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During that time we did not have enough brokers; we did not have enough telephones; we did not have enough messengers; we did not have enough space, and it is simply a human miracle that the business that was brought into the board of trade those days was dispatched and that there were not a great many more irregularities because of these conditions. It is one of those things for which there never will be any logical explanation.

Sometime I would like to speak a few minutes on just how this case arose, so you could see how ridiculous it is. In October of that year the man whom the director charged was suspended for 5 days was upon further investigation suspended for 2 years and the other two men were exonerated by the investigating committee of the exchange.

Subsequently, in March of 1930, 6 months after this happened, the Grain Futures Commission filed its two complaints. Those complaints went to hearing in April. The counsel who was appointed for the Government took sick after the first day of the trial and it was postponed, I think, until some time in May; the hearing was dragged out for 4 or 5 weeks; and a record accumulated of about 2,000 typewritten pages.

The record was closed on August 30 with the agreement that the case was to go to the commission on the record then made and briefs were to be filed. The Government was to file its brief first. No time was fixed for the filing of the briefs, but it was agreed that they would be filed with reasonable dispatch. I asked Government counsel what he considered reasonable dispatch and he said 90 days. Ninety days went by; 6 months; a year went by; 2 years went by; and sometime after the expiration of 2 years, the Government brief was filed. Mine was filed 30 days thereafter.

In September of 1932 the case was at issue before the commission, more than 2 years after the termination of the taking of testimony. The Hyde Commission was then in office. The Hyde Commission went out of office without disposing of the case, in the spring of 1933. The present commission took the case up and when we appeared here in Washington and argued it before them, Government counsel concurred in my motion to dismiss all but one of the defendants out of the case. In other words, 32 years after the procedure was started, the Government decided that it had no case against this man, so the matter stood there.

Then, some few weeks afer that hearing, the commission dismissed the case, not for want of jurisdiction-and, I want to correct your impression about that-but, for the simple reason that no case whatever had been shown under the Grain Futures Act.

Now, if that three and one-half year period that it required to dispose of that case is to be taken as typical of what the procedure is liable to be under this act, I think the committee ought to know it. I want to call your attention to one other fact in this case, because it is very significant. The immediate question in that case was not bucketing or not cross trading. The complaint alleged that these three brokers were guilty of executing orders at prices varying from one-half to 2 cents a bushel out of line with the recorded

prices. There was not one scintilla of evidence offered by the Government to show that that was true. When I examined the Government auditors

The CHAIRMAN. Mr. Coughlin, I do not think that we can go into each individual case. If you want to, you may file a statement.

Mr. COUGHLIN. Yes, I will just drop that point. I think that I have brought out what I wanted to show.

The CHAIRMAN. I think that you have made clear your position in the matter.

Mr. COUGHLIN. But, it occurs to me that if after all of these years; considering the varying conditions under which we operate; considering that we have 1,500 members that are scattered to the four winds; that there have been some 14 or 15 complaints of irregularities made and only one of which has been called to the attention of the directors of the board for disciplinary action, it seems to me that the Grain Futures Administration has given us just as clean a bill of health as we could conceivably ask for. The CHAIRMAN. We thank you, Mr. Coughlin.

Mr. COUGHLIN. Thank you.

The CHAIRMAN. I would like to put in the record one page of last year's proceedings showing the tremendous transactions and the future trades that cause most of the complaints.

The matter referred to is as follows:

DISCUSSION OF WHEAT TRADING, COMMITTEE HEARINGS, APRIL 3, 1934

Mr. HOPE. What constitutes the largest operation or transaction that you have a record of?

Mr. DUVEL. We have had a number running over 2,000,000 bushels. During the 10 years prior to March 1933 there were 16 speculators that reach 2,000,000 bushels or more. There was one at 16,000,000, and here is another at 8,000,000 or 10,000,000.

Mr. HOPE. What is the largest single case?

Mr. DUVEL. I beg your pardon?

Mr. HOPE. The largest speculative transaction?

Mr. DUVEL. That is evidenced here on this chart. At that time two traders' had 23,000,000 bushels. That was in 1926. At that time they controlled 32.6 percent of the total contracts in the dominant futures, their combined holdings representing nearly 23,000,000 bushels short. The general public was supporting the market and carrying the extra load occasioned by the selling of these two speculators. They were not carrying "hedges ", as is so frequently claimed for the large speculator, and there is not question but that their selling exerted a very depressing influence on the prices to the detriment to the wheat producers who were at the time in the midst of their market operations. While these large short lines were being accumulated, the price of the December future declined nearly 18 cents per bushel. That was from about the middle of July until the 8th day of September. That was in 1926. The United States wheat crop that year was 831,000,000 bushels. The short sales by these two traders represented nearly 3 percent of the entire crop.

The Grain Futures Administration says that in September 1926 one speculator was short at one time as much as 12,545,000 bushels in December wheat alone. He was short over 10,000,000 bushels from August 30 to September 13, 1926.

STATEMENT OF ROBERT P. BOYLAN, PRESIDENT CHICAGO BOARD OF TRADE-Resumed

Mr. BOYLAN. Mr. Chairman, did you receive this morning a communication from Mr. Farlow?

The CHAIRMAN. Not unless it has come in since the hearing started. Mr. BOYLAN. I would like for that to go into the record.

The CHAIRMAN. Without objection, it will be so ordered. (The communication referred to is as follows:)

FARMERS GRAIN DEALERS ASSOCIATION OF ILLINOIS,

Hon. MARVIN JONES,

OFFICE OF SECRETARY,

February 9, 1985.

Chairman House Committee on Agriculture,

House Office Building, Washington, D. C.

DEAR MR. JONES: Enclosed please find copy of a resolution which was adopted by unanimous vote at the thirty-second annual convention of the Farmers Grain Dealers Association of Illinois at Springfield, Ill., on February 7. Respectfully yours,

FARMERS GRAIN DEALERS ASSOCIATION OF ILLINOIS,
LAWRENCE FARLOW, Secretary.

Whereas, an ever-ready cash market for grain and all other food supplies now prevails and its continuance is vital to the people of this Nation, and Whereas, there is now pending before the Congress of the United States a bill to license and further regulate the activities of handlers of grain and other products known as the Jones Bill, and

Whereas, the provisions of said bill jeopardize the existence of a free and open market by arbitrarily placing full control of all marketing activities in the hands of three members of the Cabinet who may not have had practical marketing experience and further interferes with a recognized constitutional right and freedom of our citizens,

Therefore, we, the Farmers Grain Dealers Association of Illinois, representing cooperative marketing agencies of farmers who handle more than 50 percent of the grain marketed in Illinois, vigorously oppose the passage of the Jones bill and instruct the officers of this association to present our opposition in no uncertain terms to the Honorable Secretary of Agriculture, to each Member of Congress, and to the public press.

The CHAIRMAN. I desire to thank you, gentlemen.

The committee will close its hearings. The committee will stand adjourned, to meet at the call of the chairman.

(Thereupon, at 11:57 a. m., the hearings in the above-entitled matter were concluded.)

EL PASO, TEX.,
February 4, 1935.

Hon. R. E. THOMASON,

House Representatives Office Building,

Washington, D. C.

Jones H. R. 3009 apparently entering wedge license all brokers dealing commodities and place them subject Secretary Agriculture giving him opportunity crush anybody at variance his ideas speculative markets in my opinion make real markets and should not be stifled. I hope you can consistently oppose it.

J. C. PEYTON.

EL PASO, TEX.,
February 4, 1935.

Hon. R. E. THOMASON, M. C.,

House Office Building,

Washington, D. C.

H. R. three thousand nine, Jones, placing food products under licensing of Triple A, will place added burden upon such producers and packers and seriously interfere with private business. If consistent with your views our local merchants request your disapproval of this bill.

W. R. BLAIR.

EXCERPTS FROM HEARING HELD BY COMMITTEE ON AGRICULTURE IN SEVENTY-THIRD CONGRESS, ON H. R. 8829, A BILL TO AMEND THE GRAIN FUTURES ACT

WASHINGTON, D. C., Tuesday, April 3, 1934.

STATEMENT OF J. M. MEHL, ASSISTANT CHIEF GRAIN FUTURES ADMINISTRATION, UNITED STATES DEPARTMENT OF AGRICULTURE

Mr. MEHL. Mr. Chairman and members of the committee, I shall discuss first the Grain Futures Act and then outline briefly the principal provisions of the amending bill, H. R. 8829. I shall not attempt to give any detailed explanation either of the bill or of the act, but will try to give, in 10 minutes, a general résumé of the act and of the bill. In order to do so, I shall probably have to adhere rather closely to a plan of presentation that has been worked out with this view in mind.

The present Grain Futures Act became effective in 1922, after its predecessor, the Future Trading Act of 1921, had been declared unconstitutional. The Future Trading Act was based on the taxing power of Congress. The Grain Futures Act is predicated on the power to regulate commerce. The constitutionality of the Grain Futures Act has been fully sustained and the general scheme of regulation embodied in the act has withstood every court test.

I shall not go further into the history of the Grain Futures Act except to say that it was passed by Congress against the will of a powerful opposition, and, as finally enacted, does reflect a compromise on a number of important points. It was passed by Congress as a purely preliminary measure, to be followed by further and more specific legislation based on experience. The record of the hearings clearly indicate this. It has been said that the act is without any teeth, but we who have worked under it for 10 years prefer to say that it is in need of some modern "bridgework", and we believe that the pending bill will serve this purpose.

A matter of great importance in these considerations is the legislative theory underlying the present Grain Futures Act. It is based, at least in part, upon the theory that the exchanges themselves would cooperate with the Government in making the law effective. In other words, it is the theory of self-regulation under Government supervision. Incidentally, I may say this is the theory also back of the trade-practice provisions of the Grain Exchange Code, regarding which you will no doubt hear more later on in these hearings.

Under the Grain Futures Act it was thought that, if the theory of self-regulation did not work out satisfactorily and if the exchanges would not or could not eliminate certain abuses, the law would be invoked to close them. But no one wants to close the exchanges. That would punish the innocent as well as the guilty.

The provisions of the present Grain Futures Act and the authority of the Government under the act may be described broadly as follows:

Trading in grains for future delivery on and subject to the rules of any board of trade is made unlawful unless conducted on an exchange designated as a "contract market" by the Secretary of Agriculture.

In order to be designated as a contract market, a board of trade or an exchange must undertake first to prevent manipulation of prices and the cornering of grains by members of the exchange. It must prevent its members from disseminating false and misleading crop and market information. It must prevent discrimination against cooperative associations in the matter of membership and trading privileges, and it must require its members to make reports to the Secretary of Agriculture and to keep certain records open to inspection by properly authorized agents of the Government.

If any board of trade violates any of these conditions, the only remedy is to revoke its designation as a contract market. Obviously the Government should not be forced to penalize those who use the market in order to punish those who abuse them. This situation is corrected in the pending bill by authorizing the issuance of cease-and-desist orders against an exchange and against its officers and agents which, if ignored or violated, will be a criminal offense punishable by fine or imprisonment.

The present act gives the Government power to proceed directly against individuals in just two classes of cases: First, if any person makes a trade for future delivery on any board of trade except a contract market, or if such trade is not evidenced by a record in writing showing the parties, prices, etc., or if any person knowingly or carelessly delivers for transaction through the mails or in interstate commerce misleading or knowingly inaccurate reports concerning

crop or market information, such person is guilty of a misdemeanor and, upon conviction, may be fined not more than $10,000 or imprisoned for not more than 1 year, or both.

Second, if any person manipulates or attempts to manipulate the market price of any grain, or is otherwise violating the provisions of the act, upon complaint of the Secretary of Agriculture, a commission consisting of the Secretary of Agriculture, the Secretary of Commerce, and the Attorney General may issue an order denying any such person all trading privileges on all contract markets for such period as may be specified in the order.

But, again, if such order is ignored by an exchange or violated by any exchange or by its members, the remedy is to close such exchange as a futures market. The present act gives the Secretary of Agriculture no general power to make rules and regulations to further the purpose of the act as a whole. His power to make rules and regulations is limited to prescribing the kind of reports to be made by board of trade members and to the keeping of books and records open to inspection. There is no authority in the act to limit speculative trading in any way. There is no authority to deal with cheating or fraudulent practices as such.

Now, that, in general, describes the scope and authority of the present Grain Futures Act, with this further observation: That the Secretary of Agriculture is vested with authority to make investigations and studies regarding the operations of boards of trades, and to publish the results for the benefit of Congress and the public; thus clearly indicating in the act itself its preliminary and exploratory character, and its purpose to develop, by experience, more complete and specific methods of control.

Referring now to the pending bill the following important provisions are noted: Certain practices involving cheating and fraud upon customers in connection with the handling of orders are outlawed and prohibited under severe penalties. The bucketing of orders, making of wash sales, cross trades, and so forth, are prohibited, as are also transactions known as "indemnities", "puts and calls", and so forth. Brokers are prohibited from taking the other side of customers' orders without the prior consent of such customers. Commission merchants handling orders for customers are required to be licensed by the Secretary of Agriculture, and margin moneys collected from customers must be treated as trust funds and may not be used to extend the credit or margin the trades of persons other than the ones for whom held. Bucket shops are outlawed and members of the legitimate exchanges are protected by making it unlawful for any person to represent himself falsely to be a member of a contract market or to represent falsely that orders are executed by or through such member.

The Secretary of Agriculture is given general power to promulgate rules and regulations reasonably necessary to effectuate the provisions of the act. He may require that commodities delivered on futures contracts shall be of grades conforming to United States standards, if such standards have been officially established, and may also require United States inspection of such commodities where such inspection is available. He may require that contracts which call for fulfillment by delivery during a specified month shall not be made after a date fixed by him, which shall not be earlier than the 15th day of such delivery month; and he may require that a written notice of delivery shall pass from the seller to the buyer at least 3 days or not more than 10 days prior to the date of delivery. We think these provisions will eliminate so-called "congestion" and "squeezes" occurring in delivery months, or in the event that prices are run up sharply during the last trading days of any month, will afford farmers and others who have grain to market an opportunity to take advantage thereof.

A commission-and this perhaps is the most important feature in the bill-a commission consisting of the Secretary of Agriculture, the Secretary of Commerce and the Attorney General, is authorized to fix definite limitations upon purely speculative transactions. In the case of wheat, for example, the commission might fix a trading limit of 2,000,000 bushels, which would mean that no person thereafter could have a speculative interest in wheat futures in excess of 2,000,000. The same or a different limit might also be fixed upon the amount any person could buy or sell during any one business day. The limit might be different for different commodities and different markets, and might be different for buying and selling operations.

Hedging transactions are exempted, and are defined in such a way as to make certain that such operations will not be interfered with.

The rights of cooperative marketing associations in their relations with the commodity exchanges are more clearly defined and more adequately safeguarded.

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