But if you can protect the situation so far as the issuer and the syndicate under the issuer is concerned, and can get the information home to the purchaser through the advertisements, you have gone a long way; you have gone as far as they go in the British Companies Act; you have gone as far as they go in the Belgian act and the German act.

We have a paragraph in this bill which says there must be at the bottom of every advertisement a notice that further information may be gotten from the Federal Trade Commission.

Senator CAREY. Might I interrupt your right there for a question? Mr. THOMPSON. If you will just let me finish this.

Senator CAREY. Certainly.

Mr. THOMPSON. At the bottom of this proposed advertisement, or sample advertisement, we carry this language:

Further information concerning this issue and the company, can be obtained upon application at the Securities Bureau of the Federal Trade Commission. Then we also give the names of the syndicate there.

Now, Senator Carey, I will try to answer your question.

Senator CAREY. What would prevent, under this bill, a company being organized and selling all the stock they may have to sell to one broker in New York City, and then that broker selling the stock throughout the country through other brokers? The company itself would not be selling to the public. Might not that be possible under this bill.

Mr. THOMPSON. Yes; I believe it could be possible. We have got an exemption there and I do not know whether or rather we were of opinion that it was not excluded by the exemption, I mean that kind of sale.

Senator CAREY. It seems to me that that would make it possible to evade the bill.

Mr. THOMPSON. Well, I might say that we have prepared an amendment which we are going to propose to you to meet that possible situation, and to take that out from under the exemption set forth in the bill.

Senator CAREY. All right.

Senator GLASS. Mr. Thompson, not to anticipate your analysis of the bill in detail, but don't you think your definitions are rather broad? For example, in subsection (a) of section 2, on page 1, you

say:

(a) "Security" shall include any note, stock, treasury stock, "blank" stock, bond, debenture, evidence of indebtedness.

Wouldn't that include bankers' acceptances and notes and drafts and bills of exchange growing out of current agricultural or industrial transactions through Federal reserve banks?

Mr. THOMPSON. Well, if it did, Senator Glass, then it would be taken care of by the section which exempts the filing of papers where it was controlled by the Federal reserve banks. We exempt that later on.

Senator GLASS. What section is that?

Mr. THOMPSON. I was going to come to that a little later, if you do not mind.

Senator GLASS. All right.

Mr. THOMPSON. I think if I might take the sections one by one, then we can analyze them as we go along.

The CHAIRMAN. Without objection, you may proceed in that way. Mr. THOMPSON. Now, let me say, first of all, that the definitions on pages 1, 2, and 3, of the words "security," " 'person," "sale," or "Sell," or "issuer," have been taken from the Uniform Sales of securities Act as nearly as we could draft it.

Senator GLASS. But any note would include Federal reserve notes, Federal reserve bank notes, and any other notes issued by the Government.

Mr. THOMPSON. If you wish me to turn now to that I will do so. Senator GLASS. No; I will wait until you reach it.

Senator BULKLEY. In making these definitions, did you consider that the Uniform Securities Act was drawn with relation to State laws not involving any constitutional question?

Mr. THOMPSON. Yes; we did. Of course, you have had this question of sale of notes in connection with the great big real estate companies that have advertised over the radio, and there have been tremendous losses; in fact, there have been greater losses in the District of Columbia through that method than through any other, I believe. We are trying to include that matter here.

But when it comes to supervision of anything that has to do with Federal reserve banks or the Interstate Commerce Commission, or rather, that they investigate and control in the sense of the issuance of securities, then so far as the surveillance of this bill is concerned we exempted them. In other words, they go to a Federal reserve bank or to the Interstate Commerce Commission.

And I might say that we have had this bill up with officials of the Interstate Commerce Commission, and I have a letter from one of their representatives, who gave a detailed analysis of the bill and gave it his very strong approval. It may be interesting to know that the facts which we ask for here, the information which we ask for here, dovetails with the information which the Interstate Commerce Commission asks when it is looking into the question of the issuance of railroad securities. But, of course, we do not ask for as much information as the Interstate Commerce Commission requires.

Now, while on that point may I add that the Interstate Commerce Commission does not watch the advertising after the security has been passed upon and approved by it. But we were informed they would have no objection whatsoever, in fact that they thought it rather a good idea to see that the advertising corresponded to the requirements that the Interstate Commerce Commission had laid down, and that some governmental body should follow that advertising. That would be with the idea that one who is issuing or attempting to sell securities that are controlled by the Interstate Commerce Commission does not get away from the provisions of this bill so far as advertising is concerned.

Senator STEIWER. Under existing law doesn't the Federal Trade Commission have authority to deal with advertising even though it may be a security that has been considered by the Interstate Čommerce Commission?

Mr. THOMPSON. The trouble with the Federal Trade Commission Act there is that it has always been a question whether there is competition. The courts have held that there must be some question of

competition. Way back in 1919, and Senator Glass may not remember this, but he was Secretary of the Treasury at the time, and he was trying to sell the Victory loan, and he sent his representatives over to us to ask if the Federal Trade Commission could not take jurisdiction over the question of the sale of blue sky securities that were being substituted for or transferred in place of Victory bonds. And his counsel prepared a brief for us showing, or attempting to show, that we had jurisdiction.

Well, we may have forgotten, but we had an emergency on at that time, which was quite an emergency, and they were having a difficult time selling the loan. So in the emergency we took jurisdiction, and then we waited to see whether any court would stop us. We were functioned for a long time and no court did stop us. But I have always had very grave doubts whether we really did have jurisdiction. At any rate, we pursued the matter at that time, and blocked the sale of thousands of dollars, in fact of millions of dollars of wildcat securities, and were responsible eventually for sending many wild-catters to jail, with the assistance of the Department of Justice.

Now the courts are very strict as to the Federal Trade Commission in compelling you to demonstrate in each case whether there is competition. Our theory was that there was competition between good securities going on the market and bad securities that might be thrust upon the market. But I do not know whether the courts would go so far as to block up that hole so far as jurisdiction is concerned, and so we have provided language in this bill to cover it.

merce.

Now, on page 4 of the bill, as to the definition of "interstate comMay I say that we took that definition from the Federal Trade Commission Act, which has been before the courts a number of times and which had been analyzed and upheld by the courts. So that I do not think there is any danger insofar as the interstate phase of the matter is concerned.

Senator BARKLEY. With reference to the operation of an act of this kind it has not been passed upon. That is the very thing I had in mind a moment ago. It seems to me that definition is very broad, that it would include any transaction crossing State lines wherein stock is bought or sold, whether on an exchange or by means of a private sale, a private letter, or any printed matter or any conversation. If you were to call up over the telephone and buy some stock and it is sent down and a check is exchanged for it it seems to me the transaction would be covered by that definition.

Mr. THOMPSON. Now, Senator Barkley, suppose you bought a certificate here in Washington from a brokerage house, wouldn't that be intrastate?

Senator BARKLEY. No, the broker is my agent to buy the stock then located somewhere else, we will say in New York or Cleveland. He is acting as my agent and has the stock transmitted down here, for which I pay. It is either sent with sight draft attached or I pay for it in advance, or by whatever method may be adopted. It seems to me this language would cover it.

Mr. THOMPSON. Let me see if I can show you about that.

Senator BARKLEY. I am not questioning that that ought to be done, but if it is not intended to be done there will have to be some change made in that language.

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Mr. THOMPSON. Let me call your attention to the section here in this bill that has to do with isolated transactions. On page 22, paragraph (c), line 18, I read:

(c) Isolated transactions in which any security is sold, offered for sale, subscription, or delivery by the owner thereof, or by his representative solely for the owner's account, such sale or offer for sale, subscription, or delivery not being made in the course of repeated and successive transactions of a like character by such owner for the purpose of engaging in the purchase and sale of securities as a business, and such owner or representative not being the underwriter of such security.

Now, then, under this section your purchase is exempt. A security which you buy generally speaking you buy from an individual, do you not?

Senator BARKLEY. Well, I do not know. I have not bought enough to establish a habit along that line. I am not thinking of isolated transactions. But you take a man who habitually, day after day, deals in securities, buying and selling securities, in which the money is put up, say, in San Francisco and is transmitted to New York, and in return a stock certificate is sent to him, or a number of stock certificates are sent to him, whether it is just one case, or whether it is a case of daily or weekly transactions, how about that? Mr. Thompson. He is not the issuer, is he?

Senator BARKLEY. No.

Mr. THOMPSON. He is not buying from the issuer.

Senator BARKLEY. Not directly, but he is buying from the issuer indirectly because the issuer, of course, is the sponsor of the stock I think all brokerage houses act through agents, as between purchasers and sellers of stocks.

Mr. THOMPSON. If this stock goes back to the issuer, or the syndicate representing the issuer, then that case would come under the terms of this bill. But if it is like what I imagine you are talking about, that is, a street transaction, and thousands of street transactions go on, where a man goes in and buys a certificate, and gets a street certificate, and somebody else just endorses it in blank and turns it over, and the buyer gets it exchanged at the home office for the other certificate. That is not included here.

Senator ADAMS. You do not mean to include transactions after a stock has gone on the market?

Mr. THOMPSON. That is right.

Senator ADAMS. You do not follow it then?

Mr. THOMPSON. No.

Senator ADAMS. If you buy a stock of a land company or of a building company of a railroad, you are free to do as you please with it. You do not have to comply with the terms of this bill as in the case of those who originally put it out.

Mr. THOMPSON. No, sir. But the penalty goes back to the original issue where they have made any false or grossly negligent claims. The responsibility comes back on the issuer, but not on to Mr. A. or Mr. B, who happens to be one of the public who subsequently purchased that security.

Senator BARKLEY. I think if that interpretation is placed on this bill there will have to be some change made in the language.

The CHAIRMAN. In any case the issuer would have to make a showing as to the stock?

Mr. THOMPSON. I did not get you question, Mr. Chairman.

The CHAIRMAN. In any case the issuer has to make a showing in regard to the stock?

Mr. THOMPSON. He is the one who files the statement here, who makes the representation as to the security.

Senator GOLDSBOROUGH. Mr. Thompson, in the case of issuing companies, are the directors likewise as reponsible as would be the officers of the company?

Mr. THOMPSON. Both officers and directors are responsible. We are coming to that, and I might say that that question caused considerable discussion before the House Committee on Interstate and Foreign Commerce.

Senator BYRNES. When you get to section 3 of the bill you will explain many questions now being propounded, I take it?

Mr. THOMPSON. Yes.

Senator MCADOO. Let me ask you one question before you proceed further: I notice that throughout this bill you refer only to interstate commerce in securities. Was it deliberately intended to omit transactions in foreign commerce?

Mr. THOMPSON. No. But we cover that in a separate paragraph of the bill. We make an exception here and then cover it later on. Senator TOWNSEND. How about the pegging proposition in the bill; I mean the pegging of stock?

Mr. THOMPSON. Where they attempt to lift the price of stock?
Senator ToWNSEND. Yes.

Mr. THOMPSON. Or to steady the price of a security?

Senator TOWNSEND. Yes.

Mr. THOMPSON. Well, it would not affect that situation at all if the information which we require here was given fully and was

correct.

But we have a fraud clause here, Senator, which covers any device under which they may attempt to defraud people in the manipulation of the stock.

Senator ADAMS. Just following that, if a company issues a security and all of the requirements of the statute are complied with, truthful statements are made, they are advertised as truthful, but it goes into the hands of individuals, brokers, or a syndicate

Mr. THOMPSON. Yes.

Senator ADAMS. They then pass it on with fictitious advertising and misrepresentation. Are they within it? That is, for instance, the stock that the Senator from Kentucky and I have bought; we do not buy it from the issuer. Some fellow comes around and sells it to us, which is not the original issue, but he tells us what wonderful stock it is and he does the advertising. Do you reach him?

Mr. THOMPSON. I do not think we would reach him, for this reason: Any situation of that kind, just as the Senator over here has spoken of with regard to pegging, is an intrastate matter and comes within the purview of the State statutes.

Senator BARKLEY. But, Mr. Thompson, here on page 3 in your definition of "issuer" you say:

"Issuer" shall mean and include every person who issues, has issued, or proposes to issue any security.

And then

Any person who acts as a promoter for or on behalf of an individual, corporation, trust, or unincorporated association or partnership of any kind to be formed shall be deemed to be an issuer.