Note 49 — Chapter V · PUBLICITY IN EXCHANGE AFFAIRS; CAUTIONS AND PRECAUTIONS

In his article on “The Hughes Investigation” (Journal of Political Economy, October, 1909, p. 539), Mr. Horace White refers to the attempt of the Hughes Commission to devise a means whereby the company-promoter’s activities might be curbed. He says: “The British ‘Companies Act’ forbids the public advertisement or sale of any securities unless the issuing company has been registered in a bureau of the government with information regarding the business to be transacted, the names of the officers and other persons responsible for the statements of fact, etc. Much time was spent by the committee in discussing the advisability of adopting the English system, regardless of the fact that it would be operative in only one state of the union, and that it would serve as an obstacle to all securities, sound and unsound, alike. Thus, if the Pennsylvania Railroad Company desired to issue a new lot of bonds it could advertise and sell them everywhere except in New York, without the trouble and expense of registration. Would it be worth while to give to other markets such an advantage over that of New York? The opinion of the governors of the Stock Exchange was sought and was given orally, to the effect that it would be unwise to take the risk unless the benefits to be derived from registration were preponderating and reasonably certain. It was their belief, however, that a certificate from state officials that a company was registered at Albany would be interpreted by the class of investors, who are most liable to deception, as a certificate of the soundness of the securities, in which case the act of registration would do more harm than good. The latter consideration prevailed in the committee, but recommendations as to advertising were made, which, if adopted by the legislature, will add something to the responsibilities of greedy and unscrupulous newspapers, while not going upon the doubtful ground of a censorship of the press.”