The New York herald., 1922-02-19

VI IhC pOStdl Inspectors uuQeT Tue
of the mails with intent to defraud.
Occupying cells are presidents Q
urers and other general executive
companies, vast automobile manu-t
featuring projects, meat packing
houses. Almost every form of busi-
ness enterprise and manufacturing is
represented in the reports of fraud
cases.
Petroleum producing companies,
however, lead all others in stock pro-
motion schemes. Next come automo-
bile companies. Movies are popular
with the promoters just now because
large fortunes are known to have
been made jim this form of enterprise.
Capitalized at $2,000.000." This
is familiar form in the prospectuses
put out in stock promotion schemes.
Copies OF these prospectuses are on
file by hundreds at the Post Offlce
Department.
Regarded as Modest start.
Few stock companies are promoted
with a capitalization OF less than
$1,000, 900. the records show. In fact,
a corporation which starts at that fig
ure is regarded as modest in its finan-
cial plans.
The records contain histories OF
companies that actually paid divi-
dends 70 stockholders for short
periods. In some cases these divi-
dends ran as high as 10 and Cooper
cent. although not single product
lad been manufactured or sold.
Payment Of high dividends is the
bait by which fly by night stock pro-
moters lure investors into exchanging
their cash for beautifully engraved
stock certificates.
How the average petroleum or oil
corporation is fioated is explained by
the Post Office Department inspectors
as follows:
One promoter acquires, at small
cost lease on undeveloped land in
an oil district. With other promoters
he organizes corporation in some
State near New York; exchanging his
lease for a block of the corporations
stock. Some brokerage concern then
undertakes to sell the stock, which
usually totals several millions of dol
lars. The broker gives a contract TO
take so many shares OF stock each
month at 80 or 40 cents share IL the
par value be 81.
Elaborate Prospectuses.
Elaborate prospectuses then are cir
culated calling attention to the profits
OF well established oil companies and
stock Is sold at par or above II IL pur-
chasers can be found-and they USUALLY
can be found.
with portion of the money OBJ
tained start is made at drilling
well. The work. however. proceeds
leisurely and daily reports of prog
ress' especially encouraging ones. are
teiegraphed to the corporation Offices.
II the reports can be made to appear
encouraging they are circulated by the
selling broker.
Finally, the well comes in and pro-
duces Oil. Or it turns out a dry hole.
In this case the promoters are salts
fed. The corporation goes into bank
ruptcy. Being corporation, its La
bilities are not the personal liabilities
of its officers or directors. These have
cash which they obtained from the sale
or their own stock, sales which were
made before the public was allowed
to know that the oil we'll turned out
to be not a well at all, but rather,
mere hole In the ground.
So long as the corporation officials
and the stock selling broker cannot
be proved to have made false or mis-
leading statements as to the actual
conditions of the corporation during
the drilling process they are generally
immune from prosecution. The stock
holders are the only losers. Their loss
occurred because the company went
bankrupt.
A dry hole is the ideal OF the crooked
oil promoter A we'll that actually
produces oil may become an embar-
rassment to him. The oil must be sold
and profits distributed. Usually this
results in dividend of such a small
percentage that the sale OF stock |
comes to an abrupt halt.
One test OF tho oil company in pro-
cess of promotion is how much stock |
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