Imágenes de páginas

Further, revocation and suspension proceedings before the Commission, and injunctive and criminal actions filed by the Commission in Federal courts, necessarily must follow prescribed procedures and meet high standards of proof which, in turn, frequently delay appropriate action and impose a heavy burden on our staff.

By contrast, local “blue sky” administrators ordinarily have far greater control over those desiring entry into the business. Character or experience requirements may be imposed as they may not under the Federal law as it presently stands.

Furthermore, the administrators may exercise summarily many enforcement powers. Frequently, registration of securities is required, with controls over unconscionable transactions.

The Commission does not believe it can achieve the full degree of securities regulation-realized in other jurisdictions with local regulation—through continuation of its present intensive enforcement program without impairing its ability to meet our national responsibilities.

Accordingly, the Commission recommends that some further regulator powers over broker-dealers in the District of Columbia be established.

Several alternatives are open:

(1) The District of Columbia is presently exploring the extent of its power under its licensing statute, section 47-2344, to license broker-dealers and establish standards with respect to character and capital. If adequate standards can be developed in this manner swiftly, we shall be hapy to work with the District authorities. However, they have indicated substantial doubts as to the extent of their authority under the existing licensing statute. Furthermore, rules are not enough, and experienced personnel would have to be available to the District for the administration of any rules.

Finally, under the District Code, the only penalty for operating without a license appears to be a fine up to $300 or imprisonment for not more than 90 days.

While conviction for such a violation, being a misdemeanor in the securities field, would probably be a ground for a broker-dealer revocation by this Commission, we believe it would be much more effective if the local authorities themselves could put an unlicensed securities firm out of business.

(2) Another possibility is to have local broker-dealers regulated by the Commission acting as a “blue sky” administrator. Expanded SEC jurisdiction could be effected by an amendment to section 15 of the Securities Exchange Act of 1934, which would provide rulemaking power in the Commission with respect to broker-dealers doing business in the District of Columbia.

This power would permit the Commission to establish standards for qualification of broker-dealers and their salesmen with respect to net capital, character and experience. It would also give us increased powers for taking immediate action to suspend operations of a firm.

(3) We believe the preferable solution is a strong “blue sky” statute for the District of Columbia to be administered under the District of Columbia Government by an administrator with an adequate enforcement staff.



Such a statute could be based upon the uniform “blue sky” law, which offers several alternatives as to statutory provisions.

The act followed a 2-year study of State legislation. Part 1 of the Uniform Act prohibits fraud in the sale or purchase of any securities. Part 2 provides for the registration of broker-dealers and their salesmen, and of investment advisers.

Included in this part are sections dealing with denials, suspensions, and revocations. If control of securities issues is desired, part 3 pro

. , vides three alternative methods for registration: by notification, by coordination, or by qualifications.

It should be noted that this legislation has various provisions for payment of fees which presumably could be set at a sufficiently high amount to permit adequate agency staffing.

The Commission recommends a local “blue sky” statute with local administration for several reasons.

If the Congress desires that local government in the District should be strengthened, it would seem appropriate for the District to have its own "blue sky” laws and "blue sky" administrator. All but two

“. States have such a law and feel it necessary to regulate the conduct of brokers and dealers doing business in their jurisdiction. To the extent that the present District problem arises from a lack of local legislation, it would seem proper for the District to have a law and build a staff in order to meet future recurrence of the present problem.

Most importantly, I must emphasize that the Commission's responsibilities are national. As I have stated, we accelerated our enforcement program in the District of Columbia, and I believe that this action has produced noticeable results and created a change in the environment here. However, if we were to continue our activities on the same intensive basis, this concentration would tend to impair our national enforcement obligations.

Similarly, we prefer not to assume a particular responsibility with respect to a region where we regard our main job to be one of establishing national standards. Indeed, in many ways, this would divert us from the primary program to which we are committed-as evidenced by our market study, which was initiated by this very committee.

Many of the issues apparent in the District situation are being studied as national problems. By way of example, an important aspect of the market study is an analysis of the qualification, training, supervision, and financial responsibility of broker-dealers and their salesmen. Our studies might lead us to the conclusion that present requirements for entrance into the securities business should be strengthened. If that be so, we would then properly be meeting a problem, apparent not only in the District, but on a national basis.

At the same time, I want to emphasize our belief that any new Federal legislation will not, and should not, supersede local regulation. They should be concurrent.

Were the Commission to assume the responsibility of local regulation, we would, in effect, be administering two different types of lawsone based on the "blue sky" pattern and the other based on the national pattern.

The confusion that would be created, and the anomalous picture that would be presented, of a single agency administering two different sets of rules is evident. The same person who was unfit for the


securities business under District standards might become fit federally upon moving across Eastern Avenue to Silver Spring.

Furthermore, the Commission is reluctant to assume normal “blue sky” controls over securities issuers. These controls often go beyond the Federal reliance on full disclosure and may entail the power to pass on the merits of issues—for example, whether the compensation to the underwriters or insiders is exorbitant. Clearly, here the assumption of another type of power could only engender difficulties.

The creation of a strong District “blue sky” administration would help plug the existing gap in securities regulation. Virginia has the Uniform Securities Act and Maryland has recently adopted it.

Suburban investors could lodge complaints with the District authority, and District investors with the two State administrators. It is likely that the several administrators would be able to work in close cooperation. And, of course, the Commission itself would continue to carry on its present function of enforcing the Federal securities laws in all three jurisdictions, thus giving an added layer of investor protection.

I should like to point out here that the above considerations militate against exercise of our present rulemaking powers so as to adopt special regulations for the District of Columbia.

Under present law, we could undoubtedly issue particular rules with respect to the District under the Securities Act of 1933. That would be with respect to new issues of securities.

However, there may be some question as to our power to single out local broker-dealers under the Securities Exchange Act of 1934. Furthermore, our powers under the Exchange Act are limited; by way of example, we cannot impose character and experience requirements as a condition to entry into the securities business. Moreover, single out the District because problems develop here, would we not have the obligation to give individual treatment to other areas to the extent they manifest serious problems of securities regulation? We feel obligated to operate on a national basis and exercise of our present rulemaking authority for the District would raise all the problems attendant upon dual regulation.

We recognize that, to some extent, the establishment of a local securities authority might appear unnecessarily in light of the presence of the Commission itself here, as well as the existence of a Washington regional office. Shortrun budgetary savings might be effected if the Commission assumed the powers of local regulation, rather than a separate agency. However, in the long run, a disproportionate part of our budget might end up in being allocated to regional problems at the expense of our nationwide program.

Moreover, as I have attempted to demonstrate, local regulation in many respects differs from that contemplated by the Federal securities laws. It would seem anomalous for us to exercise one type of power regionally and another nationally. Most importantly, our emphasis has been, and should be, on national standards and national enforcement.

Accordingly, the Commission recommends the enactment of a "blue sky" law for the District of Columbia to be administered by a local administrator. This action would undoubtedly assist in meeting the local securities problems, would be consistent with our traditional

if we



Federal pattern of dual regulation, and would permit our continued concentration on national problems.

In conclusion, I might just add that I am not trying to say that the “blue sky” law will completely eliminate the problem, but it will help in the process and, of course, we will be operating concurrently with it.

That is the end of my prepared statement, Mr. Chairman.

Mr. Mack. Thank you, Mr. Chairman. You have devoted a lot of time to this problem and we appreciate having your detailed statement on this matter.

Mr. Chairman, this problem is not completely new, is it? It has been existing for a number of years.

I recognize and appreciate the fact that you pointed out—that it has become almost uncontrollable in the last 3 years. At least we have had a tremendous number of violations and questionable activities, violations of ethical standards, in the last 3-year period.

But I am wondering if any thought has been given or if the question has been raised as to why we have not dealt with this matter at some point within the last 28 or 29 years since the Securities and Exchange Act was passed.

Mr. Cary. Mr. Chairman, I agree with you that the problem of the District of Columbia has always been one which the Commission has faced. I do not think it has been of the gravity that would warrant, for example, a special and major effort until the last few years.

We had a staff, back in January 1957, of 14 for the regional office, and that covered, by the way, not only the District of Columbia but Virginia, West Virginia, Maryland, Delaware, and, I believe, Pennsylvania. It seems, relatively speaking, that vis-a-vis those other areas, larger in size, most of the problems of the regional office have concentrated in the District and, indeed, have demanded more of our personnel. The local office has expanded at the moment, I believe, up to about 30.

During this past period, should we have put more people to work on District problems or ought we to have been thinking about special rules for the District? I would say that we are always having to put out fires in various areas; relatively speaking, I do not think the District was regarded as a major area requiring special consideration until the past 3 or 4 years.

Mr. MACK. Mr. Chairman, I concluded from your statement that you prefer a local “blue sky” law for the District of Columbia ?

Mr. Cary. Yes, Mr. Chairman. Mr. Mack. The question I want to raise is this: Was this necessary 25 years ago, or did it just develop in the last 3 years?

Mr. Cary. Mr. Chairman, we have made some inquiry and found that there was some legislation introduced in Congress concerning a “blue sky” law for the District of Columbia around 1933, when the Securities Act of 1933 was passed.

So far as I know, nothing happened after the introduction of the bill. We cannot find its legislative history and do not have very much information concerning it.

I am quite sure you are correct that the need for a “blue sky” law in this jurisdiction, as in the only two other's now that do not have such a law, may have been apparent over this period.

I doubt whether the need for local regulation became as crucial until this recent period. Therefore, it is only now that we have really come out and taken a public position on this.

Mr. MACK. You have also, evidently, had a opportunity to research it, and there has not been legislation introduced since that time to provide a “blue sky” law for the District?

Mr. CARY. Not to our knowledge; no, sir.
Mr. Mack. That would have been 28 or 29 years ago.

Mr. Cary. I think there has been a vehicle for this in recent times, Mr. Chairman, which was not available earlier; namely, the Uniform Securities Act, which has been very carefully prepared and offers alternative forms which can be used in enacting such a law.

Mr. Mack. I just have one final question at this time.

Do you feel that your District office, your representatives here, have devoted their time to protecting the investors here in the District of Columbia during this quarter of a century when they should have been interesting themselves on interstate matters?

Mr. Cary. That is a pretty hard question to give a sure answer to.

I will say that up to this time we have had a fairly limited number of people working exclusively on District of Columbia matters. I think personnel has been divided up, more or less in proportion to the need existing at any particular time. For example, the problems in New York, or in the Far West during the uranium period, as their seriousness became evident, justified a larger allocation of our personnel.

Therefore, without being positively sure of the accuracy of my answer in view of the fact that I have only been at the Commission for a year and a month, I would say that there has been a fairly reasonable allocation according to enforcement needs at any particular time.

A good deal more manpower, of course, has been needed in the District during the past 3 years.

Mr. Mack. Would you agree, though, that your personnel, when they concentrate on the District problem, are quite successful in improving the situation? Mr. Cary. I think the problem has been reduced in magnitude. As

I won't assure you that it won't come up again. To some extent it is abated because the condition of the over-the-counter market now is such that perhaps there has been a little less enthusiasm for sales in that area in the District.

Thus, under those conditions, I would say at the moment it has been reduced and abated, but I do not want to say it has been cured, by any means.

Mr. Mack. Then, if it was improved following the time that your enforcement officers came in, there must have been some violations there at the time when it was not being rigidly enforced ?

Mr. Cary. Major violations; yes, sir. In one example which I gave it appears that investors have lost a very substantial amount of money. This demonstrates, perhaps, the usefulness of the "blue sky” approach. We do not have the so-called suspensory power that a “blue sky” Commissioner has. In the event that he finds evidence of actual dereliction he just closes a firm down and holds the hearing subsequently. We do

I say,


« AnteriorContinuar »