United States District Court for Nebraska of fraud in connection with the sale of the securities of First Mortgage Acceptance Corporation, Omaha, Nebraska. When the corporation went into bankruptcy in February 1939, it had outstanding $1,350,000 face amount of securities. Holmes was president of the company. George M. Hauser, vice president of the company, was sentenced to 6 years imprisonment and fined $1,000, and J. W. McCormack, a Chicago real-estate broker, the third defendant, was given a prison sentence of 15 months.

Evidence was introduced at the trial to show that Holmes and Hauser, who controlled First Mortgage Acceptance Corporation and its affiliates, Conservative Mortgage Acceptance Corporation and Nebraska Agricultural Corporation, purchased numerous real-estate mortgages from the defendant McCormack and others at large discounts from the face amount of these mortgages so that First Mortgage Acceptance Corporation and Conservative Mortgage Acceptance Corporation could set up fictitious profits. The pretended profits were used, it was charged, to make interest and maturity payments on the securities sold to the public, a device which was effectively employed to induce additional investments and to conceal the insol vency of the company.

In United States v. Norman W. Minuse et al., the indictment charged a conspiracy to violate Sections 9 (a) (1) and (2) of the Securities Exchange Act of 1934, in that Minuse had obtained an option to purchase 79,000 shares of Tastyeast, Inc., Class A common stock and had thereafter entered into a conspiracy with the other defendants, Joseph E. H. Pelletier and Russell Van Wycke Stuart, to raise the price of the stock on the New York Curb Exchange by means of "wash" sales, "matched" orders, and a series of manipulative transactions for the purpose of distributing the optioned stock at the higher prices. The "matched" orders were alleged to involve the entering of orders on one side of the market with the knowledge that orders of substantially the same size would be entered on the other side at substantially the same time and price, and with a manipulative purpose. Other market-rigging devices charged in the indictment included the payment of secret bonuses to various customers men for their services in inducing customers and clients to purchase the stock and the promise of rebates or discounts on the purchase price.

Minuse and Pelletier were found guilty and, on January 29, 1940, were sentenced in the United States District Court for the Southern District of New York-Minuse to 2 years imprisonment and a fine of $5,000 and Pelletier to 18 months imprisonment and a fine of $1,000. Stuart, who had previously pleaded guilty, was sentenced to 2 years imprisonment, which sentence was suspended. How. ever, on August 7, 1940, the United States Circuit Court of Appeals

for the Second Circuit reversed the judgment of the lower court for errors at the trial relating to the introduction of evidence and other rulings of the court and ordered a new trial.

United States v. George J. Morrison et al.-Morrison and Emile Jacques were named as defendants in an indictment charging violation of Sections 9 (a) (1) and (2) of the Securities Exchange Act of 1934. Morrison had obtained an option to purchase 5,000 shares of the common stock of B/G Sandwich Shops, Inc., at prices ranging from 1 to 1%. Thereafter, according to the indictment, Morrison and Jacques "rigged" the market for the stock on the New York Produce Exchange by means of "wash" sales and a series of manipulative transactions designed to create the appearance of active trading and to raise the price from $1.25 to $4.00 per share, for the purpose of distributing the optioned stock at the higher prices. These "wash" sales were alleged to involve transactions in the stock, without any change in beneficial ownership, between the two defendants and through accounts opened by them with different brokerage firms, and which resulted in fictitious quotations on the ticker tape. During the trial and after the Government's case, both defendants pleaded guilty and were sentenced in the United States District Court for the Southern District of New York to imprisonment for 1 year and 1 day each. Sentence was suspended as to Jacques, who was put on probation for 2 years.

United States v. Perry et al.-The Commission's investigation into the fraudulent sale of securities issued by the Seminole Provident Trust resulted in the conviction of six defendants in the United States District Court at Minneapolis. The trust held options on interests in six oil and gas leases in the Seminole field in Oklahoma. The fraud charged in two indictments consisted of misrepresentations with respect to the amount of the proceeds from the sale of securities that would be applied to the purchase of oil and gas leases, the payment of distributions to investors out of the proceeds from the sale of units or securities under the pretense that these funds were derived from the sale of oil produced on the trust's properties, and that the properties would produce in excess of 4,000,000 barrels of oil, when in fact they could not be expected to produce more than 500,000 barrels. One of the indictments also charged that the defendants, other than Ahlborg, had violated the prospectus requirements of the Securities Act of 1933 and had represented that the Commission had passed upon the merits of the securities issued by the trust, in violation of Section 23 of the Act.

On November 18, 1939, E. R. Perry and S. L. Dedman, "trustees" of Seminole Provident Trust, were each sentenced to 15 months imprisonment; John Ahlborg, operating under the name of Foreman & Company and the principal underwriter, received a prison sentence of 4

months and was fined $1,500; Otis Backenstoce and Delbert R. Card, who had conducted selling campaigns in Minnesota, were placed on probation for 2 years; R. B. Allport, who, holding himself out as a petroleum valuation engineer, had participated in the scheme by writing letters concerning the accuracy of the valuation reports used in the sale of the units, was placed on probation for 1 year; and Kent K. Kimball was acquitted.

According to the registration statement filed with the Commission, the defendants had proposed to sell securities in the aggregate amount of $800,000, divided into 8,000 units. In September 1937, the trustees consented to the entry of a stop order. Thereafter, a permanent injunction was issued against the defendants as the result of a suit brought by the Commission, and the broker-dealer registration of Foreman & Company was revoked.

United States v. Platt et al.-On September 29, 1939, Moe Platt and John J. McKee were convicted in the United States District Court for the Southern District of New York on a charge of conspiracy to defraud the United States in connection with its governmental function of administering the Securities Act of 1933 and the Securities Exchange Act of 1934. The indictment alleged that McKee, while employed by the Commission as an accountant-investigator, had accepted bribes from Platt to assist Platt in obstructing an investigation by the Commission into his activities in connection with the sale of the stock of Backbone Mining Company. Each of the defendants was sentenced to two years imprisonment and fined $2,500.

Subsequently, Platt, together with Bernard Frankel, Bernard McNey, and Charles Lutz, pleaded guilty in the United States District Court for the Western District of Pennsylvania to indictments charging violation of the fraud provisions of the Securities Act of 1933 in the sale of the stock of Backbone Mining Company. It was alleged that the defendants in selling such stock had falsely represented that application had been made to list the stock on an exchange; that the stock would be placed on a regular dividend basis within a few months; that the stock, which was under option to the defendants at 75 cents a share, would advance to at least $20 a share within a few months; and that the distribution of the stock by the defendants had been approved by the Securities and Exchange Commission. The indictments also charged it to be a part of the scheme for the defendants, by means of various artificial devices, to raise the price of the stock from $1 to $6 a share. Platt was sentenced to imprisonment for two years and six months, to run concurrently with the earlier sentence, while each of the other defendants was placed on probation for two years and fined $200.

United States v. Buckman et al.; United States v. George et al.; United States v. Kehaya et al.-Barton E. Buckman and Louis C.

George, both of Madison, Wisconsin, were convicted on June 5, 1940, in the United States District Court for the Western District of Wisconsin under an indictment charging them with fraudulent practices in connection with the operation of B. E. Buckman & Company, one of the largest securities firms in the Middle West. Evidence was introduced to show that Buckman and George, officers of B. E. Buckman & Company, had organized, and dominated the affairs of, Continental Public Service Company, an Arkansas corporation; Gulf Coast Water Company, a Texas corporation; Dairyland, Inc., a Texas corporation; and Continental Service Company, a Delaware corporation, the stocks of which were sold by B. E. Buckman & Company at a time when the issuers of the securities were insolvent. Defendant Edgar C. Holt pleaded nolo contendere and defendants Edwin J. Crofoot, Richard E. George, Fielding T. Spain, Clarence C. Winebrenner, and Wilbur V. Malkson were acquitted. The indictment was nolle prossed as to defendants James C. Casey, Lewis P. Bracy, and Frank R. Shotola.

Part of the case presented was based upon falsification of the financial condition and earnings of B. E. Buckman & Company and the corporations, the securities of which were sold by the defendants. Evidence was introduced to show that it was a part of the scheme for B. E. Buckman & Company to borrow bonds and other securities from its customers in order that they might be converted into cash to be used by B. E. Buckman & Company, which was insolvent at the time. Buckman was sentenced to five years imprisonment and a fine of $2,000; George, to six years imprisonment and a fine of $2,000; and Holt, to four years probation and a fine of $500.

Pending against Buckman and George is an indictment returned in the United States District Court for the Northern District of Illinois charging them with perjury committed before an officer of the Securities and Exchange Commission. In this case, Perry Sletteland, an attorney of Madison, Wisconsin, is a codefendant. Another indictment, charging Louis C. George, together with two other defendants, with having effected a stock manipulation on the New York Curb Exchange, is pending in New York City. Moses A. Isaacs, of New York, and Josiah Marshall Kirby, of Cleveland, are the co-defendants, The indictment charges that the defendants created an artificial market in the stock of Automatic Products, Inc., by means of various manipulative devices, including the guarantee of purchasers against loss and the payment of commissions and bonuses for the purpose of drumming up buying power and thereby facilitating the distribution of 95,000 shares of the stock.

Louis C. George is also named in an indictment returned in New York which includes as defendants Ery Kehaya, Harry J. Rothman, and Harry D. Meyer. This indictment charges a manipulation of

the New York Stock Exchange market for the stock of Standard Commercial Tobacco Company by means of wash sales, matched orders, and by touting customers men. It is charged that George's participation in this scheme occurred while he was vice president of B. E. Buckman & Company. At the time of the indictment, the United States Attorney estimated that the public had lost upwards of $4,000,000.

The "Front Money" Racket.

For some time the Commission has been concerned over the prevalence of the "front money" or "advance fee" racket, in which unscrupulous operators approach a wide variety of small business concerns with the suggestion that needed capital be obtained through the sale of securities. Frequently, the "front money" operator takes an exclusive option on such securities for the purpose of inducing the belief that the operator's sole remuneration would consist of commissions from the sale of the securities. Thereafter, the victim is induced to make payments for various alleged services, such as incorporation, the employment of a registrar and transfer agent, dealers' trips to inspect the business and to interest other dealers throughout the country, and the preparation and filing of a prospectus or registration statement with this Commission. These fees are alleged to represent the actual cost of such services, but in fact include large personal undisclosed profits to the operators of the scheme.

During 1938 and 1939, the Commission instituted proceedings resulting in the revocation of the broker-dealer registrations of three firms which were engaged in the operation of "front money" schemes. The Commission then submitted to the Post Office Department and the Department of Justice the evidence it had obtained in these and other cases in which the operators were not registered, but concerning whose activities the Commission had received complaints. The ensuing joint investigation disclosed that, for the past six years, hundreds of small concerns engaged in many types of business had been induced to pay to the "front money" operators fees estimated to aggregate hundreds of thousands of dollars. The investigation failed to reveal a single instance in which a share of stock had been sold for the victims.

On May 21, 1940, the joint investigation culminated in an indictment by a Federal grand jury in Cleveland, charging 12 defendants with violations of the mail fraud statute and with conspiracy to violate the mail fraud statute in the operation of an international "front money" scheme. Included among the defendants were the dominant figures in two of the three firms whose broker-dealer registrations had already been revoked by the Commission. The controlling person in the third firm has already been convicted of mail fraud and sentenced to the penitentiary. On June 20, 1940, an additional indictment was