Mr. COHEN. Yes, he might. That might be an element to be disclosed. I think the statute does not deal with these items with any precision, but I think it does place the burden on the administering agency to implement the statute to require the relevant information and only the relevant information. That information is normally, at least in the securities area, considered to be relevant. And I would suspect that it might be relevant here.

Senator BENNETT. I can visualize a situation in which a plan for the development of a subdivision is made and submitted and the man gets registration for the sale and then he decides to take the proposition off the market whether it is not selling fast enough or whether he sees an opportunity to sell part of it out for commercial purposes at a higher price. Would he then have to apply for a new registration certificate when he decided to go back?

Mr. COHEN. I am assuming that you mean he suspends the offering for a period?

Senator BENNETT. Yes.

Mr. COHEN. And then he wants to resume it. I think there would be no problem with the suspension, and, if he did wish to resume it, he could proceed if his documents, as of that time, still met the standards of the statute. If they did not, he would have to bring them into line. It does remind me of a story, Senator, if you will forgive me.

Senator BENNETT. Your stories dealing with the subject are a valuable addition to the record.

Mr. COHEN. Good. Your earlier statement reminded me of it. Many, many years ago when it was very popular to register offerings of gold stocks, I remember one in particular concerning which the staff was having a great deal of trouble. And the people involved finally got to the head of the division and they were discussing with him the intransigence of the bureaucrats on the staff who were insisting on certain disclosures. In the middle of the discussions, someone handed him a telegram and he turned around and he said, "Mr. So and So, we withdraw the registration statement." And the division director said, "This is surprising. What has led to that?" "Well," he was told, "I just have received a telegram advising that we have discovered gold." This may be the case you have in mind.

Senator BENNETT. This very well could be. After he has issued a registration, obtained a registration, would the subdivider be in a position to sell some of his lots at the price mentioned in the application? Suppose he decided he would like to divide his responsibility with another person-his son, his brother, or a partner who would take over the distribution of, say, half or a third of the property. This would involve application for a new registration?

Mr. COHEN. No, I don't believe that the statute as it is drawn would necessarily require anything of that sort. It might require an amendment to disclose the persons who were in control of the operation. The amendment would be a fairly simple affair, if it were limited to the facts you have just described.

Senator BENNETT. Do you see any prospect in this area of something parallel to your insider trading rules?

Mr. COHEN. Indeed I do. In fact, this is one area where there has been a great deal of that sort of thing. I don't know whether you want me to elaborate on this or not.

Senator BENNETT. Do you think this bill would protect the public from inside trading?

Mr. COHEN. To the extent that someone is concerned about learning or at least seeing on the front page of the New York Times that he is engaged in a species of insider transactions, which our society frowns upon, it necessarily would tend to obviate that. I think disclosure in these areas, at least, would prove to be most beneficial, in bringing to light such transactions, but perhaps more important, preventing them because the people involved know that the facts would have to be disclosed.

Senator BENNETT. In the case that I just hinted at earlier, a father decides he is going to let his son get into the business.

Mr. COHEN. That is just bringing the family along.

Senator BENNETT. He sells part of his land to his son, at a very low price, and the son therefore acquires, as an insider, an opportunity to share in the profit.

Mr. COHEN. I think the insider transactions that I had in mind were transactions which would be effected in a manner or for the purpose of taking advantage of somebody outside the organization. In this case, the one that you have stated appears to me to be a situation in which an indulgent father is prepared to finance his son by selling him property at a price less than he might sell it to a stranger for the purpose of subdivision. I don't believe that is a particular matter to which this bill is addressed and I am not sure that it would necessarily be relevant in any disclosure.

We did discuss earlier this morning the relevance of costs. The case you have given may be another reason why I was hesitant to answer Senator Proxmire with a simple yes or no. I think these cases have to be looked at in context.

Senator BENNETT. Paragraph 4, section 6(a) of the bill requires that registration statement include among other things, and I quote "statement of the terms and conditions including the selling price or rent at which it is proposed to dispose of the interest in the subdivision."

And from what you have told me, this would not prevent the man who has filed such a statement from selling 50 lots, 100 lots, to anyone else at a price below the price disclosed?

Mr. COHEN. No, I didn't mean to leave that impression, I am sorry, Senator. I think the documents require that there be a statement of the price. What I mean to say was that if he determined to change the price, and sell at a lower price, I thought that was your example, or if because of some unexpected and new neighbor coming along that increased the value of the land to increase the price-it could be dealt with very simply and I assumed your question was as to a change across the board-if there were going to be special arrangements for some people and not for others, I think disclosure of that fact would have to be made.

Senator BENNETT. Have to have a new or amendment to that registration?

Mr. COHEN. Not a new one but possibly a change in the prospectus to reveal the facts.

I did want to make one point that the filing of an amendment or a change in the prospectus is really not a horrendous thing. I think

most of the examples you have given me, if limited to those facts alone, would be very simple things that could be taken care of on the shortest possible order. Mr. Loomis wishes to supplement my reply.

Mr. LOOMIS. I would interpret this paragraph 4 as referring to the price at which lots are offered to the public, not as referring to transactions within the subdividers group, such as the man taking in his son, and we proposed, the chairman proposed this morning, it is on page 8 of his statement, an amendment which would clarify that so that the transaction between the father and the son wouldn't be subject to this bill at all.

Mr. COHEN. We are assuming for this purpose, even though it may not be a fact, that father and son are both professionals.

Senator BENNETT. Yes, but on the other hand, the subdivider may have a special friend, an old war buddy or something of that kind, and he comes along and says well, sure, I am asking $1,000 for these lots. I will give you this one for $250. What happens then?

Mr. COHEN. I don't know that anything would happen, Senator. The chances are we would never even learn about it. But, if this was a widespread arrangement, in other words, if he said, everybody who was a buddy of mine during the war would be entitled to a special price, or any of his children would be entitled to another price, then I think that this particular paragraph to which Mr. Loomis referred, would require some indication that this would be the method of offering, so that everyone would at least be apprised of the relevant facts. Senator BENNETT. Now, let's assume the subdivision isn't going at

all. The promoter is having a hard time so he decides that he is going to sell each of his lots off for what he can get for them. He stirs up as many customers as he can find, and then he bargains for the sale of each lot, even though his prospectus says it is going for $1,000. From some he may get $1,500, and from other good bargainers, he may end with $500. Is this a problem?

Mr. COHEN. First, let me say, as to all of these questions, Senator, all of the questions you have put to me would exist under any State disclosure law. This does not change the rules. In fact, under some State disclosure laws, the rules would be even more penetrating, more searching than the ones spelled out in this statute. But, taking your case, theoretically, I suppose one can write a prospectus in which he says, "Look, I am going to get whatever the traffic will bear, so beware." If you are a sucker, I will take you for $1,000, but if you are smarter, I will accept $800. It is inconceivable to me that anybody would be willing to put that in any kind of offering document.

The prospectus requires a statement of price. If a developer intends to vary from the offering price, he would have to spell out the circumstances under which he would vary from the price, and give the reasons for it.

Senator BENNETT. Well, I can see a smart operator showing his prospectus and saying, "Look, I am supposed to get $1,000 a lot. It says so right here. But, I will take $800."

Mr. COHEN. Senator, if in fact you are suggesting sharp practice, this is another reason why I suggested earlier this morning, that there be added to the bill power in the Commission not only to define fraudulent practices, but also to write rules which are designed to prevent fraudulent practices.

This is an area with which we have dealt under the securities laws for some 30-odd years.

Senator BENNETT. But all securities presumably of the same issue are the same. A man buys his share of Standard of Indiana, it is a share of Standard of Indiana, but all lots are not the same. Some have better frontage, some have better slope

Mr. COHEN. I assume that would be spelled out in the offering literature, as it is today. Except that today, in many cases, developers often don't tell you anything about the lots.

The more reputable developers do spell this out. I think that those who wish to remain in business for a period of time attempt to be as fair and as open with their customers as they can. It is those who hit and run, or who don't care too much about it, who do not provide this information. This information, I would imagine, would be required. Under any State statute, and even if there were no statute, by decent business practice.

Senator BENNETT. Then you would accept as saying, and I am not trying to put words in your mouth, as saying your requirement that the applicant say we have a thousand lots for sale, they vary in price from $500 to $1,000, depending on the location and other conditions.

Mr. COHEN. I think that would be a satisfactory explanation. There may be particular cases where something more would be required, but from the way you put it, I wouldn't find much difficulty with that.

Senator BENNETT. The bill requires that the developer make a judgment of what is a reasonable time for examination but that it should be at least 48 hours. Would it be appropriate to require only that the developer furnish copy of the prospectus to the customer at least 48 hours in advance of the time?

Mr. COHEN. Section 4 provides, as you have just summarized, that the prospectus is to be furnished by the developer or his agent to the investor sufficiently before the contract of sale or lease is consummated, or at least before it becomes binding, so as to provide him with a reasonable opportunity to examine it. But in no event shall the time be less than 48 hours. I would assume that except for unusual situations, the rule would be 48 hours, period. There may be some situations where 48 hours is inadequate, but offhand, I must confess, Senator, I can't think of any such situation.

Senator BENNETT. What would you think of an amendment which would specify that 48 hours, the passage of 48 hours satisfies the requirement of the bill?

Mr. COHEN. It wouldn't trouble me very much, Senator.

Senator BENNETT. Does the bill, as it stands now, effectively eliminate interstate advertising?

Mr. COHEN. Eliminate?

Senator BENNETT. Will it not eliminate advertising?

Mr. COHEN. No, sir.

Senator BENNETT. Well, it prohibits use of any selling material or literature which "omits to state material fact necessary in order to make the statements made in the light of the circumstances under which they are made not misleading."

Isn't that a pretty difficult situation for a man who is maybe going on the radio or on television?

Mr. COHEN. It does provide a standard which he should meet, but in dealing with far more intricate situations in the securities business

where you deal with conglomerate corporations and all kinds of complex situations-that has not proven to be a burden or an obstacle. And I think that the words you phrased are nothing more than the modern version of the ancient precept that you not take advantage of someone by omitting or falsifying the relevant information.

Senator BENNETT. But the advertisement is not going to be a copy of the prospectus?

M. COHEN. I think, first of all, it is difficult for me to tell you about the size of the prospectus. I can conceive of a prospectus that would be a very simple document. Now if the developers decide to dress it up, it might be a more complex or larger document. There is no reason why they cannot do what they now do. Many developers take a whole page in local newspapers, even in Washington newspapers. If anybody can't write a prospectus in that one page of a newspaper, he must have the most complex thing in the world.

I don't see any real problem at all. As far as brochures are concerned, the only limit is the amount of expense and fancy paper that people want to use.

Senator BENNETT. But I can see a situation in which a developer telling his story, he will put the best face he can on it.

Mr. COHEN. I would expect he would, and I don't think there is anything wrong with that.

Senator BENNETT. Let's say within the limits of the prospectus, but within his advertisement, he omits "a material fact." Who is going to decide whether the fact was material?

Mr. COHEN. Well, in the long run, probably some court.

We can take certain steps, but in the last analysis, a court of law would decide that issue. To answer your question a little bit more fully; if such a situation came to our attention, we would want the issuer to take corrective action. And in most cases, I am sure he would unless he wasn't particularly interested in staying in the business very long. But if in the end we wish to take an action seeking injunction against the continued use of an advertisement, the judge would have to decide whether there had been an omission of a material fact.

Senator BENNETT. Are we or are we not going to get ourselves into the same kind of a position in which the securities underwriting industry now finds itself which can publish an advertisement and then puts down at the bottom of the advertisement, this is not an offer of sale.

Mr. COHEN. The reason for that is very simple, Senator Bennett, and it really has very little to do with SEC. That newspaper may go into very many States, and under the present system, you have to qualify in those States. Many States do not permit that type of advertising or the offering may not have been qualified in some of the States. In order to guard against that situation, that legend appears. So far as our rules are concerned, we permit that type of advertising.

Senator BENNETT. But do you think the sale of land could find itself in that kind of a position where the seller would have to say, this is not an offer of sale?

Mr. COHEN. I don't know, it would depend on the law of the States where this advertisement would go. I might say, Senator, that the securities business has prospered more perhaps, certainly to a greater extent, under the securities laws, than it ever did before.