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left to the discretion of the Commission and that the obligor and the trustee are not put in a legislative strait jacket, as it were, by rigid, statutory provisions touching that subject matter.

On the whole, then, I think we may say, as an investor, that not only do we not oppose this bill in any particular, but that we are heartily in favor of the legislation as a whole, enthusiastic about some of its provisions, but do not wish to be understood as making any comment upon those features of the bill that concern the qualifications of trustees.

Senator BARKLEY. Let me ask a question which probably I should have asked the last witness: What is the particular disadvantage of having this period 1 year instead of 6 months, as suggested for bank loans?

Mr. BRADLEY. That is a question I should prefer to have the bankers answer. Again, that runs to the qualifications of the trustee and the question of conflict.



Senator BARKLEY. I should like to ask the last witness that question: What is the particular disadvantage in having the period 1 year instead of 6 months?

Mr. TILNEY. Because in very many instances the corporation temporarily wants money for particular legitimate purposes—for an increase in inventory, or some similar use; they want that money only for a relatively short time; and for that purpose, a year probably would not be wise.

Senator BARKLEY. They do not have to take it for a year; that is a maximum, I understand.

Mr. TILNEY. No, sir; that is “a year or over”; a year is the minimum, and not the maximum.

Senator BARKLEY. Yes; that is right. It is the minimum.

Senator TOWNSEND. Then, if the minimum is made 6 months instead of a year, that would take care of your point?

Mr. TILNEY. I think it would facilitate many of the transactions that will occur under the terms of this bill.

Senator Hughes. Will you explain why? How would it simplify them?

Mr. TILNEY. Well, I suppose perhaps custom has a lot to do with it. The ordinary bank loan that is made for the purposes I indicated is probably a 90-day loan or a 4 months' loan. The closer you put the limit to the customary period, the more facility it seems to me you give to that particular kind of transaction.

Senator BARKLEY. The period referred to of course is the single period of the loan; it is not cumulative by reason of any renewals or anything of that sort?

Mr. TILNEY. Oh, no, sir; absolutely.
The CHAIRMAN. Thank you very much, Mr. Tilney.



Senator Hughes. On page 40, I believe, is the provision to which you were referring, which is with relation to the restrictions or conditions on release and substitution subject to lien of the indenture. You thought that this particular provision might not be workable, did I understand you to say?

Mr. BRADLEY. No, Senator; I meant to express myself this way: that I thought it exceedingly wise that those particular types of provisions, which vary very much in accordance with the circumstances of each case, should be left elastic, as they have been, to the judgment and discretion of the Commission in each instance.

The CHAIRMAN. You favor those?

Mr. BRADLEY. Yes; I do favor those provisions, and in their present form.

Senator HUGHES. You favor release of a lien? You would favor that being safeguarded, would you not?

Mr. BRADLEY. Yes; by such regulations as the Commission might make, or such provision as they might prescribe in any particular instance.

The CHAIRMAN. There have been some abuses disclosed in the real-estate field, particularly, of making substitution of property that was valueless in place of property that was valuable.

Mr. BRADLEY. Yes; that is indeed true, and it is by no means limited to the real estate people.

The CHAIRMAN. Well, I happen to be familiar with some of those abuses.

Mr. BRADLEY. Yes; that is indeed true.
Senator HUGHES. That is a common evil that has crept in?

Mr. BRADLEY. That is an abuse of the administration of a trust indenture that we, as investors, keep as careful a watch upon as we can; for experience has shown that a careful watch is necessary.

Senator BARKLEY. If we have to assume that there may be some provisions of the bill which may not be workable or which may be poorly workable, nevertheless we never know that until we try them. Šo, from a legislative standpoint, it is better to include them, rather than leave them out; because otherwise you will never know whether they are workable or unworkable, until you try them. I think any responsible commission administering an act of this sort, of course would not desire to retain provisions which, from their own experience, they find out to be unworkable or hard to administer. For that reason there are probably some provisions here which, if we already had had the experience, we would leave out; but since we have not had the experience, we leave them in.

Senator Hughes. From the investor's standpoint, I think you can assume that the Commission will require provisions safeguarding the release of securities.

Mr. BRADLEY. We do so assume; and we are satisfied to have these powers rest in the Commission, recognizing at the same time that it is an exceedingly novel power. In effect, what this subsection does is to give the Commission power to write a contract between the two parties—an exceedingly novel power of regulatory legislation.


Senator BARKLEY. At least it sits in on the writing of the contract and probably has the deciding voice?

Mr. BRADLEY. Yes; because it may prohibit the writing of a contract that is not agreeable to its views. That is highly novel; and I recognize that we do not know into what waters that may carry us.

The CHAIRMAN. In other words, the contract itself may prohibit these possible abuses?

Mr. BRADLEY. Yes, sir.

The CHAIRMAN. And the insistence by the governmental agency might require the incorporation of such a provision in the contract?

Mr. BRADLEY. Yes. I understand the Commission may require the inclusion of such enumerated matters as it sees fit.


Senator BARKLEY. Well, it is novel; but nevertheless, experience in the past seems to indicate the wisdom of exploring the situation.

Mr. BRADLEY. We are very willing to have it explored.
The CHAIRMAN. Thank you.


The CHAIRMAN. Mr. Samuel Untermyer.

Mr. UNTERMYER. Mr. Chairman, I am not here to represent any private interests; I am here in the public interest, and because of the fact that some of the provisions of this bill I have been urging for about 25 years, from the time of the "Pujo committee" and then on. But I am afraid this bill does not quite accomplish what I had in mind, or all that it should. I think it can be made to accomplish one of the factors, by amendment.

May I refer, first, to an address that I made before the law alumni of the University of Southern California, in March 1933, on the subject of bondholders' lists and the requirements of bondholders' lists. I suppose you know that the financial institutions and trust companies have had things all their own way for a great many years. For a great many years no bondholder or bondholders' committee that wanted to communicate with its fellow bondholders has been able to do so; because the trust company says it does not have the list, and of course the company does not have the list. In fact, when we have taken them into court, time and time again they say, "We have no lists; these are bearer bonds and coupon bonds." And the company says, "All we do, periodically, is to turn over the money for the payment of the coupons; we do not know to whom it goes.

The coupons come in from different banks of deposit, where the owners do their business; and they are turned in to the trustee, and the trustee alone."

It is that sort of thing, continued for years, that has made it so difficult for bondholders to protect themselves. I had an illustration of that in the Kreuger & Toll and International Match reorganization, in which I represented a committee of the bondholders. We could not get the lists. But the issuing houses that had gotten the American public in for about 250 million dollars, were able to get the lists for their associate bondholders. So we took that question into court. But the courts do not help us at all, and we never have been able to get any help. It is a crying evil which ought to be corrected and is attempted to be corrected in this bill, but is not corrected, as I shall show you.

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Senator TOWNSEND. You say it is not?
Mr. UNTERMYER. No, it is not; I wish to call your attention to that.

I think perhaps you can better understand this question, which is somewhat involved, if I call your attention to this address Í made in 1933 before the law alumni of the University of Southern California:

If the bondholders of a corporation now get into trouble and the bonds are, as they usually are, what is known as “bearer” bonds, neither the company nor the trustee for the bondholders is required to or keeps a list of holders of bonds that are in default of interest, and there is no way in which they can reach one another for mutual protection. The trustee, through whom interest coupons are paid, either knows or has the meåns of knowing the names and addresses of these bondholders. Sometimes the company knows. They get that information from having paid previous coupons but are not required either to keep records of it or to disclose it, as they should be. If the stock exchange had been under official controlthis was before the bill was passedit would long since have been prevented from listing any issue of bonds without imposing a condition prescribing the machinery whereby the bondholders could reach one another, and that is what will be done when regulation is brought about. Somehow or other, the insiders get the information but the outsiders are helpless. Although the attention of the exchange has frequently been called to the situation, they refuse redress in the interest of the insiders.

The requirement is still more urgent in the case of the holders of the stock of a company that has not been paying dividends, who want to reach one another for mutual protection. The certificates of stock in such companies are carried largely in the names of members of the exchange who hold or held them as collateral. When they part with the certificates, they continue to be registered in their names. Until I recently stopped the practice, these brokers would freely sign proxies without even consulting the owners of the stock, and still more frequently long after they had parted with the possession of the certificates. In that way the voting control of these companies was retained and exercised by banking houses with no interest in the companies to whom the proxies of the brokers were always available. This abuse has now been partly mitigated but only to the limited extent that the brokers are no longer permitted to sign proxies without the consent of their clients or after they have parted with the stock.

But the stock continues to be registered in their names long after they have ceased to have any interest in it or to know who holds it. The result is that the stockholders are unable to reach their coholders to invite them to join, to protect their interests. All efforts to induce the exchange to change this vicious practice have failed, but with the advent of regulation I believe a means will be found of breaking the power of the exchange to help these bankers to control corporations in which they have no interest and to prevent stockholders from getting into communication with one another for the protection of their rights.

When this stock exchange bill was before the Fletcher committee, I collaborated with Senator Fletcher, and went before the committee—I think you were there, Senator Wagner-and advised them of a number of changes, most of which were inserted in the bill. Then Senator Fletcher wrote me, in May 1934:

I think we have all agreed on a number of the items suggested by you and I will be glad to submit this additional data.

I am sending you a copy of the last reprint for the use of the committee, and will thank you to examine it and let me have any further comments you may be willing to make.

Thereupon I made a number of comments, and among them this one-most of which were adopted:

If your committee will amend the bill, as heretofore suggested by me, so as to require the trustee of every mortgage or debenture that is listed or sought to be listed on the exchanges, to keep lists of the names and addresses of security holders to whom the coupons are being paid, and will require the brokers to register the stocks they hold as collateral, in their names or those of their customers, so that the owners can be reached by committees of security holders,

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you will correct a long-standing abuse that has stood in the way of security holders and has served to perpetuate directorates and bondholders' reorganizations in the control of the very men who issued the defaulted securities or are responsible for the misfortunes of the security holders.

The two suggestions in this connection that were advanced by me when I was before you, which I regard as of great importance, upon which no action has been taken and which I beg here to repeat, were as follows:

"I urge that there be included in the bill the necessary machinery to enable holders of bonds and debentures that are listed on the exchange to communicate with one another for mutual protection, and that no such security should be listed or retain its listing that does not provide for such protection. As matters now stand, the trustee for the bonds through which the interest coupons are paid is the only one that has the means of ascertaining the real owners—where they are 'bearer' bonds, as most of them are. The trustee should be required to furnish the company with these lists, from time to time, and the latter in turn should be under the duty of supplying them to bondholders. The result of the present situation is that it is well-nigh impossible for protective committees on defaulted bonds, or other contesting bodies of bondholders to communicate with one another, and their protection against the 'powers that be' in the corporation is impossible. We have recently had many, many object-lessons in this connection, a typical one in which I was concerned for the protective committees, in the cases of Kreuger & Toll and the International Match Co."

Here is the provision relative to that subject; it is on page 33 of the new bill, I believe (reading]:

(f) The indenture to be qualified shall contain provisions which the Commission deems adequate, having due regard to the public interest and the interests of investors, requiring each obligor to furnish or cause to be furnished to the institutional trustee thereunder, at stated intervals, all information.

Now, then, the obligor cannot do it; he has no such information. It is the trustee who has the information; he is the one who pays the coupons; he is the one with whom they are deposited. As for a company, for instance, that makes an issue of bonds, all it does is to pay the semiannual interest into the trust company, and this is a perfectly useless, unworkable provision; because it does not require the performance of the duty by the concern with whom the duty properly rests.

Therefore I have taken the liberty of preparing a proposed amendment to that.

Senator BARKLEY. Mr. Untermyer, right there let me ask you this, if I may: Of course this language does not attempt to require the obligor to furnish a complete list of the bondholders or security holders, but it requires the obligor to furnish to the trustee all the information which it has on that subject.

Mr. UNTERMYER. Which is nil.

Senator BARKLEY. Then it requires the trustee to furnish this information and these lists to the indenture security holders.

Mr. UNTERMYER. Well, he will answer what he answered to me in the Federal courts.

Senator BARKLEY. How is that?

Mr. UNTERMYER. The trustee will answer, as it answered me and the court, in the Federal court: Because we had securities or a committee, did not mean anything, and we could not get any relief.

Here were hundreds of millions of bondholders, scattered all over the world, and nobody could get at that except the trustee and the issuing house with which the trustee was identified. The result was that although there were very grave questions in the reorganization, the committee that we had could not obtain the information as to the names and addresses of the security holders. The committee, by the

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