The CHAIRMAN. Yes; 2 hours every morning. And then if it is possible, I will give them more time by holding afternoon sessions. But I want them to definitely understand we are going to close these hearings a week from Saturday, and want them to so arrange their witnesses. And I will add this statement: That if any of your people have not then testified before the committee and desire to file statements I will permit them to do so, and their statements will be made a part of the record, but I am not going to take up the time of the committee with repetition of a lot of matters.

All right, Mr. Chantland, we will hear you. STATEMENT OF COL. WILLIAM T. CHANTLAND, ATTORNEY IN


Colonel CHANTLAND. Mr. Chairman, will you sit until 12 o'clock?

The CHAIRMAN. You may go ahead. We will try to remain in session longer than 12 o'clock today, if possible.

Colonel CHANTLAND. I should like to finish today, if I may.
The CHAIRMAN. Go ahead.

Colonel CHANTLAND. Mr. Chairman and gentlemen of the committee, for the record I should state that I am the attorney of the Federal Trade Commission's staff who, since Judge Healy became a member of the Securities and Exchange Commission, has had charge of the utilities investigation carried on at the direction of the Senate. Prior to July 1, 1934, when Judge Healy was appointed to the Securities and Exchange Commission, I was his chief assistant and, so to speak, executive officer, and have devoted my entire time to the investigation of utilities throughout its entire period, from February 15, 1928.

At the request of Senator Wheeler, I shall endeavor to tell you something about the character of the evidence and how it was gathered, in the investigation which the Senate directed and which has led up to this bill, as well as to other legislation already enacted.

The CHAIRMAN. I understand that what led up to the investigation was that my former colleague (Senator Walsh) wanted to have the investigation made here by the Senate. Colonel CHANTLAND. Yes, sir.

The CHAIRMAN. But the utilities were opposed to it. They wanted to have it done by the Federal Trade Commission.

Colonel CHANTLAND. That is correct.

The CHAIRMAN. And after they had had it done by the Federal Trade Commission they probably wished they had had it done by the Senate; is that it?

Colonel CHANTLAND. I have heard expressions to that effect, Senator Wheeler.

The CHAIRMAN. Go ahead with your statement.

Colonel CHANTLAND. I hope to make the kind of statement which will be informative in showing the convincing nature of the evidence. The facts as developed by our investigation are all of the utilities' own making and have been checked by them before introduction into our record. But, of course, the conclusions stated are our own; that is, of the Commission, or of our examiners, where so stated, but the facts are of that nature.

The procedure was well and accurately described before the House Committee on Interstate and Foreign Commerce by Judge Healy the other day

The CHAIRMAN (interposing). So that we may have it clearly on the record, the facts that you are going to give us are facts that have all been checked with the electric companies themselves, or the holding companies themselves, whichever it may be in any particular case.

Colonel CHANTLAND. Yes; with their representatives and their counsel.

The CHAIRMAN. But the conclusions which you base upon those facts, of course, are the conclusions of the Commission itself!

Colonel CHANTLAND. Yes; or of its examiners in event conclusions are stated in examiners' reports. Of course, those conclusions stated in the final report are the conclusions adopted by the Federal Trade Commission.

The CHAIRMAN. All right. You may proceed.

Colonel CHANTLAND. As I have stated, the method of procedure was accurately stated, and quite briefly stated, by Judge Healy in his testimony before the House Committee on Interstate and Foreign Commerce the other day, and I think it is best that I read that short statement into your record, if you will permit me to do so.

The CHAIRMAN. All right.

Colonel CHANTLAND. I am now quoting from Judge Healy's statement:

The method of investigation ought to be described. For the most part, trained accountants and examiners from Dr. Walker's division went into the offices of the utilities companies, sometimes with assistants, and stayed as long as was necessary to get the essential facts, and sometimes that was pretty long

The CHAIRMAN. Let me ask a question right here: Is it possible for all of you people sitting back there in the room to hear the witness? I am a little hard of hearing myself and I wondered if you people could hear.

Colonel CHANTLAND. I can speak louder if need be, Mr. Chairman.

The CHAIRMAN. Well, no one indicates that he is unable to hear you. You may proceed.

Colonel CHANTLAND. I was beginning to read what Judge Healy said in his testimony the other day before the House Committee on Interstate and Foreign Commerce. He said:

The method of investigation ought to be described. For the most part, trained accountants and examiners from Dr. Walker's division went into the offices of the utilities companies, sometimes with assistants, and stayed as long as was necessary to get the essential facts, and sometimes that was pretty long, but that was because the facts and circumstances were intricate and difficult to dig out. Then those men came back to the office of the Trade Commission and wrote their reports on individual companies.

Those reports were then submitted to the companies involved, who were giren an opportunity to come to Dr. Walker and me and point out wherein the facts were misstated. If they convinced us that they were right, we made the appropriate changes. Otherwise we presented the report for public record as written.

At the public hearings the report would be presented, and the representatives of the power company had the opportunity to cross-examine the Trade Commission's witnesses and to put in evidence of their own that might tend to contradict or explain any of the statements made by the Commission's exit

aminers. In almost no instance was there any cross-examination, and in almost no instance was any evidence presented by the companies in opposition to that presented by the Commission.

I might interpolate here that at times when I put in reports, before we left a point and not waiting until the end, I offered opportunity for them to put in things, at that point, so as to make it clear and in proper context.

Now, continuing, Judge Healy said-and, Senators, who have just come into the hearing room, I am giving the statement on procedure made by Judge Healy before the House Committee on Interstate and Foreign Commerce the other day, in relation to the Federal Trade Commission's investigation, how it was carried on, so that

may appear more clearly to you, and how we gathered proof, and I want to speak to the character of the proof this morning, that led up to this bill, S. 1725.

Continuing, Judge Healy said:

Therefore, it seems to me that the facts and statements reported by the Trade Commission in its various reports to Congress and there are a great many of them are entitled to more than ordinary credence. And as to these reports, on yesterday we sent to the Senate the seventy-sixth report, and as to the financial structure it begins at report 21. Continuing, Judge Healy said the other day before the Committee on Interstate and Foreign Commerce of the House:

I do not regard those statements as issues of fact. I think that they are findings on issues of fact that have been raised and ought to be regarded as settled.

I shall endeavor to show you how the groundwork was laid by a long, extensive, and expensive campaign of propaganda—and I use the term “propaganda” because they used it freely, knowing exactly what they were attempting and were doing. I say, I shall show how the public mind was “educated” to the utility viewpoint, to the point of accepting practically any so-called “ security”, by whatever name designated, as fundamentally sound and as being exactly what its name implied even though the facts were often far from that.

As to this propaganda campaign, the fact that the utilities spent, according to their own claims, as much as $28,000,000 per annum for advertising must not be overlooked. For as one of the spokesmen for the industry told me, when speaking of the influence of advertising, and he was a former president of the N. E. L. A.—and when I use that term, “N. E. L. A.", I mean the National Electric Light Association-he said to me personally when speaking of the influence of advertising and whether it had any:"Huh! They don't influence anybody, except all.” It would seem quite evident that the advertising money aided greatly in procuring the insertion of favorable articles, and particularly editorials, to carry forward the plan of the utilities.

In exhibit 2830, printed in exhibits parts 5–6, page 227, Mr. J. B. Sheridan, head of the Missouri Utilities Committee, makes a more concrete report. He there states that in 3 months he visited practically every privately owned public utility of any importance in Missouri and talked with 150 editors in those cities. Then he said:

1. Wherever the utilities advertise consistently, even to the extent of onetenth of 1 percent of their annual gross income, conditions are invariably satisfactory. The people seem to be satisfied, the newspapers are satisfied, and the utilities report satisfactory conditions.

2. In cities where the utilities, although they may be giving good service at a fair rate, do not advertise, we find conditions not so satisfactory as they are in the cities where the utilities advertise.

The CHAIRMAN. And that was in Missouri?

Colonel CHANTLAND. That was in the State of Missouri. Senator Truman, you know where it is, right south of Iowa, where I belong.

Senator TRUMAN. When you refer to Iowa, that is north of Missouri.

Colonel CHANTLAND. Yes; I believe that is correct. On February 15, 1928, the Senate passed what is generally referred to as “The Walsh Resolution” for the investigation of the electric and gas utilities, and more particularly utility holding companies. This was Senate Resolution 83, Seventieth Congress, first session. And I think, Mr. Chairman, it being quite short, it might be well to print that resolution in the record at this poi

The CHAIRMAN. I think so.
Colonel CHANTLAND. May it be done!

(Senate Resolution 83, Seventieth Congress, first session, will here be printed in the record, as follows:)

[S. Res. No. 83, 70th Cong., 1st sess. ] Resolved, That the Federal Trade Commission is hereby directed to inquire into and report to the Senate, by filing with the Secretary thereof, within each 30 days after the passage of this resolution and finally on the completion of the investigation (any such inquiry before the Commission to be open to the public and due notice of the time and place of all hearings to be given by the Commission, and the stenographic report of the evidence taken by the commission to accompany the partial and final reports) upon: (1) the growth of the capital assets and capital liabilities of public utility corporations doing an interstate or international business supplying either electrical energy in the form of power or light or both, however produced, or gas, natural or artificial, of corporations holding the stocks of two or more public utility corporations operating in different States, and of nonpublic utility corporations owned or controlled by such holding companies; (2) the method of issuing, the price realized or value received, the commissions or bonuses paid or received, and other pertinent facts with respect to the various security issues of all classes of corporations herein named, including the bonds and other evidences of indebted. ness thereof, as well as the stocks of the same; (3) the extent to which such holding companies or their stockholders control or are financially interested in financial engineering, construction, and/or management corporations, and the relation, one to the other of the classes of corporations last named, the holding companies, and the public utility corporations; (4) the services furnished to such public utility corporations by such holding companies and/or their associated, affiliated, and/or subsidiary companies, the fees, commissions, bonuses or other charges made therefor, and the earnings and expenses of such holding companies and their associated, affiliated, and/or subsidiary companies; and (5) the value or detriment to the public of such holding companies owning the stock or otherwise controlling such public utility corporations immediately or remotely, with the extent of such ownership or control, and particularly wha. legislation, if any, should be enacted by Congress to correct any abuses that may exist in the organization or operation of such holding companies.

The Commission is further empowered to inquire and report whether, and to what extent, such corporations or any of the officers thereof or any one in their behalf or in behalf of any organization of which any such corporation may be a member, through the expenditure of money or through the control of the avenues of publicity, have made any and what effort to influence or control public opinion on account of municipal or public ownership of the means by which power is developed and electrical energy is generated and disturbed, or since 1923 to influence or control elections: Provided, That the elections herein referred to shall be limited to the elections of President, Vice President, and Members of the United States Senate.

The Commission is hereby further directed to report particularly whether any of the practices heretofore in this resolution stated tend to create a monopoly, or constitute violation of the Federal antitrust laws.

Colonel CHANTLAND. Senate Joint Resolution 115, of May 28, 1934, extended the investigation through the present calendar year, and I take it the members of this committee are familiar with that resolution.

In the light of events, of events afterwards, of course, it seems too bad that a resolution offered by Senator Norris 2 years earlier could not have been favorably acted upon. If the investigation had then been begun it seems likely some of the worst results leading up to and following the crash of 1929 might have been forestalled and avoided. I say this because as the disclosures were made bad practices were amended, and obviously the speculators and the innocents both would have been less free to buy securities with no sound foundation, and some of which, even at reasonable prices, could not be expected to earn over 2 or 3 percent.

The Senate resolution consisted, broadly speaking, of two parts: One part directed an investigation into the propaganda of the utilities. As I have already said, I use the word“ propaganda” because, as shown in the record of the investigation, those in the utility industry who were conducting it, realized pretty well what they were doing and they used the term.

The other part of the investigation, and that which required the most time, the largest staff, and involved the most expense, was the investigation into the financial structure and the practices of utility holding companies, with the direction to the Commission at the end of the investigation to weigh and report on the disadvantages and advantages of holding companies, and to recommend remedial legislation if that was deemed necessary. I take it that what the Senate really wanted from that part of the resolution was to find out about the soundness of the financial structure of these holding companies superimposed upon chartered operating companies that rendered service, and to find what of their practices bore down upon those operating companies, and thus upon the consumer-and, of course, the investor, for both the consumer and the investor would be affected.

While the accountants and examiners of the Economic Division were delving into the records, including accounts and minutes, contracts, and so forth, of holding companies, and preparing to write their reports, the Legal Division proceeded promptly with the propaganda phase as it was carried on by various associations and committees of the electrical and gas industries.

The first hearing was held on March 8, 1928, within a month of the passage of the resolution. Before adjournment for the summer vacation of 1928 the entire general plan, exhibiting the machinery, the method, and the objectives, was spread upon the record.

Thereafter the hearings continued to fill in the facts so as to meet the early contention of the utilities that our disclosures were mere sporadic acts of overzealous underlings.

The CHAIRMAN. Senator Moore and Senator Donahey, this is Mr. Chantland of the Federal Trade Commission.

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