So that you not only cover the company issuing the stock but you cover every promoter, which would mean every agent who is around selling the stock, it seems to me, to cover the Senator from Colorado's inquiry.

Mr. THOMPSON. Well, maybe that could be tightened up a little. Our reading of it is that lines 21 and 22, just as you read there, Senator, is a modification of the word "issuer" and attaches to the word "issuer" in paragraph (c).

Senator BARKLEY. It is an enlargement of the sentence above?
Mr. THOMPSON. Yes.

Senator WAGNER. The word "promoter," though, has a very definite meaning under the law, has it not?

Mr. THOMPSON. It has; yes.

Senator WAGNER. Not just an individual running around?

Senator BARKLEY. Why not? What limitation is there? The company issues a stock and I take it as an agent or promoter; I go around and induce people to buy it and induce them to sell it and propose to sponsor it and stand for it. I am a promoter, but I am an agent also.

Mr. THOMPSON. But, Senator, after this stock has gotten on to the market and individuals are buying it and they begin to play with it in any way they want to, this act does not cover them. This act goes back to the issuer and his syndicate, because when you get out into transactions of that kind most of them are intrastate, or we will say that they are interstate but they are beyond the purview of the statutes.

In other words, we are not trying here to reach any group of men who want to get together and boost the stock on an exchange. They will have to be reached by an act which will cover the New York. Stock Exchange and the other exchanges.

Senator BARKLEY. I agree with you that probably you cannot do it practically, but linguistically you do here.

Mr. THOMPSON. We do?

Senator BARKLEY. Yes.

Mr. THOMPSON. We are dealing with a difficult situation.

Senator GOLDSBOROUGH. Mr. Thompson, does this thought get some lodgement in your mind: If this Commission is to be held responsible there, would it not be quite difficult to get competent men for the job?

Mr. THOMPSON. Yes; I agree with you that it is going to be difficult. The great trouble that we have gotten into and the great danger that arises is where we put 50 or 100 men on a corporation directorate, some of whom are just using their names, and we have another group who are dummy directors and they are just getting their $10 or $20 or $30, or whatever it is, for each meeting, and that they are putting out before the public a security that they do not know anything about. Look at the position they are putting the purchaser in. What this bill is trying to do is to raise the purchase to the level of the seller.

Senator GOLDSBOROUGH. I quite agree to that, but I think there is a difficulty in the obtaining of men to go upon the board. I can see why the executive officers should be held, but I doubt that it ought to go to the point that the directors should be held to the same accountability.

Mr. THOMPSON. Senator, that is very interesting, because the British act compels all the directors to sign and holds all the directors responsible who knowingly contribute to the fraud. They have gone so far in this case of Lord Kylsant, to hold him, not because of what he filed under the British act, but they held him because he did not reveal certain facts which he should have revealed. In other words, the fraud was induced or produced by the fact that he did not give the whole picture. The facts which he did give were correct, were right, but he did not give all the facts, and the public reading the document or the advertisement, not having the whole picture, was deceived as if there had been false statements.

Senator GOLDSBOROUGH. But Lord Kylsant was an executive officer of the corporation.

Mr. THOMPSON. Lord Kylsant, I think, if my recollection is correct, was a director of the company. I have the Kylsant case and the British act if you would care to have me read them, which cover this question of directors. I read from the British act of 1929, page 17, section 34, and paragraph 2:

A copy of every prospectus signed by every person who is named therein as a director or proposed director of the company or his agent authorized in writing, shall be delivered to the register for registration on or before the date of its publication, and no such prospectus shall be issued until a copy thereof has been so delivered for registration.

So that you see there they cover all the directors.

Now, the question has been raised here whether we ought to cover all the directors following the British act, as well as the officers. There was a great deal of discussion over in the House committee on this subject, and the supposititious case of a director being in an automobile accident was raised, where the man was confined in the hospital and they were attempting to sell the securities and they wanted the papers to be signed and he could not sign them. What would we do?

The group of men who have been functioning on this bill suggest an amendment, requiring all directors to sign and all directors to be liable, but with this proviso, that in the event that any director could show good cause to the Commission why he was unable to sign, then he would be excused, but under no condition would there be permitted any registration unless three fourths of the directors sign.

Senator MCADOO. I think it is clear, Mr. Thompson, that unless you impose upon directors the responsibility that you impose upon executive officers in a matter of this kind, the bill would be futile.

Mr. THOMPSON. I think, absolutely, if that section goes out of this bill, then I do not think the bill is worth the paper it is written on. Senator BARKLEY. If your bill is amended so as to excuse the men who could not sign

Mr. THOMPSON. Yes.

Senator BARKLEY. So as to affect the legality of the issue, would that automatically excuse him from responsibility if he had not signed because of physical or other disabilities? That is a detail that can be worked out, of course.

Mr. THOMPSON. Of course, Senator, I do not think that a man that has not signed, and has been excused by the Commission, perhaps because he is very sick, would be held responsible.

The CHAIRMAN. He would be treated simply as if he were not on the board?

Mr. THOMPSON. If the facts were brought out before the Commission, the Commission would use its own discretion. It would look into the situation and say that that man that not have to sign. As you say, he would be treated as if he had not been on the board.

Senator BARKLEY. Suppose he has participated in all the deliberations that resulted in the issue of the stock, but at the particular moment when a signature was necessary he was physically disabled and could not sign?

Mr. THOMPSON. Well, I tell you, I think that would be left to the discretion of the Commission.

Senator BYRNES. Do you think pressure would be brought to bear in that particular?

Mr. THOMPSON. I think when they are brought down here and have to face the proposition that they have to pay damages in the event of any false or incorrect statement, that they are going to see that all the directors that they can get are going to be lined up and sign. There would have to be some real cause shown why anyone would be excused.

I think, Mr. Chairman, this is one of the most important requirements in the bill. It is going to do away with the dummy director problem.

Senator WALCOTT. Mr. Thompson, how do you feel about these tremendous boards that they have now? They have 73 directors of the Chase National Bank. Would you not be willing to see a Federal law limiting the board membership in Federal banks to some 20 or 25 men?

Mr. THOMPSON. I should think that would be a very good thing, but of course that would come under the purview of Senator Glass's bill.

Senator WALCOTT. Yes, it has nothing to do with this bill.

Mr. THOMPSON. Yes.

Senator WALCOTT. But if we took that step it would measurably help this situation?

Mr. THOMPSON. Oh, very much. It would be very good.

Senator WALCOTT. Does this bill in any respect differ from the English law? Is it less rigid than the English law?

Mr. THOMPSON. Why, it differs from the British law in that we have put several new things into this bill. It differs in this particular respect: The revocation of registration is not in the British act. I think it is a very necessary thing.

The CHAIRMAN. Do you cover the British requirements about the prospectus?

Mr. THOMPSON. Yes, we do.

Now, let me right at this moment discuss the question of registration. I was going to take up the subject, Senator.

The CHAIRMAN. I think, if I may suggest, we might let Mr. Thompson proceed in his own way and you can ask him later.

Senator CoSTIGAN. Mr. Thompson, before you proceed may I ask you one question, because I have to go: Does the bill undertake to throw the same safeguards around foreign securities sold in the United States?

Mr. THOMPSON. We are coming to that, Senator.

Senator CoSTIGAN. As around domestic securities?

Mr. THOMPSON. Yes.

Senator CoSTIGAN. It is my understanding that Senator Johnson of California, who is particularly interested in the issuance and sale of foreign securities, does not believe that the same precautions are taken.

Mr. THOMPSON. In this bill?

Senator CoSTIGAN. In this bill.

Mr. THOMPSON. Have you talked with him lately, Senator?

Senator COSTIGAN. I spoke to him this morning. It happened that I met him in another committee, and I am anxious that that phase be covered.

Mr. THOMPSON. I outlined this bill hastily to him, and as I outlined it and subsequently explained some points, I thought that he was satisfied with it, but it may be that after reading it more carefully he is not.

We come to page 5 and section 3, which we might call the section with regard to offenses. We read there this language:

That, until there shall have been registered with the Commission the statement hereinafter referred to in accordance with the terms and conditions provided by this act and by the rules and regulations promulgated pursuant thereto—

And we are offering this insertion there, gentlemen

or, if such registration has been revoked as hereinafter provided. Then the language follows:

it shall be unlawful for—

then (a), (b), (c).

The reason why we are offering that suggestion is because after the registration apparently there is a hiatus in this bill which does not cover the situation during that period and revocation. So we have put in that proviso.

Senator WALCOTT. After what word?

Mr. THOMPSON. Do you wish me to read it?

Senator WALCOTT. Yes.

Mr. THOMPSON. After the word "thereto" in line 7 insert "or, if such registration has been revoked as hereinafter provided".

In the first paragraph, (a) on line 8, covering the question of transportation: We are striking out the phrase "other than those issued by a foreign government or subdivision thereof.”

Under (b) that covers the subject of the advertisement, on the nineteenth line there are the words "spoken communication." That covers the question of advertising through radio, which has become a very important matter so far as the sale of securities is concerned. We felt that it should be covered. It would probably work out that when a person was selling a security, like the Old Counsellor or somebody of that kind, he would have to give in his talk the same information which we require in the newspaper advertisement, so far as the security is concerned, or the same information given through any other avenue of advertising. That would also cover the question of the long-distance telephone, by which method many sales are made today.

Senator WALCOTT. You will leave that in?
Mr. THOMPSON. Yes, we will leave that in.

Then we have made some other typographical changes, and we are going to submit to you gentlemen a statement of the corrections that we are making subsequent to this hearing, so that you will have it before you in committee. We have prepared some changes there and we are going to let you have them when we get through.

At the top line of page 6 we strike out the language "any security not issued by a foreign government or political subdivision thereof." Senator BARKLEY. In inserting that language originally I suppose you were actuated by the fact that it might be embarrassing for us to attempt to control the sale in this way, the sale of securities issued actually by a foreign government?

Mr. THOMPSON. That is it.

Senator BARKLEY. What is the reason for striking it out?

Mr. THOMPSON We have a passage that covers that situation later in the act.

On section 4 there is the question of registration. Let me distinguish here between registration that is required under this act or the bill and registration that is covered by blue sky laws. Most of our blue sky laws seek to control the security at its start. I think we have three blue sky laws only that are based entirely on the idea of fraud. In other words, the overt act must have been committed under them before the law begins to function. But in all others there is a plan of regulation which is set in motion before the sale is put on.

In most of the blue sky laws the investigation and ruling is made as to whether they can or cannot sell a security before a sale is permitted. Here we differ in procedure. The parties can file with the Commission. But they must file if they are going to sell securities in interstate commerce. In other words, they subject themselves to the civil and criminal penalties of this act if they don't.

The CHAIRMAN. In other words, you would make this act apply not only to the issuing but also to the selling of securities?

Mr. THOMPSON. It applies, Senator, not only to the issuing and the selling, but it does not start to apply until they desire to sell. We do not make it mandatory upon anyone to file any statement, but he stands the chance or the risk if he does not file his statement of coming into contact with the penalty clauses of this act.

Now, there is a reason for our method or procedure. If a Federal department were to compel an investigation and make a ruling favorable or unfavorable in advance of each sale, it would slow up business. We do not apprehend that more than 90-well, I will say probably less than 5 percent of the offerings upon which filings are made will ever be held up by the Federal Trade Commission. One could file without any restriction, except to comply with certain rules and regulations.

Again, one who has had experience on these commissions, where there is an attempt to rule in advance it is practically impossible to know how the situation will eventuate. The change of mind of the person that is issuing is always there. There is the personal equation. There may be a change in business conditions which frequently changes the mind of the person involved and he seeks to put a different interpretation on his act than he really intended at the start.

We do not want any ruling on the value of a security at any time. We let them all file, but subsequently, when we make the investiga