New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1922-07-24
Brokers' Dupes
Lose Millions by
Secret Books
One Bankrupt Firm Short
More Than a Million for
Six Months III 1921. Ban
toms Inquiry Discloses
Prosecutor Uses Revelation
as Argument in Support
of Supervision by State

Examination of the books of one Of
the failed stock brokerage concerns
whose affairs have come up for Grim
nal investigation has brought to light
some figures on ss1srt sales that led
District Attorney Joab H. Banton to
iseue a statement yesterday renewing
his advocacy Of state inspection sys-
tenn for stock brokers similar to that
prevailing for banks. The figures,
iusging from the dates and the sums
involved, apply to the case of E. D.
der g. Co., the firm that failed for
mere than $4,0000o0 causing tour men
connected with it to be indicted on
charges of larceny and bucketing.
The books. according to the state
ment, show that the concern in ques-
ton was short from $1.125,oo0 to
nearly 100000 worth of stocks each
month from July to December, 1921,
inclusive. If the records had been
open to inspection, as are the books Of
hanks, it would have been discovered
in anv month from July onward that
value indicated, it's dealings would
have been suspended at once and the
subsequent losses due to short trading
alone prevented.
Saving of S1,331 900 Possible
II the books had been examined in
July, 1921, and the assets liquidated,
about 81 ,331 600 would have been saved
TO the investors in this particular IN
bo e+c4as1ept nOintS mt
No mention Is made OF the contrast
Of results obtained in this case, as
suming it to be the DER matter, and
that Of E. NJ Fuller & Co. The re-
reiver for f. D. DER & Co. obtained
possession of the firms books imme
diately after the failure, and without
reservations. Subsequently he signed
paper guaranteeing to der and his
partners full protection of their con-
stitutional rights not to permit in
formation in the books to be used as
testimony against them, This case
was fought through the courts by the
District Attorney, and the United
States Supreme Court decided that as
the books had been surrendered fully
and freely no subsequent bars could
be erected TO prevent criminal investi-
CATION on them.
In the Fuller case a stipulation was
signed before the books were sur
rendered, and although the District
Attorney has brought another suit. it
il believed the Supreme Court will
have to reverse previous constitution
atty opinions if he is to get them.
Therefore, it is doubtful, bankruptcy
lawyers say, if any existing evidence
Of the kind contained in Mr.. Banton's
statement may be obtained in the Full
Ter inquiry.
One Firm Has 1000 Books
The statement says that examination
Of the documents of brokerage houses
ba long process, as none of the rec
ords can be overlooked when searching
for evidence. One house had about
1000 books, another 500 and another
$50, Mr. Banton says, and then con-
tinues:
Some interesting facts are being
revealed in the examination OF the
books now held by the District Attor~
ney. The books CT one firm reveal the
following startling condition OF the
firms business six months before IL
failed. The months are for 1921, the
first figures are the number of shares
the firm was short. and the sum fol-
lowing is the value of the shares:
"Juiy, 62,s50, s1,572,46o; August,
72,34o, $1,7e2,s95; September. 1900,
si,S50,333; October, 97,64O, $2.475,2oe;
November, 1890, $2,471 sos; Deceln-
Der, 1850, s2,9o3,956.
aHad there been supervision of the
books of this firm of brokers by any
state department in July of last year
slight investigation would have re-
vealed that this firm was short il, its
accounts 62,S50 shares of the value OF
s1,s12,46o.
"The result would have been that if
the supervising agent had been the
State Banking Superintendent the at
fairs of the firm would have been taken
over in July, 1921, by the State Bank
ing Superintendent and liquidated for
the benefit of the customers. This
would have been a saving to the in
vesting public of the difference be-
tween the July shortage and the De-
cember shortage, or, III dollars, ap
proximately $1,331, 900.
Insolvency Revealed by Figures
"As matter of fact, the books of
this firm show that the firm was in
solvent long before July, 1921, and an
investigation by supervising agent OF
the state would have revealed that
fact long before that month and would
nave saved & much larger sum to the
investing public
"Had this brokerage concern been
private banking concern the deposits
OF its customers would have been
saved and the larcency of their
money would not have occurred. Is
there any reason why we should make
difference between bankers and
brokers' and permit brokers to run wild
with their customers money?
startling revelation il the par
ocular books above mentioned is that
snese brokers went short on United
states certificate of deposit. In the
simple language of the uneducated in
vestor in Wall Street that means that,
sltnough customers gave the order and
pald for United States certificates of
deposit, this brokerage house failed to
execute the order. The only explana-
aon Tor the brokers' conduct is that
ssaey would have figured that United
sates certificates would decline in
ttaiae and they could take chance in
uucXeting the order. Bucketing orders
rGe