Montana oil and mining journal. [volume] (Great Falls, Mont.) 1931-1953, 1938-10-08
BY ROBERT H. O'BRIEN
raj Counsel, Securities & Exchange Commission,
Washington ID c.
Assistant General

It is q real pleasure for me TO be here
today and wish to extend you all the warm
sreetings Of the members Of the Securities
and Exchange commission. The commission
regards associations Of this character, as par
tieularly effective allies in achieving the OBJ
1ectiyes Of It's own administration: The
friendly relations which have existed. and
which I hope will continue to exist, between
this association and the commission have
been and are an important element in the
solution Of many difficult common problems.
Problems still remain whose ultimate solu-
ton viii be easier in an atmosphere Of
1riendliness and mutual confidence. ought
to warn you that Carl Trauerman assigned
title to my remarks while 1 out fishing
what I have to say may be inadequately
indicated by the program title As I propose
TO generalze my remarks VIII contain the
1mperfectionS and be subject to the criticism
of any generalization. I should like to talk
somewhat briefly, about some Of the factors
which to me, constitute not alone distinct
handieaps to the financing OF the small min
ing enterprise but grave menaces to the in
vesting public. Enforcement Of disclosure re-
quirements BY the commission to degree
operates TO discourage the employment Of
certain Of these practices; the commission
also may obtain an Injunction to prevent In
individual cases practices which amount to
fraud, but the establishment Of suitable
ethical standards widely subscribed to by
those seeking capital to explore and develop
mining properties may best be accomplished by
organizations OF this character.
No doubt the unhappy experience Of invest
ore with many promotional mining stocks has
EnktnQefeQ a MuTne6S which makes the IL
nancing Of a small mining company a diff
cult task. Public financing by small mining
companies viii become easier and less ex-
pensive as broad public confidence in the !
enterprises requesting financial aid is re- /
stored That seems to me to be one OF the !
real opportunities Of this association to be I
Of help to the mining industry Such an /
undertaking would have the wholehearted CO. !
operation Of the commission.
Perhaps the most serious problem confront /
ing the small mining company which needs |
distributor to sell its securities to the public I
at a reasonable commission. Disclosure OF ex- /
cessive commissions in q competitive market |
may wen mean failure in the distribution
program. It is not uncommon, however, for the
cost Of distribution to equal or exceed the
amount aecruing to the enterprise An In
weston hesitates to contribute q dollar when
less than 30 cents Will go to work for him.
While securities, speculative in character,
cannot be distributed at the same cost as
proven earners the cost Of distribution must
not be so great as to stamp the enterprise
failure from an investment standpoint short
OF extraordinary luck in discovery Of ore
bodies. Many factors have contributed to
create the situation. Perhaps the rich promises
held out to investors In soliciting funds. many
Of which turned out so disRppointingly, have
been largely responsible.
recall one case in which the Resistant
sought two million dollars from the public.
Despite the fact that only an insignificant
amount Of exploratory work had been DONE
the prospectus claimed ore reserves Of millions
u bonS OF an dNeIaEe grade OF ABOUT S&o per
ton Mining costs, despite the absence Of the
guide Of experience, were stated at IS per
ton. Profits. OF course, would be enough to
assure wealth TO each participant. After
examination we commenced to cook up some
strong medicine and were fixing to institute
stop order proceedings when we received a
wire from the Resistant saying: I'VE hereby
Withdraw our registration statement We have
struck orei"
Every mining property can't be, and needn't
1e 70 obtain public financial assistance, a
Homestake or a Butte. Yet in the past so
many properties have been held out as such
that the public Is skeptical of even the genu-
Inc, accurate description. The exaggerated {
sales talk which has been the traditional
basis for sales Of mining securities is a prfn-
cipal factor in discouraging the flow Of the ]
capital necessary to finance tbs small ven
ture Shares in mining corporations were sold
as partlcipations in bonanza. Some investors
came to look askance at anything but a
property which assured almost instantaneous {
wealth while others. and these were the c
majority became Indifferent to all mining ;
securities in the belief that any attempt at /
discrimination was hopeless. Because of the
variety OF hazards attending the conduct Of '
any mining enterprise many investment q
bankers have become unwilling to associate ?
themselves in the distribution OF any mining b
security. AS failure Of even the well designed
and conscientiously undertaken mining ven- q
ture came to be REGARDED by the public as the 4
inevitable flop of another stock jobbing \
scheme, reputable underwriters with real IA 4
cihties Tor marketing securities became more +
and more reluctant to risk loss Of confidence \
on the chance, always present in any venture, 4
Of failure. Restoration Of public confidence In /,
promotional mining securities is essential to 4
the general return Of the underwater with I
access to the capital markets and ability to :
effect distribution. The Job of bringing about :
a chance Of public attitude resulting from n
years Of improvident practices is one which q
an association such yours should tackle. ! h
Your association possesses mean Of persuasion b
and methods OF exerting influence which are Il
outside the reach Of any governmental 4
authority. e.
Frequently we az the commission have OBJ II
served the luckless search of the promoter p
Of the small mining company for distributor a
81 its securities. The established underwater a
81 financial responsibility is chary Of par b