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SECURITIES ACT

SATURDAY, APRIL 1, 1933

UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C. The committee met, pursuant to adjournment, at 12:10 o'clock p.m. (at the conclusion of the executive meeting) in room 301, Senate Office Building, Senator Duncan U. Fletcher presiding.

Present: Senators Fletcher (chairman), Wagner, Barkley, Gore, Reynolds, Byrnes, McAdoo, Adams, Norbeck, Couzens, Steiwer and Kean.

Present also: Ferdinand Pecora, special counsel to the committee, and Julius Silver, associate counsel to the committee.

The CHAIRMAN. The committee will please come to order. The hearing on S. 875 will be continued. Senator McAdoo has a telegram which he wishes to put in the record.

Senator MCADOO. This is a telegram from an investment banker in my State, making certain suggestions about some features of the bill. I thought it might be considered by the committee.

The CHAIRMAN. It will be printed in the record. (The telegram presented by Senator McAdoo for the record is as follows:)

SAN FRANCISCO., CALIF., April 1, 1933. Senator W. G. McAdoo,

Washington, D.C.: While we agree there have been abuses in underwriting field which should be remedied and are in sympathy with main purpose of proposed securities bill I believe care should be exercised to avoid passage of bill which is so rigid or restrictive as to hamper much needed new financing. From superficial information regarding proposed security bill believe there is provision which specified fixed purchase and sale price at time of application. Unless provision can be made for rather prompt consideration of applications changing conditions might necessitate certain latitude. Do not believe there should be any restriction upon retailing blocks of standard securities already outstanding.

DEAN WITTER. The CHAIRMAN. I wish to have placed in the record a communication from The Port of New York Authority.

(The letter from The Port of New York Authority addressed to the chairman of the committee is here printed in the record as follows:)

Port OF NEW YORK AUTHORITY,

New York City, March 31, 1933. Hon. DUNCAN U. FLETCHER, Chairman Committee on Banking and Currency,

United States Senate, Washington, D. C. MY DEAR SENATOR FLETCHER: The Port of New York Authority earnestly hopes that your committee will find it possible to make one small change in section 11 (a) of the proposed Federal Securities Act, S. 875. Section 11(a), on page 20 of the proposed bill, reads as follows:

“Any security issued or guaranteed by the United States or any Territory or insular possession thereof, or by the District of Columbia or by any State of the United States or political subdivision or agency thereof.” We ask that the last two lines of this section be changed to read as follows: “District of Columbia or by any State of the United States or by any political subdivision, agency, or instrumentality of any State or States.” We ask that this change be made for the reason that the Port of New York Authority, although a public body, is not technically an “agency of a State.” It is an instrumentality of two States, namely, the States of New York and New Jersey. Consequently, in order to bring the port authority within the provisions of the law the changes suggested above must be made. Your attention is called to the fact that language similar to what we suggest is already included in section 201 of the Reconstruction Finance Corporation Act, from which I quote: “SEC. 201. (a) The Reconstruction Finance Corporation is authorized and empowered— “(1) To make loans to, or contracts with, State, municipalities, and political subdivisions of States, public agencies of States, of municipalities, and of political subdivisions of States, public corporations, boards and commissions, and public municipal instrumentalities of one or more States.” “We do not want the expression ‘municipal instrumentalities’ but we would like to have the word ‘instrumentalities’ in addition to the word ‘agency’, because our practical experience in New York convinces us that it is necessary to safeguard this point. “So that the committee's time may be saved, as well as our own, we hope that this small change can be made without the necessity of formally appearing before the committee to make a statement. However, if this course is necessary, we respectfully ask that you give us a place on your schedule of witnesses. Very truly yours, WILBUR LARoE, Jr.

The CHAIRMAN. Yesterday we adopted a motion to the effect that we would hear Mr. Carter today. He is the gentleman whose telegram to the committee was placed in the record yesterday. Mr. C. Clinton James, chairman of the Federal Legislative Committee of the United States Building and Loan League is also here and wishes to be heard. d Mr. James, you may proceed first and make a statement if you eSIre.

STATEMENT OF C. CLINTON JAMES, CHAIRMAN, FEDERAL LEGISLATIVE COMMITTEE OF THE UNITED STATES BUILDING AND LOAN LEAGUE, WASHINGTON LOAN AND TRUST BUILDING, WASHINGTON, D.C.

Mr. JAMEs. Mr. Chairman, my name is C. Clinton James. I am the chairman of the Federal Legislative Committee of the United States Building and Loan League. I am filing a prepared statement, but I wish to make an explanation in reference to it. We are asking for an exemption; that is, we ask that section 11 be amended by adding the following language: (f) Any security issued by a building and loan association, savings and loan association, cooperative bank, and homestead association operated under the laws and subject to the examination, supervision, and control of any State of the United States or any insular possession or the District of Columbia. The CHAIRMAN. What line and page would that be? Mr. JAMEs. That would be at the end of line 5, page 22. The CHAIRMAN. S. 875? Mr. JAMEs. Yes. Senator GoRE. Is that of the Home Loan Act? Mr. JAMEs. No; of the Securities bill. Senator REYNoLDs. What section, Mr. Chairman, is that?

The CHAIRMAN. Section 11, page 20, after line 5. Mr. James proposes an amendment.

Mr. JAMEs. It would add a new section (f) on page 22, right after section (e). Right after line 5, of the present bill.

Senator REYNoLDs. That is a new section?

Mr. JAMEs. Yes, sir.

The CHAIRMAN. Read it.

Mr. JAMES (reading):

(f) Any security issued by a building and loan association, savings and loan association, cooperative bank, and homestead association operated under the laws and subject to the examination, supervision, and control of any State of the United States or any insular possession or the District of Columbia.

We thought at first that this bill did not include building and loan associations because we are exempt from the blue sky laws of all the States. Now the effect of it would be this. A great many associations, especially in New Jersey and Pennsylvania, are serial associations and issue a new series every 6 months. They cannot tell whether that series is going to amount to $3,000 or $4,000 or $5,000. And under this law they would have to pay $50 every time a new series was issued, or one hundredth of 1 percent of the amount paid in on that series, which we believe would put the associations out of business.

Senator REYNoLDs. You want to exempt them?

Mr. JAMEs. We are willing to stay in under section 13, the fraud section, and section 14. If anyone is guilty of fraud we are with this legislation, and are perfectly willing and are enthusiastic about those two sections.

Senator GoRE. Mr. James, in section 11 do you not think the fee imposed in that section ought to be nominal anyway and not a source of revenue?

Mr. JAMEs. Well, this happened over in the House hearings. One of the Government witnesses was asked what it would cost to administer the law for the first year and he said $100,000 and about 40 employees.

Senator GoRE. Forty?

Mr. JAMEs. Forty employees.

Senator GoRE. Did anybody believe that?

Mr. JAMEs. That was the statement made by the Government witness.

Senator GoRE. Yes.

Mr. JAMEs. Now, in Pennsylvania, New Jersey, Ohio, and Illinois there are 6,500 associations. If they were required to pay one fee of $50 each that would amount to $325,000. That would come out of four States. And if they are required to pay $50 on each issue, why, of course the sum would be enormous.

Senator ADAMs. The answer to that would be to reduce the fee, would it not?

Mr. JAMEs. Well, here is the answer we think. Mutual savings banks, insurance companies, and a lot of other organizations are exempt under section 11. Building and loan associations have usually gotten exemptions in State laws that have been given to this kind of organizations because we are more like them than anything else. You see, a building and loan association is the only corporation that a man can put his money in and withdraw it upon reasonable terms and relieve himself from further liability.

Senator ADAMs. That is only theoretical. In practice it is different. I come from a community in which we have just had a big building and loan association close up. It is the biggest institution that we have had in our community. They circulate all down through Senator Gore's country as well as in our State. They solicit subscriptions through the mails in that section and other places. Senator REYNoLDs. Why should they be exempt? Mr. JAMEs. We do not know how we are going to operate in these serial States if this law is going to impose any such burden upon us. They issue two series a year. Senator GoRE. Well, would a proviso relating to serials accommodate that situation? Mr. JAMEs. Well, a good many of the others issue stock; they issue stock at any time, and you cannot tell. A building and loan association may have an authorized capital of $10,000,000 and may have only a paid-in capital of $1,000,000. And that conflicts. Senator KEAN. Mr. Witness, would this affect your building and loan associations at all if you did not do an interstate business? Mr. JAMEs. Senator, we do not attempt to do an interstate business. But this happens. People move from one section to the other, and these associations of course send their little pamphlets by mail to their subscribers when new issues come out, and under this law we would be violating the law if we did that. Senator KEAN. You would have to confine yourself to the State in which you were located. Senator GoRE. You do not have any way of estimating how many concerns will have to register statements with this Commission, do you? Mr. JAMEs. We believe that every one of the 11,000 associations have members in other States than the State in which the association is located. Senator GoRE. Those are the building and loan associations. But taken by and large, all the concerns that would have to register with this Commission, you have no way of estimating how many there are? Mr. JAMEs. I have no way of estimating that, Senator Gore. Senator GoRE. What I am getting at is that I think it ought to pay its way. But I think the fee ought to be nominal. Mr. JAMEs. One of the Government men suggested to me that they could give us a fee on a certain issue, but we can never tell what our issue is going to be. Senator BARKLEY. Who do you mean by “one of the Government men’’? Mr. JAMEs. We were talking with Mr. Miller and Mr. Butler, who drew the bill. We thought that they had made a mistake in putting US 111. Senator GORE. Who are Mr. Miller and Mr. Butler? Mr. JAMEs. Mr. Miller is with the Commerce Department. Mr. Butler is the attorney for the Commerce Department. The CHAIRMAN. You feel that the building and loan associations would have to register under this? Mr. JAMEs. That is their interpretation of the law; yes, sir.

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