Preface to Protection

To Congress last week went the first of a series of reports from the Securities & Exchange Commission on reorganization and protective committees. This fertile field for Roosevelt reform is still unfinished business so far as New Deal securities legislation is concerned. A 133-page document, crammed with facts, figures and juicy dialog gleaned from SEC's hearings last year, the report dealt only with municipal securities. Other reports on railroad, real estate, industrial and foreign protective committees will soon follow, accompanied by recommendations for regulatory legislation.

Specific recommendations will not be made until other reports are in. But the trend of SEC thought, guided by brilliant young Commissioner William Orville Douglas who has handled the protective committee study, was summed up sharply in its observations in the municipal field. Urging extension of the Municipal Bankruptcy Act, which was done last week a few days after the report appeared, the Commission concluded:

"We submit that regulation of the personnel and practices of protective committees in connection with municipal debt readjustments is absolutely essential. This conclusion is amply supported by the many instances cited of committees whose members have interests adverse to those of the investors whom they purport to represent; of committees whose mode of organization and subsequent activities are calculated to discourage the investigation and prosecution of possible causes of action in favor of bondholders or of the debtor; of committees which have profited extensively from their trust by voting themselves payments for expenses, compensation and otherwise; of committees which have distributed patronage to attorneys, depositaries, secretaries, agents and others with a liberal hand; and of committees which, if not actually injuring investors, have found it possible, thanks to the usual ironclad deposit agreement, to do nothing for bondholders while milking their securities."

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