Dreaded Event

Businessmen now generally accept--with reservations--the Securities Act as a wholesome reform. But in 1933 many fought it bitterly, arguing that no one could take the risk of issuing securities because Section 11 of the Act provides that any purchaser of securities can recover damages from the issuers for subsequent losses if misrepresentations or omissions were made in the official registration statement. In six years of the Act's operations this bugaboo failed to materialize. Last week the dreaded event took place for the first time.

Subject to suit for a faulty registration statement are all the directors or partners in the firm issuing the securities, all the experts who attest to its accuracy, all the underwriters who float the issue. Last week a batch of these gentlemen was ordered in New York supreme court to stand and deliver. Among five so ordered was Charles H. Sabin Jr., eminently respectable son of the late president of Manhattan's Guaranty Trust Co.

Winners of the verdict were four purchasers of stock of Austin Silver Mining Co., of which Socialite Sabin was once president. They bought 6,000 shares of Austin Silver in March 1937. It was between $2.50 and $3. By the end of the year it had dropped to a dismal 871/2-c-. But while the price went downhill, the four had no intention of going on a sleigh ride with it. They brought suit for the difference between the purchase price and the price on the day they filed the petition. They contended that Section 11 had been violated because the registration statement failed to mention options on the stock given to underwriters.

After their purchase the registration statement was amended, but nonetheless a verdict for $10,000 was awarded in compensation for the losses. Sounding the stand-and-deliver order was Justice Edgar J. Lauer, whose wife is currently serving a three-month jail sentence for smuggling (TIME, May 15), who himself resigned from the bench (effective June 15). Meanwhile, Austin Silver, having settled its difficulties with SEC, has a new set of officers, is being offered at 181/2-c- a share.

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