The Rock Island Argus and daily union. (Rock Island, Ill.) 1920-1923, 1922-04-18
Frederick Haskin's Letter
Of
Victiu,izing the American Investor

Washington, D. c., April IT,
| The United States is the only great
:, nation which maintains no regula-
ton governing the issuance of what
are known as blue sky securities.
/ Blue sky securities are stocks or
bonds or other negotiable evidences
of indebtedness which are based
! on no real tangible value. The
term blue sky" is an old one Its
origin is this: The seller of blue
sky stock gives to his customer a
holding in a nearly, or entirely.
| worthless or unattainable value.
The buyer becomes a bona f1de
owner of a 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 If he
paid money for patch of blue sky.
No one would dispute him his own
ership, but his property would be
entirely valueless to him as a tang
ible asset.
The blue sky salesman and pro-
moter has become inmortaliZed in
American life through the charac-
ter of fiction known as Get Rich
Quick Wallingford That charac-
ter represents the typical blue sky
stock salesman. There are many
in real life. A favorite scheme is
to organize and incorporate a de-
velopment company. The corpora
ton will claim to have a land con-
cession for instance in the South
Sea Isles. Glowing prospectuses
will be prepared claiming that mil
lions can be made by growing CO.
coanuts on the land. Gullible per
sons will believe the tale and. hav-
ing visions of sudden, fabulous
wealth, will invest hard earned
savings in the stock. Or a company
may be incorporated to exploit a
patent or a secret process which
may not exist at all and if it does,
has no commercial value commen-
surate with the amount of stock
issued against it. Oil is a favor
lite field. Leases will be acquired
and stock sold on the chance of
striking OIL It is a common say
ing among investors and brokers
that more money goes into the
ground than comes out of it, This
means that more people pour mon
ey into purely speculative oil com
panies 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 is
Suance of stocks. Under their pro-
visions promoters desiring to sell
securities must have their pro-
jects examined by state commits
sions. They may not sell stock IN
less the commission of the state in
which the product is launched
eertifies 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. Statesmen can sell
in other states quite freely the
states having no regulatiVe juris-
dietion beyond their own borders
In recent years various branches
of the government repeatedly have
recommended to congress the en-
actment of federal blue sky Iegis-
lation which would cover the en-
tire country fortifying and sup
plenenting the state laws. Bills
have been introduced but to date no
action has been taken and the Unit
ed States remains practically m
unrestricted hunting ground for
the blue sky Wallingford
During the war under the broad
powers of the government the
capital issues committee was form
ed to restrain the issue of blue sky
stocks. This was necessary in Or
der that the. investment funds of
the nation be conserved to pay war
costs. The committee existed only
from May IL, to Dec. 81, 1915, and
in that short time handled applica-
tons to issue securities amounting