Investment Investigation

Tucked away in the Public Utility Act of 1935, lacking even the dignity of a separate paragraph, was a Congressional command to the Securities & Exchange Commission to investigate investment trusts. In the twilight of the 1920's, some $7,000,000,000 worth of investment trusts were floated, according to SEC figures. Their total assets were worth about $2,000,000,000 by the end of last year. It became SEC's job to find out where, how and why the rest disappeared. Last week after over a year of preliminary field work by a staff of 70 experts, the headline stage of the investment trust investigation arrived with the start of open hearings in Washington.

Nearly 1,000 trusts, extant and defunct, will be examined before SEC sends its report to Congress next January with recommendations for regulatory legislation. In charge is Commissioner Robert E. Healy, the grey-haired Vermont Republican who conducted most of the six-year investigation of public utility holding companies for the Federal Trade Commission. His first lieutenant is Paul P. Gourrich, a demon statistician who used to work for Kuhn, Loeb & Co. If his German accent were not so pronounced, Paul Gourrich might have been Commissioner Healy's inquisitor. Asking the questions last week was David Schenker, a bright young SEC lawyer who learned about investigations on the staff of Ferdinand Pecora in 1933. But always at Inquisitor Schenker's right last week, priming him with questions, prodding him on with an elbow in his ribs, was intense, guttural Paul Gourrich.

For the men who manage U. S. investment trusts in 1936 the investigation will be a painful ordeal. Even if their own records are spotless, the records of their trusts are probably not. Most trusts have bought other trusts, and the reason they were able to buy them was generally that the trust for sale had been either mismanaged or plundered. SEC intends to study not only present managements but those of predecessor trusts.

Under the SEC microscope last week was Equity Corp., which was built up from other trusts, some with sorry records indeed, but now run by David Milton, son-in-law of John D. Rockefeller Jr. Not concerned last week with Mr. Milton's management was SEC but with earlier history, notably the methods by which a young lawyer from Baltimore had acquired, with virtually no investment on his part, a handful of broken-down trusts early in Depression. Putting them together as Equity Corp., he sold out to Mr. Milton in 1932 at a profit of $750,000. This promoter was Wallace Groves, now in possession of Phoenix Securities Corp., which rose appropriately from the ashes of still another trust. Truster Groves's method was to use one trust to buy another, but his deals were so involved that one of his directors once felt impelled to warn him: "We may seem to you unduly sensitive to public, or rather informed financial opinion. The reason is that those who disregard this opinion seem, in the end, to be 'unlucky.' . . . The aspect of dealing with oneself will be more obvious to outsiders than to those of us who have followed the affair."

Another phase of Equity Corp.'s history before the advent of either Truster Groves or David Milton concerned a predecessor trust called Interstate Equities, originally a $25,000,000 concern sponsored by Bancamerica-Blair Corp. That meant it was managed by such Wall Street bigwigs as Edward Richmond Tinker, Hunter Sylvester Marston and Elisha Walker. Bancamerica-Blair used to cut its affiliated trust into pools and syndicates with the result that Interstate dropped no less than $5,000,000. Messrs. Tinker, Marston & Walker also managed to lose another $13,000,000 in Interstate's ordinary stock and bond investments.

This file is automatically generated by a robot program, so reader's discretion is required.