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Unfortunately, my first bill provided that the President have the power to appoint a conservator, whether it would be the Securities and Exchange Commission or the Comptroller of the Currency, or any other. I did not wish to create a new bureau. And mind you, it would not have cost the Government a dollar, because every dollar of expense would have been repaid. The fees would have been small, would have been reasonable, but sufficient to take care of the expense. I have no feeling in that matter. Certain Senate provisions were eliminated from the securities and exchange bill, that I had helped with certain Senators, to put into the securities bill. But they were eliminated and in conference; a provision was agreed to that there should be an investigation of these conditions on the part of the Securities and Exchange Commission. That was about the same time our Select Committee was created. Of course, I understandand I understood then—why those certain Senate provisions were eliminated and why the latter was put in.

Well, I see that the Securities and Exchange Commission has made a thorough investigation; but I am not going to say that it has made as thorough an investigation, or a better investigation, than was made by that small committee of ours. We held hearings in 12 different cities. We examined under oath hundreds of witnesses. I have been accused of being harsh; of course, I am given to talking a little loud at times, but that is merely to give expression to my feelings and sentiments. So if I do talk a little loud, Mr. Chairman, I hope you will bear with me.

Now, the Commission made its first report, I think, about 3 or 4 months ago. I had this matter up with the President. I had a conference with others, upon the advice of the President. But somehow or other, the Securities and Exchange Commission has not cooperated with the select committee as I thought it should. Perhaps they thought that they had more experienced men, and men better able to make this investigation than we had. Nevertheless, I am glad to see that their report substantiates our report in every particular. They find the same conditions that our committee has reported.

Our select committee made its first report on its work in 1935, January 29. Then we filed a supplementary report in 1936. But even before that we had prepared and drafted the bills to eliminate these abuses. The Securities and Exchange Commission filed their

report. I admit preparation of reports requires a great deal of time. We were obliged to work day and night, and had I not received some assistance from one or two of the departments, our committee never would have been able to do as much work as it did nor get our report in as early as it did.

A supplementary report was filed by our committee in June 1936, containing about 120 pages. I wish you gentlemen would read it. Not that I am proud of its verbiage, but for the facts that it contains. I know that you would not hesitate at all to report legislation that would cure these damnable abuses that exist.

The bill that I introduced in behalf of the committee, contained provisions to restrict and control the activities of these protective committees, and also to limit the abuses in the courts.

I have pending before you H. R. 6978. That was introduced the same day as your bill, Mr. Chairman. I will explain why. This bill (H. R. 6978) is part of my bill (H. R. 9), which I introduced on January 5 and which had been reported in the Seventy-fifth Congress. There were a few modifications and changes made in it. Wherever we found provisions that already were construed by the Supreme Court, we used their language so as to eliminate any question, so as not to leave any room to the enemies of this legislation to attack it in court and perhaps find it might be unconstitutional. We have tried to safeguard the provisions in our bill. As I said, our first bill was reported in the last session by the Judiciary Committee, known as H. R. 12064. Bill H. R. 9 was introduced on January 5 and is similar to H. R. 12064, which was reported after being slightly changed to improve some of its provisions, in order to strengthen it. I have here the report on the bisl.

There was one unfortunare development before the Judiciary Committee. I said my bill originally provided the President should designate who the conservator should be. Later on, upon the urgent request of the Judiciary Committee, the majority of that committee, we put it in that the Comptroller should be the Conservator. It was shown to me that the Comptroller made a splendid record in the matter of assets of closed national banks; and that the cost was nominal; that the price that he obtained for those assets was the highest obtainable in the market, and higher than in the general market. In view of those facts, I yielded and said "If that is the case, well and good; with his experience, and so on, I am agreeable that he should be the conservator.' I embodied that in my bill. The bill then provided that the Comptroller should be the conservator. But later on and, as I understand, upon the recommendation of the Securities and Exchange Commission, the Judiciary Committee recalled the bill and changed it by giving the Securities and Exchange Commission power over this matter.

Mind you, gentlemen, I have no quarrel with the Securities and Exchange Commission. I had several conferences with Professor Douglas about it; I had several conferences with the chairman of that Commission. I had conferences with everybody that would listen to me, or that would give me his ear. I was trying to get knowledge, to get information and light from anyone.

I have in my possession letters from judges, many of them urging and approving my bill. Some even complain that under the present system of foreclosure and bankruptcy they are almost not safe in their homes. They cannot go to their meals without having these professional receivers and their friends after them; on the street, and while they are at home, they are after them, urging this one should be appointed receiver, or that one should be appointed trustee, or another one should be appointed attorney to the receiver. And these judges, these honest and sincere judges, are desirous that this legislation pass. But some who have been placing this business in the hands of personal friends and politicians are opposed to this restriction of power.

I think it is necessary. The situation in our courts is such that our people are commencing to lose confidence in our Federal judiciary. We used to say that that was a condition brought about by prohibition. But this racket has done more harm to courts than anything else, insofar as people losing confidence in our courts is concerned. They cannot get justice when these protective committees, through their influential lawyers, appear on the scene on the one side and their collusive opponents on the other. When that happens, the

poor, unfortunate independent bondholder or independent committee, has no standing, and they receive no hearing. They are out.

My bill covers that without infringing upon the rights of the courts the conservator would develop all information needed in each case. We felt that court should be aided and assisted, and at the same time restricted. That is the reason I originally tried to have it so that the conservator should be designated as a trustee, as a receiver, in all of these matters; that his fees be eliminated and that he be put on a restricted salary of no more than $10,000 a year.

I think that would have been a great step in the right direction. But the Judiciary Committee, as I said, about 6 weeks or 2 months ago, when your bill was introduced, struck out my provisions in H. R. 9; and in the subsequent bill that was reported by them they struck out all of that with relation to the control of these committees. That morning, when I ascertained that the Judiciary Committee struck out the committeecontrol provision in which I was especially interested, I immediately went to work and introduced bill H. R. 6978 which was referred to your committee, taking its provisions from my bills, H. R. 9 and H. R. 6963. The same morning, you introduced your bill. It is well drafted because, with all due respect, I will say your bill contains most of the provisions of my bill.

It goes much further, which I approve of, but there are some provisions in that bill, I fear; namely, as to the State courts. I did not want to involve myself or the committee. I was fearful whether we could in any way assume control over matters in the State courts, and I have not embodied that matter; nor have I embodied anything relative to the municipal securities or the foreign issues.

The CHAIRMAN. Mr. Eicher wants to ask you a question.
Mr. SABATH. Yes, Mr. Chairman.
Mr. EICHER. Would you mind being interrupted, Mr. Sabath?
Mr. SABATH. No; go right ahead.

Mr. EICHER. I notice that the Lea bill applies only to corporations above $5,000,000.

Mr. Sabath. Oh, yes, sir.
Mr. EICHER. And yours goes down to $50,000?
Mr. SABATH. Yes.
Mr. EICHER. Will you explain something about that?
Mr. SABATH. Yes.

Now, Mr. Chairman and gentlemen, due to the investigation we found that there are tremendous numbers of small issues on buildings that cost $60,000 and $75,000, and the issues would be around $40,000, $45,000, or $50,000. Those bonds, those issues, are purchased mostly by the little fellow, small fellow, in the neighborhood; in such districts as New York and Chicago and Detroit and Los Angeles and St. Louis, and all other larger cities. So we thought if anybody needs protection it is the little fellow.

The big fellows buy $100,000 and $200,000 and $300,000 worth of bonds, in the larger institutions or on big hotels, or apartment buildings, and so on; and, as a rule, they usually know how to protect themselves. But we thought, and came to the conclusion, that we should try to protect the little fellow who needs protection more than the big fellow. Therefore we included everything over $50,000; but the Judiciary Committee increased the figure, and in my anxiety to


get the bill out of the Judiciary Committee, I agreed to $250,000. They raised the ante; they made it $250,000.

Your bill has set the figure at $5,000,000. Now, there has been a great deal of fraud perpetrated on the part of the big corporations, and the big issues; there is no question about that. But more so on the smaller issues. And small investors are more easily imposed upon than the man of wealth who has information, as larger investors as a rule have, or can readily obtain it. So I felt that as long as we are going to try to eliminate these abuses, let us try to eliminate as many of them as we can. Of course, if we cannot have perfect virtue, I believe in having at least a minimum of vice. I borrowed that expression from a former colleague of ours, Bourke Cockran. I still agree with that. Consequently, as long as I could not have the Judiciary Committee agree to issues above $50,000, I agreed to $250,000; but I say it should not go above that. And I hope that when you gentlemen consider this you will not forget about the smaller investors and protect only those who have investments in the larger issues.

In connection with that, I feel the fear entertained by the Securities and Exchange Commission, that it would be too cumbersome and would entail a tremendous amount of additional work—I feel when we once enact this legislation we will be able to control it and the work will not be as enormous as is feared. And it should be done; I urge that we should not go above $100,000, notwithstanding the action of the Judiciary Committee making it $250,000.

The CHAIRMAN. Mr. Sabath, how near through are you? We are to have an executive committee meeting this morning.

Mr. SABATH. I can get through whenever you desire, and I can remain with you as long as you will permit me. I have so much information on the subject that if I could start in and give you all of the facts in this thing, you would say, "My God! Is it possible that we have permitted these things to go on and on and on?"

I am tremendously interested, Mr. Chairman, in this matter and hope that early action will be had. Many facts I have prepared in connection with this legislation-drafted legislation-I did not want to cover in detail but they are here (indicating,. We worked hard on this suggested legislation; we had Mr. Morgan, Mr. Blaustein, Mr. Garsson; we had Mr. Tupy working days and nights. We had the aid and advice of judges and independent lawyers and experienced men. Perhaps I did not consult to any great extent with some gentlemen over a little farther west, but I tried to but they did not seem to think it would be worth while to get the knowledge we obtained or the information we secured, or that it would aid them in any way, and I only regret that that has occurred.

Mr. SADOWSKI. May I suggest that it might be a good idea to have the report of the select committee incorporated in your remarksincluded as a part of these hearings?

Mr. SABATH. I have here, Mr. Chairman and Mr. Sadowski, my original bill; my hearings before the Banking and Currency Committee; my hearings before the Judiciary Committee; my first bill before the Judiciary Committee, and the second bill, and the third bill; the bill that was introduced in the Seventy-fourth Congress, and the reports; the bill that was reported in this Congress; I have my first bill, H. R. 9 of this session; I have the supplemental bill, H. R. 6963, and the

amended bill, and the report from the Judiciary Committee on the amended bill; I have it all here, and you may have copies of it. I have the summary on each and every one of these bills, and I can also furnish you with the 20 volumes of public hearings—I do not know whether I have them all because the demand for them has been greatheld by our committee in 12 different cities. The work we have done was tremendous.

I know that some of these people have grown rich from their racket and made millions and millions; and have done everything to destroy me and to accuse me; but I care not. I have done the work as I felt it was my duty to myself and to the House that it should be done. I am proud of its accomplishment because we have been able to turn over to bondholders hundreds of pieces of property where they now are receiving their interest, where before they did not get a dollar.

The CHAIRMAN. Well, we thank you very much.

Mr. SABATH. All right. And, if there is any further information I can furnish you, I will be glad to do so.

I have a summary of these bills that I can file with your committee. If you desire any additional information at any time, I am right below you, and I am willing to furnish it.

The CHAIRMAN. I understood that you would put into the record a comparison of your bill with the pending bill.

Mr. Sabath. I will ask leave to do so, and I will ask leave to put in the record the report of the Judiciary Committee of last year, on last year's bill, and this year's bill.

Mr. WOLVERTON. What I would like to see, Mr. Chairman, is a comparative analysis between Mr. Sabath's bill and the present bill.

Mr. SABATH. I have it prepared, and I have sent out for it and will have it shortly. I am told that a comparison also has been prepared by the Commission, and I presume it is correct. But I will give you our own since I have not time enough to show you the difference myself.

The CHAIRMAN. Well, we thank you, Mr. Sabath. The committee wants to go into executive session right away.

Mr. SABATH. May I ask also, before I conclude gentlemen, in 1 or 2 minutes, may I say that this matter has been investigated upon my urgent request by a former Attorney General; it has been investigated by the Judiciary Committee; by Colonel Donovan of New York; it has been investigated by the Judiciary Committee, it has been investigated by the Senate, the Senate committee; it has been investigated by three different States; and every report, gentlemen, every report urges legislation in the direction of my bill, and my bill is only an expression of the opinion of the reports of six different committees and commissions.

Mr. SADOWSKI. Do you desire to include the report of the select committee in your remarks?

Mr. SABATH. Yes, I think that that has been permitted.
The CHAIRMAN. Very well.

Mr. EICHER. That is 122 pages. Are there not a lot of those available?

Mr. SABATH. No; I do not think that I have more than about 20 or 25 left. The demand has been so great on the part of universities and colleges.

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