23rd Annual Report

of the

Securities and Exchange

Commission

Fiscal Year Ended June 30, 1957

UNITED STATES GOVERNMENT PRINTING OFFICE. WASHINGTON: 1958

For aaI" b,. th" Superintendent of Doeument8. U. S. Government Printing Offir"

W"WDKton 25. D. C. - Pri"" 75 ""Dt. (psI"'r cover)
D

SECURITIES AND EXCHANGE COMMISSION

Headquarters Office

425 Second Street NW.

Washington 25, D. C.

COMMISSIONERS

January 7, 1958

EDWARD N. GADSBY, Chairman

ANDREW DOWNEY ORRICK

HAROLD C. PATTERSON

EARL F. HASTINGS

JAMES C. SARGENT

ORVALL.DuBoIS, Secretary
LE'ITER OF TRANSMITrAL

SECURITIES AND EXCHANGE COHHISBION,

Washington, D. 0., January 7,1958.

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

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

Commission covering the fiscal year July 1, 1956,to June 30,1957, in

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

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

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

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

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

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

amending the Bretton Woods Agreements Act.

Respectfully,

EDWARD N. GADSBY,

Ohairman.

THE PREsIDENT OF THE SENATE,

THE SPEAKER OF THE HOUSE OF REPREsENTATIVES,

Washington,D.l7.

m

TABLE OF CONTENTS

Page

Forevvord_________________________________________________________ XI

Commissioners and staff officers , ____ ______ ________ ________ _______ XII

Regional and branch offlcea.i, , ___ ___ _ _______ XIII

Biographies of eommissioners , __ _________ __ ______________ __ XIV

PART I

ENFORCEMENT PROGRAM____________________________________ 1

The problem of "boiler rooms"__________________________________ 2

Sales of unregistered securities based on claimed exemptions________ 3

Evasion of registration requirements through the "no sale" theory __ 3

Certain problems of promotional stock___________________________ 4

Stop order and suspension proceedings for new issues_______________ 5

Broker-dealer Inspections, __ ____ _________________ 6

Statistical summary of enforcement activities_____________________ 7

PART II

LEGISLATIVE ACTIVITIES_ _ _ 10

Statutory amendments proposed by the Commission_______________ 10

Proposal to increase registration fees_____________________________ 12

Registration of unlisted securities of certain companies having large

investorinterest_____________________________________________ 13

Proposals to amend the exemption from registration for small issues , 15

Reporting requirement of beneficial owners of registered securities., __ 15

Disclosure of beneficial ownership of registered securities in election

contests____________________________________________________ 16

Other bills introduced in Congress to amend the Federal securities la~s_______________________________________________________ 16

Other legislative propoaala.c ; ___________________________________ 17

Congressionalhearings_________________________________________ 17

PART III

REVISION OF RULES AND FORMS_____________________________ 20

Proposed revision of rule 133 under the Securities Act of 1933______ 20

Adoption of rule 434A and amendment of Forms 8-1 and S-9 under

the Securities Act of 1933_____ _____ ________ __________ _____ 21

Adoption of note to rule 460 under the Securities Act of 1933_______ 22

Rescission of rules 132, 151, and 414 under the Securities Act of 1933_ 22

Amendment of rules 100, 170, and 426 under the Securities Act of 1933- 23

Revision of Regulation A under the Securities Act of 1933 and withdrawal of proposed amendments thereto________________________ 24

Withdrawal of proposal to amend Form 8-1-_ 25

Proposed revision of Forms S-2 and 8-3__________________________ 25

Amendment of Forms S-4, 8-5, and 8-6__________________________ 25

Proposed amendments to statement of policy relating to investment

company sales Iiterature-., , ________ ______ _____ 26

Amendment of rule 12b-35 and Form IO-K under the Securities Exchange Act of 1934_ _ ___ ___ _ 26

V

_
VI CONTENTS

REVISION OF RULES AND FORMS-Continued Page

Amendment of Forms 4, U-17-2 and N-30F-2____________________ 27

Amendment of Forms N-8B-l and N-30A-L____________________ 27

Amendment of rule 17d-l under the Investment Company Act of 1940_ 28

Proposed revision and consolidation of Forms N-8B-2 and N-8B-3__ 28

Adoption of rule 17a-7 under the Securities Exchange Act of 1934___ 28

Amendment of rule 15c2-3 under the Securities Exchange Act of 1934_ 29

Amendment of rule 12f-2 under the Securities Exchange Act of 1934_ 30

Proposal to amend rules 15b-8 and 1780-5 under the Securities Exchange Act of 1934__________________________________________ 30

PART IV

ADMINISTRATION OF THE SECURITIES ACT OF 1933__________ 33

Description of the registration process____ ________________________ 33

Registration statement and prospectus, ______________________ 33

Examination procedure.,., __________________________________ 34

Time required to complete registration_______________________ 34

Volume of securities registered__________________________________ 35

Registration statements filed__ __________________________________ 37

Results obtained by the registration process_______________________ 38

Stop order proceedings; ________________________________________ 40

Examinations and investigations_____ __ _____ ______ ____________ 47

Exemption from registration of small issues_______________________ 47

Exempt offerings under Regulation A________________________ 48

Exempt offerings under Regulation D________________________ 49

Denial or suspension of exemption___________________________ 49

Exempt offerings under Regulation B_ ___ __ 52

Litigatlon under the Securities Act of 1933______________ 52

PABT V

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF

1934___________________________________________________________ 59

Regulation of exchanges and exchange trading____________________ 59

Registration and exemption of exchanges_____________________ 59

Disciplinary actions_____ __ ____ _____________ __ _ 60

Registration of securities on exchanges___________________________ 60

Market value of securities traded on exchanges____________________ 62

Assets of companies with listed common stocks________________ 63

Foreignstock_____________________________________________ 63

Comparative over-the-counter statistics .__ 63

Delisting of securities from exchanges____________________________ 65

Delisting proceedings under section 19 (a)____________________ 66

Unlisted trading privileges on exchanges__________________________ 68

Unlisted trading categories______ ______________ _______ __ __ 68

Volume of unlisted trading in stocks on exohanges; ____________ 69

Applications for unlisted trading privileges..c., , ________________ 69

Block distributions reported by exchanges, _______________________ 70

Manipulation and etablllaatlon, _________________________________ 71

Manipulation. __________________________________ __________ 71

Stabilization______________________________________________ 73
CONTENTS m

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF

1934-Continued P&&,e

Insiders' security transactions and holdings., ______________________ 78

Recovery of short swing trading profits by or on behalf of issuer. 75

Regulation of proxies; _ _ ______ ____________________ _______ 75

Scope of proxy regulation___________________________________ 75

Statistics relating to proxy statements________________________ 75

Stockholders' proposals.L, , _________________________________ 76

Ratio of soliciting to non-soliciting cornpanies, ________________ 77

Proxy eontests, ______ ____________ _____ _________ 77

Regulation of broker-dealers and over-the-counter markets__________ 77

Registration., __________________ ___ __ ____ __ 77

Administrative proeeedinga, 78

Net capital rule , __ ___ ____ ____ ______________ _______ __ 85

Financial statementa.c ; , __ ________________ _______ 86

Broker-dealerinspections .____ 86

Supervision of activities of National Association of Securities Dealers,

Inc________________________________________________________ 88

Disciplinary actions______ _____________ ____ _________ __ 89

Commission review of N ASD disciplinary acttona., ____________ 89

Commission review of action on membership__________________ 92

Commission action on NASD rules__________________________ 93

Litigation under the Securities Exchange Act of 1934_______________ 93

Anti-fraud litigation_____ ____ _ 93

Cases involving the net capital rule__________________________ 94

Delisting cases____________________________________________ 96

Proxylitigation___________________________________________ 97

Litigation involving registration and reporting requirements_____ 97

Other litigation_______ _____________________________________ 99

Participation as amicus curiae_______________________________ 100

PART VI

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935___________________________________________ 101

Composition of registered holding company systems--summary of

changes____________________________________________________ 101

Developments in individual registered systems________________ 104

Acquisitions by persons other than registered holding eompanles; 126

Electric generating companies developing atomic power or supplying electric energy to installations of the Atomic Energy

CoDlntission_____________________________________________ 126

Financing of registered public utility holding company systemstrends in electric and gas utility industries__________________ 131

Protective provisions of first mortgage bonds and preferred

stocks of public utility companies__________________________ 141

Rules, forms, and statement of policy________________________ 143

Proposal to amend rule 9________________________________ 143

Amendments of rule 70_________________________________ 143

Proposed statement on capitalization ratios_______________ 144
VIII CONTENTS

PART VII

Page

PARTICIPATION OF THE COMMISSION IN CORPORATE REORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCY

ACT, AS AMENDED_ _ _ 145

Summary of activities__________________________________________ 146

The Commission as a party to proceedings________________________ 147

Problems regarding protective committees________________________ 147

Problems in connection with the administration of eatates, __ 148

Procedural matters; _ ___ _ 149

Activities with regard to allowances______________________________ 151

Advisory reports on plans of reorganization_______________________ 153

Commission activities under Chapter XL________________________ 155

PART VIII

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939_ 157

PART IX

ADMINISTRATION OF THE INVESTMENT COMPANY ACT OF 1940___________________________________________________________ 158

Companies registered under the Act______________________________ 158

Types of new investment companies registered, 158

Growth of investment company assets____________________________ 159

Study of size of investment companies and inspection program______ 159

Current information, __ __ _ 160

Application and proceedings____________________________________ 160

Litigation under the Investment Company Act of 1940_____________ 164

PART X

AD~IINISTRATION OF THE INVESTMENT ADVISERS ACT OF 1940___________________________________________________________ 167

Administrative proeeedings , _ _____ ______ __ __________ 168

Litigation under the Investment Advisers Act of 1940__ ____________ 168

PART XI

OTHER ACTIVITIES OF THE COMMISSION____________________ 170

Court proceedings , ___ _ __ _____ _______ _______________________ 170

Civil proceedings., __ _______________________________ _ ____ 170

Criminal proceedings_______________________ 170

Complaints and investigations_______ _____ _______ _________ 176

Enforcement problems with respect to Canadian securities; _________ 178

Activities of the Commission in accounting and auditing____________ 182

.) Opinions of the Commisston, ___________________________________ 188

Applications for non-disclosure of certain information; _____________ 190

Statistics and special studies, ___________________________________ 191

Public dissemination of information______________________________ 194

Information available for public inspection____________________ 195

Publications; ___________________________________ __________ 196

Organization__________________________________________________ 196

Personnel and fiscaL___ ___ __________ __ 197

Personnel program.L, . ___________ __ ____ 201

_
CONTENTS

PART XII

APPENDIX-STAlISTlCAL TABLES

IX

Page

Table 1. 23-year record of registrations fully effective under the Securities

Act of 1933___ ______ _________________ _____________ 205

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

fiscal year 1957_ __ ____ ___________________ _____ _ _________ 206

Part 1. Distribution by months; ________________________________ 206

Part. 2. Purpose of registration and type of security________________ 206

Part 3. Industry of registrants , __ _ _____ _______ __ 207

Part 4. Use of proceeds , _ ______ _____________________________ 208

Table 3. New securities offered for cash in the United States____________ 209

Part 1. Type of offering 209

Part 2. Type of security __________ _______ ___ _____ 210

Part 3. Type of issuer . ___ ____ __ __________________ ________ 211

Part 4. Private placement of corporate securities__________________ 212

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

securities offered for cash.; , ___ _____________ 213

Part 1. All corporate_____ _ _____ _ ___________ ______ 213

Part 2. Manufacturing_________________________________________ 213

Part 3. Mining_____ ____ __ ____ 214

Part 4. Electric, gas, and water_________________________________ 214

Part 5. Railroad , _ _ ___ __ _____________ _____________ ___ 215

Part 6. Other transportation____________________________________ 215

Part 7. Communication __ . __ . . _______________ _____ 216

Part 8. Financial and real estate . __ __________ ______ ___ 216

Part 9. Commercial and other __ _ _______________________________ 217

Table 5. Summary of corporate securities publicly offered and privately

placed from 1934 through June 1957_______________________ 218

Table 6. Denial and suspension orders issued pursuant to Regulations A

and D under the Securities Act of 1933 during the fiscal year

1957___________________________________________________ 219

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

of 1934-effective registrations as of June 30, 1957, classified by

type of organization and by location of principal office_________ 225

Table 8. Unlisted stocks on securities exchanges_______________________ 226

Part 1. Number of stocks as of June 30,1957-____________________ 226

Part 2. Volume of trading-calendar year 1956____________________ 226

Table 9. Issues and issuers on exchanges as of June 30, 1957____________ 227

Part 1. Un duplicated number of issues and issuers on all exchanges..; 227

Part 2. Number of issues and issuers on each exchange_____________ 227

Table 10. Market value and volume of sales effected on securities exchanges in the 12-month period ended December 31, 1956, and

the 6-month period ended June 30,1957 _ _ 228

Table 11. Block distributions_______________________________________ 229

Table 12. Comparative share sales and dollar volumes on exchanges., , _____ 230

Table 13. Changes in the composition of active registered public utility

holding company systems, fiscal year 1957__________________ 231

Table 14. Reorganization proceedings in which the Commission participated during the fiscal year 1957_________________________ 232

Table 15. Summary of cases instituted in the courts by the Commiesion , 233

~___________ __ ___

_
x CONTENTS

Page

Table 16. Summary of cases instituted against the Commission, cases in

which the Commission participated as intervenor or amicus

curiae, and reorganization cases on appeal under Chapter X

in which the Commission participated_____________________ 233

Table 17. Injunctive proceedings brought by the Commission which were

pending during the fiscal year 1957_ ______________________ 234

Table 18. Indictments returned for violation of acts administered by the

Commission and related Federal statutes which were pending

during the fiscal year 1957____________ 240

Table 19. Petitions for review of orders of the Commission which were

pending in courts of appeals during the fiscal year 1957 _____ 244

Table 20. Contempt proceedings pending during the fiscal year 1957__ ____ 246

Table 21. Cases in which the Commission participated as intervenor or as

amicus curiae pending during the fiscal y..ar 1957___________ 247

Table 22. Proceedings by the Commission to enforce subpenas pending

during the fiscal year 1957_______________________________ 248

Table 23. Miscellaneous actions involving the Commission or its employees

pending during the fiscal year 1957_______________________ 249

Table 24. Actions to enforce voluntary plans under section 11 (e) of the

Public Utility Holding Company Act pending during the

fiscal year 1957________________________________________ 250

Table 25. Actions under section 11 (d) of the Public Utility Holding Company Act pending during the fiscal year 1957 _. ____________ 250

Table 26. Reorganization cases under Chapter X of the Bankruptcy Act

pending during the fiscal year 1957 in which the Commission

participated when appeals were taken from district court

orde~_________________________________________________ 251

Table 27. A 24-year summary of criminal cases developed by the Commission , __________________________ _________________ 252

Table 28. Summary of criminal cases developed by the Commission which

were still pending on June 30,1957_______________________ 253

Table 29. A 24-year summary classifying all defendants in criminal cases

developed by the Commission____________________________ 253

Table 30. A 24-year summary of all injunction cases instituted by the

Commission. ________ _ ______ _________________ _ 254
FOREWORD

The 23rd Annual Report of the Securities and Exchange Commission to the Congress for the fiscal year July 1, 1956, to June 30,

1957, describes the Commission's activities during the year under

the statutes which it administers. These include supervision of the

registration of securities for sale to the public by use of the mails

and in interstate commerce, the surveillance of the exchange and

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

brokers and dealers, regulation of registered public utility holding

company systems and investment companies, and litigation in the

courts.

In the fiscal year 1957 new issues of securities registered for public

sale totaled $14.6 billion, the largest amount in the Commission's

history. The number of brokers and dealers registered with the Commission at the end of the year was 4,771, representing some 200 more

than in any previous fiscal year.

In recent years the Commission has vigorously pursued an intensified Enforcement Program of discovering, preventing and punishing

fraudulent and other illegal activities in connection with transactions

in securities. Administrative and legal actions taken under this

Enforcement Program have exceeded those of any prior year. During the year there were 132 suspensions of offerings for which an

exemption provided for small issues of securities was claimed, 10stoporder proceedings were commenced to suspend the effectiveness of

registration statements covering new issues of securities, 1,214 inspections of brokers and dealers were conducted which uncovered

1,722 violations of the securities laws and the rules thereunder, 74

revocation and denial proceedings were instituted against brokers and

dealers, 71 injunctive actions were instituted in the courts and 26

cases were referred to the Department of Justice for criminal

prosecution.

The Commission has submitted to the Congress proposals for a

comprehensive revision of various of the acts which it administers,

which proposals are now pending before the appropriate Congres-

,sional Committees. These proposals, as well as other pending bills

affecting the Commission, are discussed in detail in this report.

XI
COMMISSIONERS AND STAFF OFFICERS

(As of December 15, 1957)

Coinmissioners T~.r:flre8

Enw ARDN. GADSBYof Massachusetts, Ohairman 1 1958

ANDREWDOWNEY ORRICK of California' 1962

HAROLDC. PATTERSONof Virginia 1960

EARL F. HASTINGS of Arizona 1959

JAMES E. SARGENTof New York 1961

secretary: ORVALL. DuBoIS

1Assumed office on August 20, 1957. Succeeded:T. Sinclair Armstrong who resigned on

May 27, 1957.

I Served as Acting Chairman from May 27, 1957, to June 5, 1957. and from June 13,

1957, to August 20,1957.

Staff Officers

Ar.BEBTK. SCHEIDENHELM,Executive Director ..

RAY GARRETT,JR., Associate Executive Director.'

BYROND. WOODSIDE,Director, Division of Corporation Finance.

SHARONC. RISK, Associate Director."

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

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

JOHN E. LoOMIS, Associate Director.

THOMAS G. MEEKER,General Counsel.

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

ANDREWBARR,Chief Accountant.

LEONARDHELFENSTEIN,Director, Office of Opinion Writing.

W. VICTORRODIN, Associate Director.

1Destgnated Associate Executive Director, September 26, 1957. Formerly Director,

Division of Corporate Regulation.

Desiguated October 14, 1957.

Designated Director, Division of Corporate Regulation, November 3, 1957. Formerly

Associate Director, Division of Corporate Regulation.

XII

"

•

•

•
REGIONAL AND BRANCH OFFICES

Regional Administrators

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

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

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

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

Mississippi, Florida, and that part of Louisiana lying east of the Atchafalaya River.-William Green, Peachtree-Seventh Building (Room 350),

Atlanta 23, Georgia.

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 3, Illinois.

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

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

Allred, United States Courthouse (l\.oom 301), 10th and Lamar Streets,

Fort Worth 2, Texas.

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

Dakota, Utah.-Milton J. Blake, 822 Midland Savings Building, 444 17th

Street, Denver 2, Colorado.

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

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

3, California.

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

905 Second Avenue Building (Room 304), Seattle 4, Washington.

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

District of Columbia.-William J. Crow, 425 Second Street NW. (Room

105), Washington 25, D. O.

Branch Offices

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

Detroit, Michigan. Federal Building (Room 1074).

Los Angeles, California. United States Post Office and Courthouse (Room

1737),312 North Spring Street.

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

East Kellogg Boulevard.

Salt Lake City, Utah. Boston Building (Room 201).

1Designated Associate Regional Administrator, October 21, 1957.

XIII
COMMISSIONERS

Edward N. Gadsby, Chairman

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

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

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

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

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

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

appointed a Commissioner of the Massachusetts Department of Public

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

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

the Massachusetts Department of Public Utilities and thereafter was

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

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

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

designated Chairman of the Commission.

Andrew Downey Orrick

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

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

duty with the United States Army as a captain in the Transportation

Corps. After being admitted to practice in California in 1947 he

was associated with the law firm of Orrick, Dahlquist, Herrington &

Sutcliffe, in San Francisco, until February 1954, when he became

Regional Administrator of the San Francisco Regional Officeof the

Securities and Exchange Commission. He served in that capacity

until May 24, 1955, when he was appointed a member of the Commission for a term of officeexpiring June 5, 1957. On June 12, 1957, he

was reappointed as a member of the Commission for a term of office

expiring June 5, 1962.

Harold C. Patterson

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

1897, and attended public schools in Massachusetts and Maryland.

He attended George 'Washington University after graduating from

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

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

XIV
COMMISSIONERS- xv

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

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

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

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

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

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

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

and Exchanges of the Securities and Exchange Commission and

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

a member of the Commission for a term of officeexpiring June 5, 1960.

Earl F. Hastings

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

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

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

he worked with Hawaiian constructors on a military installation on

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

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

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

consultants and managers. In 1949 he was appointed Director of

Securities, Arizona Corporation Commission, Phoenix, and he served

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

expiring June 5, 1959.

James C. Sargent

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

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

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

employed as a trial attorney by Consolidated Edison Company of

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

1942 and served in this country as an Air Intelligence school instructor and as a combat and special intelligence officer in the Southwest Pacific. He was separated to inactive duty in January 1946

with the rank of captain and holds that rank in the organized reserve. In the fall of 1948, he served as an Assistant Attorney General of the State of New York in the Election Frauds Bureau in New

York City. From July 1951 to August 1954he was employed as law
XVI OOMMIS8ION.ERS

assistant to the Appellate Division, First Department, Supreme

Court, State of New York. He was associated with the firm of

Spence & Hotchkiss, New York City, from August 1954 until November 1955. In November 1955 he was appointed Administrator

of the Commission's New York Regional Office. He served in that

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

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

ENFORCEMENT PROGRAM

The most significant aspect of the Commission's activities during 1957 in providing protection to public investors under conditions

then existing and foreseen has been its Enforcement Program.

The Enforcement Program, under the day-to-day direction of the

Commission, has been carried out by the Commission's operating

divisions in Washington and by its 14 regional and branch offices

in principal cities throughout the Nation.

The Commission believes that there can be no substantial question as to the desirability, indeed the necessity, for the effective enforcement of the Federal securities laws. Furthermore, it is the

policy of the Commission that its enforcement activities should include such efforts and such measures as are necessary to accomplish

that objective under the conditions which exist. The Federal securities laws were enacted by the Congress for the stated purpose

of providing full and fair disclosure of the character of securities

sold in interstate and foreign commerce, preventing £rauds in the

sale thereof, preventing inequitable and unfair practices in the securities markets and for other important purposes.

Conditions at present require a more vigorous and accelerated

program including new measures of enforcement. At no time in

the Commission's experience have activity and public participation in the securities markets been so great.

The dollar volume of securities effectively registered under the

Securities Act of 1933 increased by 94 percent from $7.5 billion in

the fiscal year 1953 to $14.6 billion in the fiscal year 1957. In the

postwar years 1945 to 1950 it was $4.5 billion on the average and

in the 1930's averaged about $2.5 billion. The increase for the fiscal

years 1951 to 1957 is graphically illustrated -in a chart appended to

this part of the report.

The aggregate market value of all stock on all stock exchanges,

which never exceeded $100 billion before 1946, except briefly in

1929, increased from $111 billion at December 31, 1950, to over $262

billion at June 30, 1957. The dollar volume of securities traded on

stock exchanges rose to $34 billion in the fiscal year 1957 as compared with about $17 billion in 1953.

The number of holders of shares in publicly owned corporations

was estimated by the New York Stock Exchange to have increased

1

447579-58-2
2 SECURIT~ES AND EXCHANGE OOMMISSION

from 6,490,000 in early 1952 to 8,650,000 at the end of 1955 and has

probably further increased since then.

Markets such as these are accompanied by enforcement problems

unprecedented in the Commission's experience. These problems were

not encountered in the relatively quiet and disillusioned markets of

the 1930's or under the conditions of war and reconversion. By

reason of recent economic and market conditions, it appears that a

substantial segment of the public again believes that it is possible

for the unskilled to reap large and quick profits in the securities

markets and has available funds which may be used for that purpose.

As a result, there is an increase in the number of uninformed and unsophisticated investors and an increase in their willingness to purchase unknown and speculative securities, which are represented as

offering unusual opportunities for gain.

These public attitudes, in turn, increase substantially the opportunities for illicit profit in the illegal or fraudulent sale of securities and

increase also the premium upon successful evasion of the investor

safeguards provided in the Federal securities laws. As in any field

of law enforcement, the number, ingenuity, and resources of violators

increase when the potential rewards of successful violations increase,

and the potential rewards of a successful securities fraud may be

measured in the millions of dollars.

illustrative of the enforcement problems now confronting the

Commission are the matters briefly summarized below.

THE PROBLEM OF "BOILER ROOMS"

The term "boiler room" means an organization engaged in the sale

of securities primarily over the telephone, particularly the long

distance telephone, by high pressure methods ordinarily accompanied

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

whatever representations are necessary to make a sale.

To detect and prove fraud in telephone sales of securities is a

difficult undertaking involving the painstaking collection and verification of evidence from widely scattered sources throughout the

United States.

The Commission has utilized all available enforcement techniques

to meet the problem. As a result, it is believed that most of the larger

"boiler rooms" whose activities created such concern in the past year

are no longer in operation. In lieu thereof', there are appearing a

great number of smaller firms using the "boiler room" techniques

with only a few high pressure salesmen. This cancerous diffusion
TWENTY -THl'RD ANNUAL REPORT 3

makes the enforcement work of the Commission more difficult and

requires continued emphasis upon this phase of the enforcement

program.

SALES OF UNREGISTERED SECURITIES BASED ON

CLAIMED EXEMPTIONS

The Commission believes that a large but undetermined number

of securities have been sold in violation of the registration and prospectus and in some cases the anti-fraud provisions of the Securities

Act of 1933 pursuant to claimed exemptions which, in fact, were

not available. The Commission believes that these sales have been

made, in the main, under claims of exemption pursuant to the socalled "private offering" exemption and the intrastate exemption.

This is particularly applicable where an issue, or the sales procedures

to be employed, would not stand the light of the full disclosure requirements of registration. In such cases, there is incentive to attempt

avoidance of these requirements through purported reliance upon an

exemption where the limitations of the exemption are not in fact

observed. The Commission ordinarily learns of these offerings only

after they have been commenced and has no means of ascertaining

whether or not the exemption is available except by initiating an

investigation.

Recently there have been a number of instances where securities

claimed to have been issued pursuant to these exemptions were transferred through channels in Canada, Switzerland, Liechtenstein, and

other foreign countries. When this occurs, the Commission has been

handicapped in tracing the transactions and determining the facts

upon which proof of the availability or nonavailability of the claimed

exemption depends, particularly where the laws of the particular

foreign country preclude disclosure of pertinent information. There

is reason to believe that in many instances these channels are utilized

for the deliberate purpose of complicating or frustrating the Commission's investigative effort. Every effort must be, and is being,

made to discover the facts in such cases and to prevent evasion of

statutory duties by such means.

EVASION OF REGISTRATION REQUIREMENTS THROUGH THE

"NO SALE" THEORY

By Commission rule No. 133, which embodies an interpretation of

long standing, the issue of securities in connection with certain types

of corporate mergers, consolidations, reclassifications of securities and

acquisitions of corporate assets has been deemed not to constitute a

"sale" of securities to stockholders of corporate parties to the trans-
4 SECURITlES AND EXCHANGE' COMMISSION

actions. This rule has the effect of exempting issues of securities in

these transactions from the registration requirements of the Act. It

has been relied upon in a very large number of corporate transactions

consummated without registration. A substantial number of transactions allegedly exempted under the rule in fact involve violation of

the registration provisions. The enforcement problem involved is

essentially similar to that in connection with the exemptions of private offerings and intrastate sales and there is evidence that this rule

also has been abused in deliberate efforts to evade compliance with

the registration provisions.

Last year the Commission invited comment upon a proposal which

in effect would have repealed the rule and made the transactions

covered by it subject to registration. 1 A public hearing was held on

the proposal in January 1957. In March the Commission announced

that it was deferring action on this proposal pending further study

of the problems and questions which had been raised," The staff

of the Commission is continuing its study of the proposal and related

matters.

The enforcement problem of keeping transactions subject to the

rule within legitimate bounds remains and will require continued investigative and enforcement effort. Furthermore, substantial revision of the rule may ultimately prove necessary to prevent its being

used as a loophole for evasion of the registration requirements. If

this occurs, a substantial increase in the number of registration statements filed under the Securities Act and in reports filed under the Securities Exchange Act is anticipated. In this connection, the administrative burden upon the Commission and upon corporations may be

minimized, in part, by coordinating such registration requirements

with the proxy statement requirements of the Commission's rules under section 14of the Securities Exchange Act.

CERTAIN PROBLEMS OF PROMOTIONAL STOCK

Recent economic conditions have been relatively favorable for the

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

which the securities of established enterprises have shown marked

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

been promoted, particularly in the South Central, Southwestern, and

Southeastern parts of the country, and their securities have been distributed either through registration or Regulation A, or more commonly, in reliance upon the intrastate exemption. Many of these issues and the sales teclmiques employed in their distribution appear to

involve abuses and possible violations of the anti-fraud and other provisions of the Securities Act or the Securities Exchange Act, which

1Securities Act Release 1\0. 3698 (October 2, 1956).

• Securities Act Release No. 3761 (March 15, 1957).
TWENTY -TRl'RD ANNUAL RIDPORT 5

require extensive investigation. The large number of these promotions and the rapidity with which they have increased has placed a

most serious burden on the Commission's field enforcement personnel

charged with the conduct of such investigations.

STOP ORDER AND SUSPENSION PROCEEDINGS FOR NEW ISSUES

There has been a substantial increase in instances where issuers

filing either under the registration requirements of the Securities

Act or under the Commission's exemptive Regulation A do not appear

to be making an effort to comply in good faith with the disclosure and

other standards required for such filings. Consequently, it is necessary that the Commission, for the protection of investors, institute

stop-order proceedings or suspension orders. Each of these has been

preceded by an investigation and in many instances has required a

formal administrative hearing. While the collection, presentation

and analysis of evidence imposes a substantial burden on the Commission's enforcement staff, nevertheless it has been possible to prevent the public sale of securities under circumstances likely to involve

fraud upon the investing public.

BROKER-DEALER INSPECTIONS

The chart appended to this part of the report shows the results of

the Commission's program of increased emphasis upon broker-dealer

inspections. The number of registered brokers and dealers increased

from 4,053 on June 30,1953, to 4,'7'71on June 30,195'7. The Commission presently estimates that at the end of the fiscal year 1958, there will

be 5,000 registered brokers and dealers. Itis estimated that this number will increase to 5,200 at the close of the fiscal year 1959. The Commission is concerned with the increase in numbers of registered brokers

and dealers. Many of the new brokers and dealers are inexperienced

and unfamiliar with the obligations owed to their customers. The

Commission has intensified its broker-dealer program. In the fiscal

year 195'7 1,214 inspections were completed, the greatest number since

the Commission was organized.

STATISTICAL SUMMARY OF ENFORCEMENT ACTIVITIES

The effectiveness of an enforcement program cannot be measured

simply by statistics as to the number of investigations undertaken and

the number of formal legal and administrative proceedings commenced. Such a "yardstick" does not differentiate between the relatively simple case and the complex and time-consuming cases, which

have become increasingly prominent. The effectiveness of an enforcement program inthe last analysis is measured only by the degree
6 SECURITliES AND EXCHANGE COMMISSION

of compliance with the law to be achieved and this in turn, depends

in large measure on making certain that suspected violations will be

investigated and that appropriate action will be taken either to

correct or to punish violations which are discovered. Nevertheless,

certain enforcement statistics of recent years illustrate, to some

degree, the progress' achieved by the Commission, aided by the increased appropriations in the fiscal years 1957 and 1958. There

follows a comparative table of certain enforcement actions covering

the fisca.lyears 1956and 1957.

Oomparative table of certain enforcement actions

Type of action 1956 1957

A. Investigations of Violations of the Securities Acts: Pending at beginning of period_______________________________________________ 644 813

Opened during perlod________________________________________________________ 362 512

Closed during period 1,006

193 1,325347

Pending at end of period

B. Broker-Dealer Inspections.

C. Admmistratlve Proceedings to Deny or Revoke Regtstrations of Broker-Dealers Instituted

D. Stop-Order Proceedings respeetmg Registration Statements under the Securities Act Instrtuted E. Suspension Orders respeotmg Regulation A Filings Instituted F. Injunctive Acnons Filed

G. Cases Referred to Department of Justiee for Criminal Prosecution Number of Possible Defendants Named In such References

813 978

--- --- 952 1,214

44 73

8 10 95 132

33 68 17 26

43 132

If the confidence and faith of the American public in the capital

markets are to be maintained so that the essential supply of capital

can be continued to meet the high rate of demand anticipated by

present estimates of industrial production with the resultant high

standard of living, it is essential that this agency continue its Enforcement Program by supervising the capital markets in accordance

with the standards established by the Congress in the Federal securities laws.

• _

_

_

_

_

_

_

_

_
5000

4000

3000

2000

1000

o

TWENTY -TmRD ANNUAL REPORT

S.E.C. BROKER-DEALER

INSPECTION PROGRAM

( NUMBER)

TOTAL

REGISTERED

BROKER DEALERS

S.E.C. INSPECTION OBJECTIVE' (18 mo. cycle)

.. ..... ........... .......

..

S.E.C.

BROKER-DEALER

INSPECTIONS

7

1951 52 53 54

(FISCAL YEAR END)

55 56 57

OS.3882

- ~

~

~ ------- -=-

~
8 SECURITI,ES AND EXCHANGE COMMISSION

SECURITIES REGISTERED WITH S.E.C.

DOLLARS

BILLIONS

16 '

NUMBERS

1200

DOLLAR AMOUNT OF

SECURITIES REGISTERED

scale

12

: . . . .: .

/ ......./ .

....

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

.

.

... NUMBER OF

... REGISTRATION

... STATEMENTS

.: FILED

r-, :: scale ---+-

: .... ..

, / .

~.-

1000

800

600

L

1951 52 53 54 55 56 57

(FISCAL YEAR END)

OS 386'

__ "

'

~
TWENTY-TIDRD ANNUAL REPORT.

CERTAI N ENFORCEMENT ACTIONS

UNDER THE SECURITIES ACT OF 1933

160

( NUMBER)

9

140

120

100

80

60

40

20

o

1953 54

SUSPENSION

ORDERSY

55

(FISCAL YEAR END)

STOP

ORDERS Y

56 57

~I SUSPENSION ORDERS. Orders denying exemptions from registration under

R egu latrcn A.

1/ STOP ORDERS . Number of registration statements on which orders were

Issued authorizing stop orders.

es- 3863

~
PARTn

LEGISLATIVE ACfIVITIES

Statutory Amendments Proposed by the Commission

During 1957 the Commission submitted to the Committee on Banking and Currency of the Senate and the Committee on Interstate

and Foreign Commerce of the House of Representatives, which

Committees have the duty of exercising watchfulness over the execution of the securities laws pursuant to section 136 of the Legislative

Reorganization Act of 1946, proposals to amend an aggregate of

87 provisions of the Securities Act of 1933, the Securities Exchange

Act of 1934:,the Trust Indenture Act of 1939, the Investment Company Act of 1940 and the Investment Advisers Act of 1940.1 These

proposals were introduced in the Senate by Senator Frank J. Lausche,

then Chairman of the Subcommittee on Securities of the Committee

on Banking and Currency, as S. 2544, S. 2545, S. 2546, S. 2796 and

S. 2547. Subsequently, they were introduced in the House of Representatives by Representative Oren Harris, Chairman of the Committee on Interstate and Foreign Commerce, as H. R. 9326, H. R.

9327, H. R. fl328, H. R. 9329 and H. R. 9330. The Senate bills were

referred to the Committee on Banking and Currency and the House

bills to the Committee on Interstate and Foreign Commerce. No

action was taken by either Committee during the remainder of the

first session of the Congress.

The overall purpose of the Commission's proposals, the more significant of which are briefly described below, is to strengthen the

safeguards and protections afforded the public by tightening the

jurisdictional provisions, correcting certain inadequacies revealed

through administrative experience and facilitating criminal prosecutions and other enforcement activities.

While the Commission was formulating its proposals, Senator J. W.

Fulbright, Chairman of the Committee on Banking and Currency,

and Representative Oren Harris agreed that there would be no objection to the Commission's discussing them with representatives of the

securities industry. On January 24, 1957, the Commission circulated a draft of proposed amendments, and a public conference

was held on February 25 and 26, 1957, at which interested persons

1The Commission submitted these legislative proposals to the Congress in July and

August 1957.

10
TWENTY -THI!RD ANNUAL REPORT 11

were heard. Further conferences were then held with representatives of interested industry groups, and the comments made at the

public hearing were further explored. The Commission reexamined

its program in the light of all the comments it had received, and prepared a revised draft of amendments, which was circulated on June

17, 1957. Thereafter, another conference was held with interested

industry representatives. Conferences were also held with representatives of the Department of Justice. In addition, the Commission

received and considered written comments on both drafts which it

had circulated.

The proposals under the Securities Act of 1933 would provide a

more workable procedure in stop order proceedings relating to preeffective registration statements; clarify the jurisdictional basis of the

civil liability provisions of the statute; extend civil and criminal

liability to documents filed with the Commission in connection with

offerings exempt under section 3 (b); 2 increase to $500,000 the size

of offerings which may be exempted from registration pursuant to

section 3 (b); 8 make explicit that a registrant may withdraw his

registration statement except where the statement is subject to a

stop order or a stop order proceeding; make it clear that a showing

of past violations is a sufficient basis for injunctive relief; 4 and

make it clear that aiders and abettors may be liable in civil and

administrative proceedings,"

The proposed amendments to the Securities Exchange Act of 1934

would establish as a basis for Federal jurisdiction the status of a

person as an exchange member, or a broker or dealer doing business

through a member, or a registered broker or dealer; clarify and

strengthen the statutory provisions relating to manipulation and to

the financial responsibility of brokers and dealers; authorize the

Commission to regulate by rule the borrowing, holding or lending

of customers' securities by a broker or dealer; make it clear that attempts to purchase or sell securities are covered by the anti-fraud

provisions of the statute; make unlawful under the Act the misappropriation of money or securities of, or entrusted to the care of,

an exchange member or a registered broker or dealer; implement

the provisions relating to the denial or revocation of broker and

dealer registration with respect to the basis on which such action

may be taken, the sanction which may be imposed, the conditions

under which an application for registration may be withdrawn, and

The proposed amendment for the extension ot civil liability in connection with documentsllIed nnder sec. 3 (b) was also embodied in H. R. 173.

See p. 15 infra.

Also proposed with respect to the SecurIties Exchange Act of 1934.

S Also proposed with respect to the Secnrlties Exchange A.ct of 1934 and the Investment

Advisers Act of 1940.

•

•

•
12 SECURITJiES AN'D EXCHANGE COMMISSION

the postponement of the effectiveness of an application for registration; authorize the Commission to suspend or withdraw the registration of a securities exchange when the exchange has ceased to meet

the requirements of original registration; and provide for adjudication of an insolvent broker or dealer as a bankrupt in an

injunctive proceeding instituted by the Commission.

Changes are proposed in the Trust Indenture Act of 1939 to conform certain provisions of that statute to certain of the recommendations made in connection with the Securities Act.

The proposals with reference to the Investment Company Act of

1940 would require an investment company to state as a matter of

fundamental policy, which generally could not be changed without

the consent of its stockholders, the extent to which it intends to

invest in particular types of securities and such other basic investment objectives it represents it will emphasize; strengthen the provisions requiring that there be a minimum number of independent

or nonmanagement directors; limit the extent to which a face

amount investment company may include preferred and common

stocks in its "qualified investments"; make clear the application of

the statute to an "advisory board"; and clarify the exceptions for

companies engaged in banking, insurance, small loan, factoring, discount or real estate businesses.

The proposals under the Investment Advisers Act of 1940 would

expand the basis for disqualification from registration because of prior

misconduct; authorize the Commission by rule to require the keeping

of books and records and the filing of reports; permit periodic examinations of books and records; empower the Commission by rule

to define, and prescribe means reasonably designed to prevent, fraudulent practices; extend criminal liability for a willful violation of a

rule or order of the Commission; and implement the provisions

relating to the postponement of effectiveness and withdrawal of applications for registration.

Many minor amendments are also proposed.

Proposal to Increase Registration Fees

In response to various inquiries made of the Commission by the

Chairman of the Committee on Banking and Currency of the Senate,

by the Chairman of the Committee on Interstate and Foreign Commerce of the House of Representatives, by the Chairman of the

Independent Offices Subcommittee of the Committee on Appropriations of the House of Representatives, and by the Bureau of the

Budget, the Commission on April 5, 1957,submitted to the Chairman

of the Committee on Interstate and Foreign Commerce of the House

of Representatives a proposal for an amendment of section 31 of the

-
TWENTY -THl'RD ANNUAL RDPORT 13

Securities Exchange Act of 1934, which would increase the statutory

fees provided by that section. The Commission recommended introduction of this bill, stating that if the Congress desired to increase

the receipts to the Treasury of the fees provided by the Federal

securities laws this proposal would be an appropriate and feasible

method of so doing. Itwould spread the impact of the fees over all of

the investing public for whose benefit the various acts the Commission administers were enacted, without imposing any undue burden

upon any securities industry or group or class of investors.

Under existing law the fee for the registration of exchanges provided by section 31 of the Securities Exchange Act of 1934 is one

five-hundredths of 1 percent of the aggregate dollar amount of stock

exchange transactions (equal to 2 cents per $1,000). The Commission proposed that the exchange registration fee under the Securities

Exchange Act be increased to a rate of 5 cents per $1,000 and that

there be a similar registration fee for brokers and dealers of 5 cents

per $1,000 on transactions effected otherwise than on a national securities exchange. If the proposed fees had been in effect during the

1956 fiscal year, these, together with receipts from other fees which

the proposal does not contemplate changing, would have resulted in

receipts by the Commission of approximately $4,250,000, as against

total fees actually received of $2,053,932.

On May 27, 1957, Congressman Harris, as Chairman of the House

Interstate and Foreign Commerce Committee, introduced the Commission's proposal as H. R. 7778, which was referred to that Committee. Subsequently, on July 11, 1957, Senator Lausche, as Chairman

of the Subcommittee on Securities of the Senate Committee on Banking and Currency, favorably reported to the Senate an identical bill

(with two minor exceptions), as S. 2520.G The Senate passed S. 2520

on August 8, 1957, and sent it to the House on the same date, where

it was referred to the Committee on Interstate and Foreign Commerce. The House Committee had taken no action on either H. R.

7778 or S. 2520 at the close of the first session of the Congress.

Registration of Unlisted Secnrities of Certain Companies Having Large Public

Investor Interest

On February 11, 1957, Senator J. W. Fulbright, Chairman of the

Committee on Banking and Currency, introduced S. 1168, a bill to

amend the Securities Exchange Act of 1934 to extend the reporting

provisions of sections 12, 13 and 16 and the provisions of section 14

relating to the solicitation of proxies to certain corporations whose

securities are publicly held but are not listed and registered on a

national securities exchange. As originally introduced, the bill ap-

•s. Kept. GOlI, dated 11117 11. 18117.
14 BECUR.ITLts AN'I> EXCHANGE' OOMMISSION

plied to corporations having more than 750 stockholders or debt securities of more than $1 million outstanding in the hands of the

public, and $2 million of assets. It would have required such corporations to register with the Commission and file with it annual and

other periodic reports now required only of corporations with listed

and registered securities. The bill would have also subjected such

corporations to the Commission's proxy rules and the insider-trading

provisions of the Act.

S. 1168,as originally introduced, was, with one exception, identical

with the August 5, 1955, print of S. 2054, introduced by Senator Fulbright in the 84th Congress, which had been favorably reported by the

Subcommittee on Securities to the Senate Committee on Banking

and Currency." The exception was that the exemption for insurance

companies contained in the August 5, 1955, print of S. 2054 was not

contained in the original draft of S. 1168. No final action on S. 2054

was taken by the Committee during the 84th Congress. However,

before that Congress adjourned, Senator Fulbright, as Chairman of

the Committee, requested the Commission to extend a study it had

previously made of those corporations which would come within the

scope of S. 2054 to include insurance companies. The study the Commission had previously submitted to the Committee did not cover

insurance companies because they were expressly exempted from

S. 2054. In compliance with the Committee's request, the Commission

sent questionnaires to more than 530 insurance companies to obtain

the data necessary for making an objective, factual appraisal of the

financial, reporting and proxy practices of insurance companies. The

Commission's study showed that deletion of the insurance company

exemption from the bill would extend the bill's coverage to approximately 169 insurance corporations having total assets of about $24

billion. Shortly after the 85th Congress convened, the Commission

submitted the supplemental report to the Committee on Banking and

Currency," and expressed the opinion that it would be consistent with

the purposes of the Federal securities laws and of the proposed bill

that the insurance company exemption be deleted.

The Commission in general supported the original draft of S. 1168

both in written comments and in hearings held before the Subcommittee on Securities. The Commission, however, urged two amendments: (1) That the applicability of the provisions of existing section

16 (b) to the corporations subject to the bill be eliminated pending

further study by the Commission, and (2) that section 15 (d) not be

repealed as provided in the bill. Subject to these amendments, the

For the background and history of S. 2Oll4, 84th Cong., see the 22nd Annual Report of

the Securities and Exchange CommIssion, pp. 9-11.

8Committee Print, Supplementary Report of SEC on S. 2064, ll'eb1'UlU'711, 19151.

•
TWENTY-THmD .ANNUAL REiPORT 15

Commission expressed the opinion that the bill would provide addi- ,

tional protection to investors in corporate securities in which there

is a broad public investor interest and which are sold and traded

in the interstate securities markets by requiring disclosure of the

business and financial facts pertaining to the corporations issuing

them, and that it would strengthen the protections against fraud

afforded to investors,"

The Committee reported the bill out to the Senate with amendments

reducing its application to companies having $10 million of assets

and more than 1,000 stockholders of record and deleting the debt

security test.lO Also the same exemption for insurance companies

as was provided in S. 2054 was added to the bill. The Commission's

suggestions with respect to sections 15 (d) and 16 (b) were adopted.

No action was taken by the Senate during the first session of the

85th Congress.

Proposals To Amend the Exemption From Registration for Small Issues

S. 810, introduced by Senator Edward F. Thye, and S. 843, by

Senator John J. Sparkman, would each amend section 3 (b) of the

Securities Act of 1933 to increase to $500,000 the $300,000maximum

limit presently authorized by this exemptive provision.

In written comments to the Senate Committee on Banking and

Currency, and in testimony before the Subcommittee on Securities,

the Commission supported both bills, pointing out that the proposed

amendment to section 3 (b) would be in the public interest generally

and that its own proposed legislative program contained a provision

substantially similar to that of these bills."

On June 14, 1957',the committee favorably reported S. 2299, a bill

substantially similar to S. 810 and S. 843.12 Subsequently, on June

26, 1957, the Senate passed S. 2299, and it was sent to the House of

Representatives where it was referred to the Committee on Interstate and Foreign Commerce. At the request of this Committee,

the Commission submitted written comments in which it urged enactment of the bill. Hearings had not yet been scheduled by the

House Committee at the close of the first session of the Congress.

Reporting Requirement of Beneficial Owners of Registered Securities

S. 594, a bill to amend section 16 (a) of the Securities Exchange

Act of 1934 to require beneficial owners of more than 5 percent (instead of the present 10 percent requirement) of any class of any

Hearings before a Subcommittee of the Committee on Banking and Currency, u. s.

Senate, 85th Cong., 1st sess., on S. 594, S. 1168 and S. 1601, May 21-29, p. 61 et Bell

...S. Rept. 700. dated July 24, 1957.

U HearlBgs before a Subcommittee of the Committee on Banking and Currency. U. S.

Senate, 85th Cong., 1st sess., on S. 810 and S. 843, MaY'20-29, pp. 4-6, 9--16-

U S. Rept. 438. dated June 14, 1957.

•

•
16 SECURITIES AND EXCHANGE COMMISSION

equity security registered on a national securities exchange to file with

the Commission reports of their holdings and transactions, was introduced by Senator Homer E. Capehart on January 14, 1957.

In written comments and in hearings held by the Subcommittee on

Securities of the Senate Committee on Banking and Currency, the

Commission raised no objection to the bill, pointing out that disclosure

of 5 percent ownership might serve to permit management or any

other group to determine whether substantial beneficial holdings were

being accumulated and the identity of beneficial holders accumulating

them,>

The Committee had taken no action on the bill at the close of the

first session of the Congress.

Disclosure of Beneficial Ownership of Registered Securities in Election

Contests

On March 14, 1957, Senator Capehart introduced S. 1601, a bill

directed to identifying beneficial owners in proxy contests. The bill

would add to section 14 of the Securities Exchange Act of 1934 a

provision making it unlawful for any person to give or to attempt

to give a proxy to vote a security registered on a national securities

exchange at any meeting for the election or removal of directors, with

respect to which meeting proxies are solicited by opposing nominees,

unless (1) such person is the beneficial owner of the security, or (2)

the name and last known address of the beneficial owner appear on

the proxy. In addition, the bill would make it unlawful for any

person knowingly to exercise or attempt to exercise any proxy in

violation of this provision.

In a memorandum and in hearings before the Subcommittee on

Securities of the Senate Committee on Banking and Currency in May

1957, the Commission opposed S. 1601, expressing the views that (1)

there was a substantial question as to whether the bill would actually

obtain disclosure of beneficial ownership; (2) in any event, the bill

would not provide investors at the time of the execution of their

proxies with any additional information as to the beneficial ownership

of other security holders; and (3) the bill's enactment might well

impede the conduct of corporate meetings,>

Other Bills Introduced in the Congress To Amend the Federal Securities Laws

The Commission also prepared written comments, at the request of

appropriate committees of the Congress, on the following bills to

amend the Federal securities laws.

saHearings before a subcommittee of the Committee on Banking and Currency, U. S.

Senate, 86th Cong., 1st seas., on S. 594, S. 1168, and S. 1601, May 21-29, pp. 11-12.

U [d. at p. 12 et Beq.
TWENTY -THl'RD ANNUM. REPORT 17

S. 2197, introduced by Senator Olin B. Johnston, would amend

section 3 (a) (2) of the Securities Act of 1933 to exempt from

registration any security secured by mortgages insured or guaranteed by the Veterans' Administration or the Federal Housing

Administration.

H. R. 137, introduced by Representative Leonard Farbstein, would

provide for civil liability on the part of those responsible for untrue

statements of material facts or omissions to state material facts in

any statement or document filed with the Commission in connection

with an offering pursuant to an exemption under section 3 (b) of the

Securities Act. This proposal is also embodied in the Commission's

legislative program." H. R. 4744, introduced by Representative

John B. Bennett, would make applicable to exempt offerings under

section 3 (b) the strict civil liabilities now pertaining solely to

registered offerings,"

H. R. 810, introduced by Representative Abraham J. Multer, would

amend section 16 (a) of the Securities Exchange Act of 1934 to require officers and directors to report to the Commission pledges.

hypothecations and loans of securities registered on national

securities exchanges.

H. R. 2456, introduced by Representative Edna F. Kelly, would

amend section 11 of the Securities Exchange Act of 1934to require the

Commission to prescribe regulations, embodying insofar as practicable the principles of the Federal Deposit Insurance Act, which

would require brokers to maintain insurance for the protection of

customers' funds intrusted to them.

A.ll of these bills were still in committee at the close of the first

session of the 85th Congress.

Other Legislative Proposals

The Commission devoted a substantial amount of time to matters

pertaining to other legislative proposals referred to it for comment

and to congressional inquiries. During the fiscal year 1957, a total

of thirty-three legislative proposals were analyzed at the request

of appropriate congressional committees, as compared with nineteen

during the preceding fiscal year. In addition, numerous congressional inquiries relating to matters other than specific legislative

proposals were received and answered.

Congressional Hearings

Senate Internal Security Subcommittee of the Committee on the

Judiciary.-In April 1957, former Chairman Armstrong and other

members of the Commission appeared before the Internal Security

111 See p, 11, supra.

UH. R. 173 and H. R. 4744 are Identical with H. R. 11308 and H. R. 9319, respectlvelv,

Introdllced In the 84th Congo The background of the latter bills are discussed in the 22nd

Annual Report of the Commission. pp. 11-12.

447579-58--3
18 SECURlTLES AND EXCHANGE OOMMTSSION

Subcommittee of the Senate Committee on the Judiciary. The Chairman presented a detailed discussion of the enforcement problems

arising out of the purchase and sale of securities in the United States

by or on behalf of persons and institutions in foreign countries. Particular attention was called to the problems arising in connection with

proxy regulations, insider-trading, manipulative practices and other

related matters. The General Counsel of the Commission presented

a statement dealing with the obtaining of information from foreign

sources, particular attention being directed to provisions of the

Swiss Banking Act and the Swiss Espionage Act.

In response to the request of the Subcommittee, the General Counsel

testified in a hearing held in New York City during June, 1957. As a

matter ancillary to the main inquiry, namely the possibility of

acquisition of control of domestic corporations by anonymous foreign

interests, the Subcommittee was interested in the experience of the

Commission in its attempts to detect the identities of those who make

use of foreign devices to circumvent the operation of the Federal

securities laws. At the request of the Subcommittee, the General

Counsel prepared and submitted a memorandum pointing out that

substantial investigatory problems are created due to the difficulty of

eliciting information from foreign sources, but indicating that the

Commission has secured desired information through other means.

Senate Subcommittee on WeHarc and Pension Funds of the

Committee on Labor and Public Welfare.v-On May 29, 1957, Commissioner Andrew Downey Orrick, then Acting Chairman of the

Commission, testified before the Subcommittee on Welfare and Pension Funds of the Senate Committee on Labor and Public WeHare

concerning S. 1122, S. 1813, and S. 2137,17 These bills, which

designate the Commission as the administering agency, provide for

the registration of employee welfare and pension funds. Similar

bills are being studied by the Committee which name other agencies

to administer them. In addition to registering, certain funds would

be required annually to report changes respecting portfolios, officers,

trustees, and other matters. The persons administering the funds

would be charged with the responsibility for filing these reports, and

the bills prescribe both civil and criminal penalties for failure to file

registrations or reports or for the violation of fiduciary duties

specifically described therein.

Previously, on March 8, 1957, the Commission had submitted a

memorandum of comments on several "Welfare and Pension Plan Disclosure bills, including S. 1122. This memorandum contained teehni11Hearlngs before the Subcommittee on Welfare and Pension Funds of the Committee

on Labor and Public Welfare, U. S. Senate, 85th Cong., 1st sess., May 27-July 1. 191)7.

p. 99 et aeq.
TWENTY-THIRD ANNUAL REPORT 19

cal suggestions concerning the bills as well as an estimate of the cost

which would be incurred if the Commission were to administer

S.1122.18 At the request of the Subcommittee, the Commission prepared two supplemental memoranda. The first, submitted on June 21,

1957, expressed the Commission's views that it was not the appropriate

agency to administer the legislation, compared S. 1122 and S. 2175

and discussed the need for such legislation and its probable impact

upon the capital markets." The second supplemental memorandum

compared a portion of the proposed legislation with provisions of the

Investment Company Act.20

No action has been taken on these bills.

Subcommittee on Securities of the Senate Committee on Banking

and Currency.-In March and again in May 1957 former Chairman

Armstrong, the other Commissioners, and several staff members appeared before the Subcommittee on Securities of the Senate Committee on Banking and Currency. At each of these hearings Chairman

Armstrong presented a statement and answered inquiries concerning

the Commission's position with respect to certain proposed securities

legislation under consideration. Of particular concern were the provisions of Senate bills S. 594, S. 810, S. 843, S. 1168 and S. 1601. These

bills and the Commission's position thereon are discussed supra at

pages 13 to 16.

Olher Hearings.-In addition to the hearings mentioned heretofore, the Commission and staff members presented to the House Interstate and Foreign Commerce Committee a general discussion of the

Commission's activities and the particular problems currently facing

the Commission. The Commission and various members of its staff

also appeared before the Anti-Monopoly Subcommittee of the Senate

Committee on the Judiciary. In addition, various members of the

Commission and staff members testified in executive sessions of the

Internal Security Subcommittee of the Senate Committee on the Judiciary, the Permanent Investigation Subcommittee of the Senate Committee on Government Operations and the Subcommittee on Secarities

of the Senate Committee on Banking and Currency.

38 ru«, p. 62.

»tu«,P. 119.

»ru«, p. 122.
PART m

REVISION OF RULES AND FORMS

The Commission maintains a continuous program of reviewing

its rules, regulations and forms under the various acts in order to

keep abreast of constantly changing conditions in the securities industry. Apart from the periodic review conducted by certain staff

members specifically assigned to this task, the need for changes is

brought to the attention of the Commission in several different ways.

In some instances, changes are requested or suggested by investors

or by issuers, underwriters or their attorneys, accountants, or other

representatives. Within the Commission, changes may be suggested

by members of the staff as a result of reviews of the operation of the

rules and regulations and the examination of material filed with the

Commission. In accordance with the Administrative Procedure Act,

most proposed new rules and forms are published prior to their adoption in order to obtain the views of all interested persons, including

issuers and various industry groups. During the 1957 fiscal year,

the Commission published for comment or adopted a number of proposed changes in its rules and forms which are described below.'

Proposed Revision of Rule 133 Under the Securities Act of 1933

This rule, which is in the form of a definition of the terms "sale,"

"offer," "offer to sell" and "offer for sale," operates to make the registration and prospectus requirements of the Securities Act of 1933 inapplicable to securities issued in connection with certain mergers, consolidations, reclassifications and transfers of assets between corporations. The statutory construction embodied in this rule was developed in the early days of the Commission," A review of the operation

of this rule led the Commission to conclude that the rule should be

reconsidered. Accordingly, in the latter part of 1956 the Commission

invited views and comments on a proposed revision of the rule which

1The rules and regulations of the Commission are publlshed In the Code of Federal

Regulations, the rules adopted under the various Acts administered> by the CommissIon

appearing In the following parts of Title 17 :

Securities Act of 1933, part 280.

Securities Exchange Act of 1984, part 240.

Publlc Utlllty Holding Company Act of 1981i,part 250.

Trust Indenture Act of 1989, part 260.

Investment Company Act ot 1940, part 210:

Investment Advisers Act of 1940, part 275

See 22nd Annual Report. Securities and Exchauge Commission, p. 45.

20

•

•
TWENTY-TmRJ) ANNUAL REPORT 21

would have the effect of rescinding the existing rule and substituting

therefor one which would define the above terms to include the

solicitation of a vote, consent or authorization of stockholders of a

corporation in favor of such mergers, consolidations, reclassifications and transfers of assets," A public hearing was held on the proposed revision in January, 19574 and in March the Commission announced that it would not adopt the proposed rule as published but

would give the matter further study and consideration! The matter

was still pending at the end of the fiscal year.

Ad~ption of Rule 434A and Amendment of Forms S-1 and S-9 Under the

Secnrities Act of 1933

Section 10 (b) of the Securities Act as amended in 1954 6 authorizes

the Commission to adopt rules and regulations permitting the use of

a prospectus which omits in part or summarizes information set forth

in the more complete prospectus required to be used in connection

with the sale of securities. Acting pursuant to this authority, the

Commission on November 26,1956, adopted rule 434A which permits

the use of a summary prospectus in the offering of securities registered on Forms S-1 or S-9 by registrants which are required to file

annual and other reports under section 13 or 15 (d) of the Securities

Exchange Act of 1934.1 Summary prospectuses provided for by this

rule are not intended to supplant the complete prospectuses which

must be furnished to purchasers of securities registered under the Securities Act. The purpose of such prospectuses is to furnish prospective investors with a condensed or summarized statement of some of

the more important information contained in the registration statement so as to enable them to determine whether they would be interested in receiving more complete information in regard to the

securities being offered. Summary prospectuses thus facilitate the

dissemination of information in regard to registered securities and

also serve as a screening device which enables issuers, underwriters

and dealers to ascertain who is and who is not interested in receiving

the complete prospectus.

Forms 8-1 and S-9 were amended in connection with the adoption

of rule 434A so as to authorize the use of summary prospectuses in

connection with the offering of securities registered on these forms.

The amended instructions superseded the instructions as to newspaper

prospectuses previously contained in these forms since under the

amended instructions the two types of prospectuses are combined.

SecurIties Act Release No. 3698 (October 2.1956).

4 Securities Act Release No. 8728 (December 17,1956).

G Securities Act Release No. 3761 (March 15. 1957).

Public Law 577. S3d Congo

1Securities Act Release No. 8722 (November 26, 1956).

•

•
22 SECURlT1IES AND EXCI!ANm OOMMIS8ION

Thus a summary prospectus may be published in a newspaper or

other periodical or printed in a form suitable for distribution in the

form of a circular, letter or otherwise.

Adoption of Note to Rnle 460 Under the Securities Act of 1933

The Commission is authorized by section 8 (a) of the Securities

Act to accelerate the effective date of a registration statement, having

due regard to the adequacy of the information respecting the issuer

theretofore available to the public, the facility with which investors

can understand the nature of and rights attaching to the securities

to be registered and their relationship to the capital structure of the

issuer, and to the public interest and the protection of investors.

Historically, the Commission has passed upon requests for acceleration on Ii case-by-case basis after consideration of all the pertinent

facts. However, with the passage of time, certain of the principal

areas in which the Commission has refused acceleration have formed

a pattern. Accordingly, the Commission submitted to the public a

proposed codification of certain of these bases upon which acceleration

might be denied," After a public hearing," the Commission adopted

as a note to rule 460 a codification of the principal grounds upon

which it would ordinarily deny acceleration of the effective date of

a registration statement," The note gives notice of the Commission's

policy against acceleration in certain cases where provision is made

for indemnification by the registrant o:f its officers, directors, or controlling persons against liabilities arising under the Securities Act,

where the registrant, a controlling person, or an underwriter is being

investigated for possible violation of the statutes administered by the

Commission, where an underwriter who is committed to purchase

securities does not meet certain standards of financial responsibility,

and where there have been transactions by persons connected with

the offering which may have artificially affected the market price of

the security being offered.

Rescission of Rnles 132, 151, and 414 Under the Securities Act of 1933

RuIe 132 was adopted prior to the 1954 amendments to the Securities Act of 1933 11 to provide for the use of so-called identifying

statements in connection with securities registered or in the process

of registration under that Act. Section 2 (10) (b) of the Act as

amended in 1954 gave the Commission explicit authority to adopt

rules providing for the use of substantially the same type of adSecurities Act Release No. 3672 (August 9. 1956).

Securities Act Release No. 3729 (December 18,1956).

10 Securrttes Act Release No. 3791 (May 28, 1957).

U Publ!e Law 577, S3d Congo

•

•
'I'WENTY-TmRD ANNUAL REPORT 23

vertisements as those previously provided by rule 132. Acting pursuant to this authority the Commission adopted rule 134 in 1955.12

Inasmuch as this rule superseded rule 132, the latter was rescinded."

Rule 151 was adopted by the Commission not long after the enactment of the Securities Act of 1933. Itdefined for certain transactions

the term "issuance" as used in the former section 4 (3) of the Act

as in effect prior to July 1, 1934. Since the rule applied only to offerings commenced prior to that date, it had become obsolete and was

rescinded."

Rule 414 was adopted in connection with rule 132. Itrequired the

filing with the registration statement of identifying statements proposed to be used pursuant to rule 132. With the rescission of that

rule, rule 414 no longer served any purpose and was rescinded."

Amendment of Rules 100, 170, and 426 Under the Securities Act of 1933

In the latter part of 1956, the Commission reprinted its General

Rules and Regulations under the Securities Act of 1933 using the

"section" designations of such rules in the Code of Federal Regulations." In order to avoid possible confusion between sections of the

Act and sections of the Code, rule 100 was amended by deleting

therefrom the definition of the term "section" which defined the term

as meaning a section of the Act.1T

Rule 170 was adopted some years ago to prohibit the use of pro

forma financial statements which give effect to the receipt and application of any part of the proceeds from the sale of the securities

being offered unless the entire issue is firmly underwritten. The

rule was amended to make it clear that it is intended to permit the

use of such financial statements not only where there is a firm commitment to take the issue but also where there is no such commitment,

provided the underwriters have agreed to take all of the securities,

if any are taken, or to refund to public investors all subscription

payments made, if the underwriters elect not to take the issue.18

Rule 426 requires the inclusion in a prospectus for registered

securities of certain statements and information in regard to stabilizing activities. The rule was amended to require, in the case of a

rights offering to existing security holders, that the prospectus used

in conneetion with any reoffering of the unsubscribed securities to

the general public shall contain information in regard to trans1lI Securities Act Release No. 3568 (August 29. 1955). See 21st Annual Report, p. 4.

]I Securities Act Release No. 3692 (September 20, 1956).

uId.

:IIi Id.

,. For example. the Code of Federal Regulations desiguation of rule 100 is f 230.100.

Securities Act Release No. 8692 (September 20, 1956).

18Id.

"
24 SECURITIES AND EXCHANGE COMMISSION

actions effected by the issuer or the underwriters during the rights

offering period. The amendment merely codified previous administrative practice in this respect,"

Revision of Regulation A Under the Securities Act of 1933 and Withdrawal

of Proposed Ame~dments Thereto

Shortly after the beginning of the 1957 fiscal year, the Commission

adopted a revised regulation A which provides, subject to certain

terms and conditions, a general exemption for certain issues of securities not in excess of $300,000. A similar exemption provided by

regulation D for Canadian securities was merged into regulation A,

so that the regulation as currently in effect provides a general exemption for both domestic and Canadian securities." The revised

regulation A was described in some detail in the 22nd Annual

Report."

When the Commission adopted the revised regulation A, it announced that it had under consideration certain further amendments

of regulation A in addition to those contained in the revised regulation.22 These further amendments would have had the effect of making the exemption provided by that regulation available only to issuers and offerings meeting specific standards based either upon

the existence of a record of net earnings by the issuer or upon a limitation of the number of securities which might be issued pursuant to

the exemption. After further consideration of the matter, the Commission determined not to adopt these amendments. It also determined not to adopt a proposed amendment published in December

1955, which would have required the certification of financial statements filed under regulation A.23

With respect to the proposals which would restrict the use of reguIation A to seasoned companies and offerings of a limited number of

units, the Commission concluded that there is no public investor need

for the imposition of such restrictions at the present time. This conclusion was reached after considering the comments received in regard to the proposed amendments, most of which were opposed to

such amendments, and the Commission's experience in the administration of regulation A following its revision in July 1956. There

has been a reduction in the filings under regulation A and this fact

plus the Commission's stepped-up enforcement program led the Commission to believe that the problems to which these proposals related

are effectively dealt with by regulation A as presently in effect.

With respect to the proposal to require certified financial statements, the Commission concluded that, in view of the nature of the

aId.

• Securities Act Release No. 8663 (July 23,1958) •

.. P. 28 !f.

.. Securities Act Release No. 8664 (July 23, 1956).

• Securities Act Release No. 8788 (May 9, 1957).
TWENTY -THIRD ANNUAL REPORT 25

disclosure requirements of regulation A and taking into account the

limited financial information which is available with respect to promotional companies as well as the added expense which certified

financial statements would impose on small businesses which use

that regulation, such requirement should not be imposed.

Withdrawal of Proposal To Amend Form 8-1

This proposed amendment related to the registration of securities

under the Securities Act of 1933 for the purpose of making a rights

offering to existing security holders by certain large, established foreign enterprises." The amendment would have permitted such

issuers, with the exception of North American and Cuban issuers, to

furnish uncertified financial statements if certain conditions were

met. The proposed amendment was withdrawn when the Commission concluded that there appeared to be no present need for it.25

Proposed Revisions of ForJDS8-2 and 8-3

Form 8-2 is used for registration under the Securities Act of 1933

of securities of commercial and industrial companies in the promotional or developmental stage. Form S-3 is a similar form for

mining companies in the exploratory or developmental stage. Revisions were proposed to bring the forms up to date in the light

of the Commission's experience and current administrative practice.26 In connection therewith, Form 8-11, another form for mining

companies in the exploratory stage, would be merged into Form S-3'

so that there would be only one form for use by this type of mining

companies. The proposed revisions were still under consideration at

the end of the fiscal year."

Amendment of ForJDS S-4, 8-5 and 8-6

These forms are used for registration under the Securities Act of

1933 of securities of investment companies registered under the Investment Company Act of 1940. A registration statement on any of

these forms consists of certain of the information and documents

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

filed. Registrants on this form are thus permitted to base their registration statements under the 19a3Act in large part upon the information and documents filed with the Commissiou in the original

registration statement under the 1940 Act and in subsequent reports

filed thereunder. Such data are supplemented by information and

, "&!eurltles Act Release No. 8735 (December 21,1956)

.. Securities 'Act Release No. 8782 (April 30, 19;;7).

osSecurIties Act Release No. 8668 (August 2, 1956), and Securities Act Release No.

3iOO (October 4, 1956).

2'l Revised Forms S-2 and S-3 wore adopted August 19, 195i, effectlYe September 19,

1!J;Ji. Sel' SCl'lIrltlp, Ad Hell'asps Nos. 3828 and 3S2!1.

•
26 SECURITIES AN'!> EXCHANGE COMMISSION

documents required for registration under the 1933 Act which have

not been previously furnished under the 1940Act.

Form 8-4, which is used for registration of securities of closed-end

management companies, was revised during the fiscal year to bring

it into line with a revision of the corresponding basic Form N-8B-l

under the Investment Company Act!S A further amendment of this

form and of Form 8-5 was, at the end of the fiscal year, being considered in connection with the Commission's consideration of certain

proposed amendments to its Statement of Policy with respect to sales

literature used in the sale of investment company securities." The

Commission also has under consideration a proposed revision of Form

S-6 which is used for registration of securities of unit investment

trusts and securities of certain unincorporated management investment

companies."

Proposed Amendments to Statement of Policy Relating to Investment Company Sales Literature

The Commission continued during the fiscal year its consideration of

certain proposed amendments to its Statement of Policy relating to

sales literature used by investment companies registered under the

Investment Company Act of 1940. The Statement of Policy was

adopted in 19!)()and was amended in January 1955. Itis designed

to serve as a guide for issuers, underwriters and dealers in the preparation of such sales literature so as to avoid violation of the antifraud

provisions of section 17 of the Securities Act of 1933. A public hearing on the proposed amendments was held November 15, 1956. After

considering the testimony and after further consultation with industry representatives, a revised draft of the proposed amendments was

published in May 1957.31 At the close of the year the Commission was

considering the comments received as a result of the publication

of this draft and was continuing its discussion with industry representatives."

Amendment of Rule 12b-35 and Form IO-K Under the Securities Exchange

Act of 1934

During the fiscal year the Commission took under consideration a

revision of rule 12b-35 of its General Rules and Regulations under

the Securities Exchange Act of 1934.33 This rule permits registrants

under the Securities Act of 1933to file an application for registration

of securities on a national securities exchange consisting principally

.. Securities Act Release No. 3711 (October 29, 19li6).

29 Securities Act Release No. 3789 (May 27, 1957). These amendments were ,adopted

after the end of the tlscal year: see Securities Act Release No. 3854 (October 3.0. 1957).

:lO Securities Act Release No. 3690 (.August 27, 1956).

31 Securities Act Release No. 3790 (May 27, 1957). , ,

33 The amendments were adopted on October 31, 1957. Secnrltles .Act Release No. 3856

.. Securities Exchange Act Release No. 5471 (March 11, 1(57).

•
TWENTY -TmRD ANNUM. R:E>PORT 27

of its registration statement under the Securities Act and any annual,

semiannual or current reports filed pursuant to section 15 (d) of the

Securities Exchange Act. The principal purpose of the revision is

to conform the rule to the requirements of the Commission's existing

forms and to provide that the rule may not be used unless the registration statement filed as a part of the application for registration

contains substantially all of the information which would be required

by the appropriate application form."

The Commission also considered a proposed amendment to its

Form 10-K.35 This form is the principal form used for annual reports by listed companies and Securities Act registrants which are

subject to the reporting requirements under sections 13 and 15 (d) of

the Securities Exchange Act. The proposed amendment would require extractive enterprises to furnish such material information in

regard to their production, reserves, and other matters as might be

necessary to keep reasonably current the information previously reported in regard thereto."

Amendment of Forms 4, U-17-2 and N-30F-2

These forms are used by directors, officers and principal stockholders for monthly reports of their security transactions and holdings pursuant to the Securities Exchange Act of 1934, the Public

Utility Holding Company Act of 1935 and the Investment Company

Act of 1940. On November 29, 1956,the Commission amended these

forms to require persons reporting thereon to identify purchases

made through the exercise of options and in private transactions.

The purpose of the amendment is to enable persons studying these

reports to distinguish between such purchases and purchases made on

the open market."

Amendment of Forms N-4lB-l and N-30A-l

These forms are used respectively for registration statements and

annual reports of management investment companies registered

under the Investment Company Act of 1940. The Commission

adopted similar amendments to each of these forms governing the

computation of certain required ratios," At the close of the year

the Commission also had under consideration a further amendment to

Form N-8B-l which would require the registrant to supply certain

summarized income and expense data and certain percentage ratios

.. Revised rule 12b-31) was adopted on August 19, 191)7, e1rectlve September 19, 1957.

See Securities Exchange Act Release No. 5566.

Securities Exchange Act Release No. 5471 (March 11, 1957)

.. The proposed amendment to Form 1Q-K was withdrawn August 19, 1957. See Securities Exchange Act Release No. 5566.

lit Securities Exchange Act Release No. 5410 (November 29, 1956)

.. Investment Company Act Release No. 2430 (October 29,1956).

'" •

•
28 SECURITIES AND EXCHANGE COMMISSION

for the past 10 years." As mentioned above, this information would

also be furnished in registration statements under the Securities' Act

of 1933 by management investment companies registering securities

under that Act.sDa

Amendment of Rule 17d-l Under the Investment Company Act of 1940

During the fiscal year the Commission adopted amended rule 17d-1

designed to adapt the rule more closely to the language of section

17{d) of the Investment Company Act, which grants the Commission

regulatory powers with respect to profit sharing and joint venture

relationships between investment companies and their afflliates."

The prior rule had required Commission approval of pension and

bonus plans whether or not such plans involved profit sharing. The

amended rule applies only to profit-sharing arrangements.

Proposed Revision and Consolidation of Forms N-8B-2 and N-8B-3

This proposed revision and consolidation would result in a single

form for registration statements filed under the Investment Company

Act of 1940 by unit investment trusts which are currently issuing securities and by unincorporated management investment companies

which are issuing periodic payment plan certificates," The proposed

revision is the first general revision of these forms since they were

adopted in 1942. As a result of the experience gained over the intervening years and in view of the fact that the form is now used chiefly

by newly organized companies, it is proposed that these forms be simplified. Much of the historical information relating to the operations

of companies which were in existence at the time of the passage of

the Act is no longer of importance and hence the requirement for furnishing such information would be omitted under the proposed revision. Jnasmueh as the requirements for this form serve as a basis

for furnishing information required in registration statements under

the Securities Act of 1933,the proposed new form is being considered

with registration under that Act particularly in mind.

Adoption of Rule 17a-7 Under the Securities Exchange Act of 1934

Rule 17a-8 under the Securities Exchange Act of 1934 requires all

registered brokers and dealers to make and keep current specified

books and records relating to their business. Rule 17a-4 provides

that such books and records shall be maintained in an easily accessible

place during specified periods. These books and records are subject

to inspection by representatives of the Commission under section 17

.. Investment Company Act Release No. 2536 (May 27,1957).

ThIs amendment was adopted October 80, 1957. Investment Company Act Release

No. 2618.

MI Investment Company Act Release No. 2472 (January 10,1957)

.. Investment CompanY' Act Release No. 2401 (Augult 27,19158).

-

•
. TWENTY -TIDRD ANNUAL REoPORT 29

(a) of the Act. The above rules, however, were not specifically designed to make accessible to.the Commission the books and records of

foreign brokers and dealers registered with the Commission.

On July 16, 1956, the Commission adopted rule 17a-7 requiring

each nonresident broker or dealer, as defined in the rule, to maintain

in the United States, at a place designated by him in a written notice filed with the Commission, complete and current copies of the

books and records he is required to maintain under any rule adopted

under the Securities Exchange Act of 1934, unless he files with the

Commission a written undertaking, in substantially the form provided for in the rule, to furnish to the Commission upon demand

copies of any, all or any part of his books and records specified in the

demand."

Amendment of Rule 15c2-3 Under the Securities Exchange Act of 1934

Rule 15c2-3 was adopted on January 11, 1954,43after validation

procedures for German bonds were established, to prohibit trading

in invalid West German securities. This rule made it unlawful for

any broker or dealer to effect any transaction in the over-the-counter

market in any security required to be validated under any applicable

law of the Federal Republic of Germany unless (a) such security was

duly validated, and (b) if such security was a dollar security, there

was attached a document of the Validation Board for German Dollar

Bonds certifying to the validation of such security. The rule was

amended on March 19, 1954,44to make it possible for brokers and

dealers to trade in interest coupons detached from German bonds

which had been duly validated. Subsequently information available

to the United States indicated that a considerable number of interest

coupons detached from unvalidaied German bonds were in the possession of lawful holders. It appeared that these bonds had been duly

repurchased or acquired by the German issuers, that the interest coupons were lawfully detached when the holders sold the bonds, and

that many of the bonds were among those which were stolen in Berlin

after the end of World War II. After the German Government

passed an ordinance providing for validation of ~uch coupons, the

Validation Board for German Dollar Bonds undertook to issue to

each registrant one instrument with respect to all such coupons of

the same issue since, because of administrative difficulties, it was not

possible for the Validation Board to issue separate validation instruments for each coupon. In order to legalize trading in such coupons

and to protect purchasers the Commission amended its rule 15c2-3 to

provide that when a broker-dealer effects a transaction in a validated

.. Securities Exchange Act Release No. li336.

.. Securities Exchange Act Release No. 4983.

&< Securities Exchange Act Release No. li011.
30 SECURl'l'FES AN'D EXCHANGE' COMMISSiON

interest coupon detached from an unvalidated German dollar bond he

must deliver with the coupons the document of the Validation Board

certifying to the validation of such coupons."

Amendment of Rule 12f-2 Under the Securities Exchange Act.of 1934

Rule 12f-2 provides for the continuation of unlisted trading privileges granted to a security pursuant to section 12 (f) of the Act when

certain changes occur with respect to the security. Before the

amendment, the rule provided that a security admitted to unlisted

trading privileges would still be deemed to be the security theretofore admitted to such privileges even though certain specified changes

occurred, including changes in the par value, the number of shares

authorized, or the number of shares outstanding, and that in other

cases the exchange could file an application requesting the Commission to find that, notwithstanding such change, the security was substantially equivalent to such security.

On November 23, 1956, the Commission amended the rule 46 so that

if any change occurs with respect to a security which is not fully

listed and registered on another exchange and such change is accompanied by a major change in the capitalization of the issuer the

unlisted trading privileges will continue only if the Commission

finds, after application by the exchange that, notwithstanding the

change, the security is substantially equivalent to the security theretofore admitted to unlisted trading privileges. A "major change

in the capitalization of the issuer" is defined in the rule to mean one

where, by reason of one or more mergers, consolidations, acquisitions

of assets or securities, or similar transactions, not including a sale

of securities for cash, a stock dividend or a stock split, the number

of outstanding shares of stock of the issuer has been increased by

more than 100 percent within any 12 consecutive calendar months.

Proposal to Amend Rules 15b-8 and 17a-5 Under the Securities Exchange

Act of 1934

On May 10, 1957 the Commission published its proposal to amend

rules 15b-8 and 17a-5 under the Securities Exchange Act of 1934.47

Paragraph (a) of rule 17a-5 requires each member, broker, and

dealer subject to the rule to file a report of financial condition

furnishing the information required on Form X-17A-5 within each

calendar year, but reports for any two consecutive years cannot be

filed within less than 4 months of each other. The proposed revision

of this paragraph of the rule would require reports to be filed as of

... Securities Exchange Act Release No. 5370 (September 24, 1956) .

... Securities Exchange Act Release No. 5405.

<7 Securities Exchange Act Release No. 6515.
TWENTY -THIRD ANNUAL REPORT 31

a date within each calendar year, except that: (a) The first report

(for others than successors) would have to be as of a date not less

than one nor more than 5 months after the broker or dealer becomes

subject to the rule, (b) reports could not be as of dates within 4

months of each other, and (0) a member, broker, or dealer who succeeds to and continues the business of a predecessor would not have

to file a report if the predecessor had filed a report as of that year.

Paragraph (b) (1) of the rule exempts from the certification requirements a member, broker, or dealer who is not required to file

a certified financial statement with any State agency or any national

securities exchange and who, during the preceding year, has not

made a practice of extending credit or holding funds or securities

of customers except as an incident to transactions promptly consummated by payment or delivery. In December 1955 the Commission published a proposal to amend paragraph (b) of this rule

to require all members, brokers, and dealers subject to the rule to

file certified reports." Many comments were received on this proposal suggesting that exemptions should be available to certain members, brokers, and dealers. Under the Commission's revised proposal, three limited exemptions from the requirement to file certified reports would be available. The first exemption would be

available to members of national securities exchanges who do not

transact business with the public, do not carry margin accounts,

credit balances; or securities for persons other than general partners

and are not required to file certified financial statements with the

exchange. The second would be available to a broker whose securities business is so limited that he has been exempt from the Commission's aggregate-indebtedness-net-capital-ratio rule 15c3-1 by

paragraph (b) (1) thereof. The third exemption would be available

to a broker or dealer whose securities business is limited to buying

and selling evidences of indebtedness secured by liens on real estate

and has not carried margin accounts, credit balances, or securities

for securities customers.

Rule 15b-8 requires every broker or dealer who files an application for registration to file with his application duplicate original

statements of financial condition disclosing, as of a date within 30

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

However, a partnership succeeding to and continuing the business

of another partnership registered as a broker or dealer at the time

of such succession is exempt from this requirement. Since the proposed revision of rule 17a-5 would exempt successor broker-dealers

from filing Form X-17A-5 reports for any calendar year as of which

.. Secorlties Exchange Act Release No. 5264.
32 SECURI'flES AN'D EXCHANGE COMMISSION

a predecessor filed a report, it is proposed to amend rule 15b-8 to

delete the above exemption from rule 15b-8 and to require every

broker-dealer filing an application for registration to.file the financial statement required by the rule. This financial statement does

not have to be certified by an independent accountant,"

••These amendments to rules 17a-5 and 15b-8 were adopted in substantially this form

on .August 8. 1957. See Securities Exchange .ActRelease No. 5560.
PART IV

ADMINISTRATION OF THE SECURITIES ACT OF 1933

The Securities Act of 1933 is designed to provide disclosure to

investors of material facts concerning securities publicly offered for

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

and to prevent misrepresentation, deceit, or other fraudulent practices

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

issuer of such securities to file with the Commission a registration

statement and related prospectus containing significant information

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

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

.public. In addition the prospectus must be furnished to the purchaser at or before the sale or delivery of the security. The registrant

and the underwriter are responsible for the contents of the registration statement. The Commission has no authority to control the

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

upon its merits or the terms of its distribution, and its action in permitting a registration statement to become effective does not constitute approval of the securities.

DESCRIPTION OF THE REGISTRATION PROCESS

Registration Statement and Prospectus

Registration of any security proposed to be publicly offered may

be effected by filing with the Commission a registration statement on

the applicable form containing prescribed disclosures. A registration

statement must contain the information and be accompanied by the

documents specified in Schedule A of the Act, when relating to .a

security issued, generally speaking, by a corporation or other private

issuer, or those specified in Schedule B, when relating to a security

issued by a foreign government. Both schedules specify in considerable detail the disclosure which an investor should have available

in order that he may make an informed decision whether to buy the

security. In addition, the Act provides flexibility in its administration by empowering the Commission to classify issues, issuers and

prospectuses, to prescribe 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.

447579-58--4 33
34 SECURITIES AND EXCIlAJ.~GE COMMISSION

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

who participate in the direction, management, or control of the

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

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

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

and earnings, and its financial statements, certified by independent

accountants; underwriters' commissions; payments to promoters

made within two years or intended to be made; acquisitions of property not in the ordinary course of business, and the interest of directors, officers, and principal stockholders therein; pending or threatened legal proceedings; and the purpose to which the proceeds of the

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

registration statement and presents the more important of the required disclosures.

Examination Procedure

The staff of the Division of Corporation Finance examines each

registration statement for compliance with the standards of accurate

and full disclosure and usually notifies the registrant by an informal

letter of comment of any material respects in which the statement

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

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

hearing, to issue an order suspending the effectiveness of a registration statement. Information about the use of this "stop order"

power during 1957 appears below under "Stop Order Proceedings."

Time Required To Complete Registration

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

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

case between the filing date of a registration statement or of an

amendment thereto and the time it may become effective. This waiting period is designed to provide investors with an opportunity to

become familiar with the proposed offering. Information disclosed

in the registration statement is disseminated during the waiting

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

the 20-day waiting period where the facts justify such action. In

exercising this power, the Commission is required by statute to take

into account the adequacy of the information respecting the issuer

theretofore available to the public, the facility with which investors

can understand the nature of and the rights conferred by the se.
TWENTY -TmRD AA"'NUA1L RE!PORT 35

curities to be registered, and their relationship to the capital structure

of the issuer, and the public interest and the protection of investors.

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

effective date with respect to 766 registration statements that became

effective during the 1957 fiscal year 1was 23 days, the same period as

in the preceding year. This time was divided among the three principal stages of the registration process approximately as follows:

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

comment, 13 days; (b) from date of letter of comment to date of

filing first material amendment, 6 days; and (0) from date of filing

first amendment to date of filing final amendment and effective date

of registration, 4 days. All these days are calendar days, including

Saturdays, Sundays, and holidays.

VOLUME OF SECURITIES REGISTERED

Securities effectively registered under the Securities Act during

1957 totaled $14.6 billion, the highest volume for any fiscal year in

the 23-year history of the Commission. Registrations have almost

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

reflecting annual increases of at least $1.5 billion over the 4-year

period. The chart below shows graphically the dollar amount of

effective registrations from 1935to 1957.

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

(Doll ar s Bi 11 ions)

15

10

5

o

1935 1940 1945

iF I seAL YEARS'

1950 1955

1Exclusive ot 120 registration statements ot investment companies filed as post-effective

amendments to previously effective registration statements under sec. 24 (e) of the Investment Company Act ot 1940.
36 SECURITIES AN'D EXCHANGE COMMISSION

These .figures cover all securities, including new issues sold for

cash by the issuer, secondary distributions, and securities registered

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

reserved for conversion of other securities.

Of the dollar amount of securities registered in 1957, 82.2 percent

was for the account of issuers for cash sale, 15.2 percent for account

of issuers for other than cash sale and 2.6 percent was for account of

others, as shown below.

A.ccount for which securities were registered under the Securities A.ct 01 1933

during the 'fiscal year 1951 compared with the fiscal years 1956 and 1955

1957 in %nf 1956 in %of 1955 in %of millions t tal millions total millions total

--- --- --- --- --- Registered for account of issuers for cash sale __________________________________. __ $12,019 822 $9,206 70.3 $8,277 75.5

Registered for account of Issuers for other than cash sale ___________________________ 2,225 15.2 2,819 21.5 2,312 21.1

Registered for account of others than the issuers _. 3801 26 1,071 8.2 372 3.4

Total. . ------

14, 624 100 0 13,096 100.0 10,961 100.0

The most important category of registrations, new issues to be

sold for cash for account of the issuer, amounted to $12.0 billion in

1957 as compared with $9.2 billion in 1956. For 1957, 47 percent of

the total volume was made up of debt securities, 49 percent common

stock and 4 percent preferred stock. Approximately 40 percent of

the volume of common stock represented securities of investment

companies.

Figures showing the number of statements, total amounts registered, and a classification by type of security for new issues to be

sold for cash for account of the issuing company for 1935 to 1957

appear in appendix table 1. More detailed information for 1957

is given in appendix table 2.

The classification by industries of securities registered for cash

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

follows:

Classification by industries 01 securities registered for cash sale during the

fiscal year 1951 compared with the fiscal years 1956 and 1955

I 19571n %of 1956 in %of 1955 In %of millions total mllUons total millions total

--- --- --- --- --- Manufacturing .. $2, 674 22.2 $1,788 194 $1,779 21.5 Mlning _. 283 2.4 148 1.6 106 1.3 Electric, gas, and water ___________________ 2, 951 24.5 1,802 196 2,127 25.7 Transportation, other than rail _____._. ___ 112 .9 118 1.3 12 .1 Communication 2,030 16.9 1,294 14.1 837 10.1 Investment eompanles 2,614 21.8 2,890 31.4 2,236 27.0 Other financial and real estate ____________ Trade 952 7.9 852 9.2 789 9.5 _______________ II' .7 73 .8 27 .3 Servlce 33 .3 41 .4 100 1.2 Constructlon ._. .. ---.------ 160 1.9

Total corporate _____________________ --- --- ------ 11,733 97.6 9,006 97.8 8, 173 98.7 Foreign governments. 286 2.4 200 2.2 104 1.3

Total. _. . --- ------ --- ------ 12, 019 100.0 9,206 100.0 8,277 100.0

____• ___________• _________• __• __

__ _____• ______••• ______• ____•

_____________ ______•• ____ ____________________• ____• __• ____

_________________• ___• ____

_______________• ____

•_____________________ ______ • _______________• ____________

___________ _________• _____ --- ------ -------~-- ----------

_______• __•• ________

_______________• ______ _____
TWENTY -THIRD ANNUAIL REPORT 37

The investment company issues referred to in the table above were

classified as follows:

Classification of registereo, issues of investment companies accoro,ing to type of

organization o,uring the 1957 fiscal year compareo,with the fiscal years 1956 ana 1955

1957 In 1956 In 1955 In mlllIons mlllIons mlllIons

Management open-end companies $1,791 $2,267 $1,853 Management closed-end companies ___________________________ -------------- 42 28 Unit and face amount certificate companles ___________________ 823 582 355

Total ___________________________________________________2,614 2,890 2,236

Of the net proceeds of the corporate securities registered for cash

sale for the account of issuers in 1957,12 percent was designated for

new money purposes, including plant, equipment and working capital,

1 percent for retirement of securities, and 27 percent for other

purposes, principally the purchase of securities by investment

companies.

REGISTRATION STATEMENTS FILED

During the 1957 fiscal year, 943 registration statements were filed

for offerings of securities aggregating $14,667,282,319,compared with

981 registration statements covering offerings of $13,097,787,628 in

the 1956 fiscal year.

Of the 943 statements filed in 1957, 305, or 32 percent, were filed

by companies that had not previously registered any securities under

the Securities Act of 1933, compared with 415, or 42 percent, of the

corresponding total during the previous fiscal year.

The growth in the volume of proposed financing under the registration provisions of the Securities Act of 1933 is shown by the following tabulation, which reflects a 3-year increase in 1957 of 63

percent over 1954 in the aggregate dollar amount of offerings as

stated in the registration statements filed.

Nnmberof Aggregate Nnmberof Aggregate

Fiscal year stetements dollar amount Fiscal year statements dollar amount filed filed

1954__________________ 649 $8, 983, 572, 628 1956__________________ 981 $13, 097, 787, 628 1955__________________ 849 11,009, 757, 143 1957__________________ 943 14, 667, 282, 319

A cumulative total of 13,191 registration statements have been filed

under the Act by 6,611 different issuers covering proposed offerings

of securities aggregating nearly $134 billion during the 24 years from

the date of the enactment of the Securities Act in 1933to June 30, 1957.

Particulars regarding the disposition of all registration statements

filed under the Act to June 30, 1957, and the ag~gate dollar amounts

___•________________________
38 SECURITIES AND EXCHANGE COMMISSION

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

following table.

Number and disposition of registration statements filed

Prior to July 1, July 1, 1956, to Total as of June 1956 June 30, 1957 30.1957

Registration statements Flled _________________________________________ 12,848 1943 13,791

Disposition: Effective-net. ___________________________ 11,147 884 312,024 Under stop order-net. 187 6 193 Wlthdrawn _______________________________ 1,399 70 1,469 Pending at June 30, 1956 115 Pending at June 30,1957 105

TOtal ___________________________________ 12,848 ------------- ----- 13, 791

Aggregate dollar amount: As fIled _______________________________________ $119, 090, 464, 965 $14, 667, 282, 319 $133,757,747,284 As effective ___________________________________ $116, 135, 795, 262 $14, 623, 579, 470 $130, 759,374, 732

I Includes 120 registration statements covering proposed offermgs of securities aggregating 52,532,126,208 which were filed by investment companies under sec 24 (e) of the Investment Company Act of 1940, which permits registratlon of additional amounts of mvestment company securities by postetfectlve amendments to previously effective registration statements,

Excludes 2 statements that became effective but were later withdrawn; these 2 statements are counted lu the 70 statements withdrawn during the year. 3 Excludes 7 statements that became effective prior to July 1, 1956, but were withdrawn during the year;

these 7 statements are counted in the 70 statements withdrawn during the year.

The reasons for requesting withdrawal of the 70 registration statements withdrawn during the fiscal year ended June 30,1957, are shown

in the following table:

Number of Percent of Reason for withdrawal request statements total withdrawn withdrawn

Registration statement materially deficient and staff's letter of comment requested amendment. ____________________________________________________ 10 14 Registration statement materially deficient and registrant advised that unless statement was withdrawn stop order proeeedmgs would be necessary, 17 25 Change in financing plans ___________________________________________________ 23 33 Change in market condltlons ________________________________________________ 16 23 Registrant's lnabillty to obtain acceptable underwriting terms _______________ 3 4 Determination by registrant to utillze Regulation A exemption for offerings not in excess of $3OO,oo(L ___________________________________________________ 1 1

TotaL ________________________________________________________________ 70 loo

RESULTS OBTAINED BY mE REGISTRATION PROCESS

Results obtained by the staff's examination of registration statements during 1957 are illustrated by the following examples.

Adjustments made because of dift'erencesin determination of

income for tax and corporate reporting purposes.-As a general

principle, income for corporate reporting purposes is determined by

allocating revenues and related costs to the same accounting periods.

Certain provisions of the income tax laws depart from this concept.

The 'differences in treatment of various items of income and expense

for. .tax and reporting purposes continue to present problems in the

___________________ •

__________________ _________________ w

---------------- -- __________________ ---------- -------- ----------- -------

•
TWENTY-THIRD ANN1JA'L REPORT 39

financial statements filed with the Commission. For example, a company claiming depreciation measured by the declining-balance method

for tax purposes included lesser amounts calculated by the straight

line method in its income statements included in a registration statement. The staff was of the view that as presented the improvement

in earnings shown in the statements over a 3-year period could be

seriously misleading. After amendment the earnings per share for

the most recent 2 years, the only years affected, were reduced to 70

percent for the last year and 87 percent for the preceding year of the

corresponding figures prior to amendment.

In another case preoperating expenses had been taken as a deduction

for income tax purposes, as permitted under the Internal Revenue

Code, but were treated as deferred charges to future operations for

purposes of reporting and therefore omitted as a current charge in

determining earnings per share. The issuer was required to reduce

the reported earnings by setting aside a reserve for income taxes related to these expenditures to be charged to income in future years but

no longer available as It deduction for taxes. The effect of this revision was to reduce the reported net income for the year 1956 to

$584,426 or $1.22 a common share, from $710,426 or $1.49 a common

share. Net for the quarter ended March 31, 1957, was reduced to

$63,232from $213,232as previously reported.

Restatement of earnings per share.- It is a common practice to

refer to earnings on a per share basis and it is essential that an

appropriate method of calculation be used and that the method used

be clearly stated. In one case a summary of earnings as originally

filed showed net income per share as $0.99 and $1.43 on corporate and

consolidated bases, respectively, for the most recent fiscal year as

compared with $0.03 and $0.39 for the preceding year. The registration statement was revised so as to show the consolidated amount for

the last year as $0.45 per share in the summary table. The corporate

amount was not shown in the summary table, but a note referred to

in the table in respect of the last year stated that net income per

share excluded a special credit, gain on sales of securities, amounting

to $0.99 per share, based on shares outstanding at the end of the fiscal

year, or amounting to $0.64 per share based upon shares to be outstanding as of the time of the public offering of additional shares (i. e., giving effect to conversion of certain debentures into common shares).

The note also disclosed that giving effect to conversion of debentures as

though effective at the beginning of the year, with adjustment for

interest on the debentures and related income tax effect, the $0.45

consolidated net income per share would have declined to $0.84 per

share, and on a corporate only basis would have been $0.05 per share.

In Summary, the investor obtained a picture of $0.34 net income per
40 SECURITIES AND EXCHANGE COMMISSION

share plus $0.64 special credit gain on sales of securities per share for

the last year, as compared with a net income per share figure of $1.43

as originally presented.

Adjustments in provision for depletion of oil and gas properties.-A filing under the Securities Act by a Canadian oil and gas

company included summaries of earnings which showed that the

registrant and subsidiaries, and an acquired company and its subsidiaries, had substantially higher net income in 1956 than in 1955.

In fact, substantial losses were reported for 1954 and 1955 and substantial profits for 1956. A study of the items in the summary indicated that the improvement reported was in large measure due to the

fact that the registrant's statement showed a negative or credit provision for depletion in 1956 of $62,000 compared with a charge of

$220,000 in 1955, and the acquired group's statement showed 1956

depletion charges of approximately 30 percent of the 1955 charges.

It was ascertained by the staff, that, because in 1956 estimates of recoverable oil were materially increased by new discoveries, the companies considered that provisions for depletion in prior years had

been excessive and the cumulative adjustment was reflected in the

1956 income statements. The staff took the position that annual depletion charges should be based upon known reserves, and that additional reserves discovered thereafter should be made the basis for

determining future depletion charges as oil is recovered .therefrom,

based upon adjusted costs. The financial statements were amended

in accordance with the staff's view. As a result the registrant's originally reported consolidated net income of $132,000was converted to

a loss of $93,000and the net income of the acquired group was reduced

from the originally reported $447,000 to $300,000. As originally

filed the pro forma combined summary of earnings showed net income

of 8.33 cents per share. As adjusted, earnings were 2.98 cents per

share.

STOP ORDER PROCEEDINGS

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

any time that a registration statement contains an untrue statement

of a material fact or omits to state any material fact required to be

stated therein or necessary to make the statements therein not misleading, the Commission may institute proceedings looking to the issuance

of a stop order suspending the effectiveness of the registration statement. Where such an order is issued, the offering cannot lawfully

be made, or continued if it has already begun, until the registration

statement has been amended to cure the deficiencies and the Commission has lifted the stop order. During the 1957 fiscal year 10

new proceedings were authorized by the Commission under section

R (d) of the Act and 7 such proceedings were continued from the
TWENTY-THIRD AN1\TUALREPORT 41

preceding year. In connection with these 17 proceedings 8 stop

orders were issued during the year, one proceeding was terminated

and the registration statement permitted to become effective, and

one proceeding was terminated by withdrawal of the registration

statement. The remaining seven cases were pending as of June 30,

1957.

Two proceedings in which stop orders were issued with respect to

registration statements filed by American Republic Investors, Inc.,

and Uranium Properties, Ltd., were described in the 22d Annual

Report," The other six proceedings which resulted in the issuance

of stop orders during the year are described below, as well as a

seventh proceeding in which a stop order was issued shortly after

the end of the fiscal year.

Wyoming Gulf.Sulphur Corporation.-This corporation filed a

registration statement with the Commission relating to a proposed

public offering by the corporation of 700,000shares for its own account

and 226,000 shares for the account of two stockholders. After hearings the Commission issued an order pursuant to section 8 (d) of the

Securities Act of 1933 suspending the effectiveness of the registration

statement on the basis of findings that, among other things, the corporation failed to disclose in the registration statement the limited experience of management in marketing its product and the limited

nature of the potential market for its product,"

The corporation proposed to produce and market "soilaid," which

was obtained by treating the sulphur-bearing ores on the properties

containing about 16 percent sulphur so as to increase the sulphur

content to not less than 25 percent. This product can be used on

certain soils in the western part of the United States for the purpose

of causing them to become friable and permeable to water. Gypsum,

in abundant supply in the west, is also used for this purpose. Although the corporation's stated plans were to produce 400 tons a day

in one of its plants and 1,000 tons a day in a plant proposed to be

constructed with part of the funds obtained from £he proposed financing, only a very limited amount of sulphur-bearing ore had been

treated and in the year 1954 only 18,221 tons of sulphur were used

for soil-treatment purposes in the entire United States. This information and the fact that because of transportation costs it would be

cheaper for a purchaser residing in the west to obtain sulphur from

the Gulf Ports of .Texasthan to purchase the product from the corporation were either not disclosed in the registration statement or inadequately presented.

Ipp.76-77.

• Securitles Act Release No. 8690 (September 18. 1956).
42 SECURIT:EES AND EXCHANGE OOMll.11'SSION

The Commission also found that the proposed method of distribution of the securities was misleading. Since the bid and asked price

of the securities at the time the registration statement was filed was

around $1 and the proposed offering price was to be not less than $2

a share, the Commission found that "it seems clear that the stock could

not be sold at $2 a share except by misrepresentations or other fraudulent means, unless the market rose appreciably." In this connection,

the Commission cited the fact that a few days before the registration

statement was filed with the Commission, a broker-dealer firm with

which a vice president of the corporation was associated circulated a

grossly false and misleading "special report" recommending the purchase of the registrant's stock.

Other areas in which the corporation either failed to disclose material information or inadequately presented information, included the

use of the proceeds from the offering, transactions with promoters,

and the history of the unsuccessful operation of the properties.

Beta Frozen Food Storage, Inc.-This registrant was organized

in Maryland in April 1956 for the purpose of constructing and operating a frozen food storage warehouse near Baltimore. It proposed to offer through its officers, directors, employees and stockholders, and possibly also through selected brokers and dealers,

$1,750,000 principal amount of debentures at $100 per debenture.

The debentures were to be convertible into preferred stock. After

deduction of $15 per debenture, or $262,500, as selling commission.

and expenses of $50,000,net proceeds to the registrant were estimated

to be $1,437,500. Registrant was virtually without assets and was

looking entirely to the proceeds of this financing for its capital

requirements.

In connection with the proceedings brought under section 8 (d)

it was alleged that the registration statement failed. to provide adequate disclosure of the registrant's position and plans in case proceeds were inadequate to make its projected warehouse a reality since

there was no firm commitment by an underwriter or any person to purchase all or any part of the securities and hence no assurance as to

what amount of proceeds might be received; that registrant minimized or ignored competitive conditions in the industry in which it

was about to embark, falsely claiming a large demand for its specific

services based upon a nonexistent "survey," and grossly misrepresenting its outlook even to the point of predicting with little or no

basis except optimism "a gross profit of over $500,000 per year after

all salaries, wages, and maintenance and costs of operations"; that

the registration statement failed to disclose that all of the common

stock equity in the corporation was to be sold to officers and directors

for an amount not in excess of $2,500; and that the registration state-
TWENTY-THIm> ANNUAL REPORT 43

ment misrepresented the business experience of the officers and

directors.

After testimony was taken at a hearing registrant consented to

the entry of a stop order suspending the effectiveness of its registration statement and such an order was entered." Subsequently

registrant filed an amendment to the registration statement purporting to correct the inadequacies and misrepresentations therein.

After consideration of the amendment the Commission found that

inadequacies and misrepresentations still existed, and the stop order

continues in effect. .

Freedom Insurance Compauy.-This registrant was organized in

California in 1954 for the purpose of selling all types of insurance

except life, title, and mortgage insurance. Under a registration

statement which became effective December 22, 1955, 500,000 shares

of common stock were offered at $22 per share. On July 12, 1956,

proceedings pursuant to section 8 (d) were instituted. Included in

the allegations made with respect to the registration statement were

questions as to the adequacy and accuracy of disclosure therein of

the financial resources of a corporation controlled by the promoters

of the registrant which was to perform selling and service functions

for the registrant, and the amount of the commission to be received

by such corporation under a sales and service contract on insurance

written by the registrant.

After hearings were commenced and testimony was taken, the registrant submitted a written stipulation and consent to the entry of

an order by the Commission pursuant to section 8 (d) suspending

the effectiveness of its registration statement and such order was

entered on the basis of findings and an opinion by the Commission."

The registration statement was subsequently amended in accordance

with the order and the stop order was Iifted."

Ultrasonic Corporation.-At the close of the previous fiscal year,

the Commission had under advisement the record in the matter of

the stop order proceedings pursuant to section 8 (d) relating to a

registration statement filed by Ultrasonic Corporation (now named

Advance Industries, Inc:), as described in the 22d Annual Report,

pages 79-80. The filing covered a public offering of 200,000 shares

of common stock at $12.75, with net proceeds to the Company of

approximately $2,300,000, in addition to common stock issuable on

the exercise of warrants and the conversion of certain outstanding

bonds and debentures. The registration statement became effective

on July 22, 1954, the shares offered for cash were sold and the comSecuritillll Act Release No. 3899 (October 2,1956).

S Securities Act Release No. 3707 (October 18, 1956).

'Seeur1ties Act Release No. 3759 (March 6. 1957).

•
44 SECURITIES AND EJ(CHANGE OOMMISSION

pany received the net proceeds from the underwriters. All amendment relating to the offering and exercise price of certain warrants

was filed on August 23, 1954, and was declared effective on August

25, 1954-,

On January 18, 1951, a stop order was issued.' The record of the

proceedings showed that numerous improper adjustments on the Company's books and omissions to make necessary adjustments produced

completely unrealistic financial statements, and were the result of a

deliberate design to present optimistic figures. Itwas found that the

statement of income for the 6 months ended March 31, 1954, which

. was furnished unaudited in the registration statement, was substantially inaccurate and misleading in that the $49,715 profit reported

for that period was at least $900,000 in excess of the amount that

should have been shown. Among adjustments which should have

been made for that period were provisions for reserves to reduce income by $317,435 for redetermination of profits on a Government contract, for profit adjustments downward on other Government contracts, and for losses. Also cost of sales of goods manufactured by

one of the divisions of the company was reflected in the income statement for the 6 months ended March 31, 1954, on a percentage of sales

basis which was entirely unjustified. There did not appear to be actual recent support in the experience of the company for the selection

of the percentage amount of 77.3 percent used in estimating the ratio

of cost of sales to sales. The cost of sales for the 6 months' period as

computed on the improper formula of 77.3 percent of sales of the-division for the period amounted to $744,175, as compared to $936,436, as

determined by the comptroller of the company from the cost books.

Additional items questioned included inventory items not written off,

expense items improperly capitalized, and expense liabilities not

entered.

The registration statement was also deficient in failing to disclose

operating losses incurred after March 31, 1954. Profit and loss data

compiled by the accounting department of the company available

prior to the time the registration statement became effective July 22,

1954, indicated operating losses for the months of May and June 1954

aggregated $485,805. A later profit and loss statement showing losses

for May, June, and July 1954 totaling $800,182was given to the management on August 19, 1954, before the post-effective amendment to

the registration statement was filed. The management was chargeable with knowledge that registrant was incurring large operating

losses during this period.

Universal Service Corporation, Inc.-This company, a Texas corporation, filed a registration statement covering a proposed public

7 Securities Act Release No. 3742 (January 18. 1957).
TWENTY -TInRD ANNUAL REPORT 45

offering of 500,000 shares of its 2-cent par value common stock at

$2.50 Per share, for the purpose of financing the exploration and,

if warranted, the mining of uranium, quicksilver, and other minerals, as well as gas and oil. The Commission issued a stop order

for the reasons indicated below,"

The disclosures respecting the existence of minerals in the registrant's property consisted primarily of report'S by a consulting

engineer and geologist which were included in exhibits to the registration statement and were quoted at length in the prospectus. The

Commission found that the reports were essentially misleading and

the use of the information therein in the prospectus was deceptive

to investors. The survey made by the geologist covered 68 square

miles and only a small area in a certain section was further explored.

The few samples taken from the explored area were handpicked and

showed no evidence warranting a reasonable belief that minable uranium existed. The references to the relatively high uranium content

of the selected samples, and to ore bodies and ore stockpiling were unjustified. The reports also referred to the existence of oil-bearing

boulders and claimed that they are direct evidence that oil-bearing

strata exist at depth. This conclusion appeared to be wholly

unwarranted.

The Commission also found the registration statement deficient

in other respects. It stated that the registrant might retain an underwriter and pay a commission not to exceed 20 percent but failed

to disclose who the underwriter would be. In respect of the application of proceeds, the registration statement set forth a rough itemization of the manner in which the proceeds of the offering :were to

be spent but failed to indicate a basis for considering that so large

a sum as $1,250,000 could reasonably be expended in connection with

further work on the property. The registration statement also failed

to disclose possible civil liabilities resulting from the sale of its

securities in violation of the Securities Act.

American Investors Corporation.- The registrant, a Tennessee insurance company holding corporation, filed a registration statement

covering 4,962,500 shares of $1 par common stock to be offered at $2,

of which 962,500 shares were reserved for issuance upon exercise of

options to be granted by registrant. Deficiencies constituting grounds

for issuance of the stop order cited in the Commission's opinion included failure to disclose (1) the plan and terms of the proposed

distribution by five promoters, four of whom were undisclosed, and

the commssions to be reallowed to sub-agents; (2) that the purpose

insetting up the holding company was to allow management greater

latitude in the investment of funds than would be permitted to an

• Beeur1t1ea Act ReIeale No. 87.S (i'ebrual'7 II, 18117)••
46 8ECURl'l"'.I:ES AND EXCHANGE' OOMMJSS'ION

insurance company under state law; (3) that registrant had no present

need for the total anticipated proceeds of $7,200,000 sought, and no

present plans for the use of such proceeds other than to use $300,000

to organize an operating insurance company subsidiary and to invest

in debentures, high grade securities, and nonadmitted assets for the

subsidiary; (4) that none of the persons presently associated with

registrant had any experience in the management of an investment

portfolio or in the management of insurance companies; and (5) that

options covering from 5,000 to 25,000 shares had been promised to

prominent persons without cost in order to secure their association

with registrant for the major purpose of facilitating the sale of its

securities to the public,"

Republic Cement Corporation.-This registrant was a Delaware

corporation organized for the purpose of constructing and operating

a cement plant of 1 million barrel annual capacity near the town of

Drake, Ariz. The registration statement covered a proposed offering

of 1,050,000shares of $10 par value capital stock at $10 per share.

After hearings the Commission found that the registrant had failed

to disclose that its proposed annual output of gray cement combined

with that of a presently producing plant in its market area would

far exceed any past or present market demand and that the existing

plant had not been operating at full capacity. It further found

that the registrant's proposed output of white cement exceeded 25

percent of the annual consumption of that product in the entire

United States. The company's plant construction cost figures were

determined to be much lower than those of its competitors because

certain installations which are normally part of a cement plant were

to be eliminated, and the registrant had not provided for sufficient

storage capacity for its finished product. The Commission also found

that despite the representation in the prospectus that the registrant

had on its properties 1,851,300,000tons of limestone suitable for the

production of cement, only the most rudimentary type of exploration

had been performed on the properties, and no systematic core drilling

or sampling was used to test the continuity, depth, and quality of the

limestone.

The Commission further found that approximately 60 stockholders

who were designated as ''promoters'' were not in fact promoters as

they had not rendered any promotional services, and that the sales

of stock to them were not exempt under section 4 (1) as claimed and

were in violation of section 5 of the Securities Act.

Securities Act Release No. 3771 (April 5, 1957). The registration statement wall subsequently amended in accordance with the Commission's stop order and the order was

l1fted. Bee Securities Act Release No. 3810 (3'uly 9, 1957).

-

•
TWENTY -THI!RD ANNUAL REPORT 47

A stop order was issued by the Commission shortly after the close

of the fiscal year.10

EXAMINATIONS AND INVESTIGATIONS

The Commission is authorized by section 8 (e) of the Act to make

an examination in order to determine whether a stop-order proceeding should be instituted under section 8 (d). For this purpose the

Commission is empowered to subpoena witnesses and require the

production of pertinent documents. During the 1957 fiscal year the

Commission authorized four private examinations pursuant to this

section of the Act. One additional private examination was pending

from the previous fiscal year. As of June 30,1957, one of the examinations was still pending, one had resulted in the withdrawal of the

registration statement after the institution of stop-order proceedings

under section 8 (d), two had resulted in the issuance of stop orders,

and one had been closed and the registration statement concerned

was permitted to become effective.

The Commission is also authorized by section 20 (a) of the Act to

make an investigation to determine whether any provisions of the

Act or of any rule or regulation prescribed thereunder have been or

are about to be violated. The Commission has instituted investigations under this section as an expeditious means of determining

whether a registration statement is false or misleading or omits to state

any material fact. During the 1957 fiscal year twelve such investigations were instituted. Two of such proceedings resulted in the institution of stop-order proceedings under section 8 (d) of the Act, one was

closed and the registration statement involved became effective, one

resulted in the registration statement being withdrawn, and the other

eight were pending at the end of the fiscal year.

EXEMPTION FROM REGISTRATION OF SMALL ISSUES

Under section 3 (b) of the Securities Act, the Commission is empowered from time to time by its rules and regulations, and subject

to such terms and conditions as it may prescribe therein, to add any

class of securities to the securities specifically exempted by section

3 (a) of the Act, if it finds that the enforcement of the registration

provisions of the Act with respect to such additional 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 any exemption provided by the Commission in the

exercise of this power.

'" Securities Act Release No. 3816 (July 26.1957).
48 SECURITlES AND EXCHANGE COMMISSiON

Acting under this authority the Commission has by various regulations adopted the following exemptions:

Regulation A:

General exemption for United States and Canadian issues up to $300,000.

Regulation A-M:

Special exemption for assessable shares of stock of mining companies

up to $100,000.

Regulation A-R:

Special exemption for first lien notes up to $100,000.

Regulation B:

Exemption for fractional undivided interests in oil or gas rights up

to $100,000.

Regulation B-T:

Exemption for interests in oil royalty trusts or similar types of trusts

or unincorporated associations up to $100,000.

The exemption for securities of Canadian issuers, formerly provided by regulation D, was merged into the Commission's revised

regulation A effective July 23, 1956.H

Exemption from registration under section 3 (b) of the Act does

not carry exemption from the civil liabilities for material misstatements or omissions imposed upon any person by section 12 (2) or

from the criminal liabilities for fraud imposed upon any person

by section 17.

Exempt Offerings Under Regulation A

The Commission's regulation A implements section 3 (b) of the

Securities Act of 1933 and permits a company to obtain not exceeding

$300,000 (including underwriting commissions) of needed capital in

anyone year :froma public offering of its securities if the company complies with the regulation. Upon complying with the regulation, a

company is exempt from the registration provisions of the Act. A

regulation A filing consists of a notification supplying basic information about the company, certain exhibits, and an offering circular

which is required to be used in offering the securities except in the

case of a company with an earnings history which is making an

offering not in excess of $50,000.

During the 1957 fiscal year, 919 notifications were filed under

regulation A, covering proposed offerings of $167,26D,900, compared

with 1,463 notifications covering proposed offerings of $273,471,548

in the 1956 fiscal year. Included in the 1957 total were 74 notifications covering stock offerings of $14,133,702 with respect to companies engaged in the exploratory oil and gas business, and 106

notifications covering offerings of $18,955,358 by mining companies.

The 106 filings by mining companies included 59 by uranium companies with proposed offerings aggregating $10,324,1!)2and 47 offern ~l'C ::!:!nd Annunl Rl'llort. p. ::!8.
TWENTY -TID'RD A1\TNUA'L REPORT 49

ings by other mining companies aggregating $8,631,166. The

reduction in the number of regulation A filings during the 1957fiscal

year was primarily due to substantially fewer filings by highly speculative mining companies, particularly uranium companies.

Certain facts regarding regulation A offerings during the past

three fiscal years are set forth in the following table:

Offerings made under regulation A during the last 3 fiscal years

Description Number of offerings

Fiscal year _. -_ 1957 1956 1955

--- --- SlZC'$100,000 or1ess 307 481 544 Over $100,000 but not over $200,000 163 246 312 Over $200,000 but not over $300,000 449 736 772

--- --- 919 1,463 1,628

--- Underwritmg: Used 328 630 78.', Not used 591 833 843

919 1,463 1,628

--- Otferors' Issuing companles 86'i 1,389 1,517 Stockholders 52 62 109 Issuers and stockholders jointly . . 2 12 2

--- --- 919 1,463 1,628

Most of the under writings were undertaken by commercial underwriters, who participated in 252 offerings in 1957, 528 in 1956, and

671 in 1955. The remaining cases where commissions were paid were

handled by officers, directors, or other persons not regularly engaged

in the securities business, who received remuneration therefor.

Exempt Offerings Under Regulation D

From July 1, 1956, to August 27, 1956, the last date on which a

filing under regulation D could be made, 6 notifications were filed

under that regulation by Canadian issuers covering proposed offerings of $1,049,000. Three of these filings were made by uranium

companies. In the 1956 fiscal year there were 15 notifications filed

under regulation D covering proposed offerings of $3,367,735. After

the adoption of the revised regulation A there were, during the remainder of the 1957 fiscal year 6 notifications filed by Canadian

issuers for offerings aggregating $1,488,000. These figures are included in the regulation A totals.

Denial or Suspension of Exemption

Regulation A provides for the denial or suspension of an exemption thereunder, generally speaking, where 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 C0l1-

H7a711-G8-a

___-- _________--- -- -___--- ___- __-- --- --- --_-- -- -- ______---__

________________________________________________________

____________________________________

____________________________________

---

--- --- _________________________________________________________________

______________________________________________ - _________- ____

--- --- ---

--- --- ___•

" ' _____

________________________________________________ __________________________________________________________

____ ______________________ __

---
50 SECURI'floES AND EXCHANGE COMMISSION

ditions of the regulation or in accordance with prescribed disclosure

standards. Regulation D, prior to its consolidation with regulation

A, contained a similar provision.

During the 1957 fiscal year, denial or suspension orders were issued

in 132 cases. During the 1956 fiscal year, 100 such orders were issued.

The names of the companies involved in the orders issued during the

1957 fiscal year are set forth in table 6 of the appendix. A few cases

are summarized below to illustrate the misrepresentations and other

noncompliance with the regulation which led to the issuance of suspension orders.

Backers Discount & Finance Co., Inc.-The Commission temporarily suspended the regulation A exemption because of misleading

statements in the notification, offering circular and sales literature,

and the failure to file sales literature and reports of sales. It was

asserted in the suspension order that, among other matters, an announcement of the declaration of a quarterly dividend to stockholders which was used in connection with the offering was misleading in that there was a failure to state that the issuer's officers,

directors, and insiders had agreed to forego dividends on their holdings in order that a dividend could be paid on shares sold under

the filing and that the available earnings and surplus were insufficient

to pay the entire dividend.

Electronic Micro-Ledger Accounting Corp.-The temporary suspension order entered in this case alleged, among other things, that

the offering circular and other sales literature did not accurately

describe the license agreement that the issuer claimed to have, the

market price for the issuer's stock, the uses to which the proceeds of

the offering were to be put, or the issuer's proposed operations and

plans.

Glory Hole, Inc.-In its order temporarily suspending the issuer's

offering, the Commission stated that it had reasonable cause to believe that the use of the offering circular would operate as a fraud

and deceit upon purchasers. Among the matters asserted in the

order were the failure to disclose the background and record of the

promoter, the past activities of the promoter and his associates in

predecessor cornpanies.jind the results of other attempts to operate the

same properties which were represented to be under purchase contract by the issuer.

North Country Uranium & Minerals, Ltd., and Hawker Uranium

Mines, Ltd.-The Commission issued its findings, opinion and order

during the 1957 fiscal year in consolidated proceedings under regulation D making permanent its orders temporarily suspending and

denying, respectively, exemptions from registration with respect to
TWENTY-THIRD Al\TNUAiL REPORT 51

public offerings by North Country and Hawker," It found that the

two issuers were under common control and therefore the exemption

was not available for the two offerings since the applicable $300,000

limitation within one year was exceeded. The Commission also found

the notifications and offering circulars of the two issuers to be materially misleading in failing to disclose the common control and the status

and activities of the president and controlling stockholder of Hawker

in promoting North Country, in the acquisition and transfer of the

North Country claims, in the formation and financing of that company and in the conduct of its business.

Underwriters Factors Corp.-In its order temporarily suspending

the exemption, the Commission alleged that in addition to failing to

comply with the requirements of the regulation by not disclosing

all the jurisdictions in which the securities were to be offered and

making use of unfiled sales literature, the offerors of the securities

made use of false and misleading literature and oral statements. The

misrepresentations related to the company's profits, the safety of investments in the factoring business, the dividend record of such businesses and the changes in the market price for the issuer's securities

that could be expected.

Universal Petroleum Exploration & Drilling Co.-In its order

temporarily suspending the exemption, the Commission alleged that

the material filed under regulation A was false and misleading and

failed to disclose required information concerning the creation and

promotion of another corporation having the same principal promoter, officers, and directors as the issuer, for the purpose of constructing and exploiting the same device as the issuer. In addition

the filed material contained misleading statements concerning the

marketability of the stock, the undertaking of the president to devote

his services to the issuer, the issuer's rights to construct certain drilling rigs and the cost of constructing such rigs.

U-H Uranium Corp.-On the basis of a stipulated record, the

Commission permanently suspended the exemption from registration

after finding that the issuer had commenced the offering prior to the

time permitted by the regulation, delivered offering circulars which

differed from the circular on file, and made false and misleading

statements concerning, among other things, the value of the issuer's

properties, the nature of uranium deposits, and the qualifications of

its geologist. In addition the Commission found that the offering

was advertised in newspapers, by pamphlets, post cards and over

television without copies of such material having been first filed with

the Commission as required by the regulation."

12 Securities Act Release No. 3758 (March 5, 1957).

UI Securities Act Release No. 3691 (September 21,1956).
52 SECURIT1ES AND EXCHA.~GE COMMISSION

Exempt Offerings Under Regulation B

During the 1957 fiscal year 133 offering sheets were filed under

regulation B compared with 114 during the fiscal year 1956 and 71 in

the fiscal year 1955. These filings, relating to exempt offerings of oil

and gas rights, were examined by the Oil' and Gas Unit of the Division of Corporation Finance which assists the Commission on the technical and complex problems peculiar to oil and gas securities. Action

was taken with respect to certain of these filings as shown in the

following table:

Action taken on' orret'ing sheets filed under regulation B during the 1957 fiscal

year as compared toith. the 1956 and 1955 fiscal years

Fiscal years

1957 1956 1955

--- --- Temporary suspension orders _____________________________________________ 12 5 6 Permanent suspension orders _____________________________________________ 1 Orders terminating proceeding after amendment. _________________________ 7 5 3 Orders accepting amendment of offering sheet (no proceeding pending). ___ 72 60 21 Order s consenting to withdrawal of offering sheet (no proceeding pending); 3 4 1 Order termmating effectiveness of offering sheet ___________________________ 1 ------.---

Totsl number of orders _____________________________________________ --- --- --- 94 76 31

Reports of sales.-As an aid in determining whether violations of

law have occurred in the marketing of securities exempt under regulation B, the Commission requires the filing of reports of actual

sales made pursuant to that regulation. Sales reports were filed

under regulation B during the past 3 fiscal years as follows:

Reports of sales under reputation. B during the 1957 fiscal year compared with

the 1956 and 1955 fiscal years

Fiscal years

1957 1956 1955

Number of sales reports llIed __________________________________ 1,318 1,419 1,076 Aggregate dollar amount of sales reported _____________________ $1,154, 792 $1,234,541 $549.951

LITIGATION UNDER SECURITIES ACT OF 1933

The Securities Act empowers the Commission to apply to the

courts for injunctions when necessary to protect the public from

damage which may result from continued or threatened violations of

the Act. As in former years, threatened violations of the registration provisions of the Securities Act have required considerable attention in the enforcement efforts of the Commission.

One of the most significant cases in recent years involving the

registration provisions of the Securities Act was S. E. O. v. Swan-
TWENTY-THilln A1\,KUAL REPORT 53

Finch Oil Corporation, et al.14 The Commission's complaint alleged that the defendants had violated and were about to violate section 5 of the Securities Act by offering and selling common stock of

Swan-Finch Oil Corp. to members of the public without having a

registration in effect with the Commission as required by the Act.

Affidavits filed in support of the Commission's motion for a temporary restraining order, which was entered by the court, indicated

that since 1954, when defendant Lowell M. Birrell apparently acquired control of Swan-Finch, the number of Swan-Finch common

shares outstanding increased from approximately 94,000 to approximately 2,800,000 as of January 31, 1957. The original shares had

been registered and listed on the American Stock Exchange. The

affidavits recited that the shares representing the increased capitalization were purportedly issued in exchange for the assets of various

corporations. These additional shares, the Commission alleged, were

then distributed to the public through various American and Canadian broker-dealers and financial firms. Itwas the contention of the

defendants that section 4 (1) of the Securities Act or rule 133 as

promulgated by the Commission exempted these transactions from

the registration requirements of the Act. Out of the 24 defendants

in this proceeding all but 3 consented to the entry of a final injunction

prior to the close of the fiscal year.

In the related proceedings of S. E. O. v. Doeskin Products, Inc.,

et al./5 the Commission charged a similar unlawful distribution of

Doeskin stock. Five of the seven defendants in that case consented

to the entry of a permanent injunction prior to the close of the fiscal

year. .

In S. E. O. v. The Sire Plan Inc., and Albert lIfintze1',16the Commission's complaint charged the defendants with offering and selling

approximately $325,000 in face amount of 9-month, 8-percent Sire

Plan Funding Notes without having a registration in effect as required

by section 5 of the Securities Act, and with having offered the notes by

means of untrue statements of material facts and omissions to state

material facts. The offers and sales were purportedly made under

the exemption from registration provided in section 3 (a) (3) of the

Act for short-term notes arising from current transactions, but it was

the Commission's contention that Congress did not intend to permit the

widespread sale of securities to the investing public in order to provide

capital for business ventures without compliance with the full and fair

disclosure requirements of the Securities Act of 1933. The complaint

also charged that in offering notes the defendants referred, among

H S. D. :!'ew York No. 11tl-232 (April Hi, 19(7).

15 S. D. New York No. 119-301 (April 18. 19(7).

'" S. D. New York No. 116-291 (Jllnuar~' 18. 19(7).
54 SECURITIES AND EXCH.A1I.TGECJOMMISSiION

other things, to "security" and "collateral" when in fact the notes had

no collateral and were not secured."

In S. E. O. v. Miero-Moisture Oontrols, Inc., et al.,I8another injunctive action instituted by the Commission dealing with violations

of the registration provisions, 7 registered broker-dealer firms as well

as 9 other persons and companies were named as defendants. The

affidavits filed by the Commission in support of its complaint recited,

among other things, that originally, in January 1953, Micro-Moisture

had an authorized capital of 2 million shares of common stock with

a par value of 1 cent per share. In January 1957,it had an authorized

capitalization of 7 million shares of common stock, of which 5 million

were outstanding. Except for 2 filings under the regulation A exemption from the registration provisions which covered a total of 310,000

shares, none of the corporation's shares were registered with the Commission. The increased number of outstanding shares, according to

the affidavits, resulted from an exchange of assets of Converters Acceptance Corp. of Canada for stock of Micro-Moisture, and a subsequent public distribution by certain controlling stockholders of MicroMoisture through the defendant broker-dealer firms and two residents

of Canada who were also named as defendants. The defendants

claimed that each of these transactions was exempt from the registration requirements of the Securities Act by virtue of the provisions

of section 4 (1) or rule 133. The court entered a preliminary injunction as to all 16 defendants.

A public distribution without registration in violation of the

Securities Act through residents of Canada and qthers was also

alleged in the complaint and affidavits filed by the Commission in

S. E. O. v. Ben FrarJclin Oil and Gas Oorporation, et .a» A temporary restraining order was issued by the court on motion of the

Commission.

A complaint was filed in the United States District Court for the

Northern District of Illinois, seeking to enjoin Gerald L. Reasor and

John D. Karstrom, Jr.,20 from selling fractional undivided interests

in oil and gas rights on properties located in more than 10 States

when no registration statement with respect to such securities was in

effect. The matter was pending at the end of the fiscal year. An

injunction was obtained upon similar charges in S. E. O. v. Horace

E. Watkins, doing business as Watkins Oil Oompany, et al.21

1!1 Shortly after the close of the llscal year Sire Plan registered its securities with the

Commission and offered rescission to all persons who had purchased its securities prior to

regtstra tlon.

rs S. D. New York No. 116--190 (.Tanuary 9, 1957).

,. D. New .TerseyNo. 601-57 (.Tune19, 1957).

,.,N. D. Ill. No. 56--C-2038 (December 21,1956).

n D. Colo. No. 5533 (November 9, 1956).
TWENTY -THIRD AN},'UAL REPORT 55

Injunctions were obtained in two cases involving investment contracts or profit-sharing arrangements. In one of these cases,S. E. O.

v, J-T -J Oompany, bu:.,22 the defendants had been offering and

selling, without registration, investment contracts relating to automobile trailers sold by the company under an arrangement by which

the company would operate and service the trailers for purchasers

under a profit-sharing arrangement. In the second case, S. E. O. v,

Mortgage Olub« Inc. and Oharles I. He1'skman,23 the complaint and

affidavits filed in conjunction with it alleged that the defendants

had offered and sold, without registration, investment contracts

evidenced by participations as club members in the placing of funds

ranging from $100 to $500 into secured small second mortgage loans

through Mortgage Clubs, Inc. In each case the defendants consented to the entry of final judgment.

In S. E. O. v, Oregon Timber Products 00., Inc., et al.24the defendants had made a filing under regulation A in connection with the

proposed offering but had used sales material in the solicitation

mailings which was not filed as required by the regulation. The

Commission alleged, among other things, that the defendants mailed

brochures and other material to 23,000 corporate executives and

directors in 18 States, soliciting the purchase of shares of the defendant corporation, without filing such material with the Commission.

A preliminary injunction has been entered as to the company and

Hubert I. O'Rourke, its president.

In S. E. O. v, J. Tom Grimmzett,f5 the Commission alleged that

Grimmett, president of American States Oil Co., received 5,391,666

of the company's 6 million authorized shares, and, since organization

of the company, sold to and through various securities dealers and

otherwise disposed of, without registration, approximately 4 million

shares of his personally owned stock. A final judgment by default

enjoining the defendant from further violations of the registration

provisions of the Securities Act of 1933 was issued by the Court.

Final judgments permanently enjoining further violations of the

registration provisions of the Securities Act were also entered in

actions instituted by the Commission in S. E. O. v. Vni-insuranoe

Service Oompmny, et 01.: 26 S. E. O. v, Operator Consolidated Mines

Oompany, et al.; 27 S. E. O. v. Robert RodJman and Sidney Newmam.; 28 and S. E. O. v. Battery Securities (Iorporatioti/" In each

case the defendant consented to the entry of the final judgment.

"N. D. Texas No. 6809 (November 6, 1956).

23 D. Mass. No. 57-385-W (Aprll17, 1957).

D. Nevada No. 1280 (October 3, 1956).

2S S. D. New York No. 110-243 (.June 14, 195G).

N. D. Calif. No. 35.644 (.Juiy 9, 1(56).

27 S. D. Calif. No. 330-57-BH (March 12,1957). ,

.. S. D. New York No. 118-265 (March 18, 1957)

.. S. D. New York No. 119-~5 (March ~8, 19&7).

'"

""

•
56 SECURITIES AND EXCHANGE COMM!SS'ION

The Commission had one of its busiest years in connection with

its enforcement of the anti-fraud provisions of the Securities Act.

Many of the cases brought by the Commission to stop further fraudulent activities also involved violations of the registration provisions

of the Act.

The brokerage firm of Ilurd, Jaewin ill Oosta, Inc., 30 was charged

by the Commission with fraud in the sale and distribution of stock

of Sergeant Marty Snyder Foods, Inc. According to the complaint,

the defendant had been falsely representing, among other things,

that President Eisenhower would do everything in his power to see

that Sergeant Marty Snyder's beef stew would be used by the armed

services, that President Eisenhower had endorsed it and that the beef

stew was the only product President Eisenhower had ever endorsed.

The complaint also alleged that the defendant had made several misrepresentations concerning the present and prospective market for the

Sergeant Marty Snyder products. The court entered a preliminary

illjunction with the consent of the defendant.

In S. E. O. v. Kaiser Development Oorporation Limited and. E.

David N ovelle,31the Commission charged violations of the anti-fraud

and registration provisions of the Securities Act in connection with the

offer and sale of the capital stock of a Canadian corporation to United

States residents. Itwas alleged, among other things, that, in connection with the offer and sale of the defendant company's unregistered

stock, false and misleading statements were made by means of flamboyant bulletins, sales letters, reports, and brochures, and long-distance telephone calls from Regina, Canada. The statements concerned a guarantee to refund investments, the listing of the stock on

a Canadian stock exchange, the present and future market for the

shares, the results of exploration on the company's properties and the

company's practice of acquiring proven properties."

In other cases, the Commission again sought the assistance of the

courts to restrain fraud in the offer and sale of interests in oil and

gas rights to the public. In S. E. O. v. Mansfield Petroleum and Development (Iorporatioti and William O. Snowden,33 the defendants

were enjoined from making false representations and omitting to

state material facts concerning the escrowing of funds received from

investors pending the drilling of an oil well in a nonproducing oil and

gas tract in Nebraska.

In S. E. O. v. Wyoming Oil Oompany, et al.,34 the use of fraudulent

representations in the offer and sale of capital stock, promissory notes,

3D S. D. Kew York xo, 115-376 (December 18,19(6).

III W. D. Wash. No. 4359 (April 9, 1957)

.. Subsequent to the end of the fiscal year, an injunction decree was entered by consent

against E. David Novelle and by default against Kaiser Development Corp., Ltd

...D. Colo. No. 5513 (November 19, 1956).

Of D. Kebr. No. 66L (February 16, 1957).

•

•
TWENTY-TIllRD Alo.'NUALRm'ORT 57

and undivided fractional interests in oil, gas and other mineral rights

of the defendant company was enjoined. It appeared that the defendants had, among other things, made misrepresentations concerning the market price of its stock. A final judgment was also obtained

by the Commission, permanently enjoining Eldon L. Jewett and Perr

Oil Oompany 35 from further violating the anti-fraud and registration

provisions of the Securities Act in connection with the offer and sale

of interests in oil leases. Additional details of this proceeding are

contained in the 22nd Annual Report. In each case, the defendants

consented to the entry of the judgment. In the last two cases, the

defendants were also enjoined from further violations of the registration provisions of the Act.

The Commission took steps in S. E. O. v, Dealers Dlsoount and

Investment Oompany, et al.,36to stop the offer and sale of securities

through the use of misleading comparisons. The defendants had

been comparing the capitalization, management, past operations, and

type and extent of the business of the issuers of the offered securities

with that of well-known established companies. The court permanently enjoined the defendants, who consented to the decree, from

further use of such comparisons in violation of the anti-fraud provisions of the Act.

Threatened fraud in connection with the sale of securities of insurance companies was the subject of S. E. O. v, Southern Ohristian 001'-

poration, O. L. Edmonds, Earl E. Holliday and James T. Southerlatui S7 and S. E. O. v, Professional Investors, Inc., Insurance 001'-

poratioti of America, Ray O. Vaughn and lIfark H. Kroll;" In the

Southern Ohristian case, the Commission filed a complaint alleging,

among other things, that the defendants had been offering and selling subscriptions and interim certificates for shares of common stock

in Southern Christian Life Insurance Co., a proposed Oklahoma corporation, and, in connection therewith, had been making untrue statements concerning the company's income prospects, the requirements of

the insurance laws, and the success records of other life-insurance

companies. A final judgment permanently enjoining such conduct

was entered by the court. The defendants in the Professional Investor's case were permanently enjoined from selling the common stock of

the defendant Insurance Company of America without disclosing to

prospective purchasers that the same stock could be obtained in the

market from broker-dealers at prices which were less than that at

which the defendants had been offering and selling such stock.

W. D. Wasu. No. 1989 (February JG, 1956).

"N. D. Georgia No 5895 (January 21,1957).

roW. D. Okla. No. 7448 (March 23,1957).

"S. D. Ind. No. IP-56-C-152 (June 22,1956).

""
58 SECURITIES AND EXCHANGE OOMMlSB1:0N

Other court actions instituted by the Commission in which it was

charged that untrue statements of material facts in the offer and sale

of securities to the public were made as to the nature and quality of the

offered investment were S. E. O. v. National Society of Music and Art,

Inc.39 and S. E. O. v. Franklin Atlas Corporation; et al.40 A final mjunction by default was entered in the first case and the second is pending with a temporary restraining order in effect against the defendants.

With respect to S. E. O. v. John Robert Fish and Fish Oarburetor

Oorporation 41 and S. E. O. v. Oolote» Uranium and Oil, Inc.. et al.,42

which were referred to in the 22nd Annual Report, the Commission

obtained permanent injunctions against the defendants in each case as

a measure to prevent further violations of the registration and antifraud provisions of the Securities Act.

3D S. D. New York No. 112-210 (.August 22,1956)

... S. D. New York No. 120-172 ()lay 9,1957).

<l S. D. Florida No. 340Q-J (April 2, 1956).

D. Colo. No. 5371 (May 15, 1956).

•

'"
PART V

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT

OF 1934

The Securities Exchange Act of 1934 provides for the registration

and regulation of securities exchanges, and the registration of securities listed on such exchanges and it establishes, for issuers of securities

so registered, financial and other reporting requirements, regulation

of proxy solicitations, and requirements with respect to trading by

directors, officers and principal security holders. The Act also provides for the registration and regulation of brokers and dealers doing

business in the over-the-counter market, contains provisions designed

to prevent fraudulent, deceptive and manipulative acts and practices

on the exchanges and in the over-the-counter markets and authorizes

the Federal Reserve Board to regulate the use of credit in securities

transactions. The purpose of these statutory requirements is to ensure the maintenance of fair and honest markets in securities.

REGULATION OF EXCHANGES AND EXCHANGE TRADING

Registration and Exemption of Exchanges

At the close of 1957, 14 stock exchanges were registered under the

Exchange Act as national securities exchanges: .

American Stock Exchange. Pacific Coast Stock Exchange.

Boston Stock Exchange. Philadelphia-Baltimore Stock ExChicago Board of Trade. change.

Cincinnati Stock Exchange. Pittsburgh Stock Exchange.

Detroit Stock Exchange. SaIt Lake City Stock Exchange.

Midwest Stock Exchange. San Francisco Mining Exchange.

New Orleans Stock Exchange. Spokane Stock Exchange.

New York Stock Exchange.

The following 4 exchanges ha ve been exempted from registration

by the Commission pursuant to section 5 of the Act:

Colorado Springs Stock Exchange. Richmond Stock Exchange.

Honolulu Stock Exchange. Wheeling Stock Exchange.

In the latter part of 1956 the Los Angeles Stock Exchange and the

San Francisco Stock Exchange, registered national securities exchanges, entered into an agreement providing for the consolidation of

their membership and operations into the Pacific Coast Stock Exchange but maintaining the Los Angeles and San Francisco trading

floors as separate Divisions of the new exchange. The consolidation

GO
60 SECURITIES AKD EXCHA...1\TGECOMMIS'S'ION

became effective December 31, 1D5G, on which date the registrations

of the other two exchanges were withdrawn.

Disciplinary Actions

Each national securities exchange reports to the Commission dISciplinary actions taken against members for violations of the

Securities Exchange Act or exchange rules. During the year 8 exchanges reported 42 cases of such disciplinary action. The actions

taken included fines in 12 cases, expulsion of 2 individuals from exchange membership, suspension of 5 individuals and censure of

individuals and firms.

REGISTRATION OF SECURITIES ON EXCHANGES

It is unlawful for a member of a national securities exchange or

a broker or dealer to effect any transaction in a security on such exchange unless the security is registered on that exchange under the

Securities Exchange Act or is exempt from such registration. In

general the Act exempts from registration obligations issued or

guaranteed by a State or the Federal Government or by certain subdivisions or agencies thereof and authorizes the Commission to adopt

rules and regulations exempting such other securities as the Commission may find it necessary or appropriate to exempt in the public

interest or :for the protection o:finvestors. Under this authority the

Commission has exempted securities o:f certain banks, certain securities secured by property or leasehold interests, certain warrants,

and, on a temporary basis, certain securities issued in substitution

for or in addition to listed securities.

Section 12of the Exchange Act provides that an issuer may register

a class of securities on an exchange by filing with the Commission and

the exchange an application which discloses pertinent information

concerning the issuer and its affairs. An application requires the

furnishing of information in regard to the issuer's business, capital

structure, the terms of its securities, the persons who manage or

control its affairs, the remuneration paid to its officers and directors,

the allotment of options, bonuses and profit-sharing plans, and

financial statements certified by independent accountants.

Form 10 is the form used Tor 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 securiti.esof forei.gn governments.

Section 13 requires issuers having securities registered on an exchange to file periodic reports keeping current the information furnished in the application for registration. These periodic reports include annual reports, semiannual reports, and current (monthly)

reports. The principal annual report form is Form 10-K which is
TWENTY-THIRD AN.J\"'UALREPORT 61

designed to keep up to date the information furnished on Form 10.

Semiannual reports required to be furnished on Form 9-K are devoted chiefly to :furnishing mid-year financial data. Current reports

on Form 8-K are required to be filed for each month in which any

of certain specified events have occurred. A report on this form

deals with matters such as changes in control of the registrant, important acquisitions or dispositions o:fassets, the institution or termination of important legal proceedings, and important changes in the

issuer's capital securities or in the amount thereof outstanding.

As of June 30, 1957, a total of 2,256 issuers had 3,730 classes of

securities listed and registered on national securities exchanges of

which 2,667 were classified as stocks and 1,063 as bonds. Of the

2,256 issuers, 1,278 had 1,520 stock issues and 1,019 bond issues listed

and registered on the New York Stock Exchange. On a percentage

basis, the New York Stock Exchange had 57 percent of the total of

both issuers and stock issues and 96 percent of the total bond issues,

During the fiscal year 1957, a total of 83 issuers listed and

registered securities for the first time on a national securities exchange

and the listing and registration of all securities of 80 issuers was

terminated during the year. The number of applications filed ,lor

registration of various classes of securities on exchanges during the

year was 232.

The following table shows the number of annual, semiannual, and

current reports filed during the year by issuers having securities

listed and registered on national securities exchanges. The table also

shows the number of such reports filed under section 15 (d) of the

Securities Exchange Act of 1934 by issuers obligated to file such reports by reason of their undertaking contained in one or more registration statements effective under the Securities Act of 1933for the public

offering of securities. As of June 30, 1957, there were 1,274 such

issuers, including 188 also registered under the Investment Company

Act of 1940.

Number of annual and other periodic reports filed by issuers under the Securities

Ea:cllUnge Act of 1934 during me fiscal year ended June30, 1957

Number ofreports filed

byT~'pe of report LISted IS' Over-the. Total reo suers filing counter !S- ports filed

reports suers filing

under sec. reports 13 under sec. 15 (d)

Annual reports on Form lo--K. etc.; __________________________2,178 1,159 3,337 Semiannual reports on Form 9-K. ._. •.• 1,466 633 2,099 Current reports on Form 8-K. ______________ .___________ ._____ 3,575 1,299 4,874

Total reports filed _. 7,219 3,091 10,310

___ ___ _______•___•____

_____•___•___________•_____•___•____
62 SECURITIES AKD EXCHA..1\fGE COMMIS8iON

MARKET VALUE OF SECURITIES TRADED ON EXCHANGES

The market value on December 31, 1956, of all stocks and bonds

admitted to trading on one or more stock exchanges in the United

States was approximately $353,915,500,000,as reported below.

Number Market value

of Issues Dec. 31, 1956

Stocks. New York Stock Exchange ______________________________________________ 1,502 $219,175,881,000

~~J~~I~t:~~~~~~J~iiges= .: =: : =:::: ==:.. =::: .: .. .. =:: .; 849 31,020,099,000

618 3,821,820,000

Total stocks ___________________________________________________________ 2,969 254,017,800,000

Bonds: New York Stock Exchange 1_____________________________________________ 1,043 99,022, 076,000

~~~fvcl~t~~ko~~~e~J';mges=: =:::: ==:::::: .; ..::': .: .. =::::: =::=:::: 68 768,875,000 25 106,749,000

Total bonds ___________________________________________________________ 1,136 99,897,700,000

Total stocks and bonds ________________________________________________ 4,105 353,915,500,000

I Bonds on the New York Stock Exchange Included 55 U. S. Government and New York State and city Issues With $76,317,759,000aggregate market value.

The New York Stock Exchange and American Stock Exchange

figures were reported by those exchanges. There is no duplication

of issues between them. The figures for all other exchanges are for

the net number of issues appearing only on such exchanges, excluding the many issues on them which were also traded on one or the

other of the New York exchanges. The number of issues as shown excludes those suspended from trading and a few others for which quotations were not available. The stocks divided into categories as follows,

with market value as of December 31, 1956,in millions of dollars:

Preferred issues Common Issues

Number Stock values Number Stock values

Listed on registered exchanges__________________________ 586 $8,2406 2,044 $222,991.6 Unlisted on all exchanges_______________________________ 52 553 7 217 21,803 6 Listed on exempted exchanges 1________________________ 12 15.7 58 412.6

Total stocks _____________________________________ 650 8,810.0 2,319 245,207.8

I Excluding Issues also traded on registered exchanges. No deductions have heen made for the holdings of Standard OIl Co. (New Jersey), an aggregate of $12.5

billion market value of shares of Creole Petroleum Corp., Humble Oil & Refining Co., Imperial OU Ltd.,

and Internanonal Petroleum Co., Ltd.

The market value of all stocks on the New York Stock Exchange

on June 30, 1957, was $227.9 billion. Itis estimated that, as of such

date, the market value of all stocks on all the exchanges was about

$262 billion, compared with about $250 billion on June 30, 1956.

The number of shares admitted to trading on the stock exchanges

on December 31, 1956 was approximately 6,334,500,000, an increase

of over 850 million since December 31, 1955. Some 5,852,439,000

= = === = =

•

•

•
TWENTY -TmRD ANNUAL RE!PORT 63

shares, or 92.4 percent of the total, were listed on registered exchanges,

and included 163,339,000preferred and 5,689,100,000common shares.

Assets of Companies With Listed Common Stocks

As shown above, there were 2,044 common stock issues with an

aggregate market value of about $223 billion listed on registered exchanges as of December 31, 1956. The assets of the 2,027 issuers

involved were in the vicinity of $250 billion. Figures published by

the New York Stock Exchange covering 1,071 companies with 1,077

common stock issues and with assets of about $234.2 billion are used

in this compilation, the amount of assets being revised slightly upward because they were stated to be for the year-end 1955 for the

most part. Data for the remaining exchanges are from fiscal year

reports on or near December 31, 1956, and assets are compiled as

shown in the balance sheets, using company rather than consolidated

assets when both are shown. Companies whose common stocks have

only unlisted trading privileges on exchanges or are listed only on

exempted exchanges are excluded from this computation.

Foreign Stock

The market value on December 31, 1956, of all certificates representing foreign stocks on the stock exchanges was reported at about

$12.7 billion, of which $11.7 billion represents Canadian and about

$1.0 billion other foreign stocks. However, the values of the entire

Canadian stock issues are included in these figures, and a substantial

deduction would have to be made to determine the amounts held in

the United States. Most of the other foreign stocks were represented

by American Depository Receipts or American. Shares, only the outstanding amounts of which were used in determining market values.

The American Depository Receipts and American Shares substantially measured the domestic investment in the foreign issues so represented. The market value of the entire foreign stock issues represented in part by American certificates was about $9.0 billion.

Comparative Over-the-Coumee Statistics

Section 15 (d) of the Securities Exchange Act of 1934requires that

registrations filed pursuant to the Securities Act of 1933contain undertakings by the issuers to file the reports required by section 13 of the

Exchange Act, when the class of securities offered and outstanding

exceeds $2 million. The number of issuers required to file these reports, exclusive of issuers also filing under the Investment Company

Act of 1940,1was 971 on June 30, 1956,and 1,086on June 30, 1957. The

1Registrants under the Investment Company Act of 1940 are subject to the reporting

and other requirements of that Act. On June 30, 1957, about 188 registrants under the

Investment Company Act also had registrations under the Securities Act of 1933 requiring

reporting pursuant to sec. 15 (d) of the Securities Exchange Act of 1934, which Is aceompUshed by filing on a single form available under both Acts.
64 SECURITIES AKD EXCILffiGE COMMlSS'ION

1,086 issuers had quoted stocks with an aggregate market value on

December 31, 1956, of approximately $20 billion, including $17 billion

domestic and $3 billion foreign, mostly Canadian. About $1.5 billion

of the domestic and $1.8 billion of the foreign stocks were admitted to

unlisted trading on stock exchanges and the remaining $15.5 billion

domestic and $1.2 billion foreign stocks were traded only in over-thecounter markets in the United States.

The number of issuers registered under the Investment Company

Act of 1940 increased from 399 to 432, and estimated aggregate assets

increased from $14 billion to $15 billion, during the fiscal year ending

June 30, 1957, as shown below in the discussion of that Act in this

Annual Report. Of the 432 issuers, 36 had listings on registered stock

exchanges and 3 had stocks with unlisted trading privileges on an exchange, all but 2 of the 39 issuers being of the "closed-end" type. The

assets of these 39 issuers were approximately $2 billion. The remaining 393 registrants, with about $13 billion of estimated aggregate

assets, had exclusively over-the-counter markets for their securities.

The use of investment company totals in computing overall securities

aggregates is duplicative to a very great extent in that the holdings

of investment companies consist of other securities, principally listed

stocks.

The aggregate market value of all domestic stocks, exclusive of investment company issues, with 300 or more reported holders, traded

exclusively in over-the-counter markets, appears to have changed from

about $45 billion to about $46 billion during the calendar year 1956.

Many issues make their appearance in the over-the-counter markets

each year, while many other issues are no longer traded in such markets

because of listings on stock exchanges, mergers, sales of assets, liquidations and other reasons. The number of domestic issuers reporting

300 or more holders of over-the-counter stocks does not appear to have

increased materially from the 3,500 mentioned in previous Annual

Reports.

As stated above, of the $-4:6billion domestic over-the-counter stocks,

$15.5 billion were of issuers reporting pursuant to section 15 (d) of

the Securities Exchange Act of 1934, and a further $2.5 billion consist of over-the-counter stocks of issuers complying with provisions

of the Exchange Act by reason of having other issues listed and

registered on stock exchanges. Thus, $18 billion, or about two-fifths

of the $46 billion domestic over-the-counter stocks (excluding investment companies) were of issuers reporting pursuant to the Securities Exchange Act.
TW~TTY -THIRD AJ\'l\""UAL REPORT 65

DELISTING OF SECURITIES FROM EXCHANGES

During the fiscal year 1957the Commission granted 26 applications

filed by stock exchanges and 13 applications filed by issuers, pursuant

to rule 12d2-1 (b) under section 12 (d) of the Securities Exchange

Act of 1934,to remove securities from listing and registration.

The applications by stock exchanges covered 4 bond issues and 19

stock issues. Since 3 stock issues were delisted from 2 exchanges and

1 from 3 exchanges, the total number of removals was 24. The applications by issuers covered 13 stock issues, one of which was also included among the 19 stocks delisted upon stock exchange application.'

Thus the net securities delisted were 4 bond issues and 31 stock issues,

accounting for 41removals in all.

The New York Stock Exchange delisting applications granted during the current fiscal year covered 3 bond issues and 14 stocks. That

exchange has recently revised its policy so that delisting will be

considered in instances among others where the size of a company

has been reduced to below $2 million in net tangible assets or aggregate market value of the common stock and the average net

earnings after taxes for the last three years is below $200,000,and certain instances where the stockholders have authorized liquidation

or where sales of assets have been made without liquidation being

authorized. The first applications under these revised standards were

made by the exchange in January 1956, with respect to the common

stocks of Atlas Tack Corp., Exchange Buffet Corp., and Kalamazoo

Stove & Furnace Co. Pursuant to requests, hearings on the Atlas

Tack and Exchange Buffet applications were held by the Commission.

No hearing was held on the Kalamazoo application, since the single

request for a hearing was subsequently withdrawn and the stock remained listed on another stock exchange. All three applications were

granted in September 1956. The orders with respect to Atlas Tack

and Exchange Buffet were subsequently upheld by United States

Courts of Appeals, as described below under Litigation Under the

Securities Exchange Act of 1934. Additional delisting applications

by the New York Stock Exchange included 4 where liquidation was

authorized and the initial liquidating dividend had been paid," 4

where public holdings became negligible following exchange offers

made by other companies, 1 preferred stock issue which had been re2 The common stock of Jaeger Machine Co. was removed from the Cincinnati Stock Exchange pursuant to exehance application and from the Midwest Stock Exchange pursuant

to application hy the Issuer. It remained listed on the New York Stock Exchange.

3 In each case. payment of the initial liquidating dividend left only small amounts for

further payment.

447579-58-6
66 Sl'CURITIES AND EXCHANGE COl\1MISS'ION

duced to a small amount by conversion into other issues of the same

issuer, 1 where there was a sale of assets and no liquidation, and 1

where the survivor to a merger failed to meet the exchange standards

for listing. In the last two cases, the stocks became listed and

registered on the American Stock Exchange. The 3 delisted bond

issues were residues of offers to exchange into other securities.

With one exception, where the issue remained listed on another

exchange, the delisting applications by other stock exchanges were all

based on virtual disappearance of the issues by reason of exchange

offers and liquidations.

The delisting applications filed by issuers covered 7 stocks which

remained listed on other stock exchanges, 2 stocks which had never

been admitted to trading because of inadequacies in the disclosures

made in connection with listing and registration, 1 closely held preferred stock, 1 stock of a liquidating company, and 2 stocks of companies registered under the Investment Company Act of 1940.

From July 1, 1936, through June 30, 1957, delistings pursuant to

rule 12d-l (b) have aggregated 464 upon application by stock exchanges and 264 upon application by issuers, counting each removal

from each exchange in the totals. The net numbers of issues delisted

were 440upon application by stock exchanges and 249upon application

by issuers. Thus the total removals under rule 12d-l (b) during the

period mentioned were 728, including duplication among exchanges,

and resulted in a net delisting of 688 issues.'

Delistlng Proceedings Under Section 19 (a)

Section 19 (a) (2) authorizes the Commission to suspend for a

period not exceeding twelve months, or to withdraw, the registration

of a security on a national securities exchange if, in its opinion, such

action is necessary or appropriate for the protection of investors, and

after notice and opportunity for hearing, the Commission finds that

the issuer of the security has failed to comply with any provision of

the Act or the rules and regulations thereunder. Section 19 (a) (4)

authorizes the Commission summarily to suspend trading in any

registered security on any national securities exchange for a period

not exceeding ten days if in its opinion such action is necessary or

appropriate for the protection of investors and the public interest so

requires.

At the beginning of the year, there were no cases pending under

section 19 (a) (2). During the year, however, nine proceedings were

instituted by the Commission under subsection 19 (a) (2), of which

These totals are aggregates of the data presented and analyzed yearly In the Annual

Reports of the Commission. The Issue mentioned In footnote 2 Is Included In the separate

counts of net Issues delisted upon stock exchange application and upon issuer application,

but Is counted only once In the 688 Issue total.

•
67

two were concluded and seven were pending at the end of the year.

Traditionally, the Commission has used its power under subsection

19 (a) (4) sparingly. However, during the year it found it necessary

and appropriate, in connection with three proceedings brought by it

under subsection 19 (a) (2), to apply its authority summarily to

suspend trading in three securities registered on the American Stock

Exchange. Two of these proceedings, Great Sweet Grass Oils Limited

and K roy Oils Limited, resulted in the issuance of orders withdrawing

the registration of the securities on that exchange," The other proceeding, which involved Bellanca Corporation, was pending at the end

of the fiscal year.

Inthe Great Sweet Grass and K roy cases, the Commission found

that reports filed by the companies with the American Stock Exchange and the Commission pursuant to section 13 of the Securities

Exchange Act were false and misleading. These reports were found

to contain overstatements of oil and gas reserves in their properties.

Moreover, the reports misrepresented that certain securities issued

and sold by the companies in exchange for oil and gas properties were

exempt from the registration requirements of the Securities Act of

1933 pursuant to the so-called "no sale" rule (rule 133) under that

Act.

The Commission in its opinion held that where there is a preexisting

plan, as in this case, to use stockholders merely as a conduit for distributing a substantial amount of securities to the public, rule 133

cannot be relied upon by the issuer and that the rule is not applicable

to an "exchange" of assets for stock which is "but a step in the major

activity of selling stock." The theory of rule 133, as described in

the Commission's opinion, is that no sale to stockholders is involved

where the vote of stockholders as a group authorizes a corporate act

such as a transfer of assets for stock of another corporation, a merger

or a consolidation, because there is not present the element of individual consent ordinarily required for a "sale" in the contractual

sense. However, this does not mean that the stock issued under such

a plan is "free" stock which need not be registered insofar as subsequent sales are concerned. Unless the Securities Act provides an

exemption for a subsequent sale of such nonregistered stock, registration would be required.

The Commission found that Sweet Grass and leroy were chargeable

with knowledge of the plan of distribution and such knowledge required each company to register the securities if it wished to avoid

violations of section 5 of the Securities Act. In any event, the opinion stated, where the persons negotiating an exchange, merger or

similar transaction have sufficient control of the voting stock to make

• Securities Exchange Act Release Ko. 5483 (April 8, 1957).
68 SECURITIES AND EXCHAKGE COMMISSION

a vote of stockholders a mere formality, rule 133 does not apply. In

such case the transaction is not corporate action in a real sense, but

rather is action reflecting the consent of the persons in control, and

consequently results in a "sale" as to them.

The Commission found that no bona fide reliance on rule 133 was

or could have been intended in this case and that the distribution of

the unregistered shares created a contingent liability against Sweet

Grass and Kroy to purchasers, pursuant to section 12 (1) of the

Securities Act, which should have been disclosed in the reports filed

with the Commission. The deliberate efforts disclosed by the record

to evade the registration requirements of the Securities Act by creating corporate entities and effecting transactions meeting the requirements of the rule in appearance only were strongly condemned.

The Commission concluded that the use of the facilities of a national securities exchange by an issuer is a privilege involving important responsibilities under the Act, including compliance with the

reporting requirements. It stated that "when those responsibilities

are abused, the integrity of the exchange market is vitiated," and it

decided that under the circumstances of the case, the protection of

investors required that the registrations of the securities of Sweet

Grass and Kroy on the American Stock Exchange should be withdrawn.

UNLISTED TRADING PRIVILEGES ON EXCHANGES

Unlisted Trading Categories

Under the provisions of section 12 (f) of the Securities Exchange

Act of 1934, the Commission may approve applications by national

securities exchanges to admit securities to unlisted trading privileges

thereon without action on the part of the issuers. Such admissions

impose no duties on issuers beyond any they may already have under

the Act. Section 12 (f) provides for three categories of unlisted

trading privileges.

Clause (1) of section 12 (f) provides for the continuation of unlisted trading privileges which existed on the exchanges prior to

March 1, 1934. On December 1, 1935, unlisted trading privileges

under clause (1) in effect consisted of 496 bond and 81'7stock admissions of issues not listed on other exchanges, and 75 bond and 991

stock admissions of issues listed on other exchanges." By June 30,

1957, the number of admissions to unlisted trading privileges under

clause (1) remaining in effect had fallen from 2,379 to 834, consisting

of 25 bond and 265 stock admissions of issues not listed on other exeThe 1!l35 data are taken from a "Report on Trading In Unlisted Securities Upon Exchanges" Issued hy the Commission In llJ36. Expmpted exchanges are excluded. The number of admissions to unlisted trading privileges Is greater than the number of Issues

Involved because sorne Issues are aduntted on more than one exchange.
TWENTY -THIRD Al\~lJAiL REPORT

changes and of 2 bond and 542 stock admissions of issues listed on

other exchanges.

Clause (2) of section 12 (f) provides for the granting by the Commission of applications by exchanges for unlisted trading privileges

in securities which are listed on other exchanges. The first such

applications were granted in 1937, and there were 908 admissions of

stock issues to unlisted trading privileges under clause (2) in effect on

June 30,1957/ There have been 8 admissions of bond issues, and 7 removals, leaving a single bond issue remaining admitted under clause

(2) .

Clause (3) of section 12 (f) provides for the granting by the Commission of applications for unlisted trading privileges conditioned,

among other things, upon the availability of information substantially

equivalent to that filed in case of listed issuers. There have been 45

bond and 11 stock admissions to unlisted trading privileges under

clause (3), of which only 12 bond and 4 stock issues remained on

June 30,1957, and 2 of the stock issues have also become listed on other

exchanges. There have been no applications under clause (3) since

1949.

Volume of Unlisted Trading in Stocks on Exchanges

The reported volume of shares traded on an unlisted basis on the

stock exchanges during the calendar year 1956 included approximately

33.9 million shares in stocks admitted to unlisted trading only and

30.2 million shares in stocks listed and registered on exchanges other

than those where the unlisted trading occurred. These amounts were

respectively about 3.1 and 2.8 percent of the total share volume reported on all exchanges. Appendix table 8 shows the distribution

of share volume among the various categories of unlisted trading

privileges on exchanges.

Applications for Unlisted Trading Privileges

Pursuant to applications filed by exchanges with respect to stocks

listed on other exchanges, unlisted trading privileges were extended

during the year to June 30, 1957, as follows: Number of

Stock exchange: stocks

Boston__________________________________________ 8

Cincinnati_______________________________________________________ 11

I>etroit__________________________________________________________ 2

Los Angeles______________________________________________________ 17

]did~est_________________________________________________________ 14

Phlladelphia-Baltimore_________________ 26

San Francisco___________________________________________________ 2

Total__________________________________________________________ 80

The reduction from 1,025 unllsterl stock trading privileges nnder clause (2) on Jnne

30, 1956 to 908 on June 30, 1957 was caused primarily by ending of duplications upon the

merger of the Los .Angeles Stock Exchange and the San Francisco Stock Exchange into the

Pacific Coast Stock Exchange on December 31, 1956.

•
70 SECURITIES AND EXCHANGE COMMISS'ION

The Commission's rule 12f-2 provides that when a security admitted

to unlisted trading privileges is changed in certain minor respects it

shall be deemed to be the security previously admitted to unlisted

trading privileges, and if it is changed in other respects the exchange

may file an application requesting the Commission to determine that

notwithstanding such change the security is substantially equivalent

to the security theretofore admitted to unlisted trading privileges.

During the year to June 30,1957, the Commission granted 3 applications by the American Stock Exchange for determination that one

bond issue and two stock issues were the substantial equivalent of the

securities previously admitted to unlisted trading.

BLOCK DISTRIBUTIONS BY EXCHANGES

Rule 10b-2 under the Securities Exchange Act of 1934 in substance prohibits any person participating or interested in the distribution of a security from paying any other person for soliciting or

inducing a third person to buy the security on a national securities

exchange. This rule is an anti-manipulative rule adopted under section 10 (b) of the Act which makes it unlawful for any person to

use any manipulative or deceptive device or contrivance in contravention of Commission rules prescribed in the public interest or for

the protection of investors. Paragraph (d) of the rule provides an

exemption from its prohibitions where compensation is paid pursuant

to the terms of a plan, filed by a national securities exchange and declared effective by the Commission, authorizing the payment of such

compensation in connection with the distribution.

At the present time two types of plans are in effect to permit a

block of securities to be distributed through the facilities of a national

securities exchange when it has been determined that the regular

market on the floor of the exchange cannot absorb the particular

block within a reasonable time and at a reasonable price or prices.

These plans have been designated the "Special Offering Plan," essentially a fixed price offering based on the market price, and the "Exchange Distribution Plan," which is a distribution "at the market."

Both plans contemplate that orders will be solicited off the floor but

executed on the floor. Each of such plans contains certain antimanipulative controls and requires specified disclosures concerning

the distribution to be made to prospective purchasers.

In addition to these two methods of distributing large blocks of

securities on national securities exchanges, a third method is commonly employed whereby blocks of listed securities may be distributed

to the public over the counter. This method is commonly referred

to as a "Secondary Distribution" and such a distribution usually

takes place after the close of exchange trading. It is generally the
TWENTY -THI:RD ANNUkL REPORT 71

practice of exchanges to require members to obtain the approval of

the exchange before participating in such secondary distributions.

The following table shows the number and volume o~ special offerings and exchange distributions reported by the exchanges having

such plans in effect, as well as similar figures for secondary distributions which exchanges have approved for member participation and

reported to the Commission.

Totalsales-1Z months ended Dec. 31,1956'

Shares m Value (thouNumber offer Shares sold sands or dol- lars)

Special offerings _________________________. __________ 8 143,880 131,755 4,557 Exchange dtstnbuttons _____________________________ 17 169,351 156,481 4,645 Secondary distrtbutlons ____________________________ 146 11,526,079 11,696,174 520,966

6 months ended June 30,1957 I

Special offertngs ~I 68, 0161 63,408 [ 1,845 Exchange dlstrrbutlons __. __________________________ 230,514 221,322 11,255 Secondary dtstnbutions __________________. _________ 7,211,258 7,211,463 255,160

I Details of these distrlbutlons appear ill the Oommisston's monthly Statistical Bulletin. For data for prior years see appendix table.

MANIPULATION AND STABILIZATION

Manipulation

The Exchange Act describes and prohibits certain forms of manipulative activity in securities 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 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 the appearance of active trading is created,

for the purpose of inducing purchases or sales by others; circulation

by a broker, dealer, seller, or buyer, or by a person who receives consideration from a broker, dealer, seller, or buyer, of information concerning market operations conducted for a rise or a decline; and the

making of material false and misleading statements by brokers, dealers, sellers, or buyers, or the omission of material information regarding securities 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 securities whether or not such securities are registered on an

exchange or traded over the counter.

The Commission's market surveillance staff in its Division of

Trading and Exchanges in Washington and in its New York Regional Office and other field officesobserves the ticker-tape quotations

________________________• ___________
72 SECURITIES AND EXCHANGE' CQI\!M.ISSiON

100 7

37 4

of the New York Stock Exchange and the American Stock Exchange

securities, the sales and quotation sheets of the various regional exchanges, and. the bid and asked prices published by the National

Daily Quotation Service for about 6,000unlisted securities to observe

any unusual or unexplained price variations or market activity. The

financial news ticker, leading newspapers, and various financial publications and statistical services are also closely followed.

,Vhen unusual or unexplained market activity in a security is observed, all known information regarding the security is examined

and a decision made as to the necessity for an investigation. Most

investigations are not made public so that no unfair reflection will

be cast on any persons or securities and the trading markets will not

be upset. These investigations, which are conducted by the Commission's regional offices,take two forms. A preliminary investigation or "quiz" is designed rapidly to discover evidence of unlawful

activity. If no violations are found, the preliminary investigation

is closed. If it appears that more intensive investigation is necessary,

a formal order of investigation, which carries with it the right to

issue subpenas and to take testimony under oath, is issued by the

Commission. If violations are discovered, the Commission may

revoke the registration of a broker-dealer or it may suspend or expel

him from the National Association of Securities Dealers. Similarly,

a member of a national securities exchange may be suspended or expelled from the exchange. The Commission may also seek an injunction against any person violating the Act and it may recommend

to the Department of Justice that any person violating the Act be

criminally prosecuted. In some cases, where State action seems

likely to bring quick results in preventing fraud or where Federal

jurisdiction may be doubtful, the information obtained may be referred to State agencies for State injunction or criminal prosecution.

The following table shows the number of quizzes and formal investigations initiated in 1957,the number closed or completed during

the same period, and the number pending at the end of the fiscal

year:

Tradillg inoceilputlons

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

Formal Quizzes InvestIgatlons

fri'ft~~~~~n~fi= year~~ =:::: .: .: .: .: .: .: .. =::~ =::::: .. ------ TotaL •... ..... __..... .... _. .... _.... __... . _. ..... 137 11

== gha:~ed't~~::~~~~~~~l~~~~ ::::::::::::::::..::::::::::::::::::=: 6~ .......•

------ TotaL. .. __. _.•.... _. _ . _ .. __.•... . _.. __ __.. _ 71 , 2

Pending at cnd of fiscal yC3I" • • • • • .________ ==66 9

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

_ ~
TWENTY-THI'RD AN?\lJAL RETORT 73

'Vhen securities are to be offered to the public, their markets are

watched very closely to make sure that the price is not unlawfully

raised prior to or during the distribution. Eight hundred and sixty

registered offerings having a value of $14,623,600,000 and 925

offerings exempt under section 3 (b) of the Securities Act, having a

value of about $168 million were so observed during the fiscal year.

About 200 other small offerings, such as secondary distributions and

distributions of securities under special plans filed by the exchanges,

which had a total value of about $500 million, were also kept under

surveillance.

Stabilization

Stabilization involves open-market purchases of securities to prevent or retard a decline in the market price in order to facilitate a

distribution. It is permitted by the Exchange Act subject to the

restrictions provided by the Commission's rules 10b-6, 7 and 8. These

rules are designed to confine stabilizing activity to that necessary for

the above purpose, to require proper disclosure and to prevent

unlawful manipulation.

During 1957 stabilizing was effected in connection with stock offerings aggregating 28,585,236 shares having an aggregate public offering price of $706,538,755. Bond issues having a total offering price

of $223,483,150 were also stabilized. To accomplish this, 970,942

shares of stock were purchased in stabilizing transactions at a cost

of $20,870,422 and bonds costing $4,688,610 were also bought. In

connection with these stabilizing transactions 7,341 stabilizing reports which show purchases and sales of securities effected by persons

conducting the distribution were received and examined during the

fiscal year.

INSIDERS' SECURITY TRANSACTIONS AND HOLDINGS

Under section 16 (a) of the Securities Exchange Act of 1934 every

person who becomes a direct or indirect beneficial owner of more

than 10 percent of any class of equity security (other than an exempted security) which is listed and registered on a national securities exchange, or who becomes a director or an officerof the issuer

of any such security, is required to file with the Commission and the

exchange a statement of his ownership of the issuer's equity securities

and to keep such information current by filing a report for each

month in which any subsequent change in his ownership occurs, showing the transactions involved. Officers and directors of public

utility holding companies and officers, directors, principal security

holders, members of advisory boards, investment advisers or affiliated

persons of investment advisers of registered closed-end investment

companies are required to file similar reports with the Commission
74 SECURITIES AND EXCHANGE OOMMISSiION

under section 17 (a) of the Public Utility Holding Company Act of

1935 and section 30 (f) of the Investment Company Act of 1940.

These reports are available for public inspection at the Commission's office and at the exchanges. In order to make available to

interested persons throughout the country the information contained

in these reports, it is summarized and published in the Commission's

monthly "Official Summary of Security Transactions and Holdings,"

which is distributed on a subscription basis by the Government Printing Office. The circulation of this publication now exceeds 4,500

copies a month.

The number of reports filed has continued to increase during the

last 5 fiscal years, reaching a new high of 34,443 for the 1957 fiscal

year. The following table shows the number of reports filed for

each of the last 5 years.

Number of ownership reports filed during the last 5 fiscal years

Numbero!

Fiscal year: report« filed 1957 84,443

1956 82,001

1955 28,975

1954 28,199

1958 22,883

The following table shows details concerning the reports filed during the fiscal year 1957:

Number of otvne1'ship reports of officet's, direct01's, principal security holders,

and certain other affiliated persons filed during the fiscal year ended June SO,

1957

SecuritiesExchange .Actof 1934: 1

Form 4 29,348

Form 5_________________________________________________________ 823

Form 6 3,315

Total 88,486

Public UtilityHolding Company .Actof 1935:

Form U-17-1___________________________________________________ 21

Form U-17-2_~_________________________________________________ 275

Total_________________________________________________________ 296

--- Investment Company .Actof 1940:

Form N-30F-l__________________________________________________ 272

Form N-30F-2__________________________________________________ 889

Total_________________________________________________________ 661

Grand total 34,443

1Form 4 is used to rpport changes in ownership; Form 5 to report ownership at the

time an equity security of an issuer is first listed and registered on a national securities

exchange; and Form 6 to report ownership of persons who subsequently become officers.

directors or principal stockholders of the issuer.

> Form U-11-1 is used for initial reports and Form U-17-2 for reports of changes of

ownership .

Form N-30F-l is used for initial reports and Form N-30F-2 for reports of changes of

ownership,

•

•

•
TWENTY-THIRD .ANiNUAiL RE!PO'RT 75

Recovery or Short Swing Trading Profits hy or on Behalf of Issuer

For the purpose of preventing the unfair use of information which

may have been obtained by an officer,director or 10-percent stockholder

by reason of his relationship to his company, sections 16 (b) of the

Securities Exchange Act, 17 (b) of the Public Utility Holding Company Act, and 30 (f) of the Investment Company Act provide for

the recovery by or on behalf of the issuer of any profit realized by the

officer, director or 10-percent stockholder from certain purchases and

sales, or sales and purchases, of securities of the company within any

period of less than 6 months. The Commission is not charged with

the enforcement of the civil remedies created by these provisions,

which are matters for determination by the courts in actions brought

by the proper parties.

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 X-14 requiring the disclosure in a proxy statement of pertinent

information in connection with the solicitation of proxies, consents and

authorizations in respect of securities of companies subject to those

statutes. The regulation also provides means whereby any security

holders so desiring may communicate with other security holders when

management is soliciting proxies, either by arranging for the independent distribution of their own proxy statements or by including

their proposals in the proxy statements sent out by management.

Copies of proposed proxy material must be filed with the Commission in preliminary form prior to the date of the proposed solicitation.

'Where preliminary material fails to meet the prescribed disclosure

standards, the management or other group responsible for its preparation is notified informally and given an opportunity to avoid such

defects in the preparation of the proxy material in the definitive form

in which it is furnished to stockholders.

Statistics Relating to Proxy Statements

During the 1957 fiscal year 1,991 solicitations were made pursuant

to regulation X-14; 1,968 were conducted by management and 23 by

nonmanagement groups. These 1,991 solicitations related to 1,755

companies, some 160 of which had more than one solicitation during

the year, generally for a special meeting not involving the election

of directors.

Of the 1,991 proxy statements filed during the year, 1,726 involved

the solicitation of proxies for the election of directors, 239 were for
76 SECURITIES AND EXCHANGE COMMISSION

special meetings not involving the election of directors, and 26 solicited

assents and authorizations not involving a meeting of security holders

or the election of directors.

In addition to the election of directors, stockholders' decisions were

sought in the 1957 fiscal year with respect to the following types of

matters: Number

01 prollJY

Nature 01 proposals statements

Mergers, consolidations, acquisitions of businesses, purchases and sales

of property, and dissolutions________________________________________ 112

Issuance of new or additional securities, modifications of existing securities and recapitalization plans other than mergers or consolidations__ 297

Employee pension and retirement plans (including amendments to existing

plans)_____________________________________________________________ 86

Bonus and profit-sharing plans, including deferred compensation arrangements_____________________________________________________________ 40

Stock option and employee stock purchase plans (including amendments

to existing plans)__________________________________________________ 216

Approval of selection by management of independent auditors____________ 516

Amendments to charters and bylaws and miscellaneous other matters

(excluding those involved in the preceding items)____________________ 461

Stockholders' Proposals

During the 1957 fiscal year, 33 stockholders submitted a total of

127 proposals which were included in the 78 proxy statements by the

management of 77 companies under the provisions of rule 14a-8 of

regulation X-H.

Typical of such stockholders' proposals submitted to a vote of security holders were resolutions relating to amendments to charters

and bylaws to provide for regional meetings of stockholders, cumulative voting for the election of directors, preemptive rights for stockholders, a requirement that directors own a minimum amount of stock,

limitation of the authority of the directors to issue securities for property without specific approval by stockholders and the annual election

of all directors. Other resolutions of stockholders included in managements' proxy statements related to limitations on executive salaries,

pensions, and options to purchase stock of the company, the sending to

all stockholders of a report of the annual meeting and the approval

by stockholders of the selection by management of the independent

auditors.

The management of 21 companies omitted from their proxy statements, under the conditions specified in rule Ha-8, a total of 39 additional stockholder proposals submitted by 24 individual stockholders.

The reasons why these 39 proposals were omitted from managements'

proxy statements are given below with the number of times each reason
TWENTY -rrnan ANNUAL REPORT 77

was involved shown in parentheses: (a) The proposal 'wasnot a proper

subject matter under state law (15f; (b) the proposal was not submitted to the company within the prescribed time limit (4); (c) the

proposal involved a personal grievance (7); (d) the same proposal

did not receive sufficient votes at a previous meeting of stockholders

(4) ; (e) the subject matter related to the ordinary conduct of business

of the company (3); and (I) the proposal was withdrawn by the

stockholder (6).

Ratio of Soliciting to Nonsoliciting Companies

Of the 2,256 issuers that had securities listed and registered on

national securities exchanges as of June 30, 1957, 2,004 had voting

securities so listed and registered." Of these 2,004 issuers, 1,532, or

76.4 percent, solicited proxies under the Commission's proxy rules for

the election of directors during the 1957 fiscal year while the remaining 472,or 23.6percent, did not fileproxy statements.

Proxy Contests

During the 1957 fiscal year there were 20 companies involved in

proxy contests for the election of directors, 11 of which were for

control of the company and 9 for representation on the board of

directors. In these contests 265 persons filed detailed statements as

participants under the requirements of rule 14a-11. Of the 11 contests for control, management won 7, the opposition won 2, 1 was

settled by negotiation, and 1 was pending in court as of June 30,

1957. Of the 9 contests for representation on the board of directors,

management won 5, the opposition won places on the board in 3

cases, and in the other case the opposition was given a place on the

board by negotiation.

REGULATION OF BROKER.DEALERS AND OVER-THE-COUNTER

MARKETS

Registration

Section 15 (a) of the Securities Exchange Act of 1934 requires

registration of brokers and dealers using the mails or instrumentalities of interstate commerce to effect transactions in securities on the

over-the-counter market, except those brokers and dealers whose

business is exclusively intrastate or exclusively in exempt securities.

The tabulations below reflect certain statistical data with respect to

8 Not included in the 2,004 issuers were 11 companies that listed and registered voting

securities on an exchange for the first time subsequent to their 1957 annual meeting of

stockholders.
78 SECURITIES AND EXCHANGE COMMJSS[ON

registration of brokers and dealers and applications for such registration during the fiscal year 1957.

Effective registrations at close of preceding fiscal year 4, 591

Applications pending at close of preceding fiscal year___________________ 53

Applications filed during fiscal year___________________________________ 776

Total 5,420

Applications denied_____________________ 6

Applications withdra wn_____ 17

Applications cancelled________________________________________________ 0

Registrations withdra wn_____________________________________________ 477

Registrations canceIled__________________ 58

Registrations revoked________________________________________________ 22

Registrations effective at end of year 4,771

Applications pending at end of year___________________________________ 69

Total 5,420

Administrative Proceedings

Under section 15 (b) of the Securities Exchange Act of 1934, the

Commission may deny broker-dealer registration to an applicant or

revoke such registration if it finds that it is in the public interest and

that the applicant or registrant or any partner, officer, director or

other person directly or indirectly controlling or controlled by such

applicant or broker-dealer is subject to one or more of the disqualifications set forth in the Act. These disqualifications, in general, are

(1) willful false or misleading statements in the application or documents supplemental thereto, (2) conviction within ten years of a

felony or misdemeanor involving the purchase or sale of securities or

of any conduct arising out of the business as a broker-dealer, (3) injunction by a court of competent jurisdiction from engaging in any

practices in connection with the purchase or sale of securities, and

(4) willful violation of the Securities Act of 1933 or the Securities

Exchange Act of 1934or any of the Commission's rules or regulations

thereunder. In addition, brokers and dealers may be suspended or

expelled by the Commission from membership in the National Association of Securities Dealers, Inc., and national securities exchanges

for participating in violations of the various federal securities laws

or the regulations thereunder. The Commission may not deny registration to any person who applies therefor absent evidence of misconduct of the specified types enumerated in the Act. Reputation,

character, lack of experience in the securities business or even conviction of the registrant of a :felony not involving the sale of securities

do not constitute statutory bars to registration as a broker-dealer.

The Commission's vigorous enforcement program and a greater

number of broker-dealer inspections during the fiscal year resulted in

_
TWENTY-TIDRD ANNUM.. RIDPORT 79

a substantial increase in the number of proceedings under section 15

(b) of the Securities Exchange Act as compared with prior years.

A tabulation reflecting these proceedings for the fiscal year follows.

Statistics of administrative proceedings to deny and reooke reaistrouon and to

suspend and eepe; from membership iJl1la national securities association 01" an

eectumqe

Proceedings pending at start of fiscal year to:

Revoke registration 22

Revoke registration and suspend or expel from NASD or exchanges.,., 11

Deny registration to applicants__________________________________ 4

Total proceedings pending_____________________________________ 37

Proceedings instituted during fiscal year to :

ReVOke registration_______________ _ ___ 27

Revoke registration and suspend or expel from NASD or exchanges.,., 31

Deny registration to applicants___________________________________ 15

Impose terms and conditions on withdrawaL______________________ 1

Total proceedings instituted____________________________________ 74

Total proceedings current during fiscal year______________________ 111

Disposition of lwoceedings

Proceedings to revoke registration:

Dismissed on withdrawal of registration__________________________ 13

Dismissed-registration permitted to continue in effecL____________ 1

Registration revoked_____________________________________________ 13

Total__________________________________________________________ 27

Proceedings to revoke registration and suspend or expel from NASD or

exchanges:

Registration revoked and firm expelled from NASD_________________ 9

Dismissed on withdrawal of registration___________________________ 1

Dismissed-registration and membership permitted to continue in

effect__________________________________________________________ 3

Suspended for a period of Mme from NASD________________________ 4

Total__________________________________________________________ 17

Proceedings to deny registration to applicant:

]Registration denied______________________________________________ 6

Dismissed on withdrawal of application___________________________ 2

Dismissed-application permitted to become effective________________ 2

Total__________________________________________________________ 10
80 SECURITIES AND EXCHANGE COMMISSlION

Disposition at proceedings-Continued

Proceedings to impose terms and conditions on withdrawal:

Dismissed-withdrawal of registration permitted__________________ 1

Total_________________________________________________________ 1

Total proceedings disposed oL__________________________________ 55

Proceedings pending at end of fiscal year to:

Revoke registration______ 22

Revoke registration and suspend or expel from NASD or exchanges.,., 23

Deny registration to applicants____________________________________ 9

Impose terms and conditions on withdrawaL_______________________ n

Total proceeding-s pending at end of fiscal year____________________ 56

Total proceedings accounted for_________________________________ 111

Proceedings in which action was taken during the year included.

the following:

Registration as a broker-dealer in securities was denied to John

Raymond LU<Jas,doing business as Lucas and OO'TT/,pany9 upon a finding that while not so registered with the Commission the applicant

had effected securities transactions involving $8,900,000with 116 customers located in 6 states and with 36 other brokers and dealers. A

substantial number of transactions had been effected by Lucas after

he had been advised of the broker-dealer registration requirements of

the Securities Exchange Act of 1934. In addition, it was found that

the sworn financial statement filed with his application for registration was false in failing to disclose a large amount of liabilities and

that Lucas had engaged in transactions with customers while insolvent without disclosing such information to his customers. Subsequently Lucas was tried and convicted in a state court on oharges of

grand larceny and embezzlement and was sentenced to five years in the

state penitentiary.

In The Western Trader, Irw.r the Commission denied an application for registration as a broker-dealer upon a finding that the applicant had been previously registered as a broker-dealer and in an action

instituted by the Commission was permanently enjoined by a decree

entered in a United States District Court in which it was adjudged,

among other things, that the applicant sold unregistered stock in a

uranium company by means of misrepresentations concerning the

company and its properties, and had effected principal and agency

transactions with customers without sending proper confirmations

as required. The Commission also found that Clifford A. Greenman,

Securities r~xchnnge Act Release No. 5470 (March 8, 1957).

In l'l'cllrltie; Exchange Act Rclonse 11\0. 5514 (~fay 13, 1ll57).

•
TWENTY -TIDRD ANiNU.AIL RFI.PORT 81

president and controlling stockholder of applicant, was a cause of the

order of denial. Greenman was also a registered investment adviser operating under the name The Western Trader and Investor.

Proceedings resulting in revocation of that registration are discussed

in the section of this report relating to Investment Advisers Act of

1940.

The broker-dealer registration of The Lewellen-Bybee Oo'rnpany11

was revoked upon a finding that the firm had offered and sold the

common stock of Venezuelan National Diamond Co. and Powder

River Uranium Co., Inc., and the common and preferred stock of

Hemisphere Productions, Ltd., when no registration under the Securities Act of 1933 was in effect with respect to any of these securities. In connection with the offer of stock of Venezuelan National

Diamond Co., the firm made false and misleading representations

concerning the incorporation of the issuer and the return to be expected from an investment in the security. In the offer and sale of

the securities of Hemisphere Productions Limited the firm made false

representations concerning the issuer's repurchase of its preferred

stock, the soundness of an investment in the securities, and their future

price. In addition, it was found that a predecessor of the firm had

offered and sold unregistered securities of another issuer, and in

doing so had made various false and misleading statements. The

Commission determined that Rollo Lee Lewellen, president of Lew-'

ellen-Bybee, was a cause of the revocation.

O. Herbert Onderdonk, doing business as O. Herbert Onderdonk

00.,12 had been permanently enjoined by a United States District

Court, upon a complaint filed by the Commission, from engaging in

business as a broker-dealer unless his books and records were made

current and made available for inspection by a representative of the

Commission, and a true and correct report of his financial condition

filed. It appeared that his books and records and his financial report

filed with the Commission failed to reflect certain liabilities to customers and that New York State had obtained an injunction based

upon a finding that Onderdonk was insolvent and had misappropriated funds aDJisecurities of customers. The Commission entered

an order revoking Onderdonk's registration. Onderdonk received

a sentence of from 5 to 10 years' imprisonment upon a plea of guilty

to charges of forgery and grand larceny brought in a state court.

The Commission suspended the membership of Brereton, Rice &:

00., [ne.1S in the National Association of Securities Dealers, Inc., for

30 days upon a finding that the firm had prepared and inserted in a

11 Securities Exchange Act Release No. 5401 (November 23. 1956).

II Securities Exchange Act Release No. 5532 (June 11. 1951).

II Securities Exchange Act Release No. 5411 (March 25. 1951).

441579-58-7
82 SECURITIES AND EXCHANGE OOMMISSION

mining newspaper an advertisement which represented that the firm

offered to sell the unsold balance of an issue of 200,000 shares of

Leadville Lead and Uranium Corporation stock at the original public offering price of $1.25 per share; that a survey of Leadville's mining properties by a certain eminent mining engineer indicated large

bodies of gold, silver, lead, zinc, and copper ore; and that the mining

engineer after completing his survey bought a substantial block of

Leadville stock at $1.25 per share.

The Commission determined that the offer to sell the unsold balances of the Leadville issue was materially misleading in that Brereton, Rice & Co., Inc., intended to fill orders received in response to

the advertisement with outstanding rather than original issue stock,

and consequently none of the proceeds of such sales would be received

by the issuer. With regard to the survey indicating large bodies of

certain minerals, it was found that the conclusions were based upon

certain anomalies which did not necessarily indicate the existence of

any ore bodies. It was also found that the claim that the mining

engineer had purchased a block of stock in Leadville was misleading

since the engineer was given the stock as partial compensation before

beginning his surveys. Prompt action by the Regional Office caused

a discontinuance of the offering before any sales were effected.

An order was entered denying the application for registration as

°abroker-dealer of George W. OMllian, doing business as George W.

OMllian ill Oompany 14 based upon violations of the registration provisions of the Securities Act and the Securities Exchange Act. The

Commission found that the applicant had participated in the distribution of more than a quarter of a million shares of capital stock of

New Metalore Mining Co., Ltd., a Canadian mining company, to

residents of the United States in eight states. The shares were not

registered under the Securities Act and Chillian was not registered

as a broker-dealer under the Exchange Act. It was found that he

also effected transactions in other Canadian securities for residents

of Minnesota.

The Commission revoked the registration of L. D. Friedman d; 00.,

Inc./5 as a broker-dealer when it was found that the firm had made

false statements in its application for registration, and made false

statements that an offering of North Pacific Exploration, Ltd., stock

was almost completed and that only a few shares were left, that the

price of the stock would go up substantially in the near future, that the

firm had made large purchases of the stock, that oil had been discovered on North Pacific's properties and that North Pacific compared

favorably with another.well-Imown successful company. In addition,

H Securities Exchange Act Release No. 5368 (September 26, 1956).

15 Securities Exchange Act Release No. 5518 (May 17, 1957).
TWENTY-THIRD ANLNUAL REPORT 83

it was found that the firm had failed to meet the net capital requirements and to keep the books and records required by the Securities

Exchange Act of 1934 and had sold securities not registered under the

Securities Act of 1933. The Commission found Louis D. Friedman

and Leo Raymond, president and former vice president, respectively,

of L. D. Friedman & Co., to be causes of the revocation.

Proceedings against Ooburn. and Middlebrook, Imoorporated t" were

based upon violations of section 7 (c) of the Securities Exchange Act

of 1934 and regulation T promulgated by the Federal Reserve Board

thereunder relating to the extension of credit to customers by brokerdealers who transact business through the medium of a member of a

national securities exchange. The registrant maintained 14 branch

officesand employed about 100 salesmen. Its business largely involved

dealings in securities traded in the over-the-counter market. Section

4 (c) (2) of regulation T provides that a broker or dealer shall

promptly cancel or otherwise liquidate the transaction where a customer purchases a security in a special cash account and does not make

full cash payment within 7 business days. Section 4 (c) (8) of the

regulation provides that unless funds sufficient for the purpose are

already in the account, no security shall be purchased for or sold to a

customer in a special cash account if during the preceding 90 days the

customer had purchased another security in that account and sold it

before he paid for it in full. Section 4 (c) (1) (a) of regulation T

permits a broker or dealer to effect bona fide cash transactions involving the purchase of a security by a customer in a special cash account

which does not have sufficient funds for the purpose only if he does so

in reliance upon an agreement accepted by him in good faith that the

customer will promptly make full cash payment for the security and

that he does not contemplate selling the security prior to making such

payment. The Commission found that registrant had violated section

7 (c) of the Act and each of the foregoing provisions of regulation T

and suspended registrant from membership in the National Association of Securities Dealers, Inc., for a period of 30days.

Another case involving charges of violation of section 7 (c) of the

Securities Exchange Act and regulation T was In the Matter of Denton & Oompany,Ineorporate<iP In this case the Commission found

that the registrant did not promptly cancel or otherwise liquidate

transactions of customers in special cash accounts when the customer

did not make full cash payment within 7 business days in violation of

section 4 (c) (2) of regulation T. At least one of these transactions

also violated section 4 (c) (8) of the regulation in that a customer was

permitted to purchase a security in a special cash account without hav11 Securities Exchange Act Release No. 5454 (Febrnary 27, 1957)

.. secnrlties Exchange Act Release No. 5498 (AprU 22, 1957).

•
84 SECURITIES AND EXCHANGE COMMISS'ION

ing sufficient funds in the account for that purpose when within the

previous 90 days the customer had purchased another security in that

account and sold it before he paid for it. In addition to the regulation

T violations, the Commission found that the registrant had failed to

keep current certain books and records as required. The Commission

suspended the firm from the National Association of Securities Dealers, Inc., for 30 days and found three officers of the firm to be causes

of the suspension order.

The broker-dealer registration of Gill, Pope OO.lS was revoked upon

a finding that the registrant's books and records and its report of financial condition filed with the Commission failed to reflect a liability

for an advance by Paleo Oil & Gas Corp. for expenses in connection

with a "best efforts" underwriting. Had the liability been shown, it

would have revealed that the firm was doing business with customers

while in violation of the net capital rule and while insolvent. Jesse

S. Gill and Frank I. Pope were found to be causes of the revocation

order.

The Commission revoked the registration of Bartlett and Weikel 19

as a broker-dealer based upon a finding that the firm had engaged in

a distribution of Acteon Gold Mines, Ltd., a Canadian security, in the

United States when no registration statement was in effect for the

securities under the Securities Act of 1933. In connection with such

sales the firm made false and misleading statements by overstating

the value of Acteon's properties, orders held by Bartlett and Weikel

for Acteon stock and the indicated market price of the stock. Further, it was found that the firm had failed to keep certain books and

records, had made fictitious entries in other books and records and had

filed a false annual financial statement with the Commission. The

Commission also found Malcolm H. Biddle Weikel and Paul Henry

Kroger, partners in Bartlett and Weikel, to be causes of the revocation.

The broker-dealer registration of Mitchell Securities, lna.,20 was

revoked by the Commission, based upon an injunction entered in a

United States District Court in which it was adjudged that the firm

had sold its own debentures to the public by means of misrepresentations about its financial condition, its history of unprofitable operations, and commissions paid in connection with the sale of its debentures. The Commission also determined that C. Benjamin Mitchell

and Russell P. Dotterer, who were officers and directors of Mitchell

Securities, were causes of the revocation.

The broker-dealer registration of Paul Scarborough, J1'.,21 was revoked by the Commission following his conviction in United States

2lI Securities Exchange Act Release No. 11340 (J'uly 19, 19116).

2lI Becurities Exchange Act Release No. 118117(August 31,1956).

Securities Exchange Act Release No. 11498 (April 28, 19117).

11 Securities _change Act Release No. 111107(A.pril 80, 19111).

•
TWENTY -THIRD ANNUAL REPORT 85

District Court on charges of violating the anti-fraud provisions of

the Securities Act and the Securities Exchange Act involving conversion by Scarborough of customers' funds and securities. The

Commission earlier had obtained an injunction in the same court

to restrain further violations of the anti-fraud provisions of the

Securities Exchange Act and from continuing to effect transactions

in securities as a broker-dealer without making and keeping current

the books and records required under the Act. The injunction was

also a basis for the Commission's order of revocation.

Net Capital Rule

To provide safeguards for funds and securities of customers dealing

with broker-dealers, the Commission has adopted rule 15c3-1 under

the Securities Exchange Act, commonly known as the net capital

rule. This rule restricts the amount of indebtedness that may be incurred by a registrant in relation to his capital. Under the rule, no

broker-dealer subject thereto may permit his "aggregate indebtedness"

to exceed 20 times his "net capital" as those terms are defined in the

rule.

Prompt action is taken by the Commission whenever it appears that

any broker-dealer fails to meet the capital requirements prescribed

by the rule. Unless the broker-dealer takes necessary steps promptly

to correct any capital deficiency found to exist either by inspection

or by reports filed with the Commission, injunctive action may be

taken or proceedings instituted to determine whether the brokerdealer registration should be revoked. During the fiscal year violations of the net capital rule were alleged in injunctive actions filed

against 34 broker-dealers, and in revocation proceedings instituted

against 20.

Where a broker-dealer participates in "firm commitment" underwritings careful check, based upon latest available information, is

made to determine whether he has adequate net capital to be in compliance with the rule. Acceleration of effectiveness of registration

statements under the Securities Act is not permitted if it appears

that any underwriter would as a result of his commitment be in violation of the net capital rule. Ina number of instances during the past

year broker-dealers who were named as underwriters appeared to be

inadequately capitalized to take down their commitments in conformity with the rule. The broker-dealers were informed of the situation and the effect it would have on a pending registration statement,

and they thereupon obtained sufficient capital so that full compliance

with the rule could be had, reduced their commitments to the extent

to which they could be undertaken without violating the rule or withdrew entirely as an underwriter.
86 SECURITIES AND EXCHANGE OOMMISS'ION

Financial Statements

A report of financial condition is required to be filed with the Commission once each calendar year by every registered broker-dealer.

These reports serve to inform the Commission and the public as to the

financial responsibility of broker-dealers, and they are analyzed by

the staff to determine whether the registrant is in compliance with the

Commission's net capital rule. If the analysis discloses that the

registrant is not in compliance with the net capital requirements an

opportunity is usually afforded for compliance, particularly where the

situation appears to be inadvertent or of a temporary nature. However, the Commission, for the protection of customers, insists that

registrants be ill compliance and, where the public interest would be

better served, appropriate action is taken. Revocation proceedings

are brought against registrants who fail to make the necessary filing.

During the year 4,328 reports of financial condition were :filed.

Broker-Dealer Inspections

Inspections of registered broker-dealers as provided for in section

17 (a) of the Securities Exchange Act are a vital part of the Commission's activities to provide maximum protection of investors. The

purpose of these regular and periodic inspections is to assure compliance by broker-dealers with the securities acts and the rules and regulations promulgated by the Commission and to detect and prevent

violations.

An inspection ordinarily includes, among other things, (1) a determination of the financial condition of the broker-dealer; (2) review

of pricing practices; (3) review of the treatment of customers' funds

and securities; and (4) a determination whether adequate disclosures

are made to customers. The inspection process also determines whether

the required books and records are adequate and currently maintained,

and whether broker-dealers are conforming with the margin and other

requirements of regulation T, as prescribed by the Federal Reserve

Board. They also check for "churning," "switching," sale of unregistered securities, use of improper sales literature or sales methods,

and other fraudulent practices. These inspections frequently discover

situations which, if not corrected, would result in losses to customers.

The policy inaugurated in the previous year of increasing the number of inspections was carried forward in the fiscal year 1957. The

1,214 inspections completed during the year represent an increase of

more than 25 percent over the previous year. Since the number of

registered broker-dealers continued to increase during the year from

4,591 to 4,771 at the end of the year, it is proposed that the inspection

program will be further expanded to keep pace with the increased

number of persons engaged in the securities business.
TWENTY-THIRD ANNlJA!L RmPORT 87

While an inspection may disclose violations of the Commission's

statutes or rules, formal action is not taken against every broker-dealer

found to be in violation. In determining whether to institute action

against a broker-dealer found as a result of an inspection to be in

violation, consideration is given to the nature of the violation and to

the effect it has upon members of the public. Inspections usually reveal a number of inadvertent violations which are caught before they

become serious and before they jeopardize the rights of customers. In

such situations, where no harm has come to the public, the matter is

called to the attention of the registrant and arrangements made to correct the improper practices. Where, however, the violation appears to

be willful and the public interest is best served by instituting proceedings against the broker-dealer, such action is promptly taken.

The following table shows the various types of violations disclosed

as a result of the inspection program during the fiscal year 1957.

Type Number

Financial difficulties__________________________________________________ 121

~othecation rules__________________________________________________ 26

Unreasonable prices for securities purchases____________________________ 234

Regulation T of the Federal Reserve Board_____________________________ 218

"Secret profits" 8

ConfirDlation and bookkeeping rules___________________________________ 950

Afiscellaneous 165

Total indicated violations 1,722

Total number of inspections 1. 214

In addition to the Commission's inspection program, the National

Association of Securities Dealers, Inc., and the principal stock exchanges also conduct inspections of their members and some of the

States also have inspection programs. Each inspecting agency conducts inspections in accordance with its own procedures and with

particular reference to its own regulations and jurisdiction. Consequently, inspections by other agencies are not an adequate substitute

for Commission inspections since the inspector will not be primarily

concerned with the detection and prevention of violations of the

Federal securities laws and the Commission's regulations thereunder.

The Commission and certain other inspecting agencies, however,

maintain a program of coordinating inspection activities for the purpose of avoiding unnecessary duplication of inspections and to obtain the widest possible coverage of brokers and dealers. This seems

appropriate in view of the limited number of inspections which it

is possible for the Commission to make. The program does not

prevent the Commission from inspecting any person recently inspected by another agency, and such an inspection by the Commission
88 SECURITIES AND EXCHANGE COMMISS.'ION

is made whenever reason therefor exists, but it has been necessary

for the Commission to rely to a considerable extent upon the inspection programs of the major exchanges, such as the New York Stock

Exchange.

Agencies now participating in the coordinated program include

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

Midwest Stock Exchange, the Philadelphia-Baltimore Stock Exchange, the Pacific Coast Stock Exchange, and the National Association of Securities Dealers, Inc.

SUPERVISION OF ACTIVITIES OF NATIONAL ASSOCIATION

OF SECURITIES DEALERS, INC.

Section 15A of the Securities Exchange Act of 1934 ("the Maloney Act") provides for registration with the Commission of national securities associations 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 serve as a medium for the co-operative self

regulation of over-the-counter brokers and dealers and operate under

the general supervision of this Commission. The National Association of Securities Dealers, Inc. (NASD) is the only association

registered under the Act.

In adopting legislation to authorize the formation and registration

of such associations, Congress provided an incentive to membership

by permitting such associations to adopt, and the NASD has adopted,

rules which preclude a member from dealing with a non-member,

except on the same terms and conditions as the member affords the

general public. As a consequence, membership is necessary to the

profitable participation in underwritings and over-the-counter trading in general, for price concessions, discounts and similar allowances

may properly be granted only to members.

On June 30, 1957, there were 3,856 NASD members, an increase

of 222 during the year, as a result of 456 admissions to and 234 terminations of membership. There were also registered with the NASD

as registered representatives 57,103 individuals, including, generally,

all partners, officers, salesmen, traders and other persons employed

by or affiliated with member firms in capacities which involved their

doing business directly with the public. The number of registered

representatives increased by 8,537 during the year, as a result of

15,014 initial registrations, 5,861 re-registrations and 12,338terminations of registration.

-
TWENTY-THIRD ANNUAL REPORT 89

Disciplinary Actions

The NASD sends the Commission summaries of decisions on all

final disciplinary actions taken against members and the registered

representatives of members. Each such decision is considered by the

Commission's staff to determine whether the underlying facts indicate conduct violative of the statutes administered by the Commission or the rules adopted thereunder. "This consideration often includes an examination of the NASD's file on a particular case.

Where the available facts appear to indicate violations of the Commission's rules or statutes, independent Commission enforcement action is initiated, unless, of course, such action had already been commenced before receipt of notice from the NASD.

During the year here under review, the NASD reported to the

Commission on 140 final disciplinary actions against 141 members,

one complaint having been directed against two different members,

and 61 registered representatives of members. In 97 cases complaints were directed solely against member firms, and in 44 additional cases complaints were directed against both members and representatives of such members. In all, 135 member firms and 51 registered representatives were found to have violated various NASD

rules as specified in the underlying complaints and were subjected to

penalty. The penalties imposed on members and registered representatives covered a wide range of available sanctions and in several

instances more than a single penalty was imposed on a firm or representative. Thus, 38 member firms were expelled and 1 was suspended

for 2 weeks; 58 firms, including 1 suspended and 2 expelled firms,

were fined amounts ranging from $50 to $5,500 and aggregating over

$37,500; and 38 other firms were either censured or required to file a

statement pledging future observance and compliance with the rules

of fair practice and the bylaws. In addition, the registrations of 27

registered representatives were revoked, the registrations of 6 representatives were suspended for periods ranging from 15 days to three

years, five representatives were fined amounts ranging from $50 to

$2,700 and aggregating $4,850, 7 representatives were censured, and

6 representatives were found to have been the cause of some penalty

imposed on the controlling or controlled member firm. Costs were

also imposed on 38 members and on 1 representative in amounts

ranging from $12.50 to slightly over $1,600 and aggregating approximately $11,500.

Commission Review of NASD Disciplinary Actions

Section 15A (g) of the Act provides that disciplinary actions of

the NASD are subject to review by the Commission on its own motion
90 SECURITIES AND EXCHANGE COMMISSiON

or on the application of any aggrieved person. The statute also

provides that the effectiveness of any penalty imposed by the NASD

is automatically stayed pending determination of any matter brought

before the Commission on review. At the beginning of the fiscal

year, two such review cases were pending before the Commission and

during the year three other such applications were filed. Two cases

were disposed of during the- year and at the year's end three cases

were pending before the Commission."

The Commission sustained in part, and set aside in part, certain

fines and assessments imposed by the NASD upon Managed Investment Programs, of San Francisco, and upon Nathaniel S. Chadwick,

the principal partner, and Richard O. Atkinson, a salesman." All

three parties joined in a petition bringing this matter before the Commission on appeal. The NASD Board of Governors had imposed

fines of $2,000 upon Programs, $1,000 upon Chadwick, and $300, plus

censure, upon Atkinson, and it also assessed Programs for costs in

the amount of $2,000. These disciplinary actions were based upon

violations of the NASD rules of fair practice, involving sales of securities to customers at prices not reasonably related to current market

prices, permitting a salesman who was not at the time Program's

registered representative to transact business for the firm and failing

to maintain and preserve certain records.

Upon review of the NASD decision, the Commission affirmed the

NASD finding that Programs and Chadwick had violated the NASD

rules in the respects indicated and the Commission further held that

such conduct was inconsistent with just and equitable principles of

trade. The Commission sustained the $2,000 fine against Programs

and the $1,000 fine against Chadwick. However, it set aside the

action taken against Atkinson on the ground that this action of the

Board of Governors was beyond the scope of its power to review the

prior ruling of the NASD district business conduct committee, which

had not found a violation by Atkinson on this count. In addition,

the Commission set aside the $2,000 assessment of costs against Programs, without prejudice to the right of the NASD to reassess costs

in an amount not in excess of $2,000 provided such costs are itemized

and without prejudice to the right of Programs to seek further Commission review thereof."

In another decision the Commission set aside disciplinary action

of the NASD against one of its members, Louis C. Lerner, of Boston,

doing business under the name Lerner & CO.25 The case arose out

:!2 The three pending cases concern apptleut lons filed by Samuel B. Franklin & Co. (File

16-1A65) ; Graham & Co. (File 16--1A66); and Batkin & Co. (File 16-1A67).

23Securities Exchange Act Release ",0. 5509 (May 8, 1957).

U Information subsequently supplied by the NASD indicates that the fines as sustained

by the Commission, and the costs as reassessed in the amount of $2,000, have been pald,

:os Securities Exchange Act Release No. 5538 (June 28,1957).
TWENTY-THIRD ANiNUAIL REPORT 91

of a controversy between Lerner and Ball, Burge & Kraus, of Cleveland, over the purchase of stock of Morgan Engineering Co. of Alliance, Ohio. The conduct of both firms was reviewed by the NASD,

which censured Ball Burge and imposed a $500 fine and costs upon

it. The NASD also censured Lerner for its failure to accept delivery

of and pay for a 6,100 share block of Morgan stock acquired by Ball

Burge for Lerner, and ordered that unless Lerner paid for the stock

within 30 days, he be suspended from NASD membership until he

did so. Lerner appealed to the Commission from this action.

The Commission found that in February 1955, Lerner began acquiring Morgan stock from various brokers, including Ball Burge,

who was the most active dealer in Morgan stock. Lerner talked with

Paul Gaither, a Ball Burge partner, about his interest in Morgan

and Gaither indicated that he could supply Lerner with a great deal

of Morgan stock over a period of time. Lerner testified that in view

of the substantial number of shares available through Gaither, he

. decided to seek representation on Morgan's board, that he told

Gaither of this purpose, and that Gaither assured him that he would

obtain proxies on all the shares purchased for use on Lerner's behalf

at Morgan's annual meeting of stockholders scheduled for March 22.

By March 18, 1955,Lerner had agreed to buy from Ball Burge a total

of 27,010 shares of Morgan stock (at an aggregate price of $694,352),

which would have been more than enough to elect one director on a

cumulative voting basis. Gaither did not obtain proxies for all the

shares sold to Lerner, nor did he attend the Morgan meeting to vote

on Lerner's behalf such proxies as he had obtained. Lerner strongly

protested to Gaither that he had breached the contracts relating to

the purchase of Morgan stock by not delivering proxies for stock

so acquired and not using his influence to obtain representation for

Lerner on Morgan's board, and refused to accept the 6,100 shares

tendered in delivery by Ball Burge on March 23, 1955.

The Commission noted that, as the NASD itself had stated, the

NASD is not the proper forum to decide private contract rights

between parties, but should only determine whether a member's conduct

is unethical. Itstated that in the absence of justifying or extenuating

circumstances a member's failure to live up to contract obligations

would constitute improper conduct under the NASD's rules. However, the Commission found that even assuming, as the NASD found,

that deliveries of proxies was not an integral part of the contracts,

Lerner's refusal to accept the 6,100 shares did not under all the cireumstances represent unethical or dishonorable conduct. The Commission found that Lerner considered the delivery of proxies to be

a vital part of its agreement to purchase the Morgan shares and that

he honestly and reasonably believed that upon Gaither's failure to
92 SECURITIES AND EXCHANGE' OOMMJSS[()N

procure and vote the proxies he was no longer legally or morally obligated to accept the undelivered shares and concluded that Lerner's

conduct was not inconsistent with "just and equitable principles of

trade" within the meaning of the rule, and that accordingly the action

taken by the NASD against Lerner must be set aside.

Commission Review of 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. Effective expulsion from the NASD

for violation of a rule prohibiting conduct inconsistent with just and

equitable principles of trade is one such disability. At the beginning

of the fiscal year, four such cases were pending before the Commission,

two petitions were filed during the year and one was withdrawn

prior to a determination of the issues. Two cases were disposed of .

during the year and three were pending at the year end.

The Commission approved applications permitting two firms to be

continued in membership while employing persons who had been expelled by the NASD for action inconsistent with just and equitable

principles of trade. In one case, the Commission, on application of

the NASD, approved the continuance in membership of a firm while

employing Marvin E. Fowler. In its opinion, the Commission considered, among other things, specified limitations on Fowler's proposed

duties, which were to be in the real estate mortgage loan department

of his employer, and the fact that his activities would be subject to

close supervision of the president of the employing member."

Ih the other case, the Commission approved the continuance in membership of Life Insurance Fund Management Co., Ine., while employing Giles E. MacQueen, Jr. The Commission noted that MacQueen's

activities were to be limited to those of a statistician or bookkeeper

and would not involve handling pf money or dealing with the public

or other dealers, and that he would be subject to close supervision by

officers of the employer. The Commission also observed that MacQueen had made restitution to customers whose securities he had improperly used in the incident which resulted in his expulsion and that

his conduct during the 3 years subsequent to his expulsion had been

good."

.. Securities Exchange Act Release No. 5376 (October 22. 1956) and FlIe 16-1A60.

orSecurities Exchange Act Release No. 11367(September 19.19116), aDd File No. 16-1A61.
TWENTY -THIRD ANNUAL RFiPORT 93

Commission Action on NASD Rules

Section 15A (j) of the Act provides that any change in or addition

to the rules of a registered association shall be disapproved by the

Commission unless such change or addition appears to the Commission to be consistent with the requirements of subsection 15A (b) of

the statute.

During the fiscal year the NASD adopted, without Commission disapproval, an integrated series of amendments to the Code of Procedure

for Handling Trade Practice Complaints. The basic amendment

would permit a District Business Conduct Committee to offer a respondent what is called "minor violation procedure" pursuant to

which a respondent would be permitted, but not required, to admit

the allegations specified in a complaint, waive a hearing and accept

a penalty not to exceed censure and a fine of $100. The program is

designed to reduce the time of staff and committee representatives and

other costs involved in handling disciplinary actions where the

facts are not in question and indicate only minor or technical rule

violations with no significant damage to customers, other parties or

the public interest. Controls included in this program preserve to a

respondent every right accorded by statute, including review by or

appeal to the Board of Governors and this Commission. A respondent

may refuse to admit the allegations in the complaint and require the

ordinary complaint procedure, including a hearing and the right to

representation by counsel.

Other amendments to various rules adopted by the Association during the year appear to concern only internal administration or to be

of a nature not requiring comment or description in this report.

LITICATION UNDER THE SECURITIES EXCHANCE ACT OF 1934

The Commission is authorized to institute actions in the courts to

enjoin broker-dealers and other persons from engaging in conduct

which violates the provisions of the Securities Exchange Act of 1934.

Some of the actions brought as a result of such violations also alleged

violations of other acts administered by the Commission.

Anti-Fraud Litigation

During the year, the Commission, pursuant to its responsibility to

prevent fraud by broker-dealers, filed a complaint for an injunction

against W. T. Anderson Co., Inc., Waldorf Theodore Anderson," an

officer, director and controlling stockholder of the company, and Louis

.. 8. B. O. v. W. P. Anderson Oompanll, tnc., et ar. E. D. Wash. No. 1517 (April 8. 1957).
94 SECURITIES AND EXCHANGE OOMM:ISlSION

Payne, a securities salesman for the company. The complaint alleged

that the defendants induced customers, by false representations and

omissions of material facts, to sell securities of one mining company

and buy securities of another, and at the same time induced other customers to effect contra transactions in the same securities, marking up

the prices charged the customers for the securities acquired by them

as much as 100 percent in the process. The defendants were also

alleged to have made fraudulent statements concerning the market

price of the securities, the business properties and operations of the

issuers of the securities, and the dividends to be paid.

In S. E. o. v. Paul Scarborough, Jr.,29 the Commission secured an

injunction against the defendant broker-dealer who, the Commission

charged, induced and effected the sale of securities by means of manipulative, deceptive and fraudulent devices in that he caused customers

to deliver the securities to him upon the representation that he would

sell the securities and remit the proceeds to said customers, when, in

fact, the defendant converted the proceeds to his own use. The court,

in addition, enjoined further violations of the Commission's rules concerning confirmation of transactions and maintenance of books and

records relating to a broker-dealer's business. The defendant consented to the entry of the final judgment. He was convicted in a

criminal action and sentenced to seven years imprisonment and his

registration as a broker-dealer was revoked.

In S. E. O. v, Branch Carden & Oompany, Inc. and Branch J.

Carden; Jr.,30 the fraudulent mishandling of customers' funds was the

dominant aspect of the action. In that case the Commission alleged

that the defendants had converted to their own use and benefit funds

deposited with them by customers for the purchase of securities. Further, defendants commingled and hypothecated customers' securities

in violation of the Commission's rules. The defendants consented to

the entry of a decree by which the court enjoined further illegal conduct of this nature and also restrained defendants from further violations of the net capital requirements and the transaction of business

while insolvent without disclosing this fact to its customers.

Cases Involving the Net Capital Rule

As indicated above the "net capital rule," rule 15c3-1 under the

Act, provides an important protection against loss to customers that

may occur by reason of financial difficulties that broker-dealers may

encounter by requiring, with certain exceptions, that no broker or

.. E. D. Virginia No. 528 (October 18, 1956) .

.. W. D. Virginia No. 841 (May 16, 1957).
TWENTY -THIRD ANU\TUAiL REPO'RT 95

dealer shall permit his aggregate indebtedness to all other persons

to exceed 2,000 per centum of his net capital. The Commission obtained injunctions against broker-dealers who failed to maintain in

their business the required ratio between their net capital and aggregate indebtedness in S. E. O. v. Coombe and Oonvpansj; 31 S. E. O. v.

Utah Gene'l'al Securities, Imc.; 32 S. E. O. v. Oayias, Larson, Glaser,

Emery, Inc.; 33 S. E. O. v. Golden-Dersch &: 00., Inc.; 34 S. E. O. v,

W. L. Mast &: 00., Imc.; 35 S. E. O. v. George B. Wallace & 00.,. 36

S. E. O. v, Rutledge Irvine & 00., Inc.; 37 S. E. O. v. Foster-Mann,

Inc., et ai.; 38 S. E. O. v, Jackeon and Oompany, Ino.; 39 S. E. O.

v. First Je'l'sey Securities Corp.; 40 S. E. O. v. zl. J. Gould & 00., Inc.,

et al.,. 41 S. E. O. v. M. J. Shuck, doing business as M. J. Shuck. (Iompany,' 42 S. E. O. v. First Investment Savings Oorporation.; 43 S. E. O.

v. Ohurchill Securities Oorporation, et al.; 44 S. E. O. v. J. D. Oreqer

& 00.,. 45 S. E. O. v. Jean R. Veditz 00., Lnc.; 46 and S. E. O. v, Zwang

and Oompany, et al.41 In the Coombs and Golden-Dersch. cases the

courts, at the request of the Commission, appointed receivers of the

assets of the defendants as a :further measure to insure the safety of

customers' funds and securities.

In several instances, broker-dealers not only violated the net capital rule, but also were insolvent. By continuing to do business without informing their customers of their precarious financial condition,

they engaged in acts and practices which operated as a fraud or deceit upon customers. The courts entered final judgments permanently

enjoining such conduct in S. E. O. v Barrett, Herrick & 00., Inc. a'lUl

Frederick L. Ohapmanr " S. E. O. v. The Lawrence & MU'l'ray 00.,

Inc. and MU'l'ray Ramov ; 49 S. E. O. v. MartinM. Swirsky, Bess Swirsky and Milton Oohen, i'lUlividtwlly and doing business as Seaboard

Securities; 50 S. E. O. v. Edward B. Olark, doing business as Edward

11 DlBtrlct of Columbia No. 8437-56 (August 17, 1956).

aD. Utah No. C-119-56 (Jnly 26,1956).

"D. Utah No. C-127-56 (Angust 17,1956).

I.S. D. :r\ew York No. 112-377 (September 7, 195G)

.. D. Nevada No. 197 (January 17,1(57) .

.. D. New Jersey No. 932-56 (November 80, 1956) .

.,. S. D. New York No. 114-150 (October 26, 1956).

:IS S. D. New York No. 118-383 (March 26, 1957)

.. D. Mass. No. 57-504 S (May 21, 1957)

.. D. New Jersey No. 979-506 (December 21, 1956)

.. S. D. New York No. 118-87 (September 18, 1956)

.. S. D. New York No. 112-267 (August 28, 1956) .

.. N. D. Alabama No. 8670 (March 3,1957)

.. S. D. New York No. 117-196 (February 11, 1(57)

... S. D. California No. 869-57 WB (March 21, 1957) .

.. S. D. New York No. 118-878 (March 25, 1957).

41 S. D. New York No. 113-192 (September 27,1956) .

...S. D. New York No. 112-396 (September 11,1956) .

•• S. D. New York No. 113-143 (September 21, 1956) •

.. E. D. New York No. 16,993 (October 15, 1(56).

•

•

•

•

•

•

•
96 SECURITIES AND EXCHANGE OOMMffiSION

B. OZark & 00.;51 and S. E. O. v, Seaboard Securities Oorp, and

111arshall. I. Stewart.52

In the Clark case, the Commission also charged that the defendant

appropriated customers' monies and securities to his own use for

various periods of time, hypothecated customers' securities without

their knowledge or consent, failed to make, keep and preserve books

and records in accordance with Commission rules and made false statements in reports and documents filed with the Commission. The

court also enjoined such violations of the law. Inthe Barrett, H erriok

& 00. case the defendants consented not only to the issuance of an

injunction, but also to the appointment of a receiver.

Delisting Cases

In Exchange Buffet Corporation v. New York Stock Exchange and

S. E. 0.,53 and Atlas Tack Oorp, v. New York Stock Exchange, et al.,54

the petitioners sought to have set aside the Commission's orders

granting applications by the New York Stock Exchange, pursuant

to the provisions of section 12 (d) of the Securities Exchange Act,

to strike petitioners' capital stock from listing and registration on

the New York Stock Exchange. In both of these cases the Commission found that the rules of the New York Stock Exchange relating

to delisting had been complied with and that..the applications should

be granted without the imposition of any terms or conditions. The

Board of Governors of the New York Stock Exchange, following

a public hearing after notice to issuers of listed securities, including

Exchange Buffet and Atlas Tack, had amended its rule governing the

delisting of securities, spelling out specific standards as guides for

continued listing of the securities on the New York Stock Exchange.

The amended rule provided that delisting would be considered where:

--* * the size of a company whose common stock is listed has been reduced,

as a result of liquidation or otherwise, to below two million dollars in net

tangible assets or aggregate market value of the common stock, and the average

net earnings after taxes for the last three years is below $200,000.

Exchange Buffet, which was notified of this change in policy, did

not meet the revised standards, and a resolution was adopted by the

Board of Governors directing that an application to delist be :filed

with the Commission. In denying the petition to set aside the Commission's order, the Court of Appeals for the Second Circuit agreed

with the Commission that, where the Commission has permitted an

amended rule to become effective without requesting changes or instituting a proceeding under section 19 (b), it is not authorized to deny

61 D. Idaho No. 3267 (July 17,1956)

.. District of Columbia No. 2358-56 (June 6, 1956) .

.. 244 F. 2d 507 (C. A. 2, 1957)

.. 246 F. 2d 311 (C. A. 1,19(7).

•

•

•
TWENTY -THlRD ANNUM. REPORT 97

an application to delist a security under section 12 (d) in accordance

with the amended rule of the Exchange.

In the Atias Tack Corp. case the United States Court of Appeals

for the First Circuit under similar facts, also agreed with the Commission in affirming its order, that the Commission's power with respect to section 12 (d) proceedings is limited to the imposition of

terms where the Exchange has complied with its delisting rules, and

that the Exchange's rules cannot be attacked as objectionable in a

section 12 (d) action.

Proxy Litigation

The Commission appeared as plaintiff-intervenor in Ostergren v.

Kirby 55 and obtained a preliminary injunction which enjoined Kirby

and certain other shareholders of Lakey Foundry Corp. from voting

proxies at the annual meeting of shareholders of the corporation, or

any adjournment thereof, unless Kirby filed the material required

by the Commission's proxy rules and unless he furnished to the shareholders whose proxies he had solicited the material required by these

rules. The Commission's complaint alleged that the defendant Kirby,

acting in concert with other defendants, had persuaded a large number of persons to purchase stock of the corporation by lending or

offering to lend funds to purchase such stock, whereby the stock would

be held in the name of Kirby's nominee and thus assure Kirby the

right to vote the stock. In its opinion, the United States District

Court for the Northern District of Ohio upheld the Commission's

contentions that, by virtue of these activities, Kirby was a participant

in the proxy solicitation within the meaning of the term in rule

14a-ll, that Kirby was therefore in violation of regulation X-14 in

that he failed to file a proxy statement as required by rule 14a-3 and

in that he failed to file the information prescribed in Schedule 14B

as 'required of participants in a proxy solicitation. An appeal from

the District Court's decision is pending in the Court of Appeals for

the Sixth Circuit (No. 13310).

Litigation Involving Registration and Reporting Requirements

In8. E. O. v, Rea Bank Oil Oom,pany, et al.," the Commission obtained a decree enjoining Red Bank Oil Co., its officers and directors,

from failing to file the reports required of it under section 13 of the

Securities Exchange Act by virtue of the registration of its capital

stock on the American Stock Exchange, from failing to correct deficiencies in such reports after receiving notice of such deficiencies

from the Commission and from failing to make timely filings with

.. N. D. OhIo No. 33393 (February 1~. 19117)

.. S. D. ~exa8 No. 10414 (December 12, 19M).

447579-118--8

•
98 SECURITIES AND EXCHANGE COMMlSSiON

the Commission and with the American Stock Exchange. The decree also directed that within 60 days from the date of service of the

decree, Red Bank Oil Co., its officers and directors, file all past due

annual reports. The defendants consented to the entry of the decree.

Another case in which the Commission found it necessary to seek

the remedy of injunction in order to enforce the broker-dealer registration requirement of the Securities Exchange Act was S. E. 0; v.

Pacific Investment, Inc. and Norman Hays, individually and doing

business as Pacific Investment 00mpany.57 The Commission's complaint and the affidavits filed in support of its motion for preliminary

injunction recited that the defendants had been for some time selling

substantial amounts of securities without registration as a broker

and dealer under the Act. The defendant Norman Hays had submitted an application for registration as a broker-dealer but it was

returned as not acceptable for filing due to certain deficiencies. Notwithstanding the return of his application he continued doing business

in securities. The defendants consented to the entry of a permanent

injunction.

In John Pierce v. S. E. 0.,58 the Court of Appeals for the Ninth

Circuit affirmed the Commission's denial of petitioner's application

for registration as a broker-dealer. The petitioner in this appeal had

previously been named as defendant in an action brought by the Commission to enjoin him from doing business as a broker-dealer without

registering with the Commission pursuant to the provisions of section

15 (a) ofthe Act.59

In addition to the instances previously mentioned, the Commission's

rules relating to the maintenance of books and records were enforced

by court action in other cases. In S. E. O. v. P. J. Gruber &: 00., Inc.60

a preliminary injunction was secured restraining the defendant brokerdealer and two of its officersfrom making false and fictitious entries

in its books and records. Affidavits filed by the Commission in that

action were to the effect that registrant's records showed confirmations

for purported purchases of securities to prospective customers when

in fact such customers had not ordered any securities and had refused

to buy securities when offered.

S. E. O. v, Ohristopulos &: Nichols Brokerage 00mp(Jffiy,61 and

S. E. O. v. Wendell E. Kindley, doing business as Wendell E. Kindley

00.,62 resulted in permanent injunctions against the defendants for

.'D. Utah Xo. C-l04-57 (May 17, 1957).

58 239 F. 2d 160 (1956) .

.. D. Nevada No. 70 (October 7, 1954).

eoS. D. New York No, 114-281 (November 7, 1956).

81 D. Utah No. C-178-56 (November 6, 1956).

82.D. Oregon No. 8903 (November 23. 1956).
TWENTY-THIRD ANNUAL REPORT 99

failing to make and keep current their books and records. Preliminary

injunctions were also issued in the cases of S. E. O. v. Keith Richards

Securities Oorporation " and S. E. O. v. R. G. Worth & 00., Inc.,64

registered broker-dealers who the Commission had alleged were engaging in similar violations.

The defendant in S. E. O. v. O. Herbert Onderdonk, doitng business

as O. Herbert Onderdonk,65 was enjoined by court decree from doing

business as a broker-dealer until he made his books and records current

in accordance with Commission rules and made them accessible to the

Commission for examination.

Other Litigation

The constitutionality of section 19 (a) (4) of the Securities Exchange Act was challenged in Great Sweet Grass Ous Limited v.

S. E. 0., et a» and Kroy Oils Limited v. S. E. O. et al. 67 In these

cases the plaintiff contended that section 19 (a) (4), which provides

that the Commission may summarily suspend trading in any registered security on any 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, deprived plaintiffs of property without due process of law and

failed to prescribe adequate standards to guide the exercise of administrative discretion. The plaintiffs further alleged that the Commission's successive summary suspension orders were an unauthorized

exercise by the Commission of the authority conferred upon it by

section 19 (a) (4) of the Act. During the pendency of this action

the Commission on April 8, 1957, issued an order permanently suspending trading in Kroy and Great Sweet Grass stock. Both Kroy

and Great Sweet Grass have filed an appeal from the Commission's

order. These appeals were pending in the District of Columbia Circuit at the close of the fiscal year.68

The Commission's enforcement of certain provisions of the Federal

Reserve Board's regulation T relating to margin requirements in

securities transactions resulted in the entry of injunctions directing

future compliance with that regulation in S. E. O. v, Western States

Investment Oompany, Imo.; 69 S. E. O. v. Provincial American Securities, Inc. and Stanley I. Y ounqer 70 and the Ohristopuloe & Nichols

case,supra.

63 S. D. New York No. 11-1-45 (October 17, 1956).

6. S. D. New York No. 116-21U (January 11, 1957).

S. D. New York No. 113-356 (October 9, 1956).

"District of Columbra No. 4170-56 (October 20,1956).

et District of Columbia No. 4324-56 (November 3, 1956).

.. CA-DC Nos. 13,920 and 13,921.

...D. Utah No. C-5-57 (January 3, 1957).

S. D. New York No. 120-338 (May 23,1957).

""

'"
100 SECURITIES AND -EXCHANGE COMMISSION

Participation as Amicus Curiae

InSpeed, et al. v, Transamerioa Oorp.,n in which the Commission

appeared as amicus curiae, the Court of Appeals for the Third Circuit

modified judgments entered by the District Court of Delaware in

favor of the plaintiffs 72 by increasing the rate of interest allowed

prior to judgment and affirmed the modified judgments. For a discussion of the Commission's views with respect to the issues raised by

this litigation, see page 124 of the 22nd Annual Report.

'11235F. 2d 369 (1957).

'Ill 135 F. Supp. 176 (1955).
PART VI

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING

COMPANY ACT OF 1935

The Public Utility Holding Company Act of 1935 provides for

three separate areas of regulation of holding company systems which

control electric utility companies and companies engaged in the retail

distribution of natural or manufactured gas. The :first embraces

those provisions of the Act, principally those in section 11 (b) (1),

which require the physical integration of public utility and functionally related properties of holding company systems, and those provisions, principally section 11 (b) (2), which require the simplification of intercorporate relationships and :financial structures of holding company systems. The second area of regulation covers :financing

operations of registered holding companies and their subsidiaries,

acquisitions and dispositions of securities and properties, accounting

practices, servicing arrangements and intercompany transactions.

The third area includes the provisions of the Act providing for exemptions, and those regulating the right of a person who is affiliated

with a public utility company to acquire securities resulting in a

second such affiliation.

COMPOSITION OF REGISTERED HOLDING COMPANY SYSTEMSSUMMARY OF CHANGES

During the :fiscalyear 1957, one registered holding company system,

the trustee of International Hydro-Electric System and its subsidiaries, which had ceased to have any public utility subsidiaries operating in the United States, was granted an exemption by the Commission

pursuant to section 3 (a) (5) of the Act,' As a result, there remained

on June 30, 1957, 22 public utility holding company systems which

are subject to the regulatory provisions of the Act as registered

systems. Of these 22, four systems comprising 130 companies do not

own as much as 10 percent of the voting securifies of any public utility

company operating within the United States," The aggregate assets

1Holding Company Act Release No. 13509 (June 24, 1957)

The four registered holding company systems which do not own as much as 10 percent' of the voting securities of any public utllity company operating within the United

States are (a) Central Public UtUlty Corporation, (b) Cities Service Company, (0) Electric

Bond & Share Co., and (It) Standard Shares, Inc

101

•

•

•
102 SECURITI'ES AND EXCHANGE COMMISSION

at December 31, 1956, less valuation reserves, of the 18 systems

which had public utility subsidiaries operating within the United

States amounted to $9 billion. The numbers and types of companies

comprising each such system at June 30, 1957, and the total assets of

each at December 31, 1956, are set forth in the following tabulation:

Classificatwn of companies as of June 30, 1957

Aggregate

Solely Regis- Electric system I

registered tered and gas Non- Total assets, less

System boldlng holding utility utility com- valuation

com- operating subsldi- subsidi- panles reserves at panles com- aries aries Dec. 31,

pames 1956 (000,000

omitted)

--- --- ---- I. American Gas and Electric Co ________ 1 ---------- 12 12 25 $1, 159 2. American Natural Gas Co ____________ 1 __ e _______ 2 4 7 642 3. Central and South West Corp _________ 1 ---------- 6 0 7 , 534

4. Columbia Gas System, InC

e The ______ 1 ---------- 8 6 15 772 5. Consolidated Natural Gas 0 _________ 1 ---------- 4 1 6 536 6. Delaware Power &: Light Co __________ ---------- 1 2 0 3 163 7. Eastern Utilities Assoclates ___________ 1 -.-------- 5 0 6 80 8. General Public UtUltles Corp _________ 1 ---------- 9 3 13 721

9. Granite City Generating Co. (Voting Trust) ______________________________ 1 ---------- 1 0 2 31 10. MIddle South Utlhtles, Inc ___________ 1 ---------- 7 1 9 613 11. National Fuel Gas Co _________________ 1 ---------- 3 6 10 168 12. New England Electric System ________ 1 23 2 26 527 13. Ohio Edison Co 1 3 0 4 486 14. Philadelphia Electric Power Co _______ 1 1 0 2 44 15. Southern Company, The ______________ 1 ---------- 5 3 9 1932 16. Union Eleetrrc Co _____________________ 1 3 1 5 490 17. Utall Power &: Light Co ______________ ---------- 1 1 0 2 196 18. West Penn Electric Co., The __________ 1 1 12 6 20 464

Subtotals ___________________________ ------- --- --- 13 6 107 45 171 8,528

Less; Adjustment to eliminate dupllea- , tton In count resulting from 5 companies

being subsldlarres, as defined In the Act, In 2 systems and 2 companies being subsldlaries, as defined In the Act, In 3 systems -7 -2 -9

Add; Adjustment to Include the assets of

these 7 jointly owned subsidiaries and

to remove the parent companles'lnvestments thereIn which are Included In sYstem assets abova., ------.--- -------._- ---_._-- 569

--- ------------ Total companies and assets m active systems ___________________________ 13 6 100 43 162 9,097

I Represents the consolidated assets,less valuation reserves, of each system as reported to the Commission

on Form U58, except as otherwise noted . J Central and South West Corp, bas 1 foreign subsidiary with assets, less valuation reserves, of $9 mUlion

w!1lch are not Included In consolidation. The parent's Investment In this company Is carried at one dollar .

. Represents the corporate assets of Grarnte City Generating Co. Assets of the Voting Trustees of Granite C1ty Generating Co , the boldlng company parent of the Generating Co., have not been reported .

....New England Electric System owns 30 percent of the voting securities of Yankee Atomic ElectrIc Co.

which had assets of $1 mUllon. The parent's Investment therein was carried at $300,000. , The Southern Co. system has 3 noneonsolldated subsidiarIes (lncludtng Southern Electric Generating

Co.) with aggregate assets of $1 million. The system's Investments In these companies totals $851,000.

This does not Include $261,000 carried as other security Investment, I. e., In Mississippi Valley GeneratlngCo. , These 7 companies are: Beech Bottom Power Co. and Windsor Power House Cool Co. which are indirect

suhsldlanes of American Gas &: Electric Co. and The West Penn Electric Co.; Ohio Valley Electric Corp.

and Its subsidiary, Indiana-Kentucky Electric Corp., which are owned 37.8 percent by American Gas &:

Electric Co., 16.5 percent by Ohio Edison Co., 12.5 percent by The West Penn Electric 00., and 33.2 percent

by 7 electric utlllty companies not associated with registered holding company systems, Electric Energy,

Inc., which Is owned 10 percent by MIddle South Utilities, Inc., 40 percent by Union Electric Co.:! and 50 percent by 3 electric utUlty companies not associated with registered systems; Mississippi Valley ueneratlng Co. which Is owned 79 percent by Middle South Utilities. Ine., and 21 percent by The Southern

Co.; !lnd Arkiahoma Corp. which Is owned 32 percent by the Central &: South West Corp. system, 34 percent by the MlddleSouth Utilities, Inc .• system and 34 percent by an electric utility company not associated

with a registered system.

• _______"_______________

' _______________________________ __ v _______

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

___________________ ---------- ---~------

•

"
TWENTY-TmRD ANNUAL REroRT 103

On June 30, 1956 there were 19 registered systems," Included in

these 19 systems were 21 registered holding companies, of which 15

functioned solely as holding companies and 6 functioned also as operating electric utility companies, 105 electric and gas utility subsidiaries and 47 nonutility subsidiaries, a total of 173 companies. In

each of 2 systemsthere were 2 registered holding companies.

During the fiscal year' 1957,registered systems divested themselves

of 2 nonutility companies with aggregate assets, less valuation reserves, of approximately $5 million, Five companies were released

from the jurisdiction of the Act as a result of the exemption granted

during the year to International Hydro-Electric System, 8 companies were absorbed by merger and 1 was dissolved. Registered

systems incorporated 2 new subsidiaries during the year to take over

the properties of certain associated companies and they acquired 3

companies as going concerns with aggregate assets of more than $22

million. These changes brought about a net decrease during the

fiscal year of 11 in the number of companies encompassed within

registered systems.

The maximum number of <!ompaniessubject to the Act as components of registered holding company systems at anyone point of

time was 1,620 in 1938. Since that time additional systems have

registered and certain systems have organized or acquired additional

subsidiaries, with the result that 2,334 companies have been subject

to the Act as registered holding companies and subsidiaries thereof

during the period from June 15, 1938,to June 30,1957. Included in

this total were 216 holding companies (solely holding companies and

operating-holding companies), 1,008 electric and gas utility companies and 1,110 nonutility enterprises. From June 15, 1938, to

June 30, 1957,2,042 of these companies have been released from the

active regulatory jurisdiction of the Act or have ceased to exist as

separate corporate entities. Of this number 921 companies with assets aggregating approximately $15.3 billion as at their respective

dates of divestment have been divested by their respective parents

and are no longer subject to the Act as components of registered systerns," The balance of 1,121 companies includes 773 which were re3 Excluding the four registered holding company systems which do not own as much

as 10 percent of the voting securities of nny public utility company operattug within the

United States named In footnote 2 supra.

The 921 companies consist of 284 electric utility companies wIth assets as at their respective divestment dates of $10.9 billion, 180 gas ut llf.ty companies with assets of $2.0 billion and 457 holding companies and nonutlllty enterprises with assets of $2.4 billion.

These totals Include companies which remained subject to the Act llS eomponents of registered systems Immediately fotlowmg their dtvestment and w hich subsequently were released

rrom the regula tory Jurisdiction of the Act as a result of exemption, deregistrations, or

other changes In status.

•
104 SECURITllES AND EXCHANGE COMMISSION

leased from the regulatory jurisdiction of the Act as a result of dissolutions, mergers and consolidations G and 348 companies which

ceased to be subject to the Act as components of registered systems as

a result of exemptions granted under sections 2 and 3 of the Act and

deregistrations pursuant to section 5 (d) of the Act."

DEVELOPMENTS IN INDIVIDUAL REGiSTERED SYSTEMS

Among the significant corporate developments in active registered

systems have been the incorporation of new companies to accomplish

certain realignments of properties, divestments of subsidiaries, dispositions of nonretainable properties by operating subsidiaries, acquisitions by systems of additional subsidiaries, all of the assets of an

electric utility, and segments of 'properties, and, as previously indicated, the exemption of one registered holding company system. Following is a discussion of each active system in which there occurred

during the fiscal year 1957 significant corporate changes other than

recurrent financing transactions. Most active systems undertook substantial bank borrowings and permanent financing during the year to

meet continuously rising construction' expenditures. Those developments are treated in a separate section of this report on page 131

below.

American Gas and Electric Co.

American Gas and Electric Co. ("AG&E") functions solely as a

registered holding company and controls the largest holding company

system subject to the provisions of the Act. It has 24 direct and indirect subsidiaries which render electric service to 1,331,000customers

in 2,328 communities in the States of Virginia, West Virginia, Kentucky, Tennessee, Ohio, Indiana, and Michigan, having an aggregate

population of approximately 4,974,000. At December 31, 1956, the

system had consolidated assets, less valuation reserves, of $1,159 million and net dependable generating capacity of 3,973,000kw. In addition, AG&E owns 37.8 percent of the voting securities of Ohio

Valley Electric Corp. ("OVEC") which, with its wholly owned subsidiary, Indiana-Kentucky Electric Corp., furnish electric power to

an installation of the Atomic Energy Commission near Portsmouth,

Ohio. There is pending before the Commission the issue of whether

the acquisition of OVEC's stock by AG&E and other sponsoring companies meets the standards of section 10 of the Act. This issue and

the organization and financing of OVEC and Indiana-Kentucky

Electric Corp. are discussed at page 126 of this report.

'Includes 104 holding companies (solely holding companies and operating-holding companies), 289 electric and gas utility companies and 380 nonutility companies.

Includes 71 holding companies (solely holding companies and operattng-heldinsr compantes}, 1011 1'11'('trlc and !tas utility eomnantes and 168 nonntlllty ('oIDpanlp8.

•
TWEhTTY-THIRD ANNUAL REPORT 105

On September 18, 1956,Public Service Co. of Indiana, Inc. ("pSIll),

an independent public utility company engaged in the distribution

of electricity in the north central, central and southern portions of

the State of Indiana, filed a petition with the Commission requesting

it to institute an investigation to determine whether the proposed construction by Indiana & Michigan Electric Co. ("I&M"), a subsidiary

of AG&E, of a 450,000-kilowatt steam electric generating station on

the Wabash River in western Indiana, violated the integration standards of section 11 (b) (1) of the Act. PSI charged, among other

things, that the site of the new generating station was about 130 miles

from the nearest generating station of I&M and a considerable distance

from its distribution service area, and that it would be interconnected

with other I&M generating stations by means of 330,OOO-volttransmission lines which would cross existing PSI transmission lines. It also

charged that the proposed construction would materially enlarge the

present AG&E system and cause operations beyond the limits permissible by an integrated public utility system under the standards

of the Act.

The Commission held separate administrative conferences with officials of AG&E and PSI and with a member of the Public Service

Commission of Indiana, which has regulatory jurisdiction oyer both

PSI and I&M, and a member of the State Corporation Commission

of Virginia, which has regulatory jurisdiction over another electric

utility subsidiary of AG&E. Both State commissions opposed the request of PSI. A formal resolution adopted by the Indiana Commission stated, among other things, that the request of PSI was not proper

or desirable and requested this Commission not to make the investigation. The president of AG&E, who is also president of I&M, advised

the Commission that the proposed construction on the Wabash River

and the associated transmission facilities for bringing power to I&M's

service area "have as their purpose the supplying of electric power

requirements to take care of the load growth in the area now served by

I&M and neither I&M nor the AG&E system has any intention of

using such facilities to provide electric service in any other territory

than that presently served by our system."

On October 26, 1956, the Commission announced that it would not

conduct an investigation stating, among other things, that it observed

no basis for concluding that the construction of the facilities would

constitute an expansion of AG&E's integrated public utility system

beyond the limits previously found permissible by the Commission,"

On September 13, 1956, the Commission approved a proposal permitting AG&E to acquire the outstanding common capital stock of

Seneca Light and Power Company, a nonaffiliated public-utility comY Holding Company Act Release No. 18292.
106 SIECURITIIES AND EXCHANGE IXMMLSION 

pany.' Seneca is an Ohio corporation whose service area is surrounded by the service areas of subsidiaries of AG&E and purchases 

all its electric energy from Ohio Power 'o., a subsidiary of AG&E. 

In connection with this acquisition the Commission also approved the 

issuance by AG&E of not in excess of 13,000 shares of common stock 

having a market due of $500,000 which it proposed to offer in exchange for the stock of Seneca. The transaction was consummated 

on September 17, 1956, with 12,800 shares of AG&E stock being used 

to effectuate the exchange. 

During the fiscal year the Commission approved the acquisition by 

Ohio Power Co. of all the capital stock of Captina Operating Company, a newly formed subsidiary company: which will supervise and 

operate a generating plant near Cresap, W. Va., having three units 

of 225,000 kilowatts rated capacity each, on behalf of Ohio Power 

Co. and a nonaffiliated company, Olin Revere Generating Corp., a 

~vholly owned subsidiary of Olin Revere Metals Corp.lo One of the 

three units is to be owned by Ohio Power Co. and the other two by 

Olin Revere Generating Corp. Ohio Power Co. and Olin Revere 

Generating Corp. will reimhvlrse Captina for all its expenses in the 

operation of the plant in proportion to the power and energy used by 

each. 

The Commission also approved the transfer by AG&E to Appalachian Electric Power Co.: us a capital contribution, of all of the 

authorized and outstanding common stock of Ranawah Valley 

Power Co." As a result, Knnawah became a direct subsidiary of 

Appalachian. 

Central Public Utility Corp. 

~eitralPublic Utility Corp. ("CENPUC") functions solely as a 

registered holding company and controls 13 direct and indirect subsidiaries. The system renders transportation, ice, coal, fuel oil, water 

and miscellaneous services in the States of North Carolina, Soutl~ 

Carolina, Virginia, Delaware and Maryland. The system's only remaining public utility subsidiaries, as defined in the Act, operate in 

Puerto Rico, Haiti, the Canary Islands and the Philippine Islands. 

At December 31,1956, the consolidated assets of the system, less valuation reserves, amounted to $26 million. 

a Holding Company Act Release No. 13264. 


sHalding Company Act Release No. 13382 (February 12, 1957). 


'All the mting semdtiee of Olin Revere Ifetala Corp. are to be owned jointly by Olin 


Mathle80n Chemicsl Corp. and Revere Copller and Brass,Inc. As a result of acquiring its 

interest in an electric utility mmpang. Olin Revere Ddetals Corp. became a haldlng cornpang 

a8 deflued in section 2 (a) (7) of tho Act. It requested and the Commission sranted an exemptfan pursuant tp see. 3 (a) (3) (A) of the Act, which exempts companies which are, 

among other things, only ineidentallr holding companies. Holding Campan? Act Release 

No. 13428 (Mnreh 20,1957). "Holdinp Company Act Release No. 18413 (March 11.$9571, 


I 

TWENTY-THIRD ANNUAL BBTOET 107 

On June 1, 1955, CENPUC filed an application requesting modification of an outstanding section 11 (b) (2) dissoltition order directed 

against its wholly omed intermediate holding company, The Islands 

Gas & Electric Co., and exemption pursuant to section 3 (a) (6) of 

the Act. Shortly thereafter a large block (about 30 percent) of 

CENPUC's common stock was acquired by certain new investors, 

thereby creating several additional tiers of holding companies in the 

system's structure. With the company's approval, the determination 

of CENPUC's application for 'exemption was delayed pending a resolution of these complications. Nun~erous corlferences relating to the 

problem were held by representatives of CENPUC, the Division of 

Corporate Regulation, and the new investors. 

On May 2, 1957, CENPUC filed an amendment to its application 

renewing its request for exemption and stating that the ownership of 

the large block of CENPUC3 stock had been transferred from domestic to foreign investors. The Commission, pursuant to rule 6, 

issued a notice to the new stock owners terminating the automatic 

exemption provided them hy rule 10. The new holders of the .controlling block of CENPUC's common stock thereupon, on May 10, 

1957, filed applications pursuant to sections 3 (a) (4) and 3 (a) (5) 

of the Act for exemption from the obligations of a holding company. 

At the request of the new holders of the stock, and with the consenf 

of CENPUC, the proceedings relating to the various exemption applications have been temporarily suspended pending the filing of further amendments. In the meantime, in order to preserve the status 

quo with respect to the management of CENPUC, the annual meeting 

of CENPUC's stockholders scheduled for May 28, 1957, was postponed. 

Central and South Weat Corp. 

Central and South West carp. functions solely as a registered holding company. Its 6 subsidiaries render electric service to 762,000 cnstomers in 766 communities with a total population of 2,697,000 in the 

States of Arkansas, Louisiana, Oklahoma, and Texas. At December 

31,1956, the system had consolidated assets, less valuation reserves, of 

$534 million and aggregate generating capacity with effective capability of 1,739,000 kw. Central and South West Corp. has one Mexican 

subsidiary with assets, less valuation reserves, of $9 million and 

through a subsidiary owns 32 percent of the capital stock of Arklahoma Corp., a jointly owned transmission fa~ility,'~ which had assets, 

less valuation reserves, of $3 lnilliolr at December 31,1956. 

UMiddle South Utilities, Ine., another registered holding company, owns 34 percent of 

Arklahoma Corn.'s capital stock and the remnlning 54 percent is owned by an electric 

utilits company not amliated altb any registered holdingeompaay system. 
108 SECURITFES AND EXCHANGE COMMTS510N

Public Service Co. of Oklahoma ("Public Service"), an electric

utility subsidiary of Central and South West Corp., utilizes natural gas

as fuel in its electric generating stations. In 1955 Public Service

entered into an arrangement with Transok Pipe Line Co., a newly

created nonaffiliated company, whereby Transok agreed to construct

a natural gas pipeline to supply the natural gas requirements of

Public Service. Transok financed the construction of its pipeline

facilities principally through the issuance of bonds in the aggregate

principal amount of $17,500,000. The gas purchase contract entered

into between Public Service and Transok contained provisions whereby, in the event of default by Transok, Public Service agreed, at the

option and upon the demand of the Trustee under the indenture securing the Transok bonds, to either lease or purchase the pipeline

facilities, and to pay either as rental or purchase price therefor all

sums then due and thereafter becoming due upon the then outstanding

bonds of Transok. Public Service filed a declaration requesting approval of the gas purchase contract between it and Transok to the extent that the provisions of the Act were applicable to the transactions

therein contemplated. The Commission concluded that the obligation

of Public Service to pay, under the conditions stated, the interest on

and the amortization payments of the Transok bonds in the event of

a Transok default constituted a guaranty of payment of Transok's

bonds, and that therefore Public Service had issued a security requiring approval. After analyzing the financial effect of the transaction,

the Commission permitted the declaration to become effective as satisfying the standards of section 7 of the Act.13

Cities Service Co.

Cities Service Co. and 46 of its 47 subsidiaries constitute a fully

integrated oil producing, refining and marketing organization. At

December 31, 1956, the company and its subsidiaries had consolidated

assets, less valuation reserves, of $1,198 million. The company's

only remaining public utility subsidiary, as defined in the Act, is

Dominion Natural Gas Co., Ltd., which had assets at December 31,

1956, of $14 million and serves a population of 548,000 in 94 communities in Ontario, Canada.

Consolidated proceedings involving an exemption application filed

by Cities pursuant to section 3 (a) (5) of the Act and a section 11

(b) (2) proceeding pertaining to the existence of a publicly held

48.5 percent minority interest in its subsidiary, Arkansas Fuel Oil

Corp., are described at page 57 of the 21st Annual Report and pages

130-131 of the 22nd Annual Report. On July 15, 1957, the United

States Court of Appeals for the Second Circuit filed its opinion

11Holding Company Act Release No. 18828 (December II, 1956).
TWENTY -THIRD ANNUAL REPORT 109

affirming the Commission's action denying the exemption on the

ground that the existence of the public minority interest constitutes

an inequitable distribution of voting power contrary to the standards

of the Act, thereby precluding the granting of the exemption."

With reference to the proceedings described at page 131 of the

22nd Annual Report, involving the acquisition by W. R. Stephens Investment Co., Inc., from Cities of its holdings of 51.5 percent of the

common stock of Arkansas-Louisiana Gas Co. and the exemption

granted the Stephens Co. under section 3 (a) (4) of the Act, the

Stephens Co. has disposed of all of its holdings of such common

stock by means of certain private sales and a public distribution.

Among the private sales was one to Union Securities Corp. (now

Eastman Dillon, Union Securities & Co.) of 807,070 shares, which the

latter subsequently disposed of through a public distribution.

The Columbia Gas System, Inc.

The Columbia Gas System, Inc., functions solely as a registered

holding company and controls 13 operating subsidiaries and a subsidiary service company. The system sells gas at retail to 1,345,000

customers in 1,293 communities and at wholesale to other distributing

companies servicing 1,700,000customers in the States of Ohio, Pennsylvania, West Virginia, Kentucky, New York, Maryland, and Virginia. The total population of the service area is 12,500,000. The

system operates 37,536 miles of distribution, field gathering and

transmission pipelines, and also sells gasoline, oil, and other hydrocarbons. The system purchases 80 percent of its gas requirements

from southwest suppliers and the balance is produced and purchased

in the Appalachian area. Columbia and its subsidiaries had consolidated assets, less valuation reserves, of $772 million at December 31,

1956.

In accordance with a systemwide realignment program, during the

fiscal year Columbia requested authorization to effect a series of intrasystem property transfers. The ultimate objective of this program is

to transfer to a single operating company all production and interstate transmission properties subject to the jurisdiction of the Federal

Power Commission, and to consolidate the distribution facilities within each State in a single company subject to the jurisdiction of the

appropriate State commission. Columbia anticipates that consummation of these transactions will, among other things, produce greater

economy by minimizing the problems with respect to rate and other

proceedings before local and Federal regulatory agencies.

16 aUle. BertIlce aOfJl1Janv v. B. B. a., 247 F. (2d) 646. Subsequently, CitIes Service

Co. filed a petition for certiorari with the United States Supreme Court.
110 SECURITIES AND EXCHANGE COMMISSION

The proposals approved by the Commission in the past fiscal year

to effectuate the realignment program included: (1) the transfer by

Central Kentucky Natural Gas Co. of its assets and properties used

in wholesale operations for the transmission and storage of natural

gas together with reserves, liabilities and obligations applicable

thereto to anew ly formed Delaware corporation, Kentucky Gas

Transmission Corp.; 15 (2) the sale and conveyance by Natural Gas

Co. of West Virginia and the acquisition by an associate company,

Manufacturers Light and Heat Co., of certain gas facilities located in

the Ohio-Pennsylvania border area which were already integrated

with Manufacturers' eastern Ohio operations; 16 (3) the merger of

Natural Gas Co. of West Virginia into Ohio Fuel Gas Co., the assumption by Ohio Fuel, as the surviving corporation, of all the liabilities of Natural Gas including promissory notes in the principal

amount of $4,02?,000 owing to Columbia, and the making of a capital

contribution by Columbia to Natural Gas equal to its earned surplus

deficit of $1,731,938; 17 and (4) the consolidation of the Keystone Gas

Co., Inc., with Binghamton Gas Works, both New York corporations,

with the name of the surviving corporation changed to Columbia Gas

of New York, Inc.1s After the close of the fiscal year the Commission

also approved the transfer by United Fuel Gas Co., for cash estimated

at $2,916,747, to Central Kentucky Natural Gas Co., both of Charleston, W. Va., of all properties which United uses in connection with the

retail distribution of natural gas in Kentucky, together with accounts

receivable and other assets related to such distribution operations."

In addition to the realignment program, the Commission approved

the acquisition by Home Gas Co. of gas production facilities located

in portions of Schuyler, Yates, and Steuben Counties, N. Y., from

the Wayne Gas Co., a nonaffiliated company, for a cash consideration

of $131,500.20 In taking jurisdiction over the acquisition by Home

Gas Co., the Commission observed that "Since the properties which

Home proposes to acquire will not be used in the distribution at retail

of natural gas and therefore are not utility assets, the exemption

afforded by section 9 (b) (1)21 is not available to Home; and since

such properties constitute an interest in a business within the meaning of section 9 (a) (1) of the Act, Home's proposed acquisitions are

111 Holding Company Act Release No. 13302 (November 6, 1956).

,. Holding Company Act Release No. 13299 (November 22, 1956).

U Holding Company Act Release No. 13353 (December 28, 1956).

18 Holding Company Act Release No. 13435 (March 28, 1957).

]0 Holding Company Act Release No. 13607 (November 22, 1957).

Holding Company Act Release No. 13252 (AUgust 30, 1956).

21 Sec. 9 (b) (1) provides that the provisions of sec. 9 (a), which requires generally that

acquisitions of securities, utility assets and interests in other business by companies BUbject

to the Act must be approved by the Commission, shall not apply to "the acquisition by a

public-utility company of utility assets the acquisition of which has been expressly

authorized by a State commission."

'"
TWENTY -THIRD ANJ\"'U:AL REPORT 111

subject to the jurisdiction of this Commission." The Commission

further stated that "It is immaterial that part of the properties was

heretofore included within a public utility distribution system under

the jurisdiction of the New York Commission, and that such Commission has approved the transfer thereof to Home."

With respect to another proposal, the Commission determined that

the acquisition by The Manufacturers Light and Heat Co., pursuant

to an exchange agreement with Carnegie Natural Gas Co., a nonaffiliated public utility company, of certain gas utility assets located

in Marshall and Wetzel Counties, W. Va., and in Greene County,

Pa., was exempted from the Commission's jurisdiction pursuant to

section 9 (b) (1), since the acquisition had been expressly authorized

by the Pennsylvania Public Utility Commission and the Public Service Commission of West Virginia. However, the sale and conveyance

under the exchange agreement by Manufacturers to Carnegie of gas

utility assets, consisting of oil and gas leases, wells and pipelines located in Washington and Greene Counties, Pa., was approved pursuant to section 12 (d) of the Act.22

A motion .filedby Columbia, discussed at page 132 of the 22nd Annual Report, requesting that the Commission find Columbia and its

subsidiaries to be in conformity with the standards of section 11 (b)

(1) of the Act, was pending for decision at the close of the fiscal

year. The Commission has approved a post-hearing schedule for

the filing of proposed findings and conclusions by the parties.

Eastern Utilities Associates

Eastern Utilities Associates ("EUA") functions solely as a registered holding company and is a voluntary association formed under

the laws of Massachusetts. It has three direct subsidiaries, Blackstone Valley Gas and Electric Co., Brockton Edison Co., and Fall

River Electric Light Co., which furnish electric service to 173,000

customers in northern Rhode Island and in Brockton and Fall River,

Mass., and adjacent communities. The total population of the area

served is 494,000. Natural gas is sold by Blackstone at retail in

Rhode Island to 48,000 customers in an area with a total population

of 189,000. These three subsidiaries of EUA in turn own all of the

outstanding securities of Montaup Electric Co., an electric generating

company supplying the major portion of the system's energy requirements. The combined electric generating capability of the system

aggregates 282,950kilowatts, and 350 miles of gas mains are in service. At December 31, 1956, the consolidated assets of the system, less

valuation reserves, amounted to $80million .

.. Holding Company Act Release No. 13287 (October 19. 1956).
112 SECURITfoES AND EXCHANGE' COMMISSION

On April 4, 1950, the Commission, with the company's consent,

ordered EUA to cause the disposition of the gas properties owned

by Blackstone." On July 10, 1951, a year's extension was granted."

At the request of EUA the Commission by letter dated July 17,

1952, advised the company that it did not intend to insist upon the

disposition of the Blackstone gas properties prior to January 1, 1955,

if the earnings from such property were necessary to enable EU A

to continue to pay dividends of $2 per share on its common stock.

The Rhode Island Legislature has adopted a special Act permitting

the creation of a new company to hold the gas properties presently

owned by Blackstone. On February 18, 1957, EUA filed a program

designed to accomplish the disposition of the Blackstone gas properties by July 1, 1960. The proposal involves a series of transactions

including the issuance of collateral trust bonds by EUA. A hearing

on this matter was held in May and July 1957 and post-hearing procedures have been agreed upon.

General Public Utilities Corp.

General Public Utilities Corp. ("GPU") functions solely as a

registered holding company controlling nine public utility subsidiaries, as defined in the Act, and three nonutility subsidiaries. Seven

of the public utility subsidiaries render electric service to 963,289

customers in the States of Pennsylvania and New Jersey. The other

two sell electricity to 283,710 customers in the Philippine Islands.

The effective electric generating capability of the seven domestic

utility subsidiaries amounts to 1,861,000 kilowatts and the effective

capability of the Philippine subsidiaries totals 222,000 kilowatts. The

consolidated assets of the system, less valuation reserves, amounted to

$721million at December 31, 1956.

On May 14, 1957, the Commission authorized GPU to acquire from

Eastern Gas & Fuel Associates, a non affiliate, all of the outstanding

securities of Colver Electric Co., consisting of 245 shares of Colver's

$100 par value common stock, for approximately $257,400.215 Colver

serves the area in the township of Cambria, Cambria County, Pa.,

which is surrounded by that of Pennsylvania Electric Co., a subsidiary of GPU, and as soon as feasible Colver will be merged with

Pennsylvania Electric. Colver was also authorized to purchase from

Eastern certain property owned by Eastern for Colver's utility operations. After acquisition of its stock by GPU, Colver purchased all

of its electric energy requirements directly from Pennsylvania

Electric.

ea 31 s. E. c. 329.

Holding Company Act Release No. 10663.

HoldIng Company Act Relense No. 13474.

'"

""
TWENTY-THIRD ANNUAL REPORT 113

On Maroh 24, 1957, the Commission issued its findings and opinion

and order approving a proposal by GPU to make cash advances to

its foreign subsidiary, Manila Electric Co., from time to time during

the period ending December 31,1958, in amounts aggregating $3,750,-

000.26 Manila proposes to use the funds for the installation of an additional 25,000-kilowatt unit to its utility plant, the total cost of which

was estimated at $5 million and the, sums advanced by GPU are to

supply the dollar component needed to purchase certain of the necessary equipment in the United States. Particular consideration was

given by the Commission to the effect of currency control in the Philippines. Since the proposed construction of the additional unit and

method of financing it involved the matter of future repayments in

dollars by Manila Electric to GPU, Manila Electric applied to the

Central Bank of the Philippines for approval of the program. Such

approval was granted, subject to a provision that such future dollar

repayments would be subject to governing Philippine regulations at

the time when the repayments were due. Under present regulations,

the repayments of the loan would be permissible at the rate of 20 percent per annum beginning 5 years from the date the new 25,000-

kilowatt unit commences operation.

In approving the proposal the Commission had to be satisfied that

the consideration was fairly related to the amounts invested in or the

earning capacity of the utility assets underlying the advances in terms

of the local peso currency. These requirements appeared satisfactory

as to the GPU loan, but as indicated, the ultimate dollar repayment of

the advances would be subject to conditions and circumstances outside

the control of Manila Electric and GPU. The Commission noted that

GPU's board of directors had determined that the proposed transaction was appropriate. The Commission also observed that Congress, in its enactment in 1956 of a private law which, in effect,

'exempted GPU from compliance with a previous order of the Commission directing that GPU divest itself of its interest in Manila Electric, appeared to have given considerable weight to the financial aid

which GPU, as the parent company, is to render to Manila Electric.

On October 19, 1956, the Commission issued an order authorizing

GPU to dispose of its wholly owned nonutility subsidiary, Employees

Welfare Association, Inc. ("EWADEL"), a Delaware corporation,

with respect to which the Commission had issued a section 11 (b) (1)

order in 1951 requiring GPU to dispose of that part of the company's

business relating to the servicing of the insurance policies of employees

of those companies which were no longer a part of the system." Based

Holding Company Act Release No. 13481.

fl1 HOlding Company Act Release No. 13288.

447li79-ll8-9

•
114 SEC'URITIES AN1D EXCHANGE! COMMISSION

upon the conclusion that it would not be economically or administratively feasible to attempt to reduce the scope of EW ADEL's activities to the servicing of employees' policies of the present system,

GPU decided to divest itself of its entire interest therein, retaining

temporarily, however, EW ADEL's wholly owned subsidiary, Employees Welfare Association, Inc. ("EWANJ"), a New Jersey corporation, consisting of 1,000 shares of common stock of $1 par value

per share. GPU proposed to hold EWANJ as a direct subsidiary

pending the latter's liquidation. Apart from certain nominal administrative functions in respect of pension trusts which are in the process

of liquidation, EW ANJ is inactive and has no income or expenses.

Its only assets consist of an interest in a pension trust agreement

stemming from its original deposit of $1,000 with the pension trustee.

International Hydro-Electric System

International Hydro-Electric System ("IHES"), a registered

holding company, had only one remaining subsidiary at the beginning

of the fiscal year, Gatineau Power Co., which in turn had two subsidiaries, Gatineau Transmission Co. and St. John River Storage Co.

Gatineau Power and its subsidiaries operate entirely in Canada. The

consolidated assets of Gatineau and its subsidiaries, less valuation

reserves, amounted to $113 million at December 31, 1956, and system

generating capacity totaled 814,094 kilowatts.

The Commission by its Findings and Opinion 28 and Order 29 approved the section 11 (d) plan so of the Interim Board of Directors of

IHES for modification of a 1943 order requiring liquidation and dissolution of the company," and for the continuance of IHES as an

investment company. The plan was approved by the enforcement

court on April 23, 1956, and was subsequently consummated."

On June 24, 1957, the Commission entered an order approving an

application of the Interim Board to permit IHES to restate the ledger

values of its portfolio securities on the basis of market values at December 31, 1956, and the substitution on a share for share basis of common

stock of the par value of $1 per share for the outstanding 856,718 shares

of class A stock of the par value of $25 per share." As thus revalued,

the system assets (including cash and cash items in the amount of

$12,990,345) were restated at an aggregate amount of $29,677,378.

.. Holding Company Act Release No. 13045 (November 25, 1955) .

.. Holding Company Act Release No. 13083 (January 13, 1956).

III IHES is the only registered holding company system reorganized pursuant to section

11 (d) of the Holding Company Act up to the present time .

.. For a summary of prior proceedings in this matter, see 21st Annual Report, p. 62;

22nd Annual Report, p. 135.

.. In re International Hydro-Electric System. unreported Dlst. Mass. Civil Action No.

2430; a1f'd sub nom. The Equitll OOT"floratioflo v. Brickley, 237 F. 2d 839 (C. A. 1.

October 26, 1956) ; certiorari denied, 352 U. S. 989 (January 28, 1957)

.. Holding Company Act Release No. 13508.

•
TWENTY-THIRD ANNU.u. REPORT 115

On the same date the Commission also entered an order, pursuant

to section 3 (a) (5), granting exemption to IIIES and its subsidiary

companies." The exempted holding company, under its new name of

Abacus Fund, thereupon filed a notification of registration as a closedend, nondiversified investment company pursuant to section 8 (a) of

the Investment Company Act of 1940.

On September 17, 1957, subsequent to the close of the fiscal year,

the Court approved the application of the Court Trustee to turn over

to the Abacus Fund all but $1,500,000 of the assets remaining in the

Trustee's hands. The $1,500,000 has been retained for the purpose of

satisfying such claims and final allowances as may be awarded against

the estate of IRES for services rendered during the final stages of

the reorganization proceedings. On October 1, 1957, final claims aggregating $904,905 for fees and expenses requested to be paid by the

IRES estate were filed with the Commission. Any allowance awarded

by the Commission constitutes the maximum amount which may be

awarded by the Court. After the payment of the final allowances,

only the question of the discharge of the Court Trustee will remain

before the proceedings are terminated.

Middle South Utilities, Inc.

Middle South Utilities, Inc., functions solely as a registered holding

company and controls 4 operating subsidiaries whfeh furnish electric

utility service to 837,522 customers in 1,700 communities and adjacent

rural areas in Arkansas, Louisiana, and Mississippi with a total population of approximately 4 million. The system also sells natural gas

at retail to 241,353 customers in 70 communities in Louisiana. Transit

service is furnished in the city of New Orleans and adjacent communities. The system's net electric generating capability totals

2,165,000 kilowatts and it operates 2,162 miles of gas mains. In addition, the system owns 79 percent of the voting securities of Mississippi

Valley Generating Co., an inactive company, and all of the securities

of another inactive subsidiary, Louisiana Gas Service Corp. One of

Middle South's operating subsidiaries, Arkansas Power and Light Co.,

owns 34 percent of the securities of Arklahoma Corp., an electric transmission line company with assets, less valuation reserves, of $3 million

at December 31, 1956.85 Middle South owns 10 percent of the voting

securities of Electric Energy, Inc., which operates a large electric generating station furnishing power to an installation of the Atomic Energy Commission. A proposal filed with the Commission by Middle

South to sell its interest in Electric Energy, Inc., to Kentucky Utili-

.. Holding Company Act Release No. 13509 (June 24, 1957).

liThe balance of the capital stock of Arklahoma Is owned 32 percent by a subsidiary of

Central and South West Corp., another registered holding company, and 34 percent by an

electric utility company not atIIllated with a registered holding company system.
116 SECURIT.FES AND EXCHANGE COMMISSION

ties Co., a nonaffiliate, is discussed at page 128 of this report. There is

still pending before the Commission the issue of whether the acquisitions of the stock of Electric Energy, Inc., by Middle South and others

meet the standards of section 10 of the Act. This issue and the

organization and financing of Electric Energy, Inc., are discussed at

page 126 of this report.

A proposal filed by Middle South and its subsidiary, Louisiana

Power & Light Co. in the previous fiscal year to divest themselves of

their interests in the nonelectric properties of Louisiana in compliance

with a 1953 section 11 (b) (1) order of the Commission, and the litigation thereon, are described at page 139 of the 22d Annual Report.

During the past fiscal year the Supreme Court, after granting the

Commission's petition to review the decision of the Court of Appeals

for the Fifth Circuit," reversed the Court of Appeals, holding that

the Commission's order denying Louisiana Public Service Commission's petition to reopen the divestment proceeding was not a reviewable order." Subsequently, on November 22, 1957, the Commission

approved a section 11 (e) plan filed by Louisiana Power & Light Co.

to transfer its gas and water properties to Louisiana Gas Service Co.

as a step in compliance with the section 11 (b) (1) order.S1a Upon the

request of the company the Commission has filed an application with

the United States District Court for the Eastern District of Louisiana

for an order approving and enforcing the plan. The Court has fixed

.Tanuary 14, 1958 as the date for hearing.

National Fnel Gas Co.

The National Fuel Gas Co. functions solely as a registered holding

company and controls 3 gas utility subsidiaries and 6 nonutility subsidiaries. The system furnishes retail gas service to 497,888customers

in the States of New York, Ohio, and Pennsylvania in an area with

a total population of 1,700,000. The system operates 12,797 miles

of distribution, transmission, gathering and storage pipelines. Ten

percent of the system's natural gas requirements are produced and

the balance is purchased through major pipeline companies, principally from southwest fields. At December 31, 1956, the consolidated assets of the system, less valuation reserves, totaled $168 million.

On September 28, 1956, the Commission issued an order approving

the purchase by Iroquois Gas Corp., a subsidiary of National Fuel

Gas Co., of the natural gas properties of Reservation Gas Co. and

Finance Gas Co., both nonutilities located in western New York, consisting primarily of 49 producing wells, approximately 45 miles of

.. 352 U. S. 924 (December 3, 1956).

17 s. E. O. V. Louisiana Publfo Serville 00mm188wn, 353 U. S. 368 (May 13, 1957) ; petition tor rehearing denied, 854 U. S. 928 (.Tune17,1957) .

... LouUiana Gas Serville 00., et al., Holding Company Act Release No. 18606.
TWENTY-THIRD ANNU:AL REPORT 117

pipelines, 2 compressor stations, various parcels of real estate and gas

producing and storage leaseholds covering approximately 27,850

acres for a consideration of $450,000.3S

On April 22, 1957, the Commission authorized Iroquois Gas Corporation to sell its natural gas distribution facilities in western New

York, together with an intrastate gas transmission line, to a nonaffiliate company, New York State Electric & Gas COrp.39

The merger of Republic Heat, Light & Power Co., Inc., into Iroquois Gas Corp., was approved by the Commission on December 26,

1956.40 The Commission's order therein pointed out that the service

area of both companies, which are located in the western part of New

York, are for the most part contiguous and that both companies operated with substantially the same executive personnel and the common use of many services and facilities.

New England Electric System

New England Electric System ("NEES"), a voluntary association

created under the laws of Massachusetts, functions solely as a registered holding company. It controls 23 electric and gas subsidiaries

and 2 nonutility subsidiaries. Electric utility service is furnished to

142 communities in Massachusetts, 27 in Rhode Island, 21 in New

Hampshire and 4 in Connecticut with an aggregate population of

2,200,000. The net electric generating capability of the system is

1,060,000 kilowatts. The system sells gas at retail to customers in 40

communities in Massachusetts, 3 in Rhode Island and 1 in Connecticut. Gas is purchased from 2 nonaffiliated transmission companies.

At December 31, 1956, the consolidated assets of the system, less

valuation reserves, totaled $527 million.

NEES also owns, indirectly, 30 percent of the voting securities of

Yankee Atomic Electric Co., organized in 1954 for the purpose of

constructing and operating an atomic nuclear power plant of approximately 134,000-kilowatt capacity. The plant is to be located in Rowe,

Mass., and is scheduled for completion in 1960. The output of the

plant will be sold to the 12 New England electric utility companies

which are stockholders of Yankee."

NEES has from time to time initiated and consummated various

proposals that have resulted in a material reduction in the number of

subsidiary companies in the system, the elimination of minority interests in- the corporate structure of several of the subsidiaries and the

segregation of the electric and gas operations of certain of the subsidiaries into separate companies. During the fiscal year NEES obIS Holding Company Act Release No. 13273

.. Holding Company Act Release No. 13455

... Holding Company Act Release No. 13348.

C1 See Holding Company Act Release No. 13048 (November 25, 1955).

•

•
118 SiECUR1TIiES AN1D EXCHANGE' COMMISSION

tained Commission approval of the merger (and related financing

transactions) of .five of NEES' electric utility subsidiaries-Amesbury Electric Co., Essex County Electric Co., Haverhill Electric Co.,

Lawrence Electric Co. and Lowell Electric Light Corp.," and the

acquisition by NEES of about 95 percent of the voting securities of

Lynn Gas and Electric Co., a nonaffiliated public-utility company,

whose operations were closely related to and conducted within the area

served by subsidiaries of NEES.43

The principal problems remaining to be resolved by the NEES

system under section 11 (b) of the Act pertain to the elimination of

the publicly held minority interest in the common stock of certain

of the subsidiaries in the system, and a determination by the Commission of the permissible limits of the operations by the system

under the standards of section 11 (b) (1) of the Act. NEES has

submitted a formal commitment to .file a plan or plans to eliminate

the minority interests in its subsidiaries. On August 5, 1957, the

Commission issued a notice of and order for hearing pursuant to section 11 (b) (1) of the Act for the purpose of determining the status

of the NEES system under the geographical integration provisions

of the Act.44

Ohio Edison Co.

Ohio Edison Co. is an operating utility company and is also a

registered holding company by virtue of its ownership of Pennsylvania Power Co., an electric utility company. The electric facilities

of Ohio Edison and Pennsylvania Power constitute an integrated

electric utility system serving 610,000 customers in 588 communities

and rural areas in Ohio and 133 communities and rural areas in

Pennsylvania. The total population of the system's service area is

1,855,000. The combined capability of Ohio Edison and Pennsylvania

Power is 1,688,500kilowatts. The consolidated assets of the system,

less valuation reserves, totalled $486 million at December 31, 1956.

Ohio Edison owns a 16.5 percent interest in Ohio Valley Electric

Corp. which, with its wholly owned subsidiary, Indiana-Kentucky

Electric Corp., furnishes electric power to an installation of the

Atomic Energy Commission. There is pending before this Commission the issue of whether the acquisitions of Ohio Valley Electric

Corp.'s stock by Ohio Edison and other sponsoring companies meet

the standards of section 10 of the Act. This issue, along with the

U Holding Company Act Release No. 13480 (May 23, 1967) .

.. Holding Company Act Release No. 13456 (April 22, 1957). A petition for review of

the Commission's order approving the acquisition of the Lynn stock filed in the United

States Court of Appeals for the First Circuit was dismissed for lack of prosecution in John

F. Oremen« v. 8. E. O. No. 5264, October 4, 1957

.. Holding Company Act Release No. 13525.

•
TWENTY-THIRD ANNUAL REPORT 119

organization and financing of Ohio Valley Electric Corp. and Indiana-Kentucky Electric Corp. are discussed at page 126 of this

report.

During the past fiscal year the Commission approved five applications for the acquisition of utility assets from certain municipalities

and an electric cooperative all located in the State of Ohio. These

acquisitions included a generating plant from the village of Plain City

for $410,000; 45 the municipal electric distribution system of the city of

Huron for $335,000; 46 the electric distribution system of the village of

Leroy for $78,500; 47 utility assets from the city of Galion consisting

of a distribution line approximately 1.2 miles long for $2,784; 4S and

a 2.7-mile transmission line from Delaware Rural Cooperative, Inc.,

for $14,700.49 The assets acquired under the foregoing orders are

located within Ohio's service area and will be operated as a part of

the company's integrated system.

The Southern Co.

The Southern Co. functions solely as a registered holding company.

It controls 5 electric utility subsidiaries which furnish electric service

to 1,372,000 customers in 1,406 communities and rural areas with

aggregate population of 6,405,000in Alabama, Florida, Georgia, and

Mississippi. The system also has 2 nonutility subsidiaries and a

mutual service company. Two of the electric utility subsidaries,

Alabama Power Co. and Georgia Power Co., each own 50 percent of

the capital stock of Southern Electric Generating Co., which is building a generating plant to furnish power to its two parent companies.

The Southern system has installed generating capacity of 3,288,380

kilowatts and at December 31, 1956, had consolidated assets, less

valuation reserves, of $932 million.

On February 27, 1957, the Commission issued an order approving

the acquisition by Georgia Power Co. of all the assets, properties and

business of Georgia Power and Light Co., a nonaffiliated electric utility

company and a subsidiary of Florida Power Corp. The Commission

also approved the purchase by Georgia Power Co. of a 1l0-kilowatt

transmission line from Florida Power Corp. and the arrangements

to finance the acquisitions. 50 The aggregate consideration for the

properties amounted to approximately $18,500,000of which $7,705,000

represented the assumption of Georgia Power and Light Co.'s first

mortgage bonds with the balance paid in cash.

Holding Company Act Release No. 13259 (September 5, 1956).

"Holding Company Act Release No. 13270 (September 28, 1956).

47 Holding Company Act Release No. 13354 (December 31, 19M)

... Holding Company Act Release No. 13424 (March 20. 1957)

.. Holding Company Act Release No. 13320 (November 26. 1956)

.. Holding Company Act Release No. 13398.

""

•

•

•
120 S1ECURITlES AND EXCHANGE OOMM»lSTON

Two regulatory commissions, the Georgia Public Service Commission and -the Florida Railroad and Public Utilities Commission,

urged approval of the acquisition.

In finding the transactions consistent with the standards of the

Act, particularly section 2 (a) (29) (A) thereof, the Commission,

in commenting upon the fact that the acquisition would result in

Georgia Power Co. serving virtually the entire State of Georgia,

stated among other things, that: "In some circumstances it might

give us cause for concern in connection with the effectiveness of regulation that a registered holding company system should absorb one

of the only two other electric distribution companies in the State

with which its rates and other practices might be compared. In this

particular case, however, the differences in relative size and type of

system operation between Georgia [Power Co.] and [Georgia Power

and] Light [Co.] are so marked as to lead us to the conclusion that

absorption of [Georgia Power and] Light [Co.] will not have a

discernible effect upon the effectiveness of regulation." The Commission also found that the acquisition would not in any material sense

extend the Southern system to a new area or region and that economically the service area of the company being acquired is part of the

area or region already serviced by the Southern system.

Standard Shares, Ine.

Standard Gas and Electric Co.

Philadelphia Co.

Standard Shares, Inc., formerly known as Standard Power and

Light Corp., is the top holding company of a system which no longer

has any public utility subsidiaries, as defined in the Act. At June 30,

1957, Standard Shares owned 45.59 percent of the voting securities

of Standard Gas, a registered holding company, which in turn owned

all of the voting securities of Philadelphia Co., a registered holding

company. These holdings reflect the consummation of a reorganization plan approved by the Commission under section 11 (e) of the

Act and ordered enforced by the United States District Court for

the District of Delaware. Pursuant to another provision of this plan

Standard Shares is in the process of conversion into a closed-end

nondiversified investment company."

At June 30, 1957, Standard Shares owned 50.89 percent of the voting securities of Pittsburgh Railways Co., a transit system serving

the city of Pittsburgh, which had assets, less valuation reserves, of

$43 million at December 31, 1956. On that date' Standard Shares

owned 4.58 percent and Standard Gas owned 1.20 percent of the

common stock of Duquesne Light Co., an electric utility company

51 Holding Company Act Release No. 13101 (February 16, 1956). If11"6Staflllard Power

afld Llgllt OorporatwfI (unreported (D. DeL Civil Action No. 1793, March 13. 1956».
TWENTY -THIRD ANNUAL REPORT 121

serving the Pittsburgh area which formerly was a subsidiary in the

Standard system. The corporate assets of Standard Shares

amounted to $29million at June 30, 1957.

During the fiscal year, all of Philadelphia's approximately 51 percent interest in the common stock of Pittsburgh Railways Co. was

sold under a rights offering to the Standard Gas common stockholders, including Standard Shares, and substantially all of Philadelphia's interest in the common stock of Duquesne was distributed

to the stockholders of Standard Gas, including Standard Shares."

Later in the fiscal year, Standard Shares sold to the public 265,000

shares of Duquesne common stock." In addition, the Commission

released jurisdiction over the selection and composition of Duquesne's

board of directors." Subsequent to the close of the fiscal year Standard Shares .filedan application under section 5 (d) of the A.ct seeking

an order by the Commission declaring that it has ceased to be a holding company, subject to such terms and conditions as the Commission

finds as necessary for the protection of investors .

.As indicated in the 22nd Annual Report, page 143, and in the 21st

Annual Report, page 71, uncertainties with respect to certain unresolved tax difficulties arising from a dispute between Standard Gas,

Philadelphia and Duquesne on the one hand and the Department of

the Treasury on the other hand as to their Federal income liabilities

for the years 1942 through 1950have been impediments to compliance

by Standard Gas and Philadelphia with the orders of the Commission

requiring their liquidation and dissolution. Although the income

tax difficulties remain unresolved, during the .fiscalyear and with the

approval of the Commission and the United States District Court for

the District of Delaware the then existing tax cutoff agreement between Philadelphia and Duquesne was canceled and another tax cutoff

agreement substituted therefor." The effect of this action was to

reduce the need by Standard Gas and Philadelphia to retain assets to

cover their potential tax liabilities. This permitted the divestment

by Standard Gas of the Duquesne and Pittsburgh Railways common

stock referred to above.

Union Electric Co.

Union Electric Co., formerly known as Union Electric Co. of Missouri, is an electric utility operating company and also a registered

holding company. The company and its public utility subsidiaries,

Missouri Power and Light Co. and Missouri Edison Co., furnish elec-

.. Holding Company Act Release No. 13376 (February 4, 1957). In re Standard GaB

and Eleotric Oompany (unreported (D. Del. Civil Action No. 1459. March 14, 1957» .

.. Holding Company Act Release No. 13505 (June 18,1957) .

... Holding Company Act Release No. 13501 (June 12, 1957).

S Holding Company Act Release No. 13376 (February 4, 1957).
122 SECURITI'ES AND EXCHANGE' OOMMISSiION

tric service to approximately 642,000customers in the city of St. Louis

and in 123 other communities in eastern and central Missouri, 2 communities in Illinois and 1 in Iowa. As at December 31, 1956,the consolidated assets of the system, less valuation reserves, totalled $457

million. The system also owns certain gas utility properties and nonutility assets, and Union Electric Co. owns 40 percent of the common

stock of Electric Energy, Inc., which operates a large generating plant

which furnishes power to an installation of the Atomic Energy Commission near Paducah, Ky. There is still pending before the Commission the issue of whether the acquisitions of the stock of Electric

Energy, Inc., by Union Electric and other sponsoring companies meet

the standards of section 10of the Act. This issue and the organization

and financing of Electric Energy, Inc., are discussed at page 126 of

this report.

During the fiscal year Union Electric disposed of its interest in

Poplar Ridge Coal Co., a wholly owned nonutility coal company

subsidiary.

In November, 1956, the Commission instituted a private investigation to determine whether Union Electric and certain of its officers

and employees had violated certain provisions of the Act. The inquiry related particularly to the question whether payments aggregating $35,000made by Union Electric ostensibly to a Chicago lawyer

violated the prohibition of section 12 (h) of the Act against direct or

indirect contributions by a registered holding company in connection

with the candidacy, nomination, election, or appointment of any person for or to any officeor position in the Federal or State government

or in support of any political party or any committee or agency

thereof. In addition, the investigation concerned the question

whether any such payments had been properly recorded on the books

and records of Union Electric and whether financial statements and

reports filed by Union Electric with the Commission correctly accounted for and reported such payments.

The Commission's investigation was prompted by newspaper disclosures that Union Electric had issued $35,000 in checks payable to

the lawyer which had been found in a so-called "envelope account"

maintained at a bank by Orville Hodge, formerly State auditor of the

State of Tllinois, who was convicted of various State and Federal offenses. The possible violation of the Act was also the subject of a

simultaneous inquiry by a Federal grand jury in Springfield, Ill. The

Commission and the United States attorney's officein Springfield cooperated in this matter. During the course of the Commission's investigation some 40 individuals were interviewed and considerable

research involving the inspection of documents and other material was

undertaken.
TWENTY-THIRD ANNUAL REPORT 123

The Commission referred the evidence which its investigation disclosed to the Department of Justice. The Department concluded that

the facts developed did not come within the reach of the Act. On

May 24,1957, the grand jury before which this inquiry was conducted

was discharged without voting any indictments. In view of the foregoing, the Commission discontinued its investigation.

Union Electric was also involved in a proxy controversy with two

of its common stockholders in regard to its annual meeting held on

April 20, 1957. Union Electric informed the Commission that it was

prepared to spend corporate funds to engage in a proxy contest with

the two stockholders, and the Commission pursuant to section 12 (e)

of the Act issued an order on February 27,1957, prohibiting any person from soliciting the security holders of Union Electric Co. unless

such person had first filed a declaration with the Commission which

had been permitted to become effective.56 Upon the filing of such a

declaration by Union Electric, the Commission ordered a hearing

thereon 51 at which the complaining stockholders were given leave to

participate. At the conclusion of the hearing the Commission issued

its order permitting Union Electric's declaration to become effective."

The two interested stockholders filed a petition to review the order

with the United States Court of Appeals for the Eighth Circuit and

simultaneously requested the Court to stay the execution of the order.

The stay was denied. The Findings and Opinion of the Commission

was issued subsequently 59 and the petition for review was pending

at the end of the fiscal year. The Commission also sought an order

from the United States District Court for the Eastern District of

Missouri enjoining the stockholders from sending out certain solicitation material in violation of the Commission's order of February 27,

1957. This. action was in the process of litigation at the end of the

fiscal year.

On March 6, 1956, Union Electric filed an application requesting

an exemption from the Act pursuant to section 3 (a) (2) thereof80

on the ground that it is predominantly a public-utility company

whose operation as such does not extend beyond the State in which it

is organized and States contiguous thereto. The application also

requested that the Commission release the jurisdiction previously

reserved over the question of the retainability of the gas systems of

Union Electric and its subsidiaries. Due to the relevance and importance of the outcome of the proceeding concerning Electric Energy,

Inc., to this application, the Commission has taken no action on the

application, and it was still pending at the close of the fiscal year .

.. Holding Company Act Release No. 13399 (February 27, 1957)

.., Holding Company Act Release No. 13410 (March 8, 1957)

.. Holding Company Act Release No. 13429 (March 21, 1957).

II> Holding Company Act Release No. 13450 (April 17, 1957).

00 Holding Company Act File No. 31-635.

•

•
124 SiECURITFES AND EXCHANGE OOMMlESION

The West Penn Electric Co.

The West Penn Electric Co. ("West Penn") functions solely as a

registered holding company and controls 13 electric utility subsidiaries, one of which is a registered holding company, and 6 nonutility subsidiaries. The system also owns some small water properties, coal mines, and transportation facilities. The system's consolidated assets, less valuation reserves, totaled $464 million at December

31,1956.

West Penn owns a 12.5 percent interest in Ohio Valley Electric

Corp. which, with its wholly owned subsidiary, Indiana-Kentucky

Electric Corp., furnishes electric power to an installation of the

Atomic Energy Commission. There is still pending before this

Commission the issue of whether the acquisitions of aVEC's stock

by West Penn Electric and the other sponsors meet the standards of

section 10 of the Act. This issue and the organization and financing

of aVEC and !KEC, are discussed at page 126 of this report.

During the past fiscal year the Commission approved a proposal

regarding the dissolution of one inactive nonutility company, the

Braddock Heights Water CO.,61and authorized West Penn Railways

Co., also an inactive nonutility company, to pay its parent, West

Penn, a liquidating dividend of $1,100,000.62 The application by

West Penn Railways Co. to pay a liquidating dividend indicated that

Railways is ultimately to be liquidated and dissolved. Of the

$1,100,000 to be distributed, $766,317 was in the hands of a trustee

which amount represented an accumulation of the proceeds of the

sale of certain property subject to the lien of the mortgage under

which there is outstanding $3,891,000 principal amount of 5 percent

noncallable bonds due June 1, 1960, issued by West Penn Railways

CO.'s predecessor, West Penn Traction Co. The proposal further

provided that the Trustee of the Traction bonds was to be requested

to use such funds to purchase Traction bonds on the open market or

at private sales, at current prices, through requests for tenders or

otherwise, as determined by the Trustee and West Penn.

Other Holding Companies

On June 30, 1956, there were five companies in addition to those

listed above which were subject to the provisions of the Act as registered holding companies, but which as a result of having completed

nearly all steps required for compliance with outstanding orders of

the Commission under section 11 (b) of the Act, were in the final

stages of either dissolution or of conversion to some status other than

that of a registered holding company." All of these companies have

<l1 Holding Company Act Release No. 13265 (September 17,1956).

eoHolding Company Act Release No. 13506 (June 21,1957).

eoNew England Public Service Co., Northern New England Co., Engineers Publ1c Service

Co., The United Corp. and United Public Service Corp.
TWENTY -THIRD ANNUAL REPORT 125

completed divestments of former subsidiaries and all but one are

in the final stages of liquidation.

One of these companies, Engineers Public Service Co., is a registered holding company in the final stages of liquidation and dissolution. During the past fiscal year the Commission approved an

amendment to Engineers' section 11 (e) plan, providing for, among

other things, the payment of certain fees and expenses to counsel for

Engineers and counsel for the escrow agent under the plan and an

order directing the escrow agent to turn over to Engineers certain

funds held by it in escrow. The amendment also provided that the

Commission request the Court which had previously enforced other

aspects of the plan to fix a bar date for the filing of claims against

Engineers. The amendment further provided that a bar date be

fixed after which the right to exchange securities in accordance with

the plan of Engineers shall terminate. The application was approved

by the Commission on November 13, 1956,64 and enforced by the

United States District Court of Delaware on December 20, 1956.65

The bar date terminating the period for exchange of securities was

set at February 18, 1962.

Pending litigation involving The United Corp., formerly a registered holding company and now a registered investment company,

at the close of fiscal year 1956 is described at pages 147-148 of the

22d Annual Report. An appeal filed by Randolph Phillips, a stockholder of United, to the United States Circuit Court of Appeals for

the Second Circuit, requesting a review of the Commission's order

granting United's application to be declared not to be a holding company pursuant to section 5 (d) of the Act, was dismissed for lack of

prosecution." During the fiscal year appeals were taken by Randolph

Phillips and Joseph B. Hyman from an order of the United States

District Court of Delaware dated October 31, 1956,61 enforcing the

Commission's order approving, among other things, the payment of

$50,000 to Phillips and $7,000 to Hyman, for fees and expenses in

connection with United's 1951Amended Investment Company Plan.68

The amounts awarded to Phillips and Hyman by the Commission and

the District Court were substantially lower than the amounts requested by these applicants.

On October 22, 1957, subsequent to the end of the fiscal year, the

Court of Appeals for the Third Circuit reversed the District Court

and held that Phillips should receive $50,000 as a fee and $26,925 for

expenses, and that Hyman should receive $12,000 as a fee. A petition

for rehearing filed by the Commission was denied by the Court on

December 3, 1957 .

.. Holding Company Act Release No. 13305

...In re EngineerB Public Service 00., unreported (D. Del., Civil Action No. 995).

II PhlmpB v. S. E. G., unreported (C. A. 2, No. 24041, April 1, 1957).

fit In re The United Gorp., unreported (D. Del., No. 1650)

.. Holding Company Act Relea8e No. 13194 (June 28, 1956).

•

•
126 8ECURITliES AND EXCHANGE COMMISSION

ACQUISITIONS BY PERSONS OTHER THAN REGISTERED HOLDING

COMPANIES

The provisions of the Act do not pertain solely to the organization

and activities of registered holding companies and their subsidiaries.

Certain sections of the statute regulate transactions between other

persons and any electric or gas utility company and the acquisition

by other persons of voting securities of such public utility companies.

One of these provisions is section 9 (a) (2) of the Act, which requires

that the acquisition by any person of 5 percent or more of the voting

securities of two or more public utility or holding companies satisfy

specified statutory standards.

Central Vermont Public Service Corp. is a holding company claiming exemption pursuant to rule 2, and thus is required to obtain

approval of the Commission under section 9 (a) (2) in respect of

acquisitions creating additional affiliate relationships. The Commission approved the acquisition by Central Vermont Public Service

Corp. of 1,730shares (86.5 percent) of the initial 2,000 shares of capital stock issued by Vermont Electric Power Co., Inc.69 Central Vermont Public Service Corp., Green Mountain Power Corp., and Citizens Utilities Co., the latter two of which are not subject to the Act,

organized.Vermont Electric Power Co., Inc., for the purposes of constructing, owning and operating the necessary transmission facilities

and receiving, at various points on the New York-Vermont State line,

power generated on the St. Lawrence River and purchased by the

State of Vermont pursuant to a contract with the Power Authority

of the State of New York, and to transmit such power to the points of

delivery to various electric distribution companies and agencies

within the State of Vermont, in accordance with allocations thereof

made by the Public Service Commission of Vermont. The total

cost of such new transmission facilities is estimated at between $10

million and $15 million and it is presently contemplated that its

capital structure will consist of between 5% and 15% in equity securities with the balance represented by debt securities.

ELECTRIC GENERATING COMPANIES DEVELOPING ATOMIC POWER

OR SUPPLYING ELECTRIC ENERGY TO INSTALLATIONS OF THE

ATOMIC ENERGY COMMISSION

Electric Energy, Inc., Ohio Valley Electric Corp. and Indiana-Kentucky Electric Corp.

Three large electric generating companies sponsored by certain

registered holding company systems in cooperation with a number of

nonaffiliated electric utility operating companies were organized in

1950 and 1952 to furnish electric power in large quantities to installations of the Atomic Energy Commission.

.. Holding Company Act Release No. 13461 (May 2, 19117).
TWENTY-THIRD ANNUAL REPORT 127

The first of these companies, Electric Energy, Inc. ("EEl"), was

organized under the laws of Illinois late in 1950 by five sponsor

public-utility or holding companies to erect and operate an electric

generating station at Joppa, Ill., to supply power to the Atomic

Energy Commission in connection with the operation of its new uranium processing plant located near Paducah, Ky. EEl had total assets, less valuation reserves, of $182 million at December 31, 1956', and

net electric generating capability of 1,003,800 kilowatts.

The sponsor companies and their proportionate holdings of the

62,000 outstanding shares of EEl's common stock are: Union Electric Co., an electric-utility company and a registered holding company,

40 percent; Middle South Utilities, Inc., a registered holding company, 10 percent; Kentucky Utilities Co., an electric-utility company

and a holding company heretofore granted exemption pursuant to

section 3 (a) (2) of the Act, 10 percent; Illinois Power Co., an electric-utility company, 20 percent; Central Illinois Public Service Co.,

an electric-utility company, 20percent.

Ohio Valley Electric Corp. ("OVEC"), an Ohio corporation, and

its wholly owned subsidiary, Indiana-Kentucky Electric Corp.

("!KEC"), an Indiana corporation, were organized in 1952 by 10

public-utility and public-utility holding companies to construct and

operate two large generating stations, one near Cheshire, Ohio, and

the other near Madison, Ind., together with the requisite transmission

facilities, to supply power to the Atomic Energy Commission in connection with the operation of its new uranium processing plant located near Portsmouth, Ohio. The consolidated assets of OVEC

and !KEC, less valuation reserves, totalled $374 million at December

31, 1956, and the combined proven electric generating capacity of the

two companies amounted to 2,365,000 kilowatts.

The sponsor companies and their proportionate holdings of the

100,000 shares of outstanding common stock of OVEC are: American

Gas and Electric Co., a registered holding company, 37.8 percent; The

Ohio Edison Co., an electric-utility company and a registered holding

company, 16.5 percent; The West Penn Electric Co., a registered

holding company, 12.5 percent; The Cincinnati Gas & Electric Co.,

an electric-utility company claiming exemption as a holding company pursuant to rule 2, 9 percent; Louisville Gas and Electric Co.,

an electric-utility company heretofore granted exemption as a holding

company pursuant to section 3 (a) (2) of the Act, 7 percent; The

Dayton Power and Light Co., an electric-utility company, 4.9 percent;

Columbus and Southern Ohio Electric Co., an electric-utility company,

4.3 percent; The Toledo Edison Co., an electric-utility company, 4

percent; Kentucky Utilities Co., an electric-utility company heretofore granted exemption as a holding company pursuant to section 3
128 SECURITIES AND EXCHANGE' OOMMlSSiION

(a) (2) of the Act, 2.5 percent; and Southern Indiana Gas 'and Electric

Co., an electric-utility company, 1.5 percent.

As described at page 102 of the 17th Annual Report and at page

129 of the 22nd Annual Report, the acquisitions of the capital stocks

of EEl and OVEC by their respective sponsor companies and the

plans for the financing of these two generating companies and of

OVEC's subsidiary, !KEC, were tentatively approved by the Commission in the interest of national defense, reserving until a later

hearing the determination of whether the acquisitions of the capital

stocks of EEl and OVEC by the sponsor companies is consistent

with the standards of section 10 of the Act and the status of the

sponsor companies under section 2 (a) (7) of the Act.70 On November 19, 1956, the Commission ordered that hearings be held in respect

of these reserved issues." Hearings were held on the EEl matter in

March and April of 1957. Hearings were held on the OVEC and

!KEC reserved issues in March, May, August, October, and December

of 1957. The matters are still pending before the Commission.

In May, 1957, Middle South entered into a contract to sell its 10

percent stock interest in EEl to another sponsor company, Kentucky

Utilities Co., and the latter company agreed to acquire such additional

interest in EEl subject to the condition that the status of Kentucky

Utilities under the Act would not be altered as a result of such acquisition. A hearing on these proposals was held on June 24, 1957, and

this proceeding was consolidated with the section 10 proceeding involving EEl which had been commenced on November 19, 1956.

EEl undertook no new financing in the past fiscal year. The

earlier financing of OVEC and its wholly owned subsidiary, !KEC,

is described at pages 86-87 of the 20th Annual Report and page 84

of the 21st Annual Report. OVEC increased its Subordinated Note

indebtedness to its sponsor companies by $1,502,000 during the past

fiscal year. In that same period, the Commission authorized an increase in the principal amount of Subordinated Notes of OVEC from

$8 million to $9,102,000, the additional $1,102,000 to be taken down by

sponsor companies with funds which they received from OVEC as a

cash dividend on its common stock.72 Of the $8 million principal

amount of Subordinated Notes authorized in prior fiscal years, $400,000

was taken down by sponsor companies during the fiscal year 1957.

In the fiscal year 1955, the Commission approved allowances of fees

and expenses totaling $1,026,532 for services rendered up to December

31, 1953, in connection with the organization and financing of OVEC

As to EEl see 32 S. E. C. 202 (1951) ; and 34 S. E1. C. 586 (1953). As to OVEC and

lKEC see 35 S. E. C. 255 (1953) ; Holding Company Act Release No. 12752 (December 21,

1954) ; 36 S. E. C. 304 (1955) and 34 S. E. C. 323 (1952).

'11 Holding Company Act Release Nos. 13312, 13313, and 13342.

II Holding Company Act Release No. 13293 (October 29, 1956).

'"
TWENTY-THIRD ANNUAL REPORT 129

and IKEC,73 During the past fiscal year the Commission approved

allowances of $753,318 for services rendered in this connection from

January 1,1954, to June 30,1955,74 and $401,257 for services rendered

from July 1, 1955, to June 30, 1956.711

Power Reactor Development Co.

The Commission has also had occasion in recent years to consider important cases pertaining to the development and :financing of experimental projects for the employment of fissionable materials as sources

of heat energy for the generation of electric power. In 1956, the

Commission published for comment a proposed amendment to its rule

7, promulgated under the .Act, which was designed for the specific

purpose of facilitating the development of nuclear power projects.

This amendment, which was adopted by the Commission on July 13,

1956,76 and the circumstances leading up to its proposal, are described

at pages 164-166 of the 22nd Annual Report.

One of the first cases which followed the adoption of this amendment related to the creation of Power Reactor Development Co.

("PRDC"). In .August, 1955, a group of public-utility and industrial

companies participated in the formation of this company as a nonprofit

membership corporation organized for the purpose of advancing the

art and technology of producing electric power by the use of fissionable materials. During the past fiscal year PRDC filed an application

with this Commission pursuant to section 2 (a) (3) of the Holding

Company Act requesting that it be declared not to be an electric utility company. .After a hearing, the Commission found that PRDC will

be engaged, at least until December, 1959, in the construction of an

atomic reactor and in research and development in connection therewith. Thereafter, the reactor will be operated experimentally to

ascertain the technical and economic problems of operation, and to

provide its sponsors with the technical knowledge and experience

needed for the construction of other atomic reactors. In addition, the

company will not sell any electric energy, and will sell only steam to

Detroit Edison Co. and plutonium to the Atomic Energy Commission,

with the sale of plutonium expected to produce the larger portion of

PRDC's revenues. Since it appeared that PRDC will be engaged

primarily in the business of research and development, a business

other than that of an electric-utility company, the Commission concluded that PRDC was entitled to the exemption provided in section

2 (a) (3) of the Act.77

Holding Company Act Release No. 12764 (December 29, 1954)

•• Holding Company Act Release No. 13297 (October 31, 1956) •

.. Holding Company Act Release No. 13519 (July 24, 1957)

•• Holding Company Act Release No. 13221.

'If Holding Company Act Release No. 13364 (January 17, 1957).

447579-ll8-10

'" •

•
130 SECURITIiES AND EXCHANGE! COMMISSION

Inits opinion the Commission noted that PRDC would be entitled

to be deemed not an electric utility company, if it elected to claim this

status, under subparagraph (b) of rule 7, as amended on July 13,

1956. It also pointed out that this rule does not prohibit the filing of

an application pursuant to the provisions of section 2 (a) (3) for an

order declaring the company, which meets the standards set forth

therein, not to be an electric utility company. However, in harmony

with this rule, PRDC stipulated in its application and the Commission

conditioned its order granting PRDC's application on the representation that PRDC, on or before May 1 of each year, would make a filing

indicating whether or not there had been any changes in its business

in the following respects: (a) That its only connection with the generation, transmission or distribution of electric energy is the ownership or operation of facilities used for the production of steam from

special nuclear materials, which steam is used by another in the generation of electric energy, (b) that it is not organized for profit, and

( a) that it is engaged primarily in research and development activities.

Additionally PRDC agreed and the Commission ordered that there be

attached to such statements as exhibits statements showing any changes

in its charter, bylaws and licenses issued by the Atomic Energy Commission and any change in its members or in the relative voting

powers of its members, and a statement of its receipts and disbursements for the preceding calendar year and of its financial status at the

end of such year.

Yankee Atomic Electric Co.

The Commission was called upon during the past year to consider

further developments in respect of another nuclear power project,

Yankee Atomic Electric Co. On November 25, 1955, the Commission approved the initial financing of Yankee and the acquisition of

its voting securities by certain of its 12 sponsoring companies, two of

which were subsidiaries of registered holding companies and two of

which were electric utility companies which were also holding companies exempt from the provisions of the Act. These transactions

are described in detail at pages 162-164 of the 22nd Annual Report.

Yankee was organized to construct and operate a nuclear power

plant which it is proposed will be of the pressurized water type, cooled

and moderated by ordinary water and using slightly enriched uranium

as fuel. At the time of the company's organization, representatives

of Yankee indicated that it was too early to formulate with any degree of certainty the company's ultimate financing program or to

provide more than a rough estimate of the total capital cost of the

proposed plant. It was estimated at that time that the entire plant

would require an investment of approximately $33,400,000. It was

also represented that the investment would be financed by means of
TWENTY -THIRD ANNUAL REPORT 131

conventional public utility financing arrangements with a minimum

of 35 percent of the total cost of the plant to be provided by the common stock equity investments of the sponsoring companies. Recently

the estimate of the ultimate construction cost of the Yankee project

has been increased to about $55 million.

In May, 1956, the Commission granted the company's request to

enter into preliminary discussions with representatives of financial

firms for the purpose of formulating its overall financing program.

Such authorization was subject to the understanding that no discussions as to price or other terms of any securities to be sold would be

undertaken. In the closing weeks of the past fiscal year the company requested authorization of the Commission to commence active

negotiations with prospective purchasers of its securities. In support of its request, Yankee contended that it was an unusual type of

company having no assets, earnings history or credit rating. It was

also urged that the unusual circumstances of Yankee's contemplated

operations made it desirable that its securities be sold to knowledgeable buyers who have the means of acquiring a complete understanding of the company's problems. The Commission authorized Yankee

to initiate negotiations as to price and other terms and conditions of

the securities to be sold with the prospective purchasers. However,

it reserved complete freedom of action to consider Yankee's formal

application for exemption from the competitive bidding requirements

of rule 50 when it is filed and stated that the application would be

granted only upon a sufficient showing that such exemption is

warranted.

FINANCING OF REGISTERED PUBLIC UTILITY HOLDING COMPANY

SYSTEMS-TRENDS IN ELECTRIC AND GAS UTILITY INDUSTRIES

During the fiscal year 1957,registered holding companies and their

subsidiaries sold to the public and to institutions 39 issues of their

securities totaling $637 million. As in the preceding fiscal year, all

of this money was used to provide new capital. In 1956 registered

systems sold 45 issues totaling $589 million. 78 The increase in the

volume of external financing of $48 million, or 8.1 percent, in 1957

occurred despite the cumulative effect of divestments of recent years

and the absence from 1957 totals of any large scale financing by the

two large electric generating companies serving Atomic Energy Commission plants. In 1956 one of these companies, Ohio Valley Electric

Corp., sold $107 million of debt securities to institutions pursuant

to construction loan authorizations obtained from the Commission

in earlier years, as described at page 162 of the 22nd Annual Report.

This company sold only $99,000of securities in 1957. The other large

'Ill The difference between the total of $589 milllon reported for 1956 in this report and

the amount of $565 million reported for 1956 at page 148 of the 22nd Annual Report represents a correction based upon receipt of subsequent information.
132 SlECURITIoES AND EXCHANGE' OOM'Jl.fISS[ON

generating company, Electric Energy, Inc., sold no securities in 1956

and 1957. If the sales of securities by Ohio Valley Electric are deducted from the totals for both years, the volume of external financing by all other companies in registered systems would reflect an increase of 32 percent in 1957 over 1956.

Included in the above total were 32 issues with total sales value of

$590 million which were sold by registered systems in 1957 to the

public and to institutions by public distribution or directly to stockholders. The remaining 7 issues totaling $47 million were placed

privately with institutional investors.

In addition to passing upon the 39 issues amounting to $637 million

which were sold outside of their respective systems by registered

holding companies and their subsidiaries in the :fiscal year 1957, the

Commission authorized the issuance and sale of 78 issues of securities

totaling $219 million by subsidiaries to their parents. In 1956 subsidiaries of holding companies in registered systems sold 76 issues with

a volume of $199 million to their parents.

The types of securities included in the foregoing totals, the classes

of companies in registered systems which sold the securities, and the

types of sales employed are shown in the following table.

Sales of securities for cask or pursuant to ellJckange offers authorized pursuant

to sections 6 and 7 of the Public Utility Holding Oompany Act of 1935 for tbe

fiscal year ended June 30, 1957

(Securities issued in exchange for other securities in connection With

reorganizations are excluded)

[Dollar amounts In millions]

Type of sales

Total external

8ales b;Vsubsidlarles to Bales to public Private place- flnaneing their parents and outside ments stockholders

Gross Number Gross Number Gross Number Gross Number

sales of issues sales ofissues sales ofissues sales ofissues

value value value value

-- -- ---- ---- Electric and gas utilities: Bonds ___________________________$243 15 --.------ $243 15 $2 1 Debentures ------- --------- Notes ___________________________ ----ii- ----38-

----iii- 2 1 2 19 Preferred stock __________________ 2 --.---- --._----- 10 2 Common stock __________________ ---i65- -------47 ------- --.-----. ------- --._----- --.---- --.-.--.- TotaL _________________________ -- -- -- -- -- -- -- -- $253 17 $1 2 $254 19 $205 67

Holding companies: ---- -- -- -- -- -- = Bonds ___________________________ Debentures $41 1 --.---- ... $41 1 --.---- Common stock 86 4 --.---- --.------ 86 4 --.---- --------- 179 9 ------- 179 9 --_. __ .

-------~- Total ---- -- -- -- ----- $306 14 ------- --------- $306 14 ------- --------- -- -- -- -- -- -- -- --- NonutiIity companies: Bonds ___________________________$3 1 $20 2 $51 3 Debentures --------- --.--_. Notes ----26- -------3- ----26- ----$4- ------- --------- 3 2 Oommon stock. ._------- .------ --------- 10 9

Total ---- -- -- ----- ---- $31 1 $46 5 $77 6 $14 11

Grand total $500 32 --

$47 = 7 $637 39 --$219 = 78

______________________ -------

______________________ -- ----- --------- __________________ ---~----- __________________________ --

______________________ ---~--- ___________________________ --------- _________________-~----- --------- ------- ________•• ________________

___________________= -- == --
TWENTY -THIRD ANNUAL REPORT 133

Excluding the companies in registered systems, the electric and gas

utility and natural gas pipeline companies in the electric and gas

utility industries sold $2,923 million of securities to the public and

to financial institutions in the fiscal year 1957. All but about $24

million of this amount was for new money purposes. The total for

1957 represented an increase of $943 million, or 47.6 percent, over

the volume of such financing completed in 1956.

The table on the following page sets forth the amounts of various

types of securities sold in the :fiscalyears 1957 and 1956 by registered

holding companies and their subsidiaries and by all other companies

in the electric and gas utility industries.

As shown by the data in that table, 28.1 percent of the total

dollar volume of external financing completed by registered holding company systems in the fiscal year 1957 was in the form of

common stock. The corresponding ratio for registered systems in the

preceding year was 20.9 percent. All other companies in the electric

and gas utility industries sold common stock issues in 1957 accounting

for 17.0 percent of their total financing as compared with 16.3 percent

in 1956. Bonds, debentures and long term notes accounted for 70.2

percent of the total volume of financing of registered systems in 1957

as compared with 71.2 percent for all other companies in the electric

and gas utility industries. In 1956 these debt securities represented

73.5 percent of the total financing of registered systems and 67.6

percent of the total financing of all other companies in the electric and

gas utility industries. There was a sharp increase in debenture

financing from 6.6 percent of the total by all other companies in the

electric and gas utility industries in 1956to 15.7percent in 1957. There

were virtually no changes in the proportionate amounts of debenture

financing employed by registered systems in those 2 years. It will

also be noted from the table that registered systems in both years

showed much less interest in preferred stock financing than did other

companies in the two industries.

The increase in the volume of new money financing in 1957 over

1956 by registered holding companies and by other companies in the

electric and gas utility industries was caused by the sharp upturn in

expenditures for new plant and equipment which began in the last

quarter of the fiscal year 1955. In that 3-month period expenditures

by electric, gas, and water utilities were equivalent to a seasonally adjusted annual rate of $4,090million. The comparable adjusted annual

rate for the last quarter of the fiscal year 1957 amounted to $5,930

million and estimates for the first half of the fiscal year 1958 indicate

that a seasonally adjusted annual rate of $6,480 million may be

reached by the second quarter of that year.79

'It The water utll1ty and sanitation component ot these amounts Is estimated to average

only about 2 percent ot the total.
134 SECURITIES AND EXCHANGE OOMMTSSION •

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TWENTY-THIRD ANNUAL REFORT 135

Actual expenditures for plant and equipment by the electric and

gas utility industries, exclusive of the water and sanitation companies,

totaled $5,360 million in the fiscal year 1951, reflecting an increase of

$933 million, or 21 percent, over the amount expended in 1956. In the

calendar year 1956, the funds required by these industries to finance

their plant and equipment outlays were derived approximately 33.6

percent from depreciation accruals and retained earnings, 45.4 percent

from sales of new securities and 21.0 percent from temporary commercial bank borrowings.

Sales of securities by registered holding companies and their subsidiaries pursuant to sections 6 and 7 of the Act and portfolio sales

by registered holding companies under section 12 (d) are required

to be made at competitive bidding in accordance with the provisions

of rule 50. Certain specified types of security issuances are automatically excepted from the competitive bidding requirement of the

rule by clauses (1) through (4) of paragraph (a) thereof. These

include issues with proceeds of less than $1 million; private borrowings from financial institutions with maturities of 10 years or less;

issues the acquisition of which have been approved by the Commission

under section 10 of the Act; and pro rata issues to existing security

holders, such as nonunderwritten common stock rights offerings to

stockholders.

Of the 32 issues of securities totaling $590million sold by registered

systems in 1957 to the public and to outside shareholders, as shown by

the table at page 132 of this report, 29 issues aggregating $554million

were sold at competitive bidding pursuant to ru1e 50. The following table shows the number of issues and the amounts of each class of

securities sold by this method in the fiscal year 1957 and during the

period from the effective date of the rule to June 30,1957.

Sales of securities at competitwe bidding pursuant to ruie 50

[Dollar amounts In millions)

Fiscal year 1957 May 7, 1941 Ito June 30, 1957

Number of Volume Number of Volume

Issues Issues

Bonds __________________________________________ 17 $315 417 $6,339 Debentures ________ 4 86 51 1,297

N otes .: .: .; .: :==== .: ...-. ..-.-- .... 9 75 Preferred stock _._.- 1 8 117 997 Common stock _________________________________ 7 145 117 1,297

Total ____________________________________ 29 $554 711 $10,005

1 ElIectlve date of rule 50.

In addition to the 29 issues sold at competitive bidding, 3 issues

aggregating $36 million were also sold to the public or to existing

shareholders but at prices and terms determined by the issuers or

_______________= = ==== = == -------------- __ -- _____________________ ------
136 SlECURITJJES AND EXCHANGE OOM'MTSSIION

set by negotiation with underwriters. These consisted of (1) a nonunderwritten offering by New England Electric System, a registered

holding company, of $12.7 million of its common stock in exchange

for shares of common stock of Lynn Gas and Electric Co., a nonaffiliated public utility company, which transaction is described at page

118 of this report; (2) a nonunderwritten rights offering to its

shareholders of $21.1 million of common stock by General Public

Utilities Corp., a registered holding company; and (3) a negotiated

underwritten public offering of $2.5 million of preferred stock by

Blackstone Valley Gas and Electric Co., a public utility subsidiary of

Eastern Utilities Associates, a registered holding company. The

Commission granted exemption from the competitive bidding requirements of rule 50 pursuant to paragraph (a) (5) thereof with

respect to the Blackstone Valley Gas preferred stock sale and the

New England Electric exchange offering. Blackstone Valley Gas

previously had attempted to sell its shares at competitive bidding and

had received no bids.sO Inthe New England Electric case, the Commission determined that competitive bidding was not an appropriate

means of effectuating the exchange of New England stock :for the

shares of Lynn Gas and Electric. SI In connection with the proposed

rights offering of common stock by General Public Utilities Corp., it

could not be determined in advance of consummation of the transaction whether the provisions of clauses (1) through (4) of paragraph

(a) of rule 50 would afford automatic exemption from the competitive bidding requirement to all parts of the proposed financing. Accordingly the Commission granted the company an exemption from

the provisions of rule 50, to the extent such rule was applicable to the

transaction. S2

The only other securities sold by registered holding companies and

their subsidiaries in the fiscal year 1957 through channels other than

competitive bidding were the 7 issues o:f debt securities amounting

to $47 million shown in the table at page 132. Included in this total

were 2 issues of subordinated notes in the amount of $449,000 sold

by Ohio Valley Electric Corp. to the 12 participating companies,

which sponsored its organization and which own all of its capital

stock," and 3 issues of notes aggregating $26 million placed privately

with institutional investors by American Louisiana Pipeline Co., a subsidiary of American Natural Gas Co., a registered holding com-

...Holding Company Act Release No. 13319 (November 20, 1956).

&1 Holding Company Act Release No. 13456 (April 22, 1957)

...Holding Company Act Release No. 13408 (March 7, 1957)

.. Holding Company Act Release No. 13293 (October 29, 1956). Ohio Valley was authorized to Issue and sell $1,102,000 of these notes to the participating companies. See

pp. 126-129 of this report for a discussion of this transaction and the organization and

financing of the company.

•

•
TWENTY-THIRD ANNUAL REPORT 137

pany.84 These sales were automatically exempt from the provisions

of rule 50 pursuant to clauses (1) through (4) of paragraph (a)

thereof. American Louisiana Pipeline also placed privately with

institutions during the fiscal year 2 issues of mortgage bonds totaling

$20 million pursuant to an exemption from the requirements of rule

50 granted by the Commission in the preceding fiscal year.8S

During the period from May 7, 1941, the effective date of rule

50, to June 30, 1957, a total of 241 issues of securities with an aggregate sales value of $2,215million have been sold pursuant to orders

of the Commission granting exemption from the competitive bidding

requirements of the rule under paragraph (a) (5) thereof. Included in these amounts are 188 issues with a dollar value of $1,715

million which were sold without underwritings. These totals compare with 711 issues with a sales value of $10,005 million sold at competitive bidding under the rule as shown in the table at page 135.

The numbers of issues and the amounts of various classes of securities which have been sold pursuant to exemptions granted under

paragraph (a) (5) of rule 50 are set forth inthe following table.

Sale8 by regi8tered holding companie8 and their 8ub8idiarie8 Of 8eeuritie8

eiDem-ptedtrom competitive bidding requirement8 pursuant to the provi8i0n8

of paragraph (a) (5) ot rule 50 by oraer« ot the Oommission entered from

May 7, 19J,1;to June 30,1957

[Dollar amounts Inmillions]

Underwritten Nonunderwritten Total

Number Amount Number .Amount Number Amount

ofissues of issues of issues

------ --- --- --- Bonds ________. _______.___. ___. ___________ 4 $27 76 $1,087 80 $1,114 Debentures ______________________________ Notes _____________________________________ 3 83 5 37 8 120

------ ------iii- 29 83 29 83 Preferred stock 13 2.5 265 38 376 Common stock ___________________._______ 33 279 53 243 86 522

TotaL ______________________________ ------ --- --- --- --- 53 $500 188 $1,715 241 $2,215

1Effective date of rule 50.

Competitive bidding also has been used extensively by electric and

gas utility and gas pipeline companies which are not associated with

registered systems. During the fiscal year 1957, these companies

sold $2,923 million of securities, of which $1,060 million, or 36.3 percent, were sold at competitive bidding. Negotiated public offerings

were employed for the sale of $1,250 million, or 42.7 percent, and the

balance of $613 million, or 21.0 percent, was placed privately with

institutional investors. Natural gas pipeline and distributing companies accounted for the major portion of the debt securities which

Holding Company .Act Release No. 13245 (.August 21, 1956).

Holding Company Act Release No. 12953 (July 29,1955).

•

_______•___________________

'"

""
138 SECURITFES AND EXCHANGEJ COMMISSIION

were sold through channels other than competitive bidding. Electric

and gas companies participated about equally in the negotiated public

offerings of preferred and common stocks not subject to the Act.

The following table shows the amounts and percentages of each

class of security which were sold by means of competitive bidding,

negotiated public offering and private placement by electric and

gas utility and gas transmission companies not associated with registered holding company systems.

Sales of securities for cash ana issuances Of securities in connection with refunding eecnanoes to m.embers of the public 1 ana to financiaZ institutions by

electric and gas utility companies, holding companies, and, gas pipeline C011Vpanies not sUbject to the Act as registered public utility holaing companies

or subsidiaries thereof, ttsea; year 1957

[Dollar amounts in millions]

Total amounts Secuntles sold securtnes sold Secuntles placed of seeurlties by competitrve by negotiated privately with

ISSUedand sold biddmg public offering mstitutional

Type of security Investors

Amounts Percent Amounts Percent Amounts Percent Amounts Percent

-- --- -- --- -- --- -- Bonds, •. __. ____. ____________ $1,582 1000 $881 55 7 $190 12.0 $511 32.3 Debentures _______________ 460 100.0 92 20.0 314 68.3 54 11.7 N otes ________. ______________ 40 100.0 -------.9- ----2:6" 2 5.0 38 95.0 Preferred stock ______________ 344 100.0 327 95.1 8 2.3 Common stock ______________ 497 100.0 78 15.7 417 83.9 2 .4

TotaL. ________________--- -- --- -- --- -- --- -- $2,923 100 0 $1,060 363 $1,250 427 $613 21.0

IIncludes rights offerings to shareholders and Issuances ofseeunties in exchange for properties or seeunttes of other eompames.

The rights offering to shareholders continued to predominate in

the common equity financing of registered holding company systems

in the fiscal year 1957, accounting for 80 percent of the total in that

year as compared with 91 percent in 1956. The device seemed to be

less popular with other companies in the electric and gas utility

industries. These companies employed the rights offering technique

to effect 43 percent of their common stock financing in 1957 as compared with 77 percent in 1956. The numbers of issues and aggregate

sales value of common stocks sold by means of rights offerings, public offerings and other methods by registered systems and by all other

companies in the electric and gas utility industries are shown in the

table on the following page.

The types of rights offerings employed by registered holding company systems in the fiscal year 1957 differed substantially from those

used by other companies in the electric and gas utility industries. In

1957,85.5 percent of the dollar volume of rights offerings of common

stocks undertaken by registered systems were underwritten by investment bankers. Electric and gas utility companies, holding companies and gas pipeline companies not associated with registered

•__
TWENTY -THIRD ANNUAL REPORT 139

oommon equity financing during the fiscaZ gear 1957 by registered holding CQmpany systems and by all other electric and gas utility companies, including

holding companies, and gas transmission companies, secondary offerings and

intercompany transactions eaJcluded

[Dollar amounts III millions]

Registered holding I All other electric Total electric and

company systems and gas utilities gas utility industries

Type of offenng

Number Volume J Number Volume Number Volume

of issues of ISSues of ISSUes

---- --- --- --- --- --- Rights 7 $144 31 $212 38 $356 Public ____________________________________ 1 22 18 164 19 186 Miscellaneous ____________________________ 11 13 218 121 19 134 --- --- --- --- --- --- Total sales of common stock ________ 9 $179 67 $497 76 $676

I This ISSUewas the exchange offering made by New England Electric System to the holders of Lynn Gas and Eleetrre Co. common stock which Is described at pp. 118and 136of this report . 15of these ISSUeswere small offerings made pursuant to regulation A, promulgated under the Securities

Act of 1933. 1 sale was an exchange offering by EI Paso Natural Gas Co. to the holders of common stock

of Pacifle Northwest Pipehne Corp. The other 2 were smsl1 private sales.

systems had 70.3 percent of the dollar volume of their rights offerings

underwritten. Only 14.5 percent of the common stock rights offerings

of registered systems were made without underwriting commitments.

The comparable percentage for other companies in the electric and

gas utility industries in 1957 was 29.7. In the fiscal year 1956 both

categories of companies employed underwriters to support about

90 percent of their common stock rights offerings.

Companies not associated with registered systems provided their

stockholders with the privilege of subscribing to additional shares

over those obtainable upon exercise of their primary warrants in 28.2

percent of the dollar volume of their underwritten rights offerings in

1957 and in 71.4 percent of their nonunderwritten offerings. The

oversubscription privilege was omitted by these companies in the case

of 71.8 percent of their underwritten rights offerings in that year and

in 28.6 percent of their nonunderwritten offerings.

Registered systems provided oversubscription privileges in 65.3

percent of the dollar volume of their underwritten rights offerings in

1957 and in 42.2 percent of such offerings in 1956. These companies

used the feature in all nonunderwritten offerings undertaken in both

years. The oversubscription privilege was omitted from 34.7 percent

of the underwritten rights offerings of registered systems in 1957 and

from 57.8 percent of the dollar volume of such offerings in 1956.

The following table shows the numbers of issues and aggregate

sales value of underwritten and nonunderwritten common stock rights

offerings, with and without oversubscription privileges, which were

undertaken in 1957 and 1956 by registered holding company systems

and by all other companies in the electric and gas utility industries.

_________•__________________________

•
140 SlECU'RlTIiES AND EXCHANGE) OOMMIBSiION I I . t; l;1l; . " ::: .0

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PROTECTIVE PROVISIONS OF FIRST MORTGAGE BONDS AND

PREFERRED STOCKS OF ~UBLIC UTILITY COMPANIES

During the fiscal year 1956, the Commission adopted Statements

of Policy-regarding first mortgage bonds S6 and preferred stocks S7 of

public utility companies which represent substantially a codification

of certain principles or policies prescribed for the protective provisions of these securities announced on a case-by-case basis over a

period of years, as modified in the light of experience and a reappraisal of those principles and policies and in the further light of

comments received from various interested persons who had been invited to submit their views. From April 1, 1956, when the Statements

of Policy became applicable, to June 30, 1957, applications or declarations were filed by public-utility companies under the Act with respect

to 20 first mortgage bond issues aggregating $339,500,000 principal

amount and 3 preferred stock issues with total par value of $19,500,000.

Of the 20 first mortgage bond issues, 12 issues, with a total principal

amount of $212,500,000, included provisions, as set forth in the Statement of Policy, placing additional restrictions on the distribution of

earned surplus to the common stockholders, thereby assuring the investing bondholders of a greater degree of safety of their investment

through the maintenance of an appropriate common stock equity. In

respect of the other 8 issues with a total principal amount of $127

million, no additional restrictions were required since the indentures

already conformed in this regard to the Statement of Policy. The additional restrictions on earned surplus distributions were proposed by

the companies themselves or were inserted as a result of informal discussions between the staff of the Commission and representatives of

the issuing companies.

One of the more important provisions contained inthe Statement of

Policy regarding first mortgage bonds is that relating to the renewal

and replacement fund requirement which is frequently referred to as

a minimum depreciation requirement. Essentially, it requires that

the issuer construct additions to its property, or else deposit cash or

bonds with the indenture trustee, in an amount which on a cumulative

basis will provide for the replacement in cash or property of the dollar

equivalent of the cost of the depreciable mortgaged property during

its estimated useful life. The Statement of Policy provides that the

requirement be expressed as a percent of the book cost of depreciable

property. This is subject to the qualification that if the existing indenture provision expresses the requirement on a different basis as,

for example, in terms of a percent of operating revenues, no change

will be required if the company can demonstrate that the existing pro-

.. Holding Company Act Release No. 18105 (February 16. 1956).

107 Holding Company Act Release No. 13106 (February 16. 19506).
142 SECURlTliES AND EXCHANGE' OOMMLSSION

vision provides an amount at least equal to a requirement based on the

book cost of depreciable property. .

In a number of instances the determination of an appropriate rate

of depreciation for indenture purposes occasioned differences of

opinion between the staff of the Commission and representatives of

the issuing companies. In all cases, however, after exchange of views

and data between the staff and the companies, the differences were resolved. In some cases where the issuing company agreed to insert a

provision that the requirement be expressed in terms of a percent of

depreciable property, rather than a percent of operating revenues,

an additional provision was inserted, in the interest of flexibility,

that the percent could be changed with the Commission's approval

upon application by the company. Of the 20 issues of first mortgage

bonds, the indentures of 8, having an aggregate principal amount

of $142,500,000,incorporated for the first time a percent of property

requirement. Of the remaining 12 bond issues, indentures of 8, having

a principal amount of $125,500,000, already contained a percent of

property requirement; the indentures of 3 issues, with a principal

amount of $31,500,000,did not require any modification of their existing percent of revenues provisions since such provisions were deemed

adequate; and the indenture of 1 issue, filed prior to July 1, 1956,

which was also on a percent of revenues basis, was not required to conform in this respect to this provision since the requirement did not become operative under the Statement of Policy until July 1, 1956.

Another of the provisions of both the bond and the preferred stock

Statements of Policy requires that the securities be redeemable at

the option of the issuer at any time upon reasonable notice upon the

payment of a reasonable redemption premium, if any. The purpose

of this provision is to assure that public-utility companies subject

to the Act shall be in a position, if money rates decrease materially,

to refund their bonds or preferred stock. This is deemed to be consistent with the intent of the Act, as expressed in section 1 (b) (5),

to ensure economies in the raising of capital. While the Statements

of Policy do not define what is meant by a reasonable redemption

premium, the working policy of the Commission has been that the

initial redemption price shall not exceed the sum of the initial public

offering price plus the coupon rate on the bonds or the dividend rate

on the preferred stock.

The Commission informally received a number of requests from

issuing companies to relax its requirements so as to permit bonds to

be nonrefundable for a period, after issuance, generally five years,

or to permit the initial redemption price to be higher than that provided by the working formula. No showing was made that higher

premiums on refunding would noticeably reduce the cost of financing
TWENTY-THIRD .ANNuAL REPORT 143

so as to warrant the loss of future financing flexibility. In addition,

the Commission has noted that issues subject to its jurisdiction continue to attract a healthy number of bids. Accordingly, to date the

Commission has not acceded to such requests, although it has advised

the issuing companies that it will continue to consider each case as it

comes before it in the light of all the relevant circumstances of the

case at the time and under the then existing market conditions.

Because of the wide importance of this question of redemption

prices for refunding purposes in periods of high interest rates such as

the present, the Commission authorized a member of the staff of its

Division of Corporate Regulation to serve as a member of a committee organized by the Wharton School of Finance and Commerce

of the University of Pennsylvania, which is now making a comprehensive study of redemption provisions. The study is under the

sponsorship of the Life Insurance Association of America.

The three issues of preferred stock having an aggregate par value

of $19,500,000 had charter protective provisions conforming substantially to the provisions of the Statement of Policy, except that

in one case, involving an issue of $8 million par value, the Commission,

with the consent of the issuer, conditioned its order permitting the

issue to provide, among other things, for limitations on unsecured

indebtedness, limitations on the acquisition of its outstanding preferred stock which may become in arrears and limitations on the issuances of any prior preferred stock.

RULES, FORMS AND STATEMENT OF POllCY

Proposal to Amend Rule 9

On March 14, 1957,the Commission issued notice of a proposal made

by its Division of Corporate Regulation to rescind rule 9 providing for the exemption of any holding company system whose net

utility assets did not exceed $1 million at December 31, 1946. Eleven

comments were received, all favoring retention of the present rule

or some modification thereof. The Commission had the matter under

advisement at the end of the fiscal year.

Amendments of Rule 70

Section 17 (C) of the .Act prohibits any registered holding company

or subsidiary thereof from having as an officeror director any "executive officer, partner, appointee or representative of any bank, trust

company, investment banker, or banking association or firm" except

as permitted by rules and regulations of the Commission "as not adversely affecting the public interest or the interest of investors or

consumers." Rule 70 defines those persons to whom the Commission has granted exemptions from the prohibitions of section 17 (C).
144 SECURITIES AND EXCHANGE COMMlSf3[ON

After receiving comments on a proposed amendment, the Commission

on April 23, 1957, adopted an amendment to rule 70 to permit' a

person whose only financial connection is that of a director of a commercial bank, as defined in the rule, to be a director, but not an officer,

of a registered holding company which has no public-utility subsidiaries within the United States and either is in the process of converting into an investment company in compliance with a final order

under section 11 of the Act, or is subject to an order entered under

section 11 (b) (1) of the Act which has become final requiring it to

divest itself of all its interests, direct or indirect, in any public utility

company."

Proposed Statement on Capitalization Ratios

During the fiscal year 1957, the Division of Corporate Regulation

of the Commission commenced a study of capitalization ratios for

registered holding companies and their subsidiary operating companies subject to the Act. The purpose is to determine the advisability of recommending that the Commission issue for comment a

proposed Statement of Policy regarding capitalization ratios. The

Division considers that such a Statement of Policy may be a desirable

means of informing issuers subject to the Act and investors and consumers of the standards respecting capitalization ratios which the

Commission would generally apply in deciding whether to impose

terms and conditions in granting applications under section 6 (b)

or to make adverse findings in respect of declarations under section

7 (d) of the Act.

To obtain the benefit of the views and comments of as large a number of interested and informed persons as possible, the Division sent

a questionnaire on September 5, 1956, to Federal and State regulatory

agencies, utility companies, insurance companies, investment companies, banks, underwriters, text book writers, educators in finance,

security analysts, and other interested persons. Copies were also

mailed to a large number of persons on the Commission's general

mailing lists inviting them to submit their views and comments,"

Over 200 public replies, plus an additional number of replies which

the writers requested not be made public, have been received and are

being carefully considered by the staff. Upon completion of its

study of the replies, it is expected that the Division will submit a report to the Commission regarding the advisability of promulgating

for comment a proposed Statement of Policy .

.. Holding Company Act Release No. 13404 .

.. Holding Company Act Release No. 13255 (September 5, 1956).
PART VII

PARTICIPATION OF THE COMMISSION IN CORPORATE

REORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCY ACT, AS AMENDED

Chapter X of the Bankruptcy Act provides a procedure for reorganizing corporations in the United States District Courts. The

Commission's duties under Chapter X are, at the request of the judge

of the court, or on the Commission's own motion if approved by the

judge, to act as a participant in the proceedings in order to provide

independent expert assistance to the court and investors on matters

arising in such proceedings, and, where the Commission considers it

appropriate, to file advisory reports on reorganization plans.

Section 172 of Chapter X provides that if the scheduled indebtedness of a debtor corporation does not exceed $3 million, the judge may,

before approving any plan of reorganization, submit such plan to

the Commission for its examination and report. However, if the

indebtedness exceeds $3 million, the judge must submit the plan

to the Commission before he may approve it. The Commission is not

obligated to report on a plan, and it has no authority to veto or require the adoption of a plan of reorganization. If the Commission

does file an advisory report, copies of it, or a summary thereof, must

be sent to all security holders and creditors when they are asked to

vote on the plan.

Because the Commission's advisory reports on plans of reorganization are usually widely distributed, this aspect of the Commission's

work under Chapter X stands out most prominently in the minds of

the public. However, these reports by no means represent the major

part of the Commission's activities in cases in which it participates.

As a party to a Chapter X proceeding, the Commission is actively

interested in the solution of every major issue arising therein from the

time it becomes a participant to the close of the proceeding. The

Commission has found that adequate performance of its duties as

a party require that it undertake in most cases intensive legal and

financial studies. Even in cases where the plans are not submitted to

the Commission for advisory report or where the Commission decides

that it will not .file a formal written advisory report, it is necessary

that the Commission consider and discuss various reorganization proposals of interested parties while plans are being formulated, and

447579--58----11 145
146 SECURITIES AND EXCHANGE' OO'MMIS&ON

be prepared to comment fully upon all proposed plans at the hearings

on their approval or confirmation.

In the exercise of its functions under Chapter X the Commission

has endeavored to assist the courts in achieving equitable, financially

sound, expeditious, and economical readjustments of the affairs of

corporations in financial distress. To aid in attaining these objectives the Commission has stationed qualified staffs of lawyers,

accountants, and financial analysts in its New York, Chicago, and

San Francisco Regional Offices and has assigned them to the performance of the Commission's duties under Chapter X. The

presence of these staffs in the field helps them to keep in close touch

with all hearings and issues in the proceedings and with the parties,

and makes them more readily available to the courts, thus facilitating

the work of the courts and the Commission. Supervision and review

of the Regional Offices' Chapter X work is the responsibility of the

Division of Corporate Regulation.

The role of the Commission under Chapter X differs from that

under the various statutes which it administers in that the Commission does not initiate the proceedings, hold its own hearings, or adopt

rules and regulations, but acts as an aid and adviser to the court,

paying especial attention to the interests of public security holders,

who may not otherwise be effectively represented. It has no authority to determine any of the issues in a proceeding. The facilities of

its technical staff and its disinterested recommendations are simply

placed at the service of the judge and the parties, affording them

the views of experts in a highly complex area of corporate law and

finance.

SUMMARY OF ACTIVITIES

During the past fiscal year, the Commission actively participated

in 37 reorganization proceedings involving 57 companies (37 principal debtor corporations and 20 subsidiary debtors}.' The proceedings were scattered among district courts in 15 States, and involved

the rehabilitation of companies engaged in such varied businesses,

among others, as steel manufacture, oil and gas production, railroad

operations, small loans, a luxury hotel and gambling casino, and

telephone and electric utility operations. The stated assets of these

57 companies totaled approximately $485,295,000and their indebtedness totaled approximately $468,522,000. During the year the Commission, either at the court's request or upon its own motion, filed

a notice of appearance in 8 new proceedings and 8 other proceedings

were closed. At the end of the fiscal year the Commission was

actively participating in 29 reorganization proceedings.

1The appendix contains a complete list of reorganization proceedings in which the

Commission participated as a party during the fiscal year ended June 30, 1957.
TWENTY -THIRD A..~AL REPORT 147

THE COMMISSION AS A PARTY TO PROCEEDINGS

The Commission has not considered it appropriate or necessary that

it move to participate in every Chapter X case. Apart from the fact

that, with approximately 75 cases instituted during the fiscal year

1957, the administrative burden of participating in every case would

be unsurmountable with our present staff, many of the cases involve

only trade or bank creditors and a few stockholders. As a general

matter the Commission has sought to participate principally in those

proceedings in which a substantial public investor interest is involved.

This is not the only criterion, however, and in some cases involving

only limited public investor interest, the Commission has participated

because an unfair plan had been or was about to be proposed, the public security holders were not adequately represented, the reorganization proceedings were being conducted in violation of important provisions of the Act, or where other facts indicated that the Commission

could perform a useful service by participating. The Commission

also has appeared in some of these cases in response to a request by the

judge.

PROBLEMS REGARDING PROTECTIVE COMMITTEES

On July 19, 1956, an involuntary petition under Chapter X was

filed by certain creditors in the United States District Court for the

District of Nevada against Stardust, Lnc., a Nevada corporation organized for the purpose of erecting and operating a luxury hotel and

gambling casino in Las Vegas, Nev. Due to lack of funds, the proposed establishment had not been completed. Subsequent to the filing

of the petition, the debtor filed an answer denying certain of the allegations of the petition, alleging that the petitioning creditors were in

fact stockholders who are not authorized by Chapter X to file an

involuntary petition and praying that the petition be dismissed. Subsequently, two new groups of creditors moved to intervene and join in

the petition. A stockholders' protective committee was formed, the

chairman of which was formerly the vice president and treasurer, and

also a director of Stardust. From an investigation conducted by the

Commission's staff it appeared that this individual might be liable to

the debtor's estate for misappropriation of funds or for mismanagement. It also appeared that another member of the committee had a

record of numerous criminal convictions.

While Chapter X recognizes the right of the shareholders to be

represented by committees, such committees are subject to control by

the district court. A committee has fiduciary responsibilities and

from the nature of the services to be performed, "the fullest measure

of aid and protection to the investor demands a conscientious representation of his interests by persons who are responsive to his needs,
148 SECURlT1iES AKD EXCHANGE' OOMMISSiION

appreciative of his rights, and single in their loyalty to his interests." 2

The Commission has always contended that committees subject to a

conflict of interest are disqualified from acting in Chapter X proceedings. The circumstances of the stockholders' committee in the Stardust case impelled the Commission to move to appear immediately,

without awaiting the court's approval of the involuntary petition.

The Commission filed its appearance with the court's approval, took

part in the hearings on the involuntary petition and advised the court

to approve the petition. The court acted favorably on the Commission's recommendation. Subsequently, the Commission petitioned the

court for a temporary restraining order and a permanent injunction

against the committee to restrain it from utilizing authorizations and

funds it had received from stockholders, further solicitation of stockholder support, and otherwise acting in a representative capacity.

The court granted the relief requested by the Commission.

PROBLEMS IN CONNECTION WITH THE ADMINISTRATION OF ESTATES

Itis the view of the Commission that the primary aim of a Chapter X proceeding is promptly and expeditiously to effect a fair and

equitable and feasible plan of reorganization and that, normally, rehabilitation of the debtor's physical properties should either be provided for in the plan of reorganization or be deferred for consideration by the management of the reorganized company. However, in

special circumstances the Commission has taken the position that it

is within the permissible bounds of discretion for the district court to

allow a portion of the debtor's property to be replaced in the course

of a Chapter X proceeding.

Such a situation arose during the fiscal year in .the proceeding for

reorganization of the Hudson &: Manhattan Railroad Oompany. Part

of the business of the debtor is the joint operation of rapid transit

service with the Pennsylvania Railroad Co. between New York City

and Newark, N. J. In that case, the United States District Court for

the Southern District of New York authorized the trustee to purchase

20 new railroad cars to be used in this joint service. Certain senior

bondholders appealed to the United States Court of Appeals for the

Second Circuit. In its argument on the appeal, the Commission

supported the district court's order which stressed that the authorization for the purchase of new cars was not "to rehabilitate and refurbish and make handsome this estate" but was "on the basis of safety

of the public." 3 The court of appeals was in accord with this posi2 S. E. C. Report on the Study and Investigation of the Work, Activities, Personnel,

and Functions of Protective and Reorganization Comnrlttees, Part VIII, 163 (1940) .

In the Matter Of Hud80n cE Manhattan Railroad Oompany (S. D. N. Y. No. 90(60)

Order No. 136 (1956).

•
TWENTY -THIRD ANNUAL REPORT 149

tion and held that there was no abuse of discretion in view of the

district court's findingsthat the debtor's cars were in hazardous condition, and the only alternative to the purchase of new cars were

"temporary or total abandonment of the joint run," which "would

be evenmore detrimental to the estate than the expenditure." 4

PROCEDURAL MATIERS

Procedural problems are often encountered in Chapter X proceedings, and the Commission,when a party, has been diligent to

urge upon the court the procedural safeguards to which all parties

are entitled. The Commissionalso attempts in its interpretation of

the statutory requirementsto encourage uniformity in the construction of Chapter X and the proceduresthereunder.

The proceedingsfor the reorganization of the Third A venue Transit Corporation and its subsidiaries in the United States District

Court for the Southern District of New York, described at pages

175-176of the 22nd .Annual Report, raised a procedural issue regarding adequacy of notice. On November 6, 1952,the trustee of

the debtor filed. a plan for reorganization and on that date an order

was entered fixing a hearing on the plan, on objections and amendments thereto and on other plan proposals. Copies of the plan and

notice of the hearing were sent by mail to all known creditors and

stockholders. From the date of the commencementof the hearing,

early in 1953,and until ultimate approval of a final plan in July

1956,the hearing proceeded from time to time with intermediate

adjournments. During the sequenceof hearings, evidencewas presented, numerous plan proposals were advanced by creditors and

stockholders, and, pursuant to orders of the district court, this

Commission and the New York State Public Service Commission

reported upon the various plans for reorganization. After the court

approved and confirmed a final plan an individual, who was both

a stockholder and a creditor of the debtor, appealed from the district

court's orders to the United States Court of Appeals for the Second

Circuit on the ground that adequate notice had not been given to

security holders.

The Commissiontook the position that the district court's action

was proper because,not only was notice given of the initial plan, but

also after the filing by the trustee of an amended plan, notice was

mailed to all known creditors and stockholdersof record informing

them of the continuance of the plan hearings and summarizing the

contents of the trustee's amended plan. Further notice of the plan

hearings was given in December,1955. Moreover,after the district

4 Hardmg v. 8tlchman, 240 F. 2d 289 (c. A. 2, 1951).
150 SECURlTIIES AND EXCHANGE OOMMrssa:ON

court had approved the amended plan in July 1956,notice of the hearing to consider confirmation of the plan, or such objections thereto

as might be made, was sent to the creditors and stockholders pursuant

to section 179 of the Act. The court of appeals in sustaining the

action of the lower court said:

It is not disputed that there was notice of the commencement of hearings

following submission of the original plan by the trustee, as well as additional

notices preceding approval of the plan. Appellant's position seems to be that

further notice is required by the Act. We find no sucb requirement. On the

contrary, if separate notice were required as a condttk.a precedent to the consideration of every amendment or modification or to resumption of the hearings

following a recess, it is plain that any party so minded could delay the proceeding indefinitely and cause needless and prohibitive expense."

Shortly after the petition :for its reorganization was approved,

an important procedural issue arose in the proceedings for the reorganization of General Stores Oorporation, pending in the United

States District Court for the Southern District of New York and

described at pages 178-179 of the 22nd Annual Report. The order

approving the petition for reorganization specifically enjoined any

act or other proceeding against the debtor's property. A trustee under a Collateral Trust Agreement, representing the entire class of the

debtor's secured creditors, moved the district court to vacate the injunction in order to allow him to sell the securities pledged by the

debtor under tbe trust agreement. The securities were the debtor's

sole income-producing asset. The Commission, which is participating in the case, submitted a memorandum and argued in opposition

to the motion pointing out that when a Chapter X petition has been

approved by the court, such approval constitutes a finding that the

filing was in good faith, one element of which is that it is not unreasonable to expect that a plan of reorganization can be effected. In

this connection, the Commission noted that the trustee for the secured creditors did not object to the good faith of the petition. Moreover, the Commission stressed the fact that the trustee had not yet

prepared a report of investigation of the property, liabilities, and

financial condition of the debtor as required by section 167. This

report is submitted to creditors and stockholders in order that they

can reach an informed judgment as to the possibilities of reorganization and submit suggestions to the trustee for a plan of reorganization. The Commission argued that vacating the injunction would

completely frustrate the reorganization proceeding to the detriment of

the other creditors and stockholders. The district court denied the

secured creditors' motion on the grounds that, without the trustee's

section 167 report, the court was in no position to reach an informed

WooZf.on v. Doyle, 238 F. 2d 665, 668 (C. A. 2, 1956). cert. denIed, 352 U. S. 1031

(1957).

•
TWENTY-THIRD ANNUAL REroRT 151

decision as to whether the debtor couId be reorganized, that the

trustee was to file his report shortly, and that no radical change of

circumstances had occurred since the approval of the Chapter X

petition,"

ACTIVITIES WITH REGARD TO ALLOWANCES

Every reorganization case ultimately presents the difficult problem

of determining the allowances of compensation to be paid out of the

debtor's estate to the various parties for services rendered and expenses incurred in the proceeding. Since section 242 of the Act provides that the Commission may not receive any allowances from the

estate for the services it renders, the Commission is able to aid the

court with a wholly disinterested view on the question. It has sought

to assist the courts in protecting reorganized companies from excessive charges and at the same time equitably allocating compensation on the basis of the claimants' contribution to the administration

of the estate and the formulation of a plan.

During the fiscal year 1957 an appeal was taken to the United

States Court of Appeals for the Second Circuit by counsel for a bondholders' committee from an order entered by the United States District Court for the Southern District of New York granting final

allowances in the reorganization of Siieeian-Americaai Corporation.

The appellants challenged fees awarded to them and to the trustee

and his counsel. The Commission supported the appellants and contended that the over-all fees awarded were high in view of the size

of the estate and the results accomplished in the reorganization. The

court of appeals remanded the case to the district court with instruction that it should "incorporate the allowances recommended by the

S. E. C." 1 The court of appeals agreed with the Commission that

the district judge was incorrect in holding that successful opposition

to a plan "could serve as a basis for allowance only if it led to the

realization of substantially increased assets to justify the delay of

some years in the distribution of the estate." s The Commission was

sustained in its contention that denial of reasonable compensation for

services contributing to the defeat of an unfair plan is erroneous and

that section 243 of Chapter X was specifically designed to encourage

voluntary efforts beneficial to the estate in the sense of eliminating

from plans of reorganization unfair and inequitable provisions.

In the recent proceedings for the reorganization of Teeas Oity

Ohemicale, Inc. in the United States District Court for the Southern

In the Matter ot General Stores Corporation (S. D. N. Y. No. 90954, January 2, 1957).

Scribner cE MlZZer v. Conway, 238 F. 2d 905, 907 (C. A. 2 1956). The court stated

"that the recommendation for allowances of the SEC, made by this responsible and disinterested publlc agency after close famUlarlty with the entire proceedings and careful

study and report, should be followed unless the reorganization ~udg'e showed reasons

otherwise based on speclflc flndlngs,"

811114.

•

•
152 SlECURITJ.lES AND EXCHANGE COMMISSION

District of Texas, Galveston Division, an application requesting an

allowance for services and reimbursement of expenses was filed by a

firm which had been the principal underwriter of debentures issued

by Texas City in 1952. The application was based on the contention

that the firm had acted in the proceeding in the nature of a committee

representing debenture holders. The Commission advised the court

that the firm's application should be denied in its entirety because,

while acting in such a representative capacity, some members of the

firm had traded in the securities of the debtor during the course of

the reorganization proceeding and the firm was, therefore, barred

from receiving an allowance by the provisions of section 249 of

Chapter X, which prohibits the payment of compensation under such

circumstances. The court agreed with the Commission and denied

the firm's application."

During the past year an issue was decided involving requested allowances in the Oentral States Electric Oorporation reorganization in

the United States District Court for the Eastern District of Virginia 10 which is described at page 177 of the 22nd Annual Report.

The United States Court of Appeals for the Fourth Circuit affirmed

an order of the district court which denied an allowance to attorneys

for certain former directors of the debtor who, by reason of the bar

of the New York statute of limitations, had successfully defended

themselves in an action brought against them by the debtor's trustees

in the United States District Court for the Southern District of New

York. The attorneys took an assignment from the defendants of

their claims for expenses and applied for allowance thereof from the

debtor's estate. The court of appeals refused to apply a New York

statutory provision authorizing the award of expenses to corporate

officials who have successfully defended an action against them in

their official capacity, pointing out that the only reason the action was

brought in New York by the trustees was "due to the accidental fact

that the defendants could be personally served there." U The court

went on to state: "The Bankruptcy Act is intended to be uniform

throughout the States except to the extent that its own provisions

are to the contrary * * *. We think it contrary to the manifest

policy of Chapter X to subject and hamper its provisions by a State

statute." 12 The Commission contended that application of the New

York statute would hamper trustees prosecuting causes of action and

would be contrary to one of the purposes of Chapter X which is to

In the Matter of TeflllJ8 OUy OhemfcalB, Inc. (No. 1991 S. D. Tex. Gal. Div. June 26.

1951).

"'In the Matter of Oentral States Electric Oorporatfon, ClvU Action No. 16-620.

U LeBoeu! v. Austrian, 240 F. 2d 546 (C. A. 4, 1951), cert. denied. 353 U. S. 965 (1951).

11 Ibid., p. 551.

•
TWENTY -THIRD ANNUAL REPORT 153

keep the costs of reorganization to a minimum. The holding of the

court of appeals was in accord with the views expressed by the

Commission.

ADVISORY REPORTS ON PLANS OF REORGANIZATION

An advisory report of the Commission provides the district court

with an expert independent appraisal of a plan indicating the extent

to which, in the opinion of the Commission, the plan meets or fails

to meet the standards of fairness and feasibility. After the report is

filed the judge considers whether the plan should be approved or disapproved. If the judge approves the plan, it goes to the affected

security holders for acceptance or rejection accompanied by a copy of

the judge's opinion and a copy of the report of the Commission or a

summary thereof.

During the past fiscal year the Commission submitted advisory reports in two proceedings. A brief summary of these cases follows:

Oolumbus Venetian Stevens Buildings, Ino.-The debtor owned

and operated three commercial buildings in Chicago, Ill. The plan

of reorganization proposed by the trustees provided for the sale of the

principal assets of the company at public auction for not less than a

specified up-set price. The Commission's report concluded that the

trustees' plan would not be fair and equitable unless it were amended

to eliminate certain limitations and conditions proposed in connection

with the bidding procedure which the Commission felt might discourage potential bidders for the debtor's properties. In addition,

since the trustees had been paying a commitment fee for a standby

loan previously obtained by one of the debtor's bondholders for the

latter's sole benefit, the Commission recommended that the plan also

be amended to provide that a successful bidder who made use of the

loan commitment should reimburse the estate for the commitment fee

paid by the trustees.

Subsequent to the filing of the advisory report, the trustees filed

amendments to the plan of reorganization substantially in accord with

the Commission's views, and in a supplemental advisory report the

Commission reported to the court that the plan as amended was fair

and equitable.

GreenRiver Steel Oorp.-The debtor manufactured and sold semifinished steel products with its plant located in Owensboro, Ky. Itwas

organized in 1950 and started operations in 1953 but construction had

not been completed. In early 1954 when the plant was ready to produce at something approaching its rated capacity, a slackening of the

demand for steel took place and the debtor lacked adequate working

capital. With a first mortgage note falling due on January 1, 195-7,

the management of the debtor determined that the earnings and the

financial position of the company would not improve sufficiently by
154 SECURITJ1E8 AND EXCHANGE' COMMISSION

that date to make possible a refinancing. Accordingly, the debtor

filed a voluntary petition under Chapter X in September 1956.

The plan of reorganization proposed by the trustee of the debtor

was based on an offer by Jessop Steel Co., which manufactures highly

specialized alloy steels, to acquire all the common stock of the debtor

in exchange for shares of its common stock. The plan provided that

(a) the holders of Green River's first and second mortgage notes would

receive a new first mortgage note of the same principal amount, (b)

Jessop would lend Green River $1,500,000 of new money, (c) the

debenture holders would receive new income debentures in the same

principal amount as their existing holders, and (d) the common stockholders would receive 1 share of common stock of Jessop for each

10Green River shares held.

The Commission found that the plan was not feasible. Itexpressed

the view that a fair valuation of the interprise based on future earning capacity was approximately $13,100,000. On the basis of this

valuation, as augmented by the new capital to be provided by Jessop,

the Commission advised the court the long-term debt proposed in the

plan amounting to at least $14,056,126,or 96.3 percent, was excessive.

In addition, the Commission reported that the new debentures would

be illusory to subsequent purchasers since the interest thereon was

noncumulative, they were non-interest-bearing for 2 years, and thereafter interest was payable only if earned. The Commission suggested

that the terms of the debentures be strengthened to make the interest

cumulative and to provide for interest from the date of issuance.

As to fairness, the Commission concluded that the debenture holders

under the plan would not receive the equitable equivalent of their

claims. The Commission pointed out that the just expectation of the

debenture holders was to be made whole to the full extent of their

claims before the common stock got anything and that the plan would

violate the absolute priority rule established by the Oonsolidated Rock

Products 00. v. DuBow, 312 U. S. 510 (1941), and other cases. The

Commission advised that fairness required that the debenture holders

receive a substantial portion of the Jessop common stock, all of which,

under the plan, was proposed to be distributed to the common stockholders of Green River.

At a hearing before the court upon the issue of approval of the

trustee's plan and consideration of the Commission's advisory report,

committees and the persons representing debenture holders and common stockholders of Green River urged the court to approve the plan

which the Commission had found to be neither feasible nor fair and

equitable. The court suggested, however, that Jessop modify its

offer to meet certain of the Commission's objections and Jessop

amended its offer and the trustee amended his plan accordingly. Ina

supplemental advisory report the Commission concluded that the
TWENTY-TmRD ANNUAL REPORT 155

amended plan was a substantial improvement over the trustee's original plan with respeot to the treatment to be accorded the debenture

holders and the terms of the new debentures. However, the Commission again concluded it was unable to advise the court that the

amended plan was fair or feasible since the debenture holders were

still not being compensated fully for their claims and the amended

plan failed to rectify the inordinately high debt ratio proposed

for the reorganized company. The court approved the amended

plan of reorganization and subsequently the security holders voted to

accept it.

In the reorganization proceedings involving Inland Gas Oorporation, KenfJu<JkyFuel Gas Oorporation and American Fuel & Power

Oompany, which are described at page 91 of the 21st .Annual Report

and at pages 1'l4--1'l5 of the 22nd .Annual Report, there was no occasion

for the Commission to file further supplemental advisory reports in

the past fiscal year. However certain of the issues commented on in

advisory reports submitted at earlier stages of the proceedings and

which were pending in the United States Court of Appeals for the

Sixth Circuit were decided in the fiscal year 1957. The court, one

judge dissenting, affirmed the district court's order denying public

holders ~f unsecured debt securities post-reorganization interest."

Several petitions for certiorari were denied by the United States

Supreme Court:'

COMMISSION ACfIVITlES UNDER CHAPTER XI

Section 328 of Chapter XI of the Bankruptcy Act provides that

the Commission may apply to the district court for dismissal of a

Chapter XI proceeding when it believes the case properly belongs

under Chapter X. The question of whether Chapter X, with its

broader powers to deal with all corporate problems and its provisions

for adequate safeguards for security holders' interests, or Chapter

XI, which can only treat with unsecured creditors, is the appropriate statutory proceeding for the financial rehabilitation of a

corporation is one which has arisen with increasing frequency in

recent years. The United States Supreme Court in the recent

General Stores Oorporation case did not lay down absolute criteria,

but stated that "the needs to be served" by the reorganization was

the determinative factor." The area of uncertainty as to the appropriate remedy for a corporation with public security holders was

U In re Inland GaB Oorp., Kentucky Fuel GaB Oorp., American Fuel 4 Power 00., 241

F. 2d 374 (C. A. 6, 1957).

u. Allen v. WilU4tn8on, VanBton BondholderB Protective Oorntnittee v, Oolumbia GaB

HI/Btem, Ine., OommltteeB, etc. v. Oolumbia GaB HI/Btem, Inc., Kern v, WilliamBon,

U. S. (October 14,1957).

U General store« Oorporatlon v. HhlenBky, et oi., 350 U. S.462 (1956).

-

-
156 SECURITIES AND EXCHANGE! COMMISSION

reduced in the past year by the decision of the United States Court

of Appeals for the Second Circuit in S. E. O. v. Liberty BaJcing

oorporationr»

Liberty Baking Corp. filed a petition for an arrangement with

its unsecured creditors under Chapter XI in the United States

District Court for the Southern District of New York. Of Liberty's

outstanding debt securities, 65 percent amounting to $1,031,820,was

in the hands of public investors and the entire issue of outstanding

preferred stock and 20 percent of Liberty's common stock were also

publicly held. The proposed arrangement provided that the debtor's

public debenture holders would receive new preferred stock with a

liquidation value of $50 for each $60 of face value of debentures

held. The preferred stock was to be entitled to dividends but was

noncumulative until after the :fifth year following confirmation and

there were certain other conditions which affected the payment of

dividends on the new preferred stock. For the :first 8 years, regardless of the outcome of the reorganization, it would be almost impossible for the old debenture holders as new preferred stockholders

to have any more than a minority of the total votes necessary to

control Liberty.

A motion by the. Commission to dismiss the proceeding was denied

by the district court and the Commission appealed. The Commission

contended in the court of appeals that Chapter XI was not available

because the plan of arrangement did not accord public debenture holders fair and equitable treatment since those security holders were not

fully compensated while stockholders were accorded participation

under the plan. The court of appeals agreed with the position urged

by the Commission and reversed the district court's holding that the

debtor might utilize Chapter XI. The higher court found that the

proposed arrangement involved serious questions as to its fairness and

thus "a grave question existed whether the plan would deprive creditors of their 'absolute priority' right as against stockholders." 17 Moreover, the facts, if explored, "might well lead to a determination by the

publicly held debentures that a change of management is essential." 18

It now appears clear, according to the Court of Appeals for the Second Circuit, that a debtor with publicly held debt securities cannot

utilize Chapter XI rather than Chapter X to avoid the requirement of fair and equitable treatment for such security holders where

Chapter XI would otherwise fail to meet important needs.

.. 240 F. 2d 511 (c. A.. 2, 1957), cert. denied, 853 U. S. 930 (1957).

17 rue; p. 515.

18 Ibid.
PART vrn

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939

The Trust Indenture Act of 1939 requires that bonds, notes, debentures, and similar securities publicly offered for sale, except as

specifically exempted by the Act, be issued under an indenture which

meets the requirements of the Act and has been duly qualified with

the Commission. The Act requires that indentures to be qualified

include specified provisions which provide means by which the rights

of holders of securities issued under such indentures may be protected

and enforced. These provisions relate to designated standards of

eligibility and qualification of the corporate trustee to provide reasonable financial responsibility and to minimize conflicting interests.

The Act outlaws exculpatory provisions formerly used to eliminate all

liability of the indenture trustee and imposes on the trustee, after

default, the duty to use the same degree of care and skill "in the

exercise of the rights and powers invested in it by the indenture" as

a prudent man would use in the conduct of his own affairs.

The provisions of the Trust Indenture Act are closely integrated

with the requirements of the Securities Act. Registration pursuant

to the Securities Act of securities to be issued under a trust indenture

subject to the Trust Indenture Act is not permitted to become effective

unless the indenture conforms to the requirements of the latter Act,

and necessary information as to the trustee and the indenture must

be contained in the registration statement. In the case of securities

issued in exchange for other securities of the same issuer and securities

issued under a plan approved by a court or other proper authority

which, although exempted from the registration requirements of the

Securities Act, are not exempted from the requirements of the Trust

Indenture Act, the obligor must file an application for the qualification of the indenture, including a statement of the required information concerning the eligibility and qualification of the trustee.

Number of indentures filed under the Trust Indenture Act of 1939

[Fiscal year ended June 30. 1957]

Number of Aggregate dol. indentures Iar amount

Indentures pending June 30,1956_ •••••••.• _._._ •.•••••• .. 20 $654, 149, 300 Indentures ftloo during the year. ----------------------- - 244 5, 465, 991, 400

Total •. . _. -. -. --. •. --. ---.- --._ .•• 264 6, 120, 140, 700 Disposition during the year: Indentures qnall1led . _. . _. .• •. 237 5,507,237,500 Indentures wlthdra Wll_ _. ,. ._ 10 226, 483, 200 Indentures pending June 30, 1957 ._ _. 17 386, 420,000

Total. ._._ """_""_ 264 6, 120, 140, 700

157

••• _ _••• __________ _ __________•• ___• __•

•• _ __ ____________ - - _- -- _______- - -----

____ _____________• _________•• __• ___ _____- _ _ •• __ • __ • _________________________ • _ •• __ •• ___

•• __ •• _____• _______• ___• ________•• __

___•• _••••• ___••••••• _•• ____• __- ___--- -- -- •••••••
PART IX

ADMINISTRATION OF THE INVESTMENT COMPANY ACT OF

1940

The Investment Company Act of 1940provides for the registration

and regulation of companies engaged primarily in the business of investing, reinvesting, holding and trading in securities. The Act requires, among other things, disclosure of the finances and investment

policies of these companies, prohibits such companies from changing

the nature of their business or their investment policies without the

approval of their stockholders, regulates the means of custody of the

companies' assets, prohibits underwriters, investment bankers and

brokers from constituting more than a minority of the directors of

such companies, requires management contracts to be submitted to

security holders for their approval, prohibits transactions between

such companies and their officers, directors and affiliates except with

the approval of the Commission and regulates the issuance of senior

securities. The Act requires face-amount certificate companies to

maintain reserves adequate to meet maturity payments upon their

certificates.

COMPANIES REGISTERED UNDER THE ACT

As of June 30, 1957,there were 432 investment companies registered

under the Act, and it is estimated that on that date the aggregate

estimated market value of their assets was $15 billion. This represents an increase of approximately $1 billion over the corresponding

total at June 30,1956. These companies were classified as follows:

~anageDlent open-end________________________________________ 222

~anageDlent closed-end_______________________________________ 110

lJnit 87

Face RDlount_________________________________________________ 13

~otal 432

TYPES OF NEW INVESTMENT COMPANIES REGISTERED

During 1957, 49 new companies registered under the Act while

the registration of 16 was terminated. These companies were classified as follows:

Registered Registration during the terminated fiscal year during the fiscal year

Management open-end ________________________________________ 26 5

Management closed-end . _______________ 14 10 Umt 8 0

Face amount - -- 1 1

TotaL 49 16

158

-_____________ _________________ ------ ------- ------ ____________________________ ----- ----- -- -- ------------ --- ------ ---------- _____________________________ ---______ ---- ---- ---------- --- -

______________________________ -_________---- -_______----- ___-- ---
TWENTY-THIRD ANNUAL REPORT 159

Of the 49 new registrations, one was deregistered during the year

and two shortly thereafter. At the close of the fiscal year 10 of the

new registrants which had filed notifications of registration had not

yet filed complete registration statements. All but one of the unit

investment companies registered proposed the sale of shares of openend funds.

GROWTH OF INVESTMENT COMPANY ASSETS

The striking growth of investment company assets during the past

16 years, particularly in the most recent years, is shown in the followingtable:

Number of investment companies registered under the Investment Oompany

Act of 1940 and the estimated aggregate assets at the end ot each fi.~cal year

1941 through 1957

Number of companies Estimated

aggregate

market value

Fiscal year ended June 30 Registered Registered Registra- Registered of assets at at begin. during tion terml- at end of end of year nlng of year nated dur- year (in millions)

year ing year

1941 . ._ 0 450 14 436 $2,500 1942_______ . ___________________________ 436 17 46 407 2,400 1943 . 407 14 31 390 2,300 1944 . ._ 390 8 27 371 2,200 1945. _•. ________________. ______________ 371 14 19 366 3,250 1946_ 366 13 18 361 3,750 1947. _. ________________________________ 361 12 21 352 3,600 1948_' _. 352 18 11 359 3,825 1949 ••.• 359 12 13 358 3,700 1950_. 358 26 18 366 .. 700 1951 366 12 10 368 5,600 1952 _. 368 13 14 367 6,800 1953 _. _. _. 367 17 15 369 7,000 1954 369 20 5 384 8,700 1955 ._ 384 37 34 387 12,000 1956 387 46 34 399 14, 000 1957 399 49 16 432 , 15,000

TotaL._. _._. ._. ------------ 778 346 ------------ ----------------

STUDY OF SIZE OF INVESTMENT COMPANIES AND INSPECTION

PROGRAM

Pursuant to the direction contained in section 14 (b) of the Investment Company Act, the Commission has instituted an inquiry into the

problems created by the growth in size of investment companies to ascertain whether additional legislative protection is needed for investors and the general public. Among the particular objectives are

studies of the effects of the size of investment companies on the securities markets, the markets for capital goods, and the management

policies of these companies.

A preliminary report outlining all areas of possible exploration and

the ways and means of carrying out such a program has been presented to the Commission. The Commission is currently giving consideration to the areas to be explored and to the most economical

____________ _______________ ••• __

••• _______ ____• _____•• _______••• __ __• ____ _________________________

•• ________________________________

______________________________•

_ ___________• _____• __" _____• __ ______• _______________________•••

•• __• ______________________•••• ____

••• _________• __• __• ______________

••••• __•• ___________• _____• __ __• _______________• ________________

••• ____• __••• ___•• ______• ____• ___ _____•• __• ______________• ___• __• __•

_•• _______• ___• __•• _________• ___• __

_••••• _••• _______
160 SECU'RITI'ES AND EXCHANGE OOMMJSSION

means of undertaking the procurement and compilation of the information necessary to complete the study.

As a result of an investigation of the accounts of one investment

company in 1956, some irregularities were disclosed which, together

with the rapid expansion of the industry, pointed to the necessity for

establishing a regular program of inspections. This work was initiated in the fiscal year 1957. One case was observed where the company did not record the date of receipt of redemption requests, So

that it could not be determined whether the company had complied

with the requirement of section 22 (e) of the Investment Company

Act that investors receive the net asset value of shares within 7 days

after tender of such security to the company for redemption. The

company on a number of occasions held up requests for redemption

for a short time where it appeared that such action would result in a

better price being received by the holder, overlooking the fact that

such action could adversely affect the rights of shareholders remaining in the enterprise. Because of urgent needs for man-power for

other functions under the Investment Company Act, it has not been

possible to make as many inspections as the Commission thinks desirable, and only six inspections were completed during the fiscal year

1957. This program will be continued to the extent that other workload and appropriations permit.

CURRENT INFORMATION

The basic information disclosed in notifications of registration and

in registration statements is required by rules promulgated under the

statute to be kept up-to-date, except in the case of certain inactive

unit trusts and face-amount companies. During the 1957 fiscal year

the following current reports and documents were filed:

~nnualreports_______________________________________________ 280

Quarterly reports____________________________________________ 172

Periodic reports to stockholders (containing financial stateDlents)_____________________________________________________ 734

Copies of sales literature 2,164

APPUCATIONS AND PROCEEDINGS

Under the Investment Company Act various types of transactions

are prohibited unless specified statutory standards are satisfied. One

of the principal functions of the Commission in its regulation of investment companies is to determine whether applications for exemption filed under various provisions of the Act may be granted pursuant

to these standards. Under section 6 (c) of the Act, the Commission

is empowered by order, either upon its own motion or upon application, to exempt any person, security or transaction from any provision

of the Act if and to the extent such exemption is necessary or appropriate in the public interest and consistent with the protection of in-
TWENTY-THIRD ANNUAL REPORT 161

vestors and the purposes fairly intended by the policy and provisions

of the Act. Various other sections, such as 6 (d), 9 (b), 10 (f), 11

(a), 17 (b), and 23 (c) contain specific provisions and standards pursuant to which the Commission may grant exemptions from particular

sections of the Act or may approve certain types of transactions.

During the fiscal year 1957 applications regarding 195 matters

were pending before the Commission, of which 140 were disposed of,

leaving 55 pending on June 30, 1957. Forty of the one hundred

thirty-three applications filed during the fiscal year were for general

exemptions, 22 for orders terminating registrations, 32 for orders

under section 17 of the Act permitting transactions between investment companies and affiliates, and 39 for other relief. The various

sections of the Act with which these matters were concerned and the

disposition of such matters during the fiscal year, are shown in the

following table:

Applications filed with and acted upon by the Commis8ion under the Investment

Company Act of 1940 during the fiscal year ended June 30, 1957

Subject involved Pending Pending Sections July 1, Filed Ciosed June 30, 1956 1951

-- --- ~'ti)~:::::::::::::: Status and exemption 21 40 46 15 Registration offorelgn investment companies 2 0 1 1

8 (0--------------- Terrolnation of regtstratlon 10, 16 18 122 '17 23 Regulation of affiliations of directors, officers, 0 20 18 2

employees, Investment advisers, underwrit- ers and others. 11 Regulation of security exchange offers and re- 2 0 2 0

organization matters. 12, 14 (a), 15 Regulation of functions and activities of in- 0 4 4 0 vestment eompanles. 17 Regulation of transactions with affiliated per. 15 32 39 8 sons. 18,21,22,23 RequJrements as to capital structures, loans, 3 12 10 Ii distributions and redemptions, and related matters. 28 (b) Regulation of face amount certl1lcate com. 0 1 0 1 paules. 0 30 Reports and other documents reviewed for 1 1 0 compliance. 1 32 Accounting supervislon. 1 2 0

TotaL _. _. --- -- --- 62 133 140 55

1 Includes 1sec. 8 ({)proceeding lultlated by the Commission on its own motion without application. Includes 1sec. 8 (l) order entered by the Commlsslon on its own motion without application.

In the past fiscal year, four matters that had previously been set

for hearing were determined. I 11,North River Securities 00.,I nc.,l the

Commission refused to grant an exemption pursuant to section 17 (b)

of the Act with respect to a transaction where affiliated persons would

have received a substantial profit on the ground that the record did

not support a finding that the consideration to be received by the investment company was reasonable and fair. In The Private Investment Fund for Governmental Personnel, 111,0.,2 the Commission issued

1Investment Company Act Release No. 2459 (December 20, 1956).

Investment Company Act Release No. 2474 (January 18, 1957).

447579-58--12

-- _________________________

__ ____________________ ______________

_________________

_______

_________________

_______

•__••_________

_________________

_________________ ____________________ •__

_____•__________•__________•__ --

•

•
162 SECURITIES AND EXCHANGE' OOMMISStON

an order declaring that the company's name, and particular words

used therein, were deceptive and misleading within the meaning of

sections 35 (a) and 35 (d) of the Act. In B. S. F. OompanyS and

Northeast Oapital 00rporation,4 the Commission granted exemptions

from the Act on the ground that each of the companies was primarily

engaged in a business other than that of an investment company.

In Alleghany Oorporation,B the Commission denied an exemption

from section 18 (d) with respect to a proposed issue, in exchange for

outstanding preferred stock on which there were dividend arrearages,

of new convertible preferred stock which was not redeemable until

1970, the Commission finding that the proposed securities were

basically long-term warrants prohibited by section 18, rather than

senior securities.

InDrexel & 00., et al.,6 the Commission granted an exemption from

the prohibition of section 17 (e), pursuant to the authority of section

6 (c), permitting the payment of fees to affiliated persons for services

performed in connection with a sale of assets by a subsidiary of an

investment company. At the end of the fiscal year another matter

in which a hearing had been held, Insured Accounts Fund,r where

an investment company was seeking an exemption from the requirements of sections 16 (a) and 18 (i) of the Act that stockholders be

accorded certain voting rights, was awaiting argument and determination by the Commission.

Matters involving affiliated transactions as to which no hearing was

necessary included three refinancings, five purchases of securities

during the existence of an underwriting syndicate, two sales of portfolio securities, a joint oil venture, a real estate mortgage loan, two

sales of real estate mortgages, one partial liquidation, a partial redemption of debentures, two final liquidations, a loan to an employee,

a purchase of securities of a nuclear engineering company, a purchase of oil and gas leases, a merger of two electronic companies, a

purchase of securities of a uranium company, a bonus plan, a first

refusal agreement relating to a sale of securities, and a transfer of

servicing activities of an investment adviser.

Due perhaps to the increase in recent years in the number of investment companies and the highly competitive nature of the industry,

there appears to be a growing tendency to adopt corporate names containing some special sales appeal by implying that the company's

securities have particular investment characteristics or that the company invests in a particular industry. Such names may be misleadInvestment Company Act Release No. 2425 (October 16,1956).

4 Investment Company Act Release No. 2509 (April Hi, 19li7).

Investment Company Act Release No. 2446 (November 30, 19li6).

Investment Company Act Release No. 2489 (February 18, 19li7).

Investment Company Act Release No. 2li39 (May 27, 19(7).

•

•

•

•
TWENTY-THIRD ANNUAL REPORT 163

ing and deceptive unless the investment policies of the company offer

reasonable assurance that the implications of the name will be realized. In addition to the case of The Private Investment Fund for

Governmental Personnel, Ino., the Commission in numerous instances

during the year settled problems of this nature administratively by

requiring either a modification of the name or the conformance of

the company's investment policy to the representations implicit in

the name.

Some transactions involving investment companies, while important and complicated, do not require a filing under the statute by the

investment company' or any affiliated person. Nevertheless, these

matters are scrutinized by reason of the Commission's responsibilities

under sections 25 and 36 of the Act to bring court proceedings if it

believes that proposed transactions in reorganizations are grossly

unfair or that management has committed a "gross abuse of trust."

Changes in the ownership of stock of a corporation acting as underwriter or investment adviser may present questions under sections 15

and 36 of the Act. Under sections 2 and 15 the assignment of an investment advisory or underwriting contract necessarily results in its

automatic cancellation and the transfer of a controlling block of stock

of a corporation having such a contract is deemed to constitute an assignment. In a 1942 opinion, the Commission's General Counsel

stated that in general the purported transfer of an investment advisory contract for a consideration would constitute a gross abuse of

trust and be the subject of Commission action under section 36 of the

Act. A serious question is raised where there is a proposal to sell a

controlling block of stock in a corporation rendering underwriting or

investment advisory services to an investment company and the sale

is to be made at a figure above book value or at book value with other

collateral promises on the part of the purchaser. Such questions arose

with increasing frequency during the fiscal year. The complaint filed

by the Commission in the Insuramce Securities Incorporated matter,

discussed below, concerned such a question.

In another instance a registered investment company and its subsidiary proposed the disposition of their interests in several companies by the transfer of such interests to a newly organized multiple tier holding company system in exchange for several classes of

securities of the system companies and the sale of certain of the securities of the parent holding company. Some of the proposals involved

transactions between affiliated persons. The complexities in the proposed capital structures of the system companies were such as to raise

substantial questions of feasibility and fairness. After discussions

with the Commission's staff, the plan was revised to provide for the

organization of a company having a single class of stock and the dis-
164 SECURlTIlES AND EXCHANGE OOMMJ;SSITON

tribution of such stock to the investment company stockholders. The

revised proposals, which had not been consummated at the end of the

fiscal year, did not contemplate any transactions between affiliated

persons.

LITIGATION UNDER THE INVESTMENT COMPANY ACT OF 1940

Just before the end of the fiscal year the matter involving so-called

"variable annuity" contracts was brought to trial in the case of

S. E. 0., et al. v, Variable Annuity Life Ineuromoe Oompany of

America, 1'JUJ.,et al.S The trial took place in the United States

District Court for the District of Columbia.

This litigation began in June 1956 when the Commission filed a

complaint in the United States District Court for the District of

Columbia against The Variable .Annuity Life Insurance Co. of

America, Inc. (VALIC). In its complaint the Commission alleged

that the "variable annuity" contracts sold by VALIC are securities

which should be registered pursuant to the Securities Act of 1933 and

that VALIC is an investment company which must be registered with

the Commission under the provisions of the Investment Company

Act of 1940.

Some of the additional issues presented to the Court are whether

the VALIC contracts fall within the exemption from registration

contained within section 3 (a) (8) of the Securities Act of 1933;

whether the company's primary and predominant business is that of

writing insurance which would give it an exemption under section

3 (a) (3) of the Investment Company Act of 1940; and whether the

company is exempt from the Commission's regulation by virtue of the

provisions of the McCarran-Ferguson Act,"

In the case of S. E. O. v, Insurance Securities, 1'JUJ.,lo the Commission has appealed from an order of the United States District

Court for the Northern District of California, dismissing the Commission's amended complaint for failure to state a claim for which

relief can be granted under section 36 of the Investment Company

Act of 1940. The appeal is now pending before the United States

Court of Appeals for the Ninth Circuit. lOa .

The sole business of Insurance Securities, Inc. (I. S. I.), is as

sponsor, investment adviser and principal underwriter of the Trust

District of Columbia No. 2549-56 (June 19, 1956).

In a decision rendered shortly after the close of the fiscal year the District Court

found that "the investment provisions of the variable annuity [brought], the contract and

the defendants within the purview of the Securities Act of 1933 and the Investment Company Act of 1940" but dismissed the complaint on the ground that the McCarran Act placed

exclusive regulatory jurisdiction over the defendants in the insurance authorities of the

States and the District of Columbia, 155 F. Supp. 521. An appeal is pending.

10 N. D. California No. 35,764 (August 13, 1956).

lOa Docket No. 15457.

•

•
I J

TWENTY-THIRD ANNUAL REPORT 165

Fund, an open-end company with $215 million of net assets, whose

Participation Certificates are sold to the public.

The Commission's amended complaint alleged that four of the directors, officers and controlling stockholders of I. S. I., and other

stockholders, sold their stock interest to a small group of purchasers

at a price that was over $4 million in excess of the net asset value

of the stock The amended complaint further alleged that the purchase price reflected the value of the perquisites and emoluments

which I. S. I. derives in the form of substantial fees from the Trust

Fund under the investment advisory and principal underwriting contracts, which under the Act are nonassignable; that the value attached

to such contracts, being an asset of the Trust Fund, equitably belongs

to the Trust Fund; and that these directors and I. S. I. are guilty

of gross abuse of trust within the meaning of section 36 of the

Act by reason of their appropriating such pecuniary advantages to

their own account and benefit and for profiting from their fiduciary

relationship to the Trust Fund. The amended complaint also alleged,

as a second cause of action, that the proxy material sent to investors

in the Trust Fund was false and misleading.

The relief sought by the Commission was a court order enjoining

the four directors from serving as officers and directors of I. S. I.

and from serving and acting as directors of the proposed board of

directors of the Trust Fund and enjoining I. S. I. from acting as

investment adviser and principal underwriter of the Trust Fund,

and an accounting for the pecuniary advantages which the four directors wrongfully and inequitably obtained as a consequence of the

sale of their I. S. I. stock.

The Commission also sought relief in the District Court with respect to the use of the proxies which were allegedly obtained through

the use of false and misleading statements. The District Court did

not decide the question of the violation of the proxy rules because

of its dismissal of the cause of action under section 36, upon which

the alleged proxy violation depended.

The proceedings involving the status of Alleghany Corporation

under the Investment Company Act described at pages 188-189 of

the 22nd Annual Report and pages 101-102 of the 21st Annual Report

were terminated by a decision of the Supreme Court of the United

States on April 22, 1957, that the Interstate Commerce Commission

had properly assumed regulatory jurisdiction over Alleghany pursuant to sections 5 (2) and (3) of the Interstate Commerce Act. It

reversed the court below which had held that Alleghany and the

exchange offer it made to its preferred stockholders were not within
166 SECURIT]ES AND EXCHANGE COMMISSION

the jurisdiction of the I. C. C. and hence were subject to the regulatory

jurisdiction of the S. E. C. under the Investment Company ActY

During the pendency of those proceedings, Alleghany registered

with the Commission under the Investment Company Act of 1940,

reserving its rights on appeal, and thereafter Alleghany and preferred

and common stockholders :filed applications seeking, inter alia, an

exemption with respect to its exchange offer, nunc pro tunc, pursuant

to section 6 (c) of the Act. On November 23, 1956, the Commission

denied the applications, Commissioner Patterson dissenting.P Alleghany thereupon:filed in the United States Court of Appeals for the

Fourth Circuit a petition to review the Commission's order which was

pending at the close of the fiscal yearY

U Alleghany Corporation v. Breswick & 00.,353 U. S. 15l.

l> Alleghany Corporation, Investment Company Act Release No. 2446.

13 Alleghany Corp. v. 8. E. 0., No. 7375.
PART X

ADMINISTRATION OF THE INVESTMENT ADVISERS ACT OF

1940

Persons engaged for compensation in the business of advising

others with respect to securities are required under the Investment

Advisers Act of 1940 to register as investment advisers. Under the

Act it is unlawful for investment advisers to engage in practices

which constitute fraud or deceit. The Act also requires investment

advisers to disclose the nature of their interest in transactions which

they may effect for their clients, prohibits profit-sharing arrangements and, for all practical purposes, prevents the assignment of any

investment advisory contract without the consent of the interested

client.

The Investment Advisers Act gives the Commission no power to

inspect the books and records of investment advisers, nor may the

Commission deny or revoke the registration of an investment adviser

unless he has been convicted of certain offenses involving securities

or arising out of his conduct as an investment adviser or in certain

other capacities, or has been enjoined by a court of competent jurisdiction on the same grounds, or has falsified his application. Violation of the Investment Advisers Act or the Federal securities laws is

not a ground for revocation unless the investment adviser has been

convicted or enjoined. Although as noted the Act prohibits investment advisers from engaging in practices which amount to a fraud

upon their clients, the lack of effective procedures for the enforcement of the statute has made it difficult for the Commission to control

the activities of tipsters who make extravagant representations

relating to speculative securities. Amendments to the Act which

would permit more effective enforcement and greater protection to

the investing public were introduced in the 85th Congress and are

presently pending.

The number of registered investment advisers continued to increase

to a total of 1,4iA, an increase of nearly 10 percent over the previous

year. The following tabulation reflects certain data with respect

to registration of investment advisers and applications for such registration during fiscal year 1957:

167
168 SECURITIiES AND EXCHANGE OOMMTSSTON

Investment adviser registrations and applications, 1957 fiscal year

Effective registrations at close of preceding fiscal year 1,309

Applications pending at close of preceding fiscal year_________________ 20

Applications filed during fiscal year__________________________________ 218

~otal- 1,547

Registrations cancelled or withdrawn during year_____________________ 89

Registrations denied or revoked during year__________________________ 1

Applications withdrawn during year__________________________________ 4

Registrations effective at end of year 1,431

Applications pending at end of year___________________________________ 22

~otal-_________________________________________________________ 1,547

ADMINISTRATIVE PROCEEDINGS

The Commission revoked the registration as an investment adviser

of Olifford A. Greenman, doing business as The Western Trader and

Investor,1 following a hearing and determination that the registrant

had been permanently enjoined by a United States district court from

further violations of the antifraud provisions of the Investment Advisers Act, as well as the Securities Act and the Securities Exchange

Act. The Commission's complaint for injunction had charged that

Greenman sold and offered to sell unregistered stock of a uranium

company by means of representations that the company had ore reserves in the amount of $70,791,000 without disclosing that this estimate was predicated on only 4 samplings, 3 of which were taken more

than a decade ago. The complaint further charged that Greenman,

who had been a registered broker-dealer, had taken undisclosed profits

in discretionary accounts in connection with the purchase and sale of

securities and converted to his own use funds deposited with him by

persons to whom representations were made that such funds would

be kept in a special trust fund not to be used except for the accounts

of such customers, and in addition, that Greenman had effected principal and agency transactions with customers without disclosing in

writing to such customers before the completion of such transactions

the capacity in which he was acting, and without obtaining their consent to such transactions. The Commission also denied an application for registration as a broker-dealer of Western Trader, I'lW., a

corporation of which Greenman was president and controlling stockholder.

LITIGATION UNDER THE INVESTMENT ADVISERS ACT OF 1940

The Investment Advisers Act gives authority to the Commission

to obtain court injunctions to prevent harm to public investors where

violations of the Act have occurred or are foreseen.

1 Investment Advisers Act Release No. 89 (May 13, 19(7).
TWENTY-THIRD ANNUAL REPORT 169

Pursuant to that authority the Commission filed a complaint to enjoin (Ionadiam. Resources, lna.2 from acting as an investment adviser

without registration under section 2D3of the Act. The complaint and

affidavits which were filed alleged that the defendant had inserted an

advertisement in a newspaper in which an offer was made to the general public of a 5-month introductory subscription to the defendant's

investment advisory bulletin at a price of $5. According to the advertisement, the bulletin was to provide information relating to

analyses and research on Canadian securities. The complaint further

charged that the defendant had never been registered with the Commission in accordance with the Investment Advisers Act of 1940. A

preliminary injunction was entered with the consent of the defendant

and a permanent injunction was later entered by default.

In the case of S. E. O. v. J. Henry Helser and 00. and J. Henry

Helser 3 a final compliance order was entered by consent of the United

States District Court for the Northern District of California at San

Francisco requiring that the defendants' offering brochure be

amended to describe fully and accurately all material facts concerning the nature and status of the litigation, and the findings, conclusions and orders of the Court, the nature of the investment management service, the fact that the Helser plan commits clients' funds to

speculative trading, the relationship between the management fees

collected and dividends and bond interest income received and the

source of funds used to meet monthly and other withdrawals. The

order also prohibits the defendants and their employees from making any statement or representation inconsistent with the statements

to be included in the revised brochure and requires the defendants to

comply in all respects with the Investment Advisers Act of 1940. The

Court had previously found that the Commission had proved its case,

but believed that an injunction "would be a harsh remedy under the

circumstances" and ruled that the defendants should be given an opportunity to bring themselves into compliance with the Investment

Advisers Act of 1940, but thereafter the Commission charged that an

interlocutory order, issued on April 29, 1955, had not been complied

with and sought the issuance of an injunction against further unlawful selling practices, and the final order was entered .

• S. D. N. Y. No. 110-268 (June 15, 1956) •

• N. D. Calif. No. 34229 (March 22,1957).
PART XI

OTHER ACTIVITIES OF THE COMMISSION

COURT PROCEEDINGS

Civil Proceedings

At the beginning of the fiscal year 1957 there were pending in the

courts 21 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 '71 additional

proceedings were instituted and 49 cases were disposed of, leaving 43

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 5 proceedings in the

district courts under section 11 (e) of the Public Utility Holding Company Act; and in 10 miscellaneous actions. The Commission also participated in 31 civil appeals in the United States Courts of Appeals.

Of these, 15 came before the courts on petition for review of an administrative order, 6 arose out of corporate reorganizations in which

the Commission had taken an active part, 6 were appeals in actions

brought by or against the Commission, 1 was an appeal from an order

entered pursuant to section 11 (e) of the Public Utility Holding Company Act, and 3 were appeals in cases in which the Commission appeared as amicue curiae. The Commission also participated in 9 appeals or petitions for certiorari before the United States Supreme

Court resulting from these or similar actions.

Complete lists of all cases in which the Commission appeared before

a Federal or State court, either as a party or as amicus curiae, during

the fiscal year, and the status of such cases at the close of the year, are

contained in the appendix tables.

Certain significant aspects of the Commission's litigation during

the year are discussed in the sections of this report relating to the

statutes under which the litigation arose.

Criminal Proceedings

Twenty-six new cases were referred to the Department of Justice

for prosecution during the past fiscal year. From 1934 to June 30,

1957, 2,334 defendants have been indicted in United States district

courts in 561 cases developed by the Commission. These figures include 18 indictments returned during the past fiscal year against 51

defendants. Also during the fiscal year there were 28 convictions in

17 cases, making the total 1,265 convictions in 530 cases. There were

7 appeals in criminal cases. In 2 of these cases the defendants un170
TWENTY -THIlU> ANNUAL REPORT 171

successfully attempted to have their convictions set aside and the remaining cases were pending on appeal at the end of the year. Three

criminal contempt proceedings were instituted during the fiscal year.

The defendant was convicted in 1 case, the other 2 cases were pending

at the end of the year.

Criminal cases developed and prosecuted during the year again covered a variety of fraudulent practices, including broker-dealer frauds

and fraudulent promotions involving inventions, insurance, mining

and oil and gas ventures, and various other types of business. The

defendants in some of the cases were also charged with violation

of the registration provisions of the Securities Act.

A four and one-half year prison term and an $18,000fine were imposed upon Walter F. Tellier and suspended prison terms were imposed upon two officers of the Alaska Telephone Corp. in United

States v. Walter F. Tellier, et al. (E. D. N. Y.).! The defendants

were convicted on all thirty-six counts of an indictment charging,

among other things, that defendants concealed from investors the fact

that the corporation was unable to meet its debenture interest payments out of earnings and that the proceeds of each series of debentures sold were being used by defendants to pay interest on such

series as well as all earlier series. In addition, the indictment charged

that defendant Tellier advanced funds to the corporation to cover

monthly delinquent debenture interest payments, for which he was

reimbursed out of the initial proceeds of the next series of debentures

offered and did not disclose this fact to investors. Tellier is also

charged in a subsequent indictment with fraud in the sale of uranium

stock. This indictment charges that in his capacity as a broker he

persuaded his customers to buy shares of Consolidated Uranium

Mines, Inc., by making numerous false claims as to their value. It

also charges that he purchased shares for one cent and sold them

through his company for between 75 cents and $1.87, without disclosing his original cost to his customers. A third indictment has been

returned against Tellier and numerous other defendants charging

them with fraud in the sale of stock of Colorado Uranium Mines,

Inc., Mesa Uranium Corp., Three States Uranium Corp., Paradox

Uranium Mining Corp., Consolidated Uranium Mines, Inc., Cherokee

Uranium Mining Corp., and Blackstone Uranium Mines, Inc., in'

violation of the anti-fraud provisions of the Securities Act and the

Mail Fraud Statute and with conspiracy to violate these statutory

provisions, as well as the registration provisions of the Securities Act

and conspiracy to defraud the United States by filing false documents

and reports with the Commission.

1Tellier and a codefendant have appealed.
172 SECURITIES AND EXCHANGE OOMMJBSIION

Other broker-dealers upon whom prison sentences were imposed

were Gordon Keith Proctor (N. D. Georgia), Paui Scarborough, Jr.

(E. D. Virginia) and James J. Snoddy (S. D. Texas). Each of these

defendants had been charged, among other things, with converting

customers' funds to his own use. A complaint alleging similar fraudulent practices has been filed in United States v. Branch J. Oarden; Jr.

(W. D. Virginia).

In United States v. Jesse S. Gill, et al. (N. D. Georgia), the indictment charges that the defendants induced the Paleo Oil & Gas Corp.

to retain their firm as an underwriter for an offering of shares of the

corporation, and that defendants converted to their own use a sum

of money advanced for expenses and maintained fraudulent records

to conceal their actual disbursements in connection with the offering

of the Paleo stock.

Convictions were obtained on an indictment charging violation of

the anti-fraud provisions of the Securities Act of 1933 and the Mail

Fraud and Conspiracy Statutes in United States v. Edgar Robert

Errion, et al. (D. Oregon), in connection with the promotion of Mt.

Hood Hardboard and Plywood Cooperative Association. Defendant

Errion pleaded guilty to violating the anti-fraud provisions of the

Securities Act and was sentenced to twelve years imprisonment,"

Five codefendants also were convicted and sentenced to prison terms

ranging from 1 year to '[ years," The indictment charged that the

defendants, as part of a large scale scheme to defraud, misrepresented

to investors that defendants were about to construct a large modern

plywood and hardboard company to be owned and operated by members, that members would obtain continuous employment and job

security and that secret financial sources had agreed to provide from

one and one-half to five million dollars in financing the construction

of the plant. It was further charged that defendants organized

and incorporated Forest Products Cooperative Agency through which

defendants and their salesmen sold Mt. Hood memberships to about

650 people for approximately $650,000 and that a substantial portion

of these funds were diverted to defendants' own use.

Cases involving oil and gas promotions were again numerous.

Horner W. Snowden (E. D. Illinois) was sentenced to 4 years im-

. prisonment and fined more than $30,000 after conviction on an indictment which charged, among other things, that he falsely represented

that he had never drilled a dry hole, that investors' money would be

refunded on demand or if certain oil wells were deficient and that the

amount invested would be returned in 1 to 3 years. The defendant

This Included the sentence Imposed upon Errion upon his gUilty plea to a similar

Indictment Involving the sale of Interests In Beaver Plywood Cooperative.

S The indictment was dismissed as to one defendant during trial because of a serious

illness and one defendant was acquitted.

•
TWENTY-THIRD ANNUAL REPORT 173

was charged with misrepresentations not only in the sale of oil and

gas interests, but also in the sale of securities in other enterprises,

including insurance companies.' Williann F. Horsting, Jr. (E. D.

Wis.), was sentenced to 2 years imprisonment and 3 years probation

and fined $5,000 following his plea of nolo contendere during trial to

a charge of violating the anti-fraud provisions of the Securities Act

of 1933 in connection with the sale of fractional undivided interests

in oil, gas, and other mineral rights. Following his conviction on

similar charges, Melton E. Lightfoot (S. D. Florida) was sentenced

to 3 years imprisonment. Jess M. Hickey and Loui M. White (N. D.

Texas) pleaded guilty to three counts of an indictment charging them,

among other things, with falsely representing to investors that they

believed they had found the greatest undrilled oil field in the United

States. Both defendants were sentenced to prison terms of six months,

placed on probation for 3 years, and fined $15,000. Ben E. Young

(E. D. Wash.) was sentenced to 18 months imprisonment following

his conviction on an indictment charging him with taking money for

advanced rent and filing fees on oil leases and converting the money

to his own use. Henry O. Gruemmer (S. D. Iowa) was found guilty

on 13 counts of a 15-count indictment which charged, among other

things, that Gruemmer knowingly made false promises of excessive

returns to prospective investors and falsely represented that the carbon

dioxide properties he contributed were free and clear of all liens and

encumbrances. The indictment further charged that Gruemmer concealed from investors the fact that participating dividends were paid

out of capital. Defendant was sentenced to a prison term of 5 years.

An indictment was returned in the United States District Court for

the Northern District of Illinois charging Harry G. Ames with misrepresentations concerning the amounts paid by him for the leases

being promoted, the cost of drilling wells on these leases, the oil production obtained from them and similar matters.

Harry B. Simon. (S. D. N. Y.) was sentenced to a suspended term

of 6 months and 1 year's probation and fined $2,500 on his plea of

guilty to charges of fraudulently selling stock of Bostana Mines, Ltd.,

by means of misrepresentations concerning the value of the ore deposits contained in the mine and other matters. Similar misrepresentations in connection with the sale of mining securities are charged

in the indictment pending against Wilbert F. KVngand H W'T'!J O.Hart

in the United States Court for the District of Nevada.

Fraud-In connection with an insurance company promotion was

charged in United States v, James O. Jensen, et al. (E. D. Wash.).

Defendant Walters, who was found guilty on allll counts of the inDefendant Snowden bas 1Iled a notice of appeal. A codefendant. Allen A. Borton,

pleaded guUty and was placed on probation for 3 years and fined $1,000.

•
174 SlECURITI'E8 AND EXCHANGE OOMMTSS'TON

dictment, was sentenced to 18 months imprisonment and codefendants

James O. Jensen, who pleaded guilty during trial, Charles P. Cain

and Keith Terry received sentences ranging from 3 months imprisonment and 4 years probation to 8 months imprisonment and 4 years

probation. The indictment charged that the defendants falsely represented to investors that the sale of surplus certificates and stock in

the proposed company had the approval of the 'Washington State Insurance Commissioner, that all funds would be placed in escrow under

the Commissioner's supervision, that the company was financially able

to pay 6 percent interest, that the defendants had personally invested

substantial sums and that the investors could withdraw their funds

at any time."

Other cases involving a variety of allegedly fraudulent business

transactions are United States 'V. Hugh O. Van Valkenburgh, et al,

(D. Nebraska), United States v, Francis E. Getchell, et d. (S. D.

Florida), United States v. Donald E. Bartz, et d. (D. Nevada), and

United States v. Malcolan. L. Saunders, ei al. (D. Mass.). In the Van

Valkenburgh case the indictment charges misrepresentation in connection with the sale of stock of Instant Beverage, Inc., a corporation

organized and promoted by defendants to manufacture an instant

powder product which, when mixed with water, was stated to produce

a carbonated beverage. In the Getchell case the indictment charges,

among other things, that the defendants falsely represented to investors that the defendant had developed a secret and commercially

feasible process whereby paper pulp could be manufactured from

cabbage palms. In the Bartz case the indictment charges numerous

misrepresentations with respect to the use to be made of the moneys

obtained from investors, the profitable nature of the operations,

refund guarantees and other matters. In the Saunders case the

defendants pleaded guilty to charges that they defrauded investors

by making misleading and false statements which induced them to

invest in the Collective Trading Fund, an investment' trust controlled by the defendants. Subsequently each defendant was placed

on probation for 3 years and fined $1,000.

William E. Horton (United States v. Horton, et ol., S. D. Calif.)

was sentenced to 3 years imprisonment and 5 years probation after

his conviction on charges arising out of misrepresentations to investors that the proposed Horton wingless airplane could carry twice

the payload of any other aircraft at half the cost and had 100 percent

greater range and speed; that it could carry 4,000 people 25,000

miles nonstop at over 400 miles per hour; that the corporation had

facilities to manufacture and was in the process of manufacturing the

• The defendants other than Jensen have appealed.
TWENTY -THIRD ANNUAL REPORT 175

new plane and that the United States Government was in the process

of contracting to purchase and finance production of the new plane.

The indictment also alleged that Horton failed to disclose that

Horton Aircraft Corp. had no assets and that Horton personally

would receive 70 percent of the authorized capitalization of the

corporation.

Sentences were imposed upon certain former officials of the Thermoid Co. and the company (United States v. Frederic E. Schluter,

et al., S. D. N. Y.), for false reporting in violation of the Securities

Exchange Act of 1934:and conspiracy to defraud the United States

by violating that Act and the Internal Revenue Code. The four

counts of the indictment charged that the defendants caused false

and misleading statements, involving understatements of tax liability

and overstatement of net income, to be made in annual reports of

the Thermoid Co. for the years 1951, 1952, and 1953, which annual

reports were filed with the Commission and the New York Stock

Exchange pursuant to the Securities Exchange Act of 1934; that

the defendants conspired to evade income and excess profits taxes,

to defraud the United States in the collection of revenue and to

file false reports with the Commission and the exchange by falsifying

and manipulating company records. Defendant Frederic E. Schluter, who pleaded guilty to all four counts, was fined $40,000 and sentenced to a suspended 7-year prison term and 5 years probation;

defendant George S. Fabel, who entered a nolo contendere plea to the

substantive charges and a guilty plea to the conspiracy count, was

fined $25,000. Imposition of sentence was suspended as to him, as

well as to defendants Robert R. Stevenson and Thermoid Co. Each

of the latter two defendants entered pleas of nolo contendere to all

four counts.

In United States v, David L. Shindler, et al. (S. D. N. Y.), the

indictment charges that the defendants conspired to defraud purchasers of stock in Jerry O'Mahoney, Inc., by unlawful manipulative practices which artificially raised the market price of the stock

and that the defendants engaged in a series of transactions in the

stock, creating actual and apparent active trading in the security

for the purpose of raising the price thereof.

Harold L. Nielsen (D. Idaho) was sentenced to prison for 60 days,

having been found guilty of criminal contempt for violation of a

preliminary injunction enjoining him from violating the anti-fraud

provisions of the Securities Act and the Securities Exchange Act.

Nielsen admitted that after entry of the injunction he had misappropriated stock which was to have been delivered to his customers and

had sold the stock for his own benefit.
176 SECURIT.lIES AND EXCHANGE OOMMTSSTON

The criminal appellate cases decided during the year were H ols'llU1/1/,

v. U7lited States, 238 F. 2d 141 (C. A. 7, 1956), and Vasen v, United

States, unreported (C. A. 7, September 26, 1956). In the HolBman

case, the court held that there was substantial evidence to sustain the

finding of the appellants' guilt in connection with the fraudulent sale

of cooperative interests in a housing project. Inthe Vasen case, the

appellate court, without opinion, affirmedthe judgment of the district

court denying the defendant's petition to vacate and correct the judgment and sentence. The Vasen conviction arose out of an oil promotion involving the sale of fractional undivided interests in a well

20,450 feet deep, said to be the second deepest well in the world.

COMPLAINTS AND INVESTIGATIONS

Each of the Acts administered by the Commission empowers it to

conduct investigations to determine whether violations of their provisions have occurred. The Commission continued to place great emphasis on the administration of its Enforcement Program with the

result that the number of investigations initiated during the year

was approximately 36 percent in excess of those started in _the previous year. There was also a substantial increase in the number of actions and proceedings resulting from investigations. Injunctive actions authorized by the Commission more than doubled those of the

previous year. Administrative proceedings involving broker-dealers

nearly doubled. The number of cases referred for criminal prosecution also exceeded the number for the previous year.

The primary responsibility for the conduct of investigations rests

with the Commission's nine regional offices. General supervision over

and coordination of the regional officeinvestigative activities is exercised by the Division of Trading and Exchanges. Effective investigation and protection of innocent persons who might have become the

subject of inquiry are furthered by the Commission's policy of regarding its private investigation files as having a nonpublic

character.

For the most part, the Commission's investigative machinery is set

into motion as a result of the scrutiny of complaints and inquiries received from the investing public, the broker-dealer inspection program, and the constant surveillance of the securities markets. If,

after careful consideration of the information received from those or

other sources, it appears that violations of the Acts may be involved, a

preliminary investigation may be made.

The preliminary investigations are initiated to obtain readily available information sufficientfor a determination as to whether any violation of the Acts has occurred. Thus, they generally take the form of

telephone inquiries or correspondence with persons who may have information on the subject, personal interviews with a selected number
TW~-THIRD ANNUAL REPORT 177

of persons, and a review of the Commission's files. However, where a

violation is disclosed, but it is ascertained that it was due to ignorance

of the law or some misunderstanding and no serious harm to the public is involved, no further action is ordinarily taken except to inform

the offender of the violations and to insure that steps are taken to procure future compliance.

Another purpose of the preliminary investigation is to determine

whether a more full and detailed inquiry is appropriate. When a

more extensive investigation is considered to be in order, the matter is

docketed. If, in the course of a docketed investigation, the Commission .findsthat necessary evidence cannot otherwise be obtained it

may, pursuant to its statutory authority, appoint members of its staff

as officerswith power to issue subpoenas requiring appearance of witnesses to testify under oath and the production of documents. During the :fiscalyear, 73 such orders were issued.

Completed investigations are reviewed by the Regional Administrator concerned, who submits the report together with his recommendation as to the disposition of the matter to the Commission. The

report is in turn analyzed by the staff of the Commission's principal

officeand presented with the recommendations of the regional and the

principal officeto the Commission for .finaldecision as to what, if any,

action the circumstances require.

The Commission may,. if it considers it appropriate, close the investigation. On the other hand, it may decide the public interest requires that some action be taken, in which event several courses are

available to it. It may, in cases that appear to warrant criminal

prosecution, refer the evidence to the Department of Justice. Insuch

matters, members of the staff familiar with the investigation assist

the United States Attorney assigned to the matter in his presentation

of the case to the Grand Jury and, should an indictment be returned,

in the prosecution of the criminal action. In addition, the Commission may institute administrative proceedings against registered

broker-dealers and investment advisers or bring injunctive action in

the Federal courts to stop further violation of the Acts. Evidence of

violations of other Federal and State laws may be referred to appropriate Federal or State authorities.

The following table reflects in summarized form the investigative

activities of the Commission during the :fiscalyear: ,

Prelfmfnary Docketed Total

~:Vd~~_~:~~~::::::::::::=:::=::===:::=:=:==::==::::::

218 500 813

2Z1 234 461 Transfened from prellmlnary _________________________________ ...._-.--_ .. _---- 51 51

Total. _______________________________________ 445 880 1,325 Closed. '. _. _- 144 162 296 Transferred to docketed _______________________________________ 51 51 Pending at June 30, 1007 250 728 978

-__________

__________ _______________--- -- -_________--_---- __

______________________________________ --------------
178 SECURI'l'I'ES AND EXCHANGE' COMMLSSIION

ENFORCEMENT PROBLEMS WITH RESPECT TO CANADIAN SECURITIES

The offer and sale of securities by Canadian issuers and broker-dealers in violation of the registration provisions of the Securities Act

continue to present difficult enforcement problems. The principal

difficulty arises from the fact that the Commission has no authority to

conduct investigations outside the United States while the evidence

to establish violations in most of these cases, as well as the violators,

are located in a foreign country. Where personal service can be obtained in the United States effective action is taken to stop such violations. In the last annual report problems arising under the

Supplementary Extradition Convention between the United States

and Canada and the narrow construction placed thereon by Canadian

courts were discussed. Negotiations to correct the situation have continued through appropriate diplomatic channels.

In order to do effective enforcement work in this area, it is necessary

that there be full cooperation between this Commission and the corresponding enforcement authorities in Canada. There are no securities laws applicable throughout the Dominion of Canada, but each

Province has its own legislation and regulation. Relations between

this Commission and the various provincial authorities are very good,

and excellent cooperation is obtained from them in our enforcement

work. Some of the Provinces have also taken action under their

respective laws after being advised that their residents were engaged

in violating the laws of the United States. The registrations of seven

broker-dealers and three securities issuers were either cancelled or not

renewed by provincial authorities following receipt of information

supplied by this Commission.

New legislation in the Province of Alberta provided a new securities

act in that Province and created a Securities Commission to administer the act. It is believed that violations of United States laws

emanating from Alberta will be substantially reduced through the

adoption and vigorous enforcement of that act.

The migration of persons engaged in illegal sales activities from

one province to another continues to create a problem for Canadian

authorities desirous of cooperating with this Commission. It would

appear that persons who become the subjects of investigation or enforcement action, particularly in the Provinces of Ontario and Quebec, soon carry on their operations from another Province, frequently

operating under a different name. Strengthened enforcement by all

of the Provinces will be necessary completely to eliminate this type

of operation.

With the cooperation of Canadian authorities in developing evidence, this Commission during the fiscal year brought two injunctive

actions based upon illegal sale of Canadian securities in the United

States. In one action, in the Southern District of New York, Robert
TWENTY -THIRD ANNUAL REPORT 179

Rodman and Sidney Newman, both residents of the United States,

were enjoined from selling stock of Torbrook Iron Ore Mines, Ltd.,

in Violation of the registration provisions of the Securities Act. In

the other action, filed in United States District Court for the Western

District of Washington, a preliminary injunction based upon violation of the antifraud and registration provisions of the Securities

Act, was entered against Kaiser Development Oorporation; Limited,

and E. David Novelle, a United States resident and former president

of Kaiser Development.

As indicated above, as a result of proceedings initiated under

section 19 (a) (2) of the Securities Exchange Act of 1934 to determine whether securities of (heat Sweet (hass Oils Limited and K roy

Oils Limited should be withdrawn from trading on the American

Stock Exchange, the Commission found that reports filed with the

Commission and the Exchange as required by section 13 of the Act

were false and misleading and issued an order withdrawing the securities from trading on the exchange," Both issuers were Canadian

corporations.

The Commission also denied registration of George W. Ohilian,

doing business as George W. Ohilian & Oompany, based upon violations of the registration provisions of the Securities Act in the sale of

New Metalore Mining Co., Ltd., a Canadian mining company," Chilian

was a resident of the United States and effected sales to residents of

this country.

In a further effort to strengthen its enforcement program, the Commission during the year adopted rule 17a-7 under the Securities Exchange Act which requires nonresident broker-dealers registered with

the Commission either to maintain at a place within the United States,

or to furnish to the Commission upon formal demand, true, correct,

complete and current copies of the books and records which the registrant is required to make, keep current, maintain or preserve pursuant

to any provision of any rule or regulation of the Commission adopted

under the Act,"

The Commission maintains its "Canadian Restricted List" containing the names of issuers whose securities the Commission has reason

to believe recently have been, or currently are being, offered and sold

in the United States in violation of the Securities Act of 1933. Names

are added to and deleted from the list as circumstances warrant. During the fiscal year 1957 six supplements were issued bringing current

the list shown in Securities Act Release No. 3632, dated April 24,

1956. These SUPPlements added 64 names to the list and deleted 10.

The current list, reflecting additions and deletions to November 1, 1957.

follows:

Seeurltfes Exchange Act Release No. 5483 (AprU 8.1957).

Y Securltfes Exchange Act Release No.li368 (September 26,1956).

Securltfes Exchange Act Release No. 5336 (JulY' 16,1956).

•

•
180 SECURITfES AND EXCHANGE OO:MMISSiION

CANADIAN RESTRICTED LIST

(As of November 1, 1957)

Alba Explorations Limited

Algro Uranium Mines Limited

Alminster Oils Limited

Alouette Mines Limited

Amshaw Porcupine Mines Limited

Antimony Gold Mining and Smelting

Corporation Limited

Apollo Mineral Developers Inc.

Ar-Oan Limited (formerly TransvisionTelevision (Canada) Limited)

Armour Uranium and Copper Mines

Limited (formerly Naneek Mines

Ltd.)

Atlas Gypsum Corporation Limited

Augdome Exploration Limited

August Porcupine Gold Mines Limited

Aunite Mining Corporation Limited

Barbary Gold Mines Limited

Bar-Fin Mining Corporation Limited

Bargls Mines Limited

Barvin Mines Limited

Basic Minerals Limited

B. C. Metal Mines Limited

Beaucoeur Yellowknife Mines Limited

Bellechasse Mining Corporation Limited

Bli-Riv Uranium and Copper Corporation Limited

Blumont Mines Limited

Britco Oils Limited

Oabanga Developments Limited

Caldina Oils Limited

Calumet Uranium Mines Limited

Cameron Copper Mines Limited

Camoose Mines Limited

Camrose Gold and Metals Limited

Canadian Alumina Corporation Limited

Can American Copper Limited

Canadian Natural Resources Limited

Canso Mining Corporation Limited

Casa Loma Uranium Mines Limited

Cavalcade Petroleums Limited

Cavalier Mining Corporation Limited

Central Sudbury Lead-Zinc Mines Ltd.

Chief Mountain Oils Limited

Clenor Mining Company Limited

Clix Athabasca Uranium Mines Limited

Cobalt Badger Silver Mines Limited

Cob-Sil-Ore Mines Limited

Colonial Asbestos Corporation Limited

Comet Petroleums Limited

Concor-Chibougamau Mines Limited

Consolidated Cordasun Oils Limited

Consolidated Easter Island Mines Limited

Consolidated Peak Oils Limited (formerly Peak Oils Limited)

Consolidated Qnebec Yellowknife Mines

Ltd.

Oonsolldated Thor Mines Limited

Continental Potash Corporation Limited

(formerly Western Potash)

Continental Uraninm Corporation Limited.

Copper Island Mining Company Limited

Copper Prince Mines Limited

Cordon Cobalt Mines Limited

Cove Uranium Mines Limited

Crangold Mines Limited

Cree Mining Corporation Limited

Dalo Oil and Gas Limited

David Copperfield Explorations Limited

Demers Chibougamau Mines LimUed

Dencroft Mines Limited

Derrick Oil and Gas Company Limited

Desmont Mining Corporation Limited

Detomac Mines Limited

De Ville Copper Mines Limited

Diadem Mines Limited

Doeana Oils and Mines Limited

Dolmac Mines Limited

Dougron Gold Mines Limited

Dubar Exploration Limited

Dupont Mining Company Limited

Eastwebb Mines Limited .

Edson Oil Company Limited

Export Nickel Corporation of Canada

Limited

Falgar Mining Corporation Limited

Famous Gus Uranium Mines Limited

Fission Mines Limited

Forbes Lake Mining Corporation Limited

Fleetwood Yellowknife Mines Limited

Gay River Lead Mines Limited

Genalta Petroleums Limited

Gold Uranium Exploration Company

Limited

Gordona Mining Corporation Limited

Gothic Mines and Oils Limited

Greatlakes Copper Mines Limited

Great Valley Exploration and Mining

Limited

Halden Red Lake Mines Limited

Harvard Mines Limited

Head of the Lakes Iron Limited

Hercules Uranium Mines Limited

Holwood Mines Limited

Hoover Mining and Exploration Limited

Huddersfteld Uranium and Minerals

Limited

Huhill Yellowknife Mines Limited

Jilbie Mining Company Limited

Judella Uranium Mines Limited

Kabour Mines Limited

Kaiser Development Corporation Limited

Kamis Uranium Mines Limited

Kersley Oil and Gas Company Limited

Keylode Cobalt Silver Mines Limited

Keymore Gold Mines Limited

Key West Exploration Company Limited

Kidihawk Mines Limited

Kirk-Hudson Mines Limited

Kirkland Larder Mines Limited

Kop Beverages Limited ,_,r
TWENTY -THIRD ANNUAL REPORT 181

Lake Superior Iron Limited

Landolac Mines Limited

Leberta-Redwater Oil Company Limited

Lee Gordon Mines Limited

Lithium Corporation of Canada Limited

Lloydal Petroleums Limited

Loranda Uranium Mines Limited

Lucky Creek Mining Company Limited

Lynwatin Nickel Copper Limited

Madison Mining Corporation Limited

Mag-Iron Mining and Milling Limited

Mallen Red Lake Gold Mines Limited

Marvel Uranium Mines Limited (formerly Marvel Rouyn Mines Limited)

Marwood Mining Corporation Limited

Masters Oil and Gas Limited

Mensilvo Mines Limited

Mercedes Exploration Company Limited

Mid-West Mining Corporation Limited

Min-Ore Mines Limited (formerly Ryan

Lake Mines Limited)

Monogram Petroleums Limited

Monpre Uranium Exploration Limited

Monteo Copper Corporation Limited

Nationwide Minerals Limited

New Bailey Mines Limited

New Concord Development Corporation

Limited (formerly Concord Development Corporation Ltd.)

New Goldvue Mines Limited

New Jack Lake Uranium Mines Limited

New Lafayette Asbestos Company Limited

New Matalore Mining Company Limited

New Spring Coulee Oil and Minerals

Limited

New Telluride Gold Mines of Canada

Ltd.

New Vinray Mines Limited

Ni-Ag-Co Mines Limited

Norcopper and Metals Corporation

Norlarctic Mines Limited

Normalloy Explorations Limited

Normingo Mines Limited

Nu-Age Uranium Mines, Ltd.

Nu-World Uranium Mines Limited

Oakridge Mining Corporation Limited

Obabika Mines Limited

Oilcrest Petroleums Limited

Orbit Uranium Developments Limited

Ordala Mines Limited

Osage Oil and Exploration Limited

Packeno Yukon Mines Limited

Paramount Petroleum and Mineral Corporation Limited

Plateau Petroleums Limited

Plexterre Mining Corporation Limited

Prescott Porcupine Gold Mines Limited

Principle Strategic Minerals Limited

Pyramid Oils Limited

Quebank Uranium Copper Corporation

Quebec Graphite Corporation

Quebec Developers and Smelters Limited

Quinalta Petroleum Limited

Rebair Gold Mines Limited

Resolute Oil and Gas Company Limited

Ribstone Valley Petroleums Limited

Richore Gold Mines Limited

Ridgefield Uranium Mining Corporation Limited

Rigby Kirkland Mines Limited

Roland Gold and Copper Mines Limited

Rouandah Oils and Mines Limited

St. Pierre Miquelon Explorations, Inc.

St. Stephen Nickel Mines Limited

Salmita Consolidated Mines Limited

Saratoga Exploration Company Limited

Sentry Petroleums Limited

Sioux Petroleums Limited

Skyline Uranium and Minerals Corporation Ltd.

Soo-Tomic Uranium Mines Limited

Spike Redwater Oil Company Limited

Stackpool Mining Company Limited

Strathmore Mines Limited

Surety Oils and Minerals Limited

Temanda Mines Limited

Three Arrows Mining Explorations

Limited

Torbrook Iron Ore Mines Limited

Trans-Leduc Oils Limited

Trenton Mines Limited

Trio Mining Exploration Limited

Triton Uranium Mines Limited

Trojan Consolidated Mines Limited

United Copper and Mining Limited

United Uranium Corporation Limited

(formerly Indore Gold Mines Limited)

Valray Explorations Limited

Vico Explorations Limited

Wakefield Uranium Mines Limited

Wayne Petroleums Limited

Wesberta Oils Limited

West Plains Oil Resources Limited

Westore Mines Limited

Westville Mines Limited

Whitney Uranium Mines Limited

Winston Mining Corporation Limited

Woodgreen Copper Mines Limited

Yukore Mines Limited

SECTION OF SECURITIES VIOLATIONS

To provide a further means of detecting and preventing fraud in

securities transactions, the Commission maintains a Section of Securities Violations. In brief, the Section maintains records concerning persons who have been charged with violations of various Federal

•
182 SIECURITI'ES AND EXCHANGE COMMISSIION

and State securities statutes and operates as a clearinghouse for dispensing this information to other enforcement agencies. Considerable information is also maintained concerning violators who are residents in the Provinces of Canada.

Extensive use is made of the information available in these records

by regulatory and law enforcing officials. During the past year the

Commission received 3,262 "securities violations" letters or reports

and dispatched 1,625 communications to cooperating agencies.

The specialized information in these files is kept current through

the cooperation of the United States Post Office Department, the

Federal Bureau of Investigation, parole and probation officials, State

securities authorities, Federal and State prosecuting attorneys, police

officers, better business bureaus and chambers of commerce. At the

end of the fiscal year these records contained information concerning

62,624 persons aga~t whom Federal or State action had been taken

in connection with securities violations. There were added during the

:fiscal year items of information concerning 6,894 persons, including

2,960 concerning persons not previously identified therein.

The section issues and distributes quarterly a Securities Violations

Bulletin containing information received during the period concerning

violators showing new charges and developments in pending cases.

The Bulletin includes a "Wanted" section in which are listed the

names and references to bulletins containing descriptive information

as to persons wanted on securities violations charges. The Bulletin

is distributed to a limited number of cooperating law enforcement officials in the United States and Canada.

ACTIVITIES OF THE COMMISSION IN ACCOUNTING AND AUDITING

Dependable, informative financial statements, i. e., statements which

disclose the financial status and earnings history of a corporation or

other commercial entity, whether filed in compliance with the statutes

administered by the Commission or included in other material available to stockholders or prospective investors, are indispensable to the

investor as a basis for investment decisions.

The Congress recognized the importance of these statements and

that they lend themselves readily to misleading inferences or even deception, whether or not intended. It accordingly dealt extensively in

the several statutes administered by the Commission with financial

statement presentation and the disclosure requirements necessary to

set forth fairly the financial condition of the company. Thus, for example, the Securities Act requires the inclusion in the prospectus of

balance sheets and profit and loss statements "in such form as the

Commission shall prescribe" 9 and authorizes the Commission to pre-

• See. 10 (a) (1) (ScheduleA. pars. 25. 26).
TWENTY-mIRD ANNUAL REPORT 183

scribe "the items or details to be shown in the balance sheet and earnings statement, and the methods to be followed in the preparation of

accounts * * *".10 Similar authority is contained in the Securities

Exchange Act,I1 and more comprehensive power is embodied in the

Investment Company Act 12and the Holding Company Act.13

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 t'an independent public or certified accountant." 14

The other three statutes permit the Commission to require that such

statements be accompanied by a certificate of an independent public

accountant, 15and the Commission's rules require, with minor exceptions, that they be so certified. The value of certification by qualified

accountants has been conceded for many years, but the requirement

as to independence, long recognized and adhered to by some individual accountants, was for the :first time authoritatively and explicitly introduced into law in 1933. Out of this initial provision

in the Securities Act and the rules promulgated by the Commission, 16

and the action taken by the Commission in certain cases,17 have

grown concepts of accountant-client relationships that have strengthened the protection afforded investors.

The Commission's standards of independence are stated in rules

2-01 (b) and (c) of regulation S-X which provide among other

things that an accountant will not be considered independent with

respect to any person, or any affiliate thereof, for any period during

which he has any financial interest, direct or indirect, in such person,

or with whom he is or was connected as a promoter, underwriter,

voting trustee, director, officer,or employee. Indetermining whether

an accountant is in fact independent with respect to a particular

registrant, the Commission will give appropriate consideration to all

relevant circumstances, including evidence bearing on all relationships

between the accountant and that registrant or any affiliate thereof.

During the last several years many corporations whose securities

were closely held or traded only over-the-counter found it necessary or

desirable to sell securities to the public in interstate commerce or to

list securities on a national securities exchange and thus for the first

time became subject to the filing requirements of the several Acts

10 Sec. 19 (a).

11 Sec. 13 (b).

1lI Secs. 30, 31.

u sees, 14. Hi.

H Sec. 10 (a) (1) (Schedule A. pars. 25, 26).

:15 Securities Exchange Act, sec. 13 (a) (2); Investment Company Act, sec. 30 (e);

Holding Company Act, sec. 14.

11 See, for example, rule 2-01 of regulation S-x.

11See. for example, Securities Exchange Act Release No. 3073 (1941) ; 10 S. E. C. 982

(1942) ; and Accounting Series Release No. 68 (1949).
184 SECURITrES AND EXCHANGE' COMMISSION

administered by the Commission. Experience with the Commission's

certification requirements disclosed that many accountants found that

they were unable to certify the financial statements of clients of long

standing because during the period for which financial data was required to be furnished they had not in fact been independent under

our rules. The most common cause of lack of independence was

ownership by a member of the accounting :firm of stock of the client

company during any of the periods certified. This the Commission

deems an absolute bar to independence, though exceptions where there

would be particular hardship and investor protection can be achieved

by other safeguards have occasionally been permitted.

Another reason for finding a lack of independence, in a number of

current cases but particularly in the situations described above, is the

fact that some accountants intending to certify financial statements

included in such filings have been interested in serving the client's

management, or in some cases large stockholders, in several capacities

and in doing so have not taken care to maintain a clear distinction

between giving advice to management and serving as personal representatives of management or owners and making business decisions

for them.

As shown above, the statutes administered by the Commission give

it broad rule-making power with respect to the preparation and presentation of financial statements. Pursuant to the authority contained

in the statutes the Commission has prescribed uniform systems of

accounts for companies subject to the Holding Company Act; 18 has

adopted rules under the Securities Exchange Act governing accounting and auditing of securities brokers and dealers; and has promulgated rules contained in a single, comprehensive regulation, identified

as regulation S-X,19 which govern the form and content of financial

statements filed in compliance with the several acts. This regulation

is implemented by the Commission's Accounting Series releases, of

which 78 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, prescribe accounting to be followed only in certain basic respects. In the large area

not covered by such rules, the Commission's principal reliance for

the protection of investors is on the determination and application

U Unilorm Sf/stem 01 Accounts lor Mutual Service Oompaniesand Subsidiary Service

Companies (e1l.'ective August 1, 1936); Uniform Bf/stem of Accounts for Public Utility

Holding Companies (e1l.'ect1veJanuary 1. 1937; amended effective January 1, 1943).

:18 Adopted February 21, 1940 (Accounting Series Release No. 12) ; revised December 20,

1950 (Accounting Series Release No. 70). '
TWENTY -TIDED ANNUAL REPORT 185

of accounting principles and standards which are recognized as sound

and which have attained general acceptance.

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. It is necessary for the Commission to be informed

of the changes and new developments in these fields and to make

certain that the effects thereof are properly reported to investors.

The Commission's accounting staff, therefore, engages in studies designed to establish and maintain appropriate accounting procedures

and practices. The primary responsibility for this program rests

with the chief accountant of the Commission who has general supervision with respect to accounting and auditing policies and their

application.

Progress in these activities requires constant contact and cooperation between the staff and accountants both individually and through

such representative groups as, among others, the .American Accounting Association, the .American Institute of Certified Public Accountants, the .American Petroleum Institute, the Controllers Institute

of .America, the National Association of Railroad and Utilities Commissioners, the National Federation of Financial Analysts Societies,

as well as other Government agencies. Recognizing the importance

of cooperation in the formulation of accounting principles and practices, adequate disclosure and auditing procedures which will best

serve the interests of investors, the American Institute of Certified

Public Accountants, the Controllers Institute of .America, and the

National Federation of Financial Analysts Societies regularly appoint

committees which maintain liaison with the Commission's staff.

The many daily decisions of the Commission require the almost constant attention of some of the chief accountant's staff. These include

questions raised by each of the operating divisions of the Commission,

the regional offices and the Commission. This day-to-day activity of

the Commission and the need to keep abreast of current accounting

problems causes the chief accountant's staff to spend much time in the

examination and reexamination of sound and generally accepted accounting and auditing principles and practices. From time to time

members of this staff are called upon to assist in field investigations,

to participate in hearings, and to review opinions insofar as they

pertain to accounting matters.

Prefiling and other conferences, in person or by phone, with officials

of corporations, practicing accountants and others, occupy a considerable amount of the available time of the staff. This procedure, which

has proven to be one of the most important functions of the office of

the chief accountant, and of the chief accountant of the Division of
186 SiECURITJiES AND EXCHANGE' OOMMLSSlION

Corporation Finance and his staff, saves registrants and their representatives both time and expense.

Many specific accounting and auditing problems arise as a result of

the examination of :financial statements required to be filed with the

Commission. Where examination reveals that the rules and regulations of the Commission have not been complied with or that applicable sound accounting principles have not been adhered to, the examining division usually notifies the registrant by an informal letter of

comment. These letters of comment and the correspondence or conferences that follow continue to be a most convenient and satisfactory

method of effecting corrections and improvements in financial statements, both to registrants and to the Commission's staff. Where particularly difficult or novel questions arise, which cannot be settled by

the accounting staff of the divisions and by the chief accountant, they

are referred to the Commission for consideration and decision. The

Commission's treatment of accounting questions by these administrative means is extensive. A considerable portion of the time of the accounting staff is spent in the discussion of such cases by letter and

telephone, and in conference with registrants and their accounting

and legal advisers. There is also a large and, in recent years, growing

volume of inquiries as to the propriety of particular accounting

practices from accountants and from companies not presently subject to any of the acts administered by the Commission who wish to

have-the benefit of the Commission's views, and thus utilize and apply

the Commission's experience to the facts of their own case. Teachers

of accounting and their students also use the public files and confer

with the staff in the study of accounting problems.

In the annual report for the fiscal year ended June 30, 1956, mention was made of the fact that many corporate mergers and acquisitions were in process at that date and that during that fiscal year the

Commission's staff had cooperated closely with the accounting profession to bring about the establishment of uniform accounting procedures in that area. Since many corporate combinations of this kind

continue to be made, the staff :findsit necessary to continue its activity

in order to ascertain that the principles set forth in Accounting Research Bulletin No. 48, issued by the American Institute of Certified

Public Accountants as a revision of earlier bulletins on this subject,

are applied fairly and uniformly in each instance and accomplish the

fair disclosure required.

The 20th Annual Report 20 contained a brief discussion of some of

the accounting problems which confront the Commission when a registration statement or other filing is made by a corporation domiciled

in a foreign country. Itwas pointed out that foreign standards of ac-

:0 20th Annual Report. p, 107.
TWENTY -THIRD ANNUAL REPORT 187

counting and financial reporting differ in many respects from .American standards and vary from country to country. Since that report

was issued the Commission has been faced a number of times with

these problems in connection with filings, actual and prospective, by

foreign private issuers. The several acts administered by the Commission make no distinction between domestic private issuers and foreign private issuers and make no distinction between domestic accounting firms and foreign accounting firms. Since the acts contain

substantially the same financial and certification requirements, the

Commission has endeavored, through the adoption of rules and administrative practice, to develop policies with respect to accounting

and auditing principles, practices and procedures which have as their

ultimate objective the inclusion in filings with the Commission of

financial statements of foreign private issuers which have been audited and certified by independent public or certified accountants who

have followed generally accepted auditing standards, practices and

principles, as known to and followed by independent professional

accountants in the United States, when making their audit of such

issuers. Furthermore the financial statements with respect to which

an opinion is expressed after such an audit has been completed should

reflect or be reconciled to the consistent application of generally accepted accounting principles as known to and followed by professional accountants in the United States.

At June 30, 1957, there were approximately 4,700 brokers and

dealers registered with the Commission: Every registered brokerdealer is required to file with the Commission during each calendar

year a report of financial condition on Form X-17A-5 under rule

17a-5. Heretofore a substantial number of these reports were not

required to be certified by independent accountants. On August 8,

1957, the Commission announced the adoption of an amendment of

rule 17a-5. The amended rule provides that every report required

to be filed on Form X-17A-5 must be certified by a certified public

accountant or public accountant who is in fact independent unless

one of the three limited exemptions from the requirements is available. The amendment to rule 17a-5 became effective November 15,

1957, and reports filed after that date, even as of a date within 1957,

were required to comply with the certification requirements set out in

the amended rule.

In several of the Commission's reports for prior years it has been

stated that many of the reports of broker-dealers filed with the Commission were deficient because the certifying accountants appeared

to lack knowledge of stock brokerage techniques with respect to

maintenance of securities accounts because it appeared that they considered the Commission's "minimum audit requirements" to be all
188 SECURITIES AND EXCHANGE OOMMISSIION

of the requirements necessary when making the audit of a brokerdealer or because it appeared that they had failed to read the applicable rules and to comply with the instructions in the forms. It is

hoped that study and application of procedures set forth in the

booklet "Audits of Brokers or Dealers in Securities," published by

the Committee on Auditing Procedure of the American Institute

of Certified Public Accountants, at the suggestion of and with the

cooperation of the Commission's staff, will result in improved reports

filed by brokers and dealers. The booklet describes the special

accounting records used by brokers and dealers, and the auditing

procedures and forms of reports to be used in connection with the

examination of their books and records and should fill the need for

an authoritative guide in this specialized field of auditing. Any

revision of the Commission's forms and auditing requirements is

being deferred pending observation of the effectiveness of this guide.

During the fiscal year the Commission issued its Findings,

Opinion, and Order in a proceeding instituted under rule II (e) of

its rules of practice against Touche, Niven, Bailey & Smart, et al.

The Commission found that respondents had failed to comply with

generally accepted auditing standards and rules and regulations of

the Commission and had failed to fulfil their responsibilities as independent accountants in connection with the preparation and certification of financial statements for use in an annual report on Form 10-K

filed by Seaboard Commercial Corp., thus causing the balance sheet

to be materially misleading in that an inadequate reserve was reflected therein for accounts known to be doubtful of collection, resulting in current assets being overstated; advances to subsidiaries were

not so designated and the notes relating to the reserve for losses and

to current assets improperly described the nature of the reserve and

the basis for inclusion of advances in current assets; and the statement of Seaboard's income was materially misleading because insufficient provision was made for losses on uncollectible accounts. The

Commission concluded that it was necessary to deny respondents,

Touche, Niven, Bailey & Smart, a firm of certified public accountants,

and two partners of such firm, the privilege of practicing before the

Commission for a period of 15 days. 21

OPINIONS OF THE COMMISSION

Opinions are issued by the Commission in contested and other cases

arising under the Securities Act of 1933,the Securities and 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 where the nature of the matter to be decided, whether sub-

:IIAccountIng Series Release No. 78, March 211,1951.
TWENTY -THIRD ANNUAL REPORT 189

stantive or procedural, is of sufficient importance to warrant a formal

expression of views. These opinions include detailed findings of fact

and conclusions of law based on evidentiary records, taken before a

hearing examiner who serves independently of the operating divisions,

or, in an occasional case, before a single Commissioner or the entire

Commission. In some cases formal hearings are waived by the parties

and the findings and conclusions are based on stipulated facts or

admissions.

The Commission is assisted in the preparation of findings, opinions

and orders by its Office of Opinion Writing, an independent staff office

directly responsible to the Commission. It receives all assignments

and instructions from, and makes recommendations and submits its

work to, the Commission directly. While engaged in the preparation

of opinions, members of the Office of Opinion Writing are completely

isolated from members of the operating division actively participating

in the proceedings, and it is an invariable rule that those assigned to

prepare such an opinion must not have had any prior participation

in any phase of the proceedings with respect to which the opinion is

to be prepared. This complete independence of staff members assisting in the preparation of opinions accords with the principle embodied

in the Administrative Procedure Act requiring a separation between

staff members performing prosecutory functions and those performing

quasi-judicial functions.

Members of the Office of Opinion Writing who are assigned to work

on a particular case attend the oral argument of the case before the

Commission and frequently keep abreast of current hearings. Prior

to the oral argument the office makes a preliminary review of the

record and prepares and submits to the Commission a summary of the

uncontested facts and the factual and legal issues raised in the hearings

as well as in any proposed findings and supporting briefs, the hearing

examiner's recommended decision and exceptions thereto taken by

the parties. Following oral argument or, if no oral argument has been

held, at such time as the case is ready for. decision, the Commission

makes a thorough, independent review of the record assisted by the

Office of Opinion Writing, in which the entire record in the proceedings is carefully read and in some cases a narrative abstract of the

record is prepared. Upon the basis of this review and the conclusions

thus reached, the Office of Opinion Writing is instructed by the

Commission respecting the nature and content of the opinion and

order to be prepared.

Upon completion of a draft opinion and review and revision in the

Office of.Opinion Writing, it is submitted to the Commission. The

draft as submitted may be modified, amended or completely rewritten

in accordance with the Commission's final instructions.
190 SECURITIES AND EXCI!ANGW OOMM1SS[ON

When the opinion accurately expresses the views and conclusions of

the Commission it is adopted and promulgated as the official decision

of the Commission and constitutes a source of information for the bar,

investors, and other interested persons; Opinions are publicly released

and distributed to representatives of the press and persons on the

Commission's mailing list. In addition, the opinions are printed and

published by the Government Printing Office in bound jVolumes entitled "Securities and Exchange Commission Decisions and Reports."

During the fiscal year 1957the Commission issued findings, opinions,

and orders in 97 cases, exclusive of numerous uncontested matters

disposed of without opinion.

APPLICATIONS FOR NONDISCLOSURE OF CERTAIN INFORMATION . The Commission is authorized under the various acts administered

by it to grant requests for nondisclosure of certain types of information which would otherwise be disclosed to the public in applications,

reports, or other documents filed pursuant to these statutes. Thus,

under paragraph (30) of Schedule A of the Securities A.ct of 1933, disclosure of any portion of a material contract is not required if the

Commission determines that such disclosure would impair the value

of the contract and is not necessary for the protection of the investors.

Under section 24 (a) of the Securities Exchange Act of 1934, trade

secrets or processes need not be disclosed in any material filed with

the Commission, and under section 24 (b) of that Act written objection

to public disclosure of information contained in any such material may

be made to the Commission which is then authorized to make public

disclosure of such information only if in its judgment such disclosure

is in the public interest. Similar provisions are contained in section

22 of the Public Utility Holding Company Act of 1935 and in section

45 of the Investment Company Act of 1940. These statutory provisions have been implemented by rules outlining the procedure to be

followed by persons applying to the Commission for a determination

whether public disclosure is 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:

AppZications tor nondisclosure of certain information during the /l8caZyear 1957

Number Number Number pending Number Number denied pending

July 1, received granted or with. June 30, 1956 drawn 1957

--- --- --- --- secunrtes Act of 1933 ,_______________________________ 3 30 sr 4 2 secunnes Exchange Act of 1934 3 14 6 8 3 Investment Company Act of 1940 0 5 5 '0 0

--- --- --- --- --- TotaL. ________________________________________ 6 49 38 12 5

I Filed under rule 485.

Filed under rule 24b-2. Filed under rule 45a-l.

• ____________________

•__________________

•

•
TWENTY -THIRD ANNUAL REPORT 191

STATISTICS AND SPECIAL STUDIES

During the past fiscal year the Section of Economic Research of

the staff of the Commission continued its regular work in connection

with the statistical activities of the Commission and the overall Government statistical program under the direction of the Officeof Statistical Standards, Bureau of the Budget. In general, the work conducted by this section is concerned with capital formation in the

United States including the securities markets, saving and investment. Several special reports related to the regular statistical series,

described below, were prepared and released and numerous projects

were completed in response to requests from congressional committees,

the Council of Economic Advisers, other Government agencies, private organizations and individuals.

Special reports prepared during the fiscal year 1957 inchided the

following: (1) A survey of the cost of flotation of securities offered

during the years 1951, 1953 and 1955, covering issues registered under

the Securities Act of 1933, privately placed securities, and certain

other exempt issues, was completed during the year and released in

July 1957. Copies of this survey are available at the Government

Printing Office. A supplemental report to the study providing a

description of the kinds of securities floated in recent years was also

completed, copies of which can be obtained from the Securities and

Exchange Commission Publication Unit. (2) A report on the sales

success of small securities issues (those $300,000 or less in size exempt

from registration under Regulation A of the Securities Act of 1933)

was prepared in January 1957. (3) A new survey on 1957 long-term

financing plans of manufacturing and utility firms, based on sample

data procured in connection with the Commission's annual survey of

business capital expenditures, was released in March 1957 (Statistical

Series Release No. 1443). (4) In October 1956, a report on noninsured

pension funds entitled "Survey of Corporate Pension Funds, 1951-

1954" was published. This study, which was developed in connection

with the annual surveys conducted by the Commission in this field, presented detailed data as to industry and size of corporations having

pension funds and the implications of pension funds on savings and the

capital markets. The report is available at the Government Printing

Office. (5) During the 1957 fiscal year three papers were published in

connection with the joint project of the Commission and the Department of Commerce on business plant and equipment expenditures.

The first of these, "Forecasting Plant and Equipment Expenditures

from Businessmen's Expectations," was delivered at the annual meeting of the American Statistical Association in Detroit in September

1956. The second paper entitled "Ten Years' Experience With Business Investment Anticipations" appeared in the January 1957 Survey
192 SECURITIlDS AND EXCHANGE COMMISSIION

of Current Business, and the third, "Investment Plans and Realization

{Reasons for Differences in Individual Cases)," was published in the

June 1957 Survey of Current Business.

The regular statistical series which are prepared include data on

securities effectively registered under the Securities Act of 1933, offerings of securities by all corporations in the United States (including

issues not registered with the Commission, such as privately placed

issues and railroad securities), retirements of corporate securities,

net change in corporate securities outstanding, stock prices and trading. The research and statistical activity carried out under the direction of the Bureau Of the Budget includes individuals' savings in the

United States, income flow and investments of private pension funds

of United States corporations, current liquid position of the United

States corporations, sources and uses of corporate funds, anticipated

expenditures for plant and equipment by United States businesses,

and a quarterly financial report for all United States manufacturing

concerns.

The statistical series are published in the Commission's Statistical

Bulletin and in addition, except for data on registered issues, current

figures and analyses of the data are published in quarterly press releases. The Commission's stock price index is released weekly, together with the data on round-lot and odd-lot trading on the two New

York Stock exchanges.

The various statistical series are as follows:

Issues Registered Under the Securities Act of 1933

Monthly and quarterly statistics are compiled on the number and

volume of registered securities, classified by industry of issuer, type

of security, and use of proceeds. Data for the 1957 fiscal year appear

on page 36 and in appendix tables 1 and 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 issuer. Beginning

with the first quarterly release in 1957, data were presented on the

average yield of industrial and public utility issues offered during

the period, and a separate classification of convertible debt offerings

was added to the series. Annual statistics on new offerings since 1952,

as well as monthly figures from January 19506through June 1957,

are given in appendix tables 3 and 4. A summary of the data is shown

annually from 1934 through June 1957 in appendix table 5.
TWENTY -TffiRD ANNUAL REPORT 193

Corporate Securities Outstanding

Estimates of the net cash flow through securities transactions are

prepared quarterly and are derived by deducting from the amount

of estimated gross proceeds received by corporations through the sale

of securities the amount of estimated gross payments by corporations

to investors for securities retired. Data on gross issues, retirements,

and net change in securities outstanding are presented for all corporations and for the principal industry groups.

Stock Market Data

Statistics are regularly compiled on the market value and volume

of sales on registered and exempted securities exchanges, round-lot

stock transactions of the New York exchanges for accounts of members and nonmembers, odd-lot stock transactions on the New York

exchanges, special offerings and secondary distributions. Indexes of

stock market prices are compiled, based upon the weekly closing market prices of 265 common stocks listed on the New York Stock Exchange. The indexes are based on the prices of securities of 7 major

industry groups, 29 subordinated groups, and a composite group.

Saving Study

The Commission compiles quarterly estimates of the volume and

composition of individuals' saving in the United States. The series

represent net increases in individuals' financial assets less net increases

in debt. The study shows the aggregate value of saving and the form

in which the saving occurred, such as investment in securities, expansion of bank deposits, increase in insurance and pension reserves,

etc. The Commission is cooperating in a new program of research on

national saving being developed by the Federal Reserve Board, which

will cover Government, business, and individuals' saving, and it is

expected that several changes and improvements will be made in the

saving series in the course of the current fiscal year. A. reconciliation

of the Commission's estimates with the personal saving estimates of

the Department of Commerce, derived in connection with its national

income series, is published annually in July in the National Income

Issue of the Survey of Current Business.

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. The first survey,

covering the years 1951-54, was released in October 1955, and the

second survey covering the year 1955 was published in December

447579-58-14
194 SECURITIES AND EXCHANGE OOMMISSiION

1956. A survey for the year 1956 was released shortly after the close

ofthe fiscal year. I

Financial Position of Corporations

The series on working capital position of all United States corporations, excluding banks and insurance companies, shows the principal components of current assets and liabilities, and also contains

an abbreviated analysis of the sources and uses of corporate funds.

The Commission, jointly with the Federal Trade Commission, compiles a quarterly financial report for all United States manufacturing

concerns. This report gives complete balance sheet data and an

abbreviated income account, data being classified by industry and

size of company. During the 1957 fiscal year the industry classification of this report was expanded to give separate figures for several

.important industry groups.

Plant and Equipment Expenditures

The Commission, together with the Department of Commerce,

conducts quarterly and annual surveys of actual and anticipated plant

and equipment expenditures of all United States business, exclusive

of agriculture. Shortly after the close of each quarter, data are

released on actual capital expenditures of that quarter and anticipated expenditures for the next two quarters. In addition a survey

is made at the beginning of each year of the plans for business expansion during that year.

PUBLIC DISSEMINATION OF INFORMATION

Administration of the Federal securities laws results in public

dissemination of a vast amount of financial and other information

with respect to securities offered for public sale and those traded on

our national securities exchanges. These data receive extensive circulation through the medium of the prospectuses relating to public

offerings, through the financial press, and by various securities

manuals used extensively by securities firms, investment advisers,

investment companies, trust departments, insurance companies and

others. Virtually all data obtained by the Commission under the

laws it administers constitutes public information and is available

for inspection and distribution, the nonpublic information including

primarily the Commission's private investigation and other internal

files and amounting to something less than 10 percent of the Commission's records.

Most Commission actions take the form of orders, decisions and

rules. So that the investing public may keep currently informed of

these actions, copies thereof are distributed in "release" form to the

•
TWENTY -THIRD ANNUAL REPORT 195

Commission's mailing lists, comprising the names of persons who have

specifically requested certain types of releases. During the year, a

total of 940 such releases were issued for distribution to these lists.

Another 92 release~ were issued announcing the results of the Commission's regular statistical studies of New Security Offerings, Expenditures on New Plant and Equipment, Net Working Capital of

Corporations, Financial Reports of Manufacturing Companies, Surveys of Pension Plans, and Savings of Individuals. An additional 136

releases were issued with respect to court injunctions and criminal

prosecutions.

To facilitate widespread press coverage of the financial and other

proposals filed with, and actions by, the Commission, a daily News

Digest is issued to the press presenting a synopsis of all important

corporate developments included in filings with the Commission and

of the orders, decisions and rules issued by the Commission.

Furthermore, the Chairman and other members of the Commission,

as well as top staff officials, frequently deliver addresses before professional and trade bodies to acquaint them with the general policies and

practices of the Commission, or to discuss particular phases of Commission administration. They also make themselves available for interview by representatives of the press, individually or collectively,

particularly when visiting financial centers throughout the country.

Information Available for Public Inspection

The Commission maintains public reference rooms at its principal

office in Washington, D. C., and at its regional offices in New York

City and Chicago, Ill.

Copies of all public information on file with the Commission contained in registration statements, applications, declarations and other

public documents are available for inspection in the public reference

loom in Washington. During the fiscal year 3,318 persons made personal visits to the public reference room seeking public information

and an additional 25,284 requests for registered public information

and copies of forms, releases and other material of a public nature

were received. Through the facilities provided for the sale of reproductions of public information, 2,011 orders involving a total of

110,065 page units were filled and 431 certificates attesting to the authenticity of copies of Commission records were prepared. The Commission also mailed or distributed 430,741 copies of publications to

persons requesting them.

There are available in the New York Regional Officecopies of recent

filings made by companies which have securities listed on exchanges

other than the New York exchanges and copies of current periodical

reports of many other companies which have filed registration state-
196 SECURITIES AND EXCHANGE OOMMJSS[ON

ments under the Securities Act of 1933. During the fiscal year 10,145

persons visited this public reference room and more than 10,976 telephone calls were received from persons seeking public information

and copies of forms, releases and other material. In the Chicago

Regional Office there are available copies of recent filings made by

companies which have securities listed on the New York exchanges.

Copies of recent prospectuses used in the public offering of securities

registered under the Securities Act are available in all regional offices,

as are copies of active broker-dealer and investment adviser registration applications and Regulation A Letters of Notification filed by persons or companies in the respective regions.

Copies of certain reports filed with the Commission are also available at the respective national securities exchanges upon which the

securities of the issuer are registered.

PUBLICATIONS

Publications issued during the fiscal year include:

'Statistical Bulletin. Monthly.

,Official Summary of Securities Transactions and Holdings of Officers, Directors and Principal Stockholders. Monthly.

L Twenty-Second Annual Report of the Commission.

Securities Traded on Exchanges under the Securities Exchange Act of -1934,

as of December 31, 1956.

, Companies Registered under the Investment Company Act of 1940, as of

December 31, 1956.

"Financial Report, United States Manufacturing Corporations. (Jointly

with Federal Trade Commission.) Quarterly.

-;'Accounting Series Release No. 78, March 25,1957.

Volumes Nos. 31, 32, 33, 34, 35, and 36 of the Commission's Decisions and

Reports.

Working Capital of United States Corporations. Quarterly.

Volume and Composition of Saving. Quarterly.

New Securities Offered for Cash. Quarterly.

Plant and Equipment Expenditures of United States Corporations.

(Jointly with Department of Commerce.) Quarterly.

Compilation of Documentary Materials, February 26, 1957.

Survey of Corporate Pension Funds,1951-54, October 1956.

Corporate Pension Funds 1955, December 31, 1956.

ORGANIZATION

The staff of the Commission is composed of attorneys, accountants,

engineers, securities analysts, and clerical employees. It is divided

into divisions and offices, including nine regional offices.

During the fiscal year 1957 the Commission continued its policy

of review of its organization and functions in the interest of discharging its duties and responsibilities as efficiently and economically

as possible.

-
TWENTY -THIRD ANNUAL REPORT 197

The personnel and functions of the New York Regional Officewere

realined effective September 5, 1956. This action was designed to

promote efficiency of operation by establishment of three coordinate

branches, each responsible for the performance of an important

phase of the Commission's task of protecting investors. The New

York Regional Office now consists of a Branch of Investigations,

comprising a Section of Securities Act Investigations, a Section of

Securities Exchange Act Investigations, a Section of Broker-Dealer

Inspections and a Section of Market Surveillance; a Branch of

Enforcement; and a Branch of Operations, comprising a Section of

Small Issues, a Section of Public Information and Interpretations,

and a Section of Reorganization.

Effective February 12, 1957, the personnel and functions of the

Chicago Regional Officewere realined to provide for a more effective

organization. The Chicago Regional Officenow consists of a Branch

of Investigations, responsible for broker-dealer inspections and fraud

investigations; a Branch of Enforcement, responsible for all enforcement work in the Chicago Region; and a Branch of Reorganization,

responsible for the Commission's functions under Chapter X of the

Bankruptcy Act. There was also established an Office of Chief

Counsel, with responsibility for all interpretative activities and work

in connection with the administration of regulation A in the region;

and an Office of Assistant Regional Administrator, with headquarters in Detroit, for the tri-state area of Michigan, Ohio, and

Kentucky.

The changes described above cover the Commission's two largest

regional offices, employing approximately half of the total regional

office staff. It is anticipated that this realinement of functions will

be of great assistance to the Commission in its handling of an increasing number of cases requiring investigation and prosecution.

The Commission's 22nd Annual Report summarized the realignment of functions and personnel of the Commission's major divisions

in Washington during the fiscal year 1956.

PERSONNEL MiD FISCAL

The following comparative table shows the personnel strength of

the Commission as of June 30, 1956 and 1957:

June 30. 1957 June 30, 1956

Commlssloners. ... 4 ---------- 5

Staff:Headquarters office_________________________________ 480 ------780- 458 Regional offices . --_. 300 271 729

TotaL. -.- --- ------ --- 784 734

___________________________--------------- -- ------- -- -

•_-____ ______________________________ --- __--__

_____________________________________ -______ ---------- • - ----~-----
198 SECURITIES AND EXCHANGE OOMMISSiION

The action taken on budget estimates for the fiscal year 1958 IS

shown below:

, Fiscal year 1958

Average Money employment

COlIlJIUSSlOn'sestimate to the Bureau of the Budget _________________________ 935 $7,178,000 Excess over President's Budget; -- - - -

Action recommended in the President's Budget _____________________________ 935 7,178,000 Action by the House of Representatives _____________________________________ -80 -478,000

Subtotal, ____________________ .________________________ .. _____________ 855 6,700,000

Action by the Senate ___________. _._.. _______________________________________ -------------- -------------- Bubtotal., . _________________________ . __________. _______________________ 855 6,700,000 Action by conferees. . . -. . .

Annual approprratlon . . . -. 855 6, 700,000

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."

The following table shows the Commission's appropriations, total

fees collected, percentage of fees collected to total appropriation, and

the net cost to the taxpayers of Commission operations for the fiscal

years 1955,1956,and 1957:

Percentage of

fees collected Net cost of

Year Appropriation Fees collected to total Commission

ap~Prlation operations I

rcent)

1955 $4, 843,180 $1, 703, 290 35 $3,139,890 1956____________________________________________ 5,278,000 2, 074, 211 39 3,203, 789 1957____________________________________________ 5, 749.000 2, 243, 580 39 3, 505, 420

I Fees are deposited In the general fund of the TrellSllI'Yand are not available for expenditure by the

Commission.

In accordance with the objectives of Public Law 863 and the Joint

Accounting Improvement Program, the Branch of Budget and

Finance developed and implemented the Commission's Budget Manual during fiscal year 1957. In addition, several operating procedures relating to delegations of authority, policy directives, forms,

procedures, and similar matters having continuing application to

the internal budget and administrative accounting operations of the

Commission were promulgated .

.. Principal rates are (1) 1/100 of 1 percent of the maximum aggregate price of securities proposed to be offered, but not less than $25; (2) 1/500 of 1 percent of the aggregate

dollar amount of stOCk' exchange transactions. Fees for other services are only nominal.

________________________________________-------------- --------------

__________________________ ______________-- -___-____-------------- --------------

__ _________________-_____-__ --___-- _-- ----- ---- ___

_____________________• ______________________
NUMBER

1

. TWENTY-THIRD ANNU:AL REPORT

S. E. C. PERSONNEL

199

1000

800

600

400

DEPARTMENTAL

•• : • RATIO OF FIELD TO TOT AL PERSONNEL

.: •• 40 c====::=:::=:::=,

30

10

I I I I ,

200

... .

>

1951 52 53 54 ~5 56 57

.... "~:<: .: .

FIELD

1M 5

... ...

1951 52 53 54

(FISCAL YEAR)

55 56 57

OS. 38 S9

•

~

,

TWENTY-THIRD ANNUAL REPORT 201

Personnel Program

During fiscal year 1957 the Commission continued to strengthen its

staff by filling the additional positions authorized under its appropriation and vacancies resulting from turnover. Emphasis was placed

on a college and university recruitment program which included campus interviews by Commission representatives. This program was

designed to recruit outstanding college and law school graduates

with the required specialized training for careers in the Commission.

Emphasis was also placed on the in-service training of employees

for the advancement of their career development, while at the same

time furthering the administration and enforcement of the Federal

securities laws. These courses were given in the Headquarters Office

in Washington, D. C., and in the New York Regional Office. The

training course in the principal office, sponsored by the Division of

Corporation Finance, consisted of 32 sessions during the period February 23, 1957, through June 7, 1957. The course covered the whole

range of functions of the Division of Corporation Finance and took

cognizance of the importance of an understanding of the related functions of the other divisions and offices of the Commission. Approximately 90 employees attended this course, 32 from the staff of the

Division of Corporation Finance and the balance from other divisions

and offices in the Commission. The training course in the New

York Regional Office was given from January to June 1957 and was

attended by 24 employees of that office.

Under its Incentive Awards Plan, the Commission recognized the

long service of its career employees by presenting 10- and 20-year

service pins and certificates to a total of 62 employees for service with

the Commission. In the fiscal year 1956, 10- and 20-year pins and

certificates were awarded to 453 employees, or 63 percent of the total

staff. In addition 9 employees were awarded $360 for suggestions

which were adopted and cash awards totaling $4,450 and certificates

of merit were presented to 43 employees.

During the fiscal year, the outstanding achievements of members

of the Commission's staff received further public recognition in the

form of awards made by other organizations. On December 1, 1956,

a member of the Commission's staff, James F. Duffy, competed for

participation in the Civil Service Commission's Spring 1957 Management Intern Program. Mr. Duffy was one of the 21 successful candidates, out of a total of 287 applicants throughout the Government

service, admitted to the Program. The National Civil Service League

awarded certificates of merit to 5 Commission employees-Oran H.

Allred, Byron D. 'Woodside, James E. Newton, Vito Natrella, and
202 SECURITIES AND EXCHANGE OOMMISSiION

J. Kirk ,'Tindle. In February, 1957, a Rockefeller Public Service

Award, one of 9 such awards made throughout the Federal service

was granted to Lawrence M. Greene, Assistant Director, Division of

Corporate Regulation. J. Arnold Pines, Chief Financial Analyst of

the Division of Corporate Regulation, received an Arthur S. Flemming Award of the Junior Chamber of Commerce of Washington,

D. c., as one of the 10 outstanding young men in the Federal service.

In May, 1957, a financial analyst in the Division of Corporate Regulation, Robert E. Johnson, was awarded a Certificate of Merit by the

William A. Jump Memorial Foundation.

The Commission is justifiably proud of these distinctions earned

by its employees whose devoted and conscientious service has contributed so much to carrying out the statutory objectives for which

the Commission was created.
PART XII

APPENDIX

STATISTICAL TABLES

TWENTY -THIRD ANNUAL REPORT

TABLE I.-A 23-year record of registratiort8 fully effective under the

Securities Act of 1939

1935-1957

[Amounts In millIons of dollars)

205

For cash sale for account of Issuers

Fiscal year ended June 30 Number of All regisstatements tratlons Bonds, deTotal bentures Preferred Common

and notes stock stock

1935 1_________________________

1936___________________________ 284 $913 $686 $490 $28 $168

1937___________________________ 689 4,835 3,936 3,153 252 531

1938___________________________ 840 4,851 3,635 2,426 406 802

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 1,112 110 210 313 2,611 2,081 1,721 164 191) 1942___________________________

1943___________________________ 193 2,003 1,465 1,041 162 263

1944__________________________ 123 659 486 316 32 137

1945___________________________ 221 1,760 1,347 732 343 272

1946___________________________ 340 3,m 2,715 1,851 407 456 661 7,073 5,424 3,102 991 1,331 1947_________________________ 1948__________________________ 493 6,732 4,874 2,937 787 I, 150 435 6,405 5,032 2,817 537 1,678 1949_________________________ 429 5,333 4,204 2,795 326 1,083 1950 487 5,307 4,381 2,127 468 1,786 1951. __________________________ 487 6,459 5,169 2,838 427 1,904 1952___________________________ 635 9,500 7,529 3,346 851 3,332 1953___________________________ 593 7,507 6,326 3,093 424 2,808 1954___________________________ 631 9,174 7,381 4,240 531 2,610 1955 779 10,960 8,277 3,951 462 3,864 1956___________________________ '833 13,096 9,206 4,123 539 4,544 1957___________________________ '860 14,624 12, 019 5,689 472 5,858

I For 10 months ended June 30, 1935. , Statements registering American Depositary Receipts against outstanding foreign secuntles as provided

by Form S-12 are not meluded,

•

__ -- _____________________

__________________•________
206 SECURITIES AND EXCHANGE OOMM:ISSIOX

TABLE 2.-Regi8trations juUy effective under the Securities Act oj 1938

PART I.-DISTRIBUTION BY MONTHS, FISOAL YEAR ENDED JUNE 30, 1957

[Amounts In thousands of dollars I]

All registrations Proposed for sale for account of Issuers

Year and month

Number of Number of Amount Number of Number of Amount statements Issues statements Issues

1966 July __________________________ 67 84 1,005,551 60 72 920,166

~=~ber .; .; 55 74 982,143 46 56 811,444

October 57 88 1,460,351 53 75 1,277,245 _______________________ 72 91 894, 777 62 69 647,376 November ____________________ 61 84 1,152,222 51 65 830,750 December __________________ ._ 43 53 531,003 38 40 420,841

1967 January ______________________ 74 100 1,466,397 67 81 1,156.993 February _____________________

March 70 94 1,789,110 61 73 1,416,482 ________________________ Aprll 85 98 1,138,399 79 86 1,022,988 _________________________ 99 122 1,686,984 91 111 1,492,280

~t=

91 110 1,180,161 85 97 1,056,689 86 121 1,336,482 77 99 965,795

Totsl, fiscal year 1957___ '860 1,119 14,623,579 770 924 12,019,050

PART 2.-PURPOSE OF REGISTRATION AND TYPE OF SECURITY, FISCAL YEAR ENDED

JUNE 30, 1957

[Amounts In thousands of dollars I]

Type of security

Purpose or registration Bonds,de- Preferred Common All types bentures, stock stock and notes I

All registrations (estimated value) _____________________ 14, 623, 579 5,768,379 522,693 8,332,508

For account of Issuers for cash sale _________________ 12,019,050 5,689,157 471,589 5,858,305

Corporate ______________________________________ '11,733,094 5,403,201 471,589 5, 858, 305

Offered to: General publ1c _________________________ 7,949,658 4,670,090 345,207 2,934,361 Security holders ________________________ 3,250,955 724,967 126,381 2,399,007 Other special groups 532,481 8,144 524,338

ForeIgn governments 285,956 285,956 ------------ ------.-----

For account or Issuers for other than cash sale ______ 2,224,921 79,222 46,349 2,099,350

For account of others than Issuers __________________ 379,608 ------------ 4,755 374,853

See footnotes at end or table

•

~ ==== ====== ==== =

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

•

___________________ ------------ _________• _________________

•
TWENTY -THIRD ANNUAL REPORT 207

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TABLE3.-New securiliea offetedfor cnsh sale in the United 

PART4.-PRIVATE PLACEMENT OF CORPORATE B
TWENTY -THIRD ANNUAL REPORT 213

TABLE 4.-Prop08ed mel of net proceedsfrom the sale of new corporate securities

offeredfor cash in the United States

PART I.-ALL OORPORATE

[Amounts In thousands o! dollars I)

Prooeeds New money

Oalendar hear or Retire- Other mont I mentor purposes Total gross Total net Total new Plant and Working securities

proceeds I proceeds I money equipment capital

195L _____________________ 7,741,099 7,606,520 6,531,403 5,110,105 1,421,298 486,413 588,703 1952______________________ 1953______________________ 9,534 162 9,380,302 8,179,548 6,311,802 1,867,746 664,056 536,698

1954______________________ 8,897:996 8, 754, 721 7,959,966 5,646,840 2,313,126 260,023 534,733

1955______________________ 9,516, 168 9,365,090 6,780,196 5,110,389 1,669,806 1,875, 398 709,496

1956___________________ 10,240,155 10,048,855 7,957,394 5,333,328 2,624,066 1,227,494 8113,967

10,938, 718 10,748,836 9,662,952 6,709,126 2, 953, 826 364,459 721,424

1956 January __________________ 612,580 601,495 486,235 164,22S 322,007 28,238 S7,022 February

March 747,700 733,550 672,419 379,916 292,50.3 21,262 39,869 ___________________ 889,147 873,647 788,519 532,297 256,222 56,734 28,394

tfa':::::::::::: :::::::::: 915,772 898,459 702, 367 479,443 222, 924 80,116 115,976

1,180,494 1,160,221 1,104,863 938,570 166,293 14, 676 40,682 June. ____________________ 892,975 876,167 782, 108 446,234 335,874 35,234 58,825 July 1,106,420 1,088,772 1,003,203 753,582 249,622 25,828 59,741 August_. _________________ 693,483 679,029 550,194 369,854 180,341 24,668 104,167 September _______________ October 889,792 873, 412 815,528 513, 330 302, 198 35,210 22,675 __________________ 773,464 755,504 660,330 490,011 170,319 10,944 84,231 November 1,123, 012 1,110,227 1,048,104 905,009 143,095 21,014 41,108 December 1,113,788 1,098,353 1,049,081 , 736,652 312,429 10 536 38,735

1957 J annary __________________ 1,094,186 1.074,551 1,025,510 793,661 231,849 11,262 37,779 February ________________ 1,115,672 1,092, 463 926,693 723,576 203,117 21,693 144,077 March ___________________ 1,386,456 1,365,439 1,271,023 1,105,772 165,2.'H 20,969 73,446

tfa':::::::::::::::::::::: 956,497 937,163 863,571 652, 945 210,627 13,043 60,548801,576 786,220 706,740 557,967 148,773 15,279 64,201 1une _._. 1,547,377 1,519,650 1,419,289 1,051,271 368,018 30,928 69,434

PART 2.-MANUFAOTURING

95L _____________________ 3,121,853 3,066,352 2,617,233 1,832, 777 784,456 220,828 228,291 1952______________________ 4,038, 794 3,973,363 3,421,892 2,179,563 1,242,329 260,850 290,621 1953______________________ 2, 253,531 2, 217, 721 1,914,853 1,324,675 590,178 90,115 212,753 1954______________________ 2, 268,040 2, 234, 016 1,838,907 1,009,495 829,413 189,537 205,571 955 ______________________ 2, 993,658 2, 929, 734 2,020,952 1,265, 272 755,680 532,571 376,210 956________________.- ____ 3,647,243 3,578,502 2,944,378 1,928, 034 1,016,344 242, 684 391,440

1956

':t~:::::::::::::::: 200,874 196,403 107,838 57,025 50,814 25,665 62,900

207,246 201,843 155,707 100,345 55,362 19,179 26,957 arch_. _________________ 283,229 276,491 238,358 149,601 88,757 24,068 14,066 rfl, ._ 343,004 336,838 173,475 114,142 59,333 78, 070 85,294 ay _____________________ 486,766 478,352 459,273 407,783 51,491 11,138 7,940 une _____________________ 305,338 300,446 252.404 125,072 127,332 19,368 28,675 uly ______________________ 347,539 341,471 301,088 174,936 126,152 8,013 32,371 ugust ___________________ 216,525 212,461 151,281 75,089 76,192 16,092 45.088 eptember _______________ 221,175 216,286 201,606 142,959 58,646 10,263 4,417 otober __________________ 32'1,580 320,943 245,034 146,935 98,099 7,002 68.908 ovember 167,765 166,119 140,694 68,136 72,558 18,695 6,730 ecember 538,203 530,848 511.621 366,010 151,610 5,133 8,095

1957

':t~:::::::::::::::: 395,633 388,813 375,310 302, 413 72,896 7,623 5,880

558,118 545,180 428,300 363,722 64, 579 1,772 115,107 arch. m_____________________ 376,506 370,151 343,002 279,502 63,500 4,M4 23,065

324, 188 317,403 273.336 171,644 101,692 2,922 41,145 ay 141,911 138,410 103.664 46,872 56.792 3,742 31,004 nne. ____________________659,634 547,354 583,548 419,245 164,302 21,285 42,522

J

F

M

tf.

1

1

A

S

o

N

D

"1

F

M

tf.

1

See footnotes at end of table.

__• _____________

___ • _________________

__• ____• _______ __• _____________

___•• ____________

___________•______

__• ____________

____• _______•• __

______•___________

____• _________• ______
214 SECURITIES AND EXCHANGE OOMMLSSIION

TABLE 4.-Proposed uses of net proceedsfrom the sale of new corporate securities

offered for cash in the United States-Continued

PA.RT 3.-MINING

[Amounts in thousands of d01lars I)

Proceeds New money

Calendar year or Retire- Other month , mentol purposes Total gross Total net Total new Plant and Working securities proceeds I proceeds I money equipment capital

}~k:::::::::::::::::::::} (.) - (.) (.) (.) (.) (.) (.)

1953______________________

HI54 235,368 222,051 199,151 113,104 86,048 1,1112 2O,lI88

538,597 513,5116 334,704 215,758 118,946 45, 624 133,268 11155 415,28lI 390,758 325,400 1117,3114 128, 0lI6 3,1121 61,347 1956 455,523 435,001 304,lIOlI 211,029 93,880 37,8411 92, 1134

1956

January ._ 9,978 8,648 7,449 3,418 4,031 0 1, 100 February

March 19,748 17,797 14.853 7,723 7,130 122 2,822

21,122 19,845 17,072 10,657 6,414 303 2,471 AprlL.

May 12,064 11,080 8,1178 3.273 5,705 311 1,7112

35,218 32,992 19,767 13,094 6,672 211 13,015 1une_ _._. 57,732 55,366 54,843 33,403 21,440 0 523 luly 78,698 76.686 49,950 41,136 8,814 14,260 12, 476 August 67,717 65,664 22,121 11,312 10,809 126 43,417 September _______________ 42,483 40,857 12,602 10,204 2,398 20,297 7,958 October ._. 15,071 14,502 9,673 7,703 1,970 1,844 2,985 November _. 78,011 74,871 73,720 60,556 13,164 175 977 December 17,682 17,382 13,883 8,551 5,332 200 3,200

1957

lanuary 23,709 22,478 18,483 11,618 6,865 1,428 2,567 February ._. 42,526 40,592 40,137 28,050 12,088 0 455 March ._ 17,lIOlI 16,382 9,766 4, 003 4. 773 0 6,617

M'a~_-:::::::: ::::::::::::

21,123 20,917 16,946 13,651 3,295 53lI 3,432

10,555 10,021 5,834 3,212 2,622 32 4,155 lune 19,579 18,113 13.655 6,729 6,926 249 4.209

PA.RT 4.-ELECTRIO, GAS AND WATER

1,750

861 3,700

6,53lI

974

2,371

4, 001

500 3,128

5,899

5,032

8,280

0.027

80,827

9,025

77,473

6,049

63,814

6,425

3,107

33,089

5,047

20,335

1,485

1115L 2,454,853 2,411,714 2, 186, 248 2, 158, 823 27,425 85, 4311 14 11152. 2, 674, 6114 2,626,377 2,457,823 2,441,862 15,961 87,726 11153 ._ 3,029,122 2,971,1111 2, 755,852 2,737,082 18,770 67034 14 1954. ___________._. _______ 3,713,311 3,664,922 2,5117,651 2, 582,366 15,285 1I811:799 11155 ._. 2, 463,729 2,428,158 2,218,094 2,205,655 12, 4311 174,015 3 1956 2,529,175 2, 487, 493 2,409,885 2, 3114,928 14,1157 13, 7114

1956

1anuary 68,820 67,869 64,829 64,157 672 1,290 February 199,606 1115,811 ll14,l150 1112,155 2, 7115 0 March _. 191,844 1811,1811 185,306 184,7411 556 93 A prll

May 297,311 292,835 285, 782 282,136 3,645 514

339,394 334,900 333,556 333,407 149 370 lune _____________________ 236,057 232,284 223,593 219,798 3,795 6,320 lu1y 240,866 236, 726 231,836 231,662 174 200 August_ 157,417 154, 660 153,587 153,448 140 572 September _______________ 250,106 245,823 238,395 237,577 818 4,300 October ._. 231,997 226, 742 220,844 220,775 69 0 November 155, 700 153,450 138,418 138,373 45 0 1 December 159,968 157,204 138,789 136, 689 2,101 134 1

1967

1anuary _. 251,418 247,346 230,654 230,631 23 267 1 February _. March 265, 415 261,016 234, 245 226,575 7,670 13,664 1

513,535 505,735 456, 560 456, 660 0 16,086

M':::::::: ::::::::::::::

363,948 356,891 346,375 346, 219 155 5,470

362,567 356,363 327,795 327,251 545 8,233 lune 444,232 435,865 424,380 424,073 307 0 1

see footnotes at end 01 table.

__•________• __________

______________• _______

__• ____• _____- ________

_______•________ __• _____________ _____________• _____

___________••• _____ _________________• ___

••• _______• _____

__________•• __________ __•• _______• _______

____ ______•• ___

___• _________ ________• _______

_______• ______•• __

__• __________

__________• ______

_____•• ______________

__________________•• _

___• __________• ______

_____________• ______

___• ______• ___ _____

_________________• ____

_______________•• _

_______ • ________

_____• __• ____•• __ ______• _____• ______•• _____________• _______

____• _______• _________

•••••• _________• __

_______• _ ______

_____ •• ________ __• __• __________

______• _________

____________ •• ________________ • __

______• ___________• __
TWENTY-THIRD ANNUAL RE.PORT 215

TABLE 4.-Proposed uses of net proceeds from the sale of new corporate securities

offered for cash in the United States-Continued

PABT /i.-RAILROAD

[Amounts In thousands of dollars I]

Proceeds New money

Calendar year or Retire- Other month ment of , Total gross Total net Total new Plant and Workmg securities purposes

proceeds a proceeds a money equipment capital

1951 _._ 33/i,OS7 881,864 296,917 291,886 5,080 84,214 733 1952 ._. 525,205 520,817 286,526 286,476 50 233,582 10,758 1958 802,897 298,904 267,024 244,254 22,770 81,879 0 1954 ._. 479,822 474, 180 209,585 202,441 7,144 261,845 8,250 1955 547,777 540,845 215,702 214,411 1.291 818,965 5,679 1956. _____________________ 882, 012 878,159 865,447 365,447 0 12,713 0

1956 January _. ________________ 18,543 18,409 18,409 18,409 0 0 0 February

March 30,769 30,335 29,175 29,175 0 1,160 0 ___________________ ApriL 47,269 46,876 37,718 37,718 0 9,158 0

May 13,892 13,729 12, 958 12, 958 0 772 0 _____________________ 88,865 38,481 86,858 86,858 0 1,633 0 J une 33,847 33,046 33,046 33,046 0 0 0 Juiy _. ___._. ______________ 10,274 10,182 10,182 10,182 0 0 0 August. 22,307 22,006 22,006 22,006 0 0 0 September _______________ 55,148 54,618 54,618 54, 618 0 0 0 October. 29,028 28,707 28,707 28,707 0 0 0 November 88,861 38,491 88,491 38,491 0 0 0 December _. ____________._ 43,714 43,280 4J,28O 43,280 0 0 0

1957 January _' 51,298 50,731 50,781 50,781 0 0 0 February 22, 112 21, 902 21,902 21,902 0 0 0 March _______________ ._._ 89,433 89,115 39,115 39,115 0 0 0 April 28,415 28,129 28,129 28,129 0 0 0 May. _. 54,284 58, 774 58,774 58,774 0 0 0 Juna, 24,598 24, 291 16,861 16,361 0 7,930 0

PABT6.-0THER TRANSPORTATION

1951. _. ._ 159,227 158,240 181,009 133,217 7,792 18, 478 8,758 1952. 467,094 462,006 410,778 877,064 33,718 1,119 50,109 1958. 293,086 289,859 264, 880 260,568 4,812 8,949 21,081 1954 _._ ._. 299,482 296,907 270,842 267,042 3,300 9,078 17,493 1955. ._. ._ 845,280 841,717 337,866 220,971 16.895 18,769 85,582 1956 342, 000 335,772 322, 855 298,537 24,318 7,147 5, 770

1956 January _. 8,366 8, 112 7,435 7,411 33 583 94 February _. 8,908 8,834 8,834 3,881 4,953 0 0 March ._._. 84, 778 84,234 30,079 29,090 989 1,290 2,864 April._. _. 40,881 40,184 40,184 88,255 1,929 0 0 May 50,424 49,788 49,137 47,004 2, 133 217 484 June 27,271 26,206 21,098 15,116 5,982 5,057 51 J uiy 26, 649 25,528 25,022 22,641 2, 382 0 505 August 15,298. 14, 773 14, 773 13,424 1,849 0 0 September 8, 782 8, 745 8,636 8,527 109 0 109 October 8,554 8,266 7,741 6,939 753 0 525 November 6, 368 6,348 6,298 6, 249 50 0 50 December ._. 105,720 104, 758 108,616 99,950 3,667 0 1,137

1957 January _._._. .,. 51,205 50,571 50,046 49,784 262 0 525 February 9,397 9,383 8,695 8,851 344 0 688 March ,. 45,902 45,643 44,059 48,222 837 0 1,584 April 37,120 36, 965 35, 785 84,587 1,198 0 1,180

May. 27,456 26,215 26, 110 21,341 4, 769 0 105 June. ._. 85,095 84, 970 33,992 33,223 768 210 768

See footnotes at end of table.

_____• ___________••

_____• ___ __________ _____• _____• _____• ____

_____• ___ _______• __

_____•• __________• ____

•_______• ________

_________________• __

____________• ________

_____________• ____

________• ________

__• ___• ________

____________• ___

__•____• _____•• __

________• __• _____• ___

______________•___

•__•• _____•_____••• _

____•• ____•• ___ •• ___________• _____•___

_____• __• _____• ______

•• •• _________ ___

___ ____•• _______ •••• ______• _______•___

_____• __________ _____________"

____ • _________ _________• ______

_•• ____• ________• ___• ______• ______________

•• _________•• ________• _______• __• ________

______•• _______

• ___• ________•• ___

• _______ • _____•

___• _______ __

___• _____ •_______• _____•__

__• _____••• ____•• ______•• ____• _____• __

__• ____• ___•• __•••• _ __• ____•• _____• __
216 SECURITIES AND EXCHANGE COMMISSiION

TA JlLE 4.-Proposed uses of net proceeds from the sale of new corporate securities

offered for cash in the United States-Continued

PA,RT 7.-COMMUNICATION

[Amounts In thousands of dollars IJ

Proceeds New money

Calendar year or Retire- Other month' mentoi purposes Totslgross Total net Total new Plant and Working securities proceeds' proceeds' money equipment capital

1951.._. 1952______________________ 612, 080 605,095 594,324 574, 417 19,907 5,231 5,540

760,239 753,169 738,924 736,996 1,928 6,095 8, 151 1953 881,853 873,726 860,967 841,600 19,367 3,164 9,596 1954_. _. 720,102 710,819 641,487 639,376 a m 60,089 9,243 1955_. 1,132,271 1,121,408 1,039,611 1,038,092 1,520 7ij.567 5,230 1956. ________. ________•••. 1,419,457 1,405,006 1,371,471 1,359,832 1,639 20,674 12, 861

1958 January 3,063 3,009 1,816 1,710 107 0 1,192 Febmary ________________

March 37,385 36,940 35,426 35,426 0 800 714 121,667 120,127 102, 232 102, 232 0 17,896 0

tfa~::::: =:::::::

15,274 14,860 14,841 14,214 627 0 19 82,055 80,642 80,595 80,550 45 47 0 June _____________________ 11,570 10,938 10,384 10,264 120 0 554 July _______________._. ____ August 263,390 261,012 260,837 260,837 0 0 175 ___________________ 83,352 82, 299 81,156 81,166 0 73 1,070 September _______________ 56,560 56,131 56,131 66,032 99 0 0 October _____. __.. ________ 68,544 67,619 67,321 67,263 59 0 297 November 600,469 597,020 587,512 587,413 98 669 8,839 December 76,229 74,410 73,221 72, 737 484 1,189 0

1957 January __________________ 107,494 105,944 105,017 105,017 0 864 63 February ________________ 47,012 46, 261 46,261 46,177 84 0 0 March ____. _____________. 284,342 281,659 273,987 273,935 52 577 7,095

tf:~:=::::::.: :::::::::: 47,873 47,255 44,881 44,829 52 198 2, 176

82, 926 81,519 78, 799 78,799 0 0 2,720 June 138,528 136,624 136,519 136,486 33 35 70

PART 8.-FINANCIAL AND REAL ESTATE

1951.

1952._.

1953

1954.

1955_.

1966

195~ January February

March

April, . May.

June

July

August. .

September

October

November

December

1957 January

February

March

tfa~----:::::=:::::::::::: June

524,616

515, 178

1,576,048

1,075,818

1,898.677

1,855. 953

269,882

217,282

158, 042

174,246

120,891

198,758

104,663

111,996

239,178

69,369

38,332

153,315

190,707

112, 707

92,620

95,557

72,993

212,869

515,267

508,184

1,560,672

1,061,015

1,867,887

1,831,550

267,500

215,986

166,520

170,501

119,491

196,015

103,429

108,793

235,747

68,323

37,317

151,927

187,071

110,625

91,200

93,400

72,118

210,109

368,485

409,630

1,452, 279

619,155

1,606,145

1,703,487

249,944

215,343

152,341

150,473

101,744

170,013

96,669

90,095

232,047

64,930

36, 105

143,883

176,027

97,719

89,950

91,136

70,300

200,285

15,686

14, 243 32, 116

29,547

33,472

39,038

669

2,882

5,242

10,625

2,594 731

162

6, i22

178

3,555

2,285

3,794

32,947

10,959

313

7,443

346

9,149

352,800

395,387

1,420,162

589,608

1,572,672

1,664,449

249,274

212, 461

147,099

139,849

99,151

169,282

96,407

83,773

231,870

61,374

33,820

140,089

143,080

86, 750

89,647

83,692

69,954

191,136

66,030

60,498

24,225

273,043

66,010

16,947

600

o 1,391

175

1,071

3,904

1,880

6,974

130

66

100

667

348

2,400

o

o 385

o

80,751

38,056

84, 168

168,817

205,731

111,116

16,957

643

2,788

19,852

16, 676

22,098

4,981

11,724

3,570

3,337

1,112

7,377

10,696

10,505

1,240

2,265

1,433

9,824

See footnotes at end of table.

___________• ___• __

___________• __________ ___• ______________

______________• __• __

__________•• ______

________________ • __

========

__• ____________ _________• ______

•• __________• ________

_

_

• _

_

• _

_

• __

_

• _

• _

• _ __• •

_

_

_

_

•

• _

• • _

_

•• __=
TWENTY-THIRD ANNUAL REPORT 217

TABLE 4.-Proposed uses of net proceeds from the sale of new corporate securities

offered for cash in the United State_Continued

PART D.-COMMERCIAL AND OTHER

[Amounts In thousands of dollars I)

Proceeds New money

Calendar year or Retire- Other ment of month I Total gross Tots! net Total new Plant and Working securities purposes

proceeds I proceeds I money equipment caplts!

1951- _____________________ 533,383 517,988 337,187 113,299 223,888 56,194 124, 607 1952______________________ 562, 958 536,386 453,975 275,598 178, 377 24,235 58, 176 1953______________________ 326,640 319,877 244, 960 93,441 151,519 37,745 37,172 1954_____________________. 421.547 409,635 268.364 164,365 104.000 46,889 94,382 I9M. _____________________ 443.473 428.848 294.035 lIi8.0Il1 135.974 46.676 88.138 1956___. __________________ 307,355 200,663 240,521 102,281 138,239 12,652 43,491

1956 January __________________ 33.055 31,545 28.516 11,430 17,086 100 2,9~ February ________________ 26.847 26,002 18,131 8,328 9.803 0 7,871 Mareh

April 31,297 30,365 25.414 13,007 12,407 2,536 2,416 _____________________

May 19,100 18,431 15,675 3,839 11,837 275 2,4RI

26,883 25,576 23,933 17,281 6,652 0 1.643 June_._ 22,001 21,866 16,728 8.804 7,924 586 4,553 July ____________________._ 34,342 33.738 27,721 12,027 15,694 1,475 4,542 A ugust ___________________ 18, 871 18,373 15,175 7,098 8,077 830 2,368 September _______________ 16,366 15,205 11,494 3,236 8,258 220 3,492 October __________________ 21,321 20,402 16,080 8.084 7,996 2,042 2,280 November _______________ 37,417 36,610 26,866 3,507 23,360 1,375 8, 369 December ________________ 18,957 18,549 14,788 5,642 9,146 3,215 547

1957 January __________________ 22,723 21,598 19,241 10,519 8,722 733 1,624

~~~:::::::::::::::: 58,385 57,504 49,432 17.831 31,602 3,857 4,214

16.208 15,554 14,575 8,132 6,443 222 757

tfa'::::::::::::::::: ::::: 38,273 36,202 26,984 6,442 20,542 3,915 5,30448,883 47,799 40,483 26,372 14, 000 2,887 4,449 June _____________________ 12,844 12,3251 10,550 6,005 4,545 1,220 555

I Slight discrepancies between the sum of figures in the tables and the totals shown are due to rounding,

I For earlier data see 18th Annual Report. I Total estimated gross proceeds represent the amount paid for the securities by Investors, while total esnmated net proceeds represent the amount received by the issuer after payment of compensation to

distributors and other costs of flotation

Included with "Commercial and other."

__________• ________

____• ________________

• _________________

•

•
218 SECURITIES AND EXCHANGE OOMMISSIION

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TWENTY -TmRD ANNUAL REPORT 219

TABLE 6.-Denial and suspension orders issued pursuant to Regulations A and D

under the Securities Act of 1933 during the fiscal year 1957

Denial OrdersRegulation A:

DanCu Chemical Co., Oklahoma City, Okla.; Securities Act Release

No. 3746 (January 31, 1957).

Regulation D:

Thunderbird Minerals, Ltd., Calgary, Alberta, Canada; Securities Act

Release No. 3676 (August 13, 1956).

Suspension OrdersRegulation A:

Adirondack Uranium & Mineral Corp., Whitesboro, N. Y.; Securities Act

Release No. 3704 (October 4, 1956).

Aircasters, Inc., Red Bank, N. J., Securities Act Release No. 3767 (March

22,1957).

Albuquerque Electronics Corp., Albuquerque, N. Mex.; Securities Act

Release No. 3683 (August 23, 1956).

Amalgamated American Oil Ine., Los Angeles, Calif.; Securities Act

Release No. 3752 (February 6, 1957).

American General Oil & Gas Co., Houston, Tex.; Securities Act Release

No. 3799 (June 6, 1957).

American States Oil Co., Pauls Valley, Okla.; Securities Act Release

No. 3721 (November 21, 1956).

Howard Hoyt as the Ankles Aweigh Co., New York, No Y.; Securities

Act Release No. 3740 (January 11, 1957).

Apache Uranium Co., Las Vegas, Nev.; Securities Act Release No. 3681

(August 22, 1956).

Apex Uranium, Inc., Denver, Colo.; Securities Act Release No. 3694

(September 26, 1956).

Arizona Cheese & Cattle Co., Phoenix, Ariz.; Seeuritles Act Release

No. 3752 (February 6, 1957).

Arliss Plastics Corp., Brooklyn, N. Y.; Securities Act Release No. 3805

(June 26, 1957).

Arrow Graphic Corp., New York, N. Y.; Securities Act Release No. 3681

(August 22, 1956).

Automatic Garage Corp. of New York, New York, N. Y.; Securities Act

Release No. 3747 (February 1, 1957).

Backers Discount & Finance Co., Inc., Newark, N. J.; Securities Act

Release No. 3721 (November 21, 1956).

Bald Eagle Gold Mining Co., Kingman, Ariz.; Securities Act Release

No. 3773 (April 4, 1957).

Bapay Minerals, Inc., Tungstonia, Nev.; Securities Act Release No. 3778

(April 15, 1957).

Beehive Uranium Corp., Salt Lake City, Utah; Securities Act Release

No. 3688 (September 4, 1956).

Bethlehem Mining & Exploration Corp., San Diego, Calif.; Securities Act

Release No. 3743 (January 18, 1957).

Bevsnda Mines, Inc., Lovelock, Nev.; Securities Act Release No. 3731

(December 19, 1956).

Blackstone Uranium Mines, Inc., Denver, Colo.; Securities Act Release

No. 3656 (July 6, 1956).

Blue Canyon Ursnium, Inc., Salt Lake City, Utah; Securities Act Release

No. 3713 (November 2, 1956).
220 SECURITIES AND EXCHANGE OOMMISSIION

TABLE 6.-Denial and suspension orders issued purSltant to Regulations A and D

under the Securities Aot of 1933 during the fiscal year 195'l'-Continued

Suspension Orders-Continued

Regulation A-Gontinued

Boriana Lease (Ltd. Partnership), Kingman, Ariz.; Securities Act Release

No. 3724 (November 28, 1956).

British Industries Corp., New York, N. Y.; Securities Act Releases

1\0. 3767 and 3787 (March 22, 1957; vacated May 21, 1957).

G. Donald Walden as The By George Co., New York, N. Y.; Securities

Act Release No. 3767 (March 22, 1957).

California-Utah Petroleum & Uranium Co., Moab, Utah; Securities Act

Release No. 3753 (February 11, 1957).

Capitol Reef Uranium Corp., Reno, Nev.; Securities Act Release No. 3770

(April 1, 1957).

Carbon Uranium Co., Utah; Securities Act Release No. 3802 (June 13,

1957).

Central Reserve Oil Co., New York, N. Y.; Securities Act Release Ko. 3656

(July 6, 1956).

Central Wyoming Oil & Uranium Corp., New York, N. Y.; Securities

Act Release No. 3774 (April 5, 1957).

Century Controls Corp., Farmingdale, N. Y.; Securities Act Release

No. 3798 (June 4, 1957).

Century Controls Corp., Farmingdale, N. Y.; Securities Act Release

No. 3798 (June 4, 1957).

Chemical & Fibre Associates, Inc., Reno, Nev.; Securities Act Release

No. 3752 (February 6, 1957).

Co-Em-Co Mining & Exploration Co., Inc., Salt Lake City, Utah; Securities Act Release No. 3801 (June 11, 1957).

Comanche Creek Oil Co., Redondo Beach, Calif.; Securities Act Release

No. 3779 (April 17, 1957).

Comstock Uranium-Tungsten Co., Inc., Elko, Nev.; Securities Act Release No. 3684 (August 28, 1956).

Consolidated Fiberglass, Ine., New York, N. Y.; Securities Act Release

No. 3695 (September 26, 1956).

Contact Uranium Mines, Inc., New York, N. Y.; Securities Act Release

No. 3793 (May 27,1957).

Cortez Uranium & Mining Co., Denver, Colo.; Securities Act Releases

No. 3688 and 3736 (September 4, 1956; vacated December 27, 1956).

Cozona Uranium Corp., Las Vegas, Nev.; Securities Act Release No. 3798

(June 4, 1957).

Crenco Corp., Reno, Nev.; Securities Act Release No. 3776 (April 9, 1957).

Crestmark Cruisene, Inc., Babylon, N. Y.; Securities Act Release No. 3718

(November 13, 1956).

Cuyama Hills Oil Corp., Bakersfield, Calif.; Securities Act Release No.

3720 (November 16, 1956).

DanCu Chemical Co., Oklahoma City, Okla.; Securities Act Release No.

3773 (December 20, 1956).

Dakota-Montana Oil Leaseholds, Inc., New York, N. Y.; Securities Act

Release No. 3659 (July 20, 1956).

Dalmid Oil & Uranium, Inc., Grand Junction, Colo.; Securities Act Release No. 3688 (September 4, 1956).

Dal-Tex Uranium Corp., Dallas, Tex.; Securities Act Release No. 3720

(November 16, 1956).
TWENTY -THIRD ANNUAL REPORT 221

TABLE 6.-Denial and suspension orders issued pursuant to Regulations A and D

under the Securities Act of 1933 during the fiscal year 1957-Continued

Suspension Orders-Continued

Regulation A-Continued

Desert Queen Uranium Co., Salt Lake City, Utah; Securities Act Release

No. 3776 (April 8, 1957).

Diversified Resources, Inc., Grand Junction, Colo.: Securities Act Release

No. 3688 (September 4, 1956).

Electronic Micro-Ledger Accounting Corp., Boston, Mass.: Securities Act

Release No. 3781 (April 25, 1957).

EI Rey Uranium Corp., Salt Lake City, Utah; Securities Act Release No.

3713 (November 2, 1956).

Epsolon Uranium Corp., St. George, Utah; Securities Act Release No

3776 (April 9, 1957).

Estate Security, Ine., Riverside, Calif.; Securities Act Release No. 3732

(December 19, 1956).

Foster Publications, Inc., New York, N. Y.; Securities Act Release No.

3720 (November 16, 1956).

Gas Hills Mining & Oil Inc., Kemmerer, Wyo.; Securities Act Release

No. 3721 (November 21, 1956).

Gibralter Uranium Corp., Denver, Colo.; Securities Act Release No. 3773

(April 3, 1957).

Glory Hole, Inc., Central City, Colo.; Securities Act Release No. 3720

(November 16, 1956).

Goldfield Uranium Inc., Goldfield, Nev.: Securities Act Releases No. 3657

and 3765 (July 9, 1956: vacated March 20, 1957).

Griff Mines Inc., Winnemucca, Nev.; Securities Act Release No. 3744

(January 22, 1957).

Guidon Corp. (The), Elkton, Md.; Securities Act Release No. 3754 (February 12, 1957).

Richard Culver Ott as The Happy Dollar Co., New York, N. Y.; Securities

Act Release No. 3756 (February 19, 1957).

Hard Rock Mining Co., Pittsburgh, Pa.: Securities Act Release No. 3659

(July 11, 1956).

Hardy-Griffin Engineering Corp., Houston, Tex.; Securities Act Release

No. 3760 (March 12, 1957).

Hidden Dome Exploration Co., Inc., Las Vegas, Nev.; Securities Act Release No. 3717 (November 9, 1956).

Holiday Tungsten & Uranium Co., Denver, Colo.; Securities Act Release

No. 3713 (November 2, 1956).

Hugh E. Faulders, Wichita, Kans.; Securities Act Release No. 3713 tNovember 2, 1956).

Idea, Inc., Silver Spring, Nev.; Securities Act Release No. 3733 (December 20, 1956).

International Sound Films, Ine., Atlanta, Ga.; Securities Act Release No.

3657 (July 9, 1956).

lola Uranium Corp., Chicago, Ill.; Securities Act Releases No. 3688 and'

3757 (September 4, 1956; vacated February 25, 1957).

J-T-J Co., Inc., Dallas, Tex.; Securities Act Release No. 3712 (November

2, 1956).

Kwik-Fizz, Arcadia, Calif.; Securities Act Release No. 3752 (February 6,

1957).

Lithium Metal Reduction Corp., Washington, D. C.; Securities Act Re-

.Iease No. 3718 (November 13, 1956).
222 SECURITIES AND EXCHANGE OOMMlSSlION

TABLE 6.-Denial and suspension orders issued pursuant to Regulations A and D

under the Securities Aot of 1933 during the {isoal1/ear 195'Y-Continued

Suspension Orders-Qontinued

Regulation A-Continued

Lockhart Basin Uranium Corp., Ogden, Utah; Securities Act Release No.

3798 (May 21, 1957).

Loring Pharmacal Co., Inc., New York, N. Y.; Securities Act Release No.

3723 (November 27, 1956).

Mack-Lang Uranium Corp., Lander, Wyo.; Securities Act Release No.

3778 (April 15, 1957).

Manhattan Mercury Corp., Denver, Colo.: Securities Act Release No.

3774 (April 4, 1957).

Mid-Hudson National Gas Corp., New York, N. Y.; Securities Act Release No. 3769 (March 27, 1957).

Military Investors Financial Corp., Houston, Tex.; Securities Act Release

No. 3660 (July 12, 1956).

Milneal Enterprises, Inc., Reno, Nev.; Securities Act Release No. 3721

(November 21, 1956).

Mineral Concentrating Co. of America (Mincona), Desplains, Ill.; Securities

Act Release No. 3773 (April 4, 1957).

Moder-Rate Homes, Ino., Bradford, Pa.; Securities Act Release No. 3774

(April 5, 1957).

Mon-O-Oo Oil Corp., Billings, Mont.; Securities Act Release No. 3785

(May 13, 1957).

Mr. Petroleum, Inc., Denver, Colo.; Securities Act Release No. 3694

(September 26, 1956).

National Bankers Life Insurance Co., Dallas, Tex.; Securities Act Release

No. 3769 (March 26, 1957).

National Lithium Corp., Denver, Colo.; Securities Act Release No. 3688

(September 4, 1956).

Neva U Tex Uranium, Ine., Goldfield, Nev.; Securities Act Release No.

3657 (July 9, 1956).

New England Uranium-Oil Corp., Ine., Oklahoma City, Okla.; Securities

Act Release No. 3730 (December 17,1956).

Nilsson Gage Co., Inc., Poughkeepsie, N. Y.; Securities Act Release No.

3772 (April 3, 1957).

North Star Oil & Uranium Corp., New York, N. Y.; Securities Act Release

No. 3769 (March 27, 1956).

Northwest Oil & Refining Corp., Billings, Mont.; Securities Act Releases

No. 3745 and 3763 (January 25, 1957; vacated March 14, 1957).

Okona Uranium Corp., Las Vegas, Nev.; Securities Act Release No. 3723

(November 27, 1956).

Bernard Rosen & Julian Bercovici as the One More Chance Co., New York,

N. Y.; Securities Act Release No. 3723 (November 27, 1956).

Oregon Timber Products Co., Inc., Reno, Nev.; Securities Act Release No.

3720 (November 16, 1956).

Ouachita Mining Oo., Ine., Ark.; Securities Act Release No. 3741 (January

16,1957).

Popular Drug Stores, Ine., Reno, Nev.; Securities Act Release No. 3741

(January. 16, 1957).

Violla Rubber and Clifford Hayman as the Postman Co., New York,

N. Y.; Securities Act Release No. 3767 (March 22, 1957).

Producers Fuel Co., Pittsburgh, Pa.; Securities Act Release No. 3755

(February 15, 1957).
TWENTY -rmnn ANNUAL REPORT 223

TABLE 6.-Denial and suspension orders issued pursuant to Regulations A and D

under the Securities Act of 1933 during the fiscaz year 1957-Continued

Suspension Orders-Continued

Regulation A-Continued

Rabin Sales Co., Belle Glade, Fla.; Securities Act Release No. 3803 (June

21, 1957).

Realty Mortgage Co., Denver, Colo.; Securities Act Release No. 3694

(September 26, 1956).

Rexrug Mills, Ine., New York, X. Y.; Securities Act Release No. 3720

(November 16, 1956).

San Fernando Valley Uranium, Inc., Las Vegas, Nev.; Securities Act

Release No. 3694 (September 26, 1956).

Scott Uranium Co. (The), Loveland, Colo.; Securities Act Release No. 3656

(July 7, 1956).

Sharron Oil & Gas Co., Inc., Denver, Colo.; Securities Act Release No. 3741

(January 16, 1957).

Sheba Uranium Mining & Exploration, Inc., Ogden, Utah; Securities Act

Release No. 3785 (May 13, 1957).

Strategic Metals, Ine., Tungstonia, Nev.; Securities Act Release No. 3688

(September 4, 1956).

Super-Seal Piston Ring Corp., Brownwood, Tex.; Securities Act Release

No. 3800 (June 10, 1957).

Teton Oil & Minerals Co., Denver, Colo.; Securities Act Release No. 3688

(September 4, 1956).

Texas Western Oil & Uranium Co., Denver, Colo.; Securities Act Release

No. 3766 (March 21, 1957).

Thunderbird Uranium Corp., Albuquerque, N. Mex.; Securities Act Release

No. 3804 (June 24, 1957).

Trabella Uranium Mines, Ine., Colorado Springs, Colo.; Securities Act

Release No. 3713 (November 2, 1956).

Transworld Mercantile Corp., New York, N. Y.; Securities Act Release

No. 3767 (March 22, 1957).

Triassic Uranium, Ine., Casper, Wyo.; Securities Act Release No. 3807

(June 27, 1957).

Tri-Dent Corp. (The), Jersey City, N. J.; Securities Act Release No. 3765

(March 20, 1957).

Underwriters Factors Corp., New York, N. Y.; Securities Act Release No.

3776 (April 9, 1957).

Union Gulf Oil & Mining Corp., Denver, Colo.; Securities Act Release

No. 3805 (June 26, 1957).

United Business Underwriters, Ltd., Salt Lake City, Utah; Securities Act

Release No. 3657 (July 9, 1956).

U. S. Fibre Glass Industrial Plastics, Inc., Norwood, N. J.; Securities Act

. Release No. 3786 (May 1'5, 1957).

United States Rare Earths, Inc., Denver, Colo.; Securities Act Release

No. 3730 (December 17,1956).

United Uranium Corp., Denver, Colo.; Securities Act Release No. 3795

(May 31, 1957).

Universal Petroleum Exploration & Drilling Corp., Las Vegas, Nev.;

Securities Act Release No. 3779 (April 17, 1957).

Urainbow, Inc., Salt Lake City, Utah; Securities Act Release No. 3746

(January 31, 1957).

Uranium Oxide Producers, Ine., New York, N. Y.; Securities Act Release

No. 3673 (August 9, 1956).
224 SECURITIES AND EXCHANGE OOMMI.Sl3iIOK

TABLE G.-Denial and suspension ordere issued purs1lUnt to Regulations A and D

under the Securities Act OJ 1933 during the fiscal uea« 195'l'-Continned

Suspension Orders-Continned

Regulation A-Continned

Uranium Technicians Corp., Salt Lake City, Utah; Securities Act Release

No. 3702 (October 3, 1956).

Utah Moab Uranium Corp., Provo, Utah; Securities Act Release No. 3683

(August 23, 1956).

Utah Petroleum & Gas Co., Salt Lake City, Utah; Securities Act Release

No. 3671 (August 6, 1956).

Vanura Uranium, Inc., Salt Lake City, Utah; Securities Act Release No.

3726 (December 7, 1956).

White Sage Uranium Corp., Salt Lake City, Utah; Securities Act Release

No. 3764 (March 18, 1957).

William Tell Productions, Inc., New York, N. Y.; Securities Act Release

No. 3687 (September 5, 1957).

Wing E-E, Ino., Denver, Colo.; Securities Act Release No. 3688 (September 4, 1956).

Regulation D:

Colonial Asbestos Corp., Ltd., Kitchener, Ontario, Canada; Securities Act

Release No. 3806 (June 27, 1956).

Findings, opinions and orders permanently suspending the exemption were issued in the following five cases under Regulation A and

two cases under Regulation D:

Regulation A:

Coastal Finance Corp.; Securities Act Release No. 3775 (April 10, 1957).

Dix Uranium Corp.; Securities Act Release No. 3796 (June 5, 1957).

Selevision Western, Inc.; Securities Act Release No. 3708 (October 18,

1956).

Sun Valley Mining Corp.; Securities Act Release No. 3701 (October 3,

1956).

U-H Uranium Corp.; Securities Act Release No. 3691 (September 21,

1956).

Regulation D:

Hawker Uranium Mines, Ltd.; Securities Act Release No. 3758 (March 5,

1957).

North Country Uranium and Minerals, Ltd.; Securities Act Release No.

3758 (March 5, 1957).
TWENTY-THIRD ANNUAL REPORT 225

TABLE 7.-Brokers and dealers registered under the Securities Exchange Act oj

1934-l-eJ!ectilJe registrations as oj June 90, 1957, classified by type oj organization

and by location of principal office

Number ofregistrants Number 0flcroPrietors, partners, o eers, etc. J I

Location of principal office Sole Sole

proprio Part- Oorpo- proprio Part- Oorpo- Total nero Total nero etor- ships rations 4 etor- ships rationa4

ships ships

--------------------- A1ebama _. _._. ,_ 31 10 7 14 94 10 23 61 Arizona_. 26 5 10 11 106 5 25 76 Arkansas_ .,. ._ 23 13 3 7 45 13 6 26 CaIlfornla 330 142 84 104 1,138 142 437 559 Colorado. .• _._. 114 50 7 57 354 50 29 275 Connecticut •••. _. ,. 42 18 10 14 172 18 57 97 Delaware _. ._.' .. .• .. 8 1 2 5 48 1 16 31 District of Columbla 87 30 23 34 329 30 86 213 Florida. _"_" .•• _'_ 86 35 16 35 234 35 41 158 Georgia, 40 13 6 21 156 13 25 118 Idaho. .••• ,_ 13 7 2 4 27 7 5 15 illinois. ._•.•• •.• ._._ 193 46 65 82 927 46 304 577 IndJana 56 26 7 23 158 26 13 119 Iowa '.' _._., .•••• .,. 33 12 5 16 96 12 10 74 Kansas ._._ 32 10 7 15 127 10 20 97 Kentucky 19 7 6 6 64 7 20 37 LoulsIena ., 60 34 16 10 115 34 46 35 Maine 31 11 2 18 90 11 8 71

~=~tts~~::::::::::::::::::::: 43 19 16 8 139 19 88 32

204 84 31 89 868 84 196 588

~=t8~~~:::::::::::::: :::::::::: 54 11 18 25 246 11 94 14152 10 9 33 263 10 32 221

~=~i:: ::::::::: ::::::: ::: ::::: 22 11 7 4 43 11 16 16

94 22 22 50 465 22 137 306 Montane _. •.••• , 7 4 1 2 13 4 2 7 N ebraska , .'" _._._' 29 11 1 17 114 11 2 101

Nevada. '_'.' ., _'.'_ 16 12 0 4 26 12 0 14 New Hampshlre _._ .•• 12. 9 0 3 28 9 0 19 New 1ersey 201 121 36 44 422 121 89 212 New Mexlco 13 7 2 4 30 7 5 18

New York State (excluding New

York City) ._ 331 225 38 68 614 225 119 270 North Carolina 36 13 6 17 150 13 17 120 North Dakota. 4 3 0 1 8 3 0 5

Ohio _._ , 134 29 40 65 546 29 185 332

Oklahoma ., 47 31 7 9 81 31 14 36

~=iviUii8~~::::::::::::::::::: 25 8 6 11 69 8 14 47

205 63 80 62 801 63 363 375 Rhode Island, •. 23 8 11 4 50 8 32 10 South Carolina 29 13 4 12 84 13 9 62

South Dakota 9 6 0 3 17 6 0 11 Tennessee _,.".,, 37 13 6 18 146 13 20 113

Texas 266 135 33 98 717 135 91 491

Utah ,_ .• 51 12 8 31 171 12 29 130

Vermont 2 1 0 1 10 1 0 9

VIrglnle. _"."' 44 19 14 11 132 19 59 54

Washington _. ,_,.,, 82 43 8 31 234 43 19 172

;r::o~~:::::::::::::::::::::: 13 8 3 2 27 8 9 10

48 11 5 32 200 11 24 165

Wyoming. 5 5 0 0 5 5 0 0

---------------- ------ Total (excluding New York City) _' _. . 3,362 1,437 690 1,235 10,999 1,437 2,836 6, 726 New York City ••.•••• . 1,318 378 590 350 5,685 378 3,541 1,766

----------------- ------ 4,680 1,815 1,280 1,585 16,684 1,815 6,377 8,492

I Domestic registrants only, excludes 90 outside continentaillmlts of the Unlted States. J Includes directors, officers, trustees, and all other persons occupying similar status or performing similar

functions. I Allocations made among States on the basis oflocation of principal offices of registrants, not aetual location of persons. Information taken from latest reports 1l1edprior to June 30, 1957.

Includes all forms of organIzations other than sole proprietorships and partnerships.

441519--58----16

••••• _•• _•••• __•• _••

__•••• _•••• _•••••••••• _•••• _•• __ •• ___•• ____•• ____

•• _•••• _•••• _••• ___••• ___•• _••••• _ __•__•••• __••• •• ___•__ _••••• _•• ••__••• __• _ _ ___ _ __••• ___•••• __•• ___••• __••• _••• __ •••_••• __••••• __•••• __••• ___• _•• __'" _ __•••• _••• __••• ___ _ _________•__ •• _•• _•• _••• __•••• _______•___

•••• _•••• ___•• __ •• _••• ___••••••• __ ••• ___•• •••••••••••• ____••__•••• _•• •••• _•• ___•• __• _____ __•• _

••___•••••••••••• ___•___•• ___••

•••• _ __•• _•• __•• _•• _ •••_•••• _••• _•• __ _•••••••••• _ •___ ••••••• •• __•• __ •••••••••••••••••• _•• ___•• ••_ ••••• __•• _•••••• ____•

•••• _•••• __ •• _•• ___••• ••_•••••••••••••• _•• __ •••• _•• __•••••••• _••• _ •• _••••••••• _•••• _•••• •• _••• ••••••• _••••••••••••••• __

••••• _•••• __••• ___•• _ •••••••••••• __•• __•__• ••• _•••• _•••• __••••••• _ •••••••• ____••• __•• •••••••••••••••• _•••• _•••••••• _ •••••••••••• •••••• __" '" •__ ••••••••• _••••••• _••• _••• __• _•••••••••• __•••••••• •••••• _•••• ___•••

_••••• __••• _•••••• _•• _••••

•••• __•• ________•__ ___•• ________

•
226 SECURITIES AND EXCHANGE' OOMMLSSIION

TABLE S.-Unlisted stocks on Ilecurities e:xhangell1

PART I.-NUMBER OF STOCKS ON THE EXCHANGES IN THE VARIOUS UNLISTED

CATEGORIES' AS OF JUNE 30. 1957

Unlisted only Listed and registered on another

exchange Exchanges

Clause 1 Clause 3 Clause 1 Clause 2 I Clause3'

Amerlcan

Boston 213 2 42 2 1

1 0 154 192 0 Chicago Board of Trade ClnclnnatL 3 0 2 0 0

Detrolt 0 0 0 95 0

Honolnlu 0 0 14 103 0

Mldwest 17 0 0 0 0

0 .0 New Orleans 0 115 0

Pacific Coast. 8 0 4 2 0 29 0 62 163 0 Philadelphia- BaItIn1ore

Pittsburgh 4 0 247 173 0

Salt Lake 0 0 16 59 0

3 0 0 0 1 Spokane.,

Wheeling 4 0 1 1 0

0 0 0 3 0

Total 6 282 2 542 908 2

PART 2.-UNLISTED SHARE VOLUME ON THE EXCHANGES-CALENDAR YEAR 1956

Unhsted only Listed and registered on another

exchange Exchanges

Clause 1 Clause 3 Clause 1 Clause 2 Clanse3

American_. .. _. . •.. ._._ .. 31,210,479 12,000 4,602,050 1,521,800 15,380 Boston .• . .. . 7,925 0 2,122,730 1,717,696 0 Chicago Board of Trade. ._. •. ._ 0 0 0 0 0 CmclnoatL 0 0 0 291,384 0 Detroit . 0 0 164,709 1,444,702 0 Honolnlu 51,987 0 0 0 0 Midwest. _. . ...... _. ... .. _._.. . 0 0 0 5,840,560 0 New Orleans . . 72,930 0 819 90 0 Pacific Coast 6 _. ._. 2,444,976 0 2, 249,009 5,092,942 0 Philadelphla-Baltlmore 5,353 0 2, 822,351 1,873,113 0 Plttsburgh 0 0 261,252 206,724 0 Salt Lake 20 0 0 0 524 Spokane . . . . . . _. 49,585 0 300 0 0 Wheellng •. . .. . 0 0 0 1,376 0

Total 33,843,255 12,000 12,223,220 17,990,387 I5,OM

J Refer to text under heading "Unlisted Trading Privileges on Exchanges." Volnmes are as reported by the stock exchanges or other reporting agencies and are exclusive of those In short-term rights. 2 The categones are according to clauses I, 2, and 3 of see 12 (0 of the Securities Exchange Act . None ofthese ISSUeshas any listed status on any domestic exchange. except that 9 ofthe 29Pacitlc Coast

Stock Exchange Issues are also hsted on an exempted exchange . These Issues became listed and registered on other exchanges subsequent to their admission to nn1Isted

tradmg on the exchanges as shown. 6 Duplication of Issues among exchanges brings the figures to more than the actual number of Issues

Involved. 6 Combined figures for the San FrancISCOStock Exchange and the Los Angeles Stock Exchange which were merged on December 31, 1956,forming the Pacitlc Coast Stock Exchange.

•

__________________________________ ____________________________________

___________________ _______________________________ ____________________________________

__________________________________

__________________________________ ______________________________

_____________________________ ____________________ ___•____________________________ __________________________________

_________________________________

__________________________________

______________________________

____ ___ __ _ ___________ ____ ___ ___ __________•_____________ _____ _____ __ •• _ ____________________________________ _____________________________ •_________ _______________________________ •______

_ __ ___ ____ ___ __ ________________ ________________

__ •• __ • _______ •• __ ______ • ___

________________________ __________•_________________________ _________•• ___•_________•_____________ __ _________ ____ __ _________ _____ _________ __•___•__ ___ ___________

__________•_________________________

•

•
TWENTY-THIRD ANNUAL REPORT 227

TABLE 9.-Number of issuers and security issues on exchanges

PART l.-UNDUPLICATED NUMBER OF STOCK AND BOND ISSUES ON ALL EXCHANG ES

AND THE NUMBER OF ISSUERS INVOLVED AS OF JUNE 30,1957

Total Issuers Status under the Act Stocks Bonds stocks and involved bonds

Registered pursuant to sec 12 (b), (c). and (d) _________ 2,667 1,063 3,730 2,256 TemporariJy exempted from registration. ______________ 14 6 20 11 Adlllltted to nnltsted trading privileges on registered

exchanges pursuant to sec. 12 (f)---------------------- 256 37 293 231

Ltsted on exempted exchanges under exemption orders of the Commtsslon ___________________________________ 72 7 79 59 Admltted to nnltsted trading privileges on exempted exchanges pursuant to exemption orders of the Com- mission ______________________________________________ 16 .----------- 16 16

---- Unduphcated totals ______________________________ 3,025 1,113 4, 138 2,573

PART 2.-NUMBER OF ISSUERS AND SECURITY ISSUES ON EACH EXCHANGE AS OF

JUNE 30, 1957.

Stocks Bonds Exchanges Issuers

R X U XL XU Total R X U XL Total

-- ---------- -- -- -- ---- American.; ____________ 811 605 2 260 ------ 867 20 ---.-. 39 59 Boston 408 76 347 ---._- ---.-- 423 16 -.-.-- -._--- 16 Chlcago Boardot'I'rade, 12 7 ---.-- 5 ------ ------ 12 ------ ------ ------ ------ ------ CmcmnatL 134 47 ---._- 95 -.---- 142 7 1 ---.-- 8

Detroit

Colorado Sprmgs _______ 12 ------ ---.-- ---.-- 13 ------ 13 ------ ---.-. ------ ------ ------ 219 110 117 227 Honolulu 60 ------ 53 17 70 .---- . .----- ---.-. 7 7 Midwest 454 400 115 ---.-- 515 14 14 New Orleans ___________ 14 4 ------ 14 ------ ------ 18 1 ------ 1 ------ 2 NewYorkStovk. ______ 1,279 1,520 2 ------ ------ ------ 1,522 1,016 6 ------ ._---- 1,022 Pacific Coast, 473 288 2 254 544 19 19

Philadelphia- Baltimore, 517 153 8 424 -----. 585 49 49 Pittsburgh 117 49 75 124 1 ------ 1 Riehmond 18 27 27 ------ ------ ------ ------ ------ Salt Lake. 96 95 1 4 100

San FranCISCOMmlng.; 55 56 2 58 ~Okane. 28 25 ------ 6 ----3- 31 ------ ---.-- heeling 13 ------ 12 15 ------ ...---_. ---..--

Symbols R-r6g1stered; X-temporonly exempted, U-admitted to unlisted trading privileges; XLlisted on an exempted exchange; XU-admitted to unlisted trading pnvtleges on an exempted exchange.

NOTE.-Issues exempted under sec 3 (a) (12) of the Act, such as obhgations of the U. S. Government, the

States ana erties, are not meluded Inthis table,

_________________ ------ ------ -~---- ------ ___________ -~---- ------ _____• __________ ------ ------ ------ ------ ------ ------ ------ ------ ______________ ------ ------ _______________ ------ ------ ------ ------ ------

__________ ------ ------ ------ ------ ~-----

___________ ------ ------ ------ ------ _____________ ------ ------ ------ ------ _____________ ------ ------ _____________ ------ ------ ------ ~-- --- ------ ------ ------ ------ ------ ~----- ------ ------ ------ ------ ______________ ------ ------ ------ ______________ ------ ------ ------ ------
228 SECURITIES AND EXCHANGE OOMMlSSiION

TABLE lO.-Market value and volume of sales effected on securities exchanges in the

12-month period ended Dec. 31, 1956, and the 6-month period ended June 3D,

1957

[Amounts in thousands]

PART 1.-12 MONTHS ENDED DEC.31,1956

Stocks I Bonds' Rights and

warrants Total mar. , ket value (dollars) Market Number Market Prmcipal Market Numvalue of shares value amount value her of (dollars) (dollars) (dollars) (dollars) units

--- Registered exehanges; 36,359,779 35,018.892 1.083,789 1.226.986 1,252,598 113,902 97,873

American. 2,748,794 2,695, 909 241,774 17,434 22,531 35,451 6,684 Boston ._ 279,888 277,706 5,238 ---.--._---- 2,182 347

g~:~~~~~========= ----.28;516- -----28;162- --------200- --------529- -------56- ------50 550 Detroit 146,592 146,041 4,960 ------.-.--- 551 816 Los Angeles , 345,201 344,109 17,148 4 4 1,088 800 Midwest ...• 966,472 964, 448 25,757 19 21 2,006 1, 73~ New Orleans 1,916 1,901 79 15 15 1 New York .. 31,063,594 29,786,707 699,245 1,208,877 1,229,124 68, 010 84,821

Philadelphia- Baltimore, 337,686 335,310 7,356 245 306 2,130 1,119 Pittsburgh. 42,385 42,309 1,231 --------.--- ---._------- 77 11 Salt Lake ._. 4,566 4,563 29,025 --.--------- 3 12

San Fmncisco Mining 8,151 8,151 31,111 ---------67- San Fmncisco Stock '._ 385,479 383,037 18, 990 93 2,349 ---1;473

Spokane. ._ 538 538 1,324 -.---------- --------.--- --.-------

Exempted exchanges, 10,353 10,127 780 32 34 193 45

--- Oolorado Springs ..• 42 42 137 --.------- --.----- Honolulu . 9,078 8,852 608 32 34 193 45 Richmond

Wheeling 803 803 20 ------.----- ----._------ -------- 430 430 15 ---------- -----_ ...-

PART 2.-6 MONTHS ENDED JUNE 30,1957

Registered exchanges. 16,979,798 16,285,179 537,802 591,212 611,458 103,408 115,937

--- American. 1,310,677 1,276,232 119,843 7,035 8,217 27,410 Boston 5,~ 123,500 123,413 2,487 5 5 8~ Chicago Board, ._ -"--12;027- -'-"'--200- .. --;20- ------------ -----130 ClnclunatL 12,205 222 57 Detroit _. 66,934 66,869 2,246 ---------.-- 65 309 Mid west. _. _._ 432,217 431,289 12,477 1 2 927 2,587 New Orleans ._ 772 772 35 --"583;934- -'--002,-880- ---73;386- New York 14, 517, 382 13,860,062 347,388 -;02;002 Pacl1lc Coast ,_-.-._ 329,427 328,835 16,815 21 16 571 1,279

Philadelphia- Balttmore. 159,085 158, 080 3,671 00 116 909 3,242 Pittsburgh_. 21,036 21,036 996 ------------ ------------ 1 2 Salt Lake , , . 2,439 2,438 16,441 .----------- 1 San Francisco Mining 3,877 3,877 14,569 ------------ Spokane 247 247 567 ------------ ------.-----

Exempted exchanges, 4, 759 4, 724 304 ------------ ------------ 35

--- Colorado Springs 18 18 18 Honolulu ._ ------------ ------13 4, 139 4,104 267 ------------ 35

Wheeling_.

Richmond _._._ 320 320 11 ------- ..._--- ------------ ---------- 282 282 7

1 "Stocks" include voting trust certtllcates, American depositary receipts, and certl1lcates of deposit.

, "Bonds" include certificates of deposit for honds. U. S. Government bonds are not included m these

data.

I The Los Angeles and San Fmnciaco Stock Exchanges merged Dec. 31, 1956, under the name of Pacific

Coast Stock Exchange.

NOTE.-Value and volume of sales e1Iected on registered securities exchanges are reported in connection

with fees paid under sec. 31 of the Securities Exchange Act of 1934. For most exchanges the figures represent tmnsactions cleared during the calendar month. Figures may diller from comparable data in the

Statistical Bulletin due to revisions of data by exchanges. Figures have been rounded and will not neeessarily add to totsls shown.

--- _____________

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TWENTY-THIRD ANNUAL REPORT

TABLE H.-Block distributions

[Value in thousands of dollars)

229

Speeial offerings Exchange distributions Secondary distributions

Calendar year

Num- Sbares Value Num- Sbares Value Num- Shares Value

ber sold ber sold ber sold

1942 , 79 812,390 22,694 116 2,397,454 82,840 1943_____________ 80 1,097,338 31,054 -------- ------------ -------- 81 4,270,580 127,462 1944 87 1,053,667 32,454 94 4,097,298 135,760 1945-- ___________ 79 947,231 29,878 -------- ------------ -------- 115 9,457,358 191,961 1946-- ___________ 23 308,134 11,002 -------- ------------ -------- 100 6,481,291 232,398 1947_____________ 24 314,270 9,133 -------- ------------ -------- 73 3,961,572 124,671 1948_____________ 21 238,879 5,466 -------- ------------ -------- 95 7,302,420 175,991 1949-- ___________ 32 500,211 10,956 -------- ------------ -------- 86 3,737,249 104,062 1950_____________ 20 150,308 4,940 -----oO-- ------------ -------- 77 4,280,681 88,743 1951-. 27 323,013 10,751 88 5,193,756 146,459 1952-- ___________ 22 357,897 9,931 -------- ------------ ----- ..-- 76 4,223,258 149,117 1953_____________ 17 380,680 10,486 -------- ----70:5;781- -------- 68 6,906,017 108,229 1954_____________ 14 189,772 6,670 57 24,664 84 5,738,359 218,490 1955-- ___________ 9 161,850 7,223 19 258,348 10,211 116 6,756,767 344,871 1956_____________ 8 131,755 4, 557 17 156,481 4, 645 146 11,696,174 520,966

. I The first Special Offering Plan was made effective Feb. 14, 1942; the Plan of Exchange Distributions was made effectrve Ang. 21, 1953; Secondary DIStributions are not made pursuant to any plan but generally

exchanges require members to obtain approval of the exchange to participate in a secondary and a report on

such distribution IS tiled with this Commission.

___________ -------- -------~~-----------

_____________ -------- ------------ --------

___________ -------- ------------ --------
230 SECURI'I'IES AND EXCHANGE OOMMlSSlION

TABLE 12.-Comparative share sales and dollar volumes on exchanges

[Annual sales, including stocks, warrants and rights, as reported by all United States exchangesto the

Comnnssfon. Figures for merged exchanges are included in those ofthe exchangesinto which they were merged]

Year Share sales NYS AMS MSE PCS PBS BSE DSE PIT CIN Other

% % % % % % % % % %

- --- -- ----- -- --- 1935_________ 681,970, 500 73.13 12.42 1.91 2.69 076 0.96 085 034 003 6.91 1936_________ 962, 135,940 73.02 16.43 2.18 296 .69 .72 .74 .32 .04 2.90 1937_________ 838,469,889 73.19 14. 75 1. 79 3.23 .70 .83 .59 .38 .03 4.51 1938_________ 543,331, 878 78.08 10.55 2.27 2.67 .79 1.03 .75 .25 .04 3.57 1939_________ 468,330,340 78.23 11.39 2.26 2.35 .93 1.18 .76 .25 .05 2.60 1940_________ 377, 896, 572 75.44 13.20 2.11 2.78 1.02 1.19 .82 .31 .08 305 1941-________ 811,150,395 73.96 12.73 2.72 269 1. 24 1.50 .87 .36 .14 3.79 1942_________ 221,159,616 76.49 11. 64 2.70 2.62 1.08 1.39 .90 .29 .12 2.77 1943_________ 486,290,926 74.58 16.72 2.20 1.92 .85 .76 .64 .20 .07 2.06 1944_________ 465, 523,183 73.40 1687 2.07 2.40 .79 .81 .86 .26 .06 2.48 1945_________ 769,018, 138 65 87 21.31 1.77 2.98 .66 .66 .79 .40 .05 5.51 1946 803,076, 532 66.07 19.37 1.74 3.51 .68 .84 .63 .28 .05 683 1947_________ 513,274,867 69.82 1698 1.67 4.22 .90 1.05 .66 .19 .08 4.43 1948_________ 571, 107,842 72.42 15.07 1.63 3 95 .87 .76 .68 .18 .08 4.36 1949_________ 516,408, 706 73 51 14.49 1. 67 3.72 1.21 .93 .73 .18 .09 3.47 1950_________ 893,320, 458 76.32 13.54 2.16 3.11 .79 .65 .55 .18 .09 2.61 1951- ________ 863,918,401 74.40 1460 2.10 3.54 .76 .70 .58 .16 .08 3.08 1952_________ 732,400, 451 71.21 '16.08 2.43 3.85 .85 .73 .55 .16 .09 4.05 1953_________ 716,732,406 72.64 15.85 2.28 3.90 .83 .81 .55 .15 .11 2.88 1954_________ 1,053,841,443 71. 04 16.87 200 3.24 .88 .50 .53 .13 .07 4.74 1955_________ 1,321,400, 711 6885 19.19 2.09 3.08 .75 .48 .39 .10 .05 5.02 1956_________ 1,182,487,085 66 31 21 01 2.32 3.25 .72 .47 .49 .11 .05 5.27 1957 ,________ 654.056, 000 68.81 1919 2.30 2.77 1.06 .38 .39 .15 .06 4. 89

Dollar volume

(000 omitted) 1935_________ $15,396, 139 86.64 7.83 1. 32 1.39 .68 1.34 .40 .20 .04 .16 1936_________ 23,640,431 86.24 8.69 1.39 1.33 .62 1.05 .31 .20 .03 .14 1937. ________ 21,023,865 87.85 7.56 1. 06 1. 25 .60 1.10 .24 .20 .03 .11 1938_. _______ 12,345,419 8924 5.57 1.03 1.27 .72 1. 51 .37 .18 .04 .07 1939_________ 11,434.528 87.20 6.56 1.70 1.37 .82 1. 70 .34 .18 .06 .07 1940_________ 8,419,772 85.17 7.68 207 1. 52 .92 1.91 .36 .19 .09 .09 1941-. _______ 6,248.055 84 14 7.45 2.59 1 67 1 10 2.27 .33 .21 .12 .12 1942_________ 4,314,294 85 16 660 243 1.71 .96 2.33 .34 .23 .13 .11 1943_________ 9,033,907 84.93 890 2.02 1.43 .80 1.30 .30 .16 .07 .09 1944_________ 9,810,149 84.14 9.30 2.11 1.70 .79 1.29 .34 .15 .07 .11 1945_________ 16,284,552 82.75 10.81 2.00 1. 78 .82 1.16 .35 .14 .06 .13 1946_________ 18,828,477 82.65 10.73 2.00 1. 87 .79 1.23 .33 .16 .07 .17 1947_________ 11,596,806 84.01 8.77 1. 82 2.26 .91 1.51 .36 .14 .11 .11 1948_________ 12,911,665 84.67 8.07 1.85 2.53 .88 1.33 .34 .14 .10 .09 1949_________ 10,746,935 83.85 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 2.06 .89 1.06 .36 .11 .11 .07 1952_________ 17,394,395 84.86 7.39 2.67 2.20 .99 1.11 .43 .15 .12 .08 1953_________ 16,715,533 85.25 6.79 2.84 2.20 1.06 1.04 .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 6.98 244 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 ,________ 16,393,346 85.00 7.95 2.64 2.01 .97 .75 .41 .13 .07 .07

1 Six months to June 30, 1957.

Symbols: NYS, New York Stock Exchange; AMS, American Stock Exchange; MSE, Midwest Stock

Exchange; PCS, Pacific Coast Stock Exchange' PBS, Philadelphia-Baltimore Stock Exchange: BSE,

Boston Stock Exchange: DSE, Detroit Stock Exchange; PIT, Pittsburgh Stock Exchange: CIN, Cincinnati Stock Exchange.

__• ______
TWENTY -THIRD A.."f\I"NUALREPORT 231

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232 SECURITIES AND EXCHANGE' OOMMISSJION

TABLE 14.-Reorganization proceedings in which the Commission participated

during the fiscal year 1957

Securities

and ExDebtor DistrIct court Petition Filed

Petition Ap.. change Comproved missIon

notice of appearance

filed

Alaska Telephone Corp __________________ W. D. Wash ____ Nov. 2,1955 Nov. 21, 1955 Nov. 7,1955 Amenean Fuel & Power Co ______________ E. D. Ky _______ Dec. 6,1935 Dec. 20,1935 May 1,1940 Buckeye Fuel Co _________________________do Nov. 28,1939 Nov. 28,1939 Do. Buckeye Gas Service Co __________________do __________ _____do _______ _____do _______ Do. Carbreath Gas Co ________________________do __________ _____do. ______ _____do _______ Do. Inland Gas Distributing Co _. ___do_. do do Do. Automanc Washer , ___________________._ S. D. Iowa ______ Oct. 17,1956 Nov. 2,1956 Nov. 2, 1956 N. O. Nelson ______________________._ E. D. Mo. Oct. 22, 1956 Nov. 8,1956 Nov. 1,1956 Central States Electric Corp _____________ E. D. Va ________ Feb. 26, 1942 Feb. 27, 1942 Mar. 11,1942

Chicago & West Towns Rmlways, Inc.' __ N. D. ill_____ .__June 30,1947 Jnly 1,1947 Jnly 24,1947 Coastal Finance Corp ____________________ D. Md __________ Feb. 15,1956 Feb. 18, 1956 Apr. 16,1956

Columbus Venetran Stevens Buildings, N. D. Il'l,., Aug. 30,1955 Aug. 31,1955 Oct. 3,1955

Inc. Dallas Parcel Post Station, Inc.' _________ N. D. ill________ Sept. 22,1950 Sept. 22, 1950 Oct. 26,1950 Empire Warehouses, Inc.' ________________ N. D. ill______ ._June 15,1956 June 15,1956 Jnly 19,1956 Federal Facilities Realty Trust , ______________do __________ Dec. 26, 1934 Apr. 25,1935 Oct. 29,1940

Ferry Station Post Office, Inc.'. _________ _____do __________ June 18,1953 Dec. 2, 1953 Jan. 29,1954 General Stores Corp _____________________ s. D. N. Y_. Apr. 30,1956 May 1,1956 May 23,1956 Adolf Gobel, Inc _________________________D. N. 1..___.___Jnly 23, 1953 Dec. 28, 1953 Sept. 8, 1953 Eastern EdIble Refinery Corp _____do __________ June 23,1954 June 23, 1954 Oct. 14, 1954 Gobel's Q. F. Dlstrlbutors ___________ do do do Do. Gobel Pharmaceuticals, Inc _______________do __________ _____do _______ _____do _______ Do. Metropolitan Shortening Corp. _____do do do Do. Green RIver Steel Corp.' _________________ W. D. Ky ______ Sept. 13, 1956 Sept. 18, 1956 Oct. 5,1956 Horsting 011 Oo., ________________________ D. N. Dak ______ Mar. 17,1952 Mar. 17,1952 Sept. 30,1955 Hudson & Manhattan Railroad Co. ___._ S. D. N. Y ______ Aug. 11, 1954 Dec. 14, 1954 Jan. 7,1955 Inland Gas Corp. ________________________E. D. Ky _______ Oct. 14, 1935 Nov. 1,1935 Mar. 28, 1939 International Power Securities Corp _____ D. N. 1...______Feb. 24, 1941 Feb. 24,1941 Mar. 3,1941 International Rallway Co ________________ W. D. N. Y _____ Jnly 28,1947 Jnly 28, 1947 Aug. 4,1947 Keeshin Frel!}'t Lines, Inc _______________ N. D. ill________ Jan. 31, 1946 Jan. 31, 1946 Apr. 25,1949 Keeshm otor Express Co., Inc _____ do do _____do _______ Do. Seaboard Freight Lines, Inc _______________do __________ _____do _______ _____do _______ Do. National Freight Lines, Inc. . ____do __________ _____do _______ _____do _______ Do. Kentucky Fuel Gas Corp ________________ E. D. Ky _______ Oct. 25, 1935 Nov. 1,1935 Mar. 28,1939 LIberty Baking Oorp.t __________________ S. D. N. Y ______ Apr. 22,1957 Apr. 22,1957 May 2,1957 Muntz TV Inc ___________________________N. D. ill_____ .__Mar. 2,1954 Mar. 3,1954 Mar. 4, 1954 Tel-A -Vogue; _____________________________do do do Do. Muntz Industries, Inc _______________ _____do ________._ _____do _______ _____do _______ Do. National Realty Trust , __________________N. D. ill_____ .__Dec. 26, 1934 Apr. 25,1935 Oct. 29,1940 Northeastern Steel Corp.! ________________ D. Conn ________ Feb. 1,1957 Feb. 5,1957 Feb. 19,1957 Norwalk Tire & Rubber Co., The ,oo ____ D. Conn. _______ May 20,1949 May 20,1949 June 8,1949 Pittsb~h Railways Co _________________ W. D. Pa May 10,1938 May 10,1938 Jan. 4, 1939 Pitts urgh Motor Coach Co _________ _____do __________ _____do _______ _____do _______ Do. Seaboard Drug Co.' _____________________ S. D. N. Y May 7,1957 May 10,1957 June 25,1957 Sierra Nevada 011 Co ._ D. Nev _________ June 22,1951 June 22, 1951 Jnly 25,1951 Silesian Americau Corp __________________ S. D. N. Y ______ Jnly 29,1941 Jnly 29,1941 Aug. 1,1941 Solar Manufacturing Corp.' ______________ D. N. J _________ Dec. 14, 1948 Dec. 14, 1948 Dec. 27,1948 Stardust Ine.t.; D. Nev _________ Jnly 19, 1956 Sept. 10,1956 Sept. 7,1956 Texas City Chemicals, Inc.' ______________ S. D. Tex _______ June 22, 1956 Sept. 26, 1956 Oct. 11,1956 Texas Gas Utilities Co.' __________________ W. D. Tex. _____ Sept. 4, 1951 Sept. 21, 1951 Sept. 11,1951 Third Avenue Transit Corp _____________ S. D. N. Y Oct. 25,1948 June 21,1949 Jan. 3,1949 Surface Transportation Corp ______________do __________ June 21,1949 June 21,1949 Jnly 7,1949

Westchester St. Transportation Co., _____do __________ ___.. do .. _____ _____do _______ Do.

Inc. Westchester Electric Railroad Co. ___ _____do do .; do Do. Warontas Press, Inc ______________________do ______.. _. Sept. 8, 1949 Sept. 8,1949 Sept. 8,1949 Yonkers Railroad Co _____________________do , .. _. _____ June 21,1949 June 21,1949 Jnly 7,194l!

Trlnlty Buildings Corp. of New York ____ S. D. N. Y ______ Jan. 18,1945 Jan. 18,1945 Feb. 19,1945 U. S. Realty & Improvement Co _________ S. D. N. Y .. ____ Feb. 1,1944 Feb. 1,1944 Feb. 8,1944

, Commission filed notice of appearance In fiscal year 1957.

, ReorganIzation proceeding closed during fiscal year 1957.

_____•• __•

__•____ _• ___

__• ___

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_____•__•

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__________ _____ __ •____

__________ _____ _______ _• ___ _______

______•

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___•• _

__________ _____ _____ • ____ __• ____
TWENTY -THIRD A..~NUAL REPORT 233

TABLE I5.-Summary of cases instituted in the courts by the Commission under the

Securities Act of 1938, the Securiues Exchange Act of 1931,., the Public UtilIty

Holding Company Act of 1985, the Investment Company Act of 191,.0, and the

Investment Advisers Act of 191,.0

Total Total Cases Cases Cases In. Total Cases cases In. cases pending pendmg stituted cases closed statuted closed pending

Types of cases up to end up to end at end at end during during during

oC1957 oC1957 of 1957 of 1956 1957 1957 1957

fiscal fiscal fiscal fiscal fiscal fiscal fiscal

year year year year year year year

--- --- --- --- --- --- Actions to enjoin vIolations of the above acts _._ 7SO 737 43 20 68 88 4,5

Aetrons to enforce subpenas

under the Securities Act and the SecuntIes Exchange Act __ 66 66 0 1 3 4 4 Actions to carry out voluntary

plans tQ comply with sec.

11 (b) of the Holding Com. pany AcL._ 120 118 2 4 1 5 3 Miscellaneous actions 23 23 0 1 0 1 I --- --- --- ---- -,----- TotaL._. _._. 989 944 45 26 72 98 53

TABLE I6.-Summary of cases instituted against the Commission, cases in which the

Commission participated as intert'enor or amicus curiae, and reorganization cases on appeal under ch, X in which the Commission participated

Total Total Cases Cases Cases In. Total Cases cases In. cases pending pendmg stituted cases closed stltuted closed pending

Types of cases up to end up to end at end at end during during during

of 1957 of 1956 1957 1957 of 1957 of 1957 fiscal fiscal fiscal 1957 fiscal fiscal fiscal fiscal year year year year year year year

------- ----------- --- Actions to enjoin enforcement

of Securities Act, Securities

Exchange Act and Public

Utility Holding Company

Act with the exception of

subpenas Issued by the Com. mlssion ._. 64 64 0 0 0 0 0 Actions to enjoin enforcement

of or eomphanee with sub.

penas issued by the Oommis- ston 8 8 0 0 0 0 0 Petitions for review of Com.

mission's orders by courts of appeals under the various acts administered by the Commission. ________ ._._. ___ 198 192 6 6 11 17 11 Miscellaneons actions against the Oommtssion or officers of

the Commission and cases In

which the Commission par.

tlcipated as Intervenor or amicus curtae 190 183 7 2 9 11

Appeal cases under ch. X In " Which the Commission par- ticipated ._ 148 147 1 3 3 6 5

'l'ota!. _. --- ------- -------------- 608 594 14 11 23 34 20

•••• _______••

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234 SECURITIES AND EXCHANGE OOMMISSiION

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TWENTY-THIRD ANNUAL REPORT 251

.TABLE 26.- Reorganization cases under ch, X of the Bankruptcy Act pending during

the fiscal year ended June SO, 1957, in which the Commission participated when

appeals were taken from district court orders

Name of case and United States

Court ofAppeals

Central States Electric Corp., debtor;

LeBoeuf, Lamb & Leiby, appel- lants (4th Clrcnit).

Hudson & Manhattan Railroad Co., debtor; Wllham J. Harding, Jr.,

Irving I. Schnur and Shirley Reiter, petitlonlng creditors, ap- pellants (2<1 Clrcult). Inland Gas Corp., et al., debtors;

Ben WJlluunson,Jr., Paul E. Kern,

Green Committee, Clmton M.

Harbison, Allen Committee, Van- ston Committee and Gregory Comnnttae, appellants (6th Clrcnit).

Liberty Baking Corp., debtor; Securities and Exchange Commission,

appellant (2<1 Clrcnit).

Bllesfan-Amertcen Corp., debtor;

Scribner & Miller and Paul Emery

Kern, appellants (2d Clrcnit).

Third Avenue Transit Oorp., et al.,

debtors; A. Philip Woolfson, ap- pellant (2<1 Clrcnit).

Nature and status of case

Appeal from order of June 25, 1956,dismissing appellants' petition seekingcompensation forservicesrendered in defending an action

for nnsmanagement brought by debtor's trustees against two of

debtor's former directors. Brief for Commission flIed Nov. 16,

1956,urging affirmance oforder. Decision of CA-4, Jan. 7, 1957,

affirming the order of the district court. Petitton for writ of

eertlorarr flIed by LeBoeuf, et al., Apr. 8, 1957. Brief flIed by Comtmsslonin opposition, May 9, 1957. Certiorari denied, May 20,1957. Closed.

Appeal from order of Nov. 26, 1956,authorlzmg the trustee to pur- chase 20 new railroad cars. Commission flIed memorandum

Jan. 9, 1957,urging affirmance of the order. Opinion of CA-2,

Jan. 14,1957,affirmmg the order of the district court. Closed.

Appeals from order of Mar. 14,1956,inter alia denying confirmation

of Trustees' Amended Plan of Reorganization, refusing to find

worthy ofconsideration a plan submitted by a security holder and

refusmg to confirm a plan of reorganization because It provided for post-bankruptcy interest and since It was not accepted by the

requisite majonty of creditors affected by the plan. Brief of

CommissionflIed Aug. I, 1956,supporting certain of the appeals. DeCISIOnof CA-6, Feb. 14,1957,affirming the order of the distrfct court. Petition ofKentucky Debenture Holders Committee and

Paul E. Kern, Mar. 4,1957, for rehearing and memorandum of

Commission, Mar. 4, 1957,in support of petition for rehearing. Order entered by CA~, May 8, 1957,denying the petition for

rehearing. Pending. Appeal from order of Dec. 19, 1955,denying the Commission's

motions forleave to intervene and for dismissal of Debtor's peti- tion under Chapter XI on ground proceeding should be under

Chapter X. Brief of Commission flIed July 31, 1956. Com.

mission's reply brtef flIed Sept. 21, 1956. Decision by CA-2,

Jan. 16, 1957,reversing the order of the district court. Petition

forwrrt ofcertiorari flIedby debtor, Feb. 23,1957. Commisslon's

brief In opposition flIed Mar. 25,1957. Certiorari denied Apr. 8,

1957. Closed.

Appeal by Bondholder's Protective Committee from order of

June 4, 1956,making allowancesof compensatlon to the Trustee,

the petitioner and others. Brief of COmmissionflIed Oct. 26,

1956,supporting appeals. Decision of CA-2, Dec. 6, 1956,re- versing the order of the district court and remanding the case. Closed.

Appeals from order of July 26, 1956,approving the joint plan of

reorganization, order of Sept. 11,1956,denying appellant's motion

foran order reopening the question ofinsolvency ofdebtor and for

the appointment of an appraiser and order of Oct. 8, 1956,con. firming the joint plan ofreorganization. Brief of COIDIDlSslOnin

opposition to appeals filed Nov. 21, 1956. Decision of CA-2,

Nov. 30, 1956,affirming the orders ofthe dlstrret court. Petition

for writ of certiorari flIed Jan. 25, 1957,by Woolfson. Brief of

Commission, Feb. 26, 1957,in OPPOSition. Certiorari denied

Mar. 11,1957. Petition forrehearing denied Apr. 8,1957. Closed.
252 SECURlTlES AND EXCHA.."oWE' OOMMtSSiION

TABLE 27.-A t4-year summary of criminal cases deeeloped by tile CommisBion1894 thr()Ugh 1857 by fiscal year

[See table 29 for cIsssiftcation of defendants as broker-dealers, ete.]

o

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Number Number of these

Number of persons of such defendcases in ants as to Number or cases ssto wbich Number Number Number whom of these rererred whom or de- to De- prosecu- indict- fendants or these or these proceed- defend- Filleal year partment tlon was ments indicted defend- defend- Ings were ants as to were ob- ants con- ants ae- df!lmissed wham orJUBtIce reeom- tained by in'SllcJi victed quitted on motion cases are in each mended cases J

year In each United or pendmg t

States United year attorneys States

attorneys

---------------------------- 1934 7 36 3 32 17 0 15 1935 ._. 29 177 14 149 84 5 60 0 1936 43 379 34 368 164 46 158 1937_. 42 128 30 144 78 32 34 1938 40 113 33 134 75 13 45 1 1939 ._._. 52 245 47 292 199 33 60 0 1940 , 59 174 51 200 96 38 66 0 1941. 54 150 47 145 94 15 36 1942 50 144 46 194 108 23 48 1 1943_________________ 31 91 28 109 62 10 33 3 1944_________________ 27 69 24 79 48 6 20 5 1945. 19 47 18 61 36 10 14 1 1946__, ____, ________, 16 44 14 40 13 8 4 15 1947 20 50 13 34 9 5 15 5 1948 16 32 15 29 20 3 6 0 1949 27 44 25 57 19 13 25 1950._ ._ 1951_______________ ._ 18 28 15 27 21 1 5 0

29 42 24 48 37 5 6 0 1952_________________ 14 26 13 24 17 4 3 0 1953_ 18 32 15 33 20 6 5 2 1954 _._. 19 44 19 52 18 4 5 25 1955 8 12 8 13 7 0 2 4 1956 17 43 15 37 14 2 2 19 1957 26 132 10 34 9 1 1 23 ---- ---- ------------------------ TotaL. _______ 681 2,282 561 2,334 1,265 283 668 118

J The number or defendants in a case is sometimes increased by the Department of Justiee over the number

agamst whom prosecatlon was recommended by the Commission. For the purpose of this table, an

individual named as a defendant in 2 or more mdictments in the same case IS counted as a single defendant. I See table 2S for breakdown of pending cases. I Fifteen of these references as to 101 proposed defendants were still being processed by the Department

of Justice as of the close of the fiscal year, 530 of these cases have been completed as to 1 or more defendants. Convictions have been obtained in 459 or 87 percent of such cases. Only 71 or 13 percent of such cases have resnited in acquittals or dismissals as to all defendants, this mcludes numerous cases in which indictments were dismissed without trial because of the death of defendants or for other admiuistrative reasons. See note 5, infra. I Includes 53 defendants who died after Indictment.

-

______ • _________•

______ • __ _____ ___________• _____

_________• _____ ______• ___• __• ___

________• ___ ___ ______• ___• __

__• ______•___• __ _______' ____• ____

_____________ • __

_________ • _______

_____• ___________ __• ______________

• _____• ______

•• ___• ______• ___ ______•• __• __ __• ________• _____

__• ______________

__• ______________ •

• •

•
TWENTY-THIRD ANNUAL REPORT 253

TABLE 28.-Summary of criminal cases developed by the Commieeion which wert

8h'll pending at June 30, 1957

Number Number of such defendants as to

Number of of such whom cases are still pending and

defendants reasons therefor

Cases defendants as to whom In such cases have cases been Not yet Awaiting Awaiting completed appre- trial appeal bended

Pending, referred to Department

of Justice In the fiscal year: 1938..• 1 2 1 1 0 0 1939._. ._. 1940 0 0 0 0 0 0

1941. __________________________ 0 0 0 0 0 0

1942__... ______________________ 0 0 0 0 0 0 2 18 3 14 1 0 1943 _. .. ._ 11144 ._ 1 5 2 2 1 0 1 7 2 5 0 0 1945 1 1 0 1 0 0 1946..• •. 1947 4 16 1 15 0 0 2 6 1 5 0 0 1948 ....... 0 0 0 0 0 0 1949. _____.. ____.. ______.. _. ___ 0 0 0 0 0 0 1950 0 0 0 0 0 0 1951. _. 0 0 0 0 0 0 1952 . 1953 0 0 0 0 0 0 2 12 10 1 1 0 1954.. ._ _._ ._ 3 26 1 7 18 0 1955 _. _. 2 5 1 0 3 1 1956.. __. _______.• _____________ 9 22 3 1 12 6 1957. .• 7 23 0 3 20 0

TotaL_ ... '35 1J43 25 55 56 7

SUMMARY Total cases pending .. .. 52

Total defendants '_ .. •.. . 247

Total defendants as to whom cases are pending '. . .. . 222

, Except for 1956 and 1957 Indictments have been returned in all pending cases. As olthe close of the fiscal year, indictments bad not yet been returned as to 104 proposed defendants in 17 cases referred to the Department of Justice in 1956 and 1957. These are reflected Only in the recapitulation of totals at the bottom of

the table.

TABLE 29.-A !4-year 8ummary clas8ifying all defendants in criminal cases developed

by the Commission-19S!, to June SO, 1957

Number as to whom _were Number as Number Number Number d.IBm.IBIIed to whom

indicted convloted acquitted on motion oases are of UnIted pendIng

States

attorneys

Registered broker-dealers , (including prin- 354 218 100 cipals of such firms). 24 12

Employees of such registered broker-deal- 125 64 17 42 2 ers ._. --.-

Persons In general securities business but

not as registered broker-dealers (Includes nrlnclpals and employees). ._ 718 359 5; 258 44 A I others ... .... ._. 1,137 624 185 268 60

Total. ...... 2,334 1,265 283 668 118

, Includes persona registered at or prior to time of indictment.

S The persons referred to Inthis column, while not engaged In a general business Insecurities, were almost wltbout exception prosecuted for violations of law involving securities transactions.

____________________• ___

___ _________• ___•____ _____• ____________• ________

••• _______ ____• ______ __• ______________________

__•_______________• ________

___' ___________• ______ ____• _______•_______• ______

_______• ____ ____• ___

_____•• ____• _________•• ____ ___________•• _••• _______

_______•• ____' __••• __" ___ _________________• _________

________•• __• ____ •• _____ • ___•• _____ •• ___

_______• ___ _____________

______________•• __

' • • •• ________________

•

_________•__________

_______• ____• __ __________•__----

__•• ________ •• __ ___•_____••• __ ___ __

___•••• _ _•• __••• ____• ____
254 SECURITIES AND EXCHANGE OOMMlSlSlION

TABLE 30.-A SJ,-1Iear8ummary of all injunction eases instituted by the Commiasion,

19SI, to June SO, 1957, by calendar year

Number of cases instituted Number of cases In which by the Commission and injunctIons were granted the number of defend. and the number of de- Calendar year ants Involved fendants enjoined.!

Cases Defendants Cases Defendants

1934_ 7 24 2 4 1935 36 242 17 56 1936_ 42 116 36 108 1937_ _. 96 240 91 211 1938 _. _._ 70 152 73 153 1939 _. ,._ 57 154 61 165 Ill4O 40 100 42 99 1941. 40 112 3fl 90 1942 21 73 20 54 1943_ , _. 19 81 18 72 1944_ _._ 18 80 14 35 1941L , 21 74 21 57 1946 _. 21 45 15 34 1947 _._ _._ 20 40 20 47 1948_ 19 44 15 26 1949 25 59 24 55 1900_ 27 73 26 71 1951 , 22 67 17 43 1962 27 103 18 00 1953 20 41 23 68 1954- 22 59 22 62 19M _. 23 54 19 43 1956 53 122 42 89 1957 (to June 30). 34 124 17 62

----------- TotaL 780 2,279 689 1,754

SUMMARY

Cases Defendants

Actions instituted. ._._ 780 2,279

Injunctions obtained _. ._. _. 681 1,754 Actions pending 31 a 104 Other dispositions ._. ._. ._ _. 68 42l

Total_ ._ ._ 780 2,279

1These columns show disposition of cases by year of disposition and do not necessarily rellect the disposition of the cases shown as having been Instituted In the same years . Includes 7 cases which were counted twice in th1s coiumn because injunctions against di1ferent defendants

In the same cases were granted In dl1ferent years.

a Includes 13 defendants In6 cases in which Injunctions have been obtained as to 43 co-defendants

Includes (8) actions dlsDllssed (as to 353 defendants); (b) actions discontinued, abated, vacated, abandoned, stipulated, or settled (as to 53 defendants); (c) actions In which judgment was denied (as to 11 defend.

ants)j (d) actions In which prosecution was stayed on stipulation to discontinue misconduct charged (as to 4 defendants),

u. s. gOVERNMENT PRINTINg O"-ICI,IUI

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