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made a part of this Act: Provided, That paragraph 42 of such section, as amended (43–412 D.C. Code, 1961 edition) shall not be deemed to be so applicable.
(e) A majority of the members of the Commission shall constitute a quorum to do business, and any vacancy shall not impair the power of the remaining members to exercise all the powers of the Commission. In the case of any application, investigation, inquiry, hearing or proceeding under this Act, the Commission may designate one of its members or a hearing examiner to examine documents, hear testimony, and submit to the Commission the record of testimony and such documents with his proposed findings and conclusions of fact and law.
(f) The Commission is hereby authorized to make, amend, and rescind such rules, orders, and forms as may be necessary to carry out the provisions of this Act, including, but not limited to, rules, orders, and forms governing applications and amendments thereto, investigations, inquiries, hearings, and proceedings, and including by rule definitions of any terms, whether or not used in this Act, insofar as the definitions are not inconsistent with the provisions of this Act. For the purpose of rules and forms, the Commission may classify persons and matters within its jurisdiction and may prescribe different requirements for different classes.
(g) No rule, form, or order may be made, amended, or rescinded, unless the Commission finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of this Act. In prescribing rules and forms the Commission may cooperate with the securities administrator of any State and the Securities and Exchange Commission with a view to effectuating the policy of this statute to achieve maximum uniformity in the form and content of license applications, records and reports, and other documents wherever practicable.
(h) The Commission may by rule or order prescribe (1) the form and content of statements, records, reports, and other documents required under this Act or rules or orders thereunder, (2) the circumstances under which such statements, records, reports, or other documents shall be filed with the Commission, and (3) whether any required statements, records, reports, or other documents shall be certified by independent or certified public accountants.
(i) All rules and forms of the Commission made under this Act shall be published.
(j) No provision of this Act imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule, form, or order of the Commission, notwithstanding that the rule, form, or order may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.
(k) A document shall be deemed to be filed or submitted to the Commission when it is received by it during regular business hours.
(1) The Commission shall keep a register of all license applications which are or have ever been effective under this Act, and all denial, suspension, postponement, or revocation orders entered under this Act. Such register shall be open for public inspection during regular business hours.
(m) License applications and materials submitted therewith or in connection therewith may be made available to the public under such rules as the Commission may prescribe. Such rules may include, but shall not be limited to, rules prescribing reasonable fees for furnishing photostatic or other copies upon request. The Commission may certify under seal such copy or copies of any document available to the public or any entry in the register, and any copy so certified shall be admitted as evidence with the same effect as the exemplifications of record referred to in section 1070 of the Act of March 3, 1901 (31 Stat. 1358; D.C. Code 14401).
(n) The Commission may refer evidence concerning violations of this Act or of any rule or order under this Act to the United States attorney for the District of Columbia who may, with or without such reference, institute criminal proceedings under this Act. The Commission shall comply with any request of the Attorney General of the United States, the Postmaster General of the United States, the Securities and Exchange Commission, or the United States attorney for the District of Columbia for any information or evidence coming to it in the administration of the Act. The Commission in its discretion may refer any information or evidence coming to it in the administration of this Act to the securities administrator of any State or to any national securities exchange or national securities association registered under the Securities Exchange Act of 1934.
(0) Any hearing held by the Commission pursuant to this Act shall be public unless the Commission in its discretion and with the consent of all the parties to such hearing order that the hearing be conducted privately.
SEC. 17. The Act entitled "An Act to consolidate the Police Court of the District of Columbia and the Municipal Court of the District of Columbia, to be known as “the Municipal Court for the District of Columbia,' to create the Municipal Court of Appeals for the District of Columbia,' and for other purposes," approved April 1, 1942 (ch. 207, 56 Stat. 190), as amended (sec. 11-772, D.C. Code, 1961 edition) is hereby amended by adding to paragraph (e) of section 7 of said Act the following new subparagraph:
"(10) Any final order of the Public Service Commission of the District of Columbia under the provisions of the District of Columbia Securities Act."
Sec. 18. If any provision of this Act or the application thereof to any person or circumstance shall be held invalid, the invalidity shall not affect other provisions or applications of the Act which can be given effect without the invalid provision or application, and to that end the provisions of this Act are severable.
SEC. 19. (a) Sections 3, 13(b), 13(d), and 16 of this Act, together with definitions of terms used therein, shall take effect upon approval of this Act.
(b) The remaining provisions of this Act shall take effect at 12:01 antemeridian on the one hundred and eightieth day after approval of this Act, or, if the one hundred eightieth day be a holiday in the District, at 12:01 antemeridian on the first business day thereafter.
SEC. 201. The Public Utilities Commission of the District of Columbia established by paragraph 97 of section 8 of the Act entitled “An Act making appropriations to provide for the expenses of the government of the District of Columbia for the fiscal year ending June thirtieth, nineteen hundred and fourteen, and for other purposes”, approved March 4, 1913 (37 Stat. 995), as amended (sec. 43–201, D.C. Code, 1961 edition), hereafter shall be known as the “Public Service Commission of the District of Columbia". Whenever reference is made to the Public Utilities Commission of the District of Columbia in any Act of Congress, or in any compact authorized by an Act of Congress, or in any regulation or order, such reference shall be held to be a reference to the Public Service Commission of the District of Columbia.
SEC. 202. This title shall take effect upon approval of this Act.
Mr. ABERNETHY. The staff memoranda regarding the bill will also be inserted in the record.
(The memoranda follow :)
Re H.R. 4200, To regulate and license District of Columbia security dealers
The District has no law covering security dealers—with the result that activity by unqualified or unscrupulous dealers has increased alarmingly. This bill is designed to correct the situation and is the product of the U.S. attorney for the District of Columbia and the District of Columbia Commissioners.
(1) Complaints against District of Columbia securities dealers by the National Association of Securities Dealers have increased 650 percent within the past 5 years compared with 215 percent nationally.
(2) The SEC can only act after the fact-it does not have any licensing or minimum requirement control over the District of Columbia dealers.
(3) Action by the SEC (after the fact) has been taken against more firms in the District than against the combined total in Maryland, Virginia, West Virginia, Delaware, and Pennsylvania. In 1960, the National Dealers Association filed complaints against 25 percent of its District members---as compared with 8 percent of its members on a nationwide basis.
(4) The SEC believes, and the District of Columbia Commissioners agree, that the District government ought to take some of the responsibility in handling the serious local securities situation.
This bill is patterned after the Uniform Securities Act minus part III.
Provides for: (1) Licensing requirements; (2) bonding; (3) minimum capitalization; (4) recordkeeping; (5) inspection of sales and advertising literature; (6) deals with false and misleading advertising ; (7) deals with misleading applications for licensing ; (8) provides for denial, revocation, suspension, cancellation, or withdrawal of licenses; (9) vests powers of control in the PUC and renames the PUC; (10) gives the Commission investigatory powers; (11) authorizes appropriations to enforce the act; and (12) provides for judicial review.
COST OF LEGISLATION Sum of $24,000 per year. However, fees under the act would return $20,000. The Bureau of the Budget approves. Purpose of the bill
Unlike 48 of the 50 States, the District of Columbia has no securities legislation or "blue sky' law. (The two States that do not are Nevada and Delaware.)
The basic aim of the proposed legislation is to control the conduct of brokerdealers by the creation of a licensing and enforcement power. It is claimed that the heart of the securities problem in the District is the problem of unqualified or unscrupulous broker-dealers and that the control of broker-dealer licensing and operation which is afforded by the bill will go a long way to cure the related problem of the fraudulent distribution of unseasoned issues, normally accomplished through dealers.
The bill focuses the regulatory power there provided upon the segment of the securities business that deals with the public—the dealer, rather than the issuer or the issue itself. Reasons for the bill
The advocates of the bill state that the selection of broker-dealer conduct, rather than securities issues, as the area of regulation, was dictated primarily by two considerations :
(a) Since very few issues originate in the District of Columbia, public offerings of securities in the District are often subject to the controls of the States in which they originate or are sold, and they are always subject to the disclosure requirements of the Federal Securities Act of 1933.
(b) More importantly, it is that area (broker-dealer transactions) in which there appears to be the most immediate need of protection of the
public. The bills leaves control of securities issues to the SEC and concentrates local government powers upon regulation of broker-dealers. Background
In several of the ways by which the health of the securities business can be measured, Washington, D.C., compares very unfavorably with the national average performance. For example, over the past 5 years complaints filed by the National Association of Securities Dealers against District securities dealers have increased 650 percent, compared with the national increase of 215 percent over the same period. In 1960, the NASD filed complaints against 25 percent of its District members, compared with 8 percent of its members nationwide; in 1961, it filed against 18 percent of District members, compared with 9 percent of national members. In 1961, 18 percent of NASD members in the District failed, compared with 8 percent nationally.
Within the District of Columbia there has been a marked increase in the tempo of SEC enforcement proceedings in recent years. From July 1, 1955, to June 30, 1959, 12 enforcement proceedings were brought by the SEC against District broker-dealers, compared with 20 proceedings in the period July 1, 1959, to May 7, 1962. During the earlier period only 2 injunctive actions were brought, compared with 18 such actions in the later period. The SEC regional office here has brought more such actions against District firms than against those of Maryland, Virginia, West Virginia, Delaware, and Pennsylvania combined. This fact alone is staggering.
The SEC has found that a substantial number of bad actors who have been put out of business by the Commission elsewhere have started up again here in Washington. In the past 5 years 87 broker-dealers were closed by the Commission in the District. One-third of these had an officer, director, or owner previously connected with a firm closed by the Commission. One-sixth had two such persons. One firm recently closed by the SEC gave birth to 16 new firms that were started by its alumni, of which 9 have failed or gone out of busines, voluntarily or involuntraily.
SEC RECOMMENDATIONS The Chairman of the Securities and Exchange Commission recommended to the House Subcommitte on Commerce and Finance that legislation be enacted which put the responsibility for local administration of securities regulations upon the local government–i.e., the government of the District of Columbia.
This bill is represented to be a joint product of representatives of Government agencies and private bodies that have been most closely concerned with securities regulation, viz, the National Association of Securities Dealers, the SEC, the U.S. attorney's office, the Securities Committee of the District of Columbia Bar Association, the District Commissioners, and corporation counsel's office, and a local law school faculty. Section-by-section analysis
In brief, the bill provides the licensing control very similar to part II of the Uniform Securities Act.
Section 2. Definitions.
Section 3. Fraud: Three broad categories in connection with the offer, sale, or purchase of any security are made unlawful : (a) to employ any device, scheme, or artifice to defraud; (b) to make any untrue statement of a material fact, or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they are made, not misleading ; (c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Section 4. License requirement: It is unlawful for a broker-dealer or his agent or the agent of an issuer to do business without a license. Licenses and renewals are for a 2-year period.
Section 5. License procedure: Sets forth procedure for securing licenses from the Public Service Commission, which may require publication of announce ment of application in newspapers.
Filing fee: $100 for broker-dealer license; $10 for each partner, officer, director; $25 for agent.
Minimum capital, with exceptions, is $15,000 for each broker-dealer license.
Commission may require broker-dealers and agents to post surety bonds up to $50,000.
Section 6. Unlawful representation concerning licensing.
Section 7. Records and reports: These are required to be filed with the Public Service Commission which cooperates with the SEC to avoid duplications.
Section 8. Filing of sales and advertising literature.
Section 10. Withdrawal of licenses : Licenses may be denied, suspended, or revoked for specified causes, including incomplete or misleading statements in the application, substandard qualifications, involvement in certain criminal or enforcement or disciplinary proceedings, inadequate finances or supervision of employees, fraud, or violations of the act, etc.
The Commission has the power of summary suspension pending final determination or action against an applicant or licensee.
Section 11. Investigations and subpenas.
Section 13. Criminal penalties: Upon conviction of willful violations of section 9 (misleading filings) fine of not more than $5,000 or not more than 3 years imprisonment or both.
Similar penalties for other violations specified.
Section 14. Civil liabilities: Gives purchaser right to bring civil action to recover consideration with interest which he paid for security which he bought from seller violating the act, etc.
Section 15. Scope of act and service of process.
Section 16. Administration of act: Numerous procedural and administrative provisions are included to achieve convenience and simplicity of procedure and to protect the rights of applicants, licensees, and the public.
Section 17. Judicial review: May be had of any final order of the Commission. Section 18. Severability.
Section 19. Effective date. The bill is to become effective upon approval of its provisions regarding fraud and preliminary administration, and effective 180 days from approval in other respects. This would allow the Public Service Commission time to organize and process applications prior to the deadline for licensed operation. Title II
This changes the Public Utilities Commission of the District of Columbia to the Public Service Commission, which is charged with the administration of the aforesaid act.
Mr. ABERNETHY. I would like to say for the benefit of our visitors, whom we are very delighted to have, that we appreciate your presence, and the members of the subcommittee, that so far as I am concerned, I hope that these hearings will not be unnecessarily drawn out.
The subject matter is important, but I think we can come to an agreement in a limited amount of time, and I hope that we will do SO.
As the hearings proceed, I expect to have the Honorable David Acheson explain the bill.
And after his explanation has been made of this, unless there are some of
you in the room who expect to testify who differ with him, I would appreciate it if you would eliminate duplicate explanations.
Now, the statements, some of which I have seen, are a little lengthy, and I don't intend to cut anyone off, and I certainly won't. I believe in free speech and sometimes an unlimited amount thereof, and I want everybody to have an opportunity to say his piece.
That is what this forum is for, and that is what we are convened for, and if you feel, any of you, that you are receiving any unnecessary and unfair treatment at the hands of the committee, I want you to be sure it is not intentional, and I will arrange to come back another day.
We are going to be here until October or November anyhow, and we have plenty of time. We want to give you all an opportunity to be heard. I just don't want you to kill your own lawsuit by talking it to death.
I think Mr. Springer would like to make a remark.
Mr. SPRINGER. Mr. Chairman, the door of opportunity must be slammed shut on shady, unscrupulous, and unqualified dealers in securities in the District of Columbia. That door has already been shut in 48 of the 50 States and it is high time that the District of Columbia cease providing sanctuary for the irresponsible in the investment field.
May I point out, Mr. Chairman, that the SEC regional office in the District, during the period January 1, 1960, to date, has brought more injunctive actions against firms in the District than against those located in Delaware, Maryland, Pennsylvania, Virginia, and West Virginia, combined. Twenty actions were brought in the District as compared with just 13 in the 5-State area.