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as unworkable, voted cooperation with the house and senate committees now seeking to classify cities and prepare charters for them, but favored resubmitting the entire question to the voters in a new amendment.

The league program included planks aimed to give cities the right to set up housing authorities for slum clearance and to permit cities to borrow federal money for construction of electric-light plants.

H. R. 12078. RESOLUTION BY NATIONAL FRATERNAL CONGRESS AT NEW YORK,

AUGUST 26, 1936 Whereas the great fraternal societies, with a membership of 7,000,000 men and women, to whom is furnished by such societies, life-insurance benefits at a minimum of cost and a maximum of safety, have largely invested the accumulation of funds entrusted to them by their members, for the sacred purpose of protecting their dependents, in municipal bonds, such investments aggregating approximately $500,000,000 being made-not only with the approval of the Federal and State Governments—but through their active encouragement and aid, for the purpose of providing funds for public works and improvements, as a result of all of which such fraternal societies and their members are deeply and vitally interested in any measure affecting the integrity, value, and welfare of such bonds; and

Whereas H. R. 12078, regulating bondholders' committees, forbids any person representing the owners of municipal bonds without a certificate of authority granted (conditioned as below) by the Securities and Exchange Commission, under penalty of $5,000 or 1 year, to use the telephone, telegraph,

or any instrument of interstate commerce or the postal facilities either to demand payment, negotiate any settlement, prosecute any claim, collect any money, accept or receive refunding or renewal bonds, or otherwise to service such bonds; and

Whereas the Securities and Exchange Commission certificate or authority thus required is conditioned

i. That no auditor, accountant, clerk, attorney, consultant, or other official or employee shall be retained until after the Securities and Exchange Commission shall have approved the individual, the duties, and the compensation;

2. That no expenses of operation or otherwise can be paid until approved by the Securities and Exchange Commission;

3. That no suit can be inaugurated until after approved by the Securities and Exchange Commission;

4. Other rigorous requirements, including5. Possible cancelation upon 5 days' notice;

6. A bond in an amount and conditions fixed by the Securities and Exchange Commission; and

Whereas said H. R. 12078, if valid, and enacted practically

1. Prevents the enforcement of all municipal bonds, particularly those owned by individuals of modest means who are dependent upon cooperation with others to minimize expense;

2. Prevents all practicable contact between the bondowners and the financially embarrassed municipality because of the wide distribution of the bonds in small blocks or amounts;

3. Prolongs the depression by retarding, opposing, and hampering rehabilitation activities in the smaller communities and taxing districts, thereby impairing the credit of businessmen with their banks and wholesalers and clogging and preventing the sale and mortgaging of real estate at fair prices; and

4. Increases the burdens upon such small or taxing districts by reducing and impairing the desirability and attractiveness of municipal bonds by increasing the difficulties of enforcement. Now, therefore, be it

Resolved by the National Fraternal Congress assembled, this 26th of August, A. D. 1936, in the city of New York, and State of New York:

1. That H. R. 12078, insofar as it applies to the bonds of municipalities and other subordinate governmental agencies, is opposed to a wise public policy and should not be enacted.

2. That the Senators and Representatives in Congress assembled be respectfully petitioned not to enact said H. R. 12078, in a form applicable to municipal bonds.

3. That the chairman and the secretary of this conference be authorized and instructed to cause copies hereof forthwith to be sent by mail to each of such Senators and Congressmen.

1508-37-36

(H. R. 12078, 74th Cong., 2d sess.) A BILL To regulate bondholders' committees acting in interstate commerce or through the mails, and for

other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

DEFINITIONS SECTION 1. The term "bondholders' committee" as used in this Act means any person or group of persons, firm, association, or corporation representing or assuming to represent or acting for or on behalf of the owners or holders of any bonds, certificates of indebtedness, securities, promissory notes, or other obligations issued by any corporation or by any city, town, borough, tax district, improvement district, county, State, or other political subdivision.

The term "interstate commerce” means trade, commerce, transportation, or communication among the several States, or between any foreign country and any State, or between any State and any place outside thereof.

The term "any means of communication" shall include any communication by telephone, telegraph, radio, or by written memorandum, whether sent through the mails or delivered in person.

The term "Commission" means the Securities and Exchange Commission.

The term "corporation" wherever used in this Act shall include also any receiver or trustee of any corporation appointed by court order.

BONDHOLDERS' COMMITTEES MUST HAVE CERTIFICATE OF AUTHORITY SEC. 2. Unless a certificate of authority has been issued in accordance with the provisions hereinafter set forth and is in effect, it shall be unlawful for any bondholders' committee, directly or indirectly

(1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to solicit the deposit with said bondholders' committee or any agency designated by said bondholders' committee, of any bond, note, certificate of indebtedness, security, or other obligation issued by any corporation or any city, town, borough, tax district, improvement district, county, State, or other political subdivision;

(2) to carry or cause to be carried through the mails or in interstate commerce by any means of transportation or communication any advertisement, prospectus, letter, circular, or communication in which such bondholders' committee is designated, described, represented, or held out as an agency to act for or on behalf of the holders of any bonds, notes, certificates of indebtedness, securities, or other obligations issued by any corporation or by any city, town, borough, tax district, improvement district, county, State, or other political subdivision;

(3) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to act for or on behalf of the owners or holders of any bonds, notes, certificates of indebtedness, securities, or other obligations issued by any corporation or any city, town, borough, tax district, improvement district, county, State, or other political subdivision, in negotiating for any settlement thereof or in prosecuting any claim thereon or in making any demand for payment thereof in whole or in part; or

(4) to receive or collect any money upon any bond, note, certificate of indebtedness, security, or other obligation, or to receive or collect any refunding bond or renewal of any such bond, note, certificate of indebtedness, security, or other obligation from any corporation or any receiver or trustee for any such corporation or from any city, town, borough, tax district, improvement district, county, State, or other political subdivision for distribution to any person, firm, association, or corporation whose legal residence is in any State other than the State in which the corporation or political subdivision as the case may be, from which such money or refunding bond was collected is domiciled.

Exceptions: (a) The provisions of this section shall not apply to administrators, executors, guardians, or trustees, created either by will, trust deed, or court order, in the collection of or prosecution of claims based upon bonds, notes, certificates of indebtedness, or other evidences of indebtedness owned by the estates represented by them respectively.

(b) Nor shall the terms of this section apply to bona-fide officers and attorneys of any corporation in the collection of or prosecution of claims based upon any bonds, notes, certificates of indebtedness, or other evidences of indebtedness actually owned by the corporations of which they are officers or attorneys.

COMMISSION TO ISSUE CERTIFICATES OF AUTHORITY SEC. 3. Upon written application signed and filed in manner and form as provided in section 4 hereof, the Commission may issue certificates of authority to bondholders' committees.

Each such certificate of authority shall specify the names of the members of the said bondholders' committee and shall be issued subject to the following conditions:

(a) That prior to the employment of any secretary, auditor, clerk, accountant, adviser, consultant, attorney, assistant, or other official or employee, said bondholders' committee shall submit to the Commission the name or names of any such person or persons intended to be retained, employed, or hired together with a statement of the duties to be performed by him or them and a statement of the salary, wages, fees, or compensation proposed to be paid by the bondholders' committee and shall not enter into any contract or agreement for the employment of any such person until the contract or agreement of employment and the salary, wages, fees, or compensation proposed to be paid has been approved by the Commission;

(b) That no compensation shall be paid to or retained by the respective members of said bondholders' committee except in strict accordance with the terms of the deposit agreement entered into between said bondholders' committee and the respective owners or holders of the bonds, notes, certificates of indebtedness, securities, or other obligations deposited with said bondholders' committee;

(c) That said bondholders' committee shall file as often as required by the Commission, at least twice each year, a detailed report in which shall be set

forth (1) a list of all persons employed or retained by said bondholders' committee together with a statement of the full compensation paid or agreed to be paid to each, (2) a full and accurate statement of all money collected by said bondholders' committee and a full and accurate statement of all disbursements made by said bondholders' committee and the names of the persons to whom paid and the purposes for which paid, (3) a full statement of all litigation inaugurated by said bondholders' committee, and (4) such other and further information and data as the Commission shall require;

(d) That no suit at law or in equity shall be instituted or inaugurated by such bondholders' committee unless and until a full statement of the necessity for such litigation and the object sought to be accomplished has been filed with and approved by the Commission;

(e) That said bondholders' committee shall promptly, and not less than twice each year, distribute pro rata to the owners of the bonds, notes, certificates of indebtedness, securities, and other obligations deposited with said bondholders' committee all funds and moneys on hand after payment of expenses which have been approved by the Commission; and

(f) That said certificate of authority may be revoked by the Commission at any time after five days' written notice to the chairman of said bondholders' committee for any violation of any of the terms and conditions of said certificates or for any violation of any of the terms of this Act or for malfeasance, misfeasance, or nonfeasance in office.

APPLICATION FOR CERTIFICATES OF AUTHORITY Sec. 4. Applications for certificates of authority shall be signed by each member of the bondholders' committee and shall be filed with the Commission and

(1) shall set forth with as much particularity as possible: (a) whether the issuer of the bonds or other obligations is a corporation or a political subdivision, and if a corporation whether it has been placed in receivership or bankruptcy; (b) the nature and amount of the indebtedness and the amount thereof which is in default; and (c) the nature and extent of the security pledged for the payment of the indebtedness;

(2) shall set forth the reasons why it is claimed a bondholders' committee is necessary and the action proposed to be taken for the protection of the creditors of such corporation or political subdivision, as the case may be;

(3) shall state the business affiliation of each member of such bondholders' committee and such relevant facts as may be necessary to enable the Commission to pass upon the qualifications and financial responsibility of the respective members of the bondholders' committee;

(4) shall have attached thereto as an exhibit a true copy of the deposit agreement which it is proposed to execute with the owners or holders of the bonds, notes, certificates of indebtedness, securities or other obligations to be handled by said bondholders' committee; and

(5) shall have attached thereto as exhibits true copies of all advertisements, circulars, letters, or memoranda to be published or circulated by said bondholders committee soliciting the deposit of bonds, notes, certificates of indebtedness, securities, or other obligations with said bondholders' committee or with any agency designated by it.

The Commission shall carefully examine all such applications and the exhibits thereto attached and shall within thirty days from the filing

of each such application issue such certificate of authority: Provided, however, That the Commission shall require as a condition precedent to the issuance of such certificate the posting of a bond in such reasonable amount as the Commission may specify, conditioned for the faithful performance of its duties by said bondholders' committee in accordance with the certificate of authority: Provided, further, That, if upon examination of the deposit agreement the same does not in the opinion of the Commission adequately protect and preserve the rights of the owners or holders of the bonds, notes, certificates of indebtedness, securities, or other obligations, the Commission shall require the bondholders' committee to amend such deposit agreement in such particulars as the Commission may deem proper and the Commission shall withhold the issuance of such certificate of authority until such deposit agreement has been so amended.

POWERS OF THE COMMISSION

Sec. 5. The Commission shall have power (a) to require the production of the books and records of all such bondholders' committees and to require the attendance of the members of such bondholders' committee and all of the officers, employees, and other persons retained or employed by such bondholders' committees at such times and places as the Commission shall designate for the purpose of giving information to the Commission regarding the conduct of such bondholders' committees; and (b) after five days' written notice to the chairman of any such bondholders' committee to revoke and cancel the certificate of authority of any such bondholders' committee for any violation of any of the terms and conditions of such certificate of authority as provided in section 3 of this Act or for any failure to properly account for any funds coming into the hands of such bondholders' committee or for any act of malfeasance, nonfeasance, or misfeasance: Provided, however, That upon the request of any member of any such bondholders' commission the Commission shall before entering any order revoking or canceling the certificate of authority of any such bondholders' committee fix a time within thirty days of the filing of such request at which the members of such bondholders committee shall be privileged to appear and produce evidence of its full compliance with all of the terms and conditions of its certificate of authority and if upon such hearing it shall appear that such bondholders' committee has not violated the terms and conditions of its certificate of authority and has not been guilty of any act of malfeasance, nonfeasance, or misfeasance, the Commission shall withdraw its order for the revocation or cancelation of such certificate of authority.

No bondholders' committee nor any member thereof shall continue to act as such after any order has been issued by the Commission revoking or canceling such certificate of authority.

PENALTIES SEC. 6. Any person who shall act or assume to act as a member of a bondholders' committee in violation of section 2 of this Act, or who shall act or assume to act as a member of any bondholders' committee after the certificate of authority of such bondholders' committee shall have been canceled or revoked in accordance with section 5 hereof, shall upon conviction thereof be fined not more than $5,000 or imprisoned not more than one year.

INJUNCTIONS AND PROSECUTION OF OFFENSES

Sec. 7. Whenever it shall appear to the Commission, either upon complaint or otherwise, that any bondholders' committee, or any member of any bondholders' committee, is acting or assuming to act in violation of the provisions of this Act or of any rule or regulation prescribed under authority thereof, it may in its discretion bring an action in any district court of the United States, United States court of any Territory, or the Supreme Court of the District of Columbia to enjoin any such acts or practices and upon a proper showing a temporary or a permanent injunction or restraining order shall be granted without bond. The Commission may transmit such evidence as may be available concerning such acts or practices to the Attorney General, who may in his discretion institute necessary criminal proceedings under this Act.

Upon application of the Commission the district courts of the United States, the United States court of any Territory, and the Supreme Court of the District of Columbia shall also have jurisdiction to issue writs of mandamus commanding any persons to comply with the provisions of this Act or any order of the Commission made in pursuance thereof.

Mr. West desires to make a statement.

STATEMENT OF HON. MILTON H. WEST, A REPRESENTATIVE

FROM THE STATE OF TEXAS Mr. WEST. Mr. Chairman and members of the committee: At the outset permit me to say that after reading this bill, it is my opinion that the distinguished gentleman named as its author did not write nor so much as read the bill before introducing it, but, no doubt, introduced it by request. He is far too capable and practical to sponsor or advocate the things this bill seeks to do.

I am convinced this bill was conceived in the mind of a theorist and brain-truster and given birth by one who has never had any practical experience. Had the author of the bill desired to pass a law that would have accomplished the things this bill will accomplish he would have done so in less than a dozen lines, and in about the following language: "It shall be unlawful for any corporation, municipal or otherwise, to refinance or adjust its bonded debt”; for that will be the practical effect of this bill should it become a law.

I sincerely believe the sponsors of the bill are prompted by the purest of motives. They, unfortunately, as can readily be ascertained from reading the bill, have had no experience in the field of business, and particularly in refinancing problems; otherwise, they would not have placed many of the provisions in the bill that it contains. While I believe the bill is onerous in most of its purposes and provisions, I am especially interested in and opposed to the provisions applicable to municipal corporations in view of the fact that I have in my congressional district many irrigation, drainage and flood control districts, as well as cities and counties that are municipal corporations in need of refinancing, and if this bill becomes a law it will prevent such refinancing, thereby bankrupting these districts as well as the property owners therein. Fortunately, a good many of these districts have completed their refinancing program through the Reconstruction Finance Corporation, but there are others at this time which have pending with the R. F. C. applications for loans to refinance their bonded debt, some, where loan agreements have been entered into with the R. F. C., and others where the applications have not been approved, and still others that have not yet filed applications with the R. F. C., but contemplate doing so. The passage of this bill in its present form will preclude these districts from successfully terminating their refinancing programs.

These provisions of the bill were called to your attention by Hon. John D. McCall

, one of the outstanding and best bond attorneys in the State of Texas, or the United States. I have known him intimately for many years, and am thoroughly familiar with his ability, honesty, and judgment, and here now endorse and adopt the statements he made before this Committee on or about July 13. I assure you he has a world of experience in bond refinancing, and knows from that experience whereof he speaks, and is not talking theory. I ask that you give careful consideration to his statements, and assure you

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