skill, and genius of labor. All of these are financial, economic, and social problems which affect the common interests of employers and employees, investors, and all classes of people.

Labor is tremendously interested in the enactment of sound and constructive legislation regulating stock-market enterprises, the sale of securities, and the bases of investment. Labor is conscious of the fact that the Nation must guard against excesses in the field of investment such as occurred in 1929. On the other hand it is strongly opposed to the enactment of oppressive legislation. It maintains that legislation regulating the sale and marketing of securities should serve to protect investors, that its objective should be to preserve security markets, functioning so well, under reasonable and wise regulations, as to attract such additional capital as business may require in order to maintain and expand opportunities for work and, at the same time, preserve the fruits of labor for economic security.

Above and beyond all is the preservation of freedom, liberty, and democracy. That is of transcendent importance. Our free institutions, our form of government, our way of life must be preserved at any cost. As I have frequently stated to the membership of the great organization which I have the honor to represent, we are Americans first and members of our union second. sentiment can be repeated here.

That

The American Federation of Labor, with its 5,000,000 of paid-up members, skilled and unskilled, men and women who work for wages, workers who believe in various creeds, and spring from various nationalities, has set itself to prepare for the onslaught of dictators and their militaristic forces. It is a Herculean task, one that calls for the highest type of individual and collective service. The American Federation of Labor has pledged itself to see the program through, to support the Government in the completion of its defense program, and to go wherever our Government may send us. We are determined that our common heritage of freedom, liberty, and justice shall be preserved in the Western Hemisphere. We, of labor, are confident that those in attendance at this great convention and those whom you have the honor to represent share this point of view, and that all of us together will stand united in defense of America, American institutions, and our American form of government.

The CHAIRMAN. I understand you are president of the Association for the Reemployment of Men and Money, you say?

Mr. COMSTOCK. Well, that is not an association, that is a committee of the Association of Commerce and Industry. I was the president of that association from 1933 to 1939, and at the close of 1939 this committee was set up.

The CHAIRMAN. And, has your committee compiled any statistics on unemployed money covering a series of years?

Mr. COMSTOCK. Yes; I think that the association has. It has a research department and I think such statistics have been gathered. The CHAIRMAN. Of course, there may be many reasons for that unemployment of capital. I take it there is no dispute of that. Mr. COMSTOCK. Oh, no, sir.

The CHAIRMAN. But you think this is an important part of it? Mr. COMSTOCK. I think you are right, sir.

I am reminded by Mr. Mount, that Mr. Wadsworth has put those statistics in the record.

The CHAIRMAN. All right, thank you.

STATEMENT OF WADSWORTH W. MOUNT, SECRETARY OF THE COMMITTEE FOR REEMPLOYMENT OF MEN AND MONEY OF THE COMMERCE AND INDUSTRY ASSOCIATION OF NEW YORK N. Y.

The CHAIRMAN. Mr. Mount.

Mr. MOUNT. Mr. Chairman and gentlemen of the Committee, my name is Wadsworth W. Mount, and I am secretary of the Committee

for Reemployment of Men and Money of the Commerce and Industry Association of New York, which is the city's largest chamber of commerce type of organization.

I would like to submit for the record this memorandum on the proposals of the S. E. C. and representatives of the securities industry for amendments to the Securities Act of 1933 and the Securities Exchange Act of 1934.

This memorandum was put out by the research bureau of our association.

The CHAIRMAN. Very well.

(The memorandum above referred to is as follows:)

MEMORANDUM ON THE PROPOSALS OF THE SECURITIES AND EXCHANGE COMMISSION AND REPRESENTATIVES OF THE SECURITIES INDUSTRY FOR AMENDMENTS TO THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934

These proposals offer certain desirable technical improvements in the Securities Act of 1933 and the Securities Exchange Act of 1934. They also provide for a vast extension of the powers of the Securities and Exchange Commission and would clamp burdensome restrictions and obligations on many companies not now subject to the jurisdiction of the Commission. Most significant, however, is the failure of these proposals to offer any solution for many of the fundamental problems which must be solved before there can be a revival of the flow of capital into industry and a restoration of vitality to our ailing securities markets.

Some of the proposals further to extend the power and jurisdiction of the Commission over private enterprise are as follows:

1. It is proposed to require registration of substantial security issues privately sold to institutions, such as insurance companies and banks. This proposal would close the doors to any significant corporate financing without Securities and Exchange Commission interference and control, and has no justification other than the disingeneous assertion that the policyholders and stockholders of the purchasing institutions would somehow benefit through the filing of a voluminous mass of information in the archives of the Securities and Exchange Commission. The real purpose of the proposal is to impose burdens upon private placements equivalent to the excessive burdens now imposed upon public issues and to thus remove, for the benefit of the big underwriting houses, some of the advantages of a private sale over a public issue.

2. It is proposed to confer upon the Commission power to regulate and control the solicitation of proxies by all companies, except small ones, engaged in interstate commerce or whose securities are traded in by the use of the mails or interstate commerce, in the same way that the Commission now regulates the solicitation of proxies by companies whose securities are listed on an exchange. The purpose of this proposal is to impose burdens upon companies whose securities are not listed on an exchange equivalent to the burdens now imposed upon listed companies. The beneficiaries of this proposal will be the exchanges which have found many companies reluctant to list their securities simply because of the expenses and difficulties involved in compliance with these onerous regulations.

3. It is further proposed to compel all such unlisted and all listed companies to solocit proxies, whether or not they desire to do so. The reason for this proposal is that many companies have ceased to send out proxy forms to their stockholders in order to avoid the expense and nuisance involved in soliciting proxies under the Securities and Exchange Commission's regulations.

4. It is proposed to extend to the officers, directors, and 10 percent stockholders of all companies, except small ones, which are engaged in interstate commerce or whose securities are dealt in by the use of the mails or of interstate commerce, the requirement that they report their security purchases and sales in the same way that officers, directors, and 10 percent stockholders of listed companies must now report their purchases and sales. The purpose of this proposal is also to benefit the exchanges by imposing burdens on unlisted companies equivalent to those now imposed on listed companies, because few companies today will voluntarily list their securities on account of these burdens. It is at once apparent that these proposals, if enacted, would tremendously extend the power of the Securities and Exchange Commission over private enter

prise in this country. It is also apparent that these proposals to impose a heavy burden of regulation and governmental control upon a vast segment of American industry are designed primarily to serve the special interests of small groups who may indirectly benefit from these proposals. As every company is but an association of investors who have pooled their funds, the costs and burdens of this regulation and control will, in the final analysis, fall upon the shoulders of these investors. It is submitted that these proposals should be vigorously condemned as contrary to the best interests of industry and the investors in the companies which would thus be subjected to onerous and expensive regulation. In considering any program to amend the securities laws, certain facts must be borne in mind in order to make a sound appraisal of its merits. The primary fact is that the present laws have, to a considerable extent, discouraged and blocked the flow of capital into industry and, thus, have materially retarded industrial expansion and the development of new enterprises and helped to perpetuate extensive unemployment. Indeed, the shortages in industrial capacity and skilled labor which are today hampering our national defense program are, in part at least, directly attributable to the operation of these laws as they have been administered by the Securities and Exchange Commission.

The second fact that must be borne in mind is that the impediments to the flow of savings into the expansion of industry are due principally to the way in which these laws have been administered and interpreted by the Securities and Exchange Commission. To anyone who is familiar with the awkward forms and the complex rules prescribed by the Commission and acquainted with its numerous unwritten policies and interpretations of the law, it is obvious that the Commission itself might, if it were so disposed, remove most of the existing obstacles to the free flow of capital into private enterprise without in the least diminishing the protection to investors and without any very substantial changes in the laws. However, before any relief may be obtained along these lines, the philosophy of the Commission must be changed. Clear and specific directions from Congress offer the only hope of bringing about such a salutary change at this time.

The principal obstacles to the financing of industry through the sale of securities to the public are twofold. These are, on the one hand, the unnecessarily burdensome costs, complexities, and delays involved in the registration of securities for sale on the awkward forms and under the bureaucratic procedure dictated by the Commission, and, on the other hand, the throttling of our securities markets, by vague and uncertain interpretations by the Securities and Exchange Commission of indefinite provisions of the law, which has in a large measure destroyed the capacity of our securities markets to absorb any substantial volume of new issues at reasonable prices. Thus, in effect, the capital markets have been closed to industry.

The present law offers no protection against or relief from the undue hardship which may result from arbitrary or unreasonable rules and regulations of the Commission, or from unreasonable or unfair acts or rulings of officers and employees of the Commission, or from the Commission's use of "smear" publicity charging unproven violations of the law in advance of any hearing. Consequently, within its realm, the Commission exercises the powers of an absolute despot with no checks or restraints upon its powers other than its own political and impersonal conscience.

Any program to amend the securities laws must be designed to enforce a reorientation of the philosophy of the Commission, if the amendments are to be effective. Such a program must not only provide restraints upon the arbitrary and capricious exercise of its power, but it must impose upon the Commission the affirmative duty of removing the administrative obstacles to the free flow of private capital into private enterprise and of fostering and encouraging orderly, active, stable, and liquid securities markets for the protection of investors. The Securities and Exchange Commission-industry proposals fail in a marked degree to satisfy these objectives. They offer no checks upon the rule-making power of the Commission but leave the Commission free to promulgate any regulation, regardless of how unfair, unreasonable, or harmful it may be, without any relief from undue hardship for those adversely affected by it. Nor do the proposals provide any relief for persons adversely affected by unreasonable or unfair acts or rulings of officers or employees of the Commission. Nor do the proposals contain any provision which would abolish the vicious practice of releasing "smear" publicity charging violation of the law before any violation is established.

The Securities and Exchange Commission-industry proposals are devoid of any amendments which would enjoin the Commission to encourage and foster orderly and active securities markets, which are so vital to issuers and investors alike, or which would prevent the Commission from continuing to throttle the securities markets with vague and uncertain regulations and unpredictable interpretations of the law.

The proposals contain one amendment which would alleviate somewhat the burdens involved in the registration of securities for sale to the public. It is proposed that companies which have previously registered an issue of securities may register a new issue by filing an up-to-date prospectus. This proposal will considerably reduce the expense and labor involved in registering new issues of securities after a company has once been through the mill. But it falls short of giving full relief, for a company is still required, when it registers for the first time, to file a voluminous registration statement containing substantially the same statements which appear in the prospectus. There is no reason why this unnecessary duplication should not be eliminated.

The incomprehensibility to investors of the mass of detailed information required by the Commission in the prospectus represents one of the most serious defects in the operation of the present law, but the Securities and Exchange Commission-industry proposals offer no real solution to this problem. Prospectuses are so voluminous and so replete with technical information that they are confusing and frightening to investors.

The cause of this difficulty is the view taken by the Commission that the law requires complete information as distinguished from fair and adequate disclosure. Complete information is of no value to the investor if the essential facts are lost in a mass of verbiage and unimportant facts. Such disclosure, although complete, is inadequate to achieve the purpose of the law, which is to fairly inform investors. Fair and adequate disclosure involves the selection of the significant facts and their presentation in a manner calculated to present a fair and accurate picture.

It is of the utmost importance, therefore, that the Commission be specifically directed to require in the prospectus only such information as is necessary to enable the average investor to form a sound judgment with respect to the security he is being asked to buy. In other words, fair and adequate disclosure which will inform the investor, rather than mere completeness, should be the standard provided by the law. The Securities Exchange Commission-industry proposals contain no amendment which would force the Commission to permit shorter, more adequately and fairly informative prospectus.

The bill (H. R. 4344) introduced in the House of Representatives by Repre sentative Wadsworth offers amendments designed to effectively deal with these fundamental problems which have been ignored by the Securities and Exchange Commission-industry proposals. It imposes upon the Commission the affirmative duty of revising its registration forms and procedure so as to reduce the expenses, complexities, and unnecessary duplication of printing and work involved in the present procedure and of providing for reasonably informative prospectuses instead of the confusing, bulky documents of today. It also imposes upon the Commission the affirmative duty of encouraging and fostering orderly and active securities markets and specifically requires the Commission to give due regard to the free flow of private capital into private enterprise. In addition, it contains provisions designed to curb the arbitrary powers of the Commission, to prevent "smear" publicity, and to provide relief from unreasonable regulations and unfair rulings of the Commission and its staff.

To sum up, the interests of issuers and investors alike urgently require the reopening of the capital markets to private industry and the restoration of vitality to our national securities markets. The proposals made by the Securities and Exchange Commission and representatives of the securities business, while they contain a number of important technical improvements in the wording of the laws, offer little or no promise of progress in this direction and, on the contrary, would extend the restrictive powers and burdensome control of the Commission to prac tically all of American industry, thus promoting the special interests of the proponents of these measures at the expense of issuers and investors throughout the country.

The Wadsworth bill, on the other hand, is directed at reforming the abuses in the administration of the law which have been so harmful to investors and issuers and to the economic welfare of the country as a whole.

It is respectfully submitted that industry and the investing public alike should support the Wadsworth bill and the technical improvements offered by the Secu

rities and Exchange Commission-securities industry proposals and should vigorously condemn and oppose the proposals which would further extend the power and control of the Commission over private enterprise.

I also would like to qualify Mr. Comstock's last remark, if I may, by saying that the figures he referred to were not put into the record in this hearing, but were put into the Congressional Record on January 21, 1941, on page A172, by Representative Wadsworth. They show the amount of private financing by private corporations, as compared with the amount of new issues to finance Government enterprise over the last 7 or 8 years, and the figures are very astounding. In the years that private financing picked up, the national income picked up some $10,000,000,000, in the years 1937 and 1938, if I remember correctly. For one reason or another, those private financings did not continue and the national income dropped quite abruptly also.

If you would give Mr. Wadsworth your permission to reinclude those figures to which reference has been made they are just a chartin the record of these hearings, I think that it would be very, very appropriate.

The CHAIRMAN. If they are not already in it will be agreeable to have them inserted.

NEW CAPITAL RAISED THROUGH THE SALE OF SECURITIES

Extension of remarks of Hon. James W. Wadsworth of New York in the House of Representatives, Tuesday, January 21, 1941

REPORT OF THE RESEARCH BUREAU OF THE MERCHANTS' ASSOCIATION OF NEW YORK

Mr. WADSWORTH. Mr. Speaker, under leave to extend my remarks in the Record, I include the following report from the research bureau of the Merchants' Association of New York, under date of Monday, December 16, 1940:

"In the last 8 years Government spending of borrowed money so far supplanted private investment in private enterprise that in the years from 1932 to 1939 inclusive, the United States Treasury and subsidiary agencies raised by borrowing more than five times the amount which investors put into new corporate stock and bond flotations.

"This is revealed in a study which the research bureau of the Merchants' Association of New York has completed of new capital raised through the sale of securities by private enterprise and by the Federal Government in the period from 1932 to 1939.

"The analysis shows that in the 8 years 1932 to 1939, inclusive, the entire corporate stock and bond flotations issued to raise new capital for private enterprise through the established financial markets, including domestic, Canadian, and foreign corporations, amounted to only $4,763,000,000, while new capital raised by the Federal Government, including its subsidiary agencies, amounted to $26,551,000,000 over this same period.

"How great a reversal this is from the period prior to the depression years is shown by the figures for 1926, which disclose that in that year alone the amount of new capital raised for private enterprise amounted to $4,357 000,000, an amount which, although far less than in the boom years of 1928 and early in 1929, was almost equal to the whole amount of new capital invested in private enterprise in the 8 years from 1932 through 1939.

"The figures further indicate that, although the population of the United States has increased approximately 12 percent since 1926, in no one of the last 8 years, when Government borrowing and spending has largely superseded similar investment of funds by private enterprise, has the national income, as computed by the Department of Commerce, equaled that of the year 1926. The Federal debt has been increased from $16,185,000,000, the post-war low, on June 30, 1930, to $44 066,000,000 on September 30 of this year, exclusive of contingent debt.