Atlanta tri-weekly journal. [volume] (Atlanta, Ga.) 1920-19??, 1922-04-25

WASHINGTON, d. c., April 19.-The
Nv United States is the only great nation
w which maintains no regulation gov
erning the issuance of what are known as
blue sky securities. Blue sky securities are
stocks or bonds or other negotiable evil
dences of indebtedness which are based on
no real tangible value The term blue sky
is an old one. It's origin is this: the seller OF
blue sky stock gives to his customer hold
ing in nearly or entirely worthless or unat-
tainable value. The buyer becomes a bona
fide owner of share in the enterprise on
which the security is based, but that basis
has no tangible value. Therefore he is doing
practically the same thing he would do II he
paid money for patch of blue sky. No one
could dispute his ownership, but his prop
erty would be entirely valueless to him as a
tangible asset.
The blue sky salesman and promoter has
become immortalized in American life
through the character of fiction known as
Get-Rich-Quick Wallingford. That character
represents the typical blue sky stock sales
man. There are many in real life A favorite
scheme is to organize and incorporate de-
velopment company. The corporation will
claim to have land concession, for instance,
in the South Sea Isles. Glowing prospectuses
will be prepared claiming that millions can
be made by growing cocoanuts on the land.
Gullible persons will believe the tale and,
having visions Of sudden, fabulous wealth,
will invest hard-earned savings in the stock.
Or a company may be incorporated to ex-
plot a patent or a secret process which may
not exist at all and if it does, has no COM
mercial value commensurate with the amount
of stock issued against it. Oil is favorite
field Leases will be acquired and stock sold
on the chance of striking oil. 1t is common
saying among investors and brokers that
more money goes into the ground than comes
out of it. This means that more 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 issuance of stocks. Under
their provisions, promoters desiring to sell
securities must have their projects examined
by state commissions. They may not sell
stock unless the commission of the state in
which the product is launched cert1f1es that
actual value stands back of the stock. The
weakness of this regulation is that it re-
strains fraudulent activities only within the
home state of the blue sky enterprise. Sales
men can sell in other states quite freely, the
states having no regulative jurisdiction be-
yond their own borders.
In recent years various branches Of the
Government repeatedly have recommended to
Congress the enactment of Federal blue sky
legislation which would cover the entire
country, fortifying and supplementing the
state laws. Bills have been introduced, but
to date no action has been taken and the
United States remains practically an unre-
stricted hunting ground for the blue sky
Wallingford
During the war under the broad powers
of the Government, the Capital Issues Com
mttee was formed to restrain the issue Of
blue sky stocks. This was necessary in order
that the investment funds of the nation be
conserved to pay war costs. The committee
existed only from May Ii to- December 81,
1913 and in that short time handled appli-
cations to issue securities amounting to 49,
777,313,OO0. The amount disapproved as
representing fraud or as being unnecessary
was $917133, 900. Though the committee
had no means of enforcing its decisions, and
doubtless much blue sky stock was put on
the market without application to the COM
mttee, it is eloquent of the extent Of blue
sky issues in the United States that practi-
cally one quarter of the applications were
turned down by the Capital Issues Commit
tee.
The committee estimated that the Amer
lean public is gulled to the extent of $780,
100000 annually by worthless stock issues.
Investments Complete Loss
This sum-" the committee said, presents
sheer waste and net loss to the people OF
the nation, not only of dollars, but of morale,
confidence and the incentive to save. The
nations loss cannot be measured alone in
money values, but in terms of those things
which make for good citizenship.
The Postofice Department and the De-
partment of Justice prosecute sWindles OF
this nature under laws now effective, but
neither can function until the fraud has
been committed and the damage done The
Federal Trade Commission lately has under