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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 almost 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 par 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. These 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.

Mr. HEALY. If there are no further questions, I will close my testimony.

There is one thing that I would like to say, very briefly, and it is this: Because of the conditions that have been disclosed in the Senate investigation and in the Commission's utility investigation, and because of the facts that are known to all of you, it has been recognized on all sides that legislation of this character ought to be enacted.

And, it seems to me that the young lawyers who have given of their services and strength, in writing the bills of this character, are not deserving of the censure that was visited on them here yesterday. It must be something of a surprise to many of these gentlemen who in the years past have been engaged in the manipulation of stock securities and the manipulation of corporation laws, through lobbying in the State legislatures and elsewhere, "while occupying no elective office”, (to borrow Mr. Rand's phrase), to find on the side of the Government, men, lawyers, who are as expert as their best lawyers in these complicated subjects. Heretofore, the only brain trust that has existed has been the monopoly that certain great interests in the country seemed to have of the brains of certain lawyers who have been able to write and amend and rewrite the corporation laws of this country until they have come to be a most terrible mess, a mess that threatens the existence of business itself; a mess that outstinks the stables of mythology.

No single enterprise that Foshay, or Insull, or any of their kind, undertook was put through, without the assistance, the planning, and the connivance, of one of these lawyers who sat in their cabinets.

Read the dissenting opinion of Mr. Justice Brandeis in the case of Liggett v. Lea and see how far we have gone from the old standards, and the old landmarks.

It was only in 1889 that the first statute was passed in America that departed from the old common-law principle that forbids one corporation to own the stock of another. When I was admitted to the bar in Vermont, in 1904, there was a law on the statute books to the effect that no corporation could be incorporated with a capital of more than $1,000,000 without the authority of the legislature.

These artificial beings—think of it, gentlemen-the right of a group of men to create out of nothing artificial beings to which they can sell, from which they can buy, which they can manipulate and by which they can build up the appearance of values. Today, one of the greatest of them is a wanderer on the face of the earth; a man without a country, in a ship without a port. I do not know whether he has taken away very much with him, out of all of this great turmoil of wrongdoing. He may be as completely ruined, for all I know, as many of those who bought his securities; but I want to contrast the lawyers who have helped to bring about all of these unwise amendments of State corporation laws, under which payment of dividends is permitted out of paid-in capital, under which you can capitalize in some States practically everything, except the furnace ashes in the basement; to contrast their activities with the activities of many of the skilled young lawyers in the Government service who can make more money outside of the service than they can in it; but who give their services. It seems to me that these men are a great deal more like some of the men Mr. Rand mentioned yesterday in his speech: Thomas Jefferson, Lincoln, and I would like to add, too, Madison and Monroe, and some others, than these modern corporation lawyers.

These men are not the lackeys of rich men. They are not the protégés of the privileged. They are servants of justice. They are the champions of the people, as Jefferson and Lincoln were.

Thank you.

Mr. HEALY. I was just a little aroused by the attack that was made upon them, and I wished to make that statement.

The CHAIRMAN. We had two young men here last year who helped us unselfishly and with great wisdom on the Securities Act. One was Mr. Landis, now Federal Trade Commissioner, and Mr. Cohen, who is now present and who has devoted day and night to this question, and he has been a people's counsel and we have Mr. Tom Corcoran, and Mr. Corcoran has devoted all of these days and nights to this work, with the representatives of the Treasury and with the Federal Reserve Board, and we have gotten, through those counsels, the endorsement of the Federal Reserve Board. We will have Mr. Landis at 2 o'clock, who will endorse the bill.

I have here a telegram from Trowbridge Callaway, chairman of the investment house group; a letter from Paul J. Engel; a petition on behalf of the specialists of the New York Stock Exchange, and a letter from the committee of put-and-call dealers of New York, which will be inserted in the record.

(The matter referred to is as follows:)

[Telegram]

New York, N.Y., March 24, 1934. Hon. Sam RAYBURN Chairman, House Committee on Interstate and Foreign Commerce,

New House Office Building, Washington, D.C. The new bill for the regulation of stock exchanges introduced by Mr. Rayburn (H.R. 8720) on March 19 is a substantial improvement over the original bill (H.R. 7852).

The investment house group, of which the undersigned is chairman, being concerned primarily with the maintenance of the existing broker-dealer organization has directed its efforts mainly toward improving the broker-dealer provisions of the proposed stock-exchange legislation. The original bill by its drastic segregation clauses would have largely destroyed the long-established brokerdealer organization in the United States. The new bill permits the continuation of this organization, and its provisions, relating to the broker-dealer, with some changes in phraseology designed primarily to clarify what seems to be their intent, would be satisfactory to this group.

The amendment of section 10, suggested by Mr. Richard Whitney on March 22, insofar as it relates to the broker-dealer, with some adjustment of phraseology, would also be satisfactory. This group has not concerned itself with section 10 as it relates to floor traders, specialists, and odd-lot dealers.

It seems to us unwise to make rigid margin requirements and certain other matters by statute, except to such extent as may be necessary to remedy existing evils which are to be prohibited by law.

The margin requirements of the new bill, while apparently better and more elastic than in the original bill, have elements of inflexibility which are unavoidable if the margin requirements are to be imbedded in statutory law. Furthermore, it is feared that these complicated requirements will prove impracticable in operation.

We are, therefore, in accord with the viewpoint of Mr. Whitney's statement of March 22 that margin requirements would be more wisely left to the Federal Reserve Board.

This course would provide the requisite flexibility and would insure that this margin problem, which is of great importance to our national economy and to the recovery program, would be dealt with by governmental authority in harmony with the broad banking and monetary policies of the country and without the embarrassment of the rigidity and inflexibility inherent in the fixation of margins by statute.

Certain of the provisions of the new bill, very unwisely it seems to us, become effecuive on July 1, or August 1, 1934. This has an important bearing on section 14 which throws the whole over-the-counter market into the control of the Federal Trade Commission. The Commission may feel compelled to establish rules for the regulation of this large and important market for a huge mass of outstanding securities by August 1 of this year. It will be impossible properly to prepare these rules within so short a space of time. The uncertainty as to what regulation may be estalished makes for unsatisfactory market conditions which would largely deprive holders of unlisted securities of their market, for people will not readily buy unlisted securities when the future market for these securities is clouded with uncertainty. This uncertainty will in itself tend to occasion the liquidation of unlisted securities while a free over-the-counter market still exists. It would seem wiser to postpone legislation as to the over-the-counter market until regulation can be considered in the light of operation under the new investment banking code which is about to be put into effect.

TROWBRIDGE CALLAWAY, Chairman. Investment house group consists of the following: Chas. D. Barney & Co., Callaway Fish & Co., Cassatt & Co., Clark Dodge & Co., Field Glore & Co., Hallgarten & Co., Hemphill Noyes & Co., A. Iselin & Co.,

Kidder Peabody & Co., Ladenburg Thalmann & Co., Laurence M. Marks & Co., G. M. P. Murphy & Co., Riter & Co., L. F. Rothschild & Co., Edward B. Smith & Co., Spencer Trask & Co., Tucker Anthony & Co., White Weld & Co.

New York City, N.Y., March 22, 1934. COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

House of Representatives. GENTLEMEN: I wish to submit to you that the securities issued by corporations in any line of business or by any political division in the world circulate freely in world trade just as commodities, such as cotton, sugar, grain, etc. The particular location of the market where transactions are effected does not interfere with sales, irrespective of where the buyer or seller may be, in or out of the country. Regulations at any one point or in any country proposed by authorities will only tend to shift the trade to exchanges located elsewhere in the country or in the case of national regulations to points outside of the country.

From June 1, 1906, to the outbreak of the World War in August 1914, I was engaged at the cable desk on the floor of the New York Stock Exchange and the cable service enabled us to send a message to the floor of the London Stock Eschange with a total of elapsed time for the message to reach London and the reply to return to New York and be in my hands of from 1 to 3 minutes. The same cable service is available now, but the business has not been so heavy as before the war, with England or the Continent, as at that time we were a debtor Nation, whereas since the war we have been a creditor Nation. In the past few years with improved financial conditions in Europe more business has been done in our securities by persons living abroad and they can trade as readily in our market here as if they were residing here, and if our principal markets in securities were transferred abroad, people here could trade as readily as they do now, while the market is here. The extra expense of wire service would not be a factor considered by persons making investments or taking speculative commitments. Since the war we have been proud of the position taken by our Nation in the financial affairs of the world, but the outlawing of security markets here would more than destroy what we have built up since the beginning of the war.

Money loaned upon securities must be loaned only in the light of good banking practice and for Congress to enact a law with regulations as to a definite amount of money to be loaned upon securities is ridiculous to say the least, for not definite percentage of loan value is applicable to all classes of securities or to each security in each class. Brokers engaged in carrying securities on margin are guided by what they in turn can borrow from the banks, and consequently it is the banker acting in his proper sphere in business activity who determines how much shall be loaned on each security and what amount of cash capital shall be maintained by a broker in relation to the volume of business that he carried. To enact a law with limitations and prohibit these matters is an act beyond common business sanity and can only react at once to the definite retardment of the free flow of capital in our country and be a serious obstacle to the return of normal business at the present time being greatly helped by Government measures of the past year.

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