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showing their operating income, net income, additions and deductions, differences, and a digest of their balance sheets.

So that it seems to us just an unnecessary and expensive duplication of effort to require the registering of these securities and the making of these reports to the Federal Trade Commission.

And in connection with section 11, I do not want to overlook the fact that under paragraph 10 of that section it is required that the balance sheets of the railroads, of all companies issuing .securities, I should say, must be certified to by an independent public accountant, and in paragraph 11 of that section it is provided that an independent public accountant for all the preceding years must certify with reference to the profit and loss statements of the company issuing these securities.

Now, what would that be? That would be a tremendous expense on the railroads to go back for nearly 100 years of their history and have to employ public accounts to go over all of their balance sheets, and all of their profit and loss statements, for all of these years, and examine their books for the purpose of giving a certificate to the Federal Trade Commission, which it seems to us is entirely unnecessary in the case of a regulated industry.

The CHAIRMAN. You are not objecting, Judge, but suggesting that some provision be put in this bill with reference to railroad securities, such as was put in the Securities Act last year?

Mr. FLETCHER. The same thing, exactly, Your Honor.
I just want to comment, also, and I will not detain

you unnecessarily, I want to voice the same objection which I think has been expressed to this committee by persons more competent to express objections to that provision, about the provisions under the law as it is written here, proposed here, that every railroad company, when it proceeds to have its annual meetings of stockholders for the purpose of electing directors or carrying on any routine matter, must send out a notice to all of the stockholders, whose proxies are solicited, not only a statement as to the purpose and meaning of it; not only a statement as to the matter to be considered at the annual meeting, but also a complete list of its entire stockholders.

Now, that is a tremendous burden. In the case of the Pennsylvania Railroad I happen to know that they have 150,000 stockholders. In the case of the Chicago & Northwestern Railroad, as I recall, they have 50,000 stockholders, and the lists, printed list of the stockholders of the Pennsylvania Railroad, makes a book as big as the family Bible, almost.

Now, to require them to be printed or produced in any form and sent out to every stockholder every time you have an annual or special meeting of the stockholders would be exceedingly burdensome and this requirement would really make it almost impossible, as it seems to me, to hold the meetings of the stockholders.

The stock' is so widely scattered it is next to impossible to expect that the stockholders will personally attend the meeting, particularly of routine meetings, which are held for the purpose of electing a board of directors and for conducting other routine business, or any other activity, the reports of which are always given in the annual report.

Mr. MARLAND. Mr. Chairman, may I ask Judge Fletcher a question?

The CHAIRMAN. Mr. Marland. Mr. MARLAND. Judge, right there, do you see any objection when these proxies are sent out in saying to the stockholders, or sending to the stockholders a statement showing the number of shares owned by the directors of the various companies?

Mr. FLETCHER. Why, I should think not, Mr. Marland. I do not see any objection to that; but I do say this, and I suspect that this thing had been voiced to the committee by others, that a railroad company and any other company, I presume, but I can speak only for railroad companies, because my knowledge does not extend beyond that industry, particularly, railroads are very very jealous of their stock lists, and that is true, because we have had a practice in this country, rather widely indulged in, where somebody who wanted to make some money would buy a few shares of stock and appear at meetings for the purpose of objecting to certain things, which might be perfectly legitimate, which were being done by the railroad company, and then afterward bring a suit to stop the doing of the thing which the railroad is tremendously interested in, with the result that very often, I am sorry to say, that they have been paid enormous prices, enormous amounts, for their stock, just to get rid of them, not because the suit was serious, or there was anything illegally involved, but because the company did not want to tie up the whole structure, did not want to have itself blocked for a year. And if the company gives people of that kind a complete knowledge of all stockholdings of the company, it will simply enable them to use that sort of weapon to greater advantage.

I want to call attention, too, Mr. Chairman, to section 18 of the act, which provides that the accounting practices of companies issuing securities shall be regulated to a certain extent, at least by the Federal Trade Commission, and it says in there that any accounting demands upon carriers subject to section 20 (a) of the act shall be consistent with the regulations of the Interstate Commission.

Now, the draftsman may have intended, perhaps did, to say they should not have the right to prescribe the accounting methods and rules for carriers subject to the Interstate Commerce Commission or Interstate Commerce Act, but the word "consistent” there would indicate to me, at least, that very likely the Federal Trade Commission can go on and require an addition to the accounting practices and methods, just so long as they do not contradict anything which is found in the Interstate Commerce Commission rules, or Interstate Commerce Act, and I think if you do not do anything else with that, it should be made clear that what must be done by the carriers under these rules of the Interstate Commerce Commission shall be sufficient also for the purposes of the Federal Trade Commission.

And that leads me, Mr. Chairman, to make the suggestion which you indicated a moment ago, which I respectfully submit to the committee, that there be added to paragraph 10, of section 3, of the act, the words which I will put in the record:

Nor any securities issued-
Mr. PETTENGILL. You said section 10?

Mr. FLETCHER. Paragraph 10, section 3. You will note that is the section that exempts securities issued by the Government of the United States. There should be added, also, I respectfully submit:

Nor any securities issued by a common carrier which is subject to the provisions of section 20 (a) of the Interstate Commerce Act, as amended.

That section being the one, Mr. Chairman, which provides for the supervision of the Commission in matter of regulating the issuance of securities.

I, of course, share the objections that have been offered so fully and so well by commercial interests generally that this bill will tend to prevent the orderly conduct of business, and I listened to the colloquy between members of the committee and the gentleman who just preceded me, and at the risk of being a little out of line, may I say just this: I have had no experience as a seller of securities or a broker. Í have had, unfortunately, some experience as a purchaser of securities. It is on that end only of the matter, so far as I am personally concerned that I have knowledge. I have lost a good part of the small savings of a lifetime, resulting from frugal living, and I want to say to you in all sincerity I never lost a dollar on any security that I bought from a reputable broker or reputable bank. The moneys that I lost were lost when I trusted the judgment of some friend and bought outside of the regular commercial channels.

I thank you, Mr. Chairman.
The CHAIRMAN. We are very much obliged to you.
Mr. HUDDLESTON. Mr. Chairman-

The CHAIRMAN. Mr. Huddleston would like to ask you a question. Mr. HUDDLESTON. Judge Fletcher, I am considerably disturbed over the constitutional aspects of this bill. Have you given them any consideration?

Mr. FLETCHER. I am sorry, Mr. Huddleston, but I have not. I have not gone into the question. I have the most general idea about that. I am not much of a constitutional lawyer, anyway.

Mr. HUDDLESTON. Here we are assuming to regulate a market place, an exchange, then we undertake to regulate the members of that exchange, and the we undertake to regulate the securities that they deal in, and then we undertake to regulate the corporations that issue those securities; that is what we are doing, and I am not certain that we have the power to do it.

Mr. FLETCHER. Well, this is somewhat of an offhand opinion, from a lawyer who has not studied the question: I have wondered about the same thing, Mr. Huddleston. The power lies, if at all, I take it, in the commerce caluse in the power to regulate interstate commerce. If you draw upon some analogous cases that you and I know about, in connection with such familiar legal matters as the jurisdiction of Congress to pass a law dealing with liability for injuries to employees engaged in interstate commerce-and there is a long line of decisions, sometimes very shadow-line decisions, between what is so directly related to interstate commerce and what is only indirectly related to interstate commerce—and those cases which fall under the category of indirect have been held to be beyond the power of Congress to legislate about.

Now, here, as you have so well pointed out, you are regulating the exchanges in New York, or Chicago, or Philadelphia, or Boston, and then you regulate the issuance of the securities that are put upon the exchanges, and you regulate the marketing of those securities. Surely somewhere there is a point where the power of Congress over interstate commerce ceases.

45381-344-28

Now, if this bill does not get over that line, why, it gets pretty close to it.

Mr. HUDDLESTON. Those who have written the bill have apparently gone into every conceivable field for power on which to base it and have drug into section 2 everything they can think of that would possibly, give congressional powers to engage in this adventure.

I notice that, however, they have omitted the idea that the commerce clause includes the regulation of the securities of the corporations engaged in interstate commerce.

Mr. FLETCHER. Yes. Yes; they depend upon the transportation, possibly, and the use of the facilities, and that sort of thing.

Mr. HUDDLESTON. They depend on other things. There is apparently no thought that Congress has power to regulate the securities of the corporations because of the fact that that corporation is engeged in interstate commerce.

Mr. FLETCHER. No; that would not catch anybody but the railroads, and the trucks, and water lines, and so on.

Mr. HUDDLESTON. Transportation corporations are not the only concerns engaged in interstate commerce; corporations may engage in interstate commerce by selling their products though not engaged as carriers.

Mr. FLETCHER. You do not mean carriers. I thought you were referring to the transportation feature.

Mr. HUDDLESTON. No. I am not referring merely to the transportation feature. That is merely one form of interstate commerce.

If we will take, for illustration, the case of a trading corporation whose activities consist entirely in filling orders from their principal place of business in one State, to go to customers in other States, they are plainly engaged in interstate commerce.

Now, what is the basis of the power of Congress over the securities of the interstate carriers?

Mr. FLETCHER. Well, the reason why they may regulate their securities is because it would be in the interest of sound transportation.

Mr. HUDDLESTON. Because those interstate

Mr. FLETCHER (interposing). For the reason that it would be in the interest of sound transportation.

Mr. HUDDLESTON. Because they are securities of corporations engaged in interstate commerce.

Mr. FLETCHER. Obviously.

Mr. HUDDLESTON. So that any noncarrier corporation engaged in interstate commerce would be just as subject to having its securities regulated, would it not?

Mr. FLETCHER. If it had the same relationship to the interstate work of that particular company, that the securities of the carriers have.

Mr. HUDDLESTON. Let us say this---
Mr. FLETCHER. I will say "yes"; for the purpose of the discussion.

Mr. HUDDLESTON. Here is an interstate carrier that has its securities as to issuance form, and disposition, and everything else, regulated because it is engaged in interstate commerce.

Now, let us take another corporation engaged in interstate commerce, though not a carrier. Is there any difference that you can see?

Mr. FLETCHER. Well, I might be able to distinguish between the

securities of a railroad directly engaged in interstate transportation, and some other corporation.

Mr. HUDDLESTON. What has transportation got to do with it any more than engaging in any other kind of interstate commerce?

Mr. FLETCHER. I would not be sure, Mr. Huddleston, and there are other people that I feel could come nearer giving you the information.

Mr. HUDDLESTON. I wish that some good lawyer would come here and take it within his field to give us some information on this serious subject. I have never seen a bill of this importance so inadequately presented as to its legal aspects, may I say

Mr. FLETCHER. Not taking that to myself-
Mr. HUDDLESTON. I understand.

Mr. FLETCHER. Because I represent a client that undoubtedly Congress does have power to regulate as to these things.

Mr. HUDDLESTON. If that be true, I do not know whether the courts have ever decided that Congress has power to regulate interstate railroad securities. Has such a decision been made?

Mr. FLETCHER. No, I think not; but I think it would be likely. I would not like to advise my client that Congress could not exercise that power.

I thank you, Mr. Chairman.

The CHAIRMAN. I am going to ask the committee this morning if they will just extend the time and remain over a little while after the bell

, because Mr. Sprague must leave, and he represents the specialists, and then we have Mr. Harriman here, president of the United States Chamber of Commerce, who is very anxious at this time to make a statement, and I think we can sit until 12 or 12:05, and get through with them.

Mr. BULWINKLE. I wonder if we could not probably recess and come back at 2:30 for an hour and a half.

The CHAIRMAN. Some members of the committee have an important committee meeting at 3 o'clock this afternoon.

I am going to ask the members to break our usual rule and sit a little while after 11:45.

STATEMENT OF RAYMOND SPRAGUE, MEMBER OF THE NEW

YORK STOCK EXCHANGE, AND A SPECIALIST

The CHAIRMAN. Will you qualify by giving your name, and business, so that the committee can hear you?

Mr. SPRAGUE. Raymond Sprague, member of the New York Stock Exchange, and a specialist.

This evidence (referring to pamphlets) looks very voluminous. It is for distribution, if Mr. Layton will give a copy to each of the members, so you will have it before you.

I would like to comment, first, Mr. Chairman, on a few pertinent facts and then go into an A, B, C, description, if I might, and then follow that with examples, and there is a gentlemen here with me who has been here since last week, and I think that it would help the members to hear him. He is a member of the commission house, and I would like to get his views on record.

The CHAIRMAN. I do not think that we will have time to put that in the record.

Mr. SPRAGUE. It is very important.

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