able to refer the complete details of the case to a master. He is required to keep strict supervision of the case, even to the smallest detail.

If all the details in the reorganizations could be delegated to a master, who in turn would report to the judge, the courts would be relieved of a great burden of work which they now have. The courts would thus be able to give adequate study to immediate problems that arise rather than struggle with a great amount of detail.

That, in brief, is something that could be done to meet the bondholders' reorganization problems. I suggest it here only to indicate that the problem is not above solution.

Those, in general, are my suggestions, Mr. Chairman, and I am very anxious to vote for a bill, and I hope that every member of this committee will be very patient in listening to the members of this special committee. There is need of some legislation, and I am very anxious to have Congress take some action.

I thank you.

The CHAIRMAN. The committee will stand adjourned, and the testimony taken at the hearings on this legislation last year will be printed here as part of the evidence on this hearing.

(Thereupon, at 4:30 p. m., an adjournment was taken.)




Washington, D. C. The subcommittee met at 10:30 a. m., Hon. Hatton W. Sumners (chairman) presiding.

The CHAIRMAN. Gentlemen, I understand this is a meeting of the special Subcommittee on Bankruptcy, of which Mr. Chandler of Tennessee is chairman.

The Committee on the Judiciary, appreciating the importance of this particular item of responsibility, created a special committee to do this work.

On my right is Mr. Michener who, under a former administration, was chairman of a similar committee; possibly the chairman of a subcommittee, I am not sure, but I know that he had particular responsibility with regard to this matter of bankruptcy. Mr. Chandler now has a similar responsibility but he has Mr. Michener as his good aide in working this problem out.

Mr. McLaughlin and Mr. Duffy of New York are present, and I understand from Mr. Chandler that other members of his committee will be here soon.

I am going to come in as often as I can and sit with the committee as much as I can. But I have some things to do that make it impossible for me to sit with the subcommittee during all of its sessions.

Mr. Chandler will now be good enough to take the chair and control the proceedings.

(Mr. Chandler thereupon took the chair.)

Mr. CHANDLER. Perhaps the best way to get started would be to plan our method of approach to this bill. I would suggest that those in favor of the bill contact Mr. Sabath and those who oppose the bill contact one of the gentlemen who are here in opposition; Mr. Bennett, whom the clerk of the committee asked to submit the names of those who are here in opposition. I suggest this in the interest of expedition.

Mr. Sabath, we shall be glad to hear you. Do you have any particular number of people who want to be heard ?



Mr. SABATH. Mr. Chairman and gentlemen : There are present the chairman of the special committee of the House that has been investigating this matter as well as some of the members of that committee, and some gentlemen who assisted the committee in drafting the bill.

We did not think it necessary to bring people here from all over the United States, although we had many requests from people who were willing to come from all sections of our country in behalf of this legislation.

If the committee later desires to hear from some of these gentlemen, members of real-etate boards, attorneys, and thousands who have lost their all, many of them are desirous of coming and are willing to come.

The CHAIRMAN. I was going to make this suggestion, knowing that these gentlemen have appeared before committees frequently ; that is, to get a list of those who wish to appear and limit their time to some degree. If you do not do that, you will find that the subcommittee will be compelled to close the hearings before every one can possibly be heard.

Mr. MICHENER. May I make an inquiry? Mr. CHANDLER. Yes. Mr. MICHEN ER. That is this: This is one of those types of bills on which we can put in the rest of the session hearing those who have lost their all, as suggested by Mr. Sabath.

I think this committee understands pretty well the purpose and advisability of this proposed legislation. We can save a lot of time if we will devote our attention to an analysis of the bill, to a statement of what the bill does, and what we are going to accomplish rather than taking up time in speeches. Do you not think so ?

Mr. CHANDLER. I agree with you thoroughly.

Mr. MICHENER. Because I can bring people here who can talk for 4 months on the desirability of some legislation of this kind. Let us assume that such legislation is desirable, and that this bill is aimed to meet the objective. Let us discuss the bill and not have speeches.

Mr. SABATH. It is not my intention, nor the intention of the members of this committee, to make speeches. All we desire is to bring to the committee the need for this legislation.

I will be very brief. I had no idea there were people here opposed to this legislation. This is the first time I have been informed that there is any opposition to this legislation.

Mr. MICHENER. Are all these people who are here against the bill, or for it? We do not know.

Mr. SABATH. I did not know that any one would appear against this legislation, unless they would be the gentlemen who represent these self-constituted and self-appointed protective committees which I have rightfully designated as racketeering committees.

Gentlemen, I shall be very brief. The Sabath committee was created by the House almost by unanimous vote. Three times the power of our committee has been extended and additional funds voted.

This has been done due to the fact that there is overwhelming evidence from every section of the country that the investigation was justified, not only for the purpose of ascertaining what legislation would eliminate these abuses, but also to legislate for the future to prevent these abuses.

I am satisfied that if you gentlemen had worked with the committee, or sat in on any one of the hearings that were conducted in a number of cities by our select committee, you would appreciate the need of this legislation.

I fully agree with Mr. Michener that there should not be any unnecessary time taken on this bill, that we should give only such information as you gentlemen feel you are entitled to have on the provisions of this bill.

This bill that we have recommended provides for the creation of a conservator which would have jurisdiction in all 74 and 77B proceedings, to some extent at least; and we hope that the committee, in its wisdom, will enlarge upon its jurisdiction. It is nothing new. In Canada and in England they have something similar.

In that way these unfortunate people will be protected. As it is now, gentlemen, there is no protection. Although you intended by section 77B to protect the unfortunate creditors and bondholders and in some instances stockholders, the wise gentlemen who represent these mortgage houses and banking institutions and others interested in these real-estate mortgages have been able so to manipulate things that they are utilizing section 77B for their own advantage and benefit against those whom it was intended to aid and assist and protect.

The bill, as I have stated, provides for the creation of a Conservator. The power is given to the President to select one of the established bureaus or agencies of the Government, whether the Comptroller or the Securities and Exchange Commission, or any other agency which is more or less familiar with this question.

Our committee is not wedded to the proposition that it must be turned over to one of these bureaus or departments, and we are willing, if you gentlemen feel that it should be done, to amend the bill giving the President the right to create a new bureau. That would be satisfactory to us.

This Conservator would have the right to pass upon applications for reorganization and would have control over committees.

So that you may understand the background of the situation, in 1928-really in 1929, when the crash came, and many of these bond issues had started to default—there were nearly $20,000,000,000 worth of these securities outstanding. These houses of issue, some of them in good faith, most of them with the desire to control these buildings and these holdings, created so-called protective committees.

They took their clerks and their agents and their lawyers, people who did not have a dollar's worth of interest in these properties or in these bonds, and created protective committees. Here and there they added some outstanding gentlemen whose names they would use to give color and standing to the committtee.

They immediately started out to send notices to these thousands upon thousands of bondholders telling them that their interests could be protected only by surrendering these bonds to this committee that was created to protect their interests. From the moment that these bonds were delivered to these committees, these bondholders became helpless.

These committees have forced these bondholders to accept or to agree to deposit agreements, which deprived them of every right they had. Under these deposit agreements these committees were given full power to do as they pleased.

They started out, when they obtained these bonds from these people, to borrow money against these bonds from the banks to pay their expenses and charges to bring in more bonds and to send out literature. They failed to make any reports to these people. They obtained possession of thousands of pieces of property some of which, in some instances, were worth as much as $10,000,000. The finest buildings in the United States fell into their hands and they became the managers and occupied every position that they desired. They engaged their own counsel. They appointed a managing committee, an advisory committee, a depository, which they agreed upon, and in many instances charged against these deposited bonds as many as seven and eight different charges.

When the people were informed that some of the committees were self-constituted and had no interest in these properties, did not own a single bond, and they then demanded the return of the bonds, they were told that it would cost them 5 percent of the face value of the bonds before they could get them back. In many instances the market value of the bonds was below 5 cents on the dollar, so that these unfortunate bondholders, who were really milked or robbed of everything that they possessed, even if they had the desire and the inclination to pay the 5 cents on the dollar for the return of these bonds, did not have the funds with which to do it.

For 2 or 3 years the only reports that these committees made were reports showing that taxes had not been paid on these properties; that many of the buildings were vacant; that the rents had to be cut down, and that they doubted very much whether there would be anything salvaged at all. Then a few days or a few weeks later, they sent another notice, or sent their agents out to these very bondholders, having painted' the picture as blue as they could, to negotiate for the purchase of bonds. And then many of these bondholders' committees, by a specially created committee or agency, purchased and acquired for 3, 4, 5 cents on the dollar, millions of dollars worth of these bonds from these unfortunate bondholders.

And after they acquired them and became complete masters of the situation, the properties started to bring handsome dividends. In many instances, these properties, from the very inception, would have paid, if not all the interest, at least part of the interest. In many instances the evidence was that there were no defaults against these properties, and that these committees merely jumped in to obtain control, filed foreclosure proceedings in order to get the power to appoint and designate their own managers and their own attorneys; and the fees that were charged against these properties have been outrageous, not only for the management, but the legal fees and all kind of other charges—unnecessary charges have been made against these properties—so that the bondholders were deprived of a reasonable return on their bonds, or the opportunity of receiving at least part of what they had invested.

That is a rough picture of the evidence that we obtained in all of the nine cities where long hearings were held.

Mr. CHANDLER. Do you know how many unfinished proceedings of this character are pending throughout the country?

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