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At the same time I wish to say again that every such serial issue was in fact sold under the exemption now available under section 4 (1) of the act.

I have a number of tables here, Mr. Chairman, which I do not purpose to bother you with. I wish merely to call your attention again to this document and to say that if anyone wishes to take the time to go through it and add up the items, he will find the justification for every total used in our discussion about proposed section 2 (14).

I wish also to ask you to permit this document to be accepted as an exhibit. I hesitate to ask you to have it included in the record because of the massive size of the document, but I do hope that you will permit it to be a part of the official record in some way.

The CHAIRMAN. Very well; you may deliver it to the clerk.

Mr. STEWART. Thank you, Mr. Chairman. That is all I have to say, Mr. Chairman.

The CHAIRMAN. We thank you, Mr. Stewart.
Mr. STEWART. Thank you.

The CHAIRMAN. The committee will stand adjourned until 10 o'clock tomorrow morning.

(Thereupon, at 3:25 p. m., the committee adjourned to meet at 10 a. m. the following morning, Wednesday, November 19, 1941.)




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 please come to order.



Commissioner PURCELL. Mr. Chairman.
The CHAIRMAN. Mr. Purcell.

Commissioner PURCELL. For several sessions the committee has heard presentations on the part of the securities industry group and on the part of various representatives of insurance companies, banks, mutual savings banks, and others with respect to the proposal of the securities industry to amend the Securities Act to include what has been designated as new section 2 (14), which would require the registration in effect of issues of securities regardless of their purchasers or the number of the purchasers which are of a marketable nature.

This testimony has been very complete, and I do not think that there is much that the Commission wishes to say with respect to the merits or demerits of the proposal.

However, in the course of this testimony one or two things have stood out as to which we think the record needs clarification.

Practically without exception, the witnesses have referred to the cost and burdens of registration under the Securities Act, advancing them as reasons, at least in part, for the development, as it has been described, of the private-placements procedure.

As to the cost of registration, we inserted in the record previously some figures at the time we were discussing proposals for simplification of the registration process. Also at that time Congressman Wadsworth discussed a table of figures which had been submitted to him by the American Water Works & Electric System, setting forth the estimated additional cost which would have been involved in 39 various issues of securities which had been placed privately by the company, or by various subsidiaries in the system, had those issues been marketed publicly, and the company has, as I understand it, advanced this table

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to demonstrate that it was to avoid the costs which would be involved in public offering, and hence the cost involved in registration, which is requisite to public offering, that these issues were placed privately.

Mr. WADSWORTH. I might add there, Mr. Commissioner, the delays also were important.

Commissioner PURCELL. And the delays as well.

I think I am correct, Congressman, in saying that the figures which they presented on this table primarily were for the purpose of showing the cost which would be involved.

Mr. WADSWORTH. Yes; but the letter of transmittal emphasized also the delays.

Commissioner PURCELL. I understand.

We, at the time that Congressman Wadsworth was kind enough to submit the table to us for an analysis, we asked him if he would be good enough to attempt to get a break-down of one of the columns, and he said he would try; but I should like to discuss it even without the breakdown.

We have made an anlysis of the figures as they stand on the table, and I think that they are very interesting and will be interesting to the committee from the point of view of examining into the burden of costs which it has been stated in the testimony is so greatly involved in the process of public offering and registration with the Commission.

I have photostatic copies of the table prepared here, which I will submit for the use of the committee, so that they may follow while I discussing it.

The table, as I say, relates to 39 American Water Works System issues which were privately placed, and which involved securities totaling in face amount $101,439,000.

It was stated that the computation of actual cost and estimated costs of public sale would show in round figures an additional cost of $1,500,000 for all of those issues in order to register and offer them publicly.

We took the liberty of checking the addition of the estimated cost figures and found that, at least, our computation machines told us, that the figures should have been about $100,000 more, so that it would come to around $1,600,000, upon their estimates.

Mr. WADSWORTH. My arithmetic processes, are not perfect.

Commissioner PURCELL. Another factor in the table which would seem to operate in favor of the contention of the American Water Works System is, we found that in the case of the issue of $7,500,000 of bonds in the South Pittsburgh Water Co., which will be found not quite half way down the table under the date of March 29, 1939, the official preparing the table apparently made an error of about $100,000 in estimating increased costs which would have been incurred. The table shows estimated costs in a public sale to be $106,095.

Following the same formula which was used by the system in estimating the savings in the other issues, it is reasonable to assume that the public expense figures would be about $100,000 larger than they stated, or $207,345.

We, therefore, take the liberty of correcting the table to increase the estimated public cost by an additional amount of $101,250.

Now, with that correction, the table would show an estimated saving, according to the company, of $1,701,361 as compared with a round figure of $1,500,000, which was previously discussed during the hearings.

For the purposes of the present discussion, therefore, it is assumed that the estimated cost of a public sale would be about $200,000 greater than the figures heretofore used and about $100,000 greater than the figures that the American Water Works estimated.

During the hearings, on November 5, when this was discussed, concerning the additional expenses involved in public offerings, I indicated that without a break-down of the estimated savings in this table it would be difficult to understand why there could or should be any such discrepancy between the expenses, including underwriting commissions, involved in private placements and public offerings; but I think in view of the anlysis we have made we will not, for present purposes, at any rate, need such break-down.

Now, as to the table, I would like to point out that it gives information concerning 39 issues sold privately by the system during the years 1936 to 1941, inclusive.

The table identifies the companies; indicates the types of securities; the amount sold; the interest rates; the type of business engaged in by each company; the number of and character of many purchasers of the securities and the use to which the proceeds were to be put.

Now, in addition to that, columns 9 and 10 compare the actual cost of private sale experienced in each of the 39 instances, with the estimated cost which would have been incurred if the securities had been sold through underwriters to the public.

Column 11, the last column, indicates the amount of bankers' commissions actually paid in connection with the private sales.

Now, the figures in column 9, when properly totaled, and the estimated figures in column 10 as corrected, show the actual cost incurred by the company in the sale of the 39 issues to be $1,264,702, and the estimated cost of public sale to be $2,966,063, the difference being the figures I have stated previously, $1,700,000.

Now, Mr. Wadsworth stated that it was his understanding that the difference, whatever the amount might be, was attributable to registration costs which the system estimated it would have encountered had it financed the 39 issues publicly rather than privately.

I would also like to call your attention to two notes at the bottom of the table which, when read and applied to the table, affect the conclusions which one might draw from the table.

The first note tells us that column 9—that is the column showing the actual cost of private sales-includes the commissions actually paid the investment bankers, and the second note tell us that column 10 that is the estimated cost of public sale-is column 9 increased to bring

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