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zation provision of the bankruptcy law and would be subject to judicial control and all of the stockholders would be protected.

Mr. Woods. That is right. You see, I make this difference, Mr. Cole, I do not believe for a moment that every company that cannot pay its interest is insolvent. I think it may have been subjected to some temporary set of facts.

I am particularly familiar with the Atlanta Gas & Light Co. Atlanta, Ga. For years, every since 1893, I think, they manufactured and distributed gas. My firm sold their bonds. Subsequently in 1930 or thereabout somebody stretched a natural gas line from Texas to Atlanta and everybody in Atlanta insisted upon having natural gas. Well, the Atlanta Gas Light property was worth just as much as it had been the day before, but the plant was not necessary because they did not need to manufacture gas any more.

And natural gas was sold at a much lower figure because it was cheap. The result was that the Atlanta Gas Light Co. had to go to its maturing note holders-and we helped them to do it-and explained the situation to them, and they got an extension of 1 year, and got another extension of 5 years, and now they are getting along fine.

Mr. COLE. Following Mr. Mapes' thought it has been my experience—and I am a poor man, a little country bank director--that the tendency has been for the little stockholder, including the little banks, where they have a thousand or two thousand dollars in bonds, to submit to a lot of this high-pressure reorganization that goes on in certain parts of the country, submit to it, because there is only one of two alternatives, go in and gamble on getting something or stay out and pay lawyers, and maybe lose what they have put into it, or send good money in after bad and wake up and find in the next month or two that the same management which the investors, as you say, have selected as directors, are in control of the company through some inside maneuvering.

Now, that kind of business is something we are going to break up and this legislation has that in mind.

If you will read Mr. Douglas' testimony I think you will find there some of the criticism voiced here today and by previous witnesses as to certain provisions of this bill and the sentiment is expressed there that those provisions, he thinks, are too drastic and should be changed.

Mr. Woods. I am glad to hear that.

Mr. COLE. And there should be some amendments to the bill; but the basic purposes of the bill, as Mr. Mapes has expressed, I think are sound, and what we want to try to work out, without being too severe in doing it, of course, and protect the honor side of this field.

Having got that out of my system, will you proceed.

Mr. Woods. I do not have any more to say. Mr. Prescott is here and has a few remarks, if there are no more questions.

Mr. BULWINKLE. Mr. Chairman, I am wondering if these gentlemen cannot extend their remarks in the record if they want to put them in.

Mr. Woods. Mr. Chairman, we have no written memoranda on these remarks. I intended to prepare one and then we thought it would be better if we discussed the matter with you. We still have Mr. Prescott whom we would like to have you hear. I know that you rise at 12 o'clock. Now, I am wondering—Mr. Prescott is from

Kansas City—but he would be glad if you could do it even to stay over until Monday, if you could hear him then.

The CHAIRMAN. How long will his testimony probably take?

Mr. PRESCOTT. That would depend, I should say, a great deal upon how many questions the committee would like to ask.

The CHAIRMAN. Can you give us an estimate?

Mr. PRESCOTT. I will say that my presentation of this, coming as I do, from a more or less rural section of the country, will be I think almost entirely from the standpoint of the investor himself and how he is affected. It just depends on how far you wish to go. That, of course, I cannot say.

Mr. COLE. Mr. Chairman, how long will his statement take without any interruption?

The CHAIRMAN. Mr. Cole inquires how long your statement will take if there are no interruptions. You, of course, will have the privilege of putting your full statement in the record.

Mr. Prescott. Well, it is difficult for me to say. I have no written statement. There are quite a number of points that I had in mind discussing

The CHAIRMAN. Would you be willing to begin now with the privilege of extending your statement in the record, if you liked? Suppose that we proceed now on that basis.

Mr. BULWINKLE. Mr. Chairman, this is an important bill, and we should have all the information possible.

The CHAIRMAN. We have not been following the plan of meeting Saturdays and Mondays.

Mr. BULWINKLE. Tomorrow is Saturday, but so far as I am concerned I would be willing to come back tomorrow. I would not want to keep anybody else here.

The CHAIRMAN. Suppose that we proceed until there is a roll call.
Mr. Wood. May I make one correction for the record, sir?
The CHAIRMAN. Yes.

Mr. Mapes. I do not think that this is an opportune time to go on with the witness.

Mr. BULWINKLE. I do not either.

Mr. Mapes. Because we are threatened with two or three roll calls this morning on the tax bill.

Mr. BULWINKLE. And they will come, the first one about 12:15.

The CHAIRMAN. That is true and we probably would not be able to hear your statement.

Would the members of the committee be agreeable to coming back here tomorrow morning for awhile and hearing Mr. Prescott?

Mr. BULWINKLE. I could be here tomorrow morning. The CHAIRMAN. If it is agreeable with the committee we can meet Monday morning at 10 o'clock and hear you and as soon as your statement is over the committee will adjourn.

(After further informal discussion.)

The Chairman. The committee will adjourn until 10 o'clock Monday morning.

Mr. Wood. May I make my position clear? Mr. Woods was asked by Mr. Mapes how we came into this picture. Inasmuch as I was first appointed, I might say that Mr. Woods' statement is not quite correct. It is true that the Investment Bankers Conference, of which I am a member, was sent this bill and asked to make their criticism on it and criticisms were made independently.

I have seen some of those letters, and I think that Mr. Woods and Mr. Prescott have.

Mr. Hall, of the Investment Bankers Association, was the one who asked me to get a committee to represent the Investment Bankers Association. Mr. Hall is the president. The reason for that is that Mr. Hall and I have had a number of conversations over the telephone and it was because of the large number of letters that were coming from the membership of this organization who had read the bill objecting to it in its present form.

I just wanted to make that correction of the situation.

The CHAIRMAN. Very well. The committee will stand adjourned until 10 o'clock Monday morning.

(Thereupon, at 12:01 p. m., the committee adjourned to meet Monday, June 21, 1937, at 10 a. m.)

TO AMEND THE SECURITIES ACT OF 1933

MONDAY, JUNE 21, 1937

HOUSE OF REPRESENTATIVES,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D. C. The committee met, pursuant to adjournment, at 10 a. m., in the committee room, New House Office Building, Hon. Clarence F. Lea (chairman) presiding:

The CHAIRMAN. The committee will please come to order. Mr. Prescott, you may proceed.

STATEMENT OF JOHN A. PRESCOTT, PRESIDENT OF PRESCOTT,

WRIGHT, SNIDER CO., OF KANSAS CITY, MO., REPRESENTING THE INVESTMENT BANKERS ASSOCIATION OF AMERICA.

Mr. PRESCOTT. Mr. Chairman and gentlemen of the committee. The CHAIRMAN. Give your name, please.

Mr. PRESCOTT. My name is John A. Prescott. I am president of Prescott, Wright, Snider Co., Kansas City, Mo., which is an investment banking corporation incorporated under the laws of the State of Missouri.

PRELIMINARY REMARKS For the information of the committee, I might say that I have been engaged in some form of the securities business since 1888. It has not always been called investment banking, because that term was not invented then.

But during that entire period I have had quite an intimate contact with investors and have formed some conclusions, I think, some ideas about their psychology and their interests.

I was asked the other day by Mr. Hall, the president of the Invesment Bankers Association of America, to come down here and present my views with reference to the pending bill, known as the Lea bill.

Mr. Hall did not impose upon me any restriction in this discussion. While in a sense I appear as a representative of the Investment Bankers' Association, I reserve the right to express my individual views based upon my individual experience; and I hope that the committee will consider them as being presented in that way.

ATTITUDES AND POINTS OF VIEW; PRACTICALITIES

I am not a lawyer and it does not seem worth while for one who is not a lawyer to attempt an analysis, a detailed analysis, of the bill from the standpoint of draftsmanship or technicalities.

Unless, therefore, the questions from the members of the committee, if they should ask any, should lead to that, it is not my intention to take the matter up in that way at all, but rather to try to present to you some practical considerations that will occur in the minds of the investors and that will tend to show how they will be affected by the operation of this bill.

At first I want to say that I am personally in entire accord and sympathy with the objectives or main purposes of the Commission and the proposals of this bill

, of its declared purposes, but the question in my mind is, will it produce the results.desired, will it improve the situation with reference to investors' interests, or will it make the situation worse?

In my opinion, as I have read the bill and studied it, it seems to me that it will not improve the situation; not that I am opposed to any form of legislation at all on the subject, but rather am desirous that whatever legislation is passed shall be so designed that it will accomplish the beneficial result which is desired by the proposers of the bill which is, as I understand it, the protection of the individual investor.

The institutional investor, that is, the large investor who was mentioned here last Friday occasionally, is usually pretty well equipped to look after himself—big insurance companies have trained financial officers who know about as much about investment securities as the investment banker does himself--sometimes more. They are perfectly qualified to take care of their interests and pass judgment on what they buy and to exercise remedies that are available to them in the event that disaster comes; but the individual investor is in a somewhat different position. He is not trained in all of the features of finance. He is more or less helpless when trouble occurs. And, the design of this bill, as I understand it, is to protect him. That is a laudable purpose and one with which I am in entire accord and sympathy; but I should very much regret to see legislation passed which would have the opposite results and make his condition worse than it has been in the past.

CERTAIN DISTINCTIONS.

In order to enable you to judge of the basis and value of such suggestions as I may make here today, I want to begin by drawing certain distinctions which I think are important.

There is a very decided difference between the way this business is carried on in the big centers where the big supply of capital is and in the smaller centers, where most of the individual investors usually live.

To the big centers, corporations which need large sums of money go to secure it, because the supply of capital there is large and centered there. New York, for instance, is a clearing house for large financial operations both in commercial banking and investment banking. Because of that very situation, however, and the largeness of the supply of capital and the largeness of the demands, methods of handling that business have grown up differing considerably from the practice in smaller centers.

If an industry desires to raise a large amount of capital, it goes to some prominent investment banker or bankers in whose ability to raise large sums it has confidence; and that large banker may be interested

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