(2) A legal description of the subdivision, including a map showing the size of the lots to be sold, the topography of the land, the relation of the lots to existing streets and roads. (3) A statement of the condition of the title including encumbrances. (4) A statement of the selling price of the lots and the terms and conditions of sale. (5) A description of the sewage facilities and public utilities in or available to the subdivision, and a statement of the proximity of the subdivision to cities, towns or villages. (6) A description of the consequences to the investor if the developer fails to fulfill the obligations of blanket encumbrance, and what protection the investor would have if that happened. (7) A copy of the articles of incorporation. (8) Copies of the developer's deed to the subdivision. (9) Opinion of counsel as to title, or title insurance. (10) Copies of forms to be used in selling. (11) Copies of instruments creating easements or restrictions or other incumbrance. (12) Such certified or uncertified financial statements as the Commission may by rule or regulation require. (13) Such other information as the SEC may require. *Section 7. Taking effect of registration statement and amendments thereto 7(a) Provides that a registration statement becomes effective thirty days after filing. 7(b) Empowers the SEC, after opportunity for a hearing, to stop registration from becoming effective if it appears incomplete or inaccurate, and to require that the registration statement be amended before becoming effective. 7(c) After the effective date of registration, requires the developer to file an amendment if there is any change in the material facts. The SEC could stop further sales until amendment became effective. 7(d) Empowers the SEC to issue a stop order suspending effectiveness of a registration statement, after opportunity for a hearing, if the statement contains untruthful statements or omissions of fact. 7(e) Gives the SEC the power to make an examination to determine whether a stop order should issue. *Section 8. Information required in prospectus Requires that prospectus contain the same information as registration statement. It prohibits the use of prospectus for promotional purposes until registration becomes effective and then only if used in its entirety. *Section 9. Cooperation with State authorities (a) Requires cooperation of the SEC with state authorities regulating the sale of interests in subdivisions, and allows the SEC to accept a state registration statement, in lieu of the registration statement described in Section 6, if it finds it appropriate in the public interest. (b) States that the Act does not affect the authority of any State real estate commission or agency performing a like function. Sections 10 and 11. Civil liabilities on account of false registration and on account of a false registration statement. (Parallel section 11 and 12 of the 1933 act) These sections give the purchaser the right to sue the developer and his associates if the registration statement contained untrue statements or omissions of fact for damages. The purchaser could also sue anyone who sold lots in unregistered subdivisions or who used false or misleading statements either orally or in a prospectus. *Section 12. Ineligibility of certain persons 12(a) Prohibits any person from acting as a developer or agent if, within ten years, they have been convicted of any felony or misdeameanor or is subject to a stop order or permanent injunction involving the purchase or sale of any interest in land, or of any security or arising out of such person's conduct as a developer or agent or as an underwriter, broker, dealer or investment adviser. (b) Provides for appeal from this ban to the SEC and exemption in certain circumstances. Section 13. Court review of orders Parallels Sec. 9 of the Securities Act of 1933. *Sec. 14. Limitation of actions Limits actions arising under Section 10 to three years after the discovery of an untrue statement or material omission, but in no event more than five years after the offering is closed. Limits action under Section 11(1) to three years after the violation occurs. Limits action under Section 11 (2) to three years after discovery of the untrue statement or material omission, but in no event more than five years after the sale. Section 15. Contrary stipulations void Parallels Sec. 14 of the 1933 Act. Sec. 16. Additional remedies Parallels Sec. 16 of the 1933 Act. Sec. 17. Fraudulent interstate transactions Makes it unlawful for any person to use the mails or the means and instruments of interstate commerce to sell lots in subdivisions by fraudulent devices. to obtain money by misstatements of fact, or to use practices which defraud or deceive the purchaser. *Sec. 18. Investigations, injunctions and prosecution of offenses 18(a) Empowers the SEC to seek an injunction in a District Court enjoining acts or practices in violation of this Act. 18(b) and (c) Provides the power, including subpoena power, to investigate violations of provisions of the Act. Section 19. Hearings by Commission Provides for public hearings by the SEC. Section 20. Unlawful Representations Makes it unlawful to make any representation that registration with SEC means that SEC has passed on the merits of, or approved of, the lots in the subdivision. Section 21. Penalties Violations of the Act can be punishable by imprisonment for not more than five years, or a fine of not more than $5,000. Section 22. Rules, Regulations, and Orders Parallels Sec. 211 of the Investment Advisers Act of 1940. Section 23. Jurisdiction of Offenses and Suits Parallels Section 22 of the 1933 Act. Gives concurrent jurisdiction to State and Federal Courts. GENERAL COUNSEL OF THE DEPARTMENT OF COMMERCE, Washington, D.C. June 23, 1966. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is in further reply to your request for the views of this Department with respect to S. 2672, a bill "To provide full and fair disclosure of the nature of interests in real estate subdivisions sold through the mails and instruments of transportation or communication in interstate commerce, and to prevent frauds in the sale thereof, and for other purposes." The bill would make it unlawful for a real estate developer to use the mails, or the means or instruments of transportation or communication in interstate commerce to sell or offer for sale lots or parcels in subdivisions of improved or unimproved land into five (the number has been changed to 25 in Committee Print appearing at pp. 12112, et seq of Congressional Record of June 9, 1966) or more lots or parcels, unless at that time there is in effect with the Securities and Exchange Commission a registration statement making disclosure of material information relating to the property offered. Required information would include, in additoin to legal description, specific information as to title, encumbrances, topography, proximity to populated areas, accessibility to roads, utilities, sewer, etc. The Commission would be empowered to deny or suspend the effectiveness of a registration statement for incompleteness or inaccuracy in any material respect. In addition, the developer would be required to furnish a prospectus to all prospective purchasers. The Securities and Exchange Commission would be authorized to cooperate with State authorities in the administration of these registration requirements. Criminal penalties are provided for violation of the Act or regulations under it and civil remedies would be provided to persons injured in reliance on false registration statements. Liability would run not only against the developer but also in cetrain circumstances against persons associated with him. Although this Department is in full sympathy with the objectives of S. 2672, to prevent fraudulent sales of real estate, we do not recommend its enactment. Some sellers of land use high pressure tactics and misrepresent their product. Retired persons or those contemplating retirement may often be the victims of these tactics. However, we do not believe this broad proposal is necessary to cope effectively with the small minority of unscrupulous land subdividers. The bill would add considerably to the cost of homesites, and put a considerable burden on the Securities and Exchange Commission to administer such legislation effectively. Registration statements could be expensive to prepare. This cost would have to be added to land prices. The Securities and Exchange Commission could not, without greatly increased staff, adequately inspect these registration statements for accuracy and completeness. Buyers could find it difficult to interpret much of the material called for unde rthe bill. The Department of Justice could best advise on the adequacy of existing Federal and State law for dealing with this problem. We have been advised by the Bureau of the Budget that there would be no objection to the submission of our report from the standpoint of the Administration's program. Sincerely, ROBERT E. GILES, General Counsel. OFFICE OF THE DEPUTY ATTORNEY GENERAL, Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, Washington, D.C. DEAR SENATOR: This is in response to your request for the views of the Department of Justice concerning S. 2672, a bill "To provide full and fair disclosure of the nature of interests in real estate subdivisions sold through the mails and instruments of transportation or communication in interstate commerce, and to prevent frauds in the sale thereof, and for other purposes." The bill, the short title of which is "The Interstate Land Sales Full Disclosure Act," is patterned closely after the Securities Act of 1933, 15 U.S.C. 77a, et seq. It would establish requirements for the filing of detailed registration statements with the Securities and Exchange Commission by certain land subdivision developers, detailing the land, its topography, the availability of sewage facilities, utilities and other information. The legislation would make it a felony to sell such land by means of the mails or instruments of transportation or communication in interstate commerce, unless such a registration statement was in effect and a prospectus furnished to the prospective purchaser. Agents selling the land for a developer would be required to register with the Commission, which could deny or revoke registration for past criminal activity or violations of the provisions of the bill. Provision is also made for injunctive action by 66-628 0-66- -19 the Commission to enforce the bill, for penalizing the use of misrepresentations in interstate land sales, and for civil action by purchasers against developers who employ misrepresentations. The Department of Justice recommends against enactment of this legislation. There is no clear need for new Federal legislation to control land subdivision sales in interstate commerce. In the past few years, a substantial number of convictions have been obtained under 18 U.S.C. 1341. The indictments charged use of the mails by subdivision promoters in furtherance of schemes to defraud purchasers by fraudulent representations as to the nature of land purchased and its suitability for its intended purpose. Similarly, the Federal Trade Commission already has the power, pursuant to 15 U.S.C. 45, after formal complaint and hearing, to issue and enforce cease and desist orders against land promoters utilizing false, deceptive and misleading advertising. Accordingly, additional penal sanctions and further administrative remedies at the Federal level are unnecessary. Real estate transactions traditionally have been regulated by the states in which the property is located. In our view, enactment of local legislation, utilzing existing state real estate commissions and incorporating the full disclosure provisions outlined in the bill, is the appropriate remedy. The Bureau of the Budget has advised that there is no objection to the submission of this report from the standpoint of the Administration's program. Sincerely, RAMSEY CLARK, Deputy Attorney General. SPECIAL COMMITTEE ON AGING FRAUDS AND DECEPTIONS AFFECTING THE ELDERLY INVESTIGATIONS, FINDINGS, AND EXCERPTS FROM A REPORT OF THE SUBCOMMITTEE ON FRAUDS AND MISREPRESENTATIONS AFFECTING THE ELDERLY TO THE SPECIAL COMMITTEE ON AGING UNITED STATES SENATE JANUARY 31, 1965 ᏢᎪᎡᎢ 2 INTERSTATE MAIL ORDER LAND SALES INTRODUCTION Until recent years, comparatively few Americans dreamed of retiring in distant States on land they had never seen. Approximately a decade ago, however, a mail order land sale boom began. Buyers were urged to make small payments-usually $10 down and $10 a month-for sites hundreds and even thousands of miles away. To many individuals near or past retirement age, the bright advertising brochures seemed to offer solid reason to believe that security, good climate, and a new way of life could be found on faraway sites in communities not yet built. 281 |