Commissioner MCENTIRE. Of course my own feeling about it is that old-fashioned manipulation was done under the cover of darkness; that the very essence of it was that people didn't know that the quote they were getting on the particular ticker tape was not a fair, frée, and open market. Mr. HELLER. Well, in the hands of unscrupulous administrators it could be a pretty serious situation, could it not? Commissioner MCENTIRE. Not if it doesn't raise the price, and if it is publicly declared that that is what is happening, and those two things are the very foundation stones; if those two facts don't exist, it is not stabilization and it is not permitted and it would violate the rules. Mr. HELLER. When does the public declaration take place? Commissioner MCENTIRE. In the typical case it is made in connection with the filing of the 1933 act registration statement, right in the registration statement, and on the prospectus. It says right on the front page, I think as a rule, on the cover page, the company reserves the right to stabilize if they are thinking of doing it. Now, that isn't all. Just as soon as they start to do it they have to report that they are doing it. Mr. HELLER. Did stabilization take place in the Kaiser-Frazer issue? Commissioner MCENTIRE. Yes; there was stabilization in Kaiser Frazer. Mr. HELLER. I am referring to the third offering. Commissioner MCENTIRE. Yes, I think that there was stabilization in all three of them. As a matter of fact, Mr. Chairman, there is, at least generally, the machinery for stabilization set up in almost, not in every, but in almost all, sizable offerings. Whenever an offering is about to occur, as a general rule the financial community knows it and they can sure find out in 5 seconds if they have any doubt about it. On the Kaiser-Frazer third offering, stabilization commenced immediately before the offering was made. The registration statement became effective, I think late in the afternoon. During the course of that day stabilization was resorted to by the issuer. Now stabilization is usually done by the issuer immediately prior to the effectiveness of the registration statement, and thereafter by the underwriter. That is a matter of contract between them, but that is a customary and regular way of doing it. The company stabilized during that day. My recollection isn't 100 percent on it and I would be glad to get it for you if you want it, but I think all day, and if not, at least substantially all day. And the next day the underwriters were going to take over. I don't remember whether the underwriters did any stabilization purchasing or not, and if they did it wasn't very much, because there was right at that time a crack in the market and it developed to be a pretty good one. And of course a lot of other things then followed in the wake of that relatively ill-fated offering. Mr. HELLER. Do I gather then from your testimony that the financial fraternity knows in advance that resort will be had to stabilization? Commissioner MCENTIRE. They know that it will or may be well in advance, and as soon as the registration statement is filed, they know that. Mr. HELLER. Well, does the average investor know it? Commissioner MCENTIRE. Yes, I think anybody that is at all an informed investor, does know it; and anybody that gets a prospectus will know it. But stabilization, and it has got its problems, and I don't want to indicate that it doesn't, is a thoroughly recognized technique that has been in existence long before this statute and ever since. Mr. HELLER. Is there any litigation now pending on the KaiserFrazer third offering that relates to the stabilization question? Commissioner MCENTIRE. Mr. Chairman, there has been so much litigation in that case that I hesitate to state definitely just what is covered. I don't have a catalog. I do know this, next Monday, the Second Circuit Court of Appeals will hear the appeal in the suit of Kaiser-Frazer versus Otis & Co., which was the outgrowth of the trial before Judge Clancey and his judgment. Of course that issue is in there, I am pretty sure. Mr. HELLER. Would you permit this subcommittee to look at the files, look at your files relating to the stabilizing permitted in this case of Kaiser-Frazer? Commissioner MCENTIRE. The reports on stabilizing transactions are public and we will let this committee or anybody in the world look at it. I will be glad to transmit that request to the Commission and I am sure that there will be no difficulty about it at all. us? Mr. HELLER. Would you be kind enough to transmit that file to Commissioner MCENTIRE. Yes, sir. (The file referred to follows:) SECURITIES AND EXCHANGE COMMISSION DOCKET SECTION File 17-1003-1 (temporary) KAISER-FRAZER CORP. COMMON STOCK STABILIZATION REPORTS SECURITIES AND EXCHANGE COMMISSION, OTIS & Co., Cleveland, Ohio, February 4, 1948. (Attention Trading and Exchange Division.) GENTLEMEN: Otis & Co. and First California Co., as managers, terminated stabilizing common stock of Kaiser-Frazer Corp. at 1:12 p. m. today. Very truly yours, OTIS & Co., By R. T. HISEY, Office Counsel (For Otis & Co. and First California Co.). |