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Mr. SABATH. They are the owners of a great, big corporation and are the directors, and may own the majority of that stock. They are men who do not want the country to know that they are selling, and they will sell their stock short. So they are selling without parting with the stock, without giving the public notice that they are selling, and do you know that some of the largest corporations in 1929—I mean the directors-sold down so that they did not control or own more than 10 shares or 20 shares? They had disposed of all of their holdings and they were making people believe that then was the right time to buy their stock. Come in. Come in. It is fine. It is wonderful. It is a wonderful investment. And they were selling, selling, selling, until they disposed of all they possessed, and in addition to that, sold thousands and thousands of shares short.

Mr MARLAND. Mr. Sabath, when a man sells against the box, he is creating a public impression that there is a short interest in the market, is he not?

Mr. SABATH. Yes, sir.

Mr. MARLAND. And he accomplishes the decline in the stock by giving this impression?

Mr. SABATH. Short selling and all selling against the box is for that purpose.

Mr. MARLAND. How would you stop that?
Mr. SABATH. Sir?
Mr. MARLAND. How would you stop that?

Mr. SABATH. They would have to part with the stock, when it is sold. When it is sold, it is sold, and they would have to deliver.

Mr. MARLAND. I have asked that the directors of corporations be required to make monthly statements or a statement attached to the corporation statement, showing their position in the stock.

Mr. SABATH. Splendid; splendid. That would to some extent eliminate that abuse. I realize what each and every one of you has to look after; a large and increasing interest. If we could cut ourselves into about 10 parts, we still would not have enough to do. Therefore, it is impossible for any one man to devote the necessary amount of time and study to any fine piece of legislation.

I am not a financier; I am not an economist; but I have devoted a great deal of time to studying the stock exchange. I have seen the horrible results of its shameful operation. I have seen the results of these wicked and untenable stock manipulations and the dishonest gambling. I saw what happened in 1893, in 1907, in 1914, in 1921, and again in 1929. It is that wanton destructiveness to which Í object. It is these people who manipulate these practices that invariably account for the destruction and panics that ensue.

If you will just bear with me one more minute, I want to come back to my original and special interest, and it is this: I believe the selling, or permitting the short selling, is a curse. It should be eliminated or so restricted that it will be impossible to impose on the public in the future. The idea! The idea of my being permitted to sell 10,000 shares of stock in your corporation when I do not own a single share of it. And for what purpose? What purpose? To enable me to make some undeserved money. Money! So that a little later on something will develop whereby I can buy the stock back at much lower prices. And what is the result? The moment I sell, or my group sells, we start out sending out all kinds of propa

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ganda showing there is something wrong with that corporation, and this and that, and bringing about destruction to the price of this stock. When I started to advocate the elimination of short selling, I had this in mind, gentlemen: I saw the danger before us, and I figured that if they unnecessarily destroy the market value of the securities, it will bring about destruction to the banks that held these securities as collateral; that it would bring about the destruction of every insurance company in the United States, and that it would bring destruction to thousands upon thousands of estates, and bring ruin to the widows and orphans. A bank or an insurance company may have a capital of $10,000,000 and a surplus of $5,000,000. It may have assets to the extent of $100,000,000.

Well, they have the assets in what? In stocks and bonds and to some extent in mortgages. But when these securities go down, 50 percent and 75 percent and 80 percent, as it occurs, the assets of that bank or insurance company have been lowered to that extent. So it happened they are all solvent now, but I know in 1929—I mean 1929 and 1930—there was not a solvent bank or a solvent insurance company in these United States. I said that in executive session several times before the Banking and Currency Committee, before the Judiciary Committee, and elsewhere. Today we are improving conditions, prices have advanced a little, and we should try to protect the price of genuine securities, not the worthless stuff that was permitted to be listed by the stock exchanges.

Again, there should be a very strict provision governing listing of these securities. Why, gentlemen, if you could go into, as I did, and know, the many companies whose absolutely known worthless stocks they have permitted to be listed on the stock exchange, and the curb exchange, and the Chicago Exchange, the San Francisco Exchange, and every other exchange, you would be horrified. There was absolutely no justification in listing them. It was nothing but foul crookedness and a damnable fraud upon the public. Mr. HOLMEs. May I ask a question or make just one observation? The CHAIRMAN. Mr. Holmes. Mr. HOLMES. I happen to be a director of an insurance company with headquarters in Illinois and, of course, chartered by the State of Illinois, and to my knowledge we have never owned any stocks, securities, and this company has always been solvent. I just wanted to say that they do not invest in stocks.

Mr. SABATH. You know, there are exceptions to every rule, and I want to congratulate you. I am truly thankful that we have some companies that are prudent enough to resist that temptation.

Mr. HOLMES. We do not own any stock and most of the old-line mutual insurance companies very seldom invest in stocks, but they do in high-grade bonds.

Mr. SABATH. I did not say anything about the mutual companies, because they are operated differently.

Mr. Holmes. You said insurance companies, and they are all in the same category, so I wanted to be sure that you did not include mutual companies. I did not want them to be included.

Mr. SABATH. They are so different and there must be a difference, because they are officered by different men, by a different class of people. They do not belong to the banking clique that outlines their vosition for manipulation of the stocks.

Well, I observed that the chairman desires to adjourn and therefore I do not want to hold you any longer.

I notice that my other colleague is getting ready to leave. I hope, gentlemen and I am sincere and honest in this—that you will give the country the best possible, the most stringent bill that you can possibly agree upon.

I know that legislation, after all, is a compromise, and I know the people of the country will be ever grateful if you enact this legislation. I consider this of the greatest importance, of greater importance than anything else that we possibly can do, and I have very great confidence in President Roosevelt in this connection, as I convinced him of this condition 2 years ago, before he was President.

The CHAIRMAN. We are very much obliged to you, Mr. Sabath.

(Thereupon, at 4:45 p.m., the committee adjourned to meet the following morning, Friday, March 24, 1934, at 10 a.m.).

STOCK EXCHANGE REGULATIONS

SATURDAY, MARCH 24, 1934

HOUSE OF REPRESENTATIVES,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C. The committee met, pursuant to adjournment, at 10 a.m., in the committee room, New House Office Building, Hon. Sam Rayburn (chairman) presiding.

The CHAIRMAN. The committee will come to order.
Mr. BULWINKLE. Mr. Chairman-
The CHAIRMAN. Mr. Bulwinkle,

Mr. BULWINKLE. Mr. Chairman, yesterday a Mr. Rand testifying before this committee made certain statements, in which he said that a Mr. Wirt, of Indiana, had sent him a letter in regard to the President, Congress, and also others in the Government employ, who he designated as “brain trusters.'

These statements the press carried. They went out all over the country and I think this committee would be derelict in its duty if it did not go into this matter, and I shall introduce a resolution asking for an investigation of these statements, as to any anyone who might have made them.

Mr. MAPES. As to what? I did not hear that last.
Mr. BuLWINKLE. And, as to who might have made them.

I might say, for the committee, I kept the full so-called letter, which was not a letter at all, and have it now.

The CHAIRMAN. You will introduce that in the House?

Mr. BULWINKLE. I will introduce it in the House, and if the chairman will excuse me, I have an appointment.

Mr. MAPES. You are not asking for any action by this committee?

Mr. BulwinKLE. No, sir. I will ask that it come before this committee.

The CHAIRMAN. Why not a special committee?

Mr. BULWINKLE. All right; a special committee. I thought that you would like to have it.

The CHAIRMAN. I would like to have it, but we have 2 or 3 weeks' bearings announced already.

Our witness is tied up in the snow somewhere. I presume that he will be herein a few minutes.

(After a short recess, the following proceedings were had:)

STATEMENT OF ROBERT E. HEALY, CHIEF COUNSEL, FEDERAL

TRADE COMMISSION

The CHAIRMAN. Judge Healy, we are glad to see you back.
Mr. HEALY. Thank you, sir.

Let me first express the pleasure I feel at having the privilege again of appearing before this commitee.

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