HIGH FINANCE: Curtains for Eaton?

The Securities and Exchange Commission came out fighting another round with Financier Cyrus Eaton. During the four-month investigation of his ole in the Kaiser-Frazer Corp.’s $10 million underwriting fiasco (TIME, May 24), Eaton had tried to slow up SEC by ridiculing, cajoling, pleading and threatening, had finally gone into a clinch with a legal gimmick involving lawyer-client privilege. Last week SEC decided to try for a knockout. It ordered a hearing next month to decide whether Eaton’s Otis & Co. should be allowed to stay in business.

The K-F stock issue had fallen through when a K-F stockholder named James Masterson filed a last-minute suit protesting it. Eaton used the suit as an occasion for calling the whole thing off. In its 5,219 pages of testimony, SEC found “information which tends, if true, to show that” Eaton was behind Masterson’s protest. To the SEC, it looked like a case of “fraud and deceit.”

That was not all. The day before the issue’s registration took effect, K-F, through Otis & Co., quietly bought enough of its own stock to stabilize the market at $13.50 a share, and thus assure a good sale of the new issue that was to be priced at $13 to the public. But Eaton, the SEC said, had tipped off dealers and customers. Result: they unloaded stock at $13.50 which they figured to buy back next day at $13 or less. That forced K-F to pay out a whopping $2.5 million for stabilization.

If the SEC at next month’s hearing finds Eaton’s Otis & Co. guilty, the firm will lose its registration as a broker, be expelled from the National Association of Securities Dealers and banned from any association with its members. That would about put Otis & Co. out of business.

Cyrus Eaton was not cowering in his corner. The charges, he insisted, “can only be characterized as false and malicious. They provide the final proof that the commission has completely become the tool of our Wall Street rivals, already facing anti-trust proceedings, whose business we have steadily been taking away by our honest, but unwelcome, free competition.”