accept the basic premise above because we know legislation adaptable to securities will not solve the problem. Such legislation could stifle the industry, and we think will offer little protection to the public. In our opinion, the industry cannot live with the proposed legislation for the principal reason that it would confine the industry's means of financing solely to the raising of equity capital, and the industry cannot continue to grow and expand if its financing is so limited. For the reason stated, we see no useful purpose which would be served by our pointing out in detail our objections to the bill. Our objection is basic, and for such reason could not be remedied by amendment of the bill.

As stated in the beginning, we have no objection to public regulation and supervision of interstate land sales. We are opposed to federal legislation because we believe present state regulation is adequate and that such regulation is a proper function of the individual states. Also we feel we are "coming of age" as an industry and it is our sincere belief the industry will police itself so as to obviate any need for such regulation and supervision as provided in this bill. As far as we know, there is no proposed legislation before the Congress at this time to place the mail order industry under such federal regulation and supervision as is here proposed as to interstate land sales. We do not know the reason there is no such legislation proposed but possibly the reason is that the mail order industry has done an effective job of policing itself. Is it asking too much then, that the community and land developers be given an opportunity to solve their own problems?

We would also like to call to your attention that the Attorney General of the United States has publicly stated that the existing mail fraud statutes are adequate, in his opinion, to protect the public against outright fraud by unscrup ulous promoters. In fact, there have been numerous convictions and indictments under the Federal mail statute as a result of some of the early abuses of the industry.

A draft of a Uniform Interstate Land Sales Practices Act has been prepared for review by the National Conference of Commissioners on Uniform State Laws. It is proposed to present such draft to the Commissioners for their approval at the forthcoming annual meeting of the American Bar Association in Montreal in August of this year. If adopted by the Commissioners, it is likely that not only the states which presently have regulations but also a number of states which do not, will adopt some version of the Uniform Act, and thus bring the purchasers within their states under the type of protection envisaged by S. 2672.

For this reason it is respectfully suggested to the Subcommittee that the legislation now under consideration could well be premature if we are all seeking the same end, which is the protection of the purchaser, and it is entirely possible that the Uniform Act will be the answer to the problem and would be such an answer as to eliminate the enormous expense which would be the result of the present bill if enacted into law.

In conclusion, our Association pledges itself to active and constructive cooperation with all public bodies working toward the solution of the problem with which we are mutually concerned.

Senator MONDALE. Are there any others who wish to testify?
Is Mr. N. K. Mendelson here?

(No response.)

Senator MONDALE. If not, we will recess until 10 o'clock tomorrow morning.

(Whereupon, at 2:30 p.m., the subcommittee was recessed, to reconvene at 10 a.m., Wednesday, June 22, 1966.)

INTERSTATE LAND SALES FULL DISCLOSURE ACT

WEDNESDAY, JUNE 22, 1966

U.S. SENATE,

COMMITTEE ON BANKING AND CURRENCY,
SUBCOMMITTEE ON SECURITIES,

Washington, D.C.

The subcommittee met at 10:15 a.m., in room 5302, New Senate Of fice Building, Senator Harrison A. Williams, Jr., presiding.

Present: Senators Robertson, Williams, Mondale, and Thurmond. Senator WILLIAMS. Is Mr. John R. Hoffman here and ready to testify before this subcommittee?

(No response.)

Senator WILLIAMS. Did you lose Mr. Hoffman?

Mr. ORIOL. NO. Mr. Wenig is here, though.

Senator WILLIAMS. Is Mr. Carl Shipley here?

STATEMENT OF CARLTON L. SHIPLEY, ATTORNEY,
WASHINGTON, D.C.

Mr. SHIPLEY. Yes, Senator.

Senator WILLIAMS. You are not on the witness list.

Mr. SHIPLEY. No, I didn't intend to testify, but if you need a witness I will testify, Mr. Chairman.

Senator WILLIAMS. I think this is a bipartisan bill. Would you like to just say that you approve of this legislation, Mr. Shipley? Mr. SHIPLEY. Well, Senator, I have some serious doubt about this proposed legislation.

Senator WILLIAMS. Oh, oh.

Senator MONDALE. We cannot schedule him today. We are too crowded today.

Senator WILLIAMS. Are you speaking personally or officially as the Republican national committeeman from the District of Columbia?

Mr. SHIPLEY. I am expressing the thoughts of the National Association of FHA Apartment Owners which has doubts about whether securities legislation should be the method used to regulate interstate sales of land. Our people recognize the problem as being a serious one which needs legislative correction, but there is a problem in their minds, I believe, and mine, as to whether the Federal securities laws which are intended to implement another policy for another purpose should be used to get the Federal Government into the real estate regulating business.

Senator WILLIAMS. It is just a matter of administration, or

Mr. SHIPLEY. We acknowledge the Federal Government's role under the Federal securities laws, but Federal regulation of real estate

is quite a different matter, as this is usually a local and State problem rather than a Federal problem, and there are local and State agencies with adequate authority now to meet the problem.

Senator WILLIAMS. I think we are going to keep this record open for a while. I wish you would review yesterday's testimony where we had the conclusion from many States that the State laws are not and will not be adequate as the means of protecting people against the abuses that were given here.

Mr. SHIPLEY. Senator, I would like to do that and submit some further suggestions in connection with the legislation, because I do believe the problem needs the attention of Congress and possibly legislation of some kind to bring it under more direct control, but possibly in terms of the documentary evidences of the sale of interests in land, the documents involved which could be classified and regulated as securities, rather than attempting to regulate the sale of the land itself. I think the statement by NAREB this morning, as I read it, points up some of the very serious problems for people in the real estate business who aren't at all concerned with the interstate sales of interests in land and are interested in stopping the interstate fraud which sometimes occurs in these sight-unseen sales of land over State boundaries. So I will submit additional material. Thank you very much, Senator Williams.

Senator WILLIAMS. I appreciate it.

(Mr. Shipley subsequently submitted the following information :)

NATIONAL FHA APARTMENT OWNERS ASSOCIATION,
Washington, D.C., June 13, 1966.

Re S. 2672.

Hon. HARRISON A. WILLIAMS, Jr.,
Senate Office Building,

Washington, D.C.

DEAR SENATOR WILLIAMS: The above referred to bill to regulate interstate sales of land will serve a very useful purpose in protecting the investing public from unscrupulous promoters who specialize in high pressure sales of lots in subdivisions. However, I think the proposed bill raises a basic policy question which can lead to complications in the future.

The Securities and Exchange Commission operates under statutes which are designed as a matter of policy to require full disclosure in the interstate sale of securities, i.e., "truth in securities" is the purpose of the federal securities laws. Land is not a security, and the development and sale of land in no way corresponds to the sale of securities.

S. 2672 is somewhat deficient in its definition of "subdivision" to the extent that the definition is based on "a common promotional plan". This phrase is too vague for any realistic guidance of businessmen.

For example, if the owner of a 10,000 acre farm or perhaps an orange grove, or the owner of a group of real estate properties in various locations and used for various purposes throughout the country, decides to liquidate his real estate holdings for cash over a period of time, will he come under the statute?

His first sale might be 100 acres. his next 10 acres. etc., at different prices, different times, and on different terms and conditions. All sales would be pursuant to his basic decision to liquidate all of his real estate-would that be "a common promotional plan" within the statute?

Indeed, the owner may not know whether he will ultimately divide his holdings into 25 parcels, more than that. or less than that. This is just one example of the difficulty which will be encountered under the bill, as it is written.

I suggest it may be more practical simply to rewrite the existing definition of "security" in the federal securities laws to cover evidence of interests in

real estate, rather than trying to fit land into the administrative pattern established by Congress to regulate full disclosure in the sale of securities.

I am inclinded to the view that S. 2672 will prove unworkable in its present form, even though the policy objective of the bill is entirely desirable.

Very truly yours,

CARLTON L. SHIPLEY.

Senator WILLIAMS. Is Mr. Ralph Smathers present?
Mr. SMATHERS. Yes, sir.

Senator WILLIAMS. Senator Mondale, who is a member of our committee, will be the first witness, and we will call on you later.

I am glad to see Senator Thurmond here from South Carolina. All of the members of this committee were advised to be here. You received notice, did you not?

Senator THURMOND. Yes.

Senator WILLIAMS. This legislation could be landmark legislation. I remember back in the twenties, in the booming and speculative days that led to the almost collapse of our economy, when I was happily young, neighbors and friends of my parents buying land that turned out to be under water in Florida. Here we are so many decades later, and we still have these abuses. Now, this could be landmark legislation, bringing the principle of the 1930's to bear on interstate land sales. When you are selling land in interstate commerce, a disclosure of what you are selling would be required. That's why I think this could be called landmark legislation, if it is enacted.

We have been working on this for 3 years or a little better. My staff has concentrated in greater depth than I have been able to. We have a rule on this committee that staff members are not supposed to question. Senator Thurmond, I would like to propose a unanimous consent for three people here who are deep in knowledge of what we are talking about in this bill, one member of my Senate staff, two members of committee staffs, and I would like unanimous consent for them to confer with us and question if they have questions. Senator THURMOND. All right.

Senator WILLIAMS. Without objection?

Senator MONDALE. Yes.

Senator THURMOND. I have got to testify before the Judiciary Committee in 2 minutes, so when I leave you will understand. I am vitally interested in this matter, and I assure you that although I have to leave to go to another committee, that I will read the testimony and I shall follow through on it.

I understand Mr. Shipley is here and may wish to testify, and if the chairman would permit him to testify during these hearings I think it would be very good.

Senator WILLIAMS. Mr. Shipley was here, he was the first witness this morning. He was speaking without warning, but he is back there.

Mr. SHIPLEY. Thank you, Senator.

Senator Williams gave me an opportunity to state some views on the bill and submit further material in writing on it.

Senator WILLIAMS. Senator Mondale, why not come over here where the microphone is?

Senator MONDALE. All right.

STATEMENT OF WALTER F. MONDALE, U.S. SENATOR FROM THE STATE OF MINNESOTA

Senator MONDALE. Mr. Chairman, Senator Thurmond: I appreciate this opportunity to testify on S. 2672, because I have been concerned about the problem of fraudulent land sales since 1961.

The consumer protection unit, which I established in the Minnesota Attorney General's Office, made a thorough and intensive study of this matter while I served as Attorney General. I asked my Consumer Advisory Council, after presenting this information to them, to recommend State legislation. I am happy to say that the legislation suggested by them, with the counsel and support of the real estate industry in Minnesota, was subsequently adopted by the Minnesota legislature in early 1963. In 1962 I spoke to the National Association of License Law Officials in Minnesota on this problem, and as well participated in bringing this matter up for discussion by the National Association of Attorneys General in their meeting in San Francisco. Incidentally, Mr. Chairman, today Mr. Weinig from the State of California will be testfying. He has had as much experience as any person in the country, and I would say from first hand we will learn much from his testimony.

I submitted testimony to the Senate Special Committee on Aging in January of 1963, urging the adoption of a complementary Federal law to support State legislation. I said in my statement then that

I have repeatedly emphasized that improvement in State laws on the subject will not fully cover the problem. Jurisdictional problems often prevent State officials from fully protecting the people of their State.

At that time, Mr. Chairman, I recommended to the Special Subcommittee on Aging that a measure almost precisely like the one now being proposed was the most advisable way to proceed. I am happy that I am now in a position to accept my own advice.

So, as a former State official who worked with this problem, I believe I can reinforce the testimony of Mr. Van Horn of New Jersey and Mr. Dickson of Indiana that Federal regulation is indeed necessary if we are to effectively prevent flagrant abuses from recurring and protect both the ethical land seller and the consumer. I might add here that our own Minnesota commissioner of securities, Mr. Elmer Borgschatz, serves as the national president of the National Real Estate Law Licensing Officials, and he, too, concurs that Federal legislation of the sort we are considering is necessary.

I believe there is a very real need for legislation of this type. In requiring full and complete disclosure of all the relevant facts surrounding the purchase of land, this bill is in the pattern of what Congress is coming to realize that the consumer has a right to know the contents of packages in the supermarket, about safely defects in the automobile he drives, what rate of interest he is paying on credit, and I might add here, the salient and important facts surrounding the sale of real estate so that the purchaser can make a rational judgment.

And this is where I disagree to some extent with yesterday's witness representing the National Association of Realtors. Fraud statutes meet a fundamental problem here of the person who affirmatively mis