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Mr. Chairman. I think that if we do that we will meet a great deal of the opposition from industrial heads to the bill.

The CHAIRMAN. The trouble is, as shown from my correspondence, Mr. Marland, the telegrams that I have received on this bill some of which are very insulting-have been from people who have never read this bill. I know that they have not down in my country, because they could not have read it from the time that it was introduced until they wrote these letters and telegrams, because it could not have been there. It has been on statements in the newspapers by people who are perfectly willing to and have misrepresented this bill, and I think deliberately.

Of course, if there is a thing here about a corporation that is unreasonable it should be corrected, but we must assume that this is to be administered by a reasonable board and they will not ask unreasonable things.

Mr. MARLAND. Of course, I would like to see it done.

The CHAIRMAN. But, we have got, if we are going to pass laws to be administered by boards or commissions, we have got to assumeand I do not think it is a violent assumption--that with matters touching business so vitally as this, that the board or commission will give a reasonable administration to the law.

Mr. MARLAND. Mr. Chairman

The CHAIRMAN. I do not blame you at all for expressing your fear and the fear of these business men, because, frankly, I have had as much fear about these things as anybody, and after we held hearings here for 3 weeks, this bill was materially changed, in such a manner that many of us thought that we had met practically every legitimate objection, but we found that we had not, and that is why we are conducting these hearings again.

You cannot take fear out of business men when they are being propagandized, truthfully, and falsely.

Mr. MARLAND. I recognize that, Mr. Chairman, but I also recog. nize that that fear exists there and I think if we are permitted to make a suggestion and ask whether it will be agreeable to the Commission, we might remove some of that fear that exists in some honest business men's minds at the present time.

I am wondering whether there would be any objection to changing the language on page 36 to something like this:

“Such annual reports by certified public accountants and such quarterly, or monthly reports to be certified by officers of the corporations, as the Commission may prescribe," giving the Commission the right to prescribe quarterly and monthly reports to be certified to by officers of the corporation, and annual reports to be certified to by certified public accountants.

Commissioner LANDIS. The language as it stands now only requires the annual report to be certified to by an outside auditor,

The other reports are not required to be certified. No one, who has a regard for the practicalities of the situation, would fail to recognize that you would not want to have them certified to by an outside accountant. You would want the quarterly reports in as quickly as possible, and you would know that it was going to hold up the quarterly report to have it certified.

Mr. MARLAND. Under that language, you could require the quarterly reports to be certified to by certified public accountants, or even monthly.

Commissioner LANDIS. I think that that would be a strained construction of it.

Mr. MARLAND. I may be mistaken about that, but that is the way I read it.

Mr. MAPES. Do you interpret this language to compel some sort of a report monthly?

Commissioner Landis. No; I do not interpret this language as compelling that.

Mr. Mapes. I do not think that that paragraph makes a complete sentence; but it seems to me that it might properly be interpreted to require some kind of reports quarterly and monthly, and that the annual reports must be certified to by an independent public accountant.

If it does not require reports to be made quarterly and monthly, it does not even require them to be annually. If annual reports are made, they must be made by a certified public accountant, but with that exception, the annual reports and quarterly reports, and monthly reports are put together; is that not true?

Commissioner LANDIS. I see how your question arises. Your question arises from the problem as to whether those words "as the Commission may prescribe" goes back simply to "otherwise."

Mr. Mapes. Yes.

Commissioner Landis. Or goes back to “such annual, quarterly, monthly and/or other reports.'

Mr. Mapes. Do you not think that the language should be clarified?

Commissioner Landis. I think that is merely a matter of drafting. I think there would be no objection to clarifying it.

Mr. Merritt. I think that it would clarify it, if it were made to read like this:

Such annual, quarterly, monthly and/or other reports as the Commission may require, the annual report to be certified by a public accountant or otherwise.

Commissioner Landis. You would also have to do something about the "or otherwise."

Mr. MERRITT. What is that?

Commissioner LANDIS. You would have to do something about the “or otherwise" so as to make it clear that the Commission is to determine how otherwise.

Mr. MERRITT. The Commissioner under the language I read would not be empowered to require independent audits of anything except annual reports, and as to that they would have discretion as to whether to require them or not.

Commissioner LANDIs. You see, you have this kind of a proposition arising in some of these companies with subsidiaries out in foreign countries. There may be a question as to whether you can get an independent public accountant in that country. Now, when this was taken up in connection with a corporation having a subsidiary in Germany, we met this condition. They said, “We cannot get an independent accountant in Germany."

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Mr. MAPES. In what?

Commissioner LANDIS. In Germany. Therefore, we passed a rule in the Commission that under these circumstances, the accounts of this concern, which was the Konversionskasse involved there, would be quite satisfactory if they were certified to by the officials of the governmental agency, of which it was a unit. In other words, we got å type of certification which is very common here with reference to our banks.

Statements of our banks are not certified to by independent accountants. They are certified to by the examiner, a gov. ernmental official.

You want to have something in the law that will take care of a situ. ation of that type, which may arise when you could not get certification by an independent public accountant.

Mr. MARLAND. Well, can you modify the language so as to remove the fear of these corporation executives that they might be required to make quarterly and even monthly certified reports, certified public accountants?

Commissioner LANDIS. You would not want them to file certified accounts quarterly.

Mr. MARLAND. No; but that could be required, under this language. And that is the fear of these corporation officials.

Commissioner LANDIS. I get your point.

Mr. MARLAND. As expressed by their officers. I think that you can clarify that very readily.

There is one more question, and I am through. I am afraid that in the following section your are eliminating an authority that I would like to see you have. You set forth what type of reports you may ask for, and down to lines 12 and 13, where you say "in the differentiation of investment and operating income" and so on.

I believe it is highly important that the Commission have a complete analysis of surplus and reserves, and by the legislation failing to mention that, may you not be limiting it?

Commissioner LANDIS. I think I can give you a practical answer to that. This language that your referred to is exactly the language that is to be found in the Securities Act. In our accounting regulations under the Securities Act we do require a breakdown of surplus and reserves, nevertheless. We deem the language broad enough to require it.

Mr. Marland. You think that you can get it without any argument?

Commissioner LANDIS. We are getting it without argument.
Mr. PETTENGILL. Mr. Chairman
The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. Going back to Mr. Marland's inquiry of a moment ago: The annual reports by the statute are to be certified to by an independent public accountant?

Commissioner LANDIS. Yes, sir.

Mr. PETTENGILL. Now, does that exclude you from requiring quarterly reports to be certified to by independent public accountants?

Commissioner LANDIS. As I read that subsection 2, that does.

Mr. PETTENGILL. And if it does not exclude you from doing that, then I think that the thing which Mr. Marland has in mind, I think is justified.

Commissioner LANDIS. Well, the point I am making is that the mere fact that you say that annual reports are to be certified by public accountants

Mr. PETTENGILL. That certainly applies to the others if you want to require it to be done.

Commissioner LANDIS. Of course, I do not think that I need to remind you, Mr. Pettengill, of the difficulties of statutory construction. But there is a theory called inclusio unius est exclusio alterius or, in other words, mention of one thing means that the other is impliedly excluded. The whole history of this draft, a very important thing in connection with construing legislation, drives one also to that conclusion.

Mr. PETTENGILL. Well, Mr. Commissioner
The CHAIRMAN. I did not hear the last.

Commissioner LANDIS. The point that I am making relates to the history of this legislation. The first bill required the quarterly reports to be certified by independent auditors. The second bill does not require that thing, and has language instead, limiting that requirement simply to annual reports. It thus certainly gives the impression that Congress does not want the quarterly reports to be certified to by independent public accountants.

Mr. DETTENGILL. If it is not the intention to require them to be certified to by public accountants, why not plainly say so, because there are a lot of business men that are not familiar with Latin.

Commissioner LANDIS. Some courts, too.

Mr. PETTENGILL. I would like to ask you about another subject, Mr. Landis.

Commissioner LANDIS. Yes, sir.

Mr. PETTENGILL. That is with reference to municipal and State bonds. First, are there any abuses in the trading-not the original issue—but the trading of State, and municipal bonds, that require regulation; secondly, assuming that/there are, then, does Congress have the power to lay any burden upon the dealings in municipal and State bonds?

Commissioner LANDIS. Well, in answer to your first question, I would have to answer that first question yes, there are abuses there. How wide spread they are, and how important they are is a pretty hard matter to guess at; but there are abuses in every profession, no matter how honorable it is as a whole, and we cannot, of course, say there are no abuses in the trading of municipal securities. Unquestionably there are salesmen who trade in municipal securities, deal in them, sell them, and will not tell the purchasers that they are in default. They are not reputable salesmen, of course; but there have been things like that done, unquestionably.

Furthermore, one of the things in municipal securities is that you must differentiate between general obligations of a municipality, and special obligations—that is, bonds payable out of the revenue derived from waterworks or something of that type. That distinction is often not made by the salesmen. It sometimes escapes the prospective purchaser of these bonds, and sometimes because the salesmen wish it to escape.

Mr. PETTENGILL. Those provisions are clearly written on the face of the bonds.

Commissioner LANDIS. Yes; I know that they are there.

Mr. PETTENGILL. That leads me to the question as to just how much is the responsibility of the National Government to protect people from not reading the instruments they buy.

Commissioner LANDIS. I was not making that point. I am simply making the point that I cannot answer specifically, but I know that there are abuses in the selling of municipal bonds. It is impossible to say to what extent.

Mr. PETTENGILL. Do you know of any pool operations in them? Commissioner LANDIS. No; I do not.

Mr. PETTENGILL. Or any window dressing, or any of these things such as short sales, and washed sales, and so forth, in municipal bonds?

Commissioner Landis. No; I do not.

Mr. PETTENGILL. It seems to me that what abuses there are or may be in municipal bonds are so slight that the remedy here will be out of proportion to the abuses, so far as State and municipal bonds are concerned.

Commissioner Landis. As regards your second question, you raise an awfully difficult question there.

Mr. PETTENGILL. Do you not think that that is a real question?

Commissioner LANDIS. That is a real question, as to whether or not Congress has power to impose any limitations upon trading in municipal securities. You have raised a real question, and it would be hard, without pretty extensive preparation, for me to give you an answer that would be worth 2 cents on that problem.

Mr. WOLVERTON. Mr. Chairman-
The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. The questions raised by Mr. Marland and Mr. Pettengill, create in my mind an uncertainty that I would like to have clarified by you.

Assume that the reports required by this act, to be filed with the Federal Trade Commission, would show conditions such as were related here this morning by Judge Healy with respect to Cities Service, and some other corporations he mentioned, what power would there be in the Federal Trade Commission, under the provisions of this bill, to stop the trading in such securities?

Commissioner LANDIS. I am assuming that the report accurately discloses the situation even though it may be bad.

Mr. WOLVERTON. We will assume that for the purpose of my question.

Commissioner LANDIS. Yes.

Mr. WOLVERTON. I suppose the conditions were particularly bad, because of the emphasis placed on them by Judge Healy this morning.

Commissioner LANDIS. Of course, Judge Healy told you that those facts had never been disclosed in the companies to which he had reference.

Mr. WOLVERTON. That is true.
Commissioner LANDIS. But, assuming that is so—

Mr. WOLVERTON. But, I am assuming that from the reports which would have to be filed, under this bill, such facts would be revealed, and if such were revealed, what action would or could be taken by the Federal Trade Commission by virtue of the provisions of this bill?

Commissioner LANDIS. There is no action to be taken by the Federal Trade Commission. The Federal Trade Commission, under

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