(d) The provisions of section 4 (b) of the Securities Exchange Act of 1934 shall be applicable with respect to the power of the Commission to appoint and fix the compensation of such officers, attorneys, examiners, and other experts, and such other officers and employees, as may be necessary for carrying ont its functions under this title.

Court Review of Orders; Jurisdiction of
Offenses and Suits

SEC. 322. (a) Orders of the Commission under this title (including orders pursuant to the provisions of sections 305 (b) and 307 (c)) shall be subject to review in the same manner, upon the same conditions, and to the same extent, as provided in section 9 of the Securities Act of 1933, with respect to orders of the Commission under such Act.

그랬 (b) Jurisdiction of offenses and violations under, and jurisdiction and venue of suits and actions brought to enforce any liability created by, this title, or any rules or regulations or orders prescribed under the authority thereof, shall be as provided in section 22 (a) of the Securities Act of 1933.

セ

Liability for Misleading Statements

the costs of such suit and assess reasonable costs, including reasonable attorneys' fees, against either party litigant, having due regard to the merits and good faith of the suit or defense. No action shall be maintained to enforce any liability created under this section unless brought within one year after the discovery of the facts constituting the cause of action and within three years after such cause of action accrued.

SEC. 323. (a) Any person who shall make or cause to be made any statement in any application, report, or document filed with the Commission pursuant to any provisions of this title, or any rule, regulation, or order thereunder, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or who shall omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, shall be liable to any person (not knowing that such statement was false or misleading or of such omission) who, in reliance upon such statement or omission, shall have purchased or sold a security issued under the indenture to which such application, report, or document rexlates, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading or of such omission. A person seeking to enforce such liability may sue at law or in equity in any court of competent jurisdiction. In any such suit the court may, in its discretion, require an undertaking for the payment of

(b) The rights and remedies provided by this title shall be in addition to any and all other rights and remedies that may exist under the Securities Act of 1933, or the Securities Exchange Act of 1934, or the Public Utility Holding Company Act of 1935, or otherwise at law or in equity; but no person permitted to maintain a suit for damages under the provisions of this title shall recover, through satisfaction of judgment in one or more actions, a total amount in excess of his actual damages on account of the act complained of.

Unlawful Representations

SEC. 324. It shall be unlawful for any person in offering, selling, or issuing any security to represent or imply in any manner whatsoever that any action or failure to act by the Commission in the administration of this title means that the Commission has in any way passed upon the merits of, or given approval to, any trustee, indenture or security, or any transaction or transactions therein, or that any such action or failure to act with regard to any statement or report filed with or examined by the Commission pursuant to this title or any rule, regulation, or order thereunder, has the effect of a finding by the Commission that such statement or report is true and accurate on its face or that it is not false or misleading.

Penalties

SEC. 325. Any person who willfully violates any provision of this title or any rule, regulation, or order thereunder, or any person who willfully, in any application, report, or document filed or required to be filed under the provisions of this title or any rule, regulation, or order thereunder, makes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements

The words "offering, selling, or issuing" were substituted for "Issuing or selling."

that the security is not to be issued under an indenture, that the indenture does not conform to the requirements of sections 310 to 318 of the act, or any person designated as trustee under the indenture is not eligible or qualified under section 310 of the act.

Problem.-Section 8(b) of the Securities Act of 1933 requires that the administrative proceeding be instituted not later than 10 days after the filing of the registration statement and the opportunity for hearing must be afforded within 10 days after such notice.

Administrative experience has shown that section 8(b) does not permit sufficient time within which to examine the material filed and to institute the proceeding. Accordingly, the Commission is left without an effective administrative remedy unless the applicant for some reason files an amendment which would constitute a new filing date.

Remedy in the bill.-The Commission recommends that section 305(b) be amended to eliminate the reference to section 8(b) of the Securities Act of 1933 and to authorize the institution of such administrative proceedings at any time prior to the effective date of the registration statement, which hearing shall be held within 15 days after such notice.

MEMORANDUM OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION ON AMENDMENT PROPOSED IN SECTION 3 OF S. 1180

The statement of comments of the American Bar Association with respect to the proposed amendment to section 305(b) of the Trust Indenture Act of 1939, contained in section 3 of S. 1180, is somewhat puzzling. The statement indicates in its conclusion that a registrant proposing to issue debt securities under a qualified indenture would thereby be placed under a greater handicap in making a timely offering of such securities than the issuer of securities registered only under the Securities Act of 1933. This conclusion is not justified.

Section 305(b) of the act as presently in effect permits the Commission to test the conformance of the indenture with the requirements of the act and the eligibility and qualification of the trustee under the standards of the act in a proceeding equivalent to section 8(b) of the Securities Act of 1933. Because of the time limits imposed within which an action must be commenced under section 8(b), and in view of the opinion of the Supreme Court in Jones v. SEC, 298 U.S. 1 (1936) which recognizes the right of the Commission to institute a proceeding before the effective date of a registration statement under section 8(d) of the Securities Act, section 8(b) has not been utilized for many years as an administrative remedy under the Securities Act, the Commission relying upon its jurisdiction under section 8(d) to institute stop-order proceedings.

The Trust Indenture Act does not now contain provisions comparable to section 8(d) of the Securities Act to test the adequacy of the indenture or the eligibility and qualification of the trustee. This therefore leaves the Trust Indenture Act without an effective administrative remedy after the first 10 days have expired from the date of filing with respect to the major areas in which the Commission must function under that act. In effect, once this first 10 days has elapsed (or 10 days after any amendment which may be filed) the Commission may in effect do no more than suggest certain changes with respect to the indenture or the qualification of the trustee. The proposed amendment would authorize the Commission to institute the administrative proceeding any time before the effective date of the application for qualification of the indenture. It should be noted that a clarifying modification was suggested by the Commission at the hearing on June 18, 1959.

The amendment in the form now proposed by the Commission conforms the proposal generally to section 8(d) of the Securities Act with the exception that under the Securities Act a stop-order proceeding may be instituted both before or after the effective date of the registration statement. In this way the treatment under the Trust Indenture Act will be substantially equivalent to that provided under the Securities Act.

The changes embodied in the amendment are completely reasonable and necessary if the Commission is to have an effectual administrative remedy in this area.

STAFF MEMORANDUM ON AMENDMENTS TO S. 1180, THE TRUST INDENTURE ACT OF 1939

The Trust Indenture Act of 1939 requires that bonds, notes, debentures, and other debt securities which are publicly offered for sale must be issued under trust indentures which meet certain requirements specified in the act. The requirements include selection of an institutional trustee and disqualification of a trustee for certain conflicts of interests. The indenture is required to contain provisions designed to protect security holders and to impose on the trustee a duty to represent the security holders affirmatively. The act includes a civil liability for false or misleading statements or misleading omissions and provides a criminal penalty for willful violation of the act or rules and orders under it or for willfully making untrue statements or misleading omissions of material facts.

If the security is registered under the Securities Act of 1933, the requirements of the Trust Indenture Act become part of the requirements for registration. If the securities do not have to be registered under the 1933 act, the indenture must be separately qualified under the 1939 act.

The 1939 act contains a number of exemptions, including the two described below, which are expressed in terms of dollars.

Section 1. Increase in exemption

The Trust Indenture Act of 1939 (par. 304(a)(8)) completely exempts from its requirements securities of any issuer not covered by an indenture, up to a total of $250,000 within any period of 12 consecutive months.

It also completely exempts (par. 304 (a) (9)) securities issued under an indenture which limits the principal outstanding thereunder to $1 million or less, but not more than a total of $1 million of securities can be issued under this exemption during any 36 consecutive months. The paragraph does not impose any requirements on these indentures.

S. 1180 would increase the annual exemption under the first exemption (304 (a) (8)) for debt securities not covered by an indenture from $250,000 to $500,000.

No increase is proposed in the exemption under the second exemption (304 (a) (9)) for securities issued under indentures limited to $1 million, and further limited to $1 million over 36 consecutive months.

The

Securities which exceed the $250,000 figure for a year are ordinarily issued under exempted indentures under the second exemption (304 (a) (9)). effect of the proposed amendment would be to eliminate the need of any trust indentures for issues between $250,000 and $500,000 in any year (though these indentures need not be qualified and no requirements are imposed for them), and to make the exemption of $1 million over 36 consecutive months go further by not having to include these issues between $250,000 and $500,000.

At the present time, a corporation may issue $1,750,000 of debt securities over a 3-year period without observing the requirements of the Trust Indenture Act: $1 million under section 304(a) (9), and $250,000 a year for each of 3 years under section 304 (a) (8). Under the proposed amendment, the corporation could in 3 years issue $2,500,000 free from the requirements of the act: $1 million under section 304(a)(9), and $500,000 a year for each of 3 years under the amended section 304 (a) (8).

The proposed increase is based on the analogy of the proposed increase in the discretionary authority in section 3(b) of the Securities Act of 1933. The 1933 act originally authorized SEC to grant, in its discretion, an exemption limited to $100,000; in 1945 the figure was raised to $300,000; in 1955 and 1957, the Senate passed measures which would have increased this $300,000 figure to $500,000, but in neither case did the measure become law. S. 1178 would increase this figure to $500,000. This exemption is an annual one, for an issuer and its affiliates. Accordingly, over a 3-year period, the issuer could put out $900,000 of securities under the present small issue exemption: $1,500,000 of securities could be issued under the small issue exemption if increased to $500,000.

The exemption in paragraph 304(a) (8) of the 1939 act is a complete exemption. The exemption under section 3(b) of the 1933 act is a discretionary, permissive provision, under which SEC has issued regulation A. There is a considerable degree of control over the issuance of securities under regulation A. And it is relevant to note that S. 1178 contains proposals to tighten further the controls over these exempted securities, in sections 5 and 10, along with the proposal to increase the amount which SEC may exempt.

Section 2. Extension of waiver

Section 304 (c) provides for the granting of an exemption from any one or more of the provisions of the act for securities issued under an indenture, if at the time the application is filed, securities are outstanding under the indenture which were outstanding within 6 months of the enactment of the act, i.e., by February 4, 1940. The exemption must be granted if the Commission finds that requiring compliance with the provisions involved (1) would require consent of the holders of outstanding securities, or (2) would impose an undue burden on the issuer, having due regard to the public interest and the interests of investors. S. 1180 would amend this to provide that this exemption would apply if, at the time of the application, there are outstanding any securities issued under the indenture in question which were outstanding either on February 4, 1940, or on January 1, 1959. (Continued reference to securities issued within 6 months of the enactment of the 1939 act seems unnecessary and confusing.)

SEC states that most companies have already inserted in their indentures all the provisions required by the act. However, in one case (and there may be a few other cases) securities were issued after February 4, 1940 (the last such series was issued in 1949, with a maturity date of 1983) under an indenture which did not completely satisfy the act. Waivers for these post-1940 securities were granted with respect to certain provisions of the act, under section 304 (c), on the basis of the pre-1939 securities then outstanding. The last remaining bonds of the pre-1939 issues will mature in 1966 (they would have been retired by now except for this provision). The several series issued under the indenture since 1949 have provided that they will be subject to all the provisions of the act, when the 1949 and earlier series have been retired. When the pre-1939 securities mature, in 1966 or earlier, the SEC will have no further authority to permit the issuance of debt securities under this indenture until the retirement of all the 1949 and earlier series, however desirable it might be.

Section 3. Postponement of effective date

The third amendment which would be made by S. 1180 relates to the procedures available to SEC in case the registration statement (in the case of se curities subject to the Securities Act of 1933) or the application to qualify (in case of other securities) does not appear to satisfy the requirements of the Trust Indenture Act.

Under the present law (sec. 305(b) and sec. 307 (c)), if SEC finds that the registration statement or the application to qualify shows that (1) the security is not issued under an indenture, or (2) the indenture does not comply with the act, or (3) the trustee is not qualified or has a conflicting interest, it may, prior to the effective date of registration or qualification, issue an order refusing to permit the registration to become effective. This may only be done, however, under the procedure set forth in section 8(b) of the Securities Act, i.e., notice must be given within 10 days of the filing of the statement or application, and an opportunity must be given for a hearing within 10 days.

This is the same procedure specified in the Securities Act for cases where SEC finds the registration statement "is on its face incomplete or inaccurate in any material respect." It differs from the "stop order" procedure under section 8(d) of the Securities Act under which the SEC can suspend the effectiveness of a registration statement at any time if SEC finds the statement "includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading." S. 1180 would amend section 305(b) of the Trust Indenture Act to provide that SEC may give notice at any time up to the effective date of a registration statement or an application for qualification. This notice would have the effect of suspending the effectiveness of the statement, and must provide an opportunity for a hearing within 15 days after the notice. SEC may thereupon issue an order refusing to permit the registration statement to become effective until the objections have been met, if the securities are not under an indenture or if the indenture does not conform to the Trust Indenture Act or if the trustee is not eligible or has a conflicting interest.

In the 85th Congress, SEC recommended a provision which expressly authorized it to suspend the effectiveness of a registration statement or application for qualification under these circumstances. This express provision is not included in S. 1180, but the effect is the same. And in the hearings before the House Interstate and Foreign Commerce Committee, SEC recommended that a provision expressly authorizing suspension be added to the bill.

The American Bar Association at its 1959 midyear meeting adopted a resolution opposing the bills introduced in the 85th Congress which would have granted SEC authority, without prior hearing, to postpone the effective date of registrations filed under the Securities Act and the Trust Indenture Act, because this drastic authority might be used as a club to force an issuer to accept unjustified demands by SEC. The report of the Section of Administrative Law of the ABA on this resolution points out that although the proposal to grant express authorization to postpone the effectiveness of the registration statement was eliminated from the bill, “the practical effect of issuance of the notice of hearing would be to hold up effectiveness pending the refusal order proceeding." Accordingly, the unfavorable resolution of the American Bar Association would apply to the proposal made in S. 1180, even without the proviso suggested in the House hearings.

[S. 1181, 86th Cong., 1st sess.]

A BILL To amend certain provisions of the Investment Company Act of 1940, as amended Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That paragraph (1) of subsection (a) of section 2 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(1) ‘Advisory board' means a board, committee, or group, whether elected or appointed, which is distinct from the board of directors or board of trustees of an investment company, whether or not the functions of such board are such as to render its members 'directors' within the definition of that term, which board has advisory functions as to investments but has no power to determine that any security or other investment shall be purchased or sold by such company, but shall not include a board, committee, or group composed solely of directors, officers, and employees of such company and investment advisers and officers, directors, partners, or employees of any investment adviser of such company, or any of them."

SEC. 2. Paragraph (11) of subsection (a) of section 2 of the Investment Company Act of 1940, as amended, is amended by adding the following new paragraph:

"(11A) 'Depositor' means any person who has promoted or is promoting an investment company not having a board of directors, or his successor, or who has administrative functions relating to such company, including the power to eliminate or substitute portfolio securities under the instrument of organization of such company but does not include a person whose functions as a depositor have been assumed by a successor, or a trustee or custodian of such company designated in accordance with the provisions of section 26 of this title."

SEC. 3. Paragraph (35) of subsection (a) of section 2 of the Investment Company Act of 1940, as amended, is amended by adding the following new paragraph:

"(35A) 'Share of stock' means any security similar in nature to an equity security."

SEC. 4. Paragraph (37) of subsection (a) of section 2 of the Investment Company Act of 1940, as amended, is amended by striking out "Alaska," and "the Philippine Islands,".

SEC. 5. Paragraph (7) of subsection (c) of section 3 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(7) Any company substantially all of whose business, directly or through majority-owned subsidiaries, consts of one or more of the businesses described in paragraphs (3), (5), and (6), or one or more of such businesses (from which not less than 25 per centum of such company's gross income during its last fiscal year was derived) together with an additional business or businesses other than investing, reinvesting, owning, holding, or trading in securities: Provided, That, if such company or any majority-owned subsidiary is engaged in one or more of the businesses described in paragraph (6), such company or subsidiary is not engaged in the business of issuing face-amount certificates of the installment type or periodic payment plan certificates."

SEC. 6. Paragraph (8) of subsection (c) of section 3 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(8) Any company 90 per centum or more of the value of whose investment securities are represented by securities of a single issuer included within a class