Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-04-24
EXCHANGE To ACT :
ON FIXED TRUSTS
Richard Whitney Declares
Public Must Be Warned
of Possible Dangers.

PHILADELPHIA, April "a (R.-
Richard Whitney, president Of the New
York Stock Exchange, told the Phila-
delphia Chamber of Commerce today
that the exchange was considering what
action 1t should take to draw the pub
lies attention to the possible dangers
connected with fixed investment trusts"
In fact" he said, the necessity Is
so great am confident some action
will be taken in the near future"
This is the first time that an official
OF the exchange has publicly discussed
this comparatively new method Of Sc
curity distribution. which has grown
rapidly in the past year.
Mr.. Whitney's topic was Business
Honesty" In addition to critical dis
cuSSion Of fixed trust practices he an
nounced that the exchange was pre-
pared to take drastic action against
corporations which indulge in unsound
accounting practices.
Has Hesitated in Past.
The Governing Committee has hesi-
tated to deny trading privileges to q
stock, he said, because of the effect of
such action on innocent shareholders,
but, he added, I'VE shall not longer toll
crate situation in which the officers
and directors of listed company may
continue to withhold from their stock
holders necessary information.
THE Committee on Stock List has
sought, and believe has found, means
of bringing these unsound practices
forcefully to the attention Of stockhold-
ers so that they may take remedial ac-
Stockholders will be given an ade-
quate opportunity to compel the man.
agement to change the Objectionable
practice before the stock is stricken from
the list, and If proper change Is
promptly made, the security may remain
upon the exchange"
The Axed trust, Mr.. whitney recalled,
has grown rapidly simultaneously with
the unpopularlty of the general man
agement type of trust and now repre-
sents an investment of hundreds Of mil
lions Of dollars.
mo person who has carefully exam
ined and analysed fixed investment
trusts" he asserted, "can be unaware OF
the fact that many trusts have features
which do not properly protect investors
and that como are offered in a manner
which does not disclose the true amount
which tue public is paying for this type
OF investment"
Criticizes Methods.
Mr. Whitney criticized methods used
In determining the cost of trust GER
, tincateS to the investor, particularly
the loading" charge, which is the
percentage added to the cost of the
underlying stocks to cover distribution
expenses and profit to the underwater.
The public, he said, did not realize
that Gin most cases the percentage is
based on the offering price and not
on the cost of the underlying prop-
erty," and added that although the
investor thinks he is paying a definite
per cent more than the cost of the
property, "he is actually paying q
larger sum-"
Among the features of fixed trusts
| which Mr.. Whitney found Objectionable
was the supposed statement of past
performances
Most fixed trust certificates are Of
fered with a statement of what would
have happened if an investor had
bought these trust certificates 5, 10 or
Is years before 80 I doubt very
much whether any of us would have
bought In 1900 the securities which are
today considered eligible for a fixed
investment trust portfolio
Touching on the question Of sales Of
fraudulent securities, Mr.. Whitney said
there was every reason to believe that
bucket shops are springing up again
and will flourish just as soon as the
public becomes interested in buying Sc
curities."