Liability at Large

In Washington, before 9:00 a. m. one day last week, Henry B. Sawyer, member of the advisory board of Massachusetts Investors Trust, and Trustee Merrill Griswold entered the sweltering, ramshackle, stucco-and-tar-paper building of the Federal Trade Commission. They trudged upstairs and settled down to wait before a certain door in the second-floor hall. When the door opened they marched in and delivered three bundles of documents, each describing $5,000,000 worth of securities which their company wished to issue.

Hard on their heels came Huston Thompson, onetime member of the Federal Trade Commission, bearing three similar reports about 12,000 shares of common stock which Automobile Devices Corp. plans to issue. Before the day was over 50 corporate customers had flocked through that door, paid down nearly $8,000 in good money for the privilege of reporting their past and present income, their past and present assets and liabilities, the nature of their birthrights, the salaries of their officers and other intimate details of their private lives. Having paid and disclosed, they may issue (20 days later) between $70,000,000 and $80,000,000 of securities for which officers, directors and underwriters will be severally and jointly liable, if the voluminous corporate biographies are ever found to represent other than the whole truth. So saith the new Securities Act (TIME. June 12).

The exact rules for registration had been issued only the day before and those who filed did so merely on the general terms of the law.* Each registration, filed in triplicate with exhibits, was a fair sized volume in itself. By comparison an income tax return was a venture in first grade arithmetic. The staff of the Trade Commission's new Bureau of Securities was faced with a mountain of work. Nonetheless they set to, eagerly seeking errors in the applications, promptly found some unaccompanied by checks or by checks uncertified.

These were but preliminary discoveries. Greater ones would follow, and Col. Charles Hoyt March. Chairman of the Federal Trade Commission, prodded his workers on to greater efforts. A stalwart, six foot, 62-year-old country squire, he has a devouring hatred of slickers who sell bad securities. Born in Minnesota, high-school educated, he became a high-powered land salesman with the reputation of selling ''40 acres a day." (Once he and his brother sold 20,000 Canadian acres in a day.) Turning to law he took on Great Northern Railway as a prize client.

This brindle-haired, gruff-voiced man with a plainsman's capacity for a broad grin and an equal capacity for downright anger at what he considers foul play, managed Coolidge's Minnesota campaign in 1924. He was the sort of honest man Coolidge appreciated and five years later, in the early days of booming 1929, that President named him to the Federal Trade Commission. Although a Republican he was elected chairman last January in time to execute Democrat Roosevelt's attack on bad security selling. He helped write the Securities Act, and today stands eager to enforce it.

Many an honest seller of an honest stock worried last week and hedged himself about with every precaution. Although the registration of securities becomes compulsory only this month, securities issued since the law was passed are subject to its fraud provisions.

Many an old and conservative institution has altered its whole way of doing business in an effort to put an anchor or two to windward in a sea of liability. Many a bank has refused to sell bonds ex cept over the counter in its own office, refused to give any information about them by mail. Blyth & Co.. in selling 147,500 shares of Kingsbury Breweries Co.; Manitowoc, Wis., issued a prospectus giving the com pany's earnings for May as $107,719 but added: "It should be recognized that the present margin of profit . . . is unusually large . . . to that extent the earnings during this period should not be used as an indication of what may conservatively be expected subsequently."

The shadow of the law fell also upon financial advertising. Advertisements of an issue of 63,506 shares of International Mining Corp. common were typical: ''This advertisement appears as a matter of record only* and is under no circumstances to be construed as an offering of these shares, or as a solicitation of an offer to buy. . . . The offering is made only by the prospectus . . . copies of which may be obtained from International Mining Corp. . . . or from its agents. Lehman Brothers." When inquirers telephoned Lehman Brothers to ask for conies of the prospectus, they were told that it would be sent them by messenger, not by mail.

* Rules specified not only what facts must be given, but also that the reports must be on unglazed paper of good quality, 9 x 14 inches in dimensions, typewritten or printed, not in purple or red ink, etc., etc. *Phraseology common in the past only when shares had already been sold.

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