The New York herald., 1922-02-23

started" said Mr.. Simmons, "the price
on the curb was 21s. In about three
weeks it had risen to 81. The par
value was 81. While the interesting
process Of selling with one Eand and
buying with the other was going on in
New York agents for the firm were
going through the country selling the
stock on the basis of the New York
quotations.
Later when this house failed. of
course. these people found themselves
with the bag to hold. How many per-
sons were fieeced in that manner
have no way of telling nor have 1 any
idea of how much money they lost.
I But there is reason to believe that
many persons did suffer considerable
financial discomfort through this deal.
Here, however, is a good illustration
of an actual case which has come to
the attention of THE NEW YORK HER
AID of how a guaranty that the stock
would reach a certain figure was used
and of how the stock later was taken
away from it's owners before TIE guar
anty became effective.
case was the promotion of big COM
pany-we1l call it an industrial which
incidentally it was not-and the COM
pany's stock was placed on sale to the
public. The company, as n matter of
fact, did not have such bad prospects
of making money, if tEe stock were
kept down to reasonable proportions.
Now, the system used in selling this
stock was for a man prominently
| identified with the company or we'll
established in a community to intro
duce in small town representative
! Of the broker selling the stock. A
branch office is opened in the. town.
The stock at that stage of the game
we will say, is selling around 40. A
campaign is started to unload the
stock on the town. There is lot of
talk about what wonders the company
is going to perform and what vast
sums it's stock will be worth in short
while. The entire community is pretty
much worked up over the matter. but
many persons are rather dubious
about it.
Offers to Cnderwrite Losses.
At this juncture the prominent per-
son who has introduced the broker to
the community expresses his faith so
strongly in the stock that he is willing
to give his written guaranty that the
stock will go to 20 by next January l.
So sure is he of such prosperity of
the stock, that he is willing to under
write the difference between that fig
ure and anything below it at which
the stock may stand on that date.
Through the mails comes a letter
from the New York office of the
broker to each of the holders of the
stock, telling of "big pool" which is
about to be formed, as a result of
which there really isn't any telling TO
what figure the stock might go. I'm
doubtedly, if the holders Of the stock
are wise. advises the letter, the thing
to do is to send their stock right in
to the broker and put it up as coll
lateral for margin and speculate on
the further marginal purchases.
Holders Rush to Post ONCE.
The holders of the stock in this
town naturally already have a sort of
Of community of interest in that they
all were interested in the stock at the
same time, through the same means,
took the same risks and will in all
probability share the same fortunes
or misfortunes thereby. The result of
that binding tie is that, backed by
the additional advice Of the gentleman
who made the guaranty. only a few
have to let it be known that they
have availed themselves of this new
opportunity to get rich until every
stockholder in town is rushing to the
post office TO mail his shares to the
New York broker. BY that means
nearly all the stock on which the
guaranty was made is corraled into
the hands of the broker.
The wash sales" gang have done a
good job, the broker now assumes the
role of bucketeer. He takes the stock
put up for collateral and goes right
out and sells 1t again on the strength
of the fictitious bull market which his
wash sales" have created.
The time is now ripe for the grand
blowup. Wash sales" cease, and the
stock begins to do a nose dive. From
the broker come frantic calls for ad-
ditional margin. Quick sellouts follow
for lack of margin, and the stock
suddenly has passed from the hands
of the owners to whom the personal
guaranty of 20 was made.
Naturally the gentleman who made
the guaranty feels badly about the
matter, but what can he do about II ?
HER $4,000 VERDICT UPSET.