Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-07-31

is known as blue SKY laws, WHICH
places the sale of all securities under
board or commission which must
pass on every one offered to the pub
lie. The other type of legislation,
coming under the designation of fraud
laws. places the sale of securities I'M
der board or commission which can
Immediately stop the sale of a secur-
ity upon complaint or allegations re-
garding it's merit. A bill embodying
the latter principle was introduced in
the last Congress, but got nowhere.
1t was approved by the District Bank
ers' Association and by the Washing
ton Stock Exchange. The bill would
also license those who offered secur
tiles for sale. the object being not so
much to give the license holder a
clean bill of health. but to keep tab
on him, so that by withdrawing the
license he would not be allowed to
continue the sale of securities. The
law would be enforced by the District
Commissioners. through deputies, and
was favored over the blue sky law be-
cause of the ineffectiveness of blue
sky legislation in some States where
1t has been tried; because OF the great
effort involved in fair enforcement of
the blue sky laws, and because Of the
opportunity for political or other
forms of favoritism which Is found to
exist in States which have blue sky
laws, where one body has the yes
and no" power over the sale of all Sc
curities.
The proposed District legislation
would give the Commissioners power
to stop the sale of questionable Sc
cirities after a hearing which would
put the burden of proof on the seller
Now the burden of proof rests on the
buyer. If there was sufficient cause,
the sale of security could be stop
ped Immediately by the Commission
ers until after a hearing. The law
would provide for review by the Dis
trict Supreme Court upon the petition
OF any person aggrieved by the Com
missioners' stop order.
1t is felt that such legislation is
urgently needed in the District for the
reason that there are companies op-
Grating here today which have been
barred from operating in nearby
States through the existence of fraud
or blue sky laws. Under existing con-
d1tions, all that the reputable invest
ment bankers can do is to sit around
and wall loudly. The business of sell
ing bogus securities by irresponsible
or f1y-by- might companies hurts them.
and it hurts the pocketbooks of the
purchasers more.
First Mortgage Deals.
Loud sobs and gnashing Of teeth
are now heard everywhere in Washing
ton. One system of high finance is be-
ing practiced in town which is based on
ilrst mortgages and which brings salty
tears coursing down the roughened
cheeks OF veterans who have built III
established businesses through con
sentative and fair dealing in first
mortgage securities. They gather in
angry groups and give voice to 1ugu
brlous sentiments regarding those who
have, in their minds, defiled the first
mortgage. And lowering their voices
to hoarse whispers they make dire
| predictions about what is going &c
happen some day If somebody doesn'I
do something about it. But nobod,
can do something about it," It's al
within the law.
| Here is the way this scheme /:
! worked, and with great success. The
Abe Corporation, composed of beetle
do"1ed gentlemen who can give q
shrill whistle and a flock of nickels
VIII come rolling down the street
erects a building in Washington for
for $1,000,000. 1t then offers boz DIS tc
the sum of S750,00O, secured by first
| mortgage on the building. When the
time comes for the bonds to be retired
the corporation holds directors
| meeting and it Is decided that increas
| ing values have made a new appraisa
necessary. So the property is ap
praised again, this time for $1,4O0, 900
and new issue of bonds Is offered T.
the palpitating public to the tune Of
| 81 .200,0 900, secured by a first mortgage
which exceeds the original Appraisal
of the property.
Now the thing that makes the ole
and established business men sigh o,
| roar. depending upon their tempera
ment. is the fact that in Washington
the first mortgage has been considered
ons of the safest forms of investment
The reason for this is the conservative
practice here Of limiting first mort
gage loans to so and 60 per cent OF
the real value of the property, and
rarely ever exceeding the high mark
Of sc % per cent of a few years ago
But if the ABC Corporation goes
ahead and sells first mortgage notes
or bonds secured by first mortgages
in an amount beyond what the prop
erty cost in the first place. there is
nothing to be done about tin the
Distri /. In some other States the
practice has been stopped.
Appraisal. 1t Is true, is a matter oil
opinion. But here's the trouble about
that. The ABC Corporation appraisss
it's own property and borrows money
on it from the public. some of whom
can be fooled all of the time.
But let Mr.. Brown, member of the
so-called public. appraise his house,
which cost him $4,000, for $4,000,
and then go to the bank and try to
borrow money on the strenf tn of his
appraisal.
Where would Mr.. Brown wake up
next morning? Correct. And the doc
tors at Gallinger would be very much
worried.