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Mr. BREED. You come down to a question of morals. You and I do not want the thing revoked. We would probably like to sell it for what it is worth, or as much as we can.

Senator Adams. We would like the opportunity.

Mr. BREED. After it is revoked we have lost the opportunity to recoup any of our money.

Senator ADAMS. No; we cannot sell it at all unless we can sell it within the State.

Mr. BREED. I would not want to discuss the morality of allowing us to do it; but, nevertheless, we are innocent victims.

Senator ADAMS. We could not even sell it by attaching to it a statement of the fraud, saying, “It is true we paid a thousand dollars for it, and we think, notwithstanding the fraud, it is worth $200." You cannot even do that and make an open disclosure.

Mr. BREED. No; not even if we made an open disclosure. We might meet some other gentleman and say, "This fraud order is out. This is a mining proposition. They say it was fraudulent to issue it, but if you want my opinion I think there is some gold here, or some copper, and so on. I believe there is something to come out of this, but there is a revocation.” Moreover, if we sell it to this other fellow, irrespective of the disclosure, we are an issuer, and that fellow can sue us for the amount of money that he paid.

Senator ADAMS. I gathered from talking to Mr. Thompson this morning that he did not consider it as going to that extent. He thought the issuer was merely the corporation or individual who was first responsible for the issue.

Mr. BREED. If Mr. Thompson would put that in the act specifically, I would like to have him do so.

Senator WAGNER. I think that ought to be qualified.
Mr. THOMPSON. That is what I intended to say.
Mr. BREED. The issuer, the syndicate, or their agents are the ones
that are covered by this act-

Senator ADAMS. You mean, the original distributor?
Mr. THOMPSON. That is right.

Mr. BREED. If this act were specifically made to just cover the original issue, you would eliminate many, many of the problems here. That is all tied up in this definition of "issuer.

The CHAIRMAN. I think we had better adjourn at this point.

Mr. BREED. I have to go to the House hearing. We have had no hearing in the House yet. I can come here at any time you set.

The CHAIRMAN. We will hear you later on. Of course, if you have any statement that you desire to submit we will be glad to put it into the record, such as suggested amendments, or otherwise.

The committee will stand adjourned until 10 o'clock tomorrow morning

Mr. BREED. If I want 5 or 10 minutes more, I can have it, Mr. Chairman?

The CHAIRMAN. Yes.

(Whereupon, at 5:20 p.m., the committee adjourned until tomorrow, Tuesday, April 4, 1933, at 10 a.m.)

SECURITIES ACT

TUESDAY, APRIL 4, 1933

UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C. The committee met, pursuant to adjournment on yesterday, in room 301, Senate Office Building, Senator Duncan U. Fletcher, presiding.

Present: Senators Fletcher (chairman), Wagner, Barkley, Gore, Costigan, Reynolds, Byrnes, Adams, Norbeck, Townsend, Steiwer, Carey, and Kean.

The CHAIRMAN. The committee will resume its hearings on S. 875. Is Mr. Breed here this morning?

Mr. DEAN. Mr. Breed had to appear before the House committee this morning, Mr. Chairman.

The CHAIRMAN. He stated he wanted 5 minutes this morning.
Mr. DEAN. He asked me to carry on in his absence.
The CHAIRMAN. Then do you wish to be heard at this time?
Mr. DEAN. Yes; if you please.

The CHAIRMAN. The committee will now hear Mr. Dean on S. 875. Please state your name, address, and occupation.

STATEMENT OF ARTHUR H. DEAN, 48 WALL STREET, NEW YORK

CITY, ATTORNEY AT LAW

The CHAIRMAN. Whom do you represent now?

Who are you speaking for?

Mr. ÞEAN. I represent a large number of industrial and publicutility clients and investment bankers. I am appearing generally in their behalf, but am not appearing for any particular group or any particular client.

The CHAIRMAN. Have you examined this bill?
Mr. DEAN. Yes, sir.
The CHAIRMAN. State briefly what you wish to say about it.
Mr. DEAN. Very well.
The CHAIRMAN. Be as brief as you can for we must hurry along.

Mr. DEAN. I have examined this bill with great detail due to the fact that we will be called upon to advise corporations whose securities would have to be qualified under it or advise investment bankers who may be purchasing securities.

We are in sympathy with the fact that the investor should have full and complete information. We are in sympathy with the President's message. This bill, however, will not accomplish, in our opinion, the President's message and will not afford adequate protection to the investor.

The bill seems to be a hopeless confusion of ill-assorted provisions lifted bodily out of the English Companies Act, the proposed Uniform Sales of Securites Act, and certain of the various blue sky laws.

Now, those various blue sky laws proceed on different theories. This bill seems to proceed on no one theory, and seems to be contradictory in several places. It will work a very great burden on the small business man because the preparing of the data required here will represent a very substantial portion of any loan. The bill applies to ordinary business transactions in interstate commerce even where the issuance of no securities is involved.

Senator ADAMS. Would you mind making that a little clearer?

Mr. DEAN. Yes; I will be glad to make that clearer. The bill, for example, says that sending across State lines of any certificate of interest in an oil well, for instance, is interstate commerce and therefore regulated by this bill. That would prevent an oil company which is constantly buying certificates of interest in oil wells in Oklahoma and Texas from doing that sort of business unless full data with respect to the oil well were registered with the Federal Trade Commission. It would prevent an automobile dealer from sending in interstate commerce automobile paper to a financing committee for discount.

Senator Adams. The sponsors of the bill, those who drafted it, have met those contentions by referring us to that section relating to isolated transactions.

Mr. DEAN. That is an extremely narrow provision, and I do not believe that would cover anything except a very few transactions. That definition is:

Isolated transactions in which any security is sold, offered for sale, subscription, or delivery by the owner thereof, or by his representative solely for the owner's account, such sale or offer for sale, subscription, or delivery not being made in the course of repeated and successive transactions of a like character by such owner for the purpose of engaging in the purchase and sale of securities as a business, and such owner or representative not being the underwriter of such security.

Senator GORE. What section is that?

Mr. DEAN. It is section 12, subsection (c). If an automobile dealer is buying paper every day might he not be engaged in successive and repeated transactions?

Senator BYRNES. As a business, it says. Don't forget those three words.

Senator BARKLEY. This refers to the business of sales of securities.

Mr. DEAN. There are a number of decisions by State courts, and particularly the Court of Appeals of the State of New York, which hold that where a person is engaged in successive and repeated transactions he is engaged in that business.

Senator BARKLEY. But they do not hold any successive transactions as an incident to the main business as constituting such a situation, do they?

Mr. DEAN. Some decisions I believe go that far. And I believe this language unless qualified would cover such a situation.

Senator BYRNES. He takes paper in payment for an automobile? Mr. DEAN. Yes, sir.

Senator BYRNES. Does the court say if he is engaged in accepting successive paper he is engaged in banking transactions?

Mr. DEAN. Yes, sir. There is a decision in our court of appeals

Senator BYRNES (interposing). I should like to see that decision. If they say if he is accepting continued and successive payments he is in the banking business I am surprised.

Senator CAREY. You refer to successive paper?

Mr. DEAN. Yes, sir. There are various State laws as to what constitutes engaging in the sale of securities, and as to what constitutes engaging in the banking business, and if you use language here which is also used in those State statutes

Senator BYRNES (interposing). Have you any State statute using such language?

Mr. DEAN. This particular language?
Senator BYRNES. Yes.
Mr. DEAN. I have not it available but can supply it.

Senator BYRNES. Well, supply it. I should like to see it. I should like to see anything that would justify an argument that this would constitute a prohibition against that kind of trading.

Mr. DEAN. I have prepared a detailed analysis of the bill, line for ine, and suggestions in connection with the bill. Unfortunately, it was garbled somewhat by the printer last night and I will not be able to submit it this morning as I had intended.

Senator GORE. Will you furnish it later?
Mr. DEAN. Yes; I will.
The CHAIRMAN. Then you may go ahead with your statement.

Mr. DEAN. In our opinion this bill should not apply to outstanding securities. If it does apply to outstanding securities it would not be possible for all the information with respect to outstanding securities to be assembled and filed within 90 days after the passage of the bill. In case of large corporations being called upon to assemble this information, in some cases it would take months, if not years. This is especially true of corporations having investments in foreign countries.

Senator BARKLEY. Might I have that print of your analysis that you have in your hand?

Mr. DEAN. This was garbled somewhat by the printer, but I will furnish it later on. You may take it to refer to now if you wish.

Senator BARKLEY. All right.

Mr. DEAN. We also feel that the requirement for filing under section 5 should be limited to original offers. If it is not limited to original offers it will practically stagnate the security markets inasmuch as no broker would dare to accept an offer coming from a different State unless he had an affidavit that it was an isolated transaction. He would have no means of knowing, when a customer sent him any securities for sale, whether or not that customer had been engaged with other brokers in successive and repeated transactions. It would also prevent a bank, or a savings bank, or insurance company, from liquidating its holdings. Just last week one of my clients was asked by a large insurance company which held some high-grade railroad and public-utility bonds, to engage in a secondary distribution of those securities. The most of them are listed under various stock exchanges, and all of them have been approved either by the Interstate Commerce Commission or the various State publicutility commissions. If all this information had to be filed each time those securities were again offered, it would mean that the infor

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