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COMPARATIVE STUDY OF THE PROVISIONS OF THE THREE BILLS-Continued

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Roth (Brooke, Tower)

Williams (Bennett, Proxmire, Stevenson and Tower)

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S. 3412-SECURITIES TRANSACTION PROCESSING ACT OF 1972

Per Request of Securities and Exchange
Commission

Williams (Bennett, Tower)

(c) "Appropriate regulatory agency"
must deny registration of transfer agent
if it does not have procedures or means
to comply with Act. [§ 4(d).]

(d) Provides for withdrawal from
and cancellation of registration. [84
(e).]

(e) Empowers SEC to make rules and
regulations as to minimum standards of
performance, safekeeping and coordina-
tion of transfer agents. [§ 6.]

(ƒ) Transfer agents must keep records
required by "appropriate regulatory
agency" and subject to inspection by
"appropriate regulatory agency." [§ 9.]

(g) "Appropriate regulatory agency"
responsible for compliance of transfer
agents and enforcement. [§ 10(b), 10(c),
10(d).]

(h) SEC must obtain views of other
regulatory agencies before promulgating
rules and regulations. [§ 11 (b).]

7. Empowers SEC to make rules and regulations (necessary or appropriate for the prompt and accurate processing of transactions in securities) as to the form and format of securities issued by issuers. [§ 8.]

8. Exempts from Freedom of Information Act all portions of registration state

9. No similar exemptive provisions.

9. No similar exemptive provisions.

10. No similar provision. But, by negative implication empowers SEC to call in stock certificates of all investors when SEC finds reasonably safe and confidential procedures exist. [§ 105(d).]

11. No similar provision.

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10. Instructs SEC to eliminate negotiable
stock certificate as a means of settlement
among brokers and dealers by Dec. 31, 1976
and to report annually to Congress until
then. [§17A (m).]

11. Instructs SEC to study "street name"
registration of securities to determine if
it interferes with communication with
shareholders by corporation and to report
to Congress by June 30, 1973. [§ 5.]

12. Prohibits states from taxing either a
the underlying securities
transfer or
merely because of use of a clearing house
or depository located in taxing state. Does
not prohibit any other taxes. [§ 6.]

13. No similar provision. [Bill does need a delayed effective date.]

ments, correspondence etc. of clearing
agencies, depositories and transfer agents,
except: [§ 12.]

(a) As to clearing agencies and de-
positories, constitution, charter, bylaws,
rules, schedule of charges' and related
interpretive bulletins.

(b) As to transfer agents, those por-
tions containing information regarding
rules and regulations and amendments
thereto.

(c) [House version of bill (H.R.
14567) alters this provision substan-
tially.]
9. SEC determinations subject to Ad-
Act except:
ministrative Procedures

(a) Hearings need not be on a record. (b) Holding hearing does not prevent adoption of rule or regulation once time has run.

10. No similar provision. But, SEC might have power to go even farther under §§ 7, 8 of bill.

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13. Effective date August 1, 1972 except for registration and rule-making provisions which take effect December 29, 1972. [§ 15.]

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Senator WILLIAMS. We lead off this morning with Senator Charles Percy of the State of Illinois.

STATEMENT OF CHARLES H. PERCY, U.S. SENATOR FROM THE STATE OF ILLINOIS

Senator PERCY. Thank you, Mr. Chairman.

Mr. Chairman, I think that these hearings and the very important decision to be made by this committee, on which I had the privilege of serving for 4 years, will have a deep impact in this country, both on the individuals who own securities, as well as every institution issuing and dealing with them. I think in historical perspective we are almost back at the stage where the decision finally had to be made by some civilization not to use iron any longer as legal tender because it was too difficult to transport. They went to more precious metals, and finally we have come in our lifetime to the stage where gold cannot become further converted and is going to be deemphasized.

In the securities industry, we have been totally and completely bogged down. I am not appearing here as a former businessman who has dealt with the securities industry, has seen its great impact and vital importance to a free economy, nor am I here sharing even the concerns that I had at a very precarious time in our financial history, when men like Felix Rohatyn, a governor of the New York Stock Exchange, was doing a herculean job in trying to save, within the system itself, many of the investment banking firms.

I was deeply concerned at the time about the possibility of bankruptcy of certain firms, because the financial pressure on many of these institutions came at the very time the incidence of stolen securities was at its height.

So, therefore, I confine my testimony today to the one role that I have as the ranking minority member on the Government Operations Committee and the ranking minority member on its permanent Subcommittee on Investigations.

We have spent literally scores of months and thousands of manhours of staff time in trying to determine the nature of thefts in the securities industry which very seriously strain the financial community. The existence of physical evidence of certification used as negotiable instruments make the threat of theft high. In fact, securities are frequently used to support loans as evidence of collateral when they are, in effect, stolen. The market for stolen securities has increased dramatically as organized crime has recognized that it can play a very useful and highly lucrative role in the fencing of this material. I would ask permission that my entire testimony, 46 pages of it, on legal size documents be incorporated in the record in its entirety. Senator WILLIAMS. It certainly will be (see p. 70).

Senator PERCY. I will confine my remarks to a few minutes of summary, though I can't possibly do justice to the full testimony which has been carefully prepared with me by a minority counsel, Philip W. Morgan, of the Government Operations Committee. But in summary, I will try to give a feeling as to how organized crime has moved in this area and the lucrative opportunities and advantages that have been made available to the criminal elements in society in this particular area of securities.

There is a growing serious problem in the financial community which baffles even the most expert bankers and stock brokers of Wall Street. That problem is the increasing theft of private and Government securities. Statistics compiled by the National Crime Information Center indicate that in 1970, $227,397,837 in securities was actually lost due to theft. Even more alarming is the fact that losses for the first half of 1971 were more than double what was lost in all of 1970. The stock brokerage industry estimates that $1.2 billion in securities are either stolen or missing and that the bulk of them are being utilized in illegal operations throughout the world.

Let me point out the great difficulty we have in connection with the reporting of stolen securities. It is difficult to find them many times, and it puts a very great problem to an investment banking company to admit that its system may be susceptible to such thefts.

So, there has been reluctance on the part of the banking industry to report immediately such thefts because of the nature of the operation. We can't ascertain that the figures I have given you of $1.2 billion are really all that are mysteriously stolen or missing.

At least if we just accept those figures, the problem is a very big one indeed. The theft and counterfeiting of securities is not just a problem of serious domestic economic consequence but it has international repercussions as well.

The Permanent Subcommittee on Investigations of the Government Operations Committee initiated a series of hearings last year on organized crime. Our first investigations dealt with the infiltration of organized crime in the securities industry. Our findings help to reveal the nature and extent of securities thefts and the extensive involvement of organized crime.

In my longer statement for the record, I describe in detail the activities of five major witnesses our committee heard who had been involved in securities thefts. All are convicted felons, either serving or having served sentences for securities-related thefts. We heard these witnesses in executive session originally. It was our judgment, then, that providing the degree of protection we had to provide to these men and going through the extraordinary events that followed was well warranted if we could gain from these witnesses sufficient insight into how this business really works. These were great, difficult moral questions that Senator McClellan and I and other members of the committee had to deal with. But we had no hesitancies in doing this if a committee such as this committee and the securities industry, which has been wonderfully cooperative in working with our subcommittee, would benefit as a result of these revelations.

Two of the witnesses, Robert Cudak and James Schaefer, furnished valuable information as to the easy availability of paper securities. In a rather intriguing fashion, Cudak and Schaefer related how they got into the securities thefts. Robert Cudak first took a job as a ramp man at JFK International Airport. He soon noticed that there was almost no security of mail transfers, or Railway Express and air freight shipments. With the aid of his partner, Schaefer, and several other thieves, Cudak began an extensive operation of taking jewels, cash, stocks, bonds and other valuables from the terminal area of 15 major airports in the country. Cudak's share of the theft ring was approximately $1 million, with more than $79 million being taken from JFK alone.

We make it very easy for these criminals, as revealed in testimony, by sending things through registered mail, whether it is furs, jewels, or securities, which is carried in the double sack. They would just feel all the mail bags and as soon as they found a double sack, they know that it was registered, secured, and valuable. This made it very easy for them to sort out the ordinary mail from highly valuable mail. Neither Cudak or Schaefer were members of organized crime. However, through their mob connections-and they had good connections-they were able to fence their loot. At least four of 11 fences whom Cudak named in testimony before our committee were known by law enforcement officials to be prominently engaged in organized crime.

In the early days of Cudak's activities, he and his associates failed to recognize the value of securities. They just threw them away. Later they found ways to convert the securities to cash, principally through the mob, and the theft of securities became a significant part of their operation.

The testimony of Cudak and Schaefer revealed two important facts. Because securities are represented by a negotiable paper, there frequently exist opportunities where these physical documents are subject to theft. The lax security at airports offers one excellent example. With paper securities we encounter a sizeable risk of theft.

Second, Cudak and Schaefer helped our committee document the fact that organized crime plays an integral role in securities thefts. Without that involvement, stolen or counterfeit securities might not be as easily fenced. For the mob, its involvement appears to be in fencing the stolen items, rather than actually stealing them. They are the go-betweens.

The other three principal witnesses our subcommittee heard were men who associated with the mob in order to convert counterfeit or stolen securities into cash. They were Vincent Teresa, Edward Wuensche, and Michael Raymond.

Vincent Teresa, at the time he appeared before our committee, was serving a 5-year sentence for possession and transportation of stolen securities. Although a good deal of his operation in stolen securities was accomplished through mail robberies and airport robberies, Teresa testified that the bulk of his early thefts were accomplished by inside jobs, within brokerage houses. Teresa testified that he looked at or handled $25-$30 million in stolen securities during his operation.

It would have been impossible unless they were able to place people who would cooperate with them right in the back rooms of security and brokerage houses. It is very interesting that they would go after the securities of high value. IBM was a stock that all of the people operating in this syndicate and business were on the lookout for and were after. They went for high quality stocks. They weren't looking for low-grade gold stocks or whatever it may be. They just went for the very best: high quality.

Senator WILLIAMS. They only took the risk for blue chips?

Senator PERCY. The blue chips, absolutely, and the bluest of the blue chips. If some stock became a little more appropriate at the time, you could just follow their trend in what they would be able to pick up and secure. Certainly, A.T. & T. was another highly valuable security, because of its base as collateral for loans.

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