Mr. HEALY. I should try to do so; yes, sir.

Senator WAGNER. Well, wouldn't they be obligated to show

that?

Mr. HEALY. I believe they would be obligated to show all facts that would in any way affect the validity and standing of the thing that they were offering to the investor.

Senator WAGNER. And that would include the holders of their outstanding securities.

Mr. HEALY. Not as the bill is drawn. I think it might be very wisely amended to include something of that character.

Mr. THOMPSON. It is not specifically stated in the language of the bill itself, but we were going to provide for that under rules and regulations to be promulgated by the Federal Trade Commission, which would have the same effect as the law itself.

Senator WAGNER. Do you know of any legitimate economic reason for the existence of these holding companies as shown in this pyramid? Mr. HEALY. My opinion for what it may be worth is that they are uneconomic. My opinion is that it has been a great waste of money, of money that ought to have gone into legitimate productive enterprise.

Senator WAGNER. And become a contribution to our affairs.

Mr. HEALY. Yes. Of course, there is a constant pressure from the top on these underlying companies to make money enough to support the structure.

Senator STÉIWER. Do these top companies take out money for managerial service, I mean from the operating companies?

Mr. HEALY. In this part of the Middlewest Utilities Co. structure, yes. [Indicating on chart.] The Middlewest structure did not require management fees from many of its subsidiaries, but the National Electric Power Co. did, and that was an Insull subsidiary. Now, the National Electric Power Co. own a management corporation, which exacted management fees and construction fees as well from all these underlying subsidiary companies in the National Electric Power Co.

group.

Senator STEIWER. Is that a widespread practice.

Mr. HEALY. Yes, sir.

Senator STEIWER. I mean where you found these high pyramids of holding companies.

Mr. HEALY. We find cases over and over again where a holding company owns a management corporation, which charges on construction 7%1⁄2 percent, that goes into fixed capital, and that charges 21⁄2 percent of gross income. Since our investigation has been under way, and I hope you will excuse me for bragging about this just a little, these companies are beginning to furnish that managerial service at cost, and to cut profits.

Senator STEIWER. Heretofore has there been considerable profit derived?

Mr. HEALY. Yes, sir; a very substantial profit.

Senator STEIWER. What is the basis or justification for that fee being charged? That is, provided there is any justification.

Mr. HEALY. In my opinion there isn't any. For instance, no one for a minute would tolerate the Pennsylvania Railroad erecting a management corporation for its subsidiary railroad companies and exacting a management fee. They ought to manage their own properties, and they ought to do it at cost. Of course, you gentlemen

understand that this is only a rather insignificant segment of the Middlewest picture.

The CHAIRMAN. Was there any resistance made to the bankruptcy proceedings against the Seaboard Public Service Co.?

Mr. HEALY. According to my memory, which may be at fault, the Seaboard Public Service Co. filed a voluntary petition. Now, I see that your time for adjournment has come. Might I have 2 minutes

more?

The CHAIRMAN. Yes.

Mr. HEALY. I wish to offer the suggestion that in the section of this bill which provides that the power of injunction shall be given, that provision be made that if the Commission which is charged with the administration of the bill finds people acting contrary to law or in defiance of the act, that the Commission and not the Attorney General will proceed to ask for an injunction. I would suggest that it is unwise to divide the responsibility and to encounter the delay that would come if we have to send our stuff to the Attorney General. Let him prosecute criminally, but let us proceed to stop them.

And I wish to say just a word about new issues: It seems to be the policy here that outstanding issues shall not have to register under this bill. I wish to offer the suggestion that no one be allowed to sell any issues by misrepresentation or fraud, new or old. And that the injunction and criminal features of this act should apply to outstanding securities as well as to new issues.

I also offer the suggestion, for what it may be worth, that there be provided a period of 15 or 20 or 30 days after registration within which securities cannot be sold.

Now, you have restricted the causes for which the Commission may revoke registration by striking certain provisions from the proposed bill. So now the only causes for revocation are disobedience to this law or false statements. Now, if we find that a false statement has been made I hope we can find it before the security is sold. And it seems to me that if a man registers by means of a false statement, we ought to be in a position to stop him.

The advertisement to which I referred and concerning which Senator Couzens inquired carries at the bottom of it the name Zwitsch, Heingelman & Co., Inc.

The CHAIRMAN. Now, Mr. Thompson, do you want to proceed tomorrow, or what is your pleasure?

Mr. THOMPSON. We can finish the hearing tomorrow. We have two persons to present, and they will take about an hour, I should say, not over an hour.

The CHAIRMAN. What is the pleasure of the committee about meeting tomorrow? Shall we proceed?

Senator WAGNER. I think we might as well finish up the hearings. The CHAIRMAN. I think so. May I suggest, Mr. Thompson, that you or your group prepare a bill with these amendments that you favor and propose to offer to the bill, and we can then have a reprint of it.

The committee

Mr. THOMPSON. All right, I will prepare it for you. The CHAIRMAN. And then we can have it printed. will now stand adjourned until 10 o'clock tomorrow. (Thereupon, at 12:05 p.m., Thursday, April 6, 1933, the committee adjourned to meet at 10 o'clock on the following morning.)

SECURITIES ACT

FRIDAY, APRIL 7, 1933

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C. The committee met, pursuant to adjournment on yesterday, at 10 a.m., in room 301 Senate Office Building, Senator Duncan U. Fletcher presiding.

Present: Senators Fletcher (chairman), Gore, Costigan, McAdoo, Adams, Townsend, Walcott, Couzens, Steiwer, and Kean.

Senator CoSTIGAN (presiding). The committee will come to order. In the absence of the chairman, the Senator from Florida, and at his request, I will proceed until his arrival.

Mr. MacLean, please come forward to the committee table and take a seat opposite the committee reporter. Now, give your name, address, and business.

STATEMENT OF M. H. MacLEAN, VICE PRESIDENT AND DIRECTOR HARRIS TRUST & SAVINGS BANK, CHICAGO, ILL.

Mr. MACLEAN. My name is M. H. MacLean. I am a vice president and a director of the Harris Trust & Savings Bank, Chicago. Senator COSTIGAN. Mr. MacLean, do you desire to be heard by the committee on the bill under consideration?

Mr. MACLEAN. I should appreciate permission to make just a few remarks in regard to the bill you have under consideration.

Senator CoSTIGAN. Well, you may proceed in your own way. Mr. MACLEAN. Any thoughts expressed by me are based on the practical experience that our people have had in the investment banking field. Our house was established 50 years ago by Mr. Norman W. Harris, who at that time was the general manager of the Union Central Life Insurance Co. in Cincinnati. Being in charge of its investments he was impressed with the fact that the country needed a wide distribution of municipal bonds. He might almost be said to be the father of municipal bonds. The house was doubtless the pioneer in the investment field in the Middle West and West. Therefore, we have had a wide experience in the distribution of securities to the ultimate consumer, the investor, the one who buys for investment and not for speculation.

An act regulating the issuance and sale of securities is something that we have long desired. We have studied this bill, and, like every other human document, we think that it has some defects. I think if it were enacted in its present form it would fail to accomplish the purpose evidently desired. If I may I will give you just a few comments that occur to us in regard to those defects.

Senator ADAMS. Your institution also developed into a bank, did it not?