Stock Exchange and in brokers' offices. But after all even Congress, with the machinery of almost unlimited power at its hand, does not always seem to find it quite easy to hunt the wicked rumor-mongers to their lairs and subject them to adequate punishment.

Yet the unwarranted assailing of a man's good name is a more grievous and heinous offence than the assailing, by dint even of false reports, of the market prices of his possessions.

I need hardly add that the practices to which I have above referred are equally wrong and punishable when they aim at and are applied to the artificial boosting of prices as when the object is the artificial depression of prices.

Does the Public Get "Fleeced"?

Question:

We hear or read from time to time about the public being fleeced. There is a good deal of smoke. Isn't there some fire?

Answer:

If people do get "fleeced," the fault lies mainly with outside promoters or unscrupulous financiers, over whom the Stock Exchange has no effective control. Some people imagine themselves "fleeced," when the real trouble was their own get-rich-quick greed in buying highly speculative or unsound securities, or having gone into the market beyond their depth, or having exercised poor judgment as to the time of buying and selling. Against these causes I know of no effective remedy, just as there is no way to prevent a man from overeating or eating what is bad for him.

In saying this, I do not mean to imply that stockbrokers have not a duty in the premises.

On the contrary, they have a very distinct and comprehensive duty towards their clients, especially those less familiar with stock market and financial affairs, and towards the public at large. And they haveDoes the public get fleeced? furthermore the duty to abstain from tempting or unduly encouraging people to speculate on margin, especially people of limited means, and from accepting or continuing accounts which are not amply protected by margin. In respect of the latter requirement, the Stock Exchange has rightly increased the stringency of its rules some years ago, and it cannot too sternly set its face against an infringement of those rules or too vigilantly guard against their evasion.

Against unscrupulous promotion and financiering a remedy might be found in a law which should forbid any public dealing in any industrial security [for railroad and public service securities the existing Commissions afford ample protection to the public] unless its introduction is accompanied by a prospectus setting forth every material detail about the company concerned and the security offered, such prospectus to be signed by persons who are to be held responsible at law for any wilful omission or misstatement therein.

Such a law would be analogous in its purpose and function to the Pure Food Law, Any, let us call it, "anti-fleecing" law which went beyond that purpose and function would overshoot the mark. The Pure Food LawDoes the public get fleeced? does not pretend to prescribe how much a man should eat, when he should eat or what is good or bad for him to eat, but it does prescribe that the ingredients of what is sold to him as food must be honestly and publicly stated. The same principle should prevail in respect of the offering and sale of securities.

If a drug contains water, the quantity or proportion must be shown on the label, so that a man cannot sell you a bottle filled with water when you think you are buying a tonic. In the same way the proportion of water in a stock issue should be plainly and publicly shown.

The purchaser should not be permitted to be under the impression that he is buying a share in tangible assets when, as a matter of fact, he is buying expectations, earning capacity or goodwill. These may be, and often are, very valuable elements, but the purchaser ought to be enabled to judge as to that with the facts plainly and clearly