Evening star. [volume] (Washington, D.C.) 1854-1972, 1909-09-26
BROKERS WHO BREAK
How Money Is Fi|ched by
Guaranteeing" Stock.
A RECENT CASE IN POINT
Get preliminary Fee and Lose In
terest.
YOUNG CORPORATIONS SUFFER
Roseate Future Pictured for Them
and They Are Prepared
for Slaughter.
YOUNG CORPORATIONS SUFFER

! During the past quarter Of a century
a new kind of financial institution has
developed in this country, called by va
/ rlouS names-guaranty company, Sc
curity company, securities company, re-
demption company, underwriting COM
! pany and trust company-which IS said
| to have unwittfngly fostered band
of thieving brokers who prey upon In
dividuals and young and unsuspecting
corporations.
The purpose OF these companies is
the same-insur1ng investors in UNI
listed securities against loss of prin-
cipal by the failure of the issuing COM
pany. So far the business of the guar
anty company is generally considered
absolutely legitimate. The soundness
! OF the theory is sometimes questioned
by the more conservative financiers. but
so long as the guaranty company ad-
heres to the plan outlined its TRANSACT
tions are usually regarded as unques.
| tionably legitimate. But practically all
of these guaranteeing companies have
! adopted plan of obtaining business
which, SO far as the guaranty company
is concerned. may be perfectly straight
forward and absolutely honest. but
which is said to have fostered class
of fake brokers VINO use the guaran.
teed stock feature of financing to rob
unsuspecting young industries.
A Recent Case in Point.
| The publicity recently given case Of
! this kind will bring forward q large
number Of firms that have been robbed
by the guaranteed stock game. This, how
ever Is but one of the many such COM
panies operating in various sections of
the country, each having its corps of cap
] pers, who disguise their real business
under the title of "stock broker
| The operations Of this class Of fake
brokers may be unfolded by following a
victim through the pitfalls they set
| A man develops certain improvements
in motorcycles and secures patent. 10
put his machine on the market requires
are practical. and fill longfelt want. but
the machines must be manufactured first
necesstating a factory, and he must light
| strong competition. All this requires
more money than he can obtain. About
| this time he sees an advertisement:
Capital promptly secured for new min
| ing. manufacturing and railroad enter
prises. Entire stock or bond issue placed
Write for particulars
| Here, he thinks. Isl his opportunity. He
| answers the advertisement, telling the ad-
| vertiser what he has and where he stands,
| and In a few days he gets letter like
| this
yours of recent date before us. The
incorporate and sell stock. You can hold
| controlling interest. This makes you
safe. Sell the rest. We sell stock on a
straight per cent commission, and II
| you will incorporate and offer the stock
to our investors. we can sell 1t. Does
! this plan appeal to you? It Is the best
way for you to make the most money"
| New Vista Opened Up.
This opens new vista. but he cannot
| brokers' efforts to interest him in incor-
, porating. He has answered the adver-
| tisement as an individual. Tho distinction
| is that as an individual he cannot be
| robbed of the preliminary fee for he has
no stock to be guaranteed. Therefore, to
| get him in condition to become a victim.
| he is urged to incorporate. 1t had never
| occurred to him to make his patent the
F., object of an Incorporation, but now he
| begins to Investigate. A few days later
he gets a fat envelope containing, with
other things, letter that begins:
Your name has been given to us by
i Catchem & Cheatem, stock brokers. as
! one who wishes to incorporate, and as we
are devoting our time wholly to incorpor-
atins stock companies under the laws Of
South Dakota, we herewith inclose copy
of our corporation laws, blanks and
other printed matter relating to incor-
porating, ETC.
Il With 1t comes all necessary Information
upon the subject Of cheap Incorporation
This is part of the brokers' plan to get
the Intended victim In condition to be
plucked. incidentally the broker gets a
fee from the Incorporating company for
! referring the business to it.
The Incorporating cOmpany's plan ap-
peals TO the inventor and he decides to or
ganize company and incorporate. The
| incorporating company has sent all nee
| esSary forms and complete instructions,
so it is quite simple to get a charter. In
| due time this arrives, along with the
stock certificates and seal, and thus sup
piled the new corporation is ready for
the shearing. The stock broker is now
l notified that his. suggestions have been
adopted and company is now incorpo-
| rated and all is ready for the sale of
stock. when back comes this letter:
/ Yours of recent date is just at hand,
and if You will send us complete state
ment of particulars about your motor
cycle stock we will give IL closest atten-
ton and advise you at once whether we
think the issue will appeal to our people
/ or not
How He Is Led On.
i The now motorcycle company complies
with this request and some time later re-
ceives a letter that begins with the state
ment that the Information you furnish
about your company looks good to u.s.
Then follows a fiowcry description Of the
company's method of selling stock, and
somewhere down near the end Of the let
ter there appears this paragraph:
ITO help our statesmen sell stock by
making the stock highly attractive as an
investment, make it more readily sell at
par and also protect our investors from
loss. all issues sold by us must be guar
anteed as to principal by some regular,
reliable guaranty company.
This Is new feature of finance, strange
to the new company, but the next mall
brings enlightenment. heretofore I'M
heard-of regular, reliable guaranty COM
pany'' sends d full line of literature de-
scribing the splendid features of guar
anteed stock. The new corporation does
not know it, but the broker is Gaping for
4 this guaranty company and has sent the
new company's name to headquarters.
Perhaps the plan does not appeal strongly
to the motorcycle company, and 1t decides
to seek elsewhere for a broker to sell
it's stock 1t selects another alluring ad-
vertisement. This advertiser is told that
the company has been incorporated and
wants to sell stock. In a few days this
reply comes back:
in reference to the sale of your stock
i will say that there will be no trouble
whatever in disposng of $4,000 worth
, at par providing this stock was guaran-
teed by one of our trust companies We
! will handle this stock on coro,,;csio,,