Scrutiny on the Street

Not since New York Stock Exchange President Richard Whitney was packed off to jail in the 1930s had Wall Street come under such withering scrutiny. It was bad enough that the SEC was probing the American Stock Exchange after a series of scandals (TIME, May 5 et seq.), even more disturbing that SEC investigators were working overtime on more cases of market fraud and manipulation than ever before. But last week SEC Chairman William L. Gary suggested that the whole barrel of apples had better be tumbled out and examined. Testifying before a House subcommittee, Gary urged a full-dress investigation of general trading and market practices, strongly endorsed a proposal by Illinois' Democratic Congressman Peter Mack, the subcommittee chairman, that would give the SEC $750,000 to conduct an 18-month probe of the whole securities business.

Too Hot? The nation's securities markets, according to Chairman Gary, suffer from "a substantial amount" of manipulation, have outgrown the regulations established for them in 1934. With hundreds of thousands of unsophisticated investors invading the market, said Cary, a class of securities salesmen has grown up that is "not subject to the kind of supervision which insures high ethical standards." Fearful that there has been a consequent "lowering of standards in market operations," Cary wants to re-examine the rules to see if they sufficiently protect investors. Specifically, he is anxious to take a hard look at the over-the-counter market (where investors suffer "a lack of basic information"), mutual funds (charges of excessive fees to investment advisers), and the billowing of new or "hot" issues, which the SEC suspects are often given "artificial stimulation."

The hearings were the first real tip-off to the temper of Chairman Cary, 50, a Yaleman ('31) and onetime (1938-40) SEC counsel, who was plucked from his job as a Columbia law professor by President Kennedy last February to head the SEC. A Phi Beta Kappa with a staunch New Deal background, Cary served with the OSS in Rumania and Yugoslavia during World War II. No stranger to the Wall Street whirl, he worked part time during his Columbia days as special counsel to a Wall Street law firm.

Too Broad? Many Wall Streeters, concerned about the Street's reputation, were not hostile to an investigation. For years responsible brokerage houses have been scandalized by the free-wheeling practices of the over-the-counter market, have regarded the succession of "hot issues" born there as just a way for some insiders to make a fast buck. Several mutual funds have been sued over the large fees they pay advisers, and mutual fund salesmen are widely regarded on the Street as men who sell stocks (and collect high commissions) much as door-to-door salesmen peddle Christmas cards. As for the American Exchange, many Wall Streeters feel that President Edward McCormick has spent too much time drumming up business and not enough keeping his house tidy; they expect questioning to be sharp when he appears before the subcommittee later this month.

The SEC is highly likely to get the money for its general investigation, but the question that bothers Wall Streeters is how the commission will ever find the time or the staff--even with $750,000--to handle so big a job. In his testimony before the subcommittee. New York Stock Exchange President Keith Funston argued that the heavily policed Big Board does not need probing and opposed any overall investigation. "We think it would be unwise," Funston said, "to direct the SEC to undertake broad new studies if these will divert its energy from the inquiries presently under way. It seems to us it is more important to reach conclusions regarding presently known problems than it is to delay those conclusions in the search for new problems." Nonetheless. Wall Street waited in uncomfortable fascination to see what new worms--or hitherto undescribed old ones--the SEC will find in its barrel of apples.

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