"Every application for authority shall be made in such form and contain such matters as the Reorganization Court may prescribe. Every such application shall be made under oath, signed by, or on behalf of, the applicant by a duly authorized agent having knowledge of the matters therein set forth. The Reorganization Court may modify any order authorizing such solicitation, use, employment, or action by a supplemental order, but no such modification shall invalidate action previously taken, or rights or obligations which have previously arisen, in conformity with the court's prior order to orders authorizing such solicitation, use, employment, or action.

"The Reorganization Court may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated or is about to violate any provision of this subsection (0) or any rule or regulation thereunder, and may require or permit any person to file with it a statement in writing, under oath, or otherwise as the said court shall determine, as to all the facts and circumstances concerning the matter to be investigated. The Reorganization Court is authorized, in its discretion, to publish information concerning any such violations, and to investigate any such facts, conditions, practices, or matters as it may deem necessary or proper to aid in the enforcement of the provisions of this subsection (o), and in the prescribing of rules and regulations thereunder. "Any person who willfully violates any provision of this subsection, or any rule or regulation made thereunder the violation of which is made unlawful, or any person who willfully and knowingly makes, or causes to be made, any statement in any application, report, or document required to be filed hereunder or under any rule or regulation authorized hereby, which statement is false or misleading with respect to any material fact, shall be guilty of a misdemeanor, and on conviction in any United States court having jurisdiction, shall be punished by a fine of not less than $1,000 nor more than $10,000 or by imprisonment for not less than 1 year nor more than 3 years, or by both such fine and imprisonment, in the discretion of the court; but no person shall be subject to imprisonment under this section for the violation of any rule or regulation if he proves that he had no knowledge of such rule or regulation.

"The provisions of this subsection (o) shall not be applicable to any person or committee which has begun to solicit, obtain, or use proxies, authorizations, or deposit agreements prior to the effective date of this amendatory section in connection with proceedings under this section as in force prior to such effective date or receivership proceedings against a railroad then pending in any State or Federal court, unless such person or committee has heretofore made application to the Interstate Commerce Commission and received authority, or makes application to the Reorganization Court and receives authority, to act as in this subsection provided, in either of which events the provisions of this subsection (o) shall be applicable to such person or committee, but such authorization shall not invalidate any action theretofore taken, or any rights or obligations which have theretofore arisen; nor shall the provisions of this subsection (o) be applicable to any person or committee which has begun to solicit, obtain, or use proxies, authorizations, or deposit agreements prior to the effective date of this act and which has been authorized so to do by the Interstate Commerce Commission under the provisions of subsection (p) of the act of August 27, 1935, before the effective date of this amendatory act, so long as such authorization of the said Commission shall continue to be in force and effect: Provided, That with respect to committees which are not subject to this subsection (o) the Reorganization Court shall scrutinize and may disregard any limitations or provisions of any deposit agreements, committee, or other authorizations affecting any creditor or stockholder acting under this section and may enforce an accounting thereunder or restrain the exercise of any power which it finds to be unfair or not consistent with public policy, including the collection of unreasonable amounts for compensation and expenses.

"(p) The judge shall designate, by order, banking institutions as the depositories for the funds of railroads under reorganization under this act, and shall require from each such bank bond with good and sufficient surety for the prompt repayment of the deposit. The judge may, in accordance with the provisions of, and the authority conferred in section 1126 of the Revenue Act of 1926, as amended (U. S. C. title 6, sec. 15), accept the deposit of the securities therein designated, in lieu of a surety or sureties upon such bond and may, from time to time as occasion may require, by like order increase or decrease the number of depositories or the amount of any bond or the security or change such depositories: Provided, That no security in the form of a bond or otherwise shall be required in the case of such part of the deposits as are insured under section 128 of the Federal Reserve Act, as amended: And provided further, That depository banks shall place such securities, accepted for deposit in lieu of a surety or sureties upon depository

bonds, in the custody of Federal Reserve banks or branches thereof designated by the judge, subject to the orders of said judge. All national banking associations designated as depositories pursuant to the provisions of this section of this act, are authorized to give such security as may be required. All pledges of securities heretofore made for the purposes herein named are hereby ratified, validated, and approved.

"(q) If two or more contiguous or connecting railroads or systems of railroads are in process of reorganization under this section of this act, as amended, and any proposed plan of reorganization of such railroads or systems provides for the consolidation, in whole or in part, of such railroads or systems, as provided for in paragraph (7) of subparagraph (b) of this section, as amended, the Reorganization Court may consider and determine all questions relating to the consolidation and reorganization of the debtor companies in connection therewith and shall refer any plan of consolidation which the court may approve to the agency charged with the administration of the provisions of section 5 of the Interstate Commerce Act, as amended for consideration thereunder.

"If said agency shall approve a plan of consolidation as submitted to or as modified by it and if the Reorganization Court approves the modifications, if any, by the said agency of the plan, the matter shall then proceed before the court as a single reorganization and consolidation proceeding under the provisions of this section, as amended, in respect of submission of the plan to all the creditors and security holders of the debtor companies and of the confirmation or rejection of such plan.

"If the said agency shall not approve any plan of consolidation either as submitted to or modified by it, the separate proceedings for reorganizations of the respective debtors shall proceed before the Reorganization Court as though no consolidation had been proposed.

"(r) If any provision of this amendatory section, or the application thereof to any person or circumstances, is held invalid, the remainder of this amendatory section, or application of such provision to other persons or circumstances, shall not be affected thereby.

"(s) Proceedings pending under this section (act of March 3, 1933, as amended August 27, 1935) on the effective date of this amendatory section shall continue under, and be governed by, the provisions of this amendatory section: Provided, That the enactinent of this amendatory section shall not invalidate any action taken before its effective date pursuant to this section as it existed prior to the enactment of this amendatory section, and any steps or proceedings previously taken or held not inconsistent with any of the provisions of this amendatory section shall remain effective and need not be repeated or enlarged unless the Reorganization Court finds that the purposes of this amendment or the interest of justice so require."

FEDERAL BARGE LINES, DISCONTINUANCE OF

Mr. FLETCHER. The next proposition I have here, and I am not going to discuss it very much, is the proposition that the Federal Barge Lines should be discontinued.

Mr. Chairman, may I take this opportunity to ask permission for another witness to discuss that at a later time in these hearings? The CHAIRMAN. Very well.

Mr. FLETCHER. I think with reasonable brevity. It is a special subject which I would like to have another gentleman discuss, and I now formally, if that formality is necessary, make application for a little time for that gentleman at a later time.

The CHAIRMAN. Very well.

Mr. FLETCHER. When it is convenient.

We have offered the bill here, and in order to make the record complete, I would like to file it with the committee, the effect of which is to discontinue the Federal Barge Lines.

(The proposed amendments are as follows:)

TITLE IV. DISCONTINUANCE OF FEDERAL BARGE OPERATIONS

SECTION 401. At midnight of the Inland Waterways Corporation (hereinafter referred to as the "corporation") shall discontinue the operation of the transportation and terminal facilities now being operated by it. From and after the passage and approval of this act the corporation shall not extend or enlarge its operations.

SEC. 402. At the earliest possible date the Secretary of War shall dispose of all properties of the corporation for the best price obtainable.

SEC. 403. Immediately after the discontinuance of operations of the transportation and terminal facilities of the corporation, and after the disposition of its property, the Secretary of War shall proceed with the liquidation of said corpotion, settling all claims against it and collecting all sums due it. All moneys remaining in the hands of the Secretary of War after the liquidation of the corporation shall be returned to the Treasury of the United States and the stock of said corporation owned by the United States shall be canceled.

SEC. 404. All statutes of the United States, or parts thereof, in conflict with the provisions of this title are hereby repealed.

Mr. YOUNGDAHL. Mr. Fletcher, is it proper to ask who that gentleman will be?

Mr. FLETCHER. That will be Mr. Kerr, the gentleman who inadvertently was called into a discussion by certain members of the committee the other day.

CONSOLIDATION, MERGER, AND ACQUISITION OF CONTROL

I come then to a subject that I do want to discuss especially with some little elaboration, namely, the question of consolidations. It is a question that has been much discussed in the country. A great many people think it is the remedy for many of the railroad evils, and I think myself it affords an opportunity for greatly improving the railroad situation if we could have a rational basis or system of consolidations adopted.

The plan which we propose in some respects is similar to the provisions of the Lea bill. That is to say, the Lea bill proposes to repeal so much of the law as requires the Interstate Commerce Commission to promulgate a plan. The Interstate Commerce Commission, you know, under the act of 1920, was required to promulgate a plan. I hold in my hand here the decision of the Interstate Commerce Commission in Docket 12964, Consolidation of Railroads, which sets out the details of those plans. There were 21 systems required by the Interstate Commerce Commission under the provisions of that plan. Mr. HOLMES. What is the date of that report?

Mr. FLETCHER. That report, Mr. Holmes, is dated December 9, 1929.

The Interstate Commerce Commission had pleaded with the Congress time and time again to relieve them of the obligation of making this plan. In the Annual Report of the Interstate Commerce Commission for 1929, they said:

Commencing with our annual report of 1925, and in each succeeding annual report to and including that of 1928, we have suggested an amendment to section 5 of the Interstate Commerce Act, which would relieve the Commission of the duty of formulating a plan for the consolidation of the railway properties of the continental United States into a limited number of systems. While hearings have been held by appropriate committees of both Houses of Congress and have been reported to the respective Houses, the Congress has not amended section 5 as suggested.

Now, going back to the 1925 report they made the same recommendation.

So that time and time again the Interstate Commerce Commission has pleaded with Congress to relieve them of the duty of formulating a plan and the reason they did so was because they realized how impracticable it was; how impossible, how futile.

If you will just take up this statement of the Commission, and it explains these plans, and see what they have done, you will see that while they probably did the very best they could, they have not in every case avoided getting system plans which would seem to be quite incongruous. For instance, take the Illinois Central Railroad that I generally refer to because I worked for them so long, there was included in that plan, the Minneapolis & St. Louis Railroad as a part of the Illinois Cenral and also the Cotton Belt, which plan has now been modified so that the Cotton Belt now belongs to the Southern Pacific, and the Louisiana Railway & Navigation of Texas which has now become a part of the Louisiana & Arkansas, the plan being modified to that effect.

I presume everybody is agreed that that should be repealed and the Commission thinks so and this committee I imagine will have no difficulty in reaching that conclusion, that is, that the duty of formuating a plan should be taken away.

The bill which we propose and which I should like to discuss a bit

Mr. BOREN. Mr. Chairman

The CHAIRMAN. Mr. Boren.

SECURITIES OF CONSOLIDATED RAILROADS

Mr. BOREN. One question before you leave the merger proposition, is the question of securities in any way involved, in the problem of mergers and consolidations.

Mr. FLETCHER. What question, Mr. Boren?

Mr. BOREN. The question of securities.

Mr. FLETCHER. Well, I do not think it is primarily concerned, although in this bill we have here drafted a provision that there shall be, when railroads are put together, no increase in the securities except upon a finding by the Interstate Commerce Commission that some extraordinary circumstance justifies the departure from the principle. Ordinarily the securities of the consolidated road must not be greater than the sum of the securities of the roads entering into it.

SECURITIES OF RAILROADS

Mr. BOREN. Is there any place in the course of these hearings where some information will be presented about the conditions of the railroad securities, the number of recent issues, and that sort of thing? Mr. FLETCHER. There will be no difficulty in doing that, Mr. Boren. We have the information and could make the statement, and I would be glad to have something of that kind prepared.

Mr. BOREN. I do not know just where or if at all in the course of this legislation there will be a need for it, but I am very much of the impression that in a study of the general railroad problem it would be desirable to have that information.

Mr. FLETCHER. I can see the relevancy of it. Of course, Mr. Boren, we should know before we present anything as to precisely what would be required. We would be very glad to file a statement here which

would show the total amount of outstanding bonds and stocks for the class I railroads of the country. We can show the different classifications of those, that is, those that are first-mortgage bonds, and those that are collateral trust obligations, and those that are equipment trust obligations, and so on.

We can also show when they were issued and how many of them were issued under the authority of the Interstate Commerce Commission.

Mr. BOREN. Mr. Chairman, I am of the opinion that that would be information that would be valuable to the committee. I would like to request it.

Judge, would that mean any great deal of trouble or great amount of work?

Mr. FLETCHER. No, sir; I do not think that that would involve an unreasonable amount of labor at all, Mr.Boren. We have that information. We would have to put a man on it to work a couple of days or something like that. We will be glad to furnish it.

The CHAIRMAN. Well then, you may furnish that for the use of the committee.

Mr. FLETCHER. Yes. I will file it at some convenient time.

The CHAIRMAN. Perhaps it will not be necessary to put it into the record, depending upon what it is after we get it.

Mr. FLETCHER. Yes. Well, I will leave that to the judgment of the committee.

CONSOLIDATIONS AND MERGERS

This bill which we are proposing, as I say, repeals those provisions that I have just referred to. It provides that the railroads shall make up their own plans for consolidations and submit them to the Interstate Commerce Commission for approval. It is not contemplated, of course, that they should have the right to consolidate without the approval of the Interstate Commerce Commission.

The procedure that should be followed by the Interstate Commerce Commission is outlined in the act as to notice to the States and to the governors and to everybody concerned. The standards which should govern the Interstate Commerce Commission in passing on consolidations are defined in the act and that, of course, is a very important matter.

I may say in this connection that under the present law there are three standards which must be followed by the Interstate Commerce Commission in passing on consolidations and we have found that those standards are quite impractical of application.

I read from paragraph 2 of section 5 of the Interstate Commerce Act as it stands today in dealing with the direction of the Commission as to how they shall make up these systems that they are required to furnish.

(2) The Commission shall as soon as practicable prepare and adopt a plan for the consolidation of the railway properties of the continental United States into a limited number of systems. In the division of such railways into such systems under such plan, competition shall be preserved as fully as possible and wherever practicable the existing routes and channels of trade and commerce shall be maintained. Subject to the foregoing requirements-

and here is a rather interesting statement

the several systems shall be so arranged that the cost of transportation as between competitive systems and as related to the values of the properties through which the service is rendered shall be the same, so far as practicable, so that these systems.