Honesty Paces ‘Ideal Traits,’ Clean Speech Misses the List AUSTIN At election time every pub lication comes hard up against! the epochal problem: what cliches should he list an his campaign cards? If you handed the people a list of fifty-seven goody-goody qualities, which fifteen would they say they want in their public servants and which ones wouldn’t make the list? Rep. Moyne Kelly, Af ton, two years ago sent about 3,000 questionnaires ” to citizen groups he classified as bankers, school administrators and teachers, church leaders, and the like. Now his returns are in. All the groups put “honesty” first, an eloquent enough reminder of the last two scandaldrenched years in Texas state government. Next qualities in order on Kelly’s “composite list”: conscientious, sincere, re-‘ ligious, informed, dependable, moral, courageous, consistent, friendly, practical, broadminded, courteous, reasonable, tolerant. Bankers wanted legislators to be “conservative,” college students wanted them to be “progressive,” but neither quality made the composite lists. Journalists, hankers, clergy, and farmers and ranchers wanted them “temperate”but that didn’t make the final list either. “Logical” was specified by lawyeri and judges, college students, and House of Representatives employees, but it didn’t register with educators, bankers, newspaper leaders, business leaders, and the others. Every group included “religious” except the college students. The qualities, clean speech, liberal, just, kind, sympathetic, and unselfish didn’t make any of the nine group’s individual lists, much less the composite list, and Rep. Kelly himself forgot to put down another quality for which there is apparently little demand: “idealistic.” Texas Draws Ton Men’ badgered into buying a few shares of stock and were given “honorary” appointments on the board of directors because of their names and position. They seldom bothered to attend the board m eetings. The real board, which was strictly controlled by the ex-convict, was comprised of half a dozen shady characters. The vice president was a wino lodging at a second-rate tourist court. It was reported that after he wised up to what was going on he demanded, and received, whiskey instead of cheap wine. The firm issued some 900,000 shares of stockwhich sold for from $1 to $1.50 per share. It , was a favorite sales method of the firm to auction off blocks of stocks to Negroes, Latin Americans, and other groups of waterfront workers at specially staged beer busts. There was the case of the promoter who kited a check to show the state he had the necessary capital to form an investment company. It was simple and worked as well as having all the money in the bank, but a later investigation showed that his checking account really amounted to only $1.25. The promoter went to the Chase National Bank of New York and opened an account by depositing a check on a Houston bank for $25,000. He returned to ; Houston and opened another bank account depositing a check for $25,000 on the Chase National. From the bank in Houston, he secured a statement showing he had $25,000 on deposit. He filed the statement from the Houston bank with his application for an investment company charter. His application was approved and he was in business on investors’ money long before the checks bounced. In another case, ‘involving a holding company, a $500,000 piece of property was listed among the assets. It turned out to be valued at approximately $17,000. Some of the firms listed were among the some 1,000 “trust companies” or holding companies which came into being in Texas in 19553 and 1954. They were brought under control by adoption of the new securities act of 1955. Most of those who have worked with the problem agree that the situation has been “greatly improved” in the past two years. Some say there is still a great deal to do. A Curious Case Take the case of an ex-convict in Houston who goes under five different names, all of which have been submitted again and again to the securities commission. This man has a Federal Bureau of Investigation record dating back to the 1920’s, virtually all of which deals with handling stocks. Buehner and Hansen have files showing they have repeatedly reported his activities over the past several years to the state securities division. But the state’s twoman investigative staff hasn’t yet had the time or the money to make an investigation. Buehnef and Hansen assert that the man resides in the better hotels and generally lives a life of ease. They say he runs ads periodically in the Houston papers to locate prospects for investment in a mining operation, in gold or uranium. Usually all it produces is the investor’s silver, said Buehner. A 73-year-old retired postal clerk, R. A. Cole of LaGrange, bitterly agrees with Buehner. He and his business partner, a Fort Worth woman, according to Cole, told the Observer in LaGrange invested nearly $16,000 in the man’s company, which is listed as being a Wyoming firm. Asserted Cole: “We listened to his story about how he had an enormous number of claims on a river and is going to mine the whole thing out. It sounded good and I was to be secretary. We decided to invest, foolishly I’ll say, but we did. I had to borrow part of my share. This thing has ruined me financially.” Cole related that over a period of 18 months he waited for the company to strike it rich and periodically kept “putting in more money. Oh, we were really enthusiastic. He took us. out to look at heavy maintenance machinery we were going to buy . .. We even looked at some Chryslers we were going to drive. It was very realistic. He had pictures of the work crews at the mines and reports and financial statements. We got ore samples and they were supposed to have assayed good.” Finally, Cole said, he decided to go to Wyoming and see if things were really as he had been told. “He didn’t want me to go but I insisted. I went down to the river and tried to find some symptoms of gold.” Cole said he did not find the leases and claims he was looking for. Cole added: “The trouble with me and Mrs. Kemp is we’ve tried to be honest with people . . . We just kept trusting and trusting. We contracted to buy a lot of worthless stock.” Buehner and Hansen say if the story stopped and started* there, it wouldn’t be so interesting. But that’s just one brief chapter. The BBB has files on the subject dating back to 1953. Explained Hansen: “There’s the case of the rice farmer down near Alvin . . . He almost handed “$30,000 in a meeting in Denver,” he said, opening his files to a set of receipts showing payments from the farmer to the ex-convict of $1,250. Hansen said the first the BBB got wind of the deal was when a brother-in-law of the farmer came into the office and reported the Alvin man was enroute to Denver with $30,000 to put in the mining operation. Buehner said: “We were very lucky. We just had a description of the farrrier’s car, and police were able to stop him at the outskirts of town. They took him to the federal securities office in Denver and found there was no listing of man saved his $30,000, but he had already previously sent $1250 down the drain.” Then there’s the case of the three wealthy Houstonites who mrere involved in the operation. They went to the bank one Saturday and drew out a total of $100,000 in the form of cashier’s checks. Bank officials urged them to call the BBB before they turned over the money. They did, and kept the money, said Hansen. The last record the BBB has of the operations is a stock certificate for 1,000 shares issued last July 24. The woman, said Hansen, was “embarassed,” and would not file charges. Staff Needed The manager of the Better Business Bureau at Amarillo, Tristram Coffin, Jr., told this newspaper that his office has also been unable to get state securities investigators. “In almost six years in Amarillo, I have yet to see an investigator from the state securities division,” he said. “My last letter reporting an apparent securities violation went unanswered as some others before it had. The securities division just doesn’t have the funds to supply the man. power. “From all indications here, the securities division, in the past two years, has done a fine job of sescreening companies requesting permits to sell stock, but the division cannot hope to see that the good lawS we now have are properly enforced. The Better Business Bureau can assist, but cannot substitute for securities division investigators.” Bradley Bourland, Austin attorney and former state securities commissioner, estimates that the divisiOn should have “double the staff it has now. I don’t say that would do all that nods to be everything suspicious.” Bourland said that because the division staff was not sufficiently large “we couldn’t check everything that came in. We just had time to check the things that looked most dangerous.” He said one of the biggest dangers of not having an adequate staff was not being able to process applications quickly, which hurt business and growth of the state. “My conception of the division,” he explained, “is broader than that taken by some. I felt we were not only there to say no; not just to keep bad investments out, but to help good ones in. This was a function fulfilled when 3701.1 sit down with people and try to help.” He explained there are employes of the division “who work very hard, spend nights and weekends on the job.” He said the trouble is there are just not enough people. The investigators, according to Bob Duke, who recently left one of the posts to enter law practice in Houston, work throughout the entire, state. They frequently are “two or , three months” behind in checking complaints, and they only get around to the most serious ones. “A major weakness is a lack of an adequate inspection system for Texasonly broker-dealers,” said Duke. He explained that securities dealers who deal in securities under federal jurisdiction are under periodic examination, but there are more than a thousand “Texas-only” dealers whose books have never been examined on a regular periodic basis. Duke said that as things were when he was in the department it worked like this: “If you get a complaint and if you have an investigator then he goes when he gets -time, and sometimes that was two or three months after the act.” In the interim, the questionable or complained of dealer continues in business. The former investigator estimated that the division received on the average of from 20 to 30 complaints a month and declared that “two investigators are just not able to cover the whole state.” He said there was a serious need for higher pay for division jobs so that additional qualified personnel would be attracted. “But the money just hasn’t been appropriated to do the job. You can’t criticize a department for something it hasn’t the manpower or funds to do.” In 1956, the securities division issued 1,782 general dealers licenses; 2,077 oil and gas dealers licenses, and 4,011 permits to issuers, and handled a total of 8,677 instruments. It conducted 43 hearings, issued 76 cease and desist orders, conducted 428 investigations, secured eleven injunctions, and denied 32 licenses, according to division records. The aggregate amount of securities qualified totaled $178,786; those denied totaled $9,861,688. Page 4 Feb. 5, 1957 Steakley asked the subcommittee to remember that “one mistake over there can hurt a whole lot of people.” Steakley told the Observer that division records showed there had not been sufficient appropriations to send investigators out to check books and records of dealers in distant points such as El Paso and Amarillo. He explained that it would just be a question of economy, .that an investigator would go to Dallas to check several cases instead of making the more costly trip to . El Paso or Amarillo for fewer cases. Some of the violations Which would probably be turned up by examination of’ dealers’ books would be whether they have nonlicensed salesmen working, whether they are selling non-registered securities, whether they are paying excessive . commissions, and whether they are complying with regulations. Steakley pointed out that he only recently took office and added: “What I know so’ far is that the office if understaffed and undermanned to carry out the legislative pm-poses. “As Secretary of State, I am not taking a position in favor of or opposing the proposal \(now in the department of general and insurance securities. “If the legislature does leave responsibility for the securities division to me, that I am most serious about the legislature appropriating funds to employ sufficient and competent personnel to do the kind of job the act intended should be done for protection of the investors of Texas.” He cited another section of the act that an issuer is allowed a maximum of 20 percent commission on sales expense on securities. “The only way to check this provision is to examine the books,” he said. Steakley, in asking that the division appropriation be boosted to $76,324 a year, said he considered that to be the absolute minimum for safe operation. “You feel like you’re sitting on a powder keg, some of these things you’re asked to pass on. The public has a right to rely on the division. It is imperative that investigators be able to go out in the field and work.” \\ The secretary of state requested that the salary appropriation for securities commissioner be boosted, from the Legislative Budget Board recommended $7,200 to $10,000; that a new office of chief of enforcement be established at $7,200 yearly; that total travel expenses be raised from the recommended $6650 to $11,500; and that operating expenses be increased from the budget board’s $47,350 to $60,000 annually. Some of the latter expenses would apply to other Secretary of State office expenses but most would be for securities division costs. `One Mistake’ Secretary of State Steakley, while not critical of the
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