Montana oil and mining journal. [volume] (Great Falls, Mont.) 1931-1953, 1938-04-23

] '-aiOl. Inc commission may HUN NAAAa~
to time By It's rules and regulations ana
subject to such terms and conditions as
may be prescribed therein, add any class
Of securities 70 the securities exempted
as provided in this section. II II finds
that the enforcement OF this title with
respect to such securities is not necessary
in the public interest and for the pro-
lection Of investors by reason OF the small
amount involved or the limited character
Of the public offering; but no issue OF
securities shall be exempted under this
subsection where the aggregate amount
at which such issue is offered 70 the pub
lie exceeds 100000"
The first thing to note Is that this section
I (Which gives the commission the only olscre-
ton Il has under the act to grant eXemptons)
| is not a discretion to exempt any particular
! issre from registration The commission can
| not look at an individual issue and decide
/ that registration Is for some special reason
unnecessary or Incorporates; u can ohIs
! adopt the general rules laying down the Terms
! and conditions upon which issues VIII De eA-
empt from the registration requirements HOW
ever II an issue complies with the PROVISIONS
! Of a particular rule Il Is automatically eN-
| empt from REGISTRATION Just as much as II y
we're specifically named in the act as exempt
| and without any further action by the com
mission.
The second thing to remember Is that even ven
though an issue comes within one OF the
Commissions rules and Is therefore exempt
from registration under the act, that exemP-
ton has nothing to do with sections ~ ano
D
liability for fraud in the sale OF securities.
II is lust as easy to go to Jail for selling an
exempted security by fraud as u Is the
security is registered under the act
In the third Place, It is important to APP
preciate that the exemptions provided by me-
an, rules have no relation Whatever 70 the
so-calIed 'intrastate exemption. ma. -
emption is provided by section SSal VI -
the act itself not by any rule OF the eonil i,
sior. IL exempts any security where the en.tLe
issue is sold exclusively 70 realueneS "a 80
tate where the issuer is lnco Psa. sSaS
doing business. The meanlns o. 49, 20 Be
1 ,m and the conditions which nave W
ted In operating under IT, are uISsIssS
oosS S,,th in an opinion OF the conMlssioa ~
o,srsi counsel published IN Se. 49, - Won
Release No. 1.459, and suss sei,ance on this
~, 70 issue securities IN renallS s,, tnat
plan ~ vou first study careinly .,.ss
.rtor For my present purposes -. =. te sold
~ noint out that II the entiIe ~ Conditions
~ rosidents in accordance WIN ~ NJ from
70 les.e Sfa1 On the issue is e&enps -
OF tation regardless Of its size, alu 80 the
srseiv. II an issue IS exempt ~ stze Il may
am rules. because OF us s s,s NJ residence.
- cold to anybody, regaroless Sa,,rsIv indie
pendent OF each othet; -,Ies under section
1rSere are quite a few tulee - esrurities
s,tl dealing with particular Iypes " ,r1nort-
SD! - -,ecial situations. The most my 900
any ~, vo,ir purposes, however, aLe ic1, the
9ot and 2O2. the three rules trs,,es are sold
qreat bulk Of small corpora tbree rules in
7 urOfYl
detail. .,,.+ some people believe
,,at these rules, or at least Pe si T,eaning.
elIu ,,1,iicated and obscure IN tnelt -. ,astrai
are c alvysvs seemed to me pretty lo t.s
eue wy irnnIe and except in pecuhaI s.y Cor
80, 70 Amply Nothing coulo ne sA, s,1o 200
instance. in the usual cas- ,e condition or
t,,cb exempts, with only one 80 - the
viii tt.ton anv issue Of securltieS "a ,,,,e
resIIio s. t,re-stocks. bonds and the IN Az
.here the aggregate otlerlns
puDuC ~ t5o onlv troubles with rule zgg SoI t
ALl ~ ono exception or condition. 4llA s az
49, a. determining how large 81 l 20 de-
he sold under the rule u - - ~ any offer
ouo' Id in the past year OF seeultoii,ng.
tho same issuer, or anyone else ,o,strol with
ontrolIed by or under conlnloi1 taS,o 70 be
~ tss,1er The securities winch Ia ~, inst
tie - ,o, must remember, axe nHs ,, go
.,o ecurities of the same class pIs aran,t
olii ONE, with two exceptions which ov or
importantly issued by the SAM sanSSly.
sadv in the same controA AaL s.A1, &c nh
aHyD H"I the reason for this conoeAon "
v,ons CONGRESS in authorizing the commission
to exempt small issues clearly intenaeo ina
this power should be exercised carefully, ana
should be so limited that only financing which
was really small financing could come in unoer
the umbrella For the commission TO exempt
freely all offerings Of $4,000 or less WouI9
open UP the door to far more uLIes lsSeseS
securities than could have been contemplated
by congress; for such an exemption Woulo
make It perfectly possible for company 70
raise $4,000, $500, 900, or even larger amounts
without registration by the simple process OF
altering $50 600 this week, $4,000 next week,
and so on, until the desired amount hao peeh
sold Or, II a slightly less crude device were
wanted it would be possible 70 Iorm mi t,ln
form another company, sell It's assets 70 H.
and have that company sell SSO,ooo Oh lss
stock, and SO on indefinitely. In either event
the result might be the raising OF large sums
Of money without registration and without
any protection to the public at all IL Is IN
order to prevent this kind Of evasion OF the
purposes Of the act that the rule Is 50 GRATED
that the unrestricted exemption which 1t pro-
vides is made available only Tor single
$4,000 offering each year by any company or
group Of companies or individuals.
In working under the rule, you must re-
member that what your company may now
offer is $50 900 less any amount your company
or any other company related 70 u ny prAC-
tical control, up, down. OF SIDEWAYS, mas o.
fered during the past year. The amounts which
have to be deducted include private offerings
as well as public; for example. II tine pro
moter takes 81 percent OF the stock IN ex-
change for property, the company can't tnen
20 ahead and sell the balance for $4,000; 1t
can sell only $4,000 worth less the amount
taken by the promoter. In getting the dollar
value Of the amount taken by tine promoter,
YOU have to take the actual value OF the prop
erty which he gives for his shares, II you can
establish any actual value. II you eanEas
is usually the case-you have to value the
price per share as the price at which you
offer the balance OF the shares to the public,
or else at their par value, whenever is the
higher OF course, II the shares issued to the
promoter are valued on the company's books
at par when the shares offered to the public
are sold below par, that valuation may in it.
self be misleading; but II the company ac-
tually sets up a misleading valuation 1t can't
be allowed to claim a lower value for the
purpose OF increasing the amount OF exemp-
ton available under rule 200.
BY aggregate offering price to the public"
we mean Just that-the amount the public has
TO pay, not the amount the company receives
after payment Of underwriters commissions or
other expenses.
And by control" we mean just that too.
In spite OF all the criticism I have heard OF
the vagueness OF the rule, 1t isn't very diff
cult to decide in most cases whether control
in fact exists. II a promoter forms corpor-
alton, and sells a mining property to 1t for
81 percent OF the stock, becomes the president
OF the company and generally dictates its
policies, he is in control Of that company.
II he does the same thing with another COM
pany, he is In control of that one too. And
the two corporations are under common con-
troll and between them can make only one