that the bonds could be allowed for their full face value, plus interest, until default at the rates set by the bond, and thereafter at the legal rate of interest of the jurisdiction in which they were sold, which is New York.

Then reasoning from that, that the proceeds should then be allocated so that the actual recovery under such policy might be the full consideration, the actual consideration paid plus possibly the full amount of the legal interest on the consideration paid under the laws of the State of New York, that is, if this policy were accepted. Mr. GOTTLIEB. I understand.

Mr. FULTON. That would be the best position for the assignees of these defaulted bonds. Do you agree on that?

Mr. GOTTLIEB. I agree that that position, while it may not be the best position, would certainly be preferable to the one here. I think it is much fairer. I think we for ourselves, if interest were included, in all fairness to those who hold these and have held them for many years, would be satisfied with that sort of solution.

Mr. FULTON. That might be an alternative provision which might be somewhat of a compromise for these bondholders who are the assignees of the original holders.

Mr. GOTTLIEB. Yes.

Mr. FULTON. That might not take care of the ones who bought them for 35 cents on the dollar, would it?

Mr. GOTTLIEB. Yes, because they would get their cost out of it, plus their legal interest for the intervening period.

Mr. FULTON. Does anybody in the room representing this class of bondholder object to that possible alternative provision as a compromise rather than the language inserted in House Joint Resolution 130?

Mr. ZEEMAN. May I say I think the compromise suggestion is a good one. I wonder if it might be proper to ask if there is any basis for the discriminatory provision as inserted here, as in subsection (c) comparing the bondholders' claims with that of other claimants?

Mr. FULTON. The policy will be set by not only the subcommittee recommendation to the full committee but by the full committee itself in its own discretion. It will be included in a final report at the time the bill is passed on and reported out by the committee. It will then be acted on not only by the full House in the Committee of the Whole but on final passage, and in the Senate in the same procedure. The total sum of the decision of the policy will be under the regular procedures of the passage of any bill. However, when we make our original subcommittee recommendation we are looking for possible lines of action that are not wholly without logic. We are not settling on one.

While I have said something in the way of compromise, it does not mean in any way that the subcommittee has adopted it.

Mr. MULTER. May I add just this brief word on the subject? Mr. Gottlieb has consulted with the sponsors of this legislation previously. I think he was told by them and I am authorized by both Congressman Kearney and Congressman Keogh to say for them that they have no objection to any manner in which the committee sees fit to handle this particular provision.

Mr. FULTON. Will you refer to it specifically for the record?

Mr. MULTER. Referring specifically to section 11, subsection 3 (c), it appears on page 5, lines 17 to 25. It was inserted by Congressman Kearney in his resolution, and I think by Congressman Keogh in his resolution at the suggestion of the Department of Justice.

The Department of Justice had in mind not only the situation of defaulted bonds being bought at one-half of 1 percent and up after default, but also had in mind the very serious situation where one American national who held over $1 million of these bonds, transferred them to an English corporation in order to get an offset against the Government's claim and did reduce the Government's collection by over $1 million on account of that transaction. That is part of the litigation which is the historical background of this legislation.

Of course, that doesn't affect these gentlemen who are here, who are representatives of bondholders who bought the bonds when issued. Some inherited them and some bought them since default.

Mr. FULTON. I think this subcommittee wants transactions that are legitimate transactions carried out as much as possible on all stock exchanges. We have no objection to the give and take of trading. The only way that our subcommittee brings up the question is looking into the extremes of unconscionable situations which are the case in many distressed sales. That is purely within the discretion of the whole committee.

My particular questioning, while bringing out points, is in no way to indicate that I am speaking for the subcommittee, for the full Foreign Affairs Committee, nor am I concluding their judgments. Mr. GOTTLIEB. I appreciate that, Mr. Chairman. That is about all I have to say.

Mr. FULTON. Thank you. We appreciate your coming.

Mr. LERMAN. I would like to say a word.

Mr. FULTON. Do you represent any committee before this subcommittee?

Mr. LERMAN. Just the clients of mine, sir, who are owners of these bonds, in my capacity as a customer broker.

Mr. FULTON. You don't represent any foreign bondholders protective committee?

Mr. LERMAN. No. I am not associated with them.

Mr. FULTON. Then we had better let them speak for themselves as to their positions here.

Mr. LERMAN. I just wanted to note the fact as to their position in the letter they wrote.

Mr. FULTON. We will examine all the files either through the committee members or through the adequate staff we have.

Mr. GOTTLIEB. I notice mention was made of the Foreign Bondholders Protective Committee or Council. I understand that they cannot, although they would like to, intervene in this matter because they were formed primarily for the purpose of negotiating directly with foreign governments. They considered this as completely a domestic matter, and that they feel the way we do; that is, I am speaking now for these bondholders, that they feel they do not have the authority to officially set their positions forth before the committee. That is all I wanted to say.

Mr. FULTON. The committee would note that we believe they must speak for themselves.

Are there any other short witnesses? Mr. Selig, you are our last witness. We will make your brief a part of the record with the committee's consent.

(The material referred to is as follows:)

MEMORANDUM OF SAMSON SELIG IN SUPPORT OF HOUSE JOINT RESOLUTION 130

At the time of the Bolshevik revolution there were on deposit in banks in the United States large sums of money belonging to the Imperial and Kerensky governments of Russia. There were also on deposit large sums belonging to various Russian banks, insurance companies, etc., which were nationalized by the Soviets after they came to power.

The sums belonging to these Russian nationalized corporations in the years following the Bolshevik revolution became the subject of considerable litigation, nearly all of it in New York. The suits were brought by creditors of the corporations, stockholders, and others having an interest in the funds. The plaintiffs included both Americans and foreign claimants. Numerous attachments and judgments were obtained by some of these plaintiffs against the Russian corporations prior to November 16, 1933.

On that date President Roosevelt recognized Soviet Russia and as part of the recognition arrangements, the Litvinov assignment was entered into, by which the Soviet assigned to the United States all amounts found to be due it, the United States subsequently to notify Russia of the amounts collected, presumably for an ultimate accounting. It is believed that originally the assignment contemplated only the amounts which were standing to the credit of the Imperial and Kerensky governments, but it was not so limited by its terms, and subsequently the United States took the position that it also included amounts standing here to the credit of Russian corporations which had been nationalized, and that the Soviet decrees confiscating the assets of these nationalized corporations should be given extraterritorial effect as to Russian corporate assets in this country.

The Government brought suits to obtain these funds in complete disregard of the rights of Americans and others who had claims against those corporate assets. That litigation was added to the litigation already pending. There was considerable legal turmoil created by the conflicting claims and the problems arising from the unprecedented action of the Soviet Government.

On August 4, 1939, Congress adopted a joint resolution to provide for the adjudication by a Commissioner of claims of American nationals against the Government of the Union of Soviet Socialist Republics. The resolution, which is Public Law No. 36, 76th Congress, chapter 421, 1st session, House Joint Resolution No. 315, was short. It contained various provisions for requiring attendance of witnesses and the taking of evidence. There were no provisions or rules governing the procedure to be followed by the Commissioner in passing upon the claims, and no priority provided for the payment of claims or the preservance of liens and rights of American litigants, who prior to the Litvinov assignment had obtained attachments or judgments against the funds of the nationalized Russian corporations.

In United States v. Pink (315 U. S. 203), the United States Supreme Court decided that the claims of the United States Government under the Litvinov assignment to the funds here of nationalized Russian corporations took precedence over the claims of foreigners. The Court left the door open as to the claims of American citizens.

The Government has now collected over $9,114,000. Included in this figure is not only the property of former governments of Russia, but also several million dollars which had been the property of Russian nationalized corporations, as to some of which American creditors had secured attachments and judgments prior to recognition of Russia, and which were thus swept into the Treasury of the United States in disregard of the rights of those American creditors and have been lost to them, a process constituting practically confiscation by the United States Government of the claims, liens, and vested rights of these American citizens.

It is the purpose of the present resolution to correct this situation and remove the charge of confiscation' and to protect the Americans who had diligently pursued their remedies in the courts and had obtained attachments and judgments against Russian corporate assets before the Litvinov assignment.

The resolution provides that allowed claims which originally accrued in favor of American nationals on which claims, prior to November 16, 1933, the date of the Litvinov assignment, an attachment or judgment had been obtained in an American court against a Russian national whose property has been collected by the United States, shall receive priority of payment up to the amount of such property which the United States has collected.

Priority is thus given only to (a) American claimants who (b) prior to the recognition of Russia had obtained judgment or attachment liens against the assets of their Russian debtors and (c) the priority extends only to the amount of the Russian debtor's property which had been seized by the United States in negation of their attachments and judgments. Beyond that they have no priority. Whatever property of the Russian debtor remains after payment of the priority claims is available to other claimants. Neither the United States Government nor any other category of claimants is excluded from receiving payment after the priority claims have been paid.

The resolution further provides that claims on the repudiated Russian Government dollar bonds, acquired by claimants for less than their face value, shall be allowed only to the extent of the actual consideration paid therefor. There has been a considerable amount of trading in these bonds, with an accompanying great fluctuation in value, so that many of the present owners have acquired them at a small fraction of their face amount. This provision in the resolution prevents speculative claims of this character from participation beyond actual consideration paid.

There are also comprehensive provisions for the giving of notice, for reimbursement to the United States of its expenses, for the application of the principles of equity and justice, and the certification of claims by the Commissioner and their payment.

Unless some such resolution as the proposed resolution is passed and as the situation now stands, Americans who had before the Litvinov assignment secured judgments and attachment liens on the property of their Russian debtors, will have such property taken by the United States in violation of their basic rights and applied to the payment of the claims of others having claims against the Russian Government generally, but not against the nationalized corporations whose property has been taken. In that event the American creditors of the Russian corporations will receive but an insignificant fraction of the claims for which they obtained attachments and judgments before the Litvinov assignment. In litigation based on the Litvinov assignment, the Government has consistently taken the position that the amounts recovered are to be utilized in whole or in part for the benefit of American private claimants. Thus in its brief in the Supreme Court in the Pink case, in a footnote at page 29, the United States said:

"The United States has adopted the policy of holding all amounts realized under the assignment for the benefit, in whole or in part, of American private claimants against Russia. See the letter of the Department of State, quoted in appendix F infra. page 149. The joint resolution of August 4, 1939 (53 Stat. 1199) provides for the appointment of a Commission to determine the claims of American nationals against the Soviet Government. The committee reports set forth a letter from the Secretary of State referring to past and prospective recoveries under the assignment as one of the reasous for the creation of the Commission (S. Rept. No. 767, 76th Cong., 1st sess.; H. Rept. No. 865, 76th Cong., 1st sess)."

Reference to the joint resolution of August 4, 1939, providing a Commission for the determination of claims of American nationals against the Soviet Gov

1 There is substance to this charge. Research has revealed no other instance where the United States has done away with perfected liens on property without compensation. The procedure here differs from the provisions in bankruptcy and insolvency laws for terminating attachments and liens obtained within the 4 months or other prescribed period, in that in the case of bankruptcy, the property of A, which has been attached, is taken for equal distribution among A's creditors, whereas here, the property of A, which has been attached, is taken for distribution not only among A's creditors, but also among the creditors of B, an entirely different debtor. Again, in bankruptcy, the provisions for eliminating attachments are in existence at the time that the debt is incurred, so that the creditor knows that in extending credit, he may lose the benefit of his attachment, whereas here, doing away with the attachment liens is entirely ex post facto.

ernment was also made in the brief for the United States in the Supreme Court in United States v. Moscow Fire Insurance Co. (309 U. S. 624) at page 39.

That the above reference in the Government's brief in the Supreme Court in the Pink case impressed the Court is apparent, for in the opinion in the Pink case the Court said (315 U. S. 203), at 207:

"The Litvinov assignment was not only part and parcel of the new policy of recognition (id. p. 13); it was also the method adopted by the executive department for alleviating in this country the rigors of nationalization. Congress tacitly recognized that policy. Acting in anticipation of the realization of funds under the Litvinov assignment (H. Rept. No. 865, 76th Cong., 1st sess.) it authorized the appointment of a Commissioner to determine the claims of American nationals against the Soviet Government. (Joint resolution of Aug. 4, 1939, 53 Stat. L. 1199, ch. 421.)"

In Steingut v. Guaranty Trust (58 Fed. Supp. 623, affd. 161 Fed. (2d) 571; cert. den., 332 U. S. 807) where the Government under the Litvinov assignment was successful in collecting more than $2 million of funds of the Russo Asiatic Bank, a nationalized Russian corporation, Judge Rifkind, in rendering_judgment for the United States quoted the foregoing part of the opinion in United States v. Pink, at page 634.

"The rigors of nationalization will not be much alleviated if the creditors of nationalized corporations who had perfected liens prior to the assignment, must now share strictly on a pro rata basis with all the creditors not only of prior governments of Russia, but also with creditors of all the other nationalized Russian corporations."

In its brief in the United States Supreme Court, in United States v. Moscow Fire Ins. Co. (309 U. S. 624), the United States said (at p. 89):

"Even if the state policy formulated by the court below could operate in the absence of an expression of a dominant national policy, the Litvinov assignment -determines that policy to be that after the payment of American nationals, the surplus fund shall be collected and liquidated in favor of the claims of the United States and of our nationals against the Soviet Government and its nationals." [Emphasis added.]

It is to be emphasized that the expense of administering the Commission and the law will be no burden on the United States Treasury, since all such expenses are to be paid out of the collected funds.

Both the Department of Justice and the Department of State are in accord with the principle that claims of Americans on which the lien of a judgment or an attachment had been obtained prior to the Litvinov assignment, should be paid in full in priority to general creditors. The present resolution implements that policy in addition to the other provisions to facilitate the work of determining the claims.

A similar resolution, House Joint Resolution 364, 82d Congress, 2d session, was introduced, and a subcommittee of the Foreign Affairs Committee was appointed to consider the resolution.

Reports were received from the Department of State and the Department of Justice. Both of these reports favored the principle of priority in payment for American creditors who had obtained judgments or attachments prior to the Litvinov assignment, and both reports suggested amendments which the Departments thought would facilitate the determination of claims.

The subcommittee, after a hearing, reported favorably, but too near the end of the session for the Foreign Affairs Committee as a whole to act upon it. House Joint Resolution 130, 83d Congress, 1st session, is substantially and practically the same as House Joint Resolution 364, 82d Congress, 2d session. There have been a few changes made, in each case as the result of a suggestion made either by the Department of Justice or the Department of State, both of which, as has been said, favored the principle embodied in the resolution, but suggested various amendments which they think will facilitate its functioning. The various changes and their reasons are as follows:

1. In House Joint Resolution 130, page 1, line 9, the words "arising prior to November 16, 1933" appear after "American nationals," whereas in House Joint Resolution 364 the same words appear after "Union of Soviet Socialist Republics." This was as a result of a suggestion from the State Department, to make sure that the causes of claims to be adjudged are those arising prior to November 16, 1933. The same suggestion was made by the State Department and has been incorporated with respect to the same words in House Joint Resolution 130, page 2, line 12 (2).