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taking to stop these manipulations of securities on stock exchanges. As I have gathered from a rather hasty study of the bill, the purpose of it all is to allow free play to supply and demand in dealing in securities so that the price shall not be artificially made by wash sales and by various other devices that have been used in the past to run up the price, particularly during a period when shares are being sold throughout the country.

Mr. WOLVERTON. It would seem to me, if you are not careful, or if the duty to protect is carried to its logical conclusion, it will result in the Federal Trade Commission listing stocks from the standpoint of desirability and might go so far as to fix the margin value of stocks. Would that be true?

Mr. Healy. I do not know. The thing that I was talking of, , particularly in response to earlier questions, was that if the Commission had reason to believe that prices were being made by manipulation or artificial means, it would be in a position to do something effective about it under the provisions of this act.

Now, if you want to go into the subject of marginal requirements, as I recall part of the responsibility for that rests elsewhere than on the Commission

Mr. WOLVERTON. That may be true, but I would like to know if, as a part of its duties, the Commission ascertains that unfair practices have been engaged in and the true condition of the corporation does not appear in statements submitted, whether that would lead the Commission to publish information for the use of the public, as assistance to them in determining whether it is a good stock or a bad stock, and whether the Commission would publish a list of stock values as a basis for margin requirements.

Mr. HEALY. I am not prepared to answer that question.
Mr. WOLVERTON. That is all.
The CHAIRMAN. Are there any further questions?
Mr. PETTENGILL. Yes, sir; Mr. Chairman.
The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. I would like to ask about this. There is one phrase running through this bill which, personally, I object to, and that is the phrase "protection to the investor." I think that word “protection” should be changed to “information” for investors.

I very much doubt the advisability of the National Government underwriting the honesty of every corporation executive in the Netion or assuming a moral responsibility to the holders of $100,000,000,000 worth of securities.

Now, I say that because there is an evident atmosphere in this country that the National Government has to underwrite everything that is being done in the Nation, good or bad, and I think we are going to break down the Government if we continue to do that. You know the attitude, it is shown with reference to the joint-stock land bank bonds, that the United States Government, although it did not guarantee them, should guarantee them. The principal of the home owner's loan bonds are to be guaranteed under the theory of a moral obligation on the part of the United States Government, and a former Attorney General of the United States argued before a committee of Congress only the other day that because national-bank examiners permitted banks to remain open when they should have been closed that the

United States Government has assumed a responsibility of three to five billion dollars to the depositors of those banks.

Mr. BULWINKLE. Who was the former Attorney General?
Mr. PETTENGILL. A. Mitchell Palmer.

And, I would like to have your views on this idea of holding out to the American investors that we are protecting them rather than simply giving them information, upon which they must protect themselves.

Mr. HEALY. Not to make a short answer, Mr. Pettengill, I have the impression that that statement was included as indicating one of the reasons why this bill was being considered and why the bill was to be enacted; that is, for the protection of investors, and God knows they need it.

Mr. PETTENGILL. Well, they need it. We will grant that; but I am asking if the responsibility that the United States Government may assume in permitting a stock to be traded in on an exchange, which an investor would not have purchased if the information had been filed with the Federal Trade Commission, and where the information should have been disclosed, but it was not done, and then somebody, som future Congress, after another terrific crash, is going to impose a legal obligation on the hypothetical moral obligation in the Federal Trade Commission.

Mr. HEALY. The ex-Attorney General, to whom you refer, has not succeeded in placing that legal obligation upon the United States Government.

Mr. PETTENGILL. That is true.

Mr. HEALY. You are asking what I think the responsibility of the Government is.

Mr. PETTENGILL. Yes.

Mr. HEALY. I think it is to enact an effective bill, regulating stock exchanges, that will protect the American investors. I am not talking about raté payers of utilities companies. I am talking about the people in this country who put their money into securities. They have been injured.

Mr. PETTENGILL. We want to prevent all those injuries we possibly can in the future, but I do not know whether you quite see the point. I am still saying that this phrase "protection of investors" is a phrase upon which a moral obligation will be built up against the United States Government some day by some group of people who may have friends in Congress who would impose a legal obligation upon it. In other words, should not the bill draw the same careful distinction as between information as to the security, and not as to the soundness of the security, that we attempted to do in the Securities Act?

Mr. HEALY. I think that responsibility of the Government has already been built up; been built up from former unfortunate events.

Mr. PETTENGILL. I beg your pardon.

Mr. HEALY. I say that responsibility has already been built up from unfortunate events of the past. Remember, my view of it is that it is up to the National Government to enact legislation to control the stock exchanges and dealings in securities.

Now, as to the things that may have grown out of the activities that the Government has undertaken in other departments, I am not prepared to discuss them. I am sticking to my text, that this bill, as

read it, is designed for the protection of investors, and that they need it, and that they should be protected, and not merely by information, but by making it a penal offense to do certain things, and to endow some administrative body with authority to prevent unfair practices, manipulations, the establishment of false values, or the appearance of values when they do not exist.

Mr. PETTENGILL. Well, that goes to the question of information to the investor.

Mr. HEALY. I think that it may go further than that.

Mr. PETTENGILL. Suppose that the regulatory body either inadvertently or otherwise, by honest mistakes, or otherwise, fails to obtain the information which it should have gotten for the information or protection of the investor. Would you then say that the moral responsibility of the National Government is such that it should put its hands into its taxpayers' pockets and cough up the loss that the investors suffered through the failure of some administrative body to see that the information was given?

Mr. Healy. No, sir.

The CHAIRMAN. Let me say this about the Government responsibility: In this instance, the Government is not undertaking to say whether a company can issue a security or not; but under the Transportation Act of 1920, there is a provision that a railroad cannot issue a security of any sort without the consent of the Interstate Commerce Commission being received.

Now, investors in railway securities have known that since that time, and no lawyer for an investor has ever, even on a law that goes that far, has contended that the Government assumes any liability.

Mr. MERRITT. Is there some statement in that law on that point. The CHAIRMAN. What?

Mr. MERRITT. Some statement in the law that the Government does not assume liability?

The CHAIRMAN. I do not just remember that; but that statement would not have anything to do with the moral obligation and that law goes so much further than anything that is contemplated here and that same argument was made, Mr. Pettengill, in 1920, by some who were opposed to giving the Interstate Commerce Commissiou the regulatory power over the issue of securities, but that bill contains stronger phrases, and goes further than anything that is proposed at the present time in this bill. Under that bill they are entirely regimented in all their business even down to their minutest details of bookkeeping

Mr. PETTENGILL. Mr. Chairman, perhaps you do not understand me. I want full and honest information to be furnished. But, I do not want the United States Government to be put in the position of assuming guardianship over the persons who deal on the information.

The CHAIRMAN. Yes.
Mr. MERRITT. There might be a phrase in the law denying liability.

Mr. PETTINGILL. I do not know about that, possibly there should be a clause to the effect that the United States Government assumes no financial obligations for any act of omission or commission of the regulatory body.

Mr. WOLVERTON. Of course, Mr. Chairman, there is a different element that enters into the power of the Interstate Commerce Commission and the power which is given to them to state whether

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securities shall be issued or not is based not upon the desire to make their securities desirable investments from the standpoint of the public, but because of the rate provisions which are dependent upon the underlying obligations of the railroads. In other words, that every time you add to the securities of a railroad you take upon yourself the responsibility of determining whether a rate should be correspondingly increased to cover that or not. So that I can see that power should be given to the Interstate Commerce Commission for a different reason than what it seems to me we have before us in this particular bill.

The CHAIRMAN. I agree with you 100 percent on that; but I was talking about the moral or legal obligation that might rest on the Government for seeking to get information for the investing public and it appears to me that is what this does and that is what we certainly try to do under the Securities Act.

Mr. HEALY. May I also present a photostatic reproduction of an advertisement offering $40,000,000 of the certain gold notes of the Corporation Securities Co. of Chicago, one of the Insull companies, now unhappily defunct, and call the attention of the committee to the statement of dividends, income and surplus, and so on that appears there.

I do this because it is a very attractive picture and because, without my saying so or you looking at any of the records, you can see that subsequent events have proven that most of it could not be true.

(The photostat of the advertisement above referred to, appearing in the New York Times of Friday, Sept. 12, 1930, p. 35, is as follows:)

$40,000,000, Corporation Securities Co. of Chicago, serial gold notes

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The following is summarized from a letter of Mr. Samuel Insull, chairman Corporation Securities Co. of Chicago:

Business.--Corporation Securities Co. of Chicago, with broad charter powers allowing it to purchase and hold securities of all kinds for investment, to deal in such securities, and to act as agent in various capacities for individuals and corporations, has so far confined its investments alniost exclusively to the purchase of substantial blocks of stock in Middle West Utilities Co., Commonwealth Edison Co., Public Service Co. of Northern Illinois, the Peoples Gas Light & Coke Co., and Insull Utility Investments, Inc. These stocks are listed on the New York or Chicago Stock Exchanges. The value of the company's assets, including securities now owned and to be acquired under existing contracts, valued at market prices as of September 10, 1930 is in excess of $134,000,000. Of this value, over $88,000,000 is represented by securities of the first four of the above companies.

Purpose. The proceeds of this financing will furnish sufficient funds to pay off all current indebtedness and acquire all securities now contracted for, and will further provide the company with a substantial cash sum.

Provisions.-The company will covenant in each note that so long as any of these serial gold notes are outstanding, it will not mortgage or pledge any of its assets without securing the notes equally and ratably with the other obligations secured or to be secured by such mortgage or pledge, except that the company,

without so securing the notes, may mortgage or pledge any of its assets for the purpose of securing loans in the usual course of business for periods not exceeding one year, and may mortgage or pledge property hereafter acquired to secure the purchase price thereof in whole or in part. The company will further covenant that it will neither pay cash dividends on its common stock nor redeem or purchase its capital stock of any class in whole or in part when such payment or redemption or purchase will reduce the value of its assets to less than 150 percent of its indebtedness then outstanding. The company will also covenant that so long as any of the serial gold notes are outstanding, it will not create or assume any additional indebtedness if as a result thereof its total indebtedness will exceed 50 percent of the then value of its assets.

Earnings.-Following is a statement of earnings of the company, as certified by independent auditors, for the period from the date of its organization, October 5, 1929, to September 30, 1930 (with September partly estimated) and an estimated statement of earnings for the year ending August 31, 1931, based on investments now owned and being acquired:

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In the foregoing statement for the period ending September 30, 1930, stock dividends received and to be received have been taken at the current market prices on the dates received and in the statement for the year ending August 31, 1931, at present market prices.

Voting trust.—2,030,000 shares of the 4,116,403 shares of common stock now issued have been placed in a voting trust expiring on November 1, 1934, with an option to renew for an additional 5 years. The voting trustees under this trust are Samuel Insull, H. L. Stuart, and Samuel Insull, Jr. A circular fully descriptive of this issue will be sent upon request.

Halsey, Stuart & Co., Inc.
Continental Illinois Co., Inc.
Central-Illinois Co., Inc.
Foreman-State Corporation.
E. H. Rollins & Sons.
Insull, Son & Co., Inc. (Europe and Canada).
Russell, Brewster & Co.
Harris, Forbes & Co.
First Union Trust & Savings Bank.
The National Republic Co.
A. B. Leach & Co., Inc.
Hill, Joiner & Co., Inc.
Emery, Peck & Rockwood Co.

A. C. Allyn & Co., Inc. Dated September 1, 1930, and redeemable. Principal and interest will be payable at the offices of Halsey, Stuart & Co., Inc., in Chicago and New York. Interest will be payable March 1 and September 1 without deduction for Federal income taxes now or hereafter deductible at the source, not in excess of 2 percent per annum. Coupon notes, denomination $1,000. Thesc notes are offered for delivery when, as, and if issued and accepted by us, and subject to approval of counsel. It is expected that notes in definitive form will be ready for delivery at the office of Halsey, Stuart & Co., Inc., on or about September 25, 1930. All statements herein are official or based on information which we regard as reliable, and while we do not guarantee them, we, ourselves, have relied upon them in the purchase of this security.

SEPTEMBER 12, 1930.

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