Speech by Ray Garrett Jr., former chairman of the SEC

RAY GARRETT, JR. (Center), FORMER CHAIRMAN OF THE SEC

The 75th anniversary of the Securities and Exchange Commission (SEC) is approaching and the SEC Historical Society is giving a dinner in June. Our family has purchased a table at the dinner in June and we will have our own personal celebration of the chairmanship of Ray Garrett, Jr., my father, the 40th chairman of the SEC.

In light of the Madoff scandal and other current happenings, here is an excerpt of a speech by Ray Garrett, Jr., then chairman of the SEC, given to THE
SAN DIEGO MORTGAGE BANKERS ASSOCIATION, July 2, 1974 in San Diego, California.

Some problems seem always to be with us. One of them is the matter of enforcement of our laws and the suppression of fraud. Businessmen sometimes complain that SEC Commissioners are always talking about fraud, creating the public impression that American business generally is run by a bunch of crooks. Obviously, that is not a correct impression. If it were - - if crooks really dominated our business community - - the task of the Commission would be utterly hopeless. The only reason our system works at all is because voluntary compliance is the norm and non-compliance the aberration.

Furthermore, all violations of the securities laws cannot fairly be characterized as fraud. Perhaps we use the word too loosely.

Nevertheless, there are some crooks in business and some fraud continues to be committed, and in this area, as in others, the policeman’s lot is not a happy one. Quite naturally the instances of fraud, when exposed, attract the most attention. In a sense I wish some of them would attract more attention. Some types of fraud depend upon credulous investors who really should know better.

The two most recent cases to attract nation-wide attention - - Home-Stake Oil and the industrial wine fraud - - were both variations on the classical Ponzi scheme. The first investors were paid off out of the proceeds of sales to later investors and nothing, or very little, was ever invested in the supposed business.

The facts in Home-Stake go back several years, and the case is receiving current attention only because the Chapter X trustee recently submitted a list of the names and amounts of the investors. It is a most illustrious list of leaders of industry and finance. At least those who have lost money in Home-Stake have the dubious satisfaction of being in elegant company.

The wine fraud centered in the Washington, D. C., area and it included among its victims some local bank presidents. The scheme was to corner the market in Portugal for cheap “industrial” wine - - a non-existent item in the wine industry - - and import it for sale to U.S. canners of salad dressings, etc. Investors were offered something like double their money in a year. You would like to think that a promoter offering a chance to double your money in a year in the Portuguese industrial wine market simply would be laughed at. But, of course, many people did double their money - - as long as the promoter was able to keep selling enough notes to produce funds to pay off the earlier ones.

I like reading the reminder that fraud is the exception to the rule ... and also the caveat emptor -- the "buyer beware." It is so hard to remember that - in business, in romance, in any aspect of life -- if it seems too good to be true, IT IS.