"Just Lead Me Along ..."

In an oak-paneled courtroom in Manhattan's Federal Court House last week, Judge Harold R. Medina peered down from his bench at an array of more than 30 lawyers. Pleasantly, he advised them: "Just lead me along like a child and explain to me how it works."

Judge Medina, who had found out at the trial of the eleven Reds how the Communist Party works, this time faced a problem just as complex. He was sitting in judgment (without a jury) on the Government's long-awaited antitrust suit against 17 of the nation's top investment banking houses* and the Investment Bankers Association. It was the biggest trial in Wall Street's history. For three years the Government had rummaged through more than 10,000 documents, now planned to use 4,000 of them to support its chief charge that the defendants had monopolized the underwriting and sale of $42.5 billion in security issues from 1935 through 1949.

"I Don't Get That." In his opening address, portly, plodding Henry V. (for Vincent) Stebbins, special assistant to the U.S. Attorney General, did his best to lead Medina through the intricacies of the Government's case. But over & over again came the patient complaints from the bench: "I don't get that," "I must be kind of stupid," "I don't understand."

The defendants, said Stebbins, had operated a monopoly on new stock and bond issues by various methods, including 1) placing representatives on boards of directors who then threw the business of the companies their way; 2) pushing through unnecessary mergers of companies in order to cash in on the distribution of new issues; 3) arbitrarily allotting the business of certain companies to certain investment bankers.

If large insurance companies or big underwriters outside the 17 threatened serious competition, said Stebbins, they were cut in on the business. But if a "little fellow" tried to join the group, he was ignored. The result, said Stebbins, was that the same investment bankers always got the business of the same corporations.

Judge Medina pounced on that. What was wrong, asked he, with the same firms getting the same business? Don't many people keep the same doctor for years because he is a good doctor?

"I Don't See How . . ." The Government further objected to the way the defendants set the price of new securities: fixing the price at which they bought the securities from the issuer, and then setting a noncompetitive price at which they sold them to other dealers and investors. As far as Stebbins could see, the investment bankers couldn't lose. Snapped Medina: "I don't see how else [they] could do it. [They] certainly would not . . . make a deal in which [they were] sure to lose money."

When Stebbins tried to make something of the fact that the defendants had fought against the SEC campaign to sell railroad and public utility securities at competitive bidding (TIME, March 25, 1940 et seq.) rather than at negotiated sale, Medina broke in sharply. What was wrong with that? he asked. What Stebbins was saying, said Medina, was that if you don't agree with the Government you ought "to keep your mouths shut ... It seems to me ... we are right on the brink of some form of totalitarianism."

What Judge Medina was plainly trying to do was not to prejudge the trial but to brush away any unimportant side issues and get down to the basic fact: Could the Government prove some sort of arrangement by which competition was unlawfully eliminated?

This week the defense will have its say in its opening statement, after which the Government will start introducing evidence. When it finishes in about two months, there will be a two-month recess for the defense to prepare its case. Generally, the defense will deny any conspiracy, with the claim that the risky nature of its business requires close cooperation on each securities issue. In all, the trial is expected to run for a year or more. But whatever the outcome, the whole matter has become somewhat academic, simply because investment bankers no longer handle the bulk of new securities. In recent years the power has been shifting more & more to insurance companies and other big investors (see below).

In Hollywood, Fla. last week, at its annual convention, the Investment Bankers Association hoped that it had scored two points for its side. I.B.A. elected Yaleman Laurence M. Marks, 58, a partner in one of Manhattan's smaller underwriting firms, Laurence M. Marks & Co., as president, carefully filled up most of the slate with bankers from other small houses not numbered among the antitrust defendants.

The bankers also reported that far from having a monopoly in the distribution of new securities, they were rapidly losing out to others. Out of the $14.8 billion in new industrial securities in the past six years, $8 billion had been bought by insurance companies and other institutional investors, instead of being sold through investment bankers. Of the $1.3 billion in new industrial stocks & bonds issued in the first nine months of this year, investment bankers handled only $502 million.

* Morgan Stanley & Co.; Eastman, Dillon & Co.; Dillon, Read & Co., Inc.; Stone & Webster Securities Corp.; Smith, Barney & Co.; Kuhn, Loeb & Co.; Union Securities Corp.; Harriman Ripley & Co., Inc.; Harris, Hall & Co. (Inc.); Drexel & Co.; White, Weld & Co.; Blyth & Co., Inc.; the First Boston Corp.; Glore, Forgan & Co.; Goldman, Sachs & Co.; Lehman Brothers; Kidder, Peabody & Co.

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