Mr. MAPES. In what?

Commissioner LANDIS. In Germany. Therefore, we passed a rule in the Commission that under these circumstances, the accounts of this concern, which was the Konversionskasse involved there, would be quite satisfactory if they were certified to by the officials of the governmental agency, of which it was a unit. In other words, we got a type of certification which is very common here with reference to our banks. Statements of our banks are not certified to by independent accountants. They are certified to by the examiner, a governmental official.

You want to have something in the law that will take care of a situation of that type, which may arise when you could not get certification by an independent public accountant.

Mr. MARLAND. Well, can you modify the language so as to remove the fear of these corporation executives that they might be required to make quarterly and even monthly certified reports, certified public accountants?

Commissioner LANDIS. You would not want them to file certified accounts quarterly.

Mr. MARLAND. No; but that could be required, under this language. And that is the fear of these corporation officials.

Commissioner LANDIS. I get your point.

Mr. MARLAND. As expressed by their officers. I think that you can clarify that very readily.

There is one more question, and I am through. I am afraid that in the following section your are eliminating an authority that I would like to see you have. You set forth what type of reports you may ask for, and down to lines 12 and 13, where you say "in the differentiation of investment and operating income" and so on.

I believe it is highly important that the Commission have a complete analysis of surplus and reserves, and by the legislation failing to mention that, may you not be limiting it?

Commissioner LANDIS. I think I can give you a practical answer to that. This language that your referred to is exactly the language that is to be found in the Securities Act. In our accounting regulations under the Securities Act we do require a breakdown of surplus and reserves, nevertheless. We deem the language broad enough to require it.

Mr. MARLAND. You think that you can get it without any argument?

Commissioner LANDIS. We are getting it without argument.
Mr. PETTENGILL. Mr. Chairman-

The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. Going back to Mr. Marland's inquiry of a moment ago: The annual reports by the statute are to be certified to by an independent public accountant?

Commissioner LANDIS. Yes, sir.

Mr. PETTENGILL. Now, does that exclude you from requiring quarterly reports to be certified to by independent public accountants? Commissioner LANDIS. As I read that subsection 2, that does. Mr. PETTENGILL. And if it does not exclude you from doing that, then I think that the thing which Mr. Marland has in mind, I think is justified.

Commissioner LANDIS. Well, the point I am making is that the mere fact that you say that annual reports are to be certified by public accountants

Mr. PETTENGILL. That certainly applies to the others if you want to require it to be done.

Commissioner LANDIS. Of course, I do not think that I need to remind you, Mr. Pettengill, of the difficulties of statutory construction. But there is a theory called inclusio unius est exclusio alterius or, in other words, mention of one thing means that the other is impliedly excluded. The whole history of this draft, a very important thing in connection with construing legislation, drives one also to that conclusion.

Mr. PETTENGILL. Well, Mr. Commissioner

The CHAIRMAN. I did not hear the last.

Commissioner LANDIS. The point that I am making relates to the history of this legislation. The first bill required the quarterly reports to be certified by independent auditors. The second bill does not require that thing, and has language instead, limiting that requirement simply to annual reports. It thus certainly gives the impression that Congress does not want the quarterly reports to be certified to by independent public accountants.

Mr. PETTENGILL. If it is not the intention to require them to be certified to by public accountants, why not plainly say so, because there are a lot of business men that are not familiar with Latin.

Commissioner LANDIS. Some courts, too.

Mr. PETTENGILL. I would like to ask you about another subject, Mr. Landis.

Commissioner LANDIS. Yes, sir.

Mr. PETTENGILL. That is with reference to municipal and State bonds. First, are there any abuses in the trading-not the original issue but the trading of State, and municipal bonds, that require regulation; secondly, assuming that there are, then, does Congress have the power to lay any burden upon the dealings in municipal and State bonds?

Commissioner LANDIS. Well, in answer to your first question, I would have to answer that first question yes, there are abuses there. How wide spread they are, and how important they are is a pretty hard matter to guess at; but there are abuses in every profession, no matter how honorable it is as a whole, and we cannot, of course, say there are no abuses in the trading of municipal securities. Unquestionably there are salesmen who trade in municipal securities, deal in them, sell them, and will not tell the purchasers that they are in default. They are not reputable salesmen, of course; but there have been things like that done, unquestionably.

Furthermore, one of the things in municipal securities is that you must differentiate between general obligations of a municipality, and special obligations-that is, bonds payable out of the revenue derived from waterworks or something of that type. That distinction is often not made by the salesmen. It sometimes escapes the prospective purchaser of these bonds, and sometimes because the salesmen wish it to escape.

Mr. PETTENGILL. Those provisions are clearly written on the face of the bonds.

Commissioner LANDIS. Yes; I know that they are there.

Mr. PETTENGILL. That leads me to the question as to just how much is the responsibility of the National Government to protect people from not reading the instruments they buy.

Commissioner LANDIS. I was not making that point. I am simply making the point that I cannot answer specifically, but I know that there are abuses in the selling of municipal bonds. It is impossible to say to what extent.

Mr. PETTENGILL. Do you know of any pool operations in them? Commissioner LANDIS. No; I do not.

Mr. PETTENGILL. Or any window dressing, or any of these things such as short sales, and washed sales, and so forth, in municipal bonds?

Commissioner LANDIS. No; I do not.

Mr. PETTENGILL. It seems to me that what abuses there are or may be in municipal bonds are so slight that the remedy here will be out of proportion to the abuses, so far as State and municipal bonds are concerned.

Commissioner LANDIS. As regards your second question, you raise an awfully difficult question there.

Mr. PETTENGILL. Do you not think that that is a real question? Commissioner LANDIS. That is a real question, as to whether or not Congress has power to impose any limitations upon trading in municipal securities. You have raised a real question, and it would be hard, without pretty extensive preparation, for me to give you an answer that would be worth 2 cents on that problem.

Mr. WOLVERTON. Mr. Chairman

The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. The questions raised by Mr. Marland and Mr. Pettengill, create in my mind an uncertainty that I would like to have clarified by you.

Assume that the reports required by this act, to be filed with the Federal Trade Commission, would show conditions such as were related here this morning by Judge Healy with respect to Cities Service, and some other corporations he mentioned, what power would there be in the Federal Trade Commission, under the provisions of this bill, to stop the trading in such securities?

Commissioner LANDIS. I am assuming that the report accurately discloses the situation even though it may be bad.

Mr. WOLVERTON. We will assume that for the purpose of my question.

Commissioner LANDIS. Yes.

Mr. WOLVERTON. I suppose the conditions were particularly bad, because of the emphasis placed on them by Judge Healy this morning. Commissioner LANDIS. Of course, Judge Healy told you that those facts had never been disclosed in the companies to which he had reference.

Mr. WOLVERTON. That is true.

Commissioner LANDIS. But, assuming that is so

Mr. WOLVERTON. But, I am assuming that from the reports which would have to be filed, under this bill, such facts would be revealed, and if such were revealed, what action would or could be taken by the Federal Trade Commission by virtue of the provisions of this bill?

Commissioner LANDIS. There is no action to be taken by the Federal Trade Commission. The Federal Trade Commission, under

this bill would give the facts out to the public. The facts would go out as to that situation.

Mr. WOLVERTON. In other words, this bill, then, is no different in its fundamental principles or theories than the Securities Act of last year where the duty of the Government is to provide information and not express opinions?

Commissioner LANDIS. Yes.

Mr. WOLVERTON. As to whether such securities were good or bad as an investment?

Commissioner LANDIS. Yes.

Mr. WOLVERTON. Would that also be true with respect to the municipal bonds, Mr. Pettingill referred to?

Commissioner LANDIS. That, of course, is true. The question that immediately occurs to me I may be thinking ahead, or thinking wrong as to your question-namely, is that the bill is not designed to express an approval or disapproval of municipal securities, but merely to insist that the facts with reference to them be brought out, and so to condition trading in these securities might not be such a burden upon the municipalities as would violate the constitutional doctrine of hands-off between the State governments and the municipalities, and the Federal Government. But I do not really know.

As I said, I have to think a question like that over and get up all of the authorities on that sort of thing very carefully, before I could arrive at a conclusion that I would respect with reference to that problem.

We had that same problem up in the Securities Act, where the exemption that is given to what might be called municipal bonds, and bonds of States and their instrumentalities, and is drawn according to a line that parallels the line that is drawn which makes taxexempt municipal bonds, State instrumentalities, and so on. In other words, every instrumentality of a State which, like a municipality, or a political subdivision of a State, was exempted from taxation, would be exempted from registration upon an issue of securities. That is the line drawn in the Securities Act. If exempt from taxation they are also exempted from the necessity of registration under that act.

Mr. WOLVERTON. I have just a hazy recollection that some one expressed the opinion before us that if practices such as prevailed in the Cities Service, using that as an illustration, should be detected as a result of the reports that are required to be filed, that there was power in the Commission under the provisions of this bill to preclude trading in such securities.

Having that thought, and you apparently taking the opposite to it, is what creates the uncertainty in my mind as to the effectiveness of the provisions of this bill.

Commissioner LANDIS. Well, I think perhaps I can clear that up this way: What I had in mind in answer to your question assumed no manipulative practices in connection with the sale of that stock.

Mr. WOLVERTON. Yes, but right there, the facts which were given to us this morning by Judge Healy in connection with the Cities Service would indicate they were manipulative practices.

Commissioner LANDIS. That is exactly the point that I did not have in mind when I answered your question. I had assumed a free market, although the securities were admittedly bad.

Now, if you do not make that assumption, which we will say was not true in the Cities Service case, where there were manipulative practices being indulged in, then the Federal Government could step in here under section 8 to prevent the sale of that stock not because it is intrinsically bad, but because of the practices connected with the sale.

Mr. WOLVERTON. Is there any provision in this bill that would enable the Federal Trade Commission to take such stocks off the exchanges as listed stocks?

Commissioner LANDIS. Because manipulative practices were being indulged in there?

Mr. WOLVERTON. Yes.

Commissioner LANDIS. As I remember it, this section that has been called to my attention limits the right to taking off, to delisting the securities, to cases where the issuer of those securities has failed to comply with any provisions of this act or rules or regulations thereunder.

Now there you should have to relate the manipulative practices to the issuers in order to authorize delisting on that ground.

On the other hand, in subsection 4 there is a right of suspension when the public interest so requires, to suspend trading in any registered security for a period of not exceeding 10 days in order to act quickly under those circumstances. You might not be sure whether or not you can finally delist, but a period of suspension.

Mr. WOLVERTON. If that power exists in the Commission as a result of the provisions of this bill, then does it not at least indirectly, if not directly place an obligation on the Federal Trade Commission of passing its approval or disapproval upon stocks that are listed upon the exchanges?

Commissioner LANDIS. I do not think so, Mr. Wolverton. I do not think so.

Mr. WOLVERTON. Certainly you would not want it to be put in that position, as a governmental agency?

Commissioner LANDIS. No; I do not want to be put in that position. I think we have successfully escaped that position, in a large measure, with reference to the Securities Act. We have escaped being put in the position of approving or disapproving the stocks that are registered. We have been very active against any representations of that nature being made.

Mr. WOLVERTON. The thought I have in my mind is this: If power is given that enables the Commission to delist a stock from the exchange, then so long as that power is not exercised, the Commission may be considered as indirectly approving the stock as a proper one to be listed and from which the inference might thereupon be taken by the investing public that it is safe to deal in that particular stock. Commissioner LANDIS. Well, I should hesitate to take that view, or to even think that an implication of that type would arise.

Mr. WOLVERTON. It is not your thought then that the bill or the powers given the Commission could be construed that way?

Commissioner LANDIS. I do not think so. I do not think it would be construed any more that way than that the mere fact that a stock today is listed on the New York Stock Exchange gives you a guarantee of its qualities as a good investment.