Mr. BENNETT of Michigan. May I have one further question. I have been informed-I cannot vouch for the accuracy of this—but I have been informed that Doremus & Co.-as I understand that company is your public relations organization or public relations agency, in connection with the handling of this first or second bond issue. Mr. BLACK. We have only issued bonds at one time, sir.

Yes; we retained Doremus & Co. at that time. They are not any longer with us. But we did at that time.

Mr. BENNETT of Michigan. I have been informed on the day these bonds came out at 103 or 103 and a fraction that a mimeographed statement had been issued by Doremus & Co. setting forth the price of 103, and leaving only the date line open. The statement said in effect that these bonds came out on the New York Stock Exchange at 103. Now, if that is true, how could a thing like that happen, unless somebody connected with the bank or representing the bank had something to do with setting the price?

Mr. BLACK. Well, I am glad you asked me that question.

The bonds were listed on the New York Stock Exchange. The bonds, in the first place, were offered to the public at par. The day that the bonds were offered to the public the stock exchange prepared to trade in those securities. I went over there to the stock exchange, together with Mr. McCloy, the president of the bank, and we waited there to see at what price the bonds would begin trading.

Now, we had a very difficult time picking the right price to put on these securities, and it was my job to pick this price.

We had no precedent to follow. There was no such bond like this outstanding. In order to arrive at a proper price and proper coupon, I spent weeks and weeks and weeks talking to experts-market experts trying to decide what was the right price to put on these bonds. Finally, after getting all of the expert advice I could, we decided to put the price of par on these bonds.

Now, we went to the stock exchange, waiting to see what price the bonds would open at. What I did not want was for the bonds to sell at too high a price because if they sold at too high a price that would make me look pretty simple.

So we had nothing on earth to do with the price the bonds sold at. We had no idea what price the bonds would sell at.

Mr. BENNETT of Michigan. Well, if this information is correct, how would Doremus & Co. know in advance?

Mr. BLACK. Doremus & Co. did not know anything. I do not know what you refer to, but they probably had a newspaper article prepared and they knew that the bonds were going to be traded at some price in the stock exchange and I suppost they put down a place-put blank so that it could be filled in.

it

Mr. BENNETT of Michigan. The price-the information I have is that the price was was stated in the mimeographed sheet that was

released.

Mr. BLACK. They could not possibly have known that, Mr. Bennett, because no one knew it or had the slightest idea what they would trade at-not the slightest.

Mr. BENNETT of Michigan. Well, you were worried for fear that they might be offered at 110 or some such price?

Mr. BLACK. I did not know what they would sell at. I hoped that they would sell, and naturally I would like to see the bonds sell at a

premium, because that meant that the issue was a success. I certainly would not like to see them sell at too high a premium because that would indicate that my judgment as to the proper price was incorrect. We had nothing to do, any way shape or form, with what price the bonds sold at on the Stock Exchange.

Mr. BENNETT of Michigan. Nobody had any advance information as to what the price would be?

Mr. BLACK. Not in the slightest. We knew from investigations that there was going to be a large interest in the bonds, but what the price was going to be on the Stock Exchange; what the price would be over the counter, I did not know. I could guess, but I had no information. There was no prearranged transaction of that sort and I can assure you that, and give you my word of honor to that effect, and I know that Doremus knew nothing.

Mr. BENNETT of Michigan. I just wanted to get that information. That is all, Mr. Chairman.

Mr. CHAIRMAN. Any further questions, gentlemen? If not, you are excused. I want to say in connection with the testimony that you have given to us, and I want to reiterate what I have said before about men of broad experience in charge of operations as important as this, which is your case, coming before our committee and giving testimony, is very helpful and very encouraging.

Mr. BLACK. Thank you very much, sir. I want to congratulate you on the fairness of your questions.

The CHAIRMAN. Well, you are speaking to me as the committee. STATEMENTS OF EDMOND M. HANRAHAN, CHAIRMAN, AND ROBERT K. McCONNAUGHEY, COMMISSIONER, SECURITIES AND EXCHANGE COMMISSION, ACCOMPANIED BY ROGER S. FOSTER, SOLICITOR, LOUIS LOSS, CHIEF COUNSEL, DIVISION OF TRADING AND EXCHANGES; AND MICHAEL E. MOONEY, SPECIAL COUNSEL, DIVISION OF CORPORATION FINANCE

The CHAIRMAN. Mr. Hanrahan, we would like to ask you some questions, and if you wish to have associated with you the former chairman or others of the SEC if you like, that will be perfectly agreeable to the committee.

We realize that you have only recently taken over this position as Chairman of the SEC.

Commissioner HANRAHAN. That is right.

The CHAIRMAN. We are glad to welcome you here on your first appearance before this committee.

Commissioner HANRAHAN. I appreciate that very much, Mr. Chair

man.

The CHAIRMAN. We have had a very pleasant relationship with your predecesors and we have no reason to think that the same friendly relationship will not continue.

Commissioner HANRAHAN. Thank you.

The CHAIRMAN. We have been very desirous at times of discussing matters with the Commission, believing that there should be some cooperation between agencies of Government and the legislative branch, which is responsible for their existence, so that in the past we

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have felt perfectly free to call upon the SEC, its members and staff, and for that collaboration that enables us to deal, we feel, more effectively with the problems of legislation.

We are glad to know that you have the same willingness to coop

erate.

Commissioner HANRAHAN. I assure you that we do. And I think, for the record, I would like to introduce myself and the other gentlemen with me.

My name is Edmond M. Hanrahan, Chairman of the Securities and Exchange Commission. This is my colleague, Commisioner McConnaughey, Mr. Foster, our Solicitor, and Mr. Loss, chief counsel, Trading and Exchanges, and Mr. Mooney, special counsel, Corporation Finance.

The CHAIRMAN. I see Commissioner McEntire is present in the audience.

Commissioner HANRAHAN. Yes, Mr. Chairman.
The CHAIRMAN. We would hardly miss him.

Commissioner HANRAHAN. I am here at the invitation of your committee. My name is Edmond M. Hanrahan. I am Chairman of the Securities and Exchange Commission, and I am here at the invitation of your committee to comment on II. R. 6443, a bill to amend the Securities Act of 1933, the Securities Exchange Act of 1934, and the National Bank Act to provide exemptions from these laws for securities issued or guaranteed by the International Bank.

As the committee knows, a companion bill to H. R. 6443 was introduced in the Senate as S. 2636. The Senate bill has been reported out favorably with a modification suggested by the SEC which had the effect of providing for exemption only of securities issued and fully guaranteed by the International Bank as distinguished from any securities issued or only partially guaranteed by the bank, as is possible under the bank's articles of agreement.

On May 6, 1948, we sent to you a full statement of our views in a letter over the signature of Commissioner McConnaughey, who is present with me today. That letter was yesterday made part of the record and it goes into greater detail on some points than will my present statement.

The legislation sought by the bank, with changes reflected in the bill approved by Senator Tobey's committee, would put securities Issued and fully guaranteed by the bank in the same class with other securities exempted from the Securities Act of 1933 and the Securities Exchange Act of 1934, including securities issued or guaranteed by the United States, any State or subdivision thereof or any instrumentality of the foregoing.

The securities issued and guaranteed by the bank are neither strictly in the character of American governmental securities nor are they strictly similar to the ordinary private and foreign securities which are subject to our statutes. We have recognized that the United States representative on the bank has full veto power over any borrowing by the bank in this country and over the making of guaranties on loans sought in this country and that representative cannot give his approval except on instruction of the National Advisory Council, consisting only of representatives of United States governmental agencies.

That we have felt the bank entitled to special treatment in view of its nature is clear from the fact that we have exercised our rule

making power under both the Securities Act and the Securities Exchange Act to facilitate past distributions of its bonds. However, the bank has felt that broad legislative exemption is necessary for securities issued and guaranteed by it. The decision as to the wisdom of this legislation involves weighing considerations relative to the Government's foreign lending policy against those relative to the standards of the present law. That is a problem for the Congress in the light of all the interests affected. We will be glad to help your committee to explore the relevant considerations insofar as they fall within our competence.

From the questions asked yesterday of Mr. Black it appears that some of the members of your committee are interested in the question whether the National Advisory Council will be concerned with the American investor in making the decisions which guide the conduct of the American representative on the bank. Our own reading of the Bretton Woods Agreement Act and the testimony of Messrs. Black and Luxford have indicated to us that the National Advisory Council has full power to consider the American investor, not only from the point of view of disclosure but also of safety, in making those decisions.

Further, should this bill, in some form, become law, I think it would be the National Advisory Council's clear obligation and exclusive responsibility to provide substantial equivalents to the protections afforded under present law which would be rendered inoperative because of the exemptions provided in this bill which the National Advisory Council, as well as the bank, is sponsoring. Undoubtedly the National Advisory Council would make such provisions as part of its formulation of general policy in guiding the United States' representative on the bank.

That would be emphasized further by this very hearing-especially in view of the questions asked by you, Mr. Chairman, and the members of your committee. The record of this hearing would constitute significant legislative background in considering the purposes and effects of the exemptions provided for in the bill.

And I understand further that the letter of June 2 that I sent to this committee has been made a part of the record with regard to the Billett telegram on behalf of the NASD.

The CHAIRMAN. Are there any questions?

Mr. BENNETT of Michigan. Mr. Hanrahan, when a foreign country comes over here to sell a security direct, you require it to comply with the SEC laws and regulations?

Commissioner HANRAHAN. That is right.

Mr. BENNETT of Michigan. If the same kind of a security or a security of inferior quality comes here from a foreign country through the International Bank, do you think it ought to be accorded prefer

ential treatment?

Commissioner HANRAHAN. Well, I think it is a different obligation. This is neither a foreign government obligation nor is it a private one. It is a hybrid obligation, akin to a Government obligation fully guaranteed by the United States Government.

Mr. BENNETT of Michigan. But it is not in all cases and under all circumstances fully guaranteed by the United States Government? Commissioner MCCONNAUGHEY. Mr. Bennett, one other factor is involved in that situation.

A foreign government security coming to this country does not have to pass the surveillance of the National Advisory Council as to such issue nor do you have there a security guaranteed by the bank or the issuance by the bank of its own securities in order to finance that loan. You have introduced with respect to securities issued by the bank or guaranteed by the bank a new type of public surveillance which includes power-power, it is true, of a different sort than that exercised by the SEC, to judge the propriety of that security as an appropriate subject for investment by American nationals.

Now, our consideration of this question has been affected by the fact that you do have, with respect to such securities, in addition to the obligation of the United States to contribute to the program, to support the obligations of the bank, and to guarantee the obligations of the bank-subject to certain limitations that were brought out yesterday you have in addition a presumably impartial Federal agency empowered to survey and appraise the appropriateness of selling that security to the investors in this country.

Now, it is quite true that that power is a different kind of power from the power that the Commission exercises.

What we do is to require that the facts be disclosed. That leaves it up to the purchaser of the security to make up his own mind as to whether that is the kind of a security he wants.

This is a somewhat different sort of power; a power to decide whether that security shall or shall not be sold to the American investors.

Now, if that power is exercised carefully and diligently-and we have no reason to expect that it would not be-we are perfectly willing to let Congress decide without any objection from us that that is perhaps a better way to handle these securities.

Mr. BENNETT of Michigan. Well, you have got to recognize this fact, and it seems to me to be very significant-this National Advisory Council is a sort of vetoing agency. The Securities and Exchange Commission is created by Congress and as created was for the purpose of examining securities which were sold to the American public in accordance with the rules and regulations and restrictions laid down in the act of Congress.

Now, when you go to this National Advisory Council, they are not bound to do any analyzing or determining of the fitness of the security by any tests that your Commission is bound by. They can, if they want to, as I see it, arbitrarily say, "Well, the A security from France is a good security-period." They can arbitrarily permit it to be sold to American investors. You cannot do that. Your Commission cannot do that. You have got to scrutinize that security. You have got to follow the instructions that Congress laid down; follow the tests that were laid down as to whether that is a good security to sell to the American public or not. Is that true?

Commissioner HANRAHAN. No.

Mr. BENNETT of Michigan. Now, the National Advisory Council is not required to do that.

Commissioner MCCONNAUGHEY. May I interrupt you there?
Mr. BENNETT of Michigan. Yes, sir.

Commissioner MCCONNAUGHEY. We do not determine whether it is a good security to be sold. No matter how bad it is, it can be sold if they tell the truth about it.