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Comment. I join with Mr. Moyle in challenging the accuracy of the allegation that the investors in the offering were left "holding the bag”. While this may be true as to those persons who were investors in the company, i.e., beld stocks or other securities issued by All-State, I do not feel that it accurately sets forth the position of those persons holding contracts to purchase property in the Rocket City offering. I personally feel the actions taken by the Board in this case as being illustrative of what has been done and what will be done by the State of Florida to protect installment land contract purchasers. Never before has any agency, city, state or Federal, taken such direct and effective action to protect purchasers.
Presently, an action is pending in state court to determine the question of title to the property. This action had to be taken to clarify Bankers Life & Casualty Co. in order that they could properly issue deeds and proceed with the completion of improvements. We feel that Bankers Life will prevail in this action and by virtue of their commitments to this Board and to all contract purchasers, they have no alternative but to perform. Attached and marked as Exhibit "A" is a copy of an Indemnification Agreement negotiated by this Board with Bankers Life & Casualty Co. on behalf of, and for, the protection of contract purchasers at "Rocket City".
With reference to the status of claims against the original developer, I feel that insofar as the company has been declared bankrupt, there is little likelihood of recovering from the developer unless personal liability can be established. If a claimant can establish fraud, the company's bankruptcy would not, as such, constitute a bar to the enforcement of a claim. There appears to be evidence of fraud in a number of instances. Illustrative of this is the indictment just this past week of Mr. William Blum, a former executive officer of All-State Development Corporation by the state of Maryland.
With reference to the ownership of the property at Rocket City, it is necessary to review the original plan. The company acquired fee title to approximately 10,000 acres and obtained options on approximately 13,000 acres more. The options have now expired and title to the approximately 10,000 acres previously held by All-State Development Corporation has now been vested in Bankers Life, except for certain small portions thereof. It is title to this 10,000 acres that is the subject of the action of the state court referred to above.
Question 9. I'd also like your reactions to the following quotation made by an unidentified person described only as "an observer close to the (Rocket City) operation" in the same Sentinel article:
"This thing could have worked. They had more money to work with in the beginning than some developers who hit it rich, they couldn't control the careful phasing they set for themselves; they didn't control the misleading promises and pitches their salesmen sometimes made, and much of the money was eaten by rich living and unlimited expense accounts."
This summary could be true of similar promotional efforts in Florida and else where. What methods of control would you suggest for such excesses?
Comment. First, my reaction to the quotation of the unidentified person is that I believe he was somewhat overly optimistic with reference to its ultimate potential as there were certain inherent problems. However, he appears to be familiar with some of the factors which contributed to its failure.
Second, with reference to suggested methods of control, I must first state that I do not believe that you can ever have such positive control of private enterprises so as to prevent failures from occurring. We are aware that in every type of business activity, failures occur. Some failures may be due to undercapitalization, some due to mismanagement and some are due to dishonesty.
The Board, recognizing the problem, has in its regulation of the business, taken measures to reduce the incidence of failure in this activity and has further required the subdividers to take positive action to protect purchasers in the event of failure, such as the establishment of escrows, the posting of bonds, etc., in order to assure purchasers that they will receive that which has been promised to them in the advertising.
I believe the enactment of the various state laws, such as the Florida Installment Land Sales Law, as well as the competitive pressures within the industry, have substantially limited the ability of persons to enter into this activity to those who are more adequately equipped by virtue of experience and capitalization to weather its economics. The type of controls that I feel necessary to regulate this activity are such as those contained in the Florida law and which have been utilized on several occasions to protect contract purchasers. Notwithstanding its jurisdictional limitations, the law provides this agency with broad authority to act within the area of its control. The law provides the right to enjoin violations; further, it grants the Board the authority to ask the court to appoint a receiver to manage the affairs of a subdivider and to intervene in court actions affecting subdividers. This direct authority also gives the agency a degree of administrative flexibility so that it may shape or give direction to a faltering operation. I further submit that a law can only be as good as its administration. The best law in the world, if poorly administered, will not provide protection for purchasers or establish a sane level of competition for the industry.
I further suggest and recommend that any repository of authority to regulate this activity be close enough to its operation so as to be cognizant of local problems, yet sufficiently removed so as to maintain an overall perspective.
I want to thank you for the opportunity of further commenting with reference to these additional areas of concern.
Again, on behalf of the Board, John Moyle and myself, I wish to thank you for your courtesies and your understanding. Sincerely yours,
CARL A. BERTOCH, Executive Director.
STATEMENT OF RALPH SMATHERS, PRESIDENT AND GENERAL
MANAGER, BETTER BUSINESS BUREAU OF SOUTH FLORIDA Senator WILLIAMS. Come up and identify yourself.
Mr. SMATHERS. I am president and general manager of the Better Business Bureau of South Florida.
I believe you probably are aware that there are more than 120 better business bureaus throughout the country.
Last year, they handled more than 31/2 million contacts with consumers. In that respect, I believe that the better business bureaus could claim to be probably the broadest and perhaps the most effective sounding board of consumer reactions, problems, and interest.
The Better Business Bureau in South Florida being the only better business bureau in the State of Florida, I believe has the position of being the most logical sounding board for consumer reactions to activities in particularly the real estate field in the State of Florida.
And I thought that perhaps the statistics that we have developed may be of interest to you in determining the size and scope of the problem or may lead you into other areas where you may learn more of the size and scope of the problem.
Let me tell you first that the Better Business Bureau in South Florida has been very much interested in the real estate field since most of the real estate developments in the State of Florida originate with Miami firms.
In 1962, in the month of May, I believe, we recognized the problem in the field and we called a meeting of the real estate developers in Florida. This meeting was attended by approximately 70 business firms. I think including all of the important developers in the State.
We accomplished a committee to study a code of advertising standards and operating ethics. We developed a code which was then to coordinate with a similar activity by the National Better Business Bureau. This code was ultimately adopted by all of the better business bureau in the country and finally, was, I believe, almost in its entirety, adopted as a part of the rules and regulations of the Florida Installment Land Sales Board.
Just by way of background: I would like to direct your attention please to the better business bureau activity report of the 12 months ended March 31, 1966. Better business bureaus keep statistics on three major business categories: Financial, commercial, and merchandise, including, of course, both products and services. We have a category for real estate. And this of course includes all real estate, both interstate land sales and real estate broker and generally real estate activities but I think most of our activity in south Florida relates to intrastate sale of land, and we answer inquiries from all over the world.
During the 12 months ended March 31, 1966, we handled a total number of contacts in all categories with the public of 37,371. Of that total number of contacts with the public, in all categories, 5,744 were complaints. And of those 5,744 complaints, 118 were on real estate. That is approximately 2 percent of the total complaints which we processed.
At the same time, 893 inquiries were on real estate, and that is approximately 5 percent of the total inquiries which we processed.
I have nothing to I am not here to promote anything—to produce any opinions, I simply wanted to bring you these facts relating to the activity of this Bureau in the State of Florida.
Do you have any questions, I will be delighted?
Senator WILLIAMS. On your statistics, 2 percent of your complaints dealt with real estate?
Mr. SMATHERS. Yes, sir.
Senator WILLIAMS. Five percent interest. Now the complaints come within the 5 percent, does the 5 percent subsume the 2 percent, or is it 2 percent complaints, plus 5 percent interest?
Mr. SMATHERS. The latter is correct; 5 percent inquiries, plus 2 percent complaints.
Senator WILLIAMS. Almost 10 percent of your business?
Senator WILLIAMS. How would an individual in the North who on the basis of a newspaper ad, a telephone call, a description on a match cover, who buys a $5 down, $5 a month basis property, we will get away from Florida, we will make it Arizona, because we have had quite a bit of testimony about divisions in Arizona, where would he go to register either an inquiry or a complaint on this long-distance transaction for land from say, Newark, N.J., to somewhere in Arizona?
Mr. SMATHERS. He could go to the Better Business Bureau in Newark, or he could go to either one of the two better business bureaus in Arizona, one in Phoenix, one in Tucson.
Senator WILLIAMS. People have asked me, where do they go if they are considering one of these long-distance transactions and obviously, it is in the low-price-for-land field, the area I have just described. What do they do, how do they protect themselves? I would think the better business bureau is one of the best places to go if they can find them.
Mr. SMATHERS. I can only speak, of course, for the Better Business Bureau in south Florida, which as I said, is the only better business bureau in Florida.
I have personally examined many of the real estate developments in Florida. We have, of course, obtained information from the Installment Land Sales Board, from county officials, and we attempt to make as thorough an examination as possible. We prepare reports on these developments and we make these reports available to all of the better business bureaus in the country, so that an individual wanting information on a Florida real estate development can in most instances turn to the better business bureau in his own city and that bureau will have our report, which will at least furnish some information to the prospective purchaser and may suggest other sources of information. And if he finds that the better business bureau in his city does not have a report, why then he should examine very deeply the offering that he is considering.
I would like to thank you very much for the opportunity to come.
Senator WILLIAMS. I will say, as much as I applaud the work that you are doing, I have a feeling that it is only part of the worthy response to the problems you face. You know, I think the figure generally used is that only 30 percent of the people in a State have ever heard of their Senator or can remember his name.
Mr. SMATHERS. Believe me, Senator Williams, I can assure you that I would be at a complete loss if the better business bureau were the only organization attempting to keep the public properly informed. We are most grateful for the activity of the
Florida Installment Land Sales Board, and I think I can very safely say that the situation in Florida is tremendously improved since that Board was created and since they have been in action.
Of course, there is also, I think, it seems to me to be very clear that no organization will ever substitute completely for a person's own individual prudence.
Senator WILLIAMS. You didn't offer any conclusions. I was somewhat distracted at one point.
Mr. SMATHERS. No, sir; as a general rule, better business bureaus only deal in factual reports and not any conclusions.
Senator WILLIAMS. On this legislation that is before us!
Mr. SMATHERS. I don't think it would be proper for me to attempt to draw a conclusion on this legislation. I haven't had the opportunity to study it.
Senator WILLIAMS. How about the principle of departing from a situation where it is almost absolutely caveat emptor in interstate land sales because States can't reach out beyond their borders to force a disclosure of a description rather of the product to be sold, in this case, land through interstate commerce?
Mr. SMATHERS. I believe we endorse that philosophy with the code of advertising standards, the code of operating ethics, which was developed in cooperation with the industry and other bureaus in 1962, because this definitely required full disclosure.
Senator WILLIAMS. Thank you very much.
Senator WILLIAMS. Did you come up from Florida on this particular
Mr. SMATHERS. No, sir, I happened to be on vacation, and I happened to be on my way to New York and enjoyed very much the sights of Washington.
Senator WILLIAMs. Very good, we appreciate your taking vacation time to be with us.
By the way, I don't think the record should be confused for those who read it. I think you are representing your brother George Smathers, because I understand, you are not related.
Mr. SMATHERS. I guess that is something that should definitely be clarified. George is a distant cousin.
Senator WILLIAMS. Is he? You know, he spent his early years in New Jersey and his uncle was the last Democratic U.S. Senator from New Jersey until the people made a mistake in 1958 and sent me down here.
Mr. SMATHERS. I don't believe they made a mistake.
We are going to have to do a lot of research on the record we have, the reports that are coming in and we are going to keep this record open. "If within 2 or 3 weeks it appears we should have another open hearing session, we can. We are not legislating under any particular time requirement, because it looks as though we are here from now on, God willing
Thank you all.