HEARINGS BY COMMISSION

SEC. 19. Hearings may be public and may be held before the Commission, any member or members thereof, or any officer or officers of the Commission designated by it, and appropriate records thereof shall be kept. The Commission may, by such rules and regulations or orders as it deems necessary or appropriate in the public interest or for the protection of investors, provide for the consolidation of proceedings under this act with proceedings under the Securities Act of 1933, and/or under the Public Utility Holding Company Act.

INVESTIGATION; INJUNCTIONS; JURISDICTION OF OFFENSES AND SUITS; COURT REVIEW OF ORDERS

SEC. 20. (a) For the purpose of any investigation or any other proceeding which, in the opinion of the Commission, is necessary and proper for the enforcement of this act, any member of the Commission, or any officer thereof designated by it, is empowered to administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, contracts, agreements, or other records which the Commission deems relevant or material to the inquiry. Such attendance of witnesses and the production of any such books, papers, correspondence, memoranda, contracts, agreements, or other records may be requred from any place in the United States or in any Territory at any designated place of investigation or hearing. In addition, the Commission shall have the powers with respect to investigations and hearings, and with respect to the enforcement of, and offenses and violations under, this act and rules and regulations and orders prescribed under the authority thereof, provided in sections 20, 22 (b), and 22′ (c) of the Securities Act of 1933.

(b) Orders of the Commission under this act shall be subject to review in the same manner, upon the same conditions, and to the same extent as provided in section 9 of the Securities Act of 1933.

(c) Jurisdiction of offenses and violatiors under, and jurisdiction and venue of suits and actions brought to enforce any liability created by, this act or any rules or regulations or orders prescribed under the authority thereof shall be as provided in section 22 (a) of the Securities Act of 1933.

LIABILITY FOR MISLEADING STATEMENTS

SEC. 21. (a) Any person who shall make or cause to be made any statement in any declaration, report, or document filed with the Commission pursuant to any provisions of this act, or any rule, regulation, or order thereunder, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or who shall omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, shall be liable to any person (not knowing that such statement was false or misleading or of such omission) who, in reliance upon such statement or omission, shall have purchased or sold a security, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading or of such omission. A person seeking to enforce such liability may sue at law or in equity in any court of competent jurisdiction. In any such suit the court may, in its discretion, require an undertaking for the payment of the costs of such suit and assess reasonable costs, including reasonable attorneys' fees, against either party litigant. No action shall be maintained to enforce any liability created under this section unless brought with one year after the discovery of the facts constituting the cause of action and within three years after such cause of action accrued. (b) The rights and remedies provided by this act shall be in addition to any and all other rights and remedies that may exist under the Securities Act of 1933, or the Securities Exchange Act of 1934, or the Public Utility Holding Company Act of 1935, or otherwise at law or in equity; but no person permitted to maintain a suit for damages under the provisions of this act shall recover, through satisfaction of judgment in one or more actions, a total amount in excess of his actual damages on account of the act complained of.

UNLAWFUL REPRESENTATIONS

SEC. 22. No action or failure to act by the Commission in the administration of this act shall be construed to mean that the Commission has in any way passed upon the merits of, or given approval to, any declarant, declaration, or person filing the same, solicitor, solicitation, or plan, nor shall such action or failure to act with regard to any declaration or report filed with or examined by the Commission pursuant to this act, or any rule, regulation, or order thereunder, be deemed a finding by the Commission that such declaration or report is true and accurate on its face or that it is not false or misleading. It shall be unlawful for any person performing any of the acts specified in subsection (a) of section 4 to represent or imply in any manner whatsoever, to any owner of a security, that any such action or failure to act by the Commission is to be so construed or has such effect: Provided, however, That this sentence shall not be deemed to prohibit the delivery to any such owner of a copy or approved summary of a report rendered by the Commission on a plan, as required by section 8.

PENALTIES

SEC. 23. Any person who willfully violates any provision of this act or any rule, regulation, or order thereunder, or any person who willfully, in any declaration, report, or document filed or required to be filed under the provisions of this act or any rules, regulation, or order thereunder, makes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, shall upon conviction be fined not more than $5,000 or imprisoned not more than five years, or both.

EFFECT ON EXISTING LAW

SEC. 24. Nothing in this Act shall affect (1) the jurisdiction of the Commission under the Securities Act of 1933, or the Securities Exchange Act of 1934, or the Public Utility Holding Company Act of 1935, over any person, security, or contract, or (2) the rights, obligations, duties, or liabilities of any person under such acts; nor shall anything in this act affect the jurisdiction of any other commission, board, agency, or officer of the United States or of any State or political subdivision of any State, over any person or security, insofar as such jurisdiction does not conflict with any provision of this act or any rule, regulation, or order thereunder.

CONTRARY STIPULATIONS VOID

SEC. 25. Any condition, stipulation, or provision binding any person to waive compliance with any provision of this act or with any rule, regulation, or order thereunder shall be void.

SEPARABILITY OF PROVISIONS

SEC. 26. If any provision of this act or the application of such provision to any person or circumstance shall be held invalid, the remainder of the act and the application of such provision to persons or circumstances other than those as to which it is held invalid shall not be affected thereby.

SCHEDULE A

(1) The issuer: The name; the address of its principal business offices; the form and date of its organization; the State or other sovereign power under the laws of which it is organized; the general character of its business; the names and addresses of its directors, or persons performing similar functions, and of its principal officers; the most recent balance sheet and profit and loss statement of the issuer published or reported generally to its security holders;

(2) Capital structure: The classes of stock, funded debt, or other outstanding securities of the issuer; the amounts of each class outstanding; the terms, position, rights, and privileges of each class;

(3) The security: The security the owners of which are to be solicited;

(4) The trustee: If such security was issued under an indenture, the name and address of the trustee thereunder;

(5) The underwriter: The names and addresses of the underwriters of all outstanding securities of the issuer;

(6) The declarant: The names and addresses of the declarant and of counsel for the declarant; at whose instance the declarant was formed, and the reasons for

and the circumstances surrounding its formation; the amount of each class of securities of the issuer and its associates and of the underwriters and their associates held of record or beneficially by the declarant and its counsel and, by their respective associates, as of a specified date within twenty days prior to the filing of the declaration and the prices and times at which such securities were acquired; the amount and nature of any other interest of the declarant, its counsel, and their respective associates, in any property or obligation of the issuer or of any of its associates and of the underwriters and their associates; any other business or professional relation or connection of declarant, its counsel and their respective associates with the issuer, the underwriters, and the indenture trustee, and their respective associates. If the declarant is a committee or group, the information required to be given with respect to the declarant shall be given with respect to each member of such committee or group.

(7) The reorganization or voluntary readjustment: The nature and status of the reorganization or voluntary readjustment in respect of which the solicitation is to be made, and the procedure by which it is to be effected, and, if such reorganization involves proceedings before a court or governmental official or agency, the name of such court, official, or agency, the title of the cause and the names and addresses of all receivers, trustees, and similar officers appointed therein, and of their counsel;

(8) The solicitations: The purpose for which the proxies, deposits, or assents are to be solicited; the date on which it is proposed to commence such solicitation; the names and addresses of any persons known to be soliciting proxies, deposits, or assents in respect of the same or any other securities of the issuer;

(9) The terms and conditions on which the solicitation is to be made: An outline of the terms and conditions on which the solicitation is to be made, with particular reference to the standard of conduct required to be observed by the declarant; the restrictions on the buying or selling of any securities of the issuer or its associates or any certificates of deposit therefor, by declarant and its associates; fees and expenses of declarant and its counsel and of the depositary, if any; the right of security holders to be heard thereon and the funds out of which the same are to be paid; the duty of the declarant to account and report, and the right of the security holders to demand accountings and reports; the restrictions on the employment or payment of agents or solicitors; the restrictions on the sale, mortgage, pledge, or exchange of the securities and of any property against which they evidence a claim, and on the composition and discharge of claims held by the security holders, and the right of the security holders to be heard on any such matter; the modification of the terms of the proxy or deposit agreement and the right of the security holders to be heard thereon; the right of the security holder to revoke or withdraw the proxy, deposit, or assent, and the requirements with respect to independent review of any refusal of, or restriction on, such revocation or withdrawal; the period within which proxies or deposits will be accepted; the extension of such period; and the requirements for independent review or determination of any of the foregoing actions of the declarant;

(10) The plan: A copy of any plan in respect of the support, proposal, adoption, or approval of which the proxies, deposits, or assents are to be solicited and, if not set forth in such plan, a description of the securities to be issued pursuant thereto, the terms, position, rights, and privileges of each class of such securities, and the terms on which they are to be issued; the arrangements for underwriting any such securities, for obtaining additional cash or capital, and the specific purposes and the approximate amount to be devoted to such purposes, so far as determinable, for which funds are to be raised from any source; the provisions with respect to the manner of selection of the persons who are to be directors or officers, or voting trustees, if any, and the arrangements for the management of the continuing or successor company; the name and form of organization under which such company intends to do business, the name of the State or other sovereign power under the laws of which it will be organized, and the general character of the business to be transacted by it; names and addresses of the reorganization managers, if any, and their counsel; provisions for the modification or abandonment of the plan; the right of the security holders to be heard thereon; the terms and conditions upon which the plan will become binding upon the security holders assenting thereto; the right of the security holder to revoke or withdraw assents thereto, and the requirements with respect to independent review of any refusal or restriction on any such revocation or withdrawal; the rights of nonassenting security holders and claimants; the fees and expenses to be paid in respect to the reorganization or voluntary readjustment, including counsel fees to interested parties, the funds out of which the same will be paid, and the right of security holders to be heard thereon; the requirements for independent review or determination with respect to any of the

foregoing matters; the written consents of all persons named in the plan as the persons who are to become directors or officers of the continuing or successor company; the names and addresses of the persons proposing the plan, and of their associates; and a statement as to whether or not any other plans are known to have been proposed, and by whom;

(11) A copy of the following documents:

(a) The proxy or assent;

(b) The deposit agreement and the certificate of deposit;

(e) The indenture, trust agreement, or other document defining the rights of the security in respect of which assents, dissents, proxies, or deposits are to be solicited;

(d) The prospectus to be used in soliciting proxies, deposits, or assents.

SCHEDULE B

(1) The issuer: (a) In the case of municipal-debt arrangements, the name of the subdivision or instrumentality; the amount of its funded debt and the estimeted amount of its unfunded debt, together with a brief description of the date of issue, maturity, and interest rate thereof and from what sources payable; date, amount, and circumstances of defaults in the payment of principal of or interest on funded debt within the period of ten years preceding the filing of the declaration, and the terms of the succeeding arrangement, if any; and, for the current fiscal year and the two preceding fiscal years, year by year, the assessed value of taxable real and personal property within its territorial limits and the basis of assessment, the name, total debt, and assessed value for each overlapping taxing district, the tax rate per $1,000 for such subdivision or instrumentality and for each overlapping taxing district, the issuer's tax levies and collections, its special assessments and collections, and its cash receipts and disbursements; the issuer's responsibility for the noncollection of taxes of any other taxing district, and the responsibility of any other taxing district for the noncollection of the issuer's taxes;

(b) In the case of foreign debt arrangements, the name of the government, subdivision, or instrumentality thereof; the classes of funded debt or other securities outstanding which are payable in currency of the United States, the amounts of each such class outstanding, the terms, position, rights, and privileges of each such class.

(2) The security: The security the owners of which are to be solicited, and the terms, position, rights, and privileges thereof.

(3) Fiscal agent or trustee: The name and address of the fiscal agent for the security and if such security was issued under an indenture the name and address of the trustee thereunder.

(4) The underwriters: The names and addresses of the underwriters of such security and of all outstanding securities of the issuer payable in currency of the United States.

(5) The declarant: The names and addresses of the declarant and of counsel for the declarant; at whose instance the declarant was formed, and the reasons for and the circumstances surrounding its formation; the amount of each class of securities of the issuer and its associates and of the underwriters and their associates held of record or beneficially by the declarant and its counsel and by their respective associates, as of a specified date within twenty days prior to the filing of the declaration and the prices and times at which such securities were acquired; the amount and nature of any other interest of the declarant, its counsel, and their respective associates, in any property or obligation of the issuer or of any of its associates and of the underwriters and their associates, or in any property located within the territorial limits of the issuer; any other business or professional relation or connection of declarant, its counsel, and their respective associates with the issuer, the underwriters, the fiscal agent and the indenture trustee, and their respective associates. If the declarant is a committee or group, the information required to be given with respect to the declarant shall be given with respect to each member of such committee or group.

(6) The debt arrangement: The nature and status of the debt arrangement in respect of which the solicitation is to be made and the procedure by which it is to be effected.

(7) The solicitations: The purposes for which the proxies, deposits, or assents are to be solicited; the date on which it is proposed to commence such solicitation; the names and addresses of any persons known to be soliciting proxies, deposits, or assents in respect of the same or any other securities of the issuer.

(8) The terms and conditions on which the solicitation is to be made: An outline of the terms and conditions on which the solicitation is to be made, with particular reference to the standard of conduct required to be osbserved by the declarant; the restrictions on the buying or selling any securities of the issuer or its associates or any certificates of deposit thereof, by declarant and its associates; fees and expenses of declarant and its counsel and of the depositary, if any, the right of the security holders to be heard thereon, and the funds out of which the same are to be paid, the duty of the declarant to account and report, and the right of the security holders to demand accountings and reports; the restrictions on the employment or payment of agents or solicitors; the restrictions on the sale, mortgage, pledge, or exchange of the securities and of any property against which they evidence a claim, and on the composition and discharge of claims held by the security holders, and the right of the security holders to be heard on any such matter; the modification of the terms of the proxy or deposit agreement and the right of the security holders to be heard thereon; the right of the security holder to revoke or withdraw the proxy, deposit, assent, or dissent, and the requirements with respect to independent review of any refusal of or restriction on such revocation or withdrawal; the period within which proxies or deposits will be accepted; the extension of such period; and the requirements for independent review or determination of any of the foregoing actions of the declarant.

(9) The plan: A copy of any plan in respect of the support, proposal, adoption, or approval of which the proxies, deposits, or assents are to be solicited, and, if not set forth in such plan, a description of the securities to be issued pursuant thereto, the terms, position, rights, and privileges of each class of such securities, and the terms on which they are to be issued; provisions for the modification or abandonment of the plan; the right of the security holders to be heard thereon; the terms and conditions upon which the plan will become binding upon the security holders assenting thereto; the right of the security holder to revoke or withdraw assents thereto, and the requirement of independent review of any refusal or restriction on such revocation or withdrawal; the rights of nonassenting security holders and claimants; the fees and expenses to be paid in respect of the debt arrangement, including counsel fees to interested parties, the funds out of which the same will be paid, and the right of security holders to be heard thereon; the requirements for independent review or determination with respect to any of the foregoing matters; the names and addresses of the persons proposing the plan, and of their associates; a statement as to whether or not any other plans are known to have been proposed, and by whom;

(10) A copy of the following documents:

(a) The proxy, dissent, or assent;

(b) The deposit agreement and the certificate of deposit;

(c) The loan contract or fiscal agency agreement, or the indenture, trust agreement, or other document defining the rights of the security in respect of which assents, proxies, or deposits are to be solicited and, in the case of municipal debt arrangements, a copy of the resolution or ordinance authorizing the issuance thereof; and

(d) The prospectus to be used in soliciting proxies, deposits, or assents.

STATEMENT OF WILLIAM O. DOUGLAS, COMMISSIONER,
SECURITIES AND EXCHANGE COMMISSION

The CHAIRMAN. Commissioner Douglas, of the Securities and Exchange Commission is with us, and we will be glad to hear from him at this time.

Commissioner DOUGLAS. Mr. Chairman: I think it perhaps might be desirable for me to sketch in general terms the background of the specific problems raised by the Lea bill.

I would like to say for the record, to commence with, that the Securities and Exchange Commission is in accord with the principles of the Lea bill and thinks that it is a constructive and progressive measure. To impart to the committee the setting of the Lea bill as the Commission visualizes it, it may be desirable, if you will permit me, to go into some of the background, and the general problems that