Evening star., 1933-05-28

DINShN u SE1hg
Chairman United States Senate Committee
on Banking and Currency.
~ URING the postwar decade
some SO billions of new Sc
curities were floated In the
- United States. Fully half, or
S25, ,0OO 900 worth of securl-
ties f1oated during this period, have
been proven worthless.
These cold figures spell tragedy In
the lives of thousands of individuals
who invested their life savings, accumu-
lated after years of effort, in these
worthless securities. The f1otation OF
such a mass of essentially fraudulent
securities was made possible because OF
the complete abandonment by many
underwriters and dealers in securities
of those standards of fair, honest and
prudent dealing that should be basic to
the announcement of investment IN
any enterprise Alluring promises OF
easy wealth were freely made with little
or no attempt to bring to the investor S
attention those facts essential TO estl-
mating the worth of any security. High
pressure salesmanship rather than care
full counsel was the rule in this most
dangerous Of enterprises.
Equally significant with those count
less individual tragedies is the Wastage
that this irresponsible selling of securi-
ties has caused to industry. Because
of the deliberate over-stimulation OF
the appetites of security buyers, un-
derwriters had to manufacture secur1-
ties to meet the demand that they them
selves had created. The result has
been that investment bankers with no
regard for the efficient functioning Of
industry forced corporations to accept
new capital for expansion purposes In
order that new securities might be
issued for public consumption. SINH
larly, real estate developments would
be undertaken, not on the basis OF car
ing for calculated needs, but merely as
an excuse for the issuance OF more Sc
curities to satisfy an artiflcially Gre
ated market. Such conduct has re-
suited both in the imposition OF unnec-
essary fixed charges upon industry
and in the creation OF false and unbal-
anced values for properties whose earn
ings cannot conceivably support them.
Whatever may be the full catalogue OF
the forces that brought to pass the
present depression, not the least among
them has been this wanton misdirection
OF the capital resources of the Nation.
Data Often Misleading.
The responsibility which fostered
this tragic distribution of securities
derived in the main from the abnormal
profits possible from the business of
selling securities. Despite the fact that
business demands the assumption of
responsibilities of a character fully
equivalent to those of trusteeship, COM
pelling full and fair disclosure not only
of the character of the security, but OF
the charges made in connection with its
distribution. the literature on the faith
of which the public was urged TO invest
its savings was too often deliberately
misleading and Elusive Even dealers,
through the eXertion of high pressure
tactics by underwriters. we're forced to
take allotments of securities of an es-
sentially unsound character and with
out opportunity to scrutiniZe their ma
ture These then would be worked of
upon the unsuspecting public. One
would have to turn back the pages OF
history to the days of the South Sea
bubble to find an equivalent fantasy Of
security selling. 1t is these facts that
have led the President, speaking for
the Nation, rightly to demand that such
situation can no longer be tolerated.
The new law which has been drafted
to remedy these conditions, and which
/ believe will serve to protect the pub
lie with the least possible interference
/ to honest business, seeks to accomplish
its purpose by providing that there
shall be full disclosure of every essen
TALLY important element attending the
issue of new security but under such
regulations that the act by Govern
ment agency of receiving this data can
not possibly be construed as approval
or guarantee of a security issue, and
demanding that the persons, whether
they be directors. experts, or under
writer's who sponsor the investment OF
other peoples money, shall be held up
to the high standards of trusteeship
/ The statute also gives the President
power to provide for organization OF
American investors in dcfaulted foreign
securities to enable them to retrieve as
much as possible OF their losses In
such investments.
Machinery Simple
The machinery for compelling pub
liclty OF information on new securities
and insisting that the disclosures shall
be both adequate and true is very
| simple. Under the Law. it is required
| that issuers of new securities shall file
with the Federal Trade Commission
| complete information as to their cor
| porate structure, finances. personal set
( up and tangible and intangible prop
| erty. In order that neither action noI
non-action by the commission may be
construed as guarantee of any par
/ ticular security. it is provided that tho
right to sell follows automatically Upon
/ the termination of the stipulated 20
day waiting period. The functions
/ of the commission with reference tc
I the initial filing 0f tho rpoiStra inn
statement are limited merely to de-
termining whether the information sc
/ filed is complete and accurate on its
face. The commission may inquire
to see whether the questions that
should have been answered have beer
answered. But with the truth or falsity
of the answers the commission has nc
initial concern. If the statement is in
complete and inaccurate on its face, the
commission may require that these gaps
shall be filed in before the statement
is to become effective.
If, in an unusual case. the commits.
sion is of the opinion that the state.
ments made are materially untrue OF
materially inadequate, it may institute
an investigation and after giving op.
| portunity for a hearing, If convinced
that the statements are untrue or in
adequate. issue a stop order that viii
prevent further distribution of the Sc
curity. The power so to suspend tn,
right of underwriters and dealers t,
continue selling the security to the pub
lie, after proof that the statement
upon the face OF which the security Il
sold are false. is essential for the pro
tsction of the investing public.
Thus the grant Of control 10 tn
receral Trade Commission conyeys Will