The New York herald., 1922-05-31
CONSOLIDATED LOCKS
BARN AFTER FRAUDS
Investigating Machinery
Goes to Work About Time
of Bankruptcy.
NEW SYSTEM EVOLVED
All Brokers to Be Required
to Tell of Their Affairs
Each Quarter.
FIRMS CHANGE RAPIDLY
Smaller Members None Too
Careful About Keeping Ac-
counts Straight.
FIRMS CHANGE RAPIDLY

articles on hOaC more than $1,000, 600
apparently has been lost by investors
through the failure of ttoenty-Seuen
Consolidated Stock Exchange houses.
Charges of bucketing have been so
openly and generally made against
firms that have been members of the
Consolidated Stock Exchange and have
failed. that it might almost be sup
posed that the Consolidated had no
rules or bylaws against such be-
havior and freely permitted tie prac.
tices which led in the long run, to the
wiping out of existence of a substan-
tial portion Of it's membership. Yet
the contrary is the truth.
There are all sorts Of rules against
all sorts Of bucketing and provisions
for the punishment OF firms for viola
tions. Yet it has happened that in
practically every instance TIE enforce
,ment Of the Consolidateds rule has
come either just before OF just after
the firm has gone into bankruptcy so
that the effect of the rules and regu-
lations has been identical with that of
locking the stable door after the horse
has been stolen.
To make the situation understandable
It should be borne in mind that bucket
shops reap their profits in falling mar
ket. The general public buys. generally
speaking, for a rise in the market When
stocks are dropping the unethical broker
has his opportunity to bucket. When
they turn upward and customers begin
demanding profits the broker who has
against his own customers, is lost. He
cannot make good.
Failures ON Bull Movement.
Thus it is that the discovery OF heavy
bucketing by brokers and the conse-
quent run of failures invariably follows
decided upward turn in the market.
H. is noteworthy that the Consolidated
did not oust the twenty odd firms for
bucketing before this turn In the mar
ket came. despite its bylaws. Pre-
sumbaly its own members were clevc-
enough to deceive it while violating AMI
evading the rules.
In its bylaws, section of Article III,
the Consolidated asserts that broker
who Is employed to buy or sell and who
fails TO buy or sell or who shall cross
his orders" shall be deemed guilty OF
an act detrimental to the interest and
welfare Of the IConsolidated] exchange
or Of obvious fraud or false pretense"
and the board of governors may, after
Investigation. suspend him."
In the next section members are for
bldden to allow their names to he used
in making cross trades and If found
guilty of this the member may be svs-
pended or expelled
The ConsoIidated's Rule.
The next section. section 5. which il
the one that has been most mentioned IN
relation TO the recent failures, reads:
ANY member of this exchange who
shall be employed to purchase or sell
any security or commodity traded in Oh
this exchange who shall buy or sell Gas
the case may be) such security or COM
modify for his own account, thereby
nullifying the effect of his clients order.
and under cover of the two opposite
executions taking the transaction To
his own account. shall be deemed guilty
OF acts detrimental to the interest and
welfare of the tConsolidafedl exchange.
or of obvious fraud or false pretense.
and the board of governors, after invest
eating the facts of the case, may in
it's discretion suspend such member for
such time as it may think proper or
NAV inilct the penalty proviied for in
scction1. Article MIL, OF the constitu.
ton (expulsion).
This is as good a definition of what
has been termed 1921 fashion bucket
ing" as can be found. 1t describes cx
actly what the bankrupt Consolidated
firms are charged with having done for
many months. They were not merely
doing 1. for a little while before they
failed. The records show that some. IL
rot all. of them had been doing it for a
year or more, hence the marked dis
crcpancy between assets and liabilities.
.Investiga ting Constantly"
That the Consolidated officials should
have known this will probably not be
denied by any one. In this connection
the following question was put 10 w. S.
SiIkworth, president OF the exchange:
"It being rule that cross sales shall
not be made, what investigation is made
to see IL the rule is obeyed?"
The answer returned was:
sThe WAYS and means committee is
constantly investigating the members
books"
To the additional question. what
steps does the Consolidated take to de-
tcrmine whether its members are doing
business leTitimately?" the reply was,
same answer'---that IS that the ways
and means committee was constantly at
work.
q The next question read:
Were these steps taken In tho cases
OF firms that have failed since Decem-
Der / ?"
Partially"
"If such investigation was made did
II show the condition disclosed by the
failuresT
I'm some instances but not in ALL"
" system Admittedly Inadequate.
II would seem, therefore. from the
euswcrs given 70 those questions th1s the
means taken by the Consolidated here