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Senator BLAINE. Is a bond any evidence of the character of a man? Mr. KEYSER. Certainly.

Senator BLAINE. I thought the lack of a bond was evidence of the character of a man; a man who could perform his duties and obligations without putting up security to do it. I have a different philosophy on that.

Mr. KEYSER. Well, I disagree with you.

Senator BLAINE, You mean that a man has got to put up a promissory note and security that he is going to pay his debts before he can be regarded as an honest man?

Mr. KEYSER. I did not say any such thing, and I object to the chairman putting the words in my mouth.

Senator BLAINE. Well, we will pass over that. Now, your notion of enforcement is by way of injunction?

Mr. KEYSER. I would like some time to be able to make a 5-minute consecutive statement here, Mr. Chairman. I am perfectly willing to proceed as you desire.

Senator BLAINE. The committee is conducting this hearing. I beg your pardon. I do not want to be offensive, but when any member of the committee asks you a question I hope you will have the courtesy to answer the question and not attempt to criticize the committee. Just go ahead and answer the question.

Mr. KEYSER. Mr. Chairman, I wish to proceed entirely as the chairman desires. My only thought is this, that apparently, I, so far, have not been able to give you an expression of my complete thought about this matter.

Senator BLAINE. I am trying to get at the meat of it.

Mr. KEYSER. I fear I am making myself misunderstood, both to the chairman and the other members of the committee.

Senator BLAINE. Now, is the method by which you enforce this measure by injunction?

Mr. KEYSER. No, sir.
Senator BLAINE. What is the method ?
Mr. KEYSER. The method is twofold.

Senator BLAINE. We have the bond now. We have the man getting his license and putting up a bond. We have that. What is the next move?

Mr. KEYSER. The next move is the injunction method.

Senator BLAINE. That is what I am getting at. Now tell us about that.

Mr. KEYSER. I am sorry if the chairman limits me particularly to a discussion of the injunction.

Senator BLAINE. You will not be limited. I am asking you to answer the question. The question is a simple one.

Mr. KEYSER. The measures proposed in the bill we are recommending for the prevention of fraud are twofold: First is the requirement

Senator BLAINE. We have that; there is no necessity to repeat. We have had that four or five times. Let us get down to the second method.

Mr. KEYSER. If the chairman does not object, I would like to say why the committee deems that feature important.

Senator BLAINE. I think it is conceded that it is important. Now, let us get down to the injunction feature of the enforcement. You see, I realize the others are much easier to talk about.

Mr. KEYSER. Reluctantly, but nevertheless willingly, by the direction of the committee

Senator BLAINE. If you do not want to give testimony, you are excused, and we will let some one else state the proposition.

Mr. KEYSER. I am perfectly willing to do that also.

Senator BLAINE. If you feel so belligerent you can not answer a simple question, the committee is courteous enough to permit you to withdraw.

Mr. KEYSER. I am willing to do so if the committee desires me to do so.

Senator BLAINE. Do you want to answer that question?

Mr. KEYSER. I am commencing my discussion of the injunction phase of the bill. If I understand it, that is the phase you wish me to address myself to.

Senator BLAINE. Yes. Well, proceed.

Mr. KEYSER. The bill provides special authority and power to the United States attorney for the District of Columbia to conduct an investigation in any suspicious case. It gives him power to require the persons conducting the business in question to file statements of all of the details of the matter that he desires to investigate.

Senator Glass. You are speaking of the Capper bill, are you?

Mr. KEYSER. Yes, sir; it authorizes him to require them to file a statement under oath. It authorizes him to summons and take the testimony of witnesses. It authorizes him to impound the evidence.

Senator BLAINE. Just what do you mean by impound the evidence?
Mr. KEYSER. If you will turn to page 47 of our report-
Senator BLAINE. That is the secrecy provision of the bill, is it?

Mr. KEYSER. No; you misunderstand me, I think. Page 47 of our report. Turn to paragraph No. 4. “Upon the production of such records, books, documents

Senator BLAINE. I see what you mean by impound.

Mr. KEYSER.“ He may hold in his possession and safeguard for use in future proceedings that he may institute, if he deems that course necessary.”

Senator BLAÎNE. That answers my question.

Mr. KEYSER. The bill authorizes the United States attorney to apply for an injunction against any person conducting a business under investigation who refuses to file the statements called for or to give the evidence required. Of course, there is the general power to obtain a permanent injunction upon a showing that in that case no fraud would be worked upon the public. There is also power given to the court to appoint receivers for the property that has been collected by the wrongdoers in the carrying on of a business that has been found fraudulent.

Senator BLAINE. That is, after they have sold the securities?

Mr. KEYSER. If they have collected money from the public in the sale of securities.

Senator BLAINE. After they have sold securities and the courts find there has been a fraud a receivership proceeding is in order?

Mr. KEYSER. Yes.

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Senator BLAINE. That is to protect those who have purchased the securities?

Mr. KEYSER. To take hold of everything that still remains and distribute it under the order of the court to the persons entitled to it. That, in a general way, is the authority which the United States attorney has to inquire into a proceeding to terminate cases where he believes fraud is involved in connection with the sale of securities.

As special features of that subject, I would like to call the attention of the committee to our recommendation in two respects which we deem important: We think the bill should cover sales from the District as well as sales within the District. We mean by that, a promoter who elects to locate an office in the District of Columbia and uses the mails, telephones, or other avenues of communication to make sales of securities outside of the District of Columbia, in order to foreclose any question of jurisdiction if the party should attempt such a proceeding. We think it is desirable that the law should specifically refer to sales from the District as well as sales within the District.

In the matter of the injunction which may be issued by the court we recommend that the authority of the court in that respect be broadened. We think the court should be given power not only to enjoin the sale of the particular security, but it should also be given the power to enjoin the sales of any securities by persons that are found to be conducting a fraudulent business.

Senator BLAINE. That is, even though they might be valid and might be legitimate transactions you propose to punish a man who is going to commit a fraud by preventing him from selling any securities, even though they are legitimate securities?

Mr. KEYSER. Right. The power is given to the court in its cliscretion to make its injunction so broad that those persons found to be guilty of fraud in the sale of securities not only are prohibited from selling the particular security which they have been offering but to prohibit these same parties from selling any securities.

Senator BLAINE. Well, is that quite fair?

Mr. KEYSER. We think it is absolutely fair. We think that the crook should be eliminated.

Senator BLAINE. Supposing a crook is a crook only in one instance? A crook may become reformed. He may reform and become a very honorable man in the subsequent transaction of business. Do you propose to give discretionary power to the court to deny that man the right to transact his business when it is going to be legitimately transacted?

Mr. KEYSER. We think the court should have that power in the interest of protecting the general public.

Senator BLAINE. Let us carry it a little further.

Mr. KEYSER. Of course, the court is not obliged to use the power, you understand.

Senator BLAIXE. A man who has committed burglary-we will apply it in that case-would be enjoined by the court from committing not only that burglary but all future burglaries. That man might be in a very desperate situation after he has spent his probationary period and comes back into his community and becomes

an honorable citizen. Yet he can not engage in a legitimate business, can not engage in any business probably if there was that kind of an injunction held over him. He has been stamped forever as a dishonorable man, and none can trust him because a court injunction is hanging over his head to prevent him ever transacting legitimate business in his line.

Mr. KEYSER. Answering the chairman now, I am a lawyer. In the practice of law I am guilty of misconduct. The court disbars me from the practice of law, and the court would do it properly, and I would not be permitted to practice law. We think if you are going to undertake to safeguard the public against fraud in connection with the sale of securities the important thing to consider is the character of the persons who are to be allowed to engage in the business, and we think that whatever legislation is adopted should undertake to emphasize the control of the persons who engage in the business. It should confine the business to honest men. It should eliminate the crook, and it ought to shut out the fly-by-night highpressure salesmen.

No security, in and of itself, has any power, by itself, to commit any fraud. A security is a purely inanimate piece of paper. It of itself, of its own force, can not go out and take money out of the pockets of the public. It requires a human agency to commit a fraud in connection with that security, and the agency that commits the fraud is your dealer and your salesman, and therefore the control that the law should undertake to set up should be a control of the force that commits the fraud, and that is the human agency, and we think the best protection the law can give to the public is to seek to build up a body of honest dealers in securities and keep out of business the crook and the dishonest man.

Senator BLAINE. You hold that a man is not entitled to reform, and that there can be no remission of sins?

Mr. KEYSER. I do not, sir. This is what I say, Mr. Chairman, that when a man has deliberately committed a fraud on the public in the sale of securities, he should not have the right to turn around the next day and to commit another fraud.

Senator BLAINE. That is true.

Mr. KEYSER. What I say is he should be barred from the business, and I say there should be a proper power lodged in proper authority to determine the time when and if that man shall be allowed to come back and reengage in the business. I do not say he should be barred forever.

Senator BLAINE. You say a man who has committed fraud, the next day will have no right to go out and sell legitimate securities.

Mr. KEYSER. A man can seli legitimate securities in a fraudulent way, and he may commit a fraud on the public just as much in connection with the sale of a legitimate security as he may in connection with the sale of a security that is quite unreal in the sense of no value behind it.

Senator BLAINE. I do not get your distinction.

Mr. KEYSER. We have had many instances of this kind, Mr. Chairman, where a perfectly legitimate security-I think that was the term you used-a security that represents a real going business, and has an established market value, so that you may go to any open

market and buy it at that value, some crooked promoter comes around and sells it to the public for 10, 20, or 30 per cent over its real market value. He has defrauded that individual because of the excess price of that security, and he has done it through fraud and misrepresentation. That is what I mean when I say that you can by fraud sell a sound security in a fraudulent fashion. I am not imagining anything, Mr. Chairman, when I cite that instance.

Senator BLAINE. I have to stretch my imagination a good deal.

Mr. KEYSER. We have had experience like that in trying to protect the public in securities transactions.

Now, if I may turn to the other phase of this subject.

Senator BLAINE. There is just one other matter in connection with this investigation before the district attorney. The district attorney practically becomes the umpire. He is to determine whether or not there shall be an injunction. That is, the administration is left to the discretion of a single man, and in the exercise of that discretion there is no one under the express provisions of your proposed bill who has any right to determine the question of whether or not he exercised proper discretion, for the reason that you insert the secrecy clause that hedges about the district attorney absolute immunity from anyone peering into the evidence or the record. They can not see it. If anybody lets them see the record, they must go to jail for doing that. That seems a peculiar method of law enforcement.

Mr. KEYSER. If the chairman has finished-
Senator BLAINE. Yes.

Mr. KEYSER. Answering that comment of the chairman, I regret that I failed to make myself clear. The situation in that respect is quite different from that suggested by the chairman's remarks. The United States attorney does not have any arbitrary discretion in the matter. All that the United States attorney may do is conduct his investigation, and being satisfied, as a public officer, that the public interest requires the institution of a proceeding in the courts of the District of Columbia, he may cause a suit to be filed on the equity side of the court, asking for an injunction, and our amendments to the bill provide that the court is authorized to hear that matter in the usual way, so that it is a judicial proceeding. It is not an ex parte, star-chamber proceeding in the office of the United States district attorney.

Senator BLAINE. That is only a part of the picture. If he does not exercise his discretion to bring an action, there is nobody has any opportunity to look into that at all, is there, under paragraph (c), which provides:

Any officer participating in such inquiry and any officer summoned as a witness upon such inquiry, who shall disclose to any person other than the United States attorney for the District of Columbia the name of any witness examined or any other information obtained upon such inquiry except as directed by the United States attorney for the District of Columbia, or except as directed by a court of proper jurisdiction, shall be guilty of a misdemeanor, punishable as hereinafter provided in section 21 of this act.

So that the effect of this provision is to suppress a maladministration if the district attorney engages therein.

Mr. KEYSER. Answering you, I would like to offer this thought: In the first place, every law, whether it is a securities law or whether it is a criminal law or what manner of law, must be enforced by a

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