New-York tribune., 1919-05-24
Warburg Urges
Action Against
Fake Promoters
Tells Investment Bankers
Measures Should Be TAX
Ell to Safeguard Public;
Taxes Need Modification

Protection for the American invest
ment public against the wiles of preda-
tory promoters and INSCRIPTIONS sell
ers of worthless securities is imper-
ative, Paul M. Warburg, formerly vice
governor Of the Federal Reserve Board,
told the members of the Bond Club of
New York yesterday at the monthly
luncheon at the Bankers Club.
Need of protective measures OF this
character, in the opinion of Mr.. War
burg is urgent in view of the fact that
American investors will shortly be
called upon to buy large amounts of
foreign securities. "The more foreign
investments of excellent quality are
introduced," he said, "the greater will
be the temptation for crooks 10 slip
in and palm off fake bonds or stocks
on innocent victims. The era of ex-
pansion of our foreign trade, which
seems to lie ahead of us, will offer un-
precedented opportunities in this re-
spect'
"To my mind, it is urgently neces-
sary to provide the best possible ma
chlnery to protect the country against
such frauds. Federal or state laws,
enacted to accomplish this aim, if they
are to be effective, would have to in
clude all security issues. In the long
run they are likely to develop red tape,
delay anO government interference,
which, under political pressure, some
day might prove highly detrimental to
the country's interest.
"On the other hand, unless invest
ment houses devise themselves the
proper safety appliance, there is no
doubt that conditions may arise calling
for very drastic Federal or state leg
islation Present methods are fre-
quently loose, and there does not ex-
ist any effective machinery by which
bad practices can be curbed. Writers
of advertisements may emphasize and
omit what suits them best, and printed
underneath their often meagre and ar
bltrary announcement they insert a
statement that the information is not
guaranteed, but is based on statements
from what we consider to be reliable
sources
Mr. Warburg renewed suggestion
which he made year ago, that of their
own Tree Will Investment houses get
together in all the Federal Reserve
districts and ask the Federal Reserve
agent and governor of their respective
Federal Reserve banks to agree 10 serve
cn voluntary committee of five.
which. much on the lines of the old
Capital Issues Committee - which
tial financing during the war period
would be prepared to examine pro-
spectus before the securities are of
fcrcd, and would certify that certain
papers necessary to authenticate the
facts stated in the prospectus have
been filed
ANY state 1egislation.' Mr.. War
burg said, "would have the very seri-
Gus disadvantage that one state might
legislate and another might not. and
that, as consequence, bankers Of the
state with loose methods might profit
at the expense of those domciled in
state enacting legisation Undc-
slrable consequences of this sort would
be avoided if the investment bankers
OF all the Federal Reserve districts
would act together and if all the Fed
eral Reserve banks would cooperate
Unless something of this sort is done
1t is only d question Of time for come
grave disappontments or scandals to
occur, discrediting future issues and
interfering with the free and healthy
development of our security houses
II, on the other hand, the strong
and reputable investment houses, of
their own accord, subject Themselves
to whatever little delay and red tape
may be necessary in dealing with
their issues thev will. in tho long run,
best protect their own interests, be-
cause IN doing so they viii help in
keeping the crook out and preserve a
clear field for those who arc not afraid
10 have the searchlight turned upon
the securities they arc about to offer"