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Mr. COHEN. I think probably the most important element which affects the Commission's operations does relate to the budget. The budget and its ability to recruit people. There are a lot of built-in rules and they were built in for perfectly good reasons but, after many years, they have effects never intended. It is pretty hard to move people around, pretty hard to promote people and interest them in staying and doing a particular job. It is the budgeting, the appropriations, and the selection of personnel. That, in my view, is the only problem. Mr. STUCKEY. You felt that did hamper somewhat the independence?

Mr. COHEN. Yes, it did.

Mr. STUCKEY. What were the procedures when you were Chairman for appointing some of your professional personnel?

Mr. COHEN. If I can go back, I will tell a story for which I might be put in jail by the chairman.

Mr. STUCKEY. We might take a vote and grant immunity.
Mr. Moss. I will waive that.

Mr. COHEN. I don't need any.

Seriously, there came a time when there were problems, problems with which this committee is now wrestling, which became apparent some few years ago. I have in mind just one situation; that is when I had to come to this committee to ask for special legislation and an appropriation to do a study of the institutionalization of the securities markets. Frankly, I thought then, and still do, that the Commission had the power to do it then under existing legislation, but we had no money. I may have said so in my testimony. I had to come, dramatize the situation and get you fellows to provide the money.

Mr. STUCKEY. Then you had to come back and ask for more?
Mr. COHEN. Not I. I was gone by that time.

It did happen and I was about to say you may have had problems with how much money was involved. But that does illustrate the point very definitely. It was a situation where the Commission was persuaded that something need to be done in a hurry and we needed to have real information. We could have done it but that would mean people would have to stop enforcing cases and examining registration

statements.

Mr. STUCKEY. You may recall another incident that sticks in my mind regarding incidents with the budget. On one occasion the committee thought you didn't have enough money to perform your functions and you said, "We don't, but we know this is all we will get, so this is all we are asking for."

Mr. COHEN. Right. As someone suggested earlier, I always had an open mouth and sometimes that created problems.

Getting back to your question, Mr. Stuckey, that is the only area in my experience

Mr. STUCKEY. You wouldn't say that is the only area?

Mr. COHEN. The only area that provided any real impediment to the Commission.

Mr. STUCKEY. When you were Chairman, did the White House or any Member of Congress send over a job application to you? In other words, saying here is a person we would like you to hire?

Mr. COHEN. Not the White House, but some Members of the Congress did.

Mr. STUCKEY. When this application came, whether from the Congress or if you received any from the White House, did you feel that the Commission, or you yourself, not free to reject this application?

Mr. COHEN. Oh, no. I would venture to say of all the applications we got from Members of Congress-I hope I am not getting the Commission into trouble-we probably rejected 99.9 percent of them. Mr. STUCKEY. We are not bringing any pressure to bear then; are we?

Mr. COHEN. One of my former colleagues on the staff of the Commission for a short time now sits on this committee, and he may have some independent recollection of this particular matter.

Getting back to your question, so far as the White House is concerned I have never had a chance to say this publicly, with the chairman's indulgence, I would like to say it.

When I was sworn in as Chairman of the Commission, it was done in the White House, and the President took me aside after the ceremony was over and, even though I was still in some kind of euphoria, I remember what he told me. He said, "Now, look, Manny, you know what needs to be done, so you go over there and do it. I have two important conditions, and that is, (1), if you ever need any help, call on me; and, (2), please reflect well on my administration." That was the end of it.

Mr. STUCKEY. What procedure did you as Chairman use in appointing your professional staff and hiring people?

Mr. COHEN. I will have to tell you another story out of school. Maybe this is a little backward and I will answer your question, but I think this will illustrate something better not told, but I am going to tell you anyway.

There came a time when there was a vacancy in the Commission's Fort Worth office in Texas, and at that time a Texan was President of the United States and the guardian to his door was another Texan that some of you gentlemen know very well. I needed to fill this office. and I made inquiries around the Commission and I looked at the various people who had the qualifications to fill this job.

I finally settled on a gentleman, but checking all the files, I found out-and I hope I am not doing anybody a disservice that when he was a young man, he had been active in Young Republican politics in a Midwestern State. I thought conceivably this might be a problem to some people and may be a particular problem in the great State of Texas, but I determined, after studying the matter, that he was the right person. So I appointed him. After he was appointed and the release was out, I called the White House to tell them about it. There was a silence on the other end that must have been about one-tenth of a second, but to me it appeared to be at least 10 minutes.

Then there was a chuckle and he said, "OK, Manny, if he is all right with you, he is all right with me. I would like to meet him. Next time he is in town, send him around."

Mr. STUCKEY. Did you feel pressure to inform the White House? Mr. COHEN. No, the appointment had been done.

Mr. ECKHARDT. He would have been more at home in Dallas than Fort Worth.

Mr. COHEN. My answer to you is I never cleared any appointments with the White House, and the White House never asked me.

20-306-74-pt. 1-18

Mr. STUCKEY. You never had any pressure from the White House to appoint people to jobs, just from the Congress?

Mr. COHEN. There were people who would call. Frankly, when I received calls of that kind, I kept them to myself.

Mr. STUCKEY. You didn't keep records of the phone calls?

Mr. COHEN. I may have kept the records. I don't mean to suggest otherwise, unless we shredded them lately. Seriously, what I meant by saying that was, if there was someone whose application was sent to me and it seemed a person who might be an appropriate person for consideration by the Commission, I would send the application to the personnel office without indicating where that came from. That was just my business and nobody else's. So it was dealt with on the merits. Maybe that is why 99.9 percent were rejected.

Mr. GOLDWATER. Will the gentleman yield?

Mr. STUCKEY. Yes.

Mr. GOLDWATER. Maybe you should address yourself to the pressures you felt from industry.

Mr. COHEN. I never had any pressures in the conventional sense, but when there was a vacancy in a top slot, there were a number of people in industry, people who were friends of mine, whom I had known who might casually make suggestions of one kind or another, but never any pressure.

Mr. Goldwater, I think the only way I can answer that is that I was known as one hell of a son of a bitch, so people just naturally stayed away from that as far as I was concerned.

Mr. STUCKEY. One last question and then I will yield. Manny, do you have any feelings about whether the Commission should elect its own Chairman?

Mr. COHEN. I have some feelings, I don't know really which way they run. You know, that was the situation in the beginning, and there is a story, it is probably apocryphal, that during the first 2 days of the Commission's existence, there was a 24-hour continuous meeting of the SEC, because they could not come to a clear majority of which of the five should become Chairman of the Commission, and then somebody called the President, and the President said he didn't have any authority, but he thought it would be appropriate for Mr. So-and-So, and that is how it came about.

I think in choosing the Chairman, someone has to do it, and I am not sure the elective process among the five gentlemen is the best way. The present system works and I think fairly well. Only because I don't have any reasons to suggest it doesn't work very well, I would keep it. And, finally, I would say the other presents some problems to me. Maybe they are hobgoblins, but I think they would be problems. Mr. STUCKEY. Thank you, it is good to have you back. Thank you, Mr. Chairman.

Mr. BRECKINRIDGE. While we are on this line of testimony. Mr. Cohen, you heard the testimony yesterday to the effect that a half dozen more or less people should accompany a new Chairman, and the question was whether or not there should be "uncovered" positions in the service. Would you enlarge on that?

Mr. COHEN. The fact of the matter is that in recent years one Chairman did exactly that. He became Chairman, and he appointed six or seven persons as special counsel, or counsel, and all of them came from the outside. The present system does not make that impossible.

I think Mr. Cary was speaking to a time when he experienced, and I did, too, a certain difficulty in persuading the Civil Service Commission as to the need for those jobs. I don't know whether the same attitude exists today as when I was at the Commission, or when Mr. Cary was there. Certainly it is desirable for a Chairman to bring some new people to the Commission. Not because of any lack of trust of the people in the Commission, but because he is coming in with some views of his own and he would like to have someone who he feels is unfettered by a particular staff bias or approach, or what have you. I think this can be overstated, however. There has never been a Commission that has been better than the staff. I am talking of the SEC, not about other Commissions.

I think this concern about bringing in other people can be misstated. I think Bill Cary was speaking about something else. I think he was concerned with the fact than an agency like the SEC, with a limited budget, is so involved with the day-to-day work that it has been very difficult to take people from the staff, put them aside, tell them to put their feet up, and ask them to think about what is happening around the Commission, where is the Commission going, what needs to be done. That is the sort of thing he was addressing himself to.

I think every Chairman, even if it is not a new Chairman, should have the opportunity to bring new people in if he can't do it from the staff.

Mr. BRECKINRIDGE. Does this require any change in the proposed legislation?

Mr. COHEN. I haven't thought about it. I said earlier I think under existing provisions this could be done. It has been done. If there is an inadequacy here, I think that point should be clear. I think that in the legislative history of H.R. 5050, the committee might direct a few remarks to that subject.

Mr. BRECKINRIDGE. Thank you.

Mr. Moss. Before recognizing the next gentleman, I want to acknowledge the presence of our colleague, Congressman Goldwater of California, and express the pleasure of the Chair that he has taken the time to sit with this committee during its hearings so far on this legislation as evidence of his great interest. The Chair welcomes that interest and will, in the course of these hearings, attempt to afford the opportunity for the fullest participation by the gentleman. Mr. Ware?

Mr. WARE. I would merely like to comment, Mr. Chairman, that I believe it is three decades since Mr. Cohen and I first met.

Mr. COHEN. It's been a long time.

Mr. WARE. We both had more hair on that occasion.

Mr. Moss. He has it on the lip now.

Mr. COHEN. That is my disguise.

Mr. WARE. I have known him very favorably and thought we were very fortunate to have a public servant of his caliber with the Securities and Exchange Commission.

Mr. COHEN. Thank you.

Mr. WARE. I express the appreciation of all of us, I am certain, that your client for the morning and yesterday is not a profitable one to you, but it is very profitable for us. I am delighted you still have your sense of humor.

Mr. COHEN. Thank you, Mr. Ware.

Mr. Moss. Mr. Eckhardt?

Mr. ECKHARDT. I am very much interested in your testimony with respect to the question of holdover appointments in which you point out that a change be required that a holdover appointment be terminated by the end of the session in which the vacancy occurred would in many instances probably provoke a recess appointment which could continue for another term of Congress.

Mr. COHEN. It could have that effect, sir.

Mr. ECKHARDT. Actually, I suppose if the President wanted to avoid confirmation he could do it even under the present law. Mr. COHEN. Yes.

Mr. ECKHARDT. Particularly if he had the cooperation of a member of the Commission with respect to the time that he might have the job.

Mr. COHEN. That is right, Mr. Eckhardt, and I didn't mean to leave any impressions that the proposed bill changes the situation so radically. The problem is there today but it is highlighted by the changes you made here, and I just felt I ought to bring that to your attention.

Mr. ECKHARDT. I was just wondering, if it were constitutionally possible to prevent the filling of the full five members on the Commission, would it harm the operations of the Commission? Say, for instance, you could not get confirmation of a Presidential appointment and perhaps the Commission might stay at a level of, say, four members for as much as a term of Congress or more?

Mr. COHEN. That has happened, Mr. Eckhardt, and I can't say the Commission was disabled. I think it wouldn't work quite as effectively and, of course, it depends on which vacancy it is. If the vacancy is that of the Chairman the problem may be greater. Of course, there is an acting Chairman, and an acting Chairman, in my experience, has been as effective as a Chairman. But there is the possibility that an acting Chairman may not be. Usually it is the most senior sitting member of the Commission who becomes the acting Chairman.

Mr. ECKHARDT. If there is some way to do this constitutionally, the President would not have any incentive not to make this appointment during the term of Congress, so perhaps the danger of one member short would not occur. I have just been toying with the idea of whether or not Congress can't enact legislation that would result in there not being a vacancy. Looking at the language of the bill, section 4(a), suppose, for instance, the bill said, "It is hereby established the Securities and Exchange Commission is to be composed of not more than five members to be appointed by the President by and with the advice and consent of the Senate." and interject at that point, "The President shall make appointments so as to permit the Commission to be composed of five members and the Commission shall be composed of so many members up to five as have been appointed by the President and confirmed by the Senate."

Mr. COHEN. I am not sure there would be any constitutional disability there, Mr. Eckhardt. First, I want to go back and complete my answer to your earlier question and then I will come back to this point you have just made.

There have been occasions when there has been a split vote in the Commission. When you have one, depending on how the question comes to the Commission, it may result in or be an anomalous result. This

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