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the company to provide the information to us. Whether that would necessarily result in all the information being made public, I don't know.
Mr. SOLARZ. I think your authority to make it public is somewhat ambiguous.
Mr. LOOMIS. The basic test in the statute, as interpreted by the Supreme Court is, is the information material to an investor making an investment judgment? The problem is that if a company, say Lockheed as an example, has made substantial payments abroad, many of which may have been improper, that fact in my view is material and should be disclosed. Whether it is necessary to indentify the name of each person who got some money, whether that is material to investors would depend on the facts.
Mr. SOLARZ. I was asking these questions because I was wondering whether you felt there might be any necessity for additional congressional legislation designed to clarify and possibly strengthen the authority of the SEC in this regard. Of course if you already have the authority to compel such disclosures and to release the pertinent information to the investor community, then presumably there would be no additional need for congressional legislation.
Mr. LOOMIS. I think we have authority to obtain information which, as I have said, is material to investors. There is a significant question as to the extent to which information about foreign payments, even if illegal under foreign law or our law, or regarded as being improper, is material to an investor in appraising investment in a very large corporation.
So if Congress determines upon a policy that improper payments made by American corporations abroad be disclosed and should be stopped I would think it might be better-I would have to discuss this with my fellow Commissioners but I think they would agree-were Congress to put that determination into legislation so that it doesn't get involved in the question of what is material to investors investing in a large corporation but rather such disclosures are made as Congress thinks should be made in the general public interest.
Mr. SOLARZ. In effect it would be a way of saying implicitly Congress believes any such payments are material to a decision by investors as to whether to invest.
Mr. LOOMIS. I think the two are slightly separate. I am not sure that all improper payments are necessarily material to investors if they are a small amount and maybe not illegal anywhere.
So I would think that if Congress wants to legislate in this area it might be simpler if it specified what disclosures are thought appropriate rather than tying it to the standard of materiality to investors.
Mr. SOLARZ. If I understand you correctly you are saying that one element would be the materiality to investors and second whether such a payment was in the public interest.
Mr. LOOMIS. That is correct.
Mr. SOLARZ. You feel it would be helpful to have congressional clarification of your authority?
Mr. LOOMIS. Not so much of our authority but rather the basic question I mean, that is a basic policy question for Congress, whether there should be disclosures in addition to those needed by investors.
Mr. SOLARZ. Is it your judgment that the SEC currently lacks the authority to compel disclosures with respect to those illegal payments which are not material to the investment decision?
Mr. LOOMIS. That is a very difficult question. Assuming in your premise that it is not material to investors, I would question it. If it is not we would probably not have authority that it be disclosed.
Mr. SOLARZ. You question it. What is the answer to your question? Mr. LOOMIS. I think the form of your question more or less assumes the answer. If it is not material to investors we can't require it to be disclosed. But there are problems in separating things. If a company has a general practice of making illegal payments abroad that practice is, I think, clearly material. It then becomes a question of how much the details of the practice that was engaged in are material. So it is not a black and white question.
Mr. SOLARZ. You have now asked all the corporations that are licensed with the Securities and Exchange Commission and do business overseas to disclose payments?
Mr. LOOMIS. We haven't made specific requests to each of them. There are thousands of such corporations. We have no information that most or even many of them have done this. We don't generally ask a company, "Have you been doing something improper" unless we have some reason to believe they have.
Mr. SOLARZ. So you have only requested those corporations about which
Mr. LOOMIS. We have some reason to believe there may be a problem.
Mr. SOLARZ. Do you think there would be anything wrong if Congress passed legislation requiring such disclosures as a matter of course on the part of all corporations in the same sense that they are now obligated to disclose other information to you as a matter of course? Would that overburden you administratively?
Mr. LOOMIS. Depending upon the terms of the legislation it would be some more work. But if Congres made that judgment I think we would attempt to handle it.
Mr. SOLARZ Do you think it would be useful for Congress to impose that disclosure?
Mr. LOOMIS. I think that is a policy judgment for the Congress. It really depends on the questions that were being discussed earlier when questioning Mr. Schmults. Do you regard this whole practice as so bad that it should be stamped out? Or do you think you don't have to go that far?
Mr. SOLARZ. For my own part, I never considered corruption as American as apple pie.
Mr. LOOMIS. I didn't either.
Mr. SOLARZ. I think if we could take measures which would help to reduce, if not entirely eliminate, the manifestations of corruption that is probably something we ought to do.
Mr. LOOMIS. I agree. I was just trying to make the point that our existing function is not directed at attempting to deal with corruption as such.
Mr. SOLARZ. Do you know off hand how many corporations have securities that are registered with the SEC?
Mr. LOOMIS. Something over 3,000. Approximately 10,000.
Mr. SOLARZ. Do you know approximately how many of them do business overseas?
Mr. LOOMIS. I dont' believe we do. We could try to get some information on that.
Mr. SOLARZ. I think that would be very helpful. Do you have a rough estimate at this time?
Mr. LOOMIS. Not at this time.
[The memorandum referred to follows:]
MEMORANDUM OF THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO A NUMBER OF REGISTERED COMPANIES DOING BUSINESS OVERSEAS
At the hearings before the Subcommittee on International Economic Policy of the Committee on International Relations of the House of Representatives on September 30, 1975, Congressman Solarz asked Commissioner Loomis how many corporations have securities registered with the Commission and approximately how many of them do business overseas. Commissioner Loomis said that he would try to get some information on that subject. This memorandum responds to that request.
There are approximately 10,500 companies whose securities are registered with the Commission pursuant to Section 12 of the Securities Exchange Act of 1934. A significant number of these do business overseas, but the Commission has made no examination or computation for the purpose of determining exactly how many.
The annual reporting form for registered companies requires that if the registrant and its subsidiary engage in material operations in foreign countries, or if a material portion of sales or revenues is derived from customers in foreign countries, appropriate disclosure shall be made with respect to the importance of that part of the business to the registrant. Thus, information as to the number of registered companies which do a material portion of their business overseas could be ascertained, but in order to do so, it would be necessary to make a manual examination of the individual reports of each registered company, which would be a substantial undertaking.
It is the opinion of experienced staff members that among the very large industrial companies, which are registered with the Commission, most do a significant business overseas. This is confirmed to some degree by an article which appeared in the August 1975 issue of the Exchange Magazine with respect to the overseas activities of industrial companies whose securities are listed on the New York Stock Exchange. That article contained information with respect to what was described as a list which includes "most New York Stock Exchange listed companies with significant foreign business that reported all or some aspects of their foreign operations."
This list comprised 333 companies. Of the 50 companies on the New York Stock Exchange whose stock had the largest market value at the end of 1964 (comprising 49% of the market value of all listed common stock) all but 8 were included in the Exchange Magazine list. The 8 were primarily public utilities such as AT&T or domestic oil companies such as Getty Oil. At the end of 1974 there were 1,567 companies-including 398 public utilities, finance companies or real estate companies-whose stock was listed on the New York Stock Exchange.
Mr. SOLARZ. How many of the 10,000 corporations did you solicit voluntary disclosure from?
Mr. LOOMIS. Only very few.
Mr. SOLARZ. Ten? Twenty? Five?
Mr. LOOMIS. So far I think we have less than 10 who are engaged in discussing with our staff and who have indicated that they have or may have a problem of improper payments.
Mr. SOLARZ. Which of the 10?
Mr. LOOMIS. I don't even know exactly until we get a little further. I don't want to identify particular companies.
Mr. SOLARZ. How did you arrive at these 10? Did you say less than 10?
Mr. LOOMIS. Less than 10 in this voluntary disclosure program. That is something entirely different from any pending investigations we have against other companies, of which there are considerably more. Mr. SOLARZ. How many pending investigations are there?
Mr. LOOMIS. About 20 or 25 involving foreign payments. That does not include companies who are being investigated with respect to political contributions.
Mr. SOLARZ. There are less than 10 who have supplied this voluntary
Mr. LOOMIS. They have come in and said that rather than become involved with an enforcement action they would rather voluntarily comply along the general pattern of Cities Service.
Mr. SOLARZ. Thank you very much.
Mr. Nix. Let me just ask this, Mr. Loomis. Whether there are ambiguities in the law, real or imaginary, to me is not important. If it deters vigorous action or if it raises a question as to the legality of vigorous action, only a question, I am not concerned with that.
What I am concerned with is clarifying the law so that there is no doubt as to your right to take this particular action legally. That is the concern I conceive to be the subcommittee's concern here in this matter.
I don't think it is quite clear. Otherwise your agency would not have initiated proceedings to clarify and certainly would not take these actions in vain. There must have been some question in the minds of those people who make decisions in your agency and other agencies who initiated certain proceedings toward change. There certainly had to be questions in their minds for the members of the subcommittee to embark on this course of action that will result in clarification.
So I think we are one in our determination to clarify the issue, to change where necessary and to relieve ourselves of a most unpleasant situation in America.
Mr. WHALEN. Mr. Chairman, I have just one other question. This is puzzling me. Not having been involved directly in international business, maybe I don't understand the problem.
Our domestic companies provide you with a great deal of information. We know for example, it is public knowledge, who the officers are at Lockheed and other corporations, what they make. This is all reported to stockholders. I wonder if the operations abroad are legal and aboveboard, why it is inimical to the company's interest to report the fees that they are paying to their representatives there?
Mr. LOOMIS. I don't know that they do object so much to paying fees. They have to disclose their selling expenses abroad. They do disclose large commissions in some instances. The sticky point in that area comes when you have hundreds of agents. How much they pay each of them is not in itself material unless, as you pointed out, there is something improper about what is going on.
Mr. WHALEN. The concern is that payments were improperly made and therefore the company would obviously not be likely to reveal them.
Mr. LOOMIS. That is correct.
Mr. WHALEN. But if they were legitimate and aboveboard, would this be a cause for concern?
Mr. LOOMIS. I don't think they would object to disclosure of payments that were legitimate. We wouldn't necessarily require large details, many details, about legitimate payments. Investors aren't interested very much in those details.
Mr. WHALEN. Thank you, Mr. Chairman.
Mr. Nix. I want to thank you very much, Mr. Loomis, and the other gentlemen for being here today.
The subcommittee will stand in adjournment.
[Whereupon, at 3:23 p.m., the subcommittee adjourned, to reconvene at the call of the Chair.]