The gazette-times. [volume] (Heppner, Or.) 1912-1925, 1922-07-27

ALL i i lE-llluEo, 1EEEN El
ruins him financially. His iuexperieuee
In investments makes him an easy prey.
| OF course, the inexperienced investor
should be wise enough to take the ad-
vice Of bis banker before buying any
securities, but too often he is Influenced
by stories Of fortunes made by taking
a chance. The arguments Of the sales
man are plausible and he takes the risk
in the hope Of great returns.
Suckers Are Born.
It is impossible to cure the sucker.
He is born that way. He needs all Of
the protection the law can give him.
That is the purpose Of all 'blue sky"
legislation.
Illinois, after experimenting with a
law adopted in 1917, has now an amend
ed act which has been accepted in prin-
ciple by many other states and which
is proving as satisfactory as any seeuri-
ties legislation yet worked out. The
trouble with the original law adopted in
this state was that it provided for the
Issuance of certificate by the Secretary
Of State to the corporation which met
the requirements. This certificate bore
the great seal Of state. In the hands Of
an INSCRIPTIONS dealer or agent it was
very effective in convincing the unwary
investor that the State of Illinois stood
back of the corporation and that the Sc
eurities were as good as a government
bond. 1t was difficult also, under the pro-
visions Of this act to bar questionable
securities.
Under the present law, adopted in
1919 after it had been carefully worked
out by the Securities Department of the
Secretary of States Office, no certificates
are issued. This was the first law in the
country based on the plana of classifica-
tion Of securities. A large number of
other states now have enacted similar
laws which have been upheld by the
United States Supreme Court in three
cases involving the acts in Michigan,
Ohio and South Dakota.
Securities Classed.
Under the classification plan securi-
ties are divided into four classes. Glass
A includes securities the inherent quail
tiles of which assure their sale and
disposition without fraud. These are
not subject to the provisions of the act.
Glass includes conservative securities
which, when disposed of by persons and
in the manner provided by law, are not
subject to the provisions of the act.
Glass securities are those based on
established income and Glass D includes
securities based on prospective income.
Before these can be sold in the state
the company issuing them must file with
the Secretary of State complete inform
alton regarding the standing of the COM
pany and its officers and trustees, its
assets, liabilities and income.
1t is discretionary with the Secretary
of State whether or not this statement
may be filed and if he refuses to file it,
the company cannot sell the securities
within the state.
The statements filed by the companies
are a matter of public record and may
be seen by those interested at any time,
but they all bear this wording: "This
statement is prepared by parties inter-
ested in the sale of securities herein
mentioned. Neither the State Of Illinois
nor any officer of the state assumes any
responsibility for any statement herein,
nor recommends any of the securities
described below"
Chance to Succeed.
1t would not be proper to prohibit the
sale Of speculative securities for many,
if not all, substantial business enter
prises are more or less speculative at
their inception. All we can hope to do
in an official way is to be sure the COM
pany offering to sell securities has at
least reasonable chance to succeed.
In this state-and | believe this is
true in many other states--we have
made it practice to consider conditions
which have a fundamental bearing upon
each case presented, although some of
them may not be specifically mentioned
in the law. For instance:
First. The personnel Of the corpora
tion; their records for period of years
past as to improper or unwise financing;
their moral as well as financial standing
in the community in which they reside.
Second. The major part of the money
invested by the purchaser of these Sc
curities must 60 to the furtherance of
the project and not be wasted in COM
mission or overhead expense. In this
connection, the law specifically states
that not to exceed 20 per cent shall be
paid as commissions for the sale of Sc
curities.
Third The major portion of the stock
must not be given for intangibles such
as patent rights, good will or other in
tangible assets. Shares used in this
manner must be placed in escrow.
Fourth. Where the project is of an
extremely hazardous nature, such as
oil, mining and similar undertakings,
there must be some prospect that the
oil or mineral is located within the ter
rtory embraced by the contemplated op-
Grafton. In other words, projects that
are wild eating" in the extreme are
not looked upon favorably by the de-
partment.
All conservative and reliable organiza-
tions Of dealers in securities favor "blue
sky" legislation. They realize that it
has tended greatly to stabilize the Sc
curities market and has diverted to leg
itimate business channels millions of
dollars which heretofore went to fraud
ulent or hair-brained enterprises.
Moreover, this legislation has educa-
ted the public to the value of thorough
investigation before investments are
made. More men now seek their bankers
advice before buying securities than
ever before.