That

The dealer would have to say, "If you have not got the general prospectus and have not had it for 24 hours, I cannot do that." is under the Commission's proposal. All he can say is, "I'll send you a general prospectus, and after you've had it for 24 hours let me know whether you still want them." The man may want to be sure that he is going to get them. Take a case where the buyer wants to be sure that he is going to get the stock or these bonds, and in a great many cases-I imagine most of them-the dealers are very apt to say, "AĬl right, I will see that you get them."

Now, that would be a violation of the law if the Commission's proposal were accepted. A contract really has been made. But it does not seem to me that anything wrong has been done, or that there is anything wrong with such a transaction. Why make illegal such a natural and usual way of doing business? Under the proposal submitted by the industry, the dealer could say, "Yes, I will hold them for you. When you get the prospectus, if you do not want them, let me know-you can cancel if you want to." This, of course, is within the 7-day period.

Should the law force him to wait? He may want to be sure of getting the securities and may inform the dealer that, regardless of the prospectus, he, himself, considers that he has made a firm commitment. Is there anything wrong in this? Why make more legal violations out of such honest and desirable transactions? It is sounder to confirm subject to cancelation upon receipt and review of the general prospectus, as proposed by the industry. In these proposals the investor is fully protected and given full opportunity to read the general prospectus if he wants to.

The Commission also objects to oral offerings after the effective date without the prior use of any written material. Well, suppose on the day of an offering the prospective buyer calls up the dealer and asks him what he thinks about this stock or these bonds. The dealer would have to say, "Well, unless you have got a limited prospectus, or unless you have had some material in writing from us, I cannot tell you." It would be a rather ridiculous situation which would develop. The dealer just simply could not talk to this man over the telephone on the day of an offering unless this man had received prior to that time either a limited or a general prospectus. Maybe you could just talk about it, but you could not very well say what you thought about it, because that would constitute an offering.

The term "offering" is vague at best, and I am thinking of telephone conversations on the effective date and of telephone calls that come in from investors at that time. I do not know how you would distinguish discussions from offers. It just seems to me that these two restrictions suggested by the Commission are not workable from a practical standpoint and would greatly interfere with the distribution and the giving of information at that time.

I believe that the most needed changes in the Securities Act are those that I have outlined dealing with the use of a "limited" prospectus in lieu of the "general" prospectus. If these changes are not made, we cannot conform properly to one of the original purposes of the act-that of giving information to investors in a form that they can understand and analyze. These changes will not only benefit in

vestors but will greatly facilitate the raising of new capital. That may be quite important again before long.

The CHAIRMAN. We thank you, Mr. Loomis.

Mr. LOOMIS. Thank you.

STATEMENT OF WILLIAM PUTNEY, NEW YORK CITY, N. Y.

The CHAIRMAN. Mr. Putney, we will hear you.

Mr. PUTNEY. Mr. Chairman and gentlemen: My name is William Putney. I am associated with the law firm of Putney, Twombly and Hall, 165 Broadway, New York.

Our firm is counsel for the Committee on the Reemployment of Men and Money of the Commerce and Industry Association of New York, formerly known as the Merchants' Association.

Mr. Chairman, I must beg your indulgence, as I have no written statement. I did not anticipate that I would be called on to testify and so I simply have my notes.

My purpose is to point out to you the pertinent provisions of H. R. 4344 which was introduced in the House of Representatives on April 14, 1941, by your colleague, Mr. Wadsworth.

This bill, as you will recall, was prepared on the basis of a Nationwide inquiry made by Mr. Wadsworth among the businessmen throughout the country The provisions of the bill stem directly from the responses received in answer to that investigation.

The investigation showed that the principal obstacles to new financing, financing of industrial expansion, were due to the cost and complexities and delays involved in the registration procedure under the present procedure and on the present forms.

I may say that this is so in spite of the fact that the very able registration division constantly gives all of the help that it can give to issuers which are registering.

It is somewhat hampered I believe by the forms which it is required to use and may not deviate from the complex requirements.

In this connection, I would like to read from one or two letters which came in to Mr. Wadsworth indicating the general type of response received from issuers.

One:

The corporation abandoned the sale of capital stock in the spring of 1937. The reason was that it took us so long to prepare a Securities and Exchange Commission registration and then sometimes for the Securities and Exchange Commission to examine the same that the market dropped in stock and made the sale inadvisable.

This is from another letter:

It is very difficult for a business executive to see the necessity for the voluminous registration statement as now required by the regulations. It seems to me that it ought to be possible to furnish the essential information in a much more simple and condensed form. Under the law and the present regulations the requirements are exceedingly, and it seems to me, unnecessarily burdensome in that they call for so much detailed information that appears to be relatively unimportant. Some consideration ought also to be given to this matter from the standpoint of the enormous expense to which the issuing corporation is subject in these matters for legal and accounting service, printing, etc. The time which 'awyers and accountants must necessarily spend in the slavish compliance with present regulations and the volume of printing required seems out of all proportion to any berefit to the issuing corporations even if its application is allowed.

Then one more:

In our case, the most important reasons for making a private sale instead of a public offering were the inability to obtain any commitment and the prohibitive cost of a Securities and Exchange Commission registration. In such a case one must go to very great expense in employing counsel, accountants, and engineers, which expense would be of no material benefit to the company in the event of a failure to go through with the sale of the securities involved. Another point that I would like to call to your attention is that fact that in a county such as ours one cannot find within any city in the county, legal, accounting, and engineering talent of the character required in presenting a case to the Securities and Exchange Commission. We are thus compelled to go to Washington, D. C., or to one of the two or three larger cities in the State to find the talent that is necessary to present a case to the Securities and Exchange Commission, although we do have the talent required to present a case to our State commission. This is a tremendous handicap because counsel, accountants, and engineers are specialists in that particular field and their services are correspondingly expensive, especially when they have to leave their homes and come into other communities to make their investigations.

I think you will be impressed by the simple and direct manner in which H. Ř. 4344 seeks to remedy this problem of the complexities and the expenses involved in registration.

In section 5 of this bill, which seeks to amend section 7 of the Securities Act of 1933 it provides

Mr. WADSWORTH. Will you give the page?

Mr. PUTNEY. Page 5 of H. R. 4344. The text of the amendment proper, beginning in line 21,

is:

The registration statement, when relating to a security other than the security issued by foreign governments—

In other words, the ordinary corporate security.

The registration statement, when relating to a security other than a security isued by a foreign government, or political subdivision thereof, shall consist of a prospectus and a supplementary statement, which taken together shall without duplication contain the information, and be accompanied by the documents specified in schedule A.

Now, this is a radical change from the procedure which has been followed up until about October 17. Under the procedure that has existed in the past it was necessary for a company to file a long registration statement and then to repeat in the prospectus practically verbatim the statement made in the registration.

On October 17, 1941, the Commission adopted a new form which follows closely the proposal made in H. R. 4344. The release announcing the adoption of its new form reads:

Further simplifiction of registration procedure to eliminate duplication and ronesential requirements was announced by the Securities and Exchange Commission today with the publication of a new form for registration under the Securities Act of 1933 by commercial and industrial companies.

Then it states that the form is known as Form S-2 and—

designed for securities in small companies, although it may be used by larger companies for registration of equity securities and for limited amounts of funded debt.

It further explains that the new form extended to additional classes of registration the privilege of filing the prospectus as the basic part of the registration statement.

This procedure is facilitated through the division of the form into two parts, one of which specifies the information which need appear

74947-42-pt. 1- -16

only in the prospectus and the other which calls for information which need not appear in the prospectus.

That is essentially the same as the proposal made in Mr. Wadsworth's bill and is a great step forward, in my humble opinion, and would mean a great saving in expense and work and eliminate a tremendous amount of duplication.

However, that form is limited and may be used only by certain companies which meet the requirements. It does not apply to all companies.

The adoption of that form, however, shows that the proposal made in this bill is feasible and workable.

I understand that one company has already filed a registration statement on that form.

The procedure of filing a prospectus and simply a supplemental statement is similar to the proposal made by the Securities and Exchange Commission in the financial industry in section 7 (a) (2) as appears on pages 37 and 38 of the committee print. However, in that instance the use of that procedure is limited to companies which have previously registered or which are listed on an exchange, to investment companies and to public utilities registered with the Commission.

The old procedure, the procedure which has been heretofore followed, still applies to new companies registering for the first time and any company that has not listed or does not come in the categories enumerated.

It seems to me that if this division is made between the company that is previously registered or is listed and the new going company that is coming in for the first time, it places an undue hardship on the new company and bears most heavily on the going concerns.

I think in that respect this proposal of Mr. Wadsworth's bill is better because it would apply to all companies equally without any distinction or discrimination.

Going on with the same section in H. R. 4344, at page 6, in line 8, there is a change from the present text of the law in that the Commission is given the right to permit the omission of information from the registration statement upon the application of a person interested. That would permit the omission of the information that is inappropriate to the particular company or inappropriate to the securities being sold and would, for example, permit a company that had been carrying over many years, but had lost its records or had had some difficulty in straightening out its records away back in the past; it would permit that company to omit the information that it could not obtain or that it could only obtain at great and excessive expense; and that would only be done where the information is not essential, of course. Coupled with the change that I have just described is a further, and I think a very significant, change in the same section, which begins at line 15 on page 6.

Here the bill would provide that

The Commission shall promptly revise its forms for registration statements and applicable rules and regulations so as to require in the prospectus only such information as it shall find material and necessary to enable the average investor to form a prudent judgment with respect to the security to which the prospectus relates and in the supplementary statement only such additional information as

is necessary to satisfy the requirements of schedules A and B as modified by the rules and regulations of the Commission for the respective classes of issues or securities.

You gentlemen have all seen

The CHAIRMAN. Mr. Putney, I might ask, what is the objection of preventing a duplication of information in the registration and that supplementary statement?

Mr. PUTNEY. The object of not having any duplication between the prospectus and the supplementary statement?

The CHAIRMAN. Yes.

Mr. PUTNEY. The reason for that, I believe, was that under the present procedure the duplication is a source of much unnecessary work and of such heavy expense that it seemed desirable to eliminate all duplication, at least in so far as possible.

At the present time, as I mentioned before, the prospectus ordinarily is, to a very large extent, a verbatim repetition of the responses that have been given to the different items in the registration statement, and it seems absolutely unnecessary to simply repeat the information that way. It is set forth in the prospectus so that there is no purpose served in repeating it in the registration statement.

The CHAIRMAN. In this case, the prospective purchaser would need both of the statements in order to get the story.

Mr. PUTNEY. No more so than today, sir.

The registration statement today contains more information usually than the prospectus. Under the present rules you are permitted to omit the answers to certain items or portions of the answers to certain items in the registration statement when you prepare your prospectus. That is to say, you may omit the answers to such and such items from the prospectus.

Mr. WADSWORTH. The practice would serve the same purpose as is served by the present prospectus for the protection of investors? Mr. PUTNEY. Yes, sir.

Mr. WADSWORTH. And would have to contain all material information?

Mr. PUTNEY. Yes, sir. I believe it would be more informative than the present form. I believe, sir, that one of the difficulties today is that the objective has been to set forth practically complete information rather than to obtain an adequate disclosure. Facts can be concealed by words almost as readily as by omissions. If something goes on page after page, the ordinary investor may never reach the significant facts.

It seems to me that complete information is of no value to the average man if these essential facts are lost in a maze of verbiage and unimportant details. Fair and adequate disclosure would involve the selection of the significant facts and their presentation in a manner calculated to give a fair and accurate picture; something that will permit a man to read it through and get a pretty good idea what it is all about.

At page 11 there is a similar provision relating specifically to the prospectus which is an amendment to the present section 10 (a) (1) of the Securities Act.

In addition to that, I might say with reference to the provision that the prospectus shall contain such information required by schedule