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you will be able to run your own business and yet qualify as do the banks today under the National Bank Act and the Federal Reserve Act.

The CHAIRMAN. We are very much obliged to you, Mr. Woodhouse. We will hear Mr. Hill.



The CHAIRMAN. Mr. Hill, how much time do you want?
Mr. HILL. Three minutes.
The CHAIRMAN. We will give you 5 minutes.
Mr. Hill. Thank

you. Mr. Chairman and members of the committee, as a member of the bar of the State of Maryland and the District of Columbia and as solicitor for an organization of business men in Baltimore, a very old organization called the East Baltimore Business Men's Association, who are very deeply interested, as buyers of securities, in this act, I am appearing before this committee.

I desire to very respectfully suggest for the consideration of the committee two amendments to section 7 of this act, and if the committee will pardon me, I will read the section. It is a very short one:

Sec. 7. That any person aggrieved by an order of the Commission revoking the registration of any security may obtain a review of such order in the Court of Appeals for the District of Columbia by filing in the court, within thirty days after the entry of such order, a written petition praying that the order of the Commission be set aside. A copy of such petition shall be forthwith served upon the Commission, and thereupon the Commission shall certify and file in the court a transcript of the record upon which the order complained of was entered. The finding of the Commission as to the facts, if supported by testimony, shall be conclusive. If either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence in the hearing before the Commission, the court may order such additional evidence to be taken before the Commission and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The jurisdiction of the court shall be exclusive and its judgment and decree shall be final.

The commencement of proceedings in the Circuit Court of Appeals by any person dissatisfied with the order of the Commission revoking registration, praying that such order be set aside, shall not, unless specifically ordered by the court, operate as a stay of the Commission's order.

I would like to suggest for the consideration of the committee the following amendment: Page 15, line 12, after the word "Columbia", insert the following: "or the Circuit Court of Appeals of the Federal judicial circuit in which such person is a resident."

The proposed draft of the bill at the present time provides that where there is an order of the Commission revoking the registration of any security, there may be a review of this order in the Court of Appeals of the District of Columbia. That permits review only in the District of Columbia, and that has two very salient objections.

In the first place, the District of Columbia Court of Appeals is much crowded in its docket at the present time, and there would be delay.

In the second place, it is not fair to require an applicant, in such a manner as this, to come to Washington for his appeal. He should have a right to have his appeal tried in his own local Circuit Court of Appeals.

Of course, in Baltimore, that would not bother us very much, because it would be much more convenient for the people of Maryland who might desire to ask for a review to come to the Court of Appeals of the District of Columbia rather than to go to our own Circuit Court of Appeals which sits sometimes in Richmond, sometimes in Asheville and sometimes in Charleston, S.C. But when it comes to the sixth, seventh, eighth, and ninth judicial districts, it is a great hardship to bring those appellants to Washington on a question of this kind.

Certain prosecutions I have conducted under the Federal laws as to fraudulent use of the mails may be of interest to the committee. Under the present postal laws a great many cases have been tried which are very_analogous to the cases which will be tried under this act before the Federal Trade Commission.

I recall, for instance, one case, the case of the United States against the Potomac Refining Co., in which a promoter in New York, living in a building having four different entrances, one on Fifth Avenue, one on Forty-second Street, one on Forty-third Street, and a back alley entrance, promoted a great many companies and used the different addresses, having a personal office one fifteenth the size of this room. He got away with a great deal of money on several promotions and was finally picked up by the postal authorities on this Potomac Refining case after he had collected from widows and orphans about $100,000. As United States district attorney for Maryland, I had the pleasure, of sending him to jail. Those cases are taken care of and are remedial so far as the Government is concerned, but not remedial as far as the people who subscribe to the stock are concerned. There was not any possible way of getting back the $100,000 which he had gotten out of these poor people who had relied on these marvelous representations that were sent out through the mail.

At the present time, the Post Office Department possesses the power to issue a fraud order and cases on fraud orders are ordinarily tried in Washington.

It has been my experience as counsel in some of those cases, as counsel for the United States and also as counsel for people against whom fraud orders have been issued, that it is very difficult to try the whole matter here in Washington and it would be much more convient to have your appeal in the local circuit.

There is one other suggestion I should like to make. On page 16, line 5, after the word "final” I should like to suggest appropriate language which would permit review by the Supreme Court of the United States if the Supreme Court desires to review. This could be accomplished by striking out on page 16, lines 3 and 4, the words, The jurisdictions of the court shall be exclusive and its judgment and decree shall be final."

In almost all cases at the present time the laws of the United States permit reviews of the decisions of the Court of Claims and of all other courts, and it is conceivable that there might be questions raised in these proceedings which ought to go to the Supreme Court.

As at present drawn, the bill proposes that the jurisdiction of the court shall be exclusive and its judgment and decree shall be final. I think it will be a mistake if the right of petition for writ of certiorari to the Supreme Court were denied under this act.

I respectfully submit these amendments and ask permission to revise my remarks, if I may.

Mr. THOMPSON. I would like to ask the gentleman, if I may, if his amendment were carried through, would it not be necessary to amend on page 16, line 6:

The commencement of proceedings in the Circuit Court of Appeals of the District of Columbia and the circuit courts of the circuits in which the person is a resident?

Mr. Hill. Yes. The Court of Appeals of the District of Columbia and the respective circuit courts of appeals; that is correct.

I think that ought to be done. It is very possible that there may be other places in the bill where that change ought to be made.

I thank you very much, Mr. Chairman and gentlemen. Legislation of this sort is necessary for the protection of the American people. The provisions of this act will impose no undue burden on the sale of securities which are entitled to be sold, and will prevent great losses which have been sustained for many years under the existing procedure. As a former United States attorney and Member of Congress, I hope this bill will pass. STATEMENT OF GEORGE W. BOVENIZER, PARTNER IN KUHN,

LOEB & CO., NEW YORK, N. Y. Mr. BOVENIZER. Mr. Chairman and gentlemen of the committee, I want, first, to go on record on behalf of my firm by stating that we are whole-heartedly in favor of the type of legislation which has been suggested by the President. We have stood by now for the past 12 years, or more, and have looked on with apprehension as the good name of the investment banker has been put into jeopardy or dragged down by the actions of some people who never should have been in the business. In other words, I am glad to say that we have never employed the so-called high-pressure salesmanship method of practically forcing securities on people, without proper presentation of what they are worth, and without giving complete information concerning them.

I believe that every honest banker today will look with great favor upon the principle of this legislation as the dawn of a new era, now that full, free, and honest information is to be required before anyone can sell securities to the public, and I believe that investment bankers can again raise their heads and hold them high. That is what we are looking forward to. We believe that we are an indispensable part of the machinery for selling securities, and thereby providing industry with the necessary means for conducting its business, and we believe that through legislation of this kind we are coming to the point of universal adherence to the old fashioned method of first asking ourselves, should we sell the securities at all before going any further with negotiations regarding the details and information desired so as to present a full picture to those to whom we offer them.

I think, gentlemen, that it is unnecessary for me to go into any of the details; but I think that this is such an important matter that there are some things in this proposed law that, perhaps, ought to be amended or changed so that it will not defeat itself. In other words, I think that it ought to be so clear and so straightforward in its statements that nobody can misunderstand it and nobody can get around it.

I thank you for the opportunity to appear.
Mr. BULWINKLE. What amendments do you propose?

Mr. BOVENIZER. Not being a lawyer, I do not know that I could go into details, as to the amendments, but I think that the definitions used should be cleared up as to what you mean by underwriting syndicates and things of that sort. In dealing in railroad securities, which I understand are exempted under this bill, we go before the Interstate Commerce Committee with all the information we have at the time, and get its tentative approval. We then offer that security subject to the approval of the Interstate Commerce Commission. Ordinarily, within three weeks the rest of the papers are filed, and we get what is called the formal approval.

Now, as you see, in such transactions, in order to be dealing perfectly fairly with the corporation or with the railroad company, or whatever it may be, and, also, in order that we may be offering the securities at the proper price, we must keep in close touch with the market all through the immediate time prior to the offering not only in New York and Chicago, but all over the country, and we might come to the conclusion at the last minute that we could say pay onehalf percent more for the securities. That is something that would call for quick action.

It is something that would, as you can readily understand, change the papers all the way down the line. You can see the difficulty of filing in advance the papers in final form. There is no reason why we could not file them in what we call the final draft form, or in a form that may be acceptable to the Commission, or whoever it may be that would have control of the matter. Then you could let the actual final papers, including the list of syndicate underwriters, or whatever is required, be filed afterwards. For instance, we would be in communication with people all over the United States, Europe, and elsewhere, and you can readily understand that if you offer them a participation today, it may not always be possible to wait for their answer, which may come by cable a day or two later, but

you are going out and issue the securities right away: Those are some of the practical difficulties in connection with filing the final papers in advance.

Mr. HUDDLESTON. Section 5 of the bill sets forth the matters which must appear in the statement that is filed with the Commission. You will find that in section 5, beginning on page 7, and I presume that you are familiar with that.

Mr. BOVENIZER. I did not see a complete copy of this bill until I came down here.

Mr. HUDDLESTON. I am not certain that there are not additional facts which should be stated with reference to the conditions governing the issue of securities in this statement. It occurs to me that there are other things which would be of value for the investor to know; such, for illustration, as the profits or net earnings during previous periods.

Mr. BOVENIZER. You mean a showing by the corporation?

Mr. BOVENIZER. Absolutely; they should know that.

Mr. HUDDLESTON. You think that information should appear in the statement?

Mr. BOVENIZER. Yes, sir. Mr. HUDDLESTON. It should show whether they have ever defaulted in interest charges.

Mr. BOVENIZER. Absolutely; yes, sir.

Mr. HUDDLESTON. Together with the officers' salaries and the overhead.

Mr. BOVENIZER. I do not know about that. That is a matter of judgment. It is a matter of judgment whether or not it would be wise to do that.

Mr. HUDDLESTON. I mean what part of its income is being devoted to that purpose. We have had lately some illustrations disclosing some most exorbitant charges made by officials for their services. If there have been any such bonuses or other large sums paid by the issuing corporation to its officials, it seems to me that the purchaser of the securities ought to know it. In the case of the Bethlehem Co., it was disclosed that immense bonuses had been paid, and I think that prospective stockholders should have been advised of that.

Mr. BOVENIZER. I think the security holders are entitled to know all material facts concerning the company.

Mr. HUDDLESTON. I would like to have you examine this section 5 carefully, and give us your judgment on it. I do not mean for you to do it now, but it can be done later. I want your judgment as to whether there is anything called for there that is not necessary, or that has no value. My thought is that we ought to have everything that is of value included, but that we ought not to exact anything that has no value.

Mr. BOVENIZER. I think that is so. I think that everything connected with the security itself or connected with the corporation, its earnings, and everything of that character that enters into the intrinsic value of the security, should be included in the statement. It should be given in the statement and published.

Mr. HUDDLESTON. We would like to have your suggestions as to any other matters that should be inserted or as to any that might be omitted from that section.

Mr. BOVENIZER. I will be glad to do that.

Mr. PARKER. Will you please turn to page 21 of the bill, and note the proviso in line 16. That section excludes securities that are issued with the consent of the Interstate Commerce Commission.

Mr. BOVENIZER. Yes, sir.

Mr. PARKER. But this proviso sets forth that everything must be published. Now, if I am not mistaken, the Interstate Commerce Commission tells you what commission you can charge for the bonds that are issued. Do you suppose that the publishing of that information in the daily papers would affect the sale of those bonds?

Mr. BOVENIZER. No, sir; because I think if it is an unreasonable spread it ought not to be allowed. If it is a normal spread, it is all right; but there may be a difference of opinion as to what a normal spread may be. If it is a normal spread for the services rendered, I think there is no question but what it should be published and that the public should know it. I see no objection to it. It is shown by the Interstate Commerce Commission now. I understand that is simply put on the table, and any newspaper may copy it.

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