Evening star., 1933-05-28

mails or of instrumentalities of inter-
state or foreign transportation or COM
munication and in the District Of Co.
lumbia. 1t exempts from its applica-
ton certain types Of securities where
there is no practical need for It's appli-
cation, such as those issued by banks,
which are subject to scrutiny by Fed
eral and State bank examiners, and
those where the public benefits are too
remote
Will Limit Sales Arguments.
1t is provided that any prospectus"
used in connection with the sale of any
security. If it Is more than a mere an
nouncement of the name and price of
the issue offered and the offer of full
details upon request, must include a
substantial portion of the information
required in the registration statement.
The full revelations required in the
filed information should not be lost In
the actual selling process. and the pur-
pose of this section of the law is to
secure for potential buyers the means
of understanding the intricacies Of the
transaction into which they are invited.
This requirement will undoubtedly limit
the selling arguments hitherto en-
ployed, and that is its purpose. How
ever. 1t will only be in line with regu-
lations already adopted by reputable
stock exchanges at their own initiative,
who have recognized the danger Of alb
breviated selling literature and insisted
upon supervising the selling OF Etera-
ture distributed in connection with the
sale of certain types Of listed issues. to
make certain that such literature in
cludes the same information concern
ing the issue required in formal circu-
10 v1rith anH annrnVnd nv tne
exchange.
This law contains the requirement
that all those responsible for state
ments upon the face Of which the pub
lie is solicited to invest its money shall
be held to standards like those imposed
by law upon a fiduciary. Honesty, care:
and competence are the demands OF
trusteeship. These demands are made
bv the statute upon the directors OF an
issue, but it calls for the assumption OF
no impossible burden. Similar re-
ouirements have for years attended the
business of issuing securities In other
industrialiZed nations. They nave al
ready been voluntarily assumed IN TINS
country by honest and conservative
issuers and investment bankers.
To make the law effective. the buyer
of securities sold upon a registration
statement including an untrue report
or omission of material fact is entitled
to sue for recovery of his purchase
price or for damages not exceeding the
price. those who have participated III
distribution of the security either
knowing of such untrue statement or
omission or having failed to take Que
care to discover it. The duty OF care
to discover varies in its demands upon
participants in security distribution ano
with the degree of protection that the
public has right TO expect A nne OF
SIS 900 or five years imprisonment or
both. is provided for any person con-
victed of willfully violating any pro-
visions Of the act
Liability Explained.
1t should be emphasized that these
liabilities attach only when there has
been an untrue statement of material
fact or an omission to state material
fact in the registration statement or the
prospectus-the basic information by
which the public is solicited. All who
sell securities with such a flaw, who
cannot prove that they did not know
or who in the exercise of due care
should have known of such misstate-
ment or omission ore liable. For those
whose moral responsibility to the pubic
is particularly heavy there is corre-
spondingly heavier legal liability. This
throws upon originators of securities a
duty Of competence as well as of In
nocence which the history Of recent
spectacular failures Overwhelmingly
justifies.
The law carefully preserves the juris-
diction of State security commissions to
regulate transactions within their own
borders, but it goes further and makes
that control more effective by prevent
ing evasion of State security legislation
by the device of selling in interstate or
foreign commerce without entering the
State.
The whole effect OF this new statute
is to place the purchaser of securities
on parity with the issuer and to COM
pei all issuers of securities to abide by
those principles of fair play to which
honest and conservative investment
bankers have long adhered.
The seller must beware as we'll as
the purchaser.