with that office and with the notification at that regional office. Thereafter, it is the business of that regional office as an arm of the Commission to keep its eye on the possible issues of any such written information or the possibility of fraudulent sales in connection with it.

I should add that with the notification there must be a description of the security and how much is proposed to be offered, and where it is proposed to be offered-in what States.

The CHAIRMAN. What do you say as to the burden required to secure the exemption as contrasted with the burden of preparing the registration statement?

Commissioner PURCELL. Well, if no selling literature is to be used, the task of getting the issue ready for sale would be that of getting together such information as the issuer felt he should use in selling the security; employing such counsel service as he felt he should; satisfying himself of the legality of his proposition; doing such engraving as might be necessary in order to engrave the certificates, or print them; then the taxes and fees and other items of expense would be involved which are items quite apart from the securities and registration process. He would not have the filing fee which is required by the act, which is one one-hundredth of 1 percent of the dollar amount. And, he would not have such extra printing costs as might result from the necessity of using a prospectus; over and above the cost of printing such selling material as he felt he wished to use. I think that is about the difference that there would be.

The CHAIRMAN. I take it that this present exemption is granted on the theory that it does not deprive investors of protection as the result of those exemptions.

Commissioner PURCELL. Well, the requirements which we now impose are in order to acquaint us, acquaint the Commission with the fact that it is proposed to sell securities within this dollar range of $100,000 or less, and then it is up to us to do the job, as best we can, of preventing fraud. It is not a disclosure requirement such as the registration process is. We undertake the job jointly with State agencies and better business bureaus, to watch the process. In the disclosure process, the filing of material under the sanction of the act is designed to be preventive; but we have not followed that process recently in the small issues.

The CHAIRMAN. We thank you, Mr. Purcell.
Commissioner PURCELL. Thank you.

The CHAIRMAN. I believe that concludes the discussion of topic 3?
Commissioner PURCELL. Yes, sir; I think so.

The CHAIRMAN. Then, we will proceed to the next topic.

OF 1933 AND TO THE SECURITIES
EXCHANGE ACT OF 1934

HEARINGS

BEFORE THE

COMMITTEE ON

INTERSTATE AND FOREIGN COMMERCE
HOUSE OF REPRESENTATIVES

SEVENTY-SEVENTH CONGRESS

FIRST SESSION

ON A

COMPARATIVE PRINT SHOWING PROPOSED CHANGES

IN THE SECURITIES ACT OF 1933 AND THE
SECURITIES EXCHANGE ACT OF 1934

AND

H. R. 4344, H. R. 5065, and H. R. 5832

BILLS RELATING TO PROPOSED AMENDMENTS
TO THE SECURITIES ACT OF 1933 AND TO
SECURITIES EXCHANGE ACT OF 1934

PART III

NOVEMBER 25 TO DECEMBER 5, 1941
(Part VI Contains Complete Index)

Printed for the use of the Committee on Interstate and Foreign Commerce

The Commission is of the opinion that while there are some situations where issues as high as $300,000 may be exempted, subject to safeguards contained in rules and regulations, that is not the usual situation. However, the Commission is firmly of the opinion that the registration provisions cannot be considered burdensome on issues above $300,000 and that there is no basis in experience or in reason for raising the exemption to $500,000. We believe that such a step would lead only to increasing risk to investors without materially aiding small business.

PROPOSAL IN H. R. 4344 TO PERMIT EXEMPTIONS BY ORDER

Let me refer to one aspect of the proposal in the Wadsworth bill, H. R. 4344, which Mr. Putney discussed this morning. That proposal, as I said previously, is found in section 2 of the bill. It authorizes the Commission to grant exemptions by order-not only by rules and regulations, but by orders in individual cases.

It is a basic principle of the Securities Act that the Commission does not pass upon the merits or demerits of a particular security. In fact, as I think we have said before, any representation that the Commission has approved a particular security is made unlawful by section 23 of the act. We feel that it would be distinctly at variance with that fundamental principle that the Commission merely requires disclosure without passing upon merit, to authorize the Commission to grant exemptions in individual cases by order.

CONCLUSION

During the past 8 years the Commission has attempted with everything at its command, to protect the investors from buying fraudulent securities. We have been very sincere in that effort and we have wanted to do it, and attempted to do it, with the least interference with honest business. In the course of the Commission's administration, however, it has necessarily enforced certain statutory restrictions upon the securities industry. It is only natural that in proposing amendments to this committee the securities industry should attempt to lighten its burden wherever possible. However, it seems to me fairly obvious that the principal concern here is with the business of the securities industry, and not with small industry or the investors.

It seems to the Commission that it is its duty to consider not only the welfare of the securities industry but also of small business and of investors. In weighing the interests of all three groups, the Commission has come to the conclusion that it must resist any attempt to increase the present exemption of section 3 (b) to a figure as high as $500,000.

I suppose it is natural for any segment of industry upon which legislation imposes new duties to resist and resent those obligations. But merely to determine that such obligations exist by no means answers the problem whether they should be removed. It seems to us that to solve that problem it is essential to weigh the duties against the advantages gained by their imposition. The Commission is firmly convinced that the advantages to all of the investors of the country which accrue through the registration process as

it applies to small issues greatly outweigh the obligation which necessarily result from that process.

When a citizen's life's savings have been swept away through investment in a fraudulent enterprise, we feel that he will find cold comfort in the fact that he bought into a small issue rather than into a large one.

That is all that I have to present, Mr. Chairman.

Mr. YOUNGDAHL. Mr. Chairman.

The CHAIRMAN. Mr. Youngdahl.

Mr. YOUNGDAHL. Mr. Purcell, I have enjoyed your own ideas and the ideas of the Commission in connection with the protection of the investing public and also the general flow of capital through the investment field.

This may be a little afield from the subject, but I think pertinent to the whole matter we are considering.

I notice in the Washington Post this morning that in an address you made yesterday you, more or less, advocated the guidance by our Government and its various agencies of all capital whether it be investment capital or not

Commissioner PURCELL. May I interpose?

Mr. YOUNGDAHL. Certainly.

Commissioner PURCELL. That impression as left from the article in the Post–which I have not seen–does not seem to be strictly in accordance with my remarks which were directed toward measures of an emergency nature only.

Mr. YOUNGDAHL. Relating to the present situation and even to post-war conditions as stated in the paper.

Commissioner PURCELL. Not permanently. Only during the present situation and for such time thereafter as may be necessary; as the real emergency may continue.

Mr. YOUNGDAHL. Well, may I quote from the article which seems to have been released in Washington. I quote:

"That there is no shortage of capital ahead of us is indeed in itself a very debatable point, when one considers the enormous cost of our defense efforts," the Commissioner commented.

"It is clearly apparent that the joint guidance of the various Government agencies will be needed in order to let industry know whether the specific financing programs which it contemplates during the emergency are proper in view of inescapably pertinent economic realities."

You are supposed to have said that.

Commissioner PURCELL. I think I probably said every one of those words, sir, at widely separated points.

Mr. YOUNGDAHL. First of all, I just want to know whether those are your thoughts or that is a plan contemplated by your Commis. sion or other agencies in Government.

Commissioner PURCELL. Those, sir, are my own personal views and feelings. They do not represent any plan that I know of which is being advocated by the Securities and Exchange Commission or by any other agency in Government.

Mr. YOUNGDAHL. Mr. Purcell, do you not believe-and we are just speaking of the emergency as you refer to it in these remarks-that by control of capital by governmental agencies, it simply means the death knell of the system of private enterprise not only during the emergency but even after the emergency ends.