Golden Quebec: Better Business

Last week the first court action for violation of the Securities Act of 1933 was started in a Manhattan Federal Court. The Federal Trade Commission secured a temporary order restraining C. Morrison Smith & Co., investment brokers, from selling stock of Golden Quebec Mines, Ltd. Golden Quebec, organized at Toronto last December with some $92,000 in assets and 48 claims in a gold district in northwest Quebec, filed a Trade Commission registration in February covering an issue of 350,000 shares at $1 par. The Trade Commission charged that C. Morrison Smith & Co., underwriters of the issue, had sold some 45,000 shares at 65-c- by means of '"devices, schemes, or artifices to defraud, or by means of untrue statements of material facts. . . ." Among the charges was one to the effect that C. Morrison Smith & Co. had solicited one C. Henry Eilertsen of Philadelphia by telephone in April, declared that Golden Quebec shares would rise $1 within four weeks. Speculator Eilertsen, who is office superintendent of the Philadelphia branch of Jenks, Gwynne & Co., members of the New York Stock Exchange, bought 500 shares at 65-c- a share on the assurance that he would get $1.65. In May he tried to sell, could not get even 65-c-, a price which he discovered was not a bid, only a "quotation." Few days later C. Morrison Smith & Co. urged him to buy more shares, explaining that the quoted price was now 75-c- but that they would let him have some at 70-c-. Speculator Eilertsen did not buy, again tried in vain to sell at 65-c- a share.

Meanwhile last week the Better Business Bureau of New York City, reviewing the business year ended May 1, reported that promoters of the timeworn "sell and switch" racket* were still active, that "gyp" stock vendors had continued to flourish as of old under the Securities Act largely because the Federal Government had been backward about criminal prosecutions. Declared the Bureau: "An examination of the registrations under the Federal law reveals that by far the greater percentage of registrations was of highly speculative enterprises. Most promoters of such enterprises are deterred but little by responsibilities of civil liability which, under the act, rests upon offerers of new securities." But the Bureau noted one good effect: "When the act became effective last July a number of tipster sheets operating both from Boston and New York discontinued business. . .

* The "sell & switch" racket: A bogus stockselling crew obtains the stockholders list of a reputable company (the ''leads''), hires telephone salesmen (the "openers'') to win their confidence of certain selected shareholders on the list (the "prospects"). Then high-pressure salesmen arrive to tip off the prospect that his stock is being "hammered" by bear operators persuade him to sell it, switch his funds to a new issue, almost invariably worthless.

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