Business & Finance: SEC Week

>If two years ago a stock had spurted $11 per share in six days, Wall Street would have glibly explained: “Pool.” When Chrysler Corp. jumped from $72 per share to $83 on the New York Stock Exchange last week that stock explanation would no longer do. Pools are now banned by law. Nevertheless, it took less than half an eye to see that Chrysler’s spectacular performance was not due solely to bright motor prospects. Rumors took wing that SEC’s eagle-eyed trading inspectors had seen all they needed to see.

To prove manipulation, even if it exists, is often a tough task. So instead of cracking down with a ponderous investigation that might have sent the whole market into a decline, the SEC office in Manhattan chose a smarter method of warning against strong-arm tactics. It issued a denial of anything more than a routine interest in the Chrysler rise. But by mentioning by name,, and only mentioning, the firm with which most Chrysler market moves are associated, SEC made its point perfectly, thus:

“Any statement that the Commission or any Commission employe had asked E. F. Hutton & Co. or any other house or individual to sell Chrysler stock or any other stock is entirely false. … No decision as to whether there will be any further investigation of trading in Chrysler stock has been made.”

>Having boldly simplified registration statements for established corporations, SEC was still bothered by the sheer bulk of offering prospectuses, which, legally, are condensed registration statements. Even with generous interpretations of the law, a 35-page circular seems to be about the minimum for a big company. Hence last spring SEC evolved rules & regulations permitting the use of “newspaper” prospectuses, which are condensed offering prospectuses.

Fearing that a quick,, highpoint summary for advertising purposes would leave them wide open to sue-or-settle shysters, bankers clung to the “tombstone” (matter-of-record) announcement. Meantime they asked SEC for better definitions. Last week for the first, time since the Securities Act became effective, an advertisement for a new issue appeared in the oldtime form of a one-page prospectus. The firm that plunged with an offering of $45,000,000 Illinois Bell Telephone bonds was Morgan Stanley & Co., underwriting offshoot of the House of Morgan. Meticulously the Morgan advertisement referred readers to the offering prospectus and the registration statement “which also include important information not outlined or indicated herein.”*

>Last week for the first time in the memory of any Washington newshawk a government official publicly acknowledged the aid of a ghost writer. Copies of a speech delivered by Commissioner George C. Mathews rolled off the SEC mimeographs headed: “Prepared by I. N. P. Stokes 2nd and Commissioner Mathews.” It was no clerical blunder. The modest Commissioner made a point of asking the publicity department to place ahead of his own the name of the young lawyer who helped him—Isaac Newton Phelps (“Ike”) Stokes 2nd, son of Canon Anson Phelps Stokes of Washington Cathedral and a member of the pious copper & railroad house of Phelps -Dodge -Stokes -James.

The Dodges go to Princeton, the Jameses to Amherst, the Stokeses to Yale, where Father Anson Phelps Stokes was University secretary for 22 years and where Son Ike was a Phi Beta Kappa in the Class of 1929. Tall, lean, cerebral, humorless, Ike Stokes later went to Harvard Law School, graduating in time for James McCauley Landis to take him to Washington as his secretary for a year. Now 29, he works in the SEC law department which let him “ghost” temporarily for Commissioner Mathews.

* Behind the mountain of facts & figures still required in registration statements is a hard-headed theory often ignored by New Deal critics. Says SEC, in effect: “We know that investors will never take the trouble to plough through a registration statement. We know that many of them will not even read an offering prospectus, though we now insist that they at least have one in their hand before buying. Probably they would not understand it if they did read it. This mass of information is assembled, not for the average investor, but for the people who help make up the investor’s mind—bankers, brokers, trustees, analysts, investment counsels, statistical services. These are the experts who guide investment opinion. If we have available all the facts they need to appraise a company’s securities, the public gets full benefit through sounder estimates of values.”