Evening star., 1933-06-12
EXPERT OUTLINES
SECUR|T|ESLAW
Paul v. Keyser, D. C. Counsel
for investment Bankers,
Offers Analysis.
BY EDWARD C. STONE.

BY EDWARD C. STONE.
An analysis of the new FEDERAL Sc
curities act has been prepared by Paul
" Keyser, Washington attorney, who is
counsel for the Investment Bankers
Association of America. and now Is
being mailed to members of the asso-
citation all over the country.
The analysis covers many OF the
points explained to the washington
Bond Club at its last meeting.
It is presumed that the Federal Trade
Commission soon will issue a statement
on the new regulations. In the mean
time. many divergent views on the law
have been printed.
Mr.. Keyser's statement of section II,
which has to do with civil liabilities
arising in connection with prospectuses
and communications, which is one OF
the sections regarded as most impor-
tant, follows:
This section is one of the important
sections of the act to dealers. The sec
tion divides itself into two paragraphs.
Keyser Gives Views on Section IL.
The first pa.-graph provides that
the basis of liability shall be the sale
of a security in violation of section 5.
Section is subject to the exemptions
allowed by sections and 4, and under
section the require ment that the seller
must furnish the buyer with pros
pectus conforming with the require
ments of section 10 and with such regu-
lations in regard thereto as the Federal
Trade Commission may prescribe under
sections 7 and 10 and schedule A, ap-
plies only in respect OF security re-
quired to be registered. In those cases
where under section 5 a prospectus
must be used which meets the require
ments of section 10 and the regulations
of this commission, the dealer must
take great care to see that the pros
pectus contains the same statements
made in the registration statement
which under section 10 must be in the
prospectus. Also since section 10 makes
different requirements as to the form of
the prospectus dependent upon whether
the prospectus is used before or after
13 months after the effective date Of
the registration statement, the dealer
must also take care with reference to
this point.
THE second paragraph of section II
makes the basis of liability any untrue
statement of material fact or omis-
sion to state material fact necessary
in order to make the statements, in the
light of the circumstances under which
they were made, not misleading (the
purchaser not knowing Of such un-
truth or omission) Under this para
praph the untruth or omission COM
planned of may be made either in a
prospectus or in an oral statement, but
the sale to which such prospectus or
statement relates must have been made
in Interstate commerce or by the mails.
No Securities Are Exempt.
Under paragraph (2) Of section IL
no security is exempt. 1t covers old
securities as well as new securities. The
only exceptions the class OF securities
described in paragraph CD Of Subsec-
ton (a) of section 8, which exemption
includes, among others, United States,
State and municipal bonds.
mo person is exempt from the liability
created by paragraph (2) of section IL
except a person selling a security
exempt by section (a) (2).
I'm connection with paragraph Cd
of section IL the question may arise
whether in respect of every sale that
is subject to this paragraph the seller
must furnish the buyer with proSpec-
tls conforming with the requirements
of section 10 and the regulations OF the
Federal Trade Commission. The con-
struction which the writer puts upon
paragraph (2) of section IL Is that this
paragraph does not have this effect. In
his opinion this paragraph must be
read in the light of section 5 as well
as section 10 and that reading this
paragraph and these sections together, |
they justify the conclusion that the
use of such a prospectus is mandatory
only in respect of securities which must
be registered under section and sec
tion S is subject to the exemptions al
lowed both in sections 3 and 4.
Dealers Responsibility Explained.
Under section IL further question
and difficult question may arise with
respect to what may be the dealers
responsibility in respect of statements
contained in a prospectus relating tosa
security required by section to be
registered wherein such prospectus is
based on statements in the registration
statement. Under section IL the dealer,
as distinguished from the underwater,
is not responsible for the registration
statement, but the question may occur
under section II whether that section
has the indirect effect of subjecting the
dealer to what amounts to practically
tllt SdIIle Responsibility assuming IIaC
there is an error or an omission in
the registration statement which would
be a basis of liability under section IL.
THE question is to what extent a
dealer, acting in good faith, is justified
in relying upon the registration state
ment, to support the prospectus, or
whether he is under obligation and
duty to make an independent investi-
cation to the extent that by the exer-
else of reasonable care he could have
known of any untruth or omission
complained Of.
What view of this question may
finally be adopted by the courts is un-
certain, but until judicially determined.
every dealer should recognize the risk
and consider that in relying upon re-
gistration statements to support pros
pectuses he acts at his peril.
Under section IL. unlike section II,
the liability Of the person selling ex-
tends only to the person purchasing
such security from him. Attorney
Keyser says.
Capital Bankers Watching Chicago.
It is announced that the winner of
the Public Speaking Contest held at the
annual convention of the American In
stitute of Banking at Chicago VIII
broadcast his speech over the National
Broadcasting Co.'S red network. with
WEAF as the New York key station, on
Wednesday evening, from 10:l5 to 1890,
Chicago daylight-saving time.
The Public Speaking Contest, which
is in competition for the A. P. Giannini
prize, will take place at Chicago tomor-
row and Washington bank people are
particularly interested due to the fact
that Washington Chapter has entered
E. Wallace Schreiner of the First Ma
tional Bank of Alexandria, Va.
Today's Trading on Exchange.
The weeks trading on the Wash
tngton Stock Exchange opened with
Norfolk & Washington Steamboat Co.
stock selling at IS, a lump of 10 points