Mr. TUCKER. Yes, sir. Senator COUZENS. Do you think that an employe of a corporation should be relied upon for accuracy as to the facts of the situation? Mr. TUCKER. Yes, sir. But as a matter of practice the treasurer, vice president, president, chairman of the board, and directors, who are required in many instances to attach their signatures to financial reports and balance sheets, do so on the say-so of the controller. Senator COUZENS. But as a matter of fact the controller is an employee? Mr. TUCKER. Yes, sir. And there is no way of getting away from that. Senator COUZENS. How is the public to rely upon the accuracy of an employee who is under the direction of a superior officer? Why shouldn't there be provision made that there will be certification by public accountants? Mr. TUCKER. That is provided for additionally. Senator COUZENS. Then it does not make any difference about the statement or certification of such an employee if we are to rely upon public accountants. Mr. TUCKER. Well, as to the original source of financial statements and balance sheets. Senator COUZENS. The public should not give much weight to their certification because they are interested parties, should they? Mr. TUCKER. An independent audit cannot be avoided. And we have no quarrel whatever with public accountants. We are in fact cooperating with them, just as we are cooperating with the New York Stock Exchange in regard to listings. But we look upon this measure as an opportunity for the Comptroller to be of some public service. At the same time we do not in any way or in any sense advocate doing away with or relinquishing examination by public account ants. The CHAIRMAN. Are there any other questions to be propounded to this witness by members of the committee? Senator BARKLEY. Does this provision, under section 3 of the bill, in any way affect the legality of transactions carried on by and between different agencies of the New York Stock Exchange and the New York Curb Exchange? Mr. TUCKER. My understanding of this measure is that it deals with transactions in interstate commerce. Senator BARKLEY. I know, but if a man in California goes in to a broker and asks him to buy stock listed on a stock exchange, it contemplates delivery of the stock to him in another State, and that that stock must have gone through some process of being filed and registered with the Federal Trade Commission. Mr. TUCKER. Yes, sir. Senator BARKLEY. Otherwise the transaction would be illegal. Mr. TUCKER. My understanding of it is that another measure is to come along which will deal with the regulation of securities now in existence. This one deals with new securities. Senator BARKLEY. That this deals only with new securities? Mr. TUCKER. This would apply only in the case of new securities. Senator BARKLEY. Where is there anything in this bill that limits it to present issues? How about stocks now being traded in every day? Mr. TUCKER. I understand that is to be covered by another measure. Senator BARKLEY. I understand so, too; but does not section 3 of this measure cover those securities? I do not see any language in here to limit it to stocks issued in the future. It seems to apply to stocks already issued and outstanding and in the hands of the public. Mr. TUCKER. Well, the control that is to be exercised is at the time of the issuance of a new security, as I understand this measure. They are required to register it at that time. Senator BARKLEY. I do not agree with you about that. I think this measure, or as it seems to me from reading it, covers every sale or every transaction in interstate commerce. Senator STEIWER. Senator Barkley, may I call attention to the language contained in section 4 of this bill, which is: That all securities heretofore referred to in section 3 of this Act shall be registered with the Commission under the terms and conditions hereinafter provided. And the language in section 3 which is referred to apparently is inclusive of everything. Senator BARKLEY.. That is it. Section 3 describes, apparently, every share of stock that may now be outstanding or that may hereafter be issued and sold or delivered through the mail or in any other way in interstate commerce. There is no limitation in section 3 as to what stock may be affected. Section 4 goes on to refer to stocks mentioned in section 3. I am trying to get the scope of this bill, you understand. If I had 100 shares of stock in any corporation, and I wanted to sell it to you, you send me a check for it and I send you the stock through the mail. That is a transaction in interstate commerce. It seems to me that such a transaction would be covered by this bill. Now, what is it that I must do with reference to finding out whether that stock has been registered with the Federal Trade Commission before I can sell it to you, regardless of any stock exchange transaction? It seems to me that that is covered by this measure. Mr. TUCKER. It may be covered. Senator BARKLEY. Õught to be? Mr. TUCKER. Yes, sir; I think it should be. Senator MCADOO. I construe it as you do, Senator Barkley. Senator BARKLEY. Yes. I do not see any restriction whatever. Mr. TUCKER. Apparently not. The CHAIRMAN. Well, why not include it in here? Senator BARKLEY. That is what I am trying to arrive at. Maybe it ought to be covered, whether it is or not. Therefore, I am wondering just what the scope of this measure is. Mr. TUCKER. In the case of securities already on the market, it is hard to get a new registration. You will see that you have to get a new registration and financial statements and balance sheets. Senator BARKLEY. All matters under this bill are new registrations? Mr. TUCKER. Yes, sir. Senator BARKLEY. You might take stock that has been in existence for 40 years, and it would seem to me that this bill requires that that stock shall be registered with the Federal Trade Commission just as though it were new stock being issued tomorrow. I do not see any difference. 169692-33- -2 Mr. TUCKER. Well, in that case it would be covered by this measure. Senator BARKLEY. It seems to me that it covers all transactions where I go to a broker and buy stock and he sends my money to New York and then sends the stock back to me. That seems to be a transaction in the mail, in interstate commerce, and therefore to cover a transaction on a stock exchange. Mr. TUCKER. It may be that both new securities and those already in existence are covered by this bill. Senator STEIWER. Are you a student of the jurisdiction of the Congress? Mr. TUCKER. No, sir. Senator STEIWER. It appears to deal with interstate commerce. Mr. TUCKER. I am not a student of that. Senator STEIWER. You are not attempting in your statement to refer to those things? Mr. TUCKER. No, sir. The CHAIRMAN. Who composes your institute? Mr. TUCKER. The membership of the Controllers' Institute of America is strictly on an individual basis. The thought in organizing the institute, which is now about a year and a half old, was that controllers had no technical and professional body through which they could make studies of questions affecting their work. So it was organized on a strictly individual basis. Corporations have nothing to do with it. The CHAIRMAN. How is your membership made up? Mr. TUCKER. Well, a man files an application and sets forth all facts about himself, the work he is doing, the position he holds, his experience and training, and on the strength of that information the admission committee of the institute determine whether or not he is eligible for membership. Senator BARKLEY. Who is eligible? Mr. TUCKER. Men who hold positions as controllers- Mr. TUCKER. Not necessarily in corporations. In partnerships, associations, or corporations. And this language is suggested in order to cover prevailing conditions. There are a good many men who are doing the work of a controller where they do not actually give him that title. Senator BARKLEY. What is the difference between a controller and an auditor? Mr. TUCKER. A controller has a slightly wider scope of work than an auditor. An auditor deals only with accounts. A controller has budgeting, statistics, insurance, taxes, and other matters under his jurisdiction. Senator BARKLEY. That would depend upon the power given to such an officer in each corporation, would it not? Mr. TUCKER. Yes, sir. Senator BARKLEY. Whatever they might call him. Mr. TUCKER. Yes, sir. One of the purposes of the institute is to try to standardize that practice. Senator BARKLEY. How many members have you? Senator BARKLEY. What proportion of the controllers does that represent? Mr. TUCKER. A very small proportion. The CHAIRMAN. Are your members all public accountants, or any of them? Mr. TUCKER. It works out that we have possibly 15 or 20 men in the organization who formerly were public accountants but who are not so practicing now. As we term it, they have graduated from the ranks of public accountants into controllerships, and that makes them eligible for membership in the institute. Eligibility is based entirely upon the work done. Is he a controller? If he is not called a controller, then if he performs the duties of controller. In some companies they have not come round to designating some individual as controller, even though they always have someone who performs those duties. Senator BARKLEY. Your membership does not include public officials in cities or States, does it? Mr. TUCKER. No, sir; although our regulations and standards would admit controllers holding governmental positions. Senator Barkley. Where is your chief office? Mr. TUCKER. At No. 1 East Forty-second Street, New York City. Senator MCADOO. How old is your organization? Mr. TUCKER. About 18 months old. Senator MCADOO. What proportion of your membership is located in New York? Mr. TUCKER. About half. That is to say, in the metropolitan district, about 100 in New York, New Jersey, and adjoining cities and States, and about one half in other sections. I might add that we have members in 17 different States and in about 35 different cities. Senator MCADOO. Did your organization collaborate in working on this bill? We Mr. TUCKER. No, sir. We had no opportunity to do so. offered, and thought perhaps we would have an opportunity to express our views at the time the bill was being drafted, but we did not have. And since it came out in the newspapers we have made a study of it, and this one amendment I have suggested is the one thing that we think could be done to improve it, on the general principle of a Federal "blue sky" law, which we think is excellent, and we approve of it. Senator GORE. I just came into the room. Will you kindly state the functions of your organization, just in a sentence? Mr. TUCKER. To improve the technical standards and ethical standards of controllers. Senator GORE. How has it functioned up to date? Mr. TUCKER. We have had papers written, and we have monthly meetings at which members make addresses followed by discussions. Senator GORE. Has there been any practical reaction? Mr. TUCKER. Yes, sir. There has been an adoption by the institute of a declaration for the observance of the highest ethical standards in corporate accounting practices, and it has been very effective. We are, I might say, cooperating with the New York Stock Exchange in helping to solve some problems with respect to the listing of securities, which work comes right in the same category as this measure. Senator GORE. What is the amendment you propose? Mr. TUCKER. We propose the insertion of the words "the controller or principal accounting officer" after the phrase in the bill that describes the principal executive officer and the principal financial officer, because we think the controller is the source of those financial statements and balance sheets and should be recognized in the bill. Senator GORE. This is patterned a good deal after the English Companies Act, is it not? Mr. TUCKER. Yes, sir. It is intended to tighten up the provisions with respect to presentation to the public of facts underlying securities which are offered for sale and to render the offerer liable in case of misstatement. Senator GORE. In a general way I think it is very desirable, but there is one subsection to authorize the Commission to deal with any other forms of dishonesty. Can you find that? I think it is subsection 5 or 6, although I have really forgotten. Senator COUZENS. Senator Gore, we are going to have Mr. Thomson and Mr. Roper here later to explain the bill. Senator GORE. Very well, then; I will defer that inquiry. Senator BARKLEY. Mr. Tucker, are you familiar with the Denison blue sky bill that passed the House of Representatives some years ago? Mr. TUCKER. Was that the measure that was drafted by a group representing a great many States, called the Federal Blue Sky Act? Senator BARKLEY. Yes; it was several years ago. Mr. TUCKER. As I understand, it was very much in conformity with this measure. But that is just my general impression. Senator BARKLEY. Why is it necessary to put in this language that you suggest "the controller or principal accounting officer"? This section provides that registration shall be filed with the Commission. And it provides that the registration statement shall be signed by the issuer or issuers, its or their principal executive officer or officers, the principal financial officer or officers, and the directors, trustees, or managers. Now, why is it necessary to put in the controller? He is simply a subordinate to all these other officers, and they all have to sign the statement. Why should he be made responsible? Mr. TUCKER. The controller is an officer. Senator BARKLEY. He might or might not be an officer. Mr. TUCKER. A great many corporations within the last 5 or 10 years have included in their bylaws reference to the controller, and have prescribed his duties, and have provided that he should be elected by the board of directors. The principal reason I can advance is that he is the original source of statements on which all officers of a company must rely. Senator BARKLEY. Isn't a bookkeeper about as important as a controller? Mr. TUCKER. No, sir. Senator BARKLEY. He knows more about the facts, doesn't he? Mr. TUCKER. No, sir. The controller has to exercise some judgment, and a bookkeeper is not supposed to do so. Senator BARKLEY. A bookkeeper knows what the facts are. But that is not important to discuss here. The CHAIRMAN. We will excuse you, then, Mr. Tucker. |