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Mr. BOLLARD. Yes, sir; for the choice issues. The yields show that.

It has sometimes been said that the great life-insurance companies are in reality aggregations of Tom, Dick, and Harry in that their policyholders are scattered throughout the United States. It is undoubtedly true that the large companies are nationally representative but probably it would be more correct to say that only part of the Toms, Dicks, and Harrys are included among their policyholders. There are a lot of Toms, Dicks, and Harrys also among the other 300 legal-reserve companies. Furthermore, the life insurance Toms, Dicks, and Harrys are really only a part of a most numerous family-less vocal brothers, cousins, sisters, aunts-each with investment funds, some small, some large. There are so many members of this family that in the aggregate they and their investment funds comprise huge totals. I submit it is in the interest of the general economy that all classes of investors, no matter what the community or interest served, have an equal opportunity to buy the choicest investments. Our analysis shows that is impossible under the act as it now stands and is being administered. We believe the proposed section 2 (14) amendment will go far toward providing that equal opportunity.

The information developed speaks for itself. I think it shows unmistakably that private placements have damaged directly and very seriously important and widely diversified investor interests involving a very large number of individuals and institutions and extremely large aggregates of capital, such institutions and individuals being located in every part of the United States. Savings bank deposits, educational institutions, hospitals, foundations, churches, pension and philanthropic funds, trust funds, individual investors, and all insurance companies and banks except a relatively few of the largest have suffered. In the 5-year period one and a quarter billion choice investments were taken from them, with no opportunity to purchase any part of 21/2 billion choice investments newly createdand those figures are understatements.

Although my analysis does not go beyond 1939, the tabulations placed before you last week by Mr. Stewart show that the evil has even intensified since 1939. You may recall that those tabulations showed that whereas private placements constituted 37 percent of all bond financing in 1939, they had grown to approximately 48 percent in both 1940 and 1941, to September 15.

So much for the direct damage to investors. There is bound to be a further indirect damage if private placement procedure is to continue. I refer to its effect on the investment banking organization of the United States—and particularly on the business houses engaged in this activity in the cities and towns throughout the country, the so-called smaller dealers in contradistinction to the larger underwriting firms of New York and the other large cities.

Before private placement developed, when financing beyond bank loans was commonly done by public issues, and in the case of public issues even in these days of large private placements, these so-called smaller dealers have participated by receipt of commissions on their sales of these public issues. These commissions have constituted a backlog of income for these dealers, thus making a substantial contribution to the necessary expense of their business operations. No payments whatever come to them from the 47 percent of financing being done by the private placement route.

Mr. CROSSER. Have you far to go before you finish your statement ?
Mr. BOLLARD. I have just a portion of a page.
Mr. CROSSER. I think we can stay long enough to let you finish.

Mr. BOLLARD. Many if not most of the investors served by these dealers are neither experienced nor well-informed in investment matters. They must look to their resident dealers for information, advice, and service. Private placements are materially reducing the income of these dealers and hence impairing their ability to maintain their organizations and service facilities. This indirect damage to investors from its continuance seems evident.

What is the remedy for all this? Simplify registration and make it less expensive to the maximum extent possible without sacrificing adequate protection for the investor and then stipulate registration for all issues affected with a public interest. In general it would seem there should be equal treatment for all issuers, for all investors.

May I include these tables which I have given you, in the record ?
Mr. CROSSER. You may include them.
(The tables above referred to are shown in the record above.)
Mr. CROSSER. Have you finished ?
Mr. BOLLARD. I have, sir.

Mr. CROSSER. Well, the committee will stand adjourned until 10 o'clock tomorrow morning.

(Thereupon, at 11:05 a. m., the committee adjourned to meet at 10 a. m. the following morning, Friday, November 14, 1941.)

PROPOSALS FOR AMENDMENTS TO SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934

FRIDAY, NOVEMBER 14, 1941

HOUSE OF REPRESENTATIVES,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D. C. The committee met, pursuant to adjournment, at 10 a. m., in the committee room, New House Office Building, Hon. Clarence F. Lea (chairman) presiding.

The CHAIRMAN. The committee will come to order. You may proceed, Mr. Folger. STATEMENT OF J. C. FOLGER, OF FOLGER, NOLAN & CO., INC.,

WASHINGTON, D. C. Mr. FOLGER. My name is J. C. Folger. I am a member of Folger, Nolan & Co., a local firm organized in 1931. Our distribution is almost exclusively in bonds and we do no margin business. Our personnel was largely drawn from individuals who had worked for branches of out-of-town firms. We have 14 people in the organization.

My testimony will relate to the proposed amendment on private placement and will show how private placement has affected security dealers and investors right here in the city of Washington. I doubt doubt if there is a place in the country where the issue stands out more prominently.

The following exhibit will, I think, be informing:

Sales of public-utility bonds in the District of Columbia

POTOMAC ELECTRIC POWER CO.

[blocks in formation]

Do.

1,000,000

342 To be outstand

October 1940.

standing 1965.

8,500,000 (Commitment. Acacia Insurance Co. Baird Construction Co.

It will be observed that out of approximately $45,000,000 of bonds of investment rating issued in Washington during the last 5 years, approximately $30,000,000, or 6643 percent, were placed privately. Only one issue, that is, $15,000,000 Potomac Electric Power 314's of 1966, offered in July 1936, was a public offering. Since that time private placement has taken 100 percent of our local utility bonds.

To the extent that the very large buyers take high-grade securities out of the Washington and other markets, investors are being deprived of the opportunity to invest in the prime securities of local companies. In my opinion, home securities for home people is a sound principle.

One of the greatest problems with respect to the small investor is that of inducing him to place proper emphasis on quality in his investments. High yield and speculative profits are frequently overemphasized. The small investor is much more likely to be drawn to high-grade local securities with which he is familiar than to offerings from distant cities. It is not sufficient to say that the local buyer can look elsewhere to make his investments. In my opinion, it is to his interest and the public interest that he have an opportunity to buy high-grade local securities with which he is familiar, and in which he is likely to make commitments.

Along these lines and to show how local investors do become interested in their home securities, it has been estimated that approximately 90 percent of the Capital Transit bonds and stocks in the hands of_the public are held locally. Nearly all of the Potomac Electric Power Co. preferred and the Washington Gas Light preferred stocks are owned locally. Except for private placement, a large percentage of the publicly owned Washington Gas Light bonds are held in Washington. Probably 25 to 30 percent of Washington Gas Light common is owned by Washington investors. Of the Washington Railway & Electric bond and stock, a large amount is held locally.

This type of security distribution is sound. Investors can keep more closely informed about their local companies than they can about distant corporations. They can evaluate trends, character of management more satisfactorily. Over a lifetime, there is no reason to believe why home investors, insurance companies, educational and religious funds would not become attached to their own high-grade utility bond in preference to issues of distant corporations.

The history of private placement confirms the fact that only a few very large buyers are benefited. Frequently the volume of individual purchases under private placement runs up into the millions of dollars, amounts far beyond the capacity of any local investor or any investor, except the very large institution. In this market our orders run mostly in the 5 to 25 bond brackets. There are in this vicinity financial institutions, church and educational funds, as well as individuals, interested in high-grade bonds. Anyone who has canvassed the sentiment in this type of buyer will discover very distinct dissatisfaction over the way all of our best bonds are going out of the territory. The smaller buyer wants his 25 bonds just as much as the big buyer wants 25,000,000. I think it is unwholesome to have a system of distribution whereby a few very large insurance companies

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