More SEC Scandals

Sixteen months ago, New York's Democratic Congressman Louis B. Heller began looking for skeletons in SEC's closet. Last week, after poring over 742 cases from SEC's files and calling 100 witnesses, Heller's subcommittee handed in its report. In general, it said, SEC had done "a commendable job." But in its rummaging, the committee rattled the bones of several controversial cases, said the incoming Congress should investigate further. Among the cases:

The Badger Case, involving Salt Lake City Broker-Dealer Richard C. Badger, who committed suicide in March 1951 after embezzling $648,000 from his customers. SEC examiners had found nothing wrong with his books, though he had filed false reports with the agency since 1943.

The Tucker Auto Case, in which Promotor Preston Tucker's company went bankrupt before his rear-engine car got into mass production. SEC, said the committee, had waited too long in exposing the Tucker Corp.'s misleading statements about its solvency and prospects: "Had it done so, part of the loss which the investing public sustained in the Tucker case might have been averted."

The Kaiser-Frazer Case, in which Cyrus Eaton's Otis & Co. backed out of a stock-floating deal with K-F. K-F lost a $3,123,743 suit against Otis because it misrepresented its earnings in its registration statement of the stock issue. The SEC showed bias against Otis and in favor of K-F, said the committee, and still has a fraud charge pending against Otis. "But, at the same time," said the committee, "[it] has not moved against Kaiser-Frazer . . . although the charges and countercharges arose out of the same transaction." The Heller subcommittee called SEC's handling of the proposed K-F stock issue "a shocking story of errors, indifference and evasion." It charged that SEC staffers had been "asleep at the switch" and that SEC had conceded it overlooked the misleading statements by K-F.

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