more experience with a broad spectrum of false advertising and consumer frauds. Consequently, if the bill were merely designed to prevent frauds in the sale of land, it could appropriately be administered by any one of these other agencies." The experience of the Bureau of Land Management of this Department relates to problems resulting from activities of promoters who purport to sell various types of "services" to the public. These "services" are primarily oriented toward providing certain technical information in connection with the filing of applications under such public land laws as the Small Tract Act, the Desert Land Act, and the Homestead Act. Some promoter activities relate to the filing and maintenance of mining claims under the provisions of the general mining laws or to the acquisition of oil and gas leases. Very few of these locator-type individuals purport to "sell" public lands; rather they claim to be offering a service although some of their advertising tends to be misleading in this respect. Our experience in the field of control of fraudulent interstate public land sales is somewhat limited. We have had no meaningful experience with the problems that give rise to the consideration of S. 2672. Our greatest successes have resulted from public information programs and the cooperation of State and Federal law enforcement agencies. Sincerely yours, CHARLES F. LUCE, Acting Secretary of the Interior. JUNE 24, 1966. Hon. PAUL RAND DIXON, Chairman, Federal Trade Commission, DEAR MR. CHAIRMAN: During the June 22, 1966, testimony of Chairman Manuel F. Cohen, of the Securities and Exchange Commission, on S. 2672 before the Senate Banking and Currency Subcommittee on Securities, it was noted by Mr. Cohen that several agencies or departments of the Federal Government might have far more experience in the matter of preventing fraudulent interstate land sales, a practice which is attacked by the bill. Included in Mr. Cohen's suggested enforcement authorities was the Federal Trade Commission. He mentioned the Federal Trade Commission's experience with false advertising and consumer frauds. We would appreciate at your earliest convenience comment on Mr. Cohen's suggestion and also an explanation of what changes would be necessary in the existing Federal Trade Commission statutes to effectively control the fraudulent sale of land through interstate operations. Sincerely yours, STROM THURMOND, BOURKE B. HICKENLOOPER. FEDERAL TRADE COMMISSION, Hon. STROM THURMOND, Hon. WALLACE F. BENNETT, Hon. BOURKE B. HICKEN LOOPER, Committee on Banking and Currency, U.S. Senate, Washington, D.C. DEAR SENATORS: This is in reply to your letter of June 24, 1966, calling our attention to the testimony of Chairman Manuel F. Cohen of the Securities and Exchange Commission before your Committee on S. 2672, a bill designed to prevent fraudulent practices in connection with the interstate promotion and sale of real estate. I noted that your inquiry was prompted by Chairman Cohen's observation that the Federal Trade Commission is one of several Federal agencies which has had experience in similar or related fields. Upon receiving your communication, I asked the staff to study the matter and to supply me with examples of Federal Trade Commission proceedings in such cases. The Federal Trade Commission has power under Section 5 of the Federal Trade Commission Act to prevent the continued use of false and misleading representations in the promotion of sales of real estate in interstate commerce. For example, in Arizona Valley Development Company, Inc., et al., Docket No. C-839, the respondents were directed, under our consent order procedure, to discontinue a number of misrepresentations. Copies of the complaint and order in this matter are enclosed for your consideration. The requirement that the sales be promoted in commerce was met by the recital in the complaint that the respondents had transmitted letters, checks, deeds, and other commercial papers from Arizona and Illinois to purchasers and prospective purchasers in other states and that they had distributed various types of advertising material through the United States mails. Two substantially similar cases, Great Southwestern Land Company, Inc., Docket No. 8562, and Harney County Land Development Corporation, et. al., Docket No. 8568, are currently on the Commission's suspense docket. Our action in these cases was suspended in 1963 on advice from the Post Office Department that the parties were involved in criminal proceedings charging them with alleged mail fraud. We are informed that convictions were obtained in each case but that the appeals of the parties are still pending. Recent letters of complaint alleging questionable practices in promoting sales of real estate in interstate commerce have been referred to the Post Office Department upon receipt of information through liaison channels that the activities complained of were receiving attention by that Department under the postal fraud statutes. The Commission's jurisdiction to proceed in such cases under Section 5 of the Federal Trade Commission Act is limited by the requirement that the acts and practices employed must be "unfair or deceptive." It is probable that some of the practices which should be regulated may not fall within the definition of "unfair or deceptive acts or practices" as traditionally defined by the Supreme Court, the Courts of Appeals, and the Commission. Moreover, the Commission's ability to proceed against such developers is restricted by the fact that it must allocate its resources among all of the statutes for which it is responsible. As a result, it could reasonably be expected to prosecute only those developers engaged in the more flagrant practices, leaving some completely unregulated. In addition, a Commission cease-and-desist order applies prospectively only, rather than retroactively, and does not constitute an adequate remedy for a purchaser already defrauded. A registration requirement for all developers engaged in the interstate sale of real estate coupled with the right of private action against such developers by defrauded individuals would remove the above limitations and would greatly supplement the existing remedies. Such a right of private action would parallel the similar right to institute private treble damage actions for antitrust violations under Section 4 of the Clayton Act. I trust that these comments will be helpful to you. Your interest in requesting them is appreciated. With kindest regards, I am, PAUL RAND DIXON, Chairman. JUNE 24, 1966. Hon. ROBERT C. WEAVER, Secretary, Department of Housing and Urban Development, DEAR MR. SECRETARY: During the June 22, 1966, testimony of Chairman Manuel F. Cohen of the Securities and Exchange Commission, on S. 2672 before the Senate Banking and Currency Subcommittee on Securities, it was noted by Mr. Cohen that several agencies or departments of the Federal Government might have far more experience in the matter of preventing fraudulent interstate land sales, a practice which is attacked by the bill. Included in Mr. Cohen's suggested enforcement authorities was the Housing and Home Finance Agency in the Department of Housing and Urban Development. He mentioned the Agency's experience with real estate problems. We would appreciate at your earliest convenience comment on Mr. Cohen's suggestion and also an explanation of what changes would be necessary in the existing Department statutes to effectively control the fraudulent sale of land through interstate operations. Sincerely yours, STROM THURMOND, THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT, Hon. WALLACE F. BENNETT, DEAR SENATOR BENNETT: This is in further reply to your request for the comments of this Department with regard to testimony by the Chairman of the Securities and Exchange Commission on S. 2672. The bill provides for full disclosure of interstate land sales and is intended to prevent frauds in connection with such sales. The bill would make it unlawful for any real estate developer or agent to use the mails or interstate commerce to sell or lease, or offer to sell or lease, interests in any subdivision unless a registration statement is first filed with the Securities and Exchange Commission. Such developers would also be required to disclose certain information to investors regarding their operations and the land being sold. The Commission would be authorized to issue orders denying or revoking registrations and to seek permanent or temporary injunctions or restraining orders to prevent violations. When he testified on the bill before the Subcommittee on Securities, the Chairman of the Commission noted that this Department, among other Federal Departments and agencies, has had more experience than has the Commission in matters relating to real estate problems, particularly in the evaluation of lands and subdivisions. You requested our views with respect to his comments and asked what legislative provisions might be necessary in order that this Department might aid in preventing fraudulent land sales through interstate commerce. Should the Congress, as a result of its investigations, find a need exists for registration and disclosure in interstate land sales, we feel the bill would provide adequate protection, particularly for small investors who buy land parcels with parts of their savings. Investors in small parcels usually do not have the means to ascertain all the pertinent facts relating to such real estate investments. In our view, the Securities and Exchange Commission is best equipped to receive and record the registration statements required under the bill since the Commission already performs a similar role regarding administration and enforcement of registration and disclosure requirements relating to the sale of corporate stocks and other securities. This Department, nevertheless, is equipped to assist the Commission in resolving any questions that may arise with regard to the land transfer and development data to be submitted by developers upon registration, as conceived by the bill, and could also provide the Commission consultative services with respect to the examination of registration statements prior to their approval by the Commission or the reexamination of any land development company's operations in any case in which the Commission might contemplate revocation proceedings. Accordingly, this Department would have no objection to an amendment to S. 2672 authorizing the Securities and Exchange Commission to consult with the Secretary of the Department of Housing and Urban Development in carrying out the purposes of the Act. A further amendment should also be made authorizing the Commission to reimburse the Department for any consultative services that are provided. Sincerely yours, ROBERT C. WEAVER. APPENDIX 4.-EXHIBITS SUBMITTED BY WITNESSES ITEM 1-MORTON C. PAULSON EXHIBITS [From the Daytona Beach (Fla.) Sunday News-Journal, May 1, 1966] MAIL ORDER LOT SALES EVOKE GROWING CONCERN (By Don North) TAMPA (AP).—Land with price tags totaling $1 billion is for sale in Florida today, most of it on the installment plan for ten cents on the dollar down, ten years to pay. The state is in the midst of its second boom of the century. Florida residential lots are selling in West Germany, and developers are tossing cocktail parties in New York, Detroit and Chicago to push sales. There is growing concern in Florida about how all this will end, and nowhere is the concern greater than with the state's infant Installment Land Sales Board. Created by the Legislature barely three years ago, the board is assigned to control this billion dollar selling game with a budget of $117,000 a year and a staff of 11, including bookkeeper and janitor. In setting up the law, the Legislature cited the tremendous impact on the state's economy of installment land sales and said regulation of the manner of conducting such business was essential to the public interest. The trouble is, however, that the law contains a loophole that enables many developers to skirt it. So the sales marathon continues largely unchecked. Florida's first land boom evaporated in the mid 1920s, leaving behind miles of unnamed streets in hundreds of ghost subdivisions where houses were never built. Many of these properties are jungles today, but in the new boom some are being reopened, and bulldozers are uncovering curbs and gutters laid out 40 years ago. The current boom took shape in the 1950s, when real estate operators joined the installment sales binge and began selling Florida dreams to people across the nation for ten dollars down and ten dollars a month. This concept was, in theory, a workable plan under which the nation's growing number of retired people could some day live in Florida homes. The plan gave developers a continuing pool of capital with which to clear vast tracts of land and build streets and other promised improvements without having to complete the full development immediately. Many such developments are thriving today. But many others fell victim to dishonest operators or inept businessmen who overextended themselves and went broke. Former Gov. Farris Bryant's answer to a flood of complaints to the Real Estate Commission and Chambers of Commerce was a plan for a new state agency to oversee installment sales. The installment land sales board was Florida's response to a problem which has prompted regulatory legislation in 25 other states. The board itself admits, however, that the problem has been met only halfway. According to board records, 234 major developments were registered with it in 1965, complying with the provisions of the law requiring a full financial accounting, engineering reports on the properties offered for sale, licensing of all personnel and approval by the board of all advertising. All developers who offer for sale 50 or more lots in any year come under the law. But more and more of them are getting out from under it by the simple expedient of doing business by deed and mortgage rather than installment contract. The board has no authority in this area. In one year, 17 developers elected to switch to this procedure. The board says some were shady operators, others mostly sought to avoid the red tape and fees of board approval. The Board's executive director, 39 year old Carl A. Bertoch, an Ohio State University lawyer with government experience in the field, is among the most vocal critics of the law. "We proposed an amendment in 1965 which would have brought deed-mortgage transactions under the board," said Bertoch, "but it died in committee." The amendment was unsuccessful despite the fact that Elliott Mackle of Miami's Mackle Brothers, a major developer, and Leonard Rosen of Gulf American Land Corp., the state's biggest developer, sit on the board. Bertoch said the major complaint from the public is failure to developers to make good on promises. Streets are not paved, water lines are not laid, drainage may be necessary despite assurances to the contrary or the whole development grinds to a halt short of the advertised goal. One of the newer sales schemes involves an offer of 14 acre plots with the promise that the purchaser can subdivide and sell four homesites at four times the original price of the land. What the buyer runs into, says Bertoch, is lot-size restrictions and septic tank and potable water health regulations which prevent further division of the property. A number of developers promised ready-made shopping centers to home buyers after guaranteeing profits to local businessmen who agreed to sign leases. The centers never were built. "The last thing we want to do is put a man out of business," says Bertoch. "We want the project completed to protect the investor. But as a result of processing complaints, we have recovered some $30,000 to $40,000 in refunds. "The biggest job is to avoid complaints and cases. We are, in effect, working against perpetuating ourselves." [From the Sunday News-Journal, Daytona Beach, Fla., Mar. 22, 1964] REPORTER GETS THE PITCH; SIX SESSIONS WITH A LONG DISTANCE LAND HAWKER (By Mort Paulson) It was a small, rather inconspicuous ad on an inside page of the Army Times. There was a picture of a Florida pine forest and the words: "For Sale, 5 acres; Full Price $795, $10 down, $10 a month." Underneath this was a coupon for obtaining "information and brochures without obligation." I filled it out, using the fictitious name of Christopher Thomas (I didn't want them to be able to check my occupation), and gave my home telephone number. I mailed the coupon, as directed, to the Webb Realty Co., of Miami. Three days later, about suppertime, the phone rang. "This is John Margulies of Webb Realty in Miami," said a high-pitched nasal voice. "I have a wonderful deal for you." I didn't know it then, but this was the first of six long distance calls I was to receive in a sledgehammer campaign to sell me a two and a half acre tract of undeveloped land in Collier County as a speculative investment. Before it was over I was thinking it might be worth the $10 down payment to get Margulies off my back. A master of the hard, hard sell, Margulies used the whole arsenel of pressure techniques-friendly persuasion, sweet talk, cajolery, a sense of urgency, excitability, dramatics and, when I persisted in not sending in the $10, impatience and irritability. The "wonderful deal," it developed, was not the land that had been advertised. That property was still available, Margulies said, but he had some in another area with a much better profit potential and it wouldn't cost me any more money-I'd simply be getting half as much land, or two and a half acres. Which did I prefer? I inquired about the two and a half acres and Margulies, after a five minute spiel about Webb's credentials (an old, established company with "over 10,000 satisfied customers," in business 35 years, member of the Better Business Divi 66-628 0-66- -21 |