stuff; they have to, if they are going to put their money to work. Mr. YOUNGDAHL. Do you feel that if an exemption were written into the law changing it to say $1,000,000, that there would be ample protection to the investing public purchasing securities of that type? Mr. LOUDON. Entirely so, and we want it. I want ample protection for our customers. It makes us successful if they are satisfied. Mr. YOUNGDAHL. You feel that if the law were changed and the exemption were placed at $1,000,000 that it would greatly aid in new financing in the Northwest territory? Mr. LOUDON. Undoubtedly. Mr. YOUNGDAHL. That is all, Mr. Chairman. Mr. REECE. Mr. Chairman. The CHAIRMAN. Mr. Reece. Mr. REECE. As I recall, you were a great end on the Dartmouth football team? Mr. LOUDON. That was more than 25 years ago. Mr. REECE. And I presume you are reminded, in the difficulties you experience in handling small issues, of the difficulties you had in receiving forward passes in those days. Mr. LOUDON. Sometimes, without interference. The CHAIRMAN. Mr. Loudon, you referred to what your record showed about the advantage of equity financing. Would you elaborate on that to some extent? Mr. LOUDON. Well, I have never believed that it was proper financing for any company to go into a bank for 5-year loans, or more. There was a time when the banks themselves would have thrown a company out on its ears if they had asked for it, would have thought that they were crazy. A bank loan is something held over a company that it should not be faced with in the expansion period of their business, if they can get equity financing, and a great many of them are worthy of it. If they can get equity financing, they do not have to worry about paying interest or being faced with a maturity or anything else. They can attend to their business and make it go, and most of them, in my estimation, most of the smaller companies that we have contact with, basically, and from any other financial standpoint, should have equity financing rather than any bond issue or any bank loan or anything of that sort with a fixed obligation. The CHAIRMAN. Looking at it from the standpoint of the public, what do you think about it? Mr. LOUDON. The public, in equity financing, has the opportunity of sharing in the growth and the consequent worth of that business. In a great many instances, Mr. Chairman, the people that we sell to know the people that are running these small businesses. They are local. They are thrown together. They know the character of them. They know a lot about their businesses and what their prospects are, and they are anxious and ready to share in the risk, if you want to put it that way, of the equity financing of the company where they are acquainted so well with the people who are running the business and know what their business amounts to in the community. The CHAIRMAN. Relatively speaking, do you think that there is any less need of protection against fraud and deception in small issues than in large ones? Mr. LOUDON. Not from my experience. I do not think that could be borne out, sir. The CHAIRMAN. You think that you are on an equality in that respect, you mean? Mr. LOUDON. Except insofar as I think any record will show, of course, that smaller businesses, particularly if they are newer businesses, there are a greater percentage of failures among them than there is in some larger going concern that has got a big backlog of capital, reserves, or something of that sort. The CHAIRMAN. In your business in financing these small enterprises how widely distributed have been their issues, generally? That is, as to crossing State lines? Mr. LOUDON. We work through about five States, sir-North and South Dakota, Iowa, Wisconsin, and Minnesota. The CHAIRMAN. How much of a handicap have you found it to be in floating small issues to confine your efforts to one State? Mr. LOUDON. We would not try to do it. There is one other investment house in Minneapolis which tried it twice, and I do not think they will ever do it again. The CHAIRMAN. As I take it from your testimony, you look for protection to the investors largely to the State legislation? Mr. LOUDON. Yes, sir. The CHAIRMAN. And would. Mr. LOUDON. And in addition, to the enforcement powers of the S. E. C. and postal laws, which will check them if they are lapping over the State line, perhaps. We have to register as dealers, of course, in all of the States that we sell in, as well as under the 1934 act. The CHAIRMAN. That is all. Mr. YOUNGDAHL. Just one more question. The CHAIRMAN. Mr. Youngdahl. Mr. YOUNGDAHL. In addition to the return on the securities, is there not also an interest on the part of the local people to see their community develop, thereby creating more employment for people in that community, realizing that in the final analysis indirectly everybody in the town benefits by it? Mr. LOUDON. That is true; and I would like to insert one particular example here that might be of interest to the whole committee. A vice president of one of the biggest banks in MinneapolisI knew him for perhaps 18 years before he died-never bought anything but local securities. Mr. BROWN. Mr. Chairman. The CHAIRMAN. Mr. Brown. Mr. BROWN. Is it not a fact that the local investor in local securities, the man who invests in home-town securities, has the opportunity of investigating and studying the business in which his investment is to be placed, whereas the investor in a national institution does not have that opportunity? Mr. LOUDON. That definitely appeals to a great many investors, too, and I will emphasize a little more, by saying when I first went into business in the Twin Cities, about all you could sell was a mortgage loan, because they could go out and look at the building, and now a great many of the old-fashioned people still want something they can see, that they can check on, and know the people who are running it, and feel that it is a part of that community. There is not any doubt of it, sir. Mr. BROWN. And after they have made that investment in a local industry, does not the local investor, or do not the local investors, have the opportunity of watching that business closely, and knowing whether or not it is managed well; whether or not it is prospering, so that they are at all times informed as to what should be done with their investment. Mr. LOUDON. I do not think there is any doubt of it. In a lot of instances they do not know what is going on if they invest in a bigger property which is spread out all over the country or far away from where they can contact it. Mr. BROWN. And is it your experience that, after all, management is the most important element in any successful business? Mr. LOUDON. That is what we are selling on today, with any stocks that we are talking about to people that come in and want to buy them-just that one point. Mr. BROWN. If you were to make an investment, would you consider management as perhaps the most important element in the whole transaction? Mr. LOUDON. Undoubtedly. Mr. BROWN. In connection with safety of the investment, welfare of the company, or corporation, and so forth? Mr. LOUDON. If it is not digressing too much, taking up too much time, I would like to give an example of that that I experienced. Mr. BROWN. I think that is quite important in local industries. Mr. LOUDON. One of the first experiences I had with my firm when I was a lot younger and inexperienced, and when the senior partner was an older man, we were offered a deal, a lumber deal, that we could participate in underwriting and make some good money, and four of us younger partners went all over it, checked it and thought that it was attractive, and the old gentleman asked us definitely not to participate in it. We could not understand why, and he said, "I know the man at the head of that concern and he is not honest." He said, "In my experience there is enough risk of business failure where you are honest and you just have not got a chance where the man is dishonest." We turned it down, and in 2 years' time, that business was in trouble. Mr. BROWN. Now, you come from the northwest, which, of course,. has had a great development in the last few years. Has that development come as the result of small industry and local investment, or has it come as a result of the moving into the territory of huge national corporations? Mr. LOUDON The development of the small ones, and I think the record of our financing, sir, would bear that out definitely. Mr BROWN. Then your section of the country is closely tied in with the development of small industry. Mr. LOUDON. Very much so. Mr. BROWN. And pioneering? Mr. LOUDON. Particularly in Minnesota, at least. Mr. BROWN. Thank you. That is all, Mr. Chairman. The CHAIRMAN. We thank you, Mr. Loudon. 74947-42-pt. 2-18 Mr. LOUDON. Mr. Youngdahl, did you want that report of the State of Minnesota Securities Division in the record or not? I do not care. Mr. YOUNGDAHL. Mr. Chairman, would there be any objection to having this report of the Minnesota State Securities Division placed in the record? The CHAIRMAN. How long is it? Mr. YOUNGDAHL. Three or four pages. The CHAIRMAN. No; that is all right. That may be added to the record. Mr. YOUNGDAHL. Thank you. Mr. LOUDON. Thank you. (The report above referred to is as follows:) STATE OF MINNESOTA, SECURITIES DIVISION, DEPARTMENT OF COMMERCE, St. Paul, November 1, 1941. This is the first issue of a bulletin which the securities division expects to issue whenever it will serve a useful purpose. We believe such a bulletin will prove helpful to dealers, brokers, and issuers. The cooperation of dealers, brokers, and issuers in making this bulletin more useful is respectfully solicited, and any suggestions will be appreciated. THE AMENDED SECURITIES LAW During the last session of the Minnesota Legislature, extensive amendments were made to the securities law. Among the more important changes, was the inclusion of provisions in the law extending jurisdiction to cover the activities of investment advisers. Another provision now gives the department discretion to grant licenses to agents of licensed dealers or brokers, even though the agent may not have resided in the State for the past year. All dealers and brokers have been mailed copies of the revised law, and if questions come up, it is hoped that those problems will be taken up with the securities division. EFFECTIVE UNLIMITED REGISTRATIONS-SINCE JULY 1, 1941 RESTRICTED REGISTRATIONS BY NOTIFICATION-SINCE JULY 1, 1941 Name of security and by whom registered Type of security Date registered Associated Telephone Co., Ltd. (by $26,000, aggregate amount cumulative preferred July 10, 1941 Paine, Webber & Co.). Brandtjen & Kluge, Inc. (by Harold E. Buffalo Forge Co. (Piper, Jaffray & Central Paper Co., Inc. (E. H. Rollins Citizens Morris Plan Co. (by issuer)....... stock, $1.25 series, without par value at not to $200,000, aggregate amount common stock, par $2,000,000 fully paid certificates, $1,200,000 series RESTRICTED REGISTRATIONS BY NOTIFICATION-SINCE JULY 1, 1941-Continued Name of security and by whom registered Commonwealth Telephone Co. (by Dun & Bradstreet, Inc. (Merrill Lynch, Do. Globe Steel Tubes Co. (by Kalman & Co., Inc.). Griggs, Cooper & Co. (by Kalman & Co., Inc.). Hickok Oil Corporation (Wells-Dickey Co.). Ideal Cement Co. (by Wells-Dickey Co.) International Machine Tool Co. (by Kalman & Co., Inc.). Keyes Fibre Co. (by Paine, Webber & Co.). Missouri Utilities Co. (by Riter & Co.)... Natioonal Battery Co. (by Piper, Jaffray & Hp wood). Northern Natural Gas Co. (by Blyth & Co. Inc.). Otter Tail Power Co. (by Kalman & Co.). Public Service Co. of Indiana, Inc. (by Kalman & Co., Inc.). Public Service Co. of Indiana, Inc. (by Wells-Dickey Co.). Snap-On Tools Corporation (by issuer)... Sylvania Industrial Corporation (by Paine, Webber & Co.). Triumph Explosives, Inc. (by Chrest & Co.). Type of security $42,000, aggregate amount $5 cumulative preferred stock at not to exceed $103.50 per share. 5,000 shares cumulative preferred stock, $2 dividend at $29.75 per share. 622 shares common stock at $33.75 per share..... 622 shares common stock at not to exceed $33 per share. $50,000, aggregate amount common stock at dayto-day market, up to $20 per share. $20,000, aggregate amount 7-percent cumulative preferred stock at day-to-day market. 4,000 shares class A common stock, par $100, at not to exceed $15.50 per share. $131,260, aggregate amount common stock, par $10, at not to exceed $35 per share. $20,000, aggregate amount, common stock at day-to-day market, up to $15 per share. $200,000, aggregate amount, first mortgage sinking fund 4%-percent bonds at initial offering price and thereafter day-to-day market. $207,00, aggregateamount common stock, par $1, at not to exceed $13.50 per share. $50,000, aggregate amount common stock, no par value, at market, up to $40 per share. 355,250 shares common stock, par value $20 per share, at not to exceed $35 per share. $100,000, aggregate amount common stock at day-to-day market, up to $40 per share. $25,000, aggregate amount, 5 percent cumulative preferred stock at day-to-day market. $72,380, aggregate amount, 5 percent preferred stock at day-to-day market, up to par value. 10,000 shares common stock at not to exceed $13.50 per share. $60,000, aggregate amount capital stock at dayto-day market, up to $30 per share. $25,000, aggregate amount common stock at mar. ket, up to $5 per share. LICENSED DEALER-NEW SINCE JULY 1, 1941 REGISTRATION OF INVESTMENT TRUSTS-SINCE JULY 1, 1941 Licensed Aug. 19, 1941 Oct. 7, 1941 Aug. 26, 1941 Sept. 2, 1941 July 15, 1941 July 22, 1941 Sept. 9, 1941 |