The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1933-10-14
SECURITIES ACT
AIMS TO CURB
TRUST FRAUDS
New Blue Sky Law Draft
ed to Protect Interests
of Investor.

By Scripps-Hotcord Newspaper Allionce
WASHINGTON, Oct. 16.-The new
securities act holds out hope for
curtailing methods of so-called in
vestment trust corporations which
the senate banking committee, in its
current inquiry, criticises as mimic
al to the interests of investors.
An analysis today disclosed that
the federal blue sky law, which
has been in effect for three months,
aims directly at certain practices of
Dillon, Read & Co. in form
ing and creating investment trusts
The Dillon-Read type was mode1
for a great number of such trusts
which sprang up during the boom
years and absorbed some $4,000, 000,-
600 from the public.
The weapon of the securities act
is publicity. 1t can not correct by
fiat. But under its provisions in
vestment trust corporations here
after must tell the public when is
suing new stock and embracing new
securities whether they countenance
what Senator James Couzens (Rep.,
Mich0, termed a "reprehensible"
practice in the Dillon-Read setup.
Publicity Is Chief Weapon
Whether mere publicity will be
enough remains to be seen as the
banking committee pursues it's in
vestment trust inquiry further to
determine if the criticised methods
still are being employed. Tomor-
row Ferdinand Pecora, committee
counsel, will continue his explora-
ton of the Dillon-Read trusts.
The committee may find further
specific legislation desirable. The
security act imposes publicity by the
Federal trade commission only for
stock issues subsequent to passage
of the act and does not go back to
previous issues.
During its inquiry of the past few
days the committee found of par
ticular interest these features of
the Dillon-Read investment trust
type:
| AAAOo 6AN4AAoAtAOA VA NOAeAOl
1. Acquisition of control of $780,
100000 of capital in two investment
trust companies by cash outlay of
only $5,1o0000.' This was accom-
plished by selling controlling blocks
of stock to Dillon, Read & Co. for
almost a song, while the public
investor contributed the lions share
of capital and got very little actual
stock.
2. Dumping of sour" investments
into the investment trust portfolio
at fancy profits for Dillon, Read u
Co. and Hayden Stone. Directors of
these and other companies sat on
the boards of the investment trusts
and were instrumental in throwing
their weak issues into the invest
ment trust pot.
The securities act, to reach the
first of these two practices, requires
that the prospectus for new stock
issues IF there is any variation in
the price at which any portion of
the certificates is proposed to be
ot1ered to any persons or classes OF
persons, give a list of such persons
or classes of persons, naming them,
and stating the amount of such va
ration or variations"
Bore Double Functions
To meet the second, it requires
that the prospectus say If any of
the directors Cor persons perform
ing like functions), partners, or Of
f1cers of the depositors are directors,
partner or officers of any person
issuing securities held in trust"
Names and functions must be given
This particular information might
have no significance to the ordinary
investor if it we're not for the mean
ing impaired by the senate commit
tees inquiry. The investigation
therefore, is vitality necessary to
make the new security act effective
1t occupies the role of dictionary