We all know that, during these years, Mr. Whitney knew that all of these racketeers were out organizing and reorganizing and merging a lot of little businesses into corporations and issuing stock and keeping the machines going and printing more stock and more bonds. He should have known and he knew that these stocks were worthless, valueless, and that they were a fraud upon the public.

And notwithstanding my appeals, he refused to stop this practice. It was permitted to go on, though I threatened him several times with criminal procedure and everything else. He merely issued radio address after radio address, and made the people believe that the conditions which I charged existed were nonexistent and that there was no foundation to my statement.

Today the country knows. The Senate already has disclosed some things, but not a one hundredth of the fraud that has been practiced by the stock exchange and other related institutions.

I say, your duty is plain. We must act. We must have legislation, not only to protect the people in the future, but to bring about the punishment of the men who brought about ruin to 20,000,000 American people, who are responsible for thousands upon thousands of suicides; who brought about a condition that has destroyed the value of the property of the men, women, and children of America; a condition that has brought about destruction of the property of widows and orphans; and that has closed the banks, ruined business men and manufacturers in every section of the Nation.

Gentlemen, I have been here for many years. I have seen many committees. I think this is about as intelligent a committee as I have ever had the pleasure to appear before, and from what I know of you, I know that you have the intelligence and I think that you will be brave and courageous enough to go into this; and if you need any aid or assistance, as to clarification of the bill, or aid in adding something, some provisions that will strengthen the bill, you have the legislative bureau. Call upon them. Let them aid you. This is something that must be met. I believe this is the most important matter that is before the Congress. We must reestablish confidence. With the passage of this bill, we will help reestablish confidence; but not until then. Not until confidence is reestablished can we expect that conditions of this country will improve again.

Gentlemen, I wish that I could obtain the privilege of inserting into the hearings some material, some telegrams, that I have sent to the House of Morgan and others three years ago, and some over three years ago, pleading that they should desist, or help stop this practice, to which they themselves were then objecting before the committee. Mr. WOLFENDEN. Mr. Chairman, will the gentleman yield? Mr. SABATH. Yes; I will yield.

Mr. WOLFENDEN. Could you tell us whether or not the Mr. Whitney to whom you refer is the gentleman who ran on the Democartic ticket for Congress in the last election? [Laughter.]

Mr. SABATH. Oh, no. This Mr. Whitney is too busy to be a candidate for Congress. This Mr. Whitney is the president of the New York Stock Exchange, the gentleman who made the country believe that everything is above any suspicion, that everything is orderly, and that all of the business is conducted on the highest plane in the interest of the Nation, notwithstanding the fact that while the people slept they were robbing everyone in every section of our country.

Mr. HUDDLESTON. When he runs, it will be on the Republican ticket, will it not?

Mr. SABATH. Oh, there is no question about that; no question about that. [Laughter.]

The CHAIRMAN. Judge, we are very much obliged to you.

Mr. WOLVERTON. May I call the judge's attention to the news article that I have referred to? It is on page 2 of the New York Times, and the association is the Chicago Association of Commerce, and they stated in their telegram that the proposed Federal Securities Act will defeat its own purpose. Such act would stop the flow of capital required by the legitimate industrial transactions hereafter of any enterprise.

Now, do you know what organization that is, and for whom they are speaking?

Mr. SABATH. Well, there is no question that this telegram, or this letter, or this protest, has been influenced by the gentlemen from La Salle Street. I know the majority of the members of that organization, and the trouble with them is this: When a man, a fine appearing man, representing the First National Bank, or some other institution, comes down there, they just [bowing] melt away, and anything he recommends is taken for gospel truth and goes by without their knowing anything about it. That has been my experience with the majority of them. Later on, they come before Congress and say that they have been imposed upon.

I know who is behind it. I think it is the chairman of the Chicago Stock Exchange, and the officials of the board of trade, and the affiliates that have been responsible for this protest.

Mr. WOLVERTION. Then that absolves the Republicans from responsibility? [Laughter.]

Mr. SABATH. The trouble is that most of them have been Republicans, but-

Mr. WOLVERTON. You mean were, until last election?

Mr. SABATH. No; they were for years. [Laughter.]

I will tell you now, I do not want to bring any politics into this, but let me say that, unfortunately, the men with means, in years gone by, have belonged, most of them to the Republican Party, because they thought that the Republican Party would protect their wealth. They failed to realize that they would be taken advantage of; and the men whom they trusted in turn were playing with marked decks and marked cards, were drawing direct from the bottom, and were looking over the shoulders of the people to see what hands they dealt out. They were dishonest, and you have a duty before you, and if any amendment or addition is necessary, it should be made. Mr. BULWINKLE. Will the gentleman yield?

Mr. SABATH. I will yield.

Mr. BULWINKLE. In order to clear it up, so that we may have no politics in here, when you made the remarks that you did about this being the ablest committee you had ever appeared before, you meant to include the Republicans on the committee, just as well as the Democrats? [Laughter.]

Mr. SABATH. Yes. Of course, there is no question about that. I will be perfectly content to include them. I will say to you that there are many of my Republican colleagues here, in whom I have the utmost confidence, and I know that they will cooperate with you and

help you report a bill, and pass a bill, for which you will be thanked, by millions of American people.

The CHAIRMAN. We are very much obliged to you, Judge.

Mr. SABATH. Will I be accorded the privilege of reviewing these rambling remarks, Mr. Chairman, and adding a few short telegrams and letters, which I sent to President Hoover and Mr. Whitney, and to the House of Morgan, when I was pleading with them?

The CHAIRMAN. I do not believe we have ever allowed that, Judge, in this committee. You may extend your own remarks. You can put in the gist of those things.

Mr. SABATH. I thought you would be interested to know how I pleaded with the House of Morgan, and others, when I learned that they issued, in three years, 263,000,000 shares of stock; the difference between the value of these shares, when they were unloaded then on the country, and the price on December 15, 1931, when I had compiled this information, was something like $17,700,000,000, which the country or the people lost in those issues-25 issues alone; but, so long as I do not have the privilege, I will not put in any material of that kind or any of that information in the record.

I thank you, gentlemen, very much.

The CHAIRMAN. We are very much obliged to you, Mr. Sabath.

STATEMENT OF HON. HOUSTON THOMPSON-Resumed

Mr. THOMPSON. Mr. Chairman, I believe you said yesterday that we would have an hour and a half, and I understood you to say that you wanted to close these hearings today.

The CHAIRMAN. We will give you an hour and a half, some time today.

Mr. THOMPSON. All right; thank you.

The CHAIRMAN. I do not think that that much time will be required. We will try to get through in an hour and 10 minutes, if we

can.

Mr. THOMPSON. Of course, if we can get through with the remarks, cover the subject which I have to cover, and those which Judge Healy is going to cover, within the time prescribed, we will not be able to answer very many questions.

The CHAIRMAN. Well, we will do the best we can. when we get up to it.

We will see,

Mr. THOMPSON. The remarks which I am about to make will be addressed to two subjects: First, the statements which were made here by Mr. Breed, representing the investment bankers, and, secondly, reference to the bill itself, showing the various amendments which we are suggesting should be made and the eliminations to the bill.

Mr. Breed, I may say by way of personal reference, appeared before the Commission a number of times when I was on it. He has such a facile and charming way of expressing ideas, that if we accept his premise, we are bound to agree with his conclusion. When I was on the Commission, I always had to guard myself, when he was making a statement, to be dead sure I got his premise, and to see whether I accepted it.

Now, he has made a statement, and I think it is a very strong one, on behalf of his clients, and in a very charming way. I think, how

ever, I should take just a few minutes to tell the attitude that his clients, or clients of a similar character, have always taken with regard to legislation along these lines.

Since yesterday's hearings, we have investigated the experiences of 28 States, and we find that the investment bankers objected to and contested against the blue sky legislation of the 28. I venture to say, if we could complete the investigation, we would find the number increased.

We learned, also, that when these State blue sky cases reached the Supreme Court that they employed Mr. Wickersham in the Supreme Court of the United States to file a brief amicus curiae, and also to argue against the constitutionality of these various bills.

So, when Mr. Breed comes in here and says he is in favor of a bill, and he wants a perfect bill, I want to know just exactly what he means—and I think you should know-by a perfect bill.

I have a very distinct recollection of the investment bankers coming down here on the hill, before the Judiciary Committee, in 1909, when it was considering the Taylor bill, and I recall that they defeated the Taylor bill and their greatest objection at that time was to publicity features.

The publicity clause we have got in here is almost verbatim of that of the Taylor bill, and they fought it to the limit.

Now, apparently, they have receded, and are willing to admit that the publicity feature of this bill is all right.

I recall also that they were willing to accept the Denison bill, but the reason why they were willing to approve the Denison bill was because the Denison bill only covered the question of fraud.

Now, if we are going to stop in this bill simply with an attempted exposé of the offerings-but that action of the Commission does not begin to operate until the fraud is committed-then, gentlemen, there is little use of going along with this bill.

We were referred to the Martin Act in New York. The Martin Act is a good act, unquestionably a good act; but the Martin Act is simply what is known as a "blue sky act." It does not reach out and seize hold of these issues, such as the Insull issues, or the Kreuger & Toll, or a number of others I can think of.

Mr. Breed describes in a very dramatic way action under the Martin Act. He said that they had a number of men who swooped down on a person's office and seized their papers, and then they would hold them by way of an injunction and sometimes prosecute them. But, gentlemen, look what happened in the State of New York under the Martin Act. Let me give you some information, which I understand is accurate. According to this information, from reliable sources in New York State, between $13,000,000,000 and $14,000,000,000 worth of securities of questionable character have been sold in the State of New York since January 1, 1928. Where was the Martin Act?

In other words, more than $2,000,000,000 worth of questionable stocks and bonds have been sold in that State every year for the last 5 years. Why did not the Martin Act cover the situation with regard to the Kreuger & Toll? There were plenty of Kreuger & Toll securities sold in the State of New York.

Mr. WOLVERTON. Mr. Thompson, right there, what is there in this bill that would prevent the sale of spurious stocks in foreign com

merce? In other words, suppose the company were operating out of Canada into this country? Is there anything to stop it?

Mr. THOMPSON. If it were operating out of Canada, and came into this country, they would have to register just like any other securitydomestic security-if they were making sales.

Mr. WOLVERTON. Then why is the bill in title and terms limited to interstate commerce?

Mr. THOMPSON. That section, I am frank to confess, I wrote. I thought that the present phraseology would cover it. I limited it to sales within the United States and its Territories. In other words, we were not going to attempt to go beyond our own national limits. Mr. WOLVERTON. Well, then you feel that this bill is broad enough in its terms to effectively stop the sale of worthless stocks that would come in our country from a foreign country?

Mr. THOMPSON. Answering you in this way, I would say that if securities were bootlegged across the Canadian boundary line, and got in here, I doubt if this bill would reach them, except under the fraud provision; but if a legitimate house, or a house that was not any good, should attempt to go out and sell these securities, by way of advertising, they would have to register here with us, just exactly as securities that are initiated in this country.

Mr. WOLVERTON. But they would not be subject to, nor would there be any effective jurisdiction, so long as they were operated out of a foreign country?

Mr. THOMPSON. Except this, the moment that they crossed the national line we could catch them under the fraud clause.

Mr. WOLVERTON. How would you get jurisdiction over them? Mr. THOMPSON. Well, anybody who crosses the boundary line and comes into this country and commits a criminal act is subject to our laws.

Mr. WOLVERTON. Yes; but they are not coming in, they are sending in the securities.

Mr. THOMPSON. If they send the securities across the State line, I do not believe that this act covers that situation. I do not believe that we can do anything with them except this, that we have the clause in here with regard to the mails. If they are sent by way of mail, we could catch them; and I think, as to the radio, that the radio commission would act if they attempted to violate this act, by way of stopping the radio messages.

Mr. WOLVERTON. Well, it is thought that the bill should be made as effective as possible.

Mr. THOMPSON. And I thank you for that. We have puzzled over that long, and we do not know just exactly how you would meet that particular situation.

Mr. CHAPMAN. Would this reach publications in which they advertise their securities in this country?

Mr. THOMPSON. Yes; it would.

Mr. CHAPMAN. We could get at them in that way?

Mr. THOMPSON. Yes, sir.

Mr. CHAPMAN. And also their agencies?

Mr. THOMPSON. Yes; because those publications would have to go by way of the mails, and that is the only way that I know of that we could stop them.

Mr. CHAPMAN. And, if they had an agency employed to sell for them.