In the Hole

When the San Francisco Mining Exchange was launched in the gold-rush days a century ago, the city's strait-laced bankers had a name for it and its 40 roughshod members: "Ali Baba and the 40 Thieves." The handle fit. Fortunes were made with dizzying speed, partly because the exchange's secret scouts in the mining camps telegraphed the word -in code -whenever gold or silver was struck.

But today the gold is gone. The San Francisco Exchange lists only 42 securities, many of them with names such as Smuggler Mining Co. Ltd. and Black Bear Industries. Of its 42 companies, only 20 are active, and 16 of those lost money last year. In a burst of candor, Exchange President George Flach, 56, said: "Anyone who thinks they're 'investing' their money here is nuts." Last week the Securities and Exchange Commission wholeheartedly agreed.

In an unprecedented action, the SEC demanded a hearing to determine whether the exchange's registration should be withdrawn. Among other things, the SEC charged that the exchange is improperly managed, has only two paid employees, has engaged no legal counsel for 30 years, ignored SEC regulations, rarely filled out SEC forms. Since 1934, the SEC has delisted 27 stocks from the San Francisco Mining Exchange -more than one-half of the number delisted from all the nation's 13 other registered exchanges combined.

Through a hastily hired lawyer, the exchange responded: "The principal complaint seems to be that we are small and do not have a large staff." Some charges dated back to wartime, it said, when many members were too busy working in shipyards to fill out SEC forms. In the next three months, the exchange's officers can state their case at a public hearing. If the SEC's five commissioners rule against the San Franciscans, a registered U.S. exchange will be forced to close for the first time in SEC history.

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