Evening star. [volume] (Washington, D.C.) 1854-1972, 1909-09-26

announcement from several Of our peo'
pie. Please advise by return mall"
Naturally this serves to hasten decl-
sion in favor Of having the motorcycle
stock guaranteed. The blanks are filled
out and check drawn for the preiimi.
nary fee Of l per cent of the amount OF
stock to be guaranteed. 1t Is sent to the
broker and the new company feels Itself
successfully launched.
Then there Is the awakening. Days &C
by and no stock is sold. Weeks fade into
months and still no stock is sold. The
company complains to the broker. and
from him it learns that the stock Is not
meeting with the success it had antici
pated: that its clients did not seem tt
care for it. etc, etc.
Not Exaggerated Case.
This is by no means an exaggerated
case. The letters quoted are genuine. They
were written by stock brokers who use
this form of inducement to persuade new
corporations to have their stock guaran-
teed. These brokers are ever on the watch
for some new company. and SwoOp down
upon all such with a convincing line Of
guaranteed stock" literature. Some are
very crude in their methods. They lay
themselves liable to arrest for false pre-
lenses by making all sorts OF promises
They promise to sell $1,000 shares of any
kind of stock in thirty days If it is guar
anteed. Others have reduced their busi-
ness to science. Their literature con-
siSts of masterpieces in the art Of deceiv-
ing They hold out the most alluring in
ducements, lead the victim to believe they
can accomplish wonders. But they never
write or print direct promise, and moth
Ing can be found in any of their adver-
Using matter that would hold in court
Of law.
That the guaranteeing of stocks and
bonds is sound business principle there
seems to be little doubt. Briefly sum-
married., the guaranteeing company take:
certain per cent Of the money paid for
the stock to be guaranteed and deposits
1t with a reliable trust company. The
regular trust companies themselves dc
not engage in this line of business be-
cause the law giving them existence does
not authorize them to do So The money
deposited with the trust company by the
guaranty company compounds interest al
the rate of three and one-half or fouI
per cent, until the period Of guaranty
expires.
against the loss of his principal thu
guaranty company issues him a gold
bond for the full value Of the purchase
price Of the stock. This bond natures
within q period fixed upon between the
corporation and the guaranteeing COM
pany.
Where the Broker" Comes In.
The guaranty company makes a pre-
liminary charge OF 1 per cent Of the
amount Of stock to be guaranteed. This
is known as a preliminary fee'' an6
must be paid before the stock will be
guaranteed. If the issue Of stock to be
guaranteed is $4,000 the preliminary fee
will be $500. The guaranty companie:
make a practice Of giving large per cent
of this fee, usually so per cent, TO the
stock broker who refers to them the cor.
poration seeking a guarantee.
The guaranty company has what Is con-
sidered legitimate reason for giving thi:
commission. aside from the Involvement
for brokers to secure new business. he
advance of one-half of the preliminary
fee is, according to the guaranty com
pany, for the purpose of assisting the
broker to sell the guaranteed securities
The brokers, at least a vast majority Of
them, have no such idea in mind, it j:
said. They are satisfied with the com.
mission paid them by the guaranty com
pany and make little or no effort to sell
the guaranteed stock.