investor to form a prudent judgment with respect to the security to which the prospectus relates and in the supplementary statement only such additional information as is necessary to satisfy the requirements of Schedules. A and B as modified by the rules and regulations of the Commission for the respective classes of issuers or securities."

Purpose: The Commission now requires a registrant to file a voluminous registration statement and, also, a prospectus which in most instances is a verbatim repetition of the statements in the registration statement. This duplication greatly increases the expense and labor involved in registering an issue of securities. There appears to be no reasonable ground for requiring this duplication and investors would be fully protected if only a prospectus plus a supplemental statement of information not required in the prospectus were filed with the Commission. This change would materially reduce printing costs, legal fees and needless waste of time.

Furthermore, the Commission has required a mass of information in prospectuses which is meaningless to the average investor. As a result, prospectuses are so long that they are not read by investors and often merely tend to confuse investors. A shorter, simpler form of prospectus, giving only such information as is of significance to investors, is much to be desired and would afford greater protection to investors as it would be more comprehensible to them.

7. Amend the first sentence of Section 8 (a) of the Securities Act of 1933 to read as follows:

"SEC. 8 (a). Except as hereinafter provided, the effective date of a régistration statement shall be the seventh day after the filing thereof or such earlier date as the Commission may determine, having due regard to the adequacy of the information respecting the issuer theretofore available to the public, to the facility with which the nature of the securities to be registered, their relationship to the capital structure of the issuer and the rights of holders thereof can be understood, to the free flow of private capital into private enterprise and to the public interest and the protection of investors."

And amend Section 8 (b) of the Securities Act of 1933 to read as follows: "(b). If it appears to the Commission that a registration statement is on its face incomplete or inaccurate in any material respect, the Commission may, after notice by personal service or the sending of confirmed telegraphic notice not later than five days after the filing of the registration statement (which notice shall automatically postpone the effective date of the registration statements so that the registration statement shall became effective on the fifteenth day after the filing of the registration statement, or on such earlier date as the Commission may determine, unless the Commission shall issue a refusal order prior to such date as herein provided), and opportunity for hearing (at a time fixed by the Commission) within ten days after such notice by personal service or the sending of such telegraphic notice, issue an order prior to the effective date of registration refusing to permit such statement to become effective until it has been amended in accordance with such order. When such statement has been amended in accordance with such order the Commission shall so declare and the registration shall become effective upon the date of such declaration."

Purpose: As the price and terms of an issue of securities are usually fixed on the basis of conditions at or before the time the registration statement is filed and conditions can and often do change almost overnight, it is of the utmost importance to issuers and underwriters to complete registration as quickly as possible. At present, the law prescribes a compulsory "waiting period" of twenty days following the filing of the registration statement and each amendment thereto. During this waiting period, no securities may be sold unless the Commission exercises its discretion to shorten the waiting period.

The practical consequences of the long and uncertain compulsory waiting period and the discretion to shorten it vested in the Commission is that issuers and underwriters must yield to every dictate, however arbitrary and unreasonable, of the members of the Commission's staff in order to obtain a favorable and prompt exercise of the Commission's discretion. A shorter waiting period will greatly diminish this arbitrary power, without in the slightest diminishing the essential and legitimate powers of the Commission to prevent fraud.

8. Add to Section 8 of the Securities Act of 1933 the following subsection: "The Commission shall review any registration statement submitted to it in triplicate for examination prior to the filing thereof and shall advise the registrant by telegraphic notice within seven days after the submission thereof whether or not it appears to the Commission that the statement is on its face incomplete or inaccurate in any material respect. If the statement does not appear to the Com

mission to be on its face incomplete or inaccurate in any material respect and if filed in conformity with Section 6 of this title within seven days after the sending of such telegraphic notice, such statement shall become effective upon the filing thereof, provided that no material change shall have occurred prior to the filing thereof in the facts therein set forth."

Purpose: This amendment would permit a potential registrant to submit a registration statement to the Commission for review in advance of actual formal filing.

When and if the Commission finds the registration statement and prospectus to be complete, accurate, and in good order, then the company may file the statement with the assurance that it will become effective immediately and without further delay. This procedure is optional for the registrant.

9. Add to Section 8 of the Securities Act of 1933, to Section 21 of the Securities Exchange Act of 1934, to Section 321 of the Trust Indenture Act of 1939, and to Section 42 of the Investment Company Act of 1940 the following subsection:

"No publicity shall be given by the Commission to any notice, private hearing, investigation, examination, proceeding, or order, other than the publication in the Federal Register of notices of hearings, stating the time and place of the hearing and the parties involved and omitting therefrom all evidentiary facts, allegations, and charges, and the publication of any final order, decision, or opinion as it may deem necessary and appropriate in the public interest and for the protection of investors, nor shall the Commission publish any information concerning any violation or alleged violation until such violation has been found by the Commission, on evidence produced at a hearing held after due and appropriate notice, to exist or to have occurred and an appropriate order issued. Any officer or employee of the Commission who shall publish or disclose, or cause or permit the publication or disclosure of, any information in violation of this section shall be personally liable to respond in damages to any person injured thereby and, if such violation be wilful, shall be subject to the penalties prescribed for a violation of the provisions of this title. The provisions of this section shall not apply to the filing of any papers and the introduction of any testimony or documentary evidence in any action, suit, or proceeding in any court of competent jurisdiction."

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Purpose: One of the most potent instruments wielded by the Commission and members of its staff to enforce arbitrary and capricious demands upon private citizens is publicity and the threat, either expressed or implied, of publicity. Charges of wrongdoing leveled at one engaged in the securities business will greatly damage and may destroy overnight a reputation of honesty and fair dealing built up over many years, even though the charges are unproven when made and later proven unwarranted. Fearing unfavorable publicity and with no adequate defense available, private citizens dealing with the Commission must constantly bow to the will of the Commission and of its employees, however arbitrary or unreasonable.

The Commission's use of publicity has been held by a federal court to be unauthorized and improper and unfair. The Court said, "It is not difficult to see that such a power might easily be made an instrument of oppression." This source of arbitrary power should be removed. Its removal will not impair any of the essential and legitimate powers of the Commission to fully prosecute wrongdoing and to enforce these laws.

A specific provision imposing personal liability upon officers and employees of the Commission for violation of this section is necessary because of the broad immunity granted these officials in a recent decision by the U. S. Circuit Court of Appeals for the District of Columbia. Despite the fact that the Supreme Court of the United States previously had ruled that the Commission had acted far in excess of its powers in dealing with the citizen in question, the Circuit Court of Appeals dismissed the citizen's suit, which charged a conspiracy to destroy his business, on the ground that administrative officials are immune from suit even though they act in excess of their authority.

10. Amend the fourth sentence of Section 9 (a) of the Securities Act of 1933, the fifth sentence of Section 25 (a) of the Securities Exchange Act of 1934, the fifth sentence of Section 43 (a) of the Investment Company Act of 1940, and the fifth sentence of Section 213 (a) of the Investment Advisers' Act of 1940 to read as follows:

"The finding of the Commission as to the facts, if supported by substantial, competent evidence, shall be conclusive."

and amend the sixth sentence of Section 9 (a) of the Securities Act of 1933, the seventh sentence of Section 25 (a) of the Securities Exchange Act of 1934, the

seventh sentence of Section 43 (a) of the Investment Company Act of 1940, and the seventh sentence of Section 213 (a) of the Investment Advisers' Act of 1940 to read as follows:

"The Commission may modify its findings as to the facts, by reason of the additional evidence so taken, and it shall file such modified or new findings, which, if supported by substantial, competent evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of the original order."

Purpose: Under the present laws the Commission's findings of fact are conclusive if supported by substantial evidence. In other words, no matter how incorrect the findings of fact may be, the courts must accept them, even if based on evidence which is incompetent, such as, for example, hearsay evidence. Findings should be based on competent evidence and should be conclusive only if based on competent evidence.

11. Amend Section 10 (a) (1) of the Securities Act of 1933 to read as follows: "SEC. 10 (a). A prospectus

"(1) when relating to a security other than a security issued by a foreign government or political subdivision thereof, shall contain such information required by Schedule A as is by rule or regulation or order of the Commission prescribed as material and necessary to enable the average investor to form a prudent judgment with respect to the security to which the prospectus relates and as applicable to the class of issuer or security or to the issuer or security to which the prospectus relates."

Purpose: As indicated above, the Commission requires prospectuses today to contain such a mass of technical and detailed information as to be confusing to the average investor. Every effort should be directed towards making prospectuses comprehensible and useful to investors. Statistical services can always obtain all the detailed information from the supplementary statements filed with the Commission, all of which would be available to the public.

12. Amend Section 10 (b) (2) of the Securities Act of 1933 to read as follows: "(2) There may be omitted from the prospectus any information which the Commission may by rules or regulations or by order designate as not being necessary or appropriate in the public interest or for the protection of investors.' Purpose: This merely represents a slight change in wording necessitated by the amendments proposed above.

13. Add to Section 10 of the Securities Act of 1933 the following: "(e) Any prospectus may be revised or supplemented at any time to reflect changes in the facts or information therein set forth or any further facts or information which the registrant shall deem material or necessary to make the statements in the prospectus, in the light of the circumstances under which they were made, not misleading, but no such revision or supplement shall be used unless filed with the Commission within five days after issuance. No supplement or other document shall be deemed a part of the prospectus unless physically attached to the prospectus."

Purpose: The Act at present neither authorizes nor requires revision of a prospectus until thirteen months have elapsed. Such revisions are sometimes essential and often desirable. The above provision would expressly permit earlier revisions of the prospectus.

14. Add to Section 10 of the Securities Act of 1933 the following:

“(f) Notwithstanding the provisions of subsection (a), a prospectus, when published as an advertisement in any newspaper, magazine or other periodical admitted to the United States mails as second-class matter, need contain only the name and address of the issuer, a brief statement of the general type of its business and of its funded debt and capitalization, a brief summary of its earnings during the three preceding fiscal years, a brief statement of the amount and proposed use of the net proceeds of the issue, the offering price of the security, the name of the principal underwriter, and such other information as the Commission may by rules or regulations require as being necessary or appropriate in the public interest or for the protection of investors; but no such prospectus shall be deemed to be 'a written prospectus meeting the requirements of Section 10' for the purposes of Section 2 (10) (a) or Section 5 (b) (2) of this title."

Purpose: The purpose of this amendment is to authorize the use of short newspaper prospectuses so that the investing public may be more fully informed of the nature of current security offerings. This is greatly to be desired as the average investor, today, generally has little or no information regarding any offer

74947-42-pt. 5- 8

ings other than those in which his broker or dealer is interested and the investor thus is deprived of the opportunity to consider many other and possibly equally sound and attractive offerings of securities.

15. Amend the last sentence in Section 11 (a) of the Securities Act of 1933 to read as follows:

"If such person acquired the security after the issuer has made generally available to its security holders an earnings statement covering a period of at least twelve months beginning not more than six months prior to the effective date of the registration statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the securities relying upon such untiue statement in the registration statement or relying upon the registration statement and not knowing of such omission, but such reliance may be established without proof of the reading of the registration statement by such person."

Purpose: The Act at present requires an earnings statement covering a period of at least 12 months after the effective date. The effective date may be several months subsequent to the date of the financial statements used in the registration statement. The object of this change is to enable a company which has, for example, used its year-end audited financial statements in its registration statement to use its audited statements at the end of the following year for the purposes of this section. This would result in considerable savings by eliminating unnecessary interim accounting. It would also shorten the period of liability to purchasers who have not relied on the registration statement or prospectus.

16. Amend Section 12 of the Securities Act of 1933 to read as follows: "SEC. 12.

“(1) Any person who sells a security in violation of section 5 shall be liable to the person purchasing such security from him for the consideration paid for such security with interest thereon, less the amount of any income received thereon upon the tender of such security, or for damages if he no longer owns the security.

"(2) Any person who sells a security (whether or not exempted by the provisions of section 3, other than paragraph (2) of subsection (a) thereof), by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), shall be liable to the person purchasing such security from him in reliance upon such untruth or misleading statement for the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon tender of such security, or for damages if he no longer owns the security, unless the person sued shall prove that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission.

(3) A person seeking to enforce a liability under this section may sue at law or in equity in any court of competent jurisdiction. In any such suit the court may in its discretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys' fees, against either party litigant.

"(4) Every person who becomes liable to make payment under this section may recover contribution as in cases of contract from any person who, if joined in the original suit, would have been liable to make the same payment." Purpose: The proposed amendment does not alter the liabilities imposed by the present law for sales of securities in violation of Section 5 which requires registration of securities and the use of a prospectus for sales to the public. It does, however, alter the liabilities now provided for an untruth or material omission in a prospectus and puts these liabilities on a more equitable basis. This amendment does not alter the responsibility of the seller of securities to make no false statements or misleading omissions, but makes him liable only for false statements or misleading omissions upon which the buyer relied. The present provisions of Section 12 make one liable for an untruth or omission in a prospectus, regardless of whether the person suing to enforce the liability relied upon the untruth or omission. There is no sound reason why one should be liable to a person who did not rely upon, and, therefore, was not damaged by, the statements upon which his suit is based.

17: Add to Section 17 (a) of the Securities Act of 1933 the following: "(SEC. 17 (a). It shall be unlawful

*

"(4) To manipulate, stabilize, control, or dominate the market for, or the price of, any security in contravention of such rules and regulations as the Commission having due regard for the public interest in sound distribution of securities, orderly, stable, liquid markets and the free flow of private capital into private enterprise, shall prescribe as necessary or appropriate in the public interest or for the protection of investors."

Purpose: When manipulation is accompanied by 'fraud or deception, either through misstatements or misleading omissions in the statements made, the Commission has been able to take steps to prevent or punish manipulation under Section 17 (a) as it now stands. However, as it is impossible to determine in advance what transactions will be subsequently attacked by the Commission under the vague provisions of Section 17 (a) many honest buyers and sellers have refrained from legitimate trading.

It would be better, therefore, if the Commission were obliged to define what securities transactions it considers harmful. This would both tend to prevent improper market operations, and to encourage legitimate and proper transactions for one would then know what transactions were forbidden and what transactions were permissible. Today many legitimate and proper transactions are prevented by the uncertainty that exists as to what is permissible and what is not and the liquidity and safety of our security markets have been impaired as a result.

18. Add to Section 19 of the Securities Act of 1933, to Section 319 of the Trust Indenture Act of 1939, to Section 23 of the Securities Exchange Act of 1934, to Section 39 of the Investment Company Act of 1940, and to Section 211 of the Investment Advisers' Act of 1940 the following subsection:

"Any provisions of this title to the contrary notwithstanding.

"(1) No rule or regulation shall be made, amended, or rescinded except by an order issued after publication of reasonable notice and public hearings thereon at which any person affected thereby or substantially interested in the effects thereof shall be given an opportunity to express his views by oral argument or written brief.

"(2) Any person affected by or substantially interested in the effects of any rule or regulation may petition for a reconsideration thereof and the Commission shall (unless it shall find that such petition is frivolous or vexations, in which case it shall by order deny such petition) promptly determine, by an order issued after publication of reasonable notice and public hearings thereon, whether such rule or regulation shall be continued in force, modified, or rescinded.

"(3) No rule or regulation shall become effective until ten days after publication in the Federal Register."

Purpose: Those affected by rules and regulations of the Commission, which circumscribe a very complex and intricate business, should be accorded an opportunity to present their views on a proposed rule before it is put into effect or to obtain reconsideration of an existing one. This is absolutely necessary to prevent undue hardship.

19. Amend Section 21 of the Securities Act of 1933, Section 320 of the Trust Indenture Act of 1939, Section 22 of the Securities Exchange Act of 1934, Section 41 of the Investment Company Act of 1940, and Section 212 of the Investment Advisers' Act of 1940 to read as follows:

"All hearings shall be private, except that if the party or parties (other than the Commission) to any hearing, shall at any time request in writing that it be public, such hearing shall then be public. All hearings 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 fixing the time and place of hearings, the Commission shall give due regard to the convenience of, and the expense. to, the parties."

Purpose: The authority to call public hearings is a source of arbitrary power because it makes possible the widespread publication of the mere charges of wrongdoing. The publication in advance of any hearing of charges of wrongdoing, though unproven and later disproved, can seriously damage one's business and reputation, particularly if he is in the securities business. Consequently, the threat, express or implied, of a public hearing is usually sufficient to enforce the will of the Commission, or of its staff, however unreasonable or capricious. If hearings were private, this illicit power of the Commission to enforce its arbitrary dictates would be minimized and the citizen who refused to bow to an