Mr. REDMOND. It includes also the matters from section 9 and section 16.

With respect to section 19, we refer to our comment, which I will read in a moment. We suggest no changes in sections 20, 21, and 22; no change in section 23, but it is subject to comment.

With respect to section 24, we suggest that subsection (a) of that be amended, as that deals with the right of persons to review by court proceedings the orders of the Commission. It is limited, however, in its present draft, to "any person aggrieved by an order issued by the Commission in a proceeding under this act to which such person is a party." It is very possible that a person might be aggrieved by an order of general application to which he would not expressly be a party. We felt that if he were so aggrieved, he should be given the right of review, so we have redrafted the clause for that purpose.

Mr. PECORA. You say in your redraft [reading]:

Any person aggrieved by an order issued by the Commission in a proceeding under this act to which such person is a party and any person aggrieved by any rules or regulations of general applications made effective as prescribed in section 20 may obtain a review of such order.

Do you intend by that to subject the rules and regulations which may be adopted under the act by the Federal Trade Commission to court review?

Mr. REDMOND. Where a person is aggrieved.

Mr. PECORA. Then you are not giving the Federal Trade Commission the discretionary power that you maintain is being given to it. Mr. REDMOND. Yes; I think we are, Mr. Pecora.

Mr. PECORA. If you make its rules and regulations subject to court review

Mr. REDMOND. But these rules and regulations

Mr. PECORA (Continuing). You will put the Federal Trade Commission, then, in the position of making rules and regulations for which a court may provide a substitute. You are giving the court, then, the power to make the rules and regulations in the final analysis, are you not?

Mr. REDMOND. No; I do not think so, because the term "rules and regulations" is used throughout the bill, that the exchange might, by rules and regulations, do thus and so. Let us take an example: We referred a moment ago to the question of foreign and domestic arbitrage. Suppose the Commission should adopt rules and regulations which literally prohibited that. Do you not think a person engaged in the business of being an arbitrageur should have the right to review the question of whether those rules and regulations were necessary to carry out the provisions of section 15?

Mr. PECORA. If you are going to do that by what you designate as section 22 (a), the clause you have in there, now, I am afraid you are going to make all the rules and regulations which the Federal Trade Commission is presumably empowered to make, subject to court review. You are going to make the court, in the final analysis, the arbiter of the rules and regulations which the Federal Trade Commission is required to make.

Mr. REDMOND. But, Mr. Pecora, you are using the words "rules and regulations." The only necessity for putting that in is that through

out this draft of the bill we have not attempted to redraft all the language of the bill. The term "rules and regulations" is used precisely as if they were orders of the Commission. In other words, the Commission, by rule and regulation, says the bill can accomplish the same thing that they could by an order.

Mr. PECORA. At the same time, the Commission is empowered to make rules and regulations with regard to many, many things. As a matter of fact, you are entrusting to the Federal Trade Commission powers in addition to those that were entrusted to it in the printed draft of the bill.

Mr. REDMOND. True.

Mr. PECORA. Now you say "We propose that the Federal Trade Commission be given that much broader power than was originally contemplated," but by this clause you are virtually saying "The Federal Trade Commission's rules and regulations, however, are subject to review by some tribunal."

Mr. REDMOND. But was not this section intended to allow citizens who were aggrieved by the action of the Commission

Mr. PECORA. By an order, which is different from a rule or regulation.

Mr. REDMOND. Quite frankly, I thought the intent of the section was to allow to citizens who would be affected by the action of the Federal Trade Commission the normal right, which is the right of citizens to review the action of an administrative body in the courts.

Mr. PECORA. If the Federal Trade Commission should, by order, determine that an individual has violated a rule or regulation, the right to review is given, but not the right to review the making of the rule or regulation.

Mr. REDMOND. But if, Mr. Pecora, the making of the rule or regulation would have the same effect-it does under this bill-as an order, should the Federal Trade Commission be able to escape a court review by making a general rule or regulation rather than a specific order? I know of no administrative proceeding which is not subject to some form of court review, and, quite frankly, it never oc

curred to me that this bill was intended to establish an administrative authority that would not be subject to court review. In fact, I think Mr. Corcoran

Mr. PECORA. There is not any such purpose revealed in the printed bill.

Mr. REDMOND. It is limited here

Senator TOWNSEND. What page?

Mr. REDMOND. Page 50. It says [reading]:

Any person aggrieved by an order issued by the Commission in a proceeding under this act to which such person is a party

Mr. PECORA. Yes.

Mr. REDMOND. That is the only type of act of the Federal Trade Commission which, under this bill, would be subject to court review. Take the case

Mr. PECORA. You propose to extend that by giving the court the power to review rules and regulations which the Federal Trade Commission is authorized by other provisions of this act to formulate and prescribe from time to time for the purpose of carrying out the provisions of the act, so that are you not virtually making the

court the final arbiter of what rules and regulations are to be made, and not the Federal Trade Commission?

Mr. REDMOND. Only insofar as the rules and regulations directly and adversely affect the rights of a citizen. It is because the form of this bill has used the term "rules and regulations" for all sorts of things, which are not really rules and regulations at all.

Take the incident I gave you, of the man engaged in foreign or domestic arbitrage. The Commission could adopt what it might say was a rule or regulation, prohibiting foreign arbitrage. Those men would be put out of business, and would have no right to review in the courts the order of the Federal Trade Commission, because the Federal Trade Commission would not have entered an order. It would have adopted a rule or regulation.

Senator BARKLEY. You have two classes of people here, one who are parties to any proceeding

Mr. REDMOND. True.

Senator BARKLEY. In that case there is no question under either language. They can go into court.

Mr. REDMOND. Correct.

Senator BARKLEY. Your language, however, makes it possible for anybody to go into court and make a general attack.

Mr. REDMOND. Anybody who is aggrieved.

Senator BARKLEY. Anybody who thinks he is going to be aggrieved. If he has been aggrieved, he can easily become a party to a proceeding that would enable him to appeal to a court.

Mr. REDMOND. But there are no proceedings here.

Senator BARKLEY. This language is broad enough to enable anybody who thinks he is liable to be aggrieved by the specific application of the regulations to go into court and attack the whole body of regulations.

Mr. REDMOND. If my language is so broad as to allow that interpretation, clearly it should be limited. But I was trying to cover the point that because of the way the bill is drafted, the term "rules and regulations" was made of general application, and effectively destroyed the rights of citizens, and no opportunity would be given them to review that action in the courts.

Senator BARKLEY. Of course, it is easy for any person to become a party to a proceeding by violating any of the rules or regulations, and then having proceedings instituted against him so that he may come within the language of the bill as written. Then he can get an appeal to the circuit court.

Mr. REDMOND. I beg your pardon, Senator. The purpose of this provision, and it is the same type of provision that is in all of our administrative acts, is to allow a person who is affected by the administrative commission's action to have an orderly review of that proceeding before he has got to subject himself to criminal proceedings.

Senator BARKLEY. It seems to me you have subjected the language to the danger of involving some attack on the general body of rules and regulations made without regard to the possibility of them affecting him in all their ramifications. He might undertake to relieve a lot of others besides himself of the binding effect of the regulations by some proceeding of his own.

Mr. REDMOND. That is not my intention, and if the language is capable of that construction, I will be the first to amend it so as to limit it to what I really had in mind, and that is that a person who was aggrieved could have a right to review.

Senator BARKLEY. I do not know just what the proceedings will be under this bill. It is like a new court of appeals being established. It has to work out its own rules over a period of time. Anybody who is aggrieved by any regulation or rule of the Commission can go before the Commission in a proceeding to have that rule or regulation modified or abandoned entirely. In such a proceeding, if the decision is adverse to him, he can then go into court, so that, as I said a moment ago, it is easy for anybody to make himself a party to a proceeding under which he can go into court and attack it.

Mr. REDMOND. I think I am right in stating-Mr. Pecora will correct me if I am wrong that this bill allows the Federal Trade Commission to adopt rules and regulations without any proceeding whatsoever. It can just adopt them and promulgate them. Senator BARKLEY. I understand.

Mr. REDMOND. Then there is no way in which that can be reviewed. Mr. PECORA. How about invoking the injunctive power of the court to prevent the enforcement of a rule or regulation?

Mr. REDMOND. Then, Mr. Pecora, we might drop the entire section 24. The same argument would apply.

Mr. PECORA. We are giving a person aggrieved by an order the right to review that order. You propose to give not only that right but also the right to any person who claims to be aggrieved by a rule or regulation adopted by the Commission, to go to court and have the court review that rule or regulation; and at the same time you are entrusting to the Federal Trade Commission the power to make rules and regulations for the purpose of administering the entire act. You, yourself, propose, for instance, with regard to the provisions of section 10, having to do with segregation of dealers and brokers, that that whole question be left to the discretion of the Federal Trade Commission through the adoption of rules and regulations.

Mr. REDMOND. True.

Mr. PECORA. Now, you say that any person aggrieved by a rule or regulation may go to court and obtain a review or regulation. In other words, you are giving the power to the Federal Trade Commission in one breath, and in the next breath you are transferring that power, in the final analysis, to a court.

The CHAIRMAN. I think we can take that up later.

We

Mr. REDMOND. Section 25 deals with the criminal liabilities. firmly believe that the criminal penalties of the bill ought to be restricted to what are really in their nature crimes, and not violations of rules and regulations or other provisions of the act where a man literally might violate them through no affirmative act of his own. For example, under the bill as drawn the maintenance of credit, unless certain rules are complied with, is declared to be unlawful, and therefore the maintenance of such credit would be a violation of the act. Take a broker, or even a banker; he may have a loan to a customer amply collateralled according to the requirements of the bill, but on a certain day that stock or security may drop rapidly, and

it may get below the fixed limits of this law. The net result is that through no action on the part of the lender he has become a criminal. We do not feel that that is a proper criminal provision. We feel that strict criminal provisions

Mr. PECORA. Is not that going to be covered by rules and regulations adopted by the Federal Trade Commission prescribing the manner and method of closing out margin accounts?

Mr. REDMOND. I know of no such provision. Under the present draft there is no provision, so far as I know, allowing the closing of margin accounts in any particular manner.

Senator GORE. You figure, under that, that if a stock were to take a sudden drop and then rally and break through this limitation, that would be a crime.

Mr. WHITNEY. It could be so construed.

Mr. PECORA. If you will turn to page 17 of the printed bill, section 6, beginning with line 15

Mr. REDMOND. Mr. Pecora, would you read the whole sentence. I know that power exists in the Federal Reserve Board, but it is limited to a certain particular type of condition. It may be a mistake in draftsmanship.

Mr. PECORA. It would cover the very situation you have assumed. Mr. REDMOND. I do not think so. Suppose we read the section. It says. [Reading:]

Although the limitations of this section 6 upon the extension and maintenance of credit shall, except in the extraordinary circumstances hereinafter referred to, be strictly adhered to by the Federal Reserve Board as the considered policy of Congress, the Federal Reserve Board may, notwithstanding the other provisions of this section 6, in situations where it deems such action vitally essential to the accommodation of commerce and industry and with regard to its bearing on the general credit situation of the country, by rules and regulatious permit lower margin requirements for particular securities or transactions or classes of securities or transactions and for particular periods.

They cannot adopt any rules and regulations lowering the margin requirements unless they are in situations where the Federal Reserve Board deems such action vitally essential to the accommodation of commerce and industry, and with regard to its bearing on the general credit situation of the country.

The CHAIRMAN. You propose a substitute?

Mr. REDMOND. We were discussing the criminal provisions. I do not feel that a man should be made a criminal for something which happens really through inaction, or by reason of somebody else's action, and yet that is the effect of many of the provisions of this bill.

Mr. PECORA. Mr. Redmond, the provisions on page 17 of the printed bill, commencing in line 15 and continuing down to and including line 21, may easily be clarified so as to require the Federal Reserve Board to make rules and regulations, or empower the Federal Reserve Board to make rules and regulations covering the carrying and closing out of margin accounts.

Mr. REDMOND. But even so, Mr. Pecora, that does not cure my fundamental objection.

Mr. PECORA. They certainly would take care of a supposititious case such as the one you referred to.