Mr. BULWINKLE. Mr. Chairman.
The CHAIRMAN. Mr. Bulwinkle.

Mr. BULWINKLE. Do you favor any plan of legislation for reorganization or readjustments?

Mr. Wood. Yes, sir; I am in favor of a bill drafted in accordance with the policy laid down in the Securities Act. I think there should be full disclosure of the committees and their interests.

I think there should be full disclosure as to the plan and its purposes and there I think you put the burden right where it belongs, on the investor, and not on the Government.

Mr. BULWINKLE. Well, have you, or perhaps your organization prepared any such amendments?

Mr. WOOD. No, sir. We would be glad to assist. We do not believe you can do it by an amendment to this bill. We think that this should be redrafted and should be a part of the Securities Act. Perhaps a part of it should be a part of the Bankruptcy Act. I do not know.

You gentlemen probably are surprised that there has not been more opposition to this bill. It is a very complicated bill. I have spent hours of time trying to understand it and I think the reason for lack of opposition, first, is that the bill has not been widely publicized; secondly, that it is so complicated it is difficult to understand.

I believe the opposition is going to build up; but under those circumstances, every bit of time Mr. Prescott, Mr. Woods and I have had, has been directed to studying the bill and proposing in general the way we think the thing should be done; but we have not anything drafted.

Mr. BULWINKLE. In your opinion, is there any necessity for legislation of this kind?

Mr. WOOD. Of this kind here?

Mr. BULWINKLE. Yes; of regulation of reorganizations.

Mr. WOOD. I would say that as regards judicial reorganizations and most voluntary reorganizations, that it may be or that it is desirable to have some definite form of disclosure; yes, sir.

Mr. BULWINKLE. All right.

Mr. COLE. Mr. Chairman

The CHAIRMAN. Mr. Cole.

Mr. COLE. I understood you to say in answer to Mr. Bulwinkle that you believed in full disclosure of reorganization plans being required by law.

Do you mean after the reorganization plan is approved or before? Mr. WOOD. Well, I am not enough of a lawyer to answer that question, sir. I will say this, that it does not seem to me that it makes much difference, provided the security holders are not bound by an approval.

Mr. COLE. Then your idea would be that full disclosure should take place before a plan is approved; before the security holders are affected by it?

Mr. WOOD. Yes; before the security holders are affected by it. Mr. COLE. Assuming that is done, the agency so far as the Government is concerned which knows most about it would be the Securities and Exchange Commission.

These powers are vested in the Commission

Mr. Wood. I am sorry, sir, but I did not get that.

Mr. COLE. Assuming that disclosure is made just as advocated before final approval of the reorganization, that comes to the attention of the Securities and Exchange Commission.

Mr. Wood. Yes, sir.

Mr. COLE. You do not think that they should be drawn up then like they have been under the Securities Act?

Mr. WOOD. Just exactly what is done in the case of a registration of securities under the Securities Act, that the Commission should be sure that all of the necessary information is included in a declaration, and, so far as it knew, that it is honestly presented.

Otherwise, you place the Commission in the position of a guarantor to the investor. I think that is a question of policy you gentlemen have to decide, but I think it is very dangerous.

The CHAIRMAN. Well, do you believe that the integrity and the ability of those in control in reorganizations is a matter of governmental concern?

Mr. WOOD. That it is what, sir?

The CHAIRMAN. The integrity and the ability of those in control entirely as between the creditors and the investors?

Mr. Wood. I think that is a pretty dangerous field for Government to get into, because if it undertakes to guarantee that the people who are doing this type of work are capable and honest they assume a tremendous responsibility.

The CHAIRMAN. This bill, I take it, proceeds on the theory of certain limitations where there is an added interest pretty clearly established. I take it that that is the theory of the bill.

Mr. WOOD. Yes; of course I think there is too much emphasis placed on that. I think there is no question but that there are certain adverse interests that should not be allowed to act for a particular group of security holders; but I think that one of the weaknesses of the bill really comes to the quuestion of disqalifications; that it assumes that certain classes must have an adverse interest.

Now, I cannot, for instance, conceive in a normal corporation that the management of the corporation is adverse to the interests of the stockholders. They are elected by the stockholders.

I think the disqualifications go too far in many cases, go so far, that you will not be able to get people of integrity and ability and people who are familiar with the corporation to act on these committees. I doubt if a small stockholder can. I cannot see where you are going to get your committees, but I think Mr. Prescott and Mr. Woods will cover that more thoroughly than I can.

The CHAIRMAN. You feel that in obtaining the committee it will be necessary to go further afield than this bill provides to get competent persons to act?

Mr. WOOD. Go further afield than what?

The CHAIRMAN. Further afield than this bill provides in order to secure competent persons to act, in some cases.

Mr. WOOD. Yes; I am certain that it would, sir.
The CHAIRMAN. Very well.

Mr. Wood. I just want to speak about one or two further matters and then unless you gentlemen have further questions I will let Mr. Woods speak.

In regard to municipal securities, the municipal section, municipal and foreign readjustments: That is a very technical field, the issuance of municipal bonds, and their readjustments under default.

I think that needs further study and I also believe that it is of such a different character from your corporate problems, that it. probably should be in a separate section of the act, even if the theory of the act is carried out as it is, which, I hope it will not be.

I just want to say that in my personal judgment, I do not believe that the section forbidding any one to act as an agent to repurchase foreign bonds or to sell to such an agent knowing him to be such will work in the interest of the investors.

Now, in conclusion I have one or two suggestions to make.

This examination of reorganization by the Securities and Exchange Commission is extensive, but necessarily it is in a limited field. There has been no report to the Commission as yet covering the question of voluntary readjustments.

I think before action is taken on that subject, and that is a very important section of the bill, that a report should be made on it. Now, I would also like to make this statement: After all it is the investor that this bill-I fear badly-is to protect.

I think that in addition to investigating the field of reorganizations, that it would be wise if the Securities and Exchange Commission could get certain trained investors to give them their advice on the effect of this act. Now, when I say "trained investors", I am thinking of insurance companies. I am thinking of savings banks. I am thinking of the trustee for personal trusts, the man who really knows what he is doing when he is buying securities.

My belief is that it is unwise to act on this bill until the Securities and Exchange Commission has sat down with gentlemen of that kind to find what their reactions to this bill are, whether they think it will help them or whether they think it will hurt them.

Now, I would like one last suggestion, and it is this: Would it not be better to carry this bill out as a disclosure act such as the Securities Act is than to put on the Securities and Exchange Commission the terrible responsibilities which I believe this act puts upon it? And where in my belief it is going to lead to the investor saying to you gentlemen, if you approve this bill, you guaranteed us that this readjustment and this reorganization is equitable and sound. We need think no more about it.

Mr. COLE. I asked you a moment ago with regard to the provisions of the Securities Act. I have that act before me. I have reference to section 26 of Public Law No. 291, which for the information of the committee, reads:

SEC. 26. No action or failure to act by the Commission or the Federal Reserve Board, in the administration of this title shall be construed to mean that the particular authority has in any way passed upon the merits of, or given approval to, any security or any transaction or transactions therein, nor shall such action or failure to act with regard to any statement or report filed with or examined by such authority pursuant to this title or rules and regulations thereunder, be deemed a finding by such authority that such statement or report is true and accurate on its face or that it is not false or misleading. It shall be unlawful to make, or cause to be made, to any prospective purchaser or seller of a security any representation that any such action or failure to act by any such authority is to be so construed or has such effect.

That is the provision of the law I had reference to.
Mr. WOOD. Yes, sir.

Mr. REECE. Have you compared that with section 22 in this bill? Mr. COLE. No; I have not.

Mr. REECE. The wording is almost verbatim.

Mr. WOOD. The wording is very similar. The only difference I make with regard to it, Mr. Cole, is this, that under the Securities Act you require the issuer to file certain information with the Commission. The Commission's job is to see that that requirement is carried out, that the information is filed. It does not pass on the correctness of the information and it certainly makes no comment on whether the security is good or bad.

That is the difference between the Securities Act and this bill.

Mr. COLE. The thing that concerns me is that notwithstancing the provisions of section 22 of this bill, I cannot see how the Securities and Exchange Commission, can go before a court and intervene through as an intervening petitioner, alleging facts, making oath to them, disagreeing with the plan proposed-without expressing a definite opinion, which they are not required to do in the Securities Exchange Act. Mr. Wood. I think that is just the difference.

Mr. COLE. Under this bill we are getting into litigation and in voluntary set-ups, which is going to involve the Government in the expression of opinions, a definite opinion, and requires certain advice which after that is done makes section 22 a rather cowardly statement to make.

Mr. Wood. I do not believe you can make that statement, sir, under this bill. You can make it, but I do not think that the public will believe it-the investor. That is what worries me.

Mr. COLE. I do not like to ask the Government to go in and dictate a reorganization of a company, go so far as to participate in court proceedings, all of the way to the Supreme Court, argue the law and the facts in the case and then after it is all over, assuming that they have won the case, to hand out a declaration saying, "We do not stand upon the opinions we expressed in that case. We are not responsible for anything we said."

Mr. WOOD. I think insofar as the value of securities issuing therefrom are concerned there is one other bad thing in it and that is you may have a real division between the courts and the Securities and Exchange Commission if they should happen to disagree on a report. Mr. MAPES. You are referred now to section 13?

Mr. WOOD. Just a minute, Mr. Mapes. I will have to look at it. I am referring to the section which covers the requirement of the Securities and Exchange Commission reporting on plans. Yes, that is section 13, sir.

Mr. MAPES. It would seem to me that there might be a conflict there between the court and the Commission.

Mr. WOOD. I think there is a great possibility that it will arise in certain cases.

Mr. MAPES. Of course, that language could be perfected, to avoid that.

In one of your first statements you said, as I understood, that you believed in complete disclosure of the plan and a clear statement of it. Mr. WOOD. A clear statement of any interest that any committee member might have.

Mr. MAPES. A clear statement of the plan, so that parties interested could clearly understand it?

Mr. WOOD. Yes.

Mr. MAPES. Have you any objection to the provisions in this bill providing for the disclosure or the filing of the plan with the Securities and Exchange Commission?

Mr. WOOD. No, sir; none whatever.

Mr. MAPES. And the provision relating to the prospectus?

Mr. WOOD. No, sir; I have not.

Mr. MAPES. Have you any objection to the proposed schedule? Mr. Wood. Yes, sir. I think that schedule, if a great deal of it goes into the prospectus, is going to be confusing rather than helpful to the investor.

I think that both the disclosure of interest and the plan should be made as simple as possible in the prospectus.

That brings up one other point, if I may say so, Mr. Mapes. I wonder whether the committee should not consider the consolidation or redrafting of a number of acts.

Let me give you a possible case, as I understand it. This, frankly, goes the limit, but it will show you what could happen: Suppose there is a public-utility corporation registered under the act and it is a holding company, and it has two subsidiaries, and those subsidiaries have outstanding, we will say, two classes of bonds each, and two classes of stock, preferred and common.

The holding company has preferred and common. And, all of those securities in whole or in part are in the hands of the public.

Now, what has got to happen if the holding company wants to simplify that structure in accordance with the wishes of Congress, and I think the very wise wishes of Congress that holding companies should be simplified?

I think that is perhaps outside of the field of the committee, but it is what I see as a danger.

Mr. MAPES. Do you intend to point out the provisions in the schedule that you think are unnecessary and would not be helpful to the public?

Mr. WOOD. No, sir; I have not studied it enough; but my own theory is this: I think-I cannot speak for the Securities and Exchange Commission-but I think that they are working on the problem. I think that most of the investment bankers feel that the prospectus by which we sell new securities contains so much information that the average investor, is confused. Our information is that work is being done on that at the Commission in the hope that that situation can be simplified and that a clearer presentation of those facts can be made to the investor.

Unless a simple prospectus can be developed under this bill I am very much afraid it will lead to the same confusion.

Mr. MAPES. This bill is suggested by the Commission.

Mr. WOOD. What?

Mr. MAPES. This draft is a suggestion of the Commission.
Mr. WOOD. Yes; it is.

Now, I cannot tell for I have not studied that question: It may be that every one of these items should go to the Commission in the registration statements. I am not prepared to say. But, I hope that a great many of them will be eliminated in the prospectus, otherwise I do not think that the investors would know what is happening and this bill will lead them to believe from the statement of the Com