circumstances, principal of which were economic and political conditions obtaining at the time, and the somewhat inexpert manner in which the underwriter functioned. As a matter of fact, the offering of stock was ill-starred from the beginning. A substantial underwriting concern with whom we had been negotiating for some time was on the point of taking on the business just prior to the invasion of the Low Countries by Germany. Market conditions thereafter, as you know, were not quite ideal for an offering of securities such as this company's common stock.

Fortunately, the company has been able to continue operations on a limited scale through assessment on its outstanding common stock. As matters presently stand, it seems evident that the company will be obliged to secure capital by interesting a small number of persons of means. This procedure is of course rendered difficult by the fact that in order to attract capital of this kind, the original promoters who have devoted considerable time, effort, and money are practically obliged to relinquish control to the contributors of fresh capital. As you can readily appreciate, the company is not in a position to secure senior inoney.

Insofar as the Securities Act and the Commission are concerned, the management of Recordgraph has no criticism whatever. We found the Commission entirely cooperative and sympathetic with the problems confronted by the company in complying with the statute. Mr. Parlin of the Commission's New York Regional Office was of particular assistance to us. While the cost of security flotation to a small issuer is naturally large, I doubt that costs are materially higher than they were prior to 1933. I think it entirely possible, in fact, that underwriting commissions may be more reasonable than was formerly the case-perhaps because of the necessity of disclosing compensation to underwriters in the offering prospectus. The investor is certainly better informed under the Securities Act and I believe that anyone asked to contribute capital to a corporation is entitled to full information respecting that corporation and its business. In my opinion the Securities Act, affecting the registration of securities only, should not be amended in any material respect.

Very truly yours,

JOHN W. MONTGOMERY,

Formerly President and Counsel to Recordgraph Corporation.

SECURITIES AND EXCHANGE COMMISSION,

BUSINESS CAPITAL CORPORATION,
Jersey City, N. J., December 3, 1941.

Washington, D. C.

GENTLEMEN: In the spring of 1939, this corporation filed a registration statement with your Commission under the Securities Act of 1933, covering 25,000 shares of its class A common stock. The offering was of relatively small size, amounting to $150,000. While the cost of floating this issue of securities was relatively high, it has been my own experience that the cost of floating small issues always has been, and presumably always will be, proportionately higher than the cost of floating large issues.

The cost of accounting services are, I believe, higher than was formerly the case, but the improved quality of accounting information available to investors is an offsetting factor. When all factors are taken into consideration, I think it not unlikely that the cost of distributing securities depends as much upon the economic conditions which exist at the time the issue is brought out, as upon the cost of registering under the Securities Act.

This company found members of the Commission's staff helpful and cooperative, and appreciative of the problems which registration naturally entails. The preparation of the registration statement was of considerable value to the executive personnel in that it concentrated their attention on the imporance of full disclosure of all material facts. The registration statement itself has been of distinctive value to us as a historical document as of the time of its preparation. Subsequent to the above-described stock issue the company, experiencing the need of additional capital, registered with the Commission a second 25,000 shares of the same class of stock, and should the need arise in the future for further capital, we would not hesitate to register subsequent issues under the act.

SECURITIES AND EXCHANGE COMMISSION,

THE GREENWICH GAS Co., Greenwich, Conn., December 24, 1941.

Washington, D. C.

GENTLEMEN: In accordance with a request made by Mr. Lloyd C. Mathers of your staff, we are writing you in regard to our somewhat limited experience with the Securities Act of 1933.

We are an operating gas utility with no manufacturing facilities. Our plant, therefore, consists only of mains, service connections, meters, and other necessary appliances appurtenant to a transmission and distribution system. From time to time we have extended our distribution mains in other parts of our franchised territory, which extension create requirements for additional capital.

Operations since the passage of the Securities Act of 1933 have necessitated the filing of four registration statements with the Securities and Exchange Commission. The preparation of a registration statement involves considerable work for those responsible for its preparation. When completed it has a certain value as a historical document because it does contain as complete a story as can be assembled of the company's history and financial position up to and including the particular time to which it applies.

Undoubtedly the cost of bringing out a small issue of securities is high, and necessarily so, because of the very complete information which has to be made available to the investors and which they may or may not make use of.

A recent issue of securities brought out by this company was an issue of $800,000, or 32-percent first-mortgage bonds which we had originally intended to offer publicly to refund an earlier issue of 4-percent bonds. Due to the time required to prepare and file the registration, however, the market took a turn which made it necessary to change the plans and the entire issue was eventually sold to the John Hancock Mutual Life Insurance Co., of Boston; thus the issue became in effect a private placement. It would probably be more advantageous under ordinary circumstances, for the company to place any future issue of bonds direct with an insurance company if an opportunity presents itself. The management would probably feel that even though this was done the securities should be registered under the Securities Act if the issue was in excess of $100,000. I should like to state that this company in its dealings with the Securities and Exchange Commission has always found the Commission and the members of its staff cooperative and ready to assist us at any time with problems of interpretation. It seems to me that the Commission by rule or interpretation has consistently endeavored to improve its technique of administration and to eliminate various causes of complaint which may have arisen from time to time.

Yours very truly,

P. E. HAYNES, Treasurer.

B. LETTERS RECEIVED BY COMMISSION EXPRESSING ATTITUDE OF THE INVESTMENT PUBLIC ON THE PROPOSED AMENDMENTS

Representative Paddock (at p. 54 of the printed transcript) inquired with respect to letters received by the Commission which express the attitude of the investment public toward the proposed amendments. There have been very few of such letters. I have handed to the clerk of the committee, for the use of its members, photocopies of letters received by the Commission from various members of the general investment public relating to the proposed amendments.

C. REPRESENTATIVE WADSWORTH'S QUESTIONS ON ITEM 16 (g) OF FORM U5S Congressman Wadsworth has asked me several questions (at pp. 58-59 and 356-362 of the printed transcript) regarding item 16 (g) of Form U5S under the Holding Company Act, particularly in connection with the requirement for disclosure of contributions to charities. The Corrupt Practices Act has been mentioned here a few times. Item 16 (g) was not promulgated by the Commission in connection with the Corrupt Practices Act. I gave my offhand answer that I believed that the item related to section 12 (h) of the Public Utility Holding Company Act of 1935, which makes political contributions by public utility holding companies or their subsidiaries unlawful, and I referred to what had been revealed in the investigation of the political "slush" fund of the Union Electric Company of Missouri. I wish to point out, however, that the item also relates to a somewhat broader problem.

It is an elementary and customary part of the process of regulating public utility companies, which usually enjoy exclusive franchises within given areas, to require an accounting of everything which the companies do with the money received from the consumer. This applies to all expenditures, whether legitimate or illegitimate. Contributions to genuine charities, of course, fall within the category of legitimate expenditures, but there has been considerable controversy as to whether charitable contributions may properly be included in expenses deductible in computing a fair rate of return. Our Commission has never had occasion to express an opinion on this matter, since it had no rate jurisdiction. It is our conclusion, however, that the public importance of the issue justifies requiring disclosures along these lines in the annual reports filed by companies subject to the Public Utility Holding Company Act. In that connection I wish to point out that the uniform classifications of accounts for operating companies, as prescribed by most State commissions and by the Federal Power Commission, require that all items of expense be recorded in a manner permitting ready identification of the purposes of each item of expense. Under item 16 (g) we are merely requiring a report in tabular form of information which is thus presently available, and our attention has been called to no instance where the companies concerned did not have available records from which to prepare the information called for by item 16 (g).

The item was not included in the original form because the Commission did not have the experience it now has as to the devious methods employed in concealing the making of political contributions. The investigations of Union Electric Co. of Missouri and of similar activities by two other subsidiaries of the North American Co., Illinois-Iowa Power Co. and Missouri Power & Light Co., indicated to the Commission the need of including item 16 (g). As you doubtless know, convictions for violations of section 12 (h) have already been obtained in both the Illinois-Iowa and Missouri Power and Light cases. In the case of Union Electric, the company and its former president were indicted for violation of section 12 (h) but have not yet been tried. There have, however, been three convictions for perjury in connection with the Commission's investigation of Union Electric. One of the officers involved pleaded guilty, one pleaded nolo contendere, and the third, who was executive vice president, stood trial. His conviction has recently been affirmed on appeal by the unanimous decision of the Circuit Court of Appeals for the Eighth Circuit.

I should like also to refer to an opinion of the Federal Power Commission (No. 59, Docket No. items 5647) published in February of this year. This opinion summarized the results of the Power Commission's investigation of the operating accounts of five utilities operating in the Pacific Northwest, with particular reference to charges made to operating expenses and activities in connection with their opposition to the public power program in that area. The opinion indicated many forms of indirect political expenditures, including the use of employees on company time in supporting various organizations described as "Taxpayers Associations" and "Let the People Vote Leagues."

Our Commission, of course, has no desire to interfere with the making of genuine contributions to charities or to scientific projects or with the advertising of companies subject to its jurisdiction. But the history of the political activities of companies subject to public regulation, as revealed in the Federal Trade Commission study which Congress referred to in section 1 of the Holding Compan Act, indicated that the so-called contributions were often to organizations set up by the companies themselves, that their control and purposes were disguised by the names adopted, and that advertising paid for by the companies did not always appear in their own names. More recent investigations indicate that similar abuses may still persist. I have already mentioned the recent investigation of the Federal Power Commission. I refer also to the findings of the Tennessee Public Utilities Commission in the case of Tennessee Electric Power Company, (27 P. U. R. Reports (new series) 152, dated February 10, 1939), in which financial assistance to a newspaper by the utility company took the form of a payment to a lawyer not commensurate with the services rendered and a contemperoaneous subscription on his part to the preferred stock of the newspaper.

In the last few weeks the Senate Committee investigating railroads, holding companies, etc., in a recent report (S. Rept. No. 26, pt. Q. 77th Cong., 1st sess., p. 67), commented strongly on the practice of railroads engaging in propaganda through the secret route of supplying funds to a so-called educational foundation.

The Commission has frequently received complaints as to political activities in contravention of section 12 (h) of the act. We do not, of course, deem it appropriate to make investigations on the basis of mere suspicion. But the investigations which we have undertaken have been exceedingly difficult and prolonged because of lack of complete information on which to start. Commission is of the opinion that its experience in these investigations and the strong motives for concealing political contributions require reports within the general field covered by item 16 (g) of Form U5S.

The

The question has been raised whether it is feasible to inquire as to the time employees and officers have devoted to particular activities. It should be emphasized that the item only refers to activities of officers or employees acting as such; that is, acting for the company as distinguished from the voluntary devotion of their spare time to charitable organizations. Almost all public utility companies find it necessary to keep careful time records in order properly to reflect the portions of salaries chargeable to the various classified expense accounts. In the case of certain executive personnel who do not find it feasible to keep detailed time records, estimates are commonly substituted and are accepted as meeting the requirements of item 16 (g). Except for the making of such estimates, it would not be necessary for most companies in most situations to keep additional figures in order to respond to this portion of item 16 (g), and we are not aware of any particular difficulties which have been experienced in complying with this portion of the item. That time spent in such activities is important is indicated by the opinion of the Federal Power Commission mentioned above.

Paragraph 3 of the item was intended to cover an obviously possible means of making significant political contributions, under the guise of payments to newspapers and other publications. Paragraph 4 was designed to cover another effective method of indirectly effecting political contributions, that is, where the utility was involved in influencing or causing political contributions to be made by employees. Paragraph 5 was designed to cover other indirect methods of effecting political contributions. An example would be the loan of addressograph or duplicating facilities for use in political campaigns. This paragraph merely requires a statement of the purpose for which such facilities are made available.

The requirements of this form, like all our requirements, are subject to revision in the light of experience. In fact, the Commission has already authorized substantial condensation of the information prescribed by item 16 (g). This authorization took the form of a letter of instructions to the registered holding companies, which was sent out in response to suggestions received from some of the holding company men who were engaged in preparing the report. It was made applicable to the first reports due this year, but many of the companies did not take advantage of it. Their failure to do so may in some instances have been due to the fact that they had already prepared the report in the full detail originally prescribed by item 16 (g). On December 31, 1941, in connection with a number of minor amendments to Form U5S the Commission incorporated this authorization into the instructions to item 16 (g) in the form itself.

I have handed to the clerk of the committee, at Representative Wadsworth's request, and for his use, a copy of Form U5S as of December 28, 1940, in which item 16 (g) first appeared, a copy of the Commission's letter of instructions of April 28, 1941, to all registered holding companies, and a copy of the current Form U5S as of December 31, 1941.

D. COMMISSION'S RULES ON TRADING BY COMMISSION EMPLOYEES

Representative Brown (at pp. 73–74 of the printed transcript) inquired about the Commission's rules relating to trading in securities by Commission employees. I have handed to the clerk of the committee, for the use of its members, 25 copies each of office memorandum No. 51-B, dated May 28, 1941, which contains the Commission's current rules regarding security and commodity transactions by its employees; Form SE-P-3, which is the current form on which all employees are required to report all purchases or sales of securities or commodities within 3 days after the date of the transaction; and Form SE-P-4, which is the current form on which all new employees supply specified data as to their security holdings at the time of the taking of the oath of office as an employee. More or less. similar rules as to employee trading have been in effect since July 6, 1934, and have been amended from time to time.

E. COMMISSION'S RULES AND REGULATIONS UNDER SECURITIES ACT OF 1933 AND SECURITIES EXCHANGE ACT OF 1934

Representative Holmes (at p. 91 of the printed transcript) requested copies of the Commission's General Rules and Regulations under the Securities Act of 1933 and the Securities Exchange Act of 1934. I have handed to the clerk of the committee 25 copies of the current General Rules and Regulations under each of these acts.

F. INFORMATION ON COMMISSION'S RELEASES AND SUPERVISOR OF INFORMATION RESEARCH

Representative Brown (at pp. 91-92 of the printed transcript) asked for copies of the Commission's pamphlet on The Work of the Securities and Exchange Commission; information as to the number of copies of that pamphlet published; information as to the number of press releases published in the last 90 days and the number of people to whom they were sent; and the names, the type of work and the salaries paid to the persons employed in the "Bureau of Information." I am submitting for inclusion in the record a statement which gives the requested information, together with a break-down of all of the releases issued by the Commission in the months of July, August, and September 1941. I have also handed to the clerk of the committee 25 copies of the pamphlet "The Work of the S. E. C." 25 copies of the Commission's Classifications of Releases, which is sent to persons asking to be put on the Commission's mailing list in order that they may select the types of releases they desire; 25 copies of the post card on which persons make this selection; and a copy of every release issued by the Commission during July, August, and September 1941, arranged according to the several series.

(The statement referred to is as follows:)

The Securities and Exchange Commission has an office of information research which is responsible for making information available to the public by means of correspondence and releases. This is made necessary by the very nature of the legislation under which the Commission operates. These acts contemplate that the public shall have ready access to the Commission's rules, regulations, opinions, and findings, as well as to the filing of registration statements, the effective registrations, the hearings held, and related matters. No names are included on our mailing lists except on request. The mailing lists are revised periodically. The releases are classified into various categories so that a person on one or more of the mailing lists may receive copies of announcements relating to one particular phase of the Commission's work without obtaining material in which such person would have no interest. Among those on the mailing lists, in addition to members of the general public, are banks, insurance companies, brokerage firms, security dealers, investment and financial services, statistical organizations, stock exchanges, corporations, universities, libraries, and law, accounting, and engineering firms.

The Commission publishes a daily Registration Record, which presents a brief description of data filed under the Securities Act and the Trust Indenture Act. "The Work of the Commission" was first prepared in 1935. It was revised in December 1940. An average of 1,800 copies has been distributed each year since the pamphlet was first published. It is in the process of being revised at the present time to show personnel changes and bring the statistical information up to a more recent date.

The personnel employed in the office of information research consists of the following: