the building and loan associations that he is speaking of are not local associations in the District of Columbia.

Mr. MILLER. That is true.

I happen to know that in the State of Maryland there is very little supervision. In fact, it almost amounts to nothing at all. Mr. BULWINKLE. No supervision.

Mr. BODFISH. If you will allow a comment, I want to emphasize that in our amendment we do not ask any exception for institutions which are not subject to State supervision and examination. An institution not under examination should not object to filing information with the authorities here in Washington. There are many excellent building and loan associations in Maryland, but if the abuses Mr. Miller has in mind are coming from Maryland, we think it unfair to put the burden upon ten or eleven thousand institutions scattered throughout the country, on account of the activities in one locality, which you can deal with effectively under the fraud clauses and provisions in sections 13 and 14.

The CHAIRMAN. All right, Mr. Miller, you may proceed.

Mr. MAPES. May I ask Mr. Miller a question?

The CHAIRMAN. Yes.

Mr. MAPES. What percentage of the building and loan associations have securities that go into interstate commerce, do you think?

Mr. MILLER. I could not say, definitely. My impression is that it would be somewhere in the neighborhood of one third or one fourth. Mr. MAPES. Not more than that?

Mr. MILLER. Not more than that.

Mr. HUDDLESTON. In what form are those securities sold?

Mr. MILLER. There are various types of building and loan associations. I am not prepared to go into a discussion of the various types, at this time. We would be glad to give you the detailed information later on.

Mr. BULWINKLE. Is it not just in the form of an advertisement in the paper announcing, in answer to Mr. Huddleston's question, that such and such shares in such and such a building and loan association will be sold, commencing on a certain date?

Mr. MILLER. That is one type; yes.

Mr. BULWINKLE. And that is the general type that they use.

Mr. HUDDLESTON. Now, the type of building and loan securities that I know a little something about is where they receive deposits, deposit certificates, and issue certificates of deposits, and these certificates are sold.

Mr. MILLER. Yes; that is correct.

It happens that just recently, a promoter came in to see me, who had in mind an organization of a national association to sell securities based upon the individual shares of stock of the various associations throughout the country. In other words, he admitted that the building associations had such an excellent record that they wanted, as he put it, "to muscle in on the business."

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That type or sort of thing is going on now, at least around in the East where the good name of the building and loan associations is being used really for fraudulent purposes.

Mr. KENNEY. Mr. Chairman, I would like to suggest that Mr. Miller, as he developes it further, state just what plan will be used to keep the fee down to one fee a year, or one fee every two years.

Mr. MILLER. Yesterday, we talked about that at some length, and just briefly mentioned the possibility of issuing a certificate for a maximum amount of stock to be sold at various times, that stock to pay a fee, of course, and register under this bill, but only one fee until all of that stock was sold.

Mr. KENNEY. When an issue is sold, and a new issue is contemplated, it would be necessary to register for that new issue, immediately?

Mr. MILLER. Yes; but you see, that takes some time, as I understand.

Mr. KENNEY. No; we are not dealing with a short time or a long period of time.

Mr. MILLER. You mean that some stock is sold, and has a small payment made on it, and then it is returned, and the payments are not continued?

Mr. KENNEY. Sometimes that happens.

Mr. MILLER. I should imagine that under the regulations of this commission that could be considered just a temporary sale and not a completed sale. I would not care to discuss that at this time.

Mr. KENNEY. Could we write into the bill that in case of more than one issue by a building and loan association during the year, there would be no additional fee? Would there be any objection to that? Mr. MILLER. It might be very desirable to consider such a recommendation.

Mr. WOLFENDEN. Mr. Chairman, may I ask a question?

The CHAIRMAN. Yes.

Mr. WOLFENDEN. Mr. Miller, I understood you to say that in your opinion one third or one fourth of the building and loan associations were interstate.

Mr. MILLER. That is my general impression; yes, sir.

Mr. WOLFENDEN. Are statistics available?

Mr. MILLER. I do not think so. I base that, Mr. Wolfenden, on Mr. Bodfish's statement, made to me yesterday.

Mr. WOLFENDEN. Could you answer that question, Mr. Bodfish? Mr. BODFISH. Mr. Wolfenden, and Mr. Chairman, if I may, it will be an estimate, and I think it would be more proper to say that every building association has a number of shares that are not owned locally, but that are sold outside of the boundaries of the State. Many of our associations grew up in connection with railroad offices, and all that sort of thing, and their shares are frequently widely distributed.

As to the dollars and cents, outside of the States, I suppose that it would be 15 or 20 percent. I do not have the statistics. But, if one has an account with an association, and leaves that community, moves away to another State, or something of that kind, they continue their savings. For example, I think of $5,000,000 building and loan association, and which has accounts in some 23 different States

of people who at one time worked in a factory in the city and have gone to other parts of the country.

Mr. WOLFENDEN. I come from Pennsylvania. I heard of figures of 3,000 associations in that State.

Mr. BODFISH. Thirty-two hundred and some, small in size, large in number.

Mr. WOLFENDEN. That is 25 percent of the entire number in the United States.

Mr. BODFISH. Yes. They have over $1,000,000,000 of assets in the State of Pennsylvania.

Mr. WOLFENDEN. From my experience I do not believe that even 5 percent of the business is interstate.

Mr. BODFISH. I have an account in a Pennsylvania association and I live in Chicago. Take the State of New Jersey, with over $1,000,000,000 in building and loan assets; undoubtedly thousands of those share holders live over in New York State, in the adjoining cities, and the same thing is true of New York State people in Jersey, keeping their money over in New York.

Mr. WOLVERTON. That is quite a compliment to New Jersey. The CHAIRMAN. I suggest that we go along with Mr. Miller's statement.

Mr. MAPES. Let me ask Mr. Miller another question on that point. The CHAIRMAN. Yes.

Mr. MAPES. Would these shareholders, living in small communities, and subscribing to stock in the local building and loan associations, and then moving to an adjoining State, for example, come under the provisions of this act?

Mr. MILLER. I cannot answer definitely, Mr. Mapes; but I do not believe they would. That is my impression.

Mr. MAPES. And, if they did not, most of the building and loan associations would not come under the provisions of this act at all. Mr. BULWINKLE. Yes; but they send them the advertisements when they start upon a new series.

Mr. MAPES. Do they get any business from adjoining States, or do they get it from the local communities?

Mr. BULWINKLE. Not altogether, because a man goes out into another State, and then, after a certain time, when these shares are being issued, they send him notice of them. Now, they could not do that without violating this law, and would be guilty of a criminal offense, as long as they crossed the State lines.

Mr. MAPES. Well, that is the question: To what extent do they cross the State lines?

Mr. BULWINKLE. Well, along the State lines, wherever these towns are located, there are people in the other States, out in the adjoining counties, who will come over there and put their money in the building and loan associations.

Take in my territory. Across in South Carolina, they do not have any building and loan associations, and the fellows over there who want to save money, come over and take out 5 or 10 shares.

Mr. CHAPMAN. In the purchase of those shares, it amounts to exactly what he does when he goes into a savings bank and gets an entry on his book?

Mr. MILLER. Yes, sir.

Mr. CHAPMAN. I judge that is about what it amounts to.

Mr. BULWINKLE. And he keeps that up for 6% years.

Mr. CHAPMAN. Those sales can be transferred, too.

Mr. BODFISH. He can transfer them, or he can cash them in. The associations really repurchase their shares when members need money before their shares mature.

Mr. CHAPMAN. And, does he have to have those transferred on his book, or just sell them?

Mr. BULWINKLE. He can sell the certificate of stock for its value, with the approval of the company. They have some rules and regulations with regard to it.

The CHAIRMAN. All right, Mr. Miller, will you proceed.

Mr. MILLER. Mr. Thompson has covered the legal phases of this problem, so that it is not necessary to go into that; I merely want to touch very briefly on a few of the economic phases.

As you gentlemen are very well aware, there has been a major change in the economic structure of the United States during the last 50 years. Fifty years ago, it was most unusual for anyone except the very wealthy people in the community to own any stock. Today, two thirds of the wealth of the United States is owned by corporations, and that is what has developed this problem of controlling securities, because nowadays the corporations are owned, not by the few, but by the entire people.

In the 13 years between 1919 and 1932, $50,000,000,000 of securities were issued. We have tried to get an accurate estimate of the number of fraudulent securities which have been sold. We have consulted the reports of the various committees of Congress, and sought information elsewhere. From the best information we have been able to get, we believe that half of the securities sold were either undesirable or worthless. That has meant a very great loss to the people of the United States and this law is designed primarily to stop that sort of thing, so that these funds are not lost to the people.

One of the major features of this proposal is that relating to the responsibility of the directors. That has been discussed here, a number of times, today. We believe that is a very important feature, and that if the measure, as it is worded now, is amended, it may weaken it. The point has been made that it might be desirable to permit a majority of the directors to represent a majority of the stockholders, to transact business and sign this registration certificate. If that is done, we believe that it is likely that what are called dummy directors will run the corporations, which could get a few innocent, prominent men to lend their names, perhaps pay them or give them stock, and things will continue more or less as they are today.

On the other hand, if every director of a corporation must sign a certificate and be responsible for that statement, we believe it will stop a great deal of the careless acceptance of directorships, sometimes without any consideration, oftentimes for a consideration, which has done a great deal to injure all business in the United States.

I would like to say just a word or two about foreign securities. Since the World War approximately $12,000,000,000 worth of foreign securities have been sold in the United States. The question has come up frequently today just how foreign nations control the issuance of securities in those countries. Mr. Wolfenden, a few moments ago, raised that question.

According to our information, the British, French, and German Governments control the sale of foreign securities within their countries, but they do it in an informal sort of a way. That is just as effective as any direct law bearing on the subject.

The French have an absolute control by the Government over all securities sold on the Bourse, their stock exchange, and they do not hesitate to refuse listing a proposed foreign security if they do not believe it is desirable, either from the point of view of the French Government or of the worthiness of the stock or bond issue.

The British have a rather simple arrangement by an informal control of the few issuing houses which there are in England, which control the issuance of all new securities.

For some time it has been the practice of the United States Government to control the sale of foreign securities in this country in the same way. Because of lack of legislative sanction, however, the Department of State has been very reluctant to exercise that discretion, so has, perhaps, not been as active in prohibiting foreign issues as some people believe desirable.

Under the provisions of this act we believe it will be possible for the Federal Trade Commission to arrange informally with foreign governments to submit the information required in this section 5, and if it appears that it is undesirable, after consultation with the various Cabinet officers involved, to allow the issue to be sold in this country, they can request the foreign government, or the representative of the foreign government in this country, to withdraw the application, so there need be no embarrassment whatever.

Such an informal arrangement would work out, but if the foreign government insists upon filing the application or registering it, the registration could be revoked under the provisions of this act and then there certainly would be no cause for any feeling of offense, after the foreign government had been informally advised to withdraw their registration.

Mr. WOLVERTON. May I ask a question there, Mr. Chairman?
The CHAIRMAN. Yes.

Mr. WOLVERTON. I think that this question has been previously asked. You say that under the terms of this bill the Federal Trade Commission could informally handle the situation, and after obtaining information and consulting with the Cabinet officials could then suggest that the issue be withdrawn.

Mr. MILLER. I believe that is correct.

Mr. WOLVERTON. How far would that differ from the situation that has existed to which some exception has been taken and complaint made in the past?

Mr. MILLER. It would differ to this extent, that if the foreign government did not take care to cancel the request to have the bonds registered they could then register them and have the registration revoked by the Commission, and there would have to be a public act. Mr. WOLVERTON. And you do not think that that would offend the sensitiveness of the foreign government?

Mr. MILLER. I do not believe that they would have any basis for complaint after they had been advised informally to withdraw their registration.

Mr. WOLVERTON. Then, take the other side of it, for a moment. If the Federal Trade Commission can instigate an investigation and