Otis Exonerated

Bitter and frequent is the complaint that the Securities & Exchange Commission tends to try its cases in newspapers before they are tried in courts. A crackdown from SEC begins with published charges based on what SEC "has reason to believe and does believe." Invariably the crackdown makes headlines, while the routine denial of the unhappy crack-downee is buried at the bottom of the column. Particularly irritated by this procedure because the firm was just getting on its feet after a severe Depression deflation was Otis & Co. Cyrus ("The Great") Eaton's Cleveland banking house which was charged last spring with market rigging (TIME, April 13). Last week, in one of the first court decisions in an SEC stock manipulation case, Otis & Co. was exonerated.

In the beginning Otis bought from a few big holders some 5,000 shares of Murray Ohio Manufacturing Co., distributed the stock to customers as a likely investment. While the firm was selling the stock the market price went up. It stayed up, and last week was selling for about twice as much as the customer paid for it. SEC held that the stock had been manipulated with the idea of attracting buyers. Said Federal Judge Samuel H. West in Cleveland last week: "Many things have been done and are done by dealers desiring to influence others to purchase stock through manipulated prices, but these were all omitted here."

On one point SEC did gain a victory. When Otis bought the Murray Ohio stock originally, the big stockholders it bought from agreed not to dump any of their remaining shares on the market for a certain length of time, a fact which was not stated in the offering prospectus. Bullish for the broker though such a statement would have been, the Court held that it should have been published, ordered that the like be published in future. Said the Otis lawyers last week: "The question as to what information should be contained in the prospectus has been the subject of a good deal of uncertainty, and investment dealers generally will welcome a clarification of this point."

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