Mr. PECORA. And if the facts are set forth in clear enough fashion as to indicate no bad faith, the committee makes no inquiry and acts upon the representations placed before it?

Mr. ALTSCHUL. As I understand, you are limiting your question to the matters that we are discussing. You are limiting your question to what we have done in connection with an application—

Mr. PECORA. In connection with an application for listing of additional stock.

Mr. ALTSCHUL. In connection with an application for listing additional stock. At the time of the initial listing, you understand, sir, the company has entered into an agreement with us that they will apply to us for the listing of additional stock to be issued for any corporate purpose whatsoever. Under that agreement they cannot get this stock issued unless they come and apply to us and unless the listing application is granted.

When we get these listing applications for additional stock, we, in the absence of anything that puts us on notice or suggests to us that there might be something more that we ought to look into further, we do not attempt to go behind the situation to find out whether the board of directors who presented this application are facing us with the facts or facing us or acting in good faith, or whether the facts that are disclosed are in accordance with what the board of directors say they are. We assume that the board of directors are coming to us using their own judgment and exercising their own authority in accordance with the laws of the State in which they are incorporated, and present us with a picture of the situation as it really is.

Mr. PECORA. Then, if a corporation, the stock of which has already been listed on the exchange, desires an additional listing and states to your committee in proper form and in good verbiage and accompanied by an opinion of counsel that everything is valid, and states that the proposed additional issue for which listing is sought is to be made to enable the corporation to acquire the assets of the capital stock of another corporation, and sets forth the assets of that other corporation are worth, we will say, $10,000,000, 40 percent of which is represented by notes receivable, your committee would make no inquiry into the value of those assets or for the purpose of determining whether or not the corporation is receiving full value for its proposed additional stock?

Mr. ALTSCHUL. The mere fact of 40 percent of the assets being represented by notes receivable would cause us, in itself, no alarm, because, after all, 40 percent of the assets of many companies are represented by notes receivable.

Mr. PECORA. But you would not inquire as to the nature of the assets or the value of them in any way, shape, or form, if everything on the surface is regular?

Mr. ALTSCHUL. If everything on the surface in connection with the additional listing of stock appears to be in accordance with the discretion and the reasonable authority of the board of directors, we will not go into that further. That is not our practice.

Mr. PECORA. You would not?

Mr. ALTSCHUL. No, sir.

Mr. PECORA. Do you approve that policy?

Mr. ALTSCHUL. Now

Mr. PECORA. What is that?

Mr. ALTSCHUL. We learn all the time, the committee on stock list, sir.

Mr. PECORA. Do you now approve that policy?

Mr. ALTSCHUL. I would like to think about the things, because there are many implications in that question. The policy, after all, is based upon, and has always been based upon, what seems to me a reasonable ground, and what still seems to me a reasonable ground, and that is that the stock exchange is not undertaking to police the management of corporations and is not undertaking to run corporations. That is the function

Mr. PECORA (interposing). Would the stock exchange be undertaking the policing and the running of a corporation making an application to list additional shares which it states it is going to issue to acquire other properties, if the stock exchange limited itself to an inquiry into the value of those other properties, so as to give an assurance to the investing public when it approves such an application that at least in the opinion of the stock exchange, after proper investigation by it, the issue is properly being made?

Mr. ALTSCHUL. Well, the answer to that question I haven't any doubt at all. I don't think the stock exchange could conceivably reach a judgment as to the value of these properties. They never try to reach a judgment as to the value of properties. If boards of directors in a thousand different industries, or in any one of a thousand different industries, knowing the status and the circumstances of their own industry, favor a purchase of assets in their own particular industry, we would not attempt to set our judgment of the value of what they are buying over against the judgment of their board of directors. Now, that has been the consistent policy of the exchange, and if you ask whether I approve of it, I think any other policy would be impossible of performance.

We try and get the facts set forth, but we cannot judge of the values of this stock; we cannot say whether we think a deal is a fair deal for the corporation to have made. After all, that is the responsibility of the directors, to decide whether a deal is a fair deal. Our responsibility has always seemed to us to be limited to seeing that the facts with which we are dealing are fairly set forth in the application.

The CHAIRMAN. Have you any jurisdiction to inquire into the good faith of the applicant?

If

Mr. ALTSCHUL. Well, I don't know as to the jurisdiction, sir. we had any reason to question the good faith of the applicant,

The CHAIRMAN. Do you go into the question of good faith?

Mr. ALTSCHUL. Only if there is something before us that arouses our suspicion with regard to it. We generally approach applicants on the broad theory that they are acting in good faith, and particularly when their actions are supported by opinion of reputable counsel who, as I say, are familiar with the application. Now that has always been our practice.

Mr. PECORA. In other words, you treat the applications with the presumption that they are made in good faith?

Mr. ALTSCHUL. We certainly do.

Mr. PECORA. And unless something special is brought to your

notice

Mr. ALTSCHUL (interposing). Either on the face of the application or otherwise.

Mr. PECORA. Or that appears on the face of the application, that impeaches that good faith

Mr. ALTSCHUL. That is correct.

Mr. PECORA. Your committee would make no inquiry into the good faith?

Mr. ALTSCHUL. Would make no inquiry into the good faith or the business judgment of the boards of directors of the applicant companies.

Mr. PECORA. And if your committee received an application for an additional listing which set forth that the purpose of the issue of the additional shares was to acquire the property of another corporation, worth we will say 5 million dollars, or 1 million dollars

Mr. ALTSCHUL. Yes, sir.

Mr. PECORA. One million dollars-your committee would make no effort to determine whether or not the corporation was issuing that stock for good and sufficient value, would it?

Mr. ALTSCHUL. In the absence of anything to suggest bad faith, we would consider that that was a determination that was up to the boards of directors of the applicant companies and that any controversy about that was a controversy, if it arose, that arose between the shareholders and their management.

Mr. PECORA. And then with that action taken by your committee, the corporation would be free to advertise to the world that it had obtained the approval of the New York Stock Exchange to the listing of these additional shares issued for what it would represent to the world as good and sufficient and full value?

Mr. ALTSCHUL. They would undoubtedly state that the shares had been listed. I dont' know whether that is what you mean by advertise to the world or not. They undoubtedly would be free to say that the shares had been listed on the New York Stock Exchange.

Mr. PECORA. And that the New York Stock Exchange, in giving the privilege of listing, had been told that the shares were to be Issued for the acquisition of property worth a specified sum?

Mr. ALTSCHUL. The public could see from the listing application all the information that we have before us.

Mr. PECORA. Has any action been taken within recent dates upon this application or with respect to this application by your committee?

Mr. ALTSCHUL. We have been too much occupied with affairs here, but undoubtedly the information that has been drawn out at this hearing-and I have not seen the full record of the testimony, but we want to have a chance to go over it very carefully-is such as to make it perfectly clear that we should carry on an independent investigation to determine just what did happen and what bearing that has on the documents which were submitted to us and what our action should be under all the circumstances.

Mr. PECORA. And all of the information which has been developed here could undoubtedly have been obtained by your examiners if an

inquiry had been made into all the facts involved in this transaction, could it not?

Mr. ALTSCHUL. That is a question I cannot answer. It depends on so many things. You know we haven't witnesses appearing under oath. I don't know what that examination would develop, and I do not believe I could answer that question.

Mr. PECORA. Well, the fact that you could not have witnesses appear under oath is a circumstance that would militate against the effectiveness of an inquiry by your committee, isn't it?

Mr. ALTSCHUL. I would not be prepared to say that.
Mr. PECORA. What is that?

Mr. ALTSCHUL. I would not be prepared to say that.

Mr. PECORA. You just remarked yourself that the committee had no power to get statements under oath.

Mr. ALTSCHUL. I just remarked that I could not answer your question as to whether an investigation of ours would draw out the same results. If our suspicions had been aroused in this situation and we had made an examination, we might have found what you found so skilfully after a great deal of effort down here. I don't know.

Mr. PECORA. I might remark, Mr. Chairman, that under the bill pending in Congress for the regulation of stock exchanges, inquiry under oath can be made and punishment meted out to persons who violate their oath, and also to those who make false representations of any kind in connection either with the listing of the security or the marketing of it.

The CHAIRMAN. That would seem to be an important provision. Mr. PECORA. I think that is all. Will you remain this afternoon? I want to question you about another matter.

Mr. ALTSCHUL. Yes, sir; what time do you want me here, Mr. Pecora ?

The CHAIRMAN. We will take a recess now until a quarter after 2. (Accordingly, at 1: 12 p.m., a recess was taken until 2:15 p.m. of the same day.)

AFTERNOON SESSION

The committee resumed at 2:15 p.m. on the expiration of the

recess.

The CHAIRMAN. The committee will come to order. Who will you have now, Mr. Pecora?

Mr. PECORA. Mr. Brown will please resume the stand.

TESTIMONY OF RUSSELL R. BROWN—Resumed

Mr. PECORA. Mr. Brown, do you recall that a special meeting of the stockholders of the American Commercial Alcohol Corporation was held on July 21, 1933?

Mr. BROWN. Yes.

Mr. PECORA. What was the particular necessity or occasion for that special meeting?

Mr. BROWN. I think it was the increase of the stock at that time. Mr. PECORA. And a printed notice of that special meeting was sent to stockholders by the corporation, was it not?

Mr. BROWN. Yes, sir.

Mr. PECORA, And the printed notice, with a form of proxy attached thereto, appears in the minute book of the board of directors of the corporation, heretofore marked as "Committee Exhibit No. 14" for identification. It appears at the place where I now show you, does it not?

Mr. BROWN (looking at the minute book). Yes, sir.

Mr. PECORA. I want to read into the record the notice of the special meeting of stockholders identified by the witness, and the form of proxy attached thereto:

American Commercial Alcohol Corporation.
Notice of special meeting of stockholders.

Notice is hereby given that a special meeting of stockholders of the American Commercial Alcohol Corporation, organized under the laws of Maryland, will be held at the office of said corporation, Room No. 1628, Baltimore Trust Building, No. 10 Light Street, Baltimore, Maryland, on July 21, 1933, at 12 o'clock noon Eastern Standard Time, to consider and act upon certain resolutions which will be presented at said meeting in respect of the following matters: 1. To amend the certificates of incorporation as amended, by increasing the number of shares of common stock, of the par value of $20 a share of said corporation, from 375,000 to 500,000, as set forth in certain resolutions of the Board of Directors declaring such amendment advisable, passed at such meeting of said Board duly called therefor on June 30, 1933.

2. To amend the by-laws in the following respects:

(a) To enable meetings of stockholders of the Corporation, if desired, to be held without the State of Maryland as permitted by a recent amendment of the general corporation law of the State of Maryland.

(b) Specifically to empower the directors at such meetings to transact any business without special notice.

(c) To permit directors absent from any meeting to vote for and record their approval in the matter of any action taken thereat.

(d) To permit the Executive Committee of the Board of Directors of the Corporation to appoint members of the Board of Directors to act in the place of members of the Executive Committee temporarily absent.

3. To approve, ratify, confirm and adopt any and all acts, transactions, and proceedings theretofore taken or authorized by the Board of Directors, Executive Committee, and officers of the Corporation or ratified thereby, whether pursuant to previous authorization of the stockholders or otherwise, including without in any way limiting generally the same, and the foregoing issuance of common stock of the Corporation in the acquisition of the stock of other corporations as subsidiaries, whether wholly owned or otherwise.

4. To consider and act upon such other business as may be properly brought before the meeting.

The stock transfer books of the Corporation will not be closed.

Only stockholders of record on July 10, 1933, at 3 p.m. Eastern Daylight Saving Time, will be entitled to vote at said meeting.

You are cordially invited to be present at said meeting, but if you are unable to do so you are requested to sign, detach and return the attached proxy in the enclosed envelope. Your name should be signed exactly as it appears on your stock certificate.

If you should attend the meeting your proxy will be returned to you at that time.

By order of the Board of Directors:

NEW YORK, N.Y., July 10, 1933.

CECIL PAGE, Secretary.

And the proxy form attached to this notice of special meeting reads as follows:

Proxy.

American Commercial Alcohol Corporation.
Special meeting of stockholders.

Know all men by these presents: That the undersigned stockholder of the American Commercial Alcohol Corporation, a Maryland corporation, has made,