The Kennewick courier-reporter. [volume] (Kennewick, Wash.) 1914-1938, 1934-05-24
Government Protection
for the Investor
G. F. Cadisch
Director School of Administration,
w. s. C. Pullman

Government protection for the in
weston was started by the State Of
Kansas in 1911 with the passage of
the original Blue Sky Act. Since then
most of our states have enacted sim
liar measures. As was to be expected
the degree of regulation and control
of securities varied in each state.
Practically all of these laws Were
framed to prohibit the sale Of securi-
ties within the state until proper reg
istration was made. The amount of
information required varied widely.
The underlying principle of these laws
was to give publicity to the issues to
be offered and in some cases actually
to approve the issuance of the secur-
tiles. Despite these state efforts, it
was always recognized that no salts
factory regulation could be had until
Federal legislation was enacted.
AS q part of the New Deal legisla-
ton, Congress passed the Securities
Act of 1888. The provisions of this
law are So drastic and far-reaching
that it represents the passing of an
old order in the business of selling Sc
curities. The old slogan, "Let the
buyer BEWARE" has been amended to
read, "Let the buyer beware, but let
the seller beware ALSO"
The new Act does not suspend the
State Securities Commissions and the
existing Blue Sky laws. Rather, it
supplements existing state laws,
which have not proved sufficiently
rigid in preventing large losses to an
unsuspecting public. AS before secur-
tiles may be offered entirely within
the state, but to those sold in more
than one state, the registration state
ment must contain specific informa-
ton on thirty-two designated points.
This information is most detailed and
aims to give the prospective investor
all the information decided to deter
mine whether the security is desir-
able one to purchase.
In the event the statement filed
contains any untrue statement or
omits any material fact, any purch-
aser unaware of such situation may
take legal action for the recovery Of
loss against the officers or directors
of the company, the professional adj
visors, or the underwriters. To es-
cape liability such persons must prove
that after proper investigation they
had reasonable grounds for believing
the information was complete and ac-
curate. This liability clause has been
criticized most by the promoters.
The purpose of the Act is not 10
prevent the sale of speculative secur-
tiles, but to prevent sale of fraudulent
securities. In the past our Better Bus
mess Bureaus have been active in
preventing such sales.
The position of the Federal Trade
Commission in this important legisla-
tion has been officially stated as fol-
lows:
$The public should thoroughly UNI
derstand that the commission is not
authorized to pass in any sense upon
the value or soundness of any secur-
ity. Its sole function is to see that full
and accurate information as to the
security is made available to purch-
asers and the public and that no fraud
is practiced in connection with the
sale of the security.
Speculative securities may still be
offered and the public is as free to
buy them as ever.
"The commissions duty is to see
that the security is truthfully pre-
sented to prospective purchasers. The
fact that description of the secur-
ity is filed with the commission is in
no sense and must not be regarded as
an endorsement or approval of the Sc
curity of the concern by the commits
sion"
The latest effort to protect the in
weston is the bill to regulate the stock
exchanges. The object Of this bill is
to reduce materially excessive and
unwarranted speculation and msnipu-
lation on the stock exchanges Of the
country.
The day Of the silver-tongued stock
salesman has gone.