238 EDWARD SHERWOOD MEADE 



investor and the banker purchase the stock because they have 

 confidence in the promoter's judgment, and are therefore in- 

 fluenced by his representations that the proposed undertaking 

 will prove profitable. They may take the trouble to examine 

 the expert reports on the property and will probably visit it 

 under the guidance of experts. Their inquiries, however, 

 are necessarily superficial, and they buy the stock either on 

 the representation of the promoter or of some friend or bank- 

 ing associate in whose judgment they have confidence and 

 who may have gone into the scheme on his own account. 



Out of the $250,000 which he realizes b} r the sale of stock, 

 the promoter pays $100,000 for the land, $75,000 for develop- 

 ment and working capital, and either puts the $75,000 re- 

 maining into his own pocket or divides it with the financial 

 interests who have assisted him by advances. The foregoing 

 represents a typical promotion. Similar enterprises are con- 

 stantly being floated throughout the county, not only on 

 mines, but on real estate, manufacturing enterprises, on 

 patents, water power, irrigation, timber and a great variety 

 of resources. The details of each may vary from the form 

 presented, but the essential principles are the same: (1) the 

 securing of a right to purchase an opportunity to make money ; 

 (2) the capitalization of that opportunity at a higher figure 

 than the price to be paid the original owner plus the funds re- 

 quired for development ; and (3) the sale of this capitalization 

 to the investor either directly or through the agency of middle- 

 men for a sum of money exceeding the amount necessary to 

 purchase and develop the resource which it is intended to 

 exploit. This difference represents the promoter's profit, the 

 characteristic feature of corporation financiering. 



What now has the promoter done to entitle him to this 

 large profit? He has produced no coal; that is done by the 

 company to which he turns over his options. Neither has he 

 risked an amount of money in any way comparable to the 

 profit which he has made. To obtain fifty options under the 

 circumstances described may not have required an outlay of 

 more than $5,000, and this is an outside figure. Judged by 

 the canons of what is generally considered to be legitimate 

 money making, the promoter has done nothing to entitle him 



