"Scotching" the Swindling Stock Salesman

It is not the province of the law to repress the speculative instinct to it the world largely owes its progress and so long as the small investor is informed as to the actual facts concerning the offered undertaking and understands that the investment is speculative; so long as he is not induced to invest in "gold brick" securities on the representation that if not Liberty bonds they are just as good, or a little better; so long as he does not invest more than he can afford to lose, and has an honest "run for his money," there is but little to be said. It is to the attainment of these fairer and more honest conditions in speculative financings that the law and individual effort should be directed.

Make it easier for this investing public to purchase the safer stocks and bonds-educate it to discriminate between investments and speculative offerings-teach it to look more to the standing and ability of the men behind the offering-hold these men behind the offering far more strictly, more severely, and more promptly to account for the representations they make, and also for those they should, but do not make let the banks refuse to either loan money or discount notes in connection with the purchase of speculative stocks-enact Blue Sky laws that will really bar the swindler and the swindling scheme, and, this done, let matters take their course.

Meanwhile, as some of the cleverest brains in the country have misdirected their energies in stock-selling schemes of fraudulent nature, let the salesmen of honest stocks and good bonds-which are safe, and pay almost twice the interest that the savings bank does—and the promoters of legitimate speculative offerings, study the methods of these salesmen and give the people something both really good and attractively presented. "The bogus stock salesman is a wily individual. He is a marvel of resourcefulness. Salesmen in legitimate lines could learn much from him if they would study his methods. Blocked at one point, he tries another way, and keeps on trying until he finds a thoroughfare." 4

4 Arthur McClure in Printers' Ink.

The Enterprise and Its Promoter

An enterprise as contemplated by the present work is any undertaking that may be financed. It may be an invention, a mine, a business, a consolidation, a combination, or any other form of business activity; it may be a new or development opportunity; it may be a going concern or the resuscitation of a moribund business, or it may be merely the salving of a financial derelict. If there is a proposition on the one side, seeking money from the other side, for its development or operation, it is an enterprise as here considered.

A promoter is anyone seeking to secure money for an enterprise, and, unless he is an owner, usually with the expectation of being paid, in cash or in "kind," for his services in so doing.

What Enterprises Can be Financed

As to what enterprises can be financed, it may be said broadly that money may be raised for anything capable of attractive presentation. The nature of the enterprise-ethical considerations apart-is of minor importance, its successful financing whether for its own operations or for the benefit of its promoters being mainly a matter of preparation and presentation. Financings of an astonishing nature are known to everyone interested in such matters. The author recalls one instance where an invention, untried and unpatented, and existing only on paper, secured financial support in cash to the extent of nearly $40,000. Further, a large portion of this amount was placed in the inventor's hands without restriction, and all this solely on the unsupported statements of this same inventor as to the value and conditions of his invention. Here the man presenting the enterprise honestly believed the statements he made and was able to imbue others with his belief, but this belief, as shown by results, was purely a matter of faith-not of works.

Nor is this an exceptional case. It is a matter of common observation that investors will, if properly encouraged thereto,

lend their financial assistance just as freely and even more cheerfully to some impossible schemes for the extraction of gold from the waters of the sea, to the drilling of a wild-cat oil well in faroff doubtful territory, as to the establishment in their midst of a solid, well-tried, and profitable industry.

Requisites of Successful Financing

The promotion of illusive schemes, such as those just referred to, occasionally brings the promoter's career to an abrupt termination in the penitentiary, and for this, as well as for more ethical reasons, is to be condemned. But the methods adopted in the presentation of such swindling enterprises evince much knowledge of human nature and their results are surprising—so much so, that, these methods, as already intimated, should be studied and used as far as proper in the promotion of honest undertakings.

It must be recognized that "beauty unadorned" is not always appreciated in the financing of an enterprise. A badly constructed model, crude in appearance and defective in operation, may prove all-sufficient for a successful financing. So also, a bald statement of facts without comment or elaboration may, if the facts are sufficiently good and the men behind the enterprise financially strong, be effective and the best presentation that could possibly be made. Usually, however, an enterprise so presented gets no further than its presentation. Something more attractive is needed if it is to be financed. Dr. Johnson recognized this necessity when in offering the Thrale Brewery for sale he made the impressive statement that it was not merely the material assets that he was offering, but in addition to these "the potentiality of riches beyond the dreams of avarice."

Just how far verbal gilding may be carried in promotion without overstepping the bounds between legitimate statement and false representation, is sometimes a question. There is, however, no question but that an enterprise to be financed may be made or marred by the manner and method of its presentation.

CHAPTER II

CONDITIONS OF FINANCING

The Work of Financing-Conditions vs. Theory

To the inexperienced, the financing of any good enterprise does not seem a difficult matter. Indeed, to those unfamiliar with the "industry" it appears quite as difficult to find a good enterprise as to find the funds for its flotation. There is money a plenty in the world; it cannot be left idle; it must go into something, and, therefore, if one has a meritorious enterprise, it should be as easy to sell an interest in that as to sell any other possession of material value.

That this is not an uncommon impression is shown by the constant inquiry in entire good faith for reliable concerns engaged in the work of financing enterprises-concerns through which the man with a good undertaking may finance his enterprise, just as he would sell a house through a real estate agent, or his crops through a commission merchant. Nor is this impression entirely confined to those unfamiliar with the industry. An authoritative writer on finance, discussing the flotation of a new invention says: "Quite generally the promoter will try to interest some capitalist in the invention who will supply the money necessary to start the company; less often the stock will be offered to the public. In such cases, the invention is probably of little value, as a promoter will find no difficulty in securing private capital if the invention promises to be of merit."

Theoretically, this easy financing is entirely possible. In fact, it does exist for the fortunate enterprises which can meet the exacting requirements that such financing demands. For the ordinary friendless enterprise, however, there is no royal road to

' Dewing, "Financial Policy of Corporations," save as to italics.

the financed condition. Such undertakings, even though good, are usually floated with difficulty, and, while concerns do exist for the announced purpose of financing enterprises, they are, too often, far more active and successful in securing money from their clients than for them.

When Financing Is Easy

For this failure of theory, the unfortunate conditions under which enterprises are usually presented must be held responsible. The truth of this is shown by the very ease with which an enterprise is financed when the conditions are favorable. A successful business man of proved integrity takes up some new enterpriseusually something closely connected with or related to his own business-looks into it carefully, and then with a sound and wellmatured plan of operation, of which efficient management and sufficient capital are essential features, announces his intention of investing his money in it and invites his business associates to do the same. If the enterprise is suitable and the time is right he will dispose of this offered interest with ease with much greater ease than he could negotiate the sale of his house or find a purchaser for a surplus stock of goods.

Just how easy it all is when the conditions are favorable is well illustrated by the newspaper clipping which follows describing the financing of an oil company.

Chicago, Dec. 31.-One of the quickest deals ever put across was consummated here today. A. J. Belcher of New York called a dozen of his friends together at one of the big clubs and in thirty minutes they subscribed $100,000 to be used in sinking two wells in Webb County, Texas.

Such rapid-fire financing is not, however, so unusual as the foregoing quotation would seem to indicate. It is found whenever the conditions are right-and not infrequently they are right. As tersely expressed by a representative member of a highly 2 Texas Oil Ledger, January 8, 1921.