Imágenes de páginas
PDF
EPUB

not have that power. We have to have a suspension proceeding prior to taking any action with respect to the firm.

Mr. MACK. Mr. Hemphill? Mr. HEMPHILL. Thank you, Mr. Chairman. Mr. Chairman, may I first say as a member of the subcommittee I have been most happy in noting the progress of your administration. I congratulate you and the members of your Commission. I gather from your statement that there is some doubt in

your

mind as to whether or not, under the 1934 act, the Commission has jurisdiction in the District of Columbia. Is that correct?

Mr. Cary. To enact special rules with respect to the District of Columbia ; yes, generally.

Mr. HEMPHILL. As I understand it, the authority of your Commission is based on the interstate commerce feature of the transaction. That is the elementary principle, that these stock transactions are interstate commerce?

Mr. CARY. That is correct.

Mr. HEMPHILL. The 1933 act defines interstate commerce for purposes of your jurisdiction as among or between the States or within the District of Columbia ?

Mr. Cary. Yes, sir.

Mr. HEMPHILL. It has been pointed out to me by our able staff that that is in section 2, subparagraph 7, of the act?

Mr. Cary. Yes, sir.

Mr. HEMPHILL. Then, in the 1934 act, section 3, subparagraph (a), subparagraph 16, defines a State as including or meaning the District of Columbia. But the next paragraph defines interstate commerce as among the several States.

If we pass some legislation here which definitely gives the Commission the rulemaking power within the District of Columbia and leaves no doubt about it, how far will that go in curing the situation which your presentation this morning seeks to cure?

Mr. "Cary. Well, sir, if I could divide the question up. As you have indicated, our jurisdiction is broader under the Securities Act of 1933 with reference to the District than under the Securities and Exchange Act of 1934. Certain sections of the 1933 act also undoubtedly give us the power to single out transactions in the District-particularly with respect to new issues of securities. This would not touch the broker-dealer problem, but only the distribution of securities.

I doubt whether we could have a whole different registration process with respect to the District. I have no doubt that we could have perhaps a firmer set of regulations with respect to what we call the Regulation “A” type of issuance, those offerings less than $300,000. But I am skeptical whether further regulation of new issues would meet the problems here that we have previously indicated. It would only meet them on a very narrow base, and in a very limited area.

You are quite right, further, that our powers are not as broad with reference to the District of Columbia under the Securities and Exchange Act of 1934.

Perhaps we have not exercised our rulemaking power under the Securities and Exchange Act of 1934 with reference to the whole country as much as perhaps we should and shall.

а.

At this moment, out special study is trying to determine, to what extent, for example, should we, through legislation on the one hand, or through using our rulemaking powers on the other, raise the qualifications for entrance in the securities business.

What if you gave us a special broad power under the Exchange Act with reference to the District of Columbia. That would give us a mandate to go ahead and make rules more broadly in the District than we could elsewhere.

Under the present statute, I thing there might be a question of power whether we could regulate certain activities here and not with respect to the whole country-on a disuniform basis.

But if you gave us that mandate, we could undoubtedly do it.

If you gave us powers, (1) with respect to qualifications of brokerdealers, and (2) even the suspensory power of the type I referred to, undoubtedly, it would help.

We would have to increase our manpower. We could exercise the power given by those rules to meet some of these problems. But we prefer to have the District problem handled by a “blue sky” administrator—we hesitate to pick out this area and operate, you might say, more as a day-to-day policeman, when, in fact, we think our big function is one of making rules that will cover the Nation.

Our big function, for example, in the case of the exchanges, is to see that those exchanges carry out their responsibilities; at the same time to work with the NASD—in other words, to supervise all those institutions organized for the purposes of self-regulation.

Therefore, we do not deny that the powers that you might choose to give us might not help the situation. But we think our job should be on the national level and that we should not be operating in the District in one way and the rest of country in another way. Accordingly, those powers that you refer to would better be in the hands of a “blue sky" administrator with whom we are working concurrently, just as they are in other States.

Mr. HEMPHILL. I had in mind asking a question perhaps giving you the elasticity to not only make the regulations apply nationwide, but to zero in on any given area by the power which you would have, and that would include the District of Columbia, which is a source of much concern to me because we have so many people here apparently who want local authority and are a little power-drunk with the idea.

If we create another commission here, it is another commission, something else to worry about. I am not against the proposal, but I hesitate to create something else here in the District which in my humble opinion, has deteriorated so as the Nation's Capital with, the growth of more local authority.

Mr. Cary. This question of zeroing in on the District and not having the power to zero in on the other areas is not quite what we would like.

We think that we ought to be operating on a national level. With the limited manpower we have, and the problems that are beginning to develop in our special study, I think we are going to be oper: 'ing at a maximum burden in approaching each of the problems on a uniform and national basis.

[blocks in formation]

Mr. HEMPHILL. My use of the term “zero in on the District” was not a play on semantics, I meant if we gave the powers not only to zero in on the District the unquestionable authority which the act of 1934 does not give to your satisfaction, but to zero in on any other area

of the country. It

appears to me if you ever zero in on the District of Columbia, or if you needed to zero in on New York, Florida; once you have done that, you are going to set the pattern in these day of communication. It seems to me if you went into a place and cleaned it

up,

and threw these people out of business that are in the wrong business, took away their licenses or right to do business, from the national standpoint you could prohibit them from going back into business in Virginia, Florida, or any other place?

Mr. Cary. May I ask our Director of the Division of Trading Exchanges to comment on that further? He may have some idea I had not thought of.

Mr. LOOMIS. If I understood the question, it appeared to be a suggestion that the Commission might be given greater powers which it could exercise anywhere whenever it thought there was a particular problem in a particular area.

That might be of assistance in the District, and perhaps in some other places. It would produce, perhaps, the problems the chairman mentioned, of our treating different parts of the country in different ways, which, for a national agency, may present some questions.

I think in response to certain of the earlier questions asked, as an example of the problems that occur when you zero in on a particular area, that in the last year or so our Washington office has had to concentrate so on the problems of the District of Columbia that maybe our coverage in certain other parts of this region has not been all that we would like to see.

That is another aspect of the problem.

Mr. HEMPHILL. Suppose we broaden the definition of interstate commerce with reference to the 1934 act so that it would be unquestioned that you had the authority within the District of Columbia.

The District of Columbia is a creature of the Congress. Congress has power over interstate commerce and over the definitions of it. At least, the courts have said that. Once we have done that, then you have all the authority you need; is not that correct?

Mr. LOOMIS. I am not quite sure. Our problem as to broker-dealers in the District and perhaps elsewhere is not so much finding jurisdiction in the sense of interstate commerce, because most broker-dealers do use the mails.

The mails are instrumentalities of interstate commerce. It is rather that the nature of our powers in connection with broker-dealers, as the chairman pointed out, are sort of punitive rather than preventive and remedial.

We do not have any power, even with regard to a broker-dealer in interstate commerce, to pass upon his character or require him to have a certain amount of experience, which powers "blue sky” Commissions commonly exercise.

So I am not sure that merely changing the definition of interstate commerce would fully meet the broker-dealer problem in the District.

a

Mr. HEMPHILL. Thank you very much. .

. Mr. Mack. Mr. Keith? Mr. KEITH. Thank you, Mr. Chairman.

Are there any other areas which are without any supervision of the sort which result in "blue sky” laws! I am thinking particularly of

I military installations.

Mr. Cary. First of all, sir, in respect of the jurisdictions in which there is no “blue sky" legislation, those are only Nevada and Delaware. As to the application of “blue sky” laws on military installations, I have not given that any thought.

Is there any problem with respect to the application of the “blue sky” law on a military reservation?

Mr. LOOMIS. That has been somewhat uncertain. There are some military installations, though I think it is a minority of them, where it is contended that they are exclusively Federal areas in which the State authority does not extend.

On the other hand, most military commanders have precluded, by order, the sale of securities on the reservation in violation of the laws of the particular State in which the installation is located.

I suppose that the particular problem for military installations, from the viewpoint of the “blue sky” law, arises in connection with the installations in foreign countries where, of course, no State laws apply.

Mr. KEITH. Your hearings downtown have indicated that there are some abuses in this kind of installation. I think it might be appropriate for you to give the committee a memorandum as to your recommendations as to how, from a jurisdictional point of view, that situation might be improved.

Mr. Cary. Yes, sir; we will be glad to do so.

Let me say in general, with respect to this situation, that it is true that there have been, in our hearings, some evidence of salesmenwho are in the military-selling to military.

I suppose the greater problem that we have noticed is the use by salesmen here in the District of the Pentagon telephone book. In other words, calling people in the Pentagon and getting in touch with the military who, as a group, might constitute a source of potential securities customers.

We will be glad to consider this particular problem. It may well be, Congressman Keith, that it becomes more significant in view of the statement made in the newspaper I noticed this morning-in perhaps which you have reference to about the establishment of brokerage firms in military installations abroad.

Mr. KEITH. Along the same line, are there any other areas where there is a lack of jurisdiction and a need for such supervision? For example, the Panama Canal Zone, or the Virgin Islands, how are they regulated

Mr. CARY. I will have to ask Mr. Loomis to speak to that point.

Mr. Loomis. There is not any local regulation that I know of either in the Panama Canal Zone or in the Virgin Islands.

I frankly have not encountered many problems in the securities field in those areas. Particularly, I would not think there would be much in the Virgin Islands, because of the nature of the community there. There has been a problem which has been of some concern

the Chairman alluded to it-in regard to securities sales on major military installations in Europe, where the local requirements, whatever they are, are deemed inapplicable.

There is no State jurisdiction. We cannot effectively reach the situation. I think that to some degree, however, the regulation of these activities probably has to be in the hands of the military themselves, the command, who can, of course, give such orders as they see fit regarding the securities sales.

Mr. KEITH. That is all, Mr. Chairman.
Mr. MacK. Mr. Hemphill?

Mr. HEMPHILL. Something just occurred to me. I followed you as you presented your statement. On page 13, you have a numeral 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.

Where does this committee have jurisdiction of that?

Unless we broaden the definition of the 1934 act, where we would have any jurisdiction? Suppose we pass legislation that is suggested here, creating the authority in the District of Columbia? I do not know whether we have the right to do it in the first place.

In the second place, if we did create it, we would lose authority over it, which the District of Columbia Committee would attain.

Mr. Cary. I believe I agree with you in this sense: As I look at it, this committee is analyzing a problem in the securities field for which it is responsible. If our suggested proposal that the District adopt a “blue sky” law be thought appropriate, then I think legislation along those lines would probably fall or might fall within the District of Columbia Committee of Congress.

Therefore and on this point you certainly know much better than I I would suppose you would not have jurisdiction over the functions of that "blue sky administrator, just as you do not over the "blue sky" administrators of the various States.

But I think the basic question that we are discussing here is what kind of an organization or what kind of a law should you have to meet a problem which clearly falls within your jurisdiction; namely, dereliction, fraudulent conduct, and the other securities problems in the country and specifically in the District.

Mr. HEMPHILL. I hate to think of what would happen to the poor fellow when the morning newspaper here got through with him. Down home we call the Washington Post the Daily Worker, the Washington Daily Worker.

We have seen them castigate people whose intentions were so honorable that it was almost fantastic to see the lengths to which they would go to castigate someone who is trying to do their job.

That causes me concern because I want to be of help to your Commission. I have a legislative responsibility to try to be of help.

Thank you.

Mr. MACK. Mr. Chairman, on page 4 of your statement you refer to this problem of the salesman going into business after your Commission has put the broker-dealer out of business.

I believe Nr. Loomis has referred to this problem in his testimony before your special committee. Is this a matter which is not limited to the District of Columbia, but which is a problem throughout the

« AnteriorContinuar »