"While the information contained herein is not guaranteed, it has been obtained from sources which we consider reliable."
Last week the White House passed a sentence of death on this familiar immunity tag regularly appended in tiny type at the bottom of stock promotion circulars. True to his Party platform. President Roosevelt sent one more special message to Congress in which he said: "I recommend . . . legislation for Federal supervision of traffic in investment securities in interstate commerce. . . . The public in the past has sustained severe losses through practices neither ethical nor honest on the part of many persons and corporations selling securities. Of course, the Federal Government cannot and should not take any action which might be construed as approving or guaranteeing that newly issued securities are sound in the sense that their value will be maintained or that the properties which they represent will earn profit. There is, however, an obligation upon us to insist that every issue of new securities to be sold in interstate commerce shall be accompanied by full publicity and information, and that no essentially important element attending the issue shall be concealed from the buying public. This proposal adds to the ancient rule of caveat emptor ['Let the buyer beware'] the further doctrine: 'Let the seller also beware' [caveat venditor]. It puts the burden of telling the whole truth on the seller. It should give impetus to honest dealing in securities and thereby bring back public confidence."
The bill to compel "full publicity and information" on security issues was the handiwork of Democrat Huston Thompson, onetime chairman of the Federal Trade Commission. It was largely patterned after Britain's Companies Act. Five years in jail and a $5,000 fine awaited the crooked U. S. stock promoter or corporation official who today must be caught by the roundabout charge of "using the mails to defraud." The proposed legislation did not make all stock issues foolproof but it did attempt to divide investment sheep from speculative goats. When House hearings started on the measure during the week, Representatives were shocked to learn from a Department of Commerce expert that of the $50,000,000,000 worth of securities sold in the U. S. in the last 13 years, one-half were "undesirable or worthless."
The Federal Securities Act sets up the following machinery:
1) The Federal Trade Commission is made a registration office for all securities to be sold in interstate commerce. Registration fee: 1/100 of 1% of the value of the issue. Facts to be supplied the Commission under oath by all interested parties include a complete and detailed statement of the issuing company's capitalization, its stock setup, the purpose of the issue, bonuses and commissions to be retained by the underwriters and the amount to be returned to capital investment. To register a foreign government security the U. S. selling syndicate must state the object of the loan, its bonuses and commissions, the general financial condition of the borrowing country and whether or not it has ever defaulted on any of its international obligations and if so, why.
2) A Trade Commission registration can be revoked for fraud, insolvency, dishonest advertising or unsound business principles.