Senator WILLIAMS. Isn't that what this bill is?

Mr. KOSSACK. Well, sir, there are certain problems attendant upon disclosure at this level.

Senator WILLIAMS. There are always problems attending upon anything. But the principle. Now first we will talk about the principle

and then

Mr. KOSSACK. Mr. Chairman, we are all for the principle of disclosure.

Senator WILLIAMS. Good. We will stop there.

Now you go on with your statement.

Mr. KOSSACK. As a matter of fact, we heartily endorse disclosure of all kinds.

Senator THURMOND. Mr. Chairman, if he has any other remarks to explain his answer, I think he ought to be allowed to.

Senator WILLIAMS. Oh, yes; we will sit here as long as Mr. Kossack

wants to.

Mr. KOSSACK. I think the chairman will give me an opportunity to do that later.

It has been our view that the responsibility for preventing and punishing land frauds should be divided between the States and the Federal Government.

Since real estate transactions have traditionally been regulated by the States in which the property is located we submit that a proper allocation of responsibility would leave to the States the responsibility for requiring full disclosure as outlined in the bill and prosecution in those cases in which the Federal mail fraud statute cannot be utilized. The Federal Government would use existing powers, as for example the mail fraud statute and the Federal Trade Commission Act, to deal with false advertising and fraud on a Federal level.

To sum up, it is our position that existing statutory mechanisms are available to protect the Federal interest in prosecuting and preventing major land frauds. We believe that local enforcement efforts based on existing statutory schemes and where necessary the enactment of legislation utilizing real estate commissions and incorporating full disclosure provisions would be the appropriate remedy.

The Department of Justice recognizes the importance of prompt and effective prosecution of those who perpetrate land frauds, especially insofar as these frauds hurt those least able to protect themselves. It is our opinion that additional penal sanctions are necessary and that the States should assume the responsibility of making known to its citizenry the truth or lack of truth in the representations of land promoters and to continue to use the criminal sanctions available to them.

We are not aware of a present need for disclosure through the Federal Government. However, if the information obtained by this subcommittee makes it clear that a Federal disclosure statute is necessary, we would defer to your decision.

We, being in the criminal field, we are talking now on the basis of our experience, and we are not talking about disclosure as a criminal

weapon.

Senator WILLIAMS. We all live by a basic principle in the U.S. Senate, States rights. And you are just

Senator THURMOND. We ought to do that, you mean?

Senator WILLIAMS. No. We do.

Senator THURMOND. That isn't always the case in Washington.
Senator WILLIAMS. The States first.

Mr. KOSSACK. I am not saying the States first. If I may rephrase that, States rights is a precept and principle.

Senator WILLIAMS. We all live by that.

Mr. KOSSACK. I am talking about consumer frauds, generally, and investor frauds. The history and background of the Securities and Exchange Act, the history and background of consumer fraud has been that there must be a cooperative effort between the States and the Federal Government. There has to be that effort. There has to be a participating equal partnership in this effort.

Where the role of the States and the State people are minimized either by allowing them to retreat or forcing them to retreat from their responsibilities, their sharpness, eagerness, their closeness to their people is lost to us as an effective weapon.

We find, for example, sir, that an active real estate commission, an active State securities commission, given full responsibility, is our most powerful ally in fighting these consumer and investor frauds.

Our experience in the securities field has been that a live, strong, active State securities commission is as important to the security prosecutions and prevention as is the criminal statutes themselves. To repeat, sir, there must be a full partnership between the States and the Federal Government, each taking the responsibility.

Senator WILLIAMS. I don't want to interrupt, but that certainly is written out in this bill of ours, on page 15.

Mr. KOSSACK. Well, we recognize that, sir. We recognize it very well. I raise the point with you again, drawing on my experience in consumer frauds and securities frauds, the millhand in Maine, the dockworker in New Jersey, looking forward to retirement, and he looks to the sunny places in Arizona, and he is going to buy himself a $400 to $500 plot for retirement

Senator WILLIAMS. And he is sure not going to go there to see it before he buys it.

Mr. KOSSACK. That is right. And he has in his little hot hand a brochure. And it is written in as clear language as you possibly can write this sort of thing. Now if he were buying securities he would be more sophisticated, he would have a greater investment realization

Senator WILLIAMS. He might not be more sophisticated, but he would have available to him the information that could make him more sophisticated. Whether he reads it or not, that is his problem. Mr. KOSSACK. That is right. That is a real problem, though, sir. If he is buying securities-and I want to draw another distinction between securities and land-he will go to a broker. He will call up his broker, or if he is very sophisticated he will read Poors and everything else under the sun.

But consider the millworker who is going to retire and invest $400 or $500 in a piece of land at $50 a month. He thinks it looks all right. He has nobody to pick up the phone to call and say, "Mr. Jones, is this all right?" If he has to call the SEC in Washington, or the SEC in Boston, they will say to him, "The information that we

have is in the brochure and in the registration statement, we can't tell you any more than that, that is all we have." But if the States have people on their real estate commission who have all of this information, and they can be reached with at most a $2 long-distance telephone call, wouldn't the obligation to the citizen be accomplished more effectively?

Senator WILLIAMS. How are we going to stimulate the States who have not done this to do it? Should we withhold all Federal funds from those States?

Mr. KOSSACK. No. I don't think so. I really think that the States have moved, though perhaps not with the speed that you and I, Senator, would like. I think that we have had some very responsible and responsive reactions from the State license law officials, some of whom have been frustrated with local problems, it is true, but I am inclined to encourage them to the fullest extent possible. If this committee finds that this is not practicable, then of course the Federal Government will have to step in.

I have a strong feeling, Mr. Chairman, about the need for Mr. Joe Doe citizen to reach somebody other than Washington, D.C., by letter. I have a very strong feeling that he should be able to talk to somebody who is acquainted with real estate matters, who is conversant with these things, who can tell him for example that a water table measurement in the brochure means something more than these words, or that water available means something other than digging a well 1,700 feet for $3,000.

That is the only thing I ask for in the way of disclosure. If there is a better way of doing it, fine. If there isn't, then I say we have to do it.

Senator WILLIAMS. I have never had the opportunity to serve on the battleline at the State level of government. I tried, but I lost.

But Senator Mondale, if he would comment at this point, I would appreciate it. He was on the firing line at the State level.

Mr. KOSSACK. And I worked with him and enjoyed every minute of it.

Senator MONDALE. Yes. It is very good to see you continuing your efforts, as I knew you would, on behalf of protecting the public.

During the years I served as attorney general of the State of Minnesota I saw Mr. Kossack time and time again in meetings at the local level cooperate with us insofar as Federal facilities could be made available. I want to say as one person here I have the highest respect for your judgment and for your public record.

As you know, I served for 4 years as chairman of the National Association of Attorneys General Committee on Consumer Protection. And as you are also aware, we tried to do something in Minnesota about this problem of land frauds.

First, we passed a disclosure measure. Second, we tried, whenever we were given information, to discourage purchase by prospective substandard lot promoters of Minnesota lands to be sold to out-ofState residents. We have had a particularly active securities department. The present commissioner, Mr. Elmer Borgschatz, was formerly national chairman of the National Association of Law Licensing Officials. So both he and I have worked very, very closely with you

and others concerned about this problem on the sale of junk lands in interstate commerce.

But the only difference is that Mr. Borgschatz and I believe that as a result of our experience it will strengthen and help State efforts to have this Federal law. We don't see this as a law which supersedes State efforts. We see it as a law that will work very effectively on a concurrent basis, to permit us to handle problems we can't effectively at the State level, for example, because of the jurisdictional problems. It will fill in the holes that obviously exist by virtue of the fact that the vast majority of States have yet to do something about this problem, anything effctive, that is, despite all of the years of public attention that have been given to it.

How many States have adopted legislation which purports to deal with this problem to date?

Mr. KOSSACK. I don't recall. I think the last count was 17 or 18. I am not sure.

Senator MONDALE. How many of those do you think, without naming the States, deal effectively with the problem, insofar as the State can reach it?

Mr. KOSSACK. You understand that the most vital experience comes out of the situs States as opposed to the investor States. The investor States give you very spotty information.

Senator MONDALE. Yes.

Mr. KOSSACK. There has been relatively good experience in about four or five of the situs States.

Senator MONDALE. So we have a situation in which those of you at the Federal level have been working with this problem, individuals in various State and local offices have been interested in this problem for 10 or 15 years, particularly in the last 8 years, yet at the most only 18 States have done anything about it. And we can be sure that some of those measures are not adequate.

So that is the first problem that we have, when we say well, let's let the States do it. They are not doing it. Secondly, what about the jurisdictional problems that the States have? As I said, we passed a law that we think is as good as we can adopt. But we all know that these sales take place in interstate commerce, by telephone, by literature. And the basic problem is that virtually all of these lands are sold sight unseen.

We also know, as was brought out in the Aging Committee, that the victims are not exclusively the elderly, but the favorite target is a person nearing retirement who is looking for a low cost retirement location for retirement housing. And thus, not only do you lack the implied warranties that you have in the sale of personalty, but you have the added vice that you have a sales pitch going through interstate commerce to persons who are buying this land sight unseen.

As you well know, the States have difficulty reaching, on a jurisdictional basis, these efforts, even if they have a law, because there is a limit to the reach of State jurisdiction. So it is not only the fact that the States in the main have done nothing about it, it is also the fact that if they try, they are hobbled by the limitations of jurisdiction that a State can have in reaching these interstate efforts.

In light of this, do you think it is an adequate answer to those of us who feel this legislation is needed to say that the States are in a position to do it themselves?

Mr. KOSSACK. Well, Senator, first let me say when I say there are about four or five situs States who have had pretty good experience, there are only a handful of actual situs States.

A sunny clime-Minnesota is a beautiful State, but it wouldn't qualify for a sunny clime

Senator MONDALE. We have sun there once in a while.

Mr. KOSSACK. Yes, and it is very pleasant. I would like to retire there, but not for the purpose of getting sunburn. We are talking about a handful of States, California, Nevada, New Mexico, Florida, principally those.

Senator WILLIAMS. Now, you know, I would like to pause here to disagree with you. I have friends that have bought retirement acres in New Hampshire.

Mr. KOSSACK. Yes, sir, there are cases of retirement acres in Portland, Oreg., too.

Senator WILLIAMS. As a matter of fact, Oregon is very important in our considerations here. There is a great deal of land being sold there. This is not only retirement, you know, this is vacation land, too.

Mr. KOSSACK. That is right, but when we talk about the principal block of retirement States, we are talking about those.

Senator WILLIAMS. There isn't a State in the whole Union that doesn't have some attraction for people.

Senator MONDALE. The promotors have been in Minnesota several times to buy up thousands of acres of junk land to be sold as choice northern lake fishing vacation spots.

Senator WILLIAMS. We used to have-I think historically, this is accurate the hope was we would have a chicken for every pot. Then what was the next thing?

Mr. KOSSACK. Two cars in every garage.

Senator WILLIAMS. Yes, Now we are rapidly running on to the economic hope that everybody will have two homes, one for living through most of the year, and one for vacationing or retiring.

Mr. KOSSACK. One the basis of your statement about jurisdiction

Senator WILLIAMS. And there isn't a State in the country-I will never be a national candidate-but, from what I have seen of the country, there isn't a State in the Nation that people can't be happy in, in vacation periods or retirement periods. And I have never been to Hawaii, but I hear it is pretty good.

Mr. KOSSACK. We had a case in Hawaii, incidentally. I don't doubt that a bit, sir, and I think we have sufficient cases to show it has spread to many States. But what I am saying, sir, is that the block of situs States that gave us the initial impetus to get into this are the States in the Southwest and Florida.

Senator WILLIAMS. Well, if you are right-you are right. This was the thrust that got us into this, a few States.

Mr. KOSSACK. That is right.

Senator WILLIAMS. And if the disclosure situation is not as broad as the entire Nation, 50 States, administratively, it makes it a much easier problem, doesn't it?