initial matter, by the competitive procurement process. Subscribing members could also be protected from subsequent monopoly pricing if the initial contract entered into between the Exchange and the selected data bank company was for a limited term of years, presumably of short duration. In this manner, firms that were not awarded the initial contract would be in a position to bid away the contract from the initial service provider by offering either lower rates or better services to the members of the Exchange. In this manner the salutory effects of price and technological competition could be retained even though the service would only be provided by a single firm at any given time. The purpose of the discussion above is to indicate to you that there may be various methods of achieving the goal of lessening the missing securities problem without violating the anti-trust laws. The New York Stock Exchange is familiar with the Anti-Trust Division's business review procedures and if it desires to obtain a statement of this Division's anti-trust enforcement intentions with respect to any specific proposal it knows how to obtain our views. Normally, if the proposed conduct requires the approval of a regulatory agency, the Anti-Trust Division will not consider a request for a statement of its enforcement intentions until after the regulatory agency has approved the proposed course of action. However, the Exchange has frequently consulted informally with the Anti-Trust Division and the Securities and Exchange Commission at the same time when it determined that both agencies would have an interest in what the Exchange was proposing to do." SUMMARIES FROM SECURITIES VALIDATION CORP.'S DATA BANK AND NATIONAL CRIME INFORMATION CENTER'S SECURITY FILE-SECURITIES VALIDATION CORP. DATA DUMP AS OF FEB. 11, 1974 1 Common stock of 306,055,330 shares, averaging out to $9,181,659,900 represents 74.4 percent of the total SVC data base. * Average value of $30/share (New York Stock Exchange). 3 Average value of $44/share (New York Stock Exchange). • Average value of $6/share (New York Stock Exchange). Average value of $1/share (New York Stock Exchange). Of the $58,424,900, $18,669,500 represents bonds, etc. which have expired maturity date, thus leaving a net of $39,755,400 open. The total data base consists of 629,965 certificates, representing 308,249,703 shares, valued at $9,600,848,020. OFFLINE SEARCH OF NATIONAL CRIME INFORMATION CENTER SECURITIES FILE AS OF JAN. 31, 1974 COMMENTS The following should be considered before any conclusions are reached based on the information contained in this attachment: 1. The average dollar values assigned to shares of stocks, warrants, and rights are based upon New York Stock Exchange quotations as of February 1974 and do not reflect up to the minute stock fluctuations. 2. A number of securities are stolen in blank and can be completed for any number of shares or value the thief desires. 3. Some duplication of entries exist in the NCIC data since policy allows entries to be made by two or more agencies for the same security if the agencies have statutory interest in the theft. 4. Duplication of entries are eliminated in the SVC data base through its programming and analysis of routine printouts. Senator GURNEY. A letter from New York City Police Commissioner Michael Codd indicating that the NCIC terminal at the New York City Police Department is not a suitable mechanism to permit validation of securities because of the tremendous number of shares traded daily. Moreover, according to Commissioner Codd. the department is not satisfied with the response of the securities industry in reporting securities thefts. [The letter referred to was marked "Exhibit No. 155" for reference and follows:] EXHIBIT No. 155 POLICE DEPARTMENT, Hon. EDWARD J. GURNEY, Committee on the Judiciary, DEAR SENATOR GURNEY: Thank you for your letter of May 15, 1974 and your interest in the use of the N.C.I.C. terminal by the Securities and Banking Industry. I hope the following responses to your questions will aid you in your endeavors. Question. Do the New York Clearing banks and members of the exchange have direct access to the N.C.I.C. terminal? Answer. No, Under no conditions do New York clearing banks have direct access to the N.C.I.C. terminal, it is only accessible to law enforcement agencies. Question. If the banks and brokerage industry are not permitted direct access to the terminal, how do they receive information, if at all? Answer. Most banking and brokerage firms subscribe to the private service performed by Sci-Tek, a private computer system which maintains records of lost and stolen securities reported by the industry. Question. Is it true that many of the brokerage firms and banks have their own security agents who are able to obtain such information through friends at the department? Answer. There is no evidence at this time to confirm this allegation, however, an internal investigation is in progress to determine if this is a fact. Question. Is the N.C.I.C. terminal at the New York City Police Department a suitable mechanism to permit the banks and brokerage industry to validate securities in their possession? Answer. The N.C.I.C. terminal located in the New York City Police Department is not a suitable mechanism to permit validation of securities. Because of the tremendous number of shares or certificates traded daily, the volume demanded of the N.C.I.C. terminal would be extraordinary to the point where it would interface with the noraml duties and efficiency of this department. Question. Is the New York City Police Department satisfied with the response of the securities industry, (including the banks), in reporting securities thefts? Answer. No. The Bond and Forgery Squad of this department is dissatisfied with the respouse of the securities industry, including banks, in reporting securities thefts because of the time lag, that is, between the date discovered and the date reported. Many times a company will conduct an in-house investigation to ascertain if the securities were misplaced, lost or otherwise missing. Delay of several weeks in reporting has been experienced by this department. In addition, under New York State Law, banks and brokerage firms are not required to report thefts of securities. However, under Federal Laws, banks are required to report thefts and loss of securities to the Federal Bureau of Investigation, this does not apply to brokerage firms. If I may be of any further assistance to you, please feel free to call upon me. Yours Sincerely, MICHAEL J. CODD, Senator GURNEY. A letter addressed to Senator Gurney from the Commanding officer of the NYPD's Bond and Forgery Squad stating, in effect, that the 12 New York Clearing Banks very rarelyif ever-make a request to verify securities presented as collateral, for sale, or as assets in the balance sheet of a corporation or individual. [The letter referred to was marked "Exhibit No. 156" for reference and follows:] EXHIBIT No. 156 Hon. EDWARD J. GURNEY, POLICE DEPARTMENT, New York, N.Y., January 22, 1974. U.S. Senator, U.S. Senate, Committee on Government Operations, Senate Permanent Subcommittee on Investigations, Washington, D.C. DEAR SIR: Hereby listed are the figures as reported to the Bond and Forgery Squad, New York City Police Department for the period, July 1, 1973 to December 31, 1973. Lost or stolen.—$22,093,399.98. Recovered.-$3,061,460.09. The NCIC facility is only available to a law enforcement agency. If we get a request from the twelve New York Clearing House Banks to determine if any securities, etc. are listed on the machine it is so honored. We have had few requests. The only other similar facility is the computer owned by a privately financed company whose data bank is located in Wilmington, Delaware and to which a company has to be a paid subscriber. This privately owned company is the Securities Validation Corporation with local offices at 56 Water Street, New York City. Sincerely Yours, ROBERT KAPPES, Lieutenant, Commanding Officer, Bond and Forgery Squad. Senator GURNEY. A letter from the chief of the frauds bureau, district attorney for the county of New York, indicating that banks and brokerage firms make little use of the NCIC terminal to verify securities. This same letter states that some financial firms, particularly brokerage firms, delay reporting lost securities to authorities-which thereby reduces the utility of NCIC or any private computer service. designed to identify lost, stolen, or counterfeit securities. [The letter referred to was marked "Exhibit No. 157" for reference. and follows:] EXHIBIT No. 157 DISTRICT ATTORNEY OF THE COUNTY OF NEW YORK, Hon. EDWARD J. GURNEY, U.S. Senate, Washington, D.C. DEAR SENATOR GURNEY: This has reference to your recent inquiry of the practices in the banking and securities industries in New York City concerning stolen securities. Our Frauds and Rackets Bureaus are quite active in the investigation and prosecution of cases involving the theft and disposition of stolen securities and the negotiation of counterfeits. These investigations are conducted by detectives from the special unit assigned to the District Attorney's Office and by the Bond and Forgery Squad of the New York City Police Department with who we work rather closely. Banks and Brokerage houses in New York City do, from time to time, have occasion to make inquiries of NCIC through the Bond and Forgery Squad. This practice is relatively infrequent for several reasons, one of which is the availability of the services of the Securities Validation Corporation at 56 Pine Street here in New York. This firm, through a computer system referred to as "Sci-Tek", allows brokerage houses and banks to enter missing securities into the data bank and member firms to check out suspect stocks and bonds. This is usually done by telephone although member firms may, if they wish, secure their own computer terminals. Relatively few banks in New York have seen fit to subscribe to this service; although many brokerage houses do. Of course, such a system is only as accurate and complete as the material reported to it. Also useful are flyers of "hot" securities circulated by the Stock Clearing Corporation. NCIC will ordinarily respond to an inquiry only under certain circumstances; one of which is that the bank or brokerage firm making the request have the questioned securities in their possession, or having seen them physically, be prepared to state who does have them. This policy is an attempt to preclude corrupt employees of securities or banking firms from ascertaining whether or not stolen securities are on the "hot list" before attempting to negotiate them. In general, financial institutions are quite cooperative in criminal investigations; the degree of cooperation is predictably and perceptibly enhanced when they are the victims and themselves incur the loss. From time to time various problems arise which are, perhaps, implicit in the different responsibilities and perspectives of banks and brokerages as opposed to law enforcement agencies. Some financial institutions, particularly brokerage houses, delay reporting a loss to the authorities in the hope that the securities have merely been mislaid and will be disclosed by subsequent search or audit. Such a delay in reporting of course reduces the utility of NCIC or any private computer service. The possibility that a publicly reported theft or defalcation may impair the business reputation of the firm appears to be a factor in some instances of deferred reporting. There is no legal requirement in this State for a brokerage firm to report a theft to the authorities. However, the Superintendent of Insurance requires banks under its jurisdiction to make the reports to law enforcement agencies. Although we have no way of ascertaining what crimes go unreported, we do believe, that State or Federal authorities are notified of virtually all substantial thefts. I trust that this letter satisfactorily answers your inquiry. LEONARD NEWMAN, Senator GURNEY. Documentary evidence from the Federal Bureau of Investigation indicating that the market in stolen or lost U.S. Government securities is as alarming as ever. In 1973, some $156 million in U.S. Government debt obligations were reported as stolen or missing to the FBI. In 1972 that figure was $71 million. [The documents referred to were marked "Exhibit No. 158" for reference and follows:] Mr. MATTHEW G. YEAGER, EXHIBIT No. 158 JANUARY 11, 1973. Consultant, Department of Justice, Pennsylvania Crime Commission, East Lancaster Ave., Saint Davids, Pa. DEAR MR. YEAGER: I have your letter of December 14, 1972, wherein you asked for certain information as applied to stolen securities. Since the Stolen Securities File was not initiated until November, 1968, I am unable to comply with your request for the total amount of missing or stolen securities for the years 1967 and 1968. The following tabulation represents the value of records entered for the years 1969, 1970, 1971 and 1972. DEAR SENATOR GURNEY: This is in reply to your letter dated January 11, 1974, addressed to Special Agent John M. Cary in which you requested data of the National Crime Information Center Securities File for the year 1973. Previous correspondence with you has indicated that you are familiar with our tabulation of this data as it has been furnished to you on several occasions in the past. Please find enclosed the information requested segmented by quarters. It should be noted that the values presented are not cumulative but represent the value or number of shares entered into the file during the year 1973. Because of the day-to-day deletions due to recovery or for other reasons, the yearly value for a given type security cannot be accumulated into a meaningful total. Note: Statistics for each of the four quarters obtained from NCIC active file monthly. Above groupings are by date of entry into NCIC-actual dates of theft may differ. |