DISCLOSE SYNDICATE PARTICULARS
The required publicity should also include a disclosure of all participants in an underwriting. It is a common incident of underwriting that no member of the syndicate shall sell at less than the syndicate price for a definite period, unless the syndicate is sooner dissolved. In other words, the bankers make, by agreement, an artificial price. Often the agreement is probably illegal under the Sherman Anti-Trust Law. This price maintenance is, however, not necessarily objectionable. It may be entirely consistent with the general welfare, if the facts are made known. But disclosure should include a list of those participating in the underwriting so that the public may not be misled. The investor should know whether his adviser is disinterested.
Not long ago a member of a leading banking house was undertaking to justify a commission taken by his firm for floating a now favorite preferred stock of a manufacturing concern. The bankers took for their services $250,000 in cash, besides one-third of the common stock, amounting to about $2,000,000. “Of course,” he said, “that would have been too much if we could have kept it all for ourselves; but we couldn’t. We had to divide up a large part. There were fifty-seven participants. Why, we had even to give $10,000 of stock to——(naming the president of a leading bank in the city where the business was located). He might some day have been asked what he thought of the stock. If he had shrugged his shoulders and said he didn’t know, we might have lost many a customer for the stock. We had to give him $10,000 of the stock to teach him not to shrug his shoulders.”
Think of the effectiveness with practical Americans of a statement like this: