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enforce it. Likewise, the French have a somewhat similar act, as well as all Dominions of Great Britain.

So that today the United States, so far as the interstate phase of the sale of securities is concerned, is further behind than any other country in the world of a civilized character.

In the United States we have blue-sky laws in all but one State. There is only one State of the Union that has not such a law. There are some of our Territories that do not have a similar law. It is obvious that while the State laws have been very successful along certain lines, they have not met the great issue of the sale of securities across State lines.

Senator TOWNSEND. What State do you refer to as not having a similar law?

Mr. THOMPSON. Nevada.
Senator TOWNSEND. All right.

Mr. THOMPSON. And so we have a situation confronting us where there is a demand for some kind of relief with respect to the sale of securities in interstate commerce.

Now, coming down to the history of securities laws in the National Government the first bill that we would refer you to is the Taylor bill. That was introduced by Representative Taylor of Colorado in 1919; and it was fashioned along the lines of the British Companies Act; very much like it, and it is interesting to note that Senator Glass was the one who at that time was Secretary of the Treasury, I believe, and he gave it his very strong recommendation.

That bill was presented before the Judiciary Committee of the House of Representatives, and I was present at the time and was advocating the enactment of the bill, although with some exceptions because it seemed to me there were too many exemptions.

And may I add at this time that that is the danger in a bill, with exemptions, you are liable to leave loopholes.

The CHAIRMAN. The British Companies Act has been amended in many respects since 1919.

Mr. THOMPSON. Since 1908, yes.
The CHAIRMAN. And the last amendment I think was made in 1929.
Mr. THOMPSON. 1929 is right.
The CHAIRMAN. Very well; you may continue.

Mr. THOMPSON. The British Companies Act was in a sense rewritten in 1929.

The CHAIRMAN. All right. Mr. THOMPSON. The Taylor bill did not get out of committee. There was a tremendous run at that time in the speculative world. In fact, the bill was introduced to meet that situation. President Wilson recommended some kind of legislation, because at that time we could not sell our Victory bonds, and other bonds that the Treasury Department was attempting to put out.

I recall that there was the Capital Issues Committee, an organization which was created during the war to meet the speculative problem and try to prevent the exchange of Government bonds for wild-cat securities, or securities that were being issued out of the city of New York and other banking places, where they were of doubtful character.

Now, with regard to that Taylor bill, we had it before us in the drafting of this bill. We also hăd the British Companies Act before

And we had the French act, a translation of it, before us.

us.

The next bill was the Denison bill, which was offered in the House of Representatives by Representative Denison of Illinois. That had to do with the prevention of frauds through the mails. It was approved by 38 States. It passed the House but never got through the Senate.

Then we had what we called the Uniform Sales of Securities Act. That was an act which was drafted by commissioners from some 38 States, and which was given great study for a number of years, I think all told, they worked for about 8 years on it. The men who worked on it were well trained in that line and many of them were lawyers. We had that bill before us, and a great deal of the language which

you will find in this bill was taken verbatim from that bill. Senator BARKLEY. What bill is that?

Mr. THOMPSON. The Uniform Sales of Securities Act. I might add that that act has twice been approved by the American Bar Association, which is a reasonably conservative body when it comes to approving legislation.

Senator BARKLEY. That was designed to be enacted in the different, States, was it not?

Mr. THOMPSON. Yes, sir. And they were trying to get a uniform act.

Senator BARKLEY. All right.

Mr. THOMPSON. We had also before us the Sabath bill, introduced by Representative Sabath. It was intended to cover the subject of fraud. It had to do with the communication of false information with respect to securities. It was like the Denison bill, only it went a little further and was a little broader, in that it simply did not attempt to linit the legislation to fraud transported by newspapers or publication otherwise through the mails.

We had the LaGuardia bill, which was practically an attempt at. reenactment of the Denison bill. And then we had the Martin Fraud Act of New York. Now, some of our language of this bill. is taken from the Martin Act. And in places we have taken the language literally from that act. In other places we have paraphrased the language.

I might say there were other bills and de ents that we had before us in the study and the drawing up of this bill now before your committee.

The policy of this bill is to protect the public by informing the investor. That is the main theme that runs through this whole bill. Of course, the bill in its title as well as in its body, provides for furnishing information and the supervision from time to time of investment securities in interstate commerce.

In order for it to be successfully administered there has got to be set up an administrative system here that can be made effectual.

The bill attempts to amplify the doctrine of caveat emptor, so that in addition to the doctrine that the buyer shall beware, it provides that the seller shall beware. And it puts the burden upon the seller more than it puts it upon the buyer. We have thought that that was a necessary thing to do in view of the exposé of conditions that have been made before your committee, and also because of the remarkable revelations in corporate structure that have been opened up by the Federal Trade Commission in its investigation of the power situation.

Now, this bill does not attempt to control directly, or let me say indirectly, securities that are being sold over the New York Stock Exchange. The effect of it, of course, will be to prevent the sale of many securities over the New York Stock Exchange, but that is not the direct or primary purpose of this bill. This bill is very much broader than that.

Senator STEIWER. Do you mind a question right there?
Mr. THOMPSON. Certainly.

Senator STEIWER. What is there in the bill to prevent the sale of securities through a stock exchange?

Mr. THOMPSON. Only this, that this bill is what you might term prophylactic. When a person is about to sell a security he is required to give the information or the facts relating to the security to a governmental body, and must make oath that those facts are true. And if subsequently it is found that the statements which he has given are false, the Federal Trade Commission under this bill has the right of revocation of registration. And if the right of revocation is carried out, in other words, if the registration is revoked, then if he attempts to sell the security he comes under the penalty clause of this bill.

Now, I think first of all it will be prophylactic in the sense that it will compel parties who are about to put out securities on the market to state the facts, and when they state the facts it is going to prevent a number of securities from being sold. So that I say indirectly only it will affect the New York Stock Exchange.

Senator STEIWER. I was thinking of the listing requirements of the New York Stock Exchange. They go further and require more information than is required by this bill.

Mr. THOMPSON. The New York Stock Exchange may have done SO. I do know that they require quarterly reports, and certain statements. But apparently those have not been effective in the attempt to control the situation. Certainly, we know that stocks have been sold there which, if the later revelation of bonuses and commissions, amount of return on capital investment had been known in advance, there could not have been many sales made over the New York Stock Exchange.

Senator STEIWER. I agree with you thoroughly on that. But I have just provided myself with the listing requirements of the New York Stock Exchange, which I had not been familiar with, and apparently, from a superficial reading of their listing requirements, they are more far-reaching as to the information necessary to be furnished than the bill now presented to this committee.

Mr. THOMPSON. I might say that in a sense we were trying not to have this bill too long. I think it is only about 30 pages, while the British Companies Act is over 300 pages. But we do have a provision in the bill which permits the Commission to set up rules and regulations which will have the effect of law. In those rules and regulations we expected them, in drafting their forms, to go more into detail with regard to requirements. Senator STEIWER. All right.

Mr. THOMPSON. May I say at this time that Judge Healy, chief counsel of the Federal Trade Commission, is here, and that on yesterday we went over in very great detail with him some of the definitions contained in the bill, and that information will be given in a communi

cation by him that is to be filed. He has made, what I think are some rather excellent suggestions. Later on, with the permission of the committee, I am going to ask him to analyze those suggestions, because they come direct from an intensive study of the power situation and the testimony that has come from the power investigation.

Senator BARKLEY. Mr. Thompson, I do not wish to anticipate you in your discussion of this bill, but inasmuch as it was discussed here the other day in your absence I should like to bring this to your attention: As I read this bill, and especially in view of your mention of the New York Stock Exchange, it seems to me it not only applies to all future issues of stocks, but applies to stocks heretofore issued, by corporations already in existence, many of which doubtless will hereafter be sold on the New York Stock Exchange or other exchanges. So that it seems to me that insofar as any transactions in stocks heretofore issued might involve interstate commerce, it is covered by this bill. In other words, it is your understanding that this bill does include all past issues of securities that have been marketed? In other words, is there any language in this bill that makes any distinction between future issues and past issues?

Mr. THOMPSON. Well, I think as written it covers

Senator BARKLEY (interposing). I do not think there was an intention on the part of the sponsors of the bill to cover all past issues, but whatever may have been the intention I think it does cover them, does it not?

Mr. THOMPSON. I think the bill as now written does cover all past securities, but as to whether

Senator BARKLEY (interposing). In that connection as to any past securities being traded in over the New York Stock Exchange which enter into interstate commerce, either by delivery or otherwise, by purchase or whatever method the transaction goes through, that would bring them under this bill as to the requirement of being filed with the Federal Trade Commission and the furnishing of all information required by the bill, don't you think so?

Mr. THOMPSON. Yes, sir.

Senator BARKLEY. And in that sense it would indirectly seek to regulate transactions on the New York Stock Exchange in such stocks. That may be desirable, but that is my interpretation of the bill, and I wanted to get your interpretation of it.

Mr. THOMPSON. Well, I think that is a very fair interpretation of the bill as it now stands.

Senator WAGNER. Might I interrupt you right there?

Mr. THOMPSON. I was going to take up the bill paragraph by paragraph, and I will discuss that later on, with your permission.

Senator WAGNER. That very subject?
Mr. THOMPSON. Yes, sir.

Senator WAGNER. There seems to be some difference of opinion on that matter, and I wanted it cleared up.

Mr. THOMPSON. I will attempt to clarify that point for you if I can.

Senator WAGNER. I should like to ask as to whether or not in drafting this legislation you considered at all the bill that Senator Glass transmitted in 1919. Mr. THOMPSON. Yes. That was the Taylor Act.

[ Senator WAGNER. All right.

Mr. THOMPSON. We have a typewritten copy of this bill as we are presenting it, and at the bottom of the page I have called attention, or at the bottom of the various pages, I have called attention to bills from which we have drawn any language or as to which we have paraphrased any language in this bill.

Senator McAdoo. Mr. Thompson, talking about the New York Stock Exchange, or other exchanges, I have not had an opportunity as yet to go into the bill with care, but is it the purpose to require all members of stock exchanges to register under the terms of this bill?

Mr. THOMPSON. Well, it would all depend on whether they were selling securities in interstate commerce. Now, there is a question, of course, as to whether a sale of securities over the New York Stock Exchange, or other exchanges, is an act in interstate commerce. I do not know whether that has ever been definitely decided by any court, and so there we have a legal proposition in front of us. Our thought in this bill is that if you start to sell securities in interstate commerce without registration, then you won't avoid the penalties of this act. You must register certain information, and you must carry certain parts of that information in your advertising. They may be selling across the New York Stock Exchange and they may not, but this bill is not intended primarily to control sales across the New York Stock Exchange.

Senator BARKLEY. If I were to go to a broker here in Washington, and were to put up money for the purchase, say, of 100 shares of stock in New York, perhaps of United States Steel, which I am not going to do; but if I were to do that, and that broker sent the money to New York, purchased that stock on the New York Stock Exchange, and they mailed the certificate of stock down here and it was delivered to me, wouldn't that be just as much an interstate commerce transaction as if I wrote to the home office of the company, in New York or wherever it may be, and asked them to send me 100 shares of United States Steel, and enclosed my check for it? Is there any real difference in the one transaction or the other so far as interstate commerce is concerned?

Mr. THOMPSON. That would be in interstate commerce. But what this bill is attempting to do now—and I was going to come to that point when I analyzed the bill in detail—is to deal with the issuer and the syndicate under the issuer or connected with the issuer that sells securities.

Now, let us take the illustration which you have just given: Suppose you were to buy 100 shares of United States Steel, and in that sale you would get a Street certificate, and that Street certificate would be sent up to New York, with proper endorsement, and it would be cancelled and you would get a certificate in your own name from the company up in New York City. That would not come under this bill, because that is what you term an isolated transaction, first of all; and, secondly, it is not a sale emanating necessarily or in all likelihood from the issuer himself.

Now, we have an isolated transaction paragraph here in the bill, which is one of the exemption paragraphs. If you were to do that it would require every broker in the United States to be making reports, and I think if that were done the bill would not function.

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