FINANCE •
FRAUDULENT SHARE-PUSHING UNDER the title of" Share Sharks" The Spectator in its issue of August r3th dealt in a manner which has been thoroughly approved in the City with the general intent and scope of the work of the Depattmental Conifiaittee on Share-Pushing. That article was written immediately on the publication of • the Report, since when the findings and recommendations of the Committee have run the gauntlet of City opinion and it is upon some of these City views that I propose to comment in this article.
Nowhere, of course, more than in the City is there an appreciation of the desire on the part of the Committee not to allow their efforts to curb the activities of the fraudulent share-pusher to be of a character which might at the same time restrict legitimate financial and business activities. For it is, of course, true that for every fraudulent share-pusher there are some thousands of reputable brokers and financiers, and that for every victim of the fraudulent share-pusher there are thousands of investors who nuke profitable use of the legitimate activities of the Stock Exchange broker and even of those who are usually described as " outside " brokers because not attached to any one of the recognised stock exchanges. On the whole, however, the City seems inclined to the view that in the desire not to interfere with legitimate financial activities the Departmental Committee has not been sufficiently drastic in its efforts to protect the public from the unscrupulous or fraudulent share-pusher, and it is urged, in particular, that under the system of registration proposed there is some danger of the fraudulent share-pusher obtaining, as it were; an official cachet assisting him in his activities.
CONDITIONS OF REGISTRATION.
I am inclined to think, however, that those who raise this particular point may have failed to give sufficient atten- tion to the appendices, which usually give important details supplementing the main recommendations. Thus, at first sight, it might appear that inasmuch as the application for registration is open to any outside dealer in shares, we should soon witness an army of registered dealers amongst whom might be found many fraudulent share-pushers. On page 68 of .the Official Report, however, reference is made to some of the essential conditions of registration as set out iti paragraphs 79 and 8o, and ,on turning to those paragraphs we are referred to appendix VI setting out in full the suggested items of information required from applicants for registration. It is impossible to study them without coming to the con- cluSion that, ' if tliey are embodied in a Parliamentary Bill, the meshes of the net for excluding the fraudulent share- pusher will have been made exceedingly fine, and if this is so, it is difficult to see what further measures of protection could be devised to protect the public.
PREVENTIVE MEASURES.
Nevertheless, there is, of course, almost of necessity the possibility of the efforts to exclude undesirables from the registered -list failing in some instances—much, of course, must depend upon the vigour. of the registrar in enforcing the requirements suggested by the Departmental Committee —and, therefore, we have to fall back upon the further recommendations with regard to a great increase in the penalties to which a fraudulent shate-pushei would be liable. Not only so, but yet another recommendation of the Com- mittee is to the effect that Justices of the Peace should be authorised to issue, on application made by of on behalf of the Director of Public Prosecutions or by or on behalf of the Chief Constable a search warrant to enter and search and inspect books and accounts in any premises occupied by a person reasonably suspected to be carrying on any business of a fraudulent character in connexion with' snicks and shares, and, further, should be empowered to authorise inspection of any banking account kept by such person. These are fairly drastic recommendations and in the article of August 13th to which I have already referred attention was also drawn to the reference in the Report to the need-for an increase in police vigilance, these-references -being accom- panied by the recommendation that the City Police (within whose area many of the share-pushers establish themselves) should wotic in _close co-operation with Scotland Yard and pool both machinery of detection and legal advice.• - 'SHAttE-PUSHING THROUGH THE POST.
Perhaps however, one of the chief directions in which the public requires protection from the fraudulent share- pusher is in the matter of the specious circulars received, and here, of course, the difficulty of safeguarding the public is very great; but the suggestion ii made that circulars and other literature proposed to be sent by post by unauthorised "brokers and dealers in securities should be included in the prohibition against using postal facilities which in regard. to other kinds of objectionable matter is contained in Section 63 of the Post Office Act, 1908. The Committee admit, however, that in many cases the difficulty of detecting the character of the postal matter would arise. Moreover, there have probably been many instances where the Post Office telephone has been found a convenient method of approach to the investor by the fraudulent share-pusher as well as by the legitimate dealer.
CREDULITY-CUM-CUPIDITY.
Needless to say, however, the greatest difficulty of all which has to be faced when endeavouring to put the fraudulent share-pusher completely out of action is both the credulity and cupidity of a certain section of the public; and, -cUriously enough, this cupidity and this credulity can, operate at one and the same time in the same person. The desire to " get rich quick" is common to us all, and the ability and ingenuity with which the appeals of the share-pusher are framed exhibit a masterly knowledge of the weakness of human nature. Moreover, coupled with this credulity and cupidity there is so often an extreme reluctance on the part of those who respond to the blandishments of the fraudulent share-pusher to consult responsible advisers before parting with their money or securities. In many instances, such reluctance is probably based upon the instinctive feeling that any advice would be contrary to the desire already formed to take advantage of the opportunity offered by the share-pusher, and while there are, of course, very many who are not necessarily inspired by cupidity but rather by a credulous faith in the printed page and even in human nature itself, it is probable that many, if not most, a those who succumb to the blan- dishments of an appeal to get rich quickly by dealing in shares are aware in their inmost consciousness that a con- siderable risk is being run. In the matter of aiding the public in making complaint of fraudulent treatment, the Cortunittee have not been negligent, and the further recom- mendation is made that names and addresses and occupations of witnesses complaining of having been defrauded in connexion with dealings in stocks and shares should, subject to approval of the Court, not be published.
On the whole, therefore, I am of the opinion that at this stage the recommendations of the Departmental Com- mittee are adequate to the requirements of the situation" if they are carried out to the full as expressed not only in the main paragraphs of the Report but in the details contained in the appendices and if, as is generally believed, it is the intention of the Government to bring in a Bill quickly carrying out the Committee's recommendations, I think that a long step will have been taken in the direction of protecting the public against the fraudulent share-pusher.
ARTHUR W. KIDDY,
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