a matter which was then not entirely free from doubt, the violation was willful and so I believe that no imposed. I believe that the registrant is guilty of ha Section 17 (a) (2) of the Securities Acti "stand-off" agreements more fully explain The practice of restricting the supply c the demand there for artificially incre the expense of unsuspecting invest distributed. It becomes partier "at the market" for such an normal forces of supply and The existence of these agr to disclose their existenc When the registran ments, it had the be effect that a failu to be a violatior decision of the Ohio to the mission v. experience of their In m Compa reinst 118 PART I TIES ACT OF 1933 ACCOUNTING LICATES onably thorough investigation by accountants of registrant's epreciation, depletion and amortization of development costs would aled inadequacy of provisions therefor, held that in the absence of adjustment of such charges the accountants' certificate should have cond a definite expression of disagreement with registrant's policy . . . age 850. Accountant's certificate which failed to disclose that registrant's accounting procedures were highly improper held defective. . . Page 1062. Scope of Audit Where a transaction of an unusual nature whereby persons connected with the management of the registrant receive in exchange for indebtedness owing from the registrant for services and salaries properties worth far in excess of such indebtedness is not disclosed in the financial statements of the registrant, and the unusual nature of the transaction would have been revealed if reasonable care had been exercised in the conduct of the accountant's audit, it was incumbent on the accountant to point out the facts in his certificate. Failing such disclosure, held the accountant's certificate was materially deficient . . . Page 1028. BALANCE SHEET Assets Classification of Residue Inventories Where it appeared that residue inventories had accumulated over a period of years and could not be marketed at their book values even under the most favorable conditions, inclusion of residues in current assets held improper. Page 850. Notes Receivable in Installment Sales Not to be Carried as Assets Where notes were accepted in part payment for sale of stock held preferable accounting procedure to set up capital account for full amount of subscriptions and to show as deduction therefrom, amounts remaining unpaid . . . Page 1062. Notes Receivable-Reserve for Collectibility Recital in a note to schedule to balance sheet (omitted in prospectus) showing source of notes receivable, held, inadequate to disclose status of notes where carried on balance sheet in excess of realizable value . . . Page 1062. ... Where notes received in part payment of stock are secured by stock which may not be resalable at price adequate to realize amount owed held improper to carry notes in balance sheets in excess of expected realizable value thereof 1... Page 1062. The term "Act" as used in Part I of this Digest refers to the Securities Act of 1933, as amended. PART I SECURITIES ACT* OF 1933 ACCOUNTANT'S CERTIFICATES Form and Content ACCOUNTING Where a reasonably thorough investigation by accountants of registrant's policy as to depreciation, depletion and amortization of development costs would have revealed inadequacy of provisions therefor, held that in the absence of proper adjustment of such charges the accountants' certificate should have contained a definite expression of disagreement with registrant's policy . . . Page 850. ... Accountant's certificate which failed to disclose that registrant's accounting procedures were highly improper held defective. . . Page 1062. Scope of Audit Where a transaction of an unusual nature whereby persons connected with the management of the registrant receive in exchange for indebtedness owing from the registrant for services and salaries properties worth far in excess of such indebtedness is not disclosed in the financial statements of the registrant, and the unusual nature of the transaction would have been revealed if reasonable care had been exercised in the conduct of the accountant's audit, it was incumbent on the accountant to point out the facts in his certificate. Failing such disclosure, held the accountant's certificate was materially deficient .. Page 1028. BALANCE SHEET Assets Classification of Residue Inventories Where it appeared that residue inventories had accumulated over a period of years and could not be marketed at their book values even under the most favorable conditions, inclusion of residues in current assets held improper . . Page 850. Notes Receivable in Installment Sales Not to be Carried as Assets Where notes were accepted in part payment for sale of stock held preferable accounting procedure to set up capital account for full amount of subscriptions and to show as deduction therefrom, amounts remaining unpaid . . . Page 1062. Notes Receivable-Reserve for Collectibility Recital in a note to schedule to balance sheet (omitted in prospectus) showing source of notes receivable, held, inadequate to disclose status of notes where carried on balance sheet in excess of realizable value . . . Page 1062. Where notes received in part payment of stock are secured by stock which may not be resalable at price adequate to realize amount owed held improper to carry notes in balance sheets in excess of expected realizable value thereof 1... Page 1062. The term "Act" as used in Part I of this Digest refers to the Securities Act of 1933, as amended. Property Accounts ACCOUNTING-Continued Capitalization in property accounts of cost of new financing and of loss during preliminary trial period held improper . . . Page 850. Liabilities Contingent Liabilities Where evidence showed that under a material contract with the registrant the architect, who was to receive 10 percent of the cost of buildings and equipment as compensation for his services, had earned 70 percent of his fee, held this contingent liability should have been reflected in the balance sheet ... Page 926. PROFIT-AND-LOSS STATEMENT Overstatement of Income Where stock was normally sold in part for notes which are doubtful of collection and stock was held as security for payment of notes held crediting dividends on such stock to income account improperly inflated that account ... Page 1062. Failure to Disclose Unusual Item, Failure to disclose the fact that management fees in excess of the amount apparently permitted by the "fund's" rules had been paid held to render the statement of profit materially defective. Moreover, failure to disclose, in accountant's certificate, method of computing management fees held, under the circumstances, to render the accountant's certificate materially deficient . . . Page 127. Where the registrant charged off properties having a book value of $145,593 pledged as security for payment of a debt of $13,584.61 owing to persons connected with the management for services and salaries, and lost by the registrant by failure to pay the debt, and the loss was reflected in an item called "sale of capital assets" lumped together with other losses, held failure to disclose full details as to the nature of the transaction in the profit-and-loss statement rendered the financial statements materially defective. . . Page 1028. SURPLUS Credits to Surplus Deficit Account An accounting procedure whereby in redeeming units of participation on an investment fund the excess of the amount originally paid in over the amount returned to the withdrawing participant is credited to a deficit account held under the circumstances not so improper as to render registrant's financial statements materially misleading, particularly in view of the disclosures made in footnotes to the financial statements . . . Page 127. Earned Surplus Spurious Earned Surplus Where income derived from dividends on stock sold in part for note which is doubtful of collection and held as security for payment of notes was charged to earned surplus held such earned surplus spurious Page 1062. Paid-In Surplus Overstatement of Paid-In Surplus Where stock sold at a premium and partly for notes, and notes doubtful of collection held improper to credit paid-in surplus with first monies paid in .. Page 1062. |