Applications for intervention, I believe, have been most frequent in proceedings under the Public Utility Holding Company Act of 1935. I understand that the policy of the Commission has been to deny such applications unless presented by some governmental or other public authority. This would follow almost inevitably from rule XVII. It will be noted that section 19 of the Public Utility Holding Company Act of 1935 permits the admission as a party of "any representative of interested consumers or security holders, or any other person whose participation in the proceedings may be in the public interest or for the protection of investors or consumers.' 99 The Commission has engrafted upon its authority the condition that no person will be permitted to intervene in any proceeding under the Public Utility Holding Company Act of 1935 if the Commission finds that, for any reason, his participation in the proceeding would not be "for the protection of consumers." Without specific reference to this condition, the Commission in cases arising under the Holding Company Act has frequently declined the right to intervene to all but official agencies. Where these applications are denied, the Commission has, however, granted the right to be heard and the right to examine and to cross-examine witnesses. Implicit in such grant is the recognition of the propriety of appearances by parties other than declarants or registrants. Rights which prima facie appear to be the equivalent of the substantive rights of an intervenor have thus been granted. But the coveted status is denied. Why? Perhaps to prevent such parties from having access to courts of review; more likely to discourage participation. PROPOSED CORRECTION It is submitted that power should be conferred on the Commission, by amendments to the 1933 and 1934 acts, to permit interventions before it to the extent permissible under section 19 of the Public Utility Holding Company Act of 1935; and that all three acts be amended to provide that in any case where a party in interest in a proceeding before the Commission, other than the declarant or registrant itself, has rendered services which the Commission considers valuable in connection with the subject matter of the declaration or proceeding, the Commission may authorize reasonable reimbursement of expenses to be paid to such person by the declarant or registrant and may direct declarant or registrant to make such payment. Note that I do not suggest that such compensation be limited to cases where intervention has been granted; the test should be whether benefit has been conferred upon the declarant or registrant in the proceeding. The findings of the Commission I would have subject to court review. I know of personal experience in many cases that participation by interested groups of security holders has been rendered impossible by reason of the fact that intervention would probably be denied and furthermore there appeared to be no basis upon which reimbursement of expenses might be expected. Very often, in proceedings before the Commission, the company which happens to be the declarant or the registrant is not in the best position to protect the interests of its several classes of security holders; sometimes it is under the necessity of protecting the conflicting interests of several classes of security holders, and the bestintentioned management of the world faces serious problems when it tries to protect conflicting interests fully. In proceedings under section 11, where plans of reorganization may be involved, the management is especially put in the position of finding it necessary to resolve conflicting interests. I submit that that burden is an unreasonable one to impose on any management and that the investor necessarily suffers. The Commission itself would find its task of resolving the conflicts of interest among various groups an easier one if each of the groups were represented competently before it and issues were threshed out in the traditional constitutional method where each party to a controversy presents his facts and point of view and the judicial or administrative tribunal makes the decision. With all due respect to the Commission, I do not believe that it is possible for an administrative agency, with the most competent personnel and with the most thorough technique, to substitute research and mediation for the presentation of a case by the persons who have direct interests at stake and who can best present the several points of view implicit in most situations. In other cases, managements frequently feel called upon to defend or explain past conduct; their security holders are not in such position; the intervention of such security holders in proceedings before the Commission would facilitate avoidance of collateral issues and would permit an approach to the substance and meat of the proceeding. Many of the proceedings before the Commission are intricate and involved. They do not raise issues susceptible of decision by mathematical formula. Questions of valuation, questions of conflicting equities, questions of judgment and policy can best be resolved by the time-honored processes of our judicial system. I find in my experience that the improbability of reimbursement of expenses has retarded the program designed to be accomplished by the Holding Company Act; whether it has similarly affected proceedings under the 1933 and 1934 acts, I cannot say definitely. The expense involved in participation in a reorganization proceeding under the Public Utility Holding Company Act is bound to be very substantial. The risk that reimbursement will not be allowed unless there is a contribution to the cause is sufficient to deter excessive and nuisance appearances. Today, however, there is almost certainty that there will be no compensation. I urge, therefore, that authority of the kind I propose for the Commission would provide a desirable statutory basis for intervention and would permit reimbursement of expenses of parties in interest where their services are recognized by the Commission to have been of value. I believe that these amendments would be a desirable extension of the Commission's power. The proposed requirement that the Commission permit intervention of at least one representative of each group having an interest in a proceeding, unless the Commission finds affirmatively that such application for intervention is not made bona fide, or that to grant it would be against the public interest, or that the group is already adequately represented, I think the Commission's attitude toward intervention in the past has been arbitrary; I am inclined to think that, for all practical purposes, the enactment of legislation permitting reimbursement would afford adequate relief; nevertheless, a congressional declaration of policy seems in order in view of the interpretation which the Commission has placed on section 19 of the Public Utility Holding Company Act. BENJAMIN A. Javits. NEW YORK CITY. EXHIBIT 1 PROPOSED AMENDMENT TO SECTION 21 OF THE SECURITIES ACT OF 1933 AND TO SECTION 22 OF THE SECURITIES EXCHANGE ACT OF 1934 All hearings shall be public and may be held before the Commission, or an officer or officers of the Commission designated by it, and appropriate records thereof shall be kept. In any proceeding before the Commission, the Commission, in accordance with such rules and regulations as it may prescribe, shall admit as a party any interested State, State commission, State securities commission, municipality, or other political subdivision of any State, and any representative of interested security holders, unless the Commission shall find that such representative does not possess or represent a legitimate interest, or that such interest is already adequately represented in such proceeding or that the application of such representative is not made in good faith. In any case where a representative of interested security holders of a registrant or respondent has appeared in any proceeding or in any relation to a registration statement pending before the Commission, and has rendered services which the Commission shall find to have been of value in connection with the subject matter of such proceeding or registration statement, the Commission, on the application of such representative, after notice to registrant or respondent, to whom shall be afforded an opportunity to be heard, in accordance with such rules and regulations as the Commission may prescribe, may authorize and direct the payment by the registrant or respondent of the reasonable expenses of such representative, including a reasonable counsel fee, and the registrant or respondent shall pay the amount so allowed within 60 days after entry of an order thereon by the Commission. EXHIBIT 2 PROPOSED AMENDMENT TO SECTION 19 OF THE PUBLIC UTILITY ACT OF 1935 All hearings shall be public and may be held before the Commission, or any member or members thereof, or an officer or officers of the Commission designated by it, and appropriate records thereof shall be kept. In any proceeding before the Commission, the Commission, in accordance with such rules and regulations as it may prescribe, shall admit as a party any interested State, State commis sion, State securities commission, municipality, or other political subdivision of any State, and any representative of interested security holders, unless the Commission shall find that such representative does not possess or represent a legitimate interest, or that such interest is already adequately represented in such proceeding or that the application of such representative is not made in good faith. In accordance with such rules and regulations as it may prescribe, the Commission may also admit as a party any representatives of interested consumers, or any other person whose participation in the proceedings may be in the public interest or for the protection of investors. In any case where a representative of security holders of a declarant or respondent has appeared in any proceeding or in relation to a declaration pending before the Commission, and has rendered services which the Commission shall find to have been of value in connection with the subject matter of such proceeding or declaration, the Commission, on the application of such representative, after notice to declarant or respondent, to whom shall be afforded an opportunity to be heard, in accordance with such rules and regulations as the Commission may prescribe, may authorize and direct the payment by the declarant or respondent of the reasonable expenses of such representative, including a reasonable counsel fee, and the declarant or respondent shall pay the amount so allowed within 60 days after entry of an order thereon by the Commission. PROPOSED AMENDMENT TO SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934 In my opinion, section 16 (b) has had a serious adverse effect on the securities market of the country and has operated against the interests of the small security holder. I know of no better market for corporate securities than the officers, directors, and large stockholders. At a time when the prices of securities are depressed, not by reason of unprofitable corporate operations or by reason of factors affecting particularly a specific company, but rather because of general economic conditions and trends, many preference securities are sold at prices way below their fair and reasonable value, simply because no buying market exists. The best-informed buying market would normally be in the officers, directors, and large stockholders of a corporation who, by reason of their association with the corporate affairs, know when the stock of their corporation-I say stock but I mean bonds as well-are selling at unreasonably low prices. The restrictions of section 16 are such that these well-informed buyers do not constitute a market for securities of the company about whose affairs they know most. The absence of an informed buying market is the principal factor which brings about precipitous and great decline in the selling prices of publicly held securities. It is certainly not to the interest of the public investor that a natural market which could afford a natural bottom to a decline in securities held by him should not be available becouse of the interposition of a statutory requirement. I certainly subscribe to the purpose of section 16 (b) of the Securities Exchange Act. I believe that the objective, however, can be attained without the serious harm that the country has suffered from section 16 (b), by the adoption of either of the following two proposed amendments: 1. Limit to 50 percent of the profit realization the amount which the director or officer or large stockholder is accountable for the issuer; or 2. Reduce to 3 months, instead of 6 months, the period of holding the particular security purchased. Either of these suggestions represents a compromise in the present stringent rule. I believe that the effect of adopting such a compromise would be to release substantial reservoirs of support for many securities which are now selling in the market at such depressed values below their fair value as to adversely affect the economic status of the holders of such securities. There is no particular magic in the period 6 months; nor is there in the period 3 months. The adoption of either alternative, even on an experimental basis, might assist us in meeting a situation which any fair-minded person must recognize to be a difficult one. I think the reduction to 50 percent of the profits for which an officer, director, or large stockholder may be accountable to his company, obviously a compromise suggestion, would leave little speculative incentive to the average officer, director, or stockholder. At the same time, it would tend to diminish the substantial risks which such a person now incurs in buying corporate securities. Likewise, in my opinion, a shortening of the period to 3 months would not substantially encourage speculative activity by directors, officers, and large stockholders; rather, it would diminish the risk which they incur under the present statute. I think also that the 3-month period is a sufficiently low one to negate the notion that an officer, director, or large stockholder is after a profit which he hopes to enjoy principally by reason of superior, confidential information which he has acquired in his trust capacity. Respectfully submitted. BENJAMIN A. JAVITS. FRAUD IN REPORTS TO SECURITY HOLDERS (PROPOSED SECURITIES ACT (SECTION 17 (C)) (The following letter was submitted:) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Hon. CLARENCE F. LEA, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C. DEAR MR. LEA: When the Board write to you on November 12, 1941, in response to your invitation, with regard to a new subdivision (14) which is proposed to be added to section 2 of the Securities Act of 1933, the Board stated that at an appropriate time it might have comments which it would wish to submit to your committee with respect to other proposals for amendments to the Securities Act of 1933 and the Securities Exchange Act of 1934. Since that time the views of the Board with respect to certain of the proposals relating to the Securities Exchange Act and with respect to the exemption of banks from the proposed section 17 (c) of the Securities Act of 1933, relating to false reports, have been submitted to your committee. As shown on page 834 of part III of the report of the hearings of your committee, the Board and other Federal bank supervisory agencies have recommended that the banks supervised by these various Federal agencies be exempted from the provisions of the proposed section 17 (c). As stated in that recommendation these banks are subject to section 5209 of the Revised Statutes which, among other things, deals generally with the same problems to which section 17 (c) is addressed. As you know, the supervision of holding company affiliates of banks was vested in the Board of Governors by the Banking Act of 1933 and these companies under the Board's supervision are also made subject to the penalties of section 5209 of the Revised Statutes relating to false statements or reports. Accordingly, the Board feels that any such companies should be exempted from the provisions of section 17 (c) on the same basis as the Board has recommended that banks be exempted. Briefly this basis is that institutions already subject to supervision and examination by a supervisory agency and subject to a statute which deals with the same problems to which section 17 (c) is addressed need not be subjected to a duplication of supervision and to duplicate statutory provisions. The exemption which the Board recommends would avoid duplication of statutory requirements applicable to holding company affiliates over which the Board exercises supervision and of duplication of supervision which might arise out of the application of the proposed provisions of section 17 (c). The proposed exemption of holding company affiliates of banks has been discussed with representatives of the Securities and Exchange Commission and we are advised that the Commission feels that the question of exemption of these companies is one which the Reserve Board may wish to present to your committee and as to the adoption of which the Securities and Exchange Commission has no position. In this connection, it may be mentioned that when the Investment Company Act of 1940, which was considered by your committee, was pending in Congress, the Board, after considering the matter with representatives of the Securities and Exchange Commission, recommended that in view of the Board's supervisory responsibilities with respect to holding company affiliates of banks these institutions be exempted from the provisions of the Investment Company Act. Your committee and Congress adopted this recommendation and exempted from that act holding company affiliates which hold general voting permits issued by the Board under its supervisory authority. The proposed section 17 (c) now pending before your committee reads as follows: "It shall be unlawful for any issuer, by use of the mails or in interstate commerce, to send to its stockholders a report containing any statement which is false or misleading with respect to a material fact." The Board specifically recommends that the following language be added to that proposed amendment: "This subsection shall not apply to any bank the officers of which are subject to section 5209 of the Revised Statutes, as amended, or to any holding company affiliate, as defined in the Banking Act of 1933, which holds a general voting permit issued to it by the Board of Governors of the Federal Reserve System under the provisions of section 5144 of the Revised Statutes, as amended." It will be noted that the above-recommended amendment includes the exemption applicable to banks which has previously been submitted to your committee. As heretofore stated, the penalties contained in section 5209 of the Revised Statutes for false entries in any book, report, or statement are by existing statutes made applicable to officers, directors, agents, and employees of the holding company affiliates which would be exempted from the proposed section 17 (c) by the above amendment. Very truly yours, M. S. ECCLES, Chairman. SUPPLEMENTAL DATA SUBMITTED BY CHAIRMAN PURCELL OF THE SECURITIES AND EXCHANGE COMMISSION A. LETTERS FROM COMPANIES WHICH HAVE REGISTERED SECURITIES UNDER THE SECURITIES ACT On the opening day of these hearings (at p. 7 of the printed transcript) I referred to the Commission's efforts to obtain the experiences and opinions of manufacturers and issuing companies that had registered securities under the Securities Act of 1933 and to the fact that three of the Commission's staff had interviewed officers of more than 100 representative issuers scattered through the East, the Middle West, and the far West. It was suggested to all of these registrants that they submit, if they cared to do so, an expression of their views as to the administration of the Securities Act of 1933 and comment on proposals for amending that act. I offer for the record the 11 letters which were received in response to the suggestion. The tenor of the letters represents the views of practically all of those interviewed. SECURITIES AND EXCHANGE COMMISSION, Washington, D. C. THE TIMES, Chicago, December 2, 1941. GENTLEMEN: Chicago Times, Inc., has registered two issues of securities under the Securities Act of 1933. The first was filed November 1936 and became effective December 3, 1936, as to an offering of stock having an aggregate offering price of approximately $425,000. The second registration statement was filed in September 1939 and became effective in December 1939. This offering covered 26,530 shares common stock at an offering price of approximately $320,000. I handled the details of registering both of these issues of securities. Chicago Times, Inc., received fair treatment from the Securities and Exchange Commission in connection with the registration of its securities. The second registration statement was held up some time on the question of the value of the company's intangibles, but we did not believe that the Commission acted arbitrarily and we felt that the Commission's inquiry was justified. After we had fully advised the Commission as to all factors relating to the value of a newspaper's intangibles, it acted with dispatch. I am convinced that the Securities Act has been a good thing for the public generally and for investors and issuers in particular. Issuing companies have undoubtedly bettered their internal management policies before seeking to register their securities. Companies probably keep better records and closer check on their internal affairs than heretofore. I believe the requirements of the act in themselves would not deter this issuer from further public financing if the occasion arose. The issues registered sold readily, considering the times at which they were offered. Our brokers have told me that the Securities Act has been a good thing for them. They feel they can rely on the information published by issuing companies who have registered securities. The amendment to section 8 (a) empowering the Commission to permit registration statements to become effective in less than 20 days is constructive. In |