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Senator BARKLEY. What proportion of the controllers does that represent?

Mr. TUCKER. A very small proportion.

The CHAIRMAN. Are your members all public accountants, or any of them?

Mr. TUCKER. It works out that we have possibly 15 or 20 men in the organization who formerly were public accountants but who are not so practicing now. As we term it, they have graduated from the ranks of public accountants into controllerships, and that makes them eligible for membership in the institute. Eligibility is based entirely upon the work done. Is he a controller? If he is not called a controller, then if he performs the duties of controller. In some companies they have not come round to designating some individual as controller, even though they always have someone who performs those duties.

Senator BARKLEY. Your membership does not include public officials in cities or States, does it?

Mr. TUCKER. No, sir; although our regulations and standards would admit controllers holding governmental positions.

Senator Barkley. Where is your chief office?
Mr. TUCKER. Åt No. 1 East Forty-second Street, New York City.
Senator McADOO. How old is your organization?
Mr. TUCKER. About 18 months old.

Senator McAdoo. What proportion of your membership is located in New York?

Mr. TUCKER. About half. That is to say, in the metropolitan district, about 100 in New York, New Jersey, and adjoining cities and States, and about one half in other sections. I might add that we have members in 17 different States and in about 35 different cities.

Senator McAdoo. Did your organization collaborate in working on this bill? Mr. TUCKER. No, sir. We had no opportunity to do so.

We offered, and thought perhaps we would have an opportunity to express our views at the time the bill was being drafted, but we did not have. And since it came out in the newspapers we have made a study of it, and this one amendment I have suggested is the one thing that we think could be done to improve it, on the general principle of a Federal "blue sky” law, which we think is excellent, and we approve of it.

Senator GORE. I just came into the room. Will you kindly state the functions of your organization, just in a sentence?

Mr. TUCKER. To improve the technical standards and ethical standards of controllers.

Senator GORE. How has it functioned up to date?

Mr. TUCKER. We have had papers written, and we have monthly meetings at which members make addresses followed by discussions.

Senator GORE. Has there been any practical reaction?

Mr. TUCKER. Yes, sir. There has been an adoption by the institute of a declaration for the observance of the highest ethical standards in corporate accounting practices, and it has been very effective. We are, I might say, cooperating with the New York Stock Exchange in helping to solve some problems with respect to the listing of securities, which work comes right in the same category as this measure.

Senator GORE. What is the amendment you propose?

Mr. TUCKER. We propose the insertion of the words "the controller or principal accounting officer” after the phrase in the bill that describes the principal executive officer and the principal financial officer, because we think the controller is the source of those financial statements and balance sheets and should be recognized in the bill.

Senator GORE. This is patterned a good deal after the English Companies Act, is it not?

Mr. TUCKER. Yes, sir. It is intended to tighten up the provisions with respect to presentation to the public of facts underlying securities which are offered for sale and to render the offerer liable in case of misstatement.

Senator GORE. In a general way I think it is very desirable, but there is one subsection to authorize the Commission to deal with any other forms of dishonesty. Can you find that?

find that? I think it is subsection 5 or 6, although I have really forgotten.

Senator COUZENS. Senator Gore, we are going to have Mr. Thomson and Mr. Roper here later to explain the bill.

Senator GORE. Very well, then; I will defer that inquiry.

Senator BARKLEY. Mr. Tucker, are you familiar with the Denison blue sky bill that passed the House of Representatives some years ago?

Mr. TUCKER. Was that the measure that was drafted by a group representing a great many States, called the Federal Blue Sky Act?

Senator BARKLEY. Yes; it was several years ago.

Mr. TUCKER. As I understand, it was very much in conformity with this measure. But that is just my general impression.

Senator BARKLEY. Why is it necessary to put in this language that you suggest—"the controller or principal accounting officer”?

This section provides that registration shall be filed with the Commission. And it provides that the registration statement shall be signed by the issuer or issuers, its or their principal executive officer or officers, the principal financial officer or officers, and the directors, trustees, or managers. Now, why is it necessary to put in the controller? He is simply a subordinate to all these other officers, and they all have to sign the statement. Why should he be made responsible?

Mr. TUCKER. The controller is an officer.
Senator BARKLEY. He might or might not be an officer.

Mr. TUCKER. A great many corporations within the last 5 or 10 years have included in their bylaws reference to the controller, and have prescribed his duties, and have provided that he should be elected by the board of directors. The principal reason I can advance is that he is the original source of statements on which all officers of a company must rely.

Senator BARKLEY. Isn't a bookkeeper about as important as a controller?

Mr. TUCKER. No, sir.
Senator BARKLEY. He knows more about the facts, doesn't he?

Mr. TUCKER. No, sir. The controller has to exercise some judgment, and a bookkeeper is not supposed to do so.

Senator BARKLEY. A bookkeeper knows what the facts are. But that is not important to discuss here.

The CHAIRMAN. We will excuse you, then, Mr. Tucker.

Mr. TUCKER. I thank you for the opportunity of appearing here. (Thereupon Mr. Tucker left the committee table.)

The CHAIRMAN. Here is a telegram from Mr. Arthur H. Carter, president of the New York State Society of Certified Public Accountants. I will ask Mr. Hill, the clerk of the committee, to read the telegram to the committee, so that they may hear it and it be made a part of the record. Mr. HILL. The telegram is as follows:

NEW YORK, N.Y., March 30, 1933. Senator DUNCAN U. FLETCHER, Chairman Senate Banking and Currency Committee,

Senate Office Building, Washington, D. C.: Please accept my congratulations on the introduction of the bill for the Federal supervision of the sale of securities the general purpose of which I am in complete sympathy. Certified public accountants are particularly interested in the information which must be included in financial statements, as during many years past they have played an important part in influencing the inclusion of all pertinent information in offering circulars in which their names appeared. The influence of the certified public accountant in this direction is well recognized and respected by honest management, honest houses of issue, and investors. The profession of accountancy can be of great assistance in advising as to the amount and kind of information to be presented to the Commission and that which should be included in offering prospectuses. As the bill now stands the information required appears to be wholly inadequate to afford the protection contemplated under the proposed law. The practice as to submission of financial statements in offering prospectuses is well established and it should be definitely defined.

I shall not attempt to go into details, but merely state that a statement of profit and loss only for the year just preceding the offering is too short a period to afford a proper basis for judgment as to the worth of the securities offered. It is significant that the British Companies Act requires statements covering not less than 3 years immediately preceding the offering. The second principal objection to the proposed bill is that it excludes municipal issues. Under present conditions especially such an exclusion seems unwise. The third objection is that it does not call for statements certified by accountants qualified under the laws of some State. It has been the practice of the best houses of issue to publish certified statements with their prospectuses. Accordingly such an amendment would be welcomed by all honest houses of issue. In part 2 of the fourth schedule of the British Companies Act a report of the accountants of the company is required with respect to the profits of the company in respect of each of the 3 financial years immediately preceding the issue of the prospectus. The British act also requires that if the proceeds, or any part of the proceeds of the issue of the shares or debentures are to or is to be applied directly or indirectly in the purchase of any business, a report is required of accountants who shall be named in the prospectus upon the profits of the business in respect of each of the 3 financial years immediately preceding the issue of the prospectus. The profession of accountancy has contributed greatly to the improvement of practices in issuing securities and it stands ready to help the National Legislation prepare a bill which will be to the best interests of the investor. The New York State Society of Certified Public Accountants has a membership of approximately 2,000, which includes accountants practicing in many other States and which is representative of the American profession of accountancy. The society is prepared to offer the services of a committee of accountants who have had long experience in this class of work and who will assist in this matter to the best of its ability.

ARTHUR H. CARTER, President. The CHAIRMAN. I understand that Mr. Carter is in Washington, and if the committee would like to hear him, and he would be willing to come down, perhaps tomorrow, he could be heard. He is at the head and the managing partner of one of the world's largest firms of accountants, I am advised. Would the committee like to have him come down to elaborate on this statement?

Senator WAGNER. I move that be come down.

Senator MCADOO. I suggest that he be heard.

The CHAIRMAN. Without objection we will ask him to come here tomorrow.

Senator WAGNER. I think that would be all right.

The CHAIRMAN. Mr. Henry Woodhouse desires to make a statement. He will please come to the committee table and take a seat opposite the committee reporter.

Please state your name, address, and business.

STATEMENT OF HENRY WOODHOUSE, NEW YORK CITY; SCIEN

TIFIC ECONOMIST, EDITOR OF SCIENTIFIC AGE, CHAIRMAN OF THE NATIONAL RECOVERY COUNCIL

Mr. WOODHOUSE. My name is Henry Woodhouse, 280 Madison Avenue, New York City. I am a scientific economist, author on economic subjects, editor of Scientific Age, chairman of the National Recovery Council, which is a patriotic organization. I am not a member of any organization having any direct interest financially in any securities or the selling or distributing of any securities.

As the chairman and members of the committee will probably remember, in the early days of the national-defense movement I was the youngest of the large number of workers for national defense. And in the days when the war had to be financed I was called to try to explain how 10 or 20 billion dollars might be raised. We had then the same problem we have today, in a way.

Senator McAdoo. Who called you for that purpose? Mr. WOODHOUSE. Members of Congress, President WilsonSenator McADOO (interposing). What Members of Congress? Mr. WOODHOUSE. WellThe CHAIRMAN (interposing). Did Secretary of the Treasury McAdoo call you?

Senator MCADOO. Secretary McAdoo did not call you. (Laughter.] And, of course, that is not meant as any reflection at all, but I mean that I did not have the pleasure of your advice.

Mr. WOODHOUSE. The gentleman from California had the pleasure of handing over his son to be trained by one of my squadrons, which I organized, and so he became one of the first members of one of the squadrons which I organized before the war.

The CHAIRMAN. Have you examined this bill? Do you understand the bill that is now before the committee for consideration?

Mr. WOODHOUSE. I have, Mr. Chairman. And there are seven points of value in favor of the bill which show a very wide scope and are very important for the national welfare at this time:

1. The importance of the Federal Securities Act in preventing the exportation of American capital to the detriment of American industries.

2. The importance of the act to prevent the export of American gold.

3. The importance of the act in strengthening the credit of the United States.

4. How the act will protect upward of $45,000,000,000 of deposits now in the 20,000 American banks, belonging to 30,000,000 Americans.

5. How the act may save $300,000,000 this year and as much each year thereafter to the United States Treasury in interest on the funds which the Government will have to borrow.

6. How the act will facilitate balancing the Budget.

7. How the act will create new sources of revenue for the United States Treasury:

Those are points in favor of the bill. Now, as to the points whereby the bill might be strengthened, they are as follows:

Section 3 of the bill might be strengthened to close the possibility of some banks avoiding the provisions of the bill by claiming exemption as fiscal agents of foreign governments. I refer to private banks. And that is because section 3 exempts foreign governments and, as you probably know, these fiscal agents are all private banks, including J. P. Morgan & Co., Kuhn, Loeb & Co., Harris, Forbes & Co., and other bankers, representing probably as high as $5,000,000,000 in resources. They have never reported. They are not under any laws to report, as other banks have to do.

Now, such bankers are normally fiscal agents when they issue securities for the different foreign governments. The bill, section 3, excludes foreign governments, and it might be interpreted as excluding the fiscal agents of foreign governments.

Senator BYRNES. Will you point out to the committee the language in section 3 of the bill that would have that application?

Mr. WOODHOUSE. Section 3, paragraph (a), lines 10 to 12, inclusive, more particularly; and that section reads:

Any person to make use of the United States mails or of any means of instruments of transportation or communication to offer in interstate commerce securities, other than those issued by a foreign government or subdivision thereof, for sale or to solicit or accept offers to buy such securities in such commerce.

The CHAIRMAN. How would you amend that? Do you want to add something to that section?

Mr. WOODHOUSE. I would amend it in this way--well, I suppose only a few words would be required in order to do that, using appropriate language in a way that would make clear that it is not meant to exempt fiscal agents of such governments acting in the United States.

The CHAIRMAN. All right.
Mr. WOODHOUSE. Another section that might be amended

Senator BARKLEY (interposing). Let me ask you a question right there: Would you require that bonds or securities of a foreign government be registered with the Federal Trade Commission here?

Mr. WOODHOUSE. That is a matter of policy on which I would hesitate to express myself.

Senator BARKLEY. Well, if that is not to be done what good would be accomplished by requiring the fiscal agent to register? He may not have any capital stock. He is not issuing the security. What would be the object in simply requiring him to register?

Mr. WOODHOUSE. The object in doing that is this: In figuring out the budget, or taxation, or the credit of the United States, it has never been possible to find out how much foreign capital or private bank capital there is in the United States, because private bankers do not make returns, as you know. Now, the provision I have in mind is one that would make them furnish such information, just as national banks have to make reports to the Comptroller of the Currency.

Senator MCADOO. You mean to make private bankers render reports?

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