securities and exchange commission - sec.gov · fiscal year ended june 30, 1954 united states...

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Twentieth J\nnual Report; ~'o-;.(L- I i _.~__ '{

of the

c ~(: 5, Securities and Exchange

Commission

Fiscal Year Ended June 30, 1954

UNITED STATES GOVERNMENT PRINTING OFFICE, WASHINGTON : 1955

For .ale by the Superintendent of Documents, U. S. Government Printing OfficeWauhington 25, D. C. Price 45 centa (paper cover)

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II

SECURITIES AND EXCHANGE COMMISSION

Headquarters Office

425Second Street NW.

Washington 25, D. C.

COMMISSIONERS

RALPH H. DEMMLER, ChairmanPAUL R. ROWEN

CLARENCE H. ADAMS

J. SINCLAIR ARMSTRONG

A. JACKSON GOODWIN, JR.

ORVAL L. DuBOIS, Secretary

LETTER OF TRANSRlITTAL

SZCURITIE~AND EXCHANGECOMMISSION, Washington,D. C., Januuv 51, 1955.

SIR: I have the honor t,o transmit to you the Tnrentiet,h Annual Report of the Securities and Exchange Commission, coyering the fiscal year July 1, 1953 to June 30, 1954, in accordance with the provisions of section 23 (b) of the Securities Exchange Act of 1934, approved June 6, 1934; section 23 of the Public Utility Holding Company Act of 1935, approved August 26, 1935; sect,ion 46 .(a) of the Investment Company Act of 1940, approved August 22! 1940; section 216 of the Investment Advisers Act of 1940, approved August 22, 1940; and section 3 of the act of June 29, 1949, amending the Bretton Woods Agreements Act.

~ ' e s ~ e c t f u l l ~ , RALPHH. DEMNLER,

Chairman. THE PRESIDENTOF THE SENATE, THE SPEAKER OF THE HOUSEOF REPRESENTATIVES,

Uitshington, D. C. III

TABLE OF CONTENTSPage

Fore\¥ord_________________________________________________________ XI

Commissioners and staff officers_____________________________________ XIIRegional and branch offices_________________________________________ XIIBiographies of commissioners , __ ___________________________ XIII

PART I

AMENDMENT OF SECURITIES LAWS AND REVISION OF RULESAND FORMS

Amendment of securities laws___________________________________ 1Dissemination of information during waiting period.,., __________ 1Use of prospectuses after effective date of registration., _________ 2Simplification of information requirements for prospectuses

used more than 13 months________________________________ 2Extension of credit by dealers in new issues____________________ 2When-issued trading___ _______ _________________________ 2The offering of institutional type of debt securities., ___________ 3Simplified registration procedures for investment compauics; ___ 3

Revision of rules and forrns.,., ________________________ _______ 3Form 8-5_________________________________________________ 3Form 8-9_________________________________________________ 4Rule 173_ _ __ ______ ________ __ _ 4Rule 415_ 4Regulation D _____________________________________________ 4When-issued trading _ ______________________________________ 5Class registration of securities, ______________________________ 5Forms 8-K and ID-IL_____________________________________ 6Rule X-12A-l_ ___ __ __ ________________________ 7Rescission of Form 9-K and of Rules X-13A-13 and X-15D-13__ 7Proxy rules , , _____________________________________________ 7Rule X-16B-6_ SForm N-SB-l_____ ___ _ ______ SForms N-30A-l and N-30B-L__ ___________________________ S

PART II

ADMINISTRATION OF THE SECURITIES ACT OF 1933Description of the registration process____ ________________________ 9

Registration statement and prospectus; ______________________ 9Examination procedure_____ ________________________________ 10Time required to complete registration_______________________ 10

Volume of securities registered __________________________________ 11Registration statements flled.L; ___ ___________ __ 13Disclosure obtained by the registration process_ ___________________ 13Exemption from registration under the act________________________ 16Litigation under the Securities AcL_______ _____ ____ ________ 19

Injunctive actions :____ ____ __ ________ 19Participation as amicus curiae__ _______ _________ ___ 21

v

VI TABLE OF CONTENTS

PART III

AD:\lINISTRATION OF THE SECURITIES EXCHANGE ACT OF1934

Regulation of exchanges and exchange trading; ___________________ 22Registration and exemption of exchanges , ____________________ 22Disciplinary action by exchanges ____________________________ 24

Registration of securities on exchanges , , __ _______________________ 25Suspension of trading , __ ___ ____ _____ 26

Market value and volume of securities traded on exchanges; ________ 27Market value of stocks on exchanges_________________________ 27Comparative volumes on exchanges__________________________ 28Block distributions reported by stock exchanges_______________ 29

Unlisted trading privileges on exchanges__________________________ 3(}Number of issues admitted to unlisted trading , _ _ __ _______ 31Volume of unlisted trading in stocks on exchanges; ____________ 32Application for unlisted trading privileges- 32Changes in securities admitted to unlisted trading privileges- ___ 33

Delisting of securities from exchanges , __ _____________ 33Securities delisted by application- ___________________________ 33Securities delisted by notificatdon., ___________________________ 33

Manipulation and stabilization, ___ _________________________ 33Manipulation- _____ ____ ____ ____ ___________________________ 33Stabilization , _____________________________________________ 34

Security ownership by corporation insidera.; , _____________________ 35Recovery of insiders' profits by company _____________________ 36

Regulation of proxies- ___ __ ___ _ 37Scopc of proxy regulation___________________________________ 37Statistics relating to proxy staternents..., ______________________ 37

Regulation of brokers and dealers in over-the-counter markets_______ 38Registration _ _ ____________________________________________ 38Simplification of forms and rules applicable to the registration of

broke~dealers___________________________________________ 38Administrative proceedings , ________________________________ 39Broker-dealer Inspections., __________________________________ 42Investigationsc., , ______________________________ _________ 43Financial reports _ _________________________________________ 44

Supervision of activities of National Association of Securities Dealers,Inc________________________________________________________ 44

~1embership-------------------------------------------___ 44Disciplinary actions_________ ____ ______ _____ 44Commission review of N ASD disciplinary actions.i.. . ___________ 45Commission review of action on membership., , ________________ 45Commission action on N ASD rules ___ _______________________ 46Changes in Commission rules applicable to N ASD _____________ 47

Litigation under the Securities Exchange Aet , ____________________ 47

PART IV

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING CO:.\I-PANY ACT OF 1935

Composition of registered holding company systems_______ _________ 5(}Summary of changes, ______________________________________ 5(}

TABLE OF CONTENTS VII

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING COM-PANY ACT OF 1935-Continued Page

Significant developments in and litigation involving holding companysystems____________________________________________________ 52

Revision of rules, forms and procedures__________________________ 70Pending proposals for revision_______________________________ 72Revisions of forrns..; _______ ________________________________ 75Processing of fee applications for services rendered in section 11

reorganization proceedinga.; , ___ __ ________ ___ _ 76Cooperation with State and local regulatory authorities.L; , _________ 77Financing of registered public utility holding company systems______ 78Financing of electric generating companies supplying facilities of the

Atomic Energy Commission___ ________ ____ __ 86

PART V

PARTICIPATION OF THE COMMISSION IN CORPORATE RE-ORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCYACT, AS AMENDED

Summary of activltiea.c.,., _ __________ _____ 88Problems in the administration of the estate _ _________________ 89Activities with respect to allowances., ___ _____________________ 89Consummation of plan _____________________________________ 91

PART VI

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939__ 92

PART VII

ADMINISTRATION OF THE INVESTMENT COMPANY ACT OF1940

Companies registered under the Act______________________________ 93Types of new investment companies registered; ___________________ 94Registration of Canadian investment companies., , _________________ 95Current information., _ __ _ _________________ 96Applications filed, _____________________________________________ 96

PART VIII

ADMINISTRATION OF THE INVESTMENT ADVISERS ACT OF1940___________________________________________________________ 98

Litigation under the Investment Advisers Act of 1940______________ 99

PART IX

RELATED ACTIVITIES OF THE COMMISSIONCourt proceedings , _ _ __________________ 100

Civil proceedings__________________________________________ 100Criminal prooeedings., ______________________________________ 100

Complaints and investigations___________________________________ 104Section of securities violationa, __________________________________ 105Activities of the Commission in accounting and auditing____________ 106Opinions of the Commission., __________ _______ _______________ 108International financial and economic matters______________________ 109Confidential treatment of applications, reports, and documents______ 110Statistics and special studies; __ ___________ 111

VIII TABLE OF CONTENTS

RELATED ACTIVITIES OF THE COMMISSION-Continued PageCapital markets, ______________________________________________ 111

AIl new securities offerings__________________________________ 111Issues registered under Securities Act of 1933_________________ 112Corporate securities outstanding_____________________________ 113Investment companies; __ _ _ ______ __ _ 113

Stock markets_________________________________________________ 113Saving study ______ _ ___________________________________ 114Financial position of corporationa.c , , ____________________________ 114

Working capital , ___ ____________________________________ 114Balance sheet and income statements; _ ______________________ 115

Plant and equipment expenditures of U. S. business_______________ 115Personnel_____________________________________________________ 115Fiscal affairs, ____________________________ __________________ 116

Appropriation and expenditures , ____________________________ 116Fees and revenues; __ _________ _________________ 116

Publications , __ _ __ ______________________________ 117Information available for public inspection_____ ___________________ 117Public hearings________________________________________________ 118

PART X

APPENDIX-STATISTICAL TABLES

Table 1. 20 year record of registration fully effective under the SecuritiesAct of 1933___ ____ ____ _________ ___________ 120

Table 2. Registrations fully effective under the Securities Act of 1933,fiscal year 1954_ __ _ _____________________________________ 121

Part 1. Distribution by months_________________________________ 121Part 2. Purpose of registration and type of security________________ 121Part 3. Industry of registrants__________________________________ 122Part 4. Use of proceeds________________________________________ 123

Table 3. New securities offered for cash sale in the United States_______ 124Part 1. Type of offering________________________________________ 124Part 2. Type of security________________________________________ 125Part 3. Type of issuec_________________________________________ 126Part 4. Private placement of corporate securities__________________ 127

Table 4. Proposed use of net proceeds from the sale of new corporate secu-rities offered for eash , _ __ ________________________________ 128

Part 1. All corporate___________________________________________ 128Part 2. Manufacturing_____ _________ ____________________ _ 128Part 3. Mining_______ ____ __ _ __ __________ _ _ 129Part 4. Electric, gas and wateL_________________________________ 129Part 5. Railroad; _ _ _ __ _ ____________________ _____ __ 130Part 6. Other transportation ___________________________________ 130Part 7. Communication; __ __________ ________ ___ _________ _ 131Part 8. Financial and real estate.. _ _ __________ _________ __ 131Part 9. Commercial and other., _________________________________ 132

Table 5. Summary of corporate sec unties publicly offered and privatelyplaced from 1934 through June 1954_______________________ 133

Table 6. Brokers and dealers registered under the Securities Exchange Actof 1934--effective registrations as of June 30, 1954, classified bytype of organization and by location of principal office_______ 134

TABLE OF CONTENTS IX

Table 7. Market value and volume of sales effected on securities exchangesin the 12-month period ending December 31, 1953 and the 6-month period ending June 30, 1954________________________ 135

Table 8. Issues and issuers on exchanges as of June 30, 1954____________ 136Part 1. Number of issues on each exchange_______________________ 136Part 2. Unduplicated number of issues on all exchanges____________ 136Part 3. Unduplicated number of issuers haying securities traded on all

exchanges___________________________________________ 136Table 9. Companies in active registered public utility holding company

systems as of June 30,1954______________________________ 137Table 10. Reorganization proceedings in which the Commission partici-

pated during the fiscal year 1954_________________________ 138Table 11. Summary of cases instatuted in the courts by the Cornrnission., , 139Table 12. Summary of cases instituted against the Commission. cases in

which the Commission participated as intervenor or amicuscuriae, and reorganization cases on appeal under chapter X inwhich the Commission participated__ _ _ __ _ 139

Table 13. Injunctive proceedings brought by the Commission which werepending during the fiscal year 1954_______________________ 140

Table 14. Indictments returned for violat.lon of acts administered by theCommission and related Federal statutes which were pendingduring the fiscal year 1954_______________________________ 142

Table 15. Petitions for review of orders of the Commission which werepending in courts of appeals during the fiscal year 1954_____ 147

Table 16. Criminal contempt proceedmgs pending during the fiscal year1954__________________________________________________ 148

Table 17. Cases III which the Commission participated as intervenor or asamicus curiae pendmg during the fiscal year 1954___________ 149

Table 18. Proceedings by the Commission to enforce subpenas pendingduring the fiscal year 1954____ ______________________ __ 150

Table 19. Miscellaneous actions involving the Commission or its em-ployees pending during the fiscal year 1954________________ 150

Table 20. Actions to enforce voluntary plans under section 11 (e) of thePublic Utility Holding Company Act pending during the fiscalyear 1954_____________________________________________ 151

Table 21. Actions under section 11 (d) of the Public Utility Holding Com-pany Act pending during the fiscal year 1954______________ 152

Table 22. Reorganization cases under chapter X of the Bankruptcy Actpending during the fiscal year 1954 in which the Commissionparticipated when appeals were taken from district courtorders________________________________________________ 153

Table 23. A 21-year summary of criminal cases developed by the Com-mission , _ _ _ ___________________________________________ 154

Table 24. Summary of criminal cases developed by the Commission whichwere still pending on June 30. 1954_______________________ 155

Table 25. A 21-year summary classifying all defendants in criminal casesdeveloped by the Commission____________________________ 155

Table 26. A 21-year summary of all injunction cases instituted by the Com-mission.. _ _ _ _________________ _____ ______________ ____ 156

FOREWORD

This is the 20th Annual Report of the Securities and ExchangeCommission to the Congress for the fiscal year July 1, 1953to June 30,1954. The report describes the Commission's activities during theyear in discharging its duties under the various statutes which itadministers, including the supervision of registration of securities forsale to the public, the surveillance of the securities markets, theregulation of the activities of brokers and dealers, the regulation ofregistered public utility holding company systems and investmentcompanies and litigation in the courts.

The year was marked by the enactment by the Congress, byunanimous vote, of the first substantial amendment to the lawsregulating the offering and sale of securities in many years. Thisamendment was drafted following extensive conferences with repre-sentatives of the securities industry and members of Congressionalcommittees. The most important change accomplished was therevision of the definitions of "offering" and "selling" to provide forincreased dissemination of information to prospective investors aboutsecurities being offered, thereby furthering the concept of full dis-closure. This legislation is described in detail in this report.

During the year the Commission engaged in an intensive programof revising and simplifying its rules, forms and procedures for thepurpose of removing unnecessary complexities and duplications. TheCommission also reviewed and revised its administrative organizationand processes with a view to providing more aggressive and effectiveenforcement of the securities laws for the greater protection of in-vestors. One aspect of this program is an endeavor to obtain moreeffective cooperation between the Commission and state securitiesadministrators. The details of the Commission's activities in theserespects are also included in this report.

Xl

COMMISSIONERS AND STAFF OFFICERS

(As of November 15, 1954)Commissioners Terju~~lre3

RALPH H. DEMMLER, of Pennsylvania, Chairman__________________ 1957PAUL R. ROWEN, of Massachusetts______________________________ 1955CLARENCE H. ADAMS,of Connecticut____________________________ 1956J. SINCLAIR ARMSTRONG,of Illinois______________________________ 1958A. JACKSON GOODWIN, JR., of Alabama___________________________ 1959

Secretary: ORVAL L. DuBOISStaff Officers

JOHN V. BOWSER, Executive Director; Director, Division of AdministrativeManagement.

EDWARDT. TAIT, Executive Assistant to the Chairman.BYRON D. WOODSIDE, Director, Division of Corporation Finance.ROBERT A. McDoWELL, Director, Division of Corporate Regulation.

RAY GARRETT, JR., Associate Director.HAROLD C. PATTERSON,Director, Division of Trading and Exchanges.'WILLIAMH. TIMBERS, General Counsel.

MYRON S. ISAACS, Associate General Counsel.EARLE C. KING, Chief Accountant.LEONARD HELFENSTEIN, Director, Office of Opinion Writing.BALDWIN B. BANE, Executive Adviser to the Commission.

REGIONAL AND BRANCH OFFICESRegional Administrators

Region I.-Francis J. Purcell, 42 Broadway, New York 4, New YorkRegion 2.-Philip E. Kendrick, Federal Building, U. S. Post Office and Court-

house, Post Office Square, Boston 9, Mass.Region 3.-William Green, Peachtree Seventh BUilding (Room 350), Atlanta

5, GeorgiaRegion 4.-Thomas B. Hart, Bankers Building (Room 630), 105 West

Adams Street, Chicago 3, Ill.Region 5.-0ran H. Allred, United States Courthouse (Room 301) Tenth

and Lamar Streets, Fort Worth 2, TexasRegion 6.-William L. Cohn, New Customhouse (Room 162), Nineteenth

and Stout Streets, Denver 2, Colo.Region 7.-Andrew D. Orrick, Appraisers Building (Room 334), 630 Sansome

Street, San Francisco 11, Calif.Region 8.-James E. Newton, 905 Second Avenue Building (Room 304),

Seattle 4, Wash.Region 9.-William S. Marshall, 131 Indiana Avenue (Room 115), Wash-

ington, D. C.Branch Offices

Standard Building (Room 1628), 1370 Ontario Street, Cleveland, OhioFederal Building (Room 1074), Detroit 26, Mich.United States Post Office and Courthouse (Room 1737) 312 North Spring

Street, Los Angeles 12, Calif.PIOneer Building (Room 400) Fourth and Roberts Streets, St. Paull, Minn.

XU

COl\fl\HSSIONERSRalph H. Demmler, Chairman

Chairman Demmler was born in Pittsburgh, Pa. on August 22, 1904and has been a lifelong resident of that city. Chairman Demmlerreceived an A. B. degree from Allegheny College in 1925 and an LL. B.degree from the Law School of the University of Pittsburgh in 1928.He was admitted to the Pennsylvania bar in 1928 and thereafterspecialized in corporate and banking law. Between 1928 and 1930 hewas associated with C. E. Theobald, Esq. and between 1930 and 1938with the firm of Watson & Freeman. He was a partner in the firm ofHirsch, Shumaker, Demmler & Bash from 1938 to 1941. Between1941 and 1943 he served as trust officer of Commonwealth TrustCompany of Pittsburgh. Between 1943 and 1953 he was associatedwith the firm of Reed, Smith, Shaw & McClay, and was a partner inthat firm from 1948 until June 15, 1953. On June 17, 1953, he tookoffice as a m-mbor of the Securities and Exchange Commission for aterm of office expiring June 5, 1957 and was designated Chairman ofthe Commission by the President.

Paul R. Rowen

Commissioner Rowen was born in Brighton, Mass., October 7, 1899.He received an A. B. degree from Georgetown University in 1921,attended Harvard Law School from 1921 to 1924, received an LL. B.degree from Boston University Law School in 1925 and was admittedto the Bar of Massachusetts in 1926. From 1926 to 1932 Mr. Rowenwas engaged in the general practice of law in Boston. From 1932 to1936 he served successively as assistant district attorney in Boston,as assistant counsel, regional litigation attorney, N. R. A., in Wash-ington, D. C., and as legal consultant, Federal Coordinator of Trans-portation, in Washington, D. C. In 1936 Mr. Rowen became a mem-ber of the staff of the Commission at its office in Washington, D. C.,and served as an attorney on the staff until 1939. Thereafter, Mr.Rowen was appointed regional administrator of the Commission'sBoston regional office and served in that capacity for over 6 years.On May 28, 1948, he took office as a member of the Securities andExchange Commission and on June 14, 1950, was reappointed for aterm of office ending June 5, 1955.

Clarence H. Adams

Commissioner Adams was born in Wells, Maine, on November 1,1905, and resides in Bloomfield, Conn. In 1925he moved to Connecti-cut where he entered the investment banking business. In 1931 he

326394-55-2 XIII

XIV COMMISSIONERS

organized the securities division of the Banking Department andbecame the first Securities Administrator of Connecticut, responsiblefor the administration of the Connecticut Securities Act, which posi-tion he held until 1950. In 1945he served as President of the NationalAssociation of State Securities Administrators. His business back-ground includes membership in an investment banking firm in Hart-ford, and he headed a lending institution in that city. On May 8, 1952,be wok office as a member of the Securities and Exchange Commis-sion for a term of office expiring June 5, 1956.

J. Sinclair Armstrong

Commissioner Armstrong was born in New York City on October 15,1915. He received an A. B. degree from Harvard College in 1938 andan LL. B. degree from Harvard Law School in 1941. After passing theNew York State Bar Examination in 1941 he moved to Chicago,Illinois, in July 1941 was admitted to practice in Illinois in that year,and from 1941 to 1945 was associated with the law firm of Isham,Lincoln & Beale. From 1945 to 1946 he was on active duty in theU. S. Naval Reserve, assigned to the Officeof the General Counsel forthe Department of the Navy in Washington. In 1946 he returned toIsham, Lincoln & Beale, becoming a partner of the firm in 1950. OnJuly 16, 1953, he took office as a member of the Securities and Ex-change Commission for a term of office expiring June 5, 1958. Healso serves as the Commission's delegate as a member of the Presi-dent's Conference on Administrative Procedure.

A. Jackson Goodwin, Jr.

Commissioner Goodwin was born in Anniston, Ala., on October 18,1911 and resides in that city. He received an A. B. degree fromPrinceton University in 1934 and an M. B. A. degree from HarvardBusiness School in 1936. Between 1936 and 1940 he was associatedwith the investment banking firm of Dillon, Read & Co. Between 1946and 1952, after 5 years military service during which, among otherduties, he served as an assistr nt and aide to Undersecretary of WarRobert P. Patterson and in the European Theater of Operations as aLieutenant Oolonel, he was associated with the Anniston NationalBank of Anniston, Ala., as vice president and director. In 1952 and1953 he was a Director of the Federal Reserve Bank of Atlanta,Birmingham Branch, and a Director of the Life Insurance Companyof Alabama. On July 16, 1953, he took office as a member of theSecurities and Exchange Commission for a term of office expiringJune 5, 1954, and was reappointed for a term expiring June 5, 1959.

PART I

AMENDMENT OF SECURITIES LAWS AND REVISION OFRULES AND FORMS

AMENDMENT OF SECURITIES LAWS

During the fiscal year Congress adopted by a unanimous vote a.statute amending the securities acts administered by the Commission,the first such amendment in many years.' It effected importantchanges in the Securities Act of 1933 and limited changes, largelytechnical, in the Securities Exchange Act of 1934, the Trust IndentureAct of 1939, and the Investment Company Act of 1940. After con-ferences during the fall of 1953 with representatives of the securitiesindustry and with the Chairmen of the Committees and subcommit-tees of the Senate and House of Representatives having jurisdiction,the Commission prepared a draft bill. The original bill contained pro-visions dealing with eight problems, seven of which were enacted asoutlined below. The eighth, a proposal to increase the maximum ex-emption from registration pursuant to section 3(b) of the SecuritiesAct from $300,000 to $500,000, was not adopted. The changes madeare summarized below:

1. Dissemination of information during waiting period.-TheSecurities Act of 1933 requires the registration with the Commissionof securities to be publicly offered. Prior to the amendment, the Actprohibited the offering of a security for sale as well as the actualconsummation of a sale prior to the effective date of the registrationstatement. Although it is a basic purpose of the Act that informationconcerning securities to be offered to the public shall be given wide-spread distribution during the so-called waiting period between thefiling and effective dates of the registration statement, normally aperiod of about twenty days, sellers of securities had been reluctantto give full effect to this purpose because of uncertainty whether dis-semination of information by means of the preliminary or so-called"red herring" prospectus during this period might be construed asillegal sales activity which would subject them to civil and criminalliabilities and penalties.

To eliminate this deterrent to furnishing prospective investors withinformation concerning securities to be offered, the amended act per-

Ipublic Law 677, &'!d Congress, Chapter 667, 2d SeSSIOn(68 Stat. 683), approved August 10, 1954,effective October 10, 1954.

1

2 SECURITIES AND EXCHANGE COMNI:ISSION

mits written offers during the waiting period by means of a prospectuswhich meets the requirements of the Commission's rules. It thus re-moves the difficult distinction, inherent in previous practice, that itwas lawful and desirable for an underwriter or dealer to disseminateinformation during the waiting period but illegal to offer to sell or tosolicit offers to buy. The Act as amended, however, continues tomake sales, contracts of sale, and contracts to sell unlawful before theregistration statement becomes effective.

2. Use of prospectuses after effective date of registration.-The Securities Act requires persons selling securities to deliver pro-spectuses to purchasers in the initial distribution of a security, regard-less of how long the distribution might take. Prior to its amendmentit also required the delivery of a prospectus by securities dealers intrading transactions for one year after the commencement of an offer-ing even though the initial distribution of the security had long beencompleted. This one-year period for trading transactions, as distin-guished from actual distribution, had been recognized as unrealisticallylong. Accordingly, the Act was amended to reduce the one-year pe-riod to 40 days after the effective date of the registration statementor after the commencement of the public offering, whichever date islater. The statutory provision requiring a dealer to deliver a pro-spectus so long as he is disposing of an unsold allotment or otherwiseparticipating in an initial distribution remains unchanged. For cer-tain types of investment companies which continuously offer secu-rities, the amended Act requires the use of prospectuses in all trans-actions, so long as securities of the same class are currently beingoffered or sold by the issuer or by or through an underwriter.

3. Simplification of information requirements for prospectusesused more than 13 months.-Before amendment, the Securities Actrequired that prospectuses which are used more than 13 months afterthe effective date of a registration statement should contain informa-tion as of a date within one year of its use. This produced a hardshipin many cases. As amended, the Act provides that where a pro-spectus is used more than 9 months after the effective date the infor-mation contained therein shall be as of a date within 16 months ofsuch use.

4. Extension of credit by dealers in new issues.-The SecuritiesExchange Act of 1934prohibited the extension of credit by dealers topurchasers of a new issue for six months after the offering period. Itwas felt that the six-month period was unnecessarily long and that a3D-day period, as provided by the amended Act, would be sufficientto insure against the misuse of credit in distributions.

5. "When-issued" trading.-The amendment removes an am-biguity in the Securities Exchange Act by eliminating the last sentence

TWENTIETH ANNUAL REPORT 3

of section 12 (d) of that Act which placed seemingly unnecessary andirrelevant limitations on the authority of the Commission to adoptrules for the effective regulation of "when-issued" trading.

6. The offering of institutional type of debt securities.-TheTrust Indenture Act of 1939 required inclusion of a summary ofcertain specified indenture provisions in a prospectus used in the saleof debt securities. This created problems in the formulation ofsimpler forms of prospectuses for this type of security. The amend-ment makes clear that the summary need be included in the pro-spectus only to the extent required by the rules and regulations of theCommission. It should therefore facilitate the simplication of pro-spectuses. As discussed below the Commission has adopted a simpleand short form for the registration of institutional type debt securities.

7. Simplified registration procedures for investment companies.-In order to have a supply of registered shares on hand at all times,investment companies which engage in continuous offerings of theirshares have heretofore been required to file new registration state-ments under the Securities Act periodically. The statutory amend-ment will permit such a company to increase the number of itsregistered shares by amendment of its registration statement in lieuof filing a new registration statement.

REVISION OF RULES AND FORMS

The Commission constantly reviews its rules and forms with a viewto making such revisions and clarifications as are necessary andappropriate to keep pace with changing practices and new develop-ments. During the past fiscal year the Commission gave particularattention to clarifying and simplifying many of the existing rules andforms. A primary objective is to eliminate duplication and toencourage concisenesswithout the sacrifice of any safeguards necessaryfor the protection of investors.

Considerable progress was made by the Commission during the 1954fiscal year in carrying out this program. At the present time it isengaged in preparing further revisions, including those made necessaryby the recent amendments of the securities acts. Certain of thechanges made during the 1954 fiscal year are outlined below. Otherrevisions of rules and forms which are of primary interest to specialgroups, such as brokers and dealers and public utility holding com-panies, are described in the parts of this report dealing with theregulation of the activities of such persons and companies.

Form S-5.-Form S-5 was revised to simplify registration underthe Securities Act of 1933 and result in more intelligible prospectusesfor open-end management investment companies."

Seeurrties Act release No. 3493 (December 15, 1953).•

4 SECURITIES AND EXCHANGE COMMISSION

Form S-9.-Form S-9 has been adopted for the registration of non-convertible fixed interest debt securities of American and Canadiancompanies. It is available for use by an issuer which has been inbusiness at least 10years, has a prescribed substantial earnings history,and has filed annual and other periodic reports pursuant to section13 or 15 (d) of the Securities Exchange Act of 1934. The standardsprescribed in this new form were developed after a thorough analysisof all debt issues registered with the Commission during the years1951 to 1953, inclusive. By this process, informational requirementshave been limited essentially to five items, namely, financial state-ments of the issuer consisting principally of a balance sheet and afive-year summary of earnings and surplus; a brief statement of theprincipal business of the issuer and related matters; a description ofthe use of proceeds of the financing; a description of the securitiesbeing offered; and offering price information. The form does notrequire the detailed information prescribed by the general registra-tion forms for securities which do not meet the standards prescribedfor Form &-9. Because of the substantially shorter prospectusespermissible with this form the Commission expects to be in a positionto consider favorably requests to reduce substantially the waitingperiod between the filing date and the effective date of registrationstatements for such security issues,"

Rule 173.-Provisions of various Acts administered by the Com-mission authorize it to institute injunctive actions and create certaincivil liabilities. Since rights arising because of violations of theseActs may prove unenforceable against persons who are not residentsof the United States where it is impossible to obtain service upon them,Rule 173 was adopted under the Securities Act to implement theprovisions of that Act, and to afford to the Commission and othersthe same opportunity to enforce rights or obligations against suchpersons as is available in the case of residents. Similar rules alsohave been adopted under other acts, and appropriate forms to beused for filing irrevocable consents to service have been adopted.'

Rule 415.-Rule 415, adopted under the Securities Act, simplifiesthe registration procedure for securities offered at competitive bidding.It provides that, under certain conditions, a post-effective amend-

ment reflecting the results of the bidding becomes effective withoutfurther order upon the filing thereof with the Commission or a regionalor branch office. Appropriate amendments to and rescission of suchother rules as were necessary in this connection were also adopted."

Regulation D.-Regulation D provides a conditional exemptionfrom registration under the Securities Act for offerings not exceeding

3 Securities Act release No. 3509 (Jw} 21, 1954)., Securities Act release No. 3506 (June 30,1954)

Securities Act release No. 3494 (January 13, 1954).•

•


$300,000 in anyone year made by Canadian issuers or by domesticissuers having their principal business operations in Canada. Thepromulgation of this regulation followed the amendment of the ex-tradition agreements between the United States and Canada. It isa part of a comprehensive program designed to prevent fraud andremedy certain abuses in the sale of Canadian securities in this coun-try in violation of American law.

Its adoption was an experiment in international cooperation instamping out security frauds across the border. The Securities Com-mission of the Province of Ontario, after the close of the fiscal year,indicated its dissatisfaction with the operation of the Regulation andthe Commission is presently studying whether it should be modifiedor withdrawn. The Commission is also studying other aspects ofthe problem of securities sales to United States citizens from theDominion of Canada. Regulation D is merely one phase of a muchlarger over-all problem,"

"When-Issued" Trading.-Regulation X-12D-3 provided for theregistration for "when-issued" trading on national securities exchangesof unissued short-term warrants and unissued securities other thanshort-term warrants. Form I-J was required to be filed for the reg-istration of warrants and Form 2-J for other unissued securities.Regulation X-12D-3 had been obsolete for most purposes since theCommission amended rule X-12A-4 in June 1950 to provide that anunissued short-term contract as well as an issued short-term warrantcould be traded on an exchange as an exempted security and the onlycases in which Regulation X-12D-3 still served a substantial practicalpurpose arose where the securities to be traded were the subject of avoluntary subscription or exchange right granted to the holders of asecurity traded on the exchange. During the fiscal year rule X-12A-5was amended to cover these cases and generally to simplify the re-quirements. As amended, rule X-12A-5 is far less burdensome toissuers and exchanges than the provisions of Regulation X-12D-3,and nevertheless affords adequate protection to investors. Upon theadoption of the amendments to rule X-12A-5 the Commission re-scinded Regulation X-12D-3 including Forms 1-J and 2-J.

The Commission also rescinded rules X-12A-6, X-12A-7, X-12A-8,and X-12A-9 providing exemptions from registration under the Secu-rities Exchange Act. Situations to which rules X-126A-6 and ruleX-12A-8 related are covered by rule X-12A-5, as amended, and rulesX-12A-7 and X-12A-9, having been promulgated in the light ofparticular circumstances, were no longer of general usefulness."

Class registration of securities.-Under Regulation X-12D-l, reg-istration was effective under the Securities Exchange Act only as to a

e Securities Act release No. 3495 (January 13, 1954).r Securities Exchange Act release No. 4989 (January 28,1954).

6 SECURITIES AND EXCHANGE C0l\1]I,1ISSIO~

specified amount of a class of security, so that, if additional shares oramounts of the same class were to be subsequently issued, a new appli-cation on Form 8-A was required to be filed for registration of such ad-ditional amounts. During the fiscal year the regulation was amendedto provide that the original application for registration is deemedto cover the entire class of security, and the subsequent registrationof any additional unissued shares or amounts of the same class becomeseffective automatically when they are issued, without any further ap-plication, certification or order. The new procedure makes unneces-sary a large majority of the applications previously filed on Form 8-A,since most such applications have been filed to register additionalblocks of a class of security already registered. Consequently, appli-cations on Form 8-A will be filed henceforth only in the event that anew class of securities is to be registered. The Commission believesthat the time and expense to be saved by registrants, exchanges andthe Commission through the operation of this new procedure will beconsiderable.

Revisions have also been made in Form 8-A which considerablyshorten the old form, principally by deleting certain requirementsmade unnecessary in view of the new class registration technique."

Forms 8-K and lo-K.-These forms, which are used by companieshaving securities listed on stock exchanges or registered under theSecurities Act of 1933 for current reports and annual reports, respect-ively, were revised during the fiscal year. Form 8-K was revised toeliminate certain items to limit the requirements with respect to ex-hibits and to clarify those concerning financial statements. One ofthe principal changes made in the revision of Form 10-K brings itsrequirements into conformity with corresponding requirements of theCommission's proxy rules. Thus, it is provided that, if a proxy state-ment has been filed under those rules, certain information furnishedin such statement need not be repeated in answer to correspondingitems of Form lO-K, and no refiling or incorporation by reference ofthe proxy statement for this purpose is necessary. In addition,financial statements contained in such proxy statements, or in annualreports to security holders, may be incorporated by reference wheresuch financial statements substantially meet the requirements of Form10-K.

Clarification also has been made of the provision which permitscompanies filing reports with the Federal Power Commission tosubstitute their reports to that Commission and thereby satisfy inlarge part the requirements of this Commission's Form 10-K. Anew general instruction has been added to Form lo-K to make theform available for use by railroads, motor carriers and communicationcompanies which formerly used Forms 12-K and 12A-K, providing

8 Seountres Exchange Act release No. 4!190(1anuary 28, 1954).

TWENTIETH .ANJ\TUALREPORT 7

for the use of annual reports to the Interstate Commerce Commissionor the Federal Communications Commission, or annual reports tostockholders, to satisfy substantially all requirements of this Commis-sion's form. Accordingly, Forms 12-K and 12A-K were rescinded."

RuIe X-l2A-l.-This rule provided an exemption from the registra-tion requirements of the Securities Exchange Act for the capital stockof certain banking institutions traded on a national securities exchange.During the fiscal year the rule was amended to extend the scope of theexemption so that, when a national securities exchange merges into oris absorbed by another exchange, the exemption which was availablefor such securities on the merged or absorbed exchange will continuein effect on the surviving exchange."

Rescission of Form 9-K and of Rules X-13A-13 and X-15D-13.-In reviewing its activities, procedures and requirements to determinethe extent to which eliminations, revisions or modifications might bemade without a material adverse effect on the public interest, theCommission invited all interested persons to submit their views andcomments in regard to a proposal to rescind Form 9-K, the form forquarterly reports for gross sales and operating revenues, and RulesX-13A-13 and 15D-13, the rules relating to the filing of such reportsunder the Securities Exchange Act. After considering the commentsand data submitted, the Commission rescinded this form and itsrelated rules, although the Commission is continuing to keep understudy the adequacy of its annual and interim reporting requirements.'!

Proxy rules.-Rule X-14A-8 formerly provided for inclusion in anissuer's proxy material of stockholder proposals which were propersubjects for action by security holders, but did not specifically providethat state law was the standard for determining what constituted"a proper subject for action although the Commission's staff had sointerpreted the rule." The proxy rules as amended specificallyprovide that a security holder's proposal may be omitted from themanagement proxy material if it is one which, under the laws of theissuer's domicile, is not a proper subject for action by security holders.The rule places the burden of proof upon the management to show thata particular security holder's proposal is not a proper one for inclusionin management's proxy material. Thus, if management contendsthat a proposal may be omitted because it is not proper under statelaw, it will be incumbent upon management to refer to the applicablestatute or case law and furnish a supporting opinion cf counselsatisfactory to the Commission.

Under paragraph X-14A-8 (c) (5) of the amended rule managementis specifically permitted to omit from its proxy material tl proposal

'Securities Exchange Act release 1\0 4991 (January 28,1954).10 Securities Exchange Act release No 4945 (September 29,1954).11 Seeunties Exchange Act release No 4949 (October 9,1954).


which is a recommendation or request with respect to the conduct ofthe ordinary business operations of the issuer.

Prior to recent revisions of the proxy rules, a stockholder proposalincluded in the management's proxy material had to be repeated insubsequent proxy statements, upon request, provided it received 3%of the total number of votes cast at the last annual or subsequentspecial meeting. This resulted in repetitive submissions of proposalswhich had received very modest stockholder interest. The proxyrules now provide that a proposal may be omitted for a period of threeyears from the last previous submission if the proposal was submittedwithin the previous five years and received less than a 3% vote inthe case of a single submission, less than a 6% vote upon a secondsubmission, or less than a 10% vote upon a third or subsequentsubmission during such 5-year period.

Rule X-14A-8 of the proxy rules formerly provided that any stock-holder proposal submitted to an issuer with respect to an annualmeeting would, if submitted more than 30 days in advance of thecorresponding date on which proxy material was released for the lastannual meeting, be prima facie deemed to have been submitted withina reasonable time. The rule has been amended to extend this periodfrom 30 days to 60 days, so as to give more time for the considerationof security holders' proposals."

Rule X-16B-6.-This rule which grants a partial exemption fromsection 16 (h) of the Securities Exchange Act with respect to profitswhich might otherwise be deemed to have been realized and recover-able where there is a purchase by an officer, director or 10% stock-holder of an equity security pursuant to the exercise of an option orsimilar right and a subsequent sale of such security was amended toclarify the conditions under which the exemption is available."

Form. N-8B-I.-Form N-8B-I is the basic form for registration ofmanagement investment companies under the Investment CompanyAct. Recent revisions have been made based on the Commission'sexperience with these companies and take into consideration the factthat the form is now used chiefly by newly-organized companies andconsequently call for much less information than was previouslyrequired. 14

Forms N-30A-I and N-30B-1.-These annual and quarterly re-porting forms required to be filed by registered management invest-ment companies pursuant to section 30 of the Investment CompanyAct and sections 13 and 15 (d) of the Securities Exchange Act havebeen revised to eliminate the duplication of information filed."

Securities Exchange Act release No 4979 (January 6, 1954).11Securities Exchange Act release No. 4998 (February 9,1954).I' Investment Company Act release No 1932 (December 15, 1953)."Investment Company Act release No. 1978 (May 6, J954).

"

PART II

ADMINISTRATION OF THE SECURITIES ACT OF 1933,

The Securities Act of 1933 is designed to provide disclosure toinvestors of material facts concerning securities publicly offered forsale by use of the mails or other instrumentalities of interstate com-merce, and to prevent misrepresentation, deceit or other fraudulentpractices in the sale of securities. Disclosure is obtained by requir-ing the issuer of such securities to file with the Commission a regis-tration statement, and related prospectus, containing significantinformation about the issuer and the offering. These documents areavailable for public inspection as soon as they are filed. In additionthe prospectus must be furnished to the purchaser at or before de-livery of the security. The contents of the registration statementare the primary responsibility of the issuer and the underwriter; theCommission has no authority to control the nature or quality of asecurity to be offered for public sale or to approve or disapprove itsmerits or the terms of its distribution.

DESCRIPTION OF mE REGISTRATION PROCESS

Registration Statement and Prospectus

Registration of any security proposed to be publicly offered may besecured by filing with the Commission a registration statement onthe applicable form containing prescribed disclosures. The Com-mission has adopted several such forms designed to disclose appro-priately for the type of issue involved the classes of informationspecified in Schedule A of the Act. In general the registration state-ment must describe such items as the names of persons who participatein the direction, management, or control of the issuer's business; theirsecurity holdings, remuneration paid and options or bonus and profit-sharing privileges allotted to them; the character and size of the busi-ness enterprise; its capital structure and past history and earnings;its financial statements, certified by independent accountants; under-writers' commissions; pending or threatened legal proceedings; andthe purpose to which the proceeds of the offering are to be applied.The prospectus constitutes a part of the registration statement andpresents in summary the more important of the required disclosures.

Although several different registration forms are currently available,the majority of registrants use Form 8-1, the general form for busi-

9

10 SECURITIES AND EXCHANGE COM1\IfISSION

ness companies. Next in deman.d is Form 8-5, designed for open-endmanagement investment companies. During the 1954 fiscal yearout of 649 registration statements filed, 432 or two-thirds were onForm 8-1 while 123 or nearly one-fifth were on Form 8-5.

Examination Procedure

The commission is charged with the responsibility of preventing thesale of securities to the public on the basis of statements which on theirface appear to contain inaccurate or incomplete information. Thestaff of the Division of Corporation Finance examines each regis-tration statement for compliance with the standards of disclosureand usually notifies the registrant by an informal letter of commentof any material respect in which the statement apparently fails toconform to these requirements. The registrant is thus affordedan opportunity to file an amendment before the statement becomeseffective. In addition, the Commission has power, after noticeand opportunity for hearing, to issue an order suspending the effec-tiveness of a registration statement. No such orders were issuedduring the 1954 fiscal year

Time Required to Complete Registration

Because prompt examination of a registration statement is impor-tant to industry, the Commission completes its analysis in the shortestpossible time consistent with the public interest. Congress providedfor a lapse of 20 days in the ordinary case between the filing date of aregistration statement and the time it may become effective. Thewaiting period is designed to provide investors with an opportunityto become familiar with the proposed security. Widespread publicityis given to information disclosed in the registration statement im-mediately on its filing. The commission is empowered to acceleratethe effective date so as to shorten the 20-day waiting period where thefacts justify such action. In exercising this power, the Commission isrequired by statute to take into account the adequacy of the informa-tion already available to the public, the complexity of the particularfinancing, and the public interest and protection of investors.

The median time which elapsed between the filing and the effectivedate with respect to 629 registration statements that became effectiveduring the 1954fiscal year was 22 days, one less than the correspondingfigure in the preceding year. This time was divided among the threeprincipal stages of the registration process as follows: (a) from date offiling registration statement to date of letter of comment, 10 days;


(b) from date of letter of comment to date of filing first materialamendment, 7 days; and (c) from date of filing first amendment todate of filing final amendment and effective date of registration, 5 days.

VOLUME OF SECURITIES REGISTERED

Securities effectively registered under the Securities Act of 1933during the fiscal year 1954 totalled $9.2 billion, the second highestvolume in the twenty-year period of the Commission's history. Theamount of registrations in each of the post-war years has exceeded$5 billion and reached a high point of $9.5 billion in 1952. Thesefigures cover all registrations including new issues sold for cash by theissuer, secondary distributions, and securities issued for other thancash proceeds, such as exchange transactions and issues reserved forconversion of other securities.

The most important category of registrations, new issues to be soldfor cash for account of the issuer, amounted to almost $7.5 billion inthe 1954 fiscal year as compared with an average of somewhat over$6 billion for the last five fiscal years. In this five-year period, 51percent of the dollar volume of new cash issues consisted of debtsecurities, 40 percent common stock, and 9 percent preferred stock.The relatively high proportion of common stock registrations inrecent years results in part from the large amount of securities reg-istered by investment companies.

Figures for each of the fiscal years 1935 through 1954 appearin appendix table 1, showing the number of statements, total amountsregistered, and a classification by type of security for new issuesto be sold for cash for account of the issuing company. More detailedinformation on registrations for the 1954fiscal year is given in appendixtable 2.

Of the dollar amount of securities registered in the 1954 fiscal year,80.5 percent was for account of issuers for cash sale, 17.9 percent foraccount of issuers for other than cash sale and 1.7 percent was for theaccount of others, as shown below. Most of the registrations involv-ing issues not to be sold for cash cover securities reserved for conver-sion of other registered securities.Registered for account of issuers for cash sale $7,381,199,000Registered for account of issuers for other than cash sale , _____ 1, 637, 951, 000Registered for account of others than the issuers______________ 154,352,000

9,173,502, 000


The classification by industry of securities registered for cashsale for account of issuers in the fiscal year 1954 is as follows:

~anufacturing--------_----------------------_---~--_-~ningElectric, gas and waterTransportation, other than railroadCommunicationInvestment companiesOther financial and real estateTradeServiceConstruction

Total corporate

Foreign government-----------------------------------

Total

Inmilliom$958

892, 722

4932

1,557512

52138

6, 844537

7,381

Perce,.,toftotol13.01.2

36.90.0

12.621. 1

6.90.70.20.1

92.77.3

100.0

Electric and gas companies have accounted for the largest volume ofregistrations not only in the 1954 fiscal year but for several yearspast. Registrations of securities by companies in this field during thelast five years have averaged more than two billion dollars per year,the large amount mainly reflecting two factors. First, the greatpost-war expansion of public utilities plant facilities has been financedto a considerable extent by funds raised in the capital markets, whereasin other industries more reliance has been placed on internal sourcesof funds, including retained earnings and depreciation accruals.Second, as compared with other industries, more of their securitieshave been offered publicly and registered under the 1933 Act, ratherthan placed privately with institutional investors.

The next largest volume of issues in the 1954 fiscal year was regis-tered by investment companies. Issues of these companies, whichhave formed approximately one-fifth of total registrations of new cashissues in recent years, are classified according to type of organizationfor the fiscal years 1953 and 1954:

Management open-end companiesManagement closed-end companiesUnit and face amount certificate companies

(InmiUiom)1953 1954

$1, 113 $1, 10636 5

458 446

1,607 1,557

Manufacturing companies ranked third in volume of registrationsin 1954, but accounted for only 13 percent of total registrations.While expenditures for new plant and equipment by manufacturingcompanies have been at record levels during the last few years, com-

_

_

_ _

_ _ _

_ _

_

_

_ _

_


panies in this group have used internal sources of funds to a majorextent, and also have sold a large proportion of their securitiesprivately.

About 67 percent of the net proceeds of the corporate securitiesregistered for cash sale for account of issuers in the fiscal year 1954wasdesignated for new money purposes, including plant, equipment andworking capital. Almost 6 percent was for retirement of securitiesand 27 percent for other purposes, principally the purchase of securitiesby investment companies. This distribution follows fairly closely thepattern of the last five years.

REGISTRATION STATEMENTS FILED

During the 1954 fiscal year 649 registration statements were filedcovering proposed offerings aggregating $8,983,752,628, comparedwith 621 statements covering an aggregate of $7,399,059,928 in the1953 fiscal year, an increase of approximately $1,585,000,000. The649 statements included 151 filed by companies which had not pre-viously registered securities under the Act.

Particulars regarding the disposition of all registration statementsfiled are summarized below.

Number and cisposition of registration statements filed

Prior to July 1, July I, 1953, to Total as of June1953 June 30, 1954 30,1954

Registration statements:Filed ______________________________________ ._. 10,369 649 11,018Effective-net. 8,853 '628 , 9,469Under stop or refusal order-net ______________ 184 ° 184Wlthdrawn __________________________________ 1,259 38 1,297Pending at June 30,1953 ______________________ 73 ------------------ ---.--------------Pending at June 30,1954 ______________________ -----.------------ ------------------ 68

TotaL 10,369 ------------------ 11,018Aggregate dollar amount: As tIled ________________ $85,999,247, 566 $8, 983, 572, 628 $94, 982, 820, 194

I This figure does not include one registration statement which was withdrawn after becoming effectiveduring the current year.

2 This figure does not include 12 registration statements which became effeetrve prior to July 1, 1953 andwere WIthdrawn during the current year as they are counted ill the number WIthdrawn.

DISCLOSURES OBTAINED BY THE REGISTRATION PROCESS

Disclosures secured by the staff's examination of registration state-ments during the 1954 fiscal year are illustrated by the followingexamples.

Dealings with promotera.-e-A corporation which operated two dogracing tracks proposed a public offering of debentures and commonstock by means of a prospectus which failed to disclose adequatelytransactions with the promoters and certain facts bearing on therisks involved. Before the registration statement was permitted tobecome effective, a section was inserted at the beginning of the

___________________•• __________

___________________________________•__

14 SECURITIES AND EXCHA..~GE COMMISSION

prospectus disclosing transactions pursuant to which the corpora-tion acquired the tracks from the promoters. It showed, amongother things, that the promoters received from the corporation short-term notes in the amount of $300,000 and debentures of the issue tobe registered in the amount of $300,000, together with rights to pur-chase at 1~ per share a total of 167,502 shares of common stock ofthe corporation which was to be offered to the public at a price of$1.00 per share; that the promoters and officerswere to receive annualsalaries aggregating $62,500 plus a bonus; and that for the corpora-tion's latest fiscal year, its :first year in operation, four officers hadwaived a portion of their salaries to the aggregate extent of $24,000to enable the corporation to pay interest on its outstanding deben-tures. In addition it was pointed out that the book value of thecorporation's tangible assets for each $1,000 of debentures outstand-ing was $573.64; that the corporation's first year of operations resultedin a deficit, and its liabilities exceeded its assets as of the date of itsmost recent balance sheet; and that the value of the common stockhad been diluted by the sale of 209,956 shares of such stock at 1~per share.

Effect of declining sales on earnings.-The prospectus filed inJanuary 1954 with the registration statement of a company engagedin a highly competitive line of manufacture contained somewhatbroad generalizations under "Recent Developments" indicating thatthe volume of sales and level of earnings had fallen off. After thestaff elicited from representatives of the company details concerningthe extent and effect of this downward trend, the prospectus wasamended to include the specific statement that "Sales for the monthof December 1953 approximated 62% of average monthly sales forthe SL." months ended August 31, 1953, earnings for the quarter endedNovember 30, 1953 approximated 52% of average quarterly earningsfor the six months ended August 31, 1953, and sales backlog at Jan-uary 31, 1954approximated 62% of such backlog at August 31, 1953."

Estimates of mineral reserves and profit margin.-The prospec-tus accompanying a registration statement filed by a company propos-ing to erect a sulphur mining plant stated that only 25.8 acres of the308 acres held by the company had been explored and was accom-panied by an engineering report which estimated that the 25.8 acrescontained 1,027,283 long tons of recoverable sulphur. As to theremaining acreage, the officers were said to "hope and believe" thatsubstantial deposits of sulphur underlay most of the tract. It wasadded "With domestic prices at around $30.00 per ton and worldprices ranging from $75 upward, and it is hoped production costs willbe around $5.00 per ton, the Corporation believes it can make a goodshowing profit-wise." After inquiries by the Commission's staff con-


cerning, among other things, the justification for the engineer'sestimate of sulphur in the light of the procedures he employed, theprospectus was amended to disclose that the accomplished drillingindicated there were 115,000 tons of sulphur in the explored part ofthe acreage; that at that stage the company could not say there wasmore than 115,000 tons; and that the plant then under constructioncould not be financially successful if no more than 115,000 tons ofsulphur were found. The amended prospectus omitted the estimateof sulphur mining costs and included a statement that the sulphurconcentration was such as to make it likely that operating costswould be high. It also disclosed that, whereas the 600,000 sharesto be offered for public sale were priced at $1.00 per share, a totalof 2,651,250 shares had been acquired by the promoters "at no sub-stantial cost to themselves other than time and effort spent."

Reflection in financial statements of rate refund by utilitycompany.-In 1952, a regulatory agency issued an order permittinga utility company registering securities under the Securities Actto put into effect increased rates, but requiring it to refund anyportion of such increase ultimately found not justified by that agency.In a further order issued in 1954, establishing rates to become effectiveduring 1954, that agency stated that it would appear that the refundwhich would have to be made would be in the neighborhood of$32,000,000, subject to reduction for adjustment of purchase contractsand income taxes. These facts were disclosed in the registrationstatement as orginally filed but the accompanying financial sta tementsreflected no provision for the net effect of the refund. As a result ofthe staff's letter of comment and subsequent conference with repre-sentatives of the registrant, the financial statements were amendedto reduce the net income in excessof 20 per cent for the two years andthe interim period affected, being the amounts of the estimated netrefund, and to include the sum of these amounts as a liability in thebalance sheet.

Impact of seasonal business on earnings.-Effective and fair dis-closure of results of operations for interim periods is often trouble-some, particularly when a company's operations are subject to markedseasonal variation. An aggravated instance of this situation wasfound in the case of a registrant which has shown a very rapid expan-sion during the last five years.

The financial statements of this company as initially filed revealedthat the net profit for the first five months of the current fiscal yearamounted to approximately $1,500,000, and indicated that, owing tothe seasonal nature of the business, earnings for the first five monthsof a fiscal year had historically been materially greater than for thebalance of the year. The extent of the past seasonal variation could

326394-55-3 ~__~ _ ___ _


not be determined from the financial data furnished. Therefore, adanger existed that the five months' earnings of $1,500,000 could bemisinterpreted as indicating an annual rate grossly in excess of theamount which reasonably could be anticipated. In order to avoidthis danger, the registrant was required to furnish the results ofoperations for the same period of the previous fiscal year for comparisonwith the :first five months of the current fiscal year. When the com-parison was furnished, it was observed that the net profit for the:firstfive months of the previous fiscal year was approximately equal tothe net profit for the entire fiscal year. The registrant was thereuponrequested also to add a statement in respect of the net profit reportedfor the :first five months of the current fiscal year indicating thatsubstantially all earnings for the entire fiscal year had historicallybeen made during the :first five months.

EXEMPTION FROM REGISTRATION UNDER THE ACT

The Commission is authorized under Section 3 (b) of the Act toadopt rules providing exemption from the registration requirementsfor public offerings of securities not exceeding a maximum of $300,000.Among the six types of exemption provided by the Commission underthis authority, the three most commonly used are: Regulation A, thegeneral exemption for issues up to $300,000 for issuers; Regulation B,the exemption for fractional undivided interests in oil or gas rights upto $100,000 j and Regulation D, the exemption for Canadian securitieswith the same dollar limitations as Regulation A.

Exemption from registration under Section 3 (b) of the Act doesnot carry exemption from the civil liabilities for material misstate-ments or omissions imposed by Section 12 (2) or from the criminalliabilities for fraud imposed by Section 17.Exempt Offerings under Regulation A

New procedure.-Regulation A was revised in March 1953 so asto make it mandatory to use an offering circular containing specifiedinformation which includes financial statements. In order to assureuniformity in the standards required of offering circulars filed underthis new Regulation, the headquarters staff participated with theregional officesin the processing of material filed pursuant to the Regu-lation. Beginning in the latter part of the fiscal year, the Commissioninstituted a program of transferring to the regional offices responsi-bility for the examination and processing of Regulation A cases.

Denial or suspension of exemption.-While Regulation A pro-vides for the denial or suspension of the exemption in appropriatecases, the Commission has exercised its power to issue orders there-under sparingly because it believes it is preferable to resolve disclosureproblems in conferences with issuers and underwriters wherever pos-

TWE1>.""rIETH ANNUAL REPORT 17sible. The four companies subjected to such formal action up to thedose of the 1954 fiscal year were:

Dakota-Montana Oil Leaseholds, Inc.; suspension, Securities ActRelease No. 3477 (1953); suspension order vacated, Securities ActRelease No. 3481 (1953).

Pioneer Enterprises, Inc.; denial, Securities Act Release No. 3486(1953).

Apartment Owners, Inc.; suspension, Securities Act Releases Kos.3496 and 3498 (1954); denial, Securities Act Release No. 3507 (1954).

Utah-Wyoming Atomic Corporation; suspension, Securities ActReleases Nos. 3505 and 3508 (1954).

Volume of filings.-During the 1954 fiscal year 1,175 notificationswere filed under Regulation A covering proposed offerings of $187,-153,226, compared with 1,528 notifications covering proposed offer-ings of $223,350,026, in the 1953 fiscal year. Included in the 1954totals are 142 notifications covering stock offerings of $24,747,941'with respect to companies engaged in the oil and gas business, and172 filings covering offerings of $29,903,097 with respect to miningcompanies. In addition, 2,382 items of sales literature, excludinginitial offering circulars, were filed.

Certain particulars regarding these offerings are set forth in thefollowing table.

Ojfenngs made under Regulation A in 1954 fiscal year

Desenpnon

SiZe:

g~~ig~i~~i~;:~~:~===== =: . . =:::

Number

503213459

1,175Underwriting:Employed 501

Not used .__ 674

{)1ferors: 1,175Issuing companies .• . . ._ 1,079Stockholders . . _. . .____ 92Issuers and stockholders jointly . .___ 4

1,175

Most of the underwritings were undertaken by commercial under-.writers who participated in 419 offerings while officers, directors orother persons not regularly engaged in the securities business handledthe remaining 82 cases.Exempt Offerings under Regulation B

During the 1954 fiscal year, the Commission received 156 offeringsheets filed under Regulation B. These filings in connection with-exempt offerings of oil and gas securities were examined by the

=============== ===== === == ==== ====== ==

• • • ______ ___ ____________________________ __ • _ __ _

' •_ • _______ __ _ • __• • • •• •


specialized Oil and Gas Unit which collaborates with the Commissionstaff generally in the solution of the technical and complex problemspeculiar to oil and gas securities which arise under various of theActs and regulations administered by the Commission.

Action taken on fiiinqe under Regulation B

Temporary suspension orders-Rule 340 (a) _ _ _ __ _ 9Orders termmating proceedmgs after amendment________________________ 3Orders consenting to withdrawal of offering sheet and terminating pro-

ceedings__________________________________________________________ 3Order terminating effectiveness of offering sheeL________________________ 1Orders accepting amendment of offering sheet (no proceeding pending)____ 72Orders consenting to withdrawal of offering sheet (no proceeding pending)__ 2

Total number of orders ------________________ 90

Confidential reports of sales.-As an aid in determining whetherviolations of law have occurred in the marketing of securities exemptunder Regulation B, the Commission obtains confidential reports ofactual sales made pursuant to such exemption. During the 1954fiscal year, 1,699 such reports covering aggregate sales of $770,042were filed.Exempt Offerings under Regulation D

By the adoption of Regulation D on March 6, 1953, as a com-panion to the revised Regulation A, the Commission provided forthe first time an exemption from the registration requirements ofthe Act for' public offerings of securities, not exceeding $300,000 inanyone year, made by Canadian issuers or by domestic issuershaving their principal business operations in Canada. To obtainthe exemption, an offeror must file 'with the Commission a notifica-tion, and in all cases an offering circular, containing pertinent infor-mation regarding the issuer and the security proposed to be sold inthe United States. This information must include finanicalstatements .

.During the 1954 fiscal year 46 notifications were filed under Regu-lation D covering aggregate offerings of $11,334,350. They repre-sented 42 issuers proposing to explore for uranium or other minerals,three to engage in the oil and gas business, and one in lumbering.

After the close of the 1954fiscal year, the Commission on August 16,19.54 issued its first order pursuant to Regulation D suspendingexemption with respect to a public offering.of securities of NorthwestUranium Corporation. 1 The reasons assigned by the Commissionfor the suspension included reasonable catise to believe that the useof the company's offering circular would and did operate as a fraudand deceit upon the purchasers of said securities,_____ I

1 Securities Act release No. 3511 (August 16, 1954).

TWENTIETH A1\TNUALREPORT

LITIGATION UNDER THE SECURITIES ACT

19

Injunctive Actions

Injunctions are sometimes sought to restrain continued violation ofthe Securities Act when it appears that damage to the public isthreatened.

The cases during the fiscal year 1954 were of a varied nature. InS. E. O. v. Ohemi-Oote Perlite Oorporation and Otto T. Ball.' the'Commission's complaint charged that the defendants had sold per--sonally owned stock of the defendant Ball in Chemi-Cote PerliteCorporation without registration, and that the defendants representedthat the corporation was in excellent financial condition with assetsin excess of $23,000,000 when, in fact, the company had a deficit of$185,000 and assets not exceeding $100,000; that the company'sperlite mining claims were worth $4,500,000 when, in fact, there wasno reasonable basis for any such valuation; that the proceeds fromthe sale of such securities being sold at $10 per share would be usedby Chemi-Cote Perlite Corporation for the purpose of financing itsoperation when, in fact, in some instances one-half of the proceedsfrom the sale of such stock was being paid to salesmen as commissions,and the stock being offered was the personally owned stock of thedefendant Otto T. Ball. The defendants consented to a final judg-ment enjoining them from further violation of the registration andanti-fraud provisions of the Securities Act.

S. E. O. v. Professional Life Insurance Oompany, J. Olifton ButlerAgencies and J. Olinton Butler 3 was an action to enjoin the defendantsfrom violating the registration and anti-fraud provisions of theSecurities Act. The complaint alleged that the defendants had pur-chased an office building for the defendant, Professional Life Insur-ance Company, for $465,000, and within a few days thereafterarranged to have such building appraised at $650,000, an appreciationof $185,000 over cost, and a short time thereafter issued a dividendof stock of the company to J. Clinton Butler based upon the claimedappreciation in value of the building. The shares received by thedefendant Butler as a stock dividend were later sold by him withoutdisclosing to purchasers that such shares were owned by him per-sonally and that the proceeds would be retained by him and notplaced in the treasury of Professional Life Insurance Company. Itwas also alleged that the defendants omitted to state to purchasersthat Professional Life Insurance Company was operating at a lossand had no surplus or realized profits at the time the shares weresold. A stipulation was entered into between the Commission andthe defendants whereby it was agreed that the defendants, J. Clinton

2 N. D. Texas, No. 2620.3 X. D. Te"as. No. 2640.


Butler and J. Clinton Butler Agencies, a registered broker-dealer,would consent to the entry of a permanent injunction and that J.Clinton Butler would completely disassociate himself from the man-agement and control of Professional Life Insurance Company. Whenthe Commission was satisfied that the terms of the stipulation hadbeen complied with, it moved for the dismissal of the action againstProfessional Life Insurance Company. The injunction against J.Clinton Butler and J. Clinton Butler Agencies continued in effect.The broker-dealer registration of J. Clinton Butler Agencies waswithdrawn.

A judgment was entered in an action, S. E. O. v. Glen F. McBurney 4

in which the Commission's complaint filed in the previous year,alleged that the defendant in the sale of units of interest in oil andgas rights in a leasehold interest had violated the registration and theanti-fraud provisions of the Securities Act. Although the defendantfiled an answer to the fraud count, he later consented to the entry ofjudgment on both counts.

In S. E. O. v, Kaye, Real & 00., Inc., John A. Kaye and StanwoodOil Oorporation." the complaint alleged that defendant John A. Kayehas been controlling stockholder of Kaye, Real & Co., Inc., a brokerand dealer in securities, and of Stanwood Oil Corporation, and thatthe defendants had been selling stock of Stanwood Oil Corporationwithout registration and had been employing a fraudulent schemeinvolving acquisition of control of the management and operations ofStanwood Oil Corporation by defendants John A. Kaye and Kaye,Real & Co., Inc., to whom approximately 1,000,000 shares out of atotal of 1,472,519 shares outstanding had been issued; that thedefendants thereupon disseminated numerous false statements con-cerning the increased value of Stanwood stock by reason of the acqui-sition by said corporation of various other companies and businessenterprises,"

Other actions taken by the Commission during the fiscal year re-sulted in injunctions of violations of the registration provisions of theSecurities Act include: S. E. C. v. Dominaire Constructions, Inc. andV. L. Arnold,7 involving an offering of securities to develop mortarlessinterlocking concrete blocks; S. E. O. v. Lever Motors Corporation,Sinvolving an offering of securities for the development of a lever-typemotor, and S. E. C. v, H. H. Tucker.' involving an offering of personalnotes, evidences of indebtedness, investment contracts and profit-sharing agreements.

'N. D. Texas, No. 2640.S. D. N. Y., No. 00-100 .A permanent mjunction was entered after the close of the fiscal year.

7 W. D. WashIngton, No. 3558.'N. D. Illinois, No. 53-0-1954

N. D. Texas, No. 2607.

• •

• •

TWENTIETH ANNUAL REPORT 21Participation as Amicus Curiae

In Wilko v, Swan,10 in a decision reversing the Court of Appealsfor the Second Circuit," the Supreme Court sustained the positionurged by the Commission as amicus curiae that a customer cannot bedeprived by a securities firm of the court remedy afforded him bySection 12 (2) of the Securities Act for alleged misrepresentations inthe sale of securities through a pre-transaction stipulation for arbi-tration of future disputes. In an opinion delivered by Mr. JusticeReed, the Court held that the pre-transaction agreement contravenedthe anti-waiver provisions of Section 14 of the Act, and conflictedwith the remedial purposes of the legislation.

The Commission also participated as amicus curiae in Bentsen v.Blackwell, in which the Supreme Court granted a writ of certiorari 1Z

and subsequently dismissed the writ after the oral argument had "de-veloped the undesirability of deciding the questions in this case onthe pleadings" .13 Petitioner had sought certiorari solely on the ques-tion whether the civil recovery provisions of Section 12 (2) of theSecurities Act require that the mails or instruments of interstatecommerce be used to transmit the particular misrepresentations com-plained of, or whether, as the Court of Appeals for the Fifth Circuithad ruled 14 and as the Commission had urged, it sufficed that themails were used elsewhere in the sale transaction-in this case allegedlyto deliver the documents essential to the investment contracts sold.

"346 u. S. 427 (1953).11201 F. 2d 4;l9 (1953), previously discussed in 19th Annual Report, p. 17.II 346 U. S.908 (1953).11347 U. S. 925 (1954).Ii 203 F. 2d 690 (1953), prevlously discussed in 19th Annual Report, p. 16.

PART III

AD:\I1NISTRATION OF THE SECURITIES EXCHANGE ACTOF 1934

The Securities Exchange Act of 1934 is designed to insure the main-tenance of fair and honest markets in securities transactions on theorganized exchanges and in the over-the-counter markets. Accord-ingly, the Act provides for the regulation of such transactions and ofmatters related thereto. It requires that information as to the con-dition of corporations whose securities are listed on a national securitiesexchange shall be made available to the public and provides for theregistration of such securities, such exchanges, brokers and dealersin securities, and associations of brokers and dealers. It also regulatesthe use of credit in securities trading. While the authority to issuerules regarding such credit is lodged in the Board of Governors of theFederal Reserve System, the administration of these rules and of theother provisions of the Act is vested in the Commission.

REGl:LATION OF EXCHANGES AND EXCHANGE TRADING

Registration and Exemption of Exchanges

At the close of the 1954 fiscal year the following 15 exchanges wereregistered as national securities exchanges:

American Stock Exchange New York Stock ExchangeBoston Stock Exchange Philadelphia-Baltimore Stock Ex-Chicago Board of Trade changeCincinnati Stock Exchange Pittsburgh Stock ExchangeDetroit Stock Exchange Salt Lake Stock ExchangeLos Angeles Stock Exchange San Francisco Mining ExchangeMidwest Stock Exchange San Francisco Stock ExchangeXew Orleans Stock Exchange Spokane Stock Exchange

Four exchanges were exempted from registration at the close ofthe fiscal year:

Colorado Springs Stock ExchangeHonolulu Stock Exchange

Richmond Stock ExchangeWheeling Stock Exchange

During the year the Washington Stock Exchange was merged intoand absorbed by the Philadelphia-Baltimore Stock Exchange underan arrangement which provided for the creation of a WashingtonStock Exchange Branch of the Philadelphia-Baltimore Stock Exchange.Trading commenced on the new branch at the opening of business onOctober 15, 1953, and on December 31, 1953, the Washington Stock

22

TW ENTIETH ANNUAL REPORT 23Exchange was permitted to withdraw its registration as a nationalsecurities exchange.

Information pertinent to the organization, rules of procedure,trading practices, membership requirements and related matters ofeach exchange is contained in its registration or exemption statement,and any changes in such information are required to be reportedpromptly by the exchanges. During the year, the exchanges reportednumerous changes, including the following:

The New York and American stock exchanges rescinded rules whichhad placed limitations on purchases made by certain members on thefloors of these exchanges for accounts in which they had an interest.

The New York, American, Midwest, Los Angeles and San Franciscostock exchanges rescinded rules, commonly referred to as the "Day-light Margin Rules", which had required exchange members to de-posit at the close of each trading day an amount which would repre-sent sufficient margin, under the terms of the Federal Reserve Board'sregulation T, for the maximum position taken by the member duringthe trading day. The rescission of these rules had the effect of placingexchange members in the same position as the general public withrespect to the initial margining of transactions and the withdrawal ofproceeds of sales.

The New York and American stock exchanges rescinded ruleswhich, with certain exceptions, had prohibited partners of memberfirms or voting stockholders of member corporations from havingmargin accounts (except at a bank) if their firm or corporation carriedmargin accounts for customers, and which had prohibited memberfirms and member corporations carrying margin accounts for customersfrom making transactions in securities if the market value of securitiescarried in proprietary accounts was equal to or greater than their netcapital.

The Boston Stock Exchange amended its rules relating to the regis-tration: of corporations as member corporations of the exchange byrescinding the provisions that prohibited member corporations fromcarrying margin accounts and required member corporations to segre-gate customers' free-credit balances in special bank accounts withrestrictions on withdrawals from such accounts. This action wasdesigned to bring its rules pertaining to member corporations intoconformity with rules of various other exchanges.

The Pittsburgh Stock Exchange amended its rules to permit cor-porations engaged in the securities business to become members of theexchange.

The Salt Lake Stock Exchange completed the revision of its ruleswhich, together with the new constitution it had adopted in the preced-ing year, were designed, among other things, to strengthen the financial


responsibility of its members and to improve inspection and auditrequirements.

The New York, American, Boston and San Francisco stock ex-changes revised the minimum net capital requirements for members,member firms and member corporations by providing, among otherthings, that aggregate indebtedness may not exceed 2000% of netcapital. The previous limit had been 1500%.

The Midwest Stock Exchange changed the minimum net capitalrequirement of member corporations from 10% to 6%% of aggregateindebtedness, so that aggregate indebtedness may not exceed 1500%of net capital as compared with the previous 1000% limit. ThePhiladelphia-Baltimore Stock Exchange provided that aggregate in-debtedness of member corporations may not exceed 2000% of netcapital as compared with the previous 1000% limit. These changesestablished uniformity in capital requirements between corporate andother members of these two exchanges.

The New York, Boston, Detroit, Los Angeles, Midwest, Philadel-phia-Baltimore, Pittsburgh and San Francisco stock exchangesadopted new schedules of increased commission rates. The new ratesare substantially identical on these exchanges. They contain an in-novation which provides for a discount from the regular commissionwhere a purchase and sale, or sale and purchase, of a single securityfor one account is completed within 30 calendar days.

The Cincinnati Stock Exchange, effective May 3, 1954, adopted anew schedule of increased commission rates applicable to stockstraded solely on that exchange.

The Honolulu Stock Exchange adopted a revised Constitution andRules for the purpose of clarifying and strengthening the provisionsthereof. The revision included a new schedule of increased com-mission rates.Disciplinary Action by Exchanges

Each national securities exchange reports to the Commission anyaction of a disciplinary nature taken by it against any of its members,or against any partner or employee of a member, for violation of theSecurities Exchange Act or any rule thereunder or of any exchangerule. During the year, 5 exchanges reported 40 cases of disciplinaryaction against members, member firms and partners of member firms.

The actions reported included fines ranging from $100 to $5,000 in17 cases, with total fines aggregating $9,807.50, expulsion of 1 indi-vidual and suspension of another from exchange membership, revo-

TWENTIETH ANNUAL REPORT 25cation of the registration of 1 member as a specialist, and censure ofindividuals and firms for infractions of exchange rules. The rulesviolated included those pertaining to specialists, floor traders, shortsales, capital requirements and the filing of financial statements.

REGISTRATION OF SECURITIES ON EXCHANGES

Unless a security is registered under the Act (or is exempt there-from), it is unlawful to effect any transaction in the security on anynational securities exchange. Pursuant to Section 12 an issuer mayregister a class of securities on an exchange by filing with the Com-mission and the exchange an application which discloses pertinentinformation concerning the issuer and its affairs. Each such issueris required by Section 13 to file periodic reports keeping that informa-tion current. These applications and reports furnish details aboutthe issuer's capital structure, the terms of its securities, informationabout the persons who direct, manage, or control its affairs, remu-neration paid its officers and directors, allotment of options and bonusand profit-sharing arrangements; and financial statements certifiedby independent accountants.

Applications for registration of securities and periodic reports filedunder this Act are examined by the staff of the Division of Corpora-tion Finance to determine that the fair and adequate disclosurerequired by the statute appears to have been made.

The Commission has greatly simplified the registration process bythe adoption of new Rule X-12D1-1, under which the old procedureof registration by separate successive applications, each coveringa specified number of shares or a certain principal amount of bondsof a given class of security, was changed to a new method providingfor the registration by a single application covering an entire classof security, regardless of the amount already issued or which maysubsequently be issued.Statistics of Securities Registered on Exchanges

At the close of the 1954 fiscal year, 2,204 issuers had 2,641 stockissues and 1,009bond issues registered on national securities exchanges.During the year, securities of 37 new issuers became registered onexchanges while the registration of all securities of 43 issuers wasterminated.

The following table shows for the fiscal year the number of appli-cations filed under Section 12 and of reports filed under Section 13and, pursuant to undertakings contained in registration statementsfiled under the Securities Act to supply information equivalent to

26 SECURITIES A.."W EXCHANGE COMl\llSSION

that supplied with respect to securities registered on an exchange,under Section 15(d) of the Securities Exchange Act:Application for registration of classes of securities on exchanges; _________ 160Annualreports 2,884Current reports 4, 413

Information concerning the number of securities traded on eachstock exchange is shown in the appendix.Suspension of Trading

The Commission is authorized by the Act, after notice and oppor-tunity for hearing, to suspend for a period not exceeding 12 monthsor withdraw the registration of a security on an exchange if the issuerfails to comply with any provision of the Act or the rules and regu-lations; and it may summarily suspend trading in such a security fora period not exceeding 10 days if the public interest so requires.

The Commission summarily prohibited trading in the commonstock of Adolph Gobel, Inc. on the American Stock Exchange byordering successive 10-day suspensions from March 13, 1953 toFebruary 19, 1954. It had received advice from Gobel's accountantsthat, on the basis of information they had discovered after theiraudit, certified financial statements included in Gobel's annual reportfor 1952understated the reported loss of $437,070.57by approximately$213,000. The Commission also commenced a proceeding to deter-mine whether to suspend or withdraw exchange registration of thisstock, and conducted hearings on this question. New accountantsretained by Gobel found the amount of loss in question to be $582,-021.89. Meanwhile certain creditors filed a petition for reorganizationof Gobel under Chapter X of the Bankruptcy Act.

The Commission on February 18, 1954 ordered its proceedingsterminated and published its findings and opinion stating it wassatisfied that, since the disclosures made were substantially correct,there was no further need to deny stockholders access to the exchangemarket. The Commission pointed out that the report of the newaccountants, explored in the record of the proceeding, took into ac-count the allegations of the former accountants, analyzed the trans-actions which required different accounting treatment on Gobel'sbooks, and contained a detailed reconciliation between the lossreported in the statement certified by the former accountant andreported by the new accountants. In addition, the Commissio-inoted that the affairs of Gobel had come under the direction of atrustee, subject to court supervis 'on.

TWENTIETH AJ\TNUALREPORT 27

MARKET VALUE AND VOLUME OF SECURITIES TRADED ONEXCHANGES

The unduplicated total market value on December 31, 1953, of allstocks and bonds admitted to trading on one or more of the 19 stockexchanges in the United States was $236,097,628,000.

1, 530808702

Stocks:New York Stock ExchangeAmerican Stock ExchangeAll other exchanges

Number ofIssues Market value Dec. 31,1953

$117,257,208,00015,298,342,000

2,788,227,000Total

Bonds:New York Stock ExchangeAnlerican Stock ExchangeAll other exchanges

Total

Total stocks and bonds

3,040

9848432

1,100

4,140

135,343,777,000

99,827,875,000793,051,000132,925,000

100,753,851,000

236,097,628,000

The N ew York Stock Exchange and American Stock Exchangefigures are as reported by those exchanges. There is no duplicationof issues between those two exchanges. However, over half the issuesof stocks listed on the New York Stock Exchange, comprising about85% of the number of shares so listed, were also admitted to tradingon from one to nine regional exchanges, and about 30% of the issuesof stocks and number of shares on the American Stock Exchange werealso admitted to trading on from one to six regional exchanges.

The amounts shown for "all other exchanges" in the above tablewere based on the number of shares outstanding exclusive of treasuryshares, instead of on the number of registered shares as in previousyears, producing slightly smaller aggregates in consequence.

The bonds on the New York Stock Exchange included UnitedStates Government and New York State and City issues with anaggregate market value of $78,109,634,000.:Market Value of Stocks on Exchanges

The $135.3 billion aggregate market value of all stocks availablefor trading on the exchanges at the close of 1953 compared with$140.5 billion at the close of 1952. On the New York Stock Exchange,aggregate stock values increased from $117.3 billion on December 31,1953 to $139.2 billion on June 30, 1954. Reports as of the latter dateare not available for the other exchanges.

_ _ _

_

_ _ _

_

_


Comparative Number of Stock Issues on Exchanges

Net number of stock issues on excnange8

New Ameri- Exclu- New Ameri- Exelu-York can srvely Total York can srvely Total

June 30 Stock Stock on on June 30 Stock Stock on onEx- Ex- other exchanges Ex- Ex- other exchangesex- ex-change change changes change change changes

-- --- --- I --- --- --- ---194L 1,240 1,045 1,153 I 3,438 1948 1,425 819 818 3,0621942____ 1,254 1,003 1,113 , 3,370 1949_____ 1,462 804 786 3,0521943____ 1,250 968 1,063 3,281 1950_____ 1,484 779 775 3,0381944____ 1,270 928 981 3,179 195L ____ 1,495 765 772 3,0321945____ 1,293 :gl 951 3,139 1952_____ 1,528 783 751 3,0621946____ 1,351 895 3,106 1953_____ 1,539 807 731 3,0771947____ 1,377 836 870 3,083 1954_____ 1,546 811 700 3,057

X ew listings of stocks exclusively on the regional exchanges are notsufficiently numerous to offset the reduction in number of theirexclusive listings which goes on continually because of retirements,mergers, loss of exclusive status by listing on aNew York stockexchange, and other reasons. Only 7 regional exchanges obtained anyexclusive stock listings during 1953, such listings consisting of 4 pre-ferred and 5 common issues. Preferred stock listings are frequentlymade for other purposes than trading, a usual purpose being com-pliance with statutes with respect to legality for trust investment.The 5 new common stock issues listed had a year-end market valueaggregating only $5,300,000. The regional exchanges continue toobtain substantial new listings of stocks which are also lisped on oneor the other of the New York stock exchanges. Their principalacquisitions, however, are unlisted trading privileges in stocks listedelsewhere, predominantly on the New York Stock Exchange. Thefollowing shows the aggregate figures relating to stock admissionsduring 1953 on 1 or more regional exchanges, with market values com-puted as of December 31, 1953:

Issues Shares Market value

New listings only on regional exchanges ___________________________ 9 8,525,758 $26, 500, 000Simnltaneous New York and regional hstings _____________________ 19 18,888,012 352, 600, 000New regional listings of stocks already listed m New York ________ 12 30,717,849 571, 900, 000New York hsted stocks admitted to unlisted trading on regionalexchanges _______________________________________________________ 70 380,874, 820 11, 106, 000, 000

110 439, 006, 439 12,057,000,000Portion only on regional exchanges ________________________________ 9 8,525,758 $26, 500, 000Portion also on New York Stock Exchange _______________________ 79 374, 587, 459 11,816,567,933Portion also on American Stock Exchange ________________________ 22 65,893,222 213, 932, 067

110 439, 006, 439 12, 057, 000, 000

Comparative Volumes on ExchangesMarket value and volume of sales on all domestic stock exchanges

for the year 1953 and for the 6 months ending June 30, 1954, areshown in appendix table 7. Comparable information for prior yearsis shown in previous annual reports.

___ ' _____

TWENTIETH ANNUAL REPORT 29Block Distributions Reported by Stock Exchanges

Rule X-10B-2, in substance, prohibits any person engaged in dis-tributing a security from paying any other person for soliciting orinducing a third person to buy the security on a national securitiesexchange. An exemption from the prohibition of the rule is providedfor those cases where compensation is paid pursuant to the terms ofa plan, :filedby a national securities exchange and declared effectiveby the Commission, authorizing the payment of such compensationin connection with a distribution of securities.

Pursuant to the terms of this exemption, two types of plans havebeen developed to permit distributions of large blocks of securities tobe made on a national securities exchange. The first of these, desig-nated the "Special Offering Plan", was evolved in 1941 as a result ofnumerous conferences between representatives of the Commissionand of various stock exchanges, and the Commission declared effectivea special offering plan for each of the following nine exchanges on thedate shown opposite each:New York Stock Exchange Feb. 14, 1942San Francisco Stock Exchange Apr. 17,1942American Stock Exchange ~ay 15,1942Philadelphia-Baltimore Stock Exchange Sept. 23,1943Detroit Stock Exchange Nov. 18, 1943Midwest Stock Exchange Mar. 27, 1944Cincinnati Stock Exchange June 26,1944Los Angeles Stock Exchange May 28, 1948Boston Stock Exchange Sept. 15,1948

The second type of plan, designated the "Exchange DistributionPlan", was initially declared effective for the New York Stock Ex-change on August 21, 1953 for an experimental period ex...piring onFebruary 26, 1954 which expiration date was subsequently extendedto February 28, 1955. The American, Midwest, and San Franciscostock exchanges each :filed plans similar to that of the New YorkStock Exchange and they were also declared effective for an experi-mental period expiring on February 28, 1955.

These two types of plans permit a block of securities to be distributedthrough the facilities of a national securities exchange when it has beendetermined that the regular market on the floor of the exchange cannotabsorb the particular block within a reasonable time and at a reason-able price or prices. They contain antimanipulative controls and alsorequire participating members to make certain disclosures to personswhose orders are solicited. The principal differences between theprovisions of the two plans is in the manner of determining the offeringprice of the security and the charges to buyers on their purchases ofthe security. In this regard, a special offering is made at a fixed priceconsistent with the existing auction market price of the security while


an exchange distribution is made in the regular auction market on thefloor of the exchange.

Buyers of a security which is the subject of a special offering are notcharged any commission on their purchases and obtain the security atthe net price of the offering. On the other hand, buyers of a securitywhich is the subject of an exchange distribution on the New YorkStock Exchange, American Stock Exchange and San Francisco StockExchange pay commissions in agency transactions and are chargednet prices in principal transactions. In exchange distributions on theMidwest Stock Exchange, however, purchasers need not be chargedcommissions in agency transactions and may be charged the equivalentof a commission in principal transactions.

In addition to these two methods of distributing large blocks ofsecurities on stock exchanges, a third method is commonly employedto distribute blocks of securities listed on exchanges to the publicover the counter, commonly referred to as a "Secondary Distribution".Such distributions take place when it has been determined that itwould not be possible or in the best interest of the various partiesinvolved to sell the shares on the exchange in the regular way or byemploying either the special offering or exchange distribution tech-nique. The distributions generally take place after the close ofexchange trading. As in the case of special offerings, buyers obtain thesecurity from the dealer at the net price of the offering, which usuallyis at or about the most recent price registered on the exchange. It isgenerally the practice of exchanges to require members to obtain theapproval of the exchange before participating in such secondarydistributions.

The following table shows the number and dollar volume of specialofferings and exchange distributions reported by the exchanges havingsuch plans in effect, as well as similar figures for secondary distribu-tions which exchanges have approved for member participation andreported to the Commission.

Total salesTWELVE MONTHS ENDED DECEMBER 31, 195.3'

Number Shares m Value (thou-made orrginal offer Shares sands of

dollars)

Special offermas ___________ ------------------------ 17 470,587 380,680 10,486Exchange distnbutions----7:110::533-Secondary distnbunons ____________________________ 68 6.906,017 108,229

SIX MONTHS ENDED JUNE 30, 1954I

Special oftcnngs IExchange drstnbutions ,Secondary distnbunons 2~ 1 ~~:~~

38 2,355.37863,

3831279,690

2,406.262

1,9467.641

77,763

I Details of these distrrbuttons appear m the Stattsttca! Bulletin published mouthly by the Commission,, The first exchange distrrbution was made January 6, 19M.

_____________________________ -------------- --------------

-- -- -- -- -- ------- _-- --_

, _

TWENTIETH ANNUAL REPORT

UNLISTED TRADING PRIVILEGES ON EXCHANGES

31

Number of Issues Admitted to Unlisted Trading

Securities are said to be admitted to unlisted trading on a stockexchange when the admission to trading is approved by the exchangewithout application by or agreement with the issuer. Such admis-sions are governed by section 12(f) of the Securities Exchange Actthe respective clauses of which section are referred to in the followingtext and tables.

In the tables, the "Clause 1" stocks are the residue of those ad-mitted to unlisted trading prior to March 1, 1934,and they are shownin two categories, those which are "unlisted only" and those whichare also listed and registered on a stock exchange other than thatwhere they are admitted to unlisted trading. The "Clause 2" stocksare those admitted to unlisted trading pursuant to Commission grantsof applications by stock exchanges conditioned on existing listing andregistration on some other stock exchange. The "Clause 3" stocksare those admitted to unlisted trading pursuant to Commission grantsof applications by stock exchanges conditioned upon the availabilityof information substantially equivalent to that filed in the case oflisted issues. The following table, for comparative purposes, alsoshows the number of listed stock issues on each stock exchange.

Number of stock issues available for trading June 30, 1954

Unlisted only' LISted and registered onOn a another evchaugs

Stock exchange listedbaSIS I

Clause 1 Clause 3 Clause 1 Clause 2 Clause3'--- --- --- --- ---

American 513 239 2 53 3 1Boston 88 1 0 157 157 0Chicago Board of Trade __________________ 8 3 0 2 0 0Cmeinnatr., ______________________________ 53 0 0 0 85 0Colorado Springs _________________________ 13 0 0 0 0 0Detroit. __________________________________ 116 0 0 14 105 0Honolulu _________________________________ 56 31 0 0 0 0Los Angeles 180 1 0 39 155 0Midwest. 407 0 0 0 94 0New Orleans _____________________________ 3 9 0 4 2 0New York I,M6 0 0 0 0 0Philadelphia. Baltimore ___________________ 163 4 0 257 140 0Pittsburgh _______________________________ M 0 0 16 59 0Richmond ________________________________ 27 0 0 0 0 0Salt Lake 94 3 0 0 0 1San Francisco mtutug _____________________ 43 0 0 0 0 0San FrancISCO stock _______________________ 209 36 0 65 82 0Spokane 25 5 0 1 1 0Wheeling 16 0 0 0 3 0--- --- --- ---Total' 3,614 332 2 608 886 2

I Includes Issues registered, issues temporarily exempted from registration, and ISsues hsted on the 4exemptedexch.mges

None of these ISsues has any hsted status on any dornestio stock exchange, except that 9 of the 36 SanFrancISCO Stock Exchange ISSUesare also listed on an exempted exchange.

3 These issues became hsted and registered on other exchanges subsequent to their admlssion to unlistedtrading pursuant to Clause 3011 the Amencan and Salt Lake exchanges.

, Duplication of issues among exchanges brings the figures to more than the actual number of ISSUesinvolved,

326394-55-4

______•__________________________ ________• __________________________

______________________• _______________________________• _______

________________________• _______

'

_________________________•_______

__________________________•________________________________• _______

______________________• _______ --- ---

•


Volume of Unlisted Trading in Stocks on Exchanges

The reported volume of shares traded on an unlisted basis on the-stock exchanges during the calendar year 1953 included 20,968,165in stocks admitted to unlisted trading only and 21,457,187 in stocks-listed and registered on an exchange other than that where the un-listed trading occurred. These amounts were respectively 3.30% and3.38% of the total share volume reported on all exchanges.

Unlisted share volume on exchanges in 1953

U nlisted only I Listed and registered on another

Stock exchangeexchange

Clause 1 Clause 3 Clause 1 Clause 2 Olause B

Amerrcan _________________________ 18,399,824 15,640 4,543,529 689,900 13,090Boston 8,622 0 1,591,663 974, 945 0Chicago Board of Tmde 0 0 0 0 0CmcmnatL 0 0 0 260,980 0Colorado Springs __________________________ 0 0 0 0 0Detroit ___________________ 0 0 179,482 1,150,731 0Honolulu 41,149 0 0 0 0Los Angeles_. 2, 154 0 699,821 1,636,904 0Midwest. ________________________________ 0 0 0 4,080,608 0New Orleans 31,143 0 2,001 6,163 ItNew York Stock _________________________ . 0 0 0 0 0Phtladelphia- Baltimore. . 17,337 0 2,015,492 1,055,034 0Pittsburgh 0 0 187,996 2C4,216 0Biehmond _______________________________ . 0 0 0 0 0Salt Lake _________________________________ 298 0 0 0 482San FrancISCO Mmmg, ____________________ 0 0 0 0 0San FrancISCO Stock 2,337,218 0 1,160,207 996,065 0Spokane 114,780 0 1,400 20 0Washington, D. C.' _______________________ 0 0 0 4,743 0Wheeling __________________________________ 0 0 0 1,715 0

20,952,525 15,640 10,381,591 11,062,024 13,572

I Pnor to merger into Phlladelphra-Baltnnore Stock Exchange.

The volumes are as reported by the stock exchanges or otherreporting agencies, and are less than the actual amounts in somecases, particularly with respect to American Stock Exchange figures,which exclude odd lots and other items not reported on the stocktickers. The figures are exclusive of volumes in short-term rights.Applications for Unlisted Trading Privileges

Pursuant to applications filed by the exchanges under Clause 2 ofsection 12 (f) and approved by the Commission during the fiscal year,unlisted trading privileges were extended as follows:

NumberStock exchange of ,tockBBoston_______________________________________________________ 16Clncinnati____________________________________________________ 16I>ctroit_______________________________________________________ 9Los Angeles . . .__ 14Philadelphia-Baltimore _ 6Pittsburgh____________________________________________________ 3San Francisco__________________________________________ 5

69

•_______ __________• _________________________

_______________• ________ • ________• ____________• ___

•_________________________________• ________________

____________• ________________•

______________________• _______

_____• _____• ______ ________________________• _______

•

__• __________________________________• ____________________

•

TWENTIETH ANNUAL REPORT 33Changes in Securities Admitted to Unlisted Trading Privileges

The usual considerable number of notifications of minor changes insecurities admitted to unlisted trading was received during the fiscalyear from the stock exchanges pursuant to paragraph (a) of ruleX-12F-2.

Applications for continuance of trading in unlisted issues after moreimportant changes than those contemplated under paragraph (a) ofrule X-12F-2 are made under paragraph (b) thereof. Three suchapplications were filed during the fiscal year by the American Stock;Exchange, of which 2 were granted and 1 withdrawn.

DELISTING OF SECURITIES FROM EXCHANGES

Securities Delisted by Application

During the fiscal year ending June 30,1954, the Commission granted20 applications filed by exchanges or issuers to strike securities fromexchange listing and registration pursuant to section 12 (d) and ruleX-12D2-1. The applications included 11 by exchanges, covering 8stock and 9 bond issues; and 9 by issuers, covering 8 stock issues, 1 ofwhich was removed from 2 exchanges. The applications by exchangeswere based on the undesirability, for various reasons, of further ex-change trading. The applications by issuers were based on liquida-tion in one instance, reduced public holdings and limited trading vol-umes in two, and on the fact that the stock remained listed on anotherexchange in the remaining instances.Securities Dellsted by Notification

Notifications effecting the removal because of redemption or retire-ment of 115 issues from listing and registration on national securitiesexchanges were received during the fiscal year. Removals from morethan one exchange brought the total removals to 136. The AmericanStock Exchange removed 7 issues from listing and registration whenthey became listed and registered on the New York Stock Exchange.The exempted exchanges removed 3 issues from listed trading thereon.

MANIPULATION AND STABILIZATIONManipulation

The Securities Exchange Act prohibits manipulative practices in thesecurities markets. The Commission's analysts constantly watch forunusual or unexplained market activity. They observe the tickers ofthe leading exchanges and examine the quotation sheets of all ex-changes.. The financial news-ticker, leading newspapers and variousfinancial publications and services are also closely followed. Over-the-counter surveillance is maintained by the examination of the bidsand offers appearing in the sheets of the national quotation servicesand charts are kept on securities having actively quoted markets.


179 14

79 11100 3

When unusual or unexplained market activity is observed, all knowninformation regarding the security is evaluated and a decision made asto the necessity for an investigation. These investigations take twoforms. The "quiz" or "preliminary" investigation is designed rapidlyto discover evidence of unlawful activity. If a quiz discloses no evi-dence of violations it is closed. If violations are discovered, the in-formation obtained in the quiz is made available to the proper divisionof the Commission or to the appropriate outside agency for punitiveor corrective action. If the quiz indicates that more intensive in-vestigation is necessary, a formal order may be issued by the Com-mission. Such an order empowers members of the staff to subpoenapertinent material and to take testimony under oath. Virtually allof the Commission's investigations are privately conducted so thatno unfair reflection will be cast on any persons or securities and thetrading markets will not be upset.

The following table shows the number of quizzes and formal investi-gations initiated in the fiscal year 1954 and the number closed or com-pleted during the same period and tho number pending at the endingof the fiscal year:

Trading inuestiqatume

I Quizzesgatlons

------------------------1---Pending June 30, 1953Imtiated during fiscal year

------Total to be accounted for

Closed Of completed during fiscal yearCbanged to formal during fiscal year 110 4

3

113 4Total disposed of.

Pending at end of fiscal year_________________________________________________________ 66 10

When securities are to be offered to the public their markets arewatched very closely to make sure that the price is not artificiallyraised prior to the distribution. .All registered offerings and allofferings made under Regulations A and D (in all some 1849 offeringshaving a value exceeding $9,365,000,000)were so observed during thefiscal year. Hundreds of other smaller offerings, such as secondarydistributions and distributions of securities under special plans filedby the exchanges, were also checked and many were kept underspecial observation for considerable lengths of time.Stabilization

All stabilizing operations are very carefully observed. During thefiscal year, stabilizing was effected in connection with stock offeringsaggregating 21,759,000 shares having an aggregate public offeringprice of $403,086,000. Bond issues having a total offering price of

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TWENTIETH A.."il'.'1JALREPORT 35

$65,000,000 were also stabilized. To accomplish this stabilization,220,257 shares of stock were purchased by the offerors at a cost of$3,657,000. Bonds costing $442,500 were also bought by stabilizers.In connection with these operations more than 7,000 stabilizingreports were received and examined during the fiscal year.

During the fiscal year, the Commission engaged in the formulationand release for public comment of rules relating to the stabilization ofsecurities under the Securities Exchange Act.' Three proposed rulesdeal with (l) permissible underwriters' trading prior to and during adistribution; (2) the times, methods and prices at which stabilizingtransactions are permissible; and (3) permissible stabilizing trans-actions in connection with the offering of rights to security holdersto subscribe for additional securities.

Following the Commission's Statement of Policy in 1940/ ratherthan promulgate specific rules in connection with stabilizing practices,the Commission had depended upon informal interpretations, some ofwhich were issued in the form of releases but most of which wereindividually rendered by letter or telephone in answer to specific re-quest. The Committee on Interstate and Foreign Commerce of theHouse of Representatives recommended in a report, dated December30, 1952, that "The Commission should earnestly and expeditiouslygrapple with the problem of stabilization with the view either of theearly promulgation of rules publicly covering these operations, or ofrecommending to the Congress such changes in legislation as its ex-perience and study show now to be desirable." 3 The proposed ruleswere circulated for public comment on May 18, 1954, after intensivestudy by the staff and review by the Commission.

After the close of the fiscal year, a public hearing was held on July8, 1954, and since that time an ad hoc committee of the public hasconferred with and submitted additional proposals to the staff. Thefinal recommendations of the staff with respect to the proposed rulesare expected to be submitted to the Commission in the near future.

SECURITY OWNERSHIP BY CORPORATION INSIDERS

Officers, directors and owners of more than 10% of a listed stockare required by section 16(a) of the Securities Exchange Act to filewith the Commission and the exchange, initial reports disclosing theirdirect and indirect beneficial ownership of each class of stock issuedby their company and additional reports disclosing subsequent changesin such ownership. The Public Utility Holding Company Act and theInvestment Company Act contain similar requirements.

1 Securities Exchange Act release No 5040 (May 18, 1954).2 Securities Exchange Act release No, 2446 (March 18, 1940).3 House of Representatives, Report No 2508, 82d Congress, 2d session, page 3.

36 SECURITIES AND EXCHANGE CO:MMISSION

Deseripnon of report

All reports are available for public inspection. Inaddition, in orderto make the information filed pursuant to the regulation readilyavailable in usable form, it is condensed and published in the Com-mission's monthly "Official Summary of Security Transactions andHoldings," which is distributed on a subscription basis by the Govern-ment Printing Office.

The steady growth over a number of years in the volume of insiders'reports filed with the Commission, mentioned in last year's annualreport, continued during the 1954 fiscal year. Compared with the14,765 reports filed during the 1944 fiscal year, the 23,199 reportsfiled in 1954 reflect a 10-year increase in these annual :filingsapproxi-mating 57%. The following tabulation shows details concerning thereports filed during the 1954 fiscal year.

Number of ownership reports of officers, directors, principal security holders, andcertain other affiliated persons filed and examined during the fiscal year endedJune 30, 1954-

I Original Amended Totalreports reports

--------------------i---------seeunnes Exchange Act of 1934 1Form 4

Form 5Form 6

19,555366

2,122

5215

14

20,076371

2,136Total______________ 22,043 540 22,583

Pubhc UtilIty Holding Company Act of 1935:Form U-17-1Form U-17-2

Total

Investment Company Act of 1940:'Form N--30F-1Form N-30F-2

57271328

54231

3o3

oo

60271331

54231

Total. 285 0 285

Grand totaL.______________________________________________________ 22, 656 543 23,199

I Form 4ls used to report changes in ownership; Form 5to report ownership at the time any equity securityIs first listed and registered on a national securities exchange; and Form 6 to report ownership of personswho subsequently become officers, directors or principal stockholders of the issuer .

Form U-17-1 is used for initial reports and Form U-17-2 for reports of changes of ownership.s Form N-30F-lls used for initial reports and Form N-30F-2 for reports of changes of ownership.

Recovery of Insiders' Profits by CompanyFor the purpose of preventing the unfair use of information which

may have been obtained by an insider by reason of his relationshipto his company, sections 16 (b) of the Securities Exchange Act, 17 (b)of the Public Utility Holding Company Act, and 30 (f) of the Invest-ment Company Act provide for the recovery by or on behalf of theissuer of any profit realized by the insider from certain purchases and'sales, or sales and purchases, of securities of the company withinany period of less than 6 months. The Commission is not chargedwith the enforcement of the civil remedies created by these provisions,which are matters for determination by the courts in actions brought

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by the proper parties. However, the Commission has participatedas amicus curiae in a number of suits instituted under these provisionswhere questions of statutory interpretation are involved.

REGULATION OF PROXIES

Scope of Proxy RegulationUnder sections 14 (a) of the Securities Exchange Act, 12 (e) of the

Public Utility Holding Company Act of 1935, and 20 (a) of the Invest-ment Company Act of 1940 the Commission has adopted RegulationX-14 requiring the disclosure of pertinent information in connectionwith the solicitation of proxies, consents and authorizations in respectof securities of companies subject to those statutes. The regulationalso provides means whereby any security holders so desiring may com-municate with other security holders when management is solicitingproxies, either by arranging for the independent distribution of theirown proxy statements or by including their proposals in the proxystatements sent out by management.

Copies of proposed proxy material must be filed with the Com-mission in preliminary form at least 10 days prior to the date of theproposed solicitation. Where preliminary material fails to meet theprescribed disclosure standards, the management or other groupresponsible for its preparation is notified informally and given anopportunity to avoid such defects in the preparation of the proxymaterial in the definitive form in which it may be furnished to allstockholders.Statistics Relating to Proxy Statements

During the calendar year 1953 1,860 solicitations were made pur-suant to Regulation X-14. of which 1,838 were conducted by manage-ment and 22 by non-management groups.

The purpose for which proxies are most often sought is the votingfor nominees for directors. In 1953 this was an item of business in1,715 stockholders' meetings, while at 119 meetings it was not in-volved. The remaining 26 solicitations sought consents or authori-zations from stockholders with respect to proposals not involving anymeeting or any election of directors.

The 1,838 management solicitations were made in 1953 by 1,695companies, the difference of 143 in these figures reflecting repeatedsolicitations made in certain cases. Such repeated solicitations,whether by management or opposition groups, arise especially inconnection with proxy contests.

During the first five months of 1954, twenty-five companies weresubject to proxy contests for control or for representation on theboard of directors compared to 18 such contests during the entire.cal~ndar year 1953.


The nature and the frequency of corporate business other thanelection of directors on which stockholders' decisions were sought inthe calendar year 1953 are shown below.

Numberof proxy

Nature of bU"'1ess other than electIOn of directors stoJemenuMergers, consolidations, acquisition of businesses, and purchases and sales

ofproperly_____________________________________________________ 66Issuance of new securities, modification of existing securities, and re-

capitalization plans other than mergers and consolidations____________ 197Employee pension plans; ____________ __ __ ____ __ _ 94Employee stock purchase and stock option plans______________________ 98Bonus and profit-sharing plans; __ __________ __ ___ __ __ ______ 31Indemnification of officers and directors.. _ _______________ _____ __ 14Approval of independent auditors____________________________________ 463Amendments to by-laws, and other matters___________________________ 205

REGULATION OF BROKERS AND DEALERS IN OVER-THE-COUNTERMARKETS

Registration

Section 15 (a) of the Securities Exchange Act requires the regis-tration of brokers and dealers using the mails or instrumentalities ofinterstate commerce to effect transactions in securities on the over-the-counter markets, except those brokers and dealers whose businessis exclusively intrastate or exclusively in exempt securities.

Set forth below are certain data with respect to registrations ofbrokers and dealers and applications therefor during the fiscal year1954:Effective registrations at close of preceding fiscal year __________________ 4, 053Applications pending at close of preceding year________________________ 57Applications filed during year_______________________________________ 584

Total 4,694

Applications deniedApplications withdrawn __ . _ Applications cancelledRegistrations withdrawnRegistrations cancelledRegistration suspended pending determination of revocation proceedings __ Registrations revokedRegistrations effective at end of year-Applications pending at end of year

5171

383881

204, 132

47Total 4,694

Simplification of Forms and Rules Applicable to the Registration of Broker-Dealers

The Commission during the fiscal year substantially revised formsand rules pertaining to the registration of brokers and dealers.'

Becurrnes Exchange Act release No. 5000(February 15, 1954).

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TWENTIETH ANNUAL REPORT 39This action was taken in connection with a comprehensive review ofrules, regulations, forms and procedures, to eliminate duplication andto simplify the requirements wherever practicable without prejudiceto the public interest or to the protection of investors.

In adopting the new forms for registration as a broker-dealer andin revising applicable rules, the Commission acted on the view that,wherever possible, an application for registration should be limitedgenerally to information necessary to determine whether a registrant,or an applicant for registration, or any controlled, or controllingperson, is subject to a statutory disqualification.

Form BD adopted during the year, applicable to brokers and dealers,is an all-purpose form to be used: (1) as the form of application forregistration; (2) as the form to amend such an application; and (3)as the form of supplemental report to be filed by a registered person.The new four page Form BD contains only nine items or questions,whereas Form 3-M previously used as an application for registration,consisted of twelve pages and required furnishing information undertwenty-seven items. Adoption of Form BD made it possible torescind the single-purpose Forms 3-M, 4-M, 5-M and 6-~f formerlyused by broker-dealers. As a part of these actions the Commission,in each instance, amended applicable rules under the controllingstatutes.

Both the previous and the current rules require that the informationcontained in the application for registration of brokers or dealers bekept current by amendments to the original application. By providingthat the new forms may be used as supplements to tlie old forms,persons registered before adoption of the new forms are now requiredonly to furnish current information with respect to the informationin the abbreviated and simplified new forms. It is anticipated that,after these initial supplements have been filed, there will be a sub-stantial reduction in the volume of amendments required to be filedwith the Commission by registered broker-dealers.

Administrative Proceedings

The Commission is empowered, with due regard for the publicinterest and the protection of investors, to deny or revoke the regis-tration of brokers and dealers pursuant to section 15 (b) of the Actand, pursuant to section 15A and 19 (a) of the Act, to suspend or expelbrokers and dealers from membership in a national securities associ-ation or national securities exchange, where misconduct of varioustypes on the part of the broker-dealer, or its partners, officers,directorsor employees is shown:


The following tabulations reflect the type and number of suchadministrative proceedings instituted by the Commission during the-1954 fiscal year and their disposition:

Administrative proceedings to deny and revoke registration, to BUllpendand ezpelfrom membership in a national securities associaiion or exohanqe

Proceedings pending at start of fiscal year to:Revoke registratdon., , ____ ___ ____ __________ _ 29Revoke registration and suspend or expel from NASD 1 or exchangea.; , 12Deny registration to applicant____________________________________ 0

Total proceedings pending; _ _ __ _ __ _____ ___ __ 41

Proceedings insitituted during fiscal year to:Revoke registration., ____ ________ _ _____________ 12

Revoke registration and suspend or expel from NASD or exchanges.L; ; 5Deny registration to applicants____________________________________ IS

Total proceedings Instituted , ____ _ ________ ___ 35-

Total proceedings current during fiscal year_______________________ 7&

Disposition of proceedings

Proceedings to revoke registration:Dismissed on withdrawal of registration , _____ ______ _____ ____ 6Dismissed on cancellation of registration____________________________ 5-Dismissed-registration permitted to continue in effect_______________ &Registration revoked.; , __ __ _ _ ____ 15-

Total________________________________________________________ 3Z,Proceedings to revoke registration and suspend or expel from NASD or ex-

changes:Registration revoked and registrant expelled from NASD_____________ 2Registration revoked and registrant expelled from N ASD and exchanges., 1Registration revoked-no action taken on NASD membership_________ 2'Dismissed-registration and membership permitted to continue in effeet., 2'Suspended for a period of time from NASD_________________________ Z

Total________________________________________________________ 9.

Proceedings to deny registration to applicant:Dismissed on withdrawal of application____________________________ 9-Discontinued on cancellation of broker-dealer application_____________ 1Registration denied; ____ __ _____ ____________ _____ _______ 5-

Total________________________________________________________ 15.

Total proceedings disposed oL__________________________________ 56.

I The National ASSOCiationof Securities Dealers, Inc. Is the onl~ national securities association registered!with the Commission.

TWENTIETH ANNUAL REPORT 41Disposition of proceedings-Continued

Proceedings pending at the end of fiscal year to:Revoke registration_____ ______ ______ ________ _ 10Revoke registration and suspend or expel from NASD or exohangea.c , , 7Deny registration to applicants____________________________________ 3

Total proceedings pending at end of fiscal year____________________ 20

Total proceedings accounted for_________________________________ 76

.As shown in the above table, there were no proceedings on1 thequestion of denial of registration pending at the beginning of thefiscal year. However, 18 such proceedings were instituted duringthe year of which 16 related to applications for registration filed byCanadian brokers and dealers. The Commission orders for proceed-ings in the latter group charged, in effect, that the Canadian brokersand dealers had sold and delivered to persons in the United Statesstock of certain Canadian companies in violation of the securitiesregistration and anti-fraud provisions of the Securities Act of 1933and the broker-dealer registration provisions of the Exchange Act.During the pendency of these proceedings, 9 of the respondentswithdrew their applications for registration; one application wascancelled because of the death of the respondent and one proceedingis still pending. The Commission issued orders of denial in theremaining 5 cases,"

Three administrative proceedings decided during the year involved,among other things, the failure of a firm to comply with the netcapital requirements of the Commission. In one case the Commissionrevoked registrant's registration 6 because its aggregate indebtednessexceeded 2000 per centum of its net capital, and in another the Com-mission made similar findings with respect to violation of the netcapital rule and also found that registrant failed to keep its booksand records current and failed to disclose that the controlling interestin the firm had been sold to an undisclosed person.' In the thirdcase violation of the net capital rule was also found but the Commissionnoted that the firm had revised its practices and concluded that asuspension from membership in the National Association of SecuritiesDealers, Inc. for a period of 10 days was a sufficient sanction."

Some of the other proceedings disposed of during the year involvedviolations of rule X-17A-5 in that the registrants in some instancesfiled false and misleading financial statements with this Commission,

I Adelaide Securltiu, Ltd., Becurities Exchange Act release No. 5041; R. W. Brown, Ltd., secunties Ex.change Act release :'<0. 5042;HarT1l RaU7nOnd CGT1I, dba H. R. COT1J Co., Seeurrtres Exchange Act releaseNo. 5043; Greenwood SecuritieS Corporation, Ltd., seounues Exchange AGtrelease No.liO«; '1ormont '1radlnl1Corporation, Ltd., Securities Exchange Act release No. 5045.

I Miller'" Co., Securities Exchange Act release No. 4931., Kobbe Co., Inc., Securities Exchange Act release No. 4940.

Douglass'" Co., Secnrities Exchange Act release No. 5039.

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42 SECURITIES AND EXCHA..''IWECOMMISSION

and in other instances failed to file statements of financial conditionas required by the rule. In other instances, permanent injunctionsrestraining the registrants from engaging in and continuing unlawfulacts and practices in connection with the purchase and sale of securitieswere the basis for the revocation orders.Broker-Dealer Inspections

Section 17 (a) of the Securities Exchange Act empowers the Com-mission to make periodic, special, and other examinations of the booksand records of brokers and dealers. Under this section the Commis-sion conducts an inspection program to determine whether brokersand dealers are complying with the requirements of the Acts admin-istered by the Commission.

During the fiscal year the Commission's Regional Offices reportedon 788 such inspections, 621 of which were inspections of members ofthe NASD. As in former years, a substantial number of violationsof the rules and regulations were discovered, including non-compliancewith the capital rule, the hypothecation rule and Regulation T pre-scribed by the Board of Governors of the Federal Reserve System.There were a very few instances where brokers and dealers were tak-ing secret profits. There were a number of transactions in which thereasonableness of the price charged to the customer in relation to thecurrent market price, or the concurrent cost, was questionable, and asubstantial number of miscellaneous infractions too scattered andvaried to classify.

The Commission does not necessarily take formal action against aregistered broker or dealer who appears from these inspections tohave violated the Acts. The character of the activity and the publicinterest are considered in determining whether action is appropriate.If the violations appear to be inadvertent or the result of misinforma-tion, the Commission affords the broker-dealer an opportunity tocorrect its practices if possible, or to satisfy the Commission that theywill not continue.

The extent of the broker-dealer inspection program depends pri-marily on the availability of funds. Many members of the investingpublic have the erroneous impression that every registered broker-dealer firm is inspected regularly in a manner comparable to theexaminations made of banking institutions. This, of course, is not so,and would be possible only with a substantial increase in personneland a corresponding increase in costs.

In addition to the .Commission, inspections of brokers and dealersare made by the National Association of Securities Dealers, Inc.,some of the national securities exchanges and some of the states.These inspections vary widely in character, scope, and frequency.There have been cases where several agencies have inspected a single

TWENTIETH AlIj'NUALREPORT 43firm in a relatively short period of time, and others where a firm sub-ject to inspection by several agencies has remained uninspected foran extended period. This problem calls for coordination betweeninspecting agencies designed to avoid multiplicity of inspections ofsome firms and long-term omission of inspections of other firms.

A survey conducted by the SEC Liaison Committee of the NationalAssociation of Securities Administrators, working in cooperation withthis Commission, indicated a lack of uniformity in inspection pro-grams and differences in jurisdiction which make impracticable asystem whereby the findings of one inspecting agency would be avail-able to other agencies. The results of this survey were discussed withrepresentatives of National Association of Securities Administrators,various national securities exchanges and the 1\ational Association ofSecurities Dealers, Inc.

This study culminated in adoption of a program for the interchangeof information as to dates of inspection between inspecting agencies.However, under this program, the results of any inspections are con-fidential to the inspecting agency. This pooling of information as towhen and by whom inspections have recently been made permits thescheduling of routine inspections so as to reduce haphazard duplica-tions of inspections and omissions to inspect. The program appliesonly to routine inspections, and no inspecting agency is in any wayrestricted in its freedom to inspect or investigate for good cause, suchas on a customer's complaint or an indication of unsatisfactory finan-cial condition. To evaluate the program would be impracticable atthis early date, but there are indications that it will effectively reducethe number of uninspected and overinspected firms.

The active participants at the year-end included the Commission,the National Association of Securities Dealers, Inc., the New YorkStock Exchange, the American Stock Exchange, the San FranciscoStock Exchange, the Midwest Stock Exchange and practically everystate whose laws and procedures provide for an effective inspectionor examination program, including the states of California, Con-necticut, Illinois, Michigan, Minnesota, Oklahoma, Oregon, Wash-ington and Wisconsin. It is anticipated that, as other exchanges andstates develop effective inspection programs, their participation inthis cooperative effort will become of increasing importance. Inaddition to the states named above many others which conduct lim-ited inspection programs have signified their cooperation to the extentof their jurisdiction and inspection facilities.Investigations

Investigations of brokers and dealers may result from the inspec-tion program, complaints from members of the public or information

SECURITIES AND EXCHANGE COMMISSION

received from sources such as state securities commissions, securitiesexchanges and associations and "better business bureaus." Wheninvestigations are completed and the evidence has been analyzed, the:staff, where appropriate, recommends to the Commission that itinstitute injunctive action or institute proceedings to revoke registra-tion or to suspend or expel from membership in the national securitiesexchange or association to which the broker or dealer may belong, orrefer the matter to the Department of Justice for criminal prosecution.

The number of such investigations during the fiscal year were asfollows:

Pending July 1, 1953____ ___________ ____ _______ __ 185Commenced duringyear________________________________ 75Closed during year _ _ _ _ _ _______ __ _______ ___ 149Pending July 1, 1954 -_________________________ 111

Financial Reports

The Commission's rule X-17A-5 requires brokers and dealers tofile financial reports each calendar year. During the 1954 fiscal year3950 such reports were filed. Examination of the financial reportfiled by a broker-dealer affords the staff an opportunity to determinewhether, as of the date of the report, the firm is in compliance withthe capital requirements prescribed by rule X-15C3-1, and if it isnot, the fum is given an opportunity, if consistent with the publicinterest and the protection of investors, to bring its financial conditionup to the required standards. If the firm fails to do so promply, theCommission takes appropriate action.

SUPERVISION OF ACTIVITIES OF NATIONAL ASSOCIATION OFSECURITIES DEALERS, INC.

Membership

The National Association of Securities Dealers, Inc. continued asthe only national securities association registered with the Com-mission. The Association reported that during the fiscal year itsmembership increased by 57 to a total of 3,091 at June 30, 1954, as aresult of 281 admissions to, and 224 terminations of membership.The Association also reported that at June 30, 1954 there were regis-tered with it as registered representatives 35,679 individuals, in-cluding generally all partners, officers, salesmen, traders and otherpersons associated with, or employed by, member firms in capacitieswhich involve their doing business directly with the public. Thenumber of persons so registered increased by 2,091 during the yearas a result of 6,087 initial registrations, 2,250 re-registrations and6,246 terminations of registration.Disciplinary Actions

During the fiscal year the Commission received from the NASDreports of final action in twenty-seven disciplinary proceedings in


which formal complaints alleging violations of specified provisions ofthe Association's Rules of Fair Practice had been filed against mem-bers, eight of which involved members and the remaining nineteeninvolved not only members, but also one or more registered represent-atives of such members.

In five of the proceedings members were expelled, in seven memberswere fined and in six were censured, and in ten no disciplinary actionwas taken against the members. With respect to registered represent-atives, the registrations of seven were revoked, four were suspended,fines were imposed on four representatives and censure upon six, andthe complaint was dismissed in one case. In a few of the cases morethan one type of sanction was imposed with respect to the persondisciplined. The fines imposed ranged from $100 to $3,500 and thesuspensions from 14 days to one year. In some instances costs wereassessed.<Commission Review of NASD Disciplinary Actions

Section 15A (g) of the Act provides that disciplinary actions by theNASD are subject to review by the Commission on its own motion,or on the application of any aggrieved person. Two such petitions,described in earlier Annual Reports, were pending at the close of thelast fiscal year and during the year their status remained unchanged. 9

In addition, three other petitions were filed during the year. One ofthese, filed on behalf of Gilbert Parker Investing, Inc. under thissection and in the alternative under section 15A(b) (4) describedbelow, concerned a decision by the NASD that Parker and his firmwere not eligible for membership because of a disqualification arisingfrom an earlier NASD disciplinary action. This petition was with-drawn prior to determination by the Commission.

Petitions for review were filed with the Commission with respect totwo decisions of the Board of Governors of the NASD expellingmembers found to have violated designated rules in selling oil royaltiesto customers at unfair prices and to have by such violations beenguilty of conduct inconsistent with just and equitable principles oftrade. Both these appeals were pending at the end of the fiscalyear.Commission Review of Action on Membership

The Act in section 15A (b) (4) and the by-laws of the NASD providethat, except where the Commission with due regard to the publicinterest approves or directs to the contrary, no broker or dealer may be

, The pending cases concern petrtions filed by Earl L. Combest from" two-year suspension as registered-representative and a fine of $2,500, and by OtIS & Co. from a two-year suspension from membersrnp. Subse-quent to the close of the fiscal year the suspension of Combest was cancelled but the action imposing the tinewas affirmed. (Securities Exchange Act Release No. 5064, July 13,1954) and the petition of OtIS & Co. wasdlsmlSSCd moot, follOWIng the revocation by the N ASD of its suspension order (Securrtles Exchange ActRelease No 5110, November 4,1954.)

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admitted to or continued in membership if he or any controlling orcontrolled person is expelled or is currently under suspension fromsuch an association for violation of a rule prohibiting conduct incon-sistent with just and equitable principles of trade, or is subject to anorder of the Commission denying or revoking his broker-dealer regis-tration, or was a "cause" of any such order of expulsion, currentsuspension or denial or revocation.

Pursuant to this authority the Commission approved applicationsfor the continuation in membership of three firms while employingpersons formerly associated with Charles E. Bailey & CO.lOand onefirm employing a person formerly associated with Mason, Moran & Co."

The status of two other cases pending at the start of this fiscal yearwas unchanged at the year end."Commission Action on NASD Rules

Section 15A (j) of the Act provides that the Commission shalldisapprove changes in the rules of a national securities associationunless such changes appear to the Commission to be consistent withthe requirements for such rules as contained in sub-section 15A(b) ofthe Act.

The Commission, on June 30, 1952, had disapproved, pending fur-ther order, a rule adopted by the Association providing for noticeunder certain conditions to a member (the "employer member")before another member (the "executing member") knowingly executespurchases or sales of a security for the account of a partner, officer,registered representative or employee of the employer member."At the same time the Commission gave notice that it had under con-sideration a proposal to adopt rule X-10B-6 which had the samebroad objective. Broadly stated, both rules were designed to pro-vide notice to a firm of transactions by employees or associateseffected through other firms so that a member, in his own interestand in the interest of his customers, might weigh the effect, if any,of such transactions handled outside his own office.

The Commission on the basis of further study of the problem in-volved and on the comments received on its proposed rule concludedthat its own rule should not be adopted and that the Association'srule should be permitted to become effective. The Commission byorder, therefore, vacated its earlier order which had disapproved theAssociation's proposed rule. i4

10 seeunues Exchange Art Release No. 5030 (Apnl 20, 1954).II Seeurrties Exchange Act Release No 5025 (AprIl 8, 1954).IJ The pending cases coneerned peutions filed on behalf of. Franklm Drstributors, Inc. (Securities Ex.

change Act Release No 4818); and a member firm seekmg approval of Its contmuance as a member WIthWilliam A. Spanier as an employee and controlled person. (Securitres Exchange Act Release No. 481l.)

13 Becurrtres Exchange Act Release No 4723 (June 30,1952)."SecurItIes Exchange Act Release No. 4924 (August 21, 1953).

TWENTIETH A...~UAL REPORT 47Change in Commission Rules Applicable to NASD

As another step in its program for the simplification of rules,the Commission adopted amendments to paragraph (b) of its ruleX-15AJ-l and to Forms X-15AA-l and X-15AJ-2 under the Secu-rities Exchange Act which had the effect of reducing the informationrequired to be filed with the Commission by national securities asso-eiations." The amendments eliminated a requirement that such anassociation file annually with the Commission as a part of its regis-tration statement a list of members arranged on a geographical basisand information concerning the amount of dues payable each yearby each member. The amendments were adopted at the request ofthe NASD on the grounds that the information had little value butwas difficult and expensive to compile.

In addition the Association during the year amended sections 4,5 and 6 of Article XV of the by-laws and section 27 (a) of Article IIIof the Rules of Fair Practice all of which relate to registered repre-sentatives. The effect of the integrated amendments to the by-lawswas to provide for continuous jurisdiction over a registered represen-tative so that a change of employment from one member to anotherwould no longer terminate the responsibility of the representative foractions committed during a previous employment. Section 27(a) ofthe Rules of Fair Practice imposed on a member an obligation tosupervise certain activities of specified employees. The amendmentto this section extended the scope of the rule to encompass all regis-tered representatives, instead of only salesmen, and to all transactionswith or for a customer, instead of only sales or offers to customers.

LITIGATION UNDER THE SECURITIES EXCHANGE ACT

During the fiscal year the Commission found it necessary to applyto the federal courts on a number of occasions for injunctive reliefto prevent continuing violations of the Securities Exchange Act.

One such action was S.E.O. vs. Lawrence L. Smith,16 in which theCommission's complaint charged the defendant with violating theanti-manipulative and anti-fraud provisions of the Act in that heeffected a series of transactions in a security registered on a nationalsecurities exchange for the purpose of inducing others to purchase orsell shares of such security. The orders were placed with severalbrokers. The complaint alleged that the defendant represented tobrokers that he would pay for the securities purchased for his accounton the settlement date when, in fact, the defendant knew that hecould not settle and pay on the due date. It was also charged that

11securlnes Exchange Act release No. 4942 (September 22,1963).liD. Marne No. 1033.

326394-55-5


the defendant issued checks in purported payment for securities pur-chased on his order when, in fact, the defendant knew he had insuf-ficient funds available to honor such checks. Because of the activi-ties of the defendant, certain brokers and dealers were forced to sellthe securities on the market at prices less than the amount agreedto be paid by the defendant and less than the cost of such securitiesto such brokers and dealers. The defendant consented to the entryof judgment.

In connection with an investigation the Commission found itnecessary to file a complaint in S.E.O. vs. Charles M. Weber, doingbusiness as Weber-Millican Oompany,17 a registered broker-dealer, torequire registrant to permit representatives of the Commission toexamine certain books and records. The complaint alleged thatWeber-Millican refused to make available for reasonable inspectionand examination by representatives of the Commission, as requiredby the Act, books and records which the defendant must keep andmake available pursuant to the rules adopted under the statute.The defendant consented to the entry of judgment.

A complaint charging violation of the Commission's net capitalrule was filed in S.E.O. vs. W. E. Buford & 00., Inc:" The com-plaint alleged that the defendant's aggregate indebtedness to otherpersons exceeded 2000 per centum of its net capital as defined in therule. In addition to an injunction the Commission also sought theappointment of a receiver. Subsequent to the filing of thc complaintand the entry of a temporary restraining order, the defendant enteredinto certain transactions and arrangements with creditors whichbrought its financial condition within the standards prescribed by therule promulgated for the protection of investors. Under the circum-stances the Commission entered into a stipulation with the defendantforming the basis of the court's order wherein W. E. Buford & Co.,Inc. consented to the entry of a judgment to enjoin the defendantfrom future violations of the rule and undertook to file with theCommission monthly financial reports for one year. It was providedthat if the defendant is in full compliance with the requirements ofthe Commission's rule for the one-year period, the court may vacatethe judgment on motion of the defendant. However, the defendantagreed that if during that period he should violate the rule, he wouldnot oppose an application by the Commission for the appointment ofa receiver of the defendant's business. Jurisdiction was retained bythe court for the purpose of giving full effect to this arrangement.

In S.E.a. vs, George McKaig,19 the Commission alleged thatMcKaig, individually and doing business as George McKaig & Com-

17 S. D. New York No. 90--147.18 W. D. Virginia No. 391.II D. Maille No. 1132.


pany, hypothecated securities of customers under circumstanceswhich permitted the securities to be subjected to liens in excess ofthose permitted by Commission rules. In addition to charging otherviolations of the hypothecation rules, the complaint also chargedthat the defendant permitted his indebtedness to exceed the limita-tions prescribed by the Commission's net capital rule, that he failedto keep required books and records, and filed uncertified accounts offinancial condition, although required to file certified reports. Theaction was pending at the end of the fiscal year.

Participation as Amicus Curiae

In Connell v. Errion." the Commission filed a brief as amicus curiaeby invitation of the Court. It expressed the view that the anti-fraud provisions of rule X-10B-5 under section 10 (b) of the SecuritiesExchange Act of 1934 were applicable to a combination purchase ofsecurities and property which did not come within the definition ofsecurities under the Act, and that under section 29 (b) of the Act thedefrauded seller could obtain rescission of the entire transaction,including the transfer of the non-securities, for violation of the rule,or obtain monetary relief by way of damages as an alternative tospecific restitution. Defendants had sought dismissal of the com-plaint which was based upon alleged violations of the rule. In deny-

-ing the motion to dismiss, the Court indicated from the bench thatits conclusion was based largely upon the Commission's arguments."

Textron, Inc. v, American Woolen Oompany 22 was a suit to enjoinannouncement of the results of a vote for officers and directors ofthe American Woolen Company taken at a stockholders' meetingbecause a substantial number of proxies counted for and necessaryto the existence of a quorum allegedly had been obtained in violationof the Commission's proxy rules under section 14 (a) of the SecuritiesExchange Act of 1934. The Commission filed a statement with theCourt expressing the view.with which the Court subsequently agreed,that a shareholder could maintain a private action in a federal dis-trict court based upon an alleged violation of the Commission's proxyrules in a proper case, notwithstanding the fact that the Commissionitself did not institute an action. The Court found, however, thatthe alleged violations did not invalidate the proxies for the purposeof being counted toward a quorum, and that under the circumstancesfederal jurisdiction could not be based on the Securities ExchangeAct, although the Court took jurisdiction on other grounds.

JO W. D. Wash., Civil Action No. 3556.It 'I'ranserrpt of statement of the Court on January 25, 1954,p, 5.D 122 F. Supp. 305 (D. Mass, 1954).

PART IV

ADMINISTRATION OF THE PUBLIC UTILITY HOLDINGCOMPANY ACT OF 1935

The Public Utility Holding Company Act of 1935 provides for-three separate areas of regulation of holding company systems whichcontrol electric utility companies and companies engaged in the retaildistribution of natural or manufactured gas. The first embracesthose provisions of the Act which require physical integration of thepublic utility and related properties of holding company systems, andthe simplification of intercorporate relationships and financial struc-tures of the systems. The second area of regulation covers financingoperations of registered holding companies and their subsidiaries,acquisitions and dispositions of securities and properties, their ac--counting practices and servicing arrangements and other intercom-pany transactions. The third area includes the provisions of the Actproviding exemptions for intrastate and foreign holding companysystems and systems which are only incidentally holding companysystems and those provisions of the Act regulating the right of a personwho is affiliated with a public utility company to acquire securities re-suIting in a second such affiliation.

COMPOSITION OF REGISTERED HOLDING COMPANY SYSTEMS-SUMMARY OF CHANGES

On June 30, 1954 there were 29 public utility holding companysystems which were subject to the regulatory provisions of the Actas registered holding company systems. Included were 25 registeredholding companies which function solely as holding companies, 10other registered holding companies which were also operating com-panies, 133 electric and gas utility subsidiaries and 156 non-utilitysubsidiaries, a total of 324 companies. For the convenience of dis-cussion these 29 registered systems are referred to as "active systems"

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TWENTIEm ANNUAL REPORT 51

-and-a table showing the composition of such systems as of June 30,19M appears in appendix table 9. In addition there were 6 companieswhich had registered as holding companies but which had disposed of.all of their utility subsidiaries.

On June 30, 1953 there were 35 active registered holding companysystems aggregating 372 companies.1 The six systems which hadceased to be active registered systems as of June 30, 1954,2 comprised-eight registered holding companies, 11 electric and gas utility sub-sidiaries and six non-utility subsidiaries. One public utility company.registered as a holding company during 1954, because it had enteredinto a contract for the purchase of another utility company, but-ceased to be a registered holding company in the same fiscal yearfollowing the cancellation of this contract.

Active registered systems added one public utility subsidiary andfour non-utility subsidiaries in 1954. Fifteen public utility sub-sidiaries with net assets aggregating $265 million and two non-utility'subsidiaries with assets of $5 million 3 were divested by their respectiveholding company parents and as a result were no longer subject tothe Act as components of registered systems." Twenty-three com-panies were absorbed by mergers or consolidations, 9 were eliminatedby dissolution, and 16 companies ceased to be associated with theactive systems as a consequence of exemptions and other changes in'status. The following table shows the changes which occurred dur-ing the year in the composition of active registered holding company-systems.

, Not included III these totals were 11 other eompanies which had registered as holding companies, butas of June 30, 1953 no longer owned any public utilib- subsidiarres

These systems consisted of American Power & Light Company, Derby Gas & Electric Corporation,Kinzna Oil & Gas Corporatron, North Contment Uttlities Corporatron, Republic Service Corporation,SouthWesWn Development Company, and their respectrve subsidiaries .

• The assets of one of tnese conrpanles at the time of divestment \I ere uot reported • During the 19-year penod from Dec. I, 1935 to Iune 30, 1954 registered noldmg companies have divested

'themselves of 829 subsidiarfes WIth aggregate assets of over $11,;68,000,000 WhICh, as a result of such divest.ments, ceased to be subject to the Act as of June 30, 1954 as components of registered systoms. These tom.panies meluded 259 electric utIhty eompames WIth assets of $9,201,000,000, 158 gas utJllty com pames WIth'8SSCts of $874,000,000, and 412 non-utihty companies with assets of over $1,693,000,000.

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•


Summary of changes in the composition of active registered public utility holdinrrcompany systems

TWELVE MONTHS ENDED JUNE 30, 19M

Registered Registered Electric Non- Totalholdmg holding and gas utillty companie

companies operating utillty companies in activecompanies companies systems

--- ------Companies in aetrve registered holding companysystorns-s-June 30, 1953_____________________________ 35 12 164 161 37Additions:

Companies acquired during fiscal year 1954______ ---- ...--- 1 4 6Holding company systems registered during year_ 1 1

--- ,--- --- --- ---Total companies associated WIth active systemsduring 1954__________________________________ 36 12 165 165 378

Deductions:Companies divested by holding companies; no

longer subject to Act. _________________________ ---.------ 15 2 17Companies dissolved ____________________________ 4 2 '5 IICompanies absorbed in mergers or eonsoltdattons. 113 2 15Compames converted from status of registered

holding companies or subsldiarles thereof tostatus of exempt holding company systems orother status not associated with registeredsystems _______________________________________ '6 ---------- '2 3 If

Changes in classification of companies in activeregistered systems as result of change status I 2 ---------- (3) ------------- --- --- --- ---

Companies in active registered holding companysystems--June 30,1954 _____________________________ 25 10 133 166 324

I Includes 5 companies for the New England Electrrc System. Four new subsidiary companies wereorganized in this system to consolidate 9 previously existlng subsidiaries. Only the net change Js reflectedin this table.

, The transformation of Republic Service Oorporation (Del) and its two subsidiaries from an activeregistered system on June 30, 1953 to an exempt holdmg company system eonsistlng of two companies as a JJune 30, 1954 is reflected in this table as one nonutiltty company dissolved, and one registered holdingcompany and one utillty company converted to other status. Actually a new Republic Service Corporation(Pa.) was organized to take over the assets and business of the Delaware company. The table shows onlythe net effect .

Denotes an addition.

SIGNIFICANT DEVELOPMENTS IN AND LITIGATION INVOLVINGHOWING COMPANY SYSTEMS

American & Foreign Power Company, Inc.

During the fiscal year the Commission entered an order granting'American & Foreign Power Company, Inc. an exemption as a holdingcompany and as a subsidiary of Electric Bond and Share Companypursuant to sections 3 (a) (5) and 3 (b) of the Act.s After the closeof the fiscal year, the Commission disposed of certain remainingclaims in prior reorganizations proceedings for fees and expensesarising out of the section 11 (e) proceedings." As a result of theorder active regulatory supervision over the company has beenreduced to a minimum, consisting of only such attention as is requiredby section 3 (c) of the Act in the continuing but limited surveillanceof companies exempted from the statute. A summary of the pro-ceedings before the Commission and the courts leading to the corporate.simplification of this system pursuant to section 11 (e) of the Act.appears in the 18th Annual Report .

• Holding Company Act release No. 12196 (November 2,1953) • Holding Company Act release No. 12677 (October 11, 19M).

--~------- ---------~

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TWE~""TIETH A..~'1JAL REPORT 53American Gas and Electric Company

American Gas and Electric Company controls the largest of theregional integrated holding company systems. During the fiscal yearthe Commission approved a voluntary proposal for the acquisition byIndiana & Michigan Electric Company, a subsidiary operating com-pany, of all of the assets of Citizens Heat, Light and Power Company,another subsidiary operating company, following which the latter"was dissolved.' The transaction was consummated on April 26, 1954.

As the result of two other proposals approved by the CommissionAmerican Gas and Electric Company acquired all of the outstandingcommon stock of Flat Top Power Company, a non-affiliated public-utility company 8 and The Ohio Power Company, a subsidiary ofAmerican Gas and Electric Company, acquired the electric generatingand distribution facilities of the village of Arlington, Ohio." Thecompany also holds 37.8 percent of the common stock of Ohio ValleyElectric Company, recently organized to generate power for theAtomic Energy Commission's plant at Portsmouth, Ohio.

Pending for determination by the Commission is a proposal filedpursuant to section 11 (e) of the Act providing for, among otherthings, the merger of two system operating companies, The Ohio PowerCompany and Central Ohio Light & Power Company."American Natural Gas Company

American Natural Gas Company is solely a holding company withfour direct subsidiaries, Michigan Consolidated Gas Company, Mil-waukee Gas Light Company, Michigan-Wisconsin Pipe Line Companyand American Natural Gas Service Company. An indirect sub-sidiary, Milwaukee Solvay Coke Company, was owned by Milwaukee-Gas at the end of the fiscal year.

At the beginning of the fiscal year the Commission had pendingfor decision a question concerning the retainability of the interestof American Natural Gas in Milwaukee Solvay, a non-utility, as an"other business" under section 11 (b) (1) of the Act. The Com-mission decided to permit the retention of this interest on the groundthat circumstances giving rise to its earlier order permitting re-tention had not changed sufficiently to require divestment, subjecthowever, to the Commission's continuing jurisdiction to determinewhether future conditions may require such action,"American Power & Light Company

The various proceedings before the Commission and the FederalCourts leading to the dissolution and liquidation of this system were-

7 Holding Company Act release No. 12403 (March 11, 1954)Holding COmpany Act release No. 12429 (March 26, 1954).

'Holding Company Act release No. 12058 (Jn1y 16,1953).10 Holding Company Act release No. 12663 (September 20,1954).11 Holding Company Act release No. 12317 (January 22, 1954).

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54 SECURITIES AND EXCHAJ.~GE COMMISSION

reported in the 19th and earlier Annual Reports. On December 29,1953 the Commission released jurisdiction over fees and expensesclaimed by certain participants in the proceedings which terminatedwith the plan of dissolution approved by the Commission on March 21,1953P This action disposed of the remaining questions connectedwith the reorganization of the American Power & Light system. Thecompany has filed an application for an order pursuant to section5 (d) of the Act declaring that it has ceased to be a holding company.Central Public Utility Corporation

At the beginning of the fiscal year the Commission had pendingfor decision the approval of a plan filed pursuant to section 11 (e)of the Act by Central Public Utility Corporation ("Cenpuc"). Thisplan provided for the elimination from the system of Central IndianaGas Company, Cenpuc's only domestic public utility subsidiary; thedissolution of Central Natural Gas Corporation, a non-utility sub-sidiary; the merger with Cenpuc of Islands Gas and Electric Company,an exempt holding company subsidiary; and an application for ex-emption pursuant to section 3 (a) (5) of the Act of Cenpuc and itssubsidiaries to be granted upon consummation of the preceding steps."Subsequently Cenpuc filed an amendment to this plan requesting thatthe proposals relating to the merger of Islands Gas with Cenpuc andthe application for exemption be eliminated. 14 The Commissionapproved the plan providing for the distribution by Cenpuc to itsstockholders on a pro rata basis of the reclassified stock of CentralIndiana Gas Company and the liquidation and dissolution of CentralNatural Gas Corporation." Those provisions of the original plan,which the company had requested to have withdrawn, were notconsidered.

During the year the Commission issued three other orders pertain-ing to this system under section 11 (e) of the Act. In one the Com-mission authorized the withdrawal of an application for approval ofa plan providing for the recapitalization of Islands." In anotherit approved certain applications for fees and expenses incurred inconnection with an earlier plan of reorganization approved by theCommission on June 13, 1952,17and in the third it approved, andreleased jurisdiction with respect to, the procedures for the selectionof a new board of directors of Central Indiana Gas Company followingits divestment by Cenpuc."

11 Holding Company Act release No. 12286.13 Holding Company Act release Xo.11898 (May 8, 1953).II Holdmg Company Act release No. 12205 (November 6, 1953)."Holding Company Act release No. 12236 (December 4,1953).16 Holding Company Act release No. 12083 (Jnly 28,1953).11 Holding Company Act release No. 12126 (September 3,1953).18 Holding Company Act release No. 12368 (February 17,1954).

TWENTIETH M\J\lJAL REPORT 55Cities Service Company

Cities Service Company is a registered holding company undercommitment pursuant to section 11 (b) of the Act to dispose of all ofits utility interests. The only public utility interests still owned byCities at the beginning of the fiscal year included two domestic gasutility subsidiaries, Arkansas-Louisiana Gas Company and The GasService Company, and one foreign gas utility, Dominion Natural GasCompany, Ltd., a subsidiary company exempt pursuant to section3 (b) of the Act. A contract was entered into with a neighboringpublic utility company, ::\Iissouri Public Service Company, for thesale to it by Cities Service of its holdings of all of the common stockof The Gas Service Company subject to the requisite regulatoryapprovals. Following hearings before the Commission, in which theMissouri Public Service Commission and the Kansas State Corpora-tion Commission appeared as parties, Cities Service and MissouriPublic Service withdrew their respective applications. On April 6,1954 the Commission approved a proposal for the sale of the stock ofGas Service Company at competitive bidding." The sale wasconsummated on April 20, 1954.

During the fiscal year the Commission also issued an order releasingjurisdiction over fees and expenses arising out of a plan to bring thesystem of Arkansas Natural Gas Corporation (formerly a registeredholding company subsidiary and now known as Arkansas Fuel OilCorporation) into compliance with section 11 (b) of the Act.20

Consolidated Natural Gas Company

This company is a holding company controlling four gas utilitysubsidiaries, and a gas transmission subsidiary. During the fiscalyear the Commission considered two proposals relating to the saleand acquisition of properties. In one the Commission authorizedthe sale by Hope Natural Gas Company, a subsidiary, of certain gasleases, wells and equipment to The Mauufacturers Light and HeatCompany, a subsidiary of Columbia Gas System, Inc., also a registeredholding company." ' In the second case, New York State NaturalGas Corporation, a non-utility subsidiary, requested approval of aproposal to acquire certain gas producing and transmission propertiesfrom The Manufacturers Light and Heat Company. The Commissiondismissed the application for lack of jurisdiction."Eastern Utilities Associates

Eastern Utilities Associates is solely a holding company controllingan electric utility system operating in the states of Rhode Island andMassachusetts. The plan for the reorganization ot this holdingl'Holdmg Company Act release No. 12445.20 Holding Company Aa release No. 12506 (May 21, 1954).'1 Holding Company Act release No. 12191 (October 28, 1953)."Holding Company Act release No. 12257 (December 14, 1953).


company system pursuant to section l1(e) of the Act was describedin the Commission's 19th Annual Report. During 1954 $7 millionof collateral trust bonds were issued as contemplated by the plan."The Commission also approved various claims for fees and expensesin connection with the reorganization."Electric Bond and Share Company

Pursuant to the provisions of plans approved by the Commissionunder section 11 (e) in previous fiscal years, Electric Bond and ShareCompany is in the process of reducing to less than 5 percent its hold-ings of the common stocks of its only domestic utility subsidiary,United Gas Corporation, with the intention of qualifying for an exemp-tion under section 3 (a) (5) of the Act and of transforming itself intoa registered investment company under the Investment CompanyAct of ]940.

Several remaining residual matters pertaining to the effectuation ofplans filed in prior years were acted upon by the Commission duringthe fiscal year. Among these were transactions pertaining to the dis-posal of (a) portions of Bond and Share's holdings of United Gascommon stock," which holdings had been reduced as of June 30, 1954to 12.1 percent of such outstanding stock and (b) all of Bond andSharp's holdings of 4,256 shares of common stock of Portland Gas andCoke Company," which had been received as a liquidating distribu-tion from Bond and Share's former subsidiary, American Power andLight Company.

Applications for fees and expenses incurred by various participantsin connection with Bond and Share's final comprehensive plan ofreorganization were also considered by the Commission during thefiscal year, and the Commission issued an order authorizing and di-recting Bond and Share to pay certain fees and expenses." Certainother applications for approval of fees and expenses were pending atthe close of the fiscal year.Electric Power & Light Corporation

At the close of the prior fiscal year appeals were pending from anorder of the United States District Court for the Southern Districtof New York sustaining the Commission's determinations with respectto fee claimants in the proceedings for the reorganization and dissolu-tion of Electric Power & Light Corporation, a registered holding com-pany subsidiary of Electric Bond and Share Company.

On February 25, 1954 the United States Court of Appeals for theSecond Circuit affirmed in part and reversed in part the decision of

23 Holding Company Act release No. 12382 (March 2, 1954).Holding Company Act releases Nos. 12632 (August 24, 1954) and 12681 (October 13, 1954).

"Holding Company Act releases Nos. 12255 (December 11, 1953) and 12263 (December 17,1953).. Holding Company Act release No 12129 (September 4,1953).~'HoldIng Company Act release No. 12567 (June 29, 1954).

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the District Court." In its reversal the court of appeals held, ineffect, that the Commission's jurisdiction to pass upon fees and ex-penses in a section 11 (e) reorganization of a subsidiary does notextend to fees proposed to be paid by a parent registered holdingcompany to individuals retained by it to perform services in connec-tion with the subsidiary's reorganization. The Commission and astockholders' committee petitioned the United States Supreme Courtfor certiorari on June 21, 1954.29 Certiorari was granted on the Com-mission's petition on October 14, 1954 and the Committee's petitionwas denied on the same date.Engineers Public Service Company

The application of the Commission to the United States DistrictCourt for the District of Delaware for enforcement of its order approv-ing and denying fees and expenses claimed by participants in theproceedings for the reorganization of Engineers Public Service Com-pany," which was referred to in the 19th Annual Report, was decided-on February 16, 1954.31 The district court awarded fees to certainclaimants in amounts larger than had been allowed by the Commission.'Subsequently the Commission issued a supplemental order approving;the payment of additional compensation to one claimant," and fileda notice of appeal in the United States Court of Appeals, ThirdCircuit, with respect to those portions of the district court's orderrelating to the allowances to two other claimants."'General Public Utilities Corporation

General Public Utilities Corporation ("GPU") is a holding company-controlling the electric utility system which emerged from the reorgani-zation of the former Associated Gas and Electric Company system.Its seven domestic electric utility subsidiaries operate in the Statesof New York, New Jersey and Pennsylvania.

Earlier proceedings regarding the integration and simplification ofthis company's system are described in the 19th Annual Report.Hearings before a hearing examiner were held during the year on a re--quest by GPU that the Commission modify its order, entered Decem-ber 28, 1951 pursuant to section 11 (b) (1) of the Act insofar as saidorder directed GPU to divest itself of its subsidiaries Northern Penn-sylvania Power Company and the Waverly Electric Light and PowerCompany." GPU seeks to retain these companies as a part of itsintegrated system. The matter was still under consideration at the-end of the fiscal year.

JlIn re EUetTlC Power &< Light Corporation, 210 F. 2d 585 (C. A.. 2, 1954).It Nos. 153, 154 (1954).10 Holding Company Act release No. 11096 (March 26,1952)."In re Engimere Public Service Companll, 116 F. Supp. 930 (D. DeI. 19M).12 Holding Company Act release No. 12470 (April 20, 1954).II Civil Action No. 11,310 (C. A. 3, March 11, 1954).u Holding Company Act release No. 12056 (July 16, 1953).

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58 SECURITIES AJ.~D EXCHANGE COMMISSION

International Hydro-Electric System

During the fiscal year a number of steps were taken in further con-summation of the plan for the reorganization of International Hydro-Electric System ("IRES") into an investment company. Details ofthis plan were summarized in the 19th Annual Report. Steps takenincluded the retirement of IRES' preferred stock and the sale of 125,-000 shares of the common stock of New England Electric System thusreducing IRES' holdings to 5.07 percent of the outstanding shares.At the end of the fiscal year steps remaining to be taken in con-summation of the plan included disposition of applications for feesand expenses aggregating approximately $1,500,000, disposition of taxclaims, resolution of a controversy now pending before the UnitedStates District Court for the District of Massachusetts concerning anelection for members of the Board of Directors, and the formulationof definitive plans for conversion of IRES into an investmentcompany.

The 19th Annual Report contained a description of the proposal ofIRES' Trustee to sell certain properties of Eastern New York PowerCorporation, subsidiary of IHES, to the New York State Electric andGas Corporation. On appeal by the City of Plattsburg, New York,the United States Court of Appeals for the First Circuit on November12, 1953affirmed the order of the district court approving the contractof sale."Interstate Power Company

During the fiscal year the Commission issued an order authorizingInterstate Power Company of Delaware to sell, and Wisconsin Powerand Light Company, a non-affiliated exempt holding company, toacquire, all of the outstanding capital stock of the Delaware com-pany's subsidiary, Interstate Power Company of Wisconsin.36 OnNovember 30, 1953 this transaction was consummated. WisconsinPower and Light has indicated its intention of ultimately mergingInterstate Power Company of Wisconsin into itself. The Delawarecompany now has only one public utility subsidiary, East DubuqueElectric Company.Koppers Company, Inc.

A description of developments with respect to Koppers Company,Inc. and its former subsidiary, Eastern Gas & Fuel Associates, werereported in the 17th Annual Report.

During 1954Koppers further reduced its common stock holdings inEastern, as required by the Commission's order of June 26, 1945,87

G~ty of Platt3burg v, Brickley, 208 F. 2d 800 (C. A. 1, 1953)•• Holding Company Act Release No. 12206 (November 6,1953).37 Holding Company Act Release Xo, 5888.

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by selling 100,231 shares of such stock to the public. After the sale,Koppers filed an application requesting the Commission to modify theorder of June 26, 1945 so as to permit it to continue ownership of itsremaining holdings of 13,000 shares of the common stock of Eastern,and requesting an order under section 5 (d) of the Act declaring thatit had ceased to be a holding company. The Commission grantedboth of these requests and dismissed a pending application by Koppersfor exemption pursuant to section 3 (a) of the Act on the ground thatthe relief granted under section 5 (d) of the Act rendered such appli-cation moot."

An application by Eastern requesting an exemption pursuant tosection 3 (a) of the Act was still pending at the close of the fiscal year.

Upon application by the Commission for enforcement of its orderapproving and denying various applications for fees and expensesincident to the reorganization of Eastern Gas & Fuel Associates, theUnited States District Court for the District of Massachusetts,affirmed the Commission's denial of reimbursement to Koppers forexpenses it had incurred in connection with such reorganization. Thecourt reversed the Commission with respect to its denial of feesclaimed by a stockholders' committee member by reason of securitiestransactions effected by the wife of such committee member while thereorganization proceedings were in progress." Both Koppers and theCommission appealed from the decision of the district court to theUnited States Court of Appeals for the First Circuit, where theappeals are pending.Long Island Lighting Company

As discussed in the 19th Annual Report, Long Island has ceased tobe a registered holding company. During the fiscal year 1954, how-.ever, litigation and administrative proceedings with respect to appli-cations for fees and expenses in connection with the company'sreorganization in 1950were completed. On March 12,1954 the UnitedStates Court of Appeals for the Second Circuit affirmed in part andreversed in part 40 an order of the United States District Court for theEastern District of New York." which enforced in part and remandedin part the order of the Commission 42 awarding and denying the feesand expenses claimed by various participants in the reorganization.Thereafter the Commission issued its second order approving allow-ances in accordance with the decision of the appellate court."

IS Holding Company Act Release No. 12320 (January 22, 1954)."In re Eastern Gas &: Fuel Assoc,ateB. 120 F. Supp. 460 CD. C. Mass., 1953)0 Sub nom. NzeholB et at. v. S. E. C. et at., 211 F. 2d 412 (C. A. 2, 1954).

U Unreported (E. D. N. Y., Civil Action No. 10,413, May 11, 1953)."Holdmg Company Act release No. 11695 (February 8,1953).... Holding Company Act release No, 12581 (July 9,1954).

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In an independent action for damages for alleged fraud in the reor-ganization proceedings filed by Ennis M. Nichols et al. against LongIsland, described at page 83 of the 19th Annual Report, the UnitedStates Court of Appeals affirmed the District Court's order of dismis-sal, but did not indicate explicitly in its judgment that litigation ofthose charges was also barred in the reorganization proceedings on the-ground of res judicata." Subsequently, on the basis of the decisionof the Court of Appeals, the District Court held that appellants were-barred from proceeding further both in the independent action and.directly in the reorganization proceedings." Thereupon, appellants.petitioned the Court of Appeals to amend and clarify its earlier judg~ment so as to eliminate the bar to direct proceedings in the roorgan--ization court. However, the Court of Appeals amended its judgmentto state explicitly that further proceedings in the reorganization court.were likewise barred under its findings of res judicata." Appellants"petition to the United States Supreme Court for a writ of certiorari;from this amended order was denied on October 14, 1954.41

Market Street Railway Company

The fee litigation in connection with the dissolution of Market StreetRailway Company, formerly a non-utility subsidiary of StandardGas and Electric Company, referred to in the 19th Annual Report,was terminated on July 27, 1954 when the Commission issued its,order 48 approving allowances of fees and expenses to one of the par-ticipants in the reorganization proceedings in accordance with thedecision of the United States Court of Appeals, Ninth Circuit." TheCommission also approved an application for additional fees andexpenses claimed by certain counsel in connection with a section 11(e)plan approved by the Commission involving, among other things, the-settlement of an open account indebtedness due Standard Gas andElectric Company from Market Street Railway Company."

The company has not yet been dissolved, as directed in the Com--mission's order dated October 24, 1950, because of a claim for a refundagainst the Board of Equalization of the State of California, seeking.the return of sales taxes paid under protest in 1950.Middle South Utilities, Inc.

Middle South Utilities, Inc. through its subsidiaries, Arkansas-Power & Light Company, Louisiana Power & Light Company, Mis-sissippi Power & Light Company and New Orleans Public Service,Inc., operates an integrated electric utility system in the States of

.. Nichol3 et al. v. Long 13land Llghtl1lg Co. et al., 2fll F. 2d 931 (C. A. 2.195~."NlChol3 et al. v. Long Island Lighting Co. et al., unreported (E. D. N. Y. Civil Action,No.13,054, 1anuary

19,1954)•• Nicho13 et al. v, Long I3land Llghtl1lg Co. et al., 211 F. 2d 392 (C. A. 2,1954)."348 U. S. 827 (954).. Holding Company Act Release No. 12599... Securities and Exchange Commi33lon v. Cogan,201 F. 2d 78 (C. A. 9,1951) and 201 F. 2d 82 (C. A. 9, 1962).If Holding Company Act Release No. 12563 (June 25,1964).

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TWENTIETH ANNUAL REPORT 61Arkansas, Louisiana and Mississippi. The company also owns a 10percent interest in Electric Energy, Inc., a large generating companyorganized to furnish electricity for the Paducah, Kentucky, plant ofthe Atomic Energy Commission.

During the fiscal year Middle South applied pursuant to sectionl1(c) of the Act for an extension of time to comply with the Commis-sion's order of March 20, 195351 requiring Middle South and its sub-sidiaries to dispose of their direct and indirect interests in the non-electric properties owned by certain subsidiaries. The Commissiongranted a one year extension from March 20, 1954 to comply with theorder, except with respect to certain water properties located at Crys-tal Springs, Mississippi.P Subsequently, on April 15, 1954 MiddleSouth sold the Crystal Springs water properties to Union Water Serv-ice Company, a non-affiliated company, for a base price of $50,000.New England Electric System

New England Electric System ("NEES") and its subsidiary com-,panies constitute the largest utility system in New England. As ofDecember 31, 1953 the system had 30 subsidiaries, including 10 gasutility companies, 16 electric utility companies, two combined gas.and electric utility companies, one service company and one realestate company.

The principal problems remaining to be resolved by the systempursuant to section 11 (b) of the Act pertain to the retainability ofits gas properties. One attempt to dispose of these properties in1951 failed because the successful bidder was unable to finance the.purchase." However, considerable progress has been made towardthe further segregation of the electric and gas properties of the sys-tem and in effecting divestments.

Two proposals providing for rearrangement of the gas and electricproperties of certain subsidiaries and related financing transactionswere approved by the Commission during the fiscal year. In one ofthese, the gas and electric properties of Beverly Gas and ElectricCompany, Gloucester Electric Company, Gloucester Gas Light Com-pany, Salem Electric Lighting Company and Salem Gas Light Com-.pany were separated and merged respectively into a single newlyorganized gas company, North Shore Gas Company, and into asingle newly organized electric company, Essex County ElectricCompany." The other proposal provided, among other things, forthe transfer by Suburban Gas and Electric Company of its gasproperties to the Mystic Valley Gas Company, formerly Malden andMelrose Gas Light Company; the merger of Arlington Gas Light .

.. Holding Company Act release No. 11782.

.. Holding Company Act release No. 12475 (April 28, 1954)

.. Holding Company Act release No 11252 (May 15, 1952).U Holding Company Act release No. 12168 (October 9,1953).

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62 SECURITIES A.,.~DEXCHANGE COMMISSION

Company with Mystic Valley; and the merger of Suburban Gas andElectric into Suburban Electric Company, formerly the MaldenElectric Company. 55

On July 22, 1954, acting pursuant to authority from the Commis-sion, NEES sold all the outstanding capital stock of Berkshire GasCompany, a gas utility subsidiary, to Pittsfield Coal Gas Company,a non-affiliated corporation," and on March 29, 1954, NEES causedAthol Gas Company, another of its gas utility subsidiaries, to sellits assets to non-affiliated interests and dissolve.New England Gas and Electric Association

New England Gas and Electric Association is a Massachusettstrust which directly or indirectly held common stocks of nine sub-sidiary companies at the close of the fiscal year. Six of these com-panies are utility companies furnishing either electricity or gas, oneis a gas transmission company, one a heating company, and anothera service company. All operate in the State of Massachusetts.

Among the physical property rearrangements and divestmentsduring the fiscal year was a merger of one subsidiary, Plymouth GasLight Company, with another subsidiary, New Bedford Gas andEdison Light Company." NEGEA also was authorized to sell toPublic Service Company of New Hampshire, a non-affiliated exemptholding and public utility company, its holdings of all of the out-standing capital stock of New Hampshire Electric Company, anexempt holding company controlling Kittery Electric LightCompany. 58

Shortly after the close of the fiscal year, NEGEA filed a statementon behalf of itself and its remaining subsidiaries claiming and therebyobtaining exemption from the provisions of the Act as an intrastateholding company system as provided by rule U-2, promulgated undersection 3 (a) of the Act.The North American CompanyUnion Electric Company of Missouri

A plan filed by The North American Company pursuant to section11 (e) of the Act providing for its liquidation was fully described inthe 18th Annual Report. In brief, under the plan North Americanproposed to distribute to its stockholders its holdings of all of thecommon stock of Union Electric Company of Missouri in the form ofliquidating dividends over a two-year period ending in January 1955.Union Electric, Korth American's only remaining utility subsidiary,which also is a registered holding company, is expected to continue asa holding-operating company.

"Holdmg Company Act Release No. 12169 (October 9,1953).. Holding Company Act Release No. 12511 (May 25, 1954).

Holding Company Act Release No. 12060 (July 16, 1953).68 Holding Company Act Release No 12510 (May 25,1954).

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TWENTIETH ANNUAL REPORT 63On January 21, 1954North American made a second liquidating dis-

tribution to its stockholders of the common stock of Union Electricat the rate of one share of Union Electric common stock for each 10shares of parent company common stock held.

On May 28, 1954, the Commission approved a proposal filed byNorth American and its non-utility subsidiary, 60 Broadway BuildingCorporation, providing for the liquidation and dissolution of the latter,and for a sale of its officebuilding to the Hanover Bank of New YorkCity for $3,100,000.59 North American reported that, in accordancewith the plan of liquidation, the proceeds from this sale were trans-ferred to Union Electric on July 15, 1954.

In another proposal approved by the Commission, North American'snon-utility subsidiary company, Hevi-Duty Electric Company, wasauthorized to purchase the total issued and outstanding commonstock of a non-affiliated company, Anchor Manufacturing Company."

As a result of the acquisition of all of the common stock of MissouriEdison Company, a non-affiliated public utility company, UnionElectric added a subsidiary to its system during the fiscal year." Inits order the Commission reserved jurisdiction to determine at a laterdate the question of the retainability by Union Electric of the gasproperties of Missouri Edison.

Union Electric also owns a 40 percent interest in Electric Energy,Inc., a large generating company organized to furnish electricity forthe Paducah, Kentucky, plant of the Atomic Energy Commission.

Union Electric was granted an extension until December 31, 1954-,of the time to dispose of certain water and ice properties and electricproperties located at Clinton, Missouri," as required by the Com-mission's order of December 28, 1950.63

Shortly after the close of the fiscal year Missouri Power & LightCompany, a subsidiary of Union Electric, disposed of its water proper-ties at Excelsior Springs, Missouri, by the sale thereof to the City ofExcelsior Springs for a base price of $500,000.

Applications for fees and expenses incurred by various applicants inconnection with the plans involving Korth American and its subsidiar-ies approved pursuant to section 11 (e) of the Act were also disposedof by the Commission during the fiscal year."North Continent Utilities Corporation

At the beginning of the fiscal year North Continent Utilities Corpo-ration had one statutory utility subsidiary, Great Northern GasCompany, Ltd., which was organized and operating in Ontario,

"Holdmg Company Act Release No 12519."Holdlllg Company Act Release Xo 12046(July 9,1953).'I Holding Company Act Release No. 12262(July 15,1953).62 Holdlllg Company Act Releases Xos 12045(July 9, 1953), 12304(Jan 13,1954), and 12574(July 2,1954).sa Holding Company Act Release No. 10320... HoJdmg COmpany Act Releases xes 12240(Dec 4,1933) and 12241(Dec. 4, 1953).

326394-55-6


Canada. On November 30, 1953, North Continent sold its interest inGreat Northern to Alberta Consolidated Gas Utilities, Ltd., a non-affiliated Canadian company now known as Great NorthernGas Utilities, Ltd., for approximately $533,639. Subsequently,the Board of Directors of North Continent took steps to dissolvethe corporation and the Commission authorized the companyto distribute its remaining assets in the form of liquidatingdividends to its stockholders." In January 1954 the Commissionissued an order pursuant to section 5 (d) of the Act declaring thatNorth Continent had ceased to be a holding company and that itsregistration as a holding company had ceased to be in effect."Northern New England CompanyNew England Public Service Company

Proceedings pertaining to the liquidation of Northern New EnglandCompany and New England Public Service Company have been de-scribed in the 18th Annual Report. During 1954 the Commissionissued orders allowing various fees and expenses." One fee applica-tion remains for determination.Northern States Power Company (Del.)Northern States Power Company (Minn.)

In the 19th Annual Report reference was made to appeals taken bythe Commission and by Standard Gas and Electric Company (form-erly the parent of Northern States (Del.) from a decision of the UnitedStates District Court for the District of Minnesota affirming in partand reversing in part an order of the Commission approving and deny-ing fees and expenses arising out of proceedings for the dissolution ofNorthern States Power Company (Del.).68 The United States Courtof Appeals for the Eighth Circuit affirmed the decision of the districtcourt on April 19, 1954 69 and Standard Gas filed a petition for certio-rari with the United States Supreme Court, which was denied onOctober 14,1954.

The 19th Annual Report also described consolidated proceedingsinvolving issues as to compliance by Northern States (Minn.) withsection 11 (b) (1) of the Act and whether the company was entitled toan exemption as a holding company pursuant to section 3 (a) (2) of theAct. On February 1,1954 the Commission granted a severance of theexemption issues and on September 16, 1954, following the presenta-tion of briefs and oral arguments, including a brief and oral argumentof the city of St. Paul in favor of exemption, the Commission issued itsopinion and order granting an exemption effective October 15, 1954.70

.. Holding Company Act release No. 12261 (Dec. 15, 1953)

.. Holding Company Act release No. 12326 (Jan. zr, 1954).17 Holding Company Act releases Nos. 12605 (July 29, 1954) and 12664 (Sept. 22, 1954)11 In re Northern States Power Co., 119 F. Supp. 331(D. Minn., 1953).

Sub. nom. Standard Gas and ElectrIc c«, v. S. E. C., 212 F. 2d 407 (C. A. 8, 1954)."Holding Company Act release No. 12655.

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TWENTIETH ANNUAL REPORT 65The order was based, among other things, on the findings that North-ern States is predominantly a public-utility company and that anexemption would not be detrimental to the public interest.

In addition to the above proceedings, the Commission authorizedNorthern States to acquire from the Minneapolis Street RailwayCompany and the St. Paul City Railway Company, two non-affiliatedcompanies, certain electric generating and distribution facilities for abase purchase price of $1,500,000.71 Authorization was also grantedto permit United Power and Land Company, a wholly owned sub-sidiary, to sell, and Northern States to acquire, all of United's utilityassets and certain of its non-utility assets."Pennsylvania Gas & Electric Corporation

The 19th Annual Report described this company's reorganizationplan pursuant to section 11 (e) of the Act. The plan was consum-mated during 1954, and thereafter the Commission approved fees forservices rendered in connection with the plan and related expenses."Republic Service Corporation

During the fiscal year this company amended its reorganization planpursuant to section 11 (e) of the Act~which was described in the 19thAnnual Report, in certain minor respects, and the Commission issuedits order approving the plan as amended." There emerged from thisreorganization an intrastate holding company system consisting ofthe newly organized Republic Service Corporation (Pennsylvania) andits subsidiary, Cumberland Valley Electric Company (Pennsylvania).On December 8, 1953 Republic of Pennsylvania filed a statement withthe Commission on behalf of itself and Cumberland claiming andthereby obtaining exemption as provided by rule U-2, promulgatedunder section 3 (a) of the Act.Southwestern Development Company

Earlier proceedings involving the reorganization of this holdingcompany system were described in the 18th Annual Report. OnNovember 18, 1953 Southwestern Development Company and its sub-sidiaries filed applications for approval of certain transactions designedto consolidate the seven companies of the system into a single gasutility company, which in turn would hold all the common stock of asingle nonutility company. At the time the application was filed,Southwestern had four gas utility subsidiaries, Amarillo Gas Company,Clayton Gas Company, Dalhart Gas Company, and West Texas GasCompany. It also controlled two nonutility subsidiaries, AmarilloOil Company, and Red River Gas Company. Fifty-one percent of

71 Holding Company Act Release No. 12035 (July 2, 1953).lJ Holding Company Act Release No. 12180 (Oct. 21,1953).73 Holding Company Act Releases Nos. 12628 (Aug, 19, 1954) and 12685 (Oct. 21, 1954).74 Holdmg Company Act Release No. 12186 (Oct. 26, 1953).

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the voting securities of Southwestern were owned by Sinclair OilCorporation, which had been granted exemption as a holding companyby an order of the Commission pursuant to section 3 (a) of the Act.75

The proposed transactions involved the change of the name ofAmarillo Gas to Pioneer Natural Gas Company and the merger orconsolidation into that company of Southwestern, West Texas, Dal-hart and Clayton. Itwas also proposed that Red River Gas Companybe merged into Amarillo Oil and that the latter emerge as a subsidiaryof Pioneer. The Commission granted the application 76 and laterentered a second order declaring that Southwestern had ceased to bea registered holding company." Fees and expenses which arose outof the consolidation proceedings were allowed by the Commission in asubsequent order."

On June 2, 1954 the Commission issued an order 79 releasing juris-diction over certain fees and expenses claimed in connection with theoriginal plan for the reorganization of Southwestern which was ap-proved by the Commission on December 21, 1951.80

Standard Power and Light CorporationStandard Gas and Electric CompanyPhiladelphia Company

As a result of consummation of various reorganization plans ap-proved by the Commission pursuant to section 11 (e) of the Act,which were described in the 18th and 19th Annual Reports, thesethree registered holding companies have eliminated all of their previ-ously outstanding senior securities and, except for short-term banknotes and intra-system debt, have reduced their respective capitaliza-tions to a single class of stock.

The remaining steps required of these three companies to completecompliance with outstanding orders of the Commission under section11 (b) of the Act have been delayed pending determination of certaintax liabilities and the disposition of approximately $6,000,000 of feeand expense claims arising out of the reorganization proceeding. Aquestion of major importance, which must be settled before the liqui-dation of Standard Gas and Philadelphia Company can be completed,is the dispute between these companies and the Department of theTreasury as to their Federal income tax liabilities for the years 1942to 1950, inclusive. The companies anticipate that the examinationand review of these tax matters by the Treasury Department will becompleted by the middle of the fiscal year 1955. The Commissionapproved the payments of approximately $2,000,000 of fees and

Holdmg Company Act Release 1'\0. 10998 (Jan. 10, 1%2)."Holdlllg Company Act Release No. 12277(Dec. 24, 1953)."Holdlllg Company Act Release xo. 12432 (1\[ar 29,1954).

Holding Company Act Release No. 12636 (Aug. 26, 1954)."Holdlllg Company Act Release No. 12523."Holdml' Company Act Release :\0. 10969

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TWENTIETH A1>,TJ'I,lJALREPORT 67

expenses to all but two of the more than 60 participants in the variousproceedings for the reorganization of the Standard Power system undersection 11 of the Act.81 There remain for determination by theOommission one fee claim for $3,500,000, one undetermined claim,and certain expenses. Upon a challenge by the claimant of the largefee to the jurisdiction of the Commission the United States DistrictOourt for the District of Delaware directed that he be permittedto file his claim with the court, but that proceedings thereon bestayed until the Oommission had an opportunity to hear and determinesuch claim."

On ~1ay 5, 1954 Standard Power filed a plan pursuant to section11 (e) of the Act proposing the settlement of all claims between itselfand H. ~r. Byllesby and Company. The alleged claims and crossclaims have not heretofore been passed upon by the Oommission,although various aspects of them, and the transactions out of whichthey arose, have been considered. In addition, there is pending inthe United States District Oourt for the District of Delaware, anaction for an accounting brought on behalf of Standard Power againstByllesby and others."

On July 8, 1954 a plan for the liquidation of Equitable Auto Com-pany, a wholly owned subsidiary of Philadelphia, was approved by theCommission and subsequently consummated."

The uncertainties respecting the amounts of fee claims and Federaltax liabilities to be borne by Standard Gas and Philadelphia haveaffected the timing of Standard Power's plans to become a registeredinvestment company as disclosed in the 19th Annual Report. Noapplication for this purpose has been filed with the Oommission as yet.

As of the close of the fiscal year 1954, Standard Power's assetsconsisted mainly of 53.6 percent of the common stock of StandardGas and small amounts of the common stocks of present and formerpublic utility subsidiaries of Standard Gas and Philadelphia. Stand-ard Gas' assets consisted principally of all of the common stock ofPhiladelphia and minor investments in other companies. Phila-delphia Oompany's assets comprised 13 percent of the common stockof Duquesne Light Company, 51 percent of the common stock ofPittsburgh Railways Oompany and miscellaneous other holdings.The United Corporation

The United Oorporation, a registered holding company, has reachedthe final stages of compliance with the integration and simplification

81 Holding Company Act releases Nos. 12496 (Mar 14,1954),12596 (July 23,1954) and 12647 (Sept 8,1954).82In re Standard Gas and Eleetru: Company, el al., unreported, (D C. Del, Oivil Action Nos, 489 ancl149i,

Aug. 3D,1954).83 Homewood, et al., v, Standard Power and Light Corp., H .• \f By/lesby and Company, et al , (D. C Del.,

CIVil Action No. 229, 1944).J4 Holding Oompany Aet Release No. 12579.

68 SECURITIES AND EXCHANGE COM:MISSION

standards of section 11 (b) of the Act. The company has reduced itspublic utility interests to not more than 4.9 percent of the total votingsecurities of anyone utility company and is in the process of trans.forming itself into a closed-end, non-diversified investment company.The proposals approved by the Commission leading toward thetransformation of United Corporation into an investment companyand proceedings before the Commission and the Federal courtsrelating thereto were described in the 18th Annual Report.

The 19th Annual Report contained a description of the litigationinstituted by certain stockholders of United Corporation in the UnitedStates Court of Appeals for the District of Columbia Circuit, involvingcertain orders of the Commission approving the final plan for thecorporate simplification of the United Corporation system pursuantto section 11 (e) of the Act. A protective committee for the optionwarrant holders had intervened in these proceedings. The Court ofAppeals affirmed the Commission's orders approving the plan andheld that it had jurisdiction to review the orders in their entirety,including those provisions subject to enforcement by a district court.The United States Supreme Court granted certiorari to the warrantholders' committee on October 12, 195385 and denied the petition ofthe stockholders on January 11, 1954.86 On January 4, 1954 theSupreme Court determined that the Court of Appeals had erroneouslytaken jurisdiction over those provisions of the plan which the Com-mission had reserved for district court enforcement." These relatedto the cancellation of United Corporation's option warrants withoutcompensation to the holders thereof and the amendment of the cor-poration's charter and by-laws to provide for cumulative voting anda 50 percent quorum at stockholders' meetings. The Supreme Courtaffirmed the decision of the Court of Appeals in respect of other por-tions of the Commission's order which were not subject to districtcourt enforcement. Subsequently, the Supreme Court denied thepetitioners' application for a stay and for leave to file a petition forrehearing.f On March 18, 1954, counsel for the Committee repre-senting the holders of option warrants filed an application with theCommission requesting, among other things, the reopening of theproceedings before the Commission so as to permit presentation offurther evidence in support of modification of the Commission'sopinion and order requiring cancellation of the warrants. Theapplication was denied," and subsequently, on October 11, 1954, the

.. General Praeaine Committee for the Holders of Option Warrants of 7he UniUd Corp., v. S. E. C., 3trU. S.81O (1953)

.. DoWning et al, v. S. E. C., 346 U. S. 930 (1954).17 'Ihe General Proucuoe Committee for the Holder' of Option Warrant.! of 7 he UniUd Corp., v. S. E. C

et 01., 346 U. S. 521 (1954) ... Downtng et al., v, S. E. C. et al., 347 U. S. 911 (1954).88 Holding Company Act Release No. 12621 (Aug. 17, 1954).

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TWENTIETH ANNUAL REPORT 69Commission made application to the United States District Court,District of Delaware, for enforcement of this provision of UnitedCorporation's plan as well as the provision for amendment of itscharter and by-laws.

At the beginning of the fiscal year there was pending in the UnitedStates Court of Appeals for the District of Columbia Circuit a peti-tion by certain stockholders of the corporation under section 24 (a)of the Act for review of the Commission's order dated May 2, 1952 90approving a program for the investment of $24,500,000 of the com-pany's surplus funds pursuant to section 9(c) (3) of the Act. Thepetition also sought review of an order of the Commission datedJune 24, 1952,91approving a proposal by United Corporation to makea public offering of its holdings of the common stock of South JerseyGas Company. The Court of Appeals dismissed the petition." Sub-sequently the Commission granted United Corporation's applicationfor an amendment of the Commission's order of May 2, 1952 whichwould allow greater flexibility in respect of the acquisition of securitiespursuant to its investment program.P

During the fiscal year the Commission participated in three pro-ceedings in the Federal courts relating to its orders approving anddenying applications for fees and expenses arising out of the variousproceedings for the reorganization of United Corporation. On Sep-tember 15, 1953 the United States District Court for the NorthernDistrict of New York, affirmed 94 an order of the Commission 95whichdenied reimbursement to United Corporation for expenses and feesincurred by it in the reorganization of its former subsidiary, NiagaraHudson Power Corporation. An appeal filed by United Corporationin the United States Court of Appeals for the Second Circuit onDecember 15, 1953 was pending at the close of the fiscal year.

On March 2, 1954, the United States District Court for the Districtof Delaware affirmed in part and reversed in part an order of theCommission dated June 4, 195296 allowing and denying fees in con-nection with the reorganization proceedings of United Corporation.The Commission's order made determinations with respect to 14applications. Three were granted in the amounts requested; eightwere granted in substantially reduced amounts; and three applica-tions were denied. The District Court affirmed part of the order,but reversed and remanded the Commission's order as to one applica-

00Holding Company Act Release No. 11209.t1 Holding Company Act Release 1'0.11349.II Downing et aZ., v, S. E. C., unreported (CIvil Acnon No. 11478; March 23, 1954).II Holding Company Act Release No. 12488 (May 11, 1954).

In re Niagara Hudson Power Corp., 114 F. Supp. 683."Holding Company Act Release No. 11667 (Jan. 14, 1953).. Holding Company Act Release No. 11290.

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tion with directions to grant increased allowances." No appealwas taken.

The 19th Annual Report contains a description of the Commission'sorder dated June 16, 1953 approving and denying applications forfees and expenses which arose from the dissolution of Public ServiceCorporation of New Jersey, a former subsidiary of United Corpora-tion, pursuant to section 11 (e) of the Act. A petition for reviewwas filed in the United States Court of Appeals for the Third Circuitby the counsel to Public Service, whose application for fees wasgranted in reduced amount, and by United Corporation, whose ex-penses in connection with the reorganization of Public Service weredisallowed by the Commission. The Court of Appeals reversed thatportion of the Commission's order approving a reduced allowance forthe counsel to Public Service and affirmed the Commission's actiondenying allowances of expenses to United Corporation." A petitionfor certiorari filed by United Corporation with the "United StatesSupreme Court on May 27, 1954 was denied on October 14,1954.

REVISION OF RULES, FORMS AND PROCEDURES

Early in the fiscal year the Commission initiated a program toreexamine all rules, forms and procedures under the Act. The pur-pose of this program was to make it possible for the Commissionbetter to carry out its functions with a reduced staff. The programhas resulted in substantial revision of rules and forms, thereby reducingduplicative filing requirements, eliminating the demand for materialno longer needed in administering the Act, and streamlining procedureswhere streamlining seemed appropriate.Revisions of Rules and Regulations

Rule U-11 was revised on October 5, 1953 so as to facilitate invest-ment in the equity securities of public utilities by certain individualsand corporations. Under the revised rule any individual who haspreviously been authorized by the Commission to acquire as much asfive percent of the voting securities of two or more electric or gas utilitycompanies or holding companies may acquire unlimited amounts ofadditional securities of such companies without obtaining prior author-ization by the Commission. A company which is not itself a holdingcompany or a subsidiary of a registered holding company and whichhas previously been authorized to acquire as much as five percent ofthe voting securities of two or more electric or gas utilities or holdingcompanies may acquire additional voting securities of such companiesup to, but not including, 10 percent of the total voting power withoutprior approval. Previously each acquisition above 5 percent required

"In re 1 he United Corporatson, 119 F. Supp. 524 (1954).'s In re Public Sermce Corp. of New Jersey, 211 F. 2d 231 (1954).

TWENTIETH M>.TNUAL REPORT 71

separate approval. Experience has shown, however, that Commissionexamination of subsequent acquisitions above 5percent served no usefulpurpose, once the creation of an affiliation had been approved, untilthe acquisitions became sufficient to cause the acquirer to become aholding company. Both the industry and the Commission are savedneedless labor and expense by the revision."

A new rule, rule U-13, was adopted on December 24, 1953 tofacilitate the conversion of certain registered holding companies intoinvestment companies as a means of compliance with the provisionsof section 11 (b) of the Act. Two registered holding companies,Electric Bond and Share Company and The United Corporation,have disposed of the greater part of their domestic utility interestsand have been authorized by the Commission to convert themselvesinto investment companies to be registered as such pursuant to theInvestment Company Act of 1940. Standard Power and Light Cor-poration and the International Hydro-Electric System have indicateda similar intention. The new rule exempts nonutility companiesacquired by these registered holding companies, pursuant to an overallinvestment program previously approved by the Commission, fromthe obligations and duties imposed upon them by the statute assubsidiaries or affiliates.'?"

Rule U-20 was amended effective September 15, 1954 to prescribeForm U-1 for the filing of all applications and declarations andamendments thereto under sections 6 (b), 7, 9 (c) (3),10,12 (b), 12 (c),12 (d) and 12 (f) of the Act. Previously, a separate form, Form U-A,was required to be used for the filing of amendments. The practicaleffect of the revision was to eliminate Form U-A in the great majorityof cases arising under the Act.'

Rule U-22 was amended effective September 15, 1954 for the pur-pose of extending the privilege of incorporation by reference in thefiling of all applications and declarations under the Act, Formerly,the rule permitted applicants and declarants to incorporate by refer-ence only to other documents filed under this statute. The rule, asamended, permits incorporation by reference to documents filed withthe Commission under any Act administered by it..2

A new rule, rule U-29, was adopted effective April 30, 1954, torequire the filing under separate cover by registered holding com-panies and their subsidiaries of their published reports to stockholdersand certain other information, all of which was previously incor-porated as exhibits to the annual reports filed by registered holdingcompany systems. The objectives of this revision were to pave the

"Holdmg Company Act Release No. 12161 (Oct. 5, 1953).160 Holding Company Act release No 122i6 (Dec 24, 1953).1 Holding Company Act release No, 12611 (Aug. 10, 1954)., Holding Company Act release No 12611 (Aug 10, 1954).

72 SECURITIES At'TD EXCHANGE COMMISSION

way for the consolidation of annual reporting requirements under theSecurities Exchange Act of 1934 and the Public Utility Holding Com-pany Act of 1935, as more fully described below, and to permit moreefficient disposition of voluminous records after they have ceased tobe the subject of active use."

The Commission adopted an amendment to rule U-50 4 which,along with companion revisions of certain rules under the SecuritiesAct of 1933,5was designed to eliminate certain mechanical and ad-ministrative impediments which hindered the prompt public offeringof securities following the receipt of bids from prospective underwriters.Offerings subject to rule U-50 are required to be acted upon by theCommission under both statutes. Formerly, the company selling thesecurities was required to obtain two sets of orders under each statute.The first orders, in which all provisions of the registration statementand declaration were cleared, except the price of the sale, to be deter-mined at competitive bidding, and the successful bidders' reofferingprice to the public, were entered prior to the published invitations forbids. The second orders, giving this information, were entered fol-lowing determination of the winning bid and offering price and wererequired to be obtained before the securities could be offered for saleto the public. The rules as amended permit immediate award of thesecurities to the successful bidder and public offering without thenecessity of the second set of clearance orders in all cases where two ormore bona fide bids are received unless in Ii particular case the Com-mission should reserve jurisdiction. In its prior experience underrule U-50 the Commission had only on rare occasions disapprovedan award where two bids were received

Rule U-40 was amended so as to exempt the acquisitions by regis-tered holding companies and their subsidiaries of securities of com-panies whose principal business is the ownership or licensing of tradenames, trade marks, and service marks used by public utilities in theordinary course of their business. b Previously the acquiring companywas required to obtain a specific order of approval from the Com-mission. This revision was adopted as a result of a petition for suchan amendment filed on December 4, 1953, pursuant to section 4 (d)of the Administrative Procedure Act and rule XIX of the Commis-sion's Rules of Practice,"Pending Proposals for Revision

Rule U-45 (b) (6) regulates the manner in which the consolidatedFederal income tax of a registered holding company system may be

• Holding Company Act release No. 12430 (Mar. 29, 1954) • • Holding Company Act release No. 12298 (Jan. 13, 1954) •

Securities Act of 1933 release No. 3494 (Jan. 13, 1954) .Holding Company Act release No. 12275 (Dec. 23, 1953).

f Holding Company Act release No. 12238.

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allocated among the associate companies in the system. It providesin substance that the tax shall be allocated so that each companyincluded in the consolidated tax return for the system will bear thatpercentage of the consolidated income tax which the income taxliability of such company on a separate return basis would be to theaggregate income tax liabilities of the individual companies based onseparate returns. Early in 1953 the Commission had occasion toconsider a specific request by a registered holding company for amodification of the requirements of this rule. Since the issues raisedby this request appeared sufficiently broad in scope to warrant recon-sideration of the rule, the Commission published a notice invitingcomments on the rule." Numerous comments and recommendationswere received from various registered holding companies and from 10regulatory bodies.

Thereafter the Commission published a notice proposing a cbangein the rule, the effect of wbich would have been to eliminate inter-company dividends in allocating the tax." After receiving extensivecomments from interested members of the public and holding a publichearing on the proposal, the Commission directed its staff to makefurther studies of the problem." Since the end of the fiscal year theCommission has revised rule U-45 (b) (6) so as to permit the alloca-tion of taxes among companies in registered holding company systemsin accordance with either of the first two methods specified in Section1552 of the Internal Revenue Code of 1954, subjecb, however, to cer-tain limitations. 10&

With minor exceptions, rule U-50 requires competitive bidding inconnection with the issuance or sale of securities by registered hold-ing companies and their subsidiaries. During the fiscal year theCommission instituted a study as to whether competitive bidding isa condition which should be imposed upon the statutory exemptionafforded by section 6 (b) of the Act. On November 25, 1953 theCommission published a notice of a proposed amendment to rule U-50which would exempt from the competitive bidding requirements of therule securities issued by certain public utility subsidiaries ofregistered holding companies." Such amendment would implementthe exemption provisions of section 6 (b) of the Act which, subjectto such terms and conditions as the Commission deems appropriate inthe public interest or for the protection of investors or consumers,exempt such issues if they have been expressly authorized by a Statecommission. Extensive written comments on the proposed amend-

• Holding Company Act release No. 11761 (Mar. 12, 1953)• Holding Company Act release No. 12206-X (Nov. 9, 1953).

10 Holding Company Act releases Nos. 12237 (Dec. 7, 1953) and 12288 (Dec. 30, 1953).10. Holding Company Act Release No. 12776 (January 12, 1955).11 Holding Company Act release No. 12217-X.

•


ment were received from representatives of the industry, publicregulatory bodies and members of the general public, and on February18, and March 31, 1954 public hearings were held on the proposal.At the end of the fiscal year the Commission had not acted on theproposal.

The employee stock option plan as a means of incentive compensa-tion for executives and employees has been used only to a very limitedextent in the public utility industry. The Commission has not per-mitted a declaration in respect of any stock purchase plan or stockoption plan to become effective. In the fiscal year 1953 the Commis-sion received from holding companies a number of requests concerningthe issuance of stock to officers or employees of a registered holdingcompany or any of its subsidiary companies pursuant to an employees'stock option plan. On )'Iay 15, 1953, the then Director of the Divi-sion of Corporate Regulation, acting upon direction of the Commis-sion, sent a letter to each registered holding company stating that theCommission would give expeditious consideration to stock purchaseplans meeting the prescribed standards which, in effect, would havemade such plans stock option plans. On February 12, 1954, the Com-mission promulgated for comment a proposed new rule, Rule U-51,which would make it possible for registered holding companies andtheir subsidiaries to use employee stock option plans with appropriatesafeguards to protect the public interest and the interest of investorsand consumsrs.':' .A public hearing on the proposed rule was held onApril 8, 1954. After the close of the fiscal year, the Commissionannounced that, following thorough consideration of the entire recordin the matter, it had decided not to adopt the proposed rule U-51and it also announced withdrawal of the )'Iay 15, 1953 letter referredto above."

The Public Utility Holding Company Act prohibits a registeredholding company or subsidiary from having as an officer or directorany officer, partner, or representative of any bank, trust companyor investment banker, except as permitted by regulations of the Com-mission as not adversely affecting the public interest and the in-terests of investors and consumers. Rule U-70, as presently ineffect, grants exemptions from this prohibition to persons whoseonly financial connections are with commercial banking institutionsand small banking investment firms meeting certain described require-ments. During the fiscal year the Commission published a proposalto revise this rule so as to eliminate the numerous complex exemp-tions inserted from time to time over the years to meet specific

Holding Company Aet release :->0 12354 (February 12, 1954).13Holding Company Act release :->0. 12i28 (December i, 1954)."

TWENTIETH AJ\TNUAL REPORT 75

situations which are no longer of particular significance. The pro-posed revision would simplify the rule and give registered holdingcompanies and their subsidiaries some additional latitude in theselection of directors." At the end of the fiscalyear, the Commissionhad not acted on the proposal.

During the year the Commission promulgated notices of proposalsto adopt statements of policies setting forth the requirements whichit considered should be met by public utility companies subject tothe regulatory provisions of the Act in their indentures securingfirst mortgage bonds and in the protective provisions pertaining totheir preferred stocks In the past, the requirements imposed uponissuers of mortgage bonds and preferred stocks have varied from timeto time and from issuer to issuer with the result that there have beencharges of unequal treatment by some issuers. The object of theproposed statements of policies is to reduce this variation and toprovide all interested persons with information as to the standardsrespecting indenture and preferred stock charter provisions whichthese types of security issues will be measured against." Voluminouscomments were received from representatives of registered holdingcompany systems and from interested members of the public and theseare under study by the staff.Revisions of Forms

Generally speaking, the forms prescribed for reporting to theCommission by registered holding companies and their subsidiarieshad received little attention during the past several years, and much ofthe required data was either available in other sources or no longeressential. In other respects the reports were inadequate. The threeprincipal forms used by registered systems were revised during thefiscal year by the elimination of some items, the restatement ofothers and an overall attempt to simplify language. The financialstatement requirements in these forms have been strengthened, andnow conform generally to the basic accounting regulations promul-gated by the Commission under the Securities Act of 1933 and Se-curities Exchange Act of 1934.

Form U5S, which is the annual system report required to be filedby registered holding companies pursuant to the requirements of theAct, was redesigned so that a single report may now be used to satisfythe annual reporting requirements under both the Public UtilityHolding Company Act and the Securities Exchange Act for allassociate companies in a particular holding company system." As anexample, this has enabled one registered system to reduce the number

14 Holding Company Act release No. 12242 (December 8,1953)."Holdmg Company Act Releases Nos. 12507and 12508 (~fay 25,1954)1& Holding Company Aet Release No 12430 (Maron 29, 1954).

76 SECURITIES A..1Il"DEXCHANGE COMMISSION

of separate reports required to be filed by the various system companiesunder both statutes from 11 to one. The revision of Form U5Sshould result in a real reduction in the time required to be spent bythe Commission's staff in examining annual reports of companiessubject to both the Public Utility Holding Company Act and theSecurities Exchange Act.

Form U-13-60, which is the annual report form for mutual andsubsidiary service companies associated with registered holdingcompany systems, was also simplified.'? Items calling for materialcontained in the system annual report on Form U5S and for detail nolonger deemed necessary were eliminated.

Form U-l, which is used for filing most applications and declara-tions in respect of financing, acquisitions of securities and assets andcertain other transactions regulated by the Act, was revised andbrought up to date during the fiscal year.IS One important newrequirement was that the financial statements, required to be filedas exhibits to the form, be prepared in accordance with the Com-mission's Regulation S-X. The privilege of incorporation by refer-ence of material filed under all statutes administered by the Com-mission, instead of only to the Holding Company Act, was part of therevision.Processing of Fee Applications for Services Rendered in Section 11Reorganization Proceedings

At the beginning of the present fiscal year the Commission wasfaced with a substantial backlog of applications for fees rendered inprior Section 11 reorganizations. To facilitate handling this backlog,a new procedure was inaugurated in December 1953 for disposing ofsuch applications. Under the new procedure, after fee applicationshave been filed, the Commission enters an order directing the com-pany or companies who will pay the fees to file with it a report settingforth, in a manner so as to indicate the proposed allocations thereofamong the affected companies, the amounts of fees and expenseswhich those companies have already paid or, after negotiation withapplicants, have agreed to pay, and in cases where negotiations wereunsuccessful, the amounts which such companies recommend forpayment. To avoid any possibility that its original order might beconstrued as a waiver of its jurisdiction over fee agreements nego-tiated pursuant thereto, the Commission reserves jurisdiction thereinof its right to exercise the full power with respect to fees and expenseswhich are conferred upon it by the Act.

While the company is carrying on the negotiations and preparingthe report to the Commission referred to above, the staff of the Divi-

17 Holding Company Act Release No. 12287 (December 30,1953).18 Holding Company Act Release No. 12611 (August 10, 1954).

TWENTIETH ANNUAL REPORT 77sion of Corporate Regulation independently studies and prepares ananalysis of the fee applioations on file and makes a preliminary Divisionrecommendation to the Commission of the amounts which should beapproved as fees for each fee applicant. The Commission is then in aposition, upon receiving the company report, to compare the figuresagreed upon or recommended by the company with those independ-ently recommended by its staff and to determine whether it can ap-prove and direct payment of some or all of the fees agreed upon or thefees recommended or compromise figures without a public hearing.Although this new procedure is not adaptable to all of the fee applica-tions pending before the Commission, the Commission has found gen-erally that its use in appropriate cases has greatly facilitated disposi-tion of the cases and has reduced to a minimum the necessity of holdingextensive fee hearings. Since December 1953, the new procedure hasbeen employed for handling fee applications related to reorganizationsof five holding company systems."

COOPERATION WITH STATE AND LOCAL REGULATORY AUTHORITIES

The Commission has continued to pursue its long established policyof cooperating to the fullest extent with state public utility commis-sions and municipal regulatory bodies on all matters of mutualinterest. Aside from day-to-day contacts, most of which are informalin nature, there were significant instances during the past fiscal yearof cooperation on the part of the Commission with state and localauthorities on public utility matters.

An underlying objective of the Act is to supplement and strengthenlocal regulation of public utilities. Notices of proceedings and ofproposals to amend or adopt rules, forms and regulations under theAct, which are considered likely to be of interest to state and localauthorities, are sent to those agencies. All matters of general interestare circulated in this manner among the members of the NationalAssociation of Railroad and Utilities Commissioners.

In response to the Commission's published notice dated November25, 1953/° inviting comments on the proposed amendment to ruleU-50, which would exempt from the competitive bidding requirementsof the rule securities issued by certain state regulated public utilitysubsidiaries of registered holding companies, comments and recom-mendations were received from 41 state commissions and from thePublic Utilities Commission of the District of Columbia.

1I Standard Power and L,ght Corp., Holding Company Act Releases Nos. 12272 (December 23,1953) and12496 (May 14, 1954); Arkanso. ]I."olural Ga. com., Holding Company Act Releases Nos 12339 (February2,1954) and 12506 (May 21, 1954); Pennsylvanza Gas Electru: Corp, Holdmg Company Act releases Nos.12381 (February 26,1954) and 12628 (August 19,1954); Electric Bond and Share Co., Holding Company ActReleases Nos. 12408 (March 15, 1954) and 12567 (June 29, 1954); and Eastern Utlllliu A•• ociau«, HoldingCompany Act Releases Nos. 12462 (April 14, 1954) and 12632 (August 24,1954).

"Holdmg Company Act Release No. 12217-X (November 25,1953).

~


The proposal by Cities Service Company, a registered holdingcompany, to sell all of its holdings of the common stock of The GasService Company to Missouri Public Service Company, discussed morefully in a preceding section of this report, was also the occasionfor active participation by state regulatory authorities. Followingthe filing with the Commission of the proposed contract betweenCities Service and Missouri Public Service, the public utility commis-sions of the States of Missouri, Kansas, Nebraska and Oklahoma,in which Gas Service operated, were notified of the pending proceed-ings and of the date set for the hearing and were kept fully advised ofall subsequent developments. The Missouri Public Service Commis-sion and the Kansas State Corporation Commission appeared and wereadmitted as parties in the proceedings before the Commission.

FINANCING OF REGISTERED PUBLIC UTILITY HOLDINGCOMPANY SYSTEMS

The volume of securities sold for cash or issued in exchange forrefunding purposes by registered holding companies and their sub-sidiaries during the fiscal year 1954 exceeded that for the precedingyear, even though 17 companies with assets of $270 million wereremoved from the jurisdiction of the Act as a result of divestmentspursuant to section 11. A major improvement in the markets for newsecurities and continuance of the high rate of post-war public utilityexpansion appear to be the principal contributory factors in thepast year's record.

In 1954 registered systems sold $902.9 million of securities to thepublic and to institutional investors as compared with $712.2 millionin 1953. In both years this external financing accounted for 26 per-cent of the total volume of financing by the entire electric and gasutility industries. The aggregate volume of security sales upon whichthe Commission was required to act pursuant to sections 6 and 7 ofthe Act, including both sales to the public and intra-system sales,increased to $1,154.5 million in 1954 from the $993.2 recorded in theprevious year, despite a modest decline in security sales by subsidi-aries to their holding company parents from $281.0 million in 1953to $251.6 million in 1954.

The following table sets forth in detail for the two years the volumesof securities of various types issued and sold by registered holdingcompanies and their subsidiaries under sections 6 and 7 of the Act.Portfolio sales and issuances in connection with reorganizationsare excluded.


Totals

Sales of securities for cash and refunding exchange offerings authorczed pursuant toSections 6 and 7 of the Public Ut1hty Holding Company Act of 1935 for the fiscalyears ended June 30, 1954, and June 30, 1953

[Dollar figures III thousands]

For fiscal year ended-

June 30,1951 June 30,1953

Type of sales I

I ITotals I

Sales to Pri vate Sales to

Gro~:~I:umJ ::::m;:_: Gr~:srell~:um_ Gross I ~um-I Gross! Num-sales i ber of I sales ber Of! sales ber of sales "ber of sales I ber of

_________ ._v_a_lu_e_llssues I value Issues I value Issues I value i Issues I value i ISSUes

EleetneandGas 1--'--'--1-1-'-1-Utilities I I IBonds $348 4. 27 $176 0 11 $26 0 11 $550 4 49 $353 6 , 33

Debentures__________ 25 21 1 1-------- ------- -------- -------1 25 2 I 1 7241 2Notes________________ 13 5 4 54.8 54 683 58 80 7 126Preferred stock._____ 73 7 10 6 0 I 1 -------- ------- 79 71 11 I 70 0 I 9Common stock.c.L, , 88 6 7 _ _ 126 7 47 2153 54 2026 68

--- --- --- -- --- ---,------ -----Tota!... ~1~1~ __16_1 20i 5 ~1_~~~_~_L..!i31 779.31~

Hol~~~Jso~~~~_e_s ==[==--:- --1-== == ~11--1-1==1==Debentures__________ 1320 4 1320 4 25 5 1Commonstock._____ 225 3 225 3 I 1195 10

---'----~- -- ------ ---1--'---'--TotaL____________ 154 5 I 7 ( 0 1 161 5 I 8 I 1450, 11

===1====,===

NOngr~~ri:~~~~~~~::---10-0- -----1- :::::::: ::::::: :::::::: ::::::: ---10-0-1-----1-1 1~~Notes t , 19 5 15 19 5 151 22 2 41Cornman stock______ 24 6 9 24 6 I 9 20 0 13

TotaL____________ 10 0 1 ,~_____ 44 1 24 54.1 I 25 I 68 9) 57

Grand totals 700:4_~_202.5I--17-_25l6_136Il.l545I------z06I9932

As indicated by the preceding table, the numbel' of issues actedupon by the Commission in 1954 was 100 less than the number for1953, whereas dollar volume of financing increased $161.3 millionduring the past year. This reflects principally a decline in the numberof medium term note issues sold by subsidiaries to their respectiveparents.

The electric and gas utility and non-utility operating companiesof registered systems sold $218 million of common stocks in 1954.21

This represents the largest volume of equity financing accomplishedby such operating companies in any fiscal year since 1949. Ofthis amount, $119 million were sold to parent holding companies.The balance of $99 million represented sales of stock to the publicby operating companies which were also top registered holding com-panies, and by other operating companies in which there was a public

21 Represents sales of securines by all electnc, gas and nonutthty operatmg companies of registeredsystems, mcludmg sales to registered holding company parents, but evcludmg sales of seeunties hy oneoperating company to another Also excludes all sales of securities by those remstered holding companieswhich Iunctrm solely as holdmg cornparnes.

326394-55-7

1

II ~

~


interest resulting from partial divestments. While such a comparisonmay be somewhat affected by differences in the methods of subsidiaryfinancing employed in various systems, it is significant that the totalsales of common stocks by the operating companies of registeredsystems accounted for 25 percent of their security sales in 1954, whiletotal sales of common stocks by all other operating companies in theelectric and gas industries not subject to the Act showed a corre-sponding ratio of 18 percent.

The financing of registered holding companies (exclusive of holdingcompanies which are also operating companies) followed a much differ-ent pattern. In the fiscal year 1954 they sold $139.0 million of debtsecurities and $22.5 million of common stock. They sold $119.5million of common equity securities in 1953, $108 million in 1952and an average of more than $80 million in each of the three fiscalyears 1949 to 1951. The amounts of common equity and debtsecurities sold for new money purposes in each of the past six fiscalyears by these companies are shown in the following table.

Sales of debt securities and common stocks for new money purposes by registeredholding com/parues uihdch functtoti solely as holding companies. Data for operatinq-holaing companies are excluded

(In millions of dollars]

FIScal year

1949 ._1950 ._ _._.•.195L .. .. _._. .. .. ... ._ .... _' ... _._ .. _. .. _. . .. _. .1952.. .... .. •. .. ._. •. .. . .. .. . _._1953 ._. . . . •.. •. ._._. . . ._1954 .. _. ... ... ... . ._

Debt I Commonsecurities stocks

$24 $6940 9160 82

104 10826 120

139 22

The debt financing of $139 million by these registered holdingcompanies in 1954 represented almost entirely debenture issues byholding companies in those systems whose operating subsidiarieshave no long-term debt securities in the hands of the public.

The effect of the comparatively small volume of common stocksales by registered holding companies in 1954 was to reduce to 12.3percent the percentage of the aggregate external financing of regis-tered systems which was represented by common stocks. In 1953,26 percent of the total external financing of registered systems wasaccounted for by sales of common stocks.

The sharp decline in holding company common stock financingduring 1954 reflects in part the carry-over of funds derived from thesales of unusually large amounts of holding company common stocksin 1952 and 1953 as indicated above. Another factor in the year'sresults was the financing by one large registered holding company,The Columbia Gas System, Inc., which presented unusual problems.That company finances all of its subsidiaries' requirements and faced

• - • • • -

' _ __ _ _ __ __ _ _

__• __ __ __


the problem of raising $130 million to finance the expansion programof its system. Because of the usual lag in the development of earningspower on recent property additions and the lag in the procurement ofrate revisions applied for, the company's earnings dropped to a pointwhere management considered it unwise to attempt to raise the neededcapital by the sale of common stock. As an alternative Columbia'smanagement proposed and the Commission approved the sale of $90million of sinking fund debentures in the fiscal year 1954/2 repre-senting 62 percent of the total external debt financing of all regis-tered systems in that year. The debentures included $50 millionsubordinated debentures convertible into common stock beginning onJanuary 1, 1955. This issue represented the second convertible issueever authorized by the Commission under section 7 of the Act (theother having been issued in connection with reorganization undersection 11 of the Act),23and it reflected the extraordinary circum-stances present in the case. Columbia sold $22 million of commonstock in 1953 and $20 million in 1952. The consolidated capitaliza-tion of the Columbia system as of June 30, 1954,reflecting both deben-ture issues, showed a debt ratio of 55.2 percent and a common equityratio of 44.8 percent.

The continued high level of financing activity by registered systemsin 1954was typical of the electric and gas utility industries as a whole.The first six months of the fiscal year 1954 witnessed a decline ofnearly one percent in the cost of public utility bond money with acorresponding improvement in the price structure of the commonand preferred stock markets. It is apparent that this developmentacted as a potent stimulant to both financing plans and expansionplans throughout the year. The drop in financing costs also stimu-lated a modest revival of refunding operations. Registered systemssold $20 million of refunding issues in 1954 and all other electric andgas utilities sold $291 million of securities for that purpose. Thelatter total includes two bond issues aggregating $105 million sold forthe purpose of refunding two issues which had been outstanding onlyabout 12 months.

Plant construction expenditures by the electric and gas utilityindustries for the fiscal year 1954 recorded the modest increase pre-dicted in the 19th Annual Report. Industry estimates indicate thatconstruction expenditures for the next two fiscal years mayamount to approximately $3.8 billion in 1955and approximately $3.5billion in 1956.

The rights offering continued to dominate the common stock financ-ing of registered systems in 1954, despite the relaxation in 1953 of the

"Holdmg Company Act releases Nos 12458(Apfl113, 1954) and 12554(May 22,1954) Colnmbla has notyet sought approval for the sale of the addltional $40 mllhon of debt contemplated at that tune.

,. In the Matter of New England Gas and Electric Assae;a/ion, Holding Com pan)' Act releases os 6i29(June 24, 1946), 7181 (February 11, 1947) and i295 (March 20, 1947).

~


Commission's former policy of requiring that sales of common stock, bemade in this manner except where unusual conditions prevailed. Ofthe 10 issues offered in 1954 pursuant to sections 6 and 7 of the Act,only two, amounting to 10 percent of the total dollar volume, weresold by means other than rights offerings." 65 percent of the commonstock sold in 1954 by all other electric and gas utilities was offeredthrough rights offerings.

Common equitu finaucrnq durina the fiscal ?fear 1954 by reqistered holding companysystems and by all other electric and ga.~ utility companies, includinq holdingcompames, and gas tranemission. compames. Secondoru offermqs and inter-company transactions excluded

[Dollar figures ill mIllIons]

Registered holding All other electric I TOk~1 electrrc andcom pan)' systems and gas utilities gas utihty indus-

tnt'sType of offering

I

VolumeNv mber V I Numher V0111;11n.of ISSUes olume of ]ssues

Rights., .____ ._. ____ .__ ._.' 8 $100 32 $290 40 $390Pubhc . ... . .' 2 II 16 148 18 159

--- --- --- ---- --- ---Totals ________________ . _________ . _._ III 111 48 438 58 549

The trend toward non-underwritten rights offerings noted in 1953has continued during the past fiscal year. Also in evidence was anincrease in the use of the oversubscription privilege in underwrittenofferings. These:developments are summarized in the following table:

Rights offermo« of common stocks by all electric and gas utility componies, well/dingholdmg companies and 'gas transmIssion companres, Secondary offerinqs andintercompany transactions excluded

Number of Issues

Banking arrangements

1954 I~I~40 I 40 I 37

Percentage of ISSues

Underwrrtten, IWIth ovcrsubscnptron privilege [

Underwrrtten, iWIthout oversubserrpnon prlvrlege -------. --. .. -. --. i

Nonunderwritten, IWIth oversut serrpuon prrvrlege , --. --. ----I

Nonunderwrlttr-n, 1\\ ithout ovorsubscnpnon prrvilege . .. .. __ .!

30

40

20

10

20

55

15

10

35

49

13

3

Offerings of securities by issuing companies pursuant to sections6 (b) and 7 of the Act and portfolio sales by registered holding com-panies under section 12 (d) are required to be made at competitive

S4Duquesne LIght Company, Holding Company Act release No. 12130 (September 8, 1953); and UtahPower & LIght Company, Holdmg Company Act release No 12404 (March 11, 1954).

~~~~~~

•__________________•____•___•• ___ ___ ________

w • _

~ ~__

__- ----- - - -- - ---- -- -

- ---- ----- ----- -- ------ _

TWENTIETH Al~NUAL REPORT 83bidding in accordance with the provisions of rule U-50. Automaticexemptions from competitive bidding requirements for certain types ofsales including nonunderwritten sales made to stockholders pursuantto preemptive rights are provided by clauses (1) through (4) of para-graph (a) of the rule. Under paragraph (a) (5) the Commission mayby order exempt an offering from competitive bidding if it appearsunnecessary or inappropriate to carry out the provisions of the Act.The following table shows the volume of sales of securities at com-petitive bidding pursuant to rule U-50 by registered holding companiesand their subsidiaries, including portfolio sales, for 1954 with cumu-lative totals from May 7, 1941, the effective date of the rule.

Sale of ~ecuntie8 pursuant to nile U-50[In rmllions of dollars]

July 1, 1953 to June 30, ~ray 7, 1941 to June 30,1954 1954

Number Amount 1Number Amount 1of Issues of ISSUe'S

Bonds. __ ._. _ ... ___ . __________ _______ . .. ____________ ___ . 27 $.148 370 $5,6.14Debentures __ . _______________________ .. __ . _______ . _____ .5 157 44 1.106Notes ------------ ------------ 9 75Prefemicfstock:::: ::::::::::::::::::::::::::::::::::::: 10 74 1f4 88.0Common Stock. ______________ _______ . . ________ _______ . 7 89 lCi 1.008

Total. ________ . ____________ . _. _____ ... __________ . 49 668 628 S 708

I Amounts shown represent prmoipal amounts of bonds, debentures and notes, par or stated values ofpreferred stocks, and proceeds of sales of common stocks.

Included in the total of $668 million of security sales for the fiscalyear 1954 are two portfolio divestments of common stocks amountingto $36 million," leaving total sales by issuers at competitive biddingof $632 million. The difference between the latter figure and thetotal external financing by registered systems of $902.9 millionamounted to $271 million, which represented sales of securities pursu-ant to the various exemptions from competitive bidding requirementsafforded by the rule. Among these exempt sales were $60 million ofsecurities sold pursuant to the automatic exemptions provided byclauses (1) through (4) of paragraph (a) of the rule.

The balance of $211 million represented sales of securities by sixcompanies pursuant to exemptions from the competitive biddingrequirements of rule U-50 granted by orders of the Commission underparagraph (a) (5) of the rule. Included were sales of three issuesaggregating $48 million which were exempted because of unfavorablemarket. conditions and other unusual circumstances attending the

"Inc1ufles sale hy C,tle, Sen-we Company on April 13, 19.04of II' hold mgs of the common stock of TheGas Service Company for $35 million, Holding Company Act Releases Nos 12410, 12445 anflI251~, anu 'aleby Standard Power and Lrght Corporation of 34,739 shares of Duquesne LIght Company common stock onSeptember 16,1953 for $884,000, Holdmg Company Art Release :\'"0.12130


offerings." Another company was granted exemption with respectto $3 million of its common stock representing the unsubscribedportion of a non-underwritten rights offering." Two other companies,organized to construct and operate generating facilities to supplyelectric power to Atomic Energy Commission plants, issued $141million of bonds and $19 million of notes pursuant to long-term con-struction loan commitments. These agreements extend over periodsof several years and permit the issuing companies to issue their securi-ties to insurance companies from time to time as funds are needed.Since these arrangements did not lend themselves to the mechanicsof the competitive bidding procedure they were exempted by ordersof the Commission pursuant to paragraph (a) (5) of rule U-50.28

There were three additional issues not included in any of the fore-going totals. New England Gas and Electric Association, a registeredholding company, sold its holdings of all of the preferred and commonstocks of New Hampshire Electric Company to the Public ServiceCompany of New Hampshire, a non-affiliate, for a consideration con-sisting of 120,000 shares of common stock and a five year note of$2,240,000 of the latter eompany.P Union Electric Company ofMissouri, a registered holding company, acquired the common stockof Missouri Edison Company, a non-affiliate, through the issuanceof shares of its common stock in exchange."

In comparison with the 628 issues of securities totalling $8,708million sold by registered holding companies and their subsidiaries atcompetitive bidding from the effective date of rule U-50 to the end ofthe :fiscalyear 1954, 216 issues with volume of $1,825 million were soldby other means in accordance with orders of the Commission grantingexemptions from competitive bidding pursuant to paragraph (a) (5)of the rule. The following table sets forth the cumulative totals ofissues and dollar volumes of each type of security sold pursuant tothese exemptions .

.. Arkansas LOUISiana Gas Company bonds, Holding Company Act release No. 12134 (September 16,1953), Eastern Unhties Associates bonds, Holding Company Att release No. 12382 (Marcil 2, 1954); andIndiana & Michigan Eleetrie Company preferred stock, Holding Company .Act release No. 12140 (Septem-ber 21,1954).

27General PUblic Utilities Corporation, Holding Company Act Release 1'0. 12492 (May 12,1954).'8 Electric Energy, Inc $60 milhon of $95 mrllion of bonds authorized in Holding Company Act release;

Nos 11689 (January 30,1953) and 12048 (July io, 1953), Ohio Valier Electrrc Corporatron $81 million of $Owrmlhon of bonds and $19 million of $60 rmlhon of notes authorrzed m Holding Com pan)' Act Ielease No. 120i7(July 27. 1953).

"Holdmg Company Act release No. 12510 (May 25,1954).soHolding Company Act release No. 12262 (December 15, 19m).

TWENTIETH ANNUAL REPORT 85Sales of securities exempted from competitive bidding requirements pursuant to the

provisions of paragraph (a) (5) of rule U-50 by orders of the Commission enteredfrom May 7, 1941 to June 30, 1954.

[In mllhons of dollars]

Underwritten Nonunderwritten Total

Number Amount I Number Amount INumber Amount Iof issues of issues of ISSUes

--- --- ---Bonds 4 $27 64 2 $615 68 2 $842Debentures, ._. 3 83 5 37 8 120Notes ._. 21 , 55 21 255Preferred stock 11 66 25 265 36 331Common stock ._. 33 279 50 198 83 477---TotaL 51 455 165 1,370 216 21, R25

I Proceeds before expenses.2 These amounts Include $241 million of bonds and $20 mllllon of notes sold up to June 30, 1954 by Electric

Energy, Inc. and Ohio Valley ElectrIc Corporation pursuant to long-term loan commitments authorizedby the CommISSIOn. The entire amounts of these commitments were exempted from competitive biddmgrequirements by orders of the Commission pursuant to rule U-50 (a) (5). Tbe total authorlzanons are:Electrre Energy, Inc. $195 million of mortgage bond. of which $165 rmlhon has been taken down; OhIOValley Electric Corp., $360 millton of mortgage bonds of which $S1 milhon has been taken down, and $60millIon of notes of which $20 nnllion has been taken down.

It will be noted from the above table that only 51 issues withan aggregate dollar value of $455 million were sold through under-writers. Of the $1,370 million of securities sold by means of non-underwritten transactions exempt from competitive bidding $752million represented private placements of bonds. Included in thelatter were $241 million of bonds sold pursuant to the constructionloan commitments made by Ohio Valley Electric Corporation andElectric Energy, Inc. as described above. Two subsidiary natural gaspipe line companies sold $94 million of bonds during the period undersimilar agreements. Also included among these private placementswas an issue of $100 million of collateral trust bonds as part of areorganization settlement under section 11 of the Act. All notessold during the period and more than half of the debentures sold werealso in the nature of private placements. Sixteen of the preferredstock issues totalling $243 million, were refunding exchange offerings,14 of which, with aggregate volume of $227 million, were initiatedprior to the announcement by the Commission of its general policyrequiring competitive bidding in such cases." Sixteen of the commonstock sales, totalling $83 million, represented sales of equity invest-ments in subsidiaries by registered holding companies to other publicutility or holding companies. Sixteen other issues, aggregating $19million, were in the nature of sales of common stock investments insmall non-retainable subsidiaries directly to private individuals orsmall groups of individuals.

Holding Company Act release No. 6449 (March 5, 1946).

--- ---______• ________• ________• ___________

• • •______ __________________ _______• ______ ________• ________• __ ---------- ----------______ • _________________• __

• ______ _______________ __

--- --- --- --- ---•••• _____• _________________• __ '

"

86 SECURITlr::S AXD rXCHANGE COMl\USSION

FINANCING OF ELECTRIC GENERATING COMPANIES SUPPLYINGFACILITIES OF THE ATOMIC ENERGY COMMISSION

Two generating companies which have been organized to furnishpower to facilities of the Atomic Energy Commission are subject tothe Act because they are subsidiaries of registered holding companies.The initial equity financing of the first of these, Electric Energy, Inc.(EEl), was approved by the Commission on January 15, 1951.32The purchasers of the common stock were Central Illinois PublicService Company, 20%; Illinois Power Company, 20%; KentuckyUtilities Company, 10%; Middle South Utilities, Inc., 10%; andUnion Electric Company of Missouri, 40%; for an aggregate consider-ation of $3,500,000. Of these, Middle South and Union Electric areregistered holding companies, Kentucky Utilities and Illinois Powerare exempt holding companies, and Central Illinois is an independentoperating public utility."

EEl has a 25-year contract to furnish the Atomic Energy Commis-sion installation at Paducah, Ky., with 735,000 kw. of power. Since1951 the Commission has approved additional equity financing of$2,700,000,34and debt financing in the form of 25-year first-mortgagebonds in the amounts of $100,000,000 at 3 percent, $65,000,000 at3% percent, and $30,000,000 at 4% percent." $740,350 in fees andexpe ises for the organization and financing of EEl have beenapproved."

Following a similar pattern, the Ohio Valley Electric Company(OVEC) and its wholly owned subsidiary, Indiana-Kentucky ElectricCompany, were organized to construct generating capacity for thefurnishing of 1,800,000 kw, to the Atomic Energy Commission'splant at Portsmouth, Ohio. The initial equity financing for thissystem, consisting of 200,000 common shares to be sold for an aggre-gate of $20,000,000, was approved by the Commission on November 7,1952,37with the shares being purchased by the sponsors in the followingpercentages:

"Holdmg Company Act release No 10340 (January 15, 19,51)33 See the COmmle5IOIl'S 17th Annual Reuort (1951), pp 10.2-10:',. Holding Company Act release Xo 1Ir,,9 (January 30,1%3)

Holding Company Act releases Nos IOf39 (June 26, 1951), 11689(January 30, 1953), and 12048 (July 10,1953)

.. Holdmg Company Aet release Nos. 11392(July 21, 1952), 12353(February 10, 1954), and 12457 (AprJ112,1954)

37Holding Company Aet release No 1l.\78 (Novernber 7,19:;2).

"

TWENTIETH Ml.T1\TUALREPORT 87Equitypartun-pauon.

ratioCompany (percent)

American Gas & Electric Company__________________________________ 37.8Cincinnati Gas & Electric Company_________________________________ 9.0Columbus & Southern Ohio Electric Company________________________ 4.3Dayton Power & LIght Company____________________________________ 4.9Kentucky Utilities Company________________________________________ 2 5Louisville Gas & Electric Company__________________________________ 7.0Ohio Edison Company 16.5Southern Indiana Gas & Electric Company___________________________ 1. 5Toledo Edison Company _ _ _ __ __ _ _ __ _ _ _ __ _ _ __ ___ _ __ _ _ _ _ __ _ _ _ _ _ ___ _ _ _ 4. 0West Penn Electric Company _ __ _ _ _ _ _ _ _ __ _ __ _ _ ___ _ _ _ _ __ _ _ _ _ _ _ ___ _ _ _ _ 12. 5

Of the sponsors, American Gas, West Penn, and Ohio Edison areregistered holding companies, Cincinnati, Kentucky, and Louisvilleare exempt holding companies, and the others independent operatingutilities.

Subsequently the Commission has approved the issue by OVEC of$360,000,000 principal amount of 25-year 3% percent bonds,$60,000,000 of 4 percent notes to banks, due January 1, 1967, and$8,000,000 of 2 percent subordinated notes purchased by the sponsors."$1,026,532 in fees and expenses has been approved since the end of thefiscal year."

The debt financing arrangements of both EEL and OVEC permitthem to issue their securities to the institutional purchasers from timeto time as funds are needed. Since these mechanics did not lendthemselves to the mechanics of the competitive procedure, they wereexempted from Rule U-50 by orders of the Commission.'?

38Holding Company Act release No 12077 (JIlI~' 27, 1951).Holdma Company Act release No. 127f4 (December 29,1904)

~D Sec notes 35 and 39, supra

_

"

PART V

PARTICIPATION OF THE COMMISSION IN CORPORATEREORGANIZATIONS UNDER CHAPTER X OF THE BANK-RUPTCY ACT, AS AMENDED

Chapter X of the Bankruptcy Act provides a procedure for reorgan-izing corporations in the federal courts. The Commission's dutiesunder Chapter X are, at the request or with the approval of the court,to provide the court and investors with independent expert assistanceon the various legal and financial questions that arise in the proceedingand to prepare advisory reports on plans of reorganization. TheCommission has no right of appeal in a Chapter X proceeding, but itmay participate in appeals taken by others.

The Commission acts in a purely advisory capacity. It has noauthority either to veto or to require the adoption of a plan of reor-ganization or to render a decision on any other issue in the proceeding.Its recommendations are made for the benefit of the judge and thesecurity holders, affording them its disinterested views in a highlycomplex area of corporate law and finance. Generally, the Commis-sion participates only in proceedings in which there is a substantialpublic investor interest.

The Commission, due to budget considerations and the need to makethe most effective use of its reduced personnel, is engaged in a re-exam-ination of its functions under Chapter X of the Bankruptcy Act. Inview of the impact upon the federal courts of any curtailment of theactivities of the Commission under Chapter X, the Commission hassought to obtain the views of the Federal Judiciary as an aid to theCommission's study of its Chapter X activities. This problem waspresented to the Judicial Conference of the United States on Septem-ber 23, 1954 and it was suggested that the Federal Judges be invitedto comment upon the functions of the Commission in Chapter X.The Judicial Conference approved the suggestion and a questionnairehas been sent to the Federal Judges through the Administrative Officeof the United States Courts, the results of which will be carefullystudied by the Commission.

SUMMARY OF ACTIVITIES

The Commission participated during the 1954 fiscal year in 49proceedings involving the reorganization of 69 companies with aggre-gate stated assets of $553,998,000 and aggregate stated indebtednessof $329,286,000. During the year the Commission, with court ap-

88

TWENTIETH A.~AL REPORT 89proval, filednotices of appearances in 4 new proceedings under ChapterX involving 6 companies with aggregate stated assets of $8,520,000and aggregate stated indebtedness of $17,373,000. Proceedings in-volving 13 principal debtor corporations and 1 subsidiary debtor weredosed during the year. At the end of the year, the Commission wasactively participating in 36 reorganization proceedings involving 55companies with aggregate stated assets of $489,029,000and aggregatestated indebtedness of $307,340,000.Problems in tbe Administration of the Estate

A fundamental aim of Chapter X is to make available to the court,the parties and the security holders full and accurate informationregarding the debtor's affairs. The independent trustee customarilytransmits to security holders a report on the history and financialcondition of the debtor, the operation of its business, and the de-sirability of its continuance. Such reports enable security holders toconsider suggestions for a plan of reorganization or proposed plans ofothers and aid the court in considering problems before it. TheCommission has consulted through its staff with trustees in connectionwith their investigations and the preparation of their reports.

The Commission generally renders assistance in connection withthe varied problems that arise in the administration of the estate.For example, the Commission has rendered significant aid in the dis-covery and prosecution of causes of action against former managementor other fiduciaries who may have misused their positions of trust.In this field of activity, the Commission had occasion to investigatethe affairs of Texas Gas Utilities Company in reorganization underChapter X in the United States District Court for the Western Dis-trict of Texas. The Commission's inquiry uncovered substantialevidence of mismanagement and overreaching on the part of theformer president of the company. The trustee, using the evidencedeveloped by the Commission, obtained a substantial judgment fromthe former president and others for the benefit of the estate of thedebtor.'Activities with Respect to Allowances

The Commission makes specific recommendations to the courtsrespecting allowances for fees and expenses. The Commission itselfreceives no fees or expenses from estates in reorganization and isprimarily concerned with the fairness of the result to the parties andthe public investors.

The reorganization under Chapter X of Central States Electric Cor-poration was conducted in the District Court for the Eastern Districtof Virginia. The trustees brought an action in the District Court

I Huff v, Duke, et al., Unreported, W. D. Tex., 1954.


for the Southern District of New York against former officers anddirectors of the debtor and others. This action was ultimately un-successful 2 and certain of the defendants made an application in theDistrict Court in New York for allowances of expenses and attorneys'fees pursuant to Article 6A of the New York Corporation Law whichprovides for indemnification to officers and directors of litigation ex-penses under certain conditions. One defendant, who was not anofficer, sought such an allowance on general equitable principles. TheDistrict Court granted awards to all the applicants," and the trusteesappealed. On the appeal, the Commission, as amicus curiae, urgedthat the state indemnification statute should not have been held ap-plicable to a debtor in a Chapter X proceeding, pointing out amongother things that the awards contemplated by the state statutes wereinconsistent with the purpose of Chapter X to insure prosecution ofall causes of action in favor of the estate. The Commission urgedthat in any event awards made for legal services and expenses inconnection with an action on behalf of the debtor's estate were withinthe exclusive jurisdiction of the District Court in Virginia, where thereorganization proceeding was pending. The Court of Appeals agreedthat the reorganization court "had the sole power to determine andmeasure the rights of the defendants to reimbursement," 4 Accord-ingly, the Circuit Court for the Second Circuit reversed the ordergranting awards.

In another significant appeal involving allowances, in it case wherethe Commission was an active participant from the outset, the DistrictJudge had granted overall allowances substantially in excess of theCommission's recommendations, although the allowances to certaincreditors' representatives were less than the amounts recommendedby the Commission. The Commission supported an appeal by thecreditors' representatives. The Court of Appeals agreed that theoverall fees awarded were too high in view of the size of the estate andthe work involved. It pointed out among other things that the recordshowed that thousands of hours of the trustees' work was withoutcommensurate accomplishment or benefit to the estate. The Courtalso agreed that creditors' representatives who had been responsiblefor increasing the size of the estate and had performed other valuableservices should be awarded more than the District Judge had grantedthem. The Court of Appeals revised the allowances in substantialconformity with the Commission's recommendations."

Austria" v, W'lllams, 103 F. Supp. 64 (S. D. N. Y.,1952) reversed,19S F. 2d 697 (C. A. 2,1952), ceruorartdenied 334 {; S. 9O'l (I952).

8 Austria" v, IVlUlams, Unreported, CIV. Ko 32-149,.4 ugust 21, 19534 Allstnan V: TVIlllams, - F. 2d - (C. A. 2, 1954).s In re Solar Manufacturmo Corporation, Samuel Marion appellant, 215 F. 2d 555 (C. A. 3, 1954).

•

TWENTIETH ANNUAL REPORT 91Consummation of Plan

The Commission examines the corporate charters, by-laws, trustindentures, and other instruments which are to govern the internalstructure of the reorganized debtor, and in general strives to assureinvestors the inclusion of protective features and safeguards which itsexperience has shown to be desirable. Another matter with which theCommission has been concerned in connection with the consummationof plans of reorganization is the problem of unexchanged securities.Chapter X provides that a period of not less than five years followingthe final decree may be fixed by the judge within which security holdersmay make the exchange called for by the plan, after which they arebarred from any participation. The Commission has been anxious toassure that all security holders obtain the new securities or cashdistributable to them under the plan of reorganization. Accordingly,it has endeavored to see that adequate notice and publicity is given ofthe bar date, that a professional search is made where possible, andthat the bar date is extended when appropriate.

In the reorganization of Chicago, .Aurora &: Elgin Railroad Company,the plan provided that holders of the outstanding bonds of the com-pany would upon' surrender of their bonds on or before January 15,1954, receive in exchange therefor shares of common stock of thesuccessor companies. In December 1953, the Commission learnedthat the exchange agent was holding 55,732shares of stock and $18,370in accrued dividends for bondholders of the debtor. The Commissionpetitioned for an order extending the date for exchanging the out-standing bonds and directing the exchange agent to publish a noticeof the new bar date and to mail written notices to holders of theunexchanged bonds. The District Court granted the Commission'srequest and as a result of the notices given by the exchange agent,some 33,000 shares were claimed by and delivered to their owners.In this, as in several other cases, the extension of time granted by thecourt proved efficacious in reducing the number of security holderswho failed to make the exchange.

PART VI

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939

The Trust Indenture Act of 1939 requires that bonds, notes, de-bentures, and similar securities publicly offered for sale, except asspecifically exempted by the Act, be issued under an indenture whichmeets the requirements of the Act and has been duly qualified withthe Oommission. The Act operates by requiring that indentures tobe qualified include specified provisions which provide means by whichthe rights of holders of securities issued under such indentures may beprotected and enforced. These provisions relate primarily to desig-nated standards of eligibility and qualification of the corporate trusteeso as to provide reasonable financial responsibility and to minimizeconflicting interests. The Act outlaws exculpatory provisions for-merly used to eliminate all liability of the indenture trustee, and im-poses on the trustee, after default, the duty to use the same degreeof care and skill as a prudent man would use in the conduct of hisown affairs.

The provisions of the Trust Indenture Act are closely integratedwith the requirements of the Securities Act. Registration pursuantto the Securities Act of securities to be issued under a trust indenturesubject to the Trust Indenture Act is not permitted to become effectiveunless the indenture conforms to the requirements of the latter Act,and necessary information as to the trustee and the indenture mustbe contained in the registration statement. In the case of securitiesissued in exchange for other securities of the same issuer and securitiesissued under a plan approved by a court or other proper authoritywhich, although exempted from the registration requirements of theSecurities Act, are not exempted from the requirements of the TrustIndenture Act, the obligor must file an application for the qualifica-tion of the indenture, including a statement of the required informa-tion concerning the eligibility and qualification of the trustee.

Indentures filed unaer the Trust Indenture Act of 1939

Number Aggregateamount

Indentures pending June 30, 1953Indentures filed dunng fiscal year

TotaL ._.

Disposition during fiscal year:Indentures qualifiedIndentures deleted by amendment or withdrawnIndentures pending June 30,1954

TotaL _. ._.

92

8 $114,948,IW)145 3, 688, 733, 320

153 3, 8Q3,682,lbO

139 3,378,298,8602 37, 633,300

12 387,750,000

153 3,803,682, 160

_ • •__

_

_ _

• _

__• • _••• __•••••• • _

PART VII

ADl\IINISTRATION OF THE INVESTMENT COMPANYACT OF 1940

The Investment Company Act of 1940 provides for the registrationand regulation of companies engaged primarily in the business ofinvesting, reinvesting, and trading in securities. The Act requires,among other things, disclosure of the finances and investment policiesof these companies. prohibits such companies from changing the natureof their business or their investment policies without the approval oftheir stockholders, regulates the means of custody of the companies'assets, prohibits underwriters, investment bankers, and brokers fromconstituting more than a minority of the directors of such companies,requires management contracts to be submitted to security holdersfor their approval, prohibits transactions between such companiesand their officers, directors and affiliates except with the approval ofthe Commission, and regulates the issuance of senior securities. TheAct requires face-amount certificate companies to maintain reservesadequate to meet maturity payments upon their certificates.

COMPANIES REGISTERED UNDER THE ACT

As of June 30, 1954, 384 investment companies were registeredunder the Act, and it is estimated that on that date the aggregatevalue of their assets was approximately $8,700,000,000. This repre-sents an increase of approximately $1,700,000,000over the correspond-ing total at the beginning of the 1954 fiscal year. During the latestperiod for which data are available, the 12 months ended March 31,1954, about 219 registered open-end management and closed-endmanagement investment companies reported to the Commissionsales to the public of approximately $673,000,000 of their securitiesand redemptions and retirements of approximately $267,000,000leaving a net investment by the public in such companies of approxi-mately $406,000,000, compared with a corresponding net investmentfor the preceding 12-month period of approximately $545,000,000.

Investment companies registered at the end of the 1954 fiscal yearwere classified as follows:

~anagernentopen-end 174Management closed-endc , , _ __ __ 106lJnit_______________________________________________________ 89Faceamount 15

Total 384

93


TYPES OF NEW INVESTMENT COMPANIES REGISTERED

During the 1954 fiscal year 20 new investment companies wereregistered under the Act, of which 8 were open-end managementcompanies (which redeem their shares on presentation by the share-holder) and 10 were of the closed-end management type (in which theshareholder does not have a redemption privilege). Two companiesof the unit type were also registered. During the year registrationwas terminated with respect to 5 management companies of which 1was open-end and 4 were closed-end.

Among the open-end management investment companies whichregistered during the year one was a company incorporated in Canadawhich secured authority to register in accordance with the Commis-sion's policies regarding Canadian investment companies describedbelow. Another open-end company had a stated investment policyemphasizing investments in securities of corporations with substantialinterests in California. Of the closed-end companies which regis-tered during the year, three were industrial companies which haddisposed of their business assets and invested the proceeds in securities,one was organized to provide a medium for the investment of Americanfunds in Israel, and one was an employees' securities company. Thetwo unit investment companies registered during the year wereorganized for the purpose of operating periodic payment plans for thepurchase of securities of open-end investment companies.

REGISTRATION OF CANADIAN INVESTMENT COMPANIES

Under the terms of the Act, an investment company not incorpo-rated within the United States may publicly offer its own securities inthe United States only by special authorization of the Commission,where the Commission has found that "by reason of special circum-stances or arrangements, it is both legally and practically feasibleeffectively to enforce the provisions of" the Act with respect to suchcompany. At the beginning of the fiscal year, several applicationswere pending upon behalf of investment companies incorporatedunder the laws of Canada seeking authority to register under the Actand to sell their securities in this country. Pursuant to Commissiondirection, our staff held extended discussions with representatives ofthe Canadian companies which had applied for registration and formu-lated conditions and arrangements designed to facilitate registrationby these companies, with adequate protection for the interests ofinvestors comparable to that afforded investors in American com-panies.

TWENTIETH A....~J\lJAL REPORT 95In order to establish definitive standards for all registrations by

Canadian companies, the Commission, after public notice and oppor-tunity for comment by interested persons, adopted rule N-7D-lunder the Investment Company Act, which prescribes the conditionsand arrangements to be entered into by a management investmentcompany organized under the laws of Canada prior to the issuance ofan order under Section 7 (d) of the Act permitting the company toregister under the Act and to make an offering of its securities in theUnited States. The rule is applicable only to Canadian managementinvestment companies, and the Commission announced that any con-ditions and arrangements proposed by investment companies organ-ized under the laws of other foreign countries would be considered bythe Commission on a case-by-case basis in the light of the statutorystandards.

Rule K-7D-l provides, among other things, that in order to imple-ment the statutory means of enforcement of the Investment CompanyAct and to assure its effectiveness, the charter and by-laws of theCanadian company must contain the substantive provisions of theAct, so that the company in effect agrees that the provisions of theAct may be enforced as a matter of contract right by shareholderseither in the United States or Canada. Under the rule, a majorityof the officers and directors are required to be citizens of the UnitedStates, and all of such officers and directors must agree to complywith the Act and consent to the enforcement of such agreements in asimilar manner. In order to effectuate the statutory objectives, therule also requires that the company maintain its assets in the UnitedStates, and agree that in the event of noncompliance by the companyor its officers and directors with their agreements or the Commission'sorder permitting registration, proceedings for liquidation and distri-bution of assets may be instituted. The rule also imposes duties andobligations upon certain affiliated persons of Canadian investmentcompanies. It is the Commission's view that in substance the rulewill accord protection to investors equal to, although not necessarilyidentical with, the protection afforded by the Investment CompanyAct to investors in domestic companies.

Contemporaneously with the adoption of rule N-7D-l, the Com-mission issued two orders granting pending applications for registra-tion of Canadian companies where the applicants had agreed to thevarious undertakings prescribed by the rule. Shortly after the closeof the fiscal year, the Commission granted four more applications forregistration by Canadian companies. Each applicant undertook tocomply with all of the requirements of the new rule. As of September1, 1954, four of the registered Canadian companies had made public

326394-ll5-8

96 SECURITIES AND EXCHA...~GE COMMISSION

offerings of their stock, after registration under the Securities Act of1933, the offering price of the stock sold aggregating $102,000,000.

CURRENT INFORMATION

The basic information disclosed in notifications of registration andregistration statements is required by statute to be kept up to date.During the 1954 fiscal year the following current reports and docu-ments were filed:

Annual reportsQuarterly reports

Periodic reports to stockholders (containing financial statements)_Copies of sales literature

252868686

1,829APPLICATIONS FILED

Various provtsions of the Act provide that applications may befiled for exemptions or other relief which the Commission may grantif the statutory standards are met. During the fiscal year a total of71 applications were filed, including 25 seeking exemption of proposedtransactions between investment companies and affiliates and 5 seekinga determination that the applicant had ceased to be an investmentcompany within the meaning of the Act. Since there were 49 appli-cations pending at the beginning of the year, a total of 120applicationsrequired examination and consideration during the year. Eighty-fourwere disposed of and 36 were pending at the close of the year. Thesections of the Act under which these applications were filed, and thenumber disposed of in each category, are shown in the followingtable.

Applications filed with and acted upon by the Commission under the InvestmentCompany Act of 1940 during fiscal year ended June 30,1954

Pend. DIs. Pend-,SectIons Subject Involved Ing Filed posed lng

July I, of June1953 30,1954

-- -- --2,3,6 •. Status and exemptlon 9 24 22 117 (a)_. Transactions of an unregistered Investment com. 0 1 1 0

pany.7 (d) Registration of foreign Investment companies 4 0 2 28,35 Compliance with registration requirements 1 0 0 18 (0--------------- Termination of registration, 10 5 5 109,10,16_ Regulation of affiliations of directors, otlicers, em. 13 2 15 0

ployees, Investment advisers, underwriters andothers.11,25 Regulation of security exchange offers and reorgan- 0 1 0 1Izatton matters.

12, 13, 14 (a), 15_. Regulation of functions and aetrvrtles of invest. 0 5 5 0ment companies17_. . Regulation of transactions wlth affiliated persons 9 25 25 9

18,19,21,22,23 Requirements as to capital structures, loans, dis- 1 5 5 1tnbuttons and redemptions, and related matters.20,30 . Proxies, reports and other documents reviewed for 1 1 2 0

26 (a) (2) (C) =ti:~:~~oiIDiooriiticaie-rompa;;,es::: 0 1 0 128 1 1 2 0----- - --Total. .•. , ..• .• .•... ... _' 49 71 84 36

_ _

_

__ __________ _____________

_____________________________

__•• ___________ _______________

•• _________

__•• __ ••______

_______________________

______________

' __

_________ _____ •• ____

_______ ______

______ ••• __• ____________

_ '" __'" __•• _ __ _ __

TWENTIETH AN1I.TUALREPORT 97

In keeping with the Commission's policy of encouraging the freeoperation of business management consistent with the protectionof investors, in processing applications under the Investment Com-pany Act, the endeavor is made so far as possible to resolve anyproblems on an informal basis, by discussion and correspondence ratherthan by formal hearing procedures. By the use of such techniquesit has been practicable to dispose of most applications without thenecessity of formal hearings. 1

1 In one case a nearing was held at the request of an mterested investor and the appllcation was dlsposedof on tbe basis of the facts disclosed by the record, Ineludmg those developed at the nearing. (In the Matterof Portsmouth. SUel Corpora/ion, Investment Company A~t Release No. 1894,August 12, 1903.)

PART VIII

ADMINISTRATION OF THE INVESTMENT ADVISERSACT OF 1940

The Investment Advisers Act of 1940 requires registration ofpersons engaged for compensation in the business of advising otherswith respect to securities. The Commission is empowered to denyregistration to or revoke the registration of any investment adviserwho, after notice and opportunity for hearing, is found by the Com-mission to have been convicted or enjoined because of misconductarising out of securities transactions or to have made false state-ments in his application for registration. The Act makes it unlawfulfor investment advisers to engage in acts and practices which wouldconstitute fraud or deceit, requires investment advisers to disclosethe nature of their interest in transactions executed for their clients,and prohibits profit-sharing arrangements and assignments ofinvestment advisory contracts without the client's consent.

Statistics of investment adviser registrations-1954 fiscal year

Effective registrations at close of preceding fiscal year , 1,093Applications pending at close of preceding fiscal year___________________ 9Applications filed during fiscal year__________________________________ 124

Total 1,226

Registrations cancelled or withdrawn during year;Registrations denied or revoked during year ,Registrations effective at end of year ,Applications pending at end of year

792

1,13411

Tot~ 1,226

During the fiscal year the Commission revoked the registrations oftwo investment advisers. In one of the cases the Commission found,among other things, that respondent, contrary to representations madein his application for registration and amendment thereto, had pre-viously used and been known by a name other than the name underwhich he registered, took powers of attorney from clients, and basedhis fees on profit-sharing arrangements.' In the other case, theCommission found that the investment adviser corporation and its

I Samuel N. Sl1IJut,Investment Advisers ALt Release No. 70 (January 27, 1954).

98

_ _ _ _

TWENTIETH ANNUAL REPORT 99president had been convicted in a United States District Court offelonies for violating the fraud provisions of the Investment AdvisersAct."

LITIGATION UNDER THE INVESTMENT ADVISERS ACT OF 1940

During the fiscal year 1954 the Commission filed a complaint toenjoin Ralph H. Seipel, a registered Investment adviser doing businessas Investors Surety Company, from further violations of Sections206 (1) and (2) of the Investment Advisers Act of 1940.3 The com-plaint charged the defendant with falsely representing, among otherthings, that Investors Surety Company absolutely guaranteed againstloss in the stock market, that it was the only organization in theworld providing professional trading services for investments and atthe same time maintaining cash reserves to protect against anypossible loss, that it never handled either cash or securities belonging toits many customers, that it was composed of professional traders insecurities listed on the New York Stock Exchange and had been suchfor over 25 years, and that it maintained branch officesin the principalcities and had a foreign exchange department to convert foreigncurrency into dollars.

• Hageman Corporation, Investment Advisers Act Release No. 69 (December 23, 1953)• D. C. D. C., No 3431-53.•

PART IX

RELATED ACTIVITIES OF THE COMMISSIONCOURT PROCEEDINGS

Civil Proceedings

At the beginning of the 1954 fiscal year there were pending in thecourts 13 injunctive and related enforcement proceedings instituted bythe Commission to prevent fraudulent and other illegal practices inthe sale of securities. During the year 19 additional proceedings wereinstituted and 16 cases were disposed of, leaving 16 of such proceedingspending at the end of the year. In addition the Commission partici-pated in a large number of reorganization cases under Chapter X ofthe Bankruptcy Act, in 9 proceedings in the district courts undersection 11 (e) of the Public Utility Holding Company Act; and in 10miscellaneous actions, usually as amicus curiae, to advise the court ofits views regarding the construction of provisions of statutes adminis-tered by the Commission which were involved in private lawsuits.The Commission also participated in 36 appeals. Of these, 10 camebefore the courts on petitions for reviews of administrative orders; 10arose out of corporate reorganizations in which the Commission hadtaken an active part; 2 were appeals in actions brought by or againstthe Commission; 8 were appeals from orders entered pursuant tosection 11 (e) of the Public Utility Holding Company Act; and 6 wereappeals in cases in which the Commission appeared as amicus curiae.

Complete lists of all cases in which the Commission appeared beforea Federal or State Court, either as a party or as amicus curiae, duringthe fiscal year, and the status of such cases at the close of the year, arecontained in the appendix tables.

Certain significant aspects of the Commission's litigation during theyear are discussed in the sections of this report relating to the statutesunder which the litigation arose.Criminal Proceedings

The statutes administered by the Commission provide for the trans-mission of evidence of violations to the Attorney General, who mayinstitute criminal proceedings. The Commission, largely through itsregional offices, investigates suspected violations and, in cases wherethe facts appear to warrant criminal prosecution, prepares detailedreports which after careful review by the General Counsel's office andconsideration by the Commission, are forwarded to the AttorneyGeneral. Commission employees familiar with the case often assist

100

TWENTIETH Al\TNUAL REPORT 101

the United States attorneys in its presentation to the grand jury, theconduct of the trial, and the preparation of briefs on appeal. TheCommission also submits parole reports prepared by its investigatorsrelating to convicted offenders. Where an investigation disclosesviolations of statutes other than those administered by the Commis-sion, the Commission advises the appropriate federal or state agency.

Indictments were returned against 2,245 defendants in 525 casesdeveloped by the Commission prior to June 30, 1954.1 These figuresinclude 61 defendants in 20 cases in which indictments were returnedduring the past fiscal year. At the close of the fiscal year, of the 481cases disposed of as to one or more defendants, convictions had beenobtained in 418/ or 87 percent, against a total of 1,196 defendants.Convictions were obtained against 25 defendants in 15 cases duringthe past fiscal year." In addition, two defendants in two cases wereconvicted of criminal contempt for violation of injunctive decreespreviously entered against them.'

In the single appellate case decided during the fiscal year judgmentsof conviction were affirmed as to all 7 defendants who appealed. Atthe close of the fiscal year 7 cases involving 8 defendants were pendingon appeal.

As in prior years, the criminal cases developed and prosecutedduring the fiscal year covered a wide variety of fraudulent activities.They included fraud relating to mining and oil and gas ventures, theoperation of purported investment plans, the promotion of inventionsand new businesses and the manipulation of securities on a nationalsecurities exchange, as well as fraudulent practices on the part ofsecurities brokers and dealers and their representatives. In a numberof fraud cases, the defendants were also charged with wilfully violatingthe registration provisions of the Securities Act.

Convictions for the fraudulent sale of securities in connection withoil and gas ventures were obtained in U. S. v. Hamilton (D. Mont.),U. S. v. Vasen (N. D. TIl.), U. S. v. Frank (W. D. Okla.) and in U. S.v. Henderson (W. D. Tenn.)." Henderson previously had been con-victed on the same charge, violating the Mail Fraud Statute in con-nection with the sale of fractional undivided interests in oil and gasrights, but the conviction was reversed upon appeal because of certaintrial errors.

I A condensed stattstienl summary of all errrninal Lases developed by the CommISSIOn from fiscal year1934 through fiscal year 1954 IS set forth in appendix table 23. Tne status of enmmal cases developed by theCommISSion wmeh were pending at tne end of the fiscal year IS set forth m appendix table 24.

I The 63remainmg cases, which resulted in acquittals or dtsmissals as to all defendants, meluded a numberwhere the tndletments were dismissed because of the death of defendants involved .

• One of these cases IS still pending as to two defendants • Another Criminal contempt case against a single defendant was pending at the close of the year, See

Criminal Contempt Proceeding!', appendix table 16.Appeals have been filed III the Vasm, Frank and Henderson cases whreh were pending at tbe close of the

fiscal year.

• •

•


In the Vasen case, which involved a well that reached a depth of20,450 feet, stated to be the second deepest well in existence, it wascharged that as part of a scheme to defraud, the defendant madefalse representations such as that the well was going through an"Atlantic Ocean of oil," that geologists believed that the producingformation extended completely across the State of Mississippi andpossibly up to Pennsylvania, and that the oil sands encounteredassured production of thousands of barrels of oil per day. Vasen wassentenced to a prison term of 5 years to be followed by 5 years pro-bation, and a fine of $25,000 was imposed. The Frank case includedcharges of misrepresentation concerning a so-called "magnetic logger"device which was held out to investors as assuring 100 percent accu-racy in the location of oil pools. Frank was sentenced to a term of 18months imprisonment. In the Hamilton case the defendant wascharged with making false representations with respect to his holdingsand his plans to drill for oil and gas. He falsely stated the moniesreceived from investors would be used to drill an oil well. Hamiltonwas placed on probation for 5 years but the imposition of the sentencewas suspended on condition that full restitution was made to allinvestors within a period of 1 year. In the Henderson case the de-fendant was sentenced to 5 years imprisonment and fined $1,000.

Convictions for the fraudulent selling of securities in mining ven-tures were obtained in U. S. v. Kendall (W. D. Tex.), U. S. v, Wick-ham et al. (D. Nev.), U. S. v. Oottrelle (D. Mont.) and U. S. v. Swift(N. D. Calif.). The misrepresentations followed a common pattern.The defendants claimed that the mines involved had high grade orewhich was being currently produced when in fact they were barren.Cottrelle had been a fugitive for 10 years, the indictment against himhaving been returned in 1943. He returned voluntarily from Canadaand was sentenced to 3 years imprisonment and a $2,000 fine. Swiftwas charged with causing false and misleading statements regardinga new "ore shute" which were published and caused the stock to riseon the exchange on which it was listed. Swift was fined $5,000. Thedefendants in the other cases were sentenced to terms varying from 2to 3 years imprisonment.

The promotion of spurious inventions and new businesses con-tinued, during the past fiscal year, to be the subject of abuses in thesale of securities. In U. S. v. Owens et al. (S. D. Fla.) the defendantsset up dummy corporations and obtained money from their victimsby a variety of misrepresentations and false promises. In U. S. v.Ross (S. D. Ala.) the indictment charged that the defendant madefalse representations concerning the establishment and financing of atung oil plant through money obtained from investors and funds pur-portedly available from the defendant and the Reconstruction Finance

TWENTIETH A;-"TJ'\UAL REPORT 103

Corporation. However, the indictment charged, the defendant con-verted the money to his own use. In U. S. v. Klein (~. D. Ill.) thedefendant was charged with falsely representing that he was in aposition to purchase a sizable small loan company in Pennsylvania ata price less than its actual worth and that the investors would receivean annual return of 10 percent pending completion of the transactionand 15 percent thereafter. Actually, the indictment charged, Kleinappropriated and converted a large part of the money to his own use.Another finance company was involved in U. S. v. Palmer (D. Colo.).There it was charged that defendant, in the sale of stock of the financecompany, falsely represented that the investors were insured by anagency of the Federal government, that the company was auditedevery 3 months by the State of Colorado, and that the company paid6 percent dividends regardless of profit or loss. The case of U. S. v.Oox (D. N. Mex.) involved the sale of securities by means of falserepresentations concerning the alleged returns which investors wouldreceive upon the purchase of an interest in a dry ice plant. In U. S.v. Estep (N. D. Tex.) the defendant sold interests in a company manu-facturing an alleged fuel-less self-energizing power unit and a machinewhich would keep people alive forever. The defendants in thesevarious cases received sentences of up to 5 years in prison.

In U. S. v. Martin (D. N. Mex.) the defendant was convicted offalsely representing to his customers that he had executed their ordersto buy securities, that he was holding securities purchased and paidfor by them, and that payments made to them represented dividendswhich Martin had received on the stock he was holding for them. Infact, the indictment charged, Martin had not executed customers'orders but instead had appropriated and converted to his own use thesecurities and money he obtained from them. The defendant wassentenced to probation for two years and the sentence was suspended.

Following an extensive investigation by the Commission, indict-ments were returned against 13 individual and 2 corporate defendantsin the United States District Court at Detroit, Mich., chargingthem with violating the anti-fraud provisions of the Securities Act,the mail fraud statute, and the broker-dealer registration provisionsof the Securities Exchange Act, in connection with a stock sale promo-tion conducted by long distance telephone and the mails from Mon-treal, Canada, which allegedly resulted in the defrauding of a large num-ber of investors residing in some40 States and the District of Columbia,of over $300,000.6 It is charged in the indictments that defendantsused over 200 false and fraudulent representations relating to alleged"rights" which investors had as shareholders to purchase addi-tional shares at prices below the current market price, the pur-

u. S v, T. AI. Parker, tne., et a1. (E. D. Mich.).•


ported market and market price for such securities, alleged discoveriesand developments which had taken place on properties owned by thecorporations, the listing of the securities involved on various Canadianexchanges, guaranteed profits investors were supposed to make, andnumerous other similar matters. A conspiracy indictment was alsoreturned in connection with this "boiler room" operation against these15 defendants and 1 other. One of the defendants was also indictedfor perjury committed during the investigation. Nine of the indi-vidual defendants who were in the United States have been arraigned.

COMPLAINTS AND INVESTIGATIONS

Each of the Acts administered by the Commission specificallyauthorizes it to conduct investigations of possible violations. Theseinvestigations are conducted primarily by the regional offices underthe general administrative supervision of the principal office.

Investigations by the Commission are classified as preliminary ordocketed. Preliminary investigations are initiated when informa-tion is received indicating a possible violation of one of the Acts andare usually conducted informally by telephone inquiries, interviewsand a limited amount of correspondence. Frequently this limitedinvestigation will disclose that no violation has taken place or thatthrough a misunderstanding or ignorance of the law one of the stat-utes has been inadvertently violated. When an inadvertent viola-tion has taken place, the investigation serves the purpose of informingthe violator and brings about a compliance with the law before anyserious damage or loss results to the investing public. However,should a preliminary investigation reveal the likelihood of sub-stantial violations or widespread public interest, a docketed investi-gation file is opened and a full-scale investigation undertaken.

The Commission by the various statutes it administers is author-ized to issue subpoenas and administer oaths, and to delegate thispower to staff members. In a particular case, an officer designatedby the Commission may issue a subpoena requiring the attendanceof witnesses to testify under oath and may also require the produc-tion of books, records and other documents for examination. Thesubpoena power is used only in specific instances and only after itappears that the necessary evidence cannot be otherwise obtained.This delegation of power by the Commission is made through theissuance of an order limited to the persons designated therein asofficers and to the purposes of the particular investigation. Duringthe fiscal year, 36 such orders were issued.

After the investigation is completed, the regional office preparesa report with the Regional Administrator's recommendation for the

TWENTIETH A~l\UAL REPORT 105

institution of appropriate action or for closing the investigation.In all instances, these reports are first reviewed by the staff of theprincipal officeand subsequently, if the situation warrants, presentedto the Commission for consideration. "Where appropriate, furthersteps may be taken such as civil proceedings to enjoin violations,reference of evidence to the Attorney General, where it appears thatcriminal prosecution is warranted, or administrative proceedingswith respect to registered securities, broker-dealers and investmentadvisers.

During the fiscal year, the Commission expanded the area of co-operation with state securities authorities by authorizing RegionalAdministrators to refer to local authorities evidence obtained ininformal investigations indicating violations of state statutes. The.object of this procedure is to turn over to the states those cases inwhich it appears there is a clear violation of state law and the RegionalAdministrator has reason to believe that the state authorities willtake appropriate action. It is believed that this program will affordthe public greater protection since the enforcement activities of theCommission can be concentrated on those cases which cannot beeffectively handled by the states. The Commission also co-operateswith other Federal authorities by making available evidence ofviolation of other Federal statutes.

The following table shows the investigative activities of the Com-mission during the fiscal year:

Lnoestiqaiions of possible VIOlations of the acts administered by the commission

Pre11ll11- I Dockcted Totslnary

Pending June 30, 1953_________________ . ___ . ___ ._. ___ . _. _____ . ______ .

--_._---~~-I744 968New cases ___________ . ___________ . _______ . ___ ._. ______ . _____________ 140 321

Transferred from preliminary _______ . _________ ._._. _______ . _________ 22 22

405 I 906 1,311Closed ________ . ____ . __ ._ .. _. ____ . _. _______ . _________ . _________ . _____ 185

I--------~~-I564

Transferred to docketed ____ _________________________ . . _____ . ________ 22 22Pendmg at June 30,1954 ____________________________________________ 198 725

SECTION OF SECURITIES VIOLATIONS

The Commission maintains a Section of Securities Violations forassistance in the enforcement of the various statutes which it ad-ministers and to provide a further means of preventing fraud in thepurchase and sale of securities. This Section has developed fileswhich serve as a clearing house of information concerning persons whohave been charged with violations of various Federal and statesecurities statutes. The specialized information in these files hasbeen kept current through the co-operation of the United States PostOffice Department, the Federal Bureau of Investigation, parole and


probation officials, state securities commissions, Federal and stateprosecuting attorneys, police officers, Better Business Bureaus, andmembers of the United States Chamber of Commerce. By the endof the 1954fiscal year, these records contained data concerning 59,625persons against whom Federal or state action had been taken in con-nection with Securities Violations.

During the past year, additional items of information relating to3,785 persons were added to the records of this Section, including in-formation concerning 1,414 persons not previously identified therein.

Extensive use is made of this clearing house of information. Duringthe past year, the Section of Securities Violations received 2,937letters or reports and sent 1,577 communications to co-operatingagencies .

• ACTIVITIES OF THE COMMISSION IN ACCOUNTING AND AUDITING

The considerable quantity and variety of financial statements filedwith the Commission pursuant to the various statutes give rise tomany questions pertaining to accounting practices and procedures.Ithas been the consistent policy of the Commission to insist that suchfinancial statements clearly and unequivocally present to the usersthereof, particularly investors and prospective investors, dependabledata upon which to make their financial decisions. To this end, ac-counting rules and regulations and changes therein considered neces-sary to obtain compliance with the applicable statutes are adoptedby the Commission after extensive study and research by the Officeof the Chief Accountant.

Such study and research usually involve correspondence and/orconsultations with persons and groups having an interest in the con-templated action, including among others the American AccountingAssociation, American Institute of Accountants, Controllers Instituteof America, National Association of Railroad and Utilities Com-missioners, economists, attorneys, investment advisers and analysts,corporate officials, and other Federal agencies. Where the desira-bility therefor is indicated, public hearings are held.

The Commission has prescribed uniform systems of accounts forcompanies subject to the provisions of the Holding Company Act/ hasadopted rules under the Securities Exchange Act governing account-ing and auditing of securities brokers and dealers, and has promul-gated rules containing in a single, comprehensive regulation, known asRegulation S-X,8 which govern the form and content of financialstatements filed in compliance with the various Acts. These regula-

, Uniform System of Accounts for Mutual Service Companies and subsunarv Service Companies (effec-tive August I, 1936);Uniform Systems of Accounts for Public Utility Holdmg Oompanies (effective Jann-ar}' 1,1937; amended effective January I, 1943).

8 Adopted February 21,1940 (Aeeountmg Series Release No. 12); revised December 20,1950 (AccountingSeries Release No. 70).

TWENTIETH MI."'NUALREPORT 107

tions are implemented by the Accounting Series releases, of which 77have been issued, designed to make public from time to time opinionson accounting principles for the purpose of contributing to the de-velopment of uniform standards and practice in major accountingquestions. The rules and regulations thus established, except for theuniform systems of accounts, prescribed the accounting to be followedonly in certain basic respects. In the large area not covered by suchrules, the Commission's principal reliance for the protection of inves-tors is on the determination and application of accounting principlesand standards which are recognized as sound and which have obtainedgeneral acceptance. Most financial statements filed with the Com-mission are required to be certified by independent public accountantsor certified public accountants.

The 19th Annual Report of the Commission contained a statementof the circumstances leading up to the adoption, during the currentfiscal year, of Rule 3-20 (d) of Regulation S-X, which sets forth thedisclosure required with respect to all stock option arrangements infinancial statements filed with the Commission."

Because of the divergence of views as to the appropriate mannerof accounting for so-called emergency facilities in financial statementsfiled with the Commission, the Commission adopted the policy ofaccepting financial statements wherein the portion of the cost ofproperties covered by certificates of necessity is amortized over thefive-year statutory period as well as statements wherein the cost ofsuch facilities is depreciated over the probable useful life of the facili-ties but which give recognition to the resulting reduction in incometax benefit after the close of the amortization period. Pursuant tothis policy, registrants in filing statements on either basis make ade-quate disclosures as to the method followed and the effect whichwould have been produced if the alternative method had bepnfollowed.

The Commission again had occasion during the fiscal year toconsider the problem raised by departures from cost in the handlingof depreciation, and denied a formal application to adopt a require-ment that economic depreciation (based on replacement at currentprices) be reflected either in the accounts or by other appropriatedisclosures.

During the year, several problems arose in respect to foreign issuersof securities. Foreign standards of accounting and financial reportingdiffer in many respects from American standards, and vary fromcountry to country. In the few, but sizable, filings during the yearby foreign issuers, there have been reflected some departures fromwhat are considered by American standards to be generally acceptedaccounting procedures. In each such instance comprehensive dis-

'Accountmg Serres release No. 76. (NGv. 3,1954).

108 SEGGRITIES AND EXCHAJ.~GE COMMISSION

closure of the circumstances and the effects upon the financial state-ments has been required.

During the fiscal year, the Commission disposed of a proceedingunder Rule II (e) of its Rules of Practice against certifying accountantsalleged to have failed to observe appropriate audit requirements as tofinancial statements of a broker-dealer filed pursuant to the require-ments of rule X-17 A-5 adopted under Section 17 (a) of the SecuritiesExchange Act of 1934. After examining the record in the proceeding,the Commission was of the opinion that while more thorough auditingprocedures might have resulted in the discovery of certain fictitiouscommodity transactions, the record did not disclose a lack of integrityor improper professional conduct within the meaning of Rule 11 (e),and accordingly the proceedings against the accountants were dis-missed. The Commission, in taking this action, noted that nomember of the public suffered any loss as a result of the transactionsinvolved."

OPINIONS OF THE CO~E\IISSION

Findings and opinions are issued by the Commission in all caseswhere the matter to be der-ided, whether substantive or procedural,is of sufficient importance to warrant a formal expression of views.The Office of Opinion Writing, a staff office which is directly respon-sible to the Commission, aids the Commission in the preparation offindings and opinions in contested and other cases arising understatutes administered by it. In accordance with the provisions of theAdministrative Procedure Act requiring a separation between quasi-prosecutory functions and quasi-judicial functions, the personnel ofthe Office of Opinion vVritmg is entirely independent of the divisionsengaged in the investigation and prosecution of cases. In some cases,the interested operating division, with the consent of all parties,participates in the drafting of opinions. During the fiscal year theCommission issued findings and opinions in 81 matters. This figuredoes not include numerous orders which, although of a dispositivenature, were not accompanied by detailed findings Ora formal opinion.With minor exceptions, all findings, opinions and orders are publiclyreleased and constitute a source of information for the bar and otherinterested persons.

INTERNATIONAL FINANCIAL AND ECONOMIC MATTERS

During the fiscal year registration statements covering $591,571,960of securities issued by foreign issuers, government and private, wereeffectively registered under the Securities Act. Of this amount$95,430,960 represented offerings by Canadian private issuers, includ-ing one Canadian investment company, and $137,866,000representedl'Accounting Series release No. 77. (Feb. 19, 1954).

TWE~TIETH illi'''}mAL REPORT 109

offerings by Provinces and cities of Canada. Of the balance,$354,000,000 represented Israeli offerings, including $350,000,000 bythe State of Israel and $4,000,000 by two private issuers. The totalwas completed by a $4,275,000 offering of a Dutch private issuer.

The Commission acted as one of the hosts of missions from Germanvand Mexico which came to the United States under the auspices of th-eForeign Operations Administration to make a study of the organiza-tions, institutions, methods and regulations of the capital markets inthis country.

In September 1953 the Validation Board for German Dollar Bonds,a joint German and American Board established in this country underan Agreement dated February 27, 195:3 between the United StatesGovernment and the Federal Republic of Germany, began registrationof West German dollar bonds for validation. There are 92 issues ofsuch bonds subject to validation, which is required by legislationenacted by the German Government and is a necessary step before abondholder may participate in a settlement which may be offeredpursuant to the London Debt Agreement After the establishment ofvalidation procedures the Commission adopted rule X-15C2-3, gov-erning the conditions under which W'est German securities couldagain be traded in the "['niLedStates markets, such trading havingbeen suspended since December 8, 1941.11 At the same time the Com-mission withdrew its request that brokers and dealers refrain fromeffecting transactions in 'Vest German securities to the extent thatsuch trading is not prohibited under the provisions of rule X-15C2-3.The preparation and adoption of this rule and the proposed re-entryof the West German dollar bond issues into the markets of the UnitedStates presented many problems which required frequent consulta-tions between members of the Commission's staff, the Department ofState and the Validation Board for German Dollar Bonds. Many ofthese problems will continue as settlement offers to American bond-holders are forthcoming under the London Debt Agreement.

In connection with the resumption of trading in this country inWest German dollar bonds the Commission has been concerned withobtaining recent information about the various issuers of these secu-rities and had taken initial steps in November 1952 by requesting thecooperation of the West German Government in securing such infor-mation. Information about the Federal Republic of Germany wasfurnished in a circular dated October 6, 1953 relating to an exchangeoffer made by that government to the holders of two classes of its olddollar bonds and old dollar bonds of the Free State of Prussia and theConversion Office for German Foreign Debts. Since informationabout other West German issuers had not been furnished, the Com-mission in November 1953, after consultation with the Department

11 Seeurrtles Exchange Act release No 4983 (January 11, 1954).

no SECURITIES AND EXCHANGE COMMISSION

of State, sent direct requests to 63 issuers of German dollar obligations,including the issuers of the 92 bond issues subject to validation, andagain requested the assistance of the Government of the FederalRepublic in securing this information. As a result of these efforts,37 German issuers have sent to the Commission copies of their pub-lished annual reports (in the German language), which are availablefor public inspection at the Commission's Washington office,and wheresufficient copies have been received, are also available for public in-spection at the Commission's regional offices in New York, Chicagoand San Francisco.

During the fiscal year the Department of State and the Commissioncontinued discussions of the proposed treaty relating to the validationof Austrian dollar bonds. During this period the Commission pub-licly renewed its request that the securities industry refrain fromtrading in Austrian securities until further notice after the estab-lishment of validation procedures. In June 1954 the Commission,after consultation with the Department of State, sent direct requeststo seven Austrian issuers of dollar bonds that they furnish informationwhich would be helpful to the American holders of such bonds. Inresponse to these requests, three Austrian issuers have sent theCommission copies of their recent annual reports.

The International Bank for Reconstruction and Development an-nounced that during the fiscal year it raised more portfolio capitalfor international investment, and from investors in more countries,than in any earlier period. It offered two issues of United Statesbonds, two issues of Swiss franc bonds and one issue of Canadiandollar bonds. In the distribution of these issues of bonds, the Bankmade available a prospectus giving information about the Bank'sstructure and operation. It also filed with the Commission, pursuantto Regulation BW adopted by the Commission under the amendmentto the Bretton Woods Agreements Act, information comparable tothat which would be required if its securities had been registeredunder the Securities Act and the Securities Exchange Act.

CONFIDENTIAL TREATMENT OF APPLICATIONS, REPORTS, ANDDOCUMENTS

The Commission is empowered under various of the Acts adminis-tered by it to grant upon application confidential treatment with re-spect to certain types of information which would otherwise be disclosedto the public in applications, reports, or other documents filed pur-suant to these statutes. In the exercise of such authority, under theSecurities Act, it has adopted ruIe 485 providing that information asto material contracts, or portions thereof, filed as a part of a regis-tration statement will be held confidential where it determines thatdisclosure would impair the value of the contracts and is 'lot necessary

TWENTIETH ~"'1\"'UAL REPORT 111for the protection of investors. Circumstances under which otherrules provide for confidential treatment of information include caseswhere disclosure would be detrimental to the national security.

The number of applications granted, denied or otherwise accountedfor during the year may be noted below.

Applications for confidentuii treatment-e-Ltuis fiscal year

Number Number NumberAct under which filed pending Number I Number denied pending

July 1, received granted or with- June 30,1954 _1- drawn 1954

Securities Act 0119331 ._ 4 23 26 0 1Securrties Exchange Act of 1934 0 14 7 6 1Investment Company Act of 1940 3 0 56 56 0 0

--- --- --- --- ---TotaL _________________ ... __ . __________________ 4 93 89 6 2

1 Filed under Rilles 485 and 171.'Filed under Rule." X-24B and X-6.3 Filed under Rnle l'\-45A-1.

The total of 93 applications filed during the year compares with121 in the 1953 fiscal year and 145 in the 1952 fiscal year.

STATISTICS A~D SPECIAL STliDIES

During the past fiscal year the Commission maintained its statis-tical series relating to the capital market, savings and investment.These data which are used by the Congress, other Government agen-cies, investment and financial institutions are also made available tothe general public in the Commission's monthly Statistical Bulletinor in press releases. The various series are described below.

CAPITAL MARKETS

All New Securities OfferingsA monthly series on new securities offerings, including corporate

and non-corporate securities, is published in the Statistical Bulletinof the Commission. In addition, a quarterly series covering COl'PO-

rate issues is published in press release form and contains an analysisof the data.

The statistics show the volume and character of all new securitiesoffered for cash in the United States and differ in concept and coveragefrom the statistics of registrations shown in other parts of this report.The offerings series includes only securities actually offered for cashsale, and only issues offered for account of issuers. The series in-cludes not only issues publicly offered but also issues privatelyplaced, as well as other issues exempt from registration under theSecurities Act such as intrastate offerings and railroad securities.The statistics on new offerings are given in tables 3 through 5 of theappendix.

326394--55--9

____________________ • ____ •• __

' ____________________ •••• ______________


New corporate securities offered for cash sale in the fiscal yearended June 1954 amounted to $8.5 billion, comparing with $9.3billion in the preceding fiscal year, which was the highest since 1929.Proceeds from new issues to be used for new plant and equipmentexpenditures totalled $5.6 billion, only $200 million less than in the1953 fiscal year, reflecting a continuation at near-record levels of thelarge-scale capital expansion of corporations. Funds raised in thecapital market for working capital purposes totalled $1.6 billion,$400 million lower than in the preceding year. The balance of netproceeds from new issues, amounting to $1.1 billion, was to be usedfor repayment of outstanding securities, bank loans and other pur-poses. Issues of electric, gas and water companies were of consider-able importance in the past fiscal year, aggregating $3.6 billion, andaccounting for 34 percent of all issues. Issues of manufacturingcompanies, in contrast, amounted to only $1.8 billion, or 21 percent oftotal issues, as compared to the preceding year when such issuesamounted to $3.2 billion and comprised 34 percent of all issues. Thedistribution of issues among other industry groups for the currentyear was as follows: financial and real estate (excluding investmentcompanies), 12percent; communication, 11percent; mining, 4 percent;commercial and other, 4 percent; railroad, 3 percent; and othertransportation, 3 percent.

Of total corporate securities issued in the 1954 fiscal period, 63percent were publicly offered and 37 percent privately placed. Pri-.vate placements. which amounted to $3.1 billion, were $700 millionlower than in the 1953 period, primarily because of the smallervolume of financing by manufacturing companies. Statistics onprivate placements of corporate issues, classified by type of securityand industry of issuer, appear in appendix table 3, part 4, while com-parisons of the volumes of public and private offerings are given inappendix table 5.

Statistics on non-corporate securities sold for cash are also includedin appendix table 3. During the fiscal year ended June 1954, non-corporate flotations included $12.5 billion of U. S. Government securi-ties, $6.7 billion of state and local issues, $200million of Federal agencysecurities and $400 million of foreign government and other issues.Issues Registered under Securities Act of 1933

Statistics of all securities registered under the Securities Act of 1933are published in the Statistical Bulletin at quarterly intervals. Sta-tistics covering data on the number and volume of registrations duringthe past twenty years and more detailed information for the monthsof the fiscal year 1954are given in appendix tables 1 and 2.

TWENTIETH A1\"'NUALREPORT 113

Corporate Securities Outstanding

Beginning this year quarterly figures on the flow of cash throughsecurities transactions between corporations and investors have beenpublished in the Statistical Bulletin. Previously, they had been com-piled for internal use within the government. The data comprise theonly series in this field and are used in preparing estimates of saving inthe form of securities, in analysis of sources and uses of corporatefunds, moneyflows analysis, and estimates of changes in private debt.A description of the scope and limitations of the series appears in theStatistical Bulletin.

In the fiscal year ended June 30, 1954, proceeds from new corporatesecurities, net of retirements, amounted to $6.7 billion. This was abillion dollars less than in the preceding fiscal year and reflected alower volume of new issues and a higher amount of repayments.Retirements of securities in the fiscal year totaled $3.2 billion, $400million more than in the preceding year chiefly due to an increase inrefunding activity in the final quarter of the period.Investment Companies

From 1942 through the first quarter of 1954 data were publishedquarterly in the Statistical Bulletin for over 200 management invest-ment companies registered under the Investment Company Act of1940. The statistics included purchases and sales of their own securi-ties, portfolio changes, and aggregates of securities investments andassets, segregated by open-end and closed-end types. These statisticswere discontinued after the first quarter of 1954 due to the fact thatautomatic quarterly reports from investment companies are no longerrequired under the Commission's regulations, and also because similardata are prepared by the National Association of Investment Com-panies. Net sales of these companies amounted to approximately$400 million during the fiscal year ended June 1954.

STOCK MARKETS

Statistics are regularly compiled and published in the StatisticalBulletin on the market value and volume of sales on registered andexempted securities exchanges, round-lot stock transactions on theNew York exchanges for accounts of members and nonmembers, odd-lot stock transactions on the New York exchanges, special offeringsand secondary distributions.

The indexes of stock market prices were continued during the 1954fiscal year. These indexes are based upon the weekly closing marketprices of 265 common stocks listed on the New York Stock Exchange,and are composed of seven major industry groups, 29 subordinategroups, and a composite group. These data are published in theStatistical Bulletin and are also released weekly. Figures on round-lot


and odd-lot stock transactions are also included in the weekly release-on stock market indexes.

SAVING STUDY

Estimates of the volume and composition of individuals' saving inthe United States are compiled and released at quarterly intervals.The study shows the aggregate value of saving in each quarter and theform in which the saving occurred, such as investment in securities,expansion of bank deposits, increase in insurance and pension reserves,etc.

A reconciliation of the Commission's estimates with the personalsaving estimates of the Department of Commerce (derived in connec-tion with its national income series) is published annually in theNational Income Supplement of the Survey of Current Business.The methods used in deriving the Commission's estimates of indi-viduals' saving, together with a description of sources of data werepublished recently.

The rate of individuals' saving in liquid form during the fiscal yearended June 30, 1954 was maintained at a high level, amounting to$15.0 billion, and comparing with $15.5 billion in the 1953fiscal year.Individuals invested $4.2 billion in securities, added $8.2 billion totheir equity in insurance and Government pension reserves, such asSocial Security funds, increased their currency and bank deposits by$5.4 billion, and increased their shareholdings in savings and loanassociations by $4.0 billion. During the same period, individualsincreased their mortgage debt by $6.5 billion and other consumer debtby $300 million.

FINANCIAL POSITION OF CORPORATIONS

Working Capital

Data are prepared and released at quarterly intervals on the work-ing capital position of all United States corporations, excluding banksand insurance companies. These releases show the principal com-ponents of current assets and liabilities and an abbreviated analysisof the sources and uses of corporate funds. At the end of June 1954,corporate net working capital position was estimated at an all-timehigh of $94.1 billion, comparing with a previous peak at the end ofSeptember 1953of $93.3 billion. The data are used in measuring theliquid position of corporations and the figures indicate that there hasbeen little change in liquidity since mid-1951, as measured by the-ratio of cash and government securities to current liabilities. At theend of June 1954 this ratio stood at 54 percent. The highest pointof corporate liquidity was reached in 1949 when the ratio was 71percent.

TWENTIETH ANNUAL REPORT 115Balance Sheet and Income Statements

A quarterly financial report for all United States manufacturingconcerns is prepared jointly by the Commission and the Federal TradeCommission. This report, an outgrowth of the working capitalseries, gives complete balance sheet data and an abbreviated incomeaccount for all manufacturing companies. Data are classified byindustry and size of company.

PLA.~T AND EQUIPMENT EXPENDITURES OF U. S. BUSINESS

The Commission and the Department of Commerce jointly compileand release, at quarterly intervals, data on the plant and equipmentexpenditures of U. S. business. The series is used as an index offuture business activity and production, as well as capital marketactivity. At the close of each quarter, actual capital expenditures forthat quarter are presented, and in addition, anticipated expendituresfor the next two quarters are given. A survey is also made at thebeginning of each year of the expansion plans of business during thecoming year.

During the fiscal year ended June 1954 expenditures for plant andequipment by American concerns amounted to a record $27.9 billion,exceeding the previous record figure in the 1953 fiscal year by $800million. The higher total for the current fiscal year resulted frompeak expenditures during the closing months of 1953; in the first sixmonths of 1954 (the second half of the 1954 fiscal year) expenditureswere approximately two percent less than in the similar months of the1953 fiscal year. According to plans at mid-1954, expenditures forthe full calendar year 1954will be about 6 percent less than in calendaryear 1953, and are expected to aggregate $26.7 billion, with most ofthe decline attributed to lower expenditures of manufacturing andrailroad companies.

PERSONNEL

The personnel of the Commission was further reduced by 74 em-ployees in the fiscal year 1954, and as of June 30, 1954, consisted ofthe following:

Commissioners ._ __ 5Staff:

Headquarters office 447Regional Offices 247

-- 694

Total 699

The efforts of the Commission to perform its important functionseffectively and economically continued in the past fiscal year with theneed for individual positions being critically reviewed and those

116 SECURITIES AND EXCHANGE COMM:ISSION

found unnecessary being abolished. Some of the organizational andoperating changes effected by the Commission in fiscal 1954 areindicated below.

The position of Foreign Economic Adviser was abolished. Suchof his functions as are required by statute are now performed by theCommission's regular divisions.

The Commission's Cleveland Regional Officebecame a branch officeof the Commission's Chicago Regional Office. Several positions,including that of a Regional Administrator, were abolished.

The Commission's Division of Corporate Regulation was reor-ganized into four operating branches in lieu of the former five branches.

The Commission's Division of Trading and Exchanges was reor-ganized, two branches replacing the former four Branches. This-has reduced the number of supervisory personnel, consolidated theenforcement and interpretative activities of the Division in onebranch and concentrated in the second branch other activities suchas financial analysis, exchange registration and regulation, and stabi-lization. In addition, certain market surveillance work has beentransferred to the New York Regional Office. A number of positions,including two Assistant Directorships were abolished.

FISCAL AFFAiRS

Appropriation and Expenditures

The following is a summary of the appropriation and expenditures.for the fiscal year 1954 as compared to the fiscal year 1953:

Fiscal year-

AppropriationExpenditures

1951, 1953$5,000,000 $5,245,08~

4,988,414 5,236,08uUnexpended balance; 11,586

Fees and Revenues:The following fees were collected in the fiscal year 1954:

Character of fee:Registration of securities issuedQualification of trust indenturesFrom registered exchangesSale of copies of documents or portions thereof;Miscellaneous collections

8,994-

$848,623500

349,76914,4472,410

Total 1,215,749

Fees are turned over to the General Fund of the Treasury and arenot available for expenditure by the Commission.

_ _

_

_ _ _ _ _

TWENTIETH ~""NUAL REPORT 117

PUBLICATIONS

Publications issued during the fiscal year include:Statistical Bulletin. MonthlyVolumes Nos. 24, 25, 26, and 27 of Commission's Decisions and Reports.Official Summary of Securities Transactions and Holdings of Officers, Directors

and Principal Stockholders, Monthly.Nineteenth Annual Report of the Commission.Securities Traded on Exchanges under the Securities Exchange Act of 1934,

as of December 31, 1953.Companies Registered under the Investment Company Act of 1940, as of De-

cember 31, 1953.Registered Public Utility Holding Companies, December 31, 1953Financial Report, U. S. Manufacturing Corporations. (Jointly with Federal

Trade Commission). Quarterly, 1953'-Regulation S-X as of November 3, 1953.Rules and Regulations under the Securities Act of 1933, February 1, 1954.Securities Required to be Exchanged for Cash or New Securities, Jan. 1, 1954.Working Capital of United States Corporations. Quarterly.Volume and Composition of Saying. Quarterly.New Securities Offered for Cash. Quarterly.Plant and Equipment Expenditures of U. S. Corporations. (Jointly with De-

partment of Commerce). Quarterly.The 'Work of the Securities and Exchange Commission, November 1, 1954.

INFORMATION AVAILABLE FOR PUBLIC INSPECTION

The Commission maintains Public Reference Rooms at the head-quarters office in Washington, D. C., and at its Regional Offices inNew York City and Chicago, Ill.

Copies of all public information on file with the Commission con-tained in registration statements, applications, declarations and otherpublic documents are available for inspection in the Public ReferenceRoom in Washington. During the fiscal year 2,368 persons madepersonal visits to the Public Reference Room seeking public informa-tion and an additional 20,393 requests for registered public informa-tion and copies of forms, releases and other material of a publicnature were received. Through the facilities provided for the saleof reproductions of public information, 1,797 orders involving a totalof 81,710 page units were filled and 662 certificates attesting to theauthenticity of copies of Commission records were prepared. TheCommission also mailed 361,265 copies of publications to personsrequesting them.

There are available in the New York Regional Officecopies of recentfilings made by companies which have securities listed on exchangesother than the New York exchanges and copies of current periodicalreports of many other companies which have filed registration state-

118 SECURITIES A..."l'fDEXCHANGE COMlvIISSION

ments under the Securities Act of 1933. During the fiscal year, 10,793persons visited this Public Reference Room and more than 7,061telephone calls were received from persons seeking public informationand copies of forms, releases and other material. In the ChicagoRegional Office there are available copies of recent filings made bycompanies which have securities listed on the New York exchanges.

Copies of recent prospectuses used in the public offering of securitiesregistered under the Securities Acts are available in all RegionalOffices, as are copies of active broker-dealer and investment adviserregistration applications and Regulation A Letters of Notificationfiled by persons or companies in the respective regions.

Copies of certain reports filed with the Commission are also avail-able at the respective national securities exchanges upon which thesecurities of the issuer are registered.

PUBLIC HEARINGS

The following hearings were held by the Commission during thefiscal year:

Number oJPublic proceedings hearing!

Securities Act of 1933_ _ _ __ __ __ __ _ _ _ __ _ __ __ __ __ _ _ __ _ _ _ _ _ ___ _ _ 4Securities Exchange Act of 1934_ _ _ _ __ __ _ _ __ _ _ __ _ _ __ _ _ _ _ __ _ _ _ __ __ _ __ _ 26Public Utility Holding Company Act of 1935_________________________ 14Investment Company Act of 1940___________________________________ 2

Private proceedingsSecurities Act of 1933_ _ _ __ __ __ _ _ __ __ _ _ __ _ _ _ _ _ _ _ _ __ _ __ __ _ __ _ _ _ 2Securities Exchange Act of 1934_____________________________________ 4Rules of Practice , ________________________________________ ___ 2

Included in the above are four hearings relating to revisions of theCommission's rules.

PART X

APPENDIX

STATISTICAL TABLES119


TABLE l.-Twenty year record of registrations fully effective unaer the SecuritiesAct of 1933

1935-1954

[Amounts in millions of dollars)

For cash sale for account of issuers

FIScal year ended June 30 Number of All regis.statements trations Bonds, de-

Total bentures, Preferred Commonand notes

1935' ......... _._. ___ . _______ . 284 $913 $686 $490 $28 $1681936. ___ . ___________ ._ ... __ .... 689 4,835 3,936 3,153 252 5311937.. __ .... _._._. _____ . ______ 840 4,851 3,635 2,426 406 8021938__________________ ........ 412 2,101 1,349 666 209 4741939_.___ .. ___ . __ .... _. _. ___ . _. 344 2,579 2,020 1,593 109 3181940. ___ . _____ . ___ .. _._._. ____ 306 1,787 1,433 1,112 110 2101941. ..... _._. ________________ 313 2,611 2,081 1,721 164 1961942.. _ . ______________________ 193 2,003 1,465 1,041 162 2631943_. ______________ . __ ....... 123 659 486 316 32 1371944... ____ . _. ________________ 221 1,760 1,347 732 343 2721945__________ ._._ ...... ___ . __ 340 3,225 2,715 1,851 407 4561946... ____ . _____ . ____________ 661 7,073 5,424 3,102 991 1,3311947_ •. _. ________ ..... _. ___ . __ 493 6,732 4,874 2,937 . 787 1,1501948.. _. __ .. _. _______ . ______ ._ 435 6,405 5,032 2,817 537 1,6781949____ . _____ .. __ ... __ . ______ 429 5,333 4,204 2,795 326 1,0831950.. ____ .. _. _____ ._. ________ 487 5,307 4,381 2,127 468 1,7861951_____________________ ._. __ 487 6,459 5,169 2,838 427 1,9041952_. ______ . _. ___ .. _. _._. ____ 635 9,500 7,529 3,346 851 3,3321953.. __ ... _. _______________ ._ 593 7,507 6,326 3,093 424 2,8081954.. _ ... _. ______________ .. _. 631 9,174 7,381 4,240 531 2,610

, For 10 months ended June 30, 1935.

TWENTIETH A1I.TNUALREPORT

TABLE 2.-Registrations fully effective under the Securities Act of 1933PART I.-DISTRIBUTION BY MONTHS, FISCAL YEAR ENDED JUNE 30, 1954

[Amounts ill thousands of dollars ']

121

All regrstrattons Proposed for sale Coraccount of ISSuers

Year and monthNumber of I Number of Amount Number of INumber of Amountstatemeuts issues statements ISSUes

I

195~July __________________________ 47 61 397,481 44 54 373,485August; ____ . _________________ 42 62 254,300 37 55 216,455September _. __________________ 41 51 676,158 38 48 667,011October _.___________________ ._ 50 64 1,9n,9i4 43 54 960,072November _. _____________ . ____ 44 57 355.278 42 49 319,238December _______________ . ____ 40 61 666,450 35 50 580,542

195-1January ______________________ 43 52 606,958 38 45 554,611February _______________ . _____ 47 74 362,019 45 68 335,208Maroh., _._________________ ._. 65 76 1,025,042 60 65 959,161Apnl _____________ . _._________ 79 102 1,058,678 74 92 902,415May ______ . ________________ . __ 73 96 903,859 65 85 803,044June __ . _______________________ 50, 75 889,304 58 66 709,956

Total, fiscal year 1954___ 2631 I 831 9,173,502 5791

731 7,381,199

PART2.-PURPOSE OF REGISTRATION AND TYPE OF SECURITY, FISCAL YEAR ENDEDJUNE 30, 1954

[Amounts ill thousands of dollars 'l

Preferredstock

Purpose of registration

Type of secunt).

IBonds, de-

All types bentures,and notes 3

II

ICommon'

stock

All registratrons, ______________________... ______________ 9,173,502 4,248,730 566,440 4,358,332

For account of Issuers for cash sale ______________ ___ . 7,381,199 4,240,036 531,142 2,610,021Corporate ______________________ .. ______________ 6,844,411 3,703,248 531,142 2,610,021

Offered toGeneral publlc.. __________ . ____________ 5,045,187 2,978,142 414,259 1,652,786Secunty holders _______ .. _______ . _____ ._ 1,452,195 710,636 115,893 625,666Other special groups ___________ . _______ 347,028 14,470 990 331,568

Foreign governments ___________________________ 536,789 536,789 0 0

For account of ISSuers for other than cash sale. _____ 1,637,951 8,6Q3 35,298 1,593,959

For account of others than Issuers. _________________ 154,3521 0 01 154,352

See footnotes at end of table.


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128 SECUHITIES AND EXCHANGE COMMISSION

TABLE 4.-Proposed uses of net proceeds from the sale of new corporate securitiesoffered for cash in the United States

PART I.-ALL CORPORATE

[Amounts In thousands of dollars 1]

Proceeds New moneyCalendar year and Retire- Otherment ofmonth. Total gross Total net Total new Plant and I Working securtties purposes

proceeds' proceeds 3 money equipment capital

1949 6,051,550 5,959,260 4,606,326 3,724,165 882,160 400,966 951,9681950 6,361,043 6,261,444 4,006,480 2,965,598 1,040,881 1,271,230 983,7341951 7,741,099 7,606,520 6,531,403 5,110,105 1,421,298 486,413 588,7031952 _. 9,534,162 9,380,302 8,179,548 6,311,802 1,867,746 664,056 536,6981953 8, 897, 996 8,754,721 7,959,966 5,646,840 2,313,126 260,023 534,733

1955January 654,968 645,614 584,446 481,008 103,438 22,406 38,763February 688,301 676,369 586,194 352,109 234,084 53,827 36,348March 695,540 683,675 627,791 438,932 188,858 17,433 38,451

tf:~~~========= 815,257 802,453 747,826 525,201 222,625 23,080 31,547713,686 697,266 590,507 463,094 127,413 21,947 84,812Jtme., , ___________ ._._. ___ 1,166,012 1,147,101 1,033,967 597,134 436,833 24,161 88,973July _. 520,178 509,724 459,037 364,462 94,574 26,526 24,162August _. _. 335,667 329,839 270,100 160,632 109,468 5,232 54,507

September __ ._. ________ ._ 768,001 757,420 691,288 423,326 267,962 4,372 61,760October -._ 602,804 589,632 549,544 429,676 119,868 12,241 27,847November 459,144 451,381 406,061 300,742 105,320 22,363 22,956December ._ 1,478,438 1,464,248 1,413,206 1,110,525 302,681 26,434 24,609

1954January _. 571,242 562,800 530,990 484,554 46,437 18,398 13,412February 455,575 448,292 410,093 338,290 71,802 9,086 29,113March 726,271 712,578 590,028 473,017 117,011 52,755 69,795ApriL 627,977 615,740 470,612 388,876 81,735 129,398 15,731May 849,775 835,741 614,466 472,140 142,326 183,376 37,899June. •. 1,056,727 1,041,353 812,300 635,313 176,987 181,910 47,143

PART 2.-MANUFACTURING

1949 ._ 1,414,176 1,390,872 851,257 542,078 309,180 44,303 495,3111950 1,200,017 1,175,363 688,074 312,701 375,374 149,010 338,2791951_. 3,121,853 3,066,352 2,617,233 1,832,777 784,456 220,828 228,2911952. _____________________ 4,038,794 3,973,363 3,421,892 2,179,563 1,242,329 260,850 290,6211953. 2,253,531 2,217,721 1,914,853 1,324,675 590,178 90,115 212,753

1955January _. ________________ 291,220 287,630 263,919 217,547 46,372 7,856 15,856February 150,133 146,449 129,284 67,564 61,720 6,411 10,755March ___________________ 201,083 198,876 182,581 130,436 52,145 6,735 9,561

tl'a~======== .:314,611 309,139 300,417 244,340 56,077 7,034 1,688111,495 108,572 68,293 46,482 21,811 19,118 21,162June. 287,487 283,442 210,885 183,717 27,168 6,984 65,573July __ . ___________________ 134,787 133,018 107,631 86,187 21,443 16,629 8,758August. __________________ 47,855 46,389 32,948 23,652 9,296 1,946 11,495

September ._. 134,171 132,011 92,794 66,236 26,558 519 38,699October ______ ._. __ ._. _. __ 56,673 55,543 49,863 35,005 14,858 2,066 3,615November. ___________ . __ 100,533 98,860 76,608 21,886 54,723 5,889 16,363December •. 423,483 417,790 399,632 201,623 198,009 8,930 9,228

1954January 135,917 134,460 111,186 91,322 19,864 16,494 6,780February _____________ . __ 52,683 51,536 46,355 23,325 23,030 323 4,857March . ._ 109,955 106,827 95,068 57,798 37,270 0 11,759

tl'a~~~.:.: .:87,837 85,686 75,520 42,840 32,680 6,402 3,764

207,831 203,551 180,563 76,207 104,356 7,540 15,448June; 310,601 305,264 256,060 152,954 103,106 20,800 28,404

see footnotes at end of table.

___________________---______• ___________- ---___________• _______---______• _____________ _______________- __• ___

_____• ____________ __________ • _____

______••• _______• __

========= __•• __• ___• ___•• ___

_____• ___• __- __

_______• ____• __ •• _______• _____

•• ____________

________• ____- __ ___ • ____________

______• _________- __ ______• _____________

___________•_________ ___• ________ ______

_________• ____• _____ ______• ___________• ___

______• _______• _____

_____•• ___________•• _

_____ • __________

=========== _____• ______• _______

_______ __• __

__________• __ _

____• _____________

_______• __ __• ___

== =========== •_______________•___

'.I,'~ENTIETH A1'.TJ\'1JALREPORT 129

TABLE 4.-Proposed uses of net proceeds from the sale of new corporate securitIesoffered for cash in the United States-Continued

PART 3.-MINING

[Amounts in thousands of dollars ']

Proceeds New moneyCalendar year and Retire- Othermentofmonth J Total gross Total net Total new Plant and Workmg seeuntles purposes

proceeds 3 proceeds 3 money equipment capital

1949 }1950

(I) (') (I) (') (I) (') (I)195119521953 _._. 235,368 222,051 199,151 113,104 86,048 1,912 20,988

1953January __________________ 4,286 3,638 2,733 1,731 1,003 0 lJO.'IFebruary ________________ 5,383 4,872 2,477 759 1,717 500 1,895Mareh 22,140 20,672 14,809 3,873 10,936 0 5,863A pn 1_____________________ 3,387 3,030 2,649 990 1,659 0 381May ________________ . ____ 37,867 35,847 32,058 16,459 15,599 470 3,319June 31,817 30,770 29,853 27,022 2,831 0 917July ______________________ 20,707 19,097 17,599 8,278 9,320 0 1,498August, __________________ 6,-589 6,028 5.145 2,196 2,949 99 783September 5,349 5.049 2,756 1.154 1, 602 0 2,292October __________________ 41,399 37,800 37,197 13,396 23,801 45 559November _______________ 18,503 17,895 17,422 15,663 1,759 0 473December ________________ 37,941 37,355 34,454 21,583 12,871 798 2,103

1951,January _. 33,818 32,220 29,469 20,192 9,277 928 1,823February _______________ 19,501 17,888 17,294 15,182 2,112 0 594Mareh ___________________ 29,,354 28,8)5 28,242 16.258 11,984 0 572AprIL 40,769 38,530 24,902 16,123 8,779 12,340 1,288May 36,024 34,483 31,526 19,735 11,791 678 2,279June _____________________ 76.095 74,014 61,052 46,814 14,237 0 12, 963

PART 4.-ELECTRIC, GAS AND WATER

1949 2,319,828 2,275,898 1,837.545 1,818, 560 18,986 233,390 204,9631950 2,64b.822 2,608,491 1,728,378 1,711,320 17,058 681,577 198,5371951_________________ ._. __ 2,454,853 2,411,714 2,186,248 2,158,823 27,425 85,439 140,0271952______________________ 2,674,694 2,626,377 2,457,823 2,441,862 15,961 87,726 80,8271953______________________ 3.029,122 2,971,911 2,755,852 2,737,082 18,770 67.034 149,025

1953

January __________________ 217,690 214,344 205,298 193,027 12.271 0 9,046February ________________ 257,717 253,307 236,924 235,681 1,243 8,183 8.200March 215,757 211,968 204,476 204,329 148 2,061 5,431ApriL ____________________ 227,899 223,204 198,932 198,620 312 8,137 16,135May _____________________ 399,476 390,845 348.198 348,010 188 341 42,306June _____________________ 339,316 330,897 299,600 299,065 535 16,994 14,303July 213,659 208,551 206,423 206,268 154 1,232 896August, __________________ 97,817 96,822 86.366 86,346 20 0 10,456September _______________ 245,778 241,895 226,929 226,512 416 644 14,322October __________________ 362,477 355,506 333,981 332,692 1,288 5,145 16,381November 249,284 244,975 224,733 223,383 1,350 15,856 4,3ll6December ________________ 202.251 199,599 183,993 183,149 844 8,442 7,164

1951,January 279,398 275,583 274,824 274,780 44 148 611

r;~r%~r~~=:: :::::: :::::=272,293 269,469 258,076 254,967 3,109 0 11,392367,192 361,613 305,934 305,889 45 45,695 9,984Aprrl, ____________________ 313,820 309,478 236,800 235,957 843 72,679 0May 507,222 500,936 327.243 327,112 131 172, 595 1,097J une 448,372 442,285 381,103 379,910 1,193 60,183 1,000


_____________• ________ ______• _______________ ___________________• __ ___________________• __ ____• __________• __

__•• _______________

______• ______________

____• __________

___________• ____

_________________• ______________• ________

_________________• ____ _______• _____• _______•

__• ________________

_______• __• ___________

________ • ______

_______________• __

__________• _________•______________• ______


TABLE 4.-Proposed uses oj net proceeae Jrom the sale oj new corporate securitiesoffered [or cash in the United States-Continued

PaT 5.-RAILROAD

[Amounts In thousands of dollars ']

Proceeds New moneyCalendar year and Retire- otherment ofmonth' Total gross Total net Total new Plant and Working seeurrttes purposes

proceeds' proceeds' money equipment capital

1949 459,982 456,353 441,392 441,392 0 11,164 3,7971950 554,100 548,366 301,408 281,890 19,518 192,651 54,307195L _._. 335,087 331,864 296,917 291,886 5,030 34,214 7331952_. ._._ 525,205 520,817 286,526 286,476 50 223,532 10,7581953 302,397 298,904 267,024 244,254 22, 770 31,879 0

1955I~~ ._. 39,64& 39,145 25,613 25,613 0 13,531 0February 50,054 49,255 30,907 22, 928 7,979 18,348 0March_ ._. 32,368 32,006 32,006 32,006 0 0 0

tfa~~~==.: .: .:24,594 24,373 24, 373 24,373 0 0 014,950 14,780 14,780 14, 780 0 0 0rune 22,818 22,551 22,551 22,551 0 0 0Iuly ._. 9,500 9,425 9,425 9,425 0 0 0August .• 8,696 8,612 8,612 8, 612 0 0 0

September . ._. 24, 526 24,318 24,318 24,318 0 0 0October __________________ 5,886 5,815 5,815 5,815 0 0 0November ._. _. 9,640 9,562 9,562 9,562 0 0 0D8C8IIlber 59,719 59,062 59,062 44,271 14,791 0 0

195,4January 47,973 47,701 47,701 47,701 0 0 0February . 30,205 29,858 22,517 22,517 0 7,340 0March. _._._. . ._ _. 16,402 16,274 14,483 14, 432 51 1,791 0

~:~~=== .: .: .:31,049 30,834 18,890 18,890 0 11,944 0

971 964 964 964 0 0 0IUIl1l___________ ._._._. ___ 7,379 7,310 7,310 7,310 0 0 0

PART6.-0THER TRANSPORTATION

1949.•. _. _. _. ___ . _. __ •. ___ 340,315 338,695 302,320 298,865 3,455 272 86,1021950_.. . ._ 259,057 257,182 242,902 241,599 1,303 3,421 10,860195L _____________________ 159,227 158,240 131,009 123,217 7,792 18,478 8,7531952. _. _. _________ . _____ '_ 467,094 462,006 410,778 377,064 33,713 1,119 50,1091963_. 293,036 289,859 264, 880 260,568 4, 312 3,949 21,031

1955Ianuary .• _________ .. _____ 16,733 16,477 12,223 9,961 2, 262 0 4,254February .•. ._. . 1,693 1,605 1,605 1,372 233 0 0March ._. 50,720 49,993 49,743 49,388 355 0 250ApriL _____ ._. _______ ._. __ 41,791 41,534 41,534 41,452, 82 0 0May •••. _____ . __ . __ ._._._ 25,806 25,420 10,420 10,420 0 0 15, 000I1pl8 22,860 22,383 22,383 22,251 131 0 0Iuly ________ ._ .. _ .. _______ 37,266 37,041 36,742 36,652 89 0 299August._._ . ______ . __ . ____ 6,300 6,163 5,963 5,773 190 0 200September. _________ .. ___ 7,843 7,815 7,069 7,069 0 0 747October ...• ____ . ______ ... 30,580 30,401 30,352 29,759 592 0 50November ___ .. __________ 22,823 22,553 21,827 21,529 298 495 231December ______ •.. ___ .• __ 28,622 28,474 25,021 24,941 80 3,454 0

195,4January ___ ._._. _._ ... _. __ 17,227 17,043 16,739 16,672 66 0 304February . ___ ____________ . 13,477 13,341 12,822 12,748 74 0 520March. _______ .. _____ ._._ 42,427 42,025 41,287 41,197 90 0 738Apru 27,084 26,918 26,809 26,809 0 0 110May ____ ._ ••. _ .. _ ... ___ ._ 19,588 19,476 4, 596 4, 569 38 420 14,460June, 30,328 30,108 29,949 29,712 237 0 158


______•• ____••• ___••• _ •••• ___• ______________ __• ______________ ______• ___• _____

_____• ___• ____________

___ __•• _____• __ ____• ____________

__•• __• _____• __

==== == = == = ______••_____________ ____••• __________ __

______• ______ ____ ___ ___• ____

•• __ ___••• ___• ____________

•___•___•______•• _ __•• ___ _________

__ ___ ••

== = ==== == = =

___••• _______ ___

_____• ___________• __

__•__ ___ __ __• __• __ _______•

•• ___________________

_______•• _________•__

__•_________________


TABLE 4.-Proposed uses of net proceeds from the sale of new corporate securitiesoffered for cash in the United States-Continued

PART 7.-COMMUNICATION

[Amounts In thousands of dollars 1)

Proceeds New moneyCalendar year and Retire- Othermentofmonth 2 Total gross Total net Total new Plant and Working seeurtttes purposes

proceeds' proceeds 2 money equipment capital

1949 571,080 566,566 504,557 502,679 1,877 49,277 12, 7321950______________________ 399,391 395,172 304,006 300,264 3,741 81,002 10, 1641951. _____________________ 612,080 605,095 594,324 574,417 19,907 5,231 5,5401952______________________ 760,239 753,169 738,924 736,996 1,928 6,095 11, 1511953______________________ 881,853 873,726 860,967 841,600 19,367 3,164 9,596

1953January __________________ 28,041 27,882 27,557 27,557 0 0 325February ________________ 7,455 7,321 6,419 1,322 5,097 0 902March ___________________ 16,386 15,595 14, 650 14, 614 36 0 945ApriL ____________________ 13,636 13,249 11,907 11,416 492 0 1,342May _____________________ 7,331 7,136 5,917 5,878 39 500 718JW1e _____________________ 37,806 37,182 37,182 36,974 208 0 0July ______________________ 20,765 20,167 14, 989 10,913 4, 076 2,203 2, 975August __________________ 30,768 29,803 29,143 29,098 45 235 425September _______________ 89,583 88,586 88,207 87,142 1,065 226 153October __________________ 13,341 13,203 11,393 10,391 1,002 0 1,810November _______________ 5,619 5,482 5,482 5,419 63 0 0December ________________ 611,121 608,120 608,120 600,876 7,244 0 0

1954January __________________ 26,678 26,277 24,564 24,396 168 228 1,485February ________________ 7,192 6,890 6,890 6,862 28 0 0March ___________________ 31,400 30,298 22,202 22,157 45 0 8,096tf:~~~=====~============

25,945 25,655 25,404 25,370 35 0 25141,267 40,413 40,298 40,253 45 0 115JW1e _____________________ 9,332 9,071 8,240 8,240 0 0 831

PART 8-FINANCIAL AND REAL ESTATE

1949______________________ 599,105 592,559 440,453 43,079 397,374 34,530 117,5761950______________________ 746,740 739,263 480,164 24, 309 455,846 100,429 158,6791951______________________ 524,616 515,267 368,485 15,686 352,800 66,030 80,7511952______________________ 515,178 508,184 409,630 14, 243 395,387 60,498 38,0561953______________________ 1,576,048 1,560,672 1,452,279 32,116 1,420,162 24, 225 84, 168

1958January __________________ 42,894 42, 377 39,596 4,474 35,122 645 2,136

~~r~r:: ~====~~~==~:==.: 131,639 130,603 123,317 3,076 120,241 5,393 1,893140,861 138,955 119,675 0 119,675 7,151 12,129AprIL ____________________ 162,292 161,637 151,276 79 151,197 1,854 8,507May _____________________ 95,500 93,579 91,187 6,749 84,438 287 2, 105JW1e _____________________ 415,855 412,425 405,576 1,097 404,479 0 6,849July ______________________ 43,189 42,868 32,203 3,607 28,596 2,507 8,158August ___________________ 123,944 122,785 92,214 112 92, 102 403 30,168September _______________ 246,027 243,335 238,535 6,185 232,350 1,735 3,066October __________________ 80,518 79,913 74, 285 1,381 72, 904 3,000 2,628November _______________ 45,393 45,057 44, 273 98 «,175 0 783December ________________ 47,935 47,138 40,140 5,258 34, 882 1,250 5,748

1954

~~~rY-~~===::::::::::: 12,209 11,772 10,906 105 10,801 0 86551,939 51,167 39,727 443 39,284 0 11,439March ___________________ 89,669 87,869 64,052 100 53,953 0 33,817ApriL ___________________ 51,909 51,222 18,306 222 18,085 24,663 8, 253May _____________________ 26,831 26,253 22, 363 108 22,255 830 3,061une. 160,278 159,407 59,486 4, 708 64,778 96,845 3,076J

See footnotes at end of table,

____________- _________

___• ________________


TABLE 4.-Proposed uses of net proceeds from the sale of new corporate securitiesoffered for cash in the United States--Continued

PART 9-COMMERCIAL A:I-I""DOTHER

[Amounts in thousands of dollars I]

Proceeds New moneyCalendar year and Retire- OtherI ment ofmonth , Total gross Total net Total new Plant and Working securities purposes

proceeds proceeds' money equipment capital

1949______________________ 347,064 338,317 228,801 77,513 151,288 28,030 81,4861950______________________ 552,916 537,606 261,559 93,516 168,043 63,139 212,9081951______________________ 533,383 517,988 337,187 113,299 223,888 56,194 124,6071952______________________ 552,958 536,386 453,975 275,598 178,377 24, 235 58,1761953______________________ 326,640 319,877 244,960 93,441 151,519 37,745 37,172

1959January __________________ 14,459 14, 122 7,507 1,098 6,409 374 6,242February ________________ 84,228 82,957 55,261 19,407 35,854 14,993 12,703March ___________________ 16,225 15,610 9,851 4,288 5,564 1,487 4,272

tf..~::::::::::::::::::::: 27,046 26,287 16,738 3,931 12,807 6,055 3,49421,261 21,088 19,655 14,316 5,338 1,231 202June _____________________ 8,053 7,450 5,937 4,456 1,480 183 1,330July ______________________ 40,305 39,557 34,025 3,130 30,895 3,954 1,578August ___________________ 13,697 13,237 9,709 4,842 4,867 2,549 979September _______________ 14,724 14,411 10,681 4,711 5,970 1,249 2,481

October __________________ 11,930 11,450 6,659 1,236 5,423 1,986 2,805November _______________ 7,347 6,998 6,154 3,202 2,952 124 720December ________________ 67,366 66,711 62,784 28,824 33,960 3,560 366

1951,January __________________ 18,022 17,745 15,601 9,385 6,216 600 1,543February ________________ 8,285 8,143 6,410 2,245 4,166 1,423 310March ___________________ 39,971 38,858 28,759 15,186 13,573 5,269 4,830

tf..~::::::::::::::::::::: 49,565 47,415 43,980 22,667 21,313 1,370 2,06510,040 9,665 6,913 3,202 3,710 1,314 1,439June _____________________ 14, 342 13,894 9,101 5,665 3,436 4,082 711

1 Shght discrepancies between the sum of figures in the tables and the totals shown are due to roundingFor earlier data see 18th annual report .Total estimated gross proceeds represent the amount paid for the securities by investors, while total

estimated net proceeds represent the amount received by the issuer after payment of compensation todistributors and other costs of flotation.

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TABLE 6.-Brokers and dealers registered under the Securities &change Act of1934 l-effective reqistratume as of June 30, 1954, ctassified by type of organizationand by location of principal office

Number of registrants Number of proprietors, partners,officers, etc. , 3

Location of pnneipal office Sole Solepropri- Part- Corpo- propri- Part- Oorpo-Total ner- Total ner-etor- slnps rations s etor- ships rations'ships sbips--- --- --- --- ------ ---

Alabama ____________________________ 22 6 8 8 66 6 25 35Arizona _____________________________ 18 10 4 4 48 10 12 26Arkansas ____________________________ 20 10 3 7 47 10 6 31Cahtorma ___________________________ 246 92 79 75 958 92 425 441Colorado. ___________________________ 69 39 11 19 188 39 44 105Connecticut. ________________________ 42 14 15 13 141 14 55 72Delaware ____________________________ 5 0 3 2 36 0 27 9District of Columbia ________________ 77 30 18 29 278 30 77 171Elortda ______________________________ 53 27 10 16 117 27 25 65Georgia ______________________________ 28 10 6 12 100 10 21 69Idaho _______________________________ 12 6 4 2 27 6 12 9Illmols ______________________________ 192 48 68 76 854 48 304 502Indiana _____________________________ 49 22 6 21 138 22 13 103Iowa ________________________________ 32 10 5 17 107 10 11 86Kansas ______________________________ 37 18 4 15 118 18 9 91Kentucky ___________________________ 15 5 4 6 50 5 I 14 31LOUISIana ___________________________ 53 28 21 4 111 28 67 16Mame _______________________________ 31 14 2 15 83 14 6 63Maryland ___________________________ 42 19 18 5 132 19 87 26Massachnsetts _______________________ 217 97 42 78 821 97 242 482Mielngan ____________________________ 54 10 18 26 231 10 89 132Minnesota ___________________________ 56 11 7 38 277 11 26 240MISSISSIPPI. _________________________ 16 8 6 2 27 8 13 6MISSOurI. ___________________________ 87 17 26 44 399 17 130 252Montana ____________________________ 9 3 3 3 19 3 6 10N ebraska ____________________________ 30 10 1 19 109 10 2 97Nevada _____________________________ 6 3 2 1 11 3 5 3New Hampshire _____________________ 10 7 0 3 27 7 0 20New Jersey __________________________ 149 95 27 27 314 95 69 150New Mexico _________________________ 12 8 2 2 19 8 4 7New York State (excluding NewYork City) ________________________ 250 175 28 47 460 175 83 202North Carolina ______________________ 26 9 5 12 101 9 11 81North Dakota _______________________ 3 1 1 1 11 1 5 5OhIO ________________________________ 131 33 40 58 482 33 176 273Oklahoma ___________________________ 41 28 8 5 67 28 16 23Oregon ______________________________ 21 7 5 9 55 7 12 36Pennsylvania ________________________ 205 64 82 59 731 64 .372 295Rhode Island ________________________ 28 14 10 4 55 14 30 11South Carolina ______________________ 27 12 6 9 68 12 14 42South Dakota _______________________ 8 6 0 2 13 6 0 7Tennessee ___________________________ 40 11 10 19 147 11 29 107Texas _______________________________ 188 109 28 51 479 109 78 292Utah ________________________________ 36 14 13 9 96 14 39 43Vermont- ___________________________ 2 1 0 1 10 1 0 9Virgmra , ____________________________ 37 16 11 10 121 16 56 49W ashmgton _________________________ 87 48 8 31 222 48 20 154West Virzinia _______________________ 12 7 3 2 34 7 9 18Wisconsm ___________________________ 51 13 7 31 200 13 28 159W yoming ___________________________ 7 7 0 0 7 7 0 0--------- --- --- --- ------

Total (excluding New YorkCity) ________________________ 2,889 1,252 688 949 9,212 1,252 2,804 5,156New York City _____________________ 1,164 336 587 241 4,854 336 3,200 1,318

--- --- --- --- --- --- --- ---4,053 1,588 1,275 1,190 14,056 1,588 6,004 6,474

1 Domestic registrants only, excludes 79 outside continental limits of the United States., Includes directors, officers, trustees, and all other persons occupymg similar status or performing similar

functions, Allocations made among States on the basis of location of principal offices of registrants, not actualloca-

tion of persons Information taken from latest reports filed prior to June 30, 1954.Includes all forms of orgaruaations other than sole proprretorships end partnerships.•


TABLE 7.-Market value and volume of sales effected on securitws exchanges in the12-month period ended December 31,1953, and the 6-month period ended June 30,1954-

PART 1.-12 MONTHS ENDED DEC. 31, 1953

[Amounts in thousands]

Stocks I Bonds' Rights and warrantsTotal

marketvalue Market Number Market Principal Market Number

(dollars) value of value amount value of(dollars) shares (dollars) (dollars) (dollars) units

-------- ----Registered exchanges 17,488,452 16,660,515 633,532 780,782 909,032 47,155 82,128

American 1,153,636 1,125,699 110,110 18,747 31,581 9,190 3,498Boston 173,514 171,839 3,938 1,675 1,839Chicago Board 4 4 (.)Cincinnatl 21,711 20,151 609 530 897 1,030 187Detroit, 77,740 77,649 3,739 91 216Los Angeles 163,642 163,221 9,960 421 521Midwest, 474,457 473,120 14, 960 67 67 1,270 1,416New Orleans 1,326 1,322 48 4 4 (i) 3New York 15,009,939 14,218,019 449,327 760,243 875,322 31,677 71,275Phl1ad~lphIa- Baltimore 174,045 173.203 4,817 194 277 648 810PIttsburgh 27,395 27,271 1,053 124 51Salt Lake 1,549 1,549 12,964San Francisco Mining 359 359 5,196San FranCISCO Stock 204,883 203,039 15,356 829 717 1,015 2,118Spokane 687 687 1,300Washmgton , 3,565 3,383 155 168 167 14 194----

Exempted exchanges 7.938 7,862 1,073 76 82

Colorado Springs 112 112 216Honolulu 6,831 6,755 827 76 g2Riehmond 455 455 10Wheehng 540 540 20

PART 2 -6 MONTHS ENDED JUNE 30, 1954

Registered exchanges 12,140,558 11,652,971 417,292 454,397 525,788 23,190 40,920--------AmerIcan 766,646 744,2J5 68,514 9,965 14,627 12,446 2,437Boston 112,926 112,926 2,418Chicago Board

----i3;076- ------304- ------i78- -------;:--C incinnatL 12,776 101 199 109Detroit 49,324 49,049 2,147 275 717Los Angeles 106,723 106,617 6,982 21 19 85 366Midwest 302,070 301,820 8,962 45 38 205 955New Orleans 1,818 1,818 50 ----3fis7New York 10,507,345 10.044,250 295,681 453,528 510,220 9,567Plnladelphla- Baitimore 121,736 120,917 3,369 435 453 384 2,033Pittsburgh 18, 250 18,249 582 1 5Salt Lake 1,619 1,619 12,328San FtsIIClSCO Mining 838 838 8,196 -------.-- -------iiiSan FraWliseo Stock 137,848 137,518 6,875 302 253 28Spokane 339 339 884

Exempted exchanges 4,622 4,581 518 38 40 3 3----Colorado Springs 55 55 81 --------.-Honolulu 4, 165 4,124 422 38 40 3 3Richmond 235 235 8Wheeling 167 167 7

I "Stocks" Include voting trust certificates, American depositary receipts, and certificates of deposit., "Bonds" mclude mortgage certIficates and certIficates of deposit for bonds. Smce Mar. 18, 1944, United

States Government bonds have not been mcluded m these data350 shares .$176.

'The Washington Stock Exchange was merged on Oct. 15, 1953, mto the PhIladelphia-Baltimore StockExchange.

NOTE.-Value and volume of sales ~ll'eeted on registered seeunnes exchanges arc reported in connectionwith fees peid under section 31 of the Securities Exchange Act of 1934. For most exchanges the figuresrepresent transactions cleared during the calendar month. FIgures may differ from comparable data inthe Statrstical Bulletin due to revisions of data by exchanges.

----• __

---- ---- ---- ----____________________ _____________________

---------- ----------_______________ ---------- ---------- ---------- ----------___________________ ______________________ ---------- ----------__________________ ---------- ----------____________________

_________________ ___________________

• ___ __ ___________________

---------- ----------____________________ ---------- ---------- ---------- ----------________ ---------- ---------- ---------- ----------_________ _____________________

---------- ---------- ---------- ----------________________

---- ---- ----___ ---------- -------------- ---- ---- ----

_____________ ---------- ---------- ---------- ----------____________________ ---------- ----------___________________ ---------- ---------- ---------- ----------____________________ ---------- ---------- ---------- ----------

___ ---- ----____________________

_______________________ ---------- ---------- ---------- ----------_______________

-----------__________________ _______________________

---------- ----------__________________ _____________________

_________________ ---------- ---------- ----------___________________ ______

___________________ ---------- ----------____________________ ---------- ---------- ---------- ----------

________ ---------- ----------__________ _____________________

---------- ---------- ---------- -------------- ---- ---- ----

___ ---- ---- ----

_____________ ---------- ---------- ----------____________________ __• ________________ ---------- ---------- ---------- ----------____________________

---------- ---------- ---------- ----------

• •

136 SECURITIES AND EXCHANGE COM:MISSION

TABLE S.-Issues and issuers on exchanqee 1

PART I.-NUMBER OF ISSUES ON EACH EXCHANGE AS OF JUNE 30, 1954

Stocks BondsExchanges

R X U XL XU Total R X U XL Total-- -- -- -- -- -- -- -- -- --

Amerlcan .. _. __ . _________________ 508 5 298 ------ ------ 811 19 ------ 62 ------ 81Boston 87 1 315 .----- 403 20 .----- .----- 20Chicago Board of Trade 8 5 .----- 13 .-----CinclnnatL _____________________ 53 ------ 85 -.---- 138 ,~ 1 .----- 6Colorado Sprlngs .---_. 13 -----. 13 ------ .----- ---.-- .-.--- ------Detrolt __________________________ 116 ------ 119 ---56- 235 ------ .----- ------ .----- ------Honolulu 31 87 -.---. .--.-- ------ 8 8Los Angeles= .: .; .; .: .; 172 8 195 .----- -----. 375 1 .----- 4Midwest. _______________________ 406 1 94 ------ ------ 501 16 .----- --_ .._- 16New Orleans 3 ------ 15 .----- ------ 18 1 ----4- 2 ------ 3New York Stock _________________ 1,544 2 .----- ------ 1,546 964 ---_.- ------ 968Phlladelphia-Baltlmore 148 15 401 .----- ----.- 564 57 .----. 57Pittsburgh ______________________ 54 ------ 75 ------ 129 1 ------ ------ ------ 1Rlchmond _______________________

------ ----4- 27 -.---- 27 ------ ------ ------ ------Salt Lake. 94 ------ ------ ------ 98 ------ ------ ------ ------ ------San Francisco Minlng ___________ 43 ------ ------ 43 ------ ------ ------ ------ ------San Francisco Stock _____________ 205 4 183 ------ ------ 392 21 ------ ------ ------ 21Spokane 25 7 32Wheellng_. ______________________

------ ------ ------ 16 3 19 ------ ------ ------ ------ ------

Symbols. R-reglstered; X-temporarily exempted from registration; U-unllsted on a registered ex-change; XL-listed 011 an exempted exchange; XU-unlIsted on an exempted exchange,

PART 2.-UNDUPLICATED NUMBER OF ISSUES ON ALL EXCHANGES AS OFJUNE 30, 1954'

Status under the Act Stocks Bonds Total Issues

Registered __________________________________________________________ 2,641 1,009 3,650Temporarily exempted from reglstratlon ____________________________ 20 4 24Unlisted on registered exchanges ____________________________________ 290 60 350Listed on exempted exchanges ______________________________________ 76 8 84Unlisted on exempted exchanges ____________________________________ 30 0 30Totals ________________________________________________________

3,057 1,081 4,138

PART 3.-UNDUPLICATED NUMBER OF ISSUERS HAVING SECURITIES TRADED ONEXCHANGES AS OF JUNE 30, 1954'

Number ofStatus under the Act: i8.weraRegistered., ___ _________ ______________________ ____________________ ___________ __ 2, 204

Temporarily exempted from registratton.; 19Unlisted on registered exchanges____ 273Listed on exempted exchanges, _ __ 64Unlisted on exempted exchanges_______ 28

Totals_ _____ _____ _______________________________________ _______ 2, 588

'Issues exempted under sec. 3 (a) (12) of the Securities Exchange Act, such as those of the United Statesand Its subdivisions, are not included hen-in,

, For the purpose of obtaining net figures, each security in part 2 and each Issuer In part 3 of these tables iscounted but once, In the first of the 6 categories mentioned above where it appears; e. g., an tssue registeredon several exchanges and admitted to unlisted trading on several others 15counted but once and only under.. Registered."

__________________________ ------ ------_________ ------ ------ ------ ------ ------ ------________________ ------

== ==== = = = = ------ ------____________________ ------

__________ ------ ------

_______________________ ------

_________________________ ------ ------ ------ ------ ------ ------

TWENTIETH ANNUAL REPORT 137TABLE 9.-Companies in active registered public utility holding company systems

as of June 30, 1954-1

Register- Register-ed h lding ed opera-

o tlng-hold-coJ;ll~' ing com-mes pames r

Electricand gasutilitycompa-

nies

Nonutll-Ity com.pames

Totaleompa-nieslln

systems

-----------------1---------------1. American Gas and Electric Oo.L; ._________ 12. American Natural Gas Co ._____________ 13. Central Public Utility Corp_____________________ 14. Central and South West Corp___________________ 15. Cities Service Co________________________________ 16. Columbia Gas System, Ine., The________________ 17. Consolidated Natuml Gas Co____________________ 18. Delaware Power & Light Co9. Eastern Gas and Fuel Associates_.

10. Eastern Utilities Associates______________________ 111. Electric Bond and Share Oo, 112. General Public Utilities Corp____________________ 213. Granite City Generating Co. (Voting Trust)_____ 114. International Hydro-Electric System (Trustee)___ 215. Interstate Power Co_____________________________ 116. Middle South Utilities, Inc .__________ 117. National Fuel Gas Co ._______ 118. New England Electric System___________________ 119. New England Gas and Electric Associatlon______ 120. North American Co., The_______________________ 1 121. Northern States Power Co. (MInn.)_____________ 122. OhIO Edison Co_________________________________ 123. Philadelphia Electric Power Co__________________ 124. Southern Co .. The_______________________________ 125. Standard Power and Light Corp_________________ 326. Utah Power & Light Co .____ 127. West Penn Electric Co., The____________________ 1 128. Wisconsin Electric Power Co.___________________ 129. Wisconsin Southern Gas Co., Inc________________ 1

122562

1042141912165

2764531411

1221

1047o

6651o

16o94o2o52377oo34o

112o

237

137

591663

185

11152627

11301013134

'288

r225Ii:I

25 10 140 158

2

o3

4

133

oo

10

oo

251

Corrections for duplication-Deduct:Five companies which are subsidiaries In twosystemsTwo companies which are subsidiaries In threesystems

--------------- ----Total companies In 29 active systems

1 In addition there were 6 other companies which had registered as holdlng companies, but no Ionger'haveany public utility suhsidiaries, and their problems under section 11 of the Act are approaching 1Ina1 disposi-tion These 6 companies were The Mission OJ! Company, New England Public Service Company. NorthPenn Gas Company. Northern New England Company, Pennsylvania Gas & Eleetrie Corporation andThe United Corporation.

, These companies function solely as holding companies.'Utility or nonutility operating companies which are also registered holdlng companies derivlng other

income from Investments In public utility subsidiaries,

_ _

_ _ _

_ _

_ _

•

• _

_

~ _

_

138 SECURITIES AI\TD EXCHANGE CO:MMISSION

TABLE lO.-Reorganization proceedings in which the Commission participatedduring the fiscal year 1954

Petltion- Securitesand Ex-change

Debtor District court CommissionFiled Approved notice of

appearancefiled

American Bantam Car Co _______________ W. D. Pa _______ Apr. 19,1950 Apr. 19,1950 May 29,1950American Fnel & Power Oo.,____________ E. D. Ky _______ Dec. 6,1935 Dec. 20,1935 May 1,1940

Buckeye Fuel Co_. _________ ._. ______ _____ do ___________ Nov. 28, 1939 Nov. 28,1939 Do.Buckeye Gas Service Co. ____________ _____ do ___________ _____ do ________ _____ do ________ Do.Carbreath Gas Co _________________________ do ________________ do _____________ do ________ Do.Inland Gas DIStributing Co __________ _____ do ________________ do _____ . __ _____ do ________ Do.

American Sillca-Sand Co., The ___________ N. D IlL ______ Feb. 16, 1951 Mar. 5,1951 May 10,1951Blackhawk Brewing CO__________________ S. D. Iowa ______ Jan. 4,1952 Jan. 7,1952 Mar. 7,1952Brand's Restaurant Control Corp ________ S. D. N. Y ______ Aug. 2,1939 Aug. 10, 1939 Aug. 30,1939Calumet & South Chicago Railway Co __ N. D. IlL ______ June 29,1944 Sept. 18, 1944 Oct. 20,1944Central States Electric Corp _____________ E. D. Va ________ Feh. 26,1942 Feb. 27, 1942 Mar. 11,1942Chicago City RaJlway Co ________________ N. D. IlL _______ Nov. 27,1939 Sept. 18, 1944 Oct. 20, 1944Chicago Railways Co ___ ._ do ___________ Oct. 15, 1938 _____ do ________ Do.Chicago & West Towns Railways, Inc ___ _____ do ___________ June 30,1947 July 1,1947 July 24, 1947Childs Co S. D. N. Y. _____ Aug. 26, 1943 Aug. 27, 1943 Aug. 26,1943Oonsolldated Caribou Silver Mines, Inc __ D. Colo _________ Nov. 14,1952 Nov. 14,1952 Jan. 21,1953Dallas Parcel Post Station, Inc ___________ N. D. IlL ______ Sept. 22, 1950 Sept. 22,1950 Oct. 26,1950Federal Faetllties Realty 'I'rust, _________ _____ do ___________ Dec. 26, 1934 Apr. 25,1935 Oct. 29,1940Ferry Station Post Office, Inc _____ do ___________ June 18,1953 Dec. 2,1953 Jan. 29,1954Franklin County Coal Corp _______ . _____ E. D. IlL ______ Oct. 3,1952 Oct. 3,1952 Oct. 3,1952General Publre Utilitres Corp ____________ S. D. N. Y ______ Jan. 10,1940 Jan. 10,1940 Jan 15,1940

Associated Gas & Electric Corp. _____ _____ do. _______________ do ________ _____ do ________ Do.AdoU Gobel, Inc _________________________ D. N. J.________ July 23, 1953 Sept. 8,1953 Dec. 28,1953Hankey Baking Co __________ . ___________ W. D. Pa _______ Sept. 16,1952 Sept. 16, 1952 Nov. 7,1952Hotel Martin Co. ofUtlca . N. D. N. Y.____ June 6,1935 June 19,1935 June 24,1939Industrial Office Building Corp __________ D. N. J.________ Oct. 3,1947 Oct. 3,1947 Oct. 10,1947Inland Gas Corp . E. D. Ky _______ Oct. 14, 1935 Nov. 1,1935 Mar. 28, 1939Internattonal Power Securities Corp _____ D. N. J _________ Feb. 24,1941 Feb. 24,1941 Mar. 3,1941International Railway Co W.D.N.Y _____ July 28,1947 July 28, 1947 Aug. 4,1947Keeshin Freight Lines, Inc ___ ___________ . N. D. IlL ______ Jan. 31, 1946 Jan. 31, 1946 Apr. 25,1949

Keeshin Motor Express Co., Inc _____ _____ do ________________ do _____________ do ________ Do.Seaboard Freight Lines, Inc __________ _____ do do do . Do.National Freight Lmes, Inc __________ _____ do do ._ do Do.Kellett AIrcraft Corp _____________________ E. D. Pa ________ Oct. 18,1946 Oct. 18,1946 Dec. 4,1946

Kentucky Fuel Gas Corp ________________ E. D. Ky _______ Oct. 25, 1935 Nov. 1,1935 Mar. 28, 1939Kllrotest ManUfacturing Co ______________ W. D. Pa _______ Mar. 23,1953 Mar. 23, 1953 May 4,1953Las Vegas Thoroughbred Racing Asso- D. Nev _________ Jan. 22,1952 Mar. 1,1952 Feb. 27, 1952

cllltibn.Midland Uluted Co ______________________ D. DeL ___ ._. __ June 9,1934 June 9,1934 June 10,1940Midland Utilities Co _________________ _____ do ______. ____ _____ do _____________ do ___ . ____ Do.

Momence Milk Cooperative Assoctatton , E. D. IlL_. ____ June 18,1949 June 18, 1949 Sept. 12, 1949Muntz TV, Inc __________________________ N. D. Ill Mar. 2,1954 Mar. 3,1954 Mar. 4,1954Tel-A. Vogue ______________________________ do ________________ do ________ _____ do ________ Do.Muntz Industries, Inc _______________ _____ do ________________ do ____________ .do ________ Do.

National Realty Trust. __________________ N. D. IlL ______ Dec. 26, 1934 Apr. 25, 1935 Oct. 29,1940Nol'W!llk Tire & Rubber Co., The ________ D Conn.. _______ May 20,1949 MaY 20,1949 June 8,1949Pittsburgh Ratlways Co _________________ W.D.Pa _______ May 10,1938 Ma,- 10, 1938 Jan. 4,1009

Pittsburgh Motor Coach Co _________ _____ do ________________ do _____________ do ________ Do.Pittsburgh Terminal Coal Corp __________ _____ do ___________ Dec. 4,1939 Jan. 2,1940 Jan. 6,1940Powers Manufacturing Co _______________ E. D. Tex _______ Feb. 11,1954 Feb. 11,1954 June 11,1954Quaker City Cold Storage Co ____________ E. D. Pa ________ Dec. 17,1941 Feb. 13,1942 Jan. 28,1942Sierra Nevada Otl Co D.Nev __________ June 22,1951 June 22,1951 July 25,1951Silesian American Corp __________________ S. D. N. Y ______ July 29,1941 July 29,1941 Aug. 1,1941Solar ManUfacturmg cor~-------------- D. N. J.________ Dec. 14, 1948 Dec. 14, 1948 Dec. 27,1948South Bay Oonsolidated ater Co., Inc, S D. N. Y ______ Apr. 26,1949 Apr. 26, 1949 May 23.1949Tela-Tone Radio Corp ___________________ D.N.J _________ Feb. 7,1952 Apr. 21,1952 Apr. 28,1952

Tele-Tone National Corp ____________ _____ do ___________ July 21,1952 July 21,1952 Oct. 13,1952Tela-Tone New York Corp _____ do ________________ do _____________ do ________ Do.RICOTelevision Corp _____ do ___________ June 3,1952 June 3,1952 July 7,1952

Texas Gas Uttlities Co ___________________ W. D. Tex ______ Sept. 4,1951 Sept. 21, 1951 Sept. 11,1951Third Avenue Transit Corp _____________ S. D. N. Y. _____ Oct. 25, 1948 Oct. 25, 1948 Jan. 3,1949

Surface Transportation Corp _________ _____ do. __________ June 21,1949 June 21,1949 July 7,1949Westchester Street 'I'ransportatron _____ do. do .. do Do.

Co., Inc.Westchester Electric Railroad Co ____ _____ do ________________ do _______ . _____ do ________ Do.Warontas Press, Inc __________________ _____ do. __________ Sept. 8,1949 Sept. 8,1949 Oct. 24,1949Yonkers Railroad Co _________________ _____ do ___________ JUDe 21,1949 June 21,1949 July 7,1949

Trinity Burldmgs Corp of New York ____ S.D.N. Y ______ Jan. 18,1945 Jan. 18,1945 Feb. 19,1945Union League Club of Chicago, __________ N. D. Ill ________ Feb. 14,1950 Feb. 14,1950 Apr. 10,1950U. S. Realty & Improvement Co _________ S.D N. Y ______ Feb. 1,1944 Feb. 1,1944 Feb. 7,1944Warner Sugar Corp .. ____________________ _. ___ do June 7,1940 July 9,1940 July 9,1940

___________________•

_______•________________________

______•_____

_________• ____

__________________•_____

____• ___________

_______________•____

______•____ ______•__________

________________ ______•_ _____ ___ ____ _____________•__ ______ _____ ________

___• ____

_______________ _______• ___ __•_____

_______• ___

TWENTIETH ANNUAL REPO~T 139

TABLE ll.-Summary of cases instituted in the courts by the Commisston. under theSecurities Act of 1933, the Securities Exchange Act of 1934, the Public Uti12tyHoldtnq Company Act of 1935, the Investment Company Act of 1940, and theInvestment Advisers Act of 1940

Total I Total Cases I Cases Cases ill- Total Casescases In. cases pending pending stituted cases closedstrtuted closed pendingTypes of cases up to endlup to end at end at end during during during

of 1954 I of 1953 1954 1954of 1954 of 1954 fiscal fiscal fiscal 1954 fiscalfiscal fiscal fiscalyear year year year year year year

-/- ---- ---- ----Actions to enjoin violanons ofthe above acts ________________ 653 637 16 13 Ii 30 14Acnons to enforce subpenas

under the Secuntres Act andthe Securities Exchange Act., 57 57 0 0 2 2 Z

Actions to carry out voluntaryplans to comply With section11 (b) of the Holding Com-pany Act _____________________ 110 102 8 10 2 12 4

MIScellaneous actions __________ 19 17 2 2 2 4 2-1- -/- -------- ----TotaL ___________________ 839 813 26 25 23 48 22

TABLE 12.-Summary of cases institutea aqainet the Commission, cases in which theCommission ptirticipated as intervenor or amicus curiae, and reorganization caseson appeal under ch. X in which the Commission parucipatea

Total Total Cases Cases Cases in- Total Casescases m- cases pending pendmg stituted cases closedstrtuted closed pendingTypes of cases up to end up to end at end at end during dunng during

of 1954 of 1954 of 1954 of 1953 1954 1954 HIM

. fiscal fiscal fiseal fiscal fiscal fiscal fiscalycar year year year year year -yeer

---- --- ---- ---- ---- ----Actions to enjoin enforcement

of Securrties Act, SecurrtiesExchange Act and PublicUtility Holding CompanyAct With the exception ofsubpenas ISSued by the Com-mISSIon ______________________ 64 64 0 0 0 0 0

Acnons to enjoin enforcementof or compliance With sub-penas ISsued by the Commts-slon , _________________________ 8 8 0 0 0 0 0

Petrtions for review of Com-mISSIOn's orders by courts ofappeals under the variousacts admtmstered by theCommlssron _________________ 175 174 1 4 4 8 7

Miscellaneous acnons againstthe CommISSion or officers ofthe Commission and cases inwhreh the CommISSIOn par-ticipated as intervenor oramICUS curiae 169 163 6 \) 4 13 7

Appeal cases under ch, X IIIwhich the CommISSIOn par-tieipated _____________________ 135 131 4 7 3 10 6-------- ---- -------- ---- ----TotaL _____________ : _____ 551 540 Jl 20 Jl 31

______~_________

~

140 SECURITIES .AND EXCHANGE CO~SSION

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TWENTIETH A1\'1'<'"UALREPORT 153

TABLE 22.-Reorganization cases under ch, X of the Bonkru ptri, Act pendino duringthe fiscai year ended June 30, 1954, in uhicb the Commission partrcrpated whenappeals were taken from district court orders

Name of case and United StatesCourt of Appeals

Central States Electric Corp., debt-or; Sidney S. Henis, et al, v.Thomas C. Egan, et al. Joseph L.O'Brien, petitioner (4th circuit),

Industrial Office Building Corp,debtor; Howard Grad and BernardJ. Grad, appellants (3d Circuit).

Inland Gas Oorp., et al , debtors;Paul E. Kern, appellant (6th cir-cuit).

Inland Gas Corp., et al., debtors;Vanston Committee, Green Com-mittee, Paul E. Kern and ClintonM. Harbison, Trustee, appellants(6th circuit).

Pittsburgh Railways Company,debtor; Seeuntles and ExchangeCommission, appellant (3d cir-cuit).

Silesian-AmerIcan Corp., debtor;Francis X. Conway, Trustee, et al.,appellants (2d circuit).

Solar ManufacturlngTCorp., debtor;The Manne Midland Trust oo.,appellant (3d circuit).

Solar ManufacturingTCorp.,'debtor;Samuel Manon, Milton M. Ungerand Edward Endelman, and Mor-ton Stavis, appellants (3d Circuit).

Solar Manufacturing Oorp., debtor;Samuel Marion, Milton M. trrigerand Edward Endelman, and Mor-ton Stavis, appellants (3d circuit).

Transvislon, Inc:z. debtor; Securitiesand Exchange Commlssron, appel-lant (2d circuit),

Nature and status of case

Appeals from order of Apr. 23, 1953. authrmzina allowances tocertain persons and firms and denying a fee to O''Brten. State-ment of Commission, May 22 aud May 28, 1953, In response tomotions for leave to appeal. Supplementary statements ofCommission, June 30 and July 9, 1953, In response to briefs fliedby Kelly Committee. Opinion, July 16, 1953, denying motionsfor leave to appeal Petition by Hems for writ of eertiorari Oct10,1953. Certiorari denied Nov 30,1953 Closed.

Appeal from order of Feb 11, 1953, disallowmg the claims of theappellants. Brief by Comrmssion Sept. 15, 1953, In support ofdistnct court order. Judgment of CA-3, Oct 29, 1953, affirrrungorder of district court. Closed.

Appeal from order of Oct. 6, 1952, dismissing appellant's petitionfor Instructions to Trustee to file a claim against Inland GasCorp. and denying motion to appoint an independent trusteeor in the alternative to appoint independent counsel for Trusteeof Kentucky Fuel Gas Corp. Cotnnussron flied brief June 26,1953, m support of distnet court order. Order affirmed Dec. 4,1953. Closed.

Appeals from order of Feb 12, 1953, approving the amended planof'reorgaruzation. Comrrnssiou filed brief Oct 5, 1953, m sup-port of plan Declsion of CA-6, Mar, 18, 19M, affirming the planof reorganization. Order Apr. 7, 1954, denying petitron for re-hearing, Pending.

Appeal from order of Jan. 28, 1954, granting counsel for the Estateof W. D. George, Deceased, access to records of the Comrmssionfor the purpose of mspection. Appeal dismissed May 5, 1954, onstlpulatron of parties. Closed.

Appeals from order of June 17, 1952, disrmssmg petition of Tmsteefor an aeeounting and other relief against the SWISSBanks. Com.mission flied bnefs Jan. 23 and Mar 3, 1953, supporting appealsand contending court had [unsdiction over claims against thebanks. Opinion Apr. 13, 1953, affirming the order of the distnctcourt. Petition for rehearing denied June 8, 1953. Petitionsfor writ of certiorari supported by Commission filed In Nov.1953. Time to answer petitions extended by stipulation. Pend-ing.

Appeal from order of l\lar. 3, 1952, denying 2 motions of appellantto dismiss oounter-elaims asserted bv Trustee of Debtor to claimsflied by appellant as creditor and to aoeountmg by appellantas fonner Indenture trustee for debtor's debenture holders. Com-IIUSSionflied brier Sept. 17, 1952, In support of district court order.Order atllrmed Dec. 3, 1952. Petition for writ of oertiorarl filedMar. 2, 1953, by The Marine Midland Trust Co. of New York.Commission's brief In OPPOSItIOnflied Apr. 10, 1953. Certioraridemed Apr. Zl, 1953. Closed.

Appeals from order of Mar. 17, 1953, flxmg final allowances. Com-misston's brief filed May 28, 1953, III support of appeals. Orderof CA-3 vacating order and remanding for further proceedingspursuant to opmlon, Closed.

Appeals.from order of Dec. 11, 1953, fixing allowances for servicesrendered. Bnefs flied m April 19M. Comnnssion's bnef tookposition that overall fees were too high while fees awarded certaincreditors' representstives were too low. Pending.

Appeal from order Jan. 12, 1954, denying the Oommissron's motionto dismiss the Chapter XI proceedmgs for 'I'ransvision, Inc.,on ground that Chapter XI was inappropriate since debtorhas a substantial number of public investors. Brief for Com-nnssion Apr. 26. 1954. in support of appeal, and appellees bnetflied June 30, 19M. Pending.


TABLE 23.-A 21-year eummaru of-criminal caiuwdeuel1ip-etl, by tne Commission-r-1934- through 1954- by fi6cal year

[See table 25 for classification of defendants as broker-dealers, ete.]

Number INumberNumberof these

Number of persons ~:1~ defend.of cases Number ants as to Number

as to which Number Number whom of thesereferred whom . di t of de- of thesc 01 these proceed. defend.Fiscal year to De- proseeu- ~e;~ fendants defend- defend- ings were ants as topartment

ti:o~~ were ob- Indictedof Justice mauch ants con- ants ac- dismissed whommeach mended tamed by cases I victed quitted on motion cases are

year in each ¥~~d of pending sUmted

year attorneys Statesattorneys

----------------------------1934_. ._. 7 36 3 32 17 0 15 01935 29 177 14 149 84 5 60 01936 43 379 34 368 164 46 158 01937 ., ._ _. _. 42 128 30 144 78 32 34 01938_ ._ 40 113 33 134 75 13 45 11939._ ._._. 52 245 47 292 199 33 60 01940 ._. 59 174 51 200 96 38 66 01941._ ._. 64 150 47 145 94 15 36 01942. ._._ 50 144 46 194 108 23 48 151943 31 91 28 108 62 10 33 31944. ._ Z7 69 24 79 47 6 19 71945. 19 47 18 61 36 10 14 11946 16 44 14 40 13 8 4 151947 ,,, , 20 50 13 34 9 5 14 61948. ._. 16 32 15 29 20 3 6 01949 ._. 27 44 25 57 17 13 15 121950 18 28 15 Z7 20 1 5 11951. ._ ._. 29 42 24 48 33 5 5 /}1952_ 14 26 13 24 15 4 1 41953_ 18 32 15 33 8 4 2 191964 _. '19 44 16 47 1 2 0 44

--- ---- --- --------------------TotaL ._. 630 2,095 525 2, 245 1,196 271> '640 133

1 The number of defendants in a case IS sometimes increased by the Department of Justice over the numberagainst whom prosecution was recommended by the Commlsslon. For.the.purpose of this table, an indiovidual named as a defendant in 2 or more mdictments in the same case is colilited-as a single defendant

See table lor breakdown of pending cases. '.S Three of these references as to 5 proposed defendants were still bemg processed by the Department of

Justice as of the close of the fiscal year.'481 of these cases have been completed as to 1 or more defendants. Convictions have been obtained in

418 or 87 percent of such cases. Only 63 or 13 percent of such cases have resulted ill acquittals or dISmissa1llas to all defendants.

I Includes 48 defendants who died after indletrnent,

___ ______• __ •• ___• ________• __ •••• __• ______•___ __ ___ •• __

•• ___ •• _______ • _____ ___•

__• _•• _••• __ __ ___•• ___• ___

_• ___ •••• ___ __• _____________• _• _____ •••• ___ ____• ______• ____

____ • ____••• _____ ____ " ___ __ __

___•___ ______ ___• ___• ____ __ __• _______• ___• __ ___ •• ______ •• __•• ______•• __ •• __•• ___• __• ___

__•• _____• __•• _

• _____

•

'

•

TWENTIETH ANNUAL REPORT 155TABLE 24.-Sllmmary of criminal cases develapea by the Commiesion which were

still pending on June 90, 1954

Number I Number of such defendants as to

Number of of such whom cases are still pending anddefendants reasons therefor

Cases defendants as to whomIn suehcases cases have Not Yetbeen Awatting Awaiting

completed appre- trial appealhended

Pending, referred to Departmentof Justice in the fiscal year.1938___________________________

1 2 1 1 0 01939___________________________ 0 0 0 0 0 01940___________________________ 0 0 0 0 0 01941- __________________________ 0 0 0 0 0 01942___________________________ 2 18 3 14 1 0

t~~~~::::::::::::::::::~::::: 1 5 2 2 1 02 8 1 6 1 01945___________________________ 1 1 0 1 0 01946___________________________ 4 16 1 Hi 0 01947___________________________ 3 9 3 6 0 01948___________________________ 0 0 0 0 0 01949___________________________ 4 12 0 3 9 01950___________________________ 1 3 2 0 0 11951- __________________________ 3 6 1 0 5 01952___________________________ 3 7 3 0 3 11953___________________________ 8 21 2 0 14 /;1954___________________________

14 44 0 8 35 1Total. ______________________ '47 '152 19 56 69 8

SuMMARYTotal cases pending 1_ _ _ _ 50Total defendants 1 157Total defendants-as to whom. C3SCl\ are pending 1____________________________________________________ 138

I Except for 1954, indictments have been returned In all pending cases. As of the close of the fiscal year,indictments had not yet been returned as to 5 proposed dcfendants III 3 cases referred to the Department ofJ,:stIce in 1954. Thes~ are reflect~.R,o}}ly in the reeapttulatton of totals at the bottom of-the table •.

TABLE 25.-A 21-year summary classifying all defendants in criminal cases developedby the Commission-1934 to June 30, 1954

Number asto whom

cases were Number asNumber Number Number dtsrnissed to whommdieted convicted aequitted on motion cases are

of United pendingStates

atlafneys

Registered broker-dealers I (lneluding prln-etpsls of such firms) _____________________ 339 209 24 96 10

Employees of such registered broker-deal-123ers _______________________________________ 59 16 38 10

Persons in general securities business butnot as regtstered broker-dealers (Includesprtneipals and employees) _______________ 715 356 57 257 45All others 1,068 572 179 249 68

TotaL2,245 1,196 276 640

1133

, Includes persons registered at or prlor to time of indictmentThe persons referred to in this column, while not engaged in a general business III sccurities, were almost

wIthout exception prosecuted for violations of law Involving seeunnes transactions.

• • • _______ ___ ____ _______

• ________________________________

______________________________•

• •

156 SECURITIES AND EXCHANGE COMl\PSSION

TABLE 26.-A 21-year summary of all injunction cases mstituted,by the Commission,1931 to June 30, 1954, by calendar ypar

Number of cases instituted Number 01 cases In whichby the Commlssron and injunctions were grantedthe number 01 defend- and the number of de-

Calendar year ants involved. fendants enjomed.!

Cases Defendants Cases Defendants

1934 7 24 2 41935____________________________________________ 36 242 17 561936____________________________________________ 42 116 ~6 1081937____________________________________________ 96 240 91 2111938____________________________________________ 70 152 -73 1531939 57 154 61 1651940____________________________________________ 40 100 42 991941____________________________________________ 40 112 36 901942____________________________________________ 21 73 20 541943____________________________________________ 19 81 18 721944 . 18 80 14 351945 . . . _. 21 74 21 571946 . 21 45 15 341947 .. 20 40 20 471948. _. . . . 19 44 15 261949 ... 25 59 24 551950 . 27 73 26 711951. ._ . 22 67 17 431952 . 27 103 18 501953_. . . 20 41 23 681954 (to June 30) 5 12 3 5Total .. 653 1,932 , 592 1,503

SUMMARY

Cases Defendants

Actions Institu ted, .. . .. . _. 653 1,932Injunctions obtamed _____________________________________________________ 585 1,503Actions pending ____ ______________ ______________ 12 ,42Other dispositions I .. -- - - 56 387

TotaL . . 653 1,932

I These columns show dlsposttron of cases by year of disposition and do not necessarily reflect the dlspo-stnon of the cases shown as having been mstituted ill the same years.

, Includes 7 cases whleh were counted twice ill this column because mjunetlons against different defend-ants ill the same cases were granted In different years.

a Includes 3 defendants ill 1 case ill wbich injunctions have been obtained as to 3 co-defendants.I Includes (a) actions dismissed (as to 322 defendants); (b) actions diseonttnued, abated, vacated, aban-

doned, or settled (as to 51 defendants), (c) actions in which J\ldgment was denied (as to 11 defendants);(d) actions ill which prosecution was-stayed on stipulation to discontinue misconduct charged (as to 3defendants).

o

_______•__• _________________________________

_______________•______________________• _____

____________________•• ____• ______ __________ __• ________ ____ ___________ _____________ _______• ___________________________________ _________• ____________________________ ____

__ ___•_____ ___________________________ __•• ____•• ______•• ___________ ____________ ____•__• ______• _____ _______________________ ________ •________________ _______________

__•• ____• ___________•• __________ ___________ _____________• _____ ___________ __________

_____•________• _________________

__ _____•__• ___• _______________•____

_______________ _ " ___ _____ ••_______ __ _________ • •__•

___________________• • •____•

-- -- - - - ------ -------_ -- - - -- - -- - - -- - - - --- - -- - - --- --_____________• _______• _________________• __________ ____ _________

-