I do not come as a member of the brain trust Mr. Rand referred to yesterday, because I could not qualify; I do not come as a young liberal, because I am no longer young. I do come as one who, not pretending to be an expert accountant, or expert in stock exchange law, or stock markets, has had an opportunity to see certain things, which I would like to tell the committee about.

In our utilities investigation, in which I have had a part, we have seen some of these things that I have in mind. Not long ago we made an examination and presented a report on the Cities Service Securities Co., which is a subsidiary of the Cities Service Co. The Cities Service Co. during a 3-year period, staged a campaign that was presumably for the purpose of getting new capital for it, through the sale of its common stock. The stock was sold throughout the country, in the country districts, to a great extent, not so much on stock exchanges, or over the counter, but by personal solicitation. It was peddled and they had several hundred salesmen in the State of Massachusetts alone.

The dealer contracts provided that the sales of the stock should be at the preceding day's closing price plus % on the New York Curb. It was also provided that if a man bought the stock and sold it within a 4-months' period that the salesman lost all of his commission (or else had the stock redelivered to him at cost to the managers). It was also provided that if a man anticipated his installment payments and paid them before they were due, he did not get delivery of the stock then; all of which kept the stock off the market and in the meantime, during this campaign, this stock was being sold at the preceding day's price on the New York Curb.

During this time, the Cities Service Securities Co. was buying on the New York Curb nearly all of the shares that were offered, so that there was not a free supply and demand in the market. There were months in which the purchases by the Cities Service Securities Co. were 98 and 99 percent of all of the purchases of that class of stock made on that market.

So, I submit that they were helping to make a price at which they were selling those shares to the people throughout the country.

In that campaign, which lasted for 3 years, omitting any reference to the sale of debentures that were convertible into common stock, the Cities Service Securities Co. received from the people of the United States over a billion, one hundred million dollars. How much of that did the City Service get in new capital? About $80, 000,000. What became of the rest? It was not embezzled. There is no such suggestion. No one made misuse of it. What was it used for?

First, it was used to make these market purchases that maintained the price so the people's own money, the investors' own money, was used to make a price on the curb at which the stock was sold to the people throughout the country. A part of it also went to buy shares of Cities Service common from Mr. Doherty and from one of Mr. Doherty's companies, on which they made a profit of over $19,000,000.

It is true Mr. Doherty had held this stock for a good many years and it represented only a portion of his holdings; but he made that much personal profit in this stock-selling campaign, aside from what was spent to support these market purchases. There were also

original issues of common for the Cities Service Co., and then for the first time it got new capital for itself of about $80,000,000.

Now, some of the people who bought those shares paid as high as $60 for them, but the company

Mr. MAPES. Some of them paid as high as $66 a share did they not? Mr. HEALY. Yes, sir. You may know of one?

Mr. MAPES. I have no personal knowledge about it, but it has always seemed to me, from what I have seen, that the sales of Cities Service stock was greatly overdone. I learned of it just as an observer, I will say, that is all. I never bought or owned any of that stock.

Mr. HEALY. I was one of the fortunate ones who observed, but I know others who were not merely observers, but some who paid the $60 price, and there were many who paid that.

Mr. MAPES. What is it now? I have not looked at the quotation of the stock for months.

Mr. HEALY. I have not looked at it, but it was around $2. It is about $2.

Mr. MAPES. It was below a dollar, at one time? Was it not?
Mr. HEALY. Yes, sir; I believe it was.

But, one interesting thing in this connection, with all of that, the average realization of the Cities Service Co. itself out of all of these things was much less than $60. I do not remember the exact figures, but it was less than $25 a share. So, if the investor had bought his shares direct of the Cities Service Co., and paid $40 a share, he would have saved himself $20 loss and in addition the company would have $10, $15, or $20 more new capital than it actually had.

Mr. MAPES. I am sorry to interrupt you, but I have an appointment and must leave this meeting. I should like to ask you some questions before I go.

Were the practices which you have described the fault of the stock exchange, or the fault of the management of the Cities Service Co.? Mr. HEALY. Well, I do not feel like trying to place the blame for it; but I do say this: I do say that the price that the Cities Service Co. helped to make on the New York curb was one of the direct causes of the high prices that that stock made, and at which it was sold to people, so that the operations on the exchanges, by the securities companies is right in point on this bill.

Mr. MAPES. I suppose that the company was responsible for placing of countless numbers of salesmen of Cities Service stock in different communities throughout the United States, was it not?

Mr. HEALY. Yes, sir; but this is not the only company that has used this same device.

The Central Public Service Corporation, stock now in bankruptcy, was dealt in on the New York Curb and Chicago Stock Exchange, and their salesmen sold their shares throughout the country from door to door at a price which was to be the preceding day's closing price on the curb and our investigation shows they bought many thousands of shares on the curb and also shows they sold on the curb. They gave the appearance of activity to the stock, which misled the people into believing there was an activity in the stock, and that it was worth somewhere near the price that was being paid for it.

Now, we have in the last few days, just been delving into the Associated Gas & Electric Securities Co. and there we have found very large sums, running up as high as $150,000,000 spent in a single

year in purchases on the curb exchange to make a price during the period when dealers and peddlers of stock were selling to the public at the preceding day's closing price on the curb.

Now, I did not intend, when I came up here, to talk so much about instances of that character. It was my purpose to deal particularly with one section of this act, section 12, (b), which relates to the right of the Federal Trade Commission to prescribe the form in which information shall be given to the commission.

Mr. LEA. Before leaving that other point, would you mind briefly stating how this bill, if it were a law, would operate to prevent transactions such as occurred in the sale of Cities Service stock?

Mr. HEALY. I am at little disadvantage, because I am not sure that I can answer your question fully. I did not help to draw the bill, and I have only such familiarity of it as comes from one or two careful readings of it, but it is my memory there are provisions in this bill which would prevent companies marketing their own securities, from making a market by that kind of manipulation on the exchanges. I cannot put my finger on the precise provision, but it is my understanding that that kind of a situation is met and certainly if it is not, it ought to be.

The CHAIRMAN. You think that the authority should be lodged somewhere?

Mr. HEALY. Yes, sir.

The CHAIRMAN. Under a proper bill, to defeat in the future such operations as that?

Mr. HEALY. Yes, sir.

Now, those companies were not trying to sell shares on the curb. They were marketing their shares through the "sticks" as they say; but it was at a price that was made on the curb and these people that were buying saw or were shown these curb quotations and they thought, "Here is an active stock." Look what it is selling for on the curb. Every device was used to keep the shares off the market.

The Cities Service Co. supplied the demand, but the supply was limited by these other devices.

Now, I could give you other instances of that sort, and in a few days we will show in our record how the Insul and Middle West Cos. did very much the same thing in their manipulations, while they were carrying on a stock-selling campaign around the country.

I have here a copy of an exhibit, a letter in our files, written by the executive vice president of the Chicago Stock Exchange to Mr. G. L. Ohrstrom, president, Tri-Utilities Corporation, also in bankruptcy, with great losses to many investors, This exchange of correspondence with the Tri-Utilities Corporation shows that he told them that it was expected of them that they should support and maintain the market in their stocks. I offer that for the committee's perusal. (The matter referred to, marked "exhibit 5656", is as follows): THE CHICAGO STOCK EXCHANGE, November 3, 1930.

Mr. G. L. ОHRSTROM,

President, Tri-Utilities Corporation,
Jersey City, N.J.

MY DEAR Mr. OHRSTROM: One of the understandings The Chicago Stock Exchange asks, when securities are listed here, is that those applying for the listing will keep up a market. By keeping a market we mean keeping a bid in these securities at all times on the exchange.

The public, which has purchased the securities listed on any stock exchange, is under the impression that they will always be able to sell such securities in the future at the exchange where they are listed.

When a security listed here has no market-in other words, when a listed security cannot be sold at any price-the situation brings criticism from the owners of such stocks and bonds, as well as from the commercial banks that are asked to place loan values on these securities. In fact, our banks take the attitude that any listed security with no bid is worthless as collateral.

I mention these facts because I believe they are of enough importance for you to make every effort to keep a market for your securities listed here. Our records show there has been no bid in your common stock for several months and the last sale was on March 28, 1930.

I am sure you will see the importance, not only to the stock exchange but to your own company as well, in cooperating with us along the lines suggested. I will appreciate it if you will let me know what your plans will be in this connection. Very sincerely yours,

HARVEY T. HILL, Executive Vice President.

NOVEMBER 21, 1930.

Mr. HARVEY T. HILL,

Executive Vice President, Chicago Stock Exchange,

Chicago, Ill.

DEAR SIR: We have your recent letter addressed to Mr. Ohrstrom on the subject of market_transactions in Tri-Utilities Corporation common stock on the Chicago Stock Exchange.

We note your statement that there have been no sales of this stock for several months. We call your attention to the fact that transactions in this stock occur frequently on the New York Curb Exchange, and that anyone wishing to dispose of this stock can do so in New York. The fact that sales occur in the New York market also makes the stock available for use for collateral.

It is a fact over which the corporation has no control that the market for its stock has developed in New York rather than in Chicago.

We need not tell you that over the past year diminished public interest in common stocks has resulted in rather thin and inactive markets in many stocks in which there would otherwise be considerable trading. We believe that when a

different condition exists in security markets generally, a more active market will develop in Chicago as well as in New York.

We wish to cooperate with the Chicago Stock Exchange and will do everything which we reasonably and properly can to facilitate transactions on the Chicago Exchange.

Yours very truly,

TRI-UTILITIES CORPORATION, By F. S. SPRING, Treasurer.

Mr. F. S. SPRING,

THE CHICAGO STOCK EXCHANGE,
December 20, 1930.

Treasurer Tri-Utilities Corporation,

Jersey City, N.J.

DEAR SIR: Referring to your letter of November 21, will state that it is the obligation of every company whose securities are listed on our exchange to maintain a bid for said securities or to see that a bid is maintained by its bankers. Failure of any company to carry out its obligations in this respect will, at the very least, have a bearing upon the consideration of other issues of the corporation which may be submitted for listing or sponsored by the same bankers.

By reason of the listing of your stock on this exchange, your company has the benefit of exemptions under the securities laws of a considerable number of States which do not exempt curb securities. Most of these exemptions require that the securities be not only listed but dealt in. The purpose of such provision is undoubtedly that the investor may be guded by the record of actual sales on the recognized exchange, and it might be possible for a litigant to allege that the exemption did not apply where transactions did not take place at reasonably frequent intervals.

I discussed this situation with Mr. Massey before his recent illness, and if he is now back at his desk I would suggest that you talk the matter over with him. There is a great deal of interest in this section in your company and affiliates, and with a reasonable amount of coooperation from the company and the bankers an active market can be developed.

Very truly yours,

E. W. FEDDERSON, Chief examiner.

DECEMBER 23, 1930.

DEAR MR. MASSEY: We received a letter from E. W. Fedderson, a copy of which is attached in answer to our letter to the Chicago Stock Exchange dated November 21, copy of which is also attached.

We should be glad if you will give us your comment on this situation in the light of your conversation with Mr. Fedderson.

Yours very truly,

F. S. SPRING, Treasurer.

JANUARY 13, 1931.

Mr. M. E. SIMOND,

New York Office.

DEAR MAYNARD: A few days ago I had a long talk with Mr. E. W. Fedderson, statistician of the listing committee of the Chicago Stock Exchange, with reference to the markets on our securities listed on that exchange.

Mr. Fedderson stated that the feeling of the exchange that we were not properly supporting our markets had become very definite. They have always considered our situations as among the more sound and stable issues listed, and have been particularly disappointed with the market on Tri-Utilities common, which they feel should be in much better condition since it is our top holding corporation. They do not seem to be seriously concerned over the lack of activity as they are over the fact that for some period of time there has not even been a bid of any sort for the stock. They are aware of the general problems which arise in running a market but feel that there should be some point at which we could bid for the stock which would not involve taking back very much of it.

Mr. Fedderson's attitude toward us has been and still is very friendly. His attitude is that while serious consideration has been given by the exchange to taking some of our securities off the list, at the present time there is no action of that sort contemplated. He feels that the exchange would certainly give us a chance to work on the situation before doing anything further, but that they would be looking for some improvement in the situation-particularly with respect to Tri-Utilities-some time within the near future.

As I suspected before talking to Mr. Fedderson, one of the factors which has caused a definite drive on the part of the exchange for increased activity in listed stocks has been severe criticism on the part of middle western securities commissions of the markets maintained. Action has now been taken in Wisconsin to remove the Chicago Stock Exchange from the list of exchanges whose listed securities are exempt under the Wisconsin Securities Act. It seems fairly definite that this action will be successful, and the Chicago Exchange expects to be stricken from that list. Apparently similar action is contemplated in other Middle Western States.

In view of the fact that business seems to be a little bit better than it has been recently, and that plans are being made to better the condition of the Tri common market, is there not some way that we can within the near future at least place some sort of a bid with the Chicago Stock Exchange? They are naturally quite interested in seeing some activity in the stock, but I feel that a bid of any sort would go a long way toward curing what has become a very sore situation.

Very truly yours,

R. R. MASSEY.