Evening star., 1933-09-05
STRIKE OF CAPITAL
laid TO NEW ACT
Securities Law Declared
Blocking Funds to Help
Country Back on Feet.
BY DAVID LAWRENCE.

Capital has gone on q strike-the
most spontaneous and unorganized re-
fusal of dollars to be put to work that
America has experienced since the de-
preston started.
The facts have not been given en-
phasis by the administration here, for
what is happening is reflection on the
powers that be. It Is q mistake that
hardly can be corrected before next
January, when Congress reconvenes. And
meantime American industry will lack
the necessary long-term capital to help
the country back on its feet.
The truth is slowly being revealed.
The new securities act became effective
SO far as new financial issues on July
~. Since that time negligible amount
OF issues has been filed before the Fed
eral Trade Commission, representing q
total value Of $3.50, 0,000. 900 but with only
two issues above $4,000, 900. More than
half Of the new securities filed are of
the investment trust type, hence COM
pliance with the law is simple A num-
Der Of issues for small enterprises have
been filed. Out of 160 issues only IS
are for more than 81 100000
But as for first-class financing Of the
type that makes the bond market move
forward and gives American industry a
chance to meet its maturities, there has
been virtually none.
Refinancing Is Imperative.
1t has been suggested that perhaps
the financial world has no new issues
to float. Yet the facts are that about
1900 100000 of securities mature In
the next IL months. So refinancing
is absolutely imperative.
Just how these maturities are to be
met has not been explained, but it Is
assumed that rather than file before
the Trade Commission, advantage will
be taken Of the exemption from the
act permitting exchange Of new for
old securities within the same company.
The Federal Trade Commission it.
self has done everything it could to re-
assure the financial world that honest
men have nothing to fear and that le-
gitimate enterprises will surely meet
the approval of the commission. Blu.
the barrier is not one of the commits
Slon'S making. 1t is the wording of
the law that stops the long-term money
market from being reopened. The
chief objections to the law as related
by the dealers in investment securities
are these:
l. The law indicates that the omis-
sion of single material fact in offer
ing an issue opens the way to prose-
cution, even though the omission might
be inadvertent or the fact may not be
material at the time the sale of the
securities was made.
Law Opens Way for Suits.
2. Irrespective of how the Federal
oh
the law gives anybody who ever buys
security the right to bring a law
suit against the seller on the broadest
possible grounds. While these suits
might be won, no director or officer Of
a corporation wants to involve himself
and his family in risks of this kind.
3. The writing of the ordinary sales
letters cannot be carried on without
danger Of prosecution or civil suits, for
unless in a series of letters every fact
about the proposed issue is repeated
again and again, there Is always a
chance Of being considered in violation
of the law. While security dealers see
the wisdom of sending a prospectus
with the first proposal to sell securities,
they do not see why it should be neces-
sary to have every single statement
made by salesman or dealer worded
In exactly Ine same way as the pros
pectus. While this is possible. the risks
OF variation by sales representatives
are thought to be too great to assume
Act Has Stopped Issues.
4. Directors object to the necessity
Of being personally responsible for every
audit made by certified public ac-
countants or research stats, especially
in connection with properties that are
r-f1ung.
With the general purpose Of the law
investment bankers and dealers are in
sympathy, but the act, they say, has
gone too far and now has practically
stopped the hotation of issues alto
gether. The Federal Trade Commission
could issue reassuring regulations, but
this would not reduce the jeopardies
written in the law itself. Until Con-
gress amends the act next Winter. the
f1otation Of large issues Of capital for
industrial use is very unlikely.
Capital has taken no concerted &C
ton. But reports reaching here are
that those who deal in long-term Sc
curities have for the most part decided
there is no use trying to sell any Of the
usual industrial issues for many months
to come.
tCopyrisht. 1933.)