J

-f

of the

EIGHTH ANNUAL REPORT

~~.SCAL YEAR ENDED JUNE 30. 19 ...2

/

SECURITIES AND EXCHANGE COMMISSION

U.S. SEC LIBRARY

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50614000089745

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TABLE OF CONTENTS

Administration ot the Securities Act ot 1933 •••••••••••••••••••••••

!!e

1

Adm1njstration ot the Securities Exchange Act of 1934 6

Administration of the Public Utility Holding CompanyAct of 1935 ... 19

Participation ot the Commissionin Corporate Reorganizations under

Chapter X of the Bankruptcy Act, as amended •••••••••••••••••••••• Z1

Adm1n1stration of the Trust Indenture Act of 1939 •••••••••••••••••• 30

Administration of the Investment CompanyAct of 1940 ••••••••••••••• 32

Administration of the Investment Advisers Act of 1940 •••••••••••••• 35

other activities of the Commissionunder the various statutes:

PeraCl1ll81 ••••••••••••••••••••••.•••••••••••.••••••••••••••••.•

Pu.bl1c hea!'1Dgs •••••••••••••••••••••••••••••••••••••••••••••••

Inspection of registered information by the public ••••••••••••

Publications, •••••••••••••••••••••••••.••••••••••••••••••••••••

37

42

44

44

M>

46

47

48

49

49

50

..•.•..•..........•..••.•.

••••••••••••••••••••••••••••••••••••••••••••••••

Proxies, consents and authorizations ••••••••••••••••••••••••••

Reports of officers, directors, principal security holders

and certain other affiliated persons ••••••••••••••••••••••••

Litigation ••••••••••••••••••••••••••••••••••••••••••••••••••••

Complaints and investigations •••••••••••••••••••••••••••••••••

Interpretative and advisory service •••••••••••••••••••••••••••

The field of accounting and auditing

Fiscal affairs

Appendix tables
LETTER OF TRANSMITTAL

SECURITIES AND EXCHANGE COMMISSION,

Phi lade lphta, Pa., June 9. 1943.

Sir:

I have the honor to transmit to you the Eighth .Annual Report. of

the Securities and Exchange Commission,required by the prov1alO118or Seetion 23 (b) of the Securities Exchange Act of 1934, approved June 6, 1934,

Section 23 of +he Public Utility Holding CompanyAct of 1935, approved

August 26, 1935, Section 46 (a) of the Investment CompanyAct or 1940,

approved August 22, 1940 and Section 216 of the Investment Advisers Act of

1940, approved August 22, 1940.

Because of war conditions, we are presenting the report in the

most concise and least expensive mannerwe can devise. The statistical

tables have also been substantially abridged. Data in statistical tables

customarily shownin previous reports and nowomitted are available on

request.

In March 1942, the Commissionwas movedto Philadelphia by direction of the Director of the Bureau of the Budget. It was the COIIIIDission's

hope that no issuer whowas faced with a deadline in the marketing or securities would be subjected to any delay by the Commissionbecause of the moving.

Weare happy to report that our hope was realized.

Respectfully,

Ganson Purcell,

ChtJ inJlan.

THE PRESIDENT OF THE SENATE

THE SPEAKER OF THE HOUSE OF REPRESENTATIVES

WtJshiniton, D. C.

S5320
SECURITIES AND EXCHANGE COMMISSION

Central Office

18th and Locust Streets

Philadelphia, Pa.

SECURITIES AND

EXCHANGE COMMISSION

LIBRARY

Class 's\ G 1-ss(Q \

Book .uSA::, _ \~A 2., .

GPO ;'- 16-7866

Atlanta, Georgia

Baltimore, Maryland

Boston, Massachusetts

Chicago, Illinois

Cleveland, Ohio

Denver, Colorado

Fort Worth, Texas

New York, New York

San Francisco, California

Seattle, Washington

COMMISSIONERS

Ganson Purcell, Chairman

Robert E. Healy

Sumne r- T. Pike

Edmund Burke, Jr.

Robert H. O'Brien

Orval L. DuBois, S~cr~tary

LOCATION OF REGIONAL OFFICES

Palmer Building (Room 415)

Baltimore Trust Building (Room 2410)

Shawmut Bank Building (Room 426)

Bankers Building (Room 630)

Standard Building (Room 1608)

Midland Savin~s Building (Room 822)

United States Courthouse (Room 103)

Equitable Buildin~ (Room 2006)

625 Market street (Room 1301)

1411 Fourth Avenue Buildin~ (Room 810
PART I

ADMINISTRATION OFTHESECURITIESACTOF1933

Registration of Securities under the Securities Act of 1933

For information as to the general scope of the registration provisions of the Securities Act o£ 1933, as amended, the registration and examination procedures, the power of

the Commissionto institute stop-order proceedings to suspend the effectiveness of the

registration statement, and the statutory amendmentauthorizing the Commissio~in its discretion to accelerate the effective date of registration statements, reference is made to

the Sixth Annual Report of the Commission,pp. 117-119, inc., the Seventh Annual Report,

pp, 161-162, inc., and previous annual reports.

NewRules, Regulations, and Formsfor Registration under the Securities Act of 1933

Further Simplification o£ Registration Forms. In order £urther to simplify the

registration process, the cOiiiDiissionadopted early in the year two newforms Fol"Jlls-.2

and Form5-3. FormS-2 is designed prima.r1ly for securities of small companies. FormS-3

is available for the registration of shares of mining corporations (other than those in

the oil and gas field) in the promotional or the developlleotal stage. In the case of both

.fOI'Dl8simplification is secured principally by a provision which pemits the prospectus

to be .tiled &8 t~ basic part of the registration statement.

Further S ication o.f Comllance with Similar Registration Requirements under

Differen S atutes. Tess on op e 5 0 pro e asp proce ure .for

registration Wider the Securities Act of 1933 ofsecurities of open-end lIl8.I18gement investment cClIIlpanies. The ru1e provides in ef£ect that any such COlllpany may register securities

under the Securities Act by filing copies of its registration statement filed under the

Investment COIIIlP&Q1' Act, together with copies of a prospectus containing the information

given in answer to certain designated items on FormN-8B-l and certain additional information not required by that form but deemedessential under the Securities Act.

A number o£ other changes of a minor nature were also madeduring the year in the

rules and regulations governing registration of securities under the Securities Act.

Disclosures resulting from examination

Through its examination procedure the CODIIDissionsecured fair and accurate disclosure of material information required in registration statements and prevented the

use in many of these documents of information which 11'&8 misleading and inaccurate. In

some instances sales of securities were prohibited by the issuance of stop-orders follOlt'-

ing fonual public hearings.

Statistics of securities registered under Securities Act of 1933

The .following table iDdicates the disposition of registration statements filed under

the Securities Act o~ 1933:

-

-
- 2 -

Disposition of Registration Statements

Total

5025

4006 'iJ

802

182

:

.. :

: JIili 1, 1941

: to June 30,

: 1942

To

June 30,

1941

4790

: 3823

: 754

175

Statements filed

Statements effective

Statements withdrawn net

Stop or refusal orders net

In proces s of examination or :

awaiting amendments: : :

At close 01 year ended June 30, 1941 38 : • • • • • •• •••••••• At close of year ended June 30, 1942 • • • •• ••••••• 35

!I Does not include 1 registration statement re!'iled during the year by" a registrant

who had withdrawn a statement previously filed.

'E/ Does not include 19 registration statements effective at the beginning or during

this period which were either withdrawn or placed under stop order.

21 Does not include 1 registration statement withdrawn prior to this period, 8Dd

rafiled and withdrawn during this period.

A total of 755 amendmentsto registration statements were also filed and examined

during the past fiscal year.

certain registrants under the Securities Act of 1933 alao filed during the year, parsuant to Section 15 (d) of the Securities Exchange Act of 1934, a total of 324 annual

reports and 137 amendmentsthereto, all of which required 8X8III1nation.

In addition, the following supp1e11lmtalprospectus II&terial was filed during the past

fiscal year under the Securities Act of 1933:

(l) 180 prospectuses were filed pursuant to Rule eoo (b) which requires the

filing of such information with1n 5 days after the cCIIIDenc8lll8Dt of the public offering;

(2) 230 sets of supplemental prospectus II&terial were filed by registrants to

shor material changes occurring atter the cClllD18ncement of the offering; and

(3) 315 sets of so-caJ.led l3-taonth prospectuses were filed pursuant to

Section 10 (b) (1) of the Act.

Stop Orders, Consent Reh8al Orders, And WithdranJ. Orders

Withdrawals amounted to 49 during the year IDd J1CID8 of the statellents inYo1Tedwere

refiled to June 30, 1942. Stop orders nDIlbered 7, all of which were st1ll1D force at the

close of the year. No consent refusal orders were iSsued during the year.

securities Effecting Regiatered

Daring the f1sc~ year ended June 30, 1942, securities effectively regl.stered UDder

the securities Act of 1933 amounted to $2,003,000,000. '!he i88088 averaged .7,l3O,000

in size.

-

-
- 3 -

Of all registrations effective durin~ the fiscal year ended June 30, 1942,

$476,000,000 were not proposed for 8ale, ,,62,000,000 were registered for sale for the

account of others than the issuers, and $1,465,000,000 consisted of securities intended

to be sold for the account of issuers.

Of the total proposed for sale for the account of issuers manufacturing companies

accounted for $462,000,000 or 32 percent, transportation and commurrl.catd.oncompanies

$446,000,000 or 30 percent, and electric, gas, and water utilities $389,000,000 or :n

percent.

More than two-thirds of the total value of securities registered for cash sale by

issuers or $1,035,000,000 were fixed interest bearing. This included $338,000,000 of

secured bonds or 23 percent of the total, and $697,000,000 of unsecured bonds or 48 percent of the total. Commonstock amounted to $220,000,000 or 15 percent, followed by

preferred stock with $162,000,000 or 11 percent. Certificates of participation, beneficial interest, face-amount installment certificates, etc., added up to ~48,OOO,OOOor

3 ~rcent.

A breakdown by methods of issuance showed that $496,000,000 or 34 percent were

offered directly by the issuers. Securities offered on an underwritten basis amounted

to $899,000,000 or 61 percent and those offered on a hest efforts basis aggregated

$70,000,000 or 5 percent.

Compensation to be paid to distributors equalled ~23,000,000 or 1.6 percent of the

gross proceeds of the securities proposed for sale for the account of issuers. Expenses

amounted to ts,ooo,ooo or 0.5 percent. The cost of flotation, therefore, w?S eqUivalent

to 2.1 percent of the gross proceeds. This cost was the lowest for any fiscal year since

the series was begun approximately 8 years ago.

Net proceec18,. after all issuing and distributing expenses, were estimated at

$1,434,000,000. Ot these proceeds 51 percent was applied to repayment of indebtedness

and 2 percent to retirement of preferred stock. Net proceeds to he used for the purchase

of securities were $83,000,000 or 6 percent, including $67,000,000 used for the purchase of

securities far investment and $16,000,000 for affiliation. Newmoney purposes accounted

for $591,000,000 or 4l percent of the total net proceeds. This included ~333,000,OOO or

23 percent for plant and equipnent and $243,000,000 or 17 percent for working capital. The

41 percent for nelf money purposes was the greatest proportion of net proceeds for any

fiseal ,ear since the Securities Act became effective. The absolute amount intended for

new mone,. purposes was the largest amount to be applied from corporate securities to fixed

and 'WOrkingcapital of any fiscal year since 1937.

Detailed statistics of securities registered under the Securities Act of 1933 during

the fiscal year are presented in APpendix Tables 1 to 3.

Security Offerings

The securities registered under the Securities Act of 1933 constitute only part of

all new issues offered for cash. Comprehensive statistics of new cash offerings of securities are presented in Appendix Tables 4 and 5.

Exempt Issu~s Re1atine to 011 and Gas Interests

In connection with exempt issues relating to fractional undivided interests in oil or

gas rigtits, covered by Regulation B, there were filed and examined during the year 965

offering sheets, and 876 necessary amendmentsto such offering sheets, involving securitie::

with an aggregate offering price of approximately $22,177 ,285.

The following table indicates the action taken with respect to these filings:
-4-

Various actions on filings under Regulation B

Temporary Suspension Orders (Rule 340 (a)')

II II II (Rule 340 (b))

II (Rule 340 (c))

Orders Terminating Proceeding After Amendment

Orders Consenting to Withdrawal of Offering Sheet and

Terminating Proceeding

Orders Terminating Effectiveness of Offering

Sheet (No Proceeding Pending)

Orders Consenting to Amendmentof Offering Sheet

(No Proceeding Pending)

Orders Consenting to Withdrawal of Offering Sheet

(NoProceeding Pending)

INVESTIGATIONS OFOILANDGASSECURITIESTRANSACTIONS

19'7

1

1

112

55

61

59'7

104

A tabular sunnary , with respect to the Commission's oil and gas investigations,

follows:

Oil and Gas Investigations

Pending 6/30/41

Initiated 7/1/41

6/30/42

Total to be Accounted

For

Changed to Informal

or Formal

Closed or Completed

Total Disposed of

Pending June 30, 1942

Preliminary

Investigations

54

64

118

9

62

71

47

Informal

58

57

115

17

45

62

53

Formal

24

13

37

5

5

32

~fhere these investigations show evidence of a violation of the criminal provisions of the Securities Act of 1933, the results are transmitted by the Commission

to the Department of Justice, and criminal proceedings are instituted in the discretion of the Attorney General of the United States. In the event such proceedings

are instituted, the attorneys and engineers on the Commissionstaff who participated

in the investigation leading up to the proceedings assist the United States Attorneys

in the preparation of the cases for presentation to the grand jury and for trial.

Propo~ed Amendmentsto the Securities Act

of 1933 and the Securities Exchange Act of 1934

During the past fiscal year extensive hearings were held before the Committee on

Interstate and Foreign Commerceof the House of Representatives on various proposals

to amend the Securities Act of 1933 and the Securities Exchange Act of 1934.

" "

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- 5 -

Beginning in July 1940, the Comnissionand its staff conferred almost continuously with representatives of the securitieS' industry and other interested persons on a

large number- of proposals to amendvarious provisions of the 1933 and 1934 Acts. The

conferees consisted priw~ily of representatives of the Investment Bankers Association

of America, the National Association of Securities Dealers, Inc., the NewYork Curb

Exchangeand the NewYorkStock Exchange, although both the Commission'sstaff and

member-s of the Corrunissionthemselves met also with representatives of the regional

exchanges and other intere~ted persons. rne purpose of these conferences was to define the areas of agreement and disagreement on the various proposals. A substantial

area of agreement was found, although the Commissionfelt compelled to oppose certain

cf the securities industry's proposals.

On August 7, 1941. the Commissionsubmitted to the HouseCommitteeon Interstate

and Foreign Com~erceand the Senate Committeeon Bankingand Currene,ya 54-page report on the various proposals for amendmentof the 1933 and 1934 Acts. On July 30,

1941, a 2a7-page report had been submitted by the representatives of the four industry groupe above named. Beginning on October 28, 1941, the Committeeon Interstate

and Foreign Commerceof the Houseof Representatives held hearings on the various

proposals of the securities industry and of the .Commission. These proposals were

el'lbodiedin a comparative CommitteePrint rather than a bill.

The hearings were also concerned with three bills which had been introduced independently of the Commission-industry conferences. H. R. 4344 had been introduced

by Repres entati ve Wadsworthof NewYork on April 14, 1941, to amendvarious provisions ot the Securities Act of 1933, the Securities ExchangeAct of 1934, the Trust

Indenture Act of 1939, the Invesbnent CompanyAct of 1940 and the Investment Advisers

Act of 1940. H. R. 5065 had been introduced by Representative Paddock of Illinois on

June 16, 1941, to amendSection 2 (1) of the Securities Act of 1933-in order to exempt

from the de.finition of the term "security" interests in employees' investment plans.

H. R. 5g32 had been introduced by Representative Oliver of Maine on October 15, 1941,

to amend3ection 12 (f) of the Securities ExchangeAct of 1934 in order to prevent

national ~ecurities exchanges from extending unlisted trading privileges to any security not listed and registered on a national securities exchange.

These hear-ings continued until December5, 1941, and as a result of the declaration of war were interrupted until January 20, 1942. Theywere concluded on January Z7,

1942, and the transcript has been printed in five volumesplus an index volume.

No bills embodyingany of the proposals madeby the securities industry or the

Commissionhave as yet been intiroduced. The Commissiondid not initiate the amendment

program, and it -eonrtned its PI'C?POSalsvery largely to those which it deemednecessary

in the light o.f certain of the proposals o.f the securities industry. Only a few additional proposals, of a corrective nature, were madeby the Commission. Noneof the

Commission'sproposals would enlarge the area of the Canmission's jurisdiction.

This pr-ogramconstituted one of the Canmission's major tasks during the past

fiscal year.
- 6 -

PARTII

ArJ.mrrS'ffiATIONOF'!HESECURITIESEXCHANGE ACTOF1934

Registration of Securities on Exchanges

The general purpose and nature of registration of securities on exchanges end

the Commission's procedure in examining applications and reports for conpliance with

the requirements of Sections 12 and 13 of the Securities ExchangeAct of 1934, have

been described in the Sixth AnnualReport of the Conmdssion,pp. 100-102, inc., and

previous annual reports.

HewRglea. ReguJ.ations, and FormsFor Registration

of Securities on Exchanges

Disclosure Contravening Code of Wartime Practices. TheCommissionadopted Rule

x-6 providing tor the omission or confidential treatment of any information, filed

with the Commissionar any securities exchange pursuant to the Securities Exchange

Act of 1934.. which is inconsistent with the standards of the Code of Wartime Practices

promul.gatedby the Un!ted States Office of Clllnsorship.11

Action under the rule maybe taken either on i.h.eCommissionts own motion or upon

application. '!be COIIIIIlissionmakes a preliminary examination of all applications and

ij reports tUed under Sections 12 and 13 in order to delete any such confidential information before these documents are made availAble for public inspection. 'Ihe securities

exchanges cooperate by temporarily withholding from public inspection the copies of

these documentstUed with themuntil the Commission's examination has been completed

and the exchanges have had an opportunity to delete from the fili."1es S'.1C~ informe.tion

88 is specif'ical1y directed or authorized by the Cotmd.ssion. Immediately therecl'ter

these applications and reports are made available for public inspection. y

tion of Substituted or Additional Securities. Effective April 14,

1942, the Commissionrevised its Rule X-12A-5, which provides temporary exemption

of certain securities from registration under Section 12 of the Act. The revision

broadens the scope of the rule and sets forth definite bases for termination of the

exemption.

Y '!his rule became effective February 19, 1942. At the same time the Commission

adopted and made effective companionRules 171 under the Securities Act of 1933

and U-105under the Public utility Holding CompanyAct of 1935 providing for corresponding wartime censorship of information fUed under these additional Acts.

Under these three rules procedure has been established whereby the Commission,in

cooperation with the Office of Censorship, will upon request render advance, informal opinions in cases where issuers, underwritars, or other persons are in

doubt 88 to the extent to which, or the mannerin which, particular information

may be disclosed in a registration statement, prospectus, report, or other document.

zj furing the last three months of the fiscal year approximately 2,700 filings under

Sections 12 and 13 were examinedunder Rule x-s and made available for public

inspection.

J! In this system or designating rules, "Xli indicates that the rule is under the Securities and ExchangeAct, the "12A" that it is based on Section 12 (a) of that

Act, and the "5" that it is the fifth rule under that Section.
Numberof applications, reports, and amendmentsrelating to the listing

and registl'ation of securities on exchanges Fiscal Year 1942

-7-

AdlIission 1;0 trWhenIssued- 1;r of "&eoranization Rails". The COIIIDissionadopted,

effective ptembar J 941, certain amendment.sto tion 12l})relating to regist.ration of unissued securities for "whenissued" deaJ.ing on national securi'biu exchanges. The

.,( amendments,which are principally contained in a newrule designated Rule X-12D3-l0, relaxed

the provisions of the CODIIlissionIs "whenissued" trading rules insofar as they apply to "re1organization rails, n that is, new securities issuable under a l:'lan of Reorganization for a

: railroad or other carrier required to makeannual reports under Section 20 of the Inter-

"":st.a.te CommerceAct, as amended. The principal effect of the amendmentsis to makethe new

. securities issuable under a Plan of Reorganization for a railroad eligible for admission to

.': "whenissued" trading as soon as the Plan of Reorganization has been finally confirmed b.Y

t the court in which the reorganization is pending and the time during which appeals from the

; order of final confirmation maybe taken has elapsed and no such appeal is pending.

.t! e Act and Investi ment her step in its program 0 simp g ng requirements, t e

j "'omission adopted during the fiscal year a single annual report form and a single quarterly i report form to be used by managementinvestment companiesunder both the Secorities Exchange iAct of 1934 and the Investment CompanyAct of 1940.

Statistics of Securities Registered on Exchanges

<j

Up to and including June 30, 1942, 2,953 issuers had filed a total of 5,555 applif cataons for registration of securities under Section 1.2 of the Securities ExchangeAct of

3 1934 and a total of 28,705 annual and current reports under Section 13 of that Act. As of

June 30, 1942, the registration of the securities of 2,299 of the issuers was in effect,

and the registration of the securities of the remaining 654 issuers had ceased to he f effecti ve ,.

I The numhersof applications, reports, and amendmentsfiled with the Commissionduring

the past year relating to the listing and registration of securities on national securities

exchanges and to the listing of securities on exemptedexchanges are as follows:

T

e;

Applications for registration •••••••••••••••••••••••••••••••.••••••

Applications for ~en issued" trading ••••••••••••••••••••••••••••••

li:xemptionstatements for issued warrants ••••••••••••••••••••••••••••

Annual and Current reports ••••••••••••••••••••••••••••••••••••••••••

Amendmentsto applicatiODS, statements and reports ••••••••••••••••••

Annual reports of issuer. having securities listed on exempt.ed

exchanges •••••••••••••••••••••••••••••••••••••••••••••••••••••• us

Withdrawal or Striking of Secorities from Listing and

Registration on National securities EXChanges

During the year ended June 30, 1942, applications by issuers or exchanges involving

33 issues were filed with the Conmissionfor the withdrawal or striking of suoh 188U8S

from listing and registration on national securities exchanges. At the heg1nning of the

.)ear, applications involving 8 issues were pending and decision upon 1 application rema:1Ded

suspended b.Y the Commission. During the year, the COIIIlIlissiongranted applications ,involving 32 issues and denied without prejudice an application invo1vinF;1 issue. Applicati0D8

involving 9 issues were pending as of June 30, 1942.

~

~

~

~

~

•

•

~

~

~

~

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-8-

DIlr1ng the year, registrations on national securities exchanges of the securities

or 6 issuers were ordered nthdrawn, under Section 19 (a) (2), upon failure to fUe the

annual reports required under Section 13. Proceedings under this Section involving 3

issuers were pending as of June 30, 1942.

During the year, the Commissionreceived fran national securities exchanges certifications or removal involving 185 issues stricken from listing and registration because

ot ~t, redemption, or retirement. .

Applications tor the granting, extension and termination of unlisted trading privileges

on National securIties EXchanges

On June 30, 1942, unlisted trading privileges under clause (1) of Section 12 (f) ot

the Securities Exchange Act or 1934 continued in 1,341 stock and 192 bond issues. This

is a reduction ot 32 stock and 29 boud issues !'rom the total as ot June 30, 1941.

On June 30, 1942, unlisted trading privileges under clauses (2) and (3) of Seetion 12 (t) existed nth respect to 255 stock and 34 boud issues, trading in odd lots

onlJ' being au:thorized with respect to 12 or the stock issues. Except for 14 issues subsequentq removed, these issues represent the total extension by the COIIID:i.ssionf unlisted trad1Dg privileges to the national securities exchanges under these two clauses

since va;, Z7, 1.936, when the clauses became effective.

Since Tar10us issues are admitted to unlisted trading privileges on more than one

exchange, the authorizations mentioned above involve substantial. duplication of issues ot

securities covered thereby. On June 30, 1942, 1,596 stock and 226 bond trading authorizations were in effect UDderclauses (1), (2) and (3), covering 1,065 stock and 226 bond

issues counting each issue once onlJ'. The latter figures include 508 stock and 200 bond

issues which are admitted to unlisted trading privileges onlJ'; the remaining issues are

tully listed and registered (or, in a few cases, temporarily exempted trom registration)

on national. securities exchanges other than those having unlisted trading privileges

therein.

During the Past fiscal year, 26 applications were fUed with the Commissionby exchanges seekiDg a detemination that an altered or substituted security was substantially

equivalent to a security theretofore admitted to unlisted trading privileges. Of these

applications, 22 were granted and 4 were denied.

Towardthe end or the past tiscal year the National Association or Securities Dealers, Inc. intervened in opposition to applications of the NewYork Curb Exchange tor the

extension of unlisted trading privileges in 3 bond issues pursuant to cl.ause (3) of Seetion 12 (f) and in 1 stock issue pursuant to clause (2) thereof. The matter had not been

disposed or by the end or the year.

Exempted exchanges

The D1DIberor exempted exchanges permitting unlisted trading in secur.l.ties remained

at rour, aDd the totals of stock and bond issues admitted to unlisted trading thereon

were 75 aDd 4, respectiv~, on June 30, 1942. Twoof the five stock issues admitted to

unlisted trading on the Wheeling Stock Exchange under Clause 2 or Section 12 (t) during

the 1940 fiscal. )'ear were removed' in 1941, by reason of exchange 1Dto another stock.
-9-

AJII8ndment Rule X-l2F-S

Rul.e X-12F-5 was 8M71ded during the year to prOYide that transactions in listed aDd

unlisted securities mq be differentiated either bT add1Jlgthe letter "L" to ticker reports of quotations or transactions in listed securities or bT adding the letter "U. to

ticker reports of quotations or transactions in securities admitted to unlisted trading

privileges.

Special offering plana

During the fiscal. year three national. securities exchanges adopted plans which per--

mit special. of"ferings of blocks of certain securities to be eff"ected on their respective

floors. These plans provide that a special. offering JI87 be madewhen it is determined

that the auction market on the noor or the exchange cannot absorb a particular block of

a security within a reasonable time and at a reasonable price. 111eplana permit a person making such an offering to pay a special. cOllllll1ss1onto the brokers of the purchasing

customers and stiPUlate also that such brokers shall not receive arJ¥ cCllll,P911sationb'<a

their awn customers. Provision al.so is made for the appropriate designation on the achange ticker tape of transactions effected as part of a special offering and for appropriate confirmations to customers, describing the special. character of" the transaction.

In order to permit such plans to be instituted on an exper1JaeD.talbasis, the Calmission, f"ollowing con£erences between its staff 8Ddbrokers and exchange of£icials,

amended its Rule X-1OB-2, which in general prohibits an:r person engaged in distributing

a security from compensating any other person tor solicUing or inducing a third person

to buy' on an exchange the di~tributed security or a:Jq other security o£ the same issuer.

111eeffect of the amendment, adopted February' 6, 1942, is to exapt tran the restrictions

at the rule transactions lIhich are effected pursuant to a special offering plan which haa

been declared effective bT the Camn1ssion. The exemption, however, was declared to be

only temporary, to expire on July 31, 1942. Y

Pursuant to the terms of this 8X8111ption,the CCllllllissiondeclared effective, as of

February 14, 1942, a plan submitted the He- York Stock Exchange. Similar act1011was

taken with respect to a plan of the San Francisco stock Ez.change (effective Aprill?,

1942), and with respect to a plan of the NewYork Curb Ez.chaDge(effective llq lS, 19.42).

Various modifications in the terms of these three pl.aDahave alao been deolared e.t.teotift

bT the COIIIIDission.Moreover" on April 16, 1942, -the CClIIIIIisaionbroadened the e:x:wptlicm

to Rule X-10B-2 to include specia1. offerings in oertain issues haring unlisted. trading

privileges, provided that in:tormation is ava:Uable nth respect to such securities lipprax:lmating that available for listed securities.

In the last .tour aDd one-hal1' aonths of the fiscal year, during which t:l.- the plaD

was operative, 19 special. offerings were made on the liew York stock Exchange. Neither the

NewYork Curb Exchange nor the San Francisco stock Exchange had aunounced any special

offerings bT the close of the fiscal year.

y On Jul1' 8, 1942, the ~tion W8B extended to January 31, 1943. (Securities Exchange

Act Release No. 32?0).

~

~

~
10-

Aids to bookkeeping standards

During the past year the Commission staff prepared a series of fifteen forms on

which the information necessary to complywith the requirements of Rule X-17A-3(a)

could be conveniently recorded. Such forms were furnished to all regional officeS fer

distribution amongbrokers and dealers. The use of the forms is optional. They represent a conveniently uni.ft>Tmmanner of recording information required to be kept by the

rule.

Study of the Regional Exchanges

As a part of a general study of current developments in the securities markets, and

at the request of officials of various regional exchanges, representatives of the Canmission during the fiscal year undertook field studies of the problems of the regional.

exchanges. By the close of the fiscal year, Camnission representatives had visited

Boston, Chicago, Cleveland, Detroit, Los Angeles, Pittsburgh, Salt Lake City, San Francisco, Seattle, and Spokane, to investigate the problems of the exchanges located in

those cities. The study had not been canpleted at the close of the year.

study of over-the-counter markets in exchange stocks

A study of the characteristics of over-the-counter transactions in exchange stocks,

which was begun in the preceding fiscal year, was continued throughout the past year.

One phase of the study was completed during the year and the results were published on

February 5, 1942, under the title "RePOrt to the Caom1ssionby the Trading and Exchange

Division on Secondary Distributions of Exchange stocks". 'Ihis report dealt with the

nature, developnent, and magnitUde of over-the-counter offerings of outstanding blocks

of exchange stocks.

Substantial progress also was made in the second major phase of this study, dealing

with over-the-counter transactions in exchange stocks other than secondary distributions.

Approximately 250,000 transactions, representing every such over-the-counter transaction

in every exchange stock reported by 4,700 brokers and deaJ.ers in the six months ending

February 28, 19411'l8r8 tabulated in various ways and subjected to a number of different

analyses. At the end of the fiscal year, however, the results were not yet in form far

public release.

Saving study

The COIIlIDissionon April 15, 1942, inaugurated a series of quarterly releases on the

volume and canposition of saving by individuals in the United States. These releases

show the aggregate volume of individuals' savings; i.e., the increase in their assets

less the increase in their liabilities, exclusive of gains or losses from revaluation of

assets; they show also the canponents contributing to this total, such as bank baJ.ances

and currency holdings, insurance, securities, consumers' indebtedness, and consumers'

durable goods. Estimates of business or governmentsaving are not included.

Rule for additional protection to investors

During the fiscal year the Commissionadopted Rule X-10B-5as an additional protection to investors. The new rule prohibits fraud by any person in connection with the

purchase of securities, while the previously existing rules against fraud in the purchase

of securities applied only to brokers and dealers.

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Market surveillance and trading investigations

The Commission'saim in its adninistration of the statutory prohibitions of the

Securities ExchangeAct of 1934 against stock market manipulation is a sufficient policing of the markets in order to accanplish the extinction of manipulation without interfering with the legitimate functioniDg of those markets. Its methods of market SUI'-

veillance and its investigatory procedure are set forth at pages 91 et seq. of the Sixth

Annual Report of this CaDmission.

A tabular SUDDJ8ry with respect to the Commission'strading investigations follows:

Trading investigations

Pending June 30, 1941 •••••••••••••••.••••••••••

Initiated July 1, 1941 to June 30, 1942 ••••••••

Total to be accounted for ••••••••••••••••••••••

Changedto preljminary or formal •••••••••••••••

Closed or completed ••••••••••••••••••••••••••••

Total disposed of ••••••••••••••••••••••••••••••

Pending June 30, 1942 ••••••••••••••••••••••••••

Flying

quizzes y

18

35

5r

9

38

7;'1

6

PreliJDinary 10-

vestigationa

3

3

b

-

¥

4

Fonn:aI

investigations

9

?

J:b

-

..pi

12

!IA flying quiz is a quick informal survey of the trading in a security to determine if'

add!tiona! investigation is warranted.

Includes reference of cases to the Departmentof Justice and to various national securities exchanges.

Criminal proceedings resulting from certain or these investigations are referred to

in Part VIn of this Report, under the sub-heading "Securities ExchangeAct of 1934" of

the principal beading "Criminal Proceedings".

Pegging, fixing, and stabilizing of securities prices

During the fiscal year ended June 30, 1942, the COIIIIIIissioncontinued the administration of (a) Rul.eX-17A-2,which requires the filing of detailed rePOrts of all transactions incident to offerings in respect of which a registration statement has been filed

under the Securities Act of 1933where any stabilizing operation is undertaken to facilitate the offering; and (b) Regulation X-9A6-1,governing stabilizing transactions in securities registered. on national securities exchanges effected to facilitate oUerings of

securities so registered in lIhich the offering prices are represented to be "at the

market" or at prices related to market prices.

Out of a total of 235 registration stateaents filed under the Securities Act of 1933

during the past .fiscal year, 129 contained a statement of intention to stabilize to facilitate the offerings covered by such registration statements. Because of the fact that a

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registration statement in somecases covers more than one offering, there were a total of

148 offerings of securities in respect of which the statement required by Rule 827 of the

Rules and Regulations UDderthe securities Act of 1933 was made to the effect that a

stabilizing operation was intended to be undertaken. Stabilizing operations were actually

conducted to facilitate 91 of these offerings. In the case of bonds, public offerings of

$311,192,300 principal amount were stabilized. Offerings of stock issues aggregating

8,729,964 shares and having an aggregate estimated public offering price of $288,356,806

were also stabilized. ot the 91 stabilizing operations eeemenced during the past fiscal

year, 80 had been c<:llIp1etedand notices of termination of sta,bilization filed with the

COIIIIDissionand the rema1"1ng II were still in progress as of the close of the fiscal year.

Also during the past fiscal. year, 5 notices of intention to stabilize were filed with

the COIIIIIIissionon FozmX-9A6-l pursuant to the provisions of Rule X-9A6-3. The offerings

described in these notices, to facilitate which stabilizing operations were conducted, involved one offering of bonds of $2,470,000 princiPal amount, and stock issues aggregating

211,900 shares and having an aggregate initial. public offering price of $8,310,675.

With a view toward simplifying the procedure for we reporting of transactions eff~cted by persons engaged in stabilizing activities the COIIIIDissionadopted on July 29, 1941

a new FozmX-17A-1, with instructions therefor. This new form was designed to be "selfproving" and to replace the three fozms required to be filed by those persons subject to

the provisions of Rule X-17A-2or Regulation X-9A6-1. An amendmentto Rule X-17A-2,

under the Securities Exchange Act of 1934, required by the adoption of the new form, was

also adopted on that date.

To simplify further the filing of stabilizing reports, the Commissionadopted on

February 13, 1942 an amendmentto Rule X-17A-2, eliminating the necessity of filing reports in triplicate and making it unnecessary, in most cases, for a stabilizer to file a

report for any day on which his transactions are confined to retail sal.es of the offered

security at the fixed public offering price. Certain other minor changes were made in

the rule for clarification. The instructions for FormX-17A-l were also revised to conform

to the amendmentto the rule.

The COIIIIDission'sfirst proceeding under Section 19 (b) of the Securities Exchange

Act of 1934, which section empowersthe Commissionunder certain conditions to al.ter or

supplement the rules of an exchange in respect of certain matters if the exchange itself

refuses to make such changes, was closed by an order of the Commission. 5/ This order

which was entered after extended hearings and argument required that Section 8 of

Article XIV(formerly Article XVI) of the Constitution of the NewYork Stock Exchange be

amendedto contain the following proviso:

i/ Securities Exchange Act Release No. 3053. See also Securities Exchange Act Release

No. 3033. section 8 of Article XIV(formerly Article XVI)was amendedby the NewYolk

Stock Exchange to contain the required proviso, effective October 6, 1941.
- 13 -

"**""nothingherein contained shall be construed to prohibit any member, allied

memberor memberfirm from, or to penalize any such firm for, acting as an oddlot dealer or specialist or otherwise publicJy dealing- for his or its own account

(directly or indirectly through a joint account or other arrangement) on another

exchange located outside the City of NewYork (of which such member, allied

memberor memberfirm is a member)in securities listed or traded on such other

exchange."

No appeal was taken by the ~change from the order of the Conmission. Manyof the

smaller exchanges had protested vigorously against the rule as it stood and was 1nterpreted

by the .c:xchangeprior to the ordered amendment.

ExchangesRegistered and Exemptedfrom Registration

During the past fiscal year there was no change in the numberof exchanges registered

with the Conmission as national securities exchanges, nor did any change occur in the number of exchanges exempted from such registration.

OVER-THE-COUNTER MARKETS

CommissionSupervision of Over-The-Coun'terBrokers and Dealers

In the year ended June JO, 19.42the Commissionreceived from its regional offices,

1,054 reports of inspections of registered brokers and dealers. These inspections are

based on exam:!Dation of books and records only and are designed to test compliance with

the statutes aand rules and regulations thereunder. Prominent points covered are best

illustrated by a brief summar.Y of the findings of these inspections. In 368 inspections

there were found irregularities which maybe classified as follows: 112 instances of

unsatisfactory or precarious financial condition; 65 instances of improper use of customers:

funds or securities (only 18 of which involved firms whose financial condition was not

unsatisfactory); 161 instances of transactions at prices which tended to indicate that

sales had been made to customers at prices not reasonably related to the current market;

and 28 instances of secret profits, involving misrepresentations as to the prices at which

customers' orders had been executed. In many other cases involving the sale of oil royalty

interests it was found that sales to customers were at prices grossly in excess of the cost

to the dealer.

Administrative Remedies

PubJ.ic interest and protection of customers are factors which the Conmissionmust

weigh and consider prior to the application ot a statutory remedyupon consideration of

irregularities ot the sort described above. In the course of our examination of the books

ot registered brokers and dealers cases are t'requentlyencountered involving unsatistactory financial condition or improper hypotheca'tion of customers'securities. In many

cases, circumstances suggest that the violations are unintentional. The inspection program being, in part, educational, it has been the Commission's policy, before considering

statutory remedies, to give opportunity to firms to correct such conditions. In one case

a firm. had improperly pledged customers' fully paid for securities bllt officers whowere

aJ.so principal stockholders disclaimed knowledge of the situation and promptly contributed

more than $40,000 to the corporation, discharged. responsible employees and reorganized

the bua1neS8. Subsequent surveiJ,J.ance failed 'to disclose further irregularities by the

firm.

In the case of Ver Hulst & Co., Inc. of Denver, Colorado, Y the COlIIDission,on

information tending to showinsolvency and improper use of customers' securities,

Y Securities ExchangeAct Release No. 3204.
-14 ..

instituted proceedings in February, 1.942to determine whether the firm's registration

shouJ.d be revoked and whether it should be suspended or expelled from membershipin the

N.A.S.D. SUbsequent1.y'the firm requested withdrmral .of its registration, representing

that it had paid or arranged to pq $55,000 satisfying all creditors and protecting

customers .from the possibility of 1.08S, that it was in the process of going out cJt rosiness

and contempl.ated disso1.ution, that it had resigned .fromthe N.A.S.D., and that the registrant's President, George M. Ver Hu1.st, wouJ.dnot again enter the securities business.

Under these circumstances, the CODIDi.ssionfound that withdr8ll'al. wouJ.dnot be inconsist4tnt

with the public interest and the protection of investors and ordered, on April. 22, 1.942,

that the withdrawal. application be permitted to become effective.

In the case of Morrison BondCo., Ltd., of Long Beach, California, 7/ a similar proceeding was instituted by"the Commissionon information that the companybad f'1l.ed a

petition under Chapter XI of the Bankruptcy Act to effect an arrangement .nth unsecured

creditors. The companyproposed to continue its lroker-dealer business. On April 8

registration was revoked and the firm was expelled from the N.A.S.D. on findings of misleading representations and fraudulent omissions of material. facts in the sale of securities, wilful violations of the hypothecation ral.es and al.terations and faJ.se entries in

its books and records. It was stated in the Commission's opinion that the Commissionwas

convinced that the false entries had been made "to awid discovery of the fact that it

(the firm) has violated the Commission's hypothecation rule."

As a result of information obtained in someinspections, civil suits were fUed and

permanent injunctions obtained, the defendants consenting, against Kimball, Ware& Co.,

Port1and, 1Ia:ine, Seybolt & Seybo1t, Inc., Springfield, )(ass., John ll. WJatt & Co., n

Paso, Texas, and HartIumn Inc., Wheeling, W. Va. In twe1w instances facta relating to

serious financial. condition were referred tq the Attorney' General of the State of NewYork

who, after independent iJIquiry, obtained injunctions against ri1ne of the firms involved.

One injunction was later vacated. '!'he cap!.tal position of each of the three remai"i ng

firms 11'&8 adjusted aDd no action against th_ wu taken.

The most difficuJ.t current problem arising out of regulation of over-the-counter

lrokers and dealers stems from the practice of selling securities at prices which bear

no reasonable relationship to current market. y In such cases extensive investigations

beyond the limits of books and records must be ma4ie. These investigations tax to the

utmost the limited staff of the Commissionnow available for such 'WOrk. They require the

cO!'1Pilation of voluminous price schedules and the reconstruction of market prices at the

time the transactions took place. Customers must be interviewed to determine what

representations were made to induce the transactions and whether material facts were conceal.ed from t hem. In a number of investigations madE! during the Past year the evidence

disclosed a pattern of fraudulent conduct which resulted in the formal proceedings. The

chief remedy'employed in such cases is the revOcation of the firm's registration, coupled

with expul.s!on from the N.A.S.D. where the firm is a memberof that Association.

21 Securities ~hange Act Release No. 3189.

y In Jul:y 1942 the Trading and ExchangeDivision offered to the industry for cOlllDenta

proposed rule wbich would require the disclosure to the customer of the best available

market far a security before the canpletion of a transaction in that security.
- 15 -

In ten of the cases decided during the year 9/ revocation of re gistration was

ordered because of fraudulent over-reaching of the character just described. Seven

of these finns were also expelled from membershipin the N.A.S.D. Of the ten cases

referred to above, two 10/ involved not only the sales of securities at prices inconsistent with prevai11iig market prices but also gross abuse of a relationship of

trust and confidence which the firms had established with their customers. Both

cases are of importance on the question of agency,

In its findings and opinion in the Allender case, the Camnission discussed the

legal principle that words alone on a "confirmation" to a custcaer do not establish

the relationship between the parties and held that "the words 'we have this day sold

to you' and 'bought fran you' do not of themselves contravene the existence of an

agency relationship between the respondent and its customers and do not justif,y respondent's failure to disclose its secret profits." The canplete reliance of the customers on the firm's advise, the unequal circwnstances of the parties in the transaction, and complete trust and confidence in the firm were held to impose upon it the

duty to makefull and complete disclosure of all material facts.

In the Stelmack case the evidence showedthat the firm obtained lists of holdings

from certain customers and then sent to these customers analyses of their securities

with recommendationslisting securities to be retained, to be disposed of, and to be

acquired. The firm's order b.Lanka, which customers signed, stated "I hereby authorize

you as my agent, for my account and risk • • • to sell ••• buy," but also contained

language which authorized the firm, as principal, to "buy from or sell to me • • • at

prices to be fixed by you and I hereby ratify and confirm any transaction effected by

you pursuant hereto." The eammissionheld that the conduct of the customers in soliciting the advice of the firm, their obvious expectation that it would act in their

best interests, their reliance on its recommendations, and the conduct of the firm in

making its advice and services available to them and in soliciting their confidence,

pointed strongly to an agency relationship and that the very function of furnishing

investment counsel constitutes a fiduciary function. As to the order form, the Canmission held that where the language of a documentor a course of conduct thereunder

create an agency, other provisions in the documentexplicitly negating the e.x1stence

of an agency are of no effect.

The Stelmack case in important in another respecc , One of the admitted charges

which the Connnissionfound to be in violation of the fraud provisions of the Securities

Act and the Securities ExchangeAct was that, while the corporation was engaged in

selling its own preferred stock, it failed to disclose to the purchasers thereof' that

it had submitted false and misleading financial reports to the Office of the Attorney

General in that State which in effect permitted the registrant to remain in business

only at the peril of discovery by the Attorney General.

Rules

To facilitate sales of federal stamps and bonds and tax saving notes, registered

brokers and dealers and membersof exchanges were no longer required to keep records

or send written confirmations thereon by amendmentsto Rules X-17A-3and X-15Cl-4

effective January 21, 1942.

21 In one case, In the Matter of W. K. Archer & Co., the Commission's order was

appealed. The eIrcUit court of Appeals (8th eircuit) affirmed the eonnnission's

findings and order, 133 Fed. (2) 795 (e.e.A.B), 1943.

10/ In the !latter of Allendar Co., Inc. and In the Matter of William J. Stelmack

Corporation, respectively, Securities ExchangeAct Releases 2992 and 3254.
16-

Rules X-15B-8 promulgated and effective June 9, 1942 provides that withdrawal of

registration of a broker or dealer becomes effective on the thirtieth d~ after the

filing of a notice, unless prior to its effective date the Camnission has instituted a

proceeding to revoke or suspend registrar.ion or to impose terms and conditions on such

withdrawaJ.. If the Commissioninstitutes such proceedin~ or if a notice of withdrawal.

is filed atter the Commissionhas ordered proceedings to revoke or suspend registration,

the withdrawal I during the pendency of such proceedings, becomes effective only at such

time and on such conditions as the Camnission m~ appropriately order.

The following table contains statistics relating to administrative proceedings UDder

Section 15 (b) of the Securities Exchange Act, which section governs registration of

brokers and dealers:

Revocation proceedings pending J~ 1, 1941 •••••••••••••••••••••••••.•••••

Denial proceedings pending July 1, 1941••••••••••••••••••••••••••••••••••••

Revocation proceedings ordered during year •••••••••••••••••••••••••••••••••

Denial proceedings ordered during year •••••••••••••••••••••••••••••••••••••

Revocation proceedings dismissed on withdrawal •••••••••••••••••••••••••••••

Revocation proceedings dismissed and not revoked•••••••••••••••••••••••••••

Denial proceedings dismissed on withdrawal •••••••••••••••••••••••••••••••••

Denial proceedings dismissed and registration permitted ••••••••••••••••••••

Registration denied •••••••••••••••••••••••••••••••••••••••••••••••••••••••• Registration revoked ••••••••••••••••••••••••••••••••••••••••••••••••••••••• Revocation pending, June 30, 1942••••••••••••••••••••••••••••••••••••••••••

Denial pending, JuDe 30. 1942•...••..••••••••••••••••••••••••••••••••••••••

11

3

39

6

59

4

2

5

1

2

29

15

1

59

Registrations

The CClIIIIIIission ts experience during the year ended June 30, 1.942with broker-dealer

registrations is shown in the tabulations accanp~g this report. Briefly, there 1rU

a net decline of 508 registrants to 5,557 as of the end of the period. It is clear

that the war effort is a basic cause of at least part of this shrinkage.

The National Association of Securities Dealers, Inc.

The CClIIIIIIission' s efforts in regulating the over-the-counter industry have been

aided by the cooperation of National Association of Securities Dealers, Inc. (N.A.S.D)

pursuant -to Section l5A of the Securities ExchangeAct of 1934, otherwise known as the

MaloneyAct. During the year under review N.A.S.D. continued as the onJ..y national securities association registered as such with the CClIIIIIIission.

Due largely to diversion of personnel of its membership into war activities,

membership in that Association suffered a 12.8% decline frClll 2,974 membersas of

July 1, 1941 to 2,593 as of June 30, 1942.

Examination progr_

As of June 30, 1942 the Association had cClllpleted, large~ through questionnaires,

its initial exarnjnation of more than 2,200 members. Less than 700 membersthen remAined

uninspected. These examinations, conducted by each of the fourteen District Business

Conduct Camnitteesi under the general supervision of the main office of the Association,

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delve into the business practices of memberswith emphasis upon the compliance with the

Rules of Fair Practice. Reports of examination which indicate violations of the

'. Association's rules result in the filing of either formal or informal complftints by the

appropriate District BUsiness Conduct Committee. The scope and results of these disciplinary actions are discussed subsequently.

Cases referred by the COJJmlissionto the NASD

The Association's examination program outlined above is not the only source of

disciplinary action against members. The Commission..as a matter of policy, frequently

refers to the Association information uncovered in its own inspection which appears to

, concern either unfair prices or other violations of the Association's rules.

On July 1, 1941 there were before the Association 11 cases which had previously

been referred to it by the Commissionand, in the ensuing year, 46 other cases were referred. In that time the Association disposed of 46 cases and it held pending 11 cases

on June 30, 1942. Of the cases disposed of 23 were handled informally and in the remaining cases 23 formal canplaints were filed which resulted in five expulsions, two

suspensions, three fines and censures, six fines, four censures" and no action or

penalty in three instances.

Disciplinary proceedings by NASD

In disciplinary matte"'s, minor or technical infractions of the Association's rules

are generally handled and usually result in no more than a formal censure,

but in more serious ma't'ters formal complaints are filed by the Association which may

have as their consequence expulsion" suspension, fine or censure or any combination of

those penalties.

On July 1, 1941 there were pending before the Association 19 formal canplaints and

132 additional canplaints were filed in the following year. Of these 151 cases, 130 were

disposed of :in the year and 21 remained in proeess on June 30.. 1942.

Formal complaints were withdrawn or dismissed without penalty in 25 instances; 32

respondents were censured] 47 were fined .. :in amounts ranging from $25 to $2000; 12 were

suspended for periods of fran thirty days to one year; and 24 respondents were expelled.

Cases referred by the Commissionare included in this summary.

In 20 cases decisions of District Business Conduct Committees came before the

Board of Governors for review. The Board affirmed three decisions; dismissed one canplaint in which a BlUIiness Conduct Committeehad censured and imposed a $250 fine;

modified a decision of suspension, censure and $1500 fine to censure and $300 fine; and

modified a decision of "strong censure" and $100 fine to eliminate the censure. One

appeal for review was withdrawn and 12 cases were Pending June 30, 1942.

A District Business Conduct CCllllIlitteedecision ot censure and $250 fine, affirmed

by the Board of Governors was brought by the respondent to the Camnission for review

but b;y June 30, 1942 no action had been taken.

Amendmentsto Rules

Uniform Practice Code. The CCIIlDlissionot disapproving, a Uniform Practice Code

cover1iig "Settlement of Contracts and Trading Practice in Dver-the-Coun'ter Transactions

in Securities" became effective August 1, 1941 after membership approval. This code is

technical in substance and codifies on a national scale what was generally recognized

as sound practice in the securities business.

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Amendmentsto -Laws and Rules of Fair Practice. On June 15, 1942 the Association

forw the membership for approval. or disapproval an elaborate revision of the ByLaws and Rules of Fair Practice after the Board of Governors on May 18 and 19, 1942 had

recommendedits adoption. IIan;T of the proposed changes only eliminated from the rules of

the Association reference to a predecessor organization or material which was of value

onJ.y in the original organization and registration of the Association. Other changes involved language or detail in which some ambiguity existed or in which experience indicated

the necessity for alteration to make the material consistent with the statutes or rules of

the Commission.

Of paramount importance was an amendmentwhich would require, as a condition to

membership, minimum net capital, exclusive of fixed assets of ssooo for "clearing firms"

or $2500 for "non-clearing firms." -gJ other changes included authority to assess a

disciplined membersomepart of the cost of the proceedings in lrilich he was involved and

a requirement that membersshould diligent1y supervise the activities of salesmen.

The following tabulation re1ates to broker-dealer registration under Section 15 (b)

of the Securities ExchangeAct:

Ju1y 1, 1941 June 30, 1942

iffective registrations at close of preceding fiscal year ••••••••••••••••••••••••••

Applications pending at close of preceding fiscal year

Applications filed during fiscal year ••••••••••••••••••••••••••••••••••••••••••••••

Total •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••

Applications withdrawn during year •••••••••••••••••••••••••••••••••••••••••••••••••

Registrations wi~ during year••••••••••••••••••••••••••••••••••••••••••••••••

Registrations cancelled during year ••••••••••••••••••••••••••••••••••••••••••••••••

Registrations denied during year•••••••••••••••••••••••••••••••••••••••••••••••••••

Registrations suspended during year ••••••••••••••••••••••••••••••••••••••••••••••••

Registrations revoked during year ••••••••••••••••••••••••••••••••••••••••••••••••••

Registrations made inactive during year (a) ••••••••••••••••••••••••••••••••••••••••

Registrations effective at end of year (except those put on inactive status as

exp1a1ned in footnote (a» ••••••••••••••••••••••••••••••••••••••••••••••••••••

Applications pending at end of year •••••••••••••••••• !•••••••••••••••••••••••••••••

Total •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••

6,065

Yl

JE

6,674

18

919

97

2

2

29

II

(a) The registration of 11 brokers and dealers, whosewhereabouts, despite careful inquiry,

could not be ascertained, have been placed on inactive status.

III Balloting, which resulted in membership approval of these changes, was completed on

Jul3' 15, 1942. Subsequen1ily, in Securities ExchangeAct Release No. 3322, the COIIIDission, a1'ter extensive hearings and argument, disapproved the mjnjmnmnet capital

requi.reIIent.

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PART III

AI!!INIS'lRATION OF '!HE PUBLIC UTILITY HOLDING COMPANYACT OF 1935

Integration and Corporate Simpl1i'ication of Public Utility HOldingCO!!l1?8l1Y SY8tems

In the past fiscal year, the .major activities of the C01IIII1issionin its administration of the Public Utility Holding CompanyAct of 1935 revolved around the enforcement of the integration and simplification provisions of the Act. In several important cases we have entered orders prescribing most of the action which IIIl18t be t8ken

ultimately to complywith the requirements of Section 11, particularly Section 11 (b)

(1) As to the remaining cases, a majority of the proceedings have reached the stage

where such orders maybe expected in the near future. In the course of these proceedings the Commissionhas had occasion to pass upon manyof the disputed questions of

interpretation of the Act, and the lIllUUltementsof most of the holding cOlllpS.Dysystems

are nOlI'either substantially advised 88 to, or 'in a position to judge the soope of,

the action which we will order to be taken to bring about compliance with Section ll.

Anumber of companies have appealed our orders to the courts and the csses nOlI'pending

in the courts should settle most of the legal questions still in dispute. Weare

therefore moving toward completion of the first stage of entering orders and getting

the legal form21ities behind us, especially with respect to procednre and interpretation. Whenthat stage is completed with respect to the various holding companysystems,

each will knOll' definitely where it stands in relation to the requirements of Section 11.

Howand when such orders shall be enforced, is a matter for future determine.tion in

most of the cases.

"fe have not proceeded as yet under Section 11 (d) for enforcement ot our Section

II (b) orders by the oourts. A significant result ot the progress that we have made

in nearing the completion of the first stage ot the administration of Section 11 is

that manyof the major systelll8 have nOlI'evidenced a willingness to proceed with the

task of carrying out our orders. To that end several of the systems have filed

voluntarJr plans and others are engaged in doing so and 1n_ discussing their proposals

with us. In fact, with few exceptions we are finding an increasiiigtendency on the

part of the holding companysystems to facilitate either the entering of orders, or

the trial of cases instituted by us, or compliance with the Act. In view ot the

progress already made, or in prospect, the Commission'smajor adm:1nistrative concern

today relates to the tinal steps achieVing the objectives of the statute, namely,

the choice between the various alternative methods available under the Act for bringing about compliance with the requirements of Section 11 (b), and the determination

of what treatment of the various claims of security holders is fair and equitable.

IUring the 1942 fiscal year, the Commissioninstituted 26 newproceedings looking

to orders requiring registered public utility holding companies to complywith Section

II of the Act and at the close of the fiscal year, 48 such proceedings were pending.

'lhese 4S proceedings involve substantially 2ll of the public utility holding company

systems registered under the Act although they do not encompassall of the Section 11

problems existing in such systems. In this connection, it may be noted that as of

June 30, 1942, there were registered with the Commission134 public utility holding

companies, the total consolidated book assets of which amountto approximately

$16,000,000,000, or about 6S percent of the private electric and gas utility industry

of the United States. 'lhose 134 registered holding companies constitute 53 public

utility holding companysystems, which include 1,342 holding, subholding and operating

companies. HOlI'ever,about 14 of them control total consolidated assets ot

$12,195,000,000 and approximately 52':'€of the privately ownedelectric generating

capacity of the country. 'lhe holding companysystems involved in Section 11 proceedings as of June 30, 1942 had consolidated assets which aggregated $14,237,000,000.

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Section 11 (b) (1) Geographic Simplification

The past fiscal year has seen rapid strides toward ultimate compliance by all holding companysystems with the geographic integration provisions of the Act. As related

in last year's annual report, thE' previous year was chiefiy noted for the holding of

public hearings as to the major holding companysystems and the entry of initial orders

as to SClllle of them. At the close of that year, however, the records in most of those

proceedings had not been completed, and there remained to be instituted additional proceed1.np;sas to several systems constituting a minor portion of the industry subject to

the Act.

The more significant developments in the administration of Section 11 (b) (1) of the

Act in the past fisca1 year may be summarized as follows:

(1) Hearings were completed in most of the integration proceedings instituted

prior thereto and substantially completed in all others, including a number

begun during the year. The Section 11 (b) (1) records were completed with'

reSPect to the following systems: Cities Service Power & Light Company,

Consolidated Electric and Gas Company,Engineers Public Service Company,

Great Lakes Utili ties Company,Lone star Gas Corppration, The Middle West

Corporation, North American Gas and Electric Company,Southern Union Gas

Company,Standard Gas and Electric Company,United Public Utilities Corporation and Utilities Stock & Bond Corporation. The record in the Associated

Gas and Electric Corporation proceeding was completed on substantially all

of the issues.

(2) Important, far-reaching orders were entered by the Commissionprescribing

most of the steps which certain of the major systems must take to canply

with Section 11 (b) (1) Attention is directed to the CommissionIe orders

in the following cases:

Holcting CompanyAct

Release No.

Engineers Public Service CClIIlJ>any

The North American Company

standard Gas and Electric C~

The Umted Gas ImprovementCompany

The United Light and Power Company

United Public Utilities Corporation

2897, 3230

3405

2929

2913, 3511

2923, 3189, 3242

3368

(:n Two of the largest holding companysystems, The United Gas Improvement

Companyand The North American Company,fUed petitions to review the

Commission's orders in United States Circuit Court of Appeals. 1:1

(4) Proceedings were instituted with respect to most of the holding company

systems as to which Section n (b) (1) cases were not already pending.

The new proceedings included the following:

!IOn December24, 1942, without, waiting for a decision on its appeal, U.G.1. fUed a

plan for the divestment of its pr:lncipal assets (consisting of cOllDllonstock of

Philadelphia Electric Companyand Public Service Corporation of NewJersey) by a

distribution of such assets amongits stockholders. Weapproved the plan on

March 18, 1943 (Holding CompanyAct Release No. 4173). A petition for review of our

order of approval has been fUed by stockholders of U.G.1. Our order in the North

American case was affirmed by the U.S. Circuit Court of Appeals, Second Circuit, on

January 12, 1943; 133F. (2d) 148.

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Holding COJIl.P8DY'Act

Release No.

Associated Gas and Electric Corporation

Consolidated Electric and Gas C~

Great Lakes Utilities COJlI.P8DY

LoDe Star Gas Corporation

Republic Service Corporation

Southern Union Gas Company

United Public Utilities Corporation

Utilities Stock & Bond Corporation

2983

3225

3243

3370

3514

3586

3105

3566

(5) A number of 1mponant interpretations of the provisions of Section 11 (b) (1),

together with determinations of general policy as to its administration, were

handed down by the COJIIJIlissionin PaSsing on specific questions raised in proceedings involving The North American Company(Holding CompanyAct Release

Nos. 3405 and 3630), Engineers Public Service C~ (Release No. 2897) and

The United Gas Improvement Company(Release Nos. 2913 and 3511).

(6) A number of transactions proposed by registered holding companies or their

subsidiaries pursuant to Section 11 (e) and other applicable sections, and

'tending to effectuate Partial or substantial compliance with the requirements

of Section 11 (b) (1), were approved by the Commission. The fo11oring holding companies were amongthose affected:

Holding Com~ Act

Release No.

Associated Gas and Electric Corporation

Columbia Gas & Electric Corporation

Community P01I'erand Light Co~

Engineers Public Service Company

Great Lakes Uti11ties Compazl1'

Lene Star Gas Corporation

Midland Utilities Company

The North American Company

National P01I'er& Light Company

The United Gas Improvement Comp8D1'

The Un!ted Light and Power Company

3353 Y

3286

3041, 3096

3230

3419, 3456

3589, 3591

3250, 3145 Y

2950

3612

3433

2991, 3189, 3242, 3316

Section 11 (b) (2) Corporate Simplit1cation

This section of the Act makes it the dutY' of the COJIIIIIissionto require registered

holding companies and their subsidiaries to take such steps "as the CClDDlissionshall fiDd.

necessary- to :insure that the corporate structure or continued existence of any Compazl1' in

the holding-eompa11Y"qstem does not unduly or 'IDUlecess~ cOlllpl:LI:atethe structure, C1r

unfairly or inequitably distribute voting power amongsecuritY' holders, of such holdingcompany SY'Stem." This section also provides that not more than three tiers of companies

may be penni tted in any holding company system and concludes with the proviso that IlExcept

for the purpose of fairly and equitably distributing Toting power among the securitY'

holders of such company, nothing in this paragraph shall authorize the COJIIIIIissionto require any change in the corporate structure or existence of any COIIlP8DY' which is not a

holding company, 01' of any canpaD1'whose principal business is that of a public-utilit)-

company. II

y Section 11 (e) plan.

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The important developments in the administration of Section 11 (b) (2) in the past

fiscal year may be summarizedas follows:

(1) Under this provision the Commissioninstituted proceedings against the

following companies:

Holding CompanyAct

Release No.

The United Corporation 2907

Fiorida Power& Light Company 2874

International utilities Corporation 2885

Engineers Public Service Company 2698

Pennsylvania Power & Light Company 2906

Virginia Public Semce Company 2933

Illinois Iowa Power Company 2953

ColumbiaGas & Electric Corporation 2963

NewEngland Gas & Electric Association 3035

NewYorkWater Service Corporation 3~56

Pennsylvania Gas & Electric Corporation 3251

Central. Illinois Public Service Company 3080

North American Light & PowerCompany 3168

Consolidated -Slectric & Gas Company 3225

Michigan Gas & .c;lectric Company 3408

Jacksonville Gas Company 3434

Great Lakes Utilities Company 3243

Cities Service Company 3498

RepUblic Service Corporation 3514

Southern Union Gas Company 3586

Central Public Utility Cornoration, V.T. 3615

Northern States Power CompanyU~inn. & Del.) 3595

(2) Section 11 (b) (2) hearings were held with respect to the following

holding company systems:

File No.

Associated Gas and Electric Company

Central Public Utility Corporation

Cities Service Company

Columbia Gas and Electric Corporation

ComnUDityGas and PowerCompany

Electric Bondand Share Company

Engineers Public Service Comp8l]Y'

Federal Water Service Corporation

Great Lakes Utilities Company

International Utilities Corporation

Middle West Corporation

The North AmericanCompany

Pennsylvania Gas and Electric Corporation

Republic Service Corporation

Southern Union Gas Company

Standard Power and Light Corporation

The United Corporation

59-30, 59-34

59-40, 59-49

59-46

59-33

59-43

59-26, 59-29

59-28

59-35

59-45

59-'Z7

59-'57, 59-41

59-31, 59-39

59-36

59-47

59-48

59-50, 59-51

59-25
(3)

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Orders were entered by the COIIDnissionprescribing action which

canpanies in some of the major holding-ccanpany systems must

take to canp~ with the simplification requirements of Section 11 (b) (2), including those in the following cases:

Holding Compan;yAct

Release No.

The CCGIII1011W8alth & Southern Corporation

The Middle West Corporation

National Power & Light Ccu.pan;y

North .American Light & Power Canpany

Standard Power and Light Corporation

3432

3580

2962

3233

3f:iJ7

(4) A number of transactions proposed by' registered holding canpanies

or their subsidiaries pursuant to Section II (e) and other applicable

sections, and tending to effectuate full or partial canpliance with

the requirements of SeCllon 11 (b) (2), were approved by the COIIDIlission.

The following canpanies were among those affected:

Holding Canpany Act

Release No.

Associated GaS and Electric Corporation

Col'lDDbiaGas & Electric Corporation

Derby Gas & Electric Corporation

The Eastern Shore Public Service Canpany (Md.)

Federal Water Service Corporation

Gl"eat Lakes utilities CanpSllY

Jacksonville GaS Canpany

Michigan Gas and Electric Canpany

The Middle West Corporation

National Power & Light Company

Northern Indiana Public Service Company

North American Light & Power CanpSllY

North Shore Gas Canpany

The United Light and Power Company

United Public Service Corporation

Virginia Public Service Company

Wisconsin Electric Power Canpany

3137 3/

3286, J415

2875 2/

3633

3023

3419 2/

3570 'JI

3599

3580

3211 2/

3145, 3250

3658

3131 'J/ 3199

2886, 2991, 3140,

3189, 3198, 3242, 3345

3289

3562

2950

Section 11 (e) provides a means whereby holding canpanies and their subsidiaries

may file plans designed to bring about canpliance with Section 11 (b). Twenty-nine

such plans were filed during the fiscal year. Before a plan can be approved it must

be found fair and equitable to persons affected thereby. An interesting example of

the application of the CCIIIIIlission'spowers under Section 11 (e) and Section 11 (b) (2)

respecting an opers.t-ing cClllpanyis the Jacksonville Gas CompSllYcase. Jacksonville

Gas" Companywas on the verge of bankruptcy but was able to file a voluntary reorganiza,-

tion plan pursuant to Section 11 (e) of the Act. In the space of a very short period

of the a canplete reorganizatiOn was approved and was duly enforced at the company's

request in the United states District court in Florida. !!/

if Section 11 (e) plan.

!!/ For the CClIIIIII1ss;Lon's op1Di.on see Holding Canpany Act Release No. 35'70.

The Court's op1nion approving the plan is reported, 46F. Supp. 852.

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Public Utility Financing

At the close of the last fiscal year, 65 applications and declarations pursuant to

Sections 6 and 7 were pending, and 199 were filed during the year ended June 30, 1942.

Of these, 164 were approved, 11 were withdrawn or dismissed, and 6 were denied, leaving

83 pending at the close of the fiscal year.

Of the 164 approved applications and declarations, 124 pertained to security issuance and 40 to assumption of liability and alteration of rights.

The issues covered by the 124 approved applications and declarations totaled

$631,661,484. Theywere of the following types and for the following purposes:

60.7%

2.2%

15.5%

11.1%

10.5%

100.0%

64.8%

0.2%

9.0%

8.7%

14.'%

2.9%

100.0%

$383,172,000

14,000,000

97,914,390

70,377,900

66,197,194

$631,661,484

$409,141,721

1,500,000

56,977,7:73

54,844,140

90,742,750

18,455,600

$631,661,484

Competitive Bidding

Bonds

Debentures

Notes

Preferred Stock

CommonStock

Total

Refunding

Reorganization

Exchangefor other securities

Acquisition of property

Newfinancing

Miscellaneous

Total

The past year has provided the first opportunity for scrutiny of the operation of

Rule U-50, which was adopted by the Commissionon April 7, 1941 5/ and becameeffective

May7, 1941. This rule prescribes public invitation of sealed bids in connection with

the sale of securities by registered publiC utility holding companiesand their subsidiaries. Fromthe effective date of the rule to June 30, 1942, twenty-three security

issues were sold at competitive bidding thereunder. The numberof bids for the various

issues was as follows:

Bids Bond

Per Issue Issues

1 4

2 5

3 1

4 2

5 1

6 1

8 2

9 2

TIS

Stock

Preferred Common

1

2 1

1

T T

Aggregates y

$118,500,000

146,?79 ,006

35,900,000

65,393,000

20,000,000

15,000,000

18,927,000

9,600,000

$430, 099, 006

Twoof the bond issues, aggregatirl..g$39,243,000, were bid in by insurance companies,

and investment banking houses or groups thereof were the successful bidders for the remainder. Twoof the preferred stock issues were the subject of "basket bids" with bonds

of the same com~.!".ies. In a few cases, the successful bid was that of the traditional

underwriter.

9 For a discussion Of the reasons leading to the adoption of the rule, refer to

Seventh Annual Report, pp. 98-102.

Y The aggregates include $391,170,000 face value of bonds, $31,000,000 par value of

preferred stocks and $71929,006 bid price for 590,57:7shares San Diego Gas & Electric

Co. commonstock. TheCommissionIs publication "Security Issues of Electric & Gas

Utilities 1935-42" may be referred to for data with respect to all of these iSSlles

except the commonstock which was a portfolio sale and not a newissue.
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Prior to the adoption of' the competitive bidding rule, the COIIIIIl1ssicm.statf' 1s had

,-"1 made a stud;y'of underwriting spreads prevailing during the five-year period ending

January 1, 1940. It was fown that slight~ over one-hal! of the 159 utUitiy' mortgage

_~bond issues covered by the study were sold by underwriters on the basis ot a two-point

spread and that the spread fell below that level in only four cases. '!he average spread

for the 159 issues sold under the traditional method of private negotiation was 2.49

points ($2.49 per $100 bond)

e As mentioned in Part 1, under "Securities Effectively Registered", the cost of

:; flotation of corporate securities was the lowest during this fiscal year that it has been

in the approximately eight-year period over which the Cormnissionhas kept records thereof.

The decline in underwriting spreads has been most noticeable in the offerings under

Rule U-50. The spread in 6 of the 13 mortgage bond issues offered to the plblic '1/

following bids made under this rule was less than one point per issue, a circumstance

not equalled in other recent corporate offerings except for a number of serial issues

(principa.lly railroad equipnent issues which are also required to be sold through competitive bidding). The spread, in percent of dollar proceeds registered tor sale under

the Securities Act, averaged 1.12 for the 15 "bank quaJ.ity" bond issues offered to the

public following bids madeunder this rule, canpared with about 1.9 for 26 -bank

quall ty" bond issues registered under the securities Act and offered to the pablic between Yay 7, 1941 and June 30, 1942 but not subject to Rule U-50.

Exemption Cases

Generally speaking, Sections 2 and 3 o£ the Act contain definiticm.s aDd exemption

provisions pursuant to which the COIIIII1ssiondetermines whether companies are subject to

the regulatory provisions of the Act.

In the past fiscal year the Commissiondisposed of applications filed by Moreau

Manufacturing Company,y Pacific Gas and Electric Company9/ and Public service Corporation of NewJersey !£/ each of which sought t.o be declared not to be a subs1d1.aryof

specified companies. All of' these applications were denied because the COIIIIissioncould

not find that the applicants were not subject to the controlling influence defined in

Section 2 (a) (8) by the specified holding companies. Another case of :importance was

the application filed by Standard Oil Company(NewJersey) for exemption 88 a holding

companypursuant to paragraph 3 of Section 3 (a). This application was also denied but

the operation of the Commission's order was suspended for a period of six .mUls because

of the problems arisi.ug from the applicant's interest in other businesses and its expressed willingness to cooperate with the Commissionin the solving of' its problems

under the Act. 11/

V The 18 bond. issues for which bids were submitted under Rule U-50 included 15 mortgage

issues of which 2 were bid in by insurance companies, 2 collateral trust issues, and

1 Debenture issue. All of the 16 offerings to the public were rated "bank-qualitytl

except the Debenture issue. All were offered within the fiscal year, except the 2

collateral trust issues which were offered just prior to the commencementthereof.

One of the collateral trust issues (a serial note issue) was also offered with a

spread of less than one point.

Y Holding CompanyAct Release No. 2868.

2/ Holding CompanyAct Release No. 2988. The Counnission's ruling was sustained on

appeal; 1Z7 F. (2d) 378.

l2./ Holding CompanyAct Release Nos. 2998 and 3058. The Commission's ruling was sustained on appeal; 129 F. (2~) 899.

!!IHolding CompanyAct Release Nos. 3312 and 3322.

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During the year the CCDIII1ssionalso granted or extended a number of exemptions

UDderSections 3 (a) (4) 3 (a) (5) and 3 (b) of the Act relating respective~ to temporar;y holding companies, foreign holding caupanies md foreign subsid:l.ar1.es. W

Appendix Table 19 shows the number of applications received and disposed of under

Sections 2 and 3 of the Act. rJI

Rules 8lId Regulations

There were cClllp8.1"ative~few changes in the Rules and Regulatic:ns under the Holding CCllJlP8ll1' Act dur1Dg the past fiscal year. !!.tI

A change, in addition to that shown in the first tootnote under Part II, in the

rules to meet wart1me conditions wa4 an amendmentto Rule U-7 (b) which defines an

electric util1.ty <:0JnP8I'1' for purposes of the Act. It exempts an industrial or other

compalVwhich is not a subsidiar;y of a registered hoJ.djng company and 'Which was not

an electric util1.ty compan;fas of January l~ 1941~ from being classified as an electric

utility cOJllP8!lYby reason of any sales of surplus electric energy at wholesale during

the existence ot the mtional emergency, and for one year thereafter. !iJ

During the year a new prorlsion was adopted to deal with the problem of equitable

allocation of taxes between various companies in a holding company system which may

join in filing a consolidated tax return. There was also a change, largely of an

administrative character, in the Commission s Rules governing solicitation of security

holders I authorizations regarding miscellaneous financial transactions. Under the

amended rules, solicitations regarding a transaction which is itself the subject of

Commission regulation are scrutinized in connection with the examination of other aspects of the proposed transaction. In cases where the solicitation is not part of a

transaction subject to regulation (for example, solicitations in connection with an

election of directors) the same rules are made applicable as have been adopted pursuant to the Securities Exchange Act for solicitation of proxies in respect of securities

registered on a national securities exchange. !11

A number of minor changes were made by way of simplification and clarification

of the forms under the Holding CompanyAct. 18/

---------------------------, W ----------- See Holding Company-Act Release Nos. 3337, 3348, 3218, 3617, 3101, 3263~ 2952,

2920~ 3318 and 3263.

W This table also dhowsthe number of applications arxi declarations~ and the purpose

thereof recetved and disposed of under sections other than the previously discussed Sections 6 and 7.

W Reference is made to the seventh Annual Report of the Commission (PP. 115-117)

tor a description of the general character of the rules adopted under the Holding

COJIlP8DYAct~ and the relationship of the Commissionls rule-maldng p<:JII'ersto the

administration of the Act.

W Holding CompanyAct Release No. 3506, effective Kay 7 1942.

W Rule U-45 (F) (6)~ Holding Canpany Act Release No. 2902, effective July 23, 1941.

A later amendmentwas adopted to cover consolidated returns made under the Revenue

Act of 1942. See Holding CompanyAct Release No. 4167.

'!lJ Rules u-61. and U-62~ effective July 15, 1941 and October 25~ 1941~ respectively.

Hold1ng Canpany Act Release Nos. 2836 and 3090.

W See Holding CompanyAct Release Nos. 2899~ 3249 and 3257. After the close of the

past fiscal year a substantial reduction was made in the amount of information required in the Anm1s] Supplement to the Registration statement which registered

holding companies must fUe under the Holding CompanyAct.

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PART IV

PARTICIPATION OF THE COMMISSION IN CORPORATE RECEGANIZATIONS

UNDER CHAPTER f OF 11m BANKRUPTCY ACT I AS AllENDEn

Swmnary of Activities

The C<m:dssion active~ participated in 1.48 reorganisation proceedings involving

the reorganization of 177 companies (1.48 principal debtor corporations and 29 subsidiary debtors).!L The aggregate stated assets of these 171 caupanies totaled approximatelY $2,044,933,000, and their aggregate indebtedness 1188 approxim.ate~

$1,317,556,000. For the first time the cases closed kept pace with the new cases in

1Ihi.ch the Camni.ssion filed a notice of appearance. there having been 34 of each during

the year. The 1.l4 proceedings, in which the COIIIIIIissionwas active~ participating as

of June 30, 1942, inv01ved 137 corporations (1.l4 principal. debtor corporations and 23

subsidiary debtors). These debtors had aggregate stated assets appraxi.mate~

$1,"1'S3.306,ooo. and aggregate listed liabilities of apprax1mate~ $1,116,6'70.000.

With respect to the 34 DeW cases in which the C<8m1.ssionparticipated during the

year. its notice of appearance was filed at the request of the judge in 12 Foceedings.

whil.e in the remaining 22 the C<lDlDiBsionentered its appearance upon the approval by'

the judge of the CCIIIDlission's motion to participate. Of the 34 proceedings. 31 were

instituted under Chapter X, and 3 undar Section TIB. 1he debtors iuvol.ved in these 34

proceedings had aggregate stated assets aDd ~gate iDdebtedness of appro:d.mately

U28.389.000 and $92.423.000. respectively. Y

The C<IEI1ssiOll As A Party To Proceedings

There have been no significant changes in the past fiscal. year in the policies

or practices of the COIIIIII:issiOl1 in performing its tunctiOllS UDder Chapter X. which have

been described in previous ammal. reports. However. four years of experience by' the

Commission. the f'ederal courts and the reorganisation bar with the operation of

Chapter X have reduced the 8IIlOl1I1t of time required to be spent on purely procedural.

questions, and have permitted greater concentration of the CCllllllission's energies upon

substantive matters. There now exl.sts a substantial. mDIber of precedents on nearly all

important procedural and interpretive questions.

Plans Of' Reorganisation Under Chapter X

The Camnission' s most important function under Chapter :x is to aid the courts in

effecting cOIlSUDlD&'tionof a f'air aDd feasibl.e plan of reorgazdzation. After f'our years

of experience there has been S<D8 change in the nature of the problems with which the

Camnission has to deal..

With respect to the f'a.irness of pl.ans, certain basic 1egal princip1ell urged by' the

Camnission throughout its activities under Chapter :x are now fiI;establi8hed as a

resul.t of the Supreme Court decisions in the Los Angeles LUIIber3 and Consolidated Rock

Products !!/ cases. The problem of fairness has becaae 'to a cons able extent one at

itUdiiiig 8Dd ~ing the l.8Ir aDd facts of' particul.ar cases.

g AppendiX Table 33 contaIliS a cauptete l.ist Of reorganizaticm proceediJigs in 1dilCh

the CCllBDissionparticipated as a party during the year eaded JuDe 30" 19~.

Y Under Section 265a at the Bank:ruptcy' Act, as 81118Dded, the CCJIIIIlissionreceives copies

or every petiticm f'or reorgaDi.zat1on f'i1ed UDder Chapter :x and copies of other

SPecified documents f'il.ed in the proceedingS.

y 308 U.S. 106.

!!l 31.2 U.S. 510.

~
28-

Perhaps the outstanding developnent in the CCIDDlission' s Chapter Xwork during the

fiscal year has been the increased importance and difficUlty of problems of feasibility

including such questions as the adequacy of working capital." the relationship of funded

debt or capital structure to property values, the adequacyof corporate earning power

in 'relation to interest and dividend charges" the effect of proposed new capital..isation

upon the c~'s prospective credit, and the desirable objective that newsecurities

shaJ.l not by their terms or otherwise be deceptive to subsequent purchasers. Parties

are inclined to gear their proposed capital structures to inflated earnings, either

because they do not recognize the extent to which the earnings are inflq.ted or because

they hope that the abnormalearnings lfill continue long enoughto permit scaling down

of debt to manageableprOPortions. The element of tax liability is an added force in

the direction of excessive debt structures which provide interest deductions and SCIllatimes other tax advantages which assumeadded importance :in a period of high tax rates.

Althoughsecurity holders' representatives f'requent1:yregard the fairness of the

plan as their principal. concern" the f'ull protection of their interests requires al.so

that the plan be feasible 80 that it will not hamperfuture operations or c<lllpEllanother

reorganization. The extent to which the difficulties of debtors nowin reorganization

are attributable to previous non-feasible plans is apparent fran an examination of the

34 cases in lIhich a notice of appearance was filed by the CamJlissionduring the fiscal.

year.. 17 iDvolvedcaupanies lIhich had already undergonereorganization since 1930, most

of themunder Section 77Bsince 1935. The Commission'sinsistence that plans shouJ.d

canp1:ywith reasonable standards of feasibility is designed to avoid a similar record

as to Chapter X cases five or ten years hence and its continuing efforts in this reSPect

constitute probab1:ythe most important phase of its present activities in connection

with plans.

AdvisoryReports on Plans OfReorganization

During th~ fiscal year the Commissionprepared formal advisory reports with respect

to plans of reorganization and supplemental reports with reference to amendmentsto such

plans in the proceedings involving Sayre & Fisher Brick Canpanyand Philadelphia and

Readin~Coal and Iron Companyand a1Soa: third supplementarreport in the proceed1ngs

iiiVolnng Penn T11ilber c~ in which an advisory report and two supplemental reports

had previouslY seenrne:

AppealS

Al.thoughthe Commission maynot appeal in a proceeding under Chapter X it participates in appeal.staken 'by others. During the fiscal year the Commissiontook part in

appeals in six proceedings.

In In re' Ulen and CCIII.P~5/ the COJIIIlissionurged attorneys for debenture holders

were not entitled to canpensaion in a Chapter Xproceedings for services rendered in a

prior Chapter XI proceedings whichwere not c<lllpElnsableunder the rules prevailing in

that type or proceeding. The District Court sustained this position and the Circuit

Court of Appealsfor the SecondCircuit affirmed. In re R~OldS Investing 6/

involved the question whether a person 1Ihobad violated SeCion 249 of the B pciY

Act by purchasing or selling claiJlls against or stock of the debtor while acting in a

representative capacity was barred fran aJ.lowanceof compensationfar services in a

different representative capacity which had been assumedafter the transactions in the

debtor's securities had termmated. The Circuit Court of Appeals beld" as urged by the

Camn!ssion,that Section 249 barred aJ.lowanceof c<lllpElnsationfor any services Performed

by the applicant.

2J 130 F. (2d) 303 (c.e.A. ze, August3, 1942). Rehearing denied In re Ulan & Co.;

Walker& Austin et al. v. Tyler et aJ.. (C.C.A. zs, August29" 1942).

Y 130 F. (2d) «J (C.C.A. 3d, August3, 1942).

-

~

~
- 29 -

In Dana v. Securities and Exchanft Commission71 the Circuit Court of Appeals tor the

SecOiid'Circu1t sustiiiie<i the pOS1on consistently taken by the CCIIIIlissionthat a

formal order of intervention is unnecessary to permit camnittees representing security

holders !io participate f'ully in proceedings under Chapter X. In re Marine Harbor

Propertieh Inc. involved the question of good faith in filing a petitIon hi a debtor

the property or Which was subject to a certificated mortgage which had been reorganised

in the NewYork State Courts pursuant to the provisions of the Shackno Act (NewYork

Laws of 1933" C. 745) and the Mortgage Camnission Act (NewYork Laws of 1935" C. 19).

The Circuit Court of Appeals reversed the District court's order approving the debtor's

petition. Certiorari was granted by the SupremeCourt, which upheld the CCIIIIlission's

contention that the debtor Is participation in state court proceedings under the Shackno

and Mortgage CommissionActs did not bar later resort to a proceeding under Chapter X"

but affirmed the decision of the Circuit Court of Appeals upon the ground that the

debtor had not sustained the burden of establishing its need for relief under Chapter X

(Section 130) and the existence of good faith in fUing the petition (Section 146). y

In re Paloma EstatesiInc. 91 raised similar questions. Sims v. Fidelity Assurance

ASsociation 10/ fiivo~ved the question whether the debtor was--aniriBurance compaDiY

eligible 'to me a petition under the Bankruptcy Act and questions as to whether the

debtor's petition had bean filed in good faith. The Ccmnission urged approval of the

debtor's petition and its position was sustained by the District Court. However, upon

appeal the Circuit Court of Appeals reversed" holding that the debtor was an insurance

companynot eligible to seek relief under the provisions of the Bankruptcy Act and that

the petition,had not been filed in good faith because the interests of creditors would

be best subserved in the receivership proceeding pending in West Virginia and other

states. Certiorari was granted by the United States SupremeCourt which, without deciding 'Whetherthe debtor was an insurance company"concluded ill that the petition had

not been filed in good faith upon the ground stated by the CirCUit Court of Appeals and

upon the additional ground that it was unreasonable to expect that a plan of reorganization could be effected.

'1/125 F. (2d) 296 (C.C.A. za, January- 10, 1942).

Y Marine Harbor Properties, Inc. v. Manufacturers Trust Co., 63 Sup. ct. 93.

2/ 126 F. (2d) 72 (C.C.A. 2d, February 21, 1942).

?!!/ 123 F. (2d) 89 (e.C.A. 4th" October 21, 1941), J29 F. (2d) 442 (C.C.A. 4th,

June 16, 19.42'.

'EJ This was decided on April S~ 1943.
II'

-30-

PART V

ADYINISmATION OF '!HE '!'RUSTINDENTUREACT OF 1939

Informat!.on regarding the genera1 purpose and scope of the requirements of the Trust

Indenture Act of 1939, and the Commission's procedure in examining applications for

qualification of indentures end trustee statements of eligiblli ty and qualification for

compliance with the statute, was set forth in the Sixth Annual Report of the Commission,

pp. 133-135, inclusive.

Since then a rule has been adopted 11 permitting a prospective trustee to obtain a

declaratory rnllng of the COIIIIII1ssionas to whether or not it is an affUiate of a

specified underwriter. '!his procedure is to enable complex questions of conflicting

interests to be tried and decided in advance of any particular security issue, to avoid

delaying seeur1ties transactions when they arise.

Under this rule J. P. Morgan& Co. Incorporated, a trust company, applied for a

ruling as to its status in relation to MorganStanl.ey & Co. Incorporated, an underwriting

firm. '!he CoDB1ssionheld that the two houses were under cOJlDllOncontrol within the

meaning ot 'the Act, and that J. P. Morgan& Co. Incorporated was therefore ineligible to

act 88 trustee of securities issued by any companyfor which MorganStanley & Co. Incorporated 1f88 an underwriter. ?J

Statistics of Indentures Qualified

'!he tollowing tables show the number of indentures fUed with the Commissionfor

qualification under the Trust Indenture Act of 1939 together with the disposition thereof

and the 8IIlOUDts of indenture securi ties involved.

Indentures fUed in connection with Registration Statements

under the Seguri ties Act of 1933. sa amended

JulY'l. 1941 to June 30. 1942, Inclusive

No. Amountof Offering

Indentures pending 6/30/41

Indentures tUed

Indentures qualified

Indentures withdrmm

Retusal orders issued

Indentures pending 6/30/42

6!1

57

46y8y

o

8

$442,534,900

f178, 214,800

1,059,636,900

134,853,000

o

293,234,800

y Refer to Seventh Annual Report, Page 182, for den vation of this figure and for

the record trom February 4, 1940 to June 30, 1941.

"gj Includes 88,000,000 added by amendment; total filed subsequently reduced to

$882,097,800 and 56 indentures by amendments.

sf Reduced to $1,021,636,900 by amendments.

9/ Reduced to $9,761,000 by amendments.

11 Rule T-1.OB-J.

Y Trust Indenture Act Release No. 15.

~
-31-

Applications f'Ued for gual1.f'ication of indentures covering

securities not required to be registered under the Securities

Act of 1933. as amended

July 1. 1941 to June 30. 1942' Inclusive

No, Amountof Offering

Applications pending 6/30/41

App1.ications filed

App1:1cations effective

App1:1cat1oD8withdrawn

Retasal orders issued

App1:1caUons pending 6/30/42

ly

27

2?

o

o

1

125JOOOJOOO

123J633J003

147J558J203

o

o

1J074J8OO

y Refer to Seventh Annual Report, Page 1S3, for derivation of this figure end tor the

record tram. February 4J 1940 to June 30, 1941.

Additional Information Relating to Trust Indentures

Ibr:lng the year the following additional material re12ting to trust indentures was

filed and examined for compliance with the appropriate standards and requirements:

14 inden~ exempt from the Trust Indenture Act of 1939 but subject to the Public

Utility Holding CompanyAct of ;1.935.

98 trustee statements of el1gib1l1 ty and qualification under the 1rust Indenture

Act of 1939 (90 on Form T-1 tor corporations, and 9 on Form T~ for

individuals). J!

1m I:lIIIeIldmentsto trustee statements at eligibility and quslif'ication (99 .preetfect.1veJ

If and a "post effective").

54 Supplements 5-T, covering special items of information concerning indenture seCurities registered under the Securities Act or 1933l/.

17 app1.1cations for findings by the Commission pursuent to Sec. 310 (b) (1) (11).

10 appU.cations, on Form T-4, far exempt10n parsuant to Sec. 304 (c).

131 8DDUal reports of indenture trustees pursuant to Sec. 313.

JI JlJring the period from February 4, 1940 to June 30, 1942, 1nclus1V8t an aggregate ot

:nS trustee statements (232 for corporations and 43 for individuals) and l5~

Supp1.ements 5-T had been filed.
I,

-32-

PART VI

ADlITNISTRATION OF THE INVESTMENT COMPANY ACT OF 1940

The. past fiscal year markedthe first full fi8Cal year in the adm1 n1 stration of the

Inve;:-,tlllentCompanyAct of 1940. During the year the CODJDissionconcerned itself pr~

with (1) the registration of companiessubject to the Act; (2) the disposition of applications filed pursuant to the provisions of the Act seeking a determination of whether or

not. certain companiesare investment companieswithin the meaningof the Act and applications requesting exemptionfrom specific provisions of the Act; (.3) the promulgation of

rules prescribing the type of information and periodic reports to be filed with the Commission and the type of information and reports required to be transmitted to security

holders; and (4) the disposition of general admin1 strative pE"Oblemsarising under the

various sections of the Act.

Registration of Investllent CQRpenies

The first step in the reguJ.ation of investment cODlp8D1esprovided by the Investment

Compan:yAct of 1940 is the requirement that all investment companieslIllat register with

the Commission. Registration is acocmplished by filing a simple notification of registration with the Commissionpursuant to Section 8 (a) of the Act. Kost companiesregistered

UDder the Act during the fiscal year ended.June .30, 1941. However,17 com.pa.lnesfUed

notifications of registration during the past fiscal;rear. Two of these 17 companieswere

organized ciur:f.Jlg t.he fiscal ,ear and t.he others bad not. registered previously, either because they claimed an exemptionfrOJll the provisions of the Act.or for someother reason.

The next step in the registration process involves the filing wit.b th~ Conmissionby

every registered investment companyof a detailed registration statement pursuant to Section 8 (b) of the Act. These registration statement.s are filed in accordance with ruJ.es,

regul.ations and forms promulgated by the Commissionwhich are specifically designed for

investment companies.

In addition to FormN-8B-l, which relates to managementcompaniesand was promulga'tied

during the fiscal year ended June .30, 1941, the Commissionhas promulgated two newforms

to be used for filing detailed registration statement.s. These forms are designated Form

N-8B-2and FormN-8:?-.3. FormN-8B-2is designed for use by unit investment trusts which

are currently issuing securities, and FormN-8B-.3is designed for uee by unincorporated

managementcompaniescurrently issuing periodic pa;ymentplan certificates.

The detailed registration statements contain comple'tieinformation regarding each

company,including certified financial statements, information regarding 'the organization

of the comp8ll1',managementpersonnel and affiliated persons, compensationto o1"1"icers,

directors and certain employees, capital structure, nature of asse~s, distribution and

redemption of securities, information regarding the trustee and sponsor of the compaIlYand

a recital of the policies of the cOIIlp8.Dy' with respect to certain speci1'ied subjects.

In connection with the adoption of forms to be used for filing registration statements

under the Investment COIIIp8ll1' Act, the Commissionalso adopted rules which permit investment campaniesto file copies of information a1re~ filed under other Acts administ9J:'ed

by" the CClIDIII1sSion in lieu of registration statements under the Investment CClIIlpa.DY' Act, and

thereb7 gave effect to the d1recti ve of the Congress a8 set. forth in Section 8 (c) of thE'

Act.. These rules are designed to facW.tat8 registration by ccapanies which are subject

to one ar more or the other Acts adm1 n1 stered by the COJIIII1ssion.Several companieshave

availed themselves of the privilege accorded b:r t.hese rules.

Two hundred forty-five registered investment companies fil~~ detailed registration

st.atements under 'the Act during the past fiscal year. Of these 245 registration st.atements, 89 were filed by managementopen-end diversified companies, 8 by managementopenend non-diversified companies, 62 by managementclosed-end diversified companies, 76 by

managementclosed-end. non-diversified companies, and 10 by unit investment trusts.

-
- 33 -

Every registration statement filed under the Act is carefully examined by the Commission's staff.

Periodic Reports to the Commissionand to Security Holders

Section 30 (a) of the Investment CompanyAct provides that registered investment

companies must file with the Commissionsuch information, documents and reports as companies having securities registere~ on a national sec~rities exchange are required to tile

with the Commission pursuant to Section 13 (a) of the Securities Exchange Ac~ 9f 1934.

Section 30 (b) of the Investment CompanyAct authorizes the Commissionto require registered investment companies to file reports on a semi-annual or quarterly basis so as to

keep reasona~ly current the information contained in th~ registration statements of such

companies. The Commissionpromulgated two periodic report forms applicable to manag8lll8Dt

investment companies during the past fiscal year. The periodic report forms for the other

classes of investment companies had not been promulgated at the close of the fiscal year.

All registered managementinvestment companies which filed detailed registration

statements on Form N-8B-1 are required to file annual reports on FormN-JOA-l within 120

days after the close of- each fiscal year. '!be annual report form is designed to bx"ing

up to date as of the close of each fiscal year of the registrant, the information

originally furnished by the registrant in its detailed registration statement. Form

N-30A-l is designed for use under both the Securities Exchange Act of 1934 and the Investment CompanyAct of 1940, and duplicate filings under these Acts are thereby eliminated.

All registered managementinvestment companies which filed detailed registration statements on FormN-8B-l are required to file quarterly reports on FormN-30B-l within .30 dqs

after t.he close of each fiscal quarter. The quarterly report form requires only the minimum

information necessar)" to be kept current to aid the Commissionin the admin; stration of the

Act. This form is also designed for use under both the Securities :bbtchangeAct of 1934 and

the Investment CompanyAct of 1940, and supplants Form8-K, the current report form under

the Securities Exchange Act of 1934, insofar as it is applicable to managementinvestment

companies having securities listed and registered on a national securities exchange.

One hundred ninety-six companies filed annual reports on FormN-30A-l during the fiscal

year ended June 30, 1942 and a like number filed quarterly reports on Fora N-30B-1.

Section 30 (d) of the Act provides that every registered investment COlllpany' shall

transmit to its stockholders, and file with the Commission, at least semi-annually,

reports containing certain prescribed information and financial statements. Doring the

fiscal year ended June 30, 1942, 633 periodic reports to security holders 1P3refiled with

the Commission.

!pplications for Exemptions or Exceptions

A lications under Section 3 (b) (2) of the Act. A cOlll~ which comeswithin the

quantitative definition 0 an investment eoapan as contained in Section 3 (aJ (3) of

the Act may apply to the Commissionfor an order pursuant to Section 3 (b) (2) ~f the Act,

declaring it to be primari1yengaged in a business other than that of an investment company.

Such other business may be conducted either directly or through majority-owned subsidiaries

or controlled companies conducting similar types of businesses. During the past fiscal ~ar

two such applications were denied, two other applications were denied under Section 3 (b)

(2) although exemptions were granted under other sections of' the Act, and four such applications were withdrawn. The Commissiongranted five applications pursuant to this section

during the fiscal year, and at June 30, 1942, fourteen applications were pending.

other Applications for Exemptions. Section 6 (c) of the Act confers upon the Commission general exemptive powers if and to the extent that such exemption is necessary or

appropriate in the public interest and consistent with the protection of investors and

the pUrposes fairly intended by the policy and provisions of this title.
-34-

E1ght,..cme app11caticla8 UDder this section were penMng be1'ore the ee.dssion duriDg

the last fiscal,ear. Of theae 81 applications, 49 were ft1ec1 daring the last fiscal. ,ear

and 70 were disposed of by the ec.m.ss1.on during that period.

Sect.ion 6 (d) of the .Ac't an1iliorizes the COIIIIl1ssionto e:uiapt .all c1osed-end investment ccnpames trCllll. arty aDd all provisions of the Act i1" t.be securities o£ such cCIRpB"ies

are not 801d outside the states of incorporation and pronded the exemptionis not ccmtrary

toO the pub1ic interest or inconsistent nth the protection of iJrfeBtors.

Five applications under this section were pending 'before the Commissionduring the

past fiscal year. Of' these 5 applications, one 'WasfUed dDriDg the year and 4 were

disposed of by the COIEissionduring that period. Wi.threspeC't to the 4 applications

whichere disposed of, one was withdrawnand 3 were granted to a limited extent.

Dissolution of Investment Companiesand Withdrawalof Registration Statements

_i

Approximately44 registered investment companiesfUed applications with the COIIIIl1ssion during the fiscal year seeking orders of the Commissi.ondeclaring that such ccmpan:ies

had ceased to be investment companieswithin the meaningof the Act. These applications :

ere fil8d pursuant to Section B (f) of the Act which provides that wheneverthe COIIIIlission

on its awn motion or upon application, finds that a registered :iInestment companyhas _

ceased to' be an investment companY', it shall so declare by order, and upon the taking effec',-;

of such order the registration of such cOlllp8llY' shall cease to be in effect.

TheCommissionpassed upon approximately 38 Section 8 (f) applicati.ons during the

fiscal. year. Of these 3S applications, 34 were granted, 2 were dismissed and 2 were denied

The applications that were granted iu!olved companieswb:ichhad formally dissolved and.

distribl1ted all of their assets to their security holders, eoaapanies'Whichhad mergedwith

other cClIII.pwesand transferred all of their assets to SIlchother companies, and cnmpanies

nose outst81'ld1ng securities were ownedby less than 100 persons and which were not making

and did. not present17 propose to make a pabllc offering of their securities. The last

category ot companiesmen1;j.cmed 1s excepted tram. the detiniti.ClIl or "investment cCJlllP8lJT' by

the pl"ovisions of Section :3 (c) (1) of t.he Act.

Affiliated Persons of Investment CtMpani es

Transactions BetweenInvestment C Section 17 of

the Ac s or artY a: e person, promoter or e underwriter for

a registered investment cCllllp8DY' to sell to, or purchase securities or other property, or

borrOlf 1IOD8Y' or other prQpertY' from, the investment companyor 8DTcompany-controlled by it

However,authority is given to the COIIIIlies1onto exempt, by order" any proposed transaction if evidence establishes that the terms of such transaction" including the consideration to be paid or received, are reasonable and fair and do nat involve overreaching by an:

person concerned, and that it is consistent with the policies of the investment canpaD;J'as

recited in its registration statement and with the general. purposes of the Act.

For the fiscal year ending JUDe30" 1942, there were 16 applications fUed to exempt

proposed transactions between affiliated persons and investment cexnpan1es,or companies

controlled bY' them. The COIIIIlissiondisposed of 5 of such applications after hearings; 4

ere lIithdran without hearing, 1 was withdrawn after heariDg and 6 are still pending.

While the applications ostensibly sought exemption of a proposed transaction involving the

purchase and sale of securities, the disposition of such applications often included such

matters &8 reorganizations and recapitalizations of 1nvestmeat ccwpan1es"as well as

affW.a.ted non-investment companies.
- 35 ..

PART VII

ADI1INISTRATION OF THE INVESTl'1ENT ADVISERS ACT OF 1940

Registration Statistics

As of June 30, 1941.there were registered with the Commissionpursuant to the provisions of the Investment Advisers Act of 1940 753 investment advisers, consisting of

~O sole proprietors, 123 partnerships and 210 corporations. On June 30, 1942 there

were 732 registered investment advisers consisting of 4ll sole proprietors, 123 partnerships and 19S corporations.

The following table sets forth information with respect to the status of the re~-

istration of investment advisers under the Act as of the end of the fiscal year:

As of 6/30/42

Applications filed

App. Pending

App.Withdrawn

Effective Registrations

Reg. Withdrawn

Reg. Cancelled

Denied

Revoked

7

6

732

132

52

1

931

In order to maintain reasonably current the information contained in the applications for registration, the Commissionrequires semi-annual reports to be filed by

all registered investment advisers. These reports must be filed with the Commission

within ten days after June 30Jand December31, of each year. Each registered investment adviser is required to disclose in the semi-annu8.l.report that after an examination of his original application for registration he finds either that (1) no changes

have been effected in his business 50 that no amendmentsare required to the application for registration or (2) that changes have been effected in his business so tha~

amendmentsare necessary for certain items in the original application for registration. If changes have been effected in business, amendmentsto the items affected

arc: included in the semi-annual report.

Section 203 (d) of the Act empowersthe Commissionto deny, revoke or suspend

the registration of an investment adviser if certain conditions exist. One of the

grounds for denying, revoking or suspending the registration of an investment a~ser

is the fact that such investment adviser within ten years prior to the registration

has been convicted of a crime in connection with securi.ties transactions or has been

enjoined by a court from acting as an investment adviser, undeiwriter, broker or

dealer.

In the exercise of its power under this section, the Commissionhas revoked the

registration of one investment adviser. In this case it was found that the investment

adviser in question had been enjoined by an order of the United States Distri ct Court

from engaging in certain conduct and practices in connection with the purchase and

sale of securities. In addition to this it was found that the application for registration contained material misstatements. It was also found that the investment adviser in question had converted to his o.m benefit certain moneyssent to him by

clients for the purchase of securities, that he had purchased .securities contrary to

the authority of his clients and had converted the re"'laining balances to his 0I'm use.

Absence 01" 'Power to Inspect Books and Records of Inyestment Advisers

Section 209 (a) of the Act provides that whenever it appears to the Canmission

that the provisions of this Act have been or are about to be violated the Commission

~
-36-

can institute a fo:nnal.investigation for the purpose or determining whether there has

been or is ".bout to be a violation of the Act. The Act# however#does not confer upon

the Commissionthe authority or duty to makeperiodic inspections of the accounts and

records of registered investment advisers such as is conferred upon the Commissionby

Section 17 (a) of the Securities ExchangeAct of 19.34with respect to registered

broker-dealers. This anission leaves entirely unsupervised and unprotected a broad

field in the handling of investment flmds of the general public. Unfortunate situations

involving large losses to clients have occurred whichmight have been averted if the

Camnissionhad authority to makeregular periodic inspections of the accounts of registered investment advisers. The details or these situations and a further report to

the Congresswill be madeconcerning this matter.
PART VIII

LITIGATION

-~-

Civil Proceedings

Consent judgment entered January 26, 1942.

In.junctive Actions Instituted by the Commission.

ornER ACTIVITIES OF mE COWISSION' UNDER '1tIE VARIOUS STA'IUTES

Since its .inception, the CoJlllllissionhas instituted a total of 440 civil proceedings and disposed of'429" Permanent injunctions have been obtained against 940 fu-.

and individuals.

At the beginning of the fiscal year ended June 30, 1942, 10 11 civil proceedings

instituted by the Commissionwere pending; during the year, the Commissioninstituted

36 additional proceedings, including 33 injuncti.ve actions brought against 91 pers0D8

to restrain them from fraudulent and otherwise illegal practices in the sale of securities. or this total of 46 proceedings, 35 were disposed of during the fiscal year,

including 28 cases which resulted in the entry of injunctions against 61 persons. 11

civil proceedings were pending at the end of the year.

Data with respect to civil cases and appellate proceedings, including a brief

description of all civil proceedings commencedor pending during the fiscal year and

the status at the close of the year, are included amongAppendix Tables 20 to 31

Someof the more important and interesting of these eases are described in more de-.

tail below.

I

I

I

I

'01

.~

~i

;;«

"Ht

J

j

1

;~

l

:1

j

....

,i'f

?o~ -:'[

,.,

-fi

,~ Typical of the ingenious schemes to secure public investment in business enterprises without complying with the registration provisions of the Securities Act of

'71 1933 was that involved in Securities and Exchange CommisSionv, Bailey. YIn' this

'~lcase the defendants were enjoined from selling investment contracts camounaged as 1 sales of land upon which tung trees were to be developed.

'f ' Mother unorthodox form of securities 19'aS involved in Securities and Exchange

::t Commissionv, George Washington Memorial Park Cemetery Association. 27 '!he defendants

in this case had acquired unimproved ruz:al land which they divided into cemetery lots

:~:and sold to purchasers in large quanti ties on an investment basis representing that

cemetery lots constituted a sound investment. A large portion of the purchase price

1was to be used by the Association to make a number of contemplated improvements. To l facilitate resale, the Association maintained a resale department through 1dlich pur-

.~ chasers might dispose of their lots. '!he Commissiontook the position that the factor

J of setting aside a portion of the purchase price for improvements designed to ~ce

.11 the value of the land, coupled with the sale of multiple units and the resale pronsion,

.-~made the scheme merely a form of. investment contract. .

. In Securities and Exchange Commissionv. HughB. Monjar, W the Conmdssioncharged

_~ the defendants with selling securities to membersof the MantJ.eClub in excess of i $1,340,000 in connection with transactions described by the defendants as "personal

j

,.

-------------------------------- ~1--.1IAdjusted figure. r y 41 F. Snpp, 647 (S.D. na. 1941).

-~~: 11 D. N.J. Consent judgment against eight defendants entered April a, 1942.

; !JJ D. Uass. Pending at close of fiscal year.

~

~

~

~ •

'.~

~~

~

~

~

~

~

~

"
III!'

tli

-38-

loaneD to Hugh B. llonjar, organizer and head of the Club. The Commission contended

that amongthe securities involved were "receiptsD issued to the Club members and

"subscription cards" and other instruments solicited fran the members in connection

with the "personlll loans.-

In the case of securities and Eltchange Caamission v. S. W. Funk, 21 the Oaamiasion filed a complaili£ to eJijoin the we or prorit=Sharing agreements relating to oU

and gas leases. The proceeds fran the sale of these securities, which the defendants

tenned ftmutual escrow agreements, n were used to finance the drl1J ing of a test well

within the area embraced by the leases.

In the first civU case involving Section 12 (h) of the Public Utility Holding

Company Act, pertaining to political contributions, the Camnission obtained a consent

judgment enjoining Utah Power & Light ComP8l11"from further violating that section. y

Appellate Litigation under the Holding CCII1PaDlAct.

Be'tween Me,y 15 and June 6. 1942. several of the largest hoJ.diDg caJIP8llYsystems in

the country filed pe~itions to review orders of the COIIIIl1ssionreqtdr1ng either geographical. intelU"ation or corporate simpli.fication or both under Sections 11 (b) (1) and 11

(b) (2) of the Pub.u.e UtUity 110~d1ng CCIDP8l11" Act of 1935. 7/ These petitions represented the first major challenge of the constitutionality 01 the H01cling Com~ Act

since the original. fiood of litigation during the early' days of that statute, lIhich

terminated when the 8upl'eme Court su1Jtained the constitutionality of the registration

provisions in Electric Bond and Share Co. v. securities and Exchange Commission, 305

U. S. 419 (1938). ttter the ciose or the fiscal year the Second CircUit court of

Appeal.s af'finned the CClllldssionIs integration order against The North American canPaDl, and the Third Circuit Court affirmed the simplification order against The

Camnon1iealth and Southern Corporation. 21 Many other companies have not BOught review,

but have complied with, or are in the process of complying with, COIIIldssionorders

under the integration and simplification sections.

Another group of cases during the year involved petitions to review Canmission

orders d~ app1ications by public utUity companies to be declared not subsidiaries of certain registered h01ding companies. Each of these orders was affirmed

either during the fiscal year or after its close. ¥!I In addition, the Supreme Court,

Columbia 011 & Gasoline Co. (C. C. A. 3d); Un:1ted Gas~rovement Co. (C. C. A. 3d);

Camnonwaatth ana southern c0it (C. C. A. 3d); NorthrIcan Co. (C. C. A. 2d);

Wash1iig1k)nRiliway ana l!#18ct Co. (App. D. C.) 1

D. Utah.

21 S.D. Cal.

W

']/

Consent judg1nent entered Sept. 1941~

y North .American Co. v. Securities and Exchange COIIIIIliss:Lon, 133 F. (2d) 148 (C. C. A.

2d, Jan. 12; 194j).

21 Ccmmonwea1thand Southern Corporation v. securities and. 'EEchange Commission,

F. (2d) (d.d. A. 3a;-MarCh31, 1943). ---- !£/ Pacific Gas and E1ectric Co. v. Securities and Exchange Camnissic:P! 127 F. (2d)

178 (d. c. L 9th, APr. 14, 1942); rehearIng granted and case Still. penditlg at

close of fiscal year; Hartford Gas. Co. v. Securities and Exchange Commission,

l29 F. (2d) 794 (C. C. A. 2d, JUli 16, 1942); PUblic sei"Vice~rporab.on or New

trsN v. Securities and Exchange CClIIIII1ssion,129 F. (2d) 899 (d. c. A. 3d, Aug.

, 42); :&edcan Gas ana Electric co. v. Securities and Exchange Commission,

_ F. (2d) _ (APP. D. t., Feb. I, 1943).

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on October 13, 1941, denied a petiiiion ror a writ of certiorari to rev;i- the preri.ou

year's judgment of the Sb;I;h Circuit sustaining the CaIIIl1ssionls order deD;yiDg a siIdlar pei;i tion by Detroit Edison Company. 11/ .

In NewYork Trust Co. v. Securities and Exchange CaDmission, l31 F. (2d) 'Z14 (C.

C. A. 2d, Nov. 12, 1942), which was pending at the close or 'the fi.8cal yeG', the court

subsequent4r affirmed a CCIIIDi8sionholding that the debenture ho1dera ot UDited Light

and Power Canpanywere-entitled to the face value of their debentures aDd not to a

redemption premiumwhen the debentures were retired PUrsuant to an order of the ee.-.

miss~on under the corporate simplification requireDents of section 11 (b) (2).

In Morgan Stanley and Co. v. securities and Exchm!e CCllllllissiall,126 F. (2d) 325

(C. c. A. 2d, Feb. 20, 1942), the court 81'fii'iiied the CiinisSiOii's ortler 1Dthe Dqton

Power and Light Canpan;y,case. 12/ Rule U-12F-2, now superseded by the competitive

bidding requiremeiits or RU:l.eu-3i1, prohi~1ted the payment of au;y 1nierwr1ter's rae on

security issues if the underwriter stood in such a relation with ~be issuer tba~ -there

is liable to be or to have been an absence of ann.'s-length bargaining with respect to

the transaction. II The Camnissionl s decision denied MorganStanley- a $100,500 underwriting fee which it would have received tran Dayton Power & Li.3ht it there had been

no viola1iion of the rule.

In Chenery Corporation v. securities and Exchange ee:-.is~ 128 F. (2d) 303

(App. D. c., Apr. 27, 1942), the court reversed anord8r or tEtee-ission holding that

preferred stock purchased by ce1'tain membersof the JDanagElDent ot Federal Water service

Corporation while they were engaged in formulating and presenting to the CclIIID1asion

plans of reorganization should not be allowed to participate 1Dthe reorganized eeeporation on a parity with other preferred stock. 13/ The Camniss:ioDhad .required those

membersto surrender that stock to the reorganized companyat cost plus 4% interes1;

.After the close of the fiscal year the SupremeCourt of the United states aff1med the.

judgment of the Court of Appeals on the ground that. the Comiasionl s order had been

erroneously based on "general equitable principlesn apart .fran the statute. W The

Supreme Court directed that the case be remanded to the Cammi.ss1onror action Dot 1nconsistent with the Supl'8lll8 CourtIS op'1n1on.

Crimi nal Proceedings

~e statutes administered by the COIIIII11ssionprovide that evideDce ot violations

may' be transnitted to the Attorney General, who, in his discretion, -.;q institute

criminal proceedings. It is the policy or the CClllllissionto make a thorough investigation of alleged violations of the Acts and to consider caretully whether the evidence obtained merits criminal prosecution. If violations of the penal provisions are

indicated, the results of such investigation and the supporting erldence are referred

to the Department of Justice. Thereafter, if criminal proceedings are insti1iuted, the

membersot the CommissionIs staff who participated in the investigation assist the

United States Attorneys in the preparation of the cases tor presentation to the grand

jury, in the trials whi~h follow, and in the preparation of appellate briefs.

Where evidence does not warrant prosecution under the Acts admin1 stered by the

Commission, but violations ot other statutes are indicated, the evidence is subnitted

to the appropriate state or federal agency. This results in the reference of quite a

few cases to the postal authorities, to state commissions or other local en1"orcement

authorities.

W Detroit Edison Co. v. Securities and Exch;,e Comrlssion, 119 F~ (2d) 730 (C. C.

A. 6'£h, May12, 19~), cert denIed, JU u. • 618.

W 8 S. E. C. 950, Holding Company Act Release No. 2693 (1941).

W Holding Canpany Act Release No. 2635 (Sept. 24, 1941).

14/ Securities and Exchange COIIIIIlissionv. Chenery Corporation, f!fl L. Ed. 411 (Feb. 1, - 1943).

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Up to July 1" 1942" the Commissionhad referred to the Department of Justice 378

cases, including 49 cases wlrl.ch were referred during the past fiscal. year. Since the

organization or the CCIIIIII1.ssiona total. of 2,035 defendants have been indicted in 306

cases" including 'Zl cases which had been referred to the Post Office Department. During the past year 1nd1ct.-nts were returned against 183 defendants. Convictions have

been obtained against 885 defendants in 216 cases, representing 91.3 percent of the 259

cases which have been disposed of as to principal. defendants since the inception of the

Commission. During the past fisca1 year 142 defendants named in 44 cases were convicted.

Eight defendants hae been convicted on indictments charging perjury arising out or

Caum1ssian invest1gatiODS. One defendant was acquitted.

The follOldng tab1e shOlrS the canparative statistics with respect to criminal pr0-

ceedings in cases de'9'el.oped by the Commission:

Huaber of Numberof defendants

cases Numberof convicted

'III""

referred defendants As a resUlt

Year ended June 30 to Depart- indicted of plea of By ver- Total.

ment of guilty or dict

Justice nolo contendere

1934•••••••••••••• 7 32 1 4 5

1935 •••••••••••••• 28 186 18 4 22

1936•••••••••••••• 46 395 76 29 105

1937•••••••••••••• 44 233 !I 73 50 123

1938•••••••••••••• 36 !I 253 71 24 !I. 95 !I

1939 .•.....•••••.. 51 327 73 35 !I 108

1940 •••••••••••••• 65 !I 232 9? a/ 52 149

1941 •••••••....••. 52 194 SO!!: 52 !I. 132 a/

1942•••••••••••••• 49 183 103 if .lily 146y

Tota1 •••••• W Yl8 2035 592 293 885

!IAdjusted figure.

EI In addition, there were referred by the CODIIDissionto the Post Office Department 27

cases wlrl.ch resulted in the return of indictments included in the total number of

defendants ind1.cted.

Up to July 1" 1942" the Commissionhad caused to be instituted proceedings against

19 defendants .for criminal contempt of court orders which had been obtained by the Commission. Of this number 13 were .found guilty. One of these cases is now awaiting decision

by the court.

A brief description of the criminal cases pending during the year ended June 30~ 1942,

showing their status on that date, is set forth in Appendix Tables 23, 24 and 27. A brief

discussion of saDe of the 1IIOreimportant cases follows:

, .

SECURITIESACTOF1933.-Schemes to defraUd uncovered in the en.torcement of this Act

are ot iDfiiiIte varIetj'. Prosecutions during the year involved a 1arge-scal.e cemetery

pranotion in lIaine (U. S. v. Paul F. Cassidy et al); a pecan orchard enterprise in Southern
-41-

Louisiana (U. S. v. R. B. Broury et ano.); a popcorn vending maebine<DJJ.P8ZlYin Ohio

(u, s. v. F. E. Backmeier et a:1 ; an automotive patent venture in Los Ange~e8 (u. S. v.

O~LundenU8 et ano.); an oil and gas lease promotion covering land in Texas'""'iiiir

Malians. (U. S. v. H. R. Edwards); a mining canp~ in Colorado (U. S. v. Amos Do1m8 et

al); and aii""'Iiiaustria:I pi&tit In Carrollton, Ohio (U. S. v. Z. A. GiI'Sirt et 81). EV8ii

TEe religious beliefs and social proclivities of prospective iIivestors have been utUized as a basis for promotional ventures which were made the subject of prosecution.

For example, there is the Uriversal Order of P1enocrats in Chicago (n. S. v. C. F. Darts

et al); and the Mantle Club, centering in Wi1lIIingtonand fanning out-a!I"""over the country

(U. S. v. H. B. Monjar at al).

Many of these cases involved nation-ride solicitation of investments. In the Brti:P

case, in which convictions were obtained in Oklahomaand five-year prison sentences

posed, more than $700,000 had been obtained by the defendants from about 1,400 investors

residing in many different states. In the MOnt;ar case, involving the Mantle C~ub, a

socio-fraternal organization, investments had en obtained from people residing from

Baltimore, Maryland to Portland, Oregon. In the Downs case, the stock of a mining CeDpany was sold in almost evwy state of the Union,a:B'Well as in the District of Columbia

and "in Canada. The defendants were tried and convicted in federal court at Denver.

The current prosecutions ane.iuded a number invo~ving efforts to evade the prov1s1QD8

of the securities laws by casting the enterprise into a form calculated to appear to be

something other than an investment in securities as defined by the Act. For example, in

the Broom case it was made to appear that the investors were purchasing pecan orchard

acreage; an the Backmeier case that they were purchasing vending machines; in the Davis

case 'tn8't 'they were sUbscribing to membersh1.ps10 a <UrtneJ.y inSpired farm prOgram; aDCl

in the Monjar case that they were contributing to some transcendental program tor the

moral, as well. as the financial, benefit of the membersof the Mantle Club.

Also during the fiscal year a large number of convictions obtained in similar case8

were affirmed by the appellate courts. These included the affirmance of convictions 1n

Seattle for fraud in the sale of oil and gas leases (J. F. S:i:monset a1 v. U. S.); convictions in Denver for fraud in the sale of stock of a cement comp~ (E. s:-Gites v.

U. S.; C. S. Rice v. U. S.); a conviction in Detroit for fraud in the ~aIe or stock of a

comp-any matCiiigbeer barrels (J. K. Edlin v. U. S.); convictions in California for the

sale of oil leases, and interests therein, onproperties in California CA. Atherton et al

v. U. S.); a conviction for fraud in the sale of notes and trade acceptances iSm hi a

whiskey rectifying company in Florida (A. F. Fisher v. U. S.); a conviction for fraudulent sale of securities of a mortgage companyin Nebraski'l't. S. Holmes v. U. S~); a conviction in NewMexico for the sale of stock in an insurance shares corporatIOii"TS. C.

Pandolfo v. U. S.); and the conviction in NewYork of a certified public accountiii:E""?or

complicity fraudulent sale of stock of an industrial service canp~ (ll. H. White

: v. U. S.). In many of these cases onl.v a few of the defendants appealed. In 811 of these

: cases 'the cunvic'tions were affirmed trr 'the appella'te courts.

SECURITIESEXCHANGEACTOF1934. Of the more outstanding of 'tne prosecutions duri.ng

. the past year Which arose from investigations under the 1934 Act, three :involved stock

: market manipulations. In U. S. v. Ery KehO!ket ale convictions were obtained in NewYork

; on charges of manipulating-nitlNew York Stoc EXChange market for the commonstock of

. Standard Commercial Tobacco Companyin order to permit the defendants to unload large

; blocks of the stock upon the unsuspecting public investors. It was charged that this 'W8S

: accanplished by means of the well mown manipulative devices of wash sales, matched orders,

, and "touting" of the stock. Similar Ill8I1:ipulative activity, this time on a regional stock

. exchange, was :involved in U. S. v. R~ond R. T~ where a prison sentence of approxi1 mately two years was impose<IOilTaylOFfor violS! ona involving the market on the Detroit

Stock Exchange for stock of Mid-West Abrasive Com:pany. In U. S. v. David Smart et aJ.., , the manipulation involved a well mown publishing concern, E8<iUIre-coronet, me. C<mv1e-

, tiona 1'1ereobtained in Chicago against executives of the publishing concern and securities

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brokers of If... YorkCity, all of whomwere charged with conspiring to raise artificiall.y the

price of the cClllpany'sstock on the NewYorkCurb Exchangein order to unload at the manipulated prices 200,000 shares of stock belonging to two of the defendants.

Another extremel3'important case which arose under the 1934Act was that of ~. v.

Russell W.McDermott,a securities broker of Indianapolis, whowas convicted of violations

of the margin rUles, fraud in over-the-counter transactions in securities with his own

customers, and fraud perpetrated by meansof excessive trading in a discretionar;y account.

During the ;year the conviction of G. A. Gantz, a securities broker of St. Louis, on charges

1Ib1chinvolved operation of bis blleiness 1Ibile insolvent and unauthorized 118e of customers'

money,was affirmed b;y the Circuit Court; of Appea1s.

OTHERACTS. Convictions were obtained during the year against UnionEl.ectric Com~

of Jl1~mon charges of maJdngpolitical. contributions, madeun1aIrf'ul. by Section 12 (b)

of the Public Utility Holding ComP8lV' Act of 1935. Louis H. Egan, former president of the

cClllp8DT, W'&8 found guiltY' of conspiracy to violate the samesection, whichmakesit unlaIrtu1 for a holding coBrp&l\1or subsidiary thereof to makepolitical. contriwtions. '!be comp8II1' wsa fined 180,000 and Eganwas 8EI1tencedto two years' imprisonment, in addition to

a fine of 110,000. UnionElectric is a subsidiary of '!be North AmericanCanpany.

'!'he 1Dd1ctlleDtcharged the defendants with setting up a "slush fond" acCumul.atedthrough

kick-bBcka from legal. fees, pqaents to contractors and insurance agents, and the padding

of expense accounts. IThe cCll1T.l.ctionof F);-ank J. Boehm, former vice president of UnionElectric Company,on !.

dharges of perjury"was affirmed by the Circuit Court of Appeals, and the SupremeCourt

denied certiorari. The conviction was based upon perjury cqmmittedby Boehm while testifJ1ng before officers of the Coaaission in an investigation involving alleged violations of c

the anti-political. contribution section of the 1935Act. l~

'!'be appeal. of HowardG. Hopson,former president of the Associated Gas& Electric Com-;)

pany, was dismissed during the past year. He had been convictad of fraud in connection .~ with the operation of the huge Associated Gas& Electric System.

An indictment was returned against one of the largest of the investment companiesfor ;(

an alleged fraud in the sale of 215,000 investment certificates in the face amountof ;'

$600,000,000through an organization which extended into at least twenty-nine states. The

indictment alleged that the defendants made.use of deceptive financial statements, concealed artificial. -.rite-ups of securities values, manipUlatedtrust funds, engagedin

stock market manip1l.ation, and operated while insolvent. The indictment was returned in

Detroit. (~. v; Fidelity Investment Association et al.)

An appeal during the year involved charges of defrauding an investment comp~ by a

controlling person, Wallace Groves, 'Whoseconviction 'Wasaffirmed by the SecondCircuit

Court of Appeals. The indictment had charged him. with defrauding the General Investment

CclmpaD;r in connection with sales to it of its own securities and paymentof fictitious

ca.missions on transactions pretended to be beneficial to the company. The conviction of

GeorgeS. Groveswas reversed. The SupremeCourt denied certiorari to Wallace Groves.

COMPIAINTS AND INVESTIGATIONS

Doring the fiscal year ended June JQ.., +942. the COlIIDissionreceived approximatel3'

11,638 items of mail classified as .caapla1.n1i-8nforcemenT.it Themajor part; of this mail

consisted of letters fromthe general public seeld.nginformation, complaining of fraudulent

or other illegal practices, and seeld.ne various types of aid. TheCOlIIIlissionhas carefully

considered and replied to every inquiry sent in by the public and investigated every

complaint over which it has jurisdiction. :~i

~

~

•

~
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The complaint correspondence is a fruitful. source of information far the C<lIW1 es10DJ

it is mainly ftoClll this source that the C<lIIIIIissionobtains important 1.eads on securities

vio1.ations. other c1.ues to irregularities in the investment fie1.d are obtained b.1 the

Commissionfrom. investigations made by'its own staff ar from other governmental. or

vo1.untary agencies. '!he following chart gives sane indication of the extent of the Coamission's investigatory activities:

.. .. .. Investi- Investigations and 1.ega1.

gations cases, Pending as of

and 1.egal Ju];y 1., 1.942

Investi- : Investi- cases .. : gations gations c1.osed (or: Legal.

: and 1.egal. initiated i changed to: cases Total.

Investi- cases . or or . docketed , . . (civil Investigations . pending . docketed . cases) Investi- . . . . . and erim- gations

.. Jul;r 1., .. July 1., :. .Juq 1., gaMons 1na1.) de- and

: 1.941 . 1.941 1.941 . . . vel.oped Lega1

: to to from in- Cases . .June 30, . . . . June 30, vestiga- .. 1.942 : 1942 : tions .. : : :

Pre1.iminar;y !I . 1.4.3 . 1.61. . 1.85 . . . . . ll9 1.1.9

: .c .. Docketed EI . 489 J09 . 257 380 g/ 161.d/ 54J. . . .. :

Total. 632 . 470 . . . 442 499 161 660

: .. .. !IInvestigations carried on through correspondence and limited field work.

W Investigations assigned to field investigators.

£I Inc1.udes 243 informal. and 137 formal docketed investigations.

21 Includes 37 informal. and 124 formal. docketed investigations.

Through these investigations, and with the helpful assistance of such other agencies,

the Commissionhas compiled a very extensive Securities Vio1.ations File which serves as a

clearing house for information which is made available to those officials and agencies

direct1y concerned with the eradication of illegal practices in the securities field. As

of June 30, 1942, the Conmission had assembled data concerning 41.,065 persons and. corporations against whom. State or Fe_dera1action has been taken in connection with the sale of

securities. During the past fiscal year approximately 5,170 items of info~tlon pertaining to existing files and. 3,134 new names were added to those files.

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INTERPRETATIVE AND ADVISORY SERVICE

The Commissionbas always recognized that the technical nature of the statutes it

adm; nisters requires an interpretati va and advisory service by the Commissionto provide attorneys and the general public with prompt advice concerning problems arising

under these statutes.

Inquiries are handled. by correspondence as well as personal and telephone

cont'erences

The jtn"isdiction ot the Commissiondoes not extend to private disputes of a civil

nature arising under the securities laws. Therefore, the Commissioncannot advise

litigants concerning the prosecution or defense in such cases. Where a civil suit between private parties has involved a disputed question of law under the Acts administered by the Commission, however, the Commissionhas on occasion tiled a brief with

the court as amicus curiae in order to advise the court of its interpretation of the

law as the agency administering it.

A.CTIVITIES OF THE COMMISSION IN THE FIELD OF ACCOUNTING AND AUDITING i

Eftect of the War Etfort

During the past year, accountants have been faced with many new and serious problems arising from the war effort and the earlier Nati\mal Defense program. The Commission likewise, because of the importance which it attaches to financial statements,

has had to give caref'ul consideration to these problems and to the need f'or all

appropriate adjustments.

The Commission, in commonwith the accounting profession, has oeen especially" interested in the maintenance of appropriate auditing standards. Fortunately, all concerned are agreed that the high standards of present practice should not be foregone.

A principal difficulty has been the loss by most public accounting firms of' much

trained personnel to other phases of the war effort. Furthermore, a similar loss of

accounting personnel by private business, coupled, in many instances, with a large new

volume of war work, has meant that internal accounting and auditing controls, upon

which the public accountant must rely in many respects, have in many instances suffered. and hence, with a smaller or less experienced starf, the public accountant is

otten faced with the necessity of being even more painstaking in his audit.

Membersot the Commission's staft have cooperated with registrants and public accountants in exploring 'Various means of meeting the situation. As a result, registrants have been encouraged to change their fiscal periods trClll a calendar year to a

"natural business" year in an eftort to lessen the year-end burden so as to utilize

the public accountant's services more etticiently. In A.ccounting Series Release No .30,

the CaIm1ssion outlined a special procedure and "1IIethodot disclosure to be tollowed

by registrants and their accountants where the press ot war production prevented normal inventor,y-tak1ng. It has also been indicated that lack at personnel could provide

a proper basis tor requesting an extension or tiJlle tor til1Dg amnaJ reports with this

OCIB1ssion. Study' ot these problems is being cont~ and informal conferences are

held as occasion warrants with individual accountants and with the appropriate caam1ttees ot professi~ societies.

The ('.anmission has also cooperate4 with various Federal war agencies through c0nsultation and through utilisation of its expert help for specialized work.

Cooperation with Professional Societies

The CoIaission has sought to cooperate with the accounting profession and to add

its tull influence to :that of the professional societies and others in a joint efrort

to maintain and raise accounting aDd auditing standards. As heretorore, the Gamlissian, in its praaul.gation ot mles or opinions on accounting atters, has, wherever

•

•
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practicable" invited the ecements or suggestions of other Federal and State agencies

interested in accounting, of committees of professional societies, and of other interested persons Reciprocally, the Camnissionhas been invited to offer suggestions

or commentson proposed actions or bulletins of these organizations. The past year

has produced muchBratifying evidence as to the effectiveness of these activities.

Professional Conduct

While the Commissionhas cooperated with the accounting profession to secure a

commonobjective of high professional standards, yet it has, as it must, reserved to

itself the right to invoke sanctions against accountants whowilfully or carelessly

violate its rules. During the past year the Commissionfor the first time found it

necessary to invoke against an accountant the sanctions found in Rule II (e) of its

Rules of Practice. In In the Matter of AbrahamH. Puder, et al. W, the Commission,

on the basis of stipulated facts, issued an order suspending Puder and the firm of

Puder and Puder from practice before the Commissionfor three months. In In the r1attar of Kenneth N. LoganW, the accountant was denied the right to practice before

the Commissionfor sixty days.

Accountin:; and Auditing

Several opinions involving accounting or auditinG matters were issued by the

Commissionduring the year. Of these, the case of outstanding significance was In the

T:atter of Associated Gas and ~lectric Comoa W, a delisting proceeding under Section 19 a 2 of the Securities ExchangeAct of 1934. The findings and opinion in

this case contain an extensive criticism of various accounting practices followed in

the financial statements of the registrant and of certain aspects of the certificates

furnished by Haskins & Sells.

Other opinions under the Securities Act of 1933 and the Securities ExchangeAct

of 1934 dealt with the independence of the certifying accountant W'; the adequacy of

the representations made in an accountant's certificate W; and the failure of financial statements to conform to sound accounting principles.?:Q/ In addition, many

of the findings and opinions under other Acts administered by the Commission,particularly the Public utility Holding CompanyAct of 1935, included discussion and decision

of varied accounting issues.

Informal Consideration of ACCountin~ob1ems

!tused in the Case of IiidlV!duat Re S£ran:ts

As in the past, the greatest part of the tiommission's accounting and auditing acti vities stems from the examination of financial statements filed by particular registrants. Deficiency memoranda,issued against more than half of the financial

12/ Securities Exchange Act of 1934, Release No. 3073 (1941).

W Accounting Series Release No. 28 (1942).

121 Securities ExchangeAct at 1934" Release No. 32S5A(1942).

W

12/ In the 11atter of Automatic Telephone Dialer( Inc.,

Securities Act of 1933, Release No. Z736 1941).

?:Q/ In the 11atter of CondorGold Inning COmoany, Securities ExchangeAct of 1934,

Release rIo. 3196 (1942); In the !'fatter of Canstock-Dexter 1'11nes,Inc.,

Securities Act of 1933, Release No. 2691 (1941).

•
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statements currently filed, have continued to play an important role in securing satisfactory financial statements for investors. Also, accounting am auditing problems

have been the subject of innumerable informal conferences betw.een the Commission's

staff and representatives of particular registrants. These conferences have proved to

be an expeditious means of resolving difficult or unusual questions with respect to

which no specific rules have been issued or the application of existing rules is

uncertain.

SOLICITATIONOFPROXIES,CONSENTSANDAUTHORIZATIONS

The Congress, three times, bas in effect directed the COIIIIlissionto adopt rules

governing the solic! tation or proxies. 1J/ The C~ssion' s proxy rules, which' are

contained in Regulation X-14, require certain information to be made available +.e

security holders whose proxies, consents or authorization are solicited.

During the fiscal year the Commission examined both the preliminary and final

proxy material with respect to 1,655 solicitations and in each case commentedon the

material to the persons making the solicitation. In many cases it ~ed revised

drafts of prelimin.ary material. Aside from. the initial material, 333 pieces ot: supplemental or "follow-up" soliciting material were received and examined.. In addition to the regular examination which is made of all proxy material filed, the Camnission continued its policy of furnishing every ass.istance to persons who desired to obtain intonnal opinions or suggestions in advance of the filing date.

REPORTSOFOFFICERS,DIRECTORS,PRINCIPALSECURITY

HOLDERSand CERTAINOTHER. AFFILIATEDPERSONS

The general purpose and scope of the ownership reporting requirements, prescribed

b.r Section 16 (a) of the Securities Exchange Act of 1934, 17 (a) of the Public Utilit.1

Holding CompanyAct of 1935 and 30 (f) of the Investment CompanyAct of 1940 and the

Commission's rules and regulations promulgated thereunder, as well as the Commission's

procedures for obtaining the filin~ of r8quired reports, examining them for compliance

with the statutes and the rules, obtaining amended reports where necessary and the

publication of information contained in the reports, have been described in the Sixth

Annual Report of the Commission, pp. 180, 182 and previous annual reports.

Numberof ownership reports of officers. directors, Drincipal sewi tx

holders. and certain other affiliated persons filed and examined.

Description of Report

Original rep orts-Securi ties Exchange Act

(4) 13,196, (5) 222, (6) 1,650

Amendedreports-Securities Exchange Act

(4) 1~256, (5) 26, (6) 62

Original reports-Holding CompanyAct

(U-:17-1) 155, (0-17-2) 517

Amendedreports-Holding CompanyAct

(0-17-1) 10, (U-17-2) 60

Original reports-Investment CompanyAct

(N-30F-1) 315, (U-30F-2) 1,019

Amendedreports-Investment CompanyAct

(N-30F-l) 39, (N-30F-2) 73

Fiscal Year 1942

15,068

1,344

fl72

70

Figures in parentheses are Form numbers, thus (4) is Form 4.

Figures for previous years are ShC7ifIlin the Seventh Annual Report,

pp. 236-7.

kif Section 14 (a) Securities Exchange Act of 1934.

Section 12 (e) Public Utility Holding Company Act of 1935.

Section 20 (a) Investment CompanyAct of 1940.
- 47-

Form 4 is used tor report1Dg changes in ownership of equity secur1:t1es; Fona 5 for report1Dg ownersh1.p of equity secur:l ties at the t1me an issuer for the first t:iJle secures registration ot any equl.ty secur1t7 on a national securities excbJmgeJ Form 6 for reporting

omersh1.p of equity securities by additional persons who otficers. directors or

pr1nc1paJ. stockholders; Fom. U-17-l tor reporting ovmership ot securities at the time a

holding CCJIIIP8ZlT becomes registered or an additional person becomes an officer or director;

Form U-17-2 tor reporting changes in ovmershJ.p of ut1l1ty secur1t1es; Fom N-30F-l for

reporting ownership of securities at the time a closed-end mvestaent cOlllp8!V'becomes

registered or an additional person assumes any or specified. rel.ationsh1.PSJ and Form N-30F-2

tor-reporting changes in ownership or securities ot closed-end investment companies.

PUBLICATIONS

Public Announcements

Under the various Acts it is the Commission's duty to publish its decisions and

generally to inform Congress and the public of its activities. Its releases are classified into various categories so that a person may receive the material relating only to

those phases of the COJIIIIission's work in which he is interested. The Ccmd.ssian has made

an exhaustive check ot its mailing lists to elim..lnate those no longer desiring specified.

material.

The announcements issued during the past fiscal year included 250 releases under the

Seeurit1es Act ot 1933; 320 under the Secur.i.ties Exchange Act of 1934; 780 under the Pub11.c Utility Holding Com~ Act of 1935; 153 under the Investment CompaDy' Act of 1940;

and 13 under the Investment Advisers Act of 1940. In addition, two releases concerned

the Commission's activities in corporate reorganizations and six were issued under the

Trust IDdenture Act ot 19.39.

The following is a partial. classification of the announcements by subject matter:

Opinions and orders 936

Reports on Court actions III

Statistical ,data

SUrvey series

other Publications

138

19

Decisions and Reports of the Camnission:

Buckram-Bound:

Volume 6--october I, 1939 to March 31, 1940

Volume7-April 1, 1940 to August 31, 1940

Volume 8-September 1, 1940 to March 31, 1941

Report to Congress on the Study of Investment Trusts and InveBbDent Compan1 es:

Part Four, Chapter II:

Econauic Significance of Investment. eompmies

Part Five:

Concluld.ons aDd RecCllllDlendations

(The decisiaDB of the COJIIIIIissionand the reports to Congress on the

study of InvestmEllt Trusts and Investment Canpaldes are tor sa1e at the

GoverDlll8Dt. Printing Otfice, Washington. D. e., and a price list will be

fumished upoD request.)

~
48-

Twenty-four semimonthly issues of the Official SummarT of stock

Transactions and Holdings of Officers, Directors and Principal.

Stockholders

An Alphabetical List of Ovel'-the-Count.er Brokers am Dealers Registered with the CC8IisB1011as of August 31, 1941

List of Secur1Ues Traded 011Exchanges UDder the Securities Exchange

Act of 1934, as of June 30, 1941, and as or December 31, 1941, together with the SUpplelDEl1tsthereto

Report on secondary" Distributions of Exchange Stocks

(A canp1ete l18t of the Caamissionls publicatiOl18, the Ru1es of

Practice or the Guide to Forms w:l.ll be sent upon request made to

the office of the CaamisB10nin Philadelphia, PI..)

INSPECTION OF REGISTERED INFOHMATION BY TIlE PUBLIC

Copies of all public information on fUe with the Ccmn:1ssion, appearing in registration statements, applications, reports, declarations, am other public documEnts, are

avaUab1e for inspection in the Pub11.cReference Roomof the CCIIIIII1ssionat Philadelphia,

Pa, During the past fiscal year more than 8,667 JIISIIlbersof the public visited this

Public Reference Roomseeking su.ch information, and thousands of letters and telephone

calls were received requesting registered inf'ormation. 'lhe CClIIIIII1ssion, through the facilities provided for the sale of public registered information, filled more than 2,127

orders for photocopies of material, involving 1'57,084 pages.

Insofar as practicable, the CaJlDission has sought to make some of the public registered 1nf'01'Il&tionfiled 'With it available in its regional offices. In the NewYork

Regional Office at 120 Broadway, facilities are provided for the inspection of certain

public information on file with the CCIIIIII1ssion.This inc1.udes copies of (1) "SUchapplications for permanent registration of seeur1 Ues on al1 national securities exchanges,

except the New York stock Exchange and the Nell'- York Curb Exchange, as have received final

examination in the CCIDIII1ssion,together with copies of supplemental reports and amendments

thereto, (2) anmls] reports filed pursuant to the provisicms of Section 15 (d) of the

Securi ties Exchange Act of 1934, as amended, by issuers that have securities registered

UDder the Securities Act of" 1933, as amended. During the past fiscal Year 10,241 members

of the public visited the Hell' York Office Public Reference Roan, and more than 3,900 made

telephone calls to this office, seeking registered public information, forms, releases,

and other material.

In the Chicago Hegiona1. Of'1'1.ce,which is located at 105 West Adams street, there are

available for public inspection copies of applications for penaanent registration of securities on the Chicago exchanges, the HewYork Stock Excbange and the Hell' York Curb Exchange, which have received f'1na1 eVlJrdnation in the Com1ss1cm, together with copies of'

all supplemental reports and JlJ!M!!I'Idments thereto. During the fiscal year ended June 30,

1941, more than 3,230 members ot the public requested registered information, forms, releases, md other .terial.

In each of the Commission's regional offices there are avaUahle for inspection

copies of prospectuses used in public ofterings of securities ef'fective~ registered under the Securities Act of 1933, as amended. Duplicate copies of applications for registration of brokers or dealers transacting bo.siness on over-the-counter markets, together

with supplemental statements thereto, fUed under the Securities Exchange Act or 1934,

are also available for public inspection in the regional office having jurisdiction over

the zcne in which the principal. office of the broker or dealer is located. Also, inasmuch as letters of not1.tication under Regulation A exempting small issues of securities

from the registration requirements of the Securities Act of 1933, as amended, mq be

tiled with the regional of'f'iceof the CClIIIIII1ssiontor the regicm in which the issuer1s

principal. place of business is located, copies of such material are avai] able for inspection at the particular regional office where it is filed.

-
49-

I

DurlDg~s1; fiscal ;rear dupli.cate copies of appli~tdc:ms tor registration of

Inves'bDent together with supp1 ntal. statements thereto mad under the

Investment :ri.sers Act of ~94O. have been II8de available tor pml1c 1nspectdon in the

regional off'! baring jur.l.sd1.c'tiem onrr the scme in which the principal otf'ice of the

1.r:W'estmellt ser is located.

There are an11 ah1.e tor 1nspectiem in the ee-dssiem IS san Francisco and C~evelmd

Regional Offices. in which are provided COBp1ete facUit1.es tar _ch registraticm aDcl

qualifi.cation. copies of regist.raticm stat.e.mts and appl.1catic:ms for qualiticaticm of

indentures fiJ.ed at those reg1cma1. of:t1.ces.

Cop1.esof a11 appl.ica't:lc:ms far peDIBD8Il't regls1iraticm or secunties emnational.

securities exchalJ&es are available for p1bU.c inspecticm at the respective exchmge upon

which the secor1 ties are registered.

PUBLIC HEARIlfGS

,I

The foiloring statiet1.cs indicate the mwber of public bear1Dgs held by the ee-1esion f'rClll :J.. ~935 to JaDe 30. 19~:

7-1-35 7-1-40 7-1-41

~)0-.40 6-30-'1 ~30-42 Tot&1.s

Securities Act of 1933 m II S 355

Secnrities Exch8Dge Act of ~934 5U1 98 84 689

Public Ut111t7 Holding Cc.paD;y

Act of 1935 1Ol8 199 1'10 l387

Trost Indenture Act of 1939 3 5 0 8

InvestmEllt Adrisers Act of 1940 0 5 5 10

Investment Cc.p&iIl1Act c4 1940 0 84 m 217

Total.s 1807 402 'HI 2666

PERSOIIHEL

COJIIII1.ssianerGanson Purcell was elected Cha:1num of the Cc.d.ss1on on Januar;y 20.

1942 for the term. expiring June 30. 1942. vice Cha1nIan Edward C. Eicher who resigned.

On June 6. 19~ he 1f8S reappointed as ee--tssianer tor the tem exp1r1ng on June 5, 1947.

Commissioner Purcell was reelected Chai.Iwan of the Commissionon June 5, 1942 for the

period ending JuDe 30. 1943.

Ecbmmd Burke. Jr., of NewYork. was appointed CoJmdssioner July 31, 19Q. for the

term expiring June 5. 1944 vice Leon Henderson.

Robert H. O'Brien, of Montana, 1IBS appointed Co1IIDiss1cmerOIl FebruarT 3, 19~ tor

the term expiring June 5, 1945 vice Edward C. Eicher. .

The COIIIIIIiss1oners,as of the close of the past fiscal. year, were &8 followsl

Purcel1, Ganson, Cha.:1naaD

Healy. Robert E.

Pike, s...er T.

Burke, EdJpnnd, Jr.

O'Brien, lbbert H.

As of the cl.ose of the past fiscal. J881" the personnel of the COIIIIIiss1onCOIlpr1sed

five COJIIIDissianersand 14'51 eJlP1oyees. of 1Ih1.ch m were assigned to the regional offices.

These figures do DOt 1Dc1.ude170 emp'l.oJee8 who bad entered the .uitar.f service and were

carried em the pqrolls :iD a :f'u.rlough sta'tuB. (As of llIq 21. ~943, the mJaber of employees

in the militar,y service increased to )Q..)

-

•

~
50-

FISCAL AFFAIRS

Appropriations Ol!llgatians

Unobligated

Balance

8al.ar1es and Expenses

PriDting and BiDding

.Amount

$5,380,000

60,000

$5,440,000

$290,544

71

1296,621

Receipts for the Fiscal Year 1942

Character of Fee

Fees for Registration of Secur:Lties

Fees 1D1derTrust Indenture Act

Fees frail Regl.stered Exchanges

Fees for the Sa1e of Photo duplicates

lI1sce1laneous

Total

Amount

i ,

APPENDIX TABLES FOLLOW

-

~
A-I

!I

Table 1.-lIont~ registrations'effective UDder the 5ecurities Act of 1933 -Fiscal;,ear eDded JUDe 30, 1942

{Aaounts in thousands of dollars Y)

ill effecti ve4 registered Proposed for sale for account or iBlItIlIrB

Year aDd IIOnth

lumber of . 1Inmber

Jaount ~ror llaIIber

stateMnta ot iSBU8S .tatnents or iB8\lAls Do1mt.

1941

J~ 17 Z7 648,401 13 19 290,785

Auguat l.4 21 108,230 9 13 91,086

Septea1ler 24 33 176,042 15 19 1.41,561

october 19 25 154,471 17 19 144,854

Noveaber 23 30 193,416 17 19 186,066

DeCllllber 17 22 76,082 12 15 61.,246

1942

Janvarr 13 25 225,171 11 16 166,062

hbruary 10 13 55,4ffl 8 9 52,109

llarch 18 41 86,215 16 36 65,271

April 13 15 123,059 11 11 1ll,647

IIiQ' 11 13 97,601 9 10 96,957

June l.4 16 59,259 12 13 57,516

Total tiacal ~ar 1942 193 281 2,003,421 150 199 1,465,160

Table 2.-T,pe of securit7, _thoc1 ot distri1:lution aDd group to .00. off'ered-Securi'ties proposed tor aale tor the aocoant

or lssuers-EttectiV84 registered under the Securities Act or 1933-ll'1soal year aDded June 30, 1942

(Amounts in thouaaDds of dollars)

Type ot security

Ilethoc1 of di.tribution

aDd group to wta. oUered All Secured lJUBecured Preferred ~n Other'JI

types bollds boDd8 stock stock t,pes

All methods or distribution 1,465,160 3.38,411 696,926 161,816 219,63.3 48,374

To public 982,306 .3.3.3,0.36 453,216 109,468 41,9Q3 44,624

To securi t7 holders .394,876 - 238,136 52,221 104,519 - To .others. 87,978 5,375 5,575 127 73,151 3,750

Through investment bankers 969,517 3.34,561 .361,858 l43,58O 90,273 39,244

B7 purchase aDd reaala 899,465 .334,561 360,624 137,316 66,964 - To public 801,060 329,186 359,f:$9 93,972 18,203 - To BeCUrit)' holders 92,456 - 351 43,344 48,762 - To .others. 5,949 5,375 575 - - - On best ef'f'orts basis 70,052 - 1,234 6,265 23,309 39,244

To publlc 66,980 - 1,234 3,765 22,737 39,244

To Becur1 ty holders 3,C!72 - - 2,500 572 - To .others. - - - - - - By- issuers 495,643 3,850 335,068 18,236 129,.360 9,129

To public 114,267 3,850 92,283 li,731 1,023 5,379

To securit)' holders 299,348 - 237,785 6,377 55,185 - To .others. 82,029 - 5,000 127 73,151 3,750

1/ All cla.ts are sho1rl1as of' the eff'ective date of registration with the exception of issues subject to competitive

bidding, which are included in the period 4uring which the results of the bidding were made kno1m to the COIIIIIlisslon

by post-eftective 8IIlendment.

'?:I Rounding off figures has resulted in slight. dilferences bet....een the totals and the actual SUllIS of the cOIlIponents.

Includes certif'icates of participation, face-aoount certificates and warrants.

Mote.-For earlier data see First to Seventh .Annua1 Reports of the COIlIIIIission. .i

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A-9

table 7.-Market ftlue aDd yolWlleof .ale. on all regi.tered .ecur1tie. exchange.

(In thousands)

For 12 Months Ended J1U1e30, 1942

Total Stocks J:I Bonds 3./ Rights and warrants

Exchange IoIarket IoIarket NUDlber Karket Principal Market NumbElr Value

(Dollars) Value of Value Amount Value of

(Dollars) Shares (Dollars) (Dollars) (Dollars) Units

All Registered Exchanges . 6,8'72,298 5,583,945 281,833 1,282,679 2,483,925 5,674 6,060

Baltimore stock Exchange 7,425 6,334 344 1,091 2,186 - -- Boston Stock Exchange 133,836 132,667 4,128 867 1,062 302 337

Chicago Board of Trade 26 26 19 0 0 - - Chicago stock Exchange 128,168 127,874 6,780 91 82 203 190

Cinc1llnati Stock Exchange 7,123 6,991 363 124 122 8 2

Cleveland Stock Exchange ll,340 ll,282 541 0 0 58 43

Detroit Stock Exchanee 18,0'76 18,059 2,595 - - 17 13

Los Angeles Stock Exchange 35,942 35,897 3,081 0 0 45 42

New Orleans Stock Exchange 398 363 66 35 34 - - NewYork Curb Exchange 555,396 392,233 35,130 162,449 211,139 714 1,188

NewYork Stock Exchange 5,846,935 4,726,541 211,504 1,,116,494 2,267,240 3,900 3,821

Philade1phia Stock Exchange 51,725 51,189 3,078 363 336 173 l42

Pittsburgh Stock Exchange 11,591 U,573 939 2 2 16 24 st. Louis Stock Exchange 2,928 2,672 225 251 514 5 20

Salt Lake Stock Exchange 906 906 5,335 - - - - San Francisco Mining Exchange 164 164 2,878 - - - - san Francisco Stock Exchange 58,522 57,845 4,186 448 785 229 235

Standard Stock Exch , of Spokane 168 168 606 - - - - Washington Stock Exchange 1,629 1,161 35 464 423 4 3

Breakdown of 12-month Totals qy Months

1941 July 727,736 611,097 28,855 116,272 222,973 367 218

August 502,854 412,311 20,648 87,766 160,891 2,777 1,439

September 618,258 512,481 24,325 105,508 171,029 269 356

October 618,919 492,022 22,788 125,159 209,219 1,738 1,936

November 597,389 508,960 26,478 88,348 161,048 81 158

December 1,220,.311 1,085,447 62,081 134,712 277,038 152 595

1942 January 638,247 512,290 27,189 125,744 256,089 213 1,170

February 385,857 296,385 14,149 89,449 178,409 23 43

March 478,233 341,211 16,329 137,004 306,812 18 62

April 37l,964 272,874 13,585 99,0'75 202,862 15 27

357,447 265,598 12,585 91,838 179,690 II 39

June 355,083 273,269 12,821 81,804 151,865 10 17

J:I "Stocks" includes voting trust certificates, American depository receipts, and certificates of deposit for stocks.

y "Bonds" inc:ludes mortgage certificates and certificates of deposit for bonds.

Note: Value and volune of sales on registered securities exchanges are reported in cOMedion W1th fees paid under

Section 16 of the Securities Exchange Act of 1934. For most exchanges the figures represent transactions

cleared during the calendar month. Fa.gures may differ from comparable figures an the Statistical Bul.letin

due to reVision of data qy exchanges. For earlier data, see the seventh AIU1uslReport of the CoDrllission,

pages 288-295; the Sixth Annual Report, pages 276-283; the Fifth Annual Report, pages 222-227; the Fourth

Annual Report, pages 166-171; the Third Annua1 Report, ansert, facmg page 156; the Second Annual Report,

insert facing page 116; and the First AIU1ualReport, pages 87-91.

~
A-IO

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!able 10.--BUliber ot .8OIII'1ti..... paretoq tor etoob aDd boIId •• olaadtied aooordint: to be.ab tor

adm..don to d.dint:. OIl all achtulp ... ot J_ 30. 1942. (!be m.ber ot abere. or

.took aDd the principal ..-t or boa4. are .h ..... tor .ecuritie. other thaD th ....

acbdtted to UDlhted tracliDc prirller;e.)

S!OCI8

Co1_ Iy Co1_ II !I

~orahuM

Itaber or .hare. ~ber or ....... Beaia tor adId .. ion authorized tar w-ber or authoriaed tor

to cleaUnr; I.... Uate4 addition to 1i.t la••• ahare. li.ted addition to lin

................... 2.661 !I 2.264.083.297 196.688.817 2,661 !I 2.2M,06:l.291 196,688,817

r-porarllJ' a-pted hca

re~~lQB ••••••••••••••• ~y 8,108.687 &lS,9a6 ~y 8.108.687 &lB.9l16

Uatecl .-.ptecl excbanr;e 122 88.628,719 H2.7S7 166 100.767,.92 l,222,Sl6

AlIId:ttodto 1mliated tradiJlr;

pridUp. on ... ti0Jlll1

•.•....•..•....•.•• .91 -- --- 1.066 -- - AdUtted to 1mliate4 tradint:

priri1ep. -.pted

•.......•.......... 66 -- --- 77 -- -

Total •••••••••••• S,S70 !I 2,296,800.76$ 191.876,649 ---- -- --

BOIDS

Prinoi pal ....ount

Principal UIOunt

Prinoipa1 -t

Beai. tor adm1•• ion Prinoipal IlIIOUIIt authorbed tor authorbed tor

to dealing I.sue. listed addition to 1i.t Iuuea liated addition to U.t

Ilepatered ••••••••••••••••••• 1.S07 Y 122.S96.886.992 1992,640,010 l,S07 Y '22,ll96,886, 992 1992,640,010

TaporarU7 exelllp1;edtroa

reg1atratiOA ••••••••••••••• 27Y S&l.841.797 0 27Y :564,841,797 0

Uated OIl ex.-pted exohangea. 9 1.,6SS,OOO 2,000,000 9 1•• 633,000 2.000.000

.&da11:tedto 1mlbted tradiDg

prirlle,... on nat10na1

exchang•••••••••••••••••••• 200 ---- ---- 226 --- --- .&da11:tedto 1mlhted tradint:.

priTt leges on exeapted

exchang •••••••••••••••••••• • - --- • --- ----

fota.l •••••••••••• 1,647 Y '22,776,1l61,789 '994,640,010 ---- ---- --

1/ Duplioationa in this oolumnhave been eliminated both as to exohanges and haaes tor admls.ion

to d_ll"nr;. e. g•• if a seourii:)" 1a registered on more than one national aecurities exohanr;e, H.ted

on an exempted exohange and aho unl1ated on another 11IItional.. euritiea exohange, it 1a oOUJItedonly

once under -aer;iatered." !hua, the totala tor this ooluan are the total. of seouritie. admitted to

tradint: on all exchanges at't,'r elimination ot .!!! duplications.

!I Duplioat1ona in thia oolumnhave been eliminated only as to exchanges, e. g•• if a seourii:)" is

listed on _re than one exempted exchange, 1t ia counted 01117once under such atatus.

sl Include. 1 atock iaaue in pounda aterUDg in the ....ount of 8492,101 U.ted.

U01ud.cr hila the I1IIIIberot shares shownabove

Thia ....ount 1a

•1 Ino1ude. 8 bond la ..... 1n pound•• w.-liJlr; and 2 bond i .. uea 1n French tranoa in the amount.

or IIl5O.TM.~ and 66,S63,680 French tranc. listed. !he.. _ounts are exo1udedfrca the prinoipal

-.ouut in dollara ahOllD abov••

!I IDo1ude. oerta1n .. ouritie. reaultint: tre-. -.cI1ticationa of previously listed .eouritie 0111'1-

t1 •• or certain baulaI ... nd .eouritie. ot oertain isauers in ballkruptq or reoeherahip or in the proo ..

or reorpnbation under the Banlr:ruptq .lot. !he.. aeour1ties baTe been temporarily ex-pted traa the

operation of Beetion 12(a) or the Seourities Jb:obanr;e .lot of 19M upon .peoifi.d terM aDd oonditions

and for .toted periods pursuant to rulea aDd rep1ations of the CClllllllis.1Cl1l.

~~~

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1,e

atook II. bow ",l8tered UId adll1tted

11.--BUDber or aecuritie •• aeparately tor • an than ;. uatioaal •• ouritie. to unlisted trad1n& prinl., •• on one. or aor. o.

exohaDl;.U or JUDe W. 19'2

STOClS

Table

..ua1fioaUOIl 1

------ M6 0 262

Tc'.!." .took 1.auea regi.tered ••••••••••••••••••• 2.661 1.169 0

'h,;al atock l8auea adm1 tted to unll8ted trad1nr; 0 '90 0 18 262 prinl.ge. on uational .xchanr;•••••••••••• 1.066

BORD8

1.W? 1.U6 0 1$6 0 26 0 0 0

Total bond i.aue. r.'iater.d ••••••••••••••••••••

Tetal boDdiaaue. adIIl1 tt.d to unll8ted tradinr;

0 200 0 0 26 0 0 0 prinl.,.a on national .xchanr;•••••••••••• 226

UDduplioat.d total of atook i.au •• r.gi.tered aDd admitt.d to unlisted tradinr; prinl., •• on national .xohanr;e.................... Z.169

UDduplioated total of stook iaaue. registered and admitt.d to

unll8t.d trad1nr; prinl.ge. on national .xchanr;.a which .. r. admitt.d to d.alinr;. on mor. than 1 .uch .xohang............... 920 -- 29.0~ or unduplicat.d total

UDduplioat.d. total or baDdisauea r.gister.d &lid ada1tt.d. to

unlisted. trad1D&priyil.g •• OIlnational .xobanr;..................... 1.601

UDduplicated total or baDd is.ues r.gi.t.red aDd adla1tted to

unlisted. tradin& prinl., •• OIlnational .xchanr;•• which _re adlll.tted. to d.al1nr;a 011 IIOr. than 1 .uch .xolanr;e.............. 162 10.1. or unduplicated total

a.,1atered 011 1 exchanr;. 0Dly

.Albd. tted. to unlisted trad1n& prinl.r;e. on 1 exaIw:I&. only

Regiatered OIl _ra than 1 .xchang.

AdII1tted to unlisted. trad1nr; prinl., •• OIlIIIOrethan 1 .xoianr;.

R.gist.r.d on 1 .xohanr;. UId adll1tt.d to unlisted trad1nr; prinl.,e. on 1 exohanr;e

Re,ist.red on 1 exchanr;e UId admitted to unlisted trad1Dl; prinle,e. on Il1O" than 1 exoianr;e

Reg18t."d on IIIOrethan 1 exehanr;eand acllD1tted to unlist.d tradinr; pri nleg.. on 1 exchanr;e

Registered on IIIOrethan 1 exohanr;eand ada1tted to unl1ated trad1D&prinlege. on IIOre thaD 1 exobaDp

Table 12.-Bllllber or is.uera hannr; .ecur1Uea ada1tted to dealiD&. emall exchange.

aa of JUDe W. 1942. o1aaaified acoord1D&to bed. for ada1aa1011of their

.eouritiea to deal1Dl;.

eol_ I 1/ eol_ II 2/

Buis of adll1.a1011of .ecuritie. to d-linr; 1fWIberof Ia81Jer. wa.ber ot I•• uer.

I•• uer. harlnr; .eouritie. repa'tered ••••••••••••••••••••••••••••••••••• 2.299 2.299

I•• uera baT1nr;a.curiti.a temporarily .x_pted fra r.gistre.tion ••••••• Z6 f2

bauera haT1nr;s.ouriti •• l1ate4 OD exeapted ezobanr;••••••••••••••••••• 108 1f1

I•• uer. hay1Dl;•• ouritie. adll1tted to unlisted trad1nr; pr1nl.r;e.

on Dat.lonal excha.D.pa ••••• 1•••••••••••••••••••••••••••••••••••••• '21 1.002

raauer. hayinr; .eouriti •• acIa1tted to unlisted. trad1nr; prinl.g ••

OD .x-pted exobaDpa •••••••••••••••••••••••••••••••••••••••••••• " Sf

Total I••uer••••••••••••••••••••••••• 2.818 --- DupUoations in this oolUIIIDbaYSbeen .11lll1natedboth a. to exohanr;•• UId ba ••• tor admi.a1on

ot the i ••u.r.' •• curitie. to d.alin,. e., •• it an i •• u.r baa •• ouriti •• r.gi.tered on aore

than on. national .xohange. U.ted on an exempted exobaD&e.and al.o adlll1tted.to unlisted tradinr;

priYilege. on oth.r .xohanr;••• the i•• uer i. cOUDt.donlJ onc. a. hayinr; •• ouriti •• rer;1.tered.

thUJI. the total of thi. collDlD18 the total nUlllb.rat iaau.r. haT1Dl;•• ourities ada1tted to tradinr; on .11 exolanr;•• aft.r .11lll1nation of all duplioations.

!I Duplications in thi.",olUIIID baYSb•• n e11lll1natedonly as to .xchanr;e•••• , •• it an is.uer has .eouriti ••

admitted to unlist.d trad1nr; prinl.ge. on _. than one .xohanr;e. the ie.ner 18 counted only eaee

under .uch statue.

•

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'fable 13.-~er hsuers -riDe atocia .q. boDda onl;y. aDd both stoclta aDd

bonds. adIIitted to dealings OIl all exohanges .. JUDe SO. 1M2

Clasa11'icatiOl1 Iuaber 01' Issu.rs 01' Total Issuers

1. Issuers haTing onl;y stooa adlllitted to ~ing on exohanges ••••••• 2.172 74.66

2. Issuers haTing onl;y bonda adlllitted to trading on .xchange ••••••••• 414 14.21

S. Iuuers haTing both stooks and bonds adlll1tted to trading on

exchange •••••••••••••••••••••••••••••••••••••••••••••••••••••••• a27 11.2a

Total Is8uers••••••••••••••••••••••••• 2.91S 100.00

4. Iuuers having stooks admitted to trading on exohanges

(Classi1'ioation 1 plus a) ••••••••••••• 2.499 86.79

6. lasuers having bonds admitted to trading on exohanges

(Claaei1'1oat10n 2 plua a) ••••••••••••• 741 26.44

Table 14.-Iumber 01' issuers and seourities. basi. tor .dIIl1s.ion to dealings.

and the percentage 01' stooks aDd bonds. tor eaoh exohange. adDdtted

to dealings on one or more other exchanges ... June SO, 1M2

J. J.

... 1l .. ... .=

. tr:l~ • :'r:l~ $0 • • .. 0 .. S T 0 C J[ S tJ BOIDS i1l .Wl r:l'<:l a! .... a

Total o 0'<:1 0'<:1

Total .... .. .. 0

HIlIIIeof Exohange Iesues' Total .. M U XL Total .. M Issuers R X U XL XU o. Ii X XU o.

Ba1~re •••••••••••••••• 69 lOS 44 4 211 ... ... n 6O.f 2a ... 9 ... ... 32 46.9

Bo8'to.a ••••••••••••••••••• M6 438 15a ... 214 ... ... 367 80.7 n ... ... ... ... n e..8

Chioago Board of Trade ••• 36 40 34 ... 5 ... ... 119 51.3 1 ... ... ... ... 1 00.0

Chioago Stock Bltohange ••• 276 3M SOl IS 20 ... ... 1134 61.1 19 11 ... ... ... SO 40.0

C1nolDllllti ••••••••••••••• 67 102 88 1 6 ... ... 95 25.3 6 1 ... ... ... 7 85.7

CltrYelan4 •••••••••••••••• 85 100 81 ... 18 ... ... 99 52.6 1 ... ... ... ... 1 00.0

Colorado Springs U 16 ... ... ... 16 ... 15 26.7 ... ... ... ... ... 0 00.0

De'tro1t •••••••••••••••••• 158 168 109 1 68 ... ... 168 75.6 ... ... ... ... ... 0 00.0

Honolulu y .............. 96 121 ... ... ... 58 52 110 23.6 ... ... ... 7 4 11 00.0

Los ~ele •••••••••••••••179 2lS lao 1 69 ... ... 200 80.5 IS ... ... ... ... III M.6

Minneapolis-st. Paul 16 20 ... ... ... 18 2 20 66.0 ... ... ... ... ... 0 00.0

lew Orleana •••••••••••••• U SO 1 ... 16 ... ... 17 17.8 10 ... a ... ... III SO.8

Be. York Curb •••••••••••• 919 1,248 465 ... 5a8 ... ... 1.00a 25.3 32 ... 213 ... ... 245 9.0

lIewYork stock ••••••••••• 202 2,4SO 1.25S 1 ... ... ... 1,254 61.2 1.158 18 ... ... ... ,176 12.2 Philad.lphia ••••••••••••• 429 5a5 66 1 391 ... ... 458 95.2 76 1 ... ... ... 77 70.1 Pittsburgh ••••••••••••••• 107 124 60 2 60 ... ... 122 72.1 2 ... ... ... ... 2 00.0 R1c~nd ];f •••••••••••••• 26 116 ... ... ... M ... M 14.7 ... ... ... 1 ... 1 00.0 st. Loui ••••••••••••••••• 51 89 75 ... ... ... ... 75 22.7 14 ... ... ... ... 14 71.4 8&11: Lab •••••••••••••••• 96 98 92 ... 6 ... ... 98 9.2 ... ... ... ... ... 0 00.0 Ban PranoisClO JIiniDg ••••• 50 50 50 ... ... ... ... 50 12.0 ... ... ... ... ... 0 00.0 Ban Franoi.oo stook •••••• 287 ll54 167 4 161 ... ... S1l2 68.4 21 ... 1 ... ... 22 90.9

seattle !f ............... Sf 116 ... ... ... 19 16 116 60.0 ... ... ... 1 ... 1 00.0

Spo~ •••••••••••••••••• SO a2 21 ... 11 ... ... 32 5S.1 ... ... ... ... ... 0 00.0

wa.hiDiton. D. C••••••••• 3a 52 29 12 ... ... ... n 9.8 11 ... ... ... ... 11 27.S

Wbeel1Dc~ •••••••••••••• 211 21 ... ... ... 22 5 27 117.0 ... ... ... ... ... 0 00.0

Y BxeIIpted fre- registration as a DatioDal seouritie. exohange

Il, rep.tered, X. t..pcrarll;y ueapted froa rep.tratioD,

11, ada1tted to UDliated trading priTilegea on a Dat1ona1 seouritiea exohange,

XL. listed on an exeapted exobanp, and XU, adIIIi1;tedto unlined trading priTileges

OIl an exeapted exohange

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