27 REGULATIONS FOR THE DISTRICT OF COLUMBIA not have a prepared statement, Mr. Chairof the committee to be as helpful as asking you whether or not the done. SECURITIES REGULATIONS FOR THE DISTRICT OF COLUMBIA 25 es. Yes, sir. ACK. Did the NASD take any action prior to the time that the Did your association make any reference to the sales Ve revoked the principal officers, t not any of the representatives? t on that particular action, but on autres, ana opon lid subsequently? sir. orrect. with regard to different broker des'an one sex of this broker-dealer? Mr. Chairman. Ston. I think, last summer. t. Mr. Keth. time with us on » Late Tape *** rt Low. a terior: any type of "blue sky" No, they have not. w months. es and Exchange at was the proper "y, the Chairman of , that he thought that oblem, and one which his testimony that they ibility if it was the wis cated that he would carry ress. But I also had the thusiastic about the enacterred the enactment of legisy" law for the District of he said, sir. I cannot deny fearful of certain situations, ve the fears that he anticipates. saying that the Securities and oy be entering a local field, and cal agencies generally did not do. e committee's attention, to the fact s where Federal agencies undertake uations in the District of Columbia. nmission, which I believe has a specement of the laws which they enforce rency, for instance, has control of the part of the Department of Health, EduSnational duties. The Bureau of Fedlumbia, not only those that operate under y law, supervision over the local credit aw but also those that operate under the tunion law. if Mr. Cary he would mention such things as your Public at you operate in the District. iction in several areas, dual agencies in several agencies, wherein you have the jurisdiction were here, he might want time al › not understand how the Public Utilities Com lumbia. with any Federal regulation. Mr. FULTON. It took place last year. Mr. KEITH. When the committee went out to California, I was fascinated by this story. I was asked to luncheon by the board of directors of the San Francisco and Los Angeles branches of the West Coast Exchange, and I asked about this incident. Not a one of them could recall having heard of it. They went out and checked during the luncheon to see if there was anybody else that had heard of it. There seemed to be a failure of communications in this particular respect. Mr. FULTON. It does not surprise me that the directors of the Pacific Coast Stock Exchange did not know of that situation. Mr. KEIRH. Is it that they are not members of your association? Mr. FULTON. Practically all of them are. Mr. KEITH. Was there a failure of communication? Mr. FULTON. There was no reason to communicate with them because the securities were over-the-counter securities and were not securities listed on the Pacific Coast Stock Exchange. Mr. KEITH. I thought you said earlier that you had advised the west coast membership of this? Mr. FULTON. Our own district committee, which is entirely separate from the Pacific Coast Stock Exchange group, and the members involved, of course. There was a very complete study made. Mr. KEITH. That is all, Mr. Chairman. Mr. MACK. Mr. Hemphill, have you anything else? Mr. HEMPHILL. No, Mr. Chairman. Mr. MACK. To make it clear, you feel that the amendment to the Securities Act would solve the problem here? Mr. FULTON. I happen to believe that it would; yes, sir. Mr. MACK. Mr. Fulton, I want to thank you for your testimony today. Mr. FULTON. Thank you, Mr. Chairman. Mr. MACK. Mr. Milton D. Korman, Assistant Corporation Counsel, District of Columbia. STATEMENT OF MILTON D. KORMAN, PRINCIPAL ASSISTANT CORPORATION COUNSEL, DISTRICT OF COLUMBIA. PRESENT ALSO FROM THE DISTRICT GOVERNMENT: IRVING BRYAN, CHIEF, AND ROBERT F. KNEIPP, ASSISTANT CHIEF, LEGISLATION AND OPINIONS DIVISION, OFFICE OF THE CORPORATION COUNSEL; JOSEPH J. ILGENFRITZ, DIRECTOR OF LICENSES AND INSPECTIONS; AND C. T. NOTTINGHAM, SUPERINTENDENT, LICENSE AND PERMIT DIVISION, DEPARTMENT OF LICENSES AND INSPECTIONS Mr. KORMAN. Thank you, Mr. Chairman. With me is Mr. Kneipp, the Assistant Chief of our Legislation and Opinions Division of the Office of the Corporation Counsel. Also with me is the Chief of that Division, Mr. Irving Bryan, and the Director of the Department of Licenses and Inspections of the District, Mr. J. J. Ilgenfritz, and the Superintendent of the Division of Licenses and Permits of that Department, Mr. Nottingham. Mr. MACK. We are glad to have you with us, gentlemen. Do you have a statement to present? Mr. KORMAN. No, I do not have a prepared statement, Mr. Chairman. I came at the invitation of the committee to be as helpful as I can and to tell you what we have done. Mr. MACK. Maybe I can start out by asking you whether or not the District Commissioners have recommended any type of "blue sky" legislation to the Congress? Mr. KORMAN. Categorically answering that, sir: No, they have not. I might tell you what has been done in the last few months. Mr. MACK. I wanted to also say that the Securities and Exchange Commission this morning indicated that they felt that was the proper course. Mr. KORMAN. I heard the testimony of Mr. Cary, the Chairman of the Securities and Exchange Commission. I gathered from his testimony, Mr. Chairman, that he thought that was one of several ways of approaching this problem, and one which he probably favored. But I also gathered from his testimony that they would not be adverse to assuming the responsibility if it was the wisdom of the Congress that they should do so. Mr. MACK. I think that is true. He indicated that he would carry out the laws that are enacted by the Congress. But I also had the distinct impression that he was not all enthusiastic about the enactment of such legislation, and that he preferred the enactment of legislation which would establish a "blue sky" law for the District of Columbia. Mr. KORMAN. I think that is what he said, sir. I cannot deny that. I believe, however, that he was fearful of certain situations, about which I do not think he need have the fears that he anticipates. One, it seemed to me that he was saying that the Securities and Exchange Commission would thereby be entering a local field, and that this was something that Federal agencies generally did not do. I would call his attention, and the committee's attention, to the fact that there are quite a few instances where Federal agencies undertake to police and to regulate local situations in the District of Columbia. One is the Federal Trade Commission, which I believe has a specific section devoted to the enforcement of the laws which they enforce in the District of Columbia. The Comptroller of the Currency, for instance, has control of the local banks, in addition to his national duties. The Bureau of Federal Credit Unions, which is part of the Department of Health, Education, and Welfare, has, by law, supervision over the local credit unions in the District of Columbia, not only those that operate under the Federal credit union law, but also those that operate under the District of Columbia credit union law. Mr. MACK. I imagine if Mr. Cary were here, he might want time for rebuttal. I am sure he would mention such things as your Public Utilities Commission that you operate in the District. You have dual jurisdiction in several areas, dual agencies in several areas, with the Federal agencies, wherein you have the jurisdiction over the District of Columbia. Mr. KORMAN. I do not understand how the Public Utilities Commission here would conflict with any Federal regulation. Mr. MACK. We have an Interstate Commerce Commission which has similar responsibilities nationwide, and you have the Commission, which has the responsibility within the District of Columbia, such as the Illinois Commerce Commission has. Some States refer to them as railroad commissions and in other States they are utility commissions. Mr. KORMAN. We, of course, do not attempt locally to regulate interstate commerce. That was a purely local thing in the beginning, for a local concern. I am not saying that it is impossible. Mr. MACK. You do not have the authority to regulate interstate commerce but you do have the authority to regulate intrastate commerce? Mr. KORMAN. Yes, sir. Mr. MACK. Whether they have done a good job or not, that is what they have tried to do. Mr. KORMAN. I am not saying that it could not be done, but what I was pointing out was that there are instances of Federal agencies regulating in the District of Columbia, the local conditions. Mr. MACK. Let me ask this: Has the Commission given any consideration to the possibility of recommending a "blue sky" law for the District? Mr. KORMAN. My understanding of the wishes of the Board of Commissioners of the District are these: That subsequent to the series of articles by Miss Ottenberg, which are generally referred to as the "Investors Beware" series, and which have been put out in pamphlet form, the Commissioners directed the Office of the Corporation Counsel to investigate to see whether or not there was power in the Commissioners to take any action without legislation, and to report to them on how to take action to correct some of the conditions and situations described in this series of articles. If they have not been made a part of the record, I would offer them, Mr. Chairman, the articles that were the predicate for this. (A reprint of "Investors Beware" may be found on p. 49.) Mr. KORMAN. To do something about that, we summoned-well, not summoned, but requested-to come to our office representatives of various groups that we thought might be helpful to us, and as a result, we have had several meetings with, as best I can recall, these groups represented: The Better Business Bureau of the District of Columbia; the National Association of Securities Dealers; the Washington, D.C., Securities Dealers & Traders Association; the Securities and Exchange Commission-Mr. Loomis and, at another time, Mr. Lesh of that Commission attended our meetings. Incidentally, Mr. Peters, who was here this morning with Mr. Fulton, attended several of our meetings on behalf of the National Association of Securities Dealers. Also, the Superintendent of our Department of Licenses and Permits; the Director of the Department of Licenses and Inspections; the U.S. Attorney's Office of the District of Columbia, represented by its principal assistant; the Metropolitan Police Department, represented by a deputy chief and one other man; the Investment Bankers Association of America; and, of course, the Corporation Counsel, myself as principal assistant, and several other assistants. There were representatives of several of the larger securities dealers in the District of Columbia, among them Landrum Allen & Co., Johnston Lemon & Co., and some others. We discussed this problem at some length and attempted to see what could be done within the framework of the authority of the District. Commissioners. It was the consensus of all those who attended the meeting that some regulation was necessary to take care of the evils that had been described in this series of articles. We found, and it is our belief, that the District Commissioners have at present limited authority which might or might not—probably would not-solve all the problems. The extent of their authority at the present time, as we see it, is to require licenses of dealers or agents or both, and to possibly prescribe some limitations on those who might be licensed by providing that they must show some experience, they must be able to demonstrate trustworthiness by being under the tongue of good report, by not having been convicted of crime on prior occasions certain limitations of that sort. This might, by having them screened by our police department before licensing, which might be another proviso, screen out some of the people that have been entering the business here and doing some of the things that have been described in these articles. We cannot be sure that it will take care of all the situations. It was indicated that probably the most important thing that should be done was to have those who wanted to enter the business either show that they had been engaged in it elsewhere and had not been in difficulty-that is to show experience in the business for a certain. period of time-or that they should pass an examination in order to be licensed. The District of Columbia has no facilities for giving such an examination or grading it. Indeed, we have not the expertise in our organization to do these sorts of things. We would have to hire people for that. The National Association of Securities Dealers offered to conduct such examinations and grade them for us, but under the law we cannot accept their services gratis, and we do not have funds to pay them with. We would have to have authority from Congress to do that. After reviewing the situation, and Mr. Kneipp having prepared a very rough draft for discussion purposes only of what might be called a limited "blue sky" law for the District of Columbia, having taken the Uniform Securities Act that was mentioned here earlier this morning, changing it in some respects to apply to the District—and I have for the committee some of the drafts that went out, together with our letter of invitation that went to these people I mentioned to come to the meeting, or come to one of our meetings we have discussed that at the meetings and have concluded that to do this would, of course, require legislation, and the setting up of a separate department in the District, or a new division in our Department of Occupations and Professions, which is a separate Department from the Licensing Department. |