siderable and varied research studies be conducted along statistical, accounting and economic and other technical lines peculiar to the Commission's field of activity.

There are now 61 employees, at an annual cost of $183.180, assigned to this project. No increase is requested for this project for the fiscal year 1938.

7. EXECUTIVE STAFF AND GENERAL ADMINISTRATIVE ACTIVITIES

The executive staff consists of the Commissioners and the technical and clerical employees assigned to their offices.

The general administrative activities include the functions of the office of the secretary, the Administrative Division, and the Employment Research Division. All service and administrative activities for the entire Commission, field and departmental, are handled by these divisions, including personnel work, administrative audit, and accounting, stenographic, library, duplicating and messenger services, budget activities, purchases and supplies, completion of arrangements for and preparation of contracts, leases, etc., liaison with other Government agencies, maintenance of official minutes of the Commission, preparation of the annual report, maintenance of dockets and central files of the Commission, conduct of general correspondence, maintenance of public reference room, all actions on admissions to practice before the Commission, maintenance and distribution of publications, and similar functions. No provision is made in these estimates for additional employees in the fiscal year 1938 under this project.

8. DRAFTING OF RULES, REGULATIONS, AND FORMS

This project includes the drafting of rules, regulations, and forms, pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, for submission to and adoption by the Commission; the conduct of researches for the purpose of developing facts regarding specific industries to be effected by such rules, regulations, and forms; and the conduct of conferences with representatives of accounting and legal societies and associations, stock-exchange officials, issuers, and others regarding the promulgation of proposed rules, regulations, and forms. The regulations and forms with respect to the Public Utility Holding Company Act are prepared by the Utilities Section of the Legal Division, in collaboration with the Public Utilities Division.

It is an uncontradicted fact that the acts administered and enforced by the Commission represent an extension of governmental powers for which no precedents exist and for which extensive research and care is necessary in the devising of registration and other forms and in the drafting of rules and regulations.

The varied types of businesses or industries affected by the provisions of our legislation make it necessary for us to develop considerable information regarding the history, customs, scope, nature, etc., of the industry before we can draft forms and questionnaires which will call for information which can be furnished without unreasonably burdening the companies and which, after it is received, is of real use to the Commission.

The Commission has also found it necessary to devise separate and specialized forms for issuers engaged in particular types of business and for issuers in various stages of development. In line with this program, there has been prepared a form for promotional mining companies which is designed to emphasize the peculiar problems of the mining industry and the special problems incident to the promotion of new companies. A companion form is also in process for securities of any company which has not yet advanced beyond the promotional stage.

Twelve forms have been promulgated for the registration of securities pursuant to the Securities Act of 1933, and 45 different forms have been promulgated pursuant to the Securities Exchange Act of 1934. The employees assigned to this project were working under time limits and extreme pressure at the time that the forms were promulgated, as a result of which it has been necessary to promulgate improving amendments from time to time. In addition, amendments have been made in the light of the Commission's experience acquired during its few years of existence. Continual revisions will have to be made in order to bring forms and rules and regulations into closer adjustment with the delicate mechanism of the securities exchanges and the financial markets. In spite of these many duties no additional funds are requested for this project for the fiscal year 1938. There are now 20 employees at an annual salary cost of $74,800 engaged in this work.

9. LEGAL ACTIVITIES

This project is under the direction of the general counsel. The work accomplished and the nature of the duties performed are described as follows:

(a) Complaints and informal investigations.-During the fiscal year ended June 30, 1936, information of fraudulent and illegal activities in violation of the Securities Act and the Securities Exchange Act was received by the Commission through correspondence and inquiries from the public, State securities commissions, State and Federal prosecuting officers and other officials, and voluntary agencies such as better-business bureaus, chambers of commerce, etc. The Commission also obtained such information from its own surveillance of trading activities and examination of registration statements.

Where the information indicated a possibility of a violation, it was handled as a complaint. During the past fiscal year 4,165 such complaints were received. Where the information failed to indicate any substantial possibility of a violation, the communication transmitting it was handled as general correspondence. Approximately 15,000 such communications were received during the past fiscal year. When the Commission's initial inquiry disclosed the probability of a violation, the matter was docketed and investigated informally without a Commission order. During the past fiscal year 1,709 such cases were docketed.

(b) Formal investigations.--During the fiscal year ended June 30, 1936, the investigative powers of the Commission under sections 19 and 20 of the Securities Act and 21 of the Securities Exchange Act were invoked by Commission orders in 229 cases. At the end of the preceding fiscal year 116 such invesOf these 345 investigations handled during the past fiscal year, 185 still are pending and 160 were concluded as follows:

tigations were pending.

In 20 of these cases the Commission sued for injunction in the Federal courts and also transmitted the evidence to the Attorney General for criminal prosecution.

In 38 of these cases suits for injunction were brought by the Commission, but the evidence was not referred for prosecution.

In 19 of these cases evidence of willful violation was transmitted to the Attorney General for criminal prosecution, but injunctive relief was not sought. However, the Commission's work on these cases does not end with the submission of these cases to the Department of Justice. Our attorneys cooperate in the prosecution of the cases and develop the evidence and data needed in bringing them to a successful conclusion.

In three of these cases the postal authorities were apprised of the evidence discovered and the Commission's files were made available to them.

By order of the Commission 80 investigations were closed without further action.

Formal investigations are conducted under the direction of the general counsel and members of his staff assist in the examination of witnesses and in securing the production of books and records.

(c) Hearings before the Commission.-Pursuant to section 19 (a) (3) of the Securities Exchange Act the Commission in five instances ordered hearings to determine whether members of various national securities exchanges had violated the Securities Exchange Act and in consequence should be suspended or expelled from one or more of the national securities exchanges of which they were members.

Although the attorneys assigned to the general counsel's staff prosecuted these cases, many attorneys, accountants, and investigators assigned to the regional offices spent many months in the conduct of office studies and investigations for the purpose of developing facts and evidence necessary and for use by the attorneys in the prosecution of the cases.

(d) Litigation before the courts under the Securities Act and the Securities Exchange Act.-Since the creation of the Commission it has been involved in 102 civil actions originating in Federal district courts. Seventy-six of these arose during the fiscal year ended June 30, 1936.

A comparative table showing the types of cases and their increase during the past fiscal year follows:

As a result of the suits for injunction instituted by the Commission, 142 firms and individuals had been permanently enjoined from the acts and practices complained of by June 30, 1936, and 110 of such injunctions were obtained during the past fiscal year.

During the fiscal year ended June 30, 1936, 21 petitions were filed in seven circuit courts of appeals for review of determinations made by the Commission upon application for confidential treatment, that public disclosure of material filed with applications for registrations of securities on various exchanges was in the public interest. As of June 20, 1936, hearings had not been held on any of these petitions.

During the fiscal year 40 cases were referred to the Attorney General for criminal prosecution, bringing the total so referred to 70. In 69 of these cases the evidence indicated willful violations of the Securities Act. In the remaining case the evidence indicated a conspiracy to violate section 9 of the Securities Exchange Act. Most references followed formal investigations conducted by the Commission. In 20 of these cases the Commission instituted injunctive proceedings in addition to referring the evidence to the Attorney General. However, in the interest of speedy justice, the Commission in 19 instances referred to the Attorney General evidence of criminal violations obtained in the course of investigations without instituting injunctve proceedings, and in one case without either suing for injunction or conductng a formal investigation.

Of the 70 cases so referred, indictments containing counts charging violations of the Securities Act were returned in 32 cases. Thirty of such indictments were returned during the past fiscal year. In the case involving the Securities Exchange Act, an indictment was returned during the past fiscal year containing a count which charged conspiracy to violate section 9 (a) (2) of that Act.

Eleven of the cases involving violations of the Securities Act have been tried and 47 individuals convicted. Two of these persons await sentence, and 37 have been given sentences ranging from 10 days in jail to 5 years in the Federal penitentiary and/or fines ranging from $100 to $4,000.

(e) Securities violations files.-The Commission has continued negotiations with the Post Office Department, Federal Bureau of Investigation, State securities commissions, State and Federal prosecuting officials, and other officials and Voluntary agencies, such as better business bureaus, chambers of commerce, etc., with a view to cooperation in the enforcement of State and Federal laws against the fraudulent sale of securities.

The securities violations files were established to provide a control index and clearinghouse for information relating to securities frauds in the United States and Canada, both past and current. As a result of data furnished by official and unofficial agencies, the records of 21,775 persons against whom State and Federal action has been taken during the past 10 years in connection with the sale of securities were compiled and indexed. During the past fiscal year 8,424 of these names were added. The files so established contain, with respect to each person, the source of information, a brief statement of the violation, and frequently personal description and photograph.

An index of approximately 5,000 officials of cooperating agencies is maintained, and during the past year 2,710 letters and reports have been received and 3,442 have been sent out.

Current information is published in a monthly confidential bulletin distributed to approximately 750 official and unofficial agencies engaged in the prevention and punishment of securities frauds. These bulletins have made reference in the past year to current actions against 2,824 persons in numerous specific instances aided in the apprehension of individuals wanted for security violations and in the prevention of registration with State commissions and with this Commission.

The use of the securities violations files as a clearing house for information is resulting in continually closer and more effective coordination of the work of the various official and voluntary agencies and the preventive value of the files is steadily increasing.

(f) Interpretive assistance.-During the past year, the Commission continued its policy of rendering advisory and interpretive assistance to the public. This assistance to the public, although a burden on the Commission because of the volume of inquiries (during the fiscal year approximately 9,000 communications with respect to the interpretation of the acts administered by the Commission were received and handled), has been of real importance because of the newness of the acts and regulations and the resulting lack of precedents by which persons seeking to comply with the law in particular situations might be guided. Furthermore, the spirit of cooperation engendered between the public and the Commission through this interpretive service has been of definite value. Through this interpretive correspondence and the many hundreds of conferences held by the attorneys assigned to the general connsel's office with the general public much valuable information has been obtained for use in the drafting of regulations and forms.

During the year, the staff of the general counsel's office has taken a leading part in the preparation of rules and regulations relating to the solicitation of proxies, rules, and regulations regarding exemptions pursuant to section 3 (b) of the Securities Act of 1933 and rules and regulations in connection with transactions and fractional undivided interests in oil, gas, or other mineral rights, and has cooperated with other divisions of the Commission in connection with the drafting of rules and regulations governing matters coming within the jurisdiction of such divisions.

(g) Litigation in connection with Public Utility Holding Company Act.Shortly after the passage of the Public Utility Holding Company Act a number of the larger utility holding companies launched an attack in the courts upon the constitutionality of the act. Forty-five suits were brought in behalf of more than 100 companies in 13 different district courts to enjoin the enforcement of the act.

The participation of the Commission in these cases was very significant. In the first of these cases the trustees of the American States Public Service Co., debtor, in reorganization under section 77B of the Bankruptcy Act, filed a petition in the District Court for the District of Maryland, praying that the court determine the act to be unconstitutional and issue instructions accordingly. Two creditors of the insolvent company filed petitions with the court, one supporting the trustees' petition, the other, Burco, Inc., opposing the petition and alleging that the act was constitutional. In this case counsel for the Commission, together with the special assistants to the Attorney General assigned to Holding Company Act litigation, appearing as amici curiae, urged that the court had no jurisdiction to determine the validity of the act in such a proceeding, on the ground that it was nonadversary, premature, and collusive, and was totally inadequate as a vehicle for testing the validity of an important act of Congress. On November 7, 1935, the court ruled against the Government and held the act void in its entirety (12 F. Supp. 667): On appeal by Burco, Inc., the Circuit Court of Appeals to the Fourth Circuit, counsel for the Commission and for the United States again appeared as amici curiae, and contested the jurisdiction of the trial court. On February 22, 1936, the decision of the District Court was affirmed and the act was held invalid, only, however, as applied to the debtor (81 F. 2d 721). Burco, Inc., then petitioned the Supreme Court of the United States for writs of certiorari. The Government opposed certiorari in a statement filed with the Court on March 27, 1936, on the grounds set forth above and on the additional grounds that the validity of the act would be determined on the basis of an adequate record in the suit which the Commission had already commenced in the District for the Southern

District of New York against the Electric Bond & Share Co. and its principal holding-company subsidiaries. The Supreme Court denied certiorari on March 30, 1936.

An additional attempt to test the constitutionality of the act in a proceeding of this type was made by the trustees of the Central West Public Service Co., debtor, in reorganization under section 77B in the District Court for the District of Delaware. On November 29, 1935, the trustees' petition for a decision on the constitutionality of the act was denied on the ground that this attempted method of raising constitutional questions "violates accepted canons of accepted legal procedure" (13 F. Supp. 239).

Seven of the 45 suits referred to above were brought in the District of Columbia. On December 7, 1935, the Attorney General and the general counsel of the Commission moved the Supreme Court of the District of Columbia to stay this pending litigation until the Supreme Court of the United States had determined the validity of the act in the case of Securities and Exchange Commission v. Electric Bond & Share Co. After oral argument and filing a brief, the Government's motion was granted by order of January 9, 1936. On special appeal to the United States Court of Appeals for the District of Columbia, the order of the trial court was reversed on June 22, 1936, on the ground that the court was without power to grant the stay since the parties and issues in the different suits were not identical. An application to the Supreme Court of the United States for a writ of certiorari has been filed.

On November 26, 1935, the Commission brought suit in the District Court for the Southern District of New York against the Electric Bond & Share Co. and its principal intermediate holding companies. The Commission sought an order from the court that the 13 holding companies in the Bond and Share system, upon whom the act placed a duty to register, be required to register with the Commission or to cease from performing such functions as under the act may be performed only by registered holding companies. A stipulation of facts, worked out by a staff of attorneys for the Commission, representatives of the Attorney General's office, and counsel for the defendants, was filed with the court on June 30, 1936. Briefs are under preparation, and the case will be heard during the fall of 1936. This proceeding will provide a fair and comprehensive test of the validity of the act.

(h) Miscellaneous legal work in connection with the Administration of the Public Utility Holding Company Act.-The staff of the general counsel's office has cooperated with the Public Utility Division by rendering legal advice and assistance in the examination of declarations, applications for exemption, applications for approval of acquisition of assets, applications for approval of acquistion of securities, and related work. The attorneys also represented the Commission at hearings held in connection with these applications and declarations.

The drafting of forms and rules and regulations in connection with the administration of the Holding Company Act has consumed a large proportion of the time of the attorneys assigned to the utilities section of the legal division. The principal rules and regulations drafted and adopted may be classified as follows:

(1) Rules of general application containing definitions of terms and general requirements with respect to filing and verification of documents (rules 1, 2, 3, and 4).

(2) Rules of a temporary character, extending the time for complying with or for making application for exemption from certain provisions of the act (rules 3D-1, 5A-2, 3A-2, as originally adopted).

(3) Rules adopting forms for and specifying the information to be submitted in connection with applications, notifications of registration, declarations, and reports (rules 2A3-1, 2A3–2, 2A4–1, 2A7–1, 2A8-1, 3A-1, 3B-1, 5A-1, 7A-1, 14-1).

(4) Rules defining the status of particular classes of companies as subject to or excluded from provisions of the act (rules 2A-4–2, 3A2, 3A3–1, 3A3–4, 3A5-1, 3D-4, 3D-5).

(5) Rules authorizing certain limited types of acquisitions and security issues without specific application to the Commission (rules 9A2-1, 9A2–2, 9A2–3, 9C-1, 9C-2, 9C-3, 12C-1, 3D-2).

(6) Rules with respect to service, sales, and construction contracts. A comprehensive set of rules was required to govern the application of section 13 (rules 13-1, 13-2, et seq.).