or as to the types of prohibited transactions which may be exempted. 10 Nor is there anything in the legislative history of that section which indicates a Congressional intent that its application be so limited. The exemption may of course be granted only where it satisfies the conditions stated in Section 6 (c), and we recognize our responsibility to exercise with circumspection the broad power conferred, but we find no basis express or implied for any further restriction of the nature contended for by the staff. Acting under the power conferred in Section 6 (c), we have granted exemption not only with respect to real estate commissions under Section 17 (e) (1)," but also as to transactions of other kinds under Section 17 (e) (1) and other paragraphs of Section 17,1 as well as under various other sections of the Act having selfcontained exemption provisions under which the particular transactions did not qualify. “ 14

We see no reason for now disturbing this settled administrative construction of Section 6 (c). We conclude, therefore, that we have power under Section 6 (c) to exempt a transaction from Section 17 (e) (1) if the standards set forth in Section 6 (c) are met, and we accordingly proceed to the question whether that power should be exercised in this case.

STANDARDS OF SECTION 6 (C)

Under Section 6 (c) we may issue an order of exemption if we find that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. We have held that this broad power must not be so freely applied that the basic objectives of the Act are thwarted. As we indicated in American Participations, Inc., the pro

16

15

10 There has been some suggestion that the use in Section 17 (e) (1) of the phraseology that the transactions referred to "shall be unlawful,'' rather than that "no person shall engage'' in such transactions, precludes the grant of an exemption from that section pursuant to Section 6 (c). In our opinion, however, neither the language of Section 6 (c) nor the legislative history furnishes a basis for making the applicability of that section depend on which phraseology is used. In each case it is clear that the specified conduct is made unlawful, and the criminal and civil sanctions of the Act are applicable to a violation of either type of provision.

11 See cases cited supra note 9.

12 Pathe Film Corporation, 10 S. E. C. 483(1941); Axe-Houghton Fund Inc., et al., 25 S. E. C. 133 (1947); Bankers Securities Corporation, Investment Company Act Release No. 1107; American General Corp., et al., Investment Company Act Release No. 1142.

13 Union Securities Corporation, 9 S. E. C. 400 (1941); Keystone Custodian Funds, Inc., 21 S. E. C. 295 (1945); Hugh B. Baker, 24 S. E. C. 202 (1946), (exemptions from Section 17 (b)), International Mining Corporation, et al, 23 S. E. C. 49 (1946), (exemption from Section 17 (d)).

See American Research and Development Corporation, 23 S. E. C. 481 (1946), (exemption from Sections 12 (d) and (e)); Axe-Houghton Fund, Inc., et al., 25 S. E. C. 133 (1947), (exemption from Section 22 (d)); Keystone Custodian Fund, Inc., et al., Investment Company Act Release No. 1061 (exemption from Section 11 (a)). Scudder, Stevens and Clark Fund, Inc., 26 S. E. C. 158 (1947), (exemption from Section 10 (b)(2).

15 Petroleum and Trading Corporation, 11 S. E. C. 389 (1942); Tobacco Products Export Corporation, 12 S. E. C. 743 (1943).

1610 S. E. C. 431 (1941).

priety of granting the relief which is sought largely depends upon the purposes of the section from which an exemption is requested, the evils against which it is directed, and the end which it seeks to accomplish." To determine whether the exemption here requested would be consistent with the policy and purposes of the Act, we think it appropriate generally to consider the purposes and provisions of Section 17, which establish the policy of the Act with respect to affiliate trans actions of the type involved in this case.

Section 17, which has been referred to as the "self-dealing" section, was intended to prevent the abuses by insiders, primarily unfair sales to and purchases of securities and other property from and improper loans from investment companies by officers, directors, and similar persons associated with such companies, which were shown to exist by the report of this Commission to Congress and by the testimony at the Congressional hearings. "8

Section 17 (a), in general, seeks to prevent a repetition of these abuses by prohibiting affiliates from selling their own property to the investment company or a company controlled by such company, from buying for themselves property of such companies, or from borrowing money or other property from such companies. Section 17 (b), however, requires the Commission, upon application, to issue an order exempting a proposed transaction from subsection (a), if evidence establishes that the terms of the proposed transaction are reasonable and fair and do not involve overreaching, and the proposed transaction is consistent with the policy of each investment company concerned and with the general purposes of the

These provisions of the Act evidence an intent to prevent the described abuses not by prohibiting absolutely all selfdealing by insiders and affiliated persons, but by subjecting such transactions to the scrutiny of this Commission to insure that they are fair and reasonable, involve no overreaching, and are consistent with the stated policy of the investment company and the purposes of the Act. Where an affiliated person acts as principal in selling property to or buying property from an investment company, Section 17 (b) makes it mandatory that we relieve an applicant from the prohibition of Section 17 (a) if the standards of Section 17 (b) are satisfied. Section 17 (e), it is true, contains no such mandatory provision for

17 See also, Fitrust Corporation, 9 S. E. C. 901 (1941); Hugh B. Baker, 24 S. E. C. 202 (1946); Bankers Securities Corporation, et al., 24 S. E. C. 398 (1946); Keystone Custodian Funds, Inc., et al., Investment Company Act Release No. 1061.

See, generally, Report of the Securities and Exchange Commission, Part Three, Chapter VII, Abuses and Deficiencies in the Organization and Operation of Investment Trusts and Investment Companies. See also Senate Hearings on S. 3580, 76th Cong. 3d Sess., testimony of Hugh Fulton, p. 80; testimony of David Schenker, pp. 130-131, testimony of Arthur H. Bunker, p. 328, and testimony of E. Merrick Dodd, Jr., p. 767; House Report No. 2639, 76th Cong. 3rd Sess., June 18, 1940, p. 9.

19 Section 17 (c) further provides that notwithstanding subsection (a), any person may, in the ordinary course of business, sell to or purchase from any company merchandise or may enter into a lessor-lessee relationship with any person and furnish the services incident thereto.

exemption of transactions where an affiliated person acts as an agent rather than as a principal. It is the staff's view that in the absence of such a mandate we should not exercise our power under Section 6 (c) to exempt an agency transaction from Section 17 (e) (1) unless, in addition to a showing that the transaction satisfies generally the same standards as those which require an exemption under Section 17 (b) for an affiliated person acting as principal, it is also shown that it was impossible for the investment company to avoid using an affiliate's services without incurring extraordinary hardship. Considering the Act as a whole, however, we cannot agree with the staff's argument that the omission of a specific exemption provision from Section 17 (e) (1) demonstrates a Congressional intent to impose a stricter standard with respect to transactions by affiliates acting as agents than to transactions in which affiliates act as principals. We think that the policy explicitly stated in Section 17 (b) of permitting the exemption under certain circumstances of transactions with investment companies by affiliated persons acting as principals is equally applicable to transactions by such persons acting as agents. " The dangers inherent in situations where affiliates act as agents do not appear so to differ from these existing in situations where affiliates act as principals as to require a difference in the application of our general exemptive powers under Section 6 (c). We think it is in keeping with the purposes and policy of the Act, appropriate in the public interest, and consistent with the protection of investors, for us to exercise our discretion pursuant to the power given by Section 6 (c), to exempt an agency transaction from Section 17 (e) (1) when it complies in general with standards similar to those which Congress has expressed in Section 17 (b) for exemption of affiliates acting as principals.

Accordingly, we have reviewed the record in this case to determine whether the evidence establishes that the proposed acceptance by Greenfield Co. of a real estate sales commission. for the sale of the Mitten Building is fair and reasonable, and

The staff has also argued that an exemption here could not satisfy the standard of Section 6 (c) that it be consistent with the purposes fairly intended by the policy and provisions of the Act, because Section 17 (e) (1), which is part of the Act, prohibits the transaction for which an exemption is requested. But the "purposes fairly intended by the policy and provisions'' of the Act obviously means something more than a literal reading only of the provision from which an exception is desired. Otherwise, the existence of a provision prohibiting a transaction, which in every case under Section 6 (c) is the very reason why an application for exemption is necessary, would also be the very reason for denying the application, thus making it impossible to resort to Section 6 (c) to exempt a transaction from any provision of the Act. We therefore reject this contention, which is really only a different version of another contention which we have also rejected in an earlier part of this opinion, namely that we have no jurisdiction under Section 6 (c) to exempt this transaction from Section 17 (e) (1) because Section 17 (e) itself does not specifically provide for its exemption.

21 The greatest evils resulting from self-dealing prior to the Act were found where insiders acted for their own account, selling their own property to the investment company, or themselves buying property of the investment company. In addition to the references cited in note 18, see Senate Report No. 1775, 76th Cong., 3rd Sess., June 6, 1940, pp. 7 and 14; also testimony of Commissioner Robert E. Healy, at p. 59 of the House Hearings.

Cf. Fitrust Corporation, 9 S. E. C. 901 (1941); Keystone Custodian Funds, Inc., et al., Investment Company Act Release No. 1061.

free from overreaching. In doing so, we have regarded the nature and all the surrounding circumstances of the sale of the Mitten Building and of the services of Greenfield Co. in connection therewith as relevant to our consideration of the application for exemptions.23

THE SALE OF THE MITTEN BUILDING

It is clear that the sale of the Mitten Building was not itself inconsistent either with the policy of the investment company or the general purposes of the Act. TIC was in the process of liquidation and dissolution under court order and supervision. It was therefore necessary for it to dispose of all its assets, including the Mitten Building. TIC's intention and plans to dispose of the building were widely advertised, first through the publicity attendant upon the unsuccessful public auction, and in addition through TIC's reports to this Commission, to its shareholders, and to the Court of Common Pleas. That Court approved the decision to sell the building and authorized and directed TIC to negotiate a private sale, subject to the Court's approval.

There is no evidence that the purchaser of the building is in any way connected with TIC, Greenfield, Greenfield Co., or any of their affiliated persons, or that the sales agreement was negotiated in any manner other than by arm's-length bargaining. The sales price of $1,875,000 was approved by the Board of Directors of TIC and was also subject to the approval of the Court of Common Pleas. That Court held hearings on the proposed sale, at which all interested persons had an opportunity to present their views regarding the fairness of the price. 25 After consideration of all the evidence, and after postponing the hearings to give counsel for intervening shareholders further opportunity to effect a sale at a better price, the Court appproved the sale agreement and authorized and directed TIC to consummate the sale to the Broad-Locus Realty Co. 26

GREENFIELD CO'S SERVICES

It is not disputed that Greenfield Co. performed services in connection with the sale of the Mitten Building. It has been

23 Cf. Bankers Securities Corporation, et al., 24 S. E. C. 398 (1946).

24 TIC's Board consists of 9 members, only two of whom are in any way connected with Greenfield Co. or any affiliated persons of Greenfield Co. Aside from Greenfield himself, the only other such member of the Board is William D. Gordon, president of TIC, who is also a director of Bankers Bond and Mortgage Guarantee Company and of its subsidiary. Bankers Bond and Mortgage Company, which are companies with which Greenfield is also affiliated.

25 It was testified at these hearings that, in January 1944, the Philadelphia Real Estate Board appraised the Mitten Building at $1,375,000; in June 1946, C. Harry Johnson, an independent appraiser, valued it at $2,500,000; and in September 1947, the Philadelphia Real Estate Board appraised it at $1,800,000. The assessed value of the property for real estate tax purposes was $2,101,200, for 1947 and is $2,134,000 for 1948.

26 At the hearings before the Court of Common Pleas, counsel for TIC advised the Court that this Commission's approval of the sale was not required because the purchaser was not an affiliated person of TIC, and that the sales commission would be paid Greenfield Co. if we granted the exemption sought.

contended, however, that TIC was not warranted in resorting to the services of a real estate broker because, it is assertèd, with the expert advice and assistance of the experienced business men on its Board of Directors, including Greenfield himself, it could have itself dealt directly with prospective buyers and negotiated a sale.

The evidence in the record is to the contrary. Thus it was testified that TIC did not have the expert staff needed to build up the necessary information and negotiate the sale; that an owner does not normally keep the kind of records which are prepared by real estate brokers as part of their sales efforts; and that it took brokers of experience and ability to prepare the data and effect the sale. There is no evidence that it was normal practice for concerns such as TIC to handle such transactions without the aid of real estate brokers or that TIC could have produced the ultimate purchaser without the intervention of a broker. It is significant that the ultimate purchaser was an out-of-town prospect developed through the cooperation of three real estate brokers, two of them not in any way affiliated with TIC. It is also significant that although it was widely known that the building was for sale, no sale was actually negotiated until after approximately eight months of effort on the part of the real estate brokers. We find that it was a reasonable and appropriate step for TIC to engage the services of a real estate broker, especially in view of the specialized nature and high value of the property being offered for sale and the difficulty it had experienced in the attempt to sell the building at public auction.

The record shows that the services rendered by Greenfield Co. in connection with the sale of the Mitten Building were extensive. It was testified that the general procedure employed by the Greenfield Co. in the handling of real estate listed with it as broker includes a physical examination of the property and an analysis of all pertinent factors bearing upon its value and the type of likely purchaser; circulation and advertisement of the offering and notification of all company salesmen of the listing and assignment of the property for special attention by a specific salesman.

It was testified that all of these services were rendered in connection with the sale of the Mitten Building. Specifically, it was testified that a number of the officers and employees of Greenfield Co. actively worked on the sale, both in Philadelphia and in New York; that direct negotiations were carried on with a number of brokers as well as possible purchasers; that Greenfield Co. prepared analyses and schedules of income and expenses, of leases, of floor space occupied and unoccupied, labor and other contracts, and generally rendered such services and supplied such information as prospective purchasers sought. In the case of one prospective purchaser where the requirement of a cash transaction seemed to be an obstacle, Greenfield Co. negotiated for and obtained preliminary assurances from an insurance company for a large loan to be secured by a mortgage on the building. Negotiations with another prospective purchaser proceeded to the point where Greenfield

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