Fifth Annual-Report of the Securities and Exchange Commission Fiscal Year Ended June 30, 1939 UNITED STATES GOVERNMENT PRINTING OFFICE .' ,... " WASHINGTON: 19(0 ~OI' sale by the Superintendent or Documents. WMhlngtou. D. C. - • • - - Price 25Cl8ntB(paper) r - - - ,iI SECURITIES AND EXCHANGE COMMISSION Office: 1778Pennsy}vania.Avenue NW. Washington, D. O. I I I ! I I I I . ".- COMMISSiONERS i JEROME N. FRANK, Chairman I GEORGE C. MATHEWS ROBERT E. HEALY EDWARD C. EICHER LEON HENDERSON FR4-NCI;;j>: 13RASSOR, Secretary Address All Communications SECURITIES AND EXCHANGE COMMISSION WASHINGTON. D. C. ( ~ • • 1'- , -, LETTER OF TRANSMITTAL SECURITIES AND EXCHANGE COMMISSION, Washington, January 3, 19J,.0. SIR: I have the honor to transmit to you the Fifth Annual Report of the Securities and Exchange Commission, in compliance with the provisions of Section 23 (b) of the Securities Exchange Act of 1934, approved June 6, 1934, and Section 23 of the Public Utility Holding Company Act of 1935, approved August 26, 1935. Respectfully, JEROME N. FRANK, Chairman. The PRESIDENT OF THE SENATE, The SPEAKER OF THE HOUSE OF REPRESENTATIVES, Washington, D. O. III CONTENTS Pap IntroductioD______________________________________________________ 1 PART I New Duties of the Commission With Respect to Corporate Reorganizations, Under Chapter X of the Bankruptcy Act, as Amended_ ___________ 7 Commission Functions under Chapter X_____________________________ 7 Proceedings in which the Commission Participated 8 Statistics on Reorganizations under Chapter X________________________ 10 The Commission as a Party to Proceedings___________________________ 11 Insuring Adequate Notice of Hearings to Security Holders__________ 11 Securing Compliance with Provisions Regarding Trustees lZ Se~t.COIJJ;Plia.nce with Provisions Regarding Protective Commit- tees and Jndenture Trustees :.____ 13 Plans of Reorganization under Chapter X____________________________ 13 Feasibility of Plans____________________________________________ 14 Fairness ofPlans______________________________________________ 14 Advisory Reports on Plans of Reorganization_________________________ 16 Appeals__________________________________________________________ 20, PART II Administration of the Securities Act of 1933 Registratiop of Securities under the Securities Act of 1933______________ 23 Nature 'and Effect of Registration________________________________ 23 Examination of Securities Act Registration Statements_____________ 24 Disclosures Resulting from Examination__________________________ 2~ 'Statistics-of-Securities-RegiBtered___..... Jf/O' "~""r"> ~ • ';..',. _ ...... ~. .. ____ _____ _ 28 Exemption from Registration Requirements___________________________ 32 PART III Administration of the Securities Exchange Act of 1934 National Securities Exchanges_______________________________________ 35 Efforts to Improve the Disciplinary Procedure of the New York Stock Exchange and the Business Practices of its Members_____________ 35 Reorganization of the New York Stock Exchange and the New York Curb Exchange______________________________________________ 36 Self::Polic41g by 'National Securities Exchanges-The Whitney Report; 37 ProgfeSs-of'the'NewYork'Stock'Exchange's1938_______________________________________________________Program of October 26, 39 Brokerage Banks___________________________________________ 40 Exchanges Registered and Exempted from Registration _ _ __________ 4Z v VI CONTENTS Page Regulations Promulgated under the Securities Exchange Act of 1934 Pri- marily Directed to National Securities Exchanges, Their Members or Non-member Brokers and Dealers Transacting a Business in Securities Through the Medium of Such Members____________________________ 43 Financial Safeguards.L; , _______________________________ _____ 43 Short Selling Rules .. ___ __ 44 Pegging, Fixing, and Stabilizing-of Beeurity Prices_________________ 45 Registration of Securities on Exchanges; __ ___ 46 Nature-and Effect of Registration of Securities on Exchanges; 46 Examination of Data Filed under Sections 12 and 13______________ 47 Registrations Terminated under Section 19 (a) (2) _________________ 48 Statistics of Securities Registered or Exempt from Registration on Exchanges ~___________________ 48 Withdrawal or Striking of Securities from Listing and Registration on Exchanges__________________________________________________ 53 ': Applications for the Granting, .Extension, and Termination of Un- listed Trading Privileges on Exchanges_________________________ 54 Proposals for the Reglstration or. the Securities of "Unlisted Issuers" _ 51 Over-The-Counter Markets -:_:. .;_~_• : __-__ 57 Formation of National and Afiiliated Securities Associations Pursuant to Section 15 (a) of the Securities Exchange Act of 1934, as Amended_ 57 Registration of Brokers and Dealers __ L_____ 59 Solicitation of Proxies, Consents, and Authorizations- under the Securities Exchange Act of 1934. __• _______________________ ____ __ 60 - PART IV Administration of the Public Utility Holding Company Act of-1935 Registered Holding Companies ~__ ____ 63 Security Issues; ___________________________________________________ 63 Alteration of Rights of an Outstanding Security -___________________ 67 Acquisitions of Securities, Utility Assets, and Other Interests___________ ~8 integration and Corporate Simplification of Public Utility Holding Com- r- j pany-Systems ~_~_~__~~~ ---~ ~___ 69 Reorganization of Registered Holding Companies and Subsidiary Com- - -. panies Thereof'; .,__ ., ' 72 Service Companies; - - __-. 76 Exemption from the Public Utility Holding Company Act of 1935 - 78 Acquisition of Securities by the Issuer________________________________ 81 Dividend Declarations and Payments , _______ __________ ___ __ 82 Sale of Public Utility Seourities and Utility Assets_____________________ 82 Underwriters' and Finders' Fees., ____________________ ______ __ __ 8.3 Political Contributions .: : _~ .: 83 Staternents Required Pursuant to Section 12 (i) • - __ 84 Interlocking Direetorships; ______ _____ ________________________ 84 Reporls :_:__________________________________ 84 Rules, Regulations, and Forms : __ : : _ 85 PART V Other Activities of the Commission Under jhe Various Statutes Enforcement Activities ' ~__ ..:________ 87 Prohibition Against Manipulation in the Securities Markets_________ 87 Margin Regulations____________________________________________ 89 CONTENTS ,1VH Enforcement Activities-Continued. Pag. Market Surveillanee.,., _____ __ ____________________ _ ' 90 Trading Invesugations______________________________________ 91 Record of Public Action Taken in Connection with Proceeding's : Brought to Enforce the Anti-manipulative Provisions of the Secur- ities Exchange Act of 1934____________________________________ 92 Complaints and Investlgatlons.,., ______________ _ 95 CivilProceedings______________________________________________ 96 CrUninalProceedings__________________________________________ 108 Criminal Cases in which Certiorari was Denied by the United Sj;ates Supreme Court during the past fiscal year '_l 114 Rules and Regulations , '_' 115 Activities of the Commission in the Field of Accounting and Auditing____ 117 Study of Investment Trusts and Investment Companies 2.:___________ 121 Monopoly Study Conducted for the Temporary National Economic Com- mittee .' 123 Organization of Study .:. 123 Insurance ~ 123 Investment Banking_________________________________________ __ 125 Corpo~tePractices ~ 126 Reports of Officers, Directors, and Principal Stockholders ~ 127 General Purpose and Scope of Reporting Requirements 'I' 127 7 Volume of Reports ~ L .:. 127 Filing of Initial Reports ..: ~ 127 Publication of Security Ownership Reports :_'_'_'_' 128 Confidential Treatment of,Applications, Reports, or Documents '___ 128 Statistics on Securities and on Exchange Markets __w_- ~ 130 Survey of American Listed Corporations ,' 130 PubliclIearings ~ : : 131 Formal Opinions and Reports .; 131 Securities Act of 1933, as Amended -''- ~ '.f:':. 132 Securities Exchange Act of 1934, as Amended '- l..!. 132 Public Utility Holding Company Act of 1935_____________________ 134 Bankruptcy Act, as Amended .: 145 Public Reference RoomB____________________________________________ 145 ~ublications • ~ ~ ~______________ 146 Information Releases_: ..:_'- '-_______________ 146 OtherPublications ~ '______________________ 148 Personnel ~________________________ 148 FlscalAJfairs ~_~'-__ 149 PART VI Appendixes ApPENDIX I. Rules of Practice ,' 153 A~PENDIX II. Guides to Forms; __-_----_-------..:---_------------------- 168 ,ApPENDIX III. Securities Act Registration Statements as to which stop: ' orders, consent refusal orders, and- withdrawal orders were issued July I, 1938, to June 30, 1939 ,. , 191 :A~ENDlx IV. List of Publications as ~f December 31, 1939 ;,__ 194 e c , I' l"JII C0N'l'ENTS ApPENDIX V. Statistical tables: Page Table 1. Effective registrations of new securities-totals, from Septem- ber 1934 to June 1939, inclusive, by months _ 197 Table 2. Effective registrations of new securities, by types of securities, from July 1938 to June 1939, inclusive, by months _ 199 Table 3. Effective registrations of new securities, by major industrial groups, from July 1938 to June 1939, inclusive, by months _ 201 Table 4. Effective registrations of new securities-reduction of gross amount of all effective securities to estimated net cash proceeds accruing to issuers, from July 1938 to June 1939, inclusive, by months _ 203 Table 5, part 1. Effective re&i&trations of new