Evening star., 1935-03-14
HOLDING COMPANY
PLAN FACES COURT.
Presidential Regulation Held
Doubtful Exercise of Con-
Stitution Power.
BY DAVID LAWRENCE.


His proposals. however, as to the ways
that holding companies shall be regu-
lated will eventually be found in the
Federal courts along with the T. V. A.
and the N. R. A. and the A. A. A. as
a doubtful exercise of power under
the Federal Constitution.
The President now has assumed full
responsibility for what happens to the
billions of dollars of investment in
the electric light and power and gas
industry. Mr.. Roosevelt promises to
protect the investor in holding COM
pany securities. ''in so far as they
have any value" He insists that not
a penny of actual value in operating
companies will be destroyed.
Watered Stock Seen.
Apparently, in the Presidents judg-
ment the exchange markets of the
country which have shown drop IN
value of more than a billion dollars
in the last few months, since the
agitation started, reflect the deflation
of watered stock or fictitious values
and not actual investment.
On this, opinions will differ. In
deed. the Federal Trade Commission
itself contradicted the T. v. A. once
when the latter claimed there was
not a dollar of actual investment in
the Knoxville companys common
stock. So. if the President is relying
on his power advisers, it may be
that he has been misinformed again.
Anyway the investor who may lose
his life savings will not quarrel with
anybody if provision is made for him,
either to compensate his losses or to
make a place for him on the relief
rolls. Nothing has been promised as
yet on either point.
Mr.. Roosevelt's message is an ad-
lnirable statement of what might be
done to the complicated structure of
holding companies in order to simplify
them and rid them of abuses. But,
fortunately or unfortunately, as the
case may be. the Federal Government
does not now have the authority to
deal with holding companies unless
they are directly engaged in interstate
commerce. Only about II per cent
country is interstate commerce today
The National Power Policy Commit
tee whose report the President has
transmitted to Congress with his own
approval, says:
Every holding company should be
required to register with this FederaD
commission. if. either directly or
through subsidiary companies, it en-
ploys the instrumentalities of inter-
state commerce. to transmit or trans
port electric energy or gas. to perform
contracts or to carry on any business.
Furthermore every holding company
should be required to register if it has
outstanding securities which were dis
tributed to the public through the
channels of interstate commerce since
by such distribution it has set into
motion forces which are still active
and are Nationwide in their effect
upon both consumers and investors"
Held Novel Doctrine.
This is novel doctrine. The Con-
stitution plainly says no ex post facto
law should be enacted, nothing that is
retroactive, nothing that affects a
transaction already accomplished.
Yet the Presidents proposal now is
that. by the device of requiring regis
tration, control shall be exercised by a
Federal commission over the conduct
of a business which already established
itself by means in accordance with
State and Federal laws.
If the principle above quoted we're
sustained by the Supreme Court, there
would be nothing to prevent the Fed
eral Government from tearing wide
open every corporation in the country
by requiring it, first. to register and
then holding a hearing to determine
whether it will or will not grant a
registration certificate.
This is nothing more or less than
Federal licensing and it would appear
from close reading of the Presidents
message that the holding company
idea, whether applied to the utilities
or any other business. is a corporate
form obnoxious to him.
But Mr.. Roosevelts message is con-
Trajectory. While threatening to de-
stroy all holding companies, he con-
cedes that for practical reasons" a
chance of survival" should be offered
ito those holding companies which
can prove to the Securities and Ex-
change Commission that their exist
ence is necessary for the achievement
Of the public ends which private
utility companies are supposed to
serve"
In that sentence is a significant
promise For it means that not the
Federal Power Commission but an
entirely different body will Judge
whether securities are to be destroyed
And five years time is offered in
which to make such a showing or dis
mantle the company.
Course Seen Unconstitutional.
II the Federal Government would
offer to compensate owners on the
basis of actual value, to be set by fair
tribunals of appraisal, and then take
over the operation of utilities alto
gether, it would simplify matters con-
siderably and might not slow up re-
covery as much as the present def1a-
tion is doing. The chief difficulty
with the present course is that it
is unconstitutional The courts have
recently said that the Federal Gov
ernment has no control over business
wholly within State. and that's what
the operating companies mainly do.
Also it is difficult to see how any
holding companies can be divested of
their influence on management if they
become investment companies. as sug-
gested by Mr.. Roosevelt. For the stock
ownership alone elects the boards of
directors of operating companies, and
if the stocks are held by investment
companies the same possibility Of in
direct control exists.
The State legislatures have ample
power over holding companies and
the State commissions are set up to
regulate utilities doing business within
a State. The administration claims
that State commissions have been in
effective. That's true, but the remedy
Is to get new State commissions and
better State laws and supplemental
Federal law to regulate operating
companies actually engaged in inter-
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