Governmental Control

As already related in previous sections, the Govern-ment has been carrying on a vigorous campaign to rid the country of fraudulent financial schemes, including the innumerable get-rich-quick ventures. The Government is in the best position to carry on this work effectively. Such schemes cannot succeed unless they are allowed the free use of the mails, as it is by means of the mails that the promoters try to reach investors and to catch them in their claws. When branded as frauds and denied the use of the mails, these fakers cannot very well succeed.

Still this is a slow process of extermination, as it requires an investigation in each case, sometimes extending over months before any retaliatory action can be taken. In the meanwhile a good deal of mischief can be done, for the get-rich-quick schemer is a shifty individual. He does not believe in procrastination; he fully appreciates that it cannot be long before his ventures must attract unfavorable notice and therefore he wishes to gather in his loot before he is smoked out. Nor does he stay long with any one scheme, but transfers his activities noiselessly and rapidly from one to another. Often the same crooked individual, before he lands behind the bars, has foisted on his dupes a dozen or more get-rich-quick ventures. One of them promoted as many as forty-six companies before the Government caught him, each one of which was an out-and-out fraud.

It has been suggested that an effective curb could be placed upon this evil if the government would compel every enterprise offering its stock to the public to take out a national charter, providing as its principal requirement the filing under oath with the Secretary of the Treasury of a complete statement of its financial condition, which statement would be open to public inspection or of which a copy could be obtained by an investor for a nominal sum. It is claimed, and not without reason, that such publicity would very quickly develop any fraud if it existed and enable the Government to stop any further stock sale until an investigation disproved the charges.

The idea is a very good one. It would be even more effective were all the directors forced to acknowledge under oath the genuineness of the financial statement filed and if it were further provided that any perjury or false swearing was punishable with a jail sentence, instead of a fine. Then it is likely individuals who valued their good names would use the proper precautions not to connect them carelessly with any fraudulent promotion.

The several states have undertaken the regulation of promoting enterprises in various ways. Banking and financial institutions are generally placed under strict supervision. A number of states control the issuance of securities by railroads and public service corporations by means of public utility commissions. Other states have attempted to regulate the issuance of stocks and bonds of all industrial concerns by means of legislation. These laws usually provide that before any new securities may be offered for sale, the concern proposing to sell them must file with some state officer a detailed report about its financial condition. This officer may, if he thinks the enterprise safe, grant it permission to sell its stocks and bonds within the state, or else refuse the privilege. These laws, where constitutional, depend chiefly upon publicity for their effectiveness.

The Sucker List

In the get-rich-quick business, "the sucker list" plays a very important part. This list is made up of names of people who are known to bite at worthless truck. Such people are the "suckers." These "sucker" lists are graded. In one raid by the Government of the offices of one get-rich-quick concern, there was found a card index list of "suckers" marked according to their measures of credulity V good," "fair," and "worth trying."

Once a person writes for literature to any one of these harpies he is for years afterwards tagged as a "sucker." From then on he will be bombarded with all kinds of literature from all the get-rich-quick sharks, every one of whom is exceedingly anxious to make him wealthy without any effort on his part. His name is peddled from one to another. His name is bandied about or sold, as a large business is done among promoters with "sucker" lists, a name bringing all the way from one cent to one dollar, according to its possible value as a source of good plucking.

Scattering Risks

Hundreds of people are impoverished every year by get-rich-quick schemes. It is surprising to what an extent the mania for worthless stocks seizes some classes. I remember an instance where a western court was compelled to appoint a guardian for one man in order to keep intact the remainder of his fortune, which at one time was quite large, and save it from being entirely squandered on get-rich-quick stocks. This deluded individual had bought liberally of stocks in every fake to which his attention was called until he had thrown away nearly $300,000. When he was asked why he did it, he said he felt that among the many stocks he had bought a number would prove very successful, so much so, that they would more than double what losses he had sustained in the worthless investments.

This is a theory obsessing a great many persons. They proceed on the belief that if one out of twenty stocks even partially realizes the profits claimed for all, they will be so rich that they can afford to lose on the other nineteen. The twentieth, the good thing, somehow never comes up to their measure.

It is true, of course, that large fortunes have been made from small investments in enterprises that once appeared highly speculative. Examples of such achievements are to be found in all lines of industry. Promoters can show how "$100 grows to $40,000" in the Ford Motor Company, how $1,500 invested in Bell Telephone Stock grew to nearly $2,000,000, or how the original Pullman Car Company stocks have increased a hundred fold in addition to liberal cash dividends that have been paid to the stockholders of this company. Investors should remember, on the other hand, that for each enterprise which survives,many others fail. Those that succeed are actually based on real economic principles and backed by special ability and genius on the part of those that guide the affairs of the company. A rocky piece of land that contains no metal-bearing veins at all will never become a profitable producing gold mine, and the investor who takes his "chances" on it plays a losing game every time.

Common Sense

No investor need fall a prey to a dishonest or visionary promotion scheme if common sense is exercised. By inquiring into the character of the people promoting the venture and by getting a financial statement, he will in a large measure protect himself. Even should he himself not feel competent to judge, an idea which in itself is suspicious, he should consult some reputable newspaper or banker. The latter would willingly advise him sincerely of his danger, if any existed. Ignorance alone is responsible for two-thirds of the money losses in investments. Ignorance cannot be protected unless it seeks the protection.

The Get-Rich-Quick Lube. Test Questions

1. What are the author's figures in regard to the annual losses which result from wild-cat schemes?

2. Explain some of the tricks used by get-rich-quick schemers to induce the public to invest in their enterprises.

3. What means are used by the government to check fraudulent financial schemes?

4. What is meant by a sucker list?

5. Why does scattering of investments in get-rich-quick stocks not insure a return?

6. What means has the average person of determining the investment value of a security?