Senator ADAMS. I had some of that paper, not in your company, but in another one.

Mr. CREIGH. And I hope you will have no difficulty about it. Senator CoSTIGAN. Mr. Creigh, you make no objection to the proper registration of securities by the Federal Trade Commission, do you?

Mr. CREIGH. There is a good deal in that sentence. First, as to whether the Federal Trade Commission is the right place. I confess that I am not quite clear on the language employed, but to call attention to what Senator McAdoo has helped me bring out, as to the most ordinary business transaction of such an enterprise as ours, and not related to the flotation of securities.

Senator MCADOO. Is that included in this bill?

Mr. CREIGH. Well, the Senator sitting opposite me (Mr. Adams) agrees that it is. As I say, it is all right for a first draft of a bill, from the standpoint of drawing the fire of those who would be affected by it, for your consideration.

Senator ADAMS. I understand that an amendment has come from the Federal Reserve Board that would take those transactions out.

Mr. CREIGH. As Mr. Breed talked to you the other day, I noticed that one Senator sitting at the end of the table had fraudulent practices in his mind, with reference to dealing in these securities or their flotation, while Mr. Breed was talking about ordinary business transactions. Well, each was perfectly right, but they were miles apart in their ideas and their arguments. I am trying to clear up the point and to make a valid and essential distinction.

Senator ADAMS. And that is what makes argument.
Mr. CREIGH. Well, let us get together.

(Thereupon Mr. Creigh left the committee table.)

Senator CoSTIGAN. I believe Mr. Holtzoff wishes to add a few words.

STATEMENT BY HON. ALEXANDER HOLTZOFF, SPECIAL ASSISTANT TO THE ATTORNEY GENERAL, WASHINGTON, D.C.— Resumed

Mr. HOLTZOFF. Mr. Chairman, I just want to add to my statement of yesterday by saying a word about the court review provision contained in section 7 of the bill, for court reviews of orders of revocation of registration.

The bill as now drawn provides for a review of such order by the Court of Appeals of the District of Columbia. There has been some suggestion made that possibly it might be better to provide for such review by circuit courts of appeal, and if I may be pemitted I should like to say in behalf of the Attorney General that it is his opinion it would be better, for a number of reasons, to have the court review in the Court of Appeals of the District of Columbia, and that the reasons are as follows:

By having one court to review revocation orders of the Commission, you will get a unified body of decisions, whereas, if you have, say, 10 courts throughout the country reviewing such orders, you might get 10 different lines of decisions.

Senator ADAMS. That would apply to all laws, and if followed up to its logical couclusion that would lead to having only one Court

of Appeals, that one being in the District of Columbia, thus wiping out all other courts of appeal throughout the country.

Mr. HOLTZOFF. Well, may I say this: In the case of certain other commissions all appeals run to the Court of Appeals of the District of Columbia, like the Federal Radio Commission, although the Federal Radio Commission might handle matters in other sections of the country.

Senator ADAMS. Why should a man in Coos Bay in the Northwest have to come to the District of Columbia? We will say that he wants to put out an issue of securities on a lumber company, and he would have to come down here to Washington, a 4-day trip, with the expense of coming and time of his attorney, and so forth, when he has a circuit court of appeals nearby. I think it too far to come and too great an expense.

Mr. HOLTZOFF. It may not be as great as the expense of reconciling various decisions. And I want to call attention to the fact that the testimony will be taken before the Federal Trade Commission, and the Commission of course can hold hearings anywhere in the country. Appeals will be on the printed record. So that the hardship and the expense in sending counsel to Washington will not be as great.

Senator ADAMS. But when counsel comes to Washington he may find his case is set down on the docket for, we will say, the 3rd of December, but that there are 100 other cases set down. Then he sits around and waits, at very considerable expense and per diems for perhaps 10 days to two weeks, and all that time the little concern is being eaten up.

Senator MCADOO. You would rather have him come to San Francisco or Los Angeles, would you, Senator Adams?

Senator ADAMS. Absolutely.

Mr. HOLTZOFF. Of course, the same situation really arises in a good many other places, because some circuits are very large, and it is frequently just as expensive and requires just as much time to send a lawyer from an outlying section of a particular circuit as it is to send him to Washington. Take, for instance, the sixth circuit, and Detroit is in that circuit. The Court of Appeals sits in Cincinnati, and the mileage between Detroit and Cincinnati is only slightly less.

Senator ADAMS. Is that the only place in the circuit that the court sits?

Mr. HOLTZOFF. I think it holds one session a year in Grand Rapids. But they would not want to wait a year for the court to come around there.

Senator MCADOO. Take the ninth circuit, which covers Arizona, California, Idaho, Montana, Nevada, Oregon, Washington in continental United States. Well, now, would you subject attorneys in that big circuit to travel all the way to Washington in order to try a case? It would seem to me to work a hardship.

Mr. HOLTZOFF. But, Senator McAdoo-

Senator MCADOO (continuing). You are proposing under this bill to take the testimony on interrogatories. But for the Court of Appeals of the District of Columbia alone to have jurisdiction, would mean that counsel from all those Pacific Coast States would have to travel some 3,000 miles, and remain here as long as may be necessary, in order to try a case on appeal, when they could go to San Francisco,

which is a much shorter distance, and the cost to the litigant would be reduced.

Mr. HOLTZOFF. From the outlying sections of the ninth circuit, say, in Montana, it is quite a long trip to San Francisco.

Senator MCADOO. But not as long as to Washington.

Mr. HOLTZOFF. No; not as long as to Washington. But there are many points in some of the circuits, in the ninth and tenth, and I think in the eighth and the sixth, where the journey from outlying points in the circuit are perhaps less in the matter of mileage, but actually would not present any less difficulty than coming here.

Senator ADAMS. The tenth circuit is not quite a fair example. That happens to be a rather compact circuit and they meet in several different places.

Mr. HOLTZOFF. The eighth circuit, I think, is a large one, and they meet in St. Louis and in St. Paul. But some points in that circuit are a long ways from the places of the sitting of the court.

Senator ADAMS. Really, travel is not as difficult out in the West now as it used to be.

Mr. HOLTZOFF. And then, of course, the economy of administration comes in. It is cheaper to have the Government lawyers appear here.

Senator ADAMS. That is true from the standpoint of Government lawyers, but we are thinking of the other fellow.

Senator MCADOO. We are thinking of the poor devils who are in trouble.

Mr. HOLTZOFF. Well, I just wanted to present those considerations, Senator CoSTIGAN (presiding). You present the recommendation in behalf of the Attorney General, do you?

Mr. HOLTZOFF. Yes, sir.

Senator CoSTIGAN (presiding). Very well. We thank you. (Thereupon Mr. Holtzoff left the committee table.)

Senator COSTIGAN (presiding). Mr. Butler, please come up to the committee table, and give your name, address, and official connection to the committee reporter.

STATEMENT OF OLLIE M. BUTLER, ATTORNEY, DEPARTMENT OF COMMERCE, WASHINGTON, D.C.

Mr. BUTLER. Mr. Chairman and gentlemen of the committee, before proceeding with the remarks that I have planned to make, it would perhaps be well to refer to the testimony that was given this morning, while it is still recent. The first witness

Senator COSTIGAN (interposing). Mr. MacLean?

Mr. BUTLER. Yes. He referred to securities that are outstanding at the present time. There has been a unanimous agreement on that point, and the bill with the amendments that I have to submit this morning includes an amendment exempting securities that are outstanding on the date of the approval of this act, with the exception of securities of companies that have not been going concerns for at least one year immediately preceding the date on which they are offered for sale.

Senator ADAMS. When you say "by unanimous agreement", whom do you refer to?

Mr. BUTLER. I mean a unanimous agreement among the proponents of the bill.

Senator CoSTIGAN. Are the views which you express here the views of Mr. Huston Thompson?

Mr. BUTLER. Yes, sir.

Senator CoSTIGAN. And of anyone else?

Mr. BUTLER. Of all of us who have been interested in the framing of this bill.

Senator CoSTIGAN. Very well. You may proceed.

Mr. BUTLER. Mr. Creigh, the second witness, spoke of commercial paper. In connection with short-term commercial paper, the Federal Reserve Board proposes an amendment to the definition of securities which will exempt commercial paper maturing within 9 months that is eligible for discount with Federal Reserve banks.

Senator ADAMS. Their definition was practically that of the statutes in reference to paper eligible for discount in Federal Reserve banks. I heard it read.

Mr. BUTLER. Yes, sir. That suggestion also is accepted with the unanimous approval of the proponents of this bill and will no doubt receive the consideration of the two committees.

There was also a discussion by Mr. Creigh concerning the inconvenience or embarrassment that would be caused by the revocation clause, section 6 of the bill, particularly for fraud. The Securities Act of the State of Illinois provides as follows:

The Secretary of State shall also have the power at any time after 5 days' notice to the seller of securities, when insolvency exists or when in the opinion of the Secretary of State the future sale of such securities would work or tend to work a fraud upon purchasers thereof, to suspend or cancel the permission to sell those securities.

I just wanted to mention that in passing. Mr. Creigh seemed to be under the impression that revocation under this bill could be ordered in event that any salesman handling a security had or was about to commit fraud. The bill is not so drawn. Revocation in the case of domestic securities relates only to the fraud of the issuer and not to the fraud of anyone else connected with the transaction, such as a dealer or a salesman.

I just wished to make those remarks in connection with the testimony which has been given here this morning.

The CHAIRMAN. The chairman would like to say that more complaints or criticisms or objections have come to me respecting those two features of the bill than to any other. And, first, as to the liability of directors.

Mr. BUTLER. Yes, sir.

The CHAIRMAN. Pretty universally that matter is criticized. And then as to revocation. Those are the two main features, it seems to me, in the bill that are objectionable.

Mr. BUTLER. I realize that an attack is being made on those two features of the bill, and shall discuss them more in detail a little later, if I may.

Senator GORE. Might I ask you a question right there?

Mr. BUTLER. Yes, sir.

Senator GORE. Is the bill that you are discussing now patterned pretty much after the Illinois statute that you have quoted?

Mr. BUTLER. No, sir. I mentioned the Illinois statute because the gentleman who was testifying was from Illinois.

Senator GORE. Well, that act in Illinois seems to have failed of its purpose.

Mr. BUTLER. That is true of the laws of most of the States, Senator Gore, because a State is unable to control transactions in interstate

commerce.

Senator GORE. Yes, but even as to intrastate transactions. Take the Insull securities issued in Illinois I suppose, which was one of the most colossal frauds apparently in the United States. And yet it was not interdicted or forbidden or prevented by this Illinois statute. Mr. BUTLER. That appears to have been the case; yes, sir; and I shall discuss that in greater detail in discussing the State laws and their ineffectiveness at times.

Senator GORE. Yes.

Mr. BUTLER. With the committee's permission I should like at this point to request that a study prepared in the Department of Commerce be inserted in the record as an appendix. It was the study on which this bill was drafted. It was prepared before the outline of the bill was drawn and summarizes briefly the economic necessity for such legislation, classifies the State laws, and then reviews the decisions, chiefly Supreme Court decisions, on which the constitutionality of the proposed bill is based.

Senator GORE. Do you have extra copies?
Mr. BUTLER. Yes, sir; I have.

Senator GORE. Let me have one, please.

The CHAIRMAN. Without objection, that will be incorporated in the record as an appendix to the hearing.

(The study presented by Mr. Butler, entitled "A Study of the Economic and Legal Aspects of the Proposed Federal Securities Act Prepared in the Department of Commerce," appears in full at the end of these hearings.)

Mr. BUTLER. The committee has heard for several days past a rather comprehensive discussion of most of the important features of the bill, but there has been a great deal of misapprehension in the testimony of some of the witnesses, due perhaps to an unfamiliarity with the provisions of the bill itself, and at times the discussions have gone rather far afield.

I can perhaps best serve this committee, if I can serve at all, by attempting at this time to restate the fundamental issues and to attempt to explain some of the confusion that has arisen.

The issues, as I see them or rather the subjects of discussion—may be classified into three divisions: First, existing legislation concerning security sales; second, Federal legislation that has been proposed heretofore; and third, the bill we are discussing at present.

I have been rather startled at times to hear comments of some of the witnesses concerning State laws, when the obvious facts concerning State legislation is all collected here in a single conveniently arranged volume that may be obtained at nearly any law library.

Senator GORE. Entitled what, a collection of blue sky laws, or something?

Mr. BUTLER. Stocks and Bonds Law Service by the Commerce Clearing House.

Senator GORE. Oh, yes.