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Mr. THOMPSON. Yes. Mr. LEA. If it is provided that old issues shall come immediately within the terms of this bill, of course, it will make for congestion of the work of the Commission for a considerable period.

Mr. THOMPSON. I might say that in the Uniform Sales of Securities Act, there is a clause that we had in this act, and after considering it for some time, we took it out, and it drew the line of distinction as between the old and new securities. We might bring that back in again, and we might amend it, to plug up the hole we thought we saw there, and give us a definition.

Mr. LEA. Yes.
Mr. THOMPSON. With this section:

Any security that is outstanding and in the hands of the public on the effective date of this Act, issued by corporations, partnerships, associations, companies, syndicates, or trusts that has continuously owned and operated a bona fide property, business, or industry during a period of not less than three years immediately preceding the aforesaid date: Provided, That the said issuer shall have been a solvent and going concern during the said period, and that an issue of securities authorized but not issued, or that has been issued and reacquired and held by the issuer on the effective date of this Act, shall not be considered as outstanding or in the hands of the public.

That is the section which we had in before.

Mr. LEA. I take it that there is no language in this bill, at the present time, that clearly defines the issues that immediately come within it, unless it includes everything.

Mr. THOMPSON. As I said before, my interpretation is that any security that has been put on the market and is being sold is exempt, except when the issuer himself, or the corporate issuer, begins the sale of a part of that issue not already on the market. If there had been an issue of 150,000 shares of which only 50,000 had been on the market, the 50,000 would be exempt. But if they proceeded to sell the other 100,000 of this issue, then they would be starting to sell again and would have to file with the Commission.

Mr. LEA. Well, do you feel that the present language of the bill supports that distinction?

Mr. THOMPSON. Well, I do not know. It does, to my mind, but I must concede that there are others here with me that do not think it is as clear as it is in my mind. Therefore, I am willing to join with them and help them redraft on that.

Mr. BULWINKLE. Mr. Thompson, I would like to ask one more question.

In your opinion, would it not be a good idea to provide in this bill for a certificate of registration to be issued to the issuer from the Federal Trade Commission?

Mr. THOMPSON. That is a matter of administration. I do not know but that would be all right.

Mr. BULWINKLE. Because the insurer has nothing in the world to show for registration.

Mr. THOMPSON. We would certainly inform him, or the Commission would inform him, that his papers were registered and they might get up a form or certificate of some kind to let him know that fact.

Mr. BULWINKLE. Well, they would not have to do that under the present bill.

Mr. THOMPSON. No. I think that will come under the rules of procedure.

Mr. LEA. Well, of course, the law as it stands there requires the payment of a fee. And when a man pays a fee to the Government, he is entitled to a receipt showing what it is for, which would serve the purpose.

Mr. LEA. If there be no formal certificate issued.
Mr. PARKER. Mr. Chairman,
The CHAIRMAN. Mr. Parker.

Mr. PARKER. Mr. Chairman, there is an indication from several of the questions and the discussions that they might advertise that this put the Government behind some of these securities. Now, of course, that is erroneous.

Mr. THOMPSON. That is erroneous.

Mr. PARKER. Because there could not have been more strict supervision on the issuance of stocks and bonds than there has been for the Interstate Commerce Commission in the last 12 years by railroads.


Mr. PARKER. And everyone knows where they have gone, and these are liable to go the same way.

Mr. THOMPSON. Yes. Mr. PARKER. I simply wanted to make that clear. The CHAIRMAN. Mr. Thompson, you have someone else with you who desires to be heard?

Mr. THOMPSON. Yes, sir.

The CHAIRMAN. There are 2 or 3 gentlemen here who have said that they would like to have 5 minutes on this bill and they are very anxious to get away today. Who are those gentlemen? Will you give your names please?

Mr. ARTHUR R. TUCKER. I filed my name this morning, Mr. Chairman. My name is Arthur R. Tucker, secretary, Comptroller's Institute of America.

The CHAIRMAN. There was someone else who wanted 5 minutes. There was another gentleman who said that he wanted 5 minutes this afternoon.

Would you mind getting these gentlemen in? Of course, that does not mean that they will take 5 minutes, when the committee starts asking them questions.

Mr. PETTENGILL. May I ask one more question?

Mr. PETTENGILL. Mr. Thompson, under section 8, page 16, it is provided:

SEC. 8. That it shall be unlawful to carry, transmit, or cause to be carried or transmitted, in interstate commerce, by use of the United States mails or by any means or instruments of transportation or communication, any written, printed, or other graphic communication or document, or by any spoken communication, announcing, offering, or advertising for sale any securities subject to the provisions of this act, unless such communication or document contains the following information concerning the security so offered.

Name of officers, directors, trustees, statement of assets, liabilities, and so forth.

Now, that would apply to long-distance telephone calls, would it not?

Mr. THOMPSON. Well, yes; well, it should apply.

Mr. PETTENGILL. That would be within the language.
Mr. THOMPSON. Yes; it could apply.
Mr. PETTENGILL. It could apply to the long-distance telephone.

Mr. PETTENGILL. That would be within that language, as longdistance telephone calls have been used for giving that information.

Mr. THOMPSON. I think that is true. Of course, our purpose in there was to cover radio advertising, but there is a great deal of misinformation and wrong information and damage resulting from longdistance advertising over the telephone.

Mr. PETTENGILL. I appreciate that, but I wanted to understand what your appplication of that would be.

Mr. THOMPSON. When we drew it we were thinking not so much of the telephone, but we have learned about the telephone being used, but we were thinking of the radio, and when “the Old Counsellor and others get to advertising over the radio I think that they ought to be required to tell just as much as the other persons carrying their advertising in the newspapers.

The CHAIRMAN. In your judgment, the spoken word should carry the same information that the written word does?

Mr. THOMPSON. Yes, sir.

Mr. PETTENGILL. But, at any rate, under this language, I think it is susceptible of that interpretation. It would seem so to me. Would that not put a tremendous burden on telephone communications, to provide that in every case whenever anybody telephoned to anybody across the State line about any securities that they would have to give this whole thing? It would be a good thing for the telephone companies. They could collect some big tolls out of it.

Mr. THOMPSON. Well, we speak over the telephone at the rate of about 100 words a minute, if we are reading, and that would be 4 or 5 minutes.

The CHAIRMAN. Mr. Thompson, I think it might be helpful to the gentlemen who are going to follow you if these other gentlemen take their 5 minutes and make their statements. It may be that there will be some replies to make to what they say.

Mr. THOMPSON. Yes, Mr. Chairman.


LERS INSTITUTE OF AMERICA, NEW YORK, N.Y. The CHAIRMAN. Mr. Tucker, we will give you your 5 minutes now. Will you qualify, by giving your name, and your connection. Mr. TUCKER. Arthur R. Tucker, secretary, Comptroller's Institute of America, 1 East Forty-second Street, New York City.

I come here first to bring the approval and endorsement of the Comptroller's Institute of America for this measure as it appeared in full text in the New York papers, yesterday and to make one suggestion as to a small amendment. The amendment has to with section 4, line 11. That is on page 6.

It is to prescribe as to what officers shall sign this statement, and there is no reference made to the principal accounting officer, and the fact I wish to make is that the principal accounting officer, the comptroller of the corporation, the corporate accountant, is the original source of the information which must go into this statement, and

we think that it is only fair that he should be specifically mentioned in the measure.

This has obtained in the Interstate Commerce Act, I think, in article 20 or section 20, I think it is, where provision is made that the principal accounting officer of a railroad must sign the reports, annual reports, that is called for and an executive officer of the railroad.

The suggestion that I make is that after the word "officer or officers” in line 11, page 6, there be inserted the words "the comptroller or the principal accounting officer, or the person performing the duties of comptroller”, and I would suggest that that same phrase be inserted in line 20 after the word "officer."

I am commissioned also to offer to the Federal Trade Commission any help that the Comptroller's Institute may extend in drafting the regulations under which this act will be administered.

The CHAIRMAN. We are very much obliged to you, Mr. Tucker. STATEMENT OF MORTON BODFISH, EXECUTIVE MANAGER


Will you qualify by giving your full name to the committee and your connections?

Mr. BODFISH. Mr. Chairman and gentlemen of the committee, my name is Morton Bodfish. I am executive manager of the United States Building and Loan League. Our executive offices are in Chicago and we are a national organization of building and loan associations. We have federated in our group some 43 State organizations, as well as 2,800 individual building and loan associations, which include most of the more active and larger associations. In these associations we have approximately $8,000,000,000 in small savings, which have been contributed by nearly 10,000,000 investing members. The funds collected by the associations are loaned almost entirely on small homes and the associations constitute the principal source of home-mortgage money in the country. Our average loans are slightly in excess of $3,000.

As we understand the situation, the administration desires to eliminate the sale of worthless and misrepresented investments and, as we study the act, it seems to us that it falls into more or less three parts:

1. The first part of the measure provides that complete information on every issue of securities offered for sale in interstate commerce shall be in the hands of the Federal Trade Commission, constituting a registry of that issue.

The information must be supplied every time a new issue of securities is brought out, and the registry must be accompanied by a fee of one hundredth of 1 percent” of the value of the securities to be sold, or not less than $50. Furthermore every advertisement of such an issue of securities must carry detailed information especially with regard to commissions which will be paid to those connected with the sale of the issue. (Sections 1 to 12.)

2. The second part makes it a criminal offense against the Federal Government for any person, firm, or corporation to promote, negotiate advertise, or distribute any of its securities by schemes to defraud. Furthermore it becomes a criminal offense for any person to engage in any transaction with regard to interstate purchase or sale of securities which would operate as a fraud upon the purchaser. Not more than 5 years in prison nor more than $5,000 is the penalty provided for conviction (section 13).

3. A third part protects the citizens of one State from being offered by an out-of-State corporation a security which is unlawful in the State (section 14).

After conference with the officers of our organization, I can say to you that we heartily approve the program and purposes of this Federal Securities Act and feel that it is high time that the strong arm of Government be used against the abuse of public confidence. We are appearing before your committee on the assumption that you will be willing to accept a suggestion, which we think will facilitate the administration of the act, permit it to accomplish all its purposes, and at the same time avoid undue cost and invonvenience to our 11,442 building and loan associations, which are scattered in every State in the Union.

We ask that you make an exception of building and loan associations, savings and loan associations, cooperative banks, and homestead associations. These are all what are broadly called "building and loan associations”, being essentially thrift organizations teaching systematic savings and lending the funds thus accumulated on homes. There is some difference in terminology, as, for instance, all such institutions in Massachusetts are called "cooperative banks." They are known as "savings and loan associations" in New York State, and frequently as “homestead associations,” in the South.

We are essentially a thrift organization. We have been teaching systematic saving and that sort of thing since 1832.

Though our associations are largely local in their nature it would be almost impossible to find one that did not have some investing members in other States and who did not send announcements and literature through the mails to these investing members. Many of them are located in cities near the border lines of States and, as this act is written, practically every one of the 11,442 building and loan associations in the United States would have to file reports with the Federal Trade Commission and pay fees every time they issued their shares or series of stock.

It is necessary to explain a peculiarity in building and loan associations that is not widely understood by those who are not acquainted with them. When a person saves his money in a building and loan association, he purchases shares and nearly all of our $8,000,000,000 of assets are in the form of shares, some of it being lump-sum investments of from one to several hundred dollars, called full-paid income or full-paid shares, but much of it in the form of weekly or monthly payments on our so-called “thrift or installment shares." These shares are issued sometimes daily, sometimes semiweekly, sometimes monthly or quarterly, and there is no way a secretary or board of directors can state how much will be invested at any given period any more than the president of a mutual savings bank can tell you how much the depositors will put in in any 1 day or 1 week.

The practical difficulties of an association having to register every issue of shares with the Federal Trade Commission are obvious. In addition, we feel that the registration fee for every issue would not only be a hardship on the association, but would somewhat increase

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