Second Annual Report

of the

~IS.Securities and, Exchange

'/

Commission

Fiscal Year Ended June 30, 1936

UNITED STATES

GOVERNMENT PRINTING OFFICE

WASHINGTON: 1936

Por 88le by the Sqperlntendent or Doenmonts, Wash1DlftDn.D. C. - • • - • - • - Price 15 c:eara
rr

SECURITIES AND EXCHANGE COMMISSION

Office: 1778 Penjisylvanla Avenue NW. _-

"1V:~on~ D. C. .

COMMISSIONERSJAMES M. LANDIS, Ohairman

GEORGE C. MATHEWS

ROBERT E. HEALy

J.D. Ross

WILLIAM O. Dou<JLAS

FRA.NCIB P. BRAS~OR, Secretary

Address All Communications

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,p.e.

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LETTER OF TRANSMITTAL

SECURITIESAND EXOHANGECOMMISSION,

W ashingt(}'(/" January 5, 1937.

Sm: I have the honor to transmit to you the Second Annual Report of the Securities and Exchange Commission, in compliance with

the provisions of Section 23 (b) of the Securities Exchange Act of

1934, approved June 6, 1934, and Section 23 of the Public Utility

Holding Company Act of 1935, approved August 26, 1935.

Respectfully,

JAMESM. LANDIS,

Ohairman.

The PREsIDENTOFTHE SENATE,

The SPEAKEROFTHE HOUSEOFREPRESENTATIVES,

Washington, D. O.

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CONTENTS ':. 

Page . . Creation of the Comm~ss~on ......................................... 
 1

Securities and Exchange Commission statutes ......................... 
 Organization of the Commission ................................. I.--
 % ... Functions of the dlvlmons.. ........................................ 


Reeional - offices .................................................... 
 Conference of regional administrators- ............................... 


Amendment to the Securities Exchange Act of 1934.................... 


PARTI1 

Advisory and interpretative assistance. .............................. Registration of exchanges as national securities exchanges. ............. 

Exemption of exchanges from registration as national securities exchanges. 

Detection of excessive trading and manipulative and deceptive prsctices on 

exchanges...................................................... 

Fomulat,ion of rules for the regulation of pegging, fixing, and stsrbilizing 

operations both on exchanges and in the over-the-counter markets .... 

Formulation of rules for the regulation of puts, calls, straddles, and other 

options....................................................... 

Cooperation with the Board of Governors of the Federal Reserve System 

in supervision of its margin regulations ............................
a 


Formulation of rules relating to borrowings and solvency of, and hypothecation of customers' securities by exchange members, brokers, and 

dealers......................................................... 

Supervision and study of matters relating to unlisted trading privileges in 

securities on exchanges ........................................... 

Formulstion of rules relating to unissued warrants and unissued securities 

for "when, as, and if issued" dealing on national securities exchanges.. 

Solicitation of proxies, consents, and authorizations in respect to securities 

listed on a national securities exchange ............................. 


Regulation of over-the-oounter markets .............................. 


Over-the-counter trading. ...................................... 


Directory of brokers and dealers ................................. 


Statistics of over-the-counter brokers and dealers .................. 


Report on the feasibility and advisability of the complete segregation of 

the functions of dealer and broker .................................. 

Registration of securities on exchanges ......r ........................ 

Permanent registrations ........................................ 

Confidential treatment of applications, reports, or documents..-. .-. 

Statistics of securities registered or exempt from registration on 

national securities exchanges. ................... ...... 

Reports of officers, directors, and principal stockholders ................ 

Withdrawal or striking from listing and registration of securities on nstional securities exchanges ........................................ 


v 
VI CONTENTS 

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


Securities Aot farms, rules and regulations ........................ 
 Registration of securities under the Securities Act of 1933 

~~-~ ~ 

Exsminetion of Securities Act registration statements .............. 

Exemntions from registration requirements ....................... 

Statistics of securities registered under the Securities Act ........... 

Statistios of private platings.. .................................. 


The Public Utility Holding Company Act of 1935..................... 


Rules, regulations, and forms dnder the Public Utility Holding 


Company Act of 1935........................................ 


Statistics of applications, declarations, and notifications under the 


Public Utility Holding Company Act of 1935................... 

Registration of utility holding companies ............................. 

Exemntions under the Public Utility Holding Company Act of 1935..... 

holding companies or their subsidiaries......................... 

Statements requiredpursuant to Section 12 (i) of the Public Utility Holding 

Act of 1935..................................................... 

Rules regarding service, sales, and construction contracts .............. 

Uniform system of accounts for mutual service companies and subsidiary 

service companies ............................................... 


Study of investment trusts and investment companies ................. 


Complaints, informal and formal investigations ....................... 


Hkarings ............................;............................ 

Litigation ........................................................ 

Litigation under Securities Act of 1933 and Securities Exchange Aot 

of1934.................................................... 

Petitions for review in Circuit Courts of Appeals .................. 

References to the Attorney General for criminsl prosecution ........ Litigation under the Public Utility Holding Company Act of 1936.-. 

Formd apiriions ................................................... 


Securities x7iolations files ........................................... 


Report on the study and investigation of protective and reorganization 


committees..................................................... 
 Public reference rooms ............................................. 


Publications...................................................... 


Personnel........................................................ 
 Rules of Practice of the Commission ................................ 
 Admissions to practice ......................................... 
 Fiscal affairs ...................................................... 


PART111. APPENDIX~~ 

APPENDIXI. Rules of Practice ...................................... APPENDIXI1. Guide to Forms ................................... 74, 

APPENDIX111. Securities Act registration statements as to which stop 

orders, consent refusal orders, and withdrawal orders were issued July 1, 

1935, to June 30, 1936........................................... APFENDIXIV. List of publications available as of September 30, 1936.... APPENDIX V. Statistiel~ltablea: 

Table 1. Type classifioation, by month, of new securities included 

in registration statements fully effective September 1, 1934, to 

June 30, 1936............................................... Table 2. Group claasifioation, by months, of issuers of new securities 

fully effective July 1, 1935, to June 30, 1936 .................... 
CONTENTS vn

..APPENDIX V. Statistical tables--Continued. Page

Table 3. Reduction of estimated gross proceeds to net proceeds, by

months, of new securities registered for account of issuers and fully

effective,July 1, 1935,to June 30, 1936________________________ 101

Table 4. Proposed uses of net proceeds, by months, of new securities

registered for account of issuers and fully effective,July 1, 1935,to

June 30, 1936__ __ _ ___ ___ 102

Table 5. Statistics, by industries, ofnewsecuritiesfully effective under

the Securities Act of 1933from July 1, 1935,to June 30, 1936_____ 104

Table 6. Channels of distribution of new securities registered for account of issuers and fully effective,July 1, 1935,to June 30, 1936_ 112

Table 7. Type classification, by months, of securities included in

registration statements for reorganization and exchange issues fully

effective, July 1, 1935,to June 30, 1936________________________ 113

Table 8. Industry group classification, by months, of securities included in registration statements for reorganization and exchange

issuesfully effective,July 1, 1935,to June 30, 1936______________ 114

Table 9. Private plaeingsofsecurities,January 1,1934to June 30,1936_ 115

Table 10. Number, personnel and branch offices of brokers and

dealers registered on Form I-M, as of May 27, 1936, by form of

organization_________________________________________________116

Table 11. Value and volume of sales on registered exchanges, by

months, July 1, 1935,to June 30, 1936:

Part 1. Total market value of all sales. Part 2. Market value

of stock sales. Part 3. Market value of bond sales. Part 4.

Volume of stock sales. Part 5. Principal amount of bond

sales~-------------------------------------------- Facing 116 A.PPENDIX VI. Litigation involving statutes administered by the Com- ~on_________________________________________________________ 117

SECOND ANNUAL REPORT OF THE SECURITIES

AND EXCHANGE COMMISSION

WA.SHlNGTON, D. C.

PART I

CREATION OF mE COMMISSION

The Securities and Exchange Commission was created pursuant to

Section 4 of the Securities Exchange Act of 1934 (48 Stat. 881,904).

The Commission is charged with the responsibility of administering

and enforcing the Securities Act of 1933, the Securities Exchange

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

The first meeting of the Commission was held on July 2, 1934, at

which time the administration of the Securities Exchange Act was

started. On September 1, 1934, the administration of the Securities

Act of 1933 was transferred from the Federal Trade Commission

to the Securities and Exchange Commission. On August 26, 1935,

the President signed the Public Utility Act which charges the Securities and Exchange Commission with the administration and enforcement of the Public Utility Holding Company Act of 1935. 1

SECURITIES AND EXCHANGE COMMISSION STA.TUTES

The purposes of the Securities Act of 1933 as outlined in the

Report of the Committee on Banking and Currency are to prevent

exploitation of the public by the sale of unsound, fraudulent, and

worthless securities through misrepresentation; to place adequate

and true information before the investor; to protect honest enterprise, seeking capital by honest presentation, against the competition

afforded by dishonest securities offered to the public through crooked

promotion; to bring into productive channels of industry and development capital which has grown timid to the point of hoarding; and

to aid in providing employment and restoring buying and consuming

power.

.The objectives sought in the passage of the Securities Exchange

Act of 1934 were threefold, viz, to prevent the excessive use of credit

to finance speculation in'securities; to see to it that the market places

,1The Public UtiUty Act is divided into 2 parts. Title I, the PubUc Utility Holding

Company Act of 1935, is administered by the Securities and Exchange Commission. Title

n. the Federal rower Act,. is adminiatered by the Federal Power Commission.

1
2 SECURITIES AND EXCHANGE COMMISSION

in which securities are purchased and sold, such as the. stock exchanges and the so-called over-the-counter markets, are purged of

the abuses which had crept into them; and to make available to the

average investor honest and reliable information sufficiently complete

to acquaint him with the current business-conditions of the-company,

the securities of which he may desire to buy or sell. _ .~

In general, the Public Utility Holdin.g Company' .Act of 1935 provides that gas and electric utility holding' company systems whose

activities involve interstate commerce shall be subject to regulation by the Securities and Exchange Commission. This regulation extends to the issuance and sale of securities; the acquisition

of securities, utility assets, and iuterests in other businessesj the

simplification and limitation of holding company systems'; intercompany transactions; service, sales, and construction contracts; and

the maintenance of accounts and submission of reports as required.

ORGANIZATION OF mE COMMISSION

The Commission was organized on July 2, 1934. It is composed

of five Commissioners appointed by the President, by and with the

advice and consent of the Senate. The Act provides that' not more

than three of the Commissioners shall be members of the same

political party. .

The present Commissioners are: James M. Landis, of Massachusetts, Chairman; George C. Mathews, of Wisconsin; Robert E. Healy;

of Vermont; J. D. Ross, of Washington; and William O. Douglas, Of

Connecticut. .

Commissioner James M. Landis was appointed June 30, 1934, for

the term ending June 5, 1937. Upon the resignation of Joseph;P.

Kennedy as Chairman and Commissioner on September 23, 1~3p,.

Commissioner Landis was elected Chairman of the Commission," ..,

Commissioner George C. Mathews was appointed June 30, 1934,.

for the term ending June 5, 1938. .

Commissioner Robert E. Healy received his original appointment.

on ;June 30, 1934. On June 19, 1936, he was reappointed Commissioner for the term ending June 5, 1941.

Commissioner J. D. Ross was appointed .August 26, 1935, for

the term ending June 5,1940, vice Commissioner Ferdinand Pecora,

who resigned January 21, 1935.

Commissioner William O. Douglas was appointed January .21,

1936, for the term ending June 5, 1939, vice Commissioner Joseph

P. Kennedy who resigned September 23,1935.

The names of the officials in the departmental service who. are. in

charge of the divisions and officesinto which the Commission- has

• Commissioner Landis was reelected Chairman of the Commission 011JulY' 1, 1936:
SECOND ANNlJblr REPORT 3 

been divided are as follows: Baldwin B. Bane, Director. of Registration Division; Carman G. Blougl~! Chief, Accountant; Francis P. 

Brassor, Secretary of the Commission and Chief of the Adnlinistrative Division; John J. Burns, General CounsB1; William C. Gilman, 

Director of Public Utilities Division; Paul P. Gourrich, Director 

of Research Division; Harold H. Neff, Director of Forms and Regulations Division; Ward Perrott, Director of Employment Research; 

David Saperstein, Director of Trading and Exchange Division; 

Edain A. Sheridan, Supervisor of Information Research; and 

Kemper Simpson, Economic adviser to the Commission. The. Protective Committee Study Division is under the direct superr~ision of 

Commissioner Douklas. 

The names of the administrators in charge of the regional ofices 

are as follows: Oran H. Allred, Fort Worth Regional Office ; Ernest 

Angell, New York Regional Office; James J. Caffrey, Boston Regional Ofice; Foster Cline, Denver Regional Office ; William Green, 

Atlanta Regional Office; Howard A. Judy, San Francisco Regional 

Office; Day Karr, Seattle Regional Office; and Thomas J. Lynch, 

Chicago Regional Office. 

FUNCTIONS OF THE DIYISIONS 

During the year the Commission created new divisions and made 

a number of changes in the functions and activities of dose in 

existence. The functions and activities of the several divisions and 

offices are as follows: 

The Legal Division is responsible for (1) the rendering of opinions 

and advice to the Commission on general questions of law arising in 

connection with the administration and enforcement of the three 

Acts over which the Securities and Exchange Commission has jurisdiction; (2) the rendering of opinions and the drafting of interpretative letters in response to inquiries regarding the interpretation of 

the statutes administered and enforced by the Commission; (3) conducting hearings before the Commission, or an officer of the Commission, in all cases except those involving refusal or stop order proceedings under Sections 8 (b) and (d) of the Securities Act of 1933, 

which are conducted by the Registration Division, and hearings relative to the continuance, extension, termination or suspension of unlisted trading privileges on national securities exchanges, which are 

conducted by the Trading and Exchange Division; (4) supervising 

the conduct of investigations of alleged violations of the Acts; (5) 

representing the Commission in all judicial proceedings, including 

proceedings to enjoin violations of law and proceedings for the review of orders of the commission (under existing legislation all civil 

court actions, including actions for injunctions, proceedings for the 

review of Commission orders and a variety of proceedings in which 
4 SECURITIF,S AND EXCHANGE COMMISSION 

the Commission or the members of the Commission are defendants, 

are handled directly by the Commission's legal staff, whereas criminal 

proceedings are referred to the Department of Justice) ; (6) preparing criminal cases for transmission to the Department of Justice 

and to the Post Office Department for prosecution and the cooperation in the trial of such cases; and (7) collaboration with other divisions of the Commission in the preparation of reports to Congress 

as required under the Securities Exchange Act of 1934 and the Public Utility Holding Company Act of ,1935. 

The Registration Diuision is responsible for the examination of all 

registration statements covering the proposed public offering of 

securities in interstate commerce or through the mails, filed pursuant to the Securities Act of 1933; prospectuses and offering sheets 

filed pursuant to the Commission's regulations providing a conditional exemption from registration under the foregoing Act; applications for registration of securities on national securities exchanges 

pursuant to Section 12 of the Securities Exchange Act of 1934; rel~ortsof security ownership and transactions as required of directors, 

officers, and principal stockholders under Section 16 of ihe Securities 

Exchange Act of 1934 and of directors and officers under Section 17 

of the Pdblic Utility Holding Company Act of 1935; and applications for the confidential treatment of material contained in any 

application, report, or document filed under the Securities Exchange 

Act of 1934. This includes the examination not only of statements, 

applications and reports proper, but also accompanying financial 

stzstements, certificates of incorporation, appraisals, prospectuses, and 

other documents, as well as periodical annual reports and amendments to the foregoing; the preparation of reports and letters of 

deficiency; the making of field investigations by engineers and accountants; the conduct of hearings for the development of facts and 

the verification of data sobmitted in registration statements and applications; and the conduct of hearings in refusal-order and stoporder proceedings under Sections 8 (b) and (d) and in examination 

proceedings under Section 8 (e) of the Securities Act of 1933; the 

preparation of recoinmendations to the Commission on the above 

rnatters and, after the Comn~ission has acted, the preparation of the 

'Comnlission orders. 

The Trading and E~change Divisionis ~esponsible for (1) the examination of registration statements filed by exchanges for registration as national securities'exchanges and the exemption of exchanges 

,from registration; (2) the fprmulation of rules for the pgulation of 

floor trading by members, fdr the prevention of .excessir-e trading bx 

exchange members off the floor of exchanges, and for the limitation 

of dealings by specialists and odd-lot dealers; (3) the detection of 

excessive trading and unlamful practices on exchanges, including 
SECOND ANNUAL REPORT 5

wash sales, matched orders, pool operations, the tipping of pool

operations, the dissemination of false and misleading information

concerning securities, and other manipulative or deceptive devices;

(4) the review of field investigations into trading activities; (5)

the formulation of rules for the regulation of pegging, fixing, and

stabilizing operations on exchanges and in over-the-counter markets; (6) the formulation of rules for the regulation of puts, calls,

straddles, and other options both on exchanges and over-the-counter ;

(7) the formulation of rules for the regulation of short selling and

stop-loss orders; (8) the study of the effect of Federal Reserve Margin Regulations on trading in securities; (9) the formulation of

rules relating to the borrowings of exchange members, brokers; and

dealers and relating to the hypothecation of customers' securities by

exchange members, brokers, and dealers; (10) the study of exchange

rules and the formulation of rules governing miscellaneous exchange

practices; (11) the formulation of rules with respect to "when and

if issued" trading; (12) the formulation of rules for the regulation

of over-the-counter markets, including rules providing for the registration of brokers and dealers in over-the-counter markets and for

the elimination of the unfit, rules regulating trading practices and

dealings in over-the-counter markets, rules to insure to investors in

over-the-counter markets protection comparable to that provided in

the case of national securities exchanges, rules for the regulation of

securities salesmen employed by over-the-counter houses and rules

for the regulation of investment counsel; (13) the formulation of

rules and regulations governing the continuance or extension of un..

listed trading privileges on national securities exchanges, of rules

governing the withdrawal and removal of securities from such unlisted trading privileges, and of rules governing the delisting from

national securities exchanges of securities fully listed and registered

thereon; (14) the examination of applications :for the continuance,

extension, withdrawal, or removal of securities from unlisted trading privileges and the examination of applications for the delisting

of securities listed and registered on national securities exchanges;

and (15) the conduct of hearings before the Commission or an officer

of the Commission held on such applications.

The Ser:retary is the chief administrative officer of the Commission. and as such is responsible for action on, signing, and service of

all Commission orders, actions, and certifications; preparation and

defense of the budget estimates before the Bureau of the Budget

and the appropriation committees of Congress; preparation of the

Commission's Annual Report to Congress; action on all allotments

and expenditures of appropriations; and assistance in the coordination of the many activities of the Commission. The Secretary also

has general supervision over (a) the Recording Secretary, who is
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SECURITIES AND EXC~GE COMMISSION

responsible for the preparation, maintenance, and indexing of official minutes of the Commission and the drafting of memoranda to

division heads and regional administrators indicating actions taken

on matters presented to the Commission, and (b) the Administrativ~

Division, the Innctions of which include: (1) all service activities

such as the establishment of field offices, the preparation of leases, the

preparation of contracts for miscellaneous services, all duplicating

activities, the purchase, storage, and issuance of supplies and equipment, the maintenance and distribution of forms, rules, regulations,

instructions, opinions, press releases, etc., the compilation of statistical information by means of card punching, sorting, and tabulating

machines, and the editorial and printing work; (2) the preparation

and maintenance of the dockets and records on all registration statements, applications, declarations, etc., filed with the Commission;

(3) the maintenance of the central files of the Commission; (4) the

maintenance of the Public Reference Room and the, dissemination

of information with respect to all public documents filed with the

Commission; (5) the maintenance of the Library, the central mail

room and the stenographic pool for servicing all divisions of the

Commission; (6) the maintenance of the Commission's appropriation

accounting records and the auditing of vouchers and pay rolls COVering expenditures; (7) the conduct of general correspondence not relating to technical subjects or matters; and (8) examination of and

action on all applications for admission to practice before, the

Commission as attorney or agent.

The Pwblia Utilities Division is, in general, charged with the administration of the Public Utility Holding Company Act of 1935.

Its financial, accounting, and engineering staffs .make studies of the

operations and financial structure of the registered holding company

systems and pass upon the declarations or applications filed by the

holding companies or their subsidiaries with respect to' matters requiring approval of the Commission, such as the issuance of securities, the acquisitions of securities or utility assets, reorganizations,

organization of service companies, and similar matters. The division

is also responsible Tor making studies' of holding company systems

with a view to determining the best methods of achieving .the mtegration of systems and the simplification .of their corporate structure

which the Act requires. Itis the duty of the division to collabqrate

with other divisions in the preparation of rules and regulations with.

respect to various aspects of. holding company activities, such'; as

intercorporate loans, redemption of securities, declaration of. dividends, sales of assets, solicitation of';~oxies,., transactions ,:with

affiliates, the keeping of accounts, the filing of reports with, the -Oommission,' etc. »> : " ," ,.,;. • _:, '.. ":.:

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-, ,SECOND ANNUAL REPORT ,7

.The Ohief Accountant of the Commission is responsible for the

rendering of advisory service to the Commission in connection with

accounting matters; for the conduct of studies, investigations, and

researches involving accounting theory, policy, and procedure; for

the conduct of conf-erences with accounting authorities and members

of the-staff regarding matters involved in the drafting and interpretation 'of accounting rules and regulations; for the supervision of

the 'accounting work of the Commission whenever unusual matters,

new procedure, or new policies are concerned; for supervision over

the promulgation and administration of rules regarding uniform

classificetion of accounts; for drafting and establishing procedure to

be followed in the conduct of audits and accounting investigations;

for rendering advisory opinions and instructions to the accountants

assigned to the various divisions and regional offices of the Commission in connection with the disposition of highly technical auditing

and accounting questions; for the preparation of accounting briefs,

reports and memoranda regarding accounting matters under the juriSdiction of the Commission in connection with the administration

and enforcement of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Public Utility Holding Company A-ct of

1935: ' '

: The Beeeoreh.Division is' responsible for the collection of information- hearing upon current developments in the securities market,

and. the, observation of the financial policies of corporations under 'the

jurisdiction of the Commission ; the maintenance of statistical and

~-alyti~al 'information on security markets, corporate earnings and

other subjects of interest to the Commission; the maintenance of

staiiStical records on the activities of the Commission; and the organization and presentation either for internal use by the Commission, "'for other governmental agencies, or for publication of the

statistical' material collected by the Commission in the exercise of

itS administrative functions. . It is further charged with advising

the Commission on current developments and problems in the above

fields and With drafting special reports on technical and economic

'aspects 'of the issuance of and the trading in securities. The division

8J.so engages in research on basic economic and financial problems

connected .with the administration of the Public Utility Holding

'Company 4-ct of '~935 and advises the Commission thereon. A section' of the' division is at present' conducting the study of investment

trusts -and' 'investment companies authorized by Section 30 of the

-Publie 'Utility'Holding Company Act of 1935 and by resolution of

. ~hE;CoIriiiiission: tinder Soc-ti'oll'lB of the same Act;

.'j!:!Tlie"FJcd~:'A'dvi8er."~O; th~ Commission is charged with the

respb~b~ty;~ 'conducting certain economic studies for use by the

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g SECURITIES AND EXCHANGE OOMMISSION

Commission in the establishment of general policies and with the

rendering of advice regarding the economic aspects of the problems

involved in the administration of the Securities Act of 1933 and the

Securities Exchange Act of 1934.

The Supervisor of Information Research is responsible for disseminating public information regarding the activities of the Commission by means of correspondence and releases. The legislation

under' which the Commission operates specifically directs that publicity be given to its rulings, regulations, opinions, and findings, as

well as to the filing of registration statements, the effective registrations, hearings held, and reports and statements filed with the Commission by security issuers, officers, directors, and principal stockholders. This information is made available to the public by the

Supervisor of Information Research through releases issued to the

press and through mailing lists established for the convenience of

those who wish to receive releases currently.

The Forms and Regulations D.ivision is responsible for (1) the

preparation for submission to the Commission, of rules, regulations,

and forms in collaboration, where appropriate, with other divisions

of the Commission; (2) the conduct of accounting.Iegal, and economic

researches for the purpose of developing facts, policies, and customs

regarding specific industries to be affected by the ,Promulgation of such

rules and regulations and forms; (3) the conduct of conferences and

interviews with representatives of accounting and legal societies and

associations, stock exchange officials, and others for the purpose of

securing suggestions concerning proposed forms and regulations and

in order to ascertain the reaction of these representatives to the

proposed forms and regulations, particularly with respect to burdens

that may be imposed upon industries as a result of their promulgation; (4) the conduct of studies in connection with forms and rules

and regulations now in existence to determine whether they should

be amended, revised, or modified; and (5) the preparation of legal

opinions and interpretations concerning those rules and regulations,

This work involves the ,Preparation of rules and regulations and

forms for use in connection with the regulation of stock exchanges

of the country, the flotation of new securities, and the registration of

.securities listed on exchanges by a great variety of security issuers.

The El1~ploymentResearch Division is charged with the responsibility of handling all personnel matters for the Commission. Itincludes the conduct of correspondence, the maintenance of personnel

records, the interviewing of applicants, and all administrative work

regarding appointments, pay rolls, transfers, reinstatements, service

records, promotions, demotions, separations, and classification work.

The Protective Oommittee Stud,!! Division is charged with the

responsibility of conducting investigations and hearings for the pur-
-SECOND ANNUAL REPORT 9

pose of assembling data and facts for use in the preparation of the

Report to Congress as required under Section 211 of the Securities

Exchange Act of 1934. The division is also charged with the actual

drafting of the report. The investigation relates to the work, activities, personnel, and functions of protective and reorganization

committees in connection with the reorganization, readjustment, rehabilitation, liquidation, or consolidation of corporate persons and

properties. Investigations terminated early in January 1936. Since

that time the division has been engaged in completing reports to

Congress on the subject.

REGIONAL OFFICES

The regional officesare charged with the responsibility of conducting trading, accounting, and legal investigations and hearings with

a view to the efficient enforcement of the Securities Act of 1933,the

Securities Exchange Act of 1934, and the Public Utility Holding

Company Act of 1935. Each regional office serves the general and

investing public within the zone over which it has jurisdiction, and

aids registrants and accounting, legal, and investment firms in complying with the statutes and the rules and regulations administered

and enforced by the Commission. Regional officesof the Commission are located in New York City, Boston, Atlanta, Chicago, Fort

Worth, Denver, San Francisco, Seattle, and Washington, D. C.

The addresses of the Regional Offices and the States comprising

the territory they serve are indicated below;

New York Regional Office, 120 Broad- New York, New Jersey, and Pennsylway, New York, N. Y. vania.

Boston Regional- Office, 82 Devonshire Massachusetts, Connecticut, Rhode IsStreet, Boston, Mass. land, Vermont, New Hampshire, and

Maine.

Atlanta Regional Office,

Building, Atlanta, Ga.

Palmer Tennessee, North Carolina, South

Carolina, Georgia, Alabama, Mississippi, FlorIda, and that portion of

Loulslana east of the Atchafalaya

River.

Ohleago Regional Office, 105 West MInnesota, Wisconsin, Michigan, Iowa,

Adams Street, Chicago, Ill. Illinois, Indiana, Ohio, MIssouri,

Kentucky, and Kansas City, Kans.

Fort Worth Regional Office, New Federal Building, Fort Worth, Tex.

101978-36--2

Oklahoma, Arkansas, Texas, Kansas

(with exception of Kansas City) ,

and that portion of LouIsiana west

of the Atchafalaya River.

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10 SECURlTmS AND EXCH.ANGE~COMMISSION

Denver Regional Office,

BUilding, Denver, Colo.

Patterson Wyoming, Colorado, New ,Mexico, Neb.aska, North Dakota, South Dakota, and Utah. '-

San Ft.anclsco Regional Office, 625 Ollifomia, Nevada, Arizona, and

Market Street, San Francisco, Calif. Hawaii.

Seattle Regional Office, 1407 Exchange Washington, Oregon, Idaho, Montana,

Building, 821 Second Avenue, and .Alaska.

Seattle, Wash.

Washington Field Office, 1778 Penn- Virginia, West. Virginia, :Maryland,

sylvania Avenue NW., Washington, Delaware, and District of Columbia.

D. C.

CONFERENCE OF REGIONAL ADMINISTRATORS ,

On March 9, 1936, a conference of Regional Administrators of the

Securities and Exehange Commission was called ill Washington,

D. C. The purposes of this conference were to acquaint the ~egional

Administrator,s more fully with matters of policy and, precedent; to

enable them personally to present their problems and difficulties; to

work out uniform methods of treatment for the various problems most

frequently encountered by all Regional Administrators; to afford an

opportunity for the studying of common problems, and to formulate

uniform methods of treatment concerning them; and to adopt such

methods of procedure as would tend to improve the administration

and enforcement of the Acts through regional offices. The conference lasted from March 9, 1936, to March 13, 1936, inclusive. ,

AMENDMENT TO THE SECURITIES EXCHANGE ACT :OF 1934

Public Act No. 621, Seventy-fourth Congress, approved.rby the

President on May 27, 1936, amends the following sections-of the Securities Exchange Act of 1934: 12 (f), 15, 17 (a), 18 (a), 20 (c), _ I

21 (f), 23 (a), and 32. . _ '

Copies of Public Act No. 621, 'Seventy-fourth Congress, may~'be

secured from the Publications Unit of the Commission.

'

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11

PART II

ADVISORY AND INTERPRETATIVE ASSISTANCE

During the past year the Commission continued its policy of

replying to letters of inquiry regarding the interpretation of the

.Acts administered and the rules and regulations promulgated by it.

The highly- technical nature of the legislation administered by the

Commission and the complicated character of the problems arising

thereunder have made necessary a substantial measure of advisory

assistance to the general public.

To some degree, requests for opinions made to the Commission have

involved ingenious plans to circumvent the application of the law.

In dealing with these requests, as with other requests, the Commission, as a: matter of policy, has required statements of the names of

the persons or corporations concerned and of the amount involved.

To a more definite extent, however, the advisory assistance furnished

has been based on bona fide inquiries- and, to the end that sound

financing may not be impeded by doubt or delay, an endeavor has

been made to clarify promptly the problems raised.

Numerous communications with respect to the interpretation of the

ActS administered by the Commission were received and acted upon

during the year. In addition, many conferences concerning such

matters were held with .officers of Federal and State agencies and

members of the public.

, J;l.EGISTRATION OF EXCHANGES AS NATIONAL SECURITIES

EXCHANGES

<: On. ...Tuly 1, 1935, 21 national securities exchanges were registered

with the Commission pursuant- to Section 6 of the Securities Exchange _.<\ctof 1934.

During'ilie ,year, the operations of several exchanges which had

been granted temporary exemption from registration as national

securities exchanges under 'Section 5 of the Securities Exchange Act

of 1934,-were studied :by the Commission for the purpose of determining whether _they should be 'permanently exempted or whether

they should be required to apply. for registration as national securities exehanges, , '

As a consequence, on October 1, 1935, the Standard Stock Exchange of Spokane;' on- November 1~'1935, the Chicago. Curb

Exchange; and on June-L, 1936, the San Francisco Mining Exchange

~~e. ~gf,steI:e,ci.8:l;J national securities exchanges. The temporary

e~~riipftoqso! th~;e~changes as national securities exchanges were

extended. until lhe' date of registration. iiJ ~t J~~~~ 't' '--t_;:~ ,~-

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12 SECURITIES AND EXCHANGE COMMISSION

An application for registration as a national securities exchange

was received from the Pacific Stock Exchange of Los Angeles. The

Commission conducted an investigation and, after hearings, denied

on October 9, 1935, the application since it appeared in its opinion

that no economic need existed for an additional exchange in Los

Angeles; that the existing stock market facilities in Los Angeles

were adequate; and that the exchange was not so organized as to

be able to comply with the provisions of the Securities Exchange

Act of 1934 and the rules and regulations promulgated thereunder.

Pursuant to the provisions of Section 6 (f) of the Securities Exchange Act of 1934, which provides that an exchange mAY,upon

appropriate application in accordance with the rules and regulations

of the Commission, and upon such terms as the Commission may

deem necessary for the protection of investors, withdraw its registration, the Buffalo Stock Exchange and the Denver Stock Exchange

withdrew from registration as national securities exchanges on March

24, 1936, and April 15, 1936, respectively.

From time to time during the year, national securities exchanges

filed more than 300 amendments to their registration statements.

These amendments covered changes in membership, in exchange

trading rules, in securities admitted to listed or to unlisted trading

privileges, and in rules for the government of such exchanges. Each

amendment was subjected to thorough examination and analysis to

ascertain whether the exchanges were operating in compliance with

the provisions of the Securities Exchange Act of 1934 and the rules

and regulations promulgated thereunder.

The following 22 exchanges constitute the national securities exchanges as of June 30, 1936:

Baltimore Stock Exchange.

Boston Stock Exchange.

Board of Trade of the City of Chicago.

Chicago Curb Exchange Assn.

Chicago Stock Exchange.

Cincinnati Stock Exchange.

Cleveland Stock Exchange.

Detroit Stock Exchange.

Los Angeles Stock Exchange.

New Orleans Stock Exchange.

New York Curb Exchange.

New York Real Estate Securities Exchange, Inc.

New York Stock Exchange.

Philadelphia Stock Exchange.

Pittsburgh Stock Exchange.

St. Louis Stock Exchange.

Salt Lake Stock Exchange.

San Francisco Curb Exchange.

San Francisco Mining Exchange.~

San Francisco Stock Exchange.

Standard Stock Exchange of Spokane.

Washington (D. C.) Stock Exchange.

EXEMPTION OF EXCHANGES FROM REGISTRATION AS NATIONAL

SECURITIES EXCHANGES

At the beginning of the fiscal year, 15 exchanges had been granted

temporary exemption from registration as national securities exchanges pursuant to Section 5 of the Securities Exchange Act of
SECOND ANNUAL REPORT 13

1934. During the year covered by this report the changes indicated

below took place:

On July 30,1935, the Louisville Stock Exchange was dissolved.

On August 8, 1935,the Associated Stock Exchange of Manila, P. I.,

was dissolved.

On October 1, 1935, the Standard Stock Exchange of Spokane

became a registered exchange.

On November 1, 1935, the Chicago Curb Exchange became a reg-

.istered exchange.

On June 1, 1936, the San Francisco Mining Exchange became a

.registered exchange.

On November 2, 1935, the Commission denied the application of

the Reno Stock Exchange for exemption from registration as a

national securities exchange due to the fact that this exchange had

.suspended operations and ceased to function as a stock exchange.

The temporary exemption of this exchange was canceled at the

same time.

On October 1, 1935, the Seattle Mining Exchange was consolidated

with the Seattle Stock Exchange, which latter is an exempted exchange.

On December 1, 1935, the exemptions of the Honolulu Stock Exchange, the Milwaukee Grain and Stock Exchange, and the Minneapolis-St. Paul Stock Exchange became effective.

On December 15, 1935, the exemptions of the Richmond Stock

Exchange and the Wheeling Stock Exchange became effective.

On February 1, 1936,the exemption of the Colorado Springs Stock

Exchange became effective.

On May 1, 1936, the exemption of the Seattle Stock Exchange

became effective.

The exemption of the Manila Stock Exchange from registration

as a national securities exchange, which exchange was temporarily

exempted from registration until February 1, 1936, was not continued. The establishment of the Commonwealth of the Philippine

Islands, pursuant to the Philippine Independence Act, terminated

the Commission's jurisdiction over the exchange.

The Commission adopted Form 9-.A, together with the necessary

rules and regulations, providing for the submission of data needed

in order to keep current the information contained in the original

applications for exemption filed by exchanges.

The following 7 exchanges constitute the exchanges granted exemption from registration as national securities exchanges pursuant to

Section 5 of the Securities Exchange .Act of 1934,as of June 30, 1936:

Colorado Springs Stock Exchange.

Honolulu Stock Exchange.

:Milwaukee Grain and Stock Exchange.

Minneapolis-St. Paul Stock Exchange.

Richmond Stock Exchange,

Seattle Stock Exchange.

Wheeling Stock Exchange.
. SECURITIES 'cA:NJ).,EmHANGFiTOOMMISSION

DETECTION OF EXCESSIVE TRADING AND MANIPULATIVE AND.,

DECEPTIVE PRACTICES ON EXCHANGES '

For the purpose of detecting excessive trading and manipulative

and deceptive practices on exchanges, constant and vigilant observation has been maintained of trading activities of securities on all of

the larger exchanges.

In order to assist the Commission in detecting these operations, the

stock ticker tape quotations of the New York Stock Exchange and

the New York Curb Exchange were under continuous surveillance

and the exchanges were required to furnish the Commission with

complete lists of daily security transactions. Those transactions

which appeared to be manipulative in character were immediately

assigned for investigation. .

. Transactions on the various exchanges were constantly scrutinized

to detect excessive trading in securities by. exchange members since.

such trading might be in contravention of the trading rules recommended by the Commission and adopted by the exchanges.

The Commission conducted numerous investigations in connection

with the detection of manipulative practices, 'such as wash sales,.

matched orders, pool operations, dissemination of false or misleading

information concerning securities and other manipulative and deceptive devices, in order to determine whether or not the provisions of

the Securities Exchange Act of 1934 had been violated.

On July 1, 1935, 18 preliminary and 3 formal trading investigations were in progress," During the year, preliminary investigations of stock market operations of 214 securities were made. Of

these, 42 were deemed to be of sufficient importance for the Commission to authorize formal investigations, which authorizations

permitted the examination of witnesses 'and the -taking 01 testimony. During the year, 89 preliminary and 20 formal investigations were closed. A number of these cases, which showed infractions of stock exchange rules, were referred to the various stock

A preliminary trading investigation is conducted when there is .reason to believe

tbat any person bas :violated or is about to violate tbe provisions of Section 9 of the

Securities Exchange Act of 1934. Such an Investigation includes a rapid inspection of

records of the clearing house.asssoclation of the exchange where the secp.rlty whic/1 is

the subject of such suspected violation is traded; an inspection of the records of the

specialists and principal brokers in such security 101' the purpose of determining' the

identity of the most substantial purchasers and sellers thereof; .and interviews with th~

officers of the issuer of such security and with other persons who may have knowledge

bearing upon the trading in sucb security.

A formal investigation is ordered when the prellmina.ry investigatio~ contlrms, the belief that the provisions of Section 9 of the Securities Exchange Act of 1934 have bee!1 or are about to be violated and when the person or persons responsible' therefor have

been to some extent Identified. It includes a complete examination of the books and

records of brokers imd spectatlsts found to have been active in'the Eecurlty In'questio!1;

thorough analyses of customers' accounts; exllIJlination of aU documentary evidence such

as order slips, blotters, correspondence ,lIles, ete., and the taking of statements under

oath trom persons who may have knowledge of the market. activity of the se.eurlt7rbl

question.

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SECOND,:ANNU~ REPORT 15

exchange committees 'fQr action; Injunctive proceedings were instituted fn 10eases"ana 1 case was referred to the Department of

Justice for criminal prosecution. On June 30, 1936, 54 preliminary

and '30 format investigations were in progress .

. For the purpose of aiding the Commission in detecting manipulative operations by corporate "insiders", analyses were made of

transactions of officers, directors, and beneficial holders of 171 securities. As a result of these analyses, 7 preliminary investigations were

.jnitiated. In' 5 cases, formal investigations were authorized as a

result of the information developed in the preliminary investigations.

FORMULATION OF RULES FOR THE REGULATION OF PEGGING, FIXING, AND STABILIZING OPERATIONS BOTH ON EXCHANGES AND

, I~ THE, OyER-THE-COUNTER MARKETS

. During the year, the Commission conducted a series of conferences

with representatives of various branches of the brokerage and investment banking business on the subject of pegging, fixing, and stabilizing operations, Included among the groups which attended these

conferences was a committee which was formed to speak for the

Investment Bankers .Association of .America, the New York Stock

Exchange and the New York Curb Exchange, and a group of representatives from stock exchange firms and large underwriting houses

ill New York, all of whom had been requested to express their views

to the Commission on the subject of pegging, fixing, and stabilizing.

The voluminous material accumulated at these conferences and in

the course' of the' Commission's general study of the subject and a

summary of the views expressed by the conferees with respect to the

various aspects of the problems, including analyses of pegging, fixIDg~and ~taqiiizipgoperations conducted in the past by many important underwriting.firms, have been used in the preparation of a.

tentative draft of rules and regulations, pursuant to Section 9 (a)

(~) of the Securities Exchange .Act of 1934, which draft is nearing

completion,

FORMULATION' OF RULES FOR THE' REGULATION OF PUTS, CALLS~

, STRADDLES, AND OTHER OPTIONS

Ghe Commission has' for some time been engaged in careful study

and-analysis of the use of puts, calls, and similar options, with a view

to drafting' rules and regulations with respect thereto, under authority

of Sections 9 (b) and .(~).of the Securities Exchange .Act of 1934. Tothat end, conferences have .been held with .put and call brokers, and

statistical surveys and economic studies of the operations of options

have been. made. ,The Commission is now making considerable use

.<?~.~s research .in the f~r.Dlulation and drafting of rules and regulations governing puts, calls, straddles, and other oPtio~
16 SECURITIES -AND EXCHANGE COMMISSION

COOPERATION WITH THE BOARD OF GOVERNORS OF THE FEDERAL

RESERVE SYSTEM IN SUPERVISION OF ITS MARGIN REGULATIONS

The Commission continued its close cooperation with the. Board of

Governors of the Federal Reserve System in the formulation of rules

under Section '7 of the Securities Exchange Act of 1934 governing

the extension and maintenance of credit on registered exchanges.

Frequent conferences were held between representatives of the

Board and of the Commission during the drafting of regulation U

which governs the extension of credit by banks for the purpose of

purchasing or carrying registered stocks and in the drafting of

:amendments to regulation T which governs the extension and maintenance of credit by brokers, dealers, and members of national seen-

:rities exchanges.

For the purpose of supplementing the work of the Board, personnel

was assigned to several of the regional officesto inspect margin accounts carried by members of national securities exchanges and brok-

-ers and dealers transacting business through such members to ascertain the extent of compliance with regulation T, and to study the

effect of such regulation on the amount of credit extended on registered

securities. During the year, the margin accounts of 165 firms were

inspected and the results of these inspections were made available to

the Board of Governors of the Federal Reserve System for the purpose of gaging the practicability and effectiveness of regulation T.

In other instances, the Commission referred reports describing the

manner of handling margin accounts by certain members of the New

York Stock Exchange to the Board of Governors for such action as

might be deemed appropriate.

FORMULATION OF RULES RELATING TO BORROWINGS AND SOLVENCY OF, AND HYPOTHECATION OF CUSTOMERS' SECURITIES, BY

EXCHANGE MEMBERS, BROKERS, AND DEALERS

After considerable research and study preparatory to the formulation of rules under Section 8 of the Securities Exchange Act of 1934,

which included the examination of members' financial statements submitted to national securities exchanges, there are in preparation tentative forms for statements of assets and liabilities and aggregate

indebtedness and net worth designed to reflect the financial condition

and operating ratios of aggregate indebtedness to net capital of

exchange members, brokers, and dealers. An instruction book to

assist brokers and dealers in the preparation of these statements is

also being prepared. Tentative rules are being drafted defining aggregate indebtedness and net capital and prescribing a tentative ratio

between the two.

Tentative rules are also being drafted pursuant to the provisions of

Sections 8 (c) and (d) of the Act concerning the hypothecation, commingling, and lending of customers' securities by brokers. .
SECOND ANNUAL REPORT 17

SUPERVISION AND STUDY OF MATrERS RELATING TO UNLISTED

TRADING ,PRIVILEGES IN SECURITIES ON EXCHANGES

Section 12 (f) of the Securities Exchange .Act of 1934 directed the

Commission- to make a study of trading in unlisted securities on

exchanges and to report the results of its study and its recommendations to the Oongress on or before January 3, 1936.

Pursuant to this direction, the Commission made a thorough study

of trading in unlisted securities on exchanges and reported the results

of this study to the Congress on the date specified. The recommendations made by the Commission in this report were presented to the

Congress in the form of an amendment to the Securities Exchange.

.Act of 1934.

The Congress 'passed an .Act, which was approved by the President

on May 27, 1936, amending the Securities Exchange .Act of 1934 to

provide, among other things, for trading in unlisted securities on

national securities exchanges.

During the year, 194 applications for continuance or extension of

unlisted trading privileges on exchanges were filed with the Commission pursuant to.Section 12 (f) of the .Act and to the rules and

regulations of the Commission. Each application was examined for

the purpose of determining whether the subject security was eligible

for unlisted trading privileges on the applicant exchange. Before

any application was granted, it was necessary to determine that the

subject security had been admitted to unlisted trading privileges on

the applicant exchange prior to March 1, 1934, and that it was substantially equivalent to or represented such security. Of the applications filed with the Commission, 158 were granted and 36 denied.

On March 31, 1936,a composite list of securities admitted to unlisted

trading privileges on national securities exchanges was published and

made available to the public. This list is kept current by monthly

addenda.

FORMULATION OF RULES RELATING TO UNISSUED WARRANTS AND

UNISSUED SECuRITIES FOR "WIlEN, AS, AND IF ISSUED" DEALlNG' ON NATIONAL SECURITIES EXCHANGES

S-ection 12 (?>' of the Securities Exchange .Act of 1934 provides

.that an unissued security may be registered on a national securities

exchange only in accordance with SJIchrules and regulations as the

Commission may prescribe. This section further provides that such

rules and regulations shall Iimit the registration of an unissued

Security to cases where such security is a right or the subject of a

right to subscribe or otherwise acquire such security granted to holders of a previously registered security and where the primary purpose of such registration is to distribute such unissued security to

.mcl1 holders,
18 SECURITIES 'AND EXCHANGE' COMMISSION

.A thorough study was' made by the' Oommission coil~riiDg .the

registration of unissued' warrants and' unissued Securities Tor "wh.en

issued" dealing on national securities exchanges. Following.this

study, the Commission adopted rules and regulations governing I

"when issued" trading on exchanges. The rules apply to securities

and warrants (rights) which, in anticipation of their issuance, are

traded on a "when, as, and if issued" basis. The purpose of the.rules

and regulations is to prevent indiscriminate listings of securities

:for "when issued" trading; to confine "when issued" trading.to those

instances and to those localities where a public interest in such a

market exists; to prevent 'premature trading on a "when issued"

basis; and to make available the same information on securities

traded on a "when issued" basis as is available on securities traded

on an issued basis. In the main, the rules operate in three ways:

1irst, they set the standards of eligibility for securities to be traded

"when issued"; second, they require the registration of "when issued"

securities; and third, they establish margin requirements for ''when

issued" trading.

Standards of eligibility include, first, the requirements that "when

issued" trading may be' carried on only in cases where "rights" to

acquire or subscribe to a security are involved. For example, a warrant must carry a right to acquire a security which is to be issued;

and similarly, a security must be the subject of a right. Second, only

the securities of exchange-seasoned companies are eligible for "when

issued" trading. That is, the privilege will be granted only after a

right is given to holders of a listed security, and only if the rights

apply to the securities of a listed company.

The terms "listed security" and "listed company" include securities "adinitted to unlisted traditig-privileges."

A further condition is that a warrant may not run for more than

~o days and "when issued" trading is limited to a 45-day period,

unless the Commission directs otherwise. __

Before "when issued" trading 'may begin, there must be 'registra:

tion with the Commission either by the comptUlY.or):ly tb.~exchange

and the company must take the preliminary steps necessary to assure

the public that there will be an exchange market for the security

when it is issued. . , ' . .

, For the purpose of registration with the Commission, forIPS have

been devised and adopted by the Commission as ~ollows:' : . ' .

Form I-J is provided for the registration o.-r an unissued

warrant or certificate. ' . ','

Form 2-J is provided for the registration of an unissued

:security. . . .' :' : ": . :'

Form 3-J IS provided for supplemental statement to] application for registration of unissued securities for "when~.i$.sued'~

dealing. .

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. '.'SECOND ANNUAL REPORT 19

Form H is. provided for statement in respect of exemption

of-an issued warrant or certificate.

,Form 5-J is provided for supplemental statement to state-

. ment filed in respect of exemption of certain warrants.

During the fiscal year ended June 30, 1936, 84 applications for

"when issued" trading were filed. Of these, 65 became effective, 14

were .withdrawn, 2 were denied, and 3 were pending at the close of

the fiscal year.

SOLICITATION OF PROXIES, CONSENTS, AND AUTHORIZATIONS, IN

RESPECT TO SECURITIES LISTED ON A NATIONAL SECURITIES

. EXCHANGE

Pursuant to the provisions of Section 14 of the Securities Exchange

Act of 193'4,on September 24, 1935, the Commission adopted rules

and regulations governing the solicitation of proxies, consents, or

authorizations with respect to securities (other than exempted securities) registered on national securities exchanges. ' The purpose of

these regulations is to provide that security holders, whose proxies,

consents, or authorizations are solicited, shall be accorded at least a

minimum of' the information necessary to an intelligent exercise

of their right of election as to whether to give or withhold the proxy,

consent, or authorization requested.

As of June 30, 1936, more than 1,200 proxies and more than 150

amendments to these proxies have been filed. These proxies were

examined for completeness and compliance with rules and regulations, and in many instances the corporations were required to issue

corrected proxies.

REGULATION OF OVER.mE-COUNTER MARKETS

During the latter part of 1934 the Commission inaugurated a study

of appropriate measures for the Control of over-the-counter markets,

pursuant to Section 15 of the Securities Exchange Act of 1934. This

study embraced consideration of the two principal phases of regulation of over-the-counter markets specifically authorized by section 15:

. (1) Consideration of the problem of registration of brokers

and dealers making or creatmg or enabling others to make or

create an over-the-counter market for both the purchase and sale

of securities by the USeof the mails or instruments of interstate

commerce...' .

, (2) Consideration of the problem of the registration of seeurities the market for which is an over-the-counter market.

A~r several ~oiiths '~f-study, a program for the regulation of

brokers aild dealers transacting business in over-the-counter markets

was' inaugurated and certain rules with respect to registration and

tQf'fau-business practices.were adopted. ' -'".: ;. ... t-:' .l' .r i ,

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20 SECURITIES AND EXCHANGE COMMISSION

The plan for registration of brokers and dealers was put into effecton January 1, 1936, and on and after that date it was unlawful for a.

broker or dealer, unless he was registered with the Commission, to'

employ the mails or any instruments of interstate commerce for the

purpose of making or creating or enabling another to make or create

an over-the-counter market for both the purchase and sale of any

security, other than exempted securities, or use any facility of any

such market.

The Commission by rules provided that registration might be refused if the applicant had misrepresented any material fact in his

< registration statement or if the applicant had been convicted of any

felony or misdemeanor involving the purchase or sale of securities or

arising out of the conduct of a broker or dealer, or enjoined from engaging in or continuing any practices in connection with the purchase or sale of any securities.

Public Act No. 621, 74th Congress, approved by the President on

May 27, 1936,included an amendment to Section 15 of the Securities

Exchange Act of 1934. Sections 15 (a), (b), and (c) of the Act,

as amended, substantially embody the registration program inaugurated by the Commission under the former Section 15, except in the

following respects:

(1) The old concept underlying registration-that is, the concept of making or creating a market for both the purchase and

sale of any security, other than exempted securities--was abandoned and the registration requirements now apply to brokers

and dealers who use the mails or instruments of interstate commerce to effect any transactions in or to induce the purchase or

sale of any securities, except such as are specifically exempted,

on an over-the-counter market.

(2) Under the former rules, an exemption was provided for

brokers and dealers whose transactions in securities were limited

to securities the market in which was predominantly intrastate.

The new Section 15 provides exemption for brokers and dealers

whose business is exclusively intrastate. .

Thus, at present it is the scope of business of a broker or dealer

which determines whether he is entitled to exemption rather than

the character of the market for the securities in which he deals.

Under the former Section 15, the Commission had the power to

--'~.P!escribe such rules and regulations as were necessary and appropriate ill the public interest and to insure to investors protection

comparable to that provided by the Act in the case of national securities exchanges, even to the extent of providing for the regulation of

all transactions by brokers and dealers on any such market. .

Under Section 15 (c) as amended, brokers and dealers are prohibited from using the mails or any instruments of interstate commerce to effect any transaction in or to induce the purchase or sale
SECOND ANNUAL REPORT 21

of any security (other than commercial paper, bankers' acceptances,

or commercial bills) on an over-the-counter market by means of any

manipulative, deceptive, or otherwise fraudulent device or contrivance, and the Commission is-directed to define by rule or regulation

such devices or contrivances as are manipulative, deceptive, or-otherwise fraudulent.

The amendment preserved all registrations which were in effect

on the enactment date without the necessity of filing new applications

for registration on the part of those so registered.

OVER-THE-COUNTER TRADING

A technique has been developed for maintaining a general surveillance _over the various types of trading activities in the over-thecounter market in both new and outstanding issues of securities for

the purpose of detecting violations of the law and of the rules of

the Commission, and for the purpose of accumulating data upon

which to base rules for the regulation of distribution and trading in

the over-the-counter market. Transactions which have appeared to

be in violation of the law or of the rules of the Commission have

, been investigated in 34 securities during the year. ..

DIRECTORY OF BROKERS A1'U) DEALERS

On March 1, 1936, the Commission published a directory of all

brokers and dealers whose registration under Section 15 of the Securities Exchange Act of 1934 was effective as of January 31, 1936.

This directory includes the names and addresses of the brokers and

dealers registered with the Commission.

STATISTICS OF OVER-THE-COUNTER BROKERS AND DEALERS

The following statement indicates the number of applications for

registration filed by over-the-counter brokers and dealers, as of June

30, 1936, and the actions taken thereon:

~ective registrations (net) 5,740

Effective registrations canceled ~__________ 391

Revocations 2

Suspensions J __ :._________ 6

Applications for registration canceled_____________________ 264

VVithdravvals_____________________________________________ 34

DeniaLs' ~_____________________ 17

Applications for registratlon pending______________________ 217

Total applications -for registrations -filed 1____________ 6, 671

'Includes 1 appllcatton reOpened on petition of appUcant..

1Includes applications iiled on Form 1-1.1 in which applicant had not, as Of June 30,

1936, filed reQueSt that: the application be treated as an appUcation pursuant to See. 11

(b) of the Act, as amended.
22 SECURITIES AND' EXCHANGE COMMISSION

Table 10 in Appendix V presents a summary of the available

broker and dealer statistics as of May 27,1936.

REPORT ON THE FEASIBILITY AND ADVISABILITY OF THE COMPLETE SEGREGATION OF THE FUNCTIONS OFD~LER AND

BROKER e:

Pursuant to Section 1'1 (e) of the Securities Exchange Act of 1934,

the Commission conducted a study of and prepared' a report to the

Congress on the feasibility and advisability of the complete segregation of the functions of dealer and broker.

The report presented the results of the Comnrission's study of the

broker and dealer. functions as exercised on exchanges; a survey of

the broker and dealer functions as exercised in over-the-counter markets; a survey of the power of the Commission under existing law

to deal with the problems arising from the combination of functions;

an appraisal of the economic implications of segregation; and a statement of conclusions and recommendations.

The complexity and magnitude of the problem required' original

and searching analyses of individual and collective transactions of

specialists, floor traders, and other exchange members. Through the '

medium of special report forms which the Commission devised for

the-purpose of this study, detailed analyses were made of the trading

activities of members and partners of members of the New York

Stock Exchange and the New York Curb Exchange during the period

from June 24, 1935 to December 21, 1935. Supplemental jnformation with respect to trading practices on other exchanges and the

broker and dealer functions as exercised in over-the-counter- markets

was derived from the examination of the applications filed by exchanges for registration as nationaLsecurities exchanges or for exemption from registration and from the examination of the registration statements filed with the Commission by over-the-counter 'brokers

and dealers, In addition, much information of value to the .study

was gained through conferences with members of the investing public, over-the-counter brokers and dealers, investment bankers, exchange officials, exchange members, and other persons engaged or

interested in the secunities business. .

In its report to the Congress, the Commission analyzed in detail

the extent and significance of dealer activities on exchanges. The

potentialities for abuse Inherent in the combination of the furictions

of broker and dealer were described and the fact that abuses exist

was also demonstrated. The economic aspects of segregation were

carefully considered. This included the possible effects of prohibition against the combination of broker and -dealer activities in one

Person, the restricting of dealer activity upon exchanges, .the rela-

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SECOND' ANNUAL REPORT 23

tionship of dealer activities of exchange members to the liquidity

and' continuity of exchange markets and the probable consequences

of segregation in the over-the-counter markets.

It was clearly brought out that the report itself was preliminary

in. character. Emphasis was given to the necessity and desirability

of continued exploration and further study of the problem, not only

by the Government but by persons in the securities business and

'others. _.The Commission accordingly refrained from judgment upon

those aspects of the problem which in its opinion deserved further

study and limited itself to the conclusions and recommendations that

seemed called for by the data available. Plans for continuation and

'extension of the study are presently being made.

. These recommendations included no suggested legislation for the 1

present, since the Commission believed that to incorporate now into

statutory law the requirement of complete segregation would be to

.fail to 'utilize the potentialities for flexible control and evolutionary

dev-elopment afforded by the administrative mechanism which the

Congress had already provided. Its conclusion was, on the other

hand, tliat it should develop and initiate an>administrative program

directed toward those aspects of the problem which demand immediate concern, i.e., the conflict of interest implicit in the combination

of the broker and dealer. functions and the type of dealer activity

that exerts undue influence on prices. ' --'

, REGIS~TION OF SECURITIES ON EXCHANGES

PERMANENT REGISTRATIONS

'Section 12 of, the Securities Exchange Act of 1934, requires the

registration of all securities which are listed on national securities

exchanges, unless-such securities are exempted by the Act or the

rules and- regulations promulgated thereunder. The registration of

securities on national securities exchanges is accomplished by the

issuer filing, on the appropriate form, an application for the registration 'of securities' with the Commission and with the exchange.

Each of the forms of application provides for the submission of

data of the character called for in the Act in the detail necessary or

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

, To~the basic set' of forms for the registration of securities on

national securities exchanges, have been added forms for the registration of-

(1) American certificates against foreign issues arid for the !underlying securities; ,' ,

(2) Securities of foreign private issuers, other than bonds;

and

(3) Bonds of foreign private issuers.
SECURITIES -.AND-EXCHANGE' COMMISSION

The problem of procuring registration of the numerous issues of

foreign securities which were already listed on national securities

exchanges when the Act became effective has thus been met.

The basic set of forms for registration of securities on national

securities exchanges has been further complemented by the publication of forms for additional securities of issuers having securities

already registered, and for securities of persons who have succeeded

to such issuers under certain circumstances. A number of improving

amendments have been made in the forms previously published-and

the Commission is now engaged in the complete revision of such forms

to adapt them for use by issuers which have not previously had securities registered and in the preparation of special forms for issuers

emerging from insolvency proceedings and for issuers succeeding to

other issuers,"

Pursuant to Section 13 of the Securities Exchange Act of 1934, the

Commission has adopted rules and regulations governing the submission of annual reports. These annual reports are designed to

keep up to date the information contained in the applications for

permanent registration of securities. As of the close of the fiscal

year, the Commission had adopted forms for the annual reports of the

following issuers having securities registered on national securities

exchanges: (1) Corporations in general; (2/ unincorporated issuers;

(3) railroads and communications companies, including those in

receivership or bankruptcy; (4) insurance companies; (5) protective

committees; (6) voting trustees;' (7) incorporated investment trusts;

and (8) unincorporated investment trusts.

The annual reports are required to be filed, on the appropriate

form, with the Commission and with the exchange on which -the

securities are registered.

Issuers of foreign securities registered on national securities exchanges are, until further action of the Commission, exempt from

the requirements of filing annual reports.

One of the major functions of the Commission is the examination

of applications for registration of securities on national securities

exchanges and annual reports subsequently filed. These applications

and annual reports are examined for the purpose of determining

whether they contain full and adequate disclosure of the information required by the Act and the rules -and regulations promulgated

thereunder. When the examination reveals deficiencies in such applications or reports, the applicants or issuers are so advised and

On Sept. 23, 1936, the Commission promulgated Form 22, For Issuers ReorganiZed in

Insolvency Proceedings or Which Have Succeeded to a Person 1n_Insolvency ~roceedings.

•
SECOND ANNUAL REPORT 25

amendments are' requested. These amendments are examined and

analyzed in the same manner as the applications and reports.

The cooperation of the various national securities exchanges has

been of assistance to the Commission in procuring the necessary

amendments of deficient applications and annual reports.

CONFIDENTIAL TREATMENT OF APPLICATIONS, REPORTS, OR

:QOCUMENTS

Section 24 (b) of the Securities Exchange Act of 1934, provides

that any person filing an application, report, or document with the

Commission may make written objection to the public disclosure of

the information contained therein. .

During the year, the rules governing objections to the public disclosure of inaterial filed with the Commission were amended for the

purpose of clarification. The rules, as amended, provide that persons wishing to object to the public disclosure of any application,

report, or document filed with the Commission under any provision

of the Securities Exchange Act of 1934,may file the portion thereof

to the public disclosure of which objection is made, with the Ohairman of. the Commission, together with an application stating the

grounds upon which the objection is based.

In connection with applications for registration of securities on

national securities exchanges, objections to public disclosure of 966

items of information were made during the year by 631 issuers.

Confidential treatment was granted certain information involving

214 items filed by 162 issuers; and material filed by 370 issuers involving 577 items, was made public.

Objection to public disclosure of information filed in connection

with annual reports was made by 218 issuers. The applications of

63 such issuers for, confidential treatment were granted in whole or

in part ; the information filed by 30 issuers was made public; and 125

are pending.

The denial of these applications gave rise to litigation in 21 cases,"

Applications were made by 71 directors, officers, and beneficial

stockholders for the confidential treatment of 111 ownership reports

of equity securities relating to 23 issuers. Action was taken in the

cases of 68 such persons, involving 166 reports concerning 21 issuers,

in which the applications were denied and the reports were made

public.

During the year, 202 private hearings on applications for confidential treatment of material were held.

See lIst of cases on page 139.

101973-86---8

-

•
26 SECURITIES AlfD EXCHANGE COMMISSION

STATISTICS OF SECURITIES REGISTERED OR EXEMPT FROM REGISTRATION ON NATIONAL SECURITIES EXCHANGES

As of the opening of trading on July 16, 1935, permanent registrations were in effect covering 3,345 securities of 1,841 issuers. These

registrations related to nearly 2,000,000,000 shares of stock and over

$16,000,000,000 in principal amount of bonds. In addition, there

were 1,048 securities of 601 issuers, representing more than 400,-

000,000 shares of stock and over $10,000,000,000 in principal amount

of bonds temporarily exempt (or, in a few cases, provisionally registered) pending filing on or promulgation of the required appropriate

forms.

Most issuers temporarily exempt, for whom appropriate forms

were available, made application for registration on such forms during the year, as indicated by the fact that, as of June 30,'1936, there

remain, in the class of temporarily exempt securities traded on

exchanges, 226 securities of 127 issuers.

Included in such classes of issuers' most recently registered securities, previously temporarily exempt, are 155 foreign issuers, who

registered 292 securities. Of the 36 foreign governments whose securities were previously temporarily exempt from registration, 33

applied for permanent registration; and of the 64 political subdivisions of foreign governments previously in such category, 53 made

application for permanent registration of their securities.

During the year, 141 issuers filed applications for registration of

additional securities. On June 30, 1936, a total of 4,185 securities

of 2,295 issuers were permanently registered. These registrations

covered nearly 2,700,000,000 shares of stock and approximately

$26,000,000,000 in principal amount of bonds.

During the year more than 1,500 issuers filed annual reports with

the Commission. These reports are now being examined.

Several thousand amendments to the applications for permanent

registration and annual reports have been received. More than 80

applications for registration of unissued securities on national securities exchanges have been filed.

The following table indicates the forms used by issuers in registering securities and the number of securities registered and issuers

involved as of June 30, 1936.
SECOND ANNUAL REPORT 27

Form Securities Issuers registered Involved

--- 10 Corporations ________________________________________________________________ 2, 751 1,739

11 Unincorporated issuers _______________________________________________________ 25 13

12 Companies making annual reports under Section 20 of the Interstete Commerce Act, as Amended, or under Section 219 of the Communications Act of 1934_____________________________________________________________________ 746 196

"12-A Companies in receivership or bankruptcy and making annual reports under

Section 20 of the Interstete Commerce Act, as-Amended, or under Section 219 of the Communications Act of 1934_____________________________________ 129 25

13 Insurance companies other than life and title Insurance oompames ___________ 17 17

14 Certificates of deposit Issued by a commlttee _________________________________ 60 43

15 IncOrpoiated Investment eompenles __________________________________________ 117 fj1

16 Voting trust certificates and underlying securities ____________________________ 41 35

17 Unincorporated issuers engaged primarily In the business of investing or trading In securitles ________________________________________________________ 7 5

18 Foreign governments and political subdivisions thereoL _____________________ 182

19 American certificates against forel~ Issues and for the underlying securities __ 13 ff 20 Secuntles other than bonds of foreign private Issuers _________________________ 5 3

21 Bonds of foreign private Issuers ______________________________________________ 92 55

ToteL _________________________________________________________________ --- --- 4,185 2,295

The following table indicates the total number of shares of stock

and principal amount of bonds and the issues listed and registered

or authorized for addition to list, and exempt from registration on

all national securities exchanges as of June 30, 1936, eliminating

duplications which occur because of the listing of the same security

on more than one exchange.

STOCKS

Num- Number of

Classification ber of Number of shares authorIssues shares listed ized for addi- tion to list

=~ii8iiyregiStered===== .: :==::::::=:::: ==:::: ===: : 149 107,253,664 12, 969,435

9 2,964, 235 1,093,465 PartiBlly Reglstered exempt ______________________________________________________ and partiBlly provlsionB1ly registered ___________ 3 5,178,429 7,381,554

2,653 2, 322, 630, 732 220, 048, 486 ToteL ____________________________________________________ 2,814 2, 438, 027, 060 241, 492, 940

BONDS

~Jl~iiSiIy regiSteied=== .: .: ==:= ===:= .: 78 $868, 162, 412 $30, 840, 800 1 1,225,000 PartlB1ly exempt and partiBlly pmvlslonB1ly.registered ___________ 3 77,731,000 ---i;i6S:il89;9i4 Reglstered ______________________________________________________ 1,522 23, 843, 208, 508

Total. 1,604 24, 790, 326, 920 I, 189, 130, 734

BONDS IN FRENCH FRANCS

Registered ---I

BONDS IN POUNDS STERLING

65,353, 000 1 ..

RegIstered-- -. --- --- -- ----- ----- ---- ----- ----- -- -- --- -- ----- -- --I 91 '36,601,820 1

The following table indicates the total number of issuers and

the total number of issues and the breakdown of these issues by

========

================== ===== ---------- ------

__________________ ' _________________________________

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

.
28 SECURI118S AND EXCHANGE 00MMISSION 

stocks and bonds and by securities registered (R), exempt (X), 

pro~~isionallyregistered (P),or partially exempt and partially provisionally registered (Z), on national securities exchanges, as of 

June 30, 1936. 

Baltimore........................ 
 Boston........................... 
 ChieseO Board ofTrads........... 
 Chicago Cwh Eiehanss .......... 
 chicsgo sto&Eaohang~......... 
 Cincinnati........................ 
 Cle~eland 

Detroit 

LOS *ngeles ...................... 
 New or1esns..................... 
 New Yak Curb.................. 
 New York St& ................. 
 Philadelphia..................... 
 Pittsbwgh....................... 
 St. Louis ......................... 
 Salt lake^........................ 
 Ban Francisco Curb.............. 
 SB~ F~a~dsco Mining............
 San FTBOCIS~ Stock ..............
 Stan ard of Spokane............. 
 ,,dington ...................... 


1 voting trust mtifiaates and Amsrioan depositary recslpts for foreign stocb are induded hthe classifme 

tion ofstmks. P c~rtseatesd depmit are included in the ciassihtion of bonds. 

REPORTS OF OFFICERS, DIRECTORS, AND PRINCIPAL STOCKFlOLDERS 

In iddition to Form 4, 5, and 6; and the rules and regulations 

regarding the submission of reports of officers, directors, and principal 

stockholders under the Securities Exchange Act which were promulgated during the fiscal year ended Jime 30, 1935, the Commission during the last fiscal year promulgated rules and regulations 

and forms U-17-1 and U-17-2 regarding the reporting of holdings of officers and directors under the Public Uti1it.y Holding Company Act of 1935. Form U-17-1 is to be filed by officers and 

directors of holding companies registered under the Public Utility 

Holding Company of 1935 following the registration of such 

companies or following appointment or election as officer or director 

of such a company. Form U-17-2 is to be filed if there have been 

any chaliges during last calendar month in ownership of officer or 

director of a holding company registered under the Public Utility 

Holding Conlpariy Act of 1935, with respect to securities of such 

company or any subsidiary company thereof. 

*Form 4 for reporting changes in onmushi~ of eguity seemlties. Porn 5 for renorting 

ownership of equitr securities Form 6 for reports by persons who have Just become 

o5eer~or directors or security holders of more tbas 10 percent of any class of equity 

Seeority. 
,SECOND ANNUAL REPORT 29

The following table indicates the number of original and amended

reports filed and examined for the fiscal years ended June 30, 1935,

and June .30, 1936.

Reports filed and examined Fiscal year Fiscal year

1935 1936

Original reports-Securltles Exchange Act_______________________________________ 10,114 37,509 Amended reports-Securities Exchange AcL____________________________________ 2, 524 5,754

Original reports-Holding Company Act________________________________________ 464

Amended reports-Holding Company Act_______________________________________ 45

The Commission compiles and publishes a semimonthly summary

of security transactions and holdings of officers, directors, and principal stockholders as reported on Forms 4, 5, 6, U-17-1, and U-17-2.

During the fiscal year the Commission prepared for publication the

Official Summary of Holdings of Officers, Directors, and Principal

Stockholders. This summary reprinted the essential data, as of December 31, 1935, contained in the reports on Forms 4, 5, or 6 made to

the Commission pursuant to Section 16 (a) of the Securities Exchange Act of 1934 by the officers, directors, and principal stockholders of .about 1,750 corporations with equity securities listed on a

national securities exchange. .These corporations had at that date

slightly over 2,000,000,000shares of stock outstanding in the nearly

2,500 individual issues for which reports were received. Reports

were made by 15,277 persons and covered about 458,000,000shares.

Of total reported holdings about 408,000,000 shares were owned

directly by the persons reporting, while about 50,000,000were owned

indirectly (i. e. through a partnership, a trust, personal holding

company, etc.) and represented duplications to a considerable degree. While it is not possible to ascertain definitely from the material available to the Commission the exact amount of duplication,

it is. estimated that total unduplicated holdings reported exceeded

430~000,000shares, or approx-imately 21 percent of the total number

of shares outstanding at the end' of 1935 in the issues covered by

the reports.

WITHDRAWAL OR STRIKING FROM LISTING AND REGISTRATION OF

.~:t.:ClJRITIES ON NATIONAL SECURITIES EXCHANGES

Upon application by the issuer or the exchange to the Commission, securities registered on a national securities exchange may be

withdrawn or stricken from registration or listing in accordance with

the rules of the exchange and upon such terms as the Commission

may deem necessary to impose for the protection of investors. The

Commission has adopted rules and regulations governing this subject.

During the year ended June 30, 1936, 63 such applications were

received and acted upon by the Commission, as compared with 95

for the fiscal year ended June 30~1935.
30 SECURITIES AND EXCHANGE COMMISSION

REGISTRATION OF SECURITIES UNDER THE SECURITIES ACT OF

1933

SECURITIES ACT FORMS, RULES, AND REGULATIONS

During the past year a considerable number of improving amendments have been made to the basic forms for registration under the

Securities Act of 1933, as amended. These amendments are designed

to clarify the requirements of the several forms and to extend the

use of certain basic forms to additional classes of issuers upon the

furnishing of appropriate specialized information, such as for bank

holding companies and corporations resulting from consolidation.

Considerable progress has been made in the direction of subdividing the major forms in order to provide specialized forms for issuers

engaged in particular types of business and for issuers in various

stages of development. In line with this program, there has been

prepared a form for promotional mining companies which is designed to emphasize the peculiar problems of the mining industry

and the special problems incident to the promotion of new companies.

A companion form is also in process for securities of any company

which has not yet advanced beyond the promotional stage.

A series of new forms is being drafted to replace the present forms

for certificates of deposit, and for securities issued in the process of

reorganization. These forms will be specialized to provide separately

for each of the several situations which commonly occur. Other work

in various stages of completion includes registration forms for electric

and gas utilities, investment trusts, insurance companies, investment

contracts, foreign national governments, and foreign municipal

governments.

A comprehensive revision and reclassification of the general rules

and regulations under the Securities Act have been made. In "addition, numerous new rules and regulations have been promulgated.

These rules have dealt with the scope of exemptions of certain classes

of securities from the operation of the Act, and with the amendment

of many of the details of registration in order to perfect the mechanics

of registration.

EXAMINATION OF SECURITIES ACT REGISTRATION STATEMENTS

The Securities Act of 1933, as amended, provides that, unless a

registration is in effect, it shall be unlawful to' publicly offer"for'sale

or sell securities, except exempt securities, in interstate commerce or

through the mails.

The registration of securities under this Act is accomplished by the

issuer filing, on the appropriate form, a registration statement with

the Commission. The law and the rules and regulations promulgated

thereunder require that these registration statements contain certain
SECOND ANNUAL REPORT 31

prescribed information about the securities, the company, the management, the purpose of the issue, together with financial statements,

options, contracts, and other data. A prospectus containing the more

important information contained in the registration statement must

also be filed with the Commission. The law further requires that a

copy of the prospectus be given to prospective purchasers of a registered security.

Upon receipt of a registration statement, it is examined for the purpose of determining if the statement appears to be misleading, inaccurate, or incomplete on its face. If the statement is not materially

deficient, the issuer is advised and permitted to correct it by amendment. If the statement is materially deficient, the Commission may

institute stop-order proceedings immediately. The Commission is

empowered to refuse registration in cases where the issuer fails to

supply the required data or where the information given is incomplete or misleading, or it may suspend registration if it develops

after registration has become effective that information is lacking or

misleading.

Itmust be emphasized that although the examination of a registration statement is concerned with the completeness of the information

required to be supplied by a registrant and the accuracy of the information furnished by it, such an examination is not to be considered

as a finding by the -Commission that the registration statement is true,

accurate, or complete.

EXEMPTIONS FROM REGISTRATION REQUIREMENTS

Prospectuses and oil royalty offering sheets are filed with the Commission pursuant to rules promulgated under Section 3 (b) of the

Securities Act of 1933, regarding exemptions. During the year

388 such prospectuses, which relate mostly to offerings of stock issues,

were received and examined. The aggregate offering amounted to

$32,122,081. There were also received and examined 2,069 offering

sheets which relate to the sale of fractional undivided interests in

oil, gas, or other mineral rights in the aggregate reported amount

of $7,610,000.

STATISTICS OF SECURITIES REGISTERED UNDER THE

SECURITIES ACT

At the beginning of the fiscal year there were 1,533 registration

statements on file. Of these, 1,094 were effective, 91 were under stop

or refusal order, 225 had been withdrawn, and 123 were under examination or held pending the receipt of amendments.

During the period of July 1, 1935,to June 30, 1936, inclusive, 781

additional registration statements were filed. There were 735 regis-
SECURITIES AND EXCHANGE COMMISSION

tration statements which became effective during this period (of

which all but 54 were fully effective); a total of 1,751 statements

were effective at the end of the period, 72 of those effective at the

beginning or during the period either having been withdrawn or

placed under stop order.

The net number of registration statements withdrawn increased by

69, to a total of 294 on June 30, 1936. The net number of stop or

refusal orders increased during the period by ~6, a total of 129 of

such orders being in effect on June 30, 1936. As of June 30, 1936,

there were 134 registration statements in the process of examination

or awaiting amendments.

Appendix III contains a list of the registration statements as to

which stop orders, consent refusal orders, and withdrawal orders

were issued during the year.

, During the fiscal year ended June 30, 1936, securities with estimated gross proceeds of $4,835,049,000have become effectively registered comparing with $909,387,000during the 10-month period from

September 1, 1934, when the Securities and Exchange Commission

took over the administration of the Securities Act of 1933, to June

30, 1935. Of this amount $4,677,302,000represented new securities,

while $157,747,000 represented securities in reorganization, votingtrust certificates, certificates of deposit, and securities to be exchanged

for registrants' or predecessors' securities.

Of the $4,677,302,000of new securities effectively registered during

the past fiscal year, about $187,000,000were registered for the account

of persons other than the registrant, $244,900,000were reserved for

conversion, $91,000,000were reserved for subsequent issuance against

options and warrants, $23,100,000were reserved for other subsequent

issuance, $17,900,000were to be issued for tangible and intangible

assets and claims, and $177,200,000were to be issued in exchange for

other securities. Thus, a total of $741,100,000of the new securities

effectively registered during the fiscal year were not intended to be

offered for cash by the issuers, leaving securities in an estimated

gross amount of $3,936,200,000to be so offered for ithe account of

the registrants. Commissions and discounts to underwriters and

agents expected by the registrants to be incurred in connection with

the sale of such securities amount to $126,700,000,or 3.2 percent of

the gross amount to be offered while other selling and distributing

expenses were estimated at $27,400,000, or 0.7 percent," The estimated net proceeds from securities effectively registered during the

past year and intended to be offered for cash for the account of the

registrants thus amounted to $3,782,100,000. ' " .: .

Of the aggregate net proceeds, $2,805,400,OOO~"or 74.2 percent, were

intended for repayment of indebtedness; $213,400,000were' intended

• These figures are averages of widely varying ratios on individual issues.
SECOND ANNUAL REPORT 33,

for retirement of preferred stock; and $24,300,000for the reimbursement of loans used' for capital expenditures. Refunding and retirement operations thus accounted for a total of $3,043,100,000,or 80.5

percent of the total net proceeds. Of the remainder, $395,600,000

were to be used for the acquisition of securities, chiefly by investment companies; $120,500,000were intended to be used for the purchase of plant and equipment; $207,300,000were to be added to the

registrant's corporate funds, while $9,300,000 were scheduled to

defray organization and development expenses, and $6,200,000were

to be used for various other purposes,

Of total gross of new securities effectively registered during

the year ended June 30, 1936, $1,617,900,000, or 34.6 percent,

represented securities of manufacturing industries of which those

of the iron and steel and oil refining industries, amounting to $470,-

900,000 and $433,900,000,respectively, predominated. Electric light

and power, gas, and water companies registered securities with estimated gross proceeds of $1,617,900,000,or 34.6 percent of the total,

practically the same amount as that registered for all manufacturing

industries. Financial and investment companies registered $677,-

900,000,or 14.5 percent of the total; transportation and communication industries (excluding common carriers exempt under the Securities, Act of 1933) $291,600,000,or 6.2 percent; extractive industries,

$99,100,000,or 2.1 per cent; and all other registrants, including foreign governments, totaled $372,900,000,or 8.0 percent.

Detailed statistical tables showing number of issues, type of security, classification of issuers, gross proceeds, cost of distribution and

selling, channels of distribution, and proposed use of funds for the

securities registered with the Securities and Exchange Commission

are contained in Appendix V. In interpreting the tables, it should

be kept in mind that these statistics are based solely on the registration. statements as filed by. the registrants with the Securities and

Exchange Commission. All data, therefore, refer to registrants'

intentions and estimates as of the date of filing or of later amendments. They thus represent, in reality, statistics of intentions to sell

securities rather than statistics of actual sales of securities.

The Commission has no official knowledge as to which part of securities registered has actually been sold by the .registrant corporations, or bought by investors, However, in cases where securities

are underwritten by responsible banking houses, it is certain that the

issuing corporation has received the stipulated sales price. Of the

$2,170,600,000of new securities offered for cash sale during the first

half of the calendar year 1936, about $1,641,700,000,or 76 percent,

were intended to be sold to underwriters and may, therefore, be assumed to have netted the issuing corporation the contemplated

amount of funds. In order to determine the extent to which regis- '
34 SECURITIES AND EXCHANGE COMMISSION

tered securities which were not to be sold to underwriters were actually disposed of by the registrants, follow-up questionnaires were sent

to registrants, other than investment companies, who have registered

on Form A-1 and whose registrations had become effective before

November 30,1935. From the approximately 270 replies received to

the questionnaire up to August 10, 1936, it appeared that only about

20 percent of the total amount registered by this group of registrants,

which consisted with only few exceptions of unseasoned companies

disposing of their securities without the help of underwriters, has

actually been sold. About one-third of the registrants' replies to the

questionnaire reported no sales whatever of the registered securities,

while the remaining registrants reported sales amounting to about

one-third of the amounts registered.

STATISTICS OF PRIVATE PLACINGS

Registered securities, of course, constitute only a, part of all new

securities offered for sale to investors in the United States. The Commission has no authoritative knowledge of the offerings of securities

exempt under the Securities Act of 1933,the chief categories of which

are: securities issued or guaranteed by the United States Government; securities issued by any State or by any political subdivision

or any public instrumentality of any State; securities issued by any

banking institution; securities OT common or contract carriers the

issuance of which is subject to Section 20 (a) of the Interstate Commerce Act; securities of a noncommercial character issued by eleemosynary institutions; securities which are part of an issue sold only

to residents within a single State where the issuer is incorporated by

and doing business in such State; securities exchanged exclusively

with security holders of the issuer where no commission is paid for

soliciting the exchange; and securities sold to a small number of pur- l chasers not involving a public offering (so-called private placings).

However, in view of the importance of private placings and of

their affinity to certain types of registered offerings, the Commission

has endeavored to keep a record of unregistered private placings

based on information published in the financial press and has supplemented this information by short questionnaires sent to the issuers

of securitIes reported as privately placed. The chief data derived

from the private-placings questionnaires sent out by the Commission and returned in completed form without exception by the issuers are given in table 9 of Appendix V. From January 1934

through June 1936, the Commission received information on unregistered private placings of 81 issues with total gross proceeds of

I

$485,300;000. During the- fiscal year ended June 30, 1936, 37 unregistered private placings aggregating $210,800,000were reported.
SECOND ANNUAL REPORT 35

This is equivalent to approximately 5 percent of the securities effectively registered with the Commission during the same period.

mE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

The Public Utility Act of 1935was approved by the President and

became law on August 26, 1935. Title I of this Act constitutes the

Public Utility Holding Company Act of 1935. Title II consists of

amendments of the Federal Water Power Act, designed primarily

to expand the jurisdiction of the Federal Power Commission with

respect to electric utilities engaged in transmitting electric energy

in interstate commerce or selling electric energy at wholesale in

interstate commerce.

The responsibility for the administration of the Public Utility

Holding Company Act of 1935 is vested in the Securities and Exchange Commission. In general, this Act provides for registration'

with the Commission of gas and electric utility holding companies.

Ithas no reference to telephone, railroad, or industrial holding companies as such. After a holding company is registered, it is subject

to a number of statutory provisions and also to general rules and

regulations or specific orders of the Commission with respect to a

variety of aspects of its business. The Act also directs the Commission to exempt holding companies of certain specified types from the

previsions of the Act.

The general policy of the Commission in administering this legislation is to give full effect to the Congressional intent of preventing the

repetition of the abuses which led to the passage of the Act and to

make the administration of the law as workable as possible without

imposing restrictions of a kind which bear no relationship to the purposes to be achieved.

Among the first tasks which faced the Commission upon the passage

of this legislation were those of setting up the necessary administrative organization and the development of rules of procedure and the

necessary forms.

Another task undertaken by the Commission was to provide itself

with information adequate for the handling of current problems involving the registered companies. This task has been not only to

assemble all available information with regard to various registered

holding company systems but to undertake a thorough study of all

systems and the territory in which they operate.

RULES, REGULATIONS, AND FORMS UNDER THE PUBLIC UTILITY

HOLDING 'COMPANY ACT OF 1935

Under numerous sections of the Act, the Commission is authorized

to promulgate such rules, regulations, or orders as it may consider

necessary for the elimination of certain abuses which have been
36 SECURITIES AND EXCHANGE ~COMMISSION

deemed to characterize the activities of holding companies In the past:

Also, in certain instances, authority is given for the adoption of rules

and regulations in order to avoid statutory imposition of rigid standards which might involve considerable difficulty of application and

might lead to frustration of the purpose of some sections of the Act.

The preparation of rules and regulations has necessitated thorough

study and research and has required the services of several attorneys

and experts for many months. This matter will require continuing

attention and study, so that changes may be made, as experience is

gained,. to the end that all rules and regulations adopted may be

effective and practical of application without unduly burdening the

industry and without creating unwarranted difficulty and expense

of administration.

The principal rules and regulations adopted under this Act may be

classified as follows:

(1) Rules of general application containing definitions of

terms and general requirements with respect to filing and verification of documents.

(2) Rules of a temporary character, extending the time for

complying with or for making application for exemption from

certain provisions of the Act.

(3) Rules adopting forms for and specifying the information

to be submitted in connection with applications, notifications of

registration, declarations, and reports.

(4) Rules defining the status of particular classes of .companies as subject to or excluded from provisions of the Act.

(5) Rules authorizing certain limited types of acquisitions

and security issues without specific application to the Commission.

(6) Rules with respect to service, sales, and construction

contracts. -_

(7) Rules pursuant to Section 17 concerning the eligibility

of persons having financial connections to be officersor directors

of registered holding companies.

Forms have been promulgated as follows:

(1) Form U-l, Notification of registration of public utility

holding company, pursuant to Section 5 (a) of the Public

Utility Holding Company Act of 1935.10

(2) Form U-2, Declaration and periodic report to be filed by

a subsidiary of a registered holding company for exemption

under Rule 3D-4.

(3) Form U-3A3-1, Quarterly statement to be filed by banks

claiming exemption from the provisions of the Public Utility

Holding Company Act of 1935.under Rule 3A3-1. . r .

(4) Form U-7, Declaration pursuant to-Bection 7 of the

Public Utility Holding Company Act of 1935 regarding the

issuance or sale of securities or the exercise of a privilege or

1~After Nov. 1, 1936, a notification of registration mus't be tiled on ""Form u--0-:4-

adopted Oct. 2, 1936.
. 'SECO;ND ANNUAL REPDRT- 37

right -w -alter- the priorisy, preference, voting" power, or other

rights of holders of outstanding securities.

(5) Form U-10-1, Application pursuant to Section 10 (a) (1)

of the Public Utility Holding Company Act of 1935, for approval of acquisition of securities.

(6) Form U-I0-2, Application pursuant to Section 10 (a) (2)

and 10 (a) (3) of the Public Utility Holding Companv Act of

1935, for approval of acquisition of utility assets of interest in

business.

(7) Form U-12 (i)-1, Statement required pursuant to Section

12 (i) of the Public Utility Holding Company Act of 1935 by

one or more persons employed or retained by a registered holding company or subsidiary thereof.

(8) Form U-13-1, Application for approval of mutual service companies, pursuant to Rule 13-22, or Declaration with respect to organization and conduct of business of subsidiary

service company pursuant to Rule 13-22.

(9) Form U-17-1, to be filed by officers and directors of holding companies registered under the Public Utility Holding Company Act of 1935, following the registration of such companies

or following appointment or election as officer or director of

such company.

(10) Form U-17-2, Statement to be filed if there have been

any changes during the last calendar month in ownership of

officers or directors of a holding company under the Public

Utility Holding Company Act of 1935, with respect to securities of such company or any subsidiary company thereof.

(11) Form U...-17-3, Statement to be filed by officers or directors with respect to whom exemption is claimed pursuant to

Rule 170-11 from the provisions of Section 17 (c) of the Public

Utility Holding Company Act of 1935.

Each form has presented a. separate problem in the light of the

particular provisions of the Act involved and the character of the

information which the Commission is required to take into consideration in connection with each provision. The Commission has attempted to make the forms simple, readily understandable and not

unnecessarily burdensome to the industry, yet at the same time,

comprehensive enough to bring out the requisite information.

Statistics of applicatiO'1l8,declarations, and Mtiflcations under the Public UtiUt1/

Holding Oompan1/Act of 1935

Filed

Dis- Pending posed June 30, of 1936

---------------------1--- ------ Applications for exemption and for declaration of status under sees. 2 and 3___ 375 179 196 Application for discontinuance of holding-company status under sec. 5 (d)____ 1 1 ._ Applications for exemption of security issues under sec 6 (b)__________________ 17 13 4 Declarations under sec. 7 with respect to security issues . 7 7

Applications for approval of acquisition of securities under sec. 10 (a) (1)------ 16 16

Applications for approval of acquisition of assets under sec. 10 (a) (2)__________ 4 3 1

Applications for approval as mutual service company under sec. 13___________ 1 1

Applications for approval as subsidiary service company under sec. 13.

Application for exemption froJllprovisfons ofsec. 13by registered holding comN~~tioiiiii"ieiiiStrniions-Uiider sec~5~==================================== =: ----67- ---'-67- :==: .; ::::

IIncluding 2 withdrawn.

-

•

_

_

-
38 SECURITIES AND EXOHANGE COMMISSION

REGISTRATION OF UTILlTY HOLDlNG COMPANIES

The Public Utility Holding Company Act of 1935 called for

registration of holding companies not later than December 1, 1935.

Section 5 of the Act provides that any holding company or any

person proposing to become a holding company may register by filing

with the Commission a notification of registration, on such form as

the Commission may by rules or regulations prescribe as necessary or

appropriate in the public interest or for the protection of investors

or consumers .

.Section 5 of the Act also provides that it shall be the duty of

every registered holding company to file with the Commission, within

such reasonable time after registration as the Commission shall fix

by rules and regulations or order, a registration statement in such

form as the Commission shall by rules and regulations or order,

prescribe as necessary or appropriate in the public interest or for

the protection of investors or consumers.

The Commission adopted a form (Form U-1) for the notification

of registration of public utility holding companies pursuant to the

above-mentioned section of the Act. This form permitted companies

to register by filing a simple statement including little more than a

corporate chart, a schedule of securities outstanding, the names of

officers and directors, and maps showing the territories served. Upon

receipt of a notification of registration, the IQ.wprovides that the

registration shall become effective.

Sixty-five holding companies are now registered, including a number of subholding companies of registered systems. As of June 3G,

1936, the registered holding companies were as follows:

American Public Service Co.

British-American Utilities Corporation.

Brokaw-Dixon & McKee.

Central and South West Utilities Co.

Central States Edison, Inc.

Central States Power & Light Corporation, subsidiary of Central States Utilities

Corporation, a subsidiary of Utilities Power & Light Corporation.

Central States Utilities Corporation, a subsidiary of Utilities Power & Light

Corporation.

Citizens Public Service Co.

-Oltlzens Utilities Co.

Waiter Bachrach, trustee of the Commonwealth Light & Power Oo., debtor.

Community Power & Light Co.

Consumers Natural Gas Co.

Crescent Public Service Co.

East Coast Public Service Co.

Foster Petroleum Corporation.

Gary Electric & Gas Co.

The Gas Co. of New Mexico.

General Public Utilities, Inc.
SECOND ANNUAL REPORT 39

Luke C. Bradley, L. N. Boisen, D. P. Pardee, J. H. White, and H. S. Swan, as

votlng trustees under voting trust agreement dated OCtober 7, 1930, relating

to common stock of Georgia Natural Gas Corporation, a Delaware corporation.

Great Lakes Utilities Corporation.

Frank D. Comerford, Sidney St. F. Thaxter and Robert H. Montgomery, trustees

under agreement dated November 29, 1935, between International Hydro-Electric System, New England Power Association, Old Colony Trust Co., and said

trustees.

Indiana Southwestern Gas & Utilities Corporation.

Leonard S. Florsheim, trustee of Inland Power & Light Corporation, debtor.

Interstate Gas & Electric Co.

Interstate Power Oo., a subsidiary of Utilities Power & Light Corporation.

Iowa Public Service Co.

Lone Star .Gas Corporation.

The Middle West Corporation.

Hugh M. Morris and John N. Shannahan, trustees of the estate of Midland

Utilities Co.

Hugh M. Morris and John N. Shannahan, trustees of the estate of Midland

United Co.

The Mission Oil Co.

National Fuel Gas Co.

National Gas & Electric Corporation.

National Light, Heat & Power Co.

The Nevada-California Electric Corporation.

New England Power Association.

New England Public Service Co.

North American Gas & Electric Co.

North West Utilities Co.

Northern Paper Mills.

Penn Western Gas & Electric Co.

Pennsylvania Gas & Electric Corporation.

Hugh M. Morris and Harold S. Schutt, trustees, Peoples Light & Power Corporation.

Public Service Corporation of Texas.

Irwin T. Gilruth and Charles A. McDonald as trustees of Public Utilities Securities Corporation.

Republic Electric Power Corporation.

Republic Service Corporation.

Sandar Corporation.

Southeast Power & Light Co.

Southern Union Gas Co.

Southern United Gas Co.

Southwestern Development Co.

The Twin State Gas & Electric Co.

Union Electric Power Corporation.

United Cities Utilities Co.

United Public Service Corporation.

Lee Barroll, Henry A. Erhard, Gerald P. Kynett, Herbert L. Nichols, Herbert S.

Welsh, voting trustees under voting trust agreement dated January 1, 1935,

for class A common stock of United Public Utilities Corporation.

United Public Utilities Corporation.

Utilities Holding Corporation.

Utilities Power & Light Corporation.
40 SECURITIES AND EXCHANGE COMMISSION

Utilities Stock & Bond Corporation.

Washington & Suburban Cos.

Washington Gas & Electric Co.

White Mountain Power Co.

EXEMPTlONS UNDER THE PUB.{.IC UTILITY HOLDING.

COMPANY ACT QF 1935

The Commission is directed by the Public Utility Holding Company Act of 1935 to exempt by rule or order holding companies of

certain specified types from provisions of the Act unless and except

to the extent that it deems such action detrimental to the public

interest or the interest of investors or consumers.

In addition to this power to exempt holding companies; as such,

from the provisions of the Act, the Commission is also directed to

declare such companies as meet specified requirements not to be

"electric utility companies", "gas utility companies", "holding companies" or "subsidiary companies" as those terms are defined in the

Act. This power may be exercised by rule or by order upon

application.

The information required in an application for exemption of a

holding company is extremely elastic. The Commission adopted rules

specifying the information which was thought relevant in the ordinary situation, but left it up to the applicant to omit any information

which it might deem irrelevant in a particular case, reserving the

right on the part of the Commission to call for any other information

that might be necessary.

As of June 30, 1936,375 applications were received for exemption

of holding companies and for orders declaring companies not to be

holding companies or subsidiaries of holding companies or declaring

companies not to be electric or gas utilities. The Act provides that

applications for such orders shall, if filed in good faith, be automatically effective until the Commission has acted upon them. This

provision enabled the Commission to take the time necessary to

examine applications without subjecting the applicants in the meanwhile to regulations from which they might be entitled to immunity.

One hundred and seventy-nine of these applications have been

disposed of and 196 are pending.

SECURITY TRANSACTIONS BY REGISTERED HOLDING AND

SUBSIDIARY COMPANIES

The Public Utility Holding Company Act of 1935 provides that

it shall be unlawful for any registered holding company or subsidiary

company thereof, by use of the mails or any means or instrumentality of interstate commerce, or otherwise, directly or indirectly, to

issue or sell any security of such company or to exercise any privilege
SECOND ANNUAL REPORT . .41

or right to alter the priority, preferences, voting power, or other

rights of the holders. of an outstanding security of such company,

unless a declaration with respect to the security has .been filed with

the Commission' and has become effective. The Act also provides

that the Commission shall not permit. a declaration to- become effective unless the security meets certain specified standards and the

terms and conditions of the issue or sale are not detrimental to the

public interest or the interest of investors or consumers..

A simple form has been prescribed for these declarations (Form

U-'l) and as of June 30, 1936, the Commission had received and

passed upon 'l such declarations with respect to security issues.

There are certain security issues which are exempt from the requirements of filing a declaration. Some of these, such as specified types

of short term paper,. are exempted automatically by the statute. In

other cases, exemption is to be obtained by rule or regulation or

by order of the Commission. So far, exemptions of this kind have

all been by order. These include issues by operating public utility

companies which have been expressly approved by a State commission. Owing to the variety of State laws and of practices of

State commissions with respect to authorizing security issues, there

are sometimes difficult questions of interpretation as to whether the

action of a particular State commission constitutes approval of the

issuance within the meaning of the Federal statute.

As of June 30, 1936,the Commission had received 1'l applications

for exemption of security issues. Of these, 13 were disposed of and

4 were pending.

ACQUISITION OF SECURITIES AND UTILITY ASSETS AND OTHER

INTERESTS BY REGISTERED HOLDING COMPANIES OR THEm

SUBSIDIARIES

Acquisitions by registered holding companies or their subsidiaries

of securities, utility assets, or any other interest in any other business

come within the jurisdiction of the Commission.

An application for approval of an acquisition is filed with the

Commission on a prescribed form (Form U-10-1, Application for

Approval of Acquisition of Securities; Form U-10-2, Application

for Approval of Acquisition of Utility Assets or Interest in Business). Among the standards by which the Commission must be

guided in approving acquisitions is a requirement that no acquisition shall be approved unless the Commission finds that it will serve

the public interest by tending towards the economical and efficient

development of an integrated public utility system. The Commission must also deny an application if it will tend toward interlocking relations or concentrated control of public utility companies in a

101973-3~
42 SECURITmS AND EXCHANGE COMMISSION

"manner detrimental to 'the 'public interest-or the interest of investors

or consumers; if the consideration to be paid is not reasonable; if

the acquisition will unduly complicate the capital structure of the

system; or if it will otherwise be detrimental to the public interest

or the interest of investors or consumers or the proper functioning

of the system.

The exemptive power of the Commission with respect to acquisitions is somewhat different from that in the case of security issues.

Certain acquisitions expressly approved by State commissions are

automatically exempted by the statute, as are also acquisitions of

Government or municipal bonds. In addition, the Commission is

given a general power to exempt by rules and regulations acquisitions

of securities for investment of current funds or acquisitions made in

the ordinary course of business of the acquiring company. Acting

under this authority, the Commission has adopted rules providing a

number of exemptions. These include purchases of certain readily

marketable securities generally considered appropriate for investment of current funds and also certain short-term paper, acquisitions

which may be necessary to comply with conversion rights or sinking

fund obligations and similar obligations, acquisitions from wholly

owned subsidiaries, the receipt of stock dividends, the buying of limited amounts of securities issued by the acquiring company or its subsidiaries, and a number of other transactions where the Commission

felt that the public interest would not require the imposition of the

standards specified in the Act.

Supervision over the reorganization of holding companies presents

one of the most important duties of the Commission., Although, as

regards its most important aspects, the reorganization section of the

Act has not yet become effective, the policy expressed by it is one

which the Commission must constantly have in mind in passing on

any transactions involving further growth of the existing systems.

As of June 30,1936, the Commission had received and acted on 16

applications for approval of acquisition of securities and 4 applications for approval of acquisition of assets.

STATEMENTS REQUIRED PURSUANT TO SECTION 12 (i) OF THE

PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 .

Pursuant to the provisions of Section 12 (i) of the Public Utility

Holding Company Act of 1935, any person employed or retained by

any registered holding company, or by any subsidiary company

thereof, who presents, advocates, or opposes any matter affecting any

registered holding company or any subsidiary company thereof before the Congress, or any Member or committee thereof, or before the

Securities and Exchange Commission or the Federal Power Commission or any member, officer, or employee of either such Commis-
SECOND ANNUAL REPORT 43

sionr is-required to' fi.ie~a'statement with-the Seenrrties-and-Exchange

Commission. The information required in this statement covers the

subject matter in respect to which a person is retained or employed,

the nature and character of his retainer or employment, and the

amount of compensation received or to be received, directly or indirectly, in connection therewith.

The Commission has adopted Form U-12 (i)-1 for use in filing

this information.

As of June 30, 1936, 11 such statements had been received and

examined. .

RULES REGARDING SERVICE, SALES, AND CONSTRUCfION

CONTRACTS

Pursuant to Section 13 of the Public Utility Holding Company

Act, the Commission promulgated rules regarding service, sales, and

construction contracts and Form U-13-1 (Application for Approval

of Mutual Service Company or Declaration with Respect to Organization and Conduct of Business of Subsidiary Service Company

Pursuant to Rule 13-22).

The Act outlaws, subject to a limited exemptive power in the Commission, the performance of service, sales, or construction contracts

by registered holding companies for their public utility subsidiaries.

Such transactions, when performed by subsidiary companies for associate companies in the same system, must be in accordance with rules

and regulations or orders of the Commission.

These rules also provide, upon approval of the Commission, for the

organization of mutual service companies.

Only one application on Form U-13-1 had been filed up to the

close of the fiscal year.

UNIFORM SYSTEM OF ACCOUNTS FOR MUTUAL SERVICE COMPANIES

AND SU~IDIARY SERVICE COMPANIES

On May 12, 1936,the Commission adopted the "Uniform System

of Accounts" for mutual service companies and subsidiary service

companies. This system became effective August 1, 1936.

This uniform system of accounts is designed for use by:

(1) Any company operating, or organized to operate, as a

mutual service company under the provisions of Section 13 of

the Public Utility Holding Company Act of 1935; and

(2) Any subsidiary company whose organization and conduct

of business the Commission has found sufficient to meet the

requirements of Section 13 (b) of the Act with respect to the

performance of sales or construction work for, or the sale of

goods to, associate companies. ,

This represents the first step in the development of uniformity in

accounting in a field where quite diverse practices have prevailed.
SECU~IES ANI!. .E-XCHANGE <;lOMMISSION

_The Commission has endeavored to provide, a system eomprehensive enough to.eover the field, yet elastic enough to permit adaptation

to varying requirements; a system which, faithfully. applied, will

provide information essential in the administration of-Section 13 of

the Act, will be workable and reasonably simple from an operating

viewpoint, and free from unnecessary complexities or burdensome

requirements which might render it incompatible with the interests

of investors and consumers. .

In the preparation of this system of accounts the Commission

invited the cooperation of accounting officersof public utility holding

companies and of the American Institute of Accountants. As a result the Commission 'was accorded the active cooperation of a committee of accounting officers of the industry and also of the Special

Committee on Public Utility Accounting of the American Institute

of Accountants. These committees met with representatives of the

Commission in conference, at which extended discussion was-had on

the various issues involved in this undertaking. Criticisms and suggestions were submitted also by members of the Committee on Statistics and Accounts of the National Association of Railroad and Utility

Commissioners, all of which were carefully considered.

STUDY OF INVESTMENT TRUS~S AND INVESTMENT COMPANIES

Section 30 of the Public Utility Holding Company Act of 1935

authorizes and directs the Commission to make a study of the

functions and activities of investment trusts and investment companies, the corporate structures, and investment policies of such

trusts and companies, the influence exerted by such trusts and companies upon companies in which they are interested, and the influence

exerted by interests affiliated with the managements of such trusts

and companies, upon their investment policies, and to report the

results of its study and recommendations to the Congress on or before

January 4, 1937.

In order to acquire adequate data and information to comply with

this Congressional mandate, the Commission prepared a questionnaire to be answered by each incorporated and unincorporated investment trusts and investment companies of the management type

which had, on December 31, 1935, total assets amounting to $500,000

or more and which either had at that time 100 or more stockholders,

or had at any time made a public offering of an issue of its securities.

This questionnaire covered substantially the period from January 1,

1927, to December 31, 1935.

The questionnaire required information relating to the history and

development of investment trusts and investment companies; their

corporate structures, including the issuance, sale and distribution
e.-SEC0ND ANNUAL REPORT 45.

of securities and the indentures and agreements relating to such

securities; the nature, scope, and extent of their activities, including

participations in underwriting syndicates and trading accounts,

options, short sales and other related matters; their investment

policies, including contents of portfolio and volume of securities

transactions; their relationship with their officers, directors, principal stockholders and with companies or firms controlled by such

persons, including compensation and loans to and transactions with

such persons. Information was sought as to the method of acquisition of subsidiaries and affiliates; the control and influence exercised

by investment trusts over companies in which the trusts are interested; and the influence exercised by interests affiliated with the

management of investment trusts upon the policies and activities of

the trusts. In addition, annual balance sheets, profit and loss accounts and various supporting schedules covering the period from

1927 to 1935 were requested.

In connection with the formulation of this questionnaire, the

Commission received the cooperation of representatives of investment companies, accounting societies, and independent accountants.

The Commission also prepared a summary statement required to

be answered by such investment trusts and. investment companies of

the management type which did not have total assets of $500,000

or more than 100 stockholders as of December 31, 1935.

Similarly, the Commission prepared, with the cooperation of the

representatives of the industry and independent accountants, questionnaires for fixed and semi-fixed investment trusts; for investment plans with periodic, installment or partial payment, endowment, thrift, or insurance provisions; and for investment companies

issuing, offering, or selling guaranteed face amount of securities

with or without optional annuity provisions. These questionnaires

required information substantially similar to that required by the

questionnaire for management type investment companies.

As of June 30,1936.,the Commission had received replies from approximately 350 management investment companies with total assets

of a.market value of approximately $1,700,000,000at the end of 1935;

from approximately 200 fixed and semi-fixed trusts with total assets

of approximately $200,000,000;from 30 investment plan companies

with aggregate assets of over $10,000,000; and from 3 guaranteed

face amount certificates companies with total assets of $100,000,000.

It is estimated that there are approximately one and one-quarter

million shareholders of investment trusts and investment plans of

all types, without allowing for undeterminable duplications, of which

number..approximately 750,000 are record shareholders of management trusts and management-companies, .
46 SECURITIES AND EXCHANGE COMMISSION

The method of study by the Commission broadly has assumed three

phases.

First, an analysis and study of the material submitted by the trusts

and companies in response to the questionnaires formulated by the

Commission. This phase includes general and comparative statistical and corporate analysis of the data submitted by the trusts and\

companies, including the history and development of these trusts and

companies.

In addition, reports on individual companies which had at any

time assets of over $10,000,000 are being prepared and conferences

with representatives of these trusts have been held or scheduled.

At some subsequent date, public hearings will be held- with respect

to the affairs of these companies.

Second, the Commission is studying the economic, statistical, and

legal material which is available from sources other than the replies

to the questionnaires.

Third, the Commission is conducting field studies of those investment trusts and investment companies which, for various reasons,

were not susceptible to study and analysis through the medium of a

questionnaire. The affairs of some of these companies will be

examined at public hearings.

COMPLAINTS, INFORMAL AND FORMAL INVESTIGATIONS

During the fiscal year ended June 30, 1936,information of fraudulent and illegal activities in violation of the Securities Act of 1933,

as amended, and the Securities Exchange Act of 1934was received by

the Commission from the public, State Securities Commissions, State

and Federal officials, and voluntary agencies such as Better Business

Bureaus, Chambers of Commerce, etc. The Commission also obtained such information from its own surveillance of trading activities and examination of registration statements.

Where the information indicated a substantial possibility of a

violation, it was handled as a complaint case. During the past year,

1,708 complaint cases were docketed. Where the information failed

to indicate any substantial possibility of a violation, the communication transmitting it was handled as general correspondence. Approximately 15,000 such communications were received during the past

year. When the Commission's initial inquiry into a complaint disclosed sufficient probability of a violation to justify investigation the

metter-was-docketed and-investigated informally. During the year,

1,479 such cases were docketed.

The investigative powers of the Commission under Sections 19 and

20 of the Securities Act and Section 21 of the Securities Exchange

Act were invoked by formal Commission orders in 229 cases during
----- 

SECOND ANNUAL REPORT 47 

the past year. At the close of the preceding fiscal year, 116 such 

investigations were pending. Of these 345 inrestigations, 165 are 

pending and 160 were concluded as follows: 

In 20 cases, the Commission sued for injunction in the Federal 

courts and also transmitted the evidence to the Attorney General 

for criminal prosecution. 

In 38 cases, srits for injunction were brought by the Commission, but the evidence mas not referred for prosecution. 

In 19 cases, evidence of willful violation mas transmitted to 

the Attorney General for criminal prosecution, but injunctive 

relief was not sought. 

In 3 cases, the postal authorities were apprised of the evidence 

discovered and the Commission's files were made available to 

them. 

By order of the Commission, 80 investigations were closed 

without further action. 

The statistics presented above with respect to formal investigations 

apply only to cases in which investigations were ordered by the Commission. In certain other cases, the Commission instituted suits for 

injunction without first ordering formal investigations or referred 

cases to the Attorney General for prosecution without resorting to 

formal hearings or injunctive proceedings. Similarly, in 21 cases in 

which no formal investigation had been instituted, the postal authorities were advised of evidence in the Commission's possession and 

the files of the Commission were made available to them. 

Report of complaints, informal investioations, and fomal investigatio 8 for fiscal vear 1985 ? 

Cases 

C- daekated Totaloases Czsesolosed cmss pending July 1,1834, to hs ao- July 1,1834, ~endlmg Sent 1,1934 to June 30, counted lor July 1, 1835 to J;gi30r 

1935 

Cases set up as mult of complaints.................... 2,330 ............ 2,330
 Informal investigations................................ I 1 2,Z141 ............ 1 2,214


Formal investigations................................. 116 ............ 116 


The Commission had not adapted any method of olosing oases as of July 1, 1935; therelore none were shown closed st that d~a. 

Report of complaints, informal investigations, and formal inz;estigatims for fiscal year 1986 

Cases 

Ca+ docketed ~otalcasesCBFeso'osed CB~BS Dendlng JUI I 1935 to be ao- JU1y1,1836, Dendlne 

J~IYI, 1835 to f ~ 30: e counted lor to Jg30- ~olyI, 1836 

1836 
48 SECURITIES AND EXCHANGE COMMISSION

HEARINGS

Hearings are conducted"with respect to many phases of the work

of the Commission, including (1) hearings in connection with registration of securities under the Securities .Act of 1933, involving

stop order and refusal order proceedings; (2) hearings in connection

with the applications for the confidential treatment of material filed

with registrations; hearings in connection with the registrations of

brokers and dealers; hearings in connection with the withdrawal and

striking from listing of securities listed or registered with national

securities exchanges; hearings in connection with the suspension of

members of exchanges for manipulative practices-all under the

Securities Exchange Act of 1934; and (3) hearings in connection

with the acquisition of assets and the acquisition of securities,

exemptions and other matters under the Public Utility Holding

Company Act of 1935.

The statistics given below indicate the number of orders entered

for public hearings and the number of public hearings held from

July 1, 1935to June 30, 1936.

Orders lIearings I

Securities Act of 1933____________________________________________________________ 70 !i5 Securities Ex~e Act of 1934__________________________________________________ 46 37 Public Utility Ho ding Company Act of 1935____________________________________ 132 124

TotaL ___________________________________________________________________:_ 248 216

1Exclusive of protective committee study hearings.

LITIGATION

LITIGATION UNDER SECURITIES ACT OF 1933 AND SECURITIES

EXCHANGE ACT OF 1934

Since its creation, the Commission has been involved in 102 civil

actions with respect to the enforcement of the Securities .Act of 1933

and the Securities Exchange .Act of 1934. Seventy-six of these

actions arose during the fiscal year ended June 30, 1936.

Statement indicating number of Zitigation cases under Securities Act and

Securities ElJJchange Act by types of cases

Types of cases

InItiated

Total as during Total as

of June fiscal year of June

30,1935 I:~~, 30,1936

1936 --------------------1---------

Snits by Oomml ssion to enjoin violations of Securities Act and/or Securities Exchange Act________ _ _________________ ________________ 25

Snits against Commission to enjoin enforcement of Securities Act and/or Securities Exchange Act

Snits in which Oomrmsslon has appeared and petitioned for leave to appear as-amlcm rome or intervenor Insuits involving the Securities Act

Snits to compel appearance and testimony of witnesses- before a trial examiner __ _ __ 1

41

4

20

11

66

4

.20.

12

Comparative totals. 26 76 102

• _

_

• _
-SECO~ ANNU~-REPOBX 49

.

As a result of the suits for injunction instituted by the Commiesion, 142 firms and individuals had been permanently enjoined from

the acts and practices complained of by June 30, 1936, and 110 of

such injunctions wer~ obtained during the past fiscal year.

The principal defendants in the suits for injunction filed by the

Commission during the past year, grouped according to the Federal

District Courts in which the suits were instituted, were as follows:

Colorado______________________________Amos Downs et al.

District of Columbia . Direct Royalty Sales Corporation et at

Southern District of Florida . W; E. Boyette et al.

Cultivated Oyster Farms Corporation

et a1.

Southern Illinois . Upton & Co. et al,

Grinnell F. Oliver & Co. et al,

.Alexander RUdolph E!chlepp.

Universal Service Association et at

Western District of Kentucky . Stanley B. Young & Co. et at

Collins-Moore & Co. et al,

Massachusetts .: . Robert Belmont.

E. E. Nazzaro & Co., Ine., et al,

Mendel Raffe.

AImarin Tr.owbridge.

Jack Pike.

Andrew Jensen, Jr.

George' A. Fernald.

Sam Meyers.

Sidney G. Vickers.

F. S. Bryant et at

Walter S. Thompson.,

Eastern District of Michigan__________ Benners, Owens & Co. et al,

Levett & Co. et a1.

Minnesota ..:_ H. P. Wickham et al, .

NortIiern District of MississippL Jack R. Vale:

Harry W. Elliott et al,

Montana_____________________________ Goldfields, Consolidated Mines, Inc., et

at

New Jersey Whealton Co., Inc., et al.

Southern District of New York -Glengarry Mining Co. et al.

Karpel & Oo., Inc., et al,

John M. Torr et at

Lawrence :A. Rose et al.

Knapp Milton & Oo., Inc., et al,

Louis Weingarten & Co. et aI.

Herbert W. Schmid et al.

Northern District of Ohio____________ Otis & Co.

Western District of South Carolina Franklin Savings & Loan Co. of Spar-

, tanburg, S. C., et al.

Northern District of Texas Carl E. Krog et al,

Southern District of Texas Walter Terry Morgan.

Eastern District of Washington . Edward BiIlberg et al.

Western District of Wisconsin . Crude Oil Corporation of .America et al.

\
50 SECURITIES AND EXCHANGE COMMISSION

The principal defendants in suits to enforce subpenas filed by the

Commission during the fiscal year ended June 30, 1936, grouped

according to the districts in which they were filed, were as follows:

District {If,Columbia !I'he Krystal Chemical Oo., Inc., et al,

Western District of Kentucky Collins-Moore & Co. et al,

Massachusetts_________________________National Short Term Securities Corporation et al,

New Mexico . Royalty Bond & Share Corporation et

ai,

Southern District of New York J. Edward Jones.

Thomas Bracken et al,

Western District of Oklahoma Verser Clay Co. et al.

Black Gold Exploration Trust et al,

Northern District of Tennessee________ J. Edward Mills et al,

Western Dlstri~t of Washington Arthur E. Hussey.

American Rand Corporation.

The Commission also appeared as amicus curiae in 19 civil suits

brought under Section 12 of the Securities Act of 1933. and petitioned for leave to intervene in 1 case involving a corporate

reorganization under Section 77B of the Bankruptcy Act on the

ground that certain committees had engaged in or were about to

engage in acts and practices in violation of the Securities Act.

During the course of the hearing on the Commission's motion for

a temporary injunction in the matter of Robert Collier & Co., Inc.,

Robert Collier and Eurydice Gold Mining Co., in the United States

District Court for the Southern District of New York, the question

was raised as to the right of the Commission to appear and prosecute

injunction suits by its own attorneys, without being represented by

the Attorney General of the United States or the United States

Attorney for the District. In the District Court, the complaint was

dismissed on the ground that the Commission could not appear by

its own attorneys. On appeal to the United States Circuit Court of

Appeals for the Second Circuit, this rule was reversed and the right

of the Commission to prosecute injunction suits by its own attorneys

was sustained.

PETITIONS FOR REVIEW. IN CIRCUIT COURTS OF APPEAL

During the fiscal year ended June 30, 1936, 21 petitions were filed

in 7 Circuit Courts of Appeal for review of determinations, made

by the Commission upon application for confidential treatment of

material filed with applications for registration of securities on

various national securities exchanges, that public disclosure of mate-
SECOND ANNUAL REPORT 51

rial filed with it was in the public interest.P As of June 30, 1936,

none of these petitions have been disposed of by the courts. Appendix VI includes a statement indicating the names of the companies, the dates the petitions were filed, and the circuits within which

filed.

REFERENCES TO THE ATTORNEY GENERAL FOR CRIMINAL

PROSECUTION

During the fiscal year, 40 cases were referred to the Attorney General for criminal prosecution, bringing the total so referred to 70.

In 69 of these cases, the evidence indicated willful violations of the

Securities Act. In the remaining case, the evidence indicated a conspiracy to violate Section 9 of the Securities Exchange Act. Most

references followed formal investigations conducted by the Commission. In 20 of these cases, the Commission instituted injunctive proceedings in addition to referring the evidence to the Attorney General.

However, in the interest' of speedy justice, the' Commission, in 19

instances referred to the Attorney General evidence of criminal violations obtained in the course of investigations without instituting injunctive proceedings, and in one case without either suing for injunction or conducting a formal investigation.

Of the 70 cases so referred, indictments containing; counts charging violations of the Securities Act were returned in 32 cases. Thirty

of such indictments were returned during the past fiscal year. In the

case involving the Securities Exchange Act, an indictment was returned containing a count which charged conspiracy to violate Section

9 (a) (2) of that Act.

Eleven of the cases involving violations of the Securities Act have

been tried ana '47 individuals convicted. Two of these persons await

sentence, and 37 have been given sentences ranging from 10 days in

jail to 5 years in the Federal penitentiary and/or fines ranging from

$100 to $4,000.

U Subsequent to 1une 30, 1936,the following additlonel companies flled similar petitions:

Name of company Dateflled Circuit Court of

Appeals

American Sumatra Tobacco Corporation 1uly 9,1936 District of Columbia.

The Diamond Match Co 1uly 3,1936_______ Do. : BriDclMatlllr8btDrIIIg'Co 1uly'18-21,'l936:_~_ '-Second.

General Mills, Inc 1uly 23,1936 District of Columbia.

New York Trap Rock Corporation 1uly 24,1936 Second.

The International Nickel Co. of Canede, Ltd________________Aug. 25, 1936______District of Columbia. Pullman, Inc •• Sept, 4, 1936_______Third.

•
52 SECURITIES AND EXCHANGE COMMISSION

LITIGATION UNDER THE .PUBLIC UTILITY HOLDING COMPANY ACT

Shortly after the passage of the Public Utility Holding Company

Act of 1935,numerous holding companies instituted suits in the courts

attacking the constitutionality of the Act. These suits were instituted notwithstanding the fact that the Commission, the Attorney

General, and the Postmaster General had publicly disclaimed any

intention to enforce the criminal penalties of the Act until the constitutionality of the law had been established by the Supreme Court

in a civil suit to be duly instituted by the Commission. Forty-five

suits (including stockholders' suits) were brought by or in behalf of

more than 100 companies in 13 different District Courts to enjoin the

enforcement of the Act.

Seven of these suits were brought in the District of Columbia. On

December 7,1935, the Attorney General and the General Counsel of

the Commission made a motion in the Supreme Court in the District

of Columbia to stay this pending litigation until the Supreme Court

of the United States had determined the validity of the Act, in the

case of the Securities and Ewchange Oommission v, Electric Bond and

Share Oompany. After oral argument and filing a brief, the Government's motion was granted by order of January 9, 1936. On special

appeal to the United States Court of Appeals for the District of

Columbia, the order of the trial court was reversed on June 22,1936,

on the ground that the Court was without power to grant the stay

.since the parties and issues.in the different suits were not identical.

Preparation of an appropriate request to the .Supreme Court for a

writ of certiorari is now in progress."

The suits brought outside the District of Columbia have been or

.are being dismissed against the Commissioners and the Attorney

General, and the Postmaster General, either on the ground that no

proper service has been .had or on the ground that the venue is

improper. So far as these cases have been instituted against local

United States Attorneys or local postmasters, the suits aee.not being

contested. ... .

Five stockholders' suits were brought to enjoin the enforcement

of the Act. However, only one has been carried to a decision. In

that case, PUblic Utility InvestiJng Uorporozion. v. Utilities Power and

Light (Iorporation. (82 F. 2d. 21, C. C. A., 4th, 1936), the-Court refused to enjoin registration on the ground that registration would not

cause the company any irreparable injury. .

On November 26, 1935, the Commission, pursuant to express authority under Section 18 of the Act, brought suit in the District

1ll Since the writing of this report the writ of certiorari has been granted.

-
SECOND ~UKL REPORT 53

Court for the Southern District of New York against the Electric

Bond and Share Company and its principal intermediate holding

companies. The Commission sought an order from the Court that

the 13 holding companies in the Bond and Share system, upon whom

the Act placed a duty to register, be required to register with the

Commission or to cease from performing such functions as under the

Act may be performed only by registered holding companies. A

stipulation of facts, worked out by a staff of attorneys for the Commission, representatives of the Attorney General's office,and counsel

for the defendants, was filed with the Court on June 30, 1936. This

proceeding will provide a fair and comprehensive test of the validity

of the Act,

On September 16, 1935, the trustees of the American States Public

Service Co., debtor, in reorganization under Section 77b of the Bankruptcy Act, filed a petition in the District Court for the District of

Maryland, praying that the court determine the Act to be unconstitutional and issue instructions accordingly. Two creditors of the insolvent company filed petitions with the Court, one supporting the trustees' petition, the other, Burco, Inc., opposing the petition and alleging that the Act was constitutional. In this case, Counsel for the

Commission, together with the special assistants to the Attorney General assigned to Holding Company Act litigation, appearing as amici

curiae, urged that the Court had no jurisdiction to determine the

validity of the Act in such a proceeding, on the ground that it was

nonadversary, premature and collusive, and was totally inadequate

as a vehicle for testing the validity of an important Act of Congress.

On November 7, 1935, the Court ruled against the Government and

held the act void in its entirety (12 F. Supp. 667). On appeal by

Burco, Inc., to the Circuit Court of Appeals for the Fourth Circuit,

Counsel for the Commission and for the United States again appeared

as amici curiae, and contested the jurisdiction of the trial court. On

February 22, 1936,the decision of the District Court was affirmed and

the Act was held invalid, only, however, as applied to the debtor (81

F. 2d 721)~ Burco, Inc., then petitioned the Supreme Court of the

, United States for writs of certiorari. The Government opposed certiorari in a statement filed with the Court on March 27, 1936, on the

grounds set forth above and on the additional grounds tha.t the validity of the Act would be determined on the basis of an adequate record

in the suit which the Commission had already commenced in the District Court for the Southern District of New York against the Electric Bond & Share Co. and its principal holding company subsidiaries.

The Supreme Court denied certiorari on March 30, 1936.
54 SECURITIES AND EXCHANGE COMMISSION

An additional attempt to test the constitutionality of the Act in a

proceeding of this type was made by the trustees of the Central West

Public Service Co., debtor, in reorganization under Section 7713in the

District Court for the District of Delaware. On November 29, 1935,

the trustees' petition for a decision on the constitutionality of the Act

was denied on the ground that this attempted method of raising constitutional questions "violates accepted canons of accepted legal

procedure" (13 F. Supp. 239).

FORMAL OPINIONS

During the past year, the Commission issued 121 formal opinions

involving matters under the Securities Act of 1933,the Securities Exchange Act of 1934 and the Public Utility Holding Company Act of

1935. These opinions were issued in the following cases :

SECURITIES ACT OF 1933, AS AMENDED

FIXING EFFECTIVE DATE OF AMENDMENTS TO REGISTRATION

STATEMENTS:

In the Matter of Cornucopia Gold Mines Mar. 28, 1936

REFUSAL ORDERS:

In the Matter ofInternational Investors Fund System, Inc May 11,1936

Mineral Products, Inc May 22,1936

STOP ORDERS:

In the Matter ofAmerican Credit Corporation Dec. 2, 1935

Franco Mining Corporation Feb. 1,1936

La Luz Mining Corporation Oct. 4,1935

Lewis American Airways, Inc Mar. 27, 1936

Mutual Industrial Bankers, Inc Jan. 4,1936

National Educators Mutual Association, Inc Aug. 28,1935

(Additional Findings "and 'Opinion of the Oommission,

Jan. 17, 1936-Petition of B. I.Dahlberg.)

Newman Dick Mining &: Developing Co Apr. 24,1936

Oil Ridge Oil &: Refining CO Oct. 9,1935

Santa Lucia Mining Co Feb. 11,1936

Snow Point Mining Co., Inc Mar. 14,1936

Wee Investors Royalty CO July 3,1935'

~
SECOND ANNUAL REPORT

SECURITIES EXCHANGE ACT OF 1934

BROKER AND DEALl!lR:

In the Matter ofHarry George Ames

Milton Berg Arnett

S. J. Barlett

~onnan Berry &Co

David M. BlackInan

Chester M. Burns

David H. Chapman

H. B. DufieL

Stanley J. Graham

Industrial Engineering Co

Donald Montague & Co., Inc

Gerald Owens

Ruth D. Reid

Howard M. Roberts Co

William W. Venner

Charles C. Willson

Do

MANIPULATION:

In the Matter ofMichael J. Meehan ,

Charles C. Wright et al,

55

Dec. 26, 1935

Do.

Dec. 5,1935

Dec. 19, 1935

Dec. 12, 1935

Dec. 30,1935

Do.

Dec. 5,1935

Dec. 21, 1935

May 23, 1936

May 14,1936

Apr. 9,1936

Dec. 26,1935

Dec. 30,1935

May 5,1936

Apr. 2,1936

May 26,1936

Dec. 6,1936

May 22,1936

May 16,1936

Do.

Mar. 13, 1936

Apr. 16, 1936

May 16,1936

PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

ACQUISITION OF ASSETS:

In the Matter ofFall River Electric Light Co

Massachusetts Power & Light Associates

Montana-Dakota Utilities Co

Nevada-California Electric Corporation

New England.Power AssQciAtion

ACQUISITION OF SECURITIES:

In the Matter ofMassachusetts Lighting Cos Dec. 28,1935

Massachusetts Utilities Assoelatea, Do.

Do Jan. 17,1936

The Middle West COrporation Dec. 28,1935

Do June 16, 1936

Public Service Co. of New Hampshire May 28,1936

North Boston Lighting Properties Dec. 28,1935

lVashington Gas Light Co Apr. 11,1936

DECLARING ApPLICANT NOT TO BE AN ELECTRIC UTILITY

COMPANY:

In the Matter of Natrona Light & Power Co Apr. 4,1936

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

~
56 SECURITIES AND EXCHANGE COMMISSION

DECLARING ApPLICANT NOT TO BE A HOLDING COMPANY: --

In the Matter ofClearfield Bituminous Coal Corporation Mar. 31, 1936

Irving Trust Co., Trustee in Bankruptcy ofNational Electric PowerCo.,National PublicService

Corporation, Seaboard Public Service Co., and

Electric Management& Engineering Corporation, Jan. 10, 1936

Italian Superpower Corporation Jan. 29,1936

The Lehigh Coal & Navigation Co May 23,1936

Montana-Dakota Utilities Co Mar. 27, 1936

DECLARING ApPLICANT NOT TO BE SUBSIDIARY COMPANIES OF A

SPECIFIED HOLDING COMPANY:

In the Matter ofCresson Electric Light Co., Gallitzin Electric Light Co.,

and Hastings Electrical Co Mar. 31, 1936

EXEMPTION OF SECURITY ISSUE PURSUANT TO SECTION 6 (b):

In the Matter ofConnecticut River Power Co Feb. 12, 1936

East Missouri Power Co Mar. 30, 1936

The Georgetown Gaslight Co Apr. 11,1936

Georgetown Gaslight Co. of Montgomery County, Md.,., Do.

Prince George's Gas Corporation_____________________ Do.

Rosslyn Gas Co____________________________________ Do.

Southeastern Massachusetts Power & Electric Co Jan. 17,1936

Washington Gas Light Co Apr. 11,1936

Washington Gas Light Co. of Montgomery County, Md., Do.

EXEMPTION FROM PROVISIONS OF THE ACT:

In the Matter ofAltoona & Logan Valley Electric Railway Co Mar. 31,1936

American Community Power Co June 23,1936

(Protective Committee under Deposit Agreement

dated as of Jan. 15, 1932, for Secured Gold

Debentures, 5~% Series due 1953.)

Berwind-White Coal Mining Co Apr. 4,1936

Central Indiana Power Co Apr. 30,1936

The Columbus, Delaware & Marion Electric Co June 23,1936

The Connecticut Power Co Jan. 4,1936

Consolidated Coal Co. Consol Power Co. Apr. 24,1936

Consolidated Utilities Oorporatlon.. , Mar. 31, 1936

J. G. Curtis Leather Co Mar. 27, 1936

Dominion Electric Power, Ltd Apr. 4,1936

Electric Co. of Costa Rica ;- Mar. 31; 1936

Engineering Investors Corporation Apr. 30,1936

Georgia Power & Light Co June 23, 1936

Halsey, Stuart & Co., Inc Mar. 27,1936

Holyoke Water Power Co Mar. 31, 1936

Hydro Electric Securities Co Mar. 27, 1936

The Indiana Natural Gas & Oil CO May 16,1936

Indianapolis Power &Light Co June 29,1936

International Public Service Corporation and AmericanYugoslav Electric Co Apr. 30,1936

The Islands Gas & Electric Co June 29,1936

Long Island Lighting Co Mar. 27, 1936

~

-

~

~---------

~
SECOND ANNUAL REPORT 57

ExEMPUON FROM PROVISIONS OF THE AC'J.'-{Jontinued.

In the Matter of-eontinued.

Louisville Gas & Electric Co June 29,1936

Lynn Gas & Electric Co. and trustees Mar. 27, 1936

The Narragansett Electric Co May 28,1936

, 'I'he Nashville, Chattanooga & St. Louis Railway Co__ Mar. 27, 1936

Northeastern Utility Associates and South Shore Utilities Associates June 23,1936

Northern Pennsylvania Power Co. and The Waverly

Electric Light & Power Co June 29,1936

Northern States Power Co June 23,1936

Oxford Paper Co Mar. 31,1936

Pacific Lighting Corporation Jan. 13,1936

Pennsylvania Coal & Coke Corporation Mar. 31, 1936

Pennsylvania Water Service Co July 1,1936

Philokla Gas Co. & Phillips Petroleum Co May 23,1936

Planta Electrica, Inc Mar. 31,1936

Rockland Light & Power Co Mar. 27, 1936

St. Croix Falls Wisconsin Improvement Co June 30,1936

Saugerties Gas Light Co May 23,1936

Scranton-Spring Brook Water Service Co June 29,1936

The Singer Manufacturing Co Mar. 27,1936

Southern States Power Co Apr. 14,1936

William R. Staats Co. and San Gorgonio Electric Corporation June 23, 1936

Standard Oil Co. (an Indiana corporation) Apr. 11,1936

Stanollnd Oil & Gas Co. and The Shannon Gas & Electric Co May 23,1936

The Stark Electric Railroad Co Mar. 31,1936

Stearns Coal & Lumber Co__________________________ Do.

The Texas Corporation May 20,1936

Union Pacific Railroad Co Apr. 22,1936

United States Steel Corporation, American Sheet & Tin

Plate Co. ,Carnegie-Illinois Steel Corporation, Tennessee

Coal, Iron & Railroad Co., and Illinois Steel Co May 23,1936

West Indiana Utilities Co Apr. 30,1936

Western Massachusetts Cos Mar. 27,1936

Westmoreland Coal Co Mar. 31,1936

J. G. White & Co Apr. 30,1936

Wisconsin Power & Light Co Mar. 27,1936

I>o May 29,1936

I>o June 2~ 1936

Wisconsin Public Service Corporation June 8,1936

FIXING DATE FOR DECLARATION TO BECOME EFFECTIVE:

In the Matter ofThe Middle West Corporation Dec. 28,1935

Public Service Co. of Oklahoma Feb. 17,1936

PERMITTING DECLARATION TO BECOME EFFECTIYE:

In the Matter of Southwestern Gas & Electric Co Dec. 19,1935

101973-36--5
58 SECURITmS AND EXCHANGE COMMISSION

SECURITIES VIOLATIONS FILES

During the year, considerable progress was made in assembling and

compiling information for the securities violations files. As stated

in the last annual report, these files were established on May 1, 1935,

to provide a control index and clearing house for information relating

to securities frauds in the United States and Canada.

As of June 30, 1936, the Commission has assembled data regarding the records of 21,775 persons against whom State and Federal

action has been taken during the past 10 years in connection with

the sale of securities.

The Commission has continued negotiations with the Post Office

Department, the Federal Bureau of Investigation, State Securities

Commissions, State and Federal prosecuting officials, Better Business Bureaus, Chambers of Commerce, etc., with a view .to securing

records and information for the securities violations files and in order

to supply these agencies with information available in these files and

useful to such agencies.

A monthly confidential bulletin is published and sent to approximately 750 of the agencies engaged in the prevention and punishment

of securities frauds. The information published in these bulletins

has aided materially in the apprehension of persons wanted for securities violations.

REPORT ON THE STUDY AND INVESTIGATION OF PROTECTIVE AND

REORGANIZATION COMMITTEES

Pursuant to Section 211 of the Securities Exchange Act of 1934,

which authorized and directed the Commission to make a study and

investigation of the work, activities, personnel, and functions of protective and reorganization committees, the Commission made an intensive and thorough study and investigation of these committees.

The statute directed the Commission to report the result of its

studies and investigations and its recommendations to the Congress

on or before January 3, 1936. The magnitude of the task prevented

the completion of the investigation in time to compile and assemble

the voluminous factual material into a report within the time permitted by the mandate, although a strenuous endeavor was made to

do so. However, a preliminary report was submitted to the Congress

on January 3, 1936.'"

The Commission is preparing its final report in 7 parts. Three

parts have been completed and submitted to Congress as follows:

PARTIII which was transmitted to the Congress on June 3 193G,

pertains to the Committees for the Holders of Real Estate

Bonds.
SECOND ANNUAL REPORT 59

PARTIV which was transmitted to the Congress on May 2, 1936,

pertains to the Committees for the Holders of Municipal and

Quasi-Municipal Obligations.

PARTVI which was transmitted to the Congress on June 18, 1936,

pertains to Trustees under Indentures.

The other parts of the report in preparation deal with (1) Committees and other Agencies for holders of foreign governmental

issues; (2) the various techniques for effecting reorganizations; (3)

the problems of control and regulation of all reorganization and protective committees; and (4) suggestions for amendments to the Bankruptcy Act and for comprehensive reorganization legislation.

PUBLIC REFERENCE ROOMS

The three Acts administered by the Commission provide for the

furnishing to the public, under such regulations and at such reasonable cost as the Commission may prescribe, the information contained in registration statements, applications, reports, declarations"

and other public documents filed with the Commission.

During the past year more than 13,900 members of the public

visited the Public Reference 'Room of the Commission in Washington, D. C., for the purpose of seeking registered public information.

Many thousands of letters and telephone calls relating to public

information were received. Several thousand orders for photostatic copies of registered public information were also received.

These orders involved over 274,000pages.

In April 1936 the Commission established public reference rooms

in the Chicago and New York Regional Offices. In the public reference room of the Chicago Regional Office there will be available to

the public such copies of the applications for permanent registration

of securities registered on the New York Stock Exchange and the

New York Curb Exchange as have received final examination in the

Commission. In the public reference room of the New York Regional Officethere will be available to the public such copies of applications for permanent registration of securities on the Chicago Curb

Exchange, the Chicago Stock Exchange, and the Chicago Board of

Trade as have received final examination in the Commission.

The rules of the Commission provide that each issuer of a security

registered on a national securities exchange shall file an annual report

with the Commission. These annual reports are designed to keep up

to date the information filed in original applications for permanent

registration, and they are to be filed not more than 120 days after

the close of each fiscal year ending on or after December 31, 1935.

These reports will also be made available to the public in the public

reference rooms in the New York and Chicago Regional Officesin the
60 SECURITIES AND EXCHANGE COMMISSION

same manner- as the applications for permanent registration of

securities, as described in the preceding paragraph ..

Photostatic copies of registered public information may be obtained

from the officesof the Commission at Washington only.

PUBLICATIONS

Information concerning the activities of the Commission is made

available to the public through releases issued to the press and

through the medium of a mailing list established for the convenience

of those members of the public who wish to receive releases currently.

Releases are issued announcing rules, regulations, orders, opinions,

findings, filings of registration statements and applications, effectiveness of registration statements, public hearings, and reports and

:statements filed by security issuers, officers, directors, and principal

.stockholders, The releases of the Commission are classified according to subject, and members of the public may have their names

placed upon the mailing list, to receive any or all classes of releases.

During the year ended June 30, 1936, the Commission published

448 releases concerning its activities under the Securities Act of 1933,

450 releases under the Securities Exchange Act of 1934, and 268

releases under the Public Utility Holding Company Act of 1935.

Of the total 1,166 releases issued under the three Acts, 509 releases

were announcements concerning registration statements and applications filed with the Commission j 242 releases contained orders of the

Commission; 141 releases were announcements of rules, regulations,

and amendments; and 274 releases dealt with announcements of

public hearings, legal opinions, effective registrations, statistical

analyses, and a few miscellaneous announcements.

In addition to the above releases the following publications were

issued by the Commission during the year: 13

Official Summary of Stock Transactions and Holdings, issued

semimonthly, as well as a Base Summary showing the holdings

of Officers, Directors, and Principal Stockholders, as of December 31, 1935.

Directory of Over-the-Counter Brokers and Dealers registered

with the Securities and Exchange Commission, as of January

31,1936.

List of securities registered, exempt from registration, or admitted to unlisted trading privileges under the Securities Exchange Act, as of June 30, 1936.

Uniform System of Accounts for Mutual Service Companies

and Subsidiary Service Companies under the Public Utility

Holding Company Act of 1935.

Report to the Congress on Trading in Unlisted Securities

upon Exchanges.

11 For list of publications available as of Sept. 30, 1936, see Appendix IV.
SECOND ANNUAL REPORT 61

Report to the Congress on the Feasibility and Advisability of

the Complete Segregation of the Functions of Dealer and

Broker.

Preliminary Report to the Congress on the Study and Investigation of Protective and Reorganization Committees.

Report to the Congress on the Study and Investigation of the

Work, Activities, Personnel, and Functions of Protective and

Reorganization Committees:

PARTIII-Committees for the Holders of Real Estate Bonds.

PART IV-Committees for the Holders of Municipal and

Quasi-Municipal Obligations.

PART V-Trustees under Indenture.

PERSONNEL

The Commission and personnel, at the close of the fiscal year, consisted of 1,077 persons. This total comprised 5 Commissioners and

1,072 employees, 698 of whom were men and 374 were women.

Statistics

Commissiollers_____________________________________________ 5

Dapartmental : Permanent 816

Temporary_____________________________________________ 36

Regional offices:

Permanent_____________________________________________ 209

Temporary_____________________________________________ 11

Subject to retirement act; 593

RULES OF PRACTICE OF THE COMMISSION

During the year Rules of Practice were adopted governing appearance and practice before the Commission, hearings, evidence,

motions, depositions, filing of reports, exceptions, briefs, and other

papers. These rules became effective September 13, 1935.H

.ADMISSIONS TO PRACTICE

Rule II of the Rules of Practice, as amended, which contain the

provisions governing admissions to practice, provides that persons

whom the Commission finds, on consideration of their application, to

be of good moral character and to possess the requisite qualifications

to represent others may be admitted to practice as Attorney or Agent

before the Commission. The Commission adopted forms of application for admission to practice as Attorney and as Agent.

Effective November 1, 19B5, a register has been maintained in

which the names and addresses of all persons admitted to practice

before the Commission have been entered. The :following statistics

.. The Rules of Practice as amended Nov. 4, 1936, appear in Appendix I.
62 SECURITIES AND EXCHANGE COMMISSION 

indicate the number of applications received, the number of persons 

admitted to practice, and the number of applications pending as of 

June 30, 1936: 

Attorneys.................................................... aa 


Agent%...................................................... 11 


Total................................................... 1.357 47 


FISCAL AFFAIRS 

APPROPRIATIONS 

The Congress appropriated $3,029,494 for the Colnmission during 

the fiscal year 1936. This amount was derived from the following 

sources : 

Independent Ofaces Appropriation Act, flscal year 1936 

Salaries and expenses ..---_.-_.---.--------.--$2,234,491 


Printing and binding ------.-_.------------.-.-30.000 

/ $2,264,494 

Supplemental Appropriation Act, fiscal year 1936 

Salaries and expenses $750,WO 

Printing and binding ---__-_--_-------.-.--

. 15,000 

765,000 

Total--------.-------------..------.-_---.----_.-_--- 3,029,494 

EXPENDITURES AND OBLIGATIOKS 

The expenditures and obligations for the fiscal year ended June 30, 

19SG, are as follows: 

Salaries 

Departmental 

Permanent........................................ $1,928,040 

Temporary----.-_----.-------------.-.--.----..-.-. 43,820 

Field ................................................... 498,525 


Mileam and witness fees ........................................ 25,093 


Supplies and materials .......................................... 104,2%3 


oalncatln ice .......................................... 47,132 


Tra~el expcn se.~.~~.~.~-~sese.sesesesesese.sesesesesesese..se........ 135,793 


Transportation of thugs ......................................... 1,741 


Reporting hag .............................................. 21,148 


He i t and power ........................................... 2,320 

Rents.----.-..----.----------a----.-------.---... 50,274 

Repairs and alterations--..--.-----------------.-.---.-.---.---.- 9,549 

Special and miscellaneous eapenscs -----..-----.-----.----1,897 

Purchase of equiprnent_-..--~._---~~.-.----..-.--.------.-~- 91,Oq5 

S t............... 2,983,675 

SECOND ANNUAL REPORT

Printing and binding

63

342,699

Grand total obligations -_______________________3,006,374

lJnobligated balance_____________________________________________ 23,120

Available funds 3, 029,494

JdISCELLANEOlJS RECEIPTS

The disposition of miscellaneous receipts for the fiscal year ended

June 30, 1936, is as follows: .

Transferred In Special In Special

to General Deposit Ao- Net amount Fund 01 Deposit count at begln- collected in Character ofreceipts Treasury Account at Subtotal nlng of fiscal 1936 fiscal

during fiscal end olfiscal yesr (lsss re- yesr year funds account year excessive fees)

Fees:Copying fees________________ $12,590 72 $9,318.34 $21,909.06 $1,016.45 $20,892.61

Registration of securities ____ 292, 024.37 Zl5,024.32 567,048.69 70,197.80 496,850.89 Registration of exchanges____ 434,050.33 10, 069.64 444,119.97 61,659.86 382,460.11 Donations to United States.. 196.53 ... .... ...._----- 196.53 ------------- ... -- 196.53

Total ____________________ 738, 861. 95 294, 412. 30 1, 033, Zl4. 25 132,874.11 900,400.14

_

____ - _ -
PART III

APPENDIX I

RULES OF PRACTICE AS AMENDED NOVEMBER 4, 19::6

RULE I

BUSINESS HOURS-REGIONAL OFFICES

The principal office of the Commission at Washington, D. C., is

open on each business day, excepting Saturdays, from 9 a. m. to

4: 30 p. m., and on Saturdays from 9 a. m. to 1 p. m, Regional

officesare maintained at New York, Boston, Atlanta, Chicago, Fort

W0:th, .Denver, San Francisco, and Seattle.

RULE II

APPE.ABANCE AND PRACTICE BEEORE THE COMMISSION 1

(a) An individual may appear in his own behalf, a member of a

partnership may represent the partnership, a bona-fide officer of

a corporation, trust, or association may represent the corporation,

trust, or association, and an officeror employee of a state commission

or of a department or political subdivision of a state may represent

the state commission or the department or political subdivision of

the state, in any proceeding.

(b) A person may be represented in any proceeding by an attorney

at law duly admitted to practice before the Commission.

(c) A person shall not be 1epresented at any hearing before the

Commission or a trial examiner except as stated in paragraphs (a)

and (b) of this rule.

(d) In all matters other than hearings before the Commission or

a trial examiner, a person may be represented by an agent who is

duly admitted to practice before the Commission.

(e) All persons appearing before or transacting business with the

Commission in a representative capacity may be required to file

powers of attorney with the Commission showing their authority to

act in such capacity.

(f) A register will be maintained by the Oommission in which will

he entered the names and addresses of all persons admitted to prac1Appearance and practice before the Commission nnder the Public Utility HoldiDs

Company Act of 1935 is subject also to the requtrements of Sec. 12 (1) of that Act.

64
SECOND ANNUAL REPORT

tree before the Commission. Only individual members of firms will

be admitted.

(g) Subject to the provisions of paragraphs (e) and (I) of this

rule, the following classes of persons whom the Commission finds, on

consideration of their applications, to be of good moral character

and to possess the requisite qualifications to represent others, may be

admitted to practice before the Commission:

(1) Attorneys at law who are admitted to practice before any

court of the United States, or the highest court of any State or

Territory.

(2) Any person, not an attorney, to be designated as agent,

who is a citizen of the United States and who shall, in the opinion

of the Commission, possess the necessary education, training, experience, and technical qualifications which would enable him

properly to represent others before the Commission.

(h) An application for admission to practice shall be addressed

to the Securities and Exchange Commission, vVashington, D. C.,

stating under oath the name, residence address, and business address

of the applicant. In the case of an attorney, the time and place of

admission to the bar and 'whether the applicant has ever been suspended or disbarred as an attorney in any court or jurisdiction shall

be stated. In the case of an agent, the application shall state briefly

his education, training, experience, and technical qualifications.

(i) In the discretion of the Commission or trial examiner, an attorIley at law may be permitted to appear for the purpose of any proceeding, though not theretofore admitted to practice before the Commission in the way prescribed.

(j) All persons appearing in any proceeding shall conform to the

standards of conduct generally required of practitioners at law.

(k) The Commission may deny admission to, suspend, or disbar any

person who is found by the Commission not to possess the requisite

qualifications to represent others, or to be lacking in character, integrity, or proper professional conduct. A person who has been admitted to practice may be suspended '01' disbarred only after he has

been afforded an opportunity to be heard; 'but contemptuous conduct

at any hearing before the Commission or a trial examiner shall be

ground for exclusion from said hearing and for summary suspension

without a hearing for the duration of the proceeding.

RULE ITl

NOTICE OF HEARINGS IN CERTAIN PROCEEDINGS

(a) Whenever a hearing is ordered by the Commission in any

proceeding under Section 8 of the Securities Act of 1933,as amended,

notice of such hearing shall be given by the Secretary or other duly
66 SECURITIES AND EXCHANGE COMMISSION

designated officer of the Commission to the person designated in the

registration statement as being authorized to receive service and notice

of orders and notices issued by the Commission relating to such registration statement. Such notice shall state the time and place of hearing and shall include a statement of the items in the registration statement by number or name which appear to be incomplete or inaccurate

in any material respect or to include any untrue statement of a material fact or to omit a statement of any material fact required to be

stated therein or necessary to make the statements therein not misleading. Such notice shall be given either by personal service or by confirmed telegraphic notice a reasonable time in advance of the hearing.

The personal notice or the confirmation of the telegraphic notice shall

be accompanied by a short and simple statement of the matters to be

considered and determined.

(b) Whenever a hearing is ordered by the Commission in any

other proceeding, notice of such hearing shall be given by the Secretary or other duly designated officer of the Commission to the registrant, applicant, or other person Or persons entitled to receive the

same. Such notice shall state the time and place of hearing

and shall include a short and simple statement of the matters to be

considered and determined. Such notice shall be given by personal

service, registered mail, or confirmed telegraphic notice, a reasonable

time in advance of the hearing.

(c) Notice of any hearing before a trial examiner which may be

called on the question of postponement of the effective date of regis~

tration of a broker or dealer under Section 15 (b) of the Securities

Exchange Act of 1934, as amended, pending final determination

whether such registration shall be denied, shall state that no trial

examiner's report will be made on the question of postponement of

registration, and that such question of postponement will be considered and determined by the Commission on the transcript of the

testimony, and that prior to determination of such question of postponement the broker or dealer will be entitled to be heard before the

Commission on the transcript.

'RULE IV

REARIN08--EVIDENCE

(a) Hearings shall be held as ordered by the Commission.

(b) All hearings, except hearings, if ordered, on objections to

public disclosure of information pursuant to the provisions of Clause

30 of .Schedule A of the Securities Act of 1933, .as amended, or

Section 24 (b) of the Securities Exchange Act of 1934, as amended,

or Section 22 (b) of the Public Utility Holding Company' Act of

t935, shall be public, unless 'otherwise ordered by the Commission,
SECOND ANNUAL REPORT 67

and shall be held before the Commission, one or more of its members,

or a duly designated officer herein referred to as the trial examiner.

(0) Hearings shall be stenographically reported and a transcript

thereof shall be made which shall be a part of the record of the

proceeding. Transcripts will be supplied to the parties by the official

reporter at such rates as may be fixed by contract between the

Commission and the reporter.

(d) Objections to evidence before the Commission or trial exam

iner shall be in short form, stating the grounds of objections relied

upon, and the transcript shall not include argument or debate thereon

except as ordered by the Commission or the trial examiner. Rulings

by the Commission or trial examiner on such objections shall be a

part of the transcript,

(e) In any proceeding the Commission or the trial examiner may

call for the production of further evidence upon any issue.

RULE V

MOTIONS

(a) Motions before the Commission or the trial examiner shall state

briefly the purpose thereof and all supporting affidavits, records, and

other papers, except such as have been previously filed, shall be filed

with such motions and clearly referred to therein.

(b) _Motions in any proceeding before a trial examiner which relate

to the introduction or striking of evidence may be ruled on by the trial

examiner. Exception to any such ruling must be noted before the

trial examiner in order to be urged before the Commission. All othermotions in any proceeding before a trial examiner shall be reserved

and shall be ruled upon by the Commission.

RULE VI

:EXTENSIONS OF TlME-eoNTlNUANCES AND ADJOURNMENTS

Except as otherwise expressly provided by law, the Commission for

cause shown may extend any time limits prescribed by these rules for

filing any papers, and may continue or adjourn any hearing. A hearing before a trial examiner shall begin at the time and place ordered

by the Commission, but thereafter may be adjourned from time to

time by the Commission or trial examiner.

RULE VII

DEPOSITIONS

(a) The Commission may, for cause shown, order testimony to be

taken by deposition.
i 

I' 

I,

1;

1, 

I 


'1' 

! 

1, 


.I 


68 SECURITIES AND EXCHA~-GECOXMISSION 

(b) Any party desiring to take a deposition shall make application 

in writing, setting forth the reasons why such deposition should be 

taken, the name and residence of the mitness, and the matters concerning which it is expected the witness will testify. Thereupon the Commission may, in its discretion, issue an order which will name the 

witness whose deposition is to be taken and specify the time when, the 

place where, and the designated officer before whom the mitness is to 

testify. Such order shall be served upon all parties by the Secretary, 

or other duly designated officer of tile Commission, a reasonable time 

in advance of the time fixed for taking testimony. 

(c) Witnesses ~rhose testimony is taken by deposition shall bo 

s\~ornor shall affirm before any questions are put to them. Ezch 

question propounded shall be recorded and the answers shall be taken 

down in the words of the witness. 

(d) Objxtions to the form of questions or answers must be made 

before the officer taking the deposition and if not so made, shall be 

deemed waived. 

(e) The testimony shall be reduced to writing by the officer, or 

nnder his direct,ion, after which the deposition shall be subscribed 

by the witness and certifiad in usual form by the officer. The original fieposition and exhibits shall be forwarded under seal to the 

Secretary of the Conlmission with such number of copies as may be 

requested by the Secretary of the Commission. Upon receipt thereof 

the Secretary shall file the original in the proceedings and shall 

forvard a copy to each party or his attorney of record. 

(f) Such depositions shall conform to the specifications of 

Rule XIV. 

(g) Depositions not received in evidence at a hearing before the 

Comlnission or a trial examiner shall not constitute a part of the 

record in any proceedirig, unless the parties shall so agree, or the 

Commission shall so order. 

(h) Dapositions may also be taken and submitted on written interrogatories in substantially the same manner as depositions taken by 

oral examination. The interrogat~ories shall be filed with the application in triplicate, and copies thereof shall be served on all other 

parties by the Secretary or other duly designated officer of the Commission. Within 5 days any other party may Ale witli the Sjcretary 

his objxtions, if any, to such interrogatories, and may file such crossinterrogatories as he desires to submit. Cross-interrogatories shall 

be filed in triplicate, pnd copies shall be served on all other parties, 

who shall have 3 day6 thereafter to file their objections, if any, to 

such cross-interrogato;ks. Objections to interrogatories or crassinterrogatories shall be .settled by the Commission or trial examiner. 
SEOOND ANNUAL REPORT 69 

Objections to interrogatories shall be made before the order for taking the deposition issuesaiid if not so made shall be deemed waived. 

Wben a depwition is taken upon written interrogatories and crossinterrogatories, neither party shall be present or represented, and no 

persol1 other than the witness, a stenographic reporter, and the officer shall be present at the examination of the vitness, which fact 

shall be certified by the officer, who shall propound the interrogatories 

and cross-interrogatories to the witness in their order and reduce the 

testimony to writing in the witness' own words. 

RULE VIII 

mrnr.E~AXINER'SREPORT 

(a) Following any haring before a trial examiner on the question 

of postponement of the effective date of registration of a broker or 

dealer under Section 15 (b) of the Securities Exchange Act of 1934,. 

as amended, pending final determination whether such registration 

shall be denied, the transcript of the testimony shall forthwith be 

filed with the Secretary of the Commission. 

(6) Following any hearing before a trial examiner relating to any 

matter other than the question of postponen~ent of the effective date 

of registration of a broker or dealer under Section 15' (b) of the 

Securities Exeha~lge A4ct of 1931, as amended, pending final determination whether such registration shall be denied, the trial examiner shall, within 10 days after receipt of the transcript of the testimony, file with the Secretary of the Commission his report pontaining his findings of fad. 

(c) Such report shall be adviso~y only, and the findings of fact 

therein contained shall not be bin2ing upon the Commission. The 

initial page of the report shall contain a statenlent to such effect. In 

any proceeding in which, under the provisions of Rule XI1 (b) of 

the Rules of Practice of the Commission, the report is first to be made 

available to the public on the opening date of public hearing on the 

lnerits before the Commission, the initial page of the report shall also 

contain a statement to the effect that the report is confidential, shall 

not be made public, and is for the use only of the Commission, the 

respondent or respondents, and counsel; but copies of the report issued 

on or after such opening date may omit such statement. 

(d) A copy of such report shall be forthwith served on each party 

by the Secretary or other duly designated officer of the Commission. 

(e) The trial examiner, in his discretion, may request from each 

party or his attorney a statement in writing in terse outline setting 

forth proposed findingz of fact. Such statements shall not be ex-
70 SECURITIES AND EXGHANGE COMMISSION

changed between counsel and shall not be argued before the trial

examiner. Any such statement shall be submitted within 5 days after

the transcript has been filed with the Secretary of the Commission.

(I) The provisions of this rule and of Rules IX, X, and XI shall

not be applicable to hearings pursuant to Clause 30 of Schedule A

of the Securities Act of 1933, as amended, or hearings pursuant to

Section 24 (b) of the Securities Exchange Act of 1934, as amended,

or hearings pursuant to Section 22 (b) of the Public Utility Holding

Company Act of 1935.

RULE IX

EXCEPTIONS

Any party may, within 5 days after receipt of a copy of the trial

examiner's report, file exceptions to the findings of the trial examiner

-or Ius failure to make findings, or to the admission or exclusion of

.evidence, A copy of such exceptions shall be forthwith served on

'each party by the Secretary or other duly designated officer of the

'Commission. Exceptions shall be argued only at the final hearing

on the merits before the Commission.

RULE X

BRmFS

(a) Any party to a proceeding may file a brief in support of his

contentions within 15 days from the date of service on such party

of a copy of the t~ial examiner's report, or in the case of hearings

before the Commission within 15 days from the time the transcript

of the testimony is filed with the Secretary of the Commission.

(b) All briefs shall be confined to the particular matters in issue.

Reply briefs shall be confined to matters in original briefs of opposing parties. Any scandalous or impertinent matter contained in any

brief may be stricken on order of the Commission.

(c) All briefs containing more than 10 pages shall include an

index and table' of cases. The date of each brief must appear on its

front cover or title page. If briefs are typewritten or mimeographed,

10 copies shall be filed; if printed, 20 copies. No briefs shall exceed

60 pages in length, except with the permission of the Commission.

(d) Copies of briefs shall be served by the Secretary or other duly

designated officerof the Commission on the opposing party or parties

and reply briefs may be filed within 5 days thereafter. Briefs not

filed on or before the time fixed in these rules will be received only

by special permission of the Commission.
SECOND ANNUAL REPORT.

RULE XI

HEARINGS ON REVIEW BEFORE THE COMMISSION

71

(a) Upon written request of any party, which must be made within

the time provided for filing the original briefs, the matter will be set

down for oral argument before the Commission.

(b) If oral argument before the Commission is not requested, the

matter will be considered without argument by the Commission on

the record of the .hearing before the Commission or trial examiner,

the trial examiner's report, exceptions thereto, and the respective

briefs submitted.

( c) No exception to a trial examiner's report need be considered by

the Commission unless such exception shall have been filed with the

Commission within the time prescribed in these rules. Exceptions

not briefed may be treated as waived.

(rl) If any party shall apply to the Commission for leave to adduce

additional evidence, and shall show to the satisfaction of the Commission that such additional evidence is material and that there were

reasonable grounds for failure to adduce such evidence at the hearing

before the Commission or the trial examiner, the Commission may

hear such additional evidence or may refer the proceeding to the trial

-examiner for the taking of such additional evidence.

RULE XII

FILING PAPER8-noCKE'I'--C01\IPUTATION OF TIllIE

, (a) All reports, exceptions, briefs, and other papers required to

be filed with the Commission in any proceeding shall be filed with the

Secretary, except that all papers containing data as to which confidential treatment is sought pursuant to Rules 580, UB2 or 22B-l of the

Rules and Regulations of the Commission, together with applications

making objection to the disclosure thereof, shall be filed with the

Chairman. Any such papers may be sent by mail or express to the

-officer with whom they are directed to be filed, but must be received

by such officer at the officeof the Commission in ,:Vashington, D. C.,

within the time limit, if any, for such filing, except that in any case

where the hearing has been held in a district within which a regional

officehas been established, papers filed under Rules VIII (e), IX, X

and XI (a) may be filed with the Regional Administrator for the

District, within the times prescribed. The Regional Administrator

shall immediately transmit such papers to the Secretary or Chairman

-of the Commission, as the case may be in accordance with the provi-

.sions of this rule.
72 SECURITIES AND EXCHANGE COMMISSION

(0) All papers containing data as to which confidential treatment

is sought pursuant to Rules 580, UB2, or 22B-1 of the Rules and

Regulations of the Commission, together with applications making

objection to the disclosure thereof, shall be made available to the

public only in accordance with the applicable provisions of Rules

580 (h), UB2 (i), or 22B-l (b). All reports, exceptions, briefs, and

other papers filed in connection with any hearing pursuant to Section

15 (b) or Section 19 (a) (3) of the Securities Exchange Act of 1934,

as amended, shall first be made available to the public on the opening

date of public hearing on the merits before the Commissien,

(c) The Secretary shall maintain a docket of all proceedings, and

each proceeding shall be assigned a number.

(d) 'When the time prescribed by these rules or by the Commission

for doing any act expires on a Sunday or legal holiday, such time

shall be extended to include the next succeeding day that is not a

Sunday or a legal holiday, but Sundays and legal holidays shall be

included in computing the time allowed for doing any act.

(e ) Unless otherwise specifically provided in these rules, an original and eight copies of all papers shall be filed, unless the same be

printed, in which case 20 copies shall be filed.

RULE XIII

SERVICE OF REPORTS, EXCEPTIONS, BRIEFS, AND OTHER PAPERS

Except as otherwise specifically provided by law 01' by these rules,

all reports, exceptions, briefs, or other documents 01' papers required

by these rules to be served on any party to a proceeding shall be served

by the Secretary or other duly designated officerof the Commission as

follows:

(1) Service, except on counsel for the Commission, shall be

made by personal service on the party or his attorney of record

or by registered mail addressed to the party or his attorney of

record.

(2) Service on counsel for the Commission shall be made by

delivery to the head of the Division to which such counsel is

assigned.

RULE XIV

FORMAL REQUIREMENTS AS TO PAPERS FILED IN PROCEEDINGS

(a) All papers filed lll1derthese rules shall be typewritten, mimeographed, or printed, shall be plainly legible, shall be on one grade

of good unglazed white paper approximately 8 inches wide and 101;'2

inches long, with left-hand margin 1% inches wide, and shall be

bound at the upper left-hand corner. They shall be double-spaced,.
SECOND ANNUAL REPORT 73

except that quotations shall be single-spaced and indented. If

printed, they shall be in either 10- or 12-point type with doubleleaded text and single-leaded quotations.

(b) All papers must be signed by the party filing the same, or his

duly authorized attorney or agent, and must show the address of the

signer.

(c) All papers filed must include at the head thereof, or on a title

page, the name of the Commission, the names of the parties, and

the subject of the particular paper or pleading, and the docket

number assigned to the proceeding.

RULE XV

SIGNATURE OF COJiIl\IISSION ORDERS

All orders of the Commission shall be signed by the Secretary or

such other person as may be authorized by the Commission.

RULE XVI

NONAPPLICABILITY OF RULES TO INVESTIGATIONS

These Rules shall not be applicable to investigations conducted

by the Commission pursuant to Sections 8 (e), 19 (b), and 20 (a)

of the Securities Act of 1933,as amended; Sections 21 (a) and 21 (b)

of the Securities Exchange Act of 1934, as amended; or Sections

11 (a), 13 (g), 18 (a), 18 (b), 18 (c), and 30 of the Public Utility

Holding Company Act of 1935.

lO1ll73-86-11
APPENDIX II

Guide to Forms'

GUIDE TO FORMS ADOPTED UNDER THE SECURITIES ACT OF 1933

FORM A-I--GENERAL FORM

(a) GeneralRule.- This form is to be used for registration under

the Securities Act of 1933, as amended, of all securities for the

registration of which no other form is specifically prescribed.

(b) Special Rule.-Notwithstanding the Rules for the Use of

Form A-2 for Corporations, Form A-I may be used by any incorporated investment trust for registration under the Securities Act

of 1933, as amended, of an additional block of securities of a class

part of which has previously been registered on Form A-I.

FORM A-2-FOR CORPORATIONS

This form is to be used for registration statements, except such

statements as to which a special form is specifically prescribed,

under the Securities Act of 1933, as amended, by any corporation

which files profit and loss statements for 3 years and which meets

either one of the following conditions: (1) Such corporation has

made annually available to its security holders, for at least 10 years.

financial reports (which may be reports consolidating the reports of

the corporation and its subsidiaries) including at least a balance

sheet and a profit-and-loss or income statement, or (2) such corporation had a net income for any 2 fiscal years of the 5 fiscal years preceding the date of the latest balance sheet filed with the registration

statement. If such corporation has subsidiaries, such income shall

be determined on the basis of consolidated reports for such corporation and its subsidiaries. Notwithstanding what is hereinabove prescribed in this paragraph, however, this form shall not be used by

any corporation organized within 10 years, if the majority of the

capital stock thereof was issued to promoters of the corporation in

consideration of property or sen-ices, or if more than one-half of

the proceeds of the sale of securities of such corporation has been

used to purchase property acquired by the corporation from the

promoters of the corporation.

This guide Is designed to aid In the selections of appropriate forms and Is revised

from time to time as circumstances require. Copies of the forms herein referred to will

be furnished without charge upon request.

74

•
SECOND ANNUAL REPORT 75

This form may also be used for registration statements (except

:such statements as to which a special form is specifically prescribed)

.by a corporation organized for the purpose of distributing to its

stockholders only, water, electricity, or gas, and prohibited from

paying any dividends to its stockholders except upon its dissolution

-or liquidation, provided that:

1. The corporation has been in existence at least 15 years prior

to the date of the filing of the registration statement;

2. There has been no default by the corporation upon any of its

funded indebtedness within the period of 15 years prior to the date

-of the filing of the registration statement;

3. The registrant will have a total indebtedness, upon the issuance

of the securities registered, not exceeding 50 percent of the amount,

less valuation reserves, at which the total assets of the registrant

are carried on the latest balance sheet of the registrant filed with

the registration statement, giving effect to the proceeds of the

.securities registered; and

4. Within the period of 10 years preceding the date of the filing

of the registration statement, the corporation shall not have failed

to levy and collect assessments in amounts sufficient to meet all current charges.

SPECIAL RULES AS TO THE USE OF FORM A-2 FOR CORPORATIONS

1. Notwithstanding that Form E-1 is specifically prescribed for

use in cases involving an exchange of securities by the issuer thereof

for others of its securities or a modification of the terms of securities

by agreement between the issuer and its security holders, a registrant

otherwise entitled to use Form A-2 may, at its option, use Form

A-2 in any such case if the registrant is not in reorganization pursuant to Section 77B of the Bankruptcy Act or in bankruptcy or

receivership and if no default exists on any outstanding funded

debt (other than a default in sinking fund payments which has been

waived by the holders of at least 80 percent in principal amount of

the issue outstanding). If Form A-2 is used pursuant to this Rule,

the fee payable for registration shall be calculated in accordance

with Instruction 7 in Form F.r-1, and the table setting forth the

calculation shall be prepared as prescribed in such Form.

2. Form A-2 may be used by a registrant if all the following

-conditions exist:

(a) The registrant was organized as the successor to a single

predecessor, or to a group of predecessors one of which, at the

time of succession, directly or indirectly owned substantially all

of the outstanding stock of all the other predecessors;

(b) The registrant acquired all of the assets and assumed all

of the liabilities of such predecessor or predecessors, and the
76 SECURITIES AND EXCHANGE COl\'lI\IISSION

capital structure of the registrant immediately following the

succession was substantially the same as the capital structure of

the single predecessor, or as the consolidated capital structure of

the group of predecessors, except for such changes as may have

resulted from the substitution of issuers incident to the succession

or from changes in capital stock liability per share; and

(0) The single predecessor, or the parent company in a group

of predecessors, could have used Form A.-2 if the succession pad

not taken place.

In determining whether such single predecessor or such parent

company in a group of predecessors could have used Form A.-2,

the record of the registrant in regard to income or annual reporting to security holders shall be considered a continuation of the

record of such single predecessor or such 'parent company. In

the case of a group of predecessor companies, the income of the

parent company of the group shall be determined on the basis

of consolidated reports for such parent company and its subsidiaries, the subsidiaries to be included in the consolidated

reports whether or not they were combined with the parent

company to form the registrant.

3. Notwithstanding the provisions of the last sentence of the rule

for the use of Form A.-2 for Corporations, that form may be used

by a corporation otherwise entitled to use the form, if the property

acquired from promoters under the circumstances stated in such last

sentence consisted principally of one or more going businesses, or of

securities representing directly or indirectly more than 50 percent of

the voting power controlling such businesses.

4. Notwithstanding the rules as to the use of Form E-1, or the

rule as to the use of Form A.-2 for Corporations, Form A.-2 mar

be used in the situation described below for registration statements,

except those for which a special form (other than Form E-1) is

specifically prescribed, by corporations which file profit and loss

statements of their own or of their predecessors for 3 years and which,

or the predecessors of which, have in the past 15 years paid dividends

upon any class of common stock for at least 2 consecutive years.

The situation in which Form A.-2 may thus be used is that of registration of securities issued or sold in the course of a "reorganization",

as defined in Rule 5 (1) as to the use of Form E-1, where the only

operation which brings the transaction within the definition is the

acquisition of assets of a subsidiary by the registrant in consideration

of securities of the registrant, or the exchange of securities of the

registrant for outstanding securities of a subsidiary."

5. Any corporation which was formed by the consolidation of two.

or more corporations may use Form A.-2, if each of the constituent

corporations which collectively brought in a majority of the assets,

Rule 5 (1) defining the term "reorganization" is set forth below under the cal,ltiou-

"FOIm E-1 For Securities in Reorganization."

•
SECOND ANNUAL REPORT 77

.as shown by the books of the constituent corporations prior to the

consolidation, could have used Form A-2 if the consolidation had

not taken place. In determining whether any such constituent corporation could have used Form A-2, the record of the registrant in

regard to income or annual reporting to security holders shall be

considered a continuation of such constituent corporation's record.

In this rule, all the corporations consolidated to form the registrant

.are called the "constituent corporations."

6. Form A-2 may be used by a registrant if all the following

-eonditions exist:

(a) The registrant was a wholly owned subsidiary of a

corporation which, either alone or with one or more of its other

wholly owned subsidiaries, was merged into the registrant;

(b) The registrant acquired all the assets and assumed all

the liabilities of the corporations merged into it; and

(0) The parent corporation could have used Form A-2 had

the merger not taken place. In determining whether such

parent corporation could have used Form A-2, the record

of the registrant subsequent to the merger, in regard to income or annual reporting to security holders, shall be considered a continuation of the record of such parent corporation.

FORM A-R FOR CORPORATE BONDS SECURED BY MORTGAGE INSURED BY

FEDERAL HOUSING ADMINISTRATION

This form is to be used for registration under the Securities Act

of 1933, as amended, of corporate bonds constituting part of an

issue secured by mortgage insured by Federal Housing Administration under the authority of Section 207 of the National Housing

Act.

FORM 0-1 FOR SECURITIES OF UNINCORPORATED INVESTMENT TRUSTS

This form is to be used for registration under the Securities Act

of 1933, as amended, of securities of unincorporated investment

trusts of the fixed or restricted management type, having a depositor

or sponsor but not having a board of directors or persons performing

similar functions.

FORM 0-2 FOR CERTAIN TYPES OF CERTIFICATES OF INTEREST IN SECURITIES

This form is to be used for registration under the Securities Act of

1933of certificates of interest in securities of a single class of a single

issuer, if the following conditions exist: .

(1) The major part of the certificates are to be sold to 'the

public for cash;
78 SECURITIES AND EXCHANGE COMMISSION

(2) Under the terms of the deposit agreement the depositor-

(as defined below) has no rights or duties as depositor, subsequent to the deposit of the securities with the depositary;

(3) Under the terms of the deposit agreement the power tovote or give a consent with respect to the deposited securities

may be exercised only by, or pursuant to the instructions of, theholders of the certificates of interest, except a power, if any, to

vote to effect a split-up of deposited stock in such manner as to

cause no change in the aggregate capital stock liability of the

issuer of the deposited securities;

(4) The securities deposited by the depositor are registered

under the Securities Act of 1933 in connection with the sale of

the certificates of interest.

FORM D-1 FOR CERTIFICATES OF DEPOSIT (EXCEPT THOSE FOR WHICH FORM

D-1A IS SPECIFIED)

In registering certificates of deposit issued in anticipation of or

in connection with a plan of reorganization or readjustment, Form

D-1 shall be used. If a plan of reorganization or readjustment is

proposed at the time the call for deposits is to be made, parts I and II

of Form D-1 should be filed at the same time. If no such plan is

proposed at the time the call for deposits is to be made, part I may

be filed alone, and part II must then be filed before the plan is submitted to the security holders or deposits are solicited under the

plan. Part II is an amendment of part I and as such shall become

effective on such date as the Commission may determine, having due

regard to the public interest and the protection of investors.

In the event that a registrant is exempted from the necessity for

filing part I, he may nevertheless file part II.

Before the issuance of the securities provided in the plan of readjustment or reorganization, Form E-1 is to be filed by the-issuerof such securities, unless exempted from the necessity of such filing

by the Act.

FORM D-1A FOR CERTIFICATES OF DEPOSIT

This form is to be used only where the issuer of the certificates of

deposit is the original issuer of the securities called for deposit, and

only if the certificates of deposit are issued in connection with a plan

of reorganization or readjustment which involves the issue of new

securities to the holders of certificates of deposit.

FORM E-1 FOR SECURITIES IN REORGANIZATION

This form is to be used to register securities (including contracts

of guaranty but excepting voting trust certificates, certificates of

deposit, and certificates of interest or shares in unincorporated investment trusts of the fixed or restricted management type not having
SECOND ANNUAL REPORT 79

a board of directors or a board of persons performing similar functions, but having a depositor or sponsor) sold or modified in the

course of reorganization."

The "Rules and Instructions Accompanying Form E-l" contain

the following definition of the term "reorganization":

5. As used in these rules and the accompanying instructions:

(1) The term "reorganization" includes any transaction

involving:

(a) A readjustment by modification of the terms of securities by agreement; or

(b) A readjustment by the exchange of securities by the

issuer thereof for others of its securities; or

(a) The exchange of securities by the issuer thereof for

securities of another issuer; or

(d) The acquisition of assets of a person, directly or indirectly, partly or wholly, in consideration of securities distributed or to be distributed as part of the same transaction

directly or indirectly to holders of securities issued by such

person or secured by assets of such person; or

(e) A merger or consolidation.

In the case of any guarantee of, or assumption of liability on,

securities heretofore registered on Form D-2, registration of such

guarantee or assumption of liability may, at the option of the issuer,

be effected on Form D-2 or Form E-l.

FORM F-l FOR VOTING TRUST CERTIFICATES

This form is to be used to register voting trust certificates issued

in the course of reorganization or otherwise.

FORM G-l FOR FRACTIONAL UNDIVIDED GAS AND OIL ROYALTY INTEBE8T8

Form G-1 is to be used to register fractional undivided producing

oil and gas royalty interests.

The term "producing royalty interest" means any royalty interest

in a tract of land from which oil and gas was being produced in

commercial quantities within 7 days prior to the filing of the registration statement and from which the production of oil or gas had not

permanently ceased, to the knowledge of the issuer, on the date 011

which the statement became effective.

FORM G-2 FOR FRACTIONAL UNDIVIDED NONPRODUCING GAS AND OIL

ROYALTY INTERESTS

Eorm G.,.2is to.be used to register fractional.nndivided.nonproducing oil and gas royalty interests.

AttentIon Is called to the rutes as to the use of Form A-2 which permit the use of

that form In certain Instances for securities In reorganlza don,

•
80 SECURITffiS AND EXCHANGE COMMISSION

The term "nonproducing royalty interest" means any royalty interest not included in the definition of "producing royalty interest"

above,"

FORM 1-G FOR CONFIDENTIAL STATEMENT OF SALE OF OIL OR GAS INTEREST

This form is to be used for confidential statements of sales of oil

or gas interests.

FORM 2-G FOR REPORT OF SALE OF OIL OR GAS RIGHT

This form is to be used for reports of sale of oil or gas rights,

required to be filed by Rule 326.

INFORMATION AND DOCUl\fENTS REQUIRED FOR EXEl\fPTION OF CERTAIN

SECURITIES UNDER SECTION 3 (B) OF THE ACT

Certain issues of se~urities having an aggregate offering price to

the public not exceeding $100,000are exempted from the registration

provisions of the Act by regulations of the Commission pursuant to

Section 3 (b) of the Act upon compliance with certain conditions

provided in the regulations. The pertinent regulations are available

without charge upon request.

Form A-1 shOUldbe used for overrIdIng royalties and working interests, as dIstinct

trom landowners' royalties for whIch Forms G-1 and G-2 are appropriate. In the case

~f overrfding royalties or workIng Interests, however, the Information speclfled by Form

G-l 01' G-2 should be added to the statement on Form A-l by way of supplemental

mat~riaI.

•
SECOND ANNUAL REPORT '81

GroDE TO FORMS ADOPTED UNDER THE SECURITIES EXCHANGE

ACT OF 1934

FOR APPLICATIONS FOR REGISTRATION OF SECURITIES ON NATIONAL

SECURITIES EXCHANGES

F01'm 1. Application /01' registration or eeem-ption from registration as a National Securities Ewchange.-This form shall be filed in

connection with the applications of securities exchanges for registration or exemption from registration.

Fo1"Jn7.-Where the form for permanent registration of any particular class of security has not yet been authorized, and for a period

of 90 days after the filing of applications on such form is authorized,

a provisional application for registration of a security of such class

may be filed on Form 7 pursuant to Rule JB2. (Rule JB2 sets forth

the requirements of an application filed on Form 7.)

Form 8. For emendmente to applications/or registration or amendmente to annual reports.-This form shall be used for amendments

to applications for registration of securities pursuant to Section 1~

(b) and (c) of the Securities Exchange Act of 1934 or amendments

to annual reports pursuant to Section 13 of that Act. '

Fo1"Jn 8-A. For additional securities.-This form shall be used

for applications filed on or after March 7, 1936, for registration of

securities on an exchange on which other securities of the registrant,

whether of the same or a different class, are registered pursuant to

Section 12 (b) and (c) of the Act, if Form 10, 11,13,15, or 17 would

be the form appropriate for registration in case the registrant did

not have securities so previously registered.

Fo1"Jn8-B. For securities issued in certain cases upon the registrant's succession to an issuer or issuers of previously registerea

seewities.-This form shall be used by an issuer, not having securities previously registered, for applications filed on and after March

12, 1936,for the registration of securities, if the conditions set forth

in the following paragraphs (a), (0), (c), and (d) exist:

(a) (1) The registrant, having no assets at the time other

than nominal assets, succeeded to a single predecessor which had

securities registered pursuant to Section 12 (b) and (c) of the

Act on the exchange or exchanges on which registration is.

applied for on this form; or ' (2) The registrant was organized as the successor to, or, having no assets at the time other than nominal, assets, succeeded to,

a group of predecessors consisting of a parent which had securities so registered and one or more wholly owned subsidiaries 0,I

such parent; or . '.

(3) The registrant was a wholly owned subsidiary of a corporation having securities so registered, which corporation, either

alone or with one or more of its other wholly owned subsidiaries,

was merged into the registrant.
82 SECURITIES AND EXCHA...~GECOMMISSION

(b) Substantially all of the securities to be registered on this

form were or are to be issued in exchange for or otherwise in

respect of previously registered securities of one or more of the

predecessors, or are securities which, having been previously

registered, have become or are to become securities of the

registrant by operation of law or otherwise upon the succession.

(c) The registrant acquired all the assets and assumed all the

liabilities of its predecessor or predecessors.

(d) Except for such changes as may have resulted (A) from

the substitution of issuers incident to the succession,or (B) from

changes in capital stock liability per share, or (C) from the issuance of securities in satisfaction of dividends or interest in

arrears on securities of predecessors, the capital structure of the

registrant immediately following the successionwas substantially

the same as the capital structure of the single predecessor or the

combined capital structure of the predecessors, or in a case falling within paragraph (a) (3) above, the combined capital structure of all the constituent corporations.

The term "wholly owned subsidiary" as used in this rule refers to

a subsidiary substantially all the outstanding stock of which is held,

directly or indirectly, by a single parent.

Form 9. Amendatory and/or supplementary statement to registration statement filed by an ewehang e.- This form shall be used for

filing amendatory and/or supplementary statements to registration

statements of national securities exchanges.

Form 9-A. Amendatory and/or supplementary statement to epplication. for etoem.ption. from registration statement filed by an eil!-

change.-This form shall be used for filing amendatory and/or

supplementary statements to applications for exemption from registration of national securities exchanges.

Form 10. For eorpor.ations.-This form shall be used for applications for the permanent registration of securities of corporations,

filed on and after February 13, 1935,except the following: Securities

of companies making annual reports under Section 20 of the Interstate Commerce Act, as amended, or under Section 219 of the Communications Act of 1934; certificates of deposit; American certificates

against foreign issues, either Government or corporate; securities of

insurance companies, other than companies engaged primarily in the

title-insurance business; securities of banks and bank holding companies; securities of investment trusts; securities issued by -any.corporation organized under the laws of any foreign country other than

a North American country or Cuba; bonds issued by any corporation

organized under the laws of a North American country or Cuba,

which are guaranteed by any foreign government; securities issued

by any corporation, foreign or domestic, which is directly or indirectly

owned or controlled by any foreign government: Provided, however,

That this form shall not be used for applications for the permanent

registration of securities of any corporation for which, at the time
SECOND ANNUAL REPORT 83

the application is filed, Form 22 or 23 is prescribed. ..And provided

further, That this form shall not be used for applications for the

permanent registration of securities of any corporation, if, at the

time the application is filed, such corporation is in bankruptcy or

receivership or in the process of reorganization pursuant to Section

77 or 77B of the Bankruptcy Act, and (a) a trustee or receiver

appointed in such proceedings has title to or possession of a substantial portion of the assets of such corporation, or (b) such corporation is in possession of a substantial portion of its assets pursuant

to an order entered under subdivision (c), clause (2) of said Section 77

or subdivision (c), clause (1) of said Section 77B. Any foreign issuer

which by this paragraph is to file on Form 10 as to any class of securities other than bonds may also file on such form for such bonds; and

any issuer of bonds which is organized under the laws of any foreign

country may at its option file on Form 10until 90 days after the proper

form applicable to such foreign issuer shall have been published.

Form 11. For unincorporated issuers.-This form shall be used

for applications filed on or after March 30, 1935, for the permanent

registration of securities of unincorporated issuers, except the following: Securities of companies making annual reports under Section

20 of the Interstate Commerce Act, as amended, or under Section

219 of the Communications Act of 1934; certificates of deposit; voting trusts certificates; American certificates against foreign issues,

either Government or private; securities of insurance companies;

securities of banks and bank-holding companies; securities of investments trusts; securities issued by a national of a foreign country

other than a North American country or Cuba; bonds issued by a

national of a North American country or Cuba, which are guaranteed by any foreign government; securities of any issuer, foreign or

domestic, which is directly or indirectly owned or controlled by any

foreign government: Provided, however, That this form shall not

be used for applications for the permanent registration of securities

of any issuer for which, at the time the application is filed, Form

22 or 23 is prescribed. ..And provided further, That this form shall

not be used for applications for the permanent registration of securities of any issuer, if, at the time the application is filed, such issuer

is-in- bankruptcy or r.eceivership or in the process of reorganization

pursuant to Section 77 or 77B of the Bankruptcy Act, and (a) a

trustee or receiver appointed in such proceedings has title to or possession of a substantial portion of the assets of such issuer, or (b)

such corporation is in possession of a substantial portion of its assets

pursuant to an order entered under subdivision (0), clause (2) of

said Section 77 or subdivision (c), clause (1) of said Section 77B.

Form 1~.For companies making annual reports under Section eo

of the Interstate Oommerce ..Act, as amended, or under Section e19

of the Oommunication« ..Act of 1934.-This form shall be used for

-
84 SECURITIES AND EXCHANGE COMMISSION

applications filed on or after April 10, 1935, for the permanent registration of securities of companies making annual reports under

Section 20 of the Interstate Commerce Act, as amended, or under

Section 219 of the Communications Act of 1934, except such companies in receivership or in process of reorganization pursuant to

Section 77 of the Bankruptcy Act.

Form l~-A. For companies in receivership 01' bankruptcy and

making annual reports under Section. ~o of the Interstate Commerce

Act, as amended, or under Section ~19of the Oommunications Act

of 1934.-This form shall be used for applications filed on or after

June 17, 1935, for the permanent registration of securities of companies making annual reports under Section 20 of the Interstate

Commerce Act, as amended, or under Section 219 of the Communications Act of 1934, and in receivership or in bankruptcy (including

proceedings under Sections 77 or 77B of the Bankruptcy Act).

Form 13. For insurance companies other than life and title insurance eompanies.-This form shall be used for applications filed on

or after May 7, 1935,for permanent registration of securities of corporations engaged, directly or through subsidiaries, primarily in

the insurance business, except corporations engaged primarily in

the life- or title-insurance business. This form shall not be used

by corporations engaged primarily in the business of guaranteeing

mortgages or mortgage-participation certificates.

Pending the authorization of a form for registration of securities

of corporations engaged primarily in the life-insurance business, and

for a period of 30 days after the filing of applications on such form

is authorized, such corporations may file application on Form 13 for

Insurance Companies other than life and title insurance companies.

Insofar as Form 13 may be inappropriate to the life-insurance

business, a corporation engaged in the life-insurance business filing

on Form 13, pursuant to this rule, shall furnish information comparable to that required by Form 13; and, in lieu of financial statements required under the Instructions as to Financial Statements

in the Instruction Book for Form 13, such corporation may file a

copy of its last annual statement filed with its State regulatory

authority. .

Form 14. For certificates of deposit issued by a committee.-This

form shall be used for applications on or after May 10,1935,for the permanent registration of certificates of deposit issued by a committee.

Form 151For incorporated investment companies.-This form

shall be used for applications filed on or after May 15, 1935, for the

permanent registration of securities of any corporation which is

engaged, either directly or through subsidiaries, primarily in the

business of investing and reinvesting, or trading in securities, for

the purpose of revenue and for profit, and not in general for the

purpose, or with the effect, of exercising control; except securities
SECOND ANNUAL REPORT 85

'Of such corporations in process of reorganization pursuant to Section 77B of the Bankruptcy Act or securities of such corporations

in bankruptcy or receivership.

Form 16. For voting trust certificates and underlying seeurities.-

This form shall be used for applications filed on or after May 18,

1935, for the permanent registration of voting trust certificates and

underlying securities.

Form 17. For unincorporated issuers engaged primarily in the

business of investing or trading in seeurities.-This form shall be used

for applications filed on or after May 31,1935, for the' permanent registration of securities of any unincorporated issuer which is engaged,

either directly or through subsidiaries, primarily in the business of

investing and reinvesting, or trading, in securities, for the purpose of

revenue and for profit, and not in general for the purpose, or with the

effect, of exercising control; except securities of such issuers in process

of reorganization pursuant to Section 77B of the Bankruptcy Act or

securities of such issuers in bankruptcy or receivership.

Form 18. For foreign governments and political subdivisions

thereof.-This form shall be used for applications for the permanent

registration of securities of foreign governments and political subdivisions thereof, filed on or after July 1, 1935: Provided, however, That

any public corporation or other autonomous entity in the nature of a

political subdivision, except a state, province, county, or municipality

or similar body politic, may ,at its option, use Form 21 in lieu of this form.

Form 19. For American certificates against foreign issues and for

the underlying seeurities.- This form shall be used for applications

filed on or after July 15, 1935,for the permanent registration of American certificates (for example, so-called American Depositary Receipts

for foreign shares or American participation certificates in foreign

bonds or notes) issued against securities of foreign issuers deposited

with an American depositary (whether physically held by such depositary in America or abroad) and of the foreign securities so deposited.

Form '20.For securities other than bonds of foreign private iseuers.- This form shall be used for applications filed on or after July

15, 1935,for the permanent registration of securities other than bonds

or other evidences of indebtedness (1) issued by a national of a foreign

country other than a North American country or Cuba, or (2) issued

by any corporation or unincorporated association, foreign or domestic,

which is directly or indirectly owned or controlled by any foreign

government.

Form 21. For bonds of foreign private issuers.-This form shall be

used for applications filed on or after July 15, 1935,for the permanent

registration of bonds or other evidences of indebtedness (1) issued by

a national of a foreign country other than a North American country

or Cuba; (2) issued by a national of a North American country or
86 SECURITIES AND EXCHANGE COMMISSION

Cuba which are guaranteed by any foreign government; (3) issued by

any corporation or unincorporated association, foreign or domestic,

which is directly or indirectly owned or controlled by any foreign

government; or (4) issued by any public corporation or other autonomous entity in the nature of a political subdivision which shall at its

option elect to use this form in lieu of Form 18, except that this

form is not to be used by a state, province, county, or municipality

or similar body politic.

Form 22. Fo1' iseuers reorqanieed in insolverunJ proceedinqs 01'

whieh have succeeded to a person. in insolveney p1'oeeedings.-This

Form shall be used for applications for registration of securities of

any issuer which, pursuant to a plan-

(a) Has been or is being reorganized in insolvency proceedings; or

(b) Has acquired or is to acquire, directly or indirectly, substantially all of its business and assets (other than cash) from

a person in insolvency proceedings or from such person and one

or more of its subsidiaries, and is continuing or is to continue

the business so acquired; or

(e) Being a subsidiary of a person in insolvency proceedings, has acquired or is to acquire ..Erectly or indirectly substantially all of its assets (other than cash and other than assets

owned by it prior to such acquisition) from such person or from

such person and one or more of its subsidiaries:

if the securities are, or are to be, outstanding or issued pursuant to

the plan, or were or are to be issued after the consummation of the

plan; provided that this form shall not be used by issuers for which

Form 8-A, 12,or 12-A is prescribed, or for applications filed with the

exchange after the expiration of a full fiscal year of the issuer commencing on or after the date on which the transfer or opening of

accounts was made.

F01'm l-J.-This form is to be used for applications for registration of unissued warrants or certificates pursuant to Section 12 (d)

of the Securities Exchange Act of 1934for "when issued" dealing on

a national securities exchange.

Form 2-J.-This form is to be used for applications for registration of unissued securities, other than unissued warrants or certificates,

pursuant to Section 12 (d) of the Securities Exchange Act of 1934

for "when issued" dealing on a national securities exchange.

Form 3-J.-Form 3-J must be used to report any inaccuracy, omission, or other deficiency in the information contained in the application for registration on Form 1-J or Form 2-J or in any supplemental statement filed by an issuer or an exchange and to report

changes which have occurred since the filing of the application for

registration or the last supplemental statement and which render

no longer accurate the information contained therein.
SECOND ANNUAL REPORT 87

Form 4--J.-This form is to be used for statements in respect of

exemption of issued warrants or certificates pursuant to Section 3

(a) (12) of the Securities Exchange Act of 1934.

Form 5-J.-Form 5-J must be used to report any inaccuracy, omission, or other deficiency in the information contained in the statement filed on Form 4-J or in any supplemental statement filed by an

issuer or an exchange and to report changes which have occurred

since the filing of Form 4-J or the last supplemental statement and

which render no longer accurate the information contained therein.

FOR REPORTS TO BE FILED BY OFFICERS, DIRECTORS, AND SECURITY HOLDERS

Form 4-. For reporting changes in ownership of equity securities.-

Every person who at any time during any month has been directly

or indirectly the beneficial owner of more than 10 percent of any

class of any equity security (other than an exempted security) which

is listed on a national securities exchange, or a director or an officer

of the issuer of such security, shall, if there has been any change

during such month in his ownership of any equity security of such

issuer, whether registered or not, file with each exchange on which

any equity security of the issuer is listed and registered a statement

on Form 4 (and a single duplicate original thereof with the Commission) indicating his ownership at the close of the calendar month

and such changes in his ownership as have occurred during such

calendar month. Such statements must be received by the Commission and the exchange on or before the 10th day of the month

following that which they cover.

Form 5. For reporting ownership of equity securities.-In the

case of an equity security (other than an exempted security) which

is listed subsequent to February 15, 1935, on a national securities

exchange, every person who at the time such registration becomes

effective is directly or indirectly the beneficial owner of more than 10

percent of any class of such security or a director or an officerof the

issue!' of such security, shall file with each exchange on which any

equity security of the issuer is listed and registered a statement on

Form 5 (and a single duplicate original thereof with the Commission) of the amount of all equity securities of such issuer, whether

registered or not, so beneficially owned by him at the time such

registration became effective. Such statement must be received by

the Commission and the exchange on or before the 10th day of the

following calendar month. Ifsuch person files a statement on Form

ifor the same calendar month in respect of the same securities, he

need not file an additional statement pursuant to this paragraph.

Form 6. For reports by persons who have just become officers or

directors or security holders of more than 10 percent of any class of
88 SECU.RITms A;ND EXCHANGE COMMISSION

eguity seaurity.-Every person who becomes directly or indirectly

the beneficial owner of more than 10 percent of any class of any

equity security (other than an exempted security), which is listed on

a national securities exchange, or becomes a director or an officer of

the issuer of such security, shall file with each exchange on which

any equity security of the issuer is listed and registered a statement

on Form. 6 (and a single duplicate original thereof with the Commission) of the amount of all equity securities of such issuer, whether

registered or not, so beneficially owned by him immediately after

becoming such beneficial owner, director, or officer. Such statement

must be received by the Commission and the exchange on or before

the 10th day following the clay on which such person became such

beneficial owner, director, or officer. Such person need not file the

statement required by this paragraph, if prior to such 10th day and

during the calendar month in which he has become such beneficial

owner, director, or officer, there has been a change in his beneficial

ownership which will require him to file a statement on Form 4 with

respect to the same securities.

FOR REGISTRATION OF BROKERS AKD DEALERS TRANSACTIKG BUSINESS ON

OV.ER-THE-COUNTER MARKETS

Form 3-M.-This form isto be used for applications filed on or after

.Tuly 1, 1936, for the registration of brokers and dealers pursuant to

Section 15 (b) of the Securities Exchange Act of 1934 as amended,

except applications for which Form 4-M is authorized to be used.

Form 4-M.-This form is to be used (a) for applications filed by a

registered partnership on or after July 1, 1936,pursuant to Section 15

(b) of the Securities Exchange Act of 1934, as amended, for the registration of a partnership to be formed as the successor to the applicant by the withdrawal or admission of one or more partners in the

applicant; and (b) for applications filed on or after October 10, 1936,

pursuant to said Section 15 (b) and Rule MB4, for the registration of

a partnership formed as the successor to a registered partnership

which has been dissolved by the death, withdrawal, or admission of

one or more partners, provided that the application is filed within 30

days after such dissolution.

Form 5-M.-This form is to be used by a broker or dealer in adopting as its own, pursuant to Section 15 (b) of the Securities Exchange

Act of 1934as amended, an application for registration previously filed

on Form 3-M or 4-M by a broker or dealer to which it is the successor.

Form 6-M.-This form is to be used for supplemental statements

reporting changes which render inac-curate information contained in

previously filed applications, adoptions or supplemental statements," ..
SECOND ANNUAL BEPORT 89

FOR ANNUAL AND OTHER REPORTS OF ISSUERS HAVING SECURITIES

REGISTERED ON NATIONAL SECURITIES EXCHANGES

Form 8-K for Current Reports. Reports on this form are to be

filed in the first 10 days of the month following the month in which

there occurs any of the following events :

1. Material amendments of exhibits previously filed.

2. The execution of new voting trust agreements and certain other instruments.

3. Substantial restatements of the capital shares account.

4. The issuance of any new class of securities, or an increase

or decrease of more than 5 percent in the amount of any class:

of securities outstanding.

5. Under certain circumstances, the granting by the registrant of options to purchase any of its equity securities, or the

extension or exercise of such options.

6. A person's becoming or ceasing to be a parent or subsidiary of the registrant.

7. Substantial revaluations of the registrant's assets.

8. Substantial withdrawals or substitutions of property

securing any registered securities.

No reports of this type are called for unless at Ieast one of. the

above events occurs and has not already been reported to the Commission in a registration statement or an annual report under the

Securities Exchange Act of 1934. This form does not call for the

filing of interim financial statements.

If any of the above events has already occurred since the close of

the fiscal year covered by the registrant's first annual report (or in

the case of an issuer which had no securities registered on Dec. 31,

1935, if any such event has occurred since the date on which registration of any of its securities first became effective) and has not

been previously reported, such event, as well as any other of the

specified events which may occur on or before December 31, 1936,

must be reported on this form, 8-K, on or before January 10, 193'7.

Thereafter, a current report is to be filed within 10 days after the

close of any calendar month in which one or more of the events

occurred. A single report may be filed with respect to all events

occuring in anyone month. No report need be filed for any month

.during .w.hi~hnone of the enumerated events occurred.

Form 10-K. For corporation8.-';l'his form is to be used for the

annual reports of all corporations except those for which another

form is specifically prescribed.

Form ll-K. For unincorporatea u8U6r8.-This form is to be used

for the annual reports of all unincorporated issuers except those for

which another form is specifically prescribed.

101973-36-7
90 SECURITIES AND EXCHANGE COMMISSION

F01'm l~-K. For companies maJdng an1'lJU01reports under Se.otion~O

of the Interstate (Iomaneroe Aot.ae amended'rol'wnder Se(Jtion~19 of the

Uomenunicaiions Act of 1934.-This form is to be used for the annual

reports of companies making annual reports under Section 20 of the

Interstate Commerce .Act, as amended, and of carriers making annual

reports under Section 219 of the Communications .Act of 1934, except

such companies in receivership or in bankruptcy, including proceedings

for reorganization pursuant to Section 77 or 77B of the Bankruptcy

.Act, at the close of the fiscal year for which the report is made.

Form 12A-K. For companies in receivership or bankruptcy at close

of fiscal year and making annual reports under Section 2fJ of the

Interstate Oommerce Act, as amended, 01' under Section 219 of the

Communications Act of 1934.-This form is to be used for the annual

reports of companies making annual reports under Section 20 of the

Interstate Commerce .Act, as amended, and of carriers making annual

reports under Section 219 of the Communications .Act of 1934, if such

companies were in receivership or in bankruptcy, including proceedings for reorganization pursuant to Section 77 or 77B of the Bankruptcy .Act, at the close of the fiscal year for which the report is made.

Form 13-K. For insurance companies other than life and title

insurance companies «r:This form is to be used for the annual reports

of corporations engaged, directly or through subsidiaries, primarily

in the insurance business, except corporations engaged primarily in

the life- or title-insurance business. This form is not to be used by

corporations engaged primarily in the business of guaranteeing

mortgages or mortgage-participation certificates.

Form 14-K. For certificates of deposit issued by a comanittee-s-

.This form is to be used for the annual report of issuers of certificates

of deposit issued by a committee.

Form 15-K. For incorporated investment cmnpanies.-This form

is to be used for the annual reports of corporations engaged either

directly or through subsidiaries primarily in the business of investing

and reinvesting or trading -in securities for the purpose of revenue

and for profit, and not in general for the purpose or with the effect.

of exercising control.

Form 16-K. For voting trust certificates and underlying seourities.- This form is to be used for annual reports relating to securities

evidencing a participation in a voting trust agreement or a similar

agreement for the holding of securities for voting purposes and to

securities held subject to such agreements.

Form 17-K. For unincorporated issuers engaged primarily in the

business of investing or trading in securities ...:....Thisform is to be

used for the annual reports of unincorporated issuers engaged either

directly or through subsidiaries primarily in the business of investing

and reinvesting or trading in securities for the purpose of revenue

and for profit, and not in general for the purpose or with the effect

of exercising control.
SECOND ANNUAL REPORT 91

.GUIDE TO FORMS ADOPTED UNDER THE PUBLIC UTILITY HOLDING

COMPANY ACT OF 1935

Form U-1. Notification of registration.-A notification of registration, pursuant to Section 5 (a), may be filed on this Form."

F01'1l'bU-2. Declaration and periodic rep01't.-This Form is to be

used by a subsidiary of a registered holding company primarily engaged in business as a broker or dealer, which claims exemption

under Rule 3D-4 and also for the quarterly reports to be filed by

such a company.

Form U-3A3-1. Quarterly statement filed by banks claiming ememption--: This Form is prescribed for quarterly reports to be filed

by banks claiming exemption from any provisions of the Act by

virtue of Rule 3A3-1.

Form U-'I. Declaration filed pursuant to Section 'I.-This Form

is to be used by a registered holding company or subsidiary company

thereof, either as a declaration in respect to the issue or sale of securities, or as a declaration in respect to the exercise by the declarant

of a privilege or right to alter the priorities, preferences, voting

power, or other rights of the holders of its outstanding securities.

Form U-1G-1. Application pursuant to Section 10 (a) (1).-This

Form is to be used for applications for the approval of the acquisition of securities by a registered holding company or a subsidiary

company thereof, or for approval of the acquisition of securities of

a public-utility company by a person who is an affiliate (as defined

in Clause A of Section 2 (a) (11) of the Act) of such company

and of any other public utility or holding company, or who will

become such an affiliate by virtue of such acquisition.

FQTm U-10-2. Application pursuant to Section 10 (a) (2) or

10 (a) (3).-This Form is to be used for applications for the approval of the acquisition of utility assets or other interest in any

business by a registered holding company or a subsidiary company

thereof.

Form U-12 (i)-1. Statement required pursuant to Section 12

(i).-This Form is to be used for statements to be filed with the

Commission, pursuant to Section 12 (i), by any person employed or

retained by any registered holding company or by any subsidiary

company thereof, who presents, advocates, or opposes any matter

affecting any such company before the Congress or any member or

committee thereof, or before the Securities and Exchange Commission or the Federal Power Commission or any member, officer, or

employee of either Commission.

"After Nov. 1, 1936. a notification of registration must be filed on Form U-5-A adopted

Oct. 2, 1936.
92 SECURITIES AND EXCHANGE COMMISSION

Form U-13-1. Application for approval of mutual service company or declaration with respect to O'l'ganization and conduct of business of subsidiary service company.-This Form is to be used, pursuant to Rule 13-22, in filing an application for approval of a mutual

service company or in filing a declaration with respect to the organization and conduct of business of a subsidiary service company.

Form U-17-1.-This Form is to be used by each officer and director

of a registered holding company for the statement required by Section 11 (a) as to the securities of such company or any subsidiary

thereof of which he is the beneficial owner either at the time of the

registration of such company or within 10 days after his appointment or election to such position. A statement must be filed on such

form even though the officer or director owns no securities of such

companies.

Form U-17-93.-This Form is to be used by officersand directors of

registered holding companies in reporting monthly changes in their

beneficial ownership of securities of such holding companies or any

of their subsidiaries, as required by Section 17 (a).

Form U-17-3.-This Form is to be used for statements to be signed

by officers or directors with respect to whom exemption is claimed

pursuant to Rule 11G-ll, from the provisions of Section 11 (c) of

the Public Utility Holding Company Act of 1935.
APPENDIX IIl 

SECURITIES ACT REGISTRATION STATEMENTS AS TO WHICH STOP 

ORDERS, CONSENT REFUSAL ORDERS, AND WITHDRAWAL 

ORDERS WERE ISSUED JULY 1, 1935,TO JUNE 30, 1936 1 

Ddet / 1-1' I Form I Amount k$&~:/ Dete no. 


July 15,1936 Aug. W, 1936 

2-1910 A & K Petroleum Co., Oklahoma Clty. Okla .... Sept 27 1936 as 'of ipt. 17,1935 %I708 Airway Caqo Rri rejs \\'lln,iooon. Dei........ NUP.21,1935 ~ i 0AI~Iu~etrn~~urn cmiom110n ~ea ~urk. K.Y. May 11, 1936 

1 Almtn Hurrah G~ld.\llnRs, irk. +ebtIla. IVah. DB~.23,1935 %lam Alcol~l 3flne9, i.td . I'orOntO OntBlio C8u.d.. Dec. 21,1935 2-ea3 111.81 nrearog+ I,l.tlli,ng do.. loc. R,ookI,.". , N. Y.......................................... Peb. 26,1936 2-1337 American Credit Corpomtion Los Angeles. Calif. Dec. Z 1935 

2-1930 Ameri- General cor~rati<n, Jersey City,Pj.L ~pr. 13, 1936 2-17W Amsrimn Radio & Teievision Capmtmn, New York, N. Y.............................. A-I aaa om. W W Nor. a,1935 

2-1401 .....do........................................... A-1 3dW0.W SO July 17, lW 

2-1664 Arkansm ~oulhern Oil CO., EI ora ado, ~rk ..... A-I 12i om. W W Nov. 26 19s 

21465 dnrooiatsd Petroleom Propertias, Tulsa, 0a.. A-1 l8iW0.W CROs SsDt 25:1935 

2-1679 Automatic Guns, Inc.,Washington. D. C;...... A-l 100 W0.W W dm 24 1936 2-1189 BBYOD~B Bold Oorporatim Bayonne N. J... A-1 4~:mo.m w ~~b. 21: 1938 

a-2157 The Black &neck- Men;faoturing bo..TOWson Md....................................... May 27,1936 
 2-1696 Blacibburn-pattison Mines, Ltd., Taronto, 

Ontario. Canads.............................. on. 2419s 

2-1392 Bonancs Consolidated Gold Mines,In~., Detroit, 

2-1444 The Borden Ind~strie~. Ioe., Wsshingt0n;D. 
 C.-

2-1318 F. M. Brawn Funeral Eames, Ltd.. bmhemt. 


Nova Swtia, Cmada .................. :....... A-1 I 173,W. M I W I July 13,1935
 2-1324 Edward G. Budd Manufacturing Cn., PhUdelphla, Pa ....................................... D-A 1015 240. W W July 181935 


2-157.5 ..:-.do ............................................ E-l 1:016:240.W W DO.
 ZZlW Bullion Imports Ino. Nogales. Arie............. A-l 3W Mn.00 80 Jone 8,1936
 2-13 Cdifornia AI~S~; Er&oration 00. Reno, ~eu.. A-1 lW'0W.W SO July T1 1936 2-1886 CaliIip,:nla Oil & Land corparation: Lw Angeles, A-1 1,m:WO.W SO Mar. 7:1936 

2-1683 "U,,. I Calpla~Corwratbn Eooston, T~X............. A-l 1MI WO.W Mar. 9 1936 2-107 Capps Gold ~ine,' Ltd., Toronto, Ontario, A-I I 105:W0.00 ( 1 Peh. li1936 

Canada. 

2-WSs CWe Mining Corporation. YpsiLzng Mich.. A-l 600,000.00 CRO Apr. 251836 2-1668 central ~aine ~oas,~mgusta, bcaineL ........ A-a 16 4+4 WO.W CRO a oct. 21 1935 saw1 ...--do-. .................................L ...... A-2 9:9M11W0.W CROi Apr. 2d1936 


174~9.~ W.1986 2-2088 CoasVll Minemk DevdOPme.nt, Ion., New A-1 7EQ.OW.m W May 161938 

2-1740 Chlorl~ptusChemical Do.. Ino.. York, Pa ....... A-l CROQN~ 


Orleans. La. 

2-1818 Cdhzbia Cruds Corporation, Salt Lake City. A-l / 1SO.W. W I W I Mar. %, 1936 

Cor~oratlonof America, WLI- I A-1 I 30, W0. W W Sept. 20.1936 I. _. I.. ...... NW. 14, lil2-1396 / Comsec Corwration, Jersey City, N. J ..........I A-1 I 7446W.W /I I Dsc. 12,1935 


A-1 

A-1 

11-1 

A-1 

A-1 

A-1 

E-l 

A-2 

A-1 

A-1 

A-I 1 

A-I 

LiOiO. 

a-lW I HasrlnmO'Brlen Less4 Butler. Ps ............ Footnotes st end of table. 

03 
94 SECURITIES AND EXCHANGE COMhIISSIOB 

SECURITIES ACT REGISTRATION STATEMENTS AS TO WHICH STOP 

ORDERS, CONSENT REFUSAL ORDERS, AND WITHDRAWAL 

ORDERS WERE ISSUED JULY 1, 1935, TO JUNE 30, 1936-Continued 

Docket Issuer Form Amouot Data no. 


2-1918 Hepburn & MoTasish Ltd., Ino., Lo8 Aogeles, A-1 W,WO.W W Mar. 8,1838 CalU. 

2-1188 Bondhaldsr's Pmtsotise Oommlttse of Herald D-I (I) 6U1,870.00 W July 13.1935 

8guare Realty Corpomtlon, New Yark, N. Y 

2-2103 Hes9 011 00. Kansas City Mo .................. A-I 289,WO.Cn OR0 May 21835 

%ISM Earn1 slgnsi ~aoufaatu:og Co., New York, A-1 573,W.W CRO Uw. 13,1038 N.Y. 

24112 How Senator Corporation, San PRinolsco. CslU. } 
 155,120.W W June 11, 1938 {;& 
 2-l67l Imperial Citrus Co?perstive Amoclatlon, Or- A-l 151, W0.m 80 Peb. 11.1936 

lando Fls. , 1nwme'~statss of America, Ino., Phil~delphla, GI l.SW,W.W OR0 1 
 Pa 


W 


Idakin Drilling Co., Lari Angelas. Call1 .......... A-1 (W, WO. W 
. { fij Insured lnueston. Inc. Kansas City Ma ....... A-I ?SO, 0M.W 80 


Internation+ ~nvartor<Fand 8yndl&te. acran- A-l 25,cW.W W 
 ton Pa. 


lnter&tlonsl Investms Fund Bystem. Inn.. C-1 18,m,m.W CRO 1 
 8mnton Pa. 


~irch.~r-buu Corpora~an, N. Y...... A-I 144,m.W w 


Ladede Power & Light Co. St. ~ods Mo...... A-2 9,OW, WO. M W 


LaLu Mining omo oration: ~aotreai, ~uebeo, A-I IB.W.W 80
 Canada. 


Lawrence WBrehouse CO.. 8an Francisco Calif.. A-a 209.010.W CRO 


Lednew Caporation ~erse city N. J.L ....... A-I ZSO.OW.W 60 


kwis American ~irkays %c ~inverCola..- A-I l,w7,85aw so: The Livingston Minios do., ~'mlder &lo A-l 474, w6.15 CRO 


London Dee~ Mines Co. Lesdville bolo ....... A-l 1,298.917.W So 1 


,L ons Mld-Continent cbrporat1on:New York,
 Y .......................................... 1 I,~~,wo.wnr 
 Mansul Chemical Oo., Jecksonvllla, Fler ....... A-I W,OW.w U' 


Marlowe Pmducts Ino. Clifton N. I........... A-1 9m.m. w CRO 8 


May-Spiers aoldn'rind Ltd., ~bronto, Ontnrio, Canada........................................ A-1 75.OW.W OR0 2 


MBCO& Metah, Troy, Mo~t~: 
 -..............-... A-I 100, ~0.00 w


MsUgren Mines Car~oration, Phoenix, Arie ..... A-1 ~W,OOO. w W


Metropolitan District New Homes Corporation, Nepi York, N. Y.............................. 0-1 500,WO.W U 


Mld-Tyrrell Matechewan Gold, Ltd., Toronta, 
 Ontario, Canad* .............................. A-1 37,XIO. W W 


Mineral Products Inc..New York N. Y..: ..... A-1 6W.m w SO 

The Monitor ~idng Corporation, benver, Coio. A-1 312 625. w so 


Montana-Dakot* Utiiities Co., Minnea~aliS,
 Minn.......................................... A-2 14,974, SO0.W W 


Motherlode Derelopment Corporation, Atlanta, 
 as^ ........................................... A-I 472.SW.W w 


Murwood Oald Mines, Ltd., Toronto, Ontario, 
 a d........................................ A 175,030.W SO 


Mutual Industrial Bsnkem In0 h-ewark K.J. A-1 125,WO. W SO 


National Edurators ~utdl ~s~oelatian,'~nc.,
 Nhll T ............................... A 750,m.W 80 


National Mushrwm Corporatian of America. 


Avandale, Pa .................................. A-1 30.WO.W W 


Navsjo Gold Mines Ino. Maaeos Cola......... A-l 100,WO.W OR02 


Nswman Dick Mlning &beveloping 00..Kirkland Lake, Ontario, Canada ................... A-I 2,OW.Wo.W SO8 
 ....-do........................................... A-1 2, WO,WO. w w 


New Park Mining Co. Salt Lake City Utah ... A-1 2250.W. M OR0 

New York Water Ser;iea ~~r~orstioi WWB Ad 2,304000.00 W

haven, Long Idaod .....-..................... 
 The North Amerioan Oo., New York, N. Y ..... 0-2 48,750,m.w w 


No. 2 Park Lane West Ino. New York N. Y... D-l (D 118,656.W W 


Oil Erplaration & ~P'uelo6me:m.nt~rust(F. E. 


U'i~~oup.trustee) h'sn -4ngeio Ter ........... A-l OW.900. W 80 


oil ~idge Oii 61 ~efining 00, iar vems A-I WO,~ w
 SO 4 


oil ~un Purchase Cor orattot ~eray cit;.,%:j: A-1 m,w.M W 


Or~Kr~nd+&i~co ao~SMiies Leviston Idaho. A-i 36i.m. W 80


Committee for Alexander ~abtages. 6r~t.mtmort- D-l (n 141,668. 67 W

gage bonds Portland Crsg.~ ....... 
 peninsular Afinilrg cdrwratio~ Tam~a Pla ... A-1 497.~0.w w 


The Pennsyivanl~ Bridge Co. pjaw ~oriN. Y. A-1 4760,mO W W 


Penn Valley Crude Oil C&wration, blean,
 N. Y.......................................... A I.550,WRW SO4 


Petroleum, Ino., Forterville. Calif ............... 8-1 726,WO.M 80 


Poulin Goid Mines, Ltd., Montreal, Quebec, Canada....................................... A-1 eaqm. m W 


Precious Metals, Ino.,Buffalo, N. Y............ A-1 826. OW. W CRO 


2-1424 


2-16.M 

2-71 


2-1517 


2-1898 


2-1055 


2-1745
 a-lnz 


2-2150 


HUSI 


2-lm2 


2-1711 


2-1868 


2-lw 


21955 


21980 


2-1778 


2-831 


21081 


21481 


2-1588 


2-1459 


2-1434 


2-2148 


22128 


2-1277 


21291 


2-1447 


21680 


21835 


2-1837 


21837 


22215 


2-16W 


2-1732 


2-1135 


21741 


2-1576 


2-177a 


21438 


2-1766 


2-lo?4 


21833 


513W 


21360 


%lass 


21213 


July 24,1935 

Mnr. 21,1836 


May 15,1835 


June 15 1835 


Oot. 6 1835 


8ept. 24,1935 


May 11,1838 

~ug. 3,1936 

May 28,1936 oct. 4,1935 

May 23,1838 Apr. z.1918 

Mar. m,I916 

Nov. 8 1936 

Mu. 5:1838 

J~IY 12,aaa 

May 14,1935 

Mar. 28,1936 

Dee. 14 1915 


July 3,1915 


hog. 14,1936 


July 10,1935 

Feb. 5.1938 

July 9,1935 Oot. 24,1915 

June 25,1936 

Do. 


July 81,1835 


Jan. 4,1836 


Aug. 2% 1935 

Nou. 28.1836 
 Ian. 14,1916 


Am. 24.1916 

May 28,1936 

June 18.1936 

AUC 8,1935 

Nov. 18,1835 

July 23,1935 

Feb. 11.1835 oot. 8.1936 

Deo. 31,1835

Nov. zs, 1883 

Feb. 21,19a6 

Oet. 7,1935 

May 26.1838 

July 17 1935 

AW. I:IP~S 

Feb. 11, I886 

July 20,1836 

PWtnoteS st end of table 
95 SECOND ANNUAL REPORT 

I 

SECURITIES ACT REGISTRATION STATEMENTS AS TO WHICH STOP 

ORDERS, CONSENT REFUSAL ORDERS, AND WITHDRAWAL 

ORDERS WERE ISSUED JULY 1, 1935, TO JUNE 30, 1936-Continued 

Lssaer / Porn Amount Date

-

j jTZr,"'] -

21248 

- Radlo City Amusement Corporation, New A-1 $250, Wa W SO Aug. 14,1935 York, N. Y. 2-388 Reinbow Mining & hIlUing Co.. Ltd., Dfedi- 8-1 75.m. W w NOT. 22,lwb mont, Idaho. 


2731 Earitan Petroleum Corporation Neumk N. J.. A-1 W
 2137 Redding Creek Pl-, Ltd.,'San *r&dsco, 5W,WO. W June 8, lm A-1 mi?,lW.W W Jan. 18.1936 Cdil. ......................................... 
 2lZX Region Mines, Ltd., Vancouver, British Colum- 


bis Cenads -.................................. 
 2-1482 RichReld Caribou Gold Mines, Ltd., Vencou- A-1 1mOW.m CBO' Sspt. 28,1835 

ver, British Columbia, Canada -.............. A-1 282.SM.W OR0 July 
15 1m 24x4 Robot-Hand Corparstlon Detroit Mioh ........ A-1 1.375,WaW CRO Ipr. 18:1938
 21940 ~orrhsster Distilling CO. '~nc. ~&e~rer N Y. A-i 21753 l,ma,7:~m CRO I 3 AD^. I, 1938 

2-2057 Seot~LueiaMining ~o.:lno.,'~ilmingt<b. Dsl. A-1 405,lW. W 804 Feb. 11 1838 Sw~riti89 Investment Corpmarion, Omaha, 

A-1 3W.WO.W CRO Mar. 14,1938 

1,017,241.42 SO I Aug. 2 I835 

5W,OW.W W May 1:1936 

270.M. W OR0 DBD.13, 1835 

4WWO. W W NOT.30,1836 

325.0%. W 2-1M9 Van DUSBORiver Redwood Co., Wllmlngton, { f$i;:$ iz:

Del.......................................... E-1 mO.WO. W W Aw. & 1836
 2-1834 VImy Oold & Metals. Ltd., Montreal, Quebe;. 


21532 C...... ...................... A 818,893.W 80 May 11930
 Vim City Mining 00. Butts Mont ......... A-1 100,WO. W 80 4 NOT.18: 1936 
 HI77 Virginia City Mining GO.' BU~B:Maot......... A-1 33.M. 80 SO Do.
 2-1897 

%Q32 Ur&shington Oslde~ 1nc'~ashington D. C.... A-1 1,WO.WO.W W Am. 22,1930 Washingtan 1ndust;isi lban Ca., Webhinztoo, 

2-1131 

D. 0.......................................... A-l 2b0,WO. W W Apr. 23.1936 Waahlngtun Rallwsy & Electric Co.. 1Y8sbiw- n. D 0.. ................................. A 48.7m,WO.W W Nou. 18,1935
 2-1070 Wssbinpton.Youree How, Company, Ino.,

8hr~ve~rt. LB................................ E-l SM,W.W
 CROI Oct. 18,1936 2-1187 Weg In~astrns Royalt Co Tulsa Okla........ A-l 1W.OM.W 80 July 3 1935 
 slsn The Wehle ~cehps db. *est ~Aen,Conn.... A-1 178,WO.W w oot. 7:193s 2-1787 Wendigo Oald Mmes, itd., Toronto, Ontario, 

Oanada--:.-~ ................................. A-1 31 250.W W Deo. 28 leas
 21~70 zem zem Corporatior,, New ~ork.N. Y........ A-I ZSO:WO.W CRO a Mar. 25:ig.v
 24970 .....do.......................................... A-1 2m.WO.m W ~pr.,n,
lsaa 

'List includes 40 stop orders, 38 mnssnt refusal orders, and 77 raithdrawd orders. 17 stop orders and 21 mfu~d0rderswereljfteddUring theperiod, mmkinB Bnnt 1111eBse of38 7withd~~wnststementswemr~aIed, maBin8 10net ioreass in number ofstatements withdrawn. ' W-Withdrawn. CRO-Consent refusal order. SO--SW order. ' ~~~~~t refusd Ordw lifted. 


'Stop order lifted. 1 sto~ord81m consent refusal ardsr Ulted after June 30. 1938. 
 1Renled. Wegistration statemeqt wltbdrawn. ~EBeoWve. 1 Pending amendment. 
APPENDIX IV

List of publications available as of September 30, 1936

Copies of the material listed below may be procured from the

Publications Unit, Securities and Exchange Commission, Washington,

D. c.

ACTS:

Securities Act of 1933. (As amended.)

Provisions of Federal Laws Relating to The Securities Act of 1933.

Securities Exchange Act of 1934.

Amendment to Securities Exchange Act of 1934 (Public, No. 621).

Public Utility Act of 1935.

GUIDES TO FORMS:

Guide to Forms Adopted under the Securities Act of 1933.

Guide to Forms Adopted under the Securities Exchange Act of 1934.

(NoTE.-These guides describe only the most frequently used forms under

each Act.)

MISCELLANEOUS:

Addresses by Commissioners and members of the staff of the Commission.

Official Summary of Security Transactions and Holdings--issued semimonthly, beginning with Volume 1, No.1 (April 1935).

Directory of Over-The-Counter Brokers and Dealers Registered with the

Securities and Exchange Commission as of January 31, 1936.

Securities Registered, Exempt from Registration or Admitted to Unlisted

Trading Privileges under the Securities Exchange Act as of June 30,1936,

and monthly supplements.

Work of the Securities and Exchange Commission-a pamphlet describing

briefly the duties and activities of the Commission.

RELEASES:

Releases are issued covering the Commission's official actions, orders, rulings,

opinions, etc., under the Securities Act of 1933, Securities Exchange Act

of 1934, and Public Utility Holding Company Act of 1935. An order

blank is provided for placing names on the mailing list--this blank gives

a brief description of the classes of releases under each Act so that a choice

may be made.

Compilation of Releases under the Securities Act of 1933, to and including

December 31, 1935.

Compilation of Releases under the Securities Exchange Act of 1934, to and

including December 31, 1935.

I Copies or the rollowlng publications may be obtained from the Superintendent or Documents, U. S.

Government Printing Otlice, Washington, D. C.

Decisions or the Securities and Exchange C'ommlssion Volume I-No. I, Issued Sept. 2t, 1936. Price

16 cents.

DeclsIons or the Securities and Exchange Commission Volume I-No.2, Issued Oct. 81, 1986. Price

26 cents.

, Otlicla1Summary or Holdings or Otlicers, Directors, and Principal Stockholders lISor Dec. 31, 1935. Prioe

36 cents.

96
SECOND ANNUAL REPORT 97

,

REPORTS:

Securities and Exchange CommissionReports to the Congress of the United

States:

First Annual Report of the Securities and Exchange Commission.

Report on the Government of Securities Exchanges. (Published as House

of Representatives Document 85.)

Report on the Feasibility and Advisability of the Complete Segregation of

the Functions of Dealer and Broker.

Report on Trading in Unlisted Securities upon Exchanges.

Report on the Study and Investigation of the Work, Activities, Personnel,

and Functions of Protective and Reorganization Committees:

Part III-Committees for the Holders of Real Estate Bonds.

Part IV-Committees for the Holders of Municipal and QuasiMunicipal Obligations.

Part VI-Trustees under Indentures.

RULES AND REGULATIONS:

Regulation Regarding the Sale of Copies of Registered Information.

General Rules and Regulations Under the Securities Act of 1933.

Rules and Regulations under the Securities Exchange Act of 1934.

Rules of Practice.

Rules for the Regulation of Trading on Exchanges Recommended by the

Securities and Exchange Commissionfor Adoption by National Securities

Exchanges.

UNIFORM SYSTEMS OF ACCOUNTS:

Uniform System of Accounts for Mutual Service Companies and Subsidiary

Service Companies.

Uniform System of Accounts for Public Utility Holding Companies.
SECURITmS .AND EXCHANGE COMMISSION

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TABLE 6.-Channels 
 of dislribulion of new securities regdslered for account of issue~a

and fully efleclive July 1, 1936-June 30, 1936 


IEstimsted gmps proweds in dollsrs] 

Seoudties offered for sale 

Industry TO mn 
 TOlnveLltor~~Direct B

thmu h investom r$:z underaiters by m~is- Total 

and ageate trants 

nprlcnaure......................................................... 126, m0 ............ 1% m0 


EitractiveindustriaE: 

Coal mining-.. ........................ WO, WO 
 Met m i......................... 38892 


Oil and gas weus...................... Z579 803 


Quarrying and nonmetal mining ...-.........:... 


Totalerhnoti~e industdla. .......... P 

4,W72l 


Manufaotoring Industries: 

a, 146 315 603 OW ............ 3 140 316 37 %:4M 2,684',918 2% 4(li64iOn 15:~,%5 2105.~0 .......:

7% 

.... zo:&ffia 5,657,358 ....................... 4 887,358 

Q038,341 6,287,918 234,785 74897,7~ 

Food and related ~rodncts ............. 83,328, ,018 118,884,133 

, ---

1,~. 4~
 2XI 183.m 815 
 Toba~oo products .............................................. 
 188,825 ............ 1883815 


188, 062 ............ 1491 426 


lagw ............ ~030:6n 


B~mwgi: Brewer!* ......................... 5% 340 


DL3tiUeries.................................... 


Total be-ges ................. P 

52.340 


Tsrtiler and their products ............ 332,585
 Lumber and lumber ~roducts ..................... 
 Paper and ps r products............. 5, m,101 
 Printing, plnb%ing, md allied isdusfTi88.......... ................................... Chemioaln and allied roducta......... 18518,8W Mineral oil refining tnduding distrl. 

2 280,424 

24,011,623 

27,151,047 

2,W.226 

I, &lam 

9,089,761 

3 9ffi 450 

1: 082: 740 

324.882 ............
 -__-

403,WO ............ 
 ....................... 


27, 528,8,~9 

8 537 811 

I:M~W 

14ffi1.882 

3,W8,4m 

18, T86,340 

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


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


412WO 702, m0 

2m.m 60,231.5W ....................... 

223,610 ............ 85,575 10, mz.2~ 

50, OW 134,wo 

869,112 85,000 2,479,350 254 080 

, 


Bulldin and rslated roduets......... 3 708 Oa0 
 Iron anfstee~ (src~u&~ma~hinery~.. 0: Nonferrous metals ..................... 3,289,524
 Machinery and tooh (excluding 

portstion ?quipm?nt) ............... 24,528,774
 T-spofiatlm? e~ulpment........... 17,081,808
 Miscelianeous manufacturing industries................................. 19,444,574 


Total mandachlring industries ..-.180,439, 232 

Financial and investment wmpnies: 

Investment and trading mmpanies: 

General andlimited managemmt.. ............ 
 Fhedtr~ts................................... 

Total Briestment sod trading 

oomwnias. ................................ 

d 0 ............................. Commsrciai aedlt, fioaoce, andmortgage mmpanbes ...................... 773 044 


Industrial and personal loaneompanias. .......:.... 


Insuranea omnranies.............................. 
 Other koial and insestment $omhution) .............................. 17,817,880 282 m7,WO 
 eath hex and leather manufactures ................. 12:478,710 
 370,336,880 

12,479,710 

33 386 170 

345:31$011 

68,798,524 

43 7a mg 

U: g~8:385 

29 45'2,740 

ad884 141 

64,725:~ 

18.ZB5.653 

5.142.127 

21844, 

934 527,493 

286,075,356 

10,358,830 

375,533,985 

54% OM 

48 121 731 

3: I& 605 

164m 

........... Q,W 41, ~52% . 6,183,238 72,179,713 1,194,4a.878 

21, 298, 855 q051,880 337,026,191 ....................... 79,858,639 

n.m,855 a0,~1,080 416,884,830 

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


1 734 150 ............ 
 $222: 5W M3.467 

l,m, wo 

8 . ~ 52,154~0 ~ 

-p


31,693, 355 24,804 447 

. 253.815 647, 100 ....................... 


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


2 Ba? WO 3,3WWU 2:ffi1:407 2,~7552 

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


54,0W, [a0 

49 m 025 

5: 919: 572 

% m,350 

qgm,~1 

W ,938,708 

10.788.rn1 

I, 514,~ 

m 


254,41l,g14

%891,861 

21 403,881 

Panies..........................................1%152.531 


Totalflnanoialandinvestment 

mmpml~...................... 773, D44 40% 886,862 


Merchandising ............................ 6, OSZ,048 12,775en0
 Rsal estate ............................................ 1,514,MO
 Constmotion and allied industrlss .-...-............... 26'2,5W
 Trsmportstion snd oommuoilcation..:.... 7,788 10U 27@708554 service industries ......................... OW:^ 21,e73:518 Elsctrie light and pawer, gas, and water: Holding wm anie3.2 .................. 102.383 22,301,600
 o~erat!neho~d1ng,wmp~nies ...................... 
4w 394 478 

Operatrng oom~anres .................. 12,5h?. 350 861: 702: 535 


Total e1eetrio light and power, gas, 

and Water .........................12,445,093 1,481,398,513 

Mi~~aIlane~l~ domestio omwnies ........ 73aWO 73 288,060 
 Foreign governmmta and subdiriisiom ................ 174:682. em 


orand total ....................... 213,570,838 3.621,647,219 


2,650 m0 ............ 501 94t 478 
 ......:~...I. 016, wo 975: WO: 885 

2660,WO 1, W,WO 1,488.U9,a00 

........... 2aWO 74,048 60 ........... 39,w~MX) 214,38$ em 

W,387,823 144,2W,M7 3,938,210,577 
SECOND ANNUAL REPORT 113

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SECOND ANNUAL BEPORT

TABLE 9.-Private placings oj securities 1 January 1, 1934--June 30, 1936

115

Total Type of security Group classl1lcatlon of issuers

Year and month Number of Amount Bonds and Stocks Public Industrial Other

issues notes utility

1934 1anUary 2 $12, 000, 000 $12, 000, 000 ----~------- $12,000, 000 ------.----

ii'~~:::::::::::: --2~ooo~OO(r -$2~OOO~OOO---2~OOO~OOO- -------- ..-- AprlL 1 ----------- --i;247;OOO- --i;247;OOO- --i;247;OOO- May ----------- 1 ----654:200- ._------ ..... June 1 654,200 --6;500;000- 654,200 -$6;500;000- July ---------- 1 6,500,000 --6;3i5~OOO- August ----------- 2 10,315,000 10,315,000 ------_ .. 4,000,000 -._-------- September 1 10,000,000 10,000,000 --i;i45;5ii8- 10,000,000 --i;i45~5ii8- ----------- October 2 1,145,508 November -48;763~OOO- -ijj~323;OOO- - --$440;000 6 48,903,000 140,000 29,140,000 December 3 5,076,000 5,076,000 2,086,000 2,900,000 -_ ..-------- Total 20 97,840,708 93,901,000 3, 939,708 53,625,200 43,775,508 440,000

1935 January 7 45,805,000 45,805,000 453,000 22,602,000 2?,760,OOO

ii'~r~::::::::::::

2 38, 950,000 38,950,000 1,950,000 37,000.000 ----_ .._---- 1 450,000 450,000 --i;757;568- ApnL 450,000 ----------- 4 6,807,568 5,750,000 3,807,568 3,000,000 May. ----------- 3 33,100,000 33,100,000 13,100,000 20,000,000 ----------- .1une 7 51,431,000 51,431,000 21,181,000 28,000,000 2,250,000 July 4 13, 40:r, 000 13,403,000 10,403,000 3,000,000 ----..----- ... August 7 31,778,000 31,778,000 24,378,000 7,400,000 ---_ ..----- ... September

October 4 16, 180,000 16, 180,000 1,550,000 14,630,000 ---_ ..------ 4 24,600,000 24,600,000 21,600,000 3,000,000 .. ... .. November

December 4 30,800,000 30,800,000 14,800,000 16,000,000 ----------. 1 3,500,000 3,500,000 3,500,000 ---------- ....

TotaL 48 296, 984, 568 295,227,000 1,757,568 117,352,568 154, 632, 000 25,000,000

1936 January 3 36,050,000 36,050,000 35,000,000 1,050,000 .... __ .._------ February 2 8,650.000 8,650,000 8,650,000 ---------_ .. March 4 24, 285,600 23,100,000 1,185,600 16,600,000 7,685,600 -----------

tfa~:::==:= ===: =:= 1 7,000,000 7,000,000 .. 7,000,000 -----------

-i4~500;ooo- -i4~5OO~ooo- --3,-000;000- -ii~5OO~OOO------------ June 3 ---------_.

Total 6 months, 13 90,485,600 89,300,000 1,185,600 54,600,000 35,885,600 -----------

Grand total 81 485,310,876 478, 428, 000 6,882,876 225,577,768 234, 293, 108 25,440,000

I Registered private plseings excluded.

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TABLE H.-Value and volume of sales on registered exchanges, by months, July 1, 1935-June 80,1986

PART 1. TOTAL MARKE'!' VAI,UE OF .\.LL SAI,ES'

(Amounts In dollars)

1935 1036 July 1, 11136to

No~ember

JUDe 30, 1036

July August September October December January Februn'y March April May June

Baltimore Stock Exohange 1,119,663 994,888 810,795 1,183,475 1,528,747 1,570,654 2,150,619 1,61\),007 1,320,242 1,057,081 709,214 755,837 14,820,822

Boston Btock Exchange 15,872,027 17,869,812 16,394,371 21,077,357 25,137,801 22, 205, 007 26,728,799 26,407,666 22,912,128 23,856,791 15,700,373 14,400,983 248, 622, 805

Buffalo Btock Exch~e 170,832 106,537 81,315 183,683 206,313 203,480 248,802 201,788 , 177,258 .. .... 225;40i. .•....• i02;52ii .•..••. iio;563 1,534,508

Ohtoago :Board or T e 134, 604 431,677 291,072 204,010 303,244 183,813 249,003 279,130 330,602 2, 846, 248

Ohicago Ourb Exchange I...•....... "-ii;m;i7r '."i6;oos;i66" i6;00i;9W. ""2ii;i63;2i7" 106, 028 214,046 657,932 693,938 494,451 395,684 123,99lI 277,207 2, 963, 28Ii

Stock Exchange 27,599,720 24,436,051 32,748,784 83,046,098 26,628,081 '2.1,620,180 12, 680, 438 13,766,076 271,041,640

tl Stock Exchange 539,722 481,226 349,196 646, '100 ( 652,267 674,666 916,022 8110,034 784,888 578,0116 351,220 796,939 7,820,936

Cle d Stock Exchange ••.•••.•.. 897, OW 983,663 1,200,842 2,314,802 3, 047, SOU I, 524, 26~ 1,6:J3,1l65 2,402,008 1,655,153 f, 1, SOO, 105 U5Z,349 783,017 19,322,934

Denver Stock Exchange ..•.•....••. 107,680 89,IlIS 70,166 71,863 62,843 35,615 20,189 21,082 19,804 8,919 .... 'a;i2j; i9:j' ...._._-------- 516,919

Detroit Stock Exchange .•.•••••.... 5,937,263 5,834,694 6,396,682 9,378,272 8,196,449 8,288,917 10,765,166 9,650,696 8,044,24fl 7,116,180 4,113,865 86,845,563

Los Angeles Stock Exchange •••••••. 6,776,380 6,951,288 6,742,908 8,194,263 11,262,826 8,662,292 12, 365,004 10,337,368 9,332, 327 9,409.217 5,027,632 7,970,367 101,030, 771

New Orleans Stock Exchange 246,6116 280,640 153,479 323,899 265,786 285,488 347,628 280,306 273,497 211,048 100,676 155,071 2,924,174 New York Curb Exebange •••.•••••• 167,307,429 216,839, 184 148,684, 104 216,614,611 253, 487, 973 218, 284, 864 342, 229, 584 323, 622, 999 303, 279, 932 209, 137, 761 132,919,204 150,lIS5,562 2, 083, 193, 207

New York Real Estate Securities

Exchanges _'" 6,900 2,508 12, 712 620 8,803 7,413 8,477 7,930 1,375 7,115 720 26,050 9O,68a

New York Stock Exchange •••••.••• I, 188, 411, 994 1,638,782,000 1,459,201,833 1,889, 332, 107 2, 170,028, 546 1,977, 689, 239 2, 408, 258, 638 2, 445, 136, 288 2, 3f>3,860, 627 1,877, lt6,061 I, 241, OM,lISl 1,233, 278, 192 21,882,749,006

Philadelphia Btock Exchange 7,475,559 10,229,837 8,489,137 11,895,957 13,532, 127 10,054,750 12,820,134 13,270,033 12,952,769 11,479,222 7,731,477 6,674,939 126, 655. 941 Plttshurgh Stock Exchange_ 2,702,724 3,133,529 2,753,627 4,111,143 4,514,288 3,636,212 4,620,271 6,903,737 3,893,729 4.578,500 1,883,712 2,303,568 44,035,040 Bt. Louis Rlock Exchange 264,672 278.061 215,728 531,270 643,400 339,612 563,489 653,630 665,252 087,709 565,748 lIS5,452 5,994,023

Salt Lake City B.ock Exchange 171,913 223,435 179,366 183,837 316,808 274,217 577,114 486,250 639,091 443,008 315,594 173,173 3,883,805

lin Francisco Curb Exchange 2,010,235 2,723,296 2, 232,186 2,637,378 4,271,970 1,902,156 3,537,371 4,070,342 3,533,652 2,561,814 1,319,345 1,508,318 32, 368, 063

an Francisco Mlnln~ Exchange 7

.. "'ii~395~74i' ---.ii;333;83i. ..... ii~3iiii;835.. ... iii~22i;394---"ii~407~5ii8' .... i2~4ai~ii98.""21i;705;oi5' . ... i8~ii74;ii5i"'--'i5;i84;338' -'--i3;380;830' '-"'ii~473~5iii' 40,194 40,194

san Francisco Stock xehange 9,044,746 161,643, 009

Btandard Btock Exchange 01 Bpokane ..._--_ .... ..~--- 100,833 96,686 81,248 67,477 76,247 ------ .-------- ... ---_Oo-- 104,047 108,190 146,825 248,434 1,089,9117

Washington Btock Exchanlle 199,673 197,314 112,971 117,904 214,363 233,070 180,142 157,816 231,248 280,433 121,721 259,474 2,306,129

Total ell registered exchanges. I, 422, 593, 637 I, 933, 785, 104 1,677,967,783 2,214,478,595 2, 546, 932, 404 2, 293, 246, 569 2,882, 509, 938 2,898,415, 545 2, 706, 186, 166 2, 188, 093, 022 1,432,064,012 1,447,926,967 25,704, 199, 792

PART 2. MARKET VALUE OF BTOCK SALES'

[Amounts In dollars)

1935 1936

July I, 1935 to

November JUDe 30, 1936

July August September October Decemher January February March April May June

Baltimore Stock Exchange 1,097,832 957,137 765,914 1,138,539 1,493,038 1,510,794 2,053,354 1,593,265 1,287,156 900,699 626,232 081,644 14,164,594

Boston Btock Exchange 15,839,639 17,806,728 16,236,616 20,984,544 25,054,941 22,172,255 26,679,718 26,394,300 221

867,551 23,089,583 15,731,844 14,361,163 247,819,057

Buttalo Btock Exchanae 169,782 100,067 81,315 183,210 205,250 203,480 248,822 201,788 177,258 .-..... 225;40i. ""'--i02;529' "'."'iio;563' 1,531,952

Chicago Board or Tra e ••••••••••.• 129,567 431,677 291,072 204,010 303,244 183,813 249,603 279,130 330,602 2, 841, 211

Ohlcago Curb Exchange "--i4;79i;i3ii" -"'iii;oiii~802' -"'iii;004~02i" .. 29~i28;263' 102,105 161,593 657,932 693,938 494,451 395,684 123,999 277,207 2,906,909

Chicago Stock Exchange 27,597,570 24,430,894 32,737,163 33,538,604 26,620,644 23,614,722 12,679,132 13,755,942 270, 914, 887

Clnc1nDatiStock Exchange 547,663 421,465 344,186 624,181 683,830 563,028 006,004 848,114 784,888 572,986 344,637 794,962 7,486,844

Cleveland Stock Exchange 864,072 969,240 1,180,064 2,274,051 3,000,909 1,509,851 1,007,247 2,442,152 1,635,119 1,853,068 928,080 775,698 19,039,551

Denver Stock Exchange 107,680 89,ll1S 70,166 71,863 62,843 35,615 29,189 21,082 19,804 8, 919 ""'a;i2ii;i94' ""'4;iia;S05' 516,919

Detroit Stock Exchange 5,937,263 5,834,694 6,396,632 9,378,272 8,196,449 8,288,917 10,765,166 9,650,696 8,044,245 7,116,180 86,845,563

Los An~eles Stock Exchange 5, 7i6, 380 6,948,350 5,741,482 8,193,211 11,252,825 8,662,292 12,365,004 10,337,308 9,332,327 9,409,217 5,026,284 7,979,367 101,024, 107

New Or eans Stock Exchange 96,600 62,492 38,674 134,456 49,917 146,667 134,632 77,128 130,978 66,280 46,366 62,399 1,046,539

New York Ourb Exchange ••••.• 82,800,150 139, 045, 831 95,615,779 144,658,344 175,856, 380 144, 190,813 238,378,215 233, 937, 367 229, 162,801 155, 167, 725 88,531,829 98,299,773 I, 826, 595, 016

New York Real Estate Securities Exobange "'900;280;739' T3ii2~iiiiii:490-"1;24i;475;22ii'.i; ii59;689;764' 'i;9~;074;ii7ii' 375 375 'i;i4O;083;900- "2;ii9i;3ii8;iii' T ii79~839~354' 'i;077~ii7i;770' 'i;002;iiiii;079' 750

New York Stock Exchnnge 1, 738, 246, 762 2, 069, 563, 692 19, 036, 284, 664

Philadelphia Btock Exohange 7,444,071 10,201,284 8,463,081 11,876,072 I ,564,555 10,011,055 12,777,949 13,251,877 12,872, 409 11,463,975 7,708,054 6,653,233 126,277,615

Pittsburgh Btock Exchange 2, 688, 059 3,129,331 2,747,217 4, lOS, 217 _,507,866 3,625,975 4,619,201 5,002,667 3,892,659 4,577,430 1,883,712 2,303,568 43,982, 902

Bt. LouIS Stock Exchange 262, 522 273,285 214,378 526,979 630,155 334,709 510,461 633,059 627,247 667,079 544,472 572,609 5, 796, 956

Balt Lake Stock Exch~e •..••••••• 171,913 223, 435 179,365 183,837 4 316,808 274,217 577,114 486,250 639,091 443,008 315,594 173,173 3,883,805

Ban Francisco Curb Exc ange 1,990,181 2,704,144 2, 228, 604 2,608,759 ,208,119 1,887,530 3,519,670 4,055,783 3,632,617 2,550,989 1,317,215 1,564,238 32,227,849

San Francisco Mlnln~EXOhange 7._ ""'s;ai2;i4ii' -"'ii;~i;277' ""-s;a08;743' ""iii;ia4;302' ....ii; 332;522' .... i2;33s;407. ..•. 2O;59ii;42ii..•.. is;634;4Oa. ..• i5;iiii8;79ii..... i3; 329;882' .-- ii;457~ii7i. 40,194 40,194

San Francisco Stock xchange 9,016,461 100, 631, 030

Btandard Stock Exchange 01 Spe.

kane 100,833 90,086 104,047 108,190 81,248 67,477 76,247 248,434 1,089,987 """iOii;ia5' ..•.•••. 07;~5 . """"59;ii3ii' 146,826

Waablngton Stock Exchange 61,602 72,645 161,361 73,321 84,213 163,496 183,403 85,414 172, 920 1,321,401

Total all registered exchanges. 1, 139, 413, 533 1,510,330,142 I, 406, 442, 223 1,912, 200, 309 2, 250, 673, 833 1,979, 149, 400 2, 439, 219, 328 2, 503, 129, 081 2, 429, 959, 830 1,936,201,836 1, 223, 443, 853 1, 164, 147, 432 21, 994, 370, 300

PART 3. MARKET VALUE OF BOND SALES I.

(Amounts In dollars)

1935 1936

July 1, 1935 to

Beptember October November December

lune 30, 1936

July August January February March April May June

Baltimore Btock Exchange._ 21,831 37,751 44,881 44,936 35,709 59,860 97,265 25,752 42,086 96,982 83,982 74,193 665,228

Boston Btoak Exchange •••••••••••• 32, 388 63,084 157,755 92,813 82,950 83,342 49,081 13,300 44,477 166,203 28,529 89,820 803,748

Buftalo Btock ExOhan~e 550 470 ----_ ..-...... ........ 473 1,063 -....-.... ..-......-- -_ ....-.................... - -............. -_.............. (') _oo .. -----_ .. .. .. .............. _-- ..__ .... --..---_ ..... ....... ... 2,556

Ohicago Board 01 Tra e 5,037 -_ .........--..---_ .... ....__ ....-.....--_ ....... .....-.......................... ..•..• "3;923. . ... ... 52~453".................... -.........- .............. -.............. -.. ......-........................ -...-_ ..-.. .............. - ----........_------ ......... ...-_............. 5,087

Ohlcago Curb Exchange '_ .••. •. -3:34i" .••• -. "5i~6ii3- ""-"""938' .•...••. 24;954 """'-ii~62i' .••.•.•.. 7~40r •••••.•... 2;437"-"""5:4&8' """"'i:300' •• """io;i34' 56, 376

Ohlcago Stock Exchange 2, 150 5,157 126.663

Olno1IiDatl Stock Exohange •••••••• 42, 059 9,761 5,010 22, 519 18,437 11,638 9,118 1,920 ............. _-- ..-....... 5,070 6,533 1,977 134,092

Oleveland Stook Exchange -_ ............ __ ......-.. 2;"038-""""'i;426' .• ••.... i:052. -_ ................... _ .... ......... -..--_ ............. ---_ .._---_ .......-... ................. -......_- --..-............-......_- -_ ......._-- ............... ••..••••• i;24ii. .. .................... ---- •.•.....• ii;6iii Los A~es Btock Exchange ••••••• ••.••• -i50:056" """-2i5;S69' "" "'i38~82i" ••.••• -2i2;9iiii. ••-"-'203~i7S' ....... i42~5i9• .• '-'--i:44:7ii8' "".'--02;ii'72 • New Or 8ans Btock Exohange •••••• 218,148 114,805 189,443 04,310 1,877,585

New York Curb EXchan~ _. 84,507,270 76.893,353 53,268,325 71,056,267 77,631,593 74,094,051 103,851,369 89,635,632 74,117,131 53,070,036 44,337,375 52,285,789 866, 598, 101

New York Real Estate ecnrltles Exchange •••••••••••••••••••••••• 6,900 2, 568 12,712 620 8.803 7,038 8,102 7,930 1,375 7,115 720 26,050 89,933

New York Stock Exchange ••••••••• 198,181,255 245, 921, 510 217,726,105 229, 642, 348 217,953,870 239,442,477 338, 694, 946 305,052, 289 261,552, 516 197,276,707 163, 982, 811 231,088,113 2, 846, 464, 942

Phlllldelphla'Stock Exchange •••••• 31,488 28,553 26,056 19,885 17,572 43,695 42,185 18,156 80,300 25,247 23,423 21,706 378,326

Pittsburgh Btock Exchange. 14,665 4,198 6,410 5,926 6,422 10,237 1,070 1,070 1,070 1,070 '-"""2r27ii' ""-"'i2;"843' 52, 138

Bt. Louis Btock Exohange •••••••••• 2, 150 4,776 1,860 4,291 13,245 4,903 53,028 20,571 38,005 20,630 197,00ll

Ban Francisco Ourb Exohange 20,054 19,152 3,532 28,619 3,851 14,626 17,345 14,569 1,035 10,825 2,130 4,080 139,3lI8

Ban Francisco Btock ExcbBDge ••••• 83, 595 82, 555 82,002 87,092 75,046 92, 691 108, 945 140,248 115,539 50,948 15,890 28,285 962, 926

Waab1Dgton Stock Exchange ••••••• 93,638 100,059 63,335 56,302 141,718 71,709 106,821 73,003 67,762 97,030 36,307 86,664 984,728

Total all registered exchanges. 283, 146, 177 323, 440, 539 271, 504, 782 302, 177, 635 296, 21~, 221 314,082,698 443, 263, 892 395, 265, 708 336, 206, 302 261,878,089 208, 595, 890 283,772, 216 3, 709, 046, 040

PART /4. VOLUME OF BTOCK BALES'

[Sharesl

- 1935 1936

July 1, 1935 to

September October November December February

June 30, 1036

July August January March April May June

Baltimore Stock Exchange 53,448 56,044 43,233 63,585 83,579 91,562 108,522 86,195 63,339 58,879 56,766 36,234 801,386

Boston Stock Exchange 423,261 636,012 480,211 652,299 767,030 900,867 853,228 797,546 600,844 611,261 369,978 351,174 7,503,711

Bu1!ll10 Btock Exc= 16, 759 14,157 11,076 15,804 20,920 20,475 26,307 22,219 '19,836 ..•.. 48;ii8ii ..••.• -.24;004. .• •..••. 2O;43ii. 167,553

Ohlcago Board or Tra e 14,538 33,669 19,264 20,379 27,229 16,438 26,561 24,745 54,496 339,347

Ohlcago Onrb Exchange I.......... ••••.•• s04;ii7'7'""'i;474;a83' ••.•. i;i02~505. ""'i;002;500' 69,270 126,870 173,916 265,500 232, 503 138,954 49,300 51,629 1,107,012

Ohlcago Btock Exchange 1,822,343 1,471,636 2,284,812 2,766,479 1,618,438 1,398,867 743,325 819,904 18,299,808

OlnolDDatlStock Exchange 18,137 16,750 18,572 24,912 23,271 30,261 39,647 37,830 32,137 26,987 12, 567 28,031 309,102

Oleveland Stock Exohange 36,324 44,448 48,lRa 67,838 114,370 58,486 69,865 83,944 65,464 60,090 28,974 31,704 709,687

Denver Btock Exchange 1,238,700 1,285,085 1,171,123 1,633,700 1,200,475 657,574 526,295 355,928 456,484 , 220,271 . .••... 2iio~S57. . """a7O;4i3' 8,645,635

Detroit Btock Exchange 523,802 517 622 567,241 944,202 755,493 795,243 1,212,079 949,118 787,238 546,019 8,229,377

Los An~eles Stock Exchange 533,157 605,389 698,169 669,365 ~,056, 431 1,186,729 1,460,665 1,480,636 1,146,537 1,046,529 636,601 1,003,612 11,523,820

New Or eans Stock Exchange 13,157 9,592 5,035 17,612 5,908 23,758 24, 697 12,241 22, 732 13,492 10,414 10,124 10ll,812

New York Curb Exchange 5,638,372 11,591,837 6,769,133 9,909,804 12,631,842 11,181,169 20,624,667 24,337,592 17,748,750 13,969,932 6,143,508 6, 137,526 146, lIS4, 192

New York Real Estate Becurltles Exchange 100 100 .. --37;7si;9ai" ""50;37i;ii78' ''''4ii;53i;iOii' .. ii2;555;4io' "-'71;473;7i7' "-'S5;304;S42' ""75;532;269' "" 00;934;ii4r ••.. 35;042;52ii' ""3i;sii7;45i' 200

New York Btock Exchange ••.•••••• 63,344,305 87,502,328 721,172, 404

Philadelphia Stook Exohange 309,277 581,847 379,535 558,157 . 676,500 443,024 688,139 776,700 628,957 466,163 294,196 253,340 6,055,840

Plttsburgb Stock Exchange. """_ 171.175 260,265 174.960 248.841 312,513 263,798 367,185 405,115 232,457 239,361 98,135 133,788 2,897,593

Bt. Louis Stock Exohange 14,056 14,992 10,242 18,583 22,027 17,041 24,462 26,412 31,410 29,820 19,263 23,734 261,042

Salt Lake Btock Exchan~e 457,796 617,220 653,584 377,005 . 532,690 672,329 1,036,021 745,818 1,005,803 826,454 800,821 lIS4,688 8,310,229

San Franolsco Ourb Exo ange 144,281 241,396 242,769 206,937 442,353 300,871 770,937 1,135,985 558,413 507,042 275,028 303,764 5,180,776

Ban Francisco MlnlnlExchange 7 .••.••. 5ii;ii22. •••..•. Si5;069. ....... 50ii;27s. ..••.•. 900;574.""'i;a94;93ii' .•..... 148;58ii-.•--"1;097;377.. ....•. 058;S14. """'725;870' """-ii3ii;iii4' ....... 3ii7;ooi. 400,370 400,370

San Francisco Btock xChanfe 708,349 9,431,152

Standard Stock Exchange 0 Spe.

kane 357,636 429,246 457,741 672, 952 388,781 296,810 354,261 621,374 669,519 4,248,370 ""'."T2iii' """""2;50S' .•...••.. i~i20.

Washington Btock Exchange 1,085 1,394 2,279 1,726 1,585 1,929 2,365 1,462 2,494 21,238

----- Total all registered exchanges. 48,695,761 79,180,163 59,433,330 81,106,287 99, 863, lIS9 82,870,142 119, 592, 488 120,963,085 101,922,766 78,136,598 46,756,223 43,937,284 962, 457, 716

PART 5. PRINCIPAL AMOUNT OF BOND SALES I'

(Amount In dollars)

1935 1936

July 1, 1935 to

June 30, 1036

July August September October November Decemher January February March April May June

Baltimore Btock Exchange •••••••.• 136,600 53,700 148,310 157,100 180,400 317,000 435,900 309,000 139,300 287,350 276,060 186,750 2, 627, 400

Boston Stock Exchange ••••••••••.• 52,550 98,750 204,625 126,450 107,850 44,350 60,450 17,600 53,530 203,750 35,400 47,150 1,052, 5M

Buttalo Stock Exchan~e .••••• 1,000 1,000 ._- .....---------- 1,000 2,000 ----.---------- .._------------ ---..-.... <J) ...._--_ ....-...... - ..-------- ..---- ..-..-....-------- 5,000

Chicago Board 01 Tra e 8,000 ---_ .._--------- ----- ----- ----- -._--_.- ..------ ... """4; 000' .. -.- .. ,5a;000' ------ ..-------- .oo-------- ..---- --------------- --_ .. _- ..-----.-- ---- .._--------- ..---_ ..----_ .._- 8,000

Chicago Ourb Exchange I.......... ........ io;ooo. •... ... '77;000' .•....... 4;000' """"57;000' ....•.. -2i; 000' ••. ... 34;000' .... .•. i7;000' ..•.. -. 'i9; 000. ......... a;ooo. .... "-'is; 000' 57,000

Ohlcago Btock Exchange 9,600 11,000 280,600

Cincinnati Stock Exchange 48,000 10,000 5,500 23,000 18,000 12, 000 9,500 2,000 ........-.. 5,000 7,000 2,000 142,000

Cleveland Stock Exchange .•••••••• ---....------- ..-- •.•. -. 2;000-.•..•..• "i;4oo. ..... ""i;ooo' .. ....-_ .. ....--_ .. _- ------ --..----_ .. --_ .... _------ .._- ---..-------- ..-- --------------- .....-.......... _-_ .. "-"""i;2iiii' ------.---_ .... . ... , ""'5;600 Los Angeles Stock Exchange ....... i52;000' . .. '--2i2:500' """'i40~2iiii' ""'-'200;000' ""-"i9ii;S75' ..... ,. i3ii:iioo' """'i39;000' .....•. -92;250. New Orleans Stock Exchange 215,100 115,100 188,100 52,500 1,848,225 New York Curb Exchange ••••.•. _. 100,237,700 106. 416, 200 69,798,200 95,191,500 100,040, 700 95.600,000 128,985.596 107, 596, 700 85.712,300 63.632, 800 61,848,800 60,729,900 1,071,788,396

New York Real Estate Securities Exchange. •••••.•••••••••••• "_' 10,000 3,000 24,000 2,000 21,000 15,000 16,000 11,000 5,000 18,000 1,000 38,000 164,000 New York Stock Exchange .•• 256, 234, 800 306, 890, 325 262, 488, 875 291, 123,470 304,218, 575 352, 057, 430 492,213, 750 402, 609, 500 323, 695, 000 236, 792, 345 197,217,400 271, 043, 926 3, 690, lIS5,395

Philadelphia Stock Exchange 76,600 71,700 74,100 90,111 55,067 256,300 214,700 84,400 384,550 120,000 78, 500 65,000 1,571,028

Pittsburgh Stock Exchange 14,000 4,000 6,000 5,000 6,000 9,850 1,000 1,000 1,000 1,000 . "-"'-46;500' """"39;000' 48,850

St. Louis Stock Exchange ••••..•••• 9,000 6,000 5,000 16,000 44,000 18,000 104,000 52,100 107,500 53,000 550,100

San Francisco Curb Exchange 25,000 21,500 3,500 29,500 4,000 14,000 16,500 14,000 1,000 11,000 2,000 4,000 146,000

San Franctsco Stock Exchange 83,000 70,500 83,000 84,000 73,000 91,500 100,000 117,000 88,000 45,000 15,000 27,000 877,000

WlIShlngton Stock Exchange 95,100 98,200 51.700 56,500 141,700 72,300 110,800 76,400 67,500 106,200 36,000 00,500 1,002,900

Totalallreglstered exobanges., 363, 193, 350 414, 037, 975 333, 013, 310 387, 151, 731 405, 138, 392 448, 711, 930 622, 545, 196 511, 120, 575 410, 410, 3SO 301, 433, 445 249, 620, 350 332, 383, 475 4, 778, 700, 109

I Figures In this part and In pts. 2, 3t 4, and 5 differ In some cases Irom comparable figures in monthly releases due to revisions 01 data by exchanges.

Such clearances are usually effectca 2 days alter the trades.

I Not a complete month. Trading suspended Mar. 26, 1936.

, Exchange registration elIeotlve Nov. I, 193;

Includes pass-boos trading, totaling $283,383 lor the 12.month period.

1Not a complete month. Trading suspended Apr. 13, 1936

, Data obtained (rom 01l\clal Exchange Record, not Irom summary or members' reports.

1 Exchange registration effective Jnne I, 1936.

Exchange registration effectlvc Oct. 1, 1935. "Stock sales" Include sales or vottna-trust eertlflcates, American deposItary receipts, certificates of stock deposit, warrunts, nnd ri~hts.

II Bond sales Include mortgage certificates and certificates or deposlt.

These statistics are compiled on basis o( trades cleared during the calendar months.

101078 .3G. (Face p, 110.)

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APPENDIX VI

LITIGATION INVOLVING STATUTES ADMINISTERED BY THE

COMMISSION

In tabulating the Court proceedings in which this Commission or

the Acts administered by it have been involved, a brief reference to

every case of possible importance has been included. Litigation which

has resulted in a reported opinion of the Court is described somewhat

fully under the heading of the statute primarily in issue in the particular case. Other cases which have resulted in a decision or which

remain pending as of June 30, 1936, are tabulated in alphabetical

order under the same classification. Although this appendix in general describes the status of litigation only as it existed as of June 30,

1936, several of the more important developments subsequent to that

date have been referred to.

L SECURITIES ACT OF 1933, AS AMENDED

Proceedings arising under this statute have usually resulted from

suits in equity commenced by the Commission pursuant to Section 20

(b) of the statute, seeking to enjoin violation of Section 17, the general prohibition against the fraudulent sale of securities, and violation of Section 5, requiring registration of securities.

J. Edward Jones, New York.-The most important litigation under this statute comprises two suits between the Commission and

J. Edward Jones. The Commission first brought suit in the District

Court for the Southern District of New York on February 4, 1935,

to enjoin violations of Sections 5 and 17 of the Securities Act of

1933 in connection with the sale of beneficial interests, and interim

receipts therefor, in oil royalty trusts sponsored by Jones. The

second case arose on an application made to the District Court for

the Southern District of New York on July 3, 1935, for an order

to compel Jones to comply with a subpena issued in a stop-order

hearing under Section 8 (d) of the Act,

, Dn February 4, 1935". the Securities and Exchange Commission

filed fl. bill in equity against J. Edward Jones and others in the

Southern District of New York, alleging that Jones had sold fractiona,1 undivided interests in oil properties, as well as trust certificates against such p.roperties; that he had misrepresented the value

of the oil interests comprising the trusts; that false and fraudulent

117
118 SECURITIES AND EXCHANGE COMMISSION

representations were employed in the sale of securities issued and

sold by him; that the course of business employed by Jones constituted a scheme and artifice to defraud, contrary to the Securities

Act of 1933; and that the mails and other instrumentalities of interstate commerce had been used. The bill sought to enjoin the defendants from using the mails and facilities of interstate commerce to

defraud the public in the sale of securities in violation of Section 17

of the .Act and to sell unregistered securities in violation of Section

5. The defendants consented in open court to the entry of a temporary injunction on February 8, 1935.

Subsequent to the temporary injunction referred to above, and

on May 4, 1935, Jones filed a registration statement under the .Act

in respect of beneficial interests in an oil royalty trust to be created

by him. .After examination, the Commission instituted stop-order

proceedings against the registration statement, and a hearing was

held on June 18,1935, at which Jones did not appear. His counsel

then moved to withdraw the registration statement, which was denied.

Thereafter a subpena was served upon Jones, requiring his appearance and testimony on June 27 at the adjourned hearing. Jones

again failed to appear, and the Commission applied to the District

Court for the Southern District of New York for an order requiring

his appearance, which was granted by Judge Caffey on August 12,

1935. In its "Opinion (reported at 12 F. Supp. 210), the District

Court held that the Securities .Act of 1933 was within the mail

and commerce powers of Congress, that there was no invalid delegation of powers to the Commission, and sustained the Commission's

action in denying Jones the right to withdraw his registration statement. This decision rebutted Jones' contention that the stop order

proceedings had lapsed upon withdrawal of the statement, thus

invalidating the subpena. .An appeal was taken to the Circuit

Court of .Appeals for the Second Circuit.

In the meantime, on June 28,1935, Jones had filed a petition in the

Circuit Court of .Appeals for the Second Circuit, seeking to review

the trial examiner's refusal to dismiss the stop-order proceedings and

to permit withdrawal of the registration statement then under inquiry. However, the Court on November 4, 1935,dismissed this petition for review (consolidated on appeal with Jones' appeal from the

District Court's order requiring compliance with the subpena), on

the ground that the orders denying withdrawal of the registration

statement were interlocutory and therefore not appealable under Section 9 of the .Act (79 F. (2d) 617).

On the same date, the Circuit Court of .Appeals, Judge Manton

rendering the opinion (79 F. (2d) 617), affirmed the order requiring

compliance with the subpena, and held that the powers of Congress
SECOND ANNU.4L BEPORT 119 

mere sufficiently broad to prevent the use of the mails for the purpose 

of the transmission of unregistered securities; that the powers of the 

Commission as to the procedure of registration had been validly 

delegated by Congress; that the action of the Commission refusing 

the withdrawal of Jones' statement was proper; and that the Commission's authority to subpenla Jones was clear. On February 3, 1936, 

the Supreme Court granted certiorari to the ruling which ordered 

Jones to testify. 

The case was argued for the Government by Stanley Reed, Solicitor General, and John J. Burns, General Counsel for the Commission; James Dl. Beck and Harry 0. Glasser appeared for Jones. 

On April 6, 1936, the Court deliyered its opinion, reported at 298 

U. S. 1, Mr. Justice Sutherland writing the. majority opinion, 

Justices Cardozo, Bmndeis, and Stone dissenting. Although the decision was adverse to the Commission, the Court did not consider the 

constitutionality of the Securities Act of 1933. In substance the 

majority of the Court held that the commencement of stop-order 

proceedings by the Commission had prevented Jones' registration 

statement from ever becoming effective, and that, since none of the 

securities sought to be registered had been offered or sold, there was 

no publie interest which could be prejudiced by its withdrawal. On 

this basis the Court held that the Commission erred in denying withdrawal of the statement. The right of withdrawal was considered 

by the Court, at least in this case, to be unqualified. Consequently, 

ihe Court held that the stop-order proceedings had lapsed and terminated when the motion to withdraw the statement was made: with 

the result that the subpena, not having been issued in a properly 

pending proceeding under the Act, was invalid and of no force. The 

scope of the Court's decision in thus reversing the orders below is 

apparently largely limited to the procedure which it considered 

proper for the Commission to employ in connection with stop-order 

proceedings instituted under Section 8 of the Act. 

The dissenting opinion written by Mr. Justice Cardozo stated 

that the rule of the Commission was valid; that the Commission had 

adequate reason for seeking to compel Jones to testify; and that 

notice of the withdrawal of the statement should not affect the 

power of the Commission to summon Jones. 

One year after entry of the, temporary injunction by consent, and 

subsequent to the decision of the Supreme Court holding that the 

Commission's subpena against Jones was invalidly issued, the defendants on April 28, 1936, moved to vacate this consent injunction 

and sought dismissal of the suit. On June 1,1936, the Court (Patterson, J), in an opinion reported at 15 F. Supp. 321, refused to dissolve the injunction, holding that Jones' consent precluded this sub- 
120 SECURITIES AND EXCHANGE COMMISSION

sequent attack upon it, denied a motion for the return of certain

records, and refused to dismiss the bill, holding the Act constitutional

in the light of the Circuit Court of Appeals' previous decision in the

case of Jones v. Seouritie« and Emchange Oommiseion; 79 F. (2d) 617,

discussed supra. The Court further said:

Itis further said that the 1933 Act is unconstitutional. But

it was ruled constitutional by the Circuit Court of Appeals of

this Circuit in Jones v. Seewrities ana Emchange Oommission,

79 F. (2d) 617, and the Supreme Court in reversing the result

did not reverse that ruling .

.An appeal by the defendants to the Circuit Court of Appeals for the

Second Circuit was allowed, and was argued on June 26,1936.1

Indictments were returned against Jones in the Southern District

of New York on May 8, 1936,containing 15 counts alleging violations

of the mail-fraud statute only. No date for trial has been set.

Robert Oollier & 00., Inc; Stock Market Finance, Inc.-Litigation

of importance second only to the different phases of the Jones case

is that resulting from suits for an injunction against violations of

the Act brought against Robert Collier & Co., Inc., et aI., and against

Stock Market Finance, Inc., et al. District Judge Caffey, on February 23, 1935,had dismissed both of these suits on the grounds that the

Commission was not entitled to appear except by the United States

Attorney or the Attorney General. The cases were consolidated for

argument on appeal. The Circuit Court of Appeals for the Second

Circuit, on November 26, 1935, in an opinion by Judge Learned Hand

reported in 76 F. (2d) 939, held that in injunction proceedings

brought under Section 20 (b) of the Securities Act of 1933 the Commission is entitled to appear by its own counsel. The Circuit Court,

in construing the authority vested in the Commission by Section

20 (b) of the Securities Act, gave much importance to the fact that

the original bills, H. R. 4314 and S. R. 875, accorded to the Attorney

General exclusive power not only to decide when to sue but necessarily to conduct the suit, but were subsequently amended in this

respect by the Congressional committees at the suggestion of Robert

E. Healy, then the Chief Counsel of the Federal Trade Commission.

Judge Hand in his opinion stated:

There cannot be the least question that * * * it was

intended to allow the Commission complete autonomy in civil

prosecutions.

1In a decls10n rendered July 14, 1936, and reported at 85 F. (2d) 17, the Court aftlnned

the judgment below and reiterated its position in the earlier case (79 F. (2d) 617) that

the Securities Act of 1933 was constitutional. A petition for certiorari was denied by the

Supreme Court on Oct. 19, 1936, with the result that the case is now pending on the

marltB in the District Court.
SEOO:ND ANNUAL REPORr 121

.Thereafter a temporary injunction was granted by District Judge

Hulbert, and on October 16, 1935, a permanent injunction was entered on consent of the respondents in the Robert Oollier case. Certiorari was sought in the Stock Market Finance case, but was denied

on March 2, 1936 (56 Sup. Ct. 589). Thereafter, on May 29, 1936,

the District Court denied a temporary injunction on the ground that

the, defendants were no longer engaged in the activities alleged to

violate the Act, and that there was no reason to anticipate a resumption thereof.

CASES INVOLVING THE DEFINITION OF THE TERM "SECURITY"

CONTAINED IN SECTION 2 (1) OF THE ACT

H. P. Wickham, doing bueinees as Minneapolis Stock Traders

Seroice, and The Grain Marketing Service.-The decision of the

District Court for the District of Minnesota, Fourth Division, in

this case is also of major importance in that it involves the application of the Act to interests in a "trading pool" composed of investors'

funds and securities. Although the contract sold by the defendants

purported only to create an agency to invest and manage the funds

and securities of the principal, the Court, in addition to sustaining

the constitutionality of the Securities Act, held that participations in

such an enterprise were securities within the definition in the Act.

Although the Commission has obtained other injunctions against the

Sale of similar participating interests, the only definitive opinion

upon the status of such trading contracts under the Act is that of

Judge Nordbye in this case, reported at 12 F. Supp, 245.

The bill for an injunction, filed July 9, 1935, sought to restrain

the defendant from selling through the mails or in interstate commerce without registration being effective, contracts authorizing investment and speculation in his uncontrolled discretion with the purchasers' funds, the defendant retaining 40 percent of the profits as

his compensation. The defendant moved to dismiss the bill primarily

upon the ground that this contract did not constitute a "security"

within the meaning of Section 2 (1) of the Securities Act of 1933.

On September 17 the court granted the preliminary injunction sought

by the Commission.

The Court, in holding that this contract was a security, said:

Whether one invests money in the proverbial gold mine

where he receives a certificate evidencing his contributions and

resulting interest in the profits which are anticipated, or invests in a speculative venture by reason of the claimed skill

and experience of a wain and stock market manipulator to

make profits, the transactions cannot be rationally distinguished in determining the dealings which Congress intended

101973-36-9
122 SECURITIES ANi> ,EXCHANGE. COMMISSION

to regulate in using the term "investment contract." Both are

investments that the law seeks to supervise and regulate tq

prevent abuses and afford the investing public some measure

of protection. Both entail the issuance of a security. In one

the investor expects profits by reason of the gold to be mined;

in the other by reason of the skill and experience of the defendant in the market. In both the opportunities for fraud

are notorious.

In any event, if resort must be made to any other portion

of the Act, the phrase "certificate of interest or participation

in any profit-sharing agreement" is amply inclusive to embrace

the contract in question. The Court does not consider Dame v.

Lee, 178 S. E. 752 (Ga.), cited by the defendant, as controlling.

Further, the Court is of tb,e opinion that the constitutionality

of the Securities Act of 1933 must be sustained, so far as that

question is before the court on this motion.

On February 11, 1936, a permanent injunction was entered upon the

consent of the defendants.

CASES INVOLVING DEFINITION OF "SECURITY"

United States

Principal defendants dI8trIct court In Date of filing Violations Disposition whlcb complaint of bill alleged

1lled

Aldrich Blake __________District of Co- Sept. 7,1934 Sec. 5___________Temporary injunction

lumbla, granted Jan. 20, 1934.

Permanent injunction

granted May 19, 1936.

Appeal dismissed Sept.

18,1936.

Colonial Trading Co. District of No- Apr. 11,1935 Sees. 5 and 17___ Permanent Inlunetlons

(and 36 otber defend- vada, granted May I, 1936. 11

ants). defendants indicted July

6,1935.

Crude on Corporation Western Dlatrict Apr. Zl,I936 ____odo___________Pending.

of America (and 3 of Wisconsin.

other defendants).

Cultivated Oyster Southern District Jan. 10,1936 _____do___________Temporary Injunction

Farms Oorporatlon. of Florida. granted May 20,1936.

"Sell and Switch" devices.-The Commission has litigated numerous cases involving the practice of first selling to customers seasoned

dividend-paying stocks listed on the major securities exchanges, and,

after gaining their confidence, "switching" them into a low-grade

speculative stock being distributed by the dealer and, of course,

highly recommended by him. This simple expedient for gaining and

subsequently abusing the customers' trust, which often involves use of

''tipster sheets" as well as misrepresentation of bid and asked prices

in a fictitious over-the-counter market, was involved in the following

court proceedings.
:SECOND .ANNUAL -RE;PORT 123

l'rIncipal defendants

United States

dlstrict court in which suit was brougbt

Datsoftlling Violations

alleged Disposition

Benners, Owens & Co. Eastern Dlstrlct May 16,1936 Bee.l7

et al. of Michigan.

DID & Co., Ine., In- District of Mas- Mar. 6, 1936 do

vestors Tmding Cor- saehusetts,

poration, Harold L.

McCormack, at al.

Lawrence A. Rose Soutbem Dlstrlct Feb. 3, 1936 do

(Lawrence A. Rose of New York.

Co.). Louis Weingarten & do ._._._ May 7,1936 do

00., Inc.

Sontbem Dlstrlct Nov. 2, 1936 Bee. 17_.

of New York.

District of New Sept. 14,1934 do.

Jersey.

Temporary injunctions

entered against 3 defend.

ants May 15, 1936. One

defendant bas lIJed an.

swer, Pending.

Permanent injunction en.

tered Sept. 12, 1934.

Cased~~by~mntm

witbout prejudice Jan. 7.

1936.

Receiver appointed for

corporate defendants

Mar. 11, 1935. Suit dis--

m!ssed as to 1 defendant

Dec. 'J:1, 1936. Defendant McCormack consented to entry of pem1lIIIent

injunction Apr. 1, 1936.

Permanent injunction entered Feb. 21, 1936.

Permanent Injunction en- tered by consent Sept.

24, 1936. Twenty defendants indicted July

2, 1936. Pending.

Permanent injunction en.

tered by consent Feb. 4.

1936.

Permanent injunction entered by consent May

1936.

Sept. 17,1936 Sees. Sand 17

Jone 26, 1934 do ._ Dlstrlct of New

Jersey.

Western D~trict

of Kentucky.

Carleton Saunders &

Co.

Oolllns-Moore & Co.

et al.

Kerpel & Co., Ine.,

etal.

National Investment

Transcrlpt et al.

ACTIONS AGAINST BROKERS AND DEALERS OPERATING BUCKET

SHOPS

.Another situation often encountered involves the sale of securities

on margin or on a deferred-payment plan wherein the broker ordealer neither purchases the securities thus sold to his customers nor

makes other provision for acquiring securities with which to fulfill

his commitment to the customer. In the normal case this involves

"bucketing" orders, a fraudulent practice which is specifically defined

as a crime under the laws of most States. In many instances the

operators of bucket shops, in addition to failure to purchase the

security sold to customers, embezzle the partial payments made, or

the margin collateral deposited, by customers. The following cases

involve this type of fraudulent operation.

__•__• _

_

__•__ _

_

_

__• •__

•• • _

~
124 SECURITIES AND ExCHANGE COMMISSION

l'rlncipal defendants

United States

district court Data of 1Iling

In whlch suit of bill was brought

Violations

alleged Disposition

Zimmerman, Jack.. Northern Dls- Apr. 19,1935 Sec. 17

trict of Georgia.

Upton eft Co. et al. Northern Dts- July 31,1935 Sec. 17

(Howard C. UPton). trict of Illinois.

Turivas eft Co., Inc. Eastern District Dec. 7,1934 do

(Louis Turivas et of Louisiana.

al.).

M. E. Wilcox, Inc. Northern Dls- Feb. 14,1935 Sees. I) and 17

(Vincent J. O'Brien, trict ofIndiana.

Harry L. Reif).

Permanent Injunction entered against Nagel on

June 9, 1936. Other defendants could not be

served.

Consent injunctIon granted May 6, 1936.

Decrees pro C01l!U'O entered Aug. 26, 1935, but

set asIde on Sapt. 28,

1935. Kattelman has

been Indicted In Circuit

Court of the City of St.

Louis for embezzlement;

trial set for Dec. 21, 1936.

Permanent injunction

granted on Feb. 11, 1936.

Temporary Injunctions

granted May 14, 1935,

and May 17, 1935. 1

defendant obtained vacation of order as to him

May 16, 1935.

Principal defendants consented to entry of permanent Injunction on

Jan. 9, 1935. On -May

23, 1935, Indictments

were returned against 20

defendants and are now

pending.

Permanent injunction

entered on consent Oct.

18,1935.

Permanent injunction

entered on consent and

receivers appointed Feb.

14,1935.

Permanent Injunction

entered by consent Apr.

20, 1935. 2 defendants

indiCted June 17, 1936,

and trial set for October

1936. 1defendant pleaded

guIlty, receiving a 3-year

sentence.

Permanent injunction

granted by consent on

May 17, 1935.

Sacs. 6 and 17

Securities Act,

and Sec. 8 of

the Securities

Exchange Act. Sec. 17

District of Co- May 14,1935 Sec. 17

lnmbla.

Eastern District June 29,1935 do

of Missouri.

District ofMiu-y- Mar. 1,1935

land.

District of Co- May 3,1935 Sacs. I) and 17

lnmbla.

_____do May 6, 1935 Sees. I) and 17 _

Orumpton eft Co.

{Frank J. Hill, John

Q. Nagel).

Donegan eft Co. (J. J.

Donegan).

xat~ eft Co. (H.

T.xat~).

Harrison Knight eft Co.,

Ino. (Harrison

KnIght, Edward A.

Snyder).

Roberts, Howard M.

(Howard M. Roberts

oe,i,

.Krog, Carl E. (Invest- Northern Dis- Feb. 7, 1936

ment Sacuritles Oo.), trict of Texas.

_

_

_

_

_

_

_

_
SECOND ANNUAL REPORT 125

MISCELLANEOUS INJUNCTIONS

Gri7l/l1.ellF. Oliver & 00. et al.-This action was instituted on

March 16, 1936, in the District Court of the United States for the

Northern District of illinois, Eastern Division, to enjoin defendants

from violating the provisions of Section 5 and Section 17 in the sale

of Mid-Continent Income Shares, Inc., a purported investment trust

for oil royalties. Fraudulent practices in the sale of oil royalties

were asserted, as well as fraudulent commingling of the customers'

funds with the personal funds of the defendants, and misrepresentation as to "income" payments alleged to have been paid out of capital.

The complaint also alleged that sales of the shares in the investment

trust were made in violation of the registration and prospectus requirements of the Act. The Court, in an oral opinion not reported,

dismissed the complaint on the ground that the activities complained of had ceased, that there was no reason to believe that they

would be resumed, and that therefore the defendants could not be

enjoined since they were neither "engaged" nor "about to engage"

in violations of the Act.

Other miscellaneous cases are tabulated below:

Prlnclpal defendants

United Ststes

district court Date of tiling

in which 'llit of bill was brought

Violations

alleged Disposition

Billbarg,Edward,Allen Eastern District 1an. 29,1936 Sees. 5 and 17

Gordon, Harry 1. of Washington.

Greenwald.

Boyette, W. E_________ SouthernDisuict Oct. 21,1935 do

of Florida.

Bryant, F. S. (F. S. District of Mas- Mar. 24,1936 Sec. 17

Bryant &: Oo.), sachusetts.

Direct Royalty Sales District of Co- Sept. 23,1935 Sees. 5 and 17

Corporation. lumbla.

Durante, A. A. Southern District 1une 24,1935 do

of New York.

Elliott, Harry W., Southern District Jan, 27,1936 do

10hn Buie. of Mississippi.

EI Presidio Hotel Northern Dis. 1une 28, 1935 _. do

Guaranteed Sy.ndi. trict of Texas.

oate.

Permanent injunction

granted by consent 1an.

29,1936.

Temporary injunction

granted Oct. 29, 1935.

Defendant consented to

entry of permanent in.

junction Mar. 24, 1936.

Case pending.

Temporary injunction

granted as to Durante

1uly 13, 1935, as to defendant Goodwin Sept.

25, 1935. Answer tiled

and case pending.

TemporarY injunction

granted Mar. 3, 1936,permanent injunction

granted May 18, 1936,

both on consent. 2 defendants indicted Nov.

8, 1936. Trial was held

in May 1936,1 defendant

convicted, 1 acqultted.

No appeal.

Permanent injunctions

entered against 8 defendants Feb. 27, 1936.

Sult dismissed as to 1 defendant Feb. 27, 1936.

_

_

_

_

__• • _

•__

_
126 SEOUIUTIES AND EXCH:ANGE COMMISSION

PrIncipal defendants

Unfted States

district court Date of ftllng

In which suit of bill was brought

Violations

alleged Disposition

Raile, MandeD, et aI do___________ Dec. 19,1936 do

Plke,loel, et aL do____________Feb. 20,1936 do

Popular Finance, Ine., District of Mas- Aug. 30,1934 Sec. 17

et a!. sachosetts.

Thompson, WaIter S___ District of Mas- May 2, 1936 Sec. 5

sachusetts.

Permanent fnjunction

granted Mar. 6, 1936.

Permanent fnjunction

granted Sept. 17, 1935.

Permanent fnjunction

entered by consent Feb.

25,1936.

Permanent fnjunctions en

tered on consent as to all

defendants between Dec19,1935and May 11,1936.

Motion to vacate order to

tlbow cause and to dismiss

amended complalntmade

on May '0,1936. Pending.

Defendant consented to entry of permanent injunction on Mar. 11, 1936-

Permanent injunction

granted on consent and

entered Apr. 2, 1936.

Temporary injunctions

granted June 15,1936and

Sept. 12, 1936.

Afteranswer andargument

permanent injunction

granted June 8, 1936.

Permanent injunction

granted Apr. 1, 1936.

Permanent injunction

consented to In open

court July 22, 1935

Permanent injunction

entered by consent Feb.

20,1936.

Preliminary injunction

granted Aug. 8, 1936;permanent injunction

granted June 3, 1936. Indictments returned

against 6 persons Mar. 10

1936. Prosecution pending.

Defendants consented to

entry of prellmlnary injunction Oct. I, 1934.

Pending.

Permanent injunction

granted on consent Dec.

19,1936.

Temporary injunctions

granted as to sevpra! separate defendants between

July 15, 1945, and Dec.

'0,1936.

Permanent injunction

granted on consent May

2, 1936.

Dee. 8, 1934 Sec. 17

Mar. 6,1936 Bee. 17

Sept. 17,1936 Sees. 5 and 17

District of Massacbusetts.

Western District

of South Carolina.

Eastern District

of Louisiana.

Eastern District lune 15,1936 Bec. 17

of Michigan.

Southern District Sept. 3, 1936 Sees. 5 and 17

of Texas.

Fernald, George A

FranklIn Savings &<

Loan Co. et al, of

Spartanburg,S.C.

Gallop, George (Gallop

&< oe,i,

Goldfields Consoll- District of Mon. Nov. 2, 1935 Sees. 5 and 17

dated Mines, tne., tana.

etaI.

Glengarry Mfning Co. Southern District Dec. 18,1936 do

et aI. of New York.

Plymouth Consoli- District of Dela- lan 3,1936 Sees. 5 and 17

dated Gold Mines, ware.

Ltd., etaI.

Knapp Milton &< Co., BouthernDlstrict Mar. 3,1936 Sees. 5 and 17

Ine., et al, of New York.

Secord, Vanderpoel &< Southern District lons 21,l936 Sees. 5 and 17.-_

Co., Ltd., et a!. of New York.

1«Isen, Andrew, Jr_____ District of Mas- Mar. 11,1936 Sec. 17

sachusetts.

:Myers, Sam, et aI_____ District of Mas- Apr. 1,1936 Sec. 17

sachusetts.

Nazzaro, Edmund E., do____________July 19,1936 do

eta!.

.Levett &< Co. (Harry H.

JLevett, M. A. Levett

-et aI.).

:Morgan, WaIter Terry_

_ _

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_
SE<;JOJ;m ANNU~,~PO;RT 127

; PrIncipal defendants

United Ststes

district court Date of filing in which sult of bill was broughtViolations

alleged Disposition

Aug. 16,19351 eee.

Universal Service As. Northern Dis. Mar.30,I936 Sees. 5 and 17.__

sociation et al. trict of IllInois.

Trowbridge, Almarin •• District of Mas. Jan. 2,1936 Sec. 17••••••••••

saehnsetts,

Whealton Co., Ine., et District of New Oct. 14,1936 Sec. 17

aL Jersey.

Permanent Injunction

granted on consent Jan.

2, 1936.

Motion for preliminary In.

Junction made on Apr. II,

1936. Answer filed Apr.

28, 1936. Case pending.

Preliminary injunction

granted Nov. 12, 1936.

Permanent Injunction

Nov. 25, 1936. Indictment returned Nov. 8,

1935. Defendant con.

victed and sentenced for

1 year and 6 months on

Nov. 21, 1936.

Permanent injunction

entered Mar. 30, 1936.

Temporary Injunction

granted against further

violations and against

transfer of defendant's

assets on Feb. 28, 1936.

Indictment returned

Aug. 9, 1936. ProsecU.

tlon pending.

On Nov. 6, 1936, action

dismissed as to Joseph

S. Barr. Decree pro

confesso taken as to

other defendents Mar.

9, 1936. Indictments returned against 14 defendants June 23, 1936.

prosecution pending.

Permanent Injunctions

entered by consent of

defendants July 31, 1936,

and Aug. 13, 1936.

Temporary Injunction

as prayed for in amended

bill granted as to- 7 defendants Sept. 25, 1935,

which W88 made permanent Dec. 6, 1936. In.

dlctments returned

against 17 defendants on

Feb. 12, 1936,trial hald

lune I, 1936. 2 defendants acquitted, indictment dropped 88 to 1

defendant, all oth era

convicted except 4 who

are fugitives from Justice.

Feb.27,1936 Sees. 5 and 17

District or Mas. Mar. 4, 1936 do._

sachusetts.

Northern Dis.

trict of IllInois.

Young'" Co. (Stanley Western District luly 17,1936 Sees. 5 and 17•••

B. Young, R. M. of KentuckY.

Prozan et al.)

Vickers, Sidney G. et

aL

Wall Street Security

Corporation et al.

Vale, Jack R Northern Dis- Nov. 12, 1936 Sec. 17

trict of Missis.

sippi.

IAmended BiIl1l1ed.

-

•••••••••• _ •••••••• __

_•••• ••_•• _

•• _

•••••• __••

_••• •• •
128 SEOU1UTIES AND EXCHANGE COMMISSION

CASES INVOLVING VALIDITY OF SUBPENAS

In a number of instances the Commission, as authorized by Section

22 (b) of the Act, has had to resort to the Courts to enforce complinace with subpenas issued in connection with investigations of violations of its provisions. The most important case involving the

subpena power of the Commission is Securitie« and. Ewchall(le Oommission. v. Jones discussed above, where the subpena was issued in

the course of a stop-order proceeding under Section 8 (d) then pending. Although the Supreme Court refused enforcement of the subpena there in issue, it based its decision upon the premise that the

proceedings had lapsed and terminated because of the attempted

withdrawal of the registration statement prior to the issuance of the

'Subpena. The decision, therefore, although holding that particular

subpena to have been invalidly issued inasmuch as it was issued otherwise than in a lawfully pending proceeding, does not derogate from

the substantive subpena powers of the Commission under Section

19 (b).

The first application by the Commission to enforce a subpena was

that made to the District Court for the Northern District of Georgia,

Atlanta Division, in the American Bond and Share case on March 15,

1935. Although this application was fully argued before the Court,

it was continued indefinitely because the Commission had, prior to

decision, obtained the required evidence from other sources. Similar

disposition has likewise been made of a number of the following

tabulated cases.

Mills, 1. Edward, et a!••• Northern District of Feb. 12,1936

Texas.

The Krystel Ohemical District of Columhia.. Ian. 29,1936

Co., Inc., et_a!.

National Short Term District of Massa. 1an. 31,1936

Securities Corporation cbusetts.

eta!.

Principal defendants

American Rand Corporation.

Collins-Moore &: Co.

et el,

Hussey, Arthur E •••••••

District in which suit Date of filing was brought of appllcation

Western District of June 8, 1936

Washington.

Western District of II!ov. 11. 1935

Kentucky.

Western District of do

Washington.

Disposition

Application dismissed on motion of

Commission, luly 13, 1936.

Application dlsmissed on motion of

Commission, Nov. 14, 1935.

Application dismissed lune 16, 1936,

because of destruction of documents

prior to service ofsubpena.

Order granted by District Court,

Mar. 3D, 1936. Appeal taken and

argued In United States Court of

Appeals Oct. 9, 1936. Motion made

by Commission to remand case to

District Court for dismlssaI, Oct.

13, 1936, pending.

Defendants on Feh. 28, 1936, moved to

dismiss application on ground that

Securities Act of 1933 is unconsti.

tutional. Motion pending.

Order entered Feb. 3, 1936. Defendant

on Feb. 11, 1936 moved to vacate on

various grounds, including procedure

and constitutionality of Securities

Act of 1933. Case pending.

_
SECOND ANNUAL REPORT 129

:PrIncipal defendants District in which suit Date ot 1IlIn't Disposition was brought ot application

Royalty Bond 4< Share District ot New Men- Oct. 16, 1935 Order entered Oot. 19, 1935.

Corporation et al. 00.

The Black Oold Explora- Western District ot Dec. 17,1935 Application disIIllssed IDly 21, 1936.

tion Trust et al. Oklahoma.

Verser-Clay oo., Mid- do Dec. 16, 1935 Pending.

Continent Crude on

Purchasing Oo., and

E. C. Clay, President.

SUITS TO. ENJOIN ENFORCEMENT OF THE SECURITIES ACT

Principal plaintltls Distriot in which suit Date of1lling Disposition was brought ot blll

Abraham, Benjamin L _____ Eastern Distriot ot rune 13,1935 Pending.

Pennsylvanle. Crawford, R. R ____________ Northern Distrlot of Aug. 8, 1935 Do.

Oklahoma.

N atlona! Short Term Se- District ot Columbia ____ Feb. 21,1936 Preliminary injunction denied

curities Corporation. Mar. 6, 1936. Case is pending.

CRIMINAL PROSECUTIONS UNDER THE SECURITIES ACT OF 1933,

AS AMENDED

The foregoing tabulation of injunction suits refers to the ensuing

indictments and prosecutions, if any. In many instances it has,

however, been found desirable to refer the results of the Commission's investigation directly to the Attorney General in the interest

of speedy prosecution without the delay encountered in contested

injunction suits. The most important prosecutions are briefly de..

scribed and others tabulated below.

Kopala-Quinn ill 00. Joseph R. Mendelson.

McOormick ill 00. Leonard H. Suttermam;

Gould ill 00. Joseph N. Sherman.

The Commission spent over 18 months in investigating the activities of a vast interstate chain store of "bucket shop" security firms,

which sold securities from central offices in Chicago, Indianapolis,

Duluth, St. Paul, Minneapolis, Dallas, Wilmington, Baltimore,

Atlanta, Houston, New York City, Boston, Detroit, Milwaukee, and

Philadelphia. Thereafter the Department of Justice, collaborating

with the Commission, secured the return of two indictments.

The first was returned in the Southern District of New York on

August 30, 1935, naming Mendelson, Sutterman, Sherman, and one

other person, the named individuals being the principals of the group,

and charging them in 10 separate counts with violations of Section 9

(a) (2) of the Securities Exchange Act of 1934 for their activities in

-______ ____________
130 SECURITIES EXQHANGE COMMISSION

connection with market manipulations in the stock-of the Stutz Motor

Car Co. of America on the New York Curb Exchange. This matter

has yet to be set for trial. Subsequently, on July 14, 1936, in the

Northern District of Georgia, Gainesville Division, indictments were

returned charging the above corporations and individuals, in addition

to 24 other defendants, with violations of both the mail fraud statutes

and the fraud provisions of the Securities Act. The indictment contains five counts alleging violations of Section 11 (a) (1), one count

alleging violation of Section 11 (a) (2), one count alleging violations

of Section 11 (a) (3), seven mail fraud counts and one conspiracy

count. All but two of the defendants named in the indictment have

been apprehended, and, with the exception of one of those apprehended, all have been unsuccessful in their attempts to resist removal.

Defendants are now at liberty under bond of $5,000 or less pending

trial, the date of which has not yet been set.

Briefly, the Georgia indictments alleged that the defendants and

their agents, operating through eight or more corporate entities, sold

securities to the public from officeslocated in many States through

high-pressure telephone solicitation methods. It is alleged that the

defendants sold stock on a- 50-percent partial-payment basis and

subsequently induced customers to switch from the conservative securities originally purchased to another stock in which the defendants were interested, the price of which the defendants had previously manipulated to inflated prices on a national securities exchange

where it was traded. Thereafter, before balances were due, it is

charged that the defendants, by ceasing their market operations,

would allow the price to fall to its natural level. The customers'

equities in their securities were thus alleged to have been appropriated through the guise of selling the collateral security for the customers' unpaid installments. Since, under the partial-payment plan

described, the defendants were able to refuse delivery of the securities purchased until the balances were paid, they were able to

"bucket" orders, and in this way it is alleged that they did in fact

many times actually oversell the capitalization of corporations in

the securities of which they dealt. It is estimated that the group

named in this indictment, which has been operating extensively since

1921, have defrauded the public of over 10 million dollars.

In connection with the grand jury presentation resulting in this

second indictment, a bill in equity was filed on behalf of McCormick

& Oo., one of the defendants, attempting to enjoin the United States

attorney and two representatives of the Securities and Exchange

Commission from presenting certain evidence to the grand jury

which had been obtained by officersof, the Commission in the course

of its investigation. Judge Underwood, United States Judge for

~-
131

the Southern District of Georgia, refused to grant the temporary

injunction requested.

Polymet Manufacturing Oorporation.-Following investigation by

.the Commission, and with its cooperation, indictments were returned

in the District of Massachusetts on February 8, August 20, and September 9,1935, and in the Southern District of New York, charging

W. L. Jarvis and associated persons with violation of the mail fraud

statutes and Section 17 (a) of the Securities Act of 1933, as amended.

The indictments charged publication of a so-called investment service which was circulated from Boston and Springfield, Mass.

Through this financial publication, purportedly independent and

unbiased, but alleged to be operated in conjunction with a highpressure telephone sales campaign, Jarvis and his codefendants were

charged with selling Polymet Manufacturing Corporation stock to

the investing public at a market price which they had previously

inflated by manipulative transactions. Jarvis and his principal co-

-defendant, Gaines, as well as certain others, have been convicted and

sentenced, An appeal has been noted, but has not yet been heard or

decided.

Jarvis, Gaines, and two of his associates, were also indicted in the

Southern District of New York in connection with a manipulative

operation in the stock of the Atlas Tack Corporation, listed on the

New York Stock Exchange. Trial was held in October 1935. No

-eonvictions were had, owing to disagreement by the jury.

Arizona Oometook:Oorporation.-An indictment was returned on

September 14, 1934, in the Western District of Washington against

15 individuals. Three defendants were convicted on the Securities

.Act count and sentenced to terms ranging from 3 years to 18 months

with fines from $4,000 to $500.

.Ooloniallnvestment Syndicate.-Indictments were obtained in the

District Court for the Western District of Tennessee on February 14,

April 13, April 14, and April 15, 1936. Trial has not been set. One

-defendant has pleaded guilty and received sentence.

Secwrity Service Oorporation, El Oro Mines Oo.-The results of

investigation were transmitted to the Department of Justice and

resulted in two indictments returned in the Northern District of

Texas on January 18, 1936, charging violations of Section 17 of the

"Act.

The first indictment was tried February 20, 1936. Four defendants

were acquitted, and the other three were found guilty of conspiracy

and the mail fraud violations. The three defendants convicted in the

first indictment were also named in the second indictment, and on

pleas of guilty, were given concurrent sentences under the second

indictment. Nine of the remaining defendants in the second indict-
132 SECURITIES AND EXCHANGE COMMISSION

ment also plead guilty and received fines or jail sentences. Charges

were dismissed with respect to all of the remaining defendants but

two, and these are still to be apprehended.

In an opinion reported sub nomine, U. 8. v. Alluan, 13 F. Supp.,

289, the District Court refused to quash the indictments, holding

that both mail fraud and Securities Act counts may be included in a

single indictment without duplicity.

The following prosecutions are described in tabular form:

Name Of case

United States district

court where Indict.

ments returned

Date of

Indictments

Nomberor

defendants

named

Disposition

Lory T. Gardner ce., Western District of May 6,1936

Texas.

Mid West Mortgage Northern District of Jan. 17,1936

Oorporatlon, Texas.

Reported sub nomine,

U. S. v. AUuan, 13 F.

Supp.289.

Oklahoma City on Western District of Mar. 9,1936

Journal. Oklahoma. Pulliam & Co. Northern District of June 5,1934

Texas.

Southern States Re1Jn- N ortbern District of Jan. 15, 1936

ery Co. Georgia.

Standard Royalty Co Western District of Apr. 2, 1936

Louislana.

Stroud.Kurtz Co- District of Columbla.._ May 17,1936

Joseph WillIams ________ Southern District of Oct. 3,1935

California.

District of Nevada._.. May 20,1936

Northern District of Jan. 22, 1936

Texas.

District of Utah .__ Oct. 22,1935

District of Delaware Jan. 8, 1936

Southern District of May 11,1936

Texas.

1 Defendant pleaded guilty and

was sentencedfrom 1to4 years.

2 Both defendants acquitted.

3 Do.

4 All defendants convicted and

sentenced for 3 years each: 1 Pending.

2 1 conviction, 1 acqulttal.

4 Do.

9 Do.

3 2 defendants convicted and

sentenced June 1936. The

principal defendant pleaded

guilty Oct. 22, 1936, and was

sentenced for 7 years Oct.

28, 1936.

11 Pending.

20 Pending. 8 defendants pleaded

guilty and were sentenced.

11 All defendants pleaded guilty.

Sentences from 90 days to 1

year.

1 Defendant pleaded nolo contendere. Sentenced for 2 years.

2 Appeal pending.

Ii Pending.

7 Pending. 2 defendants pleaded

guilty and were sentenced for

3 years each. Charges dlsmissed as to 3 defendsnts,

remaining 2 not yet apprehended.

2 Pending.

8 Pending.

Dec. 2, 1935

Nov. '0,1935

Mar. 26,1935

Mar. '0,1935

Apr. 17,1935

July 31,1935

Nov. 1,1935

Jan. 6,1935

Southern District of

California.

Northern District of

Georgia.

Southern District of

New York.

Eastern District of

Michigan.

District of Columbia

Acceptance Exchange

Co.

American Bond'" Share

Oorporatlon (B. R.

Bradiey, R. E. Lee,

et al.),

Bankers Service Cor.

poratlon.

Norman Berry Co

BIg Wedge Gold MinIng Co.

EI Presidio Hotel Guaranteed Syndicate.

Emhlem Manufactur.

Ing Distributing Co.

C. S. Goddard'" Co

O. B. Kelley & Co., Inc..

IrwIn Kott et al

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SECOND ANNUAL REPORr 133

CIVIL LEGISLATION UNDER THE SECURITIES ~CT OF 1933,OF WHICH

THE COMMISSION IS INFOR,MED

P. J. Lisicky v. 0 ontinental Distillers ((; Importers Oorporation

et al.-Plaintiff purchased securities of the Continental Distillers

& Importers Corporation, which were then registered under the Act,

relying partly upon rePiesentations in a prospectus filed with the

Federal Trade Commission, which it is alleged was false and misleading. The Commission issued a stop order pursuant to Section

8 (d) on January 26,1935. On January 24,1936, Lisicky sued in the

District of Columbia under the Sections of the Act creating civil

remedies. The Commission obtained leave of Court to intervene as

amicus curiae in order to argue the constitutional issues. The defendants then withdrew their challenge of constitutionality and proceeded to a trial of the case upon its merits.

Eighteen other suits of identical nature have been brought in the

District of Columbia by other plaintiffs against the same defendants,

which by agreement have been stayed pending determination of a

single such action now before the United States Court of Appeals

for the District of Columbia.

On May 27, 1936,indictments were obtained in the District Court

for the District of Columbia following reference of the 'files to the

Department of Justice, naming four defendants. The single count

in the indictments is based upon alleged violations of Section 24 of

the Securities Act of 1933,which renders unlawful the willful making

of false or misleading statements in a registration statement filed

under the Act. Date for trial has not yet been set.

In the Matter of The United Telephone ((; Telegraph Oo.-On

April 10, 1936, the Commission petitioned the United States Court

for the District of Delaware for permission to intervene in the reorganization proceedings of The United. Telephone & Telegraph Co., a

debtor corporation, which were then pending under Section 77B of the

Bankruptcy Act. In support of the petition, the Commission filed

a memorandum stating that two reorganization committees for preferred stocks of the debtor had solicited deposits in violation of Section 5 of the Act, and that stocks so deposited in disobedience to an

order of the Court had not been returned to depositors. The Commission prayed that the petition of the reorganization committees

for approval of their plans of deposits be granted, if at all, only after

return of the securities unlawfully solicited.. No further action has

been taken by the Commission. .

Borland v, Oommoneoeaith. Subsidiatry Oorporation.-The Commission, at the request of the litigants, has expressed a willingness

to appear as amicus curiae in this case which has been pending in

the District Court of the United States for the Northern District of
134 SECURITIES AND EXOHANGE OOMMISSION

Jllinois since the Fall of 1935. This litigation will apparently necessitate decision by the Court on very complicated, difficult, and novel

questions of the interpretation of Sections 3 (a) (1),3 (a) (9), and

2 (11) of the Securities Act of 1933, as amended. Essentially the

problem of statutory interpretations involved is whether the exemption from registration provided by Section 3 (a) (9) of the Act, as

amended, can apply to securities made thl subject of a secondary

distribution by a person in control of the issuing corporation, who

received such securities in the course of an earlier exchange of securities which fell within the literal language of Section 3 (a) (9). The

parties in the case have consulted with the Commission, and are keeping it informed of the progress of the cause, which may be reached

for argument within the next few months.

II. SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

John M. Torr et al.-The most important litigation under the

Securities Exchange Act of 1934 was that instituted by the Commission to enjoin transactions by Torr & Co., Ellery Mann, and other

associated individuals, engaged in effecting a secondary distribution

of Trans-Lux Daylight Picture Screen Co. stock, which is registered

and listed upon the New York Curb Exchange. The bill of complaint, which sought both temporary and permanent injunctions, and

was filed in the Southern District of New York on December 23, 1935,

alleged that Torr & Co. had employed persons in the security business

with wide financial acquaintanceship to recommend the purchase of

Trans-Lux stock and thus create public buying interest in order to

raise the market price of the stock to a point where Torr & Co. might

profitably distribute 47,000 shares of stock which it had under option

from Mann. The bill of complaint and supporting affidavits alleged

that the solicitation activities of the defendants carried on in many

States, including California, resulted in greatly increased market

activity and in steadily rising prices upon the New York Curb Exchange. The series of transactions at rising prices thus effected for

the purpose of inducing the general public to buy Trans-Lux stock,

which in turn further raised the price, were alleged to violate Section

9 (a) (2) of the Securities Exchange Act of 1934. The bill also

alleged that the failure' of the various tipsters employed by Torr &

Co. to disclose their adverse financial interest and their bias in thus

recommending the purchase of Trans-Lux stock constituted a violation of Section 17 of the Securities Act of 1933.

On February 18, 1936, District Judge Patterson heard oral argument upon the temporary injunction, which was granted on April 11,

1936. The opinion of the District Court, reported at 15 F. Supp.
SECOND ANNUAL REPORT 135~

315, is notable for the decisive language used in sustaining Section

9 of the Securities Exchange Act as a valid exercise of the Federal.

power over the mails and interstate commerce. The Court further

held that the New York Curb Exchange constituted a channel

through which passed a continuing stream of interstate commerce

in securities, and therefore Section 9 of the statute, regulating

manipulative transactions thereon, :fell squarely within the decisions

of the Supreme Court in Stafford v. Wallace, 258 U. S. 495, and

Ohicago Board of Trade v, Olsen, 262 U. S. 1. After discussing the.

scope of the decisions in these two cases, the Court said:

Both cases were decided on the ground that there was a

great interstate commerce in the commodities concerned and

that Congress had the power to subject to regulation local incidents that directly affected such commerce. It follows that

section 9 (a) of the Act in question, insofar as it purports

to prohibit manipulative transactions effected on national securities exchanges, is a valid exercise of Federal control over

interstate commerce.

Inaddition to upholding the validity of Section 9 of the Securities

Exchange Act, the Court also held that the practice of giving purportedly disinterested and friendly financial advice without disclosing the fees paid for making such recommendations and for procuring purchases on the market constituted a violation of Section

17 (a) of the Securities Act of 1933, again held valid on the basis

of the prior decision of the Second Circuit Court of Appeals in

Jones v. Seouritiee and EaJChange Oomaniesion, 79 F. (2d) 617,

(1935).

The defendants have appealed from this decision to the Circuit

Court of Appeals for the Second Circuit, where argument is expected

to be held in November or December 1936.

.Amos Doume et al.-On January 8, 1936, the Commission commenced action in the District Court of the United States for the

District of Colorado against Amos Downs and others, alleging the

sale of Alma Lincoln Mining Co. stock and other securities in violation of Section 17 of the Securities Act and of Section 9 (a) of the

Securities Exchange Act. The bill alleged that the defendants, in addition to other fraudulent representations, had published a "tipster

sheet" known as the "Mining Mirror", recommending purchase of

securities without disclosing their adverse interest. Other defendants

were alleged to have circulated a publication known as "Profit Pointers", containing further misrepresentations. The bill alleged "wash

sales" on the Denver Stock Exchange, a registered exchange, manipulating the price of Alma Lincoln stock. The defendants denied the

Commission's allegations and asserted that the acts complained of had
136 SECURITIES AND EXCHANGE COMMISSION

ceased before the filing of the bill. District Judge Symes on February 12, 1936, in an oral opinion, not reported, held that since all

the acts complained of had occurred prior to June 29,1935, no necessity for an injunction was shown, and dismissed the bill without

prejudice, saying: "If these defendants or anyone else starts up

again after this hearing and all that has been disclosed, the Court

will at once grant an injunction."

The following cases are set forth in tabular form:

Principal defend. DI.ulct In which Date of filing Alleged violations ants suit was brought of bill Disposition

Otis Co___________ Northern District Apr. 1,1935

bf Ohio.

Belmont, Robert____ District of Massa- July 16,1935

cbusetts.

EIcblepp, Alexander Northern District Aug. 6,1935

Rudolph. of Dlinols.

Todd, K. W. ce, Western District May 20, 1935

Inc., et aI. of Pennsylvanla.

Permanent injunction

enterod July 16, 1935.

Permanent injunction

enterod with consent

of defendant Aug. 6,

1936.

Pending.

Defendants consented

to entry of permsnent injunctions on

June 14, 1935.

Permanent injunctions

entered with consent

of defendants June

5,1935.

Permanent injunctions

entered with consent of defendants

May 25, 1936.

Sec. 17 of Securities

Act of 1933, and Sec.

9 of Securities Exchange Act of 1934. Sec. 9 (a) (1)-

Sec. 17 of Securities

Act of 1933, and Sec.

9 (a) (2) of Beenrtties Exchange Act of

1934.

Sec. 9 (a) (1) and (2)

Sec. 17 of Securities

Act of 1933, and Sec.

9 (a) (I), (2), (3), and

(4) of Securities Exchange Act of 1934.

Sees. 5 and 17 of se- curities Act of 1933,

and Sees. 7 (c) (2)

and 11 (d) (2) of the

Securities Exchange

Act oflll34.

Western District May 20,1935

of Pennsylvania.

Southern District May 22, 1936

of New York.

Sterling Investment

Corporation, Pitt

Investment Co. et

aI.

8cbmld, Herbert

W., et aI. (H. W.

Schmid Oo.),

CASES INVOLVING SUBPENA POWERS

Thomas Bracken, et al.-The defendants refused to testify unless

furnished with transcripts of their testimony. On February 19, 1936,

the Commission applied to the District Court in the Southern District

of New York to enforce these subpenas. This relief was granted,

and an appropriate order was entered (14 F. Supp. 417). An appeal

was taken from the order of the Court and heard before the United

States Circuit Court of Appeals for the Second Circuit, which affirmed the decision requiring compliance with the subpenas (84 F!

(2d) 316).

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SECOND ANNUAL REPORT 137

The Circuit Court held that the witnesses were unjustified in

refusing to appear and testify upon the grounds that they would not

be furnished a copy of the testimony given by them. The Court said

(Manton, J.) :

An investigation is conducted in order to determine whether

the facts justify a determination by the Commission to hold

a ''hearing'' or to bring suit for injunctive relief. The investigation makes no determination or decision between the parties

for there are no parties * * * The character of the investigation as a preparatory matter looking to the enforcement

of the act, gives the basis for irefusal to grant copies of the

testimony. Grand jury proceedings are somewhat analogous

and their records are not open to defendants.

The court then entered into a discussion as to whether or not the

efforts of the Commission constituted a "fishing expedition", and said:

Moreover, the order for the investigation of Pirnie, Simons

& Co., Inc., is to ascertain the facts about any violation occurrin~ in trading in the specific stock mentioned, under Section

9 (a) (1), (2), (3'), (4) (5). These sections relate to the

manipulation of stocks. if the order were required to set out

more definite facts, it would make investigations available

only when superfluous. .

From this decision the witnesses applied to the Supreme Court of

the United States for a writ of certiorari. This writ was pending as

of June 30, 1936.2

SUITS TO ENJOIN THE ENFORCEMENT OF THE SECURITIES

EXCHANGE ACT

The only action to enjoin application of the Act is that commenced

by J. Edward Jones in the Southern District Court of New York on

January 2, 1936. Jones sought to enjoin enforcement against him of

Section 15 of the Act pursuant to which the Commission by rules then

in force required registration of all brokers and dealers using the

mails or facilities of interstate commerce to make or to utilize an overthe-counter market in securities. Jones joined as parties defendant

the Securities and Exchange Commission, the Postmaster General and

the Attorney General, alleging threatened interference with the conOn Aug. 12, 1936, a bill to enjoin Plrnie, Simons & Co., Inc., and certain other parties

from further violations of Section 9 (a) of the Securities Exchange Act of 1934 was 1I1ed

In the United States District Court for the Southern District of New York. Whereupon

the Commission withdrew its subpenas and moved the Circuit Court of Appeals to dismiss

the appeal as the testimony was no longer needed. In opposition to the application for a

writ of certiorari, the Commission informed the Supreme Court of the United States that

the question presented on appeal was moot. The Supreme Cou~ on October 12, 1936,

granted certiorari and directed dismissal of the application on this ground.

101973--36----10

•
138 SECURITms AND EXCHANGE COMMISSION

duct of his business by requiring registration by him as broker or

dealer under Section 15 and asserting the unconstitutionality thereof

in that it represented an unlawful delegation of legislative power and

that the enforcement of the section threatened the destruction of his

business, A stipulation was entered into on January 3, 1936,in which

the defendants agreed to take no action against Jones until final hearing and determination of the case. The defendants filed an answer on

January 22, 1936, and the case is now awaiting argument and

determination.

APPEALS FROM DENIAL OF CONFIDENTIAL TREATMENT TO MATERIAL CONTAINED IN DOCUMENTS FILED UNDER THE SECURITIES

EXCHANGE ACT OF 1934

Section 24 of the Act permits any person filing any application

or report with the Commission to object to public disclosure of some

or all of the information contained therein. Under Section 25 (a)

of the Act provision is made for review of all orders of the Commission rendered in a proceeding under this Act, in the specified

United States Circuit Courts of Appeal or in the Court of Appeals

of the District of Columbia. More than 600 issuers of securities

seeking registration upon national securities exchanges filed, in connection with their application for registration, objections to disclosure of certain information, for the most part relating to sales and

itemized break-down of the cost of sales. In many other instances

objection was made to publication of salaries and other remuneration paid to officers and directors. At the request- of the issuers

concerned, the Commission, in private hearings, heard the objections

to public disclosure of the information for which confidential treatment was sought and the grounds urged by the various issuers. ,Almost 30 of the issuers who felt themselves aggrieved by the Commission's determination to make available to the public information

as to which confidential treatment had been requested, filed petitions

in the various Circuit Courts of Appeal to review the Commission's

action, purportedly relying upon the provisions of Section 25 (a)

of the Act. In nearly all instances these petitions challenge the

general constitutionality of the Securities Exchange- Act of 1934, as

well as the validity of the registration requirements of Section 12 of

the Act. Inasmuch.as the 'Circuit Courts of Appeal for the various

circuits in which such petitions have been filed have not as yet considered or made any disposition thereof, and since the problems

involved are substantially identical, the names of such corporations,

the date of the filWg of the petitions, and the circuit courts of appeal

in which such petitions are now pending are listed:

~
SECOND ANNUAL.REPORT

Companies FiZing Petition for Review

139

Name ofpetltioner

Allled Chemical Dye Corpomtion___________________ Apr. 4, 1936. American Can Co Dec. Z1, 1935

Congoleum-NaIrn, Inc Mar. 35, 1936

ElectrIc Auto-Lite Oo, Feb. 15, 1936

Evans Products Co .______ Jan. 18, 1936 ._._

General Baking Co .___________________________ Mar. Z1, 1936 ._._.

P. Lor!IIard Co. _. Mar. 26, 1936

Mathieson AlkalI Works, Inc Apr. 3, 1936

Moota Machine Co____________________________________ Nov. 26, 1935

National Biscuit Co .______________________ Mar. 26, 1936.

R. J. Reynolds Tobacco Co Mar. 24, 1936

'rhe American TobBcco Co____________________________ Mar. 26, 1936

United States TobBCCO Co_____________________________ Mar. 24, 1936 ._.

Sloss-SheflleId Steel Iron Co Apr. 8, 1936

United States IndustrIal Alcohol Co___________________ Apr. 23, 1936

Oliver United FIlters, Inll.... May 23, 1936

A. Stein Co June 4,1936

The Cuneo Press, Inc June 3, 1~-.---------

The Superheater Co ._______ May 15, 1936.

J. J. Newberry Co June 12, 1936

W. A. Sheaffer Pen Co JUDe 35,1936.

AmerIcan Sumatm Tobacco Corporatlon______________ July 9, 1936

The Diamond Match Co .___________________ July 3, 1936

Brillo Manufacturing Co .__________ July 18-21, 1936

Genem! Mills, Inc_____________________________________ July 23, 1936

New York Trap Rock Corporatlon____________________ July 24, 1936

The International Nickel Co. of Canada, Ltd._________ Aug. 35, 1936

Pullman, Inc .______ Sept. 4, 1~6-----------

Second.

Third.

Do.

Sixth.

Do.

Second.

Third.

Second.

Third.

Do.

Fourth.

Second.

Do.

Third.

Second.

Ninth.

Seventh.

Do.

Second.

Do.

Eighth.

District of Columbia.

Do.

Second.

District of Columbia.

Second.

District of Columbia.

Third.

III. THE PUBLIC UTILITY HOLDING. COMPANY ACT OF 1935

Electric Bond & Share 00. et al.-On December 1, 1935, the provisions of this Act became effective, requiring registration by substantially all of the major public utility holding companies. However, shortly before this date the Government was faced with a

multitude of injunction suits, actual or anticipated, on the part of

most 'of the larger holding companies. It was apparent that active

-litigation of all these suits involving substantially similar questions

would be wasteful as well as unduly expensive, inasmuch as a single

selected test case could litigate and determine all the important questions involved in the application of this Act. Consequently, the Commission, desiring to test the Act promptly, selected the Electric Bond

& Share System, which within itself presented a number of typical

'casesto which the Act by its terms applies. Accordingly, on November 26, 1935, the Commission brought a consolidated suit in the

Southern District of New York-against the Electric Bond & Share

Co. and its principal intermediate holding companies to enjoin activities unlawful under the Act in the absence of such registration.

'" • __•• _•••• _

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- 140 SECURITIES AND EXCHANGE COMMISSION

Other defendants were subsequently added in order to bring before

the Court many typical situations to which the terms of the Act

apply.

To avoid protracted trial, a stipulation of facts approximately

2,000 pages in length was filed with the Court on June 30, 1936.

This case is now awaiting trial and consideration by the District

Court.

Thus, on a comprehensive record, there is before the Court one of

the most important public-utility holding company systems, which

comes into contact with the Act at more points than any other.

Since this action will involve every point of law which conceivably could be raised in the forty-odd suits brought against the Commission in a dozen Federal districts by various holding companies, in

what appears to have been a concerted attack, the Commission has not

seen fit, even if it had the facilities, to defend the latter suits, of

which the following is typical.

United Gas Improvement Oompany v. James M. Landis et 01.-

This public-utility holding company on November 20, 1935, brought

suit in the Eastern District of Pennsylvania against the members of

the Commission, the Attorney General, the Postmaster General, and

the local District Attorney and postmaster. The bill asked for a

declaration of the unconstitutionality of the Public Utility Holding

Company Act of 1935 on grounds of denial of due process of law,

unlawful delegation of Congressional power, and interference with

the power reserved to the States by the Constitution. The plaintiffs

sought injunctions, both temporary and permanent, against enforcement of the Act by the Commission or any of the defendants. Motions to dismiss have been made on grounds of lack of jurisdiction

a-nd improper venue on behalf of the various defendants. The case

is still pending. Other similar actions are tabulated.

Parties plalntlJl Oourt and date offiling suit Disposition

Public Service Co. of Colorado District of Colorado, Nov. 29,

et B1. 1935.

DelBwsre Electric Power Co___ District of DelBware, Nov. 21,

1935.

8usqueha.nns Utilities Co do ._.

The CommonweB1th South- District of DelBwsre Nov. 23,

ern Corporation. 1935.

Eastern Texas Electric Co_______ District of DelBwsre, Nov. 26,

1935.

El PBSOElectric Co do

Engineers Public Service do. :

Pending.

Do.

Do.

Pending. Pro con/alo decree entered

sgsInst locB! U. 8. Attorney and

postmaster Jan. 30, 1936. Bill dlsmissed as to other defendants Apr. 22,

1936.

Bill dIsmis8ed on June 25, 1936, as to B1l

but locB!defendants. Action against

the IBtter Is pending.

Pending.

Do.

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Parties plaintiff

SECOND ANNUAL REPORT

Court and date of 1lllng suit Disposition

141

District of Delaware, Dec. 4,

1935.

District of Delaware ._

Stone & Webster, Ine; District of Delaware. Nov. 26,

1935. Stone & Webster Utilities Cor- do

pomtion .

.American Gas & Power Co______ District of Delaware Nov. '0,

1935. Louisville Gas & Electric Co do

Standard Power & Light Cor- do

pomtion.

-Cities Service Co. et al__________ District of Delaware, Nov. 29,

1935. North Continent Utilities Cor- do

poratlon,

"The United Corpomtlon at aL. do

.Associated Gas & Electric Co. District of Delaware, Nov. 30,

et 81. 1935. H. M. Byllesby & Co do

'The Byllesby Corporation do

North American Edison Co do

North American Light & Power do

Co.

Northeastern Water & Electric

Corpomtion.

-Oommunitz Gas & Power

.American Utilities Service Cor- Northern District of Dllnols,

poretion. Nov. 30, 1935.

.Siarm Pacific Electric Co________ District of Maine, Southern

Division, Nov. '0,1935.

'The Western Public Service oo., District of Maryland, Nov. '0,

1935.

United Stales Electric Power District of Maryland, Nov. 29,

Corpomtion. 1935. West Penn Electric Co do

Northern Stales Power Co., et al, District of Minnesota, Fourth

Division. Nov. 29, 1935.

<Jonso1idated Gas Co. of New Southern District of New

York. York, Nov. 25,1935.

'The United Corporation et al___ Southern District of New

York, Nov. '0.1935.

'Cities Service Co. et al Southern District of New

York, Nov. 29, 1935. .Fllderal Light Tmctlon Co. et .do

aI.

Pending.

Do.

Do.

Do.

Do.

Do.

Do.

Do .

Do.

Do

Do.

Do.

On June 8, 1936. bill dismissed as to all

but local defendants.

PendJng.

On Mar. 31, 1936, decree pro confesso

entered agalnst local United Stales

Attorney.

Bill dismissed as to all but locel defendants as to which pro confesso

decree entered Mar. 16, 1936.

Pending.

On Feb. 3, 1936, bill dismissed as to

other than local defendants. Pro

confesso decree as to latter entered

Apr. 2, 1936.

Pending.

On Feb. 3, 1936, bill dismISSed as to

other than local defendants against

whom pro confesso decrees entered

on Apr. 27, 1936.

On Feb. 10, 1936, bill dismissed as to

noniocal defendants. Case still pendIng against local defendants.

On Jan 3,1936, bill dismissed as to nonlocal defendants. The Court ruled

on Feb. 22. 1936, that the Attorney

General and Postmaster General were

not n8C8Sll8l"y parttes defendant in

euits against the local postmasters

and United States Marshals. (Reported sub nomine Cofuolidoltd GIU

Co. v. Hardll, 14 F. Bupp, 223.) Motions to dismiss by these parties were

therefore denied and pro copfesso

decrees entered.

Same disposition as in Consolidated

Gas Co. case.

Do.

Do.

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142 SECURITIES .A:ND EXCHANGE, COMMISSION

Parties plalntl1f Court and date of fiUng suit Disposition

The Toledo Edison Co. et aI_____ Northern District of Ohio,

Western Division, Nov. 29,

1935.

The Columbns RaIlway, Power Southern District of Ohio,

ell Light Co. Eastern Division.

Philadelphia Electric Co________ Eastern District of Pennsylvania, Nov. 21,1935.

East Tennessee Light ell Power Western District of Virginia,

Co. et aI. Nov. 29, 1935.

Pendlng.

Pro confesso decrees entered as against

local defendants, Mar. 11, 1936.

Pending.

Bill dismissed as to nonlocal defendants

Feb. 2, 1936. Pending as to local defendants.

SUITS FILED AGAINST THE PUBLIC UTILITY ACT IN THE

DISTRICT OF COLUMBIA

Within the week following November 23, 1935,eight separate suits

by the following holding companies: American Water Works &

Electric Co.,Ine.] The Commonwealth & Southern Corporation; The

North .American Co.; The United Light & Power Co.; Continental

Gas & Electric Corporation and Iowa-Nebraska Light & Power Oo.;

American Light & Traction Co.j The United Light & Railways Co.;

and The Tennessee Electric Power Co., were brought against the

Government in the District of Columbia. The bills were substantially similar to that filed by the United Gas Improvement Co.,

described above. The members of the Commission, the Attorney

General, and the Postmaster General were named as defendants:

On December 1,1935, a motion was made to stay all the suits pending a decision of the Supreme Court of the United States in the,

case of Seouritiee and Er»change Oommission v. Electric Bond and

Share, et al,

On special appeal by two of the plaintiffs, the Court of Appeals for

the District of Columbia on June 22,1936, reversed the stay order, one

judge dissenting, on the ground that the parties and issues were not

identical with those in the Electric Bond and Swe case. This

opinion, not yet reported, is printed in the C. C. H. Securities Act

Service, p. 2886. On October 5, 1936, certiorari :was granted by

the Supreme Court.

On December 1, 1936, the Supreme Court reversed the decision

of the Circuit Court of Appeals for the District of Columbia,

vacated the order of the District Court, and remanded the cause

to the lower court for a reconsideration of the motion for a stay.

Mr. Justice Cardozo, speaking for a unanimous court (Mr. Justice

McReynolds concurring in result only), stated that although the

court did have the power to grant the stay, the stay was excessive

insofar as it was to continue in effect beyond the decision of the

District Court in the Electric Bond and Share case. .
:SECOND ANNUAL REPORT 143

orasa LITIGATION INVOLVING mE PUBLIC-UTILITY HOLDING

COMPANY ACT

One important case has arisen from reorganization proceedings of

a holding company under Section 71B of the Bankruptcy Act, in

which the trustees sought a declaration of the invalidity of the Act

and instructions as to complying with its provisions.

In the Matter of American States Public Seruioe Oo.-On September 16, 1935, the trustees of this holding company, in reorganization

under Section 71B of the Bankruptcy Act, filed a petition in the District Court for the District of Maryland, praying that the Court

determine the Act to be unconstitutional and issue instructions

accordingly. Two creditors also filed petitions with the Court, one

supporting the trustees' petition, the other, Burco, Inc., opposing the

petition and contending that the Act was constitutional. In this

case, counsel for the Commission, together with the Special Assistants

to the Attorney General assigned to Holding Company Act litigation, appearing as amici curiae, urged that the Court had no jurisdiction to determine the validity of the Act in such a proceeding,

on the ground that it was nonadversary, premature, and collusive,

and was totally inadequate as a vehicle for testing the validity of an

important Act of Congress. On November 7, 1935, the Court ruled

against the Government and held the Act void in its entirety (In re

American States Public Se1'1Jwe00.,12 F. SUPPa667). On February

22, 1936, the Circuit Court of Appeals for the Fourth Circuit affirmed the decision below, but held the Act invalid only as applied

to the debtor (reported sub nomine Burco, Ino., v, J. B. Whitworth,

$1 F. (2d) 721). Burco., Inc., then petitioned the Supreme Court

of United States for writs of certiorari. The Supreme Court denied

certiorari on March 30, 1936.

Similar litigation is tabulated below:

Na me of debtor holding

company

United States distrlct court in which re- Date of trustees'

organizations are petition pending

Disposition

Do.

Government oillcIals, Joined as

defendents, moved to dismiss on

grounds of lack of Jurisdfction

and improper venue on Dec. 16,

1935. Pendfng.

Trustees' petition for Instructions

not pressed and still pending.

Commlsslon intervened May 7,

1936, and offered to report on

the proposed pIan of reorganizao

tion.

Pending. No further action taken

so far as Commlsslon Is aware.

About Dec. 11,

1935.

November 1935

Nov. 'rT, 1935.

District of Delaware_ Nov. 29,1935____ Pending. No further action taken

so far as Commlsslon is aware.

Do.

Central West Public Servo

lee Co. National Public Utilities do

C011IOl8tion.

Midlend United Co do

Stendard Gas &: Electric do

00.

North American Gas Sonthern District of lune 6, 1936.

ElectrIc Co. New York.

Lehigh Valley Transit Oo, Eastern District of Nov. 25, 1935

PennsylvanIa.

_

_

•• _•••• _ __

_ _

'" _

_
144 SECURITIES AND EXCHANGE COMMISSION

STOCKHOLDERS' SUITS SEEKING A DECLARATIONOF mE

UNCONSTITUTIONALITYOF mE ACT

Litigants United States

district court

Date of com- mencement of

suit Disposition

Albert E. PIerce v. Cemral District of Delaware__ Dec. 4,1935

Public Ulilill/ Corporali01l,

et al.

Public UlilUI/ lme8ting Cor- Southern District of Nov. 30, 1935

pora/Ion V. UlIlille8 Power New York.

&- Llqhl Corpora/Ion.

I

}

Charle8 B. BarllU v. Ford,

et al.

'!'Modore Ca8e v. Columbia

Ga8 &- Electric Corporaatlon.

.Alberl E. PIerce v, COUf/hlin, et al.

Public UIUltI/ In~e8llng Corporation v. Utllttlt8 Power

&- Llghl Corporal101l, et

al.

District of Massachu- Nov. 30,1935

setts.

Southern District of Nov. 20,1935

New York.

do Nov. 30,1935

Eastern DlstrictofVIr- Dec. 5, 1935

ginia.

Government officials made parties defendant moved to dismiss on Dec. 17,1935,on proeednral grounds. Case Is stilI

pending.

No further proceedings have heen

had so far as the Commission

is informed .

Temporary restraining order dis.

missed as to 3corporate defendants on Dec. 10, 1935. Plaintiff's motion for temporary injunction continued.

Temporary restraining order

entered Dec. 5, 1935. No further proceedings have been had

so far as Oommlssion Is informed.

Temporary injunction denied

Dec. 17,1935on ground of want

of equity. Circuit Court of

Appeals (Fourth Circuit) deo nied temporary restraining

order pending appeal on same

grounds on Feb. 22, 1936(82 F.

2d.,21).

No further proceedings have been

had so far as the Commission Is iniormed.

o

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