Arrest & Development

Whoever succeeds James McCauley Landis as chairman of the Securities & Exchange Commission this fall will inherit not only old problems but a portfolio chock-full of new and zestful business. Milestones in the Commission's career last week were: 1) the first arrest brought about by SEC lawyers, and 2) the first application for reorganization filed with SEC under the Public Utility Holding Company Act of 1935.

Arrest. For several weeks SEC has been investigating the sale of some 273,000 shares of stock registered last year by Trenton Valley Distillers Corp., a sizable company with a plant at Detroit, which is now closed. It was discovered first that the stock had not been sold through the underwriters named in the registration statement; further, that the company took $1 a share for stock which was at that time selling for $3 over-the-counter in Detroit. The difference was apparently absorbed by no less than four sets of middle men and at least two go-betweens, who contradicted one another in testimony, alternately claiming and disclaiming innocence of finance and in one instance fainting on the stand.

In this preposterous maze SEC haled up Trenton Valley's ex-president, a Canadian named Harry Low, who promptly put himself in hot water by admitting that he had himself contracted to buy 45,000 shares of his company's stock at $1, a fact not mentioned in the registration statement. To the Commission's counsel, E. Forrest Tancer and H. Victor Schwimmer, this seemed a willful omission--a plain violation of the Securities Act, punishable by fine or imprisonment. Usual procedure in such cases is for SEC to hand over its material to the Department of Justice, but Lawyers Tancer and Schwimmer felt that delay might tempt Mr. Low into Ontario where he would be unable to clarify the stock sale for SEC examiners.* Accordingly last week they had red-faced Distiller Low arrested by a U. S. marshal, and announced that they would seek an indictment at the close of the investigation.

Development. First big break in the united front of U. S. utilities against the Utility Act came last February when great North American Co. (assets: $900,000,000) and American Water Works & Electric Co. ($384,000,000) consented to drop their litigation and register with SEC. Since then the number of companies registered has reached $6, representing assets of $5,000,000,000 out of a total of $17,000,000,000 in all companies affected by the Act. Beyond this there had been no public developments in this battle of the pyramids until last week when American Water Works offered SEC a plan for the simplification of its corporate structure.

Owning electric and gas properties in Pennsylvania, Ohio, West Virginia, Maryland and Virginia, the company argued that most of its power subsidiaries were already connected by transmission lines and required no geographical round-up (such as the Act might enforce on the loose units of other companies). In addition, American Water Works actually controls more than 80 water companies in 21 States and in Cuba. The company asked that, as the Act permits, these be found ''reasonably incidental or economically necessary or appropriate to the operation of the system."

Principal changes proposed were dissolution of the $75,000,000 West Penn Electric Co., the intermediate holding company in the system, and merging of others until below the top holding company there should be four main subsidiaries. This is the sort of simplification SEC is empowered to require of all utility systems after January 1. Last week grey old Henry Hobart Porter, president of American Water Works, called his proposal a "constructive" move.

*Early in Mr. Low's testimony the following passage occurred: Tancer: We would like to put you on our mailing list. . . . Low For some time I expect to be in Ormond, Fla., and I would be very pleased to receive your mail.

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