Commission may suspend the registration for a period until it is assured that the change has been effectively disseminated to the public. Section 7 of this bill provides for stop-order proceedings by the Commission if it appears to the Commission that the registration statement is inaccurate in any material respect. It is comparable to section 8 of the 1933 act. If the Commission were to administer the Interstate Land Sales Full Disclosure Act, the registration process would follow that employed for securities offerings. Generally speaking, registration is a cooperative process between the applicant and the staff of the Commission. The staff's major role in registration is to aid applicants in complying with the law. Staff representatives of the Commission are available at all times for consultation on an informal basis both before and after filing. Advise may be obtained from these representatives as to whether a particular offering is subject to the registration requirements and, if so, how compliance may be effected with the disclosure requirements.

I should add that the latter service is available in all our regional and branch offices as well.

To facilitate further the registration process the Commission would, as it has in the securities field, develop special registration forms for various types of offerings.

The purpose of the registration process would be, as it is under the Securities Act of 1933, to provide adequate and accurate disclosure of material facts concerning the interests in land which are offered by the developer so that the prospective purchaser may make a realistic appraisal of the merits of the offering and thus exercise an informed judgment. The Commission would, as is also the case under the 1933 act, have no power to disapprove interests in land for lack of merit or because of the unfairness of the price or for any other reason. The Commission's function would be to achieve full disclosure. Thereafter, the individual investor would have to decide for himself.

Registration statements under this bill would be examined by the Division of Corporation Finance of the Commission to see whether they appear to comply with the applicable disclosure requirements. If a statement appeared to be materially incomplete, or inaccurate, the usual procedure would be to inform the person registering by letter to give him an opportunity to file correcting or clarifying amendments. The filing of such an amendment would again start the running of the 30-day period of waiting for the registration to become effective, unless the Commission were, at the request of the person registering, to accelerate the effective date.

I should interpolate here to say that this is a power which the Commission uses every day of the week. It is almost routine. The cases in which the Commission does not accelerate are trouble cases and those which the Commission believes contain information which should be available to the public for additional periods of time before it is used in the selling effort.

In unusual situations where evident material deficiencies in a registration appear to stem from a deliberate attempt to conceal or mislead, or if the deficiencies otherwise are of such nature as not to lend themselves readily to correction through the informal letter of comment process, the Commission may conclude that it is in the public

interest to resort to a hearing to develop the facts by evidence and to determine on the evidence whether a stop order should issue refusing or suspending effectiveness of the registration statement.

The issuance of the stop order would not be a permanent bar to the effectiveness of a registration statement, for the order must be lifted and the statement declared effective if amendments are filed correcting the statement in accordance with the stop order decision. The Commission would also have authority to issue stop orders after the sales of the interests in land have been commenced and even after all of such sales have been made. Although in such a situation the losses by investors have already been suffered and the stop order proceeding does not accomplish restitution for them, the Commission's decision and the evidence upon which it is based would serve to put investors on notice of their rights and aid in their own recovery suits if such suits are appropriate.

Section 10 of the act, paralleling section 11 of the Securities Act of 1933, provides for civil liability on the part of signatories to the registration statement and the persons designated therein in the event that untrue statements of material fact or material omissions are present in the registration statement.

It is hard to talk about a material omission being present, what we mean is pertinent material omitted from the registration statement. Section 11 specifically provides for civil liability on the part of a developer or agent who sells or leases an interest in a subdivision in violation of the registration requirements or the requirement that a statutory prospectus be furnished and for misrepresentations or material omissions in the offer or sale of an interest in a subdivision, whether such misrepresentations are written or oral.

Section 12 of the bill makes certain persons ineligible to act as developers or agents. Generally, such persons are those who have been convicted of felonies and misdemeanors involving the purchase or sale of interests in land or securities or involving embezzlement and mail fraud or are subject to permanent injunctions involving certain activities. Persons who are subject to stop orders by the Commission or have been found to have willfully violated the acts which the Commission administers are also disqualified. The section provides, analogous to section 9 of the Investment Company Act of 1940, that any ineligible person may apply to the Commission for an exemption from such disqualification and sets up standards under which the Commission is authorized to grant such exemptions. Section 13 provides for court review of all orders of the Commission, and section 14 is a statute of limitation on private rights of action under sections 10 and 11.

Section 18 grants the Commission broad investigatory powers and authorizes the bringing of injunctive actions by the Commission in the Federal district courts and further authorizes the reference to the Attorney General of cases which may result in appropriate criminal proceedings. Section 21 provides for a fine of not more than $5,000 or not more than 5 years imprisonment for willful violations. Section 22 grants the Commission broad authority to issue and amend such rules and regulations as may be necessary or appropriate under the act.

The bill specifically provides in section 9 that it shall not affect the jurisdiction of any real estate commission of any State. In this same section the Commission is directed to cooperate with State authorities charged with the responsibility of regulating the sale of interests in subdivisions and the Commission is authorized, if it finds such action to be appropriate in the public interest or for the protection of investors, to accept for filing under this act and declare effective as a registration statement any material filed with and found acceptable by State authorities.

The Commission would expect in any event to cooperate with State authorities. We do this now in connection with our securities activities. We would construe section 9 to mean that we should endeavor to create an appropriate cooperative system, giving due regard in our judgment to all relevant circumstances which may be involved in such an endeavor.

The committee has also requested that I apprise it of any changes in the provisions of the bill which the Commission would recommend. We have the following suggestions; most of which have already been adverted to but I will refer to them again, so that they will be in

context:

It is believed that further consideration should be given to the problem of fraudulent tactics. As the bill now stands an advertisement, for example, would fall within the broad definition of "offer" in section 2(10), and section 4(a) would, accordingly, prohibit all advertisements prior to the effective date of the registration statement. Thereafter, however, misleading advertising would be subject only to the general antifraud provisions of section 17 under which the Commission might obtain an injunction against its use, and to section 11 giving rise to civil liabilities. Of course, an accurate statutory prospectus delivered as required by section 4 before any binding commitment is entered into would, at least to some extent, clear up misimpressions obtained from prior misleading advertising. It would also serve as a standard against which the agency enforcing the act could compare the advertising and thereby determine whether injunctive proceedings should be instituted. However, it would appear desirable to provide for specific rulemaking authority in this area similar to that contained in section 206 (4) of the Investment Advisers Act of 1940. This could be done by adding to subsection (c) of section 17 of the bill the following:

The Commission shall, for the purposes of this subsection (c) by rules and regulations define, and prescribe means reasonably designed to prevent, such transactions, practices or course of business as are fraudulent and deceptive. We have a comparable provision under the Securities and Exchange Act of 1934. I can only say that the Commission has found these provisions to be helpful and, in many situations, essential.

Section 12 of the act, as already noted, provides for the disqualification of certain persons as developers or agents. It would be difficult to administer unless the names and addresses of the persons acting in these capacities are furnished to the agency administering the Act. Although a rule might be adopted requiring the disclosure in the regis tration statement of the names of persons acting as agents pursuant to section 6(a) (13) of the act, it would be preferable to include an express statutory provision.

Mr. Chairman, I said earlier in somewhat greater detail that we felt this was important particularly because of the decision made by the subcommittee, at least tentatively, not to require registration of agents. At a minimum this information that I will refer to in a moment is necessary to carry out the purposes of the bill. We think that this minimum purpose can be accomplished by requiring that one of the documents to be furnished as part of the registration statement. contain, and I quote now, "A list of the names and addresses of all persons who will serve as agents."

This list would not be included in the statutory prospectus and should be specifically excluded therefrom in section 8(a) of the bill. The Commission would expect to use its general rulemaking power to make sure that this list is kept current.

Section 2(2) of the bill defines "person" in much the same way as the Securities Act of 1933. However, it includes the term "firm" and fails to include the words "any unincorporated organization," a phrase sufficiently broad to include all other organizations. It is suggested that the imprecise term "firm" be deleted and the words "any unincorporated organization" be substituted therefor.

We believe further that the definition of "developer" in section 2 (4) of the bill should be expanded at the end thereof to include the following clause:

or any person directly or indirectly controlling, controlled by, or under direct or indirect common control, with any of the foregoing.

This will make certain that we can identify the persons who are the real parties in interest in any offering subject to the bill. A similar requirement has been very important in the administration of the Securities Act of 1933.

This information is important not only from the point of view of the administrator of the statute but frequently terribly important in the disclosures to be made to the prospective purchaser.

Now, as I indicated earlier, with the permission of the subcommittee, we may have certain other technical suggestions as the hearings proceed and evidence is developed.

That concludes my statement, Mr. Chairman. We will try to answer such questions as you may put to us.

Senator WILLIAMS. I regret that I had to go to another committee meeting for a period during your testimony, Mr. Chairman, but I certainly can assure you that we will study very closely all that you have said as it appears in the record. It appears to me that we have quite a challenging job ahead of us in getting this legislation ready for final consideration.

Your suggestions for clarification and improvement are much appreciated. I gather you did advise the committee that you were helpful in getting the preliminary language for this legislationMr. COHEN. I don't know how helpful we were, we did participate; yes, sir.

Senator WILLIAMS. You were very helpful and have been helpful here today. I know Senator Mondale, who fortunately has been here through all of your testimony, has a question.

Senator MONDALE. Mr. Chairman, one of the problems raised by the NARD representatives which bothers me some is this bill assumes

that if we supply a prospective customer with a prospectus, that will provide the wary and rational customer with the information he or she needs. I ask them whether the readability and understandability of the long dull prospectus would protect the consumer. What com

ments do you have?

Mr. COHEN. Some prospectuses are longer than others and some are duller than others.

Senator MONDALE. Are any exciting reading?

Mr. COHEN. I think some are exciting. It is true some are complicated and that is because the merchandise offered is complicated and complex and that really proves the case I think for having a prospectus.

I think the suggestion implicit in your remark is that the SEC may require prospectuses which might defeat the very purpose of the statute. We are very much aware of the problem. We have been engaged throughout the years in simplifying our procedures and forms of prospectuses. Prospectuses are not necessarily dull, long, or terribly complex. They are when the situation requires it. Now some investors are able to cope with these prospectuses on their own. Others do not have the background or education or the understanding, but they do have people on whom they can rely, local bankers, local lawyers, the accountant, or even the schoolteacher who may have some understanding of these things and who perhaps can assist in bringing the information to the attention of the prospective purchaser.

We believe very strongly in this disclosure scheme, as does the Congress. We think it has worked pretty well.

Senator MONDALE. Do you think that the prospectus, full disclosure approach to the Securities and Exchange Commission has been used by the lay stock purchaser to any degree to protect himself?

Mr. COHEN. Well, sir, if you will look at my daily mail, you would agree with me that they do use it, and as I said before, if they don't personally use it, they visit someone whom they can trust and who can use it and advise them.

So, I do believe that it is effective, it does serve its purpose. I think one other point should be made. As a scheme of this kind develops, there are certain other private agencies that undertake to collate the information, to bring it together and to disseminate it in a way so that the information concerning this sort of an interest, as in the case of securities, is brought to the attention of the general public.

Senator MONDALE. Give me examples, like the better business bureaus, chambers of commerce?

Mr. COHEN. They, of course, have an interest in it and they do advise people to take certain steps, including examination of documents that may be available by way of prospectuses or in the files of the Commission or at the stock exchange or some other place.

But, I meant in addition to that, there are private organizations that collect salient information about securities, about companies, reprint them and circulate them fairly widely. This tends, I think, to educate the general market as well as individuals.

Senator MONDALE. With respect to securities, is there similar private structures in real estate that would protect the purchasers?