authorizing the filing of an application for registration, and in this manner it would tend to defeat the purposes of the act.

Accordingly, it would seem to be essential that section 17 be modified. In my opinion, it is only fair that the law should provide a remedy for one who has been misled by any misrepresentation willfully made contained in an application, report, or document filed in accordance with the requirements of the act. As I understand it, today such remedy, either does not exist or is only with the greatest difficulty enforced. The law should clearly go so far; but I can see no reason why it should go farther than this.

It seems to me possible that the civil provisions of the British companies act and those sections of the British larceny at, under which I am informed convictions of company officials have been obtained in Great Britain might well prove a helpful guide to legislators.

In this connection, it might be worth considering the provisions of the British Statute permitting the court to require security for costs and to award costs in its discretion. This is a provision intended to restrict the filing of strike suits while placing no obstacle in the way of the poor man who has a bona fide action which he wishes to initiate.

In regard to the effective date, there is nothing to be said about that. I will just close with my comment, if you have a minute to spare, Mr. Chairman.

So far, in my review of specific provisions of the bill, I have made an effort to recognize the reasonableness of certain features relating to the work of the committee on stock list and to offer suggestions designed to improve other features which appear to me to be burdensome or unworkable. However, I would not wish to be understood as implying that if the suggestions I have made are adopted the resulting provisions would embody my ideas as to what is required at the present time in relation to the matters with which they deal. Far less would I wish to appear as other than opposed to the bill as it stands and the philosophy which seems to me to underly it.

I recognize the gross abuses that grew up in the period of rank and unhealthy development that followed the war, and I heartily favor measures which will prevent or heavily penalize any repetition thereof. I do not believe, however, that in order to correct these abuses it is either necessary or wise to enact a law which threatens so seriously to destroy the normal functioning of a business mechanism which has been built up over a long period and which cannot be replaced overnight. On the contrary, it seems to me that in drawing such measures it is of the utmost importance to frame provisions which, while having the required deterrent and punitive effects, will not discourage the more responsible persons who will come under the law, nor subject them to such unjustifiable burdens and hazards as possibly to cause them to withdraw from the exercise of their responsibility.

In my opinion the restrictive character of the pending legislation, applying as it does to securities already listed, may profoundly decrease their present value and freeze a large portion of the country's liquid capital. The deflation and partial paralysis which this con

notes is a condition which I am satisfied your committee would not willingly help to bring about.

The CHAIRMAN. It has been suggested that these provisions should not apply to existing contracts.

Mr. ALTSCHUL. Oh, yes. I understand that, sir.

I make this argument not merely as a member of the New York Stock Exchange but as a business man and investor profoundly interested in the welfare of American business. In view of the position which I have occupied and the practical experience which I have gained with such matters as are covered by this memorandum, I feel that I have the responsibility of expressing to you how profoundly I am convinced that the enactment of legislation such as that contemplated by the bill under discussion would be an adverse and deflationary influence tending to a great and unpredictable extent to counteract the progress that has been made toward recovery. Thank you very much for your patience, Mr. Chairman and gentlemen.

Senator WALCOTT. May I ask you one question? Do you not think that a bill that is as stringent as this, and which places such broad powers in the lap of a Federal commission, whose personnel we know today and do not know tomorrow, but which is changing from year to year, would tend to disrupt an open market and force a great many businesses, large and small, to be even more secretive than they are now in their methods and as to what they are doing, by keeping away from the stock exchange?

Mr. ALTSCHUL. I think so, without question.

Senator WALCOTT. I do not think any point has been made of that here, and it seems to me that would be the natural effect of a bill of this character, unless it were severally modified.

Mr. ALTSCHUL. I think that is true without any question. I think much of the pioneer work the stock exchange has conducted in trying to get information from corporations would be upset by many of those corporations simply withdrawing into their shells and going back into some sort of closely held private concerns.

There is just one other thought that I want to mention in connection with these accounting provisions. As you know, we discuss these questions all the time with our consulting economist, because we are not accountants ourselves, and try to get the best information we can on these questions. Mr. May, of Price, Waterhouse & Co., or some of the accountants, were going to come down and discuss some of these questions with you, but there was one point Mr. May made in discussion with me which I would like to bring to your attention, because it is a very constructive feature.

He suggests that it might be possible to consider a rule for the publication of quarterly reports, one of which should be audited, leaving then, to somebody like the stock list committee, to decide with respect to different companies and industries, which quarterly report they wanted audited. That one, then, becomes part of the annual report.

The advantages of that are, in many cases, practical, because today the year-end work on accountants is perfectly terriffic, and if there were certain corporations whose business could be accounted for better from July 1 to June 30, it would make accounting practice

throughout the country much better, because the better men would be available to do the work.

Mr. PECORA. In other words, they would stagger their work!

Mr. ALTSCHUL. They would stagger their work. And if, beyond that, there were some discretion in changing the dates once in a while, perhaps, you would get some of these benefits that you are seeking in quarterly audited reports. Mr. May's suggestion specifically was four quarterly reports, one of which should be audited. I think that is all I have.

The CHAIRMAN. Mr. Altschul, you will be back at 2 o'clock, please, for a few minutes. Right after that we want to hear from the Baltimore people for about 15 minutes, and then Mr. Whitney will

resume.

The committee stands adjourned until 2 o'clock.

(Whereupon, at 1 p.m., Thursday, Mar. 1, 1934, a recess was taken until 2 p.m. of the same day.)

AFTERNOON SESSION

The committee resumed at 2 p.m. on the expiration of the recess. The CHAIRMAN. The committee will please come to order. I believe Mr. Altschul is with us.

STATEMENT OF FRANK ALTSCHUL, CHAIRMAN COMMITTEE ON STOCK LIST, NEW YORK STOCK EXCHANGE-Resumed

Mr. PECORA. Mr. Altschul, on page 4 of your elaborated statement on certain provisions of this bill, you say:

In my opinion no central body, whether the Stock List Committee or the Federal Trade Commission, can possibly succeed in performing the functions of the managements of all listed companies.

Do you make that statement because it is your opinion that the bill in question places upon the Federal Trade Commission, or purports to place upon the Federal Trade Commission, the responsibility of the management of all listed companies?

Mr. ALTSCHUL. There seems to me to be in the bill a number of provisions that are so far-reaching they would be a burden on the administrative body, such a burden as would be very similar in many cases to that of the management.

Mr. PECORA. What, for instance?

Mr. ALTSCHUL. If you take, for example, the various bits of information that are supposed to be furnished to the Federal Trade Commission as parts of the business of registration. I have gone on the assumption that they were not simply to be furnished for the purpose of being filed, but were to be furnished because the administrative body, whatever it is to be, was going to consider those things and reach some conclusion in respect of them, and possibly take some action or fail to take some action because of the conclusions they reach.

The information that will be asked according to the bill is so farreaching in scope that it would seem to me that unless you conceive of that body as a body that would be qualified to examine that information coming to them with an informed business judgment in respect thereto, of the sort I would expect a management to exercise,

it is difficult to see just what value it will be to them at all. And if they are supposed to take some action after examining all that material, with the background of informed business judgment in respect of the material that comes to them, then their decision is. going to be one that a management in the first instance makes. I am thinking particularly of the provision of the bill in regard to contracts and patents, which I have discussed rather extensively.

Mr. PECORA. The requirement of the bill that such information be furnished does not necessarily mean that such contracts are going to be left to the approval or revision or rejection of the Commission. You understand that, don't you?

Mr. ALTSCHUL. I understand that, Mr. Pecora, but I do not understand

Mr. PECORA (interposing). Those reports are called for in some instances for their informative character, and for the enlightenment they might give to stockholders and the investing public. Now, do you feel that under those circumstances the provision requiring the filing of such reports and information with the Commission is equivalent to placing upon the Commission the right as well as the burden, duty, and responsibility of managing the businesses of all listed companies?

Mr. ALTSCHUL. I went on the general assumption that in asking for this information you are asking for information that is going to lead to a decision by the Commission, whether in the course of 20 days or of 30 days, that registration will be granted or not. Just to have all that data placed on file without its having any bearing on the Commission's decision, would seem to me to be a burden that was not warranted, unless it was going to influence the Commission's decision, and that, therefore, the Commission would have to review those different documents occasionally with that idea in mind, and reach decisions.

However, that is not the only provision to which I am referring, and it may have been a misinterpretation of mine, although I do not think so.

Mr. PECORA. You say on page 5, no, near the bottom of page 4: If there is anything in the application which appears to the committee to be open to question—

Meaning the stock list committee of the New York Stock Exchange

then the committee makes every effort to have the question resolved in accordance with its views; but we have conceived our chief responsibility to be to see that the facts have been fully and adequately disclosed, and if this disclosure indicates nothing which appears to the committee to be unsound or improper, we do not undertake an independent investigation of the facts themselves.

Now, you are referring there, I think, particularly to the procedure of the committee in passing upon applications for additional listings, aren't you?

Mr. ALTSCHUL. Well, I think that refers in general to all applications.

Mr. PECORA. Well, how could you possibly tell without inquiry if the facts you desire have been not only fully disclosed but truthfully disclosed?

Mr. ALTSCHUL. Well, of course, that is a thing we can only tell about on the basis of our experience, and I think our experience justifies us in the belief that by and large they are fully disclosed. However, anything that could be introduced into legislation that would make assurance doubly sure, such as some punitive provision of this législation in regard to making a false statement, I think would be very welcome. I do not know whether that answers your question or not.

Mr. PECORA. On page 5 you say further:

I recognize that abuses have grown up about the market place which require correction in order that the public may be afforded proper protection, and I believe that the object of far-sighted legislation should be to afford such protection while placing as few obstacles as possible in the way of the normal functioning of this important part of our economic mechanism.

What were the abuses you had in mind when you wrote that? Mr. ALTSCHUL. Well, that was a very general sentence. I had in mind not only the particular abuses that have occasionally cropped out in connection with listing activities, but I had more generally in mind the various abuses that have grown up in the market place itself and which Mr. Whitney suggested a means of dealing with through this body that he has recommended be set up; I mean that he himself has recommended in his memorandum. That covers practically the whole field of stock-exchange activities as I see it. And in whatever field abuses have occurred, as I have read his recommendations, machinery was to be set up for coping with them. And large numbers of them are being coped with by the stock exchange today.

Mr. PECORA. What my question was more particularly designed to elicit was your own view based upon the advantages of the observations you have had as a member of the exchange, as well as a member of one or more of its committees, as to just what the abuses were that you think have grown up about the market place and which require correction in the public interest. In other words, in order that the Congress might properly deal with the abuses, I should like to know what the members of the exchange themselves think the abuses are

Mr. ALTSCHUL. I think some of them have been brought out in your own investigation. The recently adopted rules of the exchange are an attempt to deal, as I understand it, with some of those abuses. I do not know whether I could undertake to make an inventory for you at this moment of them, but, for instance, the rule of the exchange recently adopted preventing participation in pool operations by specialists. That obviously was aimed at that kind of abuse which had been brought to the attention of the Government, and it was acted upon.

Mr. PECORA. Couldn't you enumerate the abuses that have grown up about the market place which requires correction in your opinon? Mr. ALTSCHUL. Well, Mr. Pecora, I did not come prepared for that. I came to deal fully with stock listing questions. I should really want to be much more fully informed of the testimony which has been brought out in these hearings to attempt to deal with that. I think if you will permit me I will just glance through these sug