parties that are involved. Unless they can get an independent committee to act for them, an independent committee which can find counsel, who are very difficult to find-people have come to me from time to time, since I got out of this practice, and asked me to recommend lawyers to them and time and again in cases of that kind they were unable to get the lawyers, because the lawyers would not take on the job. It is hard to find lawyers who can provide these qualifications for the representation of an independent committee.

No. 1-and this has a very important bearing on the questionsuch counsel should be skilled and experienced in this type of work. No. 2. They ought to be free of entangling connections so that they can really be independent.

No. 3. They ought to have an office large enough so as to be able to fight, if necessary, for 2 or 3 years, or longer, before they get any compensation.

No. 4. They ought to be people who can be depended upon to fight all the way through and never quit.

Now, it is very, very hard, very difficult, to find lawyers so equipped to represent an independent committee. And, second, it is very difficult to get men to serve on an independent committee, although they would like to see an independent committee organized, because the ordinary business man cannot afford to go on an independent committee and fight important, powerful interests.

The result is, in a great many cases, the ordinary security holder has no representation through a committee except insofar as he may get it by a so-called insiders' committee.

In a case such as that-and there have been many cases such as that the only agency that could protect the ordinary investor who is the real party, but never gets to court, he cannot afford to go to court, he cannot afford to go to court even if he lives in the city in which the proceeding is being carried on; if he has got a $1,000 bond, he cannot afford to hire a lawyer-the only agency that could protect him—and I am afraid even such an agency is only a help, and will not insure adequate protection, because no agency can insure thatwould be some government administrative body.

I think that that provision in the bill to which you have just referred, Congressman, is of the greatest importance for investors.

Mr. COLE. Mr. Lowenthal, under this bill in a reorganization of involving five million dollars or more, it is absolutely mandatory on the Securities and Exchange Commission to intervene, where the proceeding is in a United States court-is not that right? And you have aright to go into the State courts, if the judge permits? Mr. LOWENTHAL. I believe that is a correct statement. to be found in section 14 (a), on page 45 of this bill.

That is

Mr. COLE. Will that not have a tendency for a group of stockholders or bondholders to say, "Why should we go to the expense of employing counsel if the Government is going to fight all of our cases?" And is it not going to require the Securities and Exchange Commission to be in court, in practically every court of this country, and enter into a great deal of expensive litigation, whether they think it is advisable or not? It is mandatory in many instances according to the bill, for them to go in and fight the battle.

Mr. LOWENTHAL. Of course, Congressman, they can determine within their own discretion the extent to which they may deem it

necessary, for the protection of the investing public, to go into a particular case. They may go in a little, they may go in a lot.

As to the expense, first as to the security holder saying that the Commission will take care of him. I think you will find, Congressman, that if there are security holders who are willing to act, they are going to act anyway; and I hope they will act, because I do not believe, Congressman, that a Government agency can do as good a job as an affective, competent, independent committee. Unfortunately, there have been too few of those and I fear that for many years to come there will be too few of them.

Mr. MAPES. What would you think of the advisability of making it discretionary with the Commission as to whether it should intervene or not, even in cases involving over $5,000,000 capitalization?

Mr. LOWENTHAL. I think the Commission-well, I would hesitate to put my judgment up against the Commission's. But if the Commission indicated that it would prefer that sort of a change, I should think it would be all well and good. It is, after all, a question that cannot be decided absolutely one way or the other, but it is a case in which you estimate which may be the better, and I can see reason on both sides. Such a change would not be too objectionable. On the other hand, if your committee in place of the provision in your bill authorized the court to reimburse the Commission for its necessary expenses up to the point of the benefit it has conferred on an estate, that would make the Government whole on its efforts in behalf of investors. I should think that might be worth while.

Mr. ELLENBOGEN. I was going to ask, Mr. Lowenthal, whether you would recommend a provision in the bill that the court shall reimburse the Commission to the extent of the expenses incurred by it, in its own judgment-not in the court's judgment, but in the judgment of the Commission?

Mr. LOWENTHAL. I should think it would be better to leave it to the court. It would carry out the theory that the court determines who has benefited the estate and to what extent. Of course, that is what a court does with any committee. It says, "You have conferred a great deal of benefit on this estate and we will allow you so and so much for your services."

Now, I assume that the Commission would not want to make a profit on it. It would only want to reimburse itself for the time of its counsel and staff in so far as that time and effort have benefited the estate.

Mr. ELLENBOGEN. In these cases very large fees are often allowed. Mr. LOWENTHAL. Yes.

Mr. ELLENBOGEN. Counsel employed by the Commission would not receive a very large fee. The Government does not pay very large salaries and it would not be a question of allowing fees-only of allowing expenses. Would not that put it in a rather different category?

Mr. LOWENTHAL. Yes; I think that is so. I would not see any great objection to the suggestion that you made. Again it is a case of estimating which of the two methods might be the better.

Mr. COLE. I hesitate to take more time, but it seems to me this is very important. The theory of an intervening petition is, of course, that the party applying has an interest in the litigation.

I am wondering if you could give us any precedent for going as far as this bill goes, to permit an agency of the Federal Government to

go in without any discretion being vested in the judge as to whether this agency should or should not intervene, and not only participate in the hearings and the argument of the case, but to carry it on just the same as an original litigant.

Is there any precedent that you could give us for such a provision of this kind.

Mr. LOWENTHAL. I think in the truest sense it would be fair to say that every precedent would support a proposal of this kind. In a technical sense, as to whether a government agency has in the past been empowered to do anything of this sort, I would want to go into the books before I answer that question.

But let me answer it in what I believe to be the truest sense of the word. In the truest sense, there is nobody, in many cases, there is no committee in many cases, which represents most of the security holders or many of the security holders, or which represents them truly, faithfully, with a single mind to their interest. That is the nature of this situation. It is everybody's business and it is so often, in such a case, nobody's business.

Now, who is going to represent 5,000 or 20,000 security holders resident in all the States or in most of the States of this Union? They cannot come themselves. Most of them cannot hire a lawyer. They are worse off than babes in the woods. They are sunk. They are as good as buried. Now, who is going to take care of them?

Mr. MAPES. If Mr. Cole will allow me to interject there, I have an idea that those small and innocent security holders need more protection in the small issues than they do in the issues of $5,000,000 or

more.

Mr. LOWENTHAL. Well, I will not argue that point with you, Congressman. It may well be that the draftsmen of this bill thought that they might be imposing on the Commission much too heavy a load to include all; I do not know.

Mr. MAPES. When they get up to the big reorganizations, I have an idea that the interests of the investors are taken care of better than they are in the smaller ones.

Mr. LOWENTHAL. If that is so, if the interest of the ordinary investor in a big receivership is better taken care of than the interest of an investor in a small case, then I say God help the investor in the small case.

Mr. EICHER. Mr. Chairman, I should like to ask the witness a question.

Mr. LOWENTHAL. I had not as yet quite completed my answer to the question asked by Mr. Cole. I would like to complete that.

When the Government, through some agency, whether it is the Securities and Exchange Commission or any other agency, if it were the United States district attorney, if it were a public defender, if it were a public liquidator or a public conservator, or whatever you care to call him, when he steps in, he is in the truest sense the guardian for the real parties in that proceeding, who cannot get there, who cannot be heard, who cannot be protected.

And when you ask, "Is there a precedent for such intervention?" I would say that when you have a great many real parties to a court proceeding who in most cases do not get adequate representation or even any representation, then it may well be in the interest of the preservation of the present economic system that the Government

should step in and say, "We are going to protect them, we are going to provide somebody for them." If you do not do that

Mr. COLE (interposing). You establish a precedent at this time? Mr. LOWENTHAL. If you do not do that, you have got to depend exclusively on independent committees. I wish you could. But in most cases you cannot get them created, and where they are created, very few of them have members who can stand up under pressure of the banks or others on the opposite side, insiders, and very few of them can get adequate counsel to represent them.

Mr. WITHROW. I cannot exactly understand how you deduce that it will be mandatory for this governmental agency to intervene. I understood that they have the power to intervene, but I cannot understand how it is mandatory.

Mr. LOWENTHAL. As I read section 14 (a), it says:

The Commission shall have power to intervene in any proceedings―

which may be much smaller ones than $5,000,000—

and shall intervene in any such proceedings * * * in which the indebtedness of the person in reorganization equals or exceeds $5,000,000.

Mr. WITHROW. It is mandatory that they intervene in proceedings that involve more than $5,000,000, but in those proceedings involving less than $5,000,000 they have power to intervene if they so desire? Mr. LOWENTHAL. I think that is entirely right, Congressman.

Mr. HALLECK. For my own information, as I understand this bill, it sets up certain rules and regulations by which reorganizations are to be governed, under the direction of the Commission. And then section 14 provides

Mr. LOWENTHAL. Well, I do not know, if I may interrupt-I do not so read the bill, Congressman.

Mr. HALLECK. Just briefly, in one sentence, will you give your statement as to what the forepart of this bill attempts to do? Mr. LOWENTHAL. The first part?

Mr. HALLECK. Yes.

Mr. LOWENTHAL. The first part attempts to regulate protective committees, but not to regulate what a judge may or may not do; that is, speaking very generally.

Mr. HALLECK. That is what I thought. Then section 14 provides for the intervention by the Commission in the courts for the further protection of the investors and their interests?

Mr. LOWENTHAL. I so understand it.

Mr. HALLECK. As I understand it, those represent rather two different aspects of this problem?

Mr.LoWENTHAL. Yes.

Mr. HALLECK. In so far as the Commission actually intervenes as a representative of litigants, in courts of law or equity, it does represent a rather radical departure from anything we have heretofore done, does it not?

Mr. LOWENTHAL. It represents a radical departure in the sense that you are now saying that we are going to provide some Government agency to help tens of thousands of security holders who, without such help, are likely to be sunk.

Mr. HALLECK. That brings me to this further proposition; and maybe there is a lot of justification for the adoption of that policy. We have heard much in the past about the inability of poor litigants, particularly in the Federal courts, to have their interests protected.

How far do you think we would be required to go in the event this precedent is adopted, in respect of other litigants who may be just as worthy and who may be just as unable, on their own initiative and on their own responsibility to bring about an adequate representation of

their interests in court?

Mr. LOWENTHAL. I do not know how far it would be expedient to go. I would say this. I think Justice Holmes had some very interesting language on that question of how far you are going to go in any legislation. And after all, we have to be realistic and deal with the particular problem that is before the committee. In this case, Congress would be going, if it passed sections 12 to 14 in this bill, which are the sections that I am discussing, it would be going not too far, but in my judgment not as far as I hope it will ultimately go.

I can see that it is appropriate not to go any further than what is now provided in these sections, at this particular time. I can see it may be desirable for us to break ground. But as one man who was talking to me this morning said, "You will have to go further soon, as soon as you have seen how well this works, and begin to harrow that ground." This really does not do as much for security holders as I believe the Federal Government ought to do.

Mr. BULWINKLE. What do you think it ought to do?

Mr. HALLECK. If the gentleman will pardon me, if I may pursue that just a little further: Of course it may well follow from the application of such a provision as this, that the holders of these securities would shift the responsibility that ordinarily devolves upon an individual to protect his own interests in court by the expenditure of his own money, to the shoulders of the Government, on the supposition, and rightly so, that the Government, acting through the Congress, had imposed upon the Commission, a governmental agency, the obligation of looking after his interests.

Mr. LOWENTHAL. Well, I will say, Congressman, if I were a security holder and if I or friends of mine and myself were willing to work together and had a sufficient stake so that we could form a committee, if you pass this bill, I would insist that we have independent representation of our own as well, and for this reason; that although this is a valuable provision and will help security holders, as I said some moments ago, it is not likely to help them enough, because in these big receiverships no independent committee, no Government agency, can do all that should be done. There is too much to be done really to bring the security holder back to par.

Mr. HALLECK. But let me ask you right there, would not that immediately set up a situation of divided responsibility? And whose responsibility would be paramount? Whose authority in that litigation would be paramount?

Mr. LOWENTHAL. The court's.

Mr. HALLECK. I recognize that. The court is the judge. But, to speak for the interests of those security holders, would the Commission have the right to say that this plan is for the interests of the investors or would the attorneys of the investors say, "This plan is to our interest and this is the one we insist upon?"

Mr. LOWENTHAL. I think there are likely to be cases in which they would differ and in which the Commission would not always be right, either. I can see that.