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Show Securities Commission Scouts Shady Schemes One perpetual truism of the securities industry is that it is in a state of change, says William P. Sargeant, director of the Utah Securities Commission. As such, regulators are perpetually tested to perceive and cope with new and ingenious schemes before the public is unduly damaged. To meet this challenge, the Securities and Exchange Commission is constantly revising its rules, he says. For the past several years, an American Bar Assn, committee has been working on codification of securities law. And the Utah Securities Commission has tried and to get reforms passed by the Utah unsuccessfully so legislature, he says. It also is trying to improve Utahs tarnished image by closer surveillance, tougher enforcement, and quick recognition of impending problems, he said. What is a security? Many think it is a piece of paper, a certificate representing an ownership in an alleged enterprise. Not entirely. During the past years, there ha marked trend away from schemes involving such orthodox investment vehicles and a proliferation of new schemes some legitimate, and some not, he observes. The Securities Commission has the job of sorting them out and determines whether they fit under the definition of security. In general, the commission aims for prevention, not punishment. It is better to protect the public from ripoffs, says Mr. Sargeant, than to throw someone in jail after the fact. Here are some of the schemes that have been halted or curtailed in recent years: Pyramid sellings. Naked commodity options. Scotch whisky warehouse receipts. Gold and silver bullion and coin and fractional interest in oil and gas drilling programs. to the uninitiated all of these diverse Surprising schemes, and many more, are now determined to be under the broad definitions of a security. And that also includes, among other things, the phrase, investment contract. This umbrealla definition gives the commission the handle by which to bring schemes under control either by court action, administrative orders or hearings, he says. Others include oil and gas lottery services, coal mine syndications, thrift companies, undivided interests in mortgage loans, and socalled memberships in recreational facilities. The recreational membership, says Mr. Sargeant, is the hardest to deal with. On the surface it appears innocuous. If it is a security, it claims exemption from regulation because it was issued organization. by a Heres the way some work: croporation, non-prof- it e hot line which The commission has a of these brokers. status on the to check use can anyone toll-fre- XYZ Corp. buys some land, sets up a non-prof- it sells the land at large profit to the corporation, which, in turn sells member- ships. Proceeds go to pay off the parent corporation and e create common facilities, such as a or roads. But! XYZ Corporation, after getting its money, may walk away and leave the members without the facilities or clear title to the land. club-hous- Two years ago, the Securities Commission tried to get a bill through the legislature to regulate this type of scheme. It failed. Thus, the commission had to take it upon itself to declare some of these memberships as securities by virtue of being investment contracts. The reason: Members are risking their capital in a common enterprise with reliance upon XYZ Corp. to perform by furnishing the clear title and all the facilities. Moreover, the commission holds the membership is a security: The corporation is merely a conduit for profits to the parent. We look through the form to find the substance of the law. non-prof- it While new schemes are proliferating, the brokerages themselves are coming up with new vehicles such as stock options and combinations of securities and real estate, or securities and insurance. Its getting so now that if you were to walk into a brokerage office and to buy 100 shares of XYZ stock, the broker would look at you as though you were some kind of freak, and say, What you probably mean is that you want to buy a call on 100 XYZ. Or, if you asked to buy a bond, hed probably say, what you You dont want to buy just a plain old bond should buy is a unit in our diversified insured bond fund. It wont be long, predicts Mr. Sargeant, that someone will come out with on investment in an undivided interest in discounted bank loans on condominiums with rental mortgage and insured pools, tied up with a wrap-arounpoint, against a fall in occupancy below the break-eve- n funeral contract. coupled with a At this point, no doubt, the financial commissioner, the securities commissioner, the real estate commissioner, and the insurance commissioner, will all join hands and simultaneously leap from the tallest building. d The federal government the states in regulating commodity options by setting up the Commodities Futures Trading Commission. The commission has sole jurisdiction over the registration of options and the brokers selling them. pre-empt- WHOLE LIFE AT NEW EXCITING RATES cease-and-desi- st non-prof- it FOR INFORMATION write GLEN HALE 4964 So. State St. Salt Lake City, 84107 Want Ads DO MORE THINGS FOR MORE PEOPLE AT LOWER COST than any other form of advertising! 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