CONGRESSIONAL RECORD - SENATE
JUNE 21, 1961
DEBATE OF A JAVITS' RESOLUTION TO DISAPPROVE THE PRESIDENT'S REORGANIZATION PLAN FOR THE SECURITIES AND EXCHANGE COMMISSION.
Mr. McCLELLAN. How much time does the Senator desire?
Mr. MUSKIE Ten minutes.
Mr. McCLELLAN. I yield 16 minutes to the Senator from Maine.
Mr. MUSKIE. Mr. President, at the outset I should like to make a disclaimer. I am not an expert in the work of the Securities and Exchange Commission. I have never appeared before the Commission. My participation in the securities market is negligible. However, I happen to be a member of two subcommittees to which the reorganization plan was referred. They are the Subcommittee on Securities of the Committee on Banking and Currency and the Committee on Government Operations. Both of those committees held hearings on this and other reorganization plans.
I should like to express my opposition to Reorganization Plan No. 1 in my own terms. I suspect my views are somewhat different from those which were expressed on the floor by the distinguished minority leader.
I believe that at the outset we should understand why the proposed plans were sent up to the Hill by the President. They were sent here to correct a condition which has been a cause of concern not only to the President, but to the Congress, and to those who have appeared before the Commissions and worked with it.
The President defined the problem, in part, in the following words:
A. Allocation of agency activities. -- The reduction of existing delays in our regulatory agencies requires the elimination of needless work at their top levels. Because so many of them were established in a day of a less complex economy, many matters that could and should in large measure be resolved at a lower level required decision by the agency members themselves. Even where, by the force of circumstance, many of these matters are now actually determined at a lower level they still must bear the imprimatur of the agency members. Consequently, unnecessary and unimportant details occupy far too much of the time and energy of agency members, and prevent full and expeditious consideration of the more important issues.
The remedy is a far wider range of delegations to smaller panels of agency members, or to agency employee boards, and to give their decisions and those of the hearing examiners a considerable degree of finality.
It is with respect to the point which I have read that I would like particularly to address my remarks. We are all concerned, of course, with the fact that there are excessive delays and very burdensome workloads in the Commissions. These are created in part at the top level -- the Commission or the board level -- and in part at the staff level. The answer at the staff level is to provide more staff and more appropriations to the extent that appropriate committees of Congress think necessary. But the problem with which the reorganization plan deals is the excessive delay and workload at the Commission level.
I concede at the outset that there is merit to the approach taken by the plan. I know of no other way to reduce a workload at the Commission level except to permit the Commission in some way to delegate some part of its work.
But this is the point at which I took issue with the reorganization plan. I should like now to say a word about the impact of this plan upon the Securities and Exchange Commission.
The plan would do two things. First of all, it would authorize the Commission to delegate any of its functions, without restriction, to subordinates -- hearing examiners, individual employees, or groups of employees. Secondly, it would limit review of the acts of the employees to whom the Commission would delegate its functions. Thus it would vest in hearing examiners or other employees a finality of decision which they do not now have. In the Securities and Exchange Commission this question is particularly important, because under its current practice hearing examiners have never had the power of initial decision. I should like to read from a letter which is printed on the third page of the committee report, which I think is revealing:
This agency has never used the procedure of initial decisions by hearing examiners. Our hearing examiners make only recommended decisions. The full membership of the Commission participates in the final findings and opinion in every case adjudicated by this agency, except, of course, for occasional nonparticipation by an individual Commissioner because of absence, illness, or personal disqualification. The answer to your question as to our present practice with respect to review of adjudicated cases by the full Commission is, therefore, that we have no such practice. This Commission does not review any decisions made initially at lower levels. It makes the decisions initially and finally at full Commission level in all adjudicatory cases.
What we have, then, is the situation that at the present time the full Commission makes all initial decisions and all final decisions in all adjudicatory matters. Under the proposed plan the Commission could delegate all these functions to hearing examiners, who do not now exercise them, and give a degree of finality to the decisions of these hearing examiners which they do not now have, because the practice does not now obtain in the work of the Commission.
I should like to refer to some of the testimony by the Commission, and in that regard I refer to an expert. I have pointed out that my activities in the security market are negligible. Therefore I am not an expert. However, I refer to the testimony of Mr. G. Keith Funston, president of the New York Stock Exchange, to give the Senate some idea of the importance of the matters which are involved. I quote from his testimony:
The Securities Exchange Act of 1934 gives the Securities and Exchange Commission very broad rulemaking power. Rulemaking power is, in the eyes of the layman, the power to legislate. As we read Reorganization Plan No. 1, the Securities and Exchange Commission could delegate its rulemaking power to a commissioner, to an employee, or to an employee board. Under its rulemaking authority, the Securities and Exchange Commission -- I emphasize the full Commission -- has adopted sound and reasonable minimum capital requirements which apply to more than 6,000 broker-dealers. A revision of these requirements could seriously restrict the ability of broker-dealers -- and even the entire securities industry -- to continue to serve the investing public effectively.
The Commission has other vast powers. Under section 19 of the 1934 act the Commission has power to suspend or withdraw the registration of an exchange, to suspend trading in securities, and to revise the rules of exchange in many important areas.
Furthermore, section 15(b) of the 1934 act gives the Commission power to put a broker-dealer out of business by revoking his registration.
In our view the Commission should not be permitted to delegate to anyone its legislative powers or its life-and-death authority over so important a segment of our economy.
I believe that testimony is significant in suggesting the importance of the matters which are involved.
Mr. SYMINGTON. Mr. President, will the Senator yield?
Mr. MUSKIE. I am glad to yield.
Mr. SYMINGTON. Do I understand from the able Senator's reading of the testimony of Mr. Funston that under the reorganization plan the Securities and Exchange Commission could delegate to any employee regardless of his position such power as to suspend or withdraw registration or suspend trading in securities?
Mr. MUSKIE. I can answer that question best, if I may, by reading the provision of the plan itself. Section 1 of the plan provides:
Section 1. Authority to delegate. -- (a) In addition to its existing authority, the Securities and Exchange Commission, hereinafter referred to as the "Commission," shall have the authority to delegate, by published order or rule, any of its functions to a division of the Commission, an individual Commissioner, a hearing examiner, or an employee or employee board, including functions with respect to hearing, determining, ordering, certifying, reporting or otherwise acting as to any work, business, or matter.
Mr. SYMINGTON. Then the impression of the able Senator from Maine would be the same as mine, that the Commission could delegate to any employee regardless of his position any authority in this field if it decided to do it.
Mr. MUSKIE. I agree with the Senator from Missouri. That is not to suggest that the Commission would indeed do so. I wish to read into the RECORD some of the testimony by the Commission on this point. However, the power would be there if the plan were adopted.
Mr. SYMINGTON. I thank the Senator.
Mr. MUSKIE. Returning to the testimony of Mr. Funston, let me emphasize once more that these functions which Mr. Funston describes are not now exercised by anyone in the Commission other than the Commission itself.
The question next arises whether or not it is the function of the Commission to delegate powers of this importance to hearing examiners or other employees. The chairman of the Commission made it very clear that it was not his intention to delegate powers of this importance to hearing examiners or other employees. The chairman of the Commission made it very clear that it was not his intention to so delegate. Let me read, if I may, from his testimony. He says:
Further, I would like to go to the general areas in which we do not contemplate delegation. Mr. Funston, was quite correct this morning in indicating what I previously have stated, and I now reaffirm, that we do not plan a delegation of our general rulemaking.
Then we have a letter dated June 7, 1961, written by the general counsel for the Commission, Mr. Walter P. North, to the Senate Committee on Government Operations, in which the following paragraph appears:
I am sure I need not add that the foregoing is merely a statement of our understanding of what we could do under the plan. It is not to be taken as an indication that this Commission would resort to any such broad delegation of its adjudicatory functions. In fact, I believe our chairman has indicated in testifying before committees, both in the Senate and in the House of Representatives, that our present tentative thinking is that we would at most delegate adjudicatory functions in uncontested or relatively routine cases.
Let me then make these points. First of all I suggest that the testimony which I have read indicates it would be undesirable to permit the Commission to delegate broad powers of this nature to employees and, I might say, who were not employed to exercise functions of this importance. They were selected and they were evaluated and they were appointed on the basis of responsibilities and duties of a far lower level of importance than those which we are discussing here.
Mr. LAUSCHE. Mr. President, will the Senator yield?
Mr. MUSKIE. I am happy to yield.
Mr. LAUSCHE. Is it not a fact that when these subordinate employees were chosen, they were chosen with the knowledge that ultimate decisions would not be reposed in them, but that the final judgment would have to be rendered by the Commissioners appointed by the President and confirmed by the Senate?
Mr. MUSKIE. As a matter of fact, the point could be made even more strongly, because when they were appointed they did not have the power even of initial decision, and they had only the power to recommend decisions in those matters which were delegated to them. The Commission itself by its disclaimer of any intention to use such broad powers indicates its awareness of the undesirability of such broad delegation.
The question then arises, if nobody seems to be for this kind of general delegation, why does the plan provide for it? The answer that is given on this point is not very satisfactory. This is the testimony appearing on this point given by the Chairman of the Commission, Mr. William L. Cary.
In this connection, however, for this plan to be amended to exclude general rulemaking poses a substantial problem in my opinion because of the fact that the word "rulemaking" is so broadly defined in the Administrative Procedure Act. As a consequence, it is very difficult to draw a line and isolate out general rulemaking, the broad rulemaking, in distinction to that type of rule which concerns agency housekeeping, such as the number of copies of a registration statement, but which is considered rulemaking under section 2 of the Administrative Procedure Act.
I do not know about the ingenuity of the persons who draft these provisions for the Securities and Exchange Commission, but I have been exposed to the ingenuity of Senators and Senate committees, and I suggest, with some degree of authority, that it is possible to draw this kind of line. Indeed, I should like to refer to another statement by the Chairman, which indicates that he himself has found it possible to draw such a line. From his prepared statement, submitted at the hearing of the Subcommittee on Securities of the Committee on Banking and Currency, I quote:
On the basis of our study to date, I would place at least the following items in the category of non-delegable responsibilities:
1. The general rulemaking powers of the Commission under the acts which it administers. Under these statutes the Commission has the power to promulgate rules of general applicability which serve to implement or interpret the acts it administers. As these rules involve basic policy considerations and are applicable in a general manner, it would not be advisable, and the Commission does not intend, to delegate its rulemaking power relative to policy matters.
Mr. President, let me suggest to the Senate that the Chairman himself, in these words, has indicated that it is possible to make a distinction between the general rulemaking power and more specific powers.
Let me refer to another portion of his statement:
As I have stated, it is not the Commission's intention to delegate its general rulemaking powers. In some cases, however, it may be appropriate to delegate to a Commissioner or a staff member the authority to issue rules in limited areas which do not deal with the basic policies of the acts. I might cite as an example the mechanical requirements dealing with registration statements, e.g., the number of copies to be filed. Examples of existing rules which might have been delegated include the following -
Then he lists rules requiring marked copies of amendments to proxy material and registration statements; rules dealing with the number of copies, binding, paper, and printing of registration statements; rules dealing generally with the mechanical requirements for forms filed under the Securities Exchange Act; rules concerning the formal requirements of registration statements or reports filed under the Investment Company Act.
The Chairman has done very well, it seems to me, and with considerable specificity, in stating what he believes could not be done, namely, to make a delineation between general broad powers, which almost everyone agrees ought not to be delegated by the Commission, and those more formal, less important powers, which almost everyone agrees probably should be delegated. So what the proponents of the plan seek to do, what they urge as the extent of their objective, can be done. Unfortunately, it cannot be done in a reorganization plan. We must vote it up or down. We cannot modify it. We cannot work on its details. But this is not a question of such urgency that we ought to allow ourselves to become a party to this kind of legislation, and this is legislation. The Commissions have been dealing with the problem of delay and overwork for a long time, and I feel certain that they could continue to do so for a while longer.
Mr. LAUSCHE. Mr. President, will the Senator yield?
Mr. MUSKIE. I yield.
Mr. LAUSCHE. It seems to me on the basis of what the head of the Commission stated, that he divided into two classes the functions of the Commission: That is, that the judicial, discretionary functions cannot be delegated; the mechanical and ministerial duties, which require no judgment and no discretion, can be delegated.
The position of the Senator from Maine is that in order to facilitate the disposition of the business there ought to be a delegation of powers, but that delegation ought not to center in the judicial and discretionary functions of the Commission, which are so important to the stock- and bond-buying people of the United States.
Mr. MUSKIE. I would make one qualification concerning the Senator's statement. Perhaps even in the adjudicatory field some routine matters might be delegated, if they were delegated in accordance with standards that were very carefully drawn. I would not object to that. But we are dealing here with larger organic statutes which are involved in the Securities and Exchange Commission, and certainly our committees did not have the opportunity or the time to evaluate the impact upon those statutes and the rights of the people affected by them under this reorganization plan. This formula for relieving the workload of the commissions was devised -- and I see nothing objectionable in the overall purpose-and applied with almost no variation to five, and I think perhaps seven, commissions or boards at this time.
The PRESIDING OFFICER. The time of the Senator from Maine has expired.
Mr. McCLELLAN. Mr. President, I yield the Senator from Maine as much additional time as he may desire.
Mr. MUSKIE. Mr. President, I think that what is needed -- and I am sure that everyone who concerns himself with the plan knows it is needed -- is to have these proposals presented before committees which can give them appropriate time and study, with the necessary authority on their own part to modify the plans and to present them to the Senate. This is an objective which can be met. It is an objective which ought to be met. I am sure it is an objective that will be met if it is handled properly and referred to the appropriate committees to be handled as a legislative matter.
Since these questions have not been presented on the floor, to the best of my knowledge, I think I ought to call the attention of the Senate to some questions which were raised in the committee report concerning this plan. These are questions which the Senate ought to answer before it votes on the plan. The questions were raised at the hearings, and they ought to be raised before the Senate.
First, is it proper or desirable to delegate the exercise of the rulemaking adjudicatory functions to subordinates of a staff without providing for mandatory review of their determinations by the full agency? On this question, I make this additional comment: No one on the committees has had an opportunity to evaluate the performance of hearing examiners. Has their performance been such as to merit the confidence of Congress in handling responsibilities of this seriousness? As I pointed out earlier, when the examiners were appointed, they were not appointed to discharge such responsibilities. Congress has not really had an opportunity to evaluate their performance. I believe we ought to have such an opportunity before we act upon a proposal of this seriousness.
The second question: Would the delegation to subordinates result in policy being made by the staff instead of by the legally constituted agency?
Another question: Since the proposed delegation can result in final determinations by members of the staff, whose nominations are not subject to Senate confirmation, and who are not responsive to the public, is this a proper or desirable practice?
The next question is: By permitting only discretionary review before the full Commission, is a litigant being deprived of a substantive right?
Another question: If the present review procedures are altered, or if final determination may be made by a subordinate, will it not be more time consuming for the Commission -- and we are talking about time -- to have to make a determination as to whether the matter should be reviewed, and then to proceed to review it, than to leave the final decision in the Commission, where it now is?
Mr. JAVITS. Mr. President, will the Senator yield?
Mr. MUSKIE. I yield.
Mr. JAVITS. Mr. President, if necessary, I shall be glad to yield some time to the Senator from Maine.
I have been very much heartened by the Senator's feeling that this plan should be disapproved. He is on the side of the administration; he would naturally be inclined to favor the administration.
I really had no desire, myself, in submitting the resolution and undertaking the questioning before the committee, to interfere in any way with what would be the most efficient practice. It was an important confirmation to me that he was trying to arrive at some objective judgment when the Senator indicated he was persuaded by what he heard in response to one of the questions asked. What worried me from the very inception -- perhaps it is based upon the fact that I have had so much experience as a practicing lawyer in this field, long before I became a Senator or was in public life at all -- was the staff question.
I have the feeling that in view of the tremendous sweep of the authority given to the Commission which could thus be delegated and in view of the operations of the SEC -- which are so heavily dependent on the functioning of each staff member; and when, as Senators know, the staff is dealing with the regulation of private businesses, not with the issuance of a license by a Government agency, as in the case of the FCC or similar agencies; and when the least breath of concern or suspicion could be disastrous to such an economic situation; and when the staff alone could ruin a private organization or group, merely by calling for additional hearings, and so forth, with the result that the private organization or group concerned would be "licked," because it could not proceed within the time the market would require, we should therefore, at the least, retain in the SEC the rule-making power. In fact, I thought the final straw was the request that the SEC be given the authority to delegate that power. I wonder whether that may have had a strong effect on the position taken by the Senator from Maine.
Mr. MUSKIE. Indeed so; and I feel much more strongly about the plan in regard to the SEC than I do about some of the other plans.
Furthermore, one of the reasons why I oppose this plan, and why I may oppose the others, is that I want to see this administration succeed, and I want to see this administration approved, and I want all actions taken by the agencies for which it is responsible to be soundly based. So, Mr. President, if the friends of this administration cannot protect its interest in this respect, I do not know who will do it.
Other questions which were raised at the hearings should be called to the attention of the Senate; and I put them into the RECORD, not because all Senators will have an opportunity to read them before they vote on this plan, but in order that they may have an opportunity to read them before they vote on the others.