Perryman Investment Co

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IN THE MATTER OF A. W. PERRYMAN, DOING BUSINESS UNDER THE NAME AND STYLE PERRYMAN INVESTMENT COMPANY, ETAL.

COMPLAINT (SYNOPSIS) 1 FINDINGS, AND ORDER IN REGARD TO 'lhe ALLEGED \~OLATION OF SEC. 5 OF.AN ACT OF CONGRESS APPROVED SEPT, 26 1 1914 Docket 871. Oomplaint, Mar. 25, 1922-Decision, Aug. 19, 192'7 Where an individual, president and controlling spirit In a company organbed by him under a declaration of trust; in promoting the sale of Its sto<'k or shares, (a) Represented through circular letters and other advertising matter that the aforesaid company was organized with sufficient funds to start development, was not dependent on the sale of stock for its operations, owned leases lllld holdings of great value In eleven great and proven fields and, In many Instances, adjacent to producing wells, some of which were large producers, the fact being that the company was unable to complete the drilling of a well started by It, due to lack of funds, after expending thommnds of dollars thereon, chlefly derived from the sale of stock, and was compelled to call upon another company to finish the same, that said well and other welllil drilled for It under an arrangement ent('red Into with said company were not successful, that none of its leases proved to he of real or permanent value, and that none were located In proven or producing portions of the oil fields concerned, but were located from three-fourths of a mile to four miles from producing wells or active operations, with the exception that one lease adjoined land with a gas well; and (b) Represented that the company was a joint association organized under the stringent laws of Texas, the fact being that the company was a so-called common-law trust, created by a deed and declaration of trust with full and absolute authority over its property lodged In the trustees, consisting of the aforesaid Individual and two others associated with him; With the effect of misleading and deceiving numerous persons Into purchasing the stock of said company In the belief that It had sufficient funds wl:h which to prosecute the development of lenses owned by It in proven a:nd productive oil fields, and that such stock was the stock of a joint association organized under the stt•fngent laws of ~·exas: /leld, That such false and misleading advertising, under the circumstances set forth, constituted unfair methods of competition. },fr. James M. Brinson and Mr. John M. Burkett for the Commission.

Carothers & Brown, of Houston, Tex., for respondents. SYNOPsis oF Co:M:PI!AINT Acting in the public interest, the Commission charged respondent A. W. Perryman, engaged under the name A. ,V. Perryman Investm~nt Co. in a general stock brokerage business,·with office and prin- PERRYMAN INVESTMENT CO. ET AL. 361 360 Complaint cipal place of business in Houston, Tex., and a trustee of Houston Oil & Refining Co., a so-called common law corporation created by a certain deed and declaration of trust, and respondents F. P. Penfield, C. S. Thomas, W. L. Diehl, and ·william M. Huff, individually and as trustees and officers of said company, with advertising falsely or misleadingly, in violation of the provisions of section 5 of the Federal Trade Commission Act, prohibiting the use of unfair methods of competition in interstate commerce.

Respondent Perryman, as charged, doing business as above set forth, and with the participation and assistance of th~ aforesaid other respondent individuals, disseminated circulars and other advertising matter and literature, soliciting the sale of the stock of the aforesaid company, and containing many false and misleading statements concerning the value thereof, the location and value of its oil leases, the nature, condition and prospects of its operations and business, and the experience and reliability of its officers.. Among such false and misleading statements the following may be mentioned :

That it had passed the stage of raising funds and was financially ready to commence and carry out drilling and other operation upon a moment's notice; that it owned leases and holdings of great value in eleven great proven oil fields and in many instances adjacent to producing oil wells, some of which were producing great quantities of petroleum; that it was headed by practical experienced men, and oil men of proven records, experts in their lines; that it would be managed in a prudent and careful manner; and that success had already crowned its drilling operations.

The facts, among others, were that the company at no time since its organization had sufficient funds for drilling operations and that respondent Perryman, doing business as above set forth, was engaged in selling stock for such purpose; that none of the company's leases ever was adjacent to or in proven oil fields or of substantial value, that the company had only two wells, each of which was wholly unsuccessful and produced no oil, and that it never had any interest in any producing oil well; that it was not subject, as alleged, to Texas laws regulating and controlling such corporations, and the conduct of their business; that its operations and business were controlled and managed solely by the respondents herein· none of whom was experienced in the practical work of locating and drilling for petroleum or in the production and Iiiarketing thereof, and that an investment in its stock was not one from which financial gain or return was probable, and that the purchasers thereof never received any dividends thereon or any other profit or return therefrom . . Finding& llf.T.O.

The complaint alleged, after the making of the allegations above indicated- " That the aforesaid false and misleading statements made by respondent, Perryman, in the manner hereinbefore set out, and known by said respondent to be false and misleading, were and are calculated to create and did, and do create the belief on the part of the persons solicited by him as hereinbefore set out, that the Houston Oil and Refining Co. is a corporation organized under the laws of the State of Texas; that the operations and business of said company are regulated and controlled by the appropriate provisions of 'said laws, that the leases owned by said company are in proven oil producing territory and so located with reference to producing wells as to practically assure the discovery and production of petroleum in substantial and well paying quantities and to render probable the production of great quantities thereof, that said company had and has adequate funds to carry out drilling operations and would and will without delay proceed with such operations under an expert and experienced management which assured and assures the efficient and economical pursuit of such operations; that relying upon aforesaid statements and said belief thereby created, large numbers of the persons solicited as above set out have purchased stock of said company and continue to purchase same." Upon the foregoing complaint the Commission made the following REPORT, FINDINGS AS TO THE FACTS, AND ORDER Pursuant to the provisions of an act of Congress (Federal Trade Commission Act) approved September 26, 1914, the Federal Trade Commission issued and served its complaint upon all of the respondents except W. L. Diehl and 'Villiam M. Huff, who could not be located.

Thereafter, A. W. Perryman, F. P. Penfield, and C. S. Thomas filed answers and entered appearances by their attorney. Forma] hearing was had in the course of which respondents, ,V, L. Diehl and William M. Huff, appeared in person and participated therein. Testimony and evidence were introduced in support of the complaint and on behalf of the respondents. This matter having now come on for final decision and the Commission having considered the record and being advised in the premises, makes this its report, stating its findings as to the facts and conclusion:

• PERRYMAN INVESTMENT CO. ET AL. 363 Findings FINDINGS AS TO THE FACTS PARAGRAPH 1. Respondent, A. ,V, Perryman, is and for several years prior to this proceeding has been a resident of Houston, Tex., there engaged in the brokerage business under the name of Perryman Investment Co. His business has im luded the purchase, sale, exploitation and development of oil lands and oil leases, and the organization, direction, and management of corporations, associations, and trusts and the sale of their stock. On January 16, 1919, in association with respondents, F. P. Penfield and C. S. Thomas, he organized under a declaration of trust the Houston Oil & Refining Co. with a capitalization of 1,000,000 shares of the par value of $1 each. A. W. Perryman became and during all of the time hereinafter mentioned was president, C. S. Thomas, first vice president, ,V, L. Diehl, second vice president, 'Villiam M. Huff, third vice president, F. P. Penfield, secretary and treasurer. Respondents, ·F. P. Penfield, C. S. Thomas, 'V. L. Diehl, and 'Villiam M. Huff, had merely nominal connection with the Houston Oil & Refining Co. and at no time exercised or had any control over its affairs, any direct, active or responsible connection with its management, or with the preparation, publication or circulation of the literature or advertising matter by or through which the sale of its stock was effected as hereinafter set forth. PAR. 2. Respondent, A. ,V, Perryman, immediately after the organization of the Houston Oil & Refining Co., controlled and directed its affairs and, under the name of and acting through Perryman Investment Co., advertised, offered for sale and sold its stock to persons in the various States of the United States by means of circulars, circular letters and other advertising matter which he caused to be distributed in the various States of the United States among purchasers and prospective purchasers of stocks and securities, in competition with other individuals, partnerships and corporations engaged in the sale of stocks and securities in interstate commerce. In such circulars and circular letters and other advertising matter, respondc~t, A. W. Perryman, under the name and style aforesaid, represented that the Houston Oil & Refining Co. was organized with sufficient funds to start development, and was not dependent on the sale of stock for its operations; that the company owned leases and holdings of great value in eleven great and proven fields and, in many instances, adjacent to producing oil wells, some of which were then producing great quantities of petroleum; whereas in truth and in fact the Houston Oil & Refining Co. was organized with approximately $0,000 in money in its treasury to which was added the sum oi $8,000 or $9,000 loaned to the company by the • Findings 11 F.T.C.

respondent, A. W. Perryman, and at the time the Houston Oil & Refining Co. began to drill its well, the company had on hand only between $15,000 and $20,000 to expend for the purpose and in drilling it to a depth of approximately 2,100 feet, expended between $40,000 and $50,000 in money, most of which was derived from the sale of stock. The company was unable to complete the well because of the lack of funds and thereupon entered into a contract with the Texas Oil Co. to complete it on a so-called fifty-fifty basis for distribution of any profits derived or to be derived therefrom. It was drilled by the Texas Co. to a depth of 2,800 feet, but was abandoned, or in the parlance of the industry it was "junked", by reason of the twisting off of a drill stem in the hole. Thereafter the Texas Co. drilled a second well about 500 feet from the No. 1 well to a depth of 2,600 feet into the salt and abandoned both wells and the lease. The Texas Co. expended in completion of well No. 1 and well No, 2, as aforesaid, approximately $100,000. None of the leases of the Houston Oil & Refining Co. proved to be of real or permanent value and none of them were located in proven or producing portions of the various oil fields mentioned in the advertising matter, but were located from three-fourths of a mile to four miles from producing wells or active operations, except that a lease held by the respondent company in the county of Markham was located on land adjoining that on which a gas well was located. It was further represented in such advertising matter by respondent in hi,s efforts to sell the stock of the Houston Oil & Refining Co. that it was a joint association organized under the stringent laws of the State of Texas, whereas in fact the said company is a so-callerl common law trust, created by a deed and declaration of trust with full and absolute authority over its property lodged in the trustees who in this instance were re,spondents, A. ·w. Perryman, F. P. Penfield, and C. S. Thomas, as stated in the first paragraph hereof. PAR. 3. The above and foregoing false and misleading representations had the capacity and tendency to mislead and deceive and did mislead and aeceive numerous persons, in various States of the United States, into the purchase of the stock of the Houston Oil & Refining Co. in the belief that it had sufficient funds with which to prosecute the development of leases which it owned in proven and productive oil fields, and that the stock purchased was the stock of a joint association organized under the stringent laws of the State of Texas.

PAR. 4. The stock of the Houston Oil & Refining Co. adverti,sed, offered for sale and sold by respondent, A. ,V, Perryman, under the name of Perryman Investment Co., was so advertised, offered for sale PERRYMAN INVEStMEN~ Co. ET AL. 365 360 Order and sold in competition with individuals, partnerships, corporations and associations engaged in the sale of stock,s and securities in commerce among the various States of the United States, and respondent, A. W. Perryman, under the name of Perryman Investment Co., caused certificates of said stock, when sold, to be transported from Houston, Tex., through and into other States of the United States to the purchaser:> thereof.

CONCLUSION The acts and practices set forth in the foregoing findings as to the facts constitute under the circumstances therein stated unfair methods of competition in interstate commerce, in violation of the provisions of an act of Congress approved September 26, 1914, entitled "An act to create a Federal Trade Commission, to define its power,s and duties, and for other purposes."

ORDER TO CEASE AND DESIST This proceeding having been heard by the Federal Trade Commission upon the complaint of the Commission and the answers of respondents, A. W. Perryman, doing business under the name and style of Perryman Investment Co., A. ,V, Perryman, F. P. Penfield, C. S. Thomas, individually and as trustees and officers of the Houston Oil & Refining Co., the testimony and evidenre and brief of counsel for the Commission, respondents and each of them having failed to file brief, and the matter having come on regularly for decision, and the Commission having made its report stating its findings as to the tacts with its conclusion that respondent, A. ,V. Perryman, doing business under the name and style of Perryman Investment Co., and individually, has violated the provisions of an act of Congress approved September 26, 1914, entitled "An act to create a Federal Trade Commission, to define its powers and duties and for other purposes", It is now ordered, That respondent, A. ,V, Perryman, doing business under the name and style of Perryman Investment Co., or otherwise, cease and desis~ from publishing, distributing, or circulating any magazine, newspaper, pamphlet, prospectus, circular, circular letter, or any other printed or written matter, in connection with the offering £or sale, or the sale, in interstate commerce, of the stock of the Houston Oil & Refining Co. or of any other corporation~ association, or partnership, containing any false or misleading statement or representation concerning the organization, financial condition, resources, properties, production, income, or prospects of said Houston Oil & Refining Co., or of any other corporation, association or part- 366 FEDERAL TRADE CO:M:MISSION.N bEClStO.NS Order llf.T.C.

nership whose stock is sold or offered for sale by respondent in the course of said commerce.

It is further wdered, That the complaint be and the same hereby is dismissed as to respondents, F. P. Penfield, C. S. Thomas, W. L. Diehl and ·william M. Huff.

It is furth.er l»'dered, That respondent shall file with the Federal Trade Commission a report within 60 days from and after service of this order, setting forth "in detail the manner and form of compliance therewith.

BIGHT WAY ROYALTY SYNDICATE ET AL. 367 Syllabus