would be furnished to stockholders at least once each fiscal year; that as of a specified date the corporation had an earned surplus of $13,278.30; that moneys received from the sale of corporation stock would be used primarily to finance and refinance loans on automobiles for the school teachers of Texas; and that in the event investors who purchased stock on the instalment plan failed to complete their purchase contracts, such investors would receive shares of stock of the corporation to the extent of the amount paid in. The indictment also alleges that as a further part of the scheme to induce school teachers to purchase stock of the corporation the defendants caused printed prospectuses to be distributed to school teachers, and that such prospectuses contained names and photographs of well-known educators throughout the State of Texas and representations that some of these individuals were directors of the corporation and that others were "Regional Directors of Areas."

In the Eastern District of New York an indictment was returned charging William Spiller and others with violating the antifraud provisions of the Securities Act and the Mail Fraud Statute in the sale of the 7 percent cumulative preferred stock of Budget Funding Corporation. The indictment charges that in the offer and sale of those securities the defendants falsely represented that the moneys invested would be used to place second mortgages on residential properties for home improvements on such properties and to place chattel mortgages on chattels owned by established businesses, that a dividend would be declared on the common stock of Budget Funding Corporation, that the common stock was in short supply and would soon be traded on the open market, and that the preferred shares would be called back at a higher price than the purchasers paid for them. In fact, the indictment charges, the defendant concealed from purchasers of the securities that the money received was being directed to the use of the defendant Spiller and corporations controlled by him.

As in the past, cases involving alleged fraudulent oil and gas promotions and mining ventures were numerous. In U.S. v. Dudley Pritchett South (D.N.J.) an indictment was returned charging violations and conspiracy to violate the registration and antifraud provisions of the Securities Act in connection with the sale of the common stock of Texas-Western Oil Company, Inc. The indictment charges that in the sale of that stock the defendants misrepresented that Texas-Western had acquired oil producing properties in Kansas and Oklahoma and had a working interest in other specified oil properties, that Texas-Western had a partnership interest in leases located in Nevada and in a 10,000-acre block in Wyoming, that Texas-Western owned a 55 percent interest in a mercury and antimony mine located in Mexico and was building an ultrasonic ore reduction mill on the site of that mine, that the company had an income from its oil produc

ing properties in Kansas and Oklahoma, that dividends would be paid on the Company's stock, that the value of the stock would increase sharply in a short period of time and that the stock would be registered and listed on the New York and American stock exchanges.

In U.S. v. Thomas E. Robertson, et al (S.D.N.Y.) the indictment alleges that the defendants, in violation of the antifraud provisions of the Securities Act, employed a device, scheme and artifice to defraud investors in the sale of the common stock of American-Canadian Oil and Drilling Corporation; that Thomas E. Robertson, Inc., in exchange for certain oil and gas leases, acquired 500,000 shares of common stock of American-Canadian which it sold to the investing public at various prices without a registration statement being in effect with respect to said shares, and without disclosing that the shares being sold were shares already issued to Thomas E. Robertson, Inc., and that the proceeds from the sales would inure to the use and benefit of Thomas E. Robertson, Inc., and Thomas E. Robertson; and that the defendants made false and fraudulent representations concerning the payment of dividends, the value of the stock, approval by the Securities and Exchange Commission, listing of the stock on a national securities exchange, the value of the properties and their cost of acquisition. Numerous other misrepresentations and omissions also were charged.

Violations of the registration provisions of the Securities Act as well as the Mail Fraud Statute are charged in the pending indictment in U.S. v. Texas-Adams Oil Company (S.D.N.Y.) which also involved an oil promotion venture.

Alleged fraudulent promotions involving mining ventures led to indictments in U.S. v. Clement G. Cafarelli, et al, (D. Utah); U.S. v. Silas M. Newton et al, (D. Colo.); U.S. v. Arthur L. Damon, et al (S.D. Cal.); and U.S. v. William J. Conrad (N.D. Ohio). In the Cafarelli case the indictment charges fraudulent sales of the common stock of Comstock Uranium Tungsten Co., Inc. According to the indictment, a Regulation A notification and offering circular covering the proposed public offering of 440,000 shares of common stock of Comstock were filed with the Commission, and defendants, instead of proceeding with the Regulation A offering, sold personally owned stock to the public using as an inducement false representations to the effect that the stock would appreciate in market value when it was offered for "public sale" and that the persons approached were being given a special prepublic offering price not afforded to the general public. Other false representations also are charged.

In the Newton case a superseding indictment was returned which charges, among other things, that the defendants devised a scheme. to defraud investors by means of misleading and false statements and

pretenses, which induced them to purchase participation certificates in trusts known as the Yellow Cat Royalty Trust and the Tennessee Queen Royalty Trust, and in fractional undivided interests in mining claims held by the Tennessee Queen Mining Company. The indictment also charges that in connection with the sale of these securities the defendants falsely represented that the properties were of great value; that the company was shipping ore, and the investors were absolutely assured of royalty returns on their investments; that the operators and their associates were highly experienced mining operators; that the operators agreed that they would repurchase or refund the purchase price to some of the purchasers upon demand; and that the investment to be made by the prospective purchasers was safeguarded because of bank trusteeship.

In the Damon case the indictment charges that the defendant made fraudulent representations to investors concerning the financial status of Nev-Tah Oil and Mining Company, the potential oil reserves of mining properties owned or leased by the mining company, and the company's earnings and ability to pay dividends. The indictment further charges that Damon acquired control of the company and caused the market price of its stock on the Salt Lake Stock Exchange to rise above 45 cents per share through the use of flamboyant and misleading reports, letters and oral statements; that he caused the company to issue stock into a series of escrows for release at prices ranging from 9 cents to 45 cents per share, and that he offered and sold escrowed stock at prices in excess of the escrow prices and at artificial exchange prices.

In the Conrad case, the defendant was apprehended after the close of the fiscal year, and pleaded guilty to an indictment charging him with the fraudulent sale of unregistered common stock of Condonna Uranium Mines Limited. In connection with the sale of that stock, according to the indictment, the defendant falsely represented to investors that Kennecott Copper Company would pay more than $10 million for the uranium mining properties owned by Condonna; that the profit to the investors would be more than $8,000 for each $100 invested; that a deal to sell the uranium mining properties to Standard Ore and Alloys Corporation was "signed, sealed and delivered" and the profit to the investors would be $60 for each $1 invested; that that Brush Beryllium Company would advance $500,000 to develop some beryllium mining claims allegedly owned by Condonna Uranium Mines Limited and would buy all the beryllium ore produced at $600 a ton.

The Court of Appeals for the Ninth Circuit affirmed the conviction of Helen A. Davenport for conspiracy arising out of a securities fraud involving Edgar Robert Errion and Mount Hood Hardboard and

Plywood Cooperative. The scheme to defraud the investing public included the sale of $1,000 memberships in Mount Hood. Appellant Davenport participated in the fraudulent scheme by allowing her name to be used as a cloak of respectability and her corporation as a conduit by which to siphon off the proceeds from the sale of the memberships. The Court of Appeals rejected appellant's attack on the indictment and held that it sufficiently charged her with a crime. In addition, the Court reviewed the evidence and found it sufficient to sustain the verdict of guilty.

In Tellier v. U.S. and Walters v. U.S. the Supreme Court of the United States denied petitioners' writs of certiorari. Tellier had been sentenced to 42 years imprisonment for his activities in running a boiler-room. Walters had received an 18-month sentence in connection with insurance company promotions. Both these cases are discussed in the 23d and 24th Annual Reports.

DISCIPLINARY PROCEEDINGS AGAINST PERSONS PRACTICING BEFORE THE COMMISSION

Private proceedings were instituted pursuant to rule II(e) of the Commission's rules of practice to determine whether James T. DeWitt should be temporarily or permanently denied the privilege of practicing as an attorney before the Commission. DeWitt was retained by Cushman Foods Co., Inc. to represent it in connection with a proposed public offering under Regulation A under the Securities Act of 1933. He was given authority by his client to execute all papers necessary to qualify such offering under Regulation A for the purpose of obtaining an exemption from registration with respect to the proposed offering. Included in the notification were financial statements which, together with subsequent amendments thereto, were prepared and filed by DeWitt. These financial statements were false, and DeWitt knew that they were false when he filed them. In addition, he advised Cushman to sell the shares covered by the notification, although the time at which such sales would commence under the regulation had not arrived, and pursuant to that advice Cushman sold over 4,000 shares. DeWitt requested of Cushman moneys which he represented were to be distributed among employees of the Commission. Pursuant to this request he received $100, which he thereafter represented to Cushman he had "passed along" to such employees, whereas in fact, no moneys, gifts or inducements of any kind were given to any Commission personnel. At the private hearing there was entered of record DeWitt's "consent to order of disqualification", and thereafter the Commission issued its opinion in which it found that

Four other convicted defendants did not appeal. Errion on his plea of guilty received sentences totaling 12 years. See the 23d and 24th Annual Reports for discussions of

this case.

Securities Act Release No. 4041.

DeWitt had filed false financial statements, which he knew to be false, that he obtained moneys from his client under the false pretense that he proposed to use that money to exert an illegal influence on the Commission staff, and that in so doing he had engaged in unethical and improper conduct. It ordered that DeWitt be permanently denied the privilege of appearing or practicing before the Commission.

Proceedings under rule II (e) with respect to Bollt and Shapiro, accountants, are discussed below at p. 197 in connection with the activities of the Commission in the field of accounting.

COMPLAINTS AND INVESTIGATIONS

Each of the acts administered by the Commission specifically authorizes investigations to determine whether violations of law have occurred. In most instances, the investigations conducted by the Commission are private and nonpublic. However, the Commission may, in its discretion, order a public investigation.

It is the policy of the Commission to conduct its investigations privately for a number of reasons. Such a policy is necessary for effective law enforcement and in the interest of fairness to persons against whom unfounded or unconfirmed charges may be presented. Effective enforcement requires that investigations be private in order that suspected violators may not be warned and thereby frustrate the investigation. This policy is similar to that of most law enforcement agencies. The Commission investigates many situations where no violation is ultimately found to exist. To conduct such investigations publicly would ordinarily result in hardship or embarrassment to many innocent persons and might affect the market for the securities in question, resulting in injury to public investors with no countervailing public benefit. Moreover, members of the public would have a tendency to be reluctant to furnish information concerning violations if they thought their personal affairs would be publicized. Private investigations protect both those who furnish information and subjects of investigation against whom the evidence fails to warrant action. Accordingly, the Commission does not generally divulge the results of any investigation until they are made a matter of public record through proceedings before the Commission or in the courts.

The nine regional offices of the Commission, with the assistance of their branch offices, are chiefly responsible for the conduct of investigations. In addition, the special investigations unit of the Division of Trading and Exchanges of the Commission's home office conducts investigations dealing with matters of particular interest or urgency either independently or assisting the regional offices. Because of "boiler-room" operations in the New York area, much of the work of the special investigations unit is devoted to that area. The Divi