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Mr. HUDDLESTON. I have a vague idea that it is a transaction in which you give an order to a purported broker, and instead of his sending the order in for execution he drops it in a bucket.

Mr. HANCOCK. That is fairly accurate.

Mr. HUDDLESTON. And later on he reports that there was a loss, so that the customer is out of pocket.

Mr. HANCOCK. Yes. Mr. HUDDLESTON. Well, he could not do that under this provision. Mr. HANCOCK. I doubt that you are right, sir. However, I am willing to defer to you on that.

Mr. HUDDLESTON. I am submitting it, whether it is correct or not.

Mr. HANCOCK, Well, there is another question beyond dispute, the matter of accounting, which obviously

Mr. HUDDLESTON. Now, if the bucket shop is a place where as the participants know no real transaction is intended to be consummated and a man is merely betting with a bucket shop operator that the stock will rise on tomorrow's market, this perhaps would touch that sort of a situation.

Mr. HANCOCK. People do not know what happens in a bucket shop, sir. I only know about it by reputation and what I read in the papers.

There is another matter that seems to me of moment for your consideration and that is the question that flows from what we have been talking about in general terms. It seems to me there is a great risk in trying to build up such a powerful supervisory organization with such tremendous powers as you are giving the Federal Trade Commission in this case. I am not half so much concerned about the character of supervision that they will give it, and give the Securities Act, but I am concerned over this point: We start with the Securities Act of 1933; with this one now, as soon as it becomes a law, the people are going to have

a pretty fair warrant for believeing that securities have Government approval.

Mr. PETTENGILL. Have what?

Mr. HANCOCK, Have Government approval. I would not give authority without giving responsibility.

The CHAIRMAN. Just a moment

Mr. HANCOCK (continuing). I doubt that you are going to be able to do so. I doubt you are following the wise course, to give such tremendous power as you propose here to the Federal Trade Commission, because you are going to leave outside of any power of government, any power of law, those major factors that affect securi ies values.

Let me illustrate. I believe that if every stockholder of every company had all of the facts and understood them in all of the registration statements and all of the quarterly reports that you are talking about, you still could not stop fluctuation and violent fluctuation in securities prices. Every tangible fact that one gets leaves out the major factor in a security value, which is the character of the management, its health, if you will, its ability to immediately meet a situation, the position of the company in the industry, the position of the industry in the country and the position of our country in the world. Those are major factors. The political question vitally affects security values, far more than any set of facts that you can put on paper regarding any business today.

The CHAIRMAN. Mr. Hancock, you stated that you did not think you could escape the belief in the public mind that there was some guaranty about these regulations.

Mr. ÅANCOCK. I doubt that, sir, and I think that you will be taking the responsibility.

The CHAIRMAN. We had that same question up in 1914 when this committee passed section 20 (a) of the Interstate Commerce Act.

Mr. HANCOCK. Yes, sir.

The CHAIRMAN. Not only for the registration of railroad securities, but stating specifically that no security could be issued without the approval of the Interstate Commerce Commission. Mr. HANCOCK. Right.

The CHAIRMAN. Do you think that the public has taken that as a guaranty?

Mr. HANCOCK. No; I do not, sir. I do not know that they have; today, certainly not.

The CHAIRMAN. And that is more specific, the power of the Interstate Commerce Commission, with reference to the issuance of securities by railroads, certainly goes further than the mere registration of securities with the Federal Trade Commission.

Mr. Hancock. Well, I cannot speak with knowledge on that, sir. I mean, on the operations as to railroad securities. But I do say this: You certainly have not prevented fluctuation of railroad securities.

The CHAIRMAN. Oh, no.

Mr. HANCOCK. Even the regulations, as good as the Interstate Commerce Commission is, as we all believe it is, have not prevented fluctuation.

The CHAIRMAN. Not at all. What I am referring to specifically is the public thinking that it is guaranteed. Now, we met that argument in 1914 when the bill was first considered and passed by this committee, and passed through the House, and we met it in 1920, when we went into the law, and for 14 years I do not think that the public has believed that there was any question that the Government was guaranteeing any return or anything about the railroad bonds or stocks.

Mr. HANCOCK. After 20 years, of course, you have the points clear and plenty of time for education.

That question has actually arisen under the present securities law. This is not any figment of the imagination. It has actually happened in a number of cases. I know of a number of cases where that claim has been made, and you are now giving more opportunity to make such claims.

The difference is that this bill is aimed at preventing fluctuation of securities. The Interstate Commerce bill had reference to railroad control in general and only incidentally to railroad securities.

Mr. KENNEY. As a member of the committee, I do not agree with that statement.

Mr. HANCOCK. Pardon me, sir?

Mr. KENNEY. I say, as a member of the committee, I do not think that this bill is intended to prevent fluctuation, if by that you mean change in prices.

Mr. WOLVERTON. It contemplates unnatural fluctuations.
Mr. HANCOCK. I stand corrected, and will put in the word.

Mr. KENNEY. That is different.
Mr. HANCOCK. I will put in the word.
Mr. MARLAND. Mr. Chairman-
The CHAIRMAN. Mr. Marland.

Mr. MARLAND. I think you said that you were a director in some 17 corporations.

Mr. HANCOCK. Yes, sir.
Mr. MARLAND. Industrial corporations?
Mr. HANCOCK. Yes, sir.
Mr. MARLAND. Why are you a director in those corporations?

Mr. HANCOCK. I did not speak for myself. I was picked by the concerns. The concerns picked me.

Mr. MARLAND. Which concerns?
Mr. HANCOCK. How?

Mr. MARLAND. Which concerns? I mean the industrial corporations or the investment banking houses.

Mr. HANCOCK. By the industrial concerns. And, I am using that in the broad sense, when I say industrial concerns I do not mean necessarily manufacturing concerns.

Mr. MARLAND. I understand that. You represent the interests of an investment banking house on the board of directors of those corporations?

Mr. HANCOCK. Well, the word "represent" may not be proper, but I think I know what you mean. I think that is correct. I am representing myself, primarily. I am not dictated to by my firm. Mr. MARLAND. Are you a large stockholder? Mr. HANCOCK. Am I, personally? Mr. MARLAND. Yes.

Mr. Hancock. I am not a large stockholder in anything. My firm has large interests.

Mr. MARLAND. Then is that why you are on the boards? Mr. HANCOCK. No, that is not why. I could go back to the history of it.

Mr. MARLAND. Is it good for 17 corporations that you should be a director?

Mr. HANCOCK. I would prefer to have those corporations answer. They are not required to keep me on there. I would be glad to be free of any one if I could.

Mr. MARLAND. Is it a good general practice for you to be a director of 17 corporations?

Mr. HANCOCK. I do not see any harm in it, sir.

Mr. MARLAND. You, as a director, are called upon to direct those corporations, to pass upon securities that the corporations may desire to issue.

Mr. HANCOCK. I would not say that. As the need arises; yes, sir.

Mr. MARLAND. You have to act then as a representative of the stockholder of the corporation and a representative of your own investment house.

Mr. HANCOCK, No, sir. There have been no new securities issued by these companies.

Mr. MARLAND. Well, you are on those boards, because your investment house has had an issue of those corporations.

Mr. HANCOCK. No. I was put on the boards for the first year, in practically all cases, during the period of distribution. I was chosen

by the corporations out of the partners who were known to them. They preferred to have me, or I would not have been there. That obligation lasted for 1 year.

Insofar as our firm is concerned, we have remained on the boards only because the company wanted us to remain on the boards. We get no fees. We get no money out of it. I suppose therefore they figure that they are getting value received. We get $20 from some companies; yes.

Mr. KENNEY. You perhaps get their future new issues?
Mr. HANCOCK. We get their new issues?
Mr. KENNEY. Yes.
Mr. HANCOCK. No, not necessarily. There have not been any,

Mr. KENNEY. When did you go on the board of directors-at the time of the issue?

Mr. HANCOCK. Yes, generally.

Mr. MARLAND. Would you see any objection in an annual or quarterly report of those corporations, made to the stock exchange and through that to the public, disclosing your stock holdings in these various corporations?

Mr. HANCOCK. Would there be any objection?
Mr. MARLAND. Yes.
Mr. HANCOCK. As a director?
Mr. MARLAND. Yes.
Mr. HANCOCK. Not a trace of it personally.
Mr. MARLAND. Are not the stockholders entitled to that knowledge

Mr. HANCOCK. I do not know. I can only point out the trouble that you are going to have. If whisperings as to the ownership of stock in 1929 will make it rise to fantastic prices, what will happend when we state that we own or are buying the stock? What would happen when we state we have sold the stock?

Now, I would like to say that I do not want to avoid

Mr. MARLAND. Are not the stockholders entitled to the knowledge as to how much stock you own, how much you owned the last quarter, and how much you own at the end of this quarter?

Mr. Hancock. I think if the stockholders were the only ones involved, I would agree, and I have no objection to giving the information. I am only pointing out what the consequences might be when you publish the fact that the directors own stock, purchase stock, or sell it. If people believe in me, and I sell those securities, they will follow my action. If I buy they will buy, and if I sell they will sell.

Nr. MARLAND. Would not the public believe in you more, if they knew as a director, if they knew that you owned a substantial block of the stock of the company you were a director of?

Mr. HANCOCK. They might, or they might not, depending upon the man, entirely. Ownership is not going to insure integrity.

Mr. MARLAND. It does insure an interest in the corporation?

Mr. HANCOCK. Now, I do not think that it even insures an interest. There are lots of men who are large stockholders that have no interest in their corporation.

Mr. MARLAND. I think

Mr. HANCOCK (continuing). Or it is not brought out by any action that they take.

Mr. PETTENGILL. Mr. Chairman-
The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. I would like to pursue a little further your thought that there is a strong possibility that the public will be led to believe that the Government is behind the securities dealt in, registered under its own regulatory body, if the Federal Trade Commission is the regulatory body.

It seems to me there is a good deal of merit in your point and that it would be very easy to build up a legal obligation on a supposed call obligation. That has certainly been true in the mind of the public with reference to the joint-stock land banks, and the President of the United States only yesterday in his message refering the H.O.L.C bonds said we were already under the moral obligation to guarantee their principal.

It is difficult for me to understand that reasoning, when we expressly stated under the law we did not guarantee the principal, and yet the President says we have a moral obligation to guarantee the principal, and I understand, too, that there is a bill, or there is to be a bill, that Uncle Sam shall pay the depositors of a Detroit bank $100,000,000 because the Government permitted it to be opened when it should have been closed.

Now, the Trade Commission in dealing with securities issuance in the first instance, of securities, is very careful, does its utmost to make the public understand that it does not guarantee them.

Mr. HANCOCK. The law does, but people do not ordinarily read the law.

Mr. PETTENGILL. That is right; but this act goes beyond the issuance of securities. This goes to a certain extent to the soundness of securities after they are issued in that their value is not to be influenced by fraudulent prqctices, and so forth. Now, it seems to me that there is some merit in the suggestion that the administration of this act should be under a different body than the administration of the securities act, for that very reason.

I would like to have your comment on that.

Mr. HANCOCK. Will you give me time, sir, to think it over?
Mr. PETTENGILL. Yes.

Mr. HANCOCK. I am not trying to avoid answering the question. I think that I know the answer to it, but I do not want to give a half-baked opinion.

Mr. PETTENGILL. I understand.
Mr. HANCOCK. I think I see the answer.
Mr. PETTENGILL. I would like to have your answer.

Mr. HANCOCK. I think that you are aiming at a particular problem in this that you are not aiming at in the Interstate Commerce Act.

Mr. PETTENGILL. The Securities Act?
Mr. HANCOCK. The Interstate Commerce Act.
Mr. PETTENGILL. Yes.

Mr. HANCOCK. It is true that there is another point of interest you have provided here against options. Now, we will all agree that options may be used for bad purposes, but I do not know of any better way of rewarding management for good results attained than by giving management a moderate salary and giving them an interest in the business through the right to acquire stock under option. If

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