« AnteriorContinuar »
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 this association filed complaints against 25 percent of its District members, as compared with 8 percent of its members on a nationwide basis. In 1961 the association filed complaints against 18 percent of its District members as compared with 9 percent of its members on a nationwide basis. In 1961, 18 percent of the association memb rs of the District of Columbia failed, compared with 8 percent nationally. The foregoing figures, the Commissioners believe, indicate that the health of the securities business in the District is poor, as compared with the situation nationally.
The Commissioners are aware of the fact that the Securities and Exchange Commission has been conducting a vigorous enforcement program against offending broker-dealers in the District of Columbia. They are advised that in the 34-month period from July 1, 1959, to May 7, 1962, 20 enforcement proceedings were brought by the SEC against District broker-dealers, as compared with 12 such proceedings during the 48-nionth period from July 1, 1955, to June 30, 1959. In the later period 18 injunctive actions were brought by the SEC, as compared with 2 such actions in the earlier period. The Commissioners are further advised that the SEC regional office in the District has brought more injunctive actions against firms located in the District than against those located in Maryland, Virginia, West Virginia, Delaware, and Pennsylvania, combined.
However, the Commissioners are informed that in spite of its vigorous enforcement program against offending broker-dealers in the District, the SEC does not believe that the responsibility for the full range of local regulation of the securities brokerage business in the District should be vested in it, in view of the fact that the Commission's responsibilities are of a national character rather than local. The Commissioners agree with the Commission's view.concerning the desirable scope of its responsibilities, and propose, in the attached draft bill, that the regulation of the securities business in the District be vested in the Public Utilities Commission of the District of Columbia, renamed the Public Service Commission in the draft bill.
The draft bill is patterned after the Uniform Securities Act proposed for State legislation by the National Conference of Commissioners on Uniform State Laws. However, since there is no need, in the view of the Commissioners, for the local regulation of securities issues, in addition to the control exercised by the SEC, part III of the Uniform Act has not been utilized in the preparation of the draft bill.
Essentially, although section 3 of title I of the draft bill makes certain fraudulent actions illegal, the scheme of this title (which is to be cited as the “District of Columbia Securities Act”) is to provide for the licensing and regulation of persons engaging in the business of dealing in securities in the District of Columbia. Section 2 defines the terms used in the proposed act, while section 4 makes it unlawful for any person to engage in business as a broker-dealer or agent unless licensed in accordance with the requirements of the act. Under section 5, applicants for licenses to engage in the busines of dealing in securities must furnish information concerning themselves and the proposed manner in which they intend to operate in the District of Columbia. Applicants for licenses as broker-dealers and agents may be required by the Public Service Commission to post surety bonds in amounts not exceeding $50,000, on such conditions as the Commission may consider necessary or appropriate in the public interest or for the protection of investors. Broker-dealer licensees are required to have and to maintain a minimum capital of $15,000, except in certain specified cases. Licensees are required by section 7 to make and keep for such periods as may be prescribed such records as the Commission may by rule require as being necessary or appropriate in the public interest or for the protection of investors. Under section S, sales and advertising literature utilized by a broker-dealer or agent may be required to be filed with the Commission. The filing of false or misleading information with the Commission is prohibited by section 9, and section 6 specifies that notwithstanding that an application for license has been filed or that a license has been issued, such action shall not constitute a finding by the Commission that any document filed in accordance with the requirements of the act, or a statement made in any such document, is true, complete, and not misleading. Section 10 establishes the procedure for the denial, revocation, suspension, cancellation, or withdrawal of licenses.
Section 11 authorizes the Commission to make such public or private investigations within or without the District as it deems necessary to determine whether
there is any violation of the act or any rule or order issued under the authority of the act, and further authorizes the Commission to administer oaths and .affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of such records and other material as it deems relevant or material to an inquiry. Should there be failure or refusal to obey a subpena issued by the Commission, the U.S. District Court for the District of Columbia, “upon application by the Commission with the approval of the U.S. attorney for the District of Columbia,” may issue an order compelling such person to appear vefore the Commission and failure so to appear may be punished by the court as a contempt. The purpose of giving the U.S. attorney power to control applications for compelling orders is to avoid wholesale grants of immunity to witnesses. Further, subsection (d) of section 11 limits the immunity which a witness who is compelled to testify may acquire so as to make it explicit that immunity is acquired only by testifying, after claim of privilege, pursuant to the court order issued under the authority of subsection (c) of section 11. Once a witness is properly compelled, subsection 11(d) grants an immunity as broad as the constitutional privilege given up by the witness, by forbidding prosecution in any court (local or Federal) on account of any matter as to which he is compelled to testify. The Commission is also authorized by section 12 to bring an action in the U.S. District Court of the District of Columbia to enjoin acts or practices not in accordance with the requirements of the act or rules or orders issued under the authority of the act.
Section 13 prescribes criminal penalties for willful violations of the act, while section 14 provides that persons licensed under the authority of the act shall be liable civilly to purchasers of securities who may suffer loss by reason of failure of the licensee to conform with the requirements of the act. Section 15 establishes the scope of the proposed legislation and provides that applicants for licensing under the act shall file with the Commission an irrevocable consent appointing each member of the Commission or his successor in office to be the applicant's attorney to receive service of any lawful process in any noncriminal suit, action, or proceeding which may arise under the act or any rule or order ado ed by the Commission under the authority of the act. Persons who engage in conduct prohibited or made actionable by the Securities Act or any rule or order issued under its authority shall, if they have not filed a consent to service of process, and personal purisdiction cannot otherwise be obtained in the District, be considered by their conduct to have appointed each member of the Commission, or his successor in office, to be the attorney for such person to receive service of process in any noncriminal suit, action, or proceeding arising out of the conduct of such person and brought under the act or a rule or order issued under the authority of the act.
Section 16 provides for the administration of the act by the Public Service Commission of the District of Columbia (formerly the Public Utilities Commission of the District of Columbia) ; provides that fees and other funds received pursuant to the act shall be deposited in the Treasury to the credit of the District, except that so much of the receipts as does not at any one time exceed $5,000 may be retained in a trust fund to cover the cost of hearings; authorizes appropriations to carry out the purposes of the act; and incorporates in the act as a part thereof all of the powers vested in the former Public Utilities Commission of the District of Columbia by section 8 of the act of March 4, 1913 (title 43, District of Columbia Code, 1961 ed.), with the exception of paragraph 42 of such section (sec. 43–412, District of Columbia Code, 1961 ed.) which authorizes the Commission to assess against utility companies costs of investigations. Section 17 provides for judicial review of final orders of the Public Service Commission by adding a paragraph No. 10 to section 7(e) of the act approved April 1, 1942 (56 Stat. 190), as amended (sec. 11-772, District of Columbia Code, 1961 ed.). Section 18 contains a severability provision, while section 19 establishes two effective dates for the act—the provisions regarding fraud become effective upon the act's approval, while the remaining provisions of the act become effective 180 days after approval, in order to allow the Public Service Commission time to organize and process applications prior to the deadline for licensed operation.
Title II of the bill provides that the Public Utilities Commission of the District of Columbia shall be known as the “Public Service Commission of the District of Columbia."
The cost of the proposed legislation to the District of Columbia is estimated to be $24,000 per year. Such costs would be recovered by the District in fees to the extent of approximately $20,000 a year.
The Commissioners of the District of Columbia strongly believe that the attached draft bill establishing a Securities Act for the District of Columbia will go far toward correcting certain unhealthy conditions which have grown up in the District of Columbia with respect to the business of dealing in securities. Accordingly, the Commissioners urge the Congress to enact the attached proposed legislation at the earliest possible moment in order to afford adequate protection to the public against unqualified or unscrupulous persons who may engage in the business of dealing in securities in the District of Columbia.
The Commissioners have been advised by the Bureau of the Budget that, from the standpoint of the administration's program, there is no objection to the submission of this legislation to the Congress. Very sincerely yours,
E. J. CLARKE, Acting President, Board of Commissioners, District of Columbia. Mr. ABERNETHY. Off the record. (Discussion off the record.) Mr. ABERNETHY. Proceed, Mr. Bryan.
Mr. BRYAN. The Commissioners submitted to the Congress a proposed bill which became H.R. 4200.
The committee of experts to which Mr. Acheson has referred was responsible for the drafting of this legislation, and with the committee's indulgence, may I say that even though I am included among, in the names of those referred to by Mr. Acheson as experts, I hereby correct that statement and say I am not an expert on the subject of securities.
I was included, I am sure, because of my official position in the District of Columbia government and in the Corporation Counsel's office, having the primary responsibility for drafting of District of Columbia legislation.
The Commissioners were informed that a committee of experts had drafted the bill, and after giving the matter due consideration, concluded that although they had some authority vested in them to regulate businesses under the Licensing Act of 1932, they felt that it would be desirable if there were enacted for the District of Columbia a companion piece to the blue sky laws that are in effect in virtually all of the States.
Having in mind also that the Securities and Exchange Commission has a certain jurisdiction in interstate commerce, including commerce within the District of Columbia, under which jurisdiction the SEC could and undoubtedly will continue to exercise in respect to the issuance of securities, the Commissioners felt that the aspect of this legislation which emphasizes the proposition that persons engaged in the business should be qualified to do so, should demonstrate not only their experience and other qualifications, but should also demonstrate that they have the financial standing to back up their dealings with members of the public.
Reference has been made to the requirements of the bill concerning bond and concerning minimum net capital.
The Commissioners felt those were rather important-extremely important—and for those reasons particularly, they felt that this legislation was desirable and necessary.
The fees that would be derived from the licensing of broker-dealers and agents would return to the District approximately 80 percent of the cost, the estimated cost on an annual basis is $24,000.
Fees would bring approximately $20,000 a year. The Commissioners feel that the investment on the part of the taxpayers of the
apparent or estimated $4,000 a year toward the cost of administering this act is a reasonable burden.
The Public Utilities Commission was selected by the District Commissioners as the agency to administer the act. The bill would rename the Commission as the Public Service Commission.
This is not unlike the situation in some of the States, particularly the State of Virginia, which has a corporation commission which administers a similar law, and also regulates utilities and other matters within the State.
The Commissioners want to recommend very strongly to the Congress the enactment of this bill as being desirable and in the public interest.
If there are any questions, I will be glad to try to answer them.
I have read the Commissioners' letter to the chairman and it is an excellent exposition, I think, of the necessity of this law.
Do you deny your expertise in this, or would you care to comment on the expertise of the Commission that would handle these matters insofar as knowledge of securities is concerned!
Mr. BRYAN. Well, Mr. Keith, the members of the Public Utilities Commission, at the present time, are charged by law with the responsibility of regulating with respect to service, rates, and other matters, the activities of all public utilities operating in the District of Columbia, with the exception of the mass transportation industry.
They regulate the electric light and power company, the gas company, the telephone company and certain phases of the transportation industry insofar as it relates to public vehicles such as sightseeing and taxicabs.
I believe that a Commission which is qualified—incidentally, the members of the Commission are appointed by the President and confirmed by the Senate; two civilian members. One of the members is ex officio the Engineer Commissioner of the District of Columbia, a member of the Corps of Engineers of the U.S. Army, who is required by law to be of a certain rank and who is designated by the President.
He is ex officio member of the Commission.
Mr. KEITH. I used to be an agent selling life insurance. A $100 annual fee to sell life insurance is pretty steep and would discourage a lot of people from going into the business. I wondered how this $100 fee compares with that in other States.
Mr. BRYAN. The $100 fee spelled out in this bill is for a 2-year period, sir, for a broker-dealer, and it is $25 for a 2-year period for an agent.
So on an annual basis, it would be just half that figure and I don't think it would be too far out of line. It may be a little higher than some of the States.
I believe Maryland's figure is $75 a year for a broker-dealer. I don't recall what it is for an agent.
Mr. KEITH. Thank you very much.
Mr. SPRINGER. Mr. Chairman, at this point, might I make an insertion in the record ? Mr. ABERNETHY. Certainly.
Mr. SPRINGER. This is not long, but I think it is important. I would like to have permission of the chairman and other members to insert this pamphlet which is entitled "Investors Beware,” which won a Pulitzer Prize, by Miriam Ottenberg, a Washington Star staff reporter.
Mr. ABERNETHY. I was intending to do that.
(By Pulitzer Prize Winner Miriam Ottenberg, Star staff writer)
A SERIES EXPLORING THE PRACTICES OF QUESTIONABLE INVESTMENT FIRMS
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. The series of articles entitled, “Investors Beware" written by Miriam Ottenberg for the Washington Star describes a situation of which every investor in Washington, D.C., should be informed. Growth in the number of securities firms operating here on the fringe of established ethics and the law has been of great concern to the vast majority of firms in the securities busines, the NASD, and the SEC. Increased enforcement activity by NASD and the SEC has been effective; however, this alone can not provide the full measure of protection which is needed.
An informed investor is capable of exercising commonsense when approached by a stranger representing the securities business who promises great profits in a short period. Miss Ottenberg's articles contain basic facts which could prove invaluable to investors.
Also, an informed investing public is essential if Washington is to have the right kind of securities law, properly administered.
If we are to deal promptly and well with the problems created by marginal firms moving into this area and realize the standards for which both the NASD and the SEC are striving, it will be in the light of analyses such as the “Investors Beware" series. These articles deserve careful reading.
WALLACE FULTON, Executive Director
[From the Washington (D.C.) Star, Feb. 4, 1962] INVESTORS BEWARE: 1 OF 3 DISTRICT OF COLUMBIA BROKERS FOUND TO BE UNSAFE
(By Miriam Ottenberg, Star staff writer) More than 100 firms are dealing in stocks and bonds in Washington, but onethird of them couldn't operate in most of the States.
That means the chances are 1 in 3 that the unwary Washington investor may run into a broker-dealer who knows nothing about the business or who pays the rent with his customer's investment money or who applies high-pressure tactics to sell questionable stocks.
The present danger to Washington investors is emerging in investigations conducted by the Securities and Exchange Commission, the National Association of Securities Dealers, and the Better Business Bureau.
The steadily worsening situation here in the promotion and sale of low-priced, over-the-counter securities lay behind the SEC's recent decision to send a task force of investigators into Washington on a cleanup mission.