opinion we think there are substantial grounds for distinguishing it from our own situation.

The facts are different in at least one substantial and significant respect. In Jones, the Court emphasized that "so far as this record shows there were no investors, existing or potential to be affected. The conclusion seems inevitable that an abandonment of the application was of no concern to anyone except the registrant." 298 U.S. at 23.

That stands in sharp contrast to the record here. Approximately 1,800 members of the public now hold over 63,000 shares of the class of security covered by the Registration. The stockholders, as well as those members of the investing public who may have occasion to trade in these outstanding shares, are the proper subject of the official concern of SEC. Oklahoma Texas Trust v. SEC, 10 Cir., 1939, 100 F. 2d 888. Persons other than those who purchase the new stock under the Registration may be affected in point of fact and may, under certain circumstances, have remedies in point of law for misrepresentations in a Registration. Fischman v. Raytheon Manufacturing Company, 2 Cir., 1951, 188 F. 2d 783, 787. The dual object of the statute is to require public disclosure and widespread dissemination of the information disclosed and, both through these means as well as the strong civil and criminal sanctions, prevent and punish fraud in the issuance of securities. Its aim is to obtain an informed and "honest dealing in securities." 10

This factor of outstanding stock of the same class as proposed in the Registration statement has been regarded by others as a significant variation from Jones. See Resources Corporation International v. SEC, D.C. Cir., 1939, 103 F. 2d 929, 931; SEC v. Hoover, N.D. Ill., 1938, 25 F. Supp. 484, 486-487; Okla homa-Texas Trust v. SEC, 10 Cir., 1939, 100 F. 2d 888, supra. That there were also other distinguishing factors does not detract from the emphasis all put on the protection of outstanding stockholders as well as the public who might trade in those shares.

Moreover, since Jones there has been at least one significant change in the law. This reflects that, in the Congressional scheme, it is no longer, in the words of the Court, an inevitable conclusion that “* ** an abandonment of the application was of no concern to anyone except the registrant." 298 U.S. at 23. In its original form the Act, Section 5, prohibited the sale or offer for sale of any security until the registration became effective. Under the 1954 amendments a registrant may make offers to sell after filing but before the registration statement becomes effective."

This is particularly significant in view of the practical consequences of the administrative liberality in allowing delaying amendments, see note 3, supra. Under this practice a registrant may file a statement and then postpone its final legal effectiveness by advancing the specified effective date. During all of that time the Registration serves as the basis for exploiting the ultimate sale through offers to sell and solicitation of offers to buy. On the basis of the filing the prospectus, within the limits of the statute and regulations, may be widely circulated and solicitation campaigns of varying intensity may be carried on. Certainly during that period the public has a great stake. More important, the registrant is using the very facilities of SEC and the mechanism of registration as a valuable phase in its sales promotion. Of course, in the Jones pre-1954 amendment era, this could not have been done for until the effective date of the registration statement neither sales nor offers to sell could be made.

If, as Columbia urges, the registrant has the unfettered right to withdraw up to the effective date, the machinery of the Commission, established by Congress to provide truth and honesty in securities, may become the very instrument of deception and fraud. Those engaged in enterprises to bilk either the stupid, the credulous, or the intelligent who may be overly persuaded by optimistic propaganda, will, in exploiting the show of legality which the filing affords, find no difficulty in overcoming the impediment to a final sale which withdrawal brings

The preamble of the Act states the statute's purpose is "To provide full and fair disclosure of the character of securities sold in interstate and foreign commerce and through the mails, and to prevent frauds in the sale thereof, and for other purposes." 48 Stat. 74. 10 H. Rept. No. 85, 73d Cong., 1st sess., p. 2 (1933).

"

11 Concerning this amendment both Senate and H. Reports stated: "The statute as now in effect contemplated that the registration statement would become effective before the sellers of securities could engage in sales activities. ... In substance. Section 5, as amended by this bill, permits the making of offers, but not sales, prior to the effective date." S. Rept. No. 1036. pp. 14-15, H. Rept. No. 1542, p. 23. 83d Cong., 2d sess. See Whittaker v. Wall, 8 Cir., 1955, 226 F. 2d 868, 781.

about. Not the least of these possibilities is the subsequent dealing in outstanding shares with those whose interest has been excited or piqued by the prospecus, the disposition of the underlying assets of the proposed enterprise (especially if the company were to engage in mineral explorations), or the issuance of the same securities within the limits of Regulation A. What form the deceit could or might take cannot be blueprinted. It is only certain that the measure of its skillfulness would be in proportion to the extent to which its confectors would give it the appearance of legality. One court has remarked, "The business of trading in securities is one in which opportunities for dishonesty are of constant recurrence and ever present. It engages acute, active minds, trained to quick apprehension, decision, and action." Archer v. SEC, 8 Cir., 1943, 133 F. 2d 795, 803. This is but an elaboration of the brief, but pungent, expression of Judge HOLMES for this Court in Weiss v. United States, 5 Cir., 1941, 122 F. 2d 675, 681, cert. denied ; 314 U.S. 687, 62 S. Ct. 300, 86 L. Ed. 550, that fraud is "as old as falsehood and as versable as human ingenuity." Abbott v. United States, 5 Cir., 1956, 239 F. 2d 310, 314.

The impact of the 1954 amendments is graphically demonstrated in connection with Regulation A, 17 C.F.R. §§ 230.230-.262, promulgated pursuant to Section 3(b), 15 USCA § 77c (b) of the Act. Subject to certain requirements that Regulation provides an exemption from registration for offerings of securities not exceeding $300,000. Since the investing public is not assured the public disclosure from a registration, SEC by its Rule 252(c), 17 C.F.R. § 230.252(c) (1958 Supp.), denies Regulation A exemption with respect to a proposed issue which has been, within the past five years, the subject of a Section 8 investigation or a stop order.

The issuance of a stop order because of false or misleading representations in the registration statement makes it impossible to offer any part of the securities under the Regulation A exemption. If the power to issue the stop order is lacking, the result is that, threatened with stop order proceedings, the registrant can withdraw it and then, without compunction, offer the same securities under the exemption. The vice of any such action is compounded by the fact that in the subsequent Regulation A exemption offer, the issuer could exploit to its maximum the psychological misapprehension that having been once filed with SEC and the official record being "clean" the securities are safe and sound. Oklahoma-Texas Trust v. SEC, 10 Čir., 1939, 100 F. 2d 888, 892. That is especially true since, though delaying amendments, the registrant could keep the official filing alive for a long period during which time the prospectus could rightfully be used in promoting the offers to sell.

Once we have determined that SEC had the power to decline the application for withdrawal, we are of the positive view that Columbia has not demonstrated any abuse of SEC's discretion in the actual denial. The principal argument seems to be that as so much emphasis was placed on shareholders of present, outstanding stock of the same class, that public interest is nonexistent since none of such stockholders has brought suit for the misrepresentation. But as we view it, the matter is more comprehensive than the possible availability of civil sanctions to outstanding stockholders. The public has a real stake, both as to this stock and in a larger sense. Those to whom existing stock will or might be offered, whether by insiders or unrelated holders, are protected by the public disclosure of an official declaration that with respect to that very stock, the registration has subsequently failed to disclose contingent liabilities. On the larger scene, the public interest is served because it stands as a deterrent to the filing of registrations by an issuer indifferent to the accuracy or honesty of the statement because he knows that if caught, or nearly caught, or threatened with being caught, or even investigated, he can withdraw the offensive statement at will. As a stop order prevents this, it will indeed promote truth in securities, and that is what Congress intended.

That leaves then the claim concerning the substantive amendment of August 15, 1956. If Columbia's complaint was that SEC abused its discretion in now allowing the amendment, we would quickly state that Columbia has failed to demonstrate any such abuse. But Columbia does not so contend. Its brief reflects categorically that it "contends that the substantive amendment filed on August 15*** terminated, for the purposes of the stop-order proceedings, the legal significance of the registration statement as originally filed, and that after such amendment, the registration statement as originally filed was entitled to no further consideration in the stop-order proceedings. *** Under Section 8(a), the substantive amendment, once filed, consti42560 0-59-23

tuted the only form of registration statement on file which the Commission lawfully could consider in these proceedings." In short it contends that the original registration statement has disappeared from view.

The premise for this claim is that under Section 8(a), note 2, supra, where an amendment is filed before the effective date of the registration, the "statement shall be deemed to have been filed when such amendment was filed." On this, the argument is made that with the filing of the amendment, the original filing evaporates since nothing was "deemed to have been filed" until the date of the amendment.

We find this without any merit. Section 8(a) deals with the effective date, i.e., the time at which it is lawful to sell the securities. It deals wholly with time, and the effect in point of time of an amendment. Under the statutory scheme this has to be fixed with precision. It is not intended to supplant the general definition of Section 2(8), 15 USCA § 77b (8), that the "term 'registration statement' means the statement provided for in Section 6, and includes any amendment thereto and any report, document, or memorandum, filed as a part of such statement or incorporated therein by reference."

The construction sought by Columbia would leave SEC with power (as we have held above) but powerless to act. This would follow because on its theory all the registrant need do to forestall the stop order proceeding is to file a substantive amendment. That process would be endless for on a stop order notice as to the first substantive amendment, the registrant would need file only a second, and so on ad infinitum. In the meantime promoters, traders, confidence men, and the assorted hangers-on of such enterprises could be using the amendments further to postpone the effective date to enable them to achieve the maximum appearance of legitimacy and legality. This would make a farce out of the statute. And we must reject a construction which would have that effect. If Columbia's complaint under Section 5(b) of the Administrative Procedure Act, 5 USCA § 1004 (b), that adequate opportunity was not afforded to confer informally, is asserted independently of the contention just discussed on the effect of the substantive amendment, we think that no abuse of discretion by SEC has been demonstrated. The notice of hearing was issued June 29. The hearing was set for July 10 and postponed by agreement. There is no showing why the request for further postponement was delayed until almost the eve of the adjourned hearing. Nor is there any showing to indicate that postponement on conference would have been fruitful or would have obviated or simplified the subsequent formal hearing. The matters to be covered were specified in great detail and the evidence heard under it appears to have covered in like detail all of the dealings and transactions by Columbia, the Insurance Company, Hand, Eisemann and the others, upon which the stop order was based.

We are not told whether Columbia thought that in the informal conference it could have persuaded the staff of SEC that the facts were other than those subsequently found, that such facts were irrelevant if true, or that, as it did in argument here, SEC had no power to make the investigation or withhold consent to withdrawal of the statement. On the latter Columbia had at the outset taken its stand on Jones as was its right. We do not think that SEC necessarily had to tender an informal conference to ascertain whether Columbia really meant this. On the contrary, we think SEC had a right to accept the gage with the hopes of success which it has now made good.

CAMERON, Circuit Judge: I concur in the result.

AFFIRMED.

MEMORANDUM OF THE DIVISION OF TRADING AND EXCHANGES OF THE SECURITIES AND EXCHANGE COMMISSION ON AMENDMENT PROPOSED IN SECTION 13 OF S. 1179

POSTPONEMENT OF EFFECTIVE DATE OF BROKER-DEALER REGISTRATION

Section 15(b) of the Securities Exchange Act of 1934 which governs proceedings by the Commission to deny or revoke registration as a broker or dealer provides, among other things, that pending final determination whether any such registration be denied, the Commission may by order postpone the effective date of such registration for a period not to exceed a period of 15 days. The proposed amendments to this paragraph contained in section 13 of S. 1179 would, among other things, extend this period from 15 days to 90 days.

Under the statute an application for registration does not become effective until 30 days after it has been filed, and the Commission may postpone effectiveness for an additional 15 days without a hearing. Consequently, the Commission can postpone effectiveness without a separate hearing upon that issue only for a maximum period of 45 days after the filing of the application. It is frequently a practical impossibility within that period to order a hearing, conduct a hearing, and dispose of the case.

In the course of testimony before this subcommittee on June 16, 1959, industry representatives suggested that the 90-day period proposed in the amendment was too long and one representative suggested that it be reduced to 45 days.

Based upon the Commission's experience in the conduct of denial proceedings, the 90-day period proposed in S. 1179 is reasonable and represents the minimum time within which it can be expected that a denial proceeding can be completed. Our principal reasons are as follows:

(1) In opposing the time extension industry representatives added the 30day period which under present law elapses between the filing of an application and its effective date to the 90-day postponement proposed by the bill, to produce a period of 120 days. This assumes that the proceeding to deny may be commenced the day the application is filed. This, of course, rarely if ever occurs. A denial proceeding is not commenced unless there is evidence which tends to prove that the applicant has been guilty of one of the acts of misconduct specified as a disqualification in the statute, and that the evidence to be produced at the hearing may show that it is in the public interest to deny registration. This determination is not made lightly since it is recognized that the commencement of a proceeding will have a serious impact on the applicant. Consequently, no denial proceeding is commenced unless there has been at least a preliminary investigation to obtain the facts with regard to the applicant. Ordinarily, this consumes a major part of the 30-day period.

(2) Proceedings to deny registration to a broker or dealer are conducted in accordance with the Administrative Procedure Act and the Commission's Rules of Practice and in a manner which affords full opportunity for hearing and the presentation of evidence. The following procedure is essentially followed: an order is issued directing that the proceeding be held, specifying the issues to be determined and setting the matter down for hearing. At least 10 days notice is usually provided. The hearing is then held before a hearing examiner following which each party has the right to submit proposed findings of fact and conclusions of law and a brief in support thereof. The hearing examiner prepares and files his recommended decision. The parties have the right to file exceptions to that decision and briefs in support thereof. The matter is then set down for oral argument before the Commission and after the argument the Commission must reach a decision and prepare its findings and opinion. It is obvious that under the best of circumstances, this procedure takes considerable time. There are, in addition, many sources of delay. Counsel may require additional time to prepare for the hearing or may have conflicting court engagements. It may be necessary to adjourn the hearings for the convenience of witnesses or to obtain testimony of witnesses in various parts of the country. Pre-trial proceedings may be necessary. Various motions and applications may be filed and have to be disposed of before the hearing is convened.

(3) It is in most cases no advantage to an applicant to have his application become effective while proceedings for denial are in progress. He will not wish to incur the expense of setting up his office and going into business while the question of his right to be registered is in the process of adjudication, particularly as the proceedings might immediately be converted into revocation proceedings. Consequently, applicants usually consent to postponement of the effective date of registration until final determination of the proceedings.

(4) The following data with respect to the Commission's experience in brokerdealer proceedings supports the reasonableness of the proposed amendment. During the 3 fiscal years 1957, 1958, and 1959 to date, the Commission has closed an aggregate of 170 proceedings to deny or revoke registration of brokerdealers. Of these proceedings, only 34 were disposed of in 3 months or less, 50 required more than 3 months but less than 6 months, 60 required more than 6 months but less than a year, and the balance required more than 1 year. Turning specifically to denial proceedings, there have been 26 such proceedings

commenced in fiscal years 1957, 1958, and 1959 to date. Approximately 2,300 applications for registration were filed during this period, which indicates the relative infrequency of such proceedings. Of these 26 proceedings, 6 are now pending. Of the remaining 20, only 4 were completed within 90 days after the commencement of the proceeding and of the 4, 2 were disposed of by the Commission's accepting applicants' notice of withdrawal and dismissing the proceeding. Of these 26 proceedings, in only one did the applicant fail to consent to postponement of the effective date so that his registration became effective during the pendency of the proceeding. A revocation proceeding was then commenced and is now pending.

MEMORANDUM OF DIVISION OF TRADING AND EXCHANGES OF THE SECURITIES AND EXCHANGE COMMISSION ON AMENDMENT PROPOSED IN SECTION 15 OF S. 1179

SUSPENSION OF TRADING OVER THE COUNTER

While endorsing the proposal in section 15 of S. 1179 to add a new section 15(c) (4) to the Securities Exchange Act to give the Commission the power to suspend over-the-counter trading in a security for one or more periods of 10 days each where this is necessary in the public interest and for the protection of investors, industry representatives suggested "that flexibility should be introduced * * * by allowing trading in such suspended securities if effected in accordance with rules and regulations adopted by the Commission" (record, p. 102). A similar suggestion was made to the effect that "some change should be introduced to permit trading in a suspended security in cases where the Commission believes relief should be granted" (record, p. 172). One of the reasons advanced for the proposals was that the prohibition "might ‘lock in' a holder of the suspended stock even though he might have a willing buyer who is thoroughly familiar with the facts surrounding the suspension" (record, p. 102). The Commission's proposed amendment is intended to make it possible to protect public investors in situations where the information necessary to make an informed judgment whether to buy or sell the security is not available at the time, usually because of some sudden development (e.g. large defalcations affecting the financial condition of the issuer). It is highly unlikely that any prospective purchaser would be "thoroughly familiar with the facts" under these circumstances. At the most, he would generally be aware that all the material information is not available at that time. The prohibition is applicable to brokers and dealers, and while such a professional might be able to find a “willing buyer" under the circumstances, it is difficult to conjure up a situation in which a particular type of transaction should be sanctioned during the period when trading is thus suspended. However, the Commission would not object to being given the power to provide exemptions from the prohibition by rules and regulations.

MEMORANDUM OF THE DIVISION OF TRADING AND EXCHANGES OF THE SECURITIES AND EXCHANGE COMMISSION ON AMENDMENT PROPOSED IN SECTION 20 OF S. 1179 SUMMARY SUSPENSION POWER UNDER SECTION 19 (A) (4) OF THE SECURITIES EXCHANGE ACT OF 1934

With respect to the proposal in section 20 of S. 1179 to amend section 19(a) (4) of the Securities Exchange Act it was suggested that the Congress "impose an overall time limit within which the Commission must proceed to a hearing as provided in section 19(a) (2)." The proposal was also criticized on the basis that "As under the act in its present form, there would be no standards except the opinion of the Commission that the public interest requires suspension." This comment goes on to add "The amendment does not appear to add significantly to the vast power already accorded the Commission by this section. It merely gives specific authority for what the Commission does anyway. Here, as elsewhere, the addition of standards more specific than the mere reference to the public interest would be desirable."

Section 19 (a) (4) authorizes the Commission to summarily suspend trading in any security registered on a national securities exchange for a 10-day period