Evening star., 1933-12-26
The Securities Act.

The Federal securities act was writ
ten into law by Congress on the wave
of an indignant and aroused public
sentiment. 1t was intended to put
curb on outrageous and in many cases
criminal floatton of securities in this
ing more tangible than the purest
spirit of speculation. The country had
seen an orgy of stock and bond issues
that amounted to something like ten
billions Of dollars In a single year.
And when the crash came late in
1929 billions of dollars were found to
have been invested in securities that
were worth scarcely more than the
paper on which they were printed. The
wonder is that the enactment of the
Federal securities law was delayed as
long as it was.
And now there is talk of breaking
down the law. The act, it is charged
by Its opponents, Is too drastic, that it
imposes on the officials of corporations
on their boards of directors and on un-
derwriters too great liability. Many
amendments to the law as it now stands
have been advanced. Some of them
have to do with technical matters that
really do not go to the vitals Of the act,
while probably some of these amend
ments could be justified. The friends of
the act do not claim to be infallible
But the danger in attacking 1t through
amendment lies in the fact that some
serious modification may creep in that
will practically nullify the purpose of
the law and permit the issuers and
peddlers of securities that are not
sound to escape liability.
The argument is put forward that
the act is hindering the return to more
prosperous business; that it is prevent
ing flow of capital into industry.
Those who are demanding changes in
the law, lifting in considerable part the
liability imposed, say that sound con-
Germs and sound banking houses are
unwilling to go ahead with the issuance
Of securities under the terms OF the
law. Under the law, registration state
ments must be filed with the Federal
Trade Commission, setting forth in de-
tail the facts surrounding the issues of
securities and the prospectus on which
they are sold to the public. Misstate-
nlents and omissions of material facts
in the prospectus make the officials and
directors and the underwriters liable for
losses incurred by investors.
In a flye-month period, from July to
December, there have been filed and
registered with the Federal Trade Com
mission security issues totaling approx
imately $3OO,0O0,00O. These figures do
not include another s35,oo0,OoO in Sc
curities where the commission ordered
stop orders or caused the statements to
be withdrawn for revision. 1t is clear,
therefore, that the operation of the Sc
curities act has not put a stop to the
issuance OF securities. Whether the
volume has been held down because of
the liability clauses of the act is ques-
ton. Almost any one will agree that
the period covered has not been one in
which business has been inclined to put
forward new issues, particularly for
capital expenditures, except in the case
Of breweries and distilleries, where capi-
tai was needed in the light of the repeal
of the eighteenth amendment.
Business, as a rule, dislikes regulation.
1t is unfortunate that regulation has in
some instances become necessary. It
would require great temerity, however,
on the part of business to demand re-
peal of the securities act, and, of course,
the Congress would pay no attention to
such a demand If it were made now. If
1t Is really necessary to modify the act
in some particulars, and such may be
the case, the greatest care should be
taken not to break down the protection
which it seeks to give investors. The
Government does not in this law pro-
pose to guarantee the soundness of Sc
curities. It merely undertakes to make
liable the men who are responsible for
foisting upon the public securities which
are valueless and about which the fullest
information is not given to the investing
public. When the liability clauses are
modified, it Is clear that by just so much
tho ,oa1 y,o1,,a of tho 1om 10 1occoned