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would like to quote just one paragraph from that 'testimony. Mr. Caro said:

I submit to you that the bigger problem in terms of its total implications, is what is going to happen to the tens of thousands of elderly couples who do move from the cities and suburbs of the North to partially developed "retirement cities” in undeveloped counties in Florida and the Southwest. Without industries to provide them jobs to eke out their social security and pension checks, without adequate municipal services, hospitals, or adequate funds for welfare, what is to become of them?

Now apparently the impact of this problem has already been felt in the West. As Mr. Wenig, of California, said in 1964:

Our Western States are beginning to realize the inadvisability of allowing their range and desert lands to be cut up into small parcels and offered as homesites without requiring the land developers to install water, sewage, adequate roads, drainage, fire protection, and utilities. They realize that in permitting the sale of undeveloped, remote subdivisions they are borrowing trouble for their health and welfare agencies, for their taxing authorities, and raising obstacles for the sound growth of their cities and counties.

Florida's Installment Land Sales Act requires sellers to make "full and fair disclosure" of all pertinent facts about the property being offered. The policy statement of the Florida Installment Land Sales Board declares that every effort shall be made to promote the highest ethical standards in the Florida land development industry; to make available to prospective purchasers full and fair disclosure concerning Florida subdivisions; and to relentlessly pursue, expose and prosecute those who violate the law.

The board's rules and regulations assert that property reports shall containany further information which is essential to a full and fair disclosure of the basic nature of the land being offered and the representations or implications made by the subdivider.

It seems to me that full and fair disclosure—especially under that definition—should include facts that would indicate the true value of a piece of property.

If a promoter is permitted to say that "land values in Florida are rocketing up” or that the land offers a “profit potential,” or that it is in the “path of progress,” then that promoter should be compelled to submit evidence that the land in fact is a worthwhile investmentevidence such as value increases in the past, values of comparable land nearby, and prospects for future demand for the land.

Securities dealers are required to do this. Why not land dealers?

And if a piece of land is priced far above what it is worth, or would require extensive improvements in order to be used, or shows no promise of marketability in the foreseeable future, I would think the State should refuse to allow it to be represented as an investment opportunity.

Forcing the swamp merchants to admit that they are selling swampland doesn't seem to have seriously deterred them. “Sure," they say, “the land is under water. That's why we can sell it so cheaply. But remember, Miami Beach was once a swamp.” And so it was. But what the fast-talking salesman doesn't tell you is that Miami Beach, with its miles and miles of waterfront, has one of the finest locations anywhere and that $20 million was spent on drainage before the first lot was sold.

But the question remains: Would Federal regulation eliminate these problems? What assurance do we have that the Federal Government would do any better than State governments?

I'm in favor of Federal regulation for several reasons. First, the problem is interstate in nature. It involves the mails, long-distance telephone communications, and contracts that are made across State lines.

Second, the industry is growing very fast. If State regulation is not adequate now, it is likely to be less adeqaute in the future.

Third, the Securities and Exchange Commission has a larger staff and more facilities than State agencies. The Florida Installment Land Sales Board has a staff of 11, including a bookkeeper and janitor.

a Fourth, I would be hopeful that the SEC would, through the discretionary powers granted in the bill, apply the "fair, just and equitable” test to land sales; or, if this should prove impractical, devise some other means of indicating the true value of property offered for sale. Several States, notably California, do this. Under California law, the California real estate commisisoner not only investigates outof-State land developments and issues public reports on them; he also determines—through actual State appraisals—that the offering price is fair, just, and equitable. Authorities in the State have learned from long experience that so-called full disclosure is not enough. Said Mr. Wenig in 1964:

A mere disclosure law providing for a public report does not sufficiently protect the buyer against fraud and inequities. In our experience there is no assurance that the buyer in the first place gets the report or, if he gets it, that it can even offset the blandishments of the four-color brochures and the statements of the zealous salesmen.

The fair, just, and equitable law was enacted by the California Legislature in 1963. Mr. Milton G. Gordon, the real estate commissioner, reports that, as a result, "the number of subdivision filings has decreased and the quality of filings has increased.” California also requires subdividers to make adequate financial arrangements for any promised improvements, and this Mr. Gordon said, provides even more protection for the investor.

My fifth reason for favoring Federal control springs from a belief that the SEC would be better equipped to monitor the endless stream of long-distance telephone sales pitches that flows from Florida boilerrooms day and night. Florida authorities admit they have little control over this costly but devastating method of selling. Just knowing that the SEC might be listening in would, I should think, impel a salesman to stick reasonably close to the truth.

A couple of years ago I answered an ad for some acreage in that area which Mr. Nelson, the newsletter publisher, described as being 90-percent unfit for development.

In the weeks that followed I received a total of six long-distance calls from a character who used every trick in the book to get me to buy a couple of acres in what I later learned was Big Cypress Swamp. Most of what he said was pure fiction. (The article appears on

Land companies pay $2.250 a month for a single WATS line covering the whole United States, so the technique obviously produces results. I can't tell you how many companies use it, but the number appears to be substantial. One large firm uses an entire floor of its

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p. 311.)

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handsome building in Miami for telephone sales booths. Tight security is constantly maintained there: visitors aren't allowed on the floor.

Finally, I believe the SEC would be more likely to impose and enforce stricter standards in regulating this industry that the State agencies. State agencies are apt to be much more vulnerable to pressures from real estate lobbies.

In Florida, the Installment Land Sales Board is controlled by land developers, who constitute a 3 to 2 majority. One of the developer members is the chief executive officer of a company which, according to published reports, has generated more customer complaints than any firm in the State and which has occupied a major share of the board's attention.

Earlier this year, the board decided that the property report then in use was inadequate, and failed to give full disclosure, because it did not inform acreage buyers how much it would cost to drain, fill, and survey their property.

So the board issued a formal order amending the report to include this information. And it put out a news release serving notice that all installment land dealers under its jurisdiction would be required to supply that information starting April 1.

There followed a storm of protest from the installment land industry. Result: The order was withdrawn.

Now, I do not wish to imply that the members of this board are not honorable men. I have the highest regard for Elliott Mackle, the chairman, and for Carl Bertoch, the executive director. The other members I do not know personally, but I am sure they want to do what is right. The trouble is that the members who are land developers must serve two masters whose interest frequently conflict—their companies and the public. What is good for their companies may not be good for the public, and vice versa.

What this amounts to, as I see it, is self-regulation of the industry, and as the findings of the Subcommittee on Frauds and Misrepresentations Affecting the Elderly have shown, self-regulation has been far from a resounding success.

I firmly believe that the installment land industry, in Florida and elsewhere, has a tremendous potential for good, but it is an industry in which a few unscrupulous operators can cause—and have causedgreat harm to a great number of people. It is now in a stage of development where, I believe, Federal control would benefit not only the public, but the legitimate members of the industry itself.

Left unchecked, it can cause heartache and financial loss for many people, it can despoil or destroy precious natural resources; it can create massive, perhaps even dangerous problems for government.

Other industries have had serious difficulties with fringe operators. The securities industry, the food industry, the drug industry, all had their share of charlatans and con artists in their early days. Today they are under Federal control, and everybody is better off for it.

The same would be true, I believe of the installment land industry.

Thank you.

(Subsequent to the hearing the chairman addressed the following questions to Mr. Paulson :)

1. As we indicated at the hearing, your story on long distance telephone selling techniques has been admitted to our hearing record. (Articles submitted by Mr. Paulson appear on p. 311.) The story seems to make it crystal clear that a full disclosure statement would be of considerable assistance to those who receive such calls. Do you agree with that observation?

2. May we have a copy of the article, mentioned in your testimony, by Mr. M. P. Nelson in the August 1965 edition of Florida Real Estate Trends and Exchange Mart.

3. Your statement said that 2,500 investors were left "holding the bag" when Rocket City encountered difficulties.

Mr. Jon Moyle, Counsel for the Florida Installment Land Sales Board, said the following day that your statement was not correct. He added : "I am personally confident that the vast majority of those contract purchasers will get the property that they contracted to buy, and that if not all, a least a substantial portion of the improvements promised will be put in

He then described the efforts of the Board to establish some form of management for the company.

We would appreciate your comments on Mr. Moyle's statement.

4. Can you give us additional details on Mr. Colding's estimate that 7.5 million persons could live on the 285-square-mile site you described?

5. You said in the final paragraphs of your statement that you see a “tremendous potential for good" in the installment land industry. Would you, as business editor for a major Florida newspaper, give us some additional comments on the potential importance and usefulness of the industry? (Mr. Paulson's response to the questions plus addendums follow :)

THE NEWS-JOURNAL.

Daytona Beach, Fla., July 7, 1966. Senator HARRISON A. WILLIAMS, Jr., Committee on Banking and Currency, New Senate Office Building, Washington, D.C.

DEAR SENATOR WILLIAMS: The answers to your questions are enclosed, along with the other material you requested. In addition, I am sending you a recent clipping from the Wall Street Journal about dinner parties held by certain land companies, and an item from the News-Journal telling what one of these parties was like. Next to the boiler room, the dinner party seems to be the leading sales approach in use today.

*

Sincerely,

MORTON C. PAULSON,

Business Editor. Answer to question No. 1

Yes, I definitely agree that a full disclosure statement would greatly assist recipients of long-distance calls from land salesmen-provided, of course, that the statement is complete and accurate, and that measures are taken to make reasonably certain that every prospect receives a copy.

Let me re-emphasize a point made in my original statement: That much of the misrepresentation taking place in Florida today concerns the value or future value of land, rather than its physical features or other characteristics. Therefore I feel very strongly that in cases where land is offered for sale as a speculative investment, with the implication that it will sufficiently increase in value to yield the buyer a profit, the statement should include adequate supporting evidence, such as information on value changes in the past, specific reasons for believeing that the particular property offered will appreciate in the future, comparisons with values of equivalent land nearby, and statements on how the land could be marketed. If promoters knew they had to furnish this information, the crooked ones would probably get out of the land business.

Not far from Daytona Beach is a large mail-order promotion in which undeveloped acreage is being sold for $876 an acre. The advertising material, approved by the state, strongly suggests that the land has tremendous "profit potential." Yet alongside of this property is a tract of better land which for several months has been widely advertised for sale on the regular-real estate market for $250 an acre. So far there have been no takers.

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This is just one of many cases in which vastly overpriced Florida land is being represented—with the knowledge and consent of the state

as a worthwhile investment opportunity for people of modest means. This is not, in my opinion, full disclosure. Some people in Florida regard it as the aiding and abetting of a fraud. Answer to question No. 2

A copy of the August 1965 article by M. P. Nelson is enclosed (see p. 321), together with a letter from Mr. Nelson which gives some authoritative information on Florida land values. Answer to question No.3

If the term "holding the bag” implies that the investors have irrevocably lost everything, I suggest that that part of the sentence be changed to read : "* * leaving the investments of 2,500 persons in serious jeopardy * * *."

The original statement mentioned the fact that the Installment Land Sales Board is attempting to salvage this project. But even if the investors do eventually receive titles, and even if certain improvements are made, the fact remains that the developers were allowed to make promises which were not, and may never be, fulfilled. The people who bought land were told-in promotional material approved by the State of Florida—that "an entire modern city" was under construction; that “$1 million worth of heavy duty land-improving equipment is pressing forward on a planned program of contiguous and continuous develop ment that schedules completion of the entire project within eight years at a cost well in excess of $13 million exclusive of the cost of utilities."

The developers were permitted to make such statements as this (see enclosed booklet): "In all the history of real estate, we are firmly convinced that there has never been an investment opportunity that has come so close to offering an outright guarantee of profit." Rocket City, they trumpeted, “will be the home, the playground, the comfortable way of life for thousands of Florida's new residents and old—a much-needed city of tropical luxury, complete with three golf courses, a marina, restaurants, churches, schools, parks and waterways all the necessities and luxuries of gracious tropical living—a modern city beautiful, complete with central water and sewage facilities, curbs, gutters, storm sewers and underground electric power-in an area where such land is rapidly becoming the rarest of commodities !"

Obviously, these shrill promises were not backed up by adequate safeguards.

It seems only right and fair that if promoters are authorized to make such statements as these, they should be required to post bonds or maintain sufficient escrow accounts to guarantee that the promises will be carried out. In the sense that the promises have NOT been kept, and that there is no assurance that they ever will be, the investors have indeed been left holding the bag.

As for the statement by Jon Moyle, which was quoted in your letter, let me say this: If the State of Florida is willing to settle for seeing that only a "vast majority” of land purchasers "get the property that they contracted to buy," and that only a “substantial portion of the improvements promised will be put in,” then it seems clear that the regulations imposed by the board which Mr. Moyle serves as legal counsel are less than adequate. Mr. Moyle seems to have unintentionally bolstered the case for federal control.

(For a detailed account of the current status of Rocket City, you may want to look over a three-part series published by the Orlando Sentinel May 29 through 31, 1966. The Sentinel, incidentally, says that 2,700 investors are involved, whereas the Installment Land Sales Board places the number at 2,500 (articles appear on p. 328.) Answer to question No. 4

The statement that 285 square miles could accommodate 7.5 million people is in error, and I am grateful for the opportunity to correct the record. A square mile generally can be subdivided into about 512 acre-and-a-quarter tracts, which can be re-subdivided into four homesites per tract. The 285 square miles, then, could provide 145,920 tracts, or 583,860 homesites. With three people per home, approximately 1,751,040 people could inhabit the 285 square miles.

I have not yet been able to contact Sam Colding for an explanation of the 7.5 million figure, on which he was widely quoted. It is possible he was misquoted, or that he referred to the total amount of mail-order acreage in Collier County that is convertible to homesites. As soon as he is available to clarify this I will

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