The Namibian people are working at their destiny. In whateve form the struggle takes-SWAPO armed forces operating against the South Africans in the northern regions; representations by ex leaders at the United Nations and in various countries; the presenc of the national convention-standing in contrast to Prime Ministe Vorster's handpicked advisory council; the Namibian workers' move ment; the SWAPO Youth League the Namibian people are one i their determination to be rid of South African usurpation and become a free and unified nation. I believe that the United States of America, vigorously committe to the same ends, can be crucially effective in their achievement. B so doing, we just might set a new course for southern Africa. Thank you, Mr. Chairman. Mr. DIGGS. Thank you, Mr. Johnston. Mr. Hocker, I was particularly interested in your reference to you legally authority. I am particularly interested in finding out from you Agency, on the most comprehensive basis, just what its legal ration: of the implications for our Government is in doing business-0 Government and U.S. business-in those areas where your Agency h jurisdiction. For example, you seem to have some questions about secti 77(h) (D). Our interpretation is that it does give the Commissio legal authority where material facts are not disclosed and that th Commission can do any number of things under that citation. Mr. HOCKER. I would be happy to do that. Thank you, sir. Mr. DIGGS. Do you have some legal representatives? We want comprehensive legal opinion from your Agency as to the rational that you have manifested here. Mr. HOCKER. Mr. Chairman, under those circumstances would i be appropriate if I asked the opportunity to submit a written statement? Mr. DIGGS. All right. Mr. HOCKER. I would be happy to do that. Thank you, sir. [The written statement referred to follows:] MEMORANDUM PREPARED BY DIVISION OF CORPORATION FINANCE, SECURITIES AND EXCHANGE COMMISSION In the hearings before the Subcommittee on April 4, 1974 a request was made see page 27 of the transcript, for a statement, in writing, with respect to the jurisdiction of the Securities and Exchange Commission with regard to companies doing business in Namibia. The authority of the Commission in this respect derives from the Securities Act of 1933 and the Securities Exchange Act of 1934 in regard to publicly held companies. Under the Securities Act securities proposed to be sold to the public by issuers, underwriters and control persons must be registered with the Commission in absence of an exemption from registration. The statute also prohibits fraud i the sale of securities. The principal part of the registration statement is the prospectus which must be delivered to purchasers of the securities. Pursuant to authority granted by the statute, the Commission has promulgated rules, adopted forms and issued guidelines specifying the form and content of prospectuses. Generally, prospectuses are required to set forth all material information needed by an investor to determine whether or not he wishes to buy the security offered. Materiality has been defined by the Commission, in Rule 405 under the Securities Act, as follows: . The term "material,” when used to qualify a requirement for the furnishing of information as to any subject, limits the information required to those matters which an average prudent investor ought reasonably to be informed before purchasing the security registered. A typical form for registration of securities is Form S-1, the general form to be used when no other form is prescribed by the Commission's rules. A copy of the form is attached. It provides for information with respect to the issuer, its business, properties, and management, the securities to be sold and the proposed method of sale. The Securities Act provides for sanctions for failure to comply with the provisions thereof. Among these are administrative or stop order proceedings, mentioned at page 27 of the transcript of hearings as Section 77 (h) (D). The Commission may institute injunctive proceedings in the federal courts against violations or threatened violations of the statute. The Commission may refer alleged violations to the Department of Justice. Under the Securities Exchange Act of 1934, (1) companies whose securities are traded on national securities exchanges and (2) companies whose assets exceed $1 million where a class of equity securities is held by more than 500 persons, with certain exceptions, are required to register with the Commission and file annual and other periodic reports with the Commission. Under authority of this statute the Commission has promulgated rules governing the solicitation of proxies with respect to the securities of such issuers. Generally, the disclosures required under the Securities Exchange Act are similar to those required under the Securities Act. Enclosed is a copy of Form 10-K, the general form for annual reports. Where proxies are solicited from holders of securities under the Commission rules, a security holder may, subject to certain limitations, require the management to include in its proxy material an appropriate proposal which he wants to submit to a vote of security holders. The Securities Exchange Act provides sanctions for failure to comply with the provisions thereof including administrative proceedings before the Commission, injunctive actions and criminal reference. The Securities Act and the Securities Exchange Act require disclosures of information of interest to investors. The Commission has no authority to pass upon, approve or disapprove securities or activities of issuers such as conducting operations in Namibia. The specific disclosures appropriate to a particular company would depend on the facts and circumstances thereof. We understand that the United States position with respect to investments in Namibia, as announced by the Department of State, is that (1) since May 1970 the United States has officially discouraged investment in Namibia, (2) Import-Export facilities are not available for trade with the territory and (3) further investment in Namibia, made on the basis of rights acquired from the South African government following the termination of the South African mandate in 1966, would not receive U.S. Government protection against claims of a future legitimate government in Namibia. In our opinion, the existence of a material investment or carrying on material operations in a manner not in conformance with the above policy of our government would require specific and prominent disclosure. Mr. DIGGS. Now precisely, Mr. Hocker, what information does the SEC require in registration statements for securities relating to Namibia in addition to your ordinary requirements? Mr. HOCKER. Mr. Chairman, I will have some difficulty in responding to that because, as I have indicated, with the one exception of Gemstone Mines Ltd., the SEC has not been faced with a registration statement concerning investment opportunities as such in Namibia. If such a proposal came before us, the staff would consider it in light of the announced policy of the State Department. We would be in communication with the State Department to avail ourselves of whatever facts they might have which were not immediately available to us, to get the benefit of their comments and suggestions with respect to disclosure of legal issues, and at that point, should the issuer or the company decline to make appropriate disclosures with respect to the risk and conditions of carrying on business in Namibia the Commission might resort to an enforcement proceeding. Enforcement proceedings can take a number of forms, including injunctive actions in the District Courts of the United States. Mr. DIGGS. So you are suggesting here that you would do this o a case basis? Mr. HOCKER. That is the way it would be, sir. Mr. DIGGS. Is that unusual? Mr. HOCKER. No, sir. As I have mentioned, we have had a very small number of instances of contact with Namibian matters, and w have not created or developed specified procedures for dealing wit those. Mr. DIGGS. Well, schedule A of the Securities Act states, as you know, that the registration statement must include the opinion counsel as to the legality of the issues of shares or securities. So, now, does the Commission accept, without any question, cour sel's opinion that issues related to Namibia are legal? Mr. HOCKER. No, sir, it does not. Let me answer that question in a fashion and then turn from the question to what I believe is even more pertinent to the general prob lem of disclosing the business carried on or proposed to be carried on and certainly in our view the doubtful legality or the uncertain lega position of any enterprise would require the most complete explanation We would certainly consider and there would be disclosed probably the opinion of counsel together with such other comment as might be necessary. Mr. DIGGS. Let's talk about the prospectus a minute. How does the Commission discharge its functions to see to it that a appropriate information is set forth both on legality and on material facts in the prospectus? Mr. HOCKER. Yes, sir. Pursuant to the general authority of the statute and as provided in the statute, the Commission has adopted forms for registration of securities with the Commission. These provide more definite and specific guidance for the description of particular securities offerings than schedule A to the statute itself. In addition to providing written guidance by way of rules and occasional interpretive releases, the Commission staff reviews registra tion statements filed with the Commission before such registration statements become effective and before the sale of securities may be completed. The purpose of this review is to discharge the Commission's responsibility to seek out to the extent that it is possible areas of misrepresentation or failure to disclose which may appear in those documents. Mr. DIGGS. Suppose there is some question about the legal status. Would the Commission set this forth in the registration statement and the prospectus? Mr. HOCKER. The existence of the uncertainty and the difference of views with respect to the legal status would be disclosed; yes, sir. Mr. DIGGS. Well, if that is the case, what is the Commission doing to institute this requirement for all securities relating to Namibia in the past, in the present, and in the future? Mr. HOCKER. I believe I should make some distinction here between egistration statements relating to the proposed offering of securities or sale under the Securities Act of 1933 and those annual and other eports filed with the Commission by companies which may be doing usiness in Namibia pursuant to the Securities Exchange Act of 1934. In the second group of companies we will find AMĂX, which has een mentioned here, and Newmont Mining Co. These companies file eports with the Commission containing substantially similar infornation to the registration statements under the Securities Act of 1933, nd the disclosure requirements are very similar. It is for this purpose that you recall that I pointed out that there ppears to be a difference in American policy toward new investments i Namibia and for the maintenance of existing investments. With respect to existing investments, those of long standing, those hat were created prior to the commencement of the U.N. responsiility, even though, in effect, the Commission approaches these as ther investments in foreign countries subject to certain uncertainties, olitical changes, and absence of control and legal process in the courts of this country. I might say that it is my understanding that other than the two companies we referred to, there are certain American companies such is Getty Oil Co. which have very small investments in Namibia, where disclosure might not be specifically called for by our regulations. The disclosure requirements of the Commission are all bottomed on a consideration of what is material to a company as a whole. Mr. DIGGS. Let's talk a minute about the position of our Government which, as you know, is that it will not protect investment in Namibia against any future lawful government. Do you think that this position ought to be included in the registration statement or the prospectus in order to protect the public? Mr. HOCKER. Certainly, any material investment which would be subject to that policy should be specifically disclosed. It is not entirely clear to me that investments existing prior to the announcements of the Government's position are subject to that policy. Mr. DIGGS. Well, if you believe that, why doesn't the Commission institute this requirement? I think it is very significant. I think many people would raise a lot of questions if they knew that our Government has taken this kind of a position. There would be any number of stockholders who would raise questions about it. I would raise questions about it if I were a stockholder without any knowledge about the basic political factors that may be involved in a situation like that. Mr. HOCKER. Certainly they have, sir. Specifically in the matter of Getty Oil Co., the shareholders have caused to be set forth in its proxy statement their attitude with respect to the activities of that company in Namibia, urging that the management company terminate their operations there. This is set forth in the proxy statement using the forum and the facilities provided by the Commission's proxy rules. Mr. DIGGS. Well, you have not answered the question. Namely, do you think that the Commission ought to make this a requirement? Would you have any problem with that, or would the Commission have any problem with that? Mr. HOCKER. I don't think it would have any problem, Mr. Chairman, in making that requirement applicable in such instances where the amount of the investment is material. Again focusing on Newmont and American Metal Climax, it is my understanding that those investments are highly significant, but that those investments predate the announcement of the policies to which we are referring. Mr. DIGGS. Well, I don't think that is relevant, nor do I think that the size of an investment is relevant. Either there is a basis for trying to protect the public, which is the mission of your agency, or there is not any basis for it. And if there is a basis, then it would appear to me that such a requirement ought to be instituted. I know you are not the policymaker in this instance, so I am not going to press you further on that particular matter. Mr. HOCKER. I want to consider your views, Mr. Chairman. Mr. DIGGS. Let's talk about Government agencies that the Commission has consulted on the question of Namibia. Could you tell us something about that? You have already referred to State. Have you consulted other agencies? Mr. HOCKER. Not to my knowledge, sir. Mr. DIGGS. How does this consultation take place? Does it come up through some interagency meeting or is it informal, or at what level? Mr. HOCKER. What existing machinery do we have for consultation, what machinery do we have for keeping ourselves generally informed with respect to attitudes and activities of the Department of State. With respect to the second, the Commission in January of 1973 created the Office of International Corporate Finance in the Division of Corporation, Finance, and one of the duties of Mr. Bodolus, who is here with me today, is to keep himself informed with respect to developments at the Department of State as well as elsewhere which might relate to the work and activities of the Securities and Exchange Commission. Mr. DIGGS. I am interested in knowing about these consultations and the nature of them within State. You mentioned the International Monetary Division, did you say? I didn't quite understand that. Mr. HOCKER. Yes, sir. The Office of International Corporate Finance. This is an office, I would describe it at a medium supervisory level in the Commission. It is a staff function in our division. That office does not carry forward any specified or routine meetings with groups of people, but rather deals with matters which come up and studies which are carried on. Mr. DIGGS. In order to understand if there is a meaningful dialog, the subcommittee has to know who we are talking about. Now we are talking about some very serious political questions here. Is there a consultation? Has there been consultation with the Africa Bureau? Has there been consultation with the Southern African Division of the African Bureau? Has there been consultation at the assistant secretary level or at the under secretary level, or is it just sort of a dialog at the staff level which, knowing how the system operates, would not be considered |