I will say again that I would not like to see the Securities Commission handle this because, personally, I think they have enough on their hands now with stock issues and licenses.

In this bill the conservator takes over the job that we have to give to somebody as soon as this Congress is over. That is the job of policing these reorganizations. This committee of ours, on which I have had the honor to serve, has been the policeman. And I want to say that if it were not for the policing of this committee, millions of dollars would have been stolen. And I do not use that word lightly-I say, stolen from bondholders of this country. The original equity owners in these properties would have lost that money. Why, some of these gentlemen would make Al Capone look like a piker and an innocent babe!

We have got to turn over this job to somebody. I know that my only reason for asking the Committee on Accounts for more money as we did a few weeks ago was because I felt that we had the bear by the tail. We had the responsibility of protecting these millions of bondholders as long as we could by the threat that our committee has exercised, that if these committees went into court and did not tell the truth and did not give the court the facts, we were always there to dig up the facts and present them to the court. That has had a beneficial effect on a lot of these gentlemen.

Of course, I am not an attorney, gentlemen. I do not oppose attorneys getting fees. But I do object to placing upon the courts the responsibility of allowing fees when the court has no means of knowing, or of investigating the value of the services.

I can give you an example right in my own city. Our judge there was compelled in one of the biggest reorganizations we had to appoint a master to hear testimony on that particular reorganization. That master heard testimony in that reorganization for 6 months, 5 days a week. The thing was so involved that when it got to the judge it was impossible for him to read it. He had to take the master's recommendation. And the master's recommendation threw out the entire bondholders committee, said that they were unfit to serve, that they did not represent the bondholders, and were denied. all rights of ever coming into that court again to represent the bondholders.

Yet, for 3 or 4 years before that that committee had drawn large fees out of the estate of the bondholders.

We have seen reorganizations come into court where the third mortgage bondholder received exactly as much money in the reorganization and stood in the same position, as the first mortgage bondholder. We have seen dozens of those. The Conservator that this bill proposes to set up would act in the capacity of a policeman, in my opinion. Before they could file their petition under this bill they had got to submit to the Conservator their plan. The Conservator will have some investigators. He can find out whether or not the plan is equitable and he can also advise the court.

I see nothing in this bill that should affect its constitutionality because it applies only to those reorganizations in the Federal court. Most of the bonds sold in my State, in Wisconsin, were sold by firms not in the State, because we had a securities law that made it impossible to sell a lot of this rotten paper in my State. Our securities law made them go and get a license, and made them put on

their literature whether it was class A, B, C, or D. The customer in my State knows that when a thing is marked "Class C", it is just as speculative as oil stock and he had better keep his hands off it. So the only way they could operate was to send it through the mails. But they sold millions of dollars worth of these bonds in my State through the mails.

Mr. SABATH. What about Schroeder & Sons, $85,000,000? Mr. O'MALLEY. Well, he had a friend on the commission. We cannot get at them in my State. The bondholders are helpless to organize to represent themselves. They had to sign these trick deposit agreements and send them to Chicago and New York, or send them to some other place, and they are without any voice in the court.

The bondholders' committee that represents them does not represent them at all. It represents the houses of issue, the gentlemen who had equities in the property.

When I say that this bill does not go far enough I say it advisedly. It just skims the surface. It affects only those committees who may elect to go under 77B. I hope that some way can be found, by our committee or this committee, to put a provision in this bill that will affect those committees who have handled bonds that were sold in interstate commerce that are going into the State courts, or that are not reorganizing at all but have worked out an arrangement where the bondholders' committee is managing the property and keeps on managing and operating the property for fees.

Mr. SABATH. Right here I should like to say that Mr. Powers, after a conference with about 20 of the lawyers in Chicago, arrived here yesterday and he has an amendment whereby greater power would be given and we would be able to reach just what you desire to reach.

Mr. O'MALLEY. If an amendment of that kind is not put in this bill, not only will it not reach the bulk of the problem, but a great many of these committees whose sole purpose it has been in their reorganization activities to make fat fees for the lucky fellows that have had the list of bondholders, will not be reached. Many of these committees will not go into the Federal courts under 77 or 74B, but will change their plan and go into State courts, or not reorganize at all, but continue the committee in operation.

I say that the thing this bill should try to accomplish, if possible, is to put these committees out of business. They ought to be put out of business. Of those that our committee has examined, not one out of a hundred has been an honest and a fair committee. I do not say that loosely. You can go through the record and see the admisions of many of these gentlemen who have served on these committees, that they have made more money out of service on the bondholders' committee than they ever made before in their lives, in the practice of any of their professions. And what purported to be a public service, that they were doing for the love of the poor bondholders, has been a very profitable thing for them.

Unless this bill has a provision in it that will put a Federal policeman in charge of all those committees and see that the bondholder gets a square deal, it only skims the surface. If it does not affect

anything but 77B reorganizations, you can rest assured that these gentlemen, who are very smart and very wise and very brilliantwe have had them before our committee-will not go in under 77B and we will just have changed their method rather than put a stop to it.

I am glad to hear from the chairman of our committee that Mr. Powers, who has worked on this legislation, has an amendment that will broaden the scope of this bill.

I have not anything further to say, gentlemen, on this particular bill. But since the Congress has authorized us three times to do the investigating work, to do everything we could to protect the bondholders, it certainly is the duty of Congress now that our committee has nearly concluded its work and come to the end of its authority, to authorize some agency in the Federal Government to take over that burden of work which has been on the shoulders of our committee; and continue the work and improve the protection that this little committee, with its limited funds, has been able to give to the bondholders.

I am sure that if you had any bondholders in your own district and you asked them whether or not the work of this committee should be continued through a Federal agency, you would find nobody objecting to it.

You will have opposition to this bill and I hope that our committee, when the opposition has stated their objections to this legislation, will be given an opportunity of answering from the record of our hearings, those objections that you may hear to this legislation. I thank you.

Mr. SABATH. Mr. Chairman, I would like to put on one of these attorneys who has worked with the committtee gratis for months and months, who is here, and who could enlighten you as to the provisions of the bill. That will be done, in a way, by others, but he may also give you the foundation of this legislation.

Mr. BENNITT. Mr. Chairman, may I presume to ask if the opponents of the bill might have an opportunity to be heard at this time? That will provide material for the proponents to discuss following them.

I have assembled the names, as has been suggested to me, of those who want to be heard. There are about ten, some of them very briefly, in opposition to the bill.

Mr. CHANDLER. Gentlemen, the committee has just been conferring among themselves and the plan of the committee at this time is to recess until 1:30 p. m. I understand from Mr. Sabath that he has two more people remaining to be heard.

Mr. SABATH. We have several others who have worked on this bill and also two of our chief investigators, but I do not think it will be necessary, perhaps, to put them on the stand.

Mr. CHANDLER. Our thought was to hear the person who handled the drafting of the bill and then to hear those who oppose the bill. I would suggest, in order that this presentation might be coordinated expeditiously, that those who are opposed to the bill get together during the recess. I know that Mr. Henry Shull, the chairman of the American Bar Association committee on bankruptcy is present; Mr. Brace Bennitt represents the credit men's organization; Mr. Coffman is here, a member of the New York bar. I suggest that

you work out a plan of appearances for those who are opposed to the bill so that we might expedite our session as much as possible. Also bear in mind that those who have come from a distance should be heard first, so that they may have the opportunity of leaving as soon as possible.

Mr. SABATH. Mr. Chairman, it is agreeable to us that these gentlemen in opposition to the bill go on immediately this afternoon and point out any defects in the proposed bill.

Mr. CHANDLER. You mean go on immediately on reconvening?
Mr. SABATH. Yes.

Mr. BENNITT. Thank you very much.

Mr. MICHENER. I think that is a good suggestion, because if there is any matter in the bill that is not controversial, there is not much use wasting a lot of time on it today.

Mr. CHANDLER. It is agreeable, then, to everybody, that we reconvene at 1:30 and at that time we will hear the opposition.

(Whereupon, at 12 o'clock, the committee recessed until 1:30 o'clock p. m.)

AFTERNOON SESSION

(The hearing was resumed at 1:30 o'clock p. m. pursuant to the taking of recess.)

Mr. CHANDLER. The committee will come to order. As I understand the suggestion made by Mr. Sabath, it is that the group of gentlemen who are in opposition to this bill, to this particular proposal, would present their views at the beginning of the afternoon session, in order that we might determine what further facts those in favor of the legislation might present.

Mr. Bennitt, has your committee mapped out a plan of procedure? Mr. BENNITT. Yes, Mr. Chairman. I have conferred with many of those who wish to be heard in opposition; and it was agreed that the first two would make the major presentation on it so that there will be no duplication and so that we can therefore save the time of the committee.

We will begin, if you will permit, with counsel for the National Association of Credit Men, representing the business interests, Mr. W. R. Montgomery.

Mr. CHANDLER. We will be glad to hear Mr. Montgomery now. I suggest that he state his name and his position and whom he represents. STATEMENT OF W. RANDOLPH MONTGOMERY, COUNSEL FOR THE NATIONAL ASSOCIATION OF CREDIT MEN

Mr MONTGOMERY. Mr. Chairman and members of the committee, I don't know that I need to state that the National Association of Credit Men is a voluntary business organization embracing some 20.000 business firms in all sections of the United States.

I have been asked to appear here at this hearing on behalf of the association to express the emphatic disapproval of that organization to the provisions of this bill.

Primarily the reason for the opposition is that the National Association of Credit Men and its membership are desirous of retaining section 77 (b) as an effective and desirable instrument for the reorganization of corporate debtors, and because we believe that this

bill, if enacted, will completely destroy the value of that section as a medium for reorganization.

I want first to call to the committee's attention what this bill provides. There have been statements made here this morning with respect to several features of the bill which, in my opinion, do not accurately reflect the provisions of the bill itself.

There has been no statement made as to the full provisions of the bill. I have before me an outline of the bill that was prepared by Mr. Weinstein, of Philadelphia. There are four copies of it, and I would be very glad to pass them to the committee. It may be of some considerable assistance to the committee, I think, in understanding exactly what is included in the bill as introduced. If the committee would like to see this, I would be very glad to hand them up. [Handing to the committee the papers referred to.] (The paper referred to is as follows:)

OUTLINE OF SABATH BILL, H. R. 10634, SECTION 77C: CONSERVATOR IN

BANKRUPTCY

A. DEFINITIONS FOR PURPOSES OF SECTION

a. "Debtor corporation” means a debtor under 77B “whose liabilities include obligations in a total amount of $50,000, or over, which are evidenced by at least 10 credit instruments severally owned by not less than 10 persons" (subdivision 1 (1)).

b. "Individual debtor" means a debtor (except a corporation) under section 74 "whose liabilities include obligations in a total amount of $50,000, or over, which are evidenced by at least 10 credit instruments severally owned by not less than 10 persons" (subdivision 1 (2)).

c. "Plan" or "plan of reorganizaton" means a plan under section 77B (subdivision 1 (3)).

d. "Proposal" or "proposal for a composition or extension" means a proposal under section 74 (subdivision 1 (4)).

B. CREATION OF OFFICE

a. Office of Conservator in Bankruptcy is created (subdivision a (1)).

C. DESIGNATION OF CONSERVATOR

The President is empowered

a. To designate as Conservator, either—

1. Securities and Exchange Commission; or

2. Comptroller of Currency; or

3. Any other appropriate agency of the Government; or (subdivision a (1) (i)).

b. To establish a new agency as Conservator, if he finds it more economical and effective to do so (subdivision a (1) (ii)).

D. POWERS, RIGHTS, AND DUTIES OF CONSERVATOR

a. Conservator is authorized to act as trustee, custodian, or receiver, as provided in subdivision b of this section, and to perform other functions vested in it herein or by any other law (subdivision a (1) (ii)).

b. Conservator may, as in its opinion necessary

1. Prescribe and publish rules and regulations;

2. Make investigations and examinations; and

3. Require information and reports.

4. Publish the rules and regulations in the Federal Register.

5. Alter, amend, or revoke rules and regulations (subdivision a (2)).

c. Conservator may, regardless of civil-service laws or Classification Act of 1923, employ and fix compensation of

1. Attorneys,

2. Officers,