tion, if we find that they have been misrepresented, then under this bill the Federal Trade Commission will have the right to revoke the registration.

Senator GOLDSBOROUGH. Hence the wisdom of filing the statement before they attempt business?

Mr. THOMPSON. That is right, and filing an honest one.

Senator GOLDSBOROUGH. Well, you would not let them do it if it is not honest?

Mr. THOMPSON. We cannot tell whether it is honest unless the fact is obvious.

Senator WALCOTT. If it proves to be dishonest what effect would the revocation have? What good does it do?

Mr. THOMPSON. I should have said at the outset that we have a clause way back here, or a section in here, which covers the question of fraud.

Senator MCADOO. The penalties would then apply?

Mr. THOMPSON. And the penalties would apply. And not only that, but we could through the Attorney General go into court and stop the sale if necessary.

Senator WALCOTT. But has that any bearing on your revocation? Would that depend on your revocation? It seems to me that if fraud is proven, whether you revoke the registration or not hasn't any bearing on that, on your case in court.

Mr. THOMPSON. State that again, will you, sir?

Senator WALCOTT. I do not see what effect the revocation would have in the event, for instance, of a fraud having been committed.

Mr. THOMPSON. We have a clause in here, Senator, that not only would there be the criminal offense, but a person that had lost by the deception could sue the officers and directors of the company for the loss, and we think that that is a very salutary clause.

Senator WAGNER. And you can enjoin the further sale of the securities?

Mr. THOMPSON. Yes, sir.

Senator BYRNES. Whenever you revoke the right to trade in it, if I had purchased stock prior to that time by reason of the lack of proper information, the bill gives me a right to bring suit?

Mr. THOMPSON. That is right.

Senator WALCOTT. It goes even beyond that, I should think. The revocation would automatically stop the sale, would it not? Being illegal?

Mr. THOMPSON. Well, it might not. I know blue skyers in the past that would not stop at anything. We have men that I referred to before the other committee; we have a number of people that go from one State to another and put on sales. No laws scare them, apparently. You cannot stop that type of men.

Senator BARKLEY. Mr. Thompson, you require this registration statement to be "signed by the issuer or issuers, its or their principal executive officer or officers, principal financial officer or officers, and the directors, trustees or managers.

An association of controllers has been down here before us asking us to put in a provision there that the statement be signed by the controller also, and an association of certified accountants has been down to ask us to provide that before these statements are filed they shall be investigated by certified accountants and passed on as

correct.

What do you think of that?

Mr. THOMPSON. So far as the controller phase of it is concerned, I think that perhaps an amendment putting in the word "controller" would be all right.

Senator BULKLEY. Where is that matter in the bill that gives the purchaser a right against the director?

Senator WAGNER. He has a right at common law anyway.
Senator BULKLEY. I wanted to find out where it is in the bill.
Mr. THOMPSON. Page 18, section 9, line 21:

That every person acquiring any securities specified in such statements and offered to the public shall be presumed to rely upon the representations set forth in the said statement. In case any such statement shall be false in any material respect, any persons acquiring any securities to which such statement relates, either from the original issuer or from any other person, shall have the right to rescind the transaction and to obtain the return, either at law or in equity, of any and all consideration given or paid for any such securities upon the surrender thereof, either from any vendor knowing of such falsity or from the persons signing such statement, jointly or severally: Provided, That the amount so recoverable from persons signing the statement shall not exceed the price paid for such securities.

Then there was another penalty, but after consideration we have decided to strike that out, starting at line 10 with the word "Any" and ending on line 15 with the word "made".

The CHAIRMAN. What page is that?

Mr. THOMPSON. Page 19.

Senator BULKLEY. The purchaser's right would be different, according to whether or not his vender knew of the falsity of the statement?

Mr. THOMPSON. No; I think we say "whether or not", do we not? Senator BULKLEY. No. Up in line 6 "from any vendor knowing of such falsity."

Mr. THOMPSON. Yes; "or from the persons signing such statement, jointly or severally." Not only the vendor but the persons signing the statement.

Senator BULKLEY. The point is that if the vendor appears to be innocent then the purchaser would have to look to the person signing the statement?

Mr. THOMPSON. That is right.

Senator CAREY. Mr. Thompson, in this act, as I understand it, the company files a statement with the Commission. What would happen if, after filing that statement, the company went wrong and may have incurred a lot of obligations? Is there any way of revoking their license?

Mr. THOMPSON. We have a section here, Senator, that at any time. thereafter we may call upon them for information, and if the information demonstrates a situation where the security has varied in any way from the statement which they gave, then we can revoke.

But let me say here that we do not try to stop a sale of a speculative security. The Commission is not going to pass upon whether the security itself is good or bad. What this bill tries to do is to let the purchaser know just how speculative the security is that he is buying, and then let him take his chance.

Senator CAREY. Don't you think a provision that the companies would have to file statements at certain intervals would be a good provision?

Mr. THOMPSON. Well, we thought about that, just as they do with the New York Stock Exchange, say, every quarter. I do not know but that an amendment of that kind would be a good thing to put in. Senator COUZENS. I proposed a bill to that very effect under the income-tax law.

Mr. THOMPSON. Yes.

Senator COUZENS. And referred it to the Finance Committee, and the Finance Committee referred it to the Treasury Department, and the Treasury Department looked at it solely from an income-tax point of view. But I think that a quarterly report of these institutions under the form that I proposed it would be very desirable in this bill.

(The bill referred to by Senator Couzens is as follows:)

A BILL To amend section 148 of the Revenue Act of 1932, as amended

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 148 of the Revenue Act of 1932, as amended, is amended by adding at the end thereof the following new paragraph:

"(d) Financial reports and stockholdings of officers and directors: There shall be filed with the Commissioner not later than the 1st day of January, April, July, and October of each year by every corporation having a capital stock of $200,000 or more, a report of its assets and liabilities, including a statement of gains, profits, and earnings for the quarterly period immediately preceding the filing of such report, in such detail as the Commissioner may by regulation prescribe, together with a sworn statement setting forth the names of its officers and directors holding the capital stock of such corporation and the extent of the holdings of each. Such reports and sworn statements shall be available for public inspection at all times, and the Commissioner shall, upon request, furnish a certified copy of any such report or statement to the person requesting the same, and may prescribe a reasonable fee for furnishing such copies.

Referred to the Treasury Department June 30, 1932; report received December 7, 1932 (adverse). Report filed with Secretary of Senate March 4, 1933. Mr. THOMPSON. Yes. I think that that would be a good thing, Senator.

Senator BARKLEY. Mr. Thompson, I do not want to get too far ahead of you, but what was it you said about this provision over here on page 19 that you are going to strike out?

Any person acquiring any securities to which such statement relates shall also have the right to obtain damages.

You are going to strike that out or recommend it be stricken out? Mr. THOMPSON. Yes.

Senator BARKLEY. For what reason?

Mr. THOMPSON. We felt that the penalty for the recovery of this

Senator BARKLEY (interposing). Supposing a person

Mr. THOMPSON (interposing). May I interrupt you, Senator, to say that those two sections, if my memory serves me right, are both in the British act.

Senator BARKLEY. I was just going to say that suppose a man buys some of this stock outright, relying upon these statements filed with the Commission. Under the previous language there giving him the right to recover he has got to go into court and prove the fraud and prove the knowledge on the part of the vendor and all these things, and then by the surrender of the stock probably after a long, tedious legal process in the courts he can get his money back.

But suppose he buys this stock. He has paid cash for it, and suddenly adversity approaches him and he has got to sell it to get his money, and he disposes of it at a great loss, because of the fraudulent statements contained in the original statement. Should not he be permitted to recover the damage, the loss that he sustains?

Mr. THOMPSON. Well, don't you think he would have to bring a lawsuit under that section 2?

Senator BARKLEY. Yes, he would have to bring a lawsuit, but he would not have to wait until the lawsuit is decided to determine whether he got rid of his stock. He might have to sell it. He might have to raise money for some purpose immediately, and have to put it on the market for whatever it would bring, and thereby sustain a loss.

Mr. THOMPSON. That may be the philosophy behind the British act. When we read it over and discussed it yesterday for quite a long time we finally came to the conclusion, from the questions that were raised, that perhaps we were too severe.

Senator BARKLEY. If a man could get a quick decision on the question of returning the stock and getting his money back that would be sufficient, but frequently, as you know, men who buy stocks in perfectly good faith as an investment reach a situation where they have got to cash them in at some price, and they cannot wait to go through a legal process and they sell them and take a severe loss. It seems to me, if there had been any fraud in the transaction there ought to be a right to recover the damages.

Mr. THOMPSON. Yes. Well, if the committee thinks that should be put back there, there would not be any objection, of course, on the part of those who put it in there originally.

Senator BYRNES. What you suggest striking out in line 7

Mr. THOMPSON (interposing). Line 10 beginning with the word "any" and ending in line 15 with the word "made."

Senator BYRNES. That applies solely to the right to damages against the issuer?

Mr. THOMPSON. Yes.

Now, may I say right at this point, lest I forget it, that Judge Healy will probably ask in his suggestions that the jurisdiction of the Federal Trade Commission under its present enabling act shall be added to the jurisdiction of this act. There is nothing in conflict, and it does give a broader jurisdiction than we have here. In other words, it does cover the question of unfair methods of competition. Coming to section 10, the exemptionsSenator CAREY. What page is that?

Mr. THOMPSON. That is on page 20. That is the registration. There has been a difficulty so far as State laws were concerned on the subject of registration, that when persons went in and got an approval they advertised the fact and it was an inducement, of course, to buy on the part of the public.

Senator BARKLEY. You have not covered all this territory between where you were and section 10, have you?

Mr. THOMPSON. If there is any question that you would like to ask, I will try to answer.

Senator WALCOTT. What about between there, 7 and 8?

Mr. THOMPSON. Oh, I jumped over that. Somebody asked me to go over to that.

Senator WALCOTT. There are 12 pages there.

Mr. THOMPSON. All right; excuse me.

Then I suppose the question of the directors' liability, if we are going to change it at all

Senator STEIWER. Where are you now?

Mr. THOMPSON. On page 7-should come in on page 7 at about line 13 after the word "statements" or after the word "prescribed" in line 14. However, on the subject of registration we come also to the subject of foreign governments, and down under the proviso at line 19 of page 6

That, when such statement relates to securities issued by a foreign government or political subdivision thereof, it shall be signed by the person or persons, or, if a corporation, association, or other entity, by the principal executive officer, the principal financial officer, and the directors, or, if there is no board of directors, by the persons or board having the power of management of the person, firm, corporation, association, or other entity negotiating the loan or acting as the selling agent or underwriting such security for sale in the United States as the Commission may require. Signatures of all such persons when printed on the said statements shall be presumed to be so printed by authority of the person whose signature is so affixed, and the burden of proof, in the event such authority shall be denied, shall be upon the party denying same.

I want to discuss for a few moments the question of foreign securities. We go more into detail in the statement that is to be filed on page 11.

Senator TOWNSEND. Is this the point on which Senator Johnson raises the question?

Mr. THOMPSON. Yes.

Senator BARKLEY. Of course, you make a distinction between private foreign securities and government securities?

Mr. THOMPSON. Oh, yes. Perhaps I ought to make that now. Private foreign securities come into the United States and are sold under this law under exactly the same conditions that a domestic security is sold. In other words, the house which puts the security out has got to give all the detailed information, got to go through all the steps that a domestic security has when it is offered to the Federal Trade Commission for registration.

But now I am talking about securities that are issued by a foreign government. You gentlemen will understand that it would hardly be possible for the Government of the United States to go direct to a foreign government and ask them some of the questions which we are asking here, and we cannot make so direct approach, I do not believe, in international affairs. But you can accomplish the same thing when the house which represents the foreign government begins to sell the security in this country. And here are the things which we are going to require that house to state when it comes down before the Commission and files its statement: It must file a statement, whether the security is a security of a foreign government or not. On page 11: Name of the borrowing government or subdivision thereof; Purpose or object of the loan;

Date and terms of the proposed loan;

Date and terms of the underwriting agreement, the names of the members of the underwriting syndicate, including all bonuses and commissions paid or to be paid by the foreign borrowing government and all payments or charges paid or to be paid for the privilege of underwriting the loan or for any other purpose in connection therewith.

Now, if you gentlemen will keep in mind some of the securities that have been sold in this country you will see how information of