Evening star. [volume] (Washington, D.C.) 1854-1972, 1962-02-06

sure exactly what he bought. |
He knows he bought SO shares
Of this stock on January III
and sold Is shares on March
10. Then, he said, he was
notified the next day that he
had sold another Is shares but |
his salesman told him to ignore
that notice because it was a
mistake and he still had Isl
shares. On March 81, he was
notified that he had sold his
remaining Is shares but in
April, he was advised that he
had bought so shares, which
was news to me-"
Couldn't Pay for Shares
The furry of activity re-
Elected in these letters and
dozens like them climaxed
when Am erica n Diversified
couldn't pay for the shares it
had ordered from other brokers
to fill its customer orders. It |
tried to cancel the orders but |
most of the brokers refused to
allow cancellation and Ameri-
can Diversified was stuck. Gus
toners clamored for payment
on the stock they had sold or |
stock certificates for the shares
they had bought. American
Diversified had neither enough
money nor stock to satisfy its
customers.
At that point, the company
was so far in the hole that it
had clearly violated the SEC
rules forbidding a securities
dealer from owing 20 times
more than his net capital. On
April 6, District Court judge,
at the request of the SEC,
granted a temporary restrain
ing order to halt American
Diversified from transacting
business until it could comply
with the net capital rule.
An SEC affidavit filed in
court at that time reported
that the company's deficiency
in capital amounted to $217,-
80447 and aggregate indebted
ness to all others amounted to
$1,064, 1851. Among these
others were the customers who
had been pressed to buy the
"hot" stock-which is now SELL
ing at around SO cents.
Victims Are Many
They weren't the only vic
Tins. The letters sent to the
trustee in bankruptcy reflect
the disappointment. despair
and heartache of many others
who never received the stock
they bought nor were paid for
the stock they sold.
One man wrote that he had
put money into American Tele-
phone and Telegraph stock over
many years while he was saving
to buy a home. When he
thought he had enough, he
turned over his 60 shares of
to American Diversified
to sell for him. He should have
gotten a check within five days.
When it didn't come in two
weeks, he asked questions and
was told the check had been
sent to the wrong address. He
couldn't understand that be-
cause the confirmation Of the
sale had reached him all right.
By the time the check finally
arrived, the company was in
receivership and payment had
been stopped.
A Florida mother said she
went into the stock market
early last year to make a quick
profit to help finance her
daughters operation. When the
time came to sell the stock and
take her profit, she still hadn't
received the stock certificates.
So she couldn't sell. She is still
waiting for $2,795 in stock GER
tificates or cash.
Certificate Status Uncertain
The stock certificates of some
OF the customers have been To-
Gated, but it hasn't been de-
cided yet whether they're
entitled to the stock they
bought or whether they must
join the other customers in
participating in whatever can
be salvaged from the collapse. !,
Some of the stock certificates
won't help the customers much
now, in any case. If they had
received the certificates when
they were supposed to they
could have sold at a profit or
at least broken even. Now, sew
eral of the issues touted by
American Diversified statesmen
have fallen more sharply than
they rose and today are only
worth a fraction of what they
cost.
Last June, after the court
appointed accountant went over
the books of American DIVERSE
fled and attempted to trace the
transactions. he reported to the
receiver:
There are many peculiar,
strange and mystifying trans
actions which have created a
substantial feeling of uncer-
tainty on our part. . We rec
ommend further investigation"
Tomorrow: How investors
elsewhere are protected.