Business: Sale by Subway

On display in the Coney Island yards of Brooklyn-Manhattan Transit Corp. last week was the first high-speed aluminum train to be tried on New York City’s vast subway system. At leather seats, indirect lighting, pastel color schemes, chimes for sliding doors, subway sardines gaped in astonishment. But a modern subway train was not the only BMT exhibit of the week. Chairman Gerhard Melvin Dahl was busy giving the first successful demonstration of how to circumvent the Securities Act of 1933. BMT’s toothy, argumentative chairman was not bothered by any looming bond maturities. That problem had been met two years ago by selling notes to BMT’s bankers. What he wanted to do now was to pay off his company’s notes. So last week he announced a plan to sell $8,000,000 of bonds, without registering them with the Federal Trade Commission. Wall Street blinked in astonishment at the scheme’s simplicity. Since BMT operates wholly within New York City its bonds were exempt from registration unless they were to be sold in interstate commerce. Normally an $8,000,000 bond issue is distributed throughout the land, but Chairman Dahl and his bankers—Hayden, Stone; Kuhn, Loeb; Lehman Brothers; J. & W. Seiigman—decided to sell BMT bonds only to bona fide residents of New York State. Though use of the mails is permitted in connection with the intrastate sale of unregistered securities. Chairman Dahl and friends took no chances. No advertisements were to be published, no prospectuses prepared. Each & every offer was to be by word of mouth. For any major corporation the preparation of a registration statement is a staggering task but for a New York City traction company, whose legal and financial involvements confuse even the best trained analysts, the job is well-nigh impossible. The bankers swore the deal was no evasion of the Securities Act, that they intended to consult the Federal Trade Commission. Nevertheless, many a bond dealer last week shied away from retailing an unregistered issue. What assured the success of BMT’s oral banking was the fact that the issue would be largely absorbed by a few big institutions within the State.