Money Monopoly?

Said Attorney General Tom Clark: "This case is one of the largest and most important in the history of the antitrust laws." Said the accused: "Utter nonsense," "fantastic," "ridiculous." With such give & take, the long-heralded battle between the Government and Wall Street's investment bankers was finally joined last week. Thanks to newspaper stories that "leaked out" to Washington reporters in the last month, Wall Street was not surprised by the civil suit filed in a New York district court by the antitrust division of the Department of Justice. It charged 17 of the biggest U.S. investment banking firms*--and the Investment Bankers' Association of America--with conspiracy to monopolize the securities business.

The complaint said that the defendants had managed the sales of nearly 69% of some $20 billion worth of securities issued by the syndicate method (several houses working together) in the last ten years. They did so, the Government charged, by 1) eliminating competition among themselves; 2) preventing the use of competitive bidding for new issues; 3 ) influencing and controlling the corporations issuing securities; 4) concentrating the business in Manhattan; 5) promoting expansions, mergers, consolidations, etc., to drum up more investment business.

In short, the defendants, "by their control of the securities business, have been able to substitute banker direction of industry and business for industrial and business management, with the result that industrial initiative and enterprise have been discouraged and new business developments retarded."

Bill of Divorcement. The Government asked that the 17 defendants be prohibited from acting both as adviser and underwriter for any company, or from having a representative on the board of such a company. Most important, the Government asked that the nine largest firms (Morgan Stanley; First Boston; Dillon, Read; Kuhn, Loeb; Blyth; Smith, Barney; Lehman Bros.; Harriman Ripley; Goldman, Sachs) be prevented from participating in any securities-selling syndicate in which any of the others participates.

Lesser restraints were asked for the other eight because, said Clark, to prevent these companies from acting jointly might discourage rather than promote competition. The Government was thereby forced to acknowledge what will probably be one of the strongest arguments against its case: the fact that many security issues nowadays are so huge that underwriters have to work together to sell them.

The suit raised a touchy point: would Defense Secretary James Forrestal, Commerce Secretary Harriman, Assistant Secretary of State Draper, et al., all high in the Administration and all ex-members of defendant firms, be dragged into the suit? No, said Clark. Only officials currently in the firms are affected. But the case might still be politically embarrassing to the Administration. The Russians, who have been bitterly attacking ex-Wall Streeters in the Truman Administration, would scarcely overlook a chance to fire another round with ammunition furnished by Tom Clark.

Plan of Battle. Most Wall Streeters thought that the suit was designed chiefly to make competitive bidding compulsory. It is now optional for industrial security issues. Unnamed in the suit was the second largest (next to Morgan Stanley) investment banking firm in the U.S.--Halsey, Stuart & Co., of Chicago, which has long advocated such competition. The only financier to applaud the suit was another champion of the same cause, Cyrus Eaton, of Cleveland's Otis & Co.

The investment houses had no intention of giving in without a battle (only two weeks ago, said the bankers, they had turned down an offer to settle out of court). Harold Stanley, head of Morgan Stanley, underlined one possible defense. "Everyone knows that for years our industry has been subject to the most minute regulation and scrutiny by the Securities & Exchange Commission,"said he. "Someone, for whatever reasons, has misled the Department." Snorted John M. Hancock, partner in Lehman Bros., co-author of the Baruch-Hancock reconversion report (TIME, Jan. 17, 1944) and ex-U.S. delegate to the United Nations Atomic Energy Commission: "Either these charges are based on ignorance of how business is done, or this is another campaign against American business made for purposes that will not stand the light of day."

*Morgan Stanley & Co., Lehman Bros., Kuhn, Loeb & Co., Smith, Barney & Co., Glore, Forgan & Co., Kidder, Peabody & Co., Goldman, Sachs & Co., White, Weld & Co., Eastman, Dillon & Co., Drexel & Co., The First Boston Corp., Dillon, Read & Co., Inc., Blyth & Co., Inc., Harriman Ripley & Co., Inc., Stone & Webster Securities Corp., Harris, Hall & Co., and Union Securities Corp.

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