It is also our opinion that the Securities Act of 1933 in its present form is a definite deterrent to economic recovery and to the flow of private capital into industry, and unless substantially modified is bound to bring many serious evils in its wake. This in our opinion is equally true of the proposed national securities exchange act reviewed by this statement, and we believe therefore that not only should the proposed law not be passed but that it would be wise legislation to make drastic revisions of the Securities Act of 1933. Since such revisions can probably not be worked out quickly, it would, in our opinion, be desirable to repeal that law now and, in lieu of both of those acts, appoint a commission for the purpose of studying the question thoroughly and reporting to the next session of Congress with proposed legislation to accomplish such reforms as might appear advisable after such study. As a suggestion, the make-up of such a commission of study, in addition to representatives of the legislative authority and appropriate Government departments, might well include men selected from the stock exchanges, investment banking business, banks, insurance companies, legal profession, public-accounting profession, and corporate executive and accounting officers. It is worth noting that the Federal Reserve Act, our most important piece of financial legislation, as finally enacted in December 1913, effecting a vast improvement in our whole banking and currency system, was incubated and perfected only over a period of several years. We are very appreciative of the courtesy extended to us in permitting us to be heard on our reactions to the bill as presented. We offer to place our services at the disposal of the committee for any elaboration of the above or any study which it desires to obtain. The CHAIRMAN. All right, Mr. Chinlund. Are there any questions by members of the committee? Senator KEAN. I think you have outlined it would be almost impossible in the accounting business to require accounts, for instance, if you take a great international company today, and they ship their goods all over the world, and, say, they get paid in the currencies of other countries, when they get paid in the moneys of other countries, some countries prevent that money from being remitted out of the country, don't they? Mr. CHINLUND. That is right. Senator KEAN. And therefore such a company would have to maintain a deposit in that country, and they might report that as earnings whereas the exchange might vary very much, and they might suffer a big loss on it, is that right? Mr. CHINLUND. That is right. Senator KEAN. So that the earnings would not really be reflected in what they were doing. Mr. CHINLUND. The proper procedure in that case, in event they had funds in another country, would be to value their receivables at the amount the balance sheet would take, whatever it happened to be. Senator KEAN. Yes; and that would be very doubtful, because they could not get their funds out of the country, isn't that so! Mr. CHINLUND. Yes, sir. And they certainly ought to state that fact. The CHAIRMAN. Very well, Mr. Chinlund, we are very much obliged to you. (Thereupon Mr. Chinlund left the committee table.) The CHAIRMAN. I now want to make a part of the record a communication received from the Federal Trade Commission today, being dated March 6, 1934, which bears on matters that I have referred to and that I think are important. I now ask the committee reporter to enter these on the record and I want them returned to me. FEDERAL TRADE COMMISSION, Washington, March 6, 1934. Hon. DUNCAN U. FLETCHER, Chairman Senate Committee on Banking and Currency. MY DEAR SENATOR FLETCHER: There is enclosed a copy of Commission's exhibit 5666, consisting of copies of correspondence between officials of the Chicago Stock Exchange and officials of Tri-Utilities Corporation. These letters were written during 1930 and 1931. Tri-Utilities Corporation went into receivership August 31, 1931. The assets of Tri-Utilities were sold and the receiver was discharged the latter part of January 1933. As you will note, the subject of the correspondence related to support of the market for the common stock of Tri-Utilities Corporation. The final liquidation dividend of the receivership estate in January 1933 was less than $9,000, which was paid to creditors, with aggregate claims of about $20,000,000, exclusive of common and preferred stockholders. The amount of common and preferred stock outstanding was in excess of $15,000,000 which amount was a total loss. Very truly yours, GARLAND S. FERGUSON, Chairman. FEDERAL TRADE COMMISSION EXHIBIT NO. 5666 THE CHICAGO STOCK EXCHANGE, November 3, 1930. Mr. G. L. OHRSTROM, President Tri-Utilities Corporation, Jersey City, N.J. MY DEAR MR. OнRSTROM: One of the understandings the Chicago Stock Exchange asks, when securities are listed here, is that those applying for the listing will keep up a market. By keeping a market we mean keeping a bid in these securities at all times on the exchange. The public, which has purchased the securities listed on any stock exchange, is under the impression that they will always be able to sell such securities in the future at the exchange where they are listed. When a security listed here has no market-in other words, when a listed security cannot be sold at any price-the situation brings criticism from the owners of such stocks and bonds, as well as from the commercial banks that are asked to place loan values on these securities. In fact, our banks take the attitude that any listed security with no bid is worthless as collateral. I mention these facts because I believe they are of enough importance for you to make every effort to keep a market for your securities listed here. Our records show there has been no bid in your common stock for several months and the last sale was on March 28, 1930. I am sure you will see the importance, not only to the Stock Exchange but to your own company as well, in cooperating with us along the lines suggested. I will appreciate it if you will let me know what your plans will be in this connection. Very sincerely yours, HARVEY T. HILL, Executive vice president. Executive vice president Chicago Stock Exchange, 120 South La Salle Street, Chicago, Illinois. DEAR SIR: We have your recent letter addressed to Mr. Ohrstrom on the subject of market transactions in Tri-Utilities Corporation common stock on the Chicago Stock Exchange. We note your statement that there have been no sales of this stock for sev eral months. We call your attention to the fact that transactions in this stock occur frequently on the New York Curb Exchange, and that anyone wishing to dispose of this stock can do so in New York. The fact that sales occur in the New York market also makes the stock available for use for collateral. It is a fact over which the corporation has no control that the market for its stock has developed in New York rather than in Chicago. We need not tell you that over the past year diminished public interest in common stocks has resulted in rather thin and inactive markets in many stocks in which there would otherwise be considerable trading. We believe that when a different condition exists in security markets generally a more active market will develop in Chicago as well as in New York. We wish to cooperate with the Chicago Stock Exchange and will do everything which we reasonably and properly can to facilitate transactions on the Chicago exchange. Yours very truly, TRI-UTILITIES CORPORATION, By F. S. SPRING, Treasurer. Mr. F. S. SPRING, THE CHICAGO STOCK EXCHANGE, 120 South La Salle Street, December 20, 1930. Treasurer, Corporation, One Exchange Place, Jersey City, NJ. DEAR SIR: Referring to your letter of November 21st, will state that it is the obligation of every company whose securities are listed on our Exchange to maintain a bid for said securities or to see that a bid is maintained by its bankers. Failure of any company to carry out its obligations in this respect will, at the very least, have a bearing upon the consideration of other issues of the corporation which may be submitted for listing or sponsored by the same bankers. By reason of the listing of our stock on this exchange, your company has the benefit of exemptions under the securities laws of a considerable number of States which do not exempt curb securities. Most of these exemptions require that the securities be not only listed but dealt in. The purpose of such provision is undoubtedly that the investor may be guided by the record of actual sales on the recognized exchange, and it might be possible for a litigant to allege that the exemption did not apply where transactions did not take place at reasonably frequent intervals. I discussed this situation with Mr. Massey before his re ent illness, and if he is now back at his desk I would suggest that you ta k the matter over with him. There is a great deal of Interest in this section in your company and affiliates, and with a reasonable amount of cooperation from the company and the bankers an active market can be developed. Very truly yours, E. W. FEDDERSON, Chief Examiner. DECEMBER 23, 1930. Mr. R. R. MASSEY, Care of G. L. Ohrstrom & Co., Inc., 231 South La Salle Street, Chicago, Il. DEAR MR. MASSEY: We received a letter from E. W. Fedderson, copy of which is attached in answer to our letter to the Chicago Stock Exchange dated November 21, copy of which is also attached. We should be glad if you will give us your comment on this situation in the light of your conversation with Mr. Fedderson. Yours very truly, F. S. SPRING, Treasurer. JANUARY 13, 1931. Mr. M. E. SIMOND, New York Office. DEAR MAYNARD: A few days ago I had a long talk with Mr. E. W. Fedderson, statistician of the listing committee of the Chicago Stock Exchange, with reference to the markets on our securities listed on that exchange. Mr. Fedderson stated that the feeling of the exchange that we were not properly supporting our markets had become very definite. They have always considered our situations as among the more sound and stable issues listed, and have been particularly disappointed with the market on Tri-Utilities common, which they feel should be in much better condition since it is our top holding corporation. They do not seem to be so seriously concerned over the lack of activity as they are over the fact that for some period of time there has not even been a bid of any sort for the stock. They are aware of the general problems which arise in running a market but feel that there should be some point at which we could bid for the stock which would not involve taking back very much of it. Mr. Fedderson's attitude towards us has been and still is very friendly. His attitude is that while serious consideration has been given by the exchange to taking some of our securities off the list, at the present time there is no action of that sort contemplated. He feels that the exchange would certainly give us a chance to work on the situation before doing anything further, but that they would be looking for some improvement in the situation-particularly with respect to Tri-Utilities-sometime within the near future. As I suspected before talking to Mr. Fedderson, one of the factors which has caused a definite drive on the part of the exchange for increased activity in listed stocks has been severe criticism on the part of middle western securities commissions of the markets maintained. Action has now been taken in Wisconsin to remove the Chicago Stock Exchange from the list of exchanges whose listed securities are exempt under the Wisconsin securities act. It seems fairly definite that this action will be successful and the Chicago exchange expects to be stricken from that list. Apparently similar action is contemplated in other Middle Western States. In view of the fact that business seems to be a little bit better than it has been recently, and that plans are being made to better the condition of the Tricommon market, is there not some way that we can within the near future at least place some sort of a bid with the Chicago Stock Exchange? They are naturally quite interested in seeing some activity in the stock, but I feel that a bid of any sort would go a long way toward curing what has become a very sore situation. Very truly yours, R. R. MASSEY. G. L. OHRSTROM & Co., INC., NEW YORK, Mr. F. S. SPRING, 1 Exchange Place, Jersey City, N.J. DEAR FRANK: In accordance with our conversation while I was in New York, I have discussed with Mr. Fedderson of the Chicago Stock Exchange the complaints which he made to you concerning the market on Tri-Utilities common. Attached you will find a copy of a memorandum written to Mr. Simond concerning my visit with Mr. Fedderson. While we are apparently to be given further leeway in the matter. I feel that in order to avoid trouble with the exchange, we are soon going to be forced to put some sort of a bid on the Chicago Exchange. Yours very truly, R. R. MASSEY. Mr. R. R. MASSEY, Care of G. L. Ohrstrom & Co., Inc., JANUARY 13, 1931. 231 South La Salle Street, Chicago, Ill. DEAR MR. MASSEY: You will recall our conversation with you on the subject of maintaining a market in Tri-Utilities Corporation common on the Chicago Stock Exchange. I am wondering if you have discussed this matter any further with anyone connected with the Chicago Stock Exchange. You will recall that we suggested that the letter from Mr. Fedderson might be answered by saying that you or Mr. Pitner would call on him and discuss this general subject, and explain the present situation with respect to the market. Yours very truly, H. D. MCHENRY. G. L. OHRSTROM & CO., INCORPORATED NEW YORK BOARD OF TRADE BUILDING, Mr. H. D. MCHENRY, Tri-Utilities Corporation, 1 Exchange Place, Jersey City, New Jersey. DEAR MR. MCHENRY: I have your letter of January 13th with reference to our conversation on the subject of maintaining a market in Tri-Utilities Corporation Common Stock on the Chicago Stock Exchange. I discussed this matter with Mr. Fedderson of the Stock Exchange upon my return to Chicago the first of the year. I wrote Mr. Simond of our New York office a memorandum concerning this and forwarded a copy of this memorandum to Mr. Frank Spring, which you can undoubtedly obtain in your office. Through the cooperation of our New York office a bid has now been entered and we feel that matters can be satisfactorily adjusted with the Exchange, Yours very truly, RRM: R R. R. MASSEY. The CHAIRMAN. The committee will now stand in recess until 10:30 o'clock tomorrow morning. (Thereupon, at 5: 10 p.m., Wednesday, Mar. 7, 1934, the committee adjourned until 10:30 o'clock the following morning.) APPENDIX No. 1 (a) A call, which gives the right in consideration of a premium paid, to buy and receive delivery of a specified quantity of a named security at a fixed price, on or before a stated date, reads as follows: CALL This contract must be presented to the cashier of the firm it is endorsed by, before the expiration of the exact time limit. It will not be accepted after it has expired and cannot be exercised by telephone. NEW YORK, March 7th, 1934. For value received, the Bearer may call on endorser on one day's notice except last day when notice is not required for one hundred.. (100) shares of the common stock of the U.S. Steel Corp--. At fifty-seven-. days from date. ----_dollars per share ($57.00), any time in thirty. |