Evening star., 1932-02-14
Legislation Proposed by Rep
resentative Bowman Is Ap-
proved by Bankers.
MEASURE WOULD CHECK
SWINDLING IN DISTRICT
Close Scrutiny of Prospective Sales
mems Records Is Provided-Au-
thorities' Powers Broadened.
BY EDWARD c. STONE.

Details of the bill concerning super
vision and regulation of the sale OF
securities within the District of Column
bia." just introduced in Congress by
Representative Frank L. Bowman of
West Virginia, show the purpose of the
latest legislation is to protect the in
vesting public in the National Capital
against fraudulent practices in securi-
ties transactions. At the present time
the District of Columbia lacks a specific
security law, although great loss has
been suffered by victims of security
SWindleS in years past.
Representative BoWmanS bill has the
support of the Investment Bankers As
sociation of America. Study Of the pro-
visions reveals the fact that it avoids
the creation of any new bureau. In
stead. it provides that the administra-
ton of the law shall be handled by the
present superintendent of insurance in
the District
The fundamental feature of the bill
Is the idea that no person shall be per-
mitted to engage or to continue in the
securities business in the District who
has been convicted of any criminal
offenSe in connection with any transac-
ton involving securities, or who has
been found guilty by any court of a
violation of any securities law, either
in the District of Columbia or in any
State
This same principle will be applied
with equal force against any partner
ship, corporation, or other form of busi-
ness organization. where the personnel
includes, as partner, principal officer,
or Office manager. any person who has
been so convicted or found guilty.
Statesmen to Be Registered
In applying this basic principle it is
required that all securities dealers and
salesmen must register their names and
addresses with the superintendent Of
insurance and file with him state
ment. under oath, as to their record in
securities matters and also giving their
connections during the previous five
years with any securities business.
No person will be allowed to be regis
tered as a dealer or salesman so as to
entitle him to sell securities in the Dis
trlCt Of Columbia for two years after
the cate of a conviction of any criminal
ofenSe in connection with a securities
transaction. nor for two years after he
has been found guilty by a court of any
violation of a securities law, regardless
of whether such conviction or such
finding Of guilt occurred or was made
In court in the District of Columbia
OF IN a court OF any State.
The bill provides that two or more
such convictions or two or more such
security law violations shall constitute
a permanent disqualification in the Dis
trict of Columbia, and under this bill
no person who has been twice so con-
victed or guilty of a security law viola
ton will be allowed at any time to
engage or continue in the securities
business in the District of Columbia
Further Protection Planned.
AS a further protection against fraud
ulent practices, the bill gives the super
ntendent Of insurance wide powers to
investigate, either upon complaint or
upon his own initiative, whenever he
deems it necessary He may subpoena
books. records and witnesses, and he
may require the parties offering to sell
securities to furnish him with a full
showing of the facts concerning the
security and to justify their representa-
tions about the security, and to this end
he may require them to give him minute
details as to the complete set-up of
the company issuing the security, the
business of that company, its plan. its
personnel, its assets and its liabilities,
as we'll as complete information about
the contract under which and the
methods by which the securities are to
be sold. If dissatisfied, the Superintend-
ent may bring suit in the Supreme
Court of the District for an injunction.
Such action may start with tenn
pOrary injunction to stop the sale of
the securities while the question of
fraud is being decided AS a practical
matter. where the fraud is clear, sud
temporary injunction will put an end
n En nrNt will hn
by a permanent injunction where fraud
is established
If it is found that fraudulent oper-
ators have assets. such as valuable Sc
CurltieS or bank accounts, the bill pro-
NldeS that the superintendent may move
the court to appoint a receiver to take
charge Of such assets and to conserve
them for the benefit of those who have
been defrauded.
II IN any case 1t appears necessary
to protect the public pending the COM
pletlOn OF the superintendent lnvestl-
CATION and pending the time when he
will have his evidence in shape to go
to court for an injunction. the super
intendent may Immediately suspend
the registration of such parties, the ef-
feet Of which will be to Immediately
stop the further sale of the security
until the case can be determined by the
courts
The provisions of the bill are modelled,
to large degree. after laws now in
force in several of the important East
ern States, and the experience in those
States confirms the belief that law
along these lines will serve as an ef-
fective method of protection to the in
vesting public in the District of Co.
1umbia
There is no requirement in the bill
for the licensing of securities before
their sale. and under this bill there is
no official approval given to any Sc
curity allowed to be sold, nor to any
security vendor.
Licensing System Avoided
AS a practical matter, licensing Sc
curitieS can do more harm than good
and the practical disadvantages of such
licensing more than offset the theoreti-
cal advantages. During the past 20
years a number of States have been
system was designed to work for the
public good, the experience has been
that the system also works for public
i'll. because the tendency has been under
such a system for investors to regard
the official license as relieving them of
the necessity of educating themselves
before investing, and it has even pro-
duced the belief that there was moral
guarantee or responsibility of some kind
on the part of some Government or
semi-governmental agency. For that
reason this bill is designed TO avoid the
pitfalls Incidental to such a system Of
licensing securities or dealers, says Rep
VeSan}ofjUa PnUrnan