Senator HICKENLOOPER. We have had so many strange interpretations of the law by the courts, that I think we had ought to safeguard this just as much as humanly possible, if that is what we mean.

Senator WILLIAMS. I am glad. If there is an ambiguity we will have to consider it.

Senator HICKENLOOPER. I raise the question again along with Senator Bennett.

Senator WILLIAMS. I think your constituent in Utah who sold to Mr. A would not be subject to this provision, but Mr. A, if he divides into more than 25 lots, would be subject to it.

Senator BENNETT. There is no question about that. But somebody, finding that Mr. A went broke but the man back in Utah has money against which he can proceed, might say, "Well, this was sold in pursuance to a plan to subdivide; therefore I have a chance." And if you do not intend it to be construed let us be absolutely sure. Senator WILLIAMS. I see what you mean. ambiguity.

We have clarified the

Senator HICKENLOOPER. It is a possibility it might be interpreted the other way, too.

Senator WILLIAMS. I am sure we will have enough time to clarify this, either in the bill or in report language.

Now, Senator Brooke?

Senator BROOKE. No, I have no questions. But I would like to ask this, if I may, Mr. Chairman.

Mr. Kossack, I know that the Department was opposed to such legislation, or did not recommend such legislation last session. Are there any legal reasons for this?

Mr. KOSSACK. No, sir. As I said the last time I was here, we were here that time to comment on the criminal phase of the fraud aspect of the bill. As to the disclosure, which we endorsed wholeheartedly, we said we would defer to a finding by the committee of the need for such disclosure on a nationwide basis. The hearings of this committee convinced us of the need on a national basis. We endorsed rather strongly the disclosure principle, if you remember from the hearings the last time. So there is no legal obstacle or reason or basis. We are in a position of saying we defer to findings of fact.

Senator BROOKE. Do you think that the matter could be adequately handled by the States?

Mr. KOSSACK. Well, assuming that everybody had the same interest, the investor and the situs State, it is conceivable, but that is something which we have learned for some time now is not a practical possibility.

No, I think in a situation like this where it has been demonstrated to us quite clearly that the subtleties of the advertising approaches which depart in many respects from the criminal area and approach the deceit and misconception area beyond that, require a uniform, nationwide type of disclosure approach. This is a lesson we learned in the securities field; that although we have securities commissions in each State, the subtleties of the offerings require a national

coverage.

Senator BROOKE. Would you be voicing an opinion as to whether the SEC would be the proper agency?

Mr. KOSSACK. I think the SEC has voiced the opinion that they are the proper agency, and I am very proud of the fact that they stood up and got counted.

Senator WILLIAMS. Well, thank you very much. Your testimony has been very illuminating.

Mr. KOSSACK. Thank you.

Senator WILLIAMS. Senator Spong would like to introduce two prominent constituents who will be our next witnesses.

Senator SPONG. Mr. Gary and Mr. Jeffreys.

Mr. Chairman and members of the subcommittee, I have the honor this morning of introducing a fellow Virginian whose testimony I am sure you will find enlightening. Mr. Herndon Jeffreys is an extremely able and respected attorney in Richmond. I comment him to you for a number of reasons, not the least of which is that he attended two fine Virginia institutions at which I received my education, Hampden-Sydney College and the University of Virginia. He appeared before this subcommittee last summer and gave valuable testimony.

It is also a pleasure for me to welcome a distinguished Virginian whom many of you know, Mr. Vaughan Gary. Mr. Gary served in the House of Representatives for 20 years, from 1945 until his retirement in 1964, when he returned to law practice in Richmond. During his years in Congress he was a high-ranking member of the House Committee on Appropriations, and he served as chairman of the Foreign Operations Subcommittee and the Treasury and Post Office Subcommittee. I am confident he will speak with expertise on the subject this morning. I understand Mr. Gary will speak first and then Mr. Jeffreys.

Senator WILLIAMS. It is a pleasure to welcome these gentlemen before this subcommittee. I had the great pleasure of being a junior member of the House of Representatives when Vaughan Gary was a very senior member. I sat in the back row, and you were up front, Vaughan. I remember those years with great pleasure.

STATEMENT OF HERNDON P. JEFFREYS, JR., GENERAL COUNSEL, AMERICAN REALTY SERVICE CORP., RICHMOND, VA.; ACCOMPANIED BY J. VAUGHAN GARY, EX-MEMBER, U.S. HOUSE OF REPRESENTATIVES, 3D CONGRESSIONAL DISTRICT OF VIRGINIA

Mr. GARY. Mr. Chairman, I am associated in this matter with Mr. Herndon P. Jeffreys, Jr., who is general council for American Realty Service Corp. Mr. Jeffreys being general counsel, is more familiar with this subject than I, he is going to testify, but I would like to make just a brief statement.

I feel that my record of 20 years' service in the House of Representatives is ample evidence of the fact that I am opposed to fraud and misrepresentation in any field. I am concerned, however, that in the effort to control fraudulent enterprises we do not impose unduly upon legitimate enterprise. We all know that the effect of real estate developments on our economy is very great, particularly in building, and, of course, the purpose of subdividing land is to provide for building subdivisions. Benefits from building are diffused throughout

our entire economy and have a tremendous impact on the overall economy of the Nation.

Our real estate market has been depressed recently by reason of the tight money market, and there are evidences to my mind today that we may be approaching a recession, which might seriously hamper our war efforts and our domestic progress.

I feel that excessive restraints on land development at present may prove very harmful in aggravating and intensifying those evidences of recession in our economy.

Insofar as this bill is concerned, Mr. Jeffreys has some suggestions that we propose, and I will yield to Mr. Jeffreys to testify at this time.

I thank you, Mr. Chairman. I might say it was a great pleasure for me to serve with you in the House of Representatives. And I also had the pleasure of collaborating with you since you came to the Senate on the Woodrow Wilson bill, in which both you and I have been tremendously interested.

Senator WILLIAMS. Our departures from the House came under different circumstances; yours was voluntary, mine was involuntary. Mr. Jeffreys?

Mr. JEFFREYS. Yes, sir.

Mr. Chairman and distinguished Senators, I was privileged to appear before your committee during the hearings that were conducted last year on then-pending Senate bill 2672, which was in many ways similar to Senate bill 275 with which we are now concerned.

I realize that there are some new members of the committee, but I will try to avoid a repetition of my remarks made last year as much as possible, and I appreciate the opportunity to appear before you today.

I have practiced law in Richmond, Va., for more than 23 years, and I am general counsel for American Realty Service Corp.

American Realty Service Corp. is a Delaware corporation that has offices in Tennessee, Massachusetts, and Ohio, and is considered to be the leading resort developer in the United States.

The corporation was formed soon after World War II and has carried on business in many States having had more than 45 resorts subdivided throughout the United States.

The corporation, at present, is very active in Ohio, Pennsylvania, Indiana, and Michigan and plans are now underway to carry on subdivisions in Texas and New Jersey.

American Realty is an owner-developer. By that I mean that they go in and purchase the land which requires a sizable investment. After a great deal of study has been done on the feasibility of the location of the development, the location is picked close to a populous metropolitan area by the aid of on-site examination, aerial inspection and even by the use of a computer in the Memphis, Tenn., office. A great deal of time and expense is involved in assembling the property since it is usually owned by a number of people, and this is acquired by the securing of options and then arranging for the financing and purchase of the property. At this point a lot of money has been invested in investigation and no lots have been sold. They then go in, dam up a stream and create a lake which requires bringing in expen

sive equipment and workmen. Roads have to be installed and permits and licenses have to be secured from the State in question.

Separate corporations are set up in each State with the principal and majority of stock being owned by American Realty, and then local lawyers are employed and local people employed to assist the full-time employees of American Realty in all phases of the development.

Credit is established at local banks and these banks are used for the purpose of much of the financing of the development. This is in itself a safeguard for local purchase of lots because the local bankers are then familiar with the corporation that is setting up the development.

The average development has approximately 1,200 lots which vary in price from about $2,000 to $10,000, and the purchaser is required to make a substantial deposit, which experience has proven averages about one-third of the cost of the parcel.

The present bill is a disclosure-type regulation which, according to the proponents, is to eliminate abuses that presently exist in the land sales business and to provide purchasers of land with full disclosure of pertinent information regarding offerings of subdivided land being made through interstate commerce.

I am heartily in agreement with the concern of the committee in the elimination of all deceit and deception in the sale of real estate whether it be by interstate or intrastate means. I think that prospective purchasers should have reasonable protection afforded them.

The bill is primarily directed toward the interstate mail-order sale of real estate.

I might first state that American Realty is not engaged in the mailorder sale of real estate and the sale is made after a personal inspection of the property by the purchaser.

I, therefore, feel that the bill should be amended to provide for an exemption in the case of an on-site inspection of the real estate by the purchaser or his representative before the signing of a contract of sale and such contract of sale could contain an affirmation by the purchaser that he or his representative had inspected the real estate before executing the contract.

The main reason that American Realty would come under the requirements of this bill is because we engage in newspaper, radio and television advertising across State lines. Most of our metropolitan areas are close to the border of several States, and it is natural that this advertising would draw purchasers from several States that are close to the site of the development. I cite such metropolitan areas as Pittsburgh, Pa.; Washington, D.C.; Memphis, Tenn.; Cleveland, Ohio; Chicago, Ill.; New York City, and many others that are close to or immediately adjoining the borders of other States or have through natural growth grown across State lines and rivers that were originally designed as boundary lines for the States.

Since the bill is directed principally toward the mail-order abuse over great distances, I would think it only reasonable and proper that an exemption be allowed to developers who advertise in the State in which the development is being carried on or States contiguous thereto and certainly to give an exemption to advertise developments within a radius of, say, 200 miles of the subdivision.

We are heartily in favor of a full and accurate disclosure being made as to the subdivision in all advertisements and literature that is distributed to prospective purchasers, but I do not believe it fair to require the registration before the Securities Exchange Commission as provided for in the bill. This would involve unreasonable delay, unnecessary paperwork and expense and in some cases would involve the furnishing of unnecessary and confidential information to the competitors of the developer.

Senator WILLIAMS. Could you clarify that? What would the confidential information consist of?

Mr. JEFFREYS. Well, the SEC registration would certainly require all of the in my experience, all of the financial information on the corporation and its method of pricing and its cost methods, and in some cases I can visualize that some of this information which would then be open to the public might be confidential to the developer in that case, and then the competitor would be able to get hold of all of this information.

Senator WILLIAMS. Would your reasoning not also apply to the general area of securities where there is, by law, a requirement for registration and disclosure?

Mr. JEFFREYS. I think that is probably true, sir, yes, sir.

Senator WILLIAMS. And that has not destroyed our Nation's securities markets. As a matter of fact, it has strengthened our securities markets.

Mr. JEFFREYS. Well, Senator, this is a highly competitive kind of business, as far as securing land is concerned and trying to subdivide. Senator WILLIAMS. What businesses are not highly competitive? I would like someone to show me an example of one which is not.

Mr. JEFFREYS. I am also in favor of any requirement by the State that the developer be completely financially responsible and solvent and the elimination by the State of any developer not in this category, and I think that many of the States now have laws that adequately protect the purchaser in this regard.

However, being familiar with the procedures of the Securities and Exchange Commission as I am and I know most of you gentlemen are, I know that even with an attempt toward simplification of the registration that due to the heavy caseload of the Securities and Exchange Commission and their other requirements and delays that this regulation could not be accomplished without undue hardship to the developer.

Now, I listened to Mr. Cohen- testify yesterday, and I recall him talking about the various amendments that would be required upon sale of additional property, and I can even visualize a situation in which maybe the developer would have to take back a lot from some purchaser who hadn't fulfilled his contract, and then the resale of it might involve some problems. And there are so many of these things that would require amendments that I think it would just be a lot of unnecessary redtape that would have to be gone through which would involve expense and a lot of delay.

I am aware, and I know that you are also aware of the recent difficulties experienced by real estate developers in view of the tight money situation in this country, and I think that this registration re