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District, where at the present time we have no supervision, a crew of these high-pressure salesmen.

Senator BLAINE. Pardon the interruption. I think the evils in the District do not arise through these high-pressure salesmen so much as it arises through men who have attained, at least, what is considered here a high reputation as business men. You take the F. H. Smith Co., men who made millions and spent that money freely. They have been convicted. That is conclusive evidence that a great organization handling $50,000,000 of securities has been constantly robbing the public. I have not any doubt at all that-and I am going to speak very plainly-the Wardman Hotel is overcapitalized, probably-I would not say 100 per cent, but to a very high degree, with an alleged value of something like $28,000,000 and an assessed value of only $17,000,000. What are we to conclude from that situation? Have you any different situation with respect to other large building operations here? I could go on and name a number of them.

We expect to take evidence in some of these cases, wherein it may develop that my statement may be entirely incorrect. If it is, it will develop from the evidence. I am not stating it as a fact. I am stating it as information that has come to me, which may be entirely incorrect, but as I view it, it is not the little fellow who comes in here as a high-pressure salesman. He is run down and he is hounded and all that sort of thing. He has committted wrongs and frauds. No excuse can be offered for them, but it is not him, it is some of these larger organizations that have really brought the District to what I believe is a situation that no State in the Union would tolerate for a minute. That is my own opinion about it, and it is based upon what I think is reliable information in the possession of the committee, and which we expect to develop in these hearings. We have the information and propose to pursue it and ascertain what the facts are. Those are the evils that I think are the larger evils.

Mr. KEYSER. I think our committee recognizes the evils. We may have a different opinion as to the extent of the evil from the opinion expressed by the chairman, and I hope when the chairman takes further evidence he may have cause to modify somewhat his opinion. Senator BLAINE. That will depend upon the evidence, of course. Mr. KEYSER. What I want to say is this, Mr. Chairman. We think the bill we submit will give more effective protection to the public against fraud than the public will be able to secure under the type of legislation.

Now, as I said before, I know nothing specifically about the F. H. Smith Co., and I prefer not to discuss them specifically to-day, but I wish to call attention to the fact that the F. H. Smith Co. sold only a fraction, a very small fraction, of their securities in the District of Columbia. The great bulk of the bonds that were marketed by the F. H. Smith Co. were sold to the public in other jurisdictions.

Senator BLAINE. Yes; that was the complaint that Senator Brookhart made; that the District of Columbia was permitting these people to exploit the people all over the United States, so that it became not only a District problem but it became a national problem.

Mr. KEYSER. Well, the State of New York and the State of New Jersey have had a similar provision in their laws for a number of years, and they have not found at all it worked that way. On the contrary, they found it worked in a helpful way, because it did enable the prosecuting officer to make an investigation in questionable cases without exciting premature rumors on the street affecting the good standing of any particular house.

Senator KEAN. Mr. Chairman, do you not think that if a man made a false complaint to the district attorney and then went around the street and said that this bank is being examined by the district attorney he would be committing a crime, because he would tend to ruin that bank and jeopardize the deposits in that bank?

Senator BLAINE. Oh, every citizen is subject to identically the same menace, and there is a remedy for that. But that does not mean that we should hedge about the district attorney a situation by which he can suppress evidence that was not false. That is the difference. Certainly everyone has a remedy who is slandered or libelled. Why hedge about these crooks a protection that honest citizens do not have? I think that is a very serious objection to any law. I think it is an object that is insurmountable. I merely call your attention to that.

Mr. KEYSER. Yes, Mr. Chairman. We are very glad to have your views about it. Please understand that in this entire proceeding we are only submitting our views for the consideration of your committee, for what your committee deems it to be worth, sir.

Senator BLAINE. We appreciate that.

Mr. KEYSER. You are the final judges, of course, of what is the best policy in these matters.

Senator BLAINE. We know it is in good faith. We are not denying that. We are now trying to work out something that is right. Mr. KEYSER. Yes, sir. That is exactly our position. We would like to have some law in the District of Columbia.

Senator BLAINE. You think that is a real necessity for it?

Mr. KEYSER. We do, Mr. Chairman. We have a great many complaints in this way: People will open up offices here in the District for the purpose of selling out into the neighboring States, and the neighboring States have been complaining about that situation, and it has been particularly that situation that has led our committee to offer the suggestion that the law cover that as well as here in the District.

Senator BLAINE. I think you are correct.

Mr. KEYSER. In other words, these parties, in order to escape the supervision that would be exercised in the neighboring States locate in the District.

Senator BLAINE. I do not recall whether or not the uniform bill approved by the American Bar Association does that or not. Mr. KEYSER. It does not.

Senator BLAINE. If it does not, it should. I assumed it did, though.

Mr. KEYSER. No; it does not, Mr. Chairman. We would like to see a law here that would require the registration of our dealers in securities, a law that will keep out these high-pressure crews of salesmen. The situation in that respect is that there will come into the

District, where at the present time we have no supervision, a crew of these high-pressure salesmen.

Senator BLAINE. Pardon the interruption. I think the evils in the District do not arise through these high-pressure salesmen so much as it arises through men who have attained, at least, what is considered here a high reputation as business men. You take the F. H. Smith Co., men who made millions and spent that money freely. They have been convicted. That is conclusive evidence that a great organization handling $50,000,000 of securities has been constantly robbing the public. I have not any doubt at all that-and I am going to speak very plainly-the Wardman Hotel is overcapitalized, probably-I would not say 100 per cent, but to a very high degree, with an alleged value of something like $28,000,000 and an assessed value of only $17,000,000. What are we to conclude from that situation? Have you any different situation with respect to other large building operations here? I could go on and name a number of them.

We expect to take evidence in some of these cases, wherein it may develop that my statement may be entirely incorrect. If it is, it will develop from the evidence. I am not stating it as a fact. I am stating it as information that has come to me, which may be entirely incorrect, but as I view it, it is not the little fellow who comes in here as a high-pressure salesman. He is run down and he is hounded and all that sort of thing. He has committted wrongs and frauds. No excuse can be offered for them, but it is not him, it is some of these larger organizations that have really brought the District to what I believe is a situation that no State in the Union would tolerate for a minute. That is my own opinion about it, and it is based upon what I think is reliable information in the possession of the committee, and which we expect to develop in these hearings. We have the information and propose to pursue it and ascertain what the facts are. Those are the evils that I think are the larger evils.

Mr. KEYSER. I think our committee recognizes the evils. We may have a different opinion as to the extent of the evil from the opinion expressed by the chairman, and I hope when the chairman takes further evidence he may have cause to modify somewhat his opinion. Senator BLAINE. That will depend upon the evidence, of course. Mr. KEYSER. What I want to say is this, Mr. Chairman. We think the bill we submit will give more effective protection to the public against fraud than the public will be able to secure under the type of legislation.

Now, as I said before, I know nothing specifically about the F. H. Smith Co., and I prefer not to discuss them specifically to-day, but I wish to call attention to the fact that the F. H. Smith Co. sold only a fraction, a very small fraction, of their securities in the District of Columbia. The great bulk of the bonds that were marketed by the F. H. Smith Co. were sold to the public in other jurisdictions.

Senator BLAINE. Yes; that was the complaint that Senator Brookhart made; that the District of Columbia was permitting these people to exploit the people all over the United States, so that it became not only a District problem but it became a national problem.

Mr. KEYSER. Yes; and right in that connection, Mr. Chairman, the F. H. Smith Co. sold that great bulk of securities that it did sell in States with so-called blue sky laws in force.

Senator BLAINE. I presume it did in some of them, although I have not the facts about it.

Mr. KEYSER. Absolutely, Mr. Chairman.

Senator BLAINE. Do you recall any of those States?

Mr. KEYSER. Well, the first State that picked them up was the State of Pennsylvania, which does not have a blue sky law at all but has a registration of dealers law.

Senator BLAINE. Well, you said States that had a blue sky law. Mr. KEYSER. They sold them in Virginia. I think they sold them in every State in the Union; at least east of the Mississippi River. Senator BLAINE. I think not in Wisconsin.

Mr. KEYSER. I think, Mr. Chairman, you will find yourself in error. Senator BLAINE. I understand in these post-office leases that were investigated they attempted to sell them, but they were denied by the security division, and I understand in other cases-I am not certain of it but I am quite certain you will find the Wisconsin law, which is to a large extent the uniform law recommended by the American Bar Association, has prevented these fraudulent sales.

Mr. KEYSER. Óh, the Smith Co. was later barred from many States. Senator BLAINE. I appreciate you could have no law that is 100 per cent perfect, either in the administration of it or in the effect.

Mr. KEYSER. We call attention in our report to the statement made by the administrator of the law in Montana, Mr. George P. Porter. That is at the foot of page 9. Mr. Porter says he has been in charge of the administration of the securities law in that State since 1919, and he questions whether any blue-sky law is even 50 per cent effective in preventing the sale of valueless securities.

Senator BLAINE. Well, of course, that is true.

Mr. KEYSER. That is his opinion.

Senator BLAINE. That is true of the burglary law and eminently true of your prohibition law.

Mr. KEYSER. Right. We recognize, Mr. Chairman, that there is that other thought in regard to securities legislation, and that is the thought that there ought to be power to examine securities before they may be publicly offered for sale. That is the feature in the bill which you have introduced, Mr. Chairman, that makes that measure essentially different from the other proposal.

Senator BLAINE. Yes; that is the essential difference.

Mr. KEYSER. Now, upon that phase of the subject, the opinion of our committee is that we do not believe that it would be desirable in the District of Columbia to require official approval of securities antecedent to their public offering. We point out in our report here the four or five respects in which we think there is a disadvantage.

Senator BLAINE. There ought not be approval of securities. That is the difficulty in all these matters. The uniform bill does not provide for approval of securities. It merely approves of the right to issue securities. That is really a technical distinction, but I know that there are people who purchased securities, the issue of which is so approved, who obtain the opinion that they are approved by a State authority. I know that. Probably sales agents so represent it. That is a probability.

Mr. KEYSER. The Pandolfo, which was a notorious fraud in the Middle West, used that very proposition.

Senator BLAINE I concede that they would take advantage of that in that way.

Mr. KEYSER. Now, if I may call attention, Mr. Chairman, to page 31 of the bill introduced by you, it provides that the registration of any new security shall be revoked-that is to say, no more sales of those securities shall be publicly permitted when your Public Utilities Commission believes that the enterprise or business of the issuer of the securities is not based upon sound business principle. So that under the proposition as our committee views it, under your bill, the Public Utilities Commission would be in this situation:

They ought not license any security for sale or permit the sale of any security in the District of Columbia until the Public Utilities Commission was satisfied that the issuer and the security were both based on sound business principles. Now, Mr. Chairman, how in the world are you going to get any satisfactory administration of such a proposition? Here is what the Public Utilities Commission will be up against: They can either say, "We will permit no security to be sold here unless that security is so absolutely high class and sound that we are morally certain it will never go bad," or else they will be driven to the other alternative of freely permitting the sale of securities in order to allow business to go on; and, if they do that, then when the bad times come your Public Utilities Commisison is up against a proposition that they have permitted the sale of securities that have gone "sour." We do not see how any public administrative body can satisfactorily discharge a duty such as that proposal would impose upon them. Now, they can not adopt in passing upon securities the same principles that they would apply if asked themselves to invest money in the stock or to loan money to a company on its notes or bonds. They can not adopt any such principle. It would be utterly oppressive of business in general. And so they are driven to the other necessity of freely permitting securities, and then the public holds them responsible because the public inevitably is going to understand that any security that the Government says is good enough to be allowed to be sold is good enough for a citizen to spend his money to buy, and they are going to hold the Government responsible for the securities that do not prove to be profitable investments.

Now, that is the difficulty of having approval of securities by a public officer. He can not satisfactorily discharge the responsibility of his office because, as I say, he can not apply the principles that he himself would apply if asked to invest in the enterprise or to lend it money.

We also offer this comment, that in connection with the requirement of prior official approval of securities there is a very large burden laid on legitimate business. I would rather use the term "honest business" instead of legitimate business. If the investigations are going to be as thorough and comprehensive as they ought to be, considering the responsibility that will rest upon the Government in connection with such an examination, then it is apparent that they can not be made without an undue expenditure of both time and money, and the necessity of preparing elaborate sets of information

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