Evening star., 1933-11-26
Caveat Vendor Sustained.

SdVcdI tCuuOA OuSshAASN'
A decision just rendered in New York
" a Federal judge sustains the principle
,mbodied in President Roosevelt's re-
Gently uttered axiom "caveat vendor,
which means let the seller beware"
This case was brought against a num-
3er of persons who we're indicted three
ears ago for mail fraud and conspiracy
n the vending of shares in corpora
ion, It was alleged that the defeho-
?nts we're members OF a pool holdlng a
arge amount of the stock, whose object
t was to prevent if possible persons
Who had bought the stock from selling
t in competition with the pool. BY
what has come to be known as high
pressure salesmanship this stock was
.old to customers at rates beyond the
actual value. Wash sales were engaged
n for an artificial showing of market
Irice. In the course of the sales cam
0aien a Wall Street publicity firm was
engaged to circulate market letters to
a quarter of million prospects"
The decision just rendered by Judge
Woolsey overruled demurrer based
in part upon the contention that II was
not a crime to form a pool to raise
The price of a security listed on the
S ,ock Exchange. The court held that
where two or more persons engage IN
A so-called pool operation on the Stock
Exchange it is only by scrupulously
maintained honesty of dealing that they
may escape condemnation as trauou-
-ent conspiracy" Judge Woolsey fur
her said in his opinion:
The SLIGHTEST step over the line OF
rair dealing takes them into zone OF
condemnation by the courts and the
doctrine applicable to each member OF
the pool is the new maxim "caveat
vendor 1t is obvious that When two
or more persons, by joint effort, raise
he price of stock artifcially they are
creating a kind of price mirage whlch
may lure an outsider into the market
% his damage. In my opinion, such
procedure would of itself constitute
traud on the public When such
procedure is accompanied by active
propaganda, seeking to interest the
public in the shares thus artiflcially
raised IN price, it becomes the grossest
kind of fraud.
During the great bull market that
collapsed in October. 1929, many frauds
of this kind were perpetrated. Shares
in every sort of enterprise, both SUBJ
stantial and unsubstantial, were 1oated
and marketed, pressed to high points
OF apparent value in quotations and by
the operation of pools and by shrewd
and persistent salesmanship sold to in
vestors and spectators in terms OF
hundreds of millions of dollars. Pre-
dictions, virtually promises, of imme-
diate and considerable increases in
market prices were made. The game
was worked or the basis Of the old
principle of "caveat emptor," or "let
the buyer beware" It was up to the
purchaser to satisfy himself that there
was substantial value back of the stock
and substantial prospect of higher
earnings leading to greater values. OF
course, the purchaser could not get the
truth regarding these securities. All
avenues Of information we're closed to
him by the manipulators and pool OPP
orators and salesmen and publicity
vendors.
This case in which the decision Just
rendered applies is yet to be tried, al
though the indictments were returned
more than three years ago. 1t is to be
hoped that it will now be pressed to
trial and that conviction will follow if
the facts are as charged and that the
findings will be affirmed by the highest
court to establish definitely the prin-
ciple that those who offer anything for
sale, be it physical wares or securities,
must guarantee the honest value of the
commodity and must not sell upon the
basis of Misrepresentation