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“. . . the best overall survey and analysis of America’s crucial role in the global arms market. It tells a fascinating and important story and offers constructive ideas for alternative policies to curb this world-wide security menace.” -RICHARD J. BARNET SENIOR FELLOW, INSTITUTE FOR POLICY STUDIES AMERICAN ARMS SUPERMARKET By MICHAEL T. KLARE U.S. arms sales to Third World countries are rapidly escalating from $250 million per year in the 195os to $ro billion and beyond in the 198os. But are these military sales achieving the ends and benefits attributed to them by U.S. policy makers? Michael Klare responds with a resounding no, showing how a steady growth in arms sales now places global security in jeopardy. $24.50 Hardcover $10.95 Paperback At bookstores now Illy, Or order postpaid from University of Texas Press BOX 7819 AUSTIN, TEXAS 78713 have the ability to “service the debt” for its debentures, Kuntz says. Through a miscommunication the company went ahead and sold $5.2 million worth of stocks in Texas. The company later went bankrupt and investors in other parts of the country lost their money. But Texas investors were able to get their money back, because the stock had not been registered and legally sold in Texas. Kuntz says if the Wolens bill had been law at the time, Texas investors would have been out $5.2 milliOn. Kuntz and other securities board staff members disagree with their bosses the three board members on the question of merit regulation. “There is a need for protection before the fact, so people don’t end up getting hurt,” he says. BUT THERE IS that question of Ross Perot and his EDS stocks. To the opponents of merit regu lation it is symbolic of the primary way the regulation is hurting the state by inhibiting the capital formation of the new risky high tech ventures. Professor Bromberg charges that the regulation is “choking off one of the most promising sources of job creation and expansion and prosperity.” Bromberg says that the kinds of organizational schemes favored in the high tech industry are precisely what get rejected in the state’s merit review. To him the state’s proper role is to register stocks, and if there is fraud to “get the crooks and put them in jail.” It is not the state’s role to “make investment decisions for the investors.” Bromberg consistently casts the issue in terms of the state interfering with personal investment decisions. But Mouer says that under Texas law anyone can pick up the phone and instruct their broker to buy shares in a certain company, registered or unregistered. It is the reverse that is regulated, he says. “The government doesn’t tell people what they can buy, it tells brokers what they can sell and what they can’t sell.” Mouer, for his part, consistently casts the issue in terms of rooting out the wily operators who want to take investors for a ride. But Bromberg says “the really fraudulent offers where somebody is going to collect the money from the company and not spend it for what they said they would, and take off to Acapulco with it, those things are never registered.” He advocates stricter prosecution of securities fraud. Beyond all the technical and philosophical disputes, lies the sticky, muggy world of charges and counter-charges with respect to just who is promoting who’s self-interest. . The two most outspoken opponents of changing the law are Roy Mouer and Bill King, who, like Mouer, is a former Securities Commissioner who now handles securities cases as a private lawyer. Mouer and King are said by their opponents to have an economic stake in keeping the law the way it is, since they get cases that get hung up in the state’s merit regulation laws. Sen. Ray Farabee is one who makes this charge. Rep. Steve Wolens is another. King says he does most of his work before the Securities and Exchange Commission and that the merit regulation cases are “a very little part of our business.” “It is really not in my self-interest to be arguing against this law,” Mouer says, claiming he could make more money if the law were changed. He says some brokers have even stopped sending him business because he is arguing against “this industry law.” Mouer and King point out that they are significantly outgunned by the money that is going into the effort to change the law. They charge that the brokers and lawyers stand to benefit if it is made easier to register in Texas simply because there will be a boomlet in the workload. Rep. Wolens does not dispute this claim, and in fact says that is precisely the point: there will be more business going on. The crux of the matter is that regulation now costs businesses money they’d rather not pay. When a stock issue gets snarled in the merit review process, explains Bromberg, it results in “long drawn-out, horse-trading types of negotiation.” This adds as much as $15,000 in legal fees to the company’s cost in getting registered. The Wolens bill would save the securities industry these costs. Since only a select few legal experts get called on for the “horsetrading” negotiations, and since a wider body of lawyers would get work doing ordinary registrations and suing for fraud, the legal profession would be happy with the change, too. The regulators, however, lose some power over business. This is, after all, in keeping with the current mood of the country, and the traditional mood of Texas. Mouer protests. “I don’t think it is really true that it’s anti-Texan or antiAmerican for the government to keep one rather small, sharp class of people from preying upon the public at large.” But that’s for the legislature to decide. THE TEXAS OBSERVER