The New York herald., 1922-02-15
Continued from First Page.

not been discovered, so far as avail
able records show. Therefore if the
broker" who has invited you to place
your account with him appears to be
conducting himself along extravagant
lines good long think before action
is decidedly in order.
Thus ii Is not hard to see that a
good deal of money, supposedly pro-
vided by legitimate profits, is needed
to run the modern bucket shop.
Now, let us have a look at what
happens to supposedly legitimate prof
it's in the bucket shop transaction.
The ordinary commission received
by broker for the purchase or sale
of stock is SIS on each 100 shares.
Let us suppose now that you buy 100
shares of a recognized stock through
Bucket & Bucket, sending along your
margin payment and the SIS commits
sion What happens then?
The law requires that Bucket &
Bucket actually purchase the stock. 1t
is impossible for the firm to preserve
even a semblance of lawful conduct
without making a purchase of the
stock. Bucket & Bucket send over to
a broker, an exchange member with
whom the firm has a connection, and
order him to buy 100 shares of Legiti-
mate. In order to have that order ex
ecuted Bucket & Bucket are obliged to
send along the s15 commission which
you sent to them. Bucket & Bucket
by that means obtain an actual execu-
ton of your order on the floor of the
exchange and send to you the con-
firmation of the execution, but it has
cost them the SIS commission you paid.
Thus 1t is qdite apparent that our
bucket shop gets no profit from that
source. The first thing it has done is
to give that legitimate profit to an
other concern.
Another S15 Spent in Sale.
You have your confirmation of the
purchase and Bucket & Bucket are
holding your 100 shares, but without
having made any profit in the trans
action. Does Bucket & Bucket pro-
ceed to make a profit in some other
way?
On the contrary, Bucket & Bucket
proceed to spend another SIS commits
sion which you did not supply. The
next step, having obtained the evil
dence of the purchase of your stock,
is to send your 100 shares of legitimate
right back to the exchange broker Cor
another one) and sell it. You are not
made aware of that transaction. for
you must be led to believe that the
stock still is being held by Bucket Il
Bucket for you. But that transaction
compels Bucket & Bucket to pay out
another SIS commission.
So we see that instead Of making
the SIS commission which you have
paid, Bucket & Bucket not only have
given that to a third party. but spent
an additional SIS commission which
you did not provide.
1t would take a pretty keen busi-
ness man to meet monthly expense
bill of $4,000 Mt that sort of trading.
No Security for Loan.
Let us see what happens in the mat
ter of interest charges.
1t is quite within the realm of pos
sibility for a broker to make a pretty
prosperous business through interest
charges in margin transactions, espe-
cially IL interest rates are up. The
bucket shop does not miss any chance
to charge it's customers heavily in in
terest. A charge of 10 and IL per
cent. is not unusual In fact letters
to Daniel w. Blumenthal. attorney for
the Dier creditors reclamation COM
mittee, indicates a IL per cent. charge
In cases.
But what must be borne in mind
is that Bucket & Bucket have sold
your stock. Therefore, they have no
you for carrying on your margin
transaction. 1t follows quite logically
that Bucket & Bucket can neither bor
row for you nor lend to you.
Thus it comes about that the bills
for interest which Bucket & Bucket
sends you are not bills for interest at
all. They are just plain taking money
under false pretenses. for Bucket &
Bucket have made no loan on which
to charge you interest.
The bucket shop can sometimes go
surprising distance toward making
expenses by such interest charges, for
not infrequently the prevailing inter
est rate is boosted materially in the
charge made by the bucket shop as its
own 'remuneration' for supposedly
having obtained the money for you
from another lender.
It may be that Bucket & Bucket are
lucky enough to sell your 100 shares
OF Legitimate at slight profit (be as
sured. you will never know it), though
the firm may have to take a slight
loss in the sale. But unless some
money is made in that transaction the
first profit" that Bucket & Bucket
make out of your account is the ''in-
terest charge" on loan never made.
Carrying charges of various sorts
are made to produce what revenue they
can, but they are rather too nominal
to figure in our calculations. 1t is suf-
ficient to consider that such charges
represent just one more item for
which you do not get service rendered.
More Margin Demanded.
But Bucket e. Bucket are not going
to let you get away on interest charges
alone. The next thing that comes
along is a notice that Legitimate has
taken a tumble in the quotations and
additional margin is necessary at once
IL you are not to be sold out. Being a
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