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a hearing, to an order to cease and desist. That is entirely proper. But under this language that you have here, it might be that if a cease-and-desist order were entered on a relatively insignificant practice, say, that one of our salesmen did something that was unfair as against somebody else's business and such an order were entered, why, the whole financial structure of the company might be involved, to the extent of our securities not being merchantable. Whereas, at the very time the thing that called that to the attention of the Federal Trade Commission or the Secretary of Agriculture, who, with us, occupies a similar position, we would have had a hearing, and then if thought proper there would be entered an order to cease and desist, and there would have been the benefit of all the criminal statutes, and all others bearing thereupon, that would prevent the very evil complained of. Surely that, as a practical remedy, is adequate to the offense.

And so it is that I say it cught not to be covered in this security proposition to the extent of this very strong language, if I register the point to you. In other words, I think that the penalties now in force are ample; that the enforcement provisions are adequate at the present time to prevent those things, and that the very, very wide language, that might and perhaps would cover matters unrelated to securities, should not be in this bill.

Senator Adams. I think the penalty provisions could be made a little more applicable. We have had suggestions, like those Mr. MacLean just made, that old securities should be limited. But fraudulent practices and the transfer of them, and public communications in old securities, that ought not to be permitted if improper,

Mr. CREIGH. If the fraud is in connection with the handling of those securities, well and good. But that is not all that this language covers. I am speaking of a possible case where a salesman of ours might engage in some fraudulent practice. For instance, suppose that a salesman might sell a few pounds of meat, might engage in fraudulent practices in connection therewith and there should be a cease and desist order entered. It might then under the language of this bill affect our bond issues, either old or new. This would be detrimental to a sound company. With 12,000 men we are not able to control them all down the line to the last degree.

Senator Adams. Then you think it is possible in your organization to get some dishonest man in your employ who has sneaked in on you?

Mr. CREIGH. Well, I have found them several times. And I wish we could find a human executive who would be able to compel all employees to always operate within all these technical provisions of the law. I would not have any objection to this language insofar as it applies to the major things you are trying to cover. And that is safety in the flotation of securities to the public. That is the thing.

Senator ADAMS. Where does the bill cover what you refer to in the matter of the act of a subordinate?

Mr. CREIGH. Section 6, subsection (a) provides for the withdrawal of the proposed permit upon which securities are issued in event the issuer has been or is about to engage in a fraudulent transaction. Here we are talking about commercial brokers handling our paper. Well and good. But suppose we have a salesman out soliciting meats up in Nashua, N.H., or at some place in your State of Colorado, or in Senator McAdoo's State of California, and that salesman is about to

engage or does engage in a fraudulent transaction. What earthly relation would that have to our company's short-term paper borrowing of say one million or five million dollars? None at all. And yet under this language

Senator ADAMS (interposing). And you think that would cover & case where a man puts too much cornmeal in sausage, we will say.

Mr. CREIGH. Isn't it in the language of the bill?

Senator Adams. Would that be considered as having application to these things covered by the bill itself rather than as independent frauds? For instance, take a case of some man short-changing somebody, do you think that would be covered by the language of the bill?

Mr. CREIGH. I say that such a thing as I have mentioned ought not to be, but the language contained in the bill is of such a wide character that I fear it might be construed to cover other situations that we do not contemplate.

Now, let me go to the other points: For many years there have been offered bills seeking to license corporations and to try to control them through licensing. Theoretically that is sound. But what business fears terriffically is that such a system of licensing might bring about disaster because of some act of some subordinate; that even extreme financial catastrophe might come about by means of Federal licensing, in that for a minute transaction the whole business of the company might be shut down. Certainly no one would contemplate that that would be a fair measure for the operation of an administrative act.

Senator Adams. How would you revise that section in order to meet your objections?

Mr. CREIGH. Well, in the first place, I would want to have your whole bill addressed to the one subject, that is, the flotation of securities to the public. And then in connection with fraudulent acts connected with such promotion, provide a reasonable and businesslike regulation. But do not get your language so broad and comprehensive as to get into other fields and have it relate back to the financing.

I thank you gentlemen very much.

Senator McADOO. Let me ask you a question. You do not think that this bill as drafted would interfere with your ordinary credit operations in the selling of notes or short-time paper that the banks call commercial paper, either direct or through brokers, do you?

Mr. CREIGH. Well, I think the broker would come in here.

Senator McAdoo. He is subject to this bill if he makes false representations. But as to the issuer, and that is how you are concerned, how would it affect you?

Mr. CREIGH. Well, under this section 6 as I understand it, although perhaps I have read it only superficially, if we come along through the broker to put out paper, the ordinary short-term commercial paper, we would have to undergo the same registration, wouldn't we?

Senator McAdoo. Well, if you are issuing it to the public.
Mr. CREIGH. Well, how about the banks?
Senator MCADOO. I am talking about the banks.

Mr. Creigh. Well, it seems to me the banks are the public. The language here is rather comprehensive. And I will assume that the broker who is handling our paper, which we think is pretty good, is trying also to sell it to individuals.

Senator McAdoo. I am not speaking about the broker. Of course, he comes under the provisions of this bill.

Mr. CREIGH. If the broker is to register, and I am not arguing for him, but I am sincerely calling your attention to this language, because from my reading of it I feel that our company might be required to become a registrant. That might be advisable on a big transaction, and then we will go ahead.

Senator McADOO. To illustrate my point: In the ordinary conduct of your business you are borrowing from banks, or through brokers, we will say, $2,000,000. Do you think that such a transaction should by any means be comprehended within the meaning of this bill?

Mr. CREIGH. Well, I will start my answer by saying that I have read this bill rather hurriedly, but I do think that view is warranted by the language of the bill.

Senator Adams. I am disposed to think it is covered by the bill as it now stands.

Mr. CREIGH. I feel very certain it is, but that is stated from a superficial reading of it. I should think you might well and properly cover such a transaction if you desire.

Senator McAdoo. I can see a tremendous handicap to business if every ordinary borrowing in the conduct of one's business means repeated registration and compliance with the terms of the bill.

Mr. CREIGH. Under section 2 of the bill, security is defined to mean any evidence of indebtedness to any person. Now, person” is any individual. Then the issuer here is to go ahead with his business. Now, not his business related to that flotation, but if the issuer "has been or is about to engage in any fraudulent transaction." That does not mean in respect to the paper, but, as I say, it may be in the sale of meats. Then the license is withdrawn, and banks and investors cannot sell bonds that are perfectly good. You certainly do not intend to cover such a situation as that.

Senator MCADOO. You are now talking about bonds.
Mr. CREIGH. Well, short-term paper is the same thing.

Senator McAdoo. It will cover bonds, of course. But the ordinary credit operations of a business institution, what about them?

Mr. CREIGH. Here is the language in section 2, subsection (a).

Senator McAdoo. Such operations, I take it, would not be included in the bill.

Senator ADAMS. They ought not to be.
Senator MCADOO. If they are, then the bill ought to be amended.

Mr. CREIGH. Here is the section 2 (a) and that covers it quite clearly, it would seem. It is perfectly right to draw the fire of those who have objections to offer. That is the way to begin to legislate. But when we draw the fire we should crystallize on the idea underlying the bill, that is a public flotation.

Senator McAdoo. Well, the public does not get any of your short-term notes, I take it.

Mr. CREIGH. Well, I do not come in intimate contact with that matter, but I have seen many cases where the ordinary public is willing to take our 90-day paper. And I hope they will continue. But I should certainly hate to see, because a piece of bacon went bad or was fraudulently sold, that the broker could not market that paper.


Senator Adams. I had some of that paper, not in your company, but in another one.

Mr. CREIGH. And I hope you will have no difficulty about it.

Senator CostiGAN. Mr. Creigh, you make no objection to the proper registration of securities by the Federal Trade Commission, do you?

Mr. CREIGH. There is a good deal in that sentence. First, as to whether the Federal Trade Commission is the right place. I confess that I am not quite clear on the language employed, but to call attention to what Senator McAdoo has helped me bring out, as to the most ordinary business transaction of such an enterprise as ours, and not related to the flotation of securities.

Senator MCADOO. Is that included in this bill?

Mr. CREIGH. Well, the Senator sitting opposite me (Mr. Adams) agrees that it is. As I say, it is all right for a first draft of a bill, from the standpoint of drawing the fire of those who would be affected by it, for your consideration.

Senator ADAMS. I understand that an amendment has come from the Federal Reserve Board that would take those transactions out.

Mr. CREIGH. As Mr. Breed talked to you the other day, I noticed that one Senator sitting at the end of the table had fraudulent practices in his mind, with reference to dealing in these securities or their flotation, while Mr. Breed was talking about ordinary business transactions. Well, each was perfectly right, but they were miles apart in their ideas and their arguments. I am trying to clear up the point and to make a valid and essential distinction.

Senator ADAMS. And that is what makes argument.
Mr. CREIGH. Well, let us get together.
(Thereupon Mr. Creigh left the committee table.)

Senator COSTIGAN. I believe Mr. Holtzoff wishes to add a few words.



Mr. HOLTZOFF. Mr. Chairman, I just want to add to my statement of yesterday by saying a word about the court review provision contained in section 7 of the bill, for court reviews of orders of revocation of registration.

The bill as now drawn provides for a review of such order by the Court of Appeals of the District of Columbia. There has been some suggestion made that possibly it might be better to provide for such review by circuit courts of appeal, and if I may be pemitted I should like to say in behalf of the Attorney General that it is his opinion it would be better, for a number of reasons, to have the court review in the Court of Appeals of the District of Columbia, and that the reasons are as follows:

By having one court to review revocation orders of the Commission, you will get a unified body of decisions, whereas, if you have, say, io courts throughout the country reviewing such orders, you might get 10 different lines of decisions.

Senator ADAMS. That would apply to all laws, and if followed up to its logical couclusion that would lead to having only one Court of Appeals, that one being in the District of Columbia, thus wiping out all other courts of appeal throughout the country.

Mr. HoltzOFF. Well, may I say this: In the case of certain other commissions all appeals run to the Court of Appeals of the District of Columbia, like the Federal Radio Commission, although the Federal Radio Commission might handle matters in other sections of the country.

Senator ADAMS. Why should a man in Coos Bay in the Northwest have to come to the District of Columbia? We will say that he wants to put out an issue of securities on a lumber company, and he would have to come down here to Washington, a 4-day trip, with the expense of coming and time of his attorney, and so forth, when he has a circuit court of appeals nearby. I think it too far to come and too great an expense.

Mr. HOLTZOFF. It may not be as great as the expense of reconciling various decisions. And I want to call attention to the fact that the testimony will be taken before the Federal Trade Commission, and the Commission of course can hold hearings anywhere in the country. Appeals will be on the printed record. So that the hardship and the expense in sending counsel to Washington will not be as great.

Senator ADAMS. But when counsel comes to Washington he may find his case is set down on the docket for, we will say, the 3rd of December, but that there are 100 other cases set down. Then he sits around and waits, at very considerable expense and per diems for perhaps 10 days to two weeks, and all that time the little concern is being eaten up.

Senator McAdoo. You would rather have him come to San Francisco or Los Angeles, would you, Senator Adams?

Senator Adams. Absolutely.

Mr. HOLTZOFF. Of course, the same situation really arises in a good many other places, because some circuits are very large, and it is frequently just as expensive and requires just as much time to send a lawyer from an outlying section of a particular circuit as it is to send him to Washington. Take, for instance, the sixth circuit, and Detroit is in that circuit. The Court of Appeals sits in Cincinnati, and the mileage between Detroit and Cincinnati is only slightly less.

Senator ADAMS. Is that the only place in the circuit that the court sits?

Mr. HOLTZOFF. I think it holds one session a year in Grand Rapids. But they would not want to wait a year for the court to come around there.

Senator MCADOO. Take the ninth circuit, which covers Arizona, California, Idaho, Montana, Nevada, Oregon, Washington in continental United States. Well, now, would you subject attorneys in that big circuit to travel all the way to Washington in order to try a case? It would seem to me to work a hardship.

Mr. HOLTZOFF. But, Senator McAdoo---

Senator MCADOO (continuing). You are proposing under this bill to take the testimony on interrogatories. But for the Court of Appeals of the District of Columbia alone to have jurisdiction, would mean that counsel from all those Pacific Coast States would have to travel some 3,000 miles, and remain here as long as may be necessary, in order to try a case on appeal, when they could go to San Francisco,

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