II

SECURITIES AND EXCHANGE COMMISSION

Headquarters Office

425 Second Street NW.

Washington, D.C. 20549

COMMISSIONERS

January 6, 19M

WILLIAM L. CARY, Ohairman

BYRON D. WOODSIDE

MANUEL F. COHEN

JACK M. WHITNEY II

ORVAL L. DuBOIS, Secretarp
LETI'ER OF TRANSMI'ITAL

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

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

the Commission covering the fiscal year July 1, 1962 to June 30,1963,

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; Section 3 of the Act of June 29, 1949,

amending the Bretton Woods Agreement Act; and Section 11(b) of

the Inter-American Development Bank Act.

Respectfully,

WILLIAM L. CARY,

Ohairman.

THE PREsIDENT OF THE SENATE,

THE SPEAKER OF THE HOUSE OF REPRESENTATIVES,

Washington, D.O.

m

TABLE OF CONTENTS

Page

Commissioners and staff officers____________________________________ XI

Regional and branch offices; ___ ____ _ _ __ __ XII

Biographies of Commissioners., , _ ______ ___ _____________ XIII

PART I

IMPORTANT DEVELOPMENTS DURING THE YEAR____________ 1

Special Study of Securities Markets______________________________ 1

Enforcement activity _ ______ __________ _ _ ___ 7

Registration of new security offerings , _ _ _ 8

PART II

LEGISLATIVE ACTIVITIES_ 10

PART III

REVISION OF RULES, REGULATIONS AND FORMS____________ 11

The Securities Act of 1933_____ ___ _ ____________ _ 12

Proposed Rule 156______ _ __ __ _____________ 12

Proposed Rules 402A and 440_______________________________ 12

Adoption of Revised Form 8-8______________________________ 13

The Securities Exchange Act of 1934_____________________________ 13

Proposed Amendment to Rule 3a12-3________________________ 13

Adoption of Rule 1Ob-9____________________________________ 14

Proposed Rule 10b-l0______________________________________ 15

Proposed Amendments to Rules 13a-15 and 15d-15 and Form 7-J(____________________________________________________ 15

Adoption of Rule 15d-21 and Form 11-K; Amendment to Form 10-](__________________________________________________ 16

Proposed Rule 16b-9_______________________________________ 16

Proposed Amendments to Form 8-K_________________________ 17

The Investment Company Act of 1940___________________________ 18

Adoption of Rule 3c-3_ _ ____________ ____ _ _ 18

Amendment of Rule 30d-L _ _ __ 19

Amendments to Rules 31a-1 and 31a-2; Adoption of Rule

31a-3__________________________________________________ 19

PART IV

ADMINISTRATION OF THE SECURITIES ACT OF 1933________ 20

Description of the registration process____________________________ 20

Registration statement and prospectus; 20

Examination procedure..., ___ _ _ __ _____ __ 21

Time required to complete registration_______________________ 22

Volume of securities registered .. . 23

Registration statements filed . . ____________ 25

v

_

_
VI CONTENTS 


ADMINISTRATION OF THE SECURITIES ACT OF 1933-Con. Pan 

Stop order proceedings ------------------------

26 

Examinations and investigations --.--- ---.. ---...-.---.. ------ 31 


Exemption from registration of small issues ---.-.--. ....-.-------. 
 31


Exempt offerings under Regulation A .-.----...........---..-

32 


Suspension of exemption ------------------.-.-

33 


Exempt offerings under Regulation B. -.---.-----------35


Exempt offerings under Regulation E. -.-.-- --- ------------ -- 35 


Exempt offerings under Regulation F. ......------------

36 

PARTV 

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF 

1934.-...----------------------------

Regulation of exchanges and exchange trading.. .---.------------

Registration and exemption of exchanges. ---------------

Disciplinary action---..------------------------------------ 


Registration of sccuritiea on exchanges.. ....................--... 
 Statistics relating to registration of aecurities on ~xchnnges..--.. 


Market value of securities traded on exchanges -----...--.-----

Fiscal year share values and volumes ----.-..---------

Foreien atock on exchannes .--.-.-.---------...----

Comparative exchange statistics-. -.----. -.--- ---- -
----------
 Comnarative over-the-counter statistics- -----...-.-..------. 
 Reporting under Section 15(d). -..--.---.-.----------.-

Foreign stocks traded over the counter .------..-..-.----

Delisting of securities from exchrtnges .-......--.--.-..------

Delisting proceedings under Section 19(a) ..................... 
 Unlisted trading privileges on exchanges ..---.------------

Applications for unlisted trading privileges----.-.-.-.-----

Block distributions reported by exohanges. .--.-.-----------

Mbnipulation and stabilization--- ---...-.-.-. ---.------ ----. 
 -
 Madpdation .------...-.-.---.-.-.-------

Stabfination.---------.-.-.--------------..-------.-.-----

I~widers' security holdings and transactions. -.--...---.---......_. 

Ownemhip reports ---------------.....---.-

Recovery of short-swing trading profits by issuer ----..-.-...--


Regulation of proxies- ------------..--.-..-----..--.--... ..... 


Scope ofproxyregulation _--.-.---..----.-.-......-....

Statiatiw relatine --. to ~roxv statements-----.. ...-. 
.-...-.--.


Stockholders' proposals ---------- -- --.-----....---. ..------
 Ratio of soliciting to non-soliciting companies .....--..-------. 


Proxy contests .----..-----..-..-..-....-..--.--------

. . Invest~gahona-----------------------.-..---

Regulation of broker-dealers and over-the-counter markets---------- 
 . . Regmtrahon----------------------------.-.--..------.----

Administrative proceedings.. .----....--------------

Revooation or denial of registration -..--.-----.-.---

Otheraanctions--.-------.-..---.--._..--_---_------_-

Suspension of registration ..--..---..-----..---.-.--

Net capitslrule ---.-........-.-.-------_-----

Financial statenients .--.---- ---- ----------------- ----------


Broker-dealer inspections ---..----..--.-- -----------------

TABLE OF CONTENTS 

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF 

1934-Continued Pan 

Supervision of activities of National Associati6: of Securities Dealers, 

Inc..............................................

NASD disciplinary actions--...-.---.-----.-------

Commission review of NASD action on membership-.--.--.-__ 

Commission review of NASD disciplinary action--.-.------.---

p.4~~ 

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935.-..-.-----------------.----------.-..----. 


Compwition of registered holding company systems.-.-----------

Section 11 matters and other significant developments in active regis-


tered holding company systems-----.-----.--------

Section 11 matters-..-------------..-.-.----

Other developrnents-----.-+-.--.-.---.----.----.-----------

Financing of registered public utility holding companies and their 

subidimies.---.----.---.-----------------------------------

Competitive bidding- -.---------..-. -.. -.--.----..---..--

Protective provisions of first mortgage bonds and preferred stocks of 


public utility companies----------..----..--...--

Other mtters--..-.------------------.---------------------.--


Request for declaratory order-----....---.---------

PART VII 

PARTICIPATION OF THE COMbIISSION IN CORPORATE EORGANIZATIONS UNDER CHAPTER X OF THE BA#IKRUPTCY ACT------------------------.------------------------

Summary of activities------------------..-.---

Procedural and administrative matters-. --------I- I-- I--111111111 

'Ihstee'~investigation- -....................................... 
 Advisory reports on plans of reorganisation .---.------------

Activities with regard to allowances.--.--------..---------

Intervention in Chapter XI proceedings.......................... 


PARTVIII 

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939.-

PARTIX 

ADMINISTRATION OF THE INVESTMENT COMPANY ACT OF 

19	40.---------.....-._------....---------------.--..--.--...----


Companies registered under the Act--.----------------

Growth of investment company assets---------.---------

Inspection and investigation program. ..--.-.-.-------..--.-

Special staff study of investment companies....--.-..---------

Current information- -......................................... 
 Applications and proceedings-..-..-------.- .-.-. -.--
 ---------

PARTX 

ADMINISTRATION OF THE INVESTMENT ADVISERS ACT OF 

1940-----------------------.----------------------------------- Administrative proceedings- .------------.--------
VITI TABLE OF CO!\TTE:r-.TTS

PAR'l' XI

Page

OTHER ACTIVITIES OF THE COMMISSION____________________ 111

Civil Iitigation., _______ __ 111

Criminal proceedings., _ ___ _ 123

Office of Program Planning_____________________________________ 126

Complaints and investigations___________________________________ 127

Enforcement problems with respect to foreign securities____________ 129

Canadian restricted list_______ __ _____ _ _ _ __ 130

Section of securities violations___________________________________ 132

Applications for nondisclosure of certain information_______________ 133

Activities of the Commission in accounting and auditing____________ 134

International Bank for Reconstruction and Development___________ 141

Inter-American Development Bank______________________________ 142

Statistics and special studies., _ ___ _ ____________________ 143

Issues registered under the Securities Act of 1933_ _ ____________ 143

New securities offerings______________ ____ ____ ___ 143

Individuaffi' saving_________________________________________ 144

Corporate pension funds____________________________________ 144

Financial position of corporations____________________________ 144

Plant and equipment expenditures___________________________ 144

Directory of registered oompaniesc.L,., __________ ___ 145

Stock market data, , ____ _______________ _____ __ 145

Opinions of the Commission; __ ________ _________ _______ 145

Dissemination of information , ___ ____ ____________________ 146

Information available for public inspection____________________ 146

Publleations., __________ _ ____ _ _____ _________ 147

Organization__________________________________________________ 148

Personnel and financial management_____________________________ 149

PART XII

APPENDIX-STATISTICAL TABLES

Table 1. A 29-year record of registrations fully effective under the Securities Act of 1933_ __________ __ __ __ ____ _______ __ __ 157

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

fiscal year ended June 30, 1963____________________________ 158

Part 1. Distribution by montbs_________________________________ 158

Part 2. Purpose of registration and type of security________________ 158

Part 3. Purpose of registration and industry of registrant___________ 159

Part 4. Usc of proceeds and industry of registrant_________________ 160

Table 3. New securities offered for cash sale in the United States________ 161

Part 1. Type of offering________________________________________ 161

Part 2. Type of security________________________________________ 162

Part 3. Type of issueL_________________________________________ 163

Part 4. Private placement of corporate securities__________________ 164

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

securities offered for cash in the United States , _ _ 166

Part 1. All corporate_____ ____ __________ ______________ ____ 166

Part 2. Manufacturing___ ____ ___ __ _ _ ____ 166

Part 3. Extractive_____ _ __ ______ ________ ______ _ _____ 167

Part 4. Electric, gas and water _____ ___ _____ _ ______ __ 167
TABLE OF CONTENTS IX

Table 4-Continued Page

Part 5. Railroad; _ _ 168

Part 6. Other transportation____________________________________ 168

Part 7. COmmunication________________________________________ 169

Part 8. Financial and real estate________________________________ 169

Part 9. Commercial and other __ _ 170

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

placed in each year from 1934 through June 1963___________ 171

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

of 1934-effective registrations as of June 30, 1963, classified by

type of organization and by location of principal office_______ 172

Table 7. Number of issuers and security issues on exchanges____________ 173

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

trading on exchanges and the number of issuers involved,

as of June 30,1963____________________________________ 173

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

number of issuers involved, as of June 30, 1963___ 173

Table 8. Unlisted stocks on stock exchanges__________________________ 174

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

categories as of June 30, 1963__________________________ 174

Part 2. Unlisted share volume on the exchanges-calendar year 1962 174

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

exchanges in the calendar year 1962 and the 6-month period ended June 30, 1963. _ _ __ _____ ____ ____ 175

Part 1. 12 months ended December 31,1962______________________ 175

Part 2. 6 months ended June 30,1963___________________________ 175

Table 10. Comparative share sales and dollar volumes on exchanges _ ____ 176

Table 11. Block distributions reported by exchanges__________________ 177

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

fiscal year 1963________________________________________ 177

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

were pending at June 30, 1963___________________________ 179

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

under the Securities Act of 1933, the Securities Exchange Act of

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

Investment Company Act of 1940, and the Investment

Advisers Act of 1940____________________________________ 180

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

which the Commission participated as intervenor or amicU8

curiae, and reorganization cases on appeal under Chapter X

in which the Commission participated_____________________ 180

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

the Commission, the Mail Fraud statute (Section 1341, formerly Sec. 338, Title 18, U.S. C.) and other related Federal

statutes (where the Commission took part in the investigation

and development of the case) which were pending during the

1963 fiscal year _ _ _ ___ 181

Table 17. Injunctive proceedings brought by the Commission which were

pending during the fiscal year ended June 30, 1963_ 194

Table 18. Proceedings by the Commission to enforce subpoenas pending

during the fiscal year ended June 30, 1963________ 210

_

_

_
x TABLE OF CONTENTS

Page

Table 19. Actions pending during fiscal year ended June 30, 1963, to

enforce voluntary plans under Section Ll Ie) to comply with

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

of 1935________________________________________________ 212

Table 20. Contempt proceedings pending during the fiscal year ended

June 30, 1963__________________________________________ 214

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

of appeals during the fiscal year ended June 30,1963_______ 215

Table 22. Miscellaneous actions involving the Commission or employees

of the Commission during the fiscal year ended June 30, 1963__ 216

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

amicu8 curiae, pending during the fiscal year ended June 30,

1963__________________________________________________ 218

Table 24. Proceedings under the Bankruptcy Act pending during the fiscal

year ended June 30, 1963, in which the Commission participated when district court orders were challenged in appellate

courts________________________________________________ 220

Table 25. A 3D-year summary of criminal cases developed by the Commission-fiscal years 1934-1963__________________________ 221

Table 26. A 3D-year summary classifying all defendants in criminal cases

developed by the Commission-1934 to June 30, 1963_______ 222

Table 27. A 3D-year summary of all injunction cases instituted by the

Commission-1934 to June 30,1963, by calendar year______ 222
COMMISSIONERS AND STAFF OFFICERS

(As of January 1, 1964) Term Il3Ipire,

Commissioners June 5

WILLIAM L. CARY of New York, Oha4rman___________________________ 1966

BYROND. WOODSIDEof Virginia_______________________________________ 1967

MANUEL F. COHEN of Maryland______________________________________ 1968

JACK M. WHITNEY II of Illinois_____________________________________ 1964

Secretary: ORVALL. DuBoIS

Staff Officers

EDMUNDH.WORTHY,Director, Division of Corporation Finance.

ROBERTBAGLEY,Associate Director.

ALLANF. CONWILL,Director, Division of Corporate Regulation.

SoLOMONFREEDMAN,Associate Director.

GoRDONHENDERSON,Associate Director.

WALTERWERNER,Director, Office of Program Planning.

RALPH S. SAUL,Director, Division of Trading and Markets.

IRVINGM. POLLACK,Associate Director.

PHILIP A. LoOMIS, JR., General Counsel.

DAVIDFERBER,Associate General Counsel.

WALTERP. NORTH,Associate General Counsel.

ANDREWBARR,Chief Accountant.

LEONARDHELFENSTEIN,Director, Office of Opinion Writing.

W. VICTORRODIN,Associate Director.

WILLIAM E. BECKER,Management Analyst.

FRANK J. DONATY,Comptroller.

EBNESTL. DEBBECKEB,Records and Service Officer.

HARRy POLLACK,Director of Personnel.

ARTHUR FLEISCHER,JR., Executive Assistant to the Chairman.
REGIONAL AND BRANCH OFFICES

Regional Administrators

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

Associate Regional Administrator, 225 Broadway, New York, N.Y., 10001

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

Boston, Mass., 02109

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, 1311 Peachtree Street, NE.,

Atlanta, Ga., 30309

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

Building, Room 630, 105 West Adams Street, Chicago, ru., 60603

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

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

H. Allred, United States Courthouse, Room 301, Tenth and Lamar Streets,

Fort Worth, Texas, 16102

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

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

44411th Street, Denver, Oolo., 80202

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

Room 821, Market Street, San Francisco, Calif., 94103

Region 8. Washington, Oregon, Idaho, Montana, Alaska.-James E. Newton.

9th Floor, Hoge Bldg., 705 Second Ave., Seattle, Wash., 98104

Region 9. Pennsylvania, Maryland, Virginia, West Virginia, Delaware,

District of Columbia.-AIexander J. Brown, Jr., Room 302, 310 Sixth

Street NW., Washington, D.C., 20549

Branch Offices

Cleveland, Ohio, 44113.-Room 1628, Standard Building, 1370 Ontario Street.

Detroit, Michigan, 48226.-Room 1503, Washington Boulevard Building, 234

State Street.

Houston, Texas, 71002.-Room 2226 Federal Office and Courts Building, 515

Rnsk Ave.

Los Angeles, Calif., 90028.-Room 309 Guaranty Building, 6331 Hollywood

Blvd.

Miami, Fla., 33132.-Room 1504,51 SW., First Ave.

St. Louis, Mo., 63103.-Room 4266A Federal Building, 1520 Market Street.

St. Paul, Minn., 55101.-Room 1027, Main Post Office and Customhouse, 180

East Kellogg Blvd.

Salt Lake City, Utah, 84OOO.-Room 1119, Newhouse Building, 10 Exchange

Place.

XII
COMMISSIONERS

William L Cary, Chairman

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

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

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

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

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

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

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

Securities and Exchange Commission where he served for nearly 2

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

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

Division of the Department of Justice from March 1940 until January

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

in Rio de Janeiro until January 1943. After World War II service

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

law at the Harvard Graduate School of Business Administration

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

Northwestern University School of Law, except for service as Deputy

Department Counsellor for Procurement, Department of the Army,

during the Korean War, and at Columbia University School of Law

from 1955 to March 1961. He is co-author of several books in the

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

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

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

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

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

Commission.

Byron D. Woodside

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

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

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

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

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

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

XIII
XIV COMM:ISSIOl\TERS

of the Securities Act of 1933, was assigned to the Securities Division

of that Commission which was charged with the administration of

the Securities Act. Commissioner Woodside transferred to the Securities and Exchange Commission upon its establishment by the Securities

Exchange Act of 1934. In 1940 he became Assistant Director and in

1952 Director of the Division (now Division of Corporation Finance)

responsible for administering the registration and reporting provisions of the Securities Act, Securities Exchange Act, the Trust Indenture Act of 1939, and, in part, the Investment Company Act of 1940.

For 14months commencing in May 1948,he was on loan to the Department of the Army and assigned to duty in Japan as a member of a

five-man board which reviewed reorganization plans of Japanese

companies under the Occupation's decartelization program; and beginning in December 1950, he served 17 months with the National

Security Resources Board and later with the Defense Production Administration as Assistant Deputy Administrator for Resources Expansion. He took office as a member of the Securities and Exchange

Commission on July 15, 1960, for the term of office expiring June 5,

1962, and was reappointed effective June 5, 1962,for the term expiring

June 5, 1967.

Manuel F. Cohen

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

1912. He holds a B.S. degree in social science from Brooklyn College

of the College of the City of New York. He received an LL.B. degree,

cum laude, from Brooklyn Law School of St. Lawrence University in

1936, and was elected to the Philonomic Council. He is a member of

the New York bar. In 1933-1934 he served as research associate in the

Twentieth Century Fund studies of the securities markets. Commissioner Cohen joined the Commission's staff as an attorney in 1942

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

Company Division and later in the Division of Corporation Finance,

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

to the Commission in 1959 and in 1960 became Director of the Division

of Corporation Finance. He was awarded a Rockefeller Public Service

Award by the trustees of Princeton University in 1956and for a period

of 1 year studied the capital markets and the processes of capital

formation and of government and other controls in the principal

financial centers of Western Europe. In 1961, he was appointed a

member of the Council of the Administrative Conference of the United

States and received a Career Service Award of the National Civil

Service League. From 1958 to 1962 he was lecturer in Securities Law

and Regulation at the Law School of George Washington University

and he is the author of a number of articles on securities regulation
COMMISSIONERS xv

published in domestic and foreign professional journals. In 1962,

he received an honorary LL.D. degree from Brooklyn Law School.

He took officeas a member of the Commission on October 11, 1961,for

the term expiring June 5,1963, and was reappointed for the term expiring June 5, 1968.

Jack M. Whitney II

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

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

2 years, and Northwestern University School of Commerce, from

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

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

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

from Northwestern University School of Law in 1949 with the degree

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

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

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

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

appointment to the Commission. His practice was primarily in the

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

PART I

IMPORTANT DEVELOPMENTS DURING THE YEAR

Special Study of Securities Markets

Fiscal year 1963 was a particularly notable one for the Commission by virtue of the substantial completion of the Special Study of

Securities Markets, which was first undertaken, at the direction of

Congress, in September 1961. The Study's Report was transmitted

to Congress in three segments, on April 3, July 17, and August 8,

1963. As stated by the Commission in transmitting the final segment,

the Report "is clearly the most thorough examination of the securities markets since the early 1930s. Size alone is but a poor measure

of its importance and achievement. The Report would have high

usefulness if only for its orderly presentation of basic facts about

the markets. More importantly it offers a foundation for regulatory

and industry actions for a long period to come."

In its 13 chapters totaling some 3,000 pages,' the Report provides a

detailed catalog of practices involved in the operation of the securities

industry and markets, as well as developments and problems in their

regulation and self-regulation. A brief summary of the content of

the Report will indicate the breadth of the subject matter reviewed

by the Special Study.

Chapter I of the Report, after describing briefly the purposes and

methods of study and the general nature of recommendations arrived

at, sets forth general data highlighting the growth of the securities

industry in the postwar period, which was an important reason for

the Study and provides the background for many of the subjects explored. Chapters II and III are concerned with the broad range of

persons and business entities engaged in the securities businessbroker-dealers, salesmen, salesmen's supervisors, and persons engaged

in giving investment advice. The first of this pair of chapters examines the standards and controls relating to their entry into and removal from the business; and the second, their activities and respon1The Report Is avaUable from the Superintendent of Documents, Government Printing

Office, Washington, D.C., as House Document No. 95 of the 88th Congress, 1st session.

Part I: $2.25, Part II: $3.50, Part III: 50 cents, Part IV: $3.75. The letters of transmlttal and the Study's conclusions and specific recommendations are set forth In a summary

volume, Part V: 1111cents.

717-943-64----2 1
2 SECURITIES AND EXCHANGE COMMISSION

sibilities in the course of that business and the related controls.

Chapter IV deals with primary and secondary distributions of securities to the public, with particular emphasis on new issues and briefer

review of other specific areas such as the disclosure requirements

of the Securities Act of 1933 and the Securities Exchange Act of

1934, unregistered distributions, intrastate offerings, and real estate

securities.

Chapters V, VI, VII, and VIII extensively explore the functions,

structures, and problems of markets in which securities are traded

after their distribution. Chapter V is a general introduction to this

group of chapters. Chapter VI covers the exchange markets, with

special attention to the most important of these, the New York Stock

Exchange. The chapter reviews the functions and activities of various specialized categories of members, particularly specialists, oddlot brokers and dealers, and floor traders, and also deals with the

subjects of short selling and commission rate structures. Chapter

VII discussesthe over-the-counter markets, their vast and heterogeneous character, their wholesale and retail components, the quotations

systems, and present controls over all of them. Chapter VITI then

examines various interrelationships among trading markets, including patterns of distribution of securities among exchange and overthe-counter markets, institutional participation in various markets,

over-the-counter trading in listed securities, and the regional exchanges as "dual" and primary markets.

Chapter IX reviews the legal requirements and standards in respect

of reporting, proxy solicitation and "insider~' trading which are applicable to issuers of securities in public hands, contrasting those

relating to securities listed on exchanges with those relating to overthe-counter securities and emphasizing the need for legislation in

the latter area. It also considers problems in the dissemination of

corporate publicity by issuers of both kinds of securities. Chapter X

deals with the purposes, effects, and, enforcement of securities credit

and margin regulations and some inconsistencies and anomalies of

the present regulatory pattern. Chapter XI is concerned with certain aspects of open-end investment companies ("mutual funds")

which are for the most part covered neither by the recent industry

study conducted by the Wharton School of Finance and Commerce

nor by continuing inquiries of the Commission's Division of Corporate Regulation. It contains the results of an investor survey and also

specifically treats with selling practices, contractual plans, and certain

problems in connection with fund portfolio transactions. Chapter

XII deals with the self-regulatory pattern which is largely unique

to the securities industry. It evaluates the regulatory functioning
TWENTY-NINTH ANNUAL REPORT 3

of the New York Stock Exchange, the American Stock Exchange,

the principal regional exchanges, the National.Association of Securities Dealers, Inc. ("NASD"), and certain quasi-regulatory agencies,

notes the absence of self-regulatory organizations in certain areas,

and assesses the role of the Commission in relation to all of them.

The market break of May 1962 was thought to merit separate

examination as a major market phenomenon, and also afforded an

opportunity to study certain aspects of the securities markets, already studied under more normal conditions, in the circumstances

of a precipitous decline. The results of this study are set forth in

Chapter XIII, the final chapter of the Report.

The Commission's judgment on the state of the securities markets

and their regulation was summarized in its transmittal letter accompanying the first segment of the Report: "At the outset we emphasize

that, although many specific recommendations for improvements in

rules and practices are made in the Report of the Special Study,

the report demonstrates that neither the fundamental structure of

the securities markets nor of the regulatory pattern of the securities

acts requires dramatic reconstruction. . . . At the same time the

Report makes very clear that important problems do exist, grave

abuses do occur, and additional controls and improvements are much

needed."

The Report points up many shortcomings in investor protection,

of various kinds and degrees, and makes 175 specific recommendations

for their correction. In transmitting the Report to Congress, the

Commission stated that "we do not embrace every recommendation as

our own, but we do accept them as a sound point of departure for

proposals to the Congress, for rule-making by the Commission and

by the self-regulatory agencies, and for discussions with the industry." The Commission's letters of April 19, and July 23, 1963, to

Chairman Oren Harris of the House Interstate and Foreign Commerce

Committee and Chairman A. Willis Robertson of the Senate Banking and Currency Committee, and its transmittal letter to Congress

of August 8, 1963, stated the Commission's response to each of the

Study's recommendations.

As stated, the Study Report is a basic informational document.

Among other things, it describes for the first time, in an organized and

complete fashion, the operation of the current over-the-counter market,

and the impact of the New York Stock Exchange minimum commission rate schedule on the securities markets. In addition, the Report

provides an over-all review of the operation of self-regulation.

Secondly, the Study and its Report have been and will be a springboard for both industry and regulatory action. The Study's impact
4 SECURITIES AND EXCHANGE COMMISSION

has already been felt in many ways. Even while still in progress, it

stimulated an extensive self-examination by various segments of the

securities industry, most notably the self-regulatory agencies. As a

result, these agencies have made a number of improvements in rules

and practices, which may be in whole or part attributed to the Study.

Thus, the American Stock Exchange followed up its reorganization,

as reported in last year's annual report, by a number of beneficial

changes. It substituted a staff system for the self-perpetuating

standing committees of Exchange members, substantially augmented

its staff and adopted higher listing and delisting standards. The Exchange also took disciplinary action against various members and

allied members whose activities had been discussed in the January

1962 staff report on the Exchange. In sum, the Exchange has now instituted a responsible regulatory system as a basis for meeting its

obligations under the Securities Exchange Act. The New York Stock

Exchange has also made a substantial number of significant improvements. Qualification standards applicable to various classes of members and member-firm employees were raised. The rules covering

market letters were strengthened and the procedures for review of

these letters by the Exchange were improved. The Exchange staff

was increased to strengthen the capacity for self-regulation. The

NASD also increased its staff and expanded its surveillance activities.

Itis now undertaking a complete review of its by-laws, rules, and organizational structure, which is expected to result in more effective organization and operation.

The second result of the Special Study Report has been the Commission's legislative program, submitted to Congress in June 1963.2

Following hearings before a subcommittee of the Senate Banking and

Currency Committee on a bill embodying the Commission's proposals,

during which the broad purposes of the legislative program were

strongly endorsed by all segments of the securities industry, the

bill was passed by the Senate on July 30, 1963. As of December 1963,

hearings had been held by a subcommittee of the Committee on Interstate and Foreign Commerce of the House of Representatives on the

two bills introduced in the House of Representatives.

The Commission's proposals 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. On .Tune 4, 1963, three identical bills embodying the Cammission's proposals were introduced in the Congress. S. 1642 was introduced (by request) in the Senate

by Senator A. Willis Robertson, Chairman of the Senate Committee on Banking and Currency; H.R. 6789 was Introduced In the House of Representatives by Representative Oren

Harris, Chairman of the Committee on Interstate and Foreign Commerce, House ot Representatives, and H.R. 6793 was introduced by Representative Harley O. 'Staggers, Chairman of the Subcommittee on Commerce and Finance of the Committee on Interstate and

Foreign Commerce, House of Representatives.

•
TWENTY-NINTH A-l\TNUAL REPORT 5

The proposed legislation, in its broadest terms, has two major purposes. The first is to improve investor protection in the over-thecounter market, primarily by extending to investors in over-thecounter securities the fundamental protections which under existing

legislation are generally afforded only to investors in securities listed

on an exchange. Briefly, these protections are as follows: A company listing its securities on an exchange must file a registration

statement containing material information regarding its business and

must keep such information current by periodic reports; securityholders whose votes are solicited must be furnished with a proxy

statement, which must contain adequate and accurate information; and

corporate "insiders" must report their securities transactions and are

liable to the company for short-swing trading profits. The proposed

legislation would extend these protections to investors in over-thecounter companies having more than 750 shareholders (500 shareholders at a subsequent date) and more than $1million in assets. The

second purpose of the proposed legislation is to strengthen qualification standards for entrance into the securities business and controls

over those already in that business, again with emphasis on the overthe-counter market. The principal proposed changes in this area

would include the following: All over-the-counter broker or dealer

firms would be required to be members of a registered securities association, in order to bring them within the self-regulatory scheme.

Registered securities associations would be required to adopt rules!

subject to Commission approval, establishing standards of training,

experience and competence for members and their employees and to

establish capital requirements for members. In addition, the rigidity

of the present statutory scheme for disciplining violators, which does

not provide for direct Commission action against individual wrongdoers connected with a broker or dealer, or expressly authorize the

Commission to impose useful intermediate sanctions against a registered :firm short of revoking its registration, would be removed by

permitting action against the individual in lieu of proceeding against

the entire firm, and by authorizing the imposition of intermediate

sanctions such as temporary suspension or censure. The authority of

a national securities association to act directly against offending individuals would also be clarified.

A major part of the Study's recommendations can be implemented

under existing legislation, through the rule-making powers of the

Commission or the self-regulatory agencies. At the present time, the

Commission and the industry are actively engaged in considering the

Study's recommendations and analyzing the problems discussed by the

Study Report. Because of the vast number of recommendations, the
6 SECURITIES AND EXCHANGE COMMISSION

Commission has thought it necessary to select out certain priority items

which will be given first attention. To this end, the recommendations

have been divided into two main groups. The first, those of particular

concern to specific self-regulatory agencies, have been taken up with

the affected exchange or the NASD and agreement has been reached

on the subjects to be given first attention. Thus, in the exchange area,

priority designation has been given to the proposals relating to odd-lot

dealers, floor traders, specialists and automation. Further, the Commission and the NASD are giving first priority in the over-the-counter

market to the quotation systems, the "markup" policy, execution of

retail transactions and the strengthening of the organization and structure of the NASD itself.

The other major group of recommendations are those of concern

to the securities industry as a whole, transcending the particular interest of anyone self-regulatory agency. These have already been

discussed with the members of the Industry Advisory Committee. The

Committee is designating appropriate subcommittees to consider such

vital matters as selling practices, the establishment of minimum capital

requirements, and rules relating to the conduct of those who distribute

securities.

The priority groups include those matters which in the Commission's

opinion warrant immediate attention. As a practical matter, not all

175 specific recommendations can be implemented immediately and

simultaneously. But those recommendations not receiving first

priority are being neither discarded nor neglected. A considerable

amount of work has already been done on a number of them; it is expected that in a reasonable period of time they will all receive full

attention and action by the Commission and its staff.

The Commission has taken steps to reorganize its personnel for the

implementation of the Study's recommendations. Thus, a new Office

of Program Planning was created, with the initial task of assisting

and advising the Commission with respect to the implementation program. The Division of Trading and Exchanges was renamed the

Division of Trading and Markets and was reorganized. Many of the

Special Study's personnel have been assigned to these units, as well

as to other staff offices, and they are playing an important role in the

implementation program.

The Special Study recommended that the Commission more fully

exercise its powers of oversight and supervision over the self-regulatory agencies. Accordingly, a new officewithin the Division of Trading and Markets, the Office of Regulation, has been created and

assigned the general responsibility of overseeing the operations of

the self-regulatory agencies. At the same time, the Commission has
TWENTY-NINTH ANNUAL REPORT 7

strengthened and instituted important oversight programs, including

an increased schedule of examinations of the exchanges and of the

NASD and in general securing more information about their

operations.

As has been noted, the securities industry and the various selfregulatory agencies have already taken many important and significant steps which should have the effect of raising investor protection. The Commission itself has issued a proposed rule, based on

the Study's recommendations, which would require financial statements in annual reports transmitted to stockholders not to be materially misleading in light of the reports filed with the Commission,

and, as of December 1963, consideration was being given to other

possible proposed rules. Furthermore, out of the very intensive

and active scrutiny and examination of rules and practices stimulated

by the Special Study Report and now being conducted by the Commission, the self-regulatory agencies and the securities industry itself, it can be anticipated that many additional important changes

in rules and practices can be adopted, which will contribute to the

improvement of investor protection.

Enforcement Activity

As described in more detail in other parts of this report, the Commission continued to pursue a vigorous enforcement program during

the fiscal year in an effort to combat fraudulent and other illegal

practices in securities transactions. The Commission, as in the past,

took action on all available fronts-civil, criminal and administrative.

Thus, 121 injunction or related court enforcement proceedings were

instituted by the Commission during the year, a larger number than

in any previous year. Six hundred and twenty-two investigations of

securities transactions involving possible violations of the anti-fraud

or other provisions of the securities acts were instituted. Forty-nine

cases were referred to the Department of Justice for criminal prosecution. A striking example of the complexity which criminal cases

in this field may assume, and the extent, of the investigative work which

must necessarily precede the actual prosecution of such cases, is presented by United States v. Garfield, in which, after the longest trial

in the history of Federal criminal prosecutions (some 11 months),

the defendants were convicted in February 1963 of manipulating the

market price of the common stock of United Dye and Chemical Corporation and fraudulently distributing unregistered shares of such

stock through "boiler-rooms." At the conclusion of the trial, the

judge commented that "there never was a case that was proved to the

hilt the way this case was proved." He commended two members of

the Commission's staff for their investigative efforts, stating that "it
8 SECURITIES AL'II"DEXCHANGE COMMISSION

is evident that they performed Herculean labors by way of investigation and ferreting out the facts."

During the year 1,534 broker-dealer inspections were conducted,

and broker-dealer registrations were revoked in 75 cases. Inspections

were completed with respect to 219 investment advisers, and 5 investment adviser registrations were revoked. Examinations or investigations were initiated in 20 cases to determine whether stop order proceedings should be brought with respect to registration statements

filed under the Securities Act of 1933, and investigations were instituted in 19 cases to determine whether other information filed with

the Commission was accurate and adequate. Orders which suspended

the exemption from registration provided for small security issues

were issued in 53 instances.

The fiscal year also saw a further increase in the Commission's in.

spection program under the Investment Company Act of 1940. During the year, 84 inspections of investment companies were completed,

as compared to a total of 165 inspections conducted in all prior years

since the inception of the program in 1957, and 52 inspections during

the 1962 fiscal year. Chiefly as a result of information obtained

through inspections, 29 investigations were commenced, and 9 civil actions were instituted. The inspection and investigation program produced rather dramatic results in certain instances in terms of tangible

benefits to investment companies or their shareholders. In one instance, where it appeared that an investment company's investment

adviser, a broker-dealer, had taken improper brokerage commissions

in executing securities transactions for the company, a settlement was

agreed upon which will result in the return of more than $200,000 to the

company. In another instance, where an inspection and investigation

revealed that promoters had used a company and its wholly-owned

subsidiary, a registered investment company, as a means of financing

other corporations controlled by them, and had committed numerous

violations of the Securities Act of 1933 and the Investment Company

Act of 1940, the Commission's staff negotiated a settlement which

provided, among other things, for a return of about $250,000 to public

shareholders.

Registration of New Security Offerings

Continuing the trend set since the severe market break of May 1962,

fiscal year 1963 saw a considerable reduction, by contrast with

recent years, in the number of registration statements filed under the

Securities Act of 1933 for public offerings of securities. A total of

1,159 statements was filed during the year, representing a dollar amount

of $14.7 billion. The lower number of filings enabled the Commission's staff to reduce the processing period substantially. The median
TWENTY-NINTH ANNUAL REPORT 9

number of days elapsing from the date of filing to the date of the staff's

letter of comment, with respect to registration statements which became

effective during the year (excluding certain investment company filings), was 27 during the 1963 fiscal year as compared with 57 days in

the preceding year. A total of 1,157 statements in the amount of

$14.8 billion became effective during the year. The chart below portrays the dollar volume and number of registrations with respect to

securities which became registered during the fiscal years 1935

through 1963.

I NUM8ER OF REGISTRATIONS

I I

16

SECURITIES EFFECTIVELY REGISTERED WITH S.E.C. DOLLARS BILLIONS 1935 1963

20

12

10

15

1935 40 45 50 55 60

(Fiscal Years)

-
PARTll

LEGISLATIVE ACTIVITIES

The Commission's major activity relating to legislation during the

fiscal year 1963, namely, the preparation and submission of its "legislative program based on the recommendations of the Special Study of

Securities Markets, has already been discussed in some detail in the

p~edingparlofthisreport.

Additionally, Chairman Cary testified before Subcommittee No.2

of the Committee on the District of Columbia, House of Representatives, in favor of H.R. 4200, a bill to provide for the regulation of the

business of selling securities in the District of Columbia and for the

licensing of persons engaged in that business. Chairman Cary also

appeared before the Legal and Monetary Mairs Subcommittee of the

Committee on Government Operations, House of Representatives, to

discuss the relation of the Federal securities laws to certain aspects of

the Comptroller of the Currency's revised Regulation 9, particularly

the expansion, as contemplated by that regulation, of the power of

national banks to commingle funds for investment management and

the relation of the Federal securities laws to the provisions of the Self

Employed. Individuals Tax Retirement Act of 1962. In addition,

Chairman Cary discussed the problem of the exploitation of elderly

citizens in securities transactions and the Commission's responsibility

in that area in hearings before the Special Committee on Aging, United

States Senate. Commissioner Cohen testified before the Subcommittee

on Administrative Practice and Procedure of the Senate Committee

on the Judiciary with respect to S. 1664, a bill to establish a Permanent

Administrative Conference.

During the fiscal year the Commission and its staff analyzed or

commented on 49 bills and other legislative matters referred by various

committees of the Senate and House of Representatives and the Bureau

of the Budget.

10
PART III

REVISION OF RULES, REGULATIONS, AND FORMS

As previously noted, the Report of the Special Study of Securities

Markets recommended, among other things, changes in the Commission's rules in various areas. Even aside from the Special Study

and its implementation, the Commission maintains a continuing program of reviewing its rules, regulations and forms in order to determine whether any changes are appropriate in the light of changing

conditions, methods and procedures in business and in the financial

practices of business, and in the light of the experience gained in the

administration of the statutes administered by it. Certain members

of the staff are specifically assigned to this task, but changes are

also suggested, from time to time, by other members of the staff who

are engaged in the examination of material filed with the Commission, and by persons outside of the Commission who are subject to

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

those requirements in a professional capacity such as underwriters,

attorneys and accountants. With a few exceptions provided for by

the Administrative Procedure Act; proposed new rules, regulations

and forms and proposed changes in existing rules, regulations and

forms are published in preliminary form for the purpose of obtaining

the views and comments of interested persons, including issuers and

various industry groups. These views and comments are carefully

reviewed by the staff and by the Commission and are very helpful

in revealing the manner in which proposed changes will operate,'

During the 1963 fiscal year, the Commission made a number of

changes in its rules, regulations and forms, and published in preliminary form various proposed changes. The changes made during

the year and those pending at the end of the year are described below.

'The rules and regulatloD8 of the Comm1tlstonare publtshed In the Code of Federal

Regulations, the rules adopted under the various Acts admln1Btered by the Comm1Bs1on

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

Securities Act of 1933, pt. 230.

Securities Exchange Act of 1934, pt. 240.

Public Ut1llty Holding Company Act of 1935, pt. 250.

Trust Indenture Act of 1939, pt. 260.

Investment Company Act of 1940, pt. 270.

Investment Advisers Act of 1940, pt. 275.

11
12 SECURITIES AND EXCHANGE COMMISSION

THE SECURITIES ACf OF 1933

Proposed Rule 156

During the fiscal year the Commission invited public comments on

a proposed rule relating to transactions involving certain group annuity contracts," The proposed rule, to be designated Rule 156,

would define as "transactions by an issuer not involving any public

offering" in Section 4(1) of the Securities Act, transactions which

are exempted from the Investment Company Act of 1940 by Rule

3c-3 under that Act. Rule 30-3, which was recently adopted, exempts

from the provisions of the Investment Company Act transactions by

any insurance company with respect to certain group annuity contracts providing for the administration of funds held by such company in separate accounts established and maintained pursuant to

state law. It has been represented to the Commission that these contracts are individually negotiated with employers who are able to

fend for themselves. The proposed new rule provides that transactions of the character referred to therein shall come within the rule

only if the transaction is not solicited by advertising which, insofar

as it relates to a separate account group annuity contract, does more

than identify the insurance company, state that it is engaged in the

business of writing separate account contracts and invite inquiries in

regard thereto. The rule provides, however, that disclosure in the

course of direct discussion or negotiation of such contracts would not

be prohibited. The proposed rule would provide an exemption only

from the provisions of Section 5 'of the Act and would not, therefore,

afford any exemption from the anti-fraud provisions of the Act.3

Proposed Rules 402A and 440

The Commission announced that it has under consideration two

proposed new rules relating to the registration of securities by foreign

issuers other than foreign governments.'

Section 6(a) of the Securities Act requires that where a registrant

is a foreign or territorial person, the registration statement shall be

signed by its duly authorized representative in the United States.

This signature is in addition to the signatures required where the

registrant is a domestic issuer. Under Section 11 of the Act, an authorized representative may be liable to persons purchasing the securities offered pursuant to the registration statement. In order for

this provision to operate effectively for the protection of investors,

Securities Act Release No. 4598 (April 16, 1963).

Rule 156 was adopted shortly after the eud of the fiscal year. See Securlties Act

Release No. 4627 (August 1, 1963)

Securities Act Release No. 4511 (.July 16, 1962); Securities Act Rels-ase No. 4524

(August 10, 1962).

•

•

•

•
TWENTY-NINTH ANNUAL REPORT 13

it is essential that the authorized representative be a person having a

reasonable degree of responsibility. In the past, efforts have been

made to meet the requirement that the registration statement be signed

by an authorized representative in the United States by organizing a

dummy corporation solely for that purpose. Other devices may

similarly be used to evade the intent and purpose of the requirement.

The proposed new Rule 402A would require that where the registrant

is a foreign person other than a foreign government, the authorized

representative in the United States shall meet certain qualifications

designed to insure that there will be in this country a person against

whom investors may have recourse in appropriate cases.

The proposed new Rule 440 would require that where the registrant,

any of its directors or officers, any selling security holder or any

underwriter is a nonresident (other than a foreign government or a

political subdivision thereof), it shall furnish to the Commission a

consent and power of attorney authorizing the Commission to accept

service of process in connection with civil actions arising out of the

offering or sale of the registered securities. The purpose of this rule

is to make it easier for purchasers of the registered securities to obtain

service of process upon foreign issuers and their insiders in connection

with civil actions instituted in the courts in this country.

The proposed rules were still under consideration at the close of the

year.

Adoption of Revised Form S-8

During the :fiscalyear the Commission adopted certain amendments

to Form 8-8 which is the form authorized for use in registering securities under the Securities Act to be offered pursuant to certain

stock purchase, savings or similar plans, and for registering the interests in such plans where such registration is required," Inaddition

to certain changes designed to simplify and clarify the form in certain respects, Form 8-8 was amplified to permit use of the form for

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

pursuant to restricted stock options.

THE SECURITIES EXCHANGE ACT OF 1934

Proposed Amendments to Rule 3al2-3

Rule 3a12-3 exempts the securities of certain foreign issuers from

the operation of Sections 14(a) and 16 of the Securities Exchange

Act. During the fiscal year, the Commission announced that it has

under consideration certain proposed amendments to Rule 3al2-3

& Securities A.ct Release No. 4533 (August 30. 1962). See 28th Annual Report, p. 12
14 SECURITIES AND EXCHA...~GE COMMISSION

and invited public comments," The rule, as amended, would provide

that no exemption is available for voting trust certificates where the

voting trustee is or, if there is more than one, at least one-half of the

voting trustees are citizens or residents of the United States, or if

any person or persons controlling such voting trustee or trustees are

citizens or residents of the United States.

A further amendment of the rule would take out of the exemption

from Sections 14(a) and 16 of the Act certain issuers organized in a

foreign country. These would include (i) companies which have their

principal executive offices in the United States and which have a substantial portion of their assets in, or derive a substantial portion of

their gross revenues from sources in, the United States; (ii) companies which have the major portion of their assets in, or derive the

major portion of their gross revenues from sources in, the United

States; (iii) companies the majority of whose directors are citizens

or residents of the United States; and (Vv) companies more than 50

percent of whose voting securities are owned by residents of the

United States.

This matter was pending at the end of the fiscal year.

Adoption of Rule IOb-9

There have been instances where persons distributing securities have

represented that such securities were being offered on an "all-or-none"

basis when, because of ambiguities in the contractual arrangement,

it was not clear whether the conditions for a completed offering would

be met if persons were found who agreed to purchase all of the securities within the specified time, but the underwriter did not succeed

in collecting the purchase price for all of the securities. Rule 10b-9

was adopted to deal with this type of situation. The rule makes it a

"manipulative or deceptive device or contrivance," as used in Section

10 (b) of the Act, for any person, in connection with the offer or sale

of a security, to make any representation to the effect that the security

is being offered or sold on an "all-or-none" basis unless the security is

part of an offering being made on the condition that all or a specified

amount of the purchase price will be promptly refunded to the purchaser if all of the securities being offered are not sold at a specified

price within a specified time and the total amount due to the seller is

not received by him by a specified date. The rule would also prohibit

a representation to the effect that the security is being offered or sold

on any other basis under which all or part of the amount paid will be

refunded to the purchaser if all or part of the securities are not sold,

unless the security is part of an offering being made on the condition

Securities Exchange Act Release No. 6912 (October 11, 1962) ; Securities Exchange Act

Release No. 6930 (November 11,1962).

•
TWENTY-NINTH ANNUAL REPORT 15

that all or a specified part of the amount paid will be promptly refunded if a specified number of units are not sold at a specified price

within a specified time and the total amount due to the seller is not

received by him by a specified date. '1

Proposed Rule 10b-l0

During the fiscal year, the Commission invited public comments on

a proposed rule relating to representations concerning the sale or

redemption of certain securities." The proposed rule, to be designated

Ru1e 10~1O, wou1d provide that it shall constitute a manipulative or

deceptive device or contrivance within the meaning of Section 10(b)

of the Act for any person, in connection with the offering or sale of any

equity security, to make any representation to the effect that (1) the

offering price of such security is based upon and varies with the current

value of its proportionate share of the assets of the issuer, or (2) such

security is or will be redeemable at the option of the holder at a price

which is based upon and varies with the current value of such proportionate share, unless substantially all of the assets of the issuer

consist of cash, cash items and securities (other than mortgages and

other liens on and interests illreal estate) for which market quotations

are readily available and which are readily marketable.

This matter has become of particular interest in connection with

proposals by certain real estate investment companies to offer redeemable securities. However, the proposed rule as drafted would apply

to any company seeking to offer securities in the manner or of the

character described in the rule. One purpose of the rule is to prohibit

the offering of securities on the basis of the value of their proportionate

share of the assets of the company in cases where the nature of the

company's assets is such that it is impossible to determine their value

with sufficient precision to compute the offering price of the securities

on that basis. The rule wou1d also prohibit the offering of securities

of a company as "redeemable" securities when the assets of the company are such that their value cannot be precisely determined for the

purpose of redemption and are not sufficiently liquid to make possible

their conversion into cash for the purpose of redeeming the securities.

A number of comments were received in regard to the proposed rule

and the rule was being considered in the light of such comments at the

end of the fiscal year.

Proposed Amendmentsto Rules 13a-15 and 15d-15 and Form 7-K

Rules 13a-15 and 15d-15 require certain real estate companies to

file with the Commission pursuant to Sections 13 and 15(d) of the

Securities Exchange Act quarterly reports with respect to distribuSecurities Exchange Act Release No. 6905 (October 8, 1962).

Securities Exchange Act Release No. 6874 (Augu8t 18,1962).

•

•
16 SECURITIES A.;.'TDEXCHA..:.'TGE COMMISSION

tions to shareholders. Form 7-K is the form prescribed for such

reports. At the time of adoption of these rules and form, the Commission announced that it would consider all views and comments submitted with respect thereto by interested persons and would make such

changes, if any, as it might deem necessary or appropriate in the light

of such views and comments," Accordingly, after consideration of a

number of comments submitted by interested persons, the Commission,

during the fiscal year, invited public comments on certain proposed

amendments to Rules 13a-15 and 15d-15 and Form 7_K.I0

The rules as proposed to be amended would require the filing of

quarterly reports on Form 7-K by real estate investment trusts and

by real estate companies which as a matter of policy or practice

make distributions to shareholders from sources other than current

or retained earnings. Other real estate companies would be required

to file reports with respect to quarters in which a distribution is made

from a source other than current or retained earnings. Itis proposed

to amend Form 7-K to eliminate the two-column reporting now required and to clarify the language of the items of the form so as to

simplify the preparation and filing of the required reports.

This matter was pending at the close of the fiscal year.

Adoption of Rule 15d-21 and Form ll-K; Amendment to Form 10-K

During the fiscal year, the Commission adopted regulations governing the filing of annual reports, pursuant to Section 15 (d) of the Securities Exchange Act of 1934, relating to employee stock purchase,

savings and similar plans.

A new Form ll-K was adopted for use in filing annual reports with

respect to such plans. A new Rule 15d-21 provides that separate

annual and other reports need not be filed with respect to any plan if

the issuer of the stock or other securities offered to employees through

the plan files annual reports on Form lO-K or U5S and as a part of

such reports furnishes the information, financial statements and exhibits required by Form ll-K and if it furnishes to the Commission

copies of any annual report submitted to employees in regard to the

plan. A new general instruction was added to Form lo-K which

specifies the procedure to be followed where an issuer elects to file

information and documents pursuant to Rule 15d-21.11

Proposed Rule 16b-9

Section 16(b) ofthe Securities Exchange Act provides for the recovery, by or on behalf of the issuer of equity securities registered on a

national securities exchange, of short term trading profits realized by

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

10 Securities Exchange Act Release No. 7077 (May 16, 1963).

nSecurities Exchange Act Release No. 6857 (July 23,1962).

•
TWENTY-NINTH ANNUAL REPORT 17

directors, officers and principal security holders of the issuer. The

Commission is authorized to exempt from Section 16 (b) transactions

not comprehended within the purpose of that Section. During the

fiscal year, the Commission invited public comments on a proposed new

Rule 16b-9 which would exempt from the operation of Section 16(b)

certain acquisitions of shares of stock in exchange for similar shares

of stock of the same issuer."

The proposed rule would exempt any acquisition of shares of stock

of an issuer in exchange for an equal number of shares of another class

of stock of the same issuer pursuant to a right of conversion under the

terms of the issuer's certificate of incorporation, for the purpose or in

contemplation of a public sale which in fact occurs. The exemption

would be available only if the shares surrendered and those acquired in

exchange therefor evidence the same rights and privileges except that

the shares surrendered may, in the discretion of the board of directors,

receive a lesser cash dividend than the shares for which they are exchanged. The exemption would be further conditioned upon there

being no other acquisitions of securities of either class within 6 months

before or after the exempted transaction. The exemption would apply

to any such acquisition occurring either before or after the effective

date of the rule, except that it would not affect judgments rendered

prior to the effective date."

Proposed Amendments to FOrJD 8-K

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

to Sections 13 and 15( d) of the Securities Exchange Act. During

the 1962 fiscal year, the Commission announced that it had under

consideration certain proposed amendments to the form and invited

public comments.e The amendments are designed to require prompt

reporting of material changes affecting a company or its affairs when

it appears that they are of such importance that reporting should not

be deferred to the end of the company's fiscal year. The amendments

relate to matters such as the pledging of securities of the issuer or its

affiliates under such circumstances that a default will result in a

change in control of the issuer, changes in the board of directors otherwise than by stockholder action, the acquisition or disposition of significant amounts of assets otherwise than in the ordinary course of

business, interests of management and others in certain transactions,

and the issuance of debt securities by subsidiaries. This matter was

still under consideration at the close of the year.

raSecurities Exchange Act Release No. 7058 (April 11, 1963).

13 The proposed rule was adopted shortly after the end of the fiscal year. See Securities

Exchange Act Release No. 711,8 (August 19, 1963) .

.. Secnrities Exchange Act Release No. 6770 (April 5, 1962).

717-943-64---3
18 SECURITIES AND EXCHANGE COMMISSION

THE INVESTMENT COMPANY ACT OF 1940

Adoption of Rule 3c-3

During the fiscal year, the Commission adopted a new Rule 3c-3.15

The rule exempts from the provisions of the Act transactions of insurance companies with respect to certain group annuity contracts

providing for the administration of funds held by an insurance company in a separate account established and maintained pursuant to

legislation which permits the income, gains and losses, whether or not

realized, from assets allocated to such account to be credited to or

charged against such account without regard to other income, gains

or losses of the insurance company.

It is contemplated that employers would make payments to such

accounts as a means of accumulating the funds required to discharge

their obligations under pension plans to provide their employees with

annuities in fixed-dollar amounts upon their retirement. It is also

contemplated that the assets allocated to such a special account would

be invested free of the usual restrictions applicable to investment by

insurance companies in common stocks. Under the type of pension

contract which would utilize such special accounts, the risk of market

fluctuation of equities occurs only during the accumulation period and

is on the employer. The annuity which will be provided for a retired

employee is not affected by market fluctuations.

Although the insurance companies may not be acting as trustees,

the arrangements for utilization by employers of such special accounts

maintained by insurance companies would be similar to arrangements

excepted from the definition of investment company pursuant to Section 3(c) (13) of the Act, relating to accounts maintained by bank

trustees for the investment of funds which employers have set aside

to meet their obligations under qualified pension plans.

The exemption provided by the rule is available only if the

following requirements are met: the pension plan must meet the

qualification requirements of Section 401 of the Internal Revenue

Code or the requirements for deduction of the employer's contribution

under Section 404(a) (2) of the Code whether or not the employer

deducts the amounts paid for the contract under such Section; must

cover at least 25 employees as of the plan's initiation date; must not

provide for payment of retirement benefits measured by the investment results of the assets allocated to the segregated account; and must

not permit the allocation to the separate account of any payment or

contribution by employees.

.. Investment Company Act Release No. 86015(lanuary 7, 1988).
TWENTY-NINTH ANNUAL REPORT 19

Amendment of Rule 3Od-l

The Commission also adopted certain amendments to Rule 30d-1

under the Investment Company Act of 1940.16 This rule relates to

reports required to be furnished to stockholders of management

companies pursuant to Section 30(d) of the Act.

Paragraph (a) of the rule previously required the first report of

a registered management company to be made as of a date not later

than the close of the fiscal year or half-year first occurring on or after

December 31, 1940. Since that date no longer has any significance,

this provision has been amended to provide that the first such report

shall be made as of a date not later than the close of the fiscal year

or half-year first occurring on or after the date on which the company's notification of registration under the Act is filed with the

Commission.

Another amendment to paragraph (a) provides that, with certain

exceptions, reports shall be mailed to stockholders within 45 days

(rather than within 30 days, as previously required) after the date as

of which the report is made. The procedure for securing an extension

of time in certain cases has also been simplified.

Paragraph (b) of the rule has been amended to provide expressly

that the financial statements included in such reports for the company's fiscal year shall be certified by independent public accountants. The rule has been consistently construed to require such certification and the amendment merely makes the requirement explicit.

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

Rules 31a-l and 31a-2, which relate to the records to be maintained

and preserved by registered investment companies, certain majorityowned subsidiaries, and other persons having transactions with registered investment companies, were amended during the fiscal year to

prescribe with greater specificity and detail the records of securities

transactions required to be kept, and to require the keeping of certain

memoranda and documents not previously required." At the same

time, a new Rule 31a-3 was adopted, which sets forth certain requirements in circumstances where the records specified in Rules 31a-1 and

31a-2 are prepared or maintained by others on behalf of the person

required. to maintain them.

10 Investment Company Act Release No. 3574 (November 16. 1962).

17 Investment Company Act Release No. 31578 (November 28. 1962).
PART IV

ADMINISTRATION OF THE SECURITIES ACT OF 1933

The Securities Act of 1933is primarily a disclosure statute designed

to provide investors with material facts concerning securities

publicly offered for sale by an issuing company or any person in a

control relationship to such company by the use of the mails or

instrumentalities of interstate commerce, and to prevent misrepresentation, deceit, or other fraudulent practices in the sale of securities

generally. Disclosure is obtained by requiring the issuer of such

securities to .filewith the Commission a registration statement which

includes a prospectus containing significant financial and other

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

the securities may be offered after the registration statement is

.filed,sales may not be made until the registration statement has become "effective." A copy of the prospectus must be furnished to

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

registrant and the underwriter are responsible for the contents of

the registration statement. The Commission has no authority to

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

sale or to pass upon its merits or the terms of its distribution. Its

action in permitting a registration statement to become effective does

not constitute approval of the securities, and any representation to

a prospective purchaser of securities to the contrary is made unlawful

by Section 23 of the Act.

DESCRIPTION OF THE REGISTRATION PROCESS

Registration Statement and Prospectus

Registration of any security proposed to be publicly offered may

be effected by filing with the Commission a registration statement

on the applicable form containing the prescribed disclosure. Generally speaking, when a registration statement relates 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

20
TWENTY-NINTH ANNUAL REPORT 21

which should be made available to an investor in order that he may

make a realistic appraisal of the company and the securities and

thus exercise an informed judgment 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 appropriate forms, and to increase, or in certain instances

vary or diminish, the particular items of information required to

be disclosed in the registration statement as the Commission deems

appropriate in the public interest or for the protection of investors,

The Commission has prepared special registration forms which vary

in their disclosure requirements so as to provide maximum disclosure

of the essential facts pertinent in a given type of case while at the

same time minimizing the burden and expense of compliance with

the law.

In general, the registration statement of an issuer other than a foreign government must describe such matters as the names of persons

who participate in the direction, management, or control of the issuer's

business; their security holdings and remuneration and the options or

bonus and profit-sharing privileges allotted to them; the character

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

and earnings, and its financial statements, certified by independent

accountants; underwriters' commissions; payments to promoters made

within 2 years or intended to be made; the interest of directors, officers

and principal stockholders in material transactions; pending or threatened legal proceedings; and the purpose to which the proceeds of the

offering are to be applied. The prospectus constitutes a part of the

registration statement and presents the more important of the required

disclosures.

Examination Procedure

Registration statements are examined by the staff of the Division of

Corporation Finance for compliance with the standards of accurate

and full disclosure. The registrant is usually notified by an informal

letter of comment of any material respects in which the statement

appears to fail to conform with the applicable requirements and is

afforded an opportunity to file correcting or clarifying amendments.

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

for hearing, to issue an order suspending the effectiveness of a registration statement if it finds that material representations are misleading, inaccurate or incomplete. In certain cases, such as where the

deficiencies in a registration statement appear to stem from careless

disregard of applicable requirements or from a deliberate attempt to

conceal or mislead, a letter of comment is generally not sent and the

Commission either institutes an investigation to determine whether
22 SECURITIES AND EXCHANGE COMMISSION

stop-order proceedings should be instituted or immediately institutes

stop-order proceedings. Information about the use of this "stoporder" power during 1963 appears below under "Stop-Order

Proceedings."

Time Required to Complete Registration

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

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

statement shall become effective on the 20th day after it is filed (or on

the 20th day after the filing of any amendment thereto) . Since most

registration statements require one or more amendments, they usually

do not become effective until some time after the original 20-day

period. This waiting period is intended to afford investors an opportunity to become familiar with the proposed offering through the

dissemination of the preliminary form of prospectus. The Commission is empowered to accelerate the effective date so as to shorten the

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

adequacy of the information respecting the issuer theretofore available

to the public, the ease with which the facts about the new offering can

be disseminated and understood, and the public interest and the protection of investors. The note to Rule 460 under the Act indicates, for

the information of interested persons, some of the more common situations in which the Commission considers that the statute generally

requires it to deny acceleration of the effective date of a registration

statement.

During the 1963 fiscal year, 985 registration statements became

effective.' The number of calendar days which elapsed from the date

of the original filing to the effective date of registration for the median

registration statement was 52, compared with 78 days for 1,646 registration statements in fiscal year 1962, and 55 days for 1,389registration

statements in fiscal year 1961. The number of registration statements

filed during fiscal year 1963was 1,159,as compared with 2,307and 1,830

in fiscal years 1962and 1961,respectively,"

The following table shows by months during the 1963 fiscal year

the number of calendar days for the median registration statement

during each of the three principal stages of the registration process,

1This figure excludes tire 172 registration statements ot investment companies filed pursuant to the provisions of Section 24(e) of the Investment Company Act of 1940, that

became ell'ect1ve during fiscal year 1963. The average elapsed time on these 172 statements was 20 calendar days.

These figures include 174, 201 and 156 registration statements, respeet1vely. 11100by

investment companies pursuant to the provisions of Section 24(e) of the Investment Company Act of 1940 during fiscal years 1963, 1962 and 1961.

•
TWENTY-NINTH ANNUAL REPORT 23

the total elapsed time and the number of registration statements

effective:

Time in registration under the Securities Act of 1933 by months during the fiscal year

ended June 30, 1963

NUMBER OF CALENDAR DAYS

From date of From date of From amendonginal filing letter of com- ment after Total number Number of

Months to date of ment to date letter to of days In registration

staff's letter of filing effective registration statements of comment amendment date of effective »

thereafter registration

luly 1962________________________ 35 20 13 68 81 August, _________________________ 31 17 14 62 82 September _______________________ October 31 30 16 77 82 _________________________ 33 19 16 68 89 November _______________________ 24 22 13 59 73 December _______________________ 31 25 15 71 75 lanuary 1963____________________ 24 16 9 49 68 February ________________________ 25 18 9 52 61 March ___________________________ 23 11 7 41 62

tfa~:.: .:

20 10 5 35 115

24 11 5 40 113 lune _____________________________ 25 12 6 43 84

Flscal 1963 for median effective registration statement, ________ 27 17 8 52 985

See footnote 1 to text, mpra.

VOLUME OF SECURITIES REGISTERED

During the fiscal year 1963, a total of 1,157 statements in the amount

of $14.8 billion became fully effective under the Securities Act of 1933.

This was a decrease of 37 percent in number of statements and 24 percent in dollar amount from the record registrations of the preceding

fiscal year. The chart on page 9 shows the number and dollar amounts

of fully effective registrations from 1935 to 1963.

These figures cover all registrations which became fully effective,

including secondary distributions and securities registered for other

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

conversion. Of the dollar amount of securities registered in 1963,

80 percent was for account of issuer for cash sale, 12 percent for account of issuer for other than cash sale and 8 percent for account of

others, as shown below.

Account for which securities were registered under the Securities Act of 1933 during

the fiscal year 1963 compared with the fiscal years 1962 and 1961

1963 In Percent 1962 in Percent 1961 In Percent

millions of total millions of total mil1lons of total

--- --- --- --- --- Registered for account of issuer for cash sale_____________________________________ $11,869 80.2 $16,286 83.3 $16,260 85.3

Registered for account of Issuer for other than cash sale___________________________1,782 12.1 1,523 7.8 1,504 7.9

Registered issuer___________________________________ for account of others than

1,139 7.7 1,738 8.9 1,306 68

TOtal_. ------ --- --- --- 14,790 100.0 19,547 100.0 19,070 100.0

= = = = = = = = = = = = = = = = = = = = = =

•

-

___________________ •_______ ---
24 SECURITIES AND EXCHANGE COMMISSION

The $11.9 billion of securities to be offered for cash sale for account

of issuer represented a decrease of $4.4 billion, or 27 percent, from the

previous year. This was due chiefly to a decrease of almost $4.3 billion

in common stock, debt securities declining by only $140 million. Debt

securities made up $4.4 billion of the 1963 volume, preferred stock $270

million and common stock $7.2 billion. Of issues for cash sale, most

of the common stock, 88 percent, was to be offered over an extended

period, including investment company issues, stock to be issued under

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

Appendix Table 1 shows the number of statements which became

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

through 1963, and contains a classification, by type of security, of issues

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

More detailed information for 1963 is given in Appendix Table 2.

Corporate issues scheduled for immediate offering following effective registration amounted to $5.1 billion, a decrease of $1.2 billion

from the previous year. Of the total, electric, gas and water companies

registered $2.3 billion of securities, about the same amount as in the

preceding 2 years. The total for communication companies was $1.1

billion, exceeding the volume registered in fiscal year 1962 by 35 percent. All other groups, except for the extractive industry, registered

lower amounts for immediate offering. The decline was greatest for

manufacturing companies with $850 million of issues in 1963 compared

with $1.8 billion in 1962. Issues registered for offering over an extended period amounted to $6.5 billion, as against $9.7 billion in fiscal

year 1962.

1963 in Percent 1002 in Percent 1001 in Percent

m1llIons or total mllllons ortotal mllllons ortotal

--- --- --- --- --- Issues offered for immediate sale:

C?T..~}:ctur1ng _._ $844 7.1 $1,818 11.2 $1,979 122 Extractive __________________________ 141 1.2 92 .6 105 .6 Electric, gas and water 2,266 19.1 2,327 143 2,385 14.7 Transportation. other than railroad; __ 16 .1 57 4 221 1.4 Communtcanon.; _. •. 1,135 9.6 840 52 2,389 14.7 Financial and real estate., _____. ______ 641 4.6 772 4.7 1,264 7.8 Trade. _____________. ___. _______. _____. 88 .7 287 1.8 258 1.6 Service. . . 52 4 111 .7 82 .5 Construction and mise, _______________ 3 .0 15 .1 36 .2

--------- --- --- --- TotaL _.______. ____________________ . 5,086 42.9 6,319 388 8,718 53.6 Foreign government_. . 266 2.2 247 1.5 155 1.0

Total for immediate sale ____________--- --- --------- --- 5,352 45.1 6,566 40.3 8,873 64.6

Issues offered over an extended period ••••• 6,516 64.9 9,721 59.7 7,387 45.4

--- ------ ---

16'2601~

Total for cash sale for account of Issuer. 11,869 100.0 16,286 100.0

____•______•_______• •

•••_____________

_____•______ ____

______________•_____________

____•____________

_______•_••••• __•• _____•____
TWENTY-NINTH ANNUAL REPORT 25

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

classified as follows;

1963 In 1962 In 19611n milhons millions millions

---------------------1--- ------ Investment company issues: Management open-end

Management closed-end Unit investment trust

Face-amount certificate

Total Investment compames

Employee saving plan certIficates

Securities for employees stock option plans

Other, meludtng stock for warrants or options

$3,500

69 1,055

96 4,720

667

990

139

$4,213

309

1,258 176

5,956

572 1,314

1,879

$3,621 196 1,330

254

5,401

487

1,299

200

Of the $5.1 billion expected from the immediate cash sale of corporate securities for the account of issuer in 1963, 73 percent was designated for new money purposes, including plant, equipment and working capital, 17 percent for retirement of securities and 10 percent for

all other purposes including purchases of securities.

REGISTRATION STATEMENTS FILED

During the 1963 fiscal year, 1,159 registration statements were filed

for offerings of securities aggregating $14.7 billion, as compared with

2,307 registration statements filed during the 1962 fiscal year for

offerings amounting to $21.6 billion. This represents a decrease of

49.8 percent in the number of statements filed and 32 percent in the

dollar amount involved.

Of the 1,159 registration statements filed in the 1963 fiscal year, 357,

or 31 percent, were filed by companies that had not previously filed

registration statements under the Securities Act of 1933. Comparable

figures for the 1962 and 1961 fiscal years were 1,377, or 60 percent,

and 958, or 52 percent, respectively.

From the effective date of the Securities Act of 1933 to June 30, 1963,

a cumulative total of 22,854 registration statements has been filed

under the Act by 10,863 different issuers, covering proposed offerings

of securities aggregating over $240 billion.

- _

_

_

_

_

_

_

- _
26 SECURITIES AND EXCHANGE COMMISSION

Particulars regarding the disposition of all registration statements

filed under the Act to June 30, 1963, are summarized in the following

table:

Number and disposition of registration statements filed

Prior to July July I, 1962 Total June

I, 1962 to June 30, 30,1963

1963

Registration statements: Flied 21,695 '1,159 22,854

Dtsposmon: Etfectlve (net) 18,628 '1,120 19,714 Under stop or refusal order ____________________________ 219 3 d220 Wlthdrawn ___________________________________________ 2,118 491 2,609 Pendmg at June 30,1962 ______________________________ Pending 730 -------------- -------------- at June 30, 1963______________________________ -------------- ---------_._-- 311

TotaL __________________ 21,695 -------------- 22,854

Aggregate dollar amount: As tlled (in bllhons) $225.4 $14 7 $240 1

As etfective (in billions) 215.9 14.8 230.7

Includes 174 registration statements covering proposed otferings tota!lng $4,250,676,997 tlled by invest- ment companies under Section 24(e) olthe Investment Company Act ot1940, which permits registration by amendment to a previously etfectlve registration statement . Excludes 37 registration statements that hecame etfective during the year but were subsequently withdrawn; these 37 statements are counted in the 491 statements withdrawn during the year. Excludes 34 registration statements etfective prior to July I, 1962, that were WIthdrawn during the 1963

fiscal year; these statements are counted under withdrawn. d Excludes 1registration statement that became etfectlve during the year by lifting ofstop order; and also

excludes 1registration statement that was Withdrawn after the stop order was lifted. These statements are counted under etfectlve and withdrawn, respectively.

The reasons given by registrants for requesting withdrawal of the

491 registration statements that were withdrawn during the 1963

fiscal year are shown in the following table:

Number of Percent

Reason for registrant's withdrawal request statements oftotal

withdrawn withdrawn

1. Withdrawal reqnested after receipt of the statf's letter of comment ____________ 44 9

2. Registrant was advised that statement should be withdrawn or stop order

~:g!Eirr=~~=~=====================::::=:===::::=:=:=:=::=: 5 1 167 34

237 48 5. Financing obtained elsewhere 6 1 6. Regulation A could be used . 3 1

7. Registrant was unable to negotiate acceptable agreement WIth underwriter ___ 27 5 8. Registration not required _________. ___________________________________________ 2 1

TotaL . . _____ . 491 100

STOP ORDER PROCEEDINGS

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

time that a registration statement contains an untrue statement of

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

therein or necessary to make the statements therein not misleading,

the Commission may institute proceedings looking to the issuance of

a stop order suspending the effectiveness of the registration statement.

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

________•____________________________________________

__-_____________________________________ •

___________________ • • •______

____•__________________________________

____•______________________________

•

•

•

__• ______________________________________________ __• _______________________________________________

_______________________________________________•_____________
TWENTY-NINTH ANNUAL REPORT 27

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

has been amended to cure the deficiencies and the Commission has

lifted the stop order.

The following table shows the number of proceedings under

Section 8(d) of the Act pending at the beginning of the 1963 fiscal

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

and the number pending at the end of the year.

Proceedings pending at beginning of fiscal year 5

Proceedings initiated during fiscal year_________________________ 8

13

Proceedings terminated during fiscal year by issuance of stop orders______ 3

Proceedings pending at the end of the 1963 fiscal yeaL_________________ 10

Two of the proceedings which were terminated during the fiscal

year through the issuance of stop orders are described below:

The Richmond Corporation.-The registrant, a District of Columbia corporation organized in 1959, engages in various phases of the

real estate business, including the ownership of undeveloped acreage,

income-producing properties, and promissory notes secured by mortgages and deeds of trust. Itfiled a registration statement covering a

proposed offering of 142,858shares of 10 cent par value common stock

at $7 per share, 36,500 common stock purchase warrants to be sold to

the underwriter at 1 cent per warrant, and 36,500 shares of common

stock reserved for issuance upon exercise of the warrants.

The Commission instituted proceedings under Section 8(d), and the

registrant stipulated certain facts and consented to the entry of a stop

order," Following are some of the more important deficiencies in the

registration statement:

The Commission found the registration statement to be materially

deficient in failing to disclose that various officers and directors of the

registrant were engaged, through companies similar to the registrant

which they control, or in person, in competitive real estate activities

which involved potential conflicts of interest with the business purposes of the registrant. The Commission accordingly concluded that

the statement in the prospectus that "There are no business relations

between the Board members or officers or promoters which are competitive with, or in conflict with the business purposes of the company," was materially false and misleading.

The managing underwriter named in the registration statement, a

sole proprietorship, was organized February 14, 1961. Its owner's

only prior experience in the securities business was as a securities salesman between May and December 1960. The firm's only experience as

SecurIties Act Release No. 4584 (February 21. L96lt).

•

•
28 SECURITIES A1\TDEXCHANGE COMMISSION

an underwriter was in connection with two proposed offerings neither

of which involved securities of real estate investment companies. One

of these offerings was deregistered shortly after the registration statement became effective. In the other offering, made pursuant to a

claimed exemption from registration under Regulation A under the

Act, the firm acted together with co-underwriters and sold 30,000

shares at $2 per share. The Commission held that the limited experience of the underwriter was a material factor bearing on the success

of the offering and that the failure to disclose it was a material

omission.

The Commission's opinion stated that the underwriter's investigation of registrant's business was so limited in nature that he did not

exercise the degree of care necessary for and required of an underwriter to satisfy himself as to the accuracy and adequacy of the prospectus. His investigation consisted of (1) visits to two of the registrant's three tracts of land, (2) an examination of a list of registrant's

stockholders and (3) the obtaining of a credit report on the registrant's

president. As to all other matters in connection with the registration

statement, the underwriter apparently relied only on representations

of the registrant's management. The Commission referred to a report,

which preceded the passage of the Act, in which the Congress recognized that the high standards of honesty, care and competence required

of fiduciaries were responsibilities assumed by reputable investment

bankers.' The Commission also cited various provisions in the Securities Act and the Securities Exchange Act which imposed upon underwriters a responsibility to conform to those standards upon pain of

severe civil liability or revocation of broker-dealer registration.

Doman Helicopters, Inc.-The registrant was organized in 1945

for the purpose of developing certain inventions in the field of helicopter rotor construction. It had never engaged in any substantial

manufacturing activity and had never earned a profit. Its financial

history had been marked by continual difficulties and by the repeated

conversion of creditors' rights into common stock positions. Its future

plans were predicated on a proposed helicopter to be called the DlOB, which was intended to be a variant of an earlier model, two

prototypes of which had been sold to and tested by the Defense Department. After testing these earlier prototypes and after making an

extensive study of the registrant's rotor system, the Department of

Defense had found "no significant advantages in the Doman rotor

system over other types."

On April 19, 1962, registrant filed a registration statement wi~h

respect to 681,971shares of its common stock to be offered to the public

• H. Rept. No. SIl. 1M Cong., 1st Sess. (1983) at p. II.
TWENTY-NINTH ANNUAL REPORT 29

without the aid of underwriters. At that time its liabilities were in

excess of its assets and its shares had a book value of minus 30 cents

per share. This book value would have increased to 55 cents per share

if all of the shares covered by the registration statement had been sold

at the proposed offering price. Purchasers would therefore have suffered a substantial immediate dilution, the benefit of which would

have inured entirely to the existing stockholders.

The cover page of the prospectus stated that the shares were being

offered as a speculation and referred the reader to a section headed

"The Company," which summarized the registrant's poor financial

history and stated that it was then insolvent, but which made no

reference to the dilution aspects of the offering, to the fact that there

was no D-IOB in existence, or to the history of the registrant's dealings with the Defense Department. Elsewhere in the prospectus a

passing reference was made to the registrant's unsuccessful efforts to

secure military markets for its helicopters. But neither the nature

of those efforts, which had in fact been strenuous and persistent, nor

the Department's adverse action with respect to them was disclosed.

The prospectus spoke of the D-IOB as though it were an existing

helicopter and claimed that it was superior to other helicopters without ever disclosing that it had never been flown, tested or even assembled in prototype form. The prospectus claimed that the registrant's hingeless rotor system was superior to other devices, stated

that it was the "only fully developed and proven helicopter design

concept" that did not involve the use of hinges, and implied that the

system was protected by an elaborate patent structure. It did not

disclose the fact that the system had never been subjected to normal

day to day usage and made no mention of the fact that two of the

registrant's competitors were developing hingeless rotor systems, something that the registrant's patents did not preclude them from doing.

Moreover, during the course of the stop order proceedings the registrant conceded that hingelessness was not in itself meaningful and

that the discussion of hingelessness in the prospectus was incomplete.

The Commission issued a stop order that suspended the effectiveness

of the registration statement," It found that there was no adequate

factual foundation for the registrant's claims with respect to the

merits of the D-IOB and its hingeless rotor system. The failure to

disclose the facts that the Department of Defense had found registrant's hingeless rotor system to be devoid of any special merit was

held a material omission. The registrant argued that it was under

no duty to disclose the Defense Department findings because the persons who made them were biased and incompetent and because it did

• Securities Act Release No. 4594 (March 27,1963).
30 SECURITIES AND EXCHANGE COMMISSION

not intend to sell to the military. The Commission disagreed, holding that: "Irrespective of the correctness of the Department's conclusions, they constitute a determination by the technical staff and

responsible authorities of the largest single purchaser of helicopters

that for their purposes registrant's rotor system has no special merit.

Such determination was a significant adverse factor, and the failure

to disclose it rendered the prospectus misleading."

The Commission also found, among other deficiencies, that the

prospectus "presented an incomplete and distorted portrayal of the

complex of risk elements involved," that "it was essential that the

speculative aspects of registrant's business and the dilution aspects

of the offering be set forth and described concisely and lucidly at the

very outset of the prospectus under an appropriate caption directing

attention to the fact that special risks are present," and that neither

the heading "The Company" used in the body of the prospectus nor

the statement on its cover page that the securities were offered as

a speculation was sufficientto serve that purpose.

Registrant argued that the registration statement against which

the proceeding was directed was a mere "preliminary filing," which

it had always intended to amend, contended that the proceeding had

been prematurely brought since no letter of comment had been sent

by the Commission's staff, and asked the Commission to deem the

registration statement to have been superseded by an amended registration statement filed while the hearings were in progress. The

Commission held that registrant's "preliminary filing" concept had

no statutory basis, that "registrants are under a duty to make every

effort to see to it that their initial filings measure up to the standards

prescribed by the Act," and that letters of comment were merely informal administrative aids "developed ... for the purpose of assisting those registrants who have conscientiously attempted to comply

with the Act," which are "not generally employed where the deficiencies appear to stem from careless disregard of the statutes and rules

or a deliberate attempt to conceal or mislead or where the Commission

deems formal proceedings necessary in the public interest." With

respect to the assertedly curative amendment that had been filed after

the institution of the proceeding, the Commission pointed out that

it considers such amendments only when it is of the opinion that such

consideration will be in the best interests of investors and of the public.

It concluded that this was not such a case in view of the serious character of the deficiencies, the large amount of the registrant's stock

outstanding and held by approximately 8,000public investors, the fact

that the misleading information in the registration statement had

been a matter of public record on which investors might have relied,
TWENTY-NINTH ANNUAL REPORT 31

and the further facts that the registrant had done nothing to advise

its stockholders and investors generally of the misleading character

of the information in the registration statement, and that the amendment was itself misleading and inadequate.

EXAMINATIONS AND INVESTIGATIONS

The Commission is authorized by Section 8(e) of the Aot 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 examine witnesses and require the production of pertinent documents. The Commission is also authorized

by Section 20(a) of the Act to make an investigation to determine

whether any provision of the Act or of any rule or regulation prescribed thereunder has been or is about to be violated. In appropriate

cases, investigations are instituted under this Section as an expeditious

means of determining whether a registration statement is false or misleading or omits to state any material fact. The following table

indicates the number of such examinations and investigations with

which the Commission was concerned during the fiscal year:

Investigations pending at beginning of fiscal year________________ 27

Investigations initiated during the fiscal year____________________ 20

47

Investigations closed during the fiscal year____________________________ 12

Investigations pending at the close of the fiscal year __ 35

EXEMPTION FROM REGISTRATION OF SMAIL ISSUES

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

Act to exempt, by its rules and regulations and subject to such terms

and conditions as it may prescribe therein, any class of securities from

registration under the Act, if it finds that the enforcement of the registration provisions of the Act with respect to such securities is not

necessary in the public interest and for the protection of investors

by reason of the small amount involved or the limited character of the

public offering. The statute imposes a maximum limitation of $300,-

000 upon the size of the issues which may be exempted by the Commission in the exercise of this power.

Acting under this authority, the Commission has adopted the following exemptive rules and regulations:

Rule 234: Exemption of first lien notes.

Rule 235: Exemption of securities of cooperative housing corporations.

Rule 236: Exemption of shares offered in connection with certain transactions.
32 SECURITIES AND EXCHANGE COMMISSION

Regulation A: General exemption for United States and Canadian issues

up to $300,000.

Regulation B: Exemption for fractional undivided interests in oil or gas

rights up to $100,000.

Regulation F: Exemption for assessments on assessable stock and for

assessable stock offered or sold to realize the amount of assessment

thereon.

Under Section 3(c) of the Securities Act, which was added by

Section 307(a) of the Small Business Investment Act of 1958, the

Commission is authorized to adopt rules and regulations exempting

securities issued by a company which is operating or proposes to operate as a small business investment company under the Small Business

Investment Act. Acting pursuant to this authority, the Commission

has adopted a Regulation E which exempts upon certain terms and

conditions limited amounts of securities issued by any small business

investment company which is registered under the Investment Company Act of 1940. This regulation is substantially similar to the one

provided by Regulation A adopted under Section 3 (b) of the Act.

Exemption from registration under Section 3 (b) or 3 (c) of the Act

does not carry any exemption from the civil liabilities for false and

misleading statements imposed upon any person by Section 12(2)

or from the criminal liabilities for fraud imposed upon any person by

Section 17 of the Act.

Exempt Offerings Under Regulation A

The general exemption under Section 3(b) is embodied in Regulation

A, Rules 251-263 under the Act, which permits a company to obtain

needed capital not in excess of $300,000 (including underwriting commissions) in any 1 year from a public offering of its securities without

registration, if the company complies with certain requirements.

Secondary offerings by control persons are limited under the regulation to $100,000 in a year for anyone such person, but a total of

$300,000 for all such persons and the issuer. Regulation A requires

that the issuer file a notification supplying basic information about the

company, certain exhibits, and an offering circular which must be used

in offering the securities. However, in the case of a company with an

earnings history which is making an offering not in excess of $50,000

an offering circular need not be used. A notification is filed with the

Regional Officeof the Commission in the region in which the company

has its principal place of business.

During the 1963fiscal year, 517 notifications were filed under Regulation A, covering proposed offerings of $101,040,982,compared with

1,065 notifications covering proposed offerings of $237,238,600 in the

1962fiscal year. Included in the 1963total were 34 notifications covering stock offerings of $3,819,980 with respect to companies en~a~ed
TWENTY-NINTH ANNUAL REPORT 33

in the exploratory oil and gas business, 21 notifications covering offerings of $5,035,410by mining companies and 16 notifications covering

offerings of $3~414,548by companies featuring new inventions, products

or processes.

The following table sets forth various features of the Regulation A

offerings during the past 3 fiscal years:

Offerings Under Regulation A

Fiscal year

SIze:$100,000 or less Over $100,000 but not over $200,000 Over $200,000 but not over $300,000

1963

143

104

270

1962 I 1961

--1---

160 165 208 201

697 691

Underwriters: Oommercial underwnters used

Officers, directors, or others as underwriters and no underwriters

Ofierors. Issuing companies Stockholders

Issuers and stockholders jointly

517

108

409

476

34

7

1,065

528

537

1,00024

41

1,057

511

546

1,006

28

23

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 with prescribed disclosure standards. Following the issuance of a

temporary suspension order by the Commission, the respondents may

request a hearing to determine whether the temporary suspension

should be vacated or made permanent. If no hearing is requested

within 30 days after the entry of the temporary suspension order and

none is ordered by the Commission on its own motion, the temporary

suspension order becomespermanent.

During the 1963fiscal year, temporary suspension orders were issued

in 53 cases, which, added to the 31 cases pending at the beginning of

the year, resulted in a total of 84 cases for disposition. Of these, the

temporary suspension order was vacated in 2 cases and became permanent in 55 : in 27 by lapse of time, in 20 by withdrawal of the request

for hearing, and in 8 after hearing. Thus, there were 27 cases pending

at the end of the fiscal year.

One of the cases disposed of during the year is summarized below

to illustrate the type of misrepresentations and other noncompliance

with the regulation which led to the issuance of suspension orders.

717-94~4--4

_

_

_

====

_

_

_

_

_
34 SECURITIES AND EXCHANGE COMMISSION

General Aeromation, Inc.-General Aeromation filed a notification and offering circular under Regulation A in March 1960,relating

to a proposed public offering of 84,450 shares of common stock at $3

per share. The company proposed to develop and market a selfpowered vehicle, invented by Henry J. Wiebe, the issuer's president,

and named "Romatt," which was designed to transport aircraft to and

from various airport locations such as hangars and runways. One

version of the vehicle was designed for commercial use and another

for military use. The offering circular included a letter from the

issuer's patent attorney to the effect that the Air Force and commercial airlines were "desperately" in need of ground handling equipment, and the circular stated that the device had been checked by competent industry sources, that no satisfactory ground equipment of comparable nature was available, and that no direct known competition

existed employing the Romatt method of moving heavy aircraft on the

ground. The offering circular projected a military market of up to

1,000Romatt-type vehicles and stated that the issuer expected to market or lease a considerable number of units to commercial airlines "as

they are manufactured and . . . tested."

In its order suspending the exemption for this offering, the Commission held that these representations were false or misleading," It

found that, at the time of filing, both commercial and military aircraft

were being handled by specially designed ground equipment which

was considered to be reasonably adequate. During 1958, the Air

Force had issued a request for proposals for the development of

ground equipment which would meet certain performance specifications, but several proposals submitted by Wiebe and the issuer had

been rejected. There was no tangible evidence of prospects of acceptance of the vehicle for commercial use, and at the time of the

filing, no commercial model had been completed, tested or demonstrated inactual operation.

The Commission stated that, regardJess of whether the issuer in

good faith believed in the merits and potential success of its product,

it must make an adequate, accurate and fair presentation of all material factors so that public investors may be able to decide for themselves whether to invest. It further stated that the presentation of

an optimistic picture of the issuer's prospects, -though qualified by

certain general concessions, but without disclosure of significant

adverse information, created a materially misleading picture even

though individual representations in another context might not be

objectionable.

• Securities Act Release No. 41)36 (September 19, 1962).
TWENTY-~Il\-rrH ANNUAL REPORT 35

The Commission rejected certain evidence proffered by the issuer

after the recommended decision of the hearing examiner and exceptions thereto had been filed, which assertedly reflected certain favorable developments. It pointed out that its findings were based on

the deficienciesof the offering circular at the time it was filed and that

subsequent developments could not remedy prior misstatements and

failures to state adverse material facts.

In addition to the misstatements discussed above, the Commission

found that there were a number of other misstatements in the offering

circular, that the aggregate offering price exceeded $300,000, and that

offering circulars were mailed out earlier than permitted.

Exempt Offerings Under Regulation B

During the fiscal year ended June 30, 1963, 231 offering sheets and

248 amendments thereto were filed pursuant to Regulation B and were

examined by the Oil and Gas Section of the Commission's Division

of Corporation Finance. During the 1962 and 1961 fiscal years, 229

and 261 offering sheets, respectively, were filed. The following table

indicates the nature and number of Commission orders issued in connection with such filings during the fiscal years 1961-63. The balance

of the offering sheets filed became effective without order.

Action taken on offering sheets filed under Regulation B

Fiscal years

1963 1962 1961

--- --- Temporary suspension orders (under Rule 340(aJl ________________________ 25 34 16 Orders terminating proceedmg after amendment __________________________ 13 9 6 Orders consenting to withdrawal of offermg sheet and terminating pro- ceedmg __________________. ________________________. _____________________ { 6 1 Orders permanently suspendmg the effectiveness of 1Illng of offering sheet; __________________________________________________________________ 1 ---------- ---------- Notice of opportunity forbearing (under Rule 340(b}) 6

Notice and order for hearing (pursuant to Rule 340(b~------------------ 1 ------i38- -------i&8 Orders fixing effective <late of amendment (no procee g pending) ____. __ 163 Orders consenting to withdrawal of offering sheet (no proceeding pending) __ 12 11 7

Total numher of orders ____________________________________________ --- --- --- 216 197 188

Exempt Offerings Under Regulation E

Regulation E provides a conditional exemption from registration

under the Securities Act of 1933 for securities of small business investment companies which are licensed under the Small Business

Investment Act of 1958, or which have received the preliminary approval of the Small Business Administration and have been notified

by the Administration that they may submit an application for such

a license.

The Regulation, which is similar in many respects to the general

exemption provided by Regulation A, requires the filing of a notifica-

_____________________ ---------- ----------
36 SECURITIES AND EXCHANGE COMMISSION

tion with the Commission and, except in the case of offerings not in

excess of $50,000,the filing and use of an offering circular containing

certain specified information.

Regulation E provides for the suspension of the exemption in particular cases if the Commission finds that any of the terms and conditions of the regulation have not been met or complied with.

During the 1963 fiscal year, one notification was filed under Regulation E, covering a proposed offering of $264,000, and became

effective.

Exempt Offerings Under Regulation F

Regulation F provides an exemption from registration under the

Securities Act for assessments levied upon assessable stock and for

delinquent assessment sales in amounts not exceeding $300,000in any

one year. It requires the filing of a simple notification giving brief

information with respect to the issuer, its management, principal security holders, recent and proposed assessments and other security

issues. The Regulation requires a company to send to its stockholders,

or otherwise publish, a statement of the purposes for which the proceeds from the assessment are proposed to be used. If the issuer

should employ any other sales literature in connection with the assessment, copies of such literature must be filed with the Commission.

During the 1963 fiscal year, 35 notifications were filed under Regulation F, covering assessments of $937,425. Regulation F notifications were filed in three of the nine regional officesof the Commission:

Denver, San Francisco and Seattle. Underwriters were not employed in any of the Regulation F assessments.

Regulation F provides for the suspension of an exemption thereunder, as in Regulation A, where the Regulation provides no exemption or where the offering is not made in accordance with the terms

and conditions of the Regulation or in accordance with prescribed

disclosure standards.

One Regulation F filing was temporarily suspended in the fiscal

year 1963. No hearing was requested and none was ordered by the

Commission, with the result that the suspension order became

permanent on the 30th day after its entry.
American Stock Exchange

Boston Stock Exchange

Chicago Board of Trade

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 national

securities associations and 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 transactions on the organized exchanges and in the over-the-counter

markets.

REGULATION OF EXCHANGES AND EXCHANGE TRADING

Registration and Exemption of Exchanges

As of June 30, 1963, 14 stock exchanges were registered under the

Exchange Act as national securities exchanges:

New York Stock Exchange

Pacific Coast Stock Exchange

Philadelphia Baltimore-Washington

Stock Exchange

Cincinnati Stock Exchange Pittsburgh Stock Exchange

Detroit Stock Exchange Salt Lake Stock Exchange

Midwest Stock Exchange San Francisco Mining Exchange

National Stock Exchange Spokane Stock Exchange

Four exchanges were exempted from registration by the Commission pursuant to Section 5 of the Act:

Colorado Springs Stock Exchange

Honolulu Stock Exchange

Richmond Stock Exchange

Wheeling Stock Exchange

37

-
38 SECURITIES A....I"m EXCHANGE CO:MMISSION

Disciplinary Action

Each national securities exchange reports to the Commission disciplinary actions taken against any member, member firm, or person

connected therewith, for violation of any rule of the exchange, of the

Securities Exchange Act, or of any rule or regulation thereunder.

During the year 9 exchanges reported 75 cases of such disciplinary

actions, including imposition of fines ranging from $50 to $5,000 in

34 cases, with total fines aggregating $58,350; the suspension from

membership of 4 member firms and 15 individuals, 2 of whom also had

their specialist registration revoked; the expulsion of 3 individual

members and 1 allied member; the revocation of the registration of 1

member as an odd-lot and round-lot dealer; and the censure of a number of individuals and firms. Various other sanctions were imposed

against registered representatives and other employees of member

firms.

REGISTRATION OF SECURITIES ON EXCHANGES

Unless a security is registered under the Exchange Act or is exempt

from such registration it is unlawful for a member of a national securities exchange or a broker or dealer to effect any transaction in

the security on an exchange. In general, the Act exempts from registration obligations issued or guaranteed by a state or the Federal Government or by certain subdivisions or agencies thereof and authorizes

the Commission to adopt rules and regulations exempting such other

securities as the Commission may find necessary or appropriate to exempt in the public interest or for the protection of investors. Under

this authority the Commission has exempted securities of certain banks,

certain securities secured by property or leasehold interests, certain

warrants and, on a temporary basis, certain securities issued in substitution for or in addition to listed securities.

Pursuant to Section 12 of the Exchange Act, an issuer may register

a class of securities on an exchange by filing with the Commission and

the exchange an application which discloses pertinent information concerning the issuer and its affairs. Information must be furnished

regarding the issuer's business and capital structure, the terms of its

securities, the persons who manage or control its affairs, the remuneration paid to its officers and directors, and the allotment of options,

bonuses and profit-sharing plans, and financial statements certified

by independent accountants must be filed as part of the application.

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.
TWENTY-NINTH ANNUAL REPORT 39

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 applications filed on 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 of Securities on Exchanges

As of June 30, 1963, a total of 2,417 issuers had 4,048 classes of securities listed and registered on national securities exchanges, of which

2,835 were classified as stocks and 1,213as bonds. Of these totals, 1,359

issuers had 1,578stock issues and 1,135 bond issues listed and registered

on the New York Stock Exchange. Thus, 56 percent of the issuers,

56 percent of the stock issues and 94 percent of the bond issues were

on the New York Stock Exchange.

During the 1963 fiscal year, a total of 195 applications for registration of classes of securities on exchanges was filed. Securities were

listed and registered for the first time by 115 issuers; the registration

of all securities of 103 issuers was terminated.

The following table shows the number of reports filed during the

fiscal year pursuant to Section 13 of the Exchange Act and those filed

under Section 15(d) of the Act by issuers obligated to file reports by

reason of having publicly offered securities effectively registered under the Securities Act of 1933. As of June 30,1963, there were 2,827

such issuers, including 297 that were also registered as investment companies under the Investment Company Act of 1940. The table also

includes the number of annual reports, quarterly reports and reports

to stockholders filed by issuers subject to the reporting requirements

of Section 30 of the Investment Company Act.
40 SECURITIES AND EXCHANGE COMMISSION

Number of annual and other periodic reports filed by issuers under the Securities

Exchange Act of 1934 and the Investment Company Act of 1940 during the fiscal

year ended June 30, 1963

Number of reports filed by

Over-the- Issuers

LISted counter filing Total

Type of reports issuers issuers reports reports

filmg filmg under Sec- filed

reports reports tion 30 of

under under Investment

secnon 13 Section Company

15(d) Act

Annual reports on Forms lo-K, N-30A-l, etc ____________ 2,204 2,170 530 4,904 Semiannual reports on Form 9-K ________________________ 1,889 1,719 ------------ 3,608 Current reports on Form 8-K ____________________________ 3,904 2,840 ----.------- 6,744 Quarterly reports on Form 7-K 71 191 262 Quarterly reports on Form N-30B-L 300 300 Reports to stockholders (Section 30(d» ___________________------------ ------------ 1,668 1,568

Total reports filed 8,068 6,920 2,398 17,386

MARKET VALUE OF SECURITIES TRADED ON EXCHANGES

The market value on December 31, 1962, of all stocks and bonds

admitted to trading on one or more stock exchanges in the United

States was approximately $486,633,613,000.

Stocks: New York Stock Exchange Amencan Stock Exchange

ExclusIvely on other exchanges

Total stocks -t

Bonds: New York Stock Exchange ". American Stock Exchange

Exclusively on other exchanges

Total bonds

Total stocks and bonds

Number of Market value

Issues Dec. 31, 1962

1,559 $345,846, 116, 000

1,018 24, 365, 144, 000

470 4, 015, 773, 000

3,047 374,227,033,000

1,202 $111, 093, 563, 000

84 1, 169, 762, 000

26 143,255,000

1,312 112, 406, 580, 000

4, 359 486,633, 613, 000

Bonds Included 48 U.S. Government and New York State and CIty Issues with $78,932,285,000 aggregate

market value.

The New York Stock Exchange and American Stock Exchange

figures were reported by those exchanges. There was no duplication

of issues between them. The figures for all other exchanges, which

are based on Commission compilations, represent the net number of

issues appearing only on such exchanges, excluding the many issues

which were also traded on one or the other of the New York exchanges. The number and market value of issues as shown exclude

those suspended from trading and a few others for which quotations

were not available. The number and market values as of December 31,

1962, of preferred and common stocks separately were as follows:

__________________________ ------------ _____________________------------ ------------

_________________•________________

_

_

_

_

• _

_

_

_

_

"
TWENTY-NINTH ANNUAL REPORT 41

Preferred stocks Common stocks

Number Market value Number Market value

Listed on registered exchanges __________________ 568 $9,343,888,000 2,234 $351, 093, 190, 000 All other stocks G_. _____________________________ 48 469,396,000 197 13,320,559,000

Total. ._. 616 9,813,284,000 2,431 364,413,749,000

G Stocks admitted to unlisted trading privileges only or hated on exempted exchanges.

The 3,047 stock issues included over 9.9 billion shares of which over

9.4 billion were included in the 2,802 issues listed on registered

exchanges.

The New York Stock Exchange has reported aggregate market

values of all stock thereon monthly since December 31, 1924, when

the figure was $27.1 billion. The .American Stock Exchange has

reported December 31, totals annually since 1936. Aggregates for

stocks exclusively on the remaining exchanges have been compiled as

of December 31, annually by the Commission since 1948.

Share values on exchanges, in biUions of dollars

New York .American EXclusively

December 31, each year Stock Stock on other Total . Exchange Exchange exchanges

1936 ._. $59.9 $14.8 ------_.-----. $74.7 1937 38.9 10 2 1938 -------.------ 49.1 47.5 10.8 ------_.------ 58.3 1939 46.5 10.1 ------_.------ 56.6 1940

1941.. 41, 9 8.6 ------_.------ 50.5 35.8 7.4 ------_.------ 43.2 1942

1943 38.8 7.8 -------.------ 4G.6 47.6 9.9 -.------------ 57.5 1944 55.5 11.2 -.-.---------- 66.7 1945 73.8 14.4 -------------- 88.2 1946 ._. ._. 68.6 13.2 -------------- 81.8 1947._. ._ 68.3 12.1 ------_.------ 80.4 1948.. 67.0 11. 9 $3 0 81. 9 1949 ._ ._. 76.3 12.2 3.1 91.6 1950 ._. ._. 93.8 13.9 3.3 111.0 1951. 109.5 16 5 3.2 129.2 1952 _. 120.5 16.9 3.1 140 5 1953 117.3 15 3 2.8 135.4 1954 169.1 22.1 3.6 194.8 1955 207.7 27.1 4.0 238.8 1956 219.2 31.0 3.8 204.0 1957_ 195.6 25.5 3.1 224.2 1958 ._ 276.7 31. 7 4.3 312.7 1959 307.7 26 4 4.2 338.4 1960_._ ._. ... ._. 307.0 24.2 4.1 335.3 19(11 387.8 33 0 5.3 426 2 1962 345.8 24.4 4.0 374.2

Total values 1936-47 Inclusive are for the New York Stock Exchange and the American Stock Exchange only.

Fiscal Year Share Values and Volumes

The aggregate market values of all stocks on the exchanges as of

June 30 annually, and the volumes of shares traded on the exchanges

inyears to June 30,have been as follows:

_________• _____ ___• __•__________

_____________ __________________• _________

_______________• __________________• _________ __________________• ___________• _____________

__________________• ________• __• _______• _____ ___________• _____________• _________• ________ _________• ________________________________

______•• ____• ________• ___________• __________ ______• __• __________________________________

______• __________• ___________• ______________ ______• _____________• ____• ___• __• ___________ ___• __• ______ __• ______ ________________

___• __ •• ________• ____• _________________

• ____• __________________• __________________ ___ •• ________• __ ____• ______• ___________ ______ ________• _____ ___• ____• _________ ____•• _________________•• ___•• _________• ___ _____•• __________• _______• __• _____________ ___• __• ____________• _____• ____• _____________

______• ______________• ___• ___• ______________

______• ____________• _____• ___• ______________

______• ______• ___________• ___________• ______

• ___• ___________• _______• __________________

_________________• __•______________ •• _____ _____________• __• ________• __________• _______

•• ______ _ _____ __________________ _______________ • ____ • _______________________

_____________' __' ___________- ______• ________

•
42 SECURITIES A..1Il"DEXCHANGE COMMISSION

June 30, Volumes in years to June 30

values

(billions) Share volume DoII8r volume

1955___________________________________________________________ 1956___________________________________________________________ $222.8 1,324,383,000 $36, 878, 540, 000

250.0 1,217,935,000 36,226, 682, 000 1957.. . 1958___________________________________________________________ 262.0 1,210,807,000 32,929,671,000

257.9 1,209,274,000 30,862,129,000 1959. 337.6 1, 806, 810, 000 51,577,195,000 1960 327.8 1,456,919,000 47,795,837,000 1961.

1962 381.0 1,971,508,000 57,029,271,000

330.0 1,796,810,000 58,348, 768, 000 1963 414.0 1,700,456,000 54,369,863,000

The June 30 values were as reported by the New York Stock Exchange and as estimated for all other exchanges. Volumes included

shares, warrants and rights. Comprehensive statistics of volumes on

exchanges are included among the appendix tables in this Annual

Report. Aggregate market values over the years are not strictly comparable, since they do not indicate to what extent changes are due to

new listings, mergers into listed companies, removals :from li.sting,

and the like.

Foreign Stock on Exchanges

The market value on December 31, 1962, of all shares and certificates

representing foreign stocks on the stock exchanges was reported at

about $12.7 billion, of which $10.7 billion represented Canadian and

$2.0 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.

Foreign stocks on exchanges

Canadian Other Foreign Total December 31, 1962

Issues Value Issues Value Issues Value

Exchanges' New York ________________ 12 $4,210, 072, 000 13 $1, 779, 759,000 25 $5, 989,831,000 American _________________ 91 6, 458, 681, 000 36 207,139,000 127 6,660,820,000 Others onIy ______________ 1 589,000 2 10,650,000 3 11,189,000

Net total. 104 10, 664, 292, 000 51 1,997,548,000 1M 12, 661, 840, 000

The number of foreign stocks on the exchanges has declined somewhat in recent years, owing principally to a reduction on the

American Stock Exchange from 152 in 1956,to 127 in 1962. Trading

in foreign stocks has fallen from 42.4 percent of the reported share

volume on this Exchange in 1956, to 18.1 percent in 1962.

_________________• ______________________ ________________

____________________________________________• _____________ _____• ___________________________________________• _____• ___ ______• __________________________________________________• _______• __________________________________________________

__________• _________________________________________• ______

____----------
TWENTY-NINTH ANNUAL REPORT 43

Trading in foreign stocks on the New York Stock Exchange represented about 3.4 percent of the reported share volume thereon in 1956,

and about 3 percent in 1962.

Reported volumes in foreign shares during 1962 consisted of about

43.5 million Canadian shares and 12.5 million other foreign shares

on the American Stock Exchange and about 10 million Canadian

shares and 19 million other foreign shares on the New York Stock

Exchange. While the share volume on the American exceeded that

on the New York Stock Exchange, it would appear that in view of

higher average share prices, the latter Exchange had a greater dollar

volume in foreign shares.

Comparative Exchange Statistics

The number of stocks on the New York and American Stock Exchanges has continued to increase, while the aggregate number of

stocks exclusively on the other exchanges has continued to decline, in

recent years.

Net number oj stocks on exchanges

New York American Exclusively Total stocks

June 30 Stock Stock on other on exchanges

Exchange Exchange exchanges

1940 ._ _. 1,242 1,079 1,289 3,610 1945 1,293 895 951 3,139 1950 1.484 779 775 3.038 1955____________________________________________ 1,543 815 686 3,044 1960____________________________________________ 1,532 931 555 3,018 1961. l,M6 977 519 3,042 1962 •. . 1,565 1.033 493 3,091 1963________________________________. ___________ 1,579 1,025 476 3,080

Aggregate share values on the New York Stock Exchange have represented an increasing proportion of total share values on all the exchanges, at least since 1948, when our series on total share values on

the exchanges was established.

Share values on exchanges, in percentages

New York American Exclusively

December 31 Stock Stock on other

Exchange Exchange exchanges

1948._. 81. 81 14.53 3.68 1950 . 84 50 12.52 2 98 1952 _. ._. . 85.77 12.02 2.21 HIM•••. . 86 81 11.34 1.85 1956 . 86 30 12 20 1.50 1958. _. 88.49 10.14 1.37 1960 .. _. _._._ 111.56 7.22 1.22 1ll62._. ._. 92.41 6.52 1.07

The ratio of share volume on the regional exchanges to the total

on all exchanges has declined over the years. The regional exchange

percentage of dollar volume has remained fairly constant. In the

__________________ ••• ______________ • ____ ________________• ___________________________ ____________________•• ______________________

_••• ___________________•• __________________ __•• ___ _________________________ _________

_____• _________• _______________• ____________•• ______••• _ ••• ____________________ ____________• ______________• __• ____

••• ______________________ ______••••• _________________ ____________• ______ ___• _______________________________ ____________• __________•• __ ________• ______________________

___________•• __• _______• _________• ___________________•• _

••• ______• ______ _____•• _________• ___________• ____• _____• _____••• ____________•• _••• ______________ _______
44 SECURITIES A.:.'''m EXCHA-lIl"GE COMMISSION

following presentation, shares, warrants and rights are included.

Annual data since 1935 are shown in appendix table 10.

Annual sales of stock on exchanges

Percent of share volume Percent of dollar volume Calendar year

New York American All Other New York American All Other

1940___________________________ 75.44 13.20 11.36 85 17 7.68 7.15 1945__._. _____________________. 6587 21. 31 12.82 8275 10.81 644 1950 . ._ 7632 13.54 10.14 85.91 685 7.24 1955 . ._ 68.85 19.19 11 96 8631 698 6.71 1960_____________. _____._. _____ 68 48 22.27 925 83.81 935 684 1961. . 64.99 25.58 9.43 82.44 10.71 685 1962_ . ._ n 32 20 12 8.56 8632 681 687 ist 6 months 1963_. ___________ 73 55 1830 8 15 86.45 6.04 7.51

Comparative Over-The-Counter Statistics

So far as can be ascertained from the standard securities manuals

and from reports to the Commission, there were, as of December 31,

1962, about 4,458 stocks with 300 holders or more, of about 4,136

domestic companies, which were quoted only in the over-the-counter

market. These stocks had an aggregate market value of about $90.1

billion, including $23.4 billion for bank stocks, $21.0 billion for insurance stocks, and $45.7 billion for industrial, utility, and other

miscellaneous stocks. Registered investment companies are not included in this compilation.

Ownership of over-the-counter stocks tends to be more concentrated

in officers, directors, and other controlling persons than in the case

of listed securities, and in some instances the concentration is heavy.

Over-the-counter stocks referred to in the text, as of Dec. 81, 1962

Stocks Issuers Market values

Reporting pursuant to Section 15(d): Mlseellaneous.; . 1,900 1,698 $23, 849, 286, 000 Insurance 130 125 5,820,400,000

Reporting for other reasons;' Miscellaneous 147 115 4, 817,370,000

2,177 1,933 34, 487,056,000

ot reporting to the Commission: Miscellaneous 17,040,937,000 . . 1,224 1,147 Insuranoe..., . 212 208 15,195,900,000 Banks _. _. 845 843 23,359,300,000

2,281 2,198 55, 596, 187,000

TotaL ...... _._ ....... ... 4,458 4,136 90,083, 243, 000

These companJes have other issues listed on stock exchanges.

In addition to the stocks mentioned above, there is a large number

of actively quoted stocks of companies so small as not to require

continuous reporting to the Commission, and whose coverage by the

••• ______________ _______

••• _____________ ________

•• __________ _____________ •• ____ _________________

__• ____________________•• ______ _____________

••• _____• ___________• ______•••• ___• __• _____________

____• ______•• ______________________________• ___

~ __•• ____• _________ ____________•• _________ ____ ___________•_________•________________________ •• ___••••• ______________• ___________• ___•• ____••••

______•• ___• _____••• ____• _•• ____ _

•
T~ENTY-~ ~AL REPORT 45

standard securities manuals is generally limited to brief announcements of the circumstances of the offerings. Their number was in

excess of 1,000 on December 31, 1962, at which time they constituted

about 25 percent of the actively quoted stocks in the National Quotation Bureau services. These stocks may be presumed to have over

300 holders each. There is a further indeterminate number of stocks

with over 300 holders, inactively quoted or not publicly quoted. So

far as can be ascertained, these are for the most part stocks of small

companies.

A comprehensive view of the number of securities quoted oyer the

counter at anyone time is afforded by data supplied by the National

Quotation Bureau, which is the principal purveyor of oyer-thecounter quotations in the United States. The following table shows

the number of stocks quoted in the daily service and the corresponding aggregate number of dealer listings, as reported for a day around

January 15th annually.

Number of stocks and dealer listings around January 15th

Stocks. Dealerhstlngs

[959

[960.

[961.

[962

[963

6,121

6,551

6,918

8,127

8.177

23,964

25,950

28.270

35.050

34,482

The number annually since 1925Is shown ou p, 72 of our 26th Annual Report (1960).

About half of the stocks show substantial concentration of dealer

listings, including both bids and offers. Many of the remainder are

quoted only on the bid side, indicating sporadic dealings. Some are

listed on domestic or Canadian stock exchanges.

Reporting Under Section 15(d)

Issuers reporting pursuant to Section 15(d) of the Exchange Act

continue to increase in number notwithstanding numerous reductions

occasioned by listings on the exchanges or absorption into other companies by purchase of assets or mergers. The number of such issuers

increased from 2,435 on December 31, 1961, to 2,647 on December 31,

1962. The 2,647 reporting issuers included 1,887having $34.7 billion

aggregate market value of stocks. The remaining 760issuers included

partnerships, voting trusts duplicative of listed shares, stock purchase

and employees savings plans, companies with only bonds in public

hands, registered investment companies, and numerous issuers for

whose shares no quotation was available, including a considerable

number registering in 1962but not offering their shares until 1963.

_

• _

_

• _ • _

•
46 SECURITIES A.."N"DEXCHA.""mE COMMISSION

Issuers reporting under Section 15(d) as of December 31, 1962 G

Stocks Issuers Market values

Over tbe counter Miscellaneous _______________________________________________ Insurance ___________________________________________________ 1,900 1,698 $23, 849, 286, 000

Foreign _____________________________________________________ 130 125 5,820,400,000 37 34 1,854,100,000

2,067 1,857 31,523,786,000 I

On stock Miscellaneous exchanges: b _______________________________________________

Insurance ___________________________________________________ 27 25 671,200,000

Foreign _____________________________________________________ 3 3 1,161,900,000 2 2 1,297, 600, 000

32 30 3, 130, 700, 000

TotaL ____________________________________________________ 2,099 I 1,887 34,654,486,000

Includes only issuers with stocks for which quotations were available.

b Tbese issuers bad stocks with only un1lSted trading privileges on exchanges. Tbey also bad 20 stocks

aggregating $827,300,000 wlneh were only over the counter, which amount bas been mcluded in tbe overthe-counter showing of market values above.

Foreign Stocks Traded Over the Counter

About 150 foreign stocks, or American shares representing foreign

stocks, were so actively quoted in the American over-the-counter

markets at the close of 1962,as to suggest the likelihood of active daily

trading therein in the United States. In addition, there are many foreign stocks which are less actively quoted in the domestic over-thecounter markets.

DELISTING OF SECURITIES FROM EXCHANGES

Pursuant to Rule 12d2-2 (Rule 12d2-1(b) until amended February 15, 1963) under Section 12(d) of the Securities Exchange Act,

an exchange may apply to the Commission to strike securities or

an issuer may apply to withdraw its securities from exchange listing

and registration. During the fiscal year ended June 30, 1963, the

Commission granted applications to remove 68 stocks, representing

63 issuers, from listing and registration. Since 2 stocks were each

delisted by two exchanges, there was a total of 'TO removals. The

removals were as follows:

Applications filedby: Stocb

New York Stock Exchange_____________________________________ 14

American Stock Exchange______________________________________ 23

Cincinnati Stock Exchange, _ _ _ ___ __ _______ ___ __ _______ __ _ 3

~idwestStock Exchange_______________________________________ 4

Pacific Coast Stock Exchange___________________________________ 1

Philadelphia-Baltimore- Washington Stock Exchange; ______________ 5

Pittsburgh Stock Exchange_____________________________________ 1

Salt Lake Stock Exchange______________________________________ 15

San Francisco Mining Exchange_________________________________ 3

Issuer________________________________________________________ 1

Total______________________________________________________ 70

•
TWENTY-NINTH ANNUAL REPORT 47

In accordance with the practice in recent years, practically all of the

delisting applications were filed by exchanges. The single removal

resulting from an issuer's application removed from the American

Stock Exchange a Canadian stock whose principal exchange market

was in Toronto.

The considerable number of delistings by the American Stock Exchange and the Salt Lake Stock Exchange was a result of the adoption by those exchanges, during the 1962 fiscal year, of new rules

and criteria for retention of listed status thereon.'

Delisting Proceedings Under Section 19(a)

Section 19(a) (2) authorizes the Commission to suspend for a

period not exceeding 12 months, or to withdraw, the registration of

a security on a national securities exchange if, in its opinion, such

action is necessary or appropriate for the protection of investors

and, after notice and opportunity for hearing, the Commission finds

that the issuer of the security has failed to comply with any provision of the Act or the rules and regulations thereunder. The

following table indicates the number of such proceedings with which

the Commission was concerned during the 1963 fiscal year.

Proceedings pending at the beginning of the fiscal year ___________ 2

Proceedings initiated during the fiscal year______________________ 1

3

Proceedings terminated during the fiscal year:

By order withdrawing security from reglstratdon, , _________________ 1

Proceedings pending at the end of the fiscal year______________________ 2

Section 19(a) (4) authorizes the Commission summarily to suspend

trading in any registered security on a national securities exchange

for a period not exceeding 10 days if, in its opinion, such action is

necessary or appropriate for the protection of investors and the

public interest so requires. During the 1963 fiscal year the Commission used this authority in three instances. One of these suspensions remained in effect at the end of the fiscal year.

UNLISTED TRADING PRIVILEGES ON EXCHANGES

Stocks with unlisted trading privileges on exchanges which are not

also listed and registered on other exchanges continued to decline in

number, £rom 187 on June 30, 1962, to 168 on June 30, 1963. The

American Stock Exchange accounted for 17 of the 19 removals. The

Pacific Coast Stock Exchange accounted for the balance of the removals, leaving only 2 stocks thereon in the strictly unlisted category.

1See 28th Annual Report, p. 110.
48 SECURITIES AND EXCHANGE COMMISSION

The distribution of unlisted stocks and share volumes therein among

the exchanges is shown in Appendix Table 8 of this annual report.

The reported volume of trading on the exchanges in stocks with only

unlisted trading privileges for the calendar year 1962, was about

28,135,000shares or about 1.7 percent of the total share volume on all

the exchanges. About 90.5 percent of this volume was on the American Stock Exchange, 8.2 percent was on the Pacific Coast Stock Exchange, and 3 other exchanges contributed the remaining 1.3 percent.

The share volume in these stocks represented about 7.6 percent of the

total share volume on the American Stock Exchange and about 4.6

percent of that on the Pacific Coast Stock Exchange.

Unlisted trading privileges on some exchanges in stocks listed and

registered on other exchanges numbered 1,570on June 30, 1963. The

volume of unlisted trading in these stocks, for the calendar year 1962,

was reported at about 49,252,000shares. About 14.4 percent of this

volume was on the American Stock Exchange in stocks listed on

regional exchanges, and about 85.6 percent was on regional exchanges

in stocks listed on the New York or American Stock Exchanges.

While the 49,252,000 shares amounted to less than 3 percent of the

total share volume on all the exchanges, they constituted substantial

portions of the share volumes on the leading regional exchanges,

reaching about 79 percent on Boston, 69 percent on PhiladelphiaBaltimore-Washington, 68 percent on Cincinnati, 59 percent on

Detroit, 55 percent on Pittsburgh, 30 percent on Midwest, and 22

percent on Pacific Coast Stock Exchange.

Applications for Unlisted Trading Privileges

Applications by exchanges for unlisted trading privileges in stocks

listed on other exchanges, made pursuant to Rule 12f-1 under Section

12(f) of the Securities Exchange Act, were granted by the Commission during the fiscal year ended June 30, 1963, as follows:

S ell: ch . Number to ex ange . of stocks

Boston_______________________________________________________ 5

Cincinnati____________________________________________________ 1

Detroit_____ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ __ __ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ 23

Pacific Coast__________________________________________________ 5

Philadelphia-Baltimore- Washington___ _ _ _ _ __ _ _ _ _ _ _ _ _ _ __ _ 15

Pittsburgh____________________________________________________ 1

50

BWCK DISTRIBUTIONS REPORTED BY EXCHANGES

The usual method of distributing blocks of listed securities considered too large for the auction market on the floor of an exchange is

to resort to "secondary distributions" over the counter after the close of

exchange trading.
TWENTY-NINTH ANNUAL REPORT 49

In an effort to keep as much as possible of this business on their

floors, the leading exchanges adopted Special Offering Plans commencing in 1942, and the somewhat more flexible Exchange Distribution

Plans commencing in 1953. The plans, declared effective by this Commission, include an exemption from the anti-manipulative Rule 10b-2,

as set forth in paragraph (d) thereof, with respect to payment of compensation in connection with the distribution of securities.

The largest number of Special Offerings was 87 in 1944, with $32,-

454,000aggregate value. The number has declined through the years,

there being only 2 in 1961, aggregating $1,503,750, and 2 in 1962,

aggregating $587,650.

The largest number of Exchange Distributions was 57 in 1954, compared with 41 in 1962. However, the $65,459,197 total in 1962 was

larger than in any previous year.

Secondary distributions, as reported since 1942, reached a peak of

$926,514,294 during the calendar year 1961, and declined to $658,-

780,395during 1962.

Block Distributions Reported by Exchanges

Number I Shares in I Shares sold I offer

Value

Special offermgs -- -- ----- Exchange distnbutions

Secondary distrlbuttons, -- - --- ---

12months ended Dec. 31, 1962

21 48,200 1 48,200 1 $587,6fj() 41 2,530,851 2,345,076 65,459, 197

59 11,981,319 12,143,656 658,780,395

6 months ended June 30, 1963

~~~~d~~~fbutior;;-~~========================== -------31ll-- --i~49n98 -1-- --n02~ 363-1----55~456;679 Secondary dIStributions____________________________ 52 9,174,840 9,529.660 396,651.376

Details of these distributions appear in the Commission's monthly Statistlcal Bulletins, Data for

prior years are shown in appendix table 11.

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

717-943-M-5

•

_

•
50 SECURITIES AND EXCHANGE COMMISSION

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 Markets in Washington and in its New York Regional Office

and other field officesobserves the tickertape quotations of securities

listed on the New York Stock Exchange and on the American Stock

Exchange, the sales and quotation sheets of the various regional exchanges, and the bid and asked prices published by the National Quotation Bureau for about 6,000 unlisted securities to observe any unusual

and unexplained price variations or market activity. The financial

news ticker, leading newspapers, and various financial publications

and statistical services are also closely followed.

When unusual and unexplained market activity in a security is

observed, all known information regarding the security is examined

and a decision made as to the necessity for an investigation. Most

investigations are not made public so that no unfair reflection will be

cast on any persons or securities and the trading markets will not be

upset. These investigations, which are conducted by the Commission's regional offices,take two forms. A preliminary investigation

or "quiz" is conducted to discover rapidly evidence of unlawful activity. If it appears that more intensive investigation is necessary, a

formal order of investigation, which carries with it the right to subpoena witnesses and documents, is issued by the Commission. If

violations by a broker-dealer are discovered, the Commission may institute administrative proceedings to determine whether or not to revoke

his registration or suspend or expel him from membership in the

National Association of Securities Dealers, Inc., or from a national

securities exchange. The Commission may also seek an injunction

against any person violating the Exchange Act and it may refer information obtained in its investigation to the Department of Justice

recommending that persons violating the Act be criminally prosecuted. In some cases, where the activities are essentially local in

character and state jurisdiction is not open to question, the information obtained may be referred to state agencies for injunctive action

or criminal prosecution.

The following table shows the number of quizzes and investigations

pending at the beginning of fiscal 1963, the number initiated in fiscal
TWENTY-NINTH ANNUAL REPORT 51

1963, the number closed or completed during the same period, and

the number pending at the end of the fiscal year:

Trading investigations

Quizzes Investiga- tions

Pending June 30, 1962. ______________________________________________________ 78 12 Inltlated ____________________________________________________________________55 18

TotaL ____________________ 133 30

Closed or completed during fiscal year _______________________________________ 61 4 Changed to formal during fiscal year ________________________________________ 18 ----------- ..-.. TotaL _________________________________________________________________79 4

Pending at end of fiscal year 54 26

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. A total of 1,157 registered

offerings, having a value of $14.8 billion, and 517 offerings exempt

under Section 3(b) of the Securities Act, having a value of about

$101 million, were so observed during the fiscal year. A total of

162 other offerings, such as secondary distributions and distributions

of securities under special plans filed by the exchanges, having a

total value of $374million, 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 1963 stabilizing was effected in connection with stock

offerings totaling 24,435,202 shares having an aggregate public offering price of $680,107,579 and bond offerings having a total offering

price of $216,689,800. In these offerings, stabilizing transactions

resulted in the purchase of 476,799 shares of stock at a cost of $12,603,-

474 and bonds at a cost of $3,019,225. In connection with the stabilizing transactions, 4,337 stabilizing reports showing purchases and

sales of securities effected by persons conducting the distribution were

received and examined during the fiscal year.

INSIDERS' SECURITY HOWINGS AND TRANSACTIONS

Section 16 of the Act is designed to prevent the unfair use of

information by directors, officers and principal stockholders by giving

__________________________________________ • •

_______•_________________________________________
52 SECURITIES AND EXCHANGE COMMISSION

publicity to their security holdings and transactions and by removing

the profit incentive in short-term trading by them in securities of their

company. Such persons by virtue of their position may have knowledge of the company's condition and prospects which is unavailable

to the general public and may be able to use such information to their

personal advantage in transactions in the company's securities. Provisions similar to those contained in Section 16 of the Act are also

contained in Section 17 of the Public Utility Holding Company Act

of 1935 and Section 30 of the Investment Company Act of 1940.

Ownership Reports

Section 16(a) of the Securities Exchange Act requires every person who is a direct or indirect beneficial owner of more than 10 percent

of any class of equity securities (other than exempted securities) which

is registered on a national securities exchange, or who is a director

or officer of the issuer of such securities, to file reports with the Commission and the exchange disclosing his ownership of the issuer's

equity securities. 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(£) 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. Subscriptions to this publication exceed

16,000.

During the fiscal year, 41,807 ownership reports were filed, a slight

decrease from the record high of 42,983 reports filed during the 1962

fiscal year.

Recovery of Short-Swing Trading Profits by Issuer

In order to prevent insiders from making unfair use of information

which may have been obtained by reason of their relationship with a
TWENTY-NINTH ANNUAL REPORT 53

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 lessthan 6 months. The Commission has certain exemptive powers with respect to transactions not comprehended within the

purpose of these provisions, but is not charged with the enforcement

of the civil remedies created thereby.

REGULATION OF PROXIES

Scope of Proxy Regulation

Under Sections 14(a) of the Securities Exchange Act, 12(e) of the

Public Utility Holding Company Act of 1935, and 20 (a) of the Investment Company Act of 1940, the Commission has adopted Regulation 14 requiring the disclosure in a proxy statement of pertinent

information in connection with the solicitation of proxies, consents

and authorizations in respect of securities of companies subject to

those statutes, in order that holders of such securities will be able to

act intelligently on such matters. The regulation provides, among

other things, that when the management is soliciting proxies, any

security holder desiring to communicate with other security holders

for a proper purpose may require the management to furnish him

with a list of all security holders or to mail his communication to

security holders for him. A security holder may also, subject to

reasonable prescribed limitations, require the management to include

in its proxy material any appropriate proposal which such security

holder desires to submit to a vote of security holders. Any security

holder or group of security holders may at any time make an independent proxy solicitation upon compliance with the proxy rules, whether or

not the management is making a solicitation. Certain additional

provisions of the regulation are applicable where a contest for control

of the management of an issuer is involved.

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 1963fiscal year, 2,396proxy statements in definitive form

were filed under the Commission's Regulation 14 for the solicitation of
54 SECURITIES AND EXCHANGE COMMISSION

proxies of security holders; 2,375 of these were filed by management

and 21 by nonmanagement groups or individual stockholders. These

2,396 solicitations related to 2,231 companies, some 165 of which had

more than one solicitation during the year, generally for a special

meeting not involving the election of directors.

There were 2,205 solicitations of proxies for the election of directors,

174 for special meetings not involving the election of directors, and 17

for assents and authorizations for action not involving a meeting of

security holders or the election of directors.

In addition to the election of directors, the decisions of security

holders were sought through the solicitation in the 1963 fiscal year of

their proxies, consents and authorizations with respect to the following

types of matters:

Mergers, consolidations, acquisitions of businesses, purchases and sales of

property, and dissolutions of companies____________________________ 116

Authorizations of new or additional securities, modifications of existing

securities, and recapitalization plans (other than mergers, consolidations,

etc.)___________________________________________________________ 225

Employee pension and retirement plans (including amendments to existing

plans)__________________________________________________________ 44

Bonus, profit-sharing plans and deferred compensation arrangements

(including amendments to existing plans and arrangements)__________ 49

Stock option plans (including amendments to existing plans)____________ 183

Stockholder approval of the selection by management of Independent

auditors________________________________________________________ 908

Miscellaneous amendments to charter and by-laws, and miscellaneous other

matters (excluding those involved in the preceding matters)__________ 590

Stockholders' Proposals

During the 1963 fiscal year, 56 stockholders submitted a total' of 229

proposals which were included in the 134 proxy statements of 134

companies under Rule 14a-8 of Regulation 14.

Typical of such stockholder proposals submitted to a vote of security

holders were resolutions relating to amendments to charters or bylaws to provide for cumulative voting for the election of directors,

limitations on granting stock options and their exercise .by key employees and management groups, sending a post-meeting report to

all stockholders, changing the place of the annual meeting of stockholders, and the approval by stockholders of management's selection

of independent auditors.

The managements of 26 companies omitted from their proxy statements under the Commission's Rule 14a-8 a total of 61 additional

proposals submitted by 45 individual stockholders. The principal

reasons for such omissions and the numbers of times each such reason

was involved (counting only one reason for omission for each pro-
TWENTY-NINTH ANNUAL REPORT 55

posal even though it may have been omitted under more than one provision of Rule 14a-8) were as follows:

(a) 36 proposals were withdrawn by the stockholders;

(b) 8 proposals related to the ordinary conduct of the company's business;

(c) 7 proposals were not a proper subject matter under state

law;

(d) 5 proposals were not timely submitted;

(e) 3 proposals concerned a personal grievance against the

company ;

(f) 1 proposal involved substantially the same matter as one

previously submitted to security holders;

(g) 1 proposal and reason therefor was deemed misleading.

Ratio of Soliciting to Non-solieitmg Companies

Of the 2,417 issuers that had securities listed and registered on

national securities exchanges as of June 30, 1963, 2,254 had voting

securities so listed and registered. Of these 2,254 issuers, 3 listed

and registered voting securities for the first time after their annual

stockholders' meeting in fiscal 1963; of the remaining 2,251issuers with

voting securities, 1,875 or 83 per cent solicited proxies for the election

of directors under the Commission's proxy rules during the 1963

fiscal year.

Proxy Contests

During the 1963 fiscal year, 27 companies were involved in proxy

contests for the election of directors. A total of 376 persons, both

management and nonmanagement, filed detailed statements as participants under the requirements of Rule 14a-ll. Proxy statements in

18 cases involved contests for control of the board of directors and

those in 9 cases involved contests for representation on the board.

Management retained control of the board of directors in 10 of the

18 contests for control, 1 was settled by negotiation, nonmanagement

persons won 4, and 3 were pending as of June 30, 1963. Of the 9

cases where representation on the board of directors was involved,

management retained all places on the board in 6 cases.

INVESTIGATIONS

Section 21(a) of the Act authorizes the Commission to make such

investigations as it deems necessary to determine whether any person

has violated or is about to violate any provision of the Act or any rule

orre~~t!oIl thereunder, The Commission is authorized, for this

purpose, to administer oaths, subpoena witnesses, compel their attendance, take evidence and require the production of records. In addition

-
56 SECURITIES AND EXCHA.c~GE COMMISSION

to the investigations undertaken in enforcing the anti-fraud, brokerdealer registration, and other regulatory provisions of the Act, which

are discussed in Part XI of this report under "Complaints and Investigations," the following investigations were undertaken in enforcing

the reporting provisions of Sections 12, 13, 14 and 15 (d) of the Act

and the rules thereunder, particularly those provisions relating to the

filing of annual and other periodic reports and proxy material:

Investigations pending at beginning of the fiscal year____________ 21

Investigations initiated during the fiscal year____________________ 19

40

Investigations closed during the fiscal year____________________________ 13

Investigations pending at close of the fiscal year_______________________ 27

REGULATION OF BROKER.DEALERS AND OVER.THE-COUNTER

MARKETS

Registration

Section 15(a) of the Securities Exchange Act of 1934 requires the

registration of all brokers and dealers who use the mails or instrumentalities of interstate commerce to effect or induce transactions in

securities in the over-the-counter market. Brokers and dealers conducting an exclusively intrastate business or dealing only in exempted

securities, commercial paper, commercial bills or bankers' acceptances

are exempt from registration.

The table below sets forth statistics on broker-dealer registrations

and applications for fiscal 1963.

Effective registrations at close of preceding fiscal year 5,868

Applications pending at close of preceding fiscal year___________________ 81

Applications filed during fiscal year__________________________________ 679

Total 6,628

Applications denied

Applications withdrawn

Applications cancelled

Registrations withdrawn

Registrations cancelled

Registrations revoked

Registrations suspended

Registrations effective at end of year

Applications pending at end of year

12

18

o

908

90

74

4

5,482

50

Total 6,638

Less: Suspended registrations, 9 revoked and 1 cancelled during year _ ___ G 10

Total 6,628

23 registrations were in suspension at close ot the fiscal ;year.

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TWENTY-NINTH A..l\fNUAL REPORT 57

ADMINISTRATIVE PROCEEDINGS

Under Section 15(b) of the Exchange Act, the Commission has

the power to deny or revoke the registration of a broker-dealer. An

order of denial or revocation will be issued, after notice and opportunity for hearing, if the Commission finds that such sanction is in the

public interest and that the applicant or registrant, or any partner,

officer, director, or other person directly or indirectly controlling or

controlled by the applicant or registrant, is subject to a statutory

disqualification. The statutory disqualifications are:

(1) willfully false or misleading statements in the application

Tor registration or documents supplemental thereto;

(2) conviction within the previous 10 years of a felony or misdemeanor involving the purchase or sale of securities or arising out

of the conduct of business as a broker-dealer;

(3) injunction by a court of competent jurisdiction against engaging in any practices in connection with the purchase or sale of

securities; and

(4) willful violation of the Securities Act of 1933 or the Exchange Act or any of the Commission's rules or regulations thereunder.

The Commission has no authority to deny or revoke registration

without finding a disqualification of the types set forth. Therefore,

bad reputation or character, or inexperience in the securities business,

or even conviction of a felony unrelated to transactions in securities is

not a basis for ordering denial or revocation of registration.

Section 15A of the Exchange Act empowers the Commission to suspend or expel a broker-dealer from membership in a registered securities association upon a finding of violation of the Federal securities

laws or regulations thereunder. The National Association of Securities Dealers, Inc. ("NASD") is the only such association. Section

19(a) (3) of the Act gives the Commission power to take similar

action against members of national securities exchanges.

Pursuant to the provisions of Section 15A(b) (4) of the Securities

Exchange Act, in the absence of Commission approval or direction, no

broker or dealer may be admitted to or continued in membership in the

NASD if the broker or dealer or any partner, officer,director, or controlling or controlled person of such broker or dealer was a cause of any

order of denial or revocation of registration or suspension or expulsion

from membership which is in effect. An individual named as a cause

often is subject to one or more statutory disqualifications under Section 15(b) and his employment by any other broker-dealer thus could

also become a basis for broker-dealer revocation or denial proceedings

against such employer.
58 SECURITIES AND EXCHANGE COMMISSION

Set forth below are statistics on administrative proceedings instituted during fiscal 1963 to deny and revoke registration and to

suspend and expel from membership in an exchange or the NASD.

Proceedings pending at start of fiscal year to:

Revoke registration____ ___ _ _ 50

Revoke registration and suspend or expel from NASD or exohanges.,., 92

Deny registration _ _ _ _ 20

Total proceedings pending at start of fiscal year_________________ 162

Proceedings instituted during fiscal year to:

Revoke registration_______ _ __ ______ ____ __ _ 34

Revoke registration and suspend or expel from NASD or exohanges , ; 58

Deny registration_________ _ __ _ __ 5

Total proceedings instituted__________________________________ 97

Total proceedings current during fiscal year_____________________ 259

Disposition of proceedings:

Proceedings to revoke registration:

Dismissed on withdrawal of registration__________________________ 2

Registration revoked_________ 36

Registration cancelled_____ _____ _____ _____ 2

Registration revoked and firm expelled from NASD________________ 1

Proceedings terminated without prejudice to subsequent institution

of new proceedings based on same or other charges______________ 2

Total______________________________________________________ 43

Proceedings to revoke registration and suspend or expel from NASD or

exchanges: Registration revoked.cc., , __ ___ _ __ 31

Registration revoked and firm expelled from NASD________________ 7

Dismissed on withdrawal of registration__________________________ 5

Registration oancelled.; , _____ __ _____ 4

Suspended for a period of time from NASD_______________________ 4

Proceedings terminated without prejudice to subsequent institution

of new proceedings based on same or other charges _ __ ___________ 9

Proceedings dismissed and registration continued in effect; __ 3

Total______________________________________________________ 63

Proceedings to deny registration: Registration denied______ _ ______ _ __ 12

Dismissed on withdrawal of application__________________________ 1

Proceedings dismissed and registration permitted to become effeetive., , 1

Total______________________________________________________ 14

Total proceedings disposed of- __ .. 120

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TWENTY-NINTH ANNUAL REPORT 59

Proceedings pending at end of fiscal year to:

Revoke registration_______ _ ____ ____ 41

Revoke registration and suspend or expel from NASD or exehanges., , 87

Deny registration_____ _________ _ __ __ ___________ 11

Total proceedings pending at end of fiscal year __________________ 139

Total proceedings accounted for ____________ __ _____ _ 259

Revocation or Denial of Registration

A summary of the cases in which the Commission revoked or denied

broker-dealer registrations during the 1963 fiscal year appears at

the end of this section. However. a few cases of unusual interest or

significance are set forth in some detail in the following paragraphs:

Mac Robbins & Co., Inc.-On remand to this Commission from

the Court of Appeals for the Second Circuit, the Commission reaffirmed its previous determination that two salesmen for the firm of

Mac Robbins & Co., Inc., had engaged in fraudulent acts and practices

and were each a cause of the revocation of the broker-dealer registration of the firm. The Commission found that these two salesmen

were aware of and participated in that firm's "boiler-room" selling

activities and had themselves made unwarranted representations to

customers,"

The salesmen, Irwin Berko and Arnold Leonard Kahn, had been

named as causes of the February 1961 revocation order against Mac

Robbins & Co., Inc. along with seven other salesmen," but neither

the firm nor the other salesmen joined in the appeal. In remanding

the case to the Commission, the Court asked the Commission to reexamine the participation by Berko and Kahn in the illegal operations of the firm, including the right of the salesmen to rely on information provided by their employer.

In its subsequent decision the Commission stated that "participation

in a high-pressure sales effort involving the use of misleading sales

materials, and the making of extravagant predictions and projections,

without basis in factual information and without adequate disclosure

of material adverse information, is inconsistent with the duty of

brokers, dealers, and their salesmen to deal fairly with their customers" and a violation of the anti-fraud provisions of the Securities

Acts.

On the right of salesmen to rely upon information furnished by

their employer the Commission declared, "Whatever may be a salesman's obligation of inquiry, or his right to rely on information provided by his employer, where securities of an established issuer are

Securities Exchange Act Release No. 6846 (July 11,1962).

40 S.E.C. 491. 586.

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60 SECURITIES .A..l\fDEXCHANGE COMMISSION

being recommended to customers by a broker-dealer who is not engaged in misleading and deceptive high-pressure selling practices,

that situation is not presented here. Certainly, there can be little, if

any, justification for a claim of reliance on literature furnished by

an employer who is engaged in a fraudulent sales campaign. In our

view, a black letter rule providing exculpation of a salesman in such

circumstances, because of reliance on his employer, would place a

premium on indifference to responsibilities at the point most directly

and intimately affecting the investor."

The Commission's position was then affirmed on a subsequent appeal

to the Court of Appeals, whose decision, sub nom. Berko v. Securities

and Ewchange Oommission, is discussed on page 116 infra.

A. J. Caradean & Co., Inc.-In this proceeding the Commission

denied an application for broker-dealer registration by A. J. Caradean

& Co., Inc. and named. Jerome H. Truen and Jack Cohen, co-owners

and principal officers of the applicant, as causes of the denial order .•

The Commission found that Truen and Cohen, while employed as

salesmen by N. Pinsker & Co., Inc., during 1957-59, had made false

and misleading statements in the offer and sale of securities of Tyrex

Drug & Chemical Corporation and Seaford-Mar Marina, Inc., in

willful violation of the anti-fraud provisions of the Federal securities

laws. Pinsker's registration had been revoked in 1960, for fraud in

the sale of Tyrex stock." "It seems clear," the Commission stated in

summarizing its findings, "that both salesmen engaged in an intensive

high-pressure telephone campaign to sell highly speculative and promotional securities to customers irrespective of their investment needs

and objectives. Their sales techniques of highly colored representations and predictions of rapid and substantial market price rises without disclosure of adverse information and the lack of adequate information were calculated not to inform but to mislead. We do not believe

that the investing public should be exposed. to further risk of fraudulent conduct by individuals such as Truen and Cohen who have demonstrated their gross indifference to the basic duty of fair dealing

required of securities salesmen."

Alexander Reid & Co., Inc.-In this proceeding, the Commission

revoked the registration of the firm and named as causes Alexander

Silberman, its president and sole stockholder, and the firm's salesmen, for the fraudulent offer and sale of the stock of Woodland Electronics Co., Inc," The Commission found that representations made

by the respondents regarding Woodland's contracts and production

and anticipated. appreciation in the price of its stock were false or

Securities Exchange Act Release No. 6903 (October 1, 1962).

40 s.a.c, 285.

Securities Exchange Act Release No. 7016 (February 7, 1968).

•

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TWENTY-NINTH ANNUAL REPORT 61

misleading. It stated that optimistic representations, even if couched

in terms of opinion and expectation, were fraudulent when they

lacked a reasonable basis. Respondents contended that the salesmen

honestly and reasonably believed that a machine produced by Woodland would become a success, that the company had bright prospects

and that the stock would rise in price. They argued that they had

observed a demonstration of the machine, that the company had received many letters of interest, and that its balance sheet showed

working capital of about $50,000. The Commission held, however,

that these asserted facts could not afford a basis for predictions of

specific and substantial price rises and offered no reasonable basis for

enthusiastic predictions of business success.

Heft, Kahn & Infante, Inc.-This case, in which the Commission

revoked the firm's registration for fraud in the sale of stock of United

States Communications, Inc., presented the novel question of the

responsibility of a research analyst who, pursuant to his employer's

instruction, prepared fraudulent sales literature. The Commission

found, among other things, that the analyst knew or had good reason

to suspect that the key points conveyed by the "message" in the market

letters prepared by him were completely unreliable. The Commission, in concluding that the analyst participated in and aided and

abetted the firm's willful violations of the anti-fraud provisions of the

Securities Acts, stated: "A member of the research staff of a brokerdealer may well be entitled to rely, so far as he personally is concerned,

upon materials concerning a going business supplied by an issuer or

by his employer absent facts and circumstances which would raise

doubts in the mind of a careful and responsible analyst as to the reliability of the materials or the propriety of their use for a particular

purpose. In the circumstances of this case, however, we think Binday's

defense that he followed the instructions of his employer is unavailing.

By proceeding with the preparation of the false and misleading market

letter notwithstanding his knowledge of the absence of supporting facts

and in light of the all-too-evident warnings of irregularities and the

indicated irresponsibility and lack of diligence on the part of the principals of the registrant and USC [the issuer], he became an important

part of an apparatus perpetrating a fraud. Under these facts, if a

salesman had made these statements orally to his customer, we would

have no hesitancy in finding him a cause of our order of revocation.

In his fabulist role, Binday's activities were no less reprehensible

and no less willful; indeed, the market letter was designed to reach

a much wider audience than the oral statements of a salesman." 1

7 Securities Exchange Act Release No. 7020 (February 11, 1963).
62 SECURITIES AND EXCHANGE COMMISSION

The following summary, covering the cases in which broker-dealer

registrations were revoked or denied other than those already discussed,

reflects the principal basis or bases upon which such action was taken:

False and misleading statements in offer or sale of securities

False and misleading statements, violations of net capital rule

False and misleading statements and/or other fraudulent activities,

violations of securities registration provisions

False and misleading statements and/or other fraudulent activities,

violations of securities registration provisions and net capital rule

Violations of net capital rule, injunctions, and in one case also a conviction __ Failure to file required financial reports

Violations of credit extension regulations, and in most instances also of

net capital rule

Violations of books and records requirements

False and misleading statements in registration application or financial

statements filed therewith

Number

of brokerdeale,.

22

10

12

4

2

20

7

3

4

Other Sanctions

During the fiscal year, the Commission suspended the following

broker-dealers from membership in the National Association of Securities Dealers, Inc.: Anws Treat ,& 00., Inc., for 12 months; 8 D. F.

Bernheimer & 00., Inc., for 6 months; 9 O. A. Benson &1 00., Ino., for

30 days; 10and Sutro Bros.d: 00., for 15 days,"

In Butro Bros. & 00.,12 the Commission suspended the registrant

from membership in the National Association of Securities Dealers,

Inc., for 15 days, finding that registrant and its salesmen had "arranged" for the extension of credit in violation of Section 7 (a) of

Regulation T.13 A number of registrants' customers and salesmen

had financed securities transactions through First Discount Corp., a

factoring firm which made credit available in amounts greater than

those which registrant itself could have lawfully extended under the

margin requirements of Regulation T. The illegal arrangements consisted of the conduct of salesmen who acted as intermediaries between

customers and First Discount Corp., conveyed customers' communications to the factor or vice versa, and responded to requests or directives

of the factor concerning customers' transactions.

The Commission said that through these activities of its salesmen,

the broker had become "so involved in the extension or maintenance

of credit for the customer by the lender as to be held to be arranging.

8 Securities Exchange Act Release No. 6971 (December 17, 1962).•

Securities Exchange Act Release No. 7000 (January 23, 1963).

I.Securities Exchange Act Release No. 7044 (March 26, 1963).

11 Securities Exchange Act Release No. 7053 (Apr1110, L963).

12 Securities Exchange Act Release No. 7052 (Apr1110, 1963).

13 12 CFR 220.7 (a).

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TWENTY-NINTH ANNUAL REPORT 63

These are activities in relation to the credit absent which the credit

would not be supplied by the factor. If the broker acts for the

customer or the factor in these matters, he has involved himself in

the financial arrangements which are entirely unrelated to his function of executing his customer's orders and following the customer's

instructions as to delivery of securities and payment. If the credit

provided the customer exceeds the amount which the broker could

himself extend, we think the broker has violated Regulation T."

The Commission rejected the contention that the prohibitions of

Regulation T did not apply to a salesman who arranged for the

extension of credit through a factor for his own account or that

of a member of his family. The Commission said that a salesman

who effects transactions in his own account occupies a dual role of

customer and representative of the broker-dealer and the credit restrictions of Regulation T apply to his activities in the latter capacity.

"It is immaterial," the Commission stated, "that the salesman himself

is the instrument through whom the broker-dealer arranges for the

extension of credit."

While the Commission recognized that registrant had sought to

discourage and to forbid factoring, the Commission concluded that

registrant had not been diligent and alert enough in its supervision

procedures under all the circumstances. The Commission emphasized the need for adequate supervision of branch offices in large

organizations.

Suspension of Registration

Section 15(b) of the Securities Exchange Act authorizes the Commission to suspend a broker-dealer's registration pending final determination as to whether registration should be revoked. In order

to suspend registration, the Commission must find, after notice and

opportunity for a hearing, that suspension is necessary or appropriate

in the public interest or for the protection of investors. The registrations of four broker-dealers were suspended during the past fiscal

year after hearings at which the evidence revealed that they were

engaging in serious misconduct.v To prevent further harm to investors the Commission determined that it was in the public interest

to suspend those registrations pending determination of the question

of revocation. The entry of a suspension order is not determinative

of the ultimate questions of willful violations or revocation itself.

"Lloyd, Miller and Company, Securities Exchange Act Release No. 6883 (August 15,

1962) ; Joe Bert Sissom, doing bustness as Sissom Investment Securities, Securities Exchange Act Release No. 6892 (August 27. 1962) ; Nance-Keith Oorporation (September 10,

1962) ; Norman Joseph Adams, doing business as Adams cf Oompany, Securities Exchange

Act Release No. 7072 (April 30,1963).
64 SECURITIES AND EXCHANGE COMMISSION

Net Capital Rule

The basic purpose of Rule 15c3-1, promulgated by the Commission

under Section 15(c) (3) of the Exchange Act, is to safeguard funds

and securities of customers dealing with registered broker-dealers.

This rule, commonly known as the net capital rule, limits the amount

of indebtedness which may be incurred by a broker-dealer in relation

to its capital. It provides that the "aggregate indebtedness" of a

broker-dealer may not exceed 20 times the amount of its "net capital"

as computed under the rule.

Ifit appears from an examination of the reports filed by a registered

broker-dealer with the Commission, or through inspection of its books

and records, that the ratio is exceeded, the Commission normally

notifies the broker-dealer of the deficiency and affords an opportunity

for compliance. Unless the capital situation is promptly remedied,

injunctive action may be taken by the Commission and in addition

proceedings may be instituted to revoke the broker-dealer's registration. During the past fiscal year, violations of the net capital rule

were charged in 33 injunctive actions and in 25 revocation proceedings

instituted against broker-dealers.

Registered broker-dealers who participate in "firm commitment"

underwritings must have sufficient capital to permit the participation

provided by the underwriting contract without impairing the capitaldebt ratio prescribed by the rule. For the protection of issuers and

customers of the broker-dealer, the Commission's staff carefully

analyzes the latest available information on the capital position of the

participants to determine whether they will be in compliance with the

rule upon assumption of the new obligations involved in the underwritings. Acceleration of the effective date of registration statements

filed under the Securities Act will be denied where underwriting commitments may engender violations of the net capital rule by any

participating underwriter. A participant found to be inadequately

capitalized to take down his commitment is notified and given an opportunity to adjust his financial position to meet the requirements of the

rule without reducing his commitments. If he is unable to meet such

requirements, he must decrease his "firm commitment" until compliance with the rule is reached. If necessary he may have to withdraw

from the underwriting or participate on a "best efforts" basis only.

As a result of recommendations of the Special Study of Securities

Markets, the Commission presently has under consideration a proposed

rule which would establish minimum net capital requirements for

broker-dealers.
TWENTY-NINTH ANNUAL REPORT 65

Financial Statements

Rule 17a-5 under Section 17(a) of the Exchange Act requires registered broker-dealers to file annual reports of financial condition with

the Commission. Such reports must be certified by a certified public

accountant or public accountant who is in fact independent, with

certain specified limited exemptions applicable to situations where

certification does not appear necessary for customer protection.

Under certain circumstances member firms of national securities exchanges are exempt from the necessity of certification and an exemption is available for a broker-dealer who, since his previous report, has

limited his securities business to soliciting subscriptions as an agent

for issuers, has transmitted funds and securities promptly, and has not

otherwise held funds or securities for or owed monies or securities to

customers. Also exempt is a broker or dealer who, from the date of

his last report, has confined his business to buying and selling evidences

of indebtedness secured by liens on real estate and has carried no

margin accounts, credit balances or securities for any customers.

After his registration, a broker-dealer's first financial report must

reflect his condition as of a date between the end of the 1st and 5th

months after the effective date of the registration. All reports must

be filed within 45 days after the date as of which the report speaks.

Through these reports the Commission and the public may evaluate

the financial position and responsibility of broker-dealers. The financial report is one means by which the staff of the Commission determines whether the registrant is in compliance with the net capital

rule. Failure to file the required reports may result in the institution

of revocation proceedings. However, it is the policy of the Commission first to advise the broker-dealer of his obligations under the rule

and to give him an opportunity to file the report.

During the fiscal year 5,197 reports of financial condition were filed

with the Commission compared to the 1962total of 5,228.

As of February 14, 1963,the last date for broker-dealers to file their

1962 annual financial reports, if prepared as of December 31, 1962,

a large number were delinquent in their filings. An effort has been

made to obtain the termination of the registrations of those brokerdealers through revocation, withdrawal or cancellation. A continuing effort will be made to secure the filing of financial reports of all

registered broker-dealers in compliance with the Commission's

requirements.

Broker-Dealer Inspections

Section 17(a) of the Exchange Act provides for regular and periodic

inspections of registered broker-dealers. During the fiscal year the

717-943-64-6
66 SECURITIES AND EXCHANGE COMMISSION

number of such inspections totaled 1,534. The inspection device is a

most useful instrument in protecting investors and detecting violations

of the Federal securities laws. The inspection, among other things,

determines a broker-dealer's financial condition, reviews his pricing

practices, evaluates the safeguards employed in handling customers'

funds and securities, and determines whether adequate and accurate

disclosures are made to customers.

The Commission's inspectors also determine whether brokers and

dealers are keeping books and records as required by the Exchange Act

and the Commission's rules thereunder and conforming to the margin

and other requirements of Regulation T of the Federal Reserve Board.

Inspectors also look for excessive trading or switching in customers'

accounts. Inspectors frequently find evidence of the sale of unregistered securities or of fraudulent practices such as use of improper

sales literature or sales techniques.

When inspections reveal that a broker-dealer is violating the statutes

or rules, consideration is given to the type of violation and the effect

on the public. The Commission does not take formal action as a result

of every infraction discovered. Inspections frequently reveal inadvertent violations which are discovered before becoming serious and

before customers' funds or securities are in danger. When no harm

has come to the investing public the registrant is informed of the violations and advised to correct the improper practices. If the violation appears to be willful and the public interest is best served by

formal action against the broker-dealer, the Commission will institute

appropriate proceedings.

The table below shows the types of infractions uncovered by the

inspection program during the fiscal year:

Numb" Tvpe Of broke ..

Financial difficulties; ___ __ 328

Hypothecation rules; ___ _ 39

Unreasonable prices in securities purchases and sales___________________ 187

Regulation T of the Federal Reserve Board___________________________ 147

"Secret profit" 5

Confirmation and bookkeeping rules; _ _ 847

Other____________________________________________________________ 384

Total indicated violations 1,937

The National Association of Securities Dealers, Inc., and the principal stock exchanges also conduct inspections of their members, and

some states have inspection programs. Each inspecting agency conducts inspections in accordance with its own procedures and with

particular reference to its own regulations and jurisdiction. Inspections by the Commission are primarily concerned. with the detection

_
TWENTY-NINTH ANNUAL REPORT 67

of violations of the Federal securities laws and the Commission's

regulations. The inspection programs of the self-regulatory agencies

and of the states afford added protection to the public. The Commission and certain other inspecting agencies coordinate their inspections to avoid duplication and to obtain the widest possible coverage

of brokers and dealers. Agencies now participating in this coordination program include the New York Stock Exchange, the American

Stock Exchange, the Boston Stock Exchange, the Midwest Stock Exchange, the Pacific Coast Stock Exchange, the Philadelphia-Baltimore-Washington Stock Exchange, the Pittsburgh Stock Exchange,

and the National Association of Securities Dealers, Inc. It is hoped

that even closer coordination may become possible in the future as

recommended by the Special Study of Securities Markets. This program, however, does not preclude the Commission from inspecting

any broker-dealer that has also been inspected by another agency, and

such inspections are made whenever reason therefor exists.

SUPERVISION OF ACl'IVITIES OF NATIONAL ASSOCIATION OF

SECURITIES DEALERS, INC.

The Securities Exchange Act of 1934,in Section 15A (the "Maloney

Act"), provides for the registration with the Commission of national

securities associations and establishes standards for such associations.

The rules of such associations must be designed to promote just and

equitable principles of trade, to prevent fraudulent and manipulative

acts and practices and to meet other statutory requirements. Such

associations are essentially disciplinary in purpose and serve as a

medium for the cooperative self-regulation 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 of 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 under the Act.

In adopting legislation permitting the formation and registration

of such associations, Congress provided an incentive to membership

by permitting such associations to adopt rules which preclude a member from dealing with a nonmember, except on the same terms and

conditions as the member affords the investing public. The NASD

has adopted such rules. Accordingly, membership is necessary to

profitable participation in underwritings and over-the-counter trading

since members may properly grant price concessions, discounts and

similar allowances only to other members. Loss or denial of membership due to expulsion or suspension or other ineligibility due to a
68 SECURITIES AL~D EXCHANGE COMMISSION

statutory disqualification, or to failure to meet standards of qualification established in NASD rules, thus imposes a severe economic

sanction.

During the year NASD membership decreased by 261 to stand at

4,664 as of June 30, 1963. This net decrease was the result of 454

admissions to and 715 terminations of membership. In the same

period the registered representative population, which generally includes all partners, officers, traders, salesmen and other persons employed by or affiliated with member firms in capacities which involve

their doing business directly with the public, declined by 15,030 to

87,375. This decline was the result of 38,292terminations of registrations, as against 9,325 initial registrations and 13,937 reregistrations.

NASD Disciplinary Actions

The Commission receives from the NASD summaries of decisions

in all disciplinary actions against members. A complaint instituting

disciplinary action must be based on allegations that a member had

violated specified provisions of the Rules of Fair Practice, although

registered representatives of members, and persons controlling or controlled by members, may also be cited for having been the cause of a

violation.

Where violations are found one or more of the available sanctions

may be imposed. These include expulsion or suspension from membership, revocation or suspension of registration as a registered representative, fine and censure. An individual may also be found to have

been the cause of a violation and of the penalty imposed on another

party for such violation. Such a cause finding can have far-reaching

effects, particularly in the case of expulsion or suspension from membership or suspension or revocation as a registered representative. A

person found to be a cause of suspension or expulsion from membership

can be employed by a member, while such suspension or expulsion is in

effect, only with approval of the Commission. Where an individual

should have been, but was not registered as a representative, a finding

that the unregistered person was a cause of an effective expulsion,

suspension or revocation acts as a disqualification from membership,

or control of or by a member, just as if such a penalty had been imposed directly on the person found a cause of the violation underlying

the decision. In many cases more than a single penalty may be imposed so that expulsion, suspension or revocation may be accompanied

by a fine and/or censure. In cases where the penalty is a fine, censure

is customarily added.

During the year the Association reported to the Commission its

final disposition in 536 disciplinary complaint actions against 503
TWENTY-NINTH ANNUAL REPORT 69

different member firms and 332 registered representatives." With

respect to 88 members and 57 representatives, complaints were either

withdrawn prior to determination or were dismissed on findings that

allegations of violations had not been sustained. In the remaining

cases violations were found and some penalties were imposed on 448

members and 275 registered representatives, or other individuals who

should have been but were not registered as representatives.

The maximum penalty of expulsion from membership was applied

against 65 different members (1 member having been expelled in each

of two separate decisions) and 16 members were suspended from

membership for periods ranging from 5 days to 2 years. In many

of these expulsion or suspension cases, fines were also imposed. In

one case the penalty included suspension from membership for 5 days,

a fine of $25,000 and an assessment of $20,000 to cover costs. In 310

cases, the major penalty imposed was fines, ranging from $50 to $8,000.

In 55 other cases the only sanction imposed was censure, although

censure was usually a secondary penalty imposed where expulsion,

suspension or fines were the major penalties imposed.

Registered representatives found in violation of rules were similarly

subjected to various penalties. The registrations of 93 representatives

were revoked and 30 had their registrations suspended for periods

ranging from 15 days to 2 years. Twenty-two individuals, some of

whom should have been but were not registered as representatives,

were found to have been causes of expulsions or suspensions of their

firms. Fines were imposed on 66 representatives in amounts ranging

from $50 to $5,000. Censure was the only penalty imposed on 65

representatives found to have acted improperly.

Commission Review of NASD Action on Membership

Section 15A(b) of the Act and the bylaws of the NASD provide

that, except where the Commission finds it appropriate in the public

interest to approve or direct to the contrary, no broker or dealer may

be admitted to or continued in membership if he, or any controlling

or controlled person, is under any of the several disabilities specified

in the statute or the bylaws. By these provisions Commission approval is a condition to admission to or continuance in Association

membership of any broker-dealer who, among other things, controls

or is controlled by a person whose registration as a broker-dealer has

been revoked or who has been and is suspended or expelled from

Association membership or from a national securities exchange, or

whose registration as a registered representative has been revoked by

15 Some members were involved in more than one such case: 17 were involved in 2 cases;

4 were involved in 3; one was involved in 4; and one was involved in 6 cases. Some decisions covered more than one complaint.
70 SECURITIES A..l\WEXCHANGE COMMISSION

the NASD or who was found to have been a cause of such an effective

order.

A Commission order approving or directing admission to or continuance in Association membership, notwithstanding a disqualification under Section 15A (b) (4) of the Act, or under an effective Association rule adopted under that Section or Section 15A(b) (3), is

generally entered only after the matter has been submitted initially

to the Association by the member or applicant for membership.

Where, after consideration, the Association is favorably inclined, it

ordinarily files with the Commission an application on behalf of the

petitioner. A broker-dealer, however, may file an application directly

with the Commission either with or without Association sponsorship.

The Commission reviews the record and documents filed in support of

the application and, where appropriate, obtains additional evidence.

At the beginning of the fiscal year one such petition was pending

before the Commission. During the year two petitions were filed;

decisions were issued in three cases; and no petitions were pending at

the year end.

The Commission found it appropriate in the publio interest to

approve petitions filed by the Association for Commission approval

of the continuance in Association membership of two firms notwithstanding their employment of disqualified persons."

However, the Commission denied an application by Bruce WilliO/ln

Grocoff, doing business as Lloyd Securities, for an order directing

the Association to continue him as a member while employing Robert

Grocoff, his father, as a controlled person." The latter had been

president and sole stockholder of R. G. Worth & Co., Inc., whose

broker-dealer registration was revoked in 1960, for willful violations

of the Commission's net capital and record-keeping rules and the

credit requirements of Regulation T. Robert Grocoff was found

a cause of that order. The violations had extended over a 3-year

period and continued even after assurances of compliance and after

an injunction had been obtained against them. The NASD had

denied applicant's request that it seek Commission approval of his

continued membership with his father as a controlled person. At

the hearing before the NASD Board of Governors it was stated

that applicant's securities business was to be taken over by Lloyd

Securities, Inc., whose principal officers and sole stockholders

were applicant and Robert Worth, and that applicant and Worth

would manage and supervise the operations of the corporation, while

Grocoff, Sr. would be employed as a salesman and an advisor with

,. Securities Exchange Act Releases Nos. 6969 (December 13. 1962) and 7059 (April 16,

1963).

17 Securities Exchange Act Release No. 6842 (July 10, 1962).
TWENTY-NINTH ANNUAL REPORT 71

respect to investment situations. Both applicant and Worth had

worked for a time for Worth & Co., under the supervision of Grocoff

Sr. The NASD concluded, and the Commission agreed, that in the

light of the more limited experience of applicant and Worth, and in

view of their personal and prior business relationships with Grocoff

Sr., it was difficult to believe that the proposed arrangement of control

and supervision would be adequate under the circumstances.

Commission Review of NASD Disciplinary Action

Section 15A(g) of the Act provides that disciplinary actions by the

NASD are subject to review by the Commission on its own motion or

on the timely application of any aggrieved person. This Section also

provides that the effectiveness of any penalty imposed by the NASD

is automatically stayed pending determination in any matter which

comes before the Commission for review. Section 15A(h) of the Act

defines the scope of the Commission's review in proceedings to review

disciplinary action of the NASD. If the Commission finds that the

disciplined person engaged in the acts or practices, or has omitted the

acts, found by the NASD and that such acts, practices, or omissions

to act are in violation of such rules of the Association as have been

designated in the determination, and that such conduct was inconsistent with just and equitable principles of trade, the Commission

must dismiss such proceedings unless it finds that the penalties imposed are excessive or oppressive, having due regard to the public

interest, in which case the Commission must cancel or reduce the penalties. At the beginning of the fiscal year 15 review cases were pending

before the Commission; during the year 19 additional petitions for

review were filed, decisions were issued in 9 cases, 2 petitions were

withdrawn prior to determination, and 23 petitions were pending at

the year end. Among the significant cases decided by the Commission during the year are the following:

The Commission sustained findings by the NASD that Palombi

8eawrities 00., Ino., Edward Palombi, president and registered representative and Harry Barath, James Dei'asquaie and Marvin Jay

Polsky, registered representatives, had violated certain of the NASD

Rules of Fair Practice and that the violations constituted conduct

inconsistent with just and equitable principles of trade. It also sustained the penalties imposed by the NASD, which had expelled the

firm from membership, found Palombi a cause of the expulsion and

revoked the registrations of the individuals as registered representatives.1S

The NASD had found, among other violations, that there was

such a high ratio of cancellations of retail sales by the firm in the course

18 Securities Exchange Act Release No. 6961 (November 30.1962).
72 SECURITIES A-~D EXCHANGE COMMISSION

of a Regulation A offering as to indicate that the respondents had

engaged in a conspiracy to and did increase sales by sending confirmations to persons who were solicited over the telephone to purchase

stock but who did not, in fact, agree to make the purchase. The Commission held that the evidence supported the NASD finding. Among

other things, it considered "the high-pressure selling methods, characteristic of a boiler-room operation" which were used by the salesmen

and which "are often accompanied by the use of false confirmations

to generate sales." The Commission also held that in determining

whether the rate of customer cancellations was beyond normal expectations, the members of the NASD District Committee properly

utilized their experience in the securities industry.

The Commission sustained the NASD's action in expelling from

Association membership Vickers, Ohristy and 00., Inc. and revoking

the registrations of Sydney G. Vickers, Jr. and William J. Ohristy

as registered representatives. This was the first case presented to the

Commission involving the responsibilities of NASD members in hiring registered representatives. The Commission (in an opinion by

Chairman Cary) concluded that under the circumstances, the penalty

of expulsion was not excessive, and observed: "Both the NASD and

we have been concerned with raising the standards of character, competence and training of securities salesmen. . . . The salesman often

represents the major point of contact between the securities business

and the general public-a minimum level here can produce maximum

damage everywhere."

Under the NASD's rules, any member which employs any person

who is required to be registered with the NASD, must have reason to

believe upon the exercise of reasonable care, and must certify to the

NASD, that such person "is of good character and of good business

repute" and is or will be qualified by training or experience to perform the functions assigned to him. This determination is the "complete" responsibility of the member, and "improper or unwarranted

certification . . . shall be deemed to be conduct contrary to high

standards of commercial honor."

The NASD found that appellants had certified to the "good character and good business repute" of four salesmen "without having

exercised reasonable care" in investigating their background. The

investigation consisted of casual interviews and a telephone call to

Biltmore Securities Corp., a former employer of three of the salesmen. That firm was a respondent in both injunctive and administrative Commission actions. One of these salesmen had himself been

the subject of injunction proceedings based on violations of the registration and anti-fraud provisions of the Federal securities acts.
TWENTY-NINTH ANNUAL REPORT 73

Moreover, the four salesmen had previously been associated with one

or more of a number of other firms against which various adverse

actions had been taken. The "superficial" nature of the firm's inquiry,

the Commission stated, was highlighted by its "asserted ignorance

of Biltmore's difficulties and the prior employment records of the

salesmen. We must doubt the depth of their interviews and investigations when they failed completely to learn of the formidable record

of the salesmen's dubious connections."

The Commission also rejeeted, as immaterial, the contention that

the NASD had not found that the salesmen in fact were not of good

character and business reputation, pointing out that "the dereliction

charged concerns appellants' duty to make a reasonable inquiry and

to certify a reasonable belief based on information." The appellants

indicated that they would not have engaged the salesmen had they

known of their past connections. "Here is the crux of the case against

them" the Commission stated; "they did not know and made no reasonable effort to find out." 19

The Commission also sustained findings by the NASD that Valley

Forge Securities Oompany, Inc., and J. William Landenberger, III

and Olaude F. McDaniel, its principal officers and stockholders, violated the Commission's net capital rule, the credit restrictions of

Regulation T and the NASD's interpretation of its Rules of Fair

Practice with respect to advertising and sales literature. The NASD

had expelled the firm from membership and revoked the registrations

as representatives of Landenberger, McDaniel and another officerwho

did not seek review of the NASD action.

According to the Commission's decision the firm distributed a "Financial Bulletin" designated as "A SPECIAL MEMORANDUM

REGARDING NEW ISSUES." This brochure, headed by the words

"FROM $2.50 to $76.00 PER SHARE IN SIX MONTHS," included

a list of securities that had been the subject of initial offerings which

the firm was said to have either participated in or recommended to

its clients and which were stated to have increased in price from 33

percent to 2,900 percent in very short periods of time. The brochure

offered to place the names of interested clients on a "NEW ISSUE

LIST," which would purportedly entitle them to preferential treatment in the disposition of new issues. The NASD found that while

many of the statements were superficially true, "the general connotation of such a presentation is, in our judgment, neither wholly true,

nor in the best interest of the industry." The Commission observed

that while the NASD did not in so many words find the use of the

10 Securities Exchange Act Release No. 6872.(August 8,1962).
74 SECURITIES A..~D EXCHA.~GE COMMISSION

bulletin to be a violation of the anti-fraud provisions of the Securities

Acts, the NASD did conclude that the bulletin contained statements

whose implications might mislead and that it did not provide a fair

basis for evaluating the facts presented. It also noted that the NASD's

action was based on its published interpretation of its Rules of Fair

Practice that exaggerated or sensational statements or claims, the implications of which may mislead, are prohibited.

The Commission emphasized that both it and the NASD are "concerned with raising the standards of the industry. The phenomenon

of the 'hot issue' offers the less scrupulous broker-dealer a myriad of

opportunities to trade on the public greed and gullibility characteristic of such a 'hot market.' The public is done disservice by the distribution of sales literature which attempts to sell new issues on the

basis of a 'hot' market rather than on the merits of individual securities. This is particularly so where there is no explanation of or reference to the inherent risk in investing in new and untried enterprises.

The technique used by applicants in calling attention only to past

recommendations which were or would have been profitable is inherently misleading and deceptive because by its very nature it emphasizes

the favorable facts, ignores any which are unfavorable, and fails to

caution that investment in subsequent new issues cannot always be

expected to show results comparable to the selected instances listed.

Furthermore, its appeal is bottomed on what has been colloquially referred to as the 'bigger fool' theory. This is simply the assurance that

regardless of whether the price paid for a security is fair and/or

reflective of the intrinsic value of the security or even reflective of a

rational public evaluation of the security, the security is still a good

buy because a 'bigger fool' will always come along to take it off the

customer's hands at a higher price. To imply that this theory will

be perpetually applicable is an intolerable business practice which is

the antithesis of any acceptable standards of commercial honor."

The Commission noted that applicants did not dispute their failure

to comply with the net capital rule and Regulation T and sustained

the NASD rejection of their contentions that these violations were

inadvertent and a result of a lack of experienced employees and the

inability of their accountants to prepare and submit monthly statements on time.20

20 Securities Exchange Act Release No. 7055 (Apr1112, 1963).
PART VI

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING

COMPANY ACT OF 1935

In administering the Public Utility Holding Company Act of 1935

the Commission regulates interstate public-utility holding-company

systems engaged in the electric utility business and/or in the retail

distribution of gas. The Commission's jurisdiction also extends to

natural gas pipeline companies and other nonutility companies which

are subsidiaries of registered holding companies. Although the

matters under the Act dealt with by the Commission and its staff

embrace a variety of intricate and complex questions of law and fact

generally involving more than one area of regulation, briefly there

are three principal regulatory areas. The first covers those provisions

of the Act, contained principally in Section neb) (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 l1(b) (2), which require the simplification of intercorporate relationships and financial structures of holding company systems. The second covers the financing operations of

registered holding companies and their subsidiaries, the acquisition

and disposition of securities and properties, and certain accounting

practices, servicing arrangements and intercompany transactions.

The third includes the exemptive provisions of the Act, the provisions covering the status under the Act of persons and companies,

and those regulating the right of a person affiliated with a publicutility company to acquire securities resulting in a second such affiliation. Matters embraced within this last area of regulation come

before the Commission and its staff frequently. Many such matters

do not result in formal proceedings and others are reflected in such

proceedings only in an indirect manner when they are related to

issues principally under one of the other areas of regulation.

The Branch of Public Utility Regulation of the Commission's Division of Corporate Regulation performs the principal functions under

the Act. It observes and examines problems which arise in connection with transactions which are or may be subject to regulation under

75
76 SECURITIES A..~D EXCHANGE COMMISSION

the Act and discusses such problems with interested persons and

companies and advises them as to the applicable Sections of the Act,

the rules thereunder and Commission policy with respect thereto.

Questions are raised with and problems are presented to the staff

daily. These include questions raised by security holders and problems presented by companies contemplating transactions requiring

the filing of an application or declaration, particularly financing operations and the acquisition and disposition of securities and properties. This day-to-day activity includes prefiling discussions and conferences, in person and by telephone, with company representatives

and with other persons where the matter under consideration affects

their interest. Members of the staff of this Division actively participate in hearings and often aid the Commission in the preparation

of its decision on a particular matter. The staff continually reexamines the status of exempt companies, examines the annual reports

filed with the Commission and those sent to stockholders and must

keep abreast of new technical developments in the electric and gas

industry, including the use of atomic energy as a source of power.

COMPOSITION OF REGISTERED HOLDING-COMPANY SYSTEMS

At the close of the fiscal year there were 24 holding companies

registered under the Act. Of these, 18 are included in the 16 remaining holding-company systems which are herein classified as

"active registered holding-company systems," 2 of the 18 being subholding companies in these active systems.' The remaining 6 registered

holding companies are of relatively small size and are excluded from

the active holding-company systems," In the 16 active systems there

are 85 electric and/or gas utility subsidiaries, 40 nonutility subsidiaries, and 13 inactive companies. These, together with the 18 parent

holding companies, totaled 156 system companies. The following

table shows the number of holding companies, the number of susidiaries, classified as utility, nonutility, and inactive, in each of the

active systems as of June 30, 1963, and their aggregate assets, less

valuation reserves, as of December 31, 1962, which amounted to

$12,458,709,000:

1These are The Potomac Edison Co., a subsidiary of Allegheny Power System, Inc., and

Southwestern Electric Power Co.• a subsidiary of Central and South West Corp.

S These holding companies are British. American UtlUtles Corp. ; Colonial UtUltles Corp. ;

High Plains Gas Co.; Klnzua on & Gas Corp. and its subholding company. Northwestern

Pennsylvania Gas Corp. ; and Standard Gas & Electric Co.
TWENTY-NINTH ANNUAL REPORT

Classification of companies as of June 30, 1963

77

Regis- Aggregate

Solely tered Electric system

regis- holding- and/or Non- In- Total assets, less

System tered operat- gas utility active com- valuation holding lug utility subsid- com- panies reserves at

com- com- subsid- Iaries panies Dec. 31, parnes panics !arIes 19621

(thousands)

--------- --- I. Allegheny Power System, Inc ________ 1 1 13 5 2 22 $640,873 2. American Electric Power Co , Inc ____ 1 0 12 8 2 23 1,654,766 3. American Natural Gas Co ____________ 1 0 2 4 0 7 939,135 4 Central and South West Corp ________ 1 1 4 1 1 8 781,955 5. Columbia Gas System, Ine., The _____ 1 0 11 8 2 22 1,393,333 6 Consolidated Natural Gas Co ________ 1 0 4 3 0 8 876,745 7. Delaware Power & Light Co _________ 0 1 2 0 0 3 214,716 8. Eastern Utilitles Assooiates ___________ 1 0 5 0 2 8 114,867 9. General Public Utalitres Corp ________ 1 0 6 3 0 10 1,077,565 10. Middle South UtIlities, Inc ___________ 1 0 5 1 3 10 859,248 11. National Fuel Gas Co ________________ 1 0 4 5 0 10 244,701 12. New England Electnc System _______ 1 0 13 1 0 15 703,474 13. Ohio Edison Co ______________________ 0 1 3 0 0 4 726,970 14. Philadelphia Electric Power Co ______ 0 1 1 0 1 3 43,450 15. Southern Co., The ___________________ 1 0 5 2 0 8 1,577,951 16. Utah Power & Light Co ______________ 0 1 1 0 0 2 296,433

Subtotals _________________________ --------------- 12 6 91 41 13 163 12,146,182

Less' Adjustment to allrmnate dupllcatlon Iu count resulting from 3 companies

belug subsidiaries Iu 2 systems and 2

companies belug subsidiaries Iu 3 sys0 tems -- --- 0 -6 -1 0 -7 ------_._--- Add Adjustment to Include the assets

of these 5 jolutly owned subsidiaries

and to remove the parent companies'

Iuvestments therein which are included In the system assets above 312,527

--------- --- --- Total companies and assets in active systems ___________________ 12 6 85 40 13 156 12,458,709

I Represents the consolidated assets,less valuation reserves, of each system as reported to the Commission

on Form U5S for the year 1962. These 5 companies are Beechbottom Power Co., Inc. and Wludsor Power House Coal Co. whlcb are

Indirect subsidiarles of American Electric Powcr Co., Inc. and Allegheny Power System, Inc.; Ohio Valley

Electric Corp. and Its subsidiary, Indiana-Kentucky Electric Corp., which are owned 37.8 percent by AmerIean Electric Power Co., Inc., 16.5 percent by Ohio Edison Co , 125 percent by Allegheuy Power System,

Inc , and 33 2 percent by other companies; and The Arklahoma Corp., which Is owned 32 percent by Central

and South West Corp. system, 34 percent by Middle South Utilities, Inc. system and 34 percent by an

electric utility company not associated with a registered system.

SECTION 11 MATTERS AND OTHER SIGNIFICANT DEVELOPMENTS IN

ACTIVE REGISTERED HOLDING-COMPANY SYSTEMS

Section 11 Mallers

At the close of the fiscal year, there was pending before the Commission Step 2 of a Section 11 (e) plan filed by Eastern Utilities Associates,

proposing the sale of all the outstanding common stock of Valley Gas

Co. to the public common stockholders of Blackstone Valley Gas and

Electric Co. and to the shareholders of Eastern Utilities Associates.

This will constitute the final step to be taken for divestment of the

System's gas utility properties. Prior proceedings are discussed at

page 109 of the 27th Annual Report.

On February 20, 1958, the Commission issued its Findings, Opinion

and Order pursuant to Section l1(b) (1) permitting the retention of

all of the New England Electric System's electric properties," There38 S.E.C. 193.

-

' _____________________________

______________-------- -------- -------- -------- -------- --------

•

•
78 SECURITIES A..~D EXCHANGE COMMISSION

after, further hearings were held to consider the retainability of the

System's gas properties; briefs were filed by New England Electric

System and by the Commission's Division of Corporate Regulation;

and oral argument was heard by the Commission. At the close of the

fiscal year the matter was under advisement.

A current problem under Section 11(b) (1) in the Middle South

Utilities system concerns the question whether New Orleans Public

Service Inc. may retain its gas and transportation properties together

with its electric properties. On January 10, 1963, a bill was introduced

in the Congress (H.R. '742,88th Cong., 1st Sess.) providing generally

that New Orleans Public Service Inc. shall not be required to dispose

of its gas or transportation properties pursuant to any provision of the

Public Utility Holding Company Act of 1935. The bill was referred

to the Committee on Interstate and Foreign Commerce which, at the

close of the fiscal year, had taken no action thereon. Two similar bills

had previously been introduced in the 87th Congress, 2d Session (H.R.

10872 and H.R. 10898). No proceedings have been instituted by the

Commission regarding this problem.'

The Commission has held, with court approval, that the existence

of public minority interests in the common stock of subsidiaries of integrated registered public-utility holding-company systems constitutes

an inequitable distribution of voting power under Section 11(b) (2).

Such minority interests have heretofore been eliminated in most of

the holding-company systems through appropriate proceedings under

the Act, but the problem still exists in several others. During fiscal

1963,informal conferences were held between the staff and representatives of Allegheny Power System, a registered holding company, looking to the elimination of a 4.8 percent public minority interest in the

common stock of one of Allegheny's subsidiary companies, West Penn

Power Company. Shortly after the close of the fiscal year, Allegheny

filed a plan pursuant to Section 11(e) of the Act, proposing that each

share of West Penn's publicly-held common stock be surrendered in exchange for 1.7 shares of Allegheny's common stock.

Other holding-company systems in which a minority interest problem exists, and as to which no proceedings have been proposed by the

systems or instituted by the Commission, are Columbia Gas System,

Eastern Utilities Associates and New England Electric System. In

respect of the latter system, the minority interests are confined to

several of the gas utility subsidiaries the retainability of which, as

noted above, is under advisement by the Commission.

'No further actton was taken dnrIng this fiscal year with respect to certain Section

11(b) problems of several other registered holding-company systems noted at pages 104

and 108 of the 27th Annual Report.
TWENTY-NINTH ANNUAL REPORT 79

Other Developments

On January 28, 1963, an application-declaration was filed with the

Commission relating to the proposed construction of a nuclearpowered electric generating plant by Connecticut Yankee Atomic

Power Company, all of whose outstanding capital stock would be

owned in various proportions by a group of 12 New England utility

companies, including subsidiaries of certain registered holding companies," The proposal involves the initial issuance of $5 million par

value of Connecticut Yankee's common stock to finance part of a

total estimated construction cost of about $85 million; the necessary

approvals under Section 10 of the Act for the acquisition of their

proportionate shares of such stock by 8 of the 12 sponsor companies;

the requests of 2 of the sponsor companies, each of which proposes

to acquire more than 10 percent of Connecticut Yankee's stock, for

exemptions as holding companies under Section 3 (a) ; and Connecticut Yankee's request for permission to conduct private negotiations

to determine the type, amount and method of its permanent financing

program. Halsey, Stuart & Co., Jnc., an investment banking firm,

appeared as a participant in the proceeding in opposition to the company's request to conduct such private negotiations. After the close

of the fiscal year, the Commission issued an order granting and

permitting the application-declaration to become effective, but denying the company's request to conduct private negotiations relating

to the future sale of its senior securities,"

The Commission's Rule 45(b) (6) promulgated under the Act provides that the consolidated Federal income tax liabilities of registered

holding companies and their subsidiaries may be allocated among

the members of the consolidated group without prior approval by

the Commission-provided, among other things, that such allocation

is made in accordance with the method prescribed by Section 1552

(a) (1) of the Internal Revenue Code of 1954:. This method (frequently referred to as the source-of-income method) requires that

the consolidated tax liability be apportioned among the members

of the group in accordance with the relative amount of the consolidated taxable income which is attributable to each member of the

group having taxable income. Under the Revenue Act of 1962, taxpayers installing qualified property after December 31, 1961, were

permitted, as an "investment credit," to deduct from their Federal

income taxes otherwise payable an amount equal to a percentage

"This is the second proposal to come before the Commission under the Act, relating to

a jointly sponsored atomic energy electric generating plant. See 22nd Annual Report,

pages 162-164, relating to Yankee Atomic Electric Power Company. All but one of the

sponsor companies of Connecticut Yankee are also the sponsor companies of Yankee Atomic.

• Holding Company Act Release No. 14947 (September 26, 1963).
80 SECURITIES AND EXCHANGE COMMISSION

(generally 3 percent in the case of public-utility companies) of the

cost of such qualified property. Since the investment credit taken

in a consolidated tax return reduces the group's consolidated tax

liability as determined on the basis of consolidated taxable income,

adherence to the Commission's Rule 45(b) (6) in such circumstances

would require, in effect, that the net consolidated tax liability (i.e.,

the consolidated tax liability as reduced by the investment credit)

be apportioned among the several members of the group under the

source-of-income method. This could result in certain inequities, inasmuch as a member which generates a relatively small portion of

the group's total investment credit could have allocated to it a

disproportionately large amount of such credit; conversely, it could

penalize a member which generates a relatively large amount of the

group's total investment credit.

To resolve the problem in a manner which would accord uniform

treatment to all registered holding-company groups filing consolidated tax returns, the Director of the Commission's Division of Corporate Regulation, on February 1, 1963, sent a letter to the chief

executive of each of the registered holding companies advising him

(1) that the consolidated tax liability after giving effect to the investment credit must be allocated in accordance with Rule 45(b) (6)

unless an exception is granted by the Commission, and (2) that the

Division saw no basis for denying requests for such an exception

which would generally give the full benefit of its investment credit

to each individual company within a consolidated group qualifying

for the credit under the Revenue Act of 1962. By the end of fiscal

1963, 11 registered holding-company systems had applied for and

received Commission approval for allocating the investment credit

in accordance with the Division's letter of February 1, 1963; and

after the close of the fiscal year an additional registered holdingcompany system applied for and received such approval."

FINANCING OF REGISTERED PUBLIC-UTILITY HOWING COMPANIES

AND THEIR SUBSIDIARIES

During the fiscal year 1963, 12 registered holding-company systems

issued and sold for cash 25 issues of long-term debt and capital stocks,

aggregating $425.4million, pursuant to authorizations granted by the

Commission under Sections 6 and "{of the Act," All but one of the

7 Holding Company .ActRelease Nos. 14835 (March 26, 1963)/; 14850 (.April16, 1963) ;

14853 (.April 11, 1963) ; 14800 (.April 26, 1963) ; 14863 (May 1, 1963) ; 14877 (May 23,

1963) ; 14880 (May 28, 1963) ; 14888 (June 5, 1963) ; 14890 (June 7, 1963) ; 14895 (June

18, 1963) ; 14904 (June 28, 1963) ; 14950 (October 1,1963)

The active systems which did not sell stock or long-term debt securities to the public

are: .AmericanElectric Power Co., Inc.; Delaware Power & Light Co.; Eastern Utilities

Associates; National Fuel Gas Co.; and Philadelphia Electric Power Co.

•

•
TWENTY-NINTH ANNUAL REPORT 81

security issues were sold by public distribution. Fifteen issues were

sold for the purpose of raising additional capital. Of the remaining

10 issues, 9 were entirely or in part for the purpose of refunding

$145.8 million principal amount of outstanding debt securities carrying a higher rate of interest, and 1 for the purpose of refunding

$10 million par value of preferred stock carrying a higher dividend

rate.

The following table shows the amounts and types of securities

issued and sold by registered holding companies and their subsidiaries

during fiscal 1963:

Securities issued and sold for cash to the public and financial institutions by registered

holding companies and their subsidiaries, fiscal year 1969

(In mIll1ons]

Holding-company system Bonds Deben- Preferred Common tures stock stock

Allegheny Power System, Inc.: West Penn Power Coo. $14

American Natural Gas Co.: Mlch1gsn Consolidated

Gas Co ---. -. 3D ---.-------- Central and South West Corp.: Southwestern Electric Power Co •.• 30 .. .. .. Public service Company of Oklahoma 10

Colontsl Utllit1es Oorp.: Allied New Hampshire GIIS

Co -. 0.4 -------.-i7i;" -.---------- Columbia GIIS System, InC

e The_. .._--- .. .. Consolidated Natural Gas 0 ._. 35

General Public Utllities CO~ Jersey Central Power & ght Co_ _. 11

Metropolitan Edison Co_._-----------.--.----- 15

Middle South Utilit1es. Inc.: Arkanaa8 Power & Light Co. -. -.,.-- 15

New England Electric System: ---'-i2--- ------iiii--- $6 New England Power Co. ._ Massachusetts Electric Co 60 7.5 -----------. Ohio Edison Co.: Pennsylvania Power Co 21 Southern Co. The:

~~~P~~'::~~~-~:::: :::::: ::::::: :::::: ::::::::

16 5 .._-------- 23 7 ---------._- Southern Electric Generating Co ._. 7.5 -.---------- Utah Power & Light Co ._ 15

Total. _" ---., -. -. -' -. , 279.9 110 29.5 6

Three Issues

Two Issues.

The table does not include securities issued and sold by subsidiaries

to their respective parent holding companies, the issuance of notes to

banks, portfolio sales by system companies, or securities issued for

assets or stock of other companies. These issuances and sales also

required authorization by the Commission except in the case of the

issuance of notes having a maturity of less than 9 months where the

aggregate amount did not exceed 5 percent of the total capitalization

of the company. The issuance of the latter securities is exempt by the

provisions of Section 6(b) of the Act.

717-943-M-7

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__________ ______

_____________ --------- -- ------ _ --- ------------ ------------ ------------ ------------

_____- -- - _______________ ------- •- --- -- -- --- -- --- -- - --- -- -- ----- - -- -- ---- ___--- _____ _____________ ____ ------------------------

------------

------------ ------- - -- ------------

••• _____• ______

•••• ------------

------------ ------------------------ ------------

------------

_____•-- -- - -- •••• - -

____• •• _____ _______________•• ________

__• •• ____•

-- -- - ••••• - -- --- ----- --

____________

___ •

------------

------------

------------

------------

------------

------------

------------

------------

------------

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________ ___••••• ••• ________________•• _••• ____

------------

------------

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------------ ------------------------

-

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- --- -- -- ------ - --- •• --- -••

• •

•
82 SECURITIES AND EXCHANGE COMMISSION

Competitive Bidding

All but one of the issues shown in the preceding table were offered

for competitive bidding pursuant to the requirements of Rule 50

promulgated under the Act.

During the period from May 7, 194:1,the effective date of Rule 50,

to June 30, 1963, a total of 863 issues of securities with aggregate sales

value of $12,727 million were sold at competitive bidding under the

rule. These totals compare with 231 isues of securities with an aggregate sales value of $2,371 million which have been sold pursuant to

orders of the Commisison granting exceptions from the competitive

bidding requirements of the rule under paragraph (a) (5) thereof,"

Of the total amount oj. securities. sold pursuant to orders granting

exceptions under this paragraph, -126 issues, with a total sales value

of $1,888 million, were sold by the issuer; and the balance of 105 issues,

with a dollar value of $4:83 million, were portfolio sales. Of the 126

issues sold 'by issuers, 70 were in amounts of from $1 million to $5

million, and 2 bond issues were in excess of $100 million each.10

PROTECTIVE PROVISIONS OF FIRST MORTGAGE BONDS AND PRE.

FERRED STOCKS OF PUBLICUTILITY COMPANIES

Statements of policy were adopted by the Commission in 1956, codifying the standards to which provisions covering first mortgage bonds

and preferred stocks issued under the Act must conform for the protection of investors in such securities.v' Prior to 1956 these standards

had been established by the Commission on a case-by-case basis. In

passing upon the issuance of first mortgage bonds and preferred stocks

under the Act, the Commission examines the applicable mortgage

indentures and charter provisions to insure a continuing substantial

conformity with the codified standards of the respective statements of

policy. Such conformity has been uniformly required except where,

in particular circumstances, deviations from the statements of policy

are clearly justified.12

During the fiscal year, applications or declarations were filed by

public-utility companies subject to the Act with respect to 18 first

mortgage bond issues involving an aggregate principal amount of

Paragraph (a) (5) of Rule 50 provides for exception from the competitive bidding requirements of the rule where the Commlsslon finds such bidding is not necessa1'1 or appropriate under the particular circumstances of the indiVidual case.

10 Ohio Valley Electric Corp., a $300 million issue; and United Gas Corp., a $116 mlllion

issue.

U Bolding Company Act Release Nos. 131011(Februa1'1 16, 19116) and 13106 (February

16, 1956) as to first mortgage honds and preferred stocks, respectively.

U The appllcation of the statements of polley to fillngs through June 80, 1962, Is discussed

in the 234, 24th, 211th, 26th, 27th, and 28th Annual Reports at pp. 141-143, 128-181,

187-141, 148-151, 123-126, and 89-98, respectively.

•
TWENTY-NINTH ANNUAL REPORT 83

$354.9million 18 and 4 preferred stock issues with a total par value of

$29.5 million.

The statement of policy with respect to first mortgage bonds requires, among other things, that dividends or other distributions to

common stockholders be limited so as to preserve an "equity cushion"

beneath the claims of the bondholders. This requirement was adequately provided for in the indentures covering the bond issues as filed

or as a result of informal discussions between the Commission's staff

and representatives of the issuers.

Since the bulk of bondholders' security consists of mortgaged depreciable plant and equipment, the statement of policy for bonds also

requires the periodic renewal and replacement of such property so as

to preserve the book value of the underlying security. This requirement, in substance, obligates the issuing company to provide for new

property additions (or, alternatively, to deposit cash or outstanding

bonds with the indenture trustee) in an amount which, over the estimated useful life of the mortgaged depreciable property, will maintain

the original book cost of the mortgaged property. The statement of

policy requires that the mortgage indenture express the periodic renewal and replacement obligation as a percentage of the book cost of

the mortgaged depreciable property, but where existing indentures

express the provision on some other basis (usually as a percent of

operating revenues), such alternate provision is permitted to remain

unchanged if the issuer can satisfactorily demonstrate to the Commission that the existing provision affords substantially the same protection as that based on a percent-of-property basis. To insure observance of this standard of the statement of policy, the Commission's

staff conducts a continuous study of the depreciation requirements of

the various issuerssubject to the Act.

Of the 18bond issuesfiled during the fiscalyear, the indentures of 14

expressed the renewal and replacement provision as a percentage of

depreciable property deemed adequate. The indentures covering 2

of the other 4 bond issues expressed the provision as a percentage of

revenues, which afforded no less protection to the bondholders than

would be afforded on an appropriate percent-of-property basis. As

to the remaining 2 bond issues, no renewal and replacement provisions

were deemed necessary since the indenture of 1 issue provided for a 100

percent amortization of the bonds through the cash sinking fund over

the life of the issue, and the indenture of the other provided for a 70

percent amortization.

11 Includes 2 issues, with aggrega.te principal amount at $711mfillon,. 1Iled in fiscal 1963

but sold subsequently.
84 SECURITIES AND EXCHANGE COMMISSION

With respect to the four preferred stock issues aggregating $29.5

million, as to which applications or declarations were filed during the

fiscal year, all had charter provisions in substantial conformity with

the statement of policy for preferred stock.

During the fiscal year, the Commission has continued to require adherence to the provision contained in both the bond and the preferred

stock statements of policy that the securities be freely refundable at

the option of the issuer upon reasonable notice and payment of a

reasonable redemption premium, if any.14 During fiscal year 1963,

issuers subject to the Act took advantage of the refunding privilege to

refund outstanding bond and preferred stock issues at substantial savings in interest and dividend costs under the prevailing favorable

market conditions.

The following table shows the securities sold by registered holding

companies and subsidiaries thereof during fiscal 1963, to refund outstanding issues:

Securities issued and sold by registered holding companies or subsidiaries to refund outstanding issues,;/i8cal year 1963

Annual interest or dividend savRefunded Issue New issue ings to Co.-

before deducting

expenses other

than redemption

Company premIUIDS

Coupon Coupon

Prlneipal or divi- Cost of or divl- Cost of Rate amount or dend money. dend money. (per- Dollar

par value (in rate (per- rate (per- cent) amount millions) (per- cent) (per- cent) cent) cent)

--- --- --- --- --- Columbia Gas System, Ine., The $17.0 5~ 5.0571 4% 4.6230 0.4341 $73,797 Columbia Gas System Inc., The 23.5 5% 50116 4% 4. 4270 0.5846 137,381 Pennsylvania Power Co 8.0 5 4.6730 4% 4.3208 03522 28,176 West Penn Power Co 140 5~ 4.7046 4% 4.2605 0.4441 62,174 Utah Power dELight Co 15.0 5U 4.8135 4).0 4. 4590 03545 53,175 Southwestern Electtic Power Co 16.0 5~ 4.7677 4% 4. 3610 0.4067 65,072 Michlgan Consolidated Gas Co 27.5 6U 5 6111 4~ 4.3870 1.2241 336,627 Arkansas Power & Li~t Co 150 5% 5.1193 4% 4.3640 0.1M3 113,295 Pubhc Service Co. of kIa 9.8 5 4.7760 4~ 4.2340 05420 53,116 New England Power Co '10.0 6.62 5.l234 &.66 ~4.5250 o.D984 . 69,840

Total --- ------ --- --- 155.8 .-. ..-. .... ----~---- ..--.---- 982,653

Based on the redemption price and coupon rate, computed !tom date ofredemption to date of maturity . Based on price to company and coupon rate, computed to date of maturity Preferred stock

Ratio of dollar dividend rate to call price Ratio of dollar dividend rate to price received by company.

In each instance shown in the table, the refunded issue had been

outstanding for a period of 7 years or less, and each of the issuers

effected substantial savings in cost of capital. Had the outstanding

10 The slgn1f1.canceof the refunding privilege, both as a matter of conformity with the

standards of the Act and as a matter of practical 1Inance, was discussed at some length In

the 24th Annual Report, at pp. lSo-lSL

__

__ ___________ _____________ __________

__

___ __•___ ____•___ __________ •

___•• ____________•-••- ------ ----- ---- -- --

•

• • • • • • •
TWENTY-NINTH ANNUAL REPORT 85

issues been nonrefundable or restricted as to refundability, such savings could not have been effectuated.

Continuing studies made by the Commission's staff for fiscal year

1963 with respect to electric and gas utility bond issues sold at competitive bidding, whether or not subject to the Act, indicated that the

presence or absence of a restriction on free refund ability has not

affected the number of bids received by an issuer at competitive bidding. With respect to the ability of the winning bidder to market

the bonds, the data for fiscal year 1963 are at some variance with the

data for the previous fiscal year and for prior periods. The 28th

Annual Report, at pages 91-93, contains a summary of the results of

an examination of all electric and gas utility bond issues (including

debentures) sold at competitive bidding between May 14, 1957, and

June 30, 1962, by companies subject to the Act as well as those not so

subject. This study was extended to include fiscal year 1963.

During the period from May 14, 1957, to June 30,1963, a total of

420 electric and gas utility bond issues, aggregating $9,255.4 million

principal amount, was offered at competitive bidding. The refundable issues numbered 316 and accounted for a total of $5,931.0million,

while the nonrefundable issues-all being nonrefundable for a period

of 5 years, except one which was nonrefundable for a period of 7

years-numbered 104 and totaled $3,324.4 million principal amount.

The number of refundable issues thus represented 75.2 percent of

the total number of issues, while, in terms of principal amount, the

refundable issues acounted for 64.1percent,"

The weighted average number of bids received on the refundable

issues for the period was 4.64, while on the nonrefundable issues it was

4.19. The median number of bids was five on the refundable and four

on the nonrefundable issues," With respect to the success of the marketing of the bond issues, an issue was considered to have been suecessfully marketed if at least 95 percent of the issue was sold at the

syndicate price up to the date of termination of the syndicate. On this

basis, 71.2 percent of the refundable issues were successful, while

67.3 percent of the nonrefundable ones were successfulY In terms of

principal amount, 68.4 percent of the refundable issues were successful,

,. During fiscal year 1963, a total of 59 bond Issues was offered, aggregating $1,416.8

million princlpal amount, consisting of 43 refundable rssues totallng $894.4 million and

16 nonrefundable issues totaling $522.4 m1llion. The number of refundable Issues represented 72.9 percent of all the issues, whUe, In terms of prtnclpal amount, the refundable

Issues accounted for 63.1 percent.

,. During fiscal year 1963, the weighted average number of bids was 5.12 on the refund.

ables and 4.13 on the nonrefundables, whlle the median number of bids was five On the

refundables and four on the nonrefundables.

During fiscal year 1963, 58.1 percent of the refundable issues were successful, as

against 68.8 percent for the nonrefundables.

"
86 SECURITIES AND EXCHANGE COMMISSION

while 66.5 percent of the nonrefundable ones were successful," Extension of the comparison to include the aggregate principal amounts

of all issues which were sold at the applicable syndicate prices up to

the termination of the respective SYndicates, regardless of whether a

particular issue met the definition of a successful marketing, indicates

that 86.8 percent of the combined principal amount of all the refundable issues were so sold, as compared with 83.1 percent for the nonrefundable issues.> While the statistics for the total period from

May 14,1957, to June 30,1963, developed in respect of the two groups

of bond issues support the Commission's policy of requiring free refundability of utility bond issues subject to the Act, the Commission's

staff will continue its studies of refundability provisions, particularly

in light of the inconsistent marketing results in fiscal year 1963.

orasa MA'ITERS

Request for Declaratory Order

On May 26, 1963, a hearing was held with respect to an application

filed by Pacific Northwest Power Company pursuant to Section 5 (d)

of the Administrative Procedure Act for a declaratory order requesting a determination as to when, in the construction of a hydroelectric plant, it will become an electric utility company within the

meaning of Section 2(a) (3) of the Act. Pacific Northwest's common

stock is owned equally by Pacific Power and Light Company, Montana Power Company, Washington Water Power Company, and

Portland General Electric Company. The application was held in

abeyance pending the outcome of proceedings before the Federal

Power Commission, in which the granting of a license to Pacific

Northwest was contested by certain public utility districts. During

fiscal 1962, an examiner of the Federal Power Commission issued an

opinion recommending the grant of a license to Pacific Northwest.

The license proceeding before the Federal Power Commission was

reopened at the request of the Secretary of the Interior and, at the

end of fiscal 1963, the matter was under advisement by that Commission, and briefs were being prepared by the interested persons

with respect to the proceeding before this Commission.

18 During fiscal year 1963, in terms ot principal amount, 54.9 percent ot the retundables

were successful, as against 72.4 percent tor the nonretundables.

10 During fiscal year 1963, the applicable percentages were 79.3 percent tor the retundables

and 89.9 percent tor the nonrefundables.
PART VII

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

The Commission'srole under Chapter X of the Bankruptcy Act,

which provides a procedure for reorganizing corporations in the

United States district courts, differs from that under the various

other statutes whichit administers. The Commissiondoesnot initiate

Chapter X proceedings or hold its own hearings, and it has no authority to determine any of the issues in such proceedings. The

Commission participates in proceedings under Chapter X in order

to provide independent, expert assistance to the courts, the participants, and investors in a highly complex area of corporate law

and finance. It pays special attention to the interests of public

security holders whomay not otherwisebe effectivelyrepresented.

Where the scheduled indebtedness of a debtor corporation exceeds

$3 million, Section 172 of Chapter X requires the judge, before

approving any plan of reorganization, to submit it to the Commission

for its examination and report. If the indebtedness does not exceed

$3 million, the judge may, if he deemsit advisable to do so, submit

the plan to the Commissionbefore deciding whether to approve it.

Where the Commissionfiles a report, copies or a summary must be

sent to all security holders and creditors when they are asked to vote

on the plan. The Commissionhas no authority to veto or to require

the adoption of a plan ofreorganization.

The Commissionhas not considered it necessary or appropriate to

participate in every Chapter X case. Apart from the excessiveadministrative burden, many of the cases involve only trade or bank

creditors and few public investors. The Commission seeks to participate principally in those proceedingsin which a substantial public

investor interest is involved. However, the Commission may also

participate because an unfair plan has been or is about to be proposed, public security holders are not adequately represented, the

reorganization proceedings are being conducted in violation of important provisions of the Act, the facts indicate that the Commission

can perform a useful service,or the judge requeststhe Commission's

participation.

87
88 SECURITIES AND EXCHANGE COMMISSION

The Commission has lawyers, accountants and financial analysts

in its New York, Chicago and San Francisco regional officeswho are

actively engaged in Chapter X cases in which the Commission has

filed its appearance. Supervision and review of the regional offices'

Chapter X work is the responsibility of the Division of Corporate

Regulation of the Commission, which, through its Branch of Reorganization, also serves as a field officein cases arising in the Atlanta

and Washington, D.C. regional areas.

SUMMARY OF ACI1VITIES

The Commission's activities in Chapter X this year increased over

the previous year and will probably be even more extensive in

fiscal year 1964. In fiscal 1963, the Commission entered its appearance in 32 new proceedings under Chapter X involving companies

with aggregate stated assets of approximately $152,451,000 and aggregate indebtedness of approximately $142,965,000. They involved

the rehabilitation of corporations engaged in the operation of varied

businesses, including, among others, shell home construction, chain

retail and discount stores, consumer finance, and real estate and

mortgage investment.

During the year, the Commission participated in a total of 91 reorganization proceedings, including the new proceedings.' The stated

assets of the companies in all these proceedings totaled approximately

$743,311,000 and their indebtedness totaled approximately $692,-

199,000. The proceedings were scattered among district courts in 31

states and the District of Columbia, as follows: 14 proceedings in

New York; 8 each in California and Florida; 7 in Illinois; 5 each in

Kentucky and Colorado; 4 each in North Carolina and Oklahoma;

3 each in Maryland, Iowa, Pennsylvania, Texas and Michigan; 2 each

in New Jersey and Montana; and 1 each in Connecticut, West Virginia, Tennessee, Utah, Washington, Indiana, Virginia, Kansas,

Georgia, Mississippi, New Mexico, Arkansas, Ohio and the District

of Columbia. Proceedings involving 13 principal debtor corporations were closed during the year. Thus, at the end of the year the

Commission was participating in 78 reorganization proceedings.

PROCEDURAL AND ADMINISTRATIVE MATI'ERS

In Chapter X proceedings in which it participates, the Commission

seeks application of the procedural or substantive safeguards to which

all parties are entitled. The Commission also attempts in its interpretations of the statutory requirements to encourage uniformity in the

1Appendix table 12, infra, contains a complete list of pending reorganization proceedings in which the Commission was a party during the fiscal year ended June 30, 1963.
TWENTY-NINTH ANNUAL REPORT 89

construction of Chapter X and the procedures thereunder.

In Florida Southern Oorporation,z. the second mortgagee appealed

from an order of the district court approving the debtor's Chapter X

petition for reorganization. On appeal the court of appeals affirmed,

holding, as urged by the Commission, that a petition is not lacking in

"good faith" within the meaning of Section 146(3) merely because a

class of secured creditors announced in advance that it will not agree

to a plan of reorganization,"

In Flora Swn Corporations: this ruling was reaffirmed by the court

of appeals," This case also held, as urged by the Commission, that

where creditors filed an answer controverting material allegations of

the debtor's Chapter X petition, it was error for the district court

to approve the petition summarily, without a hearing, when the answer presented a triable issue of fact. The court also agreed with

the Commission that a corporation can be subject to Chapter X even

though, as argued, it was owned and controlled by a single shareholder.

In G.F.E. Industries, Ina.,6 the lessor of certain properties occupied

by the debtor urged, among other things, that the lease had terminated

pursuant to the provisions of Section 70b of the Bankruptcy Act

which provides, in part, that a lease not assumed or rejected by the

trustee within 60 days after adjudication or within 30 days after

qualification of the trustee, whichever is later, is deemed to be rejected.

The Commission urged that Section 70b is in conflict with the provisions of Chapter X regarding rejection of leases and therefore is

not applicable in proceedings under Chapter X. The district court

did not reach this question, since it found that the lessor had waived

this statutory provision. On appeal by the lessor, the Commission

again urged the inapplicability of this provision of Section 70b in

Chapter X proceedings.'

Oredit Finance Services 8 had filed a voluntary Chapter X petition

in the district court in which the reorganization proceeding with

respect to its parent, Oertified Oredit Corporation; was pending," The

creditors of the subsidiary moved to dismiss the Chapter X proceedIn the Matter of Florida Southern Corp. (S.D. Fla., No. 13062 Bk).

8 York v. Florida Southern Corp., 310 F. 2d 109 (C.A. 5, 1962), certiorari denied, 372 U.S.

943 (1963).

'In the Matter of Flora Sun Corp. (S.D. Fla., No. 5562 (Bk).

Carr v, Flora Sun Corp., 317 F. 2d 708 (C.A. 5,1963).

e In the Matter of G.F.E. IndutrieB, Inc. (S.D. Iowa, No. 2-157).

7 Entin Associates v. Stevens (C.A. 8, No. 17342). In Its decision of October 30. 1963,

the court of appeals a1Ilrmed on the ground of waiver and did not reach the questions

briefed by the Commission.

8 Inthe Matter of Credit Finance SlJrfIiou (S.D. Ohio, No. 82004)

In the Matter of Oertifled. Oredit Oorp. (S.D. Ohio, No. 31984).

•

•

•

•
90 SECURITIES AND EXCHANGE COMMISSION

ing for lack of proper venue, arguing that a prior bankruptcy proceeding with respect to the subsidiary was pending in another district

court and that in such circumstances Section 129 does not permit a

nonresident subsidiary to file a Chapter X petition in the reorganization forum of its parent. The Commission's memorandum supporting

the Chapter X trustee's opposition to the motion reviewed the present

state of the law and the legislative history of Section 129 and its

broad policy that the administration of parent and subsidiary estates

should be centralized in a single reorganization proceeding. At the

close of the fiscal year the matter was pending before the Chapter X

court.

In Walao Buildim.g OO1'po1'ation/o the owners of land petitioned the

district court to vacate, for lack of jurisdiction, an order which specifically enjoined them from interfering with the debtor's or trustee's

rights on the ground that because of prior defaults the debtor no

longer had a valid leasehold interest. While this petition was pending, the owners filed an action for a declaratory judgment in the

state court with respect to the same matter. The district court

then entered another order specifically enjoining the owners from

further prosecuting that action. On appeal," the Commission's brief

urged that the appeal was premature since the questions raised by

appellants were pending before the district court, which had power to

preserve the status quo.

TRUSTEE'S INVESTIGATION

A complete accounting for the stewardship of corporate affairs by

the old management is a requisite under Chapter X. One of the primary duties of the trustee is to make a thorough study of the debtor

to assure the discovery and collection of all assets of the estate, including claims against officers, directors, or controlling persons who may

have mismanaged the debtor's affairs. The staff of the Commission

often aids the trustee in his investigation.

In Automatic Washer Oompanyr as noted in a prior report,ls the

trustee obtained a judgment for more than $500,000 for fraud in

the alleged sale of rubber machinery to the debtor. On appeal, the

court reversed the judgment and ordered a new trial.> Thereafter,

this claim and others were compromised for $90,000. Inaddition, as

the result of an investigation in which the staff of the Commission

participated, the trustee brought suit for fraud against Bankers Life

10 In the Matter of Walco Building Oorp. (N.D. m., No. 61 B 8059).

U Hirsch, et al. 'II. Yorke (C.A. 7, No. 14125).

12 In the Matter of Automatio Wa8her 00. (S.D. Iowa, No. 5-426).

13 27th Annual Report, p, 1M.

:u Kirtley v, Abrams, et al., 299 F. 2d 341 (C.A. 2, 1962).
TWENTY-NINTH ANNUAL REPORT 91

and Casualty Company and obtained a judgment for $406,250.15 The

collection of this judgment will yield a participation to stockholders

under the plan of liquidation.

In Swan-Finch Oil Oorporation,IG the trustees filed an action for

damages in the amount of $6 million against the American Stock

Exchange, Lowell M. Birrell, Edward T. McCormick, Joseph F.

Reilly, Re, Re and Sagarese, William P. Hoffman & Co., Ira Haupt &

Co., Swiss American Corporation, and others. The action was based

primarily upon the facts developed in the Commission's investigation

of the Res, specialists on the Exchange, with respect to their unlawful

sale of Swan-Finch stock. The district court denied a motion to

dismiss the complaint, holding that the complaint sufficiently stated

claims under Sections 6 and 10(b) of the Securities Exchange Act

of 1934, Section '70e of the Bankruptcy Act and in common law conversion." In another step to recover assets for the debtor, the court

also granted the trustees' application for the appointment of a receiver to take possession of and collect the rents on certain property

which, as alleged by the trustee, had been transferred by Lowell Birrell to his brother to defraud creditors. Subsequent to the end of

the fiscal year, the trustees settled certain other litigation and pursuant to the settlements received from various parties defendant an

aggregate amount of $80,000 and 31,500 shares of Swan-Finch stock."

ADVISORY REPORTS ON PLANS OF REORGANIZATION

Generally, a formal advisory report is prepared only in a case involving a substantial public investor interest and presenting significant problems. When no such formal report is filed, the Commission

may state its views briefly by letter, and authorize its counsel to make

an oral or written presentation to amplify the Commission's views.

InTMT Trailer Ferry, Inc.,19 the Commission and the stockholders'

committee objected to approval and confirmation of an internal plan

of reorganization which excluded stockholders from any participation.

It was urged that the record on valuation was inadequate to justify

exclusion of the stockholders, especially since the plan allowed some

$2 million of seriously contested claims; and that the court should

not have rejected summarily the stockholders' contentions that they

111 Kirtley v. Bankers Life d Oasualty 00., 198 F. Supp. 30 (S.D. Iowa, 1961), reversed

Bankers Life ell Oasualty 00. v. Kirtleu, 307 F. 2d 418 (C.A. 8, 1962), as to exemplary

damages and new trial ordered unless trustee remitted exemplary damages. Trustee subsequently lIled a remittitur and accepted judgment for compensatory damages plus lIlterest.

111 In the Matter of Swan-Finch Oil Oorp. (S.D. N.Y., No. 93046).

Pettit v, American Stock EfDchange, et aI., 217 F. Supp. 21 (S.D. N.Y., 1963).

18 Oolamer Oorporation, ee al. v, United Western Mineral 00., et al. (S.D. N.Y., No. 60

av. 2598) : Pettit, et al. v. Reldan' Trading Oorp., et al. (S.D. N.Y., No. Clv. 154-182) ;

Levin, et al. v. Lowell M. Birrel" at az. (S.D. N.Y., No. av. 153-285).

1M In the Matter of TMT Trailer Ferry, Inc. (S.D. Fla., No. 3659 M Bk).

"
92 SECURITIES AND EXCHANGE COMMISSION

were entitled to rescind their purchases of the debtor's stock sold in

alleged violation of the anti-fraud provisions of the Federal securities

laws and that, as a consequence, they should be classified as general

creditors for purposes of the plan. The Commission also objected

to the provisions of the plan which would permit the trustee to become

president of the reorganized company. The district court approved

and confirmed the plan, overruling these contentions. The Commission is supporting the pending appeal of the stockholders' committee."

In Third Avenue Transit Corporation." the plan of reorganization,

consummated in 1957, reserved to the trustee, with the approval of the

court, the right to reject, assume, or assume as modified, a pension

plan adopted by the debtor prior to the reorganization proceeding.

The authority was never exercised by the trustee, and the reorganized

debtor continued to pay the pensions to employees who had retired

prior to the consummation of the plan of reorganization. When, in

1962, the properties of the reorganized debtor were seized in condemnation proceedings, the trustee petitioned the court for authority to reject the pension plan. Pursuant to a request by the court, the Commission advised, and the court agreed, that the reservation did not

appear in the circumstances to be related or ancillary to the consummation of the plan of .reorganization and that to permit its exercise now

would involve the kind of tutelage over reorganized debtors which the

courts have disapproved.

ACITVITIES WITH REGARD TO ALLOWANCES

Every reorganization case ultimately presents the difficult problem

of determining the allowance of compensation to be paid out of the

debtor's estate to the various parties for services rendered and for

expenses incurred in the proceeding. The Commission, which under

Section 242 of the Bankruptcy Act may not receive any allowance

from the estate for the services it renders, has sought to assist the

courts in protecting debtors' estates from excessive charges and at the

same time in equitably allocating compensation on the basis of the

claimants' contributions to the administration of estates and the formulation of plans. During the fiscal year 187 applications for compensation totaling about $7.3 million were reviewed.

In Food Town, Inc.,22 the Commission recommended that the

trustee's accountant should be denied compensation because the audit

report had failed to include certain information bearing upon a possible $300,000 preference by the debtor. The court, in reducing the aceoThe Protective Gommittee for Independent Stockholder" etc. v. Anderaon (C.A. 5. No.

19996).

"'In the Matter ot Third Avenue Tranait Gorp. (S.D. N.Y., No. SMl)1) .

.. In the Matter of Food Town,Inc. (D. Md., No. 11070).
TWENTY-NINTH ANNUAL REPORT 93

countant's compensation, stated that accountants retained by the

trustee pursuant to an order of the court are quasi-officers of the court;

that as such they owe their primary duty to the court; and that reliance

upon statements made by adverse parties, and acquiescence therein by

the trustee's counsel, will not relieve the accountants of their responsibility to advise the court fully of all pertinent matters coming to their

attention." The court also allowed some compensation to former

counsel for the trustee, although the Commission had urged total disallowance because, inreliance on the accountant's audit report, he had

omitted the same information from the trustee's report under Section

16'7, and for the additional reason that he had delegated substantially

all his responsibilities to counsel for debtor who, under Section 158 (3),

is not disinterested."

In Parker Petrolewm 00., Inc.,25 the Commission recommended

denial of four applications for compensation totaling $93,000 by reason

of Section 249 of Chapter X. The district court disallowed three

of the applications for a total of $53,000, as recommended by the Commission, but held that Section 249 was not applicable to the fourth

applicant and allowed $10,000 as the reasonable value of services

rendered. The Commission also urged that no compensation should

be allowed to the chairman of the creditors' committee or to its attorney

because the committee represented both secured and unsecured creditors. The court denied an allowance to the committee chairman,

but on the ground that no compensable service had been rendered.

While recognizing the conflict, the court allowed the attorney $21,000

as against his request for $106,000.

In Selected I'MJ68fJment8 Oorporation,28 as reported previously," the

Commission successfully argued that a fee applicant who was denied

compensation because he had represented conflicting interests could

not thereafter obtain a fee from the reorganized company in settlement of an appeal by the applicant from the district court's order

which had denied him compensation. As urged by the Commission,

the court of appeals affirmed the ruling of the district court. 28

II In re Food Town, tne., 208 F. Supp. 139, 148-1110 (D. Md., 1962).

M 208 F. Supp. at 147. The Comm188lon also urged d18a1lowanee of any compensation

to couneel for the debtor because he had a8SllJlled substant1ally the functlons of trustee's

counsel and because of a conftlct of Interest in serving as de lacto oounsel for the trustee

while representing in effect the debtor's largest credltor. This Issue was not decided slnee

counsel for the debtor withdrew their request for compensation for services rendered dUring

tbe proceeding. 208 F. Supp. at 111o-lil.

.. In the Matter of ParJ:6f" Petroleum 00., Inc. (W.n. Okla., No. 10807)

.. In the Matter of SeleotedIn"ltmentl OOf"fl. (W.D. Okla., No. 10680).

!Z7 28th Annual Report, pp. 101-102

.. Oarey v. Seleoted 1n1168t_ts Oorp., 319 F. 2d 378 (C.A. 10, 1963).

•

•
94 SECURITIES A..lIiDEXCHANGE COMMISSION

INTERVENTION IN CHAPTER XI PROCEEDINGS

Chapter XI of the Bankruptcy Act provides a procedure by which

debtors can effect arrangements with respect to their unsecured debts

under court supervision. Where a proceeding is brought under that

Chapter but the facts indicate that it should have been brought under

Chapter .x, Section ,328 of Chapter XI authorizes the Commission to

make application to the court to dismiss the Chapter XI proceeding

unless the debtor's petition is amended to comply with the requirements

of Chapter X, or a creditors' petition under Chapter X is filed.

GraysO'lIrRobinson Stores, Inc.,29 through numerous subsidiaries, operated a chain consisting of specialty stores and leased departments in

discount stores, each selling women's and children's apparel, and additional stores or departments selling photographic equipment and supplies. The debtor also owned 51 percent of the stock of A. S. Beck

Shoe Corporation, which manufactures shoes and operates a retail shoe

store chain of over 250 units. Pursuant to agreement executed in 1960,

the debtor operated the 130 stores of Darling Stores Corporation,

whose outstanding stock is owned by Maxwell H. Gluck, chairman

of the board of the debtor. The debtor's balance sheet as of July 28,

1962, showed total assets of about $33 million and liabilities of $33.7

million. The debtor's 803,507 shares of common stock, listed on the

New York Stock Exchange, are held by about 3,470 investors. Approximately 32 percent of the stock is owned by Gluck, either individually .or through Darling. In its motion under Section 328, the Commission stressed, among other things, the debtor's substantial liabilities,

both secured and unsecured, the operating losses under the Gluck man--

agement, the depletion of cash, the unsuccessful attempts to refinance

by proposed debenture offerings to the public, and the consequent need

of an overall reorganization and an inquiry by a disinterested trustee.

The district court denied. the. Commission's motion. 30 On appeal by

the Commission, the court of appeals affirmed and in a 6-3 decision

denied, without opinion, the Commission's petition for rehearing en

bane. In dissenting from the denial of a rehearing, Judge Clark indicated that the court's original decision appeared contrary to the decisions of the Supreme Court of the United States and prior decisions

in the Second Circuit, stating, inter alia, "that the battle for public

supervision won in 1940 has all -to be done llgai:h-if it can' be rewon

after this setback." 31 .'....' ','

On October 22, 1963, the Commission, in a' public' release, stated:

The Commission bas been advised by tbe Solicitor General tbat he has decided

not to file a petition ',Vitb tbe United States Su~reme Court for a writ of cerIn the Matter ot Oray~n-Robinson Storea-Ino. (S.D. N.Y No. 62 B li84).

10 2.1li F. Snpp. 921 (S.D. N.Y...1963).

III In the Matter of Grayson-Robinson Stores, Ino., 820 F. 2d 940 (C.A. 2, 1963).

~ ' "

• •• '
TWENTY-NINTH ANNUAL REPORT 95

tiorari to review the decision of the Court of Appeals for the Beeond Circuit in

Gralls01lrRobinson Stores, Inc. v. Securities a-nd ElDchange OommiBsion, 820 F.

2d 940 (1963). This -declsion affirmed the District Court's denial of the Commission's motion under Section 328 of Chapter XI of the Bankruptcy Act to

dismiss the Grayson-Robinson Chapter XI proceeding on the ground that the

proceeding should have been brought under Chapter X. The Solicitor General

does not believe that the case presents a proper, question for consideration by

the Supreme Court at this time. .

The decision not to seek Supreme Court review in this case, however, should

not be construed as acquiescence by the Commission in the decision of the Court

of Appeals or concurrence with the views expressed in the opinion.-

American Trailer Eental« Oompany S2 had sold to more than' 1,300

public investors automobile utility trailers which were then leased back

to debtor and rented to the public. The debtor's plan of arrangement

under Chapter XI proposed to offer trailer owners common stock of

another company in exchange for their trailers and nothing for pastdue rentals. It provided participation for the common stock of the

debtor, over 61 percent of which was held by the debtor's management,

who would also be included in the management of such other company.

The Commission's motion under Section 328 stressed the need for an

independent investigation of the past acts of management, the public

investors' need for independent advice, and that Chapter XI was not

the proper forum for an overall reorganization of the debtor as contemplated by the plan of arrangement. The district court denied the

Commission's motion, and at the close of the :fiscal year an appeal by

the Commission was pending." The Commission also :filed a separate

motion for leave to intervene and to restrain the stock offering pursuant

to the plan of arrangement' because of alleged violations of the antifraud. provisions of the Securities Act of 1933. For further details,

see pp. 114-115, infra .

. American G<uaromty0 orporation. 114 was a nationwide equipment leasing and finance company. As of September 30, 1963, it had total assets

of over $26 million and total liabilities of about $24 million, of which

three issues of about $4.6 million were publicly held.' The debtor also

had outstanding 500,000 shares of preferred stock and 204,199 shares

of common stock, held in the aggregate by over 1,100 investors. The

Commission's motion under Section 328 was based largely on the asserted inadequacy of Chapter XI to assure that public investors would

receive fair and equitable treatment under the proposed arrangement,

the claimed need for an independent inquiry into past acts 9f manageCorporate Reorganization Release No. 208 .

.. In the Matter of Amerloan TrMler B6ntuU Co. (D. Colo., No. 33276)

.. 8Jl.C. v. American Troller RmtlJl8 00. (C.A. 10, No. 7392)

.. In re American Guaranty Corp. (D.C. R. I., No. 63B17).

-

•

•
96 SECURITIES AND EXCHANGE COMMISSION

ment, and possible violations of the securities laws which might affect

the status and rank of the claims and interests of the public investors.

After the close of the fiscal year the court denied the Commission's

motion, stating, among other things, that the proposed plan of arrangement was a simple composition and that the referee or a person designated by him would make the necessary investigations. The Commission has filed an appeal."

OrwmptO'fl,Builders, Inc.,88 a company engaged in the sale, erection

and financing of shell homes in 10 southeastern states, proposed an

arrangement under Chapter XI whereby the claims of its unsecured

creditors, including those of its debenture holders, are to be satisfied

in full by the payment of 15 cents on the dollar, while the stockholders

are to retain their stock interest undiminished. Crumpton's debentures, in the principal amount of $1,425,660, are held by 600 public

investors. The president of the debtor and his wife own 39 percent of

the debtor's common stock; the balance of the common stock is held

by approximately 2,100 public investors. The Commission's motion

under Section 328, in which the indenture trustee joined, stated, among

other things, that the provisions of the proposed arrangement raised

substantial questions as to fairness and equity to the debenture holders

which required the application of the procedural and substantive safeguards found only in Chapter X. The court denied the Commission's

motion without opinion, and the Commission has appealed." The

debtor has stipulated to II.stay of confirmation, pending appeal.

Motions under Section 328 were filed by the Commission and

granted by the court in Vlnoo Oorporation; 38 Beura Ohemioal. 00.,

Ino.; 88 Dilbert's Qurility Supe1"fTU1,rkets,lrw.4.0 and its subsidiary,

Dllbert'« Leasing & Development Oorporation; 4.l and Dejay Stores,

Inc!2 In the Vinco case creditors filed an involuntary Chapter X

petition; in the Beuro: and the Dilhert's cases each debtor amended its

petition to comply with Chapter X. No creditor or debtor petition

under Chapter X was filed in the Dejay case, and the debtor was subsequently adjudicated a bankrupt."

.. 8.E.a. v. AmeNcafl. G1u1.rant" Oorp. (C.A. 1, No. 6228)

In the Matter of Oru""Pton B,dUer8, Inc. (M.D. Fla., No. 6842 T).

I. 8.E.0. v. Orumpton Builder8, Inc. (C.A. 5, No. 20712).

18 In the Matter of Vlnco Oorp. (E.D. Mich., No. 63-192)

.. In the Matter of Bzura OhemlcaZ 00., Inc. (D. N.J., No. B831-62).

40 In the Matter of DiZlJert'8 Qualit" Supermarkets, Inc. (E.D. N.Y., No. 62 B 920) .

.. In the Matter of DUIIert's Leadng" Development Oorp. (E.D. N.Y., No. 63 B 148)

.. In the Matter of DeJa" Stores, 1M. (S.D. N.Y., No. 62 B 727) .

.. As noted In the Commission's 28th Annual Report, page 108, following the grant of

the Commission's motion In Davega Stores Oorp., an Involuntary petltlon tor reorganization under Chapter X was filed and apprond. SUblequeut!y, when no reorganization appeared feasible, the court adfudlcated the debtor a bankrupt.

•

•

•

•
TWENTY-NINTH ANNUAL REPORT 97

InPrecision Transformer OO1'poration,44 the Commission withdrew

its motion under Section 328, and the court approved a separate

Chapter X petition for reorganization :filed by creditors. The district court denied the Commission's motion in United St{JfJ'Oomponies, bW.,45 the Commission appealed, and, during the pendency of

the appeal, the debtor was adjudicated a bankrupt. InOhase Oapital

Oorp01'ation,46 the district court, at the urging of the Chapter XI

receiver, adjudicated the debtor a bankrupt, and the Commission's

motion was, accordingly, denied.

"In the Matter of PrecNrio", TfYJfI.lormer Oorp. (N.D. m., No. 62 B 2032),

.. In the Matter of United Star OompaflWll, Ino. (M.D. Fla., No. 63-4-Bk-T) .

..In the Matter of Ohale OapltaJ Oorp. (S.D. Calif., No. 146,428 RW).

717-948-64-8
PART vm

ADMINISTRATION OF THE T~UST 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 becomeeffective

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 1989 during the jiscal1lear ended

June 80, 1988

Number Aggregate

filed amount

Indentures m:ndlng June 30, 1962 64 $446, 792, 720 Indentures ed during t1scsl year 174 4,397,035,640

Total for dlsposal ._. 228 4, 843, 828, 260

DIs~J~~~1;~~-:~:. _____________________________.._.__......___. 181 4,3311,269,940 Indentures eleted bl.: amendment or withdrawn _______________•• _______ 20 106, 999, 820 Indentures pending une 30,1963 ._. 27 397, 6S8, IiOO

Total ._ 228 4, 843, 828, 260

98

______________________________• ___• _____• ___

__________• _______•• _______••• ______• ___• __

_________________________ _______• ____• _____________

___________________________• __•• ___ __

•• _______• _____" _______•• ______________________________________
PART IX

ADMINISTRATION' OF THE INVESTMENT COMPANY ACT OF

1940

The Investment Company Act of 1940 provides for the registration

and regulation of companies primarily engaged in the business of

investing, reinvesting, owning, holding, or trading in securities. The

Act, among other things, requires disclosure of the finances and investment policies of such companies, prohibits changing the nature of their

business or their investment policies without shareholder approval,

regulates the means of custody of the companies' assets, requires management contracts to be submitted to security holders for approval,

prohibits underwriters, investment bankers, and brokers from constituting more than a minority of the directors of such companies, and

prohibits transactions between such companies and their officers, directors, and affiliates except with approval of the Commission. The

Act also regulates the issuance of senior securities and requires faceamount certificate companies to maintain reserves adequate to meet

maturity payments upon their certificates.

,The securities of investment companies which are offered to the

public are also required to be registered under the Securities Act of

1933 and the companies must file periodic reports. Such companies

are also subject to the Commission's proxy rules and closed-end companies are subject to "insider" trading rules. The Division of Corporation Finance and the Division of Corporate Regulation both assist

the Commission in the administration of the statute, the former being

concerned with the disclosure provisions and the latter with regulatory

provisions. '

COMPANIES REGISTERED UNDER THE ACT

As of June 30, 196,3,there were 727 investment companies registered

under the 4.ct, including 71 small business investment companies, and

the estimated aggregate market value of their assets on that date was

approximately $36 billion. Compared with the corresponding totals

at June 30.,1962, these figures represent an overall increase of approximately $8.7 billion in the market value of assets while the number of

registered companies remained the same. The registered companies

were classified as follows:

!lanageDlent open-end ~____________________________________ 350

~ageDlent Closed-end- ~_____________________________________ 218

lJnit-tnvegbnent trnst________________________________________________ 149

~ce-aDlount certificate_______________________________________________ 10

Total__________________________________________________________ 727

99
100 SECURITIES AND EXCHANGE COMMISSION

During the fiscal year, 48 new companies, including 4 small business

investment companies, registered under the Act while the registrations

of 48 companies, including 11 small business investment companies,

were terminated. The classification of these companies is as follows:

Registered Registration durlngthe terminated

flScalyear durlngtbe

flsca1 year

~::i:::~~~d:============================================ 23 14

Unit 21 30 Investment trust _______________________________________________________ Face-amount 3 3 certl1lcate______________________________ e ______________________

1 1

TotaL _______________________________ e e

48 48

GROwm OF INVESTMENT COMPANY ASSETS

The following table illustrates the striking growth of assets of

investment companies over the years since the enactment of the Investment Company Act:

Number oj inve8tment companies registered under the Investment Company Act

and their e8timated aggregate a8sets at the end of each fi8cal year, 19.p through 1968

Number of companies Estimated

aggregate Fiscal year ended June 30 market value

Registered Registered Registration Registered of assets at at beglnnlng during year termlnated at end or end of year of year durlng year year (In millions)

11141.____________________________ 1942_____________________________ 0 450 14 436 $2,600 436 17 48 407 2,400 1943

11144_____________________________ 407 14 31 390 2,300

1945_____________________________ 390 8 27 371 2,200

1946_____________________________ 3n 14 19 366 3,250 366 13 18 361 3,750 1947_____________________________ 361 12 21 352 3,600 1943

1949_____________________________ 362 18 11 359 3,825

1950_____________________________ 359 12 13 358 3,700 35ll 26 18 366 4,700 1951_____________________________ 366 12 10 368 6,600 1952_____________________________

195$_____________________________ ass 13 14 367 6,800 1954______________e ______________ 367 17 18 369 7,000 369 20 5 384 8, 700 11155_____________________________ 1956_. e 384 1/1 34 387 12,000 387 46 34 3GG 14,000 1957__e __________________________ 399 411 18 432 1&,000

1958._ ---_ .... .. .. ..._-- 432 42 21 463 17,000 1951l__e 453 70 11 612 20,000 1980 612 87 9 570 23,600 1981. ._ 570 118 25 863 29,000 1962. ____________________________ 683 97 33 727 27,300 1953 e ____________________ 727 48 48 727 38,000

TotaL _____________________..._-------- ... 1,220 498 ... ..-----_ ... ....._---------

The Increase In aggregate assets reflects the sale of new securities 8S well as capltalappreelatlon. Byway ot illustration, the Investment Company institute reported that during the flsC8l year ended June 30, 1983.

Its open-end Investment company members. numbering 189and representing the bulk ot the In~ustry. hiid net sales ot their securities amounting to $951mill1on.

========

__________ _________ • ___________ •

•

__________________• __________

____________________• ___-- ___

__ • _______________________

_ __ ---------- _________ • ___ - ___ --- - -----

__• ______________________- ___

_______________________ ---

__• _____

_ -- ---- - --

•
TWENTY-NINTH ANNUAL REPORT 101

INSPECTION AND INVESTIGATION PROGRAM

Pursuant to the statutory authority conferred by Section 31(b) of

the Investment Company Act, a total of 84 inspections of investment

companies was completed during fiscal year 1963. The number of

inspections compares favorably with the total of 165 inspections that

had been conducted in all prior years since the inception of the program in 1957 and with the 52 inspections in fiscal 1962. These inspections were planned and supervised by a Branch of Inspections and Investigations which was newly created for such purpose in the Division

of Corporate Regulation.

As part of the Commission's expanding program in this area, Investment Company Act training seminars for staff members in the regional

officeswere conducted for the first time, with a total of some 75 participants. The object of the seminars was to train personnel in the teachnical aspects of inspection of investment companies and to coordinate

the activities of the various regional officesin regard to the inspection

and enforcement program.

In a majority of the inspections conducted during the fiscal year,

violations of various provisions of the Investment Company Act,

as well as violations of other statutes administered by the Commission,

were brought to light. While many of the violations thus uncovered

were of a minor nature and, when called to the attention of those involved, were corrected or discontinued, serious violations have also

been discovered. Instances were discovered in which investment advisory contracts had not been entered into or continued in accordance

with provisions of Section 15 of the Act with the consequence that the

investment adviser was collecting fees based upon a void contract. In

one such instance, the board of directors had failed to renew the advisory contract as required by Section 15(c) . In another instance, the

inspection and resulting investigation developed information indicating that certain directors were acting as investment advisers to the

investment company in violation of Section 15(a) . The inspection

of investment companies has also disclosed in several instances violations of Section 17 by persons affiliated with the investment companies.

During the fiscal year, the responsibility for conducting investigations in matters involving violations of the Investment Company Act

was transferred to the Division of Corporate Regulation from the

Division of Trading and Exchanges now Trading and Markets). A

total of 29 investigations was commenced during the year through

the Branch of Inspections and Investigations, chiefly as a result of

information gained during the course of the inspection program.

As a consequence of the inspection and investigation program, situations were brought to light warranting the institution of civil actions
102 SECURITIES AND EXCHANGE COMMISSION

by the Commission in nine separate matters. Of the nine actions, one

has been concluded with the entry of a consent decree and the appointment of receivers to liquidate the company.' In another action, S.E.O.

v. The Keller Oorporatioa et al.,2 a preliminary injunction was entered

December 20, 1962, enjoining certain defendants from further violations of the Investment Company Act and the Securities Act of 1933

and appointing a trustee and receiver for an unregistered investment

company. As of July 1, 1963, there were eight actions still in process.

In addition, as pointed out on p. 8, 8upra, the inspection and investigation program in certain instances produced tangible benefits for

investment companies or their shareholders.

SPECIAL STAFF STUDY OF INVESTMENT COMPANIES

Shortly after the beginning of fiscal year 1963 the Wharton School

of the University of Pennsylvania submitted to the Commission its

Study of Mutual Funds, which the Commission in turn submitted to

the Committee on Interstate and Foreign Commerce, House of Representatives. The Study, based on responses to questionnaires, relates

to the problems created by the growth in size of investment companies.

It constitutes the most comprehensive analysis of the mutual fund

industry since the Commission's study made more than 20 years ago,

prior to the adoption of the Investment Company Act of 1940. The

Study analyzes the growth, organization and control, investment policy

and performance of open-end investment companies or mutual funds,

their impact on securities markets, the extent of control of portfolio

companies, and the financial and other relationships of mutual funds

with their investment advisers and principal underwriters.

As the Commission stated in its transmittal letter, many of the

comments in the Study raise questions of broad policy whether some

of the practices and patterns which originated in an earlier time and

under different conditions and which have become conventional within

the broad tolerances of the 1940 Act should be reconsidered. The

Study draws attention to the potential for divided loyalties arising

from the typical structure of the industry under which a significant

part of the funds' activities are performed by affiliated organizations

such as advisers, underwriters, and brokers, who control or are represented on the boards of directors of the funds. Questions are raised

by the Study as to the relationship or lack of relationship between the

growth, size and performance of funds, and sales commissions and

other sales incentives. Attention is further directed to the relationship

or lack of it between growth, size and performance of funds, on the

S.E.a. v. Sclence InfleBtmenfB, Inc., et at, Civll Action No. 68-8SD-C (D. Mass.).

, CIvil Action No. 1P 62-C-528 (S.D. Ind.), al!'d in No. 14116 (C.A. 7, October 8, 1963).

~
TWENTY-NINTH ANNUAL REPORT 103

one hand, and advisory fees and costs of operation of the funds and

of the advisers, including fees charged by advisers to other clients,

on the other hand. The Study comments upon the role of and in general questions the effectiveness of "unaffiliated" directors of the typical

fund.

The Wharton School Study, as noted, is a report to the Commission

and not by the Commission. In forwarding the Study to the Congress,

the Commission stated that it would be premature to attempt an

evaluation of the conclusions in the Study, but that it was apparent

that the Commission's rules under the 1940Act and indeed some of the

provisions of the statute itself might require reassessment. The Commission accordingly directed its staff to conduct a detailed analysis of

the Study with a view to making such recommendations as may seem

appropriate. During fiscal 1963members of the staff of the Division of

Corporate Regulation have been engaged in conducting this staff

study, including intensive field visits to selected investment companies

and complexes of different types, and interviews with persons in the

industry, including "unaffiliated" directors. Its scope includes a review of the structure of the investment company industry generally,

and a reassessment of the provisions of the Investment Company Act

and the Commission's rules and regulations thereunder.

This staff project has been coordinated with the work of the Special

Study of Securities Markets, which considered certain aspects of the

investment company industry not covered by the Wharton School

Study, namely sales techniques, the adequacy of training and supervision of salesmen, "contractual" or "front-end load" plans for the

purchase of investment company shares and the possible use of inside

information with respect to portfolio transactions by those closely

affiliated with investment companies. The conclusions and recommendations of the Special Study inthese areas are contained in Chapter XI of the Special Study report, transmitted by the Commission to

the Congress shortly after the close of the fiscal year 1963. In one of

the areas covered, that of "contractual" plans, the Special Study

made recommendations of a tentative nature, suggesting that final

recommendations be made only after completion of the comprehensive

staff study.

It is contemplated that the staff study will be completed during

fiscal 1964, and that its analysis, together with the reports of the

Wharton School and the Special Study of Securities Markets, will

aid the Commission in determining whether specific legislative recommendations should be made to the Congress with respect to the 1940

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

and regulations under the Act.
104 SECURITIES AND EXCHANGE COMMISSION

CURRENT INFORMATION

The Commission's rules promulgated under the Act require that

the basic information contained in notifications of registration and in

registration statements of investment companies be kept current,

through periodic and other reports, except in cases of certain inactive

unit trusts and face-amount companies. The following reports and

documents were filed during the 1963 fiscal year:

~ual reports_______________________________________________________ 530

Quarterly reports____________________________________________________ 300

Periodic reports to stockholders (containing financial statements) 1,568 Copies of sales literatnre 2,180

The foregoing statistics do not reflect the numerous filings of revised

prospectuses by open-end mutual funds and unit investment trusts

making a continuous offering of their securities. These prospectuses,

which must be checked for compliance with the Act, are required to

show material changes which have occurred in the operations of the

companies since the last effective date of the prospectuses on file. In

this respect registration statements under the Securities Act of 1933

covering securities of such companies are essentially different from

registration statements relating to the usual type of corporate

securities.

APPLICATIONS AND PROCEEDINGS

Under Section 6(c) of the Act, the Commission, by rules and regulations, upon its own motion or by order upon application, may exempt

any person, security, or transaction from any provision of the Act if

and to the extent that such exemption is necessary or appropriate in

the public interest and consistent with the protection of investors and

the purposes fairly intended by the policy and provisions of the Act.

Other Sections, such as 6(d), 9(b), 10(f), 11(b), and 23(c), contain

specific provisions and standards pursuant to which the Commission

may grant exemptions from particular Sections of the Act or may

approve certain types of transactions. Also, under certain provisions

of Sections 2, 3, and 8 the Commission may determine the status of

persons and companies under the Act. One of the principal activities

of the Commission in its regulation of investment companies is the

consideration of applications for orders under the Sections referred to.

During the fiscal year, 238 applications filed under various Sections

of the Investment Company Act were before the Commission. The

Sections of the Act with which these applications were concerned and

their disposition are shown in the following table:
TWENTY-NINTH ANNUAL REPORT 105

Applications filed with or acted upon by the Commission under the Investment

Company Act of 1940 during the fiscal year ended June 30, 1963

Pend. PendSections Subject Involved ing Flied Closed lng

July I, June 30,

1962 1963

-- 2 Deflmtlon of controlled person 4 7 5 6 3 and 6_. Status and exemption, 12 5 8 9 7(d)._. Registration of foreign Investment compames 2 2 3 1

8(1) Termination ofregistration. 27 55 48 34 9, 10, 16_ Regulation of affiliations of directors, officers, em- ployees, mvestment advisers, underwriters and others, 2 2 4 0

12,13,14(a),15. Regulation of functions and activities of Investment companies 8 18 16 10 11,25 Regulation of security exchange offers and reorgam- zation matters 2 1 0 3 17 Regulation of trensaetions with affiliated persons 30 37 38 29 18, 19,21, 22, 23 Requirements as to capital structures, loans, distributtons and redemptions, and related matters 5 12 9 8 20,30 ._ Proxies, reports, and otber documents reviewed for eomplrance 2 0 1 1

28_ Regulation of face-amount certificate eomparues 2 3 3 2

TotaL. ._. ., -- -- -- -- 96 142 135 103

Some of the more significant matters in which applications were

considered are summarized below:

The Commission's Annual Report for fiscal 19623 referred to applications pursuant to Section 2 (a) (9) filed by shareholders of

Fundomentai Inoestors, Ino., Investors Mutual, Ino., and TelevisionElectronics Fwnd, Inc., registered open-end investment companies,

alleging that certain directors of these companies who were represented to be unaffiliated with the respective investment advisers in

fact had been and were now controlled by such investment advisers.

Prior to ordering a hearing on the factual questions raised by the

applications, the Commission directed that the parties and other interested persons file briefs with respect to certain specified common

legal issues raised by the applications.' Following oral argument on

these issues, the Commission held that a shareholder of a registered

investment company is an "interested person" within the meaning of

Section 2(a) (9) with standing to file an application seeking a determination under that Section, that the Commission is empowered

to determine whether or not a natural person is controlled even though

control of a company is not at issue, and that a determination of status

by the Commission pursuant to Section 2(a) (9) is not limited in

application to the period of time subsequent to such a determination. However, since the same issues and parties were before courts

of competent jurisdiction in pending suits brought prior to the filing

of the instant applications, and there were no policy reasons why the

Commission should decide these issues first, the Commission applied

28th .Annual Report, p. 1Hi .

Investment Company Act Release No. 3468 (Apr1l13, 1962).

-- -- •• ____•_________ ______________________ ________ ___••_________________________ __________ ________

••------------ _________________________ ••_______

____________________________________________

__ ___________________ •_____________________ ____________ _____________________________________ _______________ ____ __

__• __• ____ _____

____________________- ___________________

••••••••••••• _ _____

__ ____________________ •____ _____

•

•
106 SECURITIES AND EXCHANGE COMMISSION

the doctrine of comity and dismissed the applications without

prejudice,"

On December 19, 1962, Randolph Phillips, a stockholder of Inuestors Mut'lUil, Inc. and other registered mutual funds for which

Lnmeetors Dioersified. Seroioee, Inc. ("IDS"), also a registered investment company, serves as investment adviser, filed an application

under Section 2(a) (9) of the Act requesting a determination that

Bertin C. Gamble, Gamble-Skogmo, Inc. and General Outdoor Advertising Company, acting collectively (referred to in the application as the "Gamble Group"), either alone or in concert with John D.

Murchison, Clint W. Murchison, Jr. and others (referred to as the

"Murchison Group"), had acquired control of Alleghany Corporation

and of IDS, about 47.5% of whose voting securities are owned by

Alleghany. On January 2, 1963, the Commission ordered that a

hearing be held with respect to these questions of control." On

February 15, 1963, the Commission, upon the applications of IDS

and Gamble-Skogmo, issued an order pursuant to Section 6(c) of the

Act exempting all persons named in the application of Phillips from

that part of Section 2(a) (9) of the Act which provides that if an

application is not granted or denied within 60 days, the determination sought shall be deemed to have been temporarily granted pending

final determination," The exemption was to remain in effect until

May 18, 1963, subject to earlier termination.

On February 15, 1963, IDS filed an application under Section

2(a) (9) seeking determinations that (a) Murchison Brothers; (b)

Allan P. Kirby; (c) Kirby and certain associates; and (d) Murray

D. Lincoln and/or companies controlled by or associated with him,

controlled Alleghany and that Alleghany controlled IDS. This application was consolidated for purposes of hearing with the Phillips

application,"

On May 17, 1963, the Commission granted applications filed pursuant to Section 6 (c) of the Act by certain of the persons named inthe

IDS application seeking exemptions from the operation of the "60-day

provision" of Section 2 (a) (9).9 These exemptions were to remain in

effect until final determination, subject to earlier modification or

termination. The exemptions with respect to the Phillips application

were extended so as to be co-extensive. The hearings in these consolidated proceedings were concluded after the close of the fiscal year.

Investment Company Act Release No. 35961(December 27,1962).

Investment Com,pany Act Release No. 3604.

Investment Company Act Release No. 3635.

B Investment Company Act Release No. 3637 (February 20, 1963).

Investment Company Act Release No. 8699.

•

•

•

•
TWENTY-NINTH ANNUAL REPORT 107

On January 22, 1963, the Commission issued its opinion and order

denying an application by The Prudential Life Ineuranoe Oompany of

America for exemption from the Act or, in the alternative, for exemption from certain provisions thereof.10 In its opinion the Commission found that Prudential established a separate fund to be

invested in securities exclusively for the benefit and at the risk of

purchasers of the variable annuity contracts Prudential proposes to

sell. The Commission held that such fund was an investment company, required to be registered under the Act. The Commission

granted in part and denied in part Prudential's alternative application requesting exemptions from various specific provisions of the

Act. Prudential filed a petition in the Court of Appeals for the Third

Circuit for review of the Commission's order, insofar as it held the

separate fund to be an investment company required to be registered

under the Act.n Following the end of the fiscal year, the Court

affirmed the order.

The Commission granted an application by American Manufacturing Oompany, 1'lUJ.,for an order under Section 3(b) (2) of the Act

declaring that it was primarily engaged in a business or businesses

other than that of investing in securities, either directly or (A)

through majority-owned subsidiaries or (B) through controlled companies conducting similar types of businesses." In its decision, the

Commission held that in determining primary business engagement

under the statute, it could add to businesses in which the applicant

engaged directly and through its majority-owned subsidiaries, the

businesses engaged in through controlled companies conducting, as

among themselves, similar types of businesses, irrespective of whether

or not such businesses were of types similar to those engaged in by the

applicant or its majority-owned subsidiaries, or to those of any controlled companies which it was not necessary to add in order to arrive

at the primary business engagement.

Pursuant to the Commission's order of April 12, 1962r hearings

continued on an application filed by Growth OapitaZ, Ino., a small

business investment company, seeking to exempt conditionally C. B.

McDonald, a director of Growth Capital and also the managing partner of McDonald & Company, an investment banking firm, from the

provisions of Section 30(f) of the Act which makes applicable to

directors of closed-end investment companies the provisions of Section

16 of the Securities Exchange Act of 1934 with respect to insiders'

transactions. The application was opposed by the Commission's

Division of Corporate Regulation.

,. Investment Company Act Release No. 3620.

u C.A. 8. No. 14,130.

12 Investment Company Act Release No. 3649 (March 11, 1963).

ra Investment Company Act Release No. 3467.
PART X

ADMINISTRATION OF THE INVESTMENT ADVISERS ACT OF

1940

The Investment Advisers Act of 1940 requires the registration of

persons engaged for compensation in the business of advising others

with respect to securities. Certain advisers are exempt from the requirement of registration, including those who advise only investment

companies or insurance companies and those who, within the last 12

months, had fewer than 15 clients and who do not hold themselves out

generally to the public as investment advisers. Furthermore, the registration requirements do not apply to an adviser whose investment

advice is given only to persons resident in the state in which he maintains his principal place of business, as long as the advice does not concern securities listed on a national securities exchange or admitted to

unlisted trading privileges on such an exchange.

Section 206 of the Act, as amended in September 1960, prohibits an

investment adviser from engaging in fraudulent, deceptive or manipulative acts or practices and gives the Commission authority, by rules

and regulations, to define and to prescribe means reasonably designed

to prevent such acts and practices.' In accordance with this provision,

the Commission, during the 1962 fiscal year, adopted Rule 206(4)-1,

effective January 1, 1962, which defines certain advertisements by

investment advisers as fraudulent, deceptive or manipulative. During the 1963 fiscal year an informal program was instituted to secure

compliance with Rule 206(4)-1 by those investment advisers whose

advertising continued to be objectionable. The cooperation of the

investment advisers who were contacted has resulted in a marked

reduction in the publication and distribution of advertising material

violative of Rule 206 (4)-1.

Investment advisers who also effect transactions as brokers and

dealers must disclose any interest they may have in transactions effected for clients if acting as an investment adviser with regard to

such transactions. The Act prohibits any investment adviser not

exempt from registration from basing his compensation upon a share

'In S.E.a. v, aapltal Galns Research Bureau, Ino., an Important action under the antifraud provisions of the Act as in effect prior to its amendment, the Supreme Court In

December 1963 reversed lower court decisions denying the Commission's motion for a preliminary injunction. See pp. 112-118, Infra.

108
TWENTY~NINTH ANNUAL REPORT 109

of the capital gains or appreciation of his client's funds. The Act

also makes it unlawful for any such investment adviser to enter into,

extend or renew any investment advisory contract or to perform such

contract if the contract provides for compensation to the investment

adviser on the basis of a share of capital gains or capital appreciation

of the funds or any portion of the funds of the client or fails to provide that no assignment of such contract shall be made by the investment adviser without the consent of the other party to the contract.

Under Rule 206(4)-2, which became effective in April 1962, an investment adviser who has custody of funds or securities of any client

is required to segregate them, maintain them in the manner provided

in the rule, and to comply with other conditions specified in the rule.

Moreover, every investment adviser who is not exempt from registration is required, since the 1960 amendments, to make, keep and preserve such books and records as may be prescribed by the Commission

and the Commission is empowered to inspect such books and records.

The books and records to be maintained by investment advisers are

specified in Rule 204-2, which became effective in July 1961.

Inspection procedures have been revised to obtain information concerning compliance with the new rules. During the fiscal year 1963,

219 inspections were completed and 131 violations of the new rules

were disclosed. It is anticipated that the number of inspections will

increase annually until the investment advisers registered with the

Commission are subject to a regular cycle of inspections.

Investment advisers who violate any of the provisions of the Act

are subject to appropriate administrative, civil or criminal remedies. With respect to administrative remedies, the Act provides, in

Section 203(d), that the Commission shall deny, revoke, or suspend

for not more than 12 months, the registration of an investment adviser

if it finds that such action is in the public interest and that the investment adviser or any partner, officer, director or controlling or controlled. person o:f the investment adviser- is subject to a specified

disqualification. These disqualifications include willful misstatements in' an application or report filed with the Commission, the existence of a conviction or injunction based on or related to specified

types of misconduct, willful violation of any provision of the Securities Act, Securities Exchange Act or Investment Advisers Act or any

rule or regulation thereunder, or aiding and abetting any other person's violation of such provisions, rules or regulations.

At the close of the fiscal year, 1,564 investment advisers were

registered with the Commission. The following tabulation contains

statistics with respect to registrations and applications for registration during fiscal year 1963:
110 SECURITIES AND EXCHANGE COMMISSION

Investment Advi8er Registration8-J06S Fiscal Year

Effective registrations at close of preceding fiscal year 1,836

Applications pending at close of preceding fiscal year___________________ 16

Applications filed during fiscal year__________________________________ 285

Total 2, 137

Registrations cancelled or withdrawn during year

Registrations denied or revoked during year

Applications withdrawn during year

Registrations effective at end of year

Applications pending at end of year

539

5

a

1,564

26

Total 2,137

An extensive program pursued during the year resulted in the

withdrawal or cancellation of the registrations of several hundred

investment advisers who failed to file supplements to their registration as required by the Act.

ADMINISTRATIVE PROCEEDINGS

At the beginning of the fiscal year, 10 revocation proceedings and 1

denial proceeding were pending. With respect to these, the Commission during the year revoked 5 registrations; :I in the denial proceedings, it held that denial of the application for investment adviser

registration was not required in the public interest and permitted the

application to become effective, subject to certain conditions designed

to ensure that the applicant would confine his activities exclusively

to those of an investment adviser." During fiscal 1963, the Commission instituted revocation proceedings against 7 registered investment

advisers. These proceedings, and the remaining 5 revocation proceedings previously instituted, were pending at the close of the year .

• OlDen K. Ta"ror, rnc., IIJdlDartlJ Blatt, Walter ROlenllu.h, Financial Forecaater. tno ••

Investment Advisers Act Release No. 129 (J'uly 9, 1962) : Bevmour .I. BohlerifJf/er, Invest.

ment Advisers Act Release No. 180 (October 4, 1962).

WUJlam H. Bluer, Investment Admers Act Release No. 1411 (MaJ' 21, 1968).

_

_

_

_

_

•
PART XI

OTHER ACTIVITIES OF THE COMMISSION

CIVD.. LITIGATION

The several statutes administered by the Commission authorize

the Commission to seek injunctions against continuing or threatened

violations of such statutes. Such violations may involve a wide range

of illegal practices, including the purchase Or sale of securities by

fraud, and the sale of securities without compliance with the registration requirements of the Securities Act. The Commission also participates in various other types of proceedings, including appearances

as asndou« curiae in litigation between private parties where it is important that its view regarding the interpretation of the statutes be

furnished to the court.

At the beginning of the fiscal year 1963 there were pending in the

courts 105 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 121 additional

proceedings were instituted and 105 cases were disposed of, leaving 121

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 10 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 46 civil appeals in the United States courts of appeals.

Of these, 19 came before the courts on petition for review of an administrative order, 15 arose out of corporate reorganizations in which

the Commission had taken an active part, 2 were appeals in actions

brought by or against the Commission, 3 were appeals from orders

entered pursuant to Section 11(e) of the Public Utility Holding Company Act, and 6 were appeals in cases in which the Commission appeared as amiou« curiae. The Commission also participated in 9 petitions for or memoranda in opposition to certiorari before the United

States Supreme Court resulting from these or similar actions.

Complete lists of all cases in which the Commission appeared before a Federal or state court during the fiscal year, either as a party

or as amioue curiae, and the status of such cases at the close of the

year are contained in the appendix tables. This section describes a

111
112 SECURITIES A..~D EXCHANGE COMMISSION

few of the more noteworthy cases, not including, however, any cases

arising under the Public Utility Holding Company Act or Chapter X

of the Bankruptcy Act; cases arising under those statutes are discussed

in the sections of this report dealing with such statutes.

Since publication of the last Annual Report, the United States

Supreme Court has rendered two significant decisions in the field of

securities regulation, one relating to the permissible scope of regulation by a stock exchange of its members, the other to the interpretation

of anti-fraud provisions of the Investment Advisers Act of 1940.

In SiJAJer v, New York Stock EaJchange,I the Supreme Court,

reversing the court of appeals, held that the stock exchange violated

Section 1 of the Sherman Act in ordering several of its member firms

to remove telephone wire connections previously in operation between

their offices and those of a nonmember-a broker-dealer trading in

over-the-counter securities-without giving the nonmember notice,

assigning him any reason for the action or affording him an opportunity to be heard. The court found that such action by the exchange

would constitute a per se anti-trust violation had it occurred in a context free from other Federal regulation, but agreed with the court

of appeals that the exchange's rules governing its members' relationships with nonmembers are within its duty of self-regulation under

the Securities Exchange Act, even where the particular nonmember

deals only in "unlisted" securities. The court held, however, that

particular applications of these rules by the exchange are outside the

purview of the anti-trust laws only when justified by its self-regulatory duty and that the Exchange Act affords no justification for

anti-competitive collective action taken without according fair

procedures.

In Securities and EaJchange Oowmission v, Oapital Gains Research

Bureau, Inc.,2 decided subsequent to the end of the fiscal year, the

Supreme Court held that it was fraudulent and deceptive within the

meaning of Sections 206 (1) and (2) of the Investment Advisers Act

of 1940 for a registered investment adviser to fail to disclose to his

clients a practice-known in the trade as "scalping"-of purchasing

shares of a security for his own account shortly before recommending

that security for long-term investment and then immediately selling

the shares at a profit upon the rise in the market price following the

recommendation. The court pointed out the conflict of interests

present in such a situation by noting that "[a]n adviser who, like

respondents, secretly trades on the market effect of his own recom-

'373 U.S. 341 (1963). Earlier stages ot the litigation in thIs eaee are discussed In the

28th Annual Report, pp, 126-127 .

32 U.S.L. Week 4029 (1.963). Earlier stages ot the litigation In this case are discussed

In the 28th Annual Report, p. 129, and the 27th Annual Report, p. 163.

•
TWENTY-NINTH ANNUAL REPORT 113

mendation, may be motivated-eonsciously or unconsciously-to recommend a given security not because of its potential for long-run

price increase (which would profit the client), but because of its

potential for short-run price increase in response to anticipated activity from the recommendation (which would profit the adviser)."

The court rejected the interpretations of the lower courts to the effect

that the Act requires the Commission to establish intent to injure

and actual injury to the adviser's clients in order to obtain a preliminary injunction requiring disclosure of such practices. Itpointed

out that "Congress intended the Investment Advisers Act of 1940 to

be construed like other securities legislation 'enacted for the purpose

of avoiding frauds,' not technically and restrictively, but rather

flexibly to effectuate its remedial purposes." [Footnote omitted.]

Among the numerous actions instituted in the Federal district

courts by the Commission, seeking injunctions against continuing or

threatened violations of the Securities Act or Securities Exchange Act,

and related types of proceedings, the following were of particular

interest or significance :

In Securities and Ewchange Oommlssioi: v. Ohamberlain Assooiatee,

et 01.,8 the Commission sought to enjoin an issuing corporation and a

person retained as public relations counsel for the issuer from offering

and selling securities without registration in violation of Section 5

of the Securities Act and from engaging in practices operating as a

fraud upon purchasers in violation of Section 17(a) of that Act. The

public relations counsel had prepared a "Report to Stockholders"

which was a verbatim copy of a letter by the company's president.

The letter contained false and misleading statements concerning the

issuer. The public relations counsel displayed the report and other

material to various broker-dealers, encouraged them to establish

markets at prices he suggested and on one occasion placed a purchase

order for 200 shares. In this manner, the broker-dealers were induced to buy and sell some 3,000 shares, most of which emanated from

a Canadian source and as to which no registration statement had been

filed and no exemption appeared to be available.

The district court concluded that the Commission was entitled to a

permanent injunction. It held that the activities of the public relations counsel amounted to a solicitation of offers to buy and thus constituted offers to sell, as defined in Section 2(3) of the Securities Act,

and that he was an underwriter as defined in Section 2 (11) of that

Act. The court concluded that his activities were therefore in violation of Section 5 of that Act. It further held that the counsel also

S.D. N.Y., No. 61 Civ. 2150, CCH Fed. Sec. L. Rep. 'II 91,228.

711-943--64-9

•
114 SECURITIES AND EXCHANGE COMMISSION

violated the anti-fraud provisions of Section 17(11.)of the Act, stating

that he could not shirk responsibility for the misleading statements in

the Report to Stockholders by claiming that he relied upon the

representations of others. The court made it clear that since it was

through his efforts that the stock was to pass to the public, he had a

duty to investigate further.

In Securities and E(lJchange Oommiesion. v. Penn-Tee Lana ana

Oattle 00., et al.,4 the Commission sought to enjoin a corporation, its

president and certain other officers from offering and selling investment contracts and profit-sharing agreements without registration in

violation of Section 5 of the Securities Act of 1933. The securities

took the form of grazing lease agreements between the corporation and

investors who placed cattle with the defendants for care, feeding and

breeding. Th investors agreed to pay a stipulated service charge

per head of cattle plus one-half the calf crop or a monthly fee. While

the defendants neither sold cattle to investors nor purchased from

them, defendants offered to arrange purchases and sales for investors.

The court entered a preliminary injunction, and a permanent injunction was consented to.

The case of Securities and E(lJchange Oommission v, Electronics Security Oorp.,:; was an action for injunction against further violations

of Section 17 (a) of the Securities Act of 1933 and Sections 10 (b)

and 15(c) (1) of the Securities Exchange Act and Rules 10b-6 and

15cl-8 thereunder by a registered broker-dealer corporation and its

president. The defendants consented to the entry of a preliminary

injunction. At the time of the hearing on the permanent injunction

the defendants urged that no injunction be entered on the ground of

mootness, inasmuch as the defendant corporation had previously surrendered its dealer's license to the state authorities and had ceased to

exist as an active corporation. The district court, however, issued

an injunction," citing United States v. Parke, Daois &: 00., 365 U.S.

125 (1961) ; 362 U.S. 29 (1960), where the Supreme Court had rejected

similar arguments.

In Securities and E(lJchange 0 ommission v, American Trailer Rentals

Oompany,1 the Commission petitioned for leave to intervene in proceedings for an arrangement under Chapter XI of the Bankruptcy

Act to show that an offering of securities of Capitol Leasing Corporation, pursuant to the plan of arrangement proposed by the debtor,

violated the anti-fraud provisions of Section 17(a) of the Securities

Act of 1933. The Commission stated to the bankruptcy court that its

N.D. Tex., C.A. 3-63-103.

D. Minn., No. 4-6'1 crv. 237.

CCH Fed. Sec. L. Rep. 'I 91,213.

D. Colo., No. 33276.

•

•

•

•
TWENTY-NINTH ANNUAL REPORT 115

responsibility for enforcement of the anti-fraud provisions is in no

way lessened by the fact that the violator is involved in bankruptcy

proceedings or that the sanctions afforded by the statute might be

imposed. in connection with an arrangement proceeding under Chapter XI. It pointed out that it was confronted with a choice between

instituting an independent proceeding in a Federal district court

having jurisdiction under Section 20 of the Securities Act or taking

steps to bring to the attention of the bankruptcy court that proceedings

therein were being employed in a manner violative of the Securities

Act. The Commission noted that if it had obtained an injunction

against further offerings or sales by Capitol Leasing Corporation

through an independent action, the proceedings for arrangement in

the bankruptcy court would have been rendered moot. It therefore

appeared to the Commission both more seemly and more consonant

with the best interests of the arrangement proceeding to apply to the

bankruptcy court for relief.

The referee in bankruptcy denied the Commission's petition to

intervene on procedural grounds and also decided that the Commission

had not shown facts necessary to entitle it to relief. On review,

district court held that it was error to deny the Commission leave to

intervene but that the referee's holding that there was not adequate

evidence in the record to support the Commission's claim could not

be set aside as "clearly erroneous." An appeal has been taken by the

Commission to the Court of Appeals for the Tenth Circuit where the

matter is now pending,"

In Seourities and Exchange Oommission v. Paul Iiiobter, doing business as Meade &: Oompany,9 the court had preliminarily enjoined a

registered broker-dealer from violating the net capital and bookkeeping requirements under the Securities Exchange Act of 1934 and had

appointed a receiver of all of the defendant's assets. A bank moved

the court for an order authorizing it to sell certain securities pledged to

it by the defendant as collateral for loans. The receiver and the Commission opposed the motion on the grounds that at least certain of the

stock certificates held by the bank contained forged endorsements, that

many other complaints of forgeries had been received from defendant's

customers, and that many customers complained of having bought or

sold shares without having received certificates or money therefor. The

court held that it appeared there might be a cloud on the bank's title

to the certificates and therefore denied the bank's motion but without

prejudice to another application on timely notice to all persons whose

rights might be affected by a sale.

8 The CGlIlJIl1sslon's application to dlsnrlss the Chapter XI proceeding Is discussed on

p. 95, supra .

• S.D. N.Y., 63 Clv. 1620.
llG SECURITIES AND EXCHANGE COMMISSION

The decision of the Court of Appeals for the Second Circuit in

Berko v. Securities and Eechanqe Comanissioti 10 is of considerable

significance to the Commission in connection with its enforcement

activities directed against fraudulent sales of securities, particularly

through so-called "boiler-rooms." As described in the last Annual

Report.v' Berko had been found a cause of the revocation of the

broker-dealer registration of Mac Robbins & Co., Inc. He sought

review of that finding and the court had remanded to the Commission, which thereafter issued an Opinion and Order 12 reaffirming its

previous finding. In April 1963, the court affirmed that order as

being supported by substantial evidence. It stated that Berko worked

in an officewhich was plainly established to be a "boiler-room" and

which he knew to be a "boiler-room," and held that these facts justified the Commission in holding him chargeable with knowledge of

the contents of brochures utilized by him which he should have known

to be misleading. The court accepted the Commission's conclusion

that a salesman working in a "boiler-room" has a higher duty to prospective customers than one working out of a legitimate sales operation, and does not meet his obligation when he has no knowledge of

the issuer other than opinions and brochures furnished by his employer without an investigation of their correctness.

During the year, the Commission participated as amious curiae in

several cases in which there was an issue regarding the validity or

interpretation of provisions of the Securities Acts, or the rules promulgated thereunder by the Commission. Among those cases were

the following:

Kornfeld v, Eaton 13 was an action brought by stockholders of the

Norwich Pharmacal Company under Section 16(b) of the Securities

Exchange Act to recover on behalf of Norwich the profits realized by

defendant Eaton, an officer and director of the company, through

"Short-swing" transactions in Norwich common stock. Although the

purchase and sale of the stock by Eaton occurred within a 6-month

period, the purchase was made pursuant to the exercise of an option

which had been granted to him by the company several years earlier.

Following a demand by the plaintiffs that the company institute suit

against Eaton to recover the profits from the transactions, Eaton paid

to the company a sum computed in accordance with the Commission's

Rule 16b-6, which limits the amount of profits that are recoverable

from transactions of this type to the market increment occurring

within the Short-swing period surrounding the sale of the stock, thus

10316 F. 2d 137 (C.A. 2,1963).

u 28th Annual Report, p. 12&

12 Securities Exchange Act Release No. 6846 (July 11,1962).

13217 F. SuPP. 671 (S.D.N.Y., 1963).
TWENTY-NINTH Ac~UAL REPORT 117

excluding the increment arising from the long-term holding of the

option. The plaintiffs claimed that the rule is invalid, urging that

it is inconsistent with the purpose of Section 16(b) and that it exceeds the Commission's statutory authority to exempt transactions

from the operation of that Section. The district court, agreeing

with the views expressed in a memorandum which the Commission

filed as amicus curiae, rejected the plaintiffs' contentions and upheld

the rule as a valid exercise of the Commission's rulemaking authority

under the Act. Subsequent to the close of the fiscal year, the Court

of Appeals for the Second Circuit affirmed."

Fuller v. Dilbert,15 was an action by the guarantors of a purchaser's obligations under a contract for the sale of stock to have the

contract declared void as in violation of Section 5 of the Securities

Act and Section 16(c) of the Securities Exchange Act. The sellers

moved for summary judgment, and the Commission filed a memorandum amicus curiae. The contract was for the sale of a control block

of unregistered stock, and it was contemplated that the purchaser

would not take all of the stock himself but would designate unidentified

other persons as co-purchasers or sub-purchasers. It was expressly

provided, however, that purchaser "and his designees" would take

only for investment so that the transaction would be exempt fr0111the

registration requirements of the Securities Act, under Section 4(1)

of that Act, as a transaction not involving an "issuer, underwriter or

dealer." The Commission in its memorandum took the position that

the contract could be performed without violating the Securities Act.

Since any performances which violated the Securities Act would constitute a breach of the contract, the contract did not have to be declared

void.

The other ground advanced by plaintiffs in support of their contention that the contract was void was predicated on the fact that

certain shares included in its terms, which had been bequeathed to

the sellers by their father, had not as yet been distributed to them at the

time the contract was executed. Itwas urged that the sellers therefore

did not "own" the stock which they were purporting to sell and that,

since they were insiders, the contract was void as being in violation

of Section 16(c) of the Securities Exchange Act, which prohibits any

sale by an insider of equity securities of his corporation if he "does

not own the security sold." The Commission urged, among other

matters, that there is no particular form of legal or equitable title

required to satisfy the requirements of ownership within the meaning

of this Section, although some property interest is clearly required.

1< Docket No. 28315.

:Ill 32 F.R.D. 60 (S.D. N.Y., 1962).
118 SECURITIES AND EXCHANGE CO:MMISSION

Though it cannot be said what this property interest might be in every

case, the sellers here could be considered to "own" the equity securities,

without giving rise to the abuses with respect to "short sales" which

the statute seeksto prevent.

The district court denied summary judgment on the ground that

there were issues of fact which could not be decided upon affidavits

or motion papers.

In B01'ak v. J. 1. Oaee Oo.,IG plaintiff, a stockholder of J. I. Case

Co.,sought a declaration that the 1956merger between Case and American Tractor Corporation was void, as well as damages and other

retrospective relief, claiming that the merger had been approved at

a stockholders' meeting at which proxies, solicited in violation of

Section 14(a) of the Securities Exchange Act and the proxy rules

thereunder, were voted. The district court, relying upon the case of

Dann v. Studebaker-Packard Oorp.,17 held that it had no jurisdiction

under the Exchange Act to award damages and other retrospective

relief, that claims for such relief were claims arising under state law

and that the state security-for-expense statute was therefore applicable to the complaint insofar as it sought other than declaratory

relief. Plaintiff appealed and the Commission filed a brief amicus

curiae urging the court of appeals to hold that in a private suit based

upon Section 14(a) and the proxy rules thereunder a Federal district

court has jurisdiction under Section 27 of the Act to grant damages

or any other retrospective relief as the merits of the particular case

may require. The court of appeals adopted the Commission's position and reversed, expressly disagreeing with the Damn decision

insofar as it held to the contrary. Subsequent to the end of the fiscal

year the Supreme Court granted certiorari. IS

The fiscal year saw further significant developments in litigation

under the Investment Company Act of 1940.

The institution of action in the case of Securities and Eeohanqe

Oommission v, llfidwest Technical Development Corporation. 19 was

described in the last Annual Report.2o In that case the Commission

charged certain officers and directors of that corporation, a registered

closed-end investment company, with gross abuse of trust and various

violations of the Investment Company Act. The primary charge 'of

gross abuse of trust stemmed from the activities of certain directors in

purchasing the same securities which the investment company presently held in, or proposed to introduce into, its portfolio of securities.

16817F. 2d 888 (C.A. 7,1963).

17 288 F. 2d 201 (C.A.6,1961).

18 82 n.s, Law Week 3173 (November 12, 1963).

1.D. ?tOnn. 4-62 Civ. 142.

20 28th .Annual Relll&rt,pp. 130-131.
TWENTY-NINTH ANNUAL REPORT 119

In addition to charging that irreconcilable conflicts of interest resulted

from the directors' ownership of portfolio securities, the Commission

also alleged in its complaint that the personal securities-trading activities of the directors constituted the effecting of transactions in joint

arrangements and joint enterprises with the investment company in

violation of Section 17(d) of the Investment Company Act and Rule

17d-l thereunder. It was also charged that the defendants caused

the investment company to enter into prohibited transactions with

affiliated persons in violation of Section 17(a) of the Investment Company Act, that the company had violated Sections 13 and 21 of the

Act in issuing guarantees which in effect were indirect loans contrary to its stated investment policy, and that it had issued senior

securities in violation of Section 18 of the Act.

On July 5, 1963, the district court issued its opinion. It agreed

with the Commission that the activities of the directors in purchasing

securities which were also represented or were intended to be included

in the investment company's portfolio constituted joint arrangements

in violation of Section 17(d) of the Act and Rule 17d-l thereunder.

The court held, however, that such conduct alone or together with the

other violations alleged did not constitute gross abuse of trust. The

court viewed the evidence as showing that the directors did not fully

appreciate the conflicts of interest which were involved and that they

unintentionally failed to seek approval of the joint transactions from

the Commission. The court also held, among other things, that the

issuance of the guarantees by the investment company in connection

with loans made by third persons to companies in which the investment company had invested, or in which it intended to invest, violated

the investment company's investment policy concerning the amount of

loans which the company could make without stockholder approval.

Seourities and Exchange Oommission. v, United Benefit Life Ins.

00.21 is an action by the Commission to enjoin the defendant, a Nebraska corporation, from the offering and sale of a contract described

by the company as an Annual Flexible Fund Retirement Annuity. In

its complaint, the Commission contended that the contracts being sold

are securities within the meaning of the Securities Act and that they

may not be offered for public sale without prior registration with the

Commission under that Act. The Commission further contended that

certain guarantees of partial repayment made by the company to the

purchasers of the contracts also constituted a security required to be

registered with the Commission under the Securities Act.

In addition, the Commission contended that the defendant had

created and manages a separate fund for the purpose of investing in

21 D. D.C. No. 3096-62.
120 SECURITIES AND EXCHANGE COMMISSION

securities, and that such fund constitutes an "investment company," as

defined in the Investment Company Act, and must be registered under

that Act. The defendant has filed an answer controverting the Commission's contentions, and, as of the end of the fiscal year, discovery

proceedings were being conducted.

In Pruden tid Life I-nsurance Oompany of America Y. Securities and

Ewchange Oomsnissiorc" Prudential petitioned the Court of Appeals

for the Third Circuit for review of a Commission order which denied

Prudential's request for exemptions from the Investment Company

Act of 1940 for the separate variable annuity contract business which

Prudential proposes to conduct," Following the close of the fiscal

year, the Court affirmed the Commission order.

In Taussig, et d. v. Wellington Fund, Ino., et al., a suit by stockholders of an investment company, Wellington Fund, Inc., against

its corporate investment adviser and another investment company,

V\Tellington Equity Fund, and its adviser, the district court held that

Section 35(d) of the Investment Company Act conferred an implied

private right of action, and then relied upon pendent jurisdiction to

resolve common law claims of unfair competition." It enjoined the

advisers and Wellington Equity Fund from employing the name,

"Wellington" in the investment company field, but denied damages.

On appeal, the Commission, as amicus curiae, filed a brief which

urged that implied rights of action flow from violations of provisions

of the Investment Company Act, including Section 36. The brief

also pointed out that no inference should be drawn from the

nonaction of the Commission or from its acceleration of the registration of shares as to whether names, proxy material or other material

is deceptive or misleading. The Court of Appeals for the Third Circuit held that there was a "substantial Federal question" whether

there can be a private implied right of action under Section 35 (d) in

these circumstances and that the existence of this question provided

the basis for retaining pendent jurisdiction to decide the case on

common law principles of unfair competition."

Securities and Ewchange Oommission v, The Keller Corporation; et

al.,26 involved a fraudulent scheme involving the sale of securities of

an unregistered investment company. The Commission filed a complaint seeking to enjoin the corporate defendants and certain of their

principals from further fraudulent sales of Keller securities and to

enjoin Keller from continuing certain activities which, under Section

C.A. 3, No. 14,370

3 The Commission's decision Is summarized at page 107, supra,

"187 F. Supp, 179 (Del. 1960).

l!5 313 F. 2d 472 (C.A. 3, 1963). certiorari denied, 374 U.S. 806 (1963).

seS.D. Ind. IP6~-528.

"" •

•
TWENTY-NINTH ANNUAL REPORT 121

7(a) of the Investment Company Act, unregistered investment companies may not engage in. In view of the fraud practiced upon the

public investors in Keller, both through the fraudulent sales of Keller

stock and through the fraudulent mismanagement of Keller's portfolio and affairs, the Commission also sought the appointment of a

trustee or receiver. The district court entered a preliminary injunction enjoining the corporate defendants and two of the principals from further fraudulent sales of Keller stock and enjoining

Keller from continuing any of the prohibited activities. The court

also appointed a trustee and receiver for Keller. Subsequent to the

close of the fiscal year, the court of appeals affirmed the lower court

in all respects."

The remaining cases discussed in this section include two actions

to enforce subpoenas, one in connection with an administrative proceeding, the other in connection with an investigation, and three

proceedings instituted against the Commission to enjoin, respectively,

the conduct of an investigation, the continuation of administrative

proceedings, and the institution of such proceedings.

In Securities and Exchange Ilommdssion. v, Parrott 28 the Commission sought to enforce subpoenas issued by one of its hearing examiners in the course of an administrative proceeding involving a

broker-dealer. The subpoenaed persons, who were to be witnesses

in the administrative hearings, contended it was unfair to require

them to testify or produce records prior to the trial of two injunctive

actions brought by the Commission in which they were named defendants. Upon the Commission's application for enforcement of the

subpoenas, the district court delayed enforcement for 90 days. It

was expected that one of the trials would be completed within that

period. The court indicated that depositions would be permitted if

they were taken in Denver, the home of the witnesses. The parties

to the administrative proceeding, which was pending in Washington,

D.C., would not consent to a transfer of the proceeding to Denver

and contended that they were unable to afford the expense of being

present at the taking of depositions there. In addition, the hearing

examiner ruled in the administrative proceeding that depositions were

not appropriate since he desired to hear live testimony. The district

court extended the delay period on two occasions and the Commission appealed, contending that the existence of the injunctive actions

was not a ground for delaying enforcement of the subpoenas and that

the interests of parties to the administrative proceeding were paraC.A. 7, No. 14,116 .

esC.A. 10, Nos. 7356-7357.

'"
122 SECURITIES AND EXCHANGE COMMISSION

mount to the interests of witnesses. The court of appeals, without

opinion, directed that the subpoenas be enforced.

In Securities and Exchange Oommission v, National Bank of Oommerce of Seattle,29 the Commission sought enforcement of a subpoena

directed to a bank calling for the production of certain bank records

relating to the accounts of customers who were being investigated

for possible violations of the anti-fraud provisions of the Securities

Acts. The court ordered the bank to comply with the subpoena even

though the customers who were the subjects of the investigation had

directed the bank not to produce the records. The court held not

only that the customers of the bank had no privilege with respect to

the records, but that they did not have sufficient property rights

therein or any other interests sufficient to make them necessary parties

to the subpoena enforcement proceeding. .

In Howard P. Oarroll, et al. v. Securities and Exohange Oommission, et al.,so plaintiffs sought to enjoin the Commission from exercising its subpoena power in aid of an investigation into sales of

Certain securities by plaintiffs and sought to quash a subpoena issued

by a grand jury sitting in California. Plaintiffs alleged that the

Commission was exercising its subpoena power to discover evidence

for use in prosecution of a criminal indictment then pending in California against certain of the plaintiffs. Similar charges were made

concerning the grand jury subpoena. The court granted the Commission's motion to dismiss, holding that it had no jurisdiction to

enjoin the Commission in the conduct of its investigation or to quash

a subpoena not issued in the court's district.

In B. A. Holman &: 00., 1M. v, Securities and Exohange Oommission,sl the plaintiff sought to have the Commission enjoined

from continuing broker-dealer revocation proceedings against it,

claiming that one of the members of the Commission was disqualified

from adjudicating the case because he had previously been Director

of the Commission's Division of Corporation Finance at a time when

that Division had processed a registration statement, which processing ultimately led to the institution of the revocation proceedings.

As noted in the last Annual Report," the district court granted

plaintiff's motion for a preliminary injunction. During fiscal 1963,

the court of appeals reversed the order of the district court, holding that plaintiff had not made a record sufficient to excuse him from

exhausting his administrative remedies." Plaintiff has filed a petition for a writ of certiorari in the Supreme Court."

29216 F. SuPp. 932 (W.D. Wash. 1963).

soD. Colo .• Clv. No. 7738.

n D.D.C. No. 1888-62

.. 28th Annual Report, pp. 129-130

.. 323 F. 2d 284 (D.C. Cir•• 1963) .

.. October Term, 1963. No. 500.

•

•
TWENTY-NINTH ANNUAL REPORT 123

The Wolf Oorporation v. Securities and Ewchange Oommission "

was an action seeking to enjoin the institution of stop-order preceedings against plaintiff's registration statement under the Securities Act

of 1933. The complaint alleged irregularities in the taking of evidence during the preliminary investigation conducted pursuant to

Section 8(e) of the Act, and plaintiff argued that the order authorizing a public hearing pursuant to Section 8(d) was rendered unlawful because it was based. on the results of that investigation. The

District Court for the District of Columbia denied plaintiff's motion

for preliminary injunction," holding that the issues raised in the

complaint were not subject to judicial review until plaintiff had exhausted its administrative remedies. The court of appeals affirmed," holding that the complaint failed to state a cause of action

on which relief could be granted. A motion for a stay pending

petition for a writ of certiorari was thereafter denied by the court

of appeals, and a similar motion was denied by the Chief Justice of

the United States Supreme Court.

CRIMINAL PROCEEDINGS

The statutes administered by the Commission provide that the

Commission may transmit evidence of violations of any provisions

of these statutes to the Attorney General, who in turn, may institute

criminal proceedings. Where facts ascertained as a result of an investigation by a regional officeof the Commission or at times its headquarters office appear to warrant criminal prosecution, a detailed

report is prepared. After careful review by the General Counsel's

Office, the recommendations of the regional office and the General

Counsel's Office are considered by the Commission and, if the Commission believes criminal prosecution is appropriate, the case is referred to the Attorney General and to the appropriate United States

Attorney. Commission employees familiar with the case generally

assist the United States Attorney in the presentation of the facts to

the Grand Jury, the preparation of legal memoranda for use in the

trial, the conduct of the trial, and the preparation of briefs on appeal.

During fiscal year 1963, the Commission referred 49 cases to the

Department of Justice for prosecution. In the course of the year,

40 indictments were returned, in cases referred prior to and during

the fiscal year, against 117 defendants and 115 convictions were had in

50cases,while convictions were affirmed in 11cases.

From 1934, when the Commission was established, until June 30,

1963, 3,304 defendants have been indicted in the United States Dis-

.. D.D.C. No. 3297-62

.. 209 F. Supp. 481 (D. D.C., 1962)

., 317 F. 2d 139 (D.C. C1r., 1963).

•

•
124 SECURITIES AND EXCHANGE COM:MISSION

trict Courts in 753 cases developed by the Commission and 1,695

convictions have been obtained. The record of convictions obtained

and upheld in completed cases is over 85 percent for the 29-year life

of the Oommission."

As in prior years, the majority of the criminal cases prosecuted

involved the offer and sale of securities by fraudulent representations

and other fraudulent practices. These activities included high-pressure long-distance telephone "boiler-room" frauds, conversion of customers' funds and securities by broker-dealers or their salesmen, frauds

involving the sale of securities by new as well as established businesses,

and fraudulent securities sales in connection with the promotion of

insurance companies, mortgage companies, oil and gas and other mining ventures, and other types of enterprises. Itis not feasible to describe individually each of the many criminal matters pending during

the year." However, two landmark criminal prosecutions which occurred during the fiscal year are discussed below.

On July 14, 1961, an indictment was returned by a Grand Jury

sitting in the Southern District of New York charging 33 individuals

and corporations with manipulating the market price of United Dye

and Chemical Corporation stock on the New York Stock Exchange and

with fraudulently distributing to the public unregistered shares of

this stock. (United States v. Garfield, et d.)

Certain defendants were severed, and others pleaded guilty before

or during the trial, which commenced in March 1962. The trial continued until February 1963, when a jury found the remaining defendants, Virgil D. Dardi, Charles Rosenthal, Charles M. Berman,

Robert B. Gravis and R. B. Gravis, Inc. guilty. Sentences which

had been imposed as of the close of the fiscal year on individual defendants included imprisonment up to '( years and fines up to $50,000.

The evidence at the trial showed that Alexander Guterma, who was

named as a co-conspirator and testified for the Government, and defendants Garfield and Pasternak acquired control of United Dye and

Chemical Corporation by purchasing a controlling block of stock from

Lowell M. Birrell in 1955. Virgil Dardi, who arranged this purchase, received a percentage of the proceeds. Thereafter, in a series

of transactions, Guterma, Garfield and Pasternak caused United Dye

and Chemical to issue 575,000shares of stock to them for Handridge

Corporation which they controlled. Thus, without any outlay of cash,

asAppendix table 25 contafns a condensed statistical summary of all criminal cases developed by the Commission from fiscal 1934 through fiscal 1963.

.. A list of all criminal cases developed by the Commission which were pending during

the year and In which Indictments have been returned, and the status of each case, are

contained In Appendix table 16. Table 13 is a summary of criminal cases developed by

the Commission which were pending as of June 30, 1963.
TWENTY-NINTH ANNUAL REPORT 125

they received United Dye and Chemical stock which had a then

market value of over $5 million.

In order to distribute this large block of stock to the public

without depressing the market, the services of various "boiler-rooms"

were utilized, including Rockwell Securities Corporation, J. H.

Lederer Co., Cornelia DeVroedt, Inc., :McGrath Securities, Inc., I. F.

Stillman & Co.,Inc., R.B. Gravis, Inc. and G. F. Rothschild & Co.,Inc.

These "boiler-rooms" employed the typical fraudulent high-pressure

selling practices. Contemporaneously the defendants manipulated

the price of the stock upwards on the New York Stock Exchange by

purchasing large amounts on the Exchange while, at the same time,

selling the stock previously acquired and the stock being purchased

on the Exchange to the public through the "boiler-rooms."

The trial of this one complex fraud and manipulation case to a

lay jury presented litigation problems of great magnitude. At the

conclusion of the trial, which was the longest in the annals of United

States criminal prosecutions, Judge Herlands noted:

. . . There never was a case that was presented with such detail, such documentation, letters, books, records, confirmations, witnesses. There never was a

case that was proved to the hilt the way thse case leas proved (emphasis added).

[The prosecuting attorneys] have been assisted by two very able representatives of the Securities and Exchange Commission, Mr. Ralph H. Tracy and Allen

S. Kilmer. It is evident that they performed Herculean labors by way of investigation and ferreting out the facts, and I think that the Securities and Exchange Commission, Mr. Tracy and Mr. Kilmer, deserve commendation for the

way in which they are discharging their function of acting as the financial watchdog for the investment public.

It took years of unremitting labor in the face of all kinds of investigative

difficulties to develop the facts that were presented to the jury, and if the case

took 11 months to present the evidence, one can only imagine how long it took

to dig up the evidence.

I therefore want the Securities and Exchange Commission to know that its

efforts have been recognized, and that the Securities and Exchange Commission

and its facilities and personnel should be implemented and strengthened so that

they could carryon with even greater effectiveness the task of protecting the

securities markets and the investing public from frauds and swindles and other

sophisticated types of chicanery.

The court emphasized the efficientmanner in which the prosecuting

attorneys prepared and conducted their case and stated that the length

of the trial was not attributable to any inadequacy on their part. On

the other hand, the court pointed out, defense counsel's tactics were

designed to create delay and to cause the judge to "lose his temper and

say something which would be grounds for a mistrial."

The convictions of Gerard and Jerry He, former specialists on the

American Stock Exchange, and the other defendants in United States

v. Re, et al., are also of the utmost significance to the Commission's
126 SECURITIES AND EXCHANGE COMMISSION

enforcement program. The Res and others were charged with participating with Lowell M. Birrell, presently a fugitive in Brazil, in

manipulating the price of Swan-Finch Oil Corporation stock on the

American Stock Exchange and in fraudulently distributing unregistered shares of this stock on the Exchange and through "boilerrooms" which used the manipulated market price as one of the

fraudulent selling devices.

The Res themselves distributed at least 578,000 shares of SwanFinch stock over the Exchange at an aggregate sales price of over $3

million. To prepare the market to absorb these large blocks of SwanFinch stock, the Res made short sales from their specialist's accounts

over a period of time and later covered them with stock from at least

18 nominee accounts controlled by them. They also, on occasion, prevented others from effecting sales of large blocks of stock on the Exchange, "painted the tape" to show considerable ,trading in the stock

at crucial periods, and so executed sales as to close the market in this

stock on the "up tick."

In addition to the large sums realized through the sales of this stock,

the Res received approximately one-quarter of a million dollars from

Birrell as payment for their services.

The importance of the convictions of the Res can best be appreciated

when the specialists' role and function in the securities markets are

considered. As stated at page 23 in the Staff Report on Organization,

Management, and Regulation of Oo'lU1uatof Members on the American

Stock Eeehanqe:

In his unique capacity the specialiststands at the heart of the exchangemarket

mechanism. He has intimate knowledge of the past market actions of the stock

in which he specializes. He also has sole 'accessto the specialist book showing

outstanding orders both belowand above market, which affords him a great competitive advantage over the public. In addition, he exercises a significant Influence on the public appraisal of a security since he is the one who quotes the

market. For all these reasons, it is a matter of tremendous importance in the

maintenance of a fair and orderly market that a specialist's transactions as

principal be only of such kinds and amounts as are consistent with his function

of acting as broker at the vital center of the auction market.

These convictions, as well as the many convictions obtained in other

cases throughout the country, are of the utmost importance to the

Commission in performing its task of protecting the investing public

and deterring further violations.

OFFICE OF PROGRAM PLANNING

Pursuant to the recommendations of the Special Study of Securities

Markets, a new Office of Program Planning was created subsequent

to the close of the fiscal year. The principal function of this Office
TWENTY-NINTH ANNUAL REPORT 127

is to assist the Commission in establishing policy by analyzing legal,

economic and industrial developments affecting the regulation of the

securities markets. The Office recommends to the Commission the

institution or modification of programs commensurate with the needs

and trends of the securities markets.

The initial task of the Office will be to assist and advise the Commission in the implementation of the recommendations of the Special

Study of Securities Markets. This work involves, in coordination

with other Commission offices and divisions, changes in the rules,

regulations and policies of the Commission and self-regulatory agencies; recommendations for legislation; proposals for modifications of

industry practices and procedures for gathering and analyzing economic data about the securities markets; and conferring, where appropriate, with the self-regulating agencies and the financial community

regarding such proposals.

It is anticipated that, as the recommendations of the Special Study

are implemented, the work of this Office will gradually shift in emphasis to the principal function described above.

COMPLAINTS AND INVESTIGATIONS

Each of the Acts administered by the Commission specifically

authorizes investigations to determine whether violations of the

Federal securities laws have occurred.

The nine regional offices of the Commission, with the assistance of

their respective branch offices, are chiefly responsible for the conduct

of investigations. In addition, the Office of Enforcement of the Division of Trading and Markets of the Commission's headquarters office

conducts investigations dealing with matters of particular interest or

urgency, either independently or assisting the regional offices. The

Office of Enforcement also exercises general supervision over and coordination of the investigative activities of the regional offices. Its

staff examines and analyzes the investigative findings and recommendations of the regional offices and recommends appropriate action to

the Commission.

There are available to the Commission several sources of information concerning possible violations of the provisions of the Federal

securities laws. The primary source of information is complaints by

members of the general public concerning the activities of certain

persons in securities transactions. The Division of Trading and

Markets and the regional offices give careful consideration to this information and, if it appears that violations of the Federal securities

laws may have occurred, an investigation is commenced. Other

sources of information which are of assistance to the Commission in
128 SECURITIES AND EXCHANGE COMMISSION

carrying out its enforcement responsibilities are the national securities

exchanges, brokerage firms, state and Canadian securities authorities,

better business bureaus, the National Association of Securities Dealers,

Inc. and various law enforcement agencies.

It is the Commission's general policy to conduct its investigations

on a confidential basis. Such a policy is necessary to effective law

enforcement and to protect persons against whom unfounded or

unconfirmed charges might be made. The Commission investigates

many complaints where no violation is ultimately found to have

occurred. To conduct such investigations publicly would ordinarily

result in hardship or embarrassment to many interested persons and

might affect the market for the securities in question, resulting in

injury to investors with no countervailing public benefits. Moreover, members of the public would have a tendency to be reluctant

to furnish information concerning violations if they thought their

personal affairs would be made public. Another advantage of confidential investigations is that persons under suspicion of having

violated the law are not made aware that their activities are under

surveillance, since such awareness might have the effect of frustrating

or obstructing the investigation. Accordingly, the Commission does

not generally divulge the result of a nonpublic investigation unless it

is made a matter of public record in proceedings brought before the

Commission or in the courts.

When it appears that a serious violation of the Federal securities

laws has occurred or is occurring, a case is opened and a full investigation is conducted. Under certain circumstances it becomes necessary for the Commission to issue a formal order of investigation which

appoints members of its staff as officers to issue subpoenas, to take

testimony under oath and to require the production of documents.

Usually this step is taken when the subjects of the investigation and

others who may be involved are uncooperative and it becomes necessary to use the subpoena power to complete the investigation of the

case. During the past year 213 formal orders were issued in connection with investigations handled through the Division of Trading

and Markets.

In addition, there were 11 formal orders issued upon the recommendation of the Division of Corporate Regulation and 27 upon the

recommendation of the Division of Corporation Finance. The latter

Division conducts certain investigative work in connection with the

processing of filings under the Securities Act of 1933 and the Securities Exchange Act of 1934.

"When an investigation has been completed and enforcement action

appears appropriate, the Commission may proceed in one of several
T~ENTY-NINTH ANNUAL REPORT 129

ways. It may refer the case to the Department of Justice for criminal prosecution. The Commission may also, when appropriate, authorize the institution of civil proceedings for injunctive relief to halt

further violations of the Federal securities laws. In such event a

complaint is filed in the appropriate United States District Court and

the case is presented by a member of the Commission's staff. Finally,

the Commission may institute administrative proceedings when its

investigation indicates that a registration statement or report filed

with it is false or misleading or omits required information, or that

a broker-dealer or investment adviser registered with it is violating

the Federal securities laws.

The following table reflects in summarized form the investigative

activities of the Commission during fiscal 1963 :

Investigations of possible violations of the Acts administered by the Commission

Total

~~w~~~~_o~_~~~=:============================::::=:::====::==::::=:=:::===::===:::===:= TotaL . closed

Pending at June 30. 1963 ._

985

622

1,607

526

1,081

ENFORCEMENT PROBLEMS WITH RESPECT TO FOREIGN SECURITIES

Progress was again made during fiscal 1963 in reducing the unlawful offer and sale of Canadian securities in the United States.

The continuing cooperation of responsible Canadian officials and segments of the Canadian securities industry has resulted in even fewer

enforcement problems with respect to such activities than last year.

This decrease, however, has been offset by an increasing number of

fraudulent promotions from other sources outside the United States.

During the past fiscal year United States residents have been subjected to massive mail campaigns from such diverse areas as Panama,

Ireland, Switzerland and the Bahamas. In its efforts to deal with

these problems, the Commission has employed new and simplified

procedures for obtaining issuance of foreign postal fraud orders.

The success of this program is due inlarge measure to the continuing

cooperation of the Post OfficeDepartment.

The Commission is still hampered by jurisdictional problems, including the status of the Supplementary Extradition Convention with

Canada."

The Commission continues to maintain its Canadian Restricted List,

which is a list of Canadian companies whose securities the Commission

See 26th Annual Report pp. 202-203 for a description of some of these problems.

717-948-64-10

__ _ • • _

__• __ • • •• •• __•• ••• __•

'"
130 SECURITIES AND EXCHANGE COMMISSION

has reason to believe are being, or recently have been, distributed in

the United States in violation of the registration requirements of

the Securities Act of 1933. The list and supplements thereto are

issued to and published by the press, and copies are mailed to all

registered broker-dealers and are available to the public. As a practical matter, most United States broker-dealers refuse to. execute transactions in such securities.

The Court of Appeals for the District of Columbia upheld the

Commission's right to publish the Canadian Restricted List in K ukatush Mining Oorporation v. Seourities and Ewahange Oom;mission.41

In its opinion, the court pointed out that the list does not charge

anyone with any wrongdoing, and that the Commission expressly disavows any comment on the investment merits of the securities listed.

The court said that listing simply states "a fact-that the securities

have not been registered-which the American public has a right to

know."

Eleven supplements to the list were issued in fiscal 1963. As a

result of more effective enforcement activities here and in Canada,

it was necessary to add only '7 names to the list during the year, compared to 9 names added in fiscal 1962, 47 in fiscal 1961, and 82 in fiscal

1960. Twelve names were deleted during the year, leaving 253 names

on the list as of June 30, 1963.

The current list, as of September 30, 1963,follows:

CANADIAN RESTRICTED LIST

Abbican Mines, Ltd.

Adonis Mines, Ltd.

Alaska-Canadian Mining & Exploration Co., Ltd.

Alaska Highway Beryllium Venture

Aldor Exploration and Development

Co., Ltd.

A. L. Johnson Grubstake

Alouette Mines, Ltd.

Amador Highland Valley Coppers,

Ltd.

Ambassador Mining Developments,

Ltd.

Americanadian Mining & Exploration

ce., Ltd.

Anthony Gas and Oil Explorations,

Ltd.

Anuwon Uranium Mines, Ltd.

Apollo Mineral Developers, Inc.

Associated Livestock Growers of

Ontario

<1309F. 2d 647 (1962).

Atlantic Industrial Development Oo.,

Ltd.

Autofab, Ltd.

Ava Gold Mining Co., Ltd.

Barite Gold Mines, Ltd.

Basic Lead and Zinc Mines, Ltd.

Bayonne Mine Limited

Bengal Development Corp., Ltd.

Black Crow Mines, Ltd.

Blue Springs Explorations

Bonwitha Mining Co., Ltd.

Burbank Minerals, 'Ltd.

Cable Mines and Oils, Ltd.

Caesar Minerals, Ltd.

Cairngorm Mines, Ltd.

Cameron Copper Mines, Ltd.

Canada Radium Corp., Ltd.

Canadian Alumina Oorp., Ltd.

Canford Explorations, Ltd.

Canol Metal Mines, Ltd.

Cartier Quebec Explorations, Ltd.
TWENTY-NINTH ANNUAL REPORT

CANADIAN RESTRICI'ED MST-Continued

131

Central and Eastern Canada Mines

(1958), Ltd.

Centurion Mines, Ltd.

Colville Lake Explorers, Ltd.

Consolidated Easter Island Mines,

Ltd.

Consolidated Exploration & Mining

Co., Ltd.

Consolidated St. Simeon Mines, Ltd.

Consolidated Woodgreen Mines, Ltd.

Copper Prince Mines, Ltd.

Courageous Gold Mines, Ltd.

Cove Uranium Mines, Ltd.

Cree Mining Oorp., Ltd.

Crusade Petroleum Oorp., Ltd.

Davian Exploration, Ltd.

Day jon Explorers, Ltd.

Dempster Explorations, Ltd.

Derogan Asbestos Oorp., Ltd.

Devonshire Mining Oo.,Ltd.

Devonshire Mining Syndicate

Diadem Mines, Ltd.

Dolmac Mines, Ltd.

Dolsan Mines, Ltd.

Dominion Fluoridators, Ltd.

Dominion Granite and Marble, Ltd.

DuMaurier Mines, Ltd.

Dupont Mining Oo., Ltd.

Eagle Plains Developments, Ltd.

Eagle Plains Explorations, Ltd.

East Trinity Mining Corp.

Eastern-Northern Explorations, Ltd.

Elk Lake Mines, Ltd.

Embassy Mines, Ltd.

Explorers Alliance, Ltd.

Export Nickel Corp. of Canada, Ltd.

Fairmont Prospecting Syndicate

Federal Ohibongamau Mines, Ltd.

File Lake Explorations, Ltd.

Fleetwood Mining and Exploration,

Ltd.

Font Petroleums, Ltd.

Foreign Exploration Corp., Ltd.

The Fort Hope Grubstake

Franksin Mines, Ltd.

Gasjet Corp., Ltd.

Genex Mines, Ltd.

Georay Prospecting Syndicate

Golden Algoma Mines, Ltd.

Golden Hope Mines, Ltd.

Goldmaque Mines, Ltd.

Grandwick Mines, Ltd.

Guardian Explorations, Ltd.

Haitian Copper Mining Oorp., Ltd.

Hallmark Explorations, Ltd.

Hallstead Prospecting Syndicate

Jack Haynes Syndicate

Hoover Mining and Exploration, Ltd.

Ibsen Cobalt-Silver Mines, Ltd.

Inlet Mining Corp., Ltd.

Lucky Creek Mining Co., Ltd.

Lynwatin Nickel Copper, Ltd.

Mack Lake Mining Corp., Ltd.

Magni Mining Oorp., Ltd.

Maple Leaf Investing Corp., Ltd.

?Ifarch Minerals, Ltd.

Marian Lake Mines, Ltd.

Marpoint Gas & Oil Corp., Ltd.

Megantic Mining Corp.

Merrican International Mines, Ltd.

Mexicana Explorations, Ltd.

Mexuscan Development Corp.

Midas Mining Co., Ltd.

Mid-National Developments, Ltd.

Mile 18 Mines, Ltd.

Milldale Minerals, Ltd.

Mina-Nova Mines, Ltd.

Minden Land Enterprises, Ltd.

Mineral Exploration Oorp., Ltd.

Missile Metals and Mining Oorp., Ltd.

Monarch Asbestos Co., Ltd.

Monitor Gold Mines, Ltd.

Monpre Mining Co., Ltd.

Montclair Mining Oorp., Ltd.

Mylake Mines, Ltd.

Nationwide Minerals, Ltd.

Natto Mining Oo.,Ltd.

New Campbell Island Mines, Ltd.

New FauIkenham Mines, Ltd.

New Hamil Silver-Lead Mines, Ltd.

New Mallen Red Lake Mines, Ltd.

New Metalore Mining Oo., Ltd.

New Surpass Petrochemicals, Ltd.

Norbank Explorations, Ltd.

Norcopper and Metals Corp.

Normalloy Explorations, Ltd.

Norseman Nickel Corp., Ltd.

North American Asbestos Co., Ltd.

North Gaspe Mines, Ltd.

North Lake Mines, Ltd.

North Tech Explorations, Ltd.

Northport Mineral Explorers, Ltd.
132 SECURITIES AND EXCHANGE COMMISSION

CANADIAN RESTRICl'ED LIST-Continued

Nortoba Mines, Ltd.

Nu-Gord Mines, Ltd.

Nu-Reality Oils, Ltd.

Nu-World Uranium Mines, Ltd.

Olympus Mines, Ltd.

Outlook Explorations, Ltd.

Palliser Petroleums, Ltd.

Pantan Mines, Ltd.

Paramount Petroleum & Minerals

Corp., Ltd.

Peace River Petroleums, Ltd.

Pick Mines, Ltd.

Plexterre Mining Corp., Ltd.

Prestige Lake Mines, Ltd.

Prudential Petroleums, Ltd.

Quebec Graphite Corp.

Queensland Explorations, Ltd.

Quinalta Petroleum, Ltd.

Rambler Exploration Co., Ltd.

Red River Mining & Exploration, Ltd.

Regal Mining & Development, Ltd.

Resolute Oil and Gas oo., Ltd.

Revere Mining Corp., Ltd.

Riobec Mines, Ltd.

Roberval Mining Corp.

Rockroft Explorations, Ltd.

Rothsay Mines, Ltd.

Roxton Mining & Development Co.,

Ltd.

St. Anthony Mines, Ltd.

St. Lawrence Industrial Development

Corp.

Ste. Sophie Development Corp.

St. Stephen Nickel Mines, Ltd.

Sastex Oil and Gas, Ltd.

Savoy Copper Mines, Ltd.

Seaboard Industries, Ltd.

Senvil }Iines, Ltd.

Sheba Mines, Ltd.

Sico Mining Corp., Ltd.

Sinclair Prospecting Syndicate

Space Age Mines, Ltd.

StackpoolMining Co., Ltd.

Strathcona Mines, Ltd.

Sturgeon Basin Mines, Ltd.

Success Mines, Ltd.

Sudbay Beryllium Mines, Ltd.

Swift Copper Mines, Ltd.

Tabor Lake Gold Mines, Ltd.

Taiga Mines, Ltd.

Tamicon Iron Mines, Ltd.

Taurcanis Mines, Ltd.

Temanda Mines, Ltd.

Territory Mining Co., Ltd.

Trans-Leduc Oils, Ltd.

Trans Nation Minerals, Ltd.

Trans-Oceanic Hotels Corp., Ltd.

Trenton Petroleum & Minerals Corp.,

Ltd.

Tri-Cor Mining co, Ltd.

Triform Explorations, Ltd.

Triform Explorations (B.C.), Ltd.

Trio Mining Exploration, Ltd.

Trojan Consolidated Mines, Ltd.

Tumac Mining & Development Co.,

Ltd.

Turbenn Minerals, Ltd.

Turzone Explorations, Ltd.

Tyndal Explorations, Ltd.

Upper Ungava Mining Corp., Ltd.

Val Jon Explorations, Ltd.

Valray Explorations, Ltd.

Venus Chibougamau Mines, Ltd.

Ver-Million Gold Placer Mining, Ltd.

Vico Explorations, Ltd.

Vimy Explorations, Ltd.

Viscount Oil and Gas, Ltd.

Wakefield Uranium Mines, Ltd.

Webbwood Exploration Co., Ltd.

Western Allenbee Oil and Gas Co.,

Ltd.

Westwind Explorations, Ltd.

Windy Hill Mining Corp.

Wingdam & Lightning Creek Mining

Co., Ltd.

Yukon Prospectors' Syndicate

SECTION OF SECURITIES VIOLATIONS

A Section of Securities Violations is maintained by the Commission

as a part of its enforcement program to provide a further means of

detecting and preventing fraud in securities transactions. The Section maintains files providing a clearinghouse for other enforcement
TWENTY-NINTH ANNUAL REPORT 133

agencies for information concerning persons who have been charged

with violation or found in violation of various Federal and state securities statutes. Considerable information is also available concerning

Canadian violators. The specialized information in these files is kept

current through the cooperation of the U.S. Post OfficeDepartment,

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, the

NASD and other agencies. At the end of the fiscal year these records

contained information concerning 78,216 persons against whom Federal or state action had been taken in connection with securities violations. In keeping these records current there were added during the

fiscal year items of information concerning 8,985 persons, including

2,995 persons not previously identified in these records. A total of

3,779 names was removed from the files since the information concernmg them was believed to be obsolete.

The Section issues and distributes quarterly a securities violations

bulletin containing information received during the period concerning

alleged and actual violators and showing new charges and developments in pending cases. The bulletin includes a "wanted" section

listing the names of persons wanted on securities violations charges

and references to bulletins containing descriptive information regarding them. The bulletin is distributed to a limited number of officials

of cooperating law enforcement and other agencies in the United

States and Canada.

The bulletin also includes a new section reporting on NASD disciplinary actions which resulted in the expulsion or suspension of an

Association member, or in the revocation or suspension of the registration of a representative of a member. Information in this section includes a brief description of the findings in each reported case and

identifies the disciplined member or representative.

Extensive use is made of the information available in these records

by regulatory and law enforcement officials. Numerous requests are

received each year for special reports on individuals in addition to the

information supplied by regular distribution of the quarterly bulletin.

All available information is supplied in response to inquiries from law

enforcement agencies. During the fiscal year the Commission received

and disposed of 2,778 "securities violations" letters or reports and dispatched 491 communications to cooperating agencies.

APPLICATIONS FOR NONDISCWSURE OF CERTAIN INFORMATION

The Commission is authorized under the various Acts administered

by it to grant requests for nondisclosure of certain types of information which would otherwise be disclosed to the public in applications,
134 SECURITIES AND EXCHANGE COMMISSION

reports or other documents filed pursuant to these statutes. Thus,

under paragraph (30) of Schedule A of the Securities Act of 1933,

disclosure of any portion of a material contract is not required if the

Commission determines that such disclosure would impair the value

of the contract and is not necessary for the protection of investors.

Under Section 24(a) of the Securities Exchange Act of 1934, trade

secrets or processes need not be disclosed in any material filed with the

Commission. Under Section 24(b) of that Act, written objection to

public disclosure of information contained in any material filed with

the Commission may be made to the Commission which is then authorized to make public disclosure of such information only if in its

judgment such disclosure is in the public interest. Similar provisions

are contained in Section 22 of the Public Utility Holding Company Act

of 1935 and in Section 45 of the Investment Company Act of 1940.

These statutory provisions have been implemented by rules specifying

the procedure to be followed by applicants 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 nondisclosure during 1989 fiscal year

Number Number Number

pending Number Number denied runding

July 1, received granted or WIth- une30,

1002 drawn 1963

Securities Act of 1933 4 32 20 13 3 Securities Exchange Act of 1934' 16 22 19 12 7 Investment Company Act of 1940 , 0 25 22 0 3

Totals 20 79 61 25 13

Filed under Rule 485

Filed under Rule 24b-2 'Filed under Rule 458-1

ACTIVITIES OF THE COMMISSION IN ACCOUNTING AND AUDITING

The several Acts administered by the Commission recognize the

importance of dependable informative financial statements which

disclose the financial status and earnings history of a corporation

or other commercial entity. These statements, whether filed in compliance with the requirements under those statutes or included in

other material available to stockholders or prospective investors,

are indispensable to investors as a basis for investment decisions.

The Congress, cognizant of the fact that such statements lend themselves readily to misleading inferences or even deception, whether

or not intended, included, in the various Acts, express provisions

with respect to disclosure requirements. Thus, for example, the

Securities Act requires the inclusion in the prospectus of balance

"

•• _

_____________________

___________ _________

____________________________

"

•
TWENTY-NINTH ANNUAL REPORT 135

sheets and profit and loss statements "in such form as the Commission shall prescribe" 42and authorizes the Commission to prescribe

the "items or details to be shown in the balance sheet and earnings

statement, and the methods to be followed in the preparation of

accounts ... " 43 Similar authority is contained in the Securities

Exchange Act,44 and even more comprehensive power is embodied in

the Investment Company Act 45and the Public Utility Holding Company Aet."

Pursuant to the broad rule-making power thus conferred with

respect to the preparation and presentation of financial statements, the

Commission has prescribed uniform systems of accounts for companies

subject to the Holding Company Act; 47has adopted rules under the

Securities Exchange Act governing accounting and auditing of securities brokers and dealers; 4Sand has promulgated rules contained in a

single comprehensive regulation, identified as Regulation S_X,49which

governs the form. and content of financial statements filed in compliance with the several Acts. This regulation is supplemented by

the Commission's Accounting Series Releases, of which 97 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 on accounting principles for the purpose of contributing to the

development of uniform. standards and practice in major accounting questions. The rules and regulations thus established, except

for the uniform systems of accounts which are regulatory reports,

prescribe accounting principles to be followed only in certain limited

areas. In the large area of financial reporting not covered by such

rules, the Commission's principal means of providing investors protection from inadequate financial reporting, fraudulent practices and

over-reaching by management is by requiring a certificate of an independent public accountant based on an audit performed in accordance

with generally accepted auditing standards which expresses an opinion as to whether the financial statements are presented fairly in

conformity with accounting principles and practices which are recognized as sound and which have attained general acceptance .

.. Sections 7 and 10(a) (Schedule A, pars. 25, 26) .

.. Section 19(a)

.. Section 13 (b) .

.. Sections 30, 31.

.. Sections 14, 15.

•• Uniform System of Accounts for Mutual Service Companies and Substdiary Service

Companies (e1fectlve August 1, 1936); Uniform System of Accounts for Public UtlUty

Holding Companies (e1fective January 1. 1937; amended e1fective January 1, 1943; revised

November 24,1959). (Accounting Series Release No. 84.)

Rule 17a-5 and Form X-17A-5 thereunder

.. Adopted February 21, 1940 (Accounting Series Release No. 12) ; revised December 20,

1950 (Accounting Series Release No. 70).

•

'" •
136 SECURITIES AND EXCHANGE COMMISSION

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." 50

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. The Commission's rules accept an accountant

who is qualified to practice in his own state as qualified to practice

before the Commission unless he has entered into disqualifying relationships with a particular client, such as becoming a promoter, underwriter, voting trustee, director, officer,employee, or stockholder; 52 or,

in rare cases, has demonstrated incompetence, subservience to the management, or has engaged in unethical or improper professional conduct.53 The Commission endeavors to encourage and foster the

independence of the accountant in his relationships with his client

so that he may better be able to perform the service to the public contemplated by the Congress in the various Acts.

The Commission is vigilant in its efforts to assure itself that the

audits which it requires are performed by independent accountants;

that the information contained in the financial reports represents full

and fair disclosure and that appropriate auditing and accounting practices and standards have been followed in their preparation. In addition it recognizes that changes and new developments in financial and

economic conditions affect the operations and financial status of the

several thousand commercial and industrial companies required to file

statements with the Commission and that accounting and auditing

procedures cannot remain static and continue to serve well a dynamic

economy. The Commission's accounting staff, therefore, studies

the changes and new developments for the purpose of establishing and

maintaining appropr-iate accounting and auditing policies, procedures

nnd 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.

50 Sections 7 and 10(a), (Schedule A, pars. 25, 26) .

, Securities Exchange Act, Section 18(a) (2) ; Investment Company Act, Section 30(e) ;

Holding Company Act, Section 14.

M See,for example, Rule 2-01 of Regulatlon S-X.

53 See, for example. Accounting Series Release No. 97 (1963) which Is discussed at

page 140, infra,

•
T~ENTY-NLNTH ~AL REPORT 137

Progress in these activities requires continuing contact and consultation between the staff and accountants both individually and

through such representative groups as, among others, the American

Accounting Association, the American Institute of Certified Public

Accountants, the American Petroleum Institute, the Financial Analysts Federation, the Financial Executives Institute, and the National

Association of Railroad and Utilities Commissioners, as well as many

Government agencies. Recognizing the importance of cooperation in

the formulation of accounting principles and practices, adequate disclosure and auditing procedures which will best serve the interests of

investors, the American Institute of Certified Public Accountants, the

Financial Analysts Federation and the Financial Executives Institute

appoint committees which maintain liaison with the Commission's

staff. The Commission on its part has authorized its Chief Accountant to continue to serve as a member of an advisory committee to the

Accounting Principles Board of the American Institute of Certified

Public Accountants and of a somewhat similar committee of the

American Accounting Association.

The many daily decisions to be made require the attention of some

of the Chief Accountant's staff. These include questions raised by

each of the operating divisions of the Commission, the regional offices,

and the Commission. As a result of this day-to-day activity of the

Commission and the need to keep abreast of current accounting problems, the Chief Accountant's staff continually reexamines accounting

and auditing principles and practices. From time to time members

of the staff are called upon to assist in field investigations, to participate in hearings and to review opinions insofar as they pertain to

accounting matters.

Prefiling and other conferences, in person or by telephone, with

officials of corporations, practicing accountants and others are also an

important part of the work of the staff. Resolution of questions and

problems in this manner saves registrants and their representatives

both time and expense.

Many specific accounting and auditing problems are disclosed in the

examination of financial statements required to be filed with the 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
138 SECURITIES AND EXCHANGE COMMISSION

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.

Difficulties often arise in connection with initial filings because

accountants and other advisers who serve the registrant have not had

any prior experience with the Commission. In some cases these persons have not familiarized themselves with the rules and regulations

of the Commission-particularly the instructions as to financial statements required by the forms, the rules relating to independence of the

certifying accountant, and those relating to the form and content of

financial statements as set forth in Regulation S-X. In an effort to

improve this situation several members of the a.ccounting staff of the

Commission, at the invitation of the sponsor, the American Institute

of Certified Public Accountants, participated in a course on filings

with the Commission. This course, in which the enrollment quota

was filled each time it was presented, was given in Chicago, Los

Angeles, New York, and San Francisco. It appears that the course

will be offered during the next fiscal year in cities located in other

sections of the United States.

In 1961, the Commission adopted Form 8-11, a new form designed

to provide adequate disclosure of certain special problems found in

filings made by real estate companies." In June 1962, the Commission

also adopted new Rules 13a-15 and 15d-15 under the Securities Exchange Act and new Form 7-K to require such companies to file

quarterly reports showing profit and loss, cash generated, cash distributions to stockholders and cash balance."

At the time these new forms and rules were adopted it was believed

that information filed pursuant to these requirements would provide

adequate disclosures with respect to the financial condition and operations of real estate companies. However, late in 1962 a number of

cases came to the attention of the Commission in which the gross profits

on certain real estate transactions were taken into income under circumstances which indicated that they were not realized in the period

in which the transactions were recorded.

In some of the situations coming before the Commission it appeared

from the attendant circumstances that the sale of property was a mere

fiction designed to create the illusion of profits or value as a basis for

the sale of securities. Moreover, even in bona fide transactions the

degree of uncertainty as to the ultimate realization of profits appeared

to be so great that business prudence, as well as generally accepted

.. Securities Act Release No. 4422 (October 26,1981) .

.. Securities Exchange Act Release No. 6820 and Securities Act Release No. 4499 (June

12, 1962).
TWENTY-NINTH ANNUAL REPORT 139

accounting principles, precluded the recognition of gain at the time

of sale. In view of the foregoing the Commission issued Accounting

Series Release No. 9556 in which it listed circumstances which tend to

raise a question as to the propriety of current recognition of profit and

stated that while any of the circumstances taken alone might not preclude the recognition of profit in an appropriate amount the degree

of uncertainty may be accentuated by the presence of a combination of

the circumstances listed in the release.

The Chief Accountant's Office cooperated with the Division of Corporate Regulation in the preparation of amendments to Rules 31a-1

and 31a-2 under the Investment Company Act of 1940 and of a new

Rule 31a-3, which were adopted by the Commission in November

1962.57 These rules, which are discussed in more detail at page 19,

supra, relate to records to be maintained and preserved by registered

investment companies, certain majority-owned subsidiaries thereof,

and other persons having transactions with registered investment companies.

The Chief Accountant and his staff continued to cooperate with

other divisions of the Commission and the industry in the preparation

of a proposal to amend Regulation S-X which would add to that

regulation provisions governing the form and content of financial

statements and related schedules to be filed by life insurance companies.

The Commission's guide to the form and content of financial statements is found in Regulation S-X which is supplemented by a series

of accounting releases. Number 4 in this series was published April

25, 1938, and still is the significant statement of the Commission's

administrative policy on financial statements. This policy was re-emphasized in January 1963, when the Commission found it necessary

to issue an accounting release 56 expressing some views on accounting

for the "investment credit," a new idea in the United States tax law

which stirred up considerable difference of opinion in business and

professional accounting circles.

In view of the substantial diversity of opinion that exists in this

matter, the Commission stated, in its release, that it will accept with

certain limitations either the method endorsed by the Accounting

Principles Board of the American Institute of Certified Public Accountants 59 or the 48-52 percent method or, in the case of regulated industries, the 100 percent flow-through method when authorized or

required by regulatory authorities. This release also specified that the

balance sheet credit should not be made directly to the asset account,

.. December 28, 1962.

Investment Company Act ot 1940, Release No. 3li18 (November 28, 1962) .

.. Accounting Series Release No. 96 (January 10,1963) .

.. Opinion ot the Accounting Principles Board, No. 12 (December 1962).

'"
140 SECURITIES AND EXCHANGE COMMISSION

and that income tax should not be stated in excess of the amount payable for the year, and included other comments regarding adequate

disclosure, details of certain other accounts, and acceptance of appropriately qualified certificates in cases where an alternative accounting

treatment acceptable to the Commission is followed by the registrant.

Shortly before the close of the fiscal year the Commission issued

its Findings, Opinion and Order in Harmon R. Stone, a proceeding

under Rule 2(e) of its Rules of Practice." The Commission found

that Stone, a certified public accountant, had inadequately performed

his professional duties and engaged in activities incompatible with required professional independence. In his audits of a broker-dealer,

Stone omitted many of the Commission's Minimum Audit Requirements applicable to Form X-17A-5 relating to reports of registered

broker-dealers and failed to comply with generally accepted auditing

standards in that he did not properly obtain confirmation of customers' accounts and closed accounts; did not properly balance securi

ties positions or verify securities in transfer; did not take physical

control of all cash, securities and other transferable evidence of ownership and maintain such control until those items were inspected,

counted, and compared with the records and did not perform other

additional verification procedures. Stone's failure to properly perform these procedures negated the effectiveness of his audit; and

consequently his audit fell far short of the objective review required

for the purpose of safeguarding funds and securities of customers and

failed to give the public the protection which an audit is designed to

achieve. Stone's certificates stating that his examinations were made

in accordance with generally accepted auditing standards were accordingly false and misleading. Stone's lack of independence resulted

from the fact that he acquired a personal financial interest in the repayment of loans made by a company in which he was a principal

stockholder to salesmen and customers of his client, a registered

broker-dealer. In reaching its conclusion the Commission took into

consideration the fact that Stone had been a certified public accountant

since 1950. Apart from these proceedings there was no evidence that

his professional conduct had ever been questioned and he submitted statements from a large number of persons who attested to his

character and competence in other accounting work. The Commission did not believe that its findings in these proceedings raised a

basic question as to his personal integrity and noted that Stone responded to its staff's examination into this matter with full cooperation and candor. However, because Stone's conduct constituted a

serious breach of the standards of his profession and of his responsieoAccounting Series Release No. 97 (May 21, 1963).

-
TWENTY-NINTH ANNUAL REPORT 141

bilities to the Commission and to the public, which cannot be condoned, he was denied the privilege of practicing before the Commission for a period of 60 days.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVEWPMENT

Section 15 of the Bretton Woods Agreements Act, as amended,

exempts from registration under both the Securities Act of 1933 and

the Securities Exchange Act of 1934 securities issued, or guaranteed

as to both principal and interest, by the International Bank for R~-

construction and Development. The Bank is required to file with the

Commission such annual and other reports with respect to such securities as the Commission shall determine to be appropriate in view

of the special character of the Bank and its operations and necessary

in the public interest or for the protection of investors. The Commission has, pursuant to the above authority, adopted rules requiring

the Bank to file quarterly reports and also to file copies of each annual

report of the Bank to its board of governors. The Bank is also required to file reports with the Commission in advance of any distribution in the United States of its primary obligations. The Commission, acting in consultation with the National Advisory Council on

International Monetary and Financial Problems, is authorized to

suspend the exemption at any time as to any or all securities issued

or guaranteed by the Bank during the period of such suspension.

During the Bank's last fiscal year, ending June 30, 1963,the Bank

made 28 loans totaling the equivalent of $448.7million, compared with

a total of $882.3million last year. The loans were made in Colombia

(3 loans), Cyprus, EI Salvador, Finland, India, Israel, Mexico,

Morocco, Nicaragua, Nigeria, Pakistan (3 loans), Panama, Peru,

Philippines (2 loans), Singapore, Swaziland, Thailand (4 loans),

Uruguay and Yugoslavia (2 loans). This brought the gross total

of loan commitments at June 30, to $7,121.5million. By June 30, as a

result of cancellations, repayments, sales of loans and exchange adjustments, the portions of loans signed and still retained by the Bank

had been reduced to $4,712.3million.

During the year the Bank sold or agreed to sell $273.3 million

principal amount of loans. On June 30, the total sales of loans

amounted to $1,605.3 million, of which all except $69 million was

without the Bank's guarantee.

The outstanding funded debt of the Bank amounted to $2,519.2

million on June 30, 1963, reflecting a net decrease of $1.6 million in

the past year. During the year there was a gross increase in borrowings of $124 million. This consisted of a Netherlands guilder public

bond issue in the amount of f.40 million (US$ll million equivalent) ;
142 SECURITIES AND EXCHANGE COMMISSION

a public offering of $5 million of U.S. dollar bonds in Austria, and

a placement of $5 million of U.S. dollar notes with the central bank

of Austria: the private placement of an issue of $100 million of U.S.

dollar bonds; and the delivery of $3 million of bonds which had been

subject to delayed delivery arrangements. The funded debt was

decreased by $125.6 million as a result of the maturing of the equivalent of $107.8million of bonds, and of sinking fund and purchase fund

transactions amounting to $17.8million.

During the fiscal year, Ivory Coast, Jamaica, Kuwait, Niger, Senegal, Sierra Leone, Somalia, Tanganyika, Togo and Upper Volta

became members of the Bank with subscriptions aggregating $245

million. On June 30, 1963, the Bank had 85 members with capital

subscriptions totaling $20,729.8million.

INTER.AMERICAN DEVEWPMENT BANK

The Inter-American Development Bank Act, which authorizes the

United States to participate in the new Inter-American Development

Bank, provides an exemption for certain securities which may be

issued by the Bank similar to that provided for securities of the

International Bank for Reconstruction and Development. Acting

pursuant to this authority, the Commission adopted Regulation I.A,

which requires the Bank to file with the Commission substantially the

same information, documents and reports as are required from the

International Bank for Reconstruction and Development. The Bank

is also required to file a report with the Commission prior to the sale

of any of its primary obligations to the public in the United States.

During the year ended June 30, 1963, the Bank made 22 loans totaling the equivalent of $146,109,191from its ordinary capital resources,

bringing the gross total of loan commitments outstanding at June

30, to 69 loans aggregating $294,966,049. During the year, the Bank

sold or agreed to sell $4,749,772 in 'participations in the aforesaid

loans, all of such participations being without the guarantee of the

Bank. The loans from the Bank's ordinary capital resources were

made in Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico,

Paraguay, Peru, Uruguay, and Venezuela.

During the year the Bank also made 13 loans from its Fund for

Special Operations totaling the equivalent of $49,588,927, bringing

the gross total of loan commitments outstanding at June 30,to 33 loans

aggregating $116,908,031. The Bank made 28 loans during the year

from the Social Progress Trust Fund, which it administers under an

Agreement with the United States, aggregating $124,125,000,bringing

the gross total of loan commitments outstanding at June 30, to 64

loans aggregating $347,912,000.
TWENTY-NINTH ANNUAL REPORT 143

During the year the Bank made its first sale of its primary obligations in the United States with a public issue of dollar bonds in the

amount of $75 million.

The outstanding funded debt of the Bank on June 30, 1963, was the

equivalent of $99,193,548, composed of $75 million resulting £rom

the sale of dollar bonds and Italian lire equivalent to $24,193,548

resulting £rom the sale of bonds in Italy in April 1962.

The subscribed capital of the Bank on June 30,1963, was the equivalent of $813,160,000, of which $431,580,000 represented callable

capital.

STATISTICS AND SPECIAL STUDIES

During the past fiscal year the Branch of Economic Research continued its regular work in connection with the statistical activities of

the Commission and the overall Government statistical program under

the direction of the Office of Statistical Standards, Bureau of the

Budget. In addition, the Branch of Exchange Regulation continued

its compilation of data on the stock market.

The statistical series described below are published in the Commission's Statistical Bulletin and in addition, except for data on

registered issues, on corporate pension funds, and on the stock market,

current figures and analyses of the data are published in quarterly

press releases.

Issues Registered Under the Securities Act or 1933

Monthly statistics are compiled on the number and volume of

registered securities, classified by industry of issuer, type of security,

and use of proceeds. Summary statistics for the years 1935-63 are

given in Appendix Table 1 and detailed statistics for the fiscal year

1963 appear in Appendix Table 2.

New Securities Offerings

This is a monthly and quarterly series covering all new corporate

and noncorporate issues offered for cash sale in the United States.

The series includes not only issues publicly offered but also issues

privately placed, as well as other issues exempt from registration

under the Securities Act such as intrastate offerings and railroad

securities. The offerings series includes only securities actually offered for cash sale, and only issues offered for account of issuers.

Annual statistics on new offerings for recent years as well as monthly

figures £rom January 1962, through June 1963, are given in Appendix

Tables 3, 4, and 5.

Estimates of the net cash flow through securities transactions are

prepared quarterly and are derived by deducting £rom the amount of

estimated gross proceeds received by corporations through the sale
144 SECURITIES AND EXCHANGE COMMISSION

of securities the amount of estimated gross payments by corporations

to investors for securities retired. Data on gross issues, retirements

and net change in securities outstanding are presented for all corporations and for the principal industry groups.

Individuals' Saving

The Commission compiles quarterly estimates of the volume and

composition of individuals' saving in the United States. The series

represents net increases in individuals' financial assets less net increases in debt. The study shows the aggregate amount of saving

and the form in which the saving occurred, such as investment in

securities, expansion of bank deposits, increases in insurance and

pension reserves, etc. A reconciliation of the Commission's estimates

with the personal saving estimates of the Department of Commerce,

derived in connection with its national income series, is published

annually by the Department of Commerce as well as in the Securities

and Exchange Commission Statistical Bulletin.

Corporate Pension Funds

An annual survey is made of pension plans of all United States

corporations where funds are administered by corporations themselves, or through trustees. The survey shows the flow of money into

these funds, the types of assets in which the funds are invested and

the principal items of income and expenditures.

Financial Position of Corporations

The series on the working capital position of all United States corporations, excluding banks, insurance companies and savings and

loan associations, shows the principal components of current assets

and liabilities, and also contains an abbreviated analysis of the sources

and uses of corporate funds.

The Commission, jointly with the Federal Trade Commission,

compiles a quarterly financial report of all United States manufacturing concerns. This report gives complete balance sheet data

and an abbreviated income account, data being classified by industry

and size of company.

Plant and Equipment Expenditures

The Commission, together with the Department of Commerce, conducts quarterly and annual surveys of actual and anticipated plant

and equipment expenditures of all United States business, exclusive

of agriculture. After the close of each quarter, data are released on

actual capital expenditures of that quarter and anticipated expenditures for the next two quarters. In addition, a survey is made at the

beginning of each year of the plans for business expansion during

that year.
TWENTY-NINTH ANNUAL REPORT 145

Directory of Registered Companies

The Commission annually publishes a listing of companies required to .file annual reports under the Securities Exchange A.ct of

1934. In addition to an alphabetical listing, there is a listing of

companies by industry group classified according to The Standard

Industrial Classification Manual.

Stock Market Data

The Branch of Exchange Regulation regularly compiles statistics

on the market value and volume of sales on registered and exempted

securities exchanges, round-lot stock transactions on the New York

exchanges for accounts of members and nonmembers, odd-lot stock

transactions on the New York exchanges, special offerings and secondary distributions. It also computes indexes of stock market

prices each week based upon the closing market prices of common

stocks listed on the New York Stock Exchange. This stock price

index and data on round-lot and odd-lot trading on the two New York

exchanges are released weekly. The other statistical data mentioned

above, as well as these weekly series, are published regularly in the

Commission's Statistical Bulletin.

OPINIONS OF THE COMMISSION

Administrative proceedings under the statutes administered by the

Commission and under its Rules of Practice generally culminate in

the issuance of an opinion by the Commission, which includes findings of fact and conclusions of law. The' extent to which the factual

and legal issues are discussed in these opinions depends largely on

their importance and novelty.

In the preparation of opinions, the Commission, or the individual

Commissioner to whom a case may be assigned for the preparation

of an opinion, is generally assisted by the Office of Opinion Writing.

This Office is directly responsible to the Commission and is completely

independent of the operating divisions, consistent with the principle

of separation of functions embodied in the Administrative Procedure

Act. Where the parties to a proceeding waive their right to such

separation, the operating division of the Commission which participated in the proceeding may assist in the drafting of the Commission's decision.

The Commission's opinions are publicly released and are distributed

to the' press and to persons on the Commission's mailing list. In

addition, they are printed and published periodically by the Government Printing Office in bound volumes entitled "Securities and

Exchange Commission Decisions and Reports."

717-943-64-11
146 SECURITIES AND EXCHANGE COMMISSION

DISSEMINATION OF INFORMATION

The dissemination of information included in the various corporate

reports and financing proposals filed in compliance with the securities

laws is an important function of the Commission. The information in such reports and proposals, which are public documents available for inspection by investors and other interested persons, is not

only reprinted and circulated through the medium of published

securities manuals but is frequently and widely reported in business

and financial sections of newspapers and national magazines.

In order to keep the public better informed of the pertinent information included in the corporate financing and other proposals filed

with the Commission as well as actions taken by it under the securities

laws, the Commission issues a daily News Digest containing a resume

of each filing, as well as a summary of each order, decision or other

action of the Commission. The Digest is not only made available

to the press, but is also distributed on a subscription basis by the Government Printing Office to some 2,169 investors, securities firms and

other interested persons. During the year, the Digest included a resume of each of the 985 registration statements filed with the Commission

(not including investment company filings which added additional

securities by way of amendments to previous statements) ; and it also

included summaries of the 1,293 orders, decisions, rules and other

actions of the Commission. The Commission also makes a more limited distribution of the full text of its decisions and other pronouncements to registrants, practicing lawyers and others.

Members of the Commission and its staff frequently deliver addresses before professional, business and other groups, and participate

in "briefing" and other conferences in order to explain important rules

and policies and otherwise contribute to a better understanding of the

role of the Commission by individuals and firms subject to its jurisdiction as well as by the investing public.

Information Available for Public Inspection

The many thousands of registration statements, applications, declarations, and annual and other periodic reports filed each year .are

available for public inspection at the Commission's principal office in

Washington, D.C. Inaddition, copies of recent reports filed by companies having securities listed on exchanges other than the New York

Stock Exchange and the American Stock Exchange, and copies of current reports of many nonlisted companies which have registered securities for public offering under the Securities Act, may be examined in

the Commission's New York regional office; and recent reports filed

by companies whose securities are listed on the New York and American Stock Exchanges may be examined in the -Commission's Chicago
TWENTY-NINTH ANNUAL REFORT 147

regional office. Moreover, there are available for examination in all

regional officescopies of prospectuses relating to recent public offerings

of securities registered under the Securities Act; and all regional offices

have copies of broker-dealer annual financial reports and Regulation

A letters of notification filed in their respective regions. Reports of

companies whose securities are listed on the various exchanges may be

seen at the respective exchange offices.

Inorder to facilitate a wider dissemination of financial and other

information contained in corporate reports filed with the Commission

under the Federal securities laws (an objective strongly urged by the

Special Study Report), the Commission has arranged to take standing

orders, on an experimental basis, for photocopies of Form 1D-K annual

reports filed. This service may be extended later to other reports,

depending upon public reception and the experience gained in supplying copies of annual reports.

Under a new contract with Cooper-Trent, Inc., for reproducing material in the Commission's files in response to requests of members of

the public, photocopies may now be obtained at a reduced cost of 111;2

cents for pages not exceeding 81;2" x 14" in size (plus postage). A

detailed Table of Charges may be obtained from the Section of Public

Reference. The charge for each certification of any such document by

the Commission is $2.

So that corporate reports may be more readily available for examination by interested members of the public, the Commission also has made

arrangements for the Form lO-K annual reports to be placed on open

shelves in the public area of its public reference room in Washington,

D.C., thus making these reports available for immediate inspection.

Moreover, a coin-operated photocopier has been installed which will

enable vistors to make immediate reproductions of these and other

reports at a cost of 25 cents per page. Reproductions prepared by

this method can not be certified by the Commission.

Each year many thousands of requests for photocopies of and information from the public files of the Commission are received by the

public reference room in Washington, D.C. During the year 5,009

persons examined material on file in the Washington, D.C. office, and

several thousand others examined files in the New York and Chicago

regional offices. About 249,424 photocopy pages were sold pursuant

to 4,120 individual orders.

PUBLICATIONS

In addition to the daily News Digest, and releases concerning Commi~sion action under the Acts administered by it and concerning Iiti-
148 SECURITIES AND EXCHANGE COMMISSION

gation involving securities violations, the Commission issues a number

of other publications, including the following:

Weekly: Index of Weekly Closing Prices.

Monthly:

Statistical Bulletin."

, Official Summary of Securities Transactions and Holdings of Officers, Directors and Principal Stockholders."

Quarterly:

Financial Report, U.S. Manufacturing Corporations" (jointly with the Federal Trade Commission) .

Plant and Equipment Expenditures of U.S. Corporations (jointly with the

Department of Commerce).

New Securities Offerings.

Volume and Composition of Individuals' Saving.

Working Capital of U.S. Corporations.

Annually:

Annual Report of the Commission."

Securities Traded on Exchanges under the Securities Exchange Act of 1934.

List of Companies Registered under the Investment Company, Act of 1940.

Classification, Assets and Location of Registered Investment Companies under the 1940 Act.

Corporate Pension Funds.

Directory of Companies Filing Annual Reports."

Other Publications:

Decisions and Reports of the Commission."

Securities and Exchange Commission-Its Functions and' Activities.

A Study of Mutual Funds (by The Wharton School)."

Report of Special Study of Securities Markets."

ORGANIZATION'

The Commission's staff consists of attorneys, security analysts, accountants, engineers, investigators and administrative and clerical personnel.

The following organizational changes have been made since June 30,

1962, in accordance with the Commission's policy of continuing review

of its organization and functional alignments:

As noted in last year's report," a Branch of Investment Company

Inspections was established in the Division of Corporate Regulation in July 1962, to plan and supervise the Commission's investment

company inspection program. In December 1962, this Branch was

assigned the responsibility for investigations and enforcement actions

with respect to investment companies, and is now called the Branch of

Investment Company Inspections and Investigations. In the same

month, the Assistant Director of the Division of Corporate Regulation

'with responsibility for the Commission's functions under the Public

"Must be ordered from the Superintendent of Documents, Government Prlntlng Oftice,

Washington, D.C., 20402.

on28th Annual Report, p. 164.
TWENTY-NINTH ANNUAL REPORT 149

Utility Holding Company Act of 1935, was also given responsibility forits functions under Chapter X of the Bankruptcy Act; and a staff unit

was established to assist the Commission in policy planning under theInvestment Company Act of 1940.

There was a realignment of functions in the New York Regional

Office in August 1962, involving principally the consolidation of enforcement activities under an Assistant Regional Administrator and

the appointment of another Assistant Regional Administrator with

responsibility for the Commission's functions under Chapter X of the

Bankruptcy Act and for the investment company and investment adviser inspection programs.

Subsequent to the end of the fiscal year, certain organizational

changes were effected pursuant to recommendations of the .special

Study of Securities Markets. A new Office of Program Planning was

organized, whose functions have been described on an earlier page."

In addition, the Division of Trading and Exchanges was renamed the

Division of Trading and Markets, and its functions were realigned.

As reconstituted, the Division consists of six units-The Offices of

Chief Counsel, Criminal Reference, Enforcement, Regulation, Special

Proceedings, and Statistical Studies.

PERSONNEL AND FINANCIAL MANAGEMENT

The recruitment program of the Commission is designed to attract

outstanding college and law school graduates for starting professional

level positions such as financial analyst, attorney and investigator.

The passage of the Federal Salary Reform Act of 1962, helped to

alleviate the disparity between the Government and private industry

as to starting salaries, and the Commission was successful in appointing to its staff a number of well-qualified applicants.

The average grade level of positions in the Commission as of June

30, 1963, was G8-9.63, compared with G8-S.76 for 1962. This was

a relatively small increase, considering the fact that more than 65 percent of the positions are in the professional category and ever- increasing duties and responsibilities are being assigned to the incumbents.

To better acquaint supervisory personnel and other employees with

the provisions of the Federal Salary Reform Act of 1962, the Commission's Director of Personnel conducted a series of 10 meetings with

employees of the Headquarters Office. Written guidelines for determining the new standard of "acceptable level of competence" for

periodic step increases, and for granting within-grade step increases

for quality performance were approved by the Commission and published on May 24, 1963.

.. See pages 126-127. Bvpra.
150 SECURITIES AND EXCHANGE COMMISSION

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The Commission continued to supplement its on-the-job training

of newly appointed professional employees with more formalized

training sessions conducted after office hours. This permitted utilization of senior officials as lecturers or instructors; solved classroom space

problems; 'and enabled work production to continue without interruption. Several of the regional offices conducted instructional

sessions for newly employed attorneys and investigators and the

Division of Corporate Regulation sponsored one-week sessions on the

Investment Company Act of 1940 in the New York, Chicago and San

Francisco Regional Offices.

New or revised personnel policy statements were issued dealing with

such subjects as appeals from adverse actions, employee management

cooperation, equal employment opportunity and position classification. The Office of Personnel also published and distributed to the

staff an employee handbook containing information on the personnel

policies of the Commission, including its Regulation Governing the

Conduct of Members and Employees and Former Members and

Employees.

At the Commission's Seventh Annual Service and Merit Awards

Ceremony, held in October 1962, the Commission recognized the long

service of its career employees by presenting pins to 22 employees

with 25 years of Commission service. An additional 62 employees

received 20- 15- and lO-year service pins. Length-of-service pins were

also awarded to employees for combined Federal service. One employee received a pin for 35 years, 3 employees for 30 years, 11 employees for 25 years, 41 employees for 20 years, 25 employees for 15

years and 39 employees for 10 years. Cash awards totaling $8,955

and certificates of merit were presented to 83 employees. Twenty-four

employees were granted additional within-grade increases in recognition of high quality performance.

The Commission is singularly proud of the special recognition which

has been accorded certain members of the staff. Mention has already

been made of the commendation of Ralph H. Tracy and Allen S.

Kilmer, of the Division of Corporation Finance, by the United States

District Court for the Southern District of New York, for their participation in the United Dye and Chemical Corporation case. 53 In

May 1963, Andrew Barr, Chief Accountant of the Commission, was

elected to the Accounting Hall of Fame, sponsored by Ohio State University. Elections to the Hall of Fame (there have been 27 since its

inception in 1950) are by a Board of Nominations that includes 15

public accountants, 15 educators, and 15 industrial and governmental

.. See pages 124-125. supra.
152 SECURITIES AND EXCHANGE COMMISSION

accountants. Bases for election include recognition as an authority

in a particular field of practice, advancement of accounting education,

public service, contributions to accounting literature, and service to

professional organizations. The Accounting Hall of Fame was

established "for the purpose of honoring accountants of North America

who have made or are making significant contributions to the advancement of accounting since the beginning of the twentieth century." In

April 1963, the Washington Chapter of the Federal Government Accountants Association selected Sydney C. Orbach, Chief Accountant

of the Division of Corporation Finance, as the recipient of an Outstanding Achievement Award for 1963.

The following comparative table shows the personnel strength of

the Commission as of June 30, 1962and 1963:

June 30, 1003 June 30, 1962

Commlssloners __________________________________________________________ 5 5

Bta1f.Headquarters office__________________________________________________ 861 862 Regional offices______________________________________________________ 522 469

Total staff_________________________________________________________ 1,383 1,331

Orand total. ______________________________________________________ 1,388 1,336

The table on page 153 shows the status of the Commission's budget

estimates for the fiscal years 1959 to 1964, from the initial submission to the Bureau of the Budget to final enactment of the annual

appropriation.

The Commission is required by law to collect fees for registration

of securities issued, qualification of trust indentures, registration of

exchanges, and sale of copies of documents filed with the Commission.sf

The following table shows the Commission's appropriation, total

fees collected, percentage of fees collected to total appropriation,

and the net cost to the taxpayers of Commission operations for the

fiscal years 1961,1962and 1963:

Percentage of

tees collected Net cost of

Year Appropriation Fees collected to total Commlsslon

appropriation operations (percent)

196L___________________________________$9,517,500 $2,927,407 31 $6,590,093 1962____________________________________11,412,500 3,422,403 30 7,990,097 1003____________________________________13,261,700 2,533,986 19 10,727,714

.. Pzlnelpal rates are (1) 1/100 of 1 percent of the maximum aggregate price of securities proposed to be olfered but not less than $25; (2) 1/500 of 1 percent of the aggregate

dollar amount of stock transactions. Fees for other services are only nominal.
TWENTY-NINTH ANNUAL REPORT 153

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PART XII

APPENDIX

STATISTICAL TABLES

TABLE ~-A 29-year reaard of registrations ful1Jy effective under the Securities

Act of 1933

1935-1963

[Amounts In millions of dollars]

For cash:sale (or account o( issuers Number

Fiscal year ended June 30 of All regis.

state- tratlons Bonds, Preferred COIDlIlOIlments i Total deben tures, stock stock and notes

1935 , ._. 1938 284 $913 $686 $400 $28 $168

1937 689 4,835 3,936 3,153 252 531

1938___________________________ 840 4,851 3,635 2,426 406 802

1939 412 2,101 1,349 666 209 474

1940___________________________ 344 2,579 2,020 1,593 109 318

1941 306 1,787 1,433 1,112 110 210

1942 ._ 313 2,611 2,081 1,721 164 196

1943 193 2,003 1,465 1,041 162 263

1944 123 659 486 316 32 137 221 1,760 1,347 732 343 272 1945.

1946 340 3,225 2, 715 1,851 407 456 661 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

1950___________________________ 429 5,333 4,204 2, 795 326 1,083 487 5,307 4,381 2, 127 468 1,786 1951. __________________________ 487 6,459 5,169 2,838 427 1,904 1952___________________________ 1953___________________________ 635 9,500 7,529 3,346 851 3,332

1954___________________________ 593 7,507 6,326 3,093 424 2,808

1955 631 9,174 7.381 4,240 531 2,610

1956___________________________ 779 10,960 8,277 3,951 462 3,864

1957___________________________ 906 13,096 9,206 4,123 539 4,544

1958 876 14,624 12, 019 5,689 472 5,858 813 16,400 13,281 6,857 427 5,998 1959

1960 1,070 15,657 12,095 5,265 443 6,387

1961 1,426 14,367 11,738 4,224 253 7,260

1,550 19,070 16,260 6,162 248 9,850 1962 1.844 19,547 16,286 4,512 253 11,521 1963___________________________ 1,157 14,790 11,869 4,372 270 7,227

I Statements registering American Depositary Receipts ag.ainst outstanding foreign securities as provided

by Form S-12 are Included

For 10 months ended June 30, 1935.

157

__________ __•_____• ___ ________• __• _______________

__________________• ___• ____

____• ______________________

________• __________________

____________• ____________

____________•• __• __________ ________• ________________• _

___________• _______• ______ ______• ____________________

_______________________• __

____________• ___• ___• ______ _________• __• __________•• __

__________________• ________

________________________• __

____•_____• ________________ ____________• ______________

________________• __________

_____•• ______• ___• __• ______

•

•
158 SECURITIES AND EXCHANGE COMMISSION

TABLE 2.-Regi8tratiQn8 fully effective under the Securities Act of 1933, ftscal

year ended June 30, 1963

PART l.-DISTRIBUTION BY MONTHS

[Amounts In thousands of dollars ']

All registrations Proposed for sale for account of issuers'

Total' Corporate 4

Year and month Number Number

of state. of Amount ments issues Number Number

of Amount of Amount

Issues' issues'

1961 July ______________________ August 101 121 $977,528 93 $816,695 47 $272,014 ___________________ 97 115 1,227,578 85 929,030 53 453,315 September _______________ 96 130 792,430 102 658,307 60 306,043 October __________________ 101 124 1,111,257 99 961,107 63 645,990 November _______________ 82 101 1,200,766 69 915,366 41 293,755 December ________________ 86 105 913,770 87 528,043 53 267,170

1969 January __________________ 83 98 1,049,420 85 740,925 47 390,370 February ________________ March 71 88 1,114,640 65 979,302 37 298,655 ___________________ 80 92 1,701,646 74 1,484,138 36 639,903 AprIL ____________________ May 141 163 1,898,778 134 1,657,256 41 461,860 _____________________ 126 138 1,946,959 119 1,472,972 46 628,975 June _____________________ 93 108 854,824 85 725,522 43 427,787

---- Total, fiscal year 1963______________

1

'1,157 1,383 14,789,595 1,097 11,868,662 567 '5,085,836

PART2.-PURPOSE OF REGISTRATION AND TYPE OF SECURITY

[Amounts In thousands of dollars']

Type ofsecurity

Purpose of registration All types

I Bonds, de- Preferred Common

bentures, stock stock'

and notes 7

A.II registrations (estimated value) _________________ $14, 789, 595 $4,569,064 $432,803 $9,787,729

For account of issuer for cash sale ______________ 11,868,662 4,371,619 270,354 7,226,689

For Immediate offering 4_ 5,352,294 4,275,749 222,430 854,115

Corporate 5,085,336 4.019,712 212, 009 854,115

Offered to: General public _________________ 4,694,361 3,991,314 195,907 507,140 Security holders ________________ 373,757 27,273 16,102 330,382 Other special groups ___________ 17,718 1,125 0 16,593

Foreigu govemments ._ 266,458 256,037 10,421 0

For extended cash sale and other issues 6,516,367 95,870 47,924 6,372,574

For account of issuer for other than cash sale ___ 1,782, 280 181,858 95,861 1,504,561

For account of other than issuer ________________ 1,188,653 15,587 66,588 1,056,479

For cash sale_____________________ ._. _______ Other ____________________ 965,478 8,478 3,843 953,157

173,176 7,109 62,745 103,322

Bee footuotes at end of part 4 of table.

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______•__________

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____• •____________
TWENTY-NINTH ANNUAL REPORT 159

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166 SECURITIES AND EXCHANGE COMMISSION

TABLE 4.-Proposea uses of net proceeds from the sale of new corporate securities

offered for cash in the United States

PART I.-ALL CORPORATE

[Amounts In thousands of dollars ')

Proceeds New money

Calendar year or Retire- Other month 2 ment or purposes Total gross Total net Total new Plant and Working securities proceeds , proceeds , money equipment capital

1958______________________ 11,558,343 11.371. 563 9,907.135 7,792,008 2.115.127 548,952 915,475 1959 9.748.069 9.526,631 8,577,764 6,084,152 2,493,612 134,548 814,319 1960______________________ 10,153,980 9,923,779 8,758,240 5,661,567 3,096,673 270,784 894,755 1961. 13,147,279 12,874,167 10,829,087 7,539,489 3,289,598 895,231 1,149,849 1962______________________ 10,769,609 10.571.508 8,323,364 5,701,092 2.622,272 757,211 1,490,932

1961 January. _________________ 647,264 631,924 507,166 326,198 180,968 39,479 85,279 February 883,533 865,820 792,001 641,865 150,136 6,851 66,968 March.

A 846,906 822,607 709,407 458,250 251,157 15,916 97,284 prll _____________________

May 1,216,982 1,185,003 1,032,903 753,421 279,482 72,016 80,084

801,097 784,966 620,950 435,248 185,703 24,963 139,053 June. ._. ._ 1,232,496 1,214,338 952,698 712,791 239,906 81,930 179,710 July ______________________ 630.183 620,727 504,153 329,099 175.053 38,755 77,820 August 921,661 907,344 619,757 382,486 237,271 158,690 128,898 September _______________ 632 197 617,882 440,996 314,500 126,496 38,625 138,261 October __________________ 976,256 960,731 726866 467,456 259,409 125,572 108,293 November _______________ 784,414 776,260 493,698 263,429 230,269 73,125 209,437 December ________________ 1,196,619 1,183,905 922.770 616,350 306,421 81,291 179,844

1968 January __________________ 694,811 684,390 562,801 378,138 184,663 71,692 49,897 February ________________ 642,317 631,452 448,217 319,456 128,761 36,966 146,269 March ___________________ 1,363,267 1,348,895 1,055,535 755,409 300,126 204,922 88,438 A pnl, ____________________ May 1,048,532 1.034.054 811,989 528,538 283,451 103,746 118.318 _____________________ 1,339,626 1,322,757 829,953 497,844 332,109 419,250 73,555 June _____________________ 1,245,784 1,230,452 783,179 511,996 271,183 216,978 230,295

PART 2-MANUFACTURL"'O

195.q______________________13, 515 407 3,459,399 2,851,033 2.027,328 823,705 194,629 413,738 11159______________________, ., ,,7., 820 2, OIl, 306 1,684,071 863,709 820,362 70,419 256,815

1960______________________ 2.152,419 2,076,267 1,710,743 944,632 766,111 79,327 286,196 1961. _____________________ 4,111,683 4,014,274 3,059,739 1,921,751 1,137,988 305,925 648,611 1962______________________ 3.283,413 3,224,267 2,202,963 1,244,724 958,239 204,130 817,173

January ___~~~_. _________1 224, '121 219,l~o 186.402 103,186 83.216 13.812 18,964 February ._ March 13°, ....~8 133,086 I Q9.316 52, 650 36,665 2,069 41,702 _______________._ .. A 32'"',406 320,6;7 280,036 141,567 138,469 2,412 38,209 prlL _. _________________ May 462,666 450,814 3.'5,095 206,238 148.857 67,250 28,468 _____________________ 278,633 274,816 1-'4,895 72,674 82,221 5,104 114,817 J une 361,224 355,611 290,167 198,477 91,690 13,1l.'l8 51,505 July ... ___________________ 250,306 247,494 154,676 84,000 70,676 30,500 6~,318 August ___________________ 225,814 222,544 147,159 62,388 84,771 4,052 71.333 September _______________ 189,939 187,132 152,015 113,430 38,585 21,197 13,920 October ,_ 166,710 162,929 85,088 35,039 50,049 9,762 68,079 N ovem ber ________________ 275.086 273,377 84,735 47,584 37,151 2,761 185,881 December 380,579 376,628 223,379 127,491 95,888 31,272 121,9i7

1963 January __________________ 142,265 139.392 105,814 59,581 46,233 4,662 28,915 February _. 228,358 225,591 145,841 89,575 56,267 5,570 74,179 March ___________________ 630,338 623,666 536,334 389,574 146,760 31,283 56,049 A prtl;____________________ May 155,562 153,347 109,018 65,056 43,961 Ii,053 39,277

247,548 244,965 195,233 39.872 15.6,361 29,113 20,619 June _. _. _. 238,776 236,682 188,719 62,933 125,786 9,676 38,286

See footnotes at end of table.

_______• _______• ______

______________• ______

_____________ • __

___• ___________•• _

______• __•• ______• ___

_______ __• _____

___________•• ______

_•• ___________

______________• ______

____________• ___

•• _____________•

___________• __

___• _________________

•• _________• ___
TWENTY-NINTH ANKUAL REPORT 167

TABLE 4.-Proposoo uses of net proceeds from the sale of new corporate securities

offered for cash in the United States-Continued

PART 3.-EXTRACTIVE

(Amounts In thousands of dollars I]

Proceeds New money Calendar year or Retire. Other

month. ment of purposes

TotaIgross Total net Total new Plant and Working securities proceeds • proceeds • money equipment eaprtal

1958 246,565 239,274 184,092 95.221 88.871 2,033 53,149 1959_._. 161,396 154, 495 119,555 39,190 80,365 12,245 22.695 1960. 245,682 239.469 154,216 71,338 82.879 8, 476 76,777 1961 261,386 256,241 181,642 88,106 93,536 2,724 71,875 1962______________________ 225,106 220,655 202,522 92,227 110,296 3,786 14,348

1981 January 15,388 15,066 13,373 5,164 8,209 500 1,194 Fehruary 12,614 11,994 7,402 2,432 4,969 0 4,592 March. _. ________________ 15,528 14, 999 14,881 3,260 11,620 0 118

tfa~::::::=======::===== 14,691 14,049 10,229 2,021 8, 208 0 3.820 36,867 36,204 34,811 29,631 5,179 150 1,244 June 23,099 23,027 20,418 8. 412 12,006 652 1,957 July 4,960 4,889 4,820 1,070 3,750 0 69 August, __________________ 450 405 338 135 202 0 68 September 20,549 19,648 18,988 8,685 10,303 0 660 October 21,402 21,110 20,642 12,054 8,589 0 468 November _______________ 8,236 8,143 8,098 1,248 6,849 0 45 December 51,322 51,120 48,524 18,114 30,410 2,484 112

1968 January 17,010 16,745 16,509 2,667 13,842 116 120 February 24,421 24,038 6,110 589 5,521 0 17,928 March_. _________________ 11,034 10,847 9,101 3,038 6,063 499 1,248 A PrJ!. 16,125 15,620 11,167 2,064 9,103 0 4,454 May _____________________ 2,693 2,659 2,659 2,551 107 0 0 J une; , ___________________ 83,027 81,106 60,475 54,405 6,070 155 20,476

PART 4.-ELECTRIC, GAS AND WATER

1958 3,804,105 3,743,395 3,441,074 3,411,355 29,719 138,392 163,928 1959______________________ 3,257,790 3,204,000 3,056,634 3,036,644 19,990 15.260 132,205 1960 2, 851, 215 2,805,315 2,655,559 2,624,059 31,500 51,170 98, 587 1961 3.039,442 2.996.763 2,8118.861 2,792,792 16,070 104.394 83.507 1962 2,841,565 2,801,802 2,199,409 2,162,394 37,015 444,631 157,762

1961 January ._ 115,747 113,414 83,859 83,822 37 24, 000 5,554 February ________________ 152,837 151,303 147,545 146,710 836 3,757 0 March. ____._. ___________ 196.541 194.078 191,920 191,588 332 1,082 1,077

tfa~:::==================

382,753 376,726 376,726 376,495 231 0 0

216,943 213,600 195,122 192,911 2,211 15,940 2,537 June. 472,979 466,398 332,996 332.934 62 56,161 77,241 July ______________________ 123,972 122,337 117,682 116,613 1,069 4,464 191 August.; _________________255,092 251,902 106,334 101,883 4,451 142,332 3,236 September _______________ 164,651 161,396 100,592 100,046 547 13,757 47,047 October 252,429 248,540 128,146 112,688 15,459 107,962 12,431 November 227.810 225,141 172,218 171,219 999 49,866 3,057 December ________________ 279,810 276,968 246,267 235,486 10,781 25.310 5,390

1968 January __________________ 181.385 178,932 113,651 70,410 43,241 64,736 546 February 146.533 144.745 114,897 108.897 6.000 29,848 0 March 161,161 157,718 97,064 96,966 98 60,654 0 A pril. 433,637 427,733 341,139 341,029 110 85,704 890 May 283,064 279,760 221,037 220,700 337 57,544 1,179 J une 413,442 409,007 218,873 218,873 0 179,484 10,650

See footnotes at end of table.

___• ____•• ______•_____

___•• _______•_____

__• ___••• ______•__• __ ___• _________• ________

__ • ______________

___ • _______• ____

______• __• ___•••• ___• __________________• ___

_____ • _________ ___• ______________

_______________•

_________________•

_•• _____________

•• __________________

___________• _____•____

_______________• ______ _________• ______•• ____ _________________•____

__• _________• ___

__• _______•______•• _

_____________• ____

____ • __________

__•• ____________

________• _______• __ _________• __________

______• ___• __________ __________• __________
168 SECURITIES AND EXCHANGE COMMISSION

TABLE 4.-Prop08ed U8e8ot net proceeas trom the eoie ot new corporate seeurtue«

offered tor caeh.in the United State8-Qontinued

PART 5.-RAILROAD

[Amounts In thousands of dollars 1]

Proceeds New money Calendar year or Retlre- Other

month' ment of purposes Total gross Total net Total new Plant and Working securtttes proceeds' proceeds' money equipment eapttal

1958______________________ 238,352 235,542 206,381 188,784 17,597 29,161 0 1959______________________ 1960______________________ 173,913 172,244 172,244 169,314 2,930 0 0

196L _____________________ 211,244 209,146 174,485 174,485 0 34,661 0 178,693 176,868 148,348 148,148 200 21,271 7,250 1962______________________ 239,018 236,637 199,527 189,986 9,541 28,609 8,500

1961 January __________________ 11,822 11,727 11,727 11,727 0 0 0

K::c':,~~ 17,396 17,239 17,239 17,239 0 0 0

A 19,501 19,330 19,330 19,330 0 0 0 prtl, ____________________ May _____________________ 7,248 7,191 7,191 7,191 0 0 0

June _____________________ 11,565 11,472 11,472 11,472 0 0 0 17,514 17,347 17,347 17,347 0 0 0 July ______________________ 9,435 9,359 9,359 9,359 0 0 0 August. __________________ 56,329 55,725 55,725 55,725 0 0 0 September _______________ 20,096 19,907 19.907 19,907 0 0 0 October __________________ 5,921 5,870 5,870 5,870 0 0 0 November _______________ 25,000 24,676 9,406 0 9,406 15,270 0 December ________________ 37,191 36,794 14,955 14,820 135 13,339 8,500

1963 January __________________ 29,388 29,154 29,154 29,154 0 0 0 February _________________ 13,885 13,771 13,771 13,771 0 0 0 March ___________________ 43,401 43,090 43,090 43.090 0 0 0 Apnl, ____________________ May 10,694 10,607 10,607 10,607 0 0 0 _____________________ 83,809 82,978 23,235 23,235 0 59,743 0 J une _____________________ 77,180 76,419 41,611 41,611 0 12,153 22,655

PART 6.-0THER TRANSPORTATION

088

9

1958______________________ 585,539 580,031 474,438 458,345 16,093 8,505 97, 1959______________________ 792.829 784,46Q 747,347 699,873 47,474 15,077 22,045 1960______________________ 507,286 501,031 451,064 423,993 27,071 3,908 46,05 1961. _____________________ 534,318 529,020 477,680 453,943 23,737 4,839 46,501 1962 ______________________ 348.449 344,481 340,774 333,227 7,547 1,391 2,316

1961

~':~~y:==:============

12,323 12,076 10,933 10,233 700 509 634

March 27,903 27,670 27,268 26,771 497 160 242 ___________________ 56,630 54,944 54.396 53,574 822 346 203

t!£i~:========

21,238 20,601 20,601 20,511 00 0 0 26,816 26,736 26,736 25,459 1,278 0 0 31,272 31,147 30.392 30.010 377 377 377 July ______________________ 14,919 14,823 14,823 14,823 0 0 0 August. __________________ 15,596 15,505 15,505 15,117 388 0 9 September _______________ 34 802 34,496 34,496 33,163 1,333 0 0 October __________________ 14.368 14,277 13,418 12,743 675 0 859 November _______________ 25.885 25,831 25,831 25,662 169 0 0 December ________________ 66,696 66,374 66,374 65,157 1,217 0 0

1968 January __________________ 69,939 69,718 69,718 69,222 496 0 0 February _________________

March 16,509 16,103 14,380 14,187 194 0 1.723 ___________________ 100,175 99,933 99,933 99.532 401 0 0 A priL ____________________ 23,128 22,958 22,958 22,958 0 0 0 May _____________________ 77,673 77,285 75,946 72,229 3,716 0 1,339 une _____________________ 45,401 44,882 44,745 42,136 2,609 0 137

See footnotes at end of table.

~===============

===== ======
TWENTY-NINTH ANNUAL REPORT 169

TABLE 4.-Proposoo uses of net proceeds from the sale of new corporate securities

offered for cash in the United States-Continued

PART 7.-COMMUNICATION

[Amounts in thousands of dollars 1)

Proceeds New money

Calendar year or Retire- Other month I mentor purposes Total gross Total net Total new Plant and Working securities

proceeds I proceeds I money eqwpment capital

1958______________________ 1.423,776 1,411,831 1,265,315 1.262,382 2,933 118,112 28,404 1959______________________ 717,101 707,265 702, 959 701,347 1,612 113 4,192 1960______________________ 1,049.810 1,036,460 1,031,659 1,022,870 8,790 682 4,119 196L 1,820,801 1,804,593 1,407,979 1,397.898 10,081 377,656 18.958 1962. 1,306,545 1,291,172 1.220,862, 1,219,107 1,755 10,417 59,893

J annary __________________ 198! FebrUarY ________________ 74,673 73,084 71,304 71,304 0 0 1,780

March 365,906 362,342 360,804 360,741 62 0 1.539 21,098 20.873 20,719 20.565 154 0 154

tfart~~:::::::::::::::::~89,514 88,608 86,745 86,711 34 112 1,750

65,071 63,544 63,148 62,724 424 0 396 June _____________________ 80.372 79,352 77.602 77.602 0 0 1,750 July 92,588 91.571 87,781 86,931 850 3,790 0 August ___________________ 123,206 121,890 119,862 119,862 0 2,028 0 September 69,450 68,723 16,604 16,604 0 1,584 50,535 October _. 262,437 259,602 257,614 257,569 46 0 1,988 November 4,500 4,434 4,360 4,241 119 74 0 December ____. ___________ 57,731 57,148 54,320 54,254 66 2,828 0

1988 January _______._. ________ 126,807 125,274 124,232 124, 232 0 0 1,042 Febrnary ________________ 68,826 68,089 68,089 68,089 0 0 0 March 46,449 46,041 42,900 42,900 0 3,141 0 ApriL

May 72,391 71.145 20,370 20,370 0 0 50,774 _____________________ 357,180 353,981 92,111 91,127 984 261,796 74 J UDe _____________________ 66,140 65.426 56,204 55,854 350 7,722 1,500

PART8.-FINANCIAL AND REAL ESTATE

1958____________________._ 1959______________________ 1,088,299 1,060,792 900,109 186,773 713,336 46,887 113,796

1,852, 906 1,807,390 1,568,990 300,592 1,268,398 6,116 232,285 1960 2,524,619 2,472,229 2,143,135 267,586 1,875,549 71,366 257,728 196L_. ___________________ 2,274,833 2, 212,051 2,014.989 499,495 1,515,494 35,572 161,490 1962______________________ 1,854,830 1,811,312 1,437,577 266,962 1.170,615 38,673 335,062

J annary _. ________________ 198! 104,315 102,750 59,465 30,493 28.972 558 42,728 February ________________ March 126,041 122,477 108,726 11,114 97,612 755 12995 143,426 136.414 76,576 9,683 66,892 10,414 49,425

tfar::~:::::::::::::::::::

142,035 135,196 97,399 27,312 70,087 1,405 36,392

96,496 93,815 78,354 16,808 61,546 2.744 12,717 J une _____________________ 172,656 170,049 137,869 21,884 115,985 7,493 24,687 July ____________________._ 109,521 107.468 98,168 7,167 91,002 0 9,300 August. __________________ 190,256 186,046 129,411 12,456 116,955 3,185 53,451 September _______________ 92,990 89,175 64.576 7,729 56,847 1,362 23,236 October __________________ 227,871 223,995 200,519 28,043 172,476 2,138 21,337 November _. 184.636 182,156 165,123 9,979 155,144 4,044 12,990 December 264,586 261,771 221.391 84,294 137,096 4, 575 35,805

1988 January __________________ 93,521 91,367 73,863 17,075 56,788 596 16,908 Febrnary 113,918 109,893 60,488 16,382 44,106 370 49,035 March ___________________ 290,852 288,663 165,105 62,932 102.173 105,226 18,331 AprlL ____________________ May 274,451 271,645 254,793 52,275 202,518 798 16,054

225,709 221,589 166,426 26,242 140,184 9,341 45,821 J une _____________________ 285,048 281,150 142,844 28,488 114,356 4,845 133,461

Bee footnotes at end or table.

•• ___________________

__________• __________

_________• _________

_________••• __________

____________•• _

_________• ______ ___________• ___

____• ______________

____• __• ____________

______________• _______

_____________• _____

___ • ____• ____ _______• ________

____ • __• ________

_________________• ___
170 SECURITIES AND EXCHANGE COMMISSION

TABLE 4,-Proposed usesof net proceedsfrom the sale of new corporate securities

offered for cash in the United Btates-COntinued

PART 9.-COMMERCIAL AND OTHER

[Amounts In thousands of dollars 1)

Proceeds New money

Calendar year or Retire- Other month 2 ment of purposes Total gross Total net Total new Plant and Working secunties

proceeds 3 proceeds a money equipment caprtal

1958 ._ 656,299 641,298 584,692 161,819 422,873 11,234 45,372 1959. 719,314 685,374 525,963 273,483 252,480 16,328 144,082 1960. _. ._ 611,705 683,860 437,378 132,604 304,774 21,194 125,288 1961. 926,123 884,356 729,849 237.357 492,492 42,81;0 111,657 1962 670,684 641,182 519,729 192,465 327,264 25,575 95,879

196t

~~~:Jy:::::= ==:=:==:=:= 83,485 84,628 70,103 10,269 59,834 100 14,425

42,298 39,709 33,702 24,207 9,494 110 5,898 March_ _. 64,776 61,312 51,550 18,683 32,8!l7 1,664 8.098 tf::.-=::::= ::==:::=: .; = 96.836 91,819 78,917 26,941 51,975 3,248 9,654

68,705 64,779 56,411 23,567 32,844 1,025 7,342 J une_ 73,379 71,407 45,906 26,121 19,785 3,309 22,192 July 24,482 22,787 16,843 9,137 7,706 ° 5,943 August. .. 54,918 53,327 45,424 14,921 30,503 7,092 810 September _______________ 39,720 37,405 33,818 14,936 18,882 725 2,862 October 25,119 24,407 15,567 3,451 12,117 5,710 3,130 November 33,260 32,500 23,926 3,496 20,431 1,109 7,465 December 58.704 57,102 47,561 16,734 30,827 1,482 8,059

1968 January 34,497 33,807 29,861 5,799 24,062 1,581 2,365 February . 29,866 29,223 24,640 7,966 16,674 1,178 3,405 Marcb . 79.859 78,936 62,007 17,377 44,631 4,119 12,810 A prll.; ___________________ 62,544 60,998 41,937 14,179 27,758 12,191 6,870 May. ____________. _______ 61,950 59,542 53,306 21,887 31,419 1,713 4,523 J uue . 36,771 35,782 29,708 7,695 22,012 2,944 3,130

1 Sligbt discrepancies between tbe sum of figures In the tables and the totals sbown are due to rounding. I For earlier data see 25tb annual report. a Total estimated I(J"OSS proceeds represent the amount paid ror the securities by Investors, while total

estimated net proceeds represent the amount received by the Issuer arter payment of compensation to distributors and other costs or flotation.

_______• ____________

___• ____•• _•• _•• ___•• __• ________•• ____

_____• _____' ___• __•• _

_____________• _______•

•• ____• ___• __• __

•••• __' ____________•

__ • ___• ______________

___• ___ _________

___• ___• __________ _• ____• ________ _______• ___• ____

• __________• ___• __

__________ __•• _ •• ________________

••• ____• _______ _____
TWENTY-J\'INTH AJ\"'NUALREPORT 171

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172 SECURITIES AND EXCHANGE COMMISSION 

TABLE 8.-Brolcers and dealers regiPtered undw the Bencrittes Bachange dot 

of 19S41--effeottue regtatrations a8 of June 80, 1963, classifled ay type or 

organization md by locatton of principal once 

I 	 I
 Number orre#strants Number 01 pmprlstors,partners. 

*mars, etc. 18 

Locationor prlnclpal omce 	 Bale 8ole 

pm- Part- Cot- Pro- Part Cor. Total Pde- ner- Total pde- ner. tor. Ship9 E,"" tar- shim tY$* ships 	 ships

---__-__--

I I I i I I I 

I Doesnot include 69reglstr6nts Whwprlndpal offica. me located In foreign aountrles or other tsrritarlsl 

lurlsdlstions not listed. h.~$~~LIes dirsctars. offimrs,tmtees, andall other mrsonnaccup~BLmUarstataror osrformln~atrnila~ 

. ~

.".,LLL",,a 

.Ulornlkm malloon rile bar oflaallon of prlnelpd cmrpsorreeistranrs, not actm locarfonormrjoni. lnrolmsllon lnkon rmnl lalnrl repons nled ~drrtoIlule 30 11163. 

inttuia LeS lorms orargaa(nanoar orber it.an sole promietorshlps wd putncrrhlp9. 
TWENTY-NINTH ANNUAL REPORT 173

TABLE 7.-Number of issuers and security issues on exchanges

PART 1.-UNDUPLICATED NUMBER OF STOOK AND BOND ISSUES ADMITTED TO

TRADING ON EXOHANGES AND THE NUMBER OF ISSUERS INVOLVED, AS OF JUNE

30,1963

Total Issuers Status under the Act I StockS Bonds stocks Involved

and bonds

Registered pursuant to Section 12 (b), (c), and (d) _____ 2,835 1,213 4,048 2,417

Temporarily exempted (rom registration by Oommls- sion rule 8 2 10 6 Admitted to unlisted trading privileges on registered exchanges pursuant to Section 12(f) ___________________ 153 21 174 138 Listed on exempted exchanges under exemption orders or the Oomrrusslon. __________________________________ 69 8 77 54 Admitted to unlisted trading privileges on exempted

exchanges under exemption orders or the Ocmmisslon, 15 0 15 15

TotaL 3,030 1,244 4, 324 2)630

I Registered: Section 12(b) of the Act provides that a security may be registered on a national securities

exchange by the issuer tiling an appllcetion with the exchange and with the Oomrrusslon containing certain

types ot specmed information. Section 12(C) authorizes the Oommission to require the submission or infor- mation of a comparable character !(in its judgment information specified under Section 12(h) Is mapplieable

to any specified class or classes or issuers, Section 12(d) provides that if the exchange authorities certify to the OOIDDllSSlon that the seeurity has been approved by the exchange (or listing and registration, the regis- tration shall become effective 30 days after the receipt o( such oertttteanon by the Oommission or within such shorter period or time as the Oommission may determine.

Temporarily exempted: These are stocks or certain banks and other securities resulting from mergers,

consoudanons, etc., which the Oommission has by published rules exempted (rom registration under speci- fied conditions and (or stated periods.

Admitted to unlisted trading prrvlleges: Section 12(() provides, in effect, that securities which were

admitted to unlisted trading privlleges on Mar. 1, 1934 (t.e., without appltcatrons (or listing filed by the

Issuers), may continue such status. Additioual securrties may be granted unlisted trading prrvileges on

exchanges ouly if they are listed and registered on another exchange or the issuer is subject to the reporting

requirements or the Act under Section 15(d).

Listed on exempted exchanges: Oertam exchanges were exempted (rom (nil registration under Section 6

or the Act because or the 1lmited volume or transacnons, The Oommission's exemption order specifies that

securities which were listed on the exchange at the date or such order may continue to be listed thereon, and that thereafter no additional seeunnes may be listed except upon compliance with Section 12 (b), (c), and (d).

Unlisted on exempt exchanges: The Oommission's exemption order specifies that securities which were

adnntted to unlisted trading privileges thereon at the date of such order may continue such privileges, and that no additional securities may be admitted to unlisted trading prrvtleges except upon compliance with

Section 12(f).

PART 2.-NUMBER OF STOOK AND BOND ISSUES ON EAOH EXOHANGE AND NUMBER

OF ISSUERS INVOLVED, AS OF JUNE 30, 1963

StockS Bonds Exchanges Issuers

R X U XL XU Total R X U XL Total

-- ---------- ---------- Amerlcan ._ 960 848 2 175 ............ 1,025 59 --- ...... 22 --........ 81 Boston 401 57 .. 353 .. 410 10 10 Ohicago Board of Trade 10 6 .. 4 --_ .. .. 10 ---iii- ...... Olnclnnatl.. 154 38 .. 122 .. 160 1 --- .._- 11 Colorado Springs 10 -- .---- ------ --178- Detroit. 10 ------ 10 ------ ------ ------ ------ ------ 271 101 ------ ---48- 279 ------ ------ ------ ------ Honolulu 51 --iiii 15 63 ----ii;- Mid 8 8 west. ___________._ 453 385 ------ ------ ------ 504 ------ ------ ._---- 15 Natlonal 11 12 ----i- 12 "i;i3i;- ----2- New York Ti37 Stock 1,359 1,578 --230- 1,579 Pacific Ooast 512 360 580 25 26

Philadelphla-Balti- more_. ______________ 546 171 6 458 ------ ---_ ...- 635 51 -_ .._-- ------ ------ 51 Plttsburgh 109 38 1 77 ---2i;- 116 1 1 Rlchmond. 15 25 ....._-- ...--_ .... Salt Lake. 68 66 3 ---_ ... 69 .-.---- ..... San Francisco Mining. 36 36 ------ ._---- ------ 36 ------- ------ ------ ------ ------ Spokane 26 23 6 ---ii- ----3- Wheellng 29 .. .._-- ---_ ....

12 ..... _---- _ .._ .._- ------ 14 -- .---- ------ ---_ .... - ... _-_ ..

Symbols: R-reglstered; X-temporarily exempted; U-admltted to unlisted trading privileges; XL- listed on an exempted exchange; XU-admltted to unllsted trading privileges on an exempted exchange.

NOTE.-Issues exempted under Section 3 (a) (12) of the Act, such as obligations of the U.S. Government. the states and cities, are not included in this table.

-

__________ •__________________________________

________• _______________• __________________

________• __ ------ ________________ --- -- ------ --- -- ------ ------ ------ _______________ - ---- _ ------ ------ - -- __________ --- -- ----- ------ •• ___ _• ___________•

_____________ ------- ------ ------ ------

______________ ------ ------ ------ ------ ------ ______ ------ ------ ------ ------ _________ ------ ------ ------ ------ ------ ------

____________ ------ ------ ------ ------ ___________ -- ----- ------ ------ ------ ------ - ------ ------ - ____________ ------ ------ - ------ ------ ------ ----

__________• ___ ------ - _ ------ ------ ------ - _____________ ------ -
174 SECURITIES AND EXCHANGE COMMISSION

TABLE 8.-Unli8ted stook« on stook eecbanoee 1

PART I.-NUMBER OF STOCKS ON THE EXCHANGES IN THE VARIOUS UNLISTED

CATEGORIES' AS OF JUNE 30, 1963

Unlisted only a Listed and registered on another exchange

Exchanges

Clause 1 Clause 3 Clause 1 Clause 2 Clause 3'

American 146 2 22 4 1 Boston ._ 0 0 123 230 0 Ohieago Board of Trade 1 0 3 0 0 CincinnatL

Detroi 0 0 0 122 0 t 0 0 13 165 0 Honolulu. 15 0 0 0 0 Midwest. _. 0 0 0 119 0 Pacific Ooast; ._._. ._. 2 0 55 173 0 Pbila.- Balt.- W ash ....• 2 0 209 247 0 Pittsburgh 0 0 16 61 0 SQlt Lake. 2 0 0 0 1 Spokane 3 0 1 2 0 Wheeling ; ._ 0 0 0 3 0

Total. 171 2 442 1,126 2 ,

PART 2.-UNLISTED SHARE VOLUME ON THE EXCHANGES-CALENDAR YEAR 1962

Unlisted only a Listed and registered on another exchange

Exchanges

Clause 1 Clause 3 Clause 1 Clause 2 Clause 3

American 25,433,759 15,480 4,032,010 3,038,500 15,330 Boston. 0 0 2,060,889 2,160,515 0 C!li~o Board of Trade_._ 0 0 0 0 0 Oineinnatl 0 0 0 537,125 0 Detroit 0 0 404,212 3,291,554 0 Honolulu ._. 88,425 0 0 0 0 Mldwest_. 0 0 0 12,018,150 0 Pacific Coast ._. 2,297,636 0 3,857,755 7,063,169 0 Phila,» Balt.- Wash 1,139 0 4,793,532 5,496,222 0 Plttsburgh 0 0 238,167 188,976 0 SQlt Lake ._ 0 0 0 0 238 Spokane _. 298,508 0 7,820 47,885 0 Wbeelmg 0 0 0 333 0

TotQl 28,119,467 15,480 15,394,385 33,842,429 15,568

1 Refer to text under heading "Unlisted Trading Privileges on Exchanges." Volumes are as reported

by the stock exchanges or other reporting agencies and arc exclusive of those in short-term rights,

2 The categories are according to Clauses I, 2, and 3 of Seotion 12(f) of the Secuntles Exchange Act. a None of these issues has any listed status on any domestic exchange.

These issues became listed and registered on other exchanges subsequent to their admission to unlisted trading on the exchanges 85 shown .

Dupllcatton of issues among exchanges brings the tIl:UreS to more than the sctuel number of issues Involved.

________________________ ________________________

_________ _____________________ __________________________

_________________• __• __

_________•••• ____•• __

__ ___• __ ___

____ _•• ___ ____•___••••• ________• __•_____•• ___• __• ______ __• __________________• ___

______ ___________•• __

___ • ________________

•

_______________________• __________________• ______

•• ____ ________________• ______ __________________•• ______

_____________ ________

_______________• ___• __ ____________ _____

_______________ ______• ___________• ___

___ •• ___________••• ___

___•••• __• _______• __• __ ____• __•_______• ________

•• _____• ______________

•

•
TWENTY-KINTH Al'."'NUAL REPORT 175

TABLE 9.-Dollar volume and share volume of sales effected on securities exchange8 in the calendar year 1962 and the 6-month period ended June 30,

1963

PART 1.-12 MONTHS ENDED DEC. 31, 1962

[Amounts In thousands]

Bonds Stocks RIghts and warrants Total

dollar

volume Dollar Principal Dollar Share Dollar Num- volume amount volume volume volume her of

units

--- Registered exchanges_____ 56,563,988 1,729,726 1,785,954 54,732,079 1,663,616 102,183 46,987

American --- 3,800,212 63,594 65,908 3,648,312 332,618 88,307 11,,229 Boston.; ___________________ 252,354 0 0 252,353 5,332 1 29 Ohicago Board of Trade_. __ 0 0 0 0 0 0 0 Olnclnnatl; , _______________ 38,:;29 69 100 38,448 781 12 16 Detroit

Midwest 230,013 0 0 230,012 6,221 (0) (*) ___________________1,511,867 7 7 1,511,815 39,999 45 126 Natlonal ___________________ 509 0 0 509 225 0 0 New York 49,018,954 1,665,620 1,719,232 47,340,720 1,186,513 12,614 34,342 PacI1Ic Coast _______________1,097,218 10 8 1,096,032 49,923 1,176 643 PhUa.-Balt .•Wash 577,604 426 700 577,149 14,817 28 102 Pittsburgh _________________ 30,972 0 0 30,972 773 0 0 Salt Lake __________________ 1,736 0 0 1,736 10,632 0 0 San Francisco ______________ 1,319 0 0 1,319 11,399 0 0 Spokane. _. 2,702 0 0 2,702 4,383 0 0

--- Exempted exchanges_____ 21,642 10 11 21,552 1,276 80 67

--- Colorado Sprlngs 75 0 0 75 414 0 0 Honolulu, 20,551 10 11 20,462 837 80 67 Rlehmond;., __________ Wheellng 640 0 0 640 11 0 0 376 0 0 376 14 0 0

PART 2.-6 MONTHS ENDED JUNE 30, 1963

Bonds Stocks Rights and warrants Total

dollar

volume Dollar Principal Dollar Share Dollar Numvolume amount volume volume volume ber of

units

--- Registered exchanges 30,248,911 757,708 784,828 29,446,302 889,219 44,901 17,085

American --- 1,816,866 35,393 36,020 1,740,623 156,693 40,850 9,312 Boston. 132,960 0 0 132,960 2,780 0 0 Chicago Board of Trade ____ 0 0 0 0 0 0 0 Cincinnati 19,702 50 66 19,652 393 0 0

Mldwest Detrolt _._ 144,806 0 0 144,806 3,880 1 2 ___________________ 847,264 (*) (*) 847,230 21,431 34 1 Natlonal 208 0 0 208 113 0 0 New York 26,229,251 722,207 748,683 25,504,096 660,188 2,947 6,906 Pacific Coas!. ______________ 702,996 0 0 701,927 24,340 1,0'\9 864 PhUa .•Balt Wash 335,382 58 60 335,324 7,928 0 0 Plttsburgh._ , 15,286 0 0 15,286 376 0 0 Salt Lake __________________ 1,772 0 0 1,772 6,491 0 0 San Francisco Mlnlng ______ 108 0 0 108 2,314 0 0 Spokane 2,309 0 0 2,309 2,292 0 0

--- Exempted exchanges.•• __ 12,888 7 7 12,881 671 0 0

--- Colorado Spribgs 37 0 0 37 194 0 0 Honolulu, 12,531 7 7 12,524 469 0 0 Richmond. 174 0 0 174 3 0 0 Wheellng_ 146 0 0 146 5 0 0

NOTE.-Data on the value and volume of seeunnes sales on the registered exchanges are reported In con. nection with fees paid under Section 31 of the Securities Exchange Act of 1934. Included are all securrties

sales, odd-lot as well as round-lot transacnons, effected on exchanges except sales of honds ofthe U S. Govern- ment Which are not subject to the fee. Comparable data are also supplied by the exempted exchanges. Reports of most exchanges for a given month cover transactions effected durmg the calandar month, bu t the reports may be of transactions cleared during the ealandar month. Clearances generally occur on the

fourth business day after that on which the trade was effected. Frgures are rounded and will not neces- sarily add to the totals as sbown.

"Less than 500.

_________•________

__•____________•____

__•_______•______

__•• _____

____•________•__

__•_____•__ ••• _______•___•• _ •____ •• _•_____•____•___

••___

___•______________ _________•_______•• _

•• ____•__________

••••• •• ___________

__•_____•__________ ___________••____

•• ••• ___• __ •• __•• ________

•• _____•• __________

•••________ ••• _____•_____••• _• ____•____•__•• ••• ___________• __
176 SECURfiillSAND EXCHANGE CO~SffiON

TABLE 10.-0omparative 8hare 8aUJ8aOO doZlar ootumes on ea;chang68

[Annual sales,Including stocks, warrants and rights, asreported by all U.S. exchangesto the CommissIon.

Figures for merged exchanges are Included In those of the exchanges Into which they were merged]

6

12

1

90

1

7

60

5

79

7

06

48

1

83

43

6

7

1

08

05

88

4

2

27

4

4

1

1

29

Year Share sales NYS AMS MSE PCS PBS BSE DSE PIT cm Othe

% % % % % % % % % %

---- ---- -- ---- -- 1935__________ 681, 970,560 73 13 12.42 1.91 2.69 0.76 0.96 085 034 0.03 6.9 1936. _________ 962,135,940 7302 16. 43 2.18 2.96 .69 .72 .74 .32 .04 2 1937 838,469,889 73.19 14. 75 1.79 3.23 .70 .83 .59 .38 .03 4.5 1938__________ 543. 331. 878 78.08 10.55 2.27 2. 67 .79 1.03 .75 .25 .04 3.5 1939 468, 330, 340 78.23 11.39 2.26 235 .93 1.18 .76 .25 .05 2. 1940_ _. 3n, 896, 572 75.44 13.20 2.11 2. 78 1.02 1.19 .82 .31 .08 20 1941 311, 150, 395 7396 12.73 272 269 1.24 1.50 .87 .36 .14 3.

1942 221, 159, 616 76.49 1164 2.70 262 1.08 1.39 .90 .29 .12 2.7 1943 486, 290, 926 74. 68 1672 2.20 1.92 .85 .76 .64 .20 .07 2. 1944_ 465, 523, 183 7340 16.87 207 2.40 .79 .81 .86 .26 .06 2. 1945__________ 769,018, 138 65.87 21.31 1 77 2.98 .66 .66 .79 .40 .05 5.5 1946 803,076,532 66.07 19.37 1.74 3.51 .68 .84 .63 .28 .05 6 1947 li13, 274, 867 69.82 16.98 1.67 4.22 .90 1.05 .66 .19 .08 4. 1948__________ 571, 107,842 72.42 Iii. 07 163 3.95 .87 .76 .68 .~ .08 4.3 1949__________ 516,408. 706 73.51 1449 1.67 3.72 L21 .93 .73 .18 .09 3.4 1950__________ 893, 320, 468 76.32 1354 2.16 3.11 .79 .65 .55 .18 .09 2.6 1951 863,918,401 74.40 14.60 2.10 354 .76 .70 .58 .16 .08 3. 1952 732, 400, 451 71. 21 1608 2.43 3.85 .85 .73 .55 .16 .09 4. 1953__________ 716, 732, 406 72.64 1585 228 3.90 .83 .81 .55 .15 .11 2. 1954__________ 1,053,841,443 71.04 16.87 2.00 324 .88 .50 .53 .13 .07 4.7 1955__________ 1,321,400,711 6885 19.19 209 308 .75 .48 .39 .10 .05 5.0 1956_ I, 182,487,085 66 31 21.01 232 3.25 .72 .47 .49 .11 .05 5. 1957__________ I, 293, 021, 856 70.70 18.14 233 273 .98 .40 .39 .13 .06 4.1 1968__________ 1,400,578,512 71. 31 19.14 2.13 2.99 .73 .45 .35 .11 .05 2.7 1959__________ 1,699,696,619 65.59 2450 2.00 2.81 .90 .37 .31 .07 .04 34 1960__________ 1,441,047,564 68.48 22.'0 2.20 3.11 .89 .39 .34 .06 .05 2.2 1961__________ 2, 142,523,490 64.99 25 58 2.22 3.42 .79 .31 .31 .05 .04 2. 1962__________ 1,711,945,297 71 32 20.12 2.34 2.95 .87 .31 .36 .05 .05 1.63

Six months

to June 30, 1963________ 906,974, 159 73.55 1830 2.36 2.78 .87 .31 .43 .04 .'04 L32

Dollar volume

(000omitted) 1935 $15, 396, 139 86.64 7.83 1.32 1.39 .68 1.34 .40 .20 .04 .1 1936__________ 23,640,431 8624 8.69 139 1.33 .62 1.05 .31 .20 .03 .14 1937 21,023,865 87.85 756 1.06 1.25 .60 L 10 .24 .20 .03 .11 1938__________ 12.345.419 89.24 5.57 1.03 1.'0 .72 1.51 .37 .18 .04 .07 1939 11,434,528 87.20 656 1.70 1.37 .82 1.70 .34 .18 .06 .07

1940•••••••• _. 8, 419.m 85 17 7.68 207 1.52 .92 1.91 .36 .19 .09 .09 1941. _________ 6,248,055 84.14 745 2.59 1.67 1.10 2.27 .33 .21 .12 1942. 4,314,294 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 84.14 9.30 211 1.70 .79 1.29 .34 .15 .07 .11 1945__________ 16,284,552 82 75 1081 200 1.78 .82 1.16 .35 .14 .06 .13 1946_. ________ 18,828,4n 82.65 1073 2.00 L87 .79 1.23 .33 .16 .07 .17 1947 11,596,806 84.01 8.77 1.82 2.26 .91 L51 .36 .14 .11 .11 1948_ 12,911,865 84 67 8.07 1.85 2.53 .88 1.33 .34 .14 .10 .09 1949 10,746,935 8385 8.44 1.95 2.49 1.11 1.43 .39 .13 .12 .09 1950 21,808,284 85.91 6.85 2.35 2.19 .92 1.12 .39 .11 .11 .05 1951.. 21,306,087 85.48 7.56 2.30 206 .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 6.79 2.84 220 1.06 L04 .46 .16 .13 .07 1954__________ 28,140,117 86.23 6.79 2.42 2.02 .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 85.51 7.33 2.69 202 1.00 .76 .42 .12 .08 .07 1968._ 38,419.560 85. 42 7.45 2.71 2.11 1.01 .71 .37 .09 .08 .05

1959 _. ._ 52, 001, 2li5 8366 9.53 267 1.94 1.01 .66 .33 .08 .07 .05

1960_ _._. 45,306,603 83.81 9.35 2.73 1.95 1.04 .60 .34 .06 .08 .04 1961. 64,071,623 82.44 10.71 2.75 2.00 L04 .50 .37 .06 .07 .06 1962__________ 54,855,894 86.32 6.81 2.76 2.00 1.05 .46 .42 .06 .07 .05

Six months

to June 30, 1963. _______ 29,504,084 86.45 6.04 2.87 2.38 1.14 .45 .49 .05 .07 .06

Symbols: NYS, New York Stock Exchalllze:AMS. American Stock Exchange; MSE, MIdwest Stock

Exchange; PCS, Pacific Coast Stock Exchange: PBS, Phlladelphla-Baltlmore-Washlngton Rtock Ex.

change; BSE, Boston Stock Exchange; DSE, Detroit Stock Exchange: PIT, Pittsburgh Stock Exchange:

cm, Cincinnati Stock Exchange.

__• _______

•• ________

•• _____ ••• _______

••• _______ •• ____• ___ •• _______

_________•

_______ • __

_______ • __

_________ •

•• ____•• _

••• __•• ___

•••• ______

______ • ___

__• ______

•• __• ___

•• ________

•• _______ __• _______

••• _______

___• ____

_________ •

_________ •

__• _______

___• ____

•• ______

•••• __ ••• __ ____• ___•
TWENTY-!\TINTH ANNUAL REPORT

TABLE 1l.-BZOok distributWna reported by ellJohanges

[Value In thousands of dollars)

177

Special offerings Exchange distributions Secondary distnbutlons

Calendar year Num- Shares Value Num- Shares Value Num- Shares Value her sold her sold her sold

1942 1___________ 79 812,390 22, 694 .. .. ......... 116 2,397,454 82,840 1943 SO 1,097,338 31,054 .. 81 4,270,580 127,462 1944.. 87 1,053,667 32,454 94 4,097,298 135,760 1945

1946 79 947,231 29,878 115 9,457,358 191,961

1947 23 308,134 11,002 100 6,481,291 232,398

1948 24 314,270 9,133 ... 73 3,961,572 124,671 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 6,193,756 146,469 1962_____________ 22 357,897 9,931 ... .. ... .. 76 4,223,258 149,117 1953 17 330,680 10,486 -----57- ----705;7Si- -24;664- 68 6,906,017 108,229 1954.- ___________ 1955_____________ 14 189,772 6,670 84 5,738,359 218,490

1il56_____________ 9 161,850 7,223 19 258,348 10,211 116 6,756,767 344,871

1957_____________ 8 131,755 4,557 17 156,481 4, 646 146 11,696,174 620,966

1958_____________ 5 63,408 1,845 33 390,832 15,855 99 9,324,599 339,062 5 88,152 3,286 38 619,876 29,454 122 9,508,505 361,886 1959_____________ 1960_____________ 3 33,500 3,730 28 545,038 26,491 148 17,330,941 822,336 3 63,663 6,439 20 441,664 11,108 92 11,439,065 424,688 1961____________ 2 35,000 1,504 33 1,127,266 58,072 130 19,910,013 926,514 1962_____________ 2 48,200 588 41 2,345,076 65,459 69 12,143,656 658,780

I The first special offering plan was made effective Feb. 14, 1942; the plan of exchange dtstrtbunon was made effective Aug. 21\ 1953; secondary distributions are not made pursuant to any plan but generally

exchanges require memoers to obtain approval of the exchange to participate In a secondary and a report on such distribution IS filed with this Commission.

TABLE 12.-Reorganization proceedings under Ohapter :x of the Bankruptcy Aot

in which the Oommission was a party during the ji80al year 1968

Debtor District court Petition filed

Petition

approved

securities and Exchange

Commission

notice of ap- pearance filed

Admiral Oils, Inc.t W.D.Okla. June 27,1962 June 27,1962

Alaska Telephone Corp.'___________________ W.D. Wash.__ Nov. 2,1955 Nov.21,1956

American Fuel & Power 00.(4 subsidiaries) , E.D. Ky______ Dec. 6,1935 Dec. 20,1935

AmencanSealSavmgs&LoanAssociation'_ D. Md. June 23,1961 June 30,1961

AsPIC luvestment Corp.'___________________ S.D. Fla______ June 29,1962 July 24,1962

Astrotherm Corp.'_________________________ S.D. Ind______ Jan. 18,1962 Jan. 18,1962 Atlas Sewing Centers, Inc. (49 subsidiaries) I S.D. Fla June 22,1962 June 22,1962

Automatic Washer Co.'____________________ S.D.lowa___ Oct. 17,1956 Nov. 2,1956 Bevis Shell Homes, Inc. (2sudsidiaries) 1 M.D. Fla June 27,1962 June 28,1962 Brookdale Lodge, Inc.I____________________ N.D. CalIf____ Sept. 18,1962 Sept. 24,1962 Brookwood Country Club N.D. ill Feb. 17,1969 Mar. 3,1959

Bzura Ohenueal oe., Inc. (1 subsidiary) 1__ D. N.J________ Feb. 6,1963 Feb. 6,1963 Cal-West A vianon Inc_____________________ N.D. Calif____ Oct. 26,1961 Oct. 26,1961

Central States Electnc Corp.'______________ E.D. ya______ Feb. 26,1942 Feb. 27,1942 Certified Oredrt Corp. (4 subsrdlaries) 1_____ S.D. Ohio_____ Apr. 2,1963 Apr. 2,1963

Charlotte Motor Speedway Inc.'___________ W.D. N. Oar Nov. 3,1961 Nov. 3,1961

Clute, Oorp., The'________________________ D. Colo Nov. 5,1962 Nov. 7,1962

Coastal Finance COrp.'____________________ D. Md________ Feb. 16,1956 Feb. 18,1956

Coffeyville Loan & Investment Co., Inc.'__ D. Kans______ July 17,1959 July 17,1959 Colorado Trnst Deed Funds'_. D. Colo Sept. 5,1961 not approved Cosmo Oapital, Inc 1_______________________ N.D. ill_______ Apr. 22.1963 Apr. 22,1963

Davega Btores Corp.' S.D. N.Y June 6,1962 June11,l962

DePaul Educational Aid SOciety'_________ N.D. ill______ Jan. 6,1959 Jan. 13,1969 Dilhert's Leasing & Development Oorp.r E.D. N.Y Mar.14,l963 Mar.14,1963 Dllhert's Quallty Snpermarkets, Inc.I do do do

Dixie AlnriJlnnm Oorp.'____________________ N.D. Ga._____ Dec. 12,1960 Dec. 16,1960 Dixie Fertilizer Co., Inc.'.__________________ B.D. Miss_____ July 21,1961 July 22,1961 Doctors' HOSPItal, Inc.I.___________________ B.D.lowa. Dec. 14,1962 Feb. 16,1963

Dumont-Airplane & Marine Instruments Inc. (1 subsidiary) ,______________________ B.D. N. Y Oct. 27.1958 Oct. 27,1958

EI-Tronics Inc.'____________________________ E.D. Pa______ Nov. 26,1958 Nov. 25,1958

Equitable Enterprises, Inc,l M.D. Fla June 19,1962 July 5,1962

Equitable Plan Co.' B.D. Calif Mar.18,1958 May 29,1958

See footnotes at end of table.

717-943-64-13

July 30,1962 Nov. 7,1956

May 1,1940

Aug. 8,1961

Aug. 29,1962 Feb. 23, 1962 July 26,1962

Nov. 2. 1956

July 20,1962

Oct. 6,1962

Mar. 19,1959

Feb. 11,1963 Oct. 26,1961 Mar. 11,1942

Apr. 10,1963 Nov. 3,1961 Jan. 28,1963

Apr. 16,1966

Ang.10,l959

Nov. 2,1961

Apr. 26,1963

June 6,1962 Feb. 4,1959

Mar. 15,1963

Do. Dec. 21, 1960

Aug. 18,1961

Jan. 25, 1963

Nov. 10,1958 Jan. 16,1959

July 24,1962 Mar. 27,1958

_____________ -------- - - -------- -----

____________ -------- ------------ --- ---- _____________ -------- ------------ -------- _____________ -------- ------------ -------- _____________ -------- ------------ -------- ____________ -------- --- -------- -------- _____________ --- ------------ _____________ -------- --- -------- _____________ ------- ------------ --------

____________ -------- --- -------- - - - --

_

_
178 SECURITIES AND EXCHANGE COMMISSION

TABLE 12.-Reorganization prooeedings under Ohapter X of the Bankruptcy Act

In which the Oommission was a party durmg the fisca; year 1963-Continued

Debtor Dlstnct court Petition filed

Securities and Petition Excbange

approved Oommission

notice of appearance filed

Apr. 30,1963

June 18,1900

Aug. 23,1962

Oct. 31,1961

Aug. 20,1962

Sept. 7,1956

Ja,n. 27,1958

Feb. 27,1963

Sept. 13,1962

Nov. 30,1962

Aug. 12, 1958

Jan. 3,1949

Nov. 25,1957

May 10,1961

May 27,1963

Feb. 19,1945

Oct. 17,1961

Feb, 21,1962 Mar. 31,1959

Oct. 1,1962

Apr. 9,1963

Sept. 15,1961

Oct 24,1960

Mar. 23.1962

Apr. 13,1962

Nov. 26,1962

Nov. 3,1960

June 5,196l

July 12,1962

Aug. 13,1959

Dec. 14, 196& May 23,1956

July 28,1961

Mar. 4,1963

Jan. 7,1955 Oct. 19, 1961

Mar. 28,1939

Mar. 20,1959

Apr. 25,1949

Mar. 28,1939

Jan 18,1960 Nov. 9,1959

July 26,1962

May 2,195i

Oct. 20,1960

Oct 24,195i

Nov. 9,1960

Nov. 9,1959

May 22,1961

May 12,1961

May 2,1963

Dec. 3,1962

June 9,1958

June 13,1960

Aug. 13,1962

Mar.26,1963 May 3,1963

Apr, 3,1959 Apr. 15,1959

Apr. 13,1959 May 20,1959

Feb. 16,1963 Feb. 18,1963

Mar. 4,1963

Nov. 3,1958

July 27,1962

June 22,1960

July 6,1962

Sept. 10,1956

Jan. 2,1958

Jan. 2,1963

July 27,1962

Nov. 30,1962

July 7,1958

Nay. 5,1959

Apr. 17,1961

May 11,1961

Apr. 26,1963

Feb. 7,1962

Oct. 10, 1962 Sept. 27, 1960

Allr 25,1962

May 17,1962

July 29,1959

Sept. 20,1963

May 1,1956

June 3,1961 Jan. 18,1963

Dec. 14, 1954 Sept 15, 1961

Nov, 1,1935

Mar. 18,1959

Jan. 31,1946

Nov, 1,1935

Dec. 9,1959

Nov 5,1959

June 16,1962

Apr. 22,1957

Dec 15,1960

Feb. 26, 1958

Oct. 31,1960

Nov. 3,1962

May 6,1958

June 13,1960

Aug. 13,1962

Feb. 6,H6l

Oct. 9,1962

Sept. 26,1960

Feb. 27,1962

May 17,1962

July 29,1959

Sept. 19,1963

Apr. 30,1956 June 1,1961

Jan. 17,1963

Aug. 11,1954

Sept. 8,1961

Oct. 14,1935

Mar. 17,1959

Jan. 31,1946

Oct. 25, 1935

Dec. 9,1959

Nov. 5,1959

June 15,1962

Apr. 22, 1957

Oct. 3,19([0

Oct. 16,1957

Oct. 31,1960

Nov. 5,1959

Apr. 17,1961

May 11,1961

Apr. 26,1963

Nov. 2,1962

May 6,1958

June 13, 1900

Aug, 13,1962

E.D. N. Car N.D. Okla

E.D_ MICh. D, Colo

S.D. W. Va

w.n.ons . N.D. CaW

N.D.I1L

Farmers Federation Cooperative ,__________ W.D. N Oar , Frank Fehr Brewing CO.I \V.D. Ky

Fleetwood Motel Corp_-___________________ D. N.J

Flora Sun Corp. \6 Suusldlaries)____________ S.D. Fla Florida Southern Corp.' do

Food Town Inc ,___________________________D. Md

GFE Industries Inc.' S.D.lowa

General Stores COrp.' S D N.Y.

Great Amencan Development Co__________ \V.D.TeA

Guaranty Trust Deed Corp.I_______________ D. Utah

Hudson & Manhattan Railroad Co.'_______ a.D.N Y Hughes Hon.es Inc. (4 subsldIafles)________ D. Mont Inland Gas Corp.'__________________________E.D. Ky F. L. Jacobs Co E.D. MICh

Keeshin Freight Lines Inc, (3subsldlanes)'_ N Dv Ill.;

Kentucky Fuel Gas Corp.'_________________ E.D. Ky Kentucky Jockey Club Inc \V.D. Ky

KIrchofer & Arnold Inc E.D. N. Car

Leeds Homes, Inc. (53subsldlaries)I________ E.D. Tenn LJOOrty Baking Corp.'_____________________ S.D.N. Y Magic Mountain Inc.' D. Colo Magnolia Park Inc E.D. La

Ma ..on Mortgage & Investment Co. (3 sub- D.D.C sldlaries)

Morehead City Shipbuilding Corp

H. H. Mundy Corp (lsubsidiary)

Muskegon Motor Bpeeialtles Co Joe Newcomer Fmanee Co.'

New-Kanawha Industrial Corp. (1 sub- sid lar)')

Parker Petroleum Co .. Inc.' Pickman Trust Deed Corp ._

Preelsion 'I'ranslormer COrp.'

Prudential Diversified Services (4 sub- sldlarIes)!________________________________D. Mont______ Mar. 26, 1963 Scranton Corp. (3substdiarles) ._ M.D. Pa.; Apr. 3,1959 Shawano Development Corp _. D. Wyo do

Sire Plan, Inc., The (13subsl<llarIes)I S.D.K. Y_. Feb. 16,1963

Sire Plan Management Oorp., The (4 sub- stdianes.) atfillate) 1 do._._.____ Mar. 4,1963

Southern Enterprise Corp. (1subsidiary) S.D. TeA Oct. 31,1958 Southwest Factories, Inc-I. \V.D.Okla ._ July 27,1962

Southwest Foundation Inc.________________ D.N. MelL____ May 19.1900 St. John's View Sites 1_____________________ S.D. CalIL___ July 6,1962

Stardust Inc.'______________________________D. Nev July 19,1956

Swan-Fmch 011 Corp. (lsubsldtary). S D.N.Y Jan. 2,1958

Taylor Internanonal Corp. (lsubsldlary)I._ S.D. Fla_.____ Dec, 28,1962 Tele-Tronles, Co.' .____ E.D. Pa_ _. July 26,1962

Tenax,lnc. (l subsidiary) 1 ._.______ S D.N.Y Nov. 30,1962

Texas Portland Cement Co.'_______________ E.D.Tex July 7,1958

Third Avenue Transit Corp. (5 subsld- Iaries)' .__________________ S.D.N. Y______ Oct. 25,1948 June 21,1949

TMT Trailer Ferry Inc. (4subsldlarles)_____ S.D. Fla, June 27,1957 Nov, 15,1957 Townsend Growth Fund Inc .____________ S.D.N. Y______ May 10.1961 May 10,1961

Trans-United Industries, Inc.I D. Conn Apr. 8,1963 Apr. 29,1963

TrlnltyBulldtngsCOrp.ofNewYork' SD.N.Y Jan. 18,1945 Jan. 18,1945 Trustor's Corp. ._________________ N.D. Calif____ Sept. 14.1961 Oct. 9,1961

Twentieth Century Foods Corp _. E.D. Ark Oct. 30 1961 Nov. 9.1961 U.S. Durox Corp. of Colorado , .____ D. Colo_______ Feb. 4,1959 Feb. 9,1959

U.S. Chemical Mllllng Corp. (1 subsid- lary)I .___________________ S D, CaUL.__ Aug. 29,1962 Aug. 29,1962

Vinco Corp.' E.D. Mlch .. Apr. 1,1963 I Apr 8,1963

Walco Bulldmg Corp______________________ N.D. llL July 31,1961 Sept. 15,1961 Windermere Hotel Co , .do Sept.13,l900 Oct. 12,1960

Yuba Consolidated Industries Inc__________ N.D. CaIlf.___ Mar.21,l962 Mar. 21,1962

I Oommtssion flied notice of appearance In fiscal year 1963.

I Reogranlzatlon proeeedlnz closed durmg fiscal year 1963.

I Piau has been substantially consummated but no final decree bas been entered because of pending matters.

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

__

_

_ • _

_

• _ _

_ __ •• _ _

_ _ _ _

'••• --- - _ _ _

_

_ _

• _

__ __

• • •••

__• __•

__

_____________

•

•••

'

• __

•__
TWENTY-:NlNTH ANNUAL REPORT 179

TABLE IS.-Summary of criminal cases developed by the Oommission which '!Cere

pending at June 30, 1963

Cases

NumberoC

deCendants

In such

eases

NumberoC

such defendants aa

to whom eases have

been com. pleted

Number of such defendants as to whom eases are pend.

Ing and reasons therefor

Not yet IAwaltlngl,Awalting appre- trial appeal hended

------- Pending, referred to Department of

Justice In the fiscal year- 1938

1939_ _. _. _. 1940

1941

1942

1943

1944

194!i

1946

1947

1948

1949_. ., _. _. 1950 • •

1951.

1952_

1953_ ._

19M ._. 1955 ._ 1956_ _.

1957

1958 _._. 1959_. •• •

1960_ _. _. 1961

1962••• • • ._._. _. 1963 _. _._

TotaL _. _.

o

o

o

o

o

1

o

1

4

1

o

o

o

o

o

1

1

o

1

3

1

8

9

22

31

18

1102

1

o

o

o

14

3

Ii

1

15

4

o

o

o

o

o

1

7

o

1

38

9 106

90

200

118

43

656

1

o

o

o

14

o

s

o

o

o

o

o

o

o

o

o

o

o

o

3

5

17

41

47

51

9

193

o

o

o

o

o

2

o

1

15

4

o

o

o

o

o

1

7

o

o

o

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27

8

10

5

1

81

o

o

o

o

o

1

o

o

o

o

o

o

o

o

o

o

o

o

1

35

4

62

37

126

58

33

357

o

o

o

o

o

o

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o

o

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o

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o

o

o

o

o

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4

17

4

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25

SUMMARY

~~~l =~s:::~u:~ ~::====-=========================================================================== Total defendants as to whom cases are pending 1 673

1As of the close of the fiscal year, indictments had not yet been returned 88 to 206 proposed defendants

In 44 cases referred to the Department of lusUce. These are reflected only In the recapitulation of total& at the bottom of the table.

__• _

•• • _•• •••••••• _•• _ ••• • • • _ ••• _ __• • _

_

••• _

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180 SECURITIES AND EXCHANGE COMMISSION

TABLE 14.-Summary ot cases institutect in the courts by the Commission uncter

the Securities Act ot 1933, the Securities ElDchange Act of 1934, the Public

Utility HoTAlingCompany Act of 1935, the Investment Company Act of 1940,

ana the Investment Actvisers Act of 1940

Total Total Cases Cases Cases In- Total Cases cases In. cases pending pending stltutad cases closed stltuted closed at end at end during pending during

Types of cases up to end up to end of 1963 of 1962 1963 during 1963 of 1963 of 1963 fiscal fiscal fiscal 1963 fiscal fiscal fiscal year year year fiscal year year year year

---------------------- Actions to enjoin violations of 103 the above Acts _______________ 1,274 1,160 114 109 212 99

Actions to enforce subpoenas

under the Securities Act and the securities Exchange Act •• 90 83 7 2 12 14 6 Actions to carry out voluntary

plans to comply with Section ll(b) of the Holding Com. 139 pany Act. __________________._ 145 6 7 1 8 3 Miscellaneous actions __________ 47 42 5 6 8 14 9

--- ------- ------- -------- Total. 1,556 1,424 132 118 130 248 117

TABLE 15.-Summary of cases institutect against the Commission, cases in which

the Commission partiCipatect as intervenor or amicus curiae, and reorganization cases on appeal under Chapter X in which the Commission participatect

Total Total Cases Cases Cases In. Total Cases cases In. cases pending pending stltuted cases closed stltuted closed at end at end during pending during

TypesoCcases up to end up to end of 1963 of 1962 1963 during 1963 ot1963 of 1963 fiscal fiscal fiscal 1963 fiscal fiscal fiscal year year year fiscal year year year year

---------------------- ActIOns to enjoin enforcement

of securities Act, Securities

Exchange Act and Publlc

Utility Holding Company

Act with the exception of

subpoenas issued by the Commission 65 59 6 7 1 8 4 Actions to enjoin enforcement

of or compllance with sub- poenas issued by the Com. mission 9 _. 9 0 0 0 0 0 Petitions for review of Com- mission's orders by courts of appeals under tbe various

Acts admimstered by the Commisslon ._. 258 246 12 5 14 19 7 Miscellaneous actions against

the Commission or officers of the Commission and cases In

which the Commission par.

tlelpated as Intervenor or amicuJ cantu _. 258 244 14 14 14 28 14 Appeal cases under Chapter X

In which the Commission partlclpated 192 186 6 5 10 15 9

---------- ------- -------- Total 782 744 38 31 39 70 34

••• __________• _____

•••• _____• ____••••

•••• __••••• ________•

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TWENTY-NINTH ANNUAL REPORT 181

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182 SECURITIES AND EXCHANGE COMMISSION

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Nature and status of case

TABLE 24.-Proceedmgs ~tnder the Bankruptcy Act pending dunng the fiscal year

ended June 30. 1963, in which the Commission particvpated when district court orders were challenged in appellate courts

Name oC caseand U.S. Court of \ Appeals

American Trailer Rentals Co.,

debtor, In Re securinos and E:<:-

change Comrrnssron, appellants (10th Crreuit).

Colorado Trust Deed Funds, Ine.,

appellant v, James Thomas, III,

Boyd Thomas and SecuritIesand

Exchange Comnnssron,appellees

(lOth Crreuit).

Crumpton BUIlders,Inc, debtor;

In Re SeCUTltIeSand Exchange Commlssion appellants (5th Circult).

Flora Sun Corp., debtor; (Francis

J. Corr & Dorothy J. Corr) ap- pellants (CA-5).

Flonda Southern Corp., debtor;

W. D. York, appellant (5th Circuit) USSC

GFE Industries, Inc.. debtor; Lester M. Entm & Joseph Waters,

dba Lester :If. Entm Associates, appellants v. John C. Stevens,

Trustee and Secunties and E:<:-

change Commission.

Grayson-Robmson Stores, Ine.,

debtor; Securities and Exchange Commission, appellants (2d Circuit).

Inland Gas Corporation, et at,

debtors; GreenCommittee, et al., appellants (6th Cireuit),

Los Angeles Trust Deed & Mortgage Exchange. debtor; Secunties and Exchange Oomrmsston, appellants (9th Oircuit). Muskegon Motor SpeCIaltiesCo.,

debtor; International Union,

United Automobtle, Aircraft and

Agricultural Implement Workers

of America, AFL-CIO, and Its

local 1272, Voluntary Unincorporated ASSOCIatIOns, appellants (6th Circuit).

Scranton Oorporatron& Hal Roach

studios, debtors, State oC California, appellant (3d Circuit).

Selected Investments Corp., debtor; B. H. Carey, appellant (10th Circuit).

TMT Trailer Ferry. Inc., debtor;

The ProtectIve Committee for

Independent stockholders of

TMT Trailer Ferry. Ine., appel- lant v. C. Gordon Anderson as Trustee, appellee (CA-5).

Notice of appeal filed by SEC from the order entered May 20. 1963.

denymg the motion of SEC to dismiss the debtor's petition Cor

reliefunder Chapter XI ofthe Bankruptcy Act on the ground that

any proceedingforthe rehabilitation ofthe debtor under the Bankruptcy Act should have been brought under Chapter X ofthat Act

Pending. Notice of appeal filed by Colorado Trust Deed Funds, Inc., from an order entered Nov. 6,1961,dtsnussing Its petition forreorgamzatlon under Chapter X ofthe Bankruptcy Act. Briefsfiled and hearing set forJuly 27.1962. Oplmon rendered Nov. 19,1962,atlinnlng the

judgment ofthe drstriet court. Closed

Notice of appeal filed by SEC from that pornon ot the order entered

May 14,1963,denying the motion ofSEC to dismissthe proceedings under Chapter XI ofthe Bankruptcy Act. Pending.

Appeal from order ofApr. 25,1962,approving a petition forreorgani- zation under Chapter X ofthe Bankruptcy Act. Commissionfiled a hnef. Court of appeals decision handed down affirming the

district court's order approving the pennon for reorganization. Closed.

Appeal filedby W. D. York. forreversal of district court order entered

July 9,1962.findingthat tbe debtor's petltlon forreorganizationwas filedm good faith. Order of CA-5 entered Nov. 28, 1962,affirming the order of the distnct court. Petition for rehearing filed and

denied Dec 27, 1962. Petition for writ of certiorari filed Feb. 7,

1963. BriefforSEC m opposition Mar. 1963. Oertrorarl denied by

supreme court. Closed.

Notice of appeal filed by Lester M. Entin and Joseph Waters dba

Lester M. Entm Associates. from tbe "Order Autborizmg Sale"

entered Mar. I, 1963and fromtbe "Recommended Order Autborizing Saleof Private Brands and Order Granting Stay" filed Dec. 17,

1962,and from the "Order Authori.mg Sale of Private Brands

Division of Debtor" entered Mar. 4, 1963. Pending. ThISappeal mvolvestbe question wbether a proceedingforan arrange- ment with its creditors by Grayson-Robmson Stores,Ine., pursuant to Chapter XI ofthe Bankruptcy Act should be dismissed on the

ground that any proceeding for tbe rehabilitation of the debtor

under the Bankruptcy Act should have been brought under Chap- ter X of that Act. Oplnlon rendered affimtlng dfstrict court's

denial ofmotion. Petition for rehearing denied. Closed.

Appeal from order of Apr. 8, 1961,limiting tbe recovery of expenses by the Green Committee. Brief and appendix of appellee filed

Nov. 2, 1961. Brief of the Commission flied Nov. 9, 1961. Oral

argument held Mar. 26,1962. Decision rendered Oct. 1962,affirming the judgment ofthe distnct court. Closed.

Notice of appeal filed by Commissionfrom order ofthe dtstrict court denying motion to dismiss Chapter XI proceedings under an amended petition to complywith provisions ofChapter X. Appeal dismissed. Closed.

This action arises out of a question wbether or not tbe district court has discretion to refuse to compel the Tru.stee of a corporation in

reorganization under Chapter X of tbe Bankruptcy Act to submit to arbitration a claim for veesnon pay arising out of a previously expired collectivebargaining agreement with a defunct subdivision

ofthe debtor corporation. Petition for writ of certiorari flied May 27,1963. Pending.

Appeal filed Mar. 9, 1962,from order of court approving sale of assets ofHal Roach Studios pursuant to Sec.116(3)ofChapter X proceed- ings. Stipulation dated Sept. 5, 1962,dtsmlsslng appeal Sincethe matter is moot. Closed.

Appeal from order ofthe district court denying appellant's compen- sation forlegalservicesand reinlbursement of emenses as Attorney for debtor. Motion for dlsmlssal of appeal filed by appellant due to satisfactory settlement nesotlatlons. Commission's objectionsflied Nov. I, 1001. Order Nov. 20, 1001,remanding case to District Court. Order entered by tbe dfstrict court on June 4,

1962,reaflirming prior order denying compensation to appellant. Appeal on tbe merits. Court of Appeals affirmed dlstrict court's

oplnlon, May 23,1963. Closed.

Appeal flied July 11, 1962,by tbe Protective Committee for Independent Stockholders of TMT Trailer Ferry, Ine., from "Oplnlon and Order on Valuation and Insolvency" of the Hon. Emett C.

Choate. Appeal taken by Committee from the order confirming the plan of reorganization entered Feb. 14, 1963. Pending.
TWENTY-NINTH ANNUAL REPORT 221

TABLE 24.-Proceedings under the Bankruptcy Act pending durtnq the fiscal year

ended June 30, 1963, in uihsch. the COlnmisswn participated when district court orders were challenged in appellate courts-Continued

Name of case and U.S. Court of Appeals

United Star Companies, Inc et a!.,

debtors-appellees; In Re secunties and Exchange Commission,

appellants (5th Orreuit).

Walco Buildmg Corp., debtor;

Hortense Mayer Hirsch, et al.,

appellants v. Nathan Yorke.

Trustee, et al , appellees (7th

Circuit).

Nature and status of case

Notice of appeal filed by Comrrussron from that pornon of the order entered on Mar. 22.1963 denying the motion of the SEC to dismiss the proceedings under Chapter XI of the Bankruptcy Act. Pendmg.

Appeal filed from the order of the distnct court entered Feb. 8, 1963,

enjoining appellants from "proceedmg or contmumg In any manner"

WIth their state action. Commlssron filed a memorandum In

support of the motion of certam bondholders to dismiss the appeal

May 27, 1963. Pending.

TABLE 25.-.4. 30.year summary of crimi1UJl cases de'l:eloped by the COlllmis8iollfiseat years 1934-1963

[See table 26 for elasstneation of defendants as broker-dealers. etc 1

Number Number Number Number of persons of such of these

of cases as to cases In Number defend. Number

referred whom which of de- Number Number ants as to of these to De. prosecu- indict. fendants of these of these whom defend. Fiscal year partment tion was ments indtcted defend- defend. proceed- ants as to of Justice recom- were In such ants con. ants ac- mzs were whom In each mended obtained cases 1 vieted quitted dismissed cases are year In each by U.S. on motion pending t

year attorneys of U.S.

attorneys

--------------------,---- ---- 1934_. 7 36 3 32 I. 0 15 0 1930 29 177 14 149 84 5 60 0 1936 43 379 34 368 164 46 158 0

1938 1937______________

_._ .. _______._ ..... _ 42 128 30 144 78 32 34 0 40 113 33 134 75 13 46 0 1939. 52 245 47 292 199 33 60 0 1940 59 174 51 200 96 38 66 0 1941.

1942_________________ 54 150 47 145 94 15 36 0

1943. 50 144 46 194 108 23 63 0

1944_________________ 31 91 28 108 62 10 33 3 27 69 24 79 48 6 25 0 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

1950_________________ 27 44 25 57 19 13 25 0

18 28 15 27 21 1 5 0 1951. 29 42 24 48 37 5 6 0 1952_. 14 26 13 24 17 4 3 0 1953._ 18 32 15 33 20 7 5 1 1954 19 44 19 52 29 10 6 7 1955. ________________ 8 12 8 13 7 0 6 0 1956. 17 43 16 44 28 5 10 1 1957 26 132 18 80 32 5 8 35 1958. .. 15 51 14 37 17 5 11 4 1959_ .. 45 217 39 234 109 20 16 89 1960_. 53 281 44 207 104 11 43 49 1961. 42 240 41 275 95 18 9 153 1962____._._ ... ______ '50 191 46 128 36 3 22 67 1963. ._. . '48 168 20 43 8 0 1 34

-------------------------------- Total 944 3,430 '774 3,311 1,682 354 , 812 463

I Tbe- number of defendants In s esse is sometimes Increased by the Department of Justice over the

number against whom prosecution was recommended by the Commission. Also more than 1 indictment

may result from a single reference. 2 See table 13 for breakdown of pending cases.

, 32 of these references as to 118 proposed defendants were still being processed by the Department of Justice as of the close of the fiscal year. and also 19 of tbe Prior years references as to 88 proposed defendants . 678 of tbese cases have been completed as to 1 or more defendants. Convictions bave been obtained

In 572 or 85 percent of such cases. Only 107.or 16 percent. of such cases have resulted In acquittals or dismissals as to all defendants. this Includes numerous cases In which indictments were dismissed without trial because of the death of defendants Or for other administrative reasons. See note 5, mfr« .

Includes 73 defendants who died after indictment,

~

______• ________

_____•• __________

______•__________

_______•________ ______•__________

__________•• ____

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•• ______•_______

____•__•• _____•

•• __•____•• ____ _____•• __________

_______•___•___•

______• ___•___•__

_____• __ ______ • ____• ___ _____ ____• __________ _____• __________

__• _______ __

••• _______

•

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222 SECURITIES AND EXCHANGE CO~SSION 
TWENTY-~INTH A1\"'NUALREPORT 223

TABLE 27.-.'1 SO-year summary of all injunction cases instituted by tile Comm~sI01v-1934 to June 30, 1963, by calendar year-Continued

SUMMARY

4,207

4.207

3,070

3362

775

Actions Insntuted Injunctions obtained

Actions pending

Other dispositrons ,

TotaL

Cases I_D_e_fen_d_an_t_s_

1,2731

I,U8 I 42

U3

1'273j

I These columns show disposltion of cases by year of drsposmon and do not necessarily reflect the drsposition of the cases shown as having been instituted in the same years.

s Includes 26 cases which were counted twice IIIthis column because injunctions against different defendants in the same cases were granted III different years Includes \lll defendants in 22 cases in which mluncnons have been obtained as to 56 codefendants. 'Includes (a) actions disrmssed (as to 698 defendants); (b) actions discontinued, abated, abandoned,

stlpulated, or settled (as to 55 defendants); (e) actions III which judgment was denied (as to 18 defendants),

(d) actions in which prosecution was stayed on supulatton to discontinue misconduct charged (as to 4

defendants).

u.s. IOVERNIlE.' PllaTI •• o,neil II'"

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