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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.57 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 began or no violation was found. As of January 1, 1962, the category of preliminary investigations has been eliminated.
sary to use the subpoena power to complete the investigation of the case. During the past year 140 formal orders were issued in connection with investigations handled through the Division of Trading and Exchanges. In addition, there were 23 formal orders issued upon recommendation of the Division of Corporation Finance. That Division also conducts certain investigative work in connection with the processing of filings made with that Division under the Securities Act of 1933 and the Securities Exchange Act of 1934.
When an investigation has been completed and enforcement action appears appropriate, the Commission may proceed in one of several ways. It may refer the case to the Department of Justice for criminal prosecution. The Commission may also, when appropriate, authorize the institution of civil proceedings for injunctive relief to halt further violations of the Federal securities laws. In such event the complaint is filed with the appropriate United States District Court and the case is presented by a member of the Commission's staff. Finally, the Commission may institute administrative proceedings when its investigation indicates that a registration statement or report filed with it is false or misleading or omits required information, or that a broker-dealer or investment adviser registered with this Commission is violating the Federal securities laws.
The following table reflects in summarized form the investigative activities of the Commission during fiscal 1962:
Investigations of possible violations of the Acts administered by the Commission
• The preliminary investigation category was eliminated by the transfer December 31, 1961, of all pending P.I.'s (120) to docketed cases.
ENFORCEMENT PROBLEMS WITH RESPECT TO CANADIAN
Continued progress was made during fiscal 1962 in reducing the unlawful offer and sale of Canadian securities in the United States. The continuing cooperation of responsible Canadian officials and segments of the Canadian securities industry has greatly reduced enforcement problems.
However, the problem has by no means ceased to exist. During the past fiscal year two former Toronto promotions were transferred to Nassau, British West Indies, and postal fraud orders were obtained against them at their new location. There are also indications that some Ontario promoters are transferring their base of operations to the Northwest Territories and British Columbia. As new developments become known, the Commission has instituted vigorous enforcement procedures including steps resulting in issuance of postal fraud orders.
Although the volume of violations has decreased, jurisdictional problems, including the status of the Supplementary Extradition Convention with Canada, remain troublesome.58
The Commission continues to maintain its Canadian Restricted List, which is a list of Canadian companies whose securities the Commission has reason to believe currently are being, or recently have been, distributed in the United States in violation of the registration requirements of the Securities Act of 1933. Failure to comply with the registration requirements deprives investors of material information and facilitates false claims as to the worth of such securities. Thus investors are denied the essential protections provided by the Securities Act.
The list and supplements thereto are issued to and published by the press and copies are mailed to all registered broker-dealers and are available to the public. The list serves as a warning to the public and alerts broker-dealers to the fact that transactions in the securities of the companies named therein may be unlawful. Most United States broker-dealers refuse to execute transactions in such securities. Twelve supplements to the list were issued in fiscal 1962. As a result of more effective enforcement activities, it was necessary to add only 9 names to the list during the year, compared to the 82 names added in fiscal 1960 and 47 in fiscal 1961. After deletion, upon compliance with established procedures, of 4 names during the year, the number of names on the list as of June 30, 1962, was 258.
The current list, as of September 30, 1962 follows:
B3 See 26th Annual Report, pp. 202--203 for a description of some of these problems.
CANADIAN RESTRICTED LIST
Abbican Mines Ltd.
tion Co. Ltd.
Consolidated Easter Island Mines,
Ltd. Consolidated Exploration & Mining
Co., Ltd. Consolidated St. Simeon Mines, Ltd. Consolidated Woodgreen Mines, Ltd. Continental Consolidated Mines &
Oils Corp., Ltd.
CANADIAN RESTRICTED LIST—Continued
Guardian Explorations, Ltd. Haitian Copper Mining Corp., Ltd. Hallmark Explorations, Ltd. Hallstead Prospecting Syndicate Jack Haynes Syndicate Hoover Mining and Exploration, Ltd. Ibsen Cobalt-Silver Mines, Ltd. Inlet Mining Corp., Ltd. International Ceramic Mining, Ltd. International Claim Brokers, Ltd. Irando Oil and Exploration, Ltd. Jacmar Explorations, Ltd. Jaylac Mines, Ltd. Jilbie Mining Co., Ltd. Jomac Mines, Ltd. Kateri Mining Co., Ltd. Kelkirk Mines, Ltd. Kelly-Desmond Mining Corp., Ltd. Kennament Development Corp., Ltd. Key West Exploration Co., Ltd. Kimberly Copper Mines, Ltd. Kipwater Mines, Ltd. Kordol Explorations, Ltd. Korich Mining Co., Ltd. Kukatush Mining Corp. Kuskokwim Grubstake Ladysmith Explorations, Ltd. Lake Kingston Mines, Ltd. Lake Otter Uranium Mines, Ltd. Lama Explorations and Mining Co.,
Ltd. Lambton Copper Mines, Ltd. Larutan Petroleum Corp., Ltd. Lavandin Mining Co. Lavant Mines, Ltd. Leader Mining Corp., Ltd. Lee Gordon Mines, Ltd. Lindsay Explorations, Ltd. Lucky Creek Mining Co., Ltd. Lynwatin Nickel Copper, Ltd. Mack Lake Mining Corp., Ltd. Magni Mining Corp., Ltd. Mallen Red Lake Gold Mines, Ltd. Maple Leaf Investing Corp., Ltd. March Minerals, Ltd. Marian Lake Mines, Ltd. Marpic Explorations, Ltd. Marpoint Gas & Oil Corp., Ltd. Mattagami Explorers Corp. Megantic Mining Corp. Merrican International Mines, Ltd.
Mexicana Explorations, Ltd.