Evening star., 1939-06-04
Congress Given S. E. c. Report
About Investment Trust Evils
Survey Cites Unguarded Skyrocketins of Financial
'Stepchild' and Undermining by
Avaricous Insiders
BY Sudduth
By Richard L. Stokes,

pleased. Later the prospect of swift and
easy profits induced many reputable
banks and brokerage houses to sponsor"
investment companies.
Big Losses Traced.
In many cases." according to the S.
Z. G. verdict, substantial losses sus-
talned by investment companies were
the result OF transactions which the
sponsors, managers, officers directors and
other controlling interests effected for
their own account with the investment
companies which they dominated
During the period after the stock
market collapse in 1929, many of these
dominant persons, who were in financial
straits, Immediately turned for assist
ance to the large liquid resources of
their investment companies These in
slders often sold unmarketable securities
or other properties of doubtful value to
their investment companies, or caused
these companies to take over dubious and
llllquld investments in which they were
interested; compelled these organizations
to assume large and onerous commit.
ments on which they were obligated,
such as participations in underwritings,
trading accounts and loans; required
these companies to relieve them of exist
ing liabilities and obligations to their in
vestment companies; caused these or
| ganizations to finance their clients and
companies in which they were interested,
and induced the making of direct loans
to them, often without any collateral or
upon inadequate security.
These various transactions were
| permeated with conflicting interests and
many were characterized by the absence
of arm s-length dealing and by oppor-
tunities for overreaching."
The most towering figure described in
| the report is that of Harrison Williams,
| known popularly as the husband of "the
best-dressed woman in the world" When
| the story begins, in 1922, Williams Is
| found in control of a S6000OOO utility,
the Central States Electric Corp. At in.
| tervals of only few months there oc-
| Cured the formation of four investment
companies each larger than the preced-
ing one. BY the end of 1929 williams
was in substantial control of the North
American Co. public utility holding
company system with securities worth at
that time on the market almost ST l,OOO,-
100000.
Bargains Reaped by Atlas.
Some of the largest activities in this
field took place after 1929, when the
landscape was heaped with wreckage and
f1ourishing of the operators was Floyd B.
| Odlum. His Atlas Corp, which began
with capital of $40 900, swept up securi-
| ties at bargain prices with such effect
| that by 1886 it had taken over 18 invest
ment companies with aggregate assets of
s129 100000
Armed with $4,000 of borrowed
money. Ernest B. Warriner according to
| the S. E. c., within the year 1885 acquired
successive control of four investment
corporations with aggregate assets Of
S32,O0O,000. Two brothers named Hem
derson, radio statesmen in Boston, began
with 100000 of capital, and within three
years built up pyramided investment
company system controlling seven in
| veStment companies with combined as
sets of $25,0OO 0OO." BY using assets of
one investment company to acquire sue
cessive larger ones, another group in five
months gained control of four invest
ment companies with assets of S12 500 900
and this without expenditure of any
| personal funds. With no personal invest
ment whatever, another group is de-
scribed as anneXing within three months
| investment concerns with total assets of
| $2300,000.
The most spectacular figure depicted
| is that of Wallace Groves, a Baltimore
bond salesman, who descended on New
York in 1881 with a small sum of bor-
rowed money and a year later withdrew
with personal profit of S10000O0 One
of his creations was the Equity Corp,
which, under the subsequent guidance Of
David M. Milton, son-in-law of John
D. Rockefeller, lowered into an invest
ment company system having working
control of 81 corporations with resources
of $205 ,OOO,o ,o0O
The present installment constitutes
Chapter I and a portion of Chapter II
of Part Three of the S. E. C.'s over
all report to Congress on its study Of
investment trusts. Parts One and Two
have already been submitted, and other
sections are to follow, with recommended
tions as to legislation needed for rem
edying and forestalling abuses.