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"Any condition, stipulation, or provision, binding any person acquiring any securities required by this act to be registered to waive compliance with any of the provisions of this act shall be void. The rights and remedies herein provided for shall be in addition to any other rights and remedies that may exist at law or in equity.

Any person who becomes liable to make any payment under this section may recover contribution as in cases of contract from any person who, if sued separately would have been liable to make the same payment, unless the person who has become so liable was, and the other person was not, guilty of fraudulent misrepresentation.'

Section 11: Amend subsection (b) of section 11 to include in exemptions public utilities subject to State regulation, State banks, trust companies, and insurance companies; to strike out unnecessary portion and to strike out provision subjecting securities exempted in such section to the provisions of the section relative to advertising; strike out subsection (f) and insert two new subsections; one subsection to exempt commercial paper, and the other to exempt securities of building and loan associations, such subsections to read as follows:

“(b) Any security issued by and representing an interest in or a direct obligation of any common carrier or other public utility subject to regulation or supervision as to the issue of its securities, by a commission, board, or officer of the Government of the United States, or of any State, territory, or insular possession thereof, or of the District of Columbia; or any such security issued by any national or State bank, or trust company or insurance company, or by any corporation created and controlled by and acting as an instrumentality of the Government of the United States pursuant to authority granted by the Congress of the United States.

(-) Negotiable promissory notes or commercial paper maturing within twelve months of the date of issue.

Securities issued by any building and loan association, under the supervision of a public commission, board, or officer of any State, Territory, or insular possession of the United States or of the District of Columbia.

Section 12: Insert a new subsection to exempt communications, negotiations, and contracts relating to formation of syndicates with respect to securities proposed to be offered, which transactions would necessarily have to precede the filing of the statement; amend subsection exempting isolated transactions; insert new subsection exempting certain sales of securities registered under the act; amend subsection (d) to improve reorganization provisions; amend subsection (e) with respect to real estate mortgages to limit the same to cases where securities are not intended to be offered to the public; amend subsection (f) to include additional exemptions; such subsections to read as follows:

"(_) Any and all communications, negotiations, and contracts between the issuer and the underwriter or underwriters and relating to the formation of purchasing, underwriting, or distributing syndicates, with respect to securities proposed to be offered to the public.

(2) Transactions in which any security is sold, offered for sale, subscription, or delivery by the owner or owners thereof, or by his or their representative, for the owner's account, such sale or offer for sale, subscription, or delivery not being made in connection with an offering or distribution of such security to the public.

(d) The distribution by a corporation, actively engaged in the business authorized by its charter, of securities, to its stockholders, or other security holders, or assigns, exclusively, as a stock dividend, or other distribution out of earnings or surplus; or the issuance of additional capital stock of a corporation sold or distributed by it exc,usively among its own stockholders or assigns, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale or distribution of such increased capital stock; or the distribution of securities issued under a bona fide reorganization or recapitalization by a corporation or corporations party thereto, or formed pursuant thereto or in connection therewith, to its or their security holders or existing creditors or assigns, made in good faith and not for the purpose of avoiding the provisions of this act, either in exchange for the securities of such security holders or claims of such creditors or partly for cash and partly in exchange for the securities or claims of such security holders or creditors.

“(e) Bonds or notes secured by mortgage upon real estate or tangible personal property where the entire mortgage together with all of the bonds and notes secured thereby in the original transaction are sold to not more than five purchasers, and not intended to be offered directly or indirectly to the public.

“(f) The issue or delivery of any security in exchange for any other security pursuant to a right of conversion, or the issue and delivery of a security upon the exercise of a warrant or the surrender of a certificate of deposit or receipt, or pursuant to a subscription for such security entitling the holder of the security surrendered to receive in exchange the security issued or delivered; or the issuance of any certificate of deposit or receipt against the deposit or delivery of the security represented thereby, or any similar transaction."

Section 14: Strike out section 14 with respect to advertisements in blue-sky States.

Section 15: Amend subsection (a) thereof to limit such rules and regulations to those required for properly carrying out the act as follows:

“(a) That the Commission shall have authority from time to time to make, amend, and rescind rules and regulations for the proper carrying out of this act. It shall have authority to prescribe forms upon which all statements to be filed as hereinbefore provided shall be made. Such rules and regulations shall be effective upon promulgation in the manner which the Commission shall prescribe.”

Combine last paragraph of section 15 which grants investigatory powers to the Commission with section 12 which deals with fraud.

Section 16: This section having to do with jurisdiction of courts, should be amended by striking out the words “and under the rules and regulations promulgated by the Commission in respect thereto" appearing in the first paragraph thereof and by striking out the last paragraph thereof,

Section 17: This section having to do with penalties, should be amended by striking out the words “or the rules and regulations promulgated by the Commission pursuant thereto.”

The CHAIRMAN. We will be glad to have you submit anything that you have tomorrow morning.

I had hoped to close these hearings today. We might get the consent of the House to sit this afternoon, but that would not help us, because I have promised two gentlemen that I would hear them 10 minutes each tomorrow morning.

Mr. Thompson, you will be here tomorrow morning?
Mr. THOMPSON. Yes, sir.

The CHAIRMAN. You will be heard, and the committee will be desirous of asking some additional questions. It may be that you will have some further explanations to make after hearing this other testimony.

Mr. Thompson. Yes. I would also like to say that Judge Healy, who is chief counsel of the Federal Trade Commission and who has been bringing out all sorts of evidence insofar as the public utilities are concerned in this remarkable investigation for the last 2 years, has gone very thoroughly over this bill and he believes that there are places where it is not tight enough and he, or his body, or his organization, will have to administer the bill, and I believe that he could be heard with profit by the committee.

The CHAIRMAN. We will have 1 hour and 25 minutes for you and Mr. Healy in the morning.

Mr. THOMPSON. All right.
The CHAIRMAN. We will close the hearings tomorrow.

(Thereupon, at 11:50 a.m., the committee took a recess until 10 a.m. of the following day, Wednesday, April 5, 1933.)




Washington, D.C. The committee met at 10 a. m., Hon. Sam Rayburn, chairman, presiding.

The Chairman. The committee will come to order.

Representative Hill, of Washington, desires to take a couple of minutes.



Mr. Hill. Mr. Chairman, I have two communications with me, one from a representative of the Northwest Mining Association, with headquarters in Spokane, Wash., and the other from the secretary of the Standard Stock Exchange of Spokane, directing their objections particularly to section 14 of this bill.

With your permission, I will read the telegram and a portion of the letter. They are brief.

The telegram comes from the representative of the Northwestern Mining Association, and it reads as follows, addressed to me:

SPOKANE, Wash., March 29, 1933. SAM B. Hill,

House of Representatives, Washington, D. C.: Section 14 proposed Federal Securities Act is old Denison bill in new guise. Passage would play into hands of Wall Street by shutting off independent mail financing. Publicity requirements sufficient to prevent mail fraud. Passage of bill would retard western development by many years.

Please show this to other Northwest Representatives and by all means get section 14 eliminated.

LEON STARMONT. And, I desire to read just a portion of a letter which I have received, on the same subject, from the Secretary of the Standard Stock Exchange of Spokane, Wash.:

The Standard Stock Exchange is heartily in accord with a securities act which will not put a prohibitive burden on legitimate business. Section 14 of the Federal Securities Act would, in our opinion, stop practically all prospective developments of mines where the funds to operate are raised by sale of stock. Nearly all media of advertising goes out of our State borders and to attempt to pass all the securities acts in the States that it reaches would cost a sum, which in many instances, is more than the total amount desired for the prospecting work.

It would appear that section 14 not only stops a general offering of stock over the United States but also, by closing advertising channels, greatly restricts local financing.

We would appreciate any help you could give us in the defeat or amending of this section.

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Now, Mr. Chairman, that is about all I am going to offer. I simply want to add my own testimony to that which I have read from these letters. It would greatly cripple, if not entirely stop, development work in our section of the country in the matter of developing mines. They are not put out as mines, some of these propositions. They are put out for what they are, as prospects, but in order to finan the development, to see whether they can develop a mine, they must have some convenient means of selling their stock, and if they have to comply with all of the so-called blue sky laws of all of the various States, through which and into which their advertising matter and other communications must go, you can readily see, I am sure, that it would practically prohibit any operations along that line, and I respectfully submit that section 14, in my judgment, ought to be eliminated.

The CHAIRMAN. All right. We are much obliged to you, Mr. Hill.



The CHAIRMAN. Mr. Neuberger, we would be glad to hear you.

Mr. NEUBERGER. Mr. Chairman and gentlemen of the committee, I represent a number of persons who have, I think, been denuded and defrauded in acquiring wall-paper decorations to the extent of several millions of dollars, ordinarily known as securities, that have been brought on the market.

May I be permitted, in not criticizing, but in presenting my views of the bill, and its proposals, with the object of making a very few suggestions.

I do not believe that a retroactive measure should be contained in the bill, or would be enforceable. I do not believe that it would be proper and in submitting my own views of the subject, I hope that you may pardon me, with reference to two of the provisions of the bill. I find that these proposals in the bill—I find that by section 6 of that bill

Mr. PARKER. Will you speak a little louder, please, so we can hear you?

Mr. NEUBERGER. One of the sections of the bill is one which refers to one matter, and in section 17 it provides for the penalty for a willful violation.

The question that presents itself to my mind is whether or not a statement on a prospectus with reference to a security proposed for sale, which is reckless to the extent that it is made without regard to the truth or falsity of that statement, may be construed as willful.

May I present that thought to you. A statement is made by an irresponsible or a responsible promoter, or an investment security concern, if it so may be termed, or a banker, which is absolutely reckless; which is reckless of the truth or falsity of the statements contained in it, and thereby causes losses and injury.

In one particular case where a young man who was the sole support of a wife, two children, and aged parents, and was acquainted with one concern, and with a bank in which the affiliated corporation had offices on the same floor, and these people knew that this young man had saved $10,000 and induced him to consent to purchase certain securities. Within 10 minutes of the time he received the young

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