Evening star., 1934-02-18
NEED FOR STOCK
MEASURE CITED
Senate Probers Say Coup
in Commercial Alcohol Would
Have Been Impossible.
BY the Associated Press.

BY the Associated Press.
The financial coup scored by off,
GERS and directors of American Com
mercial Alcohol, allegedly at the ex-
pense of their stockholders, would
have been impossible, Senate investi-
gators said yesterday, il the pending
bill to place the Stock Exchange un-
der strict Federal regulation had been
in effect.
They pointed out half dozen ma
nipulative practices would be pro-
hibited by the measure and that under
1t the company and its stockholders
could recover the profit that accrued
to the corporations executives.
Th4 Senate Banking Committee TO-
morrow will resume its Investigation
OF the spectacular rise and collapse
OF American Commercial last Spring
and early Summer, when it SCARED
from Sl8 to $50 and then plunged TO
$40. Three days we're devoted to the
inquiry last week.
PecOra Works for Passage.
With the exchange control bill writ
ten and before Congress, Ferdinand
Pecora, committee counsel, is frankly
pointing his efforts toward proving
the bill is necessary by bringing out
IN testimony a series of Irregularities
IN security dealings, which, he con-
tends, the Stock Exchange itself is
unable or unwilling to control.
The story of American Commercial
ALCOHOL, as thus far revealed in testi-
mony by Russell Brown. chairman NJ
us board of directors, involved such
practlceS as pool operations, options.
dealings through dummies and dummy
corporations and creation of a false
appearance of activity in the market
Tor shares of the corporation.
The company found it needed
S4oO'0OO. Brown gave an option to
Ihomas Bragg, a market operator. for
10000 shares of American CONNER
claI at Sl8, a total of $3.50 600 Two
associates of Brown, whom Pecors
characterized as dummies Brown
agreeing, gave their notes for $4,000
and S270,000 in exchange for stock in
two subsidiary corporations. which
Pecora also characterized as dummies
New Shares Issued.
American Commercial issued Is OO1
new shares of stock and exchanged
them for the stock in the subsidiaries
held by Browns dummies" bragg
exercised his option and Browns as
soclates satisfied it with the Is OO0
shares which they received in ex-
change for their stock in the SUBJ
sidiaries. For the 5000 shares Bragg
paid them S450,000, with which theV
paid of their notes to the subsidiary
corporations. Then American Com
mercial borrowed the s450. 900.
Meanwhile, the market price of the
stock had gone from $40 to S33 and
the stock which Bragg bought for
S45O,O00 was worth sS25,000. Mean
while. also, Bragg had been operating
pool in the stock in which Brown
ana other company officers partici-
pated.
Pecora brought out that the COM
pany charter requires that new issues
o. stock be offered to existing share
holders at par. $40. unless issued for
the acquisition of property. and con-
tended that. the creation OF subsidiary
corporations was intended to cover
this phase of the charter and enable
the officers Of the company to raise
needed new capital without offering
new capital stock and take the profit
on the new issue themselves instead
OF letting it go to the shareholders.
Termed Cheap ChiseIing."
A little later the corporation did is
sue 10000 shares to the stockholders
and at the same time formed with
Bragg a syndicate to underwrite the
issue at commission of 81 q share.
Pecora asserted this was unnecessary
| as the market value of the shares was
/ as well above their par value. The
/ attorney termed the whole transaction
a cheap and contemplate form Of
chiseling." With the pending bill in
operation he said the practices in
volved would have been illegal and
punishable by 10 years Imprisonment
and s25, 900 fine
The essential devices. he said. were
the sales on option and the pool oper-
ations, which would be outlawed by
the bill
In addition, he contended that the
entire train of circumstances would
have been brought to light when the
corporation sought to list the new is
sues, as the bill would require that a
balance sheet of the subsidiary corpo-
! ration be furnished the Federal Trade
Commission. These would have
shown such items as $270,000 in notes
receivable and s3S0,Ooo in good will
listed as assets.
The Listing Committee of the New
York Stock Exchange approved inclu-
sion of the new issues, but its chair
man. Frank Altschul, testified that II
the committee had had all the facts,
its approval would not have been
given He said he first learned of the
circumstances through listening tn
Browns testimony.
BRAGG IN HONOLULU.