§ 2.1.3

• Jurisdiction: Arizona

§ 2.1.3 Arizona's Mining Corporations and Securities Fraud

In Arizona, mining swindles more than anything else accounted for the securities frauds that occurred. Mining frauds were perpetrated throughout Arizona's territorial years (1863-1911)¹⁰⁹ and continue today.¹¹⁰

During the second half of the nineteenth century, the mining industry became a leader in forming corporations to sell securities.¹¹¹ Between 1860 and 1900, about 180 new stock exchanges were formed.¹¹² Exchanges specializing in mining stocks comprised the majority of the new exchanges.¹¹³ Three exchanges that specialized in mining stocks opened in Arizona.¹¹⁴

An early attempt at regulating mining securities was made in Arizona's first corporate statutes. The statutes, enacted in 1864, were restricted to mining corporations.¹¹⁵ The statutes required mining corporations to publicly file annual reports listing assets, liabilities, and the amount and value of all gold, silver, copper, and other minerals extracted during the year.¹¹⁶ Debt limitations and a provision for personal liability of directors who exceeded the limitations was also included.¹¹⁷ The statutes required a list for inspection by creditors and stockholders of all shareholders with the amount of stock owned and the date when the stock was obtained.¹¹⁸ The statutes applied to both domestic and foreign corporations doing business in Arizona.¹¹⁹

But the new law was short-lived. It was repealed two years after enactment when a general corporation code was enacted.¹²⁰ The new code eliminated requirements for annual reports, debt limitations, and personal liability.¹²¹ But even under these statutes, corporations did not become popular in Arizona until the 1880s.¹²²

In Arizona, mining schemes and wildcat corporations that promoted them were a problem by at least the 1890s.¹²³ In 1899, Arizona governor Nathan O. Murphy issued an official warning about Arizona mining schemes being promoted to east-coast investors. In explaining the warning, Murphy stated that "[t]he abuses had become so notorious and flagrant, and Arizona was becoming so shamefully slandered, that I felt it my duty to take official notice of the schemes."¹²⁴ But Murphy's warning and occasional criminal prosecutions had no more effect in deterring securities fraud in 1899 than similar warnings and prosecutions do today.¹²⁵

--------

Notes:

^[109]See, e.g., supra notes 57-85 and accompanying text; infra notes 123-25 and accompanying text.

^[110]See W. Scott Donaldson, Recent...