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Any security issued or guaranteed by the United States or any Territory or insular possession thereof, or by the District of Columbia or by any State of the United States or political subdivision or agency thereof."

We ask that the last two lines of this section be changed to read as follows:

“District of Columbia or by any State of the United States or by any political subdivision, agency, or instrumentality of any State or States.'

We ask that this change be made for the reason that the Port of New York Authority, although a public body, is not technically an "agency of a State." It is an instrumentality of two States, namely, the States of New York and New Jersey. Consequently, in order to bring the port authority within the provisions of the law the changes suggested above must be made.

Your attention is called to the fact that language similar to what we suggest is already included in section 201 of the Reconstruction Finance Corporation Act, from which I quote:

“SEC. 201. (a) The Reconstruction Finance Corporation is authorized and empowered

** (1) To make loans to, or contracts with, State, municipalities, and political subdivisions of States, public agencies of States, of municipalities, and of political subdivisions of States, public corporations, boards and commissions, and public municipal instrumentalities of one or more States.'

“We do not want the expression ‘municipal instrumentalities' but we would like to have the word “instrumentalities’ in addition to the word 'agency', because our practical experience in New York convinces us that it is necessary to safeguard this point.

“So that the committee's time may be saved, as well as our own, we hope that this small change can be made without the necessity of formally appearing before the committee to make a statement. However, if this course is necessary, we respectfully ask that you give us a place on your schedule of witnesses. Very truly yours,

WILBUR LAROE, Jr. The CHAIRMAN. Yesterday we adopted a motion to the effect that we would hear Mr. Carter today. He is the gentleman whose telegram to the committee was placed in the record yesterday. Mr. C. Clinton James, chairman of the Federal Legislative Committee of the United States Building and Loan League is also here and wishes to be heard.

Mr. James, you may proceed first and make a statement if you desire.

STATEMENT OF C. CLINTON JAMES, CHAIRMAN, FEDERAL

LEGISLATIVE COMMITTEE OF THE UNITED STATES BUILDING AND LOAN LEAGUE, WASHINGTON LOAN AND TRUST BUILDING, WASHINGTON, D.C.

I am

Mr. JAMES. Mr. Chairman, my name is C. Clinton James. the chairman of the Federal Legislative Committee of the United States Building and Loan League. I am filing a prepared statement, but I wish to make an explanation in reference to it.

We are asking for an exemption; that is, we ask that section 11 be amended by adding the following language:

(f) Any security issued by a building and loan association, savings and loan association, cooperative bank, and homestead association operated under the laws and subject to the examination, supervision, and control of any State of the United States or any insular possession or the District of Columbia.

The CHAIRMAN. What line and page would that be?
Mr. James. That would be at the end of line 5, page 22.
The CHAIRMAN. S. 875?
Mr. JAMES. Yes.
Senator GORE. Is that of the Home Loan Act?
Mr. James. No; of the Securities bill.
Senator REYNOLDS. What section, Mr. Chairman, is that?

The CHAIRMAN. Section 11, page 20, after line 5. Mr. James proposes an amendment.

Mr. JAMES. It would add a new section (f) on page 22, right after section (e). Right after line 5, of the present bill.

Senator REYNOLDS. That is a new section?
Mr. JAMES. Yes, sir.
The CHAIRMAN. Read it.
Mr. James (reading):

(f) Any security issued by a building and loan association, savings and loan association, cooperative bank, and homestead association operated under the laws and subject to the examination, supervision, and control of any State of the United States or any insular possession or the District of Columbia.

We thought at first that this bill did not include building and loan associations because we are exempt from the blue sky laws of all the States. Now the effect of it would be this. A great many associations, especially in New Jersey and Pennsylvania, are serial associations and issue a new series every 6 months. They cannot tell whether that series is going to amount to $3,000 or $4,000 or $5,000. And under this law they would have to pay $50 every time a new series was issued, or one hundredth of 1 percent of the amount paid in on that series, which we believe would put the associations out of business.

Senator REYNOLDS. You want to exempt them?

Mr. JAMES. We are willing to stay in under section 13, the fraud section, and section 14. If anyone is guilty of fraud we are with this legislation, and are perfectly willing and are enthusiastic about those two sections.

Senator GORE. Mr. James, in section 11 do you not think the fee imposed in that section ought to be nominal anyway and not a source of revenue?

Mr. James. Well, this happened over in the House hearings. One of the Government witnesses was asked what it would cost to administer the law for the first year and he said $100,000 and about 40 employees.

Senator GORE. Forty? Mr. James. Forty employees. Senator GORE. Did anybody believe that? Mr. JAMES. That was the statement made by the Government witness.

Senator GORE. Yes.

Mr. James. Now, in Pennsylvania, New Jersey, Ohio, and Illinois there are 6,500 associations. If they were required to pay one fee of $50 each that would amount to $325,000. That would come out of four States. And if they are required to pay $50 on each issue, why, of course the sum would be enormous.

Senator ADAMS. The answer to that would be to reduce the fee, would it not?

Mr. JAMES. Well, here is the answer we think. Mutual savings banks, insurance companies, and a lot of other organizations are exempt under section 11. Building and loan associations have usually gotten exemptions in State laws that have been given to this kind of organizations because we are more like them than anything else. You see, a building and loan association is the only corporation that a man can put his money in and withdraw it upon reasonable terms and relieve himself from further lia bility.

Senator Adams. That is only theoretical. In practice it is different. I come from a community in which we have just had a big building and loan association close up. It is the biggest institution that we have had in our community. They circulate all down through Senator Gore's country as well as in our State. They solicit subscriptions through the mails in that section and other places.

Senator REYNOLDS. Why should they be exempt?

Mr. James. We do not know how we are going to operate in these serial States if this law is going to impose any such burden upon us. They issue two series a year.

Senator GORE. Well, would a proviso relating to serials accommodate that situation?

Mr. JAMES. Well, a good many of the others issue stock; they issue stock at any time, and you cannot tell. A building and loan association

may

have an authorized capital of $10,000,000 and may have only a paid-in capital of $1,000,000. And that conflicts.

Senator KEAN. Mr. Witness, would this affect your building and loan associations at all if you did not do an interstate business?

Mr. James. Senator, we do not attempt to do an interstate business. But this happens. People move from one section to the other, and these associations of course send their little pamphlets by mail to their subscribers when new issues come out, and under this law we would be violating the law if we did that.

Senator KEAN. You would have to confine yourself to the State in which you were located.

Senator GORE. You do not have any way of estimating how many concerns will have to register statements with this Commission, do you?

Mr. JAMES. We believe that every one of the 11,000 associations have members in other States than the State in which the association is located.

Senator GORE. Those are the building and loan associations. But taken by and large, all the concerns that would have to register with this Commission, you have no way of estimating how many there are?

Mr. JAMES. I have no way of estimating that, Senator Gore.

Senator GORE. What I am getting at is that I think it ought to pay its way. But I think the fee ought to be nominal.

Mr. JAMES. One of the Government men suggested to me that they could give us a fee on a certain issue, but we can never tell what our issue is going to be.

Senator BARKLEY. Who do you mean by "one of the Government men"?

Mr. James. We were talking with Mr. Miller and Mr. Butler, who drew the bill. We thought that they had made a mistake in putting

us in.

Senator GORE. Who are Mr. Miller and Mr. Butler?

Mr. James. Mr. Miller is with the Commerce Department. Mr. Butler is the attorney for the Commerce Department.

The CHAIRMAN. You feel that the building and loan associations would have to register under this?

Mr. James. That is their interpretation of the law; yes, sir.

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The CHAIRMAN. And now you want to exempt them from these fees?

Mr. James. We think we ought to be exempted in section 11, but we are willing to stay in in sections 13 and 14, the fraud section and the other section. We believe it will put us out of business in a great many States if the law goes through as it is at present.

The CHAIRMAN. I see the point.

Mr. JAMES. Mr. Chairman, I forgot one important thing in my statement, and that is this: A large number of associations in the United States are known as permanent associations. A man can come in at any time and subscribe for stock. In other words, Senator Gore could come in today and Senator Reynolds could come in tomorrow and they could subscribe for stock at any time. That is the permanent type. I only spoke of the serial type.

Now, it seems to me that it is a very serious thing for us as to what status that kind of subscription would have, whether each subscription would be a new issue, because our set-up is so different from any other financial corporation that it makes it difficult for us to fit into this picture.

I think your friend, George McKinnis down in Shawnee, Senator, runs a permanent association. You can subscribe one day and some one else can subscribe the next, and so on, and I do not know how you could work this law out to cover a situation of that kind without putting too great a burden upon the financial corporation.

The CHAIRMAN. All right, Mr. James. That concludes your statement?

Mr. JAMES. Yes.

The CHAIRMAN. You have a memorandum which you wish to place in the record ?

Mr. JAMES. Yes.
The CHAIRMAN. It may be placed in the record at this point.

(Memorandum presented by Mr. James is printed in the record at this point in full as follows:) UNITED STATES BUILDING & Loan LEAGUE,

April 1, 1933. C. CLINTON JAMES,

Chairman, Federal Legislative Committee, Washington, D. C. Memorandum re S. 875 and H.R. 4314, to amend section 11, see (f), page 4, 5. We note that in section 11, subsection (d), there is a definite intention to leave smaller mortgage credits outside the act. Ninety percent of our assets are in mortgages and it would therefore seem logical to deal with building and loan associations in such a manner that they carry on their activities uninterrupted by additional costs and reports.

this memo.

1. Building and loan associations commend and approve the objectives of the Federal Securities Act and assume that desire is to so construct the legislation and carry on its administration as to cure serious defects, frauds and the like in the origination and distribution of securities.

2. In building and loan we just don't know anything about syndicates or bonds or originating houses, underwriters or investment bankers, mergers or street certificates and the like.

3. There are 11,442 building and loan associations in the United States. They have 11,338,000 members, nearly 10,000,000 of which are investors, the balance being borrowers. The funds collected by the associations are loaned almost exclusively on small homes and the associations constitute the principal source of home mortgage money in the country. Average loan slightly in excess of $3,000.

4. Associations receive their funds, in the main, on shares of stock. Average member account, $700. It is essentially a thrift activity and it is a nonspeculative activity, which has an unusually fine record as regards losses to members.

6. Building and loan associations are more like insurance companies and savings banks, as far as this legislation is concerned. Although primarily local institutions, they usually have some shareholders who have moved to other States, just the same as a savings bank in New York or Massachusetts is apt to have some scattered depositors over the country. Many of these associations are located near the border line of the various States and sell their shares in contiguous States where the association happens to be located near the border line.

7. The over 3,000 associations in Pennsylvania and over 1,500 associations in New Jersey issue new series of stock, some quarterly and some semiannually, and notices of these new series are sent to their subscribing stockholders. Under the act as drawn, they cannot do this without filling out the burdensome reports, paying the fees and having all of their printed literature and the like encumbered with the type of facts and information that are necessary in a foreign bond or national security issue.

8. There would be great difficulty in determining one hundredth of 1 percent of the aggregate par value”, installment shares particularly.

9. On page 19 of the mimeographed pamphlet entitled “A Study of the Economic and Legal Aspects of the Proposed Federal Securities Act”, the following statement is made as to classification of securities under the State laws: “Ordinarily, these enactments classify securities according to their inherent qualities and transactions according to their character. In some States securities are divided into two classes only, “speculative' and 'nonspeculative', with an exemption in favor of the nonspeculative issues and a requirement that speculative securities comply with prescribed regulations.” Building and loan associations are nonspeculative and should receive the same treatment of exemption in this act as they have received in the State laws.

10. Exemptions: In the same mimeographed pamphlet on page 20, under "exemptions”, appears the following: “These various exemptions are, naturally, included in blue sky laws for the purpose of leaving the channels of legitimate business as free as practicable from unwarranted obstruction by statutes intended only to regulate or prevent speculative and fraudulent transactions. It would serve no useful purpose here to list the various exemptions made in the 43 States but those most usually occurring are found in the Michigan law and may be summarized as follows:

“Securities: *

(f) Issues of banks under State or Federal control and of building and loan associations organized under the laws of the State.”

11. We approve vigorously and are quite willing to be subject to section 13, which is the fraud” section, as we understand it, and section 14, which protects any State from activities not permitted within State A, but permitted in State B.

12. The cost of administering the provisions of this act has been estimated at $100,000 per annum. If the associations of Pennsylvania, New Jersey, Ohio, and Illinois, which have 6,508 associations, were required to comply with this act, their registration fee would amount to $325,400 besides the one hundredth of 1 percent on each new issue of stock.

We therefore petition that section 11 be amended by adding the following language:

"(f) Any security issued by a building and loan association, savings and loan association, cooperative bank, and homestead association operated under the laws and subject to the examination, supervision, and control of any State of the United States or any insular possession or the District of Columbia.”

Looking at section 8 of this act which covers the advertising feature, a building and loan association advertising in its local newspaper that is sold in other States, would violate the provisions of this act.

The CHAIRMAN. Colonel Carter, whom we asked yesterday to appear, is here. We will hear him next.

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