Latest Laugh for Eaton

When Cleveland's sly old Cyrus Eaton pulled out of his firm's contract to underwrite Henry Kaiser's new $10 million stock issue for Kaiser-Frazer Corp. in 1948, he tried to find a legal loophole to justify his action.

Eaton, who backed out because the market broke as he floated the issue, failed and a federal court last year awarded Kaiser-Frazer a $3,120,743 judgment against Eaton's underwriting house, Otis & Co. Eaton shut down his business to elude Kaiser's collectors.

But last week, Eaton had the latest laugh. Manhattan's U.S. court of appeals ruled that Eaton's contract was, indeed, invalid. In its prospectus for the issue, said the court, Kaiser-Frazer stated its earnings in such a way as to represent that it had made a profit of about $4,000,000 in December 1947. "This representation was $3,100,000 short of the truth." This failure to make full disclosure not only "violated the Securities Act of 1933" but was "a breach of the contract," even though Otis & Co. had all the facts and had helped prepare the prospectus.

Eaton isn't out of the woods yet. He and the president of Otis & Co. are still under a $3,232,329 judgment awarded Kaiser-Frazer by a state court in Wilmington, Del. in a similar suit, and Otis & Co. is still under a court-appointed trustee. But the Manhattan decision made Eaton so cocky that he predicted he would soon be back in business.

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