due to American nationals no distinction was made between the claims of bondholders and the claims of other creditors.

In 1933, following the assumption of diplomatic relations between this country and Soviet Russia, negotiations were started for the settlement of American claims. We were advised by the United States State Department that the Czarist dollar bonds were included in these negotiations. A study of the negotiations as disclosed by our Ambassador, Joseph E. Davies, reveals that Russia would have taken steps to complete the Litvinoff debt agreement if it had been financially possible for Russia to offer the same terms of settlement to "27 other most-favored nations." These negotiations and further discussions in 1946 leave no doubt that the bondholders' claim could not be considered as "repudiated," and that the claims of the bondholders were being officially recognized and pressed by our own State Department. These negotiations resulted in the Litvinoff assignments in which Russia released and assigned to the United States all amounts due from American nationals to Russia.

It has been the specific understanding of this Government and of Russia that the funds accumulated under the Litvinoff assignments would be disbursed by the United States to American nationals in partial settlement of their claims, whether the claims arose by reason of the confiscatory decrees and acts of the Soviet Government resulting in the taking of property of such nationals or the repudiation of state debts and obligations of prior governments of Russia. Because of this understanding we conclude that claims based on Russian internal investments and transactions and subject to Russian governmental supervision have equal rights with Russian external claims and agreements with that Sovereign Government. If these resolutions were permitted to limit the claims of the bondholders, is it not conceivable that the Russian Government might use this reduction of claims as an argument to reduce its external obligations at some future time?

In June 1939 President Roosevelt and Secretary of State Cordell Hull recommended the approval of House Joint Resolution 315 which set up the machinery for the adjudication by a commission of claims of American nationals against Russia. Neither the recommendation nor the bill itself distinguished between claims based upon defaulted Czarist bonds and other claims of American nationals. With the introduction of House Joint Resolution 49 and later House Joint Resolution 130, came the provision for discriminating against the holders of defaulted Czarist bonds.

It is respectfully submitted to this committee that as a matter of law the purchase of a security transfers to the buyer all the right, title, and interest held by the seller and all the rights and claims carried by the security itself, regardless of the price at which the transaction is made. In other words, the sale of a bond at either a premium over or a discount from its face value transfers to the buyer all of the rights, claims, and value inherent in the bond itself. This legal concept is violated by the provision in the resolutions under consideration limiting the allowance on claims based on bonds of the Soviet Government or prior Governments of Russia which were purchased for less than their face value to the extent of the actual consideration paid therefor.

It is submitted to this committee that the inclusion of the aforementioned discriminatory provision is economically unsound. Obviously, any limitations of the transfer of rights or privileges of claims in the form of securities, notes, claims, etc., otherwise would limit their value and marketability. A new and inequitable theory for the settlement of international and national claims is being proposed herein; a theory which could lead to immeasurable harm for our investments abroad and the discouragement of future investments in foreign countries.

Permitting section 11 (c) to remain, creates a dangerous precedent. Under this provision it is obvious that if there is the prospect of the holder of a defaulted security being limited to his cost, all trading in defaulted securities would completely cease. This would be most unfortunate to those who purchased their securities before such default, for they would have no market in which to dispose of their defaulted bonds if the urgent need for funds arose. It could also disrupt the orderly purchase and sale of securities on which there is no default but which are selling for less than face or par value. There are a great many securities in that category and the concept of discrimination predicated on the consideration paid for a security can and may seriously affect trading in this category. The American Stock Exchange has gone on record with this committee that the concept of limiting claim to cost is incon

ceivable and we are sure that the New York Stock Exchange agrees with this conclusion.

In 1933 the Foreign Bondholders Protective Council, Inc., was formed at the suggestion of responsible officials of our Government, who expressed the need for "an adequate and disinterested organization for the protection of American holders of foreign government securities," this problem being of such "great and urgent importance to American investors, and of such public significance as to make its proper handling a public service." The formation of the council was based on the traditional policy of the American Government that loan and investment transactions were primarily private actions to be handled by the parties directly concerned. The council has limited its activities to negotiations of debt settlements directly with foreign governments in cases involving the interests of American holders of publicly offered dollar bonds of such foreign governments or their political subdivisions.

In the case of czarist bonds, however, we are concerned presently only with the matter of distributing funds deposited with the United States Treasury. The Foreign Bondholders Protective Council has not intervened since this is purely a domestic matter. However, it is important to note that in all its negotiations and dealings with foreign governments on behalf of bondholders, the council proposed as a basis of the settlement the original value of the security itself and not the cost of the security.

We should like to call the attention of this committee to the fact that the British authorities have sequestered similar funds on behalf of British nationals in the cases of Germany, Hungary, Rumania, Bulgaria, and some others. At no time was the cost of these securities made a basis for the allowance of claims. It would appear that the discriminatory provision, section 11 (c), was included in the joint resolutions without regard to the rights preserved in our Constitution, and the recognized principles of free trade, and in contravention of the recognized principles of international law and practice.

It is difficult to conceive that a special restriction contrary to sound economic principles and the natural laws affecting the sales and transfers of assets will be imposed in this case. It is not difficult to see that section 11 (c) deprives the owner of his certain inalienable rights which are inherent in the ownership of securities. The establishment of the principle outlined in section 11 (c) of the resolutions can only result in grave danger to our free economic system and lead to the inequitable adjudication of these claims.

There should be no doubt in the minds of the members of your committee that the basis for a claim should be the original face value of the security and not the price at which the security last changed hands.

We respectfully suggest that section 11 (c) of the resolutions be eliminated entirely, so that the bondholders may register the amount of claim to which they are logically and legally entitled.

Mr. GOTTLIEB. I just thought I would take a few minutes to crystallize our position insofar as the point of criticism of House Joint Resolution 130. I am speaking particularly of section 11 (c) because that is the applicable provision to the holders. According to that, the holders of these Russian bonds would be limited, or rather, the commission would be limited in allowing these claims to cost. That appears to me to be completely unfair to a security holder who had no caution at the time he purchased them that he would be treated in any way or fashion different from the treatment accorded to him in other security transactions in the past.

Our security transactions have always taken into consideration that when a man has a security he is at least theoretically entitled to receive face amount, subject to market value variations, of course. There would be no reason for considering him in a different category in this case. Actually, it is contrary to our general rules of the exchange. I think the committee has on file a letter from the New York Stock Exchange and the American Stock Exchange setting forth their position, which is substantially as I have stated now.

Mr. FULTON. At this point in the record we will put in the letter of the American Stock Exchange of February 9, 1953, by Mr. Martin J.

Keena, vice president, and the telegram of the American Stock Exchange of February 14, supplementing the letter of February 9, 1953. This telegram is dated March 10, 1954, and again signed by Martin J. Keena, vice president of the American Stock Exchange, formerly the New York Curb Exchange.

(The material referred to is as follows:)

COMMITTEE ON FOREIGN AFFAIRS,

NEW YORK, N. Y., March 10, 1954.

House of Representatives, Capitol Building: Reference our letter February 9, 1953, objecting to language of certain portions of joint resolutions, House Joint Resolution 49 and Resolution 130 re claims of American Nationals against the Government of the Union of Soviet Socialist Republics. Understand hearings on these bills before your committee tomorrow, and request views contained in our letter February 9, 1953, be given consideration as per letter from Chairman Chiperfield dated February 14, 1953. MARTIN J. KEENA,

Vice President, American Stock Exchange,
(Formerly the New York Curb Exchange).

COMMITTEE ON FOREIGN AFFAIRS,

House of Representatives,

AMERICAN STOCK EXCHANGE,

New York, N. Y., February 9, 1953.

House Office Building, Washington, D. C.

GENTLEMEN: Reference is made to the joint resolution (H. J. Res. 49) introduced on January 3, 1953, by Congressman Keogh and the joint resolution (H. J. Res. 130) introduced on January 13, 1953, by Congressman Kearney, both of which relate to the adjudication by a commissioner of claims of American nationals against the Government of the Union of Soviet Socialist Republics. We understand that these resolutions have been referred to the Committee on Foreign Affairs.

The American Stock Exchange desires to go on record in opposition to those portions of the joint resolutions which read as follows:

"Any claims based on bonds of the Soviet Government or prior governments of Russia or the nationals thereof acquired by claimants for less than their face value shall be allowed by the Commissioner only to the extent of the actual consideration paid therefor."

As I understand it, it is a matter of law, and it has always been the policy of the American Stock Exchange, and, we believe, of the New York Stock Exchange and all other national securities exchanges, as well as of security brokers and dealers generally, that the purchase of any security transfers to the buyer all of the right, title, and interest held by the seller, and all rights and claims carried by the security itself, regardless of the price at which the transaction is made. In other words, the sale of a bond, for example, at either a premium over or a discount from its face value transfers to the buyer all of the rights, claims, and value inherent in the bond itself.

The only securities now dealt in on the American Stock Exchange which may be affected by the aforementioned resolutions are as follows:

Imperial Russian Government 3-year 61⁄2-percent credit gold certificates, due June 18, 1919 ($50 million face value issued).

Imperial Russian Government (external loan) 5-year treasury gold 51⁄2s due December 1, 1921 ($25 million face value issued).

The above securities have been dealt in on the American Stock Exchange (formerly the New York Curb Exchange) since June 27, 1921, the date this exchange occupied its present Exchange Building, and were dealt in on the old outdoor curb market prior to that date. Since their admission to dealings on this exchange these securities have always sold at a very substantial discount from face value. However, there has never been any question but that the seller sold and the buyer bought all rights and claims which the securities themselves carry or purport to carry.

We respectfully submit that to attempt at this time to limit any claims which holders of said securities have acquired to the actual consideration which they paid for such securities would be unjust and unfair to the holders of such securities, a deprivation of their property and a violation of their contractual rights in violation of the Constitution of the United States.

Very truly yours,

MARTIN J. KEENA, Vice President.

Mr. GOTTLIEB. I was awaiting some statement on the part of the previous witnesses as to the reason for the inclusion of this paragraph of this discrimination which is directed toward the holders of the Russian bonds. But apparently for one reason or another no statement has been made here. I can only guess that that is based upon the assumption that people who deal in defaulted securities are speculators and that is to be frowned upon.

That is, as I said, just my guess because nothing has been said. Of course, nothing is further from the truth because actually all securities-I shouldn't say "all"-a great many securities are bought and sold at prices which vary from par, and that in itself is certainly not reprehensible conduct. It is part of our way of life. That is the way we have been buying and selling securities. As a matter of fact, these very Russian bonds we are talking about were originally sold to the original holders below par. Most of these issues do go below par. So that actually there is no reason for discriminating against them simply because they were purchased at a price below their face amount or possibly at a time when they were already in default.

Mr. FULTON. Could you give us, just for the committee's information, at what range of discount these bonds were selling at the time some of the claimants which you might be interested in purchased them? Or, more specifically, what amounts were paid as consideration on the face amount of, say, $1,000 bonds?

Mr. GOTTLIEB. During the period that a great many of these bonds were purchased and traded, I think the range was approximately from 1 percent to maybe 35 percent. I may be off on that. Mr. Zeeman knows that better than I do.

Mr. ZEEMAN. I think if you said one-half of 1 percent it would be better. I recall a recent high in 1945 of 22 percent. Prior to that I would have to consult the records.

Mr. GOTTLIEB. I thought I saw somewhere where there was a high of 35. That is the range.

Mr. FULTON. Where was the trading done on these defaulted bonds? Mr. GOTTLIEB. I imagine the majority of it was in New York, Philadelphia, and some trading in Texas.

Mr. ZEEMAN. The bonds were officially listed on the American Stock Exchange, and most of the transactions took place on that exchange. Mr. GOTTLIEB. Actually, that is the substance of our contention, that there is no reason either logically or economically for considering these bondholders in a different category from other claimants.

Mention was made of the fact that these securities have a certain face amount, and generally we expect them to be honored at face, subject to market-value variations. Economically, it is contrary to our entire concept of trading in securities. As a matter of fact, it could cause a great deal of inconvenience to anyone who is holder of securities, even one who may have purchased at a time of original issuance, because if any such concept were allowed to be in the law we would

find that there would be absolutely no trading in defaulted securities. There would be no such thing because no one would purchase a security where his maximum hope of recovery would be what he paid for it. Mr. FULTON. What rate of interest were these bonds when they were issued?

Mr. GOTTLIEB. Six and one-half and five and one-half.

Mr. FULTON. After the date of default, what was your idea of the amount of interest that should be allowed?

Mr. GOTTLIEB. I imagine that the interest should be that which is permitted as the interest on any defaulted claim in the State of New York, because I think these bonds originally were payable in New York.

Mr. ZEEMAN. That is right.

Mr. GOTTLIEB. Which of course would be a maximum of 6 percent. Mr. FULTON. Were these bonds payable in dollars?

Mr. GOTTLIEB. Yes, they are dollar bonds. They were dollar bonds that originated with a syndicate of bankers and were sold to American investors only. Interest payment was made on them until 1919. In fact, some of the interest was paid during the time that the provisional Kerenski government was in office. Then it was stopped. The matter of interest came up on a number of occasions between 1919 and the time of the Litvinov assignment. It came up after the Litinov assignment, when our then Ambassador Davies went to Moscow and discused the matter with Stalin. During all this time there were discussions of making payments. It isn't really a stepchild of the Litvinov assignment. It was considered during all that time as being a valid obligation and it is a direct obligation of the Russian Government. It comes directly within the purview of the resolution.

Mr. FULTON. If you will look at section 11, subsection 3, subsection (c) closely, you will see that the wording states "shall be allowed by the Commissioner only to the extent of the actual consideration paid therefor."

That is a distinction from the recovery of proceeds. For example, the Commissioner might allow the bonds for the full face amount and permit recovery only up to a certain amount of the proceeds. The way it is now it is very much against your position, because it permits only the allowance of the claim, the amount of the actual consideration paid. You understand the distinction I am making?

Mr. GOTTLIEB. As I read it, I don't know whether that has just been made clear to me or not, but it seems to me the allowance would be limited to the amount of the payment, and the actual payment would then be a small percentage of that.

Mr. FULTON. I am pointing out to you that suppose the bonds were allowed for the full face amount, plus legal rate of interest then prevailing in the State of New York where they were originally sold, but the recovery might possibly be limited to the consideration paid.

Mr. GOTTLIEB. Naturally, the objection to that can't be as strenuous as it is to this, because at least then you would have the situation where the bondholders would have some opportunity of getting some part of their cost out of it.

Mr. FULTON. For the purpose of the inquiry, if that line of policy were pursued as now under the language of subsection (c), the best position under that policy for your group of bondholders would be one