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Mr. PARKER. It is a public matter there, but I was afraid that it might affect the sale price of those securities in the open market. For instance, suppose you offered $50,000,000 worth of Pennsylvania Railroad bonds and put them out on a 3 percent commission. I wonder if it would have any effect on your buyers.

Mr. BOVENIZER. I do not think it would have any effect on them, because I think, in the first place, we would never ask of the Pennsylvania Railroad a penny more than we could get along with.

Mr. PARKER. If you go into a retail store to buy an overcoat, and they say it costs $25, and that they will sell it to you for $32, it might make a difference. Many people might go in and pay $32 for the coat if they did not know what was the cost of it.

Mr. BOVENIZER. I am assuming that those things will be required of us, and I am telling you what I think the effect would be. No other business, so far as I know, is required to do those things.

Mr. PARKER. I am not opposed to it, but I wanted to know what your reaction was to that.

Mr. BOVENIZER. It might slow up the selling. It might have some effect in the way of slowing up the issue, but I do not think that the public generally, who are educated as to what is done by the Interstate Commerce Commission in its disclosure of the spread in these transactions, would consider exorbitant for an instant a margin such as the 3 per cent you mentioned, especially if it is properly explained that this margin goes into a great many parts, including, as it does, besides the issuing bankers and the underwriting syndicates, the commissions paid to brokers and distributors and various out-ofpcoket expenses such as advertising, printing, postage, telegrams, counsel fees, and so forth.

Mr. PARKER. I mean whatever the Commission happened to be. I was wondering whether a railroad company or any other corporation would get into a situation where they would have to set up their own selling agencies, which would cost them more than to use yours which is already set up.

Mr. BOVENIZER. It would perhaps be better if it did not have to be published, but I think it is perfectly proper that the margin should be discussed as it is a proper subject of discussion. I think on the whole it would probably be better not to publish it broadcast. At any rate if it is published the division of the margin as stated by me in reply to a previous question should be explained at the same time.

Mr. PARKER. It is discussed with the Interstate Commerce Commission.

Mr. BOVENIZER. Yes, sir; and they publish it.

Mr. PARKER. Anybody can get it that wants it, but if you broadcast through the Times and Tribune all over the country, that you are making 3 percent on those transactions, it might have some effect on the buyers.

Mr. BOVENIZER. If we could only clear up in the public mind through the newspapers or other agencies that we are not making that 3 percent for ourselves, we would be glad to have it done.

Mr. PARKER. I grant you that.

Mr. BOVENIZER. Then I do not think it would have any adverse effect.

Mr. PARKER. I was asking you as a practical question what you thought the effect would be.


Mr. BOVENIZER. I do not think that the publication of a normal, sensible margin would have much effect in normal times. Under strained conditions, such as we have at the present moment, you cannot issue anything at any margin or any price. Normally, I do not think that the publication of the commission approved by the Commission would have a detrimental effect.

Mr. MARLAND. Do you believe that it is entirely proper for an investment banker to serve as a director on the board of a corporation, while dealing in the securities that it issues?

Mr. BOVENIZER. I think it probably would be a good deal better if he does not serve. I think that it should be the function of the investment banker, though, in pursuance of his responsibility toward the public to whom he sold securities, to be kept fully informed. He should be informed as to all the affairs of the company. I know that some very high minded people of late years have considered it necessary to sit on the boards of companies to get that kind of information and to look after the interests of the security holders to whom they have sold the securities. I do not think it is necessary, generally, and I think it has a bad effect in some cases. One of the things that has been hurting the high quality of the investment banker's business has been his occupying that dual position.

Mr. MARLAND. It might have the effect of leading to the issue of unnecessary securities.

Mr. BOVENIZER. Yes, sir; there might be a desire to issue securities that the corporation, perhaps, should not issue.

The CHAIRMAN. We are very much obliged to you for your statement, Mr. Bovenizer.

Mr. HENDERSON. Mr. Chairman, I do not think there is anything I can say that will not be presented by the counsel for the Investment Bankers' Association. I would like to have permission to somewhat explain the amendment that Mr. Huddleston suggested, and to discuss in a general way sections of the bill that we feel are not clear in their present form. That will not be with a view to making specific amendments, but to indicate things we think should be changed in order to permit normal business to be carried on without undue interference.

The CHAIRMAN. I want to say this about the statements that have been made: This testimony is going to be submitted to you gentlemen for revision and correction, and at the earliest possible moment we would like to have it back, because we want the hearings to be printed as soon as they are closed in order that we may have them for our use in executive session.

Mr. BREED. Mr. Gordon, the president of the Investment Bankers' Association of America may have to go to Chicago before Tuesday. Could he have 2 minutes now to make a statement?




Mr. GORDON. Mr. Chairman and gentlemen of the committee, I want to make clear the attitude of the Investment Bankers' Association in regard to this bill.

I wish to assure you that the President's message to Congress outlining the need for and the objectives to be accomplished by a Federal securities law has the entire approval of our association, and I am sure, also, that it has the approval of the country at large.

Our association tenders its full cooperation without reservation toward a detailed consideration of the provisions of the act to carry out the purposes of the President's message to the end that practicable and workable legislation may result.

I know of no responsible security dealer who is not eager to see effective laws to prevent and punish fraud and misrepresentation in the sale of securities.

Such laws are not only in the interest of the public, but also in the interest of those who deal in legitimate securities, and we are therefore thoroughly in accord with the intent of the bill now under consideration.

I have not had time to analyze all the provisions of the proposed bill, but from several readings I believe that certain provisions must be clarified, so that there may be no misunderstanding of its terms, and that the bill be practicable of application and enforcement in actual business transactions. All we ask is that this be done.

With your permission, I will ask that our counsel present to you briefly some of the provisions which, in our opinion, need clarification.

We have been working since we received a copy of the bill here to try to be of help in clarifying what we think is necessary to make the biil operative in everyday transactions and to carry out the President's wishes.

When you meet on Tuesday morning, our counsel will be very glad to submit, with your permission, our conclusions. We will be of all the help we can to you.

Mr. MARLAND. I would like to ask the president of the Investment Bankers' Association the same question that I asked the other witness awhile ago. Mr. Gordon, is it your opinion that your association would oppose a provision of law forbidding investment bankers to sit on the board of directors of a corporation whose securities they are issuing?

Mr. GORDON. I would say, in that connection, that, in the first instance, it would be bad. Sometimes after the securities are out it is necessary to have a representative, or it is sometimes advisable, but not absolutely necessary, to have direct representation. However, I would say that as a general practice, it is not necessary, and is probably not advisable.

Mr. MARLAND. That it is not advisable for them to sit on the board of directors of such a corporation.

Mr. GORDON. As directors; yes, sir.
Mr. MARLAND. Voting themselves profits as investment bankers.
Mr. GORDON. No, sir; that is not the best practice, in my opinion.

Mr. LEA. I would like to know what the objection would be to State commissions passing on the soundness of securities to be offered.

Mr. GORDON. They do not pass on the soundness of securities and should not do so.

Mr. LEA. What is your judgment as to the provision providing for that in this bill, or have you given any attention to that?

Mr. GORDON. We will go into that on Tuesday, if you please. Answering you now, briefly, I would say that that is one of the things that should be carefully considered—whether or not the Government assume such responsibility. In our State (Illinois) the statement is made that the security in question has been qualified by the Commission (which technically is the secretary of State), which does not say as to whether a debenture or first mortgage bond should have been a stock issue, or not, but the law simply gives the right to sell qualified securities,

The CHAIRMAN. I have here a letter that I received this morning from Frederick Peirce & Co., of Philadelphia. These people seem to be investment bankers, and I will have the letter read into the record.

I have here another letter from Mr. A. W. Lafferty, and he asks that this letter be made a part of the hearing. Mr. Lafferty seems to be the secretary of the Foreign Bondholders' National Committee, Inc., of which I see that Mr. Boardman Wright is president; Mr. Paul A. Bogan is vice president; Mr. L. W. Amerman is treasurer; Mr. Lafferty, as I have said, is secretary; Mr. Boardman Wright, jr., is assistant secretary, and Mr. Frank P. Walsh is counsel.

I also have a telegram from a man by the name of Robert C. Ream, president of the American Reinsurance Co.

I will have the clerk to read these letters and the telegram into the record. (The clerk read the following letters and telegram:)


Philadelphia, March 31, 1933. Congressman RAYBURN, Chairman House Committee on Interstate and Foreign Commerce,

Washington, D. C. DEAR SIR: As investment bankers we are vitally interested in the bill submitted by the President to provide for the furnishing of information and the supervision of traffic in investment securities in interstate commerce. Generally speaking, we are in hearty sympathy with the objects to be attained by the proposed legislation and with the means proposed to accomplish the desired ends. A reading of the bill, however, indicates to us that there are several features which are not clear or which are impracticable.

The first question that we would raise is in respect to the definition of “issuer," as given in section 2(d). The second sentence of that paragraph reads: “Any person who acts as a promoter for and on behalf of an individual, corporation, trust, or unincorporated association or partnership of any kind to be formed shall be deemed as an issuer." We presume that is designed to cover the offering of securities for the account of an entity not yet organized. It might be susceptible of interpretation to include the offering or sale by an investment dealer of securities of a corporation long in business. We believe the investment dealer should not be obliged to assume this burden.

In the second place, we assume that the bill is designed to cover the issuance of new securities rather than trading in issues already outstanding. We think this should be made clear. Otherwise, it would be almost impossible for an investment dealer to offer for sale issues of corporate bonds of the highest grade that have been on the market for years and do not constitute new financing.

There would be no reason why a corporation with outstanding securities should file the information required under the bill unless it was desirous of selling additional stocks or bonds, and the dealer who wished to handle such issues would find it dangerous to do so. A great deal of the investment business consists in the resale of issues long outstanding and of proved merit, and this should not be handicapped by the new legislation.

Section 8 of the bill contains two provisions which appear to us to be impracticable. The first one would require a newspaper advertisement of a new issue to recite at length practically all of the data which are included in the offering circular, and, as the bill provides that such information may not be printed in

small type, the cost of such advertising would be prohibitive. Some provisions should be inserted permitting newspaper advertisements in briefer form, referring the reader to the offering circulars for further information.

Section 8 also provides that the information therein required shall be communicated in any oral offering. It is impossible to assure compliance with this provision, for it would mean the supervision of every interstate telephone conversation. It would also make impossible the use of the telephone to a very great extent because of the additional expense involved. As a practical proposition, there is no reason why an investment house should repeat over the telephone to a prospect all of the information contained in the printed publicity which has already become available to him.

There are probably other features of the bill which will need to be clarified, but these few have caught our attention in an initial reading. We trust that these suggestions, which are made in a spirit of sympathy with the proposed legislation, will be considered by your committee. Yours very truly,



New York, March 31, 1933. Hon. Sam RAYBURN, Chairman Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D. C. MY DEAR MR. CHAIRMAN: I desire to make answer before your committee to the testimony of Walter C. Miller, of the Department of Commerce, delivered today. As I cannot afford to come there, I ask that this letter be inserted in the hearings.

I have my life savings invested in bonds of Brazil, and her States and cities. I wholly disagree with the clamor now being raised that these bonds were worthless ab initio. I did not buy at the time the “Houses of Issue", as they are called, were floating the bonds, but I bought several years later, at the then prevailing market prices, after the bonds had been listed on our exchanges a long time. In fact, I paid 108 for my U.S. of Brazil 8's of 1941. I bought them through the Guaranty Trust Co.

A great hue and cry is going up that investment bankers fleeced the American public in "floating” various foreign bond issues, the bankers getting a commission. I have no desire to defend any investment banker. But it does not stand to reason that the bankers would have sold worthless bonds knowingly to the public for 5 percent or even 10 percent profit. The suggestion is absurd and ridiculous.

Mr. Miller testified before your committee today that $12,000,000,000 in foreign bonds had been sold here since the war, and “a considerable portion were either worthless, or greatly reduced in value." That is true, but what does it prove? Nothing. Miller also said that the total of foreign and domestic securities sold here in the same period was 50 billions, “and half thereof unjustified.” That sounds strange, to say the least.

The great mystery of all this is cleared up by a very casual look into the real facts, which are these: Owing to the skyrocketing of gold, all property and all securities appear to have shrunk in value (and have for all practical purposes) from 25 to 90 percent the past 4 years. In other words, a gold dollar, or its equvalent, is today worth from 4 to 10 time its normal value.

Shrinkage in values, due to the villaninous working of the device known as the single gold standard, has affected all property alike, so why pick out foreign bonds, or any other bonds in particular? It is petty nonsense to do so. Farm lands are down the same way.

Houses are down the same. “First mortage gold bonds” secured by first mortgage on New York City's finest hotels, are selling at 15 and under, mortgages are being foreclosed, or were until it it became futile, on the finest properties in America, or every character, and nothing being realized above the mortgage, and in many cases much under the mortgage. Those mortgages were conservatively made a few years ago.

The Government at Washington has not yet looked at our trouble from the right angle. You are giving us hot water bottles and mustard plasters—soothing sirups to ease our pain--but you offer us no real remedy for the thieving devaluation of our property and securities which has taken place due to the inadequacycriminal inadequacy—of the single gold standard.

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