Senator BLAINE. Let us not be too technical. There have been foreclosures. There have been foreclosures of the first mortgage

Mr. ADDISON. Not on the Investment Building, sir.

Senator BLAINE. What foreclosures? Second mortgages?
Mr. ADDISON. Second and third.

Senator BLAINE. Did they pay out in full?

Mr. ADDISON. Not a cent, and they were not worth it.
Senator BLAINE. Well.

Mr. ADDISON. That is what I am trying to call to your attention. Senator BLAINE. Maybe they were not actually issued by the F. H. Smith Co.

Mr. ADDISON. I hold no brief for them, and I can condemn them even more than you can.

Senator BLAINE. I am not condemning them. I am simply stating the fact that in the Smith Co. transaction I doubt if there was a single project in which there has not been a heavy loss. That is what we are getting at.

Mr. ADDISON. That is why I rise to interrupt the speaker. I am here also in the capacity of representative of the Better Business Bureau. We want legislation here to correct conditions that arose when the Smith Co. attempted to put a refunding mortgage on their own building on Fifteenth Street. There is no legislation that we could invoke to get anyone to act. We could not get anyone to act unless we got people to put themselves on record as to what the land and building was worth. There was no fraud until there ws some specific statute under which an investigating committee would handle it. At the time that was issued I defy any public utility commission under your bill to be in a position to say whether it was then fraud. Unfortunately, after the bonds were sold values changed and the damage was done. Had there been this Capper bill in effect at the time the Smith Co. offered their refunding bonds we of the Better Business Bureu would have had some medium through which we could have acted. There would have been no possibility, in my opinion, of the securities of the Smith Co. being refused by reason of their past record under the Blaine bill.

Senator GLASS. Under what law was the Smith Co. prosecuted and convicted?

Mr. ADDISON. Under a charge of conspiracy in this particular indictment. They were out, according to the conviction, to deprive the stockholders of their money by fraud by Pitts taking the money out of the company.

I do not believe either law could be in a position to say, "You can not issue a real-estate security," or anything else," because in the opinion of this commission it is not worth it." Whether a parcel of ground is worth $50 a foot or $100 a foot is a matter of opinion. If we are going to have to go to the Public Utilities Commission to have them say what a piece of ground is worth before we can go ahead, we are going to throttle honest business.

I did want to get that Smith Co. information concretely before you, because I do not believe there are any of this committee but are in theory in agreement with your opinion of the way they got money from the public.

Senator BLAINE. You suggested something that is very interesting. You understand that I have no concern about the authorship of any

bill at all. This bill designated as the Blaine bill was not my bill at all. It is the uniform bill recommended by the American Bar Association. I simply had Mr. Brinkman take it up and write in specific things to fit into the District organization, leaving the whole substantive part of the American Bar Association bill as they had drafted it. So that I am not the author of it.

Mr. ADDISON. The American Bar Association was not preparing it for the District.

Senator BLAINE. I am not ashamed of it, but I am simply stating that fact so there will be confusion about this. You said, under the Capper bill in this Smith instance, it could have been prevented. I am anxious to inquire by what method.

Mr. ADDISON. By this method. In 1923 they put out an issuance, the prospectus of which said the value was $1,135,000. They put a $635,000 mortgage on it, and three years later they put out a refunding circular, putting a value of $1,850,000 on it-the figures may not be exact-and when the Better Business Bureau sought some way by which we could prevent their sale of these securities we found we could not. We were not a party to it. We simply were giving information to anyone who asked us. If we could have taken those two prospectuses within three years down before the district attorney, with his inquisitorial powers, he could have called witnesses, put them under oath, and made them state what, in their opinion, values were, and he could have convinced himself so clearly that it was not anything in the world but an imposition on the buyers of these securities.

Under the Blaine bill it would have done this, as I view it

Senator BLAINE. Let us get this straight. Under the Capper bill. after the securities had been issued

Mr. ADDISON. Not so, though.

Senator BLAINE. Wait a minute. After the securities had been issued, and after advertisements had been made setting forth exorbitant and excessive and fictitious values, then under the Capper bill you could go to the district attorney here and present this to him. If he were convinced that a fraud was going to be committed, then he could bring an action in the court to restrain the commission of that fraud?

Mr. ADDISON. There is one step ahead of that.

Senator BLAINE. Let us have the other step.

Mr. ADDISON. The step ahead of that is this: Before anyone can be a salesman or a broker he first must get the permission of the authorities of the District of Columbia to be a licensed dealer. I mean they would have had to post bond which, because of their size, would have been nominal, but nevertheless a penalty. Third, because of the compactness of the District, and knowing that the means of advertisement in the District is only four or five newspapers and that every competitor and that the Better Business Bureau would be watching them at all times for fraudulent statements, would, in my humble opinion. have operated to have prevented this. They would have subjected themselves to revocation of license; they would have subjected themselves to an injunction.

Senator BLAINE. They went even further than that. They went so far that now they are committed to jail.

Mr. ADDISON. Out of the District. I will say that 99 out of 100 sales in the District are done in good faith. Your bill requires that a commission pass on every one of the 100 sales, without any possibility of having the ability to pass on the hundred.

Senator BLAINE. Not on the sales.

Mr. ADDISON. Unless they are in bulk.

Senator BLAINE. They pass on the value of the property.

Mr. ADDISON. I mean before they can offer for sale.

Senator BLAINE. And if it is found that the security proposed to be issued has back of it a sufficient amount of property to justify permission to sell, then the commission gives a certificate.

Mr. ADDISON. That is true, except that in your bill before any certificate can be sold it must be appraised and passed upon by a commission not, in your opinion, competent to do that.

Senator BLAINE. The issue must be passed upon, not the sale. Mr. ADDISON. Oh, yes; the issue before sale.

Senator BLAINE. Yes.

Mr. ADDISON. Now, to pass upon issues, 99 of which will be passed, cumbers them up; whereas in the other cases 95 of those cases need have had no attention whatever by any commission to investigate, because they are meritorious and should go through. But those 95 are held up for the other 5.

Now, in a compact city like this it is our opinion, and this committee is representative of every organization that was interested here, and there must have been 20 or 25, including every kind of an organization, including also the citizens' organizations which delegated these seven men and women to study the problem, and if there ever was a bill studied, in my opinion, to give you the benefit of the opinion of a cross section of this city, it has been these bills

Senator BLAINE. Your proposal, in brief, is to enforce the law by injunction after the act has been perpetrated?

Mr. KEYSER. No.

Mr. ADDISON. Mr. Keyser can give you the facts in that better than I can.

Senator BLAINE. I am just trying to analyze that.

Mr. ADDISON. I just wanted to interrupt Mr. Keyser for the Smith end of it.

Mr. KEYSER. I would call the attention of the chairman and the attention of the members of the committee to the fact that the items mentioned by the chairman of the committee are not at all the more important features of the bill recommended by our local committee. In our judgment, the important feature of the bill we are recommending to your consideration is the feature that requires that all dealers and all salesmen shall be registered and bonded before they shall be allowed to engage in business.

Senator BLAINE. How much bond?

Mr. KEYSER. The bond is $10,000, given by a surety company of a net worth of $1,000,000.

Senator BLAINE. Of course, that would be perfectly useless on an issue of $1,000,000 or even $100,000.

Mr. KEYSER. The question about the bond is not indemnity; it is a question of a test of character.

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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 require

ment

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 BLAINE. 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.