Evening star. [volume] (Washington, D.C.) 1854-1972, 1962-02-06
INVESTORS
Continued From Page AL

INVESTORS
Continued From Page Al
its plan to raise the capital to
keep going. 1t started issuing
stock in its own newly formed.
corporation and announced it's
program to organize mutual
funds among members of ma
tional organizations.
During 1859, according to a
report Of a court-appointed &C
countant, $4,000 shares of
American Diversified stock were
sold. Ultimately, this account
ant reported, $685., 900 was
raised through stock sales. Peo-
pie paid as much as $28 a share
for American Diversified stock.
The mutual fund concept
which had attracted stockhold-
ers never got off the ground.
While waiting for it to mate
rialize, the company engaged
in selling over-the-counter Sc
curities and started underwrit-
ing stock issues.
Expanded Rapidly
The company rapidly ex-
panded. From 20 employees in
1858, it had grown, to 100 by
September, 1860. Like similar
companies, it took on retired
officers from the armed forces
who could and did interest
officers and enlisted men in
the low-priced stocks being Of
fered by the company.
Among its other statesmen
were former used Car sales
men, discount house statesmen.
electricians, mems wear sales
men, floor managers and hotel
clerks. Much of their business
was done by telephone.
American Diversified spread
out. It opened a Philadelphia
office, merged with another
company and, in the fall of
1860, opened offices in Miami
and New York.
At that point, the Securities
and Exchange Commission
moved in. The SEC tries to
protect the investing public
by requiring the firms in
trusted with the public'S money
to keep proper record show
ing who owes what to whom.
! Court Issues Injunction
! In September, 1860, District
Court, at the request of the
SEC, enjoined American Diver
sified from doing business until |
its books and records complied
with SEC rules. An SEC in
vestigator reported at the time
that the books were three
months behind and that the
firm had about 5000 custo-
nners' accounts many of which
contain inaccurate securities
positions and errors which re-
fleet purchases for which the
firm has not received payment
and many unrecorded receipts
and deliveries of securities.
Summarizing American Di-
versified's rapid expansion and
its first setback, the court-ap-
pointed accountant reported:
Despite this feverish
growth, the company at moi
time earned any income i
For the most part, the COM
pany was living on its eXpecta-
tons. The company had
geared itself to a high volume
operation. When such was not
forthcoming, losses became Sc
we're. The SEC shutdown for
the fall of 1860 was a heavy
burden to overcome. Opening
two new offices during this
same period was an excessive
one."
Presses Stock Drive
After the SEC shutdown,
American Diversified brought
in a national accounting firm
to Straighten out its books.
The firm, according to a later
report, had to make more than
1000 corrections in the rec
ords.
When the records were adj
justed, the company was al
lowed to reopen for business in
January, 1861.
In less than two months, 1t
was in financial trouble be-
cause of its heavy operating
expenses and vast corps of
statesmen. The court-appointed
accountant tells how the COM
pany, faced with. a second
shutdown, zeroed in on one
stock and feverishly began pro-
noting it. The chosen stock
went from 81 a share on March
II to 217s by April 3.
American Diversified sales
men were busy. Letters from
customers who were solicited
to buy the chosen stock during
the March drive are now in
the files of the trustee in bank
ruptcy in the American Di-
versified case.
One mid-Western customer
said he was called long distance
on March 20 and advised to
buy so shares Of the chosen
stock at $13 a share. He said
he was called again a week
later by the same salesman,
who told him the stock had
been recommended by a New
York investment house which
sounded to him like Rothschild.
Urging him to buy more, the
salesman said the stock was now
HQA a.aA