Aftermath

High is the code of honor on the New York Stock Exchange. Violation of this code is the worst disgrace which can overtake a member. Last week Exchange President Richard Whitney mounted the rostrum and trading was halted while he announced that two members had been found guilty of highly improper conduct, expelled. The men were G. Lisle Forman and Morrison B. Orr, floor partners of the recently insolvent firm of Prince & Whitely (TIME, Oct. 20). Already shocking to Wall Street, the affairs of Prince & Whitely loomed even more unpleasant after this official verdict.

The charges were brief, serious. It was found that by borrowing securities and placing them in poorly margined accounts and by buying certain stocks heavily at the close of trading, to jack up their prices, Prince & Whitely had obfuscated its true position on June 30 when the Exchange sent out a questionnaire. The rest of the indictment concerned the relationship between Prince & Whitely and Prince & Whitely Trading Corp., an investment trust sponsored and managed by the firm. The Exchange found that Prince & Whitely partners, as directors of the trading corporation, had caused the corporation to lend $1,500,000 on an unsecured note of J. M. Hoyt & Co. J. M. Hoyt was the senior partner in Prince & Whitely, and the $1,500,000 was used to better the position of J. M. Hoyt & Co. on Prince & Whitely's books. Other findings concerned Prince & Whitely's failure to segregate stock belonging to the trading corporation, and use that stock as collateral for its own needs.

Legal, and therefore not among last week's charges, were the high proportion of the trading corporation's investments in securities without ready marketability, and the trading corporation's large holdings of stocks in which Prince & Whitely was actively interested. The question this situation raised was one of management. Many a broker suggested that investment trusts should be compelled to reveal their holdings from time to time so stockholders may know what is being done with their money. Bankers went further, said that hereafter brokerage houses should not be allowed to run investment trusts. Although a new management--which includes Matthew Chauncey Brush, president of American International Corp.; William Frye Cutler, vice president of American Brake Shoe & Foundry Co.; Clarence Dauphinot, president of Frederick H. Hatch & Co.; Philip De Ronde, president of Hibernia Trust Co.; George Kenan Morrow, chairman of Gold Dust Corp.--has taken hold of Prince & Whitely Trading Corp., the situation indicates that this form of financing will continue to decline in popularity.*

Last year marked the height of the investment trust movement: almost 500 were operating, a gain of over 100% in a year. The capital invested was tremendous. Since then most investment trust shares have declined faster than their book-value, now sell considerably below book-value. Rumors are current that more than a dozen investment trusts will dissolve. Last week the first such step was taken when Winslow-Lanier International Corp., affiliate of Winslow Lanier & Co., brokers, wrote to stockholders: "Conditions have changed materially since the formation of your corporation. . . . The general security market is such that sales at present levels may not be to the advantage of those who can hold their securities for better times." The announced solution to this was that each stockholder may claim his proportion of the holdings, or else direct it sold or held as he sees fit. Philadelphia. Another failure which was direct aftermath of the September decline was that of C. Clothier Jones & Co., New York and Philadelphia brokerage house whose socialite partners include Richard Norris Williams II, onetime U. S. tennis champion. Each partner has been charged with fraud, four are out on bail. The firm was a member of the New York Stock Exchange, was suspended while Partner Jones was on his way to New York, delayed by New Jersey grass-fires.

Suicides. Perhaps not an aftermath of the C. Clothier Jones failure was a startling Philadelphia sequence. Last week George K. Reilly of Reilly, Brock & Co. committed suicide. Soon afterward, Sidney F. Tyler Brock, the other partner, shot himself. The next day Robert L. Zoll, 53, junior partner of Charles H. Bean & Co., killed himself in the firm's basement. A few days later another suicide was Edwin I. Simpson, 59, president of E. I. Simpson & Co.

Sisto. No disclosure has been made regarding the affairs of Sisto Financial Corp., investment trust sponsored by the recently insolvent J. A. Sisto & Co. (TIME, Oct. 13). But creditors of the firm itself last week hoped for a payment of 50% in the immediate future, another 50% later. It was likewise understood that popular Joseph A. Sisto expected eventually to resume his business. Prince & Whitely, however, will be barred from joining the Exchange again, unless an entirely new set of partners decide there is still good-will left in the ancient and long honorable name of Prince & Whitely.

*Not to be confused with the investment trust of the managership type is the fixed trust, steadily growing in popularity.

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