(5) Some investment bankers encourage putting stock in street names, and sometimes automatically put stock in street names unless told otherwise.

Abuse can result, for example:

(a) Excessive trading and impulsive trading of securities because street certificates are so easy to sell and/or buy. Äggressive phone selling by security sales people can bring this about.

I had a security and investment banker, vice president, tell me that they didn't want these people to keep the stock too long. They only make money by trading, that they are more interested in the fast buck activity. I am not generalizing. There are many investment bankers who are not that way.

(b) Stock purchased in street name of ABC investment banker usually results in that broker also receiving commission on the sale. (c) Some investment bankers use large holdings of street certificates as leverage in securing the investment banking business of the company. They are always very willing and they go out of their way to let us know how many shares they hold. They talk about it as if they own it. You feel the pry bar all the time.

(d) Investment bankers holding large positions can use the same leverage in securing comanagement or sole management of an underwriter. They don't say it, but you know somebody owning 100,000 shares of your stock, you have got to think about them when you sign up for an underwriting because if you don't give it to them they don't intentionally tell their people sell the stock to drive the price down, but you are always afraid that maybe they will.

So it is another pry bar that, whether real or unreal, that is there. I have some of these fellows indicate that because they own so many of our shares perhaps they should be represented in our board of directors. Well, no way. They haven't been successful nor will they. But they have tried. I guess I don't blame them for trying. I don't know why they want to be on the board unless they think there is some inside information that will be helpful to them. I don't know of any other reason.

In order to restore investor confidence, it is imperative that a method be found promptly to correct abuses and potential abuses arising from the present passe method of street name and nominee registration of securities. I do not pretend any great sophisticated knowledge of methods and means of correcting the problem, but present the following alternatives for your consideration, and for anyone else that is interested.

No. 1, to simply eliminate the practice of using street or nominee names. Since the most popular argument in behalf of the practice is to facilitate stock transfer, let's seriously consider the transfer agent depository (TAD) system offered by the First National Bank of Boston. The TAD system would demobilize the stock certificate with the use of a depository.

Then, transfer of ownership would be achieved by computerized records maintained and updated on a computer file. I believe TAD would eliminate secrecy and abuses, and afford direct company stockholder communication.

Actually, I have been told that the SEC now has the authority to eliminate this secrecy in the stock registration, but they don't want

to do it because they don't have any authority over banks and trust companies, and eliminating secrecy for the investment banker and not for the banks and trust companies would give the banks and trust companies some unfair competitive edge.

I don't know if that is true or not. But sometimes I think the SEC should get lawyers to tell them how to do things instead of what they can't do. It seems that when we get into any kind of a vise with SEC, they jolly well know what to do to us and they find ways of doing it.

I like the SEC. Don't misunderstand. But sometimes.

Senator METCALF. Mr. Fischer, the nominee lists, however, are no longer secret.

Mr. FISCHER. I know. I have got that.

Senator METCALF. They can be obtained; and the identification. of the person, who they represent, can be ascertained by the lists that are now public.

Mr. FISCHER. That is true, Senator. However, if the nominee. name is for a trust department of a bank, you don't know in what accounts the trust has placed that stock. So we still can't contact our shareholders.

Senator METCALF. That is right.

Mr. FISCHER. So they edged away a little bit, but they are still hiding.

Senator METCALF. I certainly agree. I am pleased that you made that point. Publication of the nominee lists of the Bank of America, for instance, and how many are there, 27 or something like that, more than 100? We still go through the nominee to find out you have the Bank of America, but you don't know who the actual owner of the stock is. That is what this inquiry is about. That is what your inquiry is about. You want to know who owns the stock in your corporation.

Mr. FISCHER. Right. I raised Cain with our regular banker because he wasn't buying any of our stock for any of his trust accounts. He says, "How do you know we are not?"

I said, "Well, I don't know, but tell me that if you are." That is the confidential information that cannot be disclosed. They walk away from you. But anyhow, the fact that we know what the nominee names are is somewhat helpful.

Mr. TURNER. I think we ought to get into this because it is one of the key points. Don't you think that an individual has the right to keep you from knowing that he owns stock in your company? Of course, said another way, do you have the right to know who owns your company? It is a real issue.

Mr. FISCHER. I don't think we have a right to, but I think it is to the shareholder's advantage to have us know so we can let him know what is going on.

I think that is a constitutional law question that I don't know how to answer. What do they call it? Invasion of privacy or something like that. I don't want to invade anybody's privacy. But I think we ought to know, yes. I really do.

I can't think of a legitimate reason for anyone wanting us not to know unless maybe some guy out there is trying to get control of our company. Then he is whistling in the dark because no way is he going to get control.

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Mr. TURNER. That is the point. It seems to me we should be inquiring into those reasons why the person wants to cover up the fact that he owns a part of your company.

I think such reasons are very relevant to his right to assert the privilege of confidentiality as to his stock ownership.

Mr. FISCHER. True. I suppose that our competitors would not like us to know that they have our stock. But I buy their stock, and I put it in my own name. I don't care if they know it.

Senator METCALF. Is any substantial amount of your stock foreign held?

Mr. FISCHER. Senator, I think we have stock in three foreign countries now. But we have been talking to potential investors in Holland, and we were contacted last week by some people supposedly in touch with the Arabs who have an interest in investing in our company. There is a lot of shuffling going around. People are getting our annual reports. I don't know how they get them. But we have stock in three foreign countries now, not very large amounts.

Senator METCALF. Do you know that the Banking and Currency Committee the other day had testimony that the Arab countries have enough oil money right now to buy all of the stock that is listed on the New York Stock Exchange?

Mr. FISCHER. Holy cats.

Senator METCALF. Don't you think that it is in the public interest to know where the stockholders are, especially in foreign countries? Mr. FISCHER. I think it very definitely is. I say that unselfishly because it doesn't affect us too much because a lot of our shareholders are people in families who have joined their company with ours, and it is kind of spread out. I think that if anyone tried to raise a fuss or tried to steal this company, I think that we could count on a lot of loyalties amongst these people. So I don't think the Arabs would be successful unless they paid an ungodly price for it.

Senator METCALF. I was talking the other day to a couple of directors of one of the large corporations in America, one of the largest. They said that 14 percent of their stock was held by Swiss banks in numbered accounts. They can't find out who owns that stock. They are worried that it might be the Mafia or underworld or Las Vegas gamblers, or as we found out from recent investigations, it might be laundered accounts that go into some political campaigns or something of that sort.

Wouldn't that be a legitimate matter of concern to find out who are the owners of stock in your corporation?

Mr. FISCHER. I don't have any Mafia owning my stock. I will tell you that.

Senator METCALF. How do you know? How do you know, when you only know the street name, who is the real owner of that stock in investment bankers?

Mr. FISCHER. I don't know. I would like to know. I certainly hope the committee is successful.

Senator METCALF. These are the things that bother us and are bothering corporate directors all over America about just what about disclosure of ownership and who actually owns the company that they are trying to run, legitimately and with integrity.

Mr. FISCHER. I have been about this for over 2 years. It is the first time anyone has listened to me outside of Senator Proxmire. I really appreciate the ear.

I realize that a lot of what I have said is probably repetitive and old hat to you people, but the problem is serious and difficult and won't go away. I understand the SEC can regulate investment bankers with regard to disclosure and if we were not involved with institutions and banks who are relatively free from SEC policing.

I am confident that Commissioner Garrett would clean up the matter of secrecy in securities registration promptly. I am convinced he is sincerely concerned about the problem.

I don't know why the banks and trust companies are free from SEC policing.

I don't know why they are free, whether it requires legislation. If there is some way we can do this without having a law passed it would be great. If the SEC does have a law to empower-they say that it would give the banks and trust departments an unfair advantage over the investment bankers. But I really don't know why it would. I can't get that answer.

Why does it give them an unfair advantage? That is all I have to say. I will be glad to answer any questions. Thanks ever so much.

Senator METCALF. I think you have made a very impressive

statement.

It has been very helpful for a medium-sized company listed on the American Stock Exchange to come in and tell us about the probems that you have in this area. I think that you have made a distinct contribution to our hearing and our understanding of the overall problem.

We have been talking to some of the large bankers and listening to some of the people from some of the large corporations. Nevertheless, it is the smaller ones such as yours that are really dominating the business of America. We are delighted to have your testimony.

As I said, I am going to get comments from the various agencies that should be responsible for enforcement, such as the stock exchange and the Securities and Exchange Commission. As soon as we get those comments we will immediately supply them to you for your further contribution.

Do you have any questions?

Mr. TURNER. I don't have any questions, Mr. Chairman. I will get after the hearing the specific name of the firm that held the largest percentage of stock in the street name.

Senator METCALF. Yes; I would like to ask you to supply it, but not for the record.

Mr. FISCHER. I would be very glad to give it to you off the record. Senator METCALF. Of course, I suppose SEC, if they respond to our request, will ask you for the names of those firms. I would hope that you would help them in any investigation.

Mr. FISCHER. We would be very happy to.

Mr. RYTER. I would just like to join the chairman in thanking you for your testimony. I think it is articulating one of the greatest problems that are facing so many businesses over America today.

I think we all wish you had been here a little bit earlier before we had the Chairman of the SEC and the Chairman of the FPC here.

I certainly hope that we can draw a lot more attention to the difficulties and a company like yours has, trying to reach in the significant way the stockholders and to service them. We share the concerns that confront a growing company of America as it attempts to determine who holds its stock.

Your actions are real testimony to what we need more of here in America right now.

We certainly are trying to attempt in the committee to shed a lot more light on the problem. As I said earlier, I just wish you could have been here earlier in our investigation and we could have drawn a lot more attention to the frustrations that you are experiencing today. Thank you very much for coming.

Mr. FISCHER. Thank you.

Senator METCALF. Thank you very much.

[The prepared statement of Mr. Fischer follows:]

PREPARED STATEMENT OF NORMAN J. FISCHER, CHAIRMAN OF THE BOARD OF MEDALIST INDUSTRIES, INC.

I want to thank my home Senator, William Proxmire, for interceding on my behalf with these joint Senate subcommittees to hear our story, and I also thank the chairmen, Senator Lee Metcalf and Senator Edmund Muskie for permitting me to appear.

So that you may better understand my concern relative to the registration of securities in the names of nominees, banks, trusts, and investment bankers, you should know something about what kind of a company Medalist Industries is.

Eighteen years ago last December, 14 of us from all walks of life banded together to form what is today known as Medalist. This company was to be an experiment in corporate diversification in two broad areas of products and markets; namely, industrial and recreational. It was agreed that the program was to have an infinite lifespan and not become a "promoter's dream" or a "quick buck activity." Growth was planned through internal development of management, products, and markets, as well as acquisitions. Acquisitions were to be accomplished primarily through the exchange of stock.

Policies were developed so that no individual, or group or clique would control the company. Today our largest shareholder owns less that 5 percent of our stock. I own about 3 percent. Management does not have control and the board does not have control. Medalist is a co-op of small companies banded together for strength in finances and markets, under a corporate structure which can truly be classified as a public corporation. I don't know of a better example of democratic American free enterprise in action.

Our original goals have been met. Sales have grown from $400,000 to over $85,000,000 and earnings from $10,000 to over $3,250,000. Our family of shareholders has grown from 14 to about 2,600-without a public offering of our common stock. Ownership spread as a result of bequests, gifts, acquisitions and, of course, normal trading, first more or less under the counter, then over the counter, then the American Stock Exchange, and, hopefully, soon upon attaining 2,000 round lot shareholders-the big board-the New York Stock Exchange.

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