SEC's Next Round

As its latest bomb in its recent attack on the New York stock exchange, the Securities & Exchange Commission last week released its annual report to Congress, declaring that national exchanges have not yet demonstrated their capacity "to police their markets effectively against manipulative and deceptive practices." Hardly was this news on the streets when--giving a convenient plausibility to its assertion-- SEC brought formal charges of manipulation in the stock of Auburn Automobile Co. against two partners of the important brokerage house of E. F. Hutton & Co. and a floor trader on the New York stock exchange. Most startling of all--one of the cited partners was Gerald M. Loeb. long known (in spite of his bald head) as one of Wall Street's "fair-haired boys."

E. F. Hutton & Co. is something of a misnomer, for E. F. Hutton retired in 1922 and now has only a minor financial share in the business. The $10,000,000 firm is dominated now by a younger group, of whom 38-year-old Gerald Loeb is prominent in the Manhattan office and Gordon B. Crary in the Los Angeles office. Between them these two brokers manage to see a good deal of colorful onetime Motor-maker Errett Lobban Cord, who lives in Beverly Hills.

Last summer SEC jumped on E. L. Cord for certain deals in Checker Cab and other stocks. As a result, while denying the charges, he consented to an injunction forbidding any further manipulation of Checker Cab, Auburn, or stock of any other company in which Cord Corp. had financial interest. Simultaneously, without any explanation, E. L. Cord abdicated from Cord Corp. entirely (TIME, Aug. 16). Since then he has dabbled in Los Angeles real estate while financial circles have dabbled in all sorts of rumors explaining his abdication. Last week, when SEC suddenly pulled the case out of its files again, astute observers wondered whether Cord's abdication might not have been the price of a deal with SEC whereby he saved himself and certain good friends from prosecution for manipulating Checker Cab. 1935 E. F. Hutton & Co. partners played no part in the Checker Cab trading. Simultaneously, however, Gerald Loeb and Gordon Crary did considerable trading of Auburn for clients. According to SEC, the pair, through Floor Trader H. Terry Morrison, effected enough artful Auburn deals to raise the price from $38 on Dec. 24, to $54.25 on March 5, 1936. SEC claims that this was done by such oldtime pool methods as buying heavily at the close, issuing extravagant statements, using discretionary accounts to create an artificial demand. Reason for raising the price, implied SEC, was that Cord Corp. had underwritten some $2,800,000 in Auburn debentures convertible into common stock at $50 a share. SEC made it clear that E. F. Hutton & Co. as a company was not involved.

Gerald Loeb is a reasonably rich man with a farm in Redding, Conn., and a mind far more liberal and articulate than most of his fellow brokers. In Wall Street he is noted because he writes E. F. Hutton & Co.'s market letters and because he espouses an unorthodox theory whose kernel is that investment as generally practiced is not as safe as intelligent speculation. This conception is unlikely to endear him to SEC interrogators but thus far has pleased his clients. In hectic September, 1929, just before ''the crash," Broker Loeb's market letter declared: "We see no reason to do anything but stand on the sidelines."

Having in general stood up for SEC, Gerald Loeb was more hurt than angry last week., Said he: "Neither I nor my firm has any knowledge or information of any manipulative operation in Auburn stock and we are absolutely confident that the investigation will result in complete exoneration."

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