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Mr. COHEN. As I have indicated earlier, our expertise in the area of unimproved real estate is not on the same level as it is with securities and I therefore approach this answer with some little trepidation, but it would seem to me the principles should be the same.

Senator MONDALE. I suggested to one of their witnesses that the possibility that we confer upon the Commission additional powers to make fair comment.

Mr. COHEN. We would respectfully decline.

Senator MONDALE. He would be delighted to hear that. Let me underscore the problem that concerns me. Yesterday we had testimony about a Golden Palms promotion in south central Florida. One of its problems which the salesmen inadvertently neglected to mention was that it was a flood compound for the State which it could use by legal authority to hold back and reserve some water. Suppose Golden Palms now applied, once this law was adopted, to the Commission and submitted a prospectus for your approval which said on the ninth page, .19 subparagraph 3, “Subject to easement of the State for flood purposes," would you approve it in that fashion? How do you highlight a point that would kill, obviously kill, the sale so that the consumer would see it and could protect himself?

Mr. Cohen. The primary job the Commission has is to see that relevent, material information is presented in legible and understandable form. Indeed, we have had situations where all of the information required has been in the document, but it has been put together in such a way that no one could figure out what it was all about. The Commission has initiated stop-order proceedings in such cases and has issued opinions indicating that such a procedure does not comply with the principles of the Securities Act. I would take it that principle would apply here.

Now, more specifically: the Commission has been faced with special problems of this character and we have a fair number of registration forms designed to deal with specific types of offers. And at least one of them, which is concerned with smaller offerings, more speculative types of offerings, requires that at the very beginning of the prospectus, in a summary way, the highlights of the offering be spelled out in a way that even I can understand it.

Senator MONDALE. That is exactly what I would seek to achieve and would it be your opinion that under this proposal you would be authorized to do that?

Mr. COHEN. Indeed, we would.

Senator MONDALE. So that in Golden Palms, for example, where you have an obviously outrageous proposition, that the casual reader of the prospectus could protect himself.

Mr. COHEN. I think so, Senator.
Senator MONDALE. I am glad to hear that.

Senator WILLIAMS. In that Golden Palm Acres case or they did state in their advertising that the land purchase is subject to "an easement to the central and south Florida Flood Control District dated as recorded." Well, we mentioned yesterday that an unsophisticated person could construe that as an advantage to him. What it means is that they could take his land away. Is this what you are developing, Senator Mondale ?

Senator MONDALE. That is correct. I was pleased by the comment of the chairman

Mr. COHEN. We try to get the prospectus written in basic English. It is a tough job and probably one that will never be fully realized but we are trying

Senator WILLIAMS. This area that we have under discussion through this legislation is potentially far less complex than a new issue of securities of a giant industrial combine. We are just talking about raw land and what we are trying to do is get a description of what the land is, what is available for an individual's personal development of his lot, because we exclude land that is being developed by the owner before sale. Isn't it really a far less complex situation?

Mr. COHEN. I think you are absolutely correct. I think I would only add that there are situations that have come to my attention, and I used to be a real estate lawyer before I fell afoul of the securities acts, where an explanation of conflicting interests, easements and remainder interests, and other similar things made the situation somewhat more complex than the very simplest type of disclosure would permit.

Senator WILLIAMS. Now this easement we are talking about down here in the flood control district, this can be couched in à euphemistic phrase that hides the facts, but the fact of the matter is the easement exists in the flood control district which says that they can flood the acres if it is necessary for water problems in that area.

Mr. COHEN. That type of disclosure would obviously be required and I suspect that Senator Mondale's suggestion would be very discouraging for sales purposes.

Senator MONDALE. As a matter of fact, I think full disclosure in layman's language in such a fashion that the prospective purchaser is apt to see it, would kill the whole program, the whole promotion.

Mr. COHEN. It might well do that. I think that is basic to the disclosure scheme of the Federal securities laws: that deals which cannot stand the light of day probably will not occur as often when the light is focused on the deal.

Senator WILLIAMS. That is eloquently simple and that is exactly what I think we are trying to do.

I don't have anything further except to thank you for all of the consideration you have given to this bill. I can see that you gentlemen have put untold hours in on this bill before you came in. I suggested that we might have a landmark bit of legislation on our hands here, and, if it is to be, you have certainly given it all of the attention I think it deserves.

Mr. COHEN. Thank you very much. Senator WILLIAMS. We will recess momentarily. The chairman of the Banking and Currency Committee wants to introduce our next witness.


Senator WILLIAMS. We are honored to have Mr. Herndon F. Jeffreys, from Richmond, Va., speaking for the American Realty Service Corp., and as I indicated earlier, Senator Robertson, your senior Senator, wanted to be honored to introduce you to the committee.

Senator ROBERTSON (chairman of the full committee). If you will come up, Mr. Jeffreys.

Mr. Chairman and members of the subcommittee, we have before us an outstanding young lawyer from Virginia who has never appeared before and never testified before any congressional committee. This is his first appearance.

He represents some clients who are in the real estate business and he will present their views, but I want to say that I had the privilege of serving in the State senate with his uncle. He was a very fine man and over and above that, his first cousin, who was the son of that uncle, gave me the best bird dog I ever had. I have had a lot of them, and I have hunted with a lot of them. That is the first dog I ever had and the best dog I ever hunted with, and I think I have hunted over the best in Virginia and a good many other States.

And so, for a number of reasons, I am very happy to say that I welcome before this committee for his initial appearance before a congressional committee, because with all due deference, I think it is a pretty good committee and I am glad to see that he is being initiated here.

I can tell you that Mr. Jeffreys comes of a very fine southside family which I have known for 50 years and he, as I say, is a graduate of Jefferson's School, and he took his law degree from a school where I graduated. Of course when he went there they taught him more than I learned there. I learned what I did by the very hard way of learning it after I got out of school. But Mr. Jeffreys is doing a fine job for his clients in Richmond and I recommend whatever he may say to you for your sympathetic consideration.

Senator WILLIAMS. Well, Mr. Chairman, first of all, I certainly agree with you that this is a great committee. Some of us have had opportunities to go to other committees and one of the reasons I haven't wanted to leave this committee is because you are the chairman. But we are talking about full disclosure. Was the bird dog a pointer or a setter?

Senator ROBERTSON. He was a pointer and he was the only dog I have ever had that never disclosed the bird in the wrong direction, whichever way he was pointing that is where the bird was. [Laughter.]

Mr. JEFFREYS. Thank you, Senator.

Senator WILLIAMS. I don't know how anybody could be more completely and eloquently introduced and in such a warm and friendly fashion than you have, Mr. Jeffreys, and we will be delighted to hear you on your maiden voyage before a committee of the Congress.



Mr. Chairman and distinguished Senators, Senator Robertson just said this is my first appearance before a committee of this kind and I go ahead with some trepidation, but I will do my best to be brief in expressing my views.

As Senator Robertson said, I practice law in Richmond, Va., but I have been for a number of years general counsel for the American Realty Service Corp.

Now American Realty Service Corp. is considered to be one of the leading resort developers in the United States. I have watched the progress of that company. The company was originally formed as a Massachusetts corporation right after World War II and then went into Virginia, among other States, and there they secured my services as counsel and I have been their general counsel since that time.

Since their beginning, and becoming a large organization, they have had almost 40 subdivision developments, resort subdivisions, throughout the United States in a number of States. They are at present very active in Ohio, Pennsylvania, and Indiana, and plans are being made to go into Michigan and possibly

New Jersey. Now

my client, I feel, is one of the group of-I would refer to them as good men who are being brought into the web and the problems of this bill. I think it is the intention of the committee trying to get rid of the so-called few bad men in this industry which we are certainly in favor of as well as you are, but in doing so, you are bringingand I will try to point out very briefly-you are bringing people like my clients right into a lot of problems.

Now in the beginning, American Realty is what I would term as an owner-developer. For instance, we go in, we by no means are a promotor who doesn't own land; we go in in the very first, and we make a lot of study on the feasibility of where this resort development should be. We have an office

Senator WILLIAMS. What kind of development! Mr. JEFFREYS. Of where the resort development should be situated. Usually a spot is picked that is close to a metropolitan area, such as one in Virginia, one was placed in Louisa County, with the idea that it would be close to Washington, D.C., possibly Baltimore, and Charlottesville, Va.

Now that site is selected with great care. They even have a computer in the Memphis office that is used. We have an airplane that is not used, as was pointed out here yesterday, for taking people on tours, but it is used for the personnel of American Realty to go and find good sites from the air.

Now after that is done, then they have to go down and assemble property—usually a number of people on this property—and they do it by an option method. Then they arrange with their financing to go in and purchase this property.

Now at this point, they haven't begun the sale of any lots and they have invested a lot of money in investigating. Then they go in and the procedure is to dam up a stream, and create a lake, in other words, there isn't any lake in this property to begin with, they just get raw land, so they dam up a stream and create a lake. Then they bring in the bulldozer equipment and various things and carve out this development.

At that point, they have a lot of expense. They are putting in roads and the lake and the dam, and permits have to be secured from the State because, for instance, in Virginia, before we could construct the dam and impound a stream, we had to secure certain permissions.

Now there is another feature here. American Realty goes into these different States and sets up separate corporations. For instance, in the State of Virginia, two separate corporations were set up. These separate corporations operate in purchasing the land and operating the development. American Realty is more or less a holding company that has its majority or control of stock, in most cases all of the stock, of this corporation. So, therefore, local people are brought in. Local lawyers are employed. I usually have that job of finding lawyers in these States and I usually try-and a good many of you gentlemen are lawyers- I try to go into Martindale and check with reliable people in these States and get the highest type of lawyers we can find. Then the local people are employed.

They go to focal banks. For instance, American Realty has a national line of credit with a bank like First National Bank of Boston, but the business is carried on with these local banks.

Now here is a safeguard that I haven't heard mentioned.

In the case of American Realty, which would come under this bill, they have to go into the bank and furnish a good bit of information and the people who are buying these lots usually do a lot of financing themselves. Now in American Realty case, I would like to point out that the average development is approximately now around 1,200 lots, sometimes 1,400. These lots vary in price from, I would say, $2,000 up to possibly 10. These are not cheap pieces of property.

The idea is that the man who goes in and buys a piece of property in this category has got to make a substantial deposit and, therefore, he naturally is going to have to go through the bank, and the bank is going to check him, check the corporation, and everything else to see what kind of a plan they are giving this man.

After the development has been completed, so to speak, by these men who go from development to development—they are men who are experienced, expert, who have worked in these other developments-after it is completed then they begin the program of advertising

Now, of course, we go across State lines at this point because we have got to advertise in newspapers, say, in adjoining States. We go through radio and television, but the idea is we don't do a mailorder business. We are in the business of trying to get people out there to this resort development to inspect the property, to see what he has and look at his lot, and then make a sale. In other words, all of these sales are carried on by my client, who would come within the subject of this bill, are made after inspection has been made.

Now that is a difference here that we have in this case, and I think possibly some other people are in this business who are in the same situation. I do not speak for other people, I am only speaking for American Realty as an example.

After the man has gotten out there and made his inspection, of course, the idea is naturally to sell him. That is what they are in business for.

Now we feel that, No. 1, that there would be a problem here that one of the paragraphs of this bill would provide for this 48-hour cooling off period after the man gets a prospectus. In the beginning it is going to be extremely difficult and going to delay my client. I have gone into this in great length about the filing of the SEC prospectus, it is going to delay and slow down and hamper him to go through the SEC. Now in all due respects to the gentlemen of the SEC, I am a little bit familiar with SEC procedure myself and I know how slow it is and I



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