Investment Co. Institute v. Camp – Oral Argument – December 14, 1970

Media for Investment Co. Institute v. Camp

Audio Transcription for Oral Argument – December 15, 1970 in Investment Co. Institute v. Camp

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Warren E. Burger:

We will hear arguments next in Number 59, National Association of Securities Dealers against the Securities and Exchange Commission.

Joseph B. Levin:

May it please the Court.

My name is Joseph Levin.

I represent the National Association of Securities Dealers Inc.

The association is made up of some 4400 members who are engaged in the securities business and a great majority of them sell mutual fund shares.

At issue here is an order of exemption entered by the Securities and Exchange Commission under the Investment Company Act of 1940.

And that order enabled the first National City Bank to go into the mutual fund business.

At the outset, I would like to emphasize the fact that the Commission has washed its hands of its decision in this case.

The Commission, we believe for the first time in its history has refused to appear in support of the Commission order.

Furthermore, the Commission in its response to the petition for writ of certiorari which we filed stated, there’s no assurance that the Commission would reach the same judgment for similar matter is again presented.

Hugo L. Black:

Has Commission changed since?

Joseph B. Levin:

Yes.

The explanation for the Commission position appears in the brief of the United States as amicus curiae on page 3.

The statement there is that only two of the members of the Commission who participated in this case remain as members of the Commission.

One of whom supported the decision and one of whom dissented.

The three subsequently appointed members of the Commission are not prepared to take any position.

Accordingly, the Commission expresses no position on the merits and urges neither affirmance nor reversal of the judgment of the Court of Appeals.

In this setting with the agency taking the position that it does, the Court asserts here to accept this agency expertise which for all practical purposes, at least the present commission has disowned.

I might also point out that two of the three judges in the Court of Appeals relied upon administrative expertise in reaching their decision.

The third judge also affirmed the order of the Commission, did consider the merits of the case.

The question presented involves Section 6(c) and Section 10(c) of the Investment Company Act.

Section 10(c) provides and I quote that “no registered investment company shall have a majority of its Board of directors consisting of persons who are officers or directors of one bank.”

As I shall more fully develop later, this was a prophylaxis described to deal with the conflicts of interest problem resulting from the Investment Company commercial bank interlock.

And the prophylaxis resulted from a record of gross abuse in the relationship.

Here, the Bank has created an investment company which it operates and manages and as the commission acknowledged, there are potential conflicts of interest between the Bank and its commercial banking activities and the investment company.

Harry A. Blackmun:

Is the investment company incorporated?

Joseph B. Levin:

No.

Well, it’s an investment company.

Under the Investment Company Act, the question of whether or not it is an Investment Company Act is not raised in this litigation.

In fact, the particular account has registered under the Investment Company Act as an open-ended investment company.

Joseph B. Levin:

The question presented here is whether in these circumstances that is where there are potential conflicts of interest.

The commission may grant the bank an exemption from 10(c) by invoking Section 6(c) of the Act.

Section 6(c) permits the Commission to grant an exemption from any provision of the statute and I quote “If into the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purpose is fairly intended by the policies and provisions of this title.”

Before considering the policy of the statute, its provisions, I’d very briefly like to describe this particular investment company which is called a commingled investment account.

At the time of the SEC proceedings, the account had not yet come into being.

It has now come into being.

The account as I’ve said is registered under the investment company as an open-end investment company.

Its objectives are the investments in common stock and convertibles which offer the opportunity for long-term growth of capital and income, a prospect offered generally by investment companies.

It is an open-ended investment company or a mutual fund because it stands ready to redeem its shares at net asset value and it makes a continuing offering on that basis.

The participations in this particular mutual fund are called units and the minimum initial participation is $10,000.00.

There is no sales charged when an investor buys in to the fund and in that respect, the fund is like the no load sales — no load investment company.

The account uses an arrangement common to mutual funds.

It is managed by an investment adviser.

In this case, the Bank serves that function.

The Bank maintains a continuous investment program for the account.

It determines what securities are to be bought and sold and executes those transactions.

For its services, the bank receives an annual fee equal to one half of 1% of the average net asset value of the account.

This is a type and amount of fee that’s customary in the mutual fund business.

Operation of the account is subject to the supervision of a committee which is annually elected by the participants.

This committee is — under the statute is the equivalent of the Board of Directors.

And it was this Board of Directors for which the commission granted the exemption from Section 10(c) with one commissioner dissenting as I’ve indicated.

The Board has five members, three of whom are officers of the bank.

The account is subject to the supervision of the Comptroller of the Currency.

This particular type of operation did not become permissible until the comptroller adopted certain regulations in 1963 and validity of those regulations is the subject of Number 61 which is to be argued after this case.

Now, as far as Section 6(c) of the Act is concerned, it was intended for persons who were not within the intendment of the legislation.

Now, the commission in its decision here referred to its traditional standards and that it relies upon in invoking Section 6(c).

And as the Commission put it, the propriety of granting an exemption largely depends upon the purposes of the section from which an exemption is requested, the evils against which it is directed and the end which it seeks to accomplish.

And then it continued with saying that the showing required in order to meet the standards set forth in Section 6(c), as the compliance from which exemption is sought is not necessary to accomplish the Acts’ objectives and policies.

Our position here is that the action of the Commission does contravene the policy and objectives of the statute.

The Investment Company Act resulted from a comprehensive study of investment companies which the commission made and the Commission itself initiated the legislation.

Joseph B. Levin:

That study revealed —

Potter Stewart:

As you suggested Mr. Levin, there’s a companion case to be heard, I guess tomorrow morning and if by chance, the Court should decide that case — that is it should decide in that case to reverse the judgment of the Court of Appeals, then the Court need not and might not ever reach this case, wouldn’t that true?

Joseph B. Levin:

I think that’s correct.

I think the — in this case the —

Potter Stewart:

Of course I suppose also vice versa but —

Joseph B. Levin:

I believe so.

In order to —

Potter Stewart:

If it decides in your favor in this case, it wouldn’t reach that case.

Joseph B. Levin:

That’s right.

In order to operate this mutual fund, the regulations of the comptroller would have to be sustained under the Banking Act of 1933 —

Potter Stewart:

In the first place.

Joseph B. Levin:

— and the order of the Commission —

Potter Stewart:

And that really does come first I should suppose, doesn’t it because —

Joseph B. Levin:

Well, the — which —

Potter Stewart:

— logical look at this —

Joseph B. Levin:

Well the — which comes first here.

Let me answer it this way.

The matter was presented to the commission in the first instance on an application for this exemption.

The commission acted it.

The Commission in its opinion assumed that there was compliance with the Glass-Steagall Act. It didn’t consider the issues.

And then subsequently, an action was initiated in the District Court challenging the validity of the comptroller’s regulations.

Or rather the basis on the motion to change the order of arguments —

Joseph B. Levin:

Yes.

Reversing the order of argument.

Joseph B. Levin:

This study that the SEC conducted which led to the passage of the Investment Company Act revealed a history of abuse on the part of insiders.

And a paramount purpose of the statute was to treat with the conflicts of interest problem particularly as it relates to investment company officers and directors and their affiliates.

Section 10(c) is part of the statutory arsenal that is directed at that conflicts problem.

To contend with the conflicts problem, the statute contains a variety of provisions.

It prohibits self-dealing by insiders in very, very broad terms.

It restricts agency transactions by insiders.

Joseph B. Levin:

It imposes fiduciary obligations on investment company managements.

It provides for pervasive supervision by the Commission of Investment Companies.

In that respect, it provides for periodic examinations by the Commission of Investment Companies, for detailed filings by investment companies with respect to their operations and things of that nature.

And lastly, it also provides for civil and criminal enforcement measures.

But the statute went one step further in terms of dealing with the conflicts of interest problem and felt that the imposition of fiduciary duties, prohibition of self dealing and commission supervision and inspection was not enough.

In Section 10, which the commission has described as a keystone provision of a statute and which during the congressional hearings on the legislation was referred to as a double barrel protection.

The statute rather imposes certain restrictions on the composition of the board of directors of an investment company.

Apart from the restriction on commercial bankers in Section 10(c), it also places restriction on membership by investment bankers, by the investment company’s principal underwriter, by its regular broker, by its investment advisor, and by people that are affiliated with it.

Now turning specifically to Section 10(c), to use the language of one of the Commission’s Spokesman during the congressional hearings, it was the consequence of horrible examples of abuse in the bank dominated investment company.

The legislative history which is fully set forth in our brief bristles with passages that condemn that particular interlock.

For example, commission spokesman in justifying the provisions of Section 10(c) during the course of the congressional hearings made the following observations.

There were very undesirable consequences flowing from the relationship.

Some worst examples of abuses, we had in the whole study arose out of that relationship.

The conflicts problem becomes more acute in the case of the commercial bank.

The public’s funds are used to further the banking business of the insider.

The congressional concern as it was expressed in the Senate report that accompanied the legislation, was the concern with the unscrupulous banks who advanced their own pecuniary interest at the expense of investment companies and their security holders.

Indeed, the question in 1940 was not how little but rather how much should be done to restrict the bank interlock and indeed whether it should be permitted at all.

And that Section 10(c) was viewed as a minimum safeguard for there were those who advocated the complete segregation of commercial banks from investment companies.

For that matter, that position was even advocated by commercial bankers themselves in light of their unhappy experiences during the 20’s in terms of conflicts in the operations of bank sponsored investment companies.

And particularly significant in this regard is the observation of Senator Robert Wagner who is Chairman of the Senate Banking and Currency Committee after the commission had put in its testimony, he made the observation.

I think it would be better if the Board were free of any kind of influence from bankers.

Of course, I know that is ideal and that we are not going to get that far.

But then there would be no chance about their loyalty being consciously or subconsciously only to their investment trust rather than to outside interests.

The commission explained 10(c) in saying that it viewed 10(c) as a middle of the road approach — as a compromise.

It was put as instead of having complete segregation of commercial bankers, an attempt was made to permit it and then just circumscribe it.

The statutory concern with bank domination of investment companies is not only limited to Section 10(c) but it’s further manifested in Section 10 (h) (2) of the Act.

That Section deals with the type of Investment Company that does not have a Board of Directors.

Section 10 (h) (2) provides that the investment advisor to such a company must satisfy the standards of Section 10(c).

A bank thus could not be an investment advisor to one of these companies that does not have a board of directors.

In other words, under the statute, a bank may only serve as an investment advisor, if there’s a buffer of board of directors meeting the provisions of Section 10(c).

Joseph B. Levin:

In our view, it is unmistakable that Section 10(c) was intended as a minimum invest to protection certainly where there are potential conflicts of interest and now turning to the matter of the conflicts of interest that exist in this situation.

As I’ve indicated, the commission acknowledged that there are potential conflicts of interest here which could arise as a result of the bank’s commercial banking business.

In fact, one of the spokesmen for the banking industry recently in urging the amendment of Section 10, acknowledged the fact that the conflicts problem is inherent in the relationship.

And in a situation such as is involved here where the bank has control of the day-to-day management of the Investment Company where the free reign in the conduct of its operations, a conflicts problem emerges probably as sharply as it ever could.

The only aspects of the problem of the conflicts problem to which the SEC addressed itself were those that it itself had referred to, in 1963 in urging that the Section 10 prophylaxis was necessary for the type of arrangement that’s involved in this commingled agency account.

Potter Stewart:

But then you have to begin with the reference that the commission had power to do what it did?

Joseph B. Levin:

The commission–

Potter Stewart:

I’m not talking about expression, it had the power to do it.

Joseph B. Levin:

Well, the commission has authority under the statute to exempt from any provision of the statute but in exercising that, it must bear in mind these statutory policy and objectives.

It cannot order —

Potter Stewart:

It’s not on the authority of the commission to claim that it abuses discretion —

Joseph B. Levin:

Or in abusing the discretion, it exceeded its authority under the statute.

In other words, the issue as its posited here is whether the commission in the circumstances where there are potential conflicts of interest may consist with the public interest policy of the statute granted exemption.

Harry A. Blackmun:

And that is whether or not the bank can have three rather than two, isn’t it?

Joseph B. Levin:

That’s right.

Harry A. Blackmun:

On the Board?

Joseph B. Levin:

Whether or not it may have — whether or not it may have majority control of that board of directors and it was at that line — it was at that line that the Congress drew the line of prophylaxis.

It said “You may have to — out of a board of five, you may have as many as two but as a matter of prophylaxis, as a matter of policy, you may not have three.”

Harry A. Blackmun:

Unless the Commission finds that it’s appropriate to public interest and consistent with the protection of investors and so on.

Joseph B. Levin:

No.

A word about the structure of the statute.

The statute grants the commission considerable flexibility in many areas of the statute.

It permits the Commission to exempt.

It permits the Commission to grant various types of orders necessary in the public interest and things of that nature.

However, it withheld or the statute withholds that type of specific statutory authority — exemptive authority or molding authority in Section 10(c).

And in fact, the legislative hearing show that it was intended in Section 10 not to provide flexibility.

What we have here though is a residual authority that the Congress granted in Section 6(c).

In that authority, the Congress said if you — if there is a situation that isn’t within the intent of the legislation, it isn’t the kind of situation in which the evils of the statute are directed, doesn’t fall within the purpose of the statute.

In those circumstances, you may grant an exemption.

As I say, the only aspects of the problem to which the commission addressed itself were those conflicts that in itself had emphasized, in 1963 congressional hearings in urging that the Section 10 prophylaxis was necessary for the type of arrangement that are here presented.

Joseph B. Levin:

And the conflicts which the commission referred to and they are four in number, is the danger that the bank might retain an unwarranted portion of the assets of the bank sponsored fund in cash in order to earn money for the bank. Secondly, that banks distribute brokerage according to a formula which rewards those brokerage who keep balances in the bank or have other dealings with the bank.

This policy, the Commission pointed out in ’63 could lead to excessive portfolio turnover or to a fund not receiving maximum benefit from its brokerage business.

Thirdly, that fund investments could be used to shore up bank loans and fourthly, that bankers or underwriters and dealers and various kinds of Government bonds that they might use the fund as a place to place those bonds.

Now, these aren’t the only conflicts of interest.

These are the ones that the commission addressed itself to, there are others.

For example, a bank may use the Investment Company as a bird hock (ph) that is it may have the fund make an investment in the company in the hopes or in order to get the commercial banking business of the particular company.

There’s also a companion problem.

The nature of which was alluded to in the congressional hearings.

The situation of where a fund holds securities of a company which is an important commercial banking customer.

And the sale would appear to be advisable but the sale would depress the market price, something that the company managements don’t like.

The question is whether in those circumstances, the bank would be able or the bank directors would be able to look at the matter of the disposition of that investment with an eye singled to the interest of the fund or would his thinking be concerned by the impact on the commercial banking customer.

Hugo L. Black:

Is this power frequently exercised by the commission?

Joseph B. Levin:

The 6(c) power?

Yes.

The 6(c) power is exercised frequently by the commission.

The matter of the commission’s authority under 6(c) I don’t believe has ever really been considered by a Court and the 6(c) orders ordinarily come up in the context of where there is no opposition to the grant of the exemption so that the 6(c) grant — it becomes pretty much a formal matter.

There are cases though where there is opposition.

But as I say relatively, they are rare situations.

The matter becomes one between the staff of the commission and the applicant and if the commission is willing to grant the order, the applicant of course is very happy and there isn’t anybody to challenge.

And that’s why there’s very little opposition.

Potter Stewart:

Here you of course oppose the grant of the exemption.

Joseph B. Levin:

Pardon?

Potter Stewart:

You of course in this case opposed before the commission —

Joseph B. Levin:

Yes.

Potter Stewart:

— in the ground of the exemption.

There was no hearing I guess.

Joseph B. Levin:

There was no — there was no evidentiary hearing before the commission.

Potter Stewart:

Hearing of argument.

Joseph B. Levin:

There was oral argument and briefs.

We took the position before the commission that the bank’s application did not make out either a factual or legal basis on which to grant the exemption, we didn’t feel that we ought to be asking for an evidentiary hearing.

Joseph B. Levin:

We thought that the burden was on the bank to show that it —

Potter Stewart:

That’s the applicant for the exemption.

Joseph B. Levin:

That’s the applicant for the exemption.

And in fact, the only ground that the bank advanced in its application was the fact that unless it got this exemption, it wouldn’t be able to go forward in this particular mutual fund business

.Now, the overall problem that’s presented here in terms of conflicts was probably as well presented as possible by one of the commissioners in this case during the course of oral argument.

And I might add it was not the commissioner who dissented who observed that the Bank’s application presented as he put it in a very exaggerated or extreme form.

The problem of the old matter of joint ventures of seeming joint ventures where the bank on the one hand in the exercise of its various functions has relationship with the company and your account for various reasons also has relationships with the company.

And who is to say where the propriety line should be drawn and is drawn?

And bank counsel’s response at that point was that he acknowledged the problem and he said that the bank would have to liquidate.

Finally, as the dissenting commissioner pointed out in the exact form of future conflicts be anticipated.

In these circumstances, we submit there is presently evil to which Section 10(c) is directed namely potential conflicts of interest.

And by the SEC’s own standards for the application of Section 6(c), an exemption is therefore improper.

Now, the Commission did attempt to rationalize an exemption.

And we submit of course, that the analysis is erroneous.

First and what is an unusual stance for the commission in administering this remedial statute.

The commission endeavored to restrict the intent and scope of the statutes.

Although the statute speaks in terms of no registered investment company, the commission said Congress really didn’t mean it.

And in this regard — it also pointed out that this account did not become permissible until 1963 with the new comptroller’s regulation.

And in terms of endeavoring to find a basis to distinguish it — this particular fund, it said that the fund was different from the bank dominated investment companies that were described in the commission’s study.

Now as far as the account not becoming permissible until 1963, I submit that that’s irrelevant.

In the account’s pursed after 1940 doesn’t negate the potentials for conflict and that’s what is the statute’s concern under Section 10(c).

Insofar as the commission looked to the bank affiliates of the 20’s and tried to find identity, the commission’s own study in describing these bank affiliate says and I quote that “these affiliates acted as investment companies in buying and selling securities for an investment for speculative purposes.”

It was for this reason that Section 10(c) was enacted and it is precisely this function that the account or this bank sponsor mutual fund will engage in.

Harry A. Blackmun:

But the —

Joseph B. Levin:

Furthermore —

Harry A. Blackmun:

— majority of the Commission said in this report that as I read that the account involved here is different from that historic one that you just described.

Joseph B. Levin:

That’s right and what I am saying is that one of the functions of those bank securities affiliates in the 20’s as described in the commission study was that those affiliates among other things engaged in the business of buying and selling securities for investment or speculative purposes and it was because they engaged in that particular activity in the investment company business that they became subject to the Investment Company Act and Section 10(c) was adopted.

In any event, the statute itself patently rejects this commission approach that the application of Section 10(c) turns on whether a particular company has a kinship to the bank affiliates of the 1920’s.

And I refer specifically to Section 10(d) of the Investment Company Act.

10(d) deals with the so-called no load companies that are managed by investment counselors.

Joseph B. Levin:

Now, those companies at a special situation, those companies are granted the matter of exemptions from Section 10.

It was considered for those companies.

These are open-end companies.

A matter of exemptions for those companies was specifically considered.

They were granted certain exemptions from 10(a) and from 10(b), the companies have no kinship to the Bank securities affiliates of the 1920’s but Congress specifically withheld an exemption from 10(c).

And it’s particularly interesting that in so called 10(d) company, the no load company, there is less of a chance of the potential conflicts of interest because by hypothesis, those companies cannot be managed by banks.

Furthermore, the broad provision of Section 10(c) is such that it reaches to all types of investment companies for example, I referred already to the so called 10 (h) (2) company.

The company that doesn’t have a board of directors.

Congress said we want 10(c) to apply there where it can and furthermore it applies to face amounts of certificate companies which had absolutely no kinship or identity with the bank security affiliates of the 1920’s.

Now, the Commission did attempt to come to grips with the conflicts problem and what it said was that there were substantial safeguards here against conflicts.

That’s its characterization substantial conflicts.

And we submit that that doesn’t answer the statutory question.

William J. Brennan, Jr.:

Are there safeguards where the supervision by the comptroller action?

Joseph B. Levin:

By the comptroller and also the self dealing prohibitions in the Investment Company Act and in the comptroller regulations.

Basically, the Comptroller’s regulations really don’t add anything to what the Investment Company Act provides.

The commission in its opinion here in referring to the substantial safeguards made reference in the first instance of the comptroller’s regulations to the inspections of the comptroller.

The fact is — and the commission made no reference to it that it has inspection authorities of investment companies and as the commissioner who is the spokesman for the commission during the legislative hearings pointed out, the purpose of that inspection authority was to permit the commission to engage in the same kind of inspections as were permitted for the comptroller under the bank.

William J. Brennan, Jr.:

How about the investment in the securities that the bank has underwritten?

Joseph B. Levin:

Well, on that one, the commission imposed a further condition that goes beyond the statute.

And the commission found that it saw no likelihood that there would be any overreaching by the bank — qua-investment banker.

And I might add in that regard that the commission was very careful to refrain from making that same observation about the bank and its capacity as to whether —

William J. Brennan, Jr.:

Is there a restriction in the exemption?

Joseph B. Levin:

Pardon?

William J. Brennan, Jr.:

Is there restriction in the exemption?

Joseph B. Levin:

There is a condition that was added in terms of the underwriting or underwritings by the Bank.

Turning back to the matter of the supervision of the comptroller, as I say the statute granted the commission the authority to inspect investment companies.

As I’ve indicated earlier, the statute authorized the commission while the statute prohibits itself dealing imposes fiduciary obligations.

And nevertheless, it imposed there’s a prophylaxis, this 10(c) requirement.

Now the fact that — we submit the fact that there may also be regulation or inspections by the comptroller, inspections as far as the statute is concerned that are no broader than the commission is empowered to make under the Investment Company Act is no reason to deny investors in this mutual fund the specific 10(c) prophylaxis against domination by a bank investment company.

The Congress thought that inspection or Government oversight was enough.

Joseph B. Levin:

It was already in the Investment Company Act.

That didn’t have to provide for 10(c).

I’ll save the rest of my time for rebuttal.

Hugo L. Black:

Mr. Cox.

Archibald Cox:

Mr. Justice Black and may it please the Court.

As was remarked earlier, this is one of two related cases.

But I think there is one respect in which they were not quite correctly described.

It is true as I understand it that if the case to be argued tomorrow, the ICI case should be reversed, then this case seizes to be important.

But on the other hand Justice Stewart, even if the exemption should be held improper which of course we denied, then the ICI case still would be important.

First, because Regulation 9 is an issue in the ICI case and because there is some reason to believe that it would be possible to operate managing agency commingled investment accounts.

Even so, there were no exemptions from Section 10(c).

That’s a moot point.

I don’t mean to say the exemption isn’t important but it isn’t quite accurate to say that if it were denied, that would be the end of the managing agency commingled investment account, speaking of them as a category not of this particular plan.

Potter Stewart:

In other words that if you should prevail in tomorrow morning’s case, a different mechanism might be found that would not — did not need the approval or did not need to be — there would exempt —

Archibald Cox:

Two things are possible as —

Potter Stewart:

— act?

Archibald Cox:

— explained in the amicus brief by the Fiduciary Associations of Chicago.

One is it is possible that it might be held that the entire commingling authorized by a Regulation 9 is not under the Investment Company Act.

Potter Stewart:

Right.

Archibald Cox:

Second, it is possible that the Federal Reserve Board which has given its approval to these plans and found them in the public interest might find it sufficient that the bank had the contract to act as investment advisor and two bank officers on the board of directors.

We couldn’t be sure of that, that’s why we asked permission to have three so that it really would be wholly within the Bank.

But if it had to go the other way —

Potter Stewart:

No.

Archibald Cox:

I don’t think the whole thing could fairly be said to be debt.

Potter Stewart:

So I was mistaken in my vice-versa comment.

Archibald Cox:

Certainly not clearly vice-versa.

There are two general observations which I think are pertinent to both cases.

In the first place, it’s important not to slip into such question begging characterizations as mutual fund, Investment Company, securities business are on our side, fiduciary relation.

The real question here is which is the right characterization?

And of course, the right characterization depends upon examination of what it is that the Bank is actually doing.

Archibald Cox:

Second, the right characterization has been decided in these cases by the expert agencies unanimously, in favor of the view that what the Bank is doing is performing a traditional fiduciary banking function.

In a way, that preserves the fiduciary relationship and which is in the public interests.

This is a view supported not only by the comptroller but by the Federal Reserve Board both in its ruling given to City Bank and in its testimony before Congress by the Federal Deposit Insurance Company, by the New York Banking Authorities in parallel situations and to the extent that it was pertinent under the Investment Company Act by the Securities and Exchange Commission.

And so here, the question I think is not as Mr. Levin’s argument suggests whether the commission could properly exempt an ordinary Investment Company from Section 10(c).

But rather, it’s whether the commission made a permissible expert judgment, when it concluded that this is not the kind of Investment Company with which the purpose of Section 10(c) was primarily concerned.

But as I say, a fiduciary banking activity which could be exempted without departing from the purposes or policy of the Act and which should be exempted in the public interest that the commission was correct in that finding.

But it becomes apparent when one goes behind the labels and looks at the development of the commingled investment account.

And to do that, it’s really necessary to go back to 1913 when Section 11(k) of the Federal Reserve Act gave the Federal Reserve Board a power to issue to national banks, permits to act in sundry fiduciary capacities.

The present language of then modifications is set forth at page 1(a) of our brief and it describes these powers as the right to act as trustee, executer, administrator and so forth or over on the next page, in any other fiduciary capacity in which State Banks can act.

And there’s no doubt that State Banks could act in this capacity under the law of New York.

Under this Section, banks have of course long activities, trustees, executives, guardians and so forth.

They’ve also acted as agents to keep custody in a customer’s assets, securities and to give him advice concerning investments with the customer retaining the final decision whether to change his securities.

In addition, banks have frequently acted as managing agents in the strict sense.

That is to say the customer turns over his assets to them and the bank makes and executes all investment decisions concerning the management of the customer’s assets where they drew fiduciary relationship between the principal and the agent.

And I would emphasize that this was only one of many fiduciary activities.

All of which belong in a single bundle.

Now at first —

The Honorable Court has now adjourned until tomorrow at 10 o’ clock.