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The CHAIRMAN. Well, I know; but is there any way that a man could have his registration revoked and then sell his security without violating the law?
Mr. THOMPSON. None that I know of, in this bill.
Mr. THOMPSON. It would bring in whomsoever was connected with selling any of these securities that made a false statement.
Mr. PARKER. That would cover individuals?
Mr. THOMPSON. Yes; under this definition, it would cover individuals, firms, partnerships, or corporations.
Mr. PARKER. I mean this: If you owned a thousand shares of stock, and you had a revoked license, you could not sell it?
Mr. THOMPSON. I do not know that I follow you. I am the owner of the stock? Mr. PARKER. Yes.
Mr. THOMPSON. I have purchased that stock. I can sell the stock. I could sell it to somebody.
Mr. PARKER. You own it.
Mr. PARKER. And the corporation that sold it has had their license revoked. Could you sell it? You could not sell it under the provisions of this act, could you?
Mr. THOMPSON. I think that I could, if I could find a market. That is a transaction that does not come from the issuer: This bill checks the issuers and their agents.
Mr. PARKER. Well, I was thinking about the individual.
Mr. THOMPSON. I was referring to the isolated transaction. The isolated transaction covers a security that is sold by an individual and not an issuer.
Mr. PARKER. Where is that?
Isolated transactions in which any security is sold, offered for sale, subscription, or delivery by the owner thereof, or by his representative solely for the owner's account, such sale, or offer for sale, subscription, or delivery not being made in the course of repeated and successive transactions of a like character by such owner for the purpose of engaging in the purchase and sale of securities as a business, and such owner or representative not being the underwriter of such security.
Mr. PARKER. That answers my question.
Mr. COLE. I understand from your answer to the chairman's question that there is nothing compulsory about the registration.
Mr. THOMPSON. No; there is nothing compulsory.
That, until there shall have been registered with the Commission the state ment herein referred to in accordance with the terms and conditions provided by this act and the rules and regulations promulgated pursuant thereto, it shall be unlawfuland then it provides for penalties.
Mr. THOMPSON. Of course, they can go ahead and sell, but if they do not register, then they subject themselves to the penalties, but we do not say that they have got to come in and register. Of course, if they do not register, then they will be subjecting themselves to the penalties of the bill.
Mr. COLE. It would be hard to conceive of a case where they would not ask for registration.
Mr. Thompson. That might possibly be. Yes; there are men who would sell bonds, crooks, blue-sky firms, might go ahead and take chances. I can think of one man in this country that has been in jail-well, he is hardly out of it—and has been a great promoter. I will not name him. But, he goes from State to State.
I think he is back in jail now. He does not hesitate. The law means nothing to him.
Mr. COLE. I understood, in answer to one of Mr. Bulwinkle's questions, you said that you did not have any objection to the fifteen or more days interim between application for registration and actual registration on the books of the Commission.
Mr. THOMPSON. That is correct as to advertisements.
Mr. THOMPSON. As to advertising; 15 days between registration and sale, or advertising.
Mr. COLE. You would have no objection to that?
Mr. THOMPSON. I say, I would have no objection, but I do not want to be in the position of having a bill which will be so tight that it will delay business. We must get a bill that is flexible enough not to do that.
Mr. COLE. Concretely, if such an amendment would be made then a company would file an application, and advertisement would be delayed, before they could safely say that there would not be any immediate revocation of their registration, would that not result in placing the public in practically the same situation as they are now in under section 11, subsection (b), on page 20, as to the exempt securities issued by common carriers, or other public utilities, issuing securities under regulation or supervision by the Federal Government, or of the Commission.
Mr. THOMPSON. You are reading section 11?
Mr. COLE. This is the situation. Perhaps I have not made myself clear. We will take it then, as Major Bulwinkle suggested, provide for time between registration and actual advertising, would not the public have the right to assume that the securities then issued more sound, and would they not be expected to have just as much confidence in them, having gone through regular supervision and inspection, or whatever you want to do, as they now have in the securities which are exempt from the provisions of this law by this section here, such as those coming under the Interstate Commerce Commission, and
Mr. THOMPSON. I would answer that by saying that I do not think that the public will know anything about the exemptions, to begin with. There has been criticism, maybe justly, to the exemptions here, of charitable institutions, that go out and sell stock; but I do not think that the public will know anything about these exemptions.
Now then, your question was, following that-would you give me that question again?
Mr. COLE. My question is—I do not know whether I am making it quite clear to you—all securities of common carriers and public utilities, subject to regulation or supervision by the Federal Government, that is subject to regulation or supervision by the Interstate Commerce Commission, or examination on the basis of this act,
except as to minor details, present assurances to the public which the Government backs to some extent.
Now then, if we take a period of, say, 30 days, to advertise the application, the public knows that, and it would be set forth in the prospectus of the company: Would not the public have the same right to infer that the securities offered, have the Government back of them, just the same as these others I have referred to, which have been regulated over a long period of years, and had investigations by the Interstate Commerce Commission?
Mr. THOMPSON. Well, I would say this, that if the parties could state that they have registered with the Government, that there is no way of preventing the idea getting over that there is some benefit, and that it shows good faith on the part of the issuer of the security and would be a favorable thing to him, but I do not believe that he can go further and advertise that he has registered, and, therefore, the Government has approved.
But, he would get some credit out of it, and I rather think he ought to get some credit out of it.
Mr. COLE. Going back to the suggestion made by one of the members here a moment ago, it would give the public the right, I think, to assume that that security, after a period of 30 days' inspection by the Commission, was sound.
Mr. THOMPSON. Well, I do not know that I could go that far, but it certainly would give the idea that the Government is on guard.
Mr. KENNEY. Mr. Thompson, it would give the person purchasing the opportunity to write to the Commission and find out about this stock, and get what information he could.
Mr. THOMPSON. That is right. It certainly would be brought home to him then, and he would have less chance for objecting. I think that that is a very good suggestion.
Mr. Mapes. Mr. Chairman, may I ask a question?
Mr. MAPES. Mr. Chairman, I do not like to take up any more time of the committee, but because of the experience of Mr. Thompson as a member of the Federal Trade Commission, and his long study of and familiarity with the subject, I would like to have his judgment as to how much of an organization he thinks would be necessary for the Federal Trade Commission to build up to take care of this work I would like to have him give us his picture of the job which we are going to put on the Federal Trade Commission if we pass this legislation. You have indicated, Mr. Thompson I believe, that you thought that an appropriation of $100,000 ought to be made for the first year. That would give some indication of your ideas, but I would like to have your idea as to how much work there would be for the Commission to do, in the examination of these statements, and in enforcing the fraud provisions of the statute.
Mr. THOMPSON. Well, of course, in the first year there would be practically no time for appeals, so I do not think that you would need any addition to the Trade Commission force in handling of appeals, so far as lawyers are concerned.
So far as the organization is concerned and this is a good deal of a guess now—but I would imagine from 30 to 40 people could handle this situation. You are going to have more work in your first 6 months, a great deal, than you will have later on because there will be people rushing in from everywhere wanting to get advice as to what they should do, and there will be a great many papers, of course, that will have to be filed and have to be passed upon, but when and after it settles down, I think that approximately 40 people could handle it.
Mr. MAPES. Those would have to be rather capable persons.
Mr. THOMPSON. I think that they would have to be pretty well trained.
Now, take your first year. The moment your first securities come in, the first issue, you will begin to get $50 per issue or more. This will go into the treasury of the Commission. Of course, that is the Treasury of the United States.
Mr. Mapes. This is not very important, but as a matter of verbiage, I would like to call attention to a provision on page 5 of the bill. That section says that it shall be unlawful until the statement is registered with the Commission.
Mr. THOMPSON. What section, may I ask, are you referring to?
Mr. Mapes. I am directing my question to the language in paragraph (b) of that section.
The section requires or says that it shall be unlawful “for any person to make such offer to sell to or to solicit or accept an offer to buy in interstate commerce" until this statement is filed with the Federal Trade Commission.
Now, in line 15 it reads, “by any spoken communication carried or transmitted through or by such mails or means or instruments of transportation communication, or any of them."
I suppose that it is apparent what that means, but it says, “any spoken communication carried or transmitted through or by such mails or means."
Mr. THOMPSON. I see what you mean.
Mr. MAPES. A spoken communication does not go through the mails.
Mr. THOMPSON. That is right. I think that that would be cleared up by putting a comma after the word “communication" or carried
Mr. MAPES. I think that you can fix that up.
Mr. THOMPSON. Put a comma there and insert the word “or”; making it read, "by any spoken communication, or carried or transmitted through or by such mails or means or instruments of transportation or communication, or any of them."
I think we can correct that. There is an ambiguity there.
Mr. LEA. Mr. Thompson, suppose the corporation issued its securities, and began selling them, without registering, to what penalty would it lay itself liable?
Mr. THOMPSON. Well, I believe it would be subject to the penalty for the violation of this act, and that it would be liable under the criminal penalties.
Mr. LEA. For doing business without registering?
Mr. THOMPSON. Without registering. Then if there was a loss sustained by those who purchased, because of misrepresentation, I think that it would be subject to damages.
Mr. LEA. Well, that clause would apply in any event.
Mr. THOMPSON. And it suggests also to me that there might be an action for damages.
Mr. LEA. But, that clause would apply in any event, I take it, as to damages from fraud, whether there was registry or not; but in addition to that, the issuer would be subject to criminal prosecution for doing business without registering, would he not?
Mr. THOMPSON. Without registering; yes.
Mr. LEA. Yes. Now, I think it is desirable to further clarify that question as to what stocks will come immediately within the purview of this act. There seems to be a good deal of conflict of opinion about that. I call your attention to page 22, subdivision (c) which provides for an exemption of certain securities, not in excess of $100,000.
Now, that includes securities which have been outstanding and in the hands of the public for a period of not less than five years.
Mr. THOMPSON. Yes.
Mr. LEA. I take it that securities of that character which are in excess of $100,000 come within this act. In other words, they are old securities that have been on the market, and they are not a new issue, and I think are subject to the terms of this act.
This is going to be a very important question, because everybody dealing in stocks is going to be interested to know whether they come within this act or not and where the dividing line is. So I would like to get your considered reply to that question, if you can clarify these distinctions between the stocks that are immediately within this act and those that are not.
Mr. THOMPSON. May I say that this section was for the purpose of not having the Commission consider a lot of very small issues that mostly would sell, or most of them will be sold in a State rather than across a State line. Some of them will go across the State line. We did not want to burden the Commission with small issues of that type. Therefore, we limited it to $100,000. The blue-sky man out in the West, generally puts on a sale of about $100,000. In order to check him, we put in the clause exempting the corporation that has been going a certain length of time.
As I said before, the blue-sky man creates a corporation, get his issue out, and sells it, and then goes on to the next State. We put all of those checks in that section in there to protect the public against the blue-sky man in the West, but at the same time to permit the sale of small issues that would be mostly sold in States with only a part going across State lines. That is the reason for and the purpose of that particular section.
Mr. LEA. Well, I can readily see the benefit of the section, but that still indicates this that old stocks would be within the purview of the bill, where it exceeds $100,000 in amount a while ago, I understood you to say that there was a distinction here as to where this bill applied and that it was whether or not the issue was original or an old one, and that this bill does not apply to the old issues.
Mr. THOMPSON. That is right.
Mr. LEA. But, this language, as it appears in subsection (e) seems to infer that it does apply to the old issues, the outstanding issues.
Mr. THOMPSON. Now, I did not read it that way, but it may be possible for that interpretation. Well, I think that maybe we could clarify that to meet your suggestions.
Mr. LEA. I would be glad if that could be clarified.