Montana oil and mining journal. [volume] (Great Falls, Mont.) 1931-1953, 1938-08-13

and I appreciate also the responsibility that
In the short time allotted 1t would Of course
be impossible to discuss even briefly al OF
the provisions OF the Securities Act OF 1888
which relate to the financing OF mining COM
panies. know, however, that you, or at least
many Of you, are particularly interested IN
the registration provisions Of the act and IN
the exemption rules where registration IS not
required Some perhaps many OF you have
heard these provisions, and exemption rules
discussed at other meetings and conventions,
by me or by some other representative OF
the commission, but since they directly affect
your business, and since to some the rules
are stin not altogether clear, perhaps fur
Their discussion will be OF some help.
You probably know that, primarily the
general purpose of the Securities Act Of 1888
is to secure a fun and fair disclosure to the
investing public Of the facts regarding Sc
curities offered for sale. II registration Is
effected this information becomes available
through the registration statement itself and
from a prospectus filed with the registration
statement The prospectus must be given to
the investor at or before the time the security
Is offered for sale.
TO effect the purpose Of securing fun and
fair disclosure the act requires that when
a new issue Of securities is to be offered Tor
sale to the public and unless some exemption
Is available, registration statement must De
filed with the securities and exchange COM
mission II the registration statement appears
TO comply with the provisions OF the act ana
20 days after 1t is filed IN Washington, D. O.
During those 30 days, experts connected with
the registration division of the securities and
exchange commission examine the statement
and II It Is found to be sufficient, no action
Is taken by the commission and the registra-
tion becomes effective and sales may be made
IT, on the other hand, the statement appears
TO contain untrue or incomplete information
or is inaccurate in any material way the
registrant Is notified of the deficiencies ana
then has the opportunity to file amendments.
Until necessary amendments are llleo' shieS
are not authorized.
When q statement becomes effective sales
may be made. No certificate no permit, is
required. The commission cannot ana Goes
not approve" a security. Were the commits
sion to approve a security 1t would JUSTIFY
the inference that an agency OF the govern
ment was recommending the security 70 the
prospective buyer as SAFE investment Inat
is a responsibility, you Will appreciate the
government cannot assume. SO though the
statement becomes effective, that fact does
not indicate nor can IL be represented that
the commission has either approved or dis
approved or passed upon the merits OF the
security, nor can It be regarded as assuring
the truth or accuracy OF the disclosures made
In the statement. The obligation to tell the
truth is placed upon the issuer and II the
statement contains false representations. the
tssuer and those who sign the statement be-
come subject to the civil and criminal sane
tions BY the act.
Under the civil provisions Of the act II the
information given in the registration state
ment is false or misleading, then those re-
sponsible for the false or misleading state
ments must return to the one who has been
misled, the money he has paid for the Sc
curity Those responsible for the false or mis-
leading statements would also have to defend
a fraud complaint, should one be filed.
And may / assure you that it isn't intended
nor has It been the practice Of the commission
70 place any serious obstacle In the way OF
legitimate business. Even speculative securi-
ties II legitimate, may stin be offered and
the public is as free as ever TO buy them. The |
act is meant in no way TO substitute the
Judgment Of the government for that Of the l
individual investor as to the wisdom or adj |
visibility Of making any investment He must
be told truthfuny what is back OF the invest !
ment. The decision then rests with him.
Because OF restrictions in the federal con-
Stituton, the scope OF the act is limited TO /
ths regulations Of sales OF securities made
through use Of the mails or by means or
instruments Of transportation or communi- /
cation in interstate commerce.
BY the provisions OF the act itself and by
the rules and regulations adopted under IT,
many exemptions from registration REQUIRE
xnents are made available but I shall direct |
my comments to these exemptions which, from
the experience we have had, we find are the |
ones most often claimed by issuers Of mining
securities. First is the exemption under sec
ton (a) (11), sometimes referred to as the
tntragtate exemption. From the number Of
violations which have occurred with respect
to this exemption, It is apparent that its
scope is not well understood by the issuers
who seek to avail themselves OF It, Yet II |
the provisions of the exemption are carefully |
read. there should be no difficulty in under
standing its requirements. The exemption Is |
available 70 any security which is part Of
an issue sold only to persons resident within
q single state or territory where the issuer |
of the security is a person resident and doing
business within, or, II corporation, tncor- |
state or territory. This means that If. for
example, a corporation be Incorporated in the /
state OF Montana and transacts business in /
the state OF Montana and offers its securities !
only to legal residents Of the state Of Mon |
tana, It Is not necessary TO file registration
statement The amount Of the offering makes
Rerardinr the scope Of this exemption MT. |
Allen E. Throop general counsel Of the Sc
curities and exchange commission, said in a
public release issued May 49, 1897: The legis-
iative history OF the Securities act clearly
shows That ..as4s exemption was designed to |
apply to local financing Of such nature that
1t may practically be contaminated in its en-
tirety within the single state in which the
issuer is both Incorporated and doing bus- |
meas Accordingly. this exemption is so worded |
as to be available only TO security which is
e part OF an issue sold only to persons resi- /
dent within the state in question. In any
consideration Of the exemption, It Is essential
to appreciate that its application is thus
issue OF securities is offered and sold ex-
cluslyeIy to residents Of the state IN question. |
Moreover. since the exemption Is DESIGNED
to cover only those security distributions /
which, as a whole are essentially local in
character. it is clear that the phrase sold
only to persons resident, rs used IN section
; (a) I'D, cannot refer merely 70 the initial
sales BIZ the issuing corporation to It's under |
writer's, or even the subsequent resales By
the underwriters to distributing dealers. To
give effect to the fundamental purpose Of
the exemption, 1t is necessary 70 take the
view expressed by the federal trade commits
sion during its administration OF the Sc /
curities act, that II the exemption Is 20 De
available. It Is clearly required that the Sc
curities at the time Of completion Of ultimate 4
distribution shall be found only In the hands
OF investors resident within the state ANY
such sales to presidents. however few, and
even though legal IN themselves would pre-
ciude compliance with the conditions OF Sec
ton (a) CID. and would render the e1-
emption unavailable.
THE so-calied 1ntrastate exemption is not
"a any way dependent upon absence Of use OF
the mails or instruments of transportation
OK communication in interstate commerce In
the distribution II the residence Of the pur-
rhaeegs the residence or place Of incorpor~
atian OF che. issuer, and the place In which
the issuer does business are all confined 70
4 single state, the securities are exempt from