appear specially to move to quash and dismiss the order for hearing.2 The grounds of the motion are:

1. That the Securities Exchange Act of 1934 is unconstitutional for various enumerated reasons.

2. That the alleged acts and omissions in the conduct of the business of the respondents are not interstate commerce and are not subject to regulation by Congress.

3. That Section 27 of the Securities Exchange Act of 1934 vests exclusive jurisdiction of violations of the Act in the district courts. 4. That the order to show cause fails to set forth matters entitling the Commission to exercise any power in the premises.

We believe that we cannot appropriately undertake to pass on the questions of constitutionality raised by the first point. By passing the Act, Congress expressed its own opinion that the Act is constitutional. It is not the function of the body delegated by Congress to administer the Act to question its constitutionality. This Commission will proceed on the assumption that the Act is constitutional unless and until the courts declare otherwise.

The second point asserts the inability of Congress to regulate acts and omissions of the respondents which are alleged not to be interstate or foreign commerce. But there can be no question that Section 15 (b) does authorize the Commission to revoke registration of brokers and dealers for willful false statements in their registration statements. The contention is thus reduced to the claim that, unless the false statements themselves concern acts in interstate commerce, Congress may not constitutionally authorize the Commission to revoke the license of a partnership to conduct a securities business in interstate commerce when that partnership's application for a license contains false statements as to its membership and control. As we have already indicated, we shall assume that Congress could constitutionally exercise the powers which it has exercised.

The third point involves a question of statutory construction concerning our jurisdiction to maintain these proceedings. Section 27 of the Securities Exchange Act provides:

The district courts . . . shall have exclusive jurisdiction of violations of this title or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this title or the rules or regulations thereunder . . .

"Respondents have also requested oral argument in accordance with Rule XII of our Rules of Practice. For reasons indicated in our opinion on respondents' motion for a bill of particulars (see In the matter of Walston & Co., Vernon Walston, William Sherman Hoelscher, Charles De Y. Elkus, and Clifford P. Hoffman, 5 S. E. C. 109 (1939)), the request is denied.

* Congress expressly considered the question of constitutionality of the Act. See Hearings of the Committee on Interstate and Foreign Commerce of the House of Representatives on H. R. 7852 and H. R. 8720, 73d Congress, 2d Session, p. 29 et seq., 925 et seq.; Hearings of the Committee on Banking and Currency of the United States Senate on Stock Exchange Practices, Part XVI, page 7634 et seq.

Arguing from this section, respondents contend that this Commission cannot exercise any of the jurisdiction over violations of the Act which, they contend, is conferred exclusively on the courts. Such a conclusion completely disregards the statutory provisions under which this proceeding is brought, which read:

Sec. 15 (b) The Commission shall, after appropriate notice and opportunity for hearing, by order deny registration to or revoke the registration of any broker or dealer if it finds . .

Sec. 19 (a) The Commission is authorized, if in its opinion such action is necessary or appropriate for the protection of investors... (3) After appropriate notice and opportunity for hearing, by order to suspend for a period not exceeding 12 months or to expel from a national securities exchange any member or officer thereof whom the Commission finds has violated any provision of this title or the rules or regulations thereunder . . .

...

There is no conflict between these sections of the Act and Section 27. Section 27 grants to the district courts exclusive jurisdiction over "violations," and suits at law or in equity. When read in its context in Section 27, the word "violations" clearly refers to criminal proceedings instituted pursuant to Section 32 (a), not to administrative proceedings.

The fourth point appears designed to perform a function like that of a general demurrer. But obviously the order for hearing states a case for revocation of the registration under Section 15 (b) because of false statements in a registration statement, and therefore also states a case under Section 19 (a) (3) for violation of a provision of the Act. The point is without merit.

For the reasons indicated, the motion to quash and dismiss the order for hearing is denied.

5 8. E. C.

[No. 772]

IN THE MATTER OF

CENTRAL ILLINOIS ELECTRIC AND GAS CO.

File No. 32-146. Promulgated June 19, 1939

EXEMPTION OF SECURITY ISSUE OF REGISTERED HOLDING COMPANY OR SUBSIDIARY.

Issue Solely for Purpose of Financing the Business of Subsidiary. Application, having been filed by a subsidiary of a registered holding company, pursuant to Section 6 (b) of the Public Utility Holding Company Act of 1935 for exemption from the provisions of Section 6 (a) of the Act, of the issue and sale of $14,750,000 principal amount of first mortgage bonds, 34% series, due 1964, and $3,000,000 principal amount of unsecured serial debentures, the proceeds of the financing to be used for the redemption of $13,909,000 principal amount of first and refunding mortgage gold bonds, 5% series due 1951, redemption of $746,000 principal amount of first and refunding mortgage gold bonds, 6% series due 1952, and the redemption of $2,000,000 principal amount of 3-year 34% collateral notes, the balance of the proceeds to be used for capital additions and improvements, exemption granted subject to certain conditions, the Commission finding that both offerings are made solely for the purpose of financing the business of the applicant and have been expressly authorized by the state commission.

Condition-Provision for Depreciation and Maintenance.

Exemption from the provisions of Section 6 (a) of the Act of the issue and sale of first mortgage bonds, 34% series, due 1964 and serial debentures, granted upon the condition, among others, that so long as any of the mortgage bonds and serial debentures are outstanding under the mortgage and indenture, applicant shall not declare or pay dividends (other than dividends payable solely in shares of its common stock) or make any other distribution on any shares of its common stock, nor shall any shares of such common stock be purchased, retired, or otherwise acquired by said company for a consideration except out of net earnings of the company lawfully available for the purpose accumulated after December 31, 1938, provided, however, that in computing the amount of such net earnings which are so available, these shall have been, subsequent to December 31, 1938, and up to the date as of which such computation is made, either expended for maintenance, or credited to a reserve for depreciation on retirements and charged against earnings, an amount at least equal to the amounts required to be expended and deposited with the trustee by the provisions of the mortgage, for such period.

FINDINGS AND OPINION OF THE COMMISSION

Central Illinois Electric and Gas Co., a direct subsidiary of Consolidated Electric and Gas Company, and an indirect subsidiary of Central Public Utility Corporation, both registered holding com

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panies, has filed an application, and amendments thereto, under Section 6 (b) of the Public Utility Holding Company Act of 1935 for exemption from the provisions of Section 6 (a) of that Act of the issue and sale of $14,750,000 principal amount of first mortgage bonds, 334% series, due 1964, and $3,000,000 principal amount of 3%-32%4% serial debentures, due serially December 1, 1939, to June 1, 1949, inclusive.1

Exemption is sought under that sentence of Section 6 (b) which provides that the Commission shall exempt from the provisions of Section 6 (a) of the Act "subject to such terms and conditions as it deems appropriate in the public interest or for the protection of investors or consumers" the issue or sale of any security

by any subsidiary company of a registered holding company, if the issue and sale of such security are solely for the purpose of financing the business of such subsidiary company and have been expressly authorized by the state commission of the state in which such subsidiary company is organized and doing business.

A public hearing on the application, as amended, was duly held after appropriate notice. No member of the public appeared or requested an opportunity to be heard. The Commission has examined the record herein and makes the following findings:

1. Relation of applicant to registered holding companies.-The applicant is an indirect subsidiary of Central Public Utility Corporation, and a direct subsidiary of Consolidated Electric and Gas Company, both registered holding companies. The following list indicates the chain of control:

Voting trustees under voting trust agreement dated August 1, 1932, for common stock of Central Public Utility Corporation.

Central Public Utility Corporation.

Consolidated Electric and Gas Company.

Central Illinois Electric and Gas Co.

2. Organization and business of applicant.-The applicant is a public utility company organized under the laws of Illinois and operating wholly within that state. It was originally incorporated on February 22, 1861, under the name of Rockford Gas Light and Coke Co., changed its name on December 2, 1930, to Illinois Public Utility Co., and later, on February 4, 1931, adopted the name of Central Illinois Electric and Gas Co.

1 The Public Utilities Holding Company Act of 1935 is hereinafter referred to as the "Act"; Central Illinois Electric and Gas Co. and its predecessor corporations are hereinafter collectively referred to as the "applicant" or "Central Illinois"; and Consolidated Electric and Gas Company and its predecessor corporations are hereinafter collectively referred to as "Consolidated."

Generally speaking, the properties of the applicant are divided into three divisions, namely, Rockford division, Lincoln division, and Albion division, located, respectively, in north central, central, and southeastern Illinois. The Rockford division furnishes the city of Rockford with electricity, steam heat, bus, and trolley bus service; the cities of Rockford, Pecatonica, and Freeport with gas; and 22 neighboring towns and communities with electricity. The Lincoln division furnishes electricity, gas, and water to the city of Lincoln, and electricity to 35 neighboring communities. The Albion division furnishes electricity to the city of Albion and to 7 neighboring towns. The applicant manufactures all of its gas (except for a small quantity of natural gas at Lincoln which it purchases from a nonaffiliated company), and approximately 40 percent of its energy requirements. Electricity and gas are sold only at retail. Approximately 60 percent of the applicant's gross operating revenue is derived from the sale of electricity, 26 percent from the sale of gas, 10 percent from transportation operations, and 4 percent from the sale of water and steam. 3. Previous temporary financing.-In January of this year, the applicant filed an application (File No. 32-130) under Section 6 (b) of the Act for an exemption from the provisions of Section 6 (a) thereof in regard to the issue and sale of $2,000,000 principal amount of 34% notes and $3,000,000 principal amount of first and refunding mortgage gold bonds, 5% series, to be pledged as collateral security therefor. The notes were issued and sold in order to obtain funds to pay off an approaching maturity of bonds, the payment of which had been assumed by the applicant. The notes were sold at a private sale to two insurance companies, for cash, at the aggregate face amount of $2,000,000, plus interest accrued to the date of delivery. Each purchaser received, as pledgee, $1,500,000 principal amount of the first and refunding mortgage gold bonds, and both purchasers stated that the notes were being acquired for investment and not with a view to resale or distribution. The pledge agreement contained certain restrictions as to the withdrawal of cash representing the proceeds of property released from the mortgage, as to the applicant's annual charges for depreciation and maintenance, and as to the payment of dividends. Each note, moreover, contained a sinking fund provision whereby the applicant was required to pay $25,000 of the principal amount of each note semiannually. The Commission having found that the transaction was exempt from the provisions of Section 6 (a) of the Act, entered its order to that effect on February 27, 1939, but without opinion. The issuance of the notes was only a preliminary

'Opinion subsequently promulgated as of February 27, 1939 (In the matter of Central Illinois Electric and Gas Co., 4 S. E. C. 612 (1939)).