"Rather Horrifying"

Within 30 minutes after the New York Stock Exchange announced Richard Whitney & Co.'s insolvency last March 8 the SEC started an investigation. Last week SEC issued a three-volume report of the findings. As absorbing as a detective story, as revealing as an autobiography, the 1,619 pages contain several heretofore undisclosed facts:

> Immediately responsible for Richard Whitney's downfall was a seemingly innocuous rumor--that his company was engaged in "distress selling" of Greyhound stock. Investigation proved the rumor apocryphal but proved the firm insolvent.

> For at least three and a half years before March 8, 1938, Richard Whitney & Co. had been insolvent.

> In four months' time (November 1937-March 1938) Dick Whitney borrowed $27,361,500 from banks, brokers, friends and relatives; $3,279,500 was unpaid when he failed.

> At one time Richard Whitney & Co. handled about 30% of J. P. Morgan & Co.'s bond orders.

> Franklin Roosevelt found this review "rather horrifying." Wall Street found rather horrifying what SEC did next. After SEC Chairman William O. Douglas and New York Stock Exchange President William McC. Martin Jr. had conferred, SEC issued a further reform program agreed on by the Exchange to prevent any more Whitney scandals. Main points: 1) more frequent questionnaires and auditings of member firms; 2) prohibition of margin transactions and the maintenance of margin accounts by member firms and partners doing business with the public; 3) establishment of a 15-to-1 ratio instead of the present 20-to-1 between a broker's indebtedness and working capital; 4) separation of brokerage and dealer capital; 5) all loans by members, unless fully secured, must be reported; 6) statements on underwriting position to be filed weekly; 7) a central depository to be set up to hold customers' funds now held by brokers.

Most of these rules will go into effect as speedily as the Exchange can work out details. Chortled Bill Douglas: "The new management and the SEC are goin' to town."

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