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Mr. WOLVERTON. I would like to bring up another subject at this time to bring to your attention, Mr. Landis, the brief that was filed by Thomas B. Gay, of Hunton, Williams, Anderson, Gay & Moore, counsel for the New York Stock Exchange. It refers to your statement previously made before this committee as it appears in the stenographic transcript on pages 2 and 3. I have thought it is only fair to you that it be brought to your attention so that you might have an opportunity to make an observation concerning it if you wish. On page 2 of their brief they state:

Both means of accomplishing the desired objects are, therefore, predicated upon the power of the Congress over interstate commerce, or its control of the use of the mails. May either power be constitutionally exercised in the manner proposed? The purpose of this brief is to demonstrate that it may not.

In his testimony before the House Committee on Interstate Commerce, the Honorable J. M. Landis, Commissioner of the Federal Trade Commission, and one of the draftsmen of the bill, stated very frankly that:

"At the threshhold of this question, there seems to me to lie the question of national power over the exchanges. I think this committee has to meet that and face that before it can go any further."

Then, to emphasize their thought, they place in italics these words of yours:

The question is not free from doubt.

And on page 4 of their brief under the title "Constitutionality under the commerce clause":

Article I, section 8 of the Constitution of the United States confers upon the Congress power:

"to regulate commerce with foreign nations and among the several States

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Commissioner Landis, in his testimony before the House Committee on Interstate Commerce, testified in this connection that:

"In order to spell out an appropriate power for Congress to deal with stock exchanges, you have to show the intimate relationship of these transactions on the exchange itself to interstate commerce."

Continuing they use your words:

I speak primarily of the interstate commerce power, because I do not believe that legislation of this type can be based effectively upon any other power than the Congressional power over interstate commerce.

They used those two extracts from your testimony as a basis for their brief, and it occurs to me that you might wish to make some statement in connection therewith I call your attention to the fact that in your first statement I read are these words:

At the threshold of this question.

I assume that you meant that as anyone would first look at the question, the constitutional question very naturally arises.

Commissioner LANDIS. Yes.

Mr. WOLVERTON. But after full consideration you are of the opinion, as you have expressed here today, that this act is constitutional? Commissioner LANDIS. I am of that opinion. I said, just as you indicated, that when you think of a bill controlling the stock exchanges, you have to think first of the power. Can we do it? And that is what I meant by "at the threshold." Secondly, I am of the opinion that it is the interstate commerce power that one must rely primarily upon to support the right of Congress to control these transactions on the exchanges.

And when I say the question is not free from doubt, by that, I mean I can understand an intelligent lawyer taking a different position. Mr. PETTENGILL. When you say it is not free from doubt, you do not mean that it is not free from doubt in your own mind.

Commissioner LANDIS. No.

Mr. PETTENGILL. But that you recognize that an intelligent human being may take another view.

Commissioner LANDIS. Yes, that is right.

Mr. WOLVERTON. My recollection is that you stated when you appeared before that you did express the opinion that fundamentally in your opinion the constitutionality of the act would be based upon the interstate commerce clause.

Commissioner LANDIS. Yes, sir.

Mr. WOLVERTON. But you did state that the other matters that were set forth in section 2 were sort of props that could be leaned on if necessary.

Commissioner LANDIS. Yes, sir; that is exactly it.

Mr. HUDDLESTON. Mr. Landis, referring to the constitutionality of the bill. I have more doubts on some of the particular sections of the bill than I have of the bill as a whole. In short, let us say that the doctrine set forth in the Olsen case is applicable, and there is power to regulate the market, the market places. The thought that you expressed as to the "throat" as you called it before, through which the commerce flows. It does not seem to me by any means to follow that we do not go beyond the regulation of the market place when we attempt to deal with the activities of individuals, not necessarily connected with the market place at all, as we do in this bill.

Commissioner LANDIS. Well, I think on that point, that I would disagree with you as a matter of fact, that all of these activities of individuals that are dealt with in this bill, which are not those individuals acting on the exchanges, is action by those individuals off the exchange which is so intimately related to the exchange that you can reach out to control that action.

Mr. HUDDLESTON. That is the whole question. Is it so intimately commingled that you can regulate it, or, stating it another way, in regulating the exchanges may you regulate these outside activities? Commissioner LANDIS. Yes.

Mr. HUDDLESTON. When a man is a member of the stock exchange, that does not mean, because you can regulate his activities as a member, or his activities in the market place, you may go out and regulate all his activities in life.

Commissioner LANDIS. No; of course not.

Mr. HUDDLESTON. Yet this bill assumes to do that. I do not mean to say all of the activities, but certain activities which have no necessary relation to his activities in the market place, such as members borrowing money from some outsider, possibly for some other purpose than to use it in the market place

Commissioner LANDIS (interposing). But, the theory of that is
Mr. HUDDLESTON (continuing). And his lending of money-
Commissioner LANDIS. Yes?

Mr. HUDDLESTON. Outside of the market place, and not as an incident to his membership in the stock exchange to a man who does not intend to use it for any purpose on the stock exchange. So there are other questions. Take the question of proxies. The bill forbids

an individual, not a member of the stock exchange, not an officer of the corporation whose stock is listed, but a citizen not engaged in interstate commerce, from asking for a proxy to vote the stock of an outsider because the stock is listed on the stock exchange. Certainly that has no relation to the trading in the market of that stock. As I say, I could give numerous illustrations of the same nature.

Now, I take it that the power of Congress to regulate is to regulate "interstate commerce." It must be "commerce." You cannot regulate it if it is not "commerce." It must be "interstate" or you cannot regulate it. Those things which are not commerce or which are not interstate in their nature and have no necessary or essential connection with interstate commerce are quite beyond the power of Congress. You agree with that?

Commissioner LANDIS. Yes; I agree with that general principle. Mr. HUDDLESTON. Now then, we come to a question of fact. I think I can point out, as I say, numerous instances in here in which we are attempting to regulate activities or actions-I do not know just what word to use but to regulate acts which have no necessary relation to interstate commerce.

Commissioner LANDIS. Let me take your two illustrations there. One, the illustration of loaning by members of the exchange on any stocks that they may carry. The constitutionality of that rests upon the contention that, as a matter of fact, in order to regulate the exchange you need to regulate the amount of credit that goes into the exchange. That credit that goes into the exchange goes in through the members of the exchange. You have to regulate all of their activities with reference to credit in order to be sure that they will not employ particular facilities that are not on the exchange as a means of evading the requirements. I think you could tie that thing up with the whole purpose of regulating the exchanges.

Mr. HUDDLESTON. There you can say that merely because a man is a broker he cannot lend a friend $5 to buy a basket of groceries? Commissioner LANDIS. That would be going a little bit too far. Mr. HUDDLESTON. No farther than if he wanted to buy a nonlisted stock from somebody else or something of that kind. Commissioner LANDIS. But

Mr. Huddleston. But you cannot say because a man is a broker that his activities with reference to stocks

Commissioner LANDIS (interposing). I can say this

Mr. HUDDLESTON (continuing). Although they are not stocks listed on the exchanges

Commissioner LANDIS. They can be regulated, because he can use the unlisted securities to defeat regulation.

Mr. HUDDLESTON. Regulate his dealing in that particular article of commerce-we will say a share of stock.

Commissioner LANDIS. Yes.

Mr. HUDDLESTON. Yet you say that you cannot regulate him if he is dealing in a commodity?

Commissioner LANDIS. Yes.

Mr. HUDDLESTON. That is more than I can understand, because the question of credit is involved in both cases.

Commissioner LANDIS. The point that I should make there arises from a general principle. It is purely a question of tact as to whether it falls within the principle you enunciate or within a different

principle. Another principle is that you can regulate activities which can be resorted to by persons, even though you cannot regulate them independently, because they can be resorted to to evade regulation. You have that authority that goes with the power to regulate what you can clearly regulate. That principle is quite clearly recognized in the law.

Mr. HUDDLESTON. May I call your attention to the fact that we are not assuming to regulate "securities." We are not dealing with securities as such.

Commissioner LANDIS. No?

Mr. HUDDLESTON. We are dealing with the market, just as we would deal with-well, we will say the produce exchange.

Now, what happens to those securities when they are not in the market, when they are not being dealt in in the market, is none of our

concern.

Commissioner LANDIS. I think it is your concern for this reason, because what happens to those securities when they are not in the market is a method that can be used to avoid the type of regulation that you want to accomplish.

Mr. HUDDLESTON. Carried to that extent, here is a man engaged in the growing of a field of wheat in the State of Illinois. Eventually it may get to the produce exchanges. Eventually it may be dealt with there. Whether he makes a good yield or not has an effect on the exchange, but that is immaterial because the rules laid down by the Supreme Court are that you cannot control that. That was laid down in the Bailey v. Drexel case, the Mississippi Cotton Oil Co. case, and in other cases, the court has said that the commerce clause does not have any relation to production.

Commissioner LANDIS. It is entirely a question of degree, yes. Mr. HUDDLESTON. As I made the remark to a witness yesterday, no human activity but has a relation, remote though it may beCommissioner LANDIS. Yes.

Mr. HUDDLESTON. To every other activity.

Commissioner LANDIS. And it is the judgment on that degree of relationship that is the deciding factor. It is the judgment on that degree of relationship.

Mr. HUDDLESTON. We not only forbid that a broker should lend but require that he shall borrow from nonbrokers.

Commissioner LANDIS. Yes.

Mr. HUDDLESTON. And we forbid that he shall borrow on securities that are not listed.

If we have the power to do that we have the power to limit every activity the broker has.

Commissioner LANDIS. Why, I do not think that you have that. You have not got the right to limit the broker's wearing of a blue tie instead of a brown tie.

Mr. HUDDLESTON. If it affects his credit.

Commissioner LANDIS. If it does, I quite agree with you you can regulate it. If you can show that it is important that a blue tie should be worn by a broker on the exchange, then Congress has the power to prescribe that sort of tie. It is a matter of judgment, and on that question of judgment a congressional determination ought to have a great deal of weight with any court. Congress has determined those things are so interrelated with the activities on the exchange, with

everything which it has the power to control, that it is entitled to go out and control those things.

The CHAIRMAN. Any further questions?

Mr. MERRITT. I would like to ask a question, leaving aside the question of constitutional power. This is on page 42, section 16, relating to accounts and records and so forth, which provides that the exchanges or any member shall give a full report of all his transaction and his whole business and shall do it at his own expense, including the expenses of an examiner. Is that not rather unfair?

Commissioner LANDIS. That is a very common provision. That is contained in many regulatory statutes, where you put the expense of the examination upon the person whose conduct has been responsible for that examination.

Mr. MERRITT. But he must be a member of the exchange?

Commissioner LANDIS. That is one of the conditions. He takes that into consideration, and that is one of the conditions to being a member of the exchange.

Mr. MERRITT. He did not, when he first became a member?
Commissioner LANDIS. What is that, sir?

Mr. MERRITT. He did not. A new member might.

Commissioner LANDIS. Well, it makes no difference whether he is a new member or not.

Mr. MERRITT. It makes no difference whether he is a new member or not?

Commissioner Landis. No.

Mr. MERRITT. I suppose not. It is merely a matter of justice? Commissioner LANDIS. That is a common provision.

Mr. MERRITT. I know that it is as to the bank examiners and so forth.

Commissioner LANDIS. Yes.

Mr. MERRITT. But, I think where you go to 100 members of the exchange and make them give up information as to their private business that is rather a questionable thing, anyway. It seems to me that it is an unfair proposition.

Then, on the next page, section 17, you stick to the old idea that seems contrary to the idea of the English common law that a man has got to prove himself innocent instead of somebody else proving his guilt.

Commissioner LANDIS. That is not so, Mr. Merritt. I think that I can cite a few authorities to that effect. If that is so as to this bill, then it would be as to the securities act.

There is no principle in the common law to the effect that in civil cases the burden of proof must always rest upon the plaintiff. That is

not so.

Mr. MERRITT. No.

Commissioner LANDIS. That is not so in civil cases. This principle of shifting the burden of proof is a very old principle. It is recognized in the common law. It is recognized in the statutes of every State. The whole theory of that is that where one of the two parties litigant has the facts within his own knowledge, has those facts peculiarly within his own knowledge, the burden of going into court and offering evidence with reference to those facts should, as a matter of justice, be placed upon that party. That rule is known to the common law. That rule has been adopted in numerous States. It is simply an appli

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