Police Work

Thrice in the past year has President Charles Richard Gay of the New York Stock Exchange gathered about him a well-groomed, able staff and set forth upon goodwill missions through those large sections of the U. S. where Wall Street is seriously regarded as a prime filling station on the wide road to Hell. Implicit in most of his many speeches was the message that the New York Stock Exchange had received a new revelation of its public duty.

Last week because the Stock Exchange failed to suspend a member until after his firm was enjoined from further business by the Attorney General of New York, President Gay got his first taste of stern public criticism. Walter P. McCaffray & Co. got into trouble in an effort to bolster an affiliated concern called German American Securities Co. Inc. by lending it some $100,000 last summer. To raise part of that sum Walter P. McCaffray & Co. borrowed too freely upon its customers' securities. Meantime, according to the prosecuting attorney, German American was doing some highly irregular bookkeeping.

None of this was known by the firm's floor member, Jerome T. Meighan. who is not to be confused with Michael J. ("Mike") Meehan, now being questioned by the Securities & Exchange Commission for alleged manipulation of stock in Bellanca Aircraft. Apparently responsible for the McCaffray finagling was Managing Partner William H. Hosford, who resigned last month. As soon as Floor Member Meighan learned about his partner's activities, he reported them to Stock Exchange authorities.

Instead of taking any action itself, the Stock Exchange tipped off SEC, which in turn tipped off the New York State Bureau of Securities. Not until the day after the injunction was obtained last week did the gong on the rostrum above the floor of the Exchange bring trading to a halt for the formal announcement that Partner Meighan had been suspended for three years for "conduct or proceeding inconsistent with just and equitable principles of trade in that his firm . . . had engaged in reckless and unbusinesslike dealing. . . ." Later the New York Curb Exchange suspended McCaffrey's Curb members.

Partner Meighan had to take the rap because he was the only partner who was an Exchange member. Summing up the case, the New York Times declared: "Wall Street observers felt . . . that neither the New York Stock Exchange nor the Curb Exchange had added to their prestige by their handling of the case of Walter P. McCaffray & Co. . . ."

Into the Federal District Court in Cleveland last week marched SEC attorneys, charging Otis & Co., among other things, with having rigged the market in the stock of Murray Ohio Manufacturing Co. For Cyrus Eaton's Cleveland banking firm, which is trying with some success to stage a comeback from its Depression deflation, the SEC suit was vastly annoying. If SEC succeeds in building up a case against the firm, it will be on technicalities, since Otis customers have made money in Murray stock. Most of the stock was bought from large Murray shareholders, distributed to Otis customers at from $10.75 to $16 per share. And Murray was last week selling on the Cleveland stock exchange for $20. Moreover, the company, which is not involved in the SEC suit, reported 1935 earnings of $3.75 per share.

Otis & Co. contended that it was merely performing a good banking job in putting its customers into a likely stock. And the Otis case may result in definition of what constitutes manipulation. There is an admitted difference between a rigged market and a market which rises because of a demand created by calling attention to a security's good value. But neither SECommissioners nor the courts have yet attempted to define where manipulation leaves off and legitimate practice begins.

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