NAB reports (Mar-Dec 1933)

3. Revocation and Suspension of Registration (Secs. 6 and 7) The revocation feature of this bill is not found in the British act. It is proposed in the bill to give the power to the Commission to revoke or suspend registration the moment it sees that an adver¬ tisement does not agree with the registration information, or that the information filed is false. Immediate revocation will then save the public in large part from what might otherwise result in heavy losses. The rights of the aggrieved party, however, are safeguarded through the privilege to demand a hearing before final order by the Commission. In the event that the final order is against him, he is given recourse by way of review of the order by the Circuit Courts of Appeals or the Court of Appeals of the District of Columbia. 5. Personal Responsibility The committee has been confronted with the problem of the con¬ trasted equities where untrue information as to material facts shall be given in any registration statement upon which the buyer pre¬ sumably relies. This goes to the essence of the relief to the public. Shall the signers on behalf of the corporation be exempt from liability if it cannot be shown that they knew of the false or erroneous character of the representations made? The question is whether ignorance of an untruth should excuse the director and leave the loss upon the buyer. To do so in our opinion would fail to give the buyer the needed relief and fail to restore confidence. If one of two presumably innocent persons must bear a loss, it is familiar legal principle that he should be.ar it who has the opuortunity to learn the truth and has allowed untruths to be published and relied upon. Moreover he should suffer the loss who occupies a position of trust in the issuing corporation toward the stockholders, rather than the buyer of stock who must rely upon what he is told. The committee believes it to be essential to accomplish the objects of the Act to make the directors executing the registration statement liable for the consequences of untrue statements rather than to throw the loss on the buyer. Accordingly the registration of false information under the bill makes not only the issuer, but the directors who sign, civilly liable for return of the money which the purchaser paid for the security. If a director can excuse himself by saying that he has in good faith relied upon an accountant’s statement, or the statement of some other person, then the investor will continue in the same position from which the Nation is struggling to extricate him. It has been stated in prospectuses repeatedly that the information given is believed by the company to be true, but not guaranteed. But it is the issuer who is in position to learn the facts, not the public. This phase of the law will have a direct tendency to preclude persons from acting as nominal directors while shirking their duty to know and guide the affairs of the corporation. Upon the dis¬ charge of this duty the public and stockholders rely in good faith. We cannot but believe that many recent disastrous events in the investment world would not have taken place if those whose names have appeared as directors had known themselves to be under a legal, as well as a moral, responsibility to the investing public. The committee believes that making directors and officers per¬ sonally liable will result in persons retiring from many boards and confining their efforts to a few boards where they will actually direct. Where an officer or director knowingly participates in violation of the terms of the bill, either bv failure to file the information, or by filing false information, or advertises falsely, he subjects himself also to fine or imprisonment, or both. This provision is in harmony with the British statute. 6. Remedies in Case of Fraud, False Information, etc. Under the bill, in case of fraud or misrepresentation in the sale of securities, the remedies are as follows: (1) The purchaser may rescind the transaction and sue for a return of his money in the district whereof the defendant is an inhabitant or is found, or transacts business (sec. 9). (2) The Government may stop the further or threatened fraud or misrepresentation by injunction in the district courts (sec. 13). (3) The registration of the securities may be revoked or sus¬ pended for fraud or misrepresentation on the part of the issuer, but the revocation or suspension does not apply to such parts of an issue of securities which have already been sold and are in the hands of the public (sec. 6). (4) Those euilty of the fraud may be prosecuted criminally by the Attorney General (sec. 13). The registration of false information makes the issuer, including the directors, civilly liable for return of the money which the pur¬ chaser paid for the security. This civil liability is only in the case where materially false or deceptive information has been registered, and is analogous to the common-law liability of a principal for the acts of his agents or of a partner for the acts of his copartners. In case of misrepresentations in the advertisements or selling methods, those responsible for or using the misrepresentations are also made liable to the purchaser for the damages suffered by reason thereof (sec. 9). A five-year limitation is placed upon all civil suits, actions, or pro¬ ceedings brought by purchasers. RECOVERY BILL BEFORE SENATE Senator Harrison of Mississippi, chairman of the Senate Finance Committee, has stated that he hopes to be able to report the Industrial Recovery Bill to the Senate on June 5. Hearings which have been held by the committee on the bill were concluded on June 1. Considerable opposition is developing to the bill, and while there seems to be no question but what the bill will be passed, there is also very little question but what it will have a rather rocky passage through the Senate. Present opposition is devoted almost entirely to the lack of pro¬ tection for American manufacturers from foreign competition, and also to the labor provisions contained in the bill. The steel and many other industries are opposed to the labor bargaining provisions of the bill. There is also increasing dissatisfaction over the tax provisions of the bill as it passed the House. On the other hand the Finance Committee is reported to be working out tax provisions which will not be so hard on the “little fellow.” Meeting was held June 3 of representatives of more than 1,000 industrialists under the call of the National Manufacturers Associa¬ tion to protest against certain sections of the bill. This association, together with the Chamber of Commerce of the United States, stuck with the administration during the drafting of the bill but both organizations now claim that some changes will have to be made in the bill if it is to be just and workable for industry. The bill as passed by the House on May 26 undoubtedly will undergo several important changes in the Senate. A summary of Title I of the measure, as passed by the House, is as follows: Section I — Declaration oj Policy Existence of national emergency declared. Policy of Congress declared to be: To remove obstructions to interstate commerce. To promote the organization of industry for cooperative action. To obtain united action of labor and management under gov¬ ernmental supervision. To eliminate unfair competitive practices, to reduce unemploy¬ ment, to improve standards of labor. . Otherwise to rehabilitate industry and to conserve natural resources. Section II — Administrative Agencies a. Administration of measure vested in the President who is authorized to establish agencies, utilize voluntary services, and federal and state officers and employees. b. Powers of President may be delegated to designated officers and agents: President may establish an industrial planning and research agency. c. Title I shall cease to be in effect and all agencies established thereunder shall cease to exist at the expiration of two years after enactment, or sooner upon proclamation of President or upon joint resolution of Congress. Section III — Codes of Fair Competition a. Codes of fair competition may be formulated by trade organ¬ izations for submission to the President. The code for an industry may be approved by the President if he finds: 1. That the group formulating the code imposes no in¬ equitable restrictions on membership and is truly rep¬ resentative of its industry. 2. That the code is not designed to promote monopolies, to eliminate, oppress, or discriminate against small enterprises, and that it will tend to effectuate the policy of the title. Page 59