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8. Please provide the Committee with an explanation for the SEC's failure in recent months to strictly enforce net capital requirements. In this regard, I would appreciate your commenting on the SEC's ability to enforce such rules if industry self-regulatory mechanisms were eliminated and direct SEC oversight was possible.

WILLIAM J. CASEY'S RESPONSES TO SENATOR BROOKE'S QUESTIONS

1. Yes.

2. I am not familiar with any specific SEC staff analysis of the current condition of brokerage houses and don't feel that I should comment on this until I have an opportunity to obtain the advice and experience of the Commission. I intend to look into this very intensively and promptly in the inquiry required by the Securities Investor Protection Act.

3. I have deferred forming an opinion on the desirability of negotiated rates until I have the full benefit of advice and discussion with the staff, other Commissions, the Justice Department and the various segments of the industry. I do believe that the decision on this critical issue must be one which will be coherent with decisions on other current issues like institutional membership and steps to develop more adequate and more permanent capital in the industry.

4. I see important advantages and economies in self-regulation. I do believe that more intensive supervision of the self-regulatory process is called for. I would hope that stricter self-regulation and more intensive overview by the SEC will make self-regulation work satisfactorily. The SEC may well have been in a better condition to prevent abusive practices if it regulated the industry directly but I would be concerned about the price in a greatly expanded SEC staff and the cost in reduced efficiency and vitality in the American capital markets.

5. I believe there should be a prompt and careful review and reevaluation of all multiple functions and fiduciary obligations in the securities industry. At the present time I do not know whether banks, insurance companies and other institutions should engage in broker-dealer functions but I would want to know more about possible conflicts and unfavorable effects on the pricing functions of the market.

6. Yes, trading should be limited where back office problems can not be handled satisfactorily at higher levels of volume. I do believe the SEC should play a leadership role in the study, evaluation, education and any possible legislation required to explore and move toward a "certificateless society.'

7. There is a clear need for more adequate and more permanent capital in the securities industry. The phasing out of the use of customers free credit balances and progress in bringing more permanent capital into the brokerage industry must be carefully interrelated so that the liquidity of the market is not affected and government funds, guaranteeing the Security Investor Projection Corporation are not jeopardized.

8. The responsibility for enforcement has been on the self-regulatory bodies. I don't know enough about the SEC's ability to enforce the net capital rules directly. It does seem clear that adequate SEC oversight and the Security Investor Protection Act will make better inspection programs mandatory.

Senator PROXMIRE. I have been over the list, Mr. Casey, of past Commissioners of the Securities and Exchange Commission. I think you are the first one since Joe Kennedy to be a member of the Commission and be a man of very considerable wealth, as you are. That is why I would like to proceed further with this so-called blind trust. It is not a blind trust, is it? You would have knowledge; it can't be blind.

Mr. CASEY. That's right.

The CHAIRMAN. May I say I was the one that applied that term "blind." Nothing in Mr. Casey's letter or statement shows it is blind. Mr. CASEY. I was informed no member of the Securities and Exchange Commission had set up a blind trust.

Senator PROXMIRE. Well, that's right. And my point is: No member of the Commission back to Joe Kennedy who, of course, was the Chairman before the conflict of interest laws really came into their present form, had the kind of problem you have.

I wonder if you might reconsider, in view of the fact that it might or might not be a considerable sacrifice on your part, to make a blind trust. Would you consider that possibility?

Mr. CASEY. If the committee felt that I should, I would I don't think it is necessary. I don't think it is required by the conflict of interest rules or by the regulation and rules of the Commission, and I don't think I should really be singled out in this manner. But if the committee thinks I should, I will.

Senator PROXMIRE. In view of the great importance of confidence on the part of the investing public and the American public generally in the Securities and Exchange Commission, it seems to me that any step that could be taken to underline that protection would be desirable. But I leave that up to you.

Mr. CASEY. I appreciate your view, Senator.

Senator PROXMIRE. Now I am going to raise an unpleasant subject because I think it ought to be raised. If it is not going to be raised here, it is going to be raised elsewhere.

I understand back in 1959 you were sued in the Federal court for fraudulent use of a manuscript and that a jury awarded $100,000 to the plaintiff in 1962.

Now it is not uncommon for a man in your position to be sued over a business dispute. Nevertheless, some serious charges reportedly were raised in the suit, and they could reflect upon your qualifications to assume a position of high public trust. I would like to give you a full opportunity to inform this committee on the background of the case so we can properly discharge our responsibility for acting on your nomination. I hope that you will be able to insure the committee that there is no personal wrongdoing on your part.

Can you describe to us what this was all about?

Mr. CASEY. Yes, Senator, I will be glad to. That was a civil action, a civil action which was brought against Prentice-Hall and one of its subsidiary publishers, and I was joined as a defendant as editor of a publication which these companies published.

I have been active in the publishing business over 30 years, and this kind of suit is an occupational hazard. My publisher gets several every year, and we have made some claims ourselves.

This particular suit is the only one in which I was named, and here. is how it developed:

It had its origin when I was in San Francisco with the 1956 Republican Convention. A Prentice-Hall salesman called me and asked me to see a man named Fields, which I did.

Fields asked me to consider and submit to Prentice-Hall for possible publication a manuscript which he had prepared. I agreed to do him

this favor.

When I returned to New York, I gave it to one of my editorial staff which maintained at that time about eight or 10 volumes for me. Senator, you might be interested in the range and scope of the volumes which were edited and which were published under my direction. Some 15 volumes-and I will be glad to have you look at them-but it is a formidable editorial task and had to be done by an organization.

I put together some 20 looseleaf volumes and some 30 or 40 books over 30 years. And obviously I have been assisted by a group of researchers and writers in this undertaking.

This staff reported to me that the Fields' manuscript was a rehash of the law and regulations on the subject, and we had no interest in it. I still passed it on Prentice-Hall to have them take a look at it; and when they expressed disinterest in publishing it, I returned the manuscript to Fields. He later made the claim that his material had been used in one of our publications and instituted suit.

We felt that his claim had no merit. Our editors testified they had developed their material directly from the law and regulations. Prentice-Hall officials testified that they wouldn't pay more than $500 for the entire manuscript, which was only 40 or 50 pages.

The plaintiff asked for a jury trial, which lasted several days. The trial consisted primarily of the plaintiff going over his manuscript and trying to show a resemblance to our book, and members of my staff going over our book and showing how the material there had been developed from original source law and regulations.

All this, I am sure, confused the jury no end, and the jury came in with a high verdict. I think it was about half of the figure you mention; that is my recollection. It was something like $40,000. And it was kind of a multiple verdict; it was a highly confusing verdict.

In any event, the judge who had presided over the case did a highly unusual thing: He called in the two attorneys and he said to them that the verdict was not supported by the evidence in the case, and that he would set it aside, and he recommended that the parties get together and settle it. He was going to set this verdict aside; unless the attorneys could settle it he would call for a new trial.

On the advice of our attorney we agreed to settle upon payment of a sum, I think it was something like 35 or 40 percent of the verdict that had been turned in by the jury. And the case was disposed of on

that basis.

Senator PROXMIRE. I wonder if you could get us the figures on this. What I have here was that the jury awarded $100,000. And you say that that is not the case.

Mr. CASEY. That is not my recollection; it was not that amount. Senator PROXMIRE. I heard it was settled for $50,000; your recollection it was settled for half that.

Mr. CASEY. No, I know it was settled for much less than that. I believe it was settled for something like $15,000, I am sure of that. Senator PROXMIRE. I understand that the transcript was sealed. This seems to be unusual in a civil case. Is it true that it was sealed from public view?

Mr. CASEY. Well, yes; it was sealed. I can tell you how that developed. My lawyer, the fellow that represented us in this case, tells me that the plaintiff's attorney had made some inflammatory remarks in his summation about big corporations exploiting the work of his poor clients.

After the matter had been settled, the plaintiff asked the judge if he could get a copy of this summation that his lawyer had made. Apparently the judge didn't like this; and he said that since the case had been settled and there would be no appeal and no need to transcribe the record, that he was ordering the record sealed.

This was done by, my attorney tells me, the judge's initiative. Senator PROXMIRE. Would you be willing to make the transcript available to the committee for its confidential

Mr. CASEY. I have no objection to the committee seeing this transcript, the record. Again, my lawyer tells me that he believes that the stenographer's notes were never transcribed and that there isn't really any kind of record in existence. I think the pleadings may be in the record if they still have the record, and probably in my lawyer's office there are copies of the pleadings.

But I would be happy, I would certainly interpose no objection to anybody seeing that record, and I would be happy to have it open. Whether the court would open a record like that without the consent of both parties, I don't know.

Senator TOWER. Would the Senator yield?

Senator PROXMIRE. I yield to the Senator.

Senator TOWER. That raises the question of whether or not we can compel the court to submit a sealed transcript to us.

Senator PROXMIRE. What's that?

Senator TOWER. Do we have the power to compel the court to submit such a sealed transcript?

Senator PROXMIRE. I am not asking that anybody be compelled to do anything. I simply asked Mr. Casey if he would be willing, if he is free to do so, if it is within his legal ability to submit it to the committee. I am not talking about the possibility of using any subpena powers or anything of that kind; just wanted to know whether we could get it.

Mr. CASEY. I would interpose no objection.

Senator PROXMIRE. I would like to ask you, at the SEC, as you know, one of the principal tasks of the SEC is enforcing disclosure provisions for our securities laws. These laws are founded on the assumption that the investing public is entitled to a complete and accurate disclosure of the facts on security issues.

There is often a difference of opinion between the seller of the securities and the investing public as to what constitutes accurate disclosure and complete disclosure and what constitutes poetic license. I am wondering how strict a regulator you might be, given your role in the publication of a rather controversial ad that was criticized by the members of the foreign relations committee as being deceptive and misleading.

I am not here to examine your views on the ABM. I happen to be against it. This is not an issue. But I think the content of that ad is in fact inaccurate. The fact that you were head of this committee which was responsible for the ad does raise some questions.

First let me ask you if you had an opportunity to publish that ad again in view of the disclosures in the Senate Foreign Relations Committee of the inaccuracy in the ad which was there, would you publish the same ad again?

Mr. CASEY. Well, Senator, you talk rather freely about inaccuracies claimed in the Senate Foreign Relations Committee. If you go back to that record you will find that there were two small sentences, two small sentences which were quibbled about on a somewhat semantic basis.

Now like any document that is prepared quickly and is of some scope and extent, if I had another chance at it, I would probably refine it and edit it. And with respect to the two alleged inaccuracies which was the subject of much discussion before the Senate foreign

relations committee, I would refine one sentence, and I don't think the other ones would require any change at all, that is, talking about this alleged deceptive statement.

Senator PROXMIRE. Well, now, the headline in the ad says, "84 percent of all Americans support an ABM system."

Mr. CASEY. Yes, sir.

Senator PROXMIRE. And the facts are, as I understand it, that the claim that 84 percent of all Americans support an ABM system was based on a survey which was questioned by the leading experts on public opinion polling in the Nation. Six or seven of them argued that this could not be substantiated or supported.

Mr. CASEY. Well, Senator, I could provide six or seven or eight who would support it. Everybody argues about polls.

Senator PROXMIRE. The six past presidents of the American Association for Public Opinion Research says that the 84 percent claim is by no means proved on the actual basis of opinion poll results presented in the advertisement. They went on to say the use of such à poll to provide an appearance of overwhelming support for a partisan cause must be damaging to professional standards of opinion research. And as I say, this isn't a small print-this is the heading of it, "84 percent of all Americans support an ABM system." This is misleading.

Mr. CASEY. Senator, the use of headlines to attract attention and dramatize the thrust of the statement is rather commonly accepted in American society. Opinion Research, Inc., one of the oldest and most experienced polling organizations in the country, did take a deep nationwide poll and the committee published the results just as they were received from that professional and well-regarded and widely recognized polling organization, and the newspaper ad explicitly says that the statements with respect to public opinion are based on a survey of Opinion Research, Inc.

It wasn't based on a survey of six guys who happened to be president of some public opinion polling society. I doubt that their opinion is any better than six other polisters. These people did the work; they submitted the report to us, and the report was printed as submitted, as we received it.

Senator PROXMIRE. All right, now take the point No. 2 on this, the claim is made in the ad that with the ABM system in the event of nuclear attack we would still have our minuteman force virtually intact. Even the Pentagon admits minutemen missiles would be destroyed in a large scale attack even with the ABM.

Mr. CASEY. Senator, that depends upon the scale of your attack. We didn't undertake to debate the issue in that ad. Certainly, the existence of an antimissile system would protect more lives than would be protected without the defensive system, and whether our missile would survive the attack would depend upon the scale on which any enemy should decide to attack.

Senator TOWER. Would the Senator yield for a moment? As a member of the Armed Forces Committee and one of the floor leaders on the ABM debate, may I say this: That I think the statement is substantially correct because what the ABM will do is preserve our capacity to retaliate, not with all of our Minutemen, true, but it will preserve our capacity to retaliate.

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