way, that we organized was a nonfinancial committee; it consisted of men like Lindsay Rogers and Professor Ripley, of Harvard, who afterward resigned on account of illness; and it was a very distinguished committee. Not one of the members of the committee had any bonds; they all went on this as a public duty because they were scandalized by the fact that Lee Higginson would issue these hundreds of millions of dollars of bonds on different securities and sell them on the strength of their reputation. They had organized committees, on the default of these bonds-committees of their own, from their own firm. And we went in to fight that situation. I think Bainbridge Colby was the chairman of the committee; and we went in to see if we could get justice for the bondholders. But we had a pretty hard time. And this provision does not cover that situation.

Senator TOWNSEND. Mr. Untermyer, how would you change the language?

Senator BARKLEY. He has an amendment which he is going to suggest, I believe.

Mr. UNTERMYER. I have a proposed amendment: After the word "obligor" [reading]:

and the institutional trustee, separately to keep and furnish or cause to be furnished and exchanged with one another at intervals of six months alphabetical lists of the names and amounts and residences or places of business and all other information in the possession or control of either of them, and to furnish such copies of such lists or to make the same or the use thereof available to any security holder on payment of a charge deemed by the Commission to be reasonable to cover the actual cost of trans ribing such list. To that end the obligor, institutional trustee, or other paying agent by or through whom the interest or interest coupons representing the interest payments shall, before or at the time of the presentation of such coupons or otherwise, be charged with the duty of ascertaining from the persons or institutions presenting such coupons for payment or to whom such interest payments are made, the names and residences of the owners of such bonds or other security and of the coupons appertaining thereto and the respective amounts so owned, provided only that the obligor or institutional trustee or the Commission is satisfied that the person making such request is a bona fide bondholder or holder of the security represented by such institution.

Upon the failure of the Commission to comply with such request, the applicant shall be entitled to review such decision or motion in a summary proceeding in any court having jurisdiction of the person or property of the obligor or institutional trustee.

Now, under this proposed amendment, that suggested language will satisfy the requirements of the law, as we have had them laid down by the courts.

As I say, this present language, unless modified as I have suggested, seems to me meaningless.

The CHAIRMAN. That will be a change on page 33, I believe, will it not?

Mr. UNTERMYER. Yes.

On page 37, "Reliance upon certificates and opinions", I think they are the same the print which I was furnished and this reprint which we are now considering [reading]:

(i) The Commission shall permit the inclusion in the indenture to be qualified of one or more provisions authorizing the indenture trustee conclusively

I think that ought to be "presumptively", at best—

to rely as to the truth of the statements contained therein, in the absence of bad faith or gross negligence on the part of such trustee, upon opinions or certificates of attorneys, accountants, or other experts.

It seems to me that the institutional trustee ought not to be permitted "conclusively to rely" upon those things; because as a rulein fact, almost in all cases-they are furnished by the reorganization committee or by the company.

Senator BARKLEY. Furnished by whom?

Mr. UNTERMYER. By the reorganization committee or by the company, and who ought to exercise a higher order of diligence than that. I do not think that word should be "conclusively"; I think if you made the word "presumptively", that would answer every fair intent of it.

Senator BARKLEY. In the parenthetical clause, there [reading]:

(subject to such requirements as to independence and qualifications and the exercise by the trustee of reasonable care in their selection, and subject to such other terms and conditions as the Commission may deem necessary or appropriate in the public interest or for the protection of investors)

And so forth. Is that it?

Mr. UNTERMYER. Yes. Well, these men as a rule are of high standing and character in the community; but that is no reason why they may not do the most outrageous things such as the Chase Bank, where millions of dollars have not been recovered. I think that many outrageous things have been done, in a financial way, by some of the biggest organizations.

Senator BARKLEY. What amendment do you offer?

Mr. UNTERMYER. To use the word "presumptively" instead of "conclusively."

Senator BARKLEY. Oh, yes.

Mr. UNTERMYER. They cannot be hurt by the use of the word "presumptively"; because they have the presumption in their favor, and it has to be overcome by evidence. But it should be possible to overcome it.

I hope I am not wearying you.

Senator BARKLEY. That is quite all right.

Mr. UNTERMYER. I have this legislation very much at heart. It seems to me there is a tremendous amount of repetition as between this and the Lea bill and the Chandler bill, on practically the same subjects. I think it would be very profitable if those three committees could get together; because you have 150 or 160 pages of print in the body here.

The CHAIRMAN. The other bills are not pending in the Senate; no one has been asked to introduce them.

Mr. UNTERMYER. No; the Lea bill is a House bill, and the Chandler bill is an amendment of the Bankruptcy Act.

The CHAIRMAN. Yes.

Mr. UNTERMYER. Nevertheless they largely cover the same general subjects, in many respects.

The CHAIRMAN. I think they all emanated from the Securities and Exchange Commission.

Mr. UNTERMYER. Yes; they all emanated from it.

Mr. Douglas, they all were prepared by the Securities and Exchange Commission, were they not?

Commissioner DOUGLAS. Mr. Chairman, the Securities and Exchange Commission did participate in making suggestions on the Chandler bill and on the Lea bill.

Mr. UNTERMYER. Mr. Chairman, the trouble is that the people who are most interested in these bills are the financial interests, apart from the Commission. For instance, the Commission in its report which I have read has done a superb job, and done it with a great deal of fairness and a great deal of ability.

The CHAIRMAN. The Commission has done good work; don't you think so?

Mr. UNTERMYER. Oh, there is no doubt about it. I am a great admirer of the work of the Commission; but I do not concede that in drawing all these bills, it cannot make some mistakes-as we all do; if we do not make any mistakes, we do not make anything else.

Commissioner DOUGLAS. I should say for the record, Mr. Chairman, that there is no duplication, insofar as I am aware, between the Barkley bill, the Chandler bill, and the Lea bill.

Mr. UNTERMYER. Well, there is; for instance, in the bankruptcy bill you have the provision that you have here with respect to the lists. Senator BARKLEY. These various bills may deal in a way with the situations which may arise in connection with corporations that might be included under all these bills, but they deal with a different phase of the work.

The CHAIRMAN. Mr. Untermyer, if I may make a suggestion, as only the presiding officer here, may I say that perhaps we had better deal only with this bill and not with the other two bills, which are not even before us.

Mr. UNTERMYER. Yes.

Now, "Notice of defaults", on page 38 of the new bill, I believe, contains this provision [reading]:

(k) The indenture to be qualified shall contain provisions requiring the trustee to give to the indenture security holders, at such time and in such manner as the Commission may deem adequate, having due regard to the public interest and the protection of investors, notice of all defaults known to the trustee.

The point of the criticism I make is that the trustee is to have the discretion in any event of withholding from the bondholders notice of default under the indenture, unless a default is of principal or interest.

Why should not the trustee notify the bondholders of defaults, whatever they may be? I cannot understand what the purpose of that may be, except that some trustees have been held accountable by the courts for not having given notice. And I wanted this provision put in here.

Senator HUGHES. What is your suggestion?

Mr. UNTERMYER. My suggestion is to eliminate that language. The board of directors are the people who may be culpable and may be held responsible.

Senator TOWNSEND. The bill provides [reading]:

that the trustee shall be protected in withholding such notice if and so long as the board of directors or executive committee or a trust committee of directors or responsible officers of the trustee in good faith determine the withholding of such notice to be in the interests of the indenture security holders.

Mr. UNTERMYER. I cannot conceive of such a condition.

Senator BARKLEY. What is the language that you want stricken? Senator HUGHES. I think Mr. Douglas had an explanation of the other day.

Mr. UNTERMYER. Perhaps it would be well to hear Mr. Douglas. Senator BARKLEY. I would like to know the language that you want eliminated.

The CHAIRMAN. Do you have an amendment, Mr. Untermyer?

Mr. UNTERMYER. No. The part that I think should be stricken is the following [reading]:

that the trustee shall be protected in withholding such notice.

I would strike that out.

Senator BARKLEY (reading):

that the trustee shall be protected in withholding such notice.

You would strike that out?

Mr. UNTERMYER. Yes. I would strike it all out. You have stricken out most of the rest of that paragraph.

Senator TOWNSEND. You would not leave that to any source to determine?

Mr. UNTERMYER. No; it seems to me that the trustee, after all, is the only representative of the bondholders. Why should not the bondholder know when there is a default? Is he a babe in the woods, to be protected against his own knowledge? Is his ignorance any protection to him? Is it not right that he should know?

Senator BARKLEY. That only provides that he shall be protected in the event that the board of directors or the executive committee or a trust committee of directors or responsible officers of the trustee in good faith determine the withholding of such notice to be in the interests of the indenture security holders.

Mr. UNTERMYER. Yes; but, Senator, I am dealing with corporations that get into trouble and bondholders who get into trouble. The trustee and the board of directors are not the best qualified to determine that question. They ought to know for themselves, and then they can act. But to keep them in the dark on the ground that it is for their protection and their interest to be kept in ignorance of their rights does not seem to me to be proper.

Senator ToWNSEND. You think that the trustee should be left absolutely free?

Mr. UNTERMYER. No; I think he should be left with his liability to give notice.

The CHAIRMAN. You mean, he should be required to give notice? Mr. UNTERMYER. Yes; he would if that were stricken out. Senator BARKLEY. In other words, you do not want the board of directors or the institutional trustee to have any power?

Mr. UNTERMYER. Not with respect to a trust indenture. They have nothing to do with that. All they do is to collect fees.

Senator HUGHES. The language is as follows [reading]:

The indenture to be qualified shall contain provisions requiring the trustee to give to the indenture security holders, at such time and in such manner as the Commission may deem adequate, having due regard to the public interest and the protection of investors, notice of all defaults known to the trustee: Provided, however, That the indenture may provide, except in the case of defaults (to be specified in the indenture) of which the Commission deems it necessary or appropriate in the public interest or for the protection of investors that prompt notice be given

And you would leave out the remainder of it?

Mr. UNTERMYER. I would leave out everything. The trustee should be required to give notice.

Senator BARKLEY. Is it not true that frequently there are small technical defaults of which there may be no need to give notice and not subject, necessarily, to any action?

Mr. UNTERMYER. In practical operation, I do not know.

Senator BARKLEY. It is my understanding that that language is put in there in order to give the board of directors of a bank or trust company, acting as trustee, some discretion in determining whether the default is of sufficient importance to make it advisable or wise or necessary to give notice.

Mr. UNTERMYER. I am speaking from the standpoint of an experience of a great many years, and I do not know of any case in which it would not have helped the bondholders. This covers any default except principal or interest. In the case I spoke of before, the trustee had an outrageous provision hidden away somewhere that they could substitute securities. They substituted for gilt-edged securities a whole lot of worthless securities. That was not a default of principal or interest. They certainly ought not to have had the right to do that, and they would not, under proper legislation, have had a right to make that substitution of high-class Government securities, which they did, to the tune of about $30,000,000, substituting poor securities that turned out to be worth very little.

Under the Commission I do not think that would be possible, provided they were required to report such a thing to the Commission. They were not then. There was no commission. When you look at the securities on the strength of which the bondholders had made their investment of $50,000,000, you find that an entirely different class of securities had been substituted. There was no liability anywhere for it, because they were exonerated and indemnified against liability by the terms.

I may appear to be a little hypersensitive on this subject, although I am very much in favor of this legislation. But it has got to be effective legislation. We have had plenty of ineffective legislation in the past.

Senator HUGHES. Mr. Untermyer, you spoke of substitution. The bill contains a provision as to substitution. I wondered if you had examined that. I am trying to find it.

Mr. UNTERMYER. I do not remember it.

The CHAIRMAN. It is on page 40, "Other indenture provisions." That is on page 40 of the confidential print.

Senator HUGHES. Yes; it is under "Other indenture provisions. I refer to paragraph (1) under that heading.

Mr. UNTERMYER (reading).

Restrictions or conditions on the release and substitution of any property subject to the lien of the indenture, on the issuance of additional indenture securities, and on the satisfaction and discharge of the indenture.

I do not think that is in my copy. I think that answers the point. The CHAIRMAN. I think so.

Mr. UNTERMYER. Here is a provision which runs through all these bills [reading]:

UNDERTAKING FOR COSTS

(1) The indenture to be qualified may contain provisions to the effectThe CHAIRMAN. What page is that?

Senator TOWNSEND. Page 39.