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should be accepted as sufficient as to correctness. Regard powers given Federal Trade Commission too broad. Opposed to law being made applicable to existing securities.

THE GRAND UNION Co.,
J. S. WEED, President.

CINCINNATI, April 3, 1933. Hon. DUNCAN U. FLETCHER:

SIR: Referring securities bill introduced last Wednesday. Heartily concur in general object of bill but protest against several provisions which would seriously affect and hamper business and produce no corresponding results. Objections follow: First powers lodged Federal Trade Commission too extensive and general to be soundly exercised by any commission or group of commissions; second, liability on directors would cause resignation and destroy valuable services rendered by directors; third, provisions applicable to existing securities would immediately destroy market ability of Kroger stock thus affecting 20 thousand or more small stockholders and millions of other holders of stock. Urge careful consideration and opportunity to be heard before this bill in present form is considered.

THE KROGER GROCERY & BAKING Co.,
ALBERG H. MORRILL, President.

FEDERAL RESERVE BOARD,

Washington, April 3, 1933. Hon. Duncan U. FLETCHER, Chairman Committee on Banking and Currency,

United States Senate, Washington, D.C. MY DEAR CHAIRMAN: The attention of the Federal Reserve Board has been directed to S. 875, “A bill to provide for the furnishing of information and the supervision of traffic in investment securities in interstate commerce.

It appears that this bill is intended to apply only to stocks, bonds, debentures, and other similar securities of the kind commonly known as investment securities, which are issued for the purpose of obtaining capital funds for business enterprises and are purchased by persons for investment.

It would seem that it is not intended to apply to bankers' acceptances or to short-time paper issued for the purpose of obtaining funds for current transactions in commerce, industry, or agriculture and purchased by banks and corporations as a means of employing temporarily idle funds.

By subsection (a) of section 2 (p. 1, line 7), however, the term "security” as used throughout the bill is defined as including any note” or “evidence of indebtedness” as well as any stock, bond, debenture, etc., so that the definition appears to be broad enough to include bankers' acceptances and commercial paper.

It seems to the Federal Reserve Board that the bill should be amended by adding at the end of line 9 on page 2 a proviso exempting bankers' acceptances and notes, drafts, and bills of exchange growing out of current commercial, agricultural or industrial transactions or the proceeds of which have been or are to be used for current commercial, agricultural, or industrial purposes, when such paper has maturities not in excess of 9 months. A form of amendment for this purpose is submitted herewith for the consideration of your committee. Very truly yours,

CHESTER MORRILL, Secretary.

PROPOSED AMENDMENT TO S. 875 AND H.R. 4314

On page 2, line 9, change the period to a colon and insert the following:

Provided, however, That the term 'security' shall not include any note, draft, bill of exchange or bankers’ acceptance which arises out of a current commercial, agricultural or industrial transaction or the proceeds of which have been or are to be used for current commercial, agricultural or industrial purposes, and which has a maturity at the time of issuance not exceeding 9 months, exclusive of days of grace.”

Senator GOLDSBOROUGH. Mr. Chairman, I would like to reserve the right to file some telegrams and letters for the record tomorrow.

The CHAIRMAN. Yes; you may do so.
Senator WAGNER. I suppose we can do that at any time.
The CHAIRMAN. Now, Mr. Breed, we will hear you.

STATEMENT OF WILLIAM C. BREED, OF BREED, ABBOTT &

MORGAN, NEW YORK CITY, COUNSEL FOR THE NEW YORK, NEW JERSEY, AND CONNECTICUT INVESTMENT BANKERS ASSOCIATION

The CHAIRMAN. State as concisely as you can, Mr. Breed, and as quickly as you can, what you have to say about this bill. Í understand that you intend to propose certain amendments.

Mr. BREED. William C. Breed, of Breed, Abbott & Morgan, New York City, counsel for the New York, New Jersey, and Connecticut Investments Bankers Association.

Mr.Chairman, in connection with your question about my being here to state a few amendments, that is not exactly the idea at the moment for which I appear. I should like to try to state some amendments later after further study.

In the short time we have had we have tried to review this bill with every care, and in the first instance wish to bring to your attention that the bill does not relate only to matters having to do with investment bankers, but it covers many questions with respect to corporations, to all the various business enterprises of the country. It deals with the question of the use of the mails, with the telephone companies, with radios, with matters of communication of all sorts, and that therefore it really is one of the great fundamental bills in which Congress had a great opportunity to work out a model legislation.

So far as the Investing Bankers Association is concerned, I would like to say that our first notice until we arrived here had to do with the publication in the newspapers of the President's statement of the objectives of the bill, and as I see it, he calls to the attention of the country three principles. The first is that the Federal Government, quoting the Presidentcannot and should not take any action which might be construed as approving or guaranteeing that newly issued securities are sound in the sense that their value will be maintained or that the properties which they represent will earn a profit.

Second, that there is, however, an obligation upon us to insist that every issue of new securities to be sold in interstate commerce shall be accompanied by full publicity and information, and that no essential, important element attending the issue shall be concealed from the buying public.

Certainly we all agree with that, and with the previous suggestion.

The third important point that the President makes was stated as follows:

The purpose of this legislation I suggest is to protect the public with the least possible interference to honest business.

Now, I am sure that we all agree with those points.
Senator GORE. They are the main points.

Mr. BREED. In the first place I wish to call to your attention that throughout the United States there are today 47 States having securities laws. Of those 47 States 37 States have what is known as "license laws" or "blue-sky laws'. Most of those blue-sky laws were passed between the year 1914 up to about 1921, and in those States the laws provide and the States themselves assume to pass upon the security before it is issued.

Senator GORE. Have those laws done more good than harm?

Mr. BREED. Those laws have done much good, but during the period of the recent depression I personally have heard from a number of the commissions, raising the point that the fact that they had to issue a license with respect to securities was putting them in a very embarrassing position, because the people who had suffered losses on the securities that were licensed by the State, and which now showed heavy losses, had felt that that license implied a guarantee of those securities and of their soundness.

The CHAIRMAN. We want to avoid that here.
Mr. BREED. Yes. I am sure that we should avoid it.

In the second place, I would like to call to your attention that beginning with 1920 Governor Coolidge, following the report of the capital issues committee, to which Mr. Thompson has referred, the Dennison bill and all the frauds that were committed throughout the country by crooks going around and trying to persuade people to exchange Liberty bonds which were then in the hands of million of people, for securities that they said would pay 8 percent instead of 4 percent-following that, the then Governor Coolidge in Massachusetts appointed a commission to study the whole subject of the issue and sale of fraudulent securities. That report, if anyone should ever have time to look at it, is regarded by all those who have studied this question as one of the greatest documents on this subject.

Now, the policy determined by that commission, which was finally embodied in the Massachusetts law, was first, just as President Roosevelt has stated, there should be filed a complete disclosure at the time of the issue of any security, and Massachusetts requires the filing of all of this data, and in some respects, more than this proposed law.

At the same time, Massachusetts and this commission took cognizance of this fact. As Mr. Thompson has stated, probably this law, so far as 90 percent of the securities that are issued is concerned, they are good and sound securities, and the other 10 percent are crooked. I would like to say that I believe it is a very much higher percent.

Senator GORE. Which is a higher percent?

Mr. BREED. The crooked securities, the fraudulent securities that are issued.

Senator GORE. I should think so.

Mr. BREED. But if we have in our hearts the interest of the advancement of the commerce of the United States and of all of its corporate activities, which certainly involve financing, we must realize that financing has to be done quickly sometimes. You cannot sit around for weeks to determine whether, when a company is in need of money, it can get it or not. This question frequently has to be determined very promptly, the securities gotten out and the money obtained to relieve the distress of the good corporation.

Now, Massachusetts recognized that fact, and so they for the first time in the history of security legislation adopted into their law what was known as the “qualification of a security by notification." In other words, you could file a notification of the fact that you were to issue a certain security on a certain day in a certain amount and other primal data, and then you could go ahead and issue that security, and

within 7 days thereafter you were required, to file all of this other full and complete data.

Now, you see that meets the situation that I am sure all of you have had brought to your attention many times, particularly within the last year, namely, an opportunity to meet the necessity by quick action.

The CHAIRMAN. Does the Massachusetts law require subsequent reports by the issuing concern?

Mr. BREED. No. But I would like to take up the question of subsequent reports later, because it bears upon the whole principle of securities acts.

So much for everybody's thorough and hearty agreement on the filing of full and complete information about every security, and I think that should include foreign securities.

May I digress just for a moment to say this: That perhaps you do not appreciate what it means, if you are interested in a corporation which has had to put out a five, ten, fifteen, or twenty million dollar issue of bonds, stock, or other security, and you wish to sell it throughout the United States. It is hard to carry all this in mind. There are in addition to the 37 States which I mentioned that have the license laws, 5 States which have what is known as "registration fraud laws." Those States are the States of New York, New Jersey, Connecticut, Delaware, and Maryland, and Massachusetts, which is called a “notification law."

Recurring to the previous line of thought, I wish to call to your attention the fact that in the evolution of these security laws we have the blue sky laws most of which were passed by the States between 1911 and 1920; and, after full consideration, the law that was passed by Massachusetts in 1921; then the fraud or registration and fraud acts by New York, in 1921; and by Maryland, New Jersey, and Delaware subsequently. All of these latter laws emphasize information and very strongly emphasize the fraud enforcement provisions. They do not pass on the soundness of securities. So that is the evolution of thought; and it is my prediction that if we all could meet here 10 years from today we would find that the ultimate model security law will have three principles: First, complete notification and disclosure of all data with respect to the issues; second, an opportunity to the public to obtain that information; and, third, strict fraud provisions to punish anyone connected with any

fraudulent transaction with respect to the issue or sale of those securities.

That is what these last States have come to; and I would call your attention to the further fact that in the blue-sky States within the last few years they have begun to put into their laws these fraud provisions, showing that they themselves realize that just to license and pass upon the soundness of an issue and not to have the full, broad, complete power to get right after the parties that commit any fraudulent act in connection with the issue or sale of the securities is to render the law weak to that extent.

So I come to my prediction that I believe that the blue-sky States eventually will abandon the principle of license. They will refuse to be guarantors of the securities allowed to be issued. They will turn their blue-sky commissions into bureaus of securities for the enforcement of these laws which now require full information and which will eventually have strong fraud provisions. They will go to work, as is done in these States that have registration and fraud acts, notably under the Martin Act of New York which Mr. Thompson and others referred so favorably to before the House committee, because that is a very strong act and is enforced very vigorously.

At this point I might explain to you the operation of that fraud act. The Attorney General has the power and authority to create a bureau of securities. That bureau of securities has several hundred men trained in the work. They take a look at the security that is filed, with the name of the party that files it. You know that when you have a list of people filing securities, as to certain of them you would probably say, "That does not require investigation just now”; but you get another list, and you say, as one of the members of the House committee said, "This relates to a corporation that is organized to promote the extraction of gold from sea water.

Ten chances to one that is a crooked transaction. They have knowledge of it; so they go after them. They have power under the act to go to the office of the issuer; they have power to issue a subpena, power to take his books. If he refuses to show his books, they can call in a policeman and take them up to the bureau of securities, go to the court, obtain an injunction, and stop immediately the sale of those fraudulent securities.

The record of the enforcement of the Martin Act, as disclosed in the last Attorney General's report of the State of New York, I think Senator Wagner will agree with me, contains one of the most remarkable statements of fraud enforcement ever read.

Senator WAGNER. That is right.
Mr. BREED. With respect to enforcement.
Senator GORE. What is that?

Mr. BREED. The report of the Attorney General, Mr. Bennett, in New York, with respect to the enforcement of the Martin Act during the past year. I have the figures with respect to the number of securities that were stopped, the number of people that were prosecuted, and the number of injunctions that were immediately obtained; and I would like to say to you that the New York law now gives the authority not merely to get an injunction against a person who has issued a fradulent security, or a person who fraudulently sells a good security, but the courts are authorized to go so far as to prevent that person from ever again engaging in the security business. He has been found to be a crook and a fraud and he can be prevented from ever afterward engaging in the business.

The CHAIRMAN. The Martin Act is a New York act?

Mr. BREED. Yes, sir. Let us come to the question of why the Investment Bankers Association, both the national and the New York, New Jersey, and Connecticut associations, are in favor of this law that is proposed

As you know, before an investment banker can offer any security for sale nationally he must qualify that security according to the terms of these 42 different State laws. You have no idea what that job is, but I have.

The other night as I was coming out of my office I met a little fellow about so high (indicating) carrying a bag of envelopes so big sindicating], each one of them about so thick (indicating), and I thought that he never could get to the door with them. So I said to him, “What are these?” He said, “I don't know.” I said, “What are you doing

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