Easy Dupes

Since 1932 most Tennessee teachers have met or heard of a small, nervous promoter named Charles George Pfab. Few of them knew that versatile Mr. Pfab was a registered pharmacist, a onetime professional baseballer, an organizer of a Denver insurance company. They did know that Promoter Pfab's current venture was the high-sounding National Educators' Mutual Association, which sold ''endowment bonds" to teachers. The Pfab scheme was simple and forthright, if not generous. In return for $750 in cash, a teacher would receive a bond redeemable in ten years for $1,000 in cash plus five shares of stock in the Association. To lend prestige to his organization. Mr. Pfab also issued 50 shares of stock to each of 28 Tennessee superintendents and other locally prominent educators, who let him use their names as an advisory committee. One of these, Flavius Leal Browning, past president of the Tennessee State Teachers Association, became president of the National Educators' Mutual Association, while Mr. Pfab was executive vice president. With this imposing front the Association prospered mightily, soon had sold 1,000 bonds, taken in some $50,000.

But presently Promoter Pfab stopped selling the old bonds, offered a new issue. These again promised $1,000 in ten years. But instead of $1,000 in cash, the bondholder was to get back only his original $750 in cash, the rest in five shares of stock whose "stated value" was $50. Promoter Pfab made the mistake of applying to register these bonds under the Securities Act of 1933. Last week his registration statement caused the Securities & Exchange Commission to lash out with some of the strongest language yet placed on its official record:

"The cynically minded might well read certain paragraphs of this statement as indicating that educators or school teachers are unused to financial transactions and thus reach the conclusion, which seems to be the hope of this enterprise, that they are easily duped."

Denying registration, SEC reported that the stock for which Mr. Pfab claimed a value of $50 had been issued to him and his friends at 10-c-. Three-fifths of stock they had kept for themselves.

Stormed SEC: "In this 'mutual' enterprise, profits go to promoters and advisers in the ratio of approximately 60% and to the investing 'bondholders' in the ratio of approximately 40%! No array of locally prominent names should be allowed to conceal these facts."

Most of the locally prominent educators hastened to weasel out of their embarrassing position by claiming that they knew nothing of the affairs of the company, had trusted President Browning. That unhappy official stoutly joined Mr. Pfab in declaring SEC's outburst "an attempt to give us a black eye for no apparent reason."

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