High Jinks in Artloom

One of the most heavily traded stocks on the New York Stock Exchange last week was that of a little Philadelphia rug firm, the Artloom Carpet Co. From a low of $3.75 a share earlier this year, Artloom has soared to a high of $27.63, even though Artloom's business has been as threadbare as a boardinghouse hall carpet. Last week the Securities and Exchange Commission lifted the rug to see what went on, found an old familiar face in an old familiar pattern of action.

The face belonged to 43-year-old Hyman Marcus, onetime mathematics teacher who forsook ivied halls for finance. In 1952 Marcus bought into the debt-ridden U.S. Hoffman Machinery Corp., a money-losing pressing-and-dry-cleaning-machine company. After he gained control, Marcus announced grandiose plans to buy up profitable subsidiaries to create a holding company. With plenty of favorable publicity, the company shares rose to $22 a share before the bubble burst and sent the price down to $5.75.

Next Marcus began buying Artloom stock, in June got himself elected chairman of the board. Thereafter he repeated his old spiel about big mergers to transform Artloom into a diversified manufacturing company. As before, the stock started up. When SEC looked closely last week, at least part of the reason was apparent. Not only did Marcus hold, at last report, 50,000 of Artloom's 504,982 outstanding shares, but the Manhattan brokerage firm of Van Alstyne, Noel & Co., of which Marcus is a partner, was reported to have had registered 225,000 shares for its own account and its customers'. The buying had not only sent up the price but had put Marcus and associates in a strong position to squeeze the short sellers, who, knowing the actual value of Artloom from its balance sheet, had sold 35,900 shares of stock short, now had to pay high to cover their sales. (Delighted at the high price, four veteran officials up to last report had unloaded more than 11,000 shares.)

As soon as SEC's investigation started, the Stock Exchange also moved in to brake any big drop in Artloom stock. It banned the use of "stop orders"; i.e., orders placed in advance by stockholders to sell (or buy) when the stock reaches a certain price. Such orders to sell, as they are successively executed, often send a stock plummeting. Nevertheless, Art-loom's price sagged last week to $21.

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