Well, I observed that the chairman desires to adjourn and therefore I do not want to hold you any longer.

I notice that my other colleague is getting ready to leave. I hope, gentlemen and I am sincere and honest in this-that you will give the country the best possible, the most stringent bill that you can possibly agree upon.

I know that legislation, after all, is a compromise, and I know the people of the country will be ever grateful if you enact this legislation. consider this of the greatest importance, of greater importance than anything else that we possibly can do, and I have very great confidence in President Roosevelt in this connection, as I convinced him of this condition 2 years ago, before he was President.

The CHAIRMAN. We are very much obliged to you, Mr. Sabath. (Thereupon, at 4:45 p.m., the committee adjourned to meet the following morning, Friday, March 24, 1934, at 10 a.m.).

STOCK EXCHANGE REGULATIONS

SATURDAY, MARCH 24, 1934

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C.

The committee met, pursuant to adjournment, at 10 a.m., in the committee room, New House Office Building, Hon. Sam Rayburn (chairman) presiding.

The CHAIRMAN. The committee will come to order.
Mr. BULWINKLE. Mr. Chairman-

The CHAIRMAN. Mr. Bulwinkle.

Mr. BULWINKLE. Mr. Chairman, yesterday a Mr. Rand testifying before this committee made certain statements, in which he said that a Mr. Wirt, of Indiana, had sent him a letter in regard to the President, Congress, and also others in the Government employ, who he designated as "brain trusters."

These statements the press carried. They went out all over the country and I think this committee would be derelict in its duty if it did not go into this matter, and I shall introduce a resolution asking for an investigation of these statements, as to any anyone who might have made them.

Mr. MAPES. As to what? I did not hear that last.

Mr. BULWINKLE. And, as to who might have made them.

I might say, for the committee, I kept the full so-called letter, which was not a letter at all, and have it now.

The CHAIRMAN. You will introduce that in the House?

Mr. BULWINKLE. I will introduce it in the House, and if the chairman will excuse me, I have an appointment.

Mr. MAPES. You are not asking for any action by this committee? Mr. BULWINKLE. No, sir. I will ask that it come before this committee.

The CHAIRMAN. Why not a special committee?

Mr. BULWINKLE. All right; a special committee. I thought that you would like to have it.

The CHAIRMAN. I would like to have it, but we have 2 or 3 weeks' bearings announced already.

Our witness is tied up in the snow somewhere. I presume that he will be herein a few minutes.

(After a short recess, the following proceedings were had:)

STATEMENT OF ROBERT E. HEALY, CHIEF COUNSEL, FEDERAL
TRADE COMMISSION

The CHAIRMAN. Judge Healy, we are glad to see you back.
Mr. HEALY. Thank you, sir.

Let me first express the pleasure I feel at having the privilege again of appearing before this commitee.

I do not come as a member of the brain trust Mr. Rand referred to yesterday, because I could not qualify; I do not come as a young liberal, because I am no longer young. I do come as one who, not pretending to be an expert accountant, or expert in stock exchange law, or stock markets, has had an opportunity to see certain things, which I would like to tell the committee about.

In our utilities investigation, in which I have had a part, we have seen some of these things that I have in mind. Not long ago we made an examination and presented a report on the Cities Service Securities Co., which is a subsidiary of the Cities Service Co. The Cities Service Co. during a 3-year period, staged a campaign that was presumably for the purpose of getting new capital for it, through the sale of its common stock. The stock was sold throughout the country, in the country districts, to a great extent, not so much on stock exchanges, or over the counter, but by personal solicitation. It was peddled and they had several hundred salesmen in the State of Massachusetts alone.

The dealer contracts provided that the sales of the stock should be at the preceding day's closing price plus % on the New York Curb. It was also provided that if a man bought the stock and sold it within a 4-months' period that the salesman lost all of his commission (or else had the stock redelivered to him at cost to the managers). It was also provided that if a man anticipated his installment payments and paid them before they were due, he did not get delivery of the stock then; all of which kept the stock off the market and in the meantime, during this campaign, this stock was being sold at the preceding day's price on the New York Curb.

During this time, the Cities Service Securities Co. was buying on the New York Curb nearly all of the shares that were offered, so that there was not a free supply and demand in the market. There were months in which the purchases by the Cities Service Securities Co. were 98 and 99 percent of all of the purchases of that class of stock made on that market.

So, I submit that they were helping to make a price at which they were selling those shares to the people throughout the country.

In that campaign, which lasted for 3 years, omitting any reference to the sale of debentures that were convertible into common stock, the Cities Service Securities Co. received from the people of the United States over a billion, one hundred million dollars. How much of that did the City Service get in new capital? About $80, 000,000. What became of the rest? It was not embezzled. There is no such suggestion. No one made misuse of it. What was it used for?

First, it was used to make these market purchases that maintained the price so the people's own money, the investors' own money, was used to make a price on the curb at which the stock was sold to the people throughout the country. A part of it also went to buy shares of Cities Service common from Mr. Doherty and from one of Mr. Doherty's companies, on which they made a profit of over $19,000,000.

It is true Mr. Doherty had held this stock for a good many years and it represented only a portion of his holdings; but he made that much personal profit in this stock-selling campaign, aside from what was spent to support these market purchases. There were also

original issues of common for the Cities Service Co., and then for the first time it got new capital for itself of about $80,000,000.

Now, some of the people who bought those shares paid as high as $60 for them, but the company

Mr. MAPES. Some of them paid as high as $66 a share did they not? Mr. HEALY. Yes, sir. You may know of one?

Mr. MAPES. I have no personal knowledge about it, but it has always seemed to me, from what I have seen, that the sales of Cities Service stock was greatly overdone. I learned of it just as an observer, I will say, that is all. I never bought or owned any of that stock.

Mr. HEALY. I was one of the fortunate ones who observed, but I know others who were not merely observers, but some who paid the $60 price, and there were many who paid that.

Mr. MAPES. What is it now? I have not looked at the quotation of the stock for months.

Mr. HEALY. I have not looked at it, but it was around $2. It is about $2.

Mr. MAPES. It was below a dollar, at one time? Was it not?
Mr. HEALY. Yes, sir; I believe it was.

But, one interesting thing in this connection, with all of that, the average realization of the Cities Service Co. itself out of all of these things was much less than $60. I do not remember the exact figures, but it was less than $25 a share. So, if the investor had bought his shares direct of the Cities Service Co., and paid $40 a share, he would have saved himself $20 loss and in addition the company would have $10, $15, or $20 more new capital than it actually had.

Mr. MAPES. I am sorry to interrupt you, but I have an appointment and must leave this meeting. I should like to ask you some questions before I go.

Were the practices which you have described the fault of the stock exchange, or the fault of the management of the Cities Service Co.? Mr. HEALY. Well, I do not feel like trying to place the blame for it; but I do say this: I do say that the price that the Cities Service Co. helped to make on the New York curb was one of the direct causes of the high prices that that stock made, and at which it was sold to people, so that the operations on the exchanges, by the securities companies is right in point on this bill.

Mr. MAPES. I suppose that the company was responsible for placing of countless numbers of salesmen of Cities Service stock in different communities throughout the United States, was it not?

Mr. HEALY. Yes, sir; but this is not the only company that has used this same device.

The Central Public Service Corporation, stock now in bankruptcy, was dealt in on the New York Curb and Chicago Stock Exchange, and their salesmen sold their shares throughout the country from door to door at a price which was to be the preceding day's closing price on the curb and our investigation shows they bought many thousands of shares on the curb and also shows they sold on the curb. They gave the appearance of activity to the stock, which misled the people into believing there was an activity in the stock, and that it was worth somewhere near the price that was being paid for it.

Now, we have in the last few days, just been delving into the Associated Gas & Electric Securities Co. and there we have found very large sums, running up as high as $150,000,000 spent in a single