Mr. ROGERS. Now do you have any published rules about activities of this sort?

Mr. COHEN. Yes, we do.

Mr. ROGERS. How do you circulate these?

Mr. COHEN. First of all before they are adopted they are sent to everyone that we know of who may have an interest in it. That includes not only investment advisers, brokers, and dealers but anyone who may wish to be informed.

When we adopt the rule, that in turn is circulated to this entire group and then finally, it forms a part of our pamphlet of rules and regulations which is available to everyone.

I can assure you that there is no question about the people who are engaged in this activity knowing what our rules are.

Mr. ROGERS. Yes. Now who polices that, and how is that policed? Mr. COHEN. We do. We police it through our regional offices and our central office in Washington.

Mr. ROGERS. How, for instance?

Mr. COHEN. Well, we review the material that comes along and any material that appears in the press. We engage in a regular inspection program where we visit the offices of all of these firms. One of our rules is that they must keep on file all of the materials they use and in some cases the backup material. Our people review this material.

Mr. ROGERS. What I was thinking about was if you review the investment portfolio of the man who publishes it?

Mr. COHEN. We do make inquiries of that kind. We have had situations of that kind that have come to our attention.

Mr. ROGERS. You don't sound like you do this in a very thorough way, the way you answer the question.

Mr. COHEN. I didn't want to leave the impression that in every case we know what the man is doing because unfortunately in some cases it is concealed, but to the extent that the records are there Mr. ROGERS. You make the effort to find out?

Mr. COHEN. Yes.

Mr. ROGERS. I realize he may conceal it from you, but do you have a form that he has to show which shows stocks that he has recommended in his portfolio?

Mr. COHEN. He does have to keep records of all these things and we examine them, yes, sir.

Our rules specify the records he must keep.

Mr. ROGERS. Is this just when one of your men goes by and visits him? How often is this done? Is it done systematically or what? I think this could be very important where people are advising the American people to buy certain stock, especially if there is a terrific conflict of interest.

Mr. COHEN. We agree with that, Mr. Rogers, and we do it. In fact, within the past year we strengthened the rule very considerably requiring that these people keep elaborate records with respect to recommendations and transactions. We do inquire and we make such investigations as we can to determine whether or not any improper activities of the kind that you have mentioned have taken place. We also inquire as to these matters whether or not they are improper just so that we do understand what is going on.

Mr. ROGERS. How often is this done?

Mr. COHEN. It is not on any fixed basis but we attempt to visit each of our investment advisors periodically.

Mr. ROGERS. How often would you say?

Mr. COHEN. Well, this has been a problem of money and people. We are continually reducing the period. In addition to the inspections we undertake whenever we have reason to suspect anything wrong, we are now attempting to inspect each firm about once every 4 or 5 years.

Mr. ROGERS. Suppose there were a form they had to submit to you. Mr. COHEN. They do. They file a report to the Commission.

Mr. ROGERS. This says what their investments are and what they recommend?

Mr. COHEN. No. I think that they have to keep records of such information, but I am not sure whether we get the information precisely in the form which you have suggested.

Mr. ROGERS. How do you make the comparison then? How can you tell whether they are recommending the stocks?

Mr. COHEN. There is an overall activity that we are engaged in, Mr. Rogers. The question is a good one. We are engaged in a continuing surveillance of a market activity of the stocks.

Mr. ROGERS. I realize that, but you are not getting down to the specifics of the man who is recommending stocks to the public.

Mr. COHEN. I am trying to. We now have this programed in our computer, and if we see any unusual activity we immediately send people out to make inquiries, and this is one of the inquiries we make. This whole problem of people taking actions of this kind has been a matter of great concern to the Commission and is of increasing concern to the Commission in the last 2 or 3 years.

Mr. ROGERS. How many have been prosecuted for this?

Mr. COHEN. I am not sure I know the number.

Mr. ROGERS. Five, 10?

Mr. COHEN. You mean criminal prosecution? I do not know. I would rather give you the exact figure.

Mr. ROGERS. Furnish the figure. I am very interested.

Mr. COHEN. Sure.

In many of these cases this sort of thing is a basis for the bringing of the proceeding.

Mr. ROGERS. What about publishers?

Mr. COHEN. The publishers are in the same category. If you are talking about publishers

Mr. ROGERS. Financial magazines.

Mr. COHEN. No. Publishers of financial magazines who put out publications of a general news character, say for example Time mag azine, they are exempt by statute from these requirements.

Mr. ROGERS. But financial magazines make recommendations to the public.

Mr. COHEN. If their principal function is to make recommendations to the public, then I would believe that most of them would be subject to the rules and are required to comply with the rules.

Mr. ROGERS. But you only get around to it about once every 4 years. Mr. COHEN. To make a complete inspection of the operation, but we are in their shops at any time there is any basis for us to believe there is something going on. For example, a particular investor advisor may be visited by us six times a year if there is reason for it.

Mr. ROGERS. Don't you think it might be advisable for some form which would bring this to your attention?

Mr. COHEN. We have considered it, Mr. Rogers. We have considered that and some other things and all I can say is that the howls that would come would really be deafening.

Mr. ROGERS. I am sure they would, but I am talking about protecting the public.

Mr. COHEN. Of course, and we share with you that concern. I will supply for the record the precise rules, the forms we use and give you some further information in regard to the number of criminal cases and other actions we take.

(See memorandum, p. 466.)

Mr. ROGERS. And your projected policy of enforcement; I would like to know something about what your thinking is going to be and what is actually done in these areas. It seems to me it is an area which may not have been covered too thoroughly.

Thank you very much.

The CHAIRMAN. Mr. Brown, you say you have one more question. Mr. BROWN. Yes.

Mr. Cohen, am I to understand from a comment you just made on your use of rather efficient personnel in your Department, that you have reduced your staff, and that you make extensive use of data processing?

Mr. COHEN. We have entered into the computer age. I can give you one illustration of what we are doing. I think it might serve to answer your question and perhaps assist Mr. Rogers as well.

If you look at the securities traded in the over-the-counter markets, there are maybe 20,000 securities that are traded but perhaps 1,200 of them are active securities. The information that has heretofore been available with respect to them has been rather limited, that is, their activity and prices. Where there are sharp changes which signal some problem, our surveillance covers all of those securities. We began to do this manually and our ability to cover 1,200 securities on a continuing basis was a major job and required a major segment of our personnel. We could not do it very well.

We have now programed it so that we have all these securities in the computer and if there is any sudden change of price or activity or change in the number of dealers involved in buying or selling, the computer kicks the information out. Our people pick it up and they do what they have to do; they visit the adviser, or the broker, or they try to find out what has happened. This is where the computer has been of great assistance to us.

Mr. BROWN. I am trying to get to Mr. Rogers' point though. Do you know from this program quickly who has purchased?

Mr. COHEN. Yes; we know the dealer. We do not know the customer but we can get that by calling the dealers on the phone.

Mr. BROWN. So that you would be able to pin down the publisher who had purchased a large part of a given stock and that, as a follow on, he had promoted through his publication the sale of that stock to the public so he could unload it at a higher price?

Mr. COHEN. We are often able to get basic information upon which we can arrive at a decision whether to make a fuller investigation within a matter of hours. This is a supplement to what is done, for

example, by the New York Stock Exchange in its stock watch program where they have their securities in the computer and any unusual activity trips the computer and the relevant information is spewed out.

Mr. Rogers, I don't want to overstate but I don't want to understate. We devote a good many of our people and attention to it. I will supply the material for the record.

Mr. ROGERS. Fine.

The CHAIRMAN. On behalf of the committee and myself I want to thank you for coming up and describing the work of the Securities and Exchange Commission. I would like to say this, that you do operate the agency which controls the very financial nerve center of the Nation, of the world for that matter, right here in America. I think you are very competent as an agency and active. It does not mean that you cannot do better but I would say you are one of the best-one of the better informed, let us put it that way. I make that comment concerning not just the chairman but the whole group. I think you are doing a good job and it is important to the public interest because if something happens on our financial scene we know it is going to affect the whole Nation.

I do want to compliment you. As the committee that has oversight of your Commission, I did want to say that I for one believe you are doing a good job and want t compliment you. I am not saying that it could not be better but that is what we are all striving for.

Mr. COHEN. Thank you, Mr. Chairman. As I said earlier, and if I have not I want to say clearly now, that in no small measure that has been due to the stimulation and the encouragement we have received from this committee.

The CHAIRMAN. Well, thank you. We appreciate that. I would like to say that when your genuine interest is so full and knowledgeable on the subject it is hard to keep answers short. I know that when you are trying to give full answers it is difficult.

Again I want to say thanks very much to all of you and hope that we can have your cooperation in working together.

Mr. COHEN. Thank you, sir, on behalf of all of my colleagues and all the members of the staff.

The CHAIRMAN. The committee is adjourned until next Tuesday at 10 o'clock.

(Whereupon, at 12:32 p.m., the committee adjourned, to reconvene at 10 a.m., Tuesday, March 14, 1967.)

AGENCY HEARINGS

TUESDAY, MARCH 14, 1967

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C. The committee met at 10 a.m., pursuant to recess, in room 2123, Rayburn House Office Building, Hon. Harley O. Staggers (chairman) presiding.

The CHAIRMAN. The committee will come to order.

This morning, in continuation of our hearing of the regulatory agencies downtown, we have before us the FCC in the person of Chairman Hyde and all of his Commission, and I assume, the staff. Mr. HYDE. Yes, we have certain key staff members with us.

The CHAIRMAN. This is sort of a review to find out the jurisdiction of the Commission, what you are doing about that jurisdiction, and if you need any help or if you have any problems.

I would like to make a brief statement that instant communication began with the "wireless" within almost everybody's recollection. Early wireless transmitted dot-and-dash signals. Soon comprehensible language could be transmitted, and then pictures.

From the beginning, wireless was particularly useful to Government. Government controlled the installation and operation of sending and receiving apparatus. Transmitted signals traveled on electromagnetic waves, and waves of given length were assigned to various transmitting agencies.

When both word and picture could be transmitted, radio and television were commercialized, that is, transmitting was transferred to private enterprise.

To avoid chaos, the Government retained control over the "air waves." The air waves are said to be common property of all the people, which they are in the sense that if anybody is to use them, he must use waves which somebody else is not using. Radio and TV without control of air waves is impossible. Only Government can control and assign them. Their use by private industry constitutes a special privilege which can only be retained under Government regulation. Whatever regulation is necessary to keep the operation of radio and television within the bounds of public interest must be supplied by Government.

The Federal Communications Commission is an arm of the Congress, acting as an agent of the general public.

The communications industries have grown overnight into an aweinspiring prominence and importance. Nobody as yet has mapped out the proper field for the activities of the communications industries. Under the leadership of energetic and capable men, they are in the