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Mr. PECORA. Yes.

Mr. FLETCHER. That might be done, Mr. Pecora, but with all the labor involved in going back and reviewing the history for 20 years: no, not for 20 years but for 13 years, since section 20(a) was enacted, and filing such reports again with the Federal Trade Commission.

Now, Mr. Chairman, inasmuch as the Interstate Commerce Commission, which is a branch of the Government, has all that information, it could be readily obtained by the Federal Trade Commission upon application to the Interstate Commerce Commission, and therefore why should the railroads be required to go to the expense and the trouble of doing that again?

I will not take up your time to elaborate on that point, but will content myself by saying, Mr. Chairman, that as to every one of the items in section 11, and comprising 11 items, all except item (8) are exactly in that same category. The information here required is either on file with the Interstate Commerce Commission as a part of the annual reports of the carriers or else it has been filed with the Interstate Commerce Commission in connection with finance applications made to the Commission.

And that is true with reference to subsection (6), particulars regarding bonus and profit-sharing arrangements. It is also true in regard to subsection (7), particulars regarding management and service contracts; also as to subsection (8), particulars regarding material contracts not made in the ordinary course of business, and material patents; and also as to subsection (10), balance sheets; and also as to subsection (11), profit and loss statements for preceding years certified by independent public accountants. I could give you specific reference to the rules of the Interstate Commerce Commission along this line, but I do not want to burden the record unnecessarily. I am perfectly willing to have my statement checked on that, however.

Now, as to subsection (8), particulars of options in respect of securities existing or to be created, I do not think that information is with the Interstate Commerce Commission, but I doubt if it is very important in connection with the marketing of railroad securities, although you gentlemen are better judges of that than I am.

Mr. PECORA. Such information could be given in regard to options. I take it.

Mr. FLETCHER. I presume so, Mr. Pecora.

Mr. PECORA. That would not impose any particular burden or expense on the carriers, would it?

Mr. FLETCHER. I would not think so, as to that particular single item. Now, Mr. Chairman, in subsection (11) on page 24 of the bill, particularly along about lines 20 and 21, it is proposed to require that profit-and-loss statements for preceding years certified by independent public accountants, shall be furnished. I dare say that is a clause to which your attention has already been directed by other interests, and arguments made against it, but in the case of the railroads, some of which are nearly 100 years old, you can understand what an expense that would be, and what a burden it would be for such a railroad to have to go back to the beginning of its activities and furnish statements made by independent public accountants. And I think that is especially inapplicable to railroads, or rather it

is inapropos, if I may use a better word, so far as the railroads are concerned, because all accounts of railroads are kept in accordance with the regulations of the Interstate Commerce Commission, and they are fully regulated. I should like to respectfully suggest that that clause of the bill be made not applicable to railroads.

Mr. PECORA. You interpret paragraph (2) of section 12 (a) as requiring railroad corporations to furnish to the Federal Trade Commission annual and quarterly reports as of times prior to the effectiveness of this enactment, do you?

Mr. FLETCHER. Well, I had not really gotten to section 12 of the bill yet, but of course I am there since you ask me the question. I should say that that rather refers to the future, or at least it seems so to me, that particular section that you now call my attention to. Mr. PECORA. Yes.

Mr. FLETCHER. I need not long detain you as to section 12 of the bill, because that is of the same general nature as section 11, and deals with information which shall be furnished to the Federal Trade Commission by the carriers, and among other things, annual and quarterly reports, including balance sheets and profit-and-loss statements certified by independent public accountants; and, Mr. Pecora, as counsel for the committee, I think you correctly suggested as I see it that that would probably apply to the future. There would not be any great amount of expense or labor involved in making duplicates of such reports as the Interstate Commerce Commission requires, and filing them with the Federal Trade Commission; except that I would want to make the same objection in that case as in the other as to the provision requiring certification by independent public accountants. The Interstate Commerce Commission very closely supervises all these accounts. Inspectors of the Interstate Commerce Commission visit the offices of the carriers insofar as their funds will permit them to do so, to see that those accounts are kept correctly. But, I doubt whether any great amount of good could be accomplished in the case of railroad accounts by making it necessary to file that sort of independent report.

Mr. PECORA. How frequently do railroad companies file audited reports with the Interstate Commerce Commission?

Mr. FLETCHER. They have to file various reports. Some have to be filed monthly, some have to be filed quarterly, and all have to be filed annually. The rules of the Interstate Commerce Commission make some distinction between what must be contained in the monthly report, and ordinarily that is a report of revenues and


Mr. PECORA. Somewhat like the provision of subsection (3) of section 12 (a).

Mr. FLETCHER. Somewhat like that; yes.

The CHAIRMAN. You may proceed.

Mr. FLETCHER. Just to give the committee an idea of the number of reports that have to be filed with the Interstate Commerce Commission and other branches of the Government by the railroads I will enumerate them:

They make 90 separate types of periodic reports to the Interstate Commerce Commission.

They make 13 reports to the Post Office Department.

They make 18 reports to the Treasury Department.
They make 4 reports to the Commerce Department.
They make 14 reports to the Geological Survey.

They make 28 reports to the United States Railroad Administration, what is left of it.

They make 8 reports to the United States Department of Agriculture.

They make 5 reports to the Board of Mediation and Conciliation, which administers the Railroad Labor Act.

They make 2 reports to the United States Bureau of Mines.

They make 4 reports to the War Department.

They make 1 report to the Alien Property Custodian.

Now, gentlemen of the committee, out of that mass of information thus contained it would seem to us the Federal Trade Commission could find out everything they might want to know about the railroads.

The CHAIRMAN. Railroad companies and their securities are exempt under the securities act.

Mr. FLETCHER. From the registration provision of that act. And in a general way that is what I seek here. But they are not exempt from the police part of the act if I may use such an inapt phrase. Those who are responsible for the issuance of securities, that is, to see that they are making correct statements, the railroads are not exempt from that. They are not exempt from liability for making full disclosure, but they are exempt from the registration provisions of the securities act.

Now may I mention in passing a provision of section 18 of the bill which to us seems unsatisfactory. That is the provision which gives to the Federal Trade Commission the right to direct the accounting methods and practices of carriers, with the proviso that rules or regulations so adopted by the Federal Trade Commission shall not be inconsistent with the requirements of the Interstate Commerce Commission.

I have had some little uneasiness about the term "inconsistent" because as I see it they could go beyond what the Interstate Commerce Commission has done. They cannot make a requirement which is contrary to what the Interstate Commerce Commission requires, but they could go far beyond that. And it seems to me that provision ought to be amended, if I may respectfully so suggest, to say that the power of the Federal Trade Commission shall not extend at all over accounts of carriers in view of the fact that they are now so fully regulated by the Interstate Commerce Commission.

May I say this about section 13 of the bill, and then I think that will be all I have to say. This is the provision about proxies. I dare say the committee has heard a good deal about that, and I do not want to repeat what some other and better-informed witness than myself may have submitted to the committee, but, without taking the time to read the section, you will note that when proxies are solicited for a meeting of stockholders it is necessary to give information as to the purposes of the meeting, and, more particularly-and this is the thing I want to lay stress on-they must send to each stockholder a list of all other stockholders from whom they are soliciting proxies.

In the case of the Pennsylvania Railroad-and I simply take that carrier as an illustration because it is the largest railroad-they have 250,000 stockholders. To assemble that number of stockholders together in an annual meeting, which may be only for the purpose of electing directors or of performing some other necessary but rather perfunctory task, is not possible. In other words, it would be impossible to get 250,000 people together, scattered as they are throughout the country and beyond, and therefore it is absolutely essential, if the law is to be applied, that stockholders may be asked to send their proxies in to a proxy committee. But, further, if the Pennsylvania Railroad has a print a book with the names and addresses of 250,000 stockholders, and print 250,000 copies of it, and send a copy of that book to each and every stockholder, why, gentlemen of the committee, it would be almost impossible to hold an ordinary meeting of stockholders of that great railroad.

Mr. PECORA. Objection has been made to that section, and the suggestion given that merely one copy of the list of stockholders and their addresses be filed with the Federal Trade Commission.

Mr. FLETCHER. Well, you see the point I am making about that. Mr. PECORA. Yes.

Mr. FLETCHER. And this all leads me, Mr. Chairman, to make this suggestion. That the committee give consideration to adding to paragraph 10 of section 3 the following words:

Nor any security issued by a common carrier which is subject to the provisions of section 20 (a) of the Interstate Commerce Act as amended.

That is the section which exempts Federal issues from the obligation here.

I thank you very much for permitting me to appear before you. The CHAIRMAN. Do you want railroad issues put on the same basis as Federal issues?

Mr. FLETCHER. I think so far as registration, issuing, accounting, and reporting are concerned; yes. I am very much obliged to you gentlemen.

The CHAIRMAN. We are very glad to have heard you. (Thereupon Mr. Fletcher left the committee table.)

The CHAIRMAN. Is Mr. Comstock present?

Mr. COMSTOCK. Yes, sir.

The CHAIRMAN. Please come forward to the committee table.


The CHAIRMAN. Please state your name, place of residence, and occupation.

Mr. COMSTOCK. My name is Louis K. Comstock, New York City. I appear here, Mr. Chairman, on behalf of the Merchants' Association of New York, of which I am president.

The CHAIRMAN. Well, do you wish to offer some views regarding the bill the committee has under consideration, S. 2693? Mr. COMSTOCK. Yes, Mr. Chairman.

The CHAIRMAN. You may proceed in your own way.

Mr. COMSTOCK. The Merchants' Association of New York, representing some 4,500 business enterprises and touching almost every

branch of business and industry in the Nation, is profoundly disturbed by some of the provisions of the Fletcher-Rayburn bill to regulate security exchanges.

It is disturbed primarily by the extent to which the terms of these bills would subject all business and industry, both large and small, in this country to arbitrary bureaucratic control, and secondarily to the restrictions which would be placed upon the open market for corporate securities.

The association frankly recognizes that the period of economic depression, which we are now experiencing, has emphasized faults and abuses in the financial system under which we were operating in the preceding period of prosperity. It has no desire to condone the abuses nor to perpetuate the faults, but it does insist that in the effort to remedy these faults and abuses we should not cripple legitimate business, stifle initiative, destroy the liquidity of securities or place our private business at the mercy of bureaucratic inquisitors operating under blanket authority.

As business men, we believe that under any sound, advanced form of financial organization we are entitled to a market to supply our needs for long-period capital and to an organization capable of transferring ownership rights in already existing securities promptly and efficiently.

The Federal Securities Act, through its too drastic restrictions, liabilities, and penalties, has to a dangerous extent deprived us of the opportunity to obtain new long-period capital on reasonable terms. The Federal Banking Act of 1933, by requiring the divorce of banking affiliates from our large commercial banks, has greatly restricted the organizations engaged in or capable of carrying on investment banking. This association approves of the divorce of banking affiliates, but it desires to point out that this proper act, taken in connection with the restrictions of the Federal Securities Act and the provisions of the Fletcher-Rayburn bill prohibiting the exercise of the functions of broker and underwriter by the same persons or companies, will so greatly restrict the capacity to perform the functions of investment banking as to make unnecessarily difficult the supply of long-period capital which is absolutely essential for the return and maintenance of industrial and business prosperity. We are also mindful of the fact that labor is indirectly concerned with this aspect of the matter because when there is insufficient capital available to a company it cannot employ as many workers as it otherwise would.

Lodging the control over the securities market in the hands of the Federal Trade Commission is open to very serious objections. Since its creation over 20 years ago the Federal Trade Commission has been given various duties from time to time. The most important of these duties were imposed by the Federal Securities Act of 1933. These duties are sufficiently important to require all the time and ability which the members of the Commission may possess without adding thereto the task of supervising and preparing regulations for the conduct of an extremely technical, delicately adjusted, business with manifold ramifications into every part of the world.

We respectfully submit that if a Federal regulatory body is to be set up at all it should be set up for the sole and specific purpose

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