Certainly there can be no question that persons who would be culpable in a criminal action should be equally culpable in administrative or injunction actions brought against them. It is not only sound law but also good commonsense. The proposed addition would make manifest this responsibility. Nor should there be any concern as to the appropriate application of the principle. As the Supreme Court pointed out in Nye & Nissen v. United States (336 U.S. 613, at 618-619): * * The trial court charged that one 'who aids, abets, counsels, commands, induces, or procures the commission of an act is as responsible for that act as if he committed it directly.' That theory is well engrained in the law. See section 332 of the Criminal Code, title 18 United States Code section 550, now section 2; United States v. Johnson, 319 U.S. 503, 518; United States v. Dotterweich, 320 U.S. 277, 281. In order to aid and abet another to commit a crime it is necessary that a defendant 'in some sort associate himself with the venture, that he participate in it as in something that he wishes to bring about, that he seek by his action to make it succeed.' L. Hand, judge, in United States v. Peoni, 100 F. 2d 401, 402." This principle is particularly relevant to those provisions in the securities statutes which refer to particular classes, such as the provisions in the Exchange Act which refer to brokers or dealers. In any event, there should be no objection to rendering enforcement more effective by codifying this "well engrained" principle into the securities statutes. For no person who associates himself with and assists in the commission of a violation should be immune from administrative or civil actions, particularly where the same conduct would subject him to criminal prosecution. MEMORANDUM OF DIVISION OF CORPORATION FINANCE WITH RESPECT TO COMPARATIVE COSTS OF SECURITIES ISSUES OFFERED UNDER THE COMMISSION'S REGULATION A AND SECURITIES ISSUES REGISTERED UNDER SECTION 6 OF THE SECURITIES ACT OF 1933 The latest comprehensive data available with respect to the cost of floating new issues of securities are to be found in a report prepared by the Division of Trading and Exchanges and published by the Commission in June 1957, entitled "Cost of Flotation of Corporate Securities, 1951-55." A supplement to that report was published in July 1957. As pointed out in the release announcing publication of the study (Statistical Series Release 1469, July 26, 1957), "The report also points out that the present analysis of cost data, as well as past studies, shows that costs of flotation vary because of type of security, size of offering, and size and industry of the issuer. For this reason, although overall averages are presented in the survey, the detailed tables accompanying the report should be consulted for comparing costs of specific issues." The data with respect to issues offered to the public were compiled from registration statements filed with the Commission for registered issues. The study contains no information with respect to issues offered under Regulation A. Portions of certain tables contained in the report and extracts from the text which seem particularly pertinent to the present inquiry are stated below. The latest comprehensive data available with respect to cost of Regulation A issues were compiled, for submission to the Subcommittee on Commerce and Finance of the Committee on Interstate and Foreign Commerce, House of Representatives, 84th Congress, during hearings held in 1955 and 1956 on H.R. 5701 and H.R. 9319 with respect to section 3(b) of the Securities Act, on the subject of "Promotional Securities." Certain statistical information, including some cost data supplied to the subcommittee, appears on pages 37-74 of the printed hearings. Portions of some of these statistical tables likewise are included in this memorandum. Finally, information with respect to costs taken from eight fairly recent regulation A cases and four registration statements selected at random and certain comparative data from two of the staff studies are included herein. I. COST OF FLOTATION OF REGISTERED SECURITIES ISSUES OFFERED TO GENERAL PUBLIC THROUGH INVESTMENT BANKERS (1957 STUDY) For registered issues of all sizes and kinds of issuers, the median cost of flotation was 1.49 percent of gross proceeds for debt issues, 4.34 percent for preferred stock issues, and 10.28 percent for common stocks. Compensation (underwriters' commissions and fees) absorbed more than half of the total cost in debt issues, more than three-fourths of the cost in preferred issues, and 85 percent of the cost in common stock flotations. (a) Debt issues Total costs ranged from 1.19 percent for issues over $50 million in size to 11.49 percent for issues between $500,000 and $1 million in size (the smallest size group for debt issues). Included in the study were five debt issues between $500,000 and $1 million in size. All of these issues were by companies in the $1 million-$5 million asset-size group. (b) Preferred stock issues Costs of flotation for 120 preferred stock issues ranged from 2.51 percent for the largest size interval to 12.63 percent for the smallest size group, the interval between $500,000 and $1 million. More than one-half the issues were under $5 million in size, with costs averaging 6.42 percent. Another 30 percent were between $5 million and $20 million in size, with costs averaging 3.21 percent. Issues over $20 million in size numbered 13 and their costs averaged 3.10 percent. There were 12 issues between $500,000 and $1 million in size of preferred stocks for which data were included in the study, and cost of flotation as a percent of proceeds ranged from a low of 6.15 to a high of 21.92 percent. There were no issues below $500,000. (Table 6, p. 43.) (c) Common stock issues Higher costs for common stock offerings, as compared with debt and preferred issues, were pervasive, but were more pronounced for small issues. This reflects not only the greater risk and complexities in floating common stock but also that more small common stock issues were offered by more smaller-sized companies. Over three-fourths of the common stock issues offered to the general public were under $5 million in size,' and about two-thirds of these issues were of companies with assets under $10 million. Moreover, due to the large proportion of manufacturing, mining, and other nonutility issues included in the data, it is necessary to examine the detailed classifications to obtain a realistic picture of costs on common stocks. The data show that total costs on mining issues were 15.63 percent for the largest size group and ranged up to 33.42 percent on the average for the smallest issues. For issues of a similar size in the manufacturing field, total costs were only about half as great, while for electric, gas, and water companies costs were about a third as much. The median percentages for issues of all sizes, classified by industry, are: Total cost of flotation as percent of gross proceeds (common stock issues) 1 This refers to issues other than through rights offerings where a greater proportion of the issues are of larger companies. 2 Of common stock issues under $1 million in size, 93 percent were of companies with assets under $10 million. -common stock Cost of flotation, registered issues offered to the general public 1- 2 Percentages in this column are median percentages for all issues in each company size interval. 10.28 II. COST OF FLOTATION DATA FOR REGULATION A ISSUES (SEE HEARINGS, HOUSE SUBCOMMITTEE) Successful regulation A issues, April 1953-October 1954: Actual cash costs of flotation [Amounts in thousands] 9.77 6. 22 4.85 4.86 1 Data for 60 issues 85 percent or better sold during reporting period. TABLE 16.-Successful1 oil and gas issues of common stock, regulation A, for cash sale for account of issuers, April 1953-October 1954: Actual cash cost of flotation 236 15.0 36 2.3 272 17.2 35 2.2 308 19.5 TABLE 22. Successful1 issues of promotional companies other than mining or oil and gas, regulation A, for cash sale for account of issuers, 1953-54: Proposed cost of flotation by method of distribution 1 Data for 30 issues 85 percent or better sold during reporting period. TABLE 28.-Successful1 issues of established companies other than mining or oil and gas, regulation A, for cash sale for account of issuers, 1953-54: Proposed cost of flotation by method of distribution TABLE 38.-Issues of common stock of 12 uranium companies effectively regis tered under the Securities Act of 1933, 1953–54: Proposed cash cost of flotation [Amounts in thousands] III. COST DATA FROM 12 FILINGS UNDER REGULATION A AND REGISTRATIONS Size of offering SELECTED AT RANDOM Regulation A filings Cost of underwriting Other expenses Company A (1958): $300,000 convertible de- Company F (1958): $300,000 convertible pre- Company G (1958): $182,737.50 common rights offering. Company H (1958): $297,991.75 common (872 cents per share). Size of offering $65,000 plus 30,000 warrants at 1 cent per warrant. None. None $9,900 plus $500 per month for advisory serv- $38,220 plus 75,000 warrants at 1 cent per war- $49,211.91 plus 18,000 shares at 10 cents per Registration statement Cost of underwriting $2, 171.96 6,730, 34 3,939.30 1,239.00 16, 642.00 7, 115.00 3, 583. 55 4. 549. 67 Other expenses The following tabulation covers proposed costs of flotation for common stock issues, under $1 million in size, registered under the 1933 act in the years 1951, 1953, and 1955 and actual costs for regulation A issues successfully sold in the period April 1953 through October 1954. (All of these issues were offered by investment bankers.) These figures indicate that costs of flotation were somewhat lower for regulation A issues. |