Halsey, Stuart Indicted

Harold Leonard Stuart was proud of N. W. Halsey & Co.'s record when he went to work for the firm. When he became its president on Banker Halsey's death in 1911 he was proud and jealous of the reputation of the new firm, Halsey, Stuart & Co. Now a white-haired banker of 51, he points with pride to his firm's vast clientele and to the fact that even during the boom it distributed no common stocks. While some of its issues "turned sour" it has maintained its reputation among its peers.

Banker Stuart has been aware of an attack brewing against his house. His first intimation of it was 19 months ago when Senator John J. Blaine of Boscobel,

Wis, arose upon the Senate floor and denounced Halsey, Stuart's financing of Washington real estate in a burst of oratory, bellowing: "In all the ages the tyrant, political, industrial or financial has been the one to suffer the guillotine; and I now warn the Halsey Stuarts, the Dohertys--I warn them all that their power to rob must cease." This attack was centred upon the Wardman Real Estate Properties Inc. holding company for $28,000,000 worth of apartment houses, office buildings and hotels, including famed Wardman Park Hotel.

Some time after this speech the Department of Justice (which rents a Wardman building) sought and obtained permission to go through Halsey, Stuart's books.

Last week white-haired Banker Stuart heard that the Blaine-made storm was about to break. In selling $13,500,000 worth of Wardman bonds the house had sold $200,000 in the Senator's home state, thus making possible a "use of the mails to defraud" charge. Anxious to protect his firm from the criticism which is aroused by any legal action, Mr. Stuart hurried to Washington, asked President Hoover to intervene. He was referred to Attorney General Mitchell who refused to act. Returning to Chicago, he prepared to face what he felt sure was a "frame-up," an action brought on for political purposes and typical of the many suits which during a Depression serve to keep lawyers busy, corporations harassed.

Just as Mr. Stuart expected, the indictment charged him and five of his executives with using the mail to defraud. The indictment was issued in Chicago, home office of Halsey, Stuart & Co. Banker Stuart and his two indicted Chicago partners promptly surrendered and posted a bond guaranteeing their appearance in Milwaukee where the trial will be held.

Under a new law they were fingerprinted.

The indictment makes no reference to the details of the supposed fraud and misrepresentation in the case. The crime has been committed, says the Grand Jury, because on such & such a date some of these securities were sent to purchasers through the mail. This evidence when presented to the trial jury may be supported by an attack on the accuracy of certified balance sheets and operating statements, or it may deal with careless preparation of sales circulars which resulted in "misrepresentation" and loss to purchasers. If it is the latter aspect, one item for comment will be the sale of $11,000,000 First & Refunding Mortgage bonds, not first mortgages at all as the term is commonly used in realty parlance, but part first and part second mortgages--as would have been apparent to an investor who understood balance sheets. Or perhaps a major attack may be made on a $2,500,000 issue of debentures secured by deposit of another block of bonds which at one time were rumored to have been withdrawn in part.

In matters like this Wall Street is prone to rely heavily upon the famed doctrine of Caveat Emptor ("Let the buyer beware"). On the other hand the investing public, as represented by their District Attorneys, like to put the blame for any loss on the financial go-between.

Straus Out. The proud and business-fetching boast of the big realty investment firm of S. W. Straus & Co. was "44 Years Without Loss to any Investor." But last year many a Straus-sponsored bond defaulted, huge losses piled upon Straus investors. Last week, charged with selling bonds on properties whose taxes were in default and first mortgages that were not first mortgages, the company was thrown into receivership. Special law applied was New York's Martin Act which defines fraud as "all deceitful practices contrary to the plain rules of common honesty." Said Justice Alfred V. Norton in ordering the receivership: "It is tragical, to say the least, to compare the practices as engaged in by the defendants with the glowing representation of good faith set forth in the particular circular issued by the defendants. It appears . . . that the defendants were laboring under the mistaken conception that they were under no duty to make disclosures to prospective purchasers in answer to specific inquiry." In addition to the receivership a restraining order was issued prohibiting the firm from selling bonds until true facts are set forth to customers. Straus President Nicholas Roberts said he would fight the orders, made much of the fact that the firm "voluntarily" discontinued many of its practices 18 months ago.

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