than a quarter of a million dollars from public investors. In another case, United States v. Gradsky, et al., 10 defendants were convicted shortly after the close of the fiscal year of violating the anti-fraud provisions of the Securities Act and the Mail Fraud Statute in the promotion and sale of 8% and 12% short-term notes of Credit Finance Corporation, and received prison sentences ranging from 6 to 20 years. This past fiscal year has seen a substantial number of cases involving manipulation of securities on national stock exchanges or in the overthe-counter market. In United States v. Talenfeld (W. D. Pa.), Edward H., Maurice A. and Burton M. Talenfeld were adjudged guilty of manipulating the market price of Cornucopia Gold Mines stock on the American Stock Exchange to aid distribution of their own shares of Cornucopia in the over-the-counter market. Maurice and Burton Talenfeld received 1-year sentences and were each fined $10,000. Edward H. Talenfeld was fined $7,500. Charles C. Bales and John C. Buckley, Jr., among others, pleaded guilty and nolo contendere in United States v. Bales (W.D. Ky.), to manipulating the market price of the stock of Cardinal Life Insurance Co., and concealing this and other facts from investors to whom they distributed over 71,000 shares of their own Cardinal stock. The defendants were fined amounts up to $15,000 and placed on probation.

In United States v. Garfield, et al. (S.D.N.Y.), still in progress at the close of the fiscal year, 22 individuals and 7 broker-dealer firms were charged with manipulating the market price of the common stock of United Dye and Chemical Corporation, and with distributing this stock in violation of the registration requirements of the Securities Act. A number of the defendants have entered pleas of guilty during the trial. Sentencing has been deferred until its completion. Some of the same defendants and others are charged, in United States v. Garfield, et al. (S.D.N.Y.), with fraud and market manipulation in connection with the sale of more than 5 million shares of Shawano Development Corporation stock to the public through J. H. Lederer Company, Inc., by means of an intensive telephone sales campaign utilizing false and misleading statements and literature.

Manipulation on the San Francisco Mining Exchange was the basis of two indictments returned near the close of the fiscal year. In United States v. McDaniel (S.D. Tex.), Paul E. McDaniel, George A. Mellen and others are charged with manipulating the market price of Ambrosia Minerals stock to facilitate the fraudulent distribution of their own stock. George J. Flach, president of the Exchange, is named as a co-conspirator but not as a defendant. And in United States v. Carroll (S.D. Calif.), the defendants are charged with manipulation and fraudulent sale of the stock of Comstock, Ltd.

In addition to the Ambrosia Minerals and Comstock promotions noted above, a number of other oil, gas and mining ventures provided, as in past years, a fertile field for fraudulent stock promotions. Among the cases involving such promotions was United States v. Columbus Rexall Consolidated Mine Co. (S.D. Fla.), where Irwin C. Glaser and 12 other defendants were found guilty of merging various corporations with insubstantial or spurious assets into Columbus Rexall, issuing over 12 million shares to themselves or associates, manipulating the price of the stock upwards on the Salt Lake Stock Exchange, and distributing large blocks of the stock to the public through "boiler-room" tactics.

A number of broker-dealers and securities salesmen were convicted in the past year for converting either their customers' securities or funds obtained from the sale of these securities. Thus, in United States v. Pruett, (N.D. Ga.), Carl and Gertrude Pruett were each convicted and sentenced to 9 years imprisonment for converting securities and funds belonging to customers, totaling about one and a half million dollars. In United States v. Ficken (N.D. Ohio), the defendant was sentenced to 18 years imprisonment after pleading guilty to charges of converting clients' funds by "bucketing" their orders.

A number of indictments have been returned in the Southern District of New York against Lowell M. Birrell and his associates charging fraud, manipulation and registration violations. In United States v. Gerardo A. Re (S.D.N.Y.), it is alleged that Birrell and others, including Jerry and Gerard Re in their capacity as specialists on the American Stock Exchange, manipulated the price of Swan-Finch Oil Company stock on that Exchange while distributing large unregistered blocks of the stock to the public through "boiler-rooms” and the Exchange at artificially inflated prices.

In United States v. J. A. Winston & Co., Inc. (S.D.N.Y.), Joel Alfred Winston, Birrell and others are charged with the manipulation and sale of unregistered stock of Jeanette Minerals, Ltd. The indictment alleges that while Birrell and other defendants manipulated the price of Jeanette stock on the Toronto Stock Exchange, Winston distributed 400,000 shares beneficially owned by Birrell to the American public through J. A. Winston & Co. The same defendants are also charged with fraud and registration violations in connection with the sale of the stock of American Le Duc Petroleums, Ltd. in United States v. Albert Bernstein, et al. (S.D.N.Y.). The indictment alleges that Birrell and the other defendants fraudulently distributed to the public, through J. A. Winston & Co., over 3 million unregistered shares of American LeDuc. Winston, J. A. Winston & Co. and others are also charged with violating the registration

and anti-fraud provisions of the Securities Act of 1933 in fraudulently distributing over 600,000 shares of Canuba Manganese Mines, Ltd. stock to the public.

Morris Mac Schwebel, an attorney who has been barred from practicing before this Commission, was charged, in United States v. Morris Black, et al. (S.D.N.Y.), with rendering fraudulent legal opinions concerning the applicability of the registration requirements of the Securities Act to the sale of the common stock of Great Sweet Grass Oils, Ltd. and Kroy Oils, Ltd. The indictment also charges Schwebel and the other defendants with arranging for the issuance of approximately 3 million shares of Great Sweet Grass stock which were placed in the names of nominees and thereafter fraudulently distributed to the public. It is alleged that the defendants manipulated the price of the stock on the American Stock Exchange to facilitate the distribution.

Several cases involving the promotion of insurance companies and the sale of their stock were prosecuted during the past fiscal year. Among these is United States v. Lefferdink (D. Colo.), where an 18-count indictment was returned charging Allan J. Lefferdink and 5 others with defrauding the purchasers of the stock of Denver Acceptance Corporation which was organized purportedly to engage in the insurance business. The indictment alleges that proceeds from the sale of the stock were diverted to other companies belonging to Lefferdink, after investors had been told the money would be used to promote one or more insurance companies.

Dr. Curtis L. Attaway, Sr. was one of the more "successful" promoters prosecuted this year. He is charged in United States v. Attaway (W.D. La.), with fraudulently obtaining over $6 million in the sale of notes to approximately 4,000 investors. The indictment alleges that the defendant represented that the profits from his various business ventures were so large and placed him in such a high federal income tax bracket that he could afford to pay interest at rates as high as 120 percent per year. It further alleges that the defendant issued to purchasers of his notes checks for the dollar amounts of the loans, and represented that, as long as the investors did not cash such checks, he would pay interest ranging from 3 percent to 10 percent per month.

At least $22 million worth of securities are alleged to have been converted to defendants' own use in United States v. Eichler (S.D.N.Y.). Defendants Leo Sinsheimer, who operated First Discount Corporation, a factor of security purchases by customers of New York broker-dealers, Arthur Katz, Robert Eichler and William

Mulligan are charged with converting and selling securities which were pledged by such customers with First Discount Corporation.

Near the close of the fiscal year, Edward M. Gilbert was indicted in the Southern District of New York for violating the anti-fraud provisions of the Securities Act by selling stock of E. L. Bruce Company to the public without disclosing that he had converted up to $1,953,000 of Bruce's funds. He was also charged with violating the registration provisions of the Securities Act, the insider reporting requirements of the Securities Exchange Act and the Federal Wire Fraud and Mail Fraud Statutes in connection with his diversion of Bruce's funds.

COMPLAINTS AND INVESTIGATIONS

Each of the Acts administered by the Commission specifically authorizes investigations to determine whether specific violations of the Federal securities laws have occurred.

The nine regional offices of the Commission, with the assistance of their respective branch offices, are chiefly responsible for the conduct of investigations. In addition, the Office of Enforcement of the Division of Trading and Exchanges of the Commission's headquarters office conducts investigations dealing with matters of particular interest or urgency, either independently or assisting the regional offices. The Office of Enforcement also exercises general supervision over and coordination of the investigative activities of the regional offices. Its staff examines and analyzes the investigative findings and recommendations of the regional offices and recommends appropriate action to the Commission.

Prior to the organization of the Office of Enforcement in September 1962, certain of these functions were performed by a Branch of Special Investigations, Trial and Enforcement, which had been established in October 1961 within the Division of Trading and Exchanges. This Branch was set up to assist particular regional offices in certain cases, to coordinate investigations affecting several regional offices, and in some cases to assume responsibility for prosecuting multiregional investigations. Among other things, the Branch collabo rated with the Washington Regional Office in dealing with the serious enforcement problem in the Washington, D.C. area, resulting in injunctive and administrative proceedings against numerous brokerdealers; and it cooperated with several regional offices in an investigation leading to the return of an indictment in the Southern District of Texas, charging four defendants with fraud in the sale of stock of Ambrosia Minerals, Inc.

There are available to the Commission several sources of information concerning possible violations of the provisions of the Federal securities laws. The primary source of information is complaints by members of the general public concerning the activities of certain persons in securities transactions. The Division of Trading and Exchanges and the regional offices give careful consideration to this information and, if it appears that violations of the Federal securities laws may have occurred, an investigation is commenced. Other sources of information which are of assistance to the Commission in carrying out its enforcement responsibilities are the national securities exchanges, brokerage firms, state and Canadian securities authorities, better business bureaus, the National Association of Securities Dealers, Inc. and various law enforcement agencies.

It is the Commission's general policy to conduct its investigations on a confidential basis. Such a policy is necessary to effective law enforcement and to protect persons against whom unfounded or unconfirmed charges might be made. The Commission investigates many complaints where no violation is ultimately found to have occurred. To conduct such investigations publicly would ordinarily result in hardship or embarrassment to many interested persons and might affect the market for the securities in question, resulting in injury to investors with no countervailing public benefits. 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 made public. Another advantage of confidential investigations is that persons under suspicion of having violated the law are not made aware that their activities are under surveillance, since such awareness might have the effect of frustrating or obstructing the investigation. Accordingly, the Commission does not generally divulge the result of a nonpublic investigation unless it is made a matter of public record in proceedings brought before the Commission or in the courts.

When it appears that a serious violation of the Federal securities laws has occurred or is occurring, a case is opened and a full investigation is conducted." Under certain circumstances it becomes necessary for the Commission to issue a formal order of investigation which appoints members of its staff as officers to issue subpoenas, to take testimony under oath and to require the production of documents. Usually this step is taken when the subjects of the investigation and others who may be involved are uncooperative and it becomes neces

"Prior to January 1, 1962, information concerning a possible violation of the Federal securities laws was carried in a preliminary investigation file until a full scale investigation was begun or no violation was found. As of January 1, 1962, the category of preliminary investigations has been eliminated.