Evening star., 1938-05-27
Brokerage Firm Is Accused
of Fraudulent Practices
in Stock Sales.
$16,00O,OOO INVOLVED,
STATE ATTORNEY SAYS
Nineteen individuals and Four
Corporations Are Named as
Additional Defendants.
Ev the Associated Press.

ney General John j. Bennett, jr, today
asked in State Supreme Court that al
partners of the New York Stock Ex-
change firm of Paine. Webber g. Co., a
leading commission house, with offices
in 10 cities, be forever enjoined from
engaging in the securities business in
New York State on the ground OF
alleged frauds against the public.
Mr.. Bennett. in allegations sworn
to by his assistant, John R. O'Hanlon
accused the defendant partners OF
Paine, Webber g. Co. of employing
fraudulent practices upon the State
and upon the public in connection
with substitution of "unmarketable'
securities of little or no value" for
diversified portfolios of number OF
investment trusts, in which the public
invested approximately sl6000,000.
10 Individuals Named.
Nineteen individuals and four cor
porations are named as defendants, in
addition to the Paine, Webber group
During the past six months, accord
ing to Mr.. O'Hanlon's supporting affi-
davit. operations involved ''at least six
investment trusts representing an
aggregate public investment of over
sl6,O00.000."
These trusts. he said, were First
Income Trading Corp. Continental
Securities Corp. Reynolds Investing
Co. Inc; Insuranshares Corp. of Della
ware, Bond g. Share Trading Corp. and
Burco, Inc.
Mr.. O'Hanlon's supporting affidavit
said. in part
The prictices complained of consist
of the repeated operations of one or
more groups of individuals acting
through common agents in acquiring
control of security investment trusts,
financing the purchase Of control out
of the portfolios of the trusts them
selves and then proceeding to syphon
out the trusts liquid assets by sub
stituting for marketable securities in
their portfolios various unmarketable
securities, including in particular the
stocks of certain Canadian corpora
tions organized or controlled by the
defendants themselves"
Pending hearing on Mr.. Bennett 5
application for a permanent inJunc-
ton against all of the defendants, Su-
preme Court Justice Samuel I. Rosen-
man today issued threefold restrain
ing order and set June Z as the date
for hearing to show cause why tempo
rary and permanent injunctionS should
not be issued restraining ali Defend
ants from engaging in the securities
business in New York.
In the preliminary order ono group
of defendants, including a former
Paine, Webber attorney, are immediate
" restrained from engaging in tn"
securities business in New York.
Second Group of Defendants.
A second group of defendants, in
Guiding two individuals, Americus j.
Leonard and John B. Shearer, ana
four investment trusts, Burco, Inc;
Insuranshares Corp. of Delaware, Bono
g. Share Trading Corp. and First In
come Trading Corp, are similarly
enjoined.
The Paine. Webber g. Co., partners,
and partners OF the erstwhlle New
York Stock Exchange firm of Prentice
e. Brady, now in process OF llquloa-
ton, grouped together in the tnlrd
section of the order, are Immediately
restrained from engaging in financial
transactions affecting control OF in
vestment trusts, and also from selling
securities from the portfolio Of any
investment trust without written per-
mission of all holders of interest
Paine, Webber g. Co., in a statement
issued following the court action, said:
The order obtained by the attorney
general of the State of New York re-
strains Paine. Webber & Co. from
lending or advancing sums i'll trans
actions involving portfolios of invest
ment trusts or dealing in securities OF
portfolios of investment trusts in New
York State unless the consent of in
terested parties is first obtained. There
is no order restraining Paine, Webber
& Co. from doing any other type OF
general security business In New York
or elsewhere.
Mr.. Benefits action was the out
growth of an investigation of several
months into the affairs of Continental
Securities Corp, in which Prentice &
Brady played part.
More recently, Arthur A. Ballantine
as trustee for Continental, entered suit
in United States District Court herr
to recover more than $3,300,000 from
81 defendants.
Conspiracy Is Charged.
The complaint in the action ALLEGED
q conspiracy by group of American
and Canadian financiers to Obtain
custody and control OF investmen
trusts for the purpose of footing ant
wasting the treasures and asset
thereof"
Paine, Webber g. Co. were namet
defendants in that action as havini
Iinanced transaction which the com
plant alleged they knew was fraudu
lent
The Securities and Exchange Com
mission and the Committee on Mem
ber Firms of the New York Stocl
Exchange also are investigating.
A spokesman for Mr.. Bennett salt
TODAY the Attorney Generals investi
cation is continuing, and that add
tional firms and investment trusts ma,
become involved.
Paine, Webber & Co. maintain OF
fees in New York, Albany, Boston
Chicago, Cleveland, Detroit, Duluth
Flint, Mich; Grand Rapids, Mich.
Hartford, Conn; Houghton. Mich
Milwaukee, Wis; Minneapolis, Ne'
Haven, Conn; Philadelphia. Por
Huron, Mich; St. Paul, Springfield
Ma and Worcester, Mass.