The CHAIRMAN. Do you know from your experience whether it would be practicable to require a specialist to report daily to the committee?

Mr. WHITNEY. Whether it would be practicable?

The CHAIRMAN. Yes.

Mr. WHITNEY. Well, as I said, Mr. Chairman, it would mean more work upon them; and I think that such things should be considered, as to whether in asking them or requiring them to do so any benefit would result. It is entirely within the power of the exchange to demand that, of course, if that is what you mean.

The CHAIRMAN. Not only that, but maybe we are requiring a thing to be done that cannot be done. I do not know how much work these specialists have to do or whether it would be possible for them to make daily reports.

Mr. WHITNEY. It would be possible; yes.

Senator KEAN. But it would probably require another clerk on their part?

yes.

Mr. WHITNEY. It might well do so, during times of activity;

I am not trying to advance any argument against it, except the slight one that it would be additional work; and I think there are so many reports demanded now, that, unless good would result, I think it would be harsh to require it. Good might result.

Mr. PECORA. I was merely advancing it for your consideration and I was rather hopeful you would be able to give us your judgment on it now. But if you think it requires further thought on your part, of course you should have the opportunity of giving it further consideration and deliberation.

Mr. WHITNEY. I think it would, Mr. Pecora.

The CHAIRMAN. Now we will proceed with the bill.

Mr. WHITNEY. Sections 11, 12, and 13 of the bill deal primarily with questions which affect listed corporations. In that connection it is my understanding that there may be representatives of these Corporations appear before you to show their side of the question. Particularly with relation to section 13, I had planned to tell you the real hardship the proxy rule would bring upon corporations, but Mr. Corcoran admitted that he thought it a hardship, too; so I will forget it.

Senator GOLDSBOROUGH. Are not sections 15, 17, and 18 in the same category?

Mr. WHITNEY. A similar category.

Senator GOLDSBOROUGH. They all have an effect upon American business enterprise?

Mr. WHITNEY. Very much so.

I do want to say for the record, please, that Mr. Corcoran referred to my statement before the House committee to the effect that I said any corporation with a $5,000,000 capital might have to pay between $500,000 and a million dollars per year for auditors, as required under the bill. That was said in answer to a question which I may have misunderstood; but in any event my answer was made in the light that even a corporation of that size might be engaging in a type of business which would involve such a very high cost of audit-I was not seeking to exaggerate-it will be a large cost because of the necessity of independent audits quarterly.

Mr. PECORA. How about independent audits semiannually or quarterly reports? That is, every 6 months, with a quarterly report submitted, audited, and the other two quarterly reports not audited?

Mr. WHITNEY. Mr. Pecora, this is my personal opinion: I am very shortly going to ask Mr. Altschul to state certain opinions and facts to the committee, with the permission of the committee; but my personal opinion is this, that an independent audit once a year by a corporation gives enough of the auditing aspect to the public. If you demand an independent audit semiannually or quarterly

Mr. PECORA. We will say, semiannually.

Mr. WHITNEY. Semiannually-the value of that to my mind is going to be largely lost to the public. I am informed by the Ameri can Telephone & Telegraph Co. that if they had to give an audit quarterly-we will apply it semiannually-an independent audit quarterly, that for the first quarter of this year ending on March 31, they could not possibly have it in the hands of the public until July or August of this year. A balance sheet, something prepared by themselves, with truth, naturally, and not subject to the neces sary review of an independent auditor, could be put in the hands of the public far more promptly. As I see it, the benefit that you and we are striving for is that the public shall have currently the facts with regard to corporations. We are in entire agreement with that.

Mr. PECORA. Mr. Whitney, in taking the example of the American Telephone & Telegraph Co., are you not taking a rather extreme case and seeking to generalize from its base?

Mr. WHITNEY. It is an extreme case, without question; but I believe, sir, that certainly our experience-but I would like to ask you to hear Mr. Altschul, because he knows far more about it than I, he being chairman of the committee on stock list. But company after company, not of great size, where they have to present to the exchange independent audits, insofar as my knowledge and belief are concerned, do not give them to us for some months after the period which they cover they are set. The same thing is true of our own questionnaires of firms.

They are always set for the last day of the month or the first of the next month, and they do not have to be filed until the 20th of the month, and in many, many instances with the larger houses they ask for 10 days' or 2 weeks' extension because of the physical impossibility of the individuals compiling such documents.

Mr. PECORA. You recognize that when a corporation lists its securities on an exchange it impliedly extends an invitation to the public to become partners in its business, so to speak?

Mr. WHITNEY. I grant that; yes.

Mr. PECORA. It invites them to buy its shares and thereby become part owners of the business.

Mr. WHITNEY. It places its shares in position to be bought. Quite right, sir.

Mr. PECORA. And when such an invitation is extended to the public. you agree, I presume, in principle at least, with the thought that such a corporation should be required to give definite information at frequent enough periods so that the public that by implication

is invited to buy its shares and become a part owner of its business, might with more intelligence buy its shares?

Mr. WHITNEY. You and I are in entire agreement; yes.

Mr. PECORA. Then the only question is in what form that information, and how frequently that information, should be conveyed to the public.

Mr. WHITNEY. So that it will not work an unfair hardship on the company and upon the shareholders who own the company.

Mr. PECORA. In order to keep the investing public that is invited to buy the shares not too much in ignorance.

Mr. WHITNEY. Or, sir, to give them information that is current. I think you used the word "current."

Mr. PECORA. Yes.

Mr. WHITNEY. And independent audits would delay that current aspect of the facts regarding the company which you wish to give to the public.

Mr. PECORA. And they would also have a better check, would they not, on the soundness of the information?

Mr. WHITNEY. I am not at all sure, unless you believe that fraud is practiced by our companies.

Mr. PECORA. I am afraid that we are impelled to that belief, in the light of evidence that this committee has heard within the last fortnight.

Mr. WHITNEY. That is not fair. All American companies? That is a harsh statement.

Mr. PECORA. I did not say "all American companies."

Mr. WHITNEY. You are predicating your statement on fraud, though, as I see it.

Mr. PECORA. I know and Mr. Altschul knows, because he was in this room when the evidence was submitted to this committee in the past fortnight, that such frauds have been perpetrated.

Mr. WHITNEY. Mr. Altschul will be here in a minute. I cannot speak for him.

Mr. PECORA. But Mr. Altschul has already expressed to this committee his opinion, based upon the evidence that he heard here. Mr. WHITNEY. Then it is a matter of record.

Mr. PECORA. I am not making a general accusation that all corporations are engaged in the practice and custom of peddling out or giving out false information. I do not believe that for one minute. Neither do I believe that corporations' officials become sacrosanct and free from all the frailties of human nature merely because they become corporation officers. We pass laws prohibiting the commission of certain acts which we define to be crimes in the public interest; not because we believe that all men are criminals. Mr. WHITNEY. We advocate just such laws, and have done so for a long time. A year ago today, as I stated to this committee, you will

remember

Mr. PECORA. But if these reports are audited either quarterly or semiannually rather than annually, don't you think that the auditing of the reports would give greater assurance with respect to the authenticity, accuracy, and reliability of information that you admit the public should have?

Mr. WHITNEY. Assurance, yes; current knowledge, no.

Mr. PECORA. Current knowledge or information, unless it is honest, is apt to do more harm than good, is it not, because of the false reliance that the public places upon it?

Mr. WHITNEY. Mr. Pecora, even accountants may not be honest. Mr. PECORA. We are not going to enter into a discussion about the frailties of human nature.

Mr. WHITNEY. But you are right in that discussion now with respect to certain corporation officers.

Mr. PECORA. We have evidence to base my observation on, Mr. Whitney.

Mr. WHITNEY. I am not denying it.

Mr. PECORA. I am not making an idle statement when I say it is based upon evidence presented to this committee within the last 2 weeks.

Mr. WHITNEY. That is granted, of course; one case.

Mr. PECORA. The one case we investigated, Mr. Whitney. I could cite others.

Senator GOLDSBOROUGH. But it does not follow that we have discovered that everybody is dishonest.

Mr. PECORA. Certainly not; and I have been very careful to maintain that. I do not say, because the American Commercial Alcohol board gave information to the stock list committee of the stock exchange last summer on at least three occasions that did not square with the facts, that all corporations do that thing; certainly not. Senator GOLDSBOROUGH. No. I quite agree that you are not making the implication go that far, I am sure.

Mr. PECORA. No. But if the public is invited to subscribe to shares of a corporation through the facility of having those shares listed on a public exchange, I submit that the public should be safeguarded as much as it can reasonably be accomplished in the information which is given to it and that it would enable the public to arrive at an intelligent judgment.

Mr. WHITNEY. We absolutely agree.

Mr. PECORA. Then, the only question is whether these reports should be audited once a year or twice a year?

Mr. WHITNEY. Yes, sir. Well, let us say four times, by the bill. Mr. PECORA. I am now suggesting my own thought on the matter when I say twice a year rather than four times a year.

Mr. WHITNEY. And we are in no disagreement, as I believe, in that regard. The first question to be solved is whether it is too great a hardship or not.

Senator KEAN. But if this audit-and they do take long periods of time, I know-if this audit takes 4 months or 3 months, a great deal could happen to a company before the public would know what happened to it through an audit?

Mr. WHITNEY. Too much can happen; yes, sir.

Senator KEAN. So would it not be a good thing for the publicwe are trying to protect the public-if the company submitted its statement promptly every quarter or every 6 months, and then that they also had that statement checked by an auditor? Would not that be a good suggestion?

Mr. WHITNEY. I think all these questions resolve themselves on two points: The unfair hardships that might result to the corporation and then, too, to its shareholders who are the public. Let us not

forget that. Any money the corporation has to pay is out of the shareholders' pockets.

And number 2: Whether or not the information given will be current enough so that it will be of value to the investing public. It all resolves itself, as I see it, in the last analysis, on what is to the best interest of the public; and you and I, Mr. Pecora, I think entirely agree.

Mr. PECORA. I think so.

The CHAIRMAN. Very well. We will pass from that.

Mr. WHITNEY. Now, Mr. Chairman, with your permission, may I ask Mr. Altschul to make a statement in regard to the listing requirements of the exchange which affect very generally these particular sections?

The CHAIRMAN. I think that would be in order. We have had Mr. Altschul before us.

Mr. WHITNEY. Yes, sir.

Mr. PECORA. Mr. Altschul's prior appearance had to do with certain limited acts and transactions. Now, I think Mr. Altschul is being offered to give the committee, from his own judgment and experience, his views with regard to these particular provisions of the bill.

STATEMENT OF FRANK ALTSCHUL, CHAIRMAN, COMMITTEE ON STOCK LIST, NEW YORK STOCK EXCHANGE, NEW YORK, N.Y.

Mr. ALTSCHUL. Mr. Chairman, I have prepared a brief statement which, with your permission, I would like to read to the committee. [Reading:]

I would like to submit to you herewith a document covering the organization and work of the committee on stock list, the listing requirements of the exchange as they exist today, and an account of the changes in listing requirements and policies of the committee which have been made from 1926 to December 1933. This material has been assembled on short notice; it is at present in process of correction and revision. With your permission, as soon as this work is completed we shall furnish you with copies in their final form. This material has been brought together in order to make available to you in convenient form the fullest possible information.

I would like to draw your particular attention to the section entitled "Outline of Revisions and Extensions, etc." The reason I do this is because this section will serve to give you some indication of the extent to which my committee has been engaged in a continuing effort to accommodate its listing requirements, agreements, and policies to the ever-changing aspects of American corporate procedure.

You will note a reference to action of the governing committee taken on January 27, 1926, in the matter of the issue of common stock without voting power. This device was being increasingly used to lodge control in small issues of voting stock, leaving ownership of the bulk of the property divorced from any vestige of effective voice in the choice of management.

The committee felt that this tendency ran counter to sound public policy, and accordingly decided to list no more nonvoting common stocks. With this action of the committee, the period of the creation of nonvoting common stocks came to an end.

The section to which I refer contains a running account of such endeavors on our part. In a growing and developing economy like our own, corporate procedure is ever changing and at times its changing nature is accompanied by experiments of a character which require close scrutiny and sometimes Prompt action if the public interest is to be served. To keep abreast of such developments, and occasionally possibly to anticipate them, requires a high degree of flexibility. In my opinion, this flexibility is most readily found in some such body as the committee on stock list, and such a committee is