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Mr. PETTENGILL. In the meantime he can continue to sell?

Mr. THOMPSON. He can go ahead and continue to sell, but is liable for a violation of the act and the Attorney General can also be called upon to take action in the courts for a restraining order, provision for which is made later on in the bill.

Mr. HUDDLESTON. May I ask a question, Mr. Thompson?

Mr. THOMPSON. Yes.

Mr. HUDDLESTON. Where is the clause that makes it unlawful to sell a security, the registration of which has been revoked?

Mr. THOMPSON. Section 3 provides for that.

Mr. HUDDLESTON. Section 3 provides

That, until there shall have been registered with the Commission the statement hereinafter referred to in accordance with the terms and conditions provided by this act and by the rules and regulations promulgated pursuant thereto, itshall be unlawful for

any person to sell the securities until they shall have been registered. It does not apply to a case in which the registration has been revoked.

Mr. THOMPSON. I think I said, did I not, that if registration is revoked, then there is no longer registration, and there is a violation if the person continues to sell, under another section.

Mr. HUDDLESTON. What other section is it?

Mr. THOMPSON. I think I will come to that as I go along.

Mr. HUDDLESTON. I am under the impression that the sale of a security, the registration of which has been revoked, is not dealt with here.

Mr. MAPES. Is it not to be found on page 14, in the last paragraph? Mr. HUDDLESTON. On what page?

Mr. MAPES. Page 14, the last paragraph. That reads:

If the commission shall deem it necessary, it may enter an order requiring an immediate showing of continuance of the right to sell securities, and upon failure of the person in whom such right has been reposed to make a satisfactory showing, and an order entered to that effect, such right shall be suspended.

Mr. HUDDLESTON. That is no penalty provided.

Mr. COLE. Section 17 provides a general penalty for violation of the act.

Mr. HUDDLESTON. There is nothing in here, as I see it, that, with required certainty, makes it unlawful to sell a security where there has been revocation.

Mr. PARKER. Is he not liable under the penalties provided in the act, if he does?

Mr. HUDDLESTON. That is a very poor way of writing a law, if there is that uncertainty.

Mr. THOMPSON. My colleague says that interpreting section 3, when there is no longer registration-let me get the exact language. Mr. HUDDLESTON. The language is:

That, until there shall have been registered with the commission the statement hereinafter referred to in accordance with the terms and conditions provided by this act.

and so forth.

When that has been done, a statement has been registered, that condition has been complied with.

Mr. THOMPSON. Yes.

Mr. HUDDLESTON. And it is not unlawful after it has been registered to do the things that are specified in this section.

Mr. THOMPSON. That is right.

Mr. HUDDLESTON. If you revoke it, you certainly do not put it in the status, so far as anything in this statute is concerned, in which it would have been had it never been registered.

Mr. THOMPSON. I think that is something we ought to consider. Mr. COLE. May I suggest to you that if the Commission revokes the registration, that is a rule and regulation of the Commission, and section 17 imposes a very severe penalty for violation of that rule and regulation.

Mr. HUDDLESTON. I do not think so. A revocation is not a regulation; it is a mere cancelation of that which has been done, insofar as it may be made effective.

Mr. COLE. It is an act of the Commission.

Mr. HUDDLESTON. But it is not a regulation.

Mr. COLE. It would create a situation of selling securities without the approval of the Commission.

Mr. THOMPSON. It seems to me, Mr. Huddleston, if you have section 17 before you there

Mr. HUDDLESTON. I have it here and I am quite confident that it is not a regulation; an order of revocation is not the making of a regulation.

Mr. THOMPSON. We will make a note of that. I think perhaps we had better clarify that point.

It is suggested that we might clear that up in section 3, after the word "thereto," after the comma, line 3, page 5, insert the following words:

or if such registration has been revoked as hereinafter provided.

Mr. PARKER. If your revocation order should not be upheld by the courts, it certainly would not be illegal, would it?

Mr. THOMPSON. It would not. The courts would have the final say.

Mr. PARKER. And anything that happened between the time of the issuance of the revocation order and the decision of the court, in violation of the revocation order, would be a violation of the act? Mr. THOMPSON. They would have violated the act; yes.

I now wish to call your attention to section 7. In that section we have wrongly described the court. We do not have a circuit court of appeals in the District of Columbia. It is the Court of Appeals of the District of Columbia. So my suggestion is that we strike out the word "the" and the word "circuit" and have it read "Court of Appeals.

"The commencement of proceedings in "-then strike out the words "the circuit" and leave the words "Court of Appeals" and then after the words "Court of Appeals" insert "of the District of Columbia.” Mr. CROSSER. You would not strike out the word "the"?

Mr. THOMPSON. That is right. We have already described it as the Court of Appeals. We can say "The commencement of proceedings in said Court of Appeals." I think that would be better.

Mr. BULWINKLE. On line 12, page 15, you would have to strike out the word "for" and insert "of", to conform with your other change.

Mr. THOMPSON. Where is that, page 15, line 12?

Mr. BULWINKLE. Yes. You have it "Court of Appeals for the District of Columbia." It should be "of the District of Columbia." Mr. THOMPSON. That is right.

Gentlemen, on the question of advertising, for the benefit of the committee, we have sought to draft a sample advertisement, a form of advertisement, which would meet the requirements of the act itself. On page 18, at the bottom of the page, under section (f) there is the language

shall, within five days after distribution of such communication to prospective purchasers is begun, be filed with the commission together with a reference to the original registration of the securities so offered.

I suppose you are wondering why we put in that 5-day period provision. If there is registration and advertising, it would take the people out on the Pacific coast who are putting out issues approximately, 5 days to get that information to us. Therefore we would not require that it be filed immediately. We give them a chance to get the advertising out and then have it sent on.

But, I call your attention to the fact that all the time, if there is anything false about it, then the fraud section would still cover the situation.

I wish to call your attention to the next paragraph, on page 18. I shall read the paragraph:

A statement containing the information required by this section shall also be delivered to each purchaser with the delivery of the security or securities to which it relates.

This is something new. The reason for it is this: Persons who have purchased securities, when the securities arrive from the issuer, having laid aside the advertising or having forgotten all about it, or not having seen any advertising should be given the information which we require in the advertisements with their securities.

I think, after reading this over a number of times, that we should add the following language after the word "relates", as follows: whenever a security is sold by the issuer, his agents, or representatives.

Otherwise, when we are purchasing at one of the broker's offices, we would have to have the broker supplying people on the street, to whom he sells, statements of this kind. Of course, he could not do that. This is limited, then, to the following:

whenever a security is sold by the issuer, his agents, or representatives.

As I say, that follows in the next to the last paragraph on page 18, after the word "relates."

Mr. PETTENGILL. May I call your attention to page 16, section 8, line 11, where it reads:

unlawful to carry, transmit, or cause to be carried or transmitted, in interstate commerce, by the use of the United States mails or by any means or instruments of transportation or communication, any written, printed, or other graphic communication or document, or by any spoken communication

and so forth.

In the case of a radio broadcast, who does the transmitting, the speaker or the company?

Mr. THOMPSON. Undoubtedly we would hold that the company does. The person who made the address would be simply an agent. I do not apprehend that the Commission would have any jurisdiction over him.

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Mr. PETTENGILL. The question I have in mind is whether the radio broadcasting station is under obligation to see that this act has been complied with.

Mr. THOMPSON. No. It would only be an instrument that would be used by the issuer himself, and so the broadcasting station would not in any sense be liable.

Mr. PETTENGILL. That is not very clear to me.

Mr. THOMPSON. You think it might be possible that

Mr. PETTENGILL (interposing). It seems to me the broadcasting company does the actual transmission and when there is a spoken communication by radio, they are the agency transmitting it across State lines.

Mr. THOMPSON. We might insert there, if we wish, in order to clarify the meaning, that it shall be unlawful for the issuer or the syndicate selling these securities, or the person selling them to do so and so.

Mr. PETTENGILL. At any rate, it is your intent that the radio company shall not be liable.

Mr. THOMPSON. That is correct.

Mr. PETTENGILL. In any case.

Mr. THOMPSON. That is correct.

Mr. BULWINKLE. Unless the radio company should be owned by the syndicate.

Mr. THOMPSON. Yes; if they were the actual fiscal agent of the issuer, they would be liable. If they were simply an avenue of transmission, then they would not be liable.

Mr. CROSSER. With the language that you are proposing to add to this section, next to the last paragraph on page 18, it would be possible for the issuer to put this into the hands of someone other than such as might be called the agent or representative, who could not be required to make a statement such as would be required from the issuer.

Mr. THOMPSON. You mean in the matter of the delivery of securities?

Mr. CROSSER. In the selling of securities.

Mr. THOMPSON. You see, his agent or representative would be selling the securities. Suppose they have a house-to-house canvass going on of a security issued in New York, sold in Illinois. Those house-to-house canvassers would be his agents, and he would be liable for their acts.

Mr. CROSSER. Quite so. Of course, it might be if it could be proven that there was fraud. But it may be in some person's hands who claims that he is not the agent, but that he bought the securities as a private individual and is merely selling them.

Mr. THOMPSON. That would be a question of evidence, I presume, in any investigation that was made.

Mr. KENNEY. Suppose the advertisement said that the securities were to be sold in the State of New York. Would it be possible for a corporation to set itself up and advertise itself as the agent of anybody who wanted to purchase these securities, and thereby be the agent not of the seller but of the purchaser and have deliveries made in New York? Could such a situation arise which would take it out of the jurisdiction of this act?

Mr. THOMPSON. And a fraud committed?

Mr. KENNEY. Whether a fraud is committed or not; what I want to know is whether a company could, in that way, avoid compliance with the provisions of the act?

Mr. THOMPSON. I do not believe so, because we have got a general catch-all clause so that if they sell by any misrepresentations or induce persons to buy by any false claims, they would come under this act. Let me read to you from section 2 on page 2 the definition of the word "sale." Perhaps that will clear it up.

"Sale" or "sell" shall include every disposition, or attempt to dispose, of a security or interest in a security for value. Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing shall be conclusively presumed to constitute a part of the subject of such purchase and to have been sold for value. "Sale" or "sell" shall also include a contract to sell, an exchange, an attempt to sell, an auction of sale or purchase, a solicitation of a sale, a subscription, or an offer to sell, directly or by an agent, or a circular, letter, advertisement, or otherwise.

Would that include the situation such as you have described, do you think?

Mr. KENNEY. I am not prepared to say exactly, except it might be clarified by making the agent of any purchaser responsible as well as the agent of the seller.

Mr. THOMPSON. I will look that up, but I feel very confident that we have that covered in another clause.

Gentlemen, under section 10 we have a clause to the effect that they shall not advertise or represent that registration means approval. We have put that in because of experience in various blue-sky cases arising in different States, particularly Illinois and Michigan. We thought it would be wise to include that.

Mr. WOLVERTON. May I ask a question right there, Mr. Thompson? Mr. THOMPSON. Yes.

Mr. WOLVERTON. Did I correctly understand you to say that the sensitiveness of foreign nations, in connection with the sale of foreign securities, would require that we do not ask for as much information from the issuers of such securities as we would ask from the issuers of domestic securities? And did I understand you to say that the commission could obtain information on its own initiative and keep it in its files, but which would not be available to the public?

Mr. THOMPSON. I think that the commission could do that. I think the commission ought to have that much discretion.

Mr. WOLVERTON. If the commission had that discretion and had the information, and permitted the bonds to be sold without that information being made available to the public, do you not indirectly assume a responsibility for the bonds being good?

Mr. THOMPSON. If you will take a second step: In this plan that we have formulated, let us say that a New York security house begins to advertise these securities. We then prescribe the information which it has got to give. The commission does that under the act. But I think up to a certain point the commission ought to have some discretion as to what should be given out.

Mr. WOLVERTON. I have been much impressed with the thoughts you have expressed in reference to this bill and a reading of it indicates that you have tried in every possible way to take care of every possible situation to guard the public. I congratulate you upon the way in which you have done it.

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