Perth Amboy evening news., 1922-04-22
VICTIMIZINC THE AMERICAN
INVESTOR is TOLD OF
Daily Letter by Frederic j. Haskin

WASHINGTON, April 22:-The
United States is the only great ma
ton which maintains no regulation
governing the issuance of what are
known rs blue sky securities. Blue
sky securities are stocks or bonds or
other negotiable evidences of indebt-
edness which are based on no real
tangible value. The term blue sky
is an old one. Its origin Is this: the
seller of blue sky stock gives to his
customer a holding in a nearly. or
entirely, worthless or unattainable
value. The buyer becomes a bona
fide owner Of a share in the enter
prise on which the security Is based,
but that basis has no tangible value.
Therefore he is doing practically the
same thing he would do il he paid
money for a patch of blue sky. No
one could dispute his ownership. but
his property would be entirely value
less to him as a tangible asset.
The blue sky salesman and pro-
moter has become immortalized in
American life through the character
of fiction known as Get-Rich-Quick
Wallingford. That character repre-
sents the typical blue sky stock sales
man. There are many in real life.
n oNAAt4iAC a. ~ OASdll4LC H.
incorporate a development company.
The corporation will claim to have a
land concession. for instance. in the
South Sea Isles. Glowing prospec-
fuses will be prepared claiming that
millions can be made by growing
cocoanuts on the land. Gullible per-
sons will believe the tale and, having
visions of sudden, fabulous wealth,
will invest ~hard-earned savings in
the stock. Or a company may be in
corporated to exploit a patent or a
secret process which may not exist
at all and if it does, has no CONNER
cial value commensurate with the
amount OF stock issued against it.
Oil is a favorite field. Leases will
be acquired and stock sold on the
chance OF striking oil. 1t is a COM
mon saying among investors and
brokers that more money goes into
the ground than comes out of II.
This means that ore people pour
money into purely speculative oil
companies than receive profits from
oil that comes out of the wells.
State Laws Inadequate
About half OF the states of the
Union have laws regulating the issu-
ance Of stocks. Under their provi-
sions, promoters desiring to sell Sc
curities must have their projects ex-
amined by state commissions. They
may not sell stock unless the COM
mission of the state in which the
product is launched certiies that &C
tual value stands back of the stock.
The weakness of this regulation IL
that 1t restraints fraudulent a~ctivitie
only within the home state Of the
blue sky enterprise. Salesman can
sell in other states quite freely. thr
states having no regulative jurisdic-
ton beyond their own borders.
In recent years various branches
OF the government repeatedly have
recommended to congress the enact
ment of federal blue sky legislation
which would cover the entire coun-
try, fortifying and supplementinz
the state laws. Bills have been in
troduced, but to date no action has
been taken and the United States re
mains practically an unrestricted
hunting ground for the blue sky
Wallingford.
During the war. under the broa
powers OF the government, the Capt..
tai Issues Committee was formed to
restrain the issue of blue sky stocks
This vas necessary in order that the
investment funds of the nation b.
conserved to pay war costs. The
committee existed only from May II
to December 81, 1918. and in thai
short time handled applications to
issue securities amounting to S3.777,.
$4,000. The amount disapproved a.
representing fraud or as being un.
necessary was s917,133,000. Though
the committee had no means of en-.
forcing its decisions, and doubtless
much blue sky stock was put on the
market without application to tbs
committee, It is eloquent of the ex-
tent Of blue sky issues In the United
States that practically one quarter o.
the applications were turned own By
the Capital Issues Committee.
The committee estimated that ths
American public Is gulled to the ex.
tent of $500. 000. 900 annually b,
worthless stock issues.
Investments Complete Loss
This sum-" the committee said
present sheer waste and net loss Il
the people of the nation, not only O.
dollars. but of morale. confidence
and the incentive to save. The ma
tons loss cannot be measured alon.
in money values, but in terms O
those things which make for goot
citizenship"
The Post ONCE Department anc
the Department OF Justice prosecut
swindles of this nature under law
now effective, but neither can func
ton until the fraud has been com