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there isn't any more, not since Dolley got on the job as bank commissioner.
Mr. Dolley is a banker himself. Born in Boston in 1861, he has that natural New England aversion to seeing money wasted. Much of his early life was spent at sea with his father, an old-time skipper. Tiring of the sea he got as far away from it as possible by going to Kansas. From a clerk in a country store he advanced to proprietorship and then into banking and still is interested in several financial institutions. Incidentally he has managed several political campaigns in Kansas, so that he is used to hard knocks, and whatever the stock swindlers say about him will not hurt him as much as it might hurt somebody else. As a matter of fact, it doesn't hurt him at all. He rather enjoys it, because he always has the last laugh. That last laugh, as it were, is known out in Kansas as "The Blue Sky Law." To describe it in a nutshell, the "blue sky" law confers on the bank commissioner almost autocratic powers in saying whether any stock company may offer its stock or bonds for sale in Kansas.
While Mr. Dolley actively was in the banking business, several instances came to his notice where trusting widows had been beggared by putting all their money into fake investment schemes. After he became bank commissioner he heard of many others. He began a systematic investigation and he found that the people of Kansas were being swindled through the purchase of immense quantities of stocks and bonds in unreliable and unproductive concerns and corporations.
"It is impossible," Mr. Dolley said in a report to the legislature, "for me to advise you accurately as to the probable extent the people were and are being swindled each year by these fakers—and I wish to say, in the great majority,
common thieves—but I am thoroughly satisfied that they have been robbed of from $1,000,000 to $3,000,000 a year. In fact, I am inclined to believe that it far exceeds that amount. I find that there is an army of agents representing these concerns working all over the state. "They especially prey upon widows and the beneficiaries of insurance policies, calling upon the beneficiaries shortly after the funeral and offering to sell them stock which they assure them will pay enormous profits, in many cases promising to pay as much as forty or fifty per cent a year. Ninety-eight per cent of the money so invested by the Kansas investor is absolutely lost." Here is a case in point:
In a certain town out in Kansas, a woman nearing middle age bends over a washtub six days in the week in a little shack at the edge of town rubbing herself into a premature grave to provide a living for herself and three children. Just a little more than a year ago the husband—a railroad shopman—died, leaving her a pretty little cottage half-paid for, $2,000 in insurance and a little ready money which paid the funeral expenses and left a few dollars over. She was just the ordinary type of a woman, a good mother and a good housekeeper, who grew up in a country town with little opportunity to learn much about business affairs.
One morning, a week or so after the husband's death, the clerk of. his lodge went to her home and paid over to her a check for $2,000. Meantime, she had sought advice from the secretary of the building and loan association which held the mortgage on her house. He advised her to pay off the loan and invest the remainder in stock in the association which, he said, would pay her at least five and probably six per cent on the investment.
Joseph N. Dolley. State Bank Commissioner
He protects the poople not only against insecure deposit
ories, but—through his own initiative—against unsound
and dishonest investment schemes as well.
"It isn't much," he said, "but it will be absolutely safe. Perhaps I can find something later that will be just as safe and bring you a better return."
That very afternoon the widow had planned to go to the secretary's office, pay off the loan and invest her money. Then, as the secretary told her, she would have her house rent free, an income of $5 a month and probably she could find something to do that would bring in enough more money to keep her and the children comfortable. She had sent the children back to school for the afternoon and was getting ready to go down town when there was a knock at the door.
The caller was a well-dressed stranger. He introduced himself as Richard J.
Tompkins of the Pan-American Plantations Company. By a happy chance he had belonged to the same order as her husband and hearing of her bereavement had called to offer condolences. He had known him slightly— from what he had hastily conned from the newspaper notice of his death—and he was a fine fellow and all that. In fact he had shown some interest in the PanAmerican Plantations Company. Sorry he had died because he probably would have invested in what would have been an immensely profitable venture. And so on for a half hour or so until Mr. Tompkins casually mentioned that it was unfortunate small-investments at home brought such small returns. Now, for instance, he was not exactly a rich man but he was putting every cent he could make into Pan-American Plantations stock and counting upon being a millionaire shortly.
All of which was calculated to — and did — impress the widow, ignorant of such things and oh, so eager to keep up a good home for her fatherless little ones! She listened, fascinated, to the glowing description of the almost unbelievably rich properties of the Pan-American Plantations Company, her eyes bulging as the suave Mr. Tompkins discussed probable fifty per cent dividends in the near future. Why that, she saw, would be enough to pay off the mortgage and keep the family, too. She could stay at home and care for her children and never need to worry about the future!
Yes, indeed, that was the very thing Mr. Tompkins was leading up to; with the result that Mr. Tompkins carried away with him a very common looking check that was worth $2,000 at any bank in the country and left behind him a beautifully lithographed certificate for 2,000 shares of Pan-American Plantations stock that wasn't worth what it cost to have it printed. An accommodating bank cashed Mr. Tompkin's check and an accommodating railroad carried him out
of town half an hour later. He hasn't been back since, and doubtless never will be.
That is just one instance of the downright thievery that has been, and still is, practiced in this country in the sale of stocks for investment. It is a somewhat aggravated—but not exaggerated—case, but there are thousands and thousands of others, differing only in detail, scattered up and down the United States, and thousands of Mr. Tompkinses busily engaged putting more trusting widows into the hand laundry business. So long as the law maintains a passive attitude tow a r d the Mr. Tompkinses and their business, so long as the "blue sky" lasts—and the supply is illimitable —Mr. Tompkins will be right on the job.
Now, perhaps, you will say you sympathize with the widow, but of course, it was her own fault. She had good advice and didn't act upon it. about it?
Why stop it, of course! If you advise your neighbor to insure his house and he neglects to do so, and it catches fire, do you stand by and watch it burn? Certainly not! You call out the fire department. That's what Kansas did. It called out the fire department. When it saw its people being robbed right and left it called out the fire department, figuratively speaking. That is what every other state will, or ought, to do. Funny how simple are the solutions of these intricate problems. Just stop it. That's all. Put a penalty on such outrageous thievery and stop it.
If you will sit down with the figures, you will find with little difficulty that in the last ten years the people of this country have been swindled out of one billion
What can you do
dollars in fake investment companies. That is a conservative estimate. Bankers, postoftice inspectors, legitimate investment brokers and Federal district attorneys to whom I have talked say the figures for the last ten years will run nearer three billion dollars. And mind you, this vast sum, somewhere between one and three billion dollars came, in the majority of cases, from persons who could not afford to lose it. I place the estimate low, because I have excluded from it the "sucker s." A "sucker" properly is one who knows very well that you can't get something for nothing and yet w'h o risks his money in the fond hope that he is going to beat the other fellow's game. It never has been done and never will be—not in the fake investment game.
The people who bought these worthless securities were not "suckers." They just didn't know. They are honest and unsophisticated, knowing little of business affairs—especially, so the women—and ready, as they were with their equally honest neighbors, to take each man at his word. When the welldressed, ready-speaking stranger came among them and painted glowing pictures of the easy road to affluence through investment of their savings, they took him at his face value—and bought at enormous cost the bitter experience of being swindled.
For the "suckers" there needn't be any sympathy. The ones who should have that, and the ones who need protection, are those who have lost and those who will lose through ignorance. Of course, no one should be ignorant, but since it is "a condition and not a theory which confronts us," we will have to put aside academic propositions and consider practical things. When men and women have toiled for months and years to lay up a few dollars against a rainy day, both the state and the nation should see to it that, beyond question, they have a safe place to put these savings.
Bad as it was, the Louisiana Lottery never took from any state one-fiftieth of the money that has been taken by peddlers of worthless stocks and it actually did distribute a large share of what it took in. One may even say in comparison a good word for the loan shark, too,
money invested. But what's the use of throwing good money after bad? Besides, the stock swindler seldom leaves his victim enough money to hire a lawyer. He believes in getting it all while the getting is good.
Suing is too much like locking the stable door after the horse is stolen. TJie thing to do is to lock the stable door first and then stand guard with a shotgun, in other words to put the swindlers out of business and to keep such a close watch on the other investment companies that there wouldn't be any chance for them to do any swindling. That was Mr. Dolley's plan. There was no warrant in law for what he purposed to do, but Mr. Dolley has a sort of Rooseveltian knack of
The Littlk Corner Of Mr. Dolley's Office Has Grown Into A National Institution Which Might Well Be Called A National BuReau For Giving Free Advice To Investors.
even if he does exact his pound of flesh. Yet the nation, the state and the Church rose as one to drive the lottery out of business, upon the loan shark society wages a relentless war. The policy gambler is hounded through the slums and the alleys and some people would like to brand the food adulterator as a criminal. But the king of all the swindlers, the man who sells worthless stocks, occupies the finest suite in the most expensive skyscraper and goes about his business with the sufferance, if not by the protection of, the law.
In every other state except Kansas, the only recourse of the victim is to hire a lawyer and sue for the return of the
finding ways to do things that the law does not specifically provide for. So, some two years ago, he established a bureau in his department for the purpose of advising the people of Kansas, without any charge to them, as to the value of stocks, bonds and other forms of securities offered to them for investment. Wide publicity was given the innovation and almost at once there was a noticeable shrinkage in the number of swindling schemes being operated in the state. Cautious investors welcomed the new bureau and made frequent use of it, but the persons who most needed protection, as usually is the case, were not reached at all. The only way to protect them was
to strike at the root of the evil by driving the swindlers out of the state. Thus was born the "Blue Sky" law.
While he was drafting that law, Mr. Dolley did a good job of it. In the statute book it covers seven pages of closely set type and the bristles stick out of it like quills on a porcupine's back. And it has teeth, too, fore and aft, for the legislature in passing it, to make sure of the job, added a clause which provided that, if the supreme court should declare any one of its provisions unconstitutional, all the others should remain on the statute book in full force and effect.
In brief, the law, which is entitled "An Act to Provide for the Regulation and Supervision of Investment Companies," requires every corporation or association, foreign or domestic, which purposes to sell stock in Kansas, to file with the bank commissioner a clear and complete statement of its affairs down to the minutest details; it must file its written and irrevocable consent to accept service upon it through the secretary of state of Kansas, and pay the expenses of a minute investigation into its affairs by an agent of the bank commissioner. It must agree that no amendment to its charter shall become operative until the amendment is approved by the bank commissioner; it must file copies of its contracts and each of its agents in Kansas must be registered in the bank commissioner's office. The law provides methods of bookkeeping and each company must agree to open its books at any time to any stock holder. If, upon investigation, the bank commissioner finds the concern is solvent, fairly conducted, and, in his judgment, promises a fair return on the securities offered for sale, the commissioner may issue a certificate permitting the company to do business. The certificate, however, recites in bold-face type that "the bank commissioner in no wise recommends the securities to be offered for sale."
If the commissioner isn't satisfied with the company's showing he can refuse the application. Since the law went into effect last March more than seven hundred applications have been filed under it and at the time this is written exactly fortyeight of them were approved and given certificates. Not one of the others dares sell a share of stock in the state, that is,
not unless the agent is willing to risk a fine of anywhere from one hundred dollars to five thousand dollars or ninety days in jail or both. Furthermore any person who makes a false statement in filing an application for a certificate to do business subjects himself to a fine of from two hundred dollars to ten thousand dollars and not less than a year nor more than ten years in the state penitentiary. And to make it just a little stronger, if any company authorized to do business in the state conducts its business in an unauthorized manner or becomes insolvent, the bank commissioner may immediately throw it into the hands of a receiver and wind up its affairs.
It might be added, by the way, that Kansas has learned so many things about wild-cat stock selling from Mr. Dolley that the judges are just in the right mood to impose the maximum fine and imprisonment on any agent or any company that violates the law. So far, none has dared attempt to violate the law.
When the law first went into effect there was a great clearing out of many of the worst of the fakes which, understanding the "Kansas language" when they read it in the law, saw the uselessness of staying in Kansas any longer. They moved off to greener fields. Others with that unlimited self-assurance, castiron nerve and total lack of conscience which goes with their calling, promptly filed their applications and were as promptly turned down. Some quit on that, but there were a few who still were not convinced that the law meant just as it read and that Commissioner Dolley meant just exactly what he said. They protested. Some were grieved at the error which the commissioner had committed in refusing the application; others were insulted.
For these Mr. Dolley had a set formula. "Go out," he would say, "and bring me one person who ever bought stock in your company, or who ever bought stock in any company from you, who ever received as much as five per cent in return from any or all of them and I'll pay you two dollars for each and every one."
They expected to make a bluff and the bluff was called. Up to the time this was written Mr. Dolley hadn't paid out a cent