Landis, Lawrence & Law

Wall Street, proverbially volatile, greeted President Roosevelt's signing of the Securities Exchange Act last week with a rousing stockmarket rally. After averaging a bare 500.000 shares a day for the past month, trading on the New York Stock Exchange leaped to 1.600.000.

Pleasantest discovery for brokers was that for dozens of stocks the Act's tentative margin requirements were actually lower than those demanded by the New York Stock Exchange. The 45% margin formula had loomed so large that the alternative formula had been almost ignored. The second formula permitted loans up to 100% of the lowest price of the previous three years but not more than 75% of the current price. Though the Act arbitrarily set July i, 1933 as the starting point, a customer could legally trade in a stock like U. S. Steel on a 25% margin.

At a dinner in Chicago, Braintruster James McCauley Landis, now slated for chairman of the new Securities & Exchange Commission, purred reassuringly: "I bring you a picture of hope and not of fear--hope in our securities markets. The objectives of Government and industry so far as security legislation is concerned are identical--honest markets and full and continued disclosure of the character of offerings made. . . . Regulation with such objectives is neither regimentation nor enforced control. . . I noted the other day that Richard Whitney, president of the New York Stock Exchange, said that on the whole the Act was all right. Praise from Sir Richard at such a time is praise indeed!"

The Exchange Act carried a rider liberalizing the Securities Act. While the amendments by no means completely satisfied bankers & businessmen. Eustace Seligman of the great Manhattan law firm of Sullivan & Cromwell declared that Congress had met 80% of the objections. Included were amendments to: 1) reduce the statute of limitation in civil suits from ten to three years; 2) permit a defendant officer, director or underwriter to show that factors other than errors or omissions in the registration statement caused loss; 3) require a plaintiff seeking damages for losses to prove that he relied on the errors or omissions (with certain qualifications); 4) relieve directors of liabilities if they had no reason to question reports of qualified experts; 5) limit an underwriter's liabilities to securities sold instead of the whole issue; 6) reduce the standard of care from fiduciary to prudency and 7) authorize courts to assess full costs against plaintiffs, thus lessening the temptation for nuisance suits.

The U. S. Chamber of Commerce estimated that these changes would release $1,000,000,000 of new financing (largely refunding) before the year end. Nevertheless, many a die-hard anti-New Dealer last week secretly seconded the views of Political Pundit David Lawrence, who gloomily predicted that enforcement of the new securities laws would encounter the same difficulties that made a mockery of Prohibition. Wrote he: "The money changers have been driven from the temple. ... If they haven't and if the same old conditions return, it will be the fault of the Administration, which now has plenty of law, plenty of regulatory power and plenty of responsibility. From now on the persons whose money may be lost through a bank failure or a drop in the securities they buy, or in the failure of their stocks to go up ... can blame the Government-- not Wall Street.*

--If David Lawrence were a securities salesman instead of a political pundit and made that statement while selling a registered issue, he might be fined $5.000, clapped in jail for five years for violating the Securities Act.

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