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situation. I do not think they either simplify it sufficiently or reduce the time adequately.

Mr. Wadsworth has expressed his ideas to the committee in his bill as to what that reduction of time and simplification should be. I simply cannot see any need or any reason for the extension of these registration requirements.

Mr. REECE. În studying the proposal which has been advanced, as to simplification and as contained in the bill that was presented by the Commission and the industry, I presume we should keep in mind that the proposals submitted by the industry were arrived at after consultation with the Commission and might not represent the maximum proposals which the industry itself felt should be enacted.

Mr. TWOMBLY. I would be inclined to think it was a compromise measure, although I have no way of knowing.

Mr. REECE. Well, we find here that compromise measures are not unusual.

The CHAIRMAN. Have you concluded, Mr. Twombly?
The CHAIRMAN. Thank you, Mr. Twombly.
Mr. TWOMBLY. Thank you.



The CHAIRMAN. Mr. Jones.-
Mr. JONES. Mr. Chairman and gentlemen of the committee
Mr. YOUNGDAHL. Mr. Chairman-
The CHAIRMAN. Mr. Youngdahl.

Mr. YOUNGDAHL. Would it be in order for me to interrupt at this time?

The CHAIRMAN. Very well.

Mr. YOUNGDAHL. When the witness testified before I asked him some questions about his interest in this legislation and I would like to know a little bit more about whom he represents. I realize that you say you represent the Manufacturers' Association, but as to your membership, as I remember in your former testimony, you said about 60 percent of your membership was small businesses.

Mr. Jones. I so understand; yes, sir.

Mr. YOUNGDAHL. And as I further remember your testimony, you at that time said you did not want any change in the law; that your membership did not want any change in the law.

Mr. JONES. Mr. Youngdahl, at that time, you will probably recall that we pointed out that the National Association of Manufacturers has a representative administration. I represent the membership of the association. I have nothing to do with the office administration of the association itself. You therefore will have to pardon me, if I am not quite as familiar with the administrative details as probably I should be.

Mr. YOUNGDAHL. No; my point is this: Do you represent the majority of the members of your organization in testifying here today?

Mr. JONES. I understand that the membership of the board of directors of the National Association of Manufacturers is an elected body, and it is that elected body which establishes the policies of the association and its public presentations.

My own interest in this, I must say, came about in rather a different manner than that of some other members in it. The business interests which I represent have been members of the association for many years. The Securities Acts naturally affect the business of myself and my associates. I therefore have taken some pains to acquaint myself with them. In the spring of 1940 I wrote to Mr. Wadsworth and asked him for some information about the bill which he had presented to the House. Sometime after that I saw in the National Association of Manufacturers' literature some comments with respect to these proposed amendments. I, therefore, inferred that they had a complete file of what was being presented. I solicited it from them.

Mr. YOUNGDAHL. When you say “they” whom do you mean?
Mr. Jones. I mean the National Association of Manufacturers.
Mr. YOUNGLAHL. You mean the elected directors?
Mr. JONES. I mean the elected organization.

Mr. YOUNGDAHL. Is it within your knowledge as to whether or not this group has taken a survey among its members, to determine how they feel about this legislation?

Mr. JONES. If you will let me go on a little bit, I will try to explain what I know about it and how I think it developed.

Mr. YOUNGDAHL. Very well.

Mr. JONES. I want to say, however, that we, in my own business, have been subscribing to their publications and have been members for many years.

When I got from them this report which was gotten up by the securities industry—the investment banking industry, the stock exchanges, and so forth-I read it with much care. I felt that

many posals were adverse not only to our own interests, but to those of many, many corporations, and by that, I mean primarily to relatively small business. That is my business-small business, primarily.

I then sought an opportunity to discuss with them what they might know of it. I was invited to join their committee on the relation of Government to industry, and I was thereafter invited to become chairman of the subcommittee on industrial financing. At one of the committee meetings I took particular pains to point out how I felt these proposals affected business, and as a result of that, the committee adopted the position which they believed to be in the best interests of the association membership. Do I make myself plain?

Mr. YOUNGDAHL. I do not want to delay the testimony of this witness, Mr. Chairman, but I would like to conclude my questioning by making an observation. As I understand the statement of the witness the only group of the Manufacturers' Association that is interested in this legislation is the board of directors, and that no particular survey has been made among their thousands of members throughout the country as to how the members feel about this legislation.

Mr. JONES. I cannot answer that in the affirmative, because I am not on the staff; but I have been informed that they have taken particular pains to circularize their membership and that they have received numerous—I cannot tell you how many-replies expressing their interest in this.

of the pro

Mr. YOUNGDAHL. That is all, Mr. Chairman.
Mr. JONES. I did want to supplement that, however, by saying-
Mr. REECE (interposing). Mr. Chairman.
The CHAIRMAN. Mr. Reece.

Mr. REECE. Since the witness' attention has been diverted, may I ask if any member of your subcommittee is a member of any business which has made an application for registration with the Securities and Exchange Commission?

Mr. JONES. I am quite sure that is true. I know of one in particular, and there must be many others. If I can answer your question more specifically, I will be glad to have the association try to answer it.

Mr. REECE. I am sorry that I interrupted you. You may proceed. Mr. JONES. Thank you.

On behalf of the National Association of Manufacturers, and speaking for issuers of securities, I am here to discuss the merits of the proposal of the securities industry to amend the Securities Act of 1933 by inserting a new section 2 (14). This is designed to require registration of securities sold directly to institutional investors. I do not propose to debate the merits of private placements as a form of corporate financing.

The evidence which has been presented by the securities industry on this matter appears to have been devoted more toward the presentation of an impressive array of statistics on the volume of private sales by issuing companies to banks and insurance companies during recent years than toward the merits of the specific proposal contained in section 2 (14).

Upon the introduction of these statistics in these hearings, we were astonished at the wide discrepancy between them and figures which had appeared in financial publications and official publications of the Securities and Exchange Commission. We requested an opportunity to review the detailed supporting data which Mr. Stewart had presented to the committee members at the hearing, and we are appreciative of the fact that this data was promptly made available to us. I hope that Mr. Stewart will not be offended that under the circumstances we must raise certain questions in regard to his statistics.

First of all, it has seemed to us important to bring to the attention of this committee the fact that financing through private sale by an issuing company to an institutional investor is not new. Table A submitted by Mr. Stewart last Friday, November 7, contains a representation that the "Total direct financing” in the year 1933 was “None.” On Wednesday of this week Mr. Stewart, in his testimony, went further and stated that there was no record of private purchases by insurance companies, except for real-estate mortgages, prior to 1933.

Against that testimony I wish to read into the record a tabulation taken from statistics introduced in the hearings before the Temporary National Economic Committee, showing the corporate bonds purchased privately from issuers by the 26 largest legal reserve life-insurance companies in the United States during the years 1932 through 1938. In this table we show the principal amount of bonds purchased privately in each year and the percentage which these purchases bear to the total corporate bonds acquired in each year.

(The table referred to is as follows:)

TABLE I.-Corporate bonds purchased privately from issuers by the 26 largest

legal reserve life-insurance companies in the United States

[blocks in formation]

The foregoing figures are taken from pages 131 and 132 of part 10-A of the hearings before the Temporary National Economic Committee. The foreword to part 10-A of the hearings states that the information therein contained was assembled from replies to questionnaires of the Securities and Exchange Commission issued in connection with the study of life insurance which the Commission was conducting for the T. N. E. C.

Let me call your attention particularly to the fact that the foregoing tabulation shows that the percentage of bonds purchased privately by the largest legal reserve life-insurance companies, in relation to their total purchases of corporate bonds, was greater in the year 1932, preecding the passage of the Securities Act, than it was in the year 1936.

We have not attempted to make any extensive study for the years prior to 1932. In those days, of course, there was no such large volume as has existed recently and we have not found any tabulation in financial publications on this matter for earlier years. However, the Securities and Exchange Commission, in their report to this committee dated August 7, 1941, on page 18, states as follows with respect to direct sales to institutional investors:

This latter type of financing is by no means new. It was common long before the Securities Act was enacted, and, in our opinion, it will continue to be employed by many corporations for a variety of reasons under present condi. tions, irrespective of the suggested amendments to the Securities Act.

Corporate financing has for many years been reported in considerable detail in the Commercial and Financial Chronicle. We have undertaken to examine the data set forth in that publication for the year 1929, by way of example. In that year we found that 11 issues, aggregating approximately $21,500,000, were sold privately by issuers and became a matter of public record.

Admittedly this information is incomplete, and we have attempted no such exhaustive study as was possible for the securities industry in preparing its detailed analysis of direct purchases subsequent to 1933. However, I have been informed, with reference to life-inurance companies in New York, that there were private purchases of issues of electric utility companies in 1928 and 1932, and such purchases of several issues of railroads and railroad terminal companies between 1923 and 1930.

There can be no question of the fact that private placements did not originate with the Securities Act. In fact, I am sure that the

74947-42--pt. 2--9

members of this committee will recall the not infrequent appearance in newspapers and periodicals during the 1920's of advertisements of new issues which carried at the top a legend, in effect: “These securities having been sold privately, this advertisement appears as a matter of record only."

The second question which we find it necessary to raise in regard to table A which was submitted on behalf of the securities industry goes to the trend and magnitude of private placements during the period from 1934 through 1940. Table A would indicate that private placements more than doubled between 1937 and 1938 and almost doubled again between 1939 and 1940. Furthermore, the figure of over 112 billion dollars of private financing in the year 1940 is used in table D submitted by Mr. Stewart to show that private financing amounted to 43.59 percent of total domestic corporation and foreign dollar financing in 1940. In his testimony Mr. Stewart laid great stress upon this percentage-43.59 percent.

The detailed data which underlie the figures contained in table A were apparently accumulated from many sources. Mr. Stewart himself in his testimony conceded that the figures for all of the years from 1934 through 1940 might not be on a comparable basis. For the purpose of checking the conclusions presented by table A we have gone to two sources which give similar information on a basis which we believe to be reasonably comparable as between the different years. Since 1937 the Commercial and Financial Chronicle has published tabulations of private placements. For the years 1934 to 1937 a report to the Securities and Exchange Commission entitled “Selected Statistics on Securities and on Exchange Markets," made by the Research and Statistics Section of the Trading and Exchange Division of the Commission in August 1939, gives similar information. Using these two authoritative sources of information, I wish to submit a tabulation of private corporate financing for each of the years 1934 through 1940, set alongside of the figures presented in table A submitted by Mr. Stewart, with a further tabulation showing the differences in each year between Mr. Stewart's figures and the Securities and Exchange Commission-Commercial and Financial Chronicle figures.

(The table referred to is as follows:)

TABLE II.Total corporate private financing

Figures re-
Figures shown

ported by

Securities and
in table A sub-
mitted by

Exchange Com

mission or
Mr. Stewart on

Nov. 7, 1941

and Financial


DifferenceColumn lover

column 2




1934. 1935. 1936. 1937 1938. 1939 1940

$96, 093, 000
391, 125, 300
377, 334, 100
328, 806, 500
832, 404, 700

827, 900, 250
1, 556, 190, 135

$100, 939, 000
365, 889,000
447,854, 000
447, 768, 000
680, 512, 000
728, 558, 000
792, 636, 000

-$4,846, 00C +25, 236, 300 -70, 519, 900 -118, 961, 500 +151, 892, 700

+99, 342, 250 +763, 554, 135

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