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STOCK EXCHANGE PRACTICES
HEARINGS
BEFORE THE
CIOMMITTEE ON BANKING AND CURRENCY
UNITED STATES SENATE
SEVENTY-SECOND CONGRESS
FIRST SESSION
ON
S. Res. 84
A RESOLUTION TO THOROUGHLY INVESTIGATE PRACTICES
OF STOCK EXCHANGES WITH RESPECT TO THE
BUYING AND SELLING AND THE BORROWING
AND LENDING OF LISTED SECURITIES,
THE VALUES OF SUCH SECURITIES
AND THE EFFECTS OF SUCH
PRACTICES
PART 2
APRIL 23, 26, MAY 19, 20, 21, AND JUNE 3, 1932
Printed for the use of the Committee on Banking and Currency
119852
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1932
COM M ITTEE ON BANKING AN D CU RRENCY
FETES NORBECK, South Dakota, Chairman
SMITH W. BROOKHART, Iowa.
DUNCAN U. FLETCHER, Florida.
PHILLIPS LEE GOLDSBOROUGH, Maryland. CARTER GLASS, Virginia.
JOHN G. TOWNSEND, J r., Delaware.
ROBERT F. WAGNER, New York.
ALBEN W. BARKLEY, Kentucky.
FREDERIC C. WALCOTT, Connecticut.
ROBERT J. BULKLEY, Ohio.
JOHN J. BLAINE, Wisconsin.
CAMERON MORRISON, North Carolina.
ROBERT D. CAREY, Wyoming.
JAMES E. WATSON, Indiana.
THOMAS P. GORE, Oklahoma.
EDWARD P. COSTIGAN, Colorado.
JAMES COUZENS, Michigan.
FREDERICK STEIWER, Oregon.
CORDELL HULL, Tennessee.
J u l ia n W . B l o u n t , Clerk
H obacb R. J a c k s o n , Assistant Clerk
CONTENTS
Testimony of—
Pa*e
Bolles, Norman T., New York (president Indian Motocycle C o.)------593
Bragg, Thomas E., New York__________________________________ 406,465
Breen, George F., Rye, N. Y_____________________________________
549
Content, H., New York__________________________________________
596
606
Cornell, R. J., Jersey City, N. J__________________________________
Gray, William A. (committee counsel), relative to stock of Radio
Corporation of America_________________________________________
517
Relative to Anaconda Copper________________________________
756
Hansell, Howard F., jr., New York______________________________
584
Higgins, Joseph E., Green Haven, N. Y___________________________
750
Kenny, Thomas A.-E. W. Clark & Co., correspondence--------------------378
Knight, Edward P., accountant, New York________________________
385
La Guardia, Hon. F. H., Member of House of Representatives from
440
New York____________________________________________________
Levenson, John J., White Plains, N. Y__________________________ 601,618
Lion, David M., New York_______________________________________
672
McConnachie, James F., New York (member of the firm of M. J.
Meehan & Co.) ________________________________________________
492
McConnachie, James F. (resumed)_______________________________
517
Mitchell, Charles E., New York (chairman National City Bank)___
767
O’Brien, Esmonde F., New York__________________________________
502
O’Hanlan, Joseph F., Philadelphia (accountant)_________________
757
Raskob, John J., Centerville, Md. (director General Motors Corpo
ration ________________________________________________________
712
Rules, extracts from (of the New York Stock Exchange)-----------------670
Sachs, Walter E., New York City (member of firm of Goldman,
Sachs & Co.)--------------------------------------------------------------------------566
Smith, Bernard E., New York____________________________________
425
Warner Bros., Pictures (copy of certain publicity)-----------------------655
Warner, Harry M., Mount Vernon, N. Y. (president of Warner
Bros. Pictures ( Inc.) ) _________________________________________
622
Weeks, John L., New York (member of the firm of Luke, Banks &
Weeks)_______________________________________________________
531
ra
STOCK EXCHANGE PRACTICES
SA TU R D A Y. AFRIT. 23, 1932
U
C o m m it t e e
n it e d
on
B
S tates S e n a te ,
C urrency,
a n k in g a n d
W ashington, D. C.
The committee met at 10.30 o’clock a. m., pursuant to adjournment
on yesterday, in room 301 Senate Office Building, Senator Peter
Norbeck presiding.
Present: Senators Norbeck (chairman), Brookhart, Townsend,
Walcott, Couzens, Watson, Fletcher, Glass, and Barkley.
Present also: William A. Gray, Esq., counsel to the committee.
The C h a i r m a n . The committee will come to order. You may pro
ceed, Mr. Gray.
Mr. G r a y . Mr. Chairman, we have prepared certain charts show
ing the range of the market as to certain pivotal stocks over a period
of time, and at the same time showing upon these charts the short
position from day to day so that a comparison can be made. We are
handing these charts to the committee reporter, for the purpose of
your record, in order that you may have them and examine them
at such time as you wish. I am now offering them in evidence.
The C h a i r m a n . They will be received and appropriately marked
by the committee reporter.
(The charts offered by counsel to the committee were identified by
being marked as follows:)
Chart as to American Can, Exhibit 39. Chart as to American Telephone &
Telegraph Co., Exhibit No. 40. Chart as to J. I. Case Co., Exhibit No. 41,
Chart as to Consolidated Gas Co. of New York, Exhibit No. 42. Chart as to
E. I. du Pont & de Nemours Co., Exhibit 43. General Electric Co., Exhibit 44.
General Motors Corporation, Exhibit 45. New York Central Railroad,
Exhibit 46.
Mr. G r a y . And, Mr. Chairman and gentlemen of the committee,
without any further comment I will, with your permission hand to
the committee reporter some correspondence that has passed between
the brokerage firm of E. W. Clark & Co. and Thomas A. Kenny
and between Thomas A. Kenny and the committee on business con
duct of the New York Stock Exchange, so that this correspondence
may also be placed in your record. The purpose of offering the cor
respondence is to show you what in this particular instance was done
for the purpose of compelling Mr. Kenny to sign the authorization
to E. W . Clark & Co. permitting them to loan his stock, although
he objected to signing it.
The C h a i r m a n . If there is no objection, the correspondence will
be copied into the record.
377
STOCK E X CH A N GE PRACTICES
378
(The Thomas A. Kenny-E. W. Clark & Co. correspondence is as
follows:)
___
New Y
ork
S tock E
xchange
on
B
C o m m it t e e
C onduct,
u s in e s s
A p r il
T
homas
A. Kenney, E
18, 1932.
s q .,
Manayunh, Philadelphia, Pa.
Sir: With reference to your letter of April 9, 1932, the correspondence
with you has turned so specifically to the relations between yourself and your
brokers in connection with the separate agreement covering the loaning oi
stocks which they have requested you to sign that the committee on business
conduct feels that further communication with you can be more intelligently
carried on if it is given an opportunity to inquire into the facts. Will you not
please supply the name of your brokers for this purpose?
Yours very truly,
D eas
L . R . H a r r is o n ,
Secretary of the committee.
P
M r. L . R . H
h il a d e l p h ia ,
P
a .,
April 19, 1932.
a k r is o n ,
Secretary Committee on Business Conduct,
Newi Yorh Exchange, New York City.
D e a r S i r : With reference to your letter of yesterday, I am gratified to know
that your committee will inquire into the facts of the case. I am, therefore,
inclosing a brief outline of my side of the controversy, which I trust you will
consider in making the inquiry.
Upon receipt of a request for me to sign a loan-authorization form, I noti
fied my brokers, E. W. Clark & Co., Sixteenth and Locust Streets, Philadelphia,
Pa., that I preferred not to do so. I fully explained my position to the cus
tomer’s man with whom I did business, Mr. John A. Murphy. I told him I
was entirely willing to sign an agreement whereby I would authorize the loan
ing of any of my securities to any of the firm’s customers, to avoid buy ins,
etc. But in the event that any of my securities were loaned through the “ loan
crowd ” or other brokers, I would expect to receive a fair portion of any pre
miums collected. I further stated that I felt I should obtain some benefit from
the lower interest charges on stocks loaned. (My brokers have increased their
monthly interest charges very regularly—the rate was increased three-fourths
per cent in October, 1931; an extra one-fourth per cent in November, 1931; still
another one-fourth per cent in December, 1931, and on April 1 added still
another one-half per cent to the T a t e .)
About the same time I fully explained my feeling to the manager of the board
room, Mr. Graham Dougherty, and told him in effect the same thing.
About a week later I received a letter, which I considered the equivalent of
a demand to sign such an authorization as written.
Some days later the firm notified me (March 29) as follows: “ We are sorry
to inform you that we can no longer carry in your account $5,000 Central Zone
Bonds 6’s of 1936, as there is no actual bid for the bonds. As of the close of
business to-night, your account is undermargined to the extent of $200, and we
would appreciate an immediate response.
Very truly yours,
E. W. C l a r k & Co.,
Per A. P. Z o o k .
The above letter contained a postscript: “ Kindly sign and return to us the
inclosed loan authorization letter.
I spoke to the margin clerk, Mr. Allen Zook, upon receipt of this letter and
told him my figures showed that after the 5,000 bonds in question were elimi
nated my account was not undermargined. As a matter of fact, the value of
my securities held, based on the closing prices that day, were $670 in excess of
my requirements, not taking into consideration $150 of dividends payable A pril 1Mr. Zook told me they had sent 2,000 shares of National Dairy (I have 200
shares N. P. T. in my account) to the loan crowd and were anxious to get all
owners of this stock to sign the forms. I likewise told him just how I felt about
signing, and stated I would not sign such a form unless forced to.
My monthly statement was not received by me until Monday, April 4 ; it
clearly showed the interest charge had been erased and apparently changed.
STOCK EXCHANGE PRACTICES
379
Upon inquiring into the reason for another increase (I was told the first of the
previous month to expect a lower interest charge for March), Mr. Sewell Clark,
one of the partners, frankly told me that more than 90 per cent of their cus
tomers had signed “ on the dotted line ”—how many were forced to do so I do
not know—and that only some 16 or so had refused to do so. He frankly
admitted that he had issued instructions to increase the interest charges on the
accounts that had refused to sign. Please note this was retroactive.
I gave up and signed (very, very, very reluctantly) the loan-authorization as
drawn up by the brokers, with the understanding the extra one-half per cent
penalty would be remitted, which was done. A letter received to-day by me
from the broker concludes: “ We suggest you make arrangements to have your
business handled by some one who would do it more to your satisfaction.”
Respectfully yours,
P
h il d e l p h ia
W
aste
M
erchants
A
s s o c ia t io n ,
Philadelphia, Pal, April 13, 1932.
C o m m it t e e
on
B
a n k in g
,
United States Senate, Washington, D. C.
G e n t l e m e n : Re investigation of New York Stock Exchange, may I submit
the inclosed file to your committee, with the hope that the present investigation
of the New York Stock Exchange will include the matter of a proper division
of premiums collected.
The recent resolution approved by the exchange, on February 18, 1932, turned
out to be merely a “ joker.” The exchange makes no attempt to correct the
corrupt and evil practices now prevailing, with the result that holders of
“ long ” securities are caught in a vicious cycle, from which there is no escape.
The exchange insists upon receiving “ authority” to lend customer’s stocks,
but very cleverly evades making any mention as to whom should receive
premiums which are daily collected. The practice is that the brokers keep
these.
I feel that any broker who obtains “ authority ” to lend a client’s securities
does so as an agent. I can not see where the broker has any legal right to
retain the amount he has collected for the use of his client’s property.
In view of the fact that brokers always obtain the full market price as a
deposit against the loan of any securities, and that no bank or banking institu
tion could think of lending more than, say, 75 per cent, it is obvious that
brokers are more than eager to lend securities which they do not own at every
opportunity.
If they could be compelled by law to pass on to the rightful owner the
benefits received, I think it would go a long way toward correcting the evils
complained of.
Trusting your committee will give this matter serious consideration, and may
I ask that you return to me the inclosed files at your convenience.
Sincerely yours,
T
homas
A. K
enny,
Philadelphia, Pa.
P h i l a d e l p h i a , P a ., April 9, 1982.
Mr. L. R. H a b b i s o n ,
Secretary Committee on Business Conduct,
New York Stock Exchange, New York City.
D e a r S i b : Thank you for your letter of the 4th instant inclosing the copies
of Mr. Whitney’s addresses on Short Selling and Short Selling and Liquidation.
I listened attentatively on the occasion of the broadcast of both of these ad
dresses and had read them both in the newspapers and the pamphlets sent me
by mail, and I enjoyed reading them once more.
May I say to you that I am a firm believer in legitimate short selling and
have upheld this practice many, many times in arguments with my friends
who take the opposite view. I have read several books on the subject and
am convinced the practice is sound.
What I am protesting about is that a purchaser o f stocks “ long ” should
have the right to refuse to lend them if he wishes. I am protesting against
the vicious manner in which brokers force their customers to sign the socalled loan authorization. I told you in my case, after I had advised my
380
STOCK EXCHANGE PRACTICES
broker exactly how I felt about the matter. I told them I was perfectly
willing to sign a loan authorization provided I would obtain a fair share of
whatever premiums were obtained on my stock. I think you will find that
much of the feeling against short selling is due to the fact that “ honest”
brokers do not pass on to the rank and file of their customers the premium
received, which certainly do not belong to the broker.
Please bear in mind that the “ authority” as drawn up (no doubt by their
counsel) makes no mention about the division of the proceeds obtained from
such lending. The brokers are intrusted with my securities and are privi
leged to pledge or borrow on them, but when it comes to loaning them and
they collect a premium, that belongs to the owner, less, of course, a reasonable
charge for services.
On the matter of lending stocks, Mr. Whitney’s remarks are clearly biased.
He says when a man buys he borrows part of the money; when stocks are
loaned the full value is deposited. If the stocks declined in value, the lender
will require additional collateral provided they have declined below the
margin requirement. This fact was not mentioned in making his comparison.
But when borrowed stocks advance the lender must deposit more money imme
diately. Both methods are therefore not equally fair. X admire his frank
ness in admitting that the exchange opposed any restriction upon the lending
of stocks. But he would be equally frank and say that it also makes no
attempt to correct evil practices arising from this stand.
You state that brokers are making all “ proper” attempts to secure such
consents. After the customer’s man and the margin clerks were unable to
meet the perfectly fair conditions I wished included in the loan authorization,
then the firm itself stepped in. When I obtained my statement last Monday
I noticed the interest charge had been greatly increased. I took this matter
up personally with one of the partners, who frankly told me that over 90
per cent had signed on the dotted line and that only 16 or 17 had not done so.
He frankly admitted that he had issued instructions to increase the interest
charges for the previous month. This was made retroactive. Naturally I
then gave up and signed with the understanding they would correct the
interest to the regular basis, which was done.
I am wondering if this is a “ proper attempt.”
I note your committee has not passed on the form of the separate agree
ments. You did rule that no general form of customer’s agreement shall be
deemed sufficient. While I am not, of course, a member of the exchange, and
frankly admit I have no right or intention of suggesting how to run your
affairs, it does seem to me that some one will lay down definite rules to
follow. Maybe it will be the present Senate Banking Committee. Who knows?
Very truly yours,
T h o m a s A. K e n n y ,
Philadelphia, pa.
N e w Y o rk S t o c k E x c h a n g e ,
C o m m ittee } o n B u s i n e s s C o n d u c t ,
April 4, 19$2.
A. K e n n y , Esq.,
International Trading Co., Philadelphia, Pa.
Dkab Sib : With reference to your letters of March 28 and 31, 1932, I am
directed by the committee on business conduct to say that it has not passed
upon the form of the separate agreements obtained by brokers from customers
covering the lending of securities, preferring to leave the matter of the wording
to the brokers themselves and their counsel.
The matter of the conditions under which a broker will carry an account is
one of arrangement between the broker and the customer, as is also the ques
tion of the division of premiums paid in connection with the lending of the
customer’s stocks.
In respect to the various communications received by you from your brokers
in regard to this authorization, the committee would like to point out that
naturally brokers have made and are making all proper attempts to secure
such consents because of the strong desirability from the public interest of a
free and open market in which the borrowing of stock is required for any
number of reasons, such as delays in receipt in New York on account of outof-town shipment, location of stock in a safe-deposit box, short selling, etc.
T homas
381
STOCK EXCH A N GE PRACTICES
There is some general feeling to the effect that the lending of stock is gen
erally necessitated by the short interest. In this connection, I am inclosing
copies of addresses recently delivered by the president of the exchange on the
subjects of Short Selling and Short Selling and Liquidation.
I am also returning herewith the form of authorization which you submitted.
Very truly yours,
L . R . H a r r i s o n , Secretary of the Committee.
Mr. L. R. H a r r i s o n ,
P h i l a d e l p h i a , P a ., March SI, 1982.
Secretary Committee on Business Conduct,
New York Stock Exchange, Netv York City.
Dear Sib : Referring further to my letter of March 28 in which I asked you
to kindly return to me the letter I attached to my original letter (dated March
25 and referred to you for reply), will you please see that this is promptly
returned to me?
I particularly wish to have my file en the matter complete as the indications
are that I may need the letter in question.
Since writing you on the 28th (which letter incidently has not as yet been
acknowledged or answered) I have received the third request to sign a loanauthorization letter.
This one (received yesterday) informs me that my broker can no longer
carry $5,000 of my bonds as there is no actual bid on same. They advise
me my account is, therefore, undermargined and request the large sum of
$200. There is a P. S. on this letter: “ Kindly sign and return to us the
inclosed loan-authorization letter.”
As a matter of fact, after eliminating the $5,000 bonds in question there
remains excess margin of over $2501 as of March 29 (the day the letter was
sent me). This was further increased by about an additional $200 yesterday.
I am watching with interest just how far the broker will go to try and
force me to sign something I have no intention of doing, and for that reason
wish to have all the papers complete.
Trusting you will give this matter your immediate attention.
Very truly yours,
T
homas
A.
K
enny
,
Philadelphia, Pa.
P h i l a d e l p h i a , P a ., March 28, 1932.
Mr. L. R. H a b b iso n ,
Secretary Committee on Business Conduct,
New York Stock Exchange, New York City.
D e a r Sib: Your letter of March 26 does not answer the question I asked
in my letter of the 25th instant.
I quoted the exact wording of the third paragraph of the resolutions of
the governing committee of February 18, as follows:
“ Further resolved, That no form of general customer’s agreement, even
thought it includes specifically the right to lend securities, shall be deemed
sufficient compliance with this resolution, but such right shall be evidences
by a separate authorization in writing.”
I inclosed the “ form ” sent me by my broker, and asked if this was in com
pliance with your ruling. Is it?
Please return the above-mentioned form to me.
I am indeed gratified to know (officially) that the position of the exchange
is that if a broker does not desire to carry an account without the authority
to loan securities, so that he can appropriate to himself all premiums, etc.,
which not even the exchange can possibly justify, a client can secure another
broker. I did think the exchange was about to try a “ noble experiment ”
but I now find it was but an “ idle gesture.”
Wasn’t it Lincoln who said something about fooling some of the people
some of the time, etc.?
Respectfully yours,
T h o m a s A. K e n n y .
P. S.—When customers are advised at “ stated periods ” of their “ rights ”
why not save time and add the words “ Then get another broker.”
1 S h ou ld r e a d $ 07 0 excess (w r itte n in p e n c il).
STOCK E X CH A N GE PEACTICES
382
New
Y ork Stock E x ch an g e,
C o m m it t e e o n B u s in e s s
C onduct,
March 26, 19S2.
T
homas
A. K
enny,
E
s q .,
International Trading1 Co., Philadelphia, Pa.
D e a b Sir: Your letter of March 25, 1932, has been referred by the secre
tary of the exchange to the committee on business conduct by whom I am
directed to say that the separate authority to lend referred to in the resolu
tion of the governing committee of February 18, 1932, was not intended to be
obtained for each specific lending of securities, but to cover the general right
to lend in the future, subject to revocation by the client.
Where you are unwilling to sign such a separate authorization, there can
be no compulsion upon you that you do so. If your broker does not desire
to carry the account otherwise, your obvious course is to secure another
broker who is willing to transact your business without such authority.
Yours very truly,
L . R . H A RR ISO N ,
Secretary of the Committee.
P
Mr.
A
sh bel
h il a d e l p h ia ,
P
a
.,
March 25, 1932.
Green,
Secretary Governing Committee,
New York Stock Exchange, New York City.
D e a b Sir: Referring to the resolution passed on February, 18, 1932, regard
ing the loaning of margin customers securities, may I kindly ask if the intent
of the second paragraph was to the effect that a broker should obtain separate
or specific authority each time said securities are loaned?
The resolution specifically states that no general form of customer’s agree
ment, even though it includes specifically the right to lend securities, shall be
deemed sufficient compliance with this resolution, but such right shall be evi
denced by a separate authorization in writing.
Is not the inclosed form a general form under the meaning of the third
paragraph? Should not my brokers obtain from me written authority to lend
a specific block of shares, such authority good only for the shares mentioned?
On March 7, 1932, I received a letter from my broker, “ hoping I would be
willing to sign ” the inclosed most general form. I did not sign it. To-day
I receive the equivalent of a demand, which is herewith attached. As brokers
can easily force any margin customer to sign, it seems to me, if any such gen
eral form is upheld, the governing committee might have saved the time and
expense of attempting to enforce the resolution in question.
Does not the inclosed authorization (which to my mind certainly is a general
form) attempt to do exactly what the resolution demands not be done?
Thanking you for an early reply,
Respectfully yours,
T h o m a s A. K e n n t .
E. W.
& Co.,
Philadelphia, Pa.
D e a b S i r s : You are hereby specifically authorized, from time to time to loan,
either separately or with other securities, to yourselves as brokers or to others
any securities held on margin for my account. This authorization shall con
tinue until terminated by written notice given to you, which I understand it is
my privilege to give at any time.
Very truly yours,
Clark
MEMORANDUM
Tfie actual market values of the securities held in my account as of March
29 was $23,150. Margin requirements $22,478.
Excess margin was $672 after eliminating Central Zone bonds. (The above
does not include $150 for dividends payable April l.)
Securities held:
383
STOCK E X C H A N G E PRACTICES
C lo sin g p rice A p ril 29
200 shares National Dairy Products, at 26^4---------------------------$5,300.00
200 shares United Corporation, at 7%________________________ 1,575.00
5.000 Ice Service Corporation 6V> per cent bonds at 60 (interest
107.10
$107.10)___________________ _______________________________
5.000 Republic of Estonia 7 per cent bonds, at 36 (interest
$84.33)___________________________________________________
1,884*. 33
4.000 Arkansas Power & Light 5’s, at 82 (interest $98.79)-------- 3,378.79
4.000 Philadelphia Electric -i^'s bonds, at 97% (interest $74.50) _ 3, 984. 50
4.000 Southern California-Edison 5’s bonds, at 96% (interest
3,919.40
$49.40)___________________________________________________
Total actual market value________________________________ 23.150.00
Margin requirements____________________________________________ 22,478.00
Excess_______________________________ ___________________________
672.00
P h i l a d e l p h i a , P a ., March 29, 1982.
Jr.,
Philadelphia, Pa.
D e a b S i b : We are sorry to inform you that we can no longer carry in your
account as collateral $5,000 Central Zone building 6’s of 1936, as there is no
actual bid for the bonds.
As of the close of business to-night, your account is undermargined to the
extent of $200 and we would appreciate an immediate response.
Very truly yours,
E. W. C l a b k & Co.,
By A. P. Z o o k .
P. S. Kindly sign and return to us the inclosed loan authorization letter.
Mr.
Thomas
A.
K
enny,
P h i l a d e l p h i a , P a ., March 2If, 1932.
Jr.,
Philadelphia, Pa.
D e a b Sib: Some time ago we mailed you authorization to loan securities
which was to be signed by you and returned to us. As we have not as yet
received this signed authorization we are mailing a duplicate to you which
kindly sign and return to us before April 1.
Very truly yours,
E. W. C l a r k & Co.
By J o h n A. M u r p h y .
Mr.
T
homas
A.
K
enny,
MEMORANDUM
I notified Mr. John A. Murphy (customer’s man, E. W. Clark & Co.) also
Mr. Graham Dougherty, manager of board room, that I was perfectly willing
to sign a “ loan authorization ” by which they could loan any of my securities
for the purpose of making prompt delivery and to avoid “ buy-ins” for their
own customers.
I told them that I would be willing to authorize them to loan my securities
to brokers provided I would be credited with any premiums received, less a
reasonable commission charge.
I explained to them that I believed that the owner of any securities was
entitled to any premiums obtained from the loaning of his securities.
Neither could agree to this condition, and I refused to sign the agreement in
the form submitted.
T. A. K.
M a r c h 8 , 1932.
Mr.
Jr.,
P h i l a d e l p h i a , P a ., March 7, 1932.
Philadelphia, Pa.
D e a b S i b : We inclose herewith copy of resolutions adopted by the governing
committee of the New York Stock Exchange at a meeting held on February 18,
1932, relating to the lending of customers’ securities purchased on margin.
T
homas
A.
K
enny,
384
STOCK EXCHANGE PRACTICES
By your present agreement with us you have authorized tis to lend your
securities either alone or with other securities. It now becomes necessary that
we have a separate authorization relating to the lending -of your securities,
effective as of April 1, 1932. Until that time the part of your present agree
ment which relates to the lending of your securities will remain in effect unless
terminated by you by written notice to us.
Those who are conversant with the details of the brokerage business will
realize that it is very frequently necessary for brokers to borrow securities for
their clients in order to make prompt deliveries and also to avoid “ buy-ins,”
which would be costly to our customers. It is, therefore, obvious that, in view
of the above ruling of the New York Stock Exchange, the business of our clients
will be much facilitated by their cooperation in granting specific permission
to lend their collateral securities just as they have done in the past under the
present agreement contained in our margin release card.
We hope you will be willing to sign and return the inclosed letter so that
we may continue to furnish prompt and efficient service. A stamped, addressed
envelope is inclosed for your convenience.
Yours very truly,
E. W. C l a r k & Co.
N e w Y ork S t o c k E x c h a n g e ,
February 18, 193$.
To the Members of the Exchange:
At a meeting of the governing committee held on February 18, 1932, the
following resolutions were adopted:
“ Whereas it has been stated that customers in some instances do not appre
ciate that ttie usual form of customer’s agreement permit brokers to lend securi
ties purchased on margin, and it has also been stated that some customers are
not aware of the fact that they have the right to revoke any authorization to
lend securities which they may have previously given to their brokers; it was
“ Resolved, That members of the exchange shall not, on and after April 1,1932,
lend, either to themselves as brokers or to others, securities held on margin for
customers unless they shall have obtained separate authorization in writing
permitting the lending of such securities; it was
“ Further resolved, That no general form of customer’s agreement, even
though it includes specifically the right to lend securities, shall be deemed suffi
cient compliance with this resolution, but such right shall be evidenced by a
separate authorization in writing; it was
“ Further resolved, That in the case of the accounts of all new customers
opened after the date hereof the requirement of such separate authorization
in writing for the lending of securities shall apply; and it was
“ Further resolved, That the committee on business conduct may, at its dis
cretion, require that members shall at stated periods bring to the attention
of all customers their right to revoke any authorization theretofore given for
the lending of securities.”
A s h b b l G reen , Secretary.
E. W.
& Co.,
Philadelphia, Pa.
Dear Sirs : You are hereby specifically authorized, from time to time to loan,
either separately or with other securities, to yourselves as brokers or to others
any securities held on margin for my account. This authorization shall con
tinue until terminated by written notice given to you, which I understand it is
my privilege to give at any time.
Very truly yours,
Clar k
The C h airm an . I will say that this Saturday session w ill not be a
long one. We want to conclude, if we can, by 12 o’clock and pos
sibly then have a short executive session. The first witness w ill be
Edward Knight, but two other men on whom subpoenas could not
be served have announced that they will be here during the m orning,
I understand. They are Bernard E. Smith and Thomas E. B ragg.
The plan will be to put them on the witness stand and devote such
STOCK EXCHANGE PRACTICES
385
time as we can to them, getting started with them, and then have
them come back at a later date.
Now, will Mr. Knight come forward and be sworn ?
Mr. K night . Yes, sir.
The Chairman . Hold up your right hand: You do solemnly swear
that what you will tell the committee in this investigation will be the
truth, the whole truth, and nothing but the truth regarding matters
now under investigation by this committee, so help you God.
Mr. K night . I do.
TESTIMONY OP EDWABD P. KNIGHT, ACCOUNTANT, RICHMOND
H H I, BOROUGH OF QUEENS, NEW YORK, AT PRESENT EM
PLOYED BY THE UNITED STATES TARIFF COMMISSION
Mr. Gray. Mr. Knight, will you give the committee reporter youi
full name, please?
Mr. K night . Edward P. Knight.
Mr. G ray . Where do you reside ?
Mr. K night . In New York.
Mr. G ray. Where?
Mr. K night . Richmond H ill, Borough of Queens.
Mr. G ray. And what is your present business or profession?
Mr. K night . I am employed as an accountant at the United States
Tariff Commission.
Mr. G ray . You are an accountant, that is your profession?
Mr. K night . Yes, sir.
Mr. G ray . Have you ever been employed by brokerage houses, not
as accountant but I mean before you became an accountant ?
Mr. K night . Yes, sir.
Mr. G ray . Over what period of time?
Mr. K night . For practically 10 years.
Mr. G ray . For how long have you been an accountant?
Mr. K night . About seven years.
Mr. G ray . Did you say for a period o f about seven years?
Mr. K night . Yes, sir.
Mr. G ray . During the period o f time of your employment by
brokerage houses, and also as accountant, have you come m contact
with the workings of brokers?
Mr. K night . Yes, sir.
Mr. G ray . And the buying and selling o f stocks ?
Mr. K night . Yes, sir.
Mr. G ray . Has your work as an accountant been specialized at all ?
Mr. K night . In W all Street brokerage accounting; yes.
Mr. G ray . As to brokerage house accounting entirely?
Mr. K night . Yes, sir.
Mr. G ray. N ow , some of the questions I will propound to you may
be a repetition of matters we have gone into, but I want to get your
view. W ill you tell this committee just what a pool is?
Mr. K night . Yes, sir. A pool may be organized for any one of
several purposes. One purpose is to buy stock in order to acquire
control, which will not necessarily cause fluctuations in the stock
very much. Another purpose is to liquidate securities, to sell securi
ties fo r some reason or other, and that will not change the value of
the stock to a very great extent. But the other pool operation is a
386
STOCK EXCH A N GE PRACTICES
combination of men pooling their resources in order to manipulate a
security for profit only. I believe that is the ldnd of pool that has
been particularly discussed here.
Mr. G r a y . And that may be done either on the up side o f the
market, with a desire to raise or boost stock in order to make a profit
for themselves; and it may be done for the purpose of depressing
stock and making money for themselves on the short side o f the
market.
Mr. K n i g h t . In either case it is primarily for profit; yes, sir.
Mr. G r a y . Have you known in your experience o f instances o f
pools, and we will start with the up side of the market, that have
operated on the up side of the market ?
Mr. K n i g h t . I h a v e .
Mr. G r a y . And a pool, of course, is a combination of men ?
Mr. K n i g h t . A combination of one or more men—no, pardon me,
it has to be two or more men.
Mr. G r a y . Will you tell me from your own knowledge and from
what has actually happened and come to your notice, as to how a pool
operates for the purpose of advancing prices?
Mr. K n i g h t . It is first necessary to make a survey of the particu
lar stock that is about to be inflated. Then, after all the members
of the pool are satisfied with the stock—for instance, that it has a
small capitalization or a small floating supply—and the pool finally
signs an agreement and deposits certain moneys? according to the
agreement, then the next thing to do is to enlist the aid o f the
specialist in that stock.
Mr. G r a y . D o you mean to say that in each instance where a pool
is operating—that is, I mean operating with the desire and for the
express purpose of inflating prices of stocks in a way other than
would naturally occur—that they need to invoke the aid o f the
specialist ?
Mr. K n i g h t . It could not very well be done without the aid of the
specialist in that particular stock.
Mr. G r a y . All right. We will come back to that later on, and I
will ask you about the operations of specialists in stocks, but you may
now go on with your description o f the method followed by such
a pool.
Mr. K n i g h t . The objective will then be to set a certain figure, say,
very much higher than the present market, and stock will be acquired
as slowly and easily as possible, without making much of a change
in its price. Sometimes trouble is encountered in the taking o f that
stock. For instance, on the specialist’s book there might be orders
which we call stop-loss orders^ which means that several people go in
and buy stock figuring there is going to be a move in the stock, and
then in order to protect themselves trom loss they enter a sale order
probably two or three points, or as far as their margin will allow
them to
in order to absolutely protect themselves if the market
should go far.
Mr. G r a y . In other words, you mean if they are buying for profit
they will give a protecting order, which will be lodged with the
specialist, stopping their position a point or two points below that
a M K
^ eT
ase<^’ *n or(^er that they may stop their loss?
STOCK EX C H A N G E PRACTICES
387
Mr. Grat. Then, as a matter of fact, when such an order is given,
the minute that that stock touches that point it means that that man
automatically goes out of the market.
Mr. K night . It means that it becomes a market order, and the
stock is immediately sold.
Mr. G r a t . And the first stock that is available is sold for his
Account?
Mr. K night. Yes, sir.
Mr. G r a y . And a pool that is operating on the up side means that
some of those stoploss orders may be touched off?
Mr. K night . They might be long 20,000 or 30,000 shares at any
time, and it is necessary for the pool, with the aid of the specialistr—
And I wijjL stop to explain that without that aid they would not know
what stop orders are in the book—but it is necessary for them to con
centrate the selling in lots of 5,000 or 10,000 in order to depress that
stock, and as it is going down it will get the stops.
Mr. Grat, Jn your experience in connection with stock-market
matters have you found that these pools operating for a rise will
frequently—and you used the expression “ going down,” while the
expression I have heard is “ reach ’—have you found that they reach
for these stop-loss orders?
Mr. K night. Yes, sir.
Mr. G r a t . Jn other words, they will depress the market tem
porarily in order to get those individuals with stops out?
Mr. K night- Yes; in order to get those individuals out of the
market.
Mr. G r a y . Does that occur frequently ?
Mr. K night . Yes, sir; it is a matter of common knowledge.
Mr. G r a y . And then the pool goes ahead ?
Mr. K night . While the real rise in value is on. They keep taking
stock as fast as they can. There is always a bid in there for the
Stock.
Mr. G r a y . They absorb stocks, you mean ?
Mr. K night . That is right. And when they find that there is not
much in the way of selling orders on the specialist’s book, the time
has come for them to put in their own orders collectively. That is,
in one large amount of stock, and the stock on the strength of those
orders will rise several points. Now, as it is going up, why, as you
will see, their position has been accumulated at lower levels, and
when the stock is going up that is the time when the pool starts to
sell. They do not sell when it reaches the top, but below.
Mr. G r a y . They start to unload, then, in reasonably small quan
tities ?
Mr. K nigh t . Yes, sir.
Mr. G r a y . Now, let us see if we understand that clearly. We will
say with an objective of six points above the market, after they have
secured their position at as low a price as they could, then it is about
ha’ *
^^
J ' to unload?
Mr. G ray. So that by the time they have reached their objective
they are entirely clear .of the stock?
Mr. K n ig h t. Yes, sir. And sometimes the stock goes beyond their
objective, but then they have no further interest in it, not unless there
is some /other reason.
388
STOCK EXCHANGE PRACTICES
M r G ray . Y ou mean that usually these pools work for a definite
objective ?
Mr. K night . Yes, sir.
M r. G ray . N ow , tell me about the operations of pools for the pur
pose of depressing prices.
Mr. K night . Let me explain a little further on that subject while
I am on it.
Mr. G ray. Certainly.
Mr. K night . It is necessary to use more skill on the up side than
on the down side. In other words, it is easier to depress stocks than
to raise them.
Mr. G ray . In other words, the short interests have the easier road?
Mr. K night . Liquidation is forced into the market in much easier
fashion than is buying support.
Mr. G ray . In other words, it is easier to depress prices than to
raise them?
Mr. K night . Yes, sir. And when a pool is selling stock they must
take any bids that come, and on that side of the market stock can
come in so fast that it may overwhelm the brokers, and naturally they
gain their objective easier.
Mr. G ray . In other words, it brings in other liquidation?
Mr. K night . Yes, sir; and it is not necessary, always, to have
the specialist enlisted to depress a security. As I have said, they
can offer stock any way they want to, but it is always best to have
the specialist’s aid enlisted, because he knows exactly the position
of the buying. There may be a strategic moment when on the buy
side there is no support, and there might be bad news, and they
might offer 5,000 or 10,000 shares o f stock, and push the stock
down, and they will have absolutely no opposition.
Senator F letcher. Then those operations depend somewhat on
conditions?
Mr. K night . Yes, sir; they wait for a favorable moment.
Senator F letcher. For instance, prior to September o f 1929 it
did not require much of an effort to boost stocks ?
Mr. K night . No, sir.
Senator F letcher. They did not have much trouble then about
raising prices?
Mr. K night . No, sir; almost everybody wanted to buy at that
time.
Senator F letcher. And after that, of course, the condition
changed.
Mr. K night . After that there was forced liquidation.
Senator F letcher. Was there much in the way o f pool opera
tions prior to September of 1929?
Mr. K night . Yes, sir; there was a quantity of it. There was one,
o f course, as we all know, the radio pool which was the largest at
that particular time. Radio stock rose to $500 a share, I believe,
and if I recall correctly it was not on a dividend-paying basis. It
was therefore on a pretty false value basis, as you can see.
Senator F letcher. Do these pools, when they seek to depress
prices, operate more at a time when prices are going up ?
Mr. K night . It is usually on the up side.
Mr. G ray . Y ou are talking, now, about pools for the rise?
Mr. K night . Yes, sir.
STOCK EXCHANGE PRACTICES
389
Senator C ouzens. D o you know the names of any of these spe
cialists that you refer to ?
Mr. K night . I do not know their names, offhand. They change
from time to time, and one would have to be in almost constant
touch with a particular stock, or with the movements of the special
ists on the floor. A man may go in and handle a particular stock
for a while, and then feel that he does not want to handle it any
longer, and go to another stock.
Senator C ouzens. But do you know the names o f any specialists?
Mr. K night . Not now; but I could get the information for the
committee if they wish to ask for it.
Senator C ouzens. I think we would like to know the names o f
some of the specialists so that we might inquire o f them.
Mr. K night . I doubt if I could give them to you now.
Mr. Gray . I will say, Senator Couzens, that the New York Stock
Exchange could give us the names o f all specialists.
Senator C ouzens. Are they all registered?
Mr. G ray . Yes, sir.
Senator B arkley. And do they know what stocks they are spe
cializing in?
Mr. K n i g h t . Yes, sir; they kn ow that.
Senator B arkley. D o you know who was specializing in radio?
Mr. K night . Yes, sir; m 1929.
Senator B arkley . And who was it?
Mr. K night . M. J. Meehan.
Senator B rookhart (presiding). Mr. Knight, you mentioned the
fact that these specialists have charge o f the stop-loss orders. Have
any others a right to that knowledge or would it be a betrayal to
give it to them!
Mr. K night . It is a betrayal. To give out any information o f
an order given to a broker, whether it be in the matter of stocks
or real estate or otherwise, would be a betrayal, to give it out.
Senator B rookhart. I f he gives it to the specialist!
Mr. G ray . N o; Senator Brookhart, the specialist must have it,
but what Mr. Knight is saying is, if the specialist turns that in
formation over to anyone operating a pool it is a betrayal.
Senator B rookhart. Oh, that is it.
Mr. K night . Yes, sir. In other words, orders in the specialist’s
book are confidential information. And of course if you were to
place an order you would not want anybody to know about it.
Senator B rookhart. The principal business in these stock opera
tions, as it seems to me, is betraying the public; isn’t that it?
Mr. K night . It would seem that more or less o f it has been.
Of
course I should say that I have never purchased a share o f stock.
I am not prejudiced either way, but I know the right or the wrong
of it from what I have seen.
Senator B rookhart. W ell, I think you are telling us what is
wrong about their operations, and showing us a very much better
view o f the New York Stock Exchange than the president of that
exchange did.
M r. K night . Well, of course I will say that he has real knowledge
of the workings of the exchange.
Senator C ouzens. Well, as to that, Senator Brookhart, I think
we might use our own judgment, and perhaps a little imagination.
119852—32—PT 2------2
390
STOCK EXC H A N G E PRACTICES
Mr. G r a y . Mr. Knight, is there anything distinct about the opera
tions of a pool for the purpose of depressing stocks— that is,
operations of a pool on the short side—that differs from the opera
tions of a pool for the rise that you want to call the attention o f the
committee to, except its objective?
Mr. K n i g h t . Nothing more, I believe, except that it is not al
ways necessary to have the aid of the specialist. At the same time
it is really of importance if one can obtain that aid, because the
specialist controls the current orders of that particular stock.
Mr. G r a y . You mentioned radio, and I want the committee to
know whatever you can tell them about that. Do you know what
radio was before that pool started to operate?
Mr. K n i g h t . T o give you the exact figure I will say no, I could
not do that, without the proper facts. But it was very low, possibly
: $100 a share or less.
Senator B a r k l e y . It was below 40 originally, wasn’t it?
Mr. G r a y . Y ou mean the old stock, before it was divided up. It
. may have been.
Mr. K n i g h t . I know it reached a peak of $500 a share.
Senator B a r k l e y . And then they split it up five for one.
Mr. K n i g h t . Yes, sir.
Mr. G r a y . And that stock, being a nondividend paying stock, did
reach a price of $500 a share.
Mr. K n i g h t . Yes, sir.
Mr. G r a y . And Meehan was the specialist in that stock ?
Mr. K n i g h t . Yes, sir.
Mr. G r a y . And Meehan was reputed in that instance to be op
erating the pool ?
Mr. K n i g h t . Yes; as far as I know. But of course all o f that
stuff can be shown.
Mr. G r a y . I am not now talking about your knowledge but what
was reputed to be.
Mr. K n i g h t . Yes, sir; he was reputed to have been in a pool in
radio at that time.
Mr. G r a y . And after that radio stock was taken to $500 a share,
being a nondividend-paying stock, it was split five for one.
Mr. K n i g h t . Yes, sir.
Mr. G r a y . And it is now selling around $5 a share only?
Mr. K n i g h t . Yes, sir; which is equivalent to $25 a share for the
original stock.
Mr. G r a y . D o you know whether there was any other house in
that pool except Meehan?
Mr. K n i g h t . Well, I know there was a certain house— it was W .
E. Hutton, I believe.
Mr. G r a y . D o you mean W. E. Hutton & Co.?
Mr. K n i g h t . Yes; they did a lot of clearing for Meehan.
Mr. G r a y . They are brokers in New York and members of the
New York Stock Exchange?
Mr. K n i g h t . Yes, sir.
Mr. Gray. And Meehan besides being a specialist and a member
of the New York Stock Exchange operates the brokerage house of
M. J. Meehan & Co. ?
Mr. K n i g h t . Yes, sir.
STOCK EX C H A N G E PRACTICES
391
Mr. G ray. I wish you would tell me about the specialist, although
if you have covered the subject I do not want you to cover it again,
but I should like for the committee to know the duties of a specialist.
What does he do, what comprises in a general way his duties ?
Mr. K night . When an order is given to a broker to buy at the
market, that broker can devote his time to the particular transaction
involved because it does not require much time. He goes in and
makes a bid, and if there is an offer the trade is made. But-----Mr. G ray (interposing). He does not need to go in that case to
the specialist. I f there is active trading going on in the stock he
simply goes to the post and buys, is that it?
Mr. K night . I f there is active trading going on in the stock, he
goes to the post. He there inquires what the bids and offers are, and
if an offer meets his approval he will bid, or sometimes he bids what
ever he feels he is justified in bidding, and the trade is consummated.
But in the case of an order given at a specified price, either to buy or
sell, that order must be listed with the specialists in that stock, be
cause the broker can not devote his time to that particular stock and
wait for a price to meet the bid. Therefore the specialist, who is
always at the post, takes those orders and lists them in his book.
You understand that he has numerous orders to buy or sell, and
stop orders, and all kinds of orders.
Mr. G ray. And therefore he has the range of the market and some
very important information ?
Mr. K night . Exactly.
Senator F letcher. I f I wanted to buy stock, couldn’t I go out and
buy it ? Have I got to go to the stock exchange ?
Mr. K n ig h t. You have no market outside. It is not likely that
you would attempt to go outside to buy stocks, where you could not
have the advantage of knowing how things were acting and would
get the worst of it.
Senator G lass. Well, does anybody anyhere know about that?
Mr. G ray . And even when a man buys on the stock market he
doesn’t know.
Mr. K nigh t . Well, when you go to the place where a market is
maintained we must agree that it shows the proper market price for
the stock. Where else could one go ? I f a man is in California and
wants to buy United States Steel, we know that that order must be
submitted on the New York Stock Exchange.
Senator B arkley . And that is true, whether it involves speculation
or investment ?
Mr. K night . Yes, sir. You have to go to the place where the
stock is offered most freely.
Senator F letcher. It is sold generally to the public, and all that
you have to find out is whether people are offering the stock ?
Mr. K night . Well, if United States Steel is selling at 30 on thfc
stock exchange, and you went outside, some one might want to pay
them 40 for it.
Mr. G ray . But if there is any individual who owns it and cares
to sell it to you, I mean off the stock exchange, there is nothing to
prevent it?
Mr. K night . No, sir.
Mr. G ray . But such cases are very rare?
392
STOCK EXCHANGE PRACTICES
Mr. K n i g h t . Yes, sir. And when people know it is selling at 3 0
on the stock exchange it wonld be foolish for a man to say: “ You
can have it from me for 4 0 or 5 0,” whichever he prefers.
Mr. G ray. He may desire to hold the stock for an advance.
Mr. K night . Yes, sir. In other words, he may feel that ulti
mately he can get that price.
M r. G ray . I should like to have your description with respect to
the borrowing and loaning of stocks.
Senator B a rk ley. May I ask a question first about specialists?
Mr. G ray . Certainly.
Senator B rook hart (presiding). Proceed, Senator Barkley.
Senator B a rk ley . W hoemploys the specialists and pays them?
Mr. K night . A specialist is a member o f the New Y ork Stock
Exchange who decides to become a specialist in a particular stock.
He makes application to the board of governors, and if they approve
the application, then he is made a specialist, and he is paid through
a certain proportion of the fee of the broker. In other words, i f I
give an order to a broker and the specialist executes that order, the
specialist is supposed to» be paid by the broker. O f course, there is a
range o f fees, but I think the minimum is given, and I think the
amount paid to the specialist is $2.50.
Mr. G ray . What did you say?
Mr. K night . I said $2.50.
Mr. G ray . In other words, a broker gets a certain commission for
either buying or selling stock, and out of that he pays $2.50 to the
specialist.
Mr. K night . He pays $2.50 to the specialist for 100 shares.
Mr. G ray . N o matter what the broker’s commission may be?
Mr. K night . Yes, sir. And then, of course, the commission varies
a little bit according to the price of the stock. On the higher-priced
securities they get a little more for the execution o f orders, but I
believe $2.50 is the minimum.
Mr. G ray . And the specialist in that case carries out the work
which the broker could not afford to carry out because o f the condi
tions you have mentioned?
Mr. K night . N o; the broker could not waste that much time at the
post.
Senator B a rk ley . Could there be more than one specialist in a
stock?
Mr. K night . Yes, sir. I f there is a large amount of trading there
can be more.
Senator B arkley. O f course, specialists on one particular stock
agree as to what their recommendations will be, do they not?
Mr. K night . How was that, Senator?
Senator B arkley . D o specialists give advice as to the purchase or
sale of stocks?
Mr. K night . They might if it would help them any.
Senator B arkley. W ell, is it an inducement to them to give advice
to the purchasers or sellers o f stock because they get a certain fee
out of it?
Mr. K night . Oh, no. They are assured of a certain fee at all
times.
Senator B ark ley. I know; but the more they sell or buy the more
their fees will amount to.
STOCK E X CH A N GE PRACTICES
393
Mr. K n i g h t . Yes; b u t I have not heard o f any cases where they
encouraged the buying or selling of a particular stock.
Mr. G r a y . The vice o,f it is the information they have, or not the
vice, but the improper thing is the advice they give out.
Mr. K n i g h t . It is the manipulation by people by reason of getting
the information.
Mr. G r a y . Tell us about the borrowing and loaning of stocks.
Tell us about the short position.
Mr. K n i g i i t . The only time when there is any demand for stock
is when there is a short position.
Mr. G r a y . Well, tell us about it.
Mr. K n i g h t . There is a so-called market on the stock exchange
called the loan market. They regulate the rate of interest charged
for certain securities. Some securities are not much in demand,
and they may loan at a rate of 1 per cent or 2 per cent on the value
of that particular stock.
Mr. G r a y . Let me interrupt you right there to ask: There is al
ways a call money rate established on the New York Stock E x
change, is there not ?
Mr. K n i g h t . D o you mean for banks ?
Mr. G r a y . No; by the New York Stock Exchange, or not by the
New York Stock Exchange, but, in fact, there is a call money rate
in existence from day to day and it varies, isn’t that so?
Mr. K n i g h t . Yes, sir. A renewal rate also.
Mr. G r a y . And this rate that is fixed for the loaning of stocks is,
as a matter of fact, always less than that call money rate, isn’t it?
Mr. K n i g h t . Absolutely. It has never equalled it, to my knowl
edge.
Mr. G r a y . N o w , go ahead with your explanation. But first, they
fix the rate of interest to be charged in the case of such stocks?
Mr. K n i g h t . Yes, sir.
Mr. G r a y . Now, go ahead.
Mr. K n i g h t . The lender of stock delivers, and he in turn receives
the amount that that stock is selling for at the particular time, and
for the use of that money that he gets from loaning the stock, he
pays interest to the borrower. Is that clear ?
M r . G r a y . Yes; I t h in k so.
Mr. K n i g h t . He pays interest, as I say. Now, sometimes in the
case of securities where there is a demand, they loan flat.
Mr. G r a y . In other words, they loan without any interest charge
whatsoever.
Mr. K n i g h t . Yes, sir.
Mr. G r a y . Now, go ahead.
Mr. K n i g h t . Then when stocks are in great demand, they loan at
a premium. That is, the borrower of such a stock has to pay for
the use of that stock without interest, a certain premium, which
may run from one two hundred and fifty-sixth of $1 to $1 per share
per day.
Mr. G r a y . So that in the case of some stocks, when they are
borrowed, the person who borrows them may have to pay as $1
per day per share.
Mr. K n i g h t . Yes, sir; for the use of that stock.
Mr. G r a y . So that if a person is operating on the short side
of the market, and has to pay such a premium in order for him to
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STOCK EXCHANGE PRACTICES
hold his position and stay -with the stock, that stock has to drop
$1 each day for him to get his cost, or where it was at the inception o f
the transaction.
Mr. K night . Yes, sir; but they do not figure it that way because
it is insignificant, as to that small amount, for they can depress the
stocks 50 or 60 points and very well take care o f it.
Mr. G ray. O f course. But in case o f a stock o f that class, the
short seller has to take into consideration that he must depress the
stock sufficiently to cover that cost before he can make his profit.
Mr. K night. Yes, sir.
Mr. Gray. Go ahead.
Mr. K night . T o my knowledge, the stock loan rate never rises
higher than 8 or 4 per cent. You can see what that means in com
parison with the call-money rate, which went as high as 20 per centr
as we know, in 1919 that to borrow money from banks it was neces
sary to pay 20 per cent interest. In fact, I borrowed some money
for a house that I was working for at that figure.
Senator F letcher. What was that date?
Mr. K night . It was in 1919. Money was very scarce at that timer
and in order to get money you had to pay a nigh rate o f interest.
Tlie stock loan rate, however, was never anywhere near that. That
means that the broker instead o f pledging securities at a bank and
paying the current rate o f interest that banks charge, which was
the renewal rate, they go and loan stocks, where they can get it at
a much lower rate. And besides that, they can do it without putting
up collateral in addition to the amount o f 25 per cent. When you
pledge 100 shares of stock in a bank you know it is necessary in order
to get $10,000 to put up $12,500 or $13,000 worth o f stock to obtain
that money. So it is necessary for a firm not only to go into its
own capital but to use their customers’ money also in the case o f
borrowing at the bank, whereas they can loan stock and they are
absolutely even. They do not have to touch one bit o f their capital.
So you can see how they can extend their business as far as they
want to go if they are heavy lenders of stocks.
Mr. G ray. I f it so happens that there is a very high call-money
rate they have to pay that rate to the banks.
Mr. K night . Yes, sir; and have to put up additional collateral.
Mr. G ray . In other words, they wiU only get from banks practi
cally 75 per cent of the market value o f the stocks put up.
Mr. K night . Yes, sir.
Mr. G ray . And so it is decidedly to their advantage to take their
customers’ stocks, or any other stocks they may have, instead o f re
hypothecating it at a bank, where they have to pay a large rate of
interest and only get 75 per cent as a loan. I say, instead o f doing
that they loan the stocks, which is really a rehypothecation to some
other broker who may want it, and in that case they never pay over
3 or 4 per cent; and, as a matter of fact, they get 100 cents bn the
dollar instead o f 75 cents on the dollar of value.
Mr. K n igh t. Yes, sir. And there is only one argument against
that, which is, that one broker may say, “ I do not want to loan to
such-and-such a broker, because I am afraid he may make an assign
ment, and I might have to go out info the open market and recover
my stock by buying it.” But if there is a good loan clerk, and he
will mark that particular stock, which may increase 2 or 3 points;
STOCK E X C H A N G E PRACTICES
395
and if he will demand from the broker that amount of money, and
always keep the stock at the market, then if any certain firm fails
that that stock is loaned to, there is no loss.
Mr. G r a y . By the way, have you completed telling us all you can
tell us about the matter of the borrowing and loaning of stocks ?
Mr. K n i g h t . No, sir.
Mr. G r a y . G o ahead and complete that. I won’t ask you another
question until you finish that.
Mr. K n i g h t . In the matter of charging interest, in the case of
the margin customer, with a debit balance, and on collateral loans*
with banks, interest is figured, upon finding the amount of interest
that a particular firm might pay over a period of a month, then
they are all figured so as to obtain the average call money rate for
the use of money.
Mr. G r a y . In other words, at the end of the month a broker makes
a calculation to determine how much the money he has borrowed
has cost him during the month?
Mr. K n i g h t . That is a matter not with a bank.
Mr. G r a y . All right.
Mr. K n i g h t . When he arrives at that figure, and we will say it
may be Zy% or 4 per cent, if money has been around that, then he
will add anyway from 1 per cent to 1% per cent in excess and charge
that rate against the debit balances of his customer.
Mr. G r a y . In other words, you mean to say that when a broker
figures the amount of money he is going to charge his customer for
interest, he takes the amount that it has actually cost him at the
bank and adds a percentage, for no reason except to make a profit ?
Mr. K n i g h t . For profit only.
Mr. G r a y . And in that way he charges his customer so much,
more than it has actually cost him?
Mr. K n i g h t . That is exactly right.
Mr. G r a y . Let us assume that it so happens that in certain States,
where the rate of interest is fixed by law, do you mean to say that
oftentimes the rate which the broker charges to his customer for the
money is far beyond the legal rate of interest permitted to be
charged ?
Mr. K n i g h t . Yes, sir.
Mr. G r a y . H o w does he cover that and get around the law against
Usury?
Mr. K n i g h t . Well, he first puts down the rate of interest charged
to his customer—6 per cent, we will say.
Mr. G r a y . Which is the legal rate.
Mr. K n i g h t . Yes, sir. And underneath that he puts an item of
carrying charges 3y2 per cent.
Mr. G r a y . In other words, he divides it and charges his customer
in the first place more interest than it actually costs him, and in the
second place, he charges his customer the legal rate of interest and
th
’ ’ ' *'
‘ ‘;em called carrying charges?
Senator F l e t c h e r . I s that done by any agreement between cus
tomers and broker, or is it just the private handling by the broker?
Mr. K n i g h t . The customer has nothing to say about it.
Mr. G r a y . In other words, it is simply an arbitrary action on the
part of the broker.
396
STOCK EX CH A N GE PRACTICES
Mr. K n i g h t . Yes, sir.
Mr. G r a y . And if the customer does not want to accept it, he
simply gets out.
Mr. K n i g h t . Yes, sir. I f he does not pay it, he gets out. It used
to be the case that nearly every stock exchange house put down what
interest they charged in their statement, but in the last couple of
years they do not put down anything except interest, so much, and
you would have to get a public accountant to figure it out for you.
In the case of the average trader he just could not figure it out. It
would take him all night to try to figure it out.
Senator F l e t c h e r . In other words, the customer is at the mercy
of the broker.
Mr. K n i g h t . Yes, sir.
Mr. G r a y . Oh, absolutely at the mercy of the broker.
Mr. K n i g h t . There is no doubt about that.
Mr. G r a y . And another thing: In fixing that rate of interest, we
will say, that a broker has made from lending that or all of his cus
tomers’ stocks additional money by way of premium or otherwise,
does he ever take that into consideration as a credit either in figur
ing the amount of interest that the money has cost him during the
month or make any calculation as to what he should charge the
customer ?
Mr. K n i g h t . No, sir.
Mr. G r a y . And invariably he gets that as a separate item of profit
for himself?
Mr. K n i g h t . Yes; and it is none of the business of the customer.
Mr. G r a y . Unless there is some contract.
Mr. K n i g h t . Unless the customer goes in and says, “ Why am I
being charged this when you are loaning my stock? ” Then they
will give him half of the interest, we will say.
Mr. G r a y . But they won’t always do it.
Mr. K n i g h t . It depends upon the customer.
Mr. G r a y . It depends upon who the customer is.
Mr. K n i g h t . Yes, sir. I f it is a small account they may ignore
him completely.
Mr. G r a y . What can you tell me about the hypothecation or re
hypothecation of stock?
Mr. K n i g h t . Before I go into that, I would like to mention some
thing.
Mr. G r a y . All right. G o ahead.
Mr. K n i g h t . When a man sells 100 shares of stock short, he bor
rows that particular short. Now, he sells it, say, for $10,000. He
borrows it for $10,000. The stock is delivered to him and he makes
delivery. There is absolutely no difference in the amount o f monev
involved. He receives $10,000, and he-----Mr. G r a y (interposing). That is between two brokers ?
Mr. K n i g h t . Yes, sir.
Mr. G r a y . In the case of borrowing and lending brokers.
Mr. K n i g h t . Yes, sir. But in the borrowing of that security he
probably gets 1 to 2 per cent interest, but he never allows that inter
est to the short customer.
Mr. G r a y . Yes; and I thought I covered that just now when I said
the profit that the customer makes by way of interest, premiums or
otherwise, does not go to the customer in the way of a credit.
5
STOCK EXCHANGE PRACTICES
397
Mr. K night . That is for the borrower. Now. the lender who loans
stock pays 1 per cent interest, and when the average bank call rate
is 31/2 per cent. He doesn’t charge that customer 3y2 per cent or 3%
per cent, or whatever it may be, but the customer gets the little end
of the bargain by being charged more by 2 per cent, probably.
Mr. G ray. In other words what you mean is this: I f a broker
makes on one end of it, the customer does not get the benefit o f it;
and if the broker pays out on the other end of it, he not only charges
him that amount but something in addition.
Mr. K night . Yes, sir. And that is an enormous sum in the course
of a year.
Mr. G ray. I f this borrowing were taken away, one o f the very
large sources of income of a broker would be removed ?
Mr. K night . Yes, sir. It is commonly known that the interest
received by a broker, that goes directly into the profit and loss ac
count, will very nearly carry the expense of that particular office.
Mr. G ray. That will carry the office and the rest is a clear profit.
Mr. K night . Yes, sir.
Mr. Gray. What about the hypothecation cards?
Mr. K night . They have been in existence as long as I can re
member.
Mr. G ray. What are they?
Mr. K night . It gives the broker the right to pledge securities that
are in a particular customer’s account with the bank in order to
obtain money.
Mr. G ray. What about the hypothecation cards?
Of the customer giving the broker the right to rehypothecate the
stock?
Mr. K night . Yes, sir.
Senator F letcher. These brokers are all members o f the stock
exchange, are they not?
Mr. K night . That is correct.
Senator F letcher. Does the stock exchange know about these prac
tices you have been telling us about?
Mr. K night . Well, they are practiced by member firms, so you
can use your own judgment as to whether they know or not. I im
agine they do, because the member firms have some representation
on the board of governors of the New York Stock Exchange.
Mr. G ray. I will say, Senator Fletcher, that I am going to come in
a moment to the question of the duties of brokers and their authority
on the exchange.
Senator F letcher. A ll right.
Mr. G ray. Mr. Knight, you have referred to the hypothecation or
rehypothecation cards. Now, what about them?
Mr. K night . A law was enacted by the State o f New York to the
effect that at no time shall a broker hypothecate a customer’s security
for any more than the amount that is due the broker, which is his
debit balance, unless the broker obtains the customer’s consent, which
practically nullifies the law. A ll that a broker has to do is to go to a
customer and say, “ Kindly sign this hypothecation card ” ; and tha*
gives him the right to do anything he wants on that particular
security if there is only a 2-cent debit balance against that stocKBut the New York Stock Exchange made a rule of their own, whic
says at no time shall they hypothecate stocks any more than 1
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STOCK EXCHANGE PRACTICES
fair and reasonable, as Mr. Whitney stated it. They go a little be
yond the law.
Mr. G ray . And what is the practice in fact ?
M r. K night . Why, just to get the stocks.
Mr. G ray. And what happens if a customer does not sign that
card ?
. . .
Mr. K night . Well, it all depends on who the customer is. I f it is
some large trader and they do not want to lose him, and he says:
“ I won’t sign that card.” Then they will probably do nothing about
it. But if it is a small man who feels he should not sign the card,
why, invariably sooner or later, his account will be removed.
M r. G ray . H e signs the card or removes his account.
Mr. K night . Yes, sir. He will be asked to remove it unless it
hurts the broker.
Mr. G ray . N ow , I will come to the question propounded by Sena
tor Fletcher. What accounting supervision does the New York Stock
Exchange have over its brokers, or what does it do ?
Mr. K night . It submits a questionnaire to be answered semi
annually, every seven months and five months.
M r. G ray . I s that questionnaire a complete questionnaire that will
f
ive the stock exchange a detailed history o f what each particular
roker has been doing during the past six months?
Mr. K night . N o, sir.
Mr. G ray. It is superficial, is it not?
Mr. K night . Very much so. It deals in totals only.
Mr. G ray . What other supervision, if any, in the way o f audits or
looking into accounts, does the New York Stock Exchange exercise
over its broker members?
Mr. K night . I f a broker firm fills out a questionnaire and the ac
countants of the stock exchange find that the capital structure o f that
particular firm is not correct; or if they need additional capital, or
are doing more business with the capital they have than they should
do, or there is something that shows up very glaringly, tney will
send one o f the accountants of the exchange to mat firm.
M r. G ray . And only then?
Mr. K night . Yes, sir.
Mr. G ray . There is no periodical investigation o f the books of
brokers?
Mr. K night . No periodical investigation, but only a questionnaire,
which can be prepared by anybody.
Mr. G ray . Ana when the questionnaire is answered at the end of
six months that is over.
Mr. K night . Yes, sir. The firm trading? accounts are submitted
in totals. They do not specify what lines o f securities are carried in
that account. And nobody will know unless they go to the broker.
Bad accounts—or perhaps I should not use the word “ bad,” but un
dermargined accounts are with the good accounts. I f they are not
enough to protect the broker, they are combined with the good
accounts, and then no one can tell about them.
Mr. G ray. In other words, some accounts may be undermargined
and some accounts overmargined, and the broker himself may be in
an unsafe position as to other accounts which affect his customers.
Mr. K night . Yes, sir; and at no time do they investigate it unless
something glaring shows up.
STOCK EXCHANGE PBACTICES
399
Mr. G ray. What, if anything else, can you tell this committee as
having come to your attention with respect to either lack o f super
vision, what in your judgment are improper practices, or other mat
ters that you think this committee ought to know; I mean that may
have come to your attention in your work of the auditing of accounts
of various brokers?
Mr. K night . We have had several failures recently o f New York
Stock Exchange firms. I believe everybody is acquainted with that
matter. There were five or six o f them within the last one or two
years, and they dealt not only in commission business, but they took
a line o f stocks themselves. Sometimes it might be an investment
trust and sometimes it might be trading in their own account. Now,
the reason for their failure has been given as this, that they took
positions themselves. It means that instead of putting up additional
capital by themselves when the stocks they were carrying decreased
in value and the banks called for more margin, they used whatever
stocks or credit balances any particular customer had in order to
make that deposit of additional margin. And it has been my belief
that doing that is not strictly right. There should be a requirement
of additional capital.
Mr. G ray. In other words, let me restate that, if I may: A firm
has a certain amount o f capital and it uses that to speculate with.
Mr. K night . And to conduct their business.
Mr. G ray . Yes; 1 beg pardon; and to conduct their business, both.
But I mean that it is not absolutely necessary in connection with
their pledging even to use that for speculative purposes, but some
firms do, and then when they get in the position that individuals find
themselves in at times, where they are required to put up more money
to protect their interest, instead of putting up more capital, they
use the equity o f their customers that they have under their control.
Mr. K night . That is absolutely right.
Mr. G ray . And when the market goes still further down and there
is no more equity with which to protect their interest, than they be
come insolvent?
Mr. K night . Then an assignment has to be made?
Mr. G ray . Your suggestion there, if the committee will pardon
me for expressing a personal opinion, looks like a good one. And
that suggestion is that brokers should not be permitted in the matter
of their own speculation to use any other moneys than their own,
and should not be permitted to use their customers’ money for the
purpose o f carrying stocks in which they are dealing.
Mr. K night . They should be treated as two distinct businesses.
In other words, if a stock they are carrying is going down, then
instead o f using the customer’s money, they should put up additional
capital to take care of their own business. The customer should
have some protection. And in that way, if losses are made due to
bad judgment, the customer will not be affected by it.
Mr. G ray . In the practice as it is followed now, they use for
speculative purposes not only their own money but the stocks and
balances o f customers, and then if speculation goes bad, the customers
are going to have to pay for it.
Mr. K nigh t . Yes, sir. Mr. Whitney stated that to stop that it
could not be very well done, as there were too many stocks on their
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STOCK EXCHANGE PRACTICES
shelves. But I say it could and should be separated and made an
entirely different business.
Mr. G ray . Mr. Whitney made the statement that the most o f the
brokerage houses keep their customers’ securities each in a separate
envelope in order to tell on the instant whether they did not have a
customer’s authority to rehypothecate the entire amount, they might
see that no more than theproper and legal amount was used for the
purpose of borrowing. Wnat do you know about that practice? Is
it true?
Mr. K night . It is and it is not. The only securities kept m sepa
rate envelopes by brokers are securities free from any indebtedness.
That is what we call safekeeping. But in some accounts they have
a surplus margin and it is not kept separate. It is kept in the box.
They can at any time use that particular stock in order to make loans.
Mr. G ray . Where a man has paid for all of his stock and it is left
with the broker, he keeps that separate?
Mr. K night . Yes, sir.
Mr. G ray . But where stock is purchased on margin, and where the
customer simply has an equity in it, and there are a number o f such
accounts in one stock, we will say United States Steel, that stock is
all dumped together and put in the box?
Mr. K night . Yes, sir.
Mr. G ray . So that'when the broker lists it for that purpose he does
it without consulting the record as to whether the customer has
signed a rehypothecation card or not?
M r. K night . Yes, sir. It only give the broker protection, is*all,
and he uses what stock he has.
Mr. G ray . Can you give us anything more about accounting super
vision by the stock exchange?
Mr. K night . Yes, sir. I f periodical audits were made, not neces
sarily by the stock exchange but by outside accountants, I think it
would be a great help and be a protection to the customer. I doubt
if there is any rule now of the New York Stock Exchange that really
protects the customer.
Mr. G ray. H ow can this committee, if it can be done at all, through
any audit or accounting investigation, reach the operations o f these
pools ? I do not mean, of course, to find out what men have been
combining together to legitimately buy or sell stocks, or whether they
operate on one side of the market or the other; but what can this
committee do in that respect for the purpose o f finding evidence o f
improper operation o f pools? Can anything be done?
Mr. K night . Yes. sir.
Mr. G ray . What?
Mr. K night . It will be necessary to select whatever stocks, those
that have been the most speculative, or that the most short interests
or pool operations have been in, and proceed to the clearing house o f
the New York Stock Exchange, where each night there is registered
all transactions by every broker.
Mr. G ray. And it is separated by brokers and stocks ?
Mr. K night . Possibly we are looking at General Motors, we will
say. You will find their transactions for that day. You will find
John Jones’ company gets in 60,000 shares and another company and
another one, and so forth. You will then pick out the largest number
o f traders on that particular day and proceed to find the houses and
STOCK E X CH A N GE PRACTICES
401
continue to break down from there until you can find out actually
what accounts were instrumental in doing the trading that day.
Sometimes you might find one house doing nothing and another
house trading. Sometimes you might find accounts in different
names. They represent the one pool. They will deliver the stock
on the outside from one house to the other, and you will find what
connection that house has with the other, and in that way you might
be able to arrange together in bulk all the operations and transac
tions of every bear raider or manipulator on the up side. It is
possible; it can be done. It can not be done by the gathering of
statistics as we have had here. I mean that only shows the position
as of a certain day. What we must have is the tradings actually
taking place on that particular day or another in comparison.
Senator B r o o k h a r t . I s there any arrangement on the stock ex
change to find out those actual facts as you have indicated them now ?
Mr. K n i g h t . They can be obtained.
Senator B r o o k h a r t . D o they have any system of supervising
them ?
Mr. K n i g h t . N o , sir. They are satisfied with all of these transac
tions when they are balanced.
Senator B r o o k h a r t . In other words, if they are balanced off and
whitewashed up-----Mr. K n i g h t (interposing). They have no further interest in it.
Senator B r o o k h a r t . They have no further interest in it?
Mr. K n i g h t . No, sir.
Mr. G r a y . What you mean is that an accountant who knows his
business with a force under him can start with the stock clearing
house transactions as a basis and probably ascertain a picture that
to him, if he is familiar with such matters, creates a suspicion in his
mind?
Mr. K n i g h t . That is right.
Mr. G r a y . And then he can go to the various brokerage houses
that cleared those particular stocks, examine their books for the
purpose of determining just what those transactions were as the
books show, break them down as you say, find out who the customers
are, trace those—then, of course, that is where the investigator’s work
would come in—trace those customers, and then in all probability in
the instances where pools exist or improper manipulation exists up
and down, you can get at the bottom of it ?
Mr. K n i g h t . Yes, sir.
M r . G r a y . Y ou d o n o t a n t ic ip a t e , in o t h e r w o r d s , o u r b r i n g i n g
som e o f th e s e m e n h e r e a n d a s k in g t h e m s i m p l y w h e t h e r t h e y h a v e
b een b e h a v in g th e m s e lv e s a n d t h e y w i l l t e l l u s ?
Mr. K n i g h t . It is of no avail.
Mr. G r a y . Well, it has been of some avail.
Mr. K n i g h t . Well, the brokers keep good records; records you
can trace with numbers. They keep a list which is always easy to
trace with the numbers. You can trace it without any trouble
through the individual blotter sheets of a broker’s house.
M r . G r a y . I s i t o r is i t n o t a f a c t t h a t e x is t s t h a t th e se b r o k e r a g e
h ou ses, in s o m e in s ta n c e s , o p e r a t e as p a r t o f th e p a r t ic u la r p o o ls
a lo n g w it h o u ts id e t r a d e r s ?
Mr. K n i g h t . They do.
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STOCK EX CH A N GE PRACTICES
Mr. G r a y . And have you known of any instances where those
particular brokerage houses operating with pool operators, either for
the up or the down side of the market, have been sending out market
letters advising their customers with respect to that stock that is
contrary to the interest or helpful to their own?
Mr. K n i g h t . It has been done, but I can not cite specific instances
now. That could be determined also by the operations of that par
ticular house and comparison of their letters of that period.
Mr. G r a y . In other words, by contrasting the operations o f the
pool itself after it was located through a certain brokerage firm. with
the market letters that they were sending out during the period of
time that the pool was operating, you can get that story ?
Mr. K night . That is correct; yes, sir.
Mr. G r a y . By the way, in the examination or during your account
ing work in connection with these brokerage firms, do you find ac
counts that are in names that can not be identified ?
Mr. K n i g h t . Oh, very often.
Mr. G r a y . Do you find them in numbers ?
Mr. K n i g h t . In numbers and in names.
Mr. G r a y . It is the practice of an accountant, as I understand it,
when he makes an audit, whether it be of a bank or of a brokerage
firm or of any other institution, to check up by requiring the par
ticular individual whose account is there to confirm to him the-----Mr. K n i g h t (interposing). Correctness.
Mr. G r a y . Correctness of it?
Mr. K n i g h t . Yes, sir.
Mr. G r a y . What do you do when you find these numbered ac
counts and these names that do not mean anything?
Mr. K n i g h t . Those accounts we will not have addresses for.
Mr. G r a y . How do you get information?
M r . K n i g h t . S o w e lis t a ll th o s e a n d s u b m it t h e m t o a p a r t n e r ,
a n d h e s ig n s f o r a ll th o s e .
Mr. G r a y . In other words, you do not know and they will not tell
you who they are for, so the partner gives you the confirmation ?
Mr. K n i g h t . Yes, sir; that is correct, and he signs for the list.
Mr. G r a y . Inasmuch as your accounting is a private job, why, you
have to take their statement for it and let it go at that ?
Mr. K n i g h t . Exactly.
Mr. G r a y . Is that frequently ?
Mr. K n i g h t . Well, practically in every instance.
Mr. G r a y . Practically in every instance?
Mr. K n i g h t . I would say so.
Mr. G r a y . In other words, practically in every brokerage house
where you make an audit you find instances of that type ?
Mr. K n i g h t . I will not say they are all dummy accounts, but-----Mr. G r a y (interposing). You do not know who they are?
Mr. K n i g h t . I do n o t k n o w .
M r . G r a y . Y ou a r e n o t t o l d a n d y o u a r e n o t g i v e n i n f o r m a t i o n
as t o w h o th e a c c o u n t s a r e a t a ll?
Mr. K n i g h t . We can not antagonize the brokers.
Mr. G r a y . They will not give you the address of these people
and they will not tell you who the numbers of the accounts repre
sent?
STOCK E X CH A N G E PRACTICES
403
Mr. K n i g h t . N o , sir. They just sign the slip and we will qual
ify in our report that that took place.
Senator B r o o k h a r t . How can this committee find out those facts?
Mr. K n i g h t . Well, they can be found out by the testimony fronc
the brokers. O f course, if they tell an untruth, that is a different
thing. But that may be found out.
Mr. G r a y . In other words, you have the data secured in the way
that you have indicated and those people can be brought here and
produced ?
Mr. K n i g h t . Produce the individual in whose name the account
is carried.
Senator F l e t c h e r . We called for the records showing the short
position between April 6 and April 8. How will we ascertain
which shorts covered approximately 1,300,000 shares within two
days prior to April 8?
Mr. K n i g h t . By referring to the clearing house, as I had stated
before, all that information can be obtained. But the information
that the committee has recently heard does not really—it gives that
a thousand shares short was in Sadie So-and-so’s account and a
thousand in another’s account, and there is absolutely no way of
connecting those up without going further. You must go back to
the broker’s office and find out what connection, if any, one account
has with the other.
Senator F l e t c h e r . The records show there were 1,300,000 shares
sold within two days prior to April 8. How can we find out-----Mr. K n i g h t (interposing). Who sold them?
Senator F l e t c h e r . Who sold them?
Mr. K n i g h t . Very easily; yes, sir.
Senator F l e t c h e r . From the clearing house?
Mr. K n i g h t . Yes, sir; from the clearing house. You might find
some were sold in this house and some were sold in another house,
because usually pools and bear raiders operate in more than one
house in order to keep their true position a secret. It is necessary
that nobody should know their exact position, because oftentimes
brokers’ clerks divulge certain information that would be detri
mental to the pool. So they are spread over several houses.
Mr. G r a y . Have you ever known of a brokerage house in your
time that operated on a commission basis alone and did not sell for
themselves, that became insolvent?
Mr. K n i g h t . Never.
Mr. G r a y . A s a matter of fact, that can only occur in the event
of there being some embezzlement of funds or something wrong
that is liable to happen to any concern in any business?
Mr. K n i g h t . Karely does the embezzlement go to such an amount
that it will injure them in any way at all. It would be covered by
insurance, and so forth. But if the margin clerk is attending to
his business and the firm is operated in a good, efficient manner,
there is never any doubt as to the solvency of a commission house.
Mr. G r a y . Have you ever known instances where these brokerage
houses having securities in these separate envelopes that are fully
paid for have hypothecated them at banks?
Mr. K n i g h t . Oh, yes.
M r . G r a y . N o w t h a t is a b s o lu t e ly i m p r o p e r , o f c o u r s e ?
404
STOCK EXCH AN GE PRACTICES
Mr. K night . Of course. Now whether it is a mistake or whether
the intention might have been good or might have been carelessness
on the part of the clerk, that I do not know. But we have estab
lished they found their way into bank loans.
Mr. G r a y . In other words, in making your accounting in trying
to locate certain securities that were fully paid for in charge of
brokers for safe keeping, you have found them in banks?
Mr. K n i g h t . We have found them in banks.
Mr. G r a y . N o w , there is something that has never been talked
about by any of the witnesses here and may have no significance, but
just for information will you explain to this committee what u puts
and ealls ” are ?
Mr. K n i g h t . A “ call ” is an option. They are really options. A
“ call ” is the agreement between one individual and another to buy
a certain number of shares at a particular price for a certain amount
of money. For instance, if I \yant to buy a call for 60 days or 30
days, I will go to the “ put and call ” broker and ask him will he
sell me a call which gives me the right to buy at a certain pirice
for a consideration of possibly $139 or $135, whatever it might be,
and any time within that 60 days if I choose I may call upon that
broker to deliver me the stock at the price agreed in that particular
call.
Mr. G r a y . It is pure gambling in futures, is it not ?
Mr. K n i g h t . Absolutely. And with that call I may take it— of
course, it has to be guaranteed by a member o f the New York Stock
Exchange before it becomes valid—I may take that call and deposit
it with a broker, and instead of putting up a margin—and i f I
am compelled to put up a margin it will be a small amount—I can
sell against that call back and forth over that period of 60 days
a hundred shares at any time I care to.
Mr. G r a y . In other words, you assume a position in the market
where you are entitled to get at a certain price within a certain time
a certain number of shares of stock?
Mr. K n i g h t . Exactly.
Mr. G r a y . And with that as a basis, for which you paid a c o m
paratively small consideration, you can operate?
Mr. K n i g h t . I c a n ; y e s.
Mr. G r a y . Pure g a m b lin g , is n ’ t i t ?
Mr. K n i g h t . Positively.
Mr. G r a y . And is a “ put ” just the other side of it?
Mr. K n i g h t . The “ put ” is the other side. I have an agreement
to sell at any time within a certain period.
Mr. G r a y . There is no stock delivered in that case like there is in
selling short?
Mr. K n i g h t . Only when you exercise the privilege of a put or
call.
Mr. G r a y . By the way, Mr. Whitney has said that a strict regu
lation of short selling would cause violent fluctuations, and he has
also said that if the short selling were abolished in the Stock Ex
change it would have to close, something I am not so familiar "with,
but you majr be, and that is the Cotton Exchange. What rulings do
they have with respect to the regulation of these fluctuations and the
short selling?
STOCK EXCHANGE PRACTICES
405
Mr. K night . From the opening in the morning on the cotton
exchange until the close no option shall rise or decline any further
than 2 cents a pound. That is, there is a limit set.
Mr. G ray . Are you accurate about that?
Mr. K night . Yes, sir.
Mr. Gbay. You mean that they control a fluctuation l>y fixing the
price?
Mr. K night . Yes, sir, and when it reaches 2 cents a pound below
the opening or goes 2 cents a pound above it, trading can not con
tinue at any other price only between that 2 cents.
Mr. G ray . The cotton exchange stays open?
Mr. K night . The cotton exchange stays open. But of course the
options on cotton, the price of them are more or less uniform, you see.
You would not have the same thing in stocks. We have stocks selling
at 5 and some at 100. It would be hard to put a range on them.
Mr. G bay . Now, I think, Mr. Knight, that I have covered all the
matters that I have—that I want to ask you about. Is there anything
else for the information of the committee you can tell us?
Mr. K night . I really don’t know. I believe I have covered every
thing pretty well, outside of it is my belief with the principal belongs
the interest, as in the case of stock loans, and there should be some
protection given to the marginal trader and to the investor. It has
been the policy of the stock exchange at all times to protect the
broker only. I mean I doubt if I know of any instance where they
have really come out and protected the customer. I believe I have
covered the most of that in my testimony.
Mr. G ray . In other words, the stock exchange consists of brokers,
and all these brokers, by the way—I don’t know whether this has
ever been developed—brokerage houses, that are members o f the
stock exchange are either individuals or partnerships, are they not ?
Mr. K n igh t . That is correct, yes.
Mr. G ray . There are no corporations?
Mr. K n ig h t. No corporations whatsoever.
Mr. G b ay . That is all I desire to ask him, Mr. Chairman.
Senator F letcher. Do you think this last order that they made
in November, I believe, with reference to short sales, corrects the
situation as to short sales?
Mr. Knight.^ N o, sir. It protects the broker only. In their origi
nal hypothecation card they found that they did not have any clause
in there about the loaning of customers’ securities. It only gave them
the privilege of hypothecating at a bank or pledge at a bank. So in
order to protect themselves it was necessary that they issue a new
order that the consent of the customer to loan the stock be secured.
And it was an easy matter to get that. It was only for their
protection.
Senator F letcher. I mean this rule not permitting them to sell
below the last quotation.
Mr. K night . I believe that that was brought out pretty well by
Mr. Gray yesterday when he stated that the selling of long stock
would allow the broker to come in and sell short. I forget who
was the witness at that time.
Mr. G ray . I am sorry; I was not listening at the moment.
Senator F letcher. Y ou do not think that rule protects against
bear raids?
119852—32—PT 2------3
STOCK EXCH A N GE PRACTICES
406
Mr. K n i g h t . No. Something more than that—supervision o f the
brokers at that particular post is necessary—strict supervision.
Senator F l e t c h e r . Do you know anything about any bear raids?
Mr. K n i g h t . I haven’t any facts on that right now, but some
information probably could be compiled as to that. I would not
feel justified in citing any instances now without the actual facts
before me.
Mr. G r a y . All right; that is all.
The C h a i r m a n . The next witness will be Thomas E. Bragg.
Do you solemnly swear the evidence you are about to give will be
the truth, the whole truth, and nothing but the truth ?
M r . B bagg. I d o .
The C h a i r m a n . So help you God.
Mr. B r a g g . So help me God.
TESTIMONY OF THOMAS E. BRAGG, NEW YORK CITY
Mr. G r a y . Mr. Bragg, will you give us your full name, please?
Mr. B r a g g . Thomas E. Bragg.
Mr. G r a y . And you live where?
Mr. B r a g g . I have an apartment at 912 Fifth Avenue, New York.
Mr. G r a y . And what is your business ?
Mr. B r a g g . I have no business except speculating.
Mr. G r a y . Y ou are not a broker?
Mr. B b a g g . No, sir.
Mr. G r a y . You are not a member of the New York Stock E x
change?
Mr. B r a g g . No, sir.
Mr. G ray . Have you ever been?
Mr. B r a g g . I was a member of a firm at one time.
Mr. G r a y . And what firm is that?
Mr. B r a g g . W. E. Hutton & Co.
Mr. G r a y . W. E. Hutton & Co. And when were you a member
of the firm of W. E. Hutton & Co. ?
Mr. B r a g g . 1928 until October, 1930.
Mr. G r a y . Until October of 1930, and since then you have been
operating either on your own account or with others ?
Mr. B r a g g . Yes, sir.
Mr. G r a y . While you were a member of the firm of W . E. Hutton
& Co., who are members of the Stock Exchange in New York, did
you operate on your own account and in your own name ?
Mr. B r a g g . Yes, sir.
Mr. G r a y . That is individually?
Mr. B r a g g . Individually.
Mr. G r a y . Did your firm of W. E. Hutton & Co. also operate on
their own account as a firm?
Mr. B r a g g . Well, they have investment business which is handled
in the office at Cincinnati.
Mr. G r a y . Just what do you mean by an investment business with
respect to the matter about which I asked; that they are simply
investing funds in stock that they hold permanently ?
Mr. B r a g g . Yes, sir; not permanently, but they hold for some
time. They took positions in companies that are more or less local.
STOCK E X CH A N G E PRACTICES
407
Mr. G r a y . In other words, by an investment business, however,,
you mean that their positions were more permanent than those who
just simply traded in and out every day or when they thought there
was an advantage in either a rise or fall of the market; is that it?
Mr. B r a g g . Exactly. Not an operating account. It is an investment.
Mr. G r a y . But it is not as active an account as your account
individually ?
Mr. B ragg. No; I would not say it was an inactive account.
Positions were held for years.
Mr. G r a y . Positions were held for years ?
Mr. B r a g g . Yes.
Senator C o u z e n s . Mr. Chairman, I wish to enter a protest against
these photographers taking pictures while the witness is testifying.
If they want to take pictures they may ask for permision to do so.
It is objectionable and obnoxious.
The C h a i r m a n . The point is well taken. They will have to ask
for permission when they want to take pictures, and we will try to
arrange it for them.
Mr. G r a y . Prior to the time that you connected yourself with W .
E. Hutton & Co., Mr. Bragg, I mean immediately prior, were you
with any other firm or what were you doing ?
Mr. B r a g g . I was with the American International Corporation.
Mr. G r a y . For how long, a number of years?
Mr. B r a g g . About 10 years.
Mr. Gray. And about when in your career did you first start to
speculate on your own account?
Mr. B r a g g . About 1920 or just prior to that, 1918 or 1919.
Mr. G ray . May I say to you that it is doubtful whether or not
in the limited time we will oe able to complete an examination of
you to-day. Can you and will you for a future time for the benefit
of this committee compile your trading activities for a period of,
say—you went with Hutton in 1928—for a period, we will say, since
the 1st of January, 1927, to date?
Mr. B r a g g . I need some time on that. I have no office and have
not had an office.
Mr. G r a y . H o w l o n g w i l l i t ta k e y o u t o d o i t ?
Mr. B r a g g . I don’t know exactly.
Mr. G r a y . You have records, however?
Mr. B r a g g . Y es; I have records some place. I would have to work
them up myself or-----Mr. G r a y (interposing). You can very easily, could you not, how
ever, give us your records of your transactions during the time that
you were with W. E. Hutton & Co. and since that time? That would
be a simpler matter, if I do not ask it back to 1927 ?
Mr. B r a g g . Yes.
Mr. G r a y . I think that would answer the purpose. Do your rec
ords show also not only your individual operations but your opera
tions with others where you have conducted either a syndicate or a
pool, whichever name you choose to give it, on either side of the
market or on both sides, who your associates were and in what name
or names you traded ?
Mr. B r a g g . I do not know as I personally have all those records,
but I have some.
STOCK EX CH A N GE PRACTICES
408
Mr. G r a y . I f some other individual kept those records you would
know the individual who did keep those records of those pools or
syndicates ?
Mr. B r a g g . Yes, sir.
Mr. G r a y . And you can get that data from him so as to give us a
complete picture of your operations either as an individual or in
association with others?
Mr. B r a g g . Yes.
Mr. G r a y . And you will do that for us?
Mr. B r a g g . Yes, indeed.
Mr. G r a y . Can you tell us, generally speaking, whether your indi
vidual operations since the time that you associated yourself with
W. E. Hutton & Co. have been more prominently on the long or the
short side of the market %
Mr. B r a g g . Well, during the up part of the market they were on
the long side.
Mr. G r a y . Yes.
Mr. B r a g g . Since that time they have been principally o n the
down side.
Mr. G r a y . Now, though we have had statements quite frequently
when that up side was, you mean by that, do you not, that you indi
vidually and in the pools in which you were interested maintained a
long position until some time probably in the fall of 1929; is that
correct ?
Mr. B r a g g . Well, in the summer of 1929.
Mr. G r a y . And, of course, with the slight up and down movements
of the markets since about January, 1930, you have been in and out?
Mr. B r a g g . Yes; I have been long.
Mr. G r a y . But, generally speaking, you and your associates kept a
lone position until some time in the latter part of the summer of
1929?
M r . B r a g g . I d id .
Mr. G r a y . You did. We will speak of you alone then for a mo
ment. When did you begin to assume a definitely large short posi
tion in the market after that time?
Mr. B r a g g . Well, I assumed a short position. I don’t know
whether you consider it large or not.
M r . G r a y . When did you begin to establish that position?
Mr. B r a g g . September, 1929.
Mr. G r a y . That was because in your judgment, I suppose, prices
had reached what you thought was going to be their peak, tempo
rarily at least?
Mr. B r a g g . W ell, I thought so; yes.
Mr. G r a y . And that short position, I suppose, became quite heavy
after the break came in the market in the fall of 1929?
Mr. B r a g g . N o; I do not think at any time it became very heavy.
Mr. G r a y . You mean your individual position?
Mr. B r a g g . Yes.
Senator C o u z e n s . May I ask the witness to answer instead o f nod
ding his head? You can not get a nod of the head up to the re
porters, nor can you get it in the record.
Mr. G r a y . Aiid speak a little louder, if you can, Mr. Bragg. Have
you ever individually had a long position since the 1st o f January,
1930?
.
STOCK EXCHANGE PRACTICES
409
Mr. B ragg . Yes.
Mr. Gray. In just some specific stocks?
Mr. B ragg . Yes.
Mr. G r a y . Generally speaking your position has been a short one
since that time?
M r . B ragg . Y e s .
Mr. G r a y . Are you long or short of the market now ?
Mr. B ragg . I am short of the market, long a very small
amount of
stock.
Mr. G r a y . Long on a very small amount of stocks ?
Mr. B ragg . Yes.
Mr. G r a y . And short generally speaking?
Mr. B ragg . Not to a large amount now.
Mr. G r a y . Y ou have covered a great deal this year?
Mr. B ragg . No; I do not think I have ever had a large position
to cover.
Mr. G r a y . That is individually?
Mr. B ragg . Individually.
Mr. G r a y . Senator Norbeck asks what you mean by “ large ” and I
will answer that question, if you please, by asking you since Janu
ary, 1930, what has been your individually largest short position ?
Mr. B r ag g . Say 50,000 shares.
Mr. G r a y . Fifty thousand shares. That is on your own account?
Mr. B r ag g . Yes, sir.
Mr. G r a y . H o w many shares are you short of now ?
Mr. B r ag g . Twelve or fifteen thousand.
Mr. G r a y . How many shares were you approximately short of the
1st of January, 1932?
Mr. B r a g g . I would just have to guess on that.
Mr. G r a y . Well, give us your estimate. Give us your thought ap
proximately on it.
Mr. B r a g g . Twenty or twenty-five thousand.
The C h airm an . You can get us that definite information.
Mr. G r a y . Yes. I am purposely, unless the committee desires that
to be done, not going into details, because he will give us the infor
mation on what you want, because of the limited time that you have
this morning. Of course, I can do it, but it will take a great length
of time.
S e n a t o r F l e t c h e r . Y ou a r e o p e r a t in g n o w , s t i l l in t h e b u s in e s s
b u y in g a n d s e llin g a n d t r a d i n g in t h e m a r k e t ?
Mr. B r a g g . Yes, sir.
Senator F l e t c h e r . Right up to date ?
Mr. B b a g g . Yes, sir.
Senator F l e t c h e r . D o you know what happened in April— April
the 6th and 8th? Were you long then or short?
Mr. B b a g g . Short, sir.
Senator F l e t c h e r . What happened when a million three hundred
thousand shares were disposed of two days prior to April the 8th?
Were you in on that?
Mr. B b a g g . I do not recall just the circumstances.
S e n a t o r F l e t c h e r . Y ou r e m e m b e r t h e r e w a s c o n s id e r a b le s h o r t
c o v e r i n g a t t h a t t im e ?
Mr. B b a g g . No; I do not.
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STOCK EX CH A N GE PRACTICES
M r . G r a y . In other words, Senator Fletcher is directing your at
tention to the fact that during those few days there was a very
large—now, I am not sure, Senator, because I have never seen the
statistics between April the 6th and April the 8th, I have no com
parative figures on that—whether you mean that there was a large
short interest added to the market or whether there was a covering.
I do not know. I may be wrong when I suggest that amendment.
Senator F l e t c h e r . A million three hundred thousand shares.
Mr. G r a y . Covered?
Senator F l e t c h e r . Yes. Shorts covered approximately that
amount, I think the record will show.
Mr. G r a y . Did you cover any large proportions of your stocks
between those two dates'?
Mr. B r a g g . No, sir.
Senator C o u z e n s . May I ask the witness if he will relate his asso
ciation with Mr. Rockefeller in the pool of the Lima Locomotive, for
example ?
Mr. G r a y . I was going to ask him as to who for the record so that
they would get in the record, with whom he was associated in the
different pools and what they were. But since Senator Couzens asks
you to relate your association with Mr. Percy Rockefeller in connec
tion with the Lima Locomotive pool, just give us that.
Mr. B r a g g . Mr. Rockefeller and Mr. Smith, Mr. B . E. Smith, and
I had a joint account, I would call it, rather than a syndicate, in Lima
Locomotive. That is, we bought, I think, three or four thousand
shares of Lima Locomotive probably some time in 1928.
Senator C o u z e n s . At what price?
Mr. B r a g g . I do not just remember the price. I do remember that
we lost some money in that account and the account was closed.
Senator C o u z e n s . When was it closed?
Mr. B r a g g . Oh, probably s ix or seven months after that.
Senator C o u z e n s . Did you operate in any other stocks ?
Mr. G r a y . Try and keep your voice up. We can not hear you.
Just face the reporter and then everybody can hear.
Mr. B r a g g . Six or seven months after that.
Senator C o u z e n s . During that time did you operate in any other
stocks besides Lima Locomotive?
Mr. B r a g g . But it was a very small account, and there was very
little activity in the account. Principally to buy this Lima Loco
motive stock, which we subsequently sold at a loss.
Senator C o u z e n s . Who organized the syndicate ?
Mr. B r a g g . Well, just Mr. Rockefeller, Mr. Smith, and myself.
Senator C o u z e n s . Well, there must have been an originator and ft
promoter. Who was it?
Mr. B r a g g . Well, I don’t know that there was a promoter to it.
I think we were three together, and Mr. Rockefeller suggested that
Lima Locomotive might be a good stock to buy, and we form ed a
joint account to purchase it.
Senator C o u z e n s . So in effect Mr. Rockefeller was the promoter
of this syndicate?
Mr. B r a g g . Well, it may be that one of us suggested that w e f o r m
the account. I can not just recall that, Senator.
STOCK E X CH A N G E PRACTICES
411
Senator C o u z e n s . Y ou know perfectly well who suggested this
syndicate, and I want you to tell the committee. You remember,
you are under oath.
Mr. B k a g g . Yes, sir.
Senator C o u z e n s . Well, who suggested this syndicate?
Mr. B r ag g . It may have been either Mr. Smith or I, I don’t know.
Mr. Rockefeller suggested the stock.
Senator C o u z e n s . You mean until the stock was suggested there
was a syndicate organized prior to the picking of a particular stock ?
Mr. B r a g g . N o , sir.
Senator C o u z e n s . Then in effect Mr. Rockefeller did start the syn
dicate and suggested the purchase of Lima Locomotive stock?
Mr. B r a g g . He suggested the purchase of Lima Locomotive stock.
Senator C o u z e n s . T o what extent did he suggest it?
Mr. B r a g g . Well, he thought that Lima Locomotive might be a
good stock to purchase.
Senator C o u z e n s . And he was a director of the National City
Bank?
Mr. B r a g g . Yes, sir.
Senator C o u z e n s . And did the National City Bank have any ac
count with the Lima Locomotive ?
Mr. B r a g g . I don’t know that, sir.
Senator C o u z e n s . I assume he would know. Did you ask him?
Mr. B r a g g . No, sir.
Senator C o u z e n s . Were the relations of the National City Bank
with the Lima Locomotive discussed ?
Mr. B r a g g . N o , sir.
Senator C o u z e n s . What did Mr. Rockefeller say when he sug
gested that you engage in operations on the Lima Locomotive stock?
Mr. B r a g g . He said, as I recall, that the Lima Locomotive had
quick assets of such an amount that he thought the stock would be
an excellent purchase.
Senator C o u z e n s . And then after you purchased the stock, what
did you contemplate doing?
Mr. B r a g g . We contemplated holding the stock. We never specu
lated. That is, we nevpr manipulated in this stock.
Senator C o u z e n s . What made you sell out?
Mr. B r a g g . Well, I finally decided that we had a loss in the ac
count and that the stock was not such an excellent purchase.
Senator C o u z e n s . In other words, you decided that?
Mr. B r a g g . Yes, sir.
Senator C o u z e n s . So you were the manager of the syndicate?
Mr. B r a g g . Well, Ithmk it was a joint account, as I would call,
not a syndicate. There was no manager, but there were three
jointly. Each put in an equal amount of money.
Senator C o u z e n s . H o w m u c h ?
Mr. B r a g g . I think $50,000 each.
Senator C o u z e n s . And how many shares did they buy?
Mr. B r a g g . Well, we only bought three or four thousand shares.
The stock was selling at around 30 at that time. That would be
$120,000, the total purchase price.
Senator C o u z e n s . So you did not use the whole $150,000?
M r. B
ragg.
Senator
N o , sir.
C o u z e n s . But
you put in $30,000 or $40,000 apiece?
412
STOCK EXCHANGE PRACTICES
Mr. B r a g g . I think we each put in fifty thousand.
Senator C o u z e n s . What did you do with the stock above the pur
chase of the Lima Locomotive?
Mr. B r a g g . I did not quite-----Senator C o u z e n s . What did you do with the money that you put
in the pool in excess of what was required to purchase the Lima
Locomotive?
Mr. B r a g g . It was in the account.
Senator C o tjze n s . What did you do with it in the account?
Mr. B r a g g . Didn’t do anything with it.
Senator C o u z e n s . It just lay there?
Mr. B r a g g . Yes.
Senator C o t j z e n s . What did you do with it when the syndicate
was dissolved?
Mr. B r a g g . This would be guessing. I think we lost about $20,000
each.
Senator C otjzen s . About $20,000 each?
Mr. B r a g g . I t h in k so .
Senator C otjze n s . Did you organize any more syndicates or pools
with Mr. Rockefeller after that date?
Mr. B r a g g . Not exactly with him. He was in one of the pools.
Senator C o t j z e n s . Tell us about that.
Mr. B r a g g . Well, there was a pool on Anaconda. I think there
were two pools in Anaconda.
Senator C otjzen s . To what extent were these pools in Anaconda?
Mr. B r a g g . That was a large pool.
Senator C o u z e n s . How big?
Mr. B r a g g . I forget the exact amount of money put in. There
was at one time a holding of, I think, 190,000 shares of stock.
Senator C otjzen s . What value?
Mr. B r a g g . The stock was purchased probably at an average o f
$170 a share.
Senator C o u z e n s . So in the aggregate that was how much ?
Mr. B r a g g . Well, one hundred and ninety times 170. These figures
are approximate. They are just guesses.
Senator C o u z e n s . H o w much money did you put in the pool t h e n
or the syndicate?
Mr. B r a g g . I think, or rather my wife did, a half million dollars.
Senator C o u z e n s . How much did Mr. Rockefeller put in?
Mr. B rag g . Oh, much less than that. I think a hundred or two
hundred thousand.
Senator C o u z e n s . Was Mr. Bernard Smith in that syndicate?
Mr. B r a g g . Yes, sir.
Senator C o u z e n s . H o w much did he put in?
Mr. B r a g g . I would say about a half a million dollars.
S e n a to r C ou ze n s. H ow m a n y o th e rs w e re jo in e d in th e s y n d ic a t e
w it h t h e th r e e m e n y o u h a v e ju s t m e n t io n e d ?
Mr. B r a g g . Oh, there were 10 or 12 in that pool.
Senator C o u z e n s . Who were they?
Mr. B r a g g . Mr. M. J. Meehan.
Senator C o u z e n s . His name appears quite prominently, does it
not?
Mr. B r a g g . Yes, sir.
Senator C o u z e n s . And who else?
STOCK EXCHANGE PRACTICES
413
Mr. B r a g g . Mr. John J. Raskob, I think was in that pool.
Senator C o u z e n s . And w h o besides Mr. Raskob and Mr. Meehan.
Mr. B r a g g . I think Mr. W. A. Kenny.
Senator C o u z e n s . Go a h e a d .
Mr. B ragg. Mr. P. A. Rockefeller. I think Mr. Fred Fisher was
in that one.
#
Senator C o u z e n s . Go a h e a d .
Mr. B r a g g . I am trying to remember them.
Senator C o u z e n s . Yes.
Mr. B r a g g . There were some others, I think, but I am not defintely
sure, and I would rather not put the names in until I check the
records.
Senator C o u z e n s . Can’t you get the names of the others?
Mr. B r a g g . Oh, yes. Yes, sir.
Senator C o u z e n s . Is that pool still in existence ?
Mr. B r a g g . No, sir.
Senator C o u z e n s . Who w a s the manager of that pool?
Mr. B r a g g . I think I was one of the managers.
Senator C o u z e n s . And how did you come out?
Mr. B r a g g . I, or rather my wife, lost about $400,000.
Senator C o u z e n s . And I suppose that relation applied to all the
others who participated in the pool ?
Mr. B r a g g . Yes; at the same ratio.
Senator C o u z e n s . And how long d i d the pool last?
Mr. B r a g g . Although others may have lost more, because that
pool was closed by the distribution of the stock.
Senator C o u z e n s . By what?
Mr. B r a g g . The distribution of the stock.
Senator C o u z e n s . Then how many shares did you get as part of
the distribution?
Mr. B r a g g . I d o n ’t r e m e m b e r t h a t . I t h in k t h e r e w a s d is t r ib u t e d
a r o u n d e i g h t y o r n in e t y t h o u s a n d s h a r e s . I im m e d ia t e ly s o l d m in e ,
o r r a t h e r m y w i f e ’ s.
Senator C o u z e n s . And i f you had held on you would have lost
more, I assume ?
Mr. B r a g g . Would have lost quite a lot more.
Senator F l e t c h e r . What did you get for it ?
Mr. B r a g g . I think around ninety to a hundred dollars a share.
Senator F l e t c h e r . Then it went down to where there was no bid
at all and nobody wanting it and you divided the stock?
Mr. B r a g g . No. No; we divided the stock, we distributed the pool;
by distributing the stock to the individuals pro rata, the amount of
their interest in the pool. Now, what the individuals did with their
stock after they got it, I do not know, except what I did with my
wife’s. I sold hers.
Senator F l e t c h e r . H ow long did that pool last? How long was
it in existence ?
Mr. B r a g g . Three or four months.
Senator C o u z e n . Who o r g a n iz e d the pool?
Mr. B r a g g . Why, I do not know who exactly organized it. At
the time I was in Florida sick the pool was formed.
Senator C o u z e n s . And you were invited in ?
Mr. B r a g g . Yes, sir.
Senator C o u z e n s . By whom?
STOCK EXC H A N G E PRACTICES
414
Mr. B r a g g . By Mr. Meehan and Mr. Smith.
Senator C o u z e n s . And you do not know who the promoter w a s !
Mr. B r a g g . Well, I think that Mr. Meehan and Mr. Smith possibly
were the originators of the pool.
Senator C o u z e n s . What representations were held out to invite
people to join in the pool?
.
Mr. B r a g g . Possible profit.
Senator C o u z e n s . Possible profit, but how was it to be accom^
plished? That is what I am trying to get at.
Mr. B r a g g . Well, they apparently thought the stock was going up
and they had accumulated by purchasing this amount of stock and
selling it at an advanced price.
Senator C o u z e n s . When you went in the pool did you investigate
the value of the stock ?
Mr. B r a g g . No. I investigated it afterwards.
Senator C o u z e n s . Was that the general policy that was adopted
by your colleagues in the pool?
Mr. B r a g g . N o ; I do not think so. Generally at that time, in the
inflationary market, I do not think many people investigated any
thing.
Senator C o u z e n s . Well, after your experience of purchasing and
then investigating, what did you determine the value of the stock
to have been?
Mr. B r a g g . I rather thought the stock was too high.
Senator C o u z e n s . Y ou discovered that after you sold out?
M r. B
ragg.
N o ; a f t e r th e s t o c k w a s b o u g h t i n t h e p o o l .
Senator C o u z e n s . Then you discovered that you had paid t o o
high a price?
Mr. B r a g g . I thought s o ; y e s .
Senator C o u z e n s . How much too high?
Mr. B r ag g . Well, I thought it was considerably high.
Senator C o u z e n s . What do you mean by “ considerably ” ?
Mr. B r a g g . Well, I thought with the earnings of that company
based on the copper business as it usually happens, the price o f the
metal was very high at that time, I thought the stock was very much
overpriced.
Senator C o u z e n s . What was the earning of the stock when you
invested $400,000 in a pool? What was the stock earning?
Senator G l a s s . Invested $500,000.
Senator F l e t c h e r . A half million.
Mr. B r a g g . I do not recall the earnings at that time, but the
earnings, if I remember it, were projected on a 24-cent price of
copper.
Senator C o u z e n s . And then how soon did copper go down after
that?
Mr. B r a g g . Very shortly after that the price broke to 18 cents.
Senator C o u z e n s . And that 6-cent per pound drop in the price of
copper, to what extent did it affect the market price of the stock?
Mr. B r a g g . The stock sold from 174, I think, down to around a
hundred.
Senator C o u z e n s . At a hundred, what return would the earnings
of the company make?
Mr. B r a g g . I think the Anaconda paid $6 at that time.
Senator C o u z e n s . Y ou do not recall who organized this pool?
STOCK E X CH A N GE PRACTICES
415
Mr. B r a g g . No, not exactly. As I say, I was in Florida sick
at that time.
Senator C o u zen t Mr. Rockefeller was one of the early parties
to join the pool?
Mr. B r a g g . Well, I shouldn’t exactly say that, as I was not there.
Senator C o u z e n s . D o you know whether the Anaconda Co. are
depositors with the National City Co.?
Mr. B r a g g . I think they are— National Citj^ Bank.
Senator C o u z e n s . National City Bank, I should have said.
Mr. B r a g g . Yes, sir; I think they are.
Senator C o u z e n s . And do you know whether the Anaconda Co.
was borrowing at that time?
Mr. B r a g g . I do not think they were borrowing at that time.
Senator C o u z e n s . But they have had to borrow since ?
Mr. B r a g g . Yes, sir.
Senator C o u z e n s . When did you first meet Mr. Rockefeller?
Mr. B r a g g . I think in 1919.
Senator C o u z e n s . Just how did it come about?
Mr. B r a g g . I think the first time I met him he visited a plant at
which I was employed.
Senator C o u z e n s . What doing?
Mr. B r a g g . I was secretary.
Senator C o u z e n s . What plant?
Mr. B r a g g . American International Shipbuilding Corporation at
Philadelphia.
Senator C o u z e n s . And he was a director?
Mr. B r a g g . He was a director of the parent company, the Ameri
can International Corporation.
Senator C o u z e n s . That is when you first met him ?
Mr. B r a g g . Yes, sir.
Senator C o u z e n s . And have you known him continuously since
that time ?
Mr. B r a g g . Yes, sir.
Senator C o u z e n s . And during all that time, how many pools have
you been in with him? You have mentioned Anaconda. We know
about Anaconda and we know about the Lima Locomotive. Any
others ?
Mr. B r a g g . Yes; I think he was in—well, I am not sure. I would
rather not say. I think he was in a couple of more pools. I think
he was in a pool—I am not definite enough to say this.
Senator C o u z e n s . Did you keep any books all the time that these
transactions in pools were being organized?
Mr. B r a g g . No, sir.
Senator C o u z e n s . How did you make your income-tax returns to
the Federal Government if you did not keep the books?
Mr. B r a g g . By supplying all the brokers’ statements to a clerk in
the office to work them up.
Senator C o u z e n s . And so the clerk in the office made up y o u r
income-tax returns and did it from the brokers’ records rather than
your own?
Mr. B r a g g . Brokers’ records and bank statements and all the
papers I had.
416
STOCK EXCH A N G E PRACTICES
Senator C o u z e n s . And how long have you been operating on the
market? You say since nineteen when?
Mr. B rag g . 1918 or ’19.
Senator C o u z e n s . So during that 13 or 14 years have your opera
tions been profitable?
M r . B rag g . Yes; I t h in k so.
Senator C o u z e n s . Substantially so, I suppose, that you have paio
an income tax to the Government all during each of these years 1
Mr. B r ag g . Yes, sir.
Senator C o u z e n s . That is all I desire, Mr. Chairman.
Mr. G r a y . I want to see that I have got your figures on Anaconda
correct. That stock cost you an average of $170 a share?
Mr. B r ag g . One hundred and sixtj or 170,1 think.
Mr. G r a y . And it was paying a dividend of $6 a share ?
Mr. B rag g . Yes, sir.
Mr. G r a y . And you had 190,000 shares ?
Mr. B r ag g . I think at one time we had 190,000 shares.
Mr. G r a y . Then you had over $32,000,000 invested in that pool;
to be exact, with 190,000 at $170 a share, on an average, gives you
$32,300,000. Is that correct?
Mr. B r a g g . Yes, sir; I assume so.
Mr. G r a y . H o w much did you put into that pool ?
Mr. B r a g g . I will say about a half a million dollars.
Mr. G r a y . About a half a million dollars?
Mr. B rag g . Yes, sir.
Mr. G r a y . There were a number of others that put a larger
amount into the pool ?
Mr. B rag g . No; I do not think so.
Mr. G r a y . Were you buying on a margin?
Mr. B rag g . Yes, sir; borrowing from the bank.
Mr. G r a y . Tell me why you and your associates, supposedly wise
in the stock market, paid $170 a share on an average tor Anaconda,
paying $6 a share dividend, with copper then at 24 cents a pound,
if you did not anticipate your ability to in some manner aside from
the natural movement put that stock up ?
Mr. B r a g g . Well, i f copper continued at 24 cents a pound, the
Anaconda earnings would have been very much larger.
Mr. G r a y . What investigation did your pool make to determine
whether it was probable or likely that the demand for copper and
the range of prices of copper was going to cause it to continue at
24 cents or either increase in price, any ?
Mr. B r a g g . I don’t know. I was not there at that time, sir.
Mr. G r a y . As a matter of fact, are not such pools formed, and
wasn’t that pool in Anaconda formed, because you hoped to be able
to so manipulate the market as to make a profit?
Mr. B r a g g . Well, all these pools are formed to make a profit if
possible.
Mr. G r a y . Y ou evade my question. Of course, no man goes into
a pool and invests his money, whether it is on the long or the short
side, that does not expect to make a profit. My question was whether
or not, under the conditions as I have described them to you, your
pool did not anticipate making a profit because of your ability to
manipulate the market.
STOCK EXCHANGE PRACTICES
417
Mr. B rag g . Well, I don’t—on all these things that I have seen on
the stock exchange, this manipulating the market does not work
out so well.
Mr. G r a y . Then you know how they are manipulated and you
know whether they work out well or not. Now tell us how they are
manipulated first.
Mr. B r ag g . Well, form a buying account of stocks, and presum
ably based on some knowledge of the company earnings and future
prospects of the company.
Mr. G r a y . That is what every investor does. We are not con
cerned with that. We are concerned with the matter of what you
do in the way of manipulating the market. You have answered
me that these manipulations of the market do not always work out
well. Tell me how the manipulations take place. That is what we
are anxious to know from somebody like yourself that is experienced.
Mr. B r a g g . Well, I do not know just how to describe to you
what you mean by “ manipulation.”
Mr. G r a y . What d o y o u mean b y it?
Mr. B r a g g . The only way that I see is to buy a certain number of
shares of stock and probably, if there is a demand for that stock,
you have a large amount of it, you have probably the floating
supply of it, I mean what is generally around-----Mr. G r a y (interposing). In other words, your first effort is to
control the floating supply?
Mr. B r a g g . B u y the stock that is available in the market, within
a certain range.
Mr. G r a y . Well, you do not just sit quietly down after you buy
the stock and wait for it to rise under natural circumstances, do you ?
What do you do ? What is this manipulation ?
Mr. B r a g g . Well, I do not know that there is much that they do
do. Just buy the stock and if the stock goes up, you sell it on a
scale up sometimes, or you wait and try to sell it all at the top
price.
Mr. G r a y . Mr. Bragg, I would like you to be a little frank with
this committee. This committee, I do not believe, would for a
moment consider that you and others would handle $32,000,000 of
a stock, Anaconda, at a price that you have indicated and under
these circumstances, just sit down quietly and wait naturally for it
to rise. What do you do to make the market so that you can sell
that stock? That is what we want to know.
Senator C o u z e n s . While you are thinking about an answer, maybe
you can tell us what year this was. I think I forgot to ask you wnat
year this pool was formed.
Mr. B r a g g . I think it was early in 1929.
Senator C o u z e n s . Early in 1929 ?
Mr. B r a g g . Yes, sir; January or February.
Senator C o u z e n s . Did I ask you who the manager o f that pool was
b e fo r e ?
Mr. B
r a g g . Yes, sir.
Senator C o u z e n s . Who was it?
Mr. B r a g g . I was one of the managers of it.
Senator C o u z e n s . Although you were in Florida ?
Mr. B r a g g . Yes, sir.
Senator C o u z e n s . When did the uool close?
STOCK EXCHANGE PRACTICES
418
Mr. B ragg. About six months afterwards.
Senator Couzens. Now, you may answer the counsel for the com
mittee.
Mr. G ray. You have had time to think, Mr. Bragg?
Mr. B ragg. Yes, sir.
Mr. G ray . I am sorry you had it, but you had it. Tell us about it.
Mr. B ragg. I do not know just how to explain to you, because
Mr. G ray (interposing). Just by telling us the truth, that is all.
Mr. Bragg. I will be glad to tell you all I know, and certainly the
truth.
Mr. G ray. Yes, please. But if you are going to describe it first,
please describe it truthfully to us and tell it to us all in detail.
Mr. Bragg. Yes, sir.
M r. G ray . Don’t hedge on it.
Mr. Bragg. This pool was formed, the account, with these indi
viduals in it. I think there were 10 or 12. This stock was bought
and it was bought up at the high of the market, probably at 174.
Then nothing happened. The market went down. A n d when I
came back from Florida I sold it, forty or fifty thousand shares of
stockt
Mr. G ray . Individually?
Mr. Bragg. No ; for the pool.
Mr. G ray. Yes.
Mr. Bragg. A t around 160. Then I think when I got to New Y ork
I sold some more.
Mr. G ray. Does it dawn on you what I am trying to find out?
M r. B ragg. Yes, sir.
Mr. G ray. Then tell me what I am trying to find out. I don't
want to know whether or not you came back from Florida and saw
the stock down and thought you ought to sell forty or fifty thousand
shares. Whether you did anything or not, I want to know what
you had in contemplation when you permitted a pool to buy 190,000
shares of Anaconda Copper at an average of 170 under the condi
tions that Anaconda Copper was at that time. What did you con
template doing so as to be able to definitely make a profit in that
stock? You aid not contemplate just sitting down and w atching it
go one way or the other?
Mr. B ragg. Well, I was in Florida at that time.
Mr. G ray. I know.
Mr. B ragg. I didn’t do anything about it.
Mr. G ray. Who did? Who did that part of the work, th en !
Mr. B ragg. The buying of the stock?
Mr. G ray. N o, no; the manipulation in order to make the p rofit
Mr. B ragg. I do not think there was any manipulation.
Mr. G ray. You do not think so?
Mr. B ragg. No, sir.
M r. G ray . Y ou are not willing to tell us the detail?
M r. B ragg. I am willing to tefl you exactly all the details.
Mr. G ray . Why did it take so long to think about it, then, when
I asked you the question if there was nothing else but a pool sitting
there and watching the market move one way or the other ?
Mr. p*hagg. I was thinking to answer your question truthfully and
give you the details.
STOCK EXCHANGE PRACTICES
419
Mr. G ray . Y ou were?
Mr. B bagg. Yes, sir.
Mr. G uay . In other words, knowing that you did not do anything
except sit there and watch that stock go one way or the other, ana
seeing it go down, sold, you had to think in order to answer my
question truthfully? Do you say that?
Senator G lass. Mr. Chairman, I protest against bullyragging the
witness in that way.
Mr. G ray . Well, Senator—pardon me.
Senator G lass. I think we can get the truth out of a witness with
out that sort o f thing. I think that transcends the proprieties, and
I am as anxious to have the truth as the counsel of this committee
is, or any member of the committee is.
Mr. G ray . I can only say to you, Senator, that, having had infor
mation generally as to the manner in which these pools are manip
ulated, and the circumstances under which this witness has testified
that this purchase of Anaconda was made, it seems remarkable to
me that they would sit to one side and do nothing, and therefore I
am inquiring for the purpose of trying to get what I believe are
the facts for this committee. I f the committee does not want it
done that way I do not care.
Senator G lass. I think, myself, that it is ridiculous to say that
a pool in excess of $30,000,000 was formed with the intention of
just sitting down and doing nothing about it. But I do not think
you will extract the truth from him by that method o f interrogation.
Mr. Gray. Possibly not, Senator; but in 35 years of experience
I have found that some witnesses have to be treated one way and
some another.
Senator G lass. Yes; I know you lawyers do that; yes.
Mr. G ray . Sometimes we can get it, and sometimes we can not.
We are not always successful. But if the committee does not
approve of that method, I will have to, of course-----Senator G lass (interposing). W ell, I am not the committee.
Mr. G ray . I understand that. I will have to consider the vary
ing elements on the committee to try to satisfy them all. It may
be a little difficult, but I am doing the best I can under the circum
stances.
Senator G lass. I think you are doing pretty well, except I think
you are going rather far with that.
Mr. G b a t . I f, Mr. Bragg, the situation was such that you have
detailed it to us, and you can not tell us anything to the contrary
at the moment, you will have an opportunity to present it in full
at a future time.
Senator F l e t c i i e r . Y o u n e v e r g o t w h a t h e d i d .
Mr. G ray . He says they didn’t do anything.
Senator F l e t c h e r . He has tried two or three times to tell and
you interrupt him.
Mr. G ray . I will let you take your time and tell this committee
what you have to tell them about what you did.
Mr. B ragg. This stock was bought, as I tell you, Mr. Gray, and
was bought at a price of, I would say, $174, within a point or so o f
the top o f this market in this particular stock. That is all that
happened in the stock. The stock started going down then.
420
STOCK EXCHANGE PRACTICES
Senator G lass. Was it not your expectation, the expectation of
your pool, when they put $30,000,000 into it, the very fact that
you did buy $30,000,000 worth of stock would make an impression
on the market and raise the price of it?
Mr. B ragg. Well, I think in that particular instance, Senator,
the buying of this stock did put the market up. That is what
happened.
Senator G lass. Yes. That was your purpose in buying it, was
it not?
Mr. Bragg. No ; the purpose in buying it was to sell it at a profit.
Senator G lass. Well, the only way to sell it at a profit w ould be
to put the market up, would it not?
Mr. B ragg. Yes; the market would have to go up higher than
you bought it to be able to sell it at a profit.
Senator C ouzens. H ow high did it go up after you purchased
it?
Mr. B ragg. I think, as I just said, Senator, that was about within
a point o f the top of the market in that particular stock.
Senator C ouzens. A t any time?
Mr. B bagg. Yes, sir.
Senator F letcher. Then you said you sold some o f it afterwards.
You came back. You did not simply hold it there. You came to
New York and then you sold forty or fifty thousand shares. That
is the first transaction?
Mr. B ragg. Yes, sir.
Senator F letcheb. What else did you do?
Mr. B ragg. Then I sold some more of it around 130 or 135.
Senator F letcher. You never bought any more?
Mr. B bagg. I think at one time I bought some at 130 and sold it
at 135, and then I think I turned around and sold thirty or forty
thousand shares for around 130 or 135. And then the balance o f it
was distributed when the market at that time was about $90 a share,
90 or a hundred dollars a share.
Senator F letcheb. You went in and out of the market from time
to time buying and selling occasionally?
Mr. B bagg. I think very occasionaUy in that stock. There was
about one trade made on it.
Senator F letcheb. Did you make any outside effort to advertise
it or boost it in any way?
Mr. Bbagg. No, sir; I don’t think in that stock there was much—
you see, at that time I was in Florida about three months and my
part of that business was to come back and sell it.
Mr. Gbay. Now, Mr. Bragg, that was in 1929, was it not?
Mr. B bagg. Yes, sir.
Mr. Gbay. Y ou know that certain banks in the city o f New Y ork
have affiliated companies that handle stock transactions, do you not?
Mr. Bbagg. Yes, sir.
Mr. G bay . And you have been asked about the National City
Bank?
Mr. B ragg. Yes, sir.
Mr. G bay . And you know that the National City Bank has affili
ated companies?
Mr. B bagg. Has the National City Co.; yes, sir.
STOCK EXCHANGE PRACTICES
421
Mr. G ray. I ask you whether or not you don’t know and whether
it was not a part of your operations that at the time that you were
dealing in Anaconda in this way the affiliated company of the
National City Bank, in cooperation with your pool, was selling
short?
Mr. B ragg. No, sir; I didn’t know that.
Mr. G ray . Didn’t know that?
Mr. B ragg. No, sir.
Mr. G ray . D o you know the position that the affiliate of the
National City Bank in New York was taking with respect to Ana
conda stock at the time that you were in the market with this pool ?
Mr. B ragg. N o, sir.
Mr. G ray. Do you know that it was selling and buying Anaconda?
Mr. B ragg. N o; I do not know that.
Senator G lass. D o you know that one or more o f the officials of
the National City Co., if not the National City Bank, were sending
out letters boosting Anaconda stock?
Mr. B ragg. This was after this pool—I think what you are refer
ring to was after this pool was dissolved.
Senator G lass. But that happened, did it not?
Mr. B ragg. Yes, sir; I understand it did.
Senator G lass. What do you know about it?
Mr. B ragg. I don’t know much about it, Senator. I haven’t any
relations with the National City Bank or the National City Co. I
read a book about it, and that is about all I know about it.
Mr. G ray . N ow , Mr. Bragg, because o f the fact that we have got
such limited time, I want you to answer me just three or four brief
questions first. Your pool in Lima Locomotive continued to operate
in other stocks, did it not?
Mr. B ragg. Y es; as I recall, it bought maybe a thousand or two
thousand shares.
Mr. G ray. Have you named all of the pools that you have been
in that you can recall, you and Mr. Smith and Mr. Rockefeller,
irrespective of whether others were in with you?
Mr. B ragg. I am not sure of that. As I said, I think-----Mr. G ray (interposing). Were you three in Alaska Juneau?
Mr. B ragg. N o, sir.
Mr. G ray . Y ou were not ?
Mr. B ragg. N o, sir.
Mr. G ray. Well, in fairness, I want to say to you that Mr. Rocke
feller testified yesterday that you were. That is my recollection.
If I am wrong, why, I will correct myself by looking at the record.
Mr. B ragg, xou mean in a joint account or syndicate?
Mr. G ray. Well, joint account or syndicate.
Mr. B ragg. No, sir.
Mr. G ray. You were not in Alaska Juneau at all?
Mr. B ragg. I have some of my own Alaska Juneau stock.
Mr. G ray. Not with others?
Mr. B ragg. N o, sir.
Mr. G ray. By the way, who was the specialist in Anaconda at the
time your pool was operating, do you know ?
Mr. B ragg. N o; I do not.
Mr. G r a y . Y ou do not know who was the specialist in Alaska
Juneau?
119852—32—PT 2------4
422
STOCK EXCHANGE PRACTICES
Mr. B ragg. I think a man named Stuyvesant Fish was a special
ist in Alaska Juneau?
M r. G ray. Was Smith a specialist in Alaska Juneau?
Mr. Bragg. No, sir
M r. G ray . Y ou are positive of that?
Mr. B ragg. Positive of that.
Mr. G r a y . Tell me what other pools you were in with or w ith
out Mr. Rockefeller since you were with Hutton & Co. and sine© you
left.
Mr. B ragg. There was a pool in Briggs Manufacturing.
Mr. G ray . I want the names of these pools so that I can instruct
him that I want this data when he comes again.
Briggs Manufacturing, who was in that ?
Mr. B ragg. There were 10 or 12 people. I would rather get the
names and give it to you.
M r. G ray . W hat other pools?
Mr. B ragg. The pool in Radio.
M r. G ray. Yes. When was that?
Mr. B ragg. That was in 1930,1 think; yes.
Mr. G ray. More than one pool in Radio you were in?
Mr. B ragg. I was in one pool and in another account which I
would not call a pool. It was a buying account in Radio.
Mr. G ray. Y ou will give me the names of those that we are to
have there. But Meehan and Smith were both with you in that?
Mr. B ragg. Yes, sir.
Mr. G ray . Was Meehan the specialist in Radio ?
Mr. B ragg. Yes, sir.
Mr. G ray . In other words, there was a pool where you were coop
erating with one of the members of the pool as a specialist; he was
a member of the pool and he was a specialist on the floor in the
stock?
Mr. B ragg. Yes, sir.
Mr. G ray . A ll right; what other pools?
Mr. B ragg. It was a pool of the St. Louis & Southwestern R a il
road; a small pool.
Mr. G ray. Yes. What others? Timken Roller Bearing?
M r. B ragg. N o, sir; no pool in that.
Mr. G ray. A ll right. What else? Case?
Mr. Bragg. No, sir.
Mr. G ray. Auburn?
Mr. B ragg. N o, sir.
Mr. G ray. N ow if that is all you can think o f at the moment, I
will ask you if, as soon as you return to New York, and prior to the
time you are called here again, you will send to this committee a
memorandum of all the pools you were interested in since you
started with W. E. Hutton & Co., and the various members o f those
pools, and in what they operated.
Mr. B ragg. Yes, sir.
Mr. G ray. W ill you do that?
Mr. B ragg. Yes. sir.
Mr. G ray. So tnat they can have it before you come here again?
Mr. B ragg. Yes, sir.
Senator Couzens. I want to know where those records are n ow .
Mr. G ray. One more instruction, Senator before I forget it.
STOCK EXCHANGE PRACTICES
423
And also the name or names of the brokerage houses through which
you operated in those pools.
Mr. B ragg. Yes, sir.
Mr. G r a y . Now, will you answer Senator Couzen’s question as to
where those records are now?
Mr. B ragg. They are in the different offices they operated through.
Senator C ouzens . So we have not any absolute assurance that we
will get all the names, because you may get some and not others;
and jrou may forget some and not others? We have no assurance
we will get them?
Mr. B ragg. I will get all I can get.
Senator C ouzens . Y ou mean all that you can find?
Mr. B ragg. I think I can find them.
Senator C ouzens . There is no record of the operation of these
syndicates, or the dissolution of them, or any books of accounts, as
I understand it?
Mr. B ragg. I do not think there is any central place; no, sir.
Senator C ouzens . That is what I am getting at, there is no central
place for these records?
Mr. B ragg. I imagine there are a great many pools in W all Street.
Senator C ouzens . N o w , I am asking about the pools you are in
terested in. Take the Anaconda; there was a specialist in that?
Mr. B ragg. Oh, yes; there was a specialist.
Senator C ouzens . But you do not know who it was?
Mr. B ragg. No, sir.
Senator C ouzens . There is no central point where you can obtain
this information, is there?
Mr. B ragg. I beg your pardon?
Senator C ouzens . There is no central point where you can obtain
for the committee a record of all those pools, is there, or any one
pool?
Mr. B ragg. Oh, I could not say in one pool—one pool is in one
office, and another pool might have been in another office.
Mr. G r a y . It might have been even in two or three offices?
Mr. B ragg. Yes; that might be true.
Mr. G r a y . You use just one broker?
Mr. B ragg. The account is with one broker.
Mr. G r a y . But you use other brokers also?
Mr. B ragg. We use different brokers in buying.
M r. G r a y . Y ou use undercover brokers?
Mr. B ragg. We use other brokers.
Mr. G r a y . W . E. Hutton & Co., with whom
you were, were deal
ing with other smaller brokers, in order to keep the matter from
becoming too public?
Mr. B^lagg. xes, sir.
Mr. G r a y . And they are called undercover brokers, as we under
stand, when that is done in that way.
I will say to the committee that there are many things I could
ask Mr. Bragg but, under the chairman’s instructions, I was to
ask this witness for the pools he had operated in, and the names of
his associates, and then we were to put Mr. Smith on the stand.
The C h a ir m a n . Yes. But just one moment. I want to ask him
some questions.
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STOCK EXCHANGE PRACTICES
When you were in Florida you telephoned back and forth your
instructions?
Mr. B kagg. Yes, sir.
The Chairm an. Whom did you communicate with?
Mr. B ragg. Mr. Smith and Meehan.
The C h a ir m a n . And Mr. Rockefeller?
Mr. B ragg. No, sir.
The C h a ir m a n . You say there were 10 or 12 members in this
Anaconda pool?
Mr. B ragg. Yes, sir.
The C h a i r m a n . What was the price of the metal when you w e n t
into this pool?
Mr. B ragg. I think the price was around 18 or 19 cents.
The Chairm an. And there was a movement on to send the price
o f the metal up at that time, was there not?
Mr. B ragg. Yes, sir.
The C h a ir m a n . Was the pool formed to send the price u p ?
Mr. B ragg. I am not familiar with a pool for that.
The C h a ir m a n . That is the way it worked?
Mr. B ragg. Yes; I understood there was a pool to send the price
o f copper up.
The C h a ir m a n . And that was to send it how high?
Mr. B ragg. Twenty-four cents.
The C h a ir m a n . Twenty-four cents?
Mr. B ragg. Yes, sir.
The C h a ir m a n . And the cost of production is how much? E ight
cents?
•
Mr. B ragg. No; it is higher than. that.
The C h a ir m a n . We have testimony before us that it runs 6 o r 8
cents.
Mr. B ragg. It depends on the properties. The South American
and the Greene Cananea it runs higher.
The C h a ir m a n . But is this not a fact, that the effort to send the
price up to an arbitrary price was one o f the things that sent th e
stock to that figure?
Mr. B ragg. Yes, sir.
The C h a ir m a n . What was the National City Bank doing, or the
National City Co., at that time? Were they unloading?
Mr. B ragg. I do not know, sir.
Senator G lass . You do not even suspect?
The C h a i r m a n . Were they recommending the purchase at this
high price?
Mr. B ragg. No ; I think that came later.
The C h a ir m a n . When they saw the stock slipping they recom
mended to the customers buying, did they not?
Mr. B ragg. I do not know that, sir.
The C h a ir m a n . We have testimony before this committee from
the chairman of the board of the bank that they recommended to
their customers to buy at 140. That is when it was slipping, was it
not?
Mr. B ragg. I think the price was around 120 at that time.
The C h a ir m a n . What is it now?
Mr. B ragg. Five. (Laughter.)
STOCK EXCHANGE PRACTICES
425
The C h a ir m a n . S o there was good reason why it was selling, was
there not? And is not this a fact, that after the market broke on
the metal, the American companies went into foreign countries and
bought copper mines?
Mr. B ragg. Yes—I think that was done before. You mean A fri
can mines?
The C h a ir m a n . Yes; and South American mines. They fol
lowed afterwards, at least after the operation started? In other
words, they are producing with foreign labor at a lower cost and in
competition with the markets here.
Mr. B ragg. Well, the South American properties all produce
cheaper than they do here, I think. The labor costs are cheaper than
they are here. They are 6 or 7 cents, as against 11 here. The
syndicates have been producing it, and the Belgian syndicate.
T he C h a ir m a n . S o, as a result o f this pool in it, and the attempt
or try in g to peg the price at three or fou r times the cost, brought on
the terrible condition in copper?
Mr. B ragg. I do not know just what brought it on.
The C h a ir m a n . That will be all at this time. You may consider
yourself subject to call.
Mr. B ragg. Yes, sir.
(The witness was temporarily excused.)
The C h a ir m a n . Mr. Bernard E. Smith.
TESTIMONY OF BERNARD E. SMITH, NEW YORK, N. Y.
(The witness was duly sworn by the chairman.)
M r. G r a y . What is your name?
Mr. S m it h . Bernard E. Smith.
Mr. G r a y . And where do you reside?
Mr. S m it h . New York City.
Mr. G r a y . Where?
Mr. S m it h . 1158 Fifth Avenue.
Mr. G r a y . While I have it fresh in my
mind, so far as your oper
ating accounts are concerned, those that you run outside, you are
sometimes known as B. Smith; sometimes as B. E. Smith; and
sometimes as Bernard E. Smith?
Mr. S m it h . Y es; and sometimes as Ben Smith.
Mr. G r a y . Sometimes as Benny Smith?
Mr. S m it h . Yes, sir.
Mr. G r a y . We will touch that subject a little later.
Senator C ouzens . And what is your real name?
Mr. S m it h . Bernard E. Smith.
Mr. G r a y . A t the present time, on account o f the limitation of
time, I will not go into it.
Wnat is your business?
Mr. S m it h . I am a broker, a member o f the stock exchange.
Mr. G r a y . D o you conduct a commission house?
Mr. S m it h . N o, sir.
Mr. G r a y . H ow long have you been a broker and a member o f
the stock exchange?
Mr. S m i t h . S ix years.
Mr. Gray. And your purpose in maintaining a membership on the
stock exchange is for the purpose of having facilities to operate,
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STOCK EXCHANGE PRACTICES
either for yourself or for any others with whom you might be asso
ciated; is that correct?
Mr. Sm ith. The purpose was to earn a livelihood.
Mr. G r a y . Yes, sir.
Mr. Sm ith. That is the reason I bought the seat.
Mr. G r a y . But, inasmuch as you do not conduct a brokerage house
which buys and sells on a commission, I draw the assumption-—and
please tell me whether I am correct—that you, therefore, m aintain
a seat for your own operations and that of your associates.
Mr. Sm ith. For myself.
Mr. G ra y . And also such pools as you may go into?
Mr. Sm ith. Not now. In the past that was so.
M r. G r a y . In the past that was so?
Mr. Sm ith. Yes, sir.
M r. G r a y . Have you, by the way, ever been a specialist in any
stock; and, if so, tell me which one.
Mr. Sm ith. I was a specialist in TJ. S. Realty; Tidewater Asso
ciated ; Savage Arms. I think that is about all.
Mr. G r a y . Y ou are not a specialist in Alaska Juneau?
Mr. Sm ith. No, sir.
Mr. G r a y . Nor in radio?
Mr. Sm ith. N o, sir.
Mr. G r a y . And over what period of time have you been operating
in the market for yourself, and for yourself and associates ? I m ean ,
does it run back just six years when you have been a member, o r run
back farther?
Mr. Sm ith. My first start in trading on the market was about
1903.
Mr. G ray . About 1903?
Mr. Sm ith. Yes, sir.
Mr. G r a y . It is a fact that you are known as one of the big opera
tors in New York City, is it not? And please do not be modest.
Mr. Sm ith. People speak of me as a big operator.
. Mr. G ray . And is it also a fact that you have been known as a b ig
short operator in New York City?
Mr. Sm ith. Yes, sir.
Mr. G ray . And whether you believe the designation to be correct
or not, you have also been known as a big bear raider; is that tru e ?
Mr. Sm ith. No one has called me a bear raider to my face, and I
do not really know what they mean by a raider.
Mr. G r a y . Whether you know what they mean, or whether any
one has ever called you that to your face, you know, by your fam il
iarity with the Street, that you nave that reputation, do you not?
Mr. Sm ith. I do not know that I have it.
Mr. G ra y . You have heard of it?
Mr. Sm ith . I have heard indirectly-----Mr. G r a y . W ell, reputation is only what you hear people say
about somebody else, and that is the reason I put my question that
way.
. . .
Now, you will be willing to furnish to this committee—let me ask
you first if you can; whether you have available records to furnish to
this committee your operations on the market, individually, since you
have become a member of the stock exchange, for the past six years.
Mr. S m it h . Yes; every transaction.
STOCK EXCHANGE PRACTICES
427
Mr. G r a y . A n d will you do so ?
Mr. S m it h . I w ill be very glad to do so.
M r. G r a y . A ll right. And you have been interested in a number
of pools and syndicates since that time?
M r. S m it h . Yes, sir.
Mr. G r a y . And you have records available whereby you can give
the committee the information as to the operation of those various
pools?
Mr. S m it h . I would not have those, but if you-----Mr. G r a y (interposing). They are accessible to you?
Mr. S m it h . They should be available.
M r. G r a y . Let me ask you a question that was put, I think by
Senator Couzens, to Bragg: Is there a centralized record kept of
the operations of those different pools, or would you have to go to
the different brokers through whom they were conducted, for the
purpose o f getting that information ?
Mr. S m it h . I would think that those records would be in, probably,
three or four offices; not more.
M r. G r a y . Did those syndicates or pools keep records of their
own, o f their operations?
Mr. S m it h . Y e s ; they would have to do that. There is a record
of every one.
M r. G r a y . Then they should be in somebody's hands; that is,
whoever is in charge of the record part of that pool, some record
should be there which would picture that whole pool transaction,
would there not?
Mr. S m it h . In
those three or four offices, you would get a picture
by taking the balance sheets.
Mr. G r a y . Yes; but did you not keep a record of your own, aside
from the brokerage offices ?
Mr. S m it h . Did I ?
Mr. G r a y . Y ou , or whoever it devolves upon.
Mr. S m it h . Well, there should be a record in each office.
Mr. G r a y . Y ou still go away to this “ each office.” I want to
know, this Anaconda pool Mr. Bragg was talking about, whether
any member of the pool has a record, irrespective of going back to
the individual offices.
Mr. S m it h . I do not know.
Mr. G r a y . Y ou will find o u t; and i f so, get us whatever you can?
Mr. S m i t h . Y e s , sir.
Senator C o u zen s . D o you keep any books?
Mr. S m i t h . N o, sir; I do not.
Senator C ouzens . And you make out your income tax on the in
formation you can get from the broker, and the elevator man, and
the janitor, and so on, do you, each year?
M r. S m i t h . From my checks; yes.
Senator C o uzens . And that is the only record you have of your
transactions in the year?
Mr. S m i t h . Yes, sir.
Senator C ouzens . And each year you have made an income tax
return, since the law was enacted ?
Mr. S m i t h . Yes.
Senator C o uzens . Is that correct?
Mr. S m i t h . Yes, sir.
428
STOCK EX CH A N GE PRACTICES
Mr. G r a y . Why did you not keep books ?
Mr. S m i t h . Well, I never have.
Mr. G r a y . That is not the question. Why did you not keep b o o k s !
Mr. S m i t h . I do not see the need for it.
Mr. G r a y . Y ou are involved in a number of transactions w hich
involve vast sums of money and in which, sometimes, y o u a re in
volved with associates, and in which you are sometimes individually,
and do you mean to tell this committee that you have never y e t seen
the need of keeping any record of your own and these other
transactions ?
Mr. S m i t h . Well, we keep records of these transactions, b u t that
does not necessarily mean I keep books. They are available.
Mr. G r a y . WTiat are they kept o n ; on separate sheets o f p a p e r !
I am not talking about the records in the brokerage houses, but do
you, either through a secretary, or some one else up there keep
books, and by books is meant whether it is a bound book, a lo o se-lea f
book, or sheets of paper. Do you keep them?
Mr. S m i t h . Yes, sir.
Mr. G r a y . Y e s ; and who keeps them fo r y o u ?
Mr. S m i t h . A secretary.
Mr. G r a y . What is his name?
Mr. S m i t h . Quinn.
Mr. G r a y . What is his first name?
Mr. S m i t h . Frank.
Mr. G r a y . Where does he live?
Mr. S m i t h . In Connecticut.
Mr. G r a y . What place in Connecticut?
Mr. S m i t h . Westport.
Mr. G r a y . Do you know his local address ?
Mr. S m i t h . No, sir.
Mr. G r a y . H o w long has he been with you ?
Mr. S m i t h . About six years.
Mr. G r a y . And you do not know h is address?
Mr. S m i t h . No, sir. I can give you his telephone number.
Mr. G r a y . Give us that.
Mr. S m i t h . Westport 3423.
Mr. G r a y . He is with you in New York, I suppose?
Mr. S m i t h . Yes; every day.
Mr. G r a y . Where is your New York office?
Mr. S m i t h . 52 Wall Street.
Senator F l e t c h e r . He does not keep the records down there, does
he?
Mr. S m i t h . At his home?
Senator F l e t c h e r . No.
Mr. S m i t h . No; in m y office.
Mr. G r a y . N o w , give me the various pools you have been i n , and
the other members of the pool.
Senator C o u z e n s . Mr. Gray, before you ask him that question, I
would like to ask him whether any accountant of the Bureau o f
Internal Revenue has ever called at your office to check the in c o m e tax returns.
Mr. S m i t h . Many tim es.
Senator C ouzens. Many times?
Mr. S m ith . Yes, sir.
STOCK EXCHANGE PRACTICES
429
Senator C ouzens . And have you had complete records to show
the returns?
Mr. S m it h . Yes, sir.
Mr. G r a y . Now, give me a list of the pools you have been in in the
last six years, and who was with you.
Mr. S m it h . W ell, Lima Locomotive—I would not call it a pool.
Mr. G r a y . W ell, you were in a pool on Lima Locomotive, as testi
fied by Mr. Rockefeller and Mr. Bragg?
Mr. S m it h . Yes, sir.
Mr. G ray . That is right?
Mr. S m it h . Yes.
Mr. G r a y . Now who was in that, if anybody, besides Mr. Rocke
feller and Mr. Bragg?
Mr. S m it h . No one.
Mr. Gray. No one?
Mr. S m it h . No, sir.
Senator G lass. N o w , what do you call a pool?
Mr. S m it h . A pool is more of a formal document that you sign
and agree to a certain amount of responsibility.
Mr. G r a y . I s not that a syndicate? Isn’t it what you like to call
a syndicate, and is not that the reason you say these are not pools,
because pools have the reputation of injuriously operating the mar
ket for their own benefit? Is that not the reason you men like to
stay away from the word “ pools ” and call it a syndicate?
Mr. S m it h . I would not say that was so in my case. I am per
fectly willing to call the Anaconda, and others, pools. I can show
you the difference.
Mr. G r a y . Then will you answer Senator Glass’s question, and
may I come back and add to it : What is a pool, and what difference
do you make between a pool and a syndicate?
Mr. S m it h . W ell, a pool is really drawn up, a legal document, and
you obligate yourself to buy a certain percentage o f the shares that
are bought and to put up a certain amount of money. In a syndi
cate or joint account a couple o f men get together and say, “ Let us
buv so much of this stock.”
Mr. G r a y . With a written agreement?
Mr. S m it h . With a written agreement.
Senator C ouzens . N o w , how many men are usually in a syndicate,
as distinguished from a pool?
Mr. S m it h . I have never been in syndicates that exceeded three
people.
Senator C ouzens . And in this case there was no written agree
ment?
Mr. S m it h . None I was in. I have heard of one or two.
Senator C o uzens . One or two?
Mr. S m it h . Yes, sir.
Mr. G ra y . Now, you say-----Mr. S m it h . A small number of men, and there isn’t a written
agreement.
Mr. G r a y . And when you have an agreement, do you have an
attorney draw it?
Mr. S m it h . I think they are drawn by an attorney.
Mr. G r a y . And do you mean to tell this committee that this attor
ney does not refer to this group of men that are in this syndicate as
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STOCK EXCHANGE PRACTICES
“ syndicate member ” ? Have you ever seen one that has referred to
it as a pool?
Mr. S m it h . No.
Mr. G ra y . Then, as a matter of fact, it is referred to as a syn
dicate?
Mr. S m it h . Yes. sir.
Mr. G ra y . S o what you have described is a syndicate. Now what
is a pool?
Mr. S m it h . A syndicate. [Laughter.]
Mr. G r a y . You say they are different. Let me ask you : Is not ft
pool, in the language o f the Street—is not this what is commonly
known as a pool on the Street: A group of men that has gotten toether for tne purpose of illegally operating, either on the up or the
own side of the market? That is right, isn’t it, Mr. Smith?
Mr. S m it h . I do not think it is.
Mr. G r a y . What do you think it is? I have tried to help y o u give
a definition of it, that is all. And you have answered th a t a pool
is a syndicate.
Mr. S m it h . And the difference between the two operations is , one
is a syndicate and the other is a joint account.
Mr. G ray . Then what you mean to tell us now— I want to be per
fectly fair in the matter—is that when you have a written agreement
and form a syndicate, that is a pool?
S
M r. S m it h . T hat is the same as a pool.
Mr. G r a y . D o you mean that the improper
elements that I have
suggested are not in it as to a written agreement?
Senator C ouzens . I wish the attorney would define what he means
by “ improper elements.” A n u illegal contract.”
Senator G lass. I think so too.
Senator C ouzens . I do not think that is any question
to be put to
the witness, unless the committee knows what it means.
M r. G ray . I w ill either define it or ask him to define it. I w ill
do it in m y questions, or ask him to define it.
Senator C ouzens . I wish you would, when
you refer to a n illegal
contract, tell the committee what you mean by that.
Mr. G r a y . I am not talking about an illegal contract, but-----Senator C ouzens (interposing). So we understand what y o u mean.
What do you mean by an illegal contract?
Mr. G r a y . A ll right. I wnl do that by a series o f questions.
You know, as a matter o f fact, Mr. Smith, that there have been
pools of men formed to operate on the New York Stock Exchange in
cooperation with a specialist who gives to that pool inside inform a
tion in order that tney may operate to a greater advantage than
others who, without that knowledge, are buying and selling stocks.
Mr. S m it h . N o; I do not.
Mr. G r a y . Never heard o f it?
M r. S m it h . N o ; I did not.
Mr. G r a y . Never heard o f it?
Mr. S m it h . Never heard of it.
Mr. G ra y . Your picture, then,
o f the operation o f all pools and
syndicates is that they buy and sell without the aid of a specialist;
is that correct?
Mr. S m it h . N o ; they have got to have the aid o f a specialist. Yon
give the specialist orders------
STOCK EXCHANGE PRACTICES
431
Mr. G r a y (interposing). O f course, in the carrying out of the buy
ing and selling, I understand that. Have you been a member of a
syndicate in Which specialists have been members ?
Mr. S m it h . No; I have not.
Mr. G r a y . Have you ever known a specialist to disclose the infor
mation contained in his books ?
Mr. S m it h . N o; I did not.
Mr. G r a y . I f he did so it would be illegal, would it not ?
Mr. S m it h . I don’t know.
Mr. G r a y , You are a member of the stock exchange, and do not
know that?
Senator C ouzens . What does the counsel mean by i; illegal ” ?
Mr. G r a y . Illegal conduct on the exchange, in violation of the
rules of the exchange, if I have to answer questions, Senator
Couzens.
Senator C ouzens . That would not necessarily be illegal would it ?
Senator G lass . You concede it is dishonest, do you not?
Mr. S m it h . I do not think it would be dishonest for me to go
to a specialist and say, “ What kind of a bid have you got for a
stock now ? ”
Senator G lass . Would it not be dishonest in him to tell you ?
Mr. S m it h . No, sir; he could tell me that he had a bid for 500 or
1,000 shares.
Senator G lass . Why should he ?
Mr. S m it h . Why should he?
Senator G lass . Yes; why should he tell you that?
Mr. S m it h . Because you might want to sell it.
Senator G lass . Well, I think a fellow* who would do that would
pick your pocket.
Mr. G r a y . I might direct the committee’s attention to the fact
that the rules provide that if a specialist did that, he would be im
mediately investigated and put off the floor; that is the reason I
used that term. That is what the testimony shows.
Now, let me come back because I want the basic, information from
you to-day. Give me a list of the pools and syndicates that you have
been in. You started off with Lima Locomotive. What others?
Mr. S m it h . Radio.
Mr. G r a y . Who was in the Radio pool ?
Mr. S m it h . A great many people.
Senator G lass . Well, was it not testified here that one of those
specialists was in that pool?
Mr. G r a y . Michael J . Meehan was a specialist in Radio, and was
in this pool.
Senator G lass . That is what I thought.
Mr. G r a y . I wanted to get this witness to state it.
Mr. S m i t h . I do not think that is so.
Mr. G r a y . He was not?
Mr. S m it h . N o; I do not think Mr. Meehan has ever been a
member o f any pool. It is in his wife’s name. [Laughter.]
Senator G lass . He is one of those wise fellows who never tells
his wife anything.
Mr. G r a y . Why would he put it in his wife’s name, Mr. Smith?
Only to evade the inference that is to be drawn from the fact that
432
STOCK EXCHANGE PRACTICES
he is a specialist in that stock, and was a member of the pool in that
stock?
Mr. S m it h . N o; for the same reason that I would do it.
Mr. G ray. Why did you do it?
Mr. S m it h . Because it is a rule of the exchange that you can not
be a broker and a principal at the same time. It is also a State
law.
The C h airm an . His wife would be one and he the other?
Mr. S m it h . Yes, sir.
M r. G ray . That is one of the ways they evade the rule?
Mr. S m it h . I would not say that they evade the rule.
M r. G ray . O f course, when the wife acts for him in those cases,
she is only, in that case, a dummy name, is she not?
Mr. S m it h . I do not know what you are trying to infer.
Mr. G ray. I mean, she is not a real name in the pool but only
a name he is using?
Mr. S m it h . I can not answer for Mr. Meehan.
Mr. G ray . What about yourself?
Mr. S m it h . My wife is over 21, and she has money o f her own.
Mr. G ray. And do you mean to tell me that every time you use
your wife’s name that it is a case where she is actually a member
of the pool?
Mr. S m it h . No ; I do not.
Mr. G ray . Then you mean to admit to me that you desire to
evade the rules of the stock exchange, and not desiring to use your
own name, you use your wife’s name to cover the transaction?
Mr. S m it h . I f you want me to answer that way, I will say yes.
Mr. G ray. That is what I want to know. Now who was in this
Radio pool? First, tell me what year it was in.
Mr. S m i t h . It may have been—I think it w a s in 1928.
Mr. G ray . Was it 1928 or 1929?
Mr. S m it h . 1928, I think.
Mr. G ray. How long did it last?
Senator C ouzens. Let us get the names one at a time, please.
Mr. G ray. All right. Give us the names.
Mr. S m it h . I think Rockefeller was in it.
Mr. G ray. Yes. By that you mean Percy A. Rockefeller?
Mr. S m it h . Yes, sir.
Mr. G ray. And Meehan’s wife?
Mr. S m it h . And Meehan’s wife.
Mr. G ray. What is her first name?
Mr. S m it h . Elizabeth.
Mr. G ray . And who else?
Mr. S m it h . Gertrude D. Smith.
M r. G ray . B y the way, did they use her married name o r her
maiden name?
Mr. S m it h . I could not say. In my case, it was-----Mr. G ray . Y ou do not know what her maiden name is, or w as?
Mr. S m it h . N o, sir.
Mr. G ray. N ow , Gertrude A. Smith?
Mr. S m it h . Gertrude D.
Mr. G ray. Gertrude D. Smith?
Mr. S m it h . Yes, sir.
Mr. G ray. That is your wife?
STOCK EXCHANGE PRACTICES
433
Mr. S m it h . Yes, sir.
Mr. G ray . Who else? Mr. Bragg?
Mr. S m ith . Mr. Bragg.
Mr. G ray . Who else?
Senator C ouzens . Was Owen D. Young?
Mr. S m it h . No; Owen D. Young wasn’t in it.
Mr. G ray . Mr. Raskob?
Mr. S m it h . No. He may have been. I don’t remember.
Mr. G ray. Mr. Kenny?
Mr. S m it h . Why, W. F. Kenny, I think.
Mr. G ray. Fred Fisher?
Mr. S m it h . Yes; Fred Fisher.
Mr. G ray . Did Raskob use his own name ?
Mr. S m it h . I do not know.
,, ^
"r' " n
his own name?
Mr. G ray . Did Fisher use his own name?
Mr. S m it h . I f he was in it, he did. I may be mistaken about that.
Mr. G ray. Anybody else?
Mr. S m it h . There were a great many.
Mr. G ray . Will you furnisn us that list of the names? Mr. Bragg
said he would furnish it immediately, or before he is required to
come down again. Will you furnish us a list of the names?
Mr. S m it h . Yes, sir.
Mr. G ray . Thank you. Now, what others?
Senator F letcher. What was the purpose of organizing this pool?
Mr. S m it h . To make money.
Senator F letcher. Well, make it how?
Mr. S m it h . Through selling the stock at a profit.
Senator F letcher. Buying stock and then boosting it and unload
ing it at a profit; is that the idea?
Mr. S m it h . Yes, sir.
Senator G lass. In other words, to affect the market fictitiously,
to put it at a higher rate than that at which you bought?
Mr. S m it h . Well, I would not say that you affect the market
fictitiously, Senator. I f you want me to go into details in some ex
periences I have had in connection with putting stocks——
Senator G lass (interposing). Well, is it not the real purpose to
put the stock up regardless of its earning power?
Mr. S m it h . No, sir; I would not say to put it up regardless of
its earning power, because it had very good earning power at the
time.
Senator G lass. Perhaps so.
Mr. S m it h . And the prospects were very bright for earning con
siderably more than it was earning.
Senator G lass. And your idea in buying the stock was to put the
stock up?
Mr. S m it h . Yes, sir.
Senator G lass. T o make your impression on th$ market to put
the stock up?
Mr. S m it h . Yes, sir.
The C h airm an . And then sell it?
Mr. S m it h . Yes, sir.
434
STOCK EXCHANGE PBACTICES
Mr. G r a y . And then sell short, and put the stock down?
Mr. Sm ith. The pool would not do that. I do not know of a pool
organized to sell stock short.
Mr. G uay . Well, I do not want to get into that subject until we
get the other question answered.
The C hairm an . I just want to say that there is no chance o f an
executive session to-day; there are too few Senators here, and as soon
as we get through with this witness we will adjourn until 10.30 on
Monday morning. I do not know whether we will have any witnesses
for Monday morning; but, if not, we will take up the policy.
I shall have to leave now, and I will ask Senator Brookhart to
take the chair for the remainder of the session.
Senator F l e t c h e r . Were you on the short side o f the market this
month?
Mr. S m ith . Yes, sir.
Senator F letcher. In April?
Mr. S m it h . Yes, sir.
Senator F letcher . H ow are you standing now I Are you o n the
short side?
Mr. S m ith . Well, I am long and short.
Senator F letcher. Well, mostly short?
Mr. S m it h . Well, my long position exceeds my short position
considerably.
Senator F letcher. In all kinds of stocks, or mostly one kind?
Mr. S m it h . Mostly mining stocks.
Senator F letcher . You have said you were considered a b e a r on
the market, I think.
Mr. S m it h . Yes, sir.
Senator F letcher. Then, if you are a bear, how does it happen
you are long?
Mr. G r a y . Y ou have covered a great deal this year, have y o u not?
Mr. Sm ith. I covered a great deal last year; but I am operating
all the time.
Senator F letcher. Do you Imow anything about bear raids?
Mr. Sm ith. Well, if you will tell me just what you mean b y a
raid-----Senator F letcher (interposing). Well, suppose we say a combina
tion of people for the purpose of depressing the price of some par
ticular stock or of all stocks; an organized effort to depress th e mar
ket. You might begin with that.
Mr. S m it h . No; I do not know of any organized effort b y indi
viduals or groups to depress the market.
Senator F letcher. Well, leave out the word “ organized ” ; d o you
know of efforts to do that without any organization ?
Senator G lass . A concerted effort?
Senator F letcher. A concerted effort.
Mr. S m ith . N o; I do not, Senator.
Senator G lass . Well, what does all this talk about bear raids
mean; something manufactured by the newspapers?
Mr. S m it h . I would think so.
Senator F le tc h e r. How does it happen that 1,300,000 shares were
covered in two days, between April 6 and April 8; I think the record
shows that? Was that not through some effort on the part o f som e
body to depress the market?
STOCK EXCHANGE PRACTICES
435
Mr. S m it h . I would be surprised if there was as much as that
covered in those two days, unless there was a very perpendicular drop
in the market that would prompt people to take huge profits.
Senator F letcher. You do not know of any such thing happening?
Mr. S m it h . As 1,300,000 shares being covered in those two days?
Senator F letcher. Yes.
Mr. Sm ith. No, sir.
Senator F letcher. I f it had happened, do you think you would
have known about it? You have been right there on the exchange
all the time?
Mr. S m it h . N o, sir; I was in Canada. I was in Canada all of
that week.
Mr. G ray. N ow , coming back to this Anaconda pool, when was
that pool operating, and who was in that?
Mr. S m it h . It was operating in the early part of 1929.
Mr. G ray . Go ahead. Who was in it?
Mr. S m it h . Rockefeller.
Mr. G ray. That is, Percy A.?
Mr. S m it h . Yes; Percy A.
Mr. G h a y . To get the record right.
Mr. S m it h . Yes, sir. And F. J. Fisher.
Mr. G ray. Which Fisher was that?
Mr. S m ith . F. J.
Mr. G ray. Yes. Mr. Bragg was in it?
Mr. S m i t h . Yes, sir.
Mr. G ray. Well, who else ?
Mr. S m it h . Mr. Meehan.
Mr. G ray . That is M. J. ?
Mr. S m it h . Yes, sir.
Mr. G ray. In his wife’s name again ?
Mr. S m it h . I suppose so.
Mr. G ray. Go ahead.
Mr. S m it h . Durant.
Mr. G ray . Which Durant?
Mr. S m it h . W. C.
Mr. G ray. Was Danforth in it?
Mr. S m it h . No, sir; not to my knowledge.
Mr. G ray. Did Durant go in it in his own name, or in his wife’s
name?
Mr. S m it h . I think he went in in the name of W. C. Durant.
Mr. G ray . Go ahead. Who else?
Mr. S m it h . Have you got Kenny?
Mr. Gray. No. Was Kenny in that?
Mr. S m it h . I think so.
Mr. G ray. Was Raskob in that pool?
Mr. S m it h . I think so.
Mr. G ray. Any others?
Mr. S m it h . Yes; there were a great many others.
Mr. G ray.. You can not remember them now?
Mr. Sm ith. No, sir.
Mr. Gray. W ill you give us that list?
Mr. Smith . They would not necessarily be all known to me.
Mr. G ray . Was Mitchell in it, o f the National City?
Mr. S m it h . I do not think so.
436
STOCK EXCHANGE PRACTICES
Senator G ore. Mr. Gray, has he described, before I came in, the
modus operandi by which they ran the price up and down?
Mr. G ray . Senator Gore, he has not. And I may say, by reason
of the limitation of time, x was instructed by the chairman to get
from the two witnesses, Mr. Bragg and Mr. Smith, the basic
information necessary, and to request of them the documentary
evidence of their operations on the market. I am only securing a
list of those pools and who was in them with him. And they are
both being held subject to call, and will be asked to explain many
other things. I may say, I could spend, even with the information
I have now, an hour or two with each one of these witnesses. But
the chairman has instructed me to get the basic information at this
time only, on account of the limitation of time.
Senator G ore. You think your investigation should be deferred
for the present?
Mr. G ray . Yes, sir.
Senator G ore. That is all right with me.
Mr. Gray. I am acting under the chairman’s instructions with
reference to that.
Senator G ore. All right.
Mr. G ray. N ow , what was the next pool you were in?
Mr. S m it h . I think that was the last pool I was in.
Mr. G ray. Y ou were in Alaska, Juneau, were you not?
Mr. Smith. No, sir.
Mr. G ray. Not in any pool with Rockefeller on that?
Mr. Smith. No, sir.
Mr. G ray . It is fair to you to say that Mr. Rockefeller said under
oath yesterday that you were in a pool together-----Mr. S m it h . We were in a joint account.
M r. G ray . Oh, excuse me. Was it only the two of you?
Mr. S m ith . Only the two of us.
Mr. G ray. Y ou and Mr. Rockefeller operated in Alaska, Juneau?
Mr. S m ith . Yes.
Mr. Gray. When?
Mr. S m it h . We still have 5,000 shares.
Mr. G ray. When was the pool started?
Mr. Smith. It was not a pool.
Mr. G ray. When was the joint account started?
Mr. S m it h . It is the offspring of Lima Locomotive. When we
wound up Lima Locomotive I took the money that was left from
that account and said that if he wanted to trust my judgment I
would try to make up the loss.
Mr. G ray . And he trusted?
Mr. S m it h . Yes, sir.
Mr. Gray. Have you made it up?
Mr. S m it h . Yes, sir.
Mr. G ray. On the short side o f the market?
Mr. S m it h . Short and long.
Mr. G ray. Short and long!
Mr. S m it h . Yes, sir.
Mr. G ray. Y ou went to Alaska, too, I think, did you not, to make
some investigations?
Mr. S m it h . Yes; and for pleasure. I took my family with me.
STOCK EX CH A N GE PRACTICES
437
Mr. G r a y . N o w , w hat other pools or join t accounts were you in?
Mr. S m i t h . I think that is about all.
Mr. G r a y . Operating, principally, when you did not do it through
yourself, through W. E. Hutton & Co. ?
Mr. S m i t h . And other firms on the exchange.
Mr. G r a y . And other firms on the exchange ?
Mr. S m i t h . Yes, sir.
Mr. G r a y . Bid you use, usually, one or two firms when operating?
Mr. S m i t h . We used five or six firms; I have accounts in five or
six firms to-day.
Mr. G r a y . Unless the chairman and the members of the committee
want me to go further in my examination with Mr. Smith until I
get the data from him, that is all I have to ask him now.
Senator B r o o k h ar t (presiding). I believe we have reached a good
place to stop for to-day, and the committee will stand adjourned
until 10.80 o’clock on Monday, when we will meet again, either for
witnesses, or in executive session.
(Thereupon, at 1.10 o’clock p. m. on Saturday, April 23, 1932, the
committee adjourned until Monday, April 25, 1932, at 10.30 o’clock
a. m.)
119852—32—p t 2----- 5
STOCK EXCHANGE PRACTICES
TUESDAY, APRIL 26, 1932
U n it e d S t a t e s S e n a t e ,
C o m m it t e e o n
B a n k in g
and
C urrency,
TVashington, D . C.
The committee met at 10.30 o’clock a. m., pursuant to adjournment
on Saturday, April 23, 1932 (the meeting on yesterday having been
an executive session), in room 301, Senate Office Building, Senator
Peter Norbeck presiding.
Present: Senators Norbeck (chairman), Brookhart, Goldsborough, Townsend, Walcott, Blaine, Carey, Watson, Couzens, Steiwer,
Fletcher, Glass, Barkley, Bulkley, Gore, and Costigan.
The C h a i r m a n . The com m ittee w ill com e to order.
Gentlemen of the committee, Congressman LaGuardia has come
into possession of some papers that I think are important as bearing
on our investigation. He has asked that he may present them to the
committee this morning, and therefore this meeting was called for
that purpose.
If there is no objection we will next hear from Congressman
LaGuardia.
Senator B a r k l e y . Mr. Chairman, may I ask, without knowing
anything about the matter, whether anybody connected with the
committee has examined these papers to see whether there might be
anything among them that ought not to be revealed to the commit
tee? I am just asking for information.
The C h a i r m a n . Sen ator B a rk le y , I have looked at th em fo r about
15 or 20 minutes.
(At this point a flashlight bulb burst and interfered with the
proceedings.)
Senator G l a s s . Mr. Chairman, I thought that Senator Couzens
had protested against this nuisance.
The C h a i r m a n . While the witness is speaking; yes. I told the
photographers we would try to arrange that they might take photo
graphs before the proceedings started. But if they keep exploding
Dulbs, the members of the committee will have to protect themselves.
Senator C o u z e n s . Mr. Chairman, I ask that these photographers
either be excluded from the room or be allowed to remain in the
room without their cameras.
The C h a i r m a n . All right, that settles the matter of any more
taking of photographs this morning, or until authority is given b;y
the committee.
Senator G l a s s . All of us look alike to-day as compared with
yesterday. What is the use of taking our pictures two or three times
a day?
4 39
440
STOCK EXCHANGE PRACTICES
The C h a i r m a n . That point is well taken. There will be no more
photographs taken to-day without consent of the committee. Now
to answer Senator Barkley as to what is among these papers.
Senator B arkley. I f you please.
t
.
The C hairm an . I am not able to answer your question m detail,
but I do feel that the committee should not refuse to accept the
evidence which I think Congressman LaGuardia has.
Senator B arkley. Very well. I just wanted to know if the matter
had been looked into.
The C h airm an . Proceed, Congressman LaGuardia.
STATEMENT OF P. H. LAGUARDIA, A REPRESENTATIVE FROM THE
TWENTIETH DISTRICT OF NEW YORK
Representative L a G uardia . Mr. Chairman and gentlemen of the
committee, the House Committee on the Judiciary, of which I am
a member, through a subcommittee of which I was also a member,
held hearings for a short time on a bill which I introduced to regu
late stock exchanges. I started looking into the matter of stock
exchanges several months ago. Our committee was simply consider
ing legislation and had no power of subpoena, and then with the
pressure of legislative work it has not been very active.
It was for that reason that-----Senator Couzens (interposing). Congressman LaGuardia, will you
speak a little louder, please?
Representative L a G uardia . Yes, sir; I was going to as soon as I
come to something to present in detail. It was for that reason I sug
gested to Senator Norbeck to turn over to this committee some of
the information I have.
It has been stated by responsible officials of the New York Stock
Exchange, before our committee, and I believe also before this com
mittee, that the exchange as such, and the membership of the ex
change, had absolutely nothing to do with the promotion of stocks,
with the ballyhooing of stocks in order to raise prices; that they
were simply brokers to buy and sell for their customers.
I am prepared to state that atiy such statement made by any
member of any stock exchange is deliberately false, is a misstate
ment, and is made knowing that it is a misstatement.
And the peculiar part of the stock business as it has been de
veloped in this country is that misstatements are profitable. A mis
statement may send the price of a stock up and there is a profit
in that. A deliberate misstatement may send the price of a stock
down, and as long as there is fluctuation and manipulation, specula
tion is possible and there is profit in that.
May I for a moment cite a deliberate instance of a misstatement
made. On March 3, 1932, the firm of Hornblower & Weeks sent
out a statement to their customers, and through publicity mediums,
in which they stated:
We anticipate a period of accumulation incident to the beginning of a bull
market. Indeed, we may be said to be already in the stages of a bull market.
Senator B a r k l e y . What was the date o f that, Congressman
LaGuardia?
Representative L aG uardia. It was March 3, 1932.
The C h airm an . In other words, it was March 3 of this year.
STOCK EXCHANGE PRACTICES
441
Representative L a G uardia . Yes.
The C h a ir m a n . Y ou m ay continue.
Representative L a G uardia . The statement goes on to say:
For instance, bond prices have advanced steadily since December 17, 1931.
During January the value of bonds listed on the New York Stock Exchange
increased $523,431,813, and during February we estimate an additional appre
ciation of $260,000,0 0 0 -
Senator B u l k l e y (interposing). Congressman, are you reading
from the statement of Hornblower & Weeks or are you now com
menting?
Representative L a G uardia . I am still reading from the statement
of Hornblower & Weeks.
Senator B u l k l e y . All right.
Representative L a G uardia . I continue reading:
A totai of over $780,000,000 since January 1. Brokers’ loans, representing
Public holdings of securities, which in 1929 exceeded $8,500,000,000 to-day total
about one-sixteenth of that amount.
Senator G ore. Did you say one-sixteenth?
Representative L a G uardia . Yes. I continue reading:
Five large wire houses had total loans exceeding $1,000,000,000 at the top
of the market in 1929. To-day the aggregate borrowings of these houses are
less than $35,000,000. Two of these houses are lending money.
Thus, liquidation seems definitely ended.
Meanwhile, we are on the threshold of spring, when, regardless of major
trends, the business of the country usually enjoys a seasonal improvement in
volume, starting with crop preparation and outdoor activities.
The risk of purchasing securities under existing circumstances seems mini
mum, and we therefore urge some immediate purchases of sound securities and
additional purchases during any periods of irregularity or recession in com
ing weeks.
That, Mr. Chairman and gentlemen of the committee, was March
3,1932. And in the meantime there was no such bull market. Any
such optimistic prophecy was not justified. And a casual study of
the market during the ensuing month will show a steady decline.
But the same firm, under date of April 6, 1932, through the same
medium, sends out this statement:
John W. Prentiss, of Hornblower & Weeks says:
“ On last Thursday, March 31 (five days ago) the LaGuardia resolution for
taxing stock transactions was passed by the House of Representatives.”
And of course, Mr. Chairman and gentlemen of the committee,
there was no such thing as a LaGuardia resolution [reading] :
The day following the security markets began to decline and they have been
declining ever since.
And here is their alibi for their first misleading statement:
Since the passage of this resolution, the value of bonds listed on the New
York Stock Exchange has declined $1,097,047,618 and the value of stocks has
declined $2,418,969,608. In other words bonds and stocks listed on the New
York Stock Exchange and owned by life insurance companies, savings banks,
fire insurance companies, banks and individual investors have been deflated
in value to the extent of more than $3,500,000,000 as a direct result of the
LaGuardia tax clause of the revenue bill.
Senator W atson . And was such a resolution passed?
Representative L a G uardia . N o, sir.
Senator W atson . With anybody’s name to it?
442
STOCK EXCHANGE PRACTICES
Representative L a G uardia . N o. It was a committee amendment.
And, of course, they knew that.
Senator G ore. Congressman, were you quoting tli6 last sentence or
was that a statement you were making %
Representative L a G uardia . What was the last statement that you
refer to?
,
Senator G ore. Y ou were reading, and then I could not tell whether
the last sentence was a quotation or your own comment.
Representative L a G uardia . Was it this?
In other words, bonds and stocks listed on the New York Stock Exchange
and owned by life insurance companies, savings banks, fire insurance com
panies, banks, and individual investors have been deflated in value to toe
extent of more than $3,500,000,000 as a direct result of the LaGuardia tax
clause of the revenue bill.
Senator G ore. Yes; that was it.
Representative L a G uardia . Yes; I was quoting from Hornblower
& Weeks’ statement.
Senator B a r k l e y . And you do tell us that the dates compare,
that is, that date and the date that the House passed the tax clause
of the revenue bill ?
Representative L a G uardia . They synchronize; yes.
Senator B a r k l e y . They are the same.
Representative L a G uardia . Five days afterward.
Senator B a r k l e y . So, instead of a LaGuardia resolution it was
an amendment to the tax bill offered on the floor of the House?
Representative L a G uardia . Yes, sir; which had nothing to do
with these declines.
Senator B a r k l e y . Who offered that amendment?
Representative L a G uardia . It was a committee amendment.
Senator G ore. On what date did that stock tax pass ?
Representative L a G uardia . He made this statement on April 6,
1932, and it must have passed about April 1.
The C h a ir m a n . Y ou may proceed, Mr. Congressman.
J J've L a G uardia . And then the statement goes on to
Since the LaGuardia tax provision was passed the stock of the American
Telephone & Telegraph Co. has been deflated by $180,000,000. Of the 644,783
stockholders, over 600,000 of them own less than 100 shares apiece. These
stockholders each owning less than $10,000 worth of stock are being terribly
penalized by the LaGuardia tax bill.
Now, gentlemen of the committee, a very reputable gentleman,
very closely connected with this firm, writes me as follows:
I am inclosing two clippings from the Boston News Bureau, one from the
issue of March 3 and the other from the issue of April 4. Each is interesting
in the light of the other and both are interesting in the light of interim events.
When the flrst one was issued the Dow-Jones industrial average stood at
86J28. By the end of the month it had declined to 73.28 and by the 5th of
April to 68.07. Anyone who purchased at the higher level would, it he had
maintained his commitments, have suffered a loss by the end of the month of
11 points, as measured by the Dow-Jones average of 16 points by April 5.
Messrs. Hornblower & Weeks do not concern themselves with the first part
of the loss but only with the second, for which they try to hold you responsible
The decline in April was merely an extension of the decline which began
in the first part of March. This decline, with the exception of two or three
minor reactions, has been continuous. It has been due to generally unsatis
factory business conditions, recessions in car loadings, in electrical output in
steel ingot output, and uncertainty regarding the maintenance of dividends in
STOCK E X CH A N G E PRACTICES
443
th e c a s e o f th e American Telephone & Telegraph Co., the dead certainty that
th ey w o u ld not be maintained. All this was well known to Messrs. Hornblow er & W e e k s . I t only shows to what lengths such forces will go to confuse
and to h u m b u g the public mind.
Now, gentlemen of the com m ittee-------Senator W a t so n (interposing). Congressman LaGuardia, just for
the purpose of getting the record straight, let me ask you a question:
How did they happen to use your name in connection with it?
Had you introduced a resolution, or had you made a speech on the
subject?
Representative L a G u a r d ia . N o, sir.
Senator W a t s o n . Are you a member of the committee?
Representative L a G u a r d ia . Well, I am a one-four hundred and
thirty-fifth part of the House of Representatives. Of course they
have used my name, but if a very stable and conservative gentleman,
for instance, if they had said: The Watson resolution-----Senator W at so n (interposing). Yes; I can understand.
Representative L a G u a r d ia . It would not cause a flurry.
Senator W a t s o n . No.
Representative L a G u a r d ia . But, they have said that the
LaGuardia resolution, I suppose meaning that that will do it.
Senator W a t s o n . I understand that thoroughly. But what I am
trying to get at, were you a member of the committee ?
Representative L a G u a r d ia . N o .
Senator W a t s o n . And you offered no resolution ?
Representative L a G u a r d ia . Oh, I offered several amendments.
Senator W a t s o n . On this particular subject?
Representative L a G u a r d ia . The only resolution I offered in con
nection with this was—well, they told us very bluntly: I f you dare
to pass any tax on stock transfers we will fool you. We will move
over to Canada. And I framed an amendment which I offered and
was adopted that we would tax them if the sale was made in any
foreign country. That is all that I had to do with it. I did include
a stock transfer tax with a general tax plan in lieu of the sales tax.
Oh, this is what they d id : The Saturday before we voted on it the
stock exchanges, as I am informed, jumped in to send messages; and
of course they sent all sorts of messages to the committee and to
Members. They contacted me through some of my boys who served
in the war witn me, in the same squadron with me, who are very
active young men, and they came and told me two things: They said,
“ LaGuardia, if that passes we are going to have a ruined market,
we are going to have a panic.” And they told me and other members
of the committee: “ Why, don’t you dare tax us or we will go to
Canada.”
Senator B r o o k h a r t . And they have said substantially the same
thing to this committee in the hearings we have held here.
Senator G ore. Let me fix the date. As I recall in the winter
United States Steel sold down to 35%. It then rallied to 52%.
Do you know the dates of those two quotations ?
Representative L a G u a r d ia . I do not.
Senator G ore. All right.
Hie C h a i r m a n . You may go ahead, Congressman.
Representative L a G u a r d ia . N o w , gentlemen of the committee,
just one more point before I g o to the real purpose of my coming
4 14.
STOCK EXCHANGE PRACTICES
here to-day, and that point is this: When Mr. Whitney appeared
before our committee he said that regulation and laws were not
necessary; that they maintained discipline and had complete control
over their members. I now state that that statement is not true.
Mr. Whitney knew it was not true when he made it, and no such
thing happens.
I will ask this committee, or may I suggest that this committee
get Charles Hayden, of Hayden, Stone & Co.; Mr. J. S. Bache, of
J. S. Bache & Co.; Matt. Brush; and Percy A. Rockefeller to file
with this committee a list of all the companies in which they are
directors, and then to get an actual transcript of their stock specu
lations in those companies in which they are directors during the
last five years.
I will say that no matter what the firm of Hayden, Stone & Co.
does, it will not be disciplined.
Might I call the committee’s attention to Mr. Whitney’s recent
testimony before our House committee; that is, his explanation of
the lack of any need for regulation or control and the perfect con
duct of their members? I called his attention to a case decided in
the Supreme Court of the State of New York in which the court
held fraud, a deliberate fraud, where the customers’ man was telling
a lady customer to hold her stock and at the same time a member 0 1
the firm, Mr. Hoyt, was playing with it. And the court said:
The 8,000 shares pool stock were distributed and Defendant Hoyt, one of
the distributors, sold his participation late in December, 1920, and in January,
1921. But defendants suffered Keays to advise the plaintiff to hold her stock
until January, 1922, when Mr. Hoyt advised her to sell it at 30%, and to
score a loss of over $15,000.
The court described that as a fraud, and entered judgment for the
plaintiff. They paid up. And when I called that to Mr. Whitney’s
attention he dismissed the matter with a wave of the hand and tne
remark, “ The court was wrong and the Stock Exchange was right.”
Senator F letcher . What case was that?
Representative L a G uardia . That was the case of Grace Van B.
Roberts against Charles Hayden, Richard F. Hoyt, Gerhard M.
Dahl, Jeremiah A. Downs, Frederick H. Baird, Claude W . Peters,
Lester Watson, and Arthur C. Sherwood, doing business under the
firm name and style of Hayden, Stone & Co. It was a suit in the
Supreme Court o f Ulster County, State of New York.
Senator C o sh g an . Following that case there was an effort made
to exclude the firm of Hayden, Stone & Co. from further operations
on Wall Street, wasn’t there?
Representative L a G uardia . Y e s, sir.
Senator C ostigan . And that effort was
Representative L a G uardia . It was not
unsuccessful?
only unsuccessful, but the
complainant was abused and ridiculed. And, as I have already
stated, when Mr. Whitney appeared before our House committee he
just brushed it aside with the statement that “ the court was wrong.”
Senator C ouzens . Congressman, would you say that Mr. Whitney
had perjured himself before this committee?
Representative L a G uardia . I do not know whether he was under
oath or not here. He was not under oath before our committee.
Senator C ouzens . Well, he was under oath when he appeared be
fore this committee. Now, did he perjure himself when he appeared
here?
STOCK EXCHANGE PRACTICES
445
Representative L a G uardia . In order to answer that I would have
to read all of his testimony carefully.
Senator C ouzens. Well, you were quoting awhile ago some of the
things he said before this committee, as I understood you.
Representative L a G uardia . I will say this, that when Mr. Whit
ney, m reply to my questions as to his dealings in connection with
J. P. Morgan & Co. in the company known as the United Corpora
tion, a holding company, and when he replied he did not know any
thing about the figures, then I will say that Mr. Whitney should not
be on the stock exchange if he did not know the figures, or if he did
and if he had been under oath before my committee, he would have
perjured himself.
Senator C ostigan . You were reading his statement as given before
the House committee and not his testimony as given before this com
mittee?
Representative L a G uardia . Y e s , sir.
Senator C ouzens . I understood that, and yet when Congressman
LaGuardia started out he made reference to Mr. Whitney’s testimony
before this committee, and it was that which I had reference to in
my question.
Kepresentative L aG uardia . Well, I have here some suggestions
and leads which I will turn over to the chairman.
The C h a ir m a n . Let us identify them. Describe them briefly.
Representative L a G uardia . I will hold them and deliver them to
you.
Senator C ouzens . But could you answer my question first?
Representative L a G uardia . Very well, we will return right to that
matter. As to the statement that the public was to blame in their
wild scramble to invest, and that brokers had absolutely nothing
to do with fixing prices, with promotions, or advertising, I now state
to this committee that that statement is not true. Not only do
brokers rig the market, not only do brokers speculate in stocks in
which members of the firm are directors of the corporations, but I
say now that I shall proceed to deliver to this committee proof that
when any of these stocks are selected to be rigged a high pressure
publicity man is retained. He writes the stuff and the papers copy
it. Financial writers contact the publicity man, and I have the
checks here of some financial writers that received money from one
of these high pressure publicity men.
Now, we wiU first ta£e the case of the Savage Arms Corporation,
and I have just a few sample cases here, gentlemen of the com
mittee; and this is one-----The C h a ir m a n (interposing). Congressman, do you recall
whether Ben Smith, a previous witness here, was the specialist in the
case o f Savage Arms? I think he so testified before this committee.
Representative L a G uardia . The brokerage firm involved was Jack
son Bros, and Boesel & Co. There are many of these high-pressure
publicity men, I will limit myself to-day to one. (I will tell you
more about him in a few minutes.) He handled? in the course of
10 years, 61 different stocks. I am prepared to give the committee
the names of all these stocks.
The C h a ir m a n . What do you mean by saying he handled them?
Representative L aG uardia . He ballyhooed them, promoted them,
rigged them.
446
STOCK EXCHANGE PRACTICES
Senator G obe. Up or down or both?
Representative L a G uardia . Up.
The C h a ir m a n . Proceed.
Representative L a G uardia . This man will testify if he is called
before your committee that he paid out from his fees in order to
get his stories across in newspapers the sum of $286,279. I have some
of the checks to show the payments, and I shall only use names where
I have the checks. I shall turn over to the chairman checks payable
to cash with the name of the pay-off man, who in turn p aid other
financial writers in cash. The committee may deal with that m atter
as they may be advised. I am able to establish positive proof o f all
payments. The pay-off man can be compelled to testify as to how
he paid out $171,000. I am informed that he would prefer n o t to
testify as to payments to men who are now dead.
In the Savage Arms Corporation case, gentlemen of the com
mittee, the campaign started about June 26, 1924. The finances
were arranged by the firm of Boesel & Co., giving this man an option
without payment on 500 shares, and here is the statement or the
option wnich I say again I will give you for such proper action as
you may see fit to take. And I asK that it be identified.
The C h a ir m a n . The committee reporter will mark it the proper
number.
(The paper was identified by being marked “ Committee Exhibit
No. 47.” and is as follows:)
E x h i b i t N o . 47
(Please examine and return immediately if not correct)
STATEMENT
It is understood and agreed that all securities carried in this account or
deposited to secure the same, may be carried on our general loans, or may
be sold and bought at public or private sale, without notice when such sale
or purchase is deemed necessary by us for our protection.
Mr. A. N. P lu m m e r,
In account with Noyes & Jackson, New York City:
Balance
Date
Dr.
Cr.
Dr.
1924
May 31
June 26 Call on 600 Savage, at 67 expires July, 2ft hoop_____ .....
30
16.35
16.35
30 Long, balance.......................................
------
Cr.
16.36
16.35 1.........
16.35
16.35
Oall on 500 Savage, at 57 expires July, 1926, noon.
(Following rubber-stamp impression on statement:)
This statement is mailed by our auditor for verification purposes.
Kindly note any exceptions and confirm at once, in the inclosed envelope to
Mr. Hiram E. Decker, C. P. A., 2 Hector Street, New York, N. Y.
Senator F le t c h e r . Congressman, you are stating now what somebody has stated to you. xou will please give us his name so he
may be called.
STOCK EXCHANGE PRACTICES
447
Representative L a G uardia . His name is right on that statement.
Senator F letcher . All right, just give is to us.
Representative L a G uardia . The publicity man in this case was A.
Newton Plummer. He operated under the name of publicity coun
sel, and also under the name of Institute of Economic Research.
Mr. Plummer-----Senator F letcher (interposing). How long has he been op
erating?
Representative L a G uardia . I think I have that information here
somewhere if I can find it. I believe over 15 years.
Senator F letcher . All right.
Senator C ouzens . Where is Mr. Plummer now %
Representative L aG uardia . In New York.
Senator C ouzens . Is he out of a job, tool
Representative L a G uardia . Yes, sir; very much so, and I will
tell you more about the matter in just a minute. And if he were
not out of a job I would not have this stuff to-day. [Laughter.]
The C h a ir m a n . Y ou may go ahead.
Representative L a G uardia . I think for
about 10 or 15 years he
was doing this work. I have one account of his here, from 1919,
just before the 1921 crash. But the most of his activity, I will say,
was during the period of the big boom which ended in the 1929
debacle.
This man Plummer is a very smart young man. He writes this
high-powered stuff, and I will leave it with the committee. He had
the contacts and this was the modus operandi: He would be given
a stock and he would send out the stories about the stock.
Senator F letcher . Y ou mean by some broker?
Representative L aG uardia . Yes. I gave you the name of the
Savage Arms broker, and I will give you the name of the broker
in each instance here.
Senator F letcher . All right.
Representative L a G uardia . Then he would be given cash for his
necessary disbursements. In this case before us he was also given
500 shares, which he did not pay for, which were the funds used
to convince the financial boys that it was a good stock, and that
the stories Plummer wrote were good stories and should be published.
Senator C arey . Did he make those payments to newspapers?
Representative L a G uardia . Yes, sir. I will give you the names.
I do not know just what happened to Plummer, but the last deal that
he had was the Indian Motorcycle Co. And, Mr. Chairman, please
remind me to explain to you the Indian Motorcycle stock before I
finish, because in that case I can give you every step in this ballyhooing process and show you just how the stock went up and then
shot down, just as the promoters got out of it. The case of Indian
Motorcycle is a typical case and it is a compartively recent case.
Plummer got out of the business, and then he started a financial
magazine, and he commenced telling about those transactions. So
Mr. Plummer has been hounded since then, and he has been under
indictment in connection with some evidence he was looking up to
write some sensational story.
Now, i f our friends on the New York Stock Exchange say that
Mr. Plummer is not a reputable, honest man, then I submit that they
448
STOCK EXCHANGE PBACTICES
were using Mr. Plummer for 15 years to write their stuff on their
stocks. So they may take their choice on that.
But here are these checks which will tell the story.
Now, we go back to Savage Arms. Here, gentlemen of the com
mittee, is the book which shows the original stories prepared by Mr.
Plummer. Copies went to the writers on the newspapers. I have
here the clippings from the newspapers which used this stuff and
which went out to the investing public in our cities and districts and
which were read and by which people were induced to buy this
particular stock.
The stores that I have here were used six hundred and five times
in 228 newspapers with a circulation of 11,248,000, in 157 cities with
a population of 32,399,000. Here is the story. Here are the clip
pings. Here are the checks he paid.
Now, here is a check for $50, dated July 24, 1924, made out to
Mr. J. F. Lowther, which synchronizes with his story.
Senator B u l k l e y . Was it drawn by Plummer?
Representative L a G uardia . Yes. Mr. Lowther was then on the
New York Herald Tribune, but he is now employed by a stock firm.
I ask that that check be identified by being marked as an exhibit.
The C h a i r m a n . The committee reporter will mark it the
appropriate number.
(The check referred to was identified by being marked a Com
mittee Exhibit No. 48,” and is as follows:)
E x h i b i t N o. 48
1250.
N e w Y o b k , July 24,1924.
Central Union Trust Co. of New York: Pay to the order of J. F. Lowther,
$50 (fifty dollars).
N o.
A . New ton P l v m u e r .
(On reverse side of check)
( I n d o r s e d :)
(R u b b e r s ta m p i m p r e s s i o n :)
J . F . L o w th er.
For deposit only, Equinox House. Pay to the order of The Chase National
Bank of New York, Equinox Co.
A. L. O. Orvis, President.
(Also following rubber stamp impression:)
Received payment through City Collection Department, New York Clearing
House, July 28, 1924. Prior indorsements guaranteed, Chase National Bank,
New York.
The C h a i r m a n . You may proceed.
Representative L a G uardia . And here is a check dated July 11,
1924, given to Mr. W. J. Gomber. Mr. Gomber was then with
Financial America. Mr. Plummer will be able to tell you how
Gomber used the stories of Plummer’s stock for these checks. I ask
that this check be identified as an exhibit.
The C h a ir m a n . The committee reporter will appropriately n u m
ber the check.
(The check was identified by being marked “ Committee Exhibit
No. 49,” and is as follows:)
No. 1242.
New York, July 11, 192&.
*
Central Union Trust Co. of New York: Pay to the order of W. J. Gomber,
$140.50 (one hundred forty dollars fifty cents).
A. N e w t o n Plummeb.
STOCK EXCHANGE PRACTICES
(On reverse side of check)
(Indorsed:) W. J. Gomber.
stamp:) Second teller.
(Signed:)
William J. Gomber.
(Rubber
Senator B u l k l e y . How much is that check!
Representative L a G uardia . It is for $140.50. You will see that
they all participated in this stock account which was opened by the
broKers for Plummer for this specific purpose.
Senator B u l k l e y . What stock is that?
Representative L a G uardia . Savage Arms. Now, here is another
check to Mr. Lowther, $50, dated July 15,1924.
The C h a i r m a n . Let me see that check.
Representative L aG uardia . Certainly.
The C h a i r m a n . As to this check to W . G. Gomber, isn’t he em
ployed by the Wail Street Journal, which is panning this committee
for this investigation?
Representative L a G uardia . I would not be surprised.
(Tne check referred to was identified by being marked “ Com
mittee Exhibit No. 50,” and is as follows:)
JSo. 1243.
New York, Ju ly 15,1924.
Central Union Trust Co. of New York: Pay to the order of J. F. Lowther,
<50 (fifty dollars).
A . N ew to x P lvm m eb.
<On reverse side o f check)
(Indorsed:) J. F. Lowther.
Pay the Chatham & Phenix National Bunk, or order. Gumpertz & Co.
(fee.). 1607.
(Another rubber-stamp impression:)
Beceived payment through city collection department, New York Clearing
House. Prior indorsements guaranteed. July 10, 15)24. The Chatham and
Phenix National Bank of the city of New York. L. E. Jones, cashier.
The C h a i r m a n . You may go ahead, Congressman.
Representative L aG uardia . Now, Mr. Chairman and gentlemen
of the committee, I have here three checks dated July 31, 1924,
July 17, 1924, and July 7, 1924, in the amounts of $1,000 and $300
ana $600, respectively, made out to cash and given to the pay-off
man; and it is stated that he in turn paid it to other financial
writers who were ticklish about taking checks. Without permis
sion. Mr. Chairman, I do not care to disclose at this time the name
of the pay-off man, but I will give it to the committee. This man
is available, but there are good reasons, physical and otherwise, why
I do not care to disclose his name at tins time. Any time the com
mittee calls, Mr. Chairman, I will give you the name.
Senator F l e t c h e r . Those are three chocks payable to cash?
Representative L aG u ard ia. Yes, sir; he pai<l out the cash to
other newspaper writers, who took the fake stories concerning the
stock and turned them in to their papers as “ financial news.”
Senator T o w n s e n d . What is the total amount o f the checks?
Representative LaGuabdia. The total amount is $1,900 for this
particular stock-----Senator F l e tc h e r . Do they bear indorsements?
Representative L a G uardia . Yes, sir; paid out in cash to six other
newspaper financial writers.
Senator W alco tt . What year was that, 1924?
Representative L a G uabdia . Yes. sir.
450
STOCK EXCHANGE PRACTICES
Senator B arkley . What are the amounts of the checks?
Representative L a G uardia . They are for $1,000, $300, $600.
Senator B a rk ley . What was the name of the broker in that case?
Representative L a G uardia . My information is that the brokers
were Boesel & Co. and Jackson Bros.
The C h a ir m a n . Y ou may proceed, Congressman.
Representative L a G uardia . I will say that there was another Sav
age Arms ballyhoo promoted by these same gentlemen, and here we
have the clippings used all over the country, which were followed
by purchases of the stock.
Senator B u l k l e y . What date?
Representative L a G u a r d i a . This was in November of 1924. This
was along in the summer of 1924. I have a check for $800 which
is a part of another cash payment. And here is a check for $268,
and this particular financial writer also participated in this pool,
and this check is indorsed by Mr. Richard Edmondson, who was
then on the Wall Street Journal. I am sure that Mr. Edmondson
would be glad to explain to this committee why he received $268
from Mr. Plummer, who was plugging Savage Arms stock at the
time. May I have that check identified?
The C h a ir m a n . Yes.
(The check was identified by being marked “ Committee Exhibit
No. 51,” and is as follows:)
Nkw Yokk, December 5, 192^.
No.
A W . 1564.
J U V l.
Central Union Trust Co. of New York: Pay to tlie order of cash, $268.
(two hundred sixty-eight dollars).
A . N ew ton P l u m m e r .
(On reverse side of check:)
(In d o r s e d : for deposit, Richard Edmondson.
(Rubber stamp impression:)
Received payment through City Collection Department, New York Clearing
House. December 6, 1924. Prior indorsements guaranteed.
(Balance of rubber stamp undecipherable.)
The next financial expert’s fee is the check dated December 5,
1924, for the amount of $184, indorsed by Mr. Charles T. Murphy,
who was then with the New York Evening Mail writing financial
information for the newspaper.
Senator B a r k le y . Let me ask you there, did any articles appear
in the Wall Street Journal under the name of this gentleman who
received the $258?
Representative L a G uardia . Yes; I have all the clippings.
Senator B a r k le y . Corresponding to the date of this check?
Representative L a G uardia . Yes.
Senator B a r k le y . And in the case of this last check you gave us,
did any articles appear in the New York Mail corresponding with
that?
Representative L a G uardia . Oh, certainly; otherwise he would not
get the check.
Senator B a r k le y . Well, I know. I want to see if the articles and
checks correspond as to date.
Representative L a G uardia . And with the original text turned
oi' '
* 1
u
STOCK EXCHANGE PRACTICES
E x h ib it
451
No. 52
No. 1562.
N e w Y o r k , December 5,1924.
Central Union Trust Co. of New York: Pay to the order of cash, $184 (one
hundred and eighty-four dollars).
A. N e w t o n P l u m m e r .
Sa v a g e Arms.
(On back of check)
(Indorsed:) Charles T. Murphy. Paid by New York Trust Co., December 9,
1924.
Representative LaGuardia. I have here another check for $209
indorsed by Mr. William J. Gomber.
The Chairm an. Is that the same Gomber ?
Representative LaGuardia. Yes; that is the same Gomber in
Financial America.
(Check indorsed by William J. Gomber was designated “ Com
mittee Exhibit No. 53,” and is as follows:
E x h i b i t No. 53
No. 1577.
D ecem ber 18, 1924.
Central Union Trust Co. of New York: Pay to the order of Cash, $209 (two
hundred and nine dollars).
A . N ew ton Plu m m er .
(Back of check)
(Indorsed:) William J. Gomber.
Trust Co. of New York.
Paid December 17, 1924, Central Union
Representative LaGuardia. And here is another check for $200
paid out by the same promoter of the Savage stock, and indorsed
by Mr. W. F* Wamsley, who was then with the New York Times,
and I am reliably informed is no longer with that paper.
(Check indorsed by W. F. Wamsley was designated “ Committee
Exhibit No. 54,” and is as follows:)
E x h ib it
No. 54
No. 1578
N e w Y o r k , December 20, 1924.
Central Union Trust Co. of New York: Pay to the order of cash $200 (two
hundred dollars).
A. N e w t o n P l u m m e r .
(Back of check)
(Indorsed:) W. F. Wamsley. Paid December 22, 1924, Federal Reserve
Bank of New York.
Representative LaGuardia. And I must pause here to state that
any writer who would take money in that manner not only deceived
the public, but he deceived his own editors, I am pretty sure.
And here is another check for $800 which was used to pay out
seven other financial writers and public services giving out canned
information for these gentlemen of the New York Stock Exchange.
(Check indorsed by A. Newton Plummer and Herbert J. Dotterweich was designated “ Committee Exhibit No. 55 ” and is as fol
lows :)
452
STOCK EXCHANGE PRACTICES
E x h ib it
No. 55
No. 1563.
New Y o r k , December 5, 1924.
Central Union Trust Co. of New York: Pay to the order of cash $800 (eight
hundred dollars).
A. N e w t o n Pltjmicssl
(Back o f check)
(Indorsed:) A. Newton Plummer; Herbert J. Dotterweich. Paid at Central
Union Trust Co. of New York, December 5,1924.
Senator C ouzens . Have you the names there?
Kepresentative L a G u a r d i a . Well, it is cash, and I would rather
have the man who paid out the cash testify to that. I have the
names, but I will not use them. The pay-off man can testify and
identify these writers to whom he paid the money. I will only use
the names of writers who indorsed checks.
Senator W atson . Will you give us the date of that
Representative L a G uabdia . That is December 5, 1924. That is
the second Savage operation.
Now we come to another one, Pure Oil.
Senator C o u z e n s . Is that one of the Dawes concerns?
Representative L a G uabdia . I have been so told.
Senator G lass . Any tariff on it?
Representative L a G uabdia . Not at that time.
Well, gentlemen, I will run along rapidly now. Here are the
original stories^ sent out to peg this particular stock; boom it up.
Here are the clippings used, ana here are the checks.
Senator C ostigan .. The original story should be marked as an
exhibit, should it not?
Representative L a G uardia . Yes; they are all here. There are
three checks dated January 9, 192.5, January 8, 1925, January 28,
1925, respectively, for the amounts of $400, $600, and $800, respec
tively, made out to cash, cashed by the same pay-off man I referred
to before, whose name I will be glad to give to the chairman to ascer
tain to whom he paid this money and for what purpose. I have the
names. I have here the other checks in the Pure Oil transaction,
one dated January 20, 1925, for $468, indorsed by Mr. Richard Ed
mondson, of the Wall Street Journal. Another, for $100, indorsed
by Mr. J. F. Lowther, of the Herald-Tribune.
Another, for $184, by the same J. F. Lowther, of the HeraldTribune.
And another, Mr. William White, of the New York Evening Post.
Senator B a r k l e y . How much is that?
Representative L aG uardia . That is $184.
And another of Charles T. Murphy, of the then Mail, and another
for $284, Mr. William J . Gombor, of Financial America.
Senator B ab k le y . D o you know how the amount o f these pay
ments was arrived at?
F J
Representative L a G uardia . Yes; in this instance by participation
in pools, by accounts opened by the stockbroker in the name o f tho
publicity man.
Senator B a b k l e y . That is, these checks then, if I understand,
represent their share of profits that were made out of the operation?
Kepresentative L aGuabdia. No. In some cases cash was given to
this clearing house that would write the articles and play the stock
STOCK EXCHANGE PRACTICES
453
up. When cash was given we find the amounts, $100, $200, even
numbers. Other times, instead of giving cash they would open an
account, for instance, in the name of Mr. Plummer for so many shares
of stock, and of course they would play that stock, and when it got
up would sell it, and they would divide.
Senator B arkley . What I was trying to find out is whether these
checks represent money paid to them for the writing of these favor
able articles or whether they were checks representing their share of
profits made out of the stock by reason of the favorable articles.
Representative L a G uardia . For using articles favorable to the
stock they got cash or participation in an option or a small pool.
Senator B arkley . Y ou say it is both ways (
Representative L a G uardia . Yes. They did not invest or risk any
money in these transactions.
Senator B ark ley . Somebody must have invested some money or
they could not have bought the stock. How could they buy the
stock?
Representative L a G uardia . The stockbroker would just open an
account for them or simply give Plummer an option for so many
shares.
Senator G ore. In either case it was payment for the propaganda
and publicity?
Representative L a G uardia . What is that?
Senator G ore. In either case it is payment for propaganda and
publicity rather than representing payment direct ?
Representative L aG uardia . Yes. That is the only conclusion
which can be reached.
Here is the original story boosting the stock. [Exhibiting clip
pings.] Here are the clippings taken from this story, and here are
the checks indorsed by the newspapermen.
Senator G ore. I understand. Can you tell from your record
whether it was payment for the publicity as a service, whether it
was a declaration of profits on the stock transaction, or what it was
for?
Representative L a G uardia . Oh, of course, these financial writers
could not accept any money for service. Tnis was news that they
were supposed to be writing, Senator, not ads. That is why pay
ment to tnem is so shocking.
Senator G ore. I meant this service or publicity.
Representative L a G uardia . Plummer was invariably retained to
get publicity out for brokers or pools interested in a particular
stock. He in turn paid newspaper men to use his stuff. But these
men were supposed to be writing news articles, financial news
articles.
Senator G ore. Yes; and were paid for the news and publicity in
connection with the news and did not receive profits accruing from
the stock manipulations in connection with which the publicity was
furnished?
Representative L a G uardia . In the Savage Arms case the money
which they received ostensibly was the result of an account opened
in the name of the publicity firm. They received money but they
invested no money.
Senator B a rk ley . Let me ask you there-----Representative L a G uardia . They received this gratuity.
119852—32—p t 2------6
454
STOCK EXCHANGE PRACTICES
Senator B ar k le y . Y ou say they opened an account with a broker?
Representative L a G uardia . Yes.
Senator B a r k l e y . Did these operations represent operations th a t
actually transpired in the stock exchange, or was it merely a book
keeping operation within the office of the broker?
Representative L a G u a r d i a . The broker will have to testify to th at.
Senator B a r k l e y . You do not know? The name of the broker
is right on the statements.
Senator G lass . What brokerage houses employed this man Plum-
m er ?
Representative L aG uardia . W e ll, now, we are talking about P u re
Oil.
.
, _
Senator G lass . In all three of the cases you have mentioned, Sav
age Arms, Pure Oil, and the other?
Representative L a G uardia . Well, I will give you Savage Arms.
That was this Jackson Bros., Boesel & Co., and m Pure Oil it was
the Chase Securities Corporation.
Senator T o w n sen d . These gentlemen are members o f the stock
exchange?
Representative L a G uardia . Jackson Bros., Boesel & Co., are.
Senator G lass . And Indian Motorcycle?
Representative L a G u a r d ia . Motorcycle is Hansell & Co. I w i ll
come to that in a minute.
The C h a i r m a n . While you have mentioned Savage Arms, I w an t
to refer back to the testimony of Bernard Smith when he appeared
before this committee a few days ago. I will read the following.
Mr. Gray, the attorney, says:
B y t h e w a y , h a v e y o u e v e r b e e n a s p e c ia li s t in a n y s to c k , a n d , i f s o , t e l l
m e w h ic h o n e ?
M r . S m i t h . I w a s a s p e c ia li s t in U n ite d S t a t e s R e a l t y , T i d e w a t e r A s s o c i a t e d .
S a v a g e . I th in k t h a t i s a b o u t a ll.
Senator B l a in e . Mr. LaGuardia, did you say Jamerson Bros. ?
Representative LaGuardia. Jackson.
Senator B a r k l e y . Has the Chase Securities Co. any relationship
with the Chase National Bank?
Representative L a G uardia . I do not know what they w ou ld say
about that to-day. In the boom days the relationship was very close.
Senator F l e t c h e r . The question would be, Mr. LaGuardia,
whether these men who received these checks were let in the p o o l.
Did they become a part of the pool?
Representative L a G uardia . Only to a small extent, enough to p a y
them for using the prepared faked stories. The pool was a p re tty
big thing.
The C h a i r m a n . Isn’t there something there to prove that they
were given options on the stock to promote it and if the price w en t
high they had a chance to sell, and while the stock was down th e v
could buy it?
Representative L a G uardia , Senator, I think they got the money
any way.
The C h a ir m a n . Yes? and I think you have proof there that they
had options and participated in it.
Senator F letcher . The question is whether they were paid th is
money in order that Plummer might get to the public this propa
ganda.
STOCK EXCHANGE PRACTICES
455
Representative L a G u a r d i a . Certainly.
Senator F letcher . Or whether they were participants in the pool.
Representative L a G uardia . N o ; they were given these gratuities
in order to facilitate getting the stories boosting the stock in their
respective papers.
Senator F letcher. H ow was Plummer paid and how much was
he paid then during these operations? Was he on a salary?
Representative L a G uardia . No; on retainer, retainer for each
case. Now, for instance, here is a retainer right here dated July
28,1924. I think this will answer the question:
Mr. A. Nkwtok Pltokher,
New York City.
D e a b S i b : I am in receipt of your letter of this date confirming arrange
ment with me for handling the publicity work on Pure Oil for one month, for
which you are to receive $2,500 in cash, check for which was sent to you to-day.
In other words, there was the $2,000 that he was to have for dis
bursements. I think this will answer your question. Senator
[reading]:
I also hereby confirm giving you an option on 500 shares of Pure Oil common
at 25 and 500 shares at 25%, good for 30 days from date hereof.
Senator F letcher . Who is that signed by ?
Representative L a G uardia (reading):
I note from your letter that you consider the first month as running from
this date to September 1.
That is signed by O. L. Gubelman and initialed “ M,” and the
letterhead is “ Oscar L. Gubelman. 61 Broadwav. room 503, New
York C ity”
Senator T ownsend . Is he a member of the stock exchange?
Representative L a G uardia . I do not know, sir.
Senator C aret. Who is Mr. Gubelman ?
Representative L a G uardia . I think I have a memorandum on that.
He was acting for Pure Oil. That is all I know. In that case
may I state that the scrap book of the clippings was delivered to
Mr. Gubelman?
Senator G ore. The first transaction, $2,500, was cash and was re
gardless o f the success of the thing; it was not contingent on success ?
Representative L a G uardia . N o.
Senator G ore. The stock option, I take it, was if stock went up?
Representative L a G uardia . Certainly. And it was this man s job
to bring it up.
Senator F letcher . Could you give us the date of that letter ?
Representative L aG uardia . Yes, Senator. I have it marked July
28, 1924.
Senator B a rk ley . I suppose the fact that he was given this option
for 30 days entitled him to determine in that 30 days whether lie
wanted to take advantage of the option, depending on whether it
went up or not?
Representative L a G uardia . Of course he paid nothing fo r the
option. Just took the difference between the amount stated and
market price any time during the option.
Senator G ore. D o you know whether the
not, Mr. LaGuardia?
Representative L a G uardia .
Yes.
movement succeeded or
456
STOCK EXCHANGE PRACTICES
Senator G ore. And how far did Pure Oil go, do you know ?
Representative L a G uardia . I understand that all these were
successes.
.
. _ ,
Senator G ore. Y ou do not know how high Pure Oil went in th at
movement ?
Representative L a G uardia . I can not tell without looking it up
and it would take c[uite a few minutes. O f course, its market price
on any given date is easily ascertained.
Senator G ore. Easily ascertained; yes.
Representative L a G uardia . N o w , here we have, gentlemen, Supe
rior Oil, and there is $1,000 paid off. This was paid out in cash.
I will give the chairman the name of the pay-off man. And here
we have one check paid. We have the cashed check here and it is the
same story.
Senator F l e t c h e r . What case is that?
Senator G ore. Give the date.
Representative L aG uardia . Yes. May 23, 1924, Superior OU.
Senator W atson . What was the duration of that publicity, Con
gressman, and what was the effect on the price, on the market price
of that stock?
Representative L a G uardia . My inform ation is, o f course, and
that is subject to verification and that is very easily verified-----Senator W atson . I thought perhaps you m ight have it.
Representative L a G uardia . N o ; but it states that in every instance
it was successful— to everybody but the investor, o f course.
Senator W atson . Of course.
Representative L aG uardia . The next case takes us to April 10,
1923, Simms Petroleum for George F. Breen. A ll we have there is
the payment for his services of $1,000, and I do not believe th a t is
very exciting just now. Here are the clippings and the original
story [exhibiting].
Senator G lass. Who is Breen? With what paper is he connected?
Representative L a G uardia . N o. Breen was the gentleman w h o
retained this publicity bureau, Senator, and these are all cash tran
sactions. I have here 280 clippings from 111 papers with 12,540,000
circulation in 67 cities with 27,143,000 population.
We will go away from oil for a minute, and the next case is-----Senator G ore (interposing). You do not have anything la te r
on Superior Oil?
Representative L a G uardia . N o , sir.
Senator G ore. I think they have changed
the name of that, Mr.
LaGuardia, to “ Inferior Oil.”
Representative L a G uardia . I s it? W e ll, now, that would be v ery
interesting.
Senator B ark ley . What about Pure Oil? What did they change
it to?
Senator C ouzens . Reconstruction.”
Representative L a G uardia . That is interesting. Senator, w ith
reference to the Superior Oil, now down to two bits, this is th e
kind of stuff he would send out:
M a y 23, 1924.—The production of the Superior Oil Corporation is now aver
aging better than 4,000 barrels of 39° oil daily, according to the official state
ment by H. G. Davis, president. This is an increase of approximately 200
per cent since the first of the year. This is the first result of Superior Oil’s
new expansion policy, which indicates the extensive development of recently
STOCK EXCHANGE PRACTICES
457
acquired properties in the Mid-Continent field. The company's Kentucky leases
continue to produce on a profitable basis, and the commencement to-day ot a
very aggressive drilling campaign now under way in Oklahoma indicates the
output in 1924 will be substantially increased over present daily runs.
A 60-acre lease in Seminole County, Okla., in what is known as the Cromwell
pool, which was purchased on February 24 for $18,000, is considered a very
valuable lease.
Mr. Davis said: “ Several flattering propositions for a half interest in this
lease were included.”
Now, for instance, here is a clipping just taken at random:
As might be expected, the shares of the corporation have shown unusual
strength following the decision. They held firm throughout yesterday's ses
sion, despite the general selling pressure exerted against oil shares—
And so on.
Senator G ore. I know a person very intimately who bought that
on the basis of $25 a share and sold it for 75 cents a share.
Representative LaGuardia. The next is Consolidated Laundries,
gentlemen.
Senator B u l k l e y . I s that a listed stock?
Representative LaGuardia. Yes; it must have been.
Senator T ownsend . A ll of these stocks about which you have
spoken are listed?
Representative LaGuardia. Yes. Otherwise they would not bally
hoo them. For instance, Laundry started off with a statement:
~ A $7,000,000 power laundry merger of companies in New York and New
Jersey is in the process of formation. According to interests identified, it is
one of the largest laundry corporations in the country. It is understood that
companies in other Eastern States will be included at a later date, which will
bring the total capitalization to above $10,000,000.
My information is that $1,800 was paid in cash. I will give the
name to the chairman as in the other cases, and the committee can
run it down.
Senator F letcher . Paid for what?
Senator G lass. Publicity.
Representative LaGuardia. Publicity Boosting the stock and
getting the fake stories across in the daily and financial papers.
Senator G lass. In the same way as these other writers f
Representative LaGuardia. Yes, sir. Now, gentlemen, this is
interesting. The Maxwell Motor. These boys specialized in several
motor companies, now all out of business. This is also cash trans
actions, and the amounts here are pretty high. The amounts alleged
to have been paid out are $600 to each of the writers, and there are
nine. That is $5,400. Nine financial writers plugging Maxwell
Motors stock—investors lost heavily.
Senator F letcher . Give us the date of that.
Representative LaGuardia. March 8, 1923.
While this campaign was being conducted in the newspapers, a
list of the stockholders of this corporation, which is supposed to be
sacred, was given to the publicity man, and while he was urging
the purchase of. stock with the stories that were being sent out and
published in newspapers, another kind of letter was being sent to
the stockholders to hold their stock and suggesting it would be illadvised to sell it at the time, in order not to have stock of the stock
holders on the market during the rising market, created by this
artificial stimulus of the high-pressured publicity stories that were
458
STOCK EXCHANGE PRACTICES
being sent out. Then some of the directors and pools unloaded
leaving, as usual, the stockholders holding the bag.
Here is the story and here are all the clippings [exhibiting]. I
don’t know how many there are.
Senator G ore. Was that some brokerage firm did that?
Representative L a G uardia - Yes.
Senator G ore. Who was it?
Representative L a G uardia . Chase Securities Corporation.
Senator G ore. A dvised stockholders to hold while they were carry
ing this on?
Representative L a G uardia . Yes, sir. And here is the stockhold
ers’ list. They just handed this agent, this publicity man, a list o f
stockholders to use in connection with the dirty work. I f a stock
holder applies to get a list like this he has to go to court. The com
pany would not let him have it.
Senator G ore. D o you know whether that was ever called to the
attention of the governing board of the stock exchange?
Representative L a G uardia . Well, if it was, nothing would hap
pen ; I can tell you that.
Senator B a r k le y . That is the Laundry Co.?
Representative L aG uardia . No, gentlemen ; Maxwell Motors. A nd
this finally petered out. In this case stockholders were finally wiped
out, I understand.
Senator C ouzens .
Have you any information about what you have
been giving us later than 1923 or 1924?
Representative L aG uardia . Yes; I shall give a 1930 case in a
moment. The reason I thought these were typical, Senator, is that
that is the time that all this inflation, this boosting, was going on.
Senator B a r k le y . I happen to recall that Maxwell Motors went
up almost at skyrocket speed at a certain time back about that time.
Vvhat year was that?
Senator W a lc o tt. March, 1923.
Representative L a G uardia . That is 1923. For instance, in the
four scrapbooks [exhibiting] that are here, there are 1,400 clippings
from 475 papers with 17,698,858 circulation in 295 cities with 35,500,000 population.
Senator C arey . Is that company defunct now ?
Representative L a G uardia . Y es; I understand they are wiped out
entirely.
Senator C arey . What happened to the stockholders?
Senator F letcher . Who were the brokers for that concern?
Representative L a G uardia . Chase Corporation. I have something
on that, too. Then I have another one here, gentlemen. I am not
going to give you all o f this at once. I f the committee is not tired
we can go through the whole operation o f the scheme to bring upstock.
We will take the Indian Motors case, which is recent (1930).
Senator G lass . Mr. Congressman, may not Mr. Whitney respond
to your charge of misrepresentation by saying that since he has been
president of the stock exchange all of this sort of thing has been
corrected? Have you any late dates?
Representative L a G uardia . Yes. This one here is 1930. H e was
president then. He was president when they brought to his atten
tion the Hayden-Stone case. He has been on important committees
of the exchange all during this time.
STOCK EXCHANGE PRACTICES
459
Let us start off with Indian Motors.
Senator G lass. I am told that Mr. Whitney was chairman of the
business conduct committee for 12 years.
Representative LaGuardia. O f course, you understand, gentlemen,
that the members of the business conduct committee pass on each
other’s misconduct.
The original Indian Motorcycle Co. was sponsored in October,
1913, by Kidder-Peabody Co., Boston, under the name of Hendee
Manufacturing Co., and the corporate name was changed to Indian
Motorcycle Co. in 1923.
Senator Goss. What was it prior to that?
Representative LaGuardia. The company’s limited capital of only
100,000 shares of common stock made it an ideal toy for manipula
tion. In December, 1929, Hansell & Co. opened a deal in the stock.
This firm was headed by Howard F. Hansell, jr., who took Harry
Content, a member of the New York Stock Exchange, with him.
Content is a floor broker. The hundred thousand shares capitaliza
tion stood unchanged until Hansell, Content, and Wilder assumed
the role o f market pilots in December of 1929, when on the 26th
day of December, 1929, the New York Stock Exchange admitted the
listing o f 40,000 shares of additional stock, which was authorized
by the directors to be sold to Hansell & Co. at $5 a share. And
this is the first exhibit, the Indian Motorcycle Co., committee on
stock list, New York Stock Exchange, authorizing 40,000 shares.
Senator W atson . What was the date of that, please?
Representative LaGuardia. 1929; December 19, 1929.
So we start off with 40,000 shares. The board of directors at that
time included the following: Norman T. Bolles, Roy G. Lane, both
of Springfield^ I think they were in the original company. Dickson
of Pennsylvania and McCoach of Philadelphia, attorneys for Drexel
& Co.—I don’t see what that has to do with it—William W . Tracy,
of South Orange, Charles E. Mitchell, New York—not the Mitchell
of the National Bank—Harry G. Dodge, of Belleville, N. J.
Now, gentlemen, when an operation of this kind starts, these men
get themselves elected on the board of directors. A few years ago
when the transit commission of our city was investigating or study
ing the possibilities of a merger of our transportation companies,
Mr. Samuel Untermyer disclosed that of the 300,000 shares of the
Interborough the whole board of directors owned only 130 shares,
and when he endeavored to approach the stockholders in order to
get the consent for a merger he found that the majority o f the
stock was held in the name of brokers but never transferred over to
the owners.
And that is what was done in this case. Wilder and Hansell and
I think Content—I will come to it in a minute—got themselves
elected to the board.
During 1929 and 1930 not much happened. On November 30,
1929. only 500 shares were traded that day at $5. That becomes
significant. From this point on the drive started. On January 4,
1930, the volume of trading increased to 3,700 shares, with a price
of but $4 a share. On January 11 it went up to $7.50 a share.
That was the groundwork for the marketing of the 40,000 shares
which remained dormant in that period. Then the publicity started,
and the first shot was a story in the local papers o f the success of
460
STOCK EXCHANGE PBACTICES
the company, which was reproduced and distributed through the
mail.
Senator C o uzens . Who was that?
Representative L a G uardia . That was the Springfield Union, of
Springfield, Mass., January 9, 1930.
Senator C ouzens . Who wrote the story ?
Representative L a G uardia . The publicity man.
.
Senator C ouzens . What is his name? Have you mentioned it*
Representative L a G u ardia . Yes; Plummer.
Senator Couzens . O h; Plummer all the way through.
Representative L a G uardia . Then the next publicity step w as the
sending out of this circular:
Indian Motorcycle Co. Ticker symbol IMY. Under new management.
That was broadcast through the company with a postcard at
tached to find out if the recipient of this circular was interested.
Senator W atson . H ow much later was that, Congressman? Let
us keep the chronology of it. Let us have the date.
Representative L a G uardia . January, 1930. Then they started to
operate through the Boston News. This printed matter which I
exhibited was sent to the stockholders in the meantime. Here is
a list of the stockholders that was circularized.
Senator Gore. About how many, Mr. LaGuardia; do you know?
Representative L aGuardia. No; I have not counted them, sir.
Here is a return card from a gullible holder up in Bath, Me., 'who
owned 40 shares and ordered 200 more.
Senator F letcher . Does it give the price there? What w as he
paying for it then?
Representative L a G uardia . Six and three-eighths at th at tim e.
Then the Boston News Bureau circularized the papers with a s t o r y :
Orders 65 per cent ahead of business a year ago. Expected to reach monthly
output of over 3,000 vehicles by March. Financial position improved.
Then Hansell & Co. circularized their customers with a letter in
closing that statement. Then the Wall Street Journal on January
16,1930, had exactly the same story:
Indian Motorcycle outlook improved. Company orders on hand 65 per cent
over last year. Outboard product developed.
And so on, and that was reproduced and sent out.
Then to the promising customers a night letter was sent out
reading:
Indian Motorcycle on the stock exchange now. Good proposition for further
substantial advance, as profit taking has been absorbed, and immediate pur
chase advised to take advantage. Next move to $15 level, which is justified by
40 per cent increase of January sales and prospects of $3 this year.
That was sent out by Hansell & Co.
Then this prospectus, “ Indian Motorcycle and its Common Stock,M
was prepared by Hansell & Co. Here are some of the clippings.
Now then, there was no real market for motor cycles at the time,
so they could not keep the proposition up, and what did they do?
They went to London and contacted Mr. Coatalen, who is a wellknown motor manufacturer, stands very high, and they purchased
from Coatalen an air motor which had never been developed, that
was simply not even in the blue-print stage, but he did receive a
patent for this Diesel air motor, and they purchased the American
rights of this air motor for I think it was 50,000 shares o f the stock,
STOCK EXCHANGE PBACTICES
461
with the understanding that he was to give half of the profits to
Wilder and the gentlemen on the board who negotiated its contract.
A story in the Daily Mail of London on Saturday, February 1,
1930: “ British oil motor engine, fire risk banished, can transport
safely and cheaply,” was exploited, photostated, and reproduced in
this country, and m that story of the development of this Diesel air
motor the 40,000 shares was dumped on the American public. As
far as I know, the motor has never been developed.
Mr. Coatalen came to this country. My information is that he
saw what was going on, delivered his contract, took his shares of
stock, cashed in on them, and went back to England very much
disgusted.
And now, an indication, gentlemen, of just how this works: As I
stated, on November 30,1929, 500 shares were traded in. The high
was 5% and the low was 5%. December 7 there was 600 shares,
5y2 to 5y8. .
Now I will jump a few days. We go to January 11 and it was
18,700; the high was 7% ; 5 1 4 was the lowest.
Then we go to February 1, 662,000; O1/^ high; 5% low.
We go to February 22, 38,100 shares; 10y2 high, 8% low.
Senator C ouzens . Is that all on the same day that that happened ?
Representative L a G uardia . Those ranges are high and low on
that day.
Senator C ouzens . On the same day ?
Representative L a G uardia . On the same day.
March 1, 109,800 shares were sold at 12%, and the low was 9i/o,
the result, I think, of the exploitation of the Coatalen invention.
Then tne high peak was reached on March 8 at 171,800 shares.
The high was 17; the low was 9.
And then from March 8, just a slow drop to 31,000, 33,000, 49,000,
88,000,19,000,37,000 shares they are selling, selling, down to January
28, 5,900 shares were sold for 5y2. That is just where we started
on November 30,1929.
Senator B u l k l e y . What is the last date?
Representative L a G uardia . That must be June 28, 1930. It
started January 4, 1930. I t ended June 28, 1930, just lasting six
months during this drive. It reaches the high peak; then down it
comes; publicity i? over; publicity man cashes his money. Coatalen
goes back to England And the American investors have been stuck
with the stock.
Senator T ownsend . What is the name of that Englishman?
Representative L a G uardia . Coatalen.
Senator T ownsend . That is the man from London ?
Representative L a G uardia . Yes.
The C h a ir m a n . I f you have concluded your statement, I would
like to ask you a few questions.
Senator W a t s o n . What happened to that stock afterwards, we
all are asking you?
Representative L a G uardia . It is down to about three-fourths of
a point. I do not think it is much good, like everything else.
Senator W atson . After June?
Representative L a G uardia . N o w , gentlemen, I simply want to
point out this-----Senator Babkley (interposing). This Coatalen that you spoke
of, did he make money out of the transaction?
462
STOCK EXCHANGE PRACTICES
Representative L a G uardia . O h, he got cash.
Senator B a r k l e y . Is that what disgusted him?
Representative L a G uardia . Well, I think he-----Senator C ouzens . What was this Plummer indicted for? You
did not tell us that when you started out.
Representative L aG u ardia . I have that here.
Senator F letcher . Was he concerned in General Motors?
Representative L a G uardia . I don’t know. I think, Senator
Couzens, his story is that he was trying to show that it was possible
to—he was writing a story called “ The Great American Swindle.”
He says:
To obtain this information first hand I had to play the role of a criminal
and succeeded so well that I was caught in a police net which has been spread
out for six months.
He must be a good actor. It seems that he had some securities, I
think, he was trying to show that they were forged securities, in
circulation.
Senator C ouzens . And he was arrested and indicted for it?
Representative L a G uardia . Yes; and indicted.
Senator C o uzens . And his trial has not come off?
Representative L a G uardia . N o.
Senator C ouzens . H ow long ago
since he was indicted, do you
know?
Representative L a G uardia . I think he started to write his ar
ticles last summer, Senator, and shortly after he started to write his
articles, he was indicted.
Senator C ouzens . Do you know what is causing the delay in the
trial?
Representative L a G uardia . No, sir.
Senator B l a in e . Was it a Federal or State indictment?
Representative L aG uardia . State.
Senator F letcher . What court, what State, w hat ju risd iction ?
Representative L a G uabdia . New York City, general sessions.
The C h a ir m a n . You referred to the Boston News Bureau here.
Do you know whether that is owned by the Wall Street Journal too?
Representative L aG uardia . I do not.
Mr. Chairman, I will be glad to leave these clippings with the
committee. I am a little worried about these checks; not that I
was afraid that anybody would take them away from me, but I
do not want to lose control of them. Now you have them.
Shocking as these facts may seem, gentlemen, I believe that the
same sordid story could be told about nearly every stock in which
there has been a pool and in which there have been efforts to shoot
up the price.
The same thing, gentlemen, if I may suggest, took place with the
Kreuger stock. It was impossible for any grown-up man to read
their collateral agreement on which these debentures were issued
without knowing that at any time the company could remove the
good security and replace it with what? With other securities of
equal par value,” not of equal “ market value,” but o f equal par
value. So that the inevitable, of course, took place. The good securi
ties were removed and bonds of absolutely no market value, no in
trinsic value, but having on their face the value printed, were nut
in their place.
F
STOCK EXCHANGE PRACTICES
463
Gentlemen, 38,000 investors, American investors, bought the
Kreuger bonds, and I am informed that over 300,000 purchased the
Kreuger stock.
And it is at this very time, gentlemen—perhaps I have a little
feeling in the matter—that stories are sent out but if it were not
for Congress there would not be a decline in the market. Now, I
submit mat decent, unsuspecting American citizens, many of them
retired business men, school-teachers, doctors, lawyers, dentists, read
these articles. They have faith. They believe what is being told
them by so-called big industrialists or big bankers or big men on
the stock exchange. And the result is that the American public
has been mulcted of $2,000,000,000 in South American securities
alone and several hundred million dollars in European securities,
besides what they have lost on this kind of trash that you have
seen here to-day.
And then they blame Congress because we have a deficit in our
Budget, which is the result, of course, of people having lost their
money and unable to pay income tax.
Gentlemen, it is unpleasant to come here and tell this kind of
a story.
Senator G lass. D o you know of any kindred publicity that was
employed in the Anaconda copper deal?
Representative L a G uardia . N o.
I suspect that the gentleman
who promoted that publicity has not been indicted, and therefore
he has not contacted me yet. I hope he does, Senator.
Senator G lass (interposing). He is up in your town. It ought
to be easy for you to contact with him.
Representative L aG uakdia . Well, Senator, as you know, we have
other avenues and streets in New York City besides Wall Street.
Thank God for that.
The C h a i r m a n . One other matter, Mr. LaGuardia: Do you recall
what Mr. Plummer said he had received in total for his publicity in
promoting stock?
Representative L a G uardia . Yes. I do not know what he received,
but I gave what hepaid out, sir. I gave that to-day.
Senator G lass. Two hundred and odd thousand dollars.
Representative L a G uardia . Yes. I have that here.
Senator F le tc h e r. $286,279.
Representative L a G uardia . Yes; that is in the record, Mr. Chair
man.
Senator B a r k l e y . D o you have a n y evidence o f instances in w h ich
sim ilar methods were adopted in p ro m o tin g th e declin e of stocks?
Representative L a G uardia . No; that takes care of itself. It is
just Kke aviation. It is easy to c<jme down. But you do need a
motor to go up.
Senator B a r k l e y . Well, presumably the same sort of depressing
publicity which drove stocks down then would correspond to an
optimistic publicity that pushed them up?
Representative LaGuardia. No ; I think that when the truth is
learned they come down by themselves, Senator.
Senator B a r k l e y . That might be in many cases, but would there
be an incentive to tell as much of an untruth about the stocks in
order to depress them as there would be to tell an untruth about
them to make them go up?
464
STOCK EXCHANGE PRACTICES
Representative L a G uardia . Y e s ; i f you were on the short e n d .
The C h a ir m a n . And is not the same thing being done in rig g in g
the market by the bears as you have described here by the bulls 1
Representative L a G uardia . Only with reverse English.
Senator W alcott. D o you think there is organized publicity on
the down side to help short raids ?
Representative L a G uardia . I think there is organized publicity
on the down side just as there is on the up side. As I have demon
strated to-dav, I think there is organized publicity, gentlemen, on
every bit of legislation that we have that affects the certain gentle
men that I have referred to to-day. There is organized publicity
right at this minute on the tax bill. There is, absolutely, publicity
and misrepresentation being sent out on the deficiency. I suppose
you gentlemen have received a letter from the du Pont Co. That
letter is being copied by other large corporations and sent to their
stockholders. It is full of misrepresentations. It ignores entirely
the debt service. It talks about the appropriations in the Depart
ment of Agriculture and nobody more than du Pont was interested
in that first road-building program that we had that took $124,000,000, but he ignores it entirely.
That is what Congress is up against. And then they say “ Let
Congress adiourn and we will have good business; we will have
good times.” We were not in session last summer and business
was never worse than it was then.
The C h a ir m a n . And they clamored, “ Congress, come on and pass
some relief measures.”
Representative L a G uardia . Why, there has not been an original
idea coming from a single banker in this country during all ot this
depression. There has not been one wholesome suggestion, one truth
borne by any of these gentlemen talking for the New York Stock
Exchange. Why, things have just gone their way. Why? Because
the American public wanted to buy? Not at all. Because the
American public was deceived.
Why, gentlemen, you take Lee Higginson, selling Kreuger stock.
Let us assume that Mr. Whitney, instead of being president o f the
stock exchange, was president oi a grocery association. And let us
assume that Lee Higginson, instead of selling Kreuger bonds, was
selling canned beans. I f either of them had misrepresented the
contents and weight of the beans the way that they were dealing
in and selling bonds, they would be under indictment and in iau
at this time. And yet there is no regulation, there is no supervision,
■when they go out and take the savings of the American people.
The C h a ir m a n . That concludes your remarks?
Representative L a G uardia . Yes.
t The C h a ir m a n . I think the committee better have a short execu
tive session next and everybody will be excused except members of
the committee.
Representative L a G uardia . Thank you, gentlemen.
The C h a ir m a n . Thank you.
(Thereupon, at 12.05 o clock p. m., the committee proceeded to
executive session, to meet again to hear testimony at 10.30 o’clock,
Thursday, April 28, 1932, or upon call of the chairman.)
STOCK EXCHANGE PRACTICES
THURSDAY, M A Y 19, 1932
U nited S tates S en ate ,
C omm ittee on B a n k in g an d C urren cy ,
Washington, D. C.
The Committee met at 10 o’clock a. m., pursuant to adjournment
on Tuesday, April 26, 1932, in room 301 Senate Office Building,
Senator Peter Norbeck presiding.
Present: Senators Norbeck (chairman), Brookhart, Goldsborougli,
Townsend, Walcott, Carey, Watson, Couzens, Fletcher, Glass, and
Barkley.
Present also: William A. Gray, Esq., counsel to the committee.
The C h a ir m a n . The committee will come to order.
Mr. G r a y . I think I should say to the chairman and members of
the committee in order that they may follow this particular transac
tion, and then afterwards other transactions, that I am going to
present the picture of a pool that was run in new Radio stock be
tween the dates of March 12 and March 20 of 19*29, those being the
actual days of the operation.
I am going to show who was in that pool. I am going to show
what the transactions were in the aggregate, what its profit was.
And I am going finally to ascertain from some o f these witnesses
who have been subpoenaed, two partners of M. J. Meehan & Co.,
one of them a specialist in this particular stock, about some of the
things that require explanation in connection with the situation,
there being in one particular part of the transaction some $92,000
paid out to people who were not participants in the pool.
I will also show who were in the pool, what moneys the pool itself
made, what moneys the brokerage firm made in connection with it.
I am going to inquire as to certain of these transactions, and I have
here and will produce and offer in evidence a syndicate agreement,
so called, or pool agreement, in connection with the transaction.
Mr. Bragg was sworn before. Mr. Chairman, I do not know
whether you desire to swear him again or not.
The C h a ir m a n . No. He having already been sworn, it is unnec
essary to do so again, inasmuch as this is a continuation of the same
investigation.
TESTIMONY OF THOMAS E. BBAGG, NEW Y0BK CITY— Resumed
Senator F letcher . Mr. Gray, let me inquire for information be
fore you begin interrogating the witness: Is this just an isolated case
or is it a typical easel
Mr. G b a y . It is a typical case. We have some other pools which
we will also show ana which involve some other, as we think, bad
465
466
STOCK EXCHANGE PRACTICES
practices, the same we think that this one had, and we think this
will show a picture of the typical pool.
Senator F letcher . All right.
The C h a ir m a n . Y ou may proceed, Mr. Gray.
Mr. G r a y . Mr. Bragg, you have already been identified in the testi
mony taken before the committee as a gentleman living in New York
and trading in stocks on the New York Stock Exchange. And X
believe you nave already testified that you have no present connection
with any brokerage house. Is that correct?
Mr. B ragg. That is right.
Mr. G r a y . That you were formerly a member of W . E . Hutton &
Co., a brokerage house in New York.
Mr. B ragg. Yes, sir.
Mr. G ra y . And some time, if I recollect it correctly, in A p ril of
1928 until when?
Mr. B ragg. Until November of 1930.
Mr. G ray . Until November of 1930.
Mr. B ragg. Yes, sir.
Mr. G ra y . S o that in the spring of 1929 you were a member o f the
firm of W. E. Hutton & Co.?
Mr. B ragg. Yes, sir.
Mr. G ray . Now, Mr. Bragg, I am directing your attention to *
pool known as the new radio pool, which took place in March of
1929. You were a participant m that pool, I believe.
Mr. B ragg. My w ife was.
Mr. G ray . Your wife was a member o f that pool.
Mr. B ragg. Yes, sir.
Mr. G r a y . And her name for the record is Vera Bragg.
Mr. B ragg. Yes, sir.
Mr. G ray . And you yourself were the manager o f th a t p o o l!
Mr. B ragg. Yes, sir.
Mr. G ray . I believe you testified, however, at the last session
when you were here as a witness that you were in Florida then.
Mr. B ragg. Yes, sir.
Mr. G r a y . Who else managed that pool besides you?
Mr. B ragg. Bradford Ellsworth.
Mr. G r a y . Y ou were the nominal managers of that pool?
Mr. B ragg. Yes, sir.
Mr. G r a y . As a matter of fact, however, you had nothing to do
with the conduct of the transactions, the giving of orders to buy
and sell, did you?
Mr. B ragg. In the matter of the actual orders; no, sir.
Mr. G ra y . Where is Mr. Ellsworth to-day, do you know?
Mr. B ragg. I do not know.
Mr. G ray . Y ou say you do not know where he is?
Mr. B ragg. No, sir.
Mr. G r a y . Y ou know that he is not now in New Y ork C ity, do
you?
Mr. B ragg. I know that he was not in New York City last weekMr. G r a y . And he has not been in New York City this week?
M n B ragg. N o, sir.
Mr. G r a y . Y ou have
seen, have you not, a copy o f the syndicate
agreement or pool agreement in this matter?
Mr. B ragg. Yes, sir.
STOCK EXCHANGE PRACTICES
467
Mr. G ray. I show you a paper and ask you whether or not that
is a copy of the syndicate agreement. And I will now ask the com
mittee reporter to mark this in its order with a number. I do not
know what the number is, but I now suggest that it be marked
Exhibit No. 1 as beginning of this date. Now, Mr. Bragg, is that a
copy of the syndicate agreement?
Mr. B ragg. Yes, sir.
(A 3-page printed paper headed “ Private and Confidential, M. J.
Meehan & Co., 61 Broadway, New York, Radio Corporation of
America Common Stock Syndicate (new stock). New York, March
7, 1929 ” is identified by being marked “ Committee Exhibit No. 1,
May 19, 1932,” and will be returned to counsel to the committee.)
Mr. Ghat. Mr. Bragg, this pool was operated through the firm
of M. J. Meehan & Co. and through the firm of W. E. Hutton & Co.,
is that correct?
Mr. B ragg. Yes, sir.
Mr. G ray. And Block, Maloney & Co. also had a participation in
that pool, is that correct?
Mr. B ragg. Well, I do not recall.
Mr. G bay. Well, if you do not recall it I will establish it in another
way.
Mr. B ragg. I am not sure about them.
Mr. Gray. The actual buying and selling of the most of the stock
was done through M. J. Meehan & Co., isn’t that correct?
Mr. Bragg. Yes, sir; 1 think so.
Mr. G ray. And do you yourself know over what period of time
those sales and buys were made?
Mr. B ragg. N o; I do not absolutely know that.
Senator C o uzens . Mr. Chairman, we can not hear down here at
this end o f the table at all.
The C h a ir m a n . The witness will speak louder.
Mr. Gray. Mr. Bragg, please keep your voice up so that all mem
bers of the committee may hear you.
Mr. B ragg. A ll right.
Mr. Gray. I am going to hand this paper to the reporter to be
marked as an exhibit in this case as o f to-day, and I want to call
the committee’s attention, without reading it all, to the fact that
it is a circular form issued by M. J. Meehan & Co., members of the
New York Stock Exchange, and it is marked at the top “ Private and
confidential” and the heading also bears “ Radio Corporation o f
America Common Stock Syndicate (new stock) ” ; that it is dated
March 7,1929, and starts out by saying:
We have been requested to form and are forming a syndicate, of which we
Are to be the managers, to trade in the common stock of the Radio Corporation
of America, and no other securities; and have reserved for you a participa
tion o f --------- shares.
The commitment of the syndicate shall not at any time exceed 1,000,000
shares, either long or short; and all transactions for the account of the syndi
cate shall be in accordance with and subject to the rules and regulations of
the New York Stock Exchange.
There are then provisions with respect to the rights of the man
agement. And then a paragraph at the end that the managers are
to receive lO per cent of the net profits of the syndicate as and for
their services to be rendered herein, said payment to be made prior
to distribution of the profits of said syndicate among the partici
468
STOCK EXCHANGE PRACTICES
pants. And then at the bottom there is a place for persons to accept
a participation in the syndicate.
Now, Mr. Bragg, you as one of the managers did get, along with
Mr. Ellsworth, 10 per cent of the profits.
Mr. B ragg. Yes, sir.
Mr. G r a y . But you were in Florida and did not manage it. M. JMeehan & Co. did manage it.. Now, who got the money F
Mr. B ragg. I got my share of it.
M r. G ray . Y ou got your share o f it ?
Mr. B ragg. Yes, sir.
Mr. G r a y . Although you were in Florida at
Mr. B ragg. Yes, sir.
Mr. G r a y . Are you at all familiar with the
the time?
developments o f the
pool?
Mr. B ragg. With the detailed trading; no, sir.
Mr. G r a y . Are you familiar with who were in the pool?
Mr. B ragg. Just those that were in it through W. E. Hutton & Co.
Mr. G r a y . Mr. Chairman and members of the committee, I think
it might be just as well if at this point I submit to the committee
the result of a fairly thorough examination, and I use the expression
u fairly thorough examination ” because there are important phases
we would like to trace out a little further, such as what became of
the syndicate moneys when checks were drawn to certain people; I
say, to give to the committee at this time another exhibit, that I will
hand to the committee, reporter, and to which I will call the com
mittee’s attention by reading therefrom. Although this p ool was
organized on March 7,1929, and was not closed until March 30,1929.
its actual operations in stock took place between March 12 and March
19, 1929, or within a period of one week. The participators in the
pool were:
Nicholas F. Brady, 50,000 shares, who deposited $1,000,000 and made a profit
therefrom of $291,710.80.
Thomas J. Regan, 50,000 shares, who deposited $1,000,000, and who made *
profit of $291,710.80.
W. F. Kenny, 50,000 shares, who deposited $1,000,000, and made a profit of
$291,710.80.
J. J. Haskob, who had 50,000 shares, and who put up a deposit of $1,000,000,
and made a profit of $291,710.80.
Bradford Ellsworth, one of the managers of the pool, who had 25,000 shares,
awl put up $500,000, and who made a profit of $145,855.39.
J. E. Higgins, who had 25.000 shares, and who made a deposit of $500,000,
with a profit of $145,855.39.
T. J. Nara, who had 15,000 shares, but who put up no deposit at all, but
with a profit of $87,513.24.
George F. Breen, who has 12,500 shares, with a deposit of $250,000, who made
a profit of $72,927.70.
Lawrence P. Fisher, who had 12,500 shares, and who made a deposit of
$187,500, with a profit of $72,927.70.
J. J. Itiordan, who had 10,000 shares, but who put up no money, and made
a profit of $58,342.15.
Mrs. Olive Eddy, who had 10,000 shares, and who put up a deposit of
$200,000, and made a profit of $58,342.15.
Mrs. M. J. Meehan, who had 50,000 shares, and put up a deposit of $1,000000,
with a profit of $291,710.80.
Mrs. M. J. Meehan again, with 15,000 shares, and who put up no deposit,
with a profit of $87,513.24.
J. H. Holmes & Co., who had 15,000 shares, and who made a deposit of
$300,000 according to the books, and with a profit of $87,513.24.
Gonway & Co., with 20,000 shares, and a deposit of $400,000, made a profit
of $116,684.32.
STOCK EXCHANGE PRACTICES
469
E. W. Harden, with 20,000 shares, and a deposit of $400,000, made a profit
of $116,684.32.
W. C. Durant, who had 25,000 shares, and who made a deposit of $400,000,
had a profit of $145,855.39.
Jackson Bros. & Boesel had 20,000 shares, put up a deposit of $400,000, and
made a profit of $116,684.32.
Walter P. Chrysler had 25,000 shares, and put up a deposit of $500,000, and
had a profit of $145,855.39.
Joe Toplinsky had 16,500 shares, put up a deposit of $330,000, and had a
profit of $964264.56.
Jesup & Lamont had 5,000 shares, put up a deposit of $100,000, and had a
profit of $29,171.08.
Charles M. Schwab had 10,000 shares, put up a deposit of $200,000, and had
a profit of $58,342.15.
Mrs. D. Sarnoff had 10,000 shares, put up no money, and had a profit of
$58,342.15.
H. B. Swope had 10,000 shares, put up no money, and had a profit of
$58,342.15.
The total number of shares that these persons took through M. J .
Meehan & Co. was 551,500. They deposited a total of $9,667,500,
with a profit of $3,217,570.03. I pause for a moment to ask Mr.
Bragg first : George F. Breen is a man who in the parlance of the
street is a trader in New York City, is he not?
Mr. Bragg. Yes, sir.
Mr. G ray . And Mrs. M. J. Meehan is the wife of M. J. Meehan
who was a member of the brokerage firm of M. J. Meehan & Co.
that conducted this pool, isn’t that correct?
Mr. Bragg. Yes, sir; I think so.
. Mr. G ray. And E. W. Harden is the head of the brokerage firm
of that name that are members of the New York Stock Exchange,
isn’t that right?
Mr. Bragg. I think so. He is a partner of-----Mr. G ray (interposing). And W. C. Durant is a trader?
Mr. Bragg. Yes, sir.
Mr. G ray. And Jackson Bros. & Boesel are members of the New
York Stock Exchange, is that correct?
Mr. Bragg. Yes, sir.
Mr. G ray. And Walter P. Chrysler is the head of the Chrysler
Co., is he not?
Mr. Bragg. Yes, sir.
Mr. G ray . And Jesup & Lamont are members of the New York
Stock Exchange?
Mr. Bragg, i es, sir.
Mr. G ray. And Mrs. D. Sarnoff is the wife of the head of the
Badio Corporation of America, is she not?
Mr. B r a g g . I would think so; yes, sir.
Mr. G ray . N ow , the participators in W . E. Hutton & Co. in this
pool were:
G. D. Smith, who had 25,000 shares and who put up a deposit of $100,000,
and made a profit of $145,855.40.
Vera Bragg, who had 25,000 shares, and put up a deposit of $100,000, and
made a profit of $145,855.40.
Vera Bragg and G. D. Smith, who had a joint account of 25.000 shares, and
who put up a deposit of $300,000, and made a profit of $116,684.32.
American Brush Co., that had 25.000 sharps and put up a deposit of $375,000,
made a profit of $145,855.40.
Richard Arthur, who had 3,000 shares, and made a deposit of $45,000, with a
profit of $17,502.65.
119852—32—pt 2------7
470
STOCK EXCHANGE PRACTICES
Dr. E. Caldwell, who had 2,500 shares, and put up a deposit of $37,500.
with a profit of $14,585.55.
„
.
Ollffwood Corporation had 10,000 shares, put up a deposit of $150,000, and
had a profit of $58,342.10.
The C h a ir m a n . Mr. Gray, you are reading too fast fo r these
newspaper reporters. They would like an opportunity to g e t this
matter.
Mr. G r a y . Very well. I will try to read a little more s lo w ly .
The C h a ir m a n *. Or will you be able to furnish them the figures?
Mr. G r a y . I will be glad to furnish the figures as soon as I get
through. But I must give this paper to the committee reporter.
The C h a ir m a n . All right. Proceed.
Mr. G ra y (reading):
The next participant In W. E. Hutton & Co. is A. Wilson, who had 1,000
shares, and who put up a deposit of $15,01H), with a profit of $5,S34.22.
D. C. Millar, who had 5,000 shares, with a deposit of $75,000, and who made
a profit of $20,171.08.
D. G. Millar again, with 2.000 shares and a deposit of $30,000. made a profit
of $11,068.43.
Victor Klinker, with 1,250 shares and who made a deposit of $20,000, had *
profit of $7,292.77.
H. P. Wiggin had 2,500 shares, and made n deposit of $38,000, with a profit
of $14,585.55.
John O’Malley, who had 2,000 shares, and who put up a deposit of $80,000,
made a profit of $11,068.43.
Berry Holding Co., who had 6,500 shares, and put up a deposit of $100,000.
with a profit of $37,022.40.
R. A. Hames, who had 2,000 shares and put up a deposit of $30,000, made *
profit of $11,668.43.
C. M. Weatlierwax, who had 1,250 shares and put up a deposit of $20,000,
made a profit of $7,292.77.
E. R. Alexander, who had 500 shares and put up a deposit of $10,000, made *
profit of $2,917.10.
Sir Harry McGowan, who had 10,000 shares and put up a deposit of $180,000,
made a profit of $58,342.16.
The totals in W. E. Hutton & Co.’s participation were 144,500
shares, with deposits of $1,655,500. and profits or $843,044.22. N o: I
see that this is carried forward to another sheet. I will continue
giving W. E. Hutton & Co.’s participation before I give th e grand
totals:
Briggs Commercial & Development Co. had 10,000 shares, put up a deposit of
$150,000, and made a profit of $58,342.10.
R. Hockstetter had 10,000 shares, put up a deposit of $150,000, and made *
profit of $58,342.16.
Percy A. Rockefeller had 5,000 shares, put up a deposit of $75,000, and made
a profit of $20,171.08.
Mrs. Ed. Weisl had 10,000 shares, put up a deposit of $150,000, and
*
profit of $58,342.16.
L. P. Fisher had 10,000 shares, put up a deposit of $150,000, and
t
profit of $58,342.16.
Wesson Seybura had 5,000 shares, put up a deposit of $75,000, and
t
profit of $29,171.00.
Charles T. Fisher had 10,000 shares, put up a deposit of $150,000, and made
a profit of $58,342.16.
William A. Fisher had 5,000 shares, put up a deposit of $75,000, and
a
profit of $29,171.00.
A. J. Usher had 5,000 shares, but put up no money at all, and made a profit
of $29,171.09.
Fred J. Usher had 10,000 shares, put up no deposit, but made a profit
$58,842.16.
E. F. Fisher had 5,000 shares, put up no deposit, and made a profit of
$29,171.09.
St o c k
exchange
p r a c t ic e s
471
J. A. Stillman had 5,000 shares, put up a deposit of $100,000. and made a
profit of $29,171.08.
Lee dwell had 1,000 shares, put up no deposit, but made a profit of
$5,834.22.
Dr. P. M. Gransman had 1,000 shares, put up no deposit, and made a profit of
*5,834.22.
T. Clark had 1,000 shares, put up no deposit, but made a profit of $5,834.22.
T. E. Bragg, P. A. Rockefeller, and B. E. Smith had 8,000 shares iu joint
account; put up no deposit, but made a profit of $40,673.73.
Jack Soloman had 2,000 shares, put up no deposit, but had a profit of
$11,668.43.
H. Cunningham had 10,000 shares, put up no deposit, but had a profit of
$58,342.16.
Now, the total number of shares participated in through "W. E.
Hutton & Co. was 257,500. with total deposits of $2,730,500, and
total profits of $1,502,810.68.
Now, Block-Maloney Co. had a small participation in their brok'
erage firm. But at this point I will go back and ask Mr. Bragg
about some of these names. No; I will go ahead first with this list
and then come back to that:
Mrs. P. J. Maloney, sr., had 7,000 shares, but put up no deposit, and stillhad a profit of $40,839.51.
Mrs. P. J. Maloney, jr., had 7,0(H) shares, put up no deposit, and had a like'
profit of $40,839.51.
T. F. Friel had 500 shares, put up a deposit of $10,000, and made a profit
«f $2,917.11.
B. P. Haws had 3,500 shares, put up a deposit <>f $70,000. and mado aprofit of $20,419.75.
E. T. Stone, special, had 1,500 shares, put up a deposit of $25,000, and made
a profit of $8,751.33.
H. D. Kersey had 2,500 shares, put tip a deposit of $40,000, and made a
profit of $14,585.54.
C. A. Butler had 2,500 shares, put up a deposit of $30,000, but made a profit
“t $14,585.54.
Mrs. D. Cahalan liad 500 shares, put up a deposit of $10,000, and made a
Profit of $2,917.11.
C. B. Richards & Co. bad 5.000 shares, put up a deposit of $100,000, and made
a profit of $29,171.08.
Walter Richards had 5,000 shares, but put up no deposit, and had a. profit
of $29,171.08.
I have not the individual totals for Block, Maloney & Co., but the
general totals for the three participating firms were 844,000 shares,
participating in the syndicate, with deposits o f $12,683,000, and prof*
its of $4,924,078.27 in the matter o f seven days9trading.
Now, M. J. Meehan-—
Senator F le t c h e b (interposing). Mr. Gray, maybe you are going
to have Mr. Bragg explain how it is that some of them put up a
deposit and some put up no deposit and yet they made a profit.
Mr. G r a y . 1 shall ask Mr. Bragg about that, and if he does not
explain it, I have two members of the firm of M. J. Meehan & Co.
that I propose ^ 0 interrogate about that and other things in con*
nection with this matter. I am going back to ask Mr, Bragg about
certain people in order to get the information in the record. In con
nection with the participation of W. E. Hutton & Co. I find Vera
Bragg and G. D. Smith. That means Gertrude D. Smith, who is *
the wife of Ben Smith.
Mr. B bagg. Yes, sir.
Mr. G b a y . And Vera Bragg is your wife?
Mr. B bagg. Yes, sir.
472
STOCK EXCHANGE PRACTICES
M r. G ray . Those two had a joint account?
Mr. B ragg. Yes, sir.
Mr. G ra y . The American Brush Co. is a concern owned M id controlled as far as the records are concerned by George S. Brush, *
brother of Matthew C. Brush, is it not?
Mr. B ragg. Yes, sir.
Mr. G ra y . In other words, it is a personal trading com pany.
Mr. B ragg. Yes, sir.
Mr. G r a y . Not an investment trust?
Mr. B ragg. No, sir.
Mr. G r a y . The Cliffwood Corporation is a trading corporation
that belongs to you?
Mr. B ragg. Yes, sir.
M r. G ray . And belongs to you solely?
Mr. B ragg. Yes, sir.
Mr. G r a y . D. G . Millar is shown as having had 7,000 shares
this trading, and he is secretary to Matthew C. Brush, isn’t he?
Mr. B ragg. And he is vice president of the American International
Corporation.
M r. G ra y . And he is Brush’s right-hand man.
Mr. B ragg. Yes, sir.
Mr. G r a y . Who are the Berry Holding Co., do you k n ow ?
Mr. B ragg. Yes, sir; they are oil people in California.
Mr. G ra y . And what about the Briggs Commercial & Develop
ment Co.? That is a trading concern, isn’t it?
Mr. B ragg. Yes, sir.
Mr. G ray . That is a trading corporation the same as y ou r Cliff'wood Corporation?
Mr. B ragg. Well, it is a much larger company and deals in real
estate as well, I think.
Mr. G ray . We know who Mr. Percy A. Rockefeller is. Now, how
about Mrs. Ed. Weisl? She is the wife of the representative of a
brokerage house in New York City, isn’t she?
Mr. B ragg. Yes, sir.
Mr. G ray . And the Fishers, L. P., Charles T., William A ., A.
and Fred J., are brothers?
Mr. B ragg. Yes, sir.
Mr. G ra y . And J. A. Stillman was formerly the president o f the
National City Bank of New York?
Mr. B ragg. Yes, sir.
Mr. G r a y . Now, the account of T. E. Bragg, Percy A. Rockefeller,
and B. E. Smith is a joint account that started in with the purpose
of dealing in Lima Locomotive and then took an interest in Radio?
Mr. B ragg. Yes, sir.
Mr. G ra y . I will say to the members o f the committee that I think
there is nothing particularly significant in the name Block-Maloney
Co., but-----Senator W atson (interposing). Mr. Gray, I have to go to the Sen
ate at 11 o’clock. I should like to ask you a question or two fo r my
own information: Was there cooperation among these three
companies?
Mr. G ray . I am going to try to show you that, because I am going
to ask the specialist and the other member of the firm t o explain
certain transactions where W. E. Hutton & Co. bought certain stock
STOCK EXCHANGE PRACTICES
473
while W. E. Hutton & Co. sold certain stock. And where M. J.
Meehan & Co. bought certain stock and M. J. Meehan & Co. sold
certain stock. Where Meehan & Co. sold stock to Vera Bragg, a
member of the syndicate, and sold to Higgins, and where Higgins
sold stock back to the syndicate; and a number of these transactions
that we have gone into we are going to try to connect up here.
Senator W atson . If it does not interrupt the thread of your ex
amination at all, let me ask you: You say a man put up so much
money!
Mr. G ra t. He deposited money with M. J. Meehan & Co. after he
signed this syndicate agreement.
Senator W atson . Did they buy stock off the market at all, at the
market price, or how did they buy it ?
Mr. G r a y . D o you mean the members of the pool themselves?
Senator W atson . Yes.
Mr. G b a y . Within seven davs somebody connected with M. J.
Meehan & Co. issued orders to \>uy and to "sell, or somebody having
unlimited discretion in the matter, and this man O’Brien was a
member of the firm and the specialist on the floor, and traded in
a large amount of stock, I think 1,493,400 shares, in seven days.
I want to take up these figures in an orderly way and give them
to you. And the amount he paid for that stock in that time was
$141,424^828.52, all in the matter of seven days.
Senator W atson . What was the effect on the price of the stock
as listed during that week ?
Mr. G r a y . I am going to show you that. But I want to get it in
an, orderly way.
Senator W atson . Well, I do not want to interrupt you.
Mr. G r a y . I will show you this, and this paper I will put in the
record now if you wish: This syndicate was formed on March 7,
1929, and it took them from March 7 to March 12,1 suppose, to get
all the signatures to the agreement, and to get what money they
wanted in, and then they started to operate on March 12. On the
4th day o f March the high in new Radio stock was 79. On the
5th day o f March it was 77%. On the 6th day of March it went to
74. I am going back quite a little ways to show you that I am not
just taking any particular days. On the 7th of March it was 81%.
On the 8th oi March it was 89. On the 9th of March it was 92.
On the 10th of March, well, that was Sunday. On the 11th of
March it was 90%. Then these people stepped into the market
the next morning, and on the 12th of March it was 91%, and on
the 13th of March it was 94, and on the 14th of March it was IOO1 4 ,
and on the 15th of March it was 107, and on the 16th of March it
was 109%. The 17th was Sunday. On the 18th of March it was
101. Now, they had practically finished their operations right
there. On the 19th of March it was 961 4 . On the 20th of March
it was 94. On the 21 of March it was 9 2 1 4 . On the 22d of March
it was 91%. On the 23d of March it was 871/±. Does that paint the
picture foryou ?
Senator W atson . Yes.
Mr. G r a y . N o w , inasmuch as Senator Watson has asked me about
these things I want to complete the picture—and let me say now that
we can verify all these figures, because they have been worked on by
the accountants from the books of M. J. Meehan & Co., W. E. Hutton
474
STOCK EXCHANGE PRACTICES
& Co., and Block, Maloney & Co., so that they are absolutely accurate
to the penny. On the 6 t h day of March through M. J. Meehan
.& Co. they purchased 392,600 shares, while on the same day— ana
.the significance of this is to show the backward and forward trad
ing—they sold 246,000 shares. On the 13th through M. J. Median
& Co. they purchased 106,900 shares and sold 152,400 shares. On
the 14th they purchased 69,000 shares and sold 142,800 shares. On
the loth they purchased 209,400 shares and sold 186,000 shares.
Senator C ouzens . I thought the syndicate closed on the 12th of
March.
Mr. G r a y . N o . It opened on the 12th of March. But the syndi
cate’s actual operation until distribution was made, ran from the
7th of March to the 30th of March, while the actual trading was
done from March 12 to March 19, although there are some items
shown thereafter, yet the actual operations on the market quit on
the 19th. The 16th of March was Saturday but their tradings are
carried over to Monday. Then M. J. Meehan & Co. purchased
.210,500 shares while their sales are 449,100 shares.
Senator B rookhart . H ow many shares are there in the Radio
•Corporation of America?
Mr. G r a y . I can not answer that question definitely now, but will
.ask Mr. Bragg.
M r. B ragq. I t is five or six million shares.
M r . G r a y . Outstanding in common stock?
Mr. B ragg. Yes, sir.
Mr. G r a y . The committee probably knows
that the old stock,
which was selling at a price around $8 or $10 a share at one time,
was run up on the market, and there is an old Radio pool we have
not vet had a chance to go into, because really work o f this kind
which has been done in so many days should be done in weeks. But
that stock was run up to approximately $500 a share. Then new
stock was put on the market and each stockholder of the old stock
was given five shares o f new stock, five for one, which cut the price
practically one to five. But the new stock was put on the market
and traded in before it was actually issued, and the old stock, and
I believe I am accurate in this as to the date, was taken off the market
on the 21st day of March. But the new stock was traded in when
issued, which was the stock that was traded in by this pool.
Senator F letcher . What was the par value o f that stock?
Mr. G ray . What is the par, Mr. Bragg!
Mr. B ragg. I do not know that it has a par.
Mr. G r a y . It has no par, and evidently it had no price either.
Senator B rookhart . What is it worth now!
Mr. G r a y . Mr. Watson, the accountant, advises me th a t it is on
the market at about 20, is that right, Mr. Bragg!
M r. B ragg. N o, it is $4 a share now, I believe.
M r. G ray . That is the new stock?
Mr. B ragg. Yes, sir.
Mr. G ray. And that is the price now?
Mr. B ragg. Yes, sir.
Senator B rookhart. Is it still listed?
Mr. B ragg. Yes, sir.
M r. G ray . That is the same stock I have described here.
STOCK EXCHANGE PRACTICES
475
Senator F l etc h er . D o you g iv e the prices th a t th ey p a id when
they bought, and the prices th ey g o t w hen th ey sold the stock ?
M r. G r a y . Yes, sir. We have the working sheets here, but I have
not a summary of each transaction because it would mean a mass
of paper and pencil. But I have here and will hand these sheets to
the committee reporter, a summary of the purchases on each day,
and the exact amount of money paid for that stock in total, from
M. J. Meehan & Co., W. E. Hutton & Co., and Block-Maloney Co.,
carrying the total purchases out and showing what they purchased
during this time, being 1,493,400 shares, at a cost of $141,4*24,328.52.
Now, you will notice that during those days they must have pur
chased approximately—well, those dealings ran over a period of 10
days, which would mean that they would be dealing in approximately
150,000 shares a day as purchases. That is, I mean on the buying
end.
Now, then, at that same time they of course, because they quit
even, sold 1,493,400 shares, or the same number of shares, and they
received for them $146,987,527, and taking the other figure that I
have here for the stock, it left a profit of $5,563,198.48.
(The paper referred to by Mr. Gray in answer to Senator Watson’s
question was identified by being marked “ Committee’s Exhibit No.
3, May 19,1932,” and is as follows:)
C o m m it t e e ’ s E x h i b i t N o . 3. M a y 10. 1032
We also direct your attention to the participants from the
W. E. Hutton & Co. office, who failed also to make contribution
in cash to the original fund.
As above stated this pool operated actively approximately one
Week, through which time there were purchased 1.493.400 shares
at a cost of $141,424,328.52, and the net profit aeoruod_________ $5,563,198.48
Distributed as follows:
Management fees, 10 per cent, per terms of agree
ment:_________________________________________ $547,119.80
Other payments--------------------------------------------------92,000.00
-----------------639,119.80
Leaving a net actual distribution to the pool participants
of record of--------------------------------------------------------------- 4,924,078.68
The analysis of payments to other than syndicate participants of record is as
follows:
Eddie Dowling_____________________________________________________$19,000
Doctor Ash------------------------------------------------------------------------------------- 10,000
Employee or attorney of Radio Co., I. E. Lambert_____________________ 15.000
A. McConnachie------------------------------------------------------------------------------ 20,000
Meeham manager, P. J. Thiel----------------------------------------------------------- 10,000
K. Woelfle-------------------------------------------------------------------------------------1,000
J. P. Tumulty---------------------------------------------------------------------------------- 10,000
Meeham employee, A. Cotter-----------------------------------------------------------5,000
J. McNamee----------------------------------------------------------------------------------2,000
*92,000
Mr. G ray. We have not as yet an explanation of the purpose of
these disbursements. This will undoubtedly have to be developed
in the cross-examination of Mr. McConnachie. In any event, it is
very desirable to find out who these people are and what their con
nection is. This is a typical syndicate operation.
i p aid At th e direction of th e pool m anager, P . W . McConnachie.
476
STOCK EXCHANGE PRACTICES
It is to be borne in mind that certain of the partners o f M . J.
Meehan & Co. were specialists at the time of this pool. At the time
of the commencement of the pool operations, namely, around March
8 to 12,1929, the price of the when-issued new radio stock was rela
tively $75 to $80. At the time the pool closed its operations, which
was about the 18th of March, 1929, the price had been run up to $109
per share.
We are advised by Hutton & Co. that no market letters for this
period are available. Inquiries to be made to M. J. Meehan & Co.
to-morrow with respect to their market letters.
We direct your attention to the fact that in addition to his pool
operating, there were trading accounts in radio operated by M. J.
Meehan & Co. firm account, and operations of Mrs. M. J. Meehan, the
ledger accounts which have not as yet been produced to us by M. J.
Meehan & Co. Mrs. Meehan’s account with Block-Maloney indi
cates—now, I am going to ask Mr. Bragg about this-----Senator G lass (interposing). B igh t there let me ask y o u ; d o you
call transactions o f that kind investments?
Mr. G r a y . No; I would call it manipulation of the market, because
here you have the picture of M. J. Meehan & Co. organizing this
radio pool, and M. J. Meehan & Co. being specialists in radio and
handling the stock on the floor. And I have shown you the range
of prices down to the 12th of March, and I have shown you that it
rose from a figure around 79 to 109 during the five days they oper
ated, and I have shown you an immediate drop thereafter. And
I will say that I am going to inquire about the expenditure of $92,000
that appears on the books that went to nonparticipants and what
for I do not know, and who some of the individuals are I do not
know.
Senator G lass . Wasn’t it just as much gambling as in the case of
a man who might sit at a card table with an extra card up his sleeve?
Mr. G r a y , Yes; and a little more so, because I think the fellow
sitting at the card table had at least a chance to get a few o f the
cards, but they could not do it here.
Senator G lass . All right.
Mr. G r a y . Mr. Bragg, the books of M. J. Meehan & Co. show the
following payments made to people who were not participators in
this pool, and I ask you whether or not you can tell me why these
sums were paid and who some of the people were, Eddie Dowling,
$19,000.
M r. B ragg. H e is an actor.
M r. G ra I t. Why was he paid that money, do
Mr. B ragg. No, sir.
Mr. G r a y . I say to the committee that these
you know?
payments do not ap
pear as a distribution to some of the other participants in the stock,
because in some instances some of the participants would have a
check drawn to themselves for a certain amount of what was due to
them and a certain amount to other people, which we traced out;
but others are payments made entirely apart from the participants
in the pool.
Senator B rookhart. Who would know why that was done?
Mr. G ra y . I am going to ask the other partners. But, Mr. Bragg,
will you tell Senator Brookhart who would know about that?
Mr. B ragg. Some one with M. J. Meehan & Co. should know.
STOCK EXCHANGE PRACTICES
477
Mr. G ray . But you do not know?
Mr. B ragg. No, sir; I do not.
Mr. G ra y . Now, next is Doctor Ash $10,000. Who was he? Do
you know?
Mr. B ragg. No, sir.
Mr. G r a y . Do you know why they paid him $10,000?
Mr. B ragg. No, sir.
Mr. G r a y . Who was I . E. Lambert? Isn’t he an employee of the
Radio Corporation of America?
Mr. B ragg. I think there was an employee there, or a lawyer con
nected with that company by that name.
Mr. G r a y . He was either an employee
or an attorney of the Radio
Corporation of America ?
Mr. B ragg. I think so.
Mr. G r a y - Why was he paid $15,000?
Mr. B ragg. I do not know.
Mr. G r a y . It is suggested that he was general counsel for the
Victor Radio Corporation. Do you know that to be so ?
Mr. B ragg. N o , sir.
Mr. G r a y . Who was A. McConnachie?
Mr. B ragg. He is a partner of M. J . Meehan & Co.
Mr. G r a y . D o you mean that A. McConnachie is a partner?
Mr. B ragg. Well, I do not know as to the initials.
Mr. G r a y . James McConnachie is a partner, is he not?
Mr. B ragg. Yes, sir.
Mr. G r a y . And do you know A. McConnachie ?
Mr. B ragg. No, sir.
Mr. G r a y . Who was F. J. Thiel?
Mr. B ragg. I think he was an employee of M. J. Meehan & Co.
Mr. G r a y . Do you know why he was paid $10,000?
Mr. B ragg. N o, sir.
Mr. G r a y . D o you know K. Woelfle, who he is?
Mr. B ragg. No, sir.
Mr. G r a y . D o you know why a person o f that name, or a woman,
was paid $1,000?
Mr. B ragg. No, sir.
Mr. G r a y . Who is J. F. Tumulty? He was formerly the Presi
dent’s secretary, was he not?
Mr. B ragg, xes, sir.
Senator Glass. Oh, no; not J. F. Tumulty.
Mr. G r a y . I should have said J. P. Tumulty. That is what is
shown here, that he received $10,000. Then there is another name,
A. Cotter. Is he another employee of M. J. Meehan & Co. ?
Mr. B ragg. I think so.
M r. G r a y . D o you know why he was paid $5,000?
Mr. B ragg. N o, sir.
Mr. Gray. D o you know J. McNamee?
Mr. B ragg. No, sir.
Mr. G r a y . And you do not know why he was paid $2,000?
Mr. B ragg. N o, sir.
Mr. G r a y . Y ou managed this pool, didn’t you?
M r. B ragg. Yes, sir.
Mr. G r a y . A n d you were responsible to the people in the pool
for th e proper management o f it and the distribution o f the money ?
478
STOCK EXCHANGE PRACTICES
Mr.
B kagg. Yes, sir.
#
M r . G ra y . Then, why didn’t you know something about it*
Mr. B ragg. These figures were the net figures sent over fr o m
M . J.
Meehan & Co. and they were never questioned.
Mr. G ra y . Wait a minute. T he members of the committee can
not hear you. Did you say that it was the net figure that was sent
over to or from M. J. Meehan & Co. ?
Mr. B ragg. Sent over from them.
Mr. G r a y . D o you mean that M. J. Meehan & Co. gave to you
as the manager of the syndicate a report of its operations a n d o f
the net distribution ?
Mr. B ragg. Yes, sir.
Mr. G r a y . Well, did you see this distribution of $92,000 on th at
report?
Mr. B ragg. No, sir.
M r. G ra y . D o you mean that they did not give it to you ?
Mr. B ragg. I do not think so. I do not remember it a t all.^ I
know that I did not see these names. I did not know a n y th in g
about it. It was just the net figure I would see.
Mr. G r a y . Dojpou mean that you got the net figure?
Mr. B ragg. We got the net figure of the profits on the p o o l in
M. J. Meehan & Co. We put them together with the profits in our
own office and that was the total profit, and the distribution w ou ld
be prorated on that. This money I did not know about.
Mr. G r a y . D o you mean that it did not show on the net figures o f
M. J. Meehan & Co., that they furnished to you as the m an ager o f
the syndicate?
Mr. B ragg. No, sir; I do not think so.
Senator F letcher . Do you know whether they had any special
contract with any of these people ?
M r. B ragg. N o , s ir ; i f so, I didn’t know it.
Senator B rookhart . Then, this job of manager
was a kind o f
nominal job.
Mr. B ragg. Somewhat.
Senator B r o o k h a r t . And the specialist was the real m a n a g e r
of it?
Mr. G ra y . Is that so, Mr. Bragg?
Mr. B ragg. Well, I did not actually give specific orders to s e ll so
many shares of stock. I directed the general policy of it.
M r. G r a y . W h o did give those orders?
Mr. B ragg. I had charge of the general
a
policy of it. I f w e had
little too much stock there I would tell them to sell stock.
Mr. G ra y . Well, you did not have any stock at the beginning?
M r. B ragg. N o , sir.
Mr. G r a y . This pool
was organized to go out and buy stock,
to manipulate it, and to get money out of it.
M r. B ragg. T o go out and buy stock in the open m arket,
sell it at a higher price to make a profit.
and
and to
Mr. G ray. Well, buying and selling on the same day is a w ashsale business, isn’t it?
Mr. B ragg. No, sir.
Mr. G ray . It is not a wash sale when you get one fellow to do
one thing and another fellow to do another thing, but when one
fellow does both it is a wash sale?
STOCK EXCHANGE PRACTICES
47 9>
Mr. B bagg. Yes, sir.
Mr. Gbay. And if the same manager directs the two fellows in'
the buying and selling, then it is not a wash sale ?
Mr. B ragg. No, sir.
Senator G lass. Well, that is like agreeing not to raise an objec
tion on the Senate floor, and then going and getting somebody else
to raise the objection.
Senator B rookhart. Just about the same.
Senator C ouzens . Will you describe what the manager’s duties are
in a case like this? I am not quite certain as to what a manager
does. I understand that you were the manager o f this syndicate,
and I should like to understand your duties.
Mr. B ragg. Well, the manager of a syndicate would organize it,
and get subscriptions to the syndicate, and decide on the stock they
are going to buy, and about how much, and decide when to sell it,
either for a profit or a loss; and see that it was properly capitalized,
that they had enough money to run it.
Senator C ouzens . And you could do that just as well from Florida
as from New York or any other place?
Mr. B ragg. Well, I do not know about that, not quite as well; no
I think it could be done better in New York than in Florida.
Senator B rookhart . In fact, you turned the management of this
syndicate over to M. J. Meehan & Co., your specialists, and paid no
attention to it.
Mr. B ragg. I would talk with them at night. I knew the position
then and I would tell them if they had too much stock. I would
talk with Smith and tell him: You have got too much stock, and
you ought to sell it.
Senator G oldsborough. A s a matter of fact, you did not manage it
at all, did you?
Mr. B ragg. Yes; I was the manager of the syndicate.
Senator G oldsborough. And yet you were in Florida?
Mr. B ragg. Yes, sir.
Mr. G r a y . That is not the question, but the question-----Senator T ow nsend (interposing). You were manager in name
only ?
Mr. B ragg. I did not do the actual buying and selling.
Senator G o ld sb o ro u g h . Then you did not know when stock was
purchased or sold if you were in Florida?
Mr. B ragg. Not during the day, no, sir.
Senator B r o o k h a r t. Is that kind of operation in accordance with
the rules and regulations of the New York Stock Exchange?
Mr. B ragg. Y e s , s ir ; I think so.
Senator B rookhart . They permit this cross-buying and selling
through the same trader?
Mr. B bagg . They do not permit wash sales. And I do not think
there were any wash sales in this syndicate. This was trading,
which they had a perfect right to do.
Senator F letcher . What was your compensation as manager o f
the syndicate? M. J. Meehan & Co. got 10 per cent, as I understand
the situation, and now what did you get as manager of the syndicate?
Mr. B bagg . I think they got 5 per cent.
Senator F letcher . And 5 per cent of that 10 per cent was your
part?
480
STOCK EXCHANGE PRACTICES
Mr. B ragg. I think it was all 5 . Let me look at the agreement.
Mr. G ray. The agreement shows, I think, 10 per cent.
Senator G oldsborougii. Yes, it is 1 0 per cent.
Mr. B ragg. I think it is 5 per cent.
Mr. G r a y . The agreement is that:
The managers are to receive 10 per cent of the not profits of the syndicate as
and for their service to lie rendered herein, said payment to l»e made prior to
the distribution of the profits of said syndicate
the participants.
There is also the provision in the first part of the agreement:
W e h a v e b e e n r e q u e s te d to f o r m a n d nr** f o r m in g a s y n d i c a t e , o f w h i c h w e
a r e t o l»e th e m a n a g e r s , t o t r a d e in th e co m m o n s to c k o f th e K a d i o C o r p o r a t io n
o f A m e r i c a , a n d n o o t h e r s e c u r i tie s .
Then it goes on to say:
The commitment of the syndicate shall not at any time exceed one million
(1,<H)0,000) shares, either long or short.
Then it says further:
Subject only to the limitations aforesaid, the manager*. in a trading account
on the books of Messrs. M. J. Meehan & Co.. who are lierehy appointed agents
for the managers, entitled Kadio Corporation of America Common Stock
Syndicate,” shall have full power and authority, hereby granted.
But in this agreement there is nothing to indicate as to who are
to be the managers. I beg pardon. I see it is signed “ Bradford
Ellsworth and Thomas E. Bragg, syndicate managers.” A n d then
it says that the managers are to receive 10 jht cent. Did it mean
thatM. J. Meehan & Co. were to receive 1 0 per cent i
Mr. B ragg. I assume it did.
Mr. G ray. And they paid 5 per cent o f it to you and 5 per cent
to Bradford Ellsworth.
Mr. B r a g g . No. Ellsworth and I got “>per cent together.
Mr. G ray. Yes; and M. J. Meehan <&Co. got the otner 5 per cent.
Now, in addition to that M. J. Meehan & Co. for conducting their
part of the pool got their usual commission i
Mr. B ragg. Yes, sir.
Mr. G ray . That is correct, isnt it ?
Mr. B ragg. Yes, sir. Let me see that agreement again. I thought
it was 5 per cent.
Senator B rookhart. You were probably confused by the fact that
you got 5 per cent and the broker got the other 5 per cent.
Mr. G ray. And the management fee was $547,110.80. Y ou won’t
dispute that figure, will you?
M r. B ragg. N o, sir.
Senator C arey. 1)o the rules of the New York Stock Exchange
permit a broker to take a commission as well as their fee?
Mr. B raog. Yes, sir.
Senator C arey . Then thev make a commission besides the regular
brokerage fee?
8
Mr. B ragg. They have minimum brokerage fees. I think that is
the only limitation. They can charge more if they want to.
Senator C arey. They can charge a commission above that?
Mr. B ragg. Yes, sir.
Mr. G ra y . And the commissions in this case to M. J. Meehan &
Co. were $583,000 besides, weren’t they?
M r. B ragg. I would think so, but I do not know.
STOCK EXCHANGE PRACTICES
Mr. G r a y . And that does not include the interest charges that
M. J. Meehan & Co. may make for advancing whatever amounts of
money are necessary over and above the contributions of the parti
cipants. That is correct, isn’t it (
Mr. B ragg. That is correct. M. J. Meehan & Co. would have to
borrow money and also to pay for it.
Mr. G r a y . I understand, and there would be certain interest
charges and M. J. Meehan & Co. would assume the net interest posi
tion, but what they would charge the syndicate would be something
above that?
Mr. B ragg. Yes, sir.
Senator W a lc o t t . D o you know what people in the syndicate were
carried, and in what amounts, Mr. Gray?
Mr. G r a y . The record I read showed the amount o f money each
individual put up, and those individuals who put up no money at all.
Senator W alcott. But where they were responsible for the cash
they would be called upon to put up a certain amount in cash and
then the brokerage firm would carry the balance. You do not know
what the borrowing amounts were, do you?
Mr. G r a y . No. But we know the amounts that I have given iir
the statement handled to the committee reporter, that they were the
amounts actually put up by those people. The books show that that,
money was actually put up.
Senator W a lc o tt. And if there was any borrowing it was under*
some other arrangement?
Mr. G r a y . Yes. M. J. Meehan & Co. did the same as any other
brokerage house, I assume.
Senator C ouzens. When you read off that no money was put up,
did that mean that they put up 110 money or that they borrowed the
amounts from the broker?
Mr. G r a y . In the checking of the accounts we have not been able
to get any separate interest charges, carrying charges, that M. J..
Meehan & Co. may have provided as against those accounts. We
ascertained in those instances in making the distribution where there
was a calculation of interest charges as against those people, that
it would be greater on account o f their noncontribution than against
those where there was a contribution. I mean we would suppose it
is so but do not know as yet.
Senator C ouzens . You do not wish us to understand that in the
case of those names that you read off as putting up nothing, that
they did not obligate themselves to put up something?
Mr. G r a y . N o. They obligated themselves and were participants,
having signed the syndicate agreement in which they obligated them
selves to take a certain participation, and in event, through mis
management or otherwise, this pool had operated at a loss, they'
would be liable for their share o f the loss. Tney were not gratuitous •
participants.
Senator Couzens. Some of the members of the committee got theimpression that they were gratuitous participants.
Mr. G r a y . No. Then there was an additional loss of $92,000 for
presents made for some reason or other. Those people did not ap
pear in the participation at all, and there is no reason shown on
the books why they should have been paid a dollar in money.
482
STOCK EXCHANGE PRACTICES
Now, as to J. E. Higgins, who was a member of this pool. W ho
is he?
Mr. B ragg. He is a trader.
Mr. G b a y . He is a trader the same as yourself ?
Mr. B ragg. Yes, sir.
Mr. G ra y . Let me ask you this: A number of people who were
in this pool and following the pool itself, traded on their own
account, did they not?
Mr. B ragg, very likely.
Mr. G r a y . Keeping in touch, of course, with what the pool was
doing?
Mr. B ragg. Y es.
Mr. G ra y . The pool in certain instances made trades with mem*
hers of the syndicate. Do you know why that would be done?
M r. B ragg. N o ; unless a member o f the syndicate m igh t buy or
sell stock in the open market, m ight buy and sell it fro m the syndi
cate.
Mr. G r a y . These transactions appear on M. J. Meehan’s & Co.’s
books, and I want to ask you if you can explain them: On March
15, 1929, the Radio Syndicate sold 25,000 shares o f Radio at 101,
and on March 15, 1929, J. E. Higgins, a member of the syndicate,
bought 25,000 shares at 101. Can you explain that transaction!
Was it a matter of just putting a trade out on the market fo r the
purpose of continuing the activity in the stock?
Mr. B ragg. I could not answer that. Higgins is a very big
trader, or was at that time.
M r. G r a y . D o you know where he is now?
Mr. B ragg. No, sir; I do not.
Mr. G r a y . We have not been able to find
him, X will say to the
-committee. And we have not been able to find Mr. Ellsworth,
although I did have someone talk to him in Canada and try to get
him down here, but was unable to do so.
Now, Mr. Bragg, on March 18, 1929, according to M. J. Meehan
& Co.’s books, radio stock was sold to the extent o f 10,000 shares
at 1071/2, and J . E. Higgins bought 10,000 shares at 107y2. Can you
explain that transaction?
Mr. B ragg. No. Was J. E. Higgins a member of that syndicate,
-or was it Mrs. Higgins?
Mr. G ra y . No; it was J. E. Higgins, I am sure o f that, but you
are entitled to your view of it.
Mr. G r a y . J. E. Higgins was a member o f the syndicate with a
participation of 25,000 shares, and put up a half a million dollars.
The C h a ir m a n . Y ou know those figures are accurate, do you?
Mr. G r a y . They are absolutely accurate, Senator.
The C h a ir m a n . Y ou can not explain that transaction ?
Mr. B ragg. No, sir.
Mr. G r a y . On March 19 where Radio Syndicate bought 5000
shares at 105 and J. E. Higgins sold 5,000 shares at 105. itaw
maybe you can explain some 0 1 these others. The books o f Meehan
show this: That on March 12, 1929, Meehan & Co. sold 1,000 shares
o f Radio at 92% from the syndicate account to Hutton & Co.
who bought the same for the account of Mrs. Yera Bragg, your wife.
Was that transaction a transaction just to keep alive the activitv of
the stock?
y
STOCK EXCHANGE PRACTICES
483
M r. B ragg. N o .
Mr. G b a y . Well, was
Mr. B ragg. I don’t
your wife buying stock from the syndicate?
remember that particular transaction. It
might have been so that the stock would not meet there. So that
there would not be a wash sale.
Mr. Gray. In other words, so that you could pull through a wash
sale but that it would not have the apearance of it ?
Mr. B ragg. N o ; that in this heavy trading so that there would
not be any wash sale. T hat m ight be.
M r. G r a y . N ow who handled your wife’s account and gave orders
as to the buying and selling while you were in Florida ?
Mr. B ragg. W e ll, that trade m ight have been put through by a
clerk in the office.
M r. G r a y . W e ll, who gave that clerk in the office instructions?
B ragg. I don’t know who gave those instructions.
M r. G r a y . Well, who would? Who had the authority to?
Mr. B ragg. A thousand shares—any clerk in the office there could
Mr.
have done that.
Mr. G r a y . A thousand shares is just so small that any clerk in the
office of W. E. Hutton & Co. could have given orders to buy it for
your wife?
Mr. B ragg. For her account; yes.
Mr. G r a y . For her account. Now your wife was in the syndicate,
and the syndicate was buying and selling at a profit. Why would
she buy it from the syndicate?
Mr. Brago. I don’t know just the explanations for that particular
thing. It could have been, as I say, so that in this heavy trading
here, all the trades made, so it would not be a wash sale and put it
in that account.
Mr. G r a y . I am afraid you will have to be a little more clarifying
in your explanations. You say in order that there would not be any
wash sale, so that it would be put in that account. That doesn’t
mean anything. M. J. Meehan & Co., the syndicate managers, the
actual managers, sold stock to your wife out of the syndicate stock,
bought by Hutton & Co., the brokers who were also handling the
stock for your wife in that account. Now what was that transac
tion? Your wife never gave any orders at all, did she?
M r. B ragg. N o.
M r. G r a y . She doesn’t know what it is all about, does she, except
as she has learned it from you over the dinner table?
Mr. B ragg . No ; I d id n ’t ta lk abou t it.
Mr. G r a y . W h a t?
Mr. B ragg . N o ; I d id n ’t ta lk abou t it.
Mr. G r a y . N o ; I guess you didn’t. Then, she knows less about
it. N ow , then, who in Hutton & Co. or Meehan—let us take the
Hutton end of it; let us take the buying end o f it. Who would
give orders to buy a thousand shares of stock for Mrs. Bragg?
Mr. B ragg. They might have a thousand shares in the air and
say, “ Can you put this some place?” And the clerk says, wYes.”
M r. G r a y . Wnat do you mean by “ a thousand shares in the air ” ?
Mr. B ragg. A thousand shares that they bought that somebody
don’t own, or a thousand shares sold—I don’t know which that was,
and they would say, “ Have you got some place to put it?” The
clerk says “ Yes.” And put it in my wife’s name.
484
STOCK EXCHANGE PRACTICES
Mr. G ra y . Yes. In other words, they didivt know what to do
with the thousand shares out of the large quantity they bought
that day so they put it in Mrs. Bragg's account ?
Mr. Bragg. That could be one reason.
Mr. Gray. Would she have to account to the syndicate for it in
the final analysis o f the thing?
Mr. Bragg. No.
Mr. Gray. Would it be hers?
Mr. B ragg. Yes.
Mr. Gray. Would she pay for it?
Mr. B ragg. Yes.
Mr. Gray. Who would have the right to sav that they would
saddle Mrs. Bragg with 1,000 shares of that stock at that price
without you or her finding out if she wanted it ?
Mr. B ragg. Well, any of the clerks in the office could have done
that. My office.
Mr. G r a y . Who gives them that authority? You?
Mr. B ragg. Yes; they had that authority, the clerks in my office.
Mr. G r a y . In other words, there wasirt much chance of losing in
Radio stock while the pool was operating, so you let them do what
they wanted?
M r. B uagg. Well, there is a chance of losing money at any time
when you trade in anything. There is a chance of losing money.
Mr.‘Gbay. W ell, I think the committee probably understands that
situation.
Senator F lktciier . Did you ever personally acquaint yourself with
the assets and liabilities of this corporation ? w hat property they
had? What their responsibility really was? What their business
was?
Mr. Bragg. I was quite familiar with the company. They didn't
have much assets or liabilities. They had mostly an idea.
Senator F letcher . Just an idea. No assets and liabilities.
The C h a ir m a n . But lots of capital stock.
Senator Couzens. Well, as a matter of fact, Mr. Bragg, weren’t
these shares put in your wife’s name for the purpose o f avoiding
any wash sale?
Mr. Bragg. It might be that; ves.
Mr. G r a y . In other words, they do not represent a real trans
action?
Mr. Bragg. Oh, yes; a real transaction. Goes into the account
and is paid for like any other transaction.
Senator C ouzens . But it was an avoidance of showing up a wash
sale. The witness admits that.
Mr. G r a y . I think so. Now, by the way, you had in the Huttons
what they call a Z. Q. blotter. Can you tell the committee what
that was?
Mr. Bragg. All my accounts were practically all discretionary
accounts, and I could buy 5,000 shares of stock, and different ac
counts, if they wanted part of it they could have it, and I would
put it in there.
Mr. Gray. Keep your voice up.
Mr. Bragg. I would put in one a thousand, one 500, another a
couple of thousand.
STOCK EXCHANGE PRACTICES
485
Mr. G ra y . Y ou do not answer me about what the Z. Q . blotter is.
Mr. B ragg. Well, as I said in the beginning, if I picked up 5.(M»0
shares or 10,000 shares of stock during the day 1 just held it Z. Q.,
and then these discretionary accounts would either take the stock
during the day—it would not all be bought at once: accumulated
during the day. and then 500 in one account, a thousand in another,
and a couple oi thousand in another.
Mr. G r a y . Let me state it another way. In other words, the Z. Q.
blotter was an account into which all of your transactions, such as
the ones you have indicated, these discretionary transactions were
first put ?
M r. B ragg. Yes.
Mr. G r a y . And i f you gave an order to buy 25.000 shares of stock
during the day, a certain stock, or even different stocks, and you had
not definitely allocated that, it would come in that blotter {
Mr. B ragg. Yes.
M r. G r a y . A t the end o f the day under the instructions o f either
yourself or one o f these discretionary clerks who knew all about
your affairs, it would be allocated to different accounts th at you
were interested in ?
Mr. B ragg. Yes.
M r. G r a y . I s that correct?
Mr. B ragg. Yes.
Senator C ouzens . And those different accounts did not involve
different people, but only your own self, is that it?
M r. B ragg. N o ; different people.
Senator C ouzens . I do not think
you got it quite across. He
did not allot these to his own account, but he distributed them among
persons whom he had discretion to distribute them among.
Mr. G r a y . Yes. In other words, some of them may have gone
in your own account, some in your wife's, some in Gertrude Smith's,
some in Ben Smith’s, some in the Cliff wood Corporation, some in
Lima Locomotive, as it might happen, or any other particular
accounts in which you and others associated with you were inter
ested, but all in accounts in which you had some interest, isn’t that
correct ?
Mr. B ragg. Oh, no.
Mr. G b a y . Now, let us get it clear so as to be sure about it. You
mean some of it may have been allocated to some of your friends or
others in which accounts you would have absolutely* no interest, at
the end of the day ?
Mr. B ragg. Yes; that is right.
Senator C ouzens . Those arc the discretionary accounts he is talk
ing about.
Mr. G b a y . Those were not tradings on your part as a broker?
They were all tradings on your part as a traders They went into
this Z. Q. blotter and were eventually allocated by you either to
some o f your own accounts, or some of these other accounts, or to
some other account?
Mr. B ragg. Yes.
Mr. G r a y . I mean you did not act as a commission broker m mak
ing the trade? Hutton & Co. did?
Mr. B bagg. Yes; myself as a partner there.
Mr. G r a y . Yourself as a partner there?
119852— 82— f t 2 ----------8
486
STOCK EXCHANGE PRACTICES
Mr. B ragg. I didn’t ask them to buy the stock.
Mr. G r a y . Well, your position was really a buyer or seller— the
buyer in this case, was it not?
Mr. B ragg. The buyer or seller.
Mr. G ra y . Each side o f the market would have gone into this
blotter?
Mr. B ragg. Yes.
Mr. G r a y . On March the 12th, according to Meehan’s books—■
and this is all 1929—Meehan & Co. sold 1,300 shares of Radio at
91% to Hutton & Co., 1,000 of which were purchased for the ac
count of the American Brush Co., another syndicate member. Was
that transaction the same kind of a transaction as that sale to your
wife?
M r. B ragg. N o , s ir ; I don’t think so.
Mr. G r a y . What would you think it was?
M r. B ragg. Just a purchase.
Mr. G r a y . In other words you think that the
American Brush Co.,
a member of the syndicate, would be buying from the syndicate a
thousand shares of stock?
Mr. B ragg. Yes.
Mr. G r a y . Why.
Mr. B ragg. Well, they bought a thousand shares of stock and
they could very easily buy it from the syndicate if the syndicate was
the seller.
M r. G r a y . Y ou mean fo r the purpose o f trading in it individually
in addition to the syndicate’s trading?
Mr. B ragg. Yes, sir.
Mr. G r a y . On March the 14th Meehan & Co. sold 5,000 shares at
93% to Hutton & Co. Two thousand were purchased for your wife’s
account. Two thousand five hundred for the account o f Gertrude
D. Smith. Both participants. Were they the same as the other
transaction where Meehan & Co. sold to Hutton & Co. on account
o f your wife?
M r. B ragg. I would think so.
Mr. G r a y . On March the 15th Meehan & Co. sold 5,000 shares o f
Badio at 100% of the syndicate account to Hutton & Co., who pur
chased the same for an account known as 125, Bradford Ellsworth,
one of the managers of the syndicate. Was that also used as a coverup transaction ?
M r. B ragg. I don’t know. He could have bought it himself.
Mr. G r a y . Well, he could have, but do you know anything about
that transaction? Whether he did or not?
Mr. B ragg. N o; I do not.
Mr. G r a y . Have you anything to say about the manager o f the
syndicate selling stock to himself?
Mr. B ragg. Well, as a participant of the syndicate he could buv
it or sell it.
J
Mr. G r a y . So the managers have the right to control the situation
to their own advantage if they so desires In other words, nobodv
questions the ethics o f that?
Mr. B ragg. Well, I don’t think anybody would question it. I f
the manager wanted to buy stock he could buy it from the syndicate
or the syndicate as a seller. I don’t think there is anything m r ’
ticularly unethical about that.
p
STOCK EXCHANGE PRACTICES
487
Mr. G ray . All right. On March 15 Meehan & Co. sold 800 shares
to Hutton & Co. who purchased it from the syndicate account. What
can you say about that? In other words, Meehan & Co. sold syndi
cate stock to Hutton. Meehan sold it as syndicate stock; Hutton
bought it as syndicate stock.
Mr. B ragg . That is an error.
Mr. G ra y . Y ou mean they made a mistake ?
Mr. B racks. Yes.
M r. G r a y . It should not have been done that way?
Mr. B ragg. No, sir.
Mr. G r a y . Well, that is a pure wash sale, isn’t it ?
Mr. B ragg. Well, I am not sure just exactly, but that is an error,
and that could easily happen in this tremendous volume.
Mr. G r a y . You mean that M e e h a n & Co. selling a tremendous
volume and Hutton & Co. both buying and selling a tremendous
volume, that it might have been that Hutton, through the floor
broker, bought the stock that Meehan was offering for sale?
Mr. B ragg. Yes.
Mr. G r a y . Well then, Hutton & Co. and Meehan & Co. were not
cooperating very closely, were they ?
Mr. B ragg. Well yes, because in that trade with that big volume
there could be a hundred brokers there in the small space at the post
and they could be trading back and forth with each other and not
know each other.
Mr. G r a y . So that there might be many transactions, where in
keeping up an active market, Hutton & Co. might be buying and
Meehan selling, or Meehan buying and Hutton selling ?
Mr. B ragg. Yes, but not at the same price.
Mr. Gray. Well, this happens to be a transaction that passed
right through?
M r B ragg. Yes, that is an error.
Senator B rookhart. I f they were required to give the certificate
numbers of the stock that situation you nave just described could not
happen, could it?
M r. B ragg. Well, this is all trading on the floor, you see, by maybe
fifty or a hundred brokers.
Senator B rookhart . Yes, but if they would have to identify the
stock certificates by numbers they would not get in that sort o f a
mess ?
Mr. B bagg. It would be pretty hard to do business on the floor
of the stock exchange. It would stop all the trading. A lot o f
the trading.
Senator C oxjzens. Who was the specialist in this case, Mr. Gray,
do you know?
Mr. G r a y . The specialist was Meehan & Co.
Senator C ouzens . But who was the individual ?
Mr. G r a y . O’Brien, one of the partners. I have him here.
Senator C ouzens . Who was on the floor as a specialist ?
Mr. G r a y . I am going to try to find that out. Senator. I thought
this made a pretty picture of the pool where the public didn’t have
much to say about it.
Senator F letcher . The error consisted in the fact that nobody
made any profit, is that the idea ?
Mr. B ragg. No; that the trades
met.
That was the error.
488
STOCK EXCHANGE PRACTICES
Senator F le t c h e r . In other words. ju st one wiped off the other?
There was 110 profit made by one or the other ?
Mr. B r a g g . There was a loss. The commissions they had to pay*
Mr. Gray. The commissions that they had to pay both houses.
They were the only people that made a profit out of it.
Senator F letciier. The syndicate paid that i
Mr. Bragg. Yes.
Mr. Gbay. Another thin" is the item of 200 shares on the same
date, sold by Meehan and 'bought by Hutton, both acting for the
syndicate account. Your answer would U<« the same, I suppose?
Mr. Bragg. Yes.
Mr. Gray. Now, 011 March l.s Meehan & Co. sold 5.000 shares at
107% to Hutton & Co., who purchased for their account No. 6000,
the American International Corporation account. Have you any
particular knowledge of that sale?
Mr. Bbagg. No.
Mr. Gray. The American International was not a member o f the
syndicate or pool ?
Mr. Bbagg. No, sir.
Mr. Gray. Now then, on March 15 your wife and Gertrude Smith
appear again. Hutton & Co. sold to Meehan & Co. 10.000 shares at
95y> for the account o f Hutton’s customers. Vera Bragg and Ger
trude Smith. Now, is that the stock that Vera Bragg and Ger
trude Smith bought from Meehan back on the 14th i
Mr. Bbagg. I don’t think so. I don't know whether it was.
Mr. Gbay. Yes. So that when Meehan & Co. sold to Hutton &
Co. for Vera Bragg and Gertrude Smith cortain stock around the
14th of March, 1929-----Senator Fletcheb. At what price?
Mr. Gray. I will give you the price. On March the 14th. 1929,
M. J. Meehan & Co. sold 5,000 shares at 93 U> to Hutton & Co.'. 2,000
of which were purchased for the account o i Vera Bragg and 2.500
for the account of Gertrude D. Smith, both syndicate participants.
On March 12, Meehan & Co. sold 1,000 shares at 92% from the Kadio
S y n d ica te account to Hutton & Co.. who bought for the account of
Vera Bragg, a syndicate participant. Now. that is 1.000 at 92%
and 4,500 at 9<%. Now, those are the only items that we traced on
that side.
But we have an item here on March the 15th, 1929, where Hutton
& Co. sold back to Meehan & Co. 10.000 shares at 95%, o f which Vera
Bragg had 2,000 and of which Gertrude Smith had 5,000. So we
have members o f the syndicate either dealing with the syndicate or
we have, as has been indicated by Mr. Bragg, transactions that were
done so that they would not appear as wash sales.
Mr. Bragg, during the week that this pool was running, there was
a great deal of publicity and a boosting of radio. Did you as the
manager of the syndicate have anything to do with that?
Mr. Bbagg. No.
Gbay. Do you know anything about it at all?
Mr. Bbagg. No.
Mr. Gbay. After asking some o f the other witnesses about this I
Mr.
will present this abstract as to these publications for the record later
I do not see any use of examining Mr. Bragg about them.
STOCK EX CH A N GE PRACTICES
489
Mr. Bragg, I am going away from Radio and want to ask you a
general question about the market. What are stop orders? Not
stop loss orders, but stop orders.
Mr. B bagg. Well, when a number of orders accumulate on a book
at a certain price, say the stock at *20 or 21, and a trader can stop
some of that stock—what they call stopping the stock. That is, if
it sells at 21 he can sell 1,000. It may be selling above 21. He wants
to sell it.
Mr. G ra y . Now I want you to put that in quite plain language,
won’t you? Assume that we do not know anything about the stock
market. Will you start to tell us about stock being at 20 or 21, and
if he wants to sell it he can sell 1.000 shares at 21? Explain what
the order is and how it operates.
Mr. B ragg. Say a stock is selling at $21 in the market.
Mr. G ra y . That is the present-minute market price?
Mr. B ragg. Yes.
Mr. G r a y . All right.
Mr. B ragg. And say at $20 a share there are 10,000 shares wanted
there on the book.
Mr. G r a y . That appears on the specialist’s book, you mean?
Mr. B ragg. Yes, sir.
Mr. G r a y . In other words, the specialist has on his book an order
to buy 10,000 shares at $20 a share, which is a point below the market?
Mr. B ragg. Yes.
Mr. G ra y . All right, go ahead.
Mr. B ragg. Well, a trader can come along and stop 1,000 of that
so that when it gets to 20, why he will sell 1,000 of the 10,000.
Mr. G r a y . N ow he is not the man who wants to buy ?
Mr. B ragg. No, sir.
Mr. G r a y . But you mean he puts in an order with the specialist?
Mr. B ragg. Yes.
Mr. G r a y . To sell 1,000 shares of that stock?
Mr. B ragg. At 20.
Mr. G r a y . At 20 ?
Mr. B ragg. When it is selling at 21.
Mr. G r a y . Y e s ; it is selling at 21.
Mr. B ragg. Yes.
Mr. G r a y . But he puts in an order to sell 1,000 at 20?
Mr. B ragg. Yes.
Mr. G r a y . Then he can if he has got a market for it sell it at 21
right there?
Mr. B ragg. Yes.
Mr. G r a y . Now what is his purpose? What does he accomplish?
Mr. B ragg. Well, if the stock looked like a down stock and there
isn’t much wanted here at 21 or down to 20 he can only sell two or
three hundred shares down to 20, there wouldn’t be much of a trade
there. B u t it got to 20, and this stock went through this price here
of 20—on 10,000 shares if it was a down stock it might go down two
or three dollars.
Senator B rookhart . How does he know that it was a down stock?
Mr. B ragg. Just by the feel of the stock or watching it, that is all.
As a trader. Now the same thing would work on the other side.
Mr. G r a y . I know, but what is his purpose then? That is a short
sale, of course, at 20 that he already puts in?
490
STOCK EXCHANGE PRACTICES
Mr. B kaqg. Yes.
.
.
.
.
•
Mr. G r a y . N o w what does he anticipate is going to happen?
Mr. B ragg. Well, if this 10,000 is filled during the day or during
the next day why the stock would probably go down. I f it happened
to be a down stock.
Mr. G r a y . In other words, he knows how much stock there is on
the specialist’s book, how much there is in the way o f orders to
buy at a price below the market? He puts an order in to sell at
that certain price so that when it reaches it, he anticipates on ac
count of the thinness of the market as the usual thing that that
stock is going to go down below that price and he is going to be
given an opportunity within a reasonable time to cover ?
Mr. B ragg. That is what he feels and hopes.
Mr. G r a y . Yes. Now, the only people that can do that are the
specialists or the people who act as floor traders, who are in touch
with the specialists and who have the knowledge of what is on the
specialist’s book, isn’t that so?
M r. B ragg. N o ; any trader can give that order.
Mr. G r a y . I f he gets the information from the
specialist’s book?
Without that information he can not do that, can he?
M r. B ragg. Yes; he could do it. I f the stock was selling at,
say $100, and that is a round price for it, he might feel that i f it
broke 100 it might go to 90.
Mr. G ra y . Yes.
Senator C ouzens . In other words, he would use his judgment
about using the knowledge he has of what is on the specialist’s
book?
Mr. B ragg. Yes; he might do it.
Mr. G ra y . Well, that is a frequent practice on the floor o f the
exchange, isn’t it?
Mr. B ragg. Well. I couldn’t say that. I never was on the floor
of the exchange.
The C h a ir m a n . Isn’t that inside information as against the
public ?
Mr. B ragg. Pardon me, sir?
The C h a ir m a n . Wouldn’t that be inside knowledge or inside in
formation that could be used against the public who were buying?
Mr. B ragg. Well, it would be knowledge that a trader would be
more familiar with than the general public, I would think: yes. I
don’t know as it would be inside information.
Mr. G r a y . But it is if he has the knowledge that appears on the
specialist’s book ?
Mr. B ragg. I f he knows what is on the specialist’s book.
Mr. G r a y . Well, it is a fact that he does know it in all o f these
trades, and without that knowledge he would not act, would he? In
other words, tell me whether it is not a fact that that is one o f the
usual practices, to get that information and sell in that way ?
M r. B ragg. Oh, I would not say it was the usual practice. I sup
pose it is done.
Mr. Gbay. Frequently?
Mr. B ragg. Well, I couldn’t say how frequently.
Senator C ouzens . The witness says he does not operate on the
floor himself.
STOCK EXCHANGE PRACTICES
491
Mr. G ray . I know that. The witness does not operate on the
floor himself. Now, then, how do you know about it?
Mr. B ragg. Well, I know that you can—I could give an order to
stop a thousand shares at a price.
Mr. G ray . Well, you know that it is done?
Mr. B raog. Yes.
Mr. G ray. Y ou have done it?
Mr. B ragg. I have done i t ; yes.
Senator G lass . Well, did you have knowledge of what was on
the specialist’s book when you did it?
Mr. B raog. No.
Senator Couzens. I do not think it is conclusive that a man who
ib not on the floor has to have the information that is on the special
ist’s book before he can operate.
Mr. G r a y . No; it is true that it is not conclusive, but I will ask
Mr. Bragg one question. You said, Mr. Bragg, that one could do
it without the knowledge of the specialist’s book, and you illustrated
your answer by saying that, if the stock was 100 and a man thought
it was going to 90, he might put an order in to sell it at 98, didn’t
you?
Mr. B ragg. No; he would sell it at 100, or if it breaks 100.
Mr. G r a y . Yes. Well, that is not a stop order?
Mr. B ragg. Yes; a stop at 100. Sell it at 100.
Mr. G ray. Oh, you mean if it does not reach 100?
Mr. B ragg. Yes.
Mr. G r a y . Yes. In other words, he is putting in an order to sell
it below the market?
Mr. B ragg. Yes; when it reaches there.
Mr. G r a y . You said that could be done.
Mr. B ragg. When it reaches there.
Mr. G r a y . When it reaches there?
Mr. B ragg. Yes.
Mr. G r a y . But, do you mean to say that it is done without some
knowledge o f the conditions as they appear on the specialist’s book ?
Mr. B ragg. Will you please ask me that question again ?
Mr. G r a y . Y ou said that a man might put in an order to sell at
100, to use your figure, when the stock reached there.
Mr. B ragg. Yes.
Mr. G r a y . When the stock was then being quoted on the market
or being sold on the market at slightly above 100?
Mr. B ragg. Yes.
Mr. G r a y . And you said that would be a stop order?
Mr. B ragg. Yes.
Mr. G r a y . I am asking you whether or not a man would put in
such an order—you said he could, and of course he could—but
whether a good trader would put in such an order without a knowl
edge of the specialist’s book?
Mr. B ragg. Yes; I should think so.
Mr. G r a y . He would. Why wouldn’t he put it in to sell it at just
the then market instead of putting it in at a figure below ?
Mr. B ragg. Well, he might feel or think that if it broke 100 that
it would go say 10 points lower. And it is the same as on the reverse
side, the opposite side o f the market.
492
STOCK EXCHANGE PRACTICES
Mr. G r a y . Yes; of course what can be done on one side can be
done on the other. That is all I want to ask Mr. Bragg.
Senator C o u z e n s . Let your next witness come forward.
Mr. G r a y . I want to put Mr. McConnachie on. I want to clear up
this one transaction. You had better remain, Mr. Bragg.
Senator C o u z e n s . Are j^ou now going to continue on this same
matter, or are you going on to some other thing ?
Mr. G r a y . N o ; I am going to continue on tne Radio matter.
Senator C o u z e n s . I was hoping you would conclude the whole
Radio transaction before you would go 011 with the others.
Mr. G r a y . That is what I am doing.
TESTIMONY OP JAMES P. McCONNACHIE, MEMBEB OP THE PUfll
OF M. J. MEEHAN & CO., NEW YORK CITY
(The witness was duly sworn by the chairman of the committee.)
Mr. G r a y . Mr. McConnachie, you are a member of the firm of
M. J. Meehan & Co.?
Mr. M c C o n n a c h ie . Yes, sir.
Mr. G r a y . Y ou have been so for how long?
Mr. M c C o n n a c h ie . For almost two years.
Mr. G r a y . For almost two years. And you were not in the firm
o f M. J. Meehan & Co. at the time that this pool took place?
Mr. M c C o n n a c h ie . N o, sir.
Mr. G ray . D o you know anything about its transactions?
M r. M cC o n n a c h ie . No, sir.
Senator C ouzens . What were you engaged in before you were with
M. J. Meehan & Co.?
M r. M cC o n n a c h ie . Supervising agent of the United States Treas
ury Department.
M r. G ra y . H ow long were you there?
Mr. M c C o n n a c h ie . Twenty-three years.
Mr. G r a y . How did you come to go with M. J. Meehan & Co. ?
M r. M cC o n n a c h ie . W e had been friends fo r a great m a n y years.
H e had urged me fo r many years to become his partner, but 1 was
very contented in m y position. I felt that I was happier there than
I would be in finance, and I wasn’t particularly interested in maVing
a lot o f money ? having a private income which satisfied me, so for
th at reason I did not respond until about two years ago.
Senator C o u z e n s . When you were with the United States Treas
ury, what salary did you get?
Mr. M c C o n n a c h ie . $6,000.
Senator C o uzens . And you say you were there 23 years?
M r. M c C o n n a c h ie . Yes.
Senator C ouzens . What capacity did you start in?
Mr. M c C o n n a c h ie . As special agent.
Senator C o u z e n s . Where ?
Mr. M c C o n n a c h ie . At the port of New York, appointed by Sec
retary of the Treasury Cortelyou in the Roosevelt administration.
Mr. G r a y . During the time that the accountants have been work
ing in the offices of M. J. Meehan & Co. with respect to this Radio
pool, your attention was called to certain of these matters which
you heard me ask Mr. Bragg about, is that correct?
M r. M c C o n n a c h ie . Yes.
STOCK EXCHANGE PRACTICES
493
Mr. G b a y . Have you looked into and can you give me any ex
planation of the distribution of the $92,000 that was paid out to
people who were not participators in this pool?
Mr. M cC o n n ac h ie . N o, sir. I have no knowledge o f it.
Mr. G b a y . Your books do not show the reason for it at
all, do
they?
Mr. M cC o n n a c h ie . I haven’t the details in mind as to that trans
action.
Mr. G b a y . F. J. Thiel works for your company, does he not?
Mr. M cC o n n a c h ie . Yes, sir.
Mr. Gbay. D o you know why he should be paid $10,000 out o f
this syndicate or pool?
M r. M cC o n n a c h ie . Only I believe that F. J. Thiel had a trading
account with the firm and he might have been included in the syndi
cate to a limited amount of stock without signing a syndicate agree
ment.
Mr. G b a y . His name does not appear on your books, as a parti
cipant ?
Mr. M cC o n n a c h ie . No, sir.
Mr. G b a y . Why would you make him a present of $10,000?
Mr. M c C o n n a c h ie . Because he may have been regarded as a
valued client of the firm.
Mr. G b a y . As a valued client of the firm?
Mr. M c C o n n a c h ie . A valued customer o f the firm.
Mr. G b a y . Well, he worked for you, didn’t he?
Mr. M cC o n n a c h ie . Besides being a partner he may have had a
trading account.
Mr. G b a y . He is a partner, is he?
Mr. M cC o n n a c h ie . Yes.
Mr. G b a y . And you give him $10 ,0 0 0 just because he was a valuable
customer as well as a member of the firm?
Mr. M c C o n n a c h ie . He may have lost money in other trades
which were recommended to him, and for that reason this might
have been given to him, a participation, a small participation, to
make up his losses in other trades. But I have no detailed know
ledge as to any of these transactions.
Mr. G b a y . What right would Meehan & Co. have to give to one
of their members of the firm who was also a customer, and also a
client—I think you used both words in connection with him—
$10 ,000 , because he had lost something in some other transactions,
out of the moneys of these participants?
Mr. M cC o n n a c h ie . I have no knowledge as to the actual tran
saction and the basis of it. I am only stating that as a possible
reason why he was given a small participation.
Mr. G b a y . W h o could tell us?
Mr. M cC o n n a c h ie . Only Mr. Meehan himself.
Mr. G b a y . Where is Mr. Meehan ?
Mr. M c C o n n a c h ie . Mr. Meehan, as you know-----Mr. G b a y . Well, I want to get on the record where he is.
Mr. M cC o n n a c h ie . Yes. Mr. Meehan, as you know, is a very
sick man, and he sailed on the steamer for Europe the other night.
Mr. G b a y . When?
Mr. M c C o n n a c h ie . I beg your pardon?
Mr. G b a y . When?
494
STOCK EXCHANGE PRACTICES
Mr. M c C o n n a c h i e . He sailed last night.
Mr. G r a y . He sailed last night?
The C h a i r m a n . Because he was sick?
Mr. M c C o n n a c h i e . I beg your pardon ?
The C h a i r m a n . Because he was sick?
Mr. M c C o n n a c h ie . The doctor advised him—chree of the leading
doctors of New York advised him to go away for a much-needed
rest.
Senator B rookhart . Are they participants in any of these pools?
Mr. M c C o n n a c h ie . I beg your pardon ?
M r. G r a y . What was your question, Senator Brookhart?
Senator B r o o k h a r t . Are those doctors participants in a n y o f
these pools?
. .
Mr. G r a y . Senator Brookhart asks if those doctors were p artici
pants in any of these pools?
M r . M c C o n n a c h ie . I don’t know w ho th e p a r tic ip a n ts were,
other th an th ose nam es w h om you read o u t, a n d I d o n ’t believe you
read out the nam e o f any doctor.
Mr. G r a y . Doctor Ash is there.
Mr. M c C o n n a c h ie . N o ; they are not participants.
Mr. Gray. He is one that got $10,000 out of this pool without any
apparent interest in it.
Mr. M c C o n n a c h ie . I don’t know anything about him (meaning
Doctor Ash).
Mr. G r a y . I will say to the committee that approximately two
weeks ago I saw and interviewed Mr. Meehan, and there was no
question, I say that in fairness, but what he at that time was n ot a
well man. And when I determined, or was advised by the com m it
tee that we were going to have sessions to-day, I understood that
Mr. Meehan was at Brown’s Sanitarium at Garrison, N. Y . I
sent someone there to subpoena him and found that he was n o t there.
I was afterwards advised by Mr. McConnachie that he was at Mahopac, N. Y. We did not endeavor to locate him at Mahopac,
N. Y. In the maze of things that we have had to take care
of in the last few weeks, I thought that we had something more im
portant, and we did have all of this Radio pool worked up from the
books of Meehan & Co. where, after the little difficulty that we had
with all of the brokers subsided, they were opened to us over there.
This is the first information I nave, however, that Mr. Meehan be
came well enough to sail for Europe last night.
Senator F l e t c h e r . I s Mr. Meehan the senior member o f this firm?
Mr. M c C o n n a c h i e . Yes, sir.
Senator F letcher . H ow long had he been in business?
Mr. M c C o n n a c h i e . I think his seat on the stock exchange was
purchased in 1920.
Senator B r o o k h a r t . Who was the next m a n in authority after
Meehan?
Mr. M c C o n n a c h i e . I am the managing partner of the firm.
Senator B r o o k h a r t . But you were not tne manager at the time
of this pool?
Mr. M cC o n n a c h ie . N o, sir.
Senator B rookhart . Who was at the time o f this pool?
Mr. M c C o n n a c h ie . Mr. James P. McKenna was the office man*
ager of the firm at that time.
STOCK EXCHANGE PRACTICES
495
Senator B r o o k h ar t . Wouldn’t he know about these matters?
Mr. M cC o n n a c h ie . Why, I don’t know how much he would know
with reference to the details of the transactions.
Senator B bookhart . Where is lie ?
M r. M cC o n n a c h ie . He is in New York City with another firm.
Senator F letcher . H ow many partners in this firm of Meehan &
Co.?
M r. M cC o n n ac h ie . There were about nine partners, I believe.
Senator F letchei?. M r. Median was in the brokerage business
before he bought a seat on the stock exchange?
M r. M c C o n n a c h ie . H e was a member o f the curb market.
Mr. G r a y . A re you through, Senator Fletcher ?
Senator F letcher. Yes.
Mr. G b a y . Name the mcmi>ei's of your lirm will you? Mr.
Michael J. Meehan is one. Your own name is James McConnachie?
M r. M cC o n n a c h ie . James F. McConnachie.
Mr. G r a y . Yes.
Mr. M c C o n n a c h ie . Esmond O’Brien.
Mr. G b a y , Yes?
M r. M cC o n n a c h ie . Richard 0 ‘Brien. George Garlick.
M r. G b a y . Spell that last name.
M r. M cC o n n a c h ie . G -a-r-l-i-c-k .
M r. G b a y . Yes?
M r. M cC o n n a c h ie . James Meehan.
M r. G b a y . I s he a brother o f Michael J . ?
M r. M c C o n n a c h ie . Yes. Mr. Thomas Meehan. Mr. Higgins.
Mr. Gbay. Which Higgins? Joseph?
M r. M c C o n n a c h ie . Peter J. Higgins.
Mr. G b a y . Is he a brother of Joseph?
M r. M c C o n n a c h ie . N o relation.
M r. G b a y . N o relation? A l l right.
M r. M cC o n n a c h ie . Did I mention Mr. Thomas Meehan?
M r. G b a y . Yes. Is that all?
M r. M c C o n n a c h ie . T hat is all.
Mr. G b a y . Now, you know, do you not, from the records of your
concern-----M r. M c C o n n a c h ie . Oh, Mr. Frank Thiel.
Mr. G b a y . Mr. Frank Thiel ?
M r. M c C o n n a c h ie . Yes.
Mr. G b a y . The one that got that $10,000,
and you forgot him as
a member of the firm. You know from the records o f your con
cern— or let me ask you a question first. Are your firm or any of its
members specialists in Radio to-day?
M r. M c C o n n a c h ie . Yes, sir.
M r. G b a y . Who?
Mr. M c C o n n a c h ie . Why, the firm.
Mr. G b a y . The firm?
Mr. M c C o n n a c h ie . The firm.
Mr. G b a y . So that any member of the firm may act on the floor
as a specialist in Radio?
Mr. M cC o n n a c h ie . They may, but the work is done—-is handled
almost exclusively, in so far as it can be handled by one man, by
Mr. O’Brien.
496
STOCK EXCHANGE PRACTICES
Mr.
Mr.
Mr.
G r a y . Mr. Esmond O’Brien?
M c C o n n a c h ie . Mr. Esmond O'Brien.
G r a y . And he has been with the firm how long?
M r . M c C o n n a c h ie . Practically since its inception.
Mr. G r a y . Yes. And in 1929 when your firm was operating
this
new Radio stock pool he was the specialist on the floor of the ex
change in Radio? Is that right?
Mr. M c C o n n a c h ie . Yes, sir.
Mr. G r a y . N o w as a matter of fact, in that time there was m o r e
than one specialist, wasn’t there?
Mr. M c C o n n a c h ie . Well, there were those who did operate in
Radio, but we have always been regarded as the leading specialist
in Radio.
Mr. G r a y . Yes; but more than one member of your firm would
have acted at that time as specialist on the floor in Radio ?
M r . M c C o n n a c h ie . W e l l , others assisted in h a n d lin g th e sto c k on
th e floor.
Mr. G r a y . Yes; but O’Brien had control of the situation?
M r . M c C o n n a c h ie . Yes.
Mr. G r a y . All right.
Senator F l e t c h e r . What is the stock outstanding of Radio ?
Mr. M cC o n n a c h ie . I beg your pardon?
Senator F le tc h e r . What is the Radio stock outstanding now ?
Mr. M c C o n n a c h ie . I couldn’t tell you.
Senator T o w n s e n d . Five million no par shares.
Mr. G eorge K. W a t so n (accountant). Thirteen million shares.
The C h a i r m a n . The accountant says 13,000.000 shares.
Senator F l e t c h e r . I should think those who specialize in Radio
and handling it and dealing in it all the time should know some
thing about how much stock is outstanding.
The C h a i r m a n . There seems to be no limit.
Senator B r o o k h a r t . In this kind of a pool you are not interested
in the amount of stock outstanding, are you ? In pools manipulated
like thip one?
Mr. M c C o n n a c h ie . Well, the great bulk of the stock of Radio has
always been held by the General Electric Co. and the Westinghouse.
Senator B r o o k h a r t . Hasn't been on the market at all?
Mr. M c C o n n a c h ie . Why, there has been a large floating supply
of stock, but they have been the principal stockholders in Radio
Corporation.
Senator B r o o k h a r t . They have kept back enough to control it
without putting it on the market at all ?
Mr. M c C o n n a c h ie . Well, I do not know about that, sir.
Senator C o u z e n s . Have you been happier since you were in the
brokerage business than you were with the United States Treasury?
Mr. M c C o n n a c h ie . Well, unfortunately, since I have been in the
brokerage business it has been rather on a decline and it has not
been a very happy business to be in. But I am so devoted to Mr.
Meehan that I am very happy to be with h:m, particularly in times
of stress and turmoil, because he is a man of very high character.
Senator B r o o k h a r t . High speed, too?
Mr. M c C o n n a c h ie . I b eg your pardon ?
Mr. G r a y . “ High speed,” Senator Brookhart very properly said.
STOCK EXCHANGE PRACTICES
497
M r. M cC o n n a c h ie . High speed—well, he isn’t very high speed
to-day, because he isn’t a very well man.
Senator F letcher . What is his age, about?
M r. M cC o n n ac h ie . Forty years of age.
Senator B rookhart. Well, there are more than one kind of pools.
That is, they are formed for several different purposes, aren’t they ?
Mr. M cC o n n ac h ie . W e ll, you speak o f pools. I don’t know
what —
Senator B rookhart . Syndicates?
Mr. M cC o n n ac h ie . I don’t know exactly what you mean by pools.
Now, in this-----Senator B rookhart . Well, <lo you call this a pool or a syndicate ?
Mr. M cC o n n ac h ie . Well, you can call it either. I suppose it
might be known as a pool, and it might be referred to as a syndicate.
Senator B rookhart . Well, this was not a syndicate or pool formed
to sell the original stock to the public, was it ?
M r. M cC o n n ac h ie . N o.
Senator B rookhart . T o float a
new' issue?
Anything
of
that
kind?
M r. M cC o n n a c h ie . N o.
Senator B rookhart . This
was just formed to go in and manipu
late the market and take the public's money away from them ?
M r. M c C o n n a c h ie . Well, that is your definition, Senator, of a
pool— or that is your definition of this particular transaction.
Senator B rookhart. Well, that is what it did, didn’t it?
Mr. M c C o n n a c h ie . That may have been the effect of it. But I
question seriously the correctness of that assumption.
Senator B rookhart . Well, it did not promote any newr enterprise
or start any new industry or anything of that kind, did it ?
Mr. M cC o n n a c h ie . Except that the company itself was starting
new industries continuously. They were extending their business-----Senator B rookhart . Was this pool formed to help them do that?
M r. M cC o n n a c h ie . No, sir; I would not contend that. The pool
was organized before I became a partner of M. J. Meehan & Co.
Senator C ouzens . Have there been any pools started since you
have been a member?
Mr. M cC o n n a c h ie . No, sir.
Senator C ouzens . No pools or syndicates have been started since
you have been a member of the firm?
M r. M cC o n n ac h ie . No, sir. This radio pool, as you term it------Mr. G r a y . Yes.
Mr. M c C o n n a c h ie (continuing). Is an operation in connection
with which you have shown a very substantial profit.
Mr. G r a y . Yes.
Mr. M c C o n n a c h ie . But our records show that we had holdings in
companies of substance and that are very well known where the
results instead of showing a profit show’ a loss of over $8 ,000 ,000 .
Mr. G r a y . Over what period of time?
Mr. M cC o n n a c h ie . Over practically the same period of time.
Mr. G r a y . Not over this week-----Mr. M c C o n n a c h ie . Not the same period of time in which you
give the facts in connection witli the operation of Radio—of the
new stock, as you have described it—but in that particular matter
where Mrs. Meehan wras a participant her profits wrere $378,000, and
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STOCK EXCHANGE PRACTICES
I have her© five transactions, some o f them in connection^ with
securities that the firm specialize in, showing losses o f $8 ,20 0 ,0 0 0 .
Senator C o uzens . They were not the same partners though, w ere
they!
M r. M cC o n n a c h ie . I beg your pardon?
Senator C ouzens . They were not the same partners all the time,
were they?
M r . M cC o n n a c h ie . N o , sir.
Senator C ouzens . Mr. Gray
is talking about one particular pool
with one set of partners, and now you are mixing up a lot o f other
cases that have nothing to do with the Radio case.
The C h a ir m a n . Ana picking out certain transactions and d e ta il
ing them instead of taking anything that is relevant to the matter
under inquiry.
Mr. Gkat. And not considering others in which other money was
made. In other words, he is now showing you as an offset to Radio,
certain pools in which money was lost. Mrs. Meehan was a very
heavy trader, wasn’t she, Mr. McConnachie ?
Mr. M cC o n n a c h ie . Yes, sir.
Mr. G r a y . And that was Mr. Meehan’s account?
Mr. M cC o n n a c h ie . No; it was Mrs. Meehans account.
Mr. G b a t . A ll right; it was Mrs. Meehan’s account.
Senator C ouzens . Did she operate it herself?
Mr. G r a y . She never came in your place, did she?
M r. M cC o n n a c h ie . R arely. She mid-----Mr. G r a y . Who operated it, then—to put Senator Couzens’s ques
tion in another way—Mr. Meehan, didn’t he?
• Mr. M cC o n n ac h ie . Y ou would have to obtain the facts from Mr*
Meehan. I do not know personally.
M r . G r a y . Who has operated Mrs. Meehan’s account in th e la st
two years since you have been there. Who has given orders to buy
and sell?
Mr. M c C o n n a c h ie . They were never given to me, sir, s o I
couldn’t—I can’t-----Mr. G ray . Y ou are a next senior member of the firm and you don’t
know who gave the orders to buy and sell in Mrs. Meehan’s account f
Mr. M cC o n n ac h ie . I am the managing partner.
Mr. G ra y . A ll right; that puts you, then, much closer to the
throne. Tell me who gave the orders to buy and sell Mrs. Meehan’s
stock, please.
Mr. M cC o n n a c h ie . I couldn’t say definitely.
Mr. G r a y . Have no idea?
Mr. M c C o n n a c h ie . Yes; I have an idea.
Mr. G r a y . What is your idea on the subject?
Mr. M cC o n n a c h ie . I surmised that Mr. Meehan gave those in
structions usually, but not always.
M r . G r a y . Y ou would be taking a very lo n g chance i f y o u su r
mised it was anybody else, wouldn’t you?
Mr. M cC o n n a c h ie . I believe that Mrs. Meehan did occasionally
but I would say that Mr. Meehan usually did it.
Mr. G r a y . Was Mrs. Meehan’s account the firm account?
Mr. M cC o n n a c h ie . No, sir.
M r . G ray . N o w , the firm did have an account and traded o n th e ir
own account, didn’t they?
STOCK EXCHANGE PRACTICES
499
Mr. M cC o n n a c h ie . I don’t believe so.
Mr. G b a y . Mr. Meehan’s account consisted-----Mr. M c C o n n a c h ie (interposing). I think I can almost say em
phatically no; that the firm never did trading on its own account.
Senator G la^s. What difference does it make in the principle
of the tiling whether a syndicate loses money or makes money, if
it was organized to manipulate the market ?
Mi. Gbay. Before I get through I will show you some ways they
lost money that have features in them that I think are deserving of
attention.
Senator
public?
B
r o o k h ar t .
H
ow
m uch d id th is p a rticu la r p o o l cost the
M r. M c C o n n a c h ie . In the first place, Senator, I have made the
statement that I am not familiar—that happened before I went
with the firm.
Senator B bookhabt. Y ou seem to have some others there, though,
when the pool lost. So I thought maybe you could tell how much
the public lost.
Mr. M c C o n n a c h ie . These are not figures in reference to pools.
These are figures I have got here in reference to personal purchases
of stock, and the later sales of that same stock, some of the stock
representing securities in which the firm was specialist, where the
losses involved millions of dollars.
Mr. Gbay. In other words, you are only showing us, however, the
account o f Mrs. Meehan, a customer of your firm, in which your firm
is not interested.
Senator C otjzens. Mr. Chairman, in that connection I think I am
going to ask to have this expunged from the record unless he submits
the names o f the concerns in which they lost $8 ,000 ,000 . In other
words, Mr. McConnachie is putting in the record a matter that is
not before us, but if he chooses to go on and say what stocks and in
what operation Mrs. Meehan lost this money, why, I will not object.
Mr. M c C o n n a c h ie . I submit herewith a list representing the losses
in the different operations.
The C h a i r m a n . And the dates of them?
Mr. M c C o n n a c h ie . N o; I haven’t the dates here.
The C h a i b m a n . I su ggest th a t the record sh o u ld b e com p lete t o
that extent, or w e can n o t use it.
Senator G l a s s . Well, if it was not a syndicate operation, and it
was not a pool operation, it is not pertinent to this inquiry.
Mr. Gbay. No ; I say to Senator Glass that we have requested not
only from this firm but from other firms where Mrs. Meehan’s ac
counts were kept, transcripts of their accounts. We are getting
them. They are in immense volume. We expect to analyze them,
not only in connection with the operations of Meehan & (Jo. but in
connection with Mrs. Meehan’s operations on the short and the long
side of the market. When we were asked to come down here this
morning, we concentrated on those things that we thought we would
have in more or less complete form. Those things we have not been
able to bring. I have Mr. Meehan’s accounts and Mr. Brush’s ac
counts Pnfl Mr. Ben Smith’s accounts. There is a tremendous vol
ume. We are going through them. I f Senator Couzens is through—
I don’t know whether you were through with that part?
500
STOCK EXCHANGE PRACTICES
Senator C o u z e n s . He was going to read a list of the stock. We
might, as long as he has that, have him read off a list of the stocks
in which these losses occurred.
Mr. M c C o n n a c h ie . International Match, 2,700,000.
Senator G l a ss . I s this Mrs. Meehan’s loss?
Mr. G r a y . S o the record will show, is that the loss of Mrs. Meehan
in dollars ?
Mr. M c C o n n a c h ie . Yes.
Mr. G r a y . This is Mrs. Meehan ?
M r . M c C o n n a c h ie . Yes.
Mr. G r a y . A client of yours?
Mr. M cC o n n a c h ie . Yes. American Steel Foundries, 730.
Senator C o u z e n s . Thousand?
M r . M c C o n n a c h ie . Yes.
Senator T o w n s e n d . $730,000?
Mr. M c C o n n a c h ie . $730,000. General Asphalt, $570,000; Simms>
Petroleum, $4,000,000; Chrysler, $200,000. In this connection 1
would like to draw the committee’s attention to the fact that, al
though we are specialists in International Match and Steel Foun
dries, this fact did not prevent a loss of over $3,400,000 in connec
tion with these two securities.
Mr. G r a y . Most of which was Match, because you got caught just
at a bad time?
Senator G l ass . That means losses on paper in the present status
of the market?
Senator W alco tt . Well, does it? Have you taken those losses?
Mr. M c C o n n a c h ie . Those are actual losses.
Senator W a lco tt . Those are actual losses, are they not?
Mr. M cC o n n a c h ie . Yes, sir; these are actual losses.
M r . G r a y . H a v e y ou com pleted th at?
Mr. M c C o n n a c h i e . Yes, sir.
Mr. G r a y . I want to make this very
clear. We were discussing
with you M. J. Meehan & Co.’s handling of a new Radio Syndicate,
and the things that appear on their books. No question was asked
you at all about Mrs. Meehan’s account. Why do you present to
this committee a picture of Mrs. Meehan's losses in certain stocks,
when M. J. Meehan & Co. had no interest whatsoever in that trans
action? What is your purpose in presenting it?
Mr. M c C o n n a c h ie . Well, my purpose in presenting it is in v ie w
of the fact that the matter that you are presenting, and that is the
question of profits in this so-called radio pool-----Mr. G r a y (interposing). That is, profits of the participants in the
pool?
Mr. M c C o n n a c h ie . Involves not the firm of M. J. Meehan & Co.
or Mr. M. J. Meehan personally, but only involves Mrs. Meehan.
So I was pointing out as against this small profit o f $378,000 in
this transaction there are over $8 ,200,000 losses in other transactions,
and two of these losses representing stocks in which the firm acts as
specialist.
Mr. G r a y . Yes. All right. Well, you are telling us something
about Mrs. Meehan’s transactions, on which we have not asked anv*
body. M. J. Meehan & Co., however, out of that radio pool wot a
split in the manager’s fees amounting to over a quarter o f a million
dollars, didn’t they?
STOCK EXCHANGE PRACTICES
501
M r. M c C o n n a c h ie . I don’t know anything about that.
Mr. G ra y . And got commissions of over $580,000 ?
M r. M cC o n n a c h ie . I don’t know anything about that.
Mr. G b a y . Now. let me ask you-----Senator G lass (interposing). Therefore, I say that the
testimony
he is presenting now with respect to Mrs. Meehan is not at all per
tinent to this inquiry. That simply indicates that she unfortunately
dealt on her own account with respect to these stocks and did not
enter a pool.
Mr. G b a y . That is all. She not only dealt in her own account but
she dealt in pools in those transactions, but I am not concerned in
this inquiry, unless this committee is, or any member of it, with what
Mrs. Meehan may have made or lost only as it was in connection
with the records of that particular pool.
Senator B rookhart . Let me ask you on this proposition: You
have shown up her losses here. Did she have profits on other trans
actions that you have not shown up ?
Mr. M cC o n n a c h ie . I would say that she must have had profits on
other transactions.
Mr. G r a y . So you have not got the net position at all.
Senator B rookhart . You do not know whether they were fifteen
million or twenty million, or what they were ?
M r. M cC o n n a c h ie . N o , sir.
Mr. G r a y . I have several questions
to ask him, but I am not going
to ask him about that particular part. I want to ask you about this
radio pool. What, if anything, do you know about the General
Electric Co. entering into an agreement with Meehan & Co. not to
sell during the time of the operation of this pool, during that one
week from March 12 to March 19—anything?
M r. M c C o n n a c h ie . No, sir.
Mr. G b a y . Have you heard any discussion of it at all ?
Mr. M cC o n n a c h ie . N o, sir.
Mr. G b a y . Knew nothing about it? After this pool was started
and since you—by the way, can you give us the exact date you went
with Meehan?
M r. M c C o n n a c h ie . Yes; in June 1980.
Mr. G b a y . Since then has M. J. Meehan or M. J. Meehan & Co.
or Mrs. Meehan—and I am now asking you about that because I am
treating it as an account in which M. J. Meehan was interested—
been short on Radio ?
Mr. M c C o n n a c h ie . I could not say.
Mr. G b a y . Y ou mean you have no recollection of accounts of the
firm or in accounts of M. J. Meehan or in accounts of Mrs. Meehan
whether or not they have had a consistent short position since you
have been with the firm ?
Mr. M c C o n n a c h ie . I could not say.
Mr. G b a y . Are they short on the books now in Radio ?
Mr. M c C o n n a c h ie . I would say no, but I could not make a
positive statement.
Mr. G b a y . All right; your answer is that you do not know. I
want to say to you—and I am stepping up from Radio to get just one
bit o f information while he is on the stand—did you know of an
account, Account No. 118, which is the account known as Joseph E.
Higgins and Bradford Ellsworth?
119652—32—p t 2------9
502
STOCK EXCHANGE PRACTICES
Mr. M c C o n n a c h i e . I didn’t know that there was such a joint
account.
Mr. G r a y . Do you know an account known as No. 815?
Mr. M c C o n n a c h ie . Not by number. I f you would tell me the—;—
Mr. G r a y (interposing). Do you know an account No. 815 in which
Higgins and Bradford Ellsworth operated in Electric Autolite Co. ?
M r . M c C o n n a c h ie . I know the stock Electric Autolite, but I donx
know of any such account.
Mr. G r a y . Did Meehan & Co. have an option to buy a certain
amount of Electric Autolite stock?
Mr. M c C o n n a c h ie . I know that there was an option in the office
on Electric Autolite, but as to who had that option I couldn’t say.
Mr. G r a y . Some member of your firm?
Mr. M c C o n n a c h ie . I don’t believe that the firm had it.
Mr. G r a y . And against that option there was a short operation,
wasn’t there?
Mr. M c C o n n a c h ie . In other words, you mean to say that the
stock was sold or was oversold?
Mr. G r a y . No, I mean to say that the stock was sold short and
the option never taken up because of the drop in the market that
was forced by the short selling; is that right?
M r . M c C o n n a c h ie . I couldn’t say.
Mr. G r a y . We have the records and the books. We will p resen t
that later.
M r . M c C o n n a c h ie . The books will show it.
Mr. G r a y . Y ou had an operation in Simms Petroleum, did n ’t
you, in which your firm of M. J. Meehan & Co. were the m anagers
of another pool?
M r . M c C o n n a c h ie . Y e s , sir.
Mr. G r a y . D o you remember an item of
in Simms Petroleum to somebody?
Mr. M c C o n n a c h ie . No, sir.
$10,000
that was
p a id out
M r . G r a y . D id y ou have a n y th in g to do w ith the p a y m e n t o f such
an item to anybody aside fr o m the p o ol p a rticip a n ts?
Mr. M c C o n n a c h ie . I think that started before I went with the
firm, that is, the operation in Simms Petroleum.
Mr. G ray . I understand that is correct. That is all I want to ask
him. I want to put the specialist on and then we will conclude w ith
that. Mr. O’Brien.
TESTIMONY OP ESM0NDE F. O’BRIEN, NEW YORK CITY
Senator F letcher (presiding). State your name and place o f resi
dence and occupation.
Mr. O ’B r ie n . Esmonde F. O’Brien, business address 30 Broad
Street, New York City, 33 years of age.
Senator F l e t c h e r (presiding). Do you solemnly swear that the
evidence you give in this matter will be the whole truth and nothing
but the truth, so help you God?
M r . O ’B r ie n . I do.
Mr. G r a y . Mr. O’Brien, yo u are a member o f the firm o f M. J.
Meehan & Co. ?
Mr. O ’B r ie n . Yes, sir.
M r. G ray. Y
ou
have been so fo r how lo n g ?
STOCK EXCHANGE PRACTICES
503
Mr. O ’B rie n . I have been a member o f the firm since December
31, 1924.
Mr. G bay. And you were the member of the firm that acted as
the specialist on the floor in Radio; is that correct?
Mr. O ’B rien . I have generally been the Radio specialist.
Mr. G r a y . And you were in 1929 in the month of March?
Mr. O ’B r ie n . Yes, sir.
Mr. G r a y . Y ou were the specialist and the member of the
firm
who executed the orders for new Radio stock in which this pool
that we have here been discussing was carried out; that is right,
isn’t itf
Mr. O ’B r ie n . Well, it is right in a sense. I was the specialist in
general. I executed everybody’s orders that w as a member of the
stock exchange, and in being the specialist I may, and probably did.
execute pool orders or syndicate orders.
Mr. G r a y . N o question about that?
Mr. O ’B r ie n . N o, sir.
Mr. G r a y . Y ou must have been the one who executed them?
Mr. O ’B r ie n . Not the one. I was one of the ones, probably.
Mr. G r a y . Well, you were the one who in those busy days had
the
control of the other members of your firm or others who were acting
as specialists; they were under you; that is correct, isn’t it?
Mr. O ’B r ie n . W e ll, i f you w ill let me explain.
Mr. G r a y . Yes; I wisli you would.
Mr. O’B rien. Our books, the Radio books at the time-----Mr. G r a y (interposing). By Radio books you mean the specialist
Radio books?
Mr. O ’B r ie n . Yes; specialist’s books. I have sheets here if you
would like to see them.
Mr. G r a y . Why, yes; I think some of the committee would like to
see how they are kept.
Mr. O ’B r ie n . This may not be what you are asking, but I will be
glad to go into it.
Mr. G r a y . T h a t is all right.
Mr. O ’B r ie n . We have loose-leaf books. You see, I only have
these sheets with me. They go in a binder, the binder on each side,
and they are divided off into the fractions, you see, an eighth and a
fourth and a half, and so on.
Mr. G r a y . W a it—-you are going a little rapidly with it. W h a t
do you mean b y divided off into fractions?
3ir. O ’B r ie n . Well, for instance, I say you get—supposing Radio
is 80.
Mr. G r a y . Yes.
Mr. O ’B r ie n . This page would be marked 80 on the top here.
Mr. G r a y . Yes.
Mr. O ’B r ie n . And orders at 80 would be entered at the section of
this page where 80 mark is on.
Mr. G r a y . Then there are various places down the page for the
various fractions in eighths until it reaches 81 or 80% ?
Mr. O ’B r ie n . Yes; that is quite, correct.
Mr. G ray . So that you enter on those sheets what the particular
fraction is on that page?
Mr. O ’B r ie n . That is correct.
504
STOCK EXCHANGE PRACTICES
Mr. G r a y . And you have one page for the buying and one for
the selling?
Mr. O ’B rien . Yes, sir.
#
Mr. G ray. A ll right. I will be glad for you to go right ahead
and explain it, but specifically with respect to Radio, which will
mean generally, of course, how the specialist operates.
Mr. O ’B r ie n . H o w the specialist operates. These sheets are kept
in these looseleaf binders. At the particular time, in 1927, 1928,
or 1929—-those were the three biggest years, as I recall—the volume
was very, very big, particularly in Radio. It was big on the whole
floor in every stock. Where there was so much trading we often
had to split this book. I mean by that that we would have one
book with all the 80 stock in it, you see, the even stock at 80. An
other book would have the 81 stock. Do you follow what I mean?
Mr. G ray. Yes; I am following.
Mr. O ’B rien . And that was with the two books. Now, you would
get a swarm of orders at all different prices, both above and below
and at the market in Radio, not alone from M. J. Meehan & Co..
which was my office, or my firm, but from every member on the
stock exchange whose customers were trading in Radio.
Mr. G ray . Let me stop you there just a minute.
M r. O ’B rten . Y es, sir.
Mr. G ray . I s it not a
fact that nearly every brokerage house in
New York, nearly every one, that at that time had orders to b u y or
sell Radio, felt that it would be better for them and their customers
to send it through Meehan & Co., and didn’t they usually do i t !
Mr. O’ B luen. I don’t believe so; no, sir.
M r. G ra y . Y ou don’t believe so?
Mr. O ’B rien . I don’t see how they could, because the volume could
not be handled by one firm.
Mr. G ra y . All right; go ahead.
Mr. O ’B rien . In addition to the book in the active crow d o n the
stock exchange there might be anywhere from 20 to 40 brokers—
it is a big skip, but that is so—with both buying and selling orders
for their house or their firm’s clients.
Mr. G ra y . Y ou mean there might be 20 or 40 brokers w h o , in
addition to the specialists, would be around the post know n as the
Radio post?
Mr. O ’B rien . That is correct.
Mr. G r a y . And they may have either buying or selling orders?
Mr. O ’B rien . Yes, sir.
Mr. G ray . Which they may or may not, as the circumstances
justify it, leave with the specialist for execution ?
Mr. O ’B rien . Quite right.
Mr. G r a y . All right; go ahead.
Senator C ouzens . H ow m any assistants as specialists d id you
have?
Mr. O ’B rien . Well, I should say two in these particular times.
Senator T o w n sen d . They were both members of your firm?
Mr. O ’B rien . They were both members, but we had another man
that was not a member that had to come in and help us out on occa
sional days, for three or four days in a row.
Senator T o w n se n d . What firm?
STOCK EXCHANGE PRACTICES
505
M r. O ’B rie n . His name was Stanley Kohn, a member of the stock
exchange.
Senator T o w n s e n d . He had all the information that you had as a
specialist ?
Mr. O ’B r ie n . He would have the information that the book would
show him; yes? sir. But, according to the rule of the stock exchange,
he is a specialist and he is bound under that rule just the same as I
would be, you see.
Senator C o u z e n s . So, in effect, there were really four specialists,
includingyourself and assistants?
Mr. OT& r ie n . Yes, sir; on these busy days there were three or
four.
Senator C o u z e n s . And they had possession of the books in the
same way you did?
Mr. O B r ie n . Yes. Now, you asked about how the orders would
come through me. An order, when it is entered or given to the
specialist, generally comes in, unless it is a verbal order—very few
verbal orders; most of them are written. This, unfortunately, is
not a regular order pad, but it comes in with the firm’s name, giving
it on the bottom of it, and on tlio top it is marked buy or sell so
many thousand shares or the units of shares, and the price that is
marked on the other side. That comes in and is left with the special
ist. I f the broker who brings it in can not execute it himself and
does not care to wait in the crowd until he thinks he might be able
to execute it.
Mr. G r a y . Now, all of the orders brought through M. J. Meehan
& Co. would have been left with you or one of the other specialists ?
Mir. O ’B rie n . W e ll, I would say a good many o f them m igh t have
been coming in.
Mr. G b a y . Well, what other brokers woidd come in there with
orders from M. J. Meehan & Co. in Radio ?
Mr. O ’B r ie n . Well, floor brokers, for instance.
Mr. G r a y . They would not bring them from M. J. Meehan & Co.?
Mr. O ’B r ie n . Yes, sir.
Mr. G b a y . How would they get them?
M r. O ’B r ie n . From the clerk.
Mr. G r a y . From whose clerk?
Mr. O ’B r ie n . My telephone clerk.
Mr. G r a y . Your telephone clerk?
Mr. O ’B r ie n . Yes, sir.
Mr. G r a y . Do you mean to tell me that your telephone clerk
of M. J. Meehan & Co. would send either buy or sell orders to some
other broker on the floor when you and three other assistants, two
others of whom were members of your firm, were there acting as
specialists in Radio; that they would send it to some other brokers ?
M r. O ’B r ie n . He might.
Mr. G b a y . Why?
M r. O ’B b ie n . W h y ? To get a quicker report.
Mr. G b a y . H ow much quicker could he get a report from some
other broker than he could get it fro m you, a member o f the firm?
Mr. O ’B r ie n . He could get it this much quicker, in this w ay:
You must remember that when you are specializing you can not sit
at a table like we can now and write your orders down as carefully
as I could write them at this table.
506
STOCK EXCHANGE PRACTICES
Mr. G r a y . Yes.
Mr. O ’B rie n . A s I mentioned before, there are 30 or 40 men mill
ing around pushing each other all over. I suppose you have seen
the floor of the exchange. I f you have not, it is a hard thine to
imagine how excited they become down there in a busy m a rk et,
pushing you all over, pulling your collar and tie out, losing pencils
and pads or anything—with a waving of the hands. Do you see
what I mean.
Mr. G r a y . I see; yes.
Senator G lass . Lose your money, too?
M r. O ’B r ie n . Yes; sometimes.
Mr. G r a y . But, Mr. O’Brien, I am probably a little b it astonished
at your statement. You testified that you are a member of the firm
of Meehan & Co.?
Mr. O ’B r ie n . Yes, sir.
Mr. G r a y . On the floor specializing in this Radio stock?
M r. O ’B rie n . That is quite right.
Mr. G ra y . Here are two other members of your firm o f Meehan
& Co. on the floor handling Radio orders as specialists therein, and
occasionally, as you said, probably a fourth man that you had to
take some outside?
Mr. O ’B r ie n . Yes, sir.
Mr. G r a y . But here are three members of the firm o f Meehan &
Co. But if Meehan & Co. gave that order to another member there
is a division of commission ?
Mr. O ’B r ie n . There is a $2.50 extra charge.
Mr. G r a y . Do you mean to tell me that Meehan & Co., who could
give the orders to you men that were specializing in Radio, and
therefore could execute such an order with much more rapidity
than any outside broker could, would send that order to an outside
floor broker and ask him to go into this mob that you are talking
about and try to execute it ?
Mr. O ’B r ie n . I think it is quite possible that they did. I don’t
say that it is sure, but I say it has been done.
Mr. G r a y . Oh, it might happen in some extraordinary instances.
Mr. O ’B r ie n . I would like to keep on the same story about the
office; they may not have sent the orders over our phone, for instance.
Whoever was handing out these orders, the pool managers, syndi
cate managers, or whatever office they were in; whether they were
in ours or not I have no knowledge.
Senator B r o o k h a r t . What instructions does your clerk have in
transmitting these orders? Were they to transmit them to you or
to somebody else?
Mr. O ’B r ie n . Well, Senator^ they come over the telephone from
the order room in the main office, you see, down to the floor o f the
stock exchange, where we have a clerk. There is a clerk who is up
in the office, you see, and all orders are transmitted from the cleri
in the order room to the clerk on the floor.
Senator B rookhart . That is the exchange clerk you are talking
about?
Mr. O ’B r ie n . No; it is our own clerk.
Senator B rookhart. That is why you instruct those clerks to take
these orders and send them to other people than your own specialists?
STOCK EXCHANGE PRACTICES
507
M r. O ’Bbien. W e ll, the only answer on the question that I m ay
not have executed all the orders or many o f them-----Senator B ro o k h a rt. What I want to get at is whether or not the
clerks did that under your instruction or whether it just happened.
Mr. O ’B r ien . N o ; it is a general practice on the exchange for the
clerks who are, in addition to their own floor member o f the ex
change, on the exchange floor— do you see what I m ea n !
Senator B rookhart . Yes.
Mr. O’Brien. For instance, the stock exchange—take any name
you like—they have one or two members who are members of the
stock exchange on that floor, those one or two members will at times
be busy and can not be there all the time; they may want to go out.
So in addition to those, these clerks have a list of buttons on their
booths and they can press and call another floor broker— $ 2 brokers,
they call these floor brokers.
Senator B rookhart . They first try you and i f you can not attend
to it they get those?
Mr. 0 1 Jr ie n . They might have; yes. That is quite true.
Senator Glass. We are talking about the usual practice. We
are not talking about the exceptional instances.
Mr. O ’B r ie n . Now you asked me about my getting all the orders.
It is quite possible, as I said before, that the syndicate or pool
manager may have given the orders over the telephone to the office
of some other broker.
Mr. G r a t . N ow , have you told us all about the operations o f a
specialist? I f not, I do not want to stop you, i f you are not finished,
because we are anxious to know anything else that you can tell us
about the specialist.
Senator C o u z e n s . Let him finish his story about how the specialist
does it and how he finished up his job.
Mr. O’Brien. These books are kept—normally, in a normal market
it only takes one book. In an exceptional market it took more.
They are kept all day long and there are quite a number of changes
in tne book. The book never remains constant very long. I should
say in an active market it changes once a minute/the quantities of
stock to be bought and sold on the specialist’s book, because if the
market starts to show a strong tone you will have people all over the
country who are watching the ticker sending in cancellations or
changes in their limits. Do you follow?
Senator G lass . Would you call that investment?
Mr. O ’B r ie n . Would I call that investment?
Senator G lass . Yes.
Mr. O ’B r ie n . Well, you might call it speculative investment,
Senator. I don’t know what you might call it.
Mr. G r a y . What do you mean by speculative investment?
Senator G lass. Isn’t it betting on the state of the market at a
given time?
Mr. O’Brien. All I can say is I think it might be considered like
anything else; they buy them with the hope of selling them higher.
Senator Glass. Yes; the next minute?
Mr. O ’B r ie n . Well, I guess five minutes; if they could get it, they
would be willing to wait that long.
„T
. , c
Senator G la s s . That is not Mr. Webster’s or Mr. Worcester s dennition of “ investment,” is it?
506
STOCK EXCHANGE PRACTICES
Mr. G r a y . Yes.
Mr. O ’B rien . As I mentioned before, there are 30 or 40 men mill
ing around pushing each other all over. I suppose y o u have seen
the floor of the exchange. I f you have not. it is a hard thing to
imagine how excited they become down there in a busy market,
pushing you all over, pulling your collar and tie out, losing pencils
and pads or anything—with a waving of the hands. D o you see
what I mean.
Mr. G r a y . I see; yes.
Senator G lass. Lose your money, too?
Mr. O ’B rie n . Yes; sometimes.
Mr. G ra y . But, Mr. O’Brien, I am probably a little bit astonished
at your statement. You testified that you are a member o f the firm
of Meehan & Co.?
Mr. O’Brien. Yes, sir.
Mr. G r a y . On the floor specializing in this Radio stock?
Mr. O ’B rien . That is quite right.
Mr. G ra y . Here are two other members of your firm o f Meehan
& Co. on the floor handling Radio orders as specialists therein, and
occasionally, as you said, probably a fourth man that you had to
take some ouisictel
Mr. O ’B rie n . Yes, sir.
Mr. G ra y . But here are three members of the firm o f Meehan &
Co. But if Meehan & Co. gave that order to another member there
is a division of commission i
Mr. O ’B rien . There is a $2.50 extra charge.
Mr. G r a y . D o you mean to tell me that Meehan & Co., who could
give the orders to you men that were specializing in Radio, and
therefore could execute such an order with much more rapidity
than any outside broker could, would send that order to an outside
floor broker and ask him to go into this mob that you are talking
about and try to execute it ?
Mr. O ’B rie n . I think it is ouite possible that they d id . I don’t
say that it is sure, but I say it lias been done.
Mr. G r a y . Oh, it might happen in some extraordinary instances.
Mr. O ’B rien . I would like to keep on the same story about the
office; they may not have sent the orders over our phone, for instance.
Whoever was handing out these orders, the pool managers, syndi
cate managers, or whatever office they were in; whether they were
in ours or not I have no knowledge.
Senator B r o o k h a r t . What instructions does your clerk have in
transmitting these orders? Were they to transmit them to you or
to somebody else?
Mr. O ’B rie n . Well, Senator^ they come over the telephone from
the order room in the main office, vou see, down to the floor o f the
stock exchange, where we have a cferk. There is a clerk who is up
in the office, you see, and all orders are transmitted from the clerl?
in the order room to the clerk on the floor.
Senator B r o o k h a r t . That is the exchange clerk you are talking
about?
Mr. O ’B rien . No; it is our own clerk.
Senator B r o o k h a r t . That is why you instruct those clerks to take
these orders and send them to other people than your own specialists?
STOCK EXCHANGE PRACTICES
507
Mr. O ’B r ie n . Well, the only answer on the question that I may
not have executed all the orders or many of them-----Senator B rookhabt . What I want to get at is whether or not the
clerks did that under your instruction or whether it just happened.
Mr. O ’B r ien . N o ; it is a general practice on the exchange for the
clerks who are, in addition to their own floor member of the ex
change, on the exchange floor—do you see what I mean?
Senator B rookhabt . Yes.
Mr. O ’B b ie n . For instance, the stock exchange—take any name
you like—they have one or two members who are members of the
stock exchange on that floor, those one or two members will at times
be busy and can not be there all the time; they may want to go out.
So in addition to those, these clerks have a list of buttons on their
booths and they can press and call another floor broker— $ 2 brokers,
they call these floor brokers.
Senator B rookhart . They first try you and i f you can not attend
to it they get those?
Mr. O B rie n . They might have; yes. That is quite true.
Senator G lass . We are talking about the usual practice. We
are not talking about the exceptional instances.
Mr. O ’B b ie n . N ow you asked me about my getting all the orders.
It is quite possible, as I said before, that tne syndicate or pool
manager may have given the orders over the telephone to the office
of some other broker.
Mr. G r a y . Now, have you told us all about the operations of a
specialist? I f not, I do not want to stop you, if you are not finished,
because we are anxious to know anything else that you can tell us
about the specialist.
Senator C ouzens . Let him finish his story about how the specialist
does it and how he finished up his job.
Mr. O ’B rie n . These books are kept—normally, in a normal market
it only takes one book. In an exceptional market it took more.
They are kept all day long and there are quite a number of changes
in the book. The book never remains constant very long. I should
say in an active market it changes once a minute, the quantities of
stock to be bought and sold on the specialist’s book, because if the
market starts to show a strong tone you will have people all over the
country who are watching the ticker sending in cancellations or
changes in their limits. Do you follow ?
Senator G lass . Would you call that investment?
Mr. O ’B r ie n . Would I call that investment?
Senator G lass . Yes.
M r. O ’B r ie n . Well, you might call it speculative investment,
Senator. I don’t know what you might call it.
Mr. G r a y . What do you mean by speculative investment?
Senator G lass . Isn’t it betting on the state o f the market at a
given time?
Mr. O ’B r ie n . All I can say is I think it might be considered like
anything else; they buy them with the hope of selling them higher.
Senator G lass . Yes; the next minute?
M r. O ’B r ie n . Well, I guess five minutes; if they could get it, they
would be willing to wait that long.
Senator G lass. That is not Mr. Webster’s or Mr. Worcester’s defi
nition o f “ investment,” is it?
508
STOCK EXCHANGE PRACTICES
Mr. O ’B rien . I am sorry, sir; I really don’t know either one of
their definitions.
Senator B rookhart . It is not necessary to know w h at an invest
ment is to run this stock-exchange business, is it?^
M r. O ’B rien . N o, sir; I don’t know much about investment m y se lf,
as m y accounts w ill probably show you.
Senator G lass . The reason I asked you that is because Mr. Whit
ney testified here that that was investment.
Mr. G r a y . He also said that he never heard of a pool.
Senator F le tc h e r . D o these books remain in the possession o f a
specialist all the while?
Mr. O ’B rien . Yes, sir. I was just going to get to that.
Senator T ow nsend . That was your picture.
Mr. O ’B rien . We have these numerous changes all day long in the
sheets of the specialist’s book. The stock might run frdm a total
volume of thirty or forty thousand shares to the point. Y on see
what I mean—the volume might vary between thirty and forty thou*
sand shares on each point up and below. These changes take place
all day. And when they get up to the office we would have a stock
of orders to fill a big bag that high with cancellations and changes
of limits. Sometimes we would have 14 and 15 orders all relating
to one original order. Now, in the evenings and the nights at that
time the specialist did not go home at 3 o’clock. I was in the office
most nights until 1 2 o’clock and most of Sundays straightening out
trades mat had become confused.
Senator T o w n sen d . Did you have assistants in that work?
Mr. O ’B rien . We all had to stay down; yes, sir; and straighten
out the trades, and so forth, telephone calls and claims from other
houses whose customers thought the time their order has been entered
should have entitled them to a better price according to the tape and
the time that the order was stamped, and so on. W e had to sit
there at night listening to these complaints and straightening them
out where they were justified, and that took up until 8 , 9, o r 10
at night on those days.
Senator T o w n s e n d . Who would be familiar with these b o o k s ex
cept the specialist himself?
M r. O ’B rien . W ith these books?
Senator T ow n sen d . Yes.
Mr. O ’B rien . The only ones that
would be familiar w ith those
books would be the clerks who would write them up after 3 o ’clock.
Senator T o w n sen d . The clerks were familiar with those books as
well as the specialist ?
Mr. O ’B r ie n . B u t that did not concern the day’s business, sir*
You see, most of your orders are day orders that expire at 3 o ’clock.
The great percentage of them are day orders, what is known a s day
order, which is only good for a day. There are three different kinds
of orders which are recognized. One is the G. T. C. order, which
means good till canceled. The next is G. T. M., good till a m onth,
and the next order, the most common with New York h ou ses, is a
day order.
Mr. G r a y . Then, of course, there is a market order?
Mr. O ’B rie n . That would be a day order, because that would have
to be executed that day.
Mr. G ra y . It could be a day order on a fixed price, too?
STOCK EXCHANGE PRACTICES
509
Mr. O’Brien. Yes. Sure. That is what I mean.
Mr. Gray. Then it could be a market order, which is a day
order %
Mr. O’Brien. Yes, sir; but you see the day orders expire at 3
o’clock. So in answer to the clerks having this information, they
would only be checking over our books to see if so-and-so got a
report on his 500 shares. The particular house will call up and
say, “All right; we didn’t get a report on a thousand Radio you had
to buy for us at 80%.” So the clerk or myself, or if I am busy some
place else he might do it for me, would look in a book and see if I
bought a thousand from some other house on the Street.
Senator Townsend. In other words, the clerks would be familiar
with it as well as the specialist?
Mr. O’Brien. That day’s business that had just gone through.
He would not see these books until after 3 o’clock.
Senator Couzens. So in effect the specialist has a lot of very
worth while information during the course of the day’s market
operations?
Mr. O’Brien. Sir, I never found it of much benefit, because the
volume is so big, in my stock. Now, I can not speak in general,
because since I nave been a member of the exchange I have been
principally, in fact entirely, in our own specialties, and Radio, of
course, id a very big volume stock, and I do not think the book
shows anything one way or the other.
If I may answer about the stop orders that you asked about before,
I can do that in connection with the book.
Mr. Gray. Go ahead.
Mr. O’Brien. The only possible place where a book might show
anything and where a specialist is bound to keep the information
strictly to himself is caused by stop orders. And that is not limited
to members of the stock exchange. A stop order can be put in by
any customer trading in any office in the Street, as you know, and
he does not get any information any more than another member
of the exchange will get information as to what condition the book
is in at that particular price that he wants to put the stop on. He
puts the stop order on. We will assume that I have bought 500
shares o f radio, and I am a customer that is not a member o f the
stock exchange. I mean I am just sitting up in my office some place
or in my branch office, and I buy 500 Radio at 80 and I do not want
to take a bigger loss than 2 points on that 500 shares. So I give
that 500 shares to sell at 78 stop.
Mr, Gray. That is a stop-loss order ?
Mr. O’Brien. Yes, sir.
Mr. G r a y . That is an entirely different thing.
M r. O ’B r ie n . N o , sir.
M r. G r a y . O h , yes.
Mr. O’Brien. Will you let me elaborate on it?
Mr. Gray. A stop order is an entirely different thing from a stop
loss order.
Mr. O’Brien. What is the difference?
Mr. Gray. The stop-loss order is an order that you give after
you have bought a stock at 80, as you have indicated.
Mr. O’Brien. Yes, sir.
510
STOCK EXCHANGE PRACTICES
M r. G ra y . A n d i f it goes down to a point where it reaches 78
you are automatically out, because your broker autom atically sells
you or stops your line at that point.
Mr. O ’B r ien . That is right.
Mr. G r a y . We are talking about stop orders where orders are
given to sell at a point below the present market and orders are given
to buy at a point above the present market, which requires know l
edge of the specialist’s book—I say; Mr. Bragg says it does not—
orders on the specialist’s books to let the trader determine whether
he thinks it is worth while to do that.
Mr. O ’B r ien . Well, we never get a full stop-loss order, because
when an order reaches a point to be executed it becomes a d a y order.
Mr. G r a y . I think the entire committee understands w h at a stop
loss order is.
Mr. O ’B r ie n . I do not see the difference yet, because it is p u t in at
that price. The specialist does not know whether the man is lo n g or
short.
Mr. G r a y . The man who places a stop-loss order has to b u y stock
and wants to stop the loss at a certain point, but on a stop o rd er he
never buys any stock.
Mr. O ’B r ie n . How would the specialist or anybody else know?
Mr. G r a y . I am not going to try to train you to answer questions
or answer questions myself except what I have answered as to what
happens on the exchange, when you know more about it th an I d o .
Mr. O ’B r ie n . Well, I am very sorry, but I like to be clear o n i t
A stop order generally is known as a stop order. A stop loss order
is the same as the stop order.
Mr. G r a y . All right.
Mr. O ’B rien . I would like to be clear on it. That is m y im p res
sion, that a stop loss order and stop order are generally known as
the same thing.
Mr. G r a y . The distinction, as I see it, Mr. O’Brien— X d o not
want to prolong this discussion—is that on the stop loss o rd er i f a
man has stock at 80, using that figure, he buys it at 80 and h e w ants
to protect himself so that he will not lose more than $ 2 a sh are, and
he puts a stop-loss order in.
Mr. O ’B r ie n . Yes.
Mr. G ra y . His broker must therefore automatically take h im out
of the market at 78 so that he does not lose 2 points.
Mr. O ’B rien . It then immediately becomes a market order.
Mr. G r a y . When the price touches 78 his order automatically be
comes a market order to take him out.
Mr. O ’B r ie n . Yes, sir.
Mr. G r a y . N ow a stop order as Mr. Bragg explained it t o u s is
where a man—we will take the same figure, 82—has no stock, but
from information that he has as to the buying orders below 80
as to the condition of the market on the specialist’s book, h e feels
that the stock is going to go down. Therefore, he puts an o r d e r in
to sell at 79, not stock that he has, but a short sale to sell at 7 9 i f it
reaches 79.
M r . O ’B r ie n . I can see where that could be done.
M r. G ray . W h a t do you call that?
Mr. O ’B rie n . I call it a stop order, but it is generally used by
the chart players. I am not pretending to know anything about
STOCK EXCHANGE PRACTICES
511
charts, but there are certain players in the Street that invest or
speculate or whatever you call i t on these ups and downs. They
figure that when a price breaks at a certain point it i« going to go
a certain place. They would not need any information from the
specialist.
Mr. G ra y . There are certain resistant points and certain new
marks that they figure ?
Mr. O ’B rien . "Yes, sir.
Mr. G r a y . They think they know all about it?
Mr. O ’B r ien . Yes, sir; that is right.
Senator C ouzens . Let me get this clear. I understand what Mr.
O’Brien says is a stop order, and I think I understand it the same
way. He does not know’ whether it is a stop-loss order or a stop
order or any other kind of an order when he gets it. I f that is
correct, that puts an entirely different aspect on the question of
what a specialist does. In other words, I don’t want any impres
sion to go out here that these specialists are crooks if they are not.
I mean, if I understand Mr. O’Brien correctly, he does not know
whether it is a stop-loss order or any other kind of order except
that it is a stop order when he gets it.
Mr. G r a y . I will go further than that, Senator. I will say that
when a specialist gets an order he does not know anything about
whether it is a short-sale order, whether it is an order to sell long
stock, or what it is. It is simply, so far as he is concerned, an
order to sell. Am I right about that ?
Mr. O ’B r ie n . Y ou see, at the present time the exchange has a
rule that you can not sell stock below the last sale. In that case
orders are marked short to-day, but in general you are right. We
do not know whether it is long stock or short stock or anything
about it. In general I would say that a specialist is a $2 broker or
a commission broker who stays at one post and specializes in stocks
that are listed at their post, that would be my definition, instead
of running around the floor as a floor broker.
Mr. G r a y . N o w , coming back to this Radio pool-----Senator G lass (interposing). Right there let me ask a question
prompted by Senator Couzens’s question. Does not a specialist in a
stock know the volume in which that stock is being dealt?
Mr. O ’B r ie n . Doesn’t he know the volume in which the stock has
been dealt during that day?
Senator G lass. Yes.
Mr. O ’B r ie n . Anybody can get that information from an em
ployee of the stock exchange who stands in any crowd. Each post
of the floor has what we call a reporter, and he takes down the sales
as they appear or happen in the crowd, and he sends that by a page
boy over to a desk somewhat like that, and where the ticker opera
tors are sitting. You see what I mean? And they send those sales
out to a table where it is recorded—20,000 Radio or 5,000 Radio,
and so forth.
Senator G lass . What I am asking is, does not a specialist know
the volume of orders to sell and the volume of orders to buy in that
particular stock?
Mr. O ’B r ie n . In his book?
Senator G lass. Yes.
STOCK EXCHANGE PRACTICES
512
Mr. O ’B r ie n . Yes, sir; he ought to have that.
Mr. G ray . And he trades himself sometimes on that knowledge,
doesn’t he?
Mr. O ’B r ie n . Well, he trades himself.
Mr. G ra y . On that knowledge?
M r. O ’B r ie n . I don’t see that it is any knowledge. I f you have
50.000 shares of Radio to buy from 80 down to 79 and you have
40.000 or 60,000 shares to sell from 8 0 up to 81, I do not know
what knowledge that is. You can toss a coin up in the air and pick
either side.
Mr. G r a y . Your answer, then, is that a specialist has knowledge,
and though a specialist trades himself, the knowledge that the
specialist nas is no advantage to him in the matter of helping him
to trade?
Mr. O ’B rie n . I don’t think it is of any particular advantage.
Mr. G ra y . That is a matter o f conclusion.
Senator C ouzens . I was going to ask you if you traded f o r your
self as a specialist.
Mr. O ’B rien . Have I ever traded? Generally I have; yes, sir.
Senator C ouzens . A s a specialist?
Mr. O ’B r ie n . As a specialist, as a member of the firm, f o r the
firm account.
Senator C ouzens . But not for your personal account?
Mr. O ’B r ie n . I have no personal account.
Senator C ouzens . All your trading is for the firm?
Mr. O ’B r ie n . All the trading.
Senator C ouzens . And you testify before this committee t h a t your
knowledge as a specialist and having that book before y o u have
given you no advantage and you have gotten no advantage from
that book in your trading operations?
Mr. O ’B rien . I would say generally I do not see any advantage.
Senator C ouzens . Now just answer specifically. You say “ gen
erally.” As a matter of fact, have you ever got any advantage?
M r. O ’B rie n . N o.
Senator C ouzens .
In trading for Meehan & Co. yourself because
you as a specialist had control of that book?
Mr. O ’B rie n . I do not think it gives you any knowledge.
Senator F letcher . What is the reason of the rule that the in
formation shall not be given out?
Mr. O ’B rien . Well, I should think that the rule applies t o cases
generally where the book might be in a weakened condition.
Senator C ouzens . What do you mean by a “ weakened condi
tion” ?
Mr. O ’B rien . Well, if you started where stop orders m ig h t build
up, just under circumstances that we were talking about b e fo r e ;
we get a group of stop loss orders, whether they are f o r lo n g or
short account; they would maybe get on your book, and you m igh t
get a possible balance to sell there of six or seven thousand shares.
Senator C ouzens . Wouldn’t you have advantage o f th a t k now
ledge when you come to trade?
M r. O ’B r ien . B u t you are not allowed to use it.
Senator C ouzens . That is a different story.
Mr. G r a y . In other words, the whole difference
may suggest to the committee.
is mental, i f I
Here is a man that was the specialist
STOCK EXCHANGE PRACTICES
513
in Radio. Here is the man that was operating for Meehan & Co.
You will have to draw your own conclusions as to whether it was
an advantage.
Senator G lass. I have already drawn mine.
Mr. G ray . I brought this man down so as to give you a chance
to draw some.
You are on the specialist proposition now and having no particu
lar application to Radio. As a matter of fact, it has been common
practice for people who wanted to raid a particular stock to get the
knowledge 0 1 those stop loss orders from the specialist’s book and
drive the stock down to a point where all those stop loss orders will
be taken up and the stock is wiped out; that is true, is it not?
Mr. O ’B rien . Not as far as I know.
Mr. G ray. Y ou never heard of that being done?
Mr. O ’B rien . I never heard of that being done; no, sir.
Mr. G ray . Don’t you know that everybody sitting around a
brokerage office knows that it is being done? That is, they have
reached down for stop loss orders and the stock goes up again?
You never heard of that?
Mr. O ’B rien . I have heard of it, but I never heard of it being
done on the stock exchange.
Mr. G ray . Where did they do it ?
Mr. O ’B rien . I don’t know, but if it was done I know the mem
ber would be expelled.
Mr. G r ay . O f course, you can only tell what you know yourself.
Have you traded yourself in Radio while you have been a specialist
in Radio?
Mr. O ’B rien . My own account; no, sir.
Mr. G ray . You said that you traded for the Meehan firm account.
You mean for M. J. Meehan & Co. ?
Mr. O ’B rien . Yes, the general account.
Mr. G r ay . Then M. J. Meehan & Co. as a brokerage firm and a
member o f the §tock exchange have for themselves taken a position
in Radio, long or short?
Mr. O ’B rien . At times; yes, sir.
Mr. G r ay . At times.
Senator B rookhart. Did you trade any for your wife?
Mr. O ’B rien . I beg your pardon?
Senator B rookhart. Did you trade any for your wife?
Mr. O ’B rien . Yes, my wife has an account, very inactive account.
I don’t know whether she had any Radio or not. It does not amount
to anything. It is a very small account.
Senator B rookhart. And for the children, too?
Senator C ouzens. Just a minute; I would like to get Mr. Gray
to carry that out.
Mr. G r a y . I wanted to, Senator. In other words, as a specialist
and as a member of the firm of M. J. Meehan & Co. you have bought
and sold Radio stock for that firm?
Mr. O ’B rien . Yes, sir.
Mr. G r ay . In other words, M. J. Meehan & Co. have invested the
money o f the brokerage firm in the purchase of Radio stock?
Mr. O ’B rien . Not the money of the brokerage firm.
Mr. G r ay . Whose money?
Mr. O ’B rien . Our own money.
514
STOCK EXCHANGE PRACTICES
Mr.
G r a y . Its customers?
M r. O ’B r ie n . No; our capital.
Mr. G r a y . Your capital, which belongs to the firm?
Mr. O ’B rie n . Yes, sir; part of it. Yes, sir. I misunderstood
Mr. G r a y . All right. M. J. Meehan & Co. have as a firm,
you.
also
taken a short position in Radio and sold short, have they not!
Mr. O ’B rie n . I don’t doubt it, from time to time.
Mr. G r a y . Don’t you know?
Mr. O ’B r ien . Well, I would say they have, but I can not remember
any specific cases. Generally a specialist might be long to -d a y and
short to-morrow.
Mr. G ra y . Yes, and M. J . Meehan & Co., with respect to Radio
stock and while you were acting as a specialist, has at varying times
taken either a long or a short position %
Mr. O ’B rien . Yes, sir; I would say that.
Mr. G r a y . Do you know the position of M. J. Meehan & Co. in
Radio to-day?
Mr. O ’B r ie n . I should say it is even, one or two hundred shares.
Mr. G r a y . Very even?
Mr. O ’B rien . I should say so. I don’t know. I have n ot been in
communication with the office.
Mr. G r a y . Has there been during the last year or year and a h alf
a very voluminous or very great short position in Radio held b y the
firm of M. J. Meehan & Co.?
Mr. O ’B r ie n . I don’t recall distinctly any big positions in the last
year or year and a half, but there may have been.
Mr. G r a y . We have not been able to get into this and investi
gate it.
Mr. O ’B rien . The volume of trading in radio has been very light
in the last year or year and a half, so I would not make a very posi
tive statement.
Senator C ouzens . While you were on the floor keeping this book
did you ever get any orders from the office to sell long or short radio
stock?
Mr. O ’B rien . Y ou mean now, Senator? O r------Senator C ouzens . Oh, any time.
Mr. O ’B rien . Why, yes; we get orders quite frequently fr o m the
office.
Senator C ouzens . And so when you are getting orders from Mee
han & Co. they also have information as to what this book shows?
Mr. O ’B rien . N o, sir. You mean our office in general w ou ld have
that information?
Senator C ouzens . Y ou d o ; yes.
M r. O ’B rien . I d o ; yes.
Senator C ouzens . Well, you are part o f the office.
Mr. G r a y . N o w , then, unless there are some other questions, I want
to direct your attention to this pool again. You know th ere was
such a pool in the office as this New Radio pool ?
Mr. O ’B rien . I knew after it had been formed, the syndicate had
been formed.
Mr. G r a y . Yes; and you knew it had operated from w h a t date
to what date?
Mr. O ’B rien . I heard—I should say I did at the time, but I am
not familiar with the date.
STOCK EXCHANGE PRACTICES
515
M r. G b a y . S o that you knew that your orders were coming from
the firm o f M . J. Meehan & Co. to buy and sell Radio stock during
that week between March 13 and March 19, 1929, and from the
great volume that it was the operations of this pool, did you not?
Mr. O ’B r ie n . N o, sir. I would not know that, because the cus
tomers of Meehan’s had always done a very b ig business in Radio.
It might have been anybody.
Mr. G b a y . When you left your floor you invariably, I suppose,
from day to day, had consultations over Various matters with
different members of your firm?
Mr. O ’B b ie n . No.
Mr. G b a y . Y o u never did?
Mr. O ’B b ie n . Very, very rarely. And none that I can remember,
as a matter of fact.
Mr. G b a y . Ever go to your place of business ?
Mr. O ’B rojn. Well, as I described before, to my section of the
place o f business, and how we worked to straighten out on the floor.
Mr. G b a y . Mr. O’Brien, I want to know whether you say to this
committee that M. J. Meehan & Co., of which you were a member,
which firm was transacting the business of this pool in stock in
which you were a specialist—do you mean to tell this committee that
during that entire week you and the other members o f the firm who
may nave been placing the buying and selling orders never consalted: they never asked you anything about the condition of your
book rrom day to day or during any day, and that you never told
them anything at all?
M t. * 0 ’B b ie n . Well, as far as I can recall nobody asked for the
condition o f the book.
Mr. G b a y . Well, if they did not ask, did you give it to them?
Mr. O ’B b ie n . No; I did not.
Mr. G b a y . N ow let me ask you som ething: I s it not a fact
that in the execution o f the orders fo r this pool on the floor o f the
stock exchange that matter was sim ply le ft to your discretion and
you were the one that handled it ?
Mr. O ’B b ie n . It is not the fact at all.
Mr. G b a y . Who issued the orders in this firm for the selling and
the buying of this Radio stock?
Mr. O ’B r ie n . I do not know that anyone did.
M r. G b a y . Well, somebody has to say when you are going to buy
it and when you are going to sell it, don’t they ?
Mr. O ’B r ie n . Somebody must have given the order. It originated
some place.
M r. G b a y . Who was it?
M r. O ’B b ie n . I should have imagined that it originated with the
managers o f the syndicate, so far as I know.
M r. G b a y . Well, Mr. Bragg says that he was in Florida.
Mr. O ’B b ie n . Well, you see, I can not answer, because I can only
answer to what you asked me about on the floor. My general knowl
edge is only concerning specializing and what takes place there. I
really don’t know anything about running an office, for instance.
M r. G r a y . Who gave the orders to clean up this pool and bring
it up on an even basis ?
M r. O ’B r ie n . Well, if I could tell you that, I probably would be
able to answer your other question.
516
STOCK EXCHANGE PRACTICES
Mr. Gray. Who is the man in your firm that can tell us who
handled and gave you orders to buy and sell this Radio stock who
is it—in 19291
Mr. O ’B rien . In our firm?
Mr. G r a y . Yes.
.
Mr. O ’B b ie n . Well, I do not believe that anybody in our firm aid
it. The firm was never a member of the syndicate or managers for
a syndicate to my knowledge.
Mr. G r a y . Oh, the firm was the one that originated the syndicate.
Why tell me that? They got a 50 per cent o f the managers cut
for doing whatever they did do, and we are trying to find out who
it was that handled this syndicate. Nobody seems to know.
Mr. O ’B rien . I don’t, sir. I was not in on any conversation
regarding a pool, never have been.
Mr. G r a y . I don’t know whether you have clearly answered my
other question. Are you trying to create the impression with this
committee that, though you were the member of the firm o f M . J.
Meehan & Co. and had inside knowledge of what was on the spe
cialist’s book, that your firm was specializing in. that they did not
.i x •
a*— •manner, shape, or form in the buying
___ _
ink that they had any use for it; no.
Mr. G r a y . Did they have the information?
Mr. O ’B rien . Not to my knowledge they never got any informa
tion about the book. They didn’t get it from me.
Mr. G ra y . I suppose your answer that you knew nothing about
the office matters would be the answer that you would make to m e if
I asked you about who got this $92,000, who these people w ere and
why it was paid to them and they were not participators in the
pool; is that right?
Mr. O ’B r ien . That is right. I would have to answer that w a y .
Mr. G r a y . And you would have to answer the same w a y i f I
asked you about these various transactions that appear to be wash
sales?
Mr. O ’B r ie n . I don’t know anything about that.
Mr. G r a y . Y ou don’t know anything about that?
Mr. O ’B r ien . I would not come in contact with any office work at
all.
Mr. G ra y . All right. I will say to the committee that we are still
working on this and we will find out where those checks went and
why they went and we will see the checks and see who indorsed th em ,
and we will know all about it before we get through, but this is as
far as we can get in this matter at the moment. That ends all I w an t
to present on the Radio pool, and I will take up something else
whenever the committee is ready.
Senator W alcott. When will the next meeting be, Mr. Chairman?
Mr. G r a y . I have enough to keep you busy all day to-morrow and
all day Saturday?
The C h a irm a n . I think we can continue this afternoon, and I
just told Senator Couzens about it.
Senator C ouzens . D o you want to go on this afternoon?
Mr. G r a y . I would like very much to. In other words, I h a v e a
number of witnesses I brought here on some other transactions.
STOCK EXCHANGE PRACTICES
517
The C h a ir m a n . I do not see how so many Senators can be so far
away from the Senate Chamber, so we wiil meet in the Interstate
Commerce Committee room in the Capitol right off the Senate gal
lery and, in case of a roll call, we can go down and vote and come
back for the hearing.
Senator C ouzens . There will be no room except for the reporters.
The C h a ir m a n . Except standing room. That is unfortunate, but
it is the only place that is available. We will be there at 3 o’clock.
(Whereupon, at 12.50 o’clock p. m., the committee recessed, to meet
in the Interstate Commerce Committee room in the Capitol, at 3
o’clock p. m. of the same day.)
AFTER RECESS
The committee resumed at 3 o’clock p. m., at the expiration of the
recess, in the hearing room of the Committee on Interstate Com
merce in the Capitol, Senator Norbeck (chairman) presiding.
The C h a ir m a n . The committee will resume. What witness will
you call. Mr. Gray?
Mr. G r a y . I want Mr. M c C o n n a c h ie to resume the stand, and I
see he is sitting at the table. But I wish to place something on the
record.
TESTIMONY RESUMED OF JAMES F. McCONKACHIE, MEMBER OF
THE FIRM OF M. 7. MEEHAN & CO., NEW YORK CITY
Mr. G ra y . Mr. Chairman, I want to place upon the record, to
conclude, one or two things in regard to radio: The fact that the
records show that there was outstanding at the time this pool in
1929 was operating, and in which they operated in approximately
1,500,000 shares, a total issue of 13,130,690 shares of stock. It is
impossible to determine just what the floating stock was, but they
dealt in the period of one week in approximately 12 per cent of the
entire outstanding issue of Radio Corporation of America stock.
Now, when I say they dealt in 1 2 per cent I am taking the figure
that they bought, or approximately the figure that they sold; but
they bought and sold altogether some 2,900,000 shares of stock of
the Radio Corporation of America, or approximately or close to 30
per cent of the entire outstanding issue of stock during that one
week’s operations.
Now, 1 want further to put upon the record the substance of
some articles that were published, and I will later have the articles
themselves, but I have been unable to get them in the limited time
at my command; I mean the clippings themselves, and will then
put them upon the record, those articles having appeared during
the time the pool was operating.
First, on March 2, 1929, immediately after the pool was formed,
there appeared in the Wall Street Journal an earnings statement
of the Radio Corporation of America, showing that their earnings
during 1929 and up to that date were $21,128,420, as compared to
$10,394,415 in 1927. There is no statement here as to 1928. But
this shows a claim of an equivalent to $15.98 on the common shares
as compared with $6.15 in 1927, after reserves were withdrawn.
119852— 32— FT 2--------10
STOCK EXCHANGE PRACTICES
518
On March 9,1929, in the Wall Street Journal appeared an article:
Radio Corporation of America to extend activity abroad. Corporation is
financially better off than ever before in its history. Current assets at end
of 1928 total $55,577,250 and current liabilities $16,073,015, a ratio of 8% to 1.
The C hairm an . In other words, a net of around $40,000,000.
Mr. G ray . That was on the matter of current liabilities, and assets
only, and not on the matter of its capitalization.
The C h airm an . All right.
Mr. G ray. On March 11, 1929, in the Wall Street Journal under
the caption Abreast of the Market, the following appeared:
Radio.—Radio shares were the .sensation of the market last week. The
return of an important interest, which sponsored Radio for some time was
the signal for a resumption of activity in the issues. What profit taking came
into the market was easily absorbed and the spectacular advances attracted
the attention not only of traders, but of outsiders, who were looking for a
stock indicating a decided upward trend. Radio’s business has been expand*
ing and many developments are pending. The new shares, because of their
low selling price, are naturally the most attractive to the public.
On March 12, 1929, under the caption Abrupt Changes and in a
story reporting credit control rumors, the following appeared, and
I am quoting it:
Radio Corporation issues again took the lead on the up-side, rising to fresh
record levels on the activities of big operators, who have sponsored Radio’s
market for the last several weeks.
On March 16, 1929, under the caption Radio Royalties Nearly
Doubled appears a long analysis of the organization and finances
of the Radio Corporation of America, in which royalties are set
forth as an important factor in the corporation’s record showing for
1928. And it says there is further bullish mention of communica
tions, plans, and strides forward in the amusement field.
On March 2 1 , 1929, under the caption Broad Street Gossip the
following appeared, and I quote i t :
It is said that the one million share Radio pool has been terminated with a
net profit of five points to the underwriters.
And that you will note is approximately correct.
On March 22,1929, in the Wall Street Journal, under the caption
“ Market comment,” the following appeared:
The large pool in Radio finished letting out its line Tuesday—
And that was on March 19, which was absolutely correct—
a n d , f o r t h e tim e b e in g a t l e a s t , h a s t u r n e d i t s a t t e n t i o n to t h e c o p p e r g r o u p
w i th m o s t o f i t s b u y in g in A n a c o n d a .
On March 28, 1929, under the caption “ Abreast of the
appeared the following:
market,”
Interests who had been prominent in the advance of Radio only a few
weeks ago when the stock rose to a high about 109 were advising their friends
to consider repurchasing around 85.
Just as the evidence I presented this morning indicated that the
stock had dropped to 87% a few days before that.
When Radio went below that figure on Tuesday—
and I did not come down to that date—
it encountered buying orders which started the recovery in the issue. Market
students maintained that the leading interests dominating the movements in
STOCK EXCHANGE PRACTICES
th e s to c k w e r e b u y in g a c tiv e ly a r o u n d T u e s d a y ’s lo w
s h o rt i n t e r e s t in th e s to c k h a s b e e n c o v e r in g .
519
p o in t.
A
s u b sta n tia l
And I will say that we are working now on another pool that
operated immediately after that, and that put it back from 95 to
113. I am not ready to present that to the committee now, but it
will be finished a little later and furnished to the committee.
Senator B rookhart . Mr. McConnachie, who was T. Clark, who
was in this pool?
Mr. M cC o n n a c h ie . I have no knowledge of any of the partici
pants of the pool because I was not with M . J. Meehan & Co. at
that time.
Senator B rookhart. W ill the other witness be here, Mr. Gray?
Mr. G r a y . The witness O’Brien was with them, but I wanted to
keep Mr. McConnachie for another purpose, and before the noon
recess I asked if any member of the committee wanted to ask him
any more questions, and they did not. So I relieved Mr. O’Brien.
Has he gone, Mr. McConnachie?
M r. M c C o n n a c h ie . Yes.
Senator B rookhart . Who was the other witness ?
Mr. G r a y . M r. O’Brien.
Senator B rookhart . The man who managed the pool while in
Florida?
Mr. G r a y . No; that was Tom Bragg.
Senator B rookhart . Is he here?
M r. G r a y . N o.
Mr. M cC o n n a c h ie .
We could probably reach Mr. O’Brien in
time to have him here this afternoon if you want him.
Senator B l a in e . Mr. McConnachie, when did you leave the Meehan
firm?
Mr. M c C o n n a c h ie . I am still with the Meehan firm.
Senator B l a in e . Were you with them in 1930?
Mr. M c C o n n a c h ie . I was with them in June o f 1930.
Senator B l a in e . And you were with them throughout 1931 ?
M r. M c C o n n a c h ie . Y es, sir.
Senator B l a in e . Did you participate
in any transactions in con
nection with R-K-O stock?
Mr. M cC o n n a c h ie . N o, sir.
Senator B l a in e . None whatever?
Mr. M c C o n n a c h ie . N o, sir.
Senator B la in e . Y ou have no personal knowledge o f those trans
actions?
Mr.
M c C o n n a c h ie .
No, sir.
Senator B l a in e . D o you have any personal knowledge o f the reor
ganization o f R-K-O?
Mr. M c C o n n a c h ie . N o, sir.
Senator B l a in e . Who would have personal knowledge of that in
the firm of M. J. Meehan & Co.?
Mr. M cC o n n a c h ie . I do not know that anyone in the Meehan firm
would have personal knowledge of the R-K-O Corporation.
Senator B l a in e . The Meehan firm had a specialist in R-K-O stock,
did it not?
Mr. M c C o n n a c h ie . Yes, sir.
Senator B l a in e . In the fall of 1930 and spring of 1931?
Mr. M c C o n n a c h ie . Yes, sir.
520
STOCK EXCHANGE PRACTICES
Senator B l a in e . Who was that specialist?
Mr. M c C o n n a c h i e . Mr. George Garlick.
Senator B l a i n e . And he would have personal knowledge o f s to c k
transactions relating to R -K -0 in 1931 ?
Mr. M c C o n n a c h ie . Yes, sir.
Senator B l a i n e . Were y ou informed that R -K -0 was going into
a form of reorganization?
M r . M c C o n n a c h ie . N o , sir.
Senator B l a i n e . In the fall of 1931?
Mr. M c C o n n a c h i e . No, sir.
Senator B l a i n e . But Mr. Garlick would know ?
Mr. M c C o n n a c h ie . I do not know that he would
know any more
in reference to reorganization than I would. But he ran the book
in R-K-O.
Senator B l a i n e . Would you give us his full name a n d business
address as well as home address?
M r . M c C o n n a c h ie . I do n ot know h is h om e address?
Senator B l a i n e . Well, give us his business address.
Mr. M c C o n n a c h ie . N o. 30 Broad Street, New York City.
Senator B l a i n e . He is a resident of New York City?
M r . M c C o n n a c h ie . Yes, sir.
Mr. G h a t . I want to say to the committee that, having presented
the pool in Radio that operated on the long side of the market, I
desire to develop an operation on the short side of the market that
Mr. McConnachie may be able to give us some information about,
and that I can present certain records.
Mr. M c C o n n a c h ie . Mr. Counsel, can I add something to my
statement of a minute ago: I do know this in reference to R-K-O,
Radio-Keith-Orpheum: Mrs. Mehan held 20,000 shares of K-L-O
preferred, Keith-Albee-Orpheum preferred stock, which cost her in
excess of $2 ,000 ,000 . This stock was convertible three for one into
R-K - 0 common stock. When the R-K-O Corporation, Radio-KeithOrpheum Corporation, was organized it took over the Keith-Albee
Co., which in turn was a consolidation of the Keith-Albee-Orphuem
Circuit.
Keith-Albee took over the Orpheum Circuit, and I believe that
sometime during last year Mrs. Meehan sold the equivalent o f the
common stock that she could convert the K-L-O preferred stock
into. In other words, she held 20,000 shares of K -L -0 preferred,
and she had the privilege to convert those 20 ,0 0 0 shares into 60000 shares of R -K -0 common stock. There being no market, or at
least a very dull market, in the preferred stock, I believe she sold
60,000 shares of R -K -0 common stock against her 20 ,0 0 0 shares of
K-L-O preferred.
Senator B l a i n e . Was that before November of 1931?
M r . M c C o n n a c h ie . I could not tell you what date the sale was
made.
Senator B l a i n e . The company went through the process o f reor
ganization in November and December of 1931. I understand. Do
you recall that?
M r . M c C o n n a c h ie . I could not tell you the date. I should like
to add that those 20,000 shares of K-L-O preferred, and she still
holds it to-day, cost Mrs. Meehan over $2 ,000 ,000 , while I think the
present price is something like $8 a share.
STOCK EXCHANGE PEACTICES
521
Senator T ownsend . Did you say she sold 60,000 shares against
that?
Mr. M cC o n n a c h ie . She did, but later on she bought it back, blie
still holds 20,000 shares of K -L -0 preferred, and at to-day s prices
that shows a loss of about $1,800,000.
Mr. G r a y . You have injected Mrs. Meehan into the picture.
Mr. M cC o n n a c h ie . Yes, sir.
Mr. G r a y . Isn’t it a fact that while this Radio pool was oper
ating, in March of 1929, extensive operations were carried on in
the name o f Mrs. Meehan individually in Radio besides?
Mr. M cC o n n a c h ie . I am not familiar with that.
Mr. G r a y . You do not know that?
Mr. M c C o n n a c h ie . N o, sir.
Mr. G r a y . And, having told this committee that in addition to
the profits she made out of the pool which you were relating as an
offset to certain losses before the recess, that she made quite a few
millions o f dollars in her individual account, or either she or Mr.
Meehan dealing in her name, at the same time the Radio pool was
operating. You do not know that ?
Mr. M cC o n n a c h ie . N o, sir.
Mr. G r a y . I say to the committee that we are investigating those
records at the present time and will be prepared to prove that Mrs.
Meehan made as much as the syndicate did. I can not do it to-day,
inasmuch as we were not able to get through with our investigation.
Now, Mr. McConnachie, I asked you before recess whether or not
you knew about the account No. 815 that belonged to Bradford
Ellsworth and Joseph E. Higgins. And I think you told me you
knew o f such an account.
Mr. M c C o n n a c h ie . I think I told you, Mr. Gray, that I did not
know o f such an account.
Mr. G r a y . But you did tell me, however, didn’t you, that you
thought there was in- your office an option to purchase Electric
Auto-Lite Co. stock. I am referring now to March o f 1931.
Mr. M c C o n n a c h ie . As I recall 1 made the statement that I did
know there was an interest of some kind in the office in reference to
Auto-Iiite.
Mr. G u a y . All right. And you will furnish to the accountants o f
the committee who will visit you in connection with this matter, all
the data you have with respect to that option?
Mr. M c C o n n a c h ie . Yes, sir.
Mr. G r a y . Do vou know anything about the price at which the
option was taken?
Mr. M c C o n n a c h ie . N o, sir.
Mr. G r a y . N o w I want to ask you about the general practice in
connection with options that are given to traders or others on the
market. Isn’t it a fact that where a trader has an option to buy a
certain amount of stock at a fixed price, and within, of course, a
certain time limitation, that the first thing he does, if the price is
approximately that at which he has his option, to take a short
position?
Mr. M c C o n n a c h ie . I have never conducted such a market opera
tion as you term it, and I have never been so intimately associated
with others conducting one that I know their methods.
Mr. G r a y . All right. You can not answer that question?
522
STOCK EXCHANGE PRACTICES
M r. M cC o n n a c h ie . N o, sir.
Mr. G r a y . I will show to the
committee by another witness whom
I will call in and their transaction, that when a man gets an option
on stock, to buy a certain number of shares, say, at 70, and the
market is 70 or a little above, he will immediately go out and. take
a short position by selling a large number of shares short, his in
tention being that if the market goes up he can furnish the stockr
of course, by covering his option, while if the market goes down he
covers by covering his short sale and he does not have to bother
about the option. So that when he trades in that way he can not
lose.
And I suppose, Mr. McConnachie, you will say you do not know
anything about transactions in Electric Auto-Lite.
M r. M cC o n n a c h ie . I do so say.
Mr. G r a y . I am now going to submit to the committee reporter
a statement which I will verify by additional evidence at a later
time if the committee wants it, whereby we will be able to show that
there was an option which the Meehan office had to buy a certain
quantity of stock at a certain price. I can not give the committee
those figures because this came to me last midnight, but I can show
in this connection, in this account No. 815, that Mr. Joseph E. H ig
gins and Mr. Bradford Ellsworth whom you have heard as one o f
the managers of the Radio pool, started to sell on March 10, 1931r
this stock short, that their sales consisted entirely of short sales,
running from March 10 to April 27, which reached the date when
they finished finally covering their sales, when they dealt in approxi
mately 94,000 shares, and that they made a profit in that pool of
$35,500; that they distributed out of those gross profits the sum o f
$7,102.44 to Collins-Norton Co., of Toledo, Ohio, and to Stewart
McNair they gave a check for $3,551.22, leaving a net profit o f
$25,170.88. The details beyond that I can not give the committee at
the present time, but our accountants are working on it to-day.
But that is a clear illustration of an option that was taken? which
when they took their short position instead of the stock going upr
thus giving them an opportunity to exercise their option and make a
profit in that way? they abandoned entirely the option, and having*
taken a short position against the option, covered it by buying as the
market went down because at the time when they started to sell
short the market was 70%, on March 10 , and when they made the
final covering on April 7 the market was 52%.
(The paper handed to the committee reporter by Mr. Gray, is
here made a part of the record, as follows:)
G eorge
K.
W a tson
& Co.—O
ffic e M em oran d u m
File---------.
Date: May 18,1932.
From: Mr. L. H. Sherbacow.
To: Mr. William Gray.
Subject matter. In re market operation in Electric Auto-Lite Co.
A market operation in Electric Auto-Lite Co. was begun on March 10, 1931,
by Bradford Ellsworth operating through the firm Of M. J. Meeluin & Co. Theaccount through which this operation was run was an account No. 815, it being
a joint account of Bradford Ellsworth and Jos. E. Higgins.
It is my belief that this operation was predicated in an option to purchasea block of stock given by the controlling interest of Electric Auto-Lite Co to
Bradford Ellsworth at prices below the then market, but as Mr. Ellsworth
STOCK EXCHANGE PRACTICES
523
is reported to he In Canada at this time, it has been impossible to confirm
this belief.
The following schedule discloses trades in the stock. At beginning of op
eration, March 10, 1931, the stock was selling at 71V2 per share and at com
pletion, the stock sold at 49 per share, showing a depreciation in price of $22.50
per share, within 45 days after operations were begun. Complete data con
cerning this operation was not available.
Transactions in stock
Date
Purchases
j
Sales
1
1981
Mar. 10 23,700 shares, at 70H................... - ............................................... I 36,700 shares at 71V$11 21,000 shares, at 72........................................................................ 25,500 shares, at 73^.
................
|
u 1,100 shftrw, ?vt
12 6,100shares,atT % ............ ........... .................. ...... . . . . . ___ 6.600 shares, at 72%.
shw«sl 72. ”
3.600 shares, at 72)4
13
16 Dividend os 16,300 Elo (short), 3-13; debit, $24,450_____________
.
1,900 shares, at 69.
18 10,100 flhaw*, at fi7*/£ tn 71
... .
__________ ____ 6,300 shares, at 7\%.
17 4,600 shares at 71}^ " .......... .
18 £200 shares, at 11%_______________________________________ 3,100 shares, at 72H.
. ........... ,
.
2.400 shares, at 72.
19 flOOsharw*, *t 7 1 J 4 . . 20 2,600 shares <vt 72p<j.. ........... .............................................. ...... 3.400 shares, at 72%.
..... . , ,
3,600 shares, at 72}^.
28 l'flOO shares 72^J................
.................... 200 shares, at 70.
25 200shares,at7 0 . ___ _______________ _
2,600shares,
At
A
O
.........
..
.
.
ao
.......
31 1)206 share! ^
6 n Mar. 31', 6,406 net short position_________________________
-rApr. 18 W0,
. _______
_
16 Q00.
___
17 1,600 at
2
,
000
,
at
W
4
_____
20
21 S00, at *2*4 ________ __ _____
27 1,000 at 52%................................................................................... 600, at 49.
Total sh ares parchased, 94,000; total sales, 02,000.
GENERAL COMMENTS
▲ profit of $35,000 was sustained in this operation. On the 12th of May,
1831, a check was drawn to the order of Qollins-Norton Co. of Toledo, Ohio,
amounting to $7,102.44. On May 24 a check was drawn to the order of
Stewart McNair amounting to $3,551.22, leaving a net profit of $25,170.88.
In examining the account of this operation, I found that there was no money
credit in the account at the beginning of the operation.
M r. M cC o n n a c h ie . M a y I ask the question: W a s that an option
of Bradford Ellsworth and Joseph Higgins or an option o f M . J.
Meehan & C o .?
Mr. G b a t . Either an option of Meehan & Co. which Bradford &
Higgins had an interest in, or an option directly to Higgins. We
started to work on this yesterday, and this is accurate as far as I
have given it to you, and it only came to me last midnight.
Now, unless members of the committee want to ask Mr. McCon
nachie anything more I am through with him.
Senator G lass. Mr. McConnachie, for what average period are
stocks dealt in on the New York Stock Exchange held?
M r. M cC o n n a c h ie . I do not think there is an average.
Senator Glass. I had a chart made a little more than two years
ago by an expert in actuarial matters which indicated that 15 years
ago the average period was 67 days, but that at' the time when the
cnart was made, or rather for the previous year, it had been reduced
to 22 days. What would be the effect of putting a tax on transfers
of stocks on the stock exchange which when sold had not bee held
by the seller at least 60 days?
STOCK EXCHANGE PRACTICES
524
Mr. M c C o n n a c h ie . What would be the justification for such an
act?
Senator G l a ss . What would be the effect of it? How much
revenue would it yield, a tax of that sort?
Mr. M c C o n n a c h ie . I could not tell you, sir, in dollars and cents,
but I do not think there is any question but what it would have the
effect of slowing up the business of the exchange.
Senator G l a ss . Some of us have thought the only practical way
of distinguishing a stock investment from stock gambling would be
to introduce the time element. People, in view of at least o f some
of us, do not invest for a minute, as one witness to-day indicated
was frequently done in making sales and transfers. You would not
say, I imagine, that a man invest his money for a day, does he ?
M r . M c C o n n a c h ie . N o , sir.
Senator G l a ss . Nor for a week?
M r . M c C o n n a c h ie . N o , sir.
Senator G la ss . Nor scarcely for a month ?
Mr. M c C o n n a c h ie . N o , sir. But the effect
of that, Senator Glass,
if you will permit me to say so, would be to penalize the man for
changing his position when he discovers that he has made a mistake.
Senator G la ss . Oh, yes; but that would be a very rare transaction
when you take the whole volume of transactions on the stock ex
change into consideration. And it would put several billions of
dollars into the Federal Treasury, unless stockbrokers should desist
from investing for an hour or a day or a week, would it not ?
Mr. McCoNNAcmE. Senator, I would say that any man who
bought stocks within the past two and a half years made a mistake
to hold those stocks for one day rather than 30 days in the light of
the depreciation in security values during the past two and a half
years.
Senator G l a ss . Yes; in the light of the formation of pools to send
stocks skyrocketing or to send them to the depths. But that was
a very exceptional period, was it not ?
M r . M c C o n n a c h ie . Y e s , sir.
Senator G l a ss . I am talking
about the ordinary legitimate trans
actions on the stock exchange, explained by Mr. Whitney to be the
great investment market. I f they continued in the same volume
as prevailed in 1928-29 it would pretty soon enrich this Govern
ment, wouldn’t it? We would not have to levy taxes on anything
else, would we?
Mr. M c C o n n a c h ie . Well, that depends upon the amount o f the
tax. But if such a tax were levied along reasonable lines I do not
believe it would produce any substantial revenue. And when I say
*( substantial revenue ” I mean many millions o f dollars.
Mr. G r a y . Mr. McConnachie, if I may be permitted to ask a
question right there, the most of the transactions which took place
on the stock exchange during 1928-29 were transactions that were
closed out within extremely short periods of time, comparatively
speaking, a matter of anything from 5 minutes to 5 or 6 days; isn’t
that true?
Mr. M c C o n n a c h ie . I think that would be very unlikely.
Mr. G r a y . Y ou think that was unlikely in 1928-29?
M r. M
c C o n n a c h ie .
Y e s , sir.
STOCK EXCHANGE PRACTICES
525
Mr. Gray. H o w long do you think, if you can give us any idea of
it as an average, was the average time that purchasers of stocks dur
ing 1928-29—and you can also answer that with respect of to-day,
if you would like to—-carried stocks before selling ?
M r . M c C o n n a c h ie . I have never seen such a compilation made.
Mr. Gbay. I have not either, and I will be perfectly frank with
you about that.
Senator G l a ss . Well, I have had a compilation made as I indi
cated a moment ago, and I am asking this question because, as will
be noted under S. 84, this committee is directed to report to the Sen
ate the desirability of the Government exercising its taxing power
with respect to such transfers. That would at least transform the
stock exchange from a feverish gambling institution into approxi
mately an investment institution, wouldn’t it, at least if the tax
were high enough?
Mr. M c C o n n a c h i e . It would unquestionably slow up speculation
if you made the tax excessive.
Senator G lass. Well, if you made it reasonable according to my
point of view, and we differ as to the reasonableness of such a tax,
but if you would put a pretty stiff tax on it, it would transform the
stock exchange into a public market, a public investment market,
would it not?
Mr. M c C o n n a c h i e . Anything that you would do to make specu
lation more expensive would necessarily slow up transactions on the
stock exchange.
Senator F l e t c h e r . What proportion of the business of the stock
exchange is of a speculative character and what proportion is really
investment marketing of securities*
M r . M c C o n n a c h i e . I cou ld n o t say.
Senator F l e t c h e r . I s the larg er p ro p o rtio n o f th e business th a t
of a speculative character?
Mr. M c C o n n a c h i e . I have never seen any such figures, and I
have never attempted to make an estimate, and have never known
anyone else to try to do it. I think it would be very difficult if one
were to try to do it. They would have to inquire into each trans
action in every broker’s office.
Senator F l e t c h e r . In a general way what were your duties as
special agent of the Treasury Department ?
Mr. M c C o n n a c h i e . T o make investigations into the personnel o f
various Treasury offices throughout the country, to reorganize the
service if reorganization was deemed necessary and advisable, and
to
charge of a force of men who had to do with the prevention
of frauds against the revenue.
Senator G l a s s . Y ou th in k i t w o u ld n o t be a d visab le to attempt
sort of definition or distinction betw een stock g a m b lin g and
stock investment?
Mr. M c C o n n a c h i e . I do not think you could very well, Senator,
without injuring the investor whom you are attempting to safeguard.
Senator G l a s s . My view is that it would protect the investor but
would injure the gambler.
Mr. M c C o n n a c h i e . Well, you will note that whenever there is a
slow market it has a tendency to move lower, and by affecting prices
of securities disastrously to the holder I do not see how you can
improve the position of the investor.
526
STOCK EXCHANGE PRACTICES
Senator G l a ss . But a market that sanctions pools such as the one
revealed at our hearing this morning means that prices may be low
ered or elevated, but in either event it is a fictitious market, is it not?
M r . M c C o n n a c h ie . I believe that when syndicates are organized
they are organized because the members believe that the security is
selling for less than its intrinsic value and that a profit can be made
through its purchase and sale at values which they feel more com
mensurate with its worth. You have heard to-day o f one syndicate
where a profit of some millions of dollars has been derived. But you
probably will hear in the course of this investigation of many syndi
cates where losses of a great many more millions o f dollars have
been the result of syndicate operations. I have given you a few this
morning.
Senator G l a ss . Well, that means that syndicates gamble on both
sides of the market, doesn’t it?
Mr. M c C o n n a c h ie . I have never known or heard of a syndicate
being formed to sell stocks short.
Mr. G r a y . I will call Senator Glass’s attention to the fact that
the recent agreement in Radio authorized them to sell the stock either
long or short.
Senator G l a s s . And it so happened that they so ld it lo n g .
Mr. G b a y . They could handle it better that way.
M r . M c C o n n a c h i e . But, pardon me, it was a buying syndicate.
It was not a short syndicate. It was not a syndicate organized for
the purpose of selling the stock short.
Senator G l a ss . Well? it was organized for the purpose o f advanc
ing the market to a fictitious point, wasn’t it?
M r . M c C o n n a c h i e . N o , sir; I would not say so, although as I
have previously stated, I am not familiar with that stock. But
others who participated in the syndicate, as well as millions of
people throughout the United States, had great ideas as to the value
of the stock of the Radio Corporation o f America. I have heard
intelligent people claim that the day would come when power would
be derived from air waves, which could be used in the place o f power
houses. And they had imaginary ideas as to the value o f radio
stock. But even those who participated in the syndicate, I believe,
felt that radio stock was selling for very much less than what it
was worth.
Senator G l a ss . People who organize syndicates are at liberty
individually to buy stocks that they think are going to advance, that
they think should advance, but why organize a syndicate if it is not
to combine the resources of various members of the syndicate in
order to affect the market fictitiously? They do not organize a
syndicate based lipon the earning capacity of the corporations repre
sented by the stocks in which they deal. They organize a syndicate
in order that it may be powerful enough to affect the market, do they
not?
M r . M c C o n n a c h i e . Senator Glass, I do not believe that they
organize a buying syndicate unless they have complete confidence
that the stock which the syndicate is organized to purchase is worth
a great deal more than what they can sell it for.
Senator G l a s s . WTiat degree of confidence has a syndicate in a
stock when it is buying its own stock and selling at the same time?
What is the meaning ot that sort of action ?
527
STOCK EXCHANGE PRACTICES
M r . M c C o n n a c h ie . Y o u w ill h ave to ask th a t question of some
•of those syndicate m anagers. I can n ot answ er that.
Senator G l a ss . I think I could, and I never was within a thousand
miles of a syndicate in my life. [Laughter.]
Senator F le tc h e r . Does that radio stock pay any dividends ?
M r . M c C o n n a c h ie . N o , sir.
Senator F l e tc h e r . Do you know
.
.
.
when, if ever, it has paid a divi
dend?
Mr. M c C o n n a c h ie . I do not think it has ever paid a dividend.
But if you will remember the earnings report as Mr. Gray cited, it
shows something like $16 a share, and that $16 a share was the earn
ings per share going up from practically nothing. That is, the
earnings previous to that time had been very small. So if it could
earn $16 a share that indicated its future possibilities.
Mr. Ghat. No ; I did not state that. What I said was this: I
read extracts from what newspaper articles set forth. I did not say
anything as a statement of fact myself, nor did I submit it as a
fact. I submitted it as newspaper puffing while the pool was on.
Mr. M c C o n n a c h ie . Well, 1 believe th a t is a fa ct.
The C h a i r m a n . H o w old was the Radio Corporation of America
at the time?
Mr. M c C o n n a c h ie . What was that?
The C h a i r m a n . H o w m a n y years h a d th is co rp o ra tio n operated
p r io r to th e tim e w hen y o u cla im th ey h ad earn in gs o f $16 per share ?
Mr. M c C o n n a c h ie . Oh, I think the Radio Corporation of America
has been in existence for over 10 years.
The C h a i r m a n . And they have not paid out anything substan
tially by way of dividends, have they ?
Mr. M c C o n n a c h ie . I do not think they have ever paid a dividend
on the common stock.
The C h a i r m a n . Even if this report were true of their earnings,
if you were to spread it over a 10 -year period it would be IV2 per
cent a year during the time they have been operating.
Mr. M c C o n n a c h e . I f that nad been their total earnings; yes.
But I believe they had earned a small amount annually, but a very
«mall amount as compared with the earnings at that particular time.
The C h a i r m a n . But they had gone on for 10 years without pay
ing any dividend?
Mr. M c C o n n a c h ie . Yes, sir.
The C h a i r m a n . And they started out without any physical prop
erty, didn’t they?
Mr. M c C o n n a c h i e . Well, I have never examined their balance
sheet.
The C h a i r m a n . I think that was the evidence given here this
morning.
Mr. M c C o n n a c h ie . I have never examined the balance sheet of
the Radio Corporation of America and could not state about their
financial condition.
The C h a i r m a n . You do not know where their earnings, if any,
came from?
Mr. M c C o n n a c h i e . N o , sir.
The C h a i r m a n . They did not come from dealing in stocks, did
they?
528
STOCK EXCHANGE PRACTICES
Mr. M c C o n n a c h ie . I do not believe that any of the Radio Corpo
ration’s earnings came from stocks.
The C h a i r m a n . Did they conduct any business?
Mr. M c C o n n a c h ie . Well, they owned a communications sy s te m ,
and radio broadcasting. They owned the Marconi wireless sy ste m .
Then they acquired the Victor Corporation.
The C h a i r m a n . Did they own them or did they have an o p tio n
on them or a contract for them?
Mr. M c C o n n a c h ie . No, sir. I understand they owned the radio
broadcasting and the Marconi wireless system.
The C h a i r m a n . Had they paid for them ?
Mr. M c C o n n a c h ie . Yes, sir.
The C h a i r m a n . Then the testimony that we had this morning to
the effect that they did not have much in the way of physical prop
erties was wrong.
M r . M c C o n n a c h ie . Sir?
The C h a i r m a n . The testimony that we had this m o r n in g , then,
was wrong?
Mr. M c C o n n a c h ie . I did not hear that part of the testimony given
this morning.
The C h a i r m a n . But the total value of the stock of the Radio Cor
poration at one time exceeded a billion dollars in market value,
didn’t it?
Mr. M c C o n n a c h ie . Well, if it was selling above $100 a share
and if there were a million shares-----Senator T o w n s e n d (interposing). It was 13,000,000 shares.
M r . M c C o n n a c h ie . Weil, that would make it $1,300,000,000.
The C h a i r m a n . What do you claim the physical properties o f the
Radio Corporation of America to be in the matter of value ?
M r . M c C o n n a c h ie . I have no idea. I have never examined the
balance sheet of the Radio Corporation of America.
The C h a i r m a n . D o you know where we can get that in fo r m a t io n ?
M r . M c C o n n a c h ie . Yes, sir.
The C h a i r m a n . From the man who took the sh ip last night?
Mr. M c C o n n a c h ie . Well, Mr. Chairman, since you make that
statement, I should like to say that on last Saturday, at M r . Gray’s
request, I called to see him at his office, and he told me that he should
like to have Mr. Meehan as a witness before this committee to-day.
I told him that I would see Mr. Meehan, and I not only saw Mr.
Meehan, but I saw the three physicians attending him, and all three
physicians were unanimous m their opinion that Mr. Meehan was
m no physical condition to be present at to-day’s hearing.
The C h a i r m a n . It might have been pretty hard on a healthy maT^
I judge.
Mr. M c C o n n a c h ie . Now, I will say that Mr. Gray has seen Mr.
Meehan. He has talked to him at great length, and he is almost in
as good a position as a physician to pass upon Mr. Meehan’s p h y s ic a l
condition. I again called on Mr. Gray on Monday and told Viim
what those doctors had advised me in reference to Mr. Meehan’s
health, and Mr. Gray was readily able to understand from t h e i m
pression he had gained at his interview that the physicians’ s t a t e ments were 100 per cent correct. And Mr. Gray-----The C h a i r m a n (interposing). Well, now------
STOCK EXCHANGE PRACTICES
529
Mr. McC onnachie (continuing). Pardon me just for a moment.
Mr. Gray then said that under the circumstances he would not call
Mr. Meettan, would not insist upon his being present to-day.
The C h a i r m a n . But to-day we are told what nobody knows but
this man and he has gone away. That is what we object to. Every
member of this committee now knows that. And if the members
of the committee had known it at the time, they would have wanted
him to be present.
Mr. G b a y . The committee will understand that I released Mr.
Meehan from being here to-day. While he was not subpoenaed I
did know that he was sick, and I did tell Mr. McConnachie on Mon
day that I would not subpoena him to be here to-day. I did release
him as to this appearance to-day although he had not been subenaed. But I did not say to him that I would not expect Mr.
eehan to be present on another day, at a subsequent meeting of the
committee. O f course, I had no information that Mr. Meehan was
going to Europe. Nothing of the kind was said to me. And not
for a moment would I have said, although I had no official control
of him because of the fact that he had not been subpoenaed, not for
a moment would I have agreed nor did I agree that he should be
released as to his presence before the committee at another time.
Senator G l a ss . It is an unhappy circumstance that he should have
gone to Europe the night before this committee convened.
Senator B l a i n e . When does Mr. Meehan expect to return?
Senator G l a ss . I f Mr. Meehan had conferred with me on the sub
ject I would have advised him to remain over for several days any
how.
Mr. M c C o n n a c h i e . And I am very sure that he would, in spite of
his physical condition, had he known that he was desired, that his
presence was desired. His condition is not good, and I do not think
that he should be asked to attend.
Senator G l a ss . I am not undertaking to suggest that Mr. Mee
han’s condition is good, though sometimes I have very little confi
dence in certificates from physicians. I have seen the fraudulent
nature o f some of them. But I think it was a very unhappy circum
stance for Mr. Meehan that he should have left the night iDefore this
committee convened to resume its stock market inquiry.
Senator B l a i n e . When is he expected to return ?
Mr. M c C o n n a c h ie . Well, the doctors ordered him away for a
complete rest.
Senator B l a i n e . For how long a time?
Mr. M c C o n n a c h ie . They told him he should stay away fo r some
months.
Senator B l a i n e . And that would mean two months or possibly
three months?
Mr. M c C o n n a c h i e . I would say two months; yes, sir.
Senator G l a s s . I have had physicians to order me to stay away
from my duties as Senator for the last three months, but I did not
stay away.
.,
,
Mr. M c C o n n a c h i e . Well, Mr. Senator, if you will permit me to
say so, if Mr. Meehan were in good physical condition he w°uicl cer
tainly be present here to-day, and nothing in the world could^nave
prevented him from being present if he had known you genti
wanted him to be present.
S
530
STOCK EXCHANGE PRACTICES
Senator G lass . I accept that in good faith, but I still h o ld th a t
he made a mistake in going away under the circumstances.
Senator F le t c h e r . I want to suggest that we get on w ith the
hearing. We have disposed of the case of Mr. Meehan, and he is
now out on the Atlantic Ocean. So, let us get along.
Mr. G r a y . Mr. McConnachie, you do not mean to say that Mr.
Meehan, Mr. Braggs, Mr. Ellsworth, or any of the members o f this
syndicate made an investigation of the Radio Corporation of America
prior to the time of going into this pool, do you? Please answer
that without making a speech to the committee.
M r . M c C o n n a c h ie . M r . G r a y , y ou are askin g m e a q u e stio n abou t
h appenin gs as o f a tim e w hen 1 w as not there.
Mr. G r a y . But vou made the suggestion in the matter o f pool
participants that they always look into these things and know that
the thing is a good thing and that they are going to make money.
You do not suggest that these gentlemen looked into the Radio Cor
poration of America, that they investigated it?
M r . M c C o n n a c h ie . Y e s , sir.
Mr. G r a y . Then did they know
that the Radio Corporation was
doing the amount of business in 1929, up to the point where they
went into that pool, that practically up to that part and for the rest
of the year they just made $1.58 a share during 1929 ? D o you know
that that is so?
Mr. M c C o n n a c h ie . No, sir.
Mr. G r a y . Well, that is a fact from statistical records, and that
they made 2 "cents a share in 1930, and that they had a deficit of
3 4 cents a share in 1931. Do you know that to be so ?
M r . M c C o n n a c h ie . No, s i r ; I do not.
Mr. G r a y . All right. Those are figures taken from the statistical
records.
Mr. M c C o n n a c h ie . Well, they could not know in 1929 what busi
ness Radio Corporation would do in 1930 or 1931.
Mr. G r a y . N o . But your pool operated in March o f 1929. D o yon
know what, if any, investigation was made with reference to tie
earnings for the first quarter of 1929?
M r . M c C o n n a c h ie . I do n ot, but I assume th ey w o u ld know.
Mr. G r a y . Well, we will pass it at that. That is all that I want
to ask this witness.
The C h a i r m a n . I must now go down to the floor of the Senate in
order to make a short speech, and I will ask Senator Brookhart to
preside.
Mr. G r a y . "Unless the members of the committee want to ask you
some more questions you are through for the present, Mr. M c O o n nachie, but you are not excused.
M r . M c C o n n a c h ie . Then I can go home.
Mr. G r a y . So far as I am concerned you are excused for the pres
ent, but you are not finally excused.
Senator B r o o k h a r t (presiding). Who will vou have next Mr.
Gray?
‘
’
Mr. G r a y . I will call Mr. Weeks.
Senator B r o o k h a r t . Mr. Weeks, you will please stand, h o ld up
your right hand, and be sworn: You do solemnly swear th a t voa
will tell the truth, the whole truth, and nothing but the truth, ie-
STOCK EXCHANGE PRACTICES
531
garding the matter now under investigation by the committee, so
help you God?
Mr. W e e k s . I do.
TESTIMONY OF JOHN L. WEEKS, MEMBER OF THE FIRM OF LUKE,
BANKS & WEEKS, NEW YORK CITY
Senator B r ook h abt . What is your residence address?
Mr. W e e k s . Englewood, N. J.
Mr. G r a y . I am addressing this testimony to the General Asphalt
Co. pool. You are a member of the firm of Luke, Banks & Weeks,
brokers and members of the New York Stock Exchange, are you not?
Mr. W e e k s . Yes, sir.
Mr. G r a y . And that firm of course is a partnership ?
Mr. W e e k s . Yes, sir.
Mr. G r a y . How long has it been in existence ?
Mr. W e e k s . About 23 or 24 years.
Senator B r o o k h a b t . And that firm is located where ?
Mr. W e e k s . N o. 14 W a l l Street, New York City.
Mr. G r a y . H o w long have you been in that firm ?
Mr. W e e k s . Ever since it was started.
Mr. G r a y . Now, you were on the board of the General Asphalt
Co. were you not?
Mr. W e e k s . I am .
Mr. G r a y . Y ou are still on the board?
Mr. W e e k s . Yes, sir.
Mr. G r a y . Y ou are a director of the General Asphalt Co.?
Mr. W e e k s . Yes, sir.
Mr. G r a y . How long have you been on that board ?
Mr. W e e k s . I think about five years, four or five years.
Mr. G r a y . In May of 1929 you were on the board of the General
Asphalt Co., were you not?
Mr. W e e k s . I was.
Mr. G r a y . And in May of 1929, or to be exact, on May 15, 1929,
Luke, Banks & Weeks, a brokerage firm and members o f the New
York Stock Exchange, sent out to various people an invitation to
join in a pool in the buying and selling on both the long and short
sides, the stock of the General Asphalt Co., did they not?
Mr. W e e k s . They sent out a participation of the syndicate which
was called a group. It was not called a pool.
Mr. G r a y . It was the same thing that we call a pool, was it not?
Mr. W e e k s . Yes, sir; to buy. There is a word in the syndicate
agreement, which was copied after the general forms of syndicate
agreements.
Mr. G r a y . And it got in that agreement by mistake?
Mr. W e e k s . N o ; not at all. It got in there to protect the managers
in case they made a mistake.
Mr. G r a y . In other words, if the managers of the pool made the
mistake of operating on the long side of the market they were given
authority by the pool agreement to operate on the short side in event
of the stock going down and they thinking it advisable to do so, is
that correct?
Mr. W e e k s . Mr. Gray, do you want a really correct answer to
that question?
532
STOCK EXCHANGE PRACTICES
Mr. G r a y . I want you to answer my questions, and of course I
want a correct answer.
Mr. W e e k s . No; that is not correct, because in a lot o f these
groups you distribute stocks that you buy to the various members.
But you still retain control over it ; they carry it themselves rather
than you. Therefore, if you sell 500 shares the syndicate may he
long 40,000 or 50,000 shares, and you sell 500 shares in the market
but you do not call on them all for their proportion. You. are
technically short that, although you are not short that at all. That is
the true reason why it was put in. The syndicate was formed to buy
stock and carry the stock.
Mr. G r a y . I now call the committees attention to the fact that this
invitation to participate is dated May 15, 1929, and starts out by
saying:
We are forming a group to underwrite, purchase, sell and generally deal in
shares of the common stock of the General Asphalt Co., a corporation organized
under the laws of New Jersey—
And so on.
Then it gives the number of shares of the common stock o f the
company for which the group was formed as to which it may at
any time be committed, including any underwriting, and that it may
be either for long or short account, and that it shall not exceed
150,000 shares. It then follows in the usual form, and I am handing
this to you to ask you whether or not that is a correct copy o f one of
the original invitations that you believe was sent out by your firm,
Luke, Banks & Weeks, inviting people to participate in that pool.
Mr. W e e k s . That is.
(The paper referred to was marked “ Committee Exhibit No. 4,
May 19,1932,” and is as follows:)
G eneral A
sphalt
Co.,
S to ck
G rou p,
May IS, 1929.
D e a r S i b : We are forming a group to underwrite, purchase, sell and gen
erally deal in shares of the common stock of the General Asphalt Co., a cor
poration organized under the laws of New Jersey (herein termed company), in
which we will participate, and of which we are to be the managers. The
maximum number of shares of common stock of the company for which the
group may at any time be committed, including any underwriting, and either
for long or short account, shall not exceed 150,000 shares.
We have reserved for you, subject to your immediate acceptance being re
ceived by us, a participation in this group of --------- shares as your propor*
tionate share of the maximum of 150,000 shares. Each participant shall share
in the net profits or the net losses of the group, in the proportion which the
number of shares subscribed for by him bears to 100,000.
P articipants shall pay $15 per share on the num ber of their respective
p articipation s a t the tim e this agreem ent is signed, and the b a la n ce or any
part thereof w hen called upon by the m anagers, w hether a t o r before or after
th e term ination o f the group, and without reference to the receipt or posses
sion by th e m anagers or by the participants o f any of such shares.
We shall have full power to underwrite, subscribe for, purchase, sell, re
purchase, resell, and generally deal in the shares of common stock of said
c o m p a n y or rights to subscribe thereto, at such prices and upon such terms,
and to pay such commissions for effecting sales or purchases for the account
of the group as we may deem advisable, and may ourselves charge as an expense
to the group the regular New York Stock Exchange commissions for sales or
purchases effected by us as brokers, which we are hereby authorized to do.
Luke Banks & Weeks, as a partnership, may deal with themselves as managers
in the sale or purchase of shares and may profit from sales to or purchases
from the group without accountability to the group members, provided how
ever, that any purchase from or sale to Luke Banks & Weeks as a partnership
STOCK EXCHANGE PRACTICES
533
•ball be at a price not less advantageous to the group than the market price
enrrent at the time of any such purchase or sale.
We shall have sole direction and management of the group with full power
to appoint and employ agents and brokers and may delegate to them or either
of them any of our powers or duties hereunder, and shall carry on the same
in such manner as we may deem advisable, and shall not be liable under any
of the provisions hereof nor for any matter connected herewith, except for
want of good faith. No obligations, not expressly assumed by us under this
agreement, shall be implied therefrom.
We shall have the right to borrow money, either from ourselves or others,
for the account of the group, and as security for any loan> or loans so made,
to assign and pledge any shares of common stock of the company held for the
account of the group or any of the obligations of the participants hereunder,
upon such terms and conditions as we shall deem for the best interests of the
group.
Nothing herein contained shall constitute the participants partners with the
managers or with one another, nor render them liable to contribute more than
their ratable amount, nor render the managers liable for the subscription of
any participant. Any loss suffered by the group through the failure of any
participant to carry out his obligations hereunder shall be charged as a loss
to the entire group. The managers may be participants in this group, and
to the extent of such participation or reservation by them, shall participate
in the profits or losses of the group upon the same basis as other participants.
The managers may in their discretion permit substitution of participants.
All expenses incurred in connection with this group, including the managers’
•compensation and attorneys’ fees, shall be charged against the group.
We shall receive for our services as managers of the group, 10 per cent of
the net profits of the group.
Participants shall share pro rata, after allowing for expenses of the group,
in the net profits or net losses. Apportionment and distribution by the
managers of profits or losses, after charging all expenses, shall be conclusive
upon the group, as shall be the written statement of the managers of the
group.
The firm of Luke Banks & Weeks is a copartnership, and in case of any
change in the firm, the firm as from time to time constituted shall continue
as managers with all the powers, rights and title vested in the present firm
as the managers hereunder, without further act or assignment.
The group will expire at the close of business May 15, 1930, unless sooner
terminated by us, but may be extended by us from time to time upon notice
to the participants for a period or periods not extending beyond May 15, 1931.
Any notice hereunder to participants shall be deemed to have been duly
given if mailed or telegraphed to the participants, directed to the addresses
furnished by them, or if none is furnished, directed in our care.
This letter may be executed in several counterparts, each of which when so
executed shall be deemed to be an original, and such counterparts together
Shall constitute but one and the same instrument, and the terms hereof shall
he binding upon and inure to the benefit of the heirs, executors, administra
tors, successors, and assigns of the parties hereto.
Please advise us of your acceptance of this participation on the terms stated,
by signing the form set forth on the inclosed duplicate of this communication.
Tours very truly,
--------------------, Managers for the Group.
Messrs. L u k e B a n k s & W e e k s .
Dear S i r s : I hereby accept the participation o f -------- - shares of common
stock of General Asphalt Co. under the terms and conditions set forth above.
Name------------------------------------------------------------------------------------------------------Address to which all notices are to be sent______________________________
Mat —, 1929.
Mr. G b a y . N o w , Luke Banks & Weeks, a brokerage firm of which
you were a member, sent the invitation out, didn’t they?
Mr. W eeks. Yes, sir.
Mr. G r a y . And you, John L. Weeks, a member of that brokerage
firm, managed the pool, didn’t you?
Mr. W e e k s . I d id w hen I w as there.
119852—32—pt 2------11
534
STOCK EXCHANGE PRACTICES
Mr. G r a y . Y ou were the technical manager, at any rate?
Mr. W e e k s . I formed the pool myself. I invited those people
personally to go in. I did not mail out any of these certificates.
Mr. G r a y . Oh, no. O f course, your clerks did that.
Mr. W e e k s . N o ; I saw to that myself, personally. There were
only about 20 given out.
M r . G r a y . I w ill g et in to w h o is in i t in ju st a m o m e n t. D id you
g e t a n y m an agem en t fe e?
Mr. W e e k s . No; none except the regular stock exchange commis
sion.
Mr. G r a y . In other words, your house received the commissions 1
Mr. W e e k s . Y.es.
Mr. G r a y . That pool operated for how long?
Mr. W e e k s . T w o years.
Mr. G r a y . N o w among your participants of the pool was the
firm of M. J. Meehan & Co.; is that right ?
Mr. W e e k s . Yes, sir.
Mr. G r a y . The firm of Jesup & Lamont; is that right?
Mr. W e e k s . Yes.
Mr. G r a y . The firm of J. G. Mayer & Co.; is that right?
Mr. W e e k s . Yes.
Mr. G r a y . And they were all stock-exchange houses and members
of the stock exchange in New York; that is correct, isn’t it?
Mr. W e e k s . Yes.
Mr. G r a y . And among the other participants was Horatio G.
Lloyd; is that true?
Mr. W e e k s . He was one of them.
M r . G r a y . And w ho was h e?
Mr. W e e k s . He was a partner in Drexel & Co. in Philadelphia.
Mr. G r a y . And he was the chairman of the executive committee
of General Asphalt Co. also? wasn’t he?
Mr. W e e k s . He was, I thmk, at that time. He has not been for
the last two years.
Mr. G r a y . Well, I am talking about when this pool was formed
and when he became a participant.
Mr. W e e k s . I think he was. Before that time anyhow. I think
he was at that time.
Mr. G r a y . N o w going down this list of names, out of 150,000
shares Thomas Cochran had 35,000. Who was he ?
Mr. W e e k s . He is a customer of ours.
Mr. G r a y . Just a customer?
Mr. W e e k s . Well, I mean-----Mr. G r a y . Is he connected with any other brokerage house?
Mr. W e e k s . Yes. He is a partner in J. P. Morgan.
Mr. G r a y . Why didn’t you say that ?
Mr. W e e k s . I f you had asked me for it I would have done so.
Mr. G r a y . Well, you understood what I meant. Cochran was a
partner in J. P. Morgan & Co., a banking house, and he had 85,000
shares. M. J. Meehan & Co. had 30,000 shares ?
Mr. W e e k s . That is correct.
Mr. G r a y . Horatio G. Lloyd, chairman of the executive committee
of the General Asphalt Co. had 20,000 shares. Correct me i f I am
wrong in any of these figures.
Mr. W e e k s . I gave you those figures.
STOCK EXCHANGE PRACTICES
535
Mr. G b a t . William G. Skelly. Who was he ?
Mr. W e e k s . President of the Skelly Oil Co.
Mr. G b a t . Was he on the board of directors of the General As
phalt Co.?
Mr. W e e k s . No.
Mr. G b a t . Hold any official position there?
Mr. W e e k s . No.
Mr. G b a t . And he had 10,000 shares?
Mr. W e e k s . Yes.
Mr. G b a t . S. R. Guggenheim had 10 ,0 0 0 shares. Who is he?
Mr. W e e k s . Well, he is a copper man in New York.
Mr. G b a t . N o w Jesup & Lamont we have already referred to.
They had 10,000 shares. Now, Luke, Banks & Weeks had 10,000
shares. That is your brokerage firm. Who were you agents for?
Mr. W e e k s . W e took th a t fo r ourselves p erso n a lly a n d fo r our im
mediate fa m ilies.
Mr. Gbat. That is, the members of the firm and their families had
an interest in this?
Mr. W e e k s . Yes.
Mr. G b a t . Bonbright & Co. Who were they ?
Mr. W e e k s . A bond house in New York.
Mr. G b a t . Robert C. Ream. Who is Ream ?
Mr. W e e k s . Son of Norman C. Ream. Railroad man.
Mr. G b a t . And James H. Barr had 3,000 shares. Who is he?
Mr. W e e k s . Chairman of the board of the National Supply Co.
Mr. G b a t . Who is Joseph D. Gengler with 1,0 0 0 shares?
Mr. W e e k s . Member of the New York Stock Exchange.
Mr. G b a t . Lubawee Corporation was formed for trading in
stocks, a n d the Lubawee—Lu-ba-wee was a combination of Luke,
Banks & Weeks ?
Mr. W e e k s . Yes ; Luke, Banks & Weeks.
Mr. G b a t . That is another member of this syndicate ?
Mr. W e e k s . O f a thousand shares.
Mr. G b a t * Y es; 1,000 shares.
Mr. W e e k s . Yes.
Mr. G b a t . Who is the Esco Corporation?
Mr. W e e k s . That is a corporation that belongs to Ernest Stauffen,
I think.
Mr. G b a t . Any connection with Luke, Banks & Weeks?
Mr. W e e k s . None whatever.
Mr. G b a t . All right. Who is the Orba Corporation? T h a t is
C. A. Corliss, isn’t it?
Mr. W e e k s . Yes.
Mr. G b a t . W h o is Corliss?
Mr. W eeks. A chocolate man in New York. Lamont, Corliss &
Co.
Mr. G b a t . Yes. Who is the Rondale Corporation?
Mr. W e e k s . Rondale is Stephen Leonard.
Mr. G b a t . Who is Leonard?
Mr. W e e k s . Leonard is a merchant uptown. I think h e has a
S r . G b a t . N o w , they use these nam es fo r tr a d in g in stocks, don’t
corporation s’ n am es?
they? These
536
STOCK EXCHANGE PRACTICES
Mr. W eeks . N o ; that is the name they give us. Evidently it is
a corporation name.
Mr. G ray . Yes.
Mi*. W eeks . And as far as we know that they have their affairs
in. Maybe a family owns its stock or something like that. I don t
know.
Mr. G r a y . Who is Theodora Cochran ?
Mr. W eeks . That is my partner’s wife. Williams Cochran’s wife.
Mr. G r a y . Who?
Mr. W eeks . Williams Cochran’s wife.
Mr. G ra y . Y ou have a partner in your firm named Williams
Cochran ?
Mr. W eeks . Yes. Williams Cochran.
Mr. G ra y . N ow , prior to 1929 the General Asphalt Co. never
issued any dividends, did it?
Mr. W eeks . No; they never paid dividends.
Mr. G ra y . And they had outstanding certain bonds and certain
preferred stock; isn’t that true?
Mr. W eeks . That is true.
Mr. G r a y . What was done in the early part of 1929 or at any
time in 1929 with respect to those bonds and that preferred stock?
Mr. W eeks . Why, the company called the bonds. They called
the bonds for payment.
Mr. G ra y . When?
Mr. W eeks . In 1929. I have a letter here that gives th e exact
date. October 1, 1929.
Mr. G ra y . And at whose suggestion on the board were those
bonds called?
Mr. W eeks . At the suggestion of Mr. Sewall, the president of
the company.
Mr. G r a y . Not at your suggestion?
Mr. W eeks . N o.
Mr. G ray . And you had not suggested it originally ?
Mr. W eeks . No.
Mr. G r a y . Y ou mean to tell me, Mr. Weeks, that in my office in
New York City yesterday you didn’t tell me that the conversion of
those bonds and the conversion of the preferred stock into common
stock was done at your suggestion to the board ?
Mr. W eeks . I agreed to it.
Mr. G ra y . Didn t you tell me yesterday that it was your initiative,
that you made the suggestion?
Mr. W eeks . I never made the suggestion to the board.
Mr. G ra y . I didn’t ask you whether you made the suggestion to
the Board. I am asking you right now this question, whether in my
office in New York yesterday you didn’t tell me that the suggestion
with respect to the conversion of those bonds and that preferred
stock was made by you to the board of directors? Now did you or
didn’t you ?
Mr. W eeks . I didn’t intend to, if you understood it that w ay; no.
Mr. G ra y . It is not a question of what I understood. I am asking
you whether, in plain language-----Mr. W eeks . N o.
Mr. G ray (continuing). Just as I have indicated, y ou didn’t tell
me that?
STOCK EXCHANGE PRACTICES
537
Mr. W eeks. N o.
Mr. G ray. All right. Then you made no such suggestion to the
board?
Mr. W eeks. No.
Mr. G ray. Did you suggest the conversion of the preferred stock?
Mr. W eeks. I did.
Mr. G ray. Yes. But not the bonds?
Mr. W eeks. Not the bonds.
Mr. G ray. Why did you suggest the conversion of the preferred
stock?
Mr. W eeks. Because the company had earned a great deal of
money for some time, had earned surplus around $7 ,000 ,000 , and
there was quite a demand for the stock on the market, and I thought
it was a good time to get rid of the preferred stock.
Mr. G ray . What was the set-up, do you remember, just before
that, as to the bonds and the preferred stock and the common?
- Mr. W eeks. Well, it is right in that letter, Mr. Gray.
Mr. G ray. D o you mean that syndicate-----Mr. W eeks. N o ; that letter.
Mr. G ray . This letter?
Mr. W eeks. That you have not seen. I got that yesterday after
I came back.
Mr. G ray . All right; let me see the letter. I think this should be
read into the record. It is dated August 27, 1929, and it is signed
by Arthur W. Sewall as president of the General Asphalt Co., and
is as follows:
G e n e r a l A s p h a l t C o .,
Philadelphia, August 27,1929.
To all Preferred and Common Stock Holders of Gen&ral Asphalt Co. and Hold
ers of Its 6 Per Cent 15-Year Sinking Ftmd Convertible Gold Bonds:
For some time past the board of directors of your company has been giving
consideration to the question of dividends on the common stock. The earnings
of the company, as you know, have been substantial, but it has been necessary
to use them for corporate purposes because of the financial structure of the
company. Its outstanding bonds and its preferred stock are both convertible
into common stock, thus restricting the issuance of additional stock for capital
purposes. However, the continued turning back of earnings into the business
has resulted in building up a strong corporate position and has made it possible
for the company to now simplify its financial structure with a view to initiating
dividend payments on the common stock.
To accomplish such simplification it is proposed that the entire outstanding
issue of 6 per cent convertible bonds be called for redemption on October 1,
1929, the next interest date. It is also proposed to call for redemption on
December 23, 1929, the entire outstanding issue of preferred stock. The retire
ment of the above issues will leave only the common stock to represent the
assets of the company and to share in its earnings.
To provide funds for the redemption of such bonds as are not converted,
rights to subscribe to additional common stock at $50 per share will be offered
to common*stock holders of record on October 23, 1929, in proportion to their
then holdings. The conversion of the preferred stock and the subscription to
the common stock will be underwritten by the company’s bankers, Messrs.
Drexel & Co.
Your board of directors has also thought it advisable to segregate into a
new corporation to be organized to hold them, the company’s oil interests in
western Venezuela or other such properties as may hereafter be acquired;
the entire capital stock of which new corporation will be placed in the treasury
of the company.
A special meeting of the stockholders, notice of which will be mailed, is
being called to consider the steps above outlined. At this meeting the stock
holders will be asked to approve changing the common stock from a par value
538
STOCK EXCHANGE PRACTICES
of $100 per share to no-par value, the new shares to have no preemptive sub
scription right to additional issues of stock of any class. They will also be
asked to increase the authorized new common stock to 1,000,000 shares no-par
value.
The above plan has the unanimous approval of your board of directors.
Respectfully submitted.
A r t h u r W. S e w a l l , President.
Mr. G ra y . That letter doesn’t answer my question. What was the
set-up? What was the amount of bonds outstanding?
Mr. W eeks . I think there were about $5,000,000 bonds outstand
ing. I was not in favor of retiring the bonds.
M r. G r a t . I didn’t ask you whether you were in favor of it. I
asked you what was the set-up?
Mr. W e e k s. I forget the number o f
shares, but I think— doesn’t
that letter say how many shares there are?
Mr. G r a y . No; it does not.
M r. W eeks . I haven’t got a statement o f it, but I think-------Mr. G r a y . All right. Now, did you think when you organized
this pool on May 15,1929, that this plan was going to be adopted by
the board of directors?
M r. W eeks . N o .
Mr. G ra y . Y ou did
know that this company never paid a dollar
of dividends, didn’t you?
Mr. W eeks . Yes.
Mr. G r a y . And you did take into the pool the chairman o f the
executive committee, an<Tyou on the board went into the pool?
Mr. W eeks . Yes.
Mr. G ra y . And as a matter of fact this plan was adopted, these
bonds were called, these stocks were converted, and immediately
after the meeting, at which the conversion took place, the board of
directors met and declared a dividend of $4 a share, didn’t they?
Mr. W eeks . No; I think they declared a dividend of $ 1 a share.
Mr. G ra y . You think they did. Well, they put that dividend
on a $4 a year basis maybe, and declared a dividend of a dollar for
the quarter.
Mr. W eeks . It was declared as a dividend particularly, as an
initial dividend of $1 .
Mr. G r a y . And when was that? What part of 1929?
Mr. W eeks . In November^ I should say.
Mr. G ray . Bight after this plan was adopted with respect to the
conversion ?
Mr. W eeks . Well, that letter was dated August 27, wasn’t it?
Mr. G r a y . That letter is dated August 27, but it refers to a meet
ing as of a later date, some time in October.
Mr. W eek s . Well, that was when the plan went into effect, and
after the conversion of all the obligations of the company, when
they were out of the way, were retired, any senior obligations, then
they paid an initial dividend.
M r. G r a y . Yes.
Senator F letcher. How did you manage to convert $5,000,000 of
bonds and the preferred stock which you say you do not know
what it amounted to?
Mr. W eeks. We didn’t convert the bonds. We paid the bonds
off at 105 and interest. We took that money out of the treasury.
STOCK EXCHANGE PRACTICES
539
Senator F letcher . Did you do that out of the sale of stock?
Mr. W eek s . No. We had an earned surplus of about $7 ,000 ,000 .
The Asphalt Co. is about 35 years old. It had earned money, a little
bit, over a period of time, for years, and it never was paid out in
dividends. It was always set up in its surplus.
Senator F letcher . And so you bought the bonds out of the
surplus? A n d the preferred stock too?
Mr. W e e k s. No ; we called the preferred stock at 110. The
stockholders had the privilege of converting it into a share and a
half of common or accepting $110 in cash for it. But they all
converted it except 200 shares.
Senator F letcher . One million was that new issue of common
stock?
Mr. W eeks . N o ; only issued about 30,000 shares to do that, be
cause the whole amount of the Asphalt stock outstanding to-day
is 413,000 shares. There are only 413,000 shares outstanding to-day
after converting the preferred stock and retiring the bonds, $5,000,000 bonds.
Senator F letcher . The letter says it is proposed to issue 1,000,000.
Mr. W ee k s . Well, the other is in the Treasury. It has never
been issued. It is in the Treasury, you see.
Mr. G r a y . N o w , the subscriptions to this pool—you correct me if
my figures are wrong—
Mr. W eek s . Yes.
Mr. G r a y (continuing). Were $6 ,000 ,0 0 0 ; is that right?
Mr. W eek s . Approximately I would say that is right. I have
given you those figures. I haven’t got them.
Mr. G r a y . N o w , the pool, as a matter of fact, operated from
May 17,1929, until May the 15th, 1931; is that correct?
Mr. W e e k s . Yes.
Mr. G r a y . I say to you that these figures I am giving you are
figures taken from your books.
Mr. W ee k s . That is right.
Mr. G b a y . And during that period of time, a period of approxi
mately two years, you have just told Senator Fletcher the amount
outstanding, your pool dealt in one-half a million shares of stock;
isn’t that correct?
Mr. W ee k s . Y ou have those figures.
Mr. G b a y . Y ou w ill accept that figure as correct?
Mr. W e e k s . Yes; I will accept that figure as correct if the figures
are taken from my figures.
Mr. G b a t . N o w , as a matter of fact you did operate at a loss; that
is correct, isn’t it?
Mr. W e e k s . Yes; we lost.
Mr. G b a y . And you distributed your 132,000 shares o f which you
were long in May, 1931?
Mr. W e e k s . Tnat is right.
Mr. G b a y . And in order to take that up there was some additional
money put in, amounting to $1,369,292.27?
Mr. W e e k s . Yes; that is right.
Mr. G ray. Making a total investment of $7,369,292.27, leaving,
however, for distribution, those 132,000 shares of long stock among
540
STOCK EXCHANGE PRACTICES
your participants in accordance with the proportion o f their
holdings?
Mr. W eeks . Yes.
Mr. G r a y . That is the way it was wound up, wasn’t it?
Mr. W eeks . Yes.
Mr. G ra y . N ow , you were at various times in the operation of
that pool in a very favorable position; that is true, isn’t it?
Mr. W eeks . No; I don’t think we ever had much of a profit in it
at any time at all.
Mr. G r a y . D o you know what the average prices were a t which
you bought this stock?
Mr. W eeks . We started buying the stock around 78 to 81.
Mr. G r a y . Yes?
Mr. W eeks . There is where we started buying the stock. A nd we
bought most of the stock that we had for the first six months at
around 80. I think we bought around 40,000 shares to start off with.
That averaged us around $80 a share. And then we never bought
any more ^ock until later on when it went down lower than that
price, so that we finally ended up with an average of about 59.
All the stock cost us 59.
Mr. G r a y . As a matter of fact your record shows an average price
of 55.79.
Mr. W eeks . Is that it?
M r. G r a y . Y ou w ill accept that figure as correct ?
Mr. W eeks . I have given you the correct figures.
Mr. G r a y . As a matter of fact, in 1929 the price
before the break in 1929 came; that is true, isn’t it ?
Mr. W eeks . That is true.
Mr. G r a y . Was that at about the time of the break
went
to 9 4 %
in the m arket
that this declaration of this dividend was made?
Mr. W eeks . Oh, no; it was a year later.
Mr. G ra y . What was a year later ?
Mr. W eeks . The dividend was a year later.
Mr. G r a y . Will you let me have that original subscription agree
ment ? Will you just look at the date of it ? It is May, 1929, isn’ t it?
Mr. W eeks . Yes.
Mr. G r a y . That is correct?
Mr. W eeks . That is correct.
Mr. G r a y . May, 1929. Your letter that you have handed me here
with respect to the action of the board was on August 27, 1929,
wasn’t it?
Mr. W eek s . That is right.
Mr. G r a y . And the dividend that was declared was in November
o f 1929, wasn’t it?
Mr. W eeks . That is right.
Mr. G r a y . Then it was the same year. Now, then, I am a«lrimcr
you whether or not the stock during that intervening period o f time
did not reach a high of 94%? Isot the next year; I am talking
about the same year.
Mr. W eeks . No; in August, when that letter came out, the high
of the stock was 941/4 and the low was 85y$.
Mr. G r a y . At that time?
Mr. W e e k s. Now, at the time of the dividend in November the
high of the stock was 56 and the low of the stock was 42%
STOCK EXCHANGE PRACTICES
541
Mr. G ray . That was in November after the break ?
Mr. W eeks . That was in November, 1920.
Mr. G ra y . That is the reason your pool lost money. Of course,
We understand that. The stock was placed on a $3 basis in 1930,
wasn’t it?
Mr. W eeks . The dividend was reduced to 75 cents in 1930 because
the earnings had fallen off.
Mr. G r a y . Y es. In September of 1931 it was placed on a $ 2
basis, or reduced to 50 cents, wasn’t it ?
Mr. W eeks . That is right.
Mr. G r a y . And in February, 1932, it was placed on a dollar basis,
reduced to 25 cents per quarter; that is correct, isn’t it?
Mr. W eeks . That is correct; yes.
Mr. G r a y . I ask you whether or not these figures are correct—and
these figures came from your books. That in the year 1930 this Gen
eral Asphalt Co., in which you held a very large interest, or in which
your syndicate held a very large interest, paid out a total of $1,549,292 in dividends, while their net income for the year was only
$1,006,796?
Mr. W eeks . That is correct.
Mr. G r a y . That is correct ?
Mr. W eeks . Y es.
Mr. G r a y . In other words thejr paid out one and one-half times in
dividends in 1930—and your pool was a very large holder of the
stock, the members of your pool were very large holders of the
stock—they paid out one and one-half times the amount of the net
income ?
Mr. W eeks . That is correct.
Mr. G r a y . I ask you whether or not that is correct, that this pool
from December of 1929 to March, 1931, while it was on this dividend
paying basis that has been indicated—whether your pool did not
receive $613,750 in dividends?
Mr. W eeks . I f that was in proportion.
Mr. G r a y . That figure comes from your records.
Mr. W eeks . That is correct.
Mr. G r a y . You were on the board that was declaring these divi
dends?
Mr. W eeks . Yes.
Mr. G r a y . Right?
Mr. W eeks . That is right.
Mr. G r a y . And you were a member of this pool?
Mr. W eeks . Yes.
M r. G r a y . Y o u had several interests in the p o o l?
Mr.
Is that rig h t?
I had two.
M r. G r a y . Lloyd was on the b oard ?
Mr. W eeks . Yes; right.
Mr. G r a y . He was interested in the syndicate?
Mr. W eeks . That is right.
Mr. G r a y . And your concern of Luke Banks & Weeks w’as han
dling the stock and selling it and buying?
Mr. W eeks . T o the.extent that I have given you the figures o f;
yes.
Mr. G r a y . And you were getting your commissions from that?
I ask you whether or not during this same year, 1930, the pool itself,
W eeks .
542
STOCK EXCHANGE PRACTICES
out of that one and one-half millions of dollars that were paid, did
not get $448,850 in dividends, or almost one-third of the total amount
paid out by them in dividends, and practically or nearly one-half of
the entire net income of the General Asphalt Co. during that year!
Mr. W eeks. Well, if that is the proportion of the stock to the
whole that the pool owned then they got that dividend. They did not
get anything else except their proportion.
Mr. G b a y . Yes.
Mr. W eeks. And I have figures here-----Mr. G r a y . Well, I concede that part of it, Mr. Weeks. Y o u do
not need to argue that. But the figures I want to make sure of—and these come from our examinations—show that in the y e a r 1930
General Asphalt Co. made $1,006,796.
Mr. W eeks. That is correct.
Mr. G ra y . They paid out in dividends $1,549,292. That le ft a
deficit for the year of $542,921. But that notwithstanding th a t, your
pool received of the $1,549,292 that was paid out in dividends,
$448,850, which is a matter of almost one-third, or you can p u t it
that it is over a quarter.
Mr. W eeks. Yes.
Mr. G r a y . Decidedly over a quarter.
W
eeks*
Y gs*
Mr. G r a y . $448,000 against $1,549,000.
Mr. W eeks. I say we owned the same proportion of the company
as we received the dividends.
Mr. Gray. And is it not a fact that in the year 1931, while you
were still on the board, while you were still managing this pool,
while you were having part of the say at least with respect to what
dividends would be declared, during the first six months the company
itself showed a deficit of 41 cents per share on the common stock,
and notwithstanding that fact there were dividends declared from
which your pool received $102,600?
Mr. W eeks. Correct.
Mr. G ra y . That is correct, isn’t it ?
Mr. W eeks. That is correct.
Mr. G r a y . O f course, I suppose you will say to this committee
that the fact that you were on the board, the fact that you sug
gested the conversion of the preferred stock, the fact that you made
this pool in May o f 1929, the fact that they paid their first dividends
in November of 1929, the fact that they paid more dividends in 1930
than they earned by one and a half times, and the fact that though
they had a deficit in 1931 your pool got $102,000 in dividends, is
all just a pure coincidence and has nothing to do with the manipu*
lation of the market or the handling of the affairs o f the General
Asphalt Co. to the benefit of your pool that you were managing, is
that right?
Mr. W eeks. That Ts right.
Mr. G ra y . All right. I thought you would say that.
Senator F letcher. What was the business o f the General Asohalt
Co.?
Mr. W eeks. The business of the General Asphalt Co. is oil, paving.
They paved these streets in Washington. Most of the old streets
of asphalt were paved by the General Asphalt Co. in Washington
25 years ago. It is a going concern with a fine reputation.
STOCK EXCHANGE PRACTICES
543
Senator F letcher. Where do they get the asphalt ?
Mr. W eeks . They get it from Trinidad. They own the Trinidad
Lake Co., and they also own asphalt in Venezuela. They have about
$35,000,000 worth of property. They have 256 acres in New York
Harbor. And they are a going concern with a line reputation. Mr.
Gray, can I say that in the year 1929 our earnings applicable to
dividends were $1,934,000, and in 1930 one million-----Mr. G ra y . Wait a minute. In 1929 they were $4.71 a share; is
that right?
Mr. W eeks. They were $4.67 a share.
M r. G b a y . All right. I have it as $4.71.
Mr. W e eks . Yes.
Mr. G r a y . And you paid a dividend of $4?
Mr. W eeks . And we paid a dividend o f $1.
Mr. G b a y . And nobody knew that was going to be paid except
the officers?
Mr. W e eks . We paid a dividend of only $1 .
Mr. G b a y . On the basis of $4?
Mr. W eeks . But, we only paid $1 out of a million—you are show
ing in 1930 that we paid $1,400,000 or $1,500,000, and in 1929 when
we earned $1,900,000 we only paid $350,000.
Mr. G b a y . What you want to show is that you had an undistrib
uted surplus that was applicable to the dividends ?
Mr. W eeks . Yes. And we declare dividends out of earnings—of
earned surplus, not out of earnings, because we can not tell what the
earnings are going to be. We do not get the figures for two or three
months.
Mr. G b a y . Did you know that Block, Maloney & Co. were operating a pool in General Asphalt at the same time ?
M r. W eek s . N o .
M r. G b a y . Y ou did not know that?
M r. W eek s . N o .
Mr. G b a y . The records of your pool
show that on March 5, 1930,
while the low of General Asphalt on the market that day was 57%
and while the high was 6 O14 you sold 5,000 shares to Block, Maloney
& Co.'at $55 a share; is that correct? Or Benjamin Block & Co.,
is it now ? Is that correct ?
Mr. W eek s . Would you mind if I correct you? I don’t think
Benjamin Block was ever Block, Maloney & Co. They were two
entirely different firms.
Mr. G b a y . Well, Block, Maloney & Co. has been dissolved, and
the present firm that succeeded them practically is Benjamin Block &
Co.; isn’t that so ?
M r . \Veeks. I don’t think so. I am under that impression. I
don’t know. I don’t think there is any connection between the two
firms. They just happen to be similar names. Is it the same firm?
Mr. G b a y . Y ou may know all about that, Mr. Weeks, but Block,
Maloney & Co. was a firm which dissolved, and Block & Co. suc
ceeded to the business of Block, Maloney & Co.
Mr. W e e k s . It did ? I don’t know.
Mr. G r a y . Now what I am asking you is whether or not to either—
I will put my question in the alternative—whether to either Benja
min Block & Co. or to Block, Maloney & Co. on March 5, 1930,
544
STOCK EXCHANGE PRACTICES
your pool did not sell 5,000 shares of General Asphalt stock at $55
per share while the low for the day on the board was 57% • .
Mr. W eeks. Well, the only thing I can say about that is what
Mr. Megear told you yesterday. He said that where it shows on that
date that he made the verbal arrangement two or three days ago
when it was selling at the price of 54, and they bought it at 55, but
when the transaction went through, and it tooK two or three days to
sign up the contract, the stock was selling at 57. I think you under
stand that, Mr. Gray. You told us that yesterday.
Mr. G r a y . Well, just answer that question. It is a fa c t that you
made this sale?
Mr. W eeks. It is a fact. Your records show it.
Mr. G ra y . All right. I will ask you whether on March 26, 1930,
you sold 10,000 shares to that firm at $56 per share when the low on
the New York Stock Exchange that day was 67%, or 11% points
higher?
Mr. W eeks. I f our records show that.
Mr. G r a y . Your records show that. I will ask you whether or
not on March 31,1930, you sold Block, Maloney & Co. 10,000 shares
at $57 per share when the low on that day was $65% ?
Mr. W eeks. These sales were arranged a month ahead o f time.
Mr. G r a y . I am going to give you the benefit of that. I n other
words, Mr. Megear tola me yesterday in your presence that an
arrangement had been made with Block, Maloney & Co., or Benjamin
Block & Co., whatever the firm would be, to give them the sale of
stock at a certain price, and in consideration o f that to give them an
option to buy at future dates at certain prices, and because o f that
fact the sale was made to them at those prices?
Mr. W eeks. Mr. Megear knows all about that, and lie is right
here. I was away to South Carolina and didn’t have anything to do
with that. Mr. Megear knows about that.
Mr. G r a y . I ask you whether or not those stocks were sold to
Block, Maloney & Co. at a price less than the market price ; that is,
at a price less than that which you could have gotten for it i f you
had sold it on the stock exchange, because of the fact that you
wanted Block, Maloney & Co. to help keep up an active market for
you in order to keep the price of the stock up tor the pool?
Mr. W eeks. No, sir.
Mr. Q r a y . Nothing of that kind?
Mr. W eeks. No, sir.
Mr. G r a y . I ask you whether or not on March the 4tli, tlie day
before that first 5,000 shares was transferred, you did not «et a
letter from Block, Maloney & Co., of which this is a copy i f will
read it, and then hand it to you:
B e n j a m in B l o c k & C o .,
New York, March
1930
M essrs. L u k e , B a n k s & W e e k s ,
14 Wall Street, New York City.
(Attention of Mr. Thomas J. Megear.)
D e a r S i r s : I n r e p ly t o y o u r l e t t e r o f e v e n d a t e , w e b e g t o s a y t h a t t h e m a t
t e r r e f e r r e d t o th e r e i n i s a c c e p ta b le t o u s .
Hoping that you will give us whatever assistance you ean marketwise and
assuring you that we will do our utmost for a successful cu lm in a tio n
remain,
’
Very truly yours,
B e n j a m i n B l o c k & C o.
STOCK EXCHANGE PRACTICES
545
I wish you to tell the committee what they mean when they say
to you “ Hoping that you will give us whatever assistance you can
marketwise, and when they assure you that they will do their
utmost for a successful culmination?
Mr. W eeks . M r. Gray, I don't know. I never saw that letter until
I showed it to you yesterday. You saw that letter the same time
I did. I don’t know what they mean.
Mr. G ray . Well, you are a broker?
Mr. W eek s . Yes.
Mr. G ra y . Y ou r concern has been in existence fo r a good many
years?
Mr. W eeks . Yes.
Mr. G r a y . And you are familiar with the language of the Street
more than I am ?
Mr. W eeks . Yes, sir.
Mr. G r a y . What do Block, Maloney & Co. mean when they say
to you what they do with respect to giving them help marketwise?
What do you mean by marketwise?
M r. W e e k s . I don’t know wlnit they mean by that.
Mr. G r a y . Y ou do not?
Mr. W eek s . I think you will have to ask them. I don’t know.
Mr. G r a y . Might I suggest to you-----Mr. W eeks . I couldn’t honestly say what that means.
Mr. G r a y . Might I suggest to you that it means that they want
you to cooperate with them in whatever may be done with respect
to the marketing of that stock, whether it be selling or buying, and
not act—that is, not permitting your firm to act in a manner that
would be contrary to the way that they would act ? Not to buy when
they were selling, not to sell when they were buying? Isn't that
what it means to help marketwise?
Mr. W eek s . It might mean that, but not necessarily.
Mr. G ray. Wouldn’t you guess that it was?
Mr. W e ek s . No.
Mr. G r a y . Y ou wouldn’t? Well, I haven’t been on the exchange
as long as you, but I would guess it. Now, will you read the last
part ox that letter, please, about the culmination ? Read it out loud.
Mr. W eeks (reading):
Hoping that you will give us whatever assistance you can marketwise, and
assuring you that we will do our utmost for a successful culmination, we
remain,
Very truly yours.
M r. G r a y . W h a t do they m ean b y a successful cu lm in ation ?
successful culm ination o f w hat?
A
Mr. W eek s . Don’t you think that you ought to read our letter to
Block?
Mr. G r a y . Yes.
Mr. W eek s . S o that the people know what you are talking about?
Mr. G r a y . Yes; I think you are right. That refers to the letter
of March 4 , doesn’t it? Is that correct? That refers to the letter
of March 4 , doesn’t it, Mr. Weeks?
Mr. W e e k s . This is dated March 4.
Mr. G ray . Yes.
Mr. W eek s . “ In reply to your letter o f even date.”
546
STOCK EXCHANGE PRACTICES
Mr. G r a y . I want to read you this letter of March the 4th, and
direct your attention to the fact that you said that Mr. Megear
had conducted these negotiations several days previous. Addressed
to Messrs. Benjamin Block & Co., attention Mr. William. B. Ander
son. [Reading:]
Gentlemkn: We hereby confirm understanding reached between our Mr.
Thomas J. Megear and your Mr. William Ii. Anderson, as follows:
1. You will purchase from us lo-day 5,000 shares of General Asphalt Co.
stock at $55 per share, payment for said stock to be made to-morrow. We
hereby agree to repurchase from you all or any part of said 5,000 shares at a
price of $52 per share at any time up until 2.45 p. m. March 19, 1930.
2. In consideration of your purchase of said 5,000 shares from us, and
provided that we do not repurchase any part of said 5,000 shares from you,
we hereby grant you an option to purchase an additional 10,000 shares (all
or none) of General Asphalt Co. stock at $50 per share at any time up to and
including April 3, 1930, at 2.45 p. m.
3. If the above option is exercised, we hereby grant you an additional option
to purchase 10,000 shares (all or none) of General Asphalt Co. stock at $57
per share at any time up to and including May 3, 1930, at 2.45 p. m.
If this meets with your understanding of the agreement, will you kindly
confirm same by letter?
Very .truly yours.
Now that is your letter, isn’t it?
Mr. W e e k s . That is our letter.
Mr. G r a y . All right. What is there that is in your letter th at
induced Benjamin Block & Co. to use the words “ marketwise ” and
“ assuring you that we will do our utmost for a successful culmi
nation?”
Mr. W e e k s . Nothing in that letter. Therefore I don’t know w h a t
you mean.
Mr. G r a y . All right, if you don’t we will put these letters in the
record and let the committee draw their own conclusions from th em .
Now is it not a fact that these stocks and these options were g iv e n to
Block, Maloney & Co. for the purpose of having them cooperate
with you in keeping up the market?
M r . W e e k s . N o, sir.
Mr. G r a y . It is not?
Mr. W eeks . N o , sir.
Mr. G r a y . You say that is not so. Now did you keep a
position in this stock or at times did you have a short position 1
Mr. W e e k s . Never had a short position. We were always
in the stock.
Mr. G r a y . Always long?
Mr. W e e k s . Yes.
M r. G ra y . D o you
assumed?
know
the
position
that
B lock,
lo n g
lo n g
Maloney
Mr. W e e k s . I don’t know anything about it except that we sold
them stock.
Senator F letcher . Did they buy the other 10,000 shares?
Mr. W e e k s . I don’t think they did.
Mr. G r a y . Well, I am going to put that company’s position u pon
the record; Block, Maloney & Co.’s position in this stock, fr o m
March 5 to March 31,1930, which was the period of time r ig h t a fte r
this letter of March 4 was written. This can be verified fr o m the
books of Block, Maloney & Co.
STOCK EXCHANGE PRACTICES
547
That on March 5, 1930, that is the close of the day, at the close
of the day after they had received the 5,000 shares from Luke,
Banks & Weeks that is referred to, they were 3,300 shares long.
On March 6 they were 3,600 shares long.
On March 7 they were 1,500 shares long.
On March 10 they were 800 shares long.
On March 11 they were 1,100 shares long.
On March 12 they were even.
On March 13 they were 900 shares short.
On March 14 they were 3,300 shares short.
On March 17 they were 3,900 shares short.
On March 18 they were 9,200 shares short.
On March 19 they were 11,300 shares short.
On March 20 they were 11,600 shares short.
On March 21 they were 11,200 shares short.
On March 24 they were 12,400 shares short.
On March 25 they were 15,100 shares short.
And then the next day they received 10,000 shares from Luke,
Banks & Weeks. At the close of that day they were 5,200 shares
short.
On March 27 they were 5,700 shares short.
On March the 28th they were 6,500 shares short.
And the next day, March 31, they received 10,000 shares from Luke,
Bulks & Week, and their account wound up even. But they were not
cooperating with your firm?
Mr. W eek s . Not a bit. Entirely an independent thing.
M r. G r a y . D o you know how much commissions you earned from
the operations in this pool that we have talked about first? You told
me yesterday that you thought it as $80,000. We took from your
books a matter of approximately $85,000.
Mr. W e e k s . Yes.
Mr. G r a y . N o w , in addition to that, do you know what their inter
est and carrying charges amount to ?
Mr. W ee k s . Well, we generally charge
one-half of 1 per cent more
than the money costs us. That is our principle. We have done it
for years.
Mr. G r a y . N o w , Mr. Weeks, I am going to step aside from the pool
in General Asphalt and also from the Block, Maloney end o f the
pool. Can you make to this committee any suggestion with respect
to the operation of specialists that you may have in your mind for
the purpose of improving the practice with respect thereto?
Mr. W e e k s . N o .
Mr. G r a y . I s it your opinion that the proper thing for the stock
exchange to do with respect to a specialist is to stop him from trading
in his own stock?
Mr. W e e k s . I have often thought it might be advisable to try that.
Mr. G r a y . Haven’t you said that you thought the stock exchange
ought to adopt a rule stopping specialists from trading in the stock
in which they were specialists?
M r. W e e k s . I have said that I thought it m ight be a benefit fo r the
business houses that do business fo r the investors and speculators i f
the specialists acted as brokers rather than as brokers and traders
both. And I do feel that that m ight be well.
548
STOCK EXCHANGE PRACTICES
Mr. G r a y . Haven’t you said that in your opinion the proper thing
to do is to stop the specialists from trading on the stock exchange in
the stock in which they were specialists ?
Mr. W eek s . I wouldn’t say I have made that statements; no.
Mr. G r a y . Didn’t you make that statement to me yesterday after
noon?
Mr. W eeks . Not in the spirit that you are saying it now.
Mr. G r a y . Didn’t you make that statement to me yesterday after
noon and then regret that you made it, and call me up and ask me
not to press you with respect to that matter to-day?
Mr. W e eks . N o ; I didn’t. I didn’t regret saying that one bit.
Mr. G r a y . Well, then, it is a fact that you did say to me that you
thought the stock exchange should stop specialists from trading in
the stock in which they were specialists ?
Mr. W e eks . I said I thought it may be a good thing—I said I
thought it may be a good thing if the specialists were brokers only,
like they are in London, and not traders at the same time they are
acting for brokers.
Mr. G r a y . You made another suggestion, did you not, and
whether it is good or bad I want it to come before the committee,
and that is, that in your opinion the management of the stock ex
change should have on its board several high-type outsiders that
were not members of the exchange, for the purpose of aiding them
in governing the exchange itself?
Mr. W eek s . I said that I thought that if they had a representative
crowd of men that were not just brokers alone, but bankers and
lawyers, like the Supreme Court, that type of men, that it would
aid the public confidence very much.
Mr. G r a y . Did you not suggest that outsiders of that type should
go on the board of the stock exchange ? Didn’t you ?
M r. W eek s . I don’t think I made any recommendation on th at.
Mr. G r a y . I am not discussing with you whether it is possible
to do it under the present rules of the exchange, which, o f course,
is an unincorporated association.
Mr. W eek s . I said that I thought that if the stock exchange had
a bigger and broader board of governors that it would restore the
confidence of the general public. I thought that might be-----Mr. G r a y . By the way, you are still on the board o f General
Asphalt?
Mr. W e ek s . Yes, sir.
Mr. G r a y . And Mr. Lloyd is still on the board o f General As
phalt ?
Mr. W eeks . Yes, sir.
M r. G r a y . T h a t is all I want to ask him .
Senator F letcher . You have a seat on the stock exchange, Mr.
Weeks?
Mr. W eek s . No; I am not a member of the stock exchange. 1
was a member for 16 years. I am not now. I have not been a mem
ber for five or six years.
Senator F letcher. General Asphalt Co. stock is selling at 7 ?
Mr. W e ek s . Seven.
Mr. G r a y . I want to ask you whether you were on the board of
the Simms Petroleum?
Mr. W eeks . Yes.
STOCK EXCHANGE PRACTICES
549
Mr. G ray . Were you in the pool of Simms Petroleum ?
Mr. W eeks . I had a participation as an individual. Not the firm
of Luke, Banks & Weeks.
Mr. G ray . A s an individual?
Mr. W eeks . A s an individual.
Mr. G ray . We have that pool. Whether we will reach it or not
depends on the committee. Did the firm have any interest in that
pool?
Mr. W eeks . N o. Their individual partners.
Mr. G ra y . Mr. Weeks, we are through with you. You are still
subject to subpoena in case the committee wants to subpoena you.
Senator F letcher. Mr. Gray, do you want Mr. Megear? Do you
want the partner of Mr. Weeks?
Mr. G ray . No; he can go. I told him he was subject to subpoena,
but he can go. I was anxious to get through this afternoon because
both he and Mr. Megear had arranged to leave town this afternoon.
I told them I could not release them, but I told them I would try to
get through if I could.
We will call Mr. Breen.
TESTIMONY OF GEORGE F. BREEN, RYE, N. Y ., DEALER IN
SECURITIES
The C h a ir m a n . D o you solemnly swear that the statements you
are about to make will be the truth, the whole truth, and nothing
but the truth, so help you God ?
Mr. B reen . Yes. My name is George F. Breen.
Mr. G r a y . The committee will understand that wherever we refer
to figures we either have the account or the transcript of those ac
counts here and can verify them and back them up with the result
of the examination of the files, some of which were so tremendously
thick that it was not advisable to bring them, or necessary.
Senator C ouzens . What firm are you with, Mr. Breen ?
Mr. B reen . I am an individual. No firm.
Senator C ouzens. In business for yourself?
Mr. B reen . Yes.
Senator C ouzens . What is your occupation?
Mr. B reen . I am a dealer in securities.
Senator C ouzens . Stocks?
Mr. B reen . Stocks. Strictly stocks.
Senator C ouzens . Strictly stocks. And do you have a seat on
the stock exchange ?
Mr. B reen . No, sir.
Senator C o uzens . Your address?
Mr. B reen . Rye, N. Y.
Mr. G r a y . Mr. Breen, I think you have told the committee that
you are not connected with any brokerage house ?
Mr. B reen . N o.
Mr. G r a y . Y ou never have been?
Mr. B reen . N o.
Mr. G r a y . Y ou are what is called a free-lance trader, are you not?
Mr. B reen . I am classed as a dealer in securities, sir.
Mr. G r a y . N o w , before I get into the proposition of the Kolster
Radio, about which I am going to ask you, I want to ask you about
119852— 32—
PT a ------------ 12
550
STOCK EXCHANGE PRACTICES
another practice on the stock exchange in New York. X will lead
you to it. I f I am wrong in my statement in reference to it you
will please correct me. Is it not a fact that it is a general practice
of the officers, or of the officers and directors, whoever may be the
guiding and controlling factor of the particular corporation, where
their stocks are traded in on the New York Stock Exchange and
where the price seems to be wavering, to take men like yourself and
give you an authority up to a certain point to go out and buy those
stocks to support the market?
Mr. B reen . Yes.
Mr. G r a y . And you have been doing that yourself for such cor
porations, haven’t you?
Mr. B reen . Yes, sir.
Mr. G ra y . For how long past?
Mr. B reen . Oh, for twenty-odd years.
Senator F l e t c h e r . Let us get Mr. Breen’s name. What is your
name, please?
Mr. B reen . George F. Breen.
Senator F l e t c h e r . Breen. How do you spell the name?
Mr. B reen . B-r-e-e-n.
Senator F l e t c h e r . And your address?
Mr. B reen . Rye, N. Y.
Senator F l e t c h e r . Thank you.
Mr. G r a y . Won’t you tell us of some of the instances in which
you have done that? What the circumstances were surrounding
those particular instances? What the limitation of your authority
was, and what you did?
Mr. B reen . 1 can tell you in a general way, Mr. Gray. It would
be hard for me to pick out specific things.
Mr. G r a y . Tell the committee in a general way what the prac
tice is.
Mr. B reen . Well, corporations in many cases, and in many cases
institutions, feel that a sustaining of their securities is necessary,
and they would give me a trading account, with power to purchase
a limited number of shares at some specified price, and with power
to redistribute those shares as I could. Naturally my end o f the
business I tried to redistribute at a profit.
Senator T o w n sen d . They put up the money for you?
Mr. B r e e n . Yes.
Mr. G r a y . What is the last instance of that type that you handled?
Mr. B reen . It is some time back, Mr. Gray, because-----Mr. G r a y . Market conditions have not been such as to ju stify it?
Mr. B reen . No; we were in this tremendous boom when things
went anyway. Didn’t need support.
Mr. G ra y . How many shares would the officers of the company
in an instance such as you have indicated authorize you to buy ?
Mr. B reen . Oh, it would be a nominal amount, generally guided
by the total capitalization of the company.
Mr. G r a y . What do you mean by a nominal amount?
Mr. B reen . I would say 25,000, maybe 50,000, if it was a 2,000 000share concern.
’
Senator B rookhart. Give the names of some of the concerns.
Mr. G r a y . Give the names of some of the concerns that have au
thorized you to do this.
STOCK EXCHANGE PRACTICES
551
Mr. B reen . I did not come prepared, Mr. Gray. I f you had
asked me I would have had it.
Mr. G ray . I w ill say that this is something that I obtained from
Mr. Breen in the last minute yesterday.
Mr. B been . Oil Well Supply Co. I supported for a couple of
years.
Mr. G ra y . Oil Well Supply Co., of Pittsburgh ?
Mr. B been . Yes.
Mr. G r a y . Y ou supported that for a couple o f years?
Mr. B been . Yes.
Mr. G b a y . In other words, with the corporation’s funds?
Mr. B reen . I would not say with the corporation’s funds.
Mr. G b a y . Well, the corporation’s officers gave you the funds?
Mr. B b een . I would not have any way o f knowing where the
funds came from .
Mr. G r a y . N o w , they came from the corporation’s officers, didn’t
they?
Mr. B reen . I don’t know.
Mr. G r a y . Who gave them to you?
Mr. B reen . I m ight have received them indirectly from the cor
poration; yes.
Mr. G r a y . That is what I mean. And you were instructed to go
out and buy the stock to keep it from falling below a certain price ?
Mr. B been . Just to guide it.
Mr. G b a y . Well, can you guide stocks on the New York Stock
Exchange ?
Mr. B reen . Ordinarily; yes.
Mr. G b a y . In other words, that can be done ?
Mr. B been . Pardon me?
Mr. G b a y . That can be done ?
Mr. B been . Yes, sir.
Mr. G b a y . It can be put up ?
Mr. B b e e n . I f you buy enough o f i t ; yes.
Mr. G b a y . Yes. And it can be put down ?
Mr. B b e e n . Yes.
M r. G b a y . That is why you use pools, isn’t it?
Mr. B reen . Not necessarily. Pool operations are different.
Senator B rookhart . What was the purpose of sustaining this par
ticular stock, or why did they want it sustained?
Mr. B ree n . Well, Senator, there are lots of reasons. It helps the
credit of a company to have its stock stabilized.
Senator B bookhart . Were they putting off stock on the public?
Mr. B r een . Pardon me ?
Senator B rookhart . Were they putting off stock on the public?
Mr. B been . N o ; no new issues of anything; but it helps the general
credit o f the company. You stabilize the bond market the same way.
Senator T ownsend . H ow were you paid ? So much per share ?
Mr. B ree n . No, Senator. I have to take my chances of reselling
at a profit. I f it came back, in many cases I was not paid.
Senator T o w n sen d . You are guaranteed against loss?
Mr. G r a y . Y ou are guaranteed against loss? I was going to ask
the same question that Senator Townsend asked you, only I was
putting it in another way. You were guaranteed against any loss?
Mr. B b een . Absolutely.
STOCK EXCHANGE PRACTICES
552
Mr. G ra y . In other words, when you used the company’s money
for the purpose of putting the price up to a certain point, i f the
stock went below that point and you unfortunately couldn’t control
it, in that instance the company stood the loss?
Mr. B r e e n . I f it was their stock; yes.
Mr. G r a y . Yes. If, on the other hand, there was a profit, they got
back their principal invested and the profit belonged to you?
Mr. B reen . Not necessarily. Sometimes-----Mr. G r a y . You would equitably distribute it?
Mr. B reen . Yes.
Mr. G r a y . Some of the officers of the corporation might get
some of it ?
Mr. B reen . No.
Mr. G r a y . Who would get the rest of it besides you then ?
M r. B reen . W e ll, you see, I always had associates.
Mr. G ra y . All right. Then when I say “ y ou ” I
refer to you
and your associates. It would be you and your associates who acted
with you?
Mr. B reen . Yes.
Mr. G r a y . Would get the profit?
Mr. B reen . Yes.
M r. G ra y . N ow tell this committee what you use associates for in
keeping the price up?
Mr. B ree n . Well, quite often I had many, and I always had two
or three associates in the office with whom I would divide the profits.
The 100 per cent.
M r. G r a y . W h a t did you use them fo r?
Mr. B reen . Well, I might have half a dozen
or a dozen stocks at
one time. It is impossible to-----Mr. G r a y . Oh, you would have them to help you ?
Mr. B reen . Yes.
M r. G r a y . Y ou needed the associates to help you?
Mr. B reen . Yes.
Mr. G ra y . In other words, you mean that you might
have a time
when at least a half a dozen different companies employed you, you
being a perfectly free-lance trader—employed you for the purpose
of going out and keeping the price of their stocks up ?
Mr. B reen . It would not always be for the same reason, Mr. Gray.
I mean sometimes I would not know what the reason would be.
Mr. G r a y . Well, whatever the reason might be ?
Mr. B reen . Some individual or an institution might want to
liquidate a block of stock and give it to me.
Mr. G ra y . Whatever the reason might be, the purpose of your
activities was to keep the price up to a certain level?
Mr. B reen . Yes; that was m y object.
Mr. G ra y . That was your object; yes.
Senator C ouzens . That was not necessarily the firm’s object
though, was it?
Mr. B reen . N o . Of course, I would not take a stock and say it is
going to stay here at 50 and not go one-eightli below, you see.
Mr. G ra y . What did you mean when you answered Senator
Couzens that it was not necessarily the firm’s object? The firm’s
object in giving you that money and giving you authority to buy
the stock, was what?
STOCK EXCHANGE PRACTICES
553
Mr. B reen . To stabilize, not fix the price. In other words, if
somebody came in to sell there would be somebody to take it and
redistribute it. I f the stock dropped $10 possibly on a sale of a
couple of thousand shares it hurts the credit of the company.
Mr. Gray. Questions have arisen once or twice in these cominittee
minutes as to the intrinsic value. I do not suppose the intrinsic
value of that stock had anything to do with the price at which you
tried to maintain it?
Mr. B reen . Stocks generally always meet their value. Mr. Gray.
Mr. G ra y . They do?
Mr. B reen . Sooner or later.
Mr. G r a y . In the end?
Mr. B reen . Sooner or later.
Mr. G r a y . Stocks generally meet their value sooner or later. That
is the natural law of supply and demand.
Senator B rookhart. Generally later, is it not. in bankruptcy
courts?
Mr. B reen . It has been sooner lately.
Senator C ouzens. It lias been sooner lately.
Mr. G r a y . I direct you attention, Mr. Breen, to a transaction in
which you were interested in the fall of 1028 in Kolster Radio stock.
Mr. B reen . Yes.
Mr. G ra y . You recall it very distinctly, I assume?
Mr. B reen . Yes. I have the notes here.
Mr. G r a y . Suppose you tell the committee the history of the trans
action from the beginning to the eiul without my asking questions,
and we will get it (juicker.
Mr. B reen . I think so.
Mr. G r a y . G o right ahead.
Mr. B reen . Well, the Kolster Radio Co. was a west coast concern
out in San Francisco, It was the old Federal Telegraph Co.
Spreckels, the sugar Spreckels family.
Senator C ouzens . What was the president s name?
Mr. B reen . I think his name was Stone.
Mr. G r a y . That is correct.
Mr. B reen . And Spreckels. I think Rudolph Spreckels, was chair
man of the board. Rudolph Spreckels was a large owner o f this
Kolster Radio stock. And he reached a point in his other endeavors
where he had to disjM>so of some. So he gave me a series of options
on his stock. A certain amount o f the stock. Do you have a copy of
the option ? I have them right hen*.
Mr. G r a y . I haven’t a copy of the options: 110, Mr. Breen. You
said yesterday afternoon you would endeavor to locate them and
bring them with you.
Mr. B reen . Yes. Well, they are right here.
Mr. Gray. Suppose we put them 011 the record in the first instance.
Mr. B reen . Yes.
Mr. G r a y . N ow let me ask you so as to sort of have this in a
little more orderly way. You say that Spreckels gave you options.
As a matter of fact the matter was directed to your attention by a
man named Oscar Alexander; is that correct?
Mr. B reen . Yes.
Mr. G r a y . You didn’t know Spreckels ?
Mr. B ree n . Yes.
STOCK EXCHANGE PRACTICES
554
Mr.
G r a y . What?
M r. B reen . I knew him .
Mr. G r a y . And then after
the matter was directed to your atten
tion then the matter was taken up with you by Mr. Spreckels?
Mr. B reen . Mr. Spreckels sent for me.
Mr. G r a y . Then you got the option?
Mr. B reen . Yes.
Mr. G r a y . It is dated October 26,1928. It is addressed to Messrs.
Arthur W. Cutten—and I will tell you about that in a moment— and
George F. Breen, in care of E. F. Hutton & Co., New York. [Read
ing:]
G e n t l e m e n : For and in consideration of $1 paid in hand and other services
rendered, I agree to deliver to you the whole or any part of 150,000 shares of the
Kolster Radio Corporation common stock subject to the following terms and
conditions:
(1) Fifteen thousand shares at $70 per share net to me within 10 days from
this date.
When you have exercised the above option you have the privilege to call:
(2) Fifteen thousand additional shares at $70 per share net to me within
25 days from this date.
When you have exercised option No. 2 you have the privilege to call:
(3) Twenty thousand shares at $70 per share net to me within 32 days from
this date.
When you have exercised option No. 3 you have the privilege to call:
(4) Fifty thousand shares at $72 per share net to me within 62 days from
this date.
When you have exercised option No. 4 you have the privilege to call:
(5) Fifty thousand shares at $74 per share net to me within 90 days from
this date.
It is understood that you will have the right to take up and pay for in cash
these amounts as specified in the above options on or before the dates indicated;
and if you fail to do so, this agreement will be terminated forthwith upon such
failure.
Yours very truly,
R u dolph Spreokh ls.
Accepted.
G eorge F . B r e e n .
E. F. H u t t o n & Co.
(Signature guaranteed.)
Mr. G r a y . N o w , that is a correct copy of that option, isn’t it?
Mr. B reen . Yes.
Senator C otjzens. Mr. Gray, is there any necessity o f reading all
those other options?
Mr. G ra y . N o. There are no other options, Senator. I w ill just
identify this as under the date of October 30, 1928, in which he
agrees to deliver the whole or any part of 100,000 shares at $84 a
share. And they can go upon the record.
(The letter referred to is as follows:)
Messrs. A r t h u r W.
„
Go tten
O ctober 3 0 , 1 9 2 8 .
and G eorge F. B r e e n ,
Care of E. F. Hutton & Co., New York, N. Y.
G e n t l e m e n : For and in consideration of $1 paid in hand and other services
rendered, I agree to deliver to you, the whole or any part of 100.000 shares
of the Kolster Radio Corporation common stock at $84 per share net to me This
oiption is good for 30 days from this date.
Withdrawals of stock hereunder are to be paid for in cash at time of delivery
of stock by me to you.
3
Yours very truly,
R u d o ip h Spr ec k els.
Accepted.
G eorge F . B r e e n .
E. F. H u t t o n & Co.
(Signature guaranteed.)
STOCK EXCHANGE PRACTICES
555
Mr. Gbay. N ow , when you got those options you paid, o f course,
nothing for them?
Mr. Bbeen. Only the legal consideration.
Mr. Gbay. Of a dollar?
Mr. B been. Yes.
Mr. G ra y . And you interested in those options four people includ
ing yourself; is that correct?
Mr. B been . Yes.
Mr. G bay. One yourself, one Arthur W. Cutten, one Oscar Alex
ander!
Mr. Bbeen. Yes.
Mr. G bay. And who was the fourth ?
Mr. B been. L. P. Fisher.
Mr. G bay. L. P. Fisher. Now, L. P. Fisher is one of the Fisher
Bros., as they are known ?
Mr. B been. Yes.
Mr. G b a y . And Arthur W . Cutten is a Chicago man ?
Mr. B been . Yes.
Mr. G bay. And he deals in the grain markets more particularly
than he does in the stock market ?
Mr. B reen . Yes.
Mr. G r a y . A n d you each had a one-fourth interest, did you not?
Mr. B ree n . Yes..
Mr. G bay. N ow , having those options, what did you do?
Mr. B been. Why, do you mean what did I actually do ?
Mr. G b ay. Yes. I want to know what you did?
Mr. B been. Well, I started to sell as soon as I could make a
profit.
Mr. G r a y . Is that the first thing that you did ?
Mr. B b een . I don’t recall at the instant, Mr. Gray, but I will tell
you exactly the procedure.
Mr. G bay. G o ahead and tell it to us in your own way. I think it
will interest the committee.
Mr. B r e e n . Well, of course, if you have an option on something
you have a certain risk of your own money. Now this does not ap
pear that I had any risk, but I did have a risk as a matter of fact,
inasmuch as that if I did not take that first block in 10 days’ time
the balance was canceled. So, if 10 days would come around and
the stock was still at that price with even a little loss I would have
taken that 15,000 shares to keep the balance of my option.
Mr. G r a y . Yes.
Mr. B r e e n . So, the first step I did was to try and sell that 15,000
shares, so the balance of my option would be continued, and I would
be in a position to take it up. And price did not necessarily mean
anything on that first lot of stock.
Mr. G r a y . Now, will you amplify that a little? Do you mean
that notwithstanding the fact that your option was to buy that first
15,000 shares at $70 a share it made very little difference to you
whether you sold it at 69 or not ?
Mr. B r e e n . That is correct. As long as I was in a position to
tftlrft that 15,000 shares naturally with as little risk to myself or
associates as possible.
Mr. G b a y . Yes. So what did you do under those circumstances?
What is your first step? You sell short, don’t you?
556
STOCK EXCHANGE PRACTICES
Mr. B reen . Technically short.
Mr. G r a y . Yes.
Mr. B reen . But you are not short when you have this.
Mr. G r a y . No, I understand. As far as the market is concerned
you go in and you sell up to that 15,000 shares?
Mr. B reen . Yes.
Mr. G r a y . Short?
Mr. B reen . Yes.
.
Mr. G r a y . You might be said to be selling it hardly again st the
box but you are selling it against an option that you have?
Mr. B ree n . Selling it against an option that I have. It is tech
nically short. It is not really short.
Mr. G r a y . Now you do that for this reason, do you not, because
of the fact that if the stock goes down you do not have to exercise
your option, and you can cover ? I am not talking about what m oral
obligations there may be.
Mr. B r e e n . That is hardly true, Mr. Gray. I can tell y o u one
that I took that is down $30, and I took 100,000 shares of it.
Mr. G r a y . All right. But your position as a matter o f fact is
this, is it not, that you took your short position with respect to a
certain amount-----Mr. B r e e n (interposing). I admit what you say can be done, but
it is not the ethics of the business.
Mr. G r a y . Well, we are trying to find where those ethics o f the
business are.
Mr. B r e e n . Well, there is such a thing exists.
Mr. G r a y . In the stock market?
Mr. B r e e n . Yes.
Senator F l e t c h e r . The stock was listed, was it?
Mr. B r e e n . Yes.
Senator F l e t c h e r . What was it quoted at?
Mr. B r e e n . In the neighborhood of $70 a share. Around that
price.
Mr. G r a y . Oh, no. I will give you the figures, Senator Fletcher.
That is wrong.
Mr. B r e e n . The Senator means when the option was given.
Senator F l e t c h e r . Yes; what was it quoted at?
Mr. G r a y . Oh, when the option was given. I did not so under
stand. I thought he was asking you at what you started to sell it.
Mr. B r e e n . N o.
Mr. G r a y . A s a matter of fact, what you did in this case was to
assume a short position right away?
Mr. B r e e n . Yes.
Mr. G r a y . N o w , what you could have done and assured y o u rse lf
as being absolutely safe was this, was it not: That if the stock went
up, you having sold it, you could get your stocks under you r option
for the purpose of squaring your position?
Mr. B r e e St. Yes, sir.
Mr. G r a y . So that you might either have made or lost a little bit
of money, but your risk would not have been great; that is correct,
is it not?
Mr. B reen . Yes.
Mr. G r a y . Now, if your stocks went down—not what you did.
but what can be done, the practice—what you could have done was to
STOCK EXCHANGE PRACTICES
557
cover at any price you thought it ought to be covered on the way
down?
Mr. B reen . Yes.
Mr. G r a y . And therefore, without any risk to yourself, make a
decided profit and not take your option up at all ?
Mr. B reen . Yes; that could have been done.
Mr. G ra y . Yes; because the option simply provides that if you do
not take it up it falls ?
Mr. B reen . T hat is correct.
Mr. G r a y . And you are under no legal obligation under your
agreement to take it up at all ?
Mr. B reen . N o.
Mr. G r a y . Except your danger of losing your option ?
Mr. B reen . In some instances.
Mr. G r a y . Now, you got your option. You started to operate.
What was the date of your option, please, if you have it right there
in front of you ?
Mr. B reen . October 26, 1028.
Mr. G r a y . Yes. Now you started to operate on the 29th, didn't
you.
Mr. B reen . Well, you have the figures.
Mr. G r a y . Y ou accept the figures as being correct ?
Mr. B reen . Yes.
Mr. G r a y . You haven’t any objection to me telling the committee
that what you said yesterday to me was that after you started a
trade you had never even seen your account?
Mr. B reen . That is correct.
Mr. G r a y . In other words you did not pay any attention to the
price at which it was either bought or sold ?
Mr. B reen . N o, s ir ; only in m y mind.
Mr. G r a y . Yes. You left it to somebody else to handle it, to go
in and keep selling it and buying it, and keep the market up the
same as you did in these other instances?
Mr. B reen . Well, there is a discretion in there, but I established
the policy o f what should have been done.
Mr. G r a y . Yes. Then you never even after that took a look at
your account?
Mr. B reen . I knew the position.
Mr. G b a y . But the details you never looked at ?
Mr. B been . N o .
Mr. G b a y . Y ou knew what the price was?
Mr. B been . Yes.
Mr. G r a y . On the first day the lowest price at which
you sold any
of your stock, according to these records, was $74 a share. That is
on the 29th. And the highest price at which you sold that stock on
the 29th was 79^ dollars. These sheets from Hutton & Co. show
that that is correct.
Mr. B reen . I accept those figures.
Mr. G b a y . Y ou accept those figures. A l l right. These figures
were furnished to us at your instructions by E. F. H utton & Co.
M r. G b a y . N o w , upon that first day you actually sold a hundred
thousand shares o f that stock and actually bought back 30,000 shares.
Why did you sell a hundred thousand shares to protect your option
on 15,000 shares o f stock?
558
STOCK EXCHANGE PRACTICES
Mr. B reen. Well, the market might have been there. Y ou sell
when the market is there.
Mr. G ray . Then your total option from Spreckels was for 150,000 shares, was it not? And it cost you $70 a share with a—I am
sorry I haven’t got that just in front of me—with a grading up to
what price?
M r. B reen. 74, and the last was 84.
Mr. G ray . It strikes an outsider, Mr. Breen, that when you got
an option to buy as you had in this case, 15,000 shares at 70, 50,000
shares at 72, and 50,000 shares at 74, and stock was selling on the
very first day that you started to operate at from 74 to 7 9 ^ , the
only thing for you to do was to go out and sell your stock and make
your profit. Why not?
Mr. B reen. Well, it is not that easy, Mr. Gray. [Laughter.]
Mr. G ray . The point I am getting at is this, that in order that
you could create an active market-----Mr. B reen (interposing). You don’t pay attention to whether you
are going to make four or five points. You have one thing: You
have a 50,000 shares of stock to dispose of. That is No. 1.
Mr. G ray . Yes.
Mr. B reen. No. 2 is to make a profit if possible.
M r. G r a y . Yes. What do you have to do?
Mr. B reen. Y o u have to sell the stock when the demand is there,
regardless of whether you make 1 point, 2 points, or 3 points, or
4 points. And that was proven—this stock was ail sold at an average
profit of less than 3 points.
Mr. G ray . At an average profit of less than 3 points?
Mr. B reen. O f less than 3 points on the average amount o f stock.
Senator F letcher. D o you send out any letters or circulars or
literature or anything of that sort ?
Mr. B reen. N o , Senator.
Senator F letcher. Y o u do not solicit the purchase o f stock !
Do you just depend on the market?
Mr. B reen. Yes, sir. In those days it just went one way anyway.
Senator F letcher. H o w long were you disposing of this?
Mr. B reen. All of these Badio stocks at that time were skyrocket*
ing. You take, for instance—I have a few notations— R^dio Cor
poration went from 85y2 to 420. Grigsby-Grunow went up from
the original price of $8 to $1,600.
Senator F letcher. In how long?
Mr. B reen. About a year and a half’s time. It is now about 2 or
1 something. Columbia Graphophone went from 32% to 110, and
the Dow-Jones industrial averages went up 101 points in that «anw
time, and this stock went up least of all, went up 44 points.
Senator F letcher. Then you closed out?
Mr. B reen. What? I was out in less than 3 points, Senator.
Mr. G ray . But, in other words, Mr. Breen, this is one o f the things
that I want to establish by this case: What you had to do w as to
go in and buy and sell and within a certain range, disregarding the
price at which you bought and the price at which you sold, in order
to create an active market and an active demand for Kolster R adio
stock, and thus cause the price to go up and give you an opportunity
to get out at a better profit than you would otherwise get?
STOCK EXCHANGE PRACTICES
559
Mr. B been . Mr. Gray, it is apparent the demand was there. I did
not have to get a demand to sell a hundred thousand shares the first
dar. The demand was in the market.
Mr. G b a t . Y ou sold a hundred thousand shares the first day and
bought thirty?
Mr. Bheen. Yes, sir.
Mr. G b a t . On the second day, which was October 30, you sold
82,400 and bought 24,100.
On the third day, which was October 31, you sold 50,200 and you
bought 25,100.
On November 1 you sold 38,300 and you bought 17,500.
On November 2 you sold 27,900 and you bought 18,900.
On the next day, November 5, you sold 7,000 shares and you
bought 18,900.
On the 7th you sold 6,600 and you bought 11,600.
On the 8th you sold 11,400 and bought 11,400.
On the 9th you sold 3,300 and bought 9,600.
And on the 12th you sold 12,700 and bought 2,100.
On the 13th you sold 2,600 and bought none.
On the 14th you sold a thousand and bought none.
On the 15th you sold 12,300 and bought none.
On the 16th you sold 16,500 and bought 300.
Chi the 19th you sold 57,300 and bought 25,900.
On the 20th you sold 16,700 and bought none.
On the 21st you bought 1,200 and sold none.
On the 22d you bought 5,300 and sold none.
On the 26th you bought 6,100 and sold 3,100.
Chi the 27th you bought 500 and sold 3,400.
On December 4 you bought 3,100 and sold none.
On December 5 you sold 2,000 and bought none.
On December 6 you bought 3,400 and sold none.
On December 7 you bought 6,400 and sold none.
And on December 10 you sold 200 and bought none.
Thus selling 456,900 shares of that stock in a month and a week or
two, and buying 206,900, netting you exactly your position of 250,000
shares of stock which you took over to make up the difference be
tween the buying and selling and the exercise of this option?
Mr. B been. Yes; that evened it up.
Mr. G b a t . N o w , let me ask you whether or not on the days that
you sold and did not buy it was because it was not necessary to make
any buys to support the market?
Mr. B b e e n . I might have sold some out in San Francisco that
day; I don’t know. I sold 93,800 out there.
Mr. G b a t . Out of this optional stock? That was all reflected in
E. F. Hutton & Co.’s books ?
Mr. B be e n . It would not come back the same day, Mr. Gray.
Mr. G b a t . Yes, sir; it might be registered on some other day.
Mr. B b e e n . Three or four days later.
Mr. G b a t . Now, your price range from the time you started
to deal in this to its high was the difference between 74 at the
low and 95% at the high; is that correct ?
Mr. B b e e n . That is correct.
Mr. G b a t . And Mr. Spreckels got how much for his stock?
560
STOCK EXCHANGE PRACTICES
Mr. B r e e n . Exactly those prices you see.
Mr. G r a y . Practically $19,000,000, wasn’t it ?
Mr. B r e e n . We could figure it out fast e n o u g h .
Senator C o u z e n s . He was lucky to get out at that price, w a s n t
he?
, .
Mr. B r e e n . Yes; he was. But he put it all in the sugar business,
so it didn’t do any good. [Laughter.]
Senator C o u z e n s . When you started out on this campaign o f b u y
ing and selling stock, just what was your object? What w e re you
trying to arrive at ?
Mr. B r e e n . Trying to liquidate the stock with Spreckels a n d m ake
some money for myself.
Senator C o u z e n s . And you had to handle all that number o f
shares to dispose of 150,000 shares?
Mr. B r e e n . You do, Senator. You have to be prepared to buy
as well as to sell. You can not just go in and be a seller a l l the
time. I f somebody wants to sell stock, you have to be prepared to
take it.
Mr. G r a y . That is what we are after, and the reason for that is
in order that you can keep up your price on an active market in order
that you can ultimately dispose of your own stock, is it?
Mr. B r e e n . Yes, sir; but-----Mr. G r a y . Purely manipulation, isn’t it ?
Mr. B r e e n . Not at all.
Mr. G r a y . What do you call it?
Mr. B r e e n . Call it buying and selling, the same as in th e bond
market; no difference.
Mr. G r a y . I f you have a lot of stock, you have a quarter o f a
million shares of stock to sell, what legitimate reason is there i f you
have something to sell to go out and buy in opposition to it?
Mr. B r e e n . I am trading in the market. I might be m a k in g
quarters and half points in there.
Mr. G r a y . And that is your reason, is it ?
Mr. B r e e n . Yes.
Mr. G r a y . Why do you go and sell a hundred thousand o n th e
very first day when you have only got an option on the a m o u n t
that you had?
Mr. B r e e n . I answered that. You sell when the demand is g o o d
in any market.
Senator F le t c h e r . I understood you to say that you co u ld cause
a stock to go up or down by your operations.
Mr. B r e e n . You can, Senator; with enough buying power any
thing would go up.
Senator F l e t c h e r . In that sort of a market you can not have i t g o
down very well ?
Mr. B r e e n . This particular case was unusual. I mean that sto c k
would have gone up irrespective of anybody. I f this stock had not
been sold, it might have been sold at $200 a share.
Senator F l e t c h e r . H o w do you manage to manipulate the m a r
ket so as to have stock go up or go down as you see fit?
Mr. B r e e n . Y ou don’t manipulate, Senator. You buy it— th e re
are various ways. This does not happen to be a pool, 'this is just
a trading account. There is a difference.
STOCK EXCHANGE PRACTICES
561
Mr. G r a y . Four members is a trading account and six is a pool?
Mr. B b e e n . That is not the difference, Mr. Gray.
Mr. G b a y . What is the difference between a syndicate and a pool ?
Mr. B b e e n . Well, you know. A pool is a pool of interests where
each one puts up an amount of money with a definite purpose of
accumulating stock and selling at a profit.
Mr. G r a y . That is a good definition.
Mr. B b e e n . You stated that there was no money put up.
Mr. G r a y . There was no money put up and therefore it is not
a pool?
Mr. B r e e n . It is not a pool, not a syndicate. It is not a pool at
all. There is no amount in there for anybody.
Mr. G r a y . That is just what I thought. As a matter of fact,
what was the profit that was made by you there? Have you got
the figures there?
Mr. B r e e n . $1,351,152.50.
Mr. G b a y . Y ou got three hundred thirty-seven thousand and
some odd apiece?
Mr. B r e e n . $337,788.13.
Mr. G r a y . And on the face of the agreement outside of the moral
risk that you said that you assumed because of the ethics of the
stock exchange profession, you did not risk a cent, did you ?
Mr. B r e e n . I could hardly say that.
Mr. G r a y . Let me ask you another question: You say that there
was a market for this all the time?
Mr. B r e e n . Yes, sir.
Mr. G r a y . Why didn’t Spreckels sell it in the market?
Mr. B b e e n . He could have just as well as I did, at better prices.
[Laughter.]
Mr. G b a y . Let me not misunderstand that. So you gentlemen
were able to take away from Mr. Spreckels-----Mr. B b e e n (interposing). I don’t know what was in his mind, Mr.
Gray. Maybe he didn’t want to appear as a seller.
Mr. G b a y . Yes. In other words, he was willing to lose that which
lie could have made just as you did, a million and a half.
Mr. B b e e n . There is not any question about it. He could have
sold it just as easily.
Mr. G r a y . And sold it himself?
Mr. B r e e n . Absolutely.
Mr. G b a y . And you think the fact that you bought and sold it
during that period of time had absolutely nothing to do with the
rise in the price from 74 to 98 in a period of five weeks ?
Mr. B b e e n . No, Mr. Gray; it did not.
Mr. G b a y . Where did that stock go after you stepped out of the
market ?
Mr. B r e e n . I d o n ’t kn ow exactly. I d id n ’t lo o k it up.
Mr. G b a y . I m ean im m ed ia tely th ereafter.
Mr. B b e e n . Oh, it fluctuated around in there. I wouldn’t say it
went higher or lower. I wouldn’t say that.
Mr. G b a y . I am going to, if the committee pleases, give them the
exact data. I got these sheets last night as our final examination of
it, in order that we could make our summaries, and I will give the
committee the exact data as to what Kolster Radio sold for, the high
and the low, on the market for a period of two weeks before this
562
STOCK EXCHANGE PRACTICES
operation started and for a period of two weeks after this operation
quit, so that you can see the picture for yourself, as I showed it to
you in Radio this morning.
Senator B l a i n e . What was the total Kolster Radio issued*
Mr. G r a t . Can you answer that?
Mr. B r e e n . The total issued was eight hundred thirty so m e o d d
thousand shares; a million authorized.
Mr. G r a t . While Mr. Spreckels controlled in this particular in
stance, as shown by the options, irrespective of any other stock th a t
he may have had that we do not know of in this record, 250,000
shares of it?
Mr. B r e e n . Yes.
Mr. G r a t . Do you know whether E. F. Hutton got commissions
from this transaction ? Your profit was net, of course ?
Mr. B r e e n . I haven’t any idea.
Mr. G r a t . Y ou would accept that statement, and I suppose cou n sel
for Hutton & Co. will, that it was $182,760 as commission on these
transactions of Mr. Breen’s alone in the period of time t h a t w a s
mentioned.
By the way, some of your stock, too, you had to give away a t a
lower price than the market, didn’t you?
Mr. B r e e n . Yes, sir.
Mr. G r a t . Do you know approximately what that stock w a s ?
Mr. B r e e n . I don’t know what it was specifically, but I know
why it was given.
Mr. G r a t . Well, I want you to, because that will turn up o n this
record, and I don’t want anything that is not clear.
Mr. B r e e n . Alexander had committed himself to give that stock
in some way for having been introduced to Spreckles. It is one of
those commission affairs or something.
Mr. G r a t . In other words, somebody first put Alexander on the
matter ?
Mr. B r e e n . Yes, sir.
Mr. G r a t . Then Alexander got you into the matter ?
Mr. B r e e n . That is correct.
Mr. G r a t . And you got Mr. Cutten and Mr. Fisher into the mat
ter?
Mr. B r e e n . Yes, sir.
Mr. G r a y . And when Alexander told you about the matter he
said to you that “ I have had to give a call ”-----Mr. B reen (interposing) Or an option.
Mr. G r a t . Or an option, the same as you h ad ,44to somebody else
who told this to me” ?
Mr. B r e e n . Yes.
Mr. G r a t . S o that when the time came that price went u p that
person who introduced the matter to Alexander had a right to exer
cise control there and get stock which was then at a price cheaper
than the market?
Mr. B r e e n . Yes; and he did, too.
Mr. G r a t . And he did exercise it. Now, by the by, if there w a s
such a market in this matter that you could go right out, the public
was so anxious to get Kolster Radio and paid all these prices for
it, and you had a chance to make this money, why did you bother
STOCK EXCHANGE PRACTICES
563
taking Cutten then and making a profit for him of $337,000, and
Fisher, making a profit for him of $337,000?
Mr. B r e e n . Well, there are reasons. I h ad been in profitable
operations with them.
Mr. Gbat. Just generosity?
Mr. B r e e n . I would hardly call it that. As I told you, in the
first instance here, I had a possible liability here of 30,000 shares.
Mr. Gray. In other words, it was not so sure that the public was
going to take this up ?
Mr. B r e e n . No; it was not sure. Nothing is sure.
Mr. Gray. What did you do to help the public pick it up?
Mr. B r e e n . I didn’t do anything in this instance.
Mr. Gray. Nothing at all. I think that is all.
Senator F l e t c h e r . All you did was to watch the market from
day to day and either sit by or sell as your judgment dictated?
Mr. B r e e n . Yes. It was very wild, and you couldn’t even do that,
Senator. The tape was running a half to an hour late each day.
Senator T o w n s e n d . Did you give th e orders yourself?
Mr. B r e e n . N o , I gave th em to a sp ecialist.
Senator T o w n s e n d . Y ou ju st g av e th e broker d iscretion to use as
he saw fit?
Mr. Bbeen. Yes.
Mr. Gbay. You paid no attention to it after you got it started
except Just look it over once in a while?
Mr. B b e e n . I paid attention to it, sure.
Mr. Gray. I mean you never gave an order yourself at a direct
price either to buy or sell?
Mr. B b e e n . Not that I recall.
Senator B r o o k h a r t (presiding). The committee will recess until
10 o’clock to-morrow morning in the other room.
(Whereupon, at 5.20 o’clock p. m., the committee adjourned to
meet at 10 o’clock a. m., the next day, in room 301, Senate Office
Building, Friday, May 20, 1932.)
STOCK EXCHANGE PEACTICES
FRIDAY, MAT 20, 1932
U
C o m m it t e e
S tates S e n a t e ,
B a n k in g and C u rrency,
n it e d
on
Washington, D. G.
The committee met at 10 o’clock a. m., pursuant to adjournment on
Thursday, May 19,1932, in room 301 Senate Office Building, Senator
Peter Norbeck presiding.
Present: Senators Norbeck (chairman), Brookhart, Goldsborough,
Townsend, Walcott, Carey, Couzens, Fletcher, and Glass.
Present also: William A. Gray, Esq., counsel of the committee.
Senator B r oo k h ar t (presiding). The committee will be in order.
Mr. G b a t . I f the committee please, and Mr. Chairman, I want to
first of all put upon the record some data with respect to the prices
of Kolster radio stock just before and after the time during which
the transactions that were testified to by Mr. Breen yesterday took
place. His operations were conducted between October 27, 1928,
and December 10, 1928, and the price range, as you will recall, was
from 74 to 95%. The prices before he took hold of this stock were
these. I am giving you the closing price on the date mentioned:
On October 13 it was 76; on October 15 it was 75; on October 16
it was 74; on October 17 it was 74%; on October 18 it was 73% j on
October 19 it was 74%; on October 20 it was 72; on October 22 it was
71%; on October 23 it was 72y8; on October 24 it was 71%; on
October 25 it was 74%; on October 26 it was 78.
And the day he started operations, October 27, it was 78%.
And then after his operations were concluded the stock went back,.
and on December 11 it was 70%; on December 12 it was 69%; on
December 13 it was 69; on December 14 it was 68%; on December 15
it wae 67%; on December 17 it was 66%; on December 18 it was 67%;
cm December 19 it was 69%; on December 20 it was 68%; on Decem
ber 21 it was 69; on December 22 it was 70%; on December 24 it
was 73%.
This stock, you will recall, is the stock that he said the public was
very ready to take.
Senator B r o o k h a r t . Was that the stock the witness said was worth
$2 now?
Mr. G b a t . Yes.
Senator Norbeck in the chair yesterday asked about a statement as
to the assets and liabilities of the Radio Corporation in connection
with its new stock and at the time of the operations of the Radio pool.
I sent to New York and secured a copy of the application for the list
ing of the new stock, which sets forth all of the information with
respect to the same, and in its complete form. I will give it to the
reporter and ask that it be made a matter of record. (Copy of the
application will appear in the appendix.)
Mr. G b a t . Mr. Sachs.
119852— 32—
pt
2------13
565
566
STOCK EXCHANGE PRACTICES
TESTIMONY OF WALTER E. SACHS, NEW YORK CITY, MEMBER OF
THE FIRM OF GOLDMAN, SACHS & CO.
Senator B r o o k h a r t (presiding). You do solemnly swear that
the testimony you will give to this committee will be the truth, the
whole truth, and nothing but the truth, so help you God ?
Mr. S a c h s . Yes.
Mr. G r a y . Will you give your full name, please. Mr. S a c h s ?
Mr. S a c iis . Walter E. Sachs.
Mr. G r a y . And your address?
Mr. S a c h s . Home address?
Mr. G r a y . Yes, please.
Mr. S a c h s . 1125 Fifth Avenue, New York City.
Mr. G r a y . Y ou are a member of the stock exchange h o u se o f
Goldman & Sachs?
Mr. S a c h s . Goldman, Sachs & Co.
Mr. G r a y . Goldman, Sachs & Co. You are also connected in an
official capacity with the Goldman-Sachs Trading Corporation ?
M r . S a c h s . I am .
Mr. G r a y . And what is your capacity with that corporation?
Mr. S a c h s . I am president. Have been president of t h a t cor
poration since June, 1930.
Mr. G r a y . What is the association or connection of Goldman,
Sachs & Co. with the Goldman-Sachs Trading Corporation?
Mr. S a c h s . The Goldman Sachs Trading Corporation is an in;
vestment company, and there is a management contract between the
firm and the investment company whereby the firm, subject to the
by-laws of the corporation, manages the corporation, subject to
its board of directors.
Mr. G r a y . I am directing your attention, Mr. Sachs-----Senator C o u z e n s . Before you ask him that question, Mr. Gray',
may I ask Mr. Sachs who owns these two companies ?
Mr. S a c h s . Goldman Sachs & Co. is a partnership.
Senator C o u z e n s . Who are the partners?
Mr. S a c h s . The partners are Arthur Sachs, Howard J. Sachs,
Henry S. Bowers, Sidney J. Weinberg, Ernest Loveman, and my
self, who are the general partners. There are two special part
ners, Samuel Sachs and Harry Sachs.
Senator C o u z e n s . And who are the Goldman Sachs Trading Cor
poration ?
Mr. S a c h s . The Goldman Sachs Trading Corporation is a c o r
poration having approximately 42,000 stockholders.
Senator C o u z e n s . And the Goldman Sachs Trading Corporation
manage the Goldman Sachs Co., is that it ?
Mr. S a c h s . No; it is the other way, sir.
Senator C o u zen s. So Goldman Sachs & Co. manage the Trading
Corporation, is that it?
Mr. S a c h s . Subject to its board of directors. But the majority
of the board of directors are composed of partners o f the firm.
Senator C o u zen s. Did Goldman Sachs & Co. organize the Gold
man Sachs Trading Corporation?
M r . S a c h s . Yes, sir.
Senator C ouzens . And it sold its stock to the public?
STOCK EXCHANGE PRACTICES
567
Mr. S a c h s . A portion of it. The firm invested originally in 10 per
cent of the entire issue for the sum of $10,000,000.
Senator C o u z e n s . And the other 90 per cent was sold to the publics
Mr. S a c h s . Yes, sir.
Senator C o u z e n s . At what p r ic e (
Mr. S a c h s . At 104. That is the old stock. The present stock at
a price of 52, as the stock was split two for one.
Senator C o u z e n s . And what is the price of the stock now?
Mr. S a c h s . Approximately 1 % .
Senator C o u z e n s . And what was the purpose of Goldman Sachs
& Co. organizing the Goldman Sachs Trading Corporation ?
Mr. S a c h e s . To f o r m a c o m p a n y t o t r a d e , d e a l, a n d t o m a k e i n
vestments in s e c u r it ie s o f v a r io u s k in d s in w h i c h c o m p a n ie s w e , as
a firm, p a r t ic i p a t e d , a n d in w h ic h o t h e r s c o u ld p a r t ic i p a t e t h r o u g h
stock ownership i f t h e y so d e s ir e d .
Senator C o u z e n s . Well, outside of the partners in Goldman Sachs
& Co., how much new capital was taken into the Goldman Sachs
Trading Corporation?
Mr. S a c h s . Well, I can’t answer that figure exactly. The com
pany was formed for $100,000,000. of which the firm invested
$10,000,000.
Senator C o u z e n s . And so you went to the public and got $ 9 0 ,000,000 more?
Mr. S a c h s . Yes, sir.
Senator C o u z e n s . At 104?
Mr. S a c h s . At 104. There was $100,000,000 paid into the com
pany. The stock was bought by Goldman Sachs & Co., and 900,000
shares were sold to the public at 104, less selling commissions to
a distributing group, and so forth.
Senator C o u z e n s . H o w much is left of that $100,000,000 that was
put into the Goldman Sachs Trading Corporation ?
Mr. S a c h s . It is d iffic u lt f o r m e t o a n s w e r t h a t q u e s t io n e x a c t ly .
According to the fig u r e s o f o u r la s t b a la n c e s h e e t a s o f D e c e m b e r 31,
1931, the capital a n d s u r p lu s w a s $40,269,100.48.
Senator C o u z e n s . So the organization, the firm o f Goldman Sachs
& Co. has lost $60,000,000 at least of the money that they collected
froin the public at the time of organization of the Goldman Sachs
Trading Corporation?
Mr. S a c h s . Well, I do not want to answer that figure exactly,
because-----Senator C o u z e n s . No; I d o n o t a s k y o u t o go i n t o d o l l a r s a n d
cents.
Mr. S a c h s . Well, I will answer your question in this way, that a
large sum o f money was lost by the stockholders, by all the stock
holders, obviously; yes, sir.
Senator C o u z e n s . And when you fix the net asset of the Goldman
Sachs Trading Corporation at some $40,000,000 have you written
down the portfolio o f the Goldman Sachs Trading Corporation topresent market prices?
Mr. S a c h s . We have written them down—these figures are market
prices where such market quotations were available. There are cer
tain assets where market quotations are not nvni’ able and where the
assets had to be taken in on some basis, which basi- 1: mnd*' perfectly
clear in our reports.
568
STOCK EXCHANGE PRACTICES
Senator C o u z e n s . Well, when you organized the Goldman Sachs
Trading Corporation what did you put into the Trading Corpora
tion’s assets that heretofore had belonged to Goldman Sachs & Co.
or its partners?
.
Mr. S a c h s . There were only three instances of a negligible a m o u n t
where we sold a small amount of shares at a considerable number of
points under the then market to the Trading Corporation. I haven’t
those figures, but I know that they are a negligible amount.
Senator C o u z e n s . Roughly, how much?
Mr. S a c h s . Certainly—and allowing for lapse of memory— cer
tainly not more than perhaps $100,000—perhaps $200,000 at the very
most, and at prices, as I say, under the then quoted stock-exchange
prices.
Senator C o u z e n s . What time w as that? At what p e r io d ?
Mr. S a c h s . Oh, I think that was some months after the creation after the formation of the company, sir.
Senator C o u z e n s . And when was the company created?
Mr. S a c h s . The last days of 1928. Some time the last days of
December, 1928.
Senator C o u z e n s . And when you took these securities that the
individual members of your partnership had and put into the cor
poration, were they put into the corporation at somewhat the intrin
sic value or the inflated market value?
Mr. S a c h s . Well, they were put in at what we believed were
sound values, of course. In fact, under the quoted market prices,
because we wanted the corporation to have the opportunity o f bene
fiting in what we thought was a good investment.
Senator C o u z e n s . In other words, you were so self-sacrificing that
you wanted 90 per cent of your stockholders to profit at the expense
of 10 per cent of your own investment?
Mr. S a c h s . Well, we believed that they were good investments, sir.
And, as I pointed out, the amount was negligible.
Senator T o w n s e n d . Was your capital structure all common stock?
Mr. S a c h s . O f the Trading Corporation; yes, sir.
Mr. G r a y . Now Mr. Sachs, I am directing your attention to a
transaction which involved your dealings with what was known as
the Postum Co., which afterwards became the General Foods Cor
poration, in 1929. Do you know the transaction I refer to ?
M r . S a c h s . Yes, sir.
Mr. G r a y . Will you tell us just exactly what that transaction was
from beginning to end?
Mr. S a c h s . The Postum Co. and the Goldman Sachs Trading
Corporation acquired a company that was then known as the General
Foods Co., now known as the Frosted Foods Co. This company had
valuable patents and other assets for a process known as the Birds.eye quick freezing process for freezing perishable foods.
Mr. G r a y . That was its only asset?
Mr. S a c h s . Well, the process itself-----Mr. G r a y . Yes.
Mr. S a c h s . Oh, no; it had other assets. It owned various sub
sidiary companies, I believe, had a plant in Gloucester, and various
assets in Boston at one time and another, sir.
Senator C o u z e n s . Did it include the Postum Co. at Battle Creek?
STOCK EXCHANGE PRACTICES
569
Mr. S a c h s . Oh, no; dr. The present General Foods Co. was then
known as the Postum Co.
Mr. G k a y . That is the present General Foods Corporation; don’t
get it confused with the General Foods Co., which is an entirely
different organization.
Mr. S a c h s . I beg your pardon; yes.
Mr. G b a y . D o you know what the investment in General Foods
Co. was—that is, the company who owned these patents—when
Postum and the Goldman Sachs Trading Corporation negotiated
their deal with them?
Mr. S a c h s . Well, as I say, I don’t know it in detail, because I will
ask you to remember that I did not negotiate that transaction at the
time; that I was a director of the Goldman Sachs Trading Corpora
tion at the time and not its president, and I may therefore not know
as many details as you would like to know.
Mr. G r a y . D o you know that its entire investment at the time
that you negotiated with the stockholders thereof for the purchase
of their stock, was practically a million and three-quarters of dollars %
Mr. S a c h s . Somewhere in the neighborhood; yes.
M r . G b a y . Somewheres in that neighborhood?
Mr. S a c h s . Yes.
M r . G r a y . All right; now let us start with that. I will lead you
a little. We will get through a little quicker that way.
Mr. S a c h s . Fine.
M r . G b Ay . Postum Co. had a contract and an arrangement with
General Foods Co.—the concern that we are talking about that had
a million and three-quarters of dollars of assets—to buy the stock
of that company, or rather, it had an agreement with a committee
to buy it from the stockholders, that is correct, is it ?
M r . S a c h s . Yes; th a t is correct.
Mr. G b a y . Yes. And Postum Co. agreed to pay for all the stock
in that company $23,500,000, isn’t that right?
Mr. S a c h s . $28,500,000.
Mr. G b a y . Yes?
Mr. S a c h s . That is to say—I think I might correct your state
ment—I am not certain of the legal steps, but the Trading Cor
poration and the Postum Co. agreed to make such purchase for the
sum that you have mentioned. The Trading Corporation to pay $12,750,000 for 49 per cent of the stock and the Postum Co. to pay
$10,750,000 for 51 per cent of the stock.
M r . G r a y . I will come to those details. But the fact is that the
Postum Co. had the contract first and didn’t have the money avail
able, that is correct, isn’t it ? And then the Goldman Sachs 1'rading
Corporation came into the matter with the Postum Co. to put
through the agreement as you have indicated?
Mr. S a c h s . Well, I wouldn’t say that they didn’t have the money
available, but they decided, no doubt, to issue 150,000 shares of addi
tional Postum stock in order to finance their share of the purchase*
Mr. G r a y . Let’s see if we can find out exactly how that was done.
The first thing that happened was, was it not, that the Postum Co.
sold to the Goldman Sachs Trading Corporation those 150,000 shares
of stock in the Postum Co. that you have referred to, for which you
paid to them $10,750,000; is that not correct?
570
STOCK EXCHANGE PRACTICES
Mr. Sachs. That is approximately correct. I have the exact fig
ures here if you would like to see them.
Mr. G ray . Well, those are the exact figures. You can rest as
sured that that is correct.
M r. S ach s . I w ill accept you r figures.
Mr. G ray. And then after the Goldman Sachs Trading Corpora
tion acquired 150,000 shares of the Postiim Co. for the amount men
tioned, then the agreement was put through—the mechanics of it we
will speak of in a minute—whereby the Postum Co., which changed
its name to General Foods Corporation, and the Goldman Sachs
Trading Corporation—the Goldman Sachs Trading Corporation put*
ting up $12,750,000 in addition—acquired the stock of the General
Foods Co. that owned this patent; that is correct, isn’t it?
Mr. S achs. The 150,000 shares, with this exception, that we did
have to the extent of 20,000 shares a partner in that acquisition.
Mr. G ray . That is to say, you had some outside partner in it—in
the what?
Mr. S achs. In the 150,000 shares. We actually purchased 130,000
shares, the Trading Corporation did.
Mr. G ray. I do not think we are concerned with that in this
picture.
Senator G lass. What did these two companies or corporations
acquire for the $23,000,000?
Mr. G ray. They acquired, did they not. Mr. Sachs, the stock of
this company that had one and three-quarters million dollars invested
in it?
Mr. S achs. Yes, sir.
Mr. G ray. That is what they acquired?
Mr. S achs. And had a process that is believed to be of extraordi
nary value.
Mr. G ray. Yes. The company, in other words, whose stock you
bought had a process. What investigation did the Goldman Sachs
Trading Corporation make with respect to that patent? Any?
Mr. S a c h s . Yes.
Mr. G ray. I do not want all the extensive details o f it.
Mr. Sachs. No. I can perhaps best quote—I will give you the
further details if you like, but I can quote from the then listing
statement with regard to the 150,000 shares of stock, in which it is
specifically mentioned that both the Postum Co., the present General
Foods Corporation, and the Investment Co., which means the Trad
ing Corporation, had made extensive investigations and submitted
the proposition and the facts to its respective boards of directors who
had approved of the purchase.
Mr. G ray. In other words, that information is contained in the
listing application that was filed with the New York Stock Exchange
when the Postum Co. made application to list those other 150000
shares of stock that that created and sold to you for $10,750,000 ? '
Mr. S achs. Correct.
Mr. G ray. All right.
Mr. S achs. Which I think is fair to say was approximately the
then market price of the Postum Co. stock.
Mr. G ray. All right.
Senator G lass. That means, then, that you paid $23,500,000 for
the process, does it?
STOCK EXCHANGE PRACTICES
571
Mr. S a c h s . It means that the two corporations together paid
$23,500,000, of which, however, one and one-half million dollars went
into the company as working capital, and they also had assets of
one and one-half million dollars, so something less than $22,000,000
was paid for the process; yes, sir.
Mr. G r a y . N ow the fact is, however, that through the mechanics
that were employed—you first buying some of the stock of the
Postum Co., and, secondly, buying in your own name—not in your
own name, but buying for the Goldman Sachs Trading Corporation,
a certain percentage of the rest of the stock—all of the money to
finance this transaction, $23,500,000, came out of the treasury of the
Goldman Sachs Trading Corporation, didn’t it?
Mr. S a c h s . Well, about one-half of it came out for 150,000 shares
of Postum Co. stock.
Mr. G r a y . Yes; I understand, but it all came out of the treasury
of the-Goldman Sachs Trading Corporation?
Mr. S a c h s . Correct.
Mr. G r a y . N o w I want to take that 150,000 shares first and clear
that end of it up. Are you familiar with the fact that your books
show that that stock was eventually sold by the Goldman Sachs
Trading Corporation at a loss of $230,0001
Mr. Sachs. Well, I do not recall the exact figures; no. I know
that in the course of the year—I think in the year it was sold on the
market.
Mr. G r a y . All right. That puts that out of the picture. Now,
for the $10,750,000 that the Postum Co. put up they got 51 per cent
of the stock?
Mr. S a c h s . Correct.
Mr. G r a y . For the $12,750,000 that the Goldman Sachs Trading
Corporation put up they got 49 per cent of the stock I
Mr. S a c h s . Correct.
Mr. G r a y . I hand you a paper which I will ask the stenographer
to take and mark as an exhibit, and I ask you whether or not that is
a correct copy of the agreement made on June 14, 1929, between
Postum Co. (Inc.), and Goldman Sachs Trading Corporation with
respect to the handling of the affairs of the company that was created
thereafter?
Mr. S a c h s . That is the contract; yes, sir.
(Agreement dated June 4, 1929. between Postum Co. (Inc.) and
Goldman Sachs Trading Corporation was marked “ Exhibit 9 of
May 20, 1932,” and appears in the record at the end of Mr. Sachs’s
testimony.)
Mr. G r a y . It is a fact— I am summarizing; this will all go in the
record—it is a fact that the Postum Co., in addition to getting 51
per cent of the stock, was given preferences—the details I won’t
bother about, unless you want to go into them—was given prefer
ences with respect to the payment of dividends; was given prefer
ences with respect to the amount to be paid to them in the matter
of dissolution o f the corporation if it was liquidated; and in addition
to that the 150,000 shares of stock that you got and paid $10,750,000
for was excluded from those preferences, isn t that true?
Mr. S a c h s . Well, yes. I think you have to make these additional
qualifications-----Mr. G r a y . G o ahead.
572
STOCK EXCHANGE PRACTICES
Mr. S a c h s . That this was an agreement for a 5-year period only.
Preferences as to earnings during a 5-year period, which was the
period that it was expected would be required to bring this process
to a great commercial success. And that was the reason for the pref
erence of earnings to the General Foods Co.. plus the fact that the
General Foods—that the then General Foods Corporation was to
give its time, its experience, its knowledge in the food industry for
the management of the business.
Mr. G r a y . Yes. But the fact remains as I have indicated, the
amounts were put up as indicated, the proportions of stock divided
as indicated, and these preferences were given.
Mr. S a c h s . Yes.
Senator G l a ss . Was it brought to a great commercial su cc ess?
Mr. S a c h s . I b eg your pardon, sir.
Senator G l a ss . Was it brought to a great commercial su cc ess?
Mr. S a c h s . Not yet. But the 5-year period is not yet up, s ir .
Mr. G r a y . N o w , then, let us get the method which was fo llo w e d .
What you did was to organize a concern known as Frosted Foods,
isn’t that correct?
Mr. S a c h s . Yes, sir.
Mr. G r a y . Did Frosted Foods take over the stock directly from
the stockholders of General Foods Co.?
Mr. S a c h s . I don’t know whether—what the exact process was,
whether they took over the stock or the assets, but in effect they
acquired—I presume they acquired the stock of the old company,
and in effect----Mr. G r a y . Y ou presume that. Let me show you how that was
done. It is a little complicated. We have looked into it, and we
are trying to get it straight. Now, General Foods Corporation and
your own company formed this concern known as Frosted Foods
Corporation, didn’t they? Or Frosted Foods (Inc.) ?
Mr. S a c h s . Yes, sir.
Mr. G r a y . A ll right. Then there was another corporation formed
in Canada called United Foods (Inc.), wasn’t it?
Mr. S a c h s . I know nothing about that, sir.
M r . G r a y . Y ou k n ow n oth in g about th a t?
M r . S a c h s . N o.
Mr. G r a y . I am afraid we will have to prove
it in some other way
then. Then there was a third company formed called the United
Foods Co. of Delaware, isn’t that true ?
Mr. S a c h s . I know nothing about that, sir.
Mr. G r a y . Never heard of this?
Mr. S a c h s . The only way that I heard of the United Foods Co.—
I think it is of Canada—was that I happened to have long since seen
the voucher checks making payment to the Frosted Foods Co., and
know that they were indorsed over to the United Foods Co. That
is all I know about it.
Mr. G r a y . N o w , isn’t it a fact that after the formation o f those
three companies the first step in the procedure was that the General
Foods Co.—that is the Delaware corporation that owned this patent
originally—formed a stockholders’ committee consisting o f certain
individuals, and they sold all their outstanding stock m that cor
poration to the United Foods Co.—the United Foods (In c ) of
STOCK EXCHANGE PRACTICES
573
Mr. S a c h s . W e l l , I don’t know this. I am not familiar with that.
Mr. G r a y . All right. We will establish all these things, Mr.
Sachs.
Senator C o u ze n s . Who handled the deals, Mr. Gray t Have you
got the record?
Mr. G r a y . W e have had the records exam ined, and we can put M r.
Watson, the accountant, on the stand, w h o m ade an exam ination o f
these records, to testify to these facts.
And is it not a fact, next, that the United Food (Inc.), of Canada,
received in payment for their stock all of the capital stock of the
United—I want to get this right myself—sold all the outstanding
stock in the Delaware corporation; tnat is, this General Foods Co.,
the original company, to the United Foods (Inc.), of Canada, receiv
ing in payment therefor all of the capital stock of the Canadian cor
poration ? In other words, it was an exchange of stock for stock?
Do you know that to be correct ?
Mr. S a c h s . N o; I do n ot kn ow those steps.
Mr. G r a y . Y ou do n ot?
Mr. S a c h s . N o , sir.
Mr. G r a y . And is it not a fact then as the second step the Frosted
Foods (Inc.) acquired from the Canadian corporation for a cash
consideration—that is, this cash consideration of $22,000,000 that
you are talking about—the stock of the General Foods Co. which
they in the first instance had purchased from the General Foods Co. ?
M r . S a c h s . Well, I know, of course that the Frosted Foods Co.
acquired either the stock or the assets.
Mr. G r a y . In som e direct or indirect w a y ?
Mr. S a c h s . Yes. I do n o t kn ow w h a t the leg al processes were.
Mr. G r a y ; Now, then, at that point we have got the Canadian
corporation in possession of this $22,000,000 in cash and the Frosted
Foods (Inc.) in possession of the only asset in the case, which is the
stock o i the original company known as the General Foods Co., that
owned this patent. Do you happen to know that your original
check for $10,750,000, which was drawn to the order of Postum Co.
(Inc.), was indorsed by them over to Frosted Foods, and then in
dorsed by Frosted Foods to United Foods (Inc.), of Canada, and
then indorsed by United Foods (Inc.) for deposit in the Royal Bank
of Canada, ana that it was eventually thereafter paid back to the
firm of J. P. Morgan & Co. as representing the United Foods of
Delaware, the new corporation ?
Mr. S a c h s . N o , sir. I did not know that last step. I have learned
recently that these checks, of which I have a photostatic copy
here-----Mr. G r a y . All right, let me see them.
Mr. S a c h s (continuing). Were indorsed—this is the check for
$10,750,000—there you are, sir—was indorsed over to the Canadian
company, but I only learned of that recently.
Mr. G ray. May I have these for the record?
Mr. S a c h s . I w ill be v ery g la d to let y o u h av e th em .
Mr. G r a y . All right. Our information comes from the examina
tion o f these checks, so I will not bother reading the indorsements
again on the back, and we will place them on the record.
(The check of the Goldman Sachs Trading Corporation to Postum
Co. (Inc.), dated June 6,1929, for $10,750,000, together with the in
574
STOCK EXCHANGE PRACTICES
dorsements on the back thereof, was marked Exhibit 6, H ay 20,
1932, and is here printed in the record in full, as follows:)
E x h ib it 6, M a t
20,1932
The Goldman Sachs Trading Corporation
80 Pine Street
No. 22.
New York, June 6, 1929.
Pay to the order of Postum Co. (Inc.), $10,750,000 (ten million seven hundred
fifty thousand dollars).
T h e G o l d m a n S a c h s T r a d in g C o r p o r a t io n ,
S id n e y J. W e in b e r g , Treasurer.
To the Manufacturers Trust Co., 139 Broadway, New York. (On reverse
side of above.)
Pay to the order of Frosted Foods Co. (Inc.), Postum Co. (Inc.), by J. S.
Prescott, vice president; by L. A. Zann, treasurer.
Pay to the order of United Foods (Inc.), Frosted Foods Co. (In c.), by
John S. Prescott, secretary.
For deposit only to credit of United Foods (Inc.), United Foods (In c.), C. S.
Richardson, director; J. F. McCrory, director.
Mr. G ray. N ow your check for $12,750,000—or rather, there were
two checks, divided, one for $11,250,000 and one for $1,500,000, isn’t
that correct?
Mr. S achs. Correct, sir.
Mr. G ray . And your first check, if you will let me have it please
for $11,250,000, is indorsed by Frosted Foods (Inc.) It is drawn te
the order of Frosted Foods Co. and indorsed by them over to United
Foods (Inc.)? in Canada, and then taking the same course that the
other check did, was deposited in the Royal Bank of Canada.
(The check or the Goldman Sachs Trading Corporation to Frosted
Foods Co., dated June 6,1929, for $11,250,000, was marked “ Exhibit
7, May 20,1932,” and is here printed in the record in full, as follow s:)
E x h i b it 7, M a y 20, 1932
The Goldman Sachs Trading Corporation
30 Pine Street
No. 23.
y ew York, J u n e 6, 1 929.
Pay to the order of Frosted Foods Co. .$11,250,000. (Eleven million two
hundred fifty thousand dollars).
T h e G o ld m a n S a c h s T r a d i n g C o r p o r a t i o n ,
S i d n e y J . W e in b e r g , Treasurer.
To the Manufacturers Trust Co., 139 Broadway, New York.
(On reverse side of above)
Pay to the order of United Foods (Inc.). Frosted Foods Co. (Inc.), by John
S. Prescott, secretary.
For deposit only to credit of United Foods (Inc.). United Foods (In c.),
C. S. Richardson, Director; J. F. McCrory, director.
Mr. G ray . N ow , your check for $1,500,000, drawn to the order of
Frosted Foods Co., was indorsed by them, and then indorsed back
to Goldman, Sachs & Co.?
Mr. S achs. Right.
Mr. G ray . And deposited by Goldman, Sachs & Co. So that we
may save the time of the committee, and no one may get the impres
sion that there is anything improper about this coming back to
Goldman, Sachs & Co., it is a sum of money which before the new
organization became operative, or before they expected it to become
STOCK EXCHANGE PRACTICES
57
5
'
operative, was idle money, and went back to Goldman, Sachs & Co.
for the purpose of allowing them to put it out as call money in order
that the money might not be idle and not earning something in the*
meanwhile. That is correct, is it?
Mr. S a c h s . One might make it even clearer.
Mr. G b ay . All right.
Mr. S a c h s .. T h a t th is w as a fund th a t belonged to th e Frosted*
Foods Co.
Mr. G r a y . That w a s left with you for investment purposes?
Mr. S a c h s . That was left with us for temporary investment.
Senator C o u ze n s . Left with whom?
Mr. S a c h s . Goldman, Sachs.
Mr. G r a y . Goldman, Sachs & Co., a member of the New York
Stock Exchange.
Senator G l a ss . There could be nothing wrong with that, because
all the banks and most o f the corporations sent their money in on
call, didn’t they ?
Mr. S a c h s . Yes.
Mr. G r a y . Yes. I a m ask in g th at in fairn ess so th a t n o im p rop er
inference m ig h t be draw n fr o m th is check.
Senator B r o o k h a r t . Except that the whole thing was improper—
banks and all.
Senator C o u z e n s . I would like to ask the Senator from Virginia
if he thinks that the fact that the banks and corporations did it
makes it proper ?
Senator G l ass . I will put a greater degree of sarcasm in my ques
tion next time so that the Senator from Michigan may understand.
Senator C o u z e n s . Well, being English, of course I am slow at
grasping those things.
Mr. G r a y . We have traced this check and find $1,400,000 of it that
went back to the Frosted Foods. The other $100,000, whether it has
been paid back yet or not we do not know.
Mr. S a c h s . I think that is incorrect. I know every penny plus
interest was paid. The reason was this, Mr. Gray, that the first
$100,000 was immediately repaid. Paid back.
Mr. G r a y . Well, I do not want any improper inferences drawn
from that part o f it, but it is an incident in connection with it in
order that you might get the whole history.
(Check of the Goldman Sachs Trading Corporation to F ro sted
Foods Co. (Inc.), dated June 6, 1929, for $1,500,000 was marked
uExhibit 8, May 20,1932,” and is here printed in the record in full,
as follows:)
E x h i b i t 8, May 20. 1932
The Goldman Sachs Trading Corporation
30 Pine Street
N ew Y o r k . June 6, 1925-
No 24
Pay to the order o f F rosted F oods Co. (I n c .) .$1.500.000.
(O n e m llU °n * ve
hundred thousand dollars.)
T h e G o l d m a n S a c h s T r vding C o r p o r a t io n ,
S id n e y J . W e in b k h g , Treasurer.
To the
M an u factu rers
of above:)
Trust Co.. 139 Broadway, New York.
,
„
(On reverse side
,,
Pay to the order o f Goldman, Sachs & Co., Frosted Foods Co. (Inc.), Dy
Zahm, treasurer.
Pay to the order of Manufacturers Trust Co., Goldman, Sachs & Co.
t,
A
A
576
STOCK EXCHANGE PRACTICES
M r . G r a y . N o w , y o u do n ot know a n y th in g about w h a t h appened
t o th at m oney?
Mr. S a c h s . No, sir. You mean the other money?
Mr. G r a y . Any of it except that $1,500,000?
Mr. S a c h s . N o, s i r ; I do not.
Mr. G r a y . All right. Now, after that was done and
your concern,
the Goldman Sachs Trading Corporation, put $12,750,000 of its
money out for a 49 per cent interest in Frosted Foods, what did you
do with that item on your books?
Mr. S a c h s . We carried it on our books a t cost.
Mr. G r a y . For h ow lo n g ?
Mr. S a c h s . Until our balance sheet o f December 31, 1980.
M r. G r a y . T h a t is a year and a h a lf later?
Mr. S a c h s . That is a year and a half later.
Mr. G r a y . Yes. Now, I will come back to that, but let me get
another incident of that. I think one of the committee asked tnis
question, and I do not know that the question was answered. What
has Frosted Foods done since? They have had this proposition for
three years?
Mr. S a c h s . Yes, sir.
Mr. G r a y . They are still trying to get the thing in shape, aren’t
they ?
Mr. S a c h s . I shouldn’t put it quite that way. I should s a y that
they have made very real progress in developing the enterprise alo n g
successful commercial lines.
Senator C o u z e n s . Have they made any real money ?
Mr. S a c h s . Not yet, sir.
Mr. G r a y . Haven’t made a cent, have they?
Mr. S a c h s . No, sir.
Mr. G r a y . As a matter of fact, the Goldman Sachs Trading Cor
poration put nearly $2,000,000—if I am wrong about that figure, cor
rect me—or $1,750,000-----Mr. S a c h s . A million and a half.
Mr. G r a y (continuing). A million and a half dollars into Frosted
Foods afterwards for the purpose of development.
Mr. S a c h s . Correct.
Mr. G r a y . So that altogether they put, including the money that
went in through Postum or General Foods, a matter o f approxi
mately $25,000,000 in this proposition, for which they got 150,000
shares of Postum, that was sold at a loss of about $230,000, so that
that took $10,750,000 of the investment out of the picture, with the
exception of $230,000, and what you did in the end of 1930 was to
charge that off on your books as being worth $1 ?
Mr. S a c h s . Charged the common stock off. Not the b u s in e s s .
Mr. G r a y . Well, the $12,750,000 that you put in of this money, of
$90,000,000 that the public invested in the Goldman Sachs Trading
‘Corporation, you charged off at the end of 1930 as being worth $1?
Mr. S a c h s . Well, we set up a reserve.
Mr. G r a y . Why, if this was such a good c o m p a n y ?
Mr. S a c h s . I can answer th a t best m the fo llo w in g w a y , b y quot
in g , i f I m a y , fr o m our report at the end o f the y e a r, d a te d
31, 1931.
Mr. G r a y . Certainly.
Mr. S a c h s (reading):
January
STOCK EXCHANGE PRACTICES
577
The corporation’s investments and its interests in syndicate and joint ac-counts have been taken at market values at December 31. 1930. which were
lower than cost in so far as adequate market quotations wore available. It
has been the practice in the corporation’s previous reports to value at cost a
number of important investments for which no adequate market quotations are
available. The largest investment ol’ this type is Frosted Foods Co. (Inc.).
On the appended balance sheet the stock in this company has in the interest o f
conservatism been written down to .$1, although no change in the progress of
the enterprise requires this reserve, and its development may establish a sub
stantial value for it.
I want to say this in addition, that in consultation with our ac
countants, leading accountants in this country, with Price, Water
house & Co., we found that there was no place, according to good
accounting practice, that we could stop in between cost and $1. We
had long conferences with them. We decided that conditions had
changed in the interim period in the world in general. That we did
not want to create the impression of inflated values, and as there was
no place to stop between cost and $1, we set up the reserve bringing
down the value of the stock to $1. making the explanatory statement,
however, which I just read.
Mr. G r a y . Now, you did that in that way because you still felt
that the investment had a value ?
Mr. S ach s . Yes, sir.
Mr. G r a y . But you could not fix the value of it \
Mr. S a ch s . Exactly.
Mr. G b a y . All right. Now, then, the next step that you made,
however, was at the end of the ensuing year, 1931 ?
Mr. S ach s . Yes, sir.
Mr. G r a y . Had, in your opinion, the value of Frosted Foods stock
changed any in that year?
Mr. S ach s . It was impossible to say exactly.
Mr. G r a y . It was still in that same situation that though you had
made a thorough investigation of it, that you thought justified an
investment of $12,750,000-----Mr. S achs (interposing). In 1929.
Mr. G b a y (continuing). In 1929—at the end of 1930 and at the
end of 1931 you still did not know what its real value was?
Mr. S a c h s . Could not determine it exactly in dollars and cents.
Mr. G r a y . All right. What you did at the end of 1931 was to
take that 49 per cent of the stock of the Frosted Foods (Inc.), which
represented your $12,750,000 investment and which you had written
down to a dollar, and which was represented by 14,700 shares-----Mr. S ach s . Correct.
Mr. G b a y (continuing). Of the Frosted Foods stock and turned
that over to General Foods Corporation for 30,000 shares of their
stock, which was then selling on the market at $30 a share?
Mr. S ach s . Correst; approximately.
Mr. G b a y . Correct. That made your investment worth $900,000?
Mr. S ach s . Correct.
Mr. G b a y . And then you had something that you were able to
fix a definite value?
Mr. S a c h s . Correct.
Mr. G b a y . I f you thought Frosted Foods had such a brilliant
future in connection with this patent which justified you in putting
$12,750,000 of this public’s money into the proposition,, even though
578
STOCK EXCHANGE PRACTICES
you had written it down, why did you turn it back for $900,000, thus
sustaining a loss in that particular situation of just $11,850,000?
M r . S a c h s . For quite a different reason, sir.
Mr. G b a y . Well, just tell it to us.
.
M r S ac h s . That the corporation had bank loans which m 1929
seemed negligible.
Mr. G ra y . G o ahead.
.
Mr. S achs . Bank loans that seemed negligible in 1929. W ith the
change in world conditions by the end of 1930 it seemed unwise to
put any additional funds into what might be called an il-liquid asset.
Mr. G ra y . In other words, you came to the conclusion that it
might not be worth as much as you thought it was-----M r. S ac h s . N o , s ir ; I do not agree w ith that.
Mr. G r a y . All right. That you did not want to put any addi
tional money into it to finance the venture any further, and you
wanted to take a definite position even though there was registered
upon your books and in these transactions a definite loss?
Mr. S ac h s . Quite right. In other words, we thought because of
general conditions it was wisest not to put in any additional funds
for the further commercial development of this enterprise, and that
it was wisest to take 30,000 shares of General Food stock that was
good collateral for bank loans and a quick asset.
Mr. G ra y . Now I think that is all I want to ask Mr. Sachs, but I
want to say to the committee two things. First? that when this
matter came to our attention we made our investigation. W e got
this information. And I felt, as I have acted with respect to all
-of these matters, that Mr. Sachs should have an opportunity—though
I could have presented the facts to you in a little different way, I
mean by presenting the testimony as to the occurrences—so I gave
him the opportunity to come here to say anything that he wanted
to say to tne committee about the transaction.
One thing more I want to say-----Senator C ouzens . Before you go. Was the Goldman Sachs Trad
ing Corporation stock on the New York Stock Exchange ?
Mr. S achs. No, sir; it was on the curb exchange. May I say just
another word?
Mr. G r a y . Yes.
Mr. S a c h s . I think in justification perhaps with respect to some
thing that Senator Glass said that I should say that in the brief
for the United States in the packers’ case, the Government makes
this reference to the Birdseye process:
With the development of quick freezing, patents for the first time will play
an important rdle in the meat-packing industry. The best-known process is
the Birdseye, owned by General Foods Corporation, for which the comnany
paid $22,000,000.
I only mention that to show that many people think that this may
prove a very revolutionary and profitable enterprise.
Mr. G ra y . Well, if I can avoid getting into a long dissertation,
Mr. Sachs-----Senator B rookhart . Well, since that is charged down that
$22,000,000 is an excessive statement, is it not ?
5
Mr. S ach s . I beg .your pardon?
Senator B rookhart . Since that is charged out, that $22 0 0 0 0 0 0 is
an excessive statement?
’
STOCK EXCHANGE PRACTICES
579
M r. S achs . Well, that may be. Nobody can look into the future.
Senator G lass. Did you suppose the court before delivering that
opinion very critically examined into this matter?
Mr. S achs . I do not know, sir.
Senator G lass. And learned very definitely that that is true?
M r. S achs . I do not know about that, sir.
Mr. G b a t . I f I can avoid by m y question a long dissertation on
this patent, I will ask just th is : T he difference between this patent
and other patents for freezing food products is this, that this thing
does it quicker?
Mr. S achs . Well, we think it does it quicker and better.
Mr. G b a t . Quicker and better. Now, one other thing I would like
to say to the committee.
Senator B rookhart. Let me ask a question. What is the differ
ence between the curb exchange and the stock exchange?
Mr. S ach s . Well, the New York Stock Exchange is one body,
usually referred to as the stock exchange, and there is another ex
change on which stocks are traded in that are not listed on the New
York Stock Exchange, which is known as the New York Curb Ex
change. There are just two exchanges.
Senator B bookhart . Are they under the same kind o f rules and
regulations ?
M r. S a c h s . I am not sufficiently fam iliar with the rules to know
whether they are exactly the same or not.
Senator B rookhart. W e ll, this curb, as
they call it, has a place of
business the same as the other?
Mr. S ach s . It now has a building. It did not years ago.
Mr. G b a t . It used to operate on the street, Senator, on Broad
Street up there, but it now has a building of its own.
Senator B rookhart . And it transacts a large volume o f business,
but not as much as the big exchange?
Mr. S a c h s . N o ; not as much, but a large volume.
Senator B rookhart . And very much on the same rules? It kind
of follows the methods of the other exchange ?
Mr. S a c h s . I think so. As I say, I am not familiar with it.
Senator B bookhabt . Well, did you sell any of these stocks through
the curb?
Mr. G b a t . All of them through the curb, Senator.
Mr. S a c h s . Yes; the Goldman Sachs Trading Corporation is listed
on the curb.
Senator B rookhart . The Goldman Sachs Trading Corporation is
listed on the curb?
M r. S a c h s . Yes.
Senator B bookhart . So they have a listing scheme as well as the
other exchange ?
M r. S a c h s . Y es.
Senator B rookhart . A l l right.
M r. G b a t . The other thing I wanted to say to the committee is
that w e are tracing this fund o f $22,000,000 th at went into the
Canadian corporation’s hands and from them back to J. P. M organ
A Co. as representing United Foods (Inc.), fo r the purpose o f finding
what the distribution is. Up until the tim e the matter was brought
•here to the attention o f the committee we have not been able to
complete that, but we believe that there m ay be some facts that
580
STOCK EXCHANGE PRACTICES
the committee will be interested in, and in addition to that, believe
that we may be able to show that the tax question had something
to do with the question of United Foods (Inc.), of Canada, and why
they used it.
That is all I want to ask Mr. Sachs.
Mr. S achs. I am through, I suppose?
Mr. G ray. Yes.
Senator C ouzens. Does this witness know anything about that
Canadian transaction?
Mr. G ray. Well, I have examined him to-day, Senator, and he
has told us all he knew.
Senator G lass. Which was nothing.
M r. G ra y . W h ich was nothing.
Mr. S achs. Is that all ?
Mr. G ray. Yes. In order that there might be no hiatus in this
record—and I do not think it is necessary to more than make a
statement—I desire to state that the investigation that was made
of this matter establishes the existence of the facts that were in
corporated into my questions of Mr. Sachs as to the method by
which it was done and the amounts paid, and he has conceded what
his books show with reference to the ultimate closing of the trans
action thereon.
(The agreement dated June 4, 1929, between Postum Co. (Inc.)
and Goldman-Sachs Trading Corporation, heretofore marked “ Ex
hibit 9 of May 20, 1932,” is here printed in the record in full, as
follows:)
A g r e e m e n t M ade T h i s 4 t h D a y o f J u n e , 1929, B e tw e e n P o s tu m Co. ( I n c .) ,
H e r e in a f t e r K n o w n a s P o stu m , a n d G o ld m a n S a c h s T k a d in g C o r p o r a tio n ,
H e r e in a f t e r K n o w n a s T ra d in g C o rp oratio n
The parties agree with each other as follows:
1. Postum agrees to sell to the Trading Corporation and the Trading Cor
poration agrees to buy 150,000 shares of the common stock of Postum without
nominal or par value for $10,750,000 cash.
2. The parties hereto agree to organize or cause to be organized a corpora
tion under the laws of the State of Delaware, to be known as Frosted Foods
Co. (Inc.), or some other appropriate name, with a capital stock of 30,000 shares
having a par value of $100 per share, for the purpose of taking over all the
capital stock of the General Foods Co., a corporation organized and existing
under the laws of the State of Delaware. In order to provide the new corpo
ration with the funds to purchase said stock and as working capital, Postum
agrees to subscribe for 15,300 shares of capital stock of said Frosted Foods Co.
(Inc.) and pay therefor $10,750,000, and the Trading Corporation agrees to
subscribe for 14,700 shares of the capital stock of said company and pay there
for the sum of $12,750,000. Postum agrees to manage the business of Frosted
Foods Co.
3. It is understood and agreed that the name of the General Foods Co. shall
be changed and that Postum may change its name to General Foods Co. or
Corporation, or use that name for any of its present or future subsidiaries'
Postum shall have complete charge and supervision of the business of the new
company during the period of this contract (which term when used in this
instrument means the period up to January 1, 1935). It is expected that
Postum will continue the present business of General Foods Co. under Frosted
Foods Co. and extend the same, but it is also understood that Postum may find
it desirable for the general interest or otherwise to exploit the patents and
processes acquired by Frosted Foods Co., and Postum shall have the right, for
the period of the contract, to have any of its subsidiaries, present or future,
use the patents and processes of the Frosted Foods Co. without the payment of
royalties to the said company and may grant to other persons or corporations'
the right to use such patents or processes for the period of the contract upon
STOCK EXCHANGE PRACTICES
581
such terms and conditions as Postum may deem proper which need not include
royalties to the Frosted Foods Co.
4. During the period of the contract neither party hereto will sell, part with,
Pledge, or offer to any other person, firm, or corporation any interest in any of
the stock of Frosted Foods Co., but each will retain its stock therein free and
clear except in so far as the other may otherwise consent in writing. During
the period of the contract no additional stock shall be issued by Frosted Foods
Co. without the consent of both parties hereto.
5. The net profits of Frosted Foods Co. applicable to the payment of dividends
earned during the period of the contract shall be deemed to accrue to the
parties hereto as follows:
In each year there shall be determined the amount which Postum earned per
share on its common stock in that year; for this purpose there shall be taken
its consolidated net profits applicable to the payment of dividends, in accordance
with good accounting practice (its annual published statement of earnings
shall he deemed prima facie to be in accordance with good accounting practice)
and from this amount shall be deducted any profits from Frosted Foods Co.
(Inc.); there shall also be employed for this purpose the weighted average
number of shares of Postum outstanding during the year, less 150,000 shares.
The net earnings per share, less 150,000 shares, as so determined shall be mul
tiplied by 150,000, and to the extent of the resulting figure the net profits oil
Frosted Foods Co. for that year applicable to the payment of dividends shall
accrue to and be credited to Postum. Any further of such net profits of Frosted
Foods Co. for the year shall accrue to the Trading Corporation until the amount
accrued to the Trading Corporation shall equal the amount per share as was
first accrued to Postum, and any remaining of such net profits in the year shall
accrue to the two parties in proportion to their stock interests. When Frosted
Foods Co. pays dividends the amounts paid shall be divided between the parties
in accordance with the foregoing.
6. If Frosted Foods Co. shall be dissolved and its business and affairs ter
minated and liquidated (as contrasted with a reorganization, consolidation, sale
as a going business, etc.), its net assets shall be divided between the parties as
follows:
From the total net tangible assets of the Postum Co., determined from its
next preceding audited consolidated balance sheet, there shall be deducted the
value of its stock in Frosted Foods Co. (Inc.), at the figure at which it is
therein included, and the balance shall be divided by the number of shares of
common stock of the Postum Co. as of the date of that balance sheet, less 150,000 shares. The amount so arrived at shall be multiplied by 150,000, and to
the extent of the resulting figure so reached the net assets of Frosted Foods
Co. (Inc.) shall first go to the Postum Co. The Trading Corporation shall then
receive from the net assets an amount equal, per share, to the amount received
by Postum as above provided, and the remaining assets shall be divided be-v
tween the two parties in accordance with their stock interests. Tangible as
sets shall be taken to mean, all assets except patents, trade-marks, good will,
and other similar assets.
7. Postum shall have an option to purchase from the Trading Corporation
its stock in the Frosted Foods Co. for a period up to April 1, 1935, after the
ending of the period of the contract—namely, January 1, 1935—by issuing to
the Trading Corporation the number of shares of Postum deterniined in the
following manner (subject to the minimum limitation hereinafter set forth):
There shall be first ascertained the consolidated net profits of Postum for
the year 1984 applicable to the payment of dividends on its common stock (to
which figure shall be added all of the net profits of Frosted Foods Co. for that
year not otherwise included therein).
There shall next be determined the amount of such profits as were earned
by or were attributable to Frosted Foods Co., its business, patents, processes,
etc., including all of the net profits of Postum (on a consolidated basis), fairly
attributable to the use of the patents and processes of Frosted Foods Co., to
which shall be added all of the net profits of Frosted Foods Co. for that year
not otherwise included therein.
The first figure is denominated (a) and the second (6 ); (6) shall then be sub
tracted from (a) and the remainder shall be divided by the weighted average
number of shares of Postum outstanding during the year 1934, less 150,000
shares; (5) is then divided by that quotient; and the number of shares that the
Trading Corporation shall receive is 49 per cent of the resulting figure. By way
of illustration, if (a) is $31,000,000 and (b) is $3,000,000, and the weighted
119852—32— pT 2------14
582
STOCK EXCHANGE PKACTICES
average number of shares outstanding is 4,150,000, then $28,000,000 would be
divided by 4,000,000, giving 7; then $3,000,000 would be divided by 7, giving
428,571, and the Trading Corporation would be entitled to receive 49 per ceot
of 428,571, or 271,000 shares of Postum stock.
The figure denominated (a) shall be that determined by Price Waterhouse «
Co. If the parties can not agree on the figure (6), then the determination
thereof shall be left to the senior partner of Price Waterhouse & Co. at the
time, and his determination shall be final and binding. In making such deter
mination he shall give due consideration to executive effort by way of produc
tion, advertising, selling, and administrative experience on the part of Postum
Co. and of the Trading Corporation. Proper adjustments shall be made for
prepaid or deferred royalties or other compensation.
The Trading Corporation may, i f it elects, choose as a test period in place of
1934 any calendar year during the period of the contract; and in that event
the number of shares shall be determined in accordance with the foregoing
formula, with the following adjustments, viz, figure (a) shall first be ascer
tained, as hereinbefore provided, for the year 1934, and from that amount there
shall be deducted all net profits of Frosted Foods Co. for that year, and there
shall be added thereto all of the net profits of Frosted Foods Co. for the year
selected by the Trading Corporation. The figure denominated (&) shall be
determined as hereinbefore provided, but with respect to the year selected by
the T r a d i n g Corporation. The adjusted figure (a) and the figure (&) shall be
used in accordance with the foregoing formula. The weighted average number
of shares (less 150,000) of Postum shall be taken for the year 1934.
If the parties hereto should decide that Frosted Foods shall be operated as a
separate and independent corporation, and in fact it shall so operate it that it
r e c e i v e s compensation approved by all the directors of Frosted Foods Co. (Inc.),
for the use of its assets, then and in that event the number of shares of Postum
for which Postum shall have the option to purchase the Trading Corporation
stock in Frosted Foods (subject to the minimum limitation hereinafter set
forth) shall be determined in the following manner: The figure denominated
(a) in the foregoing formula shall remain unchanged; the figure denominated
( b) shall be the total net profits of Frosted Foods Co. (Inc.) : and the balance
of the formula shall be applied. The figure shall then be taken for the year
1934 unless the Trading Corporation elects to have some year other than 1934
taken, in which case adjustment shall be made as hereinbefore provided.
8. The foregoing is subject to the limitation that the number of shares of
Postum to be received by the Trading Corporation shall not be less than that
determined in the following manner: Trading Corporation’s original invest
ment in Frosted is taken at $12,750,000. To this shall be added any additional
investments made by the Trading Corporation in Frosted Foods Co. and in
terest at the rate of 10 per cent per annum thereon from June 1, 1929 (or the
later date of investment) to December 31, 1929, and there shall be subtracted
therefrom the amount of cash dividends of Frosted received by the Trading
Corporation during that period. The balance shall be carried over as the start
ing figure of the next year, and similarly it shall be increased by any additions
to capital and by interest at 10 per cent per annum on the opening figure plus
additional investments from the time made, and minus the cash dividends
received by the Trading Corporation. This calculation shall be carried forward
similarly year by year to December 31, 1934. The net resulting figure as of
that date shall be divided by the weighted average selling price of Postum
stock on the New York Stock Exchange during the months of October and
November, 1934, and the quotient shall be the minimum number of shares
issuable to the Trading Corporation upon the exercise of the option.
9. Postum shall advise the Trading Corporation in writing not later than
December 1, 1934, whether it intends to exercise its option, and failure to give
by that time a written notice of election to exercise shall be deemed to be an
election not to exercise the option.
10. It is understood that the Trading Corporation is to have at least three
directors on the board of directors of the Frosted Foods Co.
11. If Postum shall fail to exercise the option, then (a) Postum shall be en
titled to receive the amounts credited to it in accordance with the provisions
of paragraph 5 to the extent that Postum shall not then have received the
same, and the Trading Corporation shall be entitled to receive a sum equal to
the same amount per share (but only to the extent that the same shall have
been earned) as Postum has theretofore received or by the foregoing payment
will receive, but only to the extent that the Trading Corporation shall not
then have received the same; and Frosted Foods shall declare a dividend to
583
STOCK EXCHANGE PRACTICES
the extent necessary to cover the foregoing. If Frosted Foods, in the judg
ment dt the directors, is not in a position to pay the foregoing dividends in
cash, then they may, in whole or in part, pay such dividends in short term or
long term interest-bearing obligations of the corporation.
(6)
Beginning with January 1, 1935, the provisions herein contained with
respect to the Frosted Foods Co. shall cease and determine, and that company
from that time on shall be operated as a separate and independent corporation
and shall be entitled to receive reasonable royalties for the use of its patents
and processes. If the amount of reasonable royalties is not agreed upon be
tween the parties, it shall be determined by arbitration; and when a rate of
reasonable royalty has been agreed upon it shall then be computed to the date
that this agreement becomes effective and computation shall be made of the
additional net profits that would have been made by Frosted Foods Co. had
such royalties then been effective, and the Trading Corporation shall then be
entitled to receive 49 per cent of that amount by receiving all of the dividends
paid on Frosted Foods stock until the amount it thus received equals such
49 per cent.
12. Frosted Foods Co. (Inc.) may amortize the patents and patent rights
owned and to be owned by it over the life thereof in accordance with good
accounting practice, but for all purposes of this agreement as between the
parties such amortization of patents shall not be deemed to be a deduction
from income. Dividends as referred to herein shall be deemed to include
dividends out of paid-in or initial surplus as well as earned surplus.
Wherever in paragraphs 5, 6, and 7 hereof there is used “ 150,000 shares ”
or provision is made for multiplication by 150,000, that amount shall be in
creased proportionately in the event that the stock of the Postum Co. is split
tip or stock dividends are paid thereon, unless the stock dividends aggregate
not to exceed 10 per cent in any one year.
In witness whereof, the parties hereto have caused their respective corporate
seals to be hereunto affixed and these presents to be signed by their respective
duly authorized officers the day and year first above written.
P o stu m C o. ( I n c .) ,
By
C.
By
G o l d m a n S a c h s T r a d in g C o r p o r a t io n ,
S id n e y W e in b e r g , Treasurer.
M.
C hester,
President.
St a t e o f N b w Y o r k ,
County of New York, ss:
On this 4th day of June, 1929, before me personally came C. M. Chester, jr..
tt be known, who, being by me duly sworn, did depose and say that he resides
at Greenwich, Conn.; that he is ihe president of Postum Co. (Inc.), the corpo
ration described in and which executed the foregoing instrument: that he
knows the seal of said corporation: that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation; and that he signed his name thereto by like order.
[ s e a l.]
H aro ld B. S m i t h .
Sta t e o f N e w Y o r k ,
County of New York, ss:
On this 4th day of June, 1929. before me personally came Sidney Weinberg,
to me known, who, being by me duly sworn, did depose and say that he resides
at Scarsdale, N. Y .; that he is the treasurer of Go'dman Saeh Trading Corpo
ration, the corporation described in and which executed the foregoing instru
ment; that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the board
of directors of said corporation, and that he signed his name thereto by like
order.
[SEAL.]
M r. G r a y . I s Mr.
M r. H ansell . He
W U . R . R A S Q U IN .
Norman Bolles here?
was here last night, Mr. Gray. He stayed over
in Washington. He was to have been here to-day.
M r. G r a y . All right. Mr. Hansell, will you take the stand?
584
STOCK EXCHANGE PRACTICES
TESTIMONY OP HOWARD F. HANSELL, JR., NEW YORK CITY
Mr. G r a y . Will you stand up and be sworn, Mr. Hansell?
Senator G lass (presiding). You swear that the testimony yot*
shall give in this ease will be the truth, the whole truth, and nothing:
but the truth, so help you God ?
Mr. H ansell . Yes. '
Mr. G ra y . State your name.
Mr. H ansell . Howard F. Hansell. jr.
Mr. G ra y . Mr. Hansell, where do you live %
Mr. H ansell . 1 University Place, New York City.
Mr. G r a y . And what is your business?
Mr. H ansell . I am an independent speculator.
Mr. G r a y . On the exchange?
Mr. H ansell . N o.
Mr. G r a y . Well, in what way?
Mr. H ansell . For my own account.
Mr. G r a y . Well, for your own account, but you mean m connec
tion with stocks that are bought and sold on the New Y ork
exchanges ?
Mr. H a n s e l l . Stocks and bonds on the New York exchanges and
other exchanges and over the counter.
Mr. G r a y . S o that we may understand the expression “ over thecounter,” that means where sales are made privately without goingthrough a market such as the Curb or the New York Stock
Exchange ?
Mr. H a n s e l l . Where they are n o t listed on either o f those ex
changes.
Mr. G r a y . Where they are not listed on either o f those exchanges..
Were you ever a member of the New York Stock Exchange?
Mr. H ansell . No. I was a member of a firm that was a member
of the New York Stock Exchange.
Mr. G r a y . That was Hansell & Co. (
Mr. H ansell . That was Redmond & Co.
Mr. Gray. That was Redmond & Co. How long ago has that
been?
Senator B r o o k h a r t . One question there. You said w h e r e t h e y
were not listed on the exchange. Do you sell any listed stocks o v e r
the counter?
Mr. H ansell . Yes; occasionally.
Mr. G r a y . And how long since you were connected with R e d m o n d
& Co.?
Mr. H ansell . About 10 years.
Mr. G r a y . I direct your attention to the early part o f 1930 and
ask you whether at that time you become interested in Indian
Motocycle Co. stock?
Mr. " H a n s e l l . Yes.
Mr. G ray. And were you or were you not in any way
with that company?
Mr. H ansell . I was not.
Mr. G ra y . Did you at that time know the brokerage house of*
H. Content & Co. ?
Mr. H ansell . I did.
Mr. G r a y . And did you know Mr. H. Content personally?
STOCK EXCHANGE PRACTICES
585
Mr. H a n s e l l . Yes.
Mr. G r a y . What was the iirst transaction that you had with
respect to Indian Motocycle Co. stock %
Mr. H a n s e l l . My firm, which was then Hansell & Co.. purchased
40,000 shares of stock from the Indian Motocycle Co.
Mr. G r a y . Now, Hansell & Co. was yourself, was it not ?
Mr. H a n s e l l . Yes.
Mr. G r a y . And when you say “ purchased.” do you mean that you
bought that stock outright from the Indian Motocycle Co., or do you
mean that you secured an option on it?
Mr. H a n s e l l . I mean that we purchased it ou trigh t.
Mr. G r a y . And paid fo r it?
Mr. H a n s e l l . We paid for it over a period of time.
Mr. G r a y . Well, did you pay a n y th in g when you first got it?
Mr. H a n s e l l . Forty thousand shares of stork was -old to us for
$200,000.
Mr. G r a y . I did not ask you th at. I asked you whether y ou paid
anything for it when you first g ot it ?
Mr. H an sel l . I am tr y in g to answ er th at question.
Mr. G r a y . Yes.
Mr. H a n s e l l . A credit was opened on our books for the benefit o f
Indian Motocycle Co. for $200,000, part of which they drew at once.
Mr. G r a y . How m u ch?
Mr. H a n s e l l . $20,000 the first d a y , as I recall it.
Mr. G r a y . All right. Now, that was at $5 a share ?
Mr. H a n s e l l . Yes.
Mr. G r a y . And with whom in the Indian M o to c y c le Co. did you
make those arrangements, or with whom did you arrange that trans
action?
Mr. H a n s e l l . There was a man named Charles E. Mitchell, who
was the vice president.
Mr. G r a y . Yes.
Mr. H a n s e l l . He was in charge of the finances of his company.
Mr. G r a y . And did you know at the time that you bought that
stock at $5 per share that the Indian Motocycle Co. was then bank
rupt and virtually ready to be in the hands of the receiver ?
Mr. H a n s e l l . I did not.
Mr. G r a y . D o you mean to toll me that the officers of the Indian
Motocycle Co. did not say to you that unless you can take this 40,000
shares o f stock and market it that we are through ?
Mr. H a n s e l l . I don’t rem em ber them sa yin g th a t to me.
Mr. G r a y . Well, what was it in that connection that they did state
to you?
Sir. H a n s e l l . They needed money for working capital.
Mr. G r a y . That is all they told you?
Mr. H a n s e l l . Yes. They presented me a balance sheet as of Sep
tember, which was less than three months prior to that time, which
covered current assets and liabilities of the company.
Mr. Gray. Didn’t you know the company was broke ?
Mr. H a n s e l l . N o .
Mr. Gray. Y o u didn’t? What did you do with that stock?
Mr. H a n s e l l . I sold it to individuals, partly on the exchange,
partly off the exchange.
586
STOCK EXCHANGE PRACTICES
Mr. Gray. You sold it principally through H. Content & Co., abrokerage house, did you not?
Mr. H a n s e l l . A large part of it was sold through them.
Mr. G r a y . Y ou sold it at what price? General range? I d o n 't
mean the details.
Mr. H ansell. Some of it was sold at $4 per share.
Mr. G r a y . Yes?
Mr. H a n s e l l . And it was sold, I would say, from $4 to $11 or $12.
Mr. G r a y . And then you bought and sold it in order to keep the
market going?
Mr. H a n s e l l . Yes.
Mr. G r a y . Yes. We have seen other instances of that, a n d I w o n ’t
go into that in detail. And who else besides yourself w a s in te r
ested in that 40,000 shares of stock?
Mr. H a n s e l l . I had probably 20 or 30 people to whom I s o ld stock
and gave options on the stock, so that they would interest their
friends and clients in purchasing the stock.
Mr. G ray. Yes. Did Mr. Content have an interest in that 40,000
shares?
M r. H ansell. H e did not.
Mr. G r a y . None whatever?
Mr. H a n s e l l . I can’t remember any.
Mr. G r a y . Y ou can’t remember any. Did you have a j o i n t ac
count with Mr. Content on his books?
Mr. H a n s e l l . I have h ad joint accounts, but not—I remember no
joint account in Indian Motocycle on his books.
Mr. G r a y . Did you g iv e him any options on your stock?
Mr. H a n s e l l . On those 40,000 shares?
Mr. G r a y . Yes.
Mr. H a n s e l l . No.
Mr. G r a y . None whatever. You then got an option for 60,000
shares after you disposed of the 40.000, didn’t you ?
Mr. H a n s e l l . I agreed to purchase 60.000 shares.
Mr. G r a y . All right, we will call it an agreement to p u rch ase .
And you marketed that in the same way. didn’t you ?
Mr. H a n s e l l . Yes.
Mr. G r a y . And during the time you were marketing that, d i d Mr.
Content have an interest in it?
Mr. H a n s e l l . Yes.
Mr. G r a y . Who else that was connected with the Indian M otocycle
Co. had an interest in it? Did Mr. Mitchell have an interest in it?
Mr. H a n s e l l . Personally; no.
Mr. G r a y . What do you mean by personally; no ” ?
Mr. H a n s e l l . For his personal account he had no interest in it so
far as I know.
’
Mr. G r a y . Well, did he have an interest in it for any other
account ?
Mr. H a n s e l l . I don’t think so.
Mr. G r a y . Why did you use the word ‘‘ personal,” then? Whv
didn’t you just say. “ No ” ?
Mr. H a n s e l l . Well, he was interested in its marketing because he
was the vice president of the company.
STOCK EXCHANGE PRACTICES
587
Mr. G b a y. That was his only interest?
M r. H
a n se l l .
S o fa r as I know .
Mr. G b a y . Did you give Mr. Content an option-----Mr. H a n se l l . I may modify that. Mr. Mitchell purchased stock
from us and sold stock through us for his own account.
Mr. G r a y . In other words, Mr. Mitchell entered into the stock
transactions?
Mr. H a n s e l l . Traded in the stock.
Mr. G r a y . Traded in the stock.
Senator B r o o k h ar t . That was just washing sales back and forth
to make a market, was it not?
Mr. H a n s e l l . No; he was trying to make money for himself and
his friends.
Senator B r o o k h a r t . Well, they do that in the washing of sales
business?
Mr. H a n s e l l . I don’t think there was any washing of sales,
Senator.
Mr. G b a y . H o w much of a call or an option did you give to Con
tent out of that 60,000 shares?
Mr. H a n s e l l . I gave an option on 25,000 shares at $7.50 per share
to Lawrence K. Wilder, who directed me to give that option for his
account to Content—to make the option to Content.
Mr. G r a y . H ow much of that 25,000 shares did Wilder and Con
tent take u p ?
Mr. H a n s e l l . I think they took practically the whole amount.
Mr. G r a y . All right. Now, was your trading in this stock through
H. Content & Co. ?
Mr. H a n s e l l . Partly.
Mr. G r a y . W a s it th ro u gh any other house at a ll?
Mr. H a n s e l l . Yes.
M r. G b a y . What house?
Mr. H a n s e l l . Morrison & Townsend.
M r. G b a y . Y e s .
Mr. H a n s e l l . Montgomery
& Co. Tully, Monteith & Mitchell. I
think Hayman & Co. Bridgeman, Bates & Co. Several others.
Mr. G r a y . Y ou told me a few minutes ago that you made this ar
rangement with a man named Charles E. Mitchell, who was vice
president of Indian Motocycle. I ask you now again, did you not
make that arrangement with Norman T. Bolles, the president of the
company, when you made your arrangement to purchase the 40,000
shares ?
Mr. H a n s e l l . My recollection is that Mitchell came in first and
made the arrangements, and Bolles later appeared, and I imagine
Mr. Bolles signed the contract. I have the copies here.
Mr. G b a y . All right. Did Bolles tell you at the time that he
made the arrangement with you—I think possibly he used this ex
pression that “ the sheriff is sitting here waiting for us ” ?
Mr. H a n s e l l . I don’t think he used any such expression.
M r. G b a y . Y ou d o n ’t th in k he to ld y o u th at. I ask y o u w hether
or not you h av e n o t been called u pon to ex p lain th is tran saction
before ?
Mr. H a n s e l l . Yes.
588
STOCK EXCHANGE PRACTICES
M r . G r a y . A n d w hether y ou d id n ot say w hen y o u w ere a sk ed this
question about the 40,000 shares —I w ill g iv e y ou th e first question,
so th a t you can g et the c o n te x t:
Question. Your first item on December 31 shows a purchase by you of 40,000
shares of this stock, for which you paid $200,000; is tliat correct?
Answer. Yes.
Mr. H a n s e l l . Yes.
Mr. Gray. And then I ask you whether you were not asked this
question and made this answer:
Question. Pursuant to an arrangement with somebody?
^
Answer. Yes; with the president of the Indian Motooycle Co., Norman T.
Bolles.
Wasn’t your arrangement entirely with Bolles?
Mr. H a n s e l l . It wasn’t entirely with Bolles. As I rem em b er it,
Mr. Mitchell came in first, before I saw Bolles.
Mr. G r a y . All right. Now, I ask you whether or not it is true
that after you put through these two deals respecting 40,000 and
€0,000 shares of stock you knew that Mr. Wilder, whom you have
named—what was his name?
Mr. H a n s e l l . Lawrence R.
Mr. G r a y . Lawrence R. Wilder went to England with a n au th ority
to purchase a Diesel engine over there, or the rights to the D iesel
engine in the United States, and to pay for it, for the Indian M o to cycle Co. with 50,000 shares of their common stock?
Mr. H a n s e l l . I don’t know whether the amount was fixed before
he went, because it was the subject for negotiation. He went there
to negotiate that purchase.
Mr. G r a y . Were you interested in that?
Mr. H a n s e l l . In the commission that he might receive?
Mr. G r a y . In the transaction of that purchase ?
Mr. H a n s e l l . Yes.
Mr. G r a y . In what way were you interested?
Mr. H a n s e l l . I was to receive a part of the profits which he made,
if he made any.
Mr. G r a y . W h ic h Wilder made?
Mr. H a n s e l l . Yes.
Mr. G r a y . I ask you whether or not it is a fact that W ilder made
that deal in England for the Indian Motocycle Co. for not more
than 21,500 shares of that stock, and whether the rest of the stock
was not sold through H. Content & Co. and the money divided be*
tween you, Content, Wilder, Mitchell, and Bolles?
Mr. H a n s e l l . I don’t think that was true, Mr. Gray.
M r . G r a y . H o w m uch o f i t is n ot tru e ?
Mr. H a n s e l l . I know that Mr. Coatelen,
who sold these
paten ts,
received a very large amount in cash.
Mr. G r a y . From whom?
Mr. H a n s e l l . From Mr. Wilder.
M r . G r a y . H o w m u ch ?
Mr. H a n s e l l . Approximately $100,000. May
more. May have been a little less.
Mr. G r a y . Did you put the deal through?
Mr. H a n s e l l . N o.
Mr. G r a y . Where is Wilder, do you know ?
Mr. H a n s e l l . I do not.
have been
a
little
STOCK EXCHANGE PRACTICES
589
Mr. G r a y . I will say to the committee that we have even sent
men to Boston to find him.
M r. H a n s e l l . I saw h im a m on th ago. I sh ou ld n o t th in k h e
would be very hard to find. I h ave seen h im p ro b ab ly every tw o
months fo r the last tw o or three years.
Mr. G b a y . Well, I asked you the other day where we could find
him.
Mr. H a n s e l l . Yes. Well, he was working for the city of Boston,
or the Port Authority of Boston.
Mr. G r a y . That is what you told me.
Mr. H a n s e l l . Yes.
Mr. G r a y . I will say to the committee that we sent a man there
and found that that was not so, and we could not locate him.
Mr. H a n s e l l . He had been. Mr. Gray, you did not find that he
had not been.
Mr. G r a y . I can not answer that. I will answer you fairly that I
can not say whether he had been there, but he could not be found
there now.
Mr. H a n s e l l . I only told you where you could find him—where
he had been.
Mr. G r a y . Where is Mr. Wilder?
Mr. H a n s e l l . I suggested to you where I thought he could be
found, sir.
Mr. G r a y . Y ou don’t know definitely where he is?
Mr. H a n s e l l . No.
Mr. G r a y . Well now, what interest did you get in the sale of the
stock that was returned or kept or abstracted, or any other words
you want to use, by Wilder, from that 50,000 shares?
Mr. H a n s e l l . A s I recall it, Mr. Wilder gave me a block of that
stock at a price somewhat below the then market on the stock.
Mr. G r a y . H o w big was the block?
Mr. H a n s e l l . I think it was 6,000 shares. I am not sure.
Mr. Gray. What was the price?
Mr. H a n s e l l . I think it was approximately $5 a share. I am
not sure.
Mr. G r a y . What was the then market price?
Mr. H a n s e l l . The market had been around $9 or $10 a share.
Mr. G r a y . All right.
Mr. H a n s e l l . The stock had gone to $ 1 7 , and come back to $ 8 or $ 9
or so, and gone up to $12, and fluctuated.
Mr. G r a y . I ask you whether or not during the time that you were
marketing that 40,000 shares of stock, during the time that you were
marketing the 60,000 shares of stock, and during the time that the
stock which Wilaer was able to retain out of the 50,000 shares and
you and he and the others were marketing it, you employed a man
named A. Newton Plummer for the purpose of publishing false
advertisements as to the value of this stock?
Mr. H a n s e l l . Certainly not.
Mr. G r a y . Did Plummer claim to you that you had so employed
him?
Mr. H a n s e l l . I don’t remember that he did. The facts as I re
member them are—shall I go on with that?
Mr. G r a y . Let me ask you a couple of other questions on that
and then I will let you make whatever statement you want.
590
STOCK EXCHANGE PRACTICES
Mr. H a n s e l l . All right.
Mr. G r a t . Did Plummer institute a suit against you a n d Harry
Content, a member of the New York Stock Exchange and a m em ber
of the firm of H. Content & Co., to recover for services rendered
under what he alleged was a contract with you to make c e r ta in pub
lications? Did he institute the suit?
Mr. H a n s e l l . I think he did,
Mr. G r a y . All right. Did you settle it ?
Mr. H a n s e l l . Yes.
Mr. Gray. How much did you give him?
Mr. H a n s e l l . The total amount that he received-----Mr. G r a y . Approximately $10,000, wasn’t it i
Mr. H a n s e l l . Yes. It is more than that.
Mr. G r a y . More than that?
Mr. H a n s e l l . He was n o t employed though, Mr. Gray, i f you will
excuse me-----Mr. G r a y . I f you will answer this question, and then you cm
make whatever explanation you wish. I "want the figures. Ho*
much did you pay to settle?
Mr. H a n s e l l . The total amount that he received in connection
with the Indian Motocycle Co., according to the records which I
have here—and I haven’t the books—is $26,880.
Mr. G r a y . For what?
Mr. H a n se l l . He brought Mr. Mitchell to my office, a n d he
said-----Mr. G r a y . All right, go ahead and make any explanation you
want.
Mr. H a n s e l l . And my remembrance of it is, he said, “ Y ou do
this business and I introduce these people to you; I would like to
have 25 per cent of the profits of the business.”
Mr. Gray. Did he get it?
Mr. H a n s e l l . I think he got a good deal more than that, Mr.
Gray.
Mr. Gray. Why?
Mr. H a n se l l . Because he claimed he had done a great d e a l of
work, and he instituted a suit which we didn’t want to g o t o the
worry and expense of trying. The matter involved at the e n d there
was about $10,000.
Mr. G r a y . Yes. In other words, he had gotten about $15,000 ot
$16,000; and at the end when he instituted the suit you gave him
$10,000 more?
Mr. H a n s e l l . As far as I can find here the payments b e g a n prior
to March 15 with $6,000. As far as I can find out here.
Mr. G r a y . We do not want to bother with the dates. That is
approximately it; is that right?
Mr. H a n s e l l . Yes; th at is r ig h t.
Mr. G r a y . Whose money was that that he got ?
Mr. H a n s e l l . It was my money; Hansell & Co.
Mr. G r a y . A ll of it yours. H o w much d id Content contribute?
Mr. H a n s e l l . To this settlement ?
Mr. G r a y . Yes.
Mr. H a n s e l l . I don’t remember if he contributed anything. I
haven’t got the figures here.
Mr. Gbay. H ow much o f the $26,000 did Content pay to him ?
STOCK EXCHANGE PRACTICES
591
Mr. H a n s e l l . I don’t remember that he paid any.
Mr. G r a y . Who else besides you paid any of it?
Mr. H a n s e l l . I have no remembrance that anybody else con
tributed.
Mr. G r a y . H o w much did you make out of the dealings in Indian
Motocycle?
Mr. H a n s e l l . I think that eventually we made probably $25,000.
Mr. G r a y . And gave Plummer $26,000 of it ?
Mr. H a n s e l l . Yes, sir. I have a list of all the payments.
Mr. G r a y . Your agreement with him, if your statement is correct,
is that he was to have 25 per cent of the profits?
Mr. H a n s e l l . Yes.
Mr. G r a y . And you tell this committte that you gave him $26,000,
though you only made $25,000 ?
Mr. H a n s e l l . I haven’t the records, Mr. Gray, so I can only speak
from memory.
Mr. G r a y . Approximately? I won’t hold you to any exact figure.
Well, I suggest to you, and I want to know whether it is so, that
the rest of them, Content, Wilder, and the others of this bunch, made
considerable profits also, and that that $26,000 does not represent
what you paid to Plummer, but that it represents what you all paid
to Plummer, possibly through you; is that correct %
Mr. H a n s e l l . I don’t remember whether there were an3r contribu
tions made by anybody else to this settlement with Plummer or not.
And I have no records to let you know from.
Mr. G r a y . I will say to the committee that there is on record, as
I find—and I wanted to avoid any repetition—in Congressman
LaGuardia’s testimony, data with respect to these publications them
selves that were made by Plummer, and evidence with reference to
the payment of money, so that I brought Mr. Hansell here to question
him with respect to the other side of it, but I am not going back and
again re-prove that which is already on the record.
I think that is all I want to ask Mr. Hansell, unless the committee
Wants to ask any questions.
Mr. H a n s e l l . Could I make one remark?
Mr. G r a y . Anything you want to state, Mr. Hansell, with respect
to the matter about which I have asked you, take the opportunity to
do so.
Mr. H a n s e l l . Thank you very much. I was handed a balance
ssheet of the Indian Motocycle Co. which appeared in the New York
Stock Exchange listing application, giving the figures as of Septem
ber 30, 1929. And I purchased the stock on December 30. So it
was only a short time thereafter. Which showed cash of $91,000;
accounts receivable, less reserve for doubtful accounts, of $574,000;
and inventories at cost or market, whichever is lower, $841,000; mak
ing a total of current and inventory assets of $1,600,000, against
which the company owed at that time $485?000, which showed almost
a 4 to 1 quick condition, which was considered a satisfactory con
dition.
The company also had carried on the books at that time their
plant, land, building, real estate, machinery, at $2,200,000, less re
serve for depreciation of $1,000,000, which seemed conservative, since
I went and looked at the plant, or a net plant account of $1,158,000.
592
STOCK EXCHANGE PRACTICES
The net current assets plus the plant value—and it had no mort
gages—gave a book value of the stock, exclusive of good will, which
they carried at two and a half million dollars, or $18 per share, when
we purchased the stock at $5 per share and sold it from $5 up.
Mr. G r a y . Well, now, I should not have touched that proposition
except for the fact that I now want to ask you, inasmuch as you hay*
shown this statement, whether or not the Indian Motocyple Co. did
not either in the middle or the latter part of 1930 make a deal with
Paul S. du Pont for the purpose of turning the company over to him.
and his associate? Is that right?
Mr. H a n s e l l . Yes.
Mr. G r a y . And upon the investigation that the Du Pont Comade-----Mr. H a n s e l l . You say that the Indian Motocycle Co. did it?
Mr. G r a y . Yes.
Mr. H a n s e l l . I don’t think the associates of the company were
involved.
Mr. G r a y . Yes. And upon the investigation that Du Pont made
he found all of these various statements, such as the one that you
have indicated was filed, to be absolutely false and untrue?
Mr. H a n s e l l . I never found any of tne statements made by those
accountants to be untrue.
Mr. G r a y . I am talking about the statements that were issued by
the company with reference to their financial situation.
Mr. H a n s e l l . I never heard that the statements which were pre
sented to the New York Stock Exchange, which were audited, were
false.
Mr.
Mr.
G r a y . Y ou said
H a n s e l l . Yes.
~
you gave calls to various people?
re a call to Carl Ausserer?
Mr. G r a y . Who is he ?
Mr. H a n s e l l . He is a broker in New York.
Mr. G r a y . A member of the stock exchange ?
Mr. H a n se l l . No; he is not a member of the stock exchange. He
is a trader.
Mr. G r a y . Mr. Barnes, of Tullv, Monteith & Mitchell?
Mr. H a n s e l l . Yes.
Mr. G r a y . A member of the New York Stock Exchange?
Mr. H a n s e l l . No.
Mr. G r a y . A trader or a customers* man, which?
Mr. H a n s e l l . No; an independent trader. He was not employed,
I understand.
Mr. G r a y . You gave a call to David Lyon?
Mr. H a n s e l l . Yes.
Mr. G r a y . Who is he?
Mr. H a n s e l l . I don’t remember.
Mr. G r a y . And F. D. Cochrane?
Mr. H a n s e l l . Yes.
Mr. G r a y . Who is he ?
Mr. H a n s e l l . H e is one of the rich men of Boston who had been •
customer of mine for a long time.
Mr. G r a y . Y ou gave a call to F. J. Davidson?
Mr. H a n s e l l . Yes.
STOCK EXCH AN GE PRACTICES
593
Mr. G b a t . Who i s h e ?
Mr. H a n s e l l . Mr. Davidson is a dealer in securities.
Mr. Gbay. And to Joseph Snyder?
Mr. H a n s e l l . Yes.
Mr. G b a y . He is a dealer also ?
Mr. H a n s e l l . No; he is a private investor. He was one of the
promoters of the Texas-Gulf Sulphur Co.
Mr. G r a y . You gave a call to Phillip Kandolph, of Appenzeller,
Allen & Hill?
Mr. H a n s e l l . Yes.
Mr. G b a y . Who is he?
Mr. H a n s e l l . He is a customers’ man.
Mr. G b a y . He is a customers’ man. Suppose you stop and explain
^hat a customers’ man is. He is a man who is on the floor of the
brokerage house and discusses the various matters with customers,
and will give them advice if they want it, and sometimes when they
don’t want it. That is true, isn’t it?
Mr. H a n s e l l . That is right.
Mr. G r a y . And without my going over this list, you gave calls to
a number of customers’ men and to people in brokerage houses?
Mr. H a n s e l l . Yes.
Mr. G r a y . For the purpose of helping you market your stock?
Mr. H a n s e l l . Yes.
Mr. G b a y . That is all. Mr. Bolles.
TESTIMONY OF NORMAN T. BOLLES, NEW YORK CITY, PRESIDENT
INDIAN MOTOCYCLE CO.
Senator G l a s s (presiding). You solemnly swear that the evidence
that you will give in this matter will be the truth, the whole truth,
and nothing but the truth, so help you God ?
Mr. B o l l e s . Yes.
Mr. G b a y . Mr. Bolles, there are just some definite facts that I want
to get from you in connection with this transaction. Did you make
this first deal with respect to the sale of 40,000 shares of stock to
Hansell?
Mr. B o l l e s . I d i d .
Mr. G r a y . Y o u h a d t h e e n t i r e c h a r g e o f t h e a r r a n g e m e n t ?
Mr. B o l l e s . Not entire charge; no, sir.
Mr. G b a y . Well, you completed it?
Mr. B o l l e s . In collaboration with Mr. Mitchell.
Mr. G bay . In collaboration with Mr. Mitchell. What, if anything,
did you tell Mr. Hansell or what, if anything, did Mr. Mitchell tell
him in your presence with respect to the then financial situation of
Indian Motocycle Co. ?
Mr. B o l l e s . I told him briefly that the working-capital position of
the company had been decreased b y about $1,200,000 in the exploita
tion oif automobiles and electric refrigerators. I explained to him
that the company had been the largest manufacturer in this country
of motor cycles, and explained to him that our principal competitor,
the Harley-Davidson Co., had made approximately $1,800,000 the
year previous to the sale of this stock.
Mr. G b a y . Try and keep your voice up a little.
STOCK EXCHANGE PRACTICES
596
Mr. G r a y . Did you have any interest in the stock that w a s th ere
after sold through Content & Co., that Hansell was interested in, and
the others were interested in?
Mr. B o l l e . None whatsoever.
Mr. G r a y . Did you have anything to do with the profit ?
Mr. B o l l e s . N o , sir.
TESTIMONY OP H. CONTENT, NEW YORK CITY
The C h a i r m a n . D o you solemnly swear that you will tell the truth,
the whole truth, and nothing but the truth regarding the m atter
under investigation by this committee, so help you Gods
Mr. C o n t e n t . I do.
Mr. G r a y . Mr. Content, you are a member of the firm o f Harry
Content & Co.?
Mr. C o n t e n t . H. Content & Co.
Mr. G r a y . You reside in New York?
Mr. C o n t e n t . 82 East Fifty-first Street.
Mr. G r a y . And Content & Co. is a member of the New York Stock
Exchange; is that correct?
Mr. C o n t e n t . Yes, sir.
Mr. G r a y . You have been with that firm and as a member o f the
New York Stock Exchange for how long?
Mr. C o n t e n t . Forty-seven years.
Mr. G r a y . You remember my sending for you and i n t e r v i e w i n g
you the other day with respect to the transactions in Indian Motocycle Co. on your books ?
Mr. C o n t e n t . Yes, sir.
Mr. G r a y . D o you remember telling me at that time that y o u had
absolutely no interest in the motor cycle stock except to receive com
missions on the transactions that went through the brokerage firm ?
Mr. C o n t e n t . I do not.
Mr. G r a y . You do not. Well, I will proceed with the other ques
tions; but I would suggest that you did and that that is w h y you
are here to-day. I ask you now, then, did you have any other interest
in the Indian Motocycle Co. stock transactions that passed through
your firm in January of 1930 and thereafter?
Mr. C o n t e n t . I don’t get your question.
Mr. G r a y . Well, you knew that Hansell had bought or h a d an
option on 40,000 shares of Indian Motocycle Co. stock, did you not?
Mr. C o n t e n t . That i s what he told m e .
Mr. G r a y . Yes. Did y o u have an interest in that s t o c k ?
Mr. C o n t e n t . I did not.
Mr. G r a y . None whatever?
Mr. C o n t e n t . No, sir.
Mr. G r a y . Was it traded in through your concern b y Hansell?
Mr. C o n t e n t . Yes, sir.
Mr. G r a y . But you personally had no interest?
M r.
C o n te n t.
Mr.
G ray.
M r.
C o n te n t.
N o, sir.
Did H. Content & Co. have any interest?
N o, sir.
Mr. G r a y . Did you have any interest in anybody
that 40,000 shares?
Mr. C o n t e n t . N o , sir.
else’s
name in
STOCK EXCHANGE PRACTICES
597
Mr. G r a y . Sure of that?
Mr. C o n t e n t . Sure as I can be without my records.
Mr. G ray . Well, wouldn’t you know-----Mr. C o n t e n t (interposing). I can’t-----Mr. G b a y (interposing). I will show you your records after while.
Would you know whether or not you had an interest in 40,000 shares
without examining your records?
Mr. C o n t e n t . I should say I did not have any interest.
Mr. G r a y . Say you did not have. You were asked to examine
your records and come here ready to testify, were you not ?
Mr. C o n t e n t . Yes. You were to send for them last Thursday.
M r . G r a y . I h ave th em .
Mr. C o n t e n t . And I only made them up and gave them to you
last night.
Mr. G r a y . Yes; then you had more opportunity to examine them
than I did, didn’t you?
Mr. C o n t e n t . But I only saw them when I came down.
Mr. G r a y . Well, don’t let us bandy words about it. Did you have
an interest in the 60,000 shares, the second option he had?
Mr. C o n t e n t . I received an option from Mr. Hansell.
Mr. G r a y . Out of the 60,000 ?
Mr. C ontent. Out of the 60,000.
Mr. G r a y . Of how much ?
Mr. C o n t e n t . Twenty-live thousand shares, of which I gave Mr.
Wilder a half interest.
M r. G r a y . Y es.
Mr. C o n t e n t . We had a joint account for that 25.000.
Mr. G r a y . What did you give to Mr. Hansell for the
option—
anything?
Mr. C o n t e n t . No.
Mr. G r a y . What did you give him for the stock that you took over
nnder the option ?
Mr. C o n t e n t . Seven dollars and a half, I think.
Mr. G r a y * Seven dollars and a half?
Mr. C o n t e n t . I think so.
Mr. G r a y . And that stock was sold at a profit ?
Mr. C o n t e n t . It was sold at a profit.
Mr. G r a y . You were entirely familiar with all of the deals of
Hansell in connection with Indian Motocycle, were you not?
Mr. C o n t e n t . Only from what he told me.
Mr. G r a y . What did he tell you about the company, and how he
had come to arrange these deals ?
Mr. C o n t e n t . He came to me, I suppose, and says, “ I have got
a very great opportunity.”
M r . G r a y . G rea t o p p ortu n ity fo r w h a t?
Mr. C o n t e n t . To make some money. “
I bought 40,000 shares.”
This is what he probably said. I can not tell you word for word.
Mr. G r a y . Yes; go ahead.
*
Mr. C o n t e n t . About three years ago, he said, “ Now, I want you
to do what you can.” He probably said, “ I want some money on
some o f it,” I don’t know.
M r . G r a y . Y ou advanced him money?
Mr. C o n t e n t . I th in k we d id .
Mr. G r a y . Yes.
119852—32—pt 2------15
598
STOCK
exchange
p r a c t ic e s
Mr. C o n t e n t . For h is account.
Mr. Gray. And trading that was done, both in the 40,000 and the
60,000, who gave the orders?
Mr. C o n t e n t . Hansell gave them; Wilder gave them. There
were several accounts there that you have. We received orders from
Hansell for these different accounts. Some of those accounts are
accounts that were Hansell’s accounts himself, and the same way as if
we carried for other brokerage houses their accounts. They give the
orders, but we carry the stocks.
Mr. G r a y . Were there transactions in which the stock, Indian
Motorcycle Co. stock, passed from the account of Hansell & Co. to
your account and backward and forward on your books ?
Mr. C o n t e n t . Not backward and forward.
Mr. G r a y . Well, from one account to the other?
Mr. C o n t e n t . I do not think we ever transferred any stock from
the Indian Motorcycle Co. stock account to any account, because
we never had an account for the Indian Motorcycle Co.
Mr. G r a y . No; but you had an account for Content & Wilder?
Mr. C o n t e n t . Y e s , sir.
Mr. G r a y . You had an account for Hansell & Co. ?
Mr. C o n t e n t . Yes.
Mr. G r a y . Was the stock transferred from one to the other o f
those accounts?
Mr. C o n t e n t . Yes.
Mr. G r a y . I ask you whether or not it is not a fact that f r o m the
very beginning Hansell let you have discretion as to what price y o n
were going to buy and sell stock at.
Mr. C o n t e n t . No ; I don’t remember that.
Mr. G r a y . Y ou don ’t th in k so?
Mr. C o n t e n t . I think he would say, “ Sell 10,000 between eight
and nine,” or some expression like that, or “ Put those down. Buy
some.”
Mr. G r a y . Generally you had discretion in the matter?
Mr. C o n t e n t . In that way.
Mr. G r a y . Yes.
Mr. C o n t e n t . But I had no charge of the pools or whatever you
want to call it.
Mr. G r a y . I ask you whether or not you have been examined about
this matter before?
Mr. C o n t e n t . I have.
Mr. G r a y . And didn’t you say at that time, referring to Hansell,
when you were asked—
When did he lodge that discretion in you?
Answer. We have always had that.
Question. In all stocks dealt in by Hansell?
Answer. When he had a deal.
Is that correct ?
Mr. C o n t e n t . That is probably correct.
Mr. G r a y . Isn’t it correct without any “ probable ” ?
Mr. C o n t e n t . Not the meaning that you interpret.
Mr. G r a y . I didn’t interpret it; I just read you the words. Did
you so testify?
Mr. C o n t e n t . I may have.
M r . G r a y . Y o u w ill n o t even be read y to a d m it it d e fin itely ?
STOCK EXCHANGE PRACTICES
599
Mr. C o n t e n t . If you have it, I suppose it is.
Mr. G r a t . I have it. Then you will admit you so testified ?
Mr. C o n t e n t . Yes.
Mr. G r a t . "Were you interested in the deal with Wilder after he
got some of that 50,000 shares of stock that he was given for the pur
pose of buying that Diesel engine in England ?
Mr. C o n t e n t . No further than the call.
Mr. G r a t . N o fu rth er th an w h a t?
Mr. C o n t e n t . A call on 25.000 shares joint account.
Mr. G r a y . N o w , that call was 25.000 shares of the 60,000 that
Hansell had. I am talking about the 50,000 shares of stock that
Wilder had with an authority to buy the Diesel engine stock from a
certain company in England. You know he came back with some of
that stock and it was sold through your house; that is right, is it not ?
Mr. C o n t e n t . That is right; yes.
Mr. G r a t . H o w m uch o f an interest d id you have in th a t?
Mr. C o n t e n t . I had no interest in it.
Mr. G r a t . N o interest whatever ?
Mr. C o n t e n t . N o , sir.
Mr. G r a t . Nor in your own name or any other name?
Mr. C o n t e n t . N o , sir.
Mr. G r a t . Y ou had given Wilder half of vour interest in that
25,000 call?
Mr. C o n t e n t . Yes, sir.
Mr. G r a t . Wilder didn’t give you any interest in that stock?
Mr. C o n t e n t . No, sir.
Mr. G r a t . None whatever ?
Mr. C o n t e n t . N o , sir.
M r . G r a t . None whatever?
Mr. C o n t e n t . I tell you I advanced him some money.
Mr. G r a t . Yes.
Mr. C o n t e n t . And he brought me in some certificates of stock
which he was going to give me free and which I paid him an amount
of money for, I don’t remember what it was, but I advanced him
about $15,000 to go to Europe.
Mr. G r a t . Yes.
Mr. C o n t e n t . And when—if the gentlemen would like to hear it;
I don’t like to take up the time.
Mr. G r a t . G o right ahead. It is interesting.
Mr. C o n t e n t . Then you will understand the situation.
Mr. G r a t . I understand it, but I want the committee to under
stand it.
Mr. C o n t e n t . Then Wilder went to Europe, and I suppose I ad
vanced him $15,000 to go. He had no money, and he got to Europe
and we had this joint account. I sold this stock thinking I would
make him—but I could take out my $15,000. I think that the profit
in that account when I started to sell about 123,000 shares must have
been over $50,000. So Wilder goes crazy in London over this engine,
ending me word that the stock was worth $ftO a share and he did
not want to sell it. and I had no right to sell it, and could not sell,
and we had a terrible time. He was on the telephone from London.
Cables he got were sent to New York. They were the worst things
vou ever read. He finally sent a lawyer down to my office with a
paper demanding that I replace that stock, and, well, we had a
terrible time.
600
STOCK EXCHANGE PRACTICES
So I got angry and I repurchased that stock, which sold between,
I
sh o u ld say, 8 and 11. I do n ’t th in k a n y th in g over 10 o r 11, because
I d id n ’t w ant it to g o u p a n y h igh er.
Mr. G r a y . You didn’t want it to go up any higher?
Mr. C o n t e n t . No.
Mr. G r a y . I see.
Mr. C o n t e n t . And I think it may have—I have the figures of it
Mr. G r a y . Yes.
Mr. C o n t e n t . There are so many of them. And I sold that stock
between 8 and 11. And when this lawyer came down t o m y office
with these papers I turned around and bought that stock b a c k at
up to 13 to cover that account. Knowing that he was going t o get
it, I sold some of my own stock for my own protection.
M r . G r a y . Well, answer me this: Did you have an interest in that
stock that you were handling for Wilder?
Mr. C o n t e n t . I to ld y o u i t w as jo in t account.
M r . G r a y . I d o n ’t m ean th e 25,000 o p tio n a l stock fr o m Hansell.
Mr. C o n t e n t . No; I had no direct interest, but he said he was
oing to get stock free and would give it back to me for the money
advanced him.
Mr. G r a y . Did you get it?
Mr. C o n t e n t . I g o t som e, I th in k .
Mr. G r a y . Yes.
M r . C o n t e n t . But I don’t know. I f you have the record there,
I will take your record.
Mr. G r a y . In the matter of these discretional operations, I want
to read you a little bit of testimony you gave once before then ask
you one question, whether it is correct.
f
What was the purpose in your buying the stock for Mr. Hansell’s account?
Answer. To make a better market.
Question. A better market in what respect?
Answter. If you come in and the stock was 5, offer at 6, it would not be a
good market. So I would make the price 5% to 6 or 5% to 6.
Question. And how would you make the price of 5% to 6, by offering to boy
stock at that price?
Answer. By bidding 5% and offering 6.
Question. And when you bid that 5% and offered 6, did you actually make
the purchase of 5%?
Answer. If anybody sells that I buy it. Certainly, I have to.
Question. The primary purpose of offering to buy the stock at a higher price
than the offering price is to obtain for Mr. Hansell a large price for the stock
he has on hand: is that right?
Answer. No; you can not bid above the offer price on the stock exchange.
Question. But you increased the bid from 5 to 5%?
Answer. I may or may not.
Question. When you offer to buy the stock, that increases the market price
of the stock, does it not?
Answer. Absolutely.
Question. And the purpose of increasing the market price of the stock is to
get as much as you can for Hansell’s stock?
Answer. Absolutely.
That is correct, is it not?
Mr. C o n t e n t . Certainly.
Mr. G r a y . In other words, though the market on a particular stock
might be 6 oner and 5 bid, you would put in a bid for 5% i n order
to keep the price of that stock up and if necessary take i t i n order
to get a better price for the stock of Hansel^ that tou
handling?
STOCK EXCHANGE PRACTICES
601
Mr. C o n t e n t . 'Certainly.
Mr. G bat . N ow , what do you know about Mr. Plummer in con
nection with this transaction?
Mr. C o n t e n t . I don’t know anything about him.
M r. G b a t . D id you know h im ?
Mr. C o n t e n t . I have met him.
Mr. G b a t . How much of the $26,000
that was paid to Plummer
did you pay?
Air. C o n t e n t . I didn’t pay any of it.
Mr. G b a t . None of it?
M r . C o n t e n t . N o , sir.
Mr. G b a t . Not through a direct or indirect contribution ?
Mr. C o n t e n t . N o , sir.
Mr. G b a t . Y ou knew that he sued you and Hansell, didn’t you?
Mr. C o n t e n t . And about 10 others.
Mr. G b a t . Well, whoever the 10 others were, you knew that you
and Hansell were among them?
M r . C o n t e n t . Yes.
M r . G b a t . And you know th at H a n se ll p a id $ 1 0 ,0 0 0 to settle th a t
suit, don’t you?
Mr. C o n t e n t . So I heard.
Mr. G b a t . Well, you knew it when it was done, didn’t you ?
Mr. C o n t e n t . N o; I did not.
Mr. G b a t . When did you first hear of it ; when I told you about it?
Mr. C o n t e n t . N o; I nave heard it several tim es.
Mr. G b a t . You paid none of that money?
Mr. C o n t e n t . No, sir.
Mr. G b a t . Hansell makes the statement that his profit out of this
transaction was $25,000, but that he paid Plummer $26,000 because
he had agreed to give Plummer 25 per cent of his profits. Do you
know whether that is so or not?
Mr. C o n t e n t . I do not.
Mr. G b a t . But you did not pay any part of that twenty-six thou
sand?
Mr. C o n t e n t . No, sir.
Mr. G b a t . All right; I guess that is all I want. That is all.
M r. C o n t e n t . Y ou can nave the copies i f I m a y have m y account.
Mr. G b a t . Yes, sir; we will see.that you get them back.
Now, is Mr. Levenson here ?
TESTIMONY OP JOHN J. LEVENSON, NEW YORK CITY
The C h a i r m a n . Do you solemnly swear that you will tell the truth,
the whole truth? and nothing but the truth regarding the matter
under investigation by this committee, so help you God i
Mr. L evenson . I do.
Mr. G b a t . S o the committee may understand what I intend to
develop in this case I am going to show that Mr. Levenson. who
was a trader, dealt in- a number of stocks during a certain period o f
time: and I am going to show that during that time there were a
number o f publications over the signature of a man known as 4<The
Trader,” and I am going to show that for those publications that
“ Trader” got nineteen thousand and some odd dollars.
Mr. Levenson, did you give your full name, John J. Levenson ?
602
STOCK EXCHANGE PKACTIOES
Mr. L e v e n s o n . Yes, sir.
Mr. G ray. Where do you live?
Mr. L e v e n so n . White Plains, Westchester County, N. Y.
Mr. G ray . What is your New York City address?
Mr. L ev e n so n . 14 Wall Street.
Mr. G ray. And what is your business ?
Mr. L e v e n s o n . I am a free-lance trader.
Mr. G ray . I ask you whether or not during the years 1929 and
part of 1930 you conducted some operations through the office of
Burnham, Herman & Co.?
Mr. L e v e n s o n . That is correct, sir.
Mr. G ray . And during that period of time, can you tell m e in
what stocks you dealt principally?
Mr. L e v e n so n . No ; I can not. I f you suggest them to me, I will
probably remember them.
Mr. G r a y . I will. Did you handle Celotex?
Mr. L e v e n s o n . I did; but I don’t know whether—I had an option
on some of that stock. I don’t know whether it was in that period.
I f you checked it up, I presume it ;.s correct.
Mr. G ray . It is. During that period did you handle Eisler
Electric?
Mr. L e v e n s o n . Yes, sir.
Mr. G r a y . Did you handle Borg Warner?
Mr. L e v e n s o n . Yes, sir.
Mr. G ray . Pitney Bowes?
Mr. L e v e n so n . Yes, sir.
Mr. G ray. And Consolidated Aircraft?
Mr. L e v e n s o n . Yes, sir.
Mr. G r a y . And Radio Products?
Mr. L e v e n s o n . Yes, sir.
Mr. G r a y . United States Finishing?
Mr. L e v e n s o n . Yes, sir.
Mr. G r a y . And American Maracaibo?
Mr. L e v e n s o n . Yes, sir.
Mr. G r a y . All through the same firm, wasn’t it?
Mr. L e v e n s o n . I believe Burnham, Herman & Co. cleared my
transactions.
Mr. G ray . Yes.
Mr. L e v e n s o n . I take it, Mr. Gray, that you have checked up that
period.
Mr. G r a y . Those figures are correct. I have all your sheets of
Burnham, Herman & Co., with all of your accounts, if it is necessary
to look at them, in detail.
Now, during that period of time, can you tell this committee in
those eight stocks that I have mentioned how much you and your
associates made therefrom?
Mr. L e v e n s o n . I could if I had the opportunity to check up, Mr.
Gray, but I have not had that opportunity, so I can not tell you
offhand.
Mr. G ray . I ask you whether or not the figure of about a million
one hundred thirty-six thousand dollars would be correct?
Mr. L e v e n s o n . It might be. I have no way of telling.
Mr. G r a y . The records show your exact profits to be $1,136,322.41.
Will you accept that figure as being correct?
STOCK EXCHANGE PRACTICES
603
Mr. L e ven so n . Subject to any mistakes you might have made in
checking it up.
Mr. Ghat. It was taken from the brokerage house sheets.
Mr. L e v e n so n . Yes, sir.
Mr. G r a y . All right. I ask you whether you knew during that
period of time a man named Raleigh T. Curtis
Mr. L e v e n so n . I did, sir.
Mr. G r a y . Did you owe him any money ?
Mr. L e v e n so n . No, sir.
Mr. G r a y . Were you under any obligations to him?
Mr. L e v e n so n . None whatsoever.
Mr. G r a y . None whatsoever?
Mr. L e v e n so n . Except obligations of friendship. I knew him
socially.
Mr. G r a y . Who was he ?
Mr. L e v e n so n . He was connected with one of the New York
newspapers.
Mr. (jrRAY. What was the name of the New York newspaper?
Mr. L e v e n so n . The News, I believe.
Mr. G r a y . The New York Daily News, wasn’t it?
Mr. L e v e n so n . I think that is the name of the paper.
Mr. G r a y . What was his connection with that daily newspaper?
Mr. L e v e n s o n . He wrote a column. I don’t know whether-----Mr. G r a y (interposing). Under the name of “ The Trader,”
didn’t he?
Mr. L e v e n s o n . Right; but I don’t know whether he was the
financial editor or not.
Mr. G r a y . He wrote a column which he signed under the name
of “ Trader,” in which he disseminated information as to certain
stocks; is that correct ?
Mr. L e v e n s o n . Yes, sir; he wrote a column under the name of
“ The Trader.”
Mr. G r a y . I am ready to prove, and I ask you whether you will
concede that during the times that you were operating in these
various stocks his column signed by him under the name of “ The
Trader” boosted the particular stock in which you were operating
at that time.
Mr. L e v e n s o n . N o , s ir ; I can n ot concede that.
Mr. G r a y . Y o u can not concede it?
Mr. L e v e n s o n . I can say it might have.
Mr. G r a y . It might have?
Mr. L e v e n s o n . Yes, sir.
Mr. G r a y . Well, after I show you how much money you gave him
I think we can reasonably draw that conclusion, but did you pay him
any money directly for the purpose of boosting those stocks?
Mr. L e v e n s o n . I did not.
Mr. G b a y . No. What you did for Curtis was this, was it not:
That in whatever stock you were operating you bought for him a
certain amount or number of shares of that stock through the broker
age house with whom you were dealing, and then when the profit was
made sold it for him and directed the house to send him a check for
his profit. Is that correct?
Mr. L e v e n s o n . N o , sir; it is not correct. It is not wholly correct.
Mr. G r a y . Well, tell us w hat you did.
004
STOCK EXCHANGE PRACTICES
Mr. L e v e n s o n . I bought and sold stock and had it put—h e h a d an
account with that house in his own name. The purchases a n d sales
of those transactions went into that account, and if there was a profit
in the account it was his, and he directed the firm to send him a ch eck
whenever he wanted it.
Mr. Gray. Whenever he wanted the money he directed the firm to
send him a check. Did he put that money into that account?
Mr. L e v e n so n . N o , sir; not to my knowledge. He might have had
an account with money in it, but not to my knowledge.
Mr. Gray. Let me tell you the records aid not show that he had.
Mr. L e v e n s o n . Well, I mean he might have had another account.
Mr. Gray. Let us talk about this one. This will be troublesome
enough. I ask you whether or not you guaranteed that account.
Mr. L e v e n s o n . I did, sir.
Mr. Gray. And do you know that during that period of time be
tween May 3,1929, and March 1,1930, his profits were $19,068,441
Mr. L e v e n s o n . I have no idea what his profits were.
Mr. Gray. Give me the checks.
Mr. L e v e n s o n . Wait a minute, Mr. Gray. I f you checked i t up,
I will accept it.
M r . G r a y . Y ou w ill accept it?
Mr. L e v e n s o n . Yes.
Mr. Gray. By the way, do you know Curtis’s signature?
Mr. L e v e n s o n . I have seen his signature, but I don’t remember it .
Mr. G r a y . Wasn’t he such an intimate friend of yours?
Mr. L e v e n s o n . Yes.
Mr. G r a y . Why, he lives right near you in White Plains?
Mr. L e v e n s o n . He lives rignt close to me; yes.
Mr. G r a y . How long has he lived across the way from you?
Mr. L e v e n s o n . I think about three years.
Mr. Gray. Well, I guess you know nis signature, don’t you?
Mr. L e v e n s o n . Yes.
Mr. G r a y . Just glance at these indorsements on these photostatic
copies of these checks and tell me whether or not they are his
signature.
M r . L e v e n s o n . I w ill accept th em as his signature. I r e a lly don’t
rem em ber.
Mr. G r a y . D o you know
Mr. L e v e n s o n . The last
where he is?
that I knew where he was he was living
in his house across the street in White Plains.
Mr. Gray. I say to the committee that I had a man up there for
two days who camped on his porch all of two separate nights, and
was up there before he could have gotten up in the morning, and I
can not find him.
Well, now, why did you give Mr. Curtis a profit of $19,000 and
some odd in these transactions?
Mr. L e v e n so n . I met Mr. Curtis in the course o f his business as a
financial reporter. His duties are to go around to the different houses
in the Street, talk to people that may be there in regard to the.
financial situation, the stock market, the money market, and many
other things. I met him in that way. I got to know him and I
hked him, and our families met. I mot his father and mother, his
wife s father and mother, and we became intimate. He was desirous
of moving up in the country where I lived, and I tried to do every
STOCK EX CH A N GE PRACTICES
605
thing I could to help him. My way of helping him was to make this
money for him.
Mr. G r a y . D o y o u d o t h a t f o r e v e r y m a n t h a t y o u w o u l d li k e t o
help ?
Mr. L e v e n s o n . I h a v e d o n e f o r a g r e a t m a n y .
Mr. G r a y . And I suppose you will tell this committee the fact
that he was £<The Trader ” with one of the largest followings in New
York, as far as his column was concerned, and wrote stock-market
news every day and boosted these particular stocks that you were
operating in, that that had absolutely nothing to do w ith it \
Mr. L e v e n s o n . Mr. Curtis did not boost only the stocks that I
was interested in, Mr. Gray. He spoke about the general stockmarket situation.
Mr. G r a y . Of course he didn’t publish a column devoted to your
stocks.
Mr. L e v e n s o n . I don’t deny that I discussed these stocks with
him. I did, as I discussed other stocks. But I presume you are
looking for a motive. My motive was not to pay him for publicity,
if that is what you mean.
Mr. G r a y . It was not?
Mr. L e v e n s o n . It was not.
Mr. G r a y . Where does it occur to you that I think you did ?
Mr. L e v e n s o n . Because you questioned me in that respect when
I saw you on Thursday.
Mr. G r a y . Correct. That is a very good reason for it.
Mr. L e v e n s o n . That is where I got the impression.
Mr. G r a y . Got the idea and impression.
Mr. L e v e n s o n . I had also been questioned before.
M r . G r a y . And you discussed these stocks with Curtis?
Mr. L e v e n s o n . I generally did, like I would discuss other stocks
that I was not even interested in.
Mr. G r a y . But, of course, you said to him, “ I would rather that
you not publish anything about these things, because I am interested
in it, and I am giving you $19,000, and it might not look right for
you to boost these stocks ? ”
Mr. L e v e n s o n . I did not say to Mr. Curtis, “ I am giving you
$19,000.” This money was made in small amounts over a period of
time in my endeavor to help him.
Mr. G r a y . And p u b l i c i t y h a d n o t h i n g t o do w i t h i t ?
Mr. L e v e n s o n . I d o n ’ t d e n y t h a t h e m i g h t h a v e m e n t i o n e d t h e s e
stocks. I read his p a p e r f r e q u e n t l y a n d s a w t h a t h e d i d .
Mr. G r a y . Yes. Well, I am glad you will admit that. And i f
he had not, you would have stopped this account, would you not ?
Mr. L e v e n s o n . I w o u l d n o t h a v e .
Mr. G r a y . Y o u w o u l d h a v e g i v e n i t t o h i m j u s t t h e s a m e ?
Mr. L e v e n s o n . I would have done the same thing.
Mr. G r a y . Suppose that he in his column, while you were en
deavoring to make a profit on the long side of the market in a certain
stock, was giving out information and news which would indicate
that that particular stock that you were dealing in was not worth the
price at which it was quoted in the market; would you have still con
tinued to do this for him ?
Mr. L e v e n s o n . I t h i n k I w o u l d h a v e .
Mr. G b a y . Y o u t h i n k y o u w o u l d h a v e ?
606
STOCK EXCHANGE PRACTICES
Mr. L e v e n s o n . I wouldn’t say that I would not have argued
him trying to convince him that he was wrong.
Mr. G r a y . No; of course not. That is all.
Mr. L e v e n s o n . I s that all, Mr. Gray ?
Mr. G r a y . Yes; that is all. Mr. Cornell, please.
w ith
TESTIMONY OF R. J. CORNELL, JERSEY CITY, N. J.
The C h a i r m a n . D o you solemnly swear you will tell the truth,
the whole truth, and nothing but the truth, regarding the m atter
under investigation by this committee?
Mr. Cornell. I do.
Mr. Gray. Where do you reside, Mr. Cornell?
Mr. Cornell. Jersey City, N. J.
Mr. Gray. In 1931, in June, were you connected with any o f the
departments of the State of New York?
Mr. C o r n e ll . Bureau of securities in the department of l a w .
Mr. G r a y . Did the matter of these transactions o f Mr. Levenson
and thepublications o f Mr. Curtis come before you for investigation!
Mr. C o r n e l l . Yes, sir; they did.
Mr. G r a y . For your reference in order that you may h a v e the
data before you, I am handing you a memoranda, which is a m em o*
randa, I think, o f your own, is it not?
Mr. C o r n e l l . Yes, sir.
Mr. Gray. I ask you whether or not you investigated these various
stocks, Celotex and others that you heard me examine Mr. Levenson
in respect to as far as his accounts in Burnham, Herman & Co. were
concerned?
Mr. C o r n e ll . Yes, sir; I investigated his accounts in these stocks.
Mr. G r a y . And is the figure correct that I have suggested t o h im ;
that is, that he and his associates made between May o f 1929 and
March of 1930-$1,136,322.41 ?
Mr. Cornell. Yes, sir; that is a total profit that showed on the
brokerage accounts in these operations.
Mr. G r a y . Now, did you examine into these accounts of Raleigh T.
Curtis on the books of Burnham, Herman & Co. ?
Mr. C o r n e l l . Yes, sir.
Mr. G r a y . Were those accounts margined accounts?
Mr. C o r n e l l . No, sir.
Mr. G r a y . Y ou mean in answering that they were not— w e ll, I
will have to put you another question first. They were not margined
accounts. Were, there ever any entries in those accounts of payments
made bv Curtis or anybody on his behalf?
Mr. C o r n e ll . N o, sir.
Mr. G r a y . In other words, they were accounts that showed the
purchase of stocks, the sale of stock, on the profitable side, and a
delivery of a check; is that correct?
Mr. C o r n e l l . That is right.
Mr. G r a y . Was there ever any losses on any o f them?
Mr. Cornell. No, sir.
M r. G r a y . I show you photostatic copies o f checks w hich X wiU
afterwards hand to the reporter:
607
STOCK EXCHANGE PRACTICES
May 24, 1929, for $3,706.14—all of these checks being drawn by
Burnham, Herman & Co. to the order of Raleigh T. Curtis and in
dorsed by him.
(The check last above referred to was designated “ Exhibit No.
10 ” and kppears in the words and figures following:)
B u r n h a m , H a r m a n & Co.,
44 W all S t r e e t , N e w Y o r k C it y ,
New York, May 2Jh 1929.
No. 11124.
Pay to the order of Ealeigh T. Curtis $3,706.14 (3,706 and 14 cents).
Per pro B u r n h a m , H e r m a n & Co.
H . F r ie d l e r . ( ? )
To the National City Bank of New York, 55 Wall Street, New York, N. Y.
(On reverse side of above:) Raleigh T. Curtis.
Mr. G r a y . A check on June 17, 1929, for $1,055.50.
(The check last above referred to was designated “ Exhibit No.
11, and appears in the words and figures following:)
B u b n h a m , H e r m a n & Co.,
44 W a ix . S treet, N e w Y o rk C it y ,
New York, June 11, 1929.
No. 1 1 6 3 4 .
Pay to the order of Raleigh T. Curtis $1,055.50 (1,055 and 50 cents).
Per pro B u k n h a m , H e r m a n & Co.
H . F r ie d le r . ( ? )
Max
Y
asum a
.
To the National City Bank of New York, 55 Wall Street, New York, N. Y.
(The last above check is indorsed as follows:) Raleigh T. Curtis.
Mr. G r a y . A check on June 19, 1929, for $949.50.
(The check last above referred to by Mr. Gray was designated
“ Exhibit No. 12,” and appears in the words and figures following:)
B u r n h a m , H e r m a n & Co.,
44 W a l l Street, N e w Y ork Cit y ,
Neic York, June 19, 1929.
No. 11725.
Pay to the order of Raleigh T. Curtis $949.50 (949 and 50 cents).
Per pro B u b n h a m , H e r m a n & Co.
H . F r ie d l e r . ( ? )
To the National City Bank of New York, 55 Wall Street, New York, N. Y.
(The last above check is indorsed as follows:) Raleigh T. Curtis.
Mr. G r a y . Check on June 27, 1929, for $1,048.80.
(The check last above referred to was designated “ Exhibit No.
13, ’ and appears in the words and figures following:)
B u r n h a m , H e r m a n & Co.,
44 W a l l S t r e e t , N e w Y o r k C i t y ,
No. 11865.
New York, Juno 27, 1929.
Pay to the order of Raleigh T. Curtis $1,048.80 ($1,048 and 80 cents).
Per pro B u r n h a m , H e r m a n & Co.
H . F r ie d l e r . ( ? )
To The National City Bank of New York, 55 Wall Street, New York, N. Y.
(The last above check is indorsed as follows:) Raleigh T. Curtis.
608
STOCK EXCHANGE PRACTICES
Mr. G ray. Check on July 2,1929, for $673.
(The check last above referred to by Mr. Gray was designated
u Exhibit No. 14 ” and appears in the words and figures following:)
B u r n h a m , H e r m a n & Co.,
44 W a l l S treet, N e w Y o r k C it y ,
No. 17747.
New York, July 2, 1$29.
Pay to the order of Raleigh T. Curtis $673 ($673 and 00 cents).
Per pro B u r n h a m . H e r m a n & Co.
H . F riedlex . ( ? )
Max Y asu m a.
The Bank of America, 44 Wall Street, New York.
(The last above check is indorsed as follows:) Raleigh T. Curtis.
Mr. G ray. Check on July 8,1929, for $1,846.
(The check last above referred to by Mr. Gray was designated
KExhibit No. 15 ” and appears in the words and figures following:)
B u r n h a m , H e rm a n & C o .,
44 W a l l S treet , N etw Y o r k C i t y ,
No. 17855.
New York, July 8, 1929.
Pay to the order of Raleigh T. Curtis $1,846.
($1 ,8 46 and 0 0 c ts .)
Per pro B u r n h a m , H e r m a n & Co.
H . F riedler . ( ? )
M ax Y asu m a.
The Bank of America, 44 Wall Street, New York.
(The last above check is indorsed as follows:) Raleigh T. Curtis.
Mr. G ray . Check on July 10,1929, for $1,373.
(The check last above referred to by Mr. Gray was designated
u Exhibit No. 16,” and appears in the words and figures following:)
B u r n h a m , H e rm a n & C o .,
4 4 W a l l S treet , N e w Y o r k C i t y ,
No. 17882.
Pay to the order of Raleigh T. Curtis $1,373.
($1,373 and 00 cts.)
New York, July 10,1929.
P er p ro B u r n h a m , H e r m a n & C a
H . F r ie d le r . ( ? )
M ax Y asu m a.
The Bank of America, 44 Wall Street, New York.
The last-above check is indorsed as follows:
Raleigh T. Curtis.
Mr. G ray . A check on July 11, 1929, for $1,535.50.
(The check last-above referred to by Mr. Gray was designated
“ Exhibit No. 17,” and appears in the words and figures following:)
B u r n h a m , H e r m a n & C o .,
a l l S tb e k t , N e w Y o r k Cmr,
44 W
New York, July 11, 1929.
No. 17938.
Pay to the order of Raleigh T. Curtis, $1,535.50 (1,535 and 50 cents).
Per pro B u r n h a m , H e r m a n & C o .,
H . F riedler ( ? ) ,
M a x Y asu r a.
The Bank of America, 44 Wall Street, New York.
The last-above check is indorsed as follows:
Raleigh T. Curtis.
Mr. G ray . A check on July 24,1929, for $3,446.
(The check last above referred to was designated “ Exhibit No.
18,” and appears in the words and figures following:)
609
STOCK EXCHANGE PRACTICES
B u r n h a m . H e r m a n & Co.,
a l l S treet , N e w Y ork C i t y ,
44 W
Neic York, July U, 1929.
No. 18387.
Pay to the order of Raleigh T. Curtis $8,446 ($3,446 and no cents).
Per pro B u r n h a m , H e r m a n & Co.
H . F bxb» l e b ( ? ) .
The Bank of America, 44 Wall Street, New York.
The last above check is indorsed as follows: Raleigh T. Curtis.
Mr. G bay . A check on July 30,1929, for $1,080.
(The check last above referred to was designated “ Exhibit No.
19,” and appears in the words and figures following:)
B u rn h a m , H e r m a n & Co.,
S treet , N e w Y ork C i t y ,
44 W a l l
New York, July SO, 1929.
No. 18536.
Pay to the order of Raleigh T. Curtis, $1,080 ($1,080 and no cents).
Per pro B u r n h a m , H e r m a n & Co.
H . F b ik d l e b (V).
M ax X asum a.
The Bank of America, 44 Wall Street, New York.
The last above check is indorsed as follows: Raleigh T. Curtis.
Mr. G ray . A check on March 14, 1930, for $637.
(The check last above referred to by Mr. Gray -was designated
“ Exhibit No. 20 ” and appears in the words and figures following:)
B u r n h a m , H e r m a n & Co.,
W a l l S treet , N e w Y ork C i t y ,
44
New York, March H, 1980.
No. 16546.
Pay to the order of Raleigh T. Curtis $637 (637 and no cents).
Per pro B u r n h a m , H e r m a n & Co.
H . F riedler ( ? ) .
M ax Y asu n a.
The National City Bank of New York, 55 Wall Street, New York, N. Y.
The last above check is indorsed as follows: Raleigh T. Curtis.
Mr. G ray . Check on September 20, 1929, for $517.50.
(The check last referred to by Mr. Gray was designated “ Exhibit
No. 21,” and appears in the words and figures following:)
44
B u r n h a m , H e r m a n & Co.,
W a l l S treet , N e w Y ork C i t y ,
New York, September 20, 1929.
No. 10310.
Pay to the order of Raleigh T. Curtis $517.50 (517 and 50 cents).
The Bank of America, National Association, 44 Wall Street, New York.
Per pro B u r n h a m , H e r m a n & Co.
M ax Y asu n a.
M. B u r n h a m ( ? ) .
Indorsed on reverse of check: Raleigh T. Curtis, Tony Wamser (?).
Mr. G r ay . Check on May 3, 1929, for $1,195.50.
(The check last referred to by Mr. Gray was designated “ Exhibit
No. 22,” and appears in the words and figures following:)
B u r n h a m , H e r m a n & Co.,
44 W a l l S treet , N e w Y ork C i t y ,
New York, May S, 1929.
So. 17251.
Pay to the order of Raleigh T. Curtis $1,195.50 ($1,195 and 50 cents).
H . F bhedler.
M. Burnham
(?).
The Bank of America, National Association, 44 Wall Street, New York.
Indorsed on reverse side of check: Raleigh T. Curtis, Tony Wamser (?).
610
STOCK EXCHANGE PRACTICES
Mr. G r a y . All those checks that I have shown you photostatic
copies of are drawn for the amounts mentioned. Thev are checks
of Burnham, Herman & Co., and are to the order o f Curtis and
indorsed by him. That is correct, isn’t it?
Mr. C ornell . Yes, sir.
Senator F letcher . Are you familiar with Curtis’s signature?
Mr. C ornell . Yes, sir.
Mr. G r ay . You examined Curtis with respect to them, d id n ’t you?
Mr. C ornell . Yes, sir.
Mr. G r ay . And he admitted that those checks were received b y him
from Burnham, Herman & Co. and indorsed by him?
Mr. C ornell . Yes, sir.
Mr. G r a y . What explanation did Curtis give to you with respect
to the rest of this money?
Mr. C ornell . His explanation was that he gave no orders to buy
or sell in this account and that Mr. Levenson was helping h im buy
his house and that it was a friendly gesture on Mr. Levenson’s part
and that it was not in payment for his writings.
Mr. G r a y . The same explanation that Mr. Levenson m a d e here
to-day ?
Mr. C ornell . Yes, sir.
Mr. G r a y . O f those checks it is to be noticed that they are all
practically during the spring, summer, and fall o f 1929, with tile ex
ception of one that goes down into 1930. That is correct, isn’t it?
Mr. C ornell . Yes, sir.
Mr. G r a y . Now, did you at the time examine the columns o f “ The
Trader ” ? I don’t know that we have it in the record, but first, you
knew Curtis to be the individual who wrote a financial column in the
New York Daily News and signed it “ The Trader ”—that is correst?
Mr. C ornell . Yes, sir.
Mr. G r a y . Did you examine the columns of “ The Trader ” dur
ing the time that these various stock operations were being con
ducted by Mr. Levenson at Burnham, Herman & Co.’s to make a
comparison with the articles themselves as opposed to the time when
Levenson was operating in a particular stock?
Mr. C ornell . I did.
Mr. G r a y . Did you or did you not find—I am speaking generally
now first—during the time that Levenson was operating m a par
ticular stock Curtis was writing articles boosting that stock?
Mr. C ornell . Yes, sir.
Mr. G r a y . Levenson operated on the long side, didn’t h e ?
Mr. C ornell . Levenson both bought and sold. The majority of
the stock which he sold was stock which he had taken down under a
call which he had on the stock.
Mr. G r ay . Yes. In other words, his operations were for t h e pur
pose of increasing the price of the stock, though he may have bought
and sold in the accomplishment of that purpose ?
Mr. C ornell . That was my impression.
Mr. G r a y . Now I wish you would tell this committee what the
result of your investigation was with respect to the articles that were
published by the Trader. I think you have some data there giving
the time with respect to each one of these stocks, have you not ?
STOCK EXCHANGE PRACTICES
611
Mr. C or n ell . Yes; I have in each particular stock the dates on
which this Trader column suggested the purchase of the stock, and
also the dates-----Mr. G r a y (interposing). Will you summarize each one of those
situations for us? M a y I say to the committee that I have all of these
clippings, but I do not think it is necessary to put all of them on the
record when Mr. Cornell will answer questions as to whether they
were in reference to certain stocks.
Mr. C o r n ell . In reference to Celotex, the Trader column tipped
this stock on April 27, April 29, April 30, and May 2, 1929. Three
hundred shares of this stock were ordered by Mr. Levenson for the
account of Curtis on May 1,1929, and sold the same day. On May 2
Curtis received one of the checks marked as exhibit here for $1,195.50.
Mr. Levenson had a call in this stock, had two calls in this stock, I
think, and bought in all 14,400 shares of the stock, sold 33,900 shares
of the stock, and exercised his call on 20,000 shares.
Total of this profit in that account was approximately $109,000
and was split three ways between Mr. Levenson, his associate, and
the firm from which he got the call.
Is that sufficient on that stock, Mr. Gray?
Mr. G r a y . Who was th a t firm?
Mr. C o r n ell . Pynchon & Co.
Mr. G r a y . That is another brokerage house?
Mr. C o r n e l l . Yes.
Mr. G r a y . Since out of existence ?
Mr. C o r n e l l . Yes, sir.
Mr. G ray . Member of the stock exchange at the time ?
Mr. C o r n e l l . They were.
Mr. G r a y . In other words, that brokerage house gave them a call,
he handled the stock through the other brokerage house, and then it
was split three ways; Levenson was one, the brokerage house that was
giving the c a ll was the other, and who was the third?
Mr. C o r n e l l . An associate of Mr. Levenson’s, E. H. Rodney.
Mr. G ray . An individual who was aiding him in the handling of
the transaction?
Mr. C o r n e l l . Yes.
Mr. G r a y . Please go ahead.
Mr. C o r n e l l . In the case of Borg Warner, our record shows that
“ The Trader ” tipped this stock on June 13, 15, 17, 21, 23, 27, and
July 1; that Mr. Levenson ordered for “ Traders” account on the
26th of June 300 shares of this stock, sold it the same day, and Curtis
received a check for $1,048.80 profit on the transaction.
Mr. Levenson’s operations in that stock, buying and selling—I
will put it, the net difference between the buys and sells on that stock
were cleared by his exercise of his call on 12,000 shares and on 15,000
shares. Total sales were 27,740 shares and the purchases were 15,500.
Profits o f about $51,000 were distributed between Mr. Levenson, Mr.
Kodney, and the Bankamerica Blair Corporation.
Mr. G h a t . That is a trading corporation?
Mr. C o r n e l l . Yes.
Mr. G r a y . O f course, th e brokerage house g ot a ll the com m issions
on it?
Mr. C o r n e l l . Yes.
612
STOCK EXCHANGE PRACTICES
M r. G b a y . I mean the com m issions w ent th rou g h the brokerage
house a n d w ere p a id b y them first b efore the n et p ro fits were
calculated?
Mr. C ornell . Yes; that is right.
Mr. G r a y . Y ou used the expression “ The Trader tipped this stock.
Mr. C ornell . Yes, sir.
Mr. G r a y . Possibly we know what you mean, but X would lik e to
get it in the record, a clear definition of that, what you m e a n by
“ tipping the stock.”
Mr. C ornell . Recommending its purchase.
Mr. G r a y . Recommending its purchase ?
Mr. C ornell . Yes.
M r. G ra y . A n d that is what you mean in con n ection w ith e a ch o f
these instances where you are referrin g to his h a v in g o n a certain
date tip p ed any o f these stocks?
Mr. C ornell . That is correct.
Mr. G r a y . All right; go ahead.
Mr. C ornell . In the case of Consolidated Aircraft “ The Trader *
tipped this stock April 29, 30, May 3, 7, 11, 13, 21, 25, June 5, 9,
July 3, August 20, and September 15, 1929.
On May 4 Mr. Levenson transferred from his own account to the
account of Curtis 500 shares of this stock at 35^, which was below
the market price on that day.
Mr. G r a y . In other words, he just made a present to Curtis by
transferring from one account to the other of 500 shares o f that
stock?
Mr. C ornell . Well, it was-----Mr. G r a y (interposing). When you say at 3 5 ^ you mean the fact
that Levenson’s account was credited with a transfer of that stock
on the basis of $35.50 a share, while the new account that was opened
was charged with the rest of it at the same figure ?
Mr. C ornell. That is right.
Mr. G r a y . Yes.
Mr. C ornell . This stock was sold the same day at the market
price and a profit check of $3,706.14 was transmitted to Curtis.
Mr. G r a y . Now, I want to get that clearly. Instead of that being
a transaction of where either Curtis on his own behalf or Levenson
for him ordered stock and they held it until it went up and then
sold it and Curtis got the profit, this is a transaction where if Leven
son had sold the stock that day on the market he would have gotten
a certain price for it, but instead of doing that he transferred it
to Curtis’s account, then the broker sold it for Curtis and got the
price that Levenson could have gotten for it and transmitted imme
diately a check to Curtis for the difference, which was $3,447 ? Is
that right?
Mr. C ornell . I do not think that is quite the picture, Mr. Gray.
Mr. G ray . All right now ; what is there wrong in that ? I mean
to say in the account of just what happened ?
Mr. C ornell . In transferring the stock to Mr. Curtis’s account
Mr. Levenson’s account received credit for that and Mr. Curtis’s
account was charged with it.
Mr. G r a y . I understand that.
The C h a ir m a n . Is there any difference between turning over so
much cash and a check?
STOCK EXCHANGE PRACTICES
613
Mr. C ornell. Because Levenson’s account got credit for the stock
as if they had made a sale.
The C h a ir m a n . It is just a question of keeping differences, is it
not?
Mr. C ornell. No; it is probably a sale at a price under the market.
Mr. G ray . I can show it, Senator. I am trying to put it in plainer
language in the record. As a matter of fact, the figures in this case,
the first figure was 35^, wasn’t it?
Mr. C ornell. That is right.
Mr. G b a y . What was the market figure at which it was sold, if you
have it there?
Mr. C ornell . I haven’t got it here, Mr. Gray.
Mr. G r a y . All right. Well, the fact is this: Levenson had a cer
tain number of shares of this particular stock on which he was long,
which means he owned it. It was with the brokerage firm. That is
the first step, isn’t it?
Mr. C ornell. That is right.
Mr. G ra y . N ow , under his instructions the brokerage firm takes
the stock out of his account and gives him credit for so many shares
at the price of 35 y2?
Mr. C ornell. That is right,
Mr. G r a y . That is correct. But the brokerage house transfers that
stock to the account in the name of Curtis, and it is charged in that
account at the same price that it is taken out of Levenson’s account
of 35^. How many shares was it?
Mr. C o b n e ix . Five hundred, I think.
M r. G r a y . Five hundred shares. And the profit was about thirtyfour or thirty-five hundred dollars. Therefore, I think we can as
sume that the transfer was 500 shares; is it?
Mr. C ornell. Five hundred shares; yes, on May 4, on one day.
Mr. G r a y . Then he must have made about 7 points on it?
Mr. C ornell . There were two transactions, one on May 4 and one
on May 11. May 11 was for 100 shares at 36.
Mr. G r a y . Ail right; let us confine ourselves to this transaction.
After transferring that 500 shares of stock to the Curtis account the
broker sold it for Curtis?
Mr. C ornell . Yes, sir.
Mr. G r a y . And he got enough money to send Mr. Curtis a check
for how much?
Mr. C o r n e l l . $3,706.14.
Mr. G r a y . $3,706.14. Now, if Levenson had so desired and he had
no other reason than to just realize on that stock instead of trans
ferring it to Curtis’s account, all he had to do was to direct his broker
to sell it ; is that right ?
Mr. C o r n e l l . That is right.
M r. G r a y . And if his broker had sold it, Levenson would have had
an additional profit in his account of $3,706.14?
Mr. C ornell . That is right.
Mr. G r a y . But by transferring it first to Curtis’s account and then
having it immediately sold by the brokers for Curtis and having them
send Curtis a check, ne just simply made Curtis a present of $3,706.14,
did he not?
Mr. C o r n e l l . I would say so.
119063—32—
2----- 16
614
STOCK EXCHANGE PRACTICES
Mr. G r a y . Yes. That is the picture, then.
The C h a i r m a n . But he did it in a very roundabout way ?
Mr. G r a y . Well, of course, they all do that that way, Senator. He
is not going to draw a check and sign it to Curtis’s order.
Now will you go ahead with the other transactions?
Mr. C o r n ell . Yes. The summary of purchases and sales o f that
stock shows 64,900 shares purchased, 39,300 shares sold, and his
option exercised on the difference between those two figures.
Mr. G r a y . Yes.
Mr. C o r n ell . The profits in this account were approximately
$194,000, split between Pynchon & Co., Levenson, Rodney, and there
was one check drawn against the account for $15,000 to the order of
Mr. Levenson marked “ For the account of others.”
Mr. G r a y . Who is Rodney ?
Mr. C o r n ell . An associate of Mr. Levenson.
Mr. G r a y . Does he own any publication service ?
Mr. C o r n ell . Not that I know of.
Mr. G r a y . Not that you know of. All right, go ahead.
Mr. C o r n ell . On this account alone there were checks drawn to
the order of Oscar Alexander and George F. Breen for $18,000.
M r . G r a y . Y ou don’t know w h a t th at w as fo r ?
Mr. C o r n ell . No, sir. One B. E. Pollack got $15,000.
Mr. G r a y . All right; go ahead.
Mr. C o r n e ll . Eisler Electric stock was tipped by “ Trader
” on
June 14,17,19, 24,30, July 11,27, August 8, and September 21.
Mr. G r a y . 1929?
Mr. C o r n e l l . Yes, sir.
Mr. G r a y . All right; go ahead.
Mr. C o r n e ll . Levenson gave orders to buy this stock for Curtis
on four different occasions—June 15,300 shares; June 17,200 shares;
July 29, 500; and September 19, 500. In each case the stock was
sold on the same day as it was purchased for Curtis’s account, and
Curtis received the following checks: On June 16, $1,055.60; June
18, $949.50; July 29, $1,080; September 19, $517.50.
The summary of Mr. Levenson’s trading in that stock shows that
he exercised his option on about 61,000 shares. He sold 131,000
shares, purchased 45,600 shares.
I want to correct that other statement. His total options were
85,400.
The profits on the stock amounted to $379,000.
Mr. G r a y . Of course, it is obvious, Mr. Cornell, but at the same
time I ask the question to put it in the record—the public bought
this stock? It was sold on the open market to whoever wanted to
buy it ?
Mr. C o r n e l l . That is right. Mr. Levenson purchased a large part
of it.
Mr. G r a y . That is, he purchased it on the exercise of his option
for somebody else, but his net position after he got through with the
transactions was that he had sold—and I don’t want to use the word
“ dumped”—he sold to the public or that part of the public that
wanted to buy a certain amount of stock over and above that which
he bought?
Mr. C o r n ell . That is right.
STOCK EXCHANGE PRACTICES
615
Mr. Grat. Go ahead. And the stock which he bought a large part
of it was composed of stock that he got on an option from some other
brokerage house?
Mr. Cornell. That is right.
Mr. Gray. Yes.
Senator F letcher. It began to fall in September, didn’t it, or
after September?
Mr. Cornell. This particular stock? Yes.
Mr. Gray. I think you can say generally, in answer to Senator
Fletcher’s question, that all of these stocks have had a decided fall
since then, can you not?
Mr. Cornell. Yes. These operations were mostly at the peak at
that time, the peak of the price.
Mr. Gray. Yes. .
Mr. Cornell. The distribution of that profit of $879,000 was that
Levenson got about $54,000 and received checks totaling $30,000
marked “ For the account of others.”
Mr. Gray. Nothing to indicate who those others are?
Mr. Cornell. N o, sir. The brokerage firm that gave him the call
on that stock got $168,000.
Mr. Gray. What firm was that?
Mr. Cornell. Bonner, Brooks & Co.
Mr. G r a y . I s that a New York Stock Exchange house?
Mr. Cornell. I think they were. I am not positive on that.
Mr. Gray. All right; go ahead.
Mr. C ornell . One E. E. Cerf got $19,000; Burnham, Herman &
Co. cot $106,800.
Mr. Gray. Does that represent part of the distribution of the
profits to them?
Mr. Cornell. Part of the distribution of the profits on this one
particular stock.
Mr. Gray. The brokerage house through which he was dealing
was in on his deal on this particular stock?
Mr. Cornell. They received a portion of the profits.
Mr. Gray. Go ahead.
Mr. Cornell. There were several other people that got small
amounts on that stock.
M r. Gray. You need not bother with that.
Mr. Cornell. ‘On the Pitney Bowes-----Mr. Gray (interposing). That is another stock?
Mr. Cornell. Yes. That stock was tipped by “ Trader ” July 1,
3,7, and 30, and on September 19.
Mr. Gray. 1929?
Mr. Cornell. Yes. On June 30 there was 300 shares of this stock
transferred from Mr. Levenson’s account to wTrader’s ” account at
27% and sold for the account of Curtis the same day, with a profit of
$673, for which he received a check.
A su m m a ry of the account shows that Mr. Levenson sold 50,100
shares as against 35,000 which he purchased, and took down under his
option 15,000 shares.
Mr. Gray. Go right ahead, Mr. Cornell.
Mr. Cornell. The profits on this stock were split between John J.
Levenson, E. H. Rodney, and one Helen Fairfax, each receiving in
excess of $36,000.
616
STOCK EXCHANGE PRACTICES
Mr. G b a y . Y ou don’t know who Helen is?
Mr. C o r n e l l . I think she was instrumental in securing the option
which was under the name of the International Development Co.
Profits totaled $116,126.
Radio Products was a comparatively small operation, was tipped
by “ Trader ” on February 20,1930, on the 3d of Marcn and on the
5th and 10th of March. There were 200 shares o f this stock bought
for the account of Curtis, on March 3 and sold on the same day at
a profit of $637.
Senator F l e t c h e r . For which he received a check?
Mr. C o r n e ll . Yes, sir.
M r. G r a y . He received each one of these checks. W e have already
had them identified.
Mr. C o r n e l l . The total sales in this account were approximately
30,800, and the total buys 25,600. Mr. Levenson exercised his option
on 5,200 shares of stock.
Mr. Gray. What was the distribution of profits there?
Mr. C o r n e ll . Total profits of $25,000 were distributed b etw een
Mr. Levenson, Mr. Rodney, and Leslie Herman.
M r. G r a y . T h a t is the last one o f those stocks, isn’t it?
Mr.
C ornell.
No; there are two more here.
M r. G r a y . S u ppose y ou give them to m e.
Mr. C o r n e l l . U. S. Finishing. This stock was tipped on
approximately 15 days in July and August. There was 50 shares
purchased for the account of Curtis on July 10, 100 shares on July
24, at prices approximating the call prices, which were below the
then market prices. All o f the stocks were sold for the account of
Curtis at prices ranging from 20 to 30 points above the call price.
Mr. Gray. Now, when he was given the opportunity to buy it at
the call price, which was below the market, it must have been trans
ferred from somebody else’s account, was it not?
Mr. C o r n ell . From the account of Levenson.
Mr. G r a y . From the account of Levenson. So there was a situa
tion which was like the one that we described in detail, where Leven
son had the stock transferred from his own account to Curtis’s
account at a very much lower figure than he could have gotten for it
himself and then sold through Curtis’s account and the profit given
to Curtis; is that correct?
Mr. C o r n e ll . That is right. The checks Curtis received on these
various transactions were $1,846, $1,373, $1,535.50, and $3,446.
Mr. G r a y . What was the distribution o f profits there?
Mr. C o r n e l l . The total profits on this transaction were $179,408.
Mr. Gray. Who got it ?
Mr. C o r n e ll . Pynchon & Co. got in excess of 88,000, Mr. Levenson
got in excess of 44,000, and 44,000 for the account of others not
mentioned.
Mr. G r a y . Tell us the last transaction.
Mr. C o r n e l l . American Maracaibo was tipped by Trader on April
27,28,29; May 9,12, and 15. I have no record of checks, transactions
in Curtis’s account, in that particular stock.
Mr. G r a y . All right. Now, let me ask you: These stocks were
traded in what, on the curb or on the New York Stock Exchange?
Mr. C o r n e ll. Some were big-board stocks; some were curb e x
change.
STOCK EXCHANGE PRACTICES
617
Mr. Gray. By “ big board ” stocks you mean what is known as the
New York Stock Exchange?
Mr. C o r n ell . New York Stock Exchange.
Mr. G r a y . And none of these stocks were what are called im
portant or pivotal stocks; isn’t that true ?
M r. C ornell . A ll o f these stocks h ad at one tim e o r oth er very
spectacular rises. T h ey were n ot the key stocks.
Mr. G r a y . They were not big stocks or key stocks ?
Mr. C o r n e l l . No.
Senator F l etc h er . All listed stocks?
Mr. C o r n ell . All listed; yes, sir.
The C h a i r m a n . They were not of large issue ? That is what you
mean for one thing. They were small corporations, comparatively?
Mr. C o r n e ll . I wouldn t say that, Senator. For instance, Celotex
has rather large issuance of stock. Some of the others. But they
were not what you might call leaders on the market.
Mr. G r a y . But they were stocks that were subject as much as any
other stocks, if not more so, to the manipulation of traders like Mr.
Levenson?
Mr. C o r n e l l . Yes, sir.
Mr. G u a y . They were speculative stocks and stocks that did have,
as you say, phenomenal rises at times ?
M r . C ornell ,. That is right.
Senator C a r e y . Mr. Cornell, how did you happen to make this
investigation ?
Mr. C o r n e l l . On a complaint from a person who had purchased
stock that was tipped in this newspaper.
Senator C a r e y . There was a complaint about Mr. Curtis's activi
ties in the newspaper?
Mr. C o r n e l l . The name of the column, not mentioning the name
Curtis. O f course, the name “ Trader ” is a nom de plume.
Senator C a r e y . And you were representing the attorney general
of New York, were you, or your department?
Mr. C o r n e l l . Yes.
Senator C a r e y . Was anything ever done about it by the New
York authorities?
Mr. C o r n e l l . The News has not since that time definitely recom
mended the purchase of any stocks. That feature has been elimi
nated. The column is still published, “ The Trader.” This Curtis
no longer conducts the column.
Senator C a r e y . What is Mr. Curtis doing now ?
Mr. C o r n e l l . I don’t know.
Senator C arey . Y ou d on ’t know w hether he is w ritin g financial
news o r n ot ?
Mr. C o r n e l l . No; I do not.
Senator C a r e y . That is all. There were no prosecutions?
Mr. C o r n e l l . No. The bureau of securities is not a criminal
agency; it is a civil bureau.
Senator C a r e y . Did you investigate any other papers?
Mr. C o r n e l l . Papers? No; not at that time.
Senator C a r e y . I mean on transactions similar to this.
Mr. C o r n e l l . No. I got out o f the attorney general’s office
shortly after that.
018
STOCK EXCHANGE PRACTICES
Mr. G r a y . I s Mr. Levenson here? T h a t is all, Mr. C orn ell.
Mr. L evenson . Yes; I am here, Mr. Gray.
M r. G r a y . W ill y ou com e back and let m e ask y o u another
question?
Mr.
L evenson.
Yes.
TESTIMONY OF JOHN J. LEVENSON, WHITE PLAINS, N . Y .—
Continued
Mr. G r a y . Mr. Levenson, Mr. Cornell has indicated in some o f his
testimony here that in the distribution of these funds after some o f
these transactions of yours were closed a number of checks from time
t o time were drawn to your order and marked to the account o f
others.
Mr. L evenson . Yes; I can-----Mr. G r a y (interposing). Who were the others?
Mr. L e v e n s o n . I can’t tell y o u n ow , Mr.-----Mr. G r a y (interposing). I don’t expect you to be able to g iv e me
maybe details, but in a general way who they are.
Mr. L e v e n s o n . I can not tell y ou w ith ou t lo o k in g at m y records,
b u t I can su p p ly those nam es fo r you i f y o u g iv e m e a n opportunity
to look it up.
M r. G r a y . I w ish you w ou ld su pp ly those nam es f o r us.
Mr. L e v e n s o n . I can tell you generally, if you would like t o know.
Mr. G ra y . Without mentioning them; yes.
Mr. L e v e n s o n . Those were people who were associated with me in
the transaction.
Mr. G r a y . Y ou mean stock exchange members?
Mr. L evenson . N o ; they were individuals.
M r. G ra y . I k n o w ; but they were stock exchange m em bers, somt
o f the individu als?
Mr. L e v e n s o n . They
might have been. I prefer to look i t up. I
can supply that.
Senator F letcher . H ow were they associated with you? What
did they do about it?
Mr. L evenson . They just had an interest in the accou n t.
Senator F l e t c h e r . Put up any money?
Mr. L e v e n s o n . No; they had an interest in the profit o f the ac
count.
Mr. G ray . H ow did they get it? That is what Senator Fletcher
wants to know, I presume. Why were they given an interest when
they didn’t put up any money ?
Mr. L e v e n s o n . Nobody put up any money. I mean they were
associates.
Mr. G r a y . Yes; I understand that. You did not actually have to
put up any money because you were not buying the stock on the
market but you were getting it through an option and a ca ll; but
did they have a similar interest to the interest that you had?
Mr. L e v e n s o n . Different people.
Mr. G r a y . Differently proportioned, yes.
Mr. L evenson . Different people, different interests.
Mr. G ray . If it didn’t cost anything to operate in this way why
did you let those people in on it?
STOCK EXCHANGE PRACTICES
619
Mr. L even so n . Well, I had interest in some of their operations
and it was a matter of reciprocity, because some of those people
brought business to me.
Mr. G b a t . Any of those other people like the “ Trader ” Curtis?
Mr. L e v e n s o n . No, sir.
Mr. G b a t . By the way, you say Rodney, was it, is not a member
of the stock exchange; or didn’t I ask you?
Mrl L ev e n so n . N o ; he was not a member of the stock exchange.
Mr. G b a t . Did he run a publication?
Mr. L e v e n so n . No; he was ,a partner o f the firm o f Burnham,
Herman & Co.
Mr. G b a t . He was a partner o f the firm o f Burnham, Herman
4 Co.?
Mr. L e v e n so n . Yes, sir.
Mr. G b a t . So the brokers th ro u g h w h o m y ou dealt in these m a t
ters, and you p a id the m on ey, w ere y o u r partn ers in m o st o f these
transactions?
Mr. L e v e n s o n . Mr. Rodney was in this transaction.
Mr. G b a t . Everything on the New York Stock Exchange is part
nerships, isn’t it? I mean to say, the firms are all partnerships?
Mr. L e v e n so n . I will just say this, Mr. Gray-----Mr. G b a t (interposing). You say what I want to say.
M r. L
evenson.
I w an t to ex p la in it.
Mr. G b a t . My question is answered first. The stock exchange
itself is an unincorporated association, is it not? Is that correct?
Mr. L e v e n s o n . Yes, sir.
Mr. G b a t . And the various firms of brokers who are members of
the stock exchange are all partnerships ? None of them are corpo
rations, are they?
Mr. L e v e n s o n . Yes, sir.
Mr. G b a t . So that a member of the firm of Burnham, Herman
& Co.-----Mr. L e v e n s o n (interposing). Had it for his individual account,
not the firm account.
Mr. G b a t . No; most of them arc too clever to do that; but his in
dividual account in the transaction that went through his firm ?
Mr. L e v e n s o n . Yes, sir.
Mr. G b a t . And he must have known, because he had an interest in
your money, and therefore that you were giving some of it to Curtis ?
Mr. L e v e n s o n . I d o n ’ t k n o w w h e t h e r h e k n e w i t o r n o t . I w a s
m anaging th e a c c o u n t , a n d I h a d -------Mr. G b a t (interposing). The authority
to do it ?
Mr. L e v e n s o n . Yes.
Mr. G b a t . In other words, he gave you carte blanche to do as you
chose in connection with it? You did not have to account to him
for the ninteen thousand and odd dollars that you gave to Curtis ?
Mr. L e v e n s o n . That i s c o r r e c t ; y e s , s i r .
Mr. G b a t . Did you te ll h im about it ?
Mr. L e v e n s o n . I d i d n ’ t h a v e t o a c c o u n t t o h i m ; n o .
Mr. G b a t . Did you tell him about it?
M r. L e v e n s o n . I don’t th in k I d id .
Mr.
Mr.
G b a t . Do y o u th in k he kn ew abou t it?
L e v e n s o n . I don’t think he did. He might
have.
620
STOCK EXCHANGE PRACTICES
Mr. Gray. In other words, it was going through his bools in his
firm? and he was one of the partners, but you didn’t have to account
to him for it and you doubt whether he knew anything about it?
Mr. Levenson. I can not tell you, Mr. Gray, whether he knew it or
not. He could have looked on his own firm’s books and found it out.
Mr. Gray. Rodney did not sign those checks. All right; that is all.
Mr. Levenson. Mr. Gray------
Mr. Gray. Go ahead and make any statement you like.
Mr. Levenson. Mr. Gray, may I just make one statement, please?
Mr. G r a y . G o right ahead.
. ,
Mr. Levenson. I just want to say that Mr. Curtis—what I did
for him, which I have indicated, was done as a matter of friendship,
I did for other people who were not in any way connected with any
publication.
Mr. G r a y . Have you got any more openings over there, a n y th in g
you can do for me like that because I have examined you?
Mr. L evenson. I just want to make that statement.
Mr. Gray. In other words, you have done it for others?
Mr. Levenson. I can prove it; yes, sir.
Mr. Gray. I am not questioning your word. I was just wondering
if I could get in on it.
Mr. Levenson. That was a time we were all pretty liberal.
The Chairman. The committee will adjourn until to-morrow at
10 o’clock and meet at 10 o’clock sharp. Mr. Levenson is released
from the subpoena and is through so far as Mr. Gray is concerned.
(Thereupon, at 12.40 o’clock p. m., the committee adjourned, to
meet at 10 o’clock a. m. of the next day, Saturday, May 21,1982.)
STOCK EXCHANGE PRACTICES
SATURDAY, MAT 21, 1932
U n it e d
S ta tes S e n a t e ,
C o m m it t e e o n B a n k in g a n d C u r r e n c y ,
Washington, D. C.
The committee met at 10 o’clock a. m., pursuant to adjournment on
yesterday, in room 301, Senate Office Building, Senator Peter Norbeck
presiding.
Present: Senators Norbeck (chairman), Brookhart, Townsend,
Walcott, Carey, Couzens, Fletcher, and Glass.
Present also: William A. Gray, Esq., counsel of the committee.
The C h a i r m a n . The committee will come to order.
Senator B r o o k h a b t . Mr. Chairman, before Mr. Gray begins the
examination o f a witness I want to make on the record a request: I
desire Mr. Gray to find a case of one o f these so-called pools, syndi
cates, or groups that Mr. Whitney himself regards as honest, and then
investigate that case clear through to the end. In other words, I
want to find out whether there is anything honest in this institution.
Mr. G r a y . Am I to understand, Senator Brookhart, that what you
wish me to do is to communicate with Mr. Whitney, president of the
New York Stock Exchange, and ask him to indicate to me a pool that
he considers honest, so that I may then investigate that pool and
show a picture o f the transactions connected with it?
Senator B r o o k h a r t . Yes.
Mr. G r a y . May I call attention to the fact that Mr. Whitney testi
fied at one phase of the investigation that he did not know*of the
existence of such a thing as a pool. I am perfectly willing, of course,
to communicate with Mr. Whitney in response to Senator Brookhart’s request.
Senator B r o o k h a r t . And afterwards didn’t he recover somewhat
from that failure of vision and show a little television?
Mr. G r a y . That is possible; but let me direct your attention to
the fact that Mr. Whitney in all likelihood will say, although I am
not entirely willing to prophesy what his answer to such a request
would be, that he is the president of the New York Stock Exchange
and does not have anything to do with pools, and that if I want to
find out anything about pools I can examine the records of brokerage
houses, which we have done.
Senator B r o o k h a r t . Well, they have a governing board, as I
understand it, haven’t they ?
Mr. G r a y . The New York Stock Exchange has a governing board,
and it also has a business conduct committee for the purpose of
keeping track o f any transactions which they may view with dis
favor and which they think they should investigate. I will add that
621
622
STOCK EXCHANGE PRACTICES
I have a memorandum of probably 50 or 60 pools, and I c a n investi
gate all of them, I mean if I am given ample time, and if you desire
to call Mr. Whitney down here before the committee and a s k him on
the witness stand whether he considers this or that pool a n honest
one, we could then have his direct testimony on the point.
Senator B r o o k h a r t . I should like you, Mr. Gray, i f you can, to
find one pool that Mr. Whitney, or the governing board or b u s i n e s s
conduct committee of the New York Stock Exchange, regards as
honest.
Senator W a l c o t t . These transactions go through the Stock Clear
ing Corporation, of which Mr. Whitney is president. That is what
you have in mind, I presume.
Mr. G r a y . The transactions themselves as such do not g o through
the Stock Clearing Corporation, but the various deals of the day,
of course, as you know, go through the Stock Clearing Corporation
and will appear the next morning on the repayment sheets o f the
stock-clearing house.
Senator B r o o k h a r t . Well, Mr. Gray, do the best you can to find
one of these pools or groups or syndicates, and I don’t care what
they may call it, that they regard as being honest, and then we will
look into it and see if there is such a thing as an honest pool.
Mr. G r a y . I f the committee instructs me to communicate with
Mr. Whitney and ask him to advise me with respect, and I will
use a politer term when I communicate with him, some syndicate
that he believes their operations to have been absolutely honest, I
will do so. I f he answers me by referring me to the syndicate or
pool, I will call for an investigation to be made of it immediately,
or whatever the committee instructs me to do.
The C h a i r m a n . I s that satisfactory, Senator Brookhart?
Senator B r o o k h a r t . Yes; that is very satisfactory, in d eed .
The C h a i r m a n . All right. Then the motion need not be put f o r
the committee. We will proceed with the hearing.
Mr. G r a y . Mr. Warner will come to the committee table.
The C h a i r m a n . Mr. Warner, please stand, hold up your right
hand, and be sworn. You do solemnly swear that you will tell the
truth, the whole truth, and nothing but the truth, regarding the
matter now under investigation by the committee, so help you God?
Mr. W a r n e r . I do.
The C h a i r m a n . Just be seated opposite the committee reporter.
TESTIMONY OF HARRY M. WARNER, MOUNT VERNON, N . Y .,
PRESIDENT OF WARNER BROS. PICTURES (INC.)
The C h a i r m a n . You may proceed, Mr. Gray.
Mr. G r a y . Mr. Warner, will you give your full name fo r
record?
Mr. W a r n e r . Harry M. Warner.
Mr. G r a y . Where do y o u reside?
Mr. W a r n e r . Mount Vernon, N. Y.
Mr. G r a y . Did you say Mount Vernon, N. Y.?
Mr. W a r n e r . Yes, sir.
Mr. G r a y . W h a t is y o u r business, please.
Mr. W a r n e r . President of Warner Bros. Pictures (Inc.).
the
STOCK EXCHANGE PRACTICES
623
Mr. Gbay. Will you try to keep your voice up so that all the people
around us here can hear you?
Mr. W a r n e r . Yes, sir.
Mr. G r a y . I believe you stated that you are the president of Warner Bros. Pictures (Inc.).
Mr. W a r n e r . Yes.
Mr. Gray. And they are a moving-picture corporation?
Mr. W a r n e r . Yes.
Mr. G r a y . That is, a corporation that promulgates pictures?
Mr. W a r n e r . Yes.
Mr. G r a y . And your stock—that is, the stock of Warner Bros. Pic
tures (Inc.)—is on the New York Stock Exchange, is it not, for trad
ing purposes?
Mr. W a r n e r . Yes.
Senator C o u z e n s . Mr. Counsel, before you go into that, will Mr.
Warner please tell us what his occupation was before he went into
pictures, and his experience?
Mr. G r a y . Answer Senator Couzens’s question, please.
Mr. W a r n e r . I have been in the picture business for 28 years.
Previous to that I had a trade. My father made me learn shoemaking as a youngster. And then I operated shoe stores, and then went
into the picture business when it was first started.
Senator C o u z e n s . By yourself?
Mr. W a r n e r . By myself and one of my brothers. And at a later
date put in the younger brothers as they became older.
Senator C o u z e n s . Have you made money out of the picture busi
ness?
Mr. W a r n e r . We have developed it t o ---Mr. G r a y (interposing). Mr. Warner, please keep your voice up.
It is difficult for people around here to hear you.
Mr. W a r n e r . We have made money-----The C h a i r m a n (interposing). The newspaper reporters are in
back of you as well as in front of you, and they all want to hear
what you say. Please talk up loud enough so everybody can hear you.
Mr. W a r n e r . We have made money out of the picture business;
yes, sir.
Senator C o u z e n s . Have you made more money out of the picture
business than you have made in the handling of your stocks?
Mr. W a r n e r . Well, it depends on just what you mean by that.
Senator C o u z e n s . Well, I mean that you have bought and sold
your stocks. I will not use the word “ manipulate,” but you have
handled the stocks of your corporations; and I was wondering
whether you have made more money in that activity than in the
actual producing and exhibiting of pictures.
Mr. W a r n e r . I would say that everything we have made we have
made out of developing our business.
Senator C o u z e n s . Then you did not make any money out of buy
ing and selling the stocks of your corporations.
Mr. W a r n e r . I would not say that.
Senator C o u z e n s . I was trying to find out whether you have
made more money in the handling o f the stocks of your corpora
tions than you have in the moving-picture business.
624
STOCK EXCHANGE PRACTICES
Mr. W a r n e r . In answering that I would have to consider as to
the value of our interest in the company at different limes.
Senator C o u z e n s . But you have made money in buying M i d selling
the stocks of your corporation outside of the mere moving-picture
business, have you not?
Mr. W a r n e r . I have bought and sold stocks; yes. You see it is
pretty hard for me to answer that question because the business w a s
a partnership up until 1925 of just we four brothers, and when it
was incorporated we got an exchange out of 700,000 shares fo r our
interest in the business at the time.
Senator T o w n s e n d . H o w much money did you four brothers h a v e
in the business, how much capital?
Mr. W a r n e r . It is pretty hard to say, because you might as well
say it was a lifetime work, developing it as we went along.
Senator C o u z e n s . What I was trying to develop was this: I t ap
pears that many directors and managers of corporations are more
interested in the handling or manipulation of their own stocks than
they are in actually performing the business in which they are osten
sibly engaged. So I want to know just in which category you come
in reference to your business.
Mr. W a r n e r . We positively are interested in developing our busi
ness, from its start until this very day.
Senator C o u z e n s . That is all that I wish to ask at this time, Mr.
Gray.
The C h a i r m a n . Y ou may proceed with the witness, Mr. Gray.
Mr. G r a y . Mr. Warner, you formed your corporation, I believe,
in 1925*
Mr. W a r n e r . I think so.
Mr. G r a y . And what was the capital invested in the corporation
when it was formed?
Mr. W ar n er . Well, our years of work; and I think the audit ox
Price, Waterhouse & Co. will really show that.
Mr, G r a y . I am not talking about your years of work as a part of
the capitalization of the company. But what was your financial
structure; what was your set-up when the company was form ed!
Mr. W ar n e r . We owned a lot of plants, pictures, and so on.
Mr. G r a y . What was your first stock issue ?
Mr. W ar n e r . At the time of 1925?
Mr. G r a y . Yes. I mean what was your quantity of stock?
Mr. W ar n e r . Oh; 550,000 shares, of which we took 300,000 shares,
if I remember correctly, and 250,000 shares remained in the treasury.
Mr. G r a y . O f what kind of stock?
Mr. W ar n e r . All com m on.
Mr. G r a y . Did it have a par valu e?
Mr. W a r n e r . I think it was no par stock.
Mr. G r a y . Y ou th in k it w as n o p a r stock ?
Mr. W ar n e r . Yes.
. Mr. G r a y . And you got 300,000 shares of that stock, or a majority
interest, for the business that you had built up to that point of time?
Mr. W a r n e r . Yes.
Mr. G r a y . Were there other issues of stock thereafter?
Mr. W ar n e r . At later dates; yes.
Mr. G r a y . What were the other issues of stock?
STOCK EX CH A N GE PRACTICES
625
Mr. W arner. When we acquired the Stanley Co., and I think it
was in 1929 or in 1928, and I am not sure which-----Mr. G ray (interposing). That is, you mean the Stanley Co. of
America?
Mr. W arner. Yes, sir.
Mr. G ray. In order that we may have the record show it clearly
let me ask: They were another moving-picture corporation?
Mr. W arner. They were a theater-owning corporation.
Mr. Gray. They owned a number of theaters around the country?
Mr. W arner. Yes ; about 2 0 0 ,1 believe,
Mr. G b ay . N ow , go ahead with your answer. What was your
issue o f stock then?
Mr. W abner. We increased the capitalization of the company,
and gave them a certain number of shares of stock for their shares.
Mr. G bay . And you increased the capitalization o f Warner Bros.
Pictures (Inc.) to what?
Mr. W abner. I think it was seven and a half million shares.
Mr. G ray . Seven and a half million shares altogether, including
the original issue of 550,000 shares?
Mr. W a r n e r . Yes, sir; but you understand they were not all issued.
Mr. G bay . All right. We will come to that a little later. And of
those seven and a half million shares, how many shares were given
to the Stanley Corporation of America for their interest?
Mr. W arner. Well, if I attempted to answer I would be guessing.
I would rather refer to some records that we have here that will
show that fact.
Mr. G bay . All right. I f you have some records you may refer to
them. And if you want the assistance of some one else, you may have
it, and they may bring those records over to you at the committee
table.
Mr. W arner. I thank you. Mr. Schneider, will you just step over
here?
Mr. Gray. That is all right. Come around to the committee table
and take a seat beside Mr. Warner.
Mr. W arner. I will say that Mr. Schneider is my right-hand man.
Mr. G r a y . For the purpose of the record, please let us have Mr.
Schneider’s name in full.
Mr. S chneider. My name is Samuel Schneider.
Mr. G r ay . I am sure the committee will not object to M r. Schneider
sitting near you there and giving you any assistance with the records
of the company that you may desire.
Senator C ouzens. There is one point I want to know before you go
further, Mr. Gray.
Mr. G r a y . Certainly, Senator Couzens.
Senator C ouzens. Mr. Warner, when you first got your 300,000
shares o f Warner Bros. Pictures (Inc.), you say the remaining issue
was kept in the treasury?
Mr. W arner. Yes.
Senator C ouzens. H ow soon after that did you sell any of it?
Mr. W arner. I will tell you as soon as Mr. Schneider can look
it up in the papers he has here.
Senator C ouzens. All right.
Mr. G ra y . Now go ahead, Mr. Warner, and answer Senator
Couzens’s question.
026
STOCK EXCHANGE PRACTICES
Mr. W a r n e r . I find that I made a mistake at the beginning o f my
testimony. The first issue of the corporation was 350,000 shares ca
common and 200,000 shares o f A stock. Or was it that, Mr.
Schneider?
Mr. S c h n e id e r . N o . The first issue of stock w a s 550,000 shares
o f common and 200,000 shares of A.
Mr. G r a y . In other words, Mr. Warner, you now desire to^correct
your original answer by adding the statement that, in addition to
the 550,000 shares of common stock issued by Warner Bros. Pictures
(Inc.), there were 200,000 shares of another stock known as A stock
issued, is that right?
Mr. W a r n e r . No, sir; I believe that is not right either.
Mr. G r a y . Well, I so understood it.
Mr. W a r n e r . You must remember that this was a long time ago.
We have an attorney here and he might answer that.
A B y st a n d e r . Mr. Warner, the Standard Statistics are there oa
that yellow slip. You can refer to that.
Mr. W a r n e r . I would answer this subject to m y o b t a in in g the
actual figures, that the corporation had 550,000 shares o f s to c k , of
which 200,000 shares were class A, or 250,000 shares were class A,
and I am not so sure on that one point.
Senator C o u z e n s . What did you do with the class A stock?
Mr. W a r n e r . We afterwards sold it to Goldman, Sachs & Co., and
McClure, Jones & Co.
Senator W a lco tt . Was there any preference provision in that
stock certificate? In other words, did it supersede what y o u called
the common stock as to dividends or rights or anything else ?
Mr. W a r n er . I think it did.
Mr. S c h n e id e r . It was $10 par stock.
Senator C o u z e n s . How soon after the organization o f Warner
Bros. Pictures (Inc.) did you sell the A stock?
Mr. W ar n e r . I would say some time about a year later.
Senator C o u z e n s . So when you first incorporated the business and
took over 300,000 shares for your control, you did not sell any to
the public at that time or dispose of any of that stock?
Mr. W ar n e r . Only to just a few frienas. I think we disposed of
about 25 or 30 shares to some friends at $10 a share and guaranteed
to take it back at $11 a share at the end of the year in case they
did not want to continue to own it.
Senator T o w n s e n d . This was in 1925 that you are now talking
about?
Mr. W a r n e r . I think it was. We gave away to some people that
had been with the company some of our stock; I mean to some o f our
employees.
Senator C o u z e n s . How soon d id the stock go on the New York
Stock Exchange?
Mr. W a r n e r . I think it went on the curb exchange first and then
went onto the New York Stock Exchange later.
Senator C o u z e n s . Is there anybody here who is more familiar
with the organization and handling of your affairs than you ar« ?
Mr. W ar n e r . Well, the attorney would possibly be mofe farSliar
with this than I am.
STOCK EXCHANGE PRACTICES
627
Mr. G b a t . Senator Couzens, would you like for me to withdraw
Mr. Warner and get the attorney to come forward to answer your
questions?
Senator C o u ze n s . I do not want to interfere with your program.
M r . G b a t . What I want to do, Senator Couzens, is to develop the
situation along as it came down to January 1, 1930, and then to
establish some things.
Senator C o u ze n s . Well, go ahead. Perhaps what I was going to
ask Mr. Warner is not important at this time.
Senator G l a ss . What I should like to know is : How is this m atter
involved in stock-exchange operations?
Mr. G b a t . One of the things, Senator Glass, that the committee
required me or requested me to examine into was the selling of their
own stock b y officers of corporations. And I am going to establish,
I believe, by my examination o f Mr. Warner, first, what the holdings
of the stock in his own company were on the 1st day of January
or approximately that point of 1930. Then establish the fact that
through various undercover channels and not through direct selling
and by covering transactions so the public would not know who
had sold the stock while certain journals were boosting the value
of the stock before the public. And that when the time came that
he had disposed of a certain quantity of stock the newspapers then
started to depress, so far as the public was concerned, the value of
Warner Bros, stock and he went into the market and bought it again,
making, as I shall show you, by that transaction—and I think it all
occurred during 1930—a profit in dealing in his own stock of
$9,251,454.50.
Senator G l a ss . Was that done on the stock exchange?
Mr. G b a t . Yes; and through various brokerage houses and through
various accounts which I believe Mr. Warner will admit to be his
own, but in other names.
Senator C o u z e n s . I th in k y ou m ig h t g o ah ead , as fa r as I am
concerned.
Mr. G b a t . Shall I proceed?
Senator C o u z e n s . Yes; as fa r as I am concerned.
Senator G l a s s . All rig h t.
The C h a i r m a n . Y ou may proceed, Mr. Gray.
Air. G b a t . Mr. Warner, you have told us of the issue
of 7,500,000
shares o f Warner Bros. Pictures (Inc.), and I do not know whether
you can answer me off-hand as to how much of that stock went to
the Stanley Co. of America. I f you are able to answer it, please
do so; a n a if not able to answ er, say you can not answer it at
the present time.
Mr. W a r n e r . There is a record of it here.
Mr. G b a t . All right. How much of that stock went to the Stanley
Co. o f America?
Mr. S c h n e id e r . I think 780,000 shares—well, this record shows----- Mr. G b a t (interposing). We do not want a long explanation.
Mr. S c h n e id e r . This record shows every share issued up to date.
Mr. G b a t . Then hand it to the committee reporter a n d let it be
marked for the record.
Mr. S c h n e id e r . All right.
(An individual report section of Standard Corporation records,
by Standard Statistics Co. (Inc.), revised to January 7, 1931, to
628
STOCK EXCHANGE PRACTICES
cover Warner Bros. Pictures (Inc.), was furnished for the record
and marked “ Committee Exhibit No. 24, May 21, 1932,” an d w ill
be printed in the appendix.}
Mr. S chneider . Tnis little pamphlet shows the issuance to the
Stanley Co. of America of certain stock for their issue o f preferred
stock right up to the date shown here, where a certain amount of
shares are outstanding.
Mr. G b a t . How much common stock was outstanding on th e 1st
of January, 1930? That is the figure that I do want.
Mr. S chneider . I do not know.
Mr. W arner . I would say around 2,500,000 shares.
Mr. G r a y . That was outstanding at that time ?
Mr. W arner . Yes.
M r. G r a y . That includes stock that had been issued in its entirety"
Mr. W arner . I would be guessing at the figures you are asking
me now to give. They are all matters of record in the books o f the
company, and it would be very hard for me to sit here and g iv e you
the exact details as to the issuance of shares, because the company
was developing and had been obtaining different theaters and other
companies, for stock.
Mr. G r a y . And it had been issuing stock to pay for those trans
actions ?
Mr. W arner . Yes, sir.
Mr. G r a y . And how much?
Mr. W arner . Well, there again I would be just guessing.
Mr. G r a y . All right. For the present let me ask you in regard
to yourself: How much stock in Warner Bros. Pictures ( I n c .) did
you own around January 1, 1930?
Mr. W arner . Perhaps Mr. Schneider has that figure.
Mr. S chneider . That is exactly 303,484 shares.
Mr. G r a y . Did you say 303,484 shares?
Mr. S chneider . Yes, sir.
Mr. G ray . N ow , Mr. Warner, you are adopting, I take it, the state
ments that Mr. Schneider here may make as your own testimony?
Mr. W arner . That is correct.
Mr. G r a y . N o w , that stock was yours personally?
Mr. W arner. My brothers’ and my own.
Mr. G r a y . Was the stock of yourself and your brothers a ll prac*
tically in one account ?
Mr. W arner . Warner Bros, personally have always construed
themselves as one.
Mr. G r a y . And this Warner Bros, consisted of yourself and what
other brothers?
Mr. W arner . Albert Warner and J. L. Warner.
Mr. G r a y . Did you say Albert Warner and J . L . Warner?
Mr. W arner . Yes, sir.
M r. G r a y . S o that when you answer me with respect to y o u r hold*
ings you are answering m e with respect to the jo in t h oldings o f all
three brothers?
Mr. W arner . That is correct.
Mr. G r a y . And when you bought and sold any of this stock it
was bought and sold for the three brothers; is that correct?
Mr. W arner . That is correct.
STOCK EXCHANGE PRACTICES
629
Mr. G b a y . S o there were a little over 300,000 shares that you
owned; and when I use the pronoun “ y o u ” fro m now on in the
testimony I am referring to the three o f you.
Mr. W ar n e r . Yes, sir.
Mr. G r a y . In the early part of January of 1930.
Mr. W a r n e r . Yes, sir.
Senator C o u ze n s . At this point, let me ask: Is that 300,000 in
addition or does that relate to the 550,000 shares?
Mr. W a r n e r . Yes.
Senator C ouzens . So that you controlled the enterprise with but
a little over 10 per cent of the shares, is that right?
Mr. W a r n e r . Yes, sir.
Senator F l e tc h e r . What was the par value o f the stock?
Mr. Gray. No par value. That was testified to before you came
into the room, Senator Fletcher.
Senator F le tc h e r . All right.
Senator B r o o k h a r t . Was this voting stock as compared to some
other nonvoting stock?
Mr. W a r n e r . It was all one kind of stock so far as voting was
concerned.
Senator B r o o k h a r t . H o w did you control the organization then?
Mr. W a r n e r . I did not control it.
Senator B r o o k h a r t . But that is what you told Senator Couzens.
Mr. W a r n e r . Senator Couzens asked me whether-----The C h a i r m a n (interposing). Talk up a little louder, Mr. Warner,
so all these newspaper men around here can hear you.
Mr. W a r n e r . I was asked w hether I con trolled the stock w ith 10
per cent. I d id n ot con trol the stock.
Senator C ouzens . N o ; that was not my question. I asked you if
you or your brothers controlled Warner Bros. Pictures (Inc.).
Mr. W a r n e r . No, sir.
Senator C ouzens . Who did manage and control the company?
Mr. W a r n e r . The board of directors.
Senator C ouzens . W h o were the board o f directors?
Mr. W a r n e r . They were the three brothers, Mr. Abel Cary
Thomas, Morris W olf-—
Mr. G b a y (interposing). Morris W olf is the attorney in Phila
delphia who represents Warner Bros. Pictures (Inc.) ?
Mr. W a r n e r . Yes, sir. And Waddill Catchings-----Mr. G b a y (interposing). He is a member of the New York Stock
Exchange anu wan formerly connected with Goldman, Sachs & Co.,
brokers?
Mr. W a b n e r . Yes, sir.
Mr. G r a y . And Goldman, Sachs Trading Corporation also %
Mr. W a r n e r . Yes, sir.
Mr. G b a y . Anybody else?
Mr. W a r n e r . Henry A. Budkin, of McClure, Jones & Co.-----Mr. G b a y (interposing). Another brokerage house?
Mr! W a b n e b . Yes, sir.
Mr. G r a y . And members of the New York Stock Exchange?
Mr. W a b n e b . Yes, sir.
Mr. G b a y . Go ahead.
Mr. W a r n e r . Moe Mark.
Mr. Gbay. Who is he?,
119652—32—pt 2----- 17
630
STOCK EXCHANGE PRACTICES
Mr. W arner . He was a part of the Stanley Co. of America at the
time we acquired them. And Stanley Friedman.
Mr. G r a y . He is your attorney?
Mr. W arner . Yes, sir. Mr. Thomas and Mr. Friedman are our
attorneys.
Mr. G ra y . I s that all ?
Mr. W arner. I think that is all.
Senator C ouzens . So, as a matter of fact, how many members of
the board of directors altogether were there %
Mr. W arner . Out of 11 directors we were 3 brothers, and w hen my
son was alive he was a fourth that we had.
Senator C ouzens . So in effect you had control of the board, did you
not?
Senator T ow n sen d . And your attorney is a fifth member?
Mr. W arner . I would not say my attorney. The attorney for the
company.
#
,
Mr. G ra y . Well, there is no doubt about it that your brothers and
yourself did control the policy of the company whether you owned 10
per cent o f the stock or now much you may have owned.
Mr. W arner . We designated the operation of the company; yes,
sir.
Senator C ouzens . I desire again to lay emphasis on the fact that,
with but a little over 10 per cent of the stock of Warner Bros. Pic
tures (Inc.) the Warner brothers controlled the destiny o f that cor
poration. There is no denying that fact, according to the testimony
before the committee, as I understand it.
M r. G r a y . N o.
Mr. W arner . I would say subject to the board of directors.
Senator C ouzens . Well, the board of directors were the Warner
brothers and their friends.
Mr. W arner. I would not say that.
Senator C ouzens . Well, let us get that straight.
Mr. G r a y . Mr. Warner, you did not have any antagonistic inter
ests on your board of directors, did you?
Mr. W arner . Not that I know of.
Senator C ouzens . A s a matter of fact every member o f the board
of directors was selected by Warner brothers. There is no question
about that according to the way I see the situation.
Mr. G ra y . There was no other financial group or large group of
stockholders, as I recall it, who picked out any o f these directors, or
at least they did not pick out a majority of them.
Mr. W arner . In the transactions that took place at later dates
which enlarged the company these different men were added.
Mr. G ra y . But it still left Warner brothers and their friends in
control?
Mr. W arner. In 1930 Richard F. Hoyt, of the firm of Hayden,
Stone & Co., became a director. Here is a complete list of directors
as of January 31,1931.
Senator C ouzens . Did you say that that is a complete list of
directors as of January 31, 1931 ?
Mr. W arner . Yes, sir.
Senator C ouzens . May we have that made a part of the record.
Mr. Chairman?
’
The C h a ir m a n . Yes. That will be done.
STOCK EXCHANGE PRACTICES
631
M r. G r a y . As I understand it, Senator Couzens. that is a part of
the same yellow pamphlet introduced a while ago as committee
Exhibit No. 24. Is that right, Mr. Warner ?
Mr. W a r n e r . Yes, sir.
Senator C o u z e n s . All right. Then we have that information in
our record.
Mr. G ra y . Now, Mr. Warner, you bought and sold—and I am
again using the personal pronoun “ you ” as referring to yourself
and your brothers; is that true?
M r. W arner . Yes, sir.
M r. G r a y . Stock of Warner Bros. Pictures (Inc.) during the year
1930 you bought and sold, did you not?
M r. W arner . Yes, sir.
M r. G r a y . In order that we may first understand through what
accounts and what brokerage houses you traded, will you tell the
committee through what brokers your transactions were carried?
M r. W arner . Well, the books would show that.
Mr. G r a y . I f you can answer my question, Mr. Warner, please
do so. And if you have here any books in regard to that matter you
may refer to the books in order to enable you to answer.
Mr. W a r n e r . We have brought the books here.
Mr. G r a y . Will you look at them and answer my question, please ?
Mr. W a r n e r . Yes, sir.
Mr. S c h n e i d e r . Can I answer that question, Mr. Gray?
Mr. G r a y . I have no objection to Mr. Schneider answering the
Question i f Mr. Warner will adopt such answers as his own testimony.
Do you do that, Mr. Warner?
M r. W arner . Yes, sir.
Mr. S c h n e i d e r . N o w , d o y o u w a n t me t o r e a d o f f t h e b r o k e r s ?
M r. G r a y . N o w , in 1930 I refer to.
Mr. S c h n e i d e r . Samuel Ungerleider & Co., Goldman, Sachs & Co.,
Schatzkin & Co., Ira Haupt & Co., Ernst & Co. Those were the
principal ones.
Senator T o w n s e n d . Were they all members of the stock exchange?
Mr. S c h n e i d e r . Yes, sir.
Mr. G r a y . Will you tell me, Mr. Warner, if you please, in what
name those accounts were kept?
Mr. S c h n e i d e r . We used th e names of Moe Rosenberg, Harry
Chamas.
M r. G r a y . Yes.
Mr. S c h n e i d e r . Harry M. Warner.
Mr. G r a y . Yes.
Mr. S c h n e i d e r . Albert Warner.
M r. G r a y . Yes.
Mr. S c h n e i d e r . Lewis Warner. I do not recall any others. I f
you will name any others iriaybe I can recall them.
Mr. G b a y . Let me ask you first, and then I will name them or sug
gest them to you. Your principal trading was with Schatzkin &
Co., was it not?
Mr. S c h n e i d e r . I think during 1930 w e di<l m o r e trading through
them; yee.
Mr. G b a y . And you had an account known as No. 72 account
(H. M. Warner), didn’t you?
Mr. S c h n e i d e r . Yes, sir.
632
Mr.
that?
Mr.
Mr.
STOCK EXCHANGE PRACTICES
Gray.
And you had
S c h n e id e r .
a
Harry M. Warner account
o u t s id e o f
Yes, sir.
G r a y . And you had an account Albert Warner?
M r. S chneider . Y es, sir.
Mr. G r a y . And you had an account Albert Warner, sp ecia l)
Mr. S c h n e id e r . Yes, sir.
Mr. G r a y . And you had an account Albert Warner No. 2 ?
Mr. Schneider. Yes, sir.
Mr. G r a y . All right.
Senator Couzens. Why did you have so many different accounts!
Mr. Schneider. For this reason, that whenever we traded w e had
found by past experience that when we bought and sold stock in
the name of Harry M. Warner or Albert Warner it would influence
people, and we figured that by using other names nobody w o u ld be
influenced by seeing the other names. That was the only reason we
had for using these other names. At times we used the nam es of
Harry M. Warner and Albert Warner and that was when w e dealt
in other securities, so that we did not care.
Mr. G r a y . So that your transactions in Warner Bros. Pictures
(Inc.) stock in the year 1930 went principally through the accounts
of Moe Rosenberg and Harry Charnas; is that correct?
M r. S chneider . I think so.
M r. G r a y . There was another thing that you did also in order to
cover up your transactions and not let the public know w h a t you
were doing, and that was this, was it not: That when you sold----Mr. Schneider (interposing). Excuse me so as to have the matter
entirely straight. When I said that we did that I meant that it
was not for the purpose of not letting the public know what we were
doing; it was for the purpose of not letting brokers know what we
were doing.
Mr. G r a y . Was that in order that brokers might not take advan
tage of your selling stock and so advise their customers, a n d that
there might not belbuying or trading by the public along th e lines
you were trading?
Mr. S c h n e id e r . It w as so they w ou ld n ot be influ en ced by what
we were d oin g.
M r. G r a y . Influenced in w hat way?
Mr. S c h n e id e r . In any way.
Mr. G r a y . All right. We will now leave that for the present.
The thing you did was that when you sold any stock belonging to
this Warner group, after the sale was made your brokers got in
touch with the other brokers to whom or for whose clients they made
the purchase, and got them to give you the information, I mean give
your brokers the information as to the name in which they wanted
the stock transferred, didn’t they?
Mr. Schneider. I did not quite get that.
Mr. G r a y . Well, now, say you make a sale of 25,000 shares o f stock
through Schatzkin & Co. Under ordinary circumstances you know
enough about •the brokerage business and stock-market transactions
to know that what you would do would be to deliver your certificates
to Schatzkin & Co., and in the adjustment through the stock ftlom ng
house those certificates would be delivered, or others to the broker
STOCK EXCHANGE PRACTICES
633
age house that bought the stock from Schatzkin & Co. That is
correct, isn’t it?
Mr. S chneider . Yes, sir.
Mr. G r a y . And if that had been done, and if there had been cer
tificates in the name of Harry M. Warner, or Albert Warner, or any
of the other Warners, which had to be transferred, then the broker
would also know that the Warners were trading.
Mr. S chneider . Yes, sir.
Mr. G r a y . So that in order to prevent that knowledge getting
out and influencing anybody, Schatzkin & Co. always arranged to
find out to whom the stock was to be transferred, and they had the
transfers made themselves and delivered the certificates, isn’t that
eonect?
Mr. S chneider . No, sir.
Mr. G r a y . Tell me what they did.
Mr. S chneider . With our original stock we had temporary certifi
cates, and then we had certificates in the names of women, not de
liverable. They called them not good delivery. And in order for
one of these cases—well, they would have to deliver them first. They
would transfer them in another name invariably without getting
authority from us, and deliver them in the other names, and also
for the purpose of not influencing people.
Mr. Gray. That was for the purpose of not influencing people,
you say.
Mr. S chneider . That is true.
Mr. G r a y . Y ou had the stock in Mr. Warner’s name?
Mr. S chneider . Yes, sir; but it was not good delivery. Instead
of transferring them right back to the name of Harry M. Warner,
or whatever the case might be, he would transfer them to Schatzkin
A Co., and other people in his place, also for the purpose of not in
fluencing people in what we were doing.
Mr. G r a y . In other words, in no instance were any certicates be
longing to any of the Warners transferred directly?
Mr. S chneider . Oh, yes.
Mr. G r a y . D o you mean that they were transferred on the books
of the registrar ?
Mr. S c hn eider . Oh, yes.
Mr. G r a y . Through the brokerage house?
Mr. S chneider . Oh, yes. We had many certificates in his name
delivered, but at certain times they would be transferred under an
other name.
Mr. G r a y . And that was to prevent brokers and the public know
ing the Warners were selling stock?
Mr . S c h n e id e r . For the purpose of not influencing anybody by
what we were doing at any time.
The C h a ir m a n . Well, that is the same thing.
M r . S chneider . Yes, sir.
Mr. G r a y . Mr. Warner, will you tell me now what your transac
tions were in 1930 through Schatzkin & Co. ?
Mr. W arner . The records are here.
Mr. S ch n eider . Perhaps I can look them up and give them to you.
Mr. G r a y . I should like Mr. Warner to answer these questions if
he can, and if he has the records he can do it as well as you can, I
634
STOCK EXCHANGE PRACTICES
take it, Mr. Schneider. Mr. Warner, did you sell your stock in
January of 1930?
Mr. Warner. According to the record that we have here I believe
it is shown by the days.
Mr. G ra y . I ask you whether or not through Schatzkin & Co. in
January of 1930 you didn’t sell 55,000 shares of Warner Bros, stock;
that is, during that month, and then during the same month buy
back 7,800 shares?
Mr. W arner . I f the books say so, I will answer yes.
Mr. G r a y . Well, I can say to Mr. Warner and also to the com
mittee, that in order to investigate these transactions we went into
the stock clearing house, and ultimately into some 25 brokerage
houses, and finally located these accounts, of which I have photostatic copies; that the result of the examination by the accountants,
and their additions and calculations made therefrom, show that in
these various accounts that have been admitted by Mr. Warner to
have been his accounts, there were sold in the month of January of
1930, 55,000 shares of Warner Bros. Pictures (Inc.)—and, o f course,
Mr. Warner, if you have not a summary there it may not show the
total, and I will say that it took us some time to make up our
summary.
Mr. S chneider . We brought with us photostatic copies o f every
account in the books, showing every transaction in Warner stock
during 1930.
Mr. G ra y . Answer the question.
Mr. S chneider . I made a summary of all transactions during
1930-----Mr. G r a y (interposing). Not by brokers but a summary.
Mr. S chneider . I made a summary of all transactions during
February of 1930, and I may have included some in January.
Mr. G r a y . Because of your inability to answer the question with
respect to January from your records, I will take you to February.
As a matter of fact in February of 1930, isn’t it true that you sold
137,950 shares of your stock and bought none?
Mr. S chneider . No. The record that I have here shows 144,000
shares.
Mr. G r a y . That is more than we have. Is that shown as sales?
Mr. S chneider . Yes, sir.
M r, G r a y . And that vou bought none?
Mr. S chneider . We bought none according to this record. And
according to what we have here we sold a little more than you show.
Mr. G r a y . May I pause in this investigation to ask Mr. Warner
why you were selling your own stock?
Mr. W arner . Well, there were two reasons at that particular
time. One reason was that we wanted to diversify some o f our hold
ings and buy some other kinds of securities. And the second reason
was that the company might be requiring some cash, and we wanted
to have some cash on hand to loan them, which practically we had
done from the time o f the inception of the corporation.
Mr. G r a y . S o this was your principal business, and this was the
business that, through the holdings you had, you were controlling
and managing. Were you intending to part with your interest in
the futurei
Mr. W arner . N o, sir.
STOCK EXCHANGE PRACTICES
635
Mr. Gray. Was it your intention-----Mr. W arner (interposing). Well, I have already said I intended
to part with some of our interests.
Mr. Grat. Was it your intention to buy it back again?
Mr. W arner . W h y , xt was all depending.
Mr. G r a y . Depending on what ?
Mr. W arner . On the conditions of the world.
M r. G r a y . In other words, you did not know whether you would
buy it back again or not when you sold it?
Mr. W arner . But I bought it back.
Mr. G r a y . I will come to your buying back in a moment.
Mr. W arner . I would not want to say what my thoughts
were at
the time I sold it, with the exception that the company would prob
ably need some cash, as I answered previously.
Mr. G r a y . S o that out of your holdings of 300,000 shares of
Warner Bros. Pictures (Inc.), and your being unable to tell me what
you gold in January of 1930, and with the records of Schatzkin & Co.
showing you sold 47,200 shares more than you bought that month,
and that in February of 1930 you sold 144,000 shares in addition and
bought none, that meant parting with more than half of your hold
ings, is that correct?
M r. W arner . T h a t is right.
Senator F letcher . What were
the prices o f that stock?
Mr. G r a y . I will ask him all along when I come to that, a n d will
show you the relevancy o f it.
Senator F letcher . A ll right.
Mr. G r a y . Mr. Warner, you say the company was needing money.
Was the company in bad shape at that time?
Mr. W arner . N o. But it was acquiring different properties and
enlarging at the time.
Mr. G r a y . Did you loan to the company any o f the money that you
got from the sale of your stocks?
Mr. W a r n e r . I did.
Mr. Gbat. In what month and in what amounts?
Mr. W arner . Let me see, now.
Mr. Sghnkeokr. Are you referring just to 1931?
Mr. G ra * . Yes.
Mr. W arner . In the month of May I let them have $500,000. and
in the month o f June $400,000, and in the month o f July $2,000,000,
and in the month of August $465,000.
Mr.
Mr.
Mr. Gray.
I s that all m 1930?
W arner . Yes; in 1930.
G r a y . Was any o f that money
Mr.
Mr.
G r a t . O f what company?
W arner . O f Warner Bros.
paid back to you in 1930?
Mr. W arner. It was paid back to me in 1930 in the shape of de
bentures of the company. .
Pictures (Inc.).
Mr. Grat. I thought you said the debentures “ of a company ” ?
M r W arner . N o; it was paid back to me in the debentures o f the
company at 93, and I still have them.
•
Senator C o uzens . And that was a preferred claim upon the com
pany?
Mr. W arner. The debentures were issued at a later date.
636
STOCK EXCHANGE PRACTICES
Senator W alcott. I suppose you mean that you had previously
held the notes of Warner Bros. Pictures (Inc.) ?
Mr. W arner . Yes; I had held the notes of the company, and they
substituted the debentures for the notes.
Senator W alcott. And I suppose at 6 per cent?
Mr. W arner . The notes were at the bank rate, sometimes h a lf a
point or a point less than the bank rate.
Senator C ouzens . So in effect you sold your stock, which h a d no
claim against the company of a preferred nature, and then took a
preferred claim against Warner Bros. Pictures (Inc.), in the form
of their debentures?
Mr. W arner . I did not give it a thought at that time in that way.
Senator C ouzens . Well, that is what happened, is it not?
Mr. W arner . Well, I would rather nave had the note than
the debenture, because the note was payable possibly on demand or
within a short time, and the debenture was a 9 or 10 year proposition.
Senator C ouzens . I mean that you sold your stock o f the com pany
and received debentures?
Mr. W arner . Yes, sir.
Senator W alcott. Y ou sold your stock of Warner Bros. Pictures
(Inc.), and got the cash and then loaned them the cash?
Mr. W arner . Yes, sir; and at a certain time took their debentures
for it.
Mr. G ra y . I f it was for the purpose of getting money into your
possession so that you might loan it to Warner Bros. Pictures (Inc.),
why didn’t you borrow the money on your stock?
Mr. W arner . I did not— we never— hardly ever borrowed money.
I don’t remember borrowing any money on stocks.
Mr. G r a y . I did not ask you whether you ever did it or not. I
am asking you why you did not instead of parting with your hold
ings of stock borrow money on your stock?
Mr. W arner . Borrow money from whom?
Mr. G ra y . From whomever might loan it to you on the security
of your stock.
Mr. W arner . Well, there was no reason for me obligating myself
to borrow money from anybody on any of the securities that I had.
Mr. G ray . The only reason would be, perhaps, the reason you have
already indicated to us, that the company needed money and that
you wanted to raise it in order to loan it to the company.
Mr. W arner . Well, I said partly that was it.
Mr. G ra y . Oh, you sold that stock partly because you wanted to
raise money for the company ?
Mr. W a r n e r . Yes. My first statement was that I thought I o u g h t
to diversify some of our holdings.
Mr. G ra y . And you meant by that you thought you ought to put
some of that money into other stocks, did you?
Mr. W arner . In to something else.
Mr. G r a y . A n d did you do that?
Mr. W arner. And in the debentures of the company.
Mr. G r a y . ^Te11, did you put any o f it in other stocks, o f other
companies?
Mr. W arner. A t that particular time I do not remember whether
we did or not. I do not think so—and yet it seems like—perhaps
■Mr. Schneider knows.
^
F
STOCK EXCHANGE PRACTICES
637
Mr. S c h n e id e r . It was mostly in our own debentures.
Mr. G b a y . In March of 1930, what was the amount of stock you
sold?
Mr. S c h n e id e r . According to this record it was 3,400 shares.
Mr. G bay. May I say to you and ask you whether it is correct—
and I will be glad to show you this if you want to see it—whether
you did not sen through Schatzkin & Co. alone 10,700 shares.
Mr. S c h n e i d e r . Well, I will say that I thought I had a summary
of every account with every broker. It may be I left out one ac
count. But I thought I had the stock at the beginning and the stock
at the end, and the purchases and the sales all jibe, or at least I
thought so.
Mr. G r a y . Y ou do not know whether they jibe with what I have
here, though?
Mr. S c h n e i d e r . I have photostatic copies here of all accounts that
are on our books. And I thought I would be able to account for all
of them. Certainly I did not leave out any account intentionally.
And, for instance, as we have already seen, I have a total of 144,000
sharec here at one place while you have 137,500.
Mr. G r a y . The difference may be in a different month from
where you put it. In April of 1930, how many shares did you sell ?
Mr. S c h n e i d e r . None. In regard to any difference in figures, one
of the accounts that you may have of stock in the case of Schatzkin &
Co. might not have been ours.
Mr. G ra y . I have asked you about accounts and names that you
have given to me as trading accounts and that exactly agree with
tiie names that I have here.
Mr. S chneider . But not having seen your record I do not know,
and yet I would suggest that you might have the account of Albert
Warner No. 2 and it might be Albert Warner here.
Mr. W a b n e b . I might say as to the matter of names under which
we bought or sold this stock, that if an individual might have bought
some for himself, or sold it, I wouldn’t have any knowledge of it.
Mr. G r a y . And there is nothing in that account to distinguish
whether they did it or not?
Mr. W arner . N o. But I am talking about all stocks probably,
not just the Schatzkin & Co. brokerage house, of ours under these
names.
Mr. G r a y . We w ill get to the details o f that in a few minutes.
Mr. S chneider . Y ou have the account Albert Warner No. 2, and
that might have been his own personal account, and he might have
bought a couple of thousand shares or sold a couple of thousand
shares for himself, or for his wife, and I would have no record of it.
I have a record of all stock bought and sold by the Warners during
the year 1930 and audited by Price, Waterhouse & Co., and which
was gone over by your people. I did not go to the brokers and they
may have some extra amounts on their books. It might really mean
several thousand shares of stock that might not be on our books.
This absolutely jibes with my books. But even then I might be
wrong.
Mr. Gray. What about the month o f May, 1930?
Mr. S c h n e i d e r . Twenty-seven thousand five hundred shares sold.
Mr. Gbay. And none bought.
Mr. Schneider. No, sir.
STOCK EXCHANGE PRACTICES
638
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
What is your statement as to June of 1930?
Thirteen thousand seven hundred shares sold.
G r a y . And none bought?
S c h n e i d e r . No, sir.
G r a y . What is your statement as to July of 1930?
S c h n e id e r . Nothing.
G ray.
S c h n e id e r .
M r. G ra y . W ith nothing on either side?
Mr. S c h n e i d e r . No.
Mr. G r a y . N o w , Mr. Warner, do you recall the date of your meet
ing—I mean of your board—during the summer of 1930?
Mr. W a r n e r . Well, we have monthly meetings.
Mr. G r a y . Do you recall at what date you considered the question
of your dividend?
Mr. W a r n e r . Of paying a dividend ?
M r. G r a y . Yes.
Mr. W a r n e r . Well, every quarter that was considered.
Mr. G r a y . H ow was that answer? I did not hear you.
Mr. W a r n e r . I say every quarter that was considered.
Mr. G ra y . Did you have a meeting in August of 1930?
Mr. W a r n e r . Y es; I would say so.
Mr. G r a y . W a s there any passing or reduction o f the dividend?
Mr. W a r n e r . Do you mean in 1930?
Mr. G ray . Yes.
Mr. W a r n e r . Why, the books will show that. I do not recall.
Mr. G r a y . Don’t you know something about your company?
Mr. W a r n e r . Yes. But I can not remember just the exact dates
when dividends were declared or discussed, because they were dis
cussed in the regular routine of the business.
Mr. G r a y . Didn’t you as a matter of fact in the early part of
August of 1930 postpone a meeting that you had previously at that
time called, for the purpose of discussing the question of a dividend?
Mr. W a r n e r . What month was that?
Mr. G r a y . August of 1930.
Mr. W a r n e r . I f the record shows that, then that would be correct.
Mr. G r a y . Isn’t it a fact that your statement that came out— well,
first, let me ask you: When did your fiscal year begin ?
M r. W arner . August 31.
Mr. S c h n e i d e r . S e p t e m b e r 1.
Mr. W a r n e r . Yes; September 1.
Mr. G r a y . Isn’t it a fact also that your statement that came out
for the last half of your fiscal year, which ended September 1, 1930,
showed that your earnings had dropped off considerably?
Mr. W a r n e r . That is right.
Mr. G r a y . And what dividend had you been paying prior to that
time ?
Mr. S c h n e i d e r . It was $4 a share.
Mr. G r a y . A n d when was it changed?
Mr. S c h n e i d e r . I think the latter part of 1930.
Mr. G r a y . When in 1930?
Mr. S c h n e id e r . I f you will refer to the record, or give me an
opportunity?
Mr. G ray . Have you the record here?
Mr. S c h n e id e r . We brought our personal records but not the com
pany’s records.
STOCK EXCHANGE PRACTICES
639
Mr. G r a y . Well, answer if you can. Has anybody got that rec
ord?
Mr. S c h n e id e r . No, sir.
Mr. G ra y . T o what amount was it reduced (
Mr. W arner . I think it was eliminated.
Mr. G r a y . Eliminated entirely. And you, of course, during the
spring of 1930 were entirely familiar with the financial affairs of
Warner Bros. Pictures (Inc.).
Mr. W arner . Yes, sir.
Mr. G r a y . And you knew that that was very likely to happen,
didn’t you?
Mr. W a r n e r . Not at the beginning.
Mr. G r a y . When did you learn it?
Mr. W arner . I did not learn it until the last meeting of the year.
Mr. G r a y . D o you mean to say that you being connected with
Warner Bros. Pictures (Inc.) did not know that the earnings of the
company had fallen off considerably until the last meeting of the
year, is that correct?
Mr. W arner . The last part of the year 1930 the earnings in the
business fell off.
Mr. S c h n e i d e r . D o y o u w a n t m e t o a n s w e r t h a t q u e s t io n , Mr.
Gray.
Mr. G r a y . No; I do not. I am asking you, Mr. Warner, whether
or not you did not know in the spring of 1930 when you were selling
your stock, that the business of Warner Bros. Pictures (Inc.) was
falling off ?
Mr. W arner . No.
Mr. G r a y . When did you first learn that the business of Warner
Bros. Pictures (Inc.) was falling off?
Mr. W arner . The latter part of the year.
Mr. G r a y . D o you ever read the newspapers ?
Mr. W arner . Y es.
Mr. G r a y . Do you recall or did you read an article published on
August 6,1930, indicating that Warner Bros, had postponed a meet
ing that had been called for the purpose of determining that divi
dend, and that it was causing unsettlement with respect to their
stock, and that the earnings during the last half of the current fiscal
year ending August 31, 1930, might not exceed $5,000,000, and that
it would be insufficient to cover the dividend on the 2,870,000 shares
of common stock, and that it was apparent the public could no
longer be attracted by the novelty of the talkies, and that future
productions must possess greater appeal. Did you read that?
Mr. W a r n e r . I t h i n k w e is s u e d a s t a t e m e n t ."
Mr. S c h n e i d e r . But not that statement?
Mr. G r a y . Pardon me, Mr. Schneider, but when we want informar
tion that Mr. Warner can not give and you can give it, I will let you
do it, but please do not correct his knowledge. Mr. Warner, you
must have Imown during the summer of 1930 at any rate as to the
business conditions, such as are described in this article.
Mr. W arner . I would not want to say I did or did not. I can not
remember that.
Mr. G r a y . Y ou just this minute said you gave out that statement.
M r. W arner . No; we gave out a statement with the annual state
ment o f the company.
640
STOCK EXCHANGE PRACTICES
Mr. G r a y . That was at the end of August of 1930?
Mr. W arner . Yes, sir.
Senator C ouzens . Have you a copy of that statement here?
Mr. W arner . Yes, sir.
Mr. G r a y . Senator Couzens asks for a copy of that statement that
you issued.
Mr. W arner . Here it is.
Mr. G ra y . Have you the statement requested by Senator Couzens?
Mr. W arner . Yes, sir.
Mr. G ra y . Will you let Senator Couzens see it, and then when he is
through, hand it to the committee reporter to be marked as an ex
hibit in this case?
Mr. W arner . Yes, sir.
(A printed copy of the annual report o f Warner Bros. Pictures
(Inc.) and subsidiary companies, dated August 30, 1930, was fur
nished by the witness and identified by being marked “ Committee
Exhibit No. 25, May 21,1932,” and will hereafter be printed in the
appendix in connection with Exhibit 24, same date.)
Senator C ouzens . As I understood Mr. Warner, he testified that
he did not know the condition of the business until the end o f 1930.
Mr. G r a y . I so understood him, and that is why I called his
attention to these newspaper articles.
Mr. W arner . I knew the condition of the business every quarter,
when the statement was issued.
Senator C ouzens . Where was the major part of the business done?
Mr. W arner . Our business is spread throughout the world, and
it is impossible for us to know just what our business has done until
Price, Waterhouse & Co. actually audit the books of the company;
the statements from all over are Drought in and they condense them
into one statement. That is the only time we can tell whether
business is better or worse, because our business changes with the
pictures that we put out.
Senator T ow n sen d . Are you the president of Warner Bros. Pic
tures (Inc.) ?
Mr. W arner . Yes, sir.
Senator T o w nsend . A s a matter of fact, didn’t you have a general
idea of the condition of business, being president of the company?
Mr. W arner . Well, I had a general idea o f the business, but not
of all conditions that may come about.
Senator T o w nsend . Didn’t you have a report of conditions put
on your desk every day?
Mr. W arner . Yes; but not as to the future.
Mr. G r a y . We are not talking about the future.
Mr. W arner . Reports of the condition of the business of the com
pany as a whole are given to me.
Senator T o w nsend . And, of course, you go over them, don’t you!
Mr. W arner . Yes. But as to the condition of business at a later
date, whether the company was going to make more money or less
money, would be impossible, because our business is such that it
depends upon conditions throughout the country as to attendance at
the theaters. As an example, right to-day our theaters in the city
of Washington are making money, because the people are goin g to
them. There seems to be employment here or I do not know what
it is, while in other parts of the country they are not going to the
STOCK EXCHANGE PRACTICES
641
theaters as before. And this condition comes about from time to
time. For instance, to-day I may find that 240 or 250 theaters would
take in a certain amount of money, and then six months later or
three months later that same number of theaters may take in 30 or
40 per cent less money.
Senator T ownsend . I was not trying to develop that. I was try
ing to develop the fact whether or not you knew each day the gen
eral trend of your business.
Mr. W arner . Oh, the general trend o f business I always know
daily.
Senator T ownsend . Certainly. I thought so.
Mr. W arner . Yes, sir.
The C h a ir m a n . Then why did you say you did not know it until
the end of the year ? We seem now to have gotten back to where we
were 15 minutes ago.
Mr. W arner. I was under the impression that you asked me
whether I knew the result of business at the end of the year.
Mr. G r a y . N o. I asked you and I now repeat whether you knew
during the spring of 1930 that the business of Warner Bros. Pic
tures (Lac.), was falling off.
Mr. W arner . That is correct.
Mr. G r a y . Well, that is all I want to know about that. And you
sold your stock?
Mr. W arner . In the spring of 1930 ?
Mr. G r a y . At the beginning of 1930.
Mr. W arner . No, sir; not at the beginning of 1930.
Mr. G r a y . When did you first learn, not when you first learned
officially of the standing of your company, but when did it first
dawn on you in 1930 that your company’s business was getting
worse?
Mr. W arner . The latter part of 1930.
Mr. G r a y . What do you mean by “ the latter part ” ?
Mr. W arner . The summer of 1930. At the beginning of 1930
was the best business our company had while in business.
Mr. G r a y . All right.
Mr. W arner . Pardon me a moment and I will try to give you a
clear picture: I think the biggest profits the company made were at
the time we sold the stock you are talking about, and then the stock
went up 20 points beyond what we sold it for.
Senator C ouzens . What was the trend of the business at the time
this happened, up or down ?
Mr. W arner . The trend as far as our business was concerned
was up.
Senator C ouzens . But you had no occasion to suspect that the
trend would be down?
Mr. W arner . Positively not.
Mr. G r a y . All right. Now, the fact is that in August after yon
had sold those quantities of stock that have been testified to here, you
started to buy back again, didn’t you ?
Mr. W arner . Yes, sir.
Mr. G r a y . And in August you bought how much ?
Mr. S chn eider . 25,800 shares.
Mr. G r a y . And did you sell any ?
Mr. S chneider . 100 shares.
642
STOCK EXCHANGE PRACTICES
Mr. G r a y . Did you say 100 shares?
Mr. S c h n e i d e r . Yes, sir.
Mr. G r a y . And in September you bought how many shares?
Mr. S c h n e id e r . 54,300 shares, and there were 20,000 s h a r e s th a t
we got under rights, making 74,300 shares in all.
Mr. G r a y . And what did you sell in September?
Mr. S c h n e i d e r . 42,300 shares.
Mr. G r a y . Bettering your position as long as your long s i d e w as
concerned.
Mr. S c h n e i d e r . Yes, sir.
Mr. G r a y . And in October how much did you buy ?
Mr. S c h n e i d e r . 112,900 shares.
M r. G r a y . Did you sell any?
Mr. S c h n e i d e r . No, sir.
Mr. G r a y . My record shows, and I will say that I am going ov e r
these records or I would not make the statement, that through
Schatzkin & Co. alone they bought 129,300 shares in that month.
Mr. W a r n e r . That is possibly from what I said before.
Mr. S c h n e id e r . Your figures m a y be right.
Mr. G r a y . In December what did you buy ?
Mr. S c h n e i d e r . Thirty-three thousand s i x hundred shares.
M r. G r a y . Did you sell any?
Mr. S c h n e i d e r . No.
Senator C o u z e n s . When you bought this s t o c k did you know from
whom you bought it, or was it purchased on the open market?
Mr. S c h n e i d e r . Only that 20,000 shares were rights.
: Senator C otjzens. D id you know who was selling th is stock when
you bought it?
Mr. S c h n e i d e r . N o , sir; we bought it through various brokers.
Senator C o u z e n s . H o w many stockholders did you have a t th a t
time?
Mr. W a r n e r . I would sav around 35,000, or between 35,000 and
40,000.
Senator C o u z e n s . Who were, the largest stockholders, s o f a r as
you knew?
Mr. W a r n e r . We were the largest stockholders at all times.
Senator C o u z e n s . That is, your family were?
Mr. W a r n e r . Yes, sir; and still are the largest stockholders a n d
bondholders, too, for that matter.
Mr. S c h n e i d e r . The largest individual stockholders a t t h e p r e s e n t
moment.
Mr. G r a y . I am directing your attention to the totals, if you can
give them to me, showing the number of shares that you sold during
the year 1930. Can you give me that figure ?
Mr. S c h n e i d e r . T w o hundred thirty-one thousand and f i f t y - f i v e
shares for $12,000,000.
Mr. G r a y (interposing). Never mind the amount of money.
Mr. S c h n e i d e r . Well, 231,055 shares.
Mr. G r a y . That you sold?
Mr. S c h n e i d e r . Yes, sir.
Mr. G r a y . I say to the committee that according to the records
of Schatzkin & Co. alone they sold 305,750 shares, or approximately
the amount that Mr. Warner says he owned the 1st o f January.
STOCK EXCHANGE PRACTICES
643
Mr. W abner. I would say that we will agree whatever Price,
Waterhouse & Co. audit and find, that that is what we bought and
sold and it is correct.
Mr. G b a y . This is not Price, Waterhouse & Co.’s audit, but from
the books of Schatzkin & Co.
Mr. W arner . Pardon me. I understand that, but we have to look
at our own books.
Mr. S c h n e id e r . This is a record I took off of our accounts, and it
may be that one or two of these accounts did not belong to us.
Mr. G r a y . I will analyze it and you can tell me. How many
shares did you say you bought in 1930?
Mr. S c h n e id e r . 340,400.
Mr. G ra y . And in fairness to the other side I will say that our
records show in Schatzkin’s that they bought 326,500. Now then,
how many shares were you long at the end of 1930 more than you
were at the beginning?
Mr. S c h n e i d e r . At the beginning of 1930, just the beginning,
January 1,1930, 303,484. At the end, 412,829; 109,345 shares more.
Mr. G r a y . 109,345 shares more. In the Schatzkin account alone
it only shows that they increased their position by 21,150. Now
then, let me come to the dollars and cents. In all of these ac
counts what did you get during the year 1930 for the stock which
you sold?
Mr. S c h n e i d e r . Excuse me. You see there is a differential there
of purchase of 20,000 shares, of rights, which would not go through
any broker. We got that from the company, you see.
Mr. G r a y . So it would reduce your figure of 109,345 shares to
89,345 shares.
Mr. S c h n e i d e r . Yes.
Mr. G r a y . A s being the difference that was attained by your stockmarket transactions?
Mr. S c h n e i d e r . Yes.
Mr. G r a y . While Schatzkin’s account alone shows 21,150 shares.
Now the amount that you received from the sale o f Warner Bros,
stock through any of these accounts during the year 1930 is what?
Mr. S c h n e i d e r . 231,055 shares. We got $12,850,540.50.
Mr. G r a y . $12,850,540.50?
Mr. S c h n e i d e r . Yes.
Mr. G r a y . N o w that is not right.
amount o f the sale.
I am talking about the gross
Mr. S c h n e i d e r . That is net.
Mr. G r a y . Yes. In Schatzkin’s account alone these accounts will
show that they received from the proceeds of the sale $16,520,986.
We will take up the individual accounts in a few minutes and see
where the difference arises.
Mr. S c h n e i d e r . We bought 340,400 shares for $6,932,158.42.
Mr. G r a y . The Schatzkin account alone shows a purchase of the
amount which I have indicated, 326,500 shares for $7,544,481.50.
Senator C o u z e n s . What is counsel for the committee trying to
prove by all these details?
Mr. G r a y . I thought I had stated it thoroughly, Senator. Would
you like me to state it again?
n
Senator C o u z e n s . N o . I do not just get what advantage it is to
this committee to know all of the differences of a few shares of stock
644
STOCK EXCHANGE PRACTICES
and a few dollars and cents, when we are endeavoring to get at the
effect of these things upon the stock market.
Mr. G r a y . Tes, sir.
Senator C o u z e n s . I f the counsel has some definite purpose in mind
along that line, very well.
Mr. G r a y . Some members of this committee have instructed me
to get them an illustration of where officers and directors o f cor
porations were dealing in their own stock, to their own advantage,
and to the detriment of the public.
Senator C o u z e n s . I think the counsel has developed that. But
what difference does it make to the committee if there is a difference
of a few shares more or less or a few dollars and cents more or less,
since you have demonstrated the fact?
Mr. G r a y . I think it does not make any difference, as lo n g as you
agree with me, but some of the Senators have asked me— Senator
Brookhart, for instance, has asked me to bring out these figures.
What am I to do?
Senator C o u z e n s . I am sorry if I have interfered with another
Senator’s program.
M r. G r a y . What is the net result?
Mr. S chneider . The net result for the year was that at the end
of 1930 we had 109,345 shares more than we had at the beginning
of 1930, and we realized cash, $5,918,382.08, through these trans
actions.
Mr. G r a y . And your stock at the end of 1930 w as w orth w h at?
What was its market?
Mr. S c h n e i d e r . I think around $ 1 8 , if I am not mistaken, or $ 1 5 .
Around that price.
Mr. G ra y . Well, have you got a calculation showing w h a t that
stock was worth?
Mr. S chneider . Y es; I have.
Mr. G ray . All right, give me the figures at its market?
Mr. S chneider . I have a sheet here showing what the stock sold
for. December 31 it sold at 13y2. You have to multiply 412,000
by 13%, which is $5,200,000.
Mr. G ray . Which is what?
Mr. S chneider . 412,829 at 13%, which would be, I th in k , about
$5,000,000.
M r. G r a y . In addition to the cash?
Mr. S c h n e i d e r . Yes; that is right.
Mr. G r a y . So your total profit from these transactions, buyin<*
and selling, was what?
49
Mr. S chneider . As I said, $5,918,000 more in cash we had. and
we had about 109,000 more in stock.
M r. G r a y . A t 1 8 % ?
Mr. S chneider . Yes.
M r. G ra y . O r about, we w ill
right?
Mr.
S c h n e id e r .
say, $1,300,000,
ro u g h ly ; is that
About.
M r. G ra y . I s that correct?
Mr. G ra y . That is the figure.
$7 MX)000?AY' S °
Mr.
S c h n e id e r .
y° U
Yes.
bnng
y° Ur
figures
up
somewh» t
about
STOCK EXCHANGE PRACTICES
645
Mr. G r a y . That is all I wish to take up with regard to that ac
count. Shall I continue with others, 01* what do you wish me to do?
I can go on with this and show what as in the Rosenberg account,
and show what was in the other accounts. Senator Couzens. Shall I
do that, Mr. Chairman ?
The C h airm an. I want to consult the committee 011 that matter.
If I understand Senator Couzens, he is in accord with what you are
doing, although he thinks it is not necessary to go into all the
details now.
Mr. G ra y . All right.
The C h a ir m a n . I f you think the details are necessary to make
the picture-----Mr. G r a y . Of course the details would be of no moment, Senator
Norbeck, if it happened to be a small transaction. The size of the
transaction is what makes the details of it important. But I think
the circumstances have been developed. I do not think it is neces
sary to go any further.
Senator G l a s s . Let me ask counsel this question. Are there any
other moving-picture concerns engaged in this same sort of business ?
Mr. G r ay . Yes; and we are working on some o f them now, but we
were unable to complete any more o f them up to date.
The C h a ir m a n . I want to remind the committee that it was the
wish of *the attorney to have more time before we had the hearing in
order to bring more of it in at one time.
Senator Glass. Yes. I do not see why one moving-picture concern
should be picked out of this business and brought in. and not the
others.
Senator T o w n s e n d . That may have been brought about by asking
the counsel for the committee to bring one picture.
Mr. G r a y . We did not pick out one particular concern.
Senator T o w n s e n d . It was the committee itself.
Mr. G r a y . But when the committee asked me to be ready to get
something on Thursday we had progressed a little bit furtlW with
this than we had witn some of the others, and it was one of the
things that we could be ready to present to the committee.
Senator G l a s s . I begin to feel that I am rather obtuse because I
haven’t gotten it in my head yet what this has to do with the stock
exchange transactions. Are Warner Bros, members of the New York
Stock Exchange?
Mr. G r a y . No, sir. It shows what can be done on the exchange
and what has been done with respect to the manipulation of stocks
on the market. All right, that is all I want to ask.
Mr. S chneider . Can I say a word, please ?
Mr. G r a y . I f the chairman will perm it you.
The C h a ir m a n . Mr. Gray?
Mr. G r a y . I say I am through.
Mr. S chneider . I just want to say a word. I want to bring out
the feet here that during the month that we did sell the bulk o f that
stock, 144,000 shares, according to our records our business was at
its height. We made $10,000,000 in the half a year up to the end
of February, 1930, and it is during that period that we sold the great
bulk o f that stock.
S e n a t o r G l a s s . Why did you sell the great bulk o f the stock when
you were doing such a fine business?
119662—32—p t 2—— 18
646
STOCK EXCHANGE PRACTICES
Mr. S c h n e i d e r . For the two reasons that Mr. Warner stated. One,
to turn some of the securities into cash in order to buy other securi
ties, and our records show that we eventually put $7,000,000 into our
debentures at practically par, and still have them. And they are
now selling at 16. And the other reason-----The C h a i r m a n . The debentures are drawing interest?
Mr. S c h n e i d e r . Yes.
The C h a i r m a n . The stock is paying no dividends?
Mr. S c h n e i d e r . No.
The C h a i r m a n . In other words, Mr. Warner traded stock that
does not earn anything for debentures that do?
Mr. S c h n e i d e r . At the time we sold them it paid $4 a share. At
the time we sold them.
The C h a i r m a n . What do you mean, paid $4 ?
Mr. W a r n e r . The common stock.
Mr. S c h n e i d e r . The common stock.
Mr. W a r n e r . We had no knowledge at that time that we were not
going to continue paying this dividend.
The C h a i r m a n . I think you made a very good guess.
Mr. W a r n e r . I am s o r r y we did not make them in some others.
Mr. S c h n e i d e r . I want to bring out a certain point, Senator.
When we sold that stock, the stock was not selling at its high.
Senator C o u z e n s . What was it selling at?
Mr. S c h n e i d e r . I think we got a high price of 60—64, and it went
up to 80 after we sold. Now Mr. Warner told you the two reasons we
sold the stock. And during the latter part of the year when it is
trying to be brought out that we knew that the company was doing
worse we bought 340,000 shares.
Mr. W a r n e r . And the debentures.
Mr. S c h n e i d e r . And $7,000,000 worth of debentures. Now i f we
knew at that time, if we were such good guessers that the business
was going to get tne way it finally did get we would not be putting
$7,000,000 into debentures, and we would not be buying 340,000
shares at $6,982,000, which we still own.
Senator F l e t c h e r . Y o u bought the stock at about 13 or 15?
Mr. S c h n e i d e r . No; we bought 340,000 shares for $6,932,000,
which is around 25. An average. It went all the way down-----Senator F l e t c h e r . You sold at 65?
Mr. S c h n e i d e r . That is right.
The C h a i r m a n . But the fact is that you profited by the whole
transaction?
Mr. S c h N e i d e r . Yes.
The C h a i r m a n . That is not denied.
Mr. S c h n e i d e r . No.
The C h a i r m a n . Then let us not argue the details before this com
mittee.
Mr. W a r n e r . N o.
Senator T o w n s e n d . A s a matter of fact, bv July or August you
had sold all the stock you Jield of Warner Bros., hadn’t you M r
Warner? Isn’t that a fact?
’
Mr. S c h n e i d e r . No.
Senator T o w n s e n d . Well, a very large per cent o f it?
Mr. S c h n e i d e r . No. The least stock, according to our records
that we ever held was 120,000 shares.
STOCK EXCHANGE PRACTICES
647
Senator T ownsend . One hundred and twenty thousand shares?
Mr. S chneider . Yes. That was the least stock.
Senator T ownsend . And you were the managers of the company ?
Mr. S chneider . Yes.
Senator T ownsend . And you strengthened your position as stock
holders later in the year?
M r. S chneider . That is right.
Senator T ownsend . When the stock was cheaper?
M r. S chneider . Yes.
Senator T ownsend . You sold it when it was high and bough! it
when it was cheap ?
Mr. S chneider . Yes.
Senator T ownsend . That is the story.
Mr. W arner. May I say one thing, please? From the time of the
inception of our business we always placed ourselves in a position to
have in cash, or as near as possible, the full amount of money that
the company that had our name owed to banks. I f you go into the
records of our personal affairs, that was our greatest ambition at
all times, that whatever our company owed to banks that it bor
rowed, that we should have that amount in cash. And here is the
record of that.
Senator F letcher . What time did you make this statement ?
Senator T ow n sen d . What has that to do with this?
Mr. G rat. I don’t know, but I don’t want to interfere.
Senator F letcher . Was it August or September or July? What
time was it? The latter part may mean anything. What I want to
get at is when did you make that statement ?
Mr. W arner. To pass the dividends, you mean?
Senator F letcher . Yes.
Senator W alcott. August, they have just stated.
Senator F le t c h e r . Well, they don’t seem to know just when it
was, except that it was the latter part. Is August the latter part
or not?
Senator G lass . It has been testified that the fiscal year ended the
1st o f September.
Senator F letcher . Yes; I know about that. What time did you
malm that statement ?
Mr. S chneider . August, 1930.
Senator F letcher . August, 1930?
Mr. W arn er . August 3, 1930.
Senator F letcher . What was the stock selling at then ?
Mr. S chn eider . In August?
Senator F letcher . Yes.
Mr. W arn er . Have you got that sheet there ?
Mr. S ch n eider . I will tell you.
M r . G r a y . It was selling high at 36 in August and a low of 25,
Senator. That is the entire month.
Senator F letcher . I want him to say. I f he does not know let
him say he does not know.
Mr. S ch n eider . High of 35, to a low of 25. From 36 to 25.
Senator F letcher . That is in August?
Mr. S ch n eider . Yes.
Senator F le t c h e r . Now you bought in September?
648
STOCK EXCHANGE PRACTICES
Mr. S c h n e i d e r . We bought in August and September and October
November and December.
Senator F letcher . Yes. And what did you pay for it?
Mr. S chneider . From 36—I think we paid as high as 40—all the
way down to 15.
Senator F letcher . Fifteen. W h en was your last purchase at 151
Mr. S chneider . The latter part o f December.
Senator F l e t c h e r . December?
The C h a i r m a n . 1930?
Mr. S chneider . 1930.
Senator F l e t c h e r . H o w m uch w as th a t?
M r. S chneider . It hit a low of lSy2, and we bought right down
to the end of December.
Senator F letcher . How much?
Mr, S chneider . We bought 340,400 shares for a total of $6,932,000,
which would be an average price of about $25,1 would say.
Senator F letcher . Well, following that statement the stock went
down?
Mr. G r a y . And they bought it back.
Senator F letcher . And they bought it back at 15.
Mr. Grat. Just one other phase I have not touched. You had
two or three corporations that traded in your stock, did you not ?
Mr. W arner . Yes.
Mr. Gray. The Colfax Trading Corporation?
Mr. W arner . Yes.
Mr. G r a y . That was your family affair?
Mr. W arner . Yes.
Mr. G r a y . Renraw (Inc.), which is “ Warner ” spelled backward?
Mr. W arner . Yes.
Mr. G r a y . That traded in your stock?
Mr. W arner . Yes.
Mr. G ra y . And the Raywarn Trading Corporation?
Mr. W arner . Yes.
Mr. Gray. That traded in your stock?
Mr. W arner . Yes.
Mr. G r a y . And the Brixton Trading Corporation, is that right?
Mr. W arner . Yes.
6
Mr. G ray . And those corporations were corporations that were
formed by you in your family and among your family group for the
purpose of trading backward and forward in your stock?
Mr. W arner . The Brixton was not.
Mr. G r a y . The Brixton was not. Were the others?
Mr. W arner . Neither was Ray warn or Renraw.
Mr. G r a y . They traded in everything?
Mr. W arner . Both of them-----Mr. S chneider . I can tell you the facts. None of them were
formed just for the purpose of trading in our stock. Thev were
corporations formed by the family.
Mr. G ra y . For trading in stocks?
Mr. S chneider . For trading. And the Renraw was formed fo r
the purpose of trading for the members of the family.
Mr. G r a y . That is all.
v
and
STOCK EXCHANGE PRACTICES
649
Senator Couzens. May I ask Mr. Warner whether he thinks it is
■ethical for an officer of a large corporation like his, with such a large
amount of outstanding stock, to trade back and forward in the stock
of his own corporation?
Mr. W a b n e r. I think personally that it is ethical and helpful.
Senator Couzens. Helpful to what?
Mr. W a r n e r . I did not trade back and forth. It is ethical and
helpful to buy and sell at different times. I don’t think it is ethical
to trade back and forth, but buy and sell.
Senator Couzens. Does not the record show that you bought and
sold nearly every month ?
Mr. W a r n e r . No. We sold during the months of February,
March, and the first part of the year, and bought back the last part
of the year.
The C h airm an. You sold at 64 and bought back at 15. That is
your testimony.
Senator Couzens. Why certainly. Mr. Warner seems to think that
is all right, and I just want to get before this committee what are
the ideals and the standards of some of these large corporation office
holders with respect to these matters. Mr. Warner says under oath
that he thinks that is a perfectly proper standard to buy and sell the
stocks of his own corporation and affect the market, as was done in
this case undoubtedly. And he also apparently thinks that that
would be perfectly all right for any other officer or director of any
other corporation in which he was a silent partner.
Mr. W a r n e r . Not for the purpose of raising or lowering the
stock—it is not ethical.
Senator C ouzens . Well, it is a certainty that the officers of a cor
poration know more about the internal operations o f the company
and the value of the company than any outsider or individual stock
holder knows, and the officer certainly has advantages in knowing
when to buy and when to sell, and Mr. Warner testifies under oath
that he believes that to buy and sell stock of his own corporation
with inside information that other stockholders do not have is per
fectly justified.
The C h a ir m a n . And to conceal from the public that the trading
is done by him.
Senator C o uzens . Why certainly. Why beat about the bush about
it?
Mr. W a r n e r . Wait a minute. I don’t agree with that fact, and
that is not the statement I make. I say if you take a corporation—
tab-A ours; at the time we acquired Vitaphone Corporation we sold
our stock to acquire money with which to finance it for the company,
without costing the company a dollar, and the profits afterwards
derived went to the company, and we didn’t get anything out of it.
Senator T ow nsend . Yes; but as a matter of fact, Mr. Warner,
Warner Bros, made a profit of somewhere between $6,000,000 and
$9,000,000 buying and selling their own stock in a year; isn’t that a
fact?
Mr. S ch n eid er. That is a fact by the statements.
Senator T o w nsend . All right.
The C h a irm a n . H ow much did the public lose during that tim e?
Senator C ouzens . The same amount, of course.
650
STOCK EXCHANGE PRACTICES
Senator T ow nsend . The same amount, o f course. They h ad to.
Mr. G r a y . I will say to the committee that I will hand to the
reporter later some original clippings that I will take from various
papers showing that during the period of time that Mr. Warner was
selling, right dear up until August, articles were published boosting
the value of the stock of Warner Bros., saying how far they were
going to move ahead, and that on August 6, the articles turned, and
the articles were all deprecating, Warner Bros, and saying that
they were not going to earn as much money as they did during the
first period of time in which they were selling. I will have them
placed in the record. (See page 655.)
Senator W alcott. Have you computed from your records how
much the net earnings from the stock transactions alone o f this
inside group amounted to this year?
Mr. G r a y . Yes.
Senator G lass. I will suggest to counsel that he get the record of
some other moving picture companies and see whether this is an
exceptional case or a common practice.
Mr. G r a y . We are working on that now.
Senator G lass. You can not put them all in at once.
M r. G ray . N o.
Senator W alcott. It takes time.
The C h a ir m a n . Yes.
Senator G lass . I suggested to him that he do that hereafter.
The C h a ir m a n . Yes.
Senator G lass . To ascertain whether or not this was a common
practice or an exceptional practice.
Senator T ow n sen d . Mr. Warner, do you think it is a common
practice among the corporations in New York that the officers o f the
companies deal in their own stock?
Senator W alcott. To sell high and buy low ?
Senator T o w nsend . Well, is it a general practice, in your judg
ment ? That is the question I am asking.
Mr. W arner . I would say that it possibly is.
Senator W alcott. Y ou would think that it was?
Mr. W arner . I would say that the stock is being traded up and
down. When people buy stock and pay a certain price they naturally
buy it for the purpose of trying to make a profit.
Senator T o w nsend . That is right; but I want to know whether or
not they buy it from their knowledge of the company to the dis
advantage-----Mr. W arner (interposing). Senator, may I say this to you, pleaseT
that when a man at the head of a company has a part in the buying
.of stock at a certain price he has no knowledge of conditions o f the
world that are going to get so that the business is going to get worse.
Senator T ow nsend . But he does have some knowledge o f his own
company, doesn’t he, if lie is an officer in the company ?
Mr. W arner . But his knowledge is affected by the conditions i»
the country as to whether people are going to buy, whether it is a
picture or whether it is a commodity.
Mr. G r a y . That is the future. He knows the present condition,
doesn’t he?
T
STOCK EXCHANGE PRACTICES
651
Mr. W abner . He knows the condition of his company at that time.
Mr. G r a y . Certainly.
M r; W abner . And at that time he feels that he is justified in mak
ing an investment.
The C h a ir m a n . H ow much does the public know, that is doing
the buying, from the officer o f the company who is selling the stock?
M r. W arner . I would say that they Know as much as we do.
Sometimes they know more. In the case of when we sold our stock
at $60 and it went up to $80, the public must have known more than
we did
Mr. G r a y . Well now, Mr. Warner, you mentioned that, and there
fore I want to ask you this question, whether you don’t know that
right after you sold at the top price that a pool was formed in
Warner Bros, stock for the purpose o f manipulating it and taking it
up higher? Another pool of outsiders?
M r. W abner . Positively not.
Mr. G r a y . Y ou do not know it ?
Mr. W abner . No, sir.
Mr. G r a y . Well, I will establish it later. Senator Walcott has
asked me to put certain figures on the record. The examination
and analysis—and an accurate analysis of the trading in these various
accounts at Schatzkin & Co., the brokers, shows that there were
sold 305,350 shares of Warner Bros, stock by this group at a price
of $16,520,986. That there were bought 326,500 shares at a price
of $7,544,481.50. So that at the end of 1930—these transactions all
being in that year—they had a profit o f $8,976,504.50 in cash. And
the 21,150 shares difference that they had at the low price of $13
represents a figure of $274,950, increasing their profit to the total
amount for the operations during that year of $9,251,454.50.
Let me state in fairness, however, that this is the account in
Schatzkin & Co. The other brokerage houses we have not been able
to develop^ and whether or not they will show a slight difference
in the profit one way or the other I can not tell you. But I remind
vou of the testimony of the witness to the effect that he admits that
he earned somewheres near seven and a half million dollars in all
of his brokerages houses, according to his calculation.
(The statement of analysis of Warner Bros, profits in Warner stock
trading, year 1930, presented by Mr. Gray, is as follows:)
Analysis of Warner Bros, profit in Warner stock trading, year 1980
Account *
Shares
bought
Cost of
purchases
39,300 $1,446,666.00
Warner..-r________________________________
Albert Warner No. 2......................................................
121,400 2,201,150.00
96,400 1,946,947.60
24,600
44,300
1,600
934.691.50
912,125.00
102.902.50
326,500 7,644,481.50
1Broker, Soiwtddn & Co.
Shares
sold
Proceeds of
sales
91,300 $4,992,945.50
364,255.00
5.500
555,372.50
8.500
170,760 9,319,92a 00
36,604.00
900
26,100 1,093,533.50
2,300
158*355.50
305,350 16,520,986.00
652
STOCK EXCHANGE PRACTICES
Total shares bought------------------------------------------------------------Total shares sold------------------------------------------------------------------
328,500
305,350
21,150
Proceeds of sales___________________________________________ $16,520,966.00
Cost of purchases__________________________________________
7,544,481.50
Value of 21,150 long at Dec. 31, 1930, price 13__________________
8,976,504.50
2X4,950.00
Net profit____________________________________________
Average price on 326,500 bought--------------------------------------------Average price on 305,350 sold------------------------------------------------
9,251,454.50
23.10
54.11
Mr. W a b n e b . May I say one more thing, please, and then I am
through. I f an officer of a corporation knows—the question that
you asked, Senator—would be buy for himself and his fam ily and
relatives $7,000,000 worth o f debentures and 340,000 or 850,000 shares
of stock at a price-----Senator T o w n s e n d . Let me ask you this question.
Senator C o u z e n s . Who is he asking the question? O f whom is
he asking the question?
The C h a i b m a n . Yes; of whom is he asking the question?
Mr. W a r n e r . I am trying to explain.
Senator C o u z e n s . N o ; you are not trying to explain now ; you
are asking a question of somebody. I would like to know to whom
it is directed.
Mr. W a b n e b . Can I apologize, then? I didn’t mean s o ; I mean
talking generally.
Senator T o w n s e n d . Y ou sold your common stock, didn’t you?
Mr. W a b n e b . Yes.
Senator T o w n s e n d . To buy the preferred?
Mr.
W
abneb.
Yes.
I am just trying to get your view.
Senator C o u ze n s . T o buy the debentures. Not the preferred.
Mr. Gray. To buy the debentures, to get a preferred position.
The C h a i b m a n . And the position that the debentures pay interest
and the stock does not pay dividends. He is just changing his posi
tion to better himself from the knowledge he has.
Mr. W a r n e r . But, Senator-----The C h a i r m a n . Go ahead and make your statement if you care
to make one.
Mr. W a b n e b . Why not take the picture as of the time we did it
and as of to-day. Now, we surely did not have any knowledge that
the debentures were going to sell at $16 or $15 and the stock at a
dollar when we bought them at 93.
Mr. Gray. In other words you would have put your money in
something else if you had known?
Mr. W a b n e b . We must believe in it or we would not deal.
The C h a i r m a n . Y ou people must have thought that when you
clipped the lamb vou could take along the skin, too, and grow the
wool, but the lambs must have a little time to grow skin agrain be
fore they can grow wool.
Mr. W a b n e b . Well, I would not say that.
Senator C o u z e n s . I s the interest being paid on the debentures?
Mr. W a b n e b . Yes.
STOCK EXCHANGE PRACTICES
653
Senator C o u z e n s . So he is still getting his interest on the deben
tures that he traded for common stock.
The C h a i r m a n . But the Street seems to be disappointed with the
fact that the country does not come back with more money quickly.
They guessed wrong on that part of it, we will admit that. But the
country seems to be broke.
Senator G lass . I can very readily see the point of ethics raised
by Senator Couzens, but I have not yet been able to see what this
has to do with stock-exchange transactions.
Senator C o u ze n s . Well, I might say, Senator Glass, that I see it
from the standpoint that they create a market by buying and selling
of their own stocks, and of course that affects the market, and they
do it through the stock exchange. That is the only point I see in it,
Senator.
The C h a i r m a n . And one of the questions is : Should they be per
mitted in the market?
Senator C o u z e n s . May I put a hypothetical case to Mr. Warner?
Assuming that he had 100,000 shares in Bethlehem Steel. He was an
outside holder. He had no knowledge of the internal affairs of the
company. And Mr. Schwab, who is chairman of the board, was to
engage actively in the stock market and run the stock way up, know
ing that the conditions were not good, and that he was going to un
load, and then after he knew that the orders were falling off and the
trend of production was going down, and the conditions over the
country were not good, and you bought at the rising prices, and
then afterwards Mr. Schwab got out with his own stock, would you
consider that good ethics?
Mr. W a r n e r . I would.
Mr. S c h n e id e r . We have stocks in other companies that are sell
ing for less----Senator C o u z e n s . I am not asking that question. I am asking the
question of what he thinks of the officers of the corporations dealing
in their own stock.
Mr. W a r n e r . For the purpose of raising it or lowering it, I would
not agree.
Senator C o u z e n s . Never mind what the purpose is. You can not
always tell motives but you have sense enough to know what the ef
fect is without analyzing your mind too clearly to find out what the
motive is. Is that all, Mr. Gray ?
Mr. G b a y . Yes, sir.
Senator C o u z e n s . Are we going to have an executive session, Mr.
Chairman?
The C h a ir m a n . I have called a meeting of the steering committee
after the adjournment of this hearing in order to formulate the
program.
Mr. W a r n e r . Bo I have to stay?
Mr. G r a y . No; you may go. Consider yourself under subpoena,
but it is unlikely that we will bring you back unless there are some
developments that the committee wants to know about.
The C h a ir m a n . The committee will adjourn and we will have an
executive meeting of the steering committee. I f every one else will
leave the room.
(Thereupon, at 11.45 a. m., Saturday, May 21, 1982, the hearing
was adjourned subject to the call of the chairman, and the commit
tee went into executive session.)
STOCK EXCHANGE PRACTICES
FRIDAY, JUNE 3, 1938
U
C o m m it t e e
S tates S e n a t e ,
B a n k in g a n d C ur r en cy,
n it e d
on
Washington, D. C.
The committee met at 10 o’clock a. m., pursuant to call, in room
301, Senate Office Building, Senator Peter Norbeck presiding.
Present: Senators Norbeck (chairman), Goldsborough, Townsend,
Walcott, Blaine, Carey, Couzens, Fletcher, Glass, Bulkley, and Gore.
Present also: William A. Gray, Esq., counsel to the committee.
The C h a i r m a n . The committee w ill come to order. You may pro
ceed, Mr. Gray.
Mr. G r a y . Mr. Chairman, when Mr. Harry M. Warner was upon
the stand I stated to the committee that I would put upon the record
evidence of certain newspaper publicity that took place during the
year 1930 while he was operating in the stock of Warner Bros. Pic
tures (Inc.) . I have here photostatic copies of a number of publica
tions, showing the date and name of publication, and with your per
mission I will hand them to the committee reporter for the purpose
of making them a part of the record.
T he C h a i r m a n . I f there is no objection , it w ill be so ordered.
[The Wall Street Journal, Tuesday morning, January 21, 1980]
Warner Bros, was in active demand, pushing into new high ground on the
movement in response to the favorable character of the company’s earnings.
[The Wall Street Journal, Thursday morning, January 80, 1980]
WARNER PICTURES PREFERRED
Attention is being called to Warner Bros. Pictures preferred stock, which has
been rather overlooked in the recent speculative buying of the amusement group.
The issue gives the holder a call on Warner common until the end of August.
The stock carries cumulative dividends, now paying $2.20 a share, but after
August 31 the rate will be increased to $3.85 a share. It is convertible into
common until August 31 at the rate of one share of common for one and fifteen
bandredtlis shares of preferred.
[The Wall Street Journal, Monday morning, February 17, 1930]
WARNER BROS. PICTURES
(IN C .)
Los A n g e l e s .—Two new theaters are to be built by Warner Bros; each to
-cost approximately $500,000. The theaters will be located In Huntington Park
and San Pedro and will seat, respectively, 1,800 and 2,000 people. Both theaters
will be equipped with the new magnoscope screen. Construction is expected to
begin at once.
655
656
STOCK EXCHANGE PRACTICES
[The Wall Street Journal, Wednesday morning, February 19. 1030]
WABNER BROS. PICTURES
(IN C .)
Warner Bros. Pictures (Inc.) and subsidiary companies report for quarter
ending November 30,1929, net profit including equity in undistributed earnings
of affiliated company for nine weeks ended November 2, 1929 (since consoli*
dated), of $5,629,109 after amortization, depreciation, interest, Federal taxes,
and proportion of net earnings applicable to minority stockholders. This is
equivalent after preferred dividends, to $2.07 a share on 2,045,864 shares of
no-par common stock outstanding at end of quarter. In the corresponding
quarter of 1928, net profit was $2,917,724 which computed on the present share
basis is equal to $1.04 a share. The profits for the quarter ended December
1*, 1928, however, included only the earnings of the companies then subsidiary
to Warner Bros. Pictures (Inc.), while the profits for the quarter ended No
vember 30, 1929 include profits of all the companies now subsidiary to Warner
Bros. Pictures (Inc.)
[The Wall Street Journal, Monday morning, March 3, 1930]
WABNEB BBOS. PICTURES
Although there has been a tendency to credit the firmness in Warner Bros,
to a group operation, commission houses with prominent uptown offices, report
that the stock is unusually popular in that section of the city. Therefore the
indications are that outside buying has been much larger than most market
interests have realized.
[The Wall Street Journal, Monday morning, March 10, 1930]
WARNER BROS. OONVHSOTBIJCS
In connection with the popularity of the amusement shares, attention has
been called to Warner Bros. Pictures 6 per cent convertible debentures of 1939.
The bonds have a convertible feature which makes it possible to obtain one
share of common stock for each $75 principal amount of bonds prior to Sep
tember 1,1932, and on a rising scale until 1939.
Another feature is that each $1,000 bond is entitled to receive one share of
common stock annually in place of the 6 per cent interest. This, coupled with
the long call on the common, has made the convertibles quite attractive to
some traders.
[The Wall Street Journal, Tuesday morning, March 11, 1930]
Large-scale buying of General Motors, du Pont, and Warner Bros, was
attributed to Raskob and du Pont interests.
[The Wall Street Journal, Thursday morning, March 13, 1930]
WARNER BROS.
Traders who have been active in Warner Bros. Pictures in the paist are
beginning to talk of an extra dividend late next month. They argue that such
action would be warranted, with earnings as high as they have been in recent
months. The reaction in the stock recently eliminated a considerable part of
the outside long following which had come in when upturns were in progress.
[The Wall Street Journal, Tuesday morning, March 25, 1930]
Amusement shares were another outstanding group, moving ahead under the
leadership of Warner Bros., which attained record levels for the present shares.
657
STOCK EXCHANGE PRACTICES
Pacific Lighting was a strong spot in the utility division, while a number of
industrial specialties staged aggressive uprushes. Among the features in this
class were Vanadium, which gave evidence of a technical corner; Worthington
Pump, Foster Wheeler, and Hershey Chocolate.
[The Wall Street Journal, Saturday morning, March 29, 1930]
WARNER BROS.
Although there have been reports that Warner Bros, earnings are not likely
to come up to earlier estimates, important houses which have had correct infor
mation in the past continue to insist the company will show from $4 to $4.25 a
share for the six months ended February 28, last, not including profits from
foreign subsidiaries. Such results would be equal to more than the full year’s
dividend on the stock, and probably would lead to rumors of an extra distri
bution before the end of April. An extra at that time would not surprise
those close to the organization.
[The Wall Street Journal, Saturday morning, March 29, 1930]
Warner Bros, further gain into record territory for the present shares fol
lowed the digestion of recent large offerings based on published estimates that
the earnings statement for the six months to February 28, last, would show a
balance of around $3.65 a share. As a matter of fact, Warner Bros, earnings
have been running at better than $1 a share monthly, and the report for the
February quarter is expected to show a balance of around $2.50 a share.
In the three months to November 30, last, which was the first quarter of the
current fiscal year, the company reported $2.07 a share, so that the half-year
showing is expected to be better than $4.50 a share. Wilmington interests,
who are currently dominating the market in Warner Bros., express confidence
that the company will report in excess of $9 a share for the fiscal year ending
August 31, next.
[T h e W a ll S treet J o u rn a l, T u e s d a y m o rn in g , A p r il 8, 1 9 3 0 ]
W a r n e r S t a r t s Q uabtteb S t r o n g — B o o k i n g s I n d i c a t e R e c o r d N e t
F o b T h r e e M o n t h s t o M a y 31
of
$6,000,000
OPERATING 3 5 0 THEATERS
Warner Bios. Pictures (Inc.) has completed one month of the third quarter
of its fiscal year and from advance bookings it is probable that net will make
a new high record for any three months’ period in the history of the company.
Profits in the current quarter ending May 30 will probably approximate
$8,000,000, equal after estimating preferred dividends, to about $2.17 a share
on 2,725,000 common shares.
In the first quarter of the fiscal year which ended November 30, Warner
reported a net profit of $5,629,109 equal after charges to $2.07 a share on
2,645,864 shares of common stock then outstanding.
The report for the second quarter which ended February 28 has not yet been
made public but it is likely to show a net profit of approximately $4,500,000,
a new record for any second quarter, equal to about $1.65 a share on the
common stock, after preferred-dividend requirements. The decline from the
first-quarter earnings is partly seasonal but is mainly due to the fact that no
outstanding successes were released during the period, most of the year’s lead
ing films being released in the first and third quarters.
Thus in the first six months of the fiscal year Warner will report a total
net profit of around $10,100,000, which is equal, after preferred dividend, to
around $3.67 a share on the 2,725,000 shares of common now outstanding. A
net of $6,000,000 in the third quarter will bring the total for nine months to
above $16,000,000, or $5.40 a share. Profits in the final quarter are normally
the smallest, since it includes the three summer months, and probably will not
exceed $4,5(k>,000. This would give Warner a total net profit for the 1930
STOCK EXCHANGE PRACTICES
658
fiscal year approaching $20,000,000, against a total net of $17,271,806 earned
by the company and all of its subsidiaries in fiscal year ended August 31, 1929.
The per-share comparison would be $7.52 against $6.34 in 1929 on present
common-share basis.
WARNERS CONTROL MUSIC UNITS
I n c o m e from the foreign markets is running considerably ahead of original
estimates and the new musical divisions of the business also are doing exceed
ingly well. Warner owns a number of the most important musical publishers
in the c o u n t r y and the joint management of this business, together With the
p r o d u c t i o n of sound films, is advantageous.
Warner is proceeding quietly with its theatrical expansion program, which
is being handled without depleting current cash assets. New theaters are
being built in a number of important cities and negotiations are under way for
the acquisition of several .theater chains in various sections of the country.
The new Hollywood Theater in New York will open on April 17 with Warner’s
latest success, Hold Everything, which has been making a record in receipts
since its initial showing on the coast.
The current film releases are doing extremely well, especially the new John
Barrymore picture Man from Blankleys, A1 Jolson in Mammy, and Under the
Texas Moon. The George Arliss pictures, Disraeli and Green Goddess, are
both popular, as well as Marilyn Miller in Sally. Six of the current Warner
productions and six First National productions are in Technicolor.
New pictures now being produced at Hollywood include films starring George
Arliss, Marilyn Miller, John Barrymore, Al Jolson, and Ot.s Skinner.
c o n s e r v a t iv e p o l ic ie s io i x o w e d
C u r r e n t earnings of Warner are being computed on an increasingly conserva
tive basis. Both the rate oil depreciation on buildings and the rate of amortiza
tion, of films have been increase*! substantially this year. Bu ldings are now
charged off at a minimum rate oi 3 per cent annually against the former mini
mum rate of 2 per cent and positive films are written off in from 25 weeks to
52
Steady progress is being made in consolidating the various properties acquired
last year which was Warner’s greatest year of expansion, and the whole system
Is now running smoothly with important operating economies beginning to
take effect. The Stanley chain of theaters which was bought in the fall of
1928, together with the Skouras chain and other theater groups which were
added in 1929, bring the total number of theaters operated under the Warner
management to approximately 350 houses. Wa,rner’s holding of First National
stock was rounded out by the purchase of the minority interest held by Fox
Film Corporation, which Warner bought last fall for $10,000,000 in cash, giving
100 per cent ownership. Obligations Incurred including bank loans have been
substantially reduced since the first of the year.
Warner’s capital now consists of 200,000 shares of convertible preferred, and
about 2,725,000 shares of no par common now paying $4 annually. Common is
selling currently around 75, against a high of 80% and a low of 30.
[The Wall Street Journal, Thursday morning, April 10, 1930]
R askob
on
W a r n e r B r o s .— S e e s P rogress f o r C o m p a n y
POSSIRIIJTIE8 i n I n o u s t r y
w it h
A t t r a c t iv e
Before sailing for Europe aboard the S. S. R<ma, for a six weeks’ trip, John
J. Raskob stated that he was interested in Warner Bros. Pictures because he
was of the opinion that it was one of the best managed and organized companies
in the amusement field. “ I believe,” he said, “ that Warner Bros, will continue
to do a very satisfactory business, and, looking ahead, it would appear to possess
attractive possibilities along with the future of the motion picture industry ”
As to the question whether he expected to be elected a director of the com
pany, Mr. Raskob stated that he did not anticipate becoming a director.
STOCK EXCHANGE PRACTICES
659
[The Wall Strefet Journal, Monday morning, May 5, 1930]
WARNER BROS.
Estimates are heard that earnings of Warner Bros. Pictures in the quarter
which ends this month might establish a new record, because May promises to
be the largest of the year. Efforts of the management will be concentrated
toward featuring the Warner displays throughout the country through special
price Inducements, advertising, and other plans.
[The Wall Street Journal, Tuesday morning, June 10, 1930]
W a r n e r s B u y i n g M obe T h e a t e r s — R e c e n t l y A c q u ir e d 200 H o u s e s — I m m e d i a t e
G o a l , 600— B ig P r o d u c t io n S c h e d u l e d
(Special from Boston News Bureau)
B o s t o n .—Warner Bros. Pictures (Inc.) is now centering its energies upon the
expansion of its theater circuit. In the past 60 days it has acquired by actual
transfer or agreement approximately 200 additional theaters. Deals are pend
ing for nearly 100 more, so that by midsummer at least 300 new units will have
been acquired, thereby doubling the number of its theaters.
The Middle West and the South, but mainly the eastern Atlantic States, have
been the sphere of expansion activities. Sizeable chains in West Virginia, New
England, and South Chicago and Philadelphia have lately been acquired. As
far south as Tennessee the movement has extended.
While 600 theaters is the immediate goal, the ultimate objective of the War
ner Bros, management is to secure a theater wherever it has nu outlet for its
product. Additional theaters not only offer the needed channel for its own
merchandise, but afford a much stronger trading basis in negotiating with com
petitive companies for exchanges of film offerings. H. M. Warner, in connection
with the program for an immense theater circuit, has publicly stated that the
theater manager rather than the public is the chief problem of the industry
to-day.
Warner Bros, is still desirous of materially increasing the number of big
houses in metropolitan New York. This program will, however, be no doubt
deferred until favorable conditions in the realty mortgage .market prevail.
The recent hot weather waves are affecting Warner Bros.’ receipts in common
with all of the big amusement companies. And the lack of outstanding new
releases will also tend materially to cut down the rate of increase in earning
power this final quarter of the year, June to August, inclusive, as compared
with last year.
d if f ic u l t y
of
e s t im a t in g
e a r n in g s
It is impossible for a number of reasons to estimate Warner Bros, results for
the full year. In the first place, theater expansion is proceeding so rapidly,
involving payment mainly in common stock and 6 per cent debentures, that
no idea of the probable capitalization at the year end can be made. In the
second place, it is entirely too early to forecast theater receipts. Again, just
what effect the acquisition of Brunswick-Balke will have is quite uncertain.
While the agreement for purchase was signed around April 1, due to auditing
delays, actual transfer can not be consummated before June 15 or July 1, and
how much earning power, if any, in this half year of unsettlement can be
credited, is entirely problematical.
The Brunswick-Balke purchase, moreover, was made largely for the protec
tion of patent position and not with the idea of obtaining immediate earning
power. There will, of course, through the manufacture of records, over
$2 000^000 of which have heretofore been bought from the Victor Co., be a
saving that from now on alone justifies the purchase.
P r o d u c t i o n schedules by the Warner Bros, properties f o r the 1930-31 year
will he the most ambitious yet attempted. There will be 35 features made
entailing an expenditure of $17,500,000, which with $2,500,000 for Vitaphone
“ s h o r t s ” will make a total commitment of $20,000,000. First National program
comprises 35 pictures, 15 to be known as de luxe and 20 as special attractions,
the whole involving a smaller outlay than for Warner Bros.
STOCK EXCHANGE PRACTICES
660
[The Wall Street Journal, Wednesday morning, June 25, 1930]
M o v ie E a r n in g s
D eop
S e a s o n a l — D e c l in e P a r t l y
S u m m e r L u l l L a s t Y eah
R eturn
to
N o r m a l —No
SECOND QUARTER ESTIMATES
Declines in income of moving-picture companies in May which continued
into June make necessary a revision of previous estimates of current quarter 8
earnings of amusement stocks. The profit decrease is not entirely due to
abnormal conditions in the industry, but may be regarded partly as a. return
to normal after the enormous gains made following the advent of sound films.
Prior to the “ talkies,” film earnings always had a seasonal decline in the
summer, but that did not come last year because of the popularity of the
“ talkies.” The present dip in profits presumably is not due to waning interest
in the “ talkies,” but is simply the usual seasonal fluctuation, perhaps ac
centuated this year by general business conditions and unemployment.
It is probable, therefore, that amusement companies will report satisfactory
earnings for the year, although profits will not come up to some of the more
optimistic estimates that have been made. A great deal will depend on condi
tions in the last four months of this year.
WARNER BROS. M A Y EARN $ 6 .6 0 FOR YEAS
Warner Brothers Pictures in the first quarter of its fiscal year ended Novem
ber 30, 1929, earned $5,629,108, equal to $2.07 a share on 2,645,864 shares then
outstanding. In the second quarter, ended March 1, last, net of $4,463,000,
equal to $1.62 a share on 2,666,211 shares was reported. It was predicted
that profits in the third quarter ended May 30 would run as high as $6,000,000,
but it now seems probable that net profit for the period will be somewhere
under $3,500,000, or around $1.20 a share, although official figures are not
available.
Various adjustments in connection with the numerous recent acquisitions
made by Warner make it difficult to arrive at any accurate estimate of profits
for the period. Earnings for the first half of the fiscal year, however, have
been equal to $3.69 a share, so that even after allowing for a considerable
decline in profits during the remainder of the year, the final showing should
be around $5.50 a share.
[Barron’s, February 10, 1930]
W a b n e r B ro s . P ic t u r e s i n F i r s t Q u a r t e r t o S h o w A b o u n d $2 a S h a r e fob
C o m m o n i n F ir s t T h r e e M o n t h s of N e w F i s o a l Y e a r — P r e f e r r e d B e in g
C on verted
The tremendous popularity of the talking motion picture has continued to
swell the income of Warner Bros. Pictures (Inc.), the pioneer of the field.
While final figures for the first quarter of the fiscal year, which began September
1, are not yet audited, preliminary indications point to net income after charges
of between $5,000,000 and $5,500,000, probably nearer the top figure, unless
unusual reserves are set up.
A net of around $5,500,000 would compare with $5,314,000 in the previous
quarter and with $2,917,000 for same period a year ago. Normally the big
quarter of the year is the period ending May 31, for during the month of May
occurs the “ Warner Bros, month ” all over the country.
There is a slow but steady conversion of the unique Warner Bros, preferred
stock. This issue pays $2.20 currently, is convertible into common on the basis
of 88 shares of common for each 100 shares of preferred up to September 30,
next. While the dividend rate on the preferred after the termination of the
conversion privilege September 30, advances to $3.85 a share the increased
dividend ($3.52) available through conversion has reduced the outstanding
preferred since the close of the fiscal year August 31, last, from 288,056 shares
to some 264,000 with the prospect of additional conversions before the common
stock goes exdividend February 10.
On the basis, however, of 264,000 shares of preferred, the outstanding common
amounts to approximately 2,630,000 shares on which earnings for the oast
quarter were, therefore, probably something better than $2 a share. Warner
STOCK EXCHANGE PRACTICES
661
Bros, last year made an amazing showing, net jumping from $2,000,000 in 1928
to over $17,000,000, equivalent of $6.33 a share. Prospects for 1930 favor $9
to $10 a share, upon which current dividend rate is $4 a share.
The Warner Bros, working-capital position shows relatively little change from
the $16,314,000 figure as of August 31, last, following the sale of the $19,205,000
optional 6 per cent convertible debentures. Incidentally, once the stock crosses
60 it becomes advantageous for a holder of the debentures to take stock at
rate of one-quarter share in lieu of every $15 cash interest. Surplus earnings
since the start of the new year have been largely devoted to expansion of
warehouse facilities heretofore leased and to the absorption of a few moderate
sized theaters.
Production schedule for this year calls for about 70 pictures. Biggest film
success of year to date is “ The Gold Diggers of Broadway,” but the more recent
“ General Crack,” with John Barrymore, has equal promise. It will be recalled
that Warner Bros, electrified the amusement world last year with A1 Jolson’s
“ The Singing Fool,” which to date has grossed in this country $3,500,000; from
that moving-picturei film really dates the romance of the “ talkies.”
Speculative popularity of Warner Bros, on the Stock Exchange has led to a
rapid widening of the stockholders’ list. The company now has some 15,000
common and 3,000 preferred stock holders.
[Barron’s, March 10, 1930]
W a r n e r B r o s . P ic t u r e s i n G ood S t a r t —B o o k in g s I n d ic a t e R ecord Net o f
$6,000,000 fo e T h r e e M o n t h s t o M a y 31— O p e r a t in g 350 T h e a t e r s
Warner Bros. Pictures (Inc.) has completed 1*6 months of the third quarter
of its fiscal year, and from advance bookings it is probable that net will make
a record for any 3-months’ period in the history of the company. Profits
in the quarter ending May 30 may approximate $6,000,000.
In first quarter of the fiscal year, which ended November 30, net was $5,629,109, equal after charges to $2.07 a share on the 2,645,864 shares of common.
Report for second quarter, ended February 28, is likely to show net of $4,500,000, a record for any second quarter. The decline from the first quarter is
partly seasonal, but is due mainly to the fact that no outstanding successes
were released during the period, most of the year’s leading films being released
in the first and third quarters.
Thus in the first six months of the fiscal year Warner will report net of
around $10,100,000, equal, after preferred dividends, to around $3.67 a share on
2,725,000 shares of common now outstanding. A net of $6,000,000 in the third
quarter will bring the total for nine months to above $16,000,000, or $5.40 a
share. Profits in the final quarter are normally the smallest, since it includes
the three summer months, and probably will not exceed $4,500,000. This would
give total net for the 1930 fiscal year approaching $20,500,000, against $17,271,806
in the year ended August 31, 1929. The per-share comparison would be $7.52,
against $6.34 in 1929, on the present common-share basis.
WARNER CONTROLS MUSIC UNITS
Income from foreign markets is running considerably ahead of original esti
mates, and the new musical divisions are doing exceedingly well. Warner
owns a number of the most important musical publishers, and the joint manage
ment of this business, together with production of sound films, is advantageous.
Warner is proceeding quietly with its theatrical expansion, which is being
handled without depleting company’s cash assets. New theaters are being built
in a n u m b e r of important cities, and negotiations are under way for acquisition
of several theater chains in various sections.
The new Hollywood Theater in New York will open April 17 with Warner’s
latest success, Hold Everything, which has been making a record in receipts
since the initial showing on the Pacific coast.
Current film releases are doing extremely well, especially the new John Barry
more picture, Man From Blankleys, A1 Jolson in Mammy, and Under the Texas
Moon The George Arliss pictures, Disraeli and Green Goddess, are both popu
lar, as well as Marilyn Miller in Sally. Six of the current Warner productions
and six First National productions are in technicolor.
#
New pictures being produced at Hollywood include films starring George
Arliss, Marilyn Miller, John Barrymore, A1 J o ls o n , and Otis Skinner.
119852—32— p t 2------19
662
STOCK EXCHANGE PRACTICES
CONSERVATIVE POLICIES FOLLOWED
Current earnings are computed on an increasingly conservative basis. Both
rates of depreciation on buildings and amortization of films have been increased
substantially this year. Buildings are now charged off at minimum rate of
3 per cent annually, against the former minimum of 2 per cent, and positive
film s are written off in 25 to 52 weeks.
Steady progress is being made in consolidating the properties acquired last
year, Warner’s greatest year of expansion, and the whole system is now run
ning smoothly, with important operating economies beginning to take effect.
The Stanley chain of theaters, bought in the fall of 1928, with the Skouras
chain, and other theater groups which were added in 1929 bring the total
number of theaters operated under the Warner management to approximately
350 houses. Warner’s holdings of First National stock were rounded out by
the purchase of the minority interest held by the Fox Film Corporation, which
Warner bought last fall for $10,000,000 in cash, giving 100 per cent ownership.
Obligations incurred, including bank loans, have been substantially reduced
since the first of the year.
Warner’s capital now consists of 200,000 shares of convertible preferred and
about 2,725,000 shares of no-par common now paying $4 annually. The common
is selling at 75, against the high of 80% and a low of 30.
[Barron’s, April 14, 1930]
W a r n e r B r o s . P ic t u r e s ( I n c .) E a r n i n g s P r o s p e c t s — D e p r e c ia t io n P o l i c y —
F i r s t N a t i o n a l P ic t u r e s D e v e l o p in g S a t x s f a c t o b il y
Net profit of the Warner Bros. Pictures (Inc.) of $5,629,109 after all charges
for the three months ended November 30, 1929. constituting the first quarter of
the new fiscal year, was in line with expectations. Actual balance for the
2,645,864 shares of common, after preferred dividends, estimated at over $2,
proved to be $2.07 a share.
As statement of the first quarter is only a fortnight old, it is obviously
impossible to estimate thus early, in a business so dependent upon the whims
of public taste, profits for the second quarter. It is particularly difficult with
Warner Bros, now that its foreign operations, through First National Pictures,
have become increasingly important, inasmuch as it takes practically two
months after closing of the books for returns from Australia and the Far East
to filter in.
The depreciation charges in the motion picture industry are the all-important
item. These are not made in a lump sum, but are applied against individual
pictures, 20 per cent of the cost of negatives in the first six weeks, 50 per cent
in 16 weeks, with the percentage mounting until complete write-off is accom
plished in 88 Weeks. The relative degree of success of new films at the outset,
therefore, determines in the light of such charges the complexion of earnings
statements and how various films to with the public in various sections
can not be determined until the final figures are in.
It is perhaps safer under these conditions to attempt an estimate of profits
for the full yea r, and at this wiring it looks as though Warner Bros, would be
able to show well over $8 a share, quite possibly $8.50 a share, as against $6.33
a share last year and $4.98 a share the year before.
The second quarter will have the benefit of the full earning power of First
National Pictures, which became 100 per cent-owned November 1, last, but
otherwise there are no special developments. First National Pictures invest
ment is coming along nicely, but it will take another year or two to reap the
benefits of Warner Bros.’ supervision of their pieture-making and of the econo
mies of distributing both lines of films. The third quarter, which includes the
Warner Bros. Month of May, when the annual sales convention as well is
held, is normally the big period.
For the current quarter the principal new releases are John Barrymore in
The Man From Blankleys, A1 Jolson in Mammy the fourth of the five pictures
for which he contracted; Under a Texas Moon, and the screen version of the
musical-comefly hit Hold Everything. Production for the current year isnearw
an<r»Wo
begun on some of the offerings for next year
While Warner Bros, occupies first place in the motion-picture industry in
point of earning power it is, with some 400 theaters, fourth in size. To widen
distribution, new theater circuits are constantly being studied with a view to
STOCK EXCHANGE PRACTICES
663
purchase and the strengthening of the New York position will, when financing
conditions warrant, probably be done in a big way.
With the common stock at 72 it obviously becomes more profitable for hold
ers of the optional 6 per cent convertible debentures issued September 1, to take
one-fourth share of stock instead of $15 in quarterly interest. The exact
effect upon the common stock structure, however, can not be calculated until
after March 10, by which date holders must manifest their preference for cash.
The outstanding ownership of these debentures is understood to rest with the
Blue Ride Corporation, sponsored by Goldman, Sachs & Co., who underwrote
the issue.
[Barron’s, May 5, 1930]
W a r n e r B r o s . P ic t u r e s ( I n c .) P r o s p e c t s
SHOULD EARN ABOUND $ 3 .5 5 A SHAKE IN FIRST H A LF TE AR ENDED MARCH 1, 1 9 3 0 ,
AOAIN ST $ 4 .7 5 A SHAPE A YEAR AGO— THE NEW' ACQUISITION S
With final figures not available for several weeks, the indications are that
Warner Bros. Pictures (Inc.), earned for the first half of its fiscal year, the six
months ended March 1, last, in the neighborhood of $10,000,000 after charges,
a gain of approximately $2,750,000, or 38 per cent, over the showing of $7,254,570
for the half year ended March 2, 1929.
NOW H A S MORE T H A N 2 ,7 5 0 ,0 0 0 SHARES
Due to the payment of interest upon the optional 6 per cent debentures almost
entirely in stock (only 5 per cent was paid in cash March 1) and to the steady
conversion of the $2.20 preferred stock (conversion of over 100,000 shares in the
past three months has cut down this issue to around 162,000 shares) the out
standing total of Warner Bros, common shares has been gradually increasing
and now aggregates a trifle over 2,750,000 shares.
After allowance for preferred dividends, half year net of approximately
$10,000,000 would spell a balance for present common shares of $3.55 a share
and probably over $3.60 a share for stock outstanding at the end of February.
This would compare with $4.75 a share for the 1929 half year, at the end of
which (giving effect to the two-for-one split up of July 2) 1,969,818 commonshare capitalization prevailed.
A net of around $4,400,000 for the second quarter of the fiscal year would
represent a balance for present common shares of approximately $1.56 a share,
as against $2.07 a share in the first quarter and $2.10 for the same period
of 1929.
The third quarter of the year, which includes the “ Warner Bros, month ” of
May is normally the biggest earning period and is likely to be no exception this
year considering the vogue of the “ talkies ” and the popularity of the several
new releases, viz, Hold Everything, the Barrymore film; The Man From Blankleys, and Under a Texas Moon. While conjectures now are rather uncertain,
a record-breaking net in the neighborhood of $6,000,000, or $2.10 a share,
appears probable as a contract to $4,703,000, or $1.90 a share, for the same
period of 1929.
EARNINGS DECLINE IN F IN A L QUARTER
The final quarter of the year, embracing the summer months, is always the
smallest and from precedent should reflect a considerable let down in earn
ings, especially with a heavy production program under way while box-office
receipts are falling. Profits may be tentatively estimated at $4,000,000 to
$4,500,000, or $1.40 to $1.60 a share, against $5,314,000, or $1.96, last year
when the company had the pole in the talking-picture race.
Total net for Warner Bros, for the full year ended Aug. 31 should run
something over $20,000,000, possibly $20,500,000, against $17,271,000 in 1929.
On this basis final per-share balance would be $7.12 to $7.30, contrasting with
$6.34 a share in 1929.
Expansion plans of Warner Bros, pictures are continuing along a broad front.
Major acquisitions lately have been musical division of Brunswick-Balke, an
important interest in Tobis-Klangfilm, which dominates sound pictures in
Germany and Switzerland and other parts of Europe through fundamental
664
STOCK EX C H A N G E PRACTICES
patents, and the Handle & Rovner and Dispon Theater circuits, comprising 24
theaters, mainly in New Jersey, Ohio, up State New York, and a large house
in Wheeling. Important theaters in Philadelphia and Newark and a goodsized unit in Ambridge, Pa., have also come into the fold. Financing of all
this above mortgages was accomplished through issuance of $15,835,000 addi
tional optional 6 per cent debentures.
[Barron’s, June 30, 1930, p. 9]
M o v ie E a r n in g s i n S e a s o n a l D rop — D e c l in e i n P a r t a R e t u r n t o N o r m a l
SECOND-QUARTER ESTIMATES
Declines in income of moving-picture companies in May, which continued
into June, make necessary a revision of previous estimates of current quarter’s
earnings of amusement stocks. The profit decrease is not due entirely to
abnormal conditions in the industry, but may be regarded partly as a return
to normal after the enormous gains made following the advent of sound films.
Prior to the “ talkies,” film earnings always had a seasonal decline in the
summer, but that did not come last year because of the popularity of the
“ talkies.” The present dip in profits presumably is not due to waning interest
in the “ talkies,” but is simply the normal seasonal fluctuation, considerably
accentuated this year by general business conditions and unemployment.
It is probable, therefore, that amusement companies will report satisfac
tory earnings for the year, although profits will not come up to some of the
more extravagant estimates that have been made. A great deal will depend
on conditions in the last four months of this year.
w id e s p r e a d
cuts
u n l ik e l y
Although several reductions in box-office prices have been made recently,
notably by Fox in Detroit, Boston, and Brooklyn, there is no indication so far
that general cutting will ensue.
Box-office prices in large Broadway houses range from 75 cents to $1, some
in other large city houses from 50 cents to $1. It is, of course, possible that
these prices will be reduced, particularly as a summer measure. However,
the average of admission prices all over the country is less than 25 cents,
and obviously it is unlikely that this average will be. greatly reduced.
Since the industry as a whole was geared up to a high rate of income and
■was looking forward to the same kind of volume business that it enjoyed at
box offices last summer, it was not prepared for the slump which came in
May. As a result, theater expenses were not cut in proportion to the reduc
tion in box-office income. This, of course, is now being done, and a better
margin of profit should result.
From present indications, much depends on results of the last quarter. If
the amusement companies enjoy their usual profitable year-end business stim
ulated by new film releases, the results for the year should be entirely satis
factory.
Warner Bros, pictures in the first quarter of its fiscal year ended Novem
ber 30, 1929, earned $5,629,108, equal to $2.07 a share on the 2,645,864 shares
then outstanding. In the second quarter, ended March 1, last, net of $4,463,000, equal to $1.62 a share on 2,666,211 shares, was reported. It was’ pre
dicted that profits in the third quarter ended May 30 would run as high as
$6,000,000, but it now seems probable that net profits for the period will be
somewhere under $3,500,000, or around $1.20 a share, although official figures
are not available.
Various adjustments in connection with numerous recent acquisitions made
by Warner make it difficult to arrive at any accurate estimate of profits for
the period. Earnings for the first half of the fiscal year, however, have been
equal roughly to $3.69 a share, so that even after allowing for considerable
decline in profits during remainder of the year, final showing should be
around $5.50 a share.
Paramount-Publix reported an approximate net profit of $4,800,000 in the
fir s t Q u a rte r of 1930, equal to $1.79 a share on 2,685,313 shares, which com
pares with $2,565,000, or $1.16 a share, on 2,206,505 shares in the correspond-
STOCK EX C H A N G E PRACTICES
665
ing 1929 quarter. There is no indication yet as to earnings in the second
quarter, ending June 30, but a fair estimate would be around $3,500,000, or
about $1.20 a share on the 2,896,876 shares now outstanding.
In view of the increase in capital stock, due to the acquisition of Canadian
Famous Players and to finance other expansion, it is difficult to estimate pershare earnings for this year. It is probable, however, that Paramount will
earn more than $5 a share for the year if given a good last quarter.
PARAMOUNT FOREIGN EARNINGS SET RECORD
One factor that will add considerably to Paramount’s earnings this year is
the large revenues from foreign business, which have been running far ahead of
last year in spite of language difficulties in the non-English-speaking countries.
Film rentals from the British Empire have more than offset any loss in revenues
from France and Germany, making income from foreign sources in the first
half year the best on record. Indications are that this will be continued dur
ing the remainder of the year.
Loew’s reported a net profit for the 28 weeks ended March 14, amounting
to $8,243,584, equal to $5.70 a share on 1,372,108 shares of no-par common stock.
Loew’s fiscal year ends August 31. Thus the period so far reported repre
sents the most profitable part of the year. In the full year 1929, Loew’s
earned $11,756,956, equal to $7.91 a share on 1,363,993 shares of common. In
the first half of 1929, net profit was $5,251,958, equal to $3.49 a share, and in
the last six months of the year net profit was even large because of the sus
tained popularity of sound films last summer. It is not reasonable to predict
that profits this summer will bring those of the half year to the same level as
those of the first half of the year. It is likely, however, that net profit for the
year will be $13,000,000, or around $9 a share.
Loew’s is fortunate in having more successful films running at present than
some of its competitors, which will help keep profits at a high level during the
summer months.
POX M A Y EARN $4 A SHARE TH IS YEAR
Fox Film Co., which now controls Loew’s, reported a net profit of $4,604,684
in the first quarter, ended March 31, last, before interest and taxes, and in the
17 weeks ended April 26, net on the same basis was $5,722,000, indicating that
roughly $1,100,000 was earned in April. In other words, profits in the first
quarter were at the rate of $1,500,000 monthly, and declined somewhat in April.
A net profit of under $3,000,000, therefore, seems likely for the second
quarter. With the prevailing decline during the summer months, there is no
reason why Fox should report earnings this year substantially larger than in
1929. Net profit last year was stated to be $11,848,276. Assuming that Fox
is able to earn $14,000,000 in 1930, before deducting taxes and $3,300,000 interest
on the $55,000,000 debentures outstanding, the balance for the 2,520,660 shares
of common this year will not exceed $4 a share.
[Baron’s, August 4, 1930]
W
abner
B r o s . P ic t u r e s N o t E a r n in g D iv id e n d — N e x t Q u a r t e r l y D o l l a r
Paym ent
L ik e l y
to
B e M ade
P e n d in g F a l l
R e v iv a l — E x p a n s io n
is
Com pleted
Directors of the Warner Bros. Pictures (Inc.) meet for dividend action about
August 6, the meeting having been postponed for a week or so due to the
absence of President Harry Warner, who has been in Europe, and the inability
to obtain a quorum. In view of the fact that earnings in the last six months
of the fiscal year ending August 31, 1930, probably will not exceed $5,000,000 and
will be less than the dividend requirements on the 2,870,380 shares of common
for the period, doubt is cast on the continuance of the present $4 dividend rate.
The current let down is largely seasonal, however.
In six months ended March 1 net profit was $10,092,100, equal, after dividends
on the 247,343 shares of preferred then outstanding, to $3.67 a share on the
2,666,211 shares of common then outstanding. In the year ended August 31, 1929,
net profit was $14,514,628, equal to $5.23 a share on the 2,627,405 shares of
common. Including earnings of companies acquired during the year, Wamer
earned $17,271,805 in 1929.
666
STOCK EXCHANGE PBACTIOES
Assuming the Warner Bros. Pictures (Inc.) will earn about $15,000,000 in
the year ended August 31, 1930, net of about $5.50 a share is indicated on the
common which obviously does not cover the present $4 dividend by a very
wide margin. It is probable its p!ans have been somewhat upset by the rather
unexpected decline in moving-picture earnings this summer, and, consequently,
a reduction in rate to $3 or $3.50 might be prudent.
REGULAR DIVIDEND LIK E LY T H IS T IM E
However, as amusement profits are at a low ebb during June and July and
generally pick up in the fall, it is quite likely the board may defer any change
in dividend pending results of the fall quarter. Unless this anticipated increase
in profits materializes, a reduction in the dividend would seem advisable.
Warner Bros, the past two years has carried on a major expansion program
which has been completed. Total fixed assets increased to $110,870,822 August
31, 1929, from $5,009,177 August 31, 1928. On March 1, 1930, fixed assets
totaled $120,054,068, and by end of fiscal year the total probably will be over
$150,000,000. Increased profits from this investment should be shown next
y<Total funded debt August 31, 1929, was $70,023,622, and May 31, 1930, was
$76,957,460. This will be increased to about $100,000,000 by new acquisitions
by the end of the current fiscal year.
This expansion was considered expedient to give Warner an adequate posi
tion in the theater field, and full benefits of the system as an organized unit
have not yet been shown. A number of important economies can be made
in operating the various properties.
The most important result, however, is the substantial increase in Warner
film buying power, which should result in corresponding increase in buying of
Warner’s pictures by other producers. Warner, for example, probably will
sell its products to the Fox theaters next year, an outlet it did not have in
1929.
The Warner chain of theaters totals over 700, and the seating capacity is
sufficient to place the Warner system on a plane with the other large groups,
although it is not so large as Fox or Paramount.
Warner’s new film program is more ambitious than that of 1929, and the
new season has already started with Dawn Patrol, a flying picture weU re
ceived at its preliminary showings at the Winter Garden Theater in New York.
SOUND PICTURES AND EARNINGS
Recent fluctuations in quarterly earnings of moving-picture companies have
been more pronounced than usual, due to readjustment of the industry to sound
films. Moving-picture earnings are large in fall and winter and decline in
spring and summer. First three months of the year are normally the best, the
fourth quarter second best, followed by the third and second quarters. The
second quarter is normally the smallest, s.'nce June is one of the least profit
able months.
Due to division of Warner’s fiscal year, which ends August 31, under normal
conditions all the good months are concentrated in first six months of Warner’s
fiscal year from September 1 to March 1. The second half includes the spring
months April and May, which are normally fairly good; June and July, which
are poor; and August, which is again fair.
The third quarter, ended May 30, was expected to be good, but, due to a
combination of circumstances, profits were considerably below earlier estimates.
In view of the stable record of earnings which moving-picture companies, as
a whole, have had, the chances are that Warner profits in first part of its next
fiscal year will compare favorably with the 1930 first half.
There are 104,473 shares of Warner convertible preferred outstanding. This
preferred pays $2.20 annually and is convertible into 110,125 shares of com
mon. Dividends start to accrue at rate of $3.85 aimw»iiy September 1 1980
at which time the conversion privilege expires. In view of the small amount
of stock outstanding, the increase in dividends will make no substantial differ
ence in earnings available for the common. The stock is callable at 55, but
there seems to be no immediate advantage to the company in doing this.
STOCK EX CH A N GE PRACTICES
667
[Barron’s, August 11, 1930]
T h e C h a n g i n g M o vie P i c t u r e
HOT WEATHER TAKES TOLL OF THEATER ATTENDANCE— PARSING OF WARMER COMMON
DIVIDEND FIRST CASUALTY SINCE DEVELOPMENT OF TALKIES
Although the motion-picture companies were immune to the business depres
sion during the first quarter of this year, effects of the industrial let down
and unusually warm weather th:s summer are shown in current reports.
Earnings for the June quarter, while setting up new records for this period,
are well below the first three months. Increased income this year of the big .
units is, of course, partly accounted for by inclusion of earnings of theaters
acquired since June 30,1929.
The passing of Warner Bros. Pictures common dividend is the first casualty
in the amusement ranks since development of the talkies. Omission reflects
failure of earnings to keep pace with its rapid expansion. Share capitalization
has increased substantially. There are currently outstanding 2.968,050 shares
of common, which had been on a $4 annual basis, and 103,129 shares of $2.20
dividend preferred.
Net income for the six months ending August 31, closing half of its fiscal
year, is expected to be around $5,000,000. This would compare with $10,092,108
net for the first six months.
Paramount Publix net for the June quarter while 41 per cent ahead of the
same period of 1929, showed a decline of 25 per cent as compared with the
first three months of this year.
Radio-Keith-Orpheum June quarter net was $350,231, against $22,360 a year
ago. As compared with the March, 1930, quarter, however, a decline of 81 per
cent was shown. Net for the half year was $2,166,133, against $630,569 in 1929.
Coming report of Columbia Pictures Corporation for the year ended June 30,
1930, will show net of approximately $1,250,000, indicating earnings for the
Jane quarter of $517,000, or more than double the showing of the previous three
months.
While Fox and Loew’s have yet to report earnings covering the summer
months, it appears safe to assume that their showing will follow the general
trend of the industry.
DARK THEATERS
A recent survey of the theater situation showed that of the 16,000 listed as
regulars 5,000 were closed. This figure was said to be higher than for any
previous summer.
Despite the record breaking heat wave receipts of the first-rim theaters in
leading cities in recent weeks have been at a good rate. Earnings normally
turn upward during the third quarter. In an effort to stimulate theater at
tendance some of the big companies have advanced initial showing of 1930-31
films a month, or from September to August.
Throughout th e su m m e r U n iv e r s a l’ s All Quiet o n t h e Western Front h a s b e e n
a money maker. As a r e s u lt o f r e c e n t b o o k in g agreement with R-K-O this
film is b e in g s h o w n in th e la t t e r ’ s fir s t -r u n h o u s e s . R-K-O’s s h o w in g o f
Columbia film s has b e e n a d v a n t a g e o u s to b o t h c o m p a n ie s . First o f C o lu m b ia ’ s
1930-31 schedule, Rain o r Shine, w i l l b e s h o w n in R-K-O h o u s e s t h is m o n th .
First National Pictures, controlled by Warner Bros., has a box-office success
in The Dawn Patrol. Receipts from the first week’s showing in the New York
Winter Garden established a new record for that theater. In other centers the
film has gone over well.
Among other current box-office successes may be mentioned PathS’s Holiday
Which is being shown in the Publix theaters, and United Artist’s Raffles.
The day is past when practically all pictures are money makers for the sole
reason that they are talkies. Many future releases are based on stage successes
and best sellers, a type which producers feel will attract the theater-going
public.
STOCK E X C H A N G E PRACTICES
668
[Barron’s, August 25, 1930]
M
o v in g - P ic t u e e
A
ttendance
I m proves
REFLECTS COOLER W EATHER RECENTLY— GOOD ENTERTAINMENTS COMING
Rain and cooler weather have brought about a sharp recovery in attendance
at moving-picture theaters the past fortnight. Public interest apparently
reached its low during the recent hot weather, when many theaters operated
at a loss. The industry, however, now feels that the usual fall recovery is
under way and will be further stimulated by coming releases of new produc
tions. From present indications the remainder of the year should be normally
profitable.
Paramount Theater, in New York City, for example, featuring Anybody’s
Woman, had the largest Friday in its history August 15.
The importance of good pictures with real amusement value has been
demonstrated more strongly than ever the past few months. Producers admit
the principal cause for the slump was the generally poor average of showings
that remained to be released from last year’s output. Unemployment and the
hot summer accentuated the decline in box-office receipts. Good pictures almost
always draw their quota. This year it is probable that some producers held up
important new films since it seemed inadvisable to release them while the
extremely hot weather continued.
e a r n in g s
dropped
aw ay
on
r is in g
tem peratures
There are now about 400 theaters in the country with refrigerating systems,
mostly large houses in big cities. While these enjoyed their normal income
during the week despite the heat wave, week-end business in many city houses
fell off, and in smaller houses hot weather affected earnings even more
severely.
All the large producers exchange films for use in one another’s theaters,
so that the general quality of pictures affects the industry as a whole. It
was necessary to do a certain amount of experimenting to determine public
taste in sound films once the novelty of sound in itself wore off. It has been
found that too many of the musical-comedy type of picture depending on
spectacle, color, and singing for appeal, are unprofitable, and attention will
be given the coming season to good plots, interesting dialogue, and. popular
stars.
Paramount is releasing Follow Through and the Four Marx Brothers in
Animal Crackers. Loew’s is doing well with several Marie Dressier films,
including Caught Short, while Miss Dressier will also appear with Norma
Shearer in Let us Be Gay. Loew’s Big House, a prison picture, also has
been popular.
Fox is starting the season with Common Clay, which has been held over
for a third week at Roxy Theater and is showing attendance gains each week.
Warner Bros., after a disappointing summer, is shortly to release Old
English, starring George Arliss, and Moby Dick, with John Barrymore in the
lead. Dawn Patrol, the new flying picture, has attracted substantial patronage
at the Winter Garden.
no
a p p r e c ia b l e
effect
on
year
as
a
w hole
While slack attendance during hot weather made a difference of $100,000 or
$200,000 a week to some large theater chains, it is unlikely to have any appre
ciable effect on results of the year as a whole to Paramount, Loew’s, or Fox.
Warner Bros., due to a combination of circumstances, will show a deficit in the
quarter ending August 31.
Paramount Publix reported estimated net, after all charges in first six
months, of $8,434,000, equal to $2.98 a share on 2,832,277 average number of
shares outstanding. This compared with $5,130,000, or $2.31 on 2,224,683 average
shares in like 1929 period. On this basis, Paramount should earn close to $6
on its average shares for this year, and over $5 on 3,256,479 shares now out
standing.
Loew’s (Inc.) reported net of $8,243,584 before subsidiary preferred dividends
for 28 weeks ended March 14, against $5,251,958 in 28 weeks ended March
10, 1929. While this represents the most profitable portion of the year Loew’s
STOCK E X CH A N G E PRACTICES
669
has had an unusually good list of pictures this summer and thus should be
able to show close to $10 a share for the year ending August 31.
Fox Film reported net, after all charges in first six months, of $7,175,415,
equal to $2.84 a share on 2,525,660 shares, against $5,137,075 or $2.03 a share
on present capital in first half of 1929. August business has been ahead of a
year ago.
Warner Bros, earned approximately $11,750,000 in first nine months of its
fiscal year, but operations this quarter will result in a loss, so that net for
the year ending August 31 will probably be slightly less than $4 a share on
2,823,796 shares of common now outstanding, against $14,514,628, or $5.23 a
share on 2,627,405 shares last year.
[Barron’s, October 27, 1930]
WABNEB HBOS. PICTURES
The December 1 dividend on Warner Bros. Pictures (Inc.) preferred stock
will be at an annual rate of $3.85 a share. Under the stock provisions the
shares, which have been on a $2.20 annual basis, were convertible into common
up to and including September 1,1930. Increase in the dividend will compensate
for the expiration of the conversion privilege.
There were originally 785,605 shares authorized and listed on the New York
Stock Exchange in December, 1928. At present there are but 103,107 shares
listed.
[The Financial World, April 23, 1930]
W a b n e b B r o s .— B
Company has completed one month of the third quarter of its fiscal year and
from advance bookings it is probable that it will make a new high record for
any three months’ period in the history of company. Profits in the current
quarter ending May 30, 1930, will probably approximate $6,000,000, equal to
about $2.17 a share on 2,725,000 common shares.
[Financial World, August 6, 1930]
W
abneb
B
b o s .—
B
Postponement of dividend meeting lias caused unsettlement regarding what
action will be taken on the payment due at this time. In view of the fact that
earnings for the last half of the current fiscal year to end August 31,1930, may
not exceed $5,000,000, which amount would be insufficient to cover dividends
on the 2,870,000 shares of common stock, it is not surprising that apprehension
has been aroused as to whether or not the company will continue to pay the
present $4 annual dividend rate. Lower earnings are attributed to seas0na*
conditions, although it is understood that some of the latest talking picture
productions may not have proven as profitable as the successes of last year.
It is becoming more clearly evident that the public can no longer be attracted
by the novelty of the “ talkie ” and that future productions in order to be profit
able must possess greater appeal.
[The Financial World, August 20, 1930]
W ab n e b B ros .— C
O m is s io n of dividends has been followed by reports of impending n e w financ
ing w h i c h i s expected to take the form of an offering of additional class A
stock t o present shareholders with 1,000,000 shares at a price of $2 2 a share
mentioned. Concurrent with these reports is one that control of the cotflP^ J
has passed from the Warners to Du Pont-Raskob interests. T h e latter is known
to own substantial amounts of the company’s stock.
670
STOCK EXCHANGE PRACTICES
The C h airm an . I may state that I have a copy of an article which
appeared in the Washington Post of January 27,1932, giving a part
of the speech that Mr. Harry M. Warner made here on the occasion
of the annual meeting, and in which he implores the public to think
kindly of business and not ill. I ask that that be made a part o f our
record. I f there is no objection it is so ordered.
A story covering Mr. Warner’s appearance on this occasion is
carried in the columns o f the Washington Post of January 27, 1932,
page 20, column 1. The references to Mr. Warner are as follows:
* * * An address was made by Harry M. Warner, president of Warner
Bros. (Inc.), the contributors of the motion picture (Washington—The Man
and the Capitol).
Mr. Warner made an appeal for stronger faith in the moving-picture indus
try, asking for less criticism and the cultivation of a habit of looking for the
good in the business rather than the bad. He predicted that the moving pic
tures will act as a powerful medium in bringing about world peace through
the ultimate establishment of a universal language.
In regard to the bicentennial picture, he said that he has personally guar
anteed any losses that the picture may sustain so as to protect the stockholders.
Mr. G ray . In order that the committee may see the connection
between some matters that have been offered here and the connection
of certain other matters which will be offered before the committee,
with reference to the stock exchange itself and the rules of the ex
change, I want now to put upon the record certain abstracts from
the constitution and from the rules of the exchange.
Article 17 of the constitution, section 4, provides as follows:
Purchases or sales of securities or offers to purchase or sell securities, made
for the purpose of upsetting the equilibrium of the market and bringing about
a condition of demoralization in which prices will not fairly reflect market
values, are forbidden, and any member who makes or assists in making any
such purchases or sales or offers to purchase or sell with knowledge of the
purpose thereof, or who, with such knowledge, shall be a party to or assist in
carrying out any plan or scheme for the making of such purchases or sales or
offers to purchase or sell, shall be deemed to be guilty of an act inconsistent
with just and equitable principles of trade.
Article 20 o f the constitution, section 6, provides as follow s:
A member of the exchange who is a general partner in a firm represented
thereon is liable to the same discipline and penalties for any act or omission of
said firm, as for his own pergonal act or omission; but the governing com
mittee may in its discretion, by a vote of not less than thirty members, relieve
him from the penalty therefor.
I present that because of the fact that some members o f firms, and
the different brokerage houses, which firms are members o f the stock
exchange, may not in themselves be floor members or have a seat on
the exchange, but the man who is a member o f the exchange and
holds a seat is responsible under that section o f the constitution for
the acts of the other members of the firm, and therefore is, o f course,
within the control of the stock exchange.
The rules of the stock exchange, chapter 8, section 1, provide as
follows (these exceptions being unusual situations where it may be
necessary to do that very th in g):
No member shall publish an advertisement of other than a strictly legitimate
business character.
The Tules of the stock exchange, chapter 11, sections 1 and 2
provide as follows:
STOCK EXCHANGE PRACTICES
671
No member, while acting as a broker, whether as a specialist or otherwise,
shall buy or sell directly or indirectly for his own account or that of a partner,
or for any account in which either he or a partner has a direct or indirect
interest, securities the order for the sale or purchase of which has been
accepted by him or his firm or a partner for execution, except as follows:
(Exception (a).) A member who, by reason of his neglect to execute an
order, is compelled to take or supply on his own account the securities named
in the order, is not acting as a broker, and shall not charge a commission.
(Exception (&).) A member may take or supply the securities named in
the order provided the price is justified by the condition of the market and
provided that the member who gave the order shall directly, or through a
broker authorized to act for him, after prompt notification, accept the trade
and report it.
(Exception (c).) A member, acting as a broker, is permitted to report to
his principal a transaction as made with himself when he has orders from
two principals to buy and to sell and not to give up, such orders being executed
in accordance with section 13 of chapter 1, in which case he must add to his
name on the report the words “ on order.”
When a member either takes the book of a specialist temporarily or an order
from another member, he shall, while he is in possession of that book or
order and for the balance of that particular day, stand in the same relationship
to the book or order as the specialist or other member himself.
The rules of the stock exchange, chapter 12, section 9, provide as
follows:
No member or firm shall give to an employee on the floor of the exchange
discretion to give orders for the purchase or sale of securities, nor shall any
such employee exercise such discretion.
The rules of the stock exchange, chapter 14, section 3, provide as
follows:
The direct or indirect employment of representatives of the press by a
member, for the purpose of obtaining advance or confidential information, is
forbidden.
The rules of the stock exchange, chapter 14, section 4, provide as
follows:
The circulation in any manner of rumors of a sensational character by a
member, in any case where such act does not constitute fraud or conduct
inconsistent with just and equitable principles of trade, is an act detrimental
to the interest or welfare of the exchange.
Members shall report to the secretary of the exchange any information
which comes to their notice as to the circulation of such rumors.
Senator F letcher . Mr. Gray, I presume the by-laws fix the number
of members of the governing committee ?
Mr. G bat. The constitution establishes that, and if you would
like to have it put on the record, I will be very glad to do it.
Senator F letcher . I wish you would.
Mr. G r a y . Article 2 of the constitution of the New York Stock
Exchange provides:
The government of the exchange shall be vested in a governing committee,
composed of the president and the treasurer of the exchange, and of 40 mem
bers elected in the manner hereinafter provided.
The members of the governing committee, the assistant to the president,
the secretary, the first assistant secretary, the accountant, and the economist
shall be the officers of the exchange.
Now, with respect to the matter of election, article 3, section 1,
provides:
The e l e c t e d members of the governing committee shall be divided into four
classes, each consisting of 10 members, one of which classes shall be elected
each year, to serve four years.
672
STOCK EXCHANGE PRACTICES
Then on the subject of powers, section 2 of that same article
provides:
The governing committee shall be vested with all powers necessary for the
government of the exchange, the regulation of the business conduct of its
members, and the promotion of its welfare, objects, and purposes.
Now, with respect to the business conduct committee, article 10,
under the fourth subdivision, provides, this article relating to stand
ing committees:
A committee on business conduct to consist of six members.
It shall be the duty of this committee to consider matters relating to the
business conduct and financial condition of members and their customers* ac
counts, and to observe the course of transactions on the exchange, with the
view to seeing whether resort is being had to improper transactions.
It shall have power to investigate the dealings, transactions, and financial
condition of members, and to examine their books and papers. It may confer
with members regarding any matter within its jurisdiction and advise the
president in respect to any such matters; and it shall report to the gov
erning committee any matter which in its judgment requires the consideration
of that committee.
That gives you the set-up with respect to the control o f the affairs
o f the various brokerage houses that are members of the New York
Stock Exchange.
The C h a i r m a n . All right. You may proceed with your testi
mony.
Mr. G ray . Mr. lio n .
The C h a i r m a n . Y ou will stand, hold up your right hand, and
be sworn: You do solemnlv swear that you will tell the truth, the
whole truth, and nothing but the truth, regarding the matter now
under investigation by me committee, so help you God.
Mr. L i o n . Yes.
TESTIMONY OF DAVID M. LION, OP HEW YOBK CITY
Mr. G ray . So that the committee may understand the matter
which I am now going to present, permit me to say that I am go
ing to show by Mr. Lion himself that he is a publicity man, and
he was acting for numerous brokerYork, that he furnished through
various journals, including radio speeches, publicity for certain
stocks, pools which were then being operated by the brokerage
houses, he being paid for such by cash and by being given calls on
the particular stocks in question, at prices that he could sell them
to his advantage, the brokerage house of course giving him credit
for same in an account which he carried and settling with him the
same as they would settle with any other person who had actually
bought and sold, he not being required to put up any cash at all.
Now, Mr. Lion, please give us your full name.
Mr. L io n . David M. L io n .
Mr. G r a y . Where do you live!
Mr. L i o n . New York City.
Mr. G r a y . Whereabouts in New York City?
Mr. L io n . 221 West Thirty-second Street.
Mr. G r a y . What is your business?
Mr. L io n . Financial publicity.
Mr. G r a y . H o w lo n g h ave y o u been en g a g ed in th a t b u sin ess?
STOCK E X CH A N GE PRACTICES
673
Mr. L ion . Five years or more.
Mr. G r a y . Prior to engaging in that business and for the past
five years have you at any time conducted a paper of your own!
Mr. L ion . Yes.
Mr. G ray . What was the name of that paper ?
Mr. L ion . The Stock and Bond Reporter.
Mr. G ray . Did you say the Stock and Bond Reporter?
Mr. L ion . Yes, sir.
Mr. G ray . During what period of time did you conduct that
paper ?
Mr. L io n . I published the Stock and Bond Reporter for about
seven years.
Mr. G r a y . I s it still being published ?
Mr.
Mr.
Mr.
Mr.
Mr.
L ion . N o.
G ray . When did it cease publication?
L ion . In ’28.
G ray . Do you mean in 1928 ?
L ion . Yes.
Senator C o u z e n s . Might I ask the witness to speak louder. We
do not hear him down here at this end of the table.
Mr. L io n . All right.
Senator F l e t c h e r . What time in 1928?
Mr. L io n . To the best of my recollection it was about June of
1928.
Mr. G r a y . When you say you are a publicity man, won’t you ex
plain to the committee what the work is that you do?
Mr. L io n . Well, I receive said calls on various stocks, and reports
that I had from companies at various times that are received
through the research and financial manuals, and I would have an
editor to present the facts.
Mr. G ray . You started to tell me when I asked you what your
publicity work consisted of as to really how you were paid. I want
to know, first of all, if you please, what it was you were to do and
by whom you were employed to do those things.
Mr. L io n . Well, I was given calls by a great many operators, if
you consider that employment. Some of the calls were profitable
and some were not.
Senator C o u z e n s . What do you mean by “ calls ” ?
Mr. L io n . Calls on stocks.
Senator C o u z e n s . Explain that to us. I am a novice and would
like to know what you mean by calls. Was it from brokers?
The C h a ir m a n . D o you mean options to buy ?
M r. L io n . No; calls.
The C h a ir m a n . Then go ahead and explain it for Senator
Couzens.
Mr. L io n . For instance, if you operate a pool, evidently you have
either bought stock or had an option on stock, and if you had a
surplus in your pool that you wanted to give a call on, you would
give a call around the market, and then if the stock went up it
was profitable, and if it did not, I assumed the loss.
Mr. G ray . Now, Mr. Lion-----S e n a t o r C o u z e n s (interposing). I do not understand that yet.
Mr. G ray . I will clarify it. I will say, Senator Couzens, I would
rather it would come in his own language rather than mine if I can
674
STOCK E X C H A N G E PRACTICES
get him to tell it clearly in that way. Now, Mr. Lion, what actually
happened in those cases was this, was it not: That when some broker
or operator on the exchange was interested in the management o f a
pool through which he anticipated trading in certain stocks, and
being desirous of boosting the prices of those stocks, he would send
for you and indicate to you that he wanted publicity on a particular
stock or stocks, and in payment for that publicity he would give you
what?
Mr. L i o n . A call.
Mr. G r a y . And that call meant that he would put, say, 25,000
shares of the stock in your name, for you, and for you to call upon
if you choose to do so at any time, thus giving you an opportunity
when that stock was closed up at a certain price, to sell that stock,
either all of it or a portion of it, if the market went up, and make
the difference in cash. That is the situation, isn’t it?
Mr. L i o n . Well, that would be true referring to some calls, and
then there were calls that were given that I didn’t have to do any
thing with.
Mr. G r a y . What do you mean by saying you did not have to do
anything with them?
Mr. L i o n . Well, as far as the publicity you are asking me about.
Mr. G r a y . D o you mean that some operators or brokers for whom
you had acted on other occasions, would from time to time give
you a little interest in the pool they were operating by giving you
a call ?
Mr. L i o n . I don’t know if there was any pool.
M r . G r a y . Y o u s a y y o u d o n ’t k n o w ?
Mr. L i o n . I don’t know in that particular
Mr. G r a y . You do not?
case that it was a pool.
Mr. L i o n . I have had several calls that I don’t think were pools.
For instance, if you had 50,000 shares of radio and you wanted to
ive me a 10,000-share option on it, it does not necessarily have to
e a pool.
Senator G l a s s . Then why give you 10,000 shares ?
Mr. L i o n . Why give it to me ?
Senator G l a s s . Yes.
Mr. L i o n . Why does anybody give anything ?
Senator G l a s s . Well, sometimes people give for charitable
purposes.
Mr. L i o n . Well, it might have been given to me as charity. There
have been times when I needed it.
Senator G l a s s . Well, did you need it then?
Mr. L i o n . I have needed it lots of times in my life.
f
Sen ator G l a s s . D o you m ean to say th a t those stock o p era to rs
g av e y o u th at stock as a m atter o f ch arity ?
Mr. L i o n . Sometimes.
Senator G l a s s . When it was done in expectation of service?
Mr. L i o n . Well, I don’t say exactly it was a matter of charity.
I was not sitting there with a tin cup in my hand. But I have had
calls already where I didn’t have to do anything for the pool.
Senator C o u z e n s . Tell us just what you had to do in one case
where you did have to do anything.
Mr. L i o n . The most of my work I got calls on I did publicity for
them.
STOCK EX CH A N GE PRACTICES
675
Senator C o u z e n s . Tell us how you went about giving publicity.
Now, how did you go about it?
Mr. L i o n . H o w did I go about publicity work?
Senator C o u z e n s . H o w did you go about giving publicity?
Mr. L i o n . Well, I would canvas the various pool operators to get
work for them.
Senator C o u z e n s . That does not explain how you gave the pub
licity.
Mr. L i o n . I am coming to it now.
Senator C o u z e n s . All right. Go ahead.
Mr. L i o n . And if I could get an option or a call on some stock
I would use my publication, and I would use the radio, and I would
use newspapers, printing facts that were taken out of various finan
cial manuals.
Senator C o u z e n s . Did you pay for this radio and newspaper pub
lic’ ' 11
Senator F l e t c h e r . Your function and work really were to do what
they call make a market, was it?
Mr. L i o n . N o , s ir . I n e v e r m a d e a n y m a r k e ts .
Senator F l e t c h e r . Y ou never made any markets?
Mr. L i o n . N o , sir.
Senator F l e t c h e r . Did you ever hear that expression on the
exchange?
Mr. L i o n . Making a market?
Senator F l e t c h e r . Yes.
Mr. L i o n . The market is made every day.
Mr. G r a y . The making of a market, Mr. Lion, is done by the oper
ators themselves, in the buying and selling of stock. That is right,
isn’t it ?
Mr. L i o n . Yes.
Mr. G r a y . What Senator Fletcher refers to very likely is the aid
that you gave to those men that were making the market by keeping
the particular stock in which they were operating before the public
through newspaper articles, through your own articles, or the radio
talks. That is true, isn’t it?
Mr. L i o n . Well, I imagine it got b y , it helped the market.
Mr. G r a y . In other words, what you did, for the purpose of aiding
the value of the stock in which you had your call, it being to the
interest of both yourself and the pool operator or specialist or trader,
or whoever he may have been, that the stock should go up, and your
articles were always published for the purpose of interesting the
public in that stock, convincing them, if possible, that it was a stock
that had a future and would rise in value.
Mr. L i o n . That is correct.
Mr. G r a y . Let me ask you about your radio talks. When did you
begin to use radio talks for the purpose of disseminating infor
mation ?
M r. L
io n .
T
o
th e b e s t o f m y r e c o ll e c t io n , it w a s in th e s p r i n g o f
1927.
Mr. G r a y . Did you say the spring of 1927 ?
Mr. L i o n . Let me correct that. The spring of 1928.
Mr. G r a y . How long did you continue the use of the radio for the
purpose of disseminating information about stocks?
676
STOCK EXCHANGE PRACTICES
Mr. L i o n . I used it all of 1929.
Mr. G r a y . Up to the end of 1929 ?
Mr. L io n . Yes, sir.
_
.
Mr. G r a y . Now, you did not do your own radio talking, did you*
Mr. L io n . No, sir.
Mr. G r a y . What was the name of the man you employed, to do
your radio talking?
Mr. L i o n . I employed William J. McMahon.
Mr. G r a y . Was it spelled M-c-M-a-h-o-n ?
Mr. L i o n . Yes, sir.
Mr. G r a y . Who is he?
Mr. L i o n . He was an economist.
Mr. G r a y . Well, he conducted an organization in New York City
of his own, did he not?
Mr. L i o n . Prior to being employed by me; yes, sir.
Mr. G r a y . What was the name of that organization?
Mr. L i o n . The New York Financial Research Bureau.
Mr. G r a y . And McMahon was the New York Financial Research
Bureau. It was a purely business enterprise, wasn’t it, of his own?
Mr. L i o n . I th in k so.
Mr. G r a y . And when Mr. McMahon—By the way, where did. he
talk from, New York always?
Mr. L io n . Yes. H e never talked anywhere outside of New York.
Mr. G r a y . H o w frequently did you use him?
Mr. L i o n . Every week.
Mr. G r a y . How was he introduced over the radio?
Mr. L i o n . He was introduced as the president of the McMahon
Institute o f Financial Research.
Mr. G r a y . Which was ju st Mr. McMahon.
Mr. L i o n . He was the president of that institute.
Mr. G r a y . He was the president and the whole institute, w a sn ’t h e ?
Mr. L io n . The president of the whole institute?
Mr. G r a y . Yes; he was the president and the whole institute.
There is no question about that, is there, Lion?
Mr. L i o n . That is not clear to me, Mr. Gray.
Mr. G r a y . I mean to say that there wasn’t any institution known
as the McMahon Institute of Financial Research. It was only a
name. That is all that it was, wasn’t it?
Mr. L i o n . It was incorporated.
Mr. G r a y . You say it was incorporated?
Mr. L i o n . Yes, sir.
Mr. G r a y . Did it do anything outside of the radio talks?
M r . L i o n . Did it do anything?
Mr. G r a y . Yes; outside of the radio talks?
Mr. L i o n . Well, Mr. McMahon’s articles were published in news
papers.
Mr. G r a y . Newspapers and radio?
Mr. L i o n . Yes.
Mr. G r a y . He was introduced as an economist of some note I
suppose, when he talked over the radio, wasn’t he?
’
Mr. L i o n . He was introduced as an economist. I don’t know
about the note.
Mr. G r a y . Each of his talks was devoted to a particular stock
wasn’t it?
*
STOCK EX C H A N G E PRACTICES
677
Mr. L i o n . N o .
Mr. G r a y . Sometimes only one stock?
Mr. L i o n . Yes, sir.
Mr. G r a y . Whether to one or more stocks it was a stock or stocks
in which you had a call at the particular time or in which you were
interested?
Mr. L i o n . Well, he talked at times on general market conditions
without mentioning any stocks.
Mr. G r a y . But when he ended up his talk as a usual thing he
referred to a particular stock and boosted it. That is true, isn’t it?
Mr. L i o n . Yes, sir.
Mr. G r a y . And he was a salaried man on your staff for that pur
pose, wasn’t he?
Mr. L i o n . Yes, sir.
Mr. G r a y . How much did you pay him?
Mr. L i o n . I paid him as high as $250 a week.
Mr. G r a y . Did you say $250 a week?
Mr. L i o n . Yes, sir.
Mr. G r a y . H o w l o n g d i d h e t a l k ? W a s i t a 1 5 -m in u t e t a l k ?
Mr. L i o n . Yes; he rarely talked longer than 15 minutes.
Mr. G r a y . H o w else d i d y o u d is s e m in a t e y o u r i n f o r m a t i o n ?
Mr. L i o n . Just what do you mean by that, Mr. Gray ?
Mr. G r a y . Well, now, you engaged in publicity work. You have
told us that you had a paper of your own which you used, and that
you had McMahon from 1928 to the end of 1929 talking over the
radio. What other methods of publicity did you employ ?
Mr. L i q n . I employed newspapers.
Mr. G r a y . You mean writers, I suppose?
M r . L i o n . I don’t know what they were. I would give them a
copy of an article and sometimes it was in the paper and sometimes
it wasn’t.
Senator C otjzens . Did you give them anything else besides an
article ?
Mr. L i o n . Yes.
Senator C o u z e n s . What did you give them besides an article?
Mr. L i o n . Sometimes I gave them calls.
S e n a to r C ou zen s. Y
ou
m e a n b y t h a t o p t io n s o n c e r t a in s t o c k s ?
Mr. L i o n . Yes.
Senator C o u z e n s . Did you give them any cash ?
Mr. L i o n . Sometimes.
S e n a t o r C o u z e n s . B u t it d e p e n d e d u p o n w h o t h e w r it e r w a s o r
th e p u b l i c a t i o n th a t h e w a s e m p lo y e d b y ? Was t h a t h o w y o u r e g u
la t e d t h e a m o u n t y o u g a v e h im ?
Mr. L i o n . Yes, sir.
Mr. G r a y . So that the committee may understand the extent of
your work, Mr. Lion, how many such operations would you have on
hand at one particular time?
Mr. L i o n . I had over 30 at one time.
Mr. G r a y . Over 30 at one time ?
Mr. L i o n . Yes, sir.
M r . G r a y . And by whom would you be employed?
Mr. L i o n . Pool operators.
M r. G r a y . Y
ou
w o u ld b e e m p lo y e d b y p o o l o p e r a to rs ?
Mr.* L i o n . Yes, sir.
119852—32—pt 2------20
678
STOCK EXCHANGE PRACTICES
Mr. G r a y . Also by individual traders?
Mr. L io n . Yes.
Mr. G r a y . And also by pool operators who were members o f
brokerage firms and were operating pools for their own houses at
the time; isn’t that correct?
Mr. L i o n . Yes, sir.
Mr. G r a y . Who were the operators that you worked for?
Mr. L io n . I worked for Mr. Cutten.
Mr. G r a y . What Mr. Cutten?
Mr. L io n . Ruloff Cutten.
Mr. Gray. He is with E. F. Hutton & Co. ?
Mr. L io n . Yes.
M r . G r a y . Who else?
Mr. L i o n . I worked for Mr. Breen.
Mr. G r a y . For George F. Breen, do you mean?
Mr. L i o n . Yes, sir.
Mr. G r a y . I s he an independent operator?
Mr. L i o n . Yes, sir.
Mr. G r a y . By the way, George F. Breen, who operated in Kolster
Radio stock, and whom the committee will remember testified here,
and he testified that he gave nothing for the publicity o f his opera
tions. You worked for him, Mr. Lion, didn’t you?
Mr. L i o n . Yes, sir.
Mr. G r a y . You gave him publicity when he was operating the
Kolster Radio pool—yes, I will say it was a pool; for there were three
or four people in it.
Mr. L io n . I don’t know just the w a y that option came. I d o n ’t
know whether from Mr. Breen or Mr. Cutten.
Mr. G r a y . Well, it was during the time that Breen was operating
in Kolster Radio, was it not?
Mr. L io n . Yes.
Mr. G r a y . And Mr. Breen dealt through E. F. Hutton & Co.,
didn’t he?
Mr. L io n . I don’t know where Mr. Breen dealt.
Mr. G r a y . All right. Well, somebody gave you for publicity pur
poses while Breen was operating his Kolster Radio pool a call on
some of that stock, didn’t he?
Mr. L i o n . Yes, sir.
M r. G ray. H
ow
m uch stock?
Mr. L i o n . Fifteen thousand shares.
Mr. G r a y . Fifteen thousand shares. Did you exercise your call?
Mr. L i o n . T o my recollection I exercised 12,000 shares.
Mr. G r a y . What?
M r . L io n . T o m y recollection I exercised 12,000 shares.
Mr. G r a y . Twelve thousand shares. Now that call was through
E. F. Hutton & Co., was it not? And when I say “ through,” I mean
by that it was lodged with them—and I will explain that in just a
moment—was it not?
Mr. L io n . It was not a written call. I f I got that call either from
Mr. Cutten or Mr. Breen the margin office would have been—or the
trading office, rather, would have been instructed that I had a call
on that much stock and I could trade on it. That is. not particularly
in E. F. Hutton.
J
Mr. G r a y . Anyone?
STOCK EX C H A N G E PRACTICES
679
Mr. L i o n . Anyone.
Mr. G r a y . But the call was lodged in E. F. Hutton & Co. ?
Mr. L i o n . That is correct, sir.
Mr. G r a y . That is to say, the trading department of E. F. Hutton
& Co. was told that you had there a credit that you could call upon
of 15,000 shares of Kolster Radio. Now that permitted you to go
into any brokerage house in the city of New York and sell any
portion of that stock when you were ready to do so, that is right,
is it not ?
Mr. L i o n . No; that is not true, Mr. Gray.
Mr. G r a y . Why not ?
Mr. L i o n . Because any brokerage house in New York City would
not let me trade on a verbal call.
Mr. G r a y . Well, they would confirm it from E. F. Hutton & Co.,
wouldn’t they ?
Mr. L i o n . Well, they would ask for a written call to protect them
selves.
Mr. G r a y . You did a lot of your trading at Louchheim, Minton
& Co., didn’t you ?
Mr. L i o n . Yes.
Mr. G r a y . And what you did in this particular instance was to
go in to Louchheim, Minton & Co. and sell Kolster Radio stock,
and they would confirm the call from E. F. Hutton & Co., isn’t that
true?
Mr. L i o n . That is true.
Mr. G r a y . And so that we may have the dates on the record, it
was in the month of November, 1928, that you exercised that call,
isn’t that correct ?
Mr. L i o n . Well, I don’t remember the date, Mr. Gray. I had
lots of calls. I can’t remember the dates for a period of four odd
years. You ought to know the dates. You have got the accounts
from those houses.
Mr. G r a y . Yes. You will accept my statement that that date was
in November of 1928, will you not ?
Mr. L i o n . May I see it? Well, in 1928, Mr. Gray, I did quite some
trading in Louchheim, Minton & Co. I imagine that that particular
trade that you speak of was there.
Mr. G r a y . I show you your account with Louchheim, Minton &
Co. I direct your attention to the entries with respect to Kolster
Radio, and ask you whether or not it was not on the 13th, 15th, and
16th, and 19th of November, 1928, that you exercised those options?
Mr. L i o n . It must be. This is a duplicate of the accounts from
Louchheim, Minton & Co.
Mr. G r a y . Yes. Those dates fit in with the operations in Kolster
Radio by Breen. What did you make out of that deal? Do you
recaH^
Mr. L i o n . Oh, I would say $40,000.
Mr. G r a y . You would say $40,000. Now, you put up no money?
Mr. L i o n . N o .
*
Mr. G r a y . And you got all of that for the publicity that you fur
nished for that pool?
Mr. L i o n . Well, the publicity cost money. I put no money up
for the option. Is that figure correct now, Mr. Gray ?
Mr. G r a y . A s to your operations ?
680
STOCK EXCHANGE PRACTICES
Mr. L i o n . Yes.
Mr. G r a y . I can only say to you—you asked me the question—
that from such confirmations as we have been able to get—and I do
not know whether we have got them all or not—we show a profit of
at least $26,414.87. I think your figure of $40,000 is probably more
nearly accurate. By the way, suppose you tell this committee how
much stock did you trade in through calls during the years 1928 and
1929 and, we will say, 1930, in the way that you have just described
the operation in these 15,000 shares? Give it to me either in shares
if you can or give it to me in dollars and cents.
Mr. Lion. Well, that would be a very difficult question for me to
answer, Mr. Gray.
Mr. G r a y . Well, you have already told me, have you not, that
you received calls in upwards o f $6,000,000 worth o f stock during
that time?
.
M r . L i o n . Y o u m ean b y th a t th a t th e purchase price o f th e stock s
w o u l d am ount to $ 6 ,000,000?
Mr. G r a y . Yes.
Mr. L io n . I imagine that is correct.
Mr. G r a y . Is it not probably very much greater than that!
Mr. L i o n . I do not tnink so.
Mr. G r a y . What was your profit from the calls themselves during
those three years?
Mr. L io n . N o w , do you mean my individual profit or what I made
off these calls.
Mr. G r a y . Well, suppose you tell us both. Tell us first o f all, if
you please, what you made from these calls, leaving aside the ex
penditures that you were put to for radio and other things. What
were your gross receipts from these calls?
M r . L i o n . In the whole time that I have done publicity?
Mr. G r a y . Well, take those two or three years, or take the years
of 1928 and 1929, which were were the two active years. Well, and
up into 1930, too.
Mr. L i o n . I would say my personal profit was a half a million
dollars.
M r . G r a y . Y ou m ean a fte r ta k in g y o u r expenses o ff?
Mr. L i o n . No; just profit.
M r . G r a y . L io n , didn ’t you te ll m e th e oth er d a y th a t y o u m a d e
betw een a m illio n and tw o m illio n d o lla rs?
Mr. L i o n . I said—I did not say that I made $2,000,000, Mr. Gray.
Mr. G r a y . I did not say that. Didn’t you tell me that your per
sonal profit from these calls was between a million dollars and
$2,000,000?
Mr. L i o n . Yes; but there were expenses there that I couldn’t call
my profits.
Mir. G r a y . All right. Then your half million dollars w a s your
net?
M r . L io n . T h a t w ou ld be m o re accurate.
Mr. G r a y . That would be your net. All right.
I suppose?
Mr. L io n . Yes; I kept books.
Mr. G r a y . Of account?
Mr. L io n . Pardon?
You kept no books
’
STOCK EXC H A N G E PRACTICES
681
Mr. G r a y . Books of account showing these transactions, how much
you got, and how much you spent?
Mr. L io n . Yes.
Mr. G r a y . Where are they ?
Mr. L io n . These various firms, I kept books on them, naturally.
Accounts.
Mr. G r a y . Kept your own books, do you mean?
Mr. L io n . Yes.
Mr. G r a y . Where are they?
Mr. L io n . Well, when I went out of business some of them were
destroyed.
M r . G r a y . Have you got any now ?
Mr. L i o n . I have some in some warehouses.
M r . G r a y . D o you have a n y th in g m ore th a n som e o f the th in gs
that y o u produced to m e ?
Mr. L i o n . Just what do you mean by that?
Mr. G r a y . You produced certain papers to me. Have you any
other accounts than those ?
M r . L i o n . N o.
Mr. G r a y . Well,
now, tell me some of the other pools you operated
in. Were you in Sinclair Consolidated?
Senator C o u ze n s . Before you get into that may I ask Mr. Lion-----Mr. G r a y . Certainly, Senator Couzens.
Senator C o u ze n s (continuing). I f the income-tax officials checked
your books to verify your income-tax returns?
Mr. L i o n . They honeycombed, them, Senator.
Senator C o u z e n s . That is g oo d .
Senator F l etc h er , What other concerns?
Mr. G r a y . I have got plenty of them here, Senator. I am not
going to take you over the details of each one of those pools as I did
KoMer. But we want to know first: You were in Sinclair Consoli
dated, were you not ?
Mr. L i o n . Yes.
Mr. G r a y . Where did you get that call ?
Mr. L i o n . From Mr. Cutten.
Mr. G r a y . That is the same Mr. Cutten that you spoke about
before. Where did you do your trading? Through what firm?
Mr. L i o n . E. F. Hutton & Co.
Mr. G r a y . That was an operation of a pool, was it not?
Mr. L i o n . Yes.
M r . G r a y . Quite a big pool, was it not?
Mr. L i o n . I imagine it was.
Mr. G r a y . And Mr. Cutten was operating th a t pool, w a s h e n o t?
Mr. L i o n . I don’t know that he was operating it. I imagine there
were several operators in it, Mr. Gray.
Mr. G r a y . As a matter of fact, the active control of the pool itself,
that is to say, the actual management, was Ruloff Cutten, while the
n o m i n a l manager of the pool was Arthur W. Cutten, or Chicago;
wasn’t that true?
Mr. L i o n . I don’t know that.
M r . G r a y . Y ou don’t know that. Now, in that case did you give
them the same kind of publicity that you did Breen and Kolsterf
Mr. L i o n . Yes.
682
STOCK EXCHANGE PRACTICES
M r . G r a y . H o w m u ch d id y ou m ake o ff o f th a t p o o l a n d o ff y o u r
c a lls?
Mr. L io n . I had 25,000 shares o f Sinclair Oil.
Mr. G r a y . Did you exercise your option as to all of it?
Mr. L io n . I think I did.
M r . G r a y . W e l l , w as th a t a n instance where th ey reca lled p a r t o f
th a t ca ll?
Mr. L i o n . Yes; they did. I remember that call was canceled. I
think I exercised about 14,000 shares. I think I exercised all but
about eleven or twelve thousand shares of it, and they wanted the
call canceled.
M r . G r a y . T h e y w anted the ca ll canceled?
Mr. L i o n . They wanted the remainder of the call canceled.
Mr. G r a y . Why?
Mr. L i o n . I don’t know. Maybe the pool .was dissolving.
And
I received, if I remember correctly, 44—tne profits on ten or eleven
thousand shares of that stock.
Mr. G r a y . You got a check for that, didn’t you?
Mr. L io n . Yes.
M r . G r a y . N o w , le t us see i f w e have g o t th a t pictu re c le a r ly .
Y o u h a d an option on 25,000 shares o f stock, a n d y o u h a d exercised
a ll o f it w ith th e exception o f about 9,000 shares, h a d y o u n o t?
M r . L i o n . I don’t kn ow i f it w a s 9,000,10,000, o r 11,000.
Jdr. Gr^y . Well, somewheres around that amount?
Mr. L i o n . Y e s .
Mr. G r a y . And your call was at 40 or 41; is that correct?
Mr. L i o n . Yes; that is correct.
Mr. G r a y . And for some reason—possibly the dissolution o f the
pool—they sent for you and canceled the rest of the call; that is
right, isn’t it?
Mr. L i o n . Yes.
Mr. G r a y . And when they canceled the rest of the call, the market
on that stock being 44. they gave you a check for the difference
between the price of tnat stock at your call or 40 or 41 and the
market at 44; that is correct, is it not?
Mr. L i o n . Yes.
Mr. G r a y . And you put up no money?
Mr. L i o n . No.
M r . G r a y . Y o u n ever even exercised y o u r ca ll as to t h a t p a r t ?
Mr. L i o n . Well, I might have called the stock from them to
get
the check.
Mr. G r a y . In other words, you might have let them put through
on the books the sale of the stock tor the purpose o f getting the
check?
Mr. L i o n . I didn’t let them put through any sale.
Mr. G r a y . D o you know whether they did that or not, or just
whether they gave you a check and charged it to that pool account?
Mr. L i o n . I don’t know what they did.
Mr. G r a y . Y ou don ’t kn ow w h a t th ey d id ?
Mr. L io n . I kn ow I g o t a check for it.
Mr. G r a y . How much did you make out of that Sinclair Con
solidated?
Mr. L i o n . Well, that particular transaction, when you ask about
the canceling of that call, I think I got a check for $27,000 on that.
STOCK EXCHANGE PRACTICES
683
Mr. G ray . Y ou got a check f o r $27,000 ?
Mr. L io n . I f I remember correctly.
Mr. G ra y . D o you know what your full profit was ?
Mr. L ion. On the 25,000 shares?
Mr. G ra y . Yes.
Mr. L io n . No; I do not, Mr. Gray.
Senator C ouzens. May I ask you what you did with that $27,000?
Did you divide it up with anybody?
Mr. L io n . N o, sir.
Mr. G r a y . You answered Senator Couzens?
Mr. L io n . Yes.
Senator C ouzens . He answered “ No.”
Mr. L io n . The answer is “ No.”
Mr. G r a y . “ N o.” W ill you accept my figures that from the
papers that you furnished to me you made from the Sinclair Con
solidated $46,790.39 ?
Mr. L io n . How much, Mr. Gray ?
Mr. G r a y . $46,790.39 from those calls and the check that they
gave you?
Mr. L io n . Well now, if I did—if that is the amount I received
from that call, I am confused on the other figure, because when I
stated in answer to your question a while ago the amount of $46,000
I thought that that was the amount c*f the Sinclair stock.
Mr. G r a y . I see. So that the figure that I have, to go back for
a moment, on Kolster Radio of $26,414.87 is very likely the correct
figure on Kolster?
Mr. L io n . That is about right, sir.
Mr. G r a y . Yes. While this figure of $46,000 and some odd is
what you made on Sinclair Consolidated?
Mr. L io n . I think that is correct, sir.
Mr. G r a y . Yes. Now do you remember iust when that Sinclair
Consolidated pool took place? The records show that it was in
December of 1928. Is that correct? And early January of 1929,
when they gave you the final check?
Mr. L io n . Well, if the records are there from those brokerage
offices that would be correct^ sir.
Mr. G r a y . Your recollection is that it is about that time?
Mr. L io n . I don’t remember, Mr. Gray, iust when that was.
M r. G r a y . All right. Well now, what other big pools did you act
for? You handled two or three General American Tank pools, did
you not?
M r. L io n . Yes.
Mr. G r a y . Were they for Hutton & Co. ?
Mr. L io n . Cutten.
Mr. G r a y . Well, they were for Cutten who was with Hutton &
Co.?
Mr. L io n . That is correct.
Mr. G r a y . Yes. Generally speaking what did you make out o f
General American Tank?
M r. L io n . Mr. Gray, I can’t remember all o f those things.
Mr. G r a y . All right.
M r. L io n . Y ou are taking me over a period o f four years.
haven’t got the memory-------
I
STOCK EXC H A N G E PRACTICES
684
Mr. Gray. Well, let me just ask you some general questions.
You handled about three different pools in General American Tank,
did you not?
Mr. L i o n . I handled the pools?
Mr. G r a y . No; when I say you handled the pools, you handled
your end of it—you handled the publicity end of it for the pool
manager ?
Mr. L io n . I don’t know if it was three.
Mr. G r a y . More than one?
Mr. L i o n . Well, the dates on those transcripts that you have from
those houses would evidently tell you if it was more than one.
Mr. G r a y . Well, the records of E. F. Hutton & Co. show that
there were three.
Mr. L i o n . Well, if the records show that there were three, there
must have been three. Pardon me, Mr. Gray, what dates were they?
The various dates on General American Tank ?
Mr. G r a y . One was from November, 1928, to January, 1929.
One was from July 1,1929, until a later date in July, 1929.
Mr. L i o n . Well, that was two operations.
Mr. G r a y . Yes. You were in both of those?
Mr. L i o n . Yes.
Mr. G r a y . One was from January, 1930, to March, 1930.
Mr. L i o n . Yes. That was the third.
Mr. G r a y . Y ou gave the p u b licity in all o f th ose?
Mr. L io n . Yes.
Mr. G r a y . Did you have a transaction in Bush Terminal?
Mr. L i o n . I did.
Mr. G r a y . Y ou could not recall the other day who g a v e y o u that
option or call. Do you recall now?
Mr. L i o n . No; I do not. It was some house in the Equitable
Building. It was a very small call.
M r . G r a y . Y ou m ean b y th at som e brokerage h ou se?
Mr. L i o n . Yes.
Mr. G r a y . Y ou were in Consolidated Textile, were you not?
Mr. L io n . Yes.
Mr. G r a y . I suppose you have no knowledge of the profits
that
were by the pools in those General American Tank transactions,
have you ?
M r . L io n . N o .
Mr. G r a y . May
I say to the committee, and this can be proven
from our accounts—I am not going to stop to do it now—that in
the first of those pools there was a profit of $649,948. In the second
of those pools on the dates that I have given there was a profit o f
$321,797.91. And in the third of them there was a profit of $241,298.75. That in the Sinclair Consolidated pool, which he has already
testified about, the profit was over $550,000. These records, o f
course, have all been examined, and we have the absolute figures
from the accountants for it.
Senator F l e t c h e r . Those are the profits of the pool?
Mr. G r a y . The profits of the pool.
Senator F l e t c h e r . What d i d he get out of General American
Tank?
Mr. G r a y . Can you tell Senator Fletcher or the committee what
the amount was you profited from General Tank Co.?
STOCK EX C H A N G E PRACTICES
685
Mr. L i o n . I do not remember those figures, Mr. Gray.
Mr. G r a y . It is a little difficult, Senator, to get all of the figures.
I will say to you that from his records in one of the pools alone he
got $10,836.87. But only in one of the pools as far as his end of it
is concerned have I got the records.
The C h a i r m a n . The publicity on these pools generally ran only
for a month or two, as I understand it ?
Mr. L i o n . Well, it was rarely you would get a call, Senator, over
30 days.
The C h a i r m a n . S o , w hat profit w a s m ade in a n y o f these tra n s
actions w as usu ally done w ith in 30 d ays ?
Mr. L i o n . That is correct, so far as I was concerned.
The C h a i r m a n . And you handled about 30 pools ?
Mr. L i o n . Oh, I have handled more than 30 pools.
The C h a i r m a n . Yes. You had 30 at one time?
Mr. L i o n . That is correct.
Senator C o u ze n s . May I ask you, Mr. Gray, if you have a sample
of the publicity that was given at that time ?
Mr. G r a y . We have not, sir. I will say to the committee that as
the result of my investigations I, of course, ran into Mr. Lion and
put him under subpoena, and we have been dong the best we can to
get a ll of the information. Some of it I got before I came here,
and the rest of it I have got to get from him here. I will ask him
a question that will develop something along that Une, though, Sen
ator Couzens.
You were in the Richfield Oil pool, were you not; that is to say,
you were given the publicity work for the Richfield?
Mr. L i o n . Yes, sir.
M r . G r a y . Who handled that?
Mr. L i o n . Well, I received a call on Richfield Oil from Mr. Talbot,
the president of the company.
Mr. G r a y . From Mr. Talbot, the president of the company. And
who gave you the information that they wanted disseminated
through the various channels, over which you had control?
Mr. L i o n . I f I remember correctly, I got some information from
Mr. Talbot at his apartment in the Ambassador Hotel, New York.
Mr. G r a y . Yes. And did you get the call from him also?
M r. L io n . N o ; I got that call in Hutton’s.
Mr. G r a y . You got that call in Hutton’s, but you mean Talbot
lodged it in Huttoirs for you ?
M r . L i o n . That is correct.
Mr. G r a y . That was a direct operation of the man that was inter
ested in the affairs of the company, who was president of the com
pany?
Mr. L i o n . Yes; he was president.
Mr. G r a y . Now, he gave you the information. Did you check up
on it at all, or did you publish just what he asked you to publish?
Mr. L i o n . No; we checked up on the information that we could
check up on. That is with statistics.
Mr. G r a y . Yes. In other words, any information that you could
check up on by looking at the Standard Statistics you would check
up on, but as to the inner operations of the company, whatever he
might tell you, you did not know anything about it at all, did you?
686
STOCK EXCHANGE PRACTICES
Mr. L io n . Well, as an example, if Richfield Oil brought in a good
well to-dav we would not get that out of Standard statistics to-day.
That would be company news. And that would go over wires as
confidential news. Not the newspapers.
Mr. G r a y . Well, you published whatever you were asked to p u b
lish, did you not?
Mr. L io n . N o ; I did not, sir.
M r. G r a y . By the way, when was this Richfield Oil deal?
M r. L io n . I do not know just what year that was, M r. G ra y .
Mr. G r a y . Where is Talbot now?
M r. L io n . I do not know. I know the man was in difficulties------Mr. G r a y . In difficulties. And in jail?
Mr. L io n . He is in jail?
M r. G r a y . N o ; wasn’t he when he got into difficulties?
Mr. L io n . He was indicted.
Mr. G r a y . Yes. Over these transactions in Richfield Oil?
M r. L io n . S o I read.
Mr. G r a y . Yes. Don’t you know any more about it than what
you read?
M r. L io n . N o.
M r. G r a y . T hat is the man that gave you the inform ation
you published?
which
Mr. L io n . Yes.
Mr. G r a y . N ow , you were in Liggett & Myers, weren’t you, giving
them publicity ?
Mr. L io n . Not giving Liggett & Myers publicity. I was giving
publicity for the pool.
Mr. Gray. Yes. And where was that pool operated?
Mr. L io n . Ira Haupt & Co.
Mr. G r a y . Ira Haupt & Co. H-a-u-p-t. Who gave you that c a ll?
Was it Alexander?
Mr. L io n . Yes.
Mr. G r a y . Alexander is a member of the firm of Ira Haupt & Co.,
isn’t he?
M r. L io n . N o.
Mr. G r a y . His full name is what? Oscar Alexander?
Mr. L io n . Yes.
Mr. Gray. He is one o f the cotraders with Breen, is he not?
and Breen work together?
M r. L io n . T hey did.
He
I don’t know i f they still do.
Mr. Gray. They did. Well now, do you know when the Liggett
& Myers transaction was? January, 1929, was it not?
Mr. L io n . Y o u have all those dates, Mr. Gray.
M r. G r a y . Well, will you accept that as being correct?
Mr. L io n . Yes. Those are m y accounts.
Mr. Gray. How many shares did you have an option on there?
Mr. L io n . I f I remember correctly in Liggett & Myers I had
10,000 shares.
Mr. Gray. Did you exercise that call as to all of it?
Mr. L io n . I th in k I did.
Mr. G r a y . Do you know that your profit in Liggett & Myers was
$15,468.12?
M r . L io n . It might have been.
Mr. G r a y . Is that about w h at y ou th in k it w as?
STOCK EXCHANGE PRACTICES
687
Mr. L io n . I can’t remember those figures, Mr. Gray. That is very
difficult for me to do. I had hundreds and hundreds of calls. I can t
tel1
1 AT '
ill.
The C h a ir m a n . Y ou made so much profit it is hard to remember
it, didn’t you ?
Mr. L io n . No; I would not say that, Senator; but he is not asking
me about any that I lost money with. Those are the only ones I made
money with. I lost money.
The C h a ir m a n . There were a great number of them ?
Mr. L io n . Sir?
The C h a ir m a n . There were a great number of them ?
Mr. L io n . Well, there were plenty of them.
Mr. G r a y . But notwithstanding your losses you made the amounts
that you told us?
Mr. L io n . Yes.
Mr. G r a y . Yes. Well, now, you also had one in ContinentalDiamond Fiber from Hayden, Stone & Co., another brokerage house,
didn’t you?
Mr. L io n . Mr. Gray, now you can keep me here until to-morrow
morning if you are going to ask me where I had all of these calls.
You have all o f my accounts. A majority of those items are all on,
options that I received.
Mr. G r a y . Yes.
Mr. L io n . There was very little trading that I have done in those
accounts.
Mr. G r a y . That is to say, you did very little trading o f your own,
where you put up any money on margin ?
Mr. L io n . I never put up any money on margin.
Mr. G r a y . Even in your trading?
Mr. L io n . No, sir.
Mr. G r a y . Y ou were so closely in touch with these brokerage
houses doing this other work that when you wanted to on your
own account buy and sell anything they would let you do it?
Mr. L io n . Well, in a great many instances, if you put it that way,
there was sufficient money in there to let me do these things.
Mr. G r a y . Sufficient money in these other calls, in these other
transactions?
Mr. L io n . Yes.
Mr. G r a y . Generally speaking you did business with Hayden,
Stone, didn’t you? Never mind the details, you did business with
them?
Mr. L io n . I had calls from Hayden, Stone.
Mr. G r a y . With Harde & Sharp, didn’t you?
Mr. L io n . Yes.
Mr. G r a y . With H. L . Goldberg & Co.?
Mr. L io n . Well, that was a small curb deal.
Mr. G r a y . That was a curb deal. From Cohen, Simonson & Co.?
Is that right ?
Mr. L io n . Yes.
.
Mr. G r a y . You handled the Budd Manufacturing Co.’s publicity
and the Budd Wheel publicity, did you not?
Mr. L io n . Yes.
STOCK E X C H A N G E PRACTICES
688
Mr. G b a y .
didn’t you?
Y
ou
handled the Hayes Body Corporation’s publicity,
M r . L io n . Y e s .
Mr. Gray. And that curb transaction you spoke of was Paramount
Cab, was it not?
Mr. L i o n . That is correct.
Mr. G r a y . You handled the Borg-Warner publicity?
Mr. L io n . Yes.
Mr. G r a y . National Cash Register ?
Mr. L i o n . I don’t remember that that was publicity or not, sir.
Mr. G r a y . All right. Through Harde & Sharp you handled the
Dunhill International publicity, didn’t you?
Mr. L i o n . Y e s .
Mr. G r a y . Y ou handled the Monsanto Chemical through E. F.
Hutton, or Mr. Cutten, which ever you choose to designate ?
Mr. L i o n . No, Mr. Cutten never had to do with it, Mr. Gray.
M r . G r a y . Who d id ?
Mr. L i o n . I think that was done, if I remember, by Mr. Loeb.
Mr. G r a y . Who is Mr. Loeb?
Mr. L i o n . Loeb is a member of E. F. Hutton & Co.
Mr. G r a y . Loeb is a member of E. F. Hutton & Co. And, by the
way, in your trades with Hayden, Stone & Co. did you always get
calls or did you get cash?
M r . L i o n . No, I received cash for some work.
Mr. G r a y . Straight out and out checks without any covering up
by stock transactions at all, didn’t you?
Mr. L io n . Yes.
Mr. G r a y . H o w many different checks from Hayden, Stone & Co. ?
Mr. L i o n . T o the best of my recollection, there may have been
four or five.
Mr. G r a y . Four or five. Did you get checks from other brokerage
houses?
Mr. L i o n . I can’t remember of any, Mr. Gray.
Mr. G r a y . N o w , you did a lot of work for Prentice & Slepack,
didn’t you ?
Mr. L i o n . N o ; I didn’t do a lot of work there. I did some work
there.
Mr. G r a y . You did some trading there, too?
Mr. L io n . Yes.
Mr. G r a y . What do the initials “ B. I . E.” stand for in connection
with Prentice & Slepack’s accounts? Who was the man in Prentice &
Slepack that you dealt with?
Mr. L i o n . A man by the name of Bieber.
Mr. G r a y . Bieber. He was the secretary o f a member b y the name
o f K u n z?
Senator C o u z e n s . Y ou mean a member of the stock exchange?
Mr. L io n . Mr. Kunz was a member of the stock exchange.
Senator C o u z e n s . May I ask Mr. Gray if he intends before he
gets through without too lengthy an examination to indicate what
effect all of this had upon the New York Stock Exchange market?
Mr. G r a y . I f you please, Senator, it is absolutely against the rules
of the stock exchange for these brokers, as I construe these rules, to
conduct these operations in the first place. It is certainly against
STOCK E X C H A N G E PRACTICES
689
the rules, as I have introduced them to-day, for a pool operator—
and in each one of these cases except where the traders, such as Breen
and Alexander have been mentioned—to have engaged this man for
the purpose of disseminating information to aid him, the pool
operator, while he was making the market in the various trades as
you have seen in the radio pool and other pools we have introduced.
It was simply keeping up the price and the publicity, and for that
this man either got directly or indirectly cash. I think it is a very
reprehensible practice.
Senator C o u z e n s . We are not discussing that. I was wondering
what effect these operations that you have been describing actually
had on the market.
Mr. G r a y . I can not prove what effect they had, Senator, but I
have shown you that in these various pools, while he gave them
publicity, the pool managers were making trades on the floor and
made money.
Senator C o u z e n s . What was the trend of the stock during those
periods ?
Mr. G r a y . I haven’t the trend of all these various stocks during
the period that this man was operating.
Senator C o u z e n s . Don’t you think that is necessary to at least
indicate the effect that this man’s operations had upon the trend
of the market ?
Mr. G r a y . I can get for you and put upon this record the trend
of the stock during the period that each of these pools were operated.
I can get for you and put upon the record in this case before this
committee the operations of every one of those pools. In what lim
ited time we have had it has been impossible to run down those
ends o f it, because it is six months of work. In this General Ameri
can Tank I have shown you what the profits were, and I have shown
you what the profits were in Sinclair Consolidated. I can show you
the range in General American Tank.
Senator W a l c o t t . Does it not all depend on whether this pub
licity is based on fact or whether it is misrepresentation of fact?
Publicity on a stock which gives accurate facts without misrepre
sentation, o f course, is perfectly legitimate. The reverse of that is
not legitimate. Now, if the reverse is true—in other words, if there
was misrepresentation of fact here—what effect has that had on the
market ?
M r . G r a y . Y ou w on’t g et th is m a n , w hose business it w as to fu r
nish p u b lic ity --------
Senator W a l c o t t (interposing). No; I understand.
Mr. G r a y (continuing). Whose business it was to furnish pub
licity in the manner that he has, and in the employment of an econo
mist such as he indicated over the radio to broadcast information
and to suggest the purchase of certain stocks, to admit that there
was e v e r any false information disseminated. I have worked with
him for two or three days and I have not been able to get him to
admit it, because he would naturally say to me, “ What do you ex
pect me to do? Go down to Washington and say that? ” But to
prove whether or not those articles were false I can, if I have time—
but I will need six months’ time—take up those articles and take
up the data and statistics with respect to the particular companies at
690
STOCK EXCHANGE PRACTICES
that time and find out and show to this committee whether they are
false or not. But in the limited time I have had those things are
absolutely impossible.
Senator F letcher . How have the stocks gone since?
Mr. G r a y . These various stocks? Well, you can talk about any
one of them, Senator, and they have gone down; that is a good guess
about it—any one of them.
The C h a ir m a n . I understand this ballyhooing was done when the
stocks were near the peak?
Mr. G r a y . Yes.
The C h a ir m a n . And the average to-day is about 15 per cent, is it,
of what they were at that time ?
Mr. L io n . N o; some of them have gone lower than 15 per cent, sir.
The C h a ir m a n . I said the average?
M r. L io n . Richfield Oil that he questioned me about has gone to
nothing.
The C h a ir m a n . And what did you recommend it at? A t what
point?
Mr. L io n . Oh, if I remember correctly, it was up in the forties—
was it not, Mr. Gray?
Senator G lass . Forty-four, I believe, was indicated here.
Mr. L io n . That was Sinclair, Senator.
Mr. G r a y . Sinclair Consolidated; yes. The record already indi
cates that he had his option at 40. As a matter of fact, what he did
with Sinclair was to close out 2,000 shares at 45%, 3,000 shares at
411/2-4134, 5,100 shares at 41}£-42, 1,900 shares at 411/^-41%. And
then they took back from him 10,000 shares at 44, and gave him a
check for it, because the pool operations were closed. A id in that
Sinclair Consolidated that the pool made $550,000.
The C h a ir m a n . And he made $46,000 for publicity?
Mr. G ray . He made $46,000.
The C h a ir m a n . Yes.
Mr. G b a y . The $46,000 was independent of the pool.
The C h a ir m a n . H ow high was the Sinclair Consolidated stock at
that time a share?
Mr. G r a y . It went to over 46 during the time the pool was operat
ing. It closed at the time this pool quit and took back this stock at
44r-44%.
The C h a ir m a n . N ow it is down to what?
Mr. L io n . Sinclair was recently consolidated-----The C h a ir m a n . Well, how low did it go to before they consoli
dated ?
Mr. L io n . Sinclair Consolidated stock sold for $4—around $5.
Senator G lass . Well, the whole point is, I take it, Mr. Gray, that
these stock brokers were engaged in illicit transactions prohibited by
the stock exchange ?
Mr. G r a y . I believe that that is so. I believe that this testimony
establishes that fact, sir.
Senator C ouzens . Well, who is your next witness, then, Mr. Gray?
Mr. G ra y . I f the committee believes that I have covered this suffi
ciently, I won’t touch it any more, but I have got a large number of
other transactions that he was in.
STOCK EXCHANGE PRACTICES
691
The C h a ir m a n . I would suggest, if it meets with the approval of
the committee, that you hurry over this and give a list of the trans
actions.
Senator B u lk l e y . Can you not stipulate with Mr. Lion as to the
transactions ? He seems to agree that those statements are all right.
Mr. G r a y . We will cover it much more rapidly. You handled in
the same manner as you have indicated in these various pools from
Hutton & Co., United Carbon, did you not? It might have been a
trade, Mr. Lion.
M r. L io n . I do not recall ever having it.
Mr. G r a y . All right. Did you handle Brockway Motor?
Mr. L io n . Yes.
M r. G r a y . I have asked you about Dunhill International.
Senator G lass. There is no use of going over those again.
Mr. G r a y . I submit there is no use of going further. How many
accounts do you suppose during those three years you have handled
all together? You said you have had in operation at one time over
30. How many did you handle all together over that period of
two or three years?
M r. L ion . That would be a very difficult question to answer.
Mr. G r a y . Can you not approximate it for the committee?
Mr. L io n . I could not approximate it. I do not know.
Mr. G r a y . T w o hundred and fifty?
Mr. L io n . I would say I had that many.
M r. G r a y . Y ou had at least that m any?
Mr. L io n . I would not say at least. I do
not know. I imagine
I had that many.
The C h a ir m a n . I suggest that the names of these other firms o f
which you have, a record, Mr. Gray, be placed in the committee
hearings for reference, if there is no objection, so that we may have
more complete information.
M r. G r a y . All right.
Senator B u l k l e y . The witness agrees that Mr. Gray has a state
ment of his accounts.
The C h a ir m a n . The witness agrees that Mr. Gray has a com
plete statement.
Mr. L io n . Mr. Gray has as complete information as he could
get on the trades for those particular stocks. They have gone
around to the various houses and got my accounts. You can not
get anything more definite than that data. Now, what Mr. Gray
has shown me from Hutton and Louchheim, Minton I would say is
accurate.
The C h a ir m a n . He has only inserted a part of it, and I am sug
gesting that the rest of it be placed in the hearings, if there is no
objection.
Senator B u lk le y . I think the witness should get a chance to go
over it.
The C h a ir m a n . I am giving him a chance to do so.
Senator W alcott. Why can not the proof be submitted to the
witness before it is nublished?
The C h a ir m a n . Can you reach an agreement as to what would
be covered by this?
692
STOCK EXCHANGE PRACTICES
Mr. G b a t . I think we have covered it generally, but I will put it
in the record. That is a transcript o f your account with E. F.
Hutton & Co., is it not? [Handing same to Mr. Lion.]
Mr. L io n . That is the entire account, Mr. Gray?
Mr. G r a y . It is the entire account between these dates.
Mr. L io n . Pardon me?
Mr. G b a t . I f you will look at the dates there you will get them.
Is that correct?
Mr. L io n . Yes, sir.
Mr. G r a y . I show you your account between the dates of May 2,
1929, and May 6,1930.
Mr. L io n . That is correct, sir.
Mr. G b a t . And all of those items mentioned therein are trans
actions where you had calls for the purpose of furnishing publicity?
M r. L io n . N o, sir.
Mr. G b a t . Were there any trades ?
Mr. L io n . I think you have a thousand
shares of steel there that
I bought.
Mr. G b a t . All right. Is that the only item there that is a trade?
M r. L io n . I had no option on steel.
Mr. G b a t . Is that the only item that is a trade and not an option?
Mr. L io n . I do not know. I just looked at the dates. There m ay
be some trades there, Mr. Gray.
Mr. G b a t . S o you may make no mistake about it, Mr. lio n , will
you look through it again and tell us any of those transactions that
are trades and that are not operations on call?
Mr. L io n . I do not think Safeway Stores are.
Mr. G b a t . All right, you point out any that you do not think have
anything to do with the calls.
Mr. L io n . I do not think Columbia Graphophone is a call. I do
not remember having a call on that.
Mr. G b a t . Mark that as a trade.
Mr. L io n . I may have now. I would not say that I did not.
Paramount-Famous Players was a call. I don’t think that is a trade.
Baybestos was a call. Transue Williams was a call. Indian Moto
cycle was a call. American Seating, that is no call, that was a trade.
Reynolds Tobacco was a call. Worthington Pump was a call.
Phillips Petroleum was a call. General Foods was a call. Inter
national Telephone was a trade. Radio was a trade. The rest——
Mr. G b a t interposing). Aside from those you have mentioned the
rest are calls?
Mr. L io n . Yes, sir.
Mr. G b a t . N o w , it will be interesting to the committee to see how
those appeared. F or instance, through the brokerage house o f E . F.
Hutton & Co. he sold on May 2, 1929, 200 shares of Borg-Warner
at 138; on May 3, 300 shares of Borg Warner at 137; and on May
3, 200 shares of Borg-Warner at 140; with the figures carried out
here making 700 shares. And then after they are sold the call is
checked against them on the other side, the profit on that matter—
that is a small matter—he is given a check. As you go down the
line you will find 3, or 4, or 5 calls. And then he exercises a call,
and you will find here they are sending the checks to him.
STOCK EXCH A N GE PRACTICES
693
Senator F letc h er . On those you call a trade did you do anything
in the way of publicity ?
Mr. L io n . N o , sir.
Mr. G r a t . It was simply trades ?
Mr. L i o n . Yes, sir.
Senator F letc h er . Did you do any publicity in them?
Mr. L io n . No, sir.
Mr. G r a y . It was just those he went into for a day, and he thought
he had a right to make a point or two.
Senator F letc h er . Even so, I wanted to know.
Mr. G r a y . This statement or transcript, if the committee desire,
may go into the record.
The C h a ir m a n . Without objection, it is so ordered.
(The statement of D. M. Lion, in account current with E. F.
Hutton & Co., so ordered printed in the record, is here printed in
full, as follows:)
119852—32—PT 2----- 21
694
In account current with B. F. Hutton & Co.
Sold
Bought
1929
la y :
1;
i*
2C
2C
20
20
20
20
20
20
20
20
20
20
22
23
ie
Borg Warner.
Check______
Borg Warner.
Borg Warner.
10
20
20
Borg Warner.
-----d o----------___ d o -----------
100
Richfield Oil.
----- d o _______
___ d o_______
Check.
100
500
Richfield OilCheck.
Borg Warner.
Richfield Oil-
100
100
100
200
200
200
100
"00
C h eck ......... Richfield OilCheck_______
1,000
100
17
19
19
19
19
19
19
19
100
50
100
G ra h a m P a ig e .
-d o .
200
600
200
200
100
200
lafeway Stores.
Iraham Paige..
200
300
Borg Warner.
____d o . . ........ .
- . . . d o _______
____d o_______
Richfield Oil-.
___ do________
___ d o _______
____d o _______
___ d o _______
138
137
140
132
137%
132
140
140
139%
Debits
127, 549. 20
41,023. 80
27, 949. 20
$92, 575. 00
4, 000.00
2, 071. 00
4, 709. 00
4, 709. 00
23, 482. 50
9.055. 00
1,000.00
67, 625. 00
115, 375.00
13, 774. 60
13, 737. 10
27, 349. 20
13, 649. 60
9, 443. 00
9. 418. 00
4, 746. 50
33, 138. 00
47, 340. 00
47H
47J,
3, 000 00
9, 055.00
386.50
Safeway Stores.
32
33
G ra h a m P a ig e.
___ d o . ........... ..
— d o . ................
___ d o ....... ............
___ d o ....................
— d o ................
Graham Paige.
----- do..............
33*6
34«
34^
M
M
34H
2,071.00
0.00
4, 709.00
si, .900.’50
H3,*45. 50
*£, 845. 50
9,441.50
S86. SO
0.00
16, 621. 00
16, 621. 00
6, 637.00
20,061. 00
6, 762. 00
0,837. 00
3, 368. 60
0,862. 00
18,4X3. SO
fl, 837.00
10,330. 80
I. 891. OO
3 2 ,1 5 0 ,0 0
16, 575.00
33 H
34
161
33
,917. 20
52. 80
13,974. 60
6, 987. 30
13,962. 10
136^4
47^
471/4
47^
45#
, 540. 20
39, 675. 00
47n
135
46
138
137H
137
Balance
6,874. 80
47U
47J,£l
45J-6
Credits
16,12ft. 00
16,675. 00
STOCK EXCHANGE PEACTICES
i
(
i
i
l
ii
1!
i:
200 Borg Warner.
300 ____d o _______
200 ____d o _______
Price
a*1
»
94
25
3R
as
20
30
July 11
1
10
100 Graham Paige.......................................................
GOO General American Tank Car_________________
Check.......................................... .......................-
500 General American Tank C a r..............................
400 .......do..... .................................................. ..........
Check.................................... ........................ ......
__ do...................................................................
900 General American Tank Car................................
200 .......do........... ........................................................
11
11
11
12
17
IS
23
23
23
24
27
29
29
29
29
29
on
Check.......................................... ........................
100 Skelly oil........... ..................................................
100 ___ do...................................................................
do._____ ____________ ________________
100
100 ___ do............................................................. ......
....
______
Check...............................
200 Graham Paige...................
______________
100 Graham Paige.__. . . . . ___ ________ ______
100 ___ do................................................. ....... .........
100 ___ d o.......................... ........................................
July 31
Aug. 2
200
300
100 ___do................................................................
100 ___do___________________________________
100 I___ do___ ___ _____ __________________
100 .......do...............................................................
100
200
200
200 ___do,— ...........................................................
100
100
200 .......do... .................. .....................................
100 Skelly oil..........................................................
300
500
200
100
200 .......do.......... .......................... ........................ r
100
100
#2H
943*
95
9bU
9SH
9616
90W
9695?*
92k'
92k'
94Ji
92192Vi
95Js
96’•S
95?4
85H
95*2
95»4
43H
43H
41?i
41H
40*4
40k*
27
28
26k>
26Vi
26J4
26J*
27
27H
27H
VH
46,350.00
500.00
46.350.00
37.080.00
2.000.00
350.00
83,430.00
18,540. 00
3.623. 00
4,177.50
4,152.50
4.090.00
4,065.00
700.00
5,430.00
2,665.00
2,665.00
2,640.00
500.00
3,418.80
6,909.60
4,909. SO
7,798.00
~s',9db'id
686. SO
86.60
85.50
28,"353. 00
18,952.(10
19.002.00
28.578.00
9.626.00
9.601.00
9.576.00
9.551.00
mmd
1,040.60
640.60
s, ou- so
1,044.60
684.50
9,426. 00
10,120.50
19.127.00
19.177.00
19.102.00
9,538.50
9.526.00
19.002.00
i.m.m
4.321.50
12.889.50
4.821.50
17,211.00
0.00
791.00
72ft. 00
m.m
13. 90S. 00
631.00
31.00
5, 337.00
2,681.00
5.387.00
2.706.00
2,718.60
SI. 00
81.00
695
2
2
2
Credit balance................................................
300
200 .......do...............................................................
3.418.30
PRACTICES
11
11
11
11
11
100
349 \..............
1,000.00
i,ooaoo
S4h
3,327.60
33H
500.00
3,315.00
33
500.00
EXCHANGE
8
100 Graham Paige......................................................
.1
STOCK
3
3
3
3
3
5
100
In account current with B. F. Hutton & Co.— Continued
— 1929
Aug. 2
2
2
2
500 Graham Paige.
2
2
8
6
6
5
5
Check..............
100 Graham Paige.
100 ___ do..............
700 United tias___
1,100 ___ do..............
14
1400 Graham Paige............
100 Grand Rapids Varnish.
100 ___do...........................
500
800
United Oas.
.do.........
('heck,
do.
do.
15
15
19
19
19
19
19
19
19
Wi
100 ___ do..........................................
800 ___ do...........................................
___do...........................................
Graham Paige.............................
200
200
United Gas..................
50 -----do...........................
Graham
Paige.............
200
200 ___do..........................
United
Gas..............
.
200
200 Grand Rapids Varnish.
200
500 United Gas.
100 .do.
-do.
100
-do.
100
100 United Gas.
200 -----do.........
200 Auto sales...
200
200
400
100
400
__ do____
do.
Richfield oil.
.do------.do._....
.do— —
2GK27
28
m
1,000.00
2.577.00
2.565.00
18.655.00
29.865.00
Z7H
27%
281*
28M
26JS
2«
19
21
28H
28%
26«$
26V.
28*4
22H
27
27
29H
36,610.00
1.912.50
2.112.50
13.575.00
21.720.00
29W
29%
29U
Credits
$2,681.00
5.362.00
5.337.00
2.650.00
5.337.00
6.952.50
5.462.00
8.230.50
2.756.00
22,348.00
5.612.00
5.262.00
28H
mi
9"
9
8*7
83
44
$21,541.50
37,158.50
S6,15H.50
29,119.00
5.662.00
1,409.25
5.287.00
5.262.00
5.712.00
4.417.00
14.467.50
2.906.00
2.918.50
2.906.00
1,410.31
1,000.00
1,000.00
Balance
2,868.60
5.712.00
7.062.00
6.962.00
7.012.00
17.736.00
4.384.00
17.430.00
8.743.00
PRACTICES
6
8
10
United Gas..................................
$13,075.00
20J6
25J6
250
Debits
EXCHANGE
5
5
27
26
27
25H
300
6
6
Graham Page.
200
5
5
6
5
5
5
5
5
5
5
5
5I
100
200 Graham Paige.
200 .......do..............
100 .....d o ..............
..d o ..............
200
Price
STOCK
3
5
Sold
Bought
Date
4, m . i6
e, 719.94
1,719.94
719.94
9,900.44
It
It
It
It
19
19
19
19
20
ao
ao
ao
ai
21
21
21
Check....................................................................
RichfleM on. . ____ _ _ ______ ____________
22
22
22
41H
4194
41H
41%
SSH
42
42*4
2894
42 |
mi\
10434
Auto Sales............................................................
General Gas Electric A .._____________ _____
22
22
23
23
23
23
23
200 United Gas...........................................................
600
400 General Gas Electric A........................................
26
500 General Gas Electric A.........................................
United Oas................................ ............... ...........
1 ....
........ .......................................................
33*4
104 M
104
10416
2794
27M
100 General Gas Electric A .............. . . . ...............
100 ___do.... .............................................. ..........
100
100
4.215.00
3.365.00
4.190.00
4.177.50
4.177.50
4.177.50
3.365.00
3.340.00
14.075.00
4.215.00
4.227.50
2.852.50
12.645.00
10514
105'v
1057-4!.
106
106*4
106H
33*4
34
42H
28
104
105*4
105*4
105
104H
103
1*1,198.00
4, moo
105 I
10454
105 !
I
RiAhflAld Oil
719.94
4.266.00
2.898.00
2.808.50
2.893.50
2.881.00
8,043.00
106,108.00
100,918.00
2,906.00
10.471.00
10.458.50
10.471.00
10.496.00
10.521.00
3.390.00
3.415.00
4.252.50
10.500.00
3.390.00
10.450.00
10.425.00
10.475.00
5.580.00
2.930.50
5.530.00
16,8!K). 00
41.700.00
1,523.00
51, €25, OQ
10.558.50
10.571.00
10.596.00
10.621.00
141,386.60
PKACTICES
22
331.
100 United Gas..................... ................... ............
100 Genera) Gas Electric A....................................
100 .......do...... ........................................................
100
100
100
100
100 .......do....................................... .......................
100
100 ! .......do...............................................................
21
100
100
100
100
100
100
100
100
200
42J4
42W
42
____do_____________________________________
Auto sales_______ ________ _____ ___________
Richfield O il.........................................................
Richfield Oil..........................................................
____do...... ............................... .............................
....... do....................................................................
Auto Sales__ ________________ _____________
____do_____________________________ ______
United Gas.......... ...................................... ......... 1
Richfield Oil..........................................................
.......do.................................................................... i
United Gas.......... . ....................... . .................... .1 __ __
21
21
21
21
21
22
22
22
22
I7.aM.00
A.81S.OO
EXCHANGE
21
21
21
21
21
21
21
100
100
100
100
100
100
100
100
100
100
500
100
100
100
300
000
300
100
100 ....... do................. ..... _
100 ....... do................................
100
900
STOCK
21
21
21
21
-1
76,617.60
10.521.00
10.496.00
10.471.00
10.446.00
6i, Sit. 60
69,818.60
...............
OS
O
OO
S
C
In account current with B. F. Hutton & Co.— Continued
00
Date
1929
Aug. 26
26
26
27
27
27
27
28
28
28
28
29
29
29
29
29
29
29
29
29
29
Bought
Richfield Oil.
100 General Gas Electric A .
100 Richfield Oil___________
200 -----d o _________________
100 Richfield Oil.
Sold
200
100
200
100
400
100
50
50
1,000
100
100
100
Richfield OiL
------d o ----------Richfield Oil.
___ d o _______
200
100
200 General Gas Electric A .
200 ------ d o . ________________
200 ------d o ......... .....................
200 ------d o ...............................
200
aoo
.d o .
-d o .
General Gas Electric A .
___ d o ........... ....................
Check............ ............. .
100
200
100
General Gas Electric A .
— do...........................
.do------ ----------------
100
43H
43
435/£
42k
105
43 \
104’'
103^
42
42
HMU
42 Vi
105
105
106
Debits
General Gas Electric A .
---- do........-.................
___do.............. ............
— do...................—
— d o................................
Credits
$22, 86S.50
10,471. 00
17, 236.00
10. 433. 50
56', 764-00
10, 375. 00
4, 215.00
8, 430. 00
W
10, 421.00
4, 240. 00
10, 558. 50
10.521.00
10.571.00
10.621.00
10, 571. 00
10,658. 50
10, 733. 50
5, 298. 00
5, 323. 00
1061-
106
106?
1075
mi
106 >
, Balance
$8, 643. 00
4, 334. 00
8, 693. 00
$4, 240. 00
4,165.00
H
O
O
H
W
X
a
124, 780.50
H
>
%
o
hJ
Richfield Oil__________
General Gas Electric A .
Credit balance________
General Gas Electric A .
500
1,000
100
General Gas Electric A .
Richfield Oil__________
General Gas Electric A .
100 General Gas Electric A .
100 General Gas Electric A .
100 ___ d o _________________
100 .d o .
100 -d o.
100 -d o .
100 .d o .
100 .d o .
i 400
?ept.
Richfield Oil.
___ d o _______
____d o _______
Price
W
>
O
124, 780.50
42‘ s
42
107
42
41M
10696
104
103W
103J-2
103
10294
iom
4, 227. 50
4 ,2 1 5 .0 0
4, 215. 00
4,140.00
20.850.00
20,800. 00
20.750.00
20.650.00
20.600.00
2,177. 00
105H
105J4
105
104^
10bh
m
» 104
104,260.00
10.376.00
20.860.00
21,342.00
137,680.00
10,(
189,93S. 50
34,106.50
10.446.00
21.042.00
10.496.00
52.355.00
10,458.60
1-9
M
a
w
900
»104
105
300
N o v . 26
26
100 Fnx Film A............ ............ ................................... .
200 ____ d o......... ....................... ........................ ...................
100 ........d o ......... - ...................................................................
100
500
300
D ec.
Fox Film A ........................ .............. .......................
200
Columbia Graphaphone.......... - ................... .......
250
500
30
30
30
31
. ______
________
_________ ______
31%
32%
31%
32%
13H
11H
54?6
13
55^
56 %
0.00
6,344. 79
3,247.38
6,330. 00
6, 519. 76
1,308. 50
12%
12%
13
13%
12
200
200
100
11%
11%
103J
10%
10?4
10
200
200
200
600
1,925. 25
11.007.00
11.057.00
5, 628. 50
1,000.00
5, 392. 50
5, 405. 00
2, 542. 00
2, 567. 00
1, 296. 00
1, 212. 50
1,162. 50
587. 50
458. 90
2
200
10%
100
10V<
9%
9*4
100
200
Check
170%
1,000
1 Short.
2 On call.
266. 40
6, 075. 00
2, 042. 00
251.00
1, 008. 50
970. 00
1, 965. 00
115.00
171, 125.00
3, 421. 40
2, 208. 90
458. 90
0.00
2,117.00
2, 092. 00
2,117.00
251.00
3
1,031. 90
31.90
3, 250. 00
D e c . 31
1930
Ja n .
2
6, 232. 86
286.90
2,906. 25
27, 275. 00
11,032.00
200
250
100
100
50
31,205.00
6.326.00
251.00
PRACTICES
21
100
100
. ..d o
-
5,967. 50
12,535.00
6.280.00
6,005.00
417.50
9,567.00
EXCHANGE
13
16
16
150
200
200
100
31, 413.00
STOCK
200
100
3.567.00
9,495. 00
31%
200
100
10
11
11
11
12
12
12
12
69H
62M
62%
59%
62%
31, 275.00
251. 00
2, 042. 00
3, 050. 50
115.50
. 50
171, 124. 50
O
CD
co
In account current with B. F. Hutton & Co.— Continued
Bought
D a te
S o ld
Tmp&ne <fcWHIfairifl . .
,
--
100 T ra n s n e 4 W f W arn s____ ______ .
ioo L
100
_____
100
52}{
52?*
52'}i
53 >A
53
52J4
51%
52
53)S
$34,
34,
51,
51,
5,
492.
442.
663.
663.
091.
B a la n c e
00
00
00
00
00
$1, 000. 00
100
200
100
5, 242. 50
100
$ 5 ,m .6 0
5,216. 00
10,432. 00
5, 241. 00
10, 657. 00
5, 366. 00
5,192. 50
10, 435. 00
5,316. 00
26, 084.50
5 0 0.00
100
200
100
200
100
. . . (lo
_________ __________ ____________________
5134
54
52
54U
54^
55^4
55 H>
■&VA
38%
'iVA
5 , 403. 50
10, 757.00
500
200
____ do...................... ................. ......................................... ......
300 ____ d o „ ............................................................................ ......
100 A m eric a n S e a tin g ______ ______ __________________
39H
2 5
37J^
2554
27
26#
26
26%
23
200
26H
m
200
T r a n s u e <fc W i l l i a m s .- .................................... ...............
......__________________................................
.
. . . ______ _____
100 1
26
24?4
21£4
a&il
4%, 245.00
6 7 ,8 2 7 .5 0
5,453. 50
5, 466.00
1 1,00 7 .0 0
5, 528. 50
3,768. 50
7 73 7 00
3,868. 50
400. 00
790. 00
6 8 2.50
___
m , 115.50
42,188.50
15,374.00
1 9 ,6 5 5 .0 0
4 ,9 6 2 .0 0
39,991.00
3 7 ,6 6 0 .0 0
6 ,0 8 0 .0 0
2,515.00
2,487.80
3,137.00
5 .0 8 7 .0 0
5,362, 00
5 .2 6 2 .0 0
5 , 16Z 00
7 .0 6 8 .0 0
2 ,2 8 3 .5 0
$3,466. SO
5,262.00
83,847, SO
3,860.00
18,061.00
PRACTICES
29 L-
200
172^
172^
172 y
172 y.
5m
C re d its
EXCHANGE
27 .
28 |
28 L
29
200
200
300
300
100
D e b its
STOCK
1930
J a n . 13
13
13
13
13
13
15
15
200
15
16
16
100
20
20
100
20
200
20
20
21
21
22
1,300 P a r a m o u n t F a m o u s ......... ............... .......................................
22
22
100
22
22
100
22
22
200
22
100
22
____ do . . _______ ______ . . __________ _____ _ . *
. _
22
22
24
24
1,000 R a y b e s to s M a n h a t t a n ............................ - ..........................
27
27
200
27
200
27
27
200
27
P r ic e
so
_______
90
30
500
30
Check. A . Cornell_____ ________________________
Check...............................................................................
W illia m s „
. . .
.1
Tr»TM)HA A
100
100
100
100
100
100
100
100
30
30
30
30
30
30
30
30
. —..d o ______ _______________________ _____
34
36
26H
26*
27
27M
1, 3SI. 00
600. 00
1 2 ,0 6 2 .5 0
25%
27h
105 M
1 ,2 0 0 .0 0
SH
9
8M>
56, 581. 68
86. 82
56, 581. 08
24 !<>
25
28} 4
25
23
13
500
500
100
100
100
200
100
200
200
100
S
3
3
100
200
1316
13
13K13-%
103 Mi
26
200
200
Budd Wheel
....................................... ................
500
300
100
6
* 8hort.
9
21M
100
100
100 1 Indian M otocycle_______________________ ____
10, 375. 00
5, 230. 00
14
37
100
200
100
1. 000.00
12,312. 50
12, 575. 00
1,200.00
3, 537. 50
11,145. 00
2, 137. 50
38#
39
38
39 k;
27 }/;■
9!4
44,220. SO
5, 537.00
2, 768. 50
1, 577. 00
838. 50
888. 50
S38. 50
2, 806. 00
2. 481. 00
2, 2S3. 50
2, 567. 00
1, 296. 00
2, 567. 00
2, 667. 00
1,321.00
56, 581. 68
55, 581. 68
42, 127. 68
48, 682. 68
2, 767. 00
1, 777.00
21,73!>. 18
3, 868. 50
7, 762. 00
SO, 2!1,>. 18
1,000.00
3,815.00
3,931.00
2, 731.00
901.00
S3, 'J80.18
PEACTICES
31
31
31
31
Feb. 1
3
3
3
3
3
3
3
‘ 1,600
100
600
277
A
2VA
8
EXCHANGE
200
100
200
100
100
100
STOCK
31
31
31
31
31
31
31
g8,4&t. SO
2, 58 1 .0 0
2 ,6 0 6 .0 0
2 .6 5 6 .0 0
2 .6 8 1 .0 0
2 .7 0 6 .0 0
2,618. 60
2 .7 3 1 .0 0
10, 521.00
In account current with E. F. Hutton & Co.— Continued
4 00
100
26
25%
_______________ _______ __________________
C h e ck
100
100
100
100
250
. . ....... .................
100 N e w to n S t e e l..............................
100 . . . . d o ................................................................... . . . . _.
100 ____ d o . ............................... ........................ .........................
150
100
100 ____ d o ___________ ______________________
200
100 _____d o . . . ......................................................................................
100 . .d o ___________________ _____ _________ _____ ______
C h e ck
. . - .
_______
___ d o____ __________ _____ _____ ______ • . . _________
250
250
...... ................. ............................
11
11
10
. . . d o . ....................................
E u re k a V a c u u m _________ ___________ __________
200
300 ___ d o ......... .......................... .....................................................
100 R e y n o ld s T o b a c c o B _ _ .................................... .. .......
200
100 ..........do.......................................................... ..........................
100
100
1
.
_
.................................... 1
___
m u
54
41
105^
53
55H
56^4
55Ki
54
1063<
106J6
105
104} 4
104 J-i
,
5
6
10 .
G en eral A m erica n ta n k c a r ........................................
N ew to n S t e e l ....................... ........ ....................... ....... .
200
100
200
300
40
41
41U
42
55
55J4
56)4
$ 2 ,6 1 5 .0 0
2, 590. 00
3 2 ,3 7 5 .0 0
2 ,4 2 2 .5 0
1.78
30, 46 0 .0 0
2, 590. 00
430.00
C re d its
$ 10 ,8 3 3 .5 0
10,808.50
4,243. 50 " " ( 5 9 ' , 865.68
89,861.40
16, S81.40
10,658. 50
5, 453.50
4, 165.00
10, 537. 50
13,293. 75
5, 553. 50
5, 603.50
5, 503. 50
8, 126.25
10, 633. 50
10, 658. 50
1 ,0 0 0 .0 0
2 1 ,0 5 0 .0 0
10,450. 00
10, 4 7 5.00
500.00
8 4 8 ,4 0
B u d d M a n u fa c tu r in g .......................................................
R e y n o ld s T o b a c c o B ......................... ...............................
____do.........................................................................................
43H
4m
12
&m
57H
6756
68H
4%, 493.40
38, SS8. 40
SI, 167. 65
ss, o s 1.40
^ six 40
4s, 325. 40
= = = = =
848.40
0.00
10,037. 50
10, 287. 50
8,337. 00
12,543. 00
5 ,5 5 7 .1 0
11,139. 20
5,607. 10
55 5 .0 0
E u re k a V a c c u u m ................................ ...............................
B a la n c e
tt.m s V tfl
4 ,3 3 1 .0 0
4 ,1 6 5 .0 0
..........2,367."66*
5 ,6 1 9 .6 0
1 1 .4 6 4 .2 0
17,308.80
1 1 .6 3 9 .2 0
t6.es4.40
t t , 469.10
H , sse. 40
4i,m .t o
PRACTICES
4
4
4
4
4
4
4 .
4
_________
A ssociated A p p a rel, I n d ______________________
D e b its
EXCHANGE
la r .
100
100
1,000
300
1085-1
108?*
429*
26
25^
m i
8
100
100
100
G eneral A m erica n ta n k c a r ________
P r ic e
STOCK
1930
FeD . 7
7
7
10
10
10
10
10
11
11
11
13
13
14
17
17
17
17
17
18
19
19
20
21
21
21
21
25
Sold
Bought
D a te
18
14
14
17
18
18
18
18
18
Budd Manufacturing.
Check.........................
Reynolds Tobacoo B ..
— do.........................
18
100
100
200
19
24
25
25
25
26
26
G en eral T h e a te r E q u ip m e n t.
7
7
G e n era l A m eric a n T a n k C a r .
------ d o _________________________
___ d o _________________________
___ d o ---------------------------------------
100
G en eral T h e a te r E q u ip m e n t-
100
G en era l A m erica n T a n k C a r ------ d o ______________ _______ _
107J4
1049S
104)
4
5M
44J4
DunhilL
100
DunhilL
16
DunhiiL
27
C h e c k ..
13
13
23
25
26
W o rth in g to n P u m p .
28
30
50
W orthington P um p.
C h e ck .
100
A ccou nt H p rem iu m on 100 In te rn a tio n a l S a lt
v alu e , Ju n e 26.
P rem iu m , 100 In te rn a tio n a l S a lt, % ______________
In tern atio n a l S a l t ..................................................... ...............
In te rn a tio n a l S a l t .
10, 525. 00
10, 500. 00
10, 462. 50
10, 450. 00
106%
105
4, 531.00
105
104?4
41'/'
4 ,1 6 5 .0 0
36%
3 5 'i
mu
my4
44H
43
63,738. SO
AS. 713.50
10.59 6 .0 0
10, 646. 00
10, 525. 00
10, 525.00
.3 4
1 ,0 3 3 .6 6
10, 525. 00
10. 500 00
43
US, £84.75
1 1 , 104. BO
26, SSS. 00
4. 465. 00
10654
105
100
10,60 8 .5 0
10,633. 50
1 0 ,6 7 1 .0 0
10, 721.00
10656
107
22
14
*3,43*.^
5.682.10
11.364.20
5.694.60
5.707.10
2,834.80
5 .6 9 4 .6 0
10 ,5 4 6 .0 0
10,5 5 8 .5 0
11.3 6 4 .2 0
5
105
104?i
G en eral A m erica n T a n k C a r ..
___ d o __________________________
In te re st, 6 p er c e n t ------------------C h e c k __________________________
G eneral A m eric a n T a n k C a r .
___ d o__________ _______ ________
D u n h ilL
57H
105^4
105Ji
8*,S3*. #>
79,107..
SI. 025.00
0.00
4 ,2 8 1 .0 0
116. 00
3, 656. 00
3, 565. 00
91.00
6, 825. 00
43,109.00
se, 584.00
n , 059.00
116.00
0.00
3,666.00
91.00
0.00
6,873. 00
48.00
4,393. 50
37..50
4.393.50
4,856.00
3 7 .5 0
4 ,3 1 5 .0 0
4.318.50
5.60
48. 00
PRACTICES
29
31
31
100
100
100
100
26
27
28
29
57
57H
57 M
56J*
11,604. SO
9 5 .0 0
2,085. 25
100
G e n eral A m e ric a n T a n k C a r .
- .d o _________________________
. .d o _________________________
. .d o _________________________
____ d o .________________________
G e n era l A m erica n T a n k C a r .
____d o _________________________
R e y n o ld s T o b a c c o B _________
55*1
57
2.225.00
1.300.00
55,675.00
69,503.76
EXCHANGE
19
19
24
MJ4
Reynolds Tobacco B............
-----do..................................
100 -----do..................................
100 -----do..................................
50 -----do......... .................. .....
100
C heck.
___ d o .
11
STOCK
18
18
19
.d o ..
100
200
18
18
18
18
200
0.00
o
00
In account current with E. F. Hutton & Co.— Continued
Date
Bought
300
Sold
C re d it B a la n c e .
B r o c k w a y M o to rs .
200 ......... do................ ............
500
B ro c k w a y M o to rs ____
100
100
100
100
100
Check
200
100
100
300
G en eral F o o d s .
100
200
C o m m ercia l S o lv e n ts.
100
100
100
100
100
C o m m e rcia l S o lv e n ts.
.d o ............. .....................
200
G e n era l F o o d s ..............
200 ____ d o _________________
100 P h illip s P e t r o le u m ...
......... d o ...................................
G e n era l F o o d s ...............
C o m m e rcia l S o lv e n ts .
..........d o ...................................
. .d o ................................. .
100
..d o ...................................
100
100
Cheek..................
100 New York Dock.
m
...........
^ 5.W
27H
54#
33Js
33?j
26
26’f»
2,677. 50
2, 690.00
5 iU
54 U
32H
10,885. 00
10.885.00
3, 265.00
13.110.00
5,492.50
5.330.00
2.690.00
26 H
PhiJlips Petroleum.
100 Oeamlfoodt.
16,402. 50
mi*
55^*
26 H
5, 529. 50
5,528. 50
3,343. 50
3,356. 00
5,571. 00
2, 756. 00
8, 78',.50
87, 111. 50
se, 729. 00
5, 637. 00
2, 781. 00
33H
55:i
26H
100
382. 50
3, 265.00
3,277. 50
28
28 H
64:
26^
100
200
Interest 3H per cent.
55)^
33^
33*4
32:
400
7, 667. SO
fs. so
7,671. 50
2 .806. 00
3,368. 50
3, 356. 00
3,343. 50
3, 318. 50
5, 553. 50
5, 528. 50
5,566. 00
5, 462.00
is, 008. 00
55, 04S. 50
5 5 ,1S7. 00
2,627.60
2.640.00
.80
1,007.20
S,866.00
a 00
PRACTICES
100
P h illip s P e tro le u m .
___ d o .............................
___ d o ______________
___ d o ______________
G en eral F o o d s ..........
___ d o .............................
— d o ........ ...................
100
100
C o m m e rcia l S o lv e n ts.
____d o _________________
____d o - ......................... ..
$3.50
B a la n c e
r>, 516. 00
5, m . oo
55H
5536
55
32^
325$
P h illip s P etro leu m ..d o ---------------------
$4, 575.00
3,100. 00
C re d its
EXCHANGE
100
100
____ d o . . ................ ..............
P h illip s P e tro le u m ___
____ d o .________________
G e n era l F o o d s ________
C o m m e rcia l S o lv e n ts.
15H
15H
15’A
D e b its
STOCK
100 G en eral > oo d s________
100 ......... do...................................
100 ____ d o .................... ..............
se
P r ic e
»
37
»
98
38
as
300 General Foods_______________ ______________
C h ink-.........,____ . . . .
__
Interest 3H per cent_________________________
38
31
n
31
Sept. 2
4
4
<200 New York Dock__ _______________ ___ __ ____
Bfti»nce.......
...... , .
__ ______ .
e
9
9
9
9
Interest ZU per cent to Sept. 4 account New York
Dock.
10
12
100
100
22
22
22
100
100
100
46H
37H
37H
300
100
100
100 ____do___ ______ _ .. .
12H
13}*
13%
14
23
Feb. 25
25
25
________________
Sbort dividend notice ex Sept. 10 account 100
Mon Santo Chemical at 31)4 cents and 1H per
cent stock dividend payable Oct. 1.
44?*
357
45
44H
l
1 100/200 Mon Santo Chemical account stock
dividend on 100 Mon Santo Chemical trans
fer.
500 Pantmqnnt*P«nK>i){f............ ,
.,
..
. ,
200
100
100
100
100 Container A ................. .................
» Short.
.....
1,734.55
i 'i i i S
1,734.55
3.60
3,712.50
3.12
* Net.
1.333.50
1.358.50
1.383.50
10,888.46
10,879.86
10.7U.i6
380.23
10,859.50
4,452.50
5,700.00
22.50
47.13
106.12
137. $7
81. £5
~A
26,087.50
050.00
100
100
1,734.55
4,656.00
3.743.50
3.718.50
0.00
31.25
50
51
51H
51H
52
Check, D. B. Goldsmith____________ ________
100 Container A ... ______ ____. . . ______
8,788.50
6)703.50
'
>100
1
1931
Jan. 13
14
14
14
14
447.80
.65
a>*44-to
21
2,112.50
22H
21H
2.062.50
2014
4 Long.
700. CO
10,132.00
5.078.50
5,091.00
5.103.50
682.50
250.00
= = = = = :
2,224.20
2,161.70
700.00
PRACTICES
15
15
15
15
17
Oct. 1
37,887.80
4,446.00
6,088. fi(i
8,616.00
EXCHANGE
10|
100 General Foods.............................................
100 . . . . .d o . . . .. . . . . . . . . .. . . . . . . . . . . . . . . . . .
* is l
55
<794
57H
STOCK
To adjust Aug. 31 interest account New York
Dock.
100 General Foods________ __________ J....... ....
100
_ .
_
100 ____do___. ___ ___
Xti, 105.00
1)50.00
0.00
.......?,278.40
210. SO
•a
cn
o
In account current with E. F. Hutton & Co.— Continued
1931
F e b . 28
28
28
M ar. 7
10
12
100
P r ic e
2 iH
T r a n s u e <fc W illia m s ................. ......................................... ..
100
T r a n s u e * W illiam s
100
C re d it b a la n c e ________________________ _________
B u d d M a n u fa c tu r e s ______ ______ _______________
_______________ _____ -
100
A p r. 29
29
29
3D
200
M ay
100
1
1
6
6
6
So ld
Bought
D a te
100
100 ..........d o ..................
........................................................
D e b it s
50
5m
51
1 ,2 3 7 .5 0
350.40
$ 2 ,5 0 6 .0 0
(279.40
279.40
1 ,3 0 8 .5 0
279.40
1,587.90
550.40
0 .0 0
1 0 ,0 3 5 .0 0
5,166. 00
5 ,1 4 1 .0 0
272.00
In te rn a tio n a l T elep h o n e
& T e le g ra p h ....... .................
100
In te rn a tio n a l T e le p h o n e
100
R a d io ................ ........................................................................
T e le g ra p h ..................
100
73%
7,392. 50
4m
44
4 ,1 9 0 .0 0
rs y*
B a la n c e
$ 2 ,4 3 7 .5 0
25H
13 H
12H
C re d its
£79.00
0 .0 0
7 ,5 0 1 .0 0
108.60
4 ,3 8 1 .0 0
299.50
0 .0 0
STOCK EXCH A N G E PRACTICES
707
Mr. G r a y . N o w this is your account with Louchheim, Minton &
Co., is it not? [Presenting papers to the witness.]
Mr. L i o n . Yes, sir.
Mr. G r a y . Are they all trades, or is there any exercise of calls in
there?
Mr. L i o n . Those were all options and calls.
Mr. G r a y . In other words, all for publicity work. I will put that
into the record.
The C h a i r m a n . Without objection, it is so ordered.
(The statement of D. M. Lion, in account current with Louchheim,
Minton & Co., so ordered printed in the record, is as follows:)
D. M. Lion short account, in account current with Louchheim, Minton & Co.
O
00
Credit
Debit
Date
Amount
1928
Nov. 12 Call 5,000 Cons. Rep. of Cuba, 6 per cent preferred, at 76;
expires Nov. 30..............................................................
Call 5,000 Kolster, at 84; expires Dec. 1.............................
Call 5,000 Kolster, at 85; expires Dec. 1................ ............
14 100 Kolster Radio, 83H......................................................
1,800 Kolster Radio, 84...................................................... .
100 Kolster Radio, 84..........................................................
Interest, 7 per cent..............................................................
Check.................................................................................
5.000 Kolster Radio, 84 account call....................................
5.000 Kolster Radio, 85 account call....................................
Interest, 7 per cent...................................................... .......
Check.................................................................................
Call 5,000 Sinclair, at 44; expires Dec. 23............................
$8,37a 00
151,560.00
8,42a00
.84
4,344.16
421.000.00
426.000.00
4.29
22,070.71
Date
1928
Nov. 12 300 Kolster Radio, 86M-........................................................
12 500 Kolster Radio, 86H..........................................................
12 500 Kolster Radio, 86H.........................................................
12 200 Kolster Radio, 87..............................................................
13 500 Kolster Radio, 86J4......................................................... .
15 500 Kolster Radio, 85M..........................................................
15 500 Kolster Radio, 855*..........................................................
15 1.000 Kolster Radio, 86...........................................................
15 1.000 Kolster Radio, 85...........................................................
15 400 Kolster Radio, 85?i............................. .............................
15 600 Kolster Radio, 85j|...............- ..........................................
15 500 Kolster Radio, 85H-.........................................................
16 1.000 Kolster Radio, 87W........................................................
16 300 Kolster Radio, 87%...........................................................
16 200 Kolster Radio, 87%...........................................................
16 500 Kolster Radio, 87?^..........................................................
19 500 Kolster Radio, 89..............................................................
19 500 Kolster Radio, 9S}4...........................................................
19 500 Kolster Radio, 89H............................................................
19 500 Kolster Radio, 90H...........................................................
19 500 Kolster. Radio, 88J4...........................................................
19 1.000 Kolster Radio, 88H.......... - ............................................
30 Call 5,000 Cons. Rep. of Cuba, 6 per cent preferred, at 76;
expires Nov. 30....................................................................
1,041,77a 00
1,041,770.00
Dec.
Call, 5,000 Sinclair, at 44; expired December 23.
1,400 Sinclair, at 44.............................................
600 Sinclair, at 43%............................................
Interest, 7% per cent.........................................
Check.................................................................
3.000 Sinclair, at 40....... .....................................
2L400Sinclair, at 40..........................................
Cheek................................................................
,700Sinclair, at 40........................................
’beck...................................................... ..........
2.000 Genl. Amer. Tank, at 89.............................
Interest, 9 per cent............................................. .
Check............................................—..............
61,810.00
26.415.00
.62
2; 894.38
mmw
96.360.00
7,699.00
106.406.00
3,645.51
178.400.00
8.13
10,886. *7
Amount
Dec. 3 2.000 8indair, at 45H-—
10 Call 5,000 Sinclair, at 44.
21 1.000 Sinclair, at 41%.—
21 1,200 Sinclair, at 41$.—
21 800 Sinclair, at 41^-----1.000 Sinclair, at 4 1 H --1.000 Sinclair, at 4iJ$___
24
24
24 400 Sinclair, at 43______
24 900 Sinclair, at 41kL.....
24 1.000 Sinclair, at 8 k ....
24 100 Sinclair, at 41K......
24 100 Sinclair, at 4 lli------24 600 Sinclair, at 41H-.......
91,120.00
.
41,56a 00
49.872.00
33.048.00
41,56a 00
4), 08*00
10.734.00
87 404.00
118:1.
24,784.00
1.900 Sinclair, at 40..
Oheok......................
I^nterwt, 8 per oent.
teat Amer. Tank, at 94J4.
800 Gaol. Amer. Tank, at MH-.
500 Gwjl. Amer. Tank, at 96__
1,000 Sinclair, at 41H.
900 Sinclair, at 41H—
K
86, 157, <
W,70**
47,880.1
41,810.00
37,291.50
695, 466.01
28
28
28
28
28
28
28
Jan. 29
29
29
29
29
3Q
44.310.00
15.752.00
15,752.00
7.876.00
5.635.00
.
.
6 010.00
5.635.00
10,818.00
1.227.00
1 202.00
5.885.00
3.005.00
601.00
% 942.50
16,002.00
15.852.00
15.752.00
24,115.50
2,942.50
15.952.00
7.851.00
48.645.00
48,832.50
19.658.00
38.516.00
19.408.00
29.037.00
9,679.00
29.337.00
19.508.00
29.487.00
19.948.00
10.174.00
29.922.00
20.698.00
20.348.00
1,388.43
PRACTICES
22
24
24
24
28
28
394, 29a 0b
EXCHANGE
Chsp.lf
1.000.Lig. & Myers B, 94}$........................................
1.000 Lig. & Myers, 95................................................
Check........................................................................
1.000 Lig. & Myers B, 94}$........................................
1.000 Lig. & Myers com., 95.......................................
1.200 Bush Term., 78H..............................................
18 Bush Term., Bee...................................................
100 Bruns. Term., 39..................................................
Check........................................................................
Interest, 8J£...............................................................
Interest, 7fi...............................................................
Interest, 7H, as of Feb. 4............................................
2.000 Sinclair, 40........................................................
Check.........................................................................
Call 5,000 Int. Saf. Razor., at 35__________________
Call 7,500 Int. Saf. Razor, at 36..................................
Call 7,500 Int. Saf. Razor, at 37_____________ _____
200 Int. Saf. Razor, a/c rail 35.....................................
Check.................... : . .................................................
50 Borg Warner (cancel sale May 2), 137J£.................
Call 5,000 Int. Safety Razor at 35; expires May 15__
200 Int. Safety Razor, 35 account ca ll........................
Check........................................................................
Call 7,500 Southwestern Stores at 18; expires May 24.
200 V. S. Steel, 213H..... ................................... .
Interest 8 per c e n t.............................. ............... .
9.000 Sinclair, 44........................................... .
1.000 Sinclair, 44**-........................................
200 Bush Term., 79...................................... .
300 Bush Term., 79...................................... .
200 Bush Term., 79.......................................
100 Bush Term., 79_____ ____________ ___
1.000 Cons. Textile, 5H-—_____ __________
1.000 Cons. Textile, 6j|____ ____ _________
1.000 Cons. Textile, 5%..................................
1,800 Cons. Textile, 6H— ............- ...............
200 Cons. Textile, OH....................................
200 Cons. Textile, 6}|....................................
1.000 Cons. Textile, 6................... —..............
500 Cons. Textile,
....................................
100 Cons. Textile, 6H....................................
500 Cons. Textile, 6.......................................
200 Bush Term., 80J£.....................................
200 Bush Term., 79}$.....................................
200 Bush Term., 79........................................
300 Bush Term., 80%.....................................
500 Cons. Textile, 6........................................
200 Bush Term., 80........................................
100 Bush Term., 78J<.....................................
Call 8,400 Cons. Tex., at 5K; expires Jan. 24.
Call 10,000 Cons. Tex., at 6; expires Jan. 24..
500 Lig. & Myers, 97H..................................
500 Lig. & Myers, 97%..................................
200 Lig. & Myers B, 98}$...............................
400 Lig. & Myers, 96H..................................
200 Lig. & Myers, 97&..................................
300 Lig. & Myers, 9 7 ....................................
100 Lig. & Myers, 97......................................
300 Lig. & Myers, 9 8 ............................ ........
200 Lig. & Myers, 97Ji.................................. .
300 Lig. & Myers, 98}|....... .......................... .
Call 800 Bush Term.; expires Jan. 28.............
200 Lig. & Myers, 100.....................................
100 Lig. & Myers, 102.....................................
300 Lig. & Myers, 100.....................................
200 Lig. & Myers, 103%.................................
200 Lig. & Myers, 102.....................................
18 Push Term. T7%............ .........................
STOCK
10.000 Sinclair, 41...................................................... .
Check....................................................................... .
Call 2,000 Bush Term., at 79.....................................
Call 10,000 Coos. Textile, at 5H; expires Jan. 24____
Call 10,000 Cons. Textile, at 6; expires Jan. 24..........
100 Bush Term., SOU.................................................
100 Bush Term., 80....................................................
100 Bush Term., 7&X........................ ................ .......
300 Bush Term., 79....................................................
100 Bush Term., 78J£................................................
800 Cons. Textile, 5j|.................................................
100 Bush Term., 78........................... ........................
1,600 Cons. Textile, 5H..............................................
5.200 Cons. Textile, 5^g............................................
200 Cons. Textile, 5%.................................................
1929
Jan. 3
3
16
16
16
16
16
16
16
16
16
17
17
17
17
17
17
17
17
18
18
<1
o
CO
710
D. M. Lion short account, in account current with Louchheim, Minton & Co.—Continued.
Credit
Debit
Amount
Date
Interest 8 per cent...
Interest 1X
A per cent.
Interest 6 per cent....
Interest 6 per cent...
$3.79
10.65
5.70
14.75
July
2,869.32
1,900.00
11.875.00
113.00
13.888.00
3.568.50
3.568.50
39,932.00
.95
213
2,869.32
1,189,213.52
June 27 100 Borg. Warner, 119}-*....................................
July 1 Call 100 Borg. Warner, at 118J& expires July 2.
8 200 Loft, 10........................................................
8 Call 100 Borg. Warner, at 118J4; expires July 6.
11,921.00
1,967.00
13,888.00
PBACTICES
1,189,213.52
Balance..............................................................
Call 100 Borg. Warner, at 11SH; expiresJuly 2 ..
Call 100 Borg. Warner, at llSfi; expires July 6.
200 Loft ree’d . . .............................................. .
100 Borg, Warner, 118H.....................................
Check.................................................................
$3,781.00
137.36
41.935.00
41.560.00
.53
3.731.00
3.631.00
6,874.80
EXCHANGE
Feb. 1 100 Bruns. Term. 38.......................................
4 Check.............................................................
Mar. 21 1.000 Sinclair, 42H..........................................
21 1.000 Sinclair, 41H..........................................
22 Interest 6 per cen t.........................................
Apr. 15 100 Int. Sat. Razor, 37M..................................
15 100 Int. Saf. Razor, 36H..................................
May 2 50 Borg. Warner, 137%...................................
8 Call 4,800 Int. Safety Razor at 35; expired___
8 Call 7,500 Int. Safety Razor at 36; expired__
8 Call 7,500 Int. Safety Razor at 37; expired.. .
10 100 Int. Safety Razor, 35H..............................
10 100 Int. Safety Razor, 3 5 ^ ............................
15 Call 4,800 Int. Safety Razor at 35; expired__
24 Call 7,500 Southwestern Stores at 18; expired.
Oct. 25 200 U. S. Steel, 200..........................................
Nov. 19 To adjust interest, Oct. 31...............................
19 To adjust interest, Nov. 18........................... .
Dec. 31 Balance............................................................
Amount
STOCK
1929
Oct. 31
Nov. 18
30
Dec. 31
Date
STOCK EXCHANGE PRACTICES
711
Mr. G ray. N ow I have prepared a list here and I want to ask you
if this was a correct list of the brokerage houses, members of the New
York Stock Exchange, that gave you such calls as you have indicated.
If any of them whose names I read is incorrect, interrupt me and let
me know.
H. L. Goldberg?
Mr. L ion . They are not members of the stock exchange.
Mr. G ray. They are not members of the stock exchange1?
Mr. L ion . No, sir. They are on the curb exchange.
Mr. G ray. They are members of the curb exchange ?
Mr. L ion . Yes, sir.
Mr. G ray. The next one is Hayden, Stone & Co.
Mr. L ion . Yes, sir.
Mr. G ray. Prince & Whitley.
Mr. L ion . Yes, sir.
Mr. G ray. Eastman, Dillon & Co.
Mr. L yon . I never had an option from Eastman, Dillon & Co.
Mr. G ray. Was it not Eastman, Dillon & Co. that you got the Bush
Terminal from?
Mr. L ion . No, sir; I told you I got that from some other house, a
small option.
Mr. G ray. All right. Hirsch, Lillenthal & Co.
Mr. L ion . I had a call from them on one; yes.
Mr. G ray . Beere & Co.
Mr. L ion . Yes, sir.
Mr. G ray . Leo Spergan.
Mr. L io n . I had a call from them. I don’t remember. I had a
call, I would say; yes.
Mr. G ray. From Spergan & Co. ?
Mr. L ion . Yes.
Mr. G ray. Ira Haupt & Co. ?
Mr. L ion . Yes.
Mr. G ray . M. J. Meehan & Co. ?
Mr. L ion . Now, let me tell you about Meehan & Co.
Mr. G ray. G o ahead.
Mr. L ion . I had 75,000 shares of Fox Theaters-----Senator F letcher (interposing). A little louder.
Mr. G ray . He had 75,000 shares of Fox Theaters.
Mr. L io n . That was given to Mr. Sedg Levy, with Ellsworth.
Mr. G ray . That is, Ellsworth?
Mr. L io n . Yes, sir.
Mr. G ray . He was a trader?
Mr. L io n . I think he was a member o f the firm of Meehan & Co.
Mr. G ray . M. J. Meehan & Co. ?
Mr. L io n . Yes, sir.
Mr. G ray . And he gave you this call?
Mr. L io n . He gave it to Mr. Levy.
Mr. G ray. To Mr. Levy?
Mr. L io n . Yes; and Mr. Levy gave me half of the call.
Mr. G ray. Did you ever exercise it?
Mr. L io n . N o; I never had an opportunity. The stock kept break
ing ; it broke from 73 down to $5.
712
STOCK EXCHANGE PRACTICES
Mr. G r a y . In other words, before you could exercise y o u r call*
which was, of course, at a certain price, the stock broke so t h a t y o u
could not make any profit and you never exercised it?
Mr. L io n . N o , sir.
Mr. G r a y . I s that correct ?
Mr. L io n . That is correct.
The C h a i r m a n . But had no loss, of course?
Mr. L i o n . N o, sir.
Mr. G r a y . G o in g on w ith these firms: Zukor & Co.
M r . L io n . A s I recall, I had a call from Paramount.
M r . G r a y . Or Zukor & Co. ?
Mr. L i o n . From Mr. Richardson.
Mr. G r a y . Of that firm?
Mr. L i o n . Yes. sir.
M r . G r a y . E. F. Hutton & Co. you have mentioned.
Mr. L i o n . Yes. sir.
Mr. G r a y . Hansel & Co.
Mr. L i o n . Yes; I had a call from them.
Mr. G r a y . Eshbaugh & Co.
Mr. L i o n . Eshbaugh & Co.?
M r . G r a y . Yes.
Mr. L i o n . I think I had International Salt from them.
Mr. G r a y . Goddard & Co.
Mr. L io n . I had International Safety Kazor from Goddard & Co*
Mr. G r a y . A. J. Frankel & Co.
Mr. L i o n . Yes. sir.
Mr. G r a y . Richards & Co.
Mr. L i o n . Yes, sir.
Mr. G r a y . Prentice & Slepack you have already a d m itted .
Mr. L i o n . Yes, sir.
Mr. G r a y . Cohen, Simonson & Co.
M r . L io n . I don’t remember what I had out of there.
Mr. G r a y . In other words, you were generally known, f o r t h e l a s t
two or three years, on the Street in New York, as the m a n w h o could
furnish publicity, and was the man who furnished p u b lic it y f o r
either cash or call; that is true, isn’t it ?
Mr. L i o n . Yes. sir.
Mr. G r a y . I think that covers the subject. Mr. Lion, you -will
understand, of course, that you are still under subpoena, but you will
not be required to stay here, and not required to come here nnlftcs
we notify you.
Mr. L i o n . I am g la d o f th a t, Mr. Gray.
Mr. G r a y . We will excuse you. I know it has not been very
pleasant for you.
(The witness was excused.)
Mr. G r a y . Mr. John J. Raskob.
TESTIMONY OP JOHN J. BASKOS, DIRECTOR, GENERAL MOTORS
CORPORATION, CENTERVILLE, MD.
The C h a i r m a n . Raise your hand and be sworn. You
swear that you will tell the truth, the whole truth, and
the truth regarding the matter now under investigation
mittee. So help you God.
•
do solemnly
nothing b u t
by the com .
J
STOCK EXCHANGE PRACTICES
713
Mr. R ask o b . I do.
Mr. G b a t . Mr. Raskob, where do you reside, please?
Mr. R ask o b . Centerville, Md.
Mr. G b a t . And your full name is what?
Mr. R ask o b . John J. R askob.
Mr. G b a t . What is your business ?
Mr. R a sk o b . Trying to make good Democrats out of a lot of mis
guided Republicans, I guess.
Mr. G b a t . I see.
Mr. R ask o b . I am chairman o f the Democratic National Com
mittee.
Mr. G b a t . I will not ask you how successful or unsuccessful you
have been. You were associated with the General Motors Corpora
tion, were you not?
Mr. R ask o b . Yes, sir.
Mr. G b a t . Y ou nave been associated, or became associated with
the General Motors Corporation. Mr. Raskob, when, please ?
Mr. R ask o b . Oh, I guess 15 years ago.
Mr. G b a t . About 15 years ago?
Mr. R a sk o b . Yes, sir.
Mr. G b a t . Well, say, about 1917 ?
Mr. R a sk o b . I should think so.
Mr. G b a t . Did you become an officer of General Motors Corpo
ration?
Mr. R ask o b . Yes, sir.
M r. G b a t . A n d when d id you becom e an officer, and w hat p osition
d id you occupy?
Mr. R a sk o b . I do not remember the dates I became an officer; but
for years I was chairman of the finance committee and a vice presi
dent, and active in the General Motors Corporation, and devoted my
whole time to it.
Mr. G b a t . Try to keep your voice up. It is difficult to hear in
here. Are you now vice president of General Motors Corporation ?
Mr. R a sk o b . N o , sir.
Mr. G b a t . When did you cease to be vice president ?
Mr. R a s k o b . I resigned all association with General Motors Cor
poration in 1928, when I became chairman of the Democratic Na
tional Committee, excepting I am still a director of General Motors
Corporation.
Mr. G b a t . In other words, you gave up your position as chairman
of the finance committee and your position as vice president, did you,
but continued to be and still are a director of General Motors Corpo
ration?
Mr. R a s k o b . Yes, sir.
Mr. G b a t . Is that correct ?
Mr. R a s k o b . Yes, sir.
Mr. G b a t . The time you severed those other relations was about
July, 1928?
Mr. R a s k o b . Yes, sir.
Senator G l a ss . Mr. Gray, before you proceed further with the
examination of Mr. Raskob, I want to ask you a question.
Mr. G b a t . Yes, sir.
STOCK EXCHANGE PBACTICES
714
Senator G lass. I s there any other official or director of General
Motors Co. who has the information that you propose to elicit from.
Mr. Raskob, who has been subpoenaed?
Mr. G ray. No, sir; because the information I want to elicit from
Mr. Raskob is in relation to his own personal matters, and no other
official has that information.
Senator G lass. I s there any other official of General Motors Co.
from whom kindred information can be secured t-liat you have sub
poenaed?
Mr. G ray. Not that I have subpoenaed. There are some other ac
counts that I have investigated.
Senator G lass. I ask that question because it has been whiskered
for weeks around the Capitol that this investigation was initiated
with the expectation of involving several prominent Democrats, and
I want to elicit information from you as to whether you equally
want to involve several prominent Republicans.
The C h airm an . I f there are any involved, bring them in and we
will name them.
Senator G lass. It is for him to bring them in.
Mr. G ray . I want to say to you, Senator, that the political end of
this investigation, if there is any, has not concerned me in the slight
est. I have gone along and endeavored to elicit before the committee
the practices that I think are either illegal or improper and that
should be corrected.
Senator G lass. The facts will speak for themselves.
Mr. G ray. Certainly. I have talked to individuals without regard
to what their political complexion may be. I have not the slightest
interest in it. O f course, if I am instructed to proceed no further
because Mr. Raskob is chairman of the Democratic National Com
mittee, I will not proceed.
Senator G lass. Oh. proceed. I am just wondering why you found
him of the Democratic political complexion.
Mr. G ray . I have not inquired of any of them as to what their
political affiliation is.
Senator G lass. W e are just fencing now. Go ahead.
Mr. G ray . Mr. Raskob, are you a stockholder in General Motors?
Mr. R askob. Yes, sir.
Mr. G ray . And at the time that you resigned your position as vice
president and chairman of the finance committee, can you tell me
what the extent of your stockholdings was ?
Mr. R askob. Well, Mr. Gray, as a result of our talk in New Y ork
I have prepared a statement, as you requested, showing, first, my
holdings in common stock from January 1. 1928, to December 31
1931.
* '
’
Mr. G ray. Suppose, before you proceed with the figures, Mr
Raskob-----Mr. Raskob (interposing). I think if I may continue, if agreeable
to the chairman-----*
Mr. G ray (interposing). I have not the slightest objection to
your stating it in your own way.
Mr.RASKOB. ^ ° ’ but I was going to say that if I pass a cop v o f
this statement around to the committee, they will better undeiSfear»d
my statement.
*
“
STOCK EXCHANGE PRACTICES
715
Mr. Gbat. I s that the thing you passed to me ?
Senator B u l k l e y . D o you w an t th is statem ent in the record, to o ,
Mr. Raskob?
Mr. R ask o b . I f th at is agreeable, I w o u ld like to h ave it.
Senator B u l k l e y . I ask that this go into the record. Now, do I
understand that this statement is in the record ?
Mr. Gbay. Senator Bulkley is asking to put the statement which
he has handed to every member of the committee, and also to myself,
in the record.
The C h a i r m a n . Have y ou h ad a chance to see it?
Mr. Gbay. I have, all blit the last few figures. It is a matter for
the committee, but I have no objection, as counsel, and think it
should be put in the record.
The C h a i r m a n . There being no objections, it will go into the
record. [After a pause.] It is so ordered.
(The statement produced by Mr. Raskob, and ordered to be printed
in the record, is as follows:)
General Motors Corporation common stock
REGULAR ACCOUNT OF J . J . RASKOB
;
Shares
Jan. 1, on hand_______________________________________________ 76, 596
January and February, no transactions.
March—
Shares
Purchased_________________________________________ 20,000
Sold.______________________________ _______________20, COO
Balance__________________________________________
0
Donated__________________________________________________
April to December, no transactions.
Dec. 31, balance_______________________________________________
3,000
73, 596
73.596
1929:
Jan. 1, on hand_______________________________________________
73,596
Converted on 2%-to-l basis into________________________________ 1183,990
January, received from Allen Trust_____________________________
210
Balance-------------------------------------------------------------------------------- 184,200
February, received from General Motors savings fund___________
27
March to August, no transactions.
September, sold_______________________________________________
184,227
3,362
Balance..__________________________________________________ 180,865
October, no transactions.
November—
Purchased_________________________________________ 50,000
Sold_______________________________ _______________ 50,000
Balance_________________________________________
0
December, delivered to special account__________________________ 174.365
Dec. 31, balance_______________________________________________
1New shares.
6,500
716
STOCK EXCHANGE PRACTICES
Shares
1930
Jan. 1, on hand_______________________________________________
6,500
January, no transactions.
February, received from General Motors savings fund---------------24
Sold__________________________________________________________
Balance____________________________________________________
March, no transactions.
April, sold--------------------------------------------------------------------------------
6,524
6,500
24
24
Balance-----------------------------------------------------------------------------------------0
May to August, no transactions.
September, purchased from Regent Corporation (a personal com
pany) ----------------------------------------------------------------------------------54,950
October, transferred to special account_________________________
10,000
Balance-------------------------------------------------------------------------------November and December, no transactions.
Dec. 31, balance-----------------------------------------------------------------------1931:
Jan. 1, balance-------------------------------------------------------------------------January, transferred to special account_________________________
44,950
44,950
44,950
22,400
Balance_______________________________________________ ____
22,550
February—
Purchased-------------------------------------------------------------------------- 10,000
Received from General Motors savings fund________________ ____ 17
Balance-------------------------------------------------------------------------March to August, no transactions.
September, sold------------------------------------------------------------------------
32, 567
Balance-------------------------------------------------------------------------------October, sold-----------------------------------------------------------------------------
30,000
10,000
Balance-------------------------------------------------------------------------------November and December, no transactions.
Dec. 31, balance------------------------------------------------------------------------
20,000
2,567
20,000
SPECIAL ACCOUNT OF J . J . RASKOB
1928:------------------------------------------------------------------------------------------------- Shares
Jan. 1, 1928, shares sold in 1927 not yet transferred from regu
lar account--------------------------------------------------------------------------58,800
January, sold-------------------------------------------------------------------------20,000
Balance-------------------------------------------------------------------------------February, no transactions.
March, purchased--------------------------------------------------------------------
78,800
78,800
Balance----------------------------------- --------------------------------------------- --------0
Sold------------------------------------------------------------------------------ ---------- 40, ooo
April to June, no transactions.
July, sold-----------------------------------------------------------------------------20,000
a — 4. no transactions.
*
**
August,
September, sold______________________________________________
October to December, no transactions.
Dec. 31, 1928, balance--------------------------------------------------------------
60,000
! 2 346
^ 346
^ g46
717
STOCK EXCHANGE PRACTICES
1988:
Share#
Jan. 1, 1929, balance_________________________________________
72,346
Converted into new stock on basis 2% to 1---------------------------------1180> 8®
January to October, no transactions.
November, purchased_____ ___________________________________
6,500
Balance___________________________________________________
December, shares transferred from regular account---------------------
174,365
174,365
Dec. 31, 1929, balance________________________________________
1990:
January 1, balance__________________________________________
January to July, no transactions.
August, sold_________________________________________________
September, no transactions.
October, transferred from regular account_____________________
0
0
10,000
10,000
Balance____________________________________________________
0
November, no transactions.
December, sold_______________________________________________ __ 22,400
1981:
January 1, balance_____ _____________________________________ __ 22,400
January, transferred from regular account_____________________ __ 22,400
Balance___________________________________________________
February to December, no transactions.
Dec. 31, 1931, balance--------------------------------------------------------------
0
0
General Motors Corporation common stock—Consolidated accounts of J. J.
Raskob
15)28
Shares
Jan. 1, on hand--------------------------------------------------------------------------------- 17,796
January, sold------------------------------------------------------------------------------------ 20,000
Difference____________________________________________________
2,204
February, no transaction____________________________________________ 2.204
March:
Shares
Bought--------------------------------------------------------------------------- 98,800
Sold------------------------------------------------------------------------------- 60,000
Balance----------------------------------------------------------------------- 38,800
Less gift-------------------------------------------------------------------------- 3,000
---------- 35,800
Balance--------------------------------------------------------------------------------- 33,596
April and June, no transaction______________________________________ 33,596
July, sold----------------------------------------------------------------------------------------- 20,000
Balance_____________________________________________________ 13,596
August, no transaction—balance____________________________________ 13,596
September, sold--------------------------------------------------------------------------------- 12,346
Balance---------------------------------------------------------------------------------
1.250
October to December, no transaction_________________________________
Balance, December 31_______________________________________________
1* 250
1* 26®
i New shares.
718
STOCK EXCHANGE PRACTICES
1929
S h ares
Jan. 1, on hand------------------------------------------- ------------------------------------- 1» 250
Changed to new stock at ratio of 2y% to 1___________________________
January, received------------------------------------------------------------------------------
3,125
Balance--------------------------------------------------------------------------------February, savings fund---------------------------------------------------------------------
3 ,33o
27
Balance_____________________________________________________
362
March to August, no transactions------------------------------------------------------September, sold---------------------------------------------------------------------------------
3,362
362
Balance--------------------------------------------------------------------------------- --------- ^
October, no transaction.
November:
gbares
Bought-------------------------------------------------------------------------Sold___________________________________________________ 50,000
----------- 6,500
December, no transaction—balance--------------------------------------------------Balance, December 31-----------------------------------------------------------------------
6,500
500
1980
Jan. 1, 1930, on hand------------------------------------------------------------------------
6>500
January, no transaction—balance----------------------------------------------------February, received from savings fund-----------------------------------------------
6,500
24
Balance______________________________________________________
February, sold_____________________________________________________
*>>524
0,500
Balance______________________________________________________
24
March, no transaction—balance____________________________________
April, sold---------------------------------------------------------------------------------------
24
24
Balance---------------------------------------------------------------------------------
0
May to July, no transactions,
August, sold------------------------------------------------------------------------------------ 10,000
September, purchased from Regent Corporation (a personal company)_ 54,950
Balance--------------------------------------------------------------------------------- 44,950
•October and November, no transaction—balance______________________ 44,950
December, sold-------------------------------------------------------------------------------- 22 ^400
22,550
Balance, Dec. 31, 1930_______________________________________
mi
Jan. 1, 1932, on
___ _________ __
_
January and February, no transaction—balance__
March, bought------------------------------------------------Received from saving fund____________________ H ill
Balance-
22 ggQ
'
»n
^7
3 2 , 567
STOCK EXCH A N G E PRACTICES
719
Shares
April to August, no transaction
September, sold______________
32,567
2,567
Balance.
October, sold.
30.000
10.000
Balance------------------------------------November and December, no transaction
20,000
Balance Dec. 31, 1931
0
20,000
Mr. G ray. N ow , Mr. Raskob-----Mr. R askob (interposing). In answer to your question, Mr. Gray,
according to statement No. 3, which is a consolidated statement and
shows my net position, I had 83.5% shares of General Motors com
mon stock at the end of June. 11)^8. Was that the question you
asked me?
Mr. G ray. Yes; that is the question I asked you. Let me ask you
a general question first: With what firm of brokers were your trans
actions in General Motors conducted?
Mr. R askob. Through Dyer, Hudson & Co.
Mr. G ray. Were they the only firm?
Mr. R askob. Why, if I had any other transactions, they were very
scattered; there may have been some through M. J. Meehan & Co.,
but I don’t know.
Mr. G ray. And in Dyer, Hudson & Co.’s house you had an account
John J. Raskob; that is correct, isn’t it?
Mr. R askob. Well, I had-----Mr. G ray (interposing). That is correct? I mean, that is one
account you had there ?
Mr. R askob. Yes, sir.
Mr. G ray. And then you had a second account, did you not, which
was known as John J. Raskob, special account?
Mr. R askob. Special; yes, sir.
Mr. G ray. And the first account was what one would designate as
a long account; is that not so?
Mr. R askob. I would like—I do not want any confusion now when
•we start using the terms “ long v and “ short ” in this investigation.
Mr. G ray. Yes.
Mr. R askob. Statement No. 1 which I have handed you and to the
members of the committee shows my regular account. *
Mr. G ray . Yes.
Mr. R askob. Statement No. 2 is the special account.
Mr. G ray . Yes.
Mr. R askob. And statement No. 3 is a consolidation of the two.
My accountants, for purposes of convenience, and particularly for
purposes of better defining what particular shares were sold, by cer
tificate numbers, advised that when I sold stock it would be better to
sell it through a special account.
Mr. G ray . Yes.
Mr. R askob. N ow , this statement No. 2, which is the special ac
count, shows that on January 1, 1928, that account showed sale of
58,800 shares of General Motors common stock which had not yet
been transferred to that account from my regular account.
720
STOCK EXCHANGE PRACTICES
Statement No. 3, which is my consolidated account, shows that I
was long, as you call it. 17,796 shares of stock. And at no time,
going through all of these accounts, will you find that I have ever
been short of General Motors, except in two technical cases, Feb
ruary, 1928, when I happened to be 2,204 shares short; and appar
ently, in August, 1930,1 sold 10,000 shares and did not deliver them
until about six weeks later. Six weeks later that stock was delivered
out of stock which I owned, out of the Regent Corporation, which
is a personal holding company. There is no time during that period
that I have not held directly, or else through my holding company;
or the Management Securities Corporation, at least 100,000 shares of
General Motors.
Mr. G r a y . I will come to those details later. Had you any Gen
eral Motors stock anywhere in any brokerage house, or in any
other brokerage house than Dyer, Hudson & Co. ?
Mr. R a sk o b . I say, there may have been some in M. J. Median &
Co. I don’t know.
Mr. G r a y . Does it enter into this account if you have any?
Mr. R ask o b . Yes, sir.
Mr. G r a y . I mean, any that you may have had elsewhere?
Mr. R ask o b . Yes, sir.
Mr. G r a y . In other words, this account shows all your General
Motors stock, whether it is lodged with Dyer, Hudson & Co., or with
any other brokers, or whether you had it in your own box.
Mr. R ask o b . Yes, sir.
Mr. G r a y . Gives everything?
Mr. R ask o b . Yes, sir.
Senator B u l k l e y . Does it cover the Regent Corporation, too?
Mr. R a s k o b . No.
Mr. G r a y . I think, Senator, we have gone over this together, and
we understand it.
Mr. R a sk o b . The Regent Corporation was never short o f any
stock, or purchased any, except the stock it held and transferred to
me, as in one case shown here.
Mr. G r a y . N o w , we have talked about the account that you have
given us as Statement N o . 1, and the account you put in as State
ment No. 2. There was an account known as the Archmere Cor
poration. Is that your account?
Mr. R a s k o b . Archmere is an account that Mrs. Raskob owns.
Mr. G r a y . Then your statement is that it was Mrs. Raskob’s ac
count?
Mr. R a sk o b . N o ; it is the Archmere account.
M r . G r a y . Y ou m ean , it is an estate accou n t?
Mr. R a sk o b . Yes; it is a company that she owns entirely.
Mr. G r a y . Well, this is a company that she owns and owns
tirely?
Mr. R ask o b . Yes, sir.
Mr. G r a y . Therefore,
w as I not right in sa v in g that
R a sk o b ’s account?
Mr. R a sk o b . The record is straight on it.
Mr. G r a y . And there is an account of H. S. Raskob.
Mr. R a sk o b . That is Mrs. Raskob’s account.
en
it is Mrs.
STOCK EXCHANGE PRACTICES
721
Mr. Gbat. There is a small account, which I am really only re
ferring to for the purpose of getting our figures correct, which ap
peals in Dyer, Hudson & Co., under the name of Nellie Raskob.
Mr. R ask ob . What!
Mr. G b a t . Nellie K. Raskob. Is that your account i
Mr. R ask o b . I don’t know what that is at all.
Mr. G b a y . Y ou don’t know %
Mr. R a sk o b . N o .
Mr. G b a y . Now, then, your statement No. 1, and your sheet No. 1,
show in that account No. 1 that on January 1, li)28, you had on hand
76,596 shares of General Motors stock. That includes, does it not,
Mr. Raskob, all stock that you had on hand anywheres at that time?
Mr. R a sk o b . Yes, sir. Of course, it does not include stock—my
ownership of stock in the Management Securities Corporation.
Mr. G b a y . Well, we will let it be understood that in all these
questions that I am putting to you as to what your stock holdings
in General Motors are, it is exclusive of the stock in the Management
Securities Corporation.
Mr. R a sk o b . And the Regent Corporation.
Mr. G b a y . And the Regent Corporation.
M r . R a sk o b . Yes, sir.
Mr. G b a y . Had the Regent Corporation anything to do with the
management of the stock which came to you from the Management
Securities Corporation?
Mr. R a s k o b . The Regent Corporation now owns some of the stock
that was transferred from the Management Securities Corporation.
Mr. G b a y . Well, the Regent Corporation did not own any General
Motors stock until the Management Securities Corporation dis
solved?
Mr. R a sk o b . That is so.
Mr. G b a y . And then it took over the holdings which would other
wise have come to you ?
M r . R a sk o b . Y e s , sir.
Mr. G b a y . N o w , then,
your account No. 2, which appears on Dyer,
Hudson Co.’s books, and which you will undoubtedly concede is so,
as it is simply a short account, showed that there were sales in 1927
which fixed your position in that account as of January 1, 1928, as
58.800 shares ; is that right?
Mr.
time.
Mr.
R askob.
Yes; that is the number of shares sold
up
to that
G b a y . So that your long position in the stock at that time
represents the difference between the figure o f 76,596 shares and the
58.800 shares?
Mr. R a sk o b . Yes; 17,796 is the net difference.
Mr. G b a y . Yes. Now, in January of 1928, in account No. 2, your
special account, you sold 20,000 additional shares, making your total
78JB00 shares; is that correct?
Mr. R a s k o b . Yes, sir.
Senator F letcher. Was this stock of par value, Mr. Raskob, or
has it no par value—the General Motors stock?
Mr. R a s k o b . This was in 1928, Senator Fletcher. In 1929 the
stock was split up. I do not remember whether it had a par in
1928 or not. I do not remember.
722
STOCK EXCHANGE PRACTICES
Mr. Gbay. I think it was at no par in 1928, Senator Fletcher, and
in 1929 it was split two and a half for one. In 1927 it had been
split two for one; and then that stock, which was the product of
the two for one split, in 1929, was again split two and a half for
one. Now, the stock that we are talking about is the stock that
would have been worth, or should have been worth on the market
to-day, if it had not been split, just two and a half times what
General Motors is to-day on the market.
Senator Fletcher. What I was asking was whether General
Motors stock has par value, or no par value ?
Mr. Gray. The present stock is of no par value, and I believe
the stock from which it was split was no par value stock.
Am I not correct in that, Mr. Raskob? Is that your recollection?
Mr. Raskob. I am quite sure the old stock was no par value.
Mr. Gbay. Now, then, in your No. 1, or regular account, there
was some trading, and when we reach the point—when we reach
January 1,1931-----Senator Cor zens (interposing). Before you get to that, Mr. Gray,
I observe on Mr. Raskob’s statement, under 1928, it shows he donated
3,000 shares, and that it was subtracted from the shares he had on
hand in January, 1928.
What were those shares donated for by you?
Mr. Raskob. Those were donated to the Catholic Foundation.
That is at Wilmington. It is an association engaged in spreading
Catholic doctrine through the diocese of Wilmington, which in
cludes Delaware, and the eastern shore of Maryland and Virginia.
Senator C ouzens . In looking over this report, Mr. Raskob, I see
that under the heading of the year 1929 vou show, December, “ De
livered to special account, 174,365 shares.*
Mr. R a s k o b . Well, as I explained, when I sold stock from time
to time, I sold it through a special account.
Senator Co u ze n s . I see.
Mr. R askob . And if you will look in statement No. 2 , under 1929,
you will see that that stock was delivered to the special account
to balance the number o f shares that had been sold.
Senator C ouzens . In other words, it was turned back to the reg
ular account?
Mr. Raskob. To the special account.
Senator C ouzens . In sheet No. 2 it shows from the regular ac
count?
Mr. Raskob. Yes, sir.
Senator W alcott. And then they were sold?
Mr. Raskob. Yes, sir.
Mr. Gray. Now, I want to trace your position down to January
1,1929. On that day. according to your first sheet, you had 73,596
shares; is that correct ?
Mr. R askob. Yes, sir.
Mr. Gray. Now, then, it appears from your account No. 2 that
jn the month of March, 1928, according to your record, you pur
chased 78,800 shares to square your short account; is that correct?
Mr. Raskob. It shows I purchased 78,800 shares; that is right
Mr. G r a y . That is nght?
s
STOCK E X C H A N G E PRACTICES
723
Mr. B ask ob . Yes, sir.
Mr. G r a t . In other words, now, without disturbing your holdings
at all, you had accumulated sales in 1927 up to the point of 58,800
shares, and you sold, in January, 1928, 20,000 shares more, and then
you bought in the open market, in March, 1928, 78,800 shares to
cover those sales, and delivered them to your broker; is that right ?
Mr. B ask o b . I don’t like your reference to short sales. I was not
short. It shows that I purchased 78,800 shares of stock and used it
to balance my special, account instead of transferring the stock from
my regular account.
Mr. G r a y . Of course, I want to be perfectly fair—I think you
have found me so. What you mean is that in your regular account
you had an amount of stock which would offset that stock which
you had sold?
Mr. B a sk o b . More than enough.
Mr. G r a y . Well, as a matter of fact, a little less, Mr. Baskob, be
cause your figures show-----Mr. B a sk o b (interposing). Of what date?
Mr. G r a y . As of J anuary 1, 1929.
Mr. B a sk o b . I had 1,250 shares of the old stock, which is equiva
lent to 3,125 shares of the new stock, on hand at that time. I think,
Mr. Gray, you refer to a month later, when I did happen to be
technically short of 2,204 shares. No, that was in 1928 I was short.
Mr. G r a y . When you reached a point in March, 1928, that you
purchased 78,800 shares, your account No. 2, or your special "ac
count, shows that you had sold 78,800 shares delivered lust prior
to March, 1928.
Mr. B ask o b . That is correct.
Mr. G r a y . And in March, 1928, on your other account, you had
73,596 shares, did you not?
Mr. B a sk o b . That is correct.
Mr. G r a y . S o th at— we will, use the w ord “ tech n ica lly ” — y ou were
technically short over 5,000 shares a t th a t tim e, w ere y ou n o t?
Mr. B ask o b . At the end of March, 1928, you are talking about ?
Mr. G r a y . Yes.
Mr. B a sk o b . I have got a net balance of 33,596 shares long.
Mr. G r a y . Where do you get it from this account that you have
given us? You understand, Mr. Baskob, that I have all y o u r ac
counts at Dyer, Hudson & Co., but I am not using those in question
ing y°uMr. B a sk o b . I understand.
Mr. G r a y . Because of the possibility o f you having some accounts
aside from Dyer, Hudson & Co., either short or long, I want to be
accurate and, therefore, I am taking your figures.
Mr. B a sk o b . In those figures, in my special account, it shows, in
March, I was short 78,800 shares in the special account.
Mr. G r a y . Bight.
Mr. B a s k o b . That is, I had sold that much stock which I had not
delivered in my regular account. There were no transactions in Feb
ruary. In March I bought 78,800 shares, and at the end of March I
was in perfect balance.
Mr. G r a y . Yes.
724
STOCK EXCHANGE PRACTICES
Mr. R askob . Just a minute.
Mr. G ray . Prior to the time-----Mr. R a sk o b (interposing). I want to finish that.
Mr. G ray . Prior to the time you bought that 78,800 shares, it
showed you 78,800 shares short.
Mr. R a sk o b . Not in the middle of March.
Mr. G ray . But prior to the day you purchased that.
Mr. R askob. Yes.
Mr. G ray . And your long account was 73,596 shares?
Mr. R a sk o b . No; it was not. It -was 76,596 shares.
Mr. G ray . A ll right. That was before you donated the 3,000?
Mr. R a sk o b . Yes. That shows no difference whatever. It is long.
Senator F l e t c h e r . What was the total amount of outstanding
stock at that date of General Motors?
Mr. R a s k o b . I don’t know.
Mr. G ray . Senator, so far as my investigation is concerned, I can
tell you about what it was: About three-fifths of 42,000^000 shares;
between 17,000,000 and 18,000,000 shares outstanding. That is com
mon stock, which is the stock we are talking about.
Senator G l a s s . Mr. Raskob, let me ask you a question right there
if T
Senator G l a ss . Were any of those transactions in a pool?
Mr. R a sk o b . In a what?
Senator G l a ss . In a pool organized to affect the market?
Mr. R a sk o b . N o.
Senator G l a ss . Were they your personal transactions?
Mr. R a sk o b . My personal transactions.
Senator W a l c o t t . And was this apparent shortage the result o f
selling from the box?
Mr. R a sk o b . Was what apparent?
Senator W al c o t t . Y ou say you made it good a month later. Was
that sold from the box and not a typical short sale ?
Mr. R a sk o b . That was in Augustj 1930. This account shows I sold
10,000 shares which I did not deliver for six weeks later. I must
have been away. And later I covered that. It was a technical short
sale.
Senator WAixxypr. I understand. But in each case you had the
stock?
Mr. R a sk o b . Yes, sir.
Senator W alcott . Whether you sold from the box or made
deliveries?
Mr. R a sk o b . Yes, sir.
Senator T o w n s e n d . You made deliveries from one account to the
other?
Mr. G r a y . Not in this case.
Mr. E askob . In August, 1930, I sold 10,000 shares o f General
Motors I didn’t have ra my own name. I had rmt Tfi nm oho™
aA*».i.cx*cu irxjoou busies Hom tne xiegent Corporate
my own name and delivered 10,000 of it on this special account.
STOCK EXCHANGE PRACTICES
725
Mr. G b a y . I w ill come to a ll th at, Mr. R a sk o b .
Mr. R ask ob . I am answering the Senator.
^
Mr. G r a y . Certainly, you are answering Senator Townsends
question.
Mr. R a sk o b . Answering your question again, and summarizing
it-----M r. G r a y (interposing). Yes.
Mr. R askob . At the end of March, 1928, my regular account had
73,596 shares of stock, and my special account was in balance, so
that at that time I was long and not short.
Mr. G r a y . At the end o f March ?
Mr. R askob . That is right.
Mr. G r a y . Seventy-three thousand five hundred and ninety-six
shares?
Mr. R a sk o b . That is correct.
Mr. G r a y . Now, then, no matter how much you had in your
regular account, what you did in your special account No. 2 was to,
during the year 1927, sell General Motors stock until your account
showed sales aggregating 58,800 shares, and then in January of
1928 you sold 20,000 more, making your total 78,800 shares.
Mr. R ask o b . Yes, sir.
Mr. G r a y . And then in March you went out in the market and
bought 78,800 shares of stock to cover those sales that had been made;
is that correct?
Mr. R a sk o b . That is correct.
Mr. G r a y . D o y o u h appen to know fr o m y o u r books w h at you
made on that transaction ?
Mr. R a sk o b . N o . I happen to know I was very foolish, because
I think I sold that stock at about 132, and in 1928 and 1929 it went
up double that.
Mr. G r a y . But what happened after that we all know and will
probably develop it in the course of this examination. But you do
not have what you made in that transaction?
Mr. R ask o b . No.
Mr. G r a y . All right. Now, then, you started on your regular
account in March, we will take the date where we stopped—in
1928, with a position of 73,596 shares, so far as your long account
is concerned, you carried that position until January of the follow
ing year, did you not?
M r . R a sk o b . Yes, sir.
Mr. G r a y . And then you exercised the conversion privilege and
turned that 73,596 shares into 183,990 shares of the new stock; that
is correct?
Mr. R a sk o b . That is correct; yes, sir.
Mr. G r a y . Now, in the meanwhile, in 1929, after having covered
78,800 shares in your No. 2 or special account, you sold 40,000 shares
short around in March, did you not? You did not give the exact
date. X can give you the date. March 10, 1928, you sold 40,000
shares short, did you not ?
Mr. R a sk o b . I never sold short. I a hvays sold th ro u g h the special
account.
My. G r a y . All right. You sold through the special account?
M r . R a sk o b . That is right.
119852— 32— p t 2------- 23
726
STOCK EXCHANGE PRACTICES
Mr. G r a y . By the way, do you know, have you the date when you
sold and bought in March, 1928; do you know the exact date in
March?
Mr. R a s k o b . N o ; I h aven ’t g o t it.
Mr. G r a y . All right. Well, you immediately after covering, how
ever, that 78,800 shares, sold 40,000, did you not?
Mr. R a sk o b . That is correct.
Mr. G r a y . Along in July, 1928, you sold 20,000.
Mr. R ask o b . That is correct.
Mr. G r a y . In September, 1928, you sold 12,346 shares, did you
not?
M r . R a sk o b . Yes, sir.
Mr. G r a y . So that in December of 1928, in your special No. 2
account, you had sold and had not supplied the stock to meet the
transaction with, 72,346 shares; is that right?
Mr. R a sk o b . That is correct.
Mr. G r a y . N o w , carrying that'into 1929—and your accountants, of
course, on the books transferring that into the converted stock, it
showed 180,865 shares that you had sold of the new stock?
Mr. R a sk o b . Yes, sir.
Mr. G r a y . Now, let me, then, get your position in both of your
accounts. You then had in your regular account in January 1, 1929,
converted with a couple small additions here that you have given
us, that we will not bother referring to, however, because they do
not mean much, 180,865 shares; is that right?
Mr. R a sk o b . That is right.
Mr. G r a y . Just exactly the same amount you had in the other
account; is that right?
Mr. R a s k o b . That is right.
Mr. G r a y . So your position in January of 1929 was-----Mr. R a sk o b (interposing). January, 1930.
Mr. G r a y . No ; 1929.
Mr. R a sk o b . I guess you mean 1930.
Mr. G r a y . Wait a minute. No; I mean 1929. Now, take your
account from which your regular account, in your position-----Mr. R a sk o b . You mean at the end of 1929, Mr. Gray?
Mr. G r a y . Well, your position at the beginning of 1929 was
183,990 shares, wasn’t it?
Mr. R a sk o b . That was the new shares; yes.
Mr. G r a y . And your position at the end of September, 1929, was
180,865 shares; is that right?
Mr. R a s k o b . In my regular account, that is right.
Mr. G r a y . Your regular account?
Mr. R a s k o b . Yes.
Mr. G r a y . And your position at that same time in your other
account was the same, 180,865, was it not?
Mr. R a s k o b . That is correct.
Mr. G r a y . So that at the end of September, 1929, in your regular
account there appears to your credit 180,865 shares, and on the same
date in your special account No. 2— we will put it around the other
way: In the first, you are charged with and the second you are
credited with the same amount or shares?
Mr. R a s k o b . That is right.
STOCK EXCHANGE PRACTICES
72/
Mr. G ray . And aside from your holdings through the Manage
ment Securities Corporation, at that time you did not own a dollar s
worth of General Motors stock, did you?
M r . R ask o b . N o .
Mr. G b a y . N ow , then, with slight changes, your position in those
two accounts in the brokerage house of Dyer, Hudson & Co. re
mained precisely that way until what date? I will come back and
pick up those slight changes for you, Mr. Raskob, if you think they
are important, and want to get them in the record. But generally
speaking your position was not disturbed from that until how long ?
There may have been backward and forward transactions.
Mr. R askob . In November, I bought 6,500 shares of stock.
Mr. G r a y . Where did you buy that 6,500 shares? May I say
to you that it does not appear on Dyer-Hudson’s books, but on
December 18 it appears that 6,500 shares were transferred to your
long—to your special account.
Mr. R a s k o b . No. I purchased 6,500 shares.
Senator C o u z e n s . While you are looking that u p , I would like to
ask Mr. Gray if your contention in this examination is that he has.
been selling short?
Mr. G r a y . At one time, Senator, while that transaction of 78,86©
shares was made, it was a purely short transaction.
Senator C o u z e n s . For how long a period of time?
Mr. G r a y . Senator Couzens asked me, so that you may be in
formed, Mr. Raskob, as to whether this was a short transaction,
and the time that it was a short transaction. I say that the transac
tion that appeared in account No. 2, as it was shown on the books,
was a purely short transaction.
You ask me as to the time. There was accumulated on the sales
side in the year 1927, 58,800 shares of stock. In January of 1928,
there were 20,000 shares more sold.
N o w , Mr. Raskob had, as you have had indicated by the evidence,
approximately—a little less, but approximately—the same amount
of stock in his long or regular account in Dyer, Hudson & Co., but
whether it was intended originally as a sale against the box, or what
it was intended as, Mr. Raskob went into the open market in the fall
of 1928 and bought 78,800 shares of stock to cover those short sales
that had accumulated since 1927. Then he started another account,
which I am now showing, by selling 40,000 shares and then 20,000
shares, until he had sold some seventy-two thousand and odd shares,
and had them transposed into the new shares, making 180,560 shares
appearing on the short account. Now, how that was balanced up, I '
wifi show you in a few minutes.
Senator C o u z e n s . Y ou do n ot con ten d th a t th is was a p o ol opera
tion, and that Mr. R ask ob p a rticip a te d in it ?
M r . G r a y . I have not said a word about a pool operation.
Senator C o u z e n s . I was just asking.
Mr. G r a y . But Mr. Raskob was in pool operations, and I think
he w ill admit that he has been in many of them; but that was not a
pool operation.
Senator G ore. Was that in the nature of a hedging transaction?*
Mr. G r a y . It was in the nature o f a transaction conducted by an
officer o f a corporation or a director of a corporation who, for reasons:
728
STO C K E X C H A N G E PRACTICES
o f his own, whatever they may have been, wanted to sell some o f h is
own stock, but did not want it to appear publicly that he w as d o in g
so.
Mr. R a s k o b . That i s not true.
Mr. G r a y . Well, I say, I do not know what your reasons may have
have been, Mr. Raskob."
Senator G l a ss . Then I suggest counsel not suggest the reason, i f he
does not know.
Mr. G r a y . I said. Senator Glass. what his reasons may have
been, I do not know/’ I said that very plainly.
Senator G l a ss . Yes; but you suggested that it might have been.
Senator G ore . That is often done, is it not; if they think it is
going to drop they sell short against it, just like a hedging transaction
in wheat and cotton?
Mr. G r a y . It may have been what you call a hedging transaction,
Senator Gore. I can not answer that.
Senator W a l c o t t . Mr. Gray, Mr. Raskob in reply to a qu estion
that I asked a moment ago, said that he did not sell this stock sh o rt
with the exception of a negligible amount, some 2,200 shares. N o w ,
you imply that he did. I then asked him a question if that a p p a r e n t
shortage in April, 1928, of 78,800 shares, I believe, was the re su lt o f
selling from the box. He said that was. Now, that is not a sh o r t
sale, necessarily.
Mr. G r a y . It was not covered in the box, Senator Walcott; it w a s
covered in the open market.
Senator W a l c o t t . He said that he was away at one time f o r six
weeks and could not make delivery. You could construe that f r o m
the box.
Mr. G r a y . This was not delivered from the box, according t o th e
statement that Mr. Raskob gives to us. I am taking his own s ta te
ment given us, his own figures.
Senator W a l c o t t . All right.
Mr. G r a y . He covered that 78,800 shares on the market in March
o f 1928, and then immediately sold 40,000 more.
Mr. R a s k o b . Y ou know perfectly well, though, Mr. Gray, a n d y o u
ought to get this straight on the record in fairness to the committee
and in fairness to me, that while I did buy that stock in the market
the brokers had that much or more of my own stock.
Mr. G r a y . That is perfectly correct. I have shown that.
Mr. R a sk o b . In their office, in my regular account.
Mr. G r a y . Yes.
Mr. R a sk o b . Yes; but you do not make that clear for the reco rd
or the Senators.
Mr. G r a y . I answered Senator Couzens’s question, and I said to
him that-----Mr. R ask o b (interposing). And I have-----Mr. G r a y . G o ahead; I do not want to argue with you.
Mr. R a sk o b . I have always had more long stock in my regular
account than I am short to mv special account, except in t h e t w o
cases that are cited. Now, in the case that you have mentioned if I
chose, instead of transferring from my long account to my special
STOCK EX C H A N G E PRACTICES
72^
account 78,800 shares, if I chose to buy that in the market it is a
perfectly legitimate open transaction. Anybody has a right to do it.
Mr. <iBAY. I am raising no question as to what you had a right
to do.
Mr. R askob. Yes; but there is confusion in the minds of some
members of the committee.
Senator T ownsend. Let me ask this question: Does it have the
same effect? That is, selling against the box, does it have the same
effect as a short sale if it is not delivered in. we will say. 1. 2. 3. or 4
months? Is the effect the same?
Mr. R askob. Why, I do not think so. Senator Townsend. It has
been charged, and I have letters here, particularly one letter that I
would like to read later on. and it has gone around the country quite
generally that I, as chairman of the Democratic National Committee*
nave been a great bear in this market, that I have intended to sell
stocks with a view to aiding and adding to the depression: whereas
the reverse is true, that I have always been long of stocks. We went
ahead and built the great Empire State Building during the panic
with an investment of some fifty-odd million dollars, and we financed
it out of our own moneys, except the first mortgage on it, entirely to
help through this depression.
Now, personally I do not care, but as chairman of the Democratic
National Committee, I do not like to have the Senate be put in the
position of having information given out that tends to lead the
general public to believe that the members of the Democratic Party,
particularly those in responsible position, and particularly me. resort
to that kind of thing, because it is not true.
Senator G lass. In my judgment, that is why you are here, Mr.
Raskob.
Mr. R askob. N ow , personally. I want to say this, that while I am
taking great pains to show that I have not tieen selling the market
short, I think short selling is a perfectly legitimate thing when prop
erly conducted. Like any other institution, it may be terribly abused,
ana I do not want any member of this committee to get the notion
that I decry or deplore short selling. I think that if the American
public had been versed in the knack and ability to sell short during
1927, 1928, and 1929 as well as they were versed in their ability to
speculate long, we would not have had such a tremendous peak, and
the result would have been we would not have had such a tremendous
dip, either, because, when the market started down, you would have
had some buying power there. I think short selling has its place,
and a very good place.
So I just want to make it clear that in my insistence on having
this record show that I was not short, it is only for this particular
purpose, because there is no crime in short selling, and if I were
not in this position, I would not be sure that I would not have sold
short to some extent; back in 1928, I mean, not during this panic.
Senator W alcott. I want to ask you a question or two, because
there is a confusion in the mind o ! this committee, I think, that
knows very little about this business; some members of it know very
little about it, and the public. These two accounts, I think, is
730
STOCK E X C H A N G E PRACTICES
where the confusion occurred. All of the shares in the two accounts
represented common ownership?
Mr. R a s k o b . Yes, sir; that is right.
Senator W al c o t t . So that where one account appears lo n g , th e
other account appears short; the difference is merely a m a tte r o f
bookkeeping; is that correct?
Mr. R a s k o b . That is correct, and that is why, Senator, the p r e
pared statement No. 3, which is the consolidation-----Senator W a l c o t t (interposing). Shows the difference?
Mr. R a s k o b . Shows the consolidation of the two.
Senator W a l c o t t . That shows the difference ?
Mr. R a s k o b . Yes.
Senator W a l c o t t . And at no time the difference between your
long account and your short account, although they were two sepa
rate accounts, but that is a mere matter of bookkeeping, shows any
serious shortage. The greatest shortage you say was 2,200 shares;
is that correct?
Mr. R a s k o b . One time there for a month or two; 2,200 shares at
that time, and another time 10,000 shares. In both of those cases,
my stock holdings in the Management Securities in one case, and
the Regent Corporation, which is a personal company, in the other,
was at least 150,000 shares, and I still own a hundred thousand
shares of General Motors stock.
Senator W a l c o t t . And that short interest, as represented in these
accounts, one 2,200 and another 10,000, was a matter of short dura
tion, three or four weeks?
Mr. R a s k o b . Yes, sir.
Senator W a l c o t t . All within a month there ?
Mr. R a s k o b . The second one was six weeks.
Senator G l a s s . Could it possibly have affected the m a r k e t one
way or the other, that inappreciable difference between y o u r a lle g e d
short interest and the alleged long interest ?
Mr. R a s k o b . Not the slightest, Senator Glass.
Senator W a l c o t t . Why, I think that clears it up. Does that not
clear it up to your satisfaction?
Mr. R a s k o b . Yes, sir; I think the record is very straight on it,
Senator Walcott.
Senator C o u z e n s . Y o u referred several times to the Regent Cor
poration. What is that? An operating company, or what is it?
Mr. R a s k o b . That is just a holding company. It is a Delaware
corporation that I own over 75 per cent of the stock in.
Senator C o u z e n s . And it b u y s and s e lls and trades in securities,
is that it?
Mr. R a s k o b . No; it just holds securities. Very few transactions
in it.
Senator C o u z e n s . Receives dividends?
Mr. R a s k o b . Yes.
Mr. G r a y . Y ou remarked a moment ago? Mr. Raskob, that you
had other stocks in the Management Securities and in the Regent
Corporation. A few minutes ago, in response to a question I put
to you, you said the Regent Corporation did not get any stock until
it got that stock which was in the Management Securities Corpora
tion. Now I want to just straighten it out. Which is correct?
STOCK EXCH A N GE PRACTICES
731
Mr. R askob. My statement is correct. Senator Walcott asked the
question about the shortage of 2,200 shares-----Mr. G bat (interposing). I am not asking you that. I think you
misunderstand me.
Mir. R askob. N o ; I do not. I understand you perfectly. In
answer to the question, I said I had not been short of stocks at any
time except in two instances.
Now, in the first instance, when I was 2,200 shares short, I pointed
out that my interest, which was then in the Management Securities
Corporation, was very much greater than that 2,200 shares.
In the second instance, when I was 10,000 shares short, my interest
in the Regent, which was, as you say, not in existence back in 1928,
but it was in existence in 1930 when this shortage occurred, was
many times the 10,000 shares. It was 150,000 shares.
Mr. G ray . Now if you are through with that, we will come back
to the accounts. You did not for some reason use your stock that
was in the long account to take care of the 78,800 shares of stock
that was in your special account No. 2, did you?
Mr. R askob. N o.
Mr. G ray . You did buy in the open market?
Mr. R askob. That is right.
Mr. G ray . I do not want to cover the ground again, but I started
to ask you about something following that. You then accumulated
another list of sales, so that we had reached the point in our
questions and answers a few moments ago where wre showed that
you had 180,565 shares in one account on one side, and 180,565 shares
in the other account on the other side. That was about September
30,1929—that is correct, is it not ?
Mr. R askob. Yes, sir; that is right.
Mr. G ray . S o that at that time you did not have a dollar’s worth
of stock of General Motors except the stock that you had an interest
in through the Management Securities Co. ?
Mr. R askob. That is correct.
Mr. G r ay . That is correct?
Mr. R askob. Yes.
Mr. G ray . Then I ask you whether it is not a fact that, while
you continued to be a director of General Motors and from Septem
ber o f 1929 down to December of 1930, a matter of about 16 months,
that position did not remain practically the same?
Mr. R askob. No. In November, 1929, I purchased 6,500 shares
in my special account.
Mr. G r ay . W ill you tell me where you purchased that? We can
find no record of it at all, and knew nothing of it until it appeared on
your statement; but, as I said to you, on the contrary, the books of
Dyer & Hudson show the transfer of 6,500 shares from one account
to the other, but no purchase.
Mr. R askob. It shows in the special account in November, 1929,
6,500 shares.
.
Mr. G r ay . The books of Dyer-Hudson in the special account, Mr.
Raskob—and our only desire is to get the correctness of this—show
that, it received 6,500 shares, which was transferred from the other
a°Mr. R askob. These statements which are on file, Mr. Gray, show
very clearly that at the end of September, as you state, m the special
STOCK EXCHANGE PRACTICES
732
account I had sold 180,865 shares; that 1 purchased 6,500 shares,
leaving 174,865 shares undelivered, and that in December o f 1929
I transferred from the regular account to the special account that
same number of shares, 174,365, leaving nothing in the-----Mr. G r a y (interposing). In either account?
Mr. R a s k o b . No—leaving nothing in the special account and leav
ing a balance of 6,500 shares in the regular account.
Mr. G r a y . Well, now, Mr. Raskob, can you tell me where you got
that data as to 6,500 shares? Let me say to you that your accounts
from Dyer-Hudson show, as I say, first the transfer of 6,500 shares,
then the transfer of 174,365 shares, and shows that both o f your
accounts absolutely balanced one the other on their books. W e find
no trace of 6,500, except that which was transferred, not bought.
And the only reason I am asking about it, so that you may
understand it, is that their books show a steady position from
September, 1929, to the end of the year 1930, without any change at
all, not even that 6,500 change, except the transfer from one account
to the other.
Mr. R a s k o b . N o ; in the special account I sold 10,000 shares in
August, 1930, and in October I transferred that to my regular
account. You have got that, because you told me so in .New York.
Mr. G r a y . That may be correct, but it did not alter your figures.
It was a transaction that went in on one side and then went m on
the other side.
Mr. R a s k o b . Well, now, this transaction, which of course would
not be through brokers at all, shown on statement No. 1 here in
1930, then shows the receipt of 54,950 shares from Regent Cor
poration. I am answering your question. You asked me if my
account went on straight. So that at the end of 1930, completing
the answer to your question, instead of having 6,500 shares on. hand,
as I did at the end of 1929,1 had 22,550 shares on hand.
Mr. G r a y . Yes. You are including, however, the holdings o f the
Regent Corporation?
M r . R ask o b . N o.
Mr. G r a y . Only including your
Mr. R a s k o b . That is right. In
personal holdings?
order that you might not get
confused on that, Mr. Gray, I want to point out, as shown on this
statement, that in September of 1930 I purchased from the Regent
Corporation 54,950 shares of stock.
Mr. G r a y . When did you transfer—I may have been wrong as to
my year—Mr. Watson directed my attention to it, and I thought I
was right instead of he, but I think he was right as to the year. At
the end of 1929, was it that you made the transfer from one account
to the other and balanced them; not 1930?
Mr. R a s k o b . End of 1929 I delivered 174,365 shares from the regu
lar to the special account, and that balanced it.
Mr. G r a y . All right; did you own any Motors at that time?
Mr. R a sk o b . S ix thousand five hundred shares.
Mr. G r a y . That is that 6,500 shares that you and I have talked
about?
Mr. R a s k o b . Yes. I do not know where the confusion is about it.
My records are straight.
STOCK EXCHANGE PRACTICES
733
Senator F l e t c h e r . In order to be a director and an officer of the
corporation, you were obliged to own stock, were you not?
Mr. R a s k o b . No; not under Delaware law, Senator Fletcher.
Senator G l a s s . Well, assuming that Mr. Gray is right and Mr.
Raskob in error, the point apparently is that Mr. Raskob was a
director of General Motors and not a stockholder: is that it, Mr.
Gray?
Mr. G r a t . N o , sir; the point is that Mr. Raskob, as a director of
General Motors, was either selling his own stock or other stock, and
I am going to ask him in a moment or two why he did it that way,
without just going out and selling it as possibly you or I or someone
else might if
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