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During the fiscal year, the Commission continued to maintain its Canadian Restricted List, consisting of Canadian companies whose securities the Commission had reason to believe were being, or recently had been, distributed in the United States in violation of the registration requirements of the Securities Act of 1933. Seven supplements to the list were issued. In line with the trend of the past few years, it was necessary to add only 4 names to the list during the year, compared with 2 in fiscal 1964, 7 in fiscal 1963, 9 in fiscal 1962, 47 in fiscal 1961 and 82 in fiscal 1960. A total of 36 names was deleted following compliance with established procedures. As of June 30, 1965, 107 companies were on the list, the smallest number since the list was established in 1951.
Following the end of the fiscal year, the Commission announced the issuance of a revised list, to be known as the "Foreign Restricted List," replacing the Canadian Restricted List.29 The new list will include the names not only of Canadian issuers but also those of other countries whose securities may be the subject of unlawful distributions in this country. As before, the current list and supplements thereto will be issued to and published by the press, and copies will be mailed to all registered broker-dealers and be made available to the public. As a practical matter, most United States broker-dealers refuse to execute transactions in securities on the restricted list.
As of September 23, 1965, the list contained the names of 56 Canadian companies (representing the addition of 1 company and the deletion of 52 others) and 13 Bahamian organizations, as follows:
FOREIGN RESTRICTED LIST
Canadian issuers Abbican Mines, Ltd.
Guardian Explorations, Ltd. Alaska Highway Beryllium Venture Haitian Copper Mining Corp., Ltd. Anuwon Uranium Mines, Ltd
International Claim Brokers, Ltd. Associated Livestock Growers of On Ironco Mining & Smelting Co., Ltd. tario
Jack Haynes Syndicate Autofab, Ltd.
Jaylac Mines, Ltd. Bayonne Mine, Ltd.
Keele Industrial Developments, Ltd. Bonwitha Mining Co., Ltd
Kenilworth Mines, Ltd. Canol Metal Mines, Ltd.
Kennament Development Corp., Ltd. Canford Explorations, Ltd.
Ladysmith Explorations, Ltd.
Mack Lake Mining Corp., Ltd.
March Minerals, Ltd. Dayjon Explorers, Ltd.
Merrican International Mines, Ltd. Devonshire Mining Co., Ltd.
Mid-National Developments, Ltd. Fairmont Prospecting Syndicate
Milldale Minerals, Ltd. The Fort Hope Grubstake
Natto Mining Co., Ltd.
Securities Act Release No. 4802 (September 23, 1965).
Canadian issuers-Continued New Mallen Red Lake Mines, Ltd.
St. Stephen Nickel Mines, Ltd. Norart Minerals Limited
Sastex Oil & Gas, Ltd.
Sinclair Prospecting Syndicate
Sudbay Beryllium Mines, Ltd.
Trans-Oceanic Hotels Corp., Ltd. Old Smoky Oil & Gas, Ltd.
Turbenn Minerals, Ltd. Outlook Explorations, Ltd.
Tyndall Explorations, Ltd. Paracanusa Coffee Growers, Ltd.
Vimy Explorations, Ltd. St. Lawrence Industrial Development Western Allenbee Oil & Gas Co., Ltd. Corp.
Wingdam & Lightning Creek Mining Ste. Sophie Development Corp.
Bahamian issuers British Colonial Bank of Commerce Investment Bankers of Bahamas, Ltd. (Bahamas) Ltd.
The Bank of World Commerce, Ltd. Lords Bank and Trust Company, Ltd. New Zealand Bank and Trust ComBankers International Investment pany (Bahamas) Ltd. now known
Marlboro Bank and Trust Company
Essex Bank and Trust Company, Ltd. Whitechapel Bank, Ltd.
Investments and Trust Company, Ltd. Parliament Bank and Trust, Ltd.
SECTION OF SECURITIES VIOLATIONS A Section of Securities Violations is maintained by the Commission as a part of its enforcement program to provide a further means of detecting and preventing fraud in securities transactions. The Section maintains files which provide a clearinghouse for other enforcement agencies for information concerning persons who have been charged with or found in violation of various Federal and state securities statutes. Considerable information is also available concerning violators resident in the Provinces of Canada. The specialized information in these files is kept current through the cooperation of various governmental and non-governmental agencies. At the end of the fiscal year, the files contained information concerning 71,488 persons and firms. Included in the data processed by the Section during the year was information received from several states, Canada and Puerto Rico respecting 134 criminal actions, 55 injunctive actions, 238 cease and desist type orders and 68 other administrative orders, such as denials, suspensions and revocations.
Altogether during the fiscal year, the Section received and disposed of 4,206 "securities violations” letters and dispatched 835 communications to cooperating agencies. It added to the Commission's files information respecting 6,853 persons or firms, including information on 2,632 persons or firms not previously identified, and deleted the names of 2,884 persons or firms as to whom information was believed to be obsolete.
APPLICATIONS FOR NONDISCLOSURE OF INFORMATION The Commission is authorized under the various Acts administered by it to grant requests for nondisclosure of certain types of information which would otherwise be disclosed to the public in applications, reports or other documents filed pursuant to these statutes. Thus, under paragraph (30) of Schedule A of the Securities Act of 1933, disclosure of any portion of a material contract is not required if the Commission determines that such disclosure would impair the value of the contract and is not necessary for the protection of investors. Under Section 24(a) of the Securities Exchange Act of 1934, trade secrets or processes need not be disclosed in any material filed with the Commission. Under Section 24 (b) of that Act, written objection to public disclosure of information contained in any material filed with the Commission may be made to the Commission which is then authorized to make public disclosure of such information only if in its judgment such disclosure is in the public interest. Similar provisions are contained in Section 22 of the Public Utility Holding Company Act of 1935 and in Section 45 of the Investment Company Act of 1940. These statutory provisions have been implemented by rules specifying the procedure to be followed by applicants for a determination that public disclosure is not necessary in a particular case.
The number of applications granted, denied or otherwise acted upon during the year are set forth in the following table:
ACTIVITIES OF THE COMMISSION IN ACCOUNTING AND AUDITING
The several Acts administered by the Commission recognize the importance of dependable informative financial statements which disclose the financial status and earnings history of a corporation or other commercial entity. These statements, whether filed in compliance with the requirements under those statutes or included in other material available to stockholders or prospective investors, are indispensable to investors as a basis for investment decisions. The Congress, cognizant of the fact that such statements lend themselves readily to misleading inferences or even deception, whether or not intended, included express provisions in the various Acts with respect to financial information
required to be disclosed. Thus, for example, the Securities Act requires the inclusion in the prospectus of balance sheets and profit and loss statements “in such form as the Commission shall prescribe” 30 and authorizes the Commission to prescribe the "items or details to be shown in the balance sheet and earnings statement, and the methods to be followed in the preparation of accounts
» 31 Similar authority is contained in the Securities Exchange Act,32 and even more comprehensive power is embodied in the Investment Company Act 83 and the Public Utility Holding Company Act.34
Pursuant to the broad rulemaking power thus conferred with respect to the preparation and presentation of financial statements, the Commission has prescribed uniform systems of accounts for companies subject to the Holding Company Act; 35 has adopted rules under the Securities Exchange Act governing accounting for and auditing of securities brokers and dealers; 36 and has promulgated rules contained in a single comprehensive regulation, identified as Regulation S-X,3 which governs the form and content of financial statements filed in compliance with the several Acts. This regulation is supplemented by the Commission's Accounting Series Releases, of which 101 have so far been issued. These releases were inaugurated in 1937 and were designed as a program for making public from time to time opinions on accounting principles for the purpose of contributing to the development of uniform standards and practice in major accounting questions. The rules and regulations thus established, except for the uniform systems of accounts which are regulatory reports, prescribe accounting principles to be followed only in certain limited areas. In the large area of financial reporting not covered by such rules, the Commission's principal means of protecting investors from inadequate financial reporting, fraudulent practices and overreaching by manage
Sections 30, 31. * Sections 14, 15.
Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies (effective August 1, 1936) ; Uniform System of Accounts for Public Utility Holding Companies (effective January 1, 1937; amended effective January 1, 1943; revised November 24, 1959). (Accounting Series Release No. 84.) 30 Rule 17a-5 and Form X-17A-5 thereunder.
Adopted February 21, 1940 (Accounting Series Release No. 12); revised December 20, 1950 (Accounting Series Release No. 70).
* Releases 100 and 101 were issued during the year, the former announcing the adoption of Article 7A and Rule 12-31 of Regulation S-X governing the form and content of financial statements and related schedules to be filed by life insurance companies and the latter an order readmitting an accountant to practice before the Commission.
ment is by requiring a certificate of an independent public accountant. based on an audit performed in accordance with generally accepted auditing standards, which expresses an opinion as to whether the financial statements are presented fairly in conformity with accounting principles and practices which are recognized as sound and which have attained general acceptance.
The Securities Act provides that the financial statements required to be made available to the public through filing with the Commission shall be certified by "an independent public or certified accountant." The other three statutes permit the Commission to require that such statements be accompanied by a certificate of an independent public accountant,40 and the Commission's rules require, with minor exceptions, that they be so certified. The value of certification by qualified accountants has been conceded for many years, but the requirement as to independence, long recognized and adhered to by some individual accountants, was for the first time authoritatively and explicitly introduced into law in 1933. Under the Commission's rules, an accountant who is qualified to practice in his own state is qualified to practice before the Commission unless he has entered into disqualifying relationships with a particular client, such as becoming a promoter, underwriter, voting trustee, director, officer, employee, or stockholder; 11 has demonstrated incompetence or subservience to management; or has engaged in unethical or improper professional conduct.“
The Commission endeavors to encourage and foster the independence of the accountant in his relationships with his client so that he may better be able to perform the service to the public contemplated by the Congress in the various Acts administered by the Commission. Because of his special status and responsibility, the accountant has a unique opportunity to be a leader in raising standards of investor protection. The financial statements provide the key information both in the distribution and trading of securities. The work of the accountant in their preparation and publication is vital. Independent accountants lend authority to management's representations by their opinions as experts, and they operate as a check on management in assuring that the financial data are fairly presented in accordance with generally accepted accounting principles.
The Commission is vigilant in its efforts to assure itself that the audits which it requires are performed by independent accountants; that the information contained in the financial reports represents full
30 Sections 7 and 10(a) (Schedule A, pars. 25, 26).
40 Securities Exchange Act, Section 13(a) (2); Investment Company Act, Section 30(e) ; Holding Company Act, Section 14.
See, for example, Rule 2-01 of Regulation S-X. 19 See Rule 2(e) of Rules of Practice.