I think that the restrictions in the securities area are far tougher than those in this statute. I have never understood, although there has been some complaint about greater freedom of advertising, that any of the requirements have really impeded in any material way the sale of securities.

Senator BENNETT. The securities, however, are sold in blocks, and you are now dealing with something that is going to be sold in separate unit parcels.

Mr. COHEN. We have had experience with this, Senator. Of course, we had to go to the Supreme Court to make our case, but there are many situations where plots of land are sold, almost like this, with the one big difference that they are securities. Promoters will sell a man a little bit of land, part of an orange grove, with a contract whereby they will plant the seed, they will grow it for him, and sell the produce. Senator BENNETT. I know this.

Mr. COHEN. This is land, and in a sense not very dissimilar to a subdivision, and yet the people who sell these things register with the Commission. They haven't had any great difficulty, and I don't know why here, which is a much simpler situation, there would be any greater difficulty.

Senator BENNETT. Included in exemptions to this act is the proposal that if you sell less than 25 parcels, your total aggregate development or sales are less than $300,000, you are exempt. The $300,000 and 25 parcels becomes $7,500 a parcel. Should the $300,000 be reduced or the 25 parcel limit be raised?

Mr. COHEN. I don't think there is that correlation, if you have less than 25, the amount could be $500,000 or $25 million, theoretically. And $300,000 could cover lots at any price so long as the aggregate amount was within that dollar limitation. I think that on a theoretical basis, just as in the case of the intrastate exemption, there is no reason why these exemptions should be provided. I think that the Congress provided these exemptions in other statutes on the theory that this was one way of separating purely local affairs from affairs of national importance.

The investor who buys in a $250,000 offering wants as much protection as the one who buys in the billion dollar offering, and therefore you can ask why the distinction. I have already given one reason. The other is that it has been argued that if you limit it to $300,000, you are dealing with essentially a small business, and therefore, it should receive special attention. The 25-lot exemption, again is designed to draw the distinction between a national problem and a so-called local problem. I think one can argue about the validity of these distinctions, but they are distinctions that have been recognized in other statutes. They are contained here, but I would have some difficulty justifying them to someone who was hurt in the 25-subdivision situation.

That is one reason, Senator Bennett, why we have suggested that, even though there be these exemptions from registration, the fraud provision should apply, so that at least some protection is accorded to purchasers. They may not really know whether it is $300,000 offering or a $3 million offering. And so far as they are concerned, they want to be treated as well as their neighbor down the street, no matter what the size of the offering.

This is a policy decision, which this committee and the Congress makes, and I am not quarreling with it. I do feel that at the very least, the Congress should provide investors with the antifraud remedy. Senator BENNETT. Then you have no advice to us with respect to either of these numbers?

Mr. COHEN. I do have some advice. First of all, 25 is a number that one can argue is arbitrary. I don't know its derivation, to be quite candid, but I think it is intended to reflect a decision that an offering of not more than 25 lots is not a public offering. Since we are talking in this statute essentially about public offerings, an offering of 25 parcels perhaps is considered here to be a private offering. I think technically and legally, there is much to be argued about that point. But I accept it for what it is.

In regard to the $300,000 figure, this is a figure which exists in the Securities Act, and this committee has considered that amount many times over the years. There have been suggestions that the amount be increased. There have been suggestions that the exemption should be eliminated entirely because there is no real justification for it. But every time that Congress has studied it, the Congress has determined not to change the figure. This is not to say that this committee shouldn't consider another figure.

Senator BENNETT. Is the $300,000 figure the figure that is used as an exemption basis in the sale of securities?

Mr. COHEN. Yes, sir.

Senator BENNETT. So it ties there?

Mr. COHEN. Yes, it does.

Senator BENNETT. The 25-lot figure?

Mr. COHEN. That ties to a more general exemption in the Securities Act for an offering which is not public in character. I think an attempt was made here to avoid use of that general language, which does introduce problems for developers and their lawyers, and to select a figure, albeit arbitrary, so that everybody would know what the rule is. I think that was the purpose. Although I was not privy to the drafting of that provision, I have just assumed as much.

Senator BENNETT. Thank you.

Mr. Chairman, Chairman Cohen has been very patient with me and so have you, and I have come to the end of what I consider to be technical questions that I was trying to develop for the hearing.

Mr. COHEN. I would like to hear the nontechnical ones.

Senator WILLIAMS. Well, I think you have greatly improved our hearing record. And that record will have a lot of answers that can be used to answer questions which may later arise.

Mr. COHEN. I might say if I may, Mr. Chairman, if the Commission or its staff can be of any further assistance to this subcommittee by way of information or assistance in connection with any proposals for amendment of the statute, we stand ready to help.

Senator BENNETT. May I have one more question? You heard the discussion of the need for control in the sale of developed subdivisions offered particularly in the area of retirement living and things of that kind. Do you want to react to that?

Mr. COHEN. Senator Bennett I came in late and I really didn't hear all of it, but I did hear the questions you put at the end. I am convinced after listening to that testimony, that there may be problems

in that area which need attention. I would agree with your suggestion that it is another aspect of a larger problem. My answer here would be that, as I said this morning, this is a bill with a very narrow focus. I understood the Chairman to say that he thought the better part of valor was to start with the clearly defined, well documented case which was the greatest problem to the elderly and aged. As a policy decision, I have difficulty finding fault with that.

I don't want to indicate that there aren't other areas that go beyond the scope of this bill that may not deserve the attention of the Congress in due course.

Senator BENNETT. If you move will the SEC buy this bill?

Mr. COHEN. If the bill were to cover these other situations we might get somebody else to do it other than the SEC.

Senator BENNETT. Let's say, if you move the SEC or its alter ego into the problem, into the area of controlling interstate land sales, it may be a logical second step to ask them to take on the problem of controlling the sales of land plus houses in these same developments. Mr. COHEN. This is possible, but I believe unlikely, at least for the immediate future. I think once you get into that area, there are other agencies of the Government that are already involved in mortgaging problems, and development of urban affairs, that would probably be better suited to deal with that problem. I think when you get involved in city planning or community planning we are not really equipped to deal with that. At that point, I think perhaps someone else might take over the job, and if they were so disposed, we would give them this statute too.

Senator BENNETT. So you feel the time might come, when the two areas ought to be put together?

Mr. COHEN. I didn't say that. I said the time might come-I was accepting your suggestion, I thought-when the Congress might want to consider that. I don't know when it will be. I don't think it is in the immediate future, but if it should come, and the Congress determines to take some action, and we do get into developed properties, and if it is feasible, we will be glad to pass our jurisdiction on to that organization.

Senator BENNETT. That is all.

Senator WILLIAMS. We are very grateful indeed, Mr. Chairman Cohen and Mr. Loomis.

We have as our final witness this afternoon Mr. Art Hansen, assistant attorney general all the way from the State of Washington. And we have heard some good words about John J. O'Connell, the attorney general from the State of Washington, from Senator Mondale. The State of Washington has certainly sent us two great Senators. Now, we are glad to hear from you, Mr. Hansen.

STATEMENT OF ART HANSEN, ASSISTANT ATTORNEY GENERAL, STATE OF WASHINGTON

Senator WILLIAMS. Did you come all the way east for this particular mission?

Mr. HANSEN. Yes, I did, Mr. Chairman. Is it permissible to have my wife, who is my right arm, with me at the table?

Senator WILLIAMS. Yes, sir.

Mr. HANSEN. Mr. Chairman, Senator Bennett, my name is Art Hansen and I am assistant attorney general to John J. O'Connell, the attorney general for the State of Washington. The attorney general is unable to be here to testify, but has authorized me to advise this committee that he favors S. 275.

Mr. Chairman, my statement is quite lengthy, and time is quite late; I don't know how long this committee operates. Would you want me to summarize?

Senator WILLIAMS. We generally proceed here at your pleasure. If you want to summarize, your entire statement will be included in the record. I don't know just what our situation is on the floor of the Senate. If you wish to summarize, it will be all right with us.

Senator BENNETT. I hope you will, because it is getting to the point where some of us have got to get back and find out what our staffs have been doing.

Senator WILLIAMS. We will certainly all read your statement in toto.

Senator BENNETT. I notice your statement has a number of examples, which I think we can read without. Do you have a conclusion?

Mr. HANSEN. Not as such, Senator Bennett. I do have within the statement a conclusion at the end and my statement actually contains only the actual example of one promotion.

Senator WILLIAMS. That is the Arizona Cochise Country Club?
Mr. HANSEN. Yes, sir.

Senator BENNETT. It would seem to me that

Senator WILLIAMS. You had a salesman-excuse me, Wallace. Senator BENNETT. It seems to me your last page, plus the paragraph on page 7, does contain your conclusions, and

Senator WILLIAMS. Here you had a situation where the promotion was through a dinner party, is that right?

Mr. HANSEN. Yes.

Senator WILLIAMS. In Washington?

Mr. HANSEN. Yes. I could briefly summarize it.

I have been assistant attorney general since 1961 in charge of consumer protection in eastern Washington. Prior to that time I put in 5 years as a deputy prosecutor in Spokane County.

And I might use now one of the local law enforcement agency difficulties that arise. And the burden of my statement is that the local official, local State official does not really have the equipment to contend with this type of an operation. In this particular case it was a well-organized promotion. The company was named Western Growth Capital Corp., and the particular land that they were promoting was called Cochise Country Club Estates.

And it was contained in about 4,000 acres right out of the city of Willcox, Ariz.

The method in which this promotion takes place is that a crew of salesmen will come to the State of Washington, and they will send out engraved invitations to a list taken from the telephone book. The invitation does not bespeak the message really. It invites them in to listen to the history of the Indian and the other history of Cochise County in Arizona.

In this particular case, the State of Arizona does have a full disclosure law, and this particular development was registered with the real estate commission in Arizona. And a statement, a public statement and public report was issued by the State of Arizona, copies of which are attached to my statement.

In this particular case, the disclosure report, the public report by the State of Arizona was completely ignored and none was ever seen in the State of Washington. It wasn't until after we investigated the promotion, that we obtained copies from the officials in Arizona.

Basically the method in which this operates, that a dinner party is held at which from 15 to 80 people attend. They are seated in family groups with husband and wife normally at a table with four or five couples at each table and with what they euphemistically call a counselor at each table. He is really a closure. He is normally paid about 10 percent for each sale that he closes, all his expenses are paid, so they can make $2,000, $3,000 a week when they get hot.

In this particular case, this promotion, the crew chief does all of the real actual pitch and the counselor at each table just assures them of all of the facts that were put out by the crew chief. The crew chief normally sets up a podium at the head of the dining room that they have hired, and he has colored slides of the area to be promoted, and he has a speech that is written out, a big pitch sheet which is made out at the promoter's home office. In this particular case, in Cochise Country Club Estate case, the crew chief normally would state that_real estate is the best investment there is, and he quotes all those that have previously been testified to, but that it is not just buying any real estate. It is knowing when and where to buy. We have expended a great deal of money and have hired many experts to find the best place to invest, and it is in Willcox, Ariz., the fastest growing city in the fastest growing State, Arizona, in the United States.

Also wise investment in real estate is knowing when to buy it. They classify the real estate in three stages, undeveloped, predeveloped, and fully developed.

The crew chief then proceeds to explain to prospective purchasers that the land in Willcox, Ariz. was predeveloped real estate. That there was a paved street to every lot in the development, that there was water, light, gas, and electricity to every lot line. They sold some 170 of these lots while operating in western Washington.

When they came to eastern Washington we sent an investigator to the meeting and developed these facts and I then called the county attorney in Willcox, Ariz., Cochise County and I asked him, are all of these improvements into this development.

Senator WILLIAMS. In accordance with Arizona's requirements, it states that the subdivision plat was not approved by the county board of supervisors. Thus it is not known whether or not the streets as laid out are acceptable to the county. But this was not made available to the people in the State of Washington, right?

Mr. HANSEN. Correct, Mr. Chairman. It was not available at any time to the purchasers.

Senator WILLIAMS. Mr. Talley, who signed this for the State of Arizona, ends with a special note. "This department recommends that you see the property before buying."