at its Birmingham, Alabama branch

officein 1955, (2) by failure to disclose, in the sale of Bassett Press &

Mailing Co. stock, that that company and Graham & Co. were under

common control and (3) by failure to endorse the records of salesmen's

transactions to show approval of such transactions.

Commission Review of NASD Action on Membership

Section 15A (b) of the Act provides that, except where the Commission finds it appropriate in the public interest to approve or direct

to the contrary, no broker or dealer may be admitted to or continued

in Association membership if he, or any controlling or controlled

person, is under any of the several disabilities specified in the statute.

The disqualifications included in the statute are repeated in the Association's by-laws which, however, also include other disqualifications

permitted by, but not explicitly set out in, the statute. Among other

things, the statutory disabilities include an outstanding order of revocation by the Commission of a broker-dealer registration and the Association's by-laws include conviction within the preceding 10 years of

a felony found by the Association to have involved abuse or misuse

of a fiduciary relationship.

A Commission order approving or directing admission to or continuance in Association membership, notwithstanding a disqualification under section 15A (b) (4) of the Act or under an effective

Association rule adopted under that section or section 15A (b) (3),

is generally entered only after the matter has been submitted by the

member of, or applicant for membership to, the Association. Where,

after consideration, the Association is favorably inclined, it ordinarily

files with the Commission an application on behalf of the petitioner.

A broker-dealer refused Association sponsorship, however, may file

an application directly with the Commission. The Commission carefully reviews the record and documents filed in support of the application and, if considered necessary, obtains additional evidence bearing

on the matter. At the beginning of the fiscal year, three such petitions

were pending before the Commission; during the year one was filed

a Securities ExchllIlge Act Release No. 5687 (May 1, 1958) lIIId Flle 16-1A66.
TWENTY-FOURTH ANNUAL REPORT 99

and three were disposed of; and one was pending at the year end.

The Commission approved an application filed by the NASD permitting the continuance of Clayton Securities Corporation in Association membership with Harold S. Goldberg as an employee and

registered representative." Goldberg had been convicted on May 3,

1955, following a plea of guilty, of violations of the anti-fraud provisions of the Securities Act of 1933 and the mail fraud statute based

on failure adequately to supervise the activities of salesmen who had

induced excessive trading in the accounts of customers to obtain excessive commissions. Ingranting the approval requested by the Association, the Commission recognized that none of the charges concerned

Goldberg's own dealings with customers, that he would not be employed in a supervisory capacity and that he would be subject to

close supervision by officers of the employing firm.

The Commission also approved applications sponsored by the

NASD for the continuation in the Association membership of two

firms each with a revoked person employed as a registered representative. In approving the employment of Leonard H. Whitaker by

an NASD member firm, the Commission stated: "While the misconduct which led to revocation of Whitaker's registration was serious

in nature, we do not think it should constitute a permanent bar from

the securities business. Upon the basis of our review of the entire

record and giving due consideration to the lapse of time since the

revocation, the close supervision to be exercised over him, and the

favorable recommendation of the NASD, we conclude that we may

approve the application of the NASD in the public interest provided

that Whitaker is bonded so as to afford additional investor protection

against possible loss as a result of any misconduct by him." 63

Ingranting similar approval for the employment of David Gordon,

the Commission observed that Gordon's conduct resulting in the

revocation and expulsion of Gordon & Company did not involve his

conduct as a salesman but his activities in directing the affairs of

his firm, and that in his employment as a salesman of the member

firm he will be under close supervision, including supervision of the

type of security he sells, that he will not have custody of funds or

securities of customers and that he will be bonded."

LITIGATION UNDER THE SECURITIES EXCHANGE ACT OF 1934

As a protective measure for the public, the Commission is authorized

to institute actions to enjoin broker-dealers and other persons from

osSecurities Exchange Act Release No. 5554 (July 26, 1957) and File 16-1A63.

.. Securities Exchange Act Release No. 5581 (September 23, 1957) and File 16-1A64.

IA Securities Exchange Act Release No. 5698 (May 19, 1958) and File 16-1A69.

-
100 SECURITIES AND EXCHANGE COMMISSION

engaging in conduct which violates the provisions of the Securities

Exchange Act of 1934. Some of the actions brought as a result of

such violations also alleged violations of other statutes administered

by the Commission.

Anti.Fraud Litigation

In discharging its responsibility to protect the investing public

by preventing frauds by broker-dealers, the Commission, during the

fiscal year, obtained injunctions in S. E. O. v. T. G. Anderson, Ine.,e:;

S. E. O. v, J. Arthur Warner & 00.,Inc., et al.6fl and S. E. O. v, Louis

E. Wolfson:" In the Anderson case the complaint alleged, among

other things, that the defendants induced customers, by false representations and omissions of material facts, to sell securities of one mining

company and buy securities of another, and at the same time induced

other customers to effect contra transactions in the same securities.

In the Warner case, an injunction was obtained against violations

of the anti-fraud provisions of the Securities Exchange Act, as well

as violations of numerous other sections of that Act and various provisions of the Securities Act of 1933. Its dominant aspect was the

overtrading or "churning" of customers' accounts. The criminal

prosecution arising out of the transactions is described in detail at

page 109 of the 21st Annual Report.

In the Wolfson case, a temporary restraining order was obtained to

enjoin further violation of the anti-fraud and anti-manipulative provisions of the Securities Exchange Act in the purchase and sale of

common capital stock of American Motors Corporation, listed

on the New York Stock Exchange. The Commission's complaint

alleged that Louis E. Wolfson and other persons whose identities

are unknown to the Commission, engaged in acts, practices

and courses of business which operated and would operate as a fraud

and deceit upon the public. The complaint and underlying affidavits

allege and state, among other things, that Wolfson had sold over

200,000 shares of American Motors stock at a time when an article

in a widely circulated financial newspaper quoted him to the effect

that he and his associates owned about 460,000 shares of that stock

and were "perfectly satisfied" with the company's progress. Wolfson

and his agents were also alleged to have later caused a statement to be

published, in a widely circulated newspaper, to the effect that the stock

of American Motors looked fully priced on the basis of the immediate

outlook and that he (Wolfson) was "about one-quarter of the way

esE. D. Washington~No. 1517 (April 8,1957)

.. D. Massachusetts No. 51-1036. (A t1nalinjunctlon against the last remaining defendant was obtained on February 20, 1958.)

er S. D. New York No. 135-30 (June 24, 1958). SUbsequent to the end of the fiscal

year a permanent injunction was obtained on consent.

•
TWENTY-FOURTH ANNUAL REPORT 101

home" in disposing of the 400,000 shares of American Motors stock

that he and his immediate family owned, and that the remaining shares

would be disposed of probably in the open market and "should be

cleaned up completely well before the end of the summer." The complaint further charged that in connection with the last mentioned statement Wolfson omitted to disclose that he had sold or otherwise disposed of all of his holdings in American Motors, and that he, together

with his associates, had a very substantial short position in the stock

and was, at the time of the publication of the newspaper article, engaged in purchasing stock of American Motors to cover the short position. The complaint also charged that the anti-manipulative provision of the Act was violated in that the statements made were false

and misleading and Wolfson knew or had reasonable grounds to believe that such statements were false and misleading.

Cases Involving the Net Capital Rule

As indicated earlier, section 15 (c) (3) of the Securities Exchange

Act and rule 15c3-1 thereunder are designed to provide protection

against loss of customers' securities and monies by reason of financial

difficulties broker-dealers may encounter by requiring registered

broker-dealers to maintain a prescribed ratio between net capital and

aggregate indebtedness.

In numerous cases the Commission resorts to injunctive relief when

broker-dealers are conducting their business in violation of this financial requirement. During the fiscal year injunctions were sought by

the Commission to enjoin broker-dealers from further violations of

this net capital rule in S. E. O. v. J. D. Oreqer and 00./68 S. E. O. v.

Tadao I. Watanabe, doing business as Honolulu Securities re Investment 00./69 S. E. O. v. Sanders Investment 00mpany/70 S. E. O. v.

Owens and O{}'11'/,rJJany/71 S. E. O. v. Joseph J. Wilensky & 00.,. 72

S. E. O. v. William H. Keller, r-; doing business as W. H. Keller,

Stockbroker] 73 S. E. O. v. A. J. Gould &: 00.,Ino., et ai.; 74 S.E. O. v.

Lynne B. Fenner and The Fenner Oorporation; 75 S. E. O. v. First

Jersey Securities Oorp. and Mortimer L. Sohult«; 76 S. E. O. v. William

Whitehead/77 S. E. O. v. Tanya Kaye, doing business as The Kaye

.. S. D. California No. 369-57 WB (March 21, 1957) .

...D. Hawaii No. 1585 (October 15. 1957).

'IOD.New Mexico No. 8685 (December 12.1957).

'11 D. Colorado No. 5935 (January 21, 1958) .

.. S. D. Florida No. 8559-M (June 18, 1958) .

.. s. D. Indiana No. IP-58-C-46 (March 30, 1958) .

... S. D. New York No. 118-87 (September 18, 1956).

TG S. D. New York No. 12s-,355 (January 8, 1958).

T. D. New Jersey No. 979-56 (December 21. 1956).

'If D. New Jersey No. 1255-57 (December 31, 1957).
102 SECURITIES AND EXCHANGE COMMISSION

Investing 00.;18 S. E. O. v, Peerless-New York, I'TUJ.;T9S. E. O. v,

Securities Distributors, I'TUJ.and Rolf Wurtz;80 S. E. O. v, Alfred D.

Laurence &, 00.,81 and S. E. O. v. Jean R. Veditz 00., 1'TUJ.82In the

first eleven named casesthe appropriate district court in each instance

granted a permanent injunction. The remaining cases were pending

at the close of the fiscal year with preliminary injunctions granted

against Peerless-New York, Inc. and Securities Distributors, Inc.

Operations of broker-dealers while in violation of the net capital

rule, and while insolvent without disclosing such insolvency to customers, thus representing that they were ready and able to execute

customers' orders and to meet their liabilities in connection therewith,

were the basis for the actions in SEO v. Laurence W. L. Barrington,

doing business as Barrington Investments,8S SEO v. F. R. Ohatfield

oompany, I 'TUJ., 84 S. E. o.v. T hompson and Sloan, I'TUJ.,et al.85and SE 0

v. George T. Arqero«; et al.86 The complaints in the latter two cases

also included allegations that the defendants had failed to make and

keep the books and records required under section 17 (a) of the Act

and rule 17a-3 thereunder. Permanent injunctions were granted in

all of these cases.

Delisting Cases

In Great Sweet Grass Oils, Ltd. v. S. E. 0.87the Court of Appeals for

the District of Columbia Circuit, in a per curiam opinion, affirmed

an order of the Commission withdrawing the registration on the

American Stock Exchange of the capital stock of the petitioner,

Great Sweet Grass Oils, Ltd. The Commission "delisted" the securities under section 19 (a) (2) of the Securities Exchange Act of 1934

because it found that petitioner had made false and misleading statements in reports required to be filed pursuant to section 13 of that

Act. The Commission found the reports to be deficient inter alia

in that they overstated oil and gas reserves, falsely claimed exemption

from the registration requirements of the Securities Act of 1933 in

purported reliance upon rule 133 and failed to indicate contingent

liabilities resulting from the sales of unregistered securities. Petitioner contended unsuccessfully that the Commission had abused its

discretion in delisting the securities without setting forth conditions

upon which listing could be regained, and had erred in holding that

DE. D. New York No. 18,445 (February 6. 1958).

D S. D. New York No. 126-292 (November 7. 1957)

.. S. D. New York No. 127-136 (November 25, 1957).

81 S. D. Florida No. 7780-M (August 5, 19/1.7).

as. D. New York No. 125-393 (October 18. 1957)

.. D. Massachusetts No. 57-1010 (October 17, 1957) .

.. D. Massachusetts No. 57-945-S (September 25, 1957).

• S. D. CaUforuta No. 192-58Y (March 3,1958) •

W. D. New York No. 7892 (June 20,1958).

lIJ256 F. 2d 898 (C. A. D. C., 1958).

•

•

•
TWENTY-FOURTH ANNUAL REPORT 103

petitioner's transactions were not entitled to the exemption provided

by rule 133. The Court of Appeals found no error in the Commission's opinion.

The Commission delisted the securities of Kroy Oils Limited in the

same proceeding in which it delisted those of Great Sweet Grass.

Kroy brought a separate petition for review of the Commission's

order and withdrew its petition on December 10, 1958, just before

oral argument," The issues involved in both cases were substantially

identical.

Litigation Involving Broker-Dealer Registration and Reporting Requirements

In Peoples Securities Oompany v, Gadsby, et al.,s9 the plaintiff

sought a preliminary and permanent injunction restraining the members of the Commission from conducting a hearing to determine

whether Peoples' application for registration as a broker-dealer should

be denied or permitted to becomeeffective, and a permanent injunction

requiring the defendants to enter an order cancelling Peoples' application for registration on the ground that it has ceased to do business.

Upon denial of the preliminary injunction, plaintiff applied to the

Court of Appeals for the District of Columbia Circuit for an injunction pending appeal, which application was denied." The complaint

was ultimately dismissed on defendant's motion, the District Court

finding that it had no jurisdiction.

A petition for review of the Commission's order revoking petitioner's registration as a broker-dealer was filed in M. J. Shuck 00. v.

S. E. 0.,91 claiming that the Commission erred in finding that petitioner's violations of the net capital rule were wilfull and that the

Commission failed to comply with the requirements of section 9 (b)

of the Administrative Procedure Act. The case was argued before

the Court of Appeals and that Court affirmed the Commission's decision on December 4, 1958.

Section 17 (a), and Rule 17a-3 adopted thereunder, require the keeping of books and records by registered broker-dealers and others.

Failure to comply with these requirements led to permanent injunctions being entered, upon the Commission's application, in S. E. O. v.

Perkins &: Oompany, Inc.,92S. E. O. v. Sherwood &: Oompany, et 01.,98

and S. E. O. v. William Be» Oromwell, doing business as Oromwell &:

Oompany.D4 Ina similar action, S. E. O. v. William Douglas Bradford,9s a preliminary injunction was entered during the year.

.. K,.01/ Oils, Limited v. SeCUrities and B:echaflue Oommil8ion, C. A. D. C. No. 13920.

80 District ot Columbia No. 574-58 (March 5. 1958)

.. People8 Securitie8 Oompaflll v. Gad8by et al., CA DC No. 14380.

PI CA DC No. 14208.

""D. Massachusetts No. 57-1164A (December 3.1957).

II N. D. California No. 37-lli! (March 18. 1958).

"N. D. !reus No. 7798 (April 4. 1958).

liS. D. California No.1T9-58 PH (Febl11lll7 26. 1958).

•
104 SECURITIES AND EXCHANGE COMMISSION

Proxy Litigation

The Commission intervened as a plaintiff in Barker v, McPhail,96

and filed a complaint against the defendants McPhail and certain

other officers and directors of Transue & Williams Steel Forging

Corporation. The Commission's complaint alleged in essence that

defendants in violation of the proxy rules engaged in the solicitation

of proxies without having previously or concurrently furnished the

stockholders with a proxy statement, without having filed prior

thereto certain information with respect to the identity, background

and interest of the participants in the solicitation and without identifying on the forms of proxies the persons on whose behalf they were

to be used. Further, the complaint charged that McPhail in violation

of the proxy rules had sent out soliciting material without having

.first filed preliminary copies with the Commission and that such material contained false and misleading statements and omissions. The

Court granted a temporary restraining order, to which the parties

consented, enjoining the defendants from voting proxies already obtained and directing that the stockholders' meeting be adjourned, to

give opportunity for a proper resolicitation to be made, including

material correcting misrepresentations in previous soliciting material.

At the adjourned meeting McPhail and other management nominees

were elected directors over the slate of Harold O. Barker, President

and Chairman of the Board, and the Stockholders' Committee Against

Control of Transue & Williams Steel Forging Corporation by Russell

McPhail.

Subsequent to the end of the .fiscalyear a motion for summary judgment was filed by the Commission requesting that defendants be

permanently enjoined from further violations of the proxy rules.

Argument was had and the Court has not as of December 1st rendered

an opinion.

In Hott et al. v, Ostergren et al.91 an appeal was taken from the

judgment of the District Court enjoining appellants and one Josiah

Kirby from soliciting and voting proxies with respect to the common

stock of Lakey Foundry Corporation." The District Court had

found, inter alia, that Kirby was a "participant" in the solicitation

by the defendants, whose proxy statement had not included the required information with respect to Kirby, and that Kirby had not

.filed with the Commission the information required by Schedule 14B.

The appeal from the District Court's judgment was subsequently dismissed upon stipulation of the parties, the Commission agreeing to

the dismissal since the injunction issued by the District Court remained in full effect.

.. S. D. New York No. 131-139 (March 19, 1958).

1>7 C. A. 6, No. 13310.

Il8N.D. Ohio 33393 (February 15, 1957).
TWENTY-FOURTH ANNUAL REPORT 105

InS. E. O. v.Sidney Gondelmam, et aL,99 the Commission took action

to enjoin Gondelman and other shareholders of the Central Foundry

Company from voting proxies at the annual meeting of shareholders

of the Corporation unless they furnished the shareholders an opportunity to revoke their proxies after furnishing information needed

to correct misstatements which had been made in previous proxy soliciting material. The Commission's complaint alleged that the defendants had made misrepresentations about the status of efforts by

Gondelman, a disbarred lawyer, to obtain reinstatement to the New

York Bar. The Commission's action was joined, for purposes of trial,

with a suit brought by the Management of the Central Foundry Company alleging several violations of the proxy rules and requesting the

complete invalidation of all proxies obtained by Gondelman prior to

the suit. Since the close of the fiscal year, the United States District

Court for the Southern District of New York held that the defendant

stockholders had violated the proxy rules and invalidated the proxies

which -they had obtained. The Court also ordered the correction of

misleading statements.

For proxy litigation under the Public Utility Holding Company

Act of 1935 involving Union Electric Co., see p. 119, infra.

Participation as Amicus Curiae

In Greene, et al,v. Dietz, et alYIO the United States Court of Appeals

for the Second Circuit in June, 1957',handed down a decision in which

it expressed doubt as to the Commission's power to promulgate Rule

X-16B-3, which exempts certain bonus, profit sharing, retirement and

similar plans from the provisions of section 16 (b) allowing recovery

by the issuer of profits realized by officers, directors and controlling

persons in transactions in the securities of the issuer. The Commission

promptly moved for leave to file a brief amious curiae and for a clarification of the opinion and a rehearing. In a per curiam decision, one of

the three judges dissenting, the Court denied the petition for rehearing, stating that". . [the] Commission understands, without further

clarification, the content of our opinion ... " and that pending modification of the rule, any reliance upon it by persons entitled to exercise

options under plans substantially similar to the one in issue "would

be ill-advised." 101

09 S. D. New York No. 133-314 (May 19, 1958).

100 247 F. 2d 689 (C. A. 2, 1957).

>01 In Emerson Electric Manufacturing Oompany v. O'Neill, et al. (E. D. Mo. No. 58C

307 (2», the Court held, on November 10, 1958; that officers and directors who relied

on the Rule after the per curiam decision in Greene v. Dietz could do so without liability. The case involved otllcers who were not familiar with the decision in Greene v. Dietz,

and the Court did not consider the question of the validity ,., the Rule or liability of

persons familiar with the Greene v. Dietz opinion.

•
106 SECURITIES AND EXCHANGE COMMISSION

Since the end of the fiscal year, the Commission has filed briefs

amicus curiae in support of the validity of Rule X-16B-3 in Va;n

Aalten v. Hurley, et al, and Perlman v. Timberlake, et al.; both arising

in the United States District Court for the Southern District of New

York. Both cases are presently under consideration by the Court.

In addition, since the end of the fiscal year the Commission has obtained permission to participate amicus curiae in Ellerin. v, M assaohusetts MufJluil Life Insurance Oompany, et al. (C. A. 2 No. 25352), a

case arising under section 16, and its officeof the General Counsel is

studying the record in Ferraiolo v. Ashland Oil Oompany, 259 F. 2d

342 (C. A. 6, 1958) to determine whether to recommend participation

in the plaintiff's petition for certiorari to the Supreme Court.
PART VI

ADMINISTRATION OF THE PUBUC UTIUTY HOLDING

COMPANY ACT OF 1935

The Public Utility Holding Company Act of 1935provides for the

regulation by the Commission of interstate public-utility holding

company systems engaged in the electric utility business or in the

retail distribution of gas. The matters dealt with embrace intricate

and complex questions of law and fact, and generally involve one or

more of three major areas of regulation. The :first embraces those

provisions of the Act, contained principally in Section 11 (b) (1),

which require the physical integration of public-utility companies

and functionally related properties of holding company systems, and

those provisions, contained principally in Section 11 (b) (2), which

require the simplification of intercorporate relationships and :financial structures of holding company systems. The second area of regulation covers the :financing operations of registered holding companies and their subsidiaries, the acquisition and disposition of securities and properties, and certain accounting practices, servicing arrangements and intercompany transactions. The third area of regulation includes the exemptive provisions of the Act, the provisions

covering the status under the Act of persons and companies, and those

regulating the right of a person affiliated with a public-utility company to acquire securities resulting in a second such affiliation.

The staff functions under the Act are performed in the Branch of

Public Utility Regulation of the Division of Corporate Regulation.

COMPOSITION OF REGISTERED HOLDING COMPANY SYSTEMSSUMMARY OF CHANGES

On June 30, 1958, there were 22 registered holding company systems subject to the regulatory provisions of the Act. Of these 22,

four systems, namely, (1) Central Public Utility Corporation, (2)

Cities Service Company, (3) Electric Bond and Share Co., and (4)

Standard Shares, Inc., do not own as much as 10percent of the voting

securities of any public-utility company operating within the United

States. The remaining 18 systems are referred to herein as "active

registered systems."

Included in the 18 active registered systems there were 19 registered

holding companies of which 13 function solely as holding companies

and 6 function as operating companies as well as holding companies,"

Inaddition, inthese systems there are 100 electric and gas utility sub1In one ot these systems there are two companies each ot which is a registered holding

company.

107
108 SECURITIES AND EXCHANGE COMMISSION

sidiaries, 42 non-utility subsidiaries, and 15 inactive companies, totaling 176system companies.

The following tabulation shows the number of holding companies,

electric and gas utility companies and non-utility companies in each

of the 18 active registered systems as at June 30, 1958, and their aggregate assets, less valuation reserves, as of December 31, 1957:

Classification of companies as of June 30, 1958

Solelyreg- Reg- Electric Aggregate

!stered !stered and gas Non- In- Total system 1

System holding holdlng- utlllty utllity active com- assets, less com- operating subsidl- subsldl- com- panies valuation

panies com- aries aries panies reserves at panies Dec. 31, 1957

I. American Electric Power Co., Inc 1 13 10 1 25 $1,283,250,199

2. American Natural Gas Co 1 2 5 0 8 689,784,979

3. Central and South West Corp 1 -.--.----- 6 0 1 8 1585,059,686

4. Columbia Gas System, 8 0 18 852,342,000 Inc., The 1 9

5. Consolidated Natural Gas Co 1 ------.-.- 4 2 0 7 614,499,242

6. Delaware Power & Light Co..... 1 2 0 0 3 180,200,857

7. Eastern Utlllties Assoolates. 1 5 0 2 8 89,892,898

8. General Pubhc Utlhtles Corp 1 --------.- 7 2 0 10 789,297,209 9. Granite CIty Generating Co. (Voting Trust) 1 1 0 0 2 '459,672 10. Middle South Utilities, Inc, 1 ------_.-- 6 0 5 12 669,301,581

11. National Fuel Gas Co 1 3 6 0 10 183,336,148

12. New England Electric Sys4 29 576,354,206 tem . 1 23 1 13. Ohio Edison Co. 1 3 0 0 4 532,815,000

14. Phlladelphla Electric Power Co 1 1 0 1 3 43,107,292 15.Southern Company, The. 1 5 2 1 9 1,037,407,021 16. Union Electric Co 1 3 1 0 5 524,864, 889

17. Utah Power & Light Co 1 2 0 0 3 213,939,205

18. West Penn Electric oo., The ._ I 1 12 6 1 21 519,667,697

Subtotals ---

13 6 107 43 16 185 9,385,579,781

Less: Adjustment to eliminate

duplication In count resulting from 5 companies being subsldlarles In 2 systems and 2

companies being subsidtartes

In 3 systems.' ---_.----- -7 -1 -1 -9

Add: Adjustment to Include

the assets of these 7 jointly owned subsidiaries and to re- move the parent companies' Investments therein which are Included In the system

662,057,598 assets above

---- Total companies and as- sets In active systems 13 6 100 42 15 176 9,947,637,379

1Represents the consolldated assets, less valuation reserves, of each system as reported to the Commission on Form U5S. except as otherwise noted.

Does not include Companla Electrica de Matamoras, S. A. which, as at December 31,

1957, had assets, less valuation reserves, amounting to 13,754,490 Mexican Pesos (equlva- lent to approximately 1,100,359 United States dollars at the official exchange rate). Central and South West's investment in this company Is carried at one dollar. 3 Represents the corporate assets of Granite City Generating Co. at March 31, 1958-

Assets of the Voting Trustees of Granite City Generating Co., the holding company parent of the Generating Co., have not been reported.

These 7 companies are Beech Bottom Power Co., Inc. and Windsor Power House Coal

Co., which are Indirect subsidiaries of American Electric Power Co. and The West Penn

Electric Co.; Ohio Valley Electric Corp. and Its subsidiary, Indiana-Kentucky Electric

Corp., which are owned 37.8 percent by American Electric Power Co., 16.5 percent by Ohio

Edison Co., 12.5 percent by The West Penn Electric Co., and 33.2 percent by other compa- nles; Electric Energy Inc. which Is owned 10 percent by Middle South Utilltles, Ine., 40

percent by Union Electric Co., and 50 percent by 3 other companies; Mississippi Valley Generating Co. which Is owned 79 percent by Middle South UtlIltles, Inc., and 21 percent by The Southern Co.; and Arklahoma Corp. which is owned 32 percent by Central and

South West Corp. system, 34 percent by Middle South UtUltles, Inc. system and 34 percent by a third company.

--- ---- --- ---

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_____________________

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_________________ ---------- ________________________

__________________ ---------- ---------- _____________________

_______ ----------

______

___•________________

___________----------

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----------

________________ ---------- __ __________ ____---------- ________•___ •_______

--- ________________ ---- ---- ---

•••• ____________---------- --------------

__________________ ----------

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TWENTY-FOURTH ANNUAL REPORT 109

In the active systems four new corporations were organized during

the fiscal year of which one was a gas utility company and three

were non-utility companies. In addition, two going concerns were

acquired one of which was an electric utility company and one of

which was a non-utility company. One non-utility subsidiary was

dissolved and two electric 'Utility companies were merged. These

changes resulted in a net increase of three in the total number of companies comprising the active systems. While there were net decreases

during fiscal 1956 and 1957 of 32 and 11, respectively, in the number

of companies comprising the active systems, certain systems are

carrying out realignment programs and it is too early to state whether

a leveling off has occurred tin the total number of companies subject

to regulation under the Act.

While most of the Section 11 problems existing at the time of the

passage of the Act have been resolved, there still remain a number of

issues which have not as yet been determined. Examples are: In

its order under Section 11 (b) (1) with respect to The Columbia

Gas System, Inc., the Commission reserved jurisdiction concerning

the retainability tin the system of the properties of ten companies

(subsequently reduced to six) and in this connection there is a proceeding pending before the Commission which is discussed at

page 114 of this Report. In addition, this registered holding

company has an overall plan for the realignment of its properties

which likewise is discussed at page 114. There is a problem under

Section 11 (b) (1) of the Act with respect to Consolidated Natural

Gas Co. relating principally to the retainability of non-utility pipe

line properties. With respect to Delaware Power & Dight Co. there

exists the question of whether the gas and electric facilities are

retainable under common control. The Commission, by order dated

April 14, 1950,directed the disposition of the gas properties of Blackstone Va:11eyGas & Electric Co., a subsidiary of Eastern Utilities

Associates, This system has pending before the Commission an

application-deelaeation covening several transactions designed to accomplish the disposition of the gas properties required to be divested.

That matter is discussed at page 114 of this Report. National Fuel

Gas Co.system has oil, real estate, and gas transmission businesses,the

retention of which has not been determined. With respect to New

England Electric System there is pending before the Commission a

proceeding under Section 11 (b) (1) of the Act to determine whether

the gas properties of the subsidiary companies are retainable. That

proceeding is discussed at page 116 of this report. In its application

pursuant to Section 3 (a) (2) of the Act requesting an exemption

from wll of the provisions of the Act, Union Electric Co. also requested that the Commission release jurisdiction previously reserved
110 SECURITIES AND EXCHANGE COMMISSION

by the Commission over the retainability of the gas properties owned

by system companies. There is also a problem under Section 11 (b)

(1) of the Act whether Utah Power & Light Co. may retain its subsidiary, The Western Colorado Power Co. Those problems have not

as yet been resolved.

The maximum number of companies subject to the Act as components of registered holding company systems at anyone point of

time was 1,620 in 1938. Since that time additional systems have

registered and certain systems have organized or acquired additional

subsidiaries, with the result that 2,385 companies have been subject

to the Act as registered holding companies or subsidiaries thereof

during the period from June 15, 1938, to June 30, 1958. Included

in this total were 216 holding companies (holding companies and

operating-holding companies), 1,021 electric and gas utility companies and 1,148 non-utility enterprises. From June 15, 1938 to

June 30, 1958,2,046 of these companies have been released from the

active regulatory jurisdiction of the Act or have ceased to exist as

separate corporate entities. Of this number 922 companies with

assets aggregating approximately $13 billion as at their respective

dates of divestment have been divested by their respective parents

and are no longer subject to the Act as components of registered

systems. The balance of 1,124 companies includes 776 which were

released from the regulatory jurisdiction of the Act as a result of

dissolutions, mergers and consolidations and 348 companies which

ceased to be subject to the Act as components of registered systems

as a result of exemptions granted under Sections 2 and 3 of the Act

and deregistrations pursuant to Section 5 (d) of the Act.

DEVEWPMENTS IN INDIVIDUAL REGISTERED SYSTEMS

There is discussed below each of the active registered systems and

the other systems in which there occurred during the fiscal year 1958

significant developments other than financing transactions. The

financing activities of registered holding companies and their subsidiaries are treated below in a separate section of this report.

A. DEVELOPMENTS IN ACTIVE REGISTERED SYSTEMS

American Electric Power Company

During the fiscal year American Gas and Electric Co. changed its

corporate name to American Electric Power Co. At December 31,

1957, the system had consolidated assets, less valuation reserves, of

some $1,283,000,000 and net dependable generating capacity of

4,585,000 Kw. The system had consolidated operating revenues of

about $283,755,000for the calendar year 1957.
TWENTY-FOURTH ANNUAL REPORT 111

Although no significant corporate changes took place in the system

during the fiscal year, there was substantial activity with respect to

its expansion program and the financing arrangements therefor, new

developments in respect of a service agreement and the acquisition of

additional utility assets. This system is the largest holding company

system subject to the Act. Six additional generating units of

225,000 Kw each or a total of 1,350,000 K ware expected to be completed during the calendar year 1958.

The system carries on research along many avenues of technology

and, during the fiscal year, continued to concentrate on nuclear research and development with a view to providing power at a cost

competitive with that of a conventional power plant. Three system

companies are members of the East Central Nuclear Group which

consists of 14 utility companies in the general Ohio Valley area.

This group is in the process of developing a program involving

research and development of a high-temperature, gas-cooled, heavy

water-moderated, pressure-tube reactor of 50,000Kw capacity. American Electric Power Co. is also a member of Nuclear Power Group,

Inc. and, as such, continues to derive technological and practical

experience from the research and design activities in Commonwealth

Edison Company's 180,000 Kw boiling water reactor being installed

at Dresden, TIl.

The system's service corporation, which during the fiscal year

changed its name to American Electric Service Corp., designed and

engineered the power plants of Ohio Valley Electric Corp. American Electric owns 37.8% of the voting securities of OVEC which,

with its wholly-owned subsidiary, Indiana-Kentucky Electric Corp.,

furnishes electric power to an installation of the Atomic Energy

Commission near Portsmouth, Ohio. There is pending before the

Commission the issue of whether the acquisition of OVEC's stock

by American Electric and other sponsoring companies meets the

standards of Section 10 of the Act. This issue and the organization

and financing of OVEC and Indiana-Kentucky Electric Corp. are

discussed on page 126 of the Commission's 23rd Annual Report.

American Natnral Gas Co.

This registered holding company and its subsidiary companies, as

at December 31, 1957, had consolidated assets, less valuation reserves,.

of $689,780,000. The system had consolidated operating revenues of

$192,036,000 for the calendar year 1957. In the latter part of 1957,.

American Natural Gas Production Co. was organized as a subsidiary

of this registered holding company for the purpose of exploring for

gas and acquiring and operating gas-producing properties.
112 SECURITIES AND EXCHANGE COMMISSION

In September 1957, American Natural filed a declaration requesting

permission to acquire from time to time additional shares of its 6%

non-redeemable preferred stock without regard to the limitations

imposed by Rule 42 under the Act and 'at such prices as might be

considered by the company's management to be reasonable," In November 1957, the Commission instituted a proceeding under Section

11 (b) (2) of the Act to determine whether the continued existence

of such stock in this holding company system's corporate structure

unduly and unnecessarily complicates such structure or unfairly and

inequitably distributes voting power among the security holders of

such system," The proceedings were consolidated and, in April 1958,

the Commission issued its Findings and Opinion denying effectiveness to American Natural's declaration seeking to purchase its nonredeemable preferred stock and ordered the company to take

appropriate steps to eliminate such preferred stock from the holding

company system.' Subsequent to the close of the fiscal year American Natural filed a plan to eliminate the preferred stock by a

payment of $32.50 per share to the holders thereof. Before the plan

can be effectuated it must be found by the Commission to be fair and

equitable to all affected persons.

In June, 1958, hearings began on a declaration filed by Milwaukee

Gas Light Co. This subsidiary proposed to issue and sell promissory

notes to banks in an aggregate principal amount not exceeding $15

million. After hearing, the Commission issued its Findings and

Opinion and Order permitting the Company's declaration to become

effective,"

Central and South West Corp.

This registered holding company and its subsidiaries, as at December 31, 1957, had 1,850,900 Kw of effective generating capability and

its consolidated assets, less valuation reserves, amounted to $_585,-

000,000. The system had total consolidated electric operating revenues of $137,300,000 for the calendar year 1957.

During the fiscal year Southwestern Gas and Electric Co., a

system subsidiary, was authorized, after hearing, to acquire, at a

cost of $36,000, shares of the preferred stock of First Arkansas Development Finance Corporation, a non-profit company organized under the laws of Arkansas for the purpose of promoting the location

of new businesses and new industries in the State of Arkansas,"

Holding Company Act Release No. 13565 (October 18,1957).

Holding Company Act Release No. 13600 (November 18, 1957).

Holding Company Act Release No. 13726 (April 7, 1958).

Holding Company Act Release Nos. 13813 (August 29, 1958) and 13828 (September 22,

1958).

Holding Company Act Release No. 13777 (June 12, 1958).

•

•

•

•

•
TWENTY-FOURTH ANNUAL REPORT 113

Three system subsidiaries are members of Texas Atomic Energy

Research Foundation which consists of a group of 11 electric utility

companies in Texas. The Foundation was organized early in the year

1957 for the purpose of engaging in research in the atomic energy

field as applied to the generation of electric power. These system

subsidiaries are committed to contribute a total of about $1 million,

of a combined total of $10 million, for the four-year research program

which has for its object studying heavy hydrogen or fusion reactions

at high temperature under controlled conditions. Two system subsidiaries have joined with 13 other electric utility companies in the

formation of Southwest Atomic Energy Associates which, over the

next four years, will contribute a total of $5,354,000, including about

$800,000by the two system subsidiaries, for research and development

of an epithermal thorium power reactor undertaken by Atomics

International, a subsidiary of North American Aviation, Inc.

The CoIU!J1bia Gas System

This registered holding company and its subsidiaries, at December

31, 1957, had consolidated assets, less valuation reserves, of about

$8521;2million. The consolidated gross operating revenues for the

calendar year 1957 were approximately $376 million. The total sales

of gas by the system during the calendar year 1957 amounted to

646,402 million cubic feet. Of this total 268,383 million cubic feet

(41.5%) were sold at wholesale to 112 non-affiliated companies for

resale.

Since the close of the last fiscal year there has been an increase of

3 in the number of the system's operating subsidiaries. The first additional company, Columbia Hydrocarbon Corp., was incorporated in

Delaware on August 20, 1957, for the purpose of owning and operating a fractionating plant at Siloam, Ky., including a 35-mile pipeline

to transport a mixed stream of hydrocarbons from which ethane,

propane, butane and natural gasoline will be processed and marketed.

On November 27,1957, the Commission granted the company's application to sell its stock and promissory notes to its parent and

authorized the parent to acquire such seourities,"

The second company, Columbia Gulf Transmission Co., was incorporated on May 28, 1958,for the purpose of acquiring substantially

all of the assets of Gulf Interstate Gas Co. which until recently was a

non-affiliated company owning and operating a pipeline which transports gas purchased and used by system companies. Columbia has

entered into an agreement for the acquisition by Transmission Company of the assets of Gulf Interstate in exchange for shares of common

f Holding Company Act Release No. 13610 (November 27,1957).

486867-59-9
114 SECURITIES AND EXCHANGE COMMISSION

stock of Columbia and the assumption by Transmission Co. of the

liabilities of Gulf. InJune, 1958, the Commission authorized Columbia to acquire shares of preferred and common stock of Gulf Interstate," There was pending at the close of the fiscal year an application

of Transmission Company to acquire the assets of Gulf Interstate.

The third new operating subsidiary is The Ohio Valley Gas Co.

which was organized on August 28,1956. InJune, 1958, the Commission approved the transfer to Valley of nearly all of the assets and

properties of United Fuel Gas Co. in the State of Ohio which it uses

in connection with the retail distribution of natural gas," This proposal is part of and was in furtherance of the system's realignment

program discussed at page 109 in the 23rd Annual Report. During

the fiscal year the Commission approved another proposal whereby

United Fuel Gas Co., a subsidiary, transferred all of its retail distribution properties in Kentucky to Central Kentucky Natural Gas CO.10

This is also in furtherance of the system's realignment program.

As indicated at page 132 of the 22nd Annual Report there is pending before the Commission a motion filed by Columbia requesting the

release of jurisdiction with respect to the retainability of certain properties controlled by the system. During this fiscal year both the Division of Corporate Regulation and Columbia filed proposed findings

of fact and conclusions of law. The Division recommended that the

Commission should not, on the basis of the record so far made in the

proceeding, find the properties involved are retainable. Columbia

submitted that the properties involved are properly a part of its integrated gas system or are reasonably incidental thereto and are retainable. The matter is pending.

Eastern Utilities Associates

This registered holding company and its subsidiary companies, as at

December 31, 1957, had consolidated assets, less valuation reserves, of

$89,900,000 and its consolidated operating revenues for that year were

$32,230,000.

InFebruary 1957, EUA and its subsidiary, Blackstone Valley Gas

and Electric Co., filed with the Commission an application-declaration

covering several transactions, including the issuance of 25 year debt

securities by EUA, designed to effectuate the Commission's order of

April 4, 1950, directing EUA to sever its relationship with the gas

properties of Blackstone." Valley Gas Co. was incorporated as a

subsidiary of Blackstone for the purpose of acquiring and operating

such gas properties. Public hearings have been held and the Division

Holding Company Act Release No. 13781 (June 26, 1958h

Holding Company Act Release No. 13779 (June 18,1958).

10 Holding Company Act Release No. 13607 (November 22,1957). 3131 S. E. C. 329 (1950).

•

•
TWENTY-FOURTH ANNUAL REPORT 115

of Corporate Regulation has opposed the issuance of the debt securities. Briefs and reply briefs have been filed and the Commission

has heard oral argument. The matter is now under advisement for

decision.

General Public Utilities Corp.

This registered holding company and its subsidiary companies, as

at December 31, 1957, had consolidated assets, less valuation reserves,

of $789,297,209. For the calendar year 1957 the system's total consolidated operating revenues amounted to $202,445,930.

During the .fiscal year Manila Electric Co., an electric subsidiary

operating in the Republic of the Philippines, increased the number of

shares of its authorized common stock from 1,000,000 shares of 40

pesos par value per share to 10 million shares of 10 pesos par value

per share and reclassified its outstanding common stock from 1 million

shares to 4 million shares. In addition, a common stock dividend

of 2 million shares was declared and paid to Gpu.12 At December

31, 1957, all of Manila's outstanding debentures were called for redemption and a new series of first mortgage bonds was authorized.

The holders of the debentures were offered new bonds in exchange

for their debentures and GPU acquired 8 million pesos principal

amount of the new issue and contributed cash to cover the cost of the

adjustment in the interest differential."

Also during the .fiscal year GPU amended its certificate of incorporation regarding the preemptive rights of its shareholders in connection with the issuance of additional shares of common stock.>

The system has abandoned its contemplated project of constructing

and operating an atomic power plant in the Philippines where the

cost of conventional fuel is twice the average for the domestic subsidiaries. At present, the system is exploring the feasibility of adding

a small water-type reactor at one of the generating stations of

Pennsylvania Electric Co., one of the system's domestic subsidiaries.

Middle South Utilities, Inc.

This registered holding company and its subsidiaries, as of December 31, 1957, had 2,281,000 K w effective generating capability and its

consolidated assets, less valuation reserves, amounted to $669,301,581.

The system had total consolidated operating revenues for the year

1957 of $171,573,439.

Middle South owns 10 percent of the voting securities of Electric

Energy, Inc., an electric generating company which has a long-term

contract for the sale of firm power to an installation of the Atomic

12 Holding Company Act Release No. 18538 (September 4,1957).

II Holding Company Act Release No. 13641 (December 27,1957) .

.. Holding Company Act Release No. 13689 (February 21, 1958).
116 SECURITIES .QTJ) EXCHANGE COM:MJ:SSION

Energy Commission. There is pending before the Commission a consolidated proceeding with respect to a contract between Middle South

and Kentucky Utilities Co. for the sale of Middle South's 10 percent

interest in EEl and with respect to previously reserved issues under

Section 10 of the Act which prescribes standards applicable to the

acquisition of securities by companies subject to the Act. This consolidated proceeding is discussed at pages 126-128 of the 23rd Annual Report and was pending at the close of the fiscal year.

In 1953 the Commission ordered Louisiana Power & Light Co., a

system subsidiary, to dispose of its non-electric properties. The proposal of Middle South and this subsidiary to effectuate compliance

with this order and Court actions in connection therewith are discussed at page 116 of the 22nd Annual Report. On November 22.

195'7,the Commission approved a plan filed under section 11 (e) of

the Act for the disposition of such property," and on January 14~

1958, the United States District Court for the Eastern District of

Louisiana issued an order enforcing the provisions of the plan."

In 1955the system's four major operating subsidiaries became members of Southwest Atomic Energy Associates, a non-profit organization

which has embarked upon a four-year $5.5 million research and development program with respect to an advanced design power reactor, the

construction of which has been undertaken under contract by North

American Aviation, Inc.

New England Electric System

This registered holding company and its subsidiaries, as at December 31, 195'7,had consolidated assets, less valuation reserves, of $5'76,-

354,206and, for that year the consolidated operating revenues amounted to $158,934,305.

During the fiscal year, the Commission instituted a proceeding in

respect of NEES and its subsidiaries for the purpose of determining

the extent to which the electric, gas, and other business operations of

the NEES holding company system satisfied the integration standards

of section 11 (b) (1) of the Act.17 The hearing was initially devoted

exclusively to the issue of whether or not the electric operations of the

NEES system constitute those of a single integrated public-utility system as permitted by section 11 (b) (1). On February 20, 1958, the

Commission issued its findings and opinion and order in which it held

that the electric properties of the NEES holding company system

satisfied the standards delineating an integrated public-utility system.IS There is pending for further hearings and determination the

10 Holding Company Act Release No. 13606 (November 22,1957).

18 Louisiana Gas Service 00., et a!., Civ. No. 7316.

17 Holding Company Act Release No. 13525 (August 5, 1957).

J8 Holding Company Act Release No. 13688 (February 20,1958).
TWENTY-FOURTH ANNUAL REPORT 117

question of whether the NEES system may retain all or any of its gas

properties.

In July, 1958,NEES filed a plan under section 11 (e) of the Act to

eliminate the minority interests in the common stocks of its subsidiaries

engaged solely in the electric business. Subsequent to the close of the

fiscal year, the Commission issued an order for hearing on NEES'

plan and also instituted a proceeding under section 11 (b) (2) for the

purpose of determining whether the existence of the public minority

interests in the System's electric subsidiaries constitute an unfair and

inequitable distribution of voting power. The two proceedings were

consolidated for hearing and determination."

The system holds a 30% stock interest in Yankee Atomic Electric

Company, which is constructing an atomic electric plant. The organization of Yankee and its initial financing transactions are discussed

at pages 162-164 of the 22nd Annual Report, and discussions and

transactions regarding the formulation of Yankee's overall financing

program are discussed on page 131 of the 23rd Annual Report. The

Atomic Energy Commission has issued a construction permit for Yankee's power plant and the plant is scheduled for completion in 1960.

Yankee has secured Commission approval to issue and sell to its stockholder companies additional common stock and non-interest bearing

promissory notes making its total capitalization $13million, consisting

of $8 million par value of capital stock and $5 million of such notes."

Ohio Edison Co.

Ohio Edison is a registered holding company and an operating electric utility company. The system consists of 1 holding-operating

company and 3 electric utility subsidiaries. Included in the 3 electric

utility subsidiaries are Ohio Valley Electric Corp." and its whollyowned subsidiary, Indiana-Kentucky Electric Corp., which are discussed at pages 126-128 of the 23rd Annual Report. The other subsidiary is Pennsylvania Power Co., all of the common stock of which

is owned by Ohio Edison.

Ohio Edison and its subsidiary, Pennsylvania Power Co., had consolidated assets, less valuation reserves, of $532,815,000 at December 31, 1957, and their consolidated operating revenues for the year

1957 amounted to $135,862,000.

Ohio Edison and Pennsylvania Power are two of the 15 electric

utility companies that sponsored the organization of Ohio Valley

Electric Corp. which supplies the power requirements of a gaseous

diffusion plant of the Atomic Energy Commission located near

,. Holding Company Act Release No. 13799 (August 1, 1958).

,., Holding Company Act Release Nos. 13580 (November 1, 1957), 13740 (April 29, 1958),

and 13811 (August 26,11158).

III Ohio Edison owns 16.5% equity interest in Ohio Valley Electric Corp.
118 SECURITIES AND EXCHANGE COMMISSION

Portsmouth, Ohio, and their power participation ratios are 16.2%

and 2.2%, respectively. Further details with respect to OVEC are

set forth at pages 126-8 of the 23rd Annual Report. In the Commission's order authorizing the acquisition of OVEC's securities, jurisdiction was expressly reserved to determine at an appropriate future

time whether the companies subject to the Act could retain such securities." On November 19, 1956, the Commission reopened the proceeding and ordered a hearing in respect of the reserved issues."

Hearings have been completed and the matter is in process of preparation for submission to the Commission.

Ohio Edison and Pennsylvania Power and 12 other electric utility

companies are members of East Central Nuclear Group formed about

a year ago to formulate plans for undertaking a program of nuclear

research and development. In December 1957, this group and Florida West Coast Nuclear Group presented a proposal to the Atomic

Energy Commission for research and development on a partnership

basis with that agency of a 50,000 Kw prototype high temperature,

gas-cooled, heavy-water-moderated reactor of the pressure-tube type.

It will be designed as a prototype of a natural uranium 200,000 Kw

reactor. Subject to necessary regulatory approvals, Ohio Edison and

Pennsylvania Power may be obligated to expend approximately

$425,000 per year over the 1958-62 period in connection with preoperational research and development.

The Southern Company

This registered holding company and its subsidiaries had, at

December 31, 1957, consolidated assets, less valuation reserves, of

$1,037,407,021and for that year the consolidated operating revenues

totaled $254,535,680.

Southern and its subsidiaries have continued their participation in

research and development of nuclear power through Power Reactor

Development Co., a non-profit corporation in the process of constructing an experimental fast breeder atomic reactor in Michigan. The

system's service company is one of the 21 member companies which

formed PRDC. Further details with respect to it are set forth at

pages 164-166 of the 22nd Annual Report and at pages 129-30 of the

23rd Annual Report. The four direct subsidiaries of Southern have

agreed to contribute $2.4 million over a six-year period toward the

construction of this atomic reactor and Southern has guaranteed the

payment of 8 percent of the principal and interest of the borrowings

made from various banks by PRDC under a loan agreement providing for such borrowings of $15million by the end of 1958.24

.. Holding Company Act Release No. 11578 (November 7, 1952).

II Holding Company Act Release No. 13313 (November 19,1956)

.. Holding Company Act Release No. 13383 (Febrnary 12, 1957).

•
Union Electric Co.

TWENTY-FOURTH ANNUAL REPORT 119

Union Electric Co. is a registered holding company and an operating

electric utility company. As at December 31, 1957, the consolidated

assets, less valuations reserves, of Union and its subsidiaries amounted

to $524,865,000 and their consolidated operating revenues for 1957

totaled $129,178,000.

Union owns 40 per cent of the capital stock of Electric Energy, Inc.

There is pending for decision by the Commission the question of the

retain ability by Union and the other sponsoring companies subject

to the Act of their stock interest in Electric Energy, Inc. Further

details in connection with this proceeding are discussed at page 102

of the 17th Annual Report and at page 128 of the 23rd Annual Report.

During the fiscal year Union filed a declaration and amendments

thereto pursuant to Section 12 (e) of the Act and Rules 62 and 65

thereunder, in which it proposed to solicit proxies from its preferred

and common stockholders for use at the regular annual stockholders

meeting for the year 1958. The declaration was filed pursuant to a

Commission order issued on October 25, 1957, which prohibited Union

and all other persons from soliciting proxies or other forms of authorization in connection with this meeting unless authorized by the

Commission to do SO.25 .T. Raymond Dyer, a stockholder of Union,

in response to the Commission's notice," requested a hearing thereon.

A hearing was held in March, 1958,27and thereafter the Commission

permitted Union's declaration to become effective upon the filing of

an amendment making certain changes inthe company management's

solicitation material. 28 The stockholders' motion for rehearing was

denied." The stockholder has filed a petition to review the action

of the Commission in the Court of Appeals for the Eighth Circuit,

where the matter is now pending.

Dyer had similarly sought review of a Commission order under

Section 12 (e) of the Act authorizing Union Electric to solicit proxies

in connection with its 1957 annual meeting of stockholders. In that

case, Dyer v. 8. E. 0.,251 F. 2nd 512 (C. A. 8, 1958), although the

Commission and the other parties had briefed and argued the case

on the merits, the Court of Appeals on its own motion dismissed the

case as moot, since the stockholders' meeting had been held and the

proxies voted.v Dyer filed a petition for a writ of certiorari in the

United States Supreme Court. In its memorandum the Commission

... Holding Company Act Release No. 13575 (October 25, 1957).

l!e Holding Company Act Release No. 13671 (February 7, 1958).

2'1 Holding Company Act Release No. 13696 (February 25,1958).

2S Holding Company Act Release No. 13710 (March 21, 1958).

:!9 Holding Company Act Release No. 13712 (March 25,1958)

...Petition for rehearing was denied on February 25, 1958.

•
120 SECURITIES AND EXCHANGE COMMISSION

agreed that the case was not moot but recommended that the Supreme

Court defer action on the petition until the Court of Appeals for the

Eighth Circuit had an opportunity to rule on Dyer's petition seeking

review of the Commission's March 21 and 25, 1958, orders permitting

Union Electric Company to solicit proxy votes for its 1958 stockholders' meeting. By order entered on April 18, 1958, the Court of

Appeals denied Dyer's request for a stay pending review of the

Commission's March 1958orders, but granted "leave to brief and argue

the question of mootness" of the review as related to the Court's

holding with respect to the same issue in Dyer v. S. E. 0., 251 F. 2d

512.

A related lawsuit was involved in S. E. O. v, Dyer.if! In this case

the Commission brought suit on April 9, 1957, to restrain Dyer from

violating Section 12 (e) and the order of the Commission which prohibited Union Electric and all other persons from soliciting proxies

for the 1957 annual meeting of stockholders except pursuant to a

declaration which the Commission permitted to become effective. The

basis of the Commission's complaint was the mailing of a postcard

which, under the circumstances, the Commission believed constituted

soliciting material. After the 1957 meeting was held, the Commission sought a voluntary dismissal of the case, but its notice of dismissal was vacated by the court on Dyer's motion."

Utah Power &Light Co.

Utah Power & Light Co., a Maine corporation, is a registered

holding company and an electric utility company.

As of December 31, 1957,Utah Power and Western Colorado Power

Company, then its only subsidiary, had consolidated assets, less valuation reserves, of $213,939,205. For the year ending that date their

consolidated operating revenues amounted to $43,320,377.

On May 6, 1958 the Commission authorized Utah Power & Light

to acquire the common stock of Telluride Power Company, a neighboring non-affiliated electric utility company, by exchange of one

share of Utah common stock for eleven shares of Telluride common

stock." In addition Utah was authorized to acquire for cash the

second preferred stock of Telluride at its redemption price of $1 per

share plus accrued dividends. Telluride's net utility assets aggregated approximately $3,595,000. Utah issued 52,940 shares of its

common stock in exchange for the common stock of Telluride.

31 E. D. Missouri, Civil Action No. 57 C 201 (1).

33 On July 28, 1958, after a trial on the merits, the District Court dismissed the case

as moot on the authority of Dyer v. S. E. 0.,251 F. 2d 512 (C. A. 8, 1958). Dyer's petition to vacate and for a new trial Is pending.

33 Holding Company Act Release No. 13748.
TWENTY-FOURTH ANNUAL REPORT 121

B. DEVELOPMENTS IN OTHER SYSTEMS

Central Public Utility Corp.

Central Public Utility Corp. ("Cenpuc") is solely a holding company and is registered as such under the Act. As indicated above,

it no longer has any public utility subsidiaries operating in the United

States. As at December 31, 1957, the consolidated assets of the

system, less valuation reserves, amounted to $25,495,211 and for

the year 1957 the system's consolidated operating revenues totaled

$10,659,854;14

By order dated June 13, 1952, the Commission directed, among

other things, that Cenpuc, under section 11 (b) (2) of the Act, take

appropriate steps to terminate the existence of its subsidiary, The

Islands Gas and Electric Co., which was found by the Commission

to serve no useful purpose." On June 1, 1955,Cenpuc filed an application requesting modification of this order and further requesting

an order of exemption pursuant to section 3 (a) (5) of the Act.

Shortly thereafter a large block (about 30 percent) of Cenpuc's capital stock was acquired by certain new investors, thereby creating

several additional tiers of holding companies in the system's structure.

This complication delayed the Commission's determination of Cenpuc's application for an exemption.

On May 2, 1957, Cenpuc filed an amendment to its application renewing its request for an exemption and stating, upon information

and belief, that N. V. Amsterdamsche Bankierskantoor V/H Mendes

Gans Co., through Burnham and Co., as agent, purchased 259,492

shares of Cenpuc's capital stock and that Burnham and Co. is the

holder of record of 431,924 shares all of which, except 1,000 shares,

are subject to commitments of sale to approximately 33 Dutch and

Belgian investors. Accordingly, a large block of Cenpuc's stock has

been or is in the process of being transferred from domestic to foreign

investors. On July 15, 1958 Cenpuc filed a further amendment to

its application. Hearings on the amended application were commenced on September 10, 1958.36

Cities Service Co.

At the beginning of the fiscal year there was a total of 79 37 companies in this system and its only remaining public-utility subsidiary,

Cenpuc owns, directly and indirectly, 100 percent of the voting securities of 8 of its

subsidiaries and 92.9 percent of another, all of which are included in consolidation except

3 Which are carried on the consolidating balance sheet as investments. Of the remaining

5 companies in the system, Cenpuc's indirect interest therein is 50 percent or less.

.. Holding Company Act Release No. 11311 (June 13,1952) .

.. Holding Company Act Release No. 13803 (August 5, 1958).

IT The total of 79 companies includes 10 companies reported as inactive. The system's

mutual service company is not included; nor is West Texas Gulf Pipe Line Co. in which

a system subsidiary owns an 11.34 percent voting interest. Holding Company Act Release

No. 11215 (May 1,1952).

'"
122 SECURITIES AND EXCHANGE COMMISSION

as defined by the Act, was Dominion Natural Gas Co., Ltd. During

the fiscal year Dominion sold substantially all of its assets, including

all of its utility assets, to a non-affiliate 8S and thereby completed

Cities' liquidation of its investments in public-utility companies in

compliance with the Commission's order of May 5, 1944.89

A consolidated proceeding involving an exemption application by

Cities pursuant to section 3 (a) (5) of the Act and a section 11 (b)

(2) proceeding instituted by the Commission pertaining to the existence of a publicly held 48.5 percent minority interest in Cities'

subsidiary, Arkansas Fuel Oil Corp. ("Ark Fuel"), is described at

pages 108-109 of the 23rd Annual Report. With respect to such

consolidated proceeding, the United States Court of Appeals for

the Second Circuit on July 15, 1957 affirmed the Commission's denial

of Cities' application for exemption from the Act, 247 F. 2d 646 (C. A.

2, 1957), and the Supreme Court on January 6, 1958 denied certiorari.

Thereafter the Commission, by order, directed Cities and Ark Fuel

to comply with section 11 (b) (2) of the Act by eliminating the public

minority interest in Ark Fuel, or by disposing of the 51.5 percent

stock interest held by Cities in Ark Fuel,4° Both companies and a

stockholder of Ark Fuel appealed the Commission's order to the

United States Court of Appeals for the Third Circuit, which, on July

22,1958, affirmed the order of the Commission.w- Cities on March 28,

1958 filed an application pursuant to section 5 (d) for an order declaring it not to be a holding company." A hearing on this application

was held on May 13, 1958, and oral argument was heard by the

Commission on June 5, 1958. However, thereafter Cities withdrew its

application requesting the section 5 (d) order and the Commission, by

order, discontinued the proceeding."

Electric Bond and Share Company

Electric Bond and Share Company, which no longer holds as much

as 5 percent of the outstanding voting securities of any domestic public utility company, has pending before the Commission an application

for exemption from all provisions of the Act except section 9 (a) (2)

thereof, pursuant to section 3 (a) (5) of the Act. In the event such

exemption is granted, it is the intention of the company to convert

its status to that of an investment company and register under the

II Notice of sale filed April 16, 1958

.. Holding Company Act Release No. 5028 (May 5, 1944)

.. Holding Company Act Release No. 13549 (September 20, 1957). After the close of the

fiscal year Cities filed a plan pursuant to section 11 (e) of the Act for the purpose of

ellminating the minority Interest in Ark Fuel. Briefly, the plan provides for the division

of the assets of Ark Fuel into two new companies, one to be owned by Cities and the other

to be owned by the minority interest. Hearings on this plan commenced on December

2,1958. Holding Company Act Release No. 13840 (October 6,1958)

... Oities Service 00. v. S. E. a., et al., 257 F. (2d) 926.

C1 Holding Company Act Release No. 13736 (April 21, 1958) .

.. Holding Company Act Release No. 13836 (September 29,1958).

•

•

•
TWENTY-FOURTH ANNUAL REPORT 123

Investment Company Act of 1940. This proceeding involves a number

of very difficult and complex issues, among which are the questions

whether Bond and Share, through its wholly-owned engineering and

consulting service company subsidiary, Ebasco Services, Incorporated,

exercises controlling influence over, or is affiliated with, certain public

utility and holding company clients of Ebasco which formerly were

controlled by Bond and Share. Further hearings are scheduled for

the purpose of developing a more complete record with respect to

these matters.

Standard Shares, Inc.

At the beginning of the fiscal year Standard Shares, Inc., formerly

known as Standard Power and Light Corp., was a registered holding

company and had outstanding only one class of stock, namely, common stock. Itthen owned and still owns 45.6 percent of the common

stock of Standard Gas and Electric Co., a registered holding company,

which, in turn, owns 100 percent of the common stock of Philadelphia

Co., also a registered holding company. Both of these subsidiary

registered companies are required by orders issued under section

11 (b) (2) of the Act to liquidate and dissolve 43 and each is in a position to effectuate dissolution except that there exist undetermined

questions relating to Federal income taxes for the years 1942 through

1950.

During the fiscal year Standard Shares filed an application under

section 5 (d) of the Act for an order declaring it not be a holding

company and its registration as such under the Act not be in effect.

After public hearings, the Commission, by order, on September 23,

1958, granted the application." The order became effective upon

issuance and, thereupon, the company's registration under the Act

ceased to be in effect. Immediately after the issuance of this order,

the company completed its registration under the Investment Company Act of 1940 and, as an investment company, is subject to the requirements of that Act and to the Commission's jurisdiction

thereunder.

Other Matters

As previously reported at pages 114-115 of the 23rd Annual Report,

International Hydro-Electric System ("IRES") was reorganized

pursuant to section 11 (d) of the Act and mES is now registered as

an investment company under the Investment Company Act of 1940

and subject to the Commission's jurisdiction thereunder. The only

remaining matters under the Holding Company Act are fees and expenses to be awarded in connection with the reorganization. Final

applications are on file for fees aggregating $1,211,000 and $28,805

4128 S. E. C. 35 (1948); 28 S. E. C.944 (1948); and 32 S. E. C. 545 (1951) .

.. Holding Company Act Release No. 13824.
124 SECURITIES AND EXCHANGE COMMISSION

for expenses. In December, 1957, the Commission approved interim

payments of $241,200 for fees and $14,645 for expenses." Hearings

have been concluded on the applications and the Commission has under consideration the final amounts to be awarded."

There are also pending before the Commission supplemental and

final applications for the allowance of fees and expenses in connection

with a plan filed and consummated by the United Corporation pursuant to section 11 (e) of the Act for its conversion into an investment

company. Applications for fees aggregate $159,000 and for expenses

$42,800. Hearings on this matter were held at various times and

were concluded on September 10, 1958.47 The case is in the process of

preparation for presentation to the Commission for ultimate disposition. United is now registered as an investment company under the

Investment Company Act of 1940 and subject to the Commission's

jurisdiction thereunder.

FINANCING OF REGISTERED PUBLIC UTILITY HOLDING COMPANY

SYSTEMS-TRENDS IN ELECTRIC AND GAS UTILITY INDUSTRIES

During the fiscal year 1958,registered holding companies and their

subsidiaries issued and sold to the public and to financial institutions,

pursuant to authorizations granted by the Commission under Sections

6 and 7 of the 1935 Act, 36 issues of their stock and long term debt

securities with aggregate gross sales value of $583 million. Of this

amount two issues totaling $36 million were issued for the purpose of

refunding outstanding debt securities carrying higher rates of interest. In the fiscal year 1957, registered systems issued and sold 39

issues of such securities with total gross sales value of $637 million.

All of the proceeds of these securities were used to provide new capital.

Table I shows the amounts of various types of securities sold by registered systems in the fiscal years 1958 and 1957 and the percentages

.. Holding Company Act Release No. 13637 (December 20,1957) .

.. Holding Company Act Release No. 13691 (February 21,1958) .

., Findings of the Commission and litigation resulting therefrom with respect to previous

fee applications by Randolph Phillips and others are described in the Twenty-third Annual

Report, page 125. On May 19, 1958, Phillips filed a petition in the United States District

Court for the District of Delaware, seeking an order adjudging the Commission in civil

and criminal contempt for an alleged willful violation of the order of the District Court,

entered after remand by the Court of Appeals, which had reversed in part the order of the

District Court affirming and enforcing the Commission's order with respect to fees. The

District Court order on the remand had contained a provision directing the Commission to

modify its previous findings, opinion and order as to fees in accordance with the determination of the Court of Appeals. The Commission had not done this until May 7, 1958,

after the matter had been called to its attention by Phillips (Who had received his full

compensation as soon as the District Court's order on the remand had been entered). In

the interim, certain portions of the Commission's opinion had been used in a proxy contest

in which Phillips was engaged respecting another company. On motion of the Commission,

Phillips' petition was dismissed by order dated September 19, 1958, the Court finding that

there was "no basis for civil contempt" nor any "showing of probable cause" warranting

criminal contempt proceedings.
T~ENTY-FOURTH ~AL REPORT 125

of increase or decrease in volume of each type of security during the

period.

TABLE I.-Securities sold for cash and issued in connection with refunding exchanges

to the public and financial institutions by registered holding companies and subsidiaries, fiscal years 1958 and 1957

(Millions of dollars]

Percent

Increase or 1958 1957 (decrease)

In 1958

Bonds______________________________________________________________ Debentures $448 $335 33.7 _________________________________________________________ 85 86 (1.2) Notes (5 years orlonger)____________________________________________ ------------ 26 (100 0) Preferred Stocks____________________________________________________ 9 11 (18.2)

CommonStocks____________________________________________________ 41 179 (77.1)

Totals________________________________________________________ 583 637 (8. 5)

The decline of $54 million, or 8.5 percent, in the volume of external financing completed by registered holding company systems

in fiscal 1958 as compared with fiscal 1957 can be attributed to two

factors. Inthe first place, the installment issuances of securities by

subsidiaries of registered holding companies pursuant to long term

construction loan commitments, which had figured significantly in

the totals for earlier years, were completed in 1957. These installment borrowing arrangements were authorized by the Commission

several years ago and resulted in substantial amounts of private

placements of debt securities directly with institutional investors

each year through 1957.48

Another development which contributed to the decline in volume

of registered system financing was the sharp drop in the volume of

common stock financing completed by these systems from $179 million

in the fiscal year 1957 to $41 million in 1958. This represented a

decline of 77.1% and marked the lowest level of common stock financing by registered holding company systems under the 1935 Act in 6

years. Declines also were recorded in debenture, note, and preferred

stock financing during the year. Sales of mortgage bonds increased

$113million or 33.7% in 1958.

The decline in registered system financing in fiscal 1958 does not

reflect the impact of any divestments of non-retain able subsidiaries

by registered holding companies in recent years. No sales of long-

.. In the fiscal year 1957, Ohio Valley Electric Corporation issued and sold $498,669 of

notes and American Louisiana Pipe Line Company issued and sold $26 million of notes

and $20.5 million of pipeline mortgage bonds pursuant to sueh construction loan commitments. The financing plans of Ohio Valley Electric and American Louisiana PIpe Line

are described at page 86 of the 20th Annual Report and page 54 of the 21st Annual Report,

respectively.
126 SECURITIES AND EXCHANGE COMMISSION

term securities by companies subsequently divested out of holding

companysystemsare included in the total volumeof external financing

recorded for registered holding company systems in the fiscal years

1956,1957or 1958.

In addition to passing upon the 36 issues of long term securities

totaling $583million which were issued and sold by registered systems in the fiscal year 1958,the Commissionin that year also authorized the issuance and sale of 67 issues of securities aggregating

$210million by subsidiaries of registered holding companiesto their

parents. In fiscal 1957subsidiaries sold 78 issues of securities with

dollar volumeof $219million to their parents.

All other companiesin the electric and gas utility industries, (exclusive of companies associated with registered holding company

systems), issued and sold $3,447million of long-term securities to

the public and to financial institutions in the fiscal year 1958. This

represented an increase of $524 million, or 17.9%, over the totals

recorded by these companies in 1957. All but $27 million of the

permanent financing completed by these companiesin 1958was for

new money purposes. Table II showsthe amounts of bonds, debentures, notes, preferred stocks and common stocks sold by such companiesin the fiscalyears 1958and 1957.

TABLE n.-Securities sold for cash and issued in connection with refunding ex- changes to the public and to financial institutions by companies in the electric and

gas utility industries, not associated with registered holding company systems;

fiscal years 1958 and 1957

[Millions of dollars 1

Percent

Increase or 1958 1957 (decrease)

In 1958

Bonds . ._. . ._. . -._ $2,135 $1,582 35.0 Debentures . _. _. . _. _. . . 505 460 9.8 Notes. ____________._____. _________________ .• ___________. ____. ______ 108 40 170.0

Preferred Stocks _. 354 344 2.9

Common Stocks _., _" 345 497 (30.6)

Totals. _. . . _., . . _. -. 3,447 2,923 17.9

In contrast with the pattern of financing of registered holding

company systems, other companies in the electric and gas utility

industries sold increasing amounts of all types of securities except

commonstocksin 1958. Bond financing increased 35% as compared

with the 33.7% increase reported by registered systems. The common stock financing completed by these companies in 1958 totaled

$345million, reflecting a decline from 1957of 30.6%. This decline

was not nearly as great proportionately, however, as the 77.1% de-

_____•__ ____•_____' ______ _______________ _________ _________ ___________• _____ ____' __ ____' _______

_____• ______•_____• ________• ___•________• __•• __•• _

___• ___• ________• __•__•_____•• __•- ____•- ______

___ __________________ ___ -__ __•___• __ ___---
TWENTY-FOURTH~AL REPORT 127

cline in common stock financing reported by registered systems in

1958.

The volume of external financing of 'registered systems in fiscal

1958 accounted for 14.5% of the total volume of permanent financing

by the entire electric and gas utility industries. The corresponding

percentage for :fiscal 1957 is 17.9%. Table III compares the amounts

of various types of securities issued and sold in :fiscal 1958 by registered systems with the amounts issued and sold by aJll companies in

the electric and gas 'Utility industries (including registered systems).

TABLE IH.-Securities sold for cash and issued in connection with refunding eo- changes to the public and to financial institutions by registered holding companies and subsidiaries, and by all other companies in the electric and gas

utility industries; 1fiscal years 1958 and 1957

[Millions of dollarsI

All companies Registered Percent regiselectric and holding com- tered system Fiscal year gas utlllty pany systems financing to industries Industry

totals

1958 Bonds ________________________________________________________$2,583 $448 17.3 Debentures ___________________________________________________ 590 85 14.4 N otes - - 108

Preferred Stocks 363 9 2.5

Common Stocks 386 41 10.6

4,030 583 14. 5

1957 Bonds 1,917 335 17.5 Debentures 546 86 15.8 Notes 66 26 39.4

Preferred Stocks 355 11 3. 1

Common Stocks 676 179 26.5

3,560 637 17.9

I Includes electric utility companies, gss distribution companies, natural gas transmission companies and

holding companies.

The decline in the proportion of total industry permanent financing

accounted for by registered holding company systems in :fiscal 1958

reflects the decline in debenture, note, and preferred stock issues by

registered systems in contrast with the increases in sales of such

securities by all other companies in the electric and gas utility industries. The proportionately greater decline in common stock

financing by registered systems in fiscal 1958 were wlso a factor.

All but 2 of the 36 issues of long term securities totaling $583 million which were sold externally by registered systems in 1958 were

offered for sale at competitive bidding pursuant to the requirements

of Ru1e 50. Brockton Edison Company, a 'Public 'Utility subsidiary

of Eastern Utilities Associates, a registered holding company, issued

and sold 30,000 shares of its $100 par value cumu1ative preferred

stock by means of a negotiated underwritten public offering on December 2, 1957. Brockton had publicly invited bids for the purchase

______________________________________________ _____-- ___________________________________ --~---- -------------- -___-______

____-- ___-____-____-____--___---__----_-- --_--

_______________________________________ -____--___------- __________________________________ -_____-___-_-__-- ______________________________ -_________-_-__--- -_-____-- _____________________________ -_____-___-______ _______________________________ -___-________--
128 SECURITIES AND EXCHANGE COMMISSION

of this issue in October, 1957. Two groups of underwriters qualified

but no bids were received. The negotiated public offering was made

pursuant to an exemption from the competitive bidding requirements of Rule 50 granted by the Commission on November 29,1957.49

The second issue not sold through competitive bidding channels

was a private sale of common stock by Yankee-Atomic Electric Company, a subsidiary of New England Power Company, which in turn

is a public utility subsidiary of New England Electric System, a

registered holding company. The balance of $1,965,000 was sold to

the remaining 10 sponsor companies, no one of which is associated

with a regulated holding company system. This salle of stock by

Yankee was automatically exempt from the competitive bidding

requirements of Rule 50 pursuant to paragraph (a) (1) thereof,

because it was a pro rata issuance of securities to existing security

holders of Yankee.

The $1,035,000 of stock sold to New England Power and to Montaup Electric is included in the 67 issues of securities totaling $210

million sold by subsidiaries to their registered holding company

parents, as described more fully at page 126 above. The balance

of $1,965,000sold to the other 10 sponsoring public utility companies

is included in the totals of external financing by registered systems."

The amounts of external financing completed by registered systems

in 1958 as described above do not include the issuance in 1958 by

Utah Power & Light Company, a registered holding company, of

52,940 shruresof its common stock with an approximate market value

of $1.7 million in exchange on the outstanding common stock of

Telluride Power Company, as referred to at page 120, supra.

PROTECTIVE PROVISIONS OF FIRST MORTGAGE BONDS AND

PREFERRED STOCKS OF PUBLIC UTILITY COMPANIES

In passing upon issuances of first mortgage bonds and preferred

stocks of public utility companies, the Commission examines the

mortgage indenture and charter provisions to determine whether or

not there is substantial conformity with the applicable Statements of

Policy which were adopted by it in 1956.51 These Statements of

Policy represent substantially a codification of certain principles

or policies prescribed for the protective provisions of these securities

announced on a case-by-case basis over a period of years, as modified

.. Holding Company Act Release No. 13613.

.. For statistical purposes in complllng the tables used in this report, the $1,035,000 of

Yankee common stock sold to New England Power Co. and Montanp Electric Co. is treated

as one issue; and the $1,965,000 of Yankee common stock sold to the other 10 sponsor

companies is treated as another issue .

, Holding Company Act Release No. 13105 (February 16, 1956) as to first mortgage

bonds and Holding Company Act Release No. 13106 (February 16, 1956) as to preferred

stock.

•
TWENTY-FOURTH ANNUAL REPORT 129

in the light of experience and comments received from interested

persons who had been invited to submit their views. During fiscal

year 1958, applications or declarations were filed by public utility

companies under the Act with respect to 27 first mortgage bond issues

aggregating $459,700,000 principal amount and two preferred stock

issues with a total par value of $9,000,000.52

Of the 27 first mortgage bond issues, 14 issues, with a total principal

amount of $236,500,000,included provisions, as set forth in the Statement of Policy, imposing additional restrictions on the distribution

of earned surplus to the common stockholders, thereby assuring the

investing bondholders of a greater degree of safety of their investment through the maintenance of an appropriate common stock equity.

In respect of the other 13 issues with a total principal amount of

$223,200,000, no additional restrictions were required since the indentures already conformed in this regard to the Statement of Policy.

The additional restrictions on earned surplus distributions were proposed by the companies themselves or were inserted as a result of informal discussions between the staff of the Commission and representatives of the issuing companies. In the interest of flexibility, the

restriction on earned surplus distributions was generally coupled with

a further provision to the effect that additional "amounts of earned

surplus could be distributed upon application of the issuer to, and

approval by, the Commission.

A further provision contained in the Statement of Policy regarding

first mortgage bonds relates to the renewal and replacement of depreciable utility property which is subject to the lien of the mortgage.

Itrequires, in essence, that the issuer construct additions to its property, or else deposit cash or bonds with the indenture trustee, in an

amount which on a cumulative basis will provide for the replacement

in cash or property of the dollar equivalent of the cost of the depreciable mortgaged property during its estimated useful life. The Statement of Policy provides that the requirement be expressed as a

percentage of the book cost of depreciable property, except that if

the existing indenture provision expresses the requirement on a different basis, as, for example, in terms of operating revenues, no change

will be required if the company can demonstrate that the existing

provision provides an amount at least equal to a requirement based

on the book cost of depreciable property. As in the case of earned

surplus restrictions, the Commission, in the interest of flexibility, has

permitted the issuer to insert a provision under which the issuer, upon

application to, and approval by, the Commission may modify the

percent of depreciable property requirement .

.. For a discussion of the application of the Statement of Policy to filings from the

effective date thereof to June 80, 1957,see pages 141-148 of the Twenty-Third Annual

Report.

486867-59-10
130 SECURITIES AND EXCHANGE COMMISSION

Of the 27 issues of first mortgage bonds, the indentures of 22,

having an aggregate principal amount of $384,700,000,expressed the

renewal and replacement fund requirement as a percent of depreciable

property, while the indentures in the remaining 5 issues, having a

principal amount of $75,000,000, expressed the requirement as a

percent of revenues. The renewal and replacement fund requirements in the indentures of these latter 5 issues were not required

to be restated in terms of a percent of depreciable property since they

appeared substantially to afford no less protection to the bondholders

than would be afforded by an appropriate percentage of property

formula.

Another provision contained in both the bond and the preferred

stock Statements of Policy requires that the securities be redeemable

at the option of the issuer at any time upon reasonable notice upon

the payment of a reasonable redemption premium, if any. The intent

of this provision is to ensure that public utility companies subject to

the Act shall not be prevented, if money rates decrease materially,

from refunding their bonds or preferred stock. This is in keeping

with the intent of the Act as expressed in Section 1 (b) (5) to ensure

economies in the raising of capital. While no formula is set forth in

the Statements of Policy as to what constitutes a reasonable redemption premium, the working policy of the Commission has been that

the initial redemption price shall not exceed the initial public offering price plus the interest rate on the bonds or the dividend rate on

the preferred stock. For example, in the case of bonds, if the initial

public offering price is at 101% of principal amount and the bonds

bear a 4"%% interest rate, the initial redemption price may not exceed

105"%% of the principal amount, and the 5% point premium must

thereafter be reduced pro rata to maturity.

The Commission has continued to receive informally a number of

requests from issuing companies to relax its requirements so as to

permit bonds to be nonrefundable for a period after issuance, generally five years, or to permit the initial redemption price to be higher

than that provided by the working formula. No showing was made

that nonrefundability or a requirement to pay higher premiums on

refunding would reduce the interest cost sufficiently to warrant the

loss of future refunding flexibility. On the contrary, studies made

by the staff of the Commission, at the direction of the Commission,

indicate that there does not appear to be any especially significant,

let alone a controlling, influence of restriction on refundability upon

the interest cost, or the number of bids received at competitive bidding by the issuer or the retail marketability of the bonds. Accordingly, the Commission considers its present working policy on refundability to be justified on the basis of available data.
TWENTY-FOURTH ANNUAL REPORT 131

In connection with this policy on refund ability, it is to be noted

that during fiscal year 1958 two public utility companies subject to

the Act refunded an aggregate of $35,000,000 principal amount of

first mortgage bonds, of which $20,000,000principal amount had been

issued during the same fiscal year and $15,000,000 had been issued

during the immediately preceding fiscal year. The refunding of the

$20,000,000 issue resulted in an annual saving in interest cost (before

deducting expenses) of 0.73%, or $146,000 per annum, while the annual interest cost saving (also before deducting expenses) from the

$15,000,000 refunding was 0.72%, or $108,000 per annum.

By reason of the great importance of the question of refundability

to investors and consumers and the general public in periods of

high interest rates, the Commission in fiscal year 1957 authorized a

member of the staff of its Division of Corporate Regulation to serve

as a member of a committee organized by the "Wharton School of

Finance and Commerce of the University of Pennsylvania, which

is conducting a broad study of redemption provisions. The study is

under the sponsorship of the Life Insurance Association of America

and is expected to be concluded during fiscal year 1959.

In the two issues of preferred stock having an aggregate par value

of $9,000,000, one, involving $3,000,000 par value, had charter provisions conforming substantially to the provisions of the Statement

of Policy; in the other, involving an issue of $6,000,000 par value,

the Commission, with the consent of the issuer, conditioned its order

permitting the issue to provide, among other things, for limitations

on dividends on junior classes of stock, on issuances of additional

shares of preferred stock, on mergers or consolidations that might

be effectuated without the consent of preferred stockholders, on the

acquisition of its outstanding preferred stock which may fall into

arrears and on the authorization or issuance of any prior preferred

stock. These conditions supplanted conditions contained in a previous order of the Commission and supplemented the company's

preferred stock charter provisions.
PART VII

PARTICIPATION OF THE COMMISSION IN CORPORATE

REORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCY ACT, AS AMENDED

Chapter X of the Bankruptcy Act provides a procedure for reorganizing corporations in the United States District Courts. At

the request of the judge or on the Commission's own motion, if

approved by the judge, the Commission participates in the proceedings in order to provide independent, expert assistance to the court

and investors on matters arising in such proceedings and, where the

Commission considers it appropriate, files advisory reports on reorganization plans. The role of the Commission under Chapter X

differs from that under the various statutes which it administers in

that the Commission does not initiate the proceedings or hold its own

hearings. It has no authority to determine any of the issues in a

proceeding. The facilities of its technical staff and its disinterested

recommendations are simply placed at the service of the judge and

the parties, affording them the views of disinterested experts in a

highly complex area of corporate law and finance, and the Commission pays especial attention to the interests of public security holders,

who may not otherwise be effectively represented.

Section 172 of Chapter X provides that if the scheduled indebtedness of a debtor corporation does not exceed $3 million, the judge may,

before approving any plan of reorganization, submit such plan to

the Commission for its examination and report. However, if the

indebtedness exceeds $3 million, the judge must submit the plan to

the Commission before he may approve it. The Commission has no

authority to veto or require the adoption of a plan of reorganization

and is not obligated to file a formal advisory report on a plan.

Where the Commission does file a report, copies of it, or a summary

thereof, must be sent to all security holders and creditors when they

are asked to vote on the plan.

While the Commission's advisory reports on plans of reorganizations are usually widely distributed and serve an important function,

they represent only one aspect of the Commission's activities in cases

in which it participates. As a party to a Chapter X proceeding,

the Commission is actively interested in the solution of every major

issue arising therein and has found that adequate performance of

132
TWENTY-FOURTH ANNUAL REPORT 133

its duties requires that it undertake in most cases intensive legal

and financial studies. Even in cases where the plans are not submitted to the Commission and no report is filed, it is necessary that

the Commission consider and discuss various reorganization proposals

of interested parties while plans are being formulated, and be prepared to comment fully upon all plans that are the subject of hearings

for approval or confirmation.

In the exercise of its functions under Chapter X the Commission

has endeavored to assist the courts in achieving equitable, financially

sound, expeditious, and economical readjustments of the affairs of

corporations in financial distress. To aid in attaining these objectives the Commission has stationed lawyers, accountants, and financial

analysts in its New York, Chicago, and San Francisco regional

offices who keep in close touch with all hearings and issues in the

proceedings and with the parties and are readily available to the

courts. Supervision and review of the regional offices' Chapter X

work is the responsibility of the Division of Corporate Regulation

of the Commission, which also handles the actual trial work in cases

arising in the Atlanta and Washington, D. C., regional areas.

SUMMARY OF ACTIVITIES

During the past fiscal year the Commission actively participated in

39 reorganization proceedings involving 58 companies (39 principal

debtor corporations and 19subsidiaries of those debtors) .1 The stated

assets of the 58 companies involved in these proceedings totaled approximately $561,794,000 and their indebtedness totaled approximately $536,509,000. The proceedings were scattered among district

courts in 19 states. During the year the Commission entered its appearance in 9 new proceedings, which involved the rehabilitation of

companies engaged in such varied businesses as industrial loans, steel

manufacturing, horse racing, drugs, investments, oil and gas production, and breweries. Proceedings involving 4 principal debtor corporations were closed during the year. At the end of the fiscal year

the Commission was actively participating in 35 reorganization proceedings.

THE COMMISSION AS A PARTY TO PROCEEDINGS

The Commission has not considered it necessary or appropriate that

it participate in every Chapter X case. Apart from the fact that the

administrative burden of participating in everyone of the over 80

cases instituted during the fiscal year would be unsurmountable with

our present staff, many of the casesinvolve only trade or bank creditors

1The appendix contains a complete list of reorganization proceedings in which the

~ommlsslon participated as a party during the fiscal year ended June 30. 1958.
134 SECURITIES AND EXCHANGE COMMISSION

and a few stockholders. As a general matter, the Commission has

sought to participate principally in those proceedings in which a substantial public investor interest is involved. This is not the only criterion, however, and in some cases involving only limited public investor interest, the Commission has participated because an unfair

plan had been or was about to be proposed, the public security holders

were not adequately represented, the reorganization proceedings were

being conducted in violation of important provisions of the Act, other

facts indicated that the Commission could perform a useful service or

the judge requested the Commission to participate.

PROCEDURAL MATIERS

Usually the Commission does not enter a case until the court has

approved the petition for reorganization. However, developments

in a particular case may impel the Commission to move to appear as

soon as practicable, without awaiting approval of the petition. During 1958 there were a number of such cases.

An involuntary petition was filed by creditors in the United District

Court for the Southern District of California at Los Angeles for the

reorganization of the Equitable Plan Company," an industrial loan

company having approximately $10,000,000 in Thrift Certificates outstanding. The affairs of the company had previously been taken over

by the California Commissioner of Corporations and were being administered by a Conservator under the jurisdiction of the state court

pursuant to the provisions of the California Industrial Loan Company

Act. The State and the Conservator opposed the petition contending,

among other things, that the pending proceedings in the state court

provided adequate relief. The Commission filed its appearance and

urged that the District Court approve the petition because Chapter X

and the machinery available under the Bankruptcy Act provided superior facilities for the administration of the assets, a large part of

which consisted of loans and receivables owed by non-residents of

California, and because Chapter X provides superior facilities for the

evolution of a plan of reorganization. On May 29, 1958, after extended hearings, the judge approved the petition.

Another case which required the Commission's participation prior

to approval of the petition for reorganization involved Magnolia Park,

Inc. 8 Magnolia is a race track operator which leases land upon which

its race track and improvements are located. The lease contained a

forfeiture clause which provided that upon default by Magnolia, title

to the race track and the improvements passed to the landlords.

When Magnolia was in arrears on its rent payments to the extent of

21n the Matter 0/ EquitabZe Plan 00., S. D. car., Ceo. Dlv.• No. 86,096--B. H.

31n the Matter 01 MagnoZia Park. Inc., E. D. La., New Orleans Dlv .• No. 9010.
TWENTY-FOURTH ANNUAL REPORT 135

about $35,000,the landlords attempted to evict Magnolia in the Louisiana state court suit and thus obtain possession of Magnolia's property

which had cost over $2,000,000. However, a voluntary petition for

reorganization was filed under Chapter X and the District Court

issued an order restraining the proceedings in the state court. The

landlords objected to approval of the petition and hearings were held

before a Referee in Bankruptcy acting as Special Master. The Commission participated in the hearings as the sole representative of the

substantial number of public security holders and filed a memorandum

supporting approval of the petition.

The Special Master in a report filed on January 17, 1958, recommended that the petition be disapproved because it was not filed in

good faith in that it was unreasonable to expect that a fair and feasible

plan of reorganization could be effected within the framework of the

corporation itself. The Commission filed objections to the Special

Master's report and on February 12, 1958, participated in oral argument before the judge at which time the Commission pointed out that

good faith of a petition does not require the expectation of an internal

reorganization but that a merger, consolidation or an investment of

new capital from an outside source are other acceptable forms that a

reorganization can take. The judge denied a motion by the landlords

to adopt the report of the Special Master and instead followed the

Commission's advice and approved Magnolia's petition.' An appeal

by the landlords was pending in the United States Court of Appeals

for the Fifth Circuit at the close of the fiscal year,"

The Commission has at all times sought to be of assistance to the

disinterested trustee appointed by the district court in carrying out his

responsibilities and to make available to him the fund of experience

and information accumulated by the Commission through its participation in hundreds of cases. Throughout the proceedings the staff

consults with the trustee and his counsel as to the steps to be taken

in the reorganization, the timing of those steps and the appropriate

method of taking them. This often results in substantial savings of

time and expense to the estate. The Commission, however, has been

alert to protect against attempts at encroachments by parties or even

the trustee upon the orderly operation of the statute. Typical of the

Commission's approach is a situation which arose inthe reorganization

proceedings involving General Stores Corporation."

A similar problem existed In South Texas on and Gas Company-USDC, S. D., Tex.

No. 607, where the Commission took substantially the same position as In the Magnolia

ease. The judge followed the Commission's recommendation and denied the motions of the

secured creditors to discuss the debtor's petition.

"In re Magnolia Park Ino., No. 17,312.

'In the MlJtter 01 General Stores Oorp., S. D. N. Y., No. 90954. See Twenty-third Annual

Report, pp. 150-151.

•
136 SECURITIES AND EXCHANGE COMMISSION

After the reorganization trustee prepared a Section 16'7report and

transmitted it to the creditors and stockholders, the trustee received a

plan proposal from a substantial stockholder of the debtor. The major

secured creditor of the debtor, dissatisfied with the treatment which

the proposal provided, moved the district court to vacate the injunctive

provisions of the order approving the petition for reorganization in

order to allow him to sell securities pledged by General Stores under a

trust agreement as collateral to secure the debtor's obligations to him.

At about the same time questions had been raised with respect to the

secured creditor's handling of the collateral under the trust agreemerit," The Commission opposed the secured creditor's motion to vacate the injunction and the judge entered an order denying the motion

on the ground that plan proceedings were pending and the application

was premature. In addition the district court entered an order requiring that the secured creditor give the Reorganization- Trustee ten

days' notice of transactions not in the ordinary course of business

which involved substantial amounts of money and providing that

upon objection by the Reorganization Trustee the transaction would

not proceed without leave of the court.

The collateral trustee and the secured creditor appealed from both

orders. The Commission supported the district court's determinations. The Court of Appeals in a per curiam opinion affirmed, holding that " . . . the petitioner's attempt to end the reorganization by

foreclosing the lien is premature. Until the district court has had

an opportunity to evaluate these assets, it can be in no position to

judge the propriety of any contemplated plan of reorganization."

As to the order respecting the conduct of the subsidiaries' business,

the Court of Appeals held that the district court had the power to

issue the order, stating that "The court simply took qualified possession of the stock pledged in order to preserve the debtor's possible

equity in it." s

TRUSTEE'S INVESTIGATIONS

One of the primary duties of the trustee is to make a thorough

study of the debtor to assure the discovery and collection of all assets

of the estate, including claims against directors, officers,or controlling

persons who may have mismanaged the company's affairs, diverted its

funds to their own use or benefit, or been guilty of other misconduct.

A complete accounting for the stewardship of corporate affairs by the

old management is a requisite under the Bankruptcy Act and Chapter

X. The staff of the Commission participates in the trustee's investi1The collateral was all the stock of the debtor's subsidiaries, two drug chains in the

Chicago area the businesses of which under the trust agreement were in the control of the

secured creditor.

s RU8kin v. Griffiths, 250 F. 2d 875, 877 (C. A. 2, 1958).
TWENTY-FOURTH ANNUAL REPORT 137

gation so that it may be fully informed as to all details of the financial

history and business practice of the debtor. The Commission views

its duty under Chapter X as requiring it to call the attention of the

trustee, or the court if necessary, to any matters which should be acted

upon. Thus, during the course of the trustee's investigation in the

reorganization proceedings involving Automatic Washer Company,"

the staff of the Commission found that there had been certain insiders

who appeared to have profited from the purchase and sale of the stock

of the debtor which was listed on the Midwest Stock Exchange.

These transactions appeared to be subject to the provisions of Section 16 (b) of the Securities Exchange Act of 1934 which provides

that under certain circumstances such profits of insiders shall inure to

the benefit of the corporation. This information was called to the attention of the trustee. Thereafter the trustee filed civil actions

against these insiders seeking recovery of more than $1,500,000.

The trustee in the Automatic Washer proceedings in the District

Court for the District of Iowa after his investigation reported that

those who had been in control prior to his appointment had mismanaged the debtor. Many of those persons subject to the charge of mismanagement were also stockholders of the debtor. In view of these

facts the Commission advised the trustee that it would not be equitable if the insiders were allowed to participate in the estate on a

ratable basis with public stockholders, and that the stock of insiders

guilty of mismanagement should therefore be subordinated or disallowed. To prevent the stock of those insiders from being sold before appropriate action could be taken by the court, the Commission

filed a motion to enjoin all of these insiders from selling or transferring their stock. The court granted the motion, thus halting

transfers of approximately one half of the 2,000,000 outstanding

shares of the debtor's stock. Shortly thereafter the trustee filed a

motion to subordinate or disallow the stock of these insiders. This

motion was pending at the close of the fiscal year.

PROBLEMS REGARDING PROTECTIVE COMMITTEES

The Commission has constantly been alert to insist upon the honesty of fiduciaries in their relationship to the estate and to investors,

and has always sought to disqualify security holder committees subject to a conflict of interest from acting in Chapter X proceedings.

During 1958 in the Automatic Washer Oompany proceedings the

Commission moved to disqualify a committee attempting to represent

stockholders, because the committee members were almost wholly

former insiders of the debtor who had been charged by the trustee

• In the Matter of Autom.atic W(J8her Oompany, s. D. Iowa, Cen. D1v., No. 5--426.
138 SECURITIES AND EXCHANGE COMMISSION

with mismanagement. The court granted the motion of the

Commission.

The Commission scrutinizes material mailed out to security holders

by other security holders, their representatives and other persons, and,

where such material appears to be misleading, undertakes to obtain

curative and preventive relief. In the Stardust case 10 the Commission obtained an order to show cause why a security holder of the

debtor should not be required to distribute a communication retracting misleading statements sent out in a general communication to

stockholders. The district court required that this be done and enjoined him from sending further misleading communications.

Inthe Selected Investments Oorporation. proceedings," pending in

the United States District Court for the Western District of Oklahoma, the Commission brought information to the attention of the

court which indicated that two committees, both of which were in the

process of being formed, had mailed soliciting material containing

misleading information to 10,000 security holders of the debtor. The

court enjoined further solicitation of authorizations pending compliance with the provisions of Chapter X governing the formation of

committees and caused the committees to retract or clarify their previous statements. In addition, one of the committees had solicited contributions from individual security holders for representing them. The

Commission urged, the court to order that the money collected be returned and that future collections be enjoined on the ground that the

solicitation of :funds violated the spirit of committee representation

since the committee had a duty to represent all security holders and

not only those making contributions. Moreover, since the monies had

been solicited for the purpose of paying a fee to an attorney, the solicitation infringed on the reorganization court's discretion to allow reasonable compensation for services and reimbursement for costs and

expenses incurred by the committee and its attorney. The judge

ordered the committee to return the monies to the contributors.

ACTIVITIES WIm REGARD TO AUOW ANCES

Every reorganization case ultimately presents the difficult problem

of determining the allowance of compensation to be paid out of the

debtor's estate to the various parties for services rendered and expenses incurred in the proceeding. The Commission, which under

Section 242 of the Bankruptcy Act may not receive any allowance

from the estate for the services it renders, has sought to assist the

courts in protecting reorganized companies from excessive charges and

at the same time equitably allocating compensation on the basis of the

,. In the Matter 01 Stardust, Ine., D. Nev. No. 955 (September 16, 1957).

11 In the Matter 01 Selected Investments Trust Fund and Se"teotedInvl/stments Oorporation, W. D. Okla •• No. 10680.
TVVENTY-FOURTH ~AL REPORT 139

claimants' contribution to the administration of the estate and. the

formulation of a plan.

During the fiscal year important determinations respecting the

granting or withholding of allowances were made by the District

Court for the Southern District of New York in the reorganization

proceedings involving Third Avenue Transit Corporation.> During

the course of the proceedings an attorney for a committee of bondholders pledged with a bank as-collateral for a loan $25,000 of bonds

of the same class as represented by his committee, together with other

securities. Approximately eight months later when the market value

of the collateral, including the $25,000 of Third Avenue bonds, had

declined, the bank communicated with the attorney and advised that

some steps would be required to rectify the situation. The attorney

directed his broker to sell the Third Avenue bonds. The bonds were

released from the collateral to effect the transaction and substantially

all of the proceeds of the sale were used to reduce the loan. When the

attorney applied to the court for an allowance, the Commission urged

. that the transaction constituted a sale of securities by the attorney

within the contemplation of Section 249 of the Bankruptcy Act, thus

disqualifying him from receiving a fee. It was noted that there were

other substantial securities in the collateral account which could. have

been sold in order to correct the situation without necessitating the

sale of the Third Avenue bonds. The district court held that the attorney was disqualified from receiving a fee, notwithstanding the fact

that both the Commission and the court recognized that substantial

services had been rendered."

In another phase of the same proceeding it developed that the wife

of co-counsel for a committee had during the course of the proceeding sold $5,000 of Third Avenue Bonds of the same class represented

by the committee. It was cleaa- that the attorney had knowledge of

the transaction by his wife and had in fact participated in its mechanics, and benefitted thereby through the filing of a joint tax return

with his wife. The Commission advised the court that Section 249

of the Act barred compensation to an attorney where a sale of securities was made by his wife with his knowledge and to his benefit.

The Commission relied upon cases in the Court of Appeals for the

First and Fourth Circuits," The district court disagreed with the

Commission, feeling constrained by certain decisions of the Court of

Appeals for the Second Circuit which the Commission had contended

were distinguishable on their facts.

urn tM Matter 01 Third Avenue Transit oors., S. D. N. Y., NOB.85851, 86410, 86413,

86412, 86537.

urn the Matter a! Third Avenue Tranait aorp.,15~F. Snpp. 440 (1~5S).

"SEO v. Dumaine, 218 F. 2d 380, 315 (C. A. 1, 1~54) ; In re Central States Electrlc

Oorp., 206 F. 2d 70,71 (C. A. 4, 1953).
140 SECURITIES AND EXCHANGE COMMISSION

Yet another determination of significance was made in connection

with the allowances in the Third Avenue proceeding. This involved

the court's power to review arrangements for allocations of fees made

among attorney applicants. The Commission urged that the broad

powers to supervise allowances granted by the Bankruptcy Act included the power to review allocations of fees in appropriate circumstances in order to prevent an attorney from receiving excessive

or inadequate compensation. The Commission relied upon Canon 34

of the Canons of Professional Ethics, which provides in substance

that allocation of fees by attorneys shall be based on a division of

service or responsibility, and Section 62 (c) of the Bankruptcy Act

which prohibits the sharing of compensation "for ... services with

any person not contributing thereto . . . " The district court agreed.

It found that in the particular instance the parties had agreed that

their arrangement for equal division of compensation was based upon

a contemplated equal contribution of services and that it would be

subject to court approval. The court held that even in the absence

of such agreement "The broad supervisory powers accorded the court

under those provisions [Sections 241-250 of The Bankruptcy Act]

necessarily include the power to disregard the terms of attorneys'

agreements which are contrary to the terms and policy of the Act." 15

Respecting Section 62 (c) of the Bankruptcy Act the court held that

"It would be a clear evasion of the intent of this section if the court

were to sanction a fee-sharing arrangement whereby an attorney

having performed some service, received an allowance far in excess

of that to which his contribution to the estate entitled him." 16

As to still another request for compensation, the court followed the

Commission's recommendation in denying an application by a potential underwriter of an unsuccessful plan of reorganization. The

Court expressed serious doubt as to whether the allowance provisions

of Chapter X were intended to cover as a possible applicant one

"whose interest in the debtor was solely to obtain the profits from

underwriting a plan of reorganization." 17 Even assuming that the

applicant did qualify as "a party in interest", the district court found

that there was no basis for a finding that any of the services rendered

contributed to a plan approved by the judge. .

As for the allowances generally, the Commission had recommended

an aggregate of approximately $1,818,000. The court found that the

reorganized company could afford to and should pay allowances approximately $250,000 greater than the aggregate recommended by

the Commission. In making the individual awards, the district court

1G In the Matter of Third Avenue 'I'raneit Corporation, - F. SUPp.- (S. D. N. Y.,

1958). CCH paragraph 59,259, page 65,873. 1.Ibid., p, 65,874.

17 Ibid., p. 65,882.
TWENTY-FOURTH ANNUAL REPORT 141

substantially increased the allowances recommended to certain applicants, reduced somewhat certain of the recommendations and left

the balance unchanged." Several petitions for leave to appeal have

been filed in the United States Court of Appeal for the Second Circuit

and the matters were pending at the close of the fiscal year.19 The

Commission has taken the position that certain of these petitions

should be granted and that it would not oppose the granting of the

other petitions.

ADVISORY REPORTS ON PLANS OF REORGANIZATION

An advisory report of the Commission provides the district court

with an expert independent appraisal of a plan indicating the extent

to which, in the opinion of the Commission, the plan meets or fails

to meet the standards of fairness and feasibility. After the report is

filed, the judge considers whether the plan should be approved or disapproved. If the judge approves the plan, it is sent to the affected

security holders for acceptance or rejection accompanied by a copy

of the judge's opinion and a copy or summary of the report of the

Commission.

Since 1938 the Commission has issued 38 advisory reports and 36

supplemental advisory reports. They represent the principal means

by which the Commission has recorded its views publicly. Generally

speaking, an advisory report is prepared only in a case involving a

large public investor interest and in which significant problems exist.

However, there have been occasions where even though a case is of

significant size and importance, because of the exigencies of time or

for other reasons, no written report has been filed but instead, Commission counsel has made a detailed oral presentation of the Commission's views and the reasons therefor. Customarily, in the smaller

cases the Commission's views are presented orally by counsel.

An example of a case in which the Commission participated during

1958 where the Commission's views were presented orally instead of

by written report was the reorganization proceeding involving Star-

,. In commenting upon the role of the Commission in the allowance proceeding and in the

proceeding generally, the court stated:

"Though I have been forced to dl1l'er from the recommendations of the SEC in

many of the instances, I wish to pay tribute to the careful and helpful analysis that

the Commission made of the claims. Indeed, I take this opportunity to express my

gratitude for the active and intimate participation of the Commission and its counsel

in the reorganization proceedings. If any proof were needed of the wisdom of Congress in providing for representation of the pubIlc by the Securities and Exchange

Commission in reorganization proceedings, it has been furnished in this case. I

would have felt helpless without the aid given, unstintingly by . . . counsel for the

Commission. Each has cheerfully rendered, at the usual modest salary of a public

servant, services equal in value to those of any to whom awards are made by this

decision." In the Matter of Third Avenue Tran8it Corporation - F. SuPP. -

(S. D. N. Y. 1958).

In the Matter of Third Avenue Tratl8it Oorporaium, Nos. 85851, 85410, 86413, 86412,

86537. Consolidated.

"
142 SECURITIES AND EXCHANGE COMMISSION

dust, Inc. in the United States District Court for Nevada. In that

case the Commission reviewed five proposed plans of reorganization

and offered comments and criticisms to the court. The Commission

contended that an essential element of feasibility in a plan of reorganization which contemplates the purchase of all the debtor's

assets or the investment of new capital in the debtor is the firm assurance that the money will be forthcoming when the plan is consummated. The Commission recommended that before any plan was approved by the judge the plans should be amended to make provision

for a substantial deposit by proponent of the plan, forfeitable if the

plan was confirmed and the new money was not paid. Only one

plan with firm provisions for the new financing was forthcoming.

It was approved by the judge and after acceptance by the creditors

and the preferred stockholders of the debtor was confirmed.

During the fiscal year the Commission submitted formal advisory

reports in two proceedings. .A brief summary of these proceedings

follows:

Northeastern Steel Corporation-The debtor was a non-integrated

steel producer with its plant located in Bridgeport, Connecticut.

Since it commenced operations in 1955 the company had had substantial losses. .At the time of filing a voluntary petition for reorganization in the United States District Court for the District of

Connecticut, the company's working capital was less than the amount

required by its first mortgage indenture and the company had failed

to pay the interest due on its first mortgage bonds. Operations were

continued by the trustees after their appointment in the belief that

maximum realization would come only by continued operation and

that cessation would result in a loss of the labor force and generally

in greater depreciation of the assets.

The plan of reorganization proposed by the trustees was based on an

offer by Carpenter Steel Company, a New Jersey corporation which

manufactures specialty steel products. Ingeneral, the plan provided

for the recapitalization of Northeastern so that it would still have

outstanding $6,000,000 principal amount of First Mortgage Bonds

with defaults cured and 1,000,000 shares of new common stock. The

1,000,000 shares of stock were to be issued to Carpenter in exchange for

not less than 40,000 shares of Carpenter's own common stock, the

specific number to be determined by formula. The Carpenter stock

was to 'be distributed, also on the basis of a formula, to a bank holding

a claim of $250,000, to holders of general unsecured claims, and to

debenture holders, in satisfaction of their claims. To the extent cash

was available after satisfaction of prior claims, it was to be used to

discharge a note held by the bank. The plan did not provide for the

participation by stockholders, warrant holders or option holders.
TWENTY-FOURTH ANNUAL REPORT 143

The Commission's report concluded that the plan or reorganization

was unfair in that the formula for determining the allocation of the

Carpenter stock was discriminatory and the stock did not represent

fair compensation for the interest in the assets and facilities being

acquired by Carpenter." However, the Commission considered the

exclusion of stockholders, warrant holders and option holders from

participation to be fair since the indicated value of the debtor was

less than the full claim of the creditors. The Commission's report

further concluded the plan was feasible in view of Carpenter's debtfree capitalization and working capital position. The plan was

amended to eliminate the discriminatory formula, but not to increase

the amount of Carpenter stock to be issued to the trustees. As thus

amended, the plan was approved by the court.

Inland Gas Corp., Kentucky Fuel Gas Corp., and American Fuel

& Power Co.21-Inland Gas Corporation, which was in equity receivership from 1930 to 1935 and has been in reorganization under Section

77B and Chapter X since 1935, produces, transmits, and sells natural

gas principally to industrial customers in Kentucky.

The plan of reorganization proposed by the Trustees of Inland

Gas Corporation and its non-operating parents, Kentucky Fuel Gas

Corporation and American Fuel & Power Company, provided for payment in cash of all priority and administrative claims and of the

claims to principal and full interest of public creditors of American

Fuel & Power Company. The Trustees' plan further provided for

payment in cash to the public holders of Kentucky Fuel bonds and

debentures of principal, but not of interest except for a single interest

coupon on the debentures which was in default prior to receivership.

The plan also provided for the reorganized company to borrow an

estimated $4,000,000 from a bank and to use the proceeds for payment

of a portion of the claims of the public creditors. All the new common stock of the reorganized company was to be issued to The C0-

lumbia Gas System, Inc., as holder of subordinated claims against

Inland.

The Commission's Third Advisory Report concluded that the Trustees' Plan was fair to the public creditors of American Fuel in according them the full amount of their claims including interest;" However, the Commission considered the plan to be unfair to the public

holders of Kentucky Fuel bonds and debentures because the plan gave

no recognition to the interest which accrued on their claims between

December 1, 1930, when the equity receivership proceeding com110 Corporate Reorganization Release No. 101. August 26, 1957.

Sl See the Twenty-FIrst Annual Report. pp. 174-175, and the Twenty-Third Annual

Report, p. 155.

.. Corporate Reorganization Release No. 109, May 1, 1958.
144 SECURITIES AND EXCHANGE COMMISSION

menced, and October 15, 1935, when the bankruptcy proceeding was

instituted; and because the plan would give compensation to Columbia

for post-bankruptcy interest on the subordinated claims of Columbia

before post-bankruptcy interest was paid on the publicly held claims

against Kentucky Fuel.

The Commission concluded that the plan was feasible but pointed

out that if the plan was amended to make it fair, in accordance with

the principles enunciated in the Report, the proposed capital structure of the reorganized company would have to be further modified

to make the plan feasible.

The district judge did not accept the Commission's conclusion and

approved the plan. Several appeals from the judge's ruling were

pending in the United States Court of Appeals for the Sixth Circuit

at the close of the fiscal year.23

23 In the Matter of Inland Ga8 Oorporatton, Kentucky Fuel Gas Corporation, American

Fltel d' Power Company, Nos. 13,657-13,664.
PART VIII

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939

The Trust Indenture Act of 1939 requires that bonds, notes, debentures and similar securities publicly offered for sale, except as

specifically exempted by the Act, be issued under an indenture which

meets the requirements of the Act and has been duly qualified with the

Commission. The Act requires that indentures to be qualified include

specified provisions which provide means by which the rights of holders of securities issued under such indentures may be protected and

enforced. These provisions relate to designated standards of eligibility and qualification of the corporate trustee to provide reasonable

financial responsibility and to minimize conflicting interests. The

Act outlaws exculpatory provisions formerly used to eliminate all liability of the indenture trustee and imposes on the trustee, after default, the duty to use the same degree of care and skill "in the exercise

of the rights and powers invested in it by the indenture" as a prudent

man would use in the conduct of his own affairs.

The provisions of the Trust Indenture Act are closely integrated

with the requirements of the Securities Act. Registration pursuant

to the Securities Act of securities to be issued under a trust indenture

subject to the Trust Indenture Act is not permitted to become effective

unless the indenture conforms to the requirements of the latter Act,

and necessary information as to the trustee and the indenture must be

contained in the registration statement. In the case of securities issued in exchange for other securities of the same issuer and securities

issued under a plan approved by a court or other proper authority

which, although exempted from the registration requirements of

the Securities Act, are not exempted from the requirements of the

Trust Indenture Act, the obligor must file an application for the

qualification of the indenture, including a statement of the required

information concerning the eligibility and qualification of the trustee.

Indentures filed under the Trust Indenture Act of 1939 during the fiscal year ended

June 30, 1958

Number Aggregate ofmden- dollar amount tures

Indentures pending June 30,1957- ______ 17 $386, 420, 000

Indentures filed during fiscal year 252 7,066,157,386

TotaL -. .-- --. 269 7,452, 577,386

Dls~~~~~~:_~al~~-:~~~------ . . . 237 6,413,997,586

Indentures deleted by amendment or withdrawn. .. ----.---- 2 36,315,200 Indentures pending June 30,1958 _____________________________________. ____ 30 1,002,264,600

Total . -. -. -. -' -. 269 7,452.577,386

486867-59-11 145

--- --- -- ---- - -- -- -~- - - ---- -- - - - - --- ---

__---- --------------------------------------

____________________--- ---------- --------- --- ------ --------

_____________ ________________' _________

___-----------

_____-____-------- ---- --- ---- ----- -----------------------
PART IX

ADMINISTRATION OF THE INVESTMENT COMPANY

ACT OF 1940

The Investment Company Act of 1940provides for the registration

and regulation of companies engaged primarily in the business of investing, reinvesting, holding and trading in securities. The Act requires, among other things, disclosure of the finances and investment

policies of these companies, prohibits such companies from changing

the nature of their business or their investment policies without the

approval of their stockholders, regulates the means of custody of the

companies' assets, prohibits underwriters, investment bankers and

brokers from constituting more than a minority of the directors of

such companies, requires management contracts to be submitted to

security holders for their approval, prohibits transactions between

such companies and their officers, directors and affiliates except with

the approval of the Commission and regulates the issuance of senior

securities. The Act requires face-amount certificate companies to

maintain reserves adequate to meet maturity payments upon their

certificates.

The securities of investment companies which are offered to the

public are also required to be registered under the Securities Act,

and the companies must file periodic reports. Such companies are

also subject to the Commission's "proxy" and "insider" trading rules.

The Division of Corporation Finance and the Division of Corporate

Regulation both assist the Commission in the administration of the

statute, the former being concerned with the disclosure provisions

and the latter with the regulatory provisions.

COMPANIES REGISTERED UNDER THE Ac.r

As of June 30, 1958,there were 453 investment companies registered

under the Act, and it is estimated that on that date the aggregate market value of their assets was $17 billion. These figures represent an

increase of 21 registered companies and an increase of roughly

$2 billion in the market value of assets over the corresponding totals

at June 30, 1957. These companies were classified as follows:

~anagernent open-end 238

~anagernent closed-end 111

Unit investment trusL_________________________________________________ 92

Face-amount certificate_________________________________________________ 12

Total____________________________________________________________ 453

146
TWENTY-FOURTH ANNUAL REPORT 147

NEW COMPANIES REGISTERED AND REGISTRATIONS TERMINATED

During the fiscal year ending June 30,1958,42new companies registered under the Act while the registrations of 21 companies were

terminated. These companies were classified as follows:

Reglstra- Registered tton ter- during the mlnated fiscal year durmgthe

fiscal year

Management open-end __________________________________________________________ Management 20 4 closed-end _________________________________________________________11 10

Unit investment trust, 11 6 Faee-amount certificate companles _______________________________________________ 0 1

TotaL_. ___________________________________________________________________42 21

Of the 42 new registrations, three were deregistered during the year.

All of the unit investment trusts registered were organized to furnish

periodic payment plans for the accumulation of shares of open-end

.funds.

GROWTH OF INVESTMENT COMPANY ASSETS

The striking growth of investment company assets during the past

seventeen years, particularly in the most recent years, is shown in the

following table:

Number at investment companies registered under the Investment Company

Act and the eetimated. aggregate assets at the end of each fiscaZ year, 1941

through 1958

Number of companies Estimated

aggregate

market value FIscal year ended June 30 Registered Registered Regtstra- Registered of assets at at begtn- during non terml- at end of end of year Ding of year nated dur- year (in millions)

year ingyear

1941___________________________________ 0 450 14 436 $2,500 1942___________________________________ 436 17 46 407 2,400 1943___________________________________ 407 14 31 390 2,300 1944___________________________________ 390 8 27 371 2,200 1945___________________________________ 371 14 19 366 3,250 1946 366 13 18 361 3,750 1947 361 12 21 352 3,600 1948 352 18 11 359 3,825 1949 359 12 13 358 3,700 1950_. 358 26 18 366 4,700 1951 366 12 10 368 0,600 1952___________________________________ -368 13 14 367 6,800 1953 367 17 15 369 7,000 1954___________________________________ 369 20 0 384 8,700 1955 384 37 34 387 12,000 1956___________________________________ 387 46 34 399 14, 000 1957___________________________________ 399 49 16 432 15,000 1958___________________________________ 432 42 21 453 17,000

TotaL ------------ 820 367

STUDY OF SIZE OF INVESTMENT COMPANIES

In the preceding fiscal year the Commission pursuant to section

14 (b) of the Investment Company Act instituted an inquiry into the

-_____--_-___--- _____-_______-______--_______-____________

__• _________________• ______________ ________________ • __________________ _____ • _____________________________

____• ______________________________

_____~__________• __________• _____ ____________________ • ______________

__• ________________________________

_____________________ • __________• __

___________________________ ------------ ----- -----------
148 SECURITIES AND EXCHANGE COMMISSION

problems created by the growth in size of investment companies and,

as part of this inquiry, received a preliminary report containing a

general research plan for the study of the effects of investment company growth (23rd Annual Report, p. 159). In furtherance of this

study the Commission in the past fiscal year retained the Securities

Research Unit of the Wharton School of Finance and Commerce,

University of Pennsylvania, to make a fact-finding survey and report

on certain aspects and practices of registered investment companies.

This survey is under the supervision of Dean Willis J. Winn of the

Wharton SchooP

The general problems which will be examined are: (a) The manner and extent to which investment policies may be affected by the

size of investment companies; (b) the relationship between the size

of investment companies on the one hand and the character of management, cost of operation, and performance of investment companies

on the other; (c) the relationship between the size of the investment

companies and the manner in which blocks of securities are purchased and sold and the effects of such purchase and sales on the

security markets and the marketing channels for securities; and (d)

the extent to which large companies control or influence the policies

and decisions of portfolio companies. The immediate inquiry of

the study will be primarily directed to the question of the effects

of size on investment policies and comparative performance of investment companies, although other aspects of the inquiry will be

developed to the extent possible.

Itis expected that the report of the Wharton School will enable the

Commission to determine whether the increased size of investment

companies has created any problems which require specific remedial

legislative recommendations by the Commission to the Congress.

INSPECTION PROGRAM

As indicated in the 23rd Annual Report, the Commission has initiated a regular program for the periodic inspection of investment companies pursuant to its statutory authority under section 31 of the

Investment Company Act. In pilot operations under this program,

nine companies were inspected during fiscal year 1957,2and seven in

fiscal year 1958. These inspections were undertaken by staff teams

consisting of one attorney or analyst from the Division of Corporate

Regulation and one securities investigator from the appropriate field

office. In this way, the specialized training and knowledge of the

1The Wharton School will limit the scope and manner of conducting the study to accord

with the Commission's determinations with respect thereto. A preliminary questionnaire

has been prepared by the staff of the Wharton School and has been transmitted to selected

investment companies for test checking.

2 At page 160 of the 23rd Annual Report It was erroneously stated that only six Inspections were completed in tlscal year 1957.
TWENTY-FOUR'l'H ANNUAL REPORT 149

staff concerning the regulatory requirements of the Investment Company Act has been combined with the field experience and investigative expertness of field office personnel for more expeditious and

thorough review of the investment company.

These inspections, although involving only a very small fraction

of the total number of registered investment companies, have revealed

the need for continuous field supervision. The Commission's studies

ascertained that in several cases there was non-compliance with regulatory provisions of the Investment Company Act with respect to such

matters as (1) the affiliations of directors in violation of section 10

of the Act; (2) security purchases by registered investment company

during an underwriting where an affiliate relationship exists between

the underwriter of such security and the company in violation of section 10 (f) of the Act; (3) receipt of a commission for the sale of

property by an affiliated person contrary to section 17 (e) of the Act;

and (4) the failure to file an appropriate fidelity bond covering an

officer having access to portfolio securities pursuant to the requirements of rules under section 17 (g) of the Act.

In addition to non-compliance with various regulations and standards under the Act, some situations where books and records were

inadequate or lacking were noted by the staff. Thus, there were instances where a company failed to record the date and time of requests

for redemption which resulted in an inability to determine whether the

investors had received their correct net asset value. In other instances

a company failed to maintain journals reflecting purchases and sales

of securities, to maintain ledger accounts for broker-dealers used by

the company for its portfolio security transactions and to keep proper

vouchers for out-of-pocket expenses. In one case, an inspection revealed that the custodian did not adhere to the terms of the custodianship agreement and that there was a failure to comply with the

Commission's regulations regarding the safekeeping of portfolio

securities.

Inseveral cases the staff observed that there was considerable delay

by dealers selling investment company shares in the transmission of

funds received by them to the investment companies or their custodians. It also creates a risk for the purchasers who have paid dealers

for their shares but to whom shares of stock are not delivered until

funds are actually received by the companies. This practice is undesirable because investment companies are deprived of the use of

such funds even though the sales of securities have already been

recorded on the books of the companies.

During the course of one inspection, in examining certain transactions of the investment company, the staff discovered the existence

of another investment company which had not registered under the
150 SECURITIES AND EXCHANGE COMMISSION

Act. As a result of further inquiry, this company was compelled to

register.

In cases where deficiencies are noted, they are brought to the attention of the investment companies involved so that corrective action

may be taken. The Commission's experience to date indicates that

this aspect of the inspection program will prove to be particularly

helpful to the newly organized or the smaller investment company,

and of benefit to the investing public.

CURRENT INFORMATION

The basic information contained in notifications of registration and

in registration statements of investment companies ds required by

rules promulgated under the Act to be kept up-to-date, except rID

cases of certadn inactive unit trusts and face-amount companies.

During the 1958 fiscal year the ~dllowing current reports and documents were filed :

~ualreports_______________________________________________________ 305

Quarterly reports____________________________________________________ 163

Periodic reports to stockholders (containing financial statements)_______ 887

Copies of sales literature 2,416

While not reflected in the foregoing statistics, dn the course of every

fiscal year, open-end mutual funds making a continuous offering of

their securities make frequent filings of revised prospectuses showing

material changes which have occurred in the operations of such companies since the effective date of the prospectuses on file. In this

respect the registration of the securities of such companies is essentially different from the registration of the usual corporate securities.

APPLICATIONS AND PROCEEDINGS

Processing applications for exemptions constitutes one of the principal regulatory activities of the Commission under the Act. Under

Section 6 (c) the Commission is empowered, either upon its own

motion or by order upon application, to exempt any person, security

or transaction from any provision of the Act ii and to the extent

such exemption is necessary or appropriate in the public dnterest and

consistent with the protection of investors and the purposes faJirly

intended by the policy and provisions of the Act. Various other

sections, such as 6 (d), 9 (b), 10 (f), 11 (a), 17 (b), and 23 (c) contain specific provisions and standards pursuant to which the Commission may grant exemptions from particular sections of the Act or may

approve certain types of transactions. Under certain provisions of

Sections 2, 3 and 8 the Commission may also determine the status of

persons and companies under the Act.

During the 1958 fiscal year 159 applications on various matters

under the Act were pending before the Commission. Of these, 115
TWENTY-FOURTH ANNUAL REPORT 151

were disposed of leaving 44 pending on Jnne 30, 1958. The various

sections of the Act with which these applications were concerned

and their disposition during the fiscal year are shown in the following

table:

Applications filed with and acted upon by the Commission under the Investment

Company Ad of 1940 during the fiscal year ended June 30, 1958

Sections Subject in volved Pending Pending July I, Filed Closed June 30,

1957 1958

--- --- --- 3 and/or 6______Status and Exemption" _______________________ 8 13 17 4

7 ~d)----------- Registration of foreign investment compantes, 1 2 1 2 8 0--_________ TerminatIon of reglstration ___________________ 23 18 21 20 10, 16__________Regulation of affiliations of director:', officers, 2 25 24 3

employees, investment advisers, underwriters and others. 11_____________Regulation of security exchange offers and re- O 1 1 0

12,15__________ organization matters. Regulation of functions and activities of in- 0 10 9 1

17_____________ vestment eompames. Regulation of transactions with affiliated per- 8 15 15 8 sons. 18,22,23 _______Requlrements as to capital structures, loans, 5 24 24 5

secunty sales and redemptions, and related matters. 28 _____________ Regulation of face-amount certificate com- 1 1 1 1

32 panles, Accountmg supervision 0 2 2 0

Totals --- --- --- - -- - -- - - 48 111 115 44

"Includes only those section 6 (c) cases in which exemption is requested from'l:u(provislons of the Act

Applications for exemption or exception from the various provisions

of the Act and other proceedings for relief are for the most part

processed without the aid of formal hearings. In the past year, however, hearings were held in 9 cases. Four of these involved exemptions from the Act pursuant to section 6 (C); 3 two involved exceptions under section 3 (b) (2); 4 one involved a deregistration order

pursuant to section 8 (f) ; 5 one involved an order under section 'l (d)

permitting a foreign company to register under the Act; 6 and one,

instituted by the Commission pursuant to section 35 (d) of the Act,

involved the use of a name," In two of these cases the applicants

requested in the alternative general exemptions from all the provisions of the A.ct pursuant to sections 6 (c) or 6 (d). Six of the cases

are described below.

~Insu,..ed Accounts Fund, Investment Company Act Release No. 2539 (May 27, 1957) ;

Ira Haupt ef 00., Investment Company Act Release No. 2559 (July 17, 1957) ; Dow Theory

Investment Fund, Ine., Investment Company Act Release No. 2627 (Nov. 14, 1957);

Inter-Oanadian Oorp. (Name changed to Great Northern Inoestmente, Inc.), Investment

Company Act Release No. 2735 (June 25,1958).

'National Department Stores, Investment Company Act Release No. 2708 (April 30,

1958) and McPhail Oandy ooro., Investment Company Act Release No. 2644 (Dec. 18,

1957)

The Great American Life Underwriter8, tne., Investment Company Act Release Nos.

2542 (June 10, 1957), 2561 (July 22, 1957), and 2607 (Sept. 27, 1957) .

American-South African Investment' Oompany, Ltd., Investment Company Act Release

No. 2739 (.JUly3,1958).

'Oivil ef Military Investors Mutual Fund, Inc., Investment Company Act Release No.

2593 (Sept. 9, 1957).

-

_____________ ________-___-- ---- -- ---

___--------- - --- - ----------- ------------ ---

•

•

•
152 SECURITIES AND EXCHANGE COMMISSION

In Dow Theory Investment Fund, Inc., the applicant was granted

an order exempting it from the requirements of section 22 (d) of the

Act so as to permit it to continue to sell redeemable securities to

existing subscribers under an accumulation plan at a price including

a sales load of 5%, which was at variance with a 71;2% sales load

proposed to be charged to new shareholders. In a divided opinion,

the Commission pointed out that its decision to grant the application

was based on the specific facts in the case and that the type of exemption granted would at most have only a very limited application

in other situations. It declared that the decision "is not intended as

an adoption of a general policy of approving differing sales loads

based on differences in selling costs, or to restrict our discretion to

further define or revise our policy concerning exemptions from section

22 (d) if our continuing study should indicate that to be necessary." 8

In Insured Accounts Fund,9 the Commission denied an application

for an exemption pursuant to section 6 (c) from the requirements

of sections 16 (a) and 18 (i) of the Act. Section 16 (a) provides that

the directors (defined by section 2 (a) (12) of the Act to include

trustees) of a registered investment company be elected by the holders

of the outstanding voting securities, and section 18 (i) provides that

every share of stock issued by a registered management company

shall be a voting stock having equal voting rights with every other

outstanding voting stock.

The Company proposed to invest 80% of its funds in insured accounts of savings and loan institutions and its remaining assets in

federally insured bank accounts, government securities, and cash. To

have the benefit of this insurance to the extent contemplated, applicant represented that its trust form of organization was necessary

and that to grant its security holders voting rights would destroy its

status as a trust for this purpose. It further contended that there

was no need for the control over the trustees which would flow from

voting rights since their discretion was limited to investments among

insured institutions.

The Commission refused to grant the exemption, stating that it

would be inconsistent with the policy of the Act that the owners of

investment companies have the power to elect the management to the

end that such companies are operated in the investors' interests and

not in the interests of other persons. The Commission found that the

discretion to invest among various savings and loan companies with

differing risk factors and earnings was an important area of management discretion. The Commission further found that since sub8 Investment Company Act Release No. 2694 (April 14, 1958). Subsequently the company decided not to avail Itself of the exemptIon.

• Investment Company Act Release No. 2630 (November 22, 1957).
TWENTY-FOURTH ANNUAL REPORT 153

stantially all such investments would be made in savings and loan

institutions which were members of the organization which promoted

the investment company, there would be a potential conflict of interest

between the management and investors.

In Ira Haupt &: 00., the applicant as sponsor and depositor of a

unit investment trust, requested an exemption from sections 2 (a) (3),

4 (2) and 22 (e) of the Act to the extent that those sections require

the securities issued by a unit trust to be redeemable either by the

trust or its agent. Upon the conclusion of the hearings on the application which were held during the fiscal year, the applicant requested

that the matter be temporarily held in abeyance and the case has

therefore not yet come before the Commission for disposition."

Great Northern Investments, Imo, (formerly Inter-Canadian Corporation), a closed-end investment company, filed an application pursuant to section 6 (c) to permit it to acquire all the voting stock of

Northwestern Fire and Marine Insurance Company and to finance

such acquisition by the issuance of up to $3,200,000 of bank notes.

The stock was to be acquired pursuant to a general offer to Northwestern's stockholders at a price of $41 per share. It was contemplated that after the acquisition Northwestern would be caused to be

liquidated promptly. The exemption was required because section

12 (d) (2) makes it unlawful for a registered investment company

to acquire more than 10% of the total outstanding voting stock of

an insurance company and section 18 (a) (1) makes it unlawful for

a registered closed-end investment company to issue debt obligations,

with certain exceptions, unless the asset coverage for the debt immediately after such issuance is equal to at least 300%, and Great

Northern's assets could not meet this 300% test after it borrowed

$3,200,000. In addition, since the proposal also involved transactions

between affiliates an exemption from the provisions of section 17 (a)

pursuant to section 17 (b) was requested. The Commission granted

the requested exemption," finding among other things that the purpose of the acquisition of the insurance company's stock was to obtain

. the assets of a corporation to be liquidated and not to control a going

insurance company, and that the asset coverage requirements of the

Act would be complied with through repayment of the note as a result

of the liquidation of Northwestern, or the distribution by it of substantial dividends. It also found that the transactions between

affiliates were fair and reasonable and involved no overreaching."

10 Investment Company Act, File No. 812-1091.

11 Investment Company Act Release No. 2751 (JUly 28,1958).

12 Notice of appeal from tbe Commission's order was filed In tbe United States Court of

Appeals for the Eighth Circuit on August 16, 1958, by an insurance company stockholder

who had opposed the application but was subsequently withdrawn by the appellant.

Schmit v. S. E. 0., Civil No. 16072.
154 SECURITIES AND EXCHANGE COMMISSION

In The Great American Life Underwriters, Ino., applicant, a registered face-amount certificate company, sought an order pursuant to

section 6 (c) of the Act exempting it from the Act from and after

January 1, 1941. In the alternative, it requested an order pursuant

to sections 8 (f) and 6 (c) of the Act declaring that applicant is not

or has ceased to be an investment company and exempting from the

provisions of the Act transactions since January 1941 to which it or

any person controlled by it was a party." Applicant's request for

an exemption is based on the contention that it discontinued the sale

of face-amount certificates in the latter part of 1940, and that since

its inception in 1929 it has been primarily and continuously engaged

in the life insurance business through various controlled subsidiaries,

including, since 1939, Franklin Life Insurance Company, presently

its only life insurance subsidiary. The request for an order under

section 8 (f) of the Act is based on the contention that since 1953

more than 90% of the value of its investment securities has been

represented by its investment in the stock of Franklin Life Insurance

Company and that, accordingly, it is entitled to the exception from the

definition of an investment company contained in section 3 (c) (8) of

the Act.14

The transactions for which exemption has been sought under section 6 (c) involved applicant or its controlled companies and their

affiliates and, although subject to the prohibitions of section 17 (a)

of the Act, were carried out without prior Commission approval under

section 17 (b) of the Act. The various questions involved in this case

were explored during hearings which resulted in over 3,200 pages of

testimony and the introduction in evidence of 300 exhibits. The

parties in the case were engaged in completing the post-hearing procedures after the close of the fiscal year.

In ouu and Milita7"!JInvestors Mutual Fund, Ina., the Commission

decided that the name of a registered investment company "Civil and

Military Investors Mutual Fund, Inc.", inherently implies that such

company's securities have special investment and other advantages for

the civil and military government personnel to whom it was intended

to offer such securities, that such advantages do not in fact exist, and

that therefore the name was deceptive and misleading under section

35 (d) of the Act. The Commission found, however, that the name

111 Investment Company Act Release No. 2607.

.. Section 3 (c) (8) of the Act excepts from the deflnition of an investment company any

company, 90% or more of the investment securities of which are represented by securities

of a single issuer included within a class of persons enumerated in sections 3 (c) (5). (6)

or (7). The persons enumerated in section 3 (c) (7) include any company primarily

engaged. directly or through majority-owned subsidiaries, in one or more businesses described in sections 3 (c) (3), (5) and (6) of the Act. Section 3 (c) (3) excepts insurance

companies from the definition of an Investment company.

'
TWENTY-FOURTH ANNUAL REPORT 155

did not violate section 35 (a) of the Act 15 since it was not likely to

carry an implication that the company or its securities were sponsored,

recommended or approved by the United States."

REGISTRATION OF FOREIGN INVESTMENT COMPANIES

An application filed during the past fiscal year by American-South

Africa Investment Company, Ltd. for an order under Section 7 (d)

of the Act permitting its registration under the Act and for the sale

of its securities in the United States was the first such application

presented to the Commission by a non-Canadian, foreign investment

company. The company was organized as a closed-end investment

company, chartered under the Companies Act of 1926 of the Union

of South Africa.

Section 7 (d) of the Act, among other things, prohibits a foreign

investment company from selling its securities to the public by use of

the mails or any means or instrumentalities of interstate commerce

. unless the Commission, upon application, issues a conditional or unconditional order permitting such company to register under the Act

and to make a public offering of its securities in the United States. To

issue such an order the Commission must find that, by reason of special

circumstances or arrangements, it is both legally and practically feasible effectively to enforce the provisions of the Act against such company and that the issuance of such order is otherwise consistent with

the public interest and protection of investors.

Rule N-7D-1 under the Act sets forth the specifications, conditions

and arrangements for Canadian management investment companies

requesting orders for registration," but makes no provision for en-

.. This section provides that "It shall be unlawful for any person, in issuing or sell1ng

any security of which a registered investment company is the issuer, to represent or imply

in any manner whatsoever that such security or company has been guaranteed, sponsored,

recommended, or approved by the United States or any agency or officer thereof."

18 Investment Company Act Release No. 2723 (June 9, 1958). On August 5, 1958, the

Fund filed a petition for review in the United States Court of Appeals for the District of

Columbia Circuit, which was dismissed upon agreement of the parties on September 19,

1958.

1f Since the rule was adopted on April 27, 1954 and up to June 30, 1958, ten Canadian

companies have obtained orders granting permission to register. These include: Resources

of Canada Investment Fund, Ltd., Investment Company Act Release No. 1974 (April 27,

1954) ; Scudder Fund of Canada, Ltd., Investment Company Act Release No. 1975 (April

27,1954) ; United Funds Canada, Ltd., Investment Company Act Release No. 2003 (August

4, 1954) ; New York Capital Fund of Canada, Ltd., Investment Company Act Release No.

2006 (August 11, 1954) ; Canada General Fund (1954) Ltd., Investment Company Act

Release No. 2007 (August 16, 1954) ; Keystone Fund of Canada, Ltd., Investment Company

Act Release No. 2008 (August 18, 1954,); Templeton Growth Fund of Canada, Ltd.,

Investment Company Act Release No. 2020 (October 7, 1954) ; Investors Group Canadian

Fund, Ltd., Investment Company Act Release No. 2124 (Afarch 30, 1955); Canadian

International Growth Fund, Ltd., Investment Company Act Release No. 2386 (JUly 6,

1956) ; and MnItnomah Canadian Fund, Ltd., Investment Company Act Release No. 2641

(December 10, 1957). One of these companies, Resources of Canada Investment Fund,

Ltd., did not register under the Act. Templeton Growth Fund of Canada, Ltd. subsequently c1Illnred its name to Axe-Templeton Growth Fund of Canada, Ltd.
156 SECURITIES AND EXCHANGE COMMISSION

abling investment companies organized in other foreign countries to

register. Processing the application in this case, therefore, required

extensive research into South African corporate law to determine

whether it would be legally feasible to apply and enforce the standards

of the Act with respect to this company.

In support of its request, applicant agreed to abide by the undertakings and agreements provided for by rule N-7D-1 applicable to

Canadian investment companies as well as numerous additional undertakings and agreements to give assurance of the enforceability of the

Act. A hearing on the application was held in July, 1958, shortly

after the close of the fiscal year, and the Commission's Findings and

Opinion and Order approving the application was issued on August

13, 1958.1s

UNREGISTERED INVESTMENT COMPANIES-SECURING COMPLIANCE

WITH THE INVESTMENT COMPANY ACT

In the course of administering the Investment Company Act, the

Commission must frequently take steps to require the registration of

companies. Such instances often arise with respect to companies

which have been engaged in industrial or other activities and which

over periods of time substantially reduce their regular business activities and sell large portions of their assets and invest the proceeds in

securities. Thus, these companies bring themselves within the purview of section 3 (a) (3) of the Act, which defines an investment company, among others, as one which is engaged in the business of owning

or holding, or proposing to own or hold, investment securities having

a value exceeding 40 per centum of the value of their total assets.

Companies which fall within this definition must register under section 8 (a) of the Act, or they may, before or after such registration,

apply for an order under section 3 (b) (2) declaring that they are

primarily engaged in a business or businesses other than the investment business.

In the usual case, companies which find themselves in, or approaching an investment company status seek the advice of the Commission's

staff as to the application of the Act. Others, however, through inadvertence or erroneous interpretation of the Act fail to register until

notified by the Commission to do so. The discovery of such situations

presents a serious administrative problem. Itis obviously impossible

and undesirable to attempt to scrutinize the operations of the myriad

of business enterprises in this country to determine their status under

the Act. The Commission and its staff are dependent for information upon newspapers and other reportorial services, complaints of

stockholders or other interested persons and examination of reports or

" Investment Company Act Release No. 2756.
TWENTY-FOURTH ANNUAL REPORT 157

other documents required to be filed with the Commission under other

Acts which it administers.

Companies which the staff and the Commission dealt with during

the past fiscal year involving registration and status problems under

the Act included the following: National Department Stores Corporation, McPhail Candy Corporation, New York Dock Company,

Portsmouth Steel Corporation, Dempster Investment Company, Real

Silk Hosiery Mills, Inc., American-Hawaiian Steamship Company

and Bankers Southern, Inc. All of these companies, with the exception of Bankers Southern, Inc., which is a newly organized company, had in recent years disposed of substantial portions or all of

their other business assets and purchased securities with the proceeds,

with the result that they fell within the presumptive test of an investment company contained in section 3 (a) (3). Prior to, or shortly

after, the close of the fiscal year all of these companies, with the exception of National Department Stores and American-Hawaiian

. Steamship, had registered under the Act. Hearings on National Department Stores application under section 3 (b) (2) had not been

concluded at the year's end. American-Hawaiian Steamship, upon

being advised by the Commission that its operations were subject to

the Investment Company Act, refused to register, claiming, among

other things, that it was not an investment company nor subject to

the Act. Thereupon, after the close of the fiscal year, the Commission

initiated proceedings in the United States District Court to enforce

compliance with the Act.

The problems of administration and enforcement encountered in

this type of case are illustrated by the McPhail Candy Corporation

matter. In early 1955 the staff learned, through a newspaper account, that a derivative stockholder's action had been instituted

against McPhail Candy Corporation in which it was alleged, among

other things, that the company was an investment company and that

its officers had, in effect, been guilty of a breach of trust. Reports

filed by the company with the Commission pursuant to the Securities

Exchange Act indicated that over a period of years the company's

candy operations had been declining, that assets had been liquidated

and the cash, together with borrowings, had been invested in securities and that candy operations had been conducted at a loss while security transactions and dividend receipts were providing an increasingly important source of income. Security holdings constituted a

substantial portion of the company's total assets. Because of these

and other facts, it appeared that the company might have already

undertaken to be an investment company and that further inquiry

was warranted.

Informal investigation of the affairs of McPhail Candy Corporation proceeded during the spring of 1955. Examination of the annual
158 SECURITIES AND EXCHANGE COMMISSION

audited report of the company's operations, which was filed on August 15, 1955, served to strengthen the earlier tentative conclusion of

the company's status as an investment company and the company

was advised of this conclusion and further factual information was

sought from the company on a voluntary basis. By the end of the

year it became apparent that the company would not voluntarily

register under the Act and that an Investigation of its affairs would

have to be conducted to determine its status and if necessary, to compel registration. As a result of further investigation it appeared

that the company was and had been an investment company and

should register as such and that it had engaged in a series of transactions with its principal officer and stockholder and otherwise used

its assets for his personal benefit under circumstances which, it appeared, might involve fraud and gross abuse of trust. Ultimately, on

October 28, 1957, the company registered but concurrently filed an

application under section 3 (b) (2) to be declared excepted from the

definition of an investment company, or in the alternative to be exempted pursuant to section 6 (c). During the hearing on this application the company requested its withdrawal and this request was

granted on April 24, 1958.19

LITIGATION UNDER THE INVESTMENT COMPANY ACT OF 1940

During the fiscal year the Court of Appeals for the District of

Columbia Circuit, in S. E. O. v, Variable Annuity Life Insurance

Oompany of America et al.,20affirmed the dismissal by the district

court of the Commission's complaint charging violations of the registration provisions of the Investment Company Act and the Securities

Act of 1933. As noted on page 164 of the 23rd Annual Report, the

district court had dismissed the Commission's complaint after trial

on the ground that the McCarran Act placed exclusive regulatory

jurisdiction over the defendants in the insurance authorities of the

States and the District of Columbia. The Court of Appeals based

its decision on different grounds, holding that the variable annuity

contracts sold by defendants are exempt from registration pursuant

to section 3 (a) (8) of the Securities Act and that the defendants are

insurance companies falling within the provisions of section 3 (c) (3)

of the Investment Company Act.

111 On July 7, 1958, the Commission lIled a complaint In the United States District Court

for the Southern District of New York against the directors of the company for gross

abuse of trust under section 36 of the Investment Company Act. The complaint alleges,

among other things, that the corporation was an Investment company on or before April 1,

1953; that between 1953 and 1957, the corporation, under the control and direction of its

omcers and directors carried on Its activities In violation of Section 7 of the Investment

Company Act and that Russell McPhail fraUdulently diverted the corporation's assets to

himself at prices substant1aIly below their market value. 8. B, O. v. RUBBell MoPhail, fit al.,

S. D. N. Y., CIvil Action No. 135-203

.. 257 F. 2d 201 (C. A. D. C. 1958). A petition for certiorari was granted on October

13, 11158.

•
TWENTY-FOURTH ANNUAL REPORT 159

In 8. E. O. v, Oryan,21 the Commission is seeking an injunction pursuant to section 36 of the Investment Company Act permanently barring Frank: M. Cryan, former president and director, and John Setrian and Joseph Aversa, purported to be the new president and

secretary-treasurer, respectively, from acting as directors and officers

of Jefferson Custodian Fund, Inc., an open-end registered investment

company, the appointment of a receiver, and other relief. The Commission's complaint alleges that Cryan sold to Setrian and his associates the stock of Jefferson Research Foundation, Inc., the Fund's

investment adviser, at an aggregate price of $261,000, its net book

value being about $2,300. The assets of the Fund at about that time

were approximately $1,270,000.

The complaint further alleges that the price agreed upon was "for

the surrender of the fiduciary and management positions with respect

to the Fund in favor of the defendant, John Setrian and his associates," and that "the purchasers of the stock did not have funds to

pay the price and that the intention was to use the Fund's resources

to finance the purchase." A receiver was appointed, and the receiver

and the Fund's custodian were directed by the Court to honor redemptions at net asset value less 5% of the redemption price which

was to be credited to a contingent reserve for receivership expenses."

During the course of the proceedings, upon the recommendation of

the receiver and a vote of the stockholders, the Court approved a

transfer of the assets of the company to another mutual fund.

In 8. E. O. v. Insurance Seourities, 11UJ.,23 the Court of Appeals

affirmed the district court's dismissal of the Commission's complaint

which alleged. that the defendants were guilty of gross abuse of trust

within the meaning of section 36 of the Investment Company Act

because they, as directors, officers and controlling stockholders, had

sold stock control of an investment adviser for a registered investment

company at about 25 times the net asset value of the stock." The

Court of Appeals held that there was no breach of trust because no

funds of the investment company were involved. and Congress pro--

vided a remedy in section 15 of the Act under which an investment

advisory contract is terminated when stock control of the investment

adviser is sold."

.. S. D. New York, No. 131-57 (March 13, 1958).

1lI A stockholder action against Cryan and others Is also pending in the same Court.

Ploerke v. Organ, S. D. N. Y., Civil Action No. 133-331.

.. 254 F. 2d 642 (C. A. 9, 1958).

A more detailed description of the allegations of the complaint and the litigation in the

district court appears at pages 164-165 of the 23rd Annual Report .

.. A petition for II. writ of certiorari was denied on October 13, 1958.

'"
PART X

ADllfINISTRATION OF THE INVESTMENT ADVISERS

ACT OF 1940

A person engaged for compensation in the business of advising

others with respect to securities is required by the Investment Advisers Act of 1940 to register as an investment adviser. There are

certain exemptions from the requirement of registration such as in

the case of an investment adviser all of whose clients are residents

of the state of his principal business officeand whose activities do not

include advice or analysis with respect to securities listed Or admitted to unlisted trading privileges on any national securities exchange. The Act makes it unlawful for investment advisers to engage

in practices which constitute fraud or deceit. The Act also requires

investment advisers to disclose"the nature of their interest in transactions which they may effect for their clients, prohibits profitsharing arrangements and, for all practical purposes, prevents the

assignment of any investment advisory contract without the consent

of the interested client.

The Commission is not empowered by the Investment Advisers

Act to inspect the books and records of an investment adviser nor

to deny or revoke the registration of an investment adviser unless

he has been convicted of certain offenses involving securities or arising out of his conduct as an investment adviser or in certain other

specified capacities, or has been enjoined by a court of competent jurisdiction on the same grounds or has falsified his application.

The number of registered investment advisers continued to increase and at the end of the fiscal year the total was 1,562,representing an increase of nearly 10% over the previous year. The following tabulation reflects certain data with respect to registration of

investment advisers and applications for such registration during

fiscal year 1958:

Investment adviser registrations and applications

Effective registrations at close of preceding fiscal year 1,431

Applications pending at close of preceding fiscal year__________________ 22

Applications filed during fiscal year__________________________________ 212

Total 1,665

Registrations cancelled Or withdrawn during year .,.________ 77

Registrations denied or revoked during year___________________________ 2

Applications withdrawn during year_________________________________ 2

Registrations effective at end of year 1,562

Applications pending at end of year___________________________________ 22

Total 1,665

160
TWENTY-FOURTH ANNUAL REPORT

ADMINISTRATIVE PROCEEDINGS

161

The Commission revoked the investment adviser registration of

Ralph Seipel, doing business as Investors Surety Oompany/ on the

ground that the registrant had been permanently enjoined by a United

States District Court, in an action instituted by the Commission, from

employing any device, scheme or artifice to defraud a client or prospective client or from engaging in any transaction, practice or course of

business which operates or would operate as a fraud or deceit upon

any client or prospective client in violation of Section 206 of the Act,"

The injunction was based on findings by the court that Seipel had

violated that section by falsely representing to persons responding to

his newspaper advertisements inviting requests for stock market information, that he absolutely guaranteed clients against loss in the

stock market, that he maintained branch officesand a foreign exchange

department, and that he had twenty-five years of trading experience

and many clients, when in fact he had no office,organization, associates

or customers. Seipel contended that the injunction did not constitute

a basis for revocation, since he had no clients and was enjoined only

from making misrepresentations in an effort to attract clients and not

from engaging in any conduct connected with investment advisory

activities. This contention was rejected by the Commission.

James Oordas, doing business as The Oanadian Stock Letter.' a registered investment adviser, filed an amendment to his registration application with the Commission which wilfully misstated his business address as being in one state when in fact it was located in another state,

where he was enjoined from acting as an investment adviser. The

Commission held it to be in the public interest to revoke his registration

as an investment adviser.

LITIGATION UNDER mE INVESTMENT ADVISERS ACT OF 1940

The Commission is authorized by the Investment Advisers Act to

obtain an injunction where violations of the Act have occurred or

appear to be imminent.

Pursuant to that authority the Commission secured a permanent injunction in 8. E. O. Y. Security Forecaster 00., Inc. and lIIelvin A.

Johnson 4 restraining further violations of the anti-fraud provisions

of the Investment Advisers Act. The Commission charged that

Security Forecaster Co., Inc., Melvin A. Johnson, its president, and

James M. Barnes, a Canadian resident, in a paper called "The Finan1 Investment Advisers Act Release No. 93 (March 31, 1958).

S. D. N. Y., No. 120-364 (May 24, 1957).

3 Investment Advisers Act Release No. 90 (October 21,1957).

S. D. N. Y., No. 130-239 (February 28, 1958).

486867--59----12

•

•
162 SECURITillS AND EXCHANGE COMMISSION

cial Forecaster", which the company published and distributed, urged

clients and prospective clients to buy shares of Anacon Lead Mines,

Ltd., by means of the following misleading and fraudulent statements, among others: (1) the projected recovery by Anacon of an

estimated $50,000 per acre from certain of its gold mining holdings

would result in a recovery potential to Anacon of $50 million;

(2) the value of each outstanding share of Anacon was approximately

$3 per share, when in fact it was approximately 40 cents per share;

(3) millions of dollars were realized within days by traders, speculators and investors in other stocks managed by Johnson; (4) large

and extremely quick profits would be made as a result of a purchase of

Anacon stock; and (5) dividends had been paid in the past by Anacon,

without disclosing that no dividends have been paid since 1952.

The Commission filed memoranda amicus curiae and presented

oral argument in Hull v. Newman, Kennedy & 00.,5 an action to declare

an investment contract void, and for damages for violations of the

Investment Advisers Act. The Commission, addressing itself solely

to the questions of law involved, contended that a private civil action

may be brought for violation of the Act, regardless of the non-existence

of any express statutory provision authorizing it. The case was subsequently settled.

•s. D. N. Y., No. 118-283.
PART XI

OTHER ACTIVITIES OF THE COMMISSION

COURT PROCEEDINGS

Civil Proceedings

At the beginning of the fiscal year 1958 there were pending in the

courts 43 injunctive and related enforcement proceedings instituted

by the Commission to prevent fraudulent and other illegal practices

in the sale or purchase of securities. During the year 65 additional

proceedings were instituted and 54 cases were disposed of, leaving 54

such proceedings pending at the end of the year. In addition the

Commission participated in a number of corporate reorganization

cases under Chapter X of the Bankruptcy Act, in 7 proceedings in

the district courts under section 11 (e) of the Public Utility Holding

Company Act and in 14 miscellaneous actions. The Commission also

participated in 35 civil appeals in the United States Courts of Appeals.

Of these, 17 came before the courts on petition for review of an administrative order, 6 arose out of corporate reorganizations in which the

Commission had taken an active part, 9 were appeals in actions brought

by or against the Commission, 1 was an appeal from an order

entered pursuant to section 11 (e) of the Public Utility Holding Company Act and 2 were appeals in cases in which the Commission appeared as amicus curiae. The Commission also participated in 4

appeals or petitions for certiorari before the United States Supreme

Court resulting from these or similar actions.

Complete lists of all cases in which the Commission appeared before

a Federal or State court, 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.

Certain significant aspects of the Commission's litigation during the

year are discussed in the sections of this report relating to the statutes

under which the litigation arose.

Criminal Proceedings

Fifteen new cases were referred to the Department of Justice

for prosecution during the past fiscal year. From 1934 to June 30,

1958, 2,376 defendants have been indicted in United States district

courts in 575 cases developed by the Commission. These figures include 14 indictments returned during the past fiscal year against 42

163
164 SECURITIES AND EXCHANGE COMMISSION

defendants. Also during the fiscal year there were 30 convictions in

14 cases, making the total 1,295 convictions in 546 cases. There were

6 appeals in criminal cases. In 3 of these cases the defendants unsuccessfully attempted to have their convictions set aside and the remaining cases were pending on appeal at the end of the year. There

were 4 criminal contempt proceedings during 1958, 2 of which were

instituted during the fiscal year. In 1 of these cases 3 defendants

were convicted, leaving 3 cases pending at the end of the year.

As in the past, defendants in the criminal cases developed and prosecuted during the year contrived a variety of fraudulent schemes, including broker-dealer frauds and fraudulent promotions involving

inventions, mining and oil and gas ventures, finance and insurance

companies and various other types of businesses. The defendants in

some of the cases were also charged with violations of the registration

provisions of the Securities Act of 1933 and violations of other nonfraud provisions.

A seven-year prison term was imposed on Eldridge S. Price (N. D.

Ga.) following his conviction on all 14 counts of an indictment charging violations of the anti-fraud and registration provisions of the

Securities Act and the Mail Fraud Statute in connection with the sale

of oil and gas interests and stock of the Dark Canyon Uranium Corporation and other securities. The indictment charged, among other

things, that the defendant knowingly made false promises of great

wealth to prospective investors, including misrepresentations that the

lands covered by the oil leases had already been proven for oil and were

highly productive; that there was no risk; and that the defendant

Price was a highly qualified and successful oil operator who had never

drilled for oil without bringing in a producing well when, in :fact,wells

drilled by Price were dry holes or yielded no oil in commercial quantities. It was further charged that the defendant falsely represented

that the land covered by the leases was the best oil land in Texas and

that the defendant owned large interests in the leases and drilling

equipment having a value of hundreds of thousands of dollars. The

indictment also alleged that the defendant concealed from prospective

investors the fact that he was in bankruptcy; that he had never been

successful as an oil operator; and that his profits had been made

wholly as a result of promotional activities. Mrs. Edith Wynne Price,

a co-defendant, was acquitted by the court prior to the submission of

the case to the jury and Price was released on $10,000 bail pending

appeal.

Mining and oil and gas ventures were also involved in the indictments pending in V. S. v, V. S. Manganese Oorporation et al. (S. D.

N. Y.); V. S. v, Stratoras) Oil, Inc. et al. (S. D. Tex.); and V. S. v.

Silas M. Newton et al. (D. Colo.) . In the V. S. Manganese case the in-
TWENTY-FOURTH ANNUAL REPORT 165

dictment charges that the corporation and defendants Commodore

Dewey Brock and Maurice A. Schuster conspired together and with

others to employ a scheme and artifice to defraud in the sale of the

corporation stock which resulted in substantial losses to investors.

The indictment alleges that the defendants caused to be printed and

issued a false and misleading offering circular which included misrepresentations that the corporation had acquired certain designated

mining properties and that one property contained 350,000 tons of

definite blocked out ore. It is further alleged that among the material

facts omitted from the offering circular were that the corporation

was obliged to pay approximately $700 a month on certain properties;

that the Defense Minerals Administration had refused to loan the

corporation $50,000 on the ground that its properties did not contain

sufficient ore to justify such loan; that substantially all the ore which

had been shipped by the corporation had been purchased from other

mines; that the total revenue received from the sales of the ore was

greatly exceeded by the cost of such sales and the corporation was

operating at a loss.

In the Stratoray case the indictment, in addition to charging failure

to comply with the registration provisions of the Securities Act, alleges

that the defendants effected sales of investment contracts evidenced

by oil and gas leases by means of untrue and misleading statements of

material facts. Included among the misrepresentations, according to

the indictment, were statements that the drilling of a certain oil well

would most likely result in the discovery of one of the largest oil

fields in the United States and that persons purchasing leases in the

area from the defendants were being afforded an opportunity of acquiring great wealth; that the defendants were convinced they had

a scientific oil hunting instrument, called a "scintillator," capable of

detecting virgin oil fields with near 100% dependability; that the

defendants, by means of their scintillator, had located what they believed to be a vast accumulation of oil, perhaps as large as the prolific

Yates field in Pecos County, Texas; and that one of the defendants

was a research scientist trained and experienced in the application of

electronic nuclear scientific principles.

The indictment in the Newton case alleges, among other things,

that the defendants, by means of false and misleading statements,

induced investors to purchase participating certificates in the Yellow

Cat Royalty Trust, the Tennessee Queen Royalty Trust, and fractional undivided interests in mining claims held by the Tennessee

Queen Mining Co. The alleged statements include misrepresentations

concerning the value of the properties, the experience of the mining

operators, the shipping of ore, and the certainty of royalty returns

on the investments.

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166 SECURITIES AND EXCHANGE COMMISSION

In U. S. v. Francis E. Getchell et al. (S. D. Fla.), the defendants

were sentenced to terms ranging from 1 to 5 years following their

convictions after a trial extending over 11 weeks. The indictment

charged that the defendants engaged in a scheme to sell stock of

Florida Palms, Inc., 'and other securities, by falsely representing that

defendants Francis E. and Harry S. Getchell had developed a secret

and commercially feasible process whereby pulp could be manufactured from cabbage palms; that several large companies had offered

to buy this process for millions of dollars; that all money invested

would be used to build a plant and buy equipment and that all funds

received from the sale of the securities would be held in trust for this

purpose. It was further charged that false financial statements prepared by defendant William F. Powers, a certified public accountant,

were used to deceive investors and to conceal the misappropriation of

their funds. The fourth defendant, Hollis Rinehart, an attorney, was

alleged to have been an officerof Florida Palms, Inc. and to have assisted in these promotions.

In U. S. v. Olinton R. Bupp et al. (D. Idaho), the defendants

Clinton R. Rupp and Intermountain Development Company, Inc.

were found guilty of violating and conspiring to violate the antifraud provisions of the Securities Act and the Mail Fraud Statute

in connection with the sale of Intermountain stock. The indictment

charged that the defendants misrepresented to investors that the

funds received from the sale of the Intermountain stock would be

deposited with the Idaho Insurance Commissioner and would be used

in compliance with the Idaho Insurance law; that 75% of the funds

so received would be deposited in escrow for use in purchasing controlling interests in small life insurance companies; that, as a result

of the purchase of National Security Life Insurance Company, the

Intermountain stock would, and did, increase in value; that none of

the proceeds would be used in carrying on any mining and exploration work; that the defendants had invested substantially in Intermountain securities; and that the son of the Commissioner of Finance

of the State of Idaho had purchased $10,000worth of Intermountain

stock. The indictment further charged that the defendants concealed from investors the fact that Intermountain had purchased National Security Life Insurance Company for $270; that Intermountain had never obtained an insurance permit from the State of Idaho;

that Intermountain's assets had been frozen and receivership proceedings were pending in the state courts and that the securities being

offered were the personally owned stock of certain individuals who

were receiving the benefits of the proceeds of the sale. Six of the defendants received sentences ranging from a $1000 fine to a $1000fine

and a year's imprisonment following pleas of guilty or 'lWZO con-
TWENTY-FOURTH ANNUAL REPORT 167

tendere to various counts. Defendant Rupp, who after trial was

found guilty of securities fraud, mail fraud and conspiracy, was sentenced to a 5-year prison term and a $10,000fine. Intermountain was

fined $5,000. A remaining defendant, who had been a fugitive, was

recently apprehended.

Another indictment charging fraud in an insurance company

promotion, U. S. v. National Union Life Insurance Oompany et al.

(S. D. Fla.), alleges, among other things, that Basil P. Autrey and

the other defendants devised a scheme to defraud investors by means

of false and misleading statements; that the defendants bought the

capital stock of National Union at prices ranging from $2 to $40 per

share and thereafter by means of manipulative and other fraudulent

practices resold the stock to investors at prices ranging from $5 to

$63.50 per share; that the defendants caused the company to issue

10,000 shares of its stock allegedly in exchange for an officebuilding,

knowing that the stock was to be acquired by one of the defendants

rather than the vendor, the purpose of such transaction being to defeat the preemptive rights of the stockholders and also to enable the

defendants to acquire a large block of stock for resale; that the defendants caused the company to issue 5,000 shares of its stock ostensibly for seasoned first mortgages, knowing that the mortgages never

would be received by the company; that the defendants artificially

caused the market price of the stock to rise by effecting a series of

transactions among themselves, with investors and with brokers and

dealers, by placing and giving scale-up orders for the stock, by causing the company to declare a 25% stock dividend and by circulating

fraudulent misrepresentations concerning the company and its affairs. The indictment further charged that the defendants kept

false, inaccurate and incomplete books and records in order to conceal

the company's true financial condition. A motion by certain defendants for transfer of the trial to the Northern District of Alabama was

granted. A motion by the Department of Justice for retransfer to

the Southern District of Florida is pending.

A 12-count indictment was returned charging Carl D. Schaeffer

(N. D. ill.) with devising a scheme and artifice to defraud investors

inthe sale of investment contracts and evidences of indebtedness relating to the development of a machine for generating steam through

hydraulic forces. According to the indictment Schaeffer made

numerous fraudulent statements to investors, including statements

that Schaeffer had a written contract with a syndicate of companies comprised of Dow Chemical Company, the duPont Company,

Chrysler Corporation, General Motors and others, whereby these

companies had agreed to purchase the rights to Schaeffer's steam

machine and had put $10,000,000in escrow with the Chase National

Bank; that General Motors was interested in buying Schaeffer's
168 SECURITIES AND EXCHANGE COMMISSION

machine; that Fairbanks-Morse and Co. had offered to buy

Schaeffer's machine for a million dollars and that he could pick up

a million dollar check from that company any time he wished, although he had turned down this offer; that Crane Company had

offered to buy the rights to Schaeffer's machine for a million dollars

and that Schaeffer had turned down this offer; that the United

States Navy and a big chemical company were bidding against each

other for the right to purchase Schaeffer's machine and that whichever purchased it would pay in the vicinity of $30,000,000; that the

United States Navy was interested in Schaeffer's machine for use

in submarines and was experimenting with the machine in extracting ocean minerals; that monies invested with Schaeffer were placed

by him in the Northern Trust Co. in Chicago and that if an investor

ever wanted his money back he would get it because it was on deposit with that institution; and that all investors would realize $10

for every $1 invested.

Another scheme to defraud investors which involved an invention

was alleged in an indictment charging William L. Dorsey, Sr. (W. D.

Mo.) with fraud in the sale of the common stock of Southwestern

Industries, Inc., a corporation which he controlled. In connection

with the sale of this stock Dorsey made numerous false and misleading statements to investors, including representations that the company owned the patent to an irrigation pump known as the Cochran

Power Unit; that an investment in the company would yield dividends as high as 100% a year; and that Dorsey would not receive

any salary, commissions or expenses from the company until such

time as the pumps were manufactured and sold. It was further

charged that Dorsey concealed from investors the fact that Southwestern Industries owed royalties to the owner of the patent on the

irrigation pump; that the company had no orders for and had sold

no pumps; that the company had a continually increasing deficit

and that Dorsey was using the funds of the company for his personal

expenses. Dorsey pleaded guilty to 4 counts charging him with

violations of the anti-fraud provisions of the Securities Act and 4

counts charging him with violations of the registration requirements of that .Act. He was sentenced to a term of a year and a day

on each of the fraud counts. The sentences are to run concurrently

and he is to be placed on probation for five years upon release

from confinement.

In U. S. v, Hugh Van Valkenburgh et al. (D. Neb.), one of the

defendants, Abraham Schapiro, was placed on probation for 30

months and fined $2,000 following his plea of nolo contendere to 8

counts of an indictment charging him and his co-defendant with

having engaged in a scheme to defraud in connection with the sale

of stock of Instant Beverage, Inc., a corporation organized and
TWENTY-FOURTH ANNUAL REPORT 169

promoted by the defendants to manufacture an instant powder

product which, when mixed with water, was stated to produce a carbonated beverage. Misrepresentations were alleged to include assertions that several large companies would be interested in buying

or handling the formula and that the United States Government

would take the entire output of the powder for the first six months

of its production. The indictment further charged that the defendants failed to disclose the number of shares of Instant Beverage

stock issued to promoters and the prices paid for such shares;

that Instant Beverage did not own the formula for the powder,

but only held a franchise for its use; and that the United States

Army had previously rejected samples of the powder as being unfit

for use by the Army.'

Fraudulent promotions involving finance company ventures were

alleged in the indictments in U. S. v. A. B. Shoemake et al, (S. D.

Tex.); U. S. v, Oonsul Mayo Forsyth et al. (E. D. Tex.); and U. S.

v, HUrling L. Jacobson (D. Neb.). In the F01'Syth case the indictment charged, among other things, that the defendants, in the sale

of stock of Central Finance Service, Jnc., falsely represented to investors that the stock being offered was unissued stock of Central

and the money received from the sale of such stock would be used

by Central in its business operations; that Central was realizing

substantial profits from its business operations; that Central would

pay substantial dividends; and that investors would receive a return

of all the money they invested in Central stock upon request. The

indictment further charged that the Central stock offered and sold

to investors was personally owned stock and not the unissued stock

of Central; that Central had operated at a substantial loss throughout

its existence and that it had no surplus and, therefore was not in

a position to pay any dividends. Defendant Forsyth entered a plea

of guilty to 2 counts of the indictment and was sentenced to 2 years'

imprisonment and a suspended sentence of 5 years; the other defendant, Roy W. Adams, has entered a plea of not guilty.>

In the Jacobson case the defendant was sentenced to a suspended

term of 2 years and 3 years' probation on each of 17 counts, the

sentences to run concurrently, upon his conviction of charges in an

information that he violated the anti-fraud provisions of the Securities Act and the Mail Fraud Statute and filed false statements with

the Securities and Exchange Commission."

1Subsequent to the end of the fiscal year the remaining defendant, Hugh Van Valkenburgh, entered a plea of nolo contendere to four counts of indictment and was fined $11,500

plus costs and was sentenced to three years' imprisonment on each count, tbe sentences to

run concurrently. Execution of the sentence was suspended and the defendant was placed

on probation for three years.

1. Subsequent to the end of the fiscal year Adams was convicted on one count of the

Indictment and sentenced to a term of 18 months.

18 U. S. C. i 1001.

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•
170 SECURITIES AND EXCHANGE COMMISSION

Inthe Shoemake case the indictment charges that the defendants

misrepresented that funds deposited with the U. S. Trust and Guaranty Company were insured and guaranteed up to $10,000 by 100%

reserves and that financial statements supplied to customers and

prospective customers contained a true and correct statement of the

financial condition of the company. The indictment further charged

that the defendants made false statements concerning the use to be

made of funds deposited with the company, made false and misleading entries in the books of the company, and obtained false

appraisals of real estate owned by the company.

Frauds by broker-dealers were charged in the indictments in V. S.

v. Oharles M. Graves (D. Alaska) and V. S. v. Branch J. Oarden,

Jr. (W. D. Va.). In the Graves case the defendants Graves and The

Locators, Inc. pleaded guilty to various counts of an indictment

charging violations of the broker-dealer registration requirements of

the Securities Exchange Act and violations of the anti-fraud provisions of that Act. Both the Locators, Inc. and Graves were fined

$250 and, in addition, Graves received a 6-month suspended sentence.

In the Carden. case the defendant pleaded guilty to an indictment

that charged him, among other things, with accepting payment for

securities and, by written confirmation, representing to customers

that the securities had been purchased and would be delivered to

them in accordance with customs and practices of the business when,

in fact, the defendant converted the customers' funds to his own use.

The indictment also charged the defendant with accepting securities

from customers to be sold for the customers' accounts and with converting such securities to his own use. The indictment charged further that, for the purpose of deceiving the customers and concealing

from them the scheme to defraud, the defendant intentionally refrained from recording certain transactions in his books and records.

The defendant was sentenced to two years' imprisonment.

Sentences ranging from 2 years' probation to 12 months' imprisonment were imposed upon Sidney Barcley (E. D. Mich.) and six other

defendants following their pleas of guilty to one count of an indictment charging violations of the broker-dealer registration provisions of the Securities Exchange Act. According to the indictment, investors in the United States were solicited by the defendants

through the mails and by long distance telephone from Montreal,

Canada, to purchase from T. M. Parker, Inc., shares of stock of

various Canadian corporations, at a time when T. M. Parker, Inc.

was not registered as a broker-dealer with the Commission in accordance with the requirements of the Securities Exchange Act.3

8The enforcement problems arising in connection with fraudulent promotions originating in Canada are discussed in detail in previous annual reports. See, for example,
TWENTY-FOURTH ANNUAL REPORT 171

In U. S. v. Jesse S. Gill, et at. (N. D. Georgia), convictions were

obtained against two of the defendants on all counts of an indictment charging that the defendants induced Paleo Oil & Gas Corp. to

retain their firm as an underwriter for an offering of shares of the

corporation, and the defendants converted to their own use a sum

of money advanced for expenses and maintained fraudulent records

to conceal their actual disbursements in connection with the offering of the Paleo stock. Sentences of imprisonment for a term of

one year were imposed, but execution of the sentences was suspended

and the defendants were placed on probation for five years on condition that restitution be made in the sum of $2,000for each defendant.

The case was dismissed as to the one remaining defendant.

In V. S. v. David L. SMndler et al. (S. D. N. Y.), the indictment charges that the defendants conspired to defraud purchasers

of stock of Jerry O'Mahoney, Inc. by manipulative practices which

artificially raised the market price of the stock and maintained the

artificial price. The practices alleged include the buying of large

amounts of stock through dummy accounts, inducing others to buy

on the American Stock Exchange by promises to sell additional

shares off the exchange at a price below the exchange price, and

by purchasing large amounts of stock off the exchange to prevent

such stocks being sold on the exchange and thereby depressing the

price. In addition, the indictment charges that the defendants engaged in a scheme to defraud purchasers of the stock by omitting

to state that the exchange price had been artificially raised and

maintained by the manipulative practices of the defendants.

An indictment was returned charging Edward J. Vitale (E. D.

Mich.) with violating the anti-fraud provisions of the Securities Act

and the Mail Fraud Statute in connection with his activities as manager of a branch office of a Boston broker-dealer firm registered

with the Commission. The indictment alleges that the defendant,

after gaining the trust and confidence of certain customers, induced

them to sell their holdings of investment company securities and turn

the proceeds over to him by falsely representing that such funds

would be invested in various profit-sharing ventures, such as the purchase, renovation and resale of houses, and the development of residential building projects and other business enterprises in which

the defendant was engaged when, in fact, such projects were either

not in existence or the defendant was not a participant therein.

In V. S. v. Paul H. Oollins (S. D. Ill.), the indictment charged

that the defendant, while acting as a branch manager for a brokerdealer, not only defrauded customers of the company, but also defrauded the company itself. The indictment alleged that Collins

pages 202-204 of the 22nd Annual Report whIch contain a discussIon of U. 8. v. Link and

Gre6fl (1955) S. C. R. 183, an action for extradItion brought In connectIon wIth the T. M.

Parker case. See also pages 178-182 of the 23rd Annual Report.
172 SECURITIES AND EXCHANGE COMMISSION

engaged in fraudulent and fictitious transactions in securities with

customers and made fraudulent representations and promises concerning such transactions and the handling of customers' funds.

Shortly after the end of the fiscal year Collins pleaded guilty to ten

counts of the indictment. The imposition of sentence was suspended

and Collins was placed on probation for three years.

Fraud in connection with the delivery of forged and counterfeit

securities was charged in the indictment in U. S. v, Albert Hefferan

(W. D. Mich.). The indictment alleged that, as a part of a scheme

to defraud, the defendant placed a series of newspaper advertisements

soliciting investors to advance sums of money. It was alleged that

these advertisements represented that the defendant would furnish

collateral described as "listed, high-grade securities" and "grade-A

negotiable listed securities" having values substantially in excess of

the amounts of the investments solicited and that the defendant

did not intend to and did not pledge genuine securities as collateral but, on the contrary, delivered forged securities which he

falsely represented to be genuine. Hefferan pleaded guilty to five

counts of the indictment and, shortly after the close of the fiscal

year, was sentenced to three years' imprisonment.

In United States v. Edgar Robert Errion. et al. (D. Oregon), sentences were imposed on the defendants who had previously pleaded

guilty or had been convicted on an indictment charging violations

of the anti-fraud provisions of the Securities Act, as well as the

Mail Fraud and Conspiracy statutes. Errion, who pleaded guilty

to two counts of the indictment, received a sentence of three years'

imprisonment on each count. He also entered a guilty plea to two

counts of another indictment charging violations of the same statutes

in the sale of membership certificates of Beaver Plywood Cooperative

and Co-op Loggers, and was sentenced to a term of three years on each

of those counts. All the sentences are to run consecutively, making

Errion's sentence a total of 12 years. Five other defendants, who

had previously been convicted after a trial lasting three weeks, were

sentenced to terms ranging from one year to seven years. One of

these defendants, Helen A. Davenport, filed an appeal and subsequent to the end of the fiscal year her conviction was affirmed by the

Court of Appeals for the Ninth Circuit.

A fine of $1,000 was imposed upon Ohristopulos & Niohol« Brokerage Oompany and fines of $500 each were imposed upon Plato G.

Christopulos and Louis P. Nichols upon their being adjudged in

criminal contempt for violation of an injunction prohibiting, among

other things, the defendant brokerage company, its officers, agents,

employees and assigns from further violating the provisions of Sections 7 (a) and 17 (a) of the Securities Exchange Act, Section 4

(c) of Regulation T adopted by the Federal Reserve Board, and

Rules 15Cl-4 and 17A-3 adopted by the Commission under the Secu-
TWENTY-FOURTH ANNUAL REPORT 173

rities Exchange Act.4 These provisions prohibit the extension of

credit, without an authorized extension, by a brokerage firm for more

than seven days from the date of a transaction; the use of the mails

in connection with an over-the-counter securities transaction unless,

in confirmation thereof, there has been a disclosure by the broker

of his role with respect to all the parties; and the over-the-counter

sale of securities while the broker is not in compliance with the Commission's bookkeeping and record requirements.

An indictment for "bail jumping" 5 was returned against Donald

F. Thayer (D. Mass.), who has been a fugitive since his release in

July 1953 on $10,000 bail following an indictment charging him and

others with violating the anti-fraud provisions of the Securities Act,

as well as the Mail Fraud and Conspiracy Statutes. This is reported

to be the first indictment of this type returned in the District of

Massachusetts.

The United States Court of Appeals for the Second Circuit affirmed

a conviction for securities fraud, mail fraud and conspiracy of Walter

F. Tellier, head of Tellier and Company, formerly a New York

securities dealer (255 F. 2d 441 (1958)). Tellier and his co-defendants Elton B. Jones and Albert Joseph Proctor had been found guilty

of all 36 counts of an indictment following a trial lasting seven weeks

in the United States District Court in Brooklyn, New York. The

charges related to fraud in connection with the sale of 4 series of

debentures of the Alaska Telephone Corporation, totalling approximately $900,000. The evidence had disclosed that under Tellier's

direction and supervision Tellier and Company engaged in a boilerroom securities sales operation, employing a large number of highpressure telephone salesmen and deceptive printed material. Tellier

had been sentenced to four and one-half years' imprisonment and

fined a total of $18,000.6 Still pending against Tellier are two indictments charging fraud in the sale of more than 19,000,000 shares

of stock of a number of uranium mining corporations.

Convictions for violations of the anti-fraud provisions of the

Securities Act were affirmed in Wilson H. Walters, et al, v. United

States, 256 F. 2d 840 (C. A. 9,1958), Arthur V. Donaldson v. United

States, 248 F. 2d 364 (C. A. 9, 1957),7 and Eiohard W. Bowler v.

United States, 249 F. 2d 806 (C. A. 9, 1957). Inboth the Donaldson

case and the Walters case the appellants had been convicted in connection with insurance company promotions. In the Bowler case

The broker-dealer registration of O",.istopulos &; Nichols Brokerage Oompany was subsequently revoked by the Commission. Securities Exchange Act Release No. 5703 (May 27.

1958).

18 U. S. C. Sec. 3246 . After the close of the fiscal year the Supreme Court denied a petition for certiorari

filed by Tellier in this case.

7 Petitions for certiorari were denied in each of these cases.

•

"

•
174 SECURITIES AND EXCHANGE COMMISSION

the appellant had sold stock of a warehouse and storage company,"

The appeal of Homer W. Snowden from his conviction for fraud

(E. D. Ill.) in the sale of oil and gas interests was dismissed on the

motion of his counsel. Additional details concerning this case are

contained on pages 172-73 of the 23rd Annual Report.

DISCIPLINARY PROCEEDINGS AGAINST PERSONS PRACTICING BEFORE

THE COMMISSION

In a private investigation to determine whether Union Electric

Company and certain other persons directly or indirectly made

political contributions in violation of section 12 (h) of the Public

Utility Holding Company Act of 1935, William A. Dougherty, an

attorney, testified under oath with respect to the circumstances relating to a check for $5,000 which was drawn by him to his order and

endorsed by him and was deposited dn a private bank account of

Orville E. Hodge, then Auditor of Public Accounts of the State of

illinois. Dougherty at first testified that the check represented a

loan to a "friend" who was not a public official and whom he refused

to identify, and indicated that he did not know how the check had

reached Hodge's account. Later he was recalled and he again refused to identify the recipient of the check, claiming his privilege

against self-incrimination. He was directed to answer pursuant to

the immunity provision of section 18 (e) of the Act, whereupon he

identified the person for whom he issued the check as Hodge and

disclosed other information which directly contradicted his prior

sworn testimony.

Private proceedings were instituted pursuant to rule II (e) of the

Commission's Rules of Practice to determine whether Dougherty

. should be temporarily or permanently denied the privilege of practicing before the Commission. After a private hearing the Commission issued its opinion 11 in which it found that Dougherty's sworn

testimony contained false and misleading statements and that in giving

such testimony he had engaged in improper professional conduct. It

ordered that Dougherty be denied the privilege of practicing before

the Commission until he obtained the Commission's approval. Subsequently, Dougherty filed an application for reinstatement, and the

Commission, giving consideration to his age, the fact that he had

engaged in active and substantial practice for 38 years without having

been involved tin any other case of improper professional conduct,

the serious financial loss resulting from his disqurulification, his

8 For additional details concerning the Walters case see page 173 of the 23rd Annual Report; for additional details concerning the Donaldson and Bowler cases see page 198 of

the 22nd Annual Report.

• Holding Company .ActRelease No. 13567 (October 18,1957).
TWENTY-FOURTH ANNUAL REPORT 175

expression of contrition and his representation that his future professional conduct would be beyond question, readmitted him to practice

before it.10

On May 5, 1957, the Commission pursuant to rule II (e) of its

Rules of Practice instituted private proceedings against Morris Mac

Schwebel, a New York attorney, to determine whether he should be

temporriy or permanently denied the privilege of practicing before

the Commission because of unethical and improper professional conduct in connection with his representation of clients before the

Commission.

Schwebel filed a complaint ill the District Court for the District

of Columbia for a preliminary injunction and temporary restraining

order enjoining the members of the Commission from prosecuting

disciplinary proceedings against him. In granting the Commission's

motion to dismiss the complaint, the District Court held that, because

00: the particular delicacy of an attorney's good reputation, it had

jurisdiction to determine whether the Commission had authority to

maintain the rule II (e) proceeding without first requiring Schwebel

to exhaust his administrative remedies, but that under the Commission's general statutory powers to prescribe rules necessary for the

execution of its functions the Commission has implied authority to

establish qualifications for attorneys practicing before it and to take

disciplinary action against those found guilty of unethical professional conduct. The Court further held that the Commission had

not violated section 9 (b) of the Administrative Procedure Act in

instituting the proceeding without first giving Schwebel an opportunity to demonstrate or achieve compliance,"

An appeal was taken by Schwebel to the Court of Appeals for the

District of Columbia Oircuit which, in a per curiam decision, affirmed

the decision of the District Court, stating, "though we think the

District Court was right ill dismissing the complaint, we think the

plaintiff failed to exhaust his administrative remedy and the court

therefore erred in ruling on the Commission's authority to disbar

attorneys." 12 Schwebel filed a petition for writ of certiorari which

was denied on ApriJI 7, 1958.13

The Commission's administrative proceeding under rule II (e) was

pending at the close of the fiscal year.

COMPLAINTS AND INVESTIGATIONS

The statutes administered by the Commission specifically authorize

investigations to determine whether violations of their provisions

10 Holding Company Act Release No. 13716 (AprlI2, 1958).

uSchwebe~v. Omck et al., 153 F. Supp. 701 (1957).

12 Schwebel v. Omck et a~.,251 F. 2d 919 (C.A. D.C. 1958).

12 Schwebel v. Omok et al., 356 U.S. 927.
176 SECURITIES AND EXCHANGE COMMISSION

have occurred. The nine regional offices,with the assistance of their

branch offices,are chiefly responsible for the conduct of such investigations. The Division of Trading and Exchanges, which exercises general supervision over, and coordination of, regional officeinvestigative

activities, examines and analyzes the results of investigations periodically and recommends appropriate action to the Commission, giving

serious consideration in each case to the recommendation of the

regional office.

Complaints or inquiries from the investing public are a major source

of information leading to investigations. If, after careful consideration of the information received from these or other sources, it appears

that violations may have occurred, a preliminary investigation may

be made. In some cases the preliminary investigation will disclose

a violation due to ignorance of the law or some misunderstanding and,

where no serious harm to the public is involved, no further action is

ordinarily taken, except to inform the offender of the violation and

to insure that steps are taken for future compliance.

However, if the preliminary investigation indicates a more serious

violation or the need to acquire more facts, the case is docketed and

a full investigation is made, sometimes involving the issuance by the

Commission of a formal order of investigation appointing members

of its staff as officersto issue subpoenas and take testimony under oath.

During the year, seventy-six formal orders of investigation were

issued. Care is exercised by the Commission and its staff to keep

investigations private until some official action is taken by the Commission. The non-public nature of the investigation serves to protect innocent parties who may be involved and contributes largely

to the effectiveness of such investigations.

After an investigation has been completed and reviewed by both

the regional office concerned and the Division of Trading and Exchanges, a report of the investigation prepared by the regional office

is submitted to the Commission for decision together with the recommendations of the regional and principal office. The Commission

then has several courses of action available to it.

If it decides the public interest requires criminal action be taken,

the Commission may refer the evidence to the Department of Justice.

In such a case members of the staff most familiar with the situation

assist the Department of Justice and the United States Attorney

assigned to the matter in presentation of the case to the Grand Jury

and, where an indictment is returned, with the prosecution of the case.

At other times the Commission may, when such action is warranted,

authorize institution of a civil proceeding for injunctive relief or

institute administrative proceedings.
TVVENTY-FOURTH ANNUAL REPORT 177

The Commission may, if it considers it appropriate, close the investigation. A case may be closed when all possible legal steps have

been taken or when any action taken would be ineffective; for example,

when the subject has fled the country with little chance of his return

or when the damage is so slight that further action is not warranted.

Before a case is closed, however, it is carefully examined by both the

staff of the regional officeconcerned and the staff of the principal office

to determine if any other course of action is practical or warranted

before closing is recommended to the Commission.

The following table reflects in summarized form the investigative

activities of the Commission during the fiscal year:

Investigations of possible violations of the Acts administered by the Commission

Preliminary Docketed Total

Pending June 30,1957 _____________________________________________ New 250 736 986 cases ________________________________________________________ 157 290 447 Transferred from prelimmary _____________________________________ 35 35

TotaL . . 407 1,061 1,468

Closed. ___________________________________________________________ 181 293 474

'I'ransferred to docketed ... . . . 35 35

Pending at June 30, 1958 _. 191 768 959

ENFORCEMENT PROBLEMS WITH RESPECT TO CANADIAN SECURITIES

The Commission continues to be confronted with serious enforcement problems arising from the offer and sale of securities by Canadian issuers and broker-dealers in violation of the registration provisions of the Securities Act. Solution of these problems remains

difficult since the Commission is without authority to conduct investigations outside the United States and the evidence necessary to

establish proof of such violations in most of these cases, as well as the

violators, are usually located in a foreign country, beyond our subpena power. However, action is taken by the Commission to prohibit such violations in cases where personal service can be obtained

inthe United States.

The problems arising under the Supplementary Extradition Convention between the United States and Canada and the narrow construction placed on this agreement by Canadian courts were discussed

in the 22nd Annual Report. Negotiations seeking to solve this problem are continuing through appropriate diplomatic channels.

In the meantime, effective enforcement work in this area is dependent almost wholly upon cooperation between this Commission and

the Canadian provincial enforcement authorities. There is no Do486867-59-13

__________________________________________• _______ __

__ __• _______ ____ ______ _______________

_________________• _________________• ____

------~-------

-----~------
178 SECURITIES AND EXCHANGE COMMISSION

mimon securities legislation, but each Province has its own legislation. In general excellent cooperation has been obtained during

the fiscal year from the Provinces in the enforcement work of the

Commission. Upon being supplied by this Commission with evidence that Canadian residents were engaged in violating the laws of

the United States some of the Provinces have taken action under their

respective statutes. The Canadian registrations of six broker-dealers

were canceled or suspended by provincial authorities during the past

fiscal year following receipt of information supplied by this Commission.

With the cooperation of Canadian authorities this Commission

brought three injunctive actions during the past .fiscal year based

upon the illegal sale of Canadian securities in the United States.

Additional details concerning these actions, in S. E. O. v, James O.

Graye, doing business as J. O. Graye 00. et al., S. E. o. v, Alan Russell

Securities, Inc.; and S. E. O. v, J. H. Lederer 00., Inc., are described

above in the section on Litigation under the Securities Act of 1933.14

Further proceedings were also had in the case of S. E. O. v, Kaieer

Development Corporation. Limited and E. David Novelle, referred to

in the 23rd Annual Report," Permanent injunctions were issued by

the court, restraining the defendants from further violations of the

registration and anti-fraud provisions of the Securities Act.

The Commission continues to maintain its "Canadian Restricted

List," which is a list of the names of Canadian issuers whose securities the Commission has reason to believe recently have been, or currently are being, offered and sold in the United States in violation of

the Securities Act of 1933. The list is designed to warn investors

of the possible risks involved in their purchase of unregistered Canadian securities and to alert broker-dealers to possible illegal distributions of Canadian securities so they may avoid participation in

such distributions.

Names are added to and deleted from this list as circumstances

warrant. During the fiscal year 1958, fourteen supplements were

issued which added .fifty names to the list and deleted two others.

On May 5, 1958, the Canadian Restricted List was revised and consolidated, resulting in the deletion of the names of seventy-nine companies concerning whose securities the Commission had no evidence

of a public offering and sale in the United States during the last five

years," In many instances, the companies were no longer in existence. This list as presently constituted, totals 201 names.

.. Pp. 51-53, supra.

uP. 56.

•1Securities Act Release No. 3924.
TWENTY-FOURTH ANNUAL REPORT 179

The current list, reflecting additions and deletions to December 1,

1958, follows:

CANADIAN RESTRICTED UST

Aero Mining Corporation

Alba Explorations Limited

Aldor Exploration and Development

Company Limited

Algro Uranium Mines Limited

A. L. Johnson Grubstake

Alouette Mines Limited

Alscope Explorations, Inc.

Amican Petroleum and Natural Gas

Corporation Limited

Anthony Gas and Oil Explorations

Limited

Apollo Mineral Developers Inc.

Atlas Gypsum Corporation Limited

Augdome Exploration Limited

Barite Gold Mines Ltd.

Basbary Gold Mines Limited

Basic Minerals Limited

Beaucoeur Yellowknife Mines Limited

Belleehasse Mining Corporation Limited

Black Crow Mines Limited

Bli-Riv Uranium and Copper Corporation Limited

Blumont Mines Limited

Britco Oils Limited

Oabanga Developments Limited

Calumet Uranium Mines Limited

Cameron Copper Mines Limited

Camoose Mines Limited

Canada Radium Corporation Limited

Canadian Alumina Corporation Limited

Canadian Natural Resources Limited

Can American Copper Limited

Canso Mining Corporation Limited

Casa Loma Uranium Mines Limited

Cavalcade Petroleums Limited

Cavalier Mining Corporation Limited

Centurion Mines Limited

Cessland Gas and Oil Corporation

Limited

Colonial Asbestos Corporation Limited

Comet Petroleums Limited

Coneor-Ohibougamau Mines Limited

Consolidated Easter Island Mines

Limited

Consolidated Quebec Yellowknife Mines

Limited

Consolidated Thor Mines Limited

Continental Consolidated Mines and

Oils Corporation Limited

Continental Mining Exploration Ltd.

Continental Uranium Corporation

Limited

Copper Island Mining Company Limited

Copper Prince Mines Limited

Cordon Cobalt Mines Limited

Courageous Gold Mines Limited

Cove Uranium Mines Limited

Cree Mining Corporation Limited

David Copperfield Explorations Limited

Demers Chibougamau Mines Limited

Dencroft Mines Limited

Derogan Asbestos Corporation Limited

Desmont Mining Corporation Limited

DeVille Copper Mines Limited

Diadem Mines Limited

Dolmac Mines Limited

Dolsan Mines Limited

Dubar Exploration Limited

Dupont Mining Company Limited

Eagle Plains Explorations Limited

East Trinity Mining Corporation

Eastern-Northern Explorations Limited

Embassy Mines Limited

Explorers Alliance Limited

Export Nickel Corporation of Canada

Limited

F'algar Mining Corporation Limited

Famous Gus Uranium Mines Limited

Fleetwood Yellowknife Mines Limited

Forbes Lake Mining Corporation

Limited

Glacier Explorers Ltd.

Golden Hope Mines Limited

Granwick Mines Limited

Great Valley Exploration and Mining

Limited

Halstead Prospecting Syndicate

Harvard Mines Limited

Hercules Uranium Mines Limited

Hoover Mining and Exploration Limited

Huddersfield Uranium and Minerals

Limited

International Ceramic Mining Limited

Irando Oil and Exploration Limited

Jacobus Mining Corporation, Ltd.

Jilbie Mining Company Limited

Judella Uranium Mines Limited

Kaiser Development Cor p 0 rat ion

Limited

Kamis Uranium Mines Limited

Key West Exploration Company Limited

Kirk-Hudson Mines Limited

Lake Kingston Mines Limited

Lake Otter Uranium Mines Limited

Lake Superior Iron Limited

Lama Exploration and Mining Company

Limited

Lambton Copper Mines Limited

Landolac Mines Limited

Langis Silver and Cobalt Mining Company Limited

Lavandin Mining Company

Lee Gordon Mines Limited

Lindsay Explorations Limited

Lithium Corporation of Canada Limited

Loranda Uranium Mines Limited

Lucky Creek Mining Company Limited

Lynwatin Nickel Copper Limited

Madison Mining Corporation Limited

Mallen Red Lake Gold Mines Limited

Marian Lake Mines Limited

Marpic Explorations Limited

Marvel Uranium Mines Limited (formerly Marvel Rouyn Mines Limited)

Masters Oil and Gas Limited

Mercedes Exploration Company Limited

Mexicana Explorations Limited
180 SECURITIES AND EXCHANGE COMMISSION

Mexuscan Development Corporation

Mid-West Mining Corporation Limited

Min-Ore Mines Limited (formerly Ryan

Lake Mines Limited)

Monpre Mining Company Limited

Monpre Uranium Exploration Limited

Montclair Mining Corporation Limited

l\fontco Copper Corporation Limited

Nationwide Minerals Limited

Nealon Mines Limited

New Campbell Island Mines Limited

New Faulkenham Mines Limited

New Goldvue Mines Limited

New Hamil Silver-Lead Mines Limited

New J'ack Lake Uranium Mines Limited

New Lafayette Asbestos Company

Limited

New Metalore Mining Company Limited

New Spring Coulee Oil and Minerals

Limited

New Vinray Mines Limited

Norcopper and Metals Corporation

Normalloy Explorations Limited

Normlngo Mines Limited

Norseman Nickel Corporation Limited

North American Asbestos Co. Limited

North Gaspe Mines Limited

Northwind Explorations Limited

Nortoba Mines Limited

Nortoba Nickel Explorations Limited

Nu-Reality Oils Limited

Nu-World Uranium Mines Limited

Oakridge Mining Corporation Limited

Obabika Mines Limited

Ordala Mines Limited

Pantan Mines Limited

Paramount Petroleum and Mineral

Corporation Limited

Plexterre Mining Corporation Limited

Principle Strategic Minerals Limited

Purdex Minerals Limited

Quebank Uranium Copper Corporation

Quebec D eve lop e r s and Smelters

Limited

Quebec Graphite Corporation

Quinalta Petroleum Limited

Regal Minerals Limited

Resolute Oil and Gas Company Limited

Ridgefield Uranium Mining Corporation

Limited

Riobec Mines Limited

Rockcroft Explorations Limited

Rouandah Oils and Mines Limited

Saskalon Uranium & Oils Limited

Sastex Oil and Gas Limited

Sentry Petroleums Limited

Sheba Mines Limited

Sheraton Uranium Mines Limited

Shoreland Mines, Ltd.

Skyline Uranium and Minerals Corporation Limited

St. Pierre & Miquelon Explorations Inc.

St. Stephen Nickel Mines Limited

Stackpool Mining Company Limited

Sudbay Explorations and Mining

Limited

Surety Oils and Minerals Limited

Tamara Mining Limited

Tamicon Iron Mines Limited

Ta urcanis Mines Limited

Temanda Mines Limited

Three Arrows Mining Explorations

Limited

Titan Petroleum Corporation Limited

Torbrook Iron Ore Mines Limited

Trenton Mines Limited

Trio Mining Exploration Limited

Trio Uranium Mines Limited

Triton Mines and Metals Corporation

Limited

Triton Uranium Mines Limited

Trojan Consolidated Mines Limited

United Copper and Mining Limited

United Uranium Corporation Limited

Val Jon Exploration Limited

Valray Explorations Limited

Vanguard Exploration Ltd.

Venus Chibougamau Mines Limited

Vico Explorations Limited

Virginia Mining Corp.

Viscount Oil & Gas Limited

Wakefield Uranium Mines Limited

Wayne Petroleums Limited

Webbwood Exploration Com pan y

Limited

Westore Mines Limited

West Plains Oil Resources Limited

Westville Mines Limited

Whitney Uranium Mines Limited

Winston Mining Corporation Limited

Woodgreen Copper Mines Limited

SECTION OF SECURITIES VIOLATIONS

A Section of Securities Violations is maintained by the Commission

as a part of its enforcement program to provide a further means of

detecting and preventing fraud in securities transactions. The Section maintains files providing a clearing house for other enforcement

agencies for information concerning persons who have been charged

with violations of various Federal and State securities statutes. Considerable information is also available concerning violators resident

in the provinces of Canada. The specialized information in these files
TWENTY-FOURTH ANNUAL REPORT 181

is kept current through the cooperation of the United States Post

Office Department, the Federal Bureau of Investigation, parole and

probation officials, State securities authorities, Federal and State

prosecuting attorneys, police officers, better business bureaus, chambers of commerce and other agencies. At the end of the fiscal year

these records contained information concerning 65,563persons against

whom Federal or State action had been taken in connection with

securities violations. In keeping these records current, there were

added during the fiscal year items of information concerning 8,942

persons, including 2,959 persons not previously identified in these

records.

The Section issues and distributes quarterly a Securities Violations

Bulletin containing information received during the period concerning violators and showing new charges and developments in pending

cases. The Bulletin includes a "Wanted" section listing the names

and references to bulletins containing descriptive information as to

persons wanted on securities violations charges. The Bulletin is distributed to a limited number of cooperating law enforcement officials

in the United States and Canada.

Extensive use is made of the information available in these records

by regulatory and law enforcing officials. During the past year the

Commission received 3,475 "securities violations" letters or reports

and dispatched 1,633 communications to cooperating agencies.

ACTIVITIES OF THE COMMISSION IN ACCOUNTING AND AUDITING

Successive reports of the Commission have called attention to the

fact that the detailed provisions of the several acts administered by

the Commission recognize the importance of dependable informative

financial statements which disclose the financial status and earnings

history of a corporation or other commercial entity. These statements, whether filed in compliance with the statutes administered by

the Commission or included in other material available to stockholders

or prospective investors, are indispensable to investors as a basis for

investment decisions.

The Congress recognized the importance of these statements and

that they lend themselves readily to misleading inferences or even

deception, whether or not intended. It accordingly dealt extensively

in the several statutes administered by the Commission with financial

statement presentation and the disclosure requirements necessary to

set forth fairly the financial condition of the company. Thus, for

example, the Securities Act requires the inclusion in the prospectus

of balance sheets and profit and loss statements "in such form as the

Commission shall prescribe" 17 and authorizes the Commission to pre11 Section 10(a) (1). (SchedUle A, pars. 25, 26).
182 SECURITIES AND EXCHANGE COMMISSION

scribe the "items or details to be shown in the balance sheet and earnings statement, and the methods to be followed in the preparation of

accounts * * *.":18 Similar authority is contained in the Securities

Exchange Act,:l9 and more comprehensive power is embodied in the

Investment Company Act 20 and the Holding Company ActP

The Securities Act provides that the financial statements required

to be made available to the public through filing with the Commission shall be certified by "an independent public or certified accountant." 22 The other three statutes permit the Commission to require

that such statements be accompanied by a certificate of an independent public accountant," and the Commission's rules require, with

minor exceptions, that they be so certified. The value of certification

by qualified accountants has been conceded for many years, but the

requirement as to independence, long recognized and adhered to by

some individual accountants, was for the first time authoritatively

and explicitly introduced into law in 1933. Out of this initial provision in the Securities Act and the rules promulgated by the Commission," and the action taken by the Commission in certain cases,"

have grown concepts of accountant-client relationships that have

strengthened the protection given to investors.

The Commission's standards of independence are stated in rule

2-01, paragraphs (b) and (c), of Regulation S-X which provides

among other things that "an accountant will be considered not independent with respect to any person or any of its parents or subsidiaries in whom he has, or had during the period of report, any

direct financial interest or any material indirect financial interest;

or with whom he is, or was during such period, connected as a promoter, underwriter, voting trustee, director, officer or employee." 26

In determining whether an accountant may in fact be not independent

with respect to a particular person, the Commission will give appropriate consideration to all relevant circumstances, including evidence bearing on all relationships between the accountant and that

person or any affiliate thereof.

In the recent revision of this rule the Commission has recognized

the impact of mergers and the growth of corporations through widespread affiliations. The emphasis in the rule has been changed to

11 Section 19(a).

:Ill Section 13 (b).

,., Sections 30, 3l.

21 Sections 14, 15.

Section 10(a) (1) (Schedule A, paragraphs 25,26).

s> Securities Exchange Act, section 13(a) (2) ; Investment Company Act, Section 30(e) ;

Holding Company Act, section 14.

M See, for example, rule 2-01 of Regulation S-X .

.., See, for example, Securities Exchange Act Release No. 3073 (1941); 10 S. Eo C. 982

(1942) ; and Accounting Series Release No. 68 (1949) .

.. Rule 2-01 of Regulation S-X as amended April 8, 1958. See Accounting Serles Release

No. 79.

""
TWENTY-FOURTH ANNUAL REPORT 183

make it clear that where the relationships described in the rule exist

the Commission will find that an accountant is in fact not independent with respect to the company involved, but in those instances

where lack of independence is not established the Commission will

make no finding with respect to the accountant's independence.

Several situations, described in the 22nd and 23rd Annual Reports,

in which accountants were not eligible under our rules to certify

financial statements because they were lacking in independence continue to cause difficulty. In many of these instances the accountants

and their clients were coming in contact with the Commission's filing

requirements for the first time and the reason for the lack of independence was ownership by a member of the accounting firm of

stock of the client company during some of the periods certified. In

other cases the accountant or his firm may have been interested in

serving the client's management, or in some cases large stockholders,

in several capacities and in doing so had not taken care to maintain a clear distinction between giving advice to management and

serving as personal representatives of management or owners in making business decisions for them. Many of these problems could be

avoided if the accountants would look forward to the day when the

public interest in their clients would require certification of financial

statements by independent public accountants.

As shown above, the statutes administered by the Commission give

it broad rule-making power with respect to the preparation and

presentation of financial statements. Pursuant to authority contained in the statutes the Commission has prescribed uniform systems

of accounts for companies subject to the Holding Company Act; 27

has adopted rules under the Securities Exchange Act governing accounting and auditing of securities brokers and dealers; and has promulgated rules contained in a single, comprehensive regulation,

identified as Regulation S-X,2S which govern the form and content of

financial statements filed in compliance with the several acts. This

regulation is implemented by the Commission's Accounting Series

releases, of which 80 have so far been issued. These releases were

inaugurated in 1937, and were designed as a program for making

public, from time to time, opinions and accounting principles, for the

purpose of contributing to the development of uniform standards

and practice in major accounting questions. The rules and regulations thus established, except for the uniform systems of accounts,

prescribe accounting to be followed only in certain basic respects.

1tr Uniform System of Accounts for Mutual Service Oompanies and Subsidiary Service

Oompanies (effective August 1, 1936); Uniform System of Accounts for Public Utility

Holding aompanies (e1I'ective January 1, 1937; amended effective January 1, 1943)

Adopted February 21, 1940 (Accounting Series Release No. 12) ; revised December 20,

1950 (Accounting Series Release No. 70).

•

•
184 SECURITIES AND EXCHANGE COMMISSION

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 principles and auditing standards which

are recognized as sound and which have attained general acceptance.

Since changes and new developments in financial and economic

conditions affect the operations and financial status of the several

thousand commercial and industrial companies required to file statements with the Commission, accounting and auditing procedures cannot remain static and continue to serve well a dynamic economy. It

is necessary for the Commission to be informed of the changes and

new developments in these fields and to make certain that the effects

thereof are properly reported to investors. The Commission's accounting staff, therefore, engages in studies of the changes and new

developments for the purpose of establishing and maintaining appropriate accounting and auditing policies, procedures and practices

for the protection of investors. The primary responsibility for this

program rests with the chief accountant of the Commission who has

general supervision with respect to accounting and auditing policies

and their application.

Progress in these activities requires constant contact and cooperation between the staff and accountants both individually and through

such representative groups as, among others, the American Accounting Association, the American Institute of Certified Public Accountants, the American Petroleum Institute, the Controllers Institute of

America, the National Association of Railroad and Utilities Commissioners, the National Federation of Financial Analysts Societies, as

well as other government agencies. Recognizing the importance of

cooperation in the formulation of accounting principles and practices,

adequate disclosure and auditing procedures which will best serve

the interests of investors, the American Institute of Certified Public

Accountants, the Controllers Institute of America, and the National

Federation of Financial Analysts Societies regularly appoint committees which maintain liaison with the Commission's staff.

The many daily decisions of the Commission require the almost

constant attention of some of the chief accountant's staff. These include questions raised by each of the operating divisions of the Commission, the regional officesand the Commission. This day-to-day activity of the Commission and the need to keep abreast of current

accounting problems cause the chief accountant's staff to spend much

time in the examination and re-examination of sound and generally

accepted accounting and auditing principles and practices. From

time to time members of this staff are called upon to assist in field

investigations, to participate in hearings and to review opinions,

insofar as they pertain to accounting matters.
TWENTY-FOURTH ANNUAL REPORT 185

Prefiling and other conferences, in person or by telephone, with officials of corporations, practicing accountants and others, occupy a

considerable amount of the available time of the staff. This procedure, which has proven to be one of the most important functions of

the officeof the chief accountant, and of the chief accountant of the

Division of Corporation Finance and his staff, saves registrants and

their representatives both time and expense.

Many specific accounting and auditing problems arise as a result of

the examination of financial statements required to be filed with the

Commission. 'Where examination reveals that the rules and regulations of the Commission have not been complied with or that applicable generally accepted accounting principles have not been adhered to, the examining division usually notifies the registrant by an

informal letter of comment. These letters of comment and the correspondence or conferences that follow continue to be a most convenient and satisfactory method of effecting corrections and improvements in financial statements, both to registrants and to the

Commission's staff. Where particularly difficult or novel questions

arise which cannot be settled by the accounting staff of the divisions

and by the chief accountant, they are referred to the Commission for

consideration and decision. By these administrative procedures the

Commission deals with many accounting questions.

Inquiries in ever-increasing volume as to the propriety of particular accounting practices come from accountants and from companies

not presently subject to any of the acts administered by the Commission who wish to have the benefit of the Commission's views and

thus utilize and apply the Commission's experience to the facts of

their own case. Teachers of accounting and their students also use

the public files and confer with the staff in the study of accounting

problems.

Cooperation between the Commission and professional groups interested in improving financial reporting has been mentioned. An

example is the publication in April, 1958, by the Committee on Accounting Procedure of the American Institute of Certified Public

Accountants of its Accounting Research Bulletin No. 49 dealing with

a number of the problems arising in connection with the computation

of earnings per share and the presentation of such statistics in prospectuses, proxy material and annual reports to shareholders and

in the compilation of business earnings statistics for the press,

statistical services and other publications.

Appropriate determination of earnings per share has been a frequent subject for comment by the staff in connection with filings

with the Commission. A decrease in improper presentations since

publication of the bulletin may fairly be credited in part to the wide
186 SECURITIES AND EXCHANGE COMMISSION

distribution of the bulletin. Such literature contributes to greater

uniformity in financial reporting, improves investor understanding,

and decreases staff time spent in processing material filed with the

Commission.

A further example of the importance of cooperation between the

staff and professional accounting organizations is found in the Commission's authorization for its chief accountant to serve as a member

of the American Institute of Certified Public Accountants' Special

Committee on Research Program. This committee, the other members of which are leaders of the accounting profession in public and

private practice and in teaching, was appointed to consider a new

approach to accounting research. Since investors in securities depend upon the results of the accounting process, it is appropriate

that the Commission be represented in this endeavor to find a better

means for the development of generally accepted accounting principles which serve as a guide for independent accountants practicing

before the Commission.

Some significant characteristics of the past year in the accounting

field may be mentioned. As in the prior two years, accounting for

mergers has again required much staff time in conferences with registrants and their accountants. Usually the problem has been to

determine the propriety of applying the pooling of interests concept

which avoids the booking of goodwill by using the accounting basis

of the constituent companies and permits the carrying forward of

the earned surplus of the parties to the merger.

In contrast to this desire of established companies to avoid the

recognition of intangibles is the insistence by promoters of new ventures to place excessive valuations on the books for both tangible and

intangible properties. Examples during the past year have been

reminiscent of the early days of the Commission when it was found

necessary to deal vigorously with promotional ventures in which

shares of the issuer's stock were exchanged for assets of doubtful

value but were recorded at the par value of the shares issued. For

an example of this kind see the discussion of the Commission's decision In the Matter of the Fall River Power Oompany29 at page 39

of this report.

Another characteristic of the past year has been the number of

cases coming to the attention of our accountants in which a change

in accounting policy has been adopted or desired. Where a change

has appeared to be motivated by a desire to improve current earnings

by deferring the expensing of incurred costs, we have objected unless

it could be shown that the new method was clearly in the interest

of improved financial reporting in the long run. Accounting for

.. Securities Act Release No. 3932 (;rune 4,1958).
TWENTY-FOURTH ANNUAL REPORT 187

research and development costs for new products or expansion into

new sales territories are examples of this problem which require

further study.

Of a somewhat different order but a problem requiring further

study is the matter of accounting for pensions and other forms of

deferred compensation. There are so many difficulties in the way

of determining the amounts involved and the proper allocation of

such costs to accounting periods that a considerable lack of uniformity in accounting treatment persists between companies and between periods in the same company. Improvement in reported

earnings resulting from omission of any charge for pensions is an

extreme example of the problem which seems to be vulnerable to

severe criticisms but which has been defended when pensions have

been overfunded in prior years. These and other problems in the

reporting of corporate income are receiving active consideration by

the accounting profession and by the Commission's accounting staff.

OPINIONS OF THE COMMISSION

Opinions are issued by the Commission in contested and other cases

arising under the statutes .administered by it and under the Commission's Rules of Practice, where the nature of the matter to be

decided, whether substantive or procedural, is of sufficient importance

to warrant a formal expression of views. These opinions include

detailed findings of fact and conclusions of law based on evidentiary

records taken before a hearing examiner who serves independently of

the operating divisions, or, in an occasional case, before a single Commissioner or the entire Commission. In some cases, formal hearings

are waived by the parties and the findings and conclusions are based

on stipulated facts or .admissions.

The Commission is assisted in the preparation of findings and opinions by its Officeof Opinion Writing, a staff officecompletely independent of the operating divisions of the Commission and directly responsible to the Commission itself. The independence of the staff members

of this office reflects the principle, embodied in the Administrative

Procedure Act, of a separation between staff members performing

investigatory or prosecutory functions and those performing quasijudicial functions. In some cases, with the consent of all parties, the

interested operating division participates in the drafting of opinions.

Opinions are publicly released and distributed to representatives of

the press and to persons on the Commission's mailing list. In addition, the opinions are printed and published by the Government Printing Office in bound volumes entitled "Securities and Exchange Commission Decisions and Reports."

During the fiscal year 1958, the Commission issued findings and

opinions and other rulings in 121 cases of an adversary nature.
188 SECURITIES AND EXCHANGE COMMISSION

APPUCATIONS FOR NON.DISCLOSURE OF CERTAIN INFORMATION

The Commission is authorized under the various Acts administered

by it to grant requests for non-disclosure of certain types of information which would otherwise be disclosed to the public in applications,

reports or other documents filed pursuant to these statutes. Thus,

under paragraph (30) of Schedule A of the Securities Act of 1933, disclosure of any portion of a material contract is not required if the

Commission determines that such disclosure would impair the value

of the contract and is not necessary for the protection of the investors.

Under section 24 (a) of the Securities Exchange Act of 1934, trade

secrets or processes need not be disclosed in any material filed with the

Commission, and under section 24 (b) of that Act written objection

to public disclosure of information contained in any such material may

be made to the Commission which is then authorized to make public

disclosure of such information only if in its judgment such disclosure

is in the public interest. Similar provisions are contained in section

22 of the Public Utility Holding Company Act of 1935 and in section

45 of the Investment Company Act of 1940. These statutory provisions have been implemented by rules outlining the procedure to be

followed by persons applying to the Commission for a determination

that public disclosure is not necessary in a particular case.

The number of applications granted, denied or otherwise acted upon

during the year are set forth in the following table:

Applications for non-disclosure during 1958 fiscal year

Number

Number Number Number Number pending

pendinz received granted denied or June 30,

July 1, 1957 withdrawn 1958

Securities Act of 1933 ,_____________________ 2 20 16 4 2 Securities Exchange Act of 1934 3 16 7 8 4 Investment Company Act of 1940 3________ 0 6 6 0 0

Totals _______________________________ 5 42 29 12 6

, Filed under rule 485.

, FJled under rule 24b-2.

3 FJled under rule 45a-1.

STATISTICS AND SPECIAL STUDIES

The Section of Economic Research provides the Commission with

statistical information needed in the administration of the Securities

Acts and furnishes financial data to the Congress and other government agencies as part of the overall Government Statistical Program

under the direction of the Bureau of the Budget.

The regular statistical series which are prepared include data on

securities effectively registered under the Securities Act of 1933,

offerings of securities by all corporations in the United States (including issues not registered with the Commission, such as privately

placed issues and railroad securities), retirements of corporate securi-

•__________
TWENTY-FOURTH ANNUAL REPORT 189

ties, net change in corporate securities outstanding, stock prices and

trading. The research and statistical activity carried out under the

direction of the Bureau of the Budget includes individuals' saving in

the United States, income flow and investments of private pension

funds of United States corporations, current liquid position of United

States corporations, sources and uses of corporate funds, anticipated

expenditures for plant and equipment by United States businesses,

and a quarterly financial report for all United States manufacturing

concerns.

During the past year special effort was devoted to improvement in

methodology and source data for several of these series. A special

project was undertaken to re-examine the industrial classification of

all listed companies to comply with the revised Standard Industrial

Code of the Government, the revised codes for each company to be

published during the 1959 fiscal year. Plans were also laid for a detailed survey of the assets and liabilities of all registered brokers and

dealers in the United States. During the year data were prepared for

two papers, the first of which was entitled "Implications of Pension

Fund Accumulations" delivered in September, 1957,before the American Statistical Association, and the second of which was "The Structure and Realization of Business Investment Anticipations" presented

in November, 1957, at the Conference on the .Quality and Economic

Significance of Anticipation Data, National Bureau of Economic Research. There was also participation during the year in plans of the

National Bureau of Economic Research for a major study of the

Nation's pension funds. Certain basic data derived from the Commission's surveys of corporate pension funds are to be provided in this

study.

The statistical series described below are published in the Commission's Statistical Bulletin and in addition, except for data on registered

issues, current figures and analyses of the data are published in quarterly press releases. The Commission's stock price index is released

weekly, together with the data on round-lot and odd-lot trading on

the two New York stock exchanges.

The various statistical series are as follows:

Issues Registered Under the Securities Act of 1933

Monthly and quarterly statistics are compiled on the number and

volume of registered securities, classified by industry of issuer, type

of security, and use of proceeds. Data for the 1958 fiscal year appear

on page 30-32 and in appendix tables 1 and 2.

New Securities Offerings

This is a monthly and quarterly series covering all new corporate and non-corporate issues offered for cash sale in the United
190 SECURITIES AND EXCHANGE COMMISSION

States. The series includes not only issues publicly offered but also

issues privately placed, as well as other issues exempt from registration under the Securities Act such as intrastate offerings and railroad securities. The offerings series includes only securities actually

offered for cash sale, and only issues offered for account of issuers.

Annual statistics on new offerings since 1953, as well as monthly figures from .Tanuary 1957 through .Iune 1958, are given in appendix

tables 3 and 4. A summary of the data is shown annually from

1934through June 1958in appendix table 5.

Corporate Securities Outstanding

Estimates of the net cash flow through securities transactions are

prepared quarterly and are derived by deducting from the amount

of estimated gross proceeds received by corporations through the

sale of securities the amount of estimated gross payments by corporations to investors for securities retired. Data on gross issues, retirements and net change in securities outstanding are presented for

all corporations and for the principal industry groups.

Stock Market Data

Statistics are regularly compiled on the market value and volume

of sales on registered and exempted securities exchanges, round-lot

stock transactions of the New York exchanges for accounts of members and non-members, odd-lot stock transactions on the New York

exchanges, special offerings and secondary distributions. Indexes

of stock market prices are compiled, based upon the weekly closing

market prices of 265 common stocks listed on the New York Stock

Exchange. The indexes are composed of 7 major industry groups,

29 subordinated groups, and a composite group.

Saving Study

The Commission compiles quarterly estimates of the volume and

composition of individuals' saving in the United States. The series

represent net increases in individuals' financial assets less net increases

in debt. The study shows the aggregate amount of saving and the

form in which the saving occurred, such as investment in securities, expansion of bank deposits, increase in insurance and pension reserves,

etc. The Commission has been cooperating in a program on national

saving covering government, business and individuals' saving, and several changes and improvements have been made in the saving series in

the course of the last fiscal year. A reconciliation of the Commission's

estimates with the personal saving estimates of the Department of

Commerce, derived in connection with its national income series, is

published annually by the Commerce Department as well as in the

Securities and Exchange Commission Statistical Bulletin.
TWENTY-FOURTH ANNUAL REPORT 191

Corporate Pension Funds

An annual survey is made of pension plans of all United States

corporations where funds are administered by corporations themselves, or through trustees. The survey shows the flow of money into

these funds, the types of assets in which the funds are invested and

the principal items of income and expenditures.

Financial Position of Corporations

The series on working capital position of all United States corporations, excluding banks, insurance companies and savings and loan

associations, shows the principal components of current assets and

liabilities, and also contains an abbreviated analysis of the sources

and uses of corporate funds.

The Commission, jointly with the Federal Trade Commission,

compiles a quarterly financial report for all United States manufacturing concerns. This report gives complete balance sheet data and an

abbreviated income account, data being classified by industry and

size of company.

Plant and Equipment Expenditures

The Commission, together with the Department of Commerce, conducts quarterly and annual surveys of actual and anticipated plant

and equipment expenditures of all United States business, exclusive

of agriculture. Shortly after the close of each quarter, data are released on actual capital expenditures of that quarter and anticipated

expenditures for the next two quarters. In addition, a survey is made

at the beginning of each year of the plans for business expansion

during that year.

PUBLIC DISSEMINATION OF INFORMATION

As indicated, one of the basic objectives of the Federal securities

laws is the public disclosure of financial and other information with

respect to securities so that they may be realistically appraised by

the investing public. Not only is the Commission a repository for a

vast amount of such information concerning several thousand companies which are subject to the Commission's registration and reporting <requirements, but the data receive widespread circulation among

members of the investing public through the medium of the prospectus on new issues, through the financial press and through various

securities manuals and statistical services used extensively by securities firms, investment advisers, investment companies, trust departments, insurance companies and others. Thus, the analysis and

evaluation of their securities by a broad segment of investors is made

possible.
192 SECURITIES AND EXCHANGE COMMISSION

To facilitate public dissemination of :financial and other proposals

filed with and actions by the Commission, a daily News Digest is

issued to the press containing a resume of these filings and actions.

For example, the News Digest contained a synopsis of each financing

proposal reflected in the 779 registration statements filed during the

year, as well as the 134 filings by investment companies increasing

the amount of securities previously registered. Much of this information is published in the daily newspapers and in financial and

other periodicals. Furthermore, most of the Commission's official

pronouncements take the form of orders, decisions and rules, copies

of which are issued in "release" form to mailing lists comprising the

names of persons who have requested particular types of releases.

During the year, a total of 800 such releases were issued and distributed to these lists; and a resume of each was included in the

News Digest. Another 77 releases were issued announcing the results

of the Commission's regular statistical studies referred to at page 188

hereof. An additional 173 releases were issued announcing actions

with respect to court injunctions and criminal prosecutions, plus 33

miscellaneous releases.

In order that the investing public may better understand the Commission's role of investor protection, the Chairman, other members of

the Commission and staff officials frequently deliver addresses before

local groups or participate in radio or television discussions of the

Commission's functions and activities. They also address professional and trade bodies to discuss particular aspects of the Commission's law enforcement activities or its general policies and practices.

In addition, they make themselves available for interview by representatives of the press, individually or collectively, particularly when

visiting financial centers throughout the country.

To alert the public to the risks involved in buying securities from

unknown sources, such as the "boiler room" operators discussed in

Part I of this report, the Commission has distributed more than

60,000 copies of an "Investors Beware" poster setting forth a 10-point

guide for prospective purchasers of securities.' With the cooperation

1The poster warns Investors to observe the following ten-point guide to safer

investments :

1. Before buying . • • Think!

2. Don't deal with strange securities flrms. (Consult your broker!)

3. Beware of securities offered over the telephone by strangers.

4. Don't listen to high-pressure sales talk.

5. Beware of promises of spectacular profits.

6. Be sure you understand the risks of loss.

7. Don't buy on tips and rumors ... Get all the facts I

8. Tell the salesman to: Put all the information and advice in writing and mail

it to you ..• Save it I

9. If you don't understand all the written information ... Consult a person

who does.

10. Give at least as much consideration to buying securities as you would the purchase of any valuable property.
TWENTY-FOURTH ANNUAL REPORT 193

of the Post Office Department copies of the poster have been placed

on the bulletin boards of all post officesin the United States and the

Federal Deposit Insurance Corporation has assisted the Commission

in distributing copies of the poster to all insured banks. In addition, copies have also been distributed to state securities commissioners,

securities exchanges, brokers and dealers, better business bureaus,

chambers of commerce and other organizations interested in the prevention of fraud in the offer and sale of securities.

Information Available lor Public Inspection

During every fiscal year thousands of requests for information are

received by mail and through telephone calls and personal visits.

Most of these requests are answered by employees in the Commission's

public reference rooms in 'lVashington, Chicago, and New York City.

The files of the Commission provide information of interest to a

large cross section of the public. Numerous people visit the public

reference rooms seeking information on which to base decisions to

buy or sell securities; they are furnished the files which contain financial and other information about the issuers of the securities. Many

visitors, on the other hand, consult Commission records. They may

be representatives of business or financial journals, or students doing

research for theses or other projects. Research of a slightly different

nature is carried on by representatives of legal and accounting firms,

corporations and labor unions; they are interested largely in gathering information to be used as specimens, as precedent material, or

for other specialized purposes. The inquiries received through the

mails and over the telephone follow the same pattern .

. Copies of any public information filed with the Commission may be

examined at the principal officein Washington, D. C. Such information includes registration statements, applications and declarations

filed under the various statutes administered by the Commission, together with the records of agency action. In Washington, as in the

regional offices,space considerations have necessitated the transfer of

some of this material to warehouse-type space in nearby federal

records centers. Files from these centers are usually available within twenty-four hours.

The New York Regional Office has copies of recent filings made

by companies having securities listed on exchanges other than the

New York Stock Exchange and the American Stock Exchange," and

copies of current filings of many companies which have effective reg-

.. Reports of Hsted companies on the New York and American stock exchanges may be

seen at the exchange offices.

486867-59-14
194 SECURITIES AND EXCHANGE COMMISSION

istration statements under the Securities :Act of 1933. The Chicago

Regional Officehas copies of recent reports of companies which have

securities listed on the New York and American stock exchanges.

All regional officeshave copies of prospectuses used in recent public

offerings of securities registered under the Securities Act, of active

broker-dealer and investment adviser registration applications originating in their respective regions and of Regulation A letters of notification filed in their respective regions.

The public reference room in Washington had about 3,400 visitors

during the fiscal year. Requests were filled for an additional 28,500

persons who were sent almost 660,000 copies of Commission publications. More than 112,000 photocopy pages of information were

sold pursuant to over 2,000 orders.

Additional thousands of persons made use of the facilities provided by the New York and Chicago public reference rooms.

PUBUCATIONS

Publications issued during the fiscal year included:

Monthly:

Statistical Bulletin.

Official Summary of Security Transactions and Holdings of

Officers, Directors, and Principal Stockholders.

Quarterly:

Financial Reports, U. S. Manufacturing Corporations

(Jointly with the Federal Trade Commission) .

Plant and Equipment Expenditures of U. S. Corporations

(Jointly with the Department of Commerce).

New Securities Offered for Cash.

Volume and Composition of Individual's Saving.

Working Capital of U. S. Corporations.

Annually:

Securities Traded on Exchanges under the Securities Exchange Act of 1934, as of December 31, 1957.

Companies Registered under the Investment Company Act

of 1940, as of December 31, 1957.

Twenty- Third Annual Report of the Commission.

Other publications:

Volume 37 of the Decisions and Reports of the Commission,

(to June 30, 1957).

The Work of the Securities and Exchange Commission (edition of August 20, 1957).

Amendment, dated November 5,1957, to Statement of Policy

under the Investment Company Act of 1940.
TWENTY-FOURTH ANNUAL REPORT

ORGANIZATION

195

The staff of the Commission is composed of lawyers, accountants,

engineers, security analysts and examiners, and administrative and

clerical employees. Itis divided into divisions and offices,including

nine regional offices and eight branch offices.

Under the Commission's program of continuing review of its organization and functions, a number of changes were made during

the fiscal year in the interest of increased efficiency.

On December 15, 1957,the New York Regional Officewas realigned

to provide for a more functional organization. Corporate reorganization work under Chapter X of the Bankruptcy Act was transferred

from the Branch of Operations to a new Branch of Reorganization.

The remaining functions of the former Branch of Operations, i. e.,

interpretative work and the administration of Regulation A, were

assigned to a new Branch of Interpretations and Small Issues.

In December 1957, a Branch of Examination and Training was

established in the Division of Corporation Finance for the purpose

of initiating, developing and executing a training program for professional employees assigned to the Division. The training activities

of this Branch supplement those conducted in the various Branches

of Corporate Analysis and Examination as part of the day-to-day

employee development resulting from work assignments. All new

employees are assigned to the Branch of Examination and Training

for intensive job instruction, as are middle-level employees who

have demonstrated the growth potential for supervisory positions.

The Commission established a Branch Office of the Atlanta Regional Office in Miami, Florida, on March 3, 1958, and a Branch

Office of the Fort Worth Regional Office in Houston, Texas, on

April 14, 1958.31 The establishment of these Branch Officeswill not

increase overall personnel requirements but will enable the Commission to increase the effectiveness of its investigative activities and its

broker-dealer inspection program in those areas in the public interest.

PERSONNEL, BUDGET AND FINANCE

The following comparative table shows the personnel strength of

the Commission as of June 30, 1957and 1958:

June 30, 1958 June 30, 1957

Commissioners 5 ---------. 4

Staff:

Headquarters Office .-- 543 480 ------874- -------780 Regional Offices 331 300

--- --- --- TotaL -----_.--- 879 -----_ .... 784

.. On October 21, 1958, the Commission announced the establishment of a Branch Office

of the Chicago Regional Office in St. Louis, Missouri. .

_________________ -___--------- ----- ----------- --- ----------

________________ -- -- ----- -- -- -- ---- --

________----- -------- ------- ---- -- --- ---- --- --- _____________________ -_---- ---- ---- ----- --- ------ --
196 SECURITIES AND EXCHANGE COMMISSION 

The table on the opposite page shows the budget estimates of the 

Commission, the recommendations of the President, the appropriation 

actions of the House of Representatives, the Senate and the HouseSenate conferees and the appropriations (including supplementary 

appropriations for statutory pay increases) made for the Commissiot~ 

by the Congress for the fiscal years 1949-1959. 

The Commission is requitwi by law to collect fees for registration of 

securities issued, qualification of trust indentures, registration of 

exchanges, and sale of copies of documents filed with the Commissi~n

The following table shows the Commission's al~propriations, total 

fees collected, percentage of fees collected to total appropriation, and 

the net cost to the taxpayers of Commission operations for the fiscal 

years 1956,1957, and 1958 : 

Percentage 

ApPmPriaI 

1 lncludcs $235 WO to mver statiltow pay illcmases. 1 1 Feessrodtmkited inthegenerali~ndafthe Treasury and are not a!.8llabla for expenditureby the Commission. 

In furtherance of the objectives of the Joint Accounting Improvement Program, an Imprest Fund was established in Headquarters as 

we]! as in the New York Regional Office for the purpose of simplifying 

the procurement and payment procedures of the Commission. 

Psrsonael Pmgram 

During fiscal 1958 the Commission continued to give specicial 

emphasis to its ~ecruitment program designed to attract outstanding 

college and law school graduates for starting professional level positions such as financial analyst, attorney, and investigator. Through 

on-campus ~nterviews and contacts with the placement offices of various colleges and universities, the Commission was successful in appointing to its staff a substantial number of well qualified applicants 

of college caliber. 

On March 31,1958 the Commission approved a Promotion Progrm~ 

Policy and Guidelines statement as required by the Civil Service 

Commission's new government-wide Merit Promotion Program. The 

progrm statement was developed with the active assistance of Division and Office Heads and the v~ens and coniments of employees also 

~*Prinelpalrates are (1) 1/100 of 1 percent of the maximum aggregate price of sew. 


nties proposed to be offered but not less than $26: (21 1/600 of 1 percent of the aggregate 


dollar amount of stock exchange transactions. Fees for other services are only nominal. 

Action taken on budget estimates and appropriations from ;fi8eal1949 through ;fi8eal 1959

F1sca119ti1 FIsca119liO FIsca11951 FIsca11952 Flscal1953 Ftscal19M FIsca11955 FIsca11l156 Fiscal 1957 F1sca11958 Fiscal 1959

Action

Average Average Average Average Average Average Average Average Average Average Average employ- Money employ- Money employ- Money employ. Money employ- Money employ- Money employ- Money employ. Money employ. Money employ- Money employ. Mone)' ment ment ment ment ment ment ment ment ment ment ment

Commission's estimate to the B1lnl6I1of the

Budget "_. '_. 1,400 $6,684,800 1,307 $6,789,400 1,175 $6,675,000 1,127 $6,005,000 1,092 $6,360,000 1,080 $6,810,000 780 $5,124,760 734 $4,997,000 794 $5,749,000 935 $7,178,000 974 $7,500,000

Excess over President's Budget _. -155 -684,800 -177 -819,400 -40 -250,000 -77 -681,000 -157 -410,000 -142 -810,000 -63 -299,760 --------- ------------- --------- ---------- .._- --........ --- ------- ...----- -58 -400.000

Amount recommended in President's Budget; 1,245 6,000,000 1,130 5,970,000 1,135 6,425,000 1,050 5,924,000 935 5,950,000 938 6,000,000 717 4,825,000 734 4,997,000 794 5,749,000 935 7,178,000 916 7,100,000

Aetlon by the House of Representatives -89 -173,860 -70 -220,000 -95 -295,000 -50 -225,000 -125 -704,920 -152 -754,920 -26 -125,000 -9 -122,000 -8 -49,000 -80 -478,000 -46 -300,000

---- Subtotal ._. 1,156 5,826,140 1,060 5,750,000 1,040 6,130,000 1,000 5,699,000 810 5,245,080 786 5,245,080 691 4,700,000 72.5 4,875,000 786 5,700,000 855 6,700,000 870 6,800,000

Aetlon by the senate_ ._. ._. ............ .. ----_ .._---_ .. -_ .._-.-.. --_ ............... ... +44 +200,000 -93 -lW,520 --_ .. ..... .. ------_ ..... -42 -245,080 +14 +75,000 +9 +122,000 +8 +49,000 --------- ------------- +46 +300,000

----- SubtotaL 1,156 5,826,140 1,060 5,750,000 1,084 6,330,000 907 .5,378,480 810 5,245,080 744 5,000,000 705 4,775,000 734 4,997,000 794 5,749,000 855 6,700,000 916 7,100,000

Action by contereeB._._. ._. -----_ .._- -_ ...._-.-.. ....--.--- ..... .......... _--- -22 -100,000 .. ....... .. .. .. --_ .._----_ .... .. ....-_ ......... .. ..... -6 -2.5,000 -4 -42,000 ..... ..._--- .. .. ..... ...... ----- ---- Annual appropriation. 1,156 5,826,140 1,060 5,750,000 1,062 6,230,000 907 5,378,480 810 5,245,080 744 5,000,000 699 4,750,000 i30 4,955,000 794 5,749,000 855 6,700,000 916 17,100,000

Supplemental appropriaUon tor statutory pay increases. _. _. ~. ._ ._. ..-_ .. 295,000 -----_ .._- 128,250 --_ ......... .. ... ...... _-- .... .. ..... ............. 435,000 .. .. ......... .... _-_ .............. ........... .. ..... ......._--_ .... .. .._-- ... 93,180 ..... .._--- 323,000 ... .._--_ .. .._- .._--...._- 235,000 ......... ---_ ... ..

---- Total appropriation.. _._. ._._. 1,156 6,121,140 1,060 5,878,250 1,062 6,230,000 907 5,813,480 810 5,245,080 744 5,000,000 699 4,843,180 i30 5,278,000 794 5,749,000 855 6,935,000 916 17,100,000

Mandatory reserve required in 1961 ....... ...._-- ----_ .. .... .. ..... .. ........_--------- -32 -150,000 .. .. .. .. ... _-- ..--_ .. ...... .._--..... -_ ..-----_ ... ...... .._------ ... .... ... _-_ .. ....._- ....._--- ....._--- ....._------ ... ...... _-- .. .... .._--_ .._--- ............. .._-_ ...._-- ......_- .._-_ .._--- --_ .._-- ..... .._-

-----_ ......- ------------- -_ .._--_ ..- ----_ .._--_ ......... 1,030 6,080,000 -------_ .. -----_ .._-_ ...-.. ------ ..-- ------------- -----_ ..-- --_ ......... .._-- ----_ ...... - ..._----- ....._--- .. .. .. ..... ..-._--_ ..... .._- .._--- ....-.. ...._- .. ........_ .... .._------- ...._-- ......-...._- -_ .......... -..- -.._---- ..-----

IDoes not fncfnde funds for statutor,y pay increases. 486867-li8 (Face p. 196)

___ __ ___" __•___•___•__•____•••

••_________•••

__•• ___

__•____ __•__________•••• __•__•

•• __ ____________ __ - - - - _ - ---- __ •

__ •__•___•_________________•___

___ __•_______•• ___• ---- - - - ---- - ----------- - ------ - - -------- _ - _ - ------------- --------- ------------- ----- - - ------ --

__•_________•___•••• _•• _

______________ •• __-_____ ----- _ _ _ _ _ _ __ - - -- - - - -- _ __ --------- - - - _ -- --- __ -----

_____ __•__

___________• _ _ ---- - -- - _ - - __ __ _ -- _ _ _ --- ------- ------ _ ------ -- _ --- -

__ - - _ _ __
TWENTY-FOURTH ANNUAL REPORT 197

NUMBER

1000

800

S. E. C.

.: :.

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. :.' . . ..

PERSONNEL 1.1

600

400

200

o

. . . :... DEPARTMENTAL . :~.: : .: .: ',. :. :' . .. :. ... .. . . .:' .::,' .i ",

1951 52 53 54 55 56 57 58

(FISCAL YEAR)

lj Av e-rage g"pZoygent

OS. 3950

~
198 SECURITIES AND EXCHANGE COMMISSION

were solicited. Merit Promotion Plans which implement these policies

and guidelines systematically in specific groups of positions are being

developed and will be adopted by January 1, 1959.

The proper allocation of top level positions continues to be of

utmost importance to the Commission for the effective execution of

its programs. In the interest of attracting and retaining highly

qualified persons for these positions, recommendations for the allocation of additional positions to grades GS-16, G8-17 and GS-18 were

presented to the Civil Service Commission.

The passage of the Government Employees Training Act on July

7, 1958 for the first time provides the Commission with general training authority. As required under this Act, a complete review of

the needs and requirements of the Commission for the training of

its employees win be made and a suitable program providing far

in-service, mter-agency or out-service training to meet identified

needs and requirements will be established.

During fiscal 1958, special health programs for the benefit of the

staff were undertaken in the Commission. On November 6, 1957, 140

members of the staff in Washington were inoculated against Asian

influenza. Sixty-four employees in the regional offices also received

this inoculation under programs arranged by Regional Administrators.

The first and second of a series of three inoculations of anti-polio

vaccine were administered under the direction of a private physician

on March 3 and March 25, 1958, respectively. A total of 121 employees participated in this program which was sponsored by the

Commission's Employee Recreation and Welfare Association.

Recognition of career service with the Commission, meritorious

work performance awards and public recognition in the form of

awards made by outside organizations for outstanding achievements

by staff members continued to be stressed under the Commission's

incentive awards program. In September 1957, ten- and twenty-year

service pins and certificates were presented to a total of 51 employees

for service with the Commission. Six employees were awarded $195

for adopted suggestions. Cash awards totalling $5,805 and certificates of merit were presented to 66 employees.

Mr. Robert S. Wood of the Budget and Finance officewas one of

120 successful candidates out of a total of 236 nominations submitted

by government agencies for participation dn the Civil Service Commission's 1958 Management Intern Program. In May 1958, a Certificate of Merit was awarded to Jule B. Greene, Attorney~in-Charge

of the Commission's Miami Branch Office, by the William A. Jump

Memorial Foundation. In June 1958, the National Civil Service

League awarded certificates of merit to four Commission employees-
TWENTY-FOURTH ANNUAL REPORT 199

John T. Callahan, Special Counsel in the Division of Trading and

Exchanges, Amerst E. Huson, Chief of the Office of Research and

Service Company Regulation rin the Division of Corporate Regulation, Franklin E. Kennamer, Jr., Chief Enforcement Attorney in

the San Francisco Regional Office,and Edward H. Rakow, Assistant

Regional Administrator in charge of the Detroit and Cleveland

branch offices.

Canons of Ethics for Members of the Commission

The Commission for many years has had a Regulation regarding

conduct of Members and Employees and Former Members and Employees of the Commission, which was codified in substantially its

present form in 1953. This regulation prohibits any member or employee of the Commission from, among other things, acting in any

official matter with respect to which there exists a personal interest

incompatible with an unbiased exercise of official judgment; accepting, directly or indirectly, any valuable gift, favor, or service from

any person with whom he transacts official business; and becoming

unduly involved, through frequent or expensive social engagements

or otherwise, with any person outside the Government with whom

he transacts officialbusiness.

Supplementary to the overall Conduct Regulation, on July 22,

1958 the Commission adopted Canons of Ethics for Members of

the Commission. These canons, which are presented in appendix

table 30, set forth standards which the Commission has always believed are applicable to its executive, legislative and judicial responsibilities. They include statements of principle with respect to,

among other things, Commission members' personal conduct, maintenance of independence, relationships with persons subject to agency

regulation and avoidance of appearances of improper influence.

PART XII

APPENDIX

STATISTICAL TABLES

TWENTY-FOURTH ANNUAL REPORT 203

TABLE I.-A 24 year record of registrations fully effective under the Securities Act

of 1988

1935-1958

[Amounts in millions of dollars]

For cash sale for account of lssners

Flscal year ended June 30 Number of A.ll regisstatements tratlons Bonds, de- Preferred Common Total bentures stock stock and notes

19351 _________________________ 1936___________________________ 284 $913 $686 $490 $28 $168

1937___________________________ 689 4,835 3,936 3,153 252 531

1938___________________________ 840 4,851 3.635 2,426 406 S02 412 2,101 1,349 666 209 474 1939___________________________ 1940___________________________ 344 2,579 2,020 1,593 109 318 306 1,787 1,433 1,112 110 210 1941.

1942___________________________ 313 2,611 2,081 1,721 164 196 193 2,003 1,465 I, (141 162 263 1943 123 659 486 316 32 137 1944__________________________ 221 1,760 1,347 732 343 272 1945___________________________ 340 3,225 2,715 1,851 407 456 1946___________________________ 661 7,073 5,424 3,102 991 1,331 1947_________________________ 493 6, 732 4,874 2,937 787 1,150 1948_________________________ 435 6,405 5,032 2, 817 537 1,678 1949_________________________ 429 5,333 4,204 2, 795 326 1,083 1950___________________________ 487 5,307 4,381 2,127 468 1,786 1951___________________________ 487 6,459 5,169 2,838 427 1,904 1952___________________________ 635 9,500 7,529 3,346 851 3,332 1953___________________________ 593 7,507 6,326 3,093 424 2,808 1954___________________________ 631 9,174 7,381 4,240 531 2, 610 1955___________________________ 779 10,960 8,277 3,951 462 3,864 1956___________________________ 1957_____________________ 833 13,096 9,206 4,123 639 4, 544 8AO 14,624 12.019 5.689 472 5,858 1958___________________________ 'S09 16,490 13,281 6,857 427 I 5,998

1 For 10 months ended June 30, 1935 Statements registering American Depositary Receipts against outstanding foreign securities as provIded

by Form 8-12 are not Included,

_______________________• __

___~_______________________

•

•

• •
204 SECURITIES AND EXCHANGE COMMISSION

TABLE 2.-Registrations fuUll effective under the Securities Act of 1933

PART I.-DISTRIBUTION BY MONTHS, FISCAL YEAR ENDED JUNE 30,1958

(Amounts In thousands of dollars I]

All registrations Proposed for sale for account ofIssuers

Year and month

Numberofl Number of Amount Number of Number of Amount statements Issues statements Issues

1961 July __________________________ August. 62 78 $1,095,287 55 66 $991,735 ______________________ 65 97 1,321,511 56 77 990,778

~~~r~~:: ::::::::::: ::::::: 63 79 927,028 55 61 750,623

56 88 989,575 51 75 810,643 November

December 78 104 1,048,208 68 81 905,759 __________________ 42 76 465,365 35 59 353,786

1968 January ______________________ 60 75 3,087,442 56 65 1,830,169

r:t~r.:::::::::::::::::::::: 64 77 988,875 55 63 891,898

Aprll 63 86 1,088,745 58 71 873,260 _____________________ May 99 119 2,805,833 92 108 2,666,619 __________________________ 71 111 1,370,459 58 92 983,664 June __________________________ 86 104 1,401,407 79 89 1,231,885

Total, fiscal year 1958___ '809 1,094 16,489,736 718 907 13,260,840

PART2.-PURPOSE OF REGISTRATION AND TYPE OF SECURITY, FISOAL YEAR ENDED

JUNE 30, 1958

[Amounts In thousands of dollars 1]

Type of security

Purpose ofregistration Bonds, de- Preferred Common All types bentures, stock stock 4 and notes I

All registrations (estimated value) _____________________ $16,489,736 $6,914,479 $455,015 $9,120,241

For account of Issuers for cash sale________________ 13,280,840 6,856,553 426,635 5,997,651

Corporate ______________________________________ 12,868,369 6,444,083 426,635 5,997,651

Offered to:

~=;Ihl~S~.:;;~:::::::::::::::::::::::9,058,605 5,449,718 404,072 3,204,815

2, 213,984 991,154 21,719 1,201,111 Other Special groups ___________________1,595,781 3,211 844 1,591,725

Foreign governments ___________________________412,471 412,471 --~---------------------

For account of Issuers for other than cash sale______ 3,007,993 54,540 11,234 2,942,219

For account of others than Issuers__________________ 200,903 3,386 17,146 180,371

See footnotes at end of table.

____•_______________ •

•___

•
TWENTY-FOURTH ANNUAL REPORT 205

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210 SECURITIES AND EXCHANGE COMMISSION

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TWENTY-FOURTH ANNUAL REPORT 211

TABLE 4.-Prop08ed 1l8U of net proceeds from the sale of new corporate securities

offered [or cash in the United States

PAR'l'l.-ALL OORPORATE

[Amounts In thoU88Dds of dollan I)

Proceeds New money

oaiendar hear or Retire- Other mentor mont' Total gross Total net Total new Plant and WorkIng securities purposes

proceeds' proceeds' money equipment capital

1951- _____________________ 7,741,09V 7,606,5ID 6,531,403~ 5,110,105 1,421,298 486,U3 588,703 1952______________________ 1953 9,534,162 9,380,302 8, 179, M8 6,311,802 1,867,746 664,056 536,698

1954 8,897,996 8,754,721 7,959,966 5,646,840 2,313,126 260,023 534,733

1955______________________ 9,516,168 9,365,000 6, 780,196 5,110,389 1,669,806 1,875,398 709,496

1956 10,240,155 10,048,855 7,957,394 5,333.328 2, 624,066 1,227,494 863, 967 10,938.718 10,748,836 9,662,952 6,709,126 2,953.826 364,459 721,424 1957 12,883,533 12, 661,300 11,783,879 9,039,778 2, 744, 101 214, 294 663,127

1951 January 1,088,225 1,068,333 1,023,270 797,840 225,431 8,818 36, 245 February ________________ March ___________________ 1,108, 365 1,084,892 912,947 705,110 207,836 19,433 152,513

1,360,939 1,340,096 1,244,148 1,088,274 155,874 20,274 75,674

tfi;:~::::::::::::::::::: 966,462 946,815 871,321 663,192 208,129 16, 068 59,425

795,814 780,318 703,134 545,954 157,180 15, 235 61,949 J nne _____________________ July ______________________ 1,495,270 1,467,280 1,373,311 1,028,925 344, 386 14, 572 79,397

1,027,527 1,011,020 941,467 534,023 407,444 8,353 61,200 August ___________________ 946,556 932, 346 915,639 621,152 294, 487 8,514 8, 194 September

October 1,023,218 1,006,855 951,638 800,274 151,363 34.105 21,112 __________________

November 1,112, 656 1,098,504 1,060,000 882,391 177,609 8, 885 29,619 _______________ 844,303 828,051 763,915 559,074 204,841 39,229 24,007 December 1,114, 198 1,096,789 1,023,089 813,570 209,519 20,809 52,892

1958 January 815,745 804, 996 711,218 592,582 118, 636 82,414 11,364 February 874, 625 856,333 832,306 577,440 254, 867 5,229 18, 798 March ___________________ ApriL 1,623,330 1,607,646 1,525,228 1,300,176 135, 052 47,044 35,374 ____________________ May 1,231,956 1,213,303 1,037,122 885,181 151,940 71,939 104, 242

J unD 713, 757 698,830 532,089 438,649 93,440 99,081 67,661

962, 640 947,994 709,020 572, 156 136,864 67,166 171,808

PAR'l'2.-MANUFAOTURINO

195!- _____________________ 1952______________________ 3,121,853 3,066,352 2,617,233 1,832, 777 784,456 220,828 228,291

1953______________________ 4,038, 794 3,973,363 3,421,892 2,179,563 1,242,329 260,8liO 200,621

1954______________________ 2, 253, 531 2, 217, 721 1,914,863 1,324,675 500,178 00,115 212,753

1955 2, 268,040 2, 234, 016 1,838,007 1,009,495 829,413 189,537 205,671

1956______________________ 2, 993, 658 2, 929, 734 2, 020, 952 1,265, 272 765, 680 1532,571 376,210

3,647,243 3,578.502 2,944,378 1,928,034 1,016,344 242,684 391,440 1957 ow. _____ 4,233,708 4, 153,534 3,764,423 2,644,460 1,119,963 49,131 339,980

1961 January 300,413 383, 519 377,121 306,176 70,945 4,653 1,746 February 574,412 561,384 440,475 361,369 79,106 3,787 117,122 March ._ 368,228 361,794 329,299 264,446 64,853 1,014 31,480

tf:~__~:::::::::::::::: 337,779 330,915 278,554 173,848 104,706 8,522 43,840

139,758 136,215 101,484 32,916 68,568 6,269 28,463 June 640,516 627,974 573,145 398,949 174,196 4,768 50,061 July. 257,546 253,053 238, 389 129,052 109,336 5,382 9,283 August_. 246,928 243,122 240,636 180,880 59,756 354 2,132 September 328,383 323,812 316,706 212,303 104,403 3,782 3,325 October _. November 133, 414 130,795 121,619 58,847 52,772 2,174 7,002 _______________ December 224,111 220,296 206,988 119,849 87,138 253 13,056 ________________ 592,221 680,655 540,009 395,824 144,186 8,174 32,472

1958 January 155,342 153,586 139,550 120,171 19,379 6,753 7,283

r::~~::::::::::::::: 179,786 173,471 164,789 116, 395 48,394 2,803 5,879

240,490 236,844 192,807 121,829 70,978 41,186 2,861

tfa~:~:::::::::::::::::: 639,971 631,616 542, 448 434,843 107,605 11,577 77,591

June __._. ________________ 192.933 189,825 123,439 92,460 30,978 26,418 39,968

318,560 315,543 231,328 165,580 65,748 49,015 35,200

See footnotes at end of table.

_________________•____

____________• _________

_______________ •

_________• _______•____

_____________•____

______________•

__• _____________

____• _____________ ________• __• _____

________________• ____ ____________ • ________

_____________•• _______

_______• ______

__• ___•• __________

____• ___________

__________ •• _____

•• __•• ___• ___• ____• __ _ • ______• ___• _______

_____• ___________ ______________•

_________• ______

__• _______________
212 SECURITIES AND EXCHANGE COMMISSION

TABLE 4.-PropoBed uses of net proceedsfrom the sale of new corporate securitie8

offeredfor cash in the United States-Continued

PA.RT 3.-MINING

[Amounts In thousands of dollars I]

Proceeds New money

Calendar year or Retire- Other mentol month I Total gross Total net Total new Plant and Workln!! securities purposes

proceeds I proceeds I money equipment capital

~:k::::::::::::::::::::: } (.) (.) (.) (') (') (') (')

1953 235.368 222,051 199,151 113,104 86,048 1,912 20,988 1954. 538,591 513,596 334,704 215,758 118,946 45,624 133,268 1955

1956 415,289 390,758 325,490 197,394 128,006 3,921 61,347

455,523 435,691 304,909 211,029 93,880 37,849 92. 934 1957_______________. ___. __ 288,574 276,809 242,826 159,783 83,042 6,838 27,145

1951

January _._•.. ________. ___ 23,259 22,007 18,024 11,165 6,859 1,416 2,567 February .• ___. ______. ___ 47,426 45,300 42,751 28,771 13,973 0 2,639 March .. . . . 18,959 17,421 10,208 4,753 5,455 0 7,212 AprIL _______._. ___. ___. __ 10,32-3 10,145 9,944 9,343 602 0 201 May . .. 10,955 10,421 6.234 3,212 3,022 32 4,155 June __._._._._ .. _______._ 19,538 18,001 13,863 7,048 6,815 274 3,864 July ... . 42,781 41,742 40,443 25,122 15,321 0 1,299 August ____._._. ___. ___. __ 16,401 15,904 11,087 7,605 3,482 4,570 248 September ___. ___.. ______ 25,246 24,116 22,472 14,321 8,151 0 1,644 October __________________ 36,826 36,167 35,523 33,862 1,661 200 444 November. ___._ .. _______ 22,473 21,701 20,523 10,787 9,737 0 1,178 December _. ____. ____.• ___ 14,387 13,796 11,753 3,790 7,964 347 1,695

1958

January ___. __._. _________ 14,225 13,520 13,194 8,017 5,177 0 326 February ________.. ______ 18,Ob9 17,694 13,455 9,874 3,582 0 4,239 Marcb. ___._ .. ________. __ 22,406 22,094 21,603 20,464 1.139 67 424 Aprtl, .. 34,759 33,569 25,677 12,756 12,921 50 7,842 May _. ___. ______•.• __. __. 6,836 6,539 4,119 1,180 2,938 1,996 424 June. ___. _______________. 15,015 14,453 14,253 8,774 5,479 0 200

PA.RT 4.-ELECTRIC, GAS AND WATER

1951 2,454,853 2,411,714 2,186,248 2,158,823 27,425 85,439 140,027 1952 2,674,694 2,626,377 2,457,823 2,441,862 15,961 87,726 80,827 1953______________________ 3.029,122 2,971,911 2,755.852 2,737,082 18,770 67,034 149,025 1954 3,713,311 3,664,922 2,597,651 2, 582, 366 15,285 989,799 77,473 1955___________. __________ 2,463,729 2,428,158 2,218,094 2,205,655 12, 439 174,015 36,049 1056______________________ 2,529,175 2,487,493 2,409,885 2,394,928 14.957 13,794 63,814 1057 ._. 3,938,087 3,871,899 3,659,189 3,645,019 13,271 51,280 161,430

1951

January ___________. ______ 249,777 245,662 226,550 226,440 110 0 19,111 February. ____. _______._. 262,938 258,460 230,669 222,001 7,768 12,892 14,898 l'vfarch ____. _. _______._. __ 513,147 505,431 457,882 457,882 0 15,685 31,864 AprIL __________________. 366,719 359,553 349,724 349,158 566 5,595 4,234 May ____. ________________ 364,164 357,908 331,858 331,473 385 7,499 18,551 June . . 439,106 430,739 418,801 418,741 59 0 11,938 July _________. ____________ 247,675 244,014 210,231 210,099 132 365 33,418 August . 254,367 251,145 249,751 249,458 294 0 1,394 Septem ber, ______________ 424,314 416,875 414,243 413,763 481 2 2,629 October ._ . 338,729 333,353 312,848 311,971 877 330 20,175 November __._. ______. ___ 302,353 295,692 284,598 282,038 2,560 8,750 2,344 Deeember., _____. ___. ____ 174,799 173,067 172,033 171,995 38 161 873

1958

~~~!rY-.-.-~~::::-::~:::: 326,299 322,039 320,340 320,269 71 649 1,049

373,064 365,528 365,528 357,981 7,547 0 0 March .. ____. ___. ____.. __ 415,220 409,343 386,124 386,124 0 0 23,219 AprIL. ______. ___. _____. __ 319,700 315,489 293,108 286,111 6,997 22,264 117 May _________________ . __ 345,306 339,781 303,037 299,529 3,508 36,649 95 June. ._. ... . 411,832 405,748 325,467 325,467 0 16,219 64,062

See footnotes at end of table.

________•_____________ ________• ____________

_____________• ________ ____________• _________

__• ____ ____ ___

__ ___• ___ _________

____• __ ___________

____ _____•________

__• __________• ________ _____________• ________

_________•___• ________

_______ __••• _______

____ _____ _______• __

__•______ _________

___ ____• _______

__' __ ______ __
TWENTY-FOURTH ANNUAL REPORT 213

TABLE 4.-Proposed USe8 of net proceeds from the sale of new corporate securities

offered for cash in the United States-Continued

PART 5.-RAILROAD

[Amounts In thousands of dollars I]

Proceeds New money

Calendar year or Retire- Other month. mentof purposes Total gross Total net Total new Plant and Working securities

proceeds' proceeds money equipment capital

195L _. 335,087 331,864 296,917 291,886 5,030 34,214 733 1952 ._ 525,205 520,817 286,526 286,476 50 223,532 10,758 1953 302.397 298,904 267,024 244,254 22,770 31,879 0 1954 479,322 474,180 209,585 202,441 7,144 261,345 3,250 1955______________________ 547,777 540,345 215,702 214,411 1.291 318,965 5,679 1956 382,012 378,159 365,447 365,447 0 12, 713 0 1957 343,647 340,244 326,409 326,409 0 13,835 0

1957 1anuary _._ 51,298 50,731 50,731 50,731 0 0 0 Fehruary 22, 112 21,902 21,902 21,902 0 0 0 March. _. 39,433 39,115 39,115 39,115 0 0 0 ApriL 28,415 28,129 28,129 28,129 0 0 0 May ._. 54.284 53,774 53,774 53,774 0 0 0 rune ._. . 24.598 24,291 16,361 16,361 0 7.930 0 July . 23,269 23,029 23,029 23,029 0 0 0 August. . 15,465 15,337 15,337 15,337 0 0 0 September 23,949 2J,741 23,741 23,741 0 0 0 October . 17,688 17,491 11,586 11,586 0 5,905 0 November ._. ._. 16,347 16.196 16,196 16,196 0 0 0 December 26,789 26,508 26,508 26,508 0 0 0

1958 January ________•_____•__ 68,562 67,810 43,559 43,559 0 24,251 0 February _________ . ______ 17,252 17,074 17,074 17,074 0 0 0 March . 40,036 39,410 34,500 18,858 15.641 4,910 0 April ___________. _________ 19,549 19,393 19,393 19,393 0 0 0 May ________________. ____ 12,000 11,845 11,845 9,889 1,956 0 0 June 500 487 487 487 0 0 0

PART 6.-0THER TRANSPORTATION

195L ._. . 159,227 158,240 131,009 123,217 7,792 18,478 8,753 1952 467,094 462,006 410,778 377,064 33,713 1,119 50,109 1953 293,036 289,859 264,880 260,568 4,312 3,949 21,031 1954 299,432 296,907 270,342 267,042 3,300 9,073 17.493 19511. 345,280 341,717 237,366 220,971 16,395 18.769 85.582 1956 ._. _. 342,000 335,772 322,855 298,537 24.318 7.147 5,770 1957 . 479,921 475,421 465,095 456,665 8,430 204 10,122

1957 January, _. 51,192 50,568 50,044 49,781 262 0 525 February 8,3R9 8,346 8,157 8,062 95 0 189 March _____________.• ____ 30,892 30,778 30,679 30,585 94 0 99 April 45,501 45,246 44, 597 43,430 1,167 0 649 May ______. ______________ 27,456 26,213 26,138 21,399 4,739 0 75 June _____. _______. _______ 33,624 33,481 32,559 32,185 374 0 921 lulY ____ •. ______. ________ 22,687 22,353 22,185 21,604 580 0 168 August. _________________ 15,717 15,597 15,366 15,307 59 204 28 September __. ___.. _______ 56,649 56,414 66,080 55,746 334 0 3M October . 37,429 37,262 37,175 37,043 132 0 87 November _____________._ 38,916 38,035 34,068 33,476 592 0 3,967 December ________________ 111,469 111,127 108,047 108,047 0 0 3,080

1958 January, _________________38,816 38,705 38,591 38,478 114 0 114 February 31,167 31,092 29,962 28,786 1,171; 0 1,130 March . 29,081 28,960 27,922 27,384 538 0 1,038 ApriL . _. 67,549 66,569 66,525 66,132 393 0 44 May ._. 11,896 11,591 11,591 7,549 4,043 0 0 lune ._. 106,572 105,534 42, 864 36.674 6,190 0 62,670

See footnotes at end of table.

•

__________• ___• ____

________• ______•• ___ _________________• ____

_________• __• ____•____

_________• ____________

________• _____________

____________••• _____• ___________

___• _____• __• __• •• _____• _____• _____•

__• _____• _____ ____

__•_____•_____ ___ ___•_____•_____•_____

_____• _____• _____

__• _____• _____• _____•__________• __ ___ ___• ___• _____• _____•

__• _______ ________

________•____________

___•• ____ _____•__ _________• ____________

____•• ____• ____•• _____

____• _____• __• __• __• __

__•• ____••• ____• ____•

__ ____•• ___• _____ ____• _____• _____• ____

_____•• __•_____ __________ • _____

_____ • ______________

_____• ___________

_______________ • __• __• ___ _________

___• _____ ________ ____ ___• _____• ____

____• ___ _____• ____
214 SECURITIES AND EXCHANGE COMMISSION

TABLB 4.-PropoBed me, of net proceed' from the sale of new corporate s«Urities

offeredfor cash in the United States-Continued

PART 7.-COMMUNIOATION

(Amounts In thousands of dollars I]

Proceeds New money

Oalendar year or Retire- Other mentof month I Total gross Total net Total new Plant and Working securities purposes

proceeds' proceeds' money equipment capital

195L _____________________

1952______________________ 612,080 605,095 594,324 574,417 19,907 6,231 6,li4O

760,239 763,169 738,924 736,996 1,928 6,095 8, 151 1963______________________ 881,853 873,726 860,967 841,600 19,367 3,164 9,696 1954 720,102 710,819 641,487 639,376 2,m 60,089 9,243 1965______________________ 1,132,271 1,121,408 1,039.611 1,038,092 1,620 76,667 6,230 1956_____________________. 1.419,457 1,405.006 1,371.471 I, 36lI, 832 1.639 20.674 12,861 1957______________________ 1,461,748 1,444, 446 1,427, 'i1I7 1,425,696 2, 281 3,904 12, 566

1957 January __________________ 106, 991 105, 420 103.822 103,822 0 917 680 February ________________

March 47,012 46,261 46,261 46, 177 84 0 0 ___________________ 279,477 276,823 274,719 272,950 1,769 0 2,104

tfa~:=======:=== :======

50,873 50,225 47,195 47,142 52 0 3,030

83,126 81,705 78, 925 78,890 35 0 2, 781 June _____________________

July ______________________ 138, 064 136, 161 136, 161 136, 128 33 0 0

August 64,385 63,866 53,270 63,225 45 0 697 ___________________ 128, 795 126,975 123,364 123,248 106 2,612 1,009 September _______________ October 66,296 65.241 64,088 64,061 27 198 966 __________________ 372,271 369,238 368,146 368,081 65 176 915 November _______________ 93,006 91,707 91,491 91.446 45 0 216 December ________________ 41,453 40,825 40,646 40,527 20 0 278

1958 January __________________ 85,564 84,469 34,469 34,384 85 60,000 0

ri~~a.::..~ :=====:=

35, 834 35.481 35, 481 35,436 46 0 0

AprIL 800,418 796,773 796,773 796,773 0 0 0 ____________________ May _____________________ 7B, 807 77,207 39,'i1Il 39,IlOll 62 37,236 0

41,417 40,966 10,989 10,989 0 29,966 0 June _____________________ 12,490 12,333 12,333 12,257 76 0 0

PART B.-FINANOIAL AND REAL ESTATE

195L _____________________ 624, 616 615,267 368, 485 15, 686 352, 800 66,030 80, 751 1952______________________ 616,178 508,184 409,630 14, 248 395,387 60,498 38, 0li6 1963 1,676,048 1,660,672 1, 462, 279 32, 116 1,420,162 24,225 84, 168 1964 _. 1,075,818 1,061,015 619,165 29,647 689,608 273,043 168,817 1955 1,898.677 1,867,887 1,606,145 33,472 1,572,672 66,010 205,731 1956 ._ 1,856,953 1,831,650 1,703,487 39,038 1,684,449 16, 947 111,116 1957. .. 1,795, 413 1,768,853 1,635,740 241,464 1,394, 276 67,314 65,298

1957 January __________________ 192, 677 188.930 178, 311 39,775 138, 535 348 10,272 February ________________ 114. 624 112,440 99,485 10,566 88,919 2,400 10,655 March .. 93,720 92, 359 87,425 9,298 78, 127 3,575 1,359 April, 93,628 91,438 89,562 7,032 82, 530 23 1,853 May 76,278 75.380 71,162 2, 628 68,534 0 4,218 J une . 180,574 177,933 170,673 13,192 157,481 0 7,260 July ._ _. 347,565 342,818 334,481 64,236 270,245 0 8,337 August. . 227,809 225,017 222,926 1,984 220,942 775 1,315 September _______________ 84,220 83,125 43,960 10,464 33,506 30,033 9,131 October 161,217 159,361 158,861 43,815 115,046 0 500 November _______________ 129,932 127,793 95,916 686 95,330 30,161 1,715 December ._. _____________ 93, 168 91,760 82,978 37,897 45,080 0 8,782

1958 January __________________ 111,324 109,'i1I9 107,068 16,506 90,562 723 2, 188 February ________________ March 210,790 207.678 197,948 5, 777 192, 172 2,389 7,340 ___________________ 60,032 49,287 42,864 6,846 36.019 478 5,944

tfart_=====:===::========

42, 189 40,374 24,266 6,002 18,264 160 15,949

79,388 74,992 51,469 7,360 44,108 615 22,908 JUDC_. 82,903 79,426 68,486 14,322 54, 144 1,752 9,208

See footnotes at end of table.

_______• ______________

=

~======

_______________• ______

_____•• ______• ______ _______________• ______

_________ • ____

____ ______________•

___• _____________ ____•_______________

_____• ________• ______ __ __• ________• ______

__ •• ______• _____• __• _____ _________

__• ________• ______

___ • _______________
TWENTY-FOURTH ANNUAL REPORT 215

TABLE 4.-Proposed uses of net proceedsfrom the sale oj new corporate securities

offeredfor cash ,n the United States-Continued

PAR! 9.-COMMERCIAL AND OTHER

(Amounts In thousands of doJJara I)

Proceeds Newmonel

Oalendar year or Retire- Other mentof month I Total grOSS Total net Total new Plant and Working secur1U8s purposes

proceeds I proceeds I money equipment capital

1951- _____________________ 533,383 511,988 331,181 113,299 223,888 56, 194 124,601 1952______________________ 1953 552, 958 536,386 453,975 275,698 118, 371 24, 235 58, 116

326, 640 319,871 244, 960 93,441 151,619 37,745 37,112 1954______________________ 421, 541 409,635 268,354 164, 365 104, 000 46,889 94,382 1955 443.473 428.848 294, 03li 158.061 135,974 46.676 88,138 1956______________________ 307,355 296,663 240,521 102.281 138.239 12, 652 43,491 1957______________________ 342,435 330,693 262,220 139,382 122,838 21,188 46,585

1961 January __________________ 22,617 21,497 18,667 9,949 8,719 1,484 1,345 February

March 31,453 30,710 23,246 5,356 17,891 353 1,110 ___________________ 11,084 16,376 14,820 9,245 5,575 0 1,555

~!=-::==================

33,223 31,165 23,611 5,111 18,501 1,929 6,619

39,193 38, 701 33,560 21,663 11,898 1,435 3,107

19,251 18, 702 11,149 6, 321 6,428 1,600 5,353 July ______________________ August 31,620 30,145 19,440 1,656 11,184 2,606 8,099 ___________._. _____ 41,014 39,250 37,182 21,334 9,848 0 2,068 September

October 14, 162 13,530 10,341 5,886 4, 461 00 3,093 __________________ 15,081 14, 837 14,243 7,187 7,056 100 495 November _______________ December 11,165 16,630 14, 134 4, 695 9,439 65 2, 431 ________________ 59,912 59,051 41,215 28, 982 12,233 12,126 6,111

1968 January 16,614 14,889 14, 447 11,200 3,247 37 406 February ________________ March 8,672 8,316 8,069 6,111 1,952 37 210 ___________________ 25, 647 24,934 22,635 11,897 10,738 402 1,897

tf:::====================

29,431 29, oss 25,133 20,035 5,698 652 2,699

23,982 23,302 15,600 I 9,692 5,009 3,436 4, 266 J une _____________________ 14, 168 14, 469 13,822 8,596 5,226 180 468

I Slight discrepancies between the sum of figures In the tables and the totals shown are due to rounding.

J For earlier data 88e 18th Aunual Report.

I Total estimated gross proceeds represent the amount paid for the secur1ties by Investors, while total

estimated net proceeds represent the amount received by the issuer after payment of compensation to

distributors and other costs of flotation.

'Included with "Commercial and other."

______________•• _____•

_________________• ___•

_____________ • __

__________• ____

_____________• ____
216 SECURITIES AND EXCHANGE COMMISSION

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TWENTY-FOURTH ANNUAL REPORT 217

TABLE 6.-Suspension orders issued pursuant to regulation A under the

Securities Act of 1988 during the fiscal year 1958

Temporary Suspension OrdersRegulation A :

Albuquerque Exploration, Ine., Albuquerque, N. l\Iex.; Securities Act

Release No. 3880 (December 20, 1957).

AI-Kern Mines, Inc., Austin, Nev.; Securities Act Release No. 3811 (July

15,1957).

Alunite Corp. of Utah, Salt Lake City, Utah; Securities Act Release

No. 3921 (April 22, 1958).

American Development Corp., Dover, Del.; Securities Act Release No.

3876 (December 13, 19;)7).

American Reserve Oil & Mining Oorp., Reno, Nev.; Securities Act Release

No. 3881 (December 23,1957).

Michael Laurence and Stephen Richards as the "Amish Company", New

York, N. Y.; Securities Act Release No. 3936 (June 10, 1958). Order

vacated, Securities Act Release No. 3944 (July 8,1958).

Appell Oil & Gas Corp., Alice, Tex.; Securities Act Release No. 3820

(August 1, 1957). Order vacated, Securities Act Release No. 3920

(April 16, 1958).

Australus Corp. of America, Jersey City, N. J.; Securities Act Release

No. 3874 (December 11,1957).

Beckjord Manufacturing Corp., Toms River, N. J.; Securities Act Release

No. 3936 (June 10,1958).

Ben Franklin Oil & Gas Oorp., Franklin, N. J.; Securities Act Release

No. 3823 (August 6,1957).

Big Ute Uranium Oorp., Reno, Nev.; Securities Act Release No. 3862

(November 15,1957).

Blue Bird Mines, Inc., Pinal County, Ariz.; Securities Act Release No.

3933 (June 4,1958).

Brevilana, Inc., Hollywood, Calif.; Securities Act Release No. 3933 (June

4, 1958).

James Preston and Charles Olsen as the "Career Co.", New York, N. Y.;

Securities Act Release No. 3940 (June 20, 1958).

Carver House, Inc., Las Vegas, Nev.; Securities Act Release No. 3899

(February 19, 1958).

Central Oils, Inc., Seattle, Wash.; Securities Act Release No. 3902

(March 3, 1958).

Col-Ny Uranium, Inc., Cortez, Colo.; Securities Act Release No. 3878

(December 18,1957).

Confidential Finance Oorp., Omaha, Nebr.; Securities Act Release No.

3878 (December 18,1957).

Cottonwood Uranium Oorp., Reno, Nev.; Securities Act Release No. 3911

(March 20, 1958).

Dlgit-Ometer Co., Denver, Oolo.; Securities Act Release No. 3913 (March

27, 1958). Order vacated, Securities Act Release No. 3930 (May 22,

1958).

Douglass Mnfiler Manufacturing Corp., Alhambra, Calif.; Securities Act

Release No. 3865 (November 26, 1957).

Eagle Oil & Supply Oo., Inc., Brockton, Mass.; Securities Act Release

No. 3878 (December 18, 1957).
218 SECURITIES AND EXCHANGE COMMISSION

TABLE 6.-Suspension orders issued pursuant to regulation A under the

Securities Act of 1933 during the fiscal year 1958-Continued

Temporary Suspension Orders--Continued

Regulation A-Continued

Escalante Garlic Corp., Caliente, Nev.; Securities Act Release No. 3847

(October 10,1957).

Fidelity Trust of America, Dallas, Tex.; Securities Act Release No. 3812

(July 17, 1957).

Fireball Uranium Mines, Inc., Moab, Utah; Securities Act Release No. 3895

(January 31, 1958).

Florida Real Estate Investors Syndicate, Dania, Fla.; Securities Act Release No. 3905 (March 6,1958).

Franklin Atlas Oorp., New York, N. Y.; Securities Act Release No. 3857

(October 30, 1957). Proceedings pending at end of fiscal year.

Russell Janney as "Frontier Co.", New York, N. Y.; Securities Act Release No. 3874 (December 11, 1957).

Garner Aluminum Corp., Washington, D. C.; Securities Act Release No.

3913 (March 27, 1958).

Gem States Securities Corp., Boise, Idaho; Securities Act Release No. 3923

(May 5,1958).

George L. Headley Associates, Inc., New York, N. Y.; Securities Act

Release No. 3874 (December 11,1957).

Giant Petroleum Corp., New York, N. Y.; Securities Act Release No. 3850

(October 22, 1957). Proceedings pending at end of fiscal year.

Gob Shops of America, Inc., Providence, R. 1.; Securities Act Release No.

3818 (July 31, 1957). Proceedings pending at end of fiscal year.

Gold Crown Mining Corp., Allegheny, Calif.; Securities Act Release No.

3940 (June 20, 1958). Proceedings pending at end of fiscal year.

Great Bear Lake Uranium Mines, Ltd., Regina, Saskatchewan, Canada;

Securities Act Release No. 3940 (June 20,1958).

Gunn and McCrary, Jne., Shreveport, La.; Securities Act Release No. 3819

(August 1,1957).

Half Moon Uranium Corp., Ogden, Utah; Securities Act Release No. 3899

(February 19,1958).

Hardrock Mining Syndicate, Las Vegas, Nev.; Securities Act Release No.

3895 (January 31, 1958).

Hart Oil Corp., Seattle, Wash.; Securities Act Release No. 3926 (May 15,

1958). Proceedings pending at end of fiscal year.

H. F. Rieser's Sons, Inc., West Leesport, Pa.; Securities Act Release No.

3874 (December 11, 1957).

Holiday Lake, Inc., Camden, N. J.; Securities Act Release No. 3936 (June

10,1958).

ffiowata on Oorp., Denver, Colo.; Securities Act Release No. 3866

(November 26, 1957). Proceedings pending at end of fiscal year.

Index Corp., Glenns Ferry, Idaho; Securities Act Release No. 3848 (October n, 1957).

InspIration Lead Oo., Inc., Spokane, Wash.; Securities Act Release No.

3929 (May 26, 1958). Proceedings pending at end of fiscal year.

International Telo-Servlce Corp., New York, N. Y.; Securities Act Release

No. 3874 (December 11, 1957).

Interstate Holding Corp., Memphis, Tenn.; Securities Act Release No.

3809 (July 9, 1957).
TWENTY-FOURTH ANNUAL REPORT 219

TABLE 6.-Suspension orders issued pursuant to regulation .A. under the

Securities Aot ot 1933 during the fisoal year 1958-Continued

Temporary Suspension Orders-Continued

Regulation A-Continued

John Paul Enterprises, Ine., New York, N. Y.; Securities Act Release No.

3874 (December 11, 1957).

Jontex, Ine., Reno, Nev.; Securities Act Release No. 3860 (November 13,

1957).

Jurassic Minerals, Inc., Cortez, Colo.; Securities Act Release No. 3891

(January 23, 1958).

Lake Champlain Associates, Inc., Wellsboro, N. Y.; Securities Act Release

No. 3874 (December 11,1957).

McCullough Motors Oorp., Philadelphia, Pa.; Securities Act Release No.

3835 (September 3, 1957).

Mia Nina Mining Corp., Salt Lake City, Utah j Securities Act Release No.

3847 (October 10,1957).

Microveer, Ine., Santurce, Puerto Rico; Securities Act Release No. 3928

(May 19, 1958).

Monarch Laundry Machine Corp., Fort Lauderdale, Fla.; Securities Act

Release No. 3869 (December 2,1957).

Mutual Investors Corp. of New York, New York, N. Y.; Securities Act

Release No. 3936 (June 10, 1958).

Oliver Products, Inc., New York, N. Y.; Securities Act Release No. 3936

(June 10, 1958).

Pawnee Oil Oo., Los Angeles, Calif.; Securities Act Release No. 3891

(January 23, 1958).

Pixie Beverage Oorp., Reno, Nev.; Securities Act Release No. 3871 (December 5, 1957).

James Spicer as "Porcelain Clay 00.", New York, N. Y.; Securities Act

Release No. 3936 (June 10,1958).

Profile Mines, Inc., Boise, Idaho; Securities Act Release No. 3814 (July

22,1957).

Pyramid Mining and Metal Oorp., Lubbock, TeL; Securities Act Release

No. 3870 (December 5, 1957).

Rainbow Uranium Corp., Tonopah, Nev. j Securities Act Release No. 3848

(October 11, 1957).

Rancho Club Cabazon Corp., Las Vegas, Nev.; Securities Act Release No.

3858 (November 4, 1957).

Real Estate Clearing House, Inc., New York, N. Y.; Securities Act Release

No. 3874 (December 11, 1957).

Red Rock Oil & Gas 00., Las Vegas, Nev.; Securities Act Release No. 3883

(December 30,1957).

Reliance Uranium Oorp., Reno, Nev.; Securities Act Release No. 3910

(March 18, 1958).

8alesology, Inc., Phoenix, Ariz.; Securities Act Release No. 3889 (January

20,1958). Proceedings pending at end of fiscal year.

Seaboard Drug Oo., Inc., New York, N. Y.; Securities Act Release No. 3931

(May 28, 1958).

Peter Lawrence as "Shinbone Alley 00.", New York, N. Y.; Securities Act

Release No. 3940 (June 20,1958).

Simplex Precast Industries, Inc., Norristown, Pa.; Securities Act Release

No. 3824 (August 7, 1957).

_
220 SECURITIES AND EXCHANGE COMMISSION

TABLE 6.-Suspension orders issued pursuant to regulation A under the

Securities Act of 1983 during the fiscal year 1958-Continued

Temporary Suspension Orders-Continued

Regulation A-Continued

S & M Mining & Exploration, Worland, Wyo.; Securities Act Release No.

3915 (April 7, 1958).

Southwestern Chemical & Mineral Corp., New York, N. Y.; Securities Act

Release No. 3849 (October 21, 1957).

Howard Hoyt as "Strip for Action Co.", New Y'ork, N. Y.; Securities Act

Release No. 3877 (December 13, 1957).

Tejanos Mining Corp., EI Reno, Okla.; Securities Act Release No. 3930

(May 27,1958).

Texas-Augello Petroleum Exploration Co., Anchorage, Alaska; Securities

Act Release No. 3904 (March 5, 1958). Proceedings pending at end

of fiscal year.

Truly Nolen Products, Inc., J\1iami, Fla.; Securities Act Release No. 3841

(September 24, 1957). Proceedings pending at end of fiscal year.

Turbo Corp. of America, Philadelphia, Pa.; Securities Act Release No.

3874 (December 11,1957).

United Production Co., Jnc., New York, N. Y.; Securities Act Release No.

3921 (ApliI22, 1958).

Universal Life and Accident Insurance Oo., Duncan, Okla.; Securities

Act Release No. 3921 (April 22, 1958).

Universal Metals Corp. of Nevada, Reno, Nev.; Securities Act Release

No. 3880 (December 20, 1957).

Universal Mining and Milling Oo., Albuquerque, N. Mex.; Securities Act

Release No. 3915 (April 7, 1958).

Universal Oil Recovery Corp., Chicago, Ill.; Securities Act Release No.

3862 (November 15, 1957). Proceedings pending at end of fiscal year.

Urania, Ine., Las Vegas, Nev.; Securities Act Release No. 3895 (January 31, 1958).

Uranium Exploration and Copper Co. of Nevada, Las Vegas, Nev.; Securities Act Release No. 3887 (January 13, 1958).

Uranium Queen Exploration Co., Greeley, Colo.; Securities Act Release

No. 3913 (March 27,1958).

Voltar Electronics, Ine., Brooklyn, N. Y.; Securities Act Release No. 3936

(June 10, 1958).

Washington Planning Corp. of Maryland, Washington, D. C.; Securities

Act Release No. 3925 (May 8, 1958).

Findings, opinions and orders permanently suspending the exemption after hearing were issued in the :following three cases under

Regulation A:

Apache Uranium Company; Securities Act Release No. 3830 (August 15,

1957).

Interstate Holding Corporation; Securities Act Release No. 3831 (August

19, 1957).

Idea, Ine. ; Securities Act Release No. 3837 (September 5, 1957).
TWENTY-FOURTH ANNUAL REPORT 221

TABLE 7.-Brokers and dealers registered under the Securities Exchange Act oj 193,p-effectille registrattons as oj June SO, 1958, classified by type oj organization

and by location oj principal office

Number of registrants Number of proprietors, partners,

officers, etc •• 3

Location of principal office Sole Sole

proprl- Part. Corpo- proprl- Part. Oorpo- Total nero Total nero etor- shlps rations etor- ships rations' sbJps ships

------ --- --- --- --- --- Alabama ._. Arizona 36 13 7 16 107 13 22 72

Arkansas 30 5 9 16 129 5 21 103

22 9 3 10 52 9 6 37 Callfornla_. ._ 332 133 85 ]]4 1,161 133 445 583 Colorado 99 36 5 58 346 36 30 280 Connecticut _________________________ Delaware 42 18 ]] 13 175 18 59 98

9 I 2 6 51 I 15 35 District of Columbla ________________ 92 32 22 38 356 32 94 230 Florida 89 37 14 38 246 37 34 175

~~rg:a::::::::::: ::::::::::::::::::: 43 12 6 25 184 12 24 148

16 9 2 5 33 9 5 19 Illinols, _____________________ 182 41 62 79 879 41 296 542 Indtana, 54 23 6 25 162 23 ]] 128 Iowa 34 14 4 16 97 14 8 75 Kansas 31 10 6 15 126 10 18 98 Keutucky. _. 18 7 5 6 64 7 19 38 Louislana

Malne 53 32 13 8 100 32 40 28

31 ]] 2 18 88 ]] 8 69 Maryland _' 45 21 14 10 145 21 85 39 Massachusetts_ 196 83 31 82 882 83 217 582 MicbJgan_. ss 13 19 26 262 13 95 154 Mluuesota ._ ._ iii 7 9 35 254 7 32 215

~l:::r~i: .: ::::::: ::::::: ::::::::

24 ]] 7 6 50 ]] 17 22

Il3 25 20 48 473 25 134 314 Montana. 10 7 1 2 16 7 2 7 N ebraska , 28 10 2 16 ]]9 10 5 104 Nevada; , ._. 7 5 0 2 9 5 0 4 New Hampshfra., _________•••__••___ 11 9 0 2 18 9 0 9 New Jersey ._. 207 ]]9 34 54 444 119 92 233 New Mexico 13 7 3 3 29 7 8 14

New York State (excluding New York City) 344 231 37 76 652 231 ]]8 303 North Carollna 36 14 5 17 147 14 13 120 North Dakota 4 3 0 1 8 3 0 5 Obio ._. 13! 26 41 64 550 26 188 336 OkIaboma "_' 45 29 6 10 79 29 12 38 Oregon ._ 26 6 7 13 82 6 18 58

~=};::t::::::::::::::::::::::: 199 55 81 63 845 55 392 398

18 4 10 4 43 4 29 10 Soutb Oerollna, _. _._. 28 12 4 12 84 12 9 63 South Dakota ._ 11 7 0 4 21 7 0 14 Tennessee_. 38 10 10 18 149 10 27 112 Texas ._ , , ._ 257 126 30 101 696 126 85 485 Utab 45 ]] 6 28 146 ]] 25 110 Vermont. ._. 3 2 0 1 11 2 0 9 Virginla 46 19 14 13 150 19 60 71 Wasblngton _, , 89 48 7 34 248 48 16 184 West Vlrglnla_. 12 7 3 2 26 7 9 10 Wlsconsln _. ._ 45 10 5 30 204 10 26 168 Wyoming _. _'_'_' ._ 6 5 0 1 12 5 0 7

------------------ ------ Total (excluding New York

I, 284/11' 210 /1, 385 2,869 6,956 City) ._ 3,339 1,385 670 New York City ._. ._ 1,325 364 596 365 5, 945 364 3,680 1,001

--- --------------- --- 4,664 1,749 1,266 1,649 I 17,155 I 1,7491 6,549/ 8,857

I Domestic registrants only, excludes 88 outside continental limits of tbe United States.

t Includes directors, officers, trustees, and all otber persons occupying similar status or performing slmllar

functions. t Allocations made among States on the basis of location of principal offices of registrants, not aetual loeatlon of persons. Information taken from latest reports filed prior to June 30, 1958. Includes all forms of organizations otber than sole propnetorshrps aud partnerships.

•

___•• __ __________________ _____________•_______________

___• __• _____________________

___ • ___________________

_____• _______• ______________

______• _____________________

________• ______• _____• _______'

•_______ • ____•• __•___•___•_____•____ __• ___________•__• ______• _______ ________• ______• ______' ___' ___

__••• ___________________ _______ ' ___' _______________ _________• _____•• _________• ___•

____•• _____•• __• ___• ____•

••• ___• ____• _______•• _ ___•• __•• _______' _________ ___• ________ •• _____• ___

___••• __•• _• ____•• _________ ____•• ____' ___ _____• ____•• _

_____________ • _____•••

___•• __• __ ___• __• ______ ___•___• _____•• __• _______

_______•• ___• _____•• ____

___• __•• ____•• ___••• __ _____••• ___• ___________ __ • ____• ______•• ___• _________

_______• _________ __•• __

__•• ___• ___________•• ____• __

•• __••••• ______ _________• _____•• ____ __________________• _•••• _

__ • _____• ____ ••• ___ __ ____ __• _____• ________•• __• ___• ______

______ ____•_______" ____ ________••• _________• ________

___• _____• ___• __ ______

___•• __••• ____•• __•• _ __••• ___• _______• ______

_•• ______'" _____

__• ____•••• _____• _____

____ _________• __

•
222 SECURITIES AND EXCHANGE COMMISSION

TABLE S.-Number of issuers and security issues on exchanges

PART 1.-UNDUPLICATED NUMBER OF STOCK AND BOND ISSUES ADMITTED TO

TRADING ON ALL EXCHANGES AND NUMBER OF ISSUERS INVOLVED, AS OF JUNE

30, 1958.

Total Issuers

Status under the Securities Exchange Act of 1934 Stocks Bonds stocks and Involved bonds

Registered pursuant to Sections 12 (b), (c) and (d) _____ 2,663 1,132 3,795 2,236

Temporarily exempted from registration by Commis- sion Rule ____________________________________________ 7 2 9 7 Admitted to unlisted trsdlng privileges on registered

exchanges pursuant to Section 12 (0------------------ 240 32 272 218

Listed on exempted exchanges under exemption orders of the Oommtssion ___________________________________ 72 8 80 59

Admitted to unlisted trading privileges on exempted

exchanges under exemption orders of the Oommlsslon, 15 0 15 15

TotaL ___________________________________________ 2,997 1,174 4,171 2, 535

PART 2.-NUMBER OF STOCK AND BOND ISSUES ON EACH EXCHANGE AND NUMBER

OF ISSUERS INVOLVED AS OF JUNE 30, 1958.

Stocks Bonds Exchanges Issuers

R X U XL XU Total R X U XL Total

------ ------ ------ ---- Amerlcan ______________ 802 615 1 243 859 23 34 57 Boston 423 74 -----. 363 ------ ------ 437 16 ---_.- ------ -----. 16 Chicago Boardot'I'rada, 12 7 5 12 -.---- CmclnnatL 133 47 ------ 95 ------ 142 7 1 ------ ------ 8 Colorado Sprlngs _______ 12 ._---- --.--- 13 13 Detroit

Honolulu 217 107 1 117 225 ---.-- ------ ------ ------ ------ ______________ Mldwest 59 -._--- 53 16 69 .----- 8 8 455 398 3 114 ------ ------ 515 14 ------ ------ ------ 14 New Orleans 14 4 14 18 1 1 2 New York Stock 1,282 1,526 -----. 1,526 1,087 2 1,089 Pacific Coast 479 300 1 249 550 20 20 Phflsdelphia- Baltimore ____________ 519 161 7 427 595 52 52 Plttsburgh 115 48 ------ 74 ------ 122 1 ------ ------ ------ 1 Richmond 18 27 27 Salt Lake 93 92 ------ 4 ------ ------ 96 ------ ------ ------ ------ ------ San Francisco Mlnlng __ 48 49 ------ ---'6' ------ ------ 49 ------ ------ ------ ------ ------ ~kane--.------------ 28 25 ------ 31 heeling ------ ------ ------ ------ ------ 13 ------ 12 3 15 ------ ------ ------

Symbols: R-reglstered; X-temporarIly exempted; U-sdmltted to unlisted trading privileges; XLlisted on an exempted exchange; XU-sdmItted to unlisted trading prlvileges on an exempted exchange

NOTE.-Issues exempted under Section 3 (a) (12) of the Act, such as oblIgations of the United States Government, the States and cities, are not Included In this table.

_________________ ------ ------ ------ ------

___________ ------ ------ ------ ------ ------ ------ ------

________________ ------ ------ ------ ------ ------ ------ ------

_______________ ------ ------ ------ ------ ___________ ------ ------ ------ ------ ------ _______ ------ ------ ------ ------ ------ ___________ ------ ------ ------ ------ ------

_____________ ------ ------ ------ ------ ------ __• _______•• _ ______________ ------ ------ ------ ------ ------ ------ ------ ------ ------

______________ ------ ------ ------ ------
TWENTY-FOURTH ANNUAL REPORT 223

TABLE 9.-Unlisted stocks on Ifecuritiu ezhangfJlf1

PART I.-NUMBER OF STOCKS ON THE EXCHANGES IN THE VARIOUS UNLISTED

CATEGORIES I AS OF JUNE 30, 1958

Unlisted only' Listed and registered on another

Exchanges

exchange

Clause 1 Clause 3 Clause 1 Clause 2 Clause 3.

Amerlcan ._ _._. 2 38 2 1 Boston _. 1 0 154 208 0 Chicago Board of Trade ••• _._ •••••• _._ •• _. 3 0 2 0 0 ClnclnnatL ._ 0 0 0 95 0 Detrolt _. _. ._ 0 0 14 103 0 H onolulu _. 16 0 0 0 0 Mid west.; ._ _._ _. _. _. 0 0 0 114 0 New Orlesns.; _. 8 0 4 2 0 Pacific Coast _._ 26 0 61 162 0 Philadelphia. Baltimore 4 0 246 177 0 Plttsburgh; , _. _._ 0 0 16 58 0 Salt Lake.;., _. ._ 3 0 0 0 1 Spokane _. _._. 4 0 1 1 0 Wheeling ._ 0 0 0 3 0

Total'_ 265 2 536 925 2

PART 2.-UNLISTED SHARE VOLUME ON THE EXCHANGES-OALENDAR YEAR 1957

UnIlstedonly Listed and registered on another

exchange

Exchanges

Clause 1 Olause 3 Clause 1 Clause 2 Clanse 3

Amerlcan_ ._ 26,41R,870 18,1~ 3,277,360 369,~ 15,O:MI Boston_. ._ _. 8,046 0 2, :MIl,382 1,948,501 0 Ohlcago Board of Trade. ._._. ._._. 0 0 0 0 0 Omctnuatf..L, 0 0 0 299,891 0 Detrott , ._ 0 0 185,745 1,591,034 0 Honolulu . ••. 37,341 0 0 0 0 Midwest .• 0 0 0 6,515,680 0 New Orleans ._. 69,509 0 0 548 0 Pacific Coast-. 2, :MIl,174 0 2,818,199 4,279,028 0 Philadelphia-Baltimore 2,263 0 2, 972, 816 2, 214, 279 0 Pittsburgh, _._ _. 0 0 266,069 232,549 0 Salt Lake, _. ._._ 248 0 0 0 573 Spokane ._. 87.888 0 0 0 0 Wheellng ._._ _._ 0 0 0 1,252 0

Total ._._ _._ 28,825,339 18, 1:M1 11,721,571 17,451,962 15,593

t Refer to text nuder heading "Unlisted Trading PrIvileges on Exchanges." Volumes are as reported by

the stock exchanges or other reporting agencies and are exclusive of those In short-term rights.

I The categories are according to clauses 1, 2, and 3 of sec. 12 (0 of the Securities Exchange Act.

I None of these issues bas any llsted status on any domestic exchange, except that 9 of the 26 Pacitlc Coast

Stock Exchange Issues are also listed on an exempted exchange These Issues became listed and registered on other exchanges subsequent to their admission to nnllsted

trading on the exchanges !IS shown. 'Duplication of Issues among exchanges brings the figures to more than the actual number of Issues Involved.

____•__ ••••••••••• __•• __•••• ~ _••••• _____•••••• _•••••••••• ____••

•••••••••••• ___ •••••••••••• _•• __•••••••• _•••••• _ •••• _••••••• __•••• __• __•••••••••••••••• _••••

_••• __ •• ••••• __• _••••

__••• _•••••••• ____•• _•••••

__•___•••••• •••••• _••••••••

__•___•••••••• _•• _••

_•• ••••••••• _•••• _•••••• _ _____•___•• __•• _____ •••• _••

__• _•••• __••• _••• _•••••••••••

•••••••••• _ •••••••••••••••••••• _

••••• _•••• ___•••••••••••• __••

•••••••• _•• ____•• ___• ____ ••••••• __ ___________________•• __ •••••••• __•

_____ __ ____•

••• __•___•__••_•••• __••••••• _••__ ••_•• __•• _____•___ •__•••• _•• _••••• ___ __••• _____ ___ ___••• ____•••• _______

__••• __••••••• _____________•• _••••••

•••••• _______• _____ ____•• _•••••

_______• __•••• _••••••••••••••• __

••••••••••••••••• __•••• _ •••••••••••••••• __•••• •• _____• ••• __•••••• __•• ______•••• ___ ••• __•• _•••••• _____• __• __• __• ____ _•••••

____• __ ••••• •• _••••••••••••••••

________ •• _•• •••• _•••• __•••• _

• •
224 ~IJES AND J<iXCHANqE COM}<ITSSION

, ~.J.(ft'W oJ A, ~ ;;..l~vij'rtv</ TABLE 10.- e and volu'ffte !;f:ales effected on securities exchanges in the

12-month period ended December 31, 1957, and the 6-month period ended June 30,

1958

[Amounts In thousands]

PART 1.-12 MONTHS ENDED DECEMBER 31,1957

Stocks I Bonds I Rights and

warrants Total market value

(dollars) Market Number Market Principal Market Numvalue of shares value amount value ber of

(dollars) (dollars) (dollars) (dollars) units

--- Registered exchanges. 33,360,273 32,059,020 1,070,093 1,154,256 1,252,794 146,997 222,332

Amerlcan ______________ --- 2,376,051 2,315,383 224, 738 14,111 16,688 46,557 9,756 Boston _________________ 246,169 246,065 5,100 5 5 99 130

Chicago Board of Trade

CmclnnatL 24,694 24,061 544 237 451 396 230 Detroit. 134,677 134,597 4,588 .----------- 81 461

MIdwest ------------.- 866,143 864,754 25,901 10 13 1,379 4,263 New Orleans 1,448 1,448 74 -----------. ----.-.- Xew York 28,686,335 27,450,748 714,451 1,139,573 1,235,240 96,014 199,711 Pacific Coast ____ ----- 651,284 650,011 32,362 34 26 1,239 2,901

Phf lad e Iphla- B al tt- more ------------- 323,257 321,741 7,868 285 370 1,231 4,820 Ptttsburgh _____________ 39,829 3Q,828 1,613 ------------ ------------ 1 2 Salt Lake 3,983 3,981 27,348 1 7 San FrancISCO Mming __ 5,831 .'i,831 24,404 .-------._-- ------------ ---------- ----.-.- Spokane 574 574 1,101 .----------- ------.-

--- Exempted exchanges. 8,842 8,747 573 13 15 82 24

--- Colorado Sprlngs _______ Honolulu 21 21 43 ---------.-- ______________ 7,747 7,651 499 13 15 82 24 Rlchmond 637 637 19 Wheeling 438 438 12

P_mT 2.-6 MONTHS ENDED JUNE 30, 1958

Stocks 1

I Bonds I Rights and

warrants Total mar.

ket value (dollars) Market Number Market Prlncrpal Market Numvalue of shares value amount value ber of

(dollars) (dollars) (dollars) (dollars) units

---

Registered exchanges, 15,704,710 14,932,617 526,438 704,827 741,376 67,266 43,451

--- American; _____________ 1,046,831 1,015,271 00,998 9,688 11,085 21,871 3,303 Boston _________________ 120,193 U8,170 2,561 107 80 1,916 702 Chicago Board of Trade ------.- C1uclnnatL ____________ 12,953 12,840 294 85 165 27 34 Detroit. 55,833 55,736 2,029 --------._-- 97 41 Mldwest _______________ 414,374 412,883 12,181 _.---------- ------------ 1,491 801 New Orlesns 403 402 21 1 1 New York _____________ 13,543,808 12,810,250 371,355 694,508 729,659 39,049 37,095 Pacrflc Coast. _________ 329,148 326,832 14, 516 362 278 1,953 1,035

Phlladelphla-Baltl- more _________________ 164.092 163,156 4,172 75 109 861 434 Pittsburgh 14,350 14,350 1,030 Salt Lake 1,216 1,216 10,425 _._---~----- (.) 6 San Francisco MlnIng 878 878 6,679 - -- --.------- Bpokane, 633 633 1,178

--- Exempted exchanges. 4,801 4,655 359 39 43 107 60

--- Colorado Sprlngs 6 6 64 Honolulu ______________ ---------39- ._----.----- ------00 4,348 4, 201 289 43 107 Rlchmond 327 327 10 Wheelmg 121 121 6 .-._----

1" Stocks" Include voting trust certificates, American depositary receipts, and certificates of deposit.

I United States Government bonds are not Included In tbese data. I Less than $500.

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 differ from comparable data in

the Statistical Bulletin due to revisions of data by exchanges. Figures have been rounded and will not necessarily add to totals shown.

________________ ------------ ------------ ------------ ------------ ------------ ---------- -------- •• __________ _______________ ------------ ___________ ------------ ---------- __• __________

______________ ------------ ------------ _______________ ------------ ----------

------------ ---~------ -------- __• __________ ------------ -----~------ ---------- ~------- ______________ ------------ ------------ ---------- ~-------

________________ ---~-------- ------------ ------------ ------------ ------------ _•• ____________ ------------ ___________ --------

_____________ ------------ ~-----~----- ---------- -------- ______________ -~---------- __ ------------ ------ - ~- -------- • _____________ -~---------- ------------ ---------- --------

__• ____ --~------- ________• ____ ------------ ------------ ---------- -------- ______________ -~---------- ------------ ---------- -
TWENTY-FOURTH ANNUAL REPORT 225

TABLE n.-Block distributiOn8

[Valueln thousands of dollars]

7

229

Bpeeial offerings Exchange dlatrlbutlons Secondary distributions

Calendar year

Num- Shares Value Num- Shares Value Num- Shares Value ber sold ber sold ber sold

1942 , 79 812,390 22,694 -~----. ----.---_ .. _. 116 2,397,454 82,840 1943. 80 1,097.338

I

31,054 -.-----. -------._-- ----_.-- 81 4,270,580 127,462 1944 87 1,053,667 32,454 -------. 94 4,097,298 135,760 1945. . 79 947.231 29,878 -.--.--- 115 9,457,358 191,961 1946. 2-3 308.134 11,002 -------. 100 6,481,291 232,398 1947.. 24 314.270 9,133 -------. .------- 73 3,961,572 124,6il 1948 21 238,879 5,466 95 7.302,420 175,991 1949. 32 500,211 10,956 -------. 86 3,737,249 104, 062 1950 . 20 150,308 4,940 ----._-- 77 4,280.681 88,743 1951 27 323 013 10,751 -------- ----_.-- 88 5,193.756 146,459 1952. 22 357.897 9,931 ----._-- ----------.- 76 4,223.258 149,11 1953. 17 380.680 10,486 .------ 68 6.906,017 108, 1954 14 189.772 6,670 57 705.781 24,664 84 5,738,359 218,490 19.55 . 9 161. 850 7.223 19 218 348

I

10.211 116 6.756,767 344,871 19.56 8 111, 7~1l 4. "7 17 1'\6481 4 645 146 11 6Q6.174 520,966 1957. . . 5 63,408 1.845 33 390,832 15,855 99 9,324,599 339,062

I The first Special Offering Plan" as made effectn e Feb. 14, 1942 the PIau of Exchange DIstribution

was made effective Aug 21, 1953: Seccnrlary Distrtbu tions arc not mnde pursuant to any plan but generally

exchanges require rnembe .. to obtain approval of the exchange to parncipate In a secondary and a report on

such distrfbutlon Is filed WIth this Commission.

4811867-511--16

___________ - - - -~-- ____________

________• ____ ------------ -------- __ _________ ------------ _____ M __

____________ ---------- - -------- ______• ____ ------------ _____________ -------- ------------ -------- ____________ ------------ ------- ___ _________ _____________ ------------ -------- ____________ ------------ ____________ -------- ------------ ----- -- _____________

____ ________

_____________

___ _______
226 SECURITIES AND EXCHANGE COMMISSION

TABLE 12.-Comparative share sales and dollar volumes on exchanges

[Annual sales, Including stocks, warrants and rights, lIS reported by all United States exchanges to the

Commission. Figures (or merged exchanges are Included In those o( the exchanges Into which they were merged]

Year Share sales NYS AMS MSE PCS PBS BSE DSE PIT CIN Other

% % % % % % % % % %

-------- ---- 1935_________ 681. 970, 500 73.13 12.42 1.91 2.69 0.76 0.96 0.85 0.34 0.03 6.91 1936_________ 962. 135. 940 73.02 1643 2.18 2.96 .69 .72 .74 .32 .04 2.90 1937_________ 838. 469, 889 73.19 14.75 1. 79 3 2-3 .70 .83 .59 .38 .03 4.51 1938_________ 543. 331, 878 7808 10.55 2.27 2.67 .79 103 .75 .25 .04 3.57 1939_________ 468. 330, 340 78.23 11 39 2.26 2 35 .93 1.18 .76 .25 .05 2.60 1940_________ 377,896. 572 75 44 13.20 211 . 2.78 1.02 1.19 .82 .31 .08 305 1941. ________ 311, 150.395 73 96 1273 2.72 2.69 1 24 1.50 .87 .36 .14 379 1942_________ 221,159,616 7649 11. 64 270 2.62 1.08 1.39 .90 .29 .12 2.77 1943_________ 486290026 74.68 1672 2.20 1.92 .85 .76 .64 .20 .07 206 1944_________ 461\ 523.183 73.40 16.87 207 2.40 .79 .81 .86 .26 .06 2.48 1945_________ 769.018.138 61\87 21. 31 I 77 298 .66 .66 .79 .40 .05 551 1946_________ 803.076. '\32 66.07 1937 1. 74 351 .68 .84 .63 .28 .05 683 1947_________ 513.274. 867 6982 1698 1. 67 4.22 .90 1.05 .66 .19 .08 443 1948_________ 571. 107,842 72.42 1507 1 6-3 3.95 .87 .76 .68 .18 .08 4.36 1949_________ 516. 408, 706 73. 51 14.49 1 67 3.72 1.21 .93 .73 .18 .09 3.47 1950_________ 8"3.32 I. 458 7632 1354 2.16 3.11 .79 .65 .55 .18 .09 2.61 1951_________ 863,918.401 74.40 1460 210 3.54 .76 .70 .58 .16 .08 3.08 1952.. 732, 400, 451 71 21 1608 2.43 3 85 .85 .73 .55 .16 .09 4.05 1953. ________ 716. 732. 406 72 64 1585 2.28 3.90 .8-3 .81 .55 .15 .11 288 1954_________ 1,053,841,443 71.04 16.87 200 324 .88 .50 .53 .13 .07 4.74 1955 1,321,400,711 6885 1919 2.09 308 .75 .48 .39 .10 .05 5.02 1956. ________ I, 182,487,081\ 66 31 21 01 2 32 325 .72 .47 .49 .11 .05 5.27 1957_________ I, 293, 021, 856 70.70 18.14 2.33 273 .98 .40 .39 .13 .06 4.14

1958

Six months } to June 30, 570, 308, 000 71.61 18.12 2.28 273 .81 .57 .36 .18 .06 3.28

1958.

Dollar volume

(000 omitted)

1935. ________ $11\,396 139 8664 7.83 1.32 1.39 .68 1.34 .40 .20 .04 .16 1936_________ 23,640.431 8~ 24 8 69 1.39 133 .62 1.05 .31 .20 03 .14 1937. ________ 21,021,865 87 85 7.56 1 06 1. 25 .60 1.10 .24 .20 .03 .11 11138_________ 12, ~45. 419 8924 557 1. 03 127 .72 1 51 .37 .18 .04 .07 1939_________ 11.434.528 8720 6.56 1 70 1. 37 .82 170 .34 .18 .06 .07 11140_________ 8,419.772 8U7 7.68 2.07 1. 52 .92 1 91 .36 .19 .09 .09 1941. ________ 6.248055 8414 745 259 1. 67 1.10 2.27 .33 .21 .12 .12 1942 4, ~14, 294 85.16 660 2.43 1.71 .96 2.33 .34 .23 .13 .11 1943_________ 9,033.907 84 93 8.90 2.02 1 43 .80 1.30 .30 .16 .07 .09 1944_______._ 9,810.149 8414 9.30 2.11 1. 70 .79 1.29 .34 .15 .07 .11 1945 16,284,552 8275 1081 2.00 1.78 .82 1.16 .35 .14 .06 .13 1946_________ 18 828,477 82 65 10.73 200 1. 87 .79 1.23 .33 .16 .07 .17 1947_______._ 11,596.806 84.01 877 1.82 2.26 .91 1.51 .36 .14 .11 .11 1948. ________ 12,911.665 84 67 807 1.85 2.53 .88 1.33 .34 .14 .10 .09 1949_________ 10,746.935 83 85 844 1.95 2.49 1.11 1.43 .39 .13 .12 .09 1950_________ 21,808.284 8591 6.85 2 35 2.19 .92 1.12 .39 .11 .11 .05 1951. ________ 21.306.087 85 48 7.56 2.30 2.06 .89 1.06 .36 .11 .11 .07 1952_________ 17,394,395 84.86 7.39 2.67 2.20 .99 1.11 .43 .15 .12 .08 1953_________ 16,715,533 85.25 679 2.84 220 1.06 1.04 .46 .16 .13 .07 19M _________ 28,140,117 8623 679 2.42 202 .94 .89 .39 .14 .10 .08 1955_________ 38, 039, 107 86.31 6.98 2.44 1.90 .90 .78 .39 .13 .09 .08 1956. ________ 35.143,115 84. 95 7.77 2.75 2.08 .96 .80 .42 .12 .08 .07 1957_________ 32, 214, 846 8551 7.33 269 202 1.00 .76 .42 .12 .08 .07

1958:

Six months

to June 30, 15,004,655 8563 6112 276 2 19 1.09 ,80 .37 .10 .09 .05

1958.

Symbols. NYS, New York Stock Exchange: AMS, American Stock Exchange: MSE Midwest Stock

Exchange: PCS, Pacific Coast St'lck Exchange: PBS, Philadelphia-Baltimore Stock Exchange: BSE,

Boston Stock Exchange: DSE, Detroit Stock Exchange: PIT, Pittsburgh Stock Exchange: CIN, Clncln.

natI Stock Exchange.

____• __

______• __

__• ______

__• ______
TWENTY-FOURTH ANNUAL REPORT 227

TABLE I3.-Reorganization proceedings in which the Commission participated during the fiscal year 1958

Securities

and Ex- Petition change Com- Debtor District court Petition 1I1ed approved mission

notice of appearance

1I1ed

Alaska Telephone Corporation W. D. Wash Nov. 2,1955 Nov. 21,1955 Nov. 7,1955 American Fuel & Power Co .. E. D. Ky Dec. 6.1935 Dec. 20,1935 May 1,1940 Buckeye Fuel Co . do. Nov. 28, 1939 Nov. 28,1939 Do. Buckeye Gas Service Co . .do .do do Do. Carhrcath Gas Co .. . .do . .do, . do. . Do. Inland Gas Distributmg Co . .do.. do .. .do .... Do. Automsuc Wasber Company S. D. Iowa Oct. 17,1956 Nov. 2.1956 Nov. 2,1956 N. O. Nelson Company .... E. D. Mo. Oct. 22.1956 Nov. 8,1956 Nov. 1,1956 Central States Electric Oorp.; E. D. Va .. Feb. 26 1942 Feb. 27.1942 Mar. 11,1942 Coastal Finance Corporation D. Md . Feb. 15,1956 Feb. 18,1956 Apr. 16,1956

Columbus Venetian Stevens Buildings, N. D. IlL Aug. 30.1955 Aug. 31,1955 Oct. 3,1955

Inc. Empire Warehouses, 1nc. do June 15.1956 June 15 1956 July 19,1956 Equitable Plan Company 1 S. D. CaliL Mar 18,1958 May 29.1958 Mar. 27,1958 Frank Fehr Brew iug Co.' W. D. Ky._. Aug. 13,191i7 Aug. 14,191i7 Nov. 8,1957 General Stores Corp S D. N. Y Apr. 30,1956 May 1, 1956 May 23,1956 Adolf Gobel, Inc D. N. 1.. July 23. 1953 Dec. 28, 1953 Scpt. 8,1953 Eastern Edible Refinery Corp do June 23, 1954 June 23, 1954 Oct. 14,1954 Gobel's Q. F. Distributors. do do . .do, Do . Gohel Pharmaceuticals, 1nc do . __. do .. ._ .do. Do. MetropolItan Shortening Corp do.. . do. ._ do .. Do Green RIver Steel Corporation .. W. D. Ky .. Sept 13, 1956 Sept. 18,19511 Oct. 5,1956 Horsting 011 Company D. N. Dak, Mar 17.1952 Mar. 17.1952 Sept. 30, 1955

Hudson & Manhattan Railroad Com- S. D. N. Y Aug. 11,1954 Dec. 14,1954 Jan. 7,1955

IJEany and Gas Corporation E. D. Ky Oct. 14.1935 Nov. 1,1935 Mar 28,1939 International Power Securities Corp .. D. N. J ... Feb. 24. 1941 Feb 24.1941 Mar. 3,1941 International Railway Company .. W. D. N. Y ... July 28,1947 July 28,1947 Aug. 4,1947 Keesbin Freight Lines, Inc. .. N. D. IlL Jan. 31,1946 Jan. 31,1946 Apr. 25,1949 Keeshm Motor Express Co., Inc do do do. ... Do. Seaboard Freight Lines, Inc do .do do.. .. Do. National Freight Lines, Inc do. do ... do. Do. Kentucky Fuel Gas Corporation. E.D Ky Oct. 25,1935 Nov. 1,1935 Mar. 28, 1939 Liberty Baking Corporation. S. D. N. Y .. Apr. 22,1957 Apr. 22.1957 May 2, 1957 Magnolia Park, Inc.i E. D. La Oct. 16.1%7 Feb. 26,1958 Oct. 24,1957 Muntz 'l'V, Inc. N. D. I1L. Mar. 2,1954 Mar. 3,1954 Mar. 4,1954 Tel-A- Vogue do .. do do Do. Muntz Industries, Ine do do do .. Do. Nortbeastern Steel Corporation Conn .. Feb. 1, 1957 Feb. 5.1957 Feb. 19,1957 Parker Petroleum Co('/nc.' .. W. D. Okla May 6.1958 May 6.1958 June 9,1958 PIttsburgh Railways 0•. W. D. Pa May 10,1938 May 10,1938 Jan. 4,1939

Plttshurgh Motor Coacb Co do do ... do . Do. Seaboard Drug Co .. .. . S. D. N. Y May 7,1957 May 10,1957 June 25,1957

Selected Investments Trust Fund I} N. D. Olda Mar. 3,1958 Mar. 3,1958 Mar. 17,1958 Selected Investments Corporation .---- SIerra Nevada Oil Co D. Nev. June 22,1951 June 22,1951 July 25,1951 Bileslan American Corp S. D. N. Y .. July 29,1941 July 29,1941 Aug. 1,1941 South Texas Oil & Gas Co.' S. D. Tex. Feb. 2 1958 Feb. 2,1958 Feb. 15,1958 Stardust, Inc .. Nev July 19,1956 Sept. 10, 1956 Sept. 7,1956 Swan-Fmch 011 Corporation 1 S. D. N. Y Jan. 2.1958 Jan. 2,1958 Jan. 27,1958 Texas CIty Chemicals, Inc.' .. S. D. 'I'ex June 22,1956 Sept. 26. 1956 Oct. 11,1956 Third Avenue 'Pransit Corp .. S. D. N. Y Oct. 25. 1948 June 21, 1949 Jan. 3,1949 Surface Transportation Corp do. June 21,1949 do. July 7,1949

Westchester St. TransportatIon Co. do do do Do.

Inc. Westchester Electrio R. R. Oo.; do do ~_-- do .. Do. Warontas Press, Inc .. do Sept. 8, 1949 Sept. 8, 1949 S:if,t. 8,1949 Yonkers Railroad Co .do June 21,1949 June 21,1949 J Y 7,1949 TMT Trailer Ferry, Inr.' .. S. D. Fla June 27,1957 Nov. 15.1957 Nov. 25.1957 Trinlty Buildlncs Corp. oCN. Y. S. D. N. Y .. Jan. 18,1945 Jan. 18.1945 Feb. 19.1945

Uintah Dome all & Gas Corporation 1,' C. D. Utah Apr. 1.1957 Apr. 2,1957 July 29.1957

U. S. Realty & Improvement Co.' S. D. N. Y Feb. 2,1944 Feb. 1,1944 Feb. 8,1944

I Commission filed notice oCappearance m fiscal year 1958.

J Reofl'anlzstlon proceeding closed during fiscal year 1958 Commlsslon no Ionger partjelpatlng in proceeding,

___________ ____ ____________ _______

___ ________________ _____ __________

__• __________ ___ _______________ _____•__ _____ ________

_________________ ___ ___________ ___ ___________ __ ____

__________ ___ ______________ ______ ____ ____

____________ ______

' _____________ ______

___________ ______ _____________ ________

_______

________________ _____ __________

______________ ____ ________________ ____ ___•__________________ ______ _____• __________________ _______ _____ ___________ _______ __________ ____ ________________ ________ ___ ______

__________ _____ ____ ______ __ ____ ____ _______

_______ ____ _____________ _____ _____ ___ ___

_________ _____ ___________________ _____

______

• __________________ _______

____ ______

_______ __ ____________ ______

_____ _____ ________________ _____________ ____

_________ _____ _______________ _____________ ____

__________ _____ __________ _____ ________ __ _______ _______ ________ ____________ ____ ____________________ • ________

_________________________ ______ ________________________ _____ _________ _____ _____________ ________

_______________ _____ ___________ _____ _____________ ______

_________ __________

____________ _____ _______________ _______

_________ ____ ________________ _____ _____ ______

___________ __ ___ __ ______

_____

____________________ ________

__________________ ____ ______________ ______ __________________• _______• _____________

____________ ______

____________ _______

____________ ______ _____ __________ _____ _______ _________ _____ ________________ _____________ ________

_____ ________________ ________ ______ _____ _____ ___________ ________________

__________ • _____ ____ ___________

_______• ______ ________

________ ____

__ _____

_______ ______

• •
228 SECURITIES AND EXCHANGE COM:MISSION

TA.BLE 14.-Summary of cases imtituted in the courts by the Commission under the

Securities Act of 1933, the Securities &change Act of 193J,.,the Public Utility

Holding Company Act of 1935, the Investment Company Act of 19J,.0,and the

Investment Advisers Act of 19J,.0

Total Total Cases Cases Cases In. Total Cases cases In. cases pending pending stltuted cases closed sntuted closed pending

Types at cases up to end up to end at end at end during during during

of1958 of 1957 1958 1958 of 1958 of 1958 1Iscal 1Iscal fiscal 1958 fiscal fiscal fiscal tlscal

year year year year year year year

-------------------- Actions to enjoin violations of the above acts ._._ ..••. 842 789 68 43 62 105 52 Actions to enforce subpenas

under the Securities Act and

the Secunties Bxehange Act.. 69 68 1

° 3 3 2

Actions to carry out voluntary

plans to comply with sec.

11 (b) ot the Holding Com. pany Act •... .. _. •.• 125 120 5 2 5 7 2 Miscellaneous actions. _. 24 23 1

° 1 1

--- --- --- ------- --------° Total ._. _._ 1,060 1,000 60 45 71 116 56

TA.BLE I5.-Summary of cases instituted against the Commission, cases in which the

Commission participated as intervenor or amicus curiae, and reorganization cases on appeal under ch, X in which the Commission participated

Total Total Cases Cases Cases in. Total Cases cases In. cases pending pending stitnted cases closed stltuted closed at end at end during pending during Types of cases up to end up to end 00958 or 1957 1958 during 1958 ot 1958 of 1958 1Iscal fiscal fiscal 1958 fiscal fiscal fiscal fiscal

year year year year year year year

-------------------- Actions to enjoin enforcement

of Securities Act, Securities

Exchange Act and Public

Utlllty Holding Company

Act with the exce~tlon ot subpenas Issued by t e Com- mission ._. ••••.••• 64 64 ° 0

° 0 ACtiOIlll to enjoin enforcement ° ot or compliance with sub.

penes issued by the Oommis- sion .• _. .•• . 8 8 0 0 0 0 0

Petitions tor review of Commission's orders by courts ot appeals under the various

acts admmistered by the Commission. .•• •••. 209 195 14 6 11 17 3

MIscellaneous acttons against

the Commission or otllcers of

the Commission and cases in

which the Commission par.

tlelpated as Intervenor or amicus curlee .•• ..••• _. 196 192 4 7 6 13 9

Appeal cases under ch. X In

which the Commission par- ticipated _. .••• 154 150 4 1 6 7 3

~1---009 --- ---14-'---23- ---37-1--- TotaL ..•• ._ _._ 22 1 5

•••• ___

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__••• _

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TWENTY-FOURTH ANNUAL REPORT 229

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234 SECURITIES AND EXCHANGE COMMISSION

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TABLE 25.-Reorgantzation cases under ch. X of the Bankruptcy Act pending during

the fiscal year ended June 30, 1958, in which the Commission participated when

dist» ict court orders were challenged in appellate courts

Name of case and United States

Court of Appeals

General Stores Corp., debtor; LCWIS J. Ruskin, Ford Hopkins oo., Stineway Drug Co , Sargent's Drug

Store and Wright & Lawrence,

Inc., appellants (2d Clrcuit).

Inland Gas Corp., et al., debtors,

Ben Williamson, Jr., Paul E. Kern,

Green Committee, ClInton M.

Harbison, Allen Oomrrnttee, Vanston Committee and Gregory Committee, appellants (6th CirCUIt).

Inland Gas Oorp., et al., debtors;

Thomas Choate and Harmon L

Remmel, Charles J. Gregory and

Clyde L. Paul, Paul EKern,

Elmo E. Allen, George H. Greenwald and Edward D. Spilman,

appellants (6th Olrcuit).

Magnolia Park, Inc ,debtor; Stephen

Goldring and Malcolm Woldenberg, appellants (5th CIrCUIt).

Selected Investments Oorp., et al.. debtors; Selected Investments

Oorp., Selected Investments Trost

Fund, Hugh A. Carroll, Julia L.

Moore Carroll, Wllllam A. Rigg,

H. P. and Zona Willis; C. M.

Holliday and Herschel Hillery, et

al., appellants (10th CirCUIt).

Selected Investments Corp, et al.,

debtors; C. M. Holliday, Herschel M. Hillery, J. S. Pledger and

Lucille Pledger, appellants (loth

Clrcult).

Third Avenue Transit Corp., et al.,

debtors; Hiram S. Gans, appellant

(2d Clrcult).

Nature and status of case

Appcals from orders of May 2, 1957, staymg LeWIS J. Ruskin,

secured creditor, from foreclosing on stocks of debtor's subsidtarIcs and from order of July I, 1957, requirmg management of subsidianes to give notice to the Chapter X trustee 20 days in advance of substantial commitments and authorizmg veto by trustee

unless reversed by court. Appellants' brref and appendix filed approxrmately Sept. 13, 1957. Briefs for Richard Goodman, appellee, filed approximately Oct. 16, 1957. Commission's brief flied

Nov. 4, 1957, in opposition to appeals. Briefs and appendix of

reorgaruzanon trustee, appellee, filed Nov. 4, 1957, and approximately Nov. 20,1957 Reply brief for appellant and supplemental appendix filed Nov 27, 1957. CommISSIOn's memorandum filed Dec. 20, 1957. opinion Jan. 6, 1958, by CA-2 affirming orders of May 2,1957, and July 1,1957. Closed.

Appeals from order of Mar 14, 1956,mter alia denymg eonfirrnatron

of Trustees' Ameuded Plan of Reorganization refusing to find

worthy of eonsrderation a plan submitted by a security holder

and refusmg to confu m a plan of reorganlzation because it provided for post-bankruptcy mterest and smce It was not accepted

by the requisite majority of creditors affected by the plan. Brief

of Oomrmssion filed Aug 1,1956, supporting certain of the appeals.

Decision of CA-6 Feb 14,1957, affirming the order of the district

court. Petition of Kentucky Debenture Holders Committee

and Paul E. Kern, Mar 4, 1957, for rehearmg and memorandum of Commission, Mar 4, 1957, in support of petition for reheanng,

Order entered by CA-6, May 8, 1957, denying the petition for

rehearing. Petltrons by appellants for "Tit of certiorari to review

Judgment entered by CA-6. Feb 14, 1957. Memorandum of the

Commission III support of petition, Aug 15, 1957. Brief and

consohdated brief of Oolumbia Gas System, Ine., in opposition

to petitions for "Tit of certiorari, Scpt 9, 1957 Reply brief of

Allen Committee and Edward D. Spilman, Sept. 19, 1957, to

brief of Columbia Gas System, Inc, III opposition to petrtlon for writ of certiorari and memorandum of the Commission. Writ

of certiorart denied, Oct 14, 1957. Petlnon of Panl E. Kern for reheurmg, Nov. I, 1957. Petttion for rehearing denied by Su- prcme Court, Nov. 19, 1957. Closed.

Appeals from orders of May 13, 1958, and June 2, 1958, finding the

plan for reorgamzation of Feb. 25, 1958, as amended, is fair,

equitable and feasible. Motion by Clinton M. Harbison, as

trustee of American Fuel & Power Company, to dismiss appeal

of Paul E. Kern, et al .approxunately June 20, 1958. Memorandum June 25, 1958, of appellee, The Columbia Gas System, Ine.,

in support of motion to dISmISS appeals. Memorandum June

27, 1958, of Green Committee m support of American's trustee's

motion to dtsrmss appeals from order of May 13, 1958. Pending.

Appeal from order of Feb 25, 1958, approving pennon for reor- gamzation, Motion by Stephen Goldrmg and Malcolm Woldenberg for leave to file petition, petition for writ of mandamus and

prohibltron or for a supersedeas or stay of the district court's

order of Feb. 25, 1958, and brief in support thereof served Apr.

16. 1958. Comnnaston's memorandum May 2, 1958,in oppositIon

to petition for writs of mandamus and prohibition, etc. TrIlStee's memorandum May 7, 1958, m opposition to motion of

appellants. Rejomder memorandum on behalf of petitioners

filed May 9, 1958. Order by CA-5 May 21, 1958, denying leave

to file petItion for writ of mandamus and refusing the alternate

application for supersedeas. Pend mg.

Appeals from order of Mar 3. 1958, declaring Selected Investmenia

Corporation and Selected Investments Trust Fund to be bank.

rupt, and finding certain trust certificates issued by Selected

Investments Trust Fund not to be debt securities within the

meaning of the Bankruptcy Act and therefore not under the [urrsdtetion of the district court. Application Apr. 4, 1958, of

appellants for order staying proceedings in district court pending

determination and final decision of appeal to CA-lO; denied Apr.

7, 1958. Oommisslon's designation of additional portions of the

record on appeal, Apr. 9, 1958 Pending.

Petition for writ of prohibition directed to Hon, Stephen S.

Chandler commandlng hIm to desist .snd refrain from further

proceedmg m the district court and exercising further Jurisdiotron. Debtors' petttion Apr. 4, 1958, for intervention and

consohdatton and for stay of proceedings In the district court.

Oomnnsston's statement m opposition to petition for writ of

prohibrtron, Apr 4, 1958. Brief and response of Hon. Stephen S.

Chandler, Apr. 7, 1958. CA-lO Apr. 7, 1958, deuled appllcatlon

for writ of prohibition. Closed.

Appeal from opmion of Feb. 6,1958, denying application of Amen,

Gans, Weisman and Butler for compensation and denying

the application for approval of a certain transfer of securities.

Pending.
TWENTY-FOURTH AN1\TUALREPORT 253

TABLE 26.-A B5-year summary of criminal case« detJeloped by tne Commission1994- through 1958 by fiscal year

[See table 29 for classification of defendants aa broker-dealers, eto.]

o

o

o

o

o

Number

Number Number of these

Number of persons of such defend.

cases in ants as to Number of cases ssto WhICh Number Number Number whom of these referred whom indict. of de- or these of these proceed- defend.

Flacal year to De- proseeu- ments lendants defend. defend. lngs were ants as to partment tlon was were ob- indICted ants can. ants ae- dismissed whom orJustice recam ... tained by ill such victed quitted on motion cases are in each mended cases I

year in each Unlted of pending'

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 78 32 34 1938_ _._. 40 113 33 134 75 13 45 1 1939 52 245 47 292 199 33 60 1940 ._. ._. _. 59 174 51 200 96 38 66 0 1941 _. 54 150 47 145 94 15 36 0 1942 50 144 46 194 108 23 49 14 1943_ 31 91 28 1O~ 62 10 33 3 1944_ _. ._._. 27 69 24 79 48 6 20 5 1945_ ._ 19 47 18 61 36 10 14 1

1946_ 16 44 14 40 13 8 4 15 1947 20 50 13 34 9 5 16 4

1948 , 16 32 15 29 20 3 6 0

1949 27 44 25 57 19 13 25 0

1950 18 28 15 27 21 1 5 0

1961 ".' _. 29 42 24 48 37 5 6 0

1962_ "." 14 26 13 24 17 4 3 0

1953_ _. 18 32 15 33 20 6 5 2 1954 19 44 19 52 26 4 6 16 1955 8 12 8 13 7 0 6 0 1956 17 43 16 44 18 3 6 17 1957 . . 26 132 15 53 23 1 2 27 1958. ._. 315 51 8 16 4 0 0 12

---- TotaL 696 2,333 575 2,376 1,295 284 680 117

I The number of defendants ill a case Is sometimes Increased by the Department of Justice over the number

against whom prosecution was recommended by the Comrnissron. For the purpose of this table, an individual named as a delendant m 2 or more Indictments in the same case Is counted as a single defendant.

, See table 27 for breakdown of pending cases. 3 Six of these references as to 33 proposed defendants were still being processed by the Department of

Justice as of the close of the fiscal year, and also 9 of the 1957 relerences as to 82 proposed defendants . 546 of these cases have been completed as to 1 or more defendants, Convictions have been obtained In

473 or 87 percent of such cases. Only 73 or 13 percent of such cases have resulted m acquittals or dismissals

as to all defendants, this includes numerous cases in which indIctments were dtsnussed without tnal because

of the death of defendants or for other admimstratlve reasons. See note 5, infra .

Includes 54 defendants who died alter Indictment.

•• _•• ______ ••

••• __ •••• __•• ___ • __•• _•• ____ __• ______• __••• __

•••• __•• ____ _____________ • ___

__ __• ____

••• _______•• • ___ __ _____________•

•• ________• _____

•• __ _____ •• __ •• __•• ____

••••••••••••••••

••••••••••••••• __

••• ••••••••••••• •••••••••••••••• _

•••••••••••••••• _

••• "' ••• ••

••• •••••••• •••••••••••••• ____________• ____ _________________

_________________

_______ ___ _____

_____________

---- ---- ---- ---- ---- ---- ---- _______• • •

•

•
254 SECURITIES AND EXCHANGE COMMISSION

TABLE 27.-Summary of criminal cases developed by the Commission which were still pending at June 30, 1958

Number ot such detendants as to Number whom cases are still pending and otsuch reasons therefor Numberot defendants Oases defendants es to whom

In such cases have Not yet Awaiting Awaiting cases been appre- trial appeal

rompleted hended

----- Pending, referred to Department 01 Justice in the fiscal year: 1ll38_________________________

1939_________________________ I 2 1 1 0 0

1940_________________________ 0 0 0 0 0 0

194L ________________________ 0 0 0 0 0 0 0 0 0 0 0 0 1942_________________________ 1943_________________________ 2 18 4 13 1 0

1941. ________________________ I 5 2 2 1 0 1 7 2 5 0 0 1945_________________________ 1 1 0 1 0 0 1946_________________________ 1947_________________________ 4 16 1 15 0 0 I 5 1 4 0 0 1948 0 0 0 0 0 0 1949_::::::::::::: ::::: :::::: 0 0 0 0 0 0 1950_________________________ 0 0 0 0 0 0 1951. ________________________ 1952_________________________ 0 0 0 0 0 0 0 0 0 0 0 0 1953_________________________ 2 12 10 1 1 0 1954_________________________ 2 2.'\ 9 7 9 0 1955________________________ 1956_________________________ 0 0 0 0 0 0 8 23 6 0 12 5 1957_________________________ 1958_________________________ 9 35 8 1 21 5 4 12 0 0 12 0

TotaL ____________________ 136 1161 44 50 57 10

SUMMARY Total cases pending 51

Total defendants 276 Total defendants as to whom cases are pending , 232

I Except for 1957 and 1958 Indictments have been returned in all pendin~ cases. As of the close of tha

fiscal YeBf,I ndictments had not yet been returned as to U5.proposed. defendants In 15 cases referred to the

Department of Justice In 1957 and 19li8. These Bre-reftected only in the recapitulation or totals At the

bottom of the table.

TABLE 28.-A S5-year summary classifying all defendants in criminal cases developed

by the Commission-1934- to June 90, 1958

Number as

to whom

cases were Number 89

Number Number Number dlsmtssed to whom

Indicted convicted acquitted on motion cases are 01 United pending

States

attorneys

Registered broker-dealers (including prin- c1pals of such firms} _____________________ 360 224 24 100 12 Employees of such registered broker-deal- ers .. 128 65 17 43 3 Persons In general securities business but

not as r:fslstered broker-dealers (Includes {f,lnclP and employees) _______________ A 722 368 57 261 36 others s 1,166 638 186 276 66

Total. 2, 376 1,295 284 680 U7

IIncludes persons registered at or prior to time or indictment.

S The persons referred to In this column, whlle not engagcd In a general business In securities, were almost

wlthont exception prosecuted for violations oflaw involving securities transactions.

' • ••

' •

-

'

____________• _______________________

___________________________• ____

________• ______________________
TWENTY-FOURTH ANNUAL REPORT 255

TABLE 29.-A ~5-year summary of all injunction cases instituted by the CommissIOn,

1994 to June 30, 1958, by calendar year

Number of eases Instituted Number of cases In which by the Commission and injunctions were granted

the number of defend. and the number of de- Calendar year ants Involved fendants enjoined.'

Cases Defendants Cases Defendants

1934____________________________________________ 1936____________________________________________ 7 24 2 4

36 242 17 66 1936____________________________________________ 1937____________________________________________ 42 116 36 108

1938____________________________________________ 96 240 91 211

1939____________________________________________ 70 152 73 153 67 164 61 165 1940____________________________________________ 40 100 42 99 1941. ___________________________________________ 1942____________________________________________ 40 112 3Ii 90

1943____________________________________________ 21 73 20 64

19«.. 19 81 18 72

1945____________________________________________ 18 80 14 36 21 74 21 57 1946____________________________________________ 1947____________________________________________ 21 45 15 34

1943____________________________________________ 20 40 20 47

1949 19 44 15 26

1950____________________________________________ 25 59 24 SO

1951____________________________________________ 27 73 26 71

1962____________________________________________ 22 67 17 43

1963 27 103 18 50 20 41 23 68 19M1955____________________________________________ 22 59 22 62 23 64 19 43 1956____________________________________________ 53 122 42 89 1957 58 192 32 93

1958 (to June 30) _______________________________ 38 162 38 107

Total. ___________________________________ 842 2,509 '742 1,892

SUMMARY

Cases Defendants

Actions Instltuted ___________________________________________________________ 842 2,509

Injunctions obtained __________________________________________ 731 1,892 Actions pendlng_________________________________________________________ Other 36 • 173 dispositions' ______e.______________________________________________ 75 444

TotaL 842 2,liW

I These columns show disposition of cases by year of disposition and do not necessarlly reflect the disposition of the eases shown as having been instituted in the same years.

, Includes 11 cases which were counted twice in this column because injunctions against different defendants in the same cases were granted in different years Includes 39 defendants in 12 cases in which injunctions have been obtained as to 39 co-defendants .

Includes (a) actions dismissed (as to 376 defendants); (b) actions discontinued, abated, vacated, abandoned, stipulated, or settled (as to 63 defendants); (c) actions in which judgment was denied (as to 11 defendants); (d) actions In which prosecution was stayed on stipulation to discontinue misconduct charged

(as to 4 defendants).

__________________________________________•

_________ • _______________________________

________________________________________•___

________•• _______________• _______eo. _______ •

_______• ____________________________________

0 _________

___________________•____•________________________________________

• •

•
256 SECURITIES AND EXCHANGE CO~fMISSION

TABLE 3O.-0all0IlS of Ethics far Members of the Securities and Bechanoe

Commission:

PREAMBLE

Members of the 'f';pcurities and Exchange Commtsslon are entrusted by various

enactments of the Congress with powers and duties of great social and economic significance to the American people. It is their task to regulate varied

aspects of the American economy, within the limits prescribed by Congress,

to insure that our private enterprise system serves the welfare of all citizens.

Their success in this endeavor is a bulwark against possible abuses and injustice which, if left unchecked, might jeopardize the strength of our economic

institutions.

It is imperative that the members of this Commission continue to conduct

themselves in their official and personal relationships in a manner which com.

mands the respect and confidence of their fellow citizens. Members of this

Commission should continue to be mindful of, and strictly abide by, the standards of personal conduct set forth in its Regulation regarding Conduct of

Members and Employees and Former Members and Employees of the Commission, most of which has been in effect for many years and which was codified

in substantially its present form in 1953. Rule 1 of said Regulation enunciates

a General Statement of Policy as follows:

"Lt is deemed contrary to Commission policy for a member or employee of

the Commission to--

"(a) engage, directly or indirectly, in any personal business transaction

or private arrangement for personal profit which accrues from or is based

upon his official position or authority or upon confidential information

which he gains by reason of such position or authority;

..(b) accept, directly or indirectly, any valuable gift, favor, or service

from any person with Whom he transacts business on behalf of the United

States;

"(c) discuss or entertain proposals for future employment by any person

outside the Government with whom he is transacting business on behalf

of the United States;

"( d) divulge confidential commercial or economic information to any

unauthorized person, or release any such information in advance of authorization for its release;

"(e) become unduly involved, through frequent or expensive social engagements or otherwise, with any person outside the Government with whom

he transacts business on behalf of the United States; or

"(f) act in any official matter with respect to which there exists a

personal interest incompatible with an unbiased exercise of official judgment.

"(g) fail reasonably to restrict his personal business affairs so as to avoid

conflicts of interest with his official duties."

In addition to the continued observance of these foregoing principles of

personal conduct, it is fitting and proper for the members of this Commission

to restate and resubscribe to the standards of conduct applicable to its executive,

legislative and judicial responsibilities.

1. Constitutional Obligations

The members of this Commlsslon have undertaken in their oaths of office to

support the Federal Constitution. Insofar as the enactments of the Congress

impose executive duties upon the members, they must faithfully execute the

laws which they are charged with administering. Members shall also care-
TWENTY-FOURTH ANNUAL REPORT 257

fully guard against any infringement of the constitutional rights, privileges or

immunities of those who are subject to regulation by this Commission.

2. Statutory Obligations

In administering the law, members of this Commission should vigorously

enforce compliance with the law by all persons affected thereby. In the exercise

of the rule-making powers delegated this Commission by the Congress, members should always be concerned that the rule-making power be confined to

the proper limits of the law and be consistent with the statutory purpose expressed by the Congress. In the exercise of their judicial functions, members

shall honestly, fairly and impartially determine the rights of all persons under

the law.

3. Personal Conduct

Appointment to the office of member of this Commission is a high honor

and requires that the conduct of a member, not only in the performance of

the duties of his officebut also in his everyday life, should be beyond reproach.

4. Relationship with Other Members

Each member should recognize that his conscience and those of other members are distinct entities and that differing shades of opinion should be anticipated. The free expression of opinion is a safeguard against the domination

of this Commission by less than a majority, and is a keystone of the commission

type of administration. However, a member should never permit his personal

opinion so to conflict with the opinion of another member as to develop animosity or unfriendliness in the Commission, and every effort should be made

to promote solidarity of conclusion.

5. Maintenance of Independence

This Commission has been established to administer laws enacted by the

Congress. Its members are appointed by the President by and with the advice

and consent of the Senate to serve terms as provided by law. However, under

the law, this is an independent Agency, and in performing their duties, members should exhibit a spirit of firm independence and reject any effort by representatives of the executive or legislative branches of the government to affect

their independent determination of any matter being considered by this Commission. A member should not be swayed by partisan demands, public clamor

or considerations of persona! popularity or notoriety; so also he should be

above fear of unjust criticism by anyone.

6. Relationship with Persons Subject to Regulation

In all matters before him, a member should administer the law without regard

to any personality Involved, and with regard only to the issues. Members should

not become indebted in any way to persons who are or may become subject to

their jurisdiction. No member should accept loans, presents or favors of undue

value from persons who are regulated or who represent those who are regulated.

In performing their judicial functions, members should avoid discussion of a

matter with any person outside this Commission and its staff while that matter

is pending. In the performance of his rule-making and administrative functions,

a member has a duty to solicit the views of interested persons. Care must be

taken by a member in his relationship with persons within or outside of the
258 SECURITIES AND EXCHANGE COMMISSION

Commission to separate the judicial and the rule-making functions and to observe

the liberties of discussion respectively appropriate. Insofar as it is consistent

with the dignity of his official position, he should maintain contact with the persons outside the agency who may be affected by his rule-making functions, but he

should not accept unreasonable or lavish hospitality in so doing.

7. Qualification to Participate in Particular Matters

The question of qualification of an individual member to vote or participate

in a particular matter rests with that individual member. Each member should

weigh carefully the question of his qualification with respect to any matter

wherein he or any relatives or former business associates or clients are involved.

He should disqualify himself in the event he obtained knowledge prior to becoming a member of the facts at issue before him in a quasi-judicial proceeding,

or in other types of proceeding in any matter involving parties in whom he has

any interest or relationship directly or indirectly. If an interested person suggests that a member should disqualify himself in a particular matter because

of bias or prejudice, the member shall be the judge of his own qualification.

8. Impressions of Influence

A member should not, by his conduct, permit the impression to prevail that

any person can improperly influence him, that any person unduly enjoys his

favor or that he is affected in any way by the rank, position, prestige or affluence

of any person.

9. Ex parte Communications

Matters of a quasi-judicial nature should be determined by a member solely

upon the record made in the proceeding and the arguments of the parties or

their counsel properly made in the regular course of such proceeding. All communications by parties or their counsel to a member in a quasi-judicial proceeding which are intended or calculated to influence action by the member should

at once be made known by him to all parties concerned. A member should not

at any time permit ex parte interviews, arguments or communications designed

to influence his action in such a matter.

10. Commission Opinions

The opinions of the Commission should state the reasons for the action taken

and contain a clear showing that no serious argument of counsel has been disregarded or overlooked. In such manner, a member shows a full understanding

of the matter before him, avoids the suspicion of arbitrary conclusion, promotes

confidence in his intellectual integrity and may contribute some useful precedent

to the growth of the law. A member should be guided in his decisions by a

deep regard for the integrity of the system of law which he administers. He

should recall that he is not a repository of arbitrary power, but is acting on

behalf of the public under the sanction of the law.

11. Judicial Review

The Congress has provided for review by the courts of the decisions and orders

by this Commission. Members should recognize that their obligation to preserve the sanctity of the laws administered by them requires that they pursue

and prosecute, vigorously and diligently but at the same time fairly and impartially and with dignity, all matters which they or others take to the courts

for judicial review.
TWENTY-FOURTH ANNUAL REPORT 259

12. Legislative Proposals

Members must recognize that the changing conditions in a volatile economy

may require that they bring to the attention of the Congress proposals to

amend, modify or repeal the laws administered by them. They should urge

the Congress, whenever necessary, to effect such amendment, modification or

repeal of particular parts of the statutes which they administer. In any such

action a member's motivation should be the common weal and not the particular

interests of any particular group.

13. Investigations

The power to investigate carries with it the power to defame and destroy.

In determining to exercise their investigatory power, members should concern

themselves only with the facts known to them and the reasonable inferences

from those facts. A member should never suggest, vote for or participate in

an investigation aimed at a particular individual for reasons of animus, prejudice or vindictiveness. The requirements of the particular case alone should

induce the exercise of the investigatory power, and no public pronouncement

of the pendency of such an investigation should be made in the absence of

reasonable evidence that the law has been violated and that the public welfare

demands it.

14. The Power to Adopt Rules

In exercising its rule-making power, this Commission performs a legislative

function. The delegation of this power by the Congress imposes the obligation

upon the members to adopt rules necessary to effectuate the stated policies of the

statute in the interest of all of the people. Care should be taken to avoid the

adoption of rules which seek to extend the power of the Commission beyond

proper statutory limits. Its rules should never tend to stifle or discourage

legitimate business enterprise or activities, nor should they be interpreted so as

unduly and unnecessarily to burden those regulated with onerous obligations.

On the other hand, the very statutory enactments evidence the need for regulation, and the necessary rules should be adopted or modifications made or

rules should be repealed as changing requirements demand without fear or

favor.

15. Promptness

Each member should promptly perform the duties with which he is charged

by the statutes. The Commission should evaluate continuously its practices and

procedures to assure that it promptly disposes of all matters affecting the rights

of those regulated. This is particularly desirable in quasi-judicial proceedings.

While avoiding arbitrary action in unreasonably or unjustly forcing matters to

trial, members should endeavor to hold counsel to a proper appreciation of their

duties to the public, their clients and others who are interested. Requests for

continuances of matters should be determined in a manner consistent with this

policy.

16. Conduct Toward Parties and Their Counsel

Members should be temperate, attentive, patient and impartial when hearing

the arguments of parties or their counsel. Members should not condone unprofessional conduct by attorneys in their representation of parties. The Commission should continuously assure that its staff follows the same principles in

their relationships with parties and counsel.
260 SECURITIES AND EXCHANGE COMMISSION

17.Business Promotions

A member must not engage in any other business, employment or vocation

while in office, nor may he ever use the power of his office or the influence of

his name to promote the business interests of others.

18. Fiduciary Relationships

A member should avoid serving as a fiduciary if it would interfere or seem to

interfere with the proper performance of his duties, or if the interests of those

represented require investments in enterprises which are involved in questions to

be determined by him. Such relationships would include trustees, executors,

corporate directors and the like.

19. Organization

Members and particularly the Chairman of the Commission should scrutinize

continuously its internal organization in order to assure that such organization.

handles all matters before it efficiently and expeditiously, while recognizing that

changing times bring changing emphasis in the administration of the laws.

o