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STOCK EXCHANGE PRACTICES
HEARINGS
BEFORE THE
COMMITTEE ON BANKING AND CURRENCY
UNITED STATES SENATE
SEVENTY-THIED CONGRESS
FIRST SESSION
ON
S. Res. 84
(72d CONGRESS)
A RESOLUTION TO INVESTIGATE PRACTICES OF STOCK
EXCHANGES WITH RESPECT TO THE BUYING AND
SELLING AND THE BORROWING AND LENDING
OF LISTED SECURITIES
AND
S. Res. 56
<73d CONGRESS)
A RESOLUTION TO INVESTIGATE THE MATTER OF BANKING OPERATIONS AND PRACTICES, THE ISSUANCE
AND SALE OF SECURITIES, AND THE TRADING
THEREIN
PART 5
CHASE SECURITIES CORPORATION
OCTOBER 17 TO 25, 1933
Printed for the use of the Committee on Bankingjand Currency
175541
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1938
COMMITTEE ON BANKING AND CURRENCY
DUNCAN U. FLETCHEB, Florida, Chairman
CARTER GLASS, Virginia
ROBERT F. WAGNER, New York
ALBEN W. BARKLEY, Kentucky
ROBERT J. BULKLEY, Ohio
THOMAS P. GORE, Oklahoma
EDWARD P. COSTIGAN, Colorado
ROBERT R. REYNOLDS, North Carolina
JAMES F. BYRNES, South Carolina
JOHN H. BANKHEAD, Alabama
WILLIAM GIBBS McADOO, California
ALVA B. ADAMS, Colorado
PETER NORBECK, South Dakota
PHILLIPS LEE GOLDSBOROUGH, Maryland
JOHN G. TOWNSEND, JR., Delaware
FREDERIC O. WALCOTT, Connecticut
ROBERT D. CAREY, Wyoming
JAMES COUZENS, Michigan
FREDERICK STEIWER, Oregon
HAMILTON F. KEAN, New Jersey
WILLIAM L. HILL, Clerk
R. H. SPABKMAN, Acting Clerk
SUBCOMMITTEE ON STOCK EXCHANGE PRACTICES
DUNCAN U. FLETCHER, Florida, Chairman
CARTER GLASS, Virginia
RETER NORBECK, South Dakota»
ALBEN W. BARKLEY, Kentucky 1
JOHN G. TOWNSEND, JR., Delaware
EDWARD P. COSTIGAN, Colorado *
JAMES COUZENS, Michigan
1 Alternate, Thomas P. Gore, Oklahoma.
2 Alternate, Alva B. Adams, Colorado.
» Alternate, Phillips Lee Goldsborough, Maryland.
CONTENTS
Testimony of—
Aldrich, Winthrop Williams, president and chairman of the governing board of the Chase National Bank, New York City
2294
Batchelder, Charles F., New York City, a vice president of the Chase
National Bank
2535
Geiger, Adam K., second vice president of the Chase National
Bank
2598,2629
Morgan, Shepard, New York City, a vice president of the Chase National Bank of the city of New York
2541,2649
Mudge, Alfred E., of the law firm of Rushmore, Bisbee & Stern,
New York City, counsel for the Chase National Bank
2614
Pierce, Edward A., member of the firm of E. A. Pierce & Co., New
York City
2476
Redmond, Roland L., member of the firm of Carter, Ledyard & Milburn, New York City, N.Y
2484
Stewart, James C, New York
,
2719
Wiggin, Albert H., New York City
2280,2315,2359,2511
EXHIBITS
(Italics indicate page on which exhibit was admitted into the record. Roman type,
exhibit printed)
Page
1. Photostatic reproduction of a certificate of stock of the Chase
National Bank and of the Chase Corporation, 2290
2339
2. Agreement, Bankers Trust Co. as depositary, 229S
2340
3. Letter to the shareholders of the Chase National Bank and Chase
Securities, signed by Winthrop W. Aldrich
2296
4. List of corporations- and associations with which Mr. Wiggin was
identified, 2317
-^
2353
5. Marked for identification, 2817
(*)
6. Recapitulation, statement of the Chase National Bank, capital surplus, undivided profits, etc., January 1, 1929-^July 31,1933, 2319
2355
7. Salaries and additional compensation paid to various officers of the
Chase National Bank of the city of New York from and including
the year 1928 to June 30, 1933, 282^
^2356
8. The Chase Corporation, formerly Chase Securities Corporation,
capital, profits, reserves for losses, etc., and dividends paid June
1,1917, to June 30,1933, 2387
238S
9. Letter dated September 21,1927, to Blair & Co., Inc., by the Metpotan
Securities Corporation
2415
10. Letter dated April 18, 1928, addressed to Potter & Co
2429
11. Letter dated July 19, 1929, from Dominick & Dominick to Chase
Securities Corporation
1
2433
12 Letter dated July 19, 1929, from Dominick & Dominick to Chase
Securities Corporation
2443
13. Letter dated August 2, 1929, addressed to the ShermaT Corporation— 2445
14. Letter dated August 2, 1929, addressed to Chase Securities Corporation by the Shermar Corporation
2445
15. Letter dated September 21, 1929, addressed to the Shermar Corporation
2448
16. Letter dated September 24, 1929, to Metpotan Securities Corporation. 244&
17. Letter dated September 9, 1929, from Dominick & Dominick to Chase
Securities Corporation
1
2459
* Not printed because of length, or for reasons given in text.
in
IV
CONTENTS
Page
18. Letter dated September 10,1929, from Dominick & Dominick to Chase
Securities Corporation
19. Letter dated September 10,1929, from Chase Securities Corporation to
Shermar Corporation
20. Statement from Dominick & Dominick showing the operations in the
account from July 19, 1929, to November 11, 1929
21. Statement from Dominick & Dominick showing distribution made of
profits aggregating $1,452,314.68 to the various participants on
November 11, 1929
T
22. Letter dated January 7,1930, from Dominick & Dominick addressed to
the Chase Securities Corporation
23. Letter dated January 7, 1930, from Dominick & Dominick to Chase
Securities Corporation
24. Letter dated January 9, 1930, addressed to the Shermar Corporation.
25. Modified questionnaire sent out by council to the committee, 2481
26. Questionnaire circulated to members of the New York Stock Exchange 2485
27. Letter dated April 10, 1929, addressed to Broomhall, Killough & Co.,
Inc., 2512
28. Telegram dated February 1, 1929, addressed to Mr. Albert H. Wiggin29. Letter dated October 31,1928, addressed to the Shermar Corporation.
30. Memorandum March 22, 1926, Graves to Tinker, 2555
31. Letter referred to, dated July.29, 1926, addressed "Dear Ned" and
signed by Batchelder
32. Opinion of Dr. Antonio Sanchez de Bustamante
33. " Financing Proposition ", 2593
34. Memorandum dated January 21, 1932, addressed to Mr. Callahan and
„ Mr. McKee
35. Memorandum of conferences on Monday, December 6, 1926 (Mr.
Hackworth, Baker, and Dr. Young)
36. Letter from Charles Henry Butler, John A. Kratz to Rushmore, Bisbee & Stern, dated December 13, 1926
37. Letter dated February 23, 1931, to Joseph
38. Letter, January 6, 1928, from Obregon to Sherrill Smith
39. Letter, July 18, 1928, from Findley to Biggennan
40. Letter, dated September 9, 1932, to Mr. Wiggin and signed G. D. G__
41. Letter, dated Habana, July 6, 1926, from M. A. Coralles to Mr. James
C.Stewart
42. Letter, da;ted Habana, July 25, 1926, from M. A. Coralles to J. C.
Stewart
43. Letter, dated August 10, 1926, to James C. Stewart from M. A. Coralles
,
.
44. Prospectus, dated July 1, 1928, $10,000,000, Republic of Cuba, 2662
45. Prospectus, dated January 1,1929, $10,000,000, Republic of Cuba public
works 5% percent serial certificates
46. Memorandum dated October 27, 1931, and headed " Republic of Cuba,
Debt Situation ", 2669
47. Letter from Mr. Rosenthall to Shepard Morgan, dated October 25,
1933
48. Memorandum, Cuban financing, dated October 24, 1929, signed " C. P.
Anderson "
49. Letter from Robert I. Barr to Henry W. Catlin, dated December 7,
1929
,
50. Memorandum addressed to Mr. Wiggin, dated January 21, 1930,
signed H. G. F
51. Not printed by direction of the chairman
52. Prospectus, dated February 1930, covering $40,000,000 Republic of
Cuba public works 5% sinking fund gold bonds
53. Memorandum headed "Re $60,000,000 Authorized Issue of Cuban
Public Works Serial Certificate ", 2784
2457
2459
2462
2463
2465
2467
2470
2482
2527
2533
2521
2522
2608
2568
2590
2610
2596
2615
2617
2629
2642
2644
2648
2650
2652
2658
2702
2663
2674
2700
2706
27(y7
2710
2714
2716
2740
STOCK EXCHANGE PEACTICES
TUESDAY, OCTOBER 17, 1933
UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON
BANKING AND CURRENCY,
Washington, D.C.
The subcommittee met, pursuant to adjournment on Friday, October 13, 1933, at 10 a.m. in the Caucus Room of the Senate Office
Building, Senator Duncan U. Fletcher presiding.
Present: Senators Fletcher (chairman), Adams (substitute for
Barklev and proxy for Costigan), Townsend, Couzens, and Goldsborough (substitute for Norbeck).
Present also: Ferdinand Pecora, counsel to the committee; Julius
Silver and David Saperstein, associate counsel to the committee;
and Frank. J. Meehan, chief statistician to the committee; Marti®
Conboy, counsel for Albert H. Wiggin; Eldon, Bisbee, Henry Root
Stern, Alfred E. Mudge, Joseph B. Lynch, Julian L. Hagen, and
C. Horace Tuttle of Rushmore, Bisbee & Stern and also Albert G.
Milbank, William Dean Embree, and A. Donald MacKinnon, of
Milbank, Tweed, Hope & Webb, counsel for the Chase National
Bank and the Chase Corporation.
The CHAIRMAN. The subcommittee will come to order. Senator
Glass' office called my office this morning and delivered the message
that under the orders of Senator Glass' pHysician he would have to
go home and would not be able to attend the hearings until he gets
better. We are sorry that he is unable to be with us. Senator Norbeck handed me this communication, dated October 14, 1933, which
I will ask be placed in the record, explaining his absence, and under
the authority given the chairman I will appoint Senator Goldsborough to serve in the absence of Senator Norbeck and in his
stead. Senator Gore was to be here today but is detained in Oklahoma City. We expect to put him in the place of Senator Barkley,
when Senator Gore is able to be present.
(Letter dated Oct. 14, 1933, from Senator Norbeck to Senator
Fletcher, is as follows:)
UNITED STATUS SENATE,
COMMITTEES ON AGRICULTURE AND FORESTRY,
October U, 198$.
Senator DUNCAN U. FLETCHER,
Washington, D.C.
MY DEAR SENATOR FLETCHER: This is to authorize you to represent me by
proxy in connection with the stock-market investigation during my absence.
This applies both as to the full committee and the subcommittee.
I am in full accord with the program as outlined by the counsel, Mr. Pscora,
which is now being followed.
Very sincerely yours,
FETOR NORBECK.
2279
2280
STOCK EXCHANGE PRACTICES
The CHAIRMAN. Mr. Pecora, are you ready to proceed?
Mr. PECORA. I wish to call Mr. Wiggin to the stand.
The CHAIRMAN. Mr. Wiggin, will you come forward, hold up your
right
g hand, and be sworn: You solemnly swear that you will tell
th
t t h , the whole truth,, and nothing
the truth,
g but the truth regarding
gg the
d investigation
i t i t i
b the
th committee.
itt
S help
h l you
matters now under
by
So
God.
Mr. WIGGIN. I do.
The CHAIRMAN. Take
a seat right there at the committee table.
TESTIMONY OP ALBERT H. WIGGIN, NEW YOKE CITY, RETIRED
The CHAIRMAN. Mr. Wiggin, is your attorney Mr. Conboy ?
Mr. WIGGIN. Mr. Conboy; yes, sir.
The CHAIRMAN. D O you want his name to appear on the record
of our proceedings?
Mr. WIGGIN. Yes: please.
Mr. PECORA. Mr. Wiggin, will you give your full name, business or
occupation, and address to the committee reporter for the record?
Mr. WIGGIN. Albert Henry Wiggin; address No. 660 Park Avenue, New York City; retired from business.
Mr. PECORA. When you were actively engaged in business what
was that business?
Mr. WIGGIN. I have been in the banking business all of my business life, and for the last 29 years with the Chase National Bank.
Mr. PECORA. When did you retire from any active association with
the Chase National Bank, if you have so retired?
Mr. WIGGIN. I declined reelection as an officer in the bank in January last.
Mr. CONBOY. Mr. Pecora, will you permit Mr. Wiggin to make a
brief informal statement in his own fashion?
Mr. PECORA. I have no objection.
The CHAIRMAN. YOU may proceed, Mr. Wiggin.
Mr. WIGGIN. I assume it may save some of the time of the subcommittee, and will, perhaps, cover some of the questions Mr. Pecora
will ask. I gather from the newspapers, and it is emphasized by
the fact that for some months we have had examinations of my correspondence and books and check books, that there is some interest,
not only in the bank, but in me personally.
I wish to say that I have been in the banking business for all of
my business life. I worked in a bank during my school vacations,
and when I finished school, at 17 years of age, I then went into a
bank for keeps.
My early experience was in Boston. I t has been a long experience.
I have been through the machine, through th§ organizations. I went
to New York in the banking business in 1899. I went as vice president of the National Park Bank. In 1904 I went to the Chase
National Bank as vice president. I t might interest the subcommittee
to know the figures of the capital of the Chase National Bank at that
time, that it was $1,000,000, and that the surplus was $1,000,000, and
the deposits were $54,000,000.
In 19111 was made president of the bank. At that time the capital was $5,000,000, and the surplus was $5,000,000, and the deposits
were $100,000,000. The bank reached its greatest stature in 1930,
STOCK EXCHANGE PRACTICES
2281
following the merger with the Equitable Trust Co.; and at that time
the capital was $148,000,000, and the surplus was $148,000,000, and
the deposits were in excels of $2,000,000,000.
It was at that time the largest bank in the world; and it is today
one of the largest banks of the world, and the largest bank in the
United States. And its ramifications are many. It is known in
every town in the country, and in a great deal of the rest of the
world. I t has business in Panama. It has business in Cuba. I t
ha,s business in London, in Paris, and in the Far East.
The bank has been under my general direction. I was the largest
stockholder for many years. I haven't always been able to study all
of the details. But I have always wanted to take my full share of
responsibility. I have always had entire confidence in all my associates. We have made mistakes. We must not look at things in the
year 1933; we cannot look at them now as we did in 1929.
My education in banking has come from experience, and I think I
aiii a nattiral optimist. I have, as you know, been in the business so
long that I have been through a number of socalled " bad times,"
" panics." Our policy in 1907 with the bank, and again in 1914, and
again in 1921, was to do business on the basis that we were going to
be here a long time, that thpse times of bad business were temporary.
In this last period we did not anticipate that there would be such
a tremendous world collapse. If we had sold out the collateral for
our loans against the protests of our borrowers faster than we did
we would have saved money for the bank and for the cutsomers. I t
was a mistake not being more cold-blooded and more harsh. But the
policy that we have pursued, in 1907, in 1914, and in 1921, always
resulted in benefit to the bank; and I am still confident that our
policy in 1930-31, while we were not so cruel as we might have
been, will result in benefit to the bank. I think so because I am such
an optimist and such a believer in the country.
I think you know my activities in the general banking situation,
but it is more the Chase Bank that I will try to confine myself to and
not touch on the world problems of 1914 or 1929-30.
The Chase Securties Corporation was organized in 1917. Its
original capital was $2,500,000, and was, in effect, a dividend from
the bank to its stockholders. And in order that there can be no
question of where profits went, where the organizations were so
closely allied, the equities were exactly the same. Each share of
Chase National Bank stock carried with it a share of the Chase
Securities Corporation.
The CHAIRMAN. And what was the capital?
Mr. WIGGIN. When the Chase Securities Corporation was originally started it was 2% million dollars. In December of 1930, the
high point in the banking business, the capital of the Securities Co.
was 95 million dollars and the surplus was 13 million dollars.
Senator COUZENS. There was one joint certificate of ownership,
was there?
Mr. WIGGIN. One joint certificate of ownership, stamped on the
bank stock originally, that it carried a share of the Securities Co.
The Securities Co. did not for years make any public offering of
securities. Then about 1928,1 think it was, the management yielded
to the times and we started in in the selling of securities. I t might
2282
STOCK EXCHANGE PRACTICES
interest you to know that the total offerings of the Securities Co., the
total issues that they offered, have amounted to $6,158,000,000, and
the defaults were 5.68 percent of all those securities issued.
Senator COTJZENS. Over what period of time ?
Mr. WIGGIN. That is from 1917.
Senator COTJZENS. Right up to the dissolution of the corporation?
Mr. WIGGIN. Yes, sir; at the dissolution of the corporation. I do
not want to bore you with all these things, but thought it might be
of interest, and very helpful to you in asking questions. In the case
of the Chase National Bank in 1904 we had just 20 stockholders*
Today we have about 89,000 stockholders.
Senator TOWNSEND. Was that the high-water mark?
Mr. WIGGIN. Practically so. The number of directors in 1904 iya&
six. There have been a great many increases in capital, which
accounts for the figures I gave you before, and there has been an
increase, a very large increase of the business, and a very large
increase in the list of its directors and of its officers.
The CHAIRMAN. HOW many stockholders do you have now?
Mr. WIGGIN. About 89,000.
Senator COTJZENS. Who is the largest stockholder now?
Mr. WIGGIN. Well, I think I know, but I want to be sure. (After
consulting an associate:) John D. Rockefeller, Jr.
Senator COTJZENS. Did he become the largest stockholder by way
of purchase of stock in the market or through a new increase of stock
by the bank itself?
Mr. WIGGIN. I think both; and from the merger with the ChaseNational Bank of the Equitable Trust Co. I believe he was a substantial stockholder in the Equitable Trust Co., and that gave him
a substantial holding in the Chase National Bank. And, then, I
think he has since increased his holdings by purchase.
The CHAIRMAN. HOW did you bring about that distribution of
stock? Was the stock offered for sale to the public?
Mr. WIGGIN. The bank became popular. Its number of customers increased, and there was a very large demand for its stock.
Senator COTJZENS. In the parlance of the street, is that how it came
to be known as the Rockefeller Bank?
Mr. WIGGIN. In this last merger?
Senator COUZENS. Yes.
Mr. WIGGIN. I think so.
Senator TOWNSEND. YOU are now referring to the merger of the
Equitable Trust Co.?
Mr. WIGGIN. Well, we have had some half dozen mergers. We
merged the Metropolitan Bank in 1921. We merged the Mechanics
& Metals, and the Mutual, and the Garfield, and the Park, and the
Equitable Trust. Well, I am taking too much time, Mr. Pecoray
but I thought this might save you some time, and now I shall be
glad to answer any questions so far as I can.
Senator COUZENS. AS to this great increase in number of stockholders, was that brought about by mergers or just by an increase
in the amount of stock?
Mr. WIGGIN. Both, I think. I cannot tell you offhand the exact
amount, but both.
Senator COUZENS. Mr. Pecora, I should like for Mr. Wiggin to
put on the record at this time his directorships, including every
STOCK EXCHANGE PRACTICES
2283
corporation that he was a director of at the time he has just been
referring to.
Mr. PECORA. Mr. Wiggin, will you do that?
Mr. WIGGIN. At what time, Senator Couzens ?
Senator COUZENS. Well, in 1929, just before you went out of the
bank. I should like to know what your other affiliations were.
Mr. PECORA. I would suggest that you embrace in that the period
of time you had in mind when you stated in your general statement
that the bank was under your general direction.
Mr. WIGGIN. A list of directorships that I had during that time ?
Mr. PECORA. Yes.
Mr. WIGGIN. I will try to get that for you.
Senator COUZENS. YOU haven't that information here now?
Mr. WIGGIN. Well, of course, I know in a general way, but I
will
have to get it. I would not want to forget any important ones.
Mr. PECORA. I think the general background that you have given
the subcommitte by your statement is helpful. There are some
details I want to fill in in order to complete the record on that. You
have told us that the Chase National Bank was organized in 1877.
Mr. WIGGIN. Well, I didn't say so, but that is the fact.
Mr. PECORA. YOU became connected with it originally in 1904 ?
Mr. WIGGIN. Correct.
Mr. PECORA. When you entered its service it was as a vice president?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And did
you continue in that capacity to serve the
bank until the year 1911, when you became its president?
Mr. WIGGIN. Yes,
sir.
. Mr. PECORA. NOW, after the year 1911 did you serve the Chase
National Bank in any other capacity than as its president?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Will you
give the dates of such services and designate the offices that you held ?
Mr. WIGGIN. I continued as president until—now, I will have to
check this date, but it was about 1918 when I took the position of
chairman of the board of directors. In 1921 at the request of the
board of directors I again took the presidency.
Mr. PECORA. Well, go ahead.
Mr. WIGGIN. I continued as president until the merger with the
Mechanics & Metals National Bank.
Mr. PECQRA. When did that merger take place?
Mr. WIGGIN. I will have to look up that date. (After consulting
an associate.) In 1926. Then I continued as chairman of the board
until the merger with the Equitable Trust Co. in 1930.
Mr. PECORA. Well, go ahead.
Mr. WIGGIN. Then I said I would take any title that they wanted
me to have, or no title, whichever they preferred, and the suggestion was made that we create a governing board and call me chairman of the governing board. And that was done, and I continued
in that position until last January, when I withdrew from active
work.
Mr. PECORA. Would you say that it was since you became president
in 1911, until last January, that the bank was under your general
direction, to use your own language ?
2284
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. I was the senior officer during that period, and the
bank was under the direction of all its officers. There were several
senior officers, but I was the highest senior officer, so to speak. No;
it wasn't all my bank by any means, I mean it wasn't all my say.
Mr. PECORA. YOU used the expression in your general statement
that the bank was under your general direction. Now, what period
of time is embraced in that statement?
Mr. WIGGIN. Well, it is hard to answer that question. When I became president in 1911 Mr. Hepburn became chairman of the board,
and Mr. Hepburn remained chairman of the board until 1918 I think
the year was, and while Mr. Hepburn was not as active during the
last 10 years of his life as before, he was the senior officer during that
period and I was with him. I suppose I was—well, I was more
active.
Mr. PECORA. Well, did your general direction of the bank date
from that time and continue until last January?
Mr. WIGGIN. No. I think it was, perhaps, more under my general direction from 1911 on than it was under Mr. Hepburn. He
was rather inclined to be inactive in his banking work.
Mr. PECORA. Well, did the bank continue under your general
direction until last January?
Mr. WIGGIN. General direction would be too strong a term to use,
because after the merger with the Equitable Trust Co. we had a
governing board, and we regarded that as the superboard or the
managing board, I should say.
Mr. PECORA. When was that governing board created?
Mr. WIGGIN. In 1930, at the time of the merger.
Mr. PECORA. YOU were then made its chairman?
Mr. WIGGIN. Yes.
Mr. PECORA. And
you continued as its chairman until last January, when you declined reelection to the office?
Mr. WIGGIN. That is right.
Mr. PECORA. Well, as chairman of the governing board would you
say that the bank was under your general direction ?
Mr. WIGGIN. I was the senior officer.
Mr. PECORA. YOU were the senior executive of the bank?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. The executive head of the bank?
Mr. WIGGIN. I think so.
Mr. PECORA. And as such you participated perhaps to the extent
of more than any other officer in the general policies of the bank,
in the operation of its business ?
Mr. WIGGIN. I wouldn't say more than any other officer, but as
senior officer. We all participated in that.
Mr. PECORA. Could you mention the name of any other officer who
had greater power in making determinations of the policies of the
bank than you had ?
Mr. WIGGIN. There was nobody who had greater power, but there
were several who had equal power so far as that went.
Mr. PECORA. And who were they ?
Mr. WIGGIN. Mr. Aldrich, Mr. McCain, and Mr. McHugh.
Mr. PECORA. Their power was on a parity with yours from the
time of creating this governing board ?
STOCK EXCHANGE PRACTICES
2285
Mr. WIGGIN. Well, I was the senior officer, but they all had full
authority to do business, to make decisions.
Mr. PECORA. Well, I assume that there was a chief in command.
Who was that chief?
Mr. WIGGIN. I presume I was the chief man.
Mr. PECORA. NOW, prior to the creation of this governing, hoard,
in 1930, you were the chief in command, too ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. NOW, according
to our research into the history of
the bank, the bank was formed on September 30,1877, with a capital
of $300,000. I am adopting this means of eliciting these facts as t
perhaps, a short cut. And if I make any statement that conflicts
with your knowledge or belief, will you kindly indicate that conflict
or disagreement?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. NOW.. I understand
that from 1877 to the end of the
year 1928 the bank s capital had been increased nine times, until
at the end of 1928 it had a capital of 60 million dollars, and a surplus
of 60 million dollars. Does that correspond with you knowledge s
Mr. WIGGIN. I would have to check it, but I haven't any doubt that
that is correct.
Mr. PECORA. Well, if any of your associates gathered about you
can readily give you confirmation of those figures, I suggest, that you
bBMn it from them.
Mr. WIGGIN. The figures, I think, indicate that the capital of 60
million dollars and surplus of 60 million dollars on December 31,
1928, is correct. I haven't confirmation of the nine increases you
refer to, but I assume that is correct.
Mr. PECORA. All right. Now,, after December 31, 1928, did the
Chase National Bank merge with a bank known as the Garfield
National Bank?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. That merger
as I understand took place or became
effective January 26, 1929.
Mr. WIGGIN. I will have to verify that figure. [After consulting
an associate.] January of 1929 is correct.
Mr. PECORA. NOW, at that time and as a result of that merger
was the capital of the Chase National Bank again increased, and if
so, to how much ?
Mr. WIGGIN. I will get that figure for you in a moment.
Mr. CONBOY. Mr. Pecora, will you bear with us for just a moment,
until we get that information for you?
.Mr; PECORA. Yes. And if it will be, of any guidance to you in
confirming the figure, our research shows that as a result of that
merger the capital or the Chase National Bank was increased by
$1,000,000, and its surplus was increased by $1,000,000, and its
undivided profits account was increased by $1Y9,39Y.29.
Mr. CONBOY. That would indicate that there had been a division
of assets along the lines of the division that you have just indicated.
Mr. PECORA. Not division but acquisition.
Mr. CONBOY. Yes.
Mr. PECORA. By the enlarged institution as a result
Mr. CONBOY. But I mean as to the capital, surplus,
profits.
of the merger*
and undivided
2286
STOCK EXCHANGE PRACTICES
Mr. PECORA. That merger with the Garfield National Bank was
effected by an exchange of stock on a share-for-share basis, was it
not?
Mr. WIGGIN. I want to be sure on these things. It is going back
a long time. (After consulting an associate.) That is correct.
Mr. PECORA. NOW, several months thereafter did the Chase National Bank merge with an institution known as the American
Express Bank & Trust Co.?
Mr. WIGGIN. That was not until 1932.
Mr. PECORA. D O you say it was in 1932?
Mr. WIGGIN. Yes.
Mr. PECORA. In July
of 1929 did the Chase Securities Corporation,
to which you have already made reference in your general statement,
acquire the American Express Co. ?
Mr. WIGGIN. That is correct.
Mr. PECORA. And thereafter, in 1932, you say that the Chase National Bank acquired the American Express Bank & Trust Co. ?
Mr. WIGGIN. That is right, sir.
Mr. PECORA. NOW, when was the American Bank & Express Co.
organized?
Mr. WIGGIN. In 1930. I beg pardon. Will you let me correct that?
Mr. PECORA. Certainly.
Mr. WIGGIN. In 1931.
Mr. PECORA. I think 1930 is correct, isn't it?
Mr. CONBOY. Will you wait a minute, Mr. Pecora ?
I think there
may be a little confusion there in the matter of the question itself.
Mr. PECORA. All right.
Mr. WIGGIN. I have got to correct my statement there, Mr. Pecora.
I am relying on this information that I can gather here, and I
am now told that the American Express Bank & Trust Co. merged
with the Equitable Trust Co., and came in later with the Chase in
that way.
Mr/PECORA. The question that I asked related to the date when
the American Express Bank & Trust Co. was organized. I understand that date was April 15, 1930. As a possible guidance to you,
Mr. Wiggin, on that I have a letter addressed to me by Mr. Henry
Hargreaves, secretary-treasurer of the Chase Corporation, dated
September 27, 1933, which contains the following statement with
respect, to the American Express Bank & Trust Co.:
The American Express Bank & Trust Co. was organized in March 1930
-with a capitalization of 100,000 shares of $100 par value each. The subscription price was $160 per share providing for a capital of $10,000,000, surplus
of $5,000,000, and the balance to organization reserve. Ten percent of the
shares were allotted for subscription to the directors and officers of the new
Bank & Trust Co. Thirty-six percent were offered for subscription to the
shareholders of the American Express Co., and the balance was subscribed
for by the American Express Co.
Chase Securities Corporation, as a stockholder of American Express Company, subscribed for 27,013 shares at $160 a share. Six thousand seven hundred
Shares of this stock was sold to certain individuals at $170 per share. (List
supplied.) In December 1931 the American Express Bank & Trust Co. was
merged with the Equitable Trust Co. of New York. The merger was
effected
on a cash basis by the payment of $160 a share for the shares of1 American
Express Bank & Trust Co. by the Equitable Trust Co.
Does that information correspond with your present recollection?
Mr. WIGGIN. Yes,
sir.
STOCK EXCHANGE PEACTICES
2287
Mr. PECORA. At the time of the organization of the American Express Bank & Trust Co., the American Express Co. was a subsidiary
of the Chase Securities Corporation, was it not ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Was it a wholly owned subsidiary?
Mr. WIGGIN. About 98 percent.
Mr. PECORA. The Chase Securities Corporation
was the corpora-
tion that you said was organized in 1917 ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Was it organized
as an investment or securities affiliate with the Chase National Bank?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And its initial capital
Mr. WIGGIN. That is correct, sir.
Mr. PECORA. The shares of capital
was $2,500,000?
stock of the Chase Securities
Corporation at the time of its creation in 1917 went to the then
stockholders of the Chase National Bank, did they not?
Mr. WIGGIN. Yes.
Mr. PECORA. They
were paid for by means of a declaration of a
10 percent cash dividend by the Chase National Bank to its stockholders?
Mr. WIGGIN. The figure is 25 percent, Mr. Pecora; and I do not
think it was a cash dividend. I think it was a dividend through
securities. You must bear with me if I cannot give you all these
figures offhand.
Mr. PECORA. That is quite all right, sir, I know there is a mass
of detail here.
Now, by whom were the directors of the Chase Securities Corporation chosen?
Mr. WIGGIN. By the stockholders.
Mr. PECORA. Was any trust created for the benefit of the stockholders of the Chase Securities Corporation?
Mr. WIGGIN. NO, sir.
Mr. PECORA. Are you
sure that there was no trust created originally for the beiiefit
Mr. BISBEE. I would like to explain that, Mr. Pecora.
Mr. PECORA. Will you please state your name to the reporter ?
Mr. BISBEE. Eldon Bisbee.
Mr. PECORA. And you are a member of the law firm of Rushmorey
Bisbee & Stern, are you not?
Mr. BISBEE. Yes, sir.
Mr. PECORA. And that
law firm did much of the organization^
work for the bank?
Mr. BISBEE. Yes, sir.
Mr. PECORA. And still does?
Mr. BISBEE. Yes. I t attended
to the organization of the ChaseSecurities Corporation. The shares of the Chase Securities Corporation were issued directly to the stockholders of the bank, each
stockholder of the bank becoming a shareholder of record in the
Securities Corporation. The certificates of stock, both of the bank
and of the Securities Corporation, made out in the names of the
respective stockholders, were deposited with the Bankers Trust Co.
The Bankers Trust Co. issued a receipt, each receipt covering the
2288
STOCK EXCHANGE PRACTICES
same number of shares in each institution; and that is the piece of
paper which the so-called " stockholder " of the bank and the Securities Co. held.
When the Bankers Trust receipt was transferred, the character of
the authorization on the back of the receipt was such that the Bankers
Trust Co. was appointed the attorney of the holder to endorse the
respective stock certificates of the bank and Securities Corporation
which it held, and transfer.them to the name of th§ transferee of the
receipt. So that each stockholder in each institution remained such
of record and was in a position to vote directly in connection with all
stockholders' meetings.
Senator COTJZENS. What was the necessity of that procedure?
Mr. BISBEE. The advisability of it, Senator, from our point of
view, was to preserve in each stockholder the absolute and untrammeled right to vote the shares of his stock, not through the instrumentality of a voting trust or any other kind of trust but through
their ownership of stock of record.
Senator COTJZENS. What was the objection to issuing him a certificate direct, instead of having it go through the Bankers Trust Co. ?
Mr. BISBEE. One was issued to him.
Senator COUZENS. Why did it have to pass through the Bankers
Trust Co. ? I am just looking for information.
Mr. BISBEE. The machinery was orginzed in order that the parity
of ownership might be maintained. If he had a separate stock:
certificate of the Securities Corporation he might sell that to Tom
Jones or John Smith without selling his bank stock, and the parity
of ownership would be destroyed.
Mr. PECORA. In other words, it was considered desirable to have
all of the capital stock of the Chase Securities Corporation held at
all times by the stockholders of the Cha^e National Bank?
Mr. BISBEE. That was a part of the unanimous agreement on the
part of the stockholders of the bank when the Securities Co. was
organized.
Mr. PECORA. Mr. Bisbee, will you tell the committee the reasons
for that? What were considered to be the advantages to the institution of such an arrangement?
Mr. BISBEE. I will do my bestjJSIr. Pecora. Perhaps the business
reasons might be better explained by someone else; but a bank as
such may not engage in the securities business; that is, as the securities busings is generally understood. Banks are restricted in
the nature and quality of investments that they may make; and it
was considered advisable at that time to have a corporation owned
by the same stockholders in exactly the same percentages, that might
undertake business which the bank could not undertake, and not
only thereby make money for the stockholders by undertaking that
business but thereby enhance the good will of the bank itself by
enlarging the circle of its operations.
Mr. PECORA. Or to depreciate the value of that good will in the
event that the business of the Securities Corporation proved
unprofitable?
Mr. BISBEE. Proved unsuccessful, exactly.
Senator COUZENS. A while ago, in answer to a question propounded
to Mr. Wiggin, he said that the stock of the Securities Co. was
STOCK EXCHANGE PRACTICES
2289
issued jointly with the stock of the bank, and that the stamp on
those certificates
Mr. BISBEE. Let me explain that. He was thinking, Senator
Couzens, of the situation which now exists. The original agreement whereby the certificates for the shares were deposited with
the Bankers Trust Co., as I have indicated, was changed 3 or 4
years ago, so that on one side of a piece of paper now in circulation
and held by the stockholders is the stock certificate of the bank;
on the reverse side of the same piece of paper is the stock certificate
of the Securities Corporation; and the instrument of transfer on the
reverse side is so phrased that when one signs it, he transfers his
interest in the particular shares of stock in both institutions.
Senator COUZENS. I understand that.
Mr. BISBEE. Of course, that has been changed from the originial
set-up.
Senator COUZENS. That is what I do not understand—why you did
not do that in the first place? I t seems that you have done it now;
but I do not understand why it was not done that way in the first
instance.
Mr. BISBEE. These things are matters of evolution, Senator; and
our arrangement when we organized the Securities Co. was still
original in that it preserved to each stockholder the right to vote
on the shares of stock and not be the victim of a voting trust. At
that time our best thought simply evolved that particular machinery.
As time went by we thought of this other, and we were driven to
think of it largely by reason of questions of economy. The cost of
making out three certificates and having them transferred by the
Bankers Trust Co. became so very great that we worked out the
other means as a matter of economy.
Senator COUZENS. But that means what you later worked out was
not announced at the time ?
Mr. BISBEE. I never had heard of it.
Senator COUZENS. What year was that?
Mr. BISBEE. The organization?Senator COUZENS. When you first developed the idea of one
certificate ?
Mr. BISBEE. That was about 3 or 4 years ago.
Mr. CONBOY. I think there was a misunderstanding between your
question and Mr. Bisbee's answer. You want to know whether at
the time the later plan was worked out, having the certificate of
the bank on one side and the certificate of the Securities Co. on the
other side of the same certificates
Mr. BISBEE. N O ; I think the Senator wished to know whether at
the time we originally organized the Securities Co. that method was
not known.
Senator COUZENS. When you originated the idea of showing one
participation on one certificate in both the bank and the Securities
Co.—when you adopted that plan was it entirely new?
Mr. BISBEE. When we put both certificates on one piece of paper?
Senator COUZENS. Yes.
Mr. BISBEE. Not all of its elements were new. It had been developed between 1917 and that time. Our arrangement is a little
2290
STOCK EXCHANGE PRACTICES
different from any other; but the general idea of having one certificate on one side and the other on the other side had been evolvedSenator COUZENS. SO that when you organized this scheme through
the Bankers Trust Co. you had no other purpose in mind than you
later accomplished by the new plan ?
Mr. BISBEE. None other.
Mr. PECORA. I show you what purports to be a photostatic reproduction of a certificate of stock of the Chase National Bank on one
side and on the other side a certificate of stock of the Chase Corporation. Will you be good enough to look at it and tell us if that is
a true and correct copy of the form of those certificates?
Mr. CONBOY. It is a photostat that you got from our records, is it
not?
Mr. PECORA. Yes.
Mr. CONBOY. It must be correct.
Mr. PECORA. I merely wanted the statement on the record as a?
basis for its introduction.
I offer it in evidence.
The CHAIRMAN. It may be admitted.
(The stock certificate referred to and identified by tL witness
was received in evidence, marked "Committee Exhibit JNO. lr
10/17/33 ", and will be found on page 2339.)
Senator ADAMS. Suppose I were the owner of a share of this Chastr
National Bank represented by one of these two-faced certificates—I
do not mean that in an improper sense, you understand—and I should
go to the Chase National Bank and say, " I have sold my share in
the Chase National Bank and I want a transfer of that share. I
have not sold, and do not intend to sell, my share in the Se^uritie^
Co.", and I give^you instruments of assignment and transfer?
Mr. BISBEE. We would tell him that he was violating his agreement under which this arrangement is in effect.
Senator ADAMS. What would you do in the matter of making the
transfer?
Mr. BISBEE. I have never been faced with the necessity of deciding,
that question.
Senator ADAMS. The stockholder has a right to transfer his stocJ^.
has he not?
Mr. BISBEE. He is violating his agreement. He has agreed that
he will not transfer one without transferring the other.
Senator ADAMS. But conceding that he made that agreement, I
am asking you this. Assuming that he violates the agreement, he
says to you that, "legally as a stockholder of the Chase National
Bank I have a right to transfer my certificate of the Chase NationalBank." What would you say to him?
Mr. BISBEE. I would say to him, " I doubt your right to do it, because you have agreed not to do it."
Mr. PECORA. And that agreement was expressed on the- face of the*
certificate that has just been offered in evidence?
Mr. BISBEE. Yes.
Senator ADAMS. What was the consideration?
Mr. BISBEE. He got his stock in the Securities
Corporation as a.
consideration of that agreement.
Senator ADAMS. He got it because he was a stockholder did he
not?
STOCK EXCHANGE PBAOTIOES
2291
Mr. BISBEE. Yes; but he transferred it to the Chase Securities
Corporation. He took its stock in consideration of that agreement.
Senator ADAMS. Suppose I say to you, as a stockholder, " I will
not make that agreement, and I want my share of the Securities Co.
that you are giving other stockholders? "
Mr. BISBEE. You would have been entirely within your rights if
you had done it at that time.
Senator ADAMS. What was the consideration for making the agreement?
Mr. BISBEE. He agreed with the Chase Securities Corporation that
if it issued him its stock, so many shares, he covenanted, as the agreement provided. Also the charter of the Chase Coporation provides
that a share of its stock may not be transferred without at the same
time transferring to the same individual the same number of shares
of the bank.
Senator ADAMS. I was inquiring into it as rather a legal question—whether, as a matter of fact, T was entitled to secure a certificate if I did not make the agreement.
Mr. BISBEE. He beeomes a party to the agreement by accepting
the certificate in the first place. By accepting that certificate he
becomes a party to the agreement.
Se lator GOLDSBOROTTGH. As I understand, there were no dissenters
to that plan ?
Mr. BISBEE. I t was unanimous.
The CHAIRMAN. The consideration for one certificate was the
agreement of all the others ?
Mr, BISBEE. That is true. Each stockholder agreed with every
other stockholder that if he would do so, he would do so.
Senator ADAMS. Yet no stockholder could be compelled to do
that?
Mr. BISBEE. NO. He did it voluntarily at the outset.
Mr. PECORA. Would you say that one of the purposes sought to
be effected by this arrangement in regard to the issuance of capital
stock of the Chase National Bank and of the Chase Corporation
was to maintain and observe at all times an identity of ownership
between the stockholders of the two' institutions ?
Mr. WIGGIN. Yes, sir. We wanted to be sure that we guarded
against any criticism or any unfair discrimination between the bank
and the company. In other words, as long as the stockholders had
exactly the same equity in each, it did not make any difference
whether the Securities Co. made the money or the bank made the
money.
Senator COUZENS. Did the creation of the Chase Securities Co.
enable you to loan money to the Chase Securities Co. and thereby
effect a benefit that you could not do direct through the Chase
National?
Mr. WIGGIN. I think so.
Senator COUZENS. In other words, supposing that the Chase Securities Co. had investments in a corporation to which you could not
loan on some security, it might be loaned by the Securities Co. and,
in turn, be loaned by you to the Securities Co. ?
Mr. WIGGIN. I cannot picture any loan that the bank could not
make direct.
175541—33—PT 5
2
2292
STOCK EXCHANGE PRACTICES
Senator COUZENS. Well, take this example. You could not, oi
course, loan on common stock, could you?
Mr. WIGGIN. On what common stock?
Senator COUZENS. Common stock of the corporation.
Mr. WIGGIN. Oh, certainly.
Senator COUZENS. YOU could not purchase common stock?
Mr. WIGGIN. NO, sir.
Senator COUZENS. YOU
could loan on it as a security, butyou could
not purchase it direct, although you could purchase bonds?
Mr. WIGGIN. Correct.
Senator COUZENS. SO that if you wanted to control the corporation by the purchase of common stock you could not do it through
the National Bank, but you could do it through the Securities Co.?
Mr. WIGGIN. The Securities Co. could purchase it; yes.
Senator COUZENS. SO, in turn, you could lend the bank's money to
enable them to do it?
Mr. WIGGIN. Lend it to the Securities Co.?
Senator COUZENS. Yes.
Mr. WIGGIN. Yes; we could.
Senator COUZENS. I do not charge that that was in contemplation, but it did create a device by which you could get control of
the company through the deposits in the iNational Bank which you
could not otherwise have gotten?
Mr. WIGGIN. I do not think it opened up any new field, Senator.
Senator COUZENS. I did not charge it, but it did make it possible?
Mr. WIGGIN. It was possible before.
Senator COUZENS. HOW?
Mr. WIGGIN. YOU could loan any individual or company money
on the stock.
Senator COUZENS. But you could not get ownership ?
Mr. BISBEE. The bank did not control it.
Senator COUZENS. Did not control what?
Mr. BISBEE. Anything that the Securities Co.
Senator COUZENS. Certainly it did. They were identical stockholders.
Mr. BISBEE. The stockholders controlled them, but not the bank.
Senator COUZENS. Oh, that is just a bandying of words, because, as
a matter of fact, it was under the same control, and this device was
created for that purpose. I am not being critical, but I am saying
that it provided this device.
Mr. BISBEE. I t did not own the Securities Corporation.
Senator COUZENS. Oh, yes, it did. No matter how you may phrase
it, it was the same stockholders and the same management, and the
control of the Securities Co. was in the bank.
Mr. BISBEE. There were 89,000 stockholders.
Senator COUZENS. Yes; but the bank could furnish the money to
purchase common stock and control the corporation through the Securities Co. which it could not do direct. I am not charging that you
did that.
Senator ADAMS. That is merely one of many things which the Securities Co. enabled it to do that the bank could not otherwise do.
Senator COUZENS. Certainly.
Senator ADAMS. That is the purpose of the Securities Co.
STOCK EXCHANGE PRACTICES
2293
Mr. PECORA. I show you a printed document entitled "Agreement ", dated January 15, 1930, with Bankers Trust Co. as depositary, incorporating all of the provisions of the agreement dated
March 21, 1917, heretofore offered in evidence, between all the
stockholders of the Chase National Bank and the Chase Securities
Corporation. Will you look at that and tell us if you recognize
it to be a true and correct printed copy of such agreement?
Mr, WIGGIN. I t is correct.
;Mr. PECORA. I offer that document in evidence.
The CHAIRMAN. Let it be admitted and incorporated in the recprd.
(The agreement referred to and identified by the witness, dated
Jan. 15, 1930, was received in evidence as Committee's Exhibit
No. 2, Oct. 17,1933, and will be found on page 2340.)
Mr. PECORA. Let me read to you, Mr. Wiggin, from the face of
the exhibit which has been marked in evidence as " Committee's
Exhibit 1," of this date, and which is a photostatic reproduction of
ra certificate of stock inl>oth the Chase National Bank and the Chase
Corporation. I will read the following inscription from that side
of the certificate representing the ownership of stoclf of the Chase
National Bank:
The agreement of March 21, 1917, as amended between all the shareholders
•of the Chase National Bank of the city of New York and the Chase Gorporation, to which the holder of this certificate,, by thew acceptance thereof and
otherwise, has become a party, provides that no shareholder of either corporation will sell, pledge, or otherwise dispose 'of or transfer,' Whether Voluntarily,
by operation of law or otherwise, any share or interest therein in either
corporation without at the same time transferring to or vesting in the same
party an equal number of shares, or the same interest therein, in the other;
also that such shareholder will not transfer any of such shares or any interest
therein, otherwise than as permitted by the certificate of incorporation of the
Chase Corporation and as stated in the stock certificate of that corporation
on the reverse side hereof.
That is the agreement, is it not, to which Mr. Bisbee alluded in
his statement for the record a few minutes ago ?
Mr. WIGGIN. Yes, sir.
Senator COUZENS. May
I ask at that point if there was any difference when you discussed this matter betweeen the Chase Corporation and the Chase Securities Co.?
Mr. PECORA. The Chase Corporation was the original name of
what is now known as the Chase Securities Co.?
Mr. WIGGIN. The other way around.
Mr. PECORA. The Chase Securities Corporation was the original
name, and subsequently was changed to the Chase Corporation?
Senator COUZENS. Was there any change in capital set-up at that
time?
Mr. BISBEE. That was only last spring.
The CHAIRMAN. When was the change made?
Mr. WIGGIN. Last spring.
The CHAIRMAN. The change in the name?
Mr. WIGGIN. The reduction in capital.
Mr. BISBEE. And also a limitation on the powers of the corporation. That is the time that it decided to make operative, Senator,
their conclusion not to longer engage in the securities business.
2294
STOCK EXCHANGE PRACTICES
Senator COTJZENS. And that is when the title was changed?
Mr. BISBEE. They amended the charter so as to eliminate the provisions authorizing them to engage in the securities business. That
w$s in the spring of this year.
Mr. PECORA. On what date was that change made last spring?
Mr. WIGGIN. It was on May 16, 1933, effective the following day.
So May 17 was the date,
Mr. PECORA. What prompted that change, Mr. Wiggin?
Mr. WIGGIN. That was since my retirement from the bank, and
I think that perhaps Mr. Aldrich can answer that. I know Mr.
Aldrich can answer it better than I can.
Mr. PECORA. I suggest, then, that Mr. Aldrich be sworn, because
he is going to be called as a witness and examined extensively later
on. I suggest that he be sworn now so that in the record at this
time we ntiay get his knowledge.
TESTIMONY OF WINTHRQP WILLIAMS ALDRICH, PRESIDENT AND
CHAIRMAN OF THE GOVERNING BOARD OF THE CHASE
NATIONAL BANK, NEW YORK, N.Y.
The CHAIRMAN. YOU do solemnly swear that your testimony
which you will give in this hearing will be the truth, the whole
truth, and nothing but the truth, so help you God?
Mr. ALDRICH. I dp.
Mr. PECORA. What is your business
Mr. ALDRICH. I am president and
and address, please?
chairman of the governing
board of the Chase National Bank in New York, 18 Pine Street,
New York.
Mr. PECORA. YOU are also an officer of the corporation known as
the Chase Corporation and which had previously been called the
Chase Securities Corporation?
Mr. ALDRICH. Yes.
Mr. PECORA. Have
you heard the testimony given by Mr. Wiggin
up to the present time ?
Mr. ALDRICH. Yes; I have.
Mr. PECORA. I addressed a question to Mr. Wiggin just prior to
your having been sworn, in which I asked him to give the committee
the reason or reasons for the change that was made in May of 193S
in the charter or bylaws of the Chase Securities Corporation.
Mr. ALDRICH. Mr. Chairman, that goes into a great many things.
The answer to that question requires consideration of a number of
things. Sometime ago—I think it was in March of this year when
that policy was announced of divorcing the securities affiliate of
Chase National Bank and changing the charter of the Chase Securities Co. so that it could not deal in securities—I took occasion to make
a statement as to what I thought should be done with regard to the
divorcement of investment banking from the banking done by the
large commercial banks.
The reasons for the conclusion that I had reached go back quite a
long distance into the past. And I had come to the conclusion that
it was not desirable for commercial banking and investment banking
to be conducted in close affiliation. I think perhaps that statement
is familiar to you all. I would like when I am called upon to testify
STOCK EXCHANGE PRACTICES
2295
in chief to put that statement into the record and explain more fully
my reasons for the conclusion I had reached.
The CHAIRMAN. At that time there was legislation pending in
Congress respecting that subject, was there not?
Mr. ALDRICH. Yes; but the legislation did not go as far as I felt
that it should. I would like, if this committee would permit me to
<lo so, to make a more formal statement in regard to that, because I
would prefer to do it more formally because of the complexity of the
thing than I would to make a statement in regard to it now offhand.
I think it is one of the most important things liefore this committee.
But I think that for the purpose of the record at this time I might
say that I had come to the conclusion, for a great many reasons, that
the business of commercial banking and investment banking should
be absolutely divorced, and for that reason at that time we started
dissolution proceedings of the Chase Harris Forbes Companies,
and we changed the charter of the Chase Securities Corporation so
that it could no longer deal in securities, and changed its name, and
that corporation also is in course of liquidation.
Now obviously you cannot liquidate a thing like that overnight.
It requires a very careful consideration as to how an orderly liquidation should be conducted. There again I would like to make a
more detailed statement to the committee later with regard to the
machinery for that. But I do not think it is properly covered by
the act which is now drawn.
Mr. PECORA. DO you mean the Glass-Steagall banking bill ?
Mr. ALDRICH. The Glass-Steagall banking bill passed in 1933.
Mr. PECORA. That was passed in the last session of Congress?
Mr. ALDRICH. Yes.
Mr. PECORA. Mr. Aldrich.
you undoubtedly will be given a full
opportunity in the course bi your examination to put on the record
the matters that you have just referred to, but at this time let me
ask you this question: Did you cause to be sent to the shareholders
of the Chase National Bank and the Chase Securities Corporation a
letter bearing date April 5, 1933, in which the stockholders were
apprised of the action proposed to be taken at special meetings of
these two corporations called for May 16, 1933, on which date the
changes that are the subject of the immediate examination were
effected?
Mr. ALDRICH. Yes.
Mr. PECORA. I S this
a true and correct reproduction or copy of the
letter that you then caused to be sent to such stockholders?
Mr. ALDRICH. Yes.
Mr. PECORA. I offer
that letter in evidence. I think, Mr. Chairman, it will be very timely at this time.
The CHAIRMAN. Let it be admitted and entered in the record.
(Letter to the shareholders of The Chase National Bank and Chase
Securities Corporation, dated April 5. 1933, signed by Winthrop W.
Aldrich, was received in evidence and marked " Committee Exhibit
3 "of October 17, 1933.)
Mr. PECORA. The letter has been marked " Committee's Exhibit 3 "
of this date. I think it might be enlightening to the committee to
have me read it. (Reading:)
2296
STOCK EXCHANGE PRAC1ICES
COMMITTEE EXHIBIT NO. 3, OCT. 17,
1933
T H E CHASE NATIONAL BANK OF THE CITY OP NEW YORK,
CHASE SECURITIES CORPORATION,
April 5, 1933.
To the Shareholders of The Chase National Bank and Chase SecnHtiee
Corporation:
The Chase National Bank and Chase Securities Corporation propose to take
several important steps which are detailed below. Some of them will be submitted for consideration by shareholders at special meetings called for May 16r
1933, official notice of which will be sent to the shareholders in due course.
These are extraordinary times. They call for intelligent preparation to meet
future requirements and to provide improved commercial banking facilities.
Such is the purpose underlying the program it is now proposed to follow. We
believe this program will commend itself to the judgment-of our shareholders
as dictated by a wise and conservative adjustment of policy to existing conditions.
We believe that what we propose is in the best interests of the bank and in*
accord not only with sound banking policy but responsive to enlightened public
opinion.
On March 8 last I issued a public statement pointing out that the experience of the past 10 years had clearly indicated the advisability of separating
commercial banking from the general business of investment banking. The
Chase National Bank had for some time been giving serious consideration to
the question of severing its connection with its security affiliates and of limiting, its. future participation,in investment^banking, solely to. handling obpgatidifs'Of the* tJtiited* States Government: and of States and municipalities an<L
other securities as provided in the National Banking Act. Last month a special committee of directors was appointed to recommend ways and means of
bringing about this result. The report of this committee was submitted to and
its recommendations were approved by the board of directors of The ChaseNational Bank and of Chase Securities Corporation at meetings held today.
The committee, being unanimously of the opinion that there should be a
prompt separation of the business of distributing securities as conducted by
the securities affiliates and the commercial banking business of The Chase National Bank, reported that it had given consideration to a number of plans for
accomplishing this result, including the possibility of selling the securities business to outside interests. The conclusion was' finally reached, however, that in.
yiew of existing conditions it would be impossible to obtain at this time any satisfactory proposal to purchase the securities business of the affiliated companies.
The committee accordingly recommended a plan which, as supplemented by
further recommendations made by the board of directors of Chase Securities
Corporation, embraced the proposals set forth below. These proposals, as
approved by the board of directors, are to be submitted for consideration and
action by the shareholders at the special meeting to be held on May 16, 1933.
These proposals are summarized as follows:
(a) That the charter of Chase Securities Corporation be amended so as toeliminate from its activities the business of distributing securities to the public
As the charter of this corporation is broad in scope, the committee recommended
t^at sthe.viB^ended limitation be^-accomplished- by the addition of a proviso* <to*
the effect that after the effective date of the amendment the corporation should
not, either directly or indirectly, through any subsidiary, engage in the business
of issuing, floating, underwriting, publicly selling or distributing, at wholesale
or retail or through syndicate participations, stocks, bonds, debentures, notes,
or other securities.
(o) That Chase Harris JTorbes Companies wh'ch is a wholly owned subsidiary of Chase Securities Corporation, engaged exclusively in the securities
business, be placed in process of liquidation.
(c) Th?t the corporate name of Chase Securities Corporation be changed soas to eliminate the word Securities therefrom.
(d) That the par value of each share of Chase Securities Corporation bereduced from $5 to $1, and thereby the capital stock of Chase Securities Corporation be reduced from $37,000,000 to $7,400,000.
(e) That the board of directors of Chase Securities Corporation be reduced
Digitized forin
FRASER
number from thirty to ten.
STOCK EXCHANGE PEACTICES
2297
As soon as these proposals are put into effect the securities business of The
Chase National Bank's affiliates will terminate. Although Chase Securities
Corporation (under its new name) will continue by identity of stock ownership
to be affiliated with The Chase National Bank, its activities will be limited to
holding and administering its remaining investments, including its investment in
American Express Company until appropriate disposition can be made of such
investments. The proposed reduction in the capital of the corporation involves an elimination of all elements of " good will" value from Its assets.
II
In my public statement of March 8 I suggested that boards of directors of
commercial banks should be limited in number by statute so as to be sufficiently
small to enable the members to be more closely in touch with the affairs of their
banks.
In accordance with the spirit of the foregoing suggestion, and without
awaiting the enactment of any such statute as that suggested, the board of
directors of The Chase National Bank today approved a resolution submitting
to the special meeting of the shareholders to be held on May 16, 1933, a proposal to reduce the number of members of the board of directors of the bank
to not more than forty.
The present board numbers seventy-two members. This number is an outgrowth of the numerous amalgamations which have taken place between The
Chase National Bank and other banks in recent years, especially those with
The Mechanics & Metals National Bank, The National Park Bank, and the
Equitable Trust Company. Prior to the amalgamation with The Mechanics &
Metals National Bank in 1926 the Board of Directors of the Chase National
Bank numbered twenty-eight members. When the other banks were combined
with the Chase their directorates were successively added to the then existing
board.
^
III
It would not seem necessary to call to the attention of shareholders the
extraordinary conditions with which banking in the United States has recently
been confronted. The emergency banking legislation which has been passed
on the recommendation of the President of the United States was wisely conceived and has been effective in meeting these conditions. Since the banks
reopened for the regular transaction of business and after the banking holidays,
the deposits of the banks of the country have increased. Our deposits at the
close of business March 3, before the banking holiday, were $1,236,000,000,
whereas at the close of business March 31, they amounted to $1,306,000,000.
It is my firm conviction that each of the steps taken today by the boards of
The Chase National Bank and Chase Securities Corporation are in the best
interests of our organization and its shareholders. The Chase has a heritage
of 56 years of service, and in keeping with its traditions recognizes its primary
obligation as a commercial banking institution.
WlNTHROP W. ALDRICH,
Chairman Governing Board and President The Chase National Bante,
Chairman of the Board Chase Securities Corporation.
Mr. PECORA. Mr. Aldrich, let me ask you briefly: Were the various
proposals that are set forth in this letter known as " Committee's
ExhibitNo. 3 " of this date eventually adopted by the shareholders of
the Chase National Bank and the Chase Securities Corporation?
Mr. ALDRICH. They were; yes.
Mr. PECORA. I think we might resume the examination of Mr.
Wiggin.
The CHAIRMAN. We will have you later, Mr. Aldrich.
Mr. PECORA. Mr. Wiggin, in the statement made to the committee
during this hearing by Mr. Bisbee he said in substance, among other
things, when he was referring to the organization of the Chase
Securities Corporation in 1917, that at that time a national bank
could not under the law engage in the business of issuing and selling
2298
STOCK EXCHANGE PRACTICES
securities. I believe that is a fair paraphrasing of your statement,
Mr. Bisbee, is it not?
Mr. BISBEE. Generally, yes.
Mr. PECORA. Let me ask you, Mr. Wiggin: In view of that statement of Mr. Bisbee's, was it the purpose and intention at the time of
the creation of the Chase Securities Corporation to organize that
corporation among other reasons for the purpose of enabling the
Chase National Bank, through the conduct and operation of the
Chase Securities Corporation, to do things which the bank itself
could not directly do under the law?
Mr. WIGGIN. That would not be a correct statement.
Mr. PECORA. What do you understand then to be the reason for
the statement made by Mr. Bisbee when referring to the creation of
the Chase Securities Corporation in 1917 that the bank could not
engage in the securities business as such ?
Mr. WIGGIN. It did not enable the bank to engage in the securities
business.
Mr. PECORA. Not directly, of course, but did it not in effect through
the medium of the capital setup of the Chase Securities Corporation
enable the bank to utilize its funds either in whole or in part for the
purpose of the business conducted by the Chase Securities Corporation, which was an investment or securities business ?
Mr. WIGGIN. Well, it enabled the Chase Securities Corporation to
do a securities business.
Mr. PECORA. And the Chase Securities Corporation was organized
as an affiliate of the Chase National Bank in such fashion that the
identity of the stockholders of the Chase Securities Corporation was
the same as the stockholders of The Chase National Bank and in
equal proportion?
Mr. WIGGIN. That is correct.
Mr. PECORA. Was that not done in order to do indirectly* that
which the bank could not do directly? Is that not a fair conclusion, Mr. Wiggin?
Mr. WIGGIN. Well, it was done to give those same stockholders the
benefit of what we thought would be a profitable business.
Mr. PECORA. And that profitable business was the investment or
securities business, was it not ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And the
stockholders of the bank would not have
had the opportunity or advantage of engaging in that business
except through the setup of an organization like the Chase Se urities Corporation?
Mr. WIGGIN. That is correct.
Mr. PECORA. When the shareholders of the Chase National Bank,
who also were the shareholders of the Chase Securities Corporation,
held the special meeting on May 16 last were you represented at that
meeting?
Mr. WIGGIN. I was not at the meeting. I was not represented
except that I assume that my stock was voted by proxy. I sent a
proxy for the meeting.
Mr. PECORA. Did you have notice as a shareholder of both of those
corporations of the proposals embodied in this letter of Mr. Aldrich
which has been read in evidence, and known as Committee's Exhibit
STOCK EXCHANGE PBACTICES
2299
No. 3 of this date, which were to be presented for 'action to the
shareholders at this special meeting of May 16 last ?
Mr. WIGGIN. What was the date of that letter, Mr. Pecora ?
Mr. PECORA. April 5, 1933.
Mr. WIGGIN. I think I was in Europe at the time. But I assume
that we had notice of it. I have no personal recollection, you understand.
Mr. PECORA. Well, were you in Europe at the time of this special
meeting of May 16 last ?
Mr. WIGGIN. I think so.
Mr. PECORA. YOU sent your proxy as a shareholder of both of
those companies?
Mr. WIGGIN. I presume so.
Mr. PECORA. And do you know whether those shares voted by you
were voted in favor of these two proposals?
Mr. WIGGIN. Oh, I assume so.
Mr. PECORA. Did you give instructions that they should be so
voted?
Mr. WIGGIN. I presume the proxy was sent.
Mr. PECORA. Well, did you approve of these proposals ?
Mr. WIGGIN. I approved of backing up the management of the
bank.
Mr. PECORA. Well, that hardly answers the question. The question' was much more specific than that.
Mr. WIGGIN. I know.
Mr. PECORA. Did you approve of these proposals that are set forth
in some detail in Mr. Aldrich's letter to the shareholders which had
been put in evidence here?
Mr. WIGGIN. I do not know that I had seen the letter when the
proxies were sent. The stock—there isn't much of it in my own
name.
Mr. PECORA. Did not forms of proxies together with notices of the
special meeting to be held on May the 16th reach you at the same time
as this letter of April 5?
Mr. WIGGIN. I presume so.
Mr. PECORA. SO that you had before you prior to the meeting held
on May 16 as much knowledge at least as could be conveyed to you
through the medium of this letter of Mr. Aldrich of these proposals
and of the fact that they were going to be presented to tne shareholders for their consideration and action on May the 16th ?
Mr. WIGGIN. Yes.
Mr. CONBOY. Just
to correct you a minute. The proxies were
sent out a little later than the letter, Mr. Pecora.
Mr. PECORA. Yes.
Mr. CONBOY. But
Mr. PECORA. Yes.
of course before the date of the meeting.
Did you approve of the adoption of these proposals embodied in this letter, at the special meeting of May the
16th?
Mr. WIGGIN. I did by proxy,
Mr. PECORA. DO you recall who the proxy was?
Mr. WIGGIN. NO ; I do not.
Mr. PECORA. Did you by any
chance have any discussion by way
either of conversation or written communication with Mr. Aldrich
2300
STOCK EXCHANGE PRACTICES
•or any of the -other executive officers of the bank prior to this meeting or May the 16th last with respect to these proposals ?
Mr. WIGGIN. I do not recall any.
Mr. CONBOY. Did you want the names of those proxies, Mr.
Pecora ?
Mr. PECORA. If you can give them to us readily.
Mr. CONBOY. Eldon Bisbee, Harry P. Fish, and Harrison Tweed.
You will find them there on the proxy at the bottom. I think you
must have a photostatic copy.
Mr. PECORA. I have a photostatic copy; yes.
Mr. CONBOY. I t is right at the bottom.
Mr. PECORA. Eldon Bisbee, Harry P. Fish, and Harrison Tweed.
Were you in favor of these proposals, Mr. Wiggin?
Mr. WIGGIN. I gave my proxy for them.
Mr. PECORA. Well, what are we to understand from that answer?
That you were in favor of the proposals or that you were not in
favor of the proposals?
Mr. WIGGIN. I am absolutely in favor of backing up the management of the bank, and therefore I was in favor of it.
Senator COTJZENS. YOU did not approve them with enthusiasm,
though, did you?
Mr. WIGGIN. I approved them.
Senator COUZENS. TSTot with enthusiasm?
The CHAIRMAN. With reservations.
Mr. PECORA. Did you approve of these proposals in principle and
apart from the question of backing up the management?
Mr. WIGGIN. N O ; I do not think so.
Mr. PECORA. Did you disapprove of the principle of these proposals in effect as a matter of personal judgment?
Mr. WIGGIN. I had not changed my opinion since the expression
in the report in January that I made. But I have absolute confidence in the management of the bank, and I am for them. When
they decide that is the thing to do I vote with them.
Mr. PECORA. IS it fair to say that in May or this year you were
the owner of a substantial number of shares of the bank and of
the Securities Corporation?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. DO you recall
how many shares of stock in both of
those institutions you owned on that date ?
Mr, WIGGIN. Personally?
Mr. PECORA. Yes, sir.
Mr. WIGGIN. I cannot tell you exactly.
Mr. PECORA. Would the figure of 67,000
shares about represent
the extent of your stock ownership ?
Mr. WIGGIN. I should say so. That is my personal ownership.
Mr. PECORA. In your personal name?
Mr. WIGGIN. Yes; I think so.
Mr. PECORA. And in addition were there members of your family
who were owners of a substantial number of these shares at that
time?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. HOW many
shares other than the 67,000 shares that
you owned in your name were owned at that time by members of
your family?
STOCK EXCHANGE PRACTICES
2301
Mr. WIGGIN. I cannot answer it offhand.
Mr. PECOKA. Can yon approximate it ?
Mr. CONBOY. Do you want the total family holdings?
Mr. PECORA. If you can give it to us, or a fair approximation if
j o u cannot give us the exact figure.
Mr. CONBOY. Something in excess of 117,000 shares.
Mr. PMJORA. I S that inclusive or exclusive of the 67,000 shares that
were registered in the name of Mr. Wiggin individually?
Mr. WIGGIN. Inclusive.
Mr. CONBOY. I t includes whatever Mr. Wiggin owned personally,
whether his figure is an accurate figure or not. That may be subject
to correction, but that is the best information that we can furnish
you at the moment.
Mr. PECORA. These proposals involved somewhat of a radical departure from the policies of the two institutions, namely, the bank
and the securities corporation that had been followed under your
leadership of those institutions, did they not?
Mr. WIGGTN. Yes, sir.
Mr. PECOOA. Will you
tell this committee candidly your judgment
as to whether those proposals, even though you voted for them
by proxy or otherwise, represent in your opinion a beneficial change
or departure from your preexisting policies?
Mr. WIGGIN. Beneficial change to whom, Mr. Pecora?
Mr. PECORA. I beg your pardon?
Mr. WIGGIN. Beneficial change to whom?
Mr. PECORA. Well, I presume to the shareholders.
Mr. WIGGIN. I do not know that any opinion is worth much
Mr. PECORA. YOU have had a very extensive experience in banking
.and finance, and I think your opinion would have value from that
standpoint alone.
Mr. WIGGIN. Changes have come pretty rapidly in the past year,
and very probably it I were still the senior officer of the bank, I
would have done the same thing.
Mr. PECORA. Meaning by that what? That you would continue
"the policies?
Mr. WIGGIN. NO.
Mr. PECORA. Or that
you would have been in favor of the departure from these policies?
Mr. WIGGIN. Of course, I do not know what I would have done.
I say the changes have been many, and I might have done exactly
what Mr. Aldrich has recommended. I do not know. Up to the
time that I left the bank I did not think that it was necessary to
make such a separation.
Mr. PECORA. When did you leave the bank, to use your own
expression ?
Mr. WIGGIN. The second Tuesday in January.
Mr. PECORA. Of this year ?
Mr. WIGGIN. Of this year.
Mr. PECORA. At that time did you completely sever your connections with the bank in any capacity other than as a shareholder?
Mr. WIGGIN. I was still a director and member of the executive
committee.
2302
STOCK EXCHANGE PRACTICES
Mr. PECORA. At that time was any action taken by the board
either of the bank or of the Securities Corporation that continued
you in the employ of the bank ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. T^hat was that action ?
Mr. WIGGIN. May I sugply the minute
that was passed at the
meeting
Mr. PECORA. Answer the question in any way you wish that will
serve as a complete answer.
Mr. WIGGIN. Then I will not have to make any changes if I just
give you the printed document. I think, Mr. Pecora, you have a
photostat of the thing. Perhaps I, can use that and identify it.
Mr. CONBOY. You have a copy there, Mr. Pecora, and Mr. Wiggin
will refer to this copy also. A copy has been furnished to you.
Mr. PECORA. Yes; I have a copy.
Mr. WIGGIN. NOW let me have the question, if you will, Mr. Pecora.
Mr. PECORA. Let the reporter- read it.
(Thereupon the following was read by the reporter as above
recorded:)
Mr. PECORA,. At that time was any action taken by the board either of the
bank or of the Securities Corporation that continued you in the employ of
the bank?
Mr. WIGGIN. Yes, sir.
Mr. PBOPBA. What was that.action?
Mr. WIGGIN. It took the form of resolutions by the board, by the
committee.
Mr. PECORA. When was that resolution adopted?
Mr. WIGGIN. December 21, 1932.
Mr. PECORA. Who adopted it?
Mr. WIGGIN. I think the executive committee.
Mr. PECORA. Of the Chase National Bank?
Mr. WIGGIN. Of the Chase National Bank.
Mr. PECORA. Did that resolution read as follows [reading]!:
Resolved, That in order to discharge in some measure the obligations of this
bank to Mr. Wiggin and in anticipation that he will be always prepared, when
consulted by them, to assist the principal officers and the board of directors of
the bank with advice upon important matters affecting its welfare and management, after the expiration of his present term of office, he be paid during his
life a salary or compensation which, during the year 1933, shall be at the rate of
$100,000 per year and, thereafter, shall be $100,000 per year.
Mr. WIGGIN. That is the resolution. There is a preamble, or another resolution that has some bearing on the same matter. Here are
the mijiu;tes of the meeting.
Mr. PECORA. I see no preamble in the copy of the minutes which
has been furnished to me, Mr. Wiggin. As a matter of fact, the entry
on the minutes of that meeting of December 21, 1932, immediately
preceding the resolution which I have read, is as follows:
After further discussion, upon motion of Mr. Ecker, seconded by Mr. Debevoise, the following resolution was unanimously adopted:
And then follows the resolution as I read it into the record, without any preamble.
Mr. WIGGIN. " Preamble " is not the right word.
Mr. CONBOY. I think what Mr. Wiggin refers to is the minute
which precedes that, which refers to the matter which the executive
STOCK EXCHANGE PRACTICES
2303
committee was discussing, and after discussion of which that resolution was adopted. That is what he referred to as the preamble.
You have that there.
Mr. WIGGIN. I do not think " preamble " is the right word. I
should have used some other word.
The CHAIRMAN. Have you a copy of the minutes there ?
Mr. CONBOY. We have a copy.
The CHAIRMAN. Why not put that in the record ?
Mr. WIGGIN. May I put this in the record?
Mr. PECORA. Yes. Let me see it, please.
Mr. WIGGIN. Yes, sir [handing paper to Mr. Pecora].
Mr. CONBOY. Mr. Pecora, you have the committee minute there,
have you not, including the letter from Mr. Wiggin to the executive
committee?
Mr. PECORA. Yes.
Mr. CONBOY. If I may
make the suggestion, why not put the whole
thing in—Mr. Wiggin's letter to which the minute refers, and the
minute to which the resolution refers?
Mr. PECORA. The statements in the letter referred to, as you know,
are largely in the nature of self-serving declarations.
Mr. CONBOY. I t was what the executive committee had before it.
Mr. PECORA. Very well. I will read them into the record.
The CHAIRMAN. Are you still a shareholder and director in the
bank and in the corporation?
Mr. WIGGIN. I am still a shareholder. I am not a director.
Mr. PECORA. At this meeting of the executive committee of the
Board of Directors of The Chase National Bank held on December
21,1932, did you cause to be presented to that meeting a letter bearing that same date, namely, December 21, 1932, addressed to the
said executive committee?
Mr. WIGGIN. I
did.
Mr. PECORA. I have before me a carbon copy, or what purports,
rather, to be a carbon copy, a true and correct copy, of that letter.
I will read from that copy, and when I conclude the reading of it
wiH you tell the committee if that is the letter which you caused to
be .presented to the e^cutive committee of the bank's board on that
date ? [Reading:]
DECEMBER 21, 1932.
To the EXECUTIVE COMMITTEE, CHASE NATIONAL BANK,
GENTLEMEN: I shall be sixty-five years old on February 21st, next. The
annual meeting of the Bank will take place January 10. I think it is appropriate, and I accordingly request, that at the annual meeting I be not reelected
as Chairman of the Governing Board.
I have had this step in mind for several years. .The Bank itself has under
consideration a very wise plan in which officers and employees shall be retired at the age of sixty-five, and I shall be merely anticipating its practical
operation.
My pride in the Chase National Bank is the supreme satisfaction of my business life. At a moment like this I may be permitted to refer to one or two
«l^$aents which contribute to tjiat feeling. Not only in its size, but in the
strength of its official and working personnel, and in the scope of the interests represented by its 83,000 stockholders and its 150,000 depositors, the
position of the Bank ha s^become unique.
During my twenty-nine years-' association with the Chase I have been privileged to play an intimate part in its growth. I have always had absolute faith
in the Bank and in its future. 1 invested a large share of my earnings in it.
ir.p Dresirfont following the wise administrations of Henry W. Cannon and
2304
STOCK EXCHANGE PRACTICES
A. Barton Hepburn. I also became the largest stockholder, and today the
major portion of the fortune of myself and my family is Invested and will
continue to be invested in the stock of the Bank.
As the Chase grew, I became convinced of the importance of broadening the
stock ownership and of associating with us large interests who, by reason of
their stock holdings, would become sources of Increased influence and strength.
It was, accordingly, an event of outstanding consequence when in 1930, through
the merger with the Equitable Trust Co., John D. Kockefeller, Jr., as the largest
holder of Equitable stock, became, through the ensuing exchange of stock, the
largest stockholder in the Chase. The identification of these interests with the
bank, together with the increasing scope of the other stockholding interests, is
representative of the larger phases into which the life of the Chase has entered.
The various mergers with other institutions have added to the personnel of
the Chase National Bank experienced ability and wisdom of the highest order.
I would like to pay particular tirbute to John McHugh, Chairman of the
Executive Committee, who came to us following the merger with the Mechanics
& Metals National Bank, and Charles S. McCain, Chairman of the Board, who
came following the merger with the National Park Bank, both of whom have
added conspicuously to the strength of our organization. Following the merger
with the Equitable Trust Co., WInthrop W. Aldrich, president of that institution, became President of the Chase National Bank and later Vice Chairman of
its Governing Board. It is impossible for me to speak with adequate appreciation of what the coming of Mr. Aldrich has meant to the Bank, and it is a
source of infinite satisfaction to me that in the years to come the Bank may
contemplate having the benefit of his character, ability, and sound judgment in
guiding its affairs.
Convinced as I am of the wisdom of the step I am taking and of reducing the
strain upon myself incident to increasing years, I do this with great personal
regret. My heart and my energies have been concentrated for many years in
promoting the growth, welfare and usefulness of the Chase National Bank. I
have seen it develop into an institution whose public service is commensurate
with its magnitude. I believe in the Bank and in its increasing possibilities.
For its officers and employees I have, and will always have, sentiments of deep
personal affection. I need scarcely add that as long as I live the results of my
experience and the support of every effort which I can exert will be contributed
toward the progress of the Chase National Bank.
ALBERT H. WIGGIN.
Is that the letter that you caused to be sent ?
Mr. WIGGIN. Correct.
Mr. PECORA. NOW, from the extract that I have of the regular
meeting of the executive committee of the Chase National Bank held
on December 21,1932, there follows, aft&r this letter, this (reading) :
Thereupon, Mr. Ecker suggested that the Committee might desire to discuss
his statement and take some action with reference thereto and that this could
be done more appropriately in his absence, whereupon Mr. Wiggin withdrew
from the meeting.
Thereafter the matter was discussed and, upon motion duly made and sec
onded, the following minute was unanimously adopted:
The executive committee of the Chase National Bank has received with
keen regret the intimation—
Something more than an intimation—
from Albert H. Wiggin of his desire to retire as Chairman of its Governing Board. The services of Mr. Wiggin not only to this institution, but to
banking throughout the world, have been of a preeminent character. The
Chase National Bank is in no small measure a monument to his energy, wisdom, vision, and character. When he became President of the Bank in 1911
its capital, surplus, and undivided profits amounted to $12,953,397. Today its
capital funds amount to $266,335,062. The growth of the Bank under his
leadership has in aU other respects been upon a corresponding scale. With the
growth of the Bank he has also been instrumental in effectively broadening the
basis of the stock ownership in the institution to include interests whose cooperation and influence have added immeasureably to the strength of the Bank.
STOCK EXCHANGE PEACTICES
2305
He has also developed, with the steadily enlarging magnitude of the Bank, a
personnel in keeping with the high responsibilities involved in directing the
affairs of so large an institution. We earnestly hope that Mr. Wiggin will
continue indefinitely to remain a member of the Board of Directors and of the
Executive Committee of the Bank. We are also deeply gratified that his assurances of continued cooperation will give the Bank the opportunity to avail itself of his great experience and wise guidance in dealing with many of the
large interests and problems of the Bank, particularly in connection with our
important foreign relations toward which he has already made so able a contribution.
The cashier was requested to have a copy of the minute suitably engrossed,
certified, and presented to Mr. Wiggin.
After further discussion, upon motion of Mr. Bcker, seconded by Mr. Debevoise, the following resolution was unanimously adopted.
Then follows the resolution I have already read, voting you a
salary jfor life at the rate of $100,000 a year. Is that correct?
Mr. WIGGIN. Yes.
Mr. PECORA. That is what you wanted in the
Mr. CONBOY. That is the complete record.
Mr. PECORA. NOW, you have accepted, since
record, Mr. Conboy?
the adoption of this
resolution, the benefits of the action implied in the resolution, namely,
a salary at the rate of $100,000 a year?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. Will you tell the committee whether or not, prior to
the special meeting of the shareholders of the bank and of the securities company held on May 16 last, you rendered any service by way
of the expression of advice or judgment to the governing authorities of the bank with respect to the wisdom of the proposals embodied in Mr. Aldrich's letter of April 5 last?
Mr. WIGGIN. I was hot consulted.
Mr. PECORA. Have you rendered any other service since the adoption of this resolution?
Mr. WIGGIN. Daily.
Mr. PECORA. Can you describe it?
Mr. WIGGIN. I think so.
Mr. PECORA. Will you please do so ?
Mr. WIGGIN. I have a very large acquaintance and friendship with
the customers of the bank, and they constantly come to me, and I
think I am a direct influence in holding a very large business for
the bank.
Mr. PECORA. What kind of business is that—maintenance of deposit
accounts with the bank?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Would you
say that the principal service you have
rendered to the bank since the adoption of this resolution last December, at which time this life salary at the rate of $100,000 a year was
voted to you, consisted in holding these depositors of the bank ?
Mr. WIGGIN. Largely.
Mr. PECORA. Can you refer the committee to any other service that
you have rendered since the-enactment and adoption of this resolution?
Mr. WIGGIN. I think the officers have all felt free and have on many
occasions consulted me on credits.
Mr. PECORA. But they did not consult you with regard to the making of this departure from the old policies, the preexisting policies
2306
STOCK EXCHANGE PRACTICES
of the bank and the securities corporation, that was effected on May
16 last?
Mr. WIGGIN. I do not recall it.
Mr. PECORA. AS a#very large shareholder in the bank and the securities corporation, apart from any other consideration, would you not
feel that it was directly to your interests to see that these "deposit
accounts in the bank were maintained ?
Mr. WTGGIN. Repeat that, will you? I want to get this right.
Mr. PECORA. The reporter will read it.
(The reporter read the pending question.)
Mr. WIGGIN. I think as a shareholder I am better off with deposits,
certainly.
Mr. PECORA. YOU did not look upon the salary of $100,000 a year
as calling for the exercise of any special efforts on your part to promote the interests of the bank, did you ?
Mr. WIGGIN. Oh, yes; I think so.
Mr. PECORA. YOU still think so?
Mr. WIGGIN. I think so. And besides that, you know, there was
all this foreign business, and I was being sent over on the foreign
business representing all the banks in America, and keeping up the
relationship with the Chase National.
Mr. PECORA. DO you think that the shareholders of the Chase
Bank should be called upon to compensate you for services you have
rendered for all the banks with regard to this so-called " foreign"
business ?
Mr. WIGGIN. I did not mean to put it that way. I did go over
representing the banks on a particular transaction.
Mr. PECORA. That is, this German standstill agreement?
Mr. WIGGIN. But I also, of course, always had the interests of
the Chase very much to the front in all those contacts.
Mr. PECORA. Would the maintenance, without impairment, of
those interests be a matter of special concern to you because of the
salary, Mr. Wiggin?
Mr. WIGGIN. I think so.
Mr. PECORA. And without the salary you would not have the
incentive or the inducement to protect those interests ?
Mr. WIGGIN. I would have the inducement and the interest but I
would not feel that I was to be at the beck and call of the bank.
Now I do.
Mr. PECORA. In view of that, Mr. Wiggin, will you tell us whether
or not, prior to this meeting of December 21, 1932, at which this
letter of yours was read to the executive committee and this resolution was adopted allowing you or granting you this $100,000 a year
salary for life, there had been any discussion by you with any of
the members of the executive committee with regard to your being
allowed or granted for life or otherwise, any salary in order to give
you what you regard as a proper compensation for continuing your
interest in the bank and promoting its best interests'?
Mr. WIGGIN. I t was discussed with several of the directors.
Mr. PECORA. Did you personally discuss it with the directors?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. With whom?
Mr. WIGGIN. Mr. Aldrich,
Jeremiah Milbank.
Mr. Debevoise, Mr. Ecker, and Mr.
STOCK EXCHANGE PRACTICES
2307
Mr. PECORA. Did they constitute a majority of the members of
the executive committee?
Mr. WIGGIN. No, sir.
Mr. PECORA. Did they constitute its leading spirits at the time?
Mr. WIGGIN. They were all leading spirits on that board.
Mr. PECORA. Who took the initiative in those discussions, Mr.
Wiggin, you or any of the gentlemen whose names you have just
mentioned ?
Mr. WIGGIN. I do not know that anyone took the initiative. It
was received with favor by all.
Mr. PECORA. I assume that somebody first brought up the subject
for discussion and eventually it received favorable consideration
at the hands of all, is that' so? Is that a fair assumption?
Mr. WIGGIN. I had discussed it with Mr. Aldrich before the meeting of this committee.
Mr. PECORA. Mr. Aldrich was then the chairman of the governing
board, was he?
Mr. WIGGIN. NO. He was the president of the bank.
Mr. PECORA. Did you recognize him, then, as being the chief
executive officer of the bank?
Mr. WIGGIN. I was chairman of the governing board at that time.
This was before the January meeting.
Mr. PECORA. Before December 21.
Mr. WIGGIN. Yes. I was still chairman of the governing board.
Mr. Aldrich was president of the bank, and vice president of the
governing board.
Senator ADAMS. YOU had, of course, a board of directors, and
you had an executive committee, and you had a governing board.
Mr. WIGGIN. Yes.
Senator ADAMS. What
were the relative duties and respective
authorities ?
Mr. WIGGIN. Of course, the board of directors is supreme, next to
the stockholders. The board of directors delegates its authority to
a smaller committee, which meets more frequently, known as the
executive committee. The governing board consisted at that time of
the senior officers of the bank, so that we could keep in touch with
each other, and each one could know what was going on.
Senator ADAMS. What authority did the governing board have, as
a board ?
Mr. WIGGIN. They were the executive officers of the bank.
Senator ADAMS. Did it have authority as a board ?
Mr. WIGGIN. Not as a board; no. Everything was reported to the
executive committee or the board. Everything that the governing
board did was in turn reported back* They were simply the officers
of the bank, and the governing board was meeting each morning to
discuss and decide things.
Senator ADAMS. It was merely a collection of the
Mr. WIGGIN. Senior officers.
Senator ADAMS. A collection of the senior officers; and had no
functions as a board.
Mr. WIGGIN. NO ; I do not know that they did.
Mr. BISBEE. It was a consulting body, Senator.
Mr. WIGGIN. It was a joint body of consultants.
175541—33—PT 5
3
2308
STOCK EXCHANGE PRACTICES
Senator ADAMS. That is what I was trying to find out, whether, byaction or resolution of the governing board, it had any authority.
Mr. AJLDRECH. Senator, they had no power.
Mr. WIGGIN. In connection with services rendered and being rendered, Mr. Pecora, I am reminded that perhaps I should speak of the
progress made in the German debt where, partly due to my efforts,
the Chase National Bank interest in the German debt has been
reduced from a large amount, over $100,000,000, to less than
$40,000,000.
Mr. PECORA. The Chase Bank's interest in that German loan had
been effected while you were the executive officer at the head of the
bank, had it not?
Mr. WIGGIN. Yes.
Mr. PECORA. SO that in calling attention
Mr. CONBOY. I do not think he quite finished his answer.
Mr. PECORA. I did not know that he had not.
Mr. WIGGIN. The German business in the bank came from
two
sources. It came from the Chase Bank, and it came from the Equitable Trust. At the time of the merger the total of the German
debt to the combined institutions was $89,000,000, $25,000,000 of it
from the Chase and $64,000,000 from the Equitable. There were
certain commitments on lines, so that that was later increased, and
then gradually reduced, so that at present it is under $40,000,000.
Mr. PECORA. That indebtedness, or rather that interest in the German loan of the Chase bank, had been effected during the time that
the bank was under your general direction as its chief executive officer, had it not?
Mr. WIGGIN. We inherited a large amount from the mergers, and
it then came into the Chase, of which I was the senior officer.
Senator COUZENS. But you approved of the mergers ?
Mr. WIGGIN. Oh, certainly; absolutely.
Mr. PECORA. NOW
Mr. WIGGIN. We did not have to take it.
Mr. CONBOY. He has not got quite to answering your question.
Did you want an answer to the question.
Mr. PECORA. I asked him for that purpose.
Mr. WIGGIN. Will you please read it?
(The reporter read the pending question.)
Mr. WIGGIN. I think I have answered that.
Mr. CONBOT. I thougkt it referred to the reduction of the debt
and not to the assumption of it.
The CHAIRMAN. YOU said you represented all the banks in Europe
with reference to the German debt.
Mr. WIGGIN. Banks in the United States.
The CHAIRMAN. And when you went to Europe you represented all
the banks?
Mr. WIGGIN. Yes.
The CHAIRMAN. What
did the German debt amount to, to all the
banks?
Mr. WIGGIN. At the present time?
The CHAIRMAN. At that time.
Mr. WIGGIN. I have been over a number of times. The last time
I went over it was between $400,000,000 and $500,000,000.
STOCK EXCHANGE PRACTICES
The CHAIRMAN. TO all the banks?
Mr. WIGGIN. Yes.
The CHAIRMAN. And the Chase had
Mr. WIGGIN. NO, not at that time.
2309
about $89,000,000 of that?
I cannot tell you at that
exact date what they had.
Mr. ALDRICH. Mr. Chairman, may I interrupt?
Mr. WIGGIN. Yes.
Mr. AJLDRICH. A S far
as the Chase Bank is concerned, at the time
of the beginning of the standstill agreement we had $72,000,000 of
German obligations, of which a very small amount of security was
indebtedness to us of commercial banks and the German Government. That has since been reduced, during a period of a year and
a half, to approximately $40,000,000.
The CHAIRMAN. When did you go over to Europe, Mr. Wiggin,
for the purpose of adjusting these matters?
Mr. WIGGIN. I first went over at the time of the Hoover moratorium, July 1, 1930. That was following the London Conference.
Senator ADAMS. Did you go over before or after the moratorium ?
Mr. WIGGIN. I t was after the moratorium, but resulting from the
London conference that had brought about the moratorium and
had asked that an international committee study the subject. That
was in July 1930. Then there have been varidus meetings following.
Senator COUZENS. Going back to the chairman's question, when
you first went over, what was the aggregate debt to the American
banks?
Mr. WIGGIN. I will have to get that for you. I t was a very large
debt, as I understand it. I can approximate it.
Senator COUZENS. If you will, please.
Mr. WIGGIN. I would have to study this thing, but I should say
approximately $800,000,000.
The CHAIRMAN. I thought you said $400,000,000 or $500,000,000.
Mr. WIGGIN. The last question, I understood, Senator, was with
respect to the first time I went over.
The CHAIRMAN. Was the moratorium declared in Germany before
you went over?
Mr. WIGGIN. The Hoover moratorium was June 30, 1930, if I
remember rightly.
The CHAIRMAN. YOU got over there when ?
Mr. WIGGIN. In July 1930.
The CHAIRMAN. Who was your representative in Germany at that
time, at the time the moratorium was declared ?
Mr. WIGGIN. The representative of the the Chase bank, you mean?
The CHAIRMAN. Yes.
Mr. WIGGIN. I do not think there was anybody representing the
Chase bank there at that time.
The CHAIRMAN. Did you have a Mr. Gannon there?
Mr. WIGGIN. Mr. Gannon is in London. His headquarters are in
London. He makes frequent trips to Berlin.
The CHAIRMAN. DO you know when the standstill agreement was
signed with Austria?
Mr. WIGGIN. I would have to look it up, Senator.
The CHAIRMAN. Were you in favor of that standstill agreement?
Mr. WIGGIN. Yes,
sir.
2310.
STOCK EXCHANGE PRACTICES
The CHAIRMAN. And in favor of the moratorium also?
Mr. WIGGIN. Yes, sir.
Senator COUZENS.. What
was your salary, Mr. Wiggin, when you
resigned and took $100,000 in lieu of your compensation?
Mr. WIGGIN. $202,000.
Senator COUZENS. $202,000 per year?
Mr. WIGGIN. Yes.
Senator COTTZENS.
Did you have any bonuses in addition to that
salary ?
Mr. WIGGIN. We have had in years past, but did not at that time.
The CHAIRMAN. Were you the head of the committee which arranged the German standstill agreement?
Mr. WIGGIN. Yes, sir.
The CHAIRMAN. Were
you in that standstill agreement before the
German agreement was reached?
Mr. WIGGIN. YOU mean before the Hoover moratorium?
The CHAIRMAN. Yes.
Mr. WIGGIN. NO. That
followed, Senator. The moratorium came
first, and the standstill agreement followed.
The CHAIRMAN. YOU handled that matter yourself, Mr. Wiggin,
didn't you ?
Mr. WIGGIN. I handled it representing the American interests;
yes, sir. You understand that there was. an international committee
with the various countries represented.
The CHAIRMAN. What was the situation that developed before the
agreement was reached?
Mr. WIGGIN. Well, that is a hard question to answer. I do not
know how to answer that.
The CHAIRMAN. HOW was that?
Mr. WIGGIN. I do not know how to answer that question.
The CHAIRMAN. Well, what wa&the situation which had developed
before the agreement was reached?
Mr. WIGGIN. Well, you will remember what happened. Germany
said they could not pay. There was a (conference in London at
which America was represented by the Secretary of the Treasury.
That London conference asked to have an international committee
appointed to study the situation, to see what could be done, what was
best to be done under the circumstances. The Federal Reserve Bank
asked me to go over and represent American interests. We investigated, and we found or we satisfied ourselves that it was against the
interests of creditors to press for immediate payment, and therefore
an extension agreement was written up, the extension agreement providing for certain payments at certain maturities, not dissimilar to
what is done in the case of any private enterprise in order to handle
a situation such as that when it arises. Do I make myself clear ?
The CHAIRMAN. Well, was there any money used in bringing about
that agreement?
Mr. WIGGIN. NO, sir.
The CHAIRMAN. Was
there any money paid to anybody respecting
the reaching of the agreement?
Mr. WIGGIN. NO, sir.
The CHAIRMAN. What was your position in the case of both Austria and Germany at that time ?
STOCK EXCHANGE PEACTICES
2311
Mr. WIGGIN. I had nothing to do with handling the details. The
bank had a small interest in the Hungarian situation and a small
interest in the Austrian situation, a comparatively small interest.
Mr. PECORA. Mr. Wiggin, going back to this letter of December 21,
1932, which you submitted to the executive committee of the board
of directors of the bank, how long before the writing of that letter
had you contemplated retiring from active service as an officer of
the bank?
Mr. WIGGIN. I had contemplated retiring at various dates for
many years back, as far as that went.
Mr. PECORA. Well, it finally crystallized on December 21, 1932, in
the writing of this letter. Now, prior to that you said you had some
conversation with Mr. Aldrich and other members of the executive
committee about your prospective retirement and about your being
paid a salary for services on your retirement.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. NOW, did
you take the initiative in those discussions ?
Mr. WIGGIN. I do not know. I do not think so, but I may have.
Mr. PECORA. Well, was Mr. Ecker one of the members of the
board, or of the executive committee of the board of directors, with
whom you had such discussions ?
Mr. WIGGIN. Well, I discussed it with them all together, not
separately.
Mr. PECORA. I S that Mr. Frederick Ecker, the president of the
Metropolitan Life Insurance Co.?
Mr. WIGGIN. Yes,
Mr. PECORA. Did
sir.
you ask those gentlemen prior to December 21,
1932, or did you tell them that it would be fair and proper in your
opinion on and after your retirement as an active officer of the
bank, to receive a substantial annual salary for the rest of your
life for services that you would jcontinue to render by way of giving advice outside to the bank's officers ?
Mr. WIGGIN. Did I suggest it to them?
Mr. PECORA. Yes.
Mr. WIGGIN. I do
not think so. I t is very difficult to remember what happens in a general conversation, but I discussed it with
Mr. Aldrich, and we then discussed it with this committee I spoke
of, and I cannot be sure but I would imagine that probably Mr.
Aldrich made the proposition, that he put the proposition before
the committee. Or I might have done so, but I do not think so.
Mr. PECORA. In any of those discussions was any specific amount
mentioned by anybody as a proper compensation by way of annual
salary to you for the rest of your life ?
Mr. WIGGIN. The amount that we have discussed here was the one
that was mentioned, $100,000 a year.
Mr. PECORA. Who first mentioned that amount as proper compensation ?
Mr. WIGGIN. At this meeting ?
Mr. PECORA. At any time. At the outset, I mean.
Mr. WIGGIN. I think I did.
Mr. PECORA. Did you find any dissension in the views of the gentlemen with whom you discussed it ?
2312
STOCK EXCHANGE PEACTICES
Mr. WIGGIN. On the contrary, I found enthusiasm for it.
Senator TOWNSEND. Was that a substantial reduction on your
previous salary?
Mr. WIGGIN. Less than half.
Mr. PECORA. What was your salary as the executive head of the
bank immediately prior to your retirement?
Mr. WIGGIN. I t was $202,000.
Mr. PECORA. Did you say $202,000?
Mr. WIGGIN. Yes.
Mr. PECORA. The salary was $220,000, wasn't it?
Mr. WIGGIN. NO.
Mr. PECORA. Had you in addition to that received any bonuses ?
Mr. WIGGIN. In times past, yes; but not at this time.
Mr. PECORA. Well, I will take this up in due course in greater
detail than I will now. But at this meeting of December 21, 1932,
did you learn, prior to the adoption of the resolution voting you that
salary of $100,000 a year for life, that Mr. Ecker or any other member of the board had prepared the minute which was read and unanimously adopted at this meeting, the minute which begins as follows:
The executive committee of the Chase National Bank has received with keen
regret the intimation from Mr. Albert H. Wiggin of his desire to retire as
chairman of its governing board.
Mr. WIGGIN. The question is, Did I know that a minute was
prepared?
Mr. PECORA. Yes.
MR. WIGGIN. I knew that they were going to adopt
Mr. PECORA. SO that your withdrawal from the
a minute.
meeting at the
time when this minute was submitted for action Was largely a matter
of form, wasn't it, a sort of ideal ceremony?
Mr. WIGGIN. NO ; I don't think so, Mr. Pecora. There might have
been some director or member of the committee who might have
objected, you know, and he might have felt himself somewhat
embarrassed to discuss it.
Mr. PECORA. I thought you said all the members of the board at
the meeting where you discussed this life compensation were not
only favorable but enthusiastic for it.
Mr. WIGGIN. That is so, but I only discussed it with the committee, and they were only four persons.
Mr. PECORA. NOW at the time that this minute was prepared had
you discussed with the person or persons who actually drafted it the
facts embodied in the minute?
Mr. WIGGIN. Well, I don't know. I don't think so. I don't think
I knew what was in the minute until it was read.
Mr. PECORA. Well, let me refer particularly to this extract from
minute:
The Chase National Bank is in no smaU measure a monument to his energy,
wisdom, vision, and character. When he became president of the bank in 1911
its capital, surplus, and undivided profits amounted to $12,953,397. Today its
capital funds amount to $266,335,062.
Had you discussed those figures with anyone?
Mr. WIGGIN. NO.
Mr. PECORA. But you
did have a discussion with someone in regard
to this minute before its presentation?
STOCK EXCHANGE PEACTICES
2313
Mr. WIGGIN. No; not any discussion. I simply knew, or supposed
I knew, that they were going to prepare a complimentary minute.
Mr. PECORA. According to our research based upon figures and
records of the bank, the bank's capital stock, surplus, and undivided
profits as of December 31, 1928, aggregated the sum of $137,490,814.74, and during the 4 years and 7 months immediately following
that date, bringing it down to July 31 of this year, there had been
increases in the capital of the bank by various means? and as a
result of those increases the gross capital funds and earnings aggregated a total of $503,196,086.57, as of July 31, 1933.
Mr. WIGGIN. What is the figure?
Mr. PECORA. The increases as a result of what I have said, increases in the capital stock, surplus, and earnings account of the
bank during the 4 years and 7 months following the end of December of 1928, the gross amount of those increases had brought the
gross capital funds and earnings account up to $503,196,086.57.
Mr. WIGGIN. I do not get that figure.
Mr. PECORA. Well, let me put it in more detailed form. Are you
familiar with the fact that at the end of 1928 the bank's capital
stock, surplus, and undivided profits aggregated $137,490,814.74?
Mr. WIGGIN. I will have to get that.
Mr. CONBOY. I was looking at something else, Mr. Pecora. Will
you let the committee reporter repeat that question?
Mr. PECORA. Certainly.
(The last question was read.)
Mr. WIGGIN. Yes, sir; I think that is right.
Mr. PECORA. NOW, thereafter from time to time up to July 31 of
this year the increases in the capital funds of the bank had been
made as follows: Cash provided by stockholders and others, $61,479,981.72; by exchanges of Chase Bank stock for stocks of other banks
absorbed by Chase and merged with Chase, $167,804,905.67; and
total capital increases obtained thereby amounting to $229,284,887.39.
And, in addition, earnings as reported to stockholders aggregating
$136,420,384.44, up to andincluding July 31,1933.
Mr. WIGGIN. Well, now, what,is your question?
Mr. PECORA. Are you familiar with those facts?
Mr. WIGGIN. NO ; because I haven't followed the figures since last
December. But we can easily get them for you.
Mr. CONBOT. We are willing to assume those figures to be correct,
Mr. Pecora, subject to correction.
Mr. PECORA. All right. Subject to correction, let us accept them
for the time being. Is that the understanding now?
Mr. CONBOY. Yes.
Mr. WIGGIN. There is something out in these figures, Mr. Pecora.
Mr. CONBOY. Of course; in these figures you have not deducted cash
dividends paid nor cash reserves set up.
Mr. PECORA. I am coming to that.
Mr. CONBOY. I think that is the reason Mr. Wiggin is somewhat
confused about the size of the figures you have been reading.
Mr. PECORA. I think I can abbreviate the inquiry in this way: Mr.
Wiggin, I show you a carbon copy of a typewritten document which
was furnished to us by the Chase National Bank, and it
Mr. CONBOY (interposing). That was prepared by your accountants, Mr. Pecora?
2314
STOCK EXCHANGE PRACTICES
Mr. PECORA. Yes; it was prepared by us, but submitted to the
officers of the Chase National Bank, and as I understand it, approved
by them.
Mr. CONBOY. We received it yesterday afternoon at 3 o'clock. I
do not know about approval of it yet, Mr. Pecora. It has only just
now been presented to me.
Mr. PECORA. Well, then, you may take it up during the recess hour
and we will see if we cannot agree on it.
Mr. CONBOY. I think that might be just as well. I cannot say offhand, because I do not know about all of the contents of the paper,
whether there is any inaccuracy in it. But I will assume that your
accountants would prepare an accurate statement.
Mr. PECORA. I S Mr. Aiken here?
Mr. CONBOY. I think perhaps he is.
Mr. PECORA. I would suggest, Mr. Conboy, that during the noon
recess you confer with Mr. Aiken, because I have before me a work
sheet embodying those details, made by us, and it has been certified to as being correct by Mr. Aiken under date of October 14,
1933. I will now show you that work sheet bearing his certificate.
Mr. CONBOY. DO you want me to get that during the noon recess ?
Mr. PECORA. YOU might just show it to him now.
Mr. CONBOY. DO you want me to show it to him now and see
what he has to say about it?
Mr. PECORA. If you will. And perhaps we will not have to postpone this examination until after recess.
Senator COTJZENS. If I understood correctly, Mr. Aiken is the
comptroller of the Chase National Bank.
Mr. PECORA. He is a vice president and a comptroller.
Mr. CONBOY. My information is, Mr. Pecora, that these pencil
figures were checked when they were furnished to Mr. Aiken on
Saturday of last week, but that we have received a typewritten
statement, at 3 o'clock yesterday afternoon. Now, manifestly, no
opportunity has been afforded us for checking the pencil figures,
which pencil figures are in your possession, with the typewritten
statement. If you want us to do that, we will be glad to do so.
Mr. PECORA. I S this Mr. Aiken's signature in the lower right-hand
corner of this paper ?
Mr. CONBOY. Yes; it is.
Mr. PECORA. Did he intend to indicate by that signature that those
figures are correct ?
Mr. CONBOY. I assume he intended it to indicate that he found
them correct or he wouldn't have approved that pencil statement.
Mr. PECORA. The typewritten sheet, as I understand, is taken from
that pencil sheet.
Mr. CONBOY. I will be very glad to accept your statement to that
effect, but I thought you were putting it up to us to verify it, and
we haven't had an opportunity. You had the pencil memorandum
in your possession, and we only got the typewritten statement on
yesterday, and so we haven't had an opportunity to compare the two.
Mr. PECORA. During the recess I will let you have that pencil sheet.
Mr. CONBOY. If you say they are the same thing, we will accept
that statement now.
Mr. PECORA. Well, I will say that, while I did not make the typewritten transcript, I have every reason to believe that those persons
Digitized forwho
FRASER
did make it made an accurate transcript.
STOCK EXCHANGE PRACTICES
2315
Mr. CONBOY. Will you let me look at it for a second in connection with this paper?
Senator COTTZENS. Mr. Chairman, why not let this go over until
after lunch. There is no reason for holding up the examination
to check them.
Mr. PECORA. That will be all right.
The CHAIRMAN. We will take that up after recess, and you may
make your comparison-during the recess hour.
Mr. CONBOY. We will be glad to do that.
Mr. PECORA. NOW, at the time of the adoption of this resolution,
December 21, 1932, do you know whether or not the Chase National
Bank, and its investment affiliate, the Chase Securities Corporation,
had sustained losses running into the hundreds of millions of dollars, which were indicated by write-downs or mark-offs of securities values?
Mr. WIGGIN. I know that losses have been very large in the last
previous 3 years, but I can not give you the figure offhand.
Mr. PECORA. And against those losses very large reserves had been
set up.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Would you
say that those reserves so set up, up to
and including the 31st of July 1933, aggregated the sum of $212,233,694.22?
Mr. WIGGIN. I have no way of verifying that figure. You are
now 6 months later than when I was connected with the bank.
Mr. PECORA. Well, that is one of the figures I will ask you to check
up on with Mr. Aiken during the recess which will shortly follow.
And in addition thereto will .you check up what I understand to, be
the fact, that during that period the total earnings reported to the
stockholders of the bank were $136,420,384.44. Will you also check
that up?
Mr. WIGGIN. I will do my best.
Mr. PECORA. Mr. Chairman, it might be just as well to recess at
this time.
The CHAIRMAN. The subcommittee will now take a recess until 2
o'clock.
(Whereupon, at 12:40 p.m., Tuesday, Oct. 17, 1933, the committee
recessed until 2 p.m., the same day.)
AFTERNOON SESSION
Upon the expiration of the noon recess the hearing was resumed
at 2 p.m.
The CHAIRMAN. The committee will come to order. Mr. Wiggin
will resume the stand.
TESTIMONY OF ALBERT H. WIGGIN, NEW YORK CITY, RETIRED—
Resumed
Mr. PECORA. Mr. Wiggin, at the time recess was taken today it was
understood that during the recess period your associates would
attempt to check up on certain figures that were referred to for the
purpose of the record shortly prior to recess. Have you done so,
Mr. Wiggin ?
2316
STOCK EXCHANGE PRACTICES
Mr. CONBOY. May I speak on that question? We have had that
pencil sheet checked against the typewritten sheet that was furnished
to Us. The pencil sheet contains the figures on the sheet at the time
it was initialed by Mr. Aiken, but some changes ^ere made by your
accountants after the sheet had been initialed by Mr. Aiken, consisting of certain figures at the bottom of the sheet which were not there
at the time that Mr. Aiken checked this.
Mr. PECORA. Yes.
Mr. CONBOY. I think
that the circumstances are known to your
accountants.
Mr. PECORA. Yes.
Mr. CONBOY. And that made it a little difficult to check immediately at the time that you inquired, but it has been done since then.
Now there was something else that w6 were asked for.
Mr. PECORA. Does the check-up made confirm the figures in the
typewritten transcript of that pencil sheet?
Mr. CONBOY. I understand from Mr. Aiken that the figures check.
That is right, is it not, Mr. Aiken ?
Mr. AIKEN. Yes.
Mr. CONBOY. The figures check.
Mr. PECORA. They do? All right.
Mr. CONBOY. NOW, before you go
on with that, you asked this
morning for a list of companies that Mr. Wiggin was director in.
Mr. PECORA. Yes. If Mr. Wiggin is prepared to furnish them
he can read those into the record now.
Mr. CONBOY. Yes. On the 15th
Mr. PECORA (interposing). Let
Mr. Wiggin read it, because he is
the witness.
Mr. CONBOY. Of course he will read it, but the list was prepared
by his secretary during his absence in response to a request that came
from the Committee on Interstate and Foreign Commerce of the
House, and I thought I might mention that fact here.
Mr. PECORA. All right.
Mr. CONROY. On the 15th of May of this year the Committee on
Interstate and Foreign Commerce of the House of Representatives
sent a list of companies to Mr. Wiggin with which he was reported
to be officially connected on December 31,1931, and that communication was received during his absence. He was then abroad.
His secretary found that the list that came with the letter from
the House of Representatives was not complete and attached a rider
to the questionnaire which was sent which contained a list of all the
companies, and here is the list.
Now for the information of this committee, the initials that are
opposite each of the companies are the initials used by the Committee
on Interstate and Foreign Commerce in identifying the character
of the corporations referred to in their lists. For instance, " Inv."
means "investment"; "Ind.", "industrial"; "Ins.", "insurance";
"Bkg.", "banking"; "P.U.O.", "public utilities operating";
" Hold.", " holding "; " R.R.", " railroad."
Mr. PECORA. Well, Mr. Wiggin, will jrou look at the list that Mr.
Conboy has just referred to, and after doing so will you tell this committee whether or not that is a complete and correct list of the
various corporations and associations with which you were identified
STOCK EXCHANGE PRACTICES
2317
in May this year. Does it purport to be as of May this year, Mr.
Conboy?
Mr. CONBOY. The letter says " all dates " in the rider means December 31, 1931, December 31, 1932, and April 30, 1933, and where the
connection ceased prior to April 30, 1933, the letter having been
written on May 26, the date up to which he was a director is indicated
by the appropriate date.
(Mr. Wiggin and associates conferred at length.)
Mr. WIGGIN. What is the question?
(The shorthand reporter read the pending questions of Mr.
Pecora.)
Mr. WIGGIN. Mr. Pecora, this is a list made up for these dates, and
where there has been any change it is so marked, so that you can
easily tell from this any of these companies that I was not a director
in April 1933.
Mr. PECORA. I S that list a complete and correct list ?
Mr. WIGGIN. AS far as I know I think it is.
Mr. PECORA. Yes. I offer it in evidence.
The CHAIRMAN. DO the dates indicate when you ceased to be connected or when you began?
Mr. WIGGIN. NO ; it shows that I was a director on such and such a
date unless it is explained that I dropped out between the two
dates.
Mr. CONBOY. Answering your question directly, Mr. Chairman, it
does not indicate the exact date of the resignation. It simply indicates so far as these three dates are concerned whether he was a
director on those three dates. It is the last date nearest to the time
of his resignation. For instance, if, after December 31, 1932, but
before April 30, 1933, he resigned, it would only be shown as of
December 31,1932, that he was a director. I t is not complete in that
respect, and we will furnish you with any information that you
desire in that connection. This was the most available list that we
had at the moment.
The CHAIRMAN. Let it be admitted and entered on the record.
(List of corporations submitted was thereupon designated " Committee Exhibit No. 4, Oct. 17, 1933 ", and appears in the record oil
page 2353.)
Mr. PECORA. I will ask, Mr. Chairman, that the so-called " pencil
sheet " bearing signature in the lower right-hand corner of Mr. Aiken
after date October 14, 1933, which was the subject of examination
during the forenoon hearing, be marked for identification rather than
put in evidence.
The CHAIRMAN. That may be done.
(Pencil sheet was thereupon designated " Committee Exhibit No. 5
for identification, October IT, 1933.")
Mr. PECORA. NOW, Mr. Wiggin, I show you a typewritten transcript purporting to be the tabulation or recapitulation of the capital,
surplus, undivided profits, reserves for losses, et cetera, and dividends
paid period from January 1, 1929, to July 31, 1933, of the Chase
National Bank, which has been made up largely from the exhibit just
marked for identification. I t is a copy of the typewritten sheet that
was submitted for confirmation to Mr. Aiken during the recess period
today.
2318
STOCK EXCHANGE PRACTICES
Will you look at it and tell us if you are now prepared to say, on
the basis of any advices furnished you by Mr. Aiken or anyone else,
whether or not that is a correct capitulation or statement?
Mr. WIGGIN (after conferring with associates). Mr. Aiken has
examined this for me, and he considers it substantially correct. The
only point he makes is one, so that there will be no possible misunderstanding. You include capital.
Mr. PECORA. Yes.
Mr. WIGGIN. And
then you make an explanation, " Includes
amounts allocated to surplus and profits." That ijs, the whole thing
is treated as a capital account.
Mr. PECORA. Yes.
Mr. WIGGIN. Then
over here in the right in " Eeserves provided "
you say " from capital", and if you use " capital" there I assume
you are using the same kind of capital that you used in the other.
Mr. PECORA. That portion of the capital that was made up of surplus and undivided profits.
Mr. WIGGIN. Not that portion of it, but the capital that includes
surplus and profits.
Mr. PECORA. Yes.
Mr. WIGGIN. Now
I would like to have that go in so that it will
not be misleading.
Mr. PECORA. YOU can write it in on that typewritten transcript if
you wish, Mr. Wiggin, in order that it may appear.
Mr. CONBOY. Mr. Aiken will take care of that.
Mr. PECORA. Will you do that now so that I can offer it in evidence?
Mr. CONBOY. Yes.
Mr. WIGGIN. YOU
see the point. When you say " capital" you
want to mean the same things every time. It is capital funds including—
Mr. PECORA. Capital funds, which includes surplus and undivided
profits.
Mr. AIKEN. Mr. Pecora, will it be satisfactory if I put " from
surplus funds ", which is the actual fact ?
Mr. PECORA. All right.
(Thereupon Mr. Aiken wrote upon the typewritten sheet.)
Senator ADAMS. Those reserves went into the surplus first and
then were set across into the reserves ?
Mr. AIKEN. N O ; they went into a reserve for contingencies first,
and then from the reserve for contingencies they went into reserve
for
Senator ADAMS (interposing). They went into undivided profits
first?
Mr. AIKEN. N O ; they went into reserve for contingencies first.
You are talking now or the reserves which we have set up?
Senator ADAMS. Yes.
Mr. AIKEN. It first went into reserve for contingencies and then
into a reserve for various and sundry slow loans, slow securities.
Mr. PECORA. I now offer that typewriten transcript in evidence
and ask that it be spread on the record.
The CHAIRMAN. Let it be admitted and entered on the record.
STOCK EXCHANGE PEACTICES
2319
(Typewritten recapitulation was thereupon designated " Committee Exhibit No. 6, October 17, 1933 ", and appears in full on page
2355.)
Mr. PECORA. NOW, referring, Mr. Wiggin, to the list of your directorates which has been marked in evidence as " Committee Exhibit 4 of this date ", let me ask you, have you received any salary or
other compensation other than fees paid to directors for attending
meetings of the board, from any of the corporations shown on that
list?
Mr. WIGGIN. DO you want me to name any date or at any time ?
Mr. PECORA. At any time.
Mr. WIGGIN. Xes, sir.
Mr PECORA. Ffom which
companies on that list did you receive
any salary or other form, of compensation other than fees usually
paid to directors for attending board meetings ?
Mr. WIGGIN. I think the following: The locomotive company, the
sugar company.
Senator COTJZENS. Will you please give the full name of the company?
Mr. WIGGIN. American Locomotive Co., American Sugar Co.
Senator ADAMS. That is just the American Sugar Co.l
Mr. WIGGIN. I beg your pardon. The American Sugar Refining
Co.
Mr. PECORA. Mr. Wiggin, as you go along enumerating the names
of those corporations will you also indicate the amount of the salary
or compensation that you-so received from each of them?
Mr. WIGGIN. I think the Locomotive salary was $300 a month. I
may not have these right
Mr. PECORA. Just to the best of your recollection.
Mr. WIGGIN. I think the sugar company was the same. Armour
& Co., no salary now; formerly $1,000 a month; before that, nothing,
and before that, $3,300 a month; but that was a long time ago.
Mr. PECORA. $40,000 a year?
Mr. WIGGIN. Yes. American Express Co. paid salaries at one
time, but we stopped that some time ago, to the members of the
executive committee. When we went in there that was the custom,
and we stopped it a little later.
Mr. PECORA. HOW much ?
Mr. WIGGIN. I think it was $3,000.
Mr. PECORA. A year?
Mr. WIGGIN. A year. Brooklyn-Manhattan. A salary was formerly received.
Mr. PECORA. That is, the Brooklyn-Manhattan Rapid Transit
Corporation ?
Mr. WIGGIN. Yes; but that has ceased over a year ago.
Mr. PECORA. What was it at that time ?
Mr. WIGGIN. $20,000 a year.
The Chase National Bank you know the story of.
International Paper Co. paid a small salary; I think it may have
been $2,000; I am not sure.
Senator TOWNSEND. Was that about the salary paid to all directors,
along that line ?
2320
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. All directors or members of special committees, Senator, executive committees and financial committees.
Senator TOWNSEND. Then your salary was in keeping with all the
other directors?
Mr. WIGGIN. Entirely so.
Stone & Webster formerly paid a salary; I should say it was
$1,500, but I am not sure.
Underwood-Elliot-Fisher paid its finance committee a small salary.
I am not sure what the amount was. They have all been changed,
reduced. I should say that was about $2^000.
Western Union Telegraph Co. As chairman of the executive committee I receive a salary that amounts to $3,000-odd.
Senator COUZENS. Per year?
Mr. WIGGIN. Yes, sir. The Finance Co. of Great Britain and
America formerly paid all of its American directors a salary, but
they have not done so for some 3 years, and I have forgotten the
amount; but I think it was about $5,000.
Mr. PECORA. A year?
Mr. WIGGIN. Yes; I think that covers it.
The CHAIRMAN. Were those salaries included in the $202,000 that
you mentioned a while ago?
Mr. WIGGIN. NO, sir; nothing to do with that.
The CHAIRMAN. They were outside of that?
Mr. WIGGIN. Entirely outside.
Mr. PECORA. The salary of $202,000 that you mentioned this
morning—was that a salary as an officer of the Chase National
Bank?
Mr. WIGGIN. That is right, sir.
Mr. PECORA. When you received a salary from the Chase National
Bank were you also receiving a salary from the Chase Securities
Corporation ?
Mr. WIGGIN. NO, sir.
Mr. PECORA. When you
received a salary at the rate of $40,000
a year from the Armour Co., what connection or position did you
have with the Armour Co.?
Mr. WIGGIN. A member of the finance committee and of the board
of directors.
Mr. PECORA. When you were receiving a salary of $20,000 a year
from the Brooklyn-Manhattan Rapid Transit Co., what was your
corporate position there?
Mr. WIGGIN. Chairman of the finance committee.
Mr. PECORA. During any of the time that you served as an executive officer of the Chase Securities Corporation did you receive any
bonus or compensation in any form that was styled other than
salary?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. What was
the highest amount yoti received of any
such kind of compensation in any one year from the Chase Securities
Corporation?
Mr. WIGGIN. I will ascertain. [After consulting associates:]
$75,000.
Mr. PECORA. In what year was that?
Mr. WIGGIN. Received in 1930.
STOCK EXCHANGE PBACTICES
2321
Mr. PECORA. In addition to the salary you received as such from
the Chase National Bank as its chief executive officer, did you also
receive in various years a bonus?
Mr. WIGGIN. From the bank?
Mr. PECORA. Yes.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. What was
the largest amount of bonus that you received, in addition to your salary, in any one year from the bank?
Mr. WIGGIN. I will ascertain that. I will have it in just a second
for you. [After consulting associates:] I think I can answer that
question now, sir.
Mr. PECORA. All right.
Mr. WIGGIN. The largest amount received was $100,000.
Mr. PECORA. In what year did you receive that?
Mr. WIGGIN. I received it in the year 1929 for the 1928 services, and
received it in 1930 for the year 1929.
Mr. PECORA. What did you receive in 1931 for the year 1930 by
way of a bonus from the bank?
Mr. WIGGIN. $75,000.
Mr. PECORA. Will you tell the committee, please, out of what fund
those bonuses were paid by the bank? Was there, in other words,
a so-called " management fund " or anything comparable to it that
was established from year to year out of which these bonuses were
paid?
Mr. WIGGIN. NO, sir; there was no special fund.
Senator ADAMS. Upon what theory were those bonuses paid?
Mr. WIGGIN. Additional compensation in profitable times, on the
theory that the salaries of the officers, which were distributed all
through the entire staff, you know
Senator ADAMS. They credited you with being responsible for some
of their added profits in the good years.
Mr. WIGGIN. I think so, sir.
Senator ADAMS. In the bad years did they charge you in any way
with responsibility for losses?
Mr. T^IGGIN. No, sir.
Senator ADAMS. I t has only worked one way?
Mr. WIGGIN. Only one way.
Senator COUZENS. In reporting those to the
Bureau of Internal
Revenue, did you report them as earned income?
Mr. WIGGIN. Yes,
sir.
Senator COUZENS. HOW much of a deduction from income did you
get as a result of reporting them as earned income; do you know?
Mr. WIGGIN. None that I know of.
Senator COUZENS. During different laws enacted by Congress there
were different amounts, a lowei; rate for earned income than there
was for investment income.
Mr. WIGGIN (after conferring with associates). Senator, I am advised that the maximum amount was $30,000; but everything else
was
Senator COUZENS. That was over one period. There were varying
amounts. I do not now recall them all by years, but they were
set at different amounts. But your salary was all in excess of those
amounts?
Mr. WIGGIN. Yes,
sir.
2322
STOCK EXCHANGE PRACTICES
Senator ADAMS. Those various companies that you served on
boards and finance committees of—I gather from your answer to
the question of Senator Couzens that those salaries, monthly and
yearly, were largely cut off ?
Mr. WIGGIN. I would not say " largely." I have given up a great
many things in the last few months; but the biggest ones certainly
are.
Senator ADAMS. YOU are still serving on most of those boards?
Mr. WIGGIN. Not on all. Some of them I am still on.
Senator ADAMS. There has been not an elimination of the compensation, but just a reduction ?
Mr. WIGGIN. Not an elimination; no. I am still on some boards
that pay salaries. I have resigned from some that paid salaries.
Mr. PECORA. YOU have heretofore stated that your salary for the
year 1932, as chairman of the governing board of the Chase Bank,
was $202,000. Are you sure of that amount?
Mr. WIGGIN. I think so; but wait until I ask
Mr. PECORA. The reason I ask that is that our research of the
records of the bank seems to indicate that it was $220,300, and not
$202,000.
Mr. WIGGIN. Well, I cannot remember the exact dates, but what
happened was that we reduced the salaries 10 percent, which would
have made it $225,000, and I voluntarily gave up another 10 percent,
which would take off $22,500. Just what date that was, the total for
the year, I would have to look up, but at the close of the year it was
$202,500.
Senator ADAMS. YOU took two 10's off of yours?
Mr. WIGGIN. One 10 was taken off from everybody, and I took off
the other in addition.
Senator ADAMS. That was after the first 10 was taken off ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Your salary
for the year 1931 was $250,000, as head
of the bank, was it not?
Mr. WIGGIN. Yes. Whether it ran that whole year or not, I do
not know.
Mr. PECORA. Was it a policy of the bank in those years to require
its officers and its employees to devote all of their time to the service
and interest of the bank? Was there such an agreement entered into
by the bank with all of its officers and employees ?
Mr. WIGGIN. Not that I know of.
Mr. PEOORA. Did jrou ever hear of any such agreement ?
Mr. WIGGIN. NO, sir.
Mr. PEOORA. I want to show you a typewritten statement entitled
" The Chase National Bank of the City of New York ", whiqh was
furnished to us by authorities of that bank in response to a request
which we addressed to them for a statement of the salaries and other
forms of compensation paid by the bank to its different officers for
the years 1929 up to and including June 30, 1933. Will you please
look at that and tell us if you can identify it as a true and correct
statement of such salaries and compensation ?
Mr. WIGGIN. Well, I cannot speak for anything since January in
that respect. I have been out of the bank since then.
STOCK EXCHANGE PBACTICES
2323
Mr. PECORA. YOU notice the stamp appearing in numerous cases
on the face of that typewritten statement, indicating the source
from which it came to us ?
Mr. WIGGIN. From the files of the bank ?
Mr. PECORA. Yes. Have you any reason to believe that it is not
correct?
Mr. WIGGIN. Not the slightest.
Mr. PECORA. According to that statement, Mr. Wiggin, what was
vour salary for the year 1929, from the bank?
" Mr. WIGGIN. $175,000.
Mr. PECORA. And what additional compensation did you receive
from the bank for that year, other than your salary ?
Mr. WIGGIN. $100,000.
Mr. PECORA. That is the so-called " bonus " ?
Mr. WIGGIN. Additional compensation, we call it.
Mr. PECORA. And it sometimes has been called " adjusted compensation " ?
Senator COTJZENS. That only applies to veterans.
Mr. PECORA. According to that typewritten statement, what was
the salary you received as an officer of the bank for the year 1930?
Mr. WIGGIN. $218,750.
Mr. PEOORA. And what additional compensation, if any, did you
receive for that year, according to that statement?
Mr. WIGGIN. $75,000.
Mr. PECORA. Still, according to that statement, what was your
salary as an officer of the bank for the year 1931 ?
Mr. WIGGIN. $250,000.
Mr. PECORA. HOW much, if anything, did you receive by way of
additional compensation for that year?
Mr. WIGGIN. None.
Mr. PECORA. For the year 19'32, according to that statement, what
salary did you receive?
Mr. WIGGIN. $220,300.
Mr. PECORA. What additional compensations, if any, did you
receive that year?
Mr. WIGGIN. None.
Mr. PECORA. And, according to that statement, what is the sum
you have received as salary for the first 6 months of the present year ?
Mr. WIGGIN. $52,970.
Mr. PECORA. And no additional compensation?
Mr. WIGGIN. NO, sir.
Mr. PECORA. Have you
any reason to doubt the accuracy of any
of those figures, Mr. Wiggin?
Mr. WIGGIN. NO, sir.
Mr. PECORA. Mr. Wiggin, the typewritten statement purporting
to be tabulation of the salaries and additional compensation paid
to various officers of the bank, including yourself, for the year 1928
down to and including the first half of this year, which you have
already seen, will you kindly look at it and "tell us if you would
say that that is a true and correct statement of the salaries and
additional compensation paid not only to yourself but to the senior
officers and directors or officials of the bank for that same period
of time?
175541—33—PT 5
4
2324
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. I think so. I see no reason to question it.
Mr. PECORA. I t was obtained from the file department of the
hank.
Mr. WIGGIN. I have no question about it.
Mr. PECORA. YOU have no reason to doubt the accuracy of it?
Mr. WIGGIN. NO.
Mr. PECORA. I offer
it in evidence and ask that it be spread upon
the record.
The CHAIRMAN. Let it be admitted and placed in the record.
(Tabulation of salaries and additional compensation paid to
various officers of the Chase National Bank of the city of New
York from and including the year 1928 to June 30, 1933, was
xeceived in evidence, marked " Committee Exhibit 7 of October 17,
1933 ", and is printed in the record in full on page 2356.)
Mr. PECORA. Mr. Wiggin, I want to show you a printed form that
has just been furnished to me by a Mr. Tuttle, who I understand is
associated with Mr. Bisbee's law firm, and which purports to be an
application for employment required to be filled out by employees of
the Chase National Bank. Will you please look at it and tell us if
you recognize it as a true and correct copy of such an application
form which the bank required employees to fill out?
Mr. WIGGIN. I never saw it before, but I have no question but
ivhat it is the form.
Mr. PECORA. Were officers of the bank also required to sign such
un application form?
Mr. WIGGIN. I do not think so, but I do not know. I know I never
did.
Mr. PECORA. Can you get advices from any of the personnel of the
bank who are gathered about you about that?
Mr. WIGGIN (after consulting with some of his associates). Officers were not required to.
Mr. PECORA. Officers were not required so to sign?
Mr. WIGGIN. NO.
Mr. PECORA. Let me read the following statement appearing at the
end of this printed application form.
Senator COTTZENS. Has that printed application form any form
number?
Mr. PECORA. I see a printed number on the last sheet, at the lower
left-hand corner, Senator, reading as follows: " Pers. 23 4^-31."
Let me read the following statement at the end of this application
form:
I hereby affirm that my answers to the foregoing questions are true and
correct, and I have accounted for all of my employed and unemployed time,
and that I have not knowingly withheld any facts or circumstances which
would, if disclosed, affect my application unfavorably. In the event of my
appointment to a position in the Chase National Bank of the city of New
York I will comply cheerfully with all of its orders, rules, and regulations.
While in the employ of the bank I agree not to engage in any other business
without the written consent of the bank. I agree to give the bank 2 weeks'
prior notice of resignation, but it is understood that my employment is for no
stated term and is subject to termination at the will of the bank.
You say that officers were not required to subscribe to any such
affirmation or statement?
Mr. WIGGIN. I so understand.
STOCK EXCHANGE PEACTICES
2325
Mr. PECORA. I t was considered a sound business policy by the
officers of the bank to require employees or those holding subordinate
positions to obligate themselves while in the employ of the bank not
to engage in any other business without the written consent of the
bank, was it?
Mr. WIGGIN. Give me that again, Mr. Pecora.
Mr. PECORA. Let the reporter read it.
(Thereupon the last question was read by the reporter as above
recorded.)
Mr. WIGGIN. I think so.
Mr. PECORA. Why was not that condition also imposed upon officers if, as a matter of fact, it was not required of officers?
Mr. WIGGIN. I think the theory was and is that associations with
other enterprises were of benefit to the bank.
Mr. PECORA. DO you think it was a benefit to the bank, for instance, during the years that you were its executive head and receiving, by way of salary and additional compensation, sums exceeding
in 1 year over $300,000, for you to be connected with other corporations which paid you salaries as high as $40,000?
Mr. WIGGIN. I am sure of it.
Mr. PECORA. I presume, of course, that you rendered service to
the Armour Co. for the $40,000 annual salary that you received during the time that you received it?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. And did those services improve your value to the bank
as its executive head?
Mr. WIGGIN. I think so.
Mr. PECORA. In what way?
Mr. WIGGIN. The business between the two was greatly increased.
Mr. PECORA. I S that true also of the affiliation you had with the
Brooklyn Manhattan Transit Co. during the time that you received
a salary from that company of $20,000 a year?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. When you
were serving the Chase National Bank and
received from it the salary and additional compensation shown here
to have been received by you, you were, of course, attempting to
devote yourself to the best interests of the bank, were you not?
Mr. WIGGIN. Yes,
Mr. PECORA. And
sir.
when, during any of those times, you were also
functioning as an officer, say, of the Armour Co., from which company you received a salary at the rate of $40,000 a year, you were
attempting to render those services for the best interests of the
Armour Co.?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Presumably
those services were of an extensive character in view of the amount of salary you received from them?
Mr. WIGGIN. I think so.
Mr, PECORA. Did they not in any way militate against the time
and service that you were rendering to the Chase National Bank
during that time ?
Mr. WIGGIN. I do not think so.
Senator ADAMS. May I ask a question? Were Armour & Co. large
depositors with the Chase Bank?
2326
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. They became so after I became associated with them.
Senator ADAMS. Were they also large borrowers?
Mr. WIGGIN. NO ; not to amount to anything. Not after the reorganization. Not after I went in. They did borrow money. We
were only too glad to lend it.
Mr. PECORA. DO you know Mr. Dahl, D-a-h-1 of the BrooklynManhattan Transit Co.?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. In what capacity
was he connected with that company
during the time that you received a salary of $20,000 a year from
that company?
Mr. WIGGIN. Chairman of the board of directors.
Mr. PECORA. During that time, Mr. Wiggin, did the Chase Bank
make large loans to Mr. Dahl ?
Mr. WIGGIN. We have loaned to Mr. Dahl for a long time; yes, sir.
Mr. PECORA. And the aggregate amount of loans at one time ran
into several millions of dollars ?
Mr. WIGGIN. Yes, sir. I will get that figure if you want.
Mr. PECORA. Will you please.
Mr. WIGGIN. Have you got it there, Mr. Pecora ?
Mr. PECORA. We have a figure as high as $4,758,000 at one time.
Mr. WIGGIN. That we understand is correct.
Mr. PECORA. Yes. In addition, did the Chase Bank make large
loans to other persons upon the endorsement of Mr. Dahl?
Mr. WIGGIN. I know of one. I do not know how many there were.
Mr. PECORA. Have you any way of finding out readily now how
many others there were of such loans?
Mr. WIGGIN. I know of but one other, Mr. Pecora.
Mr. PECORA. What was the amount of that one ?
Mr. WIGGIN. I will have to look it up. We have not got it here.
Mr. PECORA. Will you please.
The CHAIRMAN. HOW was this loan to Mr. Dahl secured, Mr.
Wiggin ?
Mr. WIGGIN. It was secured by stocks. I will have to look it up
to see just what the collateral was, but in the main these loans were
secured by the Brooklyn Manhattan Transit Co. preferred and common stocks. There may have been other collaterals, too. But that
was the essential part of the collateral.
Senator COTJZENS. Was the security adequate?
Mr. WIGGIN. At the time the loan was made it was ample.
Senator COHZENS. It was ample?
Mr. WIGGIN. Yes.
Senator COUZENS. Has there been any loss on it ?
Mr. WIGGIN. Yes, sir.
Senator COJUZENS. HOW much?
Mr. WIGGIN. I will have to look that up.
The CHAIRMAN. YOU might state what the Brooklyn
Manhattan
Transit stock was worth at the time, and what it is worth now.
Mr. WIGGIN. Yes; we will get that for you. It may take a little
time.
Senator ADAMS. Well, the circumstances rather demonstrated that
the judgment that the security was ample was not entirely correct.
Mr. WIGGIN. Ye$; of course you remember that the market faded
away so rapidly that you could not sell things out.
STOCK EXCHANGE PRACTICES
2327
Senator ADAMS. I was just questioning as to what ample security
it really was.
Mr. WIGGIN. Oh, it was a big percentage of margin at the time.
Mr. PECORA. Mr. Wiggin, from the records of the bank which have
been examined by us I understand that on June 15, 1932, the
loan account of Mr. Dahl at the bank showed a debit balance of
$3,183,358.19, and that the collateral which the bank held against
that loan or those loans was appraised as of that date as being worth
$615,000. Does that conform to your present recollection of the fact$
Mr. WIGGIN. I think that is probably correct, sir.
Mr. PECORA. SO that, to use the vernacular in banking circles, on
June 15, 1932, that loan account was " under water " to the extent
of $2,500,000?
Mr. WIGGIN. Yes, sir.
Senator COUZENS. What
was Mr. Dahl borrowing this money for ?
To buy B.M.T. stock?
Mr. WIGGIN. I think so. Speculation. Investments that turn out
wrong are speculations.
Mr. PECORA. Mr. Wiggin, are you identified with a corporation
called the " Shermar Corporation " ?
Mr. WIGGIN. I am a stockholder. It is a corporation that is
owned by my family.
Mr. PECORA. Did you cause it to be incorporated ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. When?
Mr. WIGGIN. I will have
to find out. [After consulting with his
associates.] 1916.
Senator COUZENS. Did you turn into that corporation the dividends, salaries, and bonuses you got from your service ?
Mr. WIGGIN. NO, sir.
Senator COUZENS. What was the
Mr. WIGGIN. There were several
purpose of the corporation?
purposes. In the first place it
helped a great deal in detail. I did not have to mix up in bookkeeping or check signing or running it. I wanted my family to
familiarize themselves with investments and the finance business.
I also had an idea that perhaps does not work out, knowing that
I would make a great many mistakes in life in investments, that
they would not be exposed to the public. J thought they were
gone forever and would not show up in my estate. I hoped it would
help on taxes.
Senator COUZENS. Did it help on taxes ?
Mr. WIGGIN. I think so, but it is very difficult to figure. In the
first place, they had a great many investments in bonds and notes,
and, of course, the company had to pay the income tax on those, and
the company was liberal in its distribution of earnings, so that the
individuals had to pay on those dividends. There was a doubling
up there.
Senator COUZENS. The limit the corporation paid was 12% percent.
Mr. WIGGIN. 12% percent. The inheritance tax was an important consideration, too.
Senator COUZENS. In that case there would be no tax unless it
kept the transfer of the stock in the corporation to another owner.
The CHAIRMAN. What was the capital of that corporation?
2328
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. The capital changed, Mr. Chairman, from time to
time, so I do not know what date you have in mind. The present
capitalization of the company is $4,000,000 in preferred stock.
The CHAIRMAN. $4,000,000?
Mr. WIGGIN. Yes, sir; and a smaller number of shares of no par
value common stock. The common stock is 2,000 shares at $5 par
value.
The CHAIRMAN. I had in mind what the capital was when it was
organized.
Mr. WIGGIN. $10,000 in 1916.
The CHAIRMAN. Paid in or authorized?
Mr. WIGGIN. Paid in; it was increased to $2,510,000 in 1918.
Mr. PECORA. I S the name of this company, " Shermar" derived
from any combination of syllables of names of persons known to
you?
Mr. WIGGIN. A combination of family names; yes, sir.
Mr. PECORA. HOW was it made up ?
Mr. WIGGIN. We took the " Sher " from " Sherburne ", and the
" mar " from his wife's name, Marjorie—" Shermar."
Mr. PECORA. Sherman is the first name of a son-in-law?
Mr. WIGGIN. Sherburne.
Mr. PECORA. And the other syllable of the name " Shermar" is
derived from what name?
Mr. WIGGIN. Marjorie.
Mr. PECORA. That is your daughtter, who is the wife of Mr. Sherburne Prescott.
Mr. WIGGIN. Yes.
Mr. PECORA. All the
stock of that company is virtually held by
you or the immediate members of your family?
Mr. WIGGIN. Some of it was held by the trusts, family trusts, and
all the rest of it was held by the family individually.
Mr. PECORA. I t was virtually a family institution?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. Are there any other corporations that you caused to
be organized in that same fashion for those purposes ?
Mr. WIGGIN. There were others; yes.
Mr. PECORA. What are their names?
Mr. WIGGIN. The Murlyn Corporation; the Clingston Corporation
Mr. PECORA. The Medfield Co.?
Mr. WIGGIN. Yes. I will give you those in just a minute. I am
trying to get a complete list of them. There was the Clingston
Corporation; there was the Medfield Corporation; there was the
Greenwich Corporation; and the Selcott Corporation.
Mr. PECORA. Mr. Wiggin, in order to make the record complete
and bring it down practically to date, referring again to the loan
account of Mr. Dahl, our research into the records of the bank
showed that on October 1 of this year the debit balance of that loan
account was $3,176,016.69, which was secured substantially by the
same collateral as existed on June 15, 1932, less 2,150 shares of the
Interborough Eapid Transit Co.; and that that collateral on October 1 of this year was appraised as having a value of $1,178,400,
leaving the loan account still under water, so to speak, by the sum of
STOCK EXCHANGE PEACTICES
2329
$1,997,616.69. Would that conform to your recollection or knowledge of the facts.
Mr. WIGGIN. I have no question that those figures are correct.
Mr. PECORA. Was the International Power & Paper Co. one of the
corporations with which heretofore you have been identified as an
officer or director in any capacity ?
Mr. WIGGIN. Yes,
Mr. PECORA. Did
sir.
that corporation, while you were the executivehead of the bank, obtain large loans from the bank?
Mr. WIGGIN. I t has substantial loans now; yes, sir.
Mr. PECORA. DO you know Mr. Graustein, the executive head of
that corporation ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Did he
individually obtain large loans from the-
bank?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. DO you know
the extent of those loans to Mr. Graustein individually?
Mr. WIGGIN. I will have to look it up.
Mr. PECORA. Will you, please ?
Mr. CONBOY. While they are looking that up, would you let the
reporter read back to me those figures that were contained in your
questions with regard to the Dahl loan in October?
Mr. PECORA. Yes.
(The reporter read as requested.)
Mr. WIGGIN. What was the question?
(The reporter read the pending question.)
Mr. WIGGIN. I have not that in my head. We will look that up
and get it for you tomorrow.
Mr. PECORA. YOU were asked about loans made by the bank to Mr.
Graustein personally.
Mr. WIGGIN. Yes. I say I have not got that figure, but I will
look that up.
Mr. PECORA. DO you know how much
Mr. WIGGIN. There was a substantial loan.
Mr. PECORA. Do you know how much was charged off during the
year 1930 by the Chase bank on account of loans to Mr. Graustein
individually?
Mr. WIGGIN. I will have to look it up. I do not know. As a matter
of fact
Mr. PECORA. Our figures show that $2,000,000 was charged off during the year 1930 against loans made to Mr. Graustein individually.
Mr. WIGGIN. I do not
Mr. PECORA. Can you confirm that
Mr. WIGGIN. I will have to check
and check it up ?
it up, but I do not question it.
I only call your attention to the fact that there is a big come-back
there. Mr. Graustein has furnished us life insurance, so that if he
dies it is good and if he lives it is bound to be good.
Mr. PECORA. D O you know how much of a chargeoff was made
during the year 1931 of loans made to Mr. Graustein individually?
Mr. WIGGIN. I will have to look it up.
Mr. PECORA. The figure we have for that year is $1,339,000.
Mr. WIGGIN. I do not question it, sir.
2330
STOCK EXCHANGE PRACTICES
Mr. PECORA. That would make an aggregate of chargeoffs for those
two years aggregating $3,339,000 on account of those loans to Mr.
Graustein individually, assuming our research is correct.
Mr. WIGGIN. Yes. Of course, there are reserves set up for those
markdowns, and the fact that it is marked off does not mean that it
does not come back.
Mr. PECORA. Over what period of time were those loans made to
Mr. Graustein individually ?
Mr. WIGGIN. I will have to look it up. I cannot recall.
Mr. PECORA. There were other transactions, between either the bank
or the Chase Securities Corporation and the International Power &
Paper Co., were there not ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And those
transactions, in part, consist of the Chase
Securities Corporation bringing out issues of securities that were
made by the International Co. ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. I am going to go into those in detail later.
The CHAIRMAN. Mr. Graustein was president of that
paper and
power company, and you were one of the directors.
Mr. WIGGIN. Correct.
Mr. PECORA. Did you ever have any personal stock transactions,
either in your own name or in the name of the Shermar Corpora^
tion, or one of the other personal companies that you have referred
to, with Mr. Dahl?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. What were
they, in the nature of joint-account or
pool operations?
Mr. WIGGIN. No. I do not think there was any joint-account or
pool operation.
Mr. PECORA. Were they syndicate accounts?
Mr. WIGGIN. I do not think so.
Mr. PECORA. HOW would you style them?
Mr. WIGGIN. Give me a minute here. I think it is the Shermar
Corporation—one of the corporations had a loan to Mr. Dahl for
a long time. We have had several loans. They varied in amounts
at different dates. I can look it up and give you just the total
amount now due or that was due any date you want.
Mr. PECORA. Were any moneys advanced by the Chase bank in
connection with any of those stock activities or operations from
time to time?
Mr. WIGGIN. You mean stock activities of the Shermar's relation
to Mr. Dahl? None at all.
Mr. PECORA. Yes; or any stock activities of Mr. Dahl in combination with you or with others.
Mr. WIGGIN. I do not think so; not to my knowledge.
Mr. PECORA. NOW, getting back to the American Express Banking
& Trust Co., that trust company started business with an initial
capital of $10,000,000, did it not?
Mr. WIGGIN. I think that is right, sir.
Mr. PECORA. And a paid-in surplus of $5,000,000.
Mr. WIGGIN. I think so.
STOCK EXCHANGE PEACTICES
2331
Mr. PECORA. HOW much of the stock of that bank was subscribed
for the Chase Securities Corporation or, rather, by the AmericanExpress Co.?
Mr. WIGGIN. I will have to get that. We have it all here, I think
(after consulting an associate). Approximately 54 percent, or
54,000 shares.
Mr. PECORA. And at that time was the American Express Co. a
subsidiary of the Chase Securities Corporation ?
Mr. WIGGIN. It is owned by the Chase; yes.
Mr. PECORA. IS it wholly owned by it, or was it ?
Mr. WIGGIN. 98 percent.
Mr. PECORA. HOW much of the capital stock of the American Express Bank & Trust Co. at the outside was subscribed for by the
stockholders of the American Express Co. ?
Mr. CONBOY. Mr. Pecora, didn't you have that this morning?
There was at first 54 percent, 36 percent, and 10 percent.
Mr. PECORA. But I wanted to address the witness's attention to
the 36 percent.
Mr. CONBOY. I think there was some memorandum that you read
from at the time you were inquiring about it that contained the
correct figures.
Mr. PECORA. Yes.
Mr. CONBOY. The
information was furnished to you in a letter
under date of September 27, 1933, and you had it before you at the
time of your examination this morning.
Mr. PECORA. I have it here now. Now, Mr. Wiggin, at the
time of the organization of the American Express Bank & Trust
Co., according to the letter of September 27, 1913
Mr. CONBOY (interposing). You mean September 27, 1933, don't
you?
Mr. PECORA. Yes, according to the letter of September 27, 1933,
from which I read this morning, 10, percent of the shares were
allotted for subscription, to the directors and officers of the new
bank and trust company. Are you familiar with the circumstances
of that, Mr. Wiggin ?
Mr. WIGGIN. I may have to refresh my memory on some things.
If you will tell me what is in your mind I will either know or will
look it up.
Mr. PECORA. Can you refresh your recollection by reference to
any records available to you, or by conference with any of your associates, to the extent that you may be able to tell us whether in allotting 10 percent of those shares for subscription by officers and
directors of the new bank, as this letter describes h&re, the resolution of the board of the American Express Bank & Trust Co.
specifically allocated or allotted 6,700 shares at $170 a share to—
Persons considered to> be in a position to promote the best interests of said
bank and trust company the number of shares to be utilized for this purpose
and the persons to be permitted to acquire them to be determined by a
committee of three directors authorized to act in the premises.
Mr. WIGGIN. I recall that, yes, sir.
Mr. CONBOY. Mr. Pecora, would you permit me to make a suggestion?
Mr. PECORA. Yes.
2332
STOCK EXCHANGE PRACTICES
Mr. CONBOY. I think the 6,700 shares you are referring to are in
an allotment by the Chase Securities Corporation and not in connection with the management, out of a subscription made by the
Ohase Securities Corporation.
Mr. PECORA. All right.
Mr. CONBOY. If you will look at the letter sent to you you will see.
I think it is the third paragraph in that letter, you will find.
Mr. PECORA. The Chase Securities Corporation as a stockholder of
the American Express Co. subscribed for 2,713 shares at $150 a
share and 6,700 shares of this stock was sold to certain individuals
at $170 per share. That is the reference in the letter that you now
call to my attention, is it ?
Mr. CONBOY. Yes. But that is not a part of the 10 percent allotment to the management.
Mr. PECORA. NO. That is a part of the allotment to the Securities
Corporation. And the resolution that I have quoted from is a resolution of the board of directors of the Chase Securities Corporation,
is that correct ?
Mr. CONBOY. Yes.
Mr. PECORA. NOW,
Mr. Wiggin, were you one of the persons who
•eventually was considered to be in a position to promote the best
interests of the American Express Bank & Trust Co. ?
Mr. WIGGIN. I think so.
Mr. PECORA. And, in accordance with that determination, how
many shares were allotted to you for subscription at $170 a share
out of this block of 6,700 shares?
Mr. WIGGIN. TWO thousand shares.
Mr. PECORA. And among the other persons who were selected as
persons considered to be in a position to promote the best interests
of the American Express Bank & Trust Co., to whom allotments
were made of portions of those 6,700 shares, were there included
other of the principal officers as well as directors of the Chase National Bank?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Whose best
interests were those persons supposed to
serve ?
Mr. WIGGIN. I assume, in taking this allotment, that was given
to help the American Express Bank & Trust Co., that that was the
theory of it.
Mr. PECORA. Well, weren't the interests of the Chase Securities
Corporation also involved, as a large stockholder of the American
Express Bank & Trust Co. ?
Mr. WIGGIN. Yes. Anything that benefited the American Express
Bank & Trust Co. reverted back to the Chase Securities Corporation
in very large percentage.
Mr. PECORA. And anything that benefited the Chase Securities
Corporation correspondingly benefited the Chase National Bank
and its stockholders because of identity of interest among them.
Mr. WIGGIN. It benefited the same shareholders, not the bank but
the same shareholders.
Mr. PECORA. And you were an officer; namelv, the executive head
of the Chase National Bank at that time, weren't you ?
Mr. WIGGIN. Yes,
sir.
STOCK EXCHANGE PEACTICES
2333
Mr. PECORA. YOU did not need this as an extra inducement to call
forth your services in the best interests of either the bank or the
Chase Securities Corporation, did you?
Mr. WIGGIN. Perhaps not.
Mr. PECORA. Or the American Bank & Trust Co., did you?
Mr. WIGGIN. Perhaps not. I might mention that we paid them a
profit to get it, and took a loss on it very promptly.
Mr. PECORA. But you did not expect to take them at a loss at the
time, did you?
Mr. WIGGIN. NO. But we did pay them a profit at the time we
took it.
Mr. PECORA. YOU are not making a virtue of a necessity, are you?
Mr. WIGGIN. In taking a profit ?
Mr. PECORA. NO ; I say when you took a loss.
Mr. WIGGIN. NO.
Mr. PECORA. At the time you took those 2,000 shares is what I
am referring to.
Mr. WIGGIN. I am speaking of the result.
Mr. PECORA. NOW, I notice that the name of Mr. F . H. Ecker is
included among those to whom were allotted shares out of this block
of 6,700 shares of the American Express Bank & Trust Co.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. That is the
same Mr. Ecker who was a member of
the board of directors of (Chase?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. I also notice
the name of Mr. Charles Hayden among
the list of those persons. That isi the gentleman who is a member
of the firm of Hayden, Stone & Co., is it not?
Mr. WIGGIN. Yes, sir.
Senator COUZENS. Aren't
they some of the gentlemen who were
mixed up with the Dillon, Read & Co. investment trusts, Mx.
Pecora?
Mr. PECORA. Yes; I believe so.
Senator COUZENS. I thought so.
Mr. PECORA. By the way, Mr. Wiggin, I notice the name of Mr.
Clarence Dillon among the list of those persons. That is the Clarence
Dillon who is the head of the firm of Dillon, Read & Co., isn't it?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. Who was a recent visitor before this subcommittee ?
Mr. WTGGIN. Yes, sir.
Senator COUZENS. Was
there any competition between the Chase
Securities Corporation and Dillon, Read & Co. ?
Mr. WIGGIN. Yes, sir.
Senator COUZENS. Mr.
Dillon and Mr. Ecker and Mr. Hayden all
got in no matter who won, is that it ?
Mr. WIGGIN. Well—[and witness laughed].
Mr. PECORA. Mr. Wiggin, what position were these various gentlemen in at that time that put them in this category of persons " considered to be in a position to promote the best interests of the American Express Bank & Trust Co.? "
Mr. WIGGIN. They were active men who would be helpful in business.
2334
STOCK EXCHANGE PRACTICES
Mr. PECORA. In what way was it considered that they would be
helpful?
Mr. WIGGIN. In business, in deposits.
The CHAIRMAN. What was the main business of the American Express Bank & Trust Co. ?
Mr. WIGGIN. It was a commercial business, and a regular deposit
business.
Senator COTTZENS. Why was it organized in competition with ther
Chase National Bank?
Mr. WIGGIN. We felt that the American Express Co., with its many,
many connections, not only in this country but abroad, would attract
business to a bank with their name on it that would not come to any
other bank. That was the theory.
Senator COUZENS. Well, didn't it work out ?
Mr. WIGGIN. Well
The CHAIRMAN (interposing). You say you suffered a loss on
those shares. Would you mind naming what the loss was?
Mr. WIGGIN. We bought at $170 and sold at $160.
Mr. PECORA. TO whom did you sell at $160?
Mr. WIGGIN. The bank which took in the American Express Bank
& Trust Co. And, of course, I meah the Equitable Trust Co. That
is the same mistake that I made this morning.
The CHAIRMAN. When?
Mr. WIGGIN. In December of 1931.
Mr. CONBOY. It is in the last paragraph of the letter that you have
before you, of September 27, 1933.
Mr. PECORA. Yes. It says in December of 1931.
Senator COUZENS. Was it running behind? Was that the reason
why it was absorbed?
Mr. WIGGIN. Well, they were not making anything, practically
speaking.
Senator COUZENS. Did they accumulate any substantial deposits?
Mr. WIGGIN. Yes. I will have to look it up to see what they ran.
But, you see, conditions changed so that there wasn't any money
coming from Europe to a bank in America, such as we had figured
on. When we found it was not working out as we had planned we
concluded it was a needless expense to have a separate bank and
tie up securities in a separate bank, and we merged the whole thing..
Senator COUZENS. Did it have a national charter?
Mr. WIGGIN. It had a State charter.
Senator COUZENS. And the charter was abandoned ?
Mr. WIGGIN. I think so. [After consulting an associate.] It is
no longer used, and I suppose it is abandoned.
Mr. PECORA. NOW, according to the letter of September 27, 1933,
addressed to me by Mr. Hargreaves, secretary-treasurer of ChaseSecurities Corporation, from which I previously read, I find:
In December of 1931 the American Express Bank & Trust Co. was merged
with the Equitable Trust Co. of New York. The merger was effected on a
cash basis by the payment of $160 a share for the shares of the American
Express1 Co. by the Equitable Trust Co.
In connection therewith, Mr. Wiggin, would you say that that
merger was in the nature of a so-called rescue party ?
Mr. WIGGIN. Oh, no.
STOCK EXCHANGE PEACTICES
2335
Mr. CONBOY. May I direct Mr. Wiggin's attention to something
lie has overlooked in that connection ?
Mr. PECORA. Certainly.
(Thereupon Mr. Wiggin and Mr. Conboy conferred.)
Mr. WIGGIN. IS there a question pending now, Mr. Pecora ?
Mr. PEOORA. Shall I go ahead now, Mr. Conboy?
Mr. CONBOY. Yes.
Mr. PECORA. Mr.
Wiggin, the term " rescue party " or " rescue
loans " have been heard by you before, haven't they ?
Mr. WIGGIN. Yes,
Mr. PECORA. And
sir.
it is a part of the parlance of Wall Street, so to
speak, isn't it?
Mr. WIGGIN. I think so.
Mr. PECORA. And from your understanding of those terms, what
do they connote?
Mr. WIGGIN. I suppose " rescue party "—and you are just asking
me for my opinion of the definition of " rescue party ", are you ?
Mr. PECORA. Surely.
Mr. WIGGIN. I suppose " rescue party " means to avoid trouble.
Mr. PECORA. And a rescue loan is also to avoid trouble.
Mr. WIGGIN. I suppose so.
Mr. PECORA. And sometimes to avoid loss.
Mr. WIGGIN. On the theory that a little given time may save a
loss.
Mr. PECORA. Where a rescue party is organized and put into commission to save trouble, is it designed to save trouble for the rescuing
party or the rescued party?
Mr. WIGGIN. Both.
Mr. PECORA. And would you say, similarly, with regard to the
matter of so-called " rescue loans " ?
Mr. WIGGIN. Well, I think so; yes.
Mr. PECORA. NOW, during the period of time that the Chase Bank,
to use the term you used this morning, was under your general direction, did it launch any of these so-called " rescue parties " ?
Mr. WIGGIN. Oh, I think so.
Mr. PECORA. Many of them ?
Mr. WIGGIN. I think so; several. I think quite a number,
probably.
Mr. PECORA. Would you undertake to tell this subcommittee simply on the basis of your best recollection, about the total amount in
dollars involved of those rescue parties ?
Mr. WIGGIN. Oh, I don't think there was any large amount. Of
course, it is a pretty hard thing to describe, because what may strike
one person as a large amount may not strike another person as large.
Mr. PECORA. Well, would you undertake to tell the subcommittee
about the aggregate amount of dollars involved in any rescue parties
that were launched or organized or conducted by the Chase National
Bank while it operated under your general direction?
Mr. WIGGIN. I have no way of checking up. I have no idea. But
I don't think there was any large amount.
The CHAIRMAN. Wasn't the clearing house supposed to serve that
sort of function?
Mr. WIGGIN. NO ; I cannot say that it was.
2336
STOCK EXCHANGE PRACTICES
Mr. PECORA. The clearing house, as I understand it, contends that
it has no legal right to engage in rescue parties, Mr. Chairman.
The CHAIRMAN. All right.
Mr. PECORA. Mr. Wiggin, what is the largest rescue party, insofar as its size is determined by the money involved, that the Chase
National Bank launched under your direction?
Mr. WIGGIN. I don't know. 1 would hate to make a guess on a
thing like that.
Mr. PECORA. Well, what is among the largest that readily comes to
your mind?
Mr. WIGGIN. DO you realize that when I mention the name it
would be a bad thing for that concern on the Street?
Mr. PECORA. Well, we are concerned here with the facts; aren't we?
Mr. WIGGIN. But I would hate to do anybody any damage.
Senator COUZENS. I S it a live concern?
Mr. WIGGIN. Yes, sir; Mr. Pecora, I do not understand that I
am making the statement that all rescue parties are a loss. You
did not understand me $o say that, did you?
Mr. PECORA. But some are?
Mr. WIGGIN. Yes, some are. But I do not want to be on record as
assenting to the general statement that all rescue loans indicate a loss.
Senator COUZENS. Mr. Chairman, I move that the answer to that
question be suspended for an executive session.
The CHAIRMAN. Very well. We will take that matter up later
in executive session.
Mr. PECORA. Very well, Mr. Chairman, and I should like to suggest that the witness, between now and the next session of the subcommittee, compile a statement or list and give it to the subcommittee
and its counsel, and have it considered in executive session. Is that
agreeable, Mr. Chairman?
The CHAIRMAN. That will be all right.
Mr. CONBOY. Would you prefer to have that done after the subcommittee has come to a conclusion with respect to the question
itself, or do you want it done before the subcommittee has passed
upon that question ?
Senator COUZENS. What question are you now referring to?
Mr. CONBOY. The one about which you are talking.
Senator COUZENS. That question is to be answered in executive session, and the other question just propounded by Mr. Pecora will also
be answered in executive session.
Mr. CONBOY. Pardon me. I confess that I did not understand;
my trend of thought having been interrupted here, about the connection between the answer to Mr. Pecora's question and the executive session.
The CHAIRMAN. We will take the answer when you get your data
together.
Mr. CONBOY. All right.
Mr. PECORA. NOW, Mr. Wiggin, before the recess today I asked you
a number of questions concerning the creation of any fund out
of which what you call additional compensation paid in certain years
by the Chase National Bank to any of its officers. Will you now tell
us how any such fund was established or created?
Mr. WIGGIN. There wasn't any special fund. It depended upon
the earnings for the year.
STOCK EXCHANGE PRACTICES
2337
Mr. PECORA. Who made the determination of the amount of such
additional compensation paid in certain of those years according to
the typewritten tabulation which is in evidence here, to different
senior officers of the bank?
Mr. WIGGIN. The total amount was determined by the board or the
executive committee.
Mr. PECORA. Yes.
Mr. WIGGIN. I think
the larger portion of the amount voted, of
course, went to the clerks, and that was a fixed percentage, running
from 5 to 10, according to time of service.
Mr. PECORA. Five to ten percent of what?
Mr. WIGGIN. Of their salaries, according to their terms of service.
And the contribution as between the junior officers and the senior
officers I think was usually left to me.
Mr. PECORA. And to whom was referred the questioii of the amount
to be given to you in the form of additional compensation?
Mr. WIGGIN. I think I made up that list with my name on it and
the board always approved it. I always discussed what I should
have with the board.
Mr. PECORA. SO that you first suggested the amount to the board
and the board as a rule adopted your suggestion?
Mr. WIGGIN. Well, what always happened was that my associates
used to suggest the amount and I would cut it down.
Senator COUZENS. That was somewhat different than was done by
Mr. Mitchell1 of the National City, or wasn't it, or was it about along
the same line?
Mr. WIGGIN. Well, our figures were small. It was a small bank.
Mr. PECORA. Take, for instance, the action taken by the board of
the bank authorizing the payment of additional compensation to its
senior and junior officers for the year 1929. I have before me what
purports to be a copy of resolutions adopted by the board of directors
of the bank at a meeting thereof held on December 18, 1929, which
was furnished to us by the file department of the bank, which
resolution reads as follows:
Resolved that in view of the large amount of additional work imposed on
the officers and employees of the bank and the extra hours of their service
during a considerable period of time prior to and in connection with the
close of the year, in addition to the stated compensation which the bank
has agreed to pay them respectively, each of the officers, with the exception
of the chairman of the board of directors, the vice chairman of the board of
directors, the chairman of the executive committee, the president, the vice
presidents and the second vice presidents, and each of the employees of the
bank, be paid such sum, not exceeding 10 percent of his or her salary, as the
principal officers of the bank shall deem proper; and be it further
Resolved, that in view of the heavy demands made during the year 1929
upon the services and time of the senior officers and certain others of the
officers and senior employees of the bank, up to the sum of $325,000 be paid
over to the chairman of the board of directors not later than December 31,
1929, to be by him distributed to the chairman of the board of directors, the
chairman of the executive committee, the president, and such of the vice
presidents and other officers and senior employees of the bank as the chairman of the board of directors in his discretion shall determine, and in such
amounts and at such times as he shall determine, which sums shall be in
addition to the stated compensation of such officers and employees for the
year 1929.
Do you recall that resolution; Mr. Wiggin, in substance?
Mr. WIGGIN. I do now; yes, sir.
2338
STOCK EXCHANGE PRACTICES
Mr. PECORA. In pursuance of that resolution of the allotments of
this sum of $325,000 referred to in that resolution you received
$100,000 thereof, which represented 40.3 percent of the total.
Mr. CONBOY. A hundred thousand cannot be 40 percent of 325,000.
Mr. PECORA. For the year 1928.
Mr. CONBOY. That percentage cannot be right. A hundred cannot
be 40 percent of 325.
Mr. PECORA. Oh, no; that is for the year 1928. For the year 1929
you received $100,000, which represented 31.40 percent of the total
of $325,000. I understand that that is based upon the fact that instead of distributing $325,000 there was only $318,000 distributed,
of which you received $100,000.
Mr. WIGGIN. I don't remember.
Mr. PECORA. Who made that determination with regard to the
portion of this fund that was set aside for additional compensation
for senior officers ?
Mr. WIGGIN. You mean the proportion to me ?
Mr. PECORA. Yes, sir.
Mr. WIGGIN. My associates
always suggested the amount and I
always took it up with the board or the committee to explain what;
they wanted to do.
Mr. PECORA. Who do you mean by your associates?
Mr. WIGGIN. The president, vice presidents.
Mr. PECORA. Well, did you also, as chairman of the governing
board, help to fix the amounts of their additional compensation?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. YOU helped to fix theirs and they helped to fix yours;
is that right?
Mr. WIGGIN. We all sat in together.
Mr. PECORA. And was substantially the same practice followed
with regard to the distribution of additional compensation in the
years in which distributions were made?
Mr. WIGGIN. Oh, I think so. Somebody had to get together and
try to fix what they thought were the equitable amounts.
The CHAIRMAN. Mr. Wiggin and Mr. Conboy, you may report tomorrow morning to us whether you are prepared with this
material that was inquired about by that time. Then we can have
an executive session a little later. But you will probably be able to
tell us in the morning about whether you have the data.
Mr. CONBOY. That is what has been referred to as the " rescue
party"?
Mr. PECORA. Yes.
Mr. WIGGIN. There
is one point that I want to make clear, Mr.
Chairman. I can remember certain " rescue parties." I do not
know that I can remember all of them. There may be some I have
forgotten. And there is no record of anything that distinguishes
rescue loans from other loans. It is a question of memory.
The CHAIRMAN. Perhaps some of your associates can refresh your
memory, and perhaps you have some letters or correspondence or
data which will enable you to give us that information in executive
session.
Mr. CONBOY. I presume it will be very largely a matter of characterization by the witness himself whether it comes in that category.
STOCK EXCHANGE PRACTICES
2339
Senator COTJZENS. YOU and your associates better get together
what you want and then submit it to the committee in executive
session.
The CHAIRMAN. We will take a recess until 10 o'clock tomorrow
morning.
(Thereupon, at 4 p.m., the subcommittee took a recess until the
following morning at 10 a.m.)
COMMITTEE EXHIBIT NO. 1, OCTOBEB 17, 1933
Certificate for less than 100 shares.
No. 00000.
Certificate for less than 100 shares.
Shares
.
THE CHASE NATIONAL BANK OF THE CITY OF NEW YOEK
This is to Certify that
is the owner of
shares of the par value of Twenty Dollars each of the Capital
Stock of The Chase National Bank of the City of New York, transferable only
on the books of the Bank by the holder hereof in person or by duly authorized
Attorney upon the surrender of this Certificate properly endorsed.
The agreement of March 21, 1917, as amended, between all the shareholders
of The Chase National Bank of the City of New York and The Chase Corporation, to which the holder of this Certificate, by the acceptance thereof and otherwise, has become a party, provides that no shareholder of either corporation
wiU sell, pledge or otherwise dispose of or transfer, whether voluntarily, by
operation of law or otherwise, any share or interest therein in either corporation
without at the same time transferring to or vesting in the same party an equal
number of shares, or the same interest therein, in the other; also that such
shareholder will not transfer any of such shares, or any interest therein, otherwise than as permitted by the certificate of incorporation of The Chase Corporation and as stated in the stock Certificate of that corporation on the reverse
side hereof.
Witness the facsimile seal of the bank and the signatures of its duly
authorized ofilcers.
Dated
———»
9
Chairman of the Board.
—————
9
Assistant Cashier,
Certificate for less than 100 shares
No. F00000
Certificate for less than 100 shares
shares
THE CHASE CORPORATION
(Incorporated under the laws of the State of New York)
THIS IS TO CERTIFY that
is the owner of
shares of the fully-paid and non-assessable stock of
the par value of one dollar ($1) each of THE CHASE CORPORATION, transferable only on the books of the corporation by the holder hereof in person or
by duly authorized attorney, upon the surrender of this certificate properly
endorsed.
The certificate of incorporation of the corporation, as amended, provides that
no share or shares of stock of the corporation issued to any stockholder of The
Chase National Bank of the City of New York (hereinafter called the Bank) as
such shall, nor shall any interest therein, be sold, pledged, or otherwise disposed of or transferred, either voluntarily, by operation of law or otherwise,
except in each instance and from time to time together with a transfer to the
same person or persons of a like interest in an equal number of shares of stock
of the Bank and that the sale, pledge, or other disposition or transfer of any
shares of stock of the Bank or any interest therein, either voluntarily, by operation of law or otherwise, by or in behalf of any such stockholder of the bank
or anyone claiming from or through such stockholder, either' directly or by
175541—33—PT 5
5
2340
STOCK EXCHANGE PRACTICES
mesne transfers, shall, if and to the extent that effect may then be given by
law to this provision, operate ipm faoto as a transfer to the same person or
persons of a like interest in an equal number of shares of the stock of the corporation. Reference is hereby made to said certificate of incorporation for
the terms and conditions under which any shares of stock, now or hereafter
authorized, shall be issued by the corporation.
This certificate is not valid until countersigned by the transfer agent and
registered by the registrar.
Witness the facsimile seal of the corporation and the facsimile signatures of
its duly authorized officers.
Dated
R. L. CLARKSON, President,
HENRY HARGREAVES, Secretary.
Countersigned:
THE CHASE: NATIONAL BANK OF THE CITY OF* NEW YORK
By
Registered:
,
Assistant Cashier.
Transfer Agent.
BANKERS TRUST CO.,
Registrar.
Assistant Secretary.
The agreement of March 21, 1917, as amended, between all the stockholders
of The Chase National Bank of the City of New York and The Chase Corporation, to which the holder of this Certificate, by the acceptance thereof and
otherwise, has become a party, provides that no shareholder of either corporation will sell, pledge or otherwise dispose of or transfer, whether voluntarily,
by operation of law or otherwise, any share or interest therein in either corporation without at the same time transferring to or vesting in the same party
an equal number of shares, or the same interest therein, in the other.
For Value Received
hereby sell, assign, and transfer unto
shares of the Capital Stock of The Chase National
Bank of the City of New York and the same number of shares of the capital
stock of The Chase Corporation, represented respectively by the within stock
certificate of said Bank and the foregoing stock certificate of said corporation,
and do hereby irrevocably constitute and appoint
attorney,
to transfer said shares on the respective books of said corporations, with full
power of substitution in the premises.
Dated
In the presence of:
The signature to this assignment must correspond with the name
as written upon the face of the certificates, in every particular, without alteration or enlargement or any change whatever.
(This space must not be covered in any way)
NOTICE:
COMMITTEE EXHIBIT NO. 2, OCTOBER 17,
1933
AGREEMENT DATED JANUARY 15, 1930, WITH BANKERS TRUST COMPANY, AS DEPOSITARY, INCORPORATING ALL THE PROVISIONS IN EFFECT OF THFJ AGREEMENT DATED
MARCH 21, 1917, AS HERETOFORE AMENDED, BETWEEN ALL THE STOCKHOLDERS OF
THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK AND OF CHASE SECURITIES
CORPORATION
Whereas under date of March 21, 1917, all of the stockholders of The Chase
National Bank of the City of New York (hereinafter called the Bank)
entered into an agreement (hereinafter called the Agreement) with the Committee therein named and thereby constituted and with Bankers Trust Company,
of the City of New York, as depositary (therein and hereinafter called the
Depositary) ; and
Whereas Chase Securities Corporation (hereinafter called the Securities
Corporation was organized under and pursuant to the provisions of the Agreement and, as therein contemplated, became entitled to issue, and did issue,
STOCK EXCHANGE PEACTICES
2341
to the shareholders of the Bank pro rata 100,000 of its shares without par
value; and
Whereas at the time of the organization of the Securities Corporation the
capital stock of the Bank consisted of $10,000,000, divided into 100,000 shares
of the par value of $100 each, all of which, together with said 100,000 shares
of the Securities Corporation, were deposited under the Agreement with the
Depositary, which thereupon duly issued its Receipts therefor as provided in
the Agreement; and
Whereas the Agreement provided that it could be amended or modified
with the consent of the registered holders of 75 percent of the number of
shares of the Bank and of the Securities Corporation, certificates for which
are then held under the Agreement by the Depositary; and
Whereas the capital stock of the Bank has been successively increased to
$105,000,000, and is now divided into 5,250,000 shares of the par value of
$20 each, and the capital stock of the Securities Corporation has been successively increased to 5,250,000 shares without par value; and
Whereas the Agreement has been amended from time to time and, with the
consent of the registered holders of at least seventy-five percent (75%) of the
number of shares of the Bank and of the Securities Corporation, certificates for
which were then held under the Agreementfc>ythe Depositary, all of said shares
of the Bank and of the Securities Corporation have been deposited under the
Agreement by the holders thereof and the Depositary has duly issued Receipts
therefor as provided in the Agreement, as amended, with the same effect as
though said additional shares had been held under the Agreement at the time
when, as therein provided, the Depositary was first authorized to issue Receipts
representing shares of the Bank and of the Securities Corporation; and
Whereas, thereafter, as any of said 5,250,000 shares of the Bank and said
5,250,000 shares of the Securities Corporation and the Receipts representing
the same were transferred and said Receipts surrendered, the Depositary issued
other Receipts in lieu of those surrendered; and
Whereas the registered holders of more than seventy-five percent (75%) of
the number of shares of the Bank and of the Securities Corporation, certificates
for which were then held by the Depositary under the Agreement, as amended,
by consents in writing without a meeting (such consents being filed with the
Bank), have amended or modified the Agreement as of August 26, 1929, so that
the registered holders of sixty-six and two-thirds percent (66%) of the number of shares of the Bank and of the Securities Corporation, certificates for
which are then held by the Depositary under the Agreement, as amended, at a
meeting thereof duly called for the purpose or by consent of such holders in
writing without a meeting, may amend or modify said Agreement at any time
and from time to time; and
Whereas the registered holders of more than sixty-six and two-thirds percent
(66%%) of the number of shares of the Bank and of the Securities Corporation,
certificates for which were then held by the Depositary under the Agreement, as
amended, have by consents in writing without a meeting (such consents being
filed with the Bank) appointed Philip Gr. Bartlett, Seward Prosser, and Eldon
Bisbee, or any one or more of them, the attorneys or attorney of said holders
(hereinafter called said attorney), with full power and authority to make any
and all changes deemed by them advisable in the Agreement, a« amended, so that
it shall provide that (1) stock certificates of the Bank and of the Securities
Corporation, in such form as shall be approved by the respective Boards of
Directors of the Bank and of the Securities Corporation and by said attorney
may be issued and delivered to their stockholders, in lieu of the Receipts heretofore issued to them by the Depositary, at and/or after such time as a
majority of the members of the Board of Directors of the Securities Corporation, as constituted from time to time, shall determine as evidenced by a writing
signed by them; (2) each of such stock certificates of the Bank and of the
Securities Corporation so issued shall bear a legend on the face thereof providing, in such form as said attorney shall deem proper and as shall be
•approved by the respective Boards of Directors of the Bank and of the Securities Corporation, that each of the holders thereof has agreed and, by the
acceptance thereof, thereby agrees that he will not separately sell any shares
of the Bank or of the Securities Corporation and that he will not sell any
of his shares in either corporation without at the same time selling to the
same person an equal number of shares in the other, nor will he transfer
any of such shares otherwise than as permitted and provided in the Certificate
2342
STOCK EXCHANGE PRACTICES
of Incorporation of the Securities Corporation and the Agreement, as amended,
and (3) the members of said Board of Directors of the Securities Corporation,,
as constituted from time to time, acting by a majority thereof, shall be
empowered to enforce all the provisions of the Agreement, as amended, in
behalf of any one stockholder or more than one stockholder party or parties
thereto; and to do all acts and things necessary or proper to make such amendments effectual; and
Whereas, in and by the Agreement, it is provided that, after the issue by the
Depositary of Receipts representing all of the stock of the Bank and all of the
stock of the Securities Corporation deposited thereunder, as therein originally
contemplated, the Committee therein named shall cease to exist, and any and
all rights, duties, powers and authority theretofore vested in it shall become
vested in the Board of Directors of the Securities Corporation as constituted
from time to time; and
Whereas it has been deemed advisable to incorporate into this instrument all
of the provisions of tlie Agreement, as amended, which, together with the
amendments thereto authorized by said attorney, will constitute all of the provisions of the Agreement in effect at the time of and after the execution and
delivery of this instrument;
Now, Therefore, in consideration of the premises, Agreement, as heretofore
amended, is hereby further amended and modified so that, as to all portions
thereof not heretofore performed, it shall read as follows:
First: Each holder of a share or shares of stock of the Bank and of the same
number of shares of the Securities Corporation shall be entitled to receive, on
and after such date as a majority of the members of the Board of Directors of
the Securities Corporation, as then constituted, shall determine by a writing
signed by them, and until such majority, as then constituted, shall otherwise
determine by a writing signed by them, certificates" therefor issued, respectively,
by the Bank and by the Securities Corporation substantially in the forms of
those hereunto attached marked respectively, Exhibit A and Exhibit B
and hereby made a part hereof, which forms have been approved by their
respective Boards of Directors; and each holder of a fraction of a share of the
Bank and of the same fraction of a share of the Securities Corporation shall be
entitled to receive, on and after such date as a majority of the members of the
Board of Directors of the Securities Corporation, as then constituted, shall determine by a writing signed by them, and until such majority, as then constituted, shall otherwise determine by a writing signed by them, scrip certificates
therefor issued respectively by the Bank and by the Securities Corporation substantially in the forms of those hereunto attached marked respectively Exhibit C
and Exhibit D. and hereby made a part hereof, which forms have been approved by their respective Boards of Directors, with the reservations that, in
the event that it is deemed advisable by said Boards of Directors at any time to
issue bearer scrip certificates transferable merely by delivery, said forms may
be changed in the manner and to the extent appropriate to that end, which
reservations are approved by said attorney.
Each such stock and each such scrip certificate of the Bank shall bear thereon
a legend substantially in the form of that hereunto attached marked Exhibit
G and hereby made a part hereof; and each such stock and each such scrip
certificate of the Securities Corporation shall bear thereon a legend substantially
in the form of that hereunto attached marked Exhibit H and hereby made
a part hereof.
Said stock certificates and said scrip certificates shall be so arranged that
each certificate representing a share or shares of the capital stock of the
Securities Corporation shall be engraved or printed upon the reverse side of a
stock certificate representing the same number of shares of the capital stock
of the Bank and each scrip certificate representing a fraction of a share of
the capital stock of the Securities Corporation shall be engraved or printed
on the reverse side of a scrip certificate representing the same fraction of a
sha^e of the capital stock of the Bank so that the share or shares, or the fraction
of a share, represented by each stock or scrip certificate of the Bank and the
share or shares, or the fraction of a share, represented by each stock or scrip
certificate of the Securities Corporation on the reverse side thereof shall be
transferable by a s'ngle assignment (unless said scrip certificates shall be
transferable merely by delivery) in the form appearing below the stock or
scrip certificate, as the case may be, of the Securities Corporation. The
forms of assignment of said stock certificates and the shares represented thereby
STOCK EXCHANGE PRACTICES
2343
and of said scrip certificates (other than those transferable merely by delivery)
and all rights represented thereby shall be substantially the same as those
hereunto attached marked respectively Exhibit E and Exhibit F and hereby
made a part hereof.
Second: Each holder of a Receipt for full shares or of a Scrip Receipt for
fractions of shares by the acceptance thereof and/or otherwise, has become and
is now. a party to the Agreement and each holder of stock certificates or scrip
certificates substantially in the forms of those hereunto annexed marked respectively Exhibit A, Exhibit B, Exhibit C, Exhibit D, if not already a party, by the
acceptance thereof, shall become a party to the Agreement and shall be held to
be included under the designation " Stockholders " as used in the Agreement,
with the same effect as though such holder had personally signed the Agreement ; and the transfer of any such Receipt or Scrip Receipt, stock certificates
or scrip certificates, in accordance with the provisions of the Agreement as
hereby amended, shall entitle the transferee to all the rights and privileges and
subject such transferee to all of the obligations of his or its transferor thereunder and hereunder.
Third: On or after the date when stock and scrip certificates of the Bank
and of the Securities Corporation are to be issued as provided in Clause First
hereof, and until a majority of the members of the Board of Directors of the
Securities Corporation, as then constituted, shall otherwise determine as evidenced by a writing signed by them, the transferee of any shares or of any
fractions of shares represented by any Receipt or Scrip Receipt or by any
stock or scrip certificates of the Bank and of the Securities Corporation,
arranged as provided in Clause First hereof and respectively in the forms and
bearing the legends hereunto attached marked Exhibit A, Exhibit B, Exhibit C,
Exhibit D, Exhibit G, and Exhibit H, shall be entitled to receive only a stock or
scrip certificate or certificates of the Bank and a stock or scrip certificate or
certificates of the Securities Corporation respectively so arranged, in such forms
and bearing such legends, all of which last mentioned certificates shall together
represent the same number of shares, or the same fraction of a share, of the
Bank and of the Securities Corporation as the number or fraction transferred;
and the record holder of any such Receipt or Scrip Receipt or stock or scrip
certificates duly surrendered for cancellation shall be entitled to receive only
a stock or scrip certificate or certificates of the Bank and a stock or scrip certificate or certificates of the Securities Corporation for any shares, or fractions
of shares, of the Bank and of the Securities Corporation represented thereby
and not transferred, which certificates shall be arranged, shall be respectively
in the same forms and bear the same legends as hereinbefore provided with
respect to the certificates for the shares, or fractions of shares, then transferred.
On or after the date fixed for delivery of stock and scrip certificates of the
Bank and of the Securities Corporation as hereinbefore provided, and until a
majority of the members of the Board of Directors of the Securities Corporation, as then constituted, shall otherwise determine as evidenced by a writing
signed by them, any holder of a Receipt for full shares or of a Scrip Receipt for
fractions of shares may surrender the same to the Depositary and receive from
the Bank and the Securities Corporation in lieu thereof a stock or scrip certificate or certificates of the Bank and of the Securities Corporation representing
the same number, or the same fraction, of shares in each corporation as the
Receipt or Scrip Receipt surrendered, which stock or scrip certificate or certificates shall be arranged, in the forms and bearing the legends as hereinbefore
provided and shall be registered in the same name as that in which the surrendered Receipt or Scrip Receipt was registered.
Upon surrender to the Depositary, on or after the date so fixed for the issuance of stock and scrip certificates of the Bank and of the Securities Corporation, and until a majority of the members of the Board of Directors of the
Securities Corporation, as then constituted, shall otherwise determine as evidenced by a writing signed by them, of a Receipt for full shares or of a Scrip
Receipt for fractions of shares, together with an assignment of the shares or
(unless said Scrip Receipt be transferable merely by delivery) fractions of
shares represented thereby, the Depositary shall assign, as attorney for the
record holder of such Receipt or Scrip Receipt, the stock representing the shares
or (unless the same be transferable merely by delivery) the scrip certificates
representing the fractions of shares, assigned by the holder of said Receipt or
Scrip Receipt, and deliver such certificates, together with the surrendered Receipt or Scrip Receipt, respectively, to the Bank and the Securities Corporation;
2344
STOCK EXCHANGE PRACTICES
and, thereupon, the Bank and the Securities Corporation will deliver to the
transferee of said shares or fractions of shares, stock or scrip certificates, for the
number or fraction of shares transferred, arranged, in the forms and bearing
legends as hereinbefore provided. The Depositary shall also deliver to the Bank
and the Securities Corporation any Keceipt or Scrip Receipt, together with the
stock or scrip certificate or certificates representing the shares, or fractions of
shares, covered thereby, surrendered to the Depositary in order that stock certificates or scrip certificates for the same number of shares, or fraction of
shares, may be issued ajid delivered to the record holder thereof in lieu of
such Receipt or Scrip Receipt. The Depositary may cancel any and all Receipts
or Scrip Receipts before delivering the same together with the stock or scrip
certificate or certificates covered thereby to the Bank and the Securities Corporation. Any and all stock or scrip certificates so delivered by the Depositary
to the Bank and the Securities Corporation shall be canceled by the Bank and
the Securities Corporation contemporaneously with the issue and delivery to or
for account of the Stockholders of such stock or scrip certificates.
Any and all shares of the Bank and of the Securities Corporation, and each
fraction of any such share, issued on or after the date so fixed for the issue
of stock and scrip certificates of the Bank and of the Securities Corporation,
until a majority of the members of the Board of Directors of the Securities
Corporation, as then constituted, shall otherwise determine as evidenced by a
writing signed by them, to any stockholder of the Bank and of the Securities
Corporation who is now or shall hereafter become a party hereto, shall be
represented by a stock or scrip certificate or certificates arranged, in the forms
and bearing legends as hereinbefore specified, which stock or scrip certificates
and the shares, or fractions thereof, of the Bank and of the Securities Corporation represented thereby, shall not be separately assignable or transferable, but shall be assignable and transferable only together and (except in the
case of scrip certificates transferable merely by delivery) in the manner hereinbefore provided so that any transfer of shares, or a fraction of a share, in
either corporation will, ipso facto, transfer to the same transferee the same
number of shares, or the same fraction of a share, in the other.
Fourth: A majority of the members of the Board of Directors of the Securities Corporation, as then constituted, may at any time and from time to time,
by a writing signed by them, authorize and direct that for any period or
periods of time in said writing specified there shall be issued hereunder and
delivered to the Stockholders representing shares or fractions of shares of
stock of the Bank and of the Securities Corporation either (a) stock and scrip
certificates of the Bank and of the Securities Corporation respectively so
arranged, in the forms, bearing legends and transferable as hereinbefore provided or (b) Receipts and Scrip Receipts of the Depositary substantially in the
forms hereunto attached marked respectively Exhibit I and Exhibit J and
hereby made a part hereof (with the reservation that, in the event it is deemed
advisable by the respective Boards of Directors of the Bank and Securities
Corporation at any time to issue bearer Scrip Receipts transferable merely
by delivery, the form of Scrip Receipt may be changed by the Depositary in
the manner and to the extent appropriate to that end).
If at any time a majority of the members of the Board of Directors of the
Securities Corporation, as then constituted, shall so authorize and direct that
Receipts and Scrip Receipts of the Depositary shall be issued hereunder representing shares or fractions of shares of stock of the Bank and of the Securities
Corporation, as hereinbefore provided, the Stockholders hereby agree to deposit
the stock and scrip certificates representing an equal number of shares, or the
same fraction of shares of the Bank and of the Securities Corporation then
held by them with the Depositary, to be held by it under and pursuant to the
provisions of the Agreement, and the Depositary shall deliver to the Stockholders Receipts and Scrip Receipts therefor in the forms hereinbefore provided, with the same effect as though said shares and fractions of shares had
been held under the Agreement at the time when the Depositary was first
authorized to issue its Receipts representing shares of the Bank and of the
Securities Corporation.
Shares of the Bank and of the Securities Corporation represented by Receipts of the Depositary or fractions of shares of the Bank and of the Securities Corporation represented by Scrip Receipts of the Depositary may be transferred together but only upon surrender to the Depositary of the Receipt or the
Scrip Receipt representing the same, with a properly executed instrument of
STOCK EXCHANGE PRACTICES
2345
transfer and power of attorney substantially in the forms hereunto attached,
marked respectively Exhibit K and Exhibit L, and hereby made a part
hereof (unless the Scrip Receipt shall be transferable merely by delivery).
Upon any such transfer, the Depositary will issue a new Receipt or a new Scrip
Receipt to the transferee upon the deposit with it by the transferee, or by his
duly authorized attorney, subject to- the terms and provisions of the Agreement, of stock certificates for shares of the Bank and of the Securities Corporation or scrip certificates representing fractions of shares of the Bank
and of the Securities Corporation so transferred, registered in the name of the
transferee (unless said scrip certificates shall be transferable merely by
delivery).
Fifth: The members of the Board of Directors of the Securities Corporation,
as constituted from time to time, acting by a majority thereof, shall be and
hereby are authorized to enforce all of the provisions of the agreement in
behalf of any of the Stockholders.
Sixth: Until such time as the Agreement shall be terminated by the vote of
the holders of at least sixty-six and two-thirds per cent. (66%%) of the number
of shares of the Bank and of the Securities Corporation then subject to its
terms and provisions, at a meeting thereof duly called for the purpose or by
consent in writing of such holders without a meeting, each of the Stockholders
agrees that he will not separately sell, pledge or otherwise dispose of or transfer, whether voluntarily, by operation of law or otherwise, any share or interest
therein of the capital stock of the Bank or of the Securities Corporation, that
he will not sell, pledge or otherwise dispose of or transfer, whether voluntarily,
by operation of law or otherwise, any of his shares or any interest therein in
either corporation without at the same time selling, pledging or otherwise disposing of or transferring to or vesting in the same party an equal number of
shares, or the same interest therein, in the other, and that he will not transfer
any of such shares, or any interest therein, otherwise than as permitted by the
Certificate of Incorporation of the Securities Corporation.
Seventh: The Agreement is not intended to affect the liability of stockholders
of the Bank under any statutes now or hereafter existing.
Eighth: Full voting power with respect to the shares of both the Bank and
the Securities Corporation shall at all times be vested in the Stockholders; and
all dividends upon stock of the Bank and all dividends upon stock of the Securities Corporation shall be paid directly to the respective Stockholders entitled
thereto, provided, however, that stock or scrip certificates for stock dividends of
the Bank and of the Securities Corporation upon shares subject to the provisions
of the Agreement, as amended, shall be subjected in all respects to the terms
and provisions of the Agreement then in effect regulating the issue of shares of
said corporations and/or certificates representing the same.
Ninth: The Agreement may be amended or modified at any time or from
time to time, or may be terminated, by the vote of the registered holders of at
least sixty-six and two-thirds per cent. (66%%) of the number of shares of the
Bank and of the Securities Corporation then subject to its terms and provisions,
at a meeting duly called for the purpose or by consent of such holders in writing
without a meeting. Unless so amended or modified or unless terminated as
provided in Clause Sixth hereof, the Agreement shall be in force so long as
the Bank and/or the Securities Corporation and/or their respective successors
shall continue in business.
In the event of the termination of the Agreement at any time, the stock
certificates for shares and scrip certificates for fractions of shares of the Bank
and of-the Securities Corporation held hereunder by the Depositary shall be
delivered by the Depositary to the holders of the Receipts and Scrip Receipts respectively representing said shares and fractions of shares, upon surrender
of the Receipts and Scrip Receipts properly endorsed; and the holders of stock
and/or scrip certificates arranged, in the forms and bearing legends as hereinbefore provided, shall be entitled to separate stock and/or scrip certificates
of the Bank and of the Securities Corporation, separately transferable and
without any legend upon either thereof.
Tenth: The Depositary may at any time resign by delivering its resignation
in writing to the President or to any Vice-President of the Bank and to the
President or any Vice-President of the Securities Corporation, and, in that event,
a new Depositary may be appointed by the holders of a majority in amount of
the stock of the Bank and of the Securities Corporation then subject to the
2346
STOCK EXCHANGE PRACTICES
terms and provisions of the Agreement. A majority of the members of the
Board of Directors of the Bank may appoint a successor Depositary to act until
a new Depositary is appointed by the Stockholders as aforesaid. Any such appointment of a new Depositary shall be evidenced by a writing signed by the
holders of such majority in amount of stock, as aforesaid, or by such majority
of the members of the Board of Directors of the Bank as constituted fnom
time to time; and, forthwith upon delivery of such writing to the retiring
Depositary and upon payment of its charges and disbursements then remaining
unpaid, the retiring Depositary shall deliver to the new Depositary therein appointed all certificates for shares of the Bank and for shares of the Securities
Corporation then held by it under the Agreement. The term " Depositary " as
used herein shall include any successor or successors.
Eleventh: A copy of the Agreement, as amended, shall be lodged with the
Depositary at its principal office in the City of New York and shall always
during business hours be open to inspection of any stockholder of the Bank and
the Securities Corporation.
Any writing signed, as hereinbefore provided, by a majority of the members
of the Board of Directors of the Securities Corporation, as then constituted,
shall be delivered to the Depositary.
Twelfth: The Depositary shall incur no liability or responsibility hereunder
except for wilful misconduct or gross negligence; and is named as a party in
and executes these presents only as evidence of its willingness to act as Depositary and otherwise in accordance with the provisions of the Agreement.
The Depositary shall be protected in any action taken or omitted by it in
reliance upon any notice, resolution, vote, request, consent, certificate, affidavit,
statement, note, or other paper or document believed by it to be genuine and to
have been delivered and signed by the proper party or parties.
The Depositary may select and employ, in connection with the acts which it
is required or may perform under the Agreement, suitable agents or attorneys,
whose reasonable compensation shall be paid the Depositary by the Securities
Corporation; and the Depositary shall, in no event, be liable for any neglect,
omission, mistake, or misconduct of any such agent or attorney, reasonable care
being exercised in his selection.
The Depositary shall be under no obligation to institute or defend any proceeding, suit, or litigation, or to take any action by reason of its being Depositary
hereunder, which, in its opinion, will be liable to involve it in expense or liability, until the amount of such expense shall be advanced and until it shall be
indemnified, as often as may be required, to its full satisfaction, for all costs
and liabilities of any kind which, in its opinion, such proceeding, suit or litigation may cause.
In case at any time it shall be necessary or proper for the Depositary, its successor or successors, to determine if it will take or refrain from taking any
action which it may be requested to take under the Agreement, the Depositary
may advise with counsel, at the expense of the Securities Corporation, whose
opinion shall protect the Depositary, its successor or successors, in any action
it or they may take or refrain from taking in reliance thereon.
The Depositary may act in any capacity for the Bank and/or the Securities
Corporation and is authorized to follow any and all instructions from time to
time received from a majority of the members of the Board of Directors of the
Securities Corporation, as constituted from time to time.
Thirteenth: The Agreement shall inure to the benefit of and be binding upon
the personal representatives, successors and assigns of the Stockholders, upon
the members of the Board of Directors of the Securities Corporation, as constituted from time to time, and upon the successors of the Depositary.
Fourteenth. Pursuant to the authority vested in them, a majority of those
now constituting the Board of Directors of the Securities Corporation hereby
determine that June 2, 1930, shall be the date on and after which (and until
otherwise determined as hereinbefore provided) stock and scrip certificates of
the Bank and of the Securities Corporation respectively so arranged, in the
forms, bearing legends and transferable as herein provided, shall be issuable
to each holder of a share or shares of stock of the Bank and of the same number
of shares of the Securities Corporation and" to each holder of a fractional
share of the Bank of the same fractional share of the Securities Corporation
who is now or shall become a party to the Agreement as herein provided.
STOCK EXCHANGE PRACTICES
2347
In witness whereof said Philip G. Bartlett, Seward Prosser, and Bldon Bisbee,
or one or more of them, as agents or agent for the holders of Receipts of the
Depositary, as indicated on the list hereto attached marked "A", have hereunto
subscribed their names, the other stockholders hereinabove mentioned have
signed these presents and set opposite their names the number of shares represented by Receipts of the Depositary by them respectively held, a majority of
those now constituting the Board of Directors of the Securities Corporation have
signed these presents, and the Depositary has caused these presents to be
executed by its duly authorized officers and its corporate seal to be hereunto
affixed, all as of January 15, 1930.
SEWAED PROSSER,
ELDON BISBEE,
As agents for those named in and holding the number of shares set
opposite their respective names on the list hereto attached marked "A."
Names of stockholders signing in person:
A. H. Wiggin, R. L. Clarkson, John McHugh, C. S. McCain, C. J.
Schmidlapp, Reeve Schley, H. G. Freeman, W. P. Holly.
Majority of those now constituting the Board of Directors of Chase Securities
Corporation :
A. H. Wiggin, H. G. Freeman, John McHugh, W- P. Holly, Murray W.
Dodge, Frank Callahan, Wm. L. McKee, D. A. Holmes, C. J.
Schmidlapp, Reeve Schley, R. L. Clarkson, Robert C. Ream, C. S.
Sargent, F. P. Small.
^CORPORATE SEAL.]
BANKERS TRUST COMPANY, Depositary.
COCHRAN, President
By HENRY J.
Attest:
E. E. BEACH, Assistant Secretary.
EXHIBIT A
No
[Form of stock certificate of the Bank]
Shares
THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK
This is to certify that
is the owner of
Shares of the par value of Twenty Dollars each of the Capital
Stock of The Chase National Bank of the City of New York, transferable only
on the books of the Bank by the holder hereof in person or by duly authorized
Attorney, upon the surrender of this Certificate properly indorsed.
Witness the facsimile seal of the Bank and the signatures of its duly
authorized officers.
Dated
EXHIBIT B
[Form of stock certificate of the Securities Corporation]
No
Shares
CHASE SECURITIES CORPORATION
Incorporated under the Laws of the State of New York
This is to certify that
is the owner of
shares of the fully-paid and non-assessable stock without par
value of Chase Securities Corporation, transferable only on the books of the
corporation by the holder hereof in person or by duly authorized attorney,
upon the surrender of this certificate properly endorsed.
The certificate of incorporation of the corporation, as amended, provides
that no share or shares of stock of the corporation issued to any stockholder
of The Chase National Bank of the City of New York (hereinafter called the
2348
STOCK EXCHANGE PRACTICES
Bank) as such shall, nor shall any interest therein, be sold, pledged, or otherwise disposed of or transferred, either voluntarily, by operation of law or
otherwise, except in each instance and from time to time together with a
transfer to the same person or persons of a like interest in an equal number
of shares of stock of the Bank and that the sale, pledge or other disposition
or transfer of any shares of stock of the Bank or any interest therein, either
voluntarily, by operation of law or otherwise, by or in behalf of any such
stockholder of the Bank or anyone claiming from or through such stockholder,
either directly or by mesne transfers, shall, if and to the extent that effect
may then be given by law to this provision, operate ipso facto as a transfer
to the same person or persons of a like interest in an equal number of shares
of the stock of the corporation. Reference is hereby made to said certificate
of incorporation for the terms and conditions under which any shares of
stock, now or hereafter authorized, shall be issued by the corporation.
This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the corporation and the facsimile signatures
of its duly authorized officers.
Dated
Countersigned:
Transfer Agent.
Registered:
by
.
Registrar.
EXHIBIT C
[Form of scrip certificate of the Bank]
No.
—
For
of a share
THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK—SCRIP CERTIFICATE I N
RESPECT OF CAPITAL STOCK
This is to certify that
is entitled to
of the right to receive one share of the par value of twenty dollars of
the capital stock of The Chase National Bank of the City of New York, a
national banking association, subject to the conditions hereinafter set forth.
Upon surrender to said bank of this certificate, together with other similar
scrip certificates in respect of its capital stock representing in the aggregate
the right to receive one or more full shares of said capital stock, the holder or
his duly authorized attorney will be entitled to receive in exchange therefor a
certificate for the number thereby called for of full shares of said capital stock
as at the time constituted and a new scrip certificate representing the fraction
of a right, if any, not covered by the certificate for stock so issued, Provided,
however, that the right to exchange this certificate with other scrip certificates
in respect of such capital stock for one or more full shares of said capital stock
shall not be exercised while the books for the transfer of said capital stock
shall be closed. This certificate shall not carry any right to vote or consent in
respect of any matter whatsoever or any right to any notice of any meeting of
the shareholders of said Bank, nor any right to subscribe for any additional
shares of said Bank at any time or from time to time authorized to be offered
to shareholders of said Bank. This certificate shall not carry any right to any
dividends declared or paid by said Bank, Provided, however, that the registered owner hereof on the record date or dates for any such dividends shall,
after this certificate shall have been surrendered with other similar certificates
and one or more full shares of the Bank shall have been issued therefor as
hereinbefore provided, be entitled to receive the same fraction of the dividends
theretofore paid on such date or dates upon one of such full shares as the
fraction represented hereby.
This certificate is transferable on the books of said Bank by the holder hereof
in person or by duly authorized attorney, upon surrender of this certificate
properly endorsed.
Witness the facsimile seal of the Bank and the signatures of its duly authorized officers.
Dated
STOCK EXCHANGE PBACTICES
2349
EXHIBIT D
[Form of scrip certificate of the Securities Corporation]
No.
For
of a share
CHASE SECURITIES CORPORATION—SCRIP CERTIFICATE IN RESPECT OF STOCK
This is to certify that
is entitled to
of the right to receive one share without par value of the stock
of Chase Securities Corporation, a New York corporation, subject to the conditions hereinafter set forth.
Upon surrender to said Corporation of this certificate, together with one or
more similar scrip certificates in respect of its stock representing in the aggregate the right to receive one or more full shares of said stock, the holder or
his duly authorized attorney will be entitled to receive in exchange therefor a
certificate for the number thereby called for of full shares of said stock as at
the time constituted and a new scrip certificate representing the fraction of a
right, if any, not covered by the certificate for stock so issued; provided, however, that the right to exchange this certificate with other scrip certificates in
respect of such stock for one or more full shares of said stock shall not be
exercised while the books for the transfer of said stock shall be closed. This
certificate shall not carry any right to vote or consent in respect of any matter
whatsoever or any right to any notice of any meeting of the shareholders of
said Corporation, nor any right to subscribe for any additional shares of said
Corporation at any time or from time to time authorized to be offered to stockholders of said Corporation. This certificate shall not carry any right to any
dividends declared or paid by said Corporation, provided, however, that the
registered owner hereof on the record date or dates for any such dividends
shall, after this certificate shall have been surrendered with other similar certificates and one or more full shares of said Corporation shall have been issued
therefor as hereinbefore provided, be entitled to receive the same fraction of
the dividends theretofore paid on such date or dates upon one of such full shares
as the fraction represented hereby.
This certificate is transferable on the books of said Corporation by the holder
hereof in person or by duly authorized attorney, upon surrender of this certificate properly endorsed.
This certificate is not valid until countersigned by the Transfer Agent.
Witness the facsimile seal of said Corporation and the facsimile signatures of
its duly authorized officers.
Dated
!
Countersigned:
Transfer Agent.
by
.
EXHIBIT E
[Form of assignment of stock certificates and shares represented thereby of the
Bank and Securities Corporation]
For Value Received
hereby sell, assign and transfer unto
shares of the capital stock of The Chase National Bank of
the City of New York and the same number of shares of the capital stock of
Chase Securities Corporation, represented respectively by the within stock
certificate of said Bank and the foregoing stock certificate of said Securities
Corporation, and do hereby irrevocably constitute and appoint
attorney, to transfer said shares on the respective books of said corporations,
with full power of substitution in the premises.
Dated
In the presence of:
2350
STOCK EXCHANGE PEACTICES
EXHIBIT F
[Form of assignment of scrip certificates and all rights represented thereby of
the Bank and the Securities Corporation]
For Value Received
hereby sell, assign and transfer unto
the within scrip certificate of The Chase National
Bank of the City of New York and the foregoing scrip certificate of Chase Securities Corporation and all rights represented thereby, and do hereby irrevocably constitute and appoint
attorney, to transfer
said scrip certificates on the respective books of said corporations, with full
power of substitution in the premises.
Dated
In the presence of:
EXHIBIT G
[Form of legend for stock certificate and scrip certificate of the Bank]
The agreement of March 21, 1917, as amended, between all the shareholders
of The Chase National Bank of the City of New York and Chase Securities
Corporation, to which the holder of this certificate, by the acceptance thereof
and otherwise, has become a party, provides that no shareholder of either corporation will sell, pledge or otherwise dispose of or transfer, whether voluntarily, by operation of law or otherwise, any share or interest therein in either
corporation without at the same time transferring to or vesting in the same
party an equal number of shares, or the same interest therein, in the other;
also that such shareholder will not transfer any of such shares, or any interest
therein, otherwise than as permitted by the Certificate of Incorporation of
Chase Securities Corporation and as stated in the stock certificate of that
corporation on the reverse side hereof.
EXHIBIT H
[Form of legend for stock certificate and scrip certificate of the Securities
Corporation]
The Agreement of March 21, 1917, as amended, between all the stockholders
of The Chase National Bank of the City of New York and Chase Securities
Corporation, to which the holder of this certificate, by the acceptance thereof
and otherwise, has become a party, provides that no shareholder of either
corporation will sell, pledge or otherwise dispose of or transfer, whether
voluntarily, by operation of law or otherwise, any share or interest therein in
either corporation without at the same time transferring to or vesting in the
same party an equal number of shares, or the same interest therein, in the
other.
EXHIBIT I
[Form of receipt]
No.
Shares of Bank and of Securities Corporation
Receipt for Stock of The Chase National Bank of the City of New York and
for stock of Chase Securities Corporation deposited under the terms of a
certain Agreement between Stockholders of the Bank. A. Barton Hepburn,
Francis L. Hine, Henry W. Cannon, and Albert H. Wiggin, as a Committee of
such Stockholders, and the undersigned, bearing date March 21st, 1917, as
amended (hereinafter called the Deposit Agreement), a copy of which has been
lodged with the undersigned.
Bankers Trust Company as Depositary under the Deposit Agreement, has
received from (hereinafter called the Depositor) a certificate or certificates for
shares of the capital stock of The Chase National Bank of the City
STOCK EXCHANGE PBACTICES
2351
of New York, of the par value of Twenty Dollars ($20) each, and a certificate
or certificates for an equal number of shares of the capital stock of Chase
Securities Corporation, without nominal or par value (hereinafter called the
Deposited Shares) which certificates are held by the undersigned pursuant to
the terms of the Deposit Agreement.
By the acceptance of this receipt, the holder hereof assents to and is bound
by all of the provisions hereof and of said Deposit Agreement, and is entitled
to all of the benefits and advantages of a depositor thereunder of shares of
the Bank and of shares of the Securities Corporation.
Neither said shares of the Bank nor said shares of the Securities Corporation
are transferable separately, but this receipt, and all rights and interests represented hereby, are transferable by the registered holder, either in person or
by attorney duly authorized, on the books of the Depositary kept for that
purpose, upon surrender of this receipt duly assigned, which assignment shall
transfer all right, title and interest of the Depositor in the Deposited Shares.
By delivering this receipt to the Depositary for transfer, the holder hereof irrevocably constitutes and appoints the Depositary attorney to surrender the
certificates for the Deposited Shares and to receive from the Bank and from the
Securities Corporation respectively in exchange therefor certificates of stock
for the Deposited Shares registered in the name of the transferee hereof as
entered upon the records of the Depositary, and hereby irrevocably authorizes
the Depositary to hold the same subject to the provisions of the Deposit
Agreement.
In witness whereof, Bankers Trust Company, as Depositary, has caused this
receipt to be signed by a duly authorized officer.
Dated
BANKERS TRUST COMPANY,
By
Depositary.
,
Assistant Secretary.
EXHIBIT J
[Form of scrip receipt]
No.
For
of a Share of Bank and of Securities Corporation.
SCRIP RECEIPT
For Scrip Certificates in respect of Capital Stock of The Chase National Bank
of the City of New York (hereinafter called the Bank) and of stock of Chase
Securities Corporation (hereinafter called the Securities Corporation) deposited
under the terms of a certain agreement between Stockholders of the Bank, A.
Barton Hepburn, Francis L. Hine, Henry W. Cannon, and Albert H. Wiggin,
as a committee of such Stockholders, and the undersigned, bearing date March
21st, 1917, as amended (hereinafter called the Deposit Agreement), a copy of
which has been lodged with the undersigned.
Bankers Trust Company as Depositary under the Deposit Agreement, has received from
(hereinafter called the Depositor) a scrip
certificate representing
of a right to receive one share of
the capital stock of The Chase National Bank of the* City of New York, of the
par value of twenty dollars ($20) each, and a scrip certificate representing an
equal fractional right to receive one share of the stock of Chase Securities
Corporation, without nominal or par value (hereinafter called the Deposited
Fractional Rights), which certificates are held by the undersigned pursuant to
the terms of the Deposit Agreement. By the acceptance of this Scrip Receipt,
the holder hereof assents to and is bound by all of the provisions hereof and
of the Deposit Agreement, and is entitled to all of the benefits and advantages
of a depositor thereunder of scrip certificates of the Bank and of scrip
certificates of the Securities Corporation.
Neither said scrip certificates of the Bank, nor said scrip certificates of the
Securities Corporation are transferable separately, but this Scrip Receipt, and
all rights and interests represented hereby, are transferable by the registered
holder, either in person or by attorney duly authorized, on the books of the
Depositary kept for that purpose upon surrender of this Scrip Receipt duly as-
2352
STOCK EXCHANGE PKACTICES
signed, which assignment shall transfer all right, title and interest of the
Depositor in the Deposited Fractional Rights.
By delivering this Scrip Receipt to the Depositary for transfer, the holder
hereof irrevocably constitutes and appoints the Depositary attorney to surrender the scrip certificates for the Deposited Fractional Rights and to receive
from the Bank and from the Securities Corporation respectively in exchange
therefor scrip certificates for the Deposited Fractional Rights registered in the
name of the transferee hereof as entered upon the records of the Depositary,
and hereby irrevocably authorizes the Depositary to hold the same subject
to the provisions of the Deposit Agreement.
Upon surrender to the Depositary of this Scrip Receipt together with other
similar Scrip Receipts representing Deposited Fractional Rights which in the
aggregate entitle the holder to the sight to receive one or more full shares of
the capital stock of the Bank and of the Securities Corporation, the holder
hereof irrevocably constitutes and appoints the Depositary attorney to surrender the scrip certificates for the Deposited Fractional Rights represented by
all such Scrip Receipts so surrendered and to receive from the Bank and from
the Securities Corporation respectively in exchange therefor certificates for the
number thereby called for of full shares of said capital stock of the Bank
and of said stock of the Securities Corporation, each as at the time constituted,
and new scrip certificates representing the fractional rights, if any, not
covered by such certificates of stock, all registered in the name of the holder
hereof, and hereby irrevocably authorizes the Depositary to hold all the same
subject to the provisions of the Deposit Agreement.
In witness whereof, Bankers Trust Company, as Depositary, has caused this
Scrip Receipt to be signed by a duly authorized officer.
Dated
BANKERS TRUST COMPANY,
By
Depositary.
,
Assistant Secretary.
EXHIBIT K
[Form of assignment of receipt]
For Value Received, the undersigned hereby sells, assigns and transfers
unto
all of the shares of stock of The Chase National
Bank of the City of New York and all of the shares of stock of Chase Securities Corporation, represented by the within receipt and hereby irrevocably constitutes and appoints Bankers Trust Company attorney to transfer in the name
of the undersigned the certificates for said shares issued respectively by said
Bank and by said Securities Corporation, with full power of substitution in the
premises. For value received, the undersigned also hereby sells, assigns, and
transfers unto the transferee hereinabove named the within receipt and all
rights and interests represented thereby; and hereby irrevocably constitutes
and appoints
attorney to transfer said receipt on the
books of the Depositary therein named, with full power of substitution in the
premises.
Dated
In the presence of:
EXHIBIT L
[Form of assignment of scrip receipt]
For Value Received, the undersigned hereby sells, assigns and transfers unto
the scrip certificate representing the within mentioned
fractional right to receive one share of the capital stock of The Chase National
Bank of the City of New York and the scrip certificate representing an equal
fractional right to receive one share of the stock of Chase Securities Corporation, and hereby irrevocably constitutes and appoints Bankers Trust Company
attorney to transfer in the name of the undersigned the scrip certificates repre-
STOCK EXCHANGE PBACTICES
2353
senting said fractional rights issued respectively by said Bank and by said
Securities Corporation, with full power of substitution in the premises. The
undersigned also hereby sells, assigns, and transfers unto the transferee hereinabove named the within Scrip Receipt, and all rights and interests represented
thereby; and hereby irrevocably constitutes and appoints
, attorney to transfer said Scrip Receipt on the books
of the Depositary therein named, with full power of substitution in the premises.
Dated
In the presence of—COMMITTEE EXHIBIT 4, OCTOBEB 17,
1933
Inv—Adams Express Co.; all dates; mem.; bd. mgrs.; bd. trs.; exec. comm.
Inv—American Intl. Corp.; all dates; dir. & mem. exec. comm.
Ind—American Locomotive Co.; all dates; dir. & mem. exec. comm.
Ind—American Sugar Refining Co.; all dates; dir. & mem. exec. comm.
Ins—American Surety Co. of N.Y.; all dates; chm. exec. & fin. comms. &
trustee.
Ind—American Woolen Co.; December 31, 1931 dir. & mem. exec. comm.; December 31, 1932 & April 30, 1933, dir. & mem. exec. comm. & chm. fin. comm.
Ind—Armour & Co.; all dates; voting trustee, dir. & mem. fin. comm.
American Express Co.; December 31, 1931 & December 31, 1982.
Bkg—American Express Go. Inc.; chm. of board & mem. exec, comm., April
30, 1933; dir. & mem. exec. comm. (both cos.).
Inv—American Securities Investing Corp.; December 31, 1932; dir. & voting
trustee.
Bkg—Bankers Safe Deposit Co.; all dates; dir.
Puo—Brooklyn Bus Corporation; all dates; dir.
Puo—Brooklyn & Queens Transit Corp.; all dates; dir. & mem. exec. comm.
Puo—Brooklyn Manhattan Transit Corp.; all dates; dir. & mem. exec,
comm. & chm. fin. comm.
Ind—Canadian International Paper Co.; all dates; dir.
Bkg—Chase Bank (The) ; December 31, 1931 & December 31, 1932 chm. bd.
of dirs.; April 30, 1933 dir.
Hold—Chase Corpbration (The) ; December 31, 1931 & December 31, 1932;
chm. bd. of dirs.
Hold—Chase Harris Forbes Cos.; December 31, 1931 & December 31, 1932;
dir. & mem. exec. comm.
Sec—Chase Harris Forbes Corporation; December 31, 1931 & December 31,
1932; dir. & mem. exec. comm.
Bkg—Chase National Bank; December 31, 1931 & December 31, 1932; chm.
governing bd., dir. & mem. exec. comm.
Bkg—Chase Safe Deposit Co.; December 31, 1931 & December 31, 1932;
pres. & dir.
Bkg—Discount Corporation of N.Y.; all dates; dir.
Puo—Coney Island & Brooklyn Terminal Co.; all dates; dir.
Bkg—Federal Reserve Bank of N.Y.; December 31, 1932; dir. class A &
mem. exec. comm.
Ins—Fidelity Phenix Fire Insurance Co.; all dates; dir & mem. exec. comm.
Inv—Finance Co. of Gt. Britain & Amer. Ltd.; all dates; chm. Amer. comm.
&dir.
Ind—Fox Film Corporation; December 31, 1931 & December 31, 1932; voting
trustee.
Bkg—Greenwich Trust Co. (Conn.); all dates; dir. & mem. exec. comm.
Bkg—Greenwich Trust & Title Co.; all dates; dir.
Puo—Hudson & Manhattan R.R. Co.; all dates; dir.
Min—Inspiration Consolidated Copper Co.; December 31, 1931; dir.
Puo—Interborough Rapid Transit Co.; all dates; dir. & mem. exec. comm.
Ind—International Agricultural Corp.; all dates; dir. & mem. exec. comm.
Ind—International Motor Co.; all dates; dir. & mem. exec. comm.
Ind—International Paper Co.; dir. & mem. exec. & fin. comms.; all dates.
Pu—International Paper & Power Co.; all dates; dir. & mem. exec. comm.
Bkg—Lawyers Title & Guaranty Co.; all dates; dir. & mem. exec. comm.
2354
STOCK EXCHANGE PRACTICES
Bkg—Lawyers Trust Co.; all dates; dir. & mem. exec. comm.
Ind—Mack Trucks, Inc.; all dates; dir. & mem. exec. comm.
Bkg—Mack Acceptance Corp.; all dates; dir.
Ins—Metropolitan Life Insurance Co.; all dates; dir. & mem. fin. comm.
Ind—Montreal Locomotive Works; all dates; dir. & mem. exec. comm.
Inv—Newmont Mining Corp.; all dates; dir. & mem. exec. comm.
Re—New York Clearing House Bldg. Co.; all dates; dir. & v.p.
Rr—New York, N.H. & Hartford R.R. Co.; all dates; dir. & mem. exec. comm.
and comm. on fin. & divd. policy.
Puo—New York Rapid Transit Corp.; all dates; dir. & mem. exec. comm.
Ins—Niagara Fire Insurance Co.; all dates; dir. & mem. exec. comm.
Ind—North Amer. Provision Co.; all dates; dir.
Ind—Otis Elevator Co.; all dates; dir. & mem. exec. comm.
Inv—Railway & Express Co.; all dates; dir.
Inv—Southern Express Co.; all dates; mem. bd. of dirs.
Puh—Stone & Webster, Inc.; all dates; dir. & mem. exec. comm.
Inv—Tri Continental Corp.; all dates; dir.
Ind—Underwood Elliott Fisher Co.; all dates; dir. & mem. fin. comm.
Inv—Utility Equities Corp.; all dates; dir.
Ind—Western Union Telegraph Co.; all dates; dir. & chm. exec. comm.
Ind—Westinghouse Electric & Manuf. Co.; all dates; dir. & mem. fin. &
exec. comm.
Ind—Westinghouse Electic International Co.; all dates; dir.
Williamsburgh Power Plant Corp.; all dates; dir.
COMMITTED EXHIBIT 6, OOTOBEB 17,
1933
The Chase National Bank of the City of New York—capital, surplus, undivided profits, reserves for losses, etc., and dividends paid Jan. 1,
1929, to July SI, 19SS
Chase National Bank stock
exchanged for stock of:
Capital, including amounts allocated
to surplus and undivided profits
Date
Shares
Balances, Dec. 31,1928—
Garfield National Bank-
Cash
Stated value
Stock
dividend
Year's net
profit
From
surplus
funds
From profits
Total
Cash
dividends
paid
$137,490,814.74
600,000
Jan. 26,1929.
Reserves provided for losses
Total, not
including
stock dividend
10,000
$2,179,397.29
2,179,397.29
s
610,000
On July 1, 1929, the Chase
National Bank stock was
split 5 for 1, increasing the
shares outstanding to
o
3,050,000
July 1,1929. 950,000
12H% stock dividend paid—. Aug. 23,1929. 500,000
National Park Bank
Aug. 24,1929. 750,000
Equitable Trust Co.
Interstate Trust Co..
Total,
July
Total,
July
Q
$57,000,000.00
W
57,000,000.00
$10,000,000
41,392,262.57
41,392,262.57
Dec.31,1929.
May 31,1930.
$23,591,713.21
34,980.8 4,479,981.72
4,479,981.72
2,000,000
115,904,375.08 115,904,375.08
...do
115,019.2
8,328,870.73
8,328,870.73
...do..
Dec. 31,1930..
Dec. 31,1931..
Dec. 31,1932..
Dec. 31,1933.
28,518,198.16
38,764,991.13
13 $24,000,000
30,015,480.90
" 24,000,000
15,530,001.04 50,000,000
$8,134,564.11 $8,134,564.11 $12,145,000
20,242,679.50
53,715,892.59
21,307,500.00
10,833,058.02
20,242,679.50
77,715,892.59
45,307,500.00
60,833,058.02
20,587,500
27,750,000
16,650,000
6,290,000
Jan. 1, 1929 to
10,000,000136,420,384.44 98,000,000114,233,694.22 212,233,694.22 83,422,500
61,479,981.72167,804,905.67
31, 1933
Dec. 31, 1928 to |
l
366,775,702.13 10,000,000136,420,384.44 98,000,000114,233,694.22 212,233,694.22 83,422,500
31,1933
|
7,400,000
136,420,384.44
Add: Net earnings to July 31,1933
Total capital and net earnings
503,196,086.57
83,422,500.00
Of which there was paid as cash dividends.
212,233,694.22
And reserves set u p were
1
i
I
295,656,194.22
Leaving capital stock, surplus, and undivided profits.
July 31,1933, as follows:
Capital stock
148,000,000.00
50,000,000.00
Surplus
Undivided profits
9,539,892.35
207,539,892.35
IS
8!
COMMITTEE EXHIBIT N O , 7, OCTOBER 17,
1933
The Chase National Bank of the City of New York
Name
Title i
Salary
A. H. Wiggin-—
W. W. Aldrich
C. S. McCain
John McHugh
R. L. Clarkson
J. C. Anderson
A. C. Andrews
W. T. Annett
J. N. Babcock
R. I. Barr
C. F. Batchelder
A. E. Bates
C. H. Beaty
F. W. Black
Jam AS "RITIPA
H. D . Campbell
S. S. Campbell
Ralph Cerero F. S. Child
W. K. Cleverley
H. E . Cooper
W. A. B. Ditto
G. V. Drew
P . S. Duryee
P . J. Ebbott
W. J. Eck
M . H . Ewer
F . 0 . Foxcroft
Jt TT- Gannon
F H Gates
J. J. Graeber Jr
G. D . Graves
W. P . Holly
M . H . Howell
Chairman governing board
do
Chairman board of directors _ _
Chairman executive committee
Vice chairman board of directors
Vice president- _
do-__
_
...do
do
do
. . . do
do
do
do
do
do
do
do
do
- -_ - _
do
. _ do
do
_ do
do._
do
. . . do
do
. . _ do
do
do
do
do
do
do
do
.
do
do
1930
1929
1928
Additional
compensation
Salary
Additional
compensation
$100,000
$175,000
$100,000
100,000
75,000
10,000
28,205
100,000
75,000
io,666
40,000
5,000
40,000
10,000
30,000
7,500
30,000
7,500
$175,000
5,000
6,269
10,939
21,000
30,000
25,000
33,000
24,000
1,050
21,000
9,166
5,000
1,000
10,000
2,400
1
1,050
17,628
5,035
35,000
17,000
500
5,000
1,700
25,000
36,000
25,000
15,000
5,000
i,666
Salary
Additional 1931 salary 1932 salary
compensation
$250,000
150,000
150,000
100,000
8,333
$220,300
135,556
135,556
92,687
$52,970
87,500
64,244
45,125
45,000
10,000
22,000
22,000
41,812
2,083
20,375
20,537
20,537
10,025
10,025
20,537
16,652
1,737
10,025
8,135
27,937
27,937
69,562
7,666
24,237
14,062
6,260
22,500
18,687
14,062
14,062
37,187
11,333
46,437
13,625
13,625
33,875
1,000
22,000
17,800
9,583
14,583
30,000
30,000
75,000
23,000
26,000
15,000
25,000
45,000
20,000
15,000
15,000
40,000
17,000
50,000
3,666
40,000
37,187
18,125
2,000
20,000
25,000
45,000
28,000
18,687
23,312
41,812
26,087
9,125
11,375
20,375
12,725
$218,750
87,500
129,166
100,000
77,916
$75,000
45,000
9,750
12,833
12,833
15,000
1,000
1,000
12,833
17,800
13,417
31,000
17,500
17,500
43,750
21,000
26,000
14,583
26,250
11,667
8,750
8,750
23,333
9,917
50,000
10,554
40,000
9,000
11,667
25,000
40,000
27,000
Salary to
June 30,
1933
40,000
10,000
25,000
500
2,500
1,050
1,000
10,000
2,500
11,825
6,875
9,125
6,875
6,875
18,125
22,625
8
Q
W
§
i
B. R. Hunter
._. . . . . do
do
- do
do
do
.
do . . .
do
do
$25,000
do
do
30,000
do
do
...do
do
do
do
do
do
do
- - .
50,000
do
do
.
. —
do
C J Murrav
do
E. V. Nelson .
do
do
60,000
Henry Ollesheimer
- do
F. B. Parkin
do
H. G Place
H H Pond
25,000
do
H. F. Poor
do
- do
R W Poor
A S. Post
do
0. F. Puckhafer do
do
19,000
W. E. Purdy
do
T. A. Pyterman
do
E. J. Quintal
- do
Lyman Bhoades
do
H". A. Rich
do
0 E. Richardson
J. D. Rising
. - do
25,000
do
F. 0. Roe
25,000
- do
J. 0. Rovensky
30,000
do
0. A. Sackett
25,000
do
G. H. Saylor
do
do
H", TJ, SchftiiftrrnarTiTii
do
Reeve Schley
60,000
J. F . Schmid
do
70,000
C. J. Schmidlapp
do
W W Schneekenburffer
do
Lynde Selden
do
45,000
Sherrill Smith
do
1 Titles do not in all cases apply for the full period shown in the schedule.
A. E» Impey~
_
B. 0. Irish
W. S. Jelliffe
L. H. Johnston - .
J. S. Kane.
B. J. Kiesling
G. A. Kitmey.^
H. N. Kirkland
W. F. H. Koelsch—.
W. E. Lake
E. A. Lee
J. T. Lee
E. L. Love -- 0 G Lucas
C D . Makepeace
B F Martin
A. W. McCain
A. A. Miller
S H Miller
W. H. Moorhead
$5,833
$2,000
7,051
25,000
8,000
i6,6<xr
$2,500
25,000
2,500
2,000
33,000
16,000
50,000
1,600
1,600
$15,167
20,000
20,000
30,000
17,000
15,000
9,375
25,000
17,500
33,000
17,000
50,000
$2,000
1,000
6,000
1,000
1,500
1,500
1,000
1,700
50,000
20,000
10,000
5,000
60,000
5,000
1,250
25,000
24,000
25,000
$11,825
10,475
6,875
9,125
14,975
8,225
13,137
23,312
30,000
6,425
11,375
15,000
15,912
46,437
27,937
7,775
22,625
13,625
18,750
11,750
23,312
23,312
5,750
11,375
11,375
25,625
41,812
16,837
12,500
20,375
8,225
55,687
20,537
27,937
27,125
10,025
13,625
15,000
15,000
7,500
17,000
20,000
19,000
23,000
27,500
60,000
15,000
18,750
25,000
25,000
40,000
30,000
33,000
16,500
38,000
65,000
15,912
18,687
17,762
21,462
25,625
55,687
14,062
7,775
9,125
10,475
12,500
27,125
6,875
37,500
21,250
37,187
27,937
30,712
16,500
35,337
60,312
23,312
74,187
10,000
18,125
13,625
14,975
8,250
17,225
29,375
11,375
36,125
23,312
46,437
11,375
22,625
4,166
45,000
14,583
26,250
8,814
$24,237
21,462
14,102
18,687
30,712
16,837
$26,000
23,000
15,000
20,000
33,000
18,000
17,000
14,000
25,000
30,000
33,000
17,000
50,000
25,000
14,583
1,000
25,000
25,000
7,000
27,500
45,000
2,500
7,875
60,000
22,000
15,000
1,900
19,000
6,250
1,900
2,500
1,250
5,000
3,000
5,000
8,814
25,000
30,000
30,000
27,000
1,250
10,000
3,000
10,000
25,000
26,250
2,500
7,875
60,000
12,833
17,500
6,250
24,000
25,000
9,916
11,666
19,000
20,000
14,583
35,000
8,750
17,500
25,000
25,000
37,916
30,000
30,000
10,000
13,397
60,000
15,000
38,000
60,000
1,000
10,000
10,000
70,000
15,000
10,000
2,000
15,000
77,916
11,667
20,000
45,000
10,000
6,250
45,000
1,900
2,500
1,250
7,000
1,000
5,000
3,000
10,000
80,000
6,666
25,000
50,000
Q
W
•
a
&
The Chase National Bank of the City of New York—Continued
1928
Name
Title
Salary
Siegfried Stern
E. P. Townsend
J. 0 . Traphagen
H. W. Vanderpoel
H. T', VftT^Aeclr
H. M Walker
J. M . Wallace
Q. E. Warren
E. E. Watts
.
Vice president
do
do
do
do
do
do
do
do
1929
Additional
compensation
Salary
1930
Additional
compensation
$7,756
$45,000
$10,000
55,000
23,000
$15,000
Salary
$23,333
14,583
29,167
22,000
11,250
23,333
17,500
60,000
23,000
Additional 1931 salary 1932 salary
compensation
$2,000
10,000
$40,000
25,000
4,166
22,000
18,000
40,000
35,000
60,000
23,000
Salary to
June 30,
1933
$37,187
23,312
$18,125
11,375
16,750
16,837
37,187
22,484
55,687
21,462
7,500
8,225
18,125
10,969
27,125
10,475
STOCK EXCHANGE PEACTICE8
WEDNESDAY, OCTOBER 18, 1933
UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON
BANKING AND CURRENCY,
Washington, D.C.
The subcommittee met, pursuant to adjournment on yesterday,
at 10 a.m., in the caucus room of the Senate Office Building, Senator Duncan U. Fletcher presiding.
Present: Senators Fletcher (chairman), Adams (substitute for
Barkley and proxy for Costigan), TWnsend, Couzens, and Goldsborough (substitute for Norbeck).
Present also: Ferdinand Pecora, counsel to the committee; Julius
Silver and David Saperstein, associate counsel to the committee;
and Frank J. Meehan, chief statistician to the committee; Martin
Conboy, counsel for Albert H. Wiggin; Eldon Bisbee, Henry Koot
Stern, Alfred E. Mudge, Joseph B. Lynch, Julian L. Hagen, and
C. Horace Tuttle of Rushmore, Bisbee & Stern, and also Albert of
Milbank, William Dean Embree and A. Donald MacKinndn, of
Milbank, Tweed, Hope & Webb, counsel for The Chase National
Bank and The Chase Corporation.
The CHAIRMAN. The subcommittee will come to order. You may
proceed, Mr. Pecora.
TESTIMONY OF ALBERT H. WIGGIN—Resumed
Mr. PECORA. Mr. Wiggin, in the course of your examination on
yesterday you gave some testimony concerning salaries received by
you from other corporations which you served as an officer or director during the part of the time that you were the executive head
of the Chase National Bank. You testified, among other things,
in that respect that you received a salary at the rate of $20,000 a
year from the Brooklyn Manhattan Transit Co., and a salary of
$40,000 a year, or at that rate, from the Armour uo. In the course
of that testimony I recall that Senator Townsend asked you a question or two designed to bring out whether or not other directors
serving those two corporations received similar salaries, and your
answer was a bit ambiguous. Will you answer the question now
and tell us definitely whether or not the salary that you received
at the rate of $20,000 a year from the B.M.T. was also paid during
that same period to other directors.
Mr. WIGGIN. NO, sir. I received that salary as the chairman of
the finance committee, and there was no other chairman of the
finance committee.
2359
2360
STOCK EXCHANGE PRACTICES
Mr. PECORA. And is that true also of the salary that you received at the rate of $40,000 a year from the Armour Co.?
Mr. WIGGIN. The Armour Co. salary of $40,000 ceased some 3
years ago, I think, but I am not sure of the date. The same salary
was paid to the other members of the finance committee.
Mr. PECORA. When you replied in answer to the question or questions propounded to you that the salary you received as director
was similar to the salary received by other directors in the companies which paid those salaries, did you refer simply to those corporations that paid you as director a salary of $3,000 a year or less ?
Mr. WIGGIN. I don't think there were
Mr. PECORA (interposing). There were several as I recall in that
category.
Mr. WIGGIN. I did not have any salary as director. I think it
was always, as I recall, in connection with a title, such as chairmanship of a committee or member of a special committee.
Senator TOWNSEND. And other directors were not paid in that
amount?
Mr. WIGGIN. No, sir. All members of the executive committee
received the same pay.
Senator TOWNSEND. All members of the committee ?
Mr. WIGGIN. If I received a salary as member of an executive
committee, then all other members received that salary, too.
Senator TOWNSEND. All right.
Mr. PECORA. Mr. Wiggin, I have before me what purports to be
a copy of a report made by you as chairman of the governing board
of the Chase National Bank, dated January 13, 1931, and covering the operations of the bank for the year 1930. And on page
6 of that printed report I notice the following observation by you,
under the caption of " Wages ":
It is not true that high wages make prosperity. Instead, prosperity makes
high wages. When wages are kept higher than the market situation justifies,
employment and the buying power of labor fall off. American business has
proved its good will in dealing with labor on this point in the past year, and
in many industries may reasonably ask labor to accept a moderate reduction
in wages, designed to reduce costs and to increase both employment and the
buying power of labor.
Now, let me ask you: If you felt that way, under the economic
circumstances which prevailed at the time when this report was
issued by you should salaries of executive officers of the Chase National Bank have been substantially increased during the year 1930,
as they seem to have been ?
Mr. WIGGIN. The date of this report was when?
Mr. PECORA. January 13; 1931, and purports to be a report of the
operations of the bank for the year 1930.
Mr. WIGGIN. NOW, let me get that question read, if you please.
Mr. PEOORA. The committee reporter will read the question to you
[which was done].
Mr. WIGGIN. YOU are asking me now only for an expression of
opinion, I take it?
Mr. PECORA. Certainly. But I take it you were also expressing
your opinion in this report.
Mr. WIGGIN. In this report of January 1931 ?
Mr. PECORA. Yes, sir; and covering the operations and the business
of the bank for the year 1930.
STOCK EXCHANGE PEACTICES
2361
Mr. WIGGIN. Yes; but the report is in January of 1931. Am I
right about that?
Mr. PECORA. That is the date that is printed on the cover page.
Mr. WIGGIN. And it was to the stockholders, at the meeting held
in January of 1931?
Mr. PECORA. Yes.
Mr. WIGGIN. Well,
of course, that was my conviction at the time I
wrote that.
Mr. PECORA. I do not believe that answers my question, Mr. Wiggin, the question that I propounded to you.
Mr. WIGGIN. Well, what you are asking is, if in 1931 when I
thought that, it is reconcilable with an increase in salary
Mr. PECORA (interposing). For the executive officers
Mr. WIGGIN (continuing). At the previous date
Mr. PECORA (interposing). For the year 1930.
Mr. WIGGIN. Yes. I do not see anything that is not reconcilable
in the opinion of 1931 that is different from the 1930 action.
Mr. PECORA. This opinion is contained in your printed report to
the shareholders of the bank, which bears date January 13, 1931,
and you referred to business or economic conditions that prevailed,
apparently, during the year 1930.
Mr. WIGGIN. But I am making a report at the stockholders' meeting on that date.
Mr. PECORA. Yes.
Mr. WIGGIN. And that was my opinion at that date.
Mr. PECORA. But, I am asking you
The CHAIRMAN (interposing). Was there any reduction
of the
salaries of your officers in 1931 ?
Mr. WIGGIN. I don't know.
Mr. PECORA. Well, isn't it a fact that your own salary for 1931 was
increased to $250,000 as compared with a salary of $218,750 that you
received for the year 1930?
Mr. WIGGIN. That is a little misleading. The $218,750 is, evidently, the total amount paid out during the year 1930, and, you see,
the salary was smaller in the first half of 1930. But the salary was
made at the time of the merger with the Equitable Trust Co., when
it became the large bank, at $250,000, but it only ran for a part of
the year 1930, which gives you that odd figure of $218,750, and it
ran commencing in January of 1931.
Mr. PECORA. NOW, let us get back to the corporation called originally Chase Securities Corporation, and which you identified on
yesterday as the security affiliate of the Chase National Bank. I believe you testified that, that Chase Securities Corporation, which is
now known as the " Chase Corporation," was organized in May of
1917.
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. What office did you hold in the Chase National Bank
in May of 1917?
Mr. WIGGIN. President.
Mr. PECORA. I assume as president and the executive head of the
bank you approved of the proposal to organize this; security
affiliate?
Mr. WIGGIN. Yes,
sir.
2362
STOCK EXCHANGE PRACTICES
Mr. PECORA. What advantages did you think would accrue to the
bank from the organization of this security affiliate ?
Mr. WIGGIN. We thought that a securities company could make
money for the same stockholders; that they could share in underwritings, in wholesaling, that would not come to the bank, or could
not come to the bank. We had had a transaction a little while
before where the bank had an opportunity to enter into an underwriting, but they could not do it legally. So Mr. Hepburn and I
took it and gave the bank the profit. They had no risk, and we
thought in future it would be better for them to take the risks if
they were going to get the profits.
Mr. PECORA. The risk was a risk inherent in the underwriting of
securities?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And under
the National Bank Act a national bank
had no power to engage in that kind of business ?
Mr. WIGGIN. A national bank must invest in evidence of debt. I
suppose a national bank could underwrite bond issues.
Mr. PECORA. Well, a national bank, as you knew at that time, had
no power or right under the law to engage in the securities business
of the kind that the Chase Securities Corporation was designed to
engage in.
Mr. WIGGIN. I think that is right, sir.
Mr. PECORA. SO that the organization of the Chase Securities Corporation was made and conducted, among other reasons, for the
purpose of enabling the use to be made of the funds of the bank
through the medium of underwriting that it could not directly have
made?
Mr. WIGGIN. NO. They did not use the funds of the bank. It
was agreed to, by all the stockholders, to set up this separate
corporation.
Mr. PECORA. NOW, the original capital of the Chase Securities Corporation was 2y2 million dollars?
Mr. WIGGIN. Yes, sir.
Mr. PECORA.. Which represented
a dividend paid to the shareholders of the Chase National Bank, but which, instead of having
been actually paid and distributed to the shareholders, went into the
capital stock, or went to acquire the capital stock, of the Chase
Securities Corporation?
Mr. WIGGIN. I t went to the stockholders, who did that. I t went
for that purpose by agreement of the stockholders. The stockholders made the subscription to the Chase Securities Corporation
stock in that way. The bank did not subscribe to the stock.
Mr. PECORA. I know that. The bank declared the dividend for
the benefit of its shareholders, but the shareholders all agreed to use
that dividend for the purchase of the initial capital stock of the
Securities Corporation, which was 21/2 million dollars?
Mr. WIGGIN. That is right, sir.
Mr. PECORA. NOW, weren't the funds of the bank used in the years
that followed to finance in whole or in part underwriting transactions of the Chase Securities Corporation?
Mr. WIGGIN. The Chase Bank loaned to the Chase Securities Corporation money from time to time; yes, sir.
STOCK EXCHANGE PRACTICES
2363
Mr. PECORA. And in that way the funds of the bank were used
for those securities purposes.
Mr. WIGGIN. Well, it was in fact loans made t<x the Securities Co.
that was engaged in that business, just the same as were made
to hundreds of other people who were in the same business, to
whom we loaned money.
Mr. PECORA. And as was developed here on yesterday, at all times
since the incorporation of the Chase Securities Corporation its stockholders have been identical with the stockholders of the bank?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. NOW, when
this corporation called the " Chase Securities Corporation " was organized, did you have any knowledge
of an opinion that had been rendered by Frederick W. Lehman,
under date of November 6, 1911, Mr. Lehman at that time being
the Solicitor General of the United States ?
Mr. WIGGIN. I do not know whether I did nor not. This is 16
years ago, and I don't remember what opinion I had heard of at
that time.
Mr. PECORA. Was there any discussion among those whose judgment led to the creation of the Chase Securities Corporation in 1917
concerning the legality of such a corporation and the conduct of its
operations as a security affiliate of the Chase National Bank?
Mr. WIGGIN. I cannot remember any. I t was no pioneer, for, as
you know, there had been a number of securities companies organized as affiliates of banks. I cannot remember whether there was
or was not any discussion of that matter.
Mr. PECORA. The question as to whether or not a national bank
could take part in the creation of such a security affiliate, was an
important one, wasn't it ?
Mr. WIGGIN. Well, Mr. Pecora, you know the steps, and I don't
want to bore you with going over the matter again, but the bank
did not subscribe for any of the stock of the Security Corporation.
Mr. PECORA. We know that the bank did not. We also know that
all of the bank's shareholders
Mr. WIGGIN (interposing). The same shareholders.
Mr. PECORA (continuing). Became shareholders of the Chase Securities Corporation, and that that identity of interest has contiiiued
throughout from that time to this.
Mr. WIGGIN. That is right, sir.
Mr. PECORA. The question as to whether or not the Chase Securities
Corporation could function as a securities affiliate of the Chase
National Bank was an important one, wasn't it ?
Mr. WIGGIN. Why, I think so. Yes, I think so.
Mr. PECORA. DO you recall whether there was any discussion concerning the legality of such a corporation and its operation as a
security affiliate of the bank?
Mr. WIGGIN. I can only recall that the whole matter, and all the
details connected with it, were worked out and handled by the
lawyers.
Mr. PECORA. Who were the lawyers that handled that matter and
the details?
Mr. WIGGIN. Kushmore, Bisbee & Stern.
Mr. PECORA. Might I ask Mr. Bisbee if he can throw any light on
that
matter ?
2364
STOCK EXCHANGE PRACTICES
Mr. BISBEE. As to whether the legality of such an arrangement was
considered ?
Mr. PECORA. Yes. And as to whether or not at that time there was
also considered the opinion rendered by the Solicitor General of the
United States to the Attorney General under date of November 6,
1911.
Mr. BISBEE. Of course, the question of"validity was considered.
Mr. CONBOY. Mr. Pecora, would you kindly, for my information,
let me see that opinion ? Have you an extra copy of it ?
Mr. PECORA. I have put that opinion in evidence at hearings held
last February, and I have before me now a printed copy of the
record of that hearing.
Mr. CONBOY. Then it may be there is a copy of it here. I want
simply to keep myself in touch with the examination. The opinion
of the Solicitor General rendered 22 years ago is a long time ago.
The CHAIRMAN. A copy of those hearings are available.
Mr. PECORA. Mr. Sparkman is going to get a copy for you.
Mr. CONBOY. I thank you.
Mr. BISBEE. NOW shall I answer, Mr. Pecora ?
Mr. PECORA. Yes, sir.
Mr. BISBEE. Of course,
we considered the question of the validity
of what we were doing. But I do not recall ever having heard of
Mr. Lehman's opinion, not until many years afterward, and at that
time, if memory serves me, someone brought the opinion to light
from the archives of the Department of Justice, or the Solicitor General's office, and commented upon the fact that it was scarcely known
publicly at the time it was rendered.
Mr. PECORA. The first public record I have been abl'e to find of that
opinion having been brought to light was on the occasion when
Senator Carter Glass brought it to the attention of the Senate some
time during the year 1932,1 believe it was, and made it a part of the
Congressional Record.
Mr. BISBEE. I think perhaps at that time public comment was
made regarding the fact that it had not been generally made known
at the time it was rendered. I do not recall the type of corporation
or the type of affiliation to which Mr. Lehmafri referred, but if he
referred to the arrangement between the stockholders of the bank and
the stockholders of the Chase Securities Corporation and expressed
an opinion adverse to its validity, I disagree with him.
Mr. PECORA. Have you seen the opinion of General Lehman?
Mr. BISBEE. I have not seen it. I remember reading references to
it in the newspaper probably at the timja that you mentioned it was
entered in the committee record.
Mr. PECORA. I suggest you might find it at least entertaining reading, if not instructive.
Mr. BISBEE. I have no doubt. Did he deal with the situation of
the trusts created for the benefit of the stockholders of the bank?
Mr. PECORA. He dealt with the situation specifically presented by
the incorporation and operation at that time of the National City Co.,
which was the investment or security affiliate of the National Cityy
Bank.
Mr. BISBEE. That was my recollection. Our arrangement was
wholly different.
STOCK EXCHANGE PBACTICES
2365
Mr. PECORA. NOW, there have been a number of increases in the
capital structure of the Chase Securities Corporation since 1917, have
there not ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Can you
enumerate what those increases have been,
when they were made, and the amount of each increase?
Mr. WIGGIN. I will have to refer to the memorandum. [After consulting documents.] The first increase was January 21,1920, increase
of 50,000 shares, increasing the capital by $7,250,000 and the surplus
by $250,000.
Mr. PECORA. I did not hear you.
Mr. WIGGIN. I beg your pardon. First increase was January 21,
1920, increasing the number of shares by 50,000, and making an increase in the captal of $7,250,000 and in the surplus of $250,000.
Senator TOWNSEND. What was the par value of the shares at that
time?
Mr. WIGGIN. NO par value.
Mr. PECORA. TO whom were those additional 50,000 shares of capital stock sold in January 1920?
Mr. WIGGIN. TO the existing stockholders.
Mr. PECORA. Of the Chase National Bank, which was the same as
the stockholders of the Chase Securities Corporation?
Mr. WIGGIN. Existing shareholders of the Chase Securities Co.,
pro rata.
Mr. PECORA. Did any of the shareholders decline to subscribe for
any of these additional 50,000 shares?
Mr. WIGGIN. I don't think so. I have nothing to show. I t was
all subscribed for. Undoubtedly some stock changed hands in the
market between the day of authorization of capital and subscription
of the capital, but that is affected by their sale of the rights, so
called, and the right to sell at a premium. Of course, every share
was taken up by somebody. If anybody did not want to subscribe
they sold their rights.
Mr. PECORA. Sold their rights to subscribe for the new stock of
the Chase Securities Corporation?
Mr. WIGGIN. And the bank. They were lumped together.
Mr. PECORA. SO that it was not possible on the occasion of the
issuance of these additional 50,000 shares for anyone to subscribe
for shares of the Chase Securities Corporation alone and wholly
apart from the Chase National Bank shares?
Mr. WIGGIN. NO, sir.
Mr. PECORA. NOW those
50,000 shares were sold for cash aggregating $7,500,000, were they not?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And of that
sum $250,000 was allocated to surplus
and the balance to capital ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. When was
the next increase in the capitalization of
the Chase Securities Corporation?
Mr. WIGGIN. November 22, 1921.
Mr. PECORA. What was the amount of increase at that time ?
Mr. WIGGIN. Fifty thousand shares. Increase in capital account
$250,000, increase in reserve account $1,000,000.
2366
STOCK EXCHANGE PRACTICES
Mr. PECORA. Increase in surplus, did you say?
Mr. WIGGIN. Eeserve account.
Mr. PECORA. Of 1 million dollars?
Mr. WIGGIN. Yes, sir..
The CHAIRMAN. That was in November 1931 ?
Mr. WIGGIN. Twenty one.
Mr. PECORA. November 22, 1921. And those shares
were likewise
subscribed and issued to the existing shareholders of the bank and
the securities corporation, were they not?
Mr. WIGGIN (after conferring with associates). Don't think I am
technical. I just want to make sure of it. Will you read that question again, please ?
The REPORTER (reading):
And those shares were likewise subscribed for and issued to the existing
shareholders of the bank and the securities corporation, were they not?
Mr. WIGGIN. Yes, sir. The reason I hesitate was because that was
the time of the merger of the Metropolitan Bank.
Mr. PECORA. Those shares were so issued and sold for an aggregate
of $1,250,000?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. Why was $1,000,000 of that stock allocated to reserve
and $250,000 to the capital account?
Mr. WIGGIN. I don't know.
Mr. PECORA. What advantages, if any, did you consider would
accrue to the Chase Securities Corporation and to the Chase National
Bank or either of them from this allocation?
Mr. WIGGIN. There was very little—I don't know what advantages
would accrue. That is the answer. But the reserve account and
surplus account are not dissimilar in their purpose.
Mr. PECORA. There must be some difference between them that
prompted an allocation of the major part of the sum paid by the
shareholders for these additional shares to reserve instead of to
capital.
Mr. WIGGIN. I don't remember what the reason was.
Mr. PECORA. Don't you know now as a banker why that was done
or what benefits would accrue to the corporation from that allocation?
Mr. WIGGIN. I don't know what the purpose was, Mr. Pecora.
Senator COUZENS. Would it not be, Mr. Wiggin, to enable you to
charge off without affecting your capital, charge off losses without
affecting your capital ?
Mr. WIGGIN. N O ; surplus would do the same thing.
Senator COUZENS. Surplus is not observed as keenly as the capital is.
Mr. WIGGIN. That may be so. I mean it might have allowed
markdowns, conservatism.
Mr. PECORA. Well now, Mr. Wiggin, this thing did not happen
by itself. It represented a judgment or determination by the directing bodies of the bank and the securities corporation, (fid it not?
Mr. WIGGIN. Undoubtedly.
Mr. PECORA. What was the reason for that?
Mr. WIGGIN. I just don't know, but I will try and find out.
STOCK EXCHANGE PBACTICES
2367
Mr. PECORA. YOU were the executive head, were you not?
Mr. WIGGIN. Yes, sir. But you are back 12 years, mind you.
Mr. PECORA. I am not referring to the event itself; I am referring
to the reason why a certain policy was adopted with regard to the
allocation of this money.
Mr. WIGGIN. I don't remember, that is all. I don't know. I will
try and find out.
Senator COUZENS. From a practical banker's standpoint would you
repeat the process again now ?
Mr. WIGGIN. Why, I don't know. I t would depend on what the
purpose was at that time. No, I don't think there is anything gained
by doing it that way.
Mr. PECORA. I S not one of the advantages accruing from that
kind of policy that which was suggested in a question put to you by
Senator Couzens?
Mr. WIGGIN. I t makes it very possible to make markdowns without affecting the capital. The Senator is entirely correct.
Mr. PECORA. Would you say that that was a determining factor?
Mr. WIGGIN. That I would not say, because I don't know; I don't
remember.
Senator COUZENS. Were you standing any substantial losses at that
time that would suggest to you that it might be desirable to charge
this off to surplus rather than to capital ?
Mr. WIGGIN. I don't think so. There may have been at that time.
Senator COUZENS. That was in one of our minor depressions, was
it not?
Mr. WIGGIN. Yes, November 1921.
Mr. PECORA. When was the next increase in the capital of the
Chase Securities Corporation?
Mr. WIGGIN. April 12, 1926, increase of 200,000 shares, all paid in
to capital account, a million dollars paid in to capital account.
The CHAIRMAN. It appears that in 1921 the company made a profit
of over a million dollars. In nineteen twenty-two, three, and four
they did not seem to have any net profit.
Mr. WIGGIN. YOU are speaking of the capital increases, Senator?
The CHAIRMAN. Yes.
Mr. WIGGIN. Yes; there was no capital
The CHAIRMAN. And there does not
increase between '21 and '26.
seem to have been any net
profit.
Senator TOWNSEND. Oh, yes; there was a net profit.
Mr. PECORA. Oh, yes; there was.
The CHAIRMAN. Yes; I see now. There was a net profit in each
of those years of over a million. According to the statement there
was a net profit of over $11,000,000 in 8 years.
Mr. WIGGIN. I haven't got that in front of me, Senator.
Mr. PECORA. That is, from June 1, 1917, to the end of the year
1925.
Mr. CONBOY. Yes.
Mr. PECORA. I S that right?
Mr. WIGGIN. I haven't that before me.
Mr. PECORA. Look at those figures.
Mr. CONBOY. That is correct.
Mr. WIGGIN. That is correct, yes.
2368
STOCK EXCHANGE PRACTICES
Mr. PECORA. And out of those profits there were cash dividends
paid in that same period of time aggregating $4,150,000, were there
not?
Mr. WIGGIN. Yes,
Mr. CONBOY. The
sir.
cash dividends began—I don't think they began
in 1917. They did not begin in 1917. They began later.
Mr. PECORA. Yes. Cash dividends began in the year 1919 ?
Mr. CONBOY. Yes.
Mr. PECORA. Yes.
All the cash dividends that were paid by the
Chase Securities Corporation from the time of its creation in 1917
down to the end of the year 1925 aggregated $4,150,000?
Mr. CONBOY. Right.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. The first dividend was declared
Mr. CONBOY. Right. At least it was paid in
in 1919?
that year. You say
it was declared. It was probably declared and paid the same year.
Mr. PECORA. Yes; that is what I refer to. When was the next
increase in the capital stock of the Chase Securities Corporation
following this one of April 12, 1926?
Mr. WIGGIN. December 27, 1927, a hundred thousand shares, increase made in capital $7,000,000, surplus $150,000.
Mr. CONBOY. Have you finished your interrogation about the increase of capital in 1926 and the purposes for which it was increased ?
Mr. PECORA. Well, if he wants to state any special purpose for
which that increase was made I would be very glad to have him do so.
Mr. WIGGIN. I think we finished that. I might remark that it was
at the time of the Mechanics & Metals merger.
Mr. PECORA. Let us go back to this increase on April 12, 1926. I
will ask you, Mr. Wiggin, was there any special reason for that increase of capital stock at that time?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. What was
Mr. WIGGIN. I t was in
it?
connection with the merger with the Me-
chanics & Metals Bank.
Mr. PECORA. That is, at that time the Mechanics & Metals National
Bank merged with the Chase National Bank?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And did
the Mechanics & Metals National Bank at
that time also have a securities affiliate known as the " Mechanics
Securities Corporation? "
Mr. WIGGIN. It was organized at the time of the merger.
Mr. PECORA. And has it continued in operation since that?
Mr. WIGGIN. I t has since been liquidated.
Mr. PECORA. When was it liquidated?
Mr. WIGGIN (after conferring with associates). Several years ago.
1 will get the date.
Mr. PECORA. Was the merger of the Chase National Bank and the
Mechanics & Metals National Bank at that time effected on the basis
of an exchange of stock?
Mr. WIGGIN. I t was on a basis of exchange of stock; yes, sir.
Mr. PECORA. DO you remember the ratio of exchange?
Mr. WIGGIN. NO, I don't know what that was.
Mr. PECORA. When was the next increase in the capital stock of the
Chase Securities Corporation effected?
S100K EXCHANGE PEAOTIOES
2369
Mr. WIGGIN. December 27, 1927, a hundred thousand shares, increase in capital $7,000,000, increase in surplus $150,000.
Mr. PECORA. Were there any special circumstances that induced
that increase?
Mr. WIGGIN. That was at the time of the merger with the Mutual
Bank.
Mr. PECORA. Was that merger also effected by an exchange of
shares?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. DO you recall on what ratio the exchange was made?
Mr. WIGGIN. No. We can look all those things up for you.
Mr. PECORA. In connection with that merger was a corporation
called the " Mutual Consolidation Corporation " created ?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. Has that since been liquidated ?
Mr. WIGGIN. Yes, sir. You might prefer to have my authority
answer these questions.
Mr. PECORA. I beg pardon?
Mr. WIGGIN. YOU might prefer to have my authority answer
these questions instead of having me have to delay the answer every
time.
Mr. PECORA. When was the next increase of the capital stock
of the Chase Securities Corporation effected?
Mr. WIGGIN. July 2, 1928.
Mr. PECORA. What was the extent of the increase made then?
Mr. WIGGIN. A hundred thousand shares, all to capital account,
$10,000,000.
Mr. PECORA. Was there any special occasion for that increase,
special reason for it?
Mr. WIGGIN. There was no merger at that time.
Mr. PECORA. What is that?
Mr. WIGGIN. There was no merger at that time. I t was simply
from the increased business.
Mr. PECORA. That is, to provide funds for the expansion of
business ?
Mr. WIGGIN. Right, sir. Perhaps not for expansion, but for business already in hand. To provide for handling more business.
Mr. PECORA. NOW, was there another increase in the capital stock
of the Chase Securities Corporation after that?
Mr. WIGGIN. Yes, sir. February 19, 1929, an increase of 10,000
shares; increase of the capital account of $750,000. That was in connection with the Garfield Bank.
Mr. PECORA. The Garfield National Bank ?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. That also was effected on the basis of an exchange of
shares ?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. And in connection with that merger and this increase
of the capital stock of the Chase Securities Corporation was there
created a corporation called the " Garfield National Corporation " ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Has that
Mr. WIGGIN. NO, sir.
since been liquidated ?
2370
STOCK EXCHANGE PRACTICES
Mr. PECORA. Does it still operate?
Mr. WIGGIN. Still in existence. They are not doing any business.
Mr. PECORA. I S it a subsidiary that is wholly owned by the Chase
Corporation?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. What was the reason for the incorporation of that
company, Mr. Wiggin?
Mr. WIGGIN. TO hold certain assets that we did not want the bank
to take.
Mr. PECORA. Which bank, the Chase National?
Mr. WIGGIN. The combined bank; yes, sir.
Mr. PECORA. After the merger. What kind of assets were they?
Mr. WIGGIN. I will have to find out. I do not know. This seems
to be a little complicated. My authorities do not agree. I will get
it for you.
The CHAIRMAN. This was not very far back, Mr. Wiggin. Have
you any independent recollection about it ?
Mr. WIGGIN. A S to the assets that went into the Garfield company?
The CHAIRMAN. Yes.
Mr. WIGGIN. NO.
The CHAIRMAN. And why has it continued in operation?
Mr. WIGGIN. Well, it is not doing anything. I t is just
holding
those assets. I will find out just what they are.
Mr. PECORA. What kind of assets could they have been that justified or made necessary or prompted the creation of this Garfield
National Corporation for the purpose of taking over those assets?
Mr. WIGGIN. Don't let me guess at it. Let me find out what it is.
The CHAIRMAN. They were what you call frozen assets, were they?
Mr. WIGGIN. NO, sir. Will you defer that until we can look it up
and see just what those assets are and what the purpose was?
Mr. BISBEE. The purpose was not what we said it was first. I t
was simply in connection with the machinery of getting out the
stock of the security corporation in order that it might be available
for exchange to the Garfield shareholders for the stock of the Garfield Bank.
Mr. PECORA. NOW, Mr. Wiggin, from thei facts that you have already given as a reason for the incorporation of the Garfield National Corporation to have that corporation take over certain
assets which otherwise would have had to be taken over by the bank,
will you tell the committee if some such thing was done in connection with other corporations created at the instance of the Chase
Securities Corporation to serve that very purpose?
Mr. WIGGIN. I answered that question on what I thought was
correct information, but the information has been corrected and
they say my answer is not correct. So if you will just let us get
that.
Mr. PECORA. But that may not have been the reason for which
the Garfield National Corporation was created back in 1929. I am
now asking you if there was any other occasion when a corporation
was created at the instance of the Chase Securities Corporation designed among other things to take over assets that otherwise would
have had to be taken over by the bank.
STOCK EXCHANGE PRACTICES
2371
Mr. BISBEE. May I suggest something to the witness, Mr. Pecora?
Mr. PECORA. Surely.
(Mr. Wiggin and Mr. Bisbee conferred.)
Mr. WIGGIN. Yfcs, sir; I am advised that at the time of the Metropolitan merger, the merger of the Metropolitan Bank, a corporation
was organized called the "Metpotan Co." I t was organized for
the reason
Mr. PECORA. I am going to ask you about the Metpotan Corporation somewhat in detail later on, so I suggest that
Mr. BISBEE. I t fits directly in there.
Mr. CONBOY. This is the answer to that question.
Mr. BISBEE. I t fits directly in there.
Mr. PECORA. All right; complete the answer.
Mr. WIGGIN. The Metropolitan Bank, having been a State bank,
had mortgages that the Chase Bank did pot want. I t was simply
to turn them over to this company, and this company was organized
to take those mortgages.
Mr. PECORA. When was the next increase in the capitalization of
the Chase Securities Corporation?
Mr. WIGGIN. July 1, 1929. The shares were split 5 shares for 1,
and there was a capital increase on July 3,1929, of 950,000 shares, of
which $38,000,000 was paid into capital account and $10,879,000—1
will omit the small figures—surplus account, $1,834,000 to reserves.
Mr. PECORA. Why was that allocation made of the moneys that
were received in connection with the issue of those additional shares
on July 3,1929?
Mr. WIGGIN (after conferring with associates). Shall I try to go
ahead on that?
Mr. PECORA. GO ahead.
Mr. WIGGIN. Of the 950,000 shares on July 3, 1929, $38,000,000
went to capital, $10,879,000 went to surplus, $1,834,000 went to
reserves. The transaction was in connection with the purchase of
the American Express Co., and the allocation to surplus and to reserves I cannot tell just why those figures were arrived at.
Mr. PECORA. Why was such an allocation made, irrespective of the
Mr. WIGGIN. I confess I do not know.
Mr. PECORA. Mr. "Wiggu1? do jon have to depend, for information
concerning the adoption of policies by the bank and by the securities
corporation, upon subordinates?
Mr. WIGGIN. I do not think this is a question of policy. This is
a question of why they made the division this way.
Mr. PECORA. Does not that involve a question of policy? Does
not the allocation of capital funds involve a question of policy, Mr.
Wiggin?
Mr. WIGGIN. Perhaps so.
Mr. PECORA. Can you not tell us?
Mr. WIGGIN. All I am trying to do is get the facts for you.
Mr. PECORA. We have the fact that the allocation was made. Now,
I want to know the reason, or the policy that prompted such an
allocation.
Mr. WIGGIN. I am endeavoring to find out, and as soon as I do
I will be glad to tell it.
175541—33—PT 5
7
2372
STOCK EXCHANGE PRACTICES
Mr. PECORA. DO you have to find out what the policies of the bank
were from subordinates, when those policies were adopted while you
were the executive head of the bank ?
Mr. WIGGIN. There must have been some reason for putting
$1,800,000 to this reserve account.
Mr. PECORA. And some, reason for putting over $10,000,000 to surplus?
Mr. WIGGIN. Yes.
Mr. PECORA. Can you not tell us those reasons ?
Mr. WIGGIN. Not until I investigate and find out. Don't ask
me to guess on these things, Mr. Pecora.
Mr. JPECORA. It strikes me you ought to be in a better position to
tell the reasons for the policy of the company and the bank, rather
than subordinates.
Mr. WIGGIN. I want to get it right.
Mr. CONBOY. There is no question that that is a statement by Mr.
Pecora.
Mr. PECORA. If the statement is challenged, the witness can challenge it, and we can find out who did determine the policies if the
executive officers did not.
Mr. CONBOY. You are not asking that.
Mr. PECORA. Who determined the policies with regard to these allocations of capital funds to capital and to surplus and reserve?
Mr. WIGGIN. I was consulted.
Mr. PECORA. YOU expressed your assent to the doing of that thing?
Mr. WIGGIN. I presume so. I t undoubtedly was voted by the
directors.
Mr. PECORA. What prompted you to give your consent to it?
Mr. WIGGIN. I am looking it up, and will let you know as soon
as I can possibly find out. There must have been some reason for it,
and what it was I do not know at the moment.
Mr. PECORA. Why were the shares of the capital stock of the Chase
Securities Corporation, on July 1, 1929, split 5 for 1 ?
Mr. WIGGIN. We felt that the more stockholders the bank had, the
more benefit to the bank. It was a plan that had been adopted by
some of our neighboring banks. It had apparently worked to their
advantage. We took the same step, on the theory that the small
stockholder would be of benefit to the bank.
Mr. PECORA. Would it be proper to paraphrase that by saying that
it was done in order to obtain a wider distribution of the capital
stock?
Mr. WIGGIN. We figured that the more stockholders there were the
better for the bank. That would, of course, include a wider distribution.
The CHAIRMAN. Did not this split, 5 to 1, mean that every man
who owned 1 share would not get 5?
Mr. WIGGIN. That is right, Senator.
The CHAIRMAN. HOW does that get it out to the public ? You still
have the same stockholders.
Mr. WIGGIN. Because the stock sells at one fifth of the former
price, and there are a great many more people that buy a low-price
stock than there are that buy a high-price stock.
STOCK EXCHANGE PBACTICES
2373
Mr. PECORA. Was the par value of the stock reduced correspondingly at that time?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. From what to
Mr. WIGGIN. From $100 a
what?
share to $20 a share. That was the
bank.
Mr. CONBOY. The Chase Securities had no par value.
Mr. WIGGIN. Chase Securities had no par value.
The CHAIRMAN. The bank stock was reduced to $20 a share?
Mr. WIGGIN. From $100 to $20.
Mr. PECORA. In order to help me to determine whether or not to
proceed with this examination, let me ask you how long it would
take to get the information that would enable you to answer the
questions I have put to you concerning the reason for the allocation
of the moneys received on July 3, on the occasion of the issuance of
that additional block of stock?
Mr. CONBOY. Shall we take that up now, for the purpose of giving
you an answer to that?
Mr. PECORA. Yes; let me know if you can get it in a minute or twoThe CHAIRMAN. At that time, Mr. Wiggin, do you remember
whether the bank stock was selling on the market at about $1,000 a
share ?
Mr. WIGGIN. I will get that. What was the bank stock selling at?
Mr. CONBOY. At the time of the split?
Mr. PECORA. At the time of the split, in. July, 1929.
The CHAIRMAN. And when the split was made, it became $200
a share.
Mr. WIGGIN. I will get that figure for you.
Mr. CONBOY. We can give you those figures, Senator.
Mr. WIGGIN (after conferring with associates). Mr. Chairman, I
can answer your question.
The CHAIRMAN. Yes. Let us have it.
Mr. WIGGIN. In July, 1929, at the time the par value of the stock
was changed from $100 to $20, the stock was quoted on July 1 at $980
a share. That is the old stock.
The CHAIRMAN. Yes. Then what did it become following that?
Following this split, how was it quoted ?
Mr. CONBOY. The split was from, $195 to $200.
Mr. WIGGIN. On that date the new stock—or about that date—
was quoted at $195 bid, $200 asked.
Mr. PECORA. Was this bank stock ever listed on any exchange ?.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. On what exchange ?
Mr. WIGGIN. On the New York Stock Exchange.
Mr. PECORA. When was it so listed?
Mr. WIGGIN. I will have to get that. I t was a
long time ago*
[After conferring with associates:] 1906.
Mr. PECORA. Was it thereafter taken off the list?
Mr. WIGGIN. Yes.
Mr. PECORA. When?
Mr. WIGGIN (after conferring
with associates).. January,. 1928..
2374
STOCK EXCHANGE PRACTICES
Mr. PECORA. Was it taken off the New York Stock Exchange
trading list at the instance of the bank?
Mr. WIGGIN. Several of the banks
Mr. PECORA. N O ; I mean in this particular case.
Mr. CONBOY. I t involves other banking institutions that did the
same thing at the same time.
Mr. PECORA. We are interested at this time only in what was done
with respect to the Chase Bank.
Mr. CONBOY. But you might get an erroneous impression if you
do not permit him to answer the question as he was going to answer
it for you, and I am sure you do not want to get an erroneous impression.
Mr. PECORA. I would like to get answers to the questions, and
not answers to something else.
Mr. CONBOY. You have been getting those right along.
Mr. PECORA. GO ahead, Mr. Wiggin. I t will save time to let you
answer in your own way.
Mr. WIGGIN. A number of banks decided to withdraw their stock
from being listed on the New York Stock Exchange, for the reason
that fluctuations in bank stock are sometimes harmful to the interests of the bank. Fluctuations down are sometimes harmful, and
the stock exchange has to make a sale, if there is a bid and an asked,
and no limit. There might be fluctuations on the stock exchange
that would be very harmful to a bank's standing. Therefore it was
taken off the stock exchange.
Mr. PECORA. YOU said that that reason controlled the decision of
other banks. Did that reason also operate to control the decision
of the Chase officers?
Mr. WIGGIN. I think so.
Mr. PECORA. Had there been active trading in the stock of the'
bank prior to January, 1928, on the New York Stock Exchange ?
Mr. WIGGIN. NO, sir.
Mr. PECORA. The trading was very, very slight, was it not?
Mr. WIGGIN. Very slight.
Mr. PECORA. Was it really felt that as a result of very
slight
tradings harmful fluctuations ensued?
Mr. WIGGIN. That was our feeling. I t was not the amount of
trading. I t was the fluctuation in prices.
Mr. PECORA. Those fluctuations are largely determined by the
volume of trading, are they not ?
Mr. WIGGIN. NO. An inactive stock can have very serious flucttuations, perhaps more so than an active stock.
Mr. PECORA. However, that was the reason that prompted the
Chase National Bank in having its stock withdrawn from thfe
trading list of the New York Stock Exchange.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And thereafter
it was traded in on what is called the
"over-the-counter " securities market.
Mr. WIGGIN. Yes.
Mr. PECORA. And
the volume of trading from that time on increased extensively, did it not?
Mr. WIGGIN- Yes,
sir.
STOCK EXCHANGE PEACTICES
2375v
Mr. PECORA. What was about the daily volume of trading on the
New York Stock Exchange up to the time it was withdrawn from
its list?
Mr. WIGGIN. There were many, many days without any trading
on the stock exchange.
Mr. PECORA. Would you say that a volume representing an average
of 50 shares a day would be a fair average ?
Mr. WIGGIN. I have no way of saying.
Mr. PECORA. Perhaps your associates could tell us that, from data
that they seem to be consulting.
Mr. CONBOY. Do you want such information as we have with regard to the total number of shares that were traded in on the exchange for the last 4 months of 1927 and the first month of 1928?
Mr. PECORA. I think that would be helpful.
Mr. CONBOY. The information we have is that in September, 192T
there were 10 shares traded in.
Mr. PECORA. The whole month?
Mr. CONBOY. The whole month. In October, 1927 there were
2,360 shares, and the price ranged from a high of 602 to a low
of 555. In November there were 1,090 shares, with a spread of 587
to 559. In December there were 1,900 shares, with a high of 580
and a low of 528; and in January, 1928 the total number was l,900»
with a high of 580 and a low of 548%. That is all the information
we have on that.
Mr. PECORA. Can you follow that up by telling us, for the months
of January, February, March, and April 1928, following the striking
of this stock from the trading list of the exchange—-—
Mr. CONBOY. What the over-the-counter transactions were?
Mr. PECORA. Yes.
Mr. CONBOY. We will
have to compile that for you. We have not
any such figures.
Mr. WIGGIN. There is no record of that.
Mr. CONBOY. I doubt if you could get it, because the amount of
trading over the counter is not reported; only the prices of the overthe-counter transactions. I doubt very much if there is any way of
getting the over-the-counter transactions.
Mr. PECORA. Was it the aim or purpose of the Chase National
Bank at that time to be in a position to control the price range of a
day's trading?
Mr. WIGGIN. No, sir. We did always have it in mind that we
wanted to be able to protect our stock if there was anything happening to it that was going to hurt the institution.
Mr. PECORA. How did you think you could protect it in the overthe-counter market, which protection was not available in the exchange market?
Mr. WIGGIN. Well, I do not know that we did think so.
Mr. PECORA. YOU just said you hoped to do that.
Mr. WIGGIN. Yes.
Mr. PECORA. HOW did you hope to do it?
Mr. WIGGIN. By buying when there were large fluctuations.
Mr. PECORA. What prevented the bank from doing that very thing
while the stock was listed on the stock exchange?
Mr. WIGGIN. I do not think anything prevented its being done.
2376
STOCK EXCHANGE PEACTICES
Mr. PECORA. Then why the striking from the list ?
Mr. WIGGIN. Because we did not want the violent fluctuations that
might occur.
Mr. PECORA. YOU said that those fluctuations could be affected by
support given to the stock by the bank.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. That was
what you hoped to do in the over-the-
counter market.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. YOU could do the same thing in the exchange market.
Mr. WIGGIN. Yes; but we might
Mr. PECORA. What was the reason then for the change ?
Mr. WIGGIN. Because we did not want it listed on the New York
Stock Exchange and have those fluctuations quoted in every paper
all over the country.
Mr. PECORA. Are not the fluctuations and the ranges in the overthe-counter market published daily, too ?
Mr. WIGGIN. Not very closely. They are published, but they are
not right and they are not close.
The CHAIRMAN. HOW about the stock of the securities company
at this time?
Mr. WIGGIN. The securities stock was never traded in separately.
If a person bought a share of the bank, he bought a certificate that
represented a share of the bank and a share of the securities company, at the same time.
The CHAIRMAN. The securities stock was not listed on the exchange
separate from the bank stock?
Mr. WIGGIN. No, sir.
Mr. PECORA. That was
because it could not be sold separate from
the bank stock.
Mr. WIGGIN. Certainly.
Mr. PECORA. DO you recall whether there was a very substantial
increase in the volume of daily transactions or tradings in the bank
stock upon and after the date it was traded in in the over-the
counter market?
Mr. WIGGIN. I t was always traded in over the counter. Perhaps
you mean after it was taken off the exchange ?
Mr. PECORA. After it was taken off the exchange.
Mr. WIGGIN. YOU understand that the trading over the counter
went on at the same time it was listed on the stock exchange.
Mr. PECORA. Did you notice much of a variance in the daily quotations in the over-the-counter market at that time, as compared with
those that prevailed on the exchange ?
Mr. WIGGIN. NO, sir.
Mr. PECORA. The range
was about the same, then, in both the
exchange market and the over-the-counter market, while the stock
was traded in in both markets ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. That still
would seem to remove the reason you have
already given for striking the stock from the exchange list, would
it not?
Mr. WIGGIN. N O ; I do not think so, Mr. Pecora. The big.market
on bank stocks is always over the counter. A number of them wera
STOCK EXCHANGE PEACTICES
2377
listed on the stock exchange. The transactions were not many, and
any fluctuations excited wide comment.
Mr. PECORA. Can you give a reason why, Mr. Wiggin, when the
stock was listed on the exchange and was also being traded in in
the over-the-counter market, the volume of trading in the over-thecounter market greatly exceeded the volume of exchange trading?
Mr. WIGGIN. I do not know just how to answer that. The custom
was that bank stocks were dealt in over the counter rather than on
the exchange.
Mr. PECORA. DO you know any reason for that custom ?
Mr. WIGGIN. The. brokers could charge a larger commission on
over-the-counter transactions than they could on stock-exchange
transactions.
Mr. PECORA. I should think that would have encouraged trading
on the exchange rather than in the over-the-counter market.
Mr. WIGGIN. Not with the brokers.
Mr. PECORA. But with the public. I t was the public that was
paying the bill.
Mr. WIGGIN. Very true.
Mr. PECORA. The purchaser of the stock or the seller of the stock
would prefer to sell it in the market where the expense was less.
Mr. WIGGIN. Your theory is right, sir.
Mr. PECORA. But in practice it was wrong?
Mr. WIGGIN. In practice the over-the-counter market was the
active market for bank stock.
Mr. CONBOY. You have an instance of that character in connection with United States Government bonds. They are listed on the
stock exchange, but tliey are principally over-the-counter transactions.
Mr. WIGGIN. May I say one word more on that question of the
stock-exchange fluctuations, Mr. Pecora?
Mr. PECORA. GO ahead.
Mr. WIGGIN. I am reminded that transactions on the stock exchange were so inactive that it would sometimes be weeks or months
between one sale and the next sale, and the report would show the
up or down from the last sale, and it might be a very serious difference because of the length of time.
Mr. PECORA. I though you said a few moments ago that the daily
quotations in the over-the-counter market were about the same as the
quotations in the stock exchange market.
Mr. WIGGIN. Yes, and that corroborated what I am trying to say.
I have not made it clear to you. Suppose there was a sale of stock
in July on the stock exchange, and suppose there was not another
sale on the stock exchange until November. There might have been,
in 4 months' time, a very serious change in the price, and yet the
New York Stock Exchange quotation would show a sale in November,
and off or up so much from the last previous sale, 4 months before.
Mr. PECORA. I S it possible to seU securities short in the over-thecounter market?
Mr. WIGGIN. I think so.
The CHAIRMAN. Did the bank itself deal in its own stock, buy and
sell its own stock ?
Mr. WIGGIN. I beg your pardon?
2378
STOCK EXCHANGE PRACTICES
The CHAIRMAN. Did the bank deal in its own stock?
Mr. WIGGIN. No, sir.
The CHAIRMAN. It did not buy and did not sell its own stock?
Mr. WIGGIN. NO, sir.
Mr. PECORA. When was the next increase in the capital stock
of
the Chase Securities Corporation effected?
Mr. WIGGIN. August 23, 1929, a 12y2 percent stock dividend,
500,000 shares, increasing the capital $2,500,000, and reducing the
surplus $2,500,000. 'It was a transfer from surplus to capital, and
new shares issued.
Mr. PECORA. When was the next increase effected?
Mr. WIGGIN. August 24, 1929, 750,000 shares capital increase;
$3,750,000 into capital account and $3,903,000 into surplus account.
Mr. PECOISA. Why was that allocation made as between capital
and surplus, of the proceeds from the sale of that additional stock?
Mr. WIGGIN (after conferring with associates). Mr. Pecora, they
tell me that the reason that $3,750,000 went into capital account was
to make a round amount of capital, and that the remainder was put
into surplus.
Mr. PECORA. I S that the only reason why the remainder was put
into surplus, in order not to have anything but a round amount for
the capital?
Mr. WIGGIN. That is the best information I can get.
Mr. PECORA. YOU said a moment or two ago, in answer to a
iestion put to you by Chairman Fletcher, that the Chase National
ank did not buy or sell its own stock in the market. Do you recall
that?
S
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. AS a matter of fact, did not the Chase Securities Corporation ever buy or sell the capital stock of the Chase National
Bank in the market, either directly or through any subsidiary corporation ?
Mr. WIGGIN. Through a subsidiary corporation; yes, sir. r
Mr. PECORA. What was the name of that subsidiary corporation?
Mr. WIGGIN. The Metpotan Co.
Mr. PECORA. The Metpotan Co. Do you know, generally, the extent of the trading in the open market, in the shares of the Chase
National Bank that was engaged in by the Metpotan Co. ?
Mr. WIGGIN. I was familiar -from time to time with what was
going on.
Mr. PECORA. YOU have told us you were familiar, but the question
asked you was whether you knew the volume of trading engaged in
by the Metpotan Co. in the shares of the Chase National Bank.
Mr. WIGGIN. In a general way; yes, sir.
Mr. PECORA. What was it, in a general way?
Mr. WIGGIN. It varied from day to day tremendously.
Mr. PECORA. What was it over the period of years since the trading commenced?
Mr. WIGGIN. YOU mean over a long period? How many years
do you want to cover, Mr. Pecora?
Mr. PECORA. From the time that the Metpotan Co. engaged in such
operations up to the time that you retired from the position of executive head of the bank, in January of this year.
STOCK EXCHANGE PRACTICES
2379
Mr. WIGGIN (after conferring with associates). We can get that
for .you.
The CHAIRMAN. When was the Metpotan Co. organized?
Mr. WIGGIN. In 1921.
Mr. PECORA. From the
time that the capital stock of the bank was
stricken from the Stock Exchange trading list in January, 1928, down
to the end of 1932, you were the executive head of the Chase Bank,
were you not?
Mr. WIGGIN. Yes.
Mr. PECORA. Wit)ln.n that period of time, will you give the committee an approximation, if you please, of the total volume of trading
in the stock of Chase National Bank that was indulged in by the
Metpotan Co. ?
Mr. WIGGIN. I will get that foryou exactly.
Mr. PECORA. Let me say, Mr* W iggin, while we are waiting to get
the information in answer to that last question, according to our
research, based upon the records of the Metpotan Co., that company,
from January 1, 1928, to December 31, 1932, traded in the open
market in the shares of the Chase National Bank and all other banking institutions which were merged with the Chase, to a volume approximating almost nine hundred millions of dollars. Is that in
accord with your recollection?
Mr. WIGGIN. I have no recollection. I am endeavoring to get the
figures.
Mr. PECORA. Then we will have to jwait to get the figures.
Mr. CONBOY. Mr. Pecora, have schedules been furnished you with
reference to the tradings in Chase Bank stock by Metpotan, by us ?
Did you not request that we furnish you with figures with regard
to those tradings, and did we not furnish you with them?
Mr. PECORA. Yes.
Mr. CONBOY. Your
accountantsi unquestionably have what has
been furnished to you in that connection.
Mr. PECORA. YOU furnished us with photostatic copies, principally, and I presume that you have the records from which the
photostatic copies were made.
Mr. CONBOY. Very likely.
Mr. PECORA. We are not doing the testifying; and if you have
the original records
Mr. CONBOY. We can give you the same testimony that has already been furnished to you in these statements. If you want anything more we will have to compile further statements.
Mr. PECORA. NO. The statements you gave us were given as photostatic copies, for the most part, of your own records.
Mr. CONBOY. I S that what you want—the information that is contained in the statements that have already been furnished you ?
Mr. PECORA. I think such information is merged in what I want
to know.
Mr. CONBOY. DO you want to introduce those in evidence, or do
you want to have Mr. Wiggin
Mr. PECORA. I want this put into the record through the medium of
Mr. Wiggin's answers.
Mr. CONBOY. I submit, Mr. Wiggin certainly cannot tell you what
the aggregate of tradings was in this long period of over 12 years.
2380
STOCK EXCHANGE PRACTICES
Mr. PECORA. I have not asked for a period of 12 years.
Mr. CONBOY. I thought you asked for the period from the organization down to 1933.
Mr. PECORA. From January 1928 to the end of 1932.
Mr. CONBOY. All right. Then over a period of 4 or 5 years.
Mr. PECORA. Five years.
Mr. CONBOY. Then all we can tell you is what the accountant has
prepared.
Mr. PECORA. Let him tell us. You have the original records, and
we have only photostatic copies of those records.
Mr. CONBOY. Don't get angry with me.
Mr. PECORA. I am not angry; I am simply emphatic.
Mr. CONBOY. I am just endeavoring to ascertain what you want.
Is that what you want?
Mr. PECORA. I want Mr. Wiggin to tell the committee what the
volume was of trading in the stock of the Chase National Bank and
of the other banks that were merged with the Chase National Bank,
that was indulged in by the Metpotan Co. in the period commencing
on the 1st of January, 1928, and terminating on December 31, 1932.
Mr. CONBOY. That will have to be added up for you, and will be
given to you.
Mr. PECORA. DO you know what records should be consulted for
that?
Mr. CONBOY. Mr. Hargreaves says he knows now exactly what you
want in that connection, and he will get it for you.
Mr. PECORA. Let him add them up.
Mr. CONBOY. Yes.
Mr. PECORA. I t will not take long.
Mr. CONBOY. DO you want that done right away?
Mr. PECORA. I t should not take long to add up a few figures.
Mr. CONBOY. I don't know how long it will take, but it will be done.
Mr. BISBEE. Do you want the aggregate amount, or the number
of shares?
Mr. PECORA. The aggregate amount and the number of dollars.
Mr. BISBEE. I t will take 10 or 15 minutes, Mr. Pecora.
Mr. PECORA. I will proceed with another line of examination then.
The last increase in the capital of the Chase Securities Corporation that you told us about took place on August 24, 1929. When,
after that, was there another increase?
Mr. WIGGIN. May 31, 1930, a capital increase of 2,150,000 shares.
a capital account increase of $22,000,000; surplus increase ot
$4,853,000.
Mr. PECORA. Why was the allocation made in that way in that
instance?
Mr. WIGGIN. I can only say, probably the same reason as before—
to make the capital a round amount, and everything beyond went
into surplus.
Mr. PECORA. DO you think that was the only reason, Mr. Wiggin?
Mr. WIGGIN. That is the only reason I can see.
Mr. PECORA. YOU do not even know that that was the reason, do
you?
Mr. WIGGIN. I am not sure. I would have to go back to see why
we did it at the time, and I have not got it in my head; but I think
that is undoubtedly the reason.
STOCK EXCHANGE PRACTICES
2381
Mr. PECORA. What was the occasion for that increase?
Mr. WIGGIN. That was the time of the Equitable Trust Co. merger.
Mr, PECORA. That was also a merger effected on an exchange-ofshares basis?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. At that time was a corporation called the Equitable
Corporation caused to be organized by the Chase Securities Co. ?
Mr. WIGGIN. It was in existence before that.
Mr. PECURA. What was that—a securities affiliate of the Equitable
Trust Co.?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Was the
Equitable Corporation taken over by the
Chase Securities Corporation in connection with this merger in May
1930?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. I S it still in existence?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Actively engaged in business ?
Mr; WIGGIN. No, sir.
Mr. PECORA. When did it become inactive?
Mr. WIGGIN. It is in liquidation.
Mr. PECORA. I t is in liquidation now?
Mr. WIGGIN. Yes, sir; but the question was,
when it became inactive
Mr. BISBEE. I t never was active.
Mr. PECORA. In connection with this increase of capital stoek, on
the occasion of the merger of the Equitable Trust Co., was there also
a merger with the Interstate Trust Co.?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. HOW was that effected?
Mr. WIGGIN (after conferring with
associates). The Interstate
merger took two steps. It merged with the Equitable Trust and the
combined institution
Mr. PECORA. Were the two steps designed to form part of the
transaction whereby the Chase National Bank took over the Equitable Trust Co. and the Interstate Trust Co.?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. That is,
both steps were designed to form parts of
the whole transaction?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. In connection
with that merger, did the Chase Securities Corporation also at the same time take over a corporation
called the Interstate Corporation?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. I S that active or inactive today?
Mr. WIGGIN. I t is dissolved.
Mr. PECORA. When was it dissolved?
Mr. WIGGIN. Within the last few months.
Mr. PECORA. First, there was a merger of the
Equitable Trust Co*
with the Interstate Trust Co.; is that right?
Mr. WIGGIN. It was simultaneous, as I understand it.
Mr. PECORA. And at the same-time there was a merger of the Equitable Trust Co. with which the Interstate Trust Co. had just been
merged with the Chase National Bank?
2382
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. Yes, sir.
Mr. CONBOY. I think you
had better consult about that, Mr. Wiggin, as to whether there was a merger of the Equitable Trust and the
Interstate Trust before the merger with the Chase. My advices are
that the merger was with the Chase on the part of the Equitable
and the Interstate Trust all at one time and all one transaction.
Mr. PECORA. A 3-cornered merger?
Mr. CONBOY. Yes, sir. The Interstate was not taken in by Equitable and the Equitable merged with the Chase. The Interstate and
the Equitable were merged with the Chase at the same time.
Mr. PECORA. And that was done on May 31,1930?
Mr. CONBOY. Yes.
Mr. PECORA. On which occasion this increase in the capital stock
of the Chase Securities Corporation took place ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. In connection
with the issuance of that additional
capital stock was there a block of 34,980.80 shares sold at auction?
Mr. WIGGIN. Of Chase Bank stock and Chase Securities combined; yes, sir.
Mr. JTECORA. Sold by auction?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. What was the occasion for that?
Mr. WIGGIN. I t was to round out the capitalization
and make an
•even number of shares. This 34 thousand as applied to the very
large number of shares made an exceedingly odd amount, with odd
fractions. Therefore, that round figure was determined upon, and
this excess was sold at auction for the benefit of the bank.
Mr. PECORA. Were all those shares represented by the additional
stock first offered to the existing shareholders of the banks that were
merged ?
Mr. WIGGIN (after consulting associates). The stockholders approved this method of making a round amount of capital, a round
amount in the number of shares, and having the excess sold for the
benefit of the bank.
The CHAIRMAN. What was the process of selling it off ?
Mr. WIGGIN. I t was sold at auction. As I say, there is a concern
in New York that does a regular auctioning of securities. Those are
advertised for several days before the sale. The sale was conducted
in a room of this auction house.
The CHAIRMAN. Who bought in those shares?
Mr. WIGGIN. Metpotan bought them.
Mr. PECORA. Metpotan bought this entire block of 34,980.80 shares
at this auction sale?
Mr. WIGGIN. Yes.
Mr. PECORA. Was there any other bidder?
Mr. WIGGIN. I think so. I t was sold in small
lots. I think the
man is here who went to the sale and he can give you a record.
I will have to get it from him.
Mr. PECORA. I t was sold in small lots, but the entire block of
34,980.80 was disposed of on that one day in that auction room?
Mr. WIGGIN. Yes, sir. I t was sold in thousand-share lots.
Mr. PECORA. At what price?
Mr. CONBOY. Apparently the prices varied.
STOCK EXCHANGE PEACTICES
2383
Mr. PECORA. What was the total consideration for the entire
amount?
Mr. CONBOY. They run from 169 up to 175, and the total amount
that was realized—I assume it is the entire lot—is $5,975,140. They
were sold in thousand-share units.
Mr. PECORA. Does the Metpotan Co. still hold that block of shares?
Mr. WIGGIN. No, sir. They do not hold that stock.
Mr. PECORA. The Metpotan Co. is a subsidiary wholly owned by
the Chase Securities Corporation, is it not?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And always
Mr. WIGGIN. Yes.
Mr. PECORA. Have there
has been?
been any other increases in the capital
stock of the Chase Securities Corporation since the one of May 31,
1930?
Mr. WIGGIN. NO, sir.
Mr. PECORA. AS result
of the original capitalization of the Chase
Securities Corporation and these increases that you have testified to,
what is the total number of outstanding shares of capital stock
of the Chase Securities Corporation at the present time?
Mr. WIGGIN. Seven million, four hundred thousand shares.
Mr. PECORA. All of no par value?
Mr. WIGGIN. NO par value.
Mr. BISBEE. I think there is a par value now.
Mr. WIGGIN. A declared value of
Mr. BISBEE. Not a declared value.
Mr. WIGGIN. A $1 par value now; not a declared value, but a $1
par value.
Mr. PECORA. When was that par value given to it?
Mr. WIGGIN. May 17,1933.
Mr. PECORA. That was when the amendment was made, with
the approval of the shareholders, at the special meeting held on
May 16, 1933, in the charter and bylaws of the Chase Securities
Corporation, and also when its name was changed to the Chase
Corporation!
Mr. WIGGIN. Yes; that is right.
Mr. PECORA. By which it is known today?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. In the course
of your testimony this morning you
testified that the net profits earned by the Chase Securities Corporation from its creation on June 1, 1917, or about that date, to
the end of the year 1925, aggregated $11,170,819.29. Do you recall
that testimony?
Mr. WIGGIN. NO ; but I do not question it.
Mr. PECORA. And out of that sum cash dividends were paid in
that period of time aggregating $4,150,000?
Mr. WIGGIN. That is right.
Mr. PECORA. I suggest that you have before you th© record- that
corresponds to the one that I have.
Mr. WIGGIN. We have a photostat of it here.
Mr. PECORA. What were the net profits, if any,, accruing, to. the'
Chase Securities Corporation for the year 1926#
Mr. WIGGIN. $3,652,000.
2384
STOCK EXCHANGE PRACTICES
Mr* PECORA. Can you give the exact amount?
Mr. WIGGIN. $3,652,824.36.
Mr. PECORA. What cash dividends, if any, were paid to the shareholders?
Mr. WIGGIN. $1,400,000.
Mr. PECORA. What were the net profits earned by the Chase
Securities Corporation for the year 1927?
Mr. WIGGIN. $3,475,708.39.
Mr. PECORA. What dividends, if any, were paid to the shareholders that year ?
Mr. WIGGIN. $1,600,000.
The CHAIRMAN. What percentage—5 percent or 6 percent?
Mr. WIGGIN. There was no par value of the stock, so it was so
much per share.
The CHAIRMAN. HOW much per share?
Mr. CONBOT. Which year do you refer to, Mr. Chairman?
The CHAIRMAN. 1926 and 1927, both.
Mr. WIGGIN. Just a minute. We will have that for you.
The CHAIRMAN. I can calculate it, but I thought you had it there.
Mr. WIGGIN. There were 7,400,000 shares
Mr. PECORA. N O ; not that many shares.
Mr. CONBOY. There were 200,000 shares at the end of 1925. On
April 26, 100,000 were added, making 300,000. The dividend for
that year was $1,400,000. So if the whole dividend was paid for
the capitalization at 400,000 shares it would be $3.50 a share; correspondingly if it was less than 400,000.
Now, you want it for 1927?
Mr. PECORA. YOU have the figures for 1927.
Mr. CONBOT. The chairman's inquiry was what the rate was per
share.
Mr. PECORA. Or the rate of dividend. I suggest, Mr. Conboy, you
can get that out of your minute book.
Mr. CONBOY. I t would be about $4.40 per share, as indicated by
this account.
Mr. PECORA. YOU probably could get the specific amount out of
the minute book or the annual report.
Mr. CONBOY. Yes.
Mr. PECORA. What
were the net profits, if any, accruing to the
Chase Securities Corporation for the year 1928?
Mr. WIGGIN. $4,652,498.56.
Mr. PECORA. And what was the amount of cash dividends paid to
tfoe shareholders of that corporation for that year ?
Mr. WIGGIN. $2,200,000.
Mr. PECORA. What were the net profits, if any, accruing to the
Chase Securities Corporation for the year 1929 ?
Mr. WIGGIN. $5,776,083.62.
Mr. PECORA. And what was the amount of the cash dividend paid
to tfche shareholders of that company in that year?
Mr. WIGGIN. $3,845,000.
Mr. PECORA. What were the net profits, if any, which accrued to
the Chase Securities Corporation for the year 1930?
Mr. WIGGIN. The current earnings for that year were $6,984,244.87.
Mr. PECORA. And what dividends were paid by the corporation
during that year, 1930?
STOCK EXCHANGE PEACTICES
2385
Mr. WIGGIN. Dividends were paid of $6,862,500.
The CHAIRMAN. DO you make any distinction between current
earnings and net profits?
Mr. WIGGIN. Yes,
sir.
The CHAIRMAN. We have been talking heretofore about net profits.
Mr. WIGGIN. Yes. Sometimes the current earnings and the net
profits are the same. In this year they were not the same.
The CHAIRMAN. What was the net profit ?
Mr. WIGGIN. There was no net pront. There was a reduction of
surplus account.
Mr. PECORA. Will you give the details of that, Mr. Wiggin?
Mr. WIGGIN. The details of which, Mr. Pecora? The reduction?
Mr. PECORA. Yes.
Mr. WIGGIN. The surplus account was reduced from 28,388,000 and
odd dollars to $13,594,000.
Mr. PECORA. HOW was that done? What were the mechanics of it?
Mr. WIGGIN. DO you mean, what was the vote? What was the
authority that did it?
Mr. PECORA. NO ; the mechanics that did it; the operation.
Mr. WIGGIN. I will have to get that for you.
Mr. PECORA. YOU said there were no net profits for the year 1930
in answer to Senator Fletcher's question.
Mr. WIGGIN. The current earnings were offset by this reduction
in surplus account.
Mr. PECORA. That is, a large sum was taken from the surplus
account and that sum was large enough to offset what actually were
losses that were incurred by the company during the year 1930?
Mr. WIGGIN. Well, they may not have been losses incurred. It
may have been a reduction for reserve purposes. The losses may
not have occurred, you understand.
Mr. PECORA. Were there any net profits actually earned by the
company during the jrear 1930?
Mr. WIGGIN. Yes, sir. Mr. Hragreaves can do this better than I
can, if you will let him do it.
Mr. CONBOY. He can do that, Mr. Pecora, as soon as he has finished this present job that he has for you over there.
Mr. PECORA. All right.
Mr. CONBOY. Because a net profit was reported that year.
Mr. PECORA. I know a net profit was reported, but now we want
to make an analysis. Whether or not it was a net profit as that
term is ordinarily understood.
- Mr. CONBOY. That is precisely why we need Mr. Hargreaves, and
we can give you that information as soon as he is available.
Mr. PECOI*A. Were there any net profits earned by the Chase Securities Corporation for the year 1931 ?
Mr. WIGGIN. The earnings were $3,233,757.57. The dividend was
$1,850,000, and I understand that the excess over the dividends was
applied on the inventory account.
Mr. PECORA; That is, toward the revaluation of assets ?
Mr. WIGGIN. Yes.
Mr. PECORA. By that
you mean marking them down to the market
value ?
Mr. WIGGIN. Marking them down; yes, sir.
2386
STOCK EXCHANGE PRACTICES
Mr. PECORA. Was this figure of $3,233,757.57, which you stated to
be the net profiis for the year 1931, actually an earned net profit?
Mr. WIGGIN. I have got to get the treasurer of the company to give
me this. He is still working on that other matter, Mr. Pecora.
Mr. CONBOY. Bo you want to know whether that was actually
earned that year?
Mr. PECORA. Yes. Or if it was created in whole or in part by
transferring funds to reserves, and so forth.
Mr. CONBOY. All right, Mr. Pecora. That is something that we
will have to get for you.
Mr. PECORA. What were the net profits, if any, accruing to the
Chase Securities Corporation for the year 1932 ?
Mr. WIGGIN. $1,728,286.56, which were all used to reduce the surplus account.
Mr. PECORA. For the revaluation of assets in the portfolio ?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. Was that sum of $l,728,000-odd actually an earned
net profit?
Mr. CONBOY. DO you want the same information for 1932 that you
asked for 1931?
Mr. PECORA. Yes; that I asked for the 2 preceding years. And
that you cannot give us at this time, Mr. Wiggin?
Mr. WIGGIN.
ho.
Mr. PECORA. That will be looked after by Mr. Hargreaves?
Mr. WIGGIN. Yes.
The CHAIRMAN. I understand there was
Mr. WIGGIN. NO dividend whatsoever.
Mr. CONBOY. None in 1932.
Mr. PECORA. What were the net profits,
no dividend in 1932?
if any, accruing to the
corporation for the first 6 months of the current year ?
Mr. WIGGIN. Of 1933?
Mr. PECORA. Yes, sir.
Mr. WIGGIN. DO you want
me to answer on that? You see, I have
not been an officer of the Chase Securities Corporation during all
that period.
Mr. PECORA. YOU mean you do not know ?
Mr. WIGGIN. I do not know. But I can get it in this same way,
of course. But it is nothing that I know.
Mr. PECORA. We will get that, then, from one of the executive
officers who has functioned during the present year.
Mr. Wiggin, I show you typewritten sheet entitled "The Chase
Corporation, formerly Chase Securities Corporation. Capital, profits, reserves for losses, etc., and dividends paid June 1, 1917, to
June 30,1933." I believe a photostatic copy of this typewritten statement has been used by you in answering questions with relation to
the capital, profits, and reserves and dividends; answers that you
have been making in the last hour or two. Will you kindly look at
it and tell us if the facts and figures shown thereon are correct to
your best knowledge ?
Mr. CONBOY. It is the same thing from which he has testified.
Whether there are any inaccuracies in this I do not know. That is
what Mr. Hargreaves is going to tell you at 2 o'clock.
STOCK EXCHANGE PRACTICES
2387
Mr. PECORA. I am asking Mr. Wiggin if they are correct to your
best knowledge?
Mr. WIGGIN. Yes.
Mr. PECORA. I offer
that in evidence and ask that it be spread on
the record.
The CHAIRMAN. Let it be admitted and placed in the record.
(Statementheaded " The Chase Corporation, formerly Chase Securities Corporation. Capital, profits, reserves for losses, etc., and
dividends paid June 1, 1917, to June 30, 1933 ", was received in
evidence, marked " Committee Exhibit 8 of Oct. 18, 1933 ", and is
printed in the record in full on page 2388.)
175541—33—PT 5
8
COMMITTEE EXHIBIT 8 OP OCTOBER 18,
1933
The Chase Corporation, formerly Chase Securities Corporation, capital, profits, reserves for losses, etc., and dividends paid June 1, 1917, to
June 80, 1988
Capital, including amounts allocated to surplus
Chase Securities Corporation stock exchanged for
stock of—
Date
Mechanics Securities Corporation
Mutual Consolidation
Corporation
1,1917
1,1918
1,1919
21,1920
22,1921
22,1922
22,1923
22,1924
22,1925
Apr. 12,1926
do
Dec.
27,1927
do
do.
July 2,1928
Garfield National Corporation _
— Feb.
19,1929
Cash
Stated
value
diviTotal capital, Stock
dend
not including
stock dividend
100,000.00 $2,500,000.00
$2,500,000.00
50,000.00 7,500,000.00
50,000.00 1,250,000.00
7,500,000.00
1,250,000.00
200,000.00 11,250,000.00
11,250,000.00
100,000.00
7,000.00
81,400.00 6,105,000.00
11,600.00 870,000.00
100,000.00 10,000,000.00
10,000.00
From
capital
$164,262.13
739,978.49
586,840.28
1,745,089.76 $1,000,000.00
1,803,791.59
1,606,105.14
1,674,329.94
2,850,421.96
11,170,819.29
1,000,000.00
From
profits
Cash dividends paid
Total
§
$1,000,000.00
1,000,000.00 4,150,000.00
500,000.00
500,000.00
100,000.00
Year's net
profits
888888
June
June
June
Jan.
Nov.
Nov.
Nov.
Nov.
Nov.
Shares
Reserves provided for losses
$500,000.00
500,000.00
175,000.00
175,000.00
6,105,000.00
870,000.00
10,000,000.00
750,000.00
3,652,824.36
1,400,000.00
3,475,708.39
4,652,498.56
1,600,000.00
2,200,000.00
750,000.00
610,000.00
On July 1,1929, Chase Securities Corporation
stock was split 5 for 1, increasing the shares outstanding to
American Express Co
Parkbanc Corporation
July 3,1929
do
Aug. 24,1929
Aug. 23,1929
3,050,000.00
762,500.00 38,125,000.00
38,125,000.00
187,500.00
12,589,400.66 12,589,400.66
750,000.00
7,653,731.99 7,653,731.99
500,000.00
$2,"5O5,"555."55 ~5,~7767<J83.~62 ""I,"834,"447."33
•"I,"834,"447."33
"3,~845,"66a66
g
25,000,000.00 25,000,000.00
The Equitable Corporation May 31,1930 2,000,000.00
116,019.20
359,435.00
Interstate Corporation
do
359,436.00
do.
34,980.80 1,493,786.00
1,493,785.00
May 31,1931
May 31,19321
To
\
June 30,1933)
Total
6,862,500.00
6,984,244.87 17,536,905.32 $2,065,733.57
3,233,757.57 37,078,919,3414,908,393.67 51,987,313.01 1,850,000.00
1,728,286.56 2,921,080.66 1,792,595.98 4,713,676.64
41,000,000.00
407,732.97 41,000,000.00
7,400,000.00 67,093,785.00 47,027,567.65 104,121,352.65 2,500,000.00 29,911,136.90100,371,352.65 18,766,723.22119,138,075.8717,757,500.00
7,400,000.00 58,343,785.00 47,027,567.65115,371,352.65 2,500,000.00 41,081,956.19 101,371,352.65 18,766,723.22120,338,075.87 21,907,500.00
Total capital, not including stock dividend
Add net earnings to June 30,1933
Total capital and net earnings
Of which there was paid in dividends
Keserves set up
Capital and surplus, June 30,1933
$21,907,500.00
120,138,075.87
$115,371,352.65
41,081,956.19
156,453,308.84
142,045,575.87
O
Q
W
14,407,732.97
8
s
B
CO
00
p
2390
STOCK EXCHANGE PRACTICES
The CHAIRMAN. The committee will now take a recess until 2:
o'clock. The subcommittee will meet in executive session.
(Thereupon, at 12:40 p.m. an adjournment "was taken until 2
p.m. the same day, Wednesday, Oct. 18,1933.)
AFTERNOON SESSION
(Upon the expiration of the noon recess the hearing was resumed
at 2 p.m.)
The CHAIRMAN. The committee will com© to order, please. I might
state for the record that the committee held an executive session and
heard the statements regarding the question propounded yesterday
to Mr. Wiggin respecting rescue loans, and after hearing all the
statements decided that no public interest would be served by pressing the question, and we decided for the present at least not toinsist on the answer.
I do not mean to say that information was not furnished the
committee. The committee heard all the statements and got all the
facts that could be developed by the question, and they understand
what the facts are, but they feel that it is not in the public interest
and nothing would be gained by spreading those facts on the
record,
TESTIMONY OF AIBEET H. WIGGIN—Resumed
Mr. PECORA. Mr. Wiggin, have you available to you now copy of
the report made to the stockholders or shareholders of the Chase
National Bank and of the Chase Securities Corporation for the year
1930?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Will you
turn to page 18 of that report?
Mr. WiGGiN. Yes, sir.
Mr. PECORA. On the last paragraph of that page the following
statement is made, referring to the Chase Securities Corporation:
The net profits of the corporation from December 31, 1929, to December 31,.
1930, including net profits of the Equitable Corporation and the Interstate
Corporation, for the year were $6,989,627.60.
With reference to that particular statement, Mr. Wiggin, will you
tell this committee whether or not there actually was a net earned
profit.
Mr. WIGGIN. There was a net earned profit out of that year's
business of that money. The company also at that time reduced its
surplus, because they wanted to get the securities already held in
the account down to nearer market value, and you will notice if you
follow through on that, Mr. Pecora, that on the next page it makes
the statement that the surplus and undivided profits as of December
31, 1930, aggregated $13,594,000.
Mr. PECORA. In the paragraph to which you have just referred and
which is contained on page 19 of that report the complete statement
is as follows:
The corporation owns and carries over 97 percent of the capital stock
of the American Express Co. and all of the'stock of the Harris Forbes Cos.,
and the reserves of the corporation are sufficient to mark down the other assets
of the corporation to market prices as of the close of business December 31,
1930. The surplus and undivided profits as of December 31, 1930, aggregated
Digitized for$13,594,328.25.
FRASER
STOCK EXCHANGE PBACTICES
2391
Now let me ask you, how much of the reserves were allocated for
the purpose of marking down or revaluing the assets in the portfolio
of the company as of December 81, 1930?
Mr. WIGGIN. I t is impossible for me to answer that from any information I have in hand. I will do my best to get it.
Mr. PECORA. Well, from what account were those reserves taken?
Mr. CONBOY (after a pause). We are getting the information for
jou.
(Mr. Wiggin conferred with associates.)
Mr. PECORA. 1 would suggest, Mr. Wiggin, in order to enable you
to answer these questions, to refer to the photostat reproduction
which you have of the tabulated statement that was offered in evidence just before the recess today and which I understand has been
-checked up by the bank and found to be correct.
Mr. WIGGIN (after examining documents and conferring with
associates). Mr. Pecora, the amount transferred from surplus was
$17,536,905, and the amount transferred from the profit account was
$2,065,733.
Mr. PECORA. SO that a total of $19,602,638 all told was transferred
from the capital funds of the company in order to provide a reserve
for losses?
Mr. WIGGIN. From the surplus and profits to the reserves and
write-downs.
Mr. PECORA. Yes; and write-downs due to depreciation in the
value of securities in the portfolio of the company at the end of the
year?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. Was there any statement about that embodied anywhere in the annual report to the shareholders for the year 1930?
Mr. WIGGIN. I think all that was embodied was the statement of
what the surplus and profits were on page 19 that you just read.
Mr. PECORA. Yes. Now, there is nothing there which serves to
inform a shareholder that, although the net profits for the year were
$6,'984,244.87, sums aggregating nineteen million six hundred and odd
thousand dollars were taken out of capital funds, such as surplus
and undivided profits, and set up as a reserve to absbrb losses or
depreciation in the value of securities in the portfolio?
Mr. WIGGIN. Except by comparing this surplus and profit, as
stated here, with the previous surplus and profit.
Senator COUZENS. In other words, you mean a stockholder would
have to go back and get the previous year's report and compare it
before he could discover that?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. The simpler way would have been to have given the
stockholder the information, just as you have given it here, would it
not?
Mr. WIGGIN. Perhaps so.
Mr. PECORA. Was there any reason why the shareholders were not
enlightened in that way?
Mr. WIGGIN. Not that I know of.
Mr. PECORA. Such information would have given the shareholder
a more complete and more comprehensive picture of the company's
condition, would it not?
Mr. WIGGIN, Perhaps so.
2392
STOCK EXCHANGE PRACTICES
Mr. PECORA. I S there any doubt about it in your mind?
Mr. WIGGIN. The figures are complete showing what there
Mr. PECORA. There are no figures at all showing what reserve wasset up against losses and depreciation for the year 1930 in this annual
report, are there?
Mr. WIGGXN. I t does not show the change; it'simply shows what
there was, and expecting the stockholder to compare it with theprevious figures.
Senator COUZENS. Let us assume that it was a new stockholderHe would not have the previous report. He would not have any
way to compare it.
Mr. WIGGIN. Yes; but he would not be interested in this*
Mr. PECORA. Would it not be interesting to him to know the course
of the company's business in the year 1930?
Mr. WIGGIN. Possibly. The figures are there*
Mr. PECORA. Well, you say all the figures are there. That is not
literally the fact, is it?
Mr. WIGGIN. The shrinkage is not there, but if they compare with
previous years it is.
Mr. PECORA. The shrinkage is nowhere stated in this annual report
for 1930, is it?
Mr. WIGGIN. I do not think it is.
Mr. PECORA. And the amount of reserves set up to provide for
that shrinkage is nowhere stated in the annual report for the year
1930, is it?
Mr. WIGGIN. I do not think so.
Mr. PECORA. Who prepared this report?
Mr. WIGGIN. I t was prepared by the Chase Securities for me on*
the figures.
Senator COUZENS. DO I understand, Mr. Wiggin, that these net
profits of $6,984,000 plus were before or after you charged off these
reserves?
Mr. WIGGIN. Before.
Senator COTJZENS. SO in effect there was a substantial loss instead
of a profit, if you took into account your shrinkages ?
Mr. WIGGIN. Yes, Senator; except that the loss was not out of the
current year of business.
Senator COTTZENS. NO ; I understand that.
Mr. WIGGIN. Yes; and the losses, you understand, had not been*
sustained. I t was just a market value that had changed. They had
not taken the losses.
Senator COUZENS. SO there were no losses at all, ©r just contemplated losses ?
Mr. WIGGIN. I do not know whether there had been any losses taken
or not. I will have to find that out.
Senator COUZENS. I think that is important, because I can compre^
hend the difference between a contemplated loss and actual loss.
Mr. WIGGIN. Senator, I can answer that question. Any actual
loss would be taken out before the earnings showed.
Senator COUZENS. SO that whatever actual loss you had was taken
out before you reported the six million-plus earnings?
Mr. WIGGIN. Correct. So that the only loss covered by this, wias a
possible loss, not a realized loss.
STOCK EXCHANGE PEACTICES
2393
Mr. PECORA. Well, it was the loss that would have been sustained
had there been liquidation at the end of that year.
Mr. WIGGIN. At that time, yes, sir.
Mr. PECORA. Have you before you a copy of the report to the
shareholders of the Chase National Bank and of the Chase Securities
Corporation made by you as chairman of the governing board, for
the year 1931?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Will you turn to page 15 of that report?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. There is included on that page of the report
the foh
lowing statement:
The corporation is a holding company for various affiliates and has alsa
a general portfolio of its own. It owns and carries at cost on the annexed
balance sheet approximately 98 percent of the stock of the American Express
Co. and all of the stock, except directors' shares, of the new Equitable Trust
Co., formed at the time of the merger of the Chase National Bank and The
Equitable Trust Co. of New York, to perpetuate the name and to conduct a
general trust business. It also owns all of the stock of Chase Harris Forbes
Cos., which it carries on the balance sheet at cost less the amount of all knowp
losses and portfolio market declines of that company since the date of acquisition in August 1930.
As to the other assets of the corporation which comprise its general portfolio, it has been thought advisable, in spite of the abnormally low prices whieft
prevail in the security markets, to mark them down to market prices as of
December 31, 1931, and to write off all losses, including all obligations under
syndicate operations. To provide for this a proposal to reduce the stated
capital of the corporation is submitted to the stockholders. Upon the approval
of the stockholders the capital of the corporation, as shown in the annexed
balance sheet, will be $40,000,000 and the surplus and profits $18,000,000, with
reserves for taxes and contingencies of $2,479,748.74.
Income of the corporation in excess of $1,850,000 dividend paid has been
applied toward the reduction of cost of inventory.
Now, as a matter of fact, Mr. Wiggin, did not the Chase Securities
Corporation take out of its capital funds and undivided profits sums
aggregating $51,987,313.01 as a reserve against losses and depreciation of the securities in its portfolio as of the close of the year
1931?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. That amount of fifty-one million nine hundred thousand and odd dollars was made up by the allocation of $37,078,919.34
from the capital surplus and $14,908,393.67 from the undividedprofits account.
Mr. WIGGIN. Correct.
Mr. PECORA. Was there any statement embodied anywhere in the
report for the year 1931, which you caused to be issued to the shareholders, of that fact?
Mr. CONBOY. You mean in addition to what you have read from
the report for 1931?
Mr. PECORA. YOU can consider it that way.
Mr. WIGGIN. I do not know whether there was any other notice
sent out. They are unable to find the notice of the stockholders?
meeting, that might have said something on the subject, but this
statement, of course, is like the other one we have discussed. It shows
just what we had left after the change.
2394
STOCK EXCHANGE PRACTICES
Mr. PECORA. I S there any reason why that detailed information was
not embodied in the annual report to the shareholders for the year
1931?
Mr. WIGGIN. Not that I know of.
Mr. PECORA. In order to give such shareholders a complete picture
of the operations and financial condition of the corporation, such a
statement would have been necessary, would it not?
Mr. WIGGIN. N O ; I do not think so. This showed just what they
had left. There was nothing there except what is plain reading.
They had so much left.
Mr. PECORA. HOW could a shareholder, from the reading of that
report, learn that during the year, or at the end of the year, reserves
from capital funds amounting to nearly $52,000,000 had been set up
as reserves for losses and depreciation of securities in the portfolio!
Mr. WIGGIN. By comparison.
Mr. PECORA. What is that?
Mr. WIGGIN. By comparison.
Mr. PECORA. HOW would you have made the comparison?
Mr. WIGGIN. Taken the last year's figures and compared them.
Mr. PECORA. Suppose you take the report for the last year and
see if you can arrive at it by a comparison with the report for the
year 1931. Just sit down and try to do it yourself.
Mr. CONBOT. You want him to remain seated?
Mr. PECORA. I suggest that Mr. Wiggin himself do that without
the aid of any expert accountant, because I take it the average
shareholder is not calling in an expert accountant te enable him to
analyze the report.
Mr. WIGGIN. I am trying to save some time, that is all. The
statement of December 31,1930, shows the capital surplus and profits
account at $108,594,000.
Mr. PECORA. What page are you reading from?
Mr. WIGGIN. In the back part of the book, Mr. Pecora, next to
the last.
Mr. PECORA. I t shows capital surplus and profits of $108,594,000;
yes.
Mr. WIGGIN. And the statement of the following year, December
51,1931, shows capital surplus and profits account of $58,000,000.
Mr. PECORA. What is the difference?
Mr. WIGGIN. $50,594,000.
Mr. PECORA. The actual reserve was fifty-one million nine hundred and eighty-seven thousand and odd dollars, was it not—the
reserve for the year 1931 ?
Mr. WIGGIN. Yes, sir. Probably the balance was out of earnings,
Mr. PECORA. What is that?
Mr. WIGGIN. I assume the balance came out of the earnings.
Mr. PECORA. Are the earnings set forth in the 1931 report?
Mr. WIGGIN. I will have to look. [After examining document:]
All it says on that is that the income in excess of the $1,850,000 dividend has been applied to reduction of cost of inventory. I t does not
say how much.
Mr. PECORA. Which would not have enabled any shareholder, by
a comparison or analysis of the two reports for the years 1930 and
1931, respectively, to have ascertained exactly what sum was set up
STOCK EXCHANGE PBACTICES
2395
as reserves against losses and depreciation at the end of the ye^r 1931,
would it?
Mr. WIGGIN. No; not easily. They would have to get the two
figures together.
Mr. PECORA. SO that even a certified public accountant, by an
analysis of the two reports, could not have reached that figure of
fifty-one million nine hundred and eighty-seven thousand and odd
dollars?
Mr. WIGGIN. There is no other way to reach it. If you have a
difference, the other must have come out of earnings, Mr. Pecora.
There was not any other place it could come from.
Mr. PECORA. Kfow, refer again to your photostatic copy of the
tabulation marked in evidence just before recess today as committee
exhibit no. 8.
Mr. CONBOY. Just in that connection, you have the same heading
there, that was changed yesterday—" from capital", when what it
really means is from surplus, as distinguished from capital a&
capital.
Mr. PECORA. Yes; capital funds.
Mr. CONBOY. I t really means surplus.
Mr. PECORA. Yes; but surplus is part of the capital funds. We
will consider the word " capital" as referring to surplus.
Mr. CONBOY. I t might be misleading if it were not so understood*
Mr. PECORA. That is why we put it on the record now.
According to this tabulation shown on exhibit 8, were any reserves
provided out of capital funds, such as surplus and undivided profits,
at the end of the year 1932 as a reserve for losses or depreciation in
value of securities in the portfolio?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. What amount?
Mr. WIGGIN. $4,713,676 total;
$2,921,000 from surplus and $1,792,000 from profit account.
Mr. PECORA. I S that aggregate reserve made up by the allocation
of $2,921,080.66 from the surplus, and $1,792,595.98 from the undivided profits?
Mr. WIGGIN. I so understand.
Mr. PECORA. Was there any statement of that embodied in the
annual report issued to the shareholders of the bank and the Chase
Securities Corporation for the year 1932?
Mr. WIGGIN. Shall I read from the report the only part I find
that connects with that?
The CHAIRMAN. Yes. Just state what the report says.
Mr. PECORA. State the page on which it appears.
Mr. WIGGIN. Page 15, in the middle of the page [reading] :
Income of the corporation, after expenses, has been applied toward the reduction of the corporation's portfoUo value or added to reserves.
Mr. PECORA. That is the only statement you can point to in the
report for the year 1932 that would serve to give the shareholder the
information concerning the amount of the reserve set up against
losses or depreciation?
Mr. WIGGIN. The last paragraph in that section, over on the next
page, reads as follows [reading] :
The suggested par value of $5 per share for the authorized 7,400,000 shares
Digitized forof
FRASER
the corporation's stock wiU constitute the capital of the corporation,.
2396
STOCK EXCHANGE PRACTICES
$37,000,000, instead of the present capital of $40,000,000. The difference of
$3,000,000 will be added to the corporation's reserves. Upon the approval of
the stockholders of this proposal, the capital of the corporation as shown on
the annexed balance sheet will be $37,000,000 and the surplus and profits
$18,000,000 with reserves for taxes and contingencies of $3,874,890.41.
Mr. PECORA. DO you regard that as giving the shareholder complete information with regard to those reserves?
Mr. WIGGIN. I think so.
Mr, PECORA. YOU say you think so?
Mr. WIGGIN. I think so. I think it might have been more clearly
expressed, but I think it is all there.
Mr. PECORA. Would the shareholder, in order to gather all this
information, have to make comparisons with the report for the preceding year?
Mr. WIGGIN. I do not think so. I think it is all there.
Mr. PECORA. Where is there, in anything you have read, or anything else you can refer us to in that annual report of 1932, anything which tells the shareholder that total reserves of four million seven hundred thirteen thousand and odd dollars have been set
up as a reserve out of capital funds, consisting of surplus and undivided profits, as a reserve against losses or depreciation?
Mr. WIGGIN. I t does not tell him that amount has been set up, but
it shows him what is left.
Mr. PECORA. Will you be good enough, Mr. Wiggin, to turn to
the printed copy of the annual report to the shareholders for the
year 1932, the third from the last page thereof, entitled " Statement of the condition of Chase Securities Corporation, including
the Equitable Corporation of New York and Interstate Corporation, at close of business December 31,1932." Do you have that?
Mr. WIGGIN. Yes,
Mr. PECORA. DO
sir.
you find an item under the caption of "Resources", entitled "Securities and investments, $91,340,996.56"?
Mr. CONBOY. You have not read the entire caption, have you?
Mr. PECORA. I t is small print. I will read the rest of the caption.
After the statement " at the close of business December 31, 1932,"
appears the following:
Giving effect to change of shares from no par value to $5 par value, to b&
voted on at stockholders' meeting January 10, 1933.
In other words, it seems to me, now that you have called my
attention to that part of the caption, that in the annual report for
1932 they were presenting figures based upon something that was
expected the stockholders would do some time in January 1933, whicli
I think might be regarded as not forming part of the report of the
operations for the year 1932.
Mr. CONBOY. That is not a question, is it?
Mr. PECORA. I t is an observation that the witness may reply to
if he differs with it.
Mr. CONBOY. YOU do not want us to reply to your observations,
do you? You want us to answer your questions.
Mr. PECORA. I hope to get the answers. I will not press the question last addressed to the witness, but I will ask him this
Mr. WIGGIN. What is the last question?
Mr. PECORA. I am going to withdraw it.
STOCK EXCHANGE PEAOTIOES
2397
Mr. WIGGIN. Is there any question that I have not answered ?
Mr. PECORA. Yes; the one about the $91,000,000 item; but ignore
that for the time being, and let me ask you this
Mr. WIGGIN. I did not understand that it was a question.
Mr. PECORA. Let me ask you this question now. On this page of
the printed report to the shareholders for the year 1932 that I'have
already called attention to, the inscription that forms the last part
of the caption reads as follows:
Giving effect to change of shares from no par value to $5 par value to be
voted on at stockholders' meeting January 10, 1933.
Now, let me ask you this: At the time this report was issued by
you to the shareholders it purported to relate the operations of the
^company for the calendar year 1932, did it not?
Mr. WIGGIN. I t was a report of the year's business; yes, sir.
Mr. PECORA. For the calendar year ending on December 31, 1932?
Mr. WIGGIN. Yes, sirl
Mr. PECORA. Why was there included in the report for that year
tiiis statement of the condition of Chase Securities Corporation at
the close of business December 31, 1932, which gave effect to changes
of shares from no par value to $5 par value, that had not yet been
made?
Mr. WIGGIN. I t seems to me to be the most direct picture they
•could have given, to give those figures. This report was not given
out until the stockholders' meeting and with that plan already in
preparation; and it seeins to me it is a much more correct picture
than anything else that could be given.
Mr. PECORA. Were you anticipating that the stockholders would,
on January 10, 1933, take certain action?
Mr. WIGGIN. It was presented January 10.
Mr. PECORA. This report was presented to the meeting of the
shareholders on January 10, 1933?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Hence, it was already set up,
Mr. WIGGIN. Not distributed; no, sir.
Mr. PECORA. It was already set up and
printed, distributed
printed in the form in
which it now appears ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. When you
set up this statement of the condition of
Chase Securities Corporation, in your annual report for the year
1932, in the form in which it appears, did you know when you prepared the report or caused it to be prepared, what action the stockholders were going to take with regard to establishing the par value
of the shares at $5 ?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. HOW did you know it?
Mr. WIGGIN. The proxies were already received for the meeting.
Mr. BISBEE. I t was the same day.
Mr. WIGGIN. I gave this out the day of the meeting.
Mr. PECORA. What was the purpose of this establishment of a
par value of $5 for capital shares wnich previously had no par value?
Mr. WIGGIN. May I read a paragraph from the report that I think
will answer that question?
The CHAIRMAN. Yes. Eead it, Mr. Wiggin.
2398
STOCK EXCHANGE PRACTICES
Mr. WIGGIN (reading) :
In order that the stockholders of Chase National Bank and Chase Securities
Corporation may not be unduly handicapped in comparison with other similar
institutions in the payment of State and Federal stoqk-transfer taxes, it is
proposed to the stockholders that shares of the stock of the corporation of
no par value be changed into shares with a par value of $5 per share, the even
dollar amount nearest to the present per share capital of the corporation.
This will at present, under existing laws, reduce State and Federal stock
transfer taxes in the State of New York from $9.80 per hundred shares to
$2.20 per hundred shares for stock of the Chase National Bank and Chase
Securities Corporation.
Mr. PECORA. YOU read that from page 15 of this annual report for
the year 1932, did you not?
Mr. WIGGIN. Yes.
Mr. PECORA. Was that the sole purpose of effecting this change in
the capital structure?
Mr. WIGGIN. So far as I know.
Mr. PECORA. By any chance was it done in order to reduce the
capital of the corporation and, to the extent of such reduction, provide additional funds for surplus that could be drawn upon as reserve for losses ?
Mr. WIGGIN. I do not think so.
Mr. PECORA. That could have followed as a consequence, could it
not?
Mr. WIGGIN. I t was not necessary.
Mr. PECORA. But it could have followed ^ts a consequence of the
establishment of a par value of $5 for the shares?
Mr. WIGGIN. YOU mean, it increased the surplus ?
Mr. PECORA. Yes.
Mr. WIGGIN. I t did certainly increase the surplus.
Mr. PECORA. And from the increased surplus additional
funds were
available as a reserve for losses and depreciation of securities?
Mr. WIGGIN. Yes. But this action was not necessary to do that.
Mr. PECORA. Was it not done partly to provide additional surplus
funds?
Mr. WIGGIN. I do not think so; no.
Mr. PECORA. But that was the effect? Whether it was the intent
or not, that was an effect?
Mr. WIGGIN. They could reduce the capital without a par value,
Mr. PECORA. I say, one of the effects, or an effect of what was done,
was to have brought about a change in the capital structure that
provided additional funds for a surplus from which reserves could
be taken as a set-off against loss and depreciation?
Mr. WIGGIN. I agree with you that it reduced capital and increased
surplus.
Mr. PECORA. During the following year, or, rather, the first 6
months of the ensuing year, which would take us to June 30 of this
year, were not reserves aggregating $41,000,000 provided out of
capital funds, such as surplus and undivided profits, as a set-off
against losses and depreciation?
Mr. WIGGIN. YOU appreciate that you are now beyond my term
as an officer in Chase Securities?
Mr. PECORA. Are you still a director of the bank?
Mr. WIGGIN. NO, sir.
STOCK EXCHANGE PEACTICES
2399
Mr. PECORA. YOU are still carried on its pay roll at the rate of
$100,000 a year to give counsel to the bank, are you not?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. DO you know nothing at all about the circumstances
under which this reserve of $41,000,000 was set up out of capital
funds on June 30 of this year?
Mr. WIGGIN. I have not been consulted on it at all, sir. I can only
state from looking at some figures that somebody furnishes me.
The CHAIRMAN. DO you know whether the records show that?
Mr. WIGGIN. I assume so. The record is right here in front of us.
Mr. PECORA. This figure is taken from exhibit 8, Mr. Chairman,
which is in evidence, and it was conceded before it was put in evidence that it had been checked up by .the authorities of the bank
and found to be correct.
Mr. CONBOY. I do not think there is any dispute about it, Mr.
Pecora.
The CHAIRMAN. Let him say so, then.
Mr. BISBEE. It speaks for itself.
Senator COTJZENS. I object to these counsel interrupting and making speeches and injecting things into the record when we are examining the witness. I cannot follow the testimony with that going on.
Mr. CONBOY. I trust that I am not an offender in that regard.
Mr. BISBEE. I was endeavoring to be helpful.
The CHAIRMAN. Certainly this question the witness can answer
without any assistance. Was that change actually made, changing
the par value of the stock?
Mr. WIGGIN. Yes, sir.
Mr. AIDRICH. Don't you
think, if you are going to examine on
something that happened after Mr. Wiggin was an officer, you had
better examine me?
Mr. PECORA. Well, while Mr. Wiggin is on the stand, in view of
the fact that he is still carried on the pay roll of the bank to render
service to it, at a very substantial annual salary, I do not see any
•objection to finding out from this witness just what he knows, if anything, about these things.
Mr. AJUDRICH. He has already stated that he does not know anything about them.
Mr. PECORA. Let me ask you, Mr. Wiggin, if it is not a fact, to
your knowledge, that the reason for setting up reserves aggregating
-$41,000,000 on June 30 of this year against losses and depreciation
in security value was because of transactions of the Chase Securities
Corporation that had been consummated prior to the time that you
withdrew from active participation in its affairs?
Mr. WIGGIN. I think so. I think that that mark-down was from
previous investments.
Mr. PECORA. The setting up of the reserve at the end of the year
1932, of four million seven hundred thirteen thousand and odd dollars
was done while you were the executive head?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Were securities
values as of the end of December
1932, generally speaking, higher or lower than the market values
of those securities as of June 30,1933?
2400
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. I do not know. I t is not a question of what general
securities were; it is what particular securities that this company
had.
Mr. PECIORA. With regard to the securities now held in the portfolio of the Chase Securities Co. at the end of the year 1932?
Mr. WIGGIN. I do not know. I would have to look it up.
Mr. PECORA. What would you say to that on the basis of your
general knowledge of the general trend of market values of securities between December 31,1932 and June 30,1933?
Mr. WIGGIN". I should suppose they were lower in July than they
were in December, but I do not know.
Mr. PECOKA. Lower at the end of June last than they were at the
end of December last?
Mr. WIGGIN. I would have to look and see just what securities they
had. I t does not make any difference what other securities were;,
it is what these securities were.
Mr. PECORA. Let us go back to that page of the annual report for
the year 1932 entitled " Statement of the Condition of Chase Securities Co. at close of business December 31, 1932", and let me
again draw your attention to the item appearing on that page under
the caption of " Resources."
Securities and investments, $91,340,996.56.
Have you got that before you?
Mr. WIGGIN. Yes.
Mr. PECORA. TO what did that item refer?
Mr. WIGGIN. The various securities carried by the company.
Mr. PECORA. That is, it represented an aggregate market value
as
of that date ?
Mr. WiGGiisr. No, sir; it represented the inventory value of that
date.
Mr. PECORA. What difference was there between inventory value
and market value?
Mr. WIGGIN. I do not know. I do not know that there was any
market for a great many of the securities.
Mr. PECORA. From what bases were inventory values determined
in making up the inventory statement for the end of that year of
the securities in the portfolio if it was not made up entirely from
market value?
Mr. WIGGIN. On securities that have a market value, market value
is the fair value to take. On securities that have no market value,
the fair valuation is the fair value to take.
Mr. PECORA. The fair valuation in whose judgment?
Mr. WIGGIN. I do not know who is the actual referee of those
things.
Mr. PECORA. Who did actually act in preparing the inventory
statement of the corporation at the end of last year?
Mr. WIGGIN. The officers of the company.
Mr. PECORA. W ^ S your own judgment included ?
Mr. WIGGIN. I suppose so; I don't remember, but I assume I was
consulted.
Mr. PECORA. YOU mean that you do not recollect whether you
took part in determining the inventory value of securities in the
STOCK EXCHANGE PEACTICES'
2401
portfolio of your company as of December 31, 1932, where those
securities consisted of inactive securities?
Mr. WIGGIN. I do riot reca J, but I presume I was consulted on the
valuation of the American Express stock, which was a big item.
Mr. PECORA. HOW many shares of capital stock of the American
Express Co. were included in this item of ninty-one million
three hundred and forty-odd thousand dollars.
Mr. WIGGIN. 176,996 shares.
Mr. PECORA. And what value was ascribed to them as of December
31, 1932, for purposes of this annual report?
Mr. WIGGIN. $40,031,677.
Mr. PECORA. And 85 cents?
Mr WIGGIN. And 85 cents.
Senator COUZENS. Was that based on the market value ?
Mr. WIGGIN. There was not any market value. We owned them all.
Senator COUZENS. That is what I would like to have you describe.
Mr. PECORA. I was coming to that.
Senator COUZENS. I would like to have you describe what you mean
by fair value. In answer to a question of Mr. Pecora you said that
in case of a market value, you took market value, and in case of no
market value, you took fair value.
Mr. WIGGIN. This was taken at cost which we thought was the
fair price.
Senator COUZENS. What made you think that cost was the fair
price at that time? Was it based on a trial balance or earning
capacity, or what?
Mr. WIGGIN. Based on the balance sheet and earning capacity. I t
is a company that has earned its dividend right through this whole
depression.
Senator COUZENS. While we are on this question, if Mr. Pecora
does not mind, I would like to have a better definition than just that
as to how you arrive at fair value. Take, for instance, the clearinghouse report of June 29,1932. I see that there are $20,772,740 worth
of Fox Film debentures. Did they have a market value ?
Mr. WIGGIN. I do not think so.
Senator COUZENS. HOW would you arrive at a fair value of those?
Mr. WIGGIN. They are undoubtedly good bonds, and you would
fix it on what you think is a fair price on a bond that will pay at
that particular maturity, but a bond without any market value.
Senator COUZENS. Also $6,000,000 of Fox Film loans. How would
you fix the value of those ?
Mr. WIGGIN. In the same way.
Senator COUZENS. They were good, were they?
Mr. WIGGIN. They were good.
Senator COUZENS. And vou also had $10,700,000 of General Theater Equipment loans. Were they good?
Mr. WIGGIN. They had a market value, didn't they?
Senator COUZENS. They did have a market value.
Mr. ALDRICH. May I answer that question; because that affects
the bank today? Those Fox loans and General Theatres loans have
all been written off now to a point where the securities, which we
now hold at market, are a greater value than the amount that we
carry on loans on our books.
2402
STOCK EXCHANGE PRACTICES
Senator COUZENS. I was reading from a report made prior to
your going into it.
Mr. ALDRICH. That affects our position today; but I would like
to state right now that those obligations—and I will explain it
later on when I come to be examined—have been written off to a
point at the'market where a number of them have been converted
into things that more than cover the amount of write-off.
Senator COUZENS. Were those write-offs included in the forty
million odd?
Mr. ALDRICH. They are not in the Chase Securities Co. at all;
they are in the bank.
The CHAIRMAN. What was the write-off? Do you remember?
Mr. ALDRICH. I prefer to wait and give you that in detail, Senator.
Senator COUZENS. All I want, and was trying to get, is what you
Wall Street men use as a yardstick for arriving at fair valuation.
Mr. PECORA. That is, where there is no market value.
Senator COUZENS. Yes.
Mr. ALDRICH. The point I am trying to make is that those Fox
obligations had been written off or reserved against until they had
reached the point where the market value of the obligations which
we now hold is greater than the amount we have written off.
Senator COUZENS. I want to advert to the criticism that has evidently been directed by Mr. Pecora: The fact that these statements
that are rendered to the stockholders do not actually show a fair
representation of the condition during the period over which the
reports are made. Mr. Wiggin seemed to be quite satisfied that all
the stockholder's interest was how much he had left; and that
reminds me of the old-fashioned single-entry bookkeeping, when a
merchant or a manufacturer or what not wound up his year's business
by figuring how much more he had at that time than he did the year
before, and that was all he was interested in. I thought we had
developed our science of bookkeeping and accounting since then
so that the stockholder had a greater interest than just simply knowing what he had left. But I was interested to know that Mr. Wiggin
was still old-fashioned enough to believe that that was all the interest
that the stockholder had.
Mr. ALDRICH. Senator, you understand the only thing I have in
mind is that I am interested in not having any false impression get
abroad as to the condition of the bank today.
Senator COUZENS. Oh, I am not trying to embarrass the Chase
National Bank at this moment. I am trying to arrive at the methods
employed up to the time we were making this examination.
Mr. ALDRICH. I understand that.
Senator COUZENS. I am informed unofficially and not on the record
that the bank is run differently now than it was prior to January 1,
1933.
Mr. ALDRICH. I only interjected for the reason that I wanted to
explain it.
Mr. PECORA. Mr. Wiggin, going back to this item of ninety-one
million three hundred and forty thousand and odd dollars embodied
in the statement of the condition of the Chase Securities Corporation
as of December 31, 1932, you say there was included in that item of
securities and investments carried at that 91-million-dollar figure
STOCK EXCHANGE PRACTICES
2403
176,996 shares of the capital stock of the American Express Co.,
which were carried at an inventory value of $40,031,6t7.85, which
inventory value corresponded to the cost.
Mr. CONBOY. Would you mind if we have that question read?
Mr. PECORA. I was merely bringing Mr. Wiggin's attention back
to that particular item. I t was not a question. I was merely bringing his attention back to that particular item because I am now-going
to question him more in detail.
Mr. WIGGIN. Mr. Pecora, at the top of page 15 of the report, the
report distinctly states as follows:
Chase Securities Corporation owns, and carries at cost on the annexed
balance sheet, in excess of 98 percent of the stock of the American Express,
Co. and also all of the stock, except directors' shares, of the Equitable Trust
Co., formed at the time of the merger of the Chase National Bank and the
Equitable Trust Co. of New York to perpetuate the Equitable name and conduct
a general trust business. It also owns all of the stock of Chase Harris Forbes
Companies, which it carries on the balance sheet at cost less the amount of all
known losses and portfolio market declines of that company since the date of
acquisition in August 1980.
Mr. PECORA. YOU have already called attention to that.
Mr. WIGGIN. Yes; but it has a direct bearing on the inventory.
Mr. PECORA. I am now confining myself simply to the block of
one hundred and seventy-six thousand and odd shares of American
Express Co. stock which you say was included in this tern of securities
and investments at a valuation of ninety-one million three hundred
and forty thousand and odd dollars.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. YOU also
said that those shares of the American
Express Co. stock included in this item of securities and investments
were carried on the books as of the close of the year 1932 at the cost
price of $40,031,677.85.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. That one
class of security represents about 42 percent
of all of the securities and investments that are grouped together
in this item of resources totalling ninety-one million and odd
dollars ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. On December
31, 1932, did the Chase Securities Corporation own these 176,000 and odd shares of American Express Co.
stock free of any lien?
Mr. WIGGIN. NO, sir.
Mr. PECORA. What lien was on them at the time?
Mr. WIGGIN. They were pledged as collateral to
a loan to the
Chase National Bank.
Mr. PEOORA. And when had they been so pledged?
Mr. WIGGIN. I cannot give you that date.
Senator COUZENS. Was it prior to the time that this was set up in
this report?
Mr. WIGGIN. Oh, undoubtedly.
Senator COUZENS. And do you know how much it was?
Mr. WIGGIN. YOU see, the liabilities at that time—I will tell you
how much this liability was—the liabilities were $20,247,000.
Mr. PECORA. Was not this particular loan for $17,586,810.67?
Mr. WIGGIN. I will ascertain that. I have not got it here.
175541—33—PT 5
9
2404
STOCK EXCHANGE PRACTICES
Senator COTTZENS. While they are looking that up, Mr. Wiggin,
let me ask you a question. Assuming an applicant for a loan at
your bank made a statement such as has been read into the record
without showing a lien of $17,586,000 against a certain collateral
or asset, would he not be liable to a jail sentence if he got a loan,
for a misstatement, in securing funds under false pretenses?
Mr., WIGGIN. Well, I do not know what the law is, but I know if
Chase Securities borrowed money they told about this thing. There
was no concealment.
Senator COUZENS. Assuming that the Chase Securities went to
another institution outside of yours and borrowed money and presented such a statement, it seems to me that they would be obtaining
money under false pretenses.
Mr. WIGGIN. They would noti have done that.
Senator COUZENS. That is an assumption.
Mr. PEOOKA. What is that?
Mr. WIGGIN. They would not have done that.
Mr. PEOORA. They would have shown the lien ?
Mr. WIGGIN. Yes.
Mr. PEOORA. Why
was not the lien shown in this report to the
shareholders?
Mr. WIGGIN. What difference does it make?
Mr. PECORA. The only difference that I can think of is that it
would have given the shareholders a true and correct picture.
Mr. WIGGIN. Well, it did not affect them one way or another.
The stock is not worth anything until the liabilities are paid.
Mr. PECORA. What difference does it make to the bank, then,
when a customer seeks to borrow money and is asked to present a
verified financial statement of his condition?
Mr. WIGGIN. What is the question, Mr. Pecora ?
Mr. PECORA. Perhaps Mr. Bisbee will give you the answer. If
you want to answer for the witness I am willing to let the record
show it, Mr. Bisbee. I am asking these questions of a man who
for years was the executive head of this bank and presumably knows
something about banking practices.
Mr. WIGGIN. What is the question?
(The question was thereupon read by the reporter as above recorded as follows):
Mr. PECORA. What difference does it make to the bank, then, when a customer seeks tQ borrow money and is asked to present a verified financial
statement of his condition?
Mr. PECORA (continuing). Whether or not in presenting that fi-
nancial statement he omits to state that assets carried by him are
subject to liens?
Mr. WIGGIN. This is a theoretical question?
Mr. PECORA. I t is more than that, Mr. Wiggin.
Mr. WIGGIN. YOU want my opinion or guess on a theoretical
question?
Mr. PECORA. Yes.
Mr. WIGGIN. Let
me think that over. Of course, as you put it5
it has no bearing on this case.
Mr. PECORA. Answer it anyway. The committee will judge
whether it has a bearing.
STOCK EXCHANGE PRACTICES
2405
Mr. WIGGIN. Why, I think a lender of money is entitled to know
when the concern's assets are pledged.
Mr. PECORA. I S not a shareholder entitled to a knowledge equiva*
lent to that when a report is given to him purporting to represent
his company's operations and state of condition?
Mr. WIGGIN. Yes; but it does not affect the stockholder one way
or another.
Mr. PECORA. Each stockholder himself can judge of that bettey
than anyone else, can he not?
Mr. WIGGIN. I can see no impropriety in listing an inventory as
an asset without explaining that so many of them are hypothecated.
I t does not affect the stockholders at all.
Mr. PEOORA. YOU mean that in this case it would not affect the
stockholder or the shareholder of the Chase Securities Corporation
to know what liens were impressed upon assets of the company in
favor of the Chase National Bank because, perchance, such a share*
holder was an equal shareholder in the bank. Is that what you
mean?
Mr. WIGGIN. NO, I do not mean that. That has nothing to do
with that equal ownership. I t is simply that the capital stock of
any corporation has no value until the liabilities are paid. Whether
the liabilities are secured or unsecured does not affect the value of
the stock.
Mr. PEOORA. But when a bank makes a loan to a customer on a
financial statement does not the bank require the customer to in*
elude in his financial statement of assets whether or not those assets
are subject to any lien?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. Why does the bank want to know that? Of what
value is it to the bank in such cases?
Mr. WIGGIN. Each bank wants to be in just as good a condition as
any other lender.
Mr. PECORA. DO you not think similar information would be of
some value to the shareholders of the Securities Corporation?
Mr. WIGGIN. I do not see that it would be of any value,' but I
would have no objection to giving it to them.
Mr. PECORA. Was it ever given to the shareholders in any annual
report ?
Mr. WIGGIN. Of the Securities Corporation?
Mr. PECORA. Yes.
Mr. WIGGIN. I do
not think so. I think it was always done tthe
same way.
Mr. PECORA. In this printed report to the shareholders of bothrthe
Chase National Bank and the Chase Securities Corporation for the
year 1931 there is also included a balance sheet statement of the
condition of the bank as of December 31, 1932, is there not?
Mr. WIGGIN. I think I got the date wrong to begin with. Which
year are you on now, Mr. Pecora?
Mr. PECORA. AS of the end of the year 1932.
Mr. CONBOY. Your question referred to the year 1931.
Mr. PECORA. For the year 1932,1 meant. Thank you.; 1932.
Mr. WIGGIN. The question was about the bank statement?
2406
STOCK EXCHANGE PRACTICES
Mr. PECORA. In this printed report to the shareholders of both the
Chase National Bank and the Chase Securities Corporation, showing
the condition of those two institutions on December 31, 1932, there
is included a balance sheet statement of the condition of the bank
as of that date, is there not?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Will you
turn to that balance sheet statement in that
report?
Mr. WIGGIN. Yes.
Mr. PECORA. Under the option of " Resources " do you find therein
an item of " Loans and discounts " of $887,187,429.74?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Presumably
included in that item is this loan of
seventeen million five hundred thousand and odd dollars to the
Chase Securities Corporation which was secured by the collateral
consisting of these one hundred and seventy-six thousand and odd
shares of American Express Co. stock?
Mr. WIGGIN. Undoubtedly.
Mr. PECORA. In view of that fact might not an analyst of the
report of both the bank and the securities corporation for the year
1932 find a duplication of this seventeen million five hundred thousand and odd dollars item in the joint assets of the bank and the
securities corporation?
Mr. WIGGIN. Well, it is an asset on the bank statement and a
liability on the securities corporation statement. The bank statement does not include the statement of the securities corporation, and
that is printed at the bottom, if you will notice.
Mr. PECORA. NOW, Mr. Wiggin, will you refer again to your copy
of committee exhibit no. 8 of this date ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. That is that photostatic sheet which you have there.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And see if I make therefrom a correct statement or
summarization of it. Cash paid by the public for capital stock of
Chase Securities Corporation from its inception in 1917 down to the
30th of June of this year, aggregated $68,343,785?
Mr. WIGGIN. That is correct.
Mr. PECORA. Stated value of all the capital stock issued by Chase
Securities Corporation in exchange for capital stock of other corporations which were merged with it, was $47,027,567.65 ?
Mr. WIGGIN. Correct.
Mr. PECORA. That makes a total of capital, both in cash and in
capital stock of absorbed companies, provided by the public to the
capital funds of Chase Securities Corporation, of $115,371,352.65,
does it not?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. NOW, the
net earnings after payment of taxes accruing to the company from its inception to the 30th day of June 1933
aggregated $41,081,956.19.
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. And that added to its capital and the capital value
of stock of other companies that it took in exchange in connection
STOCK EXCHANGE PEACTICES
2407
with mergers, gave a total capital and net earnings to the company
from its inception down to June 30,1933, of $156,453,308.84.
Mr. WIGGIN. That is right.
Mr. PECORA. That is correct, is it not?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. NOW, of this
sum there was paid out in dividends to
shareholders, that is to say, cash dividends, the aggregate sum of
$21,907,500.
Mr. WIGGIN. Correct.
Mr. PECORA. And there was also set up for reserves to cover losses
or against depreciation in value of securities carried in its portfolio, from its inception down to June 30, 1933, sums aggregating
$120,138,075.87.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. NOW, that
left on June 30,1933, out of all the capital
funds and earnings of the company a capital and surplus of $14,407,732.97.
Mr. WIGGIN. Yes,
Mr. PECORA. And
sir.
that was divided into a capital of $7,400,000,
and surplus, including earned surplus of $407,732.97, of $7,007,732.97.
Mr. WIGGIN. That is correct.
Senator COUZENS. SO those figures show that you lost considerably over five times as much as you earned, or I mean rather than
as you paid in dividends?
Mr. WIGGIN. The mark-downs equal that, yes. But you understand they have not necessarily sold the securities.
Senator COTJZENS. Have you any information as to the part of the
$120,138,075.87 which has been actually lost, and how much of it
is a write-down?
Mr. WIGGIN. NO.
Senator COUZENS.
I assume that your records would show what
part of that loss had been taken off your income-tax returns, would
they not?
Mr. WIGGIN. Undoubtedly.
Senator COUZENS. YOU could not take any of this charge off from
your income-tax returns until it had been realized, could you ?
Mr. WIGGIN. That is the way I understand it.
Senator COUZENS. Would you consider that a very good record ?
Mr. WIGGIN. Oh, I think that is a very unfortunate record, but this
is a world trouble and we &re probably better than the average.
There were some security companies that were wiped out entirely,
many of them.
Mr. PECORA. DO you think this record vindicates the judgment of
the authorities of the bank when through the securities affiliate they
engaged in issuing securities, and underwriting them, trading in
them?
Mr. WIGGIN. The figures do not verify that; no, sir.
Mr. PECORA. NO. These results would rather condemn that,
wouldn't they?
Mr. WIGGIN. Of course, until you realize and know what you are
going to get from these assets you won't know how you are to come
out, or what the final result is. But I agree with you that there is
nothing in these figures that is especially pleasant.
2408
STOCK EXCHANGE PRACTICES
Senator COUZENS. Have you any figures which would show how
much of this loss has been actually realized?
Mr. WIGGIN. Not yet. We will have to get that from New York.
Unfortunately we have not got that down here now.
Senator COUZENS. I should like to have that data, because I should
like to know how much of it is left in your portfolio.
Mr. WIGGIN. We will get it for you.
The CHAIRMAN. YOU are not likely to write off more than you are
quite convinced is necessary, are you? That is, you are not likely
to write off what is too exaggerated, are you?
Mr. WIGGIN. Oh, I think frequently they will write off more than
is necessary.
Mr. PECORA. Mr. Wiggin, the Chase National Bank, of course, was
subjected to the various examinations at the hands of examiners of
the Comptroller of the Currency from time to time?
Mr. WIGGIN. Yes,
Mr. PECORA. And
sir.
were examinations also made periodically of the
bank by examiners for the Clearing House Association of New York3
Mr. WIGGIN. Yes, sir.
Mr. PECORA. The Chase
National Bank has been a member of the
Clearing House Association of New York for a great many years?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Are you
familiar with the reports made by those
examiners, both from the Comptroller of the Currency and from
the Clearing House Association?
Mr. WIGGIN. Up to the end of my term of office, yes, sir.
Mr. PECORA. NOW, in the report for the year 1928 made by the
national bank examiner, do you recall a statement, in words or
substance, to the effect that—
Mr. Albert Wiggin dictates the policies of the bank.
Mr. WIGGIN. I don't remember it.
Mr. PECORA. Well, if such a statement were
made in the report
Would it have been a true statement?
Mr. WIGGIN. N O ; I don't think so. I think that is rather an
exaggeration.
Mr. PECORA. DO you recall that in the report made by the national bank examiner for November 1,1929, the following statement,
in words or in substance, was made:
The total assets for the Chase are the largest of any institution to date by
a considerable extent. Physical and operating conditions are good, with assets
possessing a high degree of liquidity and with earning power excellent.
And you are referred to:
As the most popular banker in Wall Street.
And then there is this further statement :
That the national banking system has a great standard bearer in the Chase
National Bank.
Are you familiar with those statements?
Mr. WIGGIN. I may have seen them but if so I have not at this
time the slightest recollection of it.
Mr. PECORA. DO you think the statements made here, or the one
that you were the most popular banker in Wall Street was a little
exaggeration?
STOCK EXCHANGE PRACTICES
2409
Mr. WIGGIN. Decidedly.
Senator COUZENS. DO you ever employ bank examiners in your
bank?
Mr. WIGGIN. Well, now
Senator COUZENS (interposing). I mean, after a bank examiner
had left the Government service?
Mr. WIGGIN. Yes,
sir.
Senator COTJZENS. HOW many ex-bank examiners have you employed in the Chase National Bank to your recollection?
Mr. WIGGIN. Well, I can only think of one, but there may be
others.
Senator COTJZENS. Who is the one you think of?
Mr, WIGGIN. Mr. Charles Smith.
Senator COUZENS. And was he in the Government service when
you employed him?
Mr. WIGGIN. Well, we negotiated with him when he was in the
Government service.
Senator COUZENS. And he is the only one that you can recall ever
taking out of the Comptroller's office ?
Mr. WIGGIN. He is the only one.
Senator COUZENS. DO your associates recall aiiy other bank examiners who have been employed by the Chase National Bank?
Mr. WIGGIN. They were just reminding me of another name, but
I am not sure whether he was a bank examiner or an assistant bank
examiner. I do not know that I could properly include such a person.
Senator COUZENS. Well, they are &U bank examiners, some being
•chief bank examiners and some assistant bank examiners.
Mr. WIGOIN. Sometimes they are paid by the man and sometimes
paid by the Government, and I suppose one is a Government employee and the other is not.
Senator COUZENS. Where is a case where a chief bank examiner
has paid a man?
Mr. WIGGIN. I was. I was an assistant bank examiner but never
received anything from the Government.
Senator COUZENS. HOW long ago was that?
Mr. WIGGIN. Oh, a long time ago.
Senator COUZENS. I am asking that because I do not think there is
any such practice permitted now.
Mr. WIGGIN. I think the law has changed the whole thing.
Senator COUZENS. Well, I did not want it to go out to the public
that there is anybody paying these examiners today except the
Government.
Mr. WIGGIN. Well, I don't think there is anybody else paying
them now.
Senator COUZENS. And that that practice does not exist now?
Mr. WIGGIN. I don't think it does.
Senator COUZENS. From my observation it has become quite a
common practice among banks throughout the country, especially
during prosperous times, to employ bank examiners, and I suspect
they are sometimes employed because of these fulsome compliments
you commented upon a while ago.
Mr. WIGGIN. I would like to make an answer to that, but let me
get one fact here [consulting an associate].
2410
STOCK EXCHANGE PRACTICES
Mr. BISBEE. Senator Couzens, do you object to my suggesting a
name to the witness of one who might come within your category?
Senator COTTZENS. Not at all.
(There was a consultation between Mr. Bisbee and the witness.)
Mr. WIGGIN. It seems that there are three names suggested of men
who have been assistant bank examiners, not chief bank examiners,
but employment by the Government. Mr. Eovensky
Senator COUZENS. What is his position with your bank?
Mr. WIGGIN. He is a vice president in the foreign department.
And they think that Mr. Telleen was in the comptroller's department, but we are not sure about that.
Senator COUZENS. What is his position now?
Mr. WIGGIN. Assistant vice president. And Mr. Biggerman.
Senator COUZENS. What is his position now?
Mr. WIGGIN. Oh, please leave Mr. Telleen's name off. That is a
mistake they tell me.
Senator COUZENS. GO ahead with your answer.
Mr. WIGGIN. And Mr. Hughes.
Senator COUZENS. What is his position and, also, what is Mr.
Biggerman's position?
Mr. WIGGIN. Second vice president they call it. Mr. Hughes is
assistant cashier. I think, perhaps, I ought to say this: Mr. Smith
is one of our senior officers, who came in, I think, in 1921. We took
him in because we Wanted somebody to help keep things straight and
conservative. It wasn't any reward for anything he had done.
Senator COUZENS. I did not challenge any motive.
Mr. WIGGIN. NO ; I understand.
The CHAIRMAN. HOW many employees of the bank have become
bank examiners; do you know ?
Mr. WIGGIN. I do not think of any, but I cannot be sure.
Mr. PECORA. Mr. Wiggin, do you recall that the National Bank
examiner in his report of April 1930 stated, in words or substance,
as follows:
So long as A. H. Wiggin continues to dominate the policies of this institution
I feel that its responsibility will be as adequately carried on in the future
as in the past.
Mr. WIGGIN. I do not recall it.
Mr. PECORA. And you see again in 1930 the bank examiner referred
to you as—
Dominating the policies of the institution.
And also it had been said by the examiner in 1928. He then
said:
Mr. Albert Wiggin dictates the policies of the bank.
Was it an exaggeration also in 1930?
Mr. WIGGIN. I think so.
Mr. PECORA. Would you say that there was anyone who dominated the policies of the bank in 1930 or exercised greater influence
in determining its policies, than you did?
Mr. WIGGIN. NO, there was no one with any greater influence, but
it was in 1930 when we had the governing board.
Mr. IJECORA. I S that also true about 1928?
Mr. WIGGIN. There was no governing board at that time, but I
do
not think I dictated things at all.
STOCK EXCHANGE PEACTICES
2411
Mr. PECORA. Well, was there any officer of the bank who exercised greater influence in determining or shaping the policies of
the bank in 1928 than you did?
Mr. WIGGIN. Nobody had greater influence.
Mr. PECORA. Mr. Chairman, that concludes this particular line of
examination. I see it is now 10 minutes to 4 o'clock, and I should
like to take up a line of examination with this witness that would
relate to many transactions to which the Metpotan Co. was a party.
I suggest that we now take a recess until tomorrow morning.
Senator COTJZENS. I should like to ask Mr. Wiggin if, through his
long experience in the banking business, he would not believe it
would be a wise precaution to enact a statute prohibiting bank
examiners from being employed by banks for 2 years after they
leave the Government service, something like what was done about
practitioners or employees of the Bureau of Internal Revenue.
Mr. WIGGIN. Yes; I would see no objection to it. But it might
make it more difficult to fill positions in the bank examiner's department of the Comptroller of the Currency, because I think many of
them use it because of an ambition to get into a bank.
Senator COTTZENS. And that ambition to get into a bank might
lead them to reach a wrong conclusion as to the condition of a bank
in reporting to their chief ?
Mr. WIGGIN. N O ; I don't think that kind of fellow would get
position in a bank.
Senator COUZENS. Well, of course you can't tell until after the
event, as a rule.
The CHAIRMAN. There is no difficulty abou^ getting bank exam
iners now.
Senator COTJZENS. Nor any other kind of men.
Mr. CONBOY. Mr. Chairman, before you adjourn I should like to
know something with respect to the status of counsel here. I do not
think I have made any speeches in connection with the examination
of the witness, and such observations as I have made from time to
time have been such as I thought were germane to the examination.
If it is intended that we should discontinue that entirely, we ought
to be so informed. If we are to be here so as to be as helpful as we
can in connection with the examination, all right. I do not like the
criticism that anybody has been making speeches during the examination of the witness. I am sure the remark was not so intended,
but it had an indication of that character.
Senator COUZENS. If the chairman wishes to make reply, he may
go ahead and I will make my comment later.
The CHAIRMAN. We do not object to proper help being given to
the witness from time to time. We just do not want too many interruptions and too many people trying to speak at the same time.
(Thereupon there was a little discussion off the record.)
The CHAIRMAN. The subcommittee will stand adjourned until 10
o'clock tomorrow morning.
(Thereupon, at 3:52 p.m., Wednesday, Oct. 18,1933? the committee
adjourned to meet at 10 o'clock the following morning, Thursday,
Oct. 19,1933.)
STOCK EXCHANGE PEACTICES
THURSDAY, OCTOBER 19, 1933
UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON
BANKING AND CURRENCY,
Washington, B.C.
The subcommittee met, pursuant to adjournment on yesterday, at
10 a.m. in the caucus room of the Senate Office Building, Senator
Duncan U. Fletcher presiding.
Present: Senators Fletcher (chairman), Adams (substitute for
Barkley and proxy for Costigan), Townsend, Couzens, and Goldsborough (substitute for Norbeck).
Present also: Ferdinand Pecora, counsel to the committee; Julius
Silver and David Saperstein, associate counsel to the committee; and
Frank J. Meehan, .chief statistican to the committee; Martin Conboy,
counsel for Albert H. Wiggin; Eldon Bisbee, Henry Root Stern,
Alfred E. Mudge, Joseph B. Lynch, Julian L. Hagen, and C. Horace
Tuttle of Rushmore, Bisbee & Stern, and also Albert G. Milbank,
William Dean Embree, and A. Donald MacKinnon of Milbank,
Tweed, Hope & Webb, counsel for The Chase National Bank and The
Chase Corporation.
The CHAIRMAN. The subcommittee will come to order. You may
proceed, Mr. Pecora.
TESTIMONY RESUMED OF ALBERT H. WIGGIN
Mr. PECORA. Mr. Wiggin, reference has heretofore been made to a
corporation called the Metpotan Securities Corporation. You are
familiar with that corporation, aren't you?
Mr. WIGGIN. More or less; yes, sir.
Mr. PECORA. When was the Metpotan Securities Corporation or*
ganized, Mr. Wiggin?
Mr. WIGGIN. In 1921.
Mr. PECORA. Was that
on the occasion of the merger between
old Metropolitan Trust Co. and the Chase
Mr. WIGGIN (interposing). No, sir. I t was at the time of
merger of the Metropolitan Bank, not the Metropolitan Trust
That was a different institution. At the time of the merger of
Metropolitan Bank with Chase.
Mr. PECORA. Oh, it was the Metropolitan Bank, was it?
Mr. WIGGIN. Yes,
the
the
Co.
the
sir.
Mr. PECORA. I S the Metpotan Securities Corporation still actively
engaged in business ?
Mr. WIGGIN. It is still in business, but I do not know that it is
active.
2413
2414
STOCK EXCHANGE PRACTICES
Mr. PECORA. YOU do not know how active it is ?
Mr. WIGGIN. No.
Mr. PECORA. I t is
a wholly owned corporation, I mean wholly
owned by the Chase Securities Corporation, isn't it?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. And has been from its inception?
Mr. WIGGIN. Yes,
Mr. PECORA. Did
sir.
you hold any office in the Metpotan Securities
Corporation at any time?
Mr. WIGGIN. No, sir.
Mr. PECORA. Were you a director
Mr. WIGGIN. No, sir.
Mr. PECORA. Were you familiar
of it?
with the various activities participated in by that Metpotan Securities Corporation in which the
corporation, with others, traded in the capital shares of the Chase
National Bank?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. I want especially
to call your attention to those activities, embraced within a period of time beginning on January 1,1928,
and terminating on December 31, 1932.
Mr. WIGGIN. All right.
Mr. PECORA. DO you recall a joint account that was formed on or
about September 21,1927, which was participated in by the Metpotan
Securities Corporation and by the following firms': McClure, Jones
& Co., Potter & Co., and Blair & Co.?
Mr. WIGGIN. I know that there was such an account.
Mr. PECORA. Who managed that account?
Mr. WIGGIN. The Metpotan Securities Co. managed the account.
Is it the Metpotan Co. or the Metpotan Securities Co. ? [Addressing
an associate.] It is the Metpotan Securities Corporation, Mr. Pecora, that managed the account.
Mr. PECORA. What was the purpose of the% account?
Mr. WIGGIN. To buy and sell stock of the 6ank.
Mr. PEOORA. Of The Chase National Bank?
Mr. WIGGIN. Yes, sir.
The CHAIRMAN. Who were
the officers of the Metpotan Securities
Corporation at that time?
Mr. WIGGIN. I will have to ascertain. I cannot remember.
The CHAIRMAN. All right, please do so.
Mr. WIGGIN. Just a minute, please.
The CHAIRMAN. Very well.
Mr. WIGGIN. My associates have now given me a schedule and I
can answer the question.
The CHAIRMAN. All right. Please do so.
Mr. WIGGIN. Its president was R. L. Clarkson; treasurer, W. G.
Shaible; secretary, W. W. Downing; vice president, H. G. Freeman, and vice president, D. A. Holmes.
Mr. PECORA. What connection did they have outside of those offices
with the Metpotan Securities Corporation?
Mr. WIGGIN. They were all associated either with the bank or
with the Securities Co., but I think they were all connected with
the Securities Co. I can verify that if you wish me to do so.
STOCK EXCHANGE PRACTICES
2415
i
Mr. PECORA. Have you a copy or the original of any letter or
agreement respecting the terms and conditions upon which this
joint account wasi formed in September of 1927 ?
Mr. WIGGIN. No. I have none.
Mr. PECORA. Can you produce a letter, or a copy thereof, dated
September 21, 1927, addressed by the secretary of the Metpotan
Securities Corporation to Blair & Co. ?
Mr CONBOY. That is the letter that we furnished you a photostat
of, Mr. Pecora ?
Mr. PECORA. Yes.
Mr. WIGGIN. Yes, sir; I have it here.
Mr. PECORA. D O you recognize that letter
to be a true copy of a
letter so sent under date of September 21, 1927, to Blair & Co. by
the Metpotan Securities Corporation?
Mr. WIGGIN. I have no question about that. I assume that it is.
Mr. PECORA. I offer that letter in evidence, and ask that it may
be spread on the record of the subcommittee's hearings.
The CHAIRMAN. That will be done.
(The photostat of the letter dated September 21,1927, was marked
" Committee Exhibit No. 9<y October 19, 1933," and will be found
below where read by Mr. Pecora.)
Mr. PECORA. The letter reads as follows:
SEPTEMBER 21,
1927.
BLAIR & Co., INC.,
24 Broad Street, New York, N.Y.
GENTLEMEN :
We confirm that we have this day formed a 4-4 account in which
MeClure, Jones & Co., Potter & Co., yourselves, and ourselves each have a one
fourth Interest, for. the purqhase.and sale of stock of the Chase National Bank
and Chase Securities Corporation. The account has today purchased 313 shares
at $525 per share. It may also trade in such stock in the market, with the
understanding that as a result of such trading, the account shall not be long at
any one time more than 1,800- shares.
It is our understanding that of the stock in the account 50 percent is to be
carried by yourselves and 50 percent by ourselves. And that we are to charge
the account at the end of each month 5 percent interest per annum for carrying.
The account shall run for a period of 60 days from September 21, 1927, but
may be further extended by mutual consent of all the members.
Kindly confirm that the above is in accordance with your understanding.
Very truly yours,
Secretary.
Senator COUZENS. Who is it signed by?
Mr. PECORA. The copy that we have does not show a signature, but,
apparently, it was signed by the secretary of the Metpotan Securities
Corporation.
Mr. CONBOY. What was that last paragraph that you read, Mr.
Pecora ?
Mr. PECORA. It reads:
Kindly confirm that the above is in accordance with your understanding.
Mr. CONBOY. All right.
Mr. PECORA. Why do you ask? Wasn't that the way that I
read it?
Mr. CONOBOY. I think not. I think you used the word " suggestion."
Mr. PECORA. Will the committee reporter read the last paragraph
that I just read.
2416
STOCK EXCHANGE PRACTICES
The Committee Eeporter (Mr. Hart)..As I took it down from
your reading it was:
Kindly confirm that the above is in accordance with your suggestion.
Mr. PECORA. Oh, I beg pardon. I misread the word. It should
have been "understanding " instead of the word " suggestion."
Mr. CONBOY. That was what I wanted to make sure of.
Mr. PECORA. Mr. Wiggin, this account was not, as a matter of fact,
terminated at the end of 60 days from September 21, 1927, but continued for a period of about six months, to March 20, 1928, did
it not?
Mr. WIGGIN. Mr. Hargreaves tells me that is correct.
Mr. PECORA. And do you know how many shares were traded in
for the purpose of this account during its existence?
Mr. WIGGIN. IS this your question of yesterday, Mr. Pecora? Is
that the figure you now want?
Mr. PECORA. NO. It is just simply one of the items.
Mr. WIGGIN. And this is how much was traded in?
Mr. PECORA. HOW many shares were traded in by this account
during its existence?
Mr. WIGGIN. The same stock was sold; yes, sir.
Mr. PECORA. Yes.
Mr. WIGGIN. I am
advised that the total purchases were 22,217
shares.
The CHAIRMAN. HOW about sales?
Mr. WIGGIN. The same stock was sold; yes, sir.
Mr. PECORA. Was it all sold?
Mr. WIGGIN. SO they tell me; yes, sir.
Mr. PECORA. SO that upon the termination of the account there
was no distribution of stock among the participants?
Mr. WIGGIN. That is correct, I am informed.
Mr. PECORA. DO you know how much money was laid out in the
acquisition of those shares, or what the shares cost the account?
Mr. WIGGIN. Mr. Hargreaves tells me that the amount was
$13,240,356.32.
Mr. PECORA. During the operation of this account all those shares
were sold by March 20, 1928?
Mr. WIGGIN. I am SO advised.
Mr. PEOORA. What was the total?
Mr. WIGGIN. May I make one statement right there, perhaps so
there won't be any misunderstanding about it, that the account was
extended again, from March into April?
Mr. PECORA. TO what date in April?
Mr. WIGGIN. April 18,1 am advised.
Mr. PECORA. Well, wasn't another joint account entered into on
April 18,1928?
Mr. WIGGIN. I will ascertain that. (After conferring with an
associate.) Yes, sir.
Mr. PECORA. SO that instead of there having been an extension of
this account beyond April 18, 1928, a new account was entered into
on that date?
Mr. CONBOY. Mr. Wiggin did not say it was extended beyond
April 18. He said it was extended from March 20 to April 18. You
STOCK EXCHANGE PBAOTIOES
2417
see, Mr. Pecora, originally it was extended to March 20, and then
again extended to April 18.
Mr. PECORA. All right. We now so understand. Now, referring
to this first account, which you say now was exteneded from March
20 to April 18,1928, what was realized from the sale of the 22,217
shares of bank stock that had been acquired?
Mr. WIGGIN. I am advised that the amount realized was
$13,290,977.05.
Mr. PECORA. That resulted in a profit of how much to the syndicate, that is, the gross profit?
Mr. WIGGIN. I am advised that the profit was $50,620.73.
Senator COTXZENS. Have you any information as to who was selling this stock at that time, and who were buying it?
Mr. WIGGIN. DO you mean when the Metptftan Co. purchased it,
who was the seller?
Senator COTJZENS. Yes.
Mr. WIGGIN. I haven't any idea. (Inquiring of an associate.) I
cannot answer that question. We have no knowledge of it.
Senator COUZENS. Were you selling any?
Mr. WIGGIN. I do not think so.
Mr. PECORA. DO you know how many of those 22,217 shares which
were acquired and sold by this syndicate were actually transferred
of record?
Mr. WIGGIN. I have no knowledge of that, of course. (Inquiring
of an associate.) I do not know of any way of determining that.
Mr. PECORA. Was this syndicate account conducted in the over-thecounter market or in the exchange market during the period of time
that the stock was listed on the New York Stock Exchange?
Mr. WIGGIN. Some of the transactions may have been on the exchange. I have no knowledge, but the bulk of the market, of course,
was off the exchange, in the over-the-counter market.
Mr. PECORA. Mr. Wiggin, what was the purpose in the formation
of this syndicate and the conduct of its operations in the stock of
the bank?
Mr. WIGGIN. Hoping to keep a steady market in the stock.
Mr. PECORA. Was that the only purpose?
Mr. WIGGIN. I think so.
Mr. PECORA. Did the bank at that time contemplate any merger
with any other bank?
Mr. WIGGIN. This is what year?
Mr. PEOORA. 1928.
Mr. WIGGIN. I do
not know, but I do not think there was anything of the kind in contemplation at that time.
The CHAIRMAN. Were those associates of yours particularly interested in keeping a market for the bank stock?
Mr. WIGGIN. NO. I think they did it simply to make money.
Senator COUZENS. DO you consider that a good practice in the
handling of stock of a national bank?
Mr. WIGGIN. I think so. I think it wise to have a market for
stock.
Senator COUZENS. Well, then, why did you take it off the New
York Stock Exchange listing?
Mr. WIGGIN. Well, for the reasons that I gave on yesterday, SenCouzens. There are no other reasons.
Digitized forator
FRASER
2418
STOCK EXCHANGE PKACTICES
Senator COTTZEHS. YOU must have changed your mind about it,
because you think it is good practice to do that with national bank
stock, and still you took it off the market for the reasons you indicated on yesterday.
Mr. WIGGIN. Well, the Stock Exchange did not furnish the big
market on bank stocks, you know. The big market was the overthe-counter market, as Mr. Pecora pointed out on yesterday.
Senator COTTZENS. Would you think it good practice to engage in
now, with, the present status of banking generally ?
Mr. WIGGIN. I think so, probably a much better practice now than
then.
Senator COTJZENS. Then you believe in speculation in bank stocks ?
Mr. WIGGIN. I believe in the purchase and sale of bank stocks;
yes, sir.,
Mr. PEOORA. Well, in answer to Senator Couzens' last question you
said you believed in the purchase and sale of bank stocks. The question, as I recall it, was: if you believed in speculation in bank stocks.
Do you think the terms used by you are synonymous with those used
by Senator Couzens?
Mr. WIGGIN. NO, sir; and that was the reason I answered differently, because I do not think them synonymous.
Mr. PECORA. Why don't you answer Senator Couzens' question,
then?
Mr. WIGGIN. Well, that is opening up the whole question of
whether speculation is justified or not.
Mr. PECORA. Well, I presume Senator Couzens desired you to open
it up when he asked you the question.
Mr. WIGGIN. Well, that requires a great deal of consideration,
when you are,^oing to answer a general question as to whether you
really believe in speculation or not.
Mr. PECORA. DO you believe in speculation in bank stocks? Do
you believe it was the proper thing for any subsidiary of Chase
Securities Corporation, which in terms was an investment affiliate
of The Chase National Ba^nk, to indulge in speculation in the stock
of the bank, by the Securities Corporation?
Mr. WIGGIN. First, I should like to know what speculation is.
Mr. PECORA. Well, that seems to be a term that nobody in Wall
Street is quite able to define, or at least is willing to define, so far
as our experience here is concerned. But what does speculation in
stock mean to you?
Mr. WIGGIN. This is simply asking my opinion as to what is speculation in stocks?
Mr. PECORA. Yes.
Mr. WIGGIN. An investment
that is unsuccessful is usually called
a speculation.
Mr. PECORA. I S that what the term speculation means to you?
Mr. WIGGIN. I think that is about what it means to investors.
Mr. PECORA. What is the difference between speculation in stock
and gambling in stock, to your notion ?
Mr. WIGGIN. YOU are asking m£ questions that there is no deSnite
answer to. It is really a matter of opinion that you are asking me
to express.
Mr. PECORA. Let us have your opinion. We understand that you
are not on the stand as an expert lexicographer.
STOCK EXCHANGE PRACTICES
243,9
Mr. WIGGIN. I think in the newspapers the words "gambling in
stocks" and the words " speculation in stocks" are given about
the same interpretation.
Senator COUZENS. I S that your interpretation of them ?
Mr. WIGGIN. I do not know how to describe gambling in stocks.
Senator COUZENS. Well, what is the difference, then, between your
understanding of investment in stocks and speculating or gambling
in stocks? I have a very clear idea of what investment is, and I
also have a very clear idea of what speculation and gambling in
stocks means, but I should like to know if you think the two names
are synonymous.
Mr. WIGGIN. Of course I find in New York that if the individual
investor, or speculator, borrows from a stockbroker and carries the
stock on margin account, it is termed a speculation, whereas if he
pays for it they call it an investment. Or if he borrows from a bank
they call it an investment. It is a pretty narrow definition, but I
think it does exist.
Senator COUZENS. I S the time that he holds it any factor as to
whether he is speculating or investing?
Mr. WIGGIN. Yes; I think so. But I do not know just where you
would draw the line.
Senator COUZENS. Where would you draw the line between investing in stock or speculating or gambling in stock?
Mr. WIGGIN. I cannot draw that line.
The CHAIRMAN. I understood you to say that if the investment was
unsuccessful you would call it speculation. If it is successful what
would you call it?
Mr. WIGGIN. Then they think they have made a wise investment.
[Laughter.]
Mr. PECORA. Have you heard of persons operating in the stock
market for speculative purposes right at the outset?
Mr. WIGGIN. Might I have that question read to me?
Mr. PECORA. Certainly. The committee reporter will read the
question to you. (Which was done.)
Mr. WIGGIN. I think so; yes, sir.
Mr. PECORA. HOW would you denominate a speculative operation
of that nature? How would you describe it?
Mr. WIGGIN. Oh, I don't know how to describe those things.
Mr. PECORA. NOW, speculative operations very often are successful,
too, aren't they, and result in a profit to the speculator?
Mr. WIGGIN. I think they used to be. [Laughter.]
Mr. PECORA. Well, when they did—and apparently they still do
according to some reports—but when they did they were speculations
from the outset, weren't they?
Mr. WIGGIN. Oh, I think, in some cases.
Mr. PECORA. Doesn't that cause your definition, or rather your
distinction, between speculation and investment to virtually disappear ?
Mr. WIGGIN. Possibly. I do not mean to pose as an expert on
definitions, you understand.
Mr. PECORA. When you hear that a person is going to invest in
securities, what does that convey to you?
175541—33—PT 5
10
2420
STOCK EXCHANGE PBACTICES
Mr. WIGGIN. That they have money to use, that they want to use
in a way that will give them an income return.
Mr. PECORA. And when you hear that a person is going to speculate
in the stock market what does that convey to your mind as indicating
what kind of operation it is?
Mr. WIGGIN. That they are planning to make purchases and sales
hoping to make a profit.
Mr. PECORA. Hoping to make a profit by resale at a higher figure ?
Mr. WIGGIN. Rather than income from the investment, yes.
Mr. PECORA. Well, now, when the Metpotan Securities Corporation entered into this joint account in September of 1927, with Blair
& Co., McClure, Jones & Co., and Potter & Co., did it contemplate
going into a speculative transaction or an investment transaction?
Mr. WIGGIN. I do not consider that it was an investment, that it
was intended as an investment, and I do not think they regarded
it as a speculation. I think they regarded it as a temporary purchase, but not done for the purpose of speculation.
Mr. PECORA. AS a temporary purchase, did you say?
Mr. WIGGIN. AS a temporary investment.
Mr. PECORA. AS a temporary investment, do you say?
Mr. WIGGIN. AS a temporary investment, I would say.
Mr. PECORA. They did not make that investment for the purpose
of getting income from it particularly, did they?
Mr. WIGGIN. NO. I think they expected to turn it over.
Mr. PECORA. They expected to turn it over within a short period
of time at a profit?
Mr. WIGGIN. They hoped to do so.
Mr. PECORA. And the period of time within which they expected
to turn it over at a profit was originally fixed in the agreement
among the participants as 60 days, a 60-day period.
Mr. WIGGIN. Whatever it was.
Mr. PECORA. Well, the exhibit that has been put in evidence shows
that. I am now referring to committee exhibit no. 9 of this date.
Mr. WIGGIN. Yes.
Mr. PECORA. That
was a speculative operation, wasn't it, which was
contemplated in behalf of the syndicate at that time, as distinguished
from an IGGIN
investment operation?
Mr. W
» Possibly. I think speculation is a very difficult term
to describe. I think whether it is a speculation or not is dependent
upon the wealth or the capital of the person doing it, whether they
can afford to stay with it. There are a great many things that enter
into the definition of speculation.
Senator COUZENS. One of the newspaper correspondents asked me
to ask this question. If one selects the winning horse, is that an
investment?
Mr. WIGGIN. I am not an expert.
Mr. CONBOY. That is a horse of another color.
Senator COUZENS. If he picks the wrong horse and loses, I suppose that is not an investment, but if he wins, that is an investment.
Mr. PECORA. Returning to the question Senator Couzens asked you
a few mmutes ago, do you believe in speculation in bank stocks on
behalf of an investment subsidiary of the bank?
Mr. WIGGIN. I believe that it is perfectly proper for a company
buy and sell bank stock.
Digitized for to
FRASER
STOCK EXCHANGE PRACTICES
2421
Mr. PECORA. I do not think that answers the question, Mr. Wiggin.
The question is n,ot whether you believe it is proper for a company
to buy and sell bank stock. Do you believe that it is proper to buy
and sell the bank stock when the buying and selling operations are
undertaken as a speculation, as distinguished from an investment?
Mr. WIGGIN. I cannot say ye$ to that question, because I cannot
consider that it was a speculation just because they did not keep it
any great time.
Mr. PECORA. YOU have seen, from the terms of the agreement
among the syndicate members with regard to this account, that at
the time it was formed the syndicate intended to trade in the stock
of the bank for a period of only 60 days. Would not that stamp their
operations as a speculation rather than as an investment?
Mr. WIGGIN. It would not stamp it as a permanent investment, I
thoroughly agree, but I do not think it stamps it as a speculation,
merely because a concern in the financial business buys some securities expecting to sell them out. That does not necessarily mean it is
speculation.
Mr. PECORA. The term " investment" as ordinarily understood, signifies a transaction where a person buys securities for the purpose of
deriving an income from them, in other words, putting his money to
work to gain interest or income for him. Is not that usually what is
denoted by the term " investment" ?
Mr. WIGGIN. Frequently.
Mr. PECORA. Isn't it usually applied to such transactions?
Mr. WIGGIN. Yes; I think usually.
Mr. PECORA. YOU said that a speculation differed from an investment, did you not ?
Mr. WIGGIN. Did I?
Mr. PECORA. In certain
respects. Did you not point out certain
differences between a speculation and an investment?
Mr. WIGGIN. I think so.
Mr. PECORA. What were the differences?
Mr. WIGGIN. I would like to answer the same as I did before, ii
you will let me.
Mr. PECORA. Answer it the same as you did before.
Mr. WIGGIN. I don't remember what I said.
Mr. PECORA. Tell us now what you would consider to be the difference between an investment and a speculation, as applied to stockmarket transactions.
Mr. WIGGIN. I think an investment is usually made for the purpose of using money on hand to bring in an income.
Senator (JOUZENS. When you entered into this agreement that has
just been discussed, you had no knowledge that you were going to
win or lose, did you?
Mr. WIGGIN. NO, sir.
Senator COUZENS. Not
having any assurance that they were going
to make any money, or that they were going to lose any, it was
purely speculative. In other words, it seems to me that is perfectly
clear, by any interpretation of the agreement. I just wanted to have
you say whether you thought that was not purely speculative, in
view 01 the fact that you did not know whether you were going to
make or lose anything in buying and selling this stock.
2422
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. I should not consider it purely a speculation; no, sir*
Mr. PECORA. Did you consider it an investment?
Mr. WIGGIN. I t was not an investment in the sense that we ex*
pected to keep it forever.
Mr. PECORA. AS a matter of fact, it was contemplated by this syndicate that in its operations it would not only buy Chase National
Bank stock, but would sell at the same time, and within the same
period of time, was it not?
Mr. WIGGIN. That is the reason I do not consider that it should
be regarded as an investment.
Mr. PECORA. DO those features stamp the account as a speculation?
Mr. WIGGIN. On the theory that a purchase of a security must
be either an investment or a speculation?
Mr. PECORA. I have not advanced any such theory.
Mr. WIGGIN. Apparently; yes. Apparently you say that if it was
not one it must have been the other. I cannot agree with that.
Mr. PECORA. YOU have already indicated that it was not an investment. If it was not an investment, what was it?
Mr. WIGGIN. It was a purchase made with the expectation of
selling it out in the near future.
Mr. PECORA. HOW would you characterize the operations of such
an account?
Mr. WIGGIN. I should characterize it as an account formed to
stabilize the market in the stock, with the expectation of disposing
of it in the near future.
Mr. PECORA. What interest did Blair & Co., Potter & Co., and
McClure, Jones & Co. have in stabilizing the market for the bank
stock?
Mr. WIGGIN. I do not think they had much interest in that part
of it.
Mr. PECORA. In view of the fact that each one of these participants
had a 25 percent interest in this account, and that three of the four
participants were concerns that had no interest in stabilizing the
market for the bank stock, you do not mean to tell this committee
that in your opinion this account was formulated and carried on for
the purpose of stabilizing the bank stock in the market, do you?
Mr. WIGGIN. I think the point of view of the Metpotan Co. might
have been different from the others.
Mr. PEcdRA. That does not answer the question either, Mr. Wiggin.
Mr. WIGGIN. YOU do not want me to tell what was in the minds
of McClure, Jones & Co., or Blair's ?
Mr. PECORA. I want you to tell the committee, so far as you are
able to do so, what was the purpose of the formation of this syndicate, participated in by four members, each having a 25 percent
interest in it.
Mr. WIGGIN. I have already tried to tell you the purpose of the
Metpotan Co.
Mr. PECORA. The Metpotan is only one party.
Mr. WIGGIN. I cannot speak for the others.
Mr. PECORA. Why was it necessary for the Metpotan, if it had
only that purpose that you have referred to, of stabilizing the market,
to go into a syndicate with other participants who were not animated
by that purpose?
STOCK EXCHANGE PRACTICES
2423
Mr. WiGGrtf* Because they Expected to sell it out, and the Metpotan was not a selling organization.
Mi;. PECORA. What do you mean when you say the Metpotan was
not a selling organization ?
Mr. WIGGIN. I t had no organization for distribution of securities.
Mr. PECORA. Were not these open-market transactions, Mr.
Wiggin ?
Mr. WIGGIN. I think so.
Mr. PECORA. Were any special facilities needed by any of the
syndicate members for distribution of the stock, in view of the fact
that the operations or transactions were open-market transactions ?
Mr. WIGGIN. Yes; I think so.
Mr. PECORA. Why was it necessary for them to have distributing
facilities other than those provided by the open market?
Mr. WIGGIN. Perhaps it was not. Perhaps you are right.
Mr. PECORA. NOW, will you answer the question? Wlw was it
necessary for the Metpotan Corporation, if its sole purpose was to
stabilize the market for the bank stock at that time, to enter into a
syndicate arrangement with three other concerns that were not animated by the same purpose ?
Mr. WIGGIN. I think it reduced the investment that the Metpotan
would make. It reduced the amount of money that it would tie up,
these other people participating.
Mr, PECORA. Was it necessary, in order merely to stabilize the
market, to indulge in transactions that involved the purchase and
sale of an aggregate of 22,217 shares?
Mr. WIGGIN. I do not know.
The CHAIRMAN. What effect did this operation have on the bank?
Mr. WIGGIN. I don't think it had any effect.
The CHAIRMAN. Was it intended to have any effect on the bank?
Mr. WIGGIN. Only indirectly, that they felt that a stable market
on the stock was beneficial.
The CHAIRMAN. YOU do not think it had any effect on the bank
at all, one way or the other?
Mr. WIGGIN. I do not think so.
Mr. PECORA. YOU have used the term " stable market." What do
you mean by it?
Mr. WIGGIN. A market that avoids violent fluctuations.
Mr. PECORA. Was the market, prior to the formation of this syndicate, attented by violent fluctuations in the bank stock?
Mr. WIGGIN. I do not know. I do not remember.
Mr. PECORA. Can you find out frojn any of your associates whether
the condition of the market immediately prior to the formation of
this syndicate was such that it was deemed advisable or necessary
to stabilize the market through the operations of this syndicate?
Mr. WIGGIN (after conferring with associates). Mr. Hargreaves
advises me that there was not any violent fluctuation at that time,
and he further advises me that the formation of this account was
not so much at this time for stabilizing as to get the increased
distribution, and an increased number of stockholders for the bank.
Mr. PECORA. HOW could that be accomplished if the members of
the syndicate were going to buy these shares in the open market
and sell them in the open market at the same time? How would
2424
STOCK EXCHANGE PRACTICES
that effect a wider distribution of the stock? In other words, if
1 understand your last answer, Mr. Wiggin, the members of this
syndicate intended to buy in the open market a certain number of
shares of the bank stock and sell those shares, also in the open
market. How could a wider distribution of the bank stock be
effected by any such process?
Mr. WIGGIN. Well, I do not know. They may have bought it over
their own counters. I do not know where they bought it. I presiune most of it came frpm the open market. They may have sold
some of it over their own counters. I do not know where they
sold it.
Mr. PECORA. Were Blair & Co., Potter & Co., and McClure, Jones
& Co. interested in obtaining wider distribution for the bank stock
at that time?
Mr. WIGGIN. I think so; yes, sir.
Mr. PECORA. What interest did they have in it which would produce such a desire on their part?
Mr. WIGGIN. TO make money.
Mr. PECORA. HOW would money be made merely by a wider distribution of the stock? In other words, if the stock were purchased
from one person and sold to 10, how would that lead to the making
of money?
Mr. WIGGIN. I think it makes a broader market.
Mr. PECORA. A broader market for future operations?
Mr. WIGGIN. Possibly.
Mr. PECORA. Was that the purpose of the Metpotan Co. going:
into this syndicate?
Mr. WIGGIN. A wider distribution?
Mr. PECORA. Yes.
Mr. WIGGIN. I am so
Mr. PECORA. Did you
advised; yes, sir.
indulge, for your own account or for the
account of any of the companies that you have referred to as being
your own family or personal corporations, in the buying and selling
of Chase National Bank stock during the life of this syndicate
account that we are speaking of ?
Mr. WIGGIN. I will have to ascertain.
Mr. PECORA. Will you please do so?
Mr. WIGGIN (after conferring with associates). This took a little
time. I am sorry. The family holdings were increased 1,100 shares
during this particular period.
Mr. PECORA. Through the Shermar Corporation?
Mr. WIGGIN. Partly through the Shermar and partly personally*
Mr. PECORA. What were the market quotations for the stock of
the bank at the time of the formation of this so-called " 4—4 account " with McClure, Jones & Co., Potter & Co., and Blair & Co.i
Senator ADAMS. The purchase price of the stock of the syndicate was, roughly, $600 a share, was it not?
Mr. WIGGIN. Let me verify that. I think that is right.
Senator ADAMS. That is my rough computation.
Mr. CONBOY. That would be approximately the average purchase
price of the 22,217 shares.
Senator ADAMS. That is what I mean. What is the present market
price of that stock?
Mr. WIGGIN. 23 to 25.
STOCK EXCHANGE PBACTICES
2425
Mr. CONBOY. But, Senator, it has been split 5 for 1.
Senator ADAMS. SO, it would be something like 115 on that basis*
Mr. WIGGIN. 115 to 125.
The CHAIRMAN. Did you
state what the market was on this stock
when this corporation was formed?
Mr. WIGGIN. Senator Adams, have you that figure?
Senator ADAMS. I figured out, in a rough way, that you purchased
22,217 shares approximately at an average of $600 a share, a shade
more than that; and, of course, your sales are distributed so there
wpu,ld,be, only^spme two or three* dollars mpre-pessh^e^i* tfa§sale.
The CHAIRMAN. The market price at the time this corporation was
formed was $600 a share?
Mr. BISBEE. That was the average of the purchases, Senator?
The CHAIRMAN. Yes.
Senator ADAMS. The
letter here indicated that the first purchase
was something like 525 or 535, Mr. Chairman.
Mr. WIGGIN. The question was as to the market price at tjie time
this account was formed; that is, in September 1927. The high for
that month was 635 per share and the low was 570 per share.
The CHAIRMAN. HOW much did the stock rise during the operation
of this account?
Mr. WIGGIN. At the time the account was opened, September 21,
1927, the quotation was 575-580. April 18, 1928, which I think
was the date of the closing of the syndicate, the quotation was 684
bid, 690 asked.
The CHAIRMAN. A rise of nearly 100 points.
Mr. WIGGIN. Yes.
The CHAIRMAN. More than 100 points.
Senator ADAMS. And there had been a decline
in the investment of
those purchased—that is, from this wider distribution—from,
roughly, this average of $600 and the high of $690 down to what
would be now, for the same shares, $125 a share. Was there, following this time, a still further increase in the market value?
Mr. WIGGIN. Yes.
Senator ADAMS. What point did it reach?
Mr. WIGGINS. The high point in the stock?
Senator ADAMS. Yes; just roughly.
Mr. WIGGINS. That was probably a year and
a half later. I will
get that.
Senator ADAMS. Just roughly. If I may ask a question or two
while Mr. Pecora is out, you spoke the other day, or, rather, in
your written statement, of the default in the securities that this Chase
Securities had sold, which was, roughly, I think, something 5
percent.
Mr. WIGGIN. Right.
Senator ADAMS. Many, if not most of the purchasers of those
securities, also had a decline in the investment value of what they
purchased.
Mr. WIGGIN. I think that applied to everything that I know of;
all railroad stocks, all bank stocks, all industrial stocks, and every
blessed thing.
Senator ADAMS. There is a single exception. Take the man who
bought the bank stock, as a stockholder. He saw his stock go dowik
2426
STOCK EXCHANGE PRACTICES
from, say, $600 or $700, to $125. Thfc stockholder in the Chase
Securities Co. saw his stock go down very rapidly.
Mr. WIGGIN. There was no other stock, you understand, just the
bank stock.
Senator ADAMS. The double stock.
Mr. WIGGIN. Yes.
Senator ADAMS. The
purchaser of the securities which the Chase
Securities Co. sold saw those securities go down very rapidly, but,
during all this time, Mr. Wiggin, the man who had money on deposit
in the Chase National Bank was able to get 100 cents on the dollar
for every dollar he had on deposit.
Mr. WIGGIN. That is right, sir.
Senator ADAMS. I am just wondering if, perhaps, this conclusion
might be drawn, to which the banker ought not to object—that the
only man, during this period of financial stress who was fortunate,
was the man who had money on deposit in a good bank.
Mr. WIGGIN. YOU are entirely right, Senator. The man who had
any investments saw the value of those investments shrink, and
shrink, and shrink. The man who kept his cash, and had it in a
good bank, had no shrinkage.
Senator ADAMS. There is another distinction. The Chase Securities Co. operated quite differently from the bank. The depositor
in the bank brought his money in. He had reserves that were set
up which were very substantial—I imagine, some four or five hundred million dollars as against your two billion of deposits.
Mr. WIGGIN. At that time; yes, sir.
Senator ADAMS. He had in addition a stockholder's liability, which
I gather from the stockholders that have been mentioned here, was
a collectible liability of another $200,000,000. But the Chase Securities Co., on the other hand, if they sold the purchaser a bond or sold
him stock—I don't know whether they* dealt in stock at all or not—
there was no responsibility back of that; that is, the purchaser took
the whole risk?
Mr. WIGGIN. Exactly, just as if he bought them from John Smith
or any other banking house.
Senator ADAMS. That is, there was a wide difference, then, in the
attitude of the men to whom the Chase Securities Co. appealed to
purchase this marketable stuff, and the men who came and put their
money in as depositors in the bank?
Mr. WIGGIN. Yes. It is a little hard to compare the depositors in
the bank with the others.
Senator ADAMS. I understand that, but you had, roughly, the same
set of stockholders, which the stock certificates tied together, and you
had a pretty substantial guarantee as to deposits. What percent of
the depositors, if any, were paid interest in the bank?
Mr. WIGGIN. A very large proportion. I do not know as to the
number.
Senator ADAMS. There was some income in the way of interest to
the depositors?
Mr. WIGGIN. Yes, sir.
Senator ADAMS. I saw
in some statistics that I was reading the
other day that in the closed banks in this country the depositor has
ultimately received nearly 70 percent of his money out of the closed
STOCK EXCHANGE PBACTICES
2427
banks, and I gather that the stockholder in an open bank has seen his
stock shrink from 600 to 125. In other words, the depositor in the
closed bank is in a more fortunate position than the stockholder in
the open bank, on the average.
Mr. WIGGIN. Well, it does not quite gee, on that reasoning, Senator, for this reason, that 70 percent of what the bank owed was in the
closed bank, whereas the depositor in the open bank gets 100 percent.
Senator ADAMS. I am distinguishing between the stockholder in
the open bank and the depositor in the closed bank.
Mr. WIGGIN. Oh, yes.
Senator ADAMS. The depositor
that we have talked about so much
is really in a more favorable position than the stockholder in the
open bank.
Mr. WIGGIN. You are entirely right.
Senator COTTZENS. Did yoti get the figures that I asked for yesterday as to what the Securities Company actually sold?
Mr. WIGGIN. I think so. (After conferring with associates.) I
am advised that they telephoned New York for them and they are
working on them. They have worked all night, and they will send
them as soon as obtainable.
Senator COUZENS. All right; no hurry.
The CHAIRMAN. NOW you cannot pay interest on deposits?
Mr. WIGGIN. NO, sir.
The CHAIRMAN. DO you think that is a good provision in the law?
Mr. WIGGIN. Well, I doubt it. It has yet to be demonstrated.
Mr. Conboy wants me to correct my statement there. We can pay
interest on time deposits.
The CHAIRMAN. Yes; on time deposits.
Senator ADAMS. HOW high did the interest rates run which your
bank paid the depositors, the highest rate?
Mr. WIGGIN. During what period, Senator?
Senator ADAMS. I am thinking, of course, of the speculative
period.
Mr. WIGGIN. It has varied from year to year according to conditions. At the time the present law was passed I think they were
paying one half of 1 percent.
Senator ADAMS. During the examination by the committee one
witness testified that one of the concerns being investigated paid as
high, I think, as 14 percent on some moneys placed with them; and
I was wondering if a bank such as yours indulged at all in that
competition for rands?
Mr. WIGGIN. I don't think so. As a matter of fact, the rates on
deposits are always fixed by agreement with neighboring banks
through the clearing-house association. The most recent rate they
paid, I think, was one half of 1 percent, and it had been up as high
as perhaps 1 percent in the last 2 or 3 years, and had been up as
high as 2 percent in the last 10 years.
Senator ADAMS. Did your bank handle call money at all?
Mr. WIGGIN. In large amount; yes, sir.
Mr. CONBOY. The rates paid on call money were not on deposits
but on loans. The 1 percent and the one half percent were on daily
balances of deposit accounts.
2428
STOCK EXCHANGE PRACTICES
The CHAIRMAN. Brokers' loans went up as high as 20 percent, did
they not?
Mr. WIGGIN. Yes, sir.
The CHAIRMAN. That, of course, you do not favor?
Mr. WIGGIN. I think it has a bad effect—those high
fluctuations in
interest rates. It shows an unhealthy condition.
Senator ADAMS. One of the arguments for preventing the payment
of interest that was presented in the committee in considering the
tanking bill was that the high interest rates and the payment of
interest at all on demand deposits tended to draw money from the
tictive industries of the country into the speculative field in New
York.
Mr. WIGGIN. YOU asked, Mr. Chairman, foi* the high price on
CJhase Bank stock during the history of this. Two hundred and
•eighty-seven was the high price for the present stock.
Senator ADAMS. That would be multiplied by 5 to put it in terms
of the original stock?
Mr. WIGGIN. Yes.
The CHAIRMAN. That was after the split?
Mr. WIGGIN. That is after the split, and after certain stock dividends which would probably change that ratio. I t is a little hard
to figure that, Senator. We will have it figured if you like.
Senator ADAMS. That is sufficient for my purposes. I was trying
"to get a rough estimate as to the shrinkage to the stockholders.
Mr. WIGGIN. Nine hundred and eighty, I think, was the price they
gave us of that stock—980 to 125.
Senator ADAMS. D O you happen to have a rough estimate as to the
gross year's income of the Chase National Bank?
Mr. WIGGIN. YOU mean, in ordinary times?
Senator ADAMS. Yes.
Mr. WIGGIN. I have that; yes.
Mr. PECORA. Would it be possible for you or your associates some
lime later in the day to ascertain and tell the committee how many
shares of the stock of the Chase National Bank and the Chase Securities Corporation were actually transferred of record between
September 21, 1927, and April 18, 1928; in other words, during the
life of this joint ac&ount?
Mr. WIGGIN. I think we can get that for you, sir.
Mr. PECORA. Incidentally, I would suggest that you get the siame
information with regard to the other periods of time covered by the
three other joint accounts, which you undoubtedly know about.
Mr. WIGGIN. Very well. I will get those other things, too, very
isoon, Seitator Adams.
Mr. PECORA. NOW, the profits that were derived from the operations of this joint account, which terminated on April 18,1928, were,
I presume, distributed in equal proportions on the termination of
the account, among the four syndicate members ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Immediately
upon the termination of that account
was another joint account entered into by the same members for the
purpose of trading in the stock of the Chase National Bank and
the Chase Securities Corporation?
Mr. WIGGIN. Yes, sir.
STOCK EXCHANGE PKACTICES
2429
Mr. PECORA. What was the purpose of the formation of that
syndicate?
Mr. WIGGIN. The same as the other.
Mr. PECORA. Well, what was it?
Mr. WIGGIN. I must remember just what I said before. I t was
for the distribution of stock, increased distribution and increased
number of shareholders.
Mr. PECORA. Was a wider distribution actually effected through
the operation of the first account?
Mr. WIGGIN. I should think so.
Mr. PECORA. Have you anything to definitely inform you of that
iact?
Mr. WIGGIN. Oh, yes; we can give you the exact figures on the
number of shareholders on different dates.
Mr. PECORA. Was any agreement in writing, either in the form of
fi letter or in any other form, entered into by the participants in
this second syndicate that was formed on April 18,1929 ?
Mr. WIGGIN. Yes, sir.
Mr. CONBOY. April 18,1928.
Mr. PECORA. 1928; yes. Have
you a copy of any such letter or
writing ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Will you produce it?
Mr. WIGGIN. Yes [producing ja paper].
Mr. PECORA. I S it tne same, Mr. Bisbee?
Mr. BISBEE. Yes.
Mr. PECORA. I show you what purports
to be a photostatic reproduction of a letter dated April 18, 1928, addressed to Messrs. Potter & Co., and I ask you if you recognize that as being a true
and correct copy of such a letter, constituting an agreement defining
the terms on which this syndicate was organized on April 18, 1928.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.
(The letter referred to, dated April 18, 1928, addressed to Potter
& Co., was received in evidence as Committee Exhibit No. 10 of
October 19,1933, and was read to the Committee by Mr. Pecora.)
Mr. PECORA. The letter reads as follows:
APRIL 18,
1928.
Messrs. POTTEB & Co.,
New York, N. T.
GENTLEMEN : We confirm that we have this day formed a 4-4 account in which
Blair & Co., Inc., McClure, Jones & Co., yourselves and ourselves each have a
one-fourth interest for the purchase and sale of stock of The Chase National
Bank and Chase Securities Corporation.
The account has today purchased 355 shares at $483,084 per share. It may
also trade in such stock in the market with the understanding that as a result
of such trading, the account shall not be long at any one time more than
1,800 sharesIt is our understanding that of the stock in the account 50 percent is to be
carried by Blair & Co., Inc., and 50 percent by ourselves, and that we are to
charge the account at the end of each month 5 percent interest per annum for
carrying.
_ The account shall run for a period of 60 days from April 18, 1928, but may
be further extended by mutual consent of all the members.
Kindly confirm that the above is in accordance with your understanding.
Yours very truly,
—
, Secretary.
2430
STOCK EXCHANGE PRACTICES
Mr. PECORA. HOW many shares were purchased for this account
during its life?
Mr. WIGGIN. 59,522.
Mr. PECORA. And what did they cost?
Mr. WIQGIN. $50,180,175.30.
Mr. PECORA. HOW long did this account last ?
Mr. WIGGIN. Until April 9, 1929.
Mr. PECORA. And were all those 59,522 shares resold by the syndicate within that time?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. What was
the total consideration that the syndicate
received on the resale of these shares?
Mr. WIGGIN. $50,734,935.72.
Mr. PECORA. That resulted in a profit of how much?
Mr. WIGGIN. $554,760.42.
Mr. PECORA. And that profit on the termination of the account
was distributed in equal proportions among the four syndicate members, was it not?
Mr. WIGGIN. Yes,
Mr. PECORA. The
sir.
stock of the bank had been split 5 for 1 during
the period of this account, had it not?
Mr. WIGGIN. Not during the period of this account, I think, Mr.
Pecora. There was a split, and I will give you that date. I do
not think it came at this time. That was July i, 1929, the split.
Mr. PECORA. Oh, that was after. I notice in the letter marked
" Committee's Exhibit 10 " of this date, the letter of April 18, 1928,
sent to Messrs. Potter & Co., setting forth the terms and conditions
of this syndicate, that 50 percent of the stock to be purchased was
to be carried by the Metpotan Co. and the other 50 percent by Blair
& Co. That meant that the Metpotan, Co. and Blair & Co. advanced
che moneys necessary to acquire these fifty-nine thousand-odd shares
that were purchased by this account, did it not ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Where did
the Metpotan Co. get the funds that it
advanced for this operation?
Senator ADAMS. While they are getting that information: I notice in this letter, exhibit 10, that it recites the first purchase by
this new syndicate of a certain number of shares at $483 a share.
That would indicate a recession in price from the time of the closing
of the former syndicate?
Mr. WIGGIN. I have forgotten what that price was, Senator, on the
closing.
Senator ADAMS. I am assuming the average under the former purchase was $600. I gather that the operations of this syndicate, or
something which operated at the same time, evidently raised the
price of the stock, because the average purchase price of these 59,000
shares was approximately $800.
Mr. WIGGIN. The price undoubtedly advanced during that period.
Senator ADAMS. The operation of the syndicate you think had
something to do with that?
Mr. WIGGIN. YOU never can tell whether the syndicate rode on
somebody else's enthusiam or not.
STOCK EXCHANGE PRACTICES
2431
Senator ADAMS. They were not reluctant, however, to share that
enthusiasm?
Mr. WIGGIN. No.
The CHAIRMAN. What did you say was the average price?
Senator ADAMS. About $800.
The CHAIRMAN. That was the cost to them?
Senator ADAMS. Yes.
Mr. WIGGIN. The answer, Mr. Pecora, to your question as to
where
did the Metpotan get the money to pay for 50 percent of this account
they carried, is that they used their own resources to such an amount
as they had and borrowed the balance from the Chase Securities
Corporation.
Mr. PEOORA. What proportion of the total moneys that the Metpotan had to lay out for these transactions did it have to borrow
from the Chase Securities Corporation? Tell me approximately.
Mr. WIGGIN. Of course this is a running account, and the amounts
changed from day to day, you understand.
Mr. PEOORA. Yes.
Mr. WIGGIN. At the
close of the year, December 31, 1927, the
Metpotan Co. was borrowing from Chase Securities Co. $3,235,000,
and at the close of the year 1928 the Metpotan Co. was borrowing
from the Chase Securities Co. $3,461,000. I have no way of telling
what percentage that was of the total account.
The CHAIRMAN. Did the Metpotan Co. borrow from the Chase
Bank?
Mr. WIGGIN. At this time; no, sir.
Mr. PECORA. Why was it deemed advisable or preferable to have
the Metpotan Securities Corporation go into these two joint accounts
instead of having the Chase Securities Corporation itself go into
them?
Mr. WIGGIN. I don't know. Legally I suppose they could do it
just the same.
Mr. PECORA. SO I understand. Now, I want to know why the
Chase Securities Co. directly did not participate in these two syndicate accounts but rather had its wholly owned! subsidiary, the
Metpotan Co., do so.
Mr. WIGGIN. I think purely for convenience, Mr. Pecora.
Mr. PECORA. What convenience w^s served ?
Mr. BISBEE. May I make a suggestion, Mr. Pecora? I think that
probably the guiding reason was to avoid the Chase Securities buying and selling its own stock.
Mr. PECORA. Well, was that deemed an inadvisable thing to do by
the Chase Securities Corporation?
Mr. BISBEE. It would have required frequent consideration as to
the state of its surplus and whether or not it was investing beyond
the amount of its surplus, which was avoided by having transactions
through another corporation.
Mr. PECORA. But it appears that the corporation that was chosen
to act in the place and stead and for the account of the Chase Securities Corporation was a wholly owned subsidiary of the Chase
Securities Corporation and that its resources were insufficient to
finance its end of these transactions. So I do not see how convenience
was served under those circumstances.
2432
STOCK EXCHANGE PRACTICES
Mr. BISBEE. Well, I did not say " convenience "; I said it was to*
avoid the consideration of that question frequently.
Senator ADAMS. Mr. Wiggin, is it not a rather remarkable result
in these two syndicate operations that one of them deals in 22,000
shares, an aggregate of over $13,000,000, and the net change in
its result is about a half of 1 percent in profit; the other deals*
in a $50,000,000 transaction with only 1 percent profit, while at
the same time in this second transaction the stock showed a variation
which ran from< $483 to over $800? That is a rather careful riding
of the horse, isn't it?
Mr. WIGGIN. Well, you understand, Senator, they did not bujr
a big amount and then wait till the end. They just traded in and!
out all the time.
Senator ADAMS. Would it not rather indicate that they bought
and sold about the same day?
Mr. WIGGIN. Probably. Very likely.
Mr. PECORA. Was that engaging in the process of what has been*
termed a " churning of the market" ?
Mr. WIGGIN. I do not think so. I do not think there were any—
I know there were no imaginary sales, no fictitious sales. It was all
straight purchasing and straight selling.
Mr. PECORA. Well, according to your answer to Senator Adams5*
question, the transactions that were consummated by these two accounts which had the same syndicate members involved buying and
selling at virtually the same time. That is so, is it not, Mr. Wiggin?
Mr. WIGGIN. Same days, undoubtedly.
Mr. PECORA. IS that not a scheme for " churning the market " y
and producing an activity that would stimulate the prices ?
Mr. WIGGIN. I think the market was a God-given market.
Mr. PECORA. What is that?
Mr. WIGGIN. I think it was a God-given market.
Senator ADAMS. Are you sure as to the source ?
Mr. WIGGIN. NO, sir.
Mr. PECORA. God-given market, did you say?
Senator COUZENS. That is a new one.
Mr. PEOORA. Was it God-given because the price of the stock
went up nearly 400 or more points during the life of these two
accounts ?
Mr. WIGGIN. The market in bank stocks was just like the market
in other stocks, as you know, in 1928-29. There developed a great
demand for stocks, a great demand for securities. That applied to
bank stocks just the same as everything else.
Mr. PECORA. I believe that Napoleon said that " God is on the side?
that has the heaviest artillery." In this case apparently it was on
the side of the Chase Bank and its affiliates.
Senator COUZENS. Did they not have the heaviest artillery in»
dollars?
Mr. BISBEE. That is unfair to the public, Senator.
Senator ADAMS. Mr. Wiggin, were the operations of this second
syndicate largely board operations or were they to a certain extent
over-the-counter operations?
Mr. WIGGIN. Almost entirely over-the-counter. You see, it was
off the stock exchange after January 1928.
STOCK EXCHANGE PBACTICES
2433-
Senator ADAMS. SO that all of this second syndicate's operations*
took place after it went off the board?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Are you familiar
with a trading account that was*
participated in by the Metpotan Corporation with Dominick &
Dominick and McClure, Jones & Co. and the Shermar Corporation
to operate in the shares of the Chase National Bank, which account*
I understand, was formed on or about July 19, 1929?
Mr. WIGGIN. I know there is such an account, and I will endeavor
to get the information as it is asked for.
Mr. PECORA. Who were the managers of that syndicate?
Mr. WIGGIN. Dominick & Dominick.
Mr. PECORA. That is a large stock brokerage house, is it not?
Mr. WIGGIN. I t is a banking house doing a stock commissioa
business and I think dealing in bonds.
Mr. PECORA. And it holds memberships in the New York Stock.
Exchange?
Mr. WIGGIN. I think so.
The CHAIRMAN. Does it do a commercial banking business and
receive deposits?
Mr. WIGGIN. NO, sir. No; I don't think so.
The CHAIRMAN. I t is hardly a banking house then.
Mr. PECORA. Can you produce a letter or a copy thereof addressed
to the Chase Securities Corporation under date of July 19, 192%
signed by Dominick & Dominick?
Mr. CONBOY. Let us see it, Mr. Pecora.
(Mr. Pecora handed document to Mr. Wiggin, who examined it
and other documents and conferred with associates.)
Mr. WIGGIN. Yes, sir.
Mr. PECORA. I show you what purports to be a photostatic reproduction of such a letter and I ask you if you know it to be a true and
correct copy of such a letter.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be received
in evidence and entered on the
record.
(Letter from Dominick & Dominick to Chase Securities Corporation dated July 19, 1929, was thereupon designated " Committee
Exhibit No. 11, October 19, 1933.")
Mr. PECORA. The letter is as follows, written on the letterhead of
Dominick & Dominick, 115 Broadway, New York [reading] :
JULY 19, 192&
THE CHASE NATIONAL BANK OP THE CITY OF NEW YOKK CAPITAL STOCK FAR
VALUE $20—TRADING ACCOUNTS
CHASE SECURITIES CORPORATION,
New York City.
DEAR SIRS : We are forming an account, of which we shall foe the managers,
with full discretionary powers as such, and in which we shall participate, for
the purpose of trading in the capital stock of The Chase National Bank of the
City of New York. The account shall be on the basis of 25,000. shares and will
become operative when participations aggregating 25,000 shares have been,
received by us.
2434
STOCK EXCHANGE PR^vJTICES
As managers we have obtained on behalf of the account options to purchase
all or any part of 80,000 shares of said capital stock of The Chase National
Bank of the City of New York at the following prices:
Twenty thousand shares at $210 per share, 10,000 shares at $215 per share,
10,000 shares at $220 per share, 10,000 shares at $225 per share, 10,000 shares at
$230 ifer share, 10,000 shares at $235 per share, 10,000 shares at $240 per share;
said options to continue in full force and effect to and until the close of business on January 22,1930, but in no event beyond the termination of the trading
account.
The account will terminate at the close of business on January 22, 1930, but
we as managers reserve the right in our discretion to extend it for a further
period of 30 days or to terminate the account at an earlier date.
As managers we shall have the sole management and entire conduct of the
business and affairs of the account, with all the usual powers, including the
right on behalf of the account to make or procure loans and to pledge the
obligations of the account participants therefor, to pay all commissions and
expenses of every nature, and for the account to purchase, sell, sell short,
repurchase, resell, or hold shares of the capital stock of The Chase National
Bank of the City of New York, to such an amount, at such prices and in such
manner as we may deem advisable, and generally to act in all respects as in our
opinion may be to the best interests of the account, provided only that the
account shall at no time be short or own or be committed for an amount of
stock in excess of 25,000 shares.
Notwithstanding our relations as managers, we shall enjoy as participants in
this account all the rights and benefits and be subject to all the liabilities hereby
respectively granted to and imposed upon other participants.
We shall in no way be liable for any error of judgment, or mistake of law or
fact, or failure of any party contracting with us to live up to his agreement,
nor shall we be liable except for our own failure to exercise good faith.
The failure of any,participant to adhere to the terms of this agreement shall
in no respect relieve the other participants from their account obligations.
It is understood that this agreement shall bind and benefit the several parties
and their respective heirs, executors, administrators, successors, and assigns.
At our option as managers each participant shall take up and pay for in full
or margin to our satisfaction his pro rata share of stock held by the account and
shall meet his other account obligations, if any, upon call bus us. Stock so taken
up and paid for during the life of the account shall be for carrying purposes
only, and shall be subject to call by the account managers at any time.
No partnership relations shall arise herefrom. At the expiration of the
account we as managers shall distribute the stock and/or cash remaining in
our hands among the participants pro rata in the proportion which the number of shares of their respective participations bears to 25,000 shares. The
participants shall share pro rata in the said shares and in the profits or losses
of the account, after allowing for all expenses incurred by the managers, and
the apportionment and distribution of the said shares, profits or losses, shall
be conclusive upon the participants.
As compensation for our services in forming and managing this account we
shall receive a sum equivalent to 10 percent of the net profit. We shall also
receive a commission of 50 cents a share on purchases and sales of stock made
by us in the market for the account.
It is also understood that from time to time during the period of the account the respective participants will be offered the opportunity by us to take
down stock from the account at such price or prices per share as we as managers in our discretion may fix and determine, and subject to such terms and
conditions as we shall prescribe.
Any participant taking down stock pursuant to such opportunity will be
allowed a selling commission to be fixed by us at the time, but in no event less
than $2 per share, such selling commission to be payable within 30 days after
the termination of the account; it being understood, however, that in our
discretion we may cancel said commission with respect to any such stock as is
repurchased by us in the market during the period of the account at or below
the price at which it was originally taken down by the participants.
In accordance with the understanding between us, we have reserved for you
in this account a participation of 5,000 shares.
Please confirm your acceptance of this participation by signing and returning
to us the enclosed duplicate of this letter.
Very truly yours,
DOMINICK & DOMINIOK, Managers.
STOCK EXCHANGE PRACTICES
2435
In the lower left-hand corner at the end of the letter this inscription : " Confirmed and5 accepted, Chase Securities Corporation "—is
t h a t " J.C.Andersen' ?
Mr. CONBOY. Yes, sir.
Mr. PECORA. " J. C. Andersen,
vice president."
Now, is this such an account as you would commonly call a
"pool"?
Mr. WIGGIN. I do not think so.
Mr. PEOORA. Well, how would you characterize it in a phrase?
Mr. WIGGIN (after conferring with associates). I would call it
a trading account, just a*s it describes itself there.
Mr. PECORA. YOU understand the term " pool account" as applied
to a stock market trading account?
Mr. WIGGIN. I have heard it used.
Mr. PECORA. And as you have heard it used what does it denote to
you?
Mr. WIGGIN. I t is usually used, I think, in connection with stockexchange business and denotes an association of a large number of
companies or individuals for purchasing certain securities.
Mr. PECORA. Only for purchasing?
Mr. WIGGIN. NO ; I think purchasing and selling.
Mr. PECORA. Purchasing and selling?
Mr. WIGGIN. Purchasing and selling.
Mr. PECORA. In other words, for operating in the market in a
certain security or securities?
Mr. WIGGIN. I think so.
Mr. PECORA. In what respect, then, does a pool differ from a
tradingaccount ?
Mr. WIGGIN. I think in size usually and number of people connected with it.
Mr. PECORA. I S that the only difference?
Mr. WIGGIN. Maybe other differences. I cannot describe them.
Mr. PECORA. YOU cannot think of any other differences now, can
you?
Mr. WIGGIN. NO, sir.
Mr. PECORA. SO that a pool differs from a trading account in that
the pool is comprised of a larger number of persons than is a trading
account? Is that a correct paraphrasing of your statement of the
difference?
Mr. WIGGIN. Of course, we are just expressing opinions and guessing at what these things mean, and it is a little embarrassing to try
and guess what the description of the pool is.
Mr. PECORA. Well now, you have said you have heard from the
term " pool" used. You have told us what it denoted, meant to you,
and you said that this particular account, the one that was formed
under the terms and conditions of the letter marked " Committee's
Exhibit 11", was not a pool but was a trading account. I am merely
seeking your own definitions or distinctions.
Mr. WIGGIN. I am just trying to find out—let's see, what is the
question?
Mr. PECORA. I will put another question to you.
Mr. WIGGIN. All right.
175541—33—PT 5
n
2436
STOCK EXCHANGE PRACTICES
Mr. PECORA. If this so-called trading account, the terms and conditions of which are evidenced by the letter marked " Committee's
Exhibit 11", had been composed of a larger number of participants
than the number that did compose it, would you then have called it
a pool instead of a trading account?
Mr. WIGGIN. No; I don't suppose we would. Perhaps it should
have been.
Mr. PECORA. Perhaps what?
Mr. WIGGIN. I don't think we would have called it a pool.
Mr. PECORA. Would it represent what you understand to be a pool?
Mr. WIGGIN. Not exactly; no.
Senator COTJZENS. Don't you like the name "pool? "
Mr. WIGGIN. NO.
Senator COUZENS. I thought you were shying away from it.
Mr. WIGGIN. YOU are right. I don't like the name " pool."
Mr. PECORA. Then if this account had been formed by a number
of participants that would comply with your definition of a pool you
still would not call it a pool, even though it were a pool?
Mr. WIGGIN. I would not like to call it a pool, no, sir.
Mr. PECORA. What is there offensive about the term " pool", Mr.
Wiggin, that causes you to shy away from it?
Mr. WIGGIN. Just the reputation of the word.
Mr. PECORA. Just the reputation of the word?
Mr. WIGGIN. Yes.
Mr. PECORA. Well, does it connote something that is reprehensible?
Mr. WIGGIN. I t does in some*people's mind; yes.
Mr. PECORA. Keprehensible in what respect?
Mr. WIGGIN. I don't know. I don't know, but there is that feeling
against the use of the word " pool."
Senator COUZENS. I S that for the same reason that some people
shy away from politicians?
Mr. WIGGIN. It may be, Senator.
Senator GOLDSBOROTTGH. Better ask him to tell you what a politician is.
Senator COUZENS. He probably cannot define that any better than
he can a pool.
Mr. PECORA. Hasn't somebody defined it as " a live statesman ? "
Senator ADAMS. I have never heard it just that way. I have heard
it the other way around.
Mr. PECORA. Who were all the participants in this trading account
evidenced by committee's exhibit 11 ?
(Mr. Wiggin examined documents and conferred with associates
at length.)
The CHAIRMAN. Let us go ahead as fast as we can. We are losing
a lot of time.
Mr. BISBEE. We have trunks of evidence here, Senator, some *of
which we have to consult to get these answers.
Mr. WIGGIN. Mr. Pecora, when the account was organized it was
Chase Securities and Dominick & Dominick. Dominick & Dominick
later associated with themselves some other people. That was their
selection, and we did not know who they were until a few days ago.
Now do you want that information ?
Mr. PECORA. Yes; we want to know who the other participants
were in this trading account.
STOCK EXCHANGE PEACTICES
2437
The CHAIRMAN. YOU said McClure, Jones & Co. You have given
that.
Mr. WIGGIN. Chase Securities' participation was reallotted to Metpotan and the Shermar Corporation.
Mr. PECORA. In what proportions?
Mr. WIGGIN (after consultation with associates). One quarter tothe Shermar Corporation and three quarters of it to the Metpotaru
Corporation.
Mr. PECORA. Why was that done? Mr. Wiggin?
Mr. WIGGIN (addressing an associate). Why was it done? [After
further conference with associates]. Because Metpotan did not have
enough stock to give options on the full amount, and they needed
Shermar to make out the total amounts.
Mr. PECORA. Did not the Chase Securities Corporation have enough
stock for that purpose?
Mr. WIGGIN. NO, sir.
Mr. PECORA. In this case
why was the joint account entered into
by the Chase Securities Corporation directly instead of by its wholly
owned subsidiary, the Metpotan Co. ?
Mr. WIGGIN. I am advised that it was because the letter from
Dominick & Dominick was addressed to the Chase Securities Corporation, and instead of having it changed they accepted it and
turned it over—instead of having a new letter sent to tne Metpotan
Co.
Mr. PECORA. IS that the only reason?
Mr. WIGGIN. Apparently.
Mr. PECORA. Had there not been any conferences or discussions
of the subject of organizing this trading account prior to the sending
of this letter of July 19,1929?
Mr. WIGGIN. Oh, undoubtedly.
Mr. PECORA. With whom had those conferences been held by
Dominick & Dominick as representing the Chase Securities Corporation ?
Mr. WIGGIN. Undoubtedly with the president of the company and
the vice president of the company.
Mr. PECORA. In those conferences or discussions was it held out
by the Chase Securities Corporation that it would enter into this
trading account of its own name ?
Mr. WIGGIN. I, of course, do not know what was said, but there
was no reason for doing it that way.
Mr. PECORA. I assume that Dominick & Dominick in writing this
letter knew what they were doing and were carrying out what had
been agreed upon previously as the result of these conferences?
That would not be a violent assumption, would it?
Mr. WIGGIN. Not a violent assumption at all, sir.
Mr. PECORA. DO you still advance the explanation you have already given as the only reason why the Chase Securities Corporation
in its own name became a participant in this trading account??
Mr. WIGGIN. I think that is the only reason.
Mr. PECORA. I t was the liability of the Chase Securities Corporation which was pledged as a participant in this trading account,, was
it not?
'2438
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. Yes, sir; they in turn passing it on and taking protection from the others.
Mr. PECORA. Well, was it so passed on by the Chase Securities
Corporation to the Metpotan and to the Shermar Corporation with
the knowledge and consent of Dominick & Dominick and the other
participants in this trading account?
Mr. WIGGIN. I do not think they did; no. I do not think that the
question was ever brought up.
Mr. PECORA. Was there any reason for withholding knowledge of
that fact from the managers of this trading account or the othet
participants therein?
Mr. WIGGIN. Not the slightest. And you understand we did not
know anything about the other participants.
Mr. PECORA. Have you here any minute book of the Chase Securities Corporation or its board of directors at which action was taken
which resulted in the assigning or transferring by the Chase Securities Corporation of its interest in this trading account to the Metpotan Co. and to the Shermar Corporation?
Mr. WIGGIN. No, sir.
Mr. PECORA. Was not that action taken as the result of a resolution of the board of directors of the Chase Securities Corporation?
Mr. WIGGIN. No, sir; I do not think so. I think it was done in
the ordinary course of business by the officers.
Mr. PECORA. Was it not ever reported to the board of directors
of the Chase Securities Corporation by the officers ?
Mr. WIGGIN. Undoubtedly.
Mr. PECORA. Can you find any minute of such a report having been
made to the board of directors in the minute books?
Mr. WIGGIN. There was no record at all of it.
Mr. PECORA. Were such transactions consummated in that informal fashion and with no written record of it in the minute books
of the corporation?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Well, this was a pretty large transaction, was it not?
Mr. WIGGIN. We had many, many large transactions. The same
course was followed.
Mr. PECORA. Well, what are minutes kept for?
Mr. WIGGIN. I do not know how to answer that question, sir.
Mr. PECORA. Answer it according to your best knowledge. What
is the purpose of corporations keeping minute books if large and
important transactions undertaken in behalf of the corporation are
not recorded therein?
Mr. WIGGIN (after conferring with associates). I am advised that
by resolution the directors had given the officers full authority to
buy and sell securities.
Mr. PECORA. That does not answer my question. I asked you for
what purpose the corporations keep the minute books if it was not
to record therein important transactions undertaken by and in
behalf of the corporations ?
(Mr. Wiggin conferred with his associates.)
Senator ADAMS. I have said here before that it was perfectly
proper for a witness to obtain facts and information, but to obtain
opinions is I think quite at variance from that.
STOCK EXCHANGE PRACTICES
2439
Mr. PECOEA. I agree with you, Senator Adams. Where a witness
is asked a question that calls ior his opinion or judgment and knowledge, why, he ought to be able to give it without a huddle with
others.
Mr. CONBOY. You are asking for an opinion as to why minutes
of directors are kept.
Mr. PECORA. Wellj Mr. Wiggin is a member of many corporations
and an officer and director of something like 59 of them, as I recall
the testimony he gave day before yesterday. I should think from
that experience he would be able to tell us, without consulting somebody else's judgment or opinion about it.
Senator ADAMS. If he does not have any let him so state.
Mr. CONBOY. You asked the purpose for which minutes of the
board of directors are kept; but you are trying to associate it with
particular transactions of the corporation.
Mr. PECORA. I am asking him the general question of his knowledge or belief or opinion as to what the purpose is of corporations
keeping minute books of their proceedings if important transactions are not to be recorded in them. I have not yet had an answer
to that question.
Mr. WIGGIN. Well, you are connecting it with this transaction. I
tried to answer it showing you that this transaction was one authorized by the directors; one of any similar transaction of the kind that
was authorized by the directors.
Mr. PECORA. IS there any record of any minute or resolution in
the minute book of the Chase Securities Corporation that shows
that?
Mr. WIGGIN. I am so informed.
Mr. PECORA. Where is it?
Mr. WIGGIN. We will have to get it for you. I do not know the
date of it—of the general authorization.
Mr. PECORA. What is that, sir?
Mr. WIGGIN. We will get it for you.
Mr. PECORA. Did you have any conversations or discussions with
respect to the Shermar Corporation acquiring a part of the interest
of the Chase Securities Corporation in this trading account with any
officers of the Chase Securities Corporation?
Mr. WIGGIN. Undoubtedly.
Mr. PECORA. With whom did you have such conversations or
discussions ?
Mr. WIGGIN. Of course I cannot recall just who I talked to at that
time, but undoubtedly the conversations were with the president of
the corporation and the vice-president of the corporation, with Mr.
Freeman and with Mr. Andersen.
Mr. PECORA. What was the substance of those conversations insofar as they related to the granting to your corporation called the
Shermar Corporation, of a 25 percent interest in the participation of
the Chase Securities Corporation in this trading account ?
Mr. WIGGIN. They wished to enter into this transaction with
Dominick & Dominick, and they did not have enough stock of their
own to do it.
Mr. PECORA. Well, is that all that was said? Did they ask you if
you know where enough stock could be obtained?
2440
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. No; they asked if Shermar would participate.
Mr. PECORA. Did they know how many shares of stock the Shermar Corporation had?
Mr. WIGGIN. I do not think they knew how many, but they knew
they had some.
Mr. PECORA. Did they know who the Shermar Corporation was
composed of and who its stockholders were?
Mr. WIGGIN. I do not know that they knew who its stockholders
were, but they knew I was interested in it.
Mr. PECORA. Did they know that it was virtually a corporation
owned by you and your family entirely?
Mr. WIGGIN. I think so.
Mr. PECORA. NOW, I presume the Chase Securities Corporation
went into this trading account because it expected to make profits
out of it? Is that a fair assumption?
Mr. WIGGIN. Undoubtedly hoped to make profits and they went
into it to dispose of their stockholdings.
Mr. PECORA. TO dispose of their stockholdings?
Mr. WIGGIN. TO dispose of their holdings of Chase National Bank
stock.
Mr. PECORA. Was that one of the purposes that the Chase Securities Corporation had in going into this trading account ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Why could
it not dispose of those in the open market
itself and without participating in a trading account with others?
Mr. WIGGIN. Well, I do not know.
The CHAIRMAN. Why did they want to dispose of their stock in
The Chase Bank?
Mr. WIGGIN. They did not buy the stock for the purpose of keeping
it. They bought the stock to increase the number of shareholders
and to stabilize the market at different times. Not because they
wanted to make a permanent investment.
Mr. PECORA. Did the market at this time require stabilization ?
Mr. WIGGIN. I do not think so. I do not think that they bought
at this time for that. This is selling.
Mr. PECORA. Well, this was a general trading account, was it not,
under which the managers had the right to buy and sell and sell
short and borrow and lend stock?
Mr. WIGGIN. Yes, sir. But their option meant that that stock
was to be sold.
Mr. PECORA. HOW many shares of the bank stock did the Chase
Securities Corporation at that time desire to sell which it actually
owned, that induced you to enter into this trading account?
Mr. WIGGIN. The stock was owned by the Metpotan Co.
Mr. PECORA. HOW many shares did the Cliase Securities Corporation desire to sell at that time, whether or not the shares of the bank
were owned by the Chase Securities Corporation or by its wholly
owned subsidiary, the Metpotan?
Mr. WIGGIN. The option was on 80,000 shares. Metpotan only had
41,000 shares. So they gave the option on 40,000 shares and asked
Shermar for an option on 40,000 shares.
Mr. PECORA. YOU said a few minutes ago that the Chase Securities
Corporation entered into this trading account with Dominick &
STOCK EXCHANGE PRACTICES
2441
Dominick and others in order to enable it to sell shares of the Chase
National Bank stock which it owned, which it now turns out were
owned by the Metpotan Co. How many shares of the bank
stock did the Chase Securities Corporation or its wholly owned subsidiary, the Metpotan Co., want to sell at that time which impelled
them to go into this trading account?
Mr. WIGGIN. They wanted to sell 40,000 shares of the stock that
they held themselves.
Mr. PECORA. In order to do that why was it necessary for the
Chase Securities Corporation to give to Dominick & Dominick for
the purposes of this trading account an option on 80,000 shares?
Mr. WIGGIN. Dominick & Dominick were ready to undertake the
80,000 shares, and Shermar was entirely willing to sell 40,000 shares.
Mr. PECORA. Did you participate on behalf of the Shermar Corporation in the conferences that were held between Dominick & Dominick and the officers of the Clxase Securities Corporation prior to the
agreement evidenced by the letter dated July 19, 1929 ?
Mr. WIGGIN. NO, sir.
Mr. PECORA. Well, if you
did not, then how did it happen that the
Chase Securities Corporation knowing that its subsidiary only owned
40,000 shares entered into an option agreement with Dominick &
Dominick to supply Dominick & Dominick with 80,000 shares?
Mr. WIGGIN. Because the Chase Securities Corporation came to me
aiid asked me if I would give an option on 40,000, which the corporation was very glad to do.
Mr. PECORA. What was the purpose that the Chase Securities
Corporation had in mind when it entered into this trading account
in July 1929? Can you tell us that?
Mr. WIGGIN. I think to get a larger distribution of the stock and
to sell their own stock.
Mr. PECORA. HOW many shares of their own stock did they want
to sell? All that they had?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And that was 40,000 shares ?
Mr. WIGGIN. 41,000.
Mr. PECORA. 41,000; that were in the name of
Mr. WIGGIN. Owned by the Metpotan Co.
Mr. PECORA. In order to do that why was it
the Metpot&n Co. ?
necessary to enter
into any trading account with anybody else ?
Mr. WIGGIN. They did not know how to sell it.
Mr. PECORA. The Chase Securities Corporation did not know how
to sell stock that was being traded in every day in the open market?
Mr. WIGGIN. I do not think they did. I think that the reason
that they went into this Dominick & Dominick operation was so
that Dominick & Dominick would sell it for them; find the customers.
Mr. PECORA. Did they have an equal ignorance with regard to
buying stock?
Mr. WIGGIN. I do not think that required so much education.
Mr. CONBOY. I t is like buying groceries. It takes an organization to sell them, but you buy them as you need them.
Mr. PECORA. Well, it is an interesting statement to hear, Mr.
Wiggin, that the Chase Securities Corporation did not know how to
sell stock.
2442
STOCK EXCHANGE PRACTICES
Mr. CONBOY. He has explained to you that they had not any such
organization for distribution.
Mr. PECORA. What organization did Dominick & Dominick have
for distribution of the stock of the Chase National Bank that was
not available to the Chase Securities Corporation?
Mr. WIGGIN. I do not know how complete their organization was.
Mr. PECORA. DO you not know that these purchases and sales made
for the benefit of this trading account were all made in the open
market?
Mr. WIGGIN. I do not know where they bought it or where they
sold it all.
Mr. PECORA. Well, do you know how to sell shares of stock which
you or your private corporations own?
Mr. WIGGIN. No,
sir.
Mr. PECORA. YOU have an abysmal ignorance about that.
Mr. WIGGIN. I simply use a broker. I would not know how to
sell it.
Mr. PECORA. YOU would use a broker. And there are hundreds
of them within the Wall Street district?
Mr. WIGGIN. Correct.
Mr. PECORA. Could not the Chase Securities Corporation use a
broker, too?
Mr. WIGGIN. Certainly. I t did.
Mr. PECORA. DO you know any reason why they did not do it?
Mr. WIGGIN. But they did.
Mr. PECORA. But they used the brokers in this case, namely, Dominick & Dominick, as participants in a trading account that involved
the sale of many more shares than those owned by the Chase
Securities Corporation or its subsidiary, did they not?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Then why
could they not have used the broker merely
to sell their own shares and not enter into a trading account with
others ?
Mr. WIGGIN. Perhaps they could.
Mr. PECORA. Whenever you or any of your private corporations
want to^distribute shares of stock that you own or which your corporations own, do you always go into a trading account with others
in order to enable you to dispose of your holdings, or do you engage a
broker to dispose of your holdings in the usual routine fashion in the
open market?
Mr. WIGGIN. Usually engage a broker in the usual routine fashion.
Mr. PECORA. Well, why could not the Chase Securities Corporation
have done it in this case?
Mr. WIGGIN. Perhaps they did not think it would be successful.
Mr. PECORA. Have you a copy of the option agreement by which
these 80,000 shares of the bank stock were optioned to Dominick &
Dominick for the purposes of this trading account?
Mr. WIGGIN. DO you mean the one that was just put in evidence?
Mr. PECORA. I have not put any in evidence yet.
Mr. CONBOY. Kead that question.
(The question was thereupon read by the reporter as above recorded.)
Mr. WIGGIN. I S not the option comprised in that letter ?
STOCK EXCHANGE PEACTICES
2443
Mr. PECORA. NO. Are you referring to the letter sent by Dominick & Dominick to the Chase Securities Corporation under date of
July 19, 1929?
Mr. WIGGIN. Yes.
Mr. PECORA. That which is marked Committee's Exhibit No. 11 in
evidence?
Mr. WIGGIN. Yes.
Mr. PECORA. Well, that is not the option agreement, is it?
Mr. WIGGIN. I am not sure.
Mr. PECORA. This letter merely refers to the fact that Dominick &
Dominick as managers of the trading account have obtained options.
Mr. WIGGIN. Well then, there must be another letter.
Mr. PECORA. Let us have that other letter.
Mr. WIGGIN. Mr. Pecora, there is another letter, and you have a
copy of it.
Mr. PECORA. What is the date of it?
Mr. WIGGIN. The same date.
Mr. CONBOY. It is just a 1-page letter.
Mr. PECORA. I have not got it.
Mr. WIGGIN. We can give you a copy of it. Would you like to
see it, Mr. Pecora ?
Mr. PECORA. Yes,
sir.
(Mr. Wiggin handed same to Mr. Pecora.)
Mr. PECORA. I offer in evidence letterproduced by the witness, and
I ask that it be spread on the record. We do not have a copy of this,
and I will read this letter in evidence.
Mr. WIGGIN. And may we give you a photostatic copy so as to
keep our files complete?
Mr. PECORA. Yes. But I will read this letter now in evidence so
that we can return it to you.
Mr. WIGGIN. They say they have given you a copy of that letter,
Mr. Pecora.
The CHAIRMAN. Let it be admitted and placed in the record.
(Letter dated New York, July 19, 1929, from Dominick & Dominick to Chase Securities Corporation was received in evidence, marked
" Committee Exhibit No. 12 of October 19,1933.")
Mr. PECORA. The letter has been marked in evidence as Committee's
Exhibit No. 12 of this date, and reads as follows: On the letterhead
of—
DOMINICK & DOMINICK,
NEW YORK, July 19,
T H E CHASE NATIONAL B A N K OF THE CITY OF NEW YORK CAPITAL STOCK
VALUE
1929.
(PAR
$20)
TRADING ACCOUNT
CHASE SECURITIES CORPORATION,
New York City.
DEAR SIRS: We are forming an account of which we shall be the managers
with full discretionary powers as such, and in which we shall participate,
for the purpose of trading in the capital stock of The Chase National Bank
of the City of New York; said account to be on the basis of 25,000 shares, and
to terminate at the close of business on January 22,1930, with the right on our
part, however, in our discretion, to extend the. account for an additional 30
days or to terminate it on any earlier date.
We hereby beg to confirm that in consideration of the formation by us of
said account, you have extended to us for and on behalf of th6 account, the
2444
STOCK EXCHANGE PRACTICES
right to purchase from you at any time and from time to time on or before
the close of business on January 22, 1930, but in no event after the termination
of said account, all or any part of 80,000 shares of capital stock of The Chase
National Bank of the City of New York, at the following prices: 20,000 shares
at $210 per share, 10,000 shares at $215 per share, 10,000 shares at $220 per
share, 10,000 shares at $225 per share, 10,000 shares at $230 per share, 10,000
shares at $235 per share, and 10,000 shares at $240 per share.
It is also janderstood that pending the exercise by us of this option and during
its existence, upon our request, you will loan to us on behalf of the account,
all or any part of 10,000 shares of said stock at the market price prevailing
at the time any part of the said shares is borrowed by us.
Please confirm that the above is in accordance with your understanding and
is the agreement between us, by signing and returning to us the enclosed
duplicate of this letter.
Very truly yours,
DOMINICK & DOMINICK. .
Confirmed and agreed t o :
CHASE SECURITIES COBPOBATION,
J. C. ANDEBSEN, Vice President,
Mr. PECORA. Mr. Wiggin, it would seem by this letter the Chase
Securities Corporation actually obligated itself to give an option to
Dominick & Dominick covering 80,000 shares of the Chase National
Bank stock. Why did it obligate itself to do so by this formal
agreement in writing if, as a matter of fact, it did not have anything
like 80,000 shares of the stock?
Mr. WIGGIN. They had not wanted to do it for 80,000 shares, but
Dominick & Dominick wanted to do it for 80,000 shares, and Shermar Corporation supplied the other 40,000 shares.
Mr. PECORA. Where is there any evidence, other than this agreement, Whereby Chase Securities Corporation obligated itself to give
an option for 80,000 shares and that Shermar Corporation was to
furnish 40,000 shares? ^
Mr. WIGGIN. There is undoubtedly some letter on that matter.
Mr. PECORA. What was that?
Mr. WIGGIN. I say, there is undoubtedly a letter between Shermar
Corporation and Chase Securities Corporation.
,
Mr. PECORA. Was such a letter in existence July 19,1929 ?
Mr. WIGGIN. It was agreed to but the letter was not written.
Mr. PECORA. When was the letter written?
Mr. WIGGIN. August 2d.
Mr. PECORA. I show you what purports to be a photostatic copy
of ^uch a letter
Mr. CONBOY (interposing). Mr. Pecora, we can furnish you, if you
haven't it, a photostat of the letter that you have just put in evidence.
Mr. PECORA. All right. I will hand you back the one that you
gave me.
Mr. CONBOY. DO you care to have it marked as a committee exhibit
in place of the one that you read?
Mr. PECORA. Yes, I will ask the committee reporter to mark it
" Committee Exhibit No. 12, October 19, 1933 " in place of the one
he heretofore marked, which was the original.
(The photostatic copy of the original was so marked, as shown
heretofore in this record.)
Mr. PECORA. Mr. Wiggin, I show you what purports to be a photostatic copy of a letter addressed to the Shermar Corporation, dated
August 2,1929. I ask you if this is a true and correct copy of such
a letter received by the Shermar Corporation?
Mr. WIGGIN. Yes, sir.
STOCK EXCHANGE PEACTICES
2445
Mr. PECORA. I offer it in evidence and ask that it may be spread
on the record.
The CHAIRMAN. Let it be received and so made a part of the
record.
(A photostatic copy of a letter dated Aug. 2, 1929, addressed to
the Shermar Corporation, was marked " Committee Exhibit No. 18,
Oct. 19, 1933", and will be found where read by Mr. Pecora
following this introduction.)
Mr. PECORA. The letter has been marked " Committee Exhibit
No. 13, October 19, 1933 ", and reads as follows:
AUGUST 2, 1929.
The SHERMAR CORPORATION,
New York, N.Y.
GENTLEMEN : Dominick & Dominick have found an account to tra die in
Bankers Trust Co. receipts for Chase National Bank and Chase Securities
Corporation Stock, and we have extended to them the right to purchase from
us at any time and from time to time, on or before January 22, 1930 all or
any part of 80,000 shares of Chase National Bank and Chase Securities Corporation stock.
We shall thank you to confirm to us that of the 80,000 shares which they
have a right to purchase 40,000 shares will be for your account at the following
prices: 10,000 shares at $225 per share; 10,000 shares at $230 per share;
10,000 shares at $235 per share; 10,000 shares at $240 per share.
Kindly confirm that the foregoing is in accordance with your understanding.
Yours very truly,
, Assistant Treasurer.
There is no signature appearing on this photostatic copy. But I
presume it was signed by someone holding the office of assistant
treasurer of the Chase Securities Corporation. Isn't that correct,
Mr. Wiggin?
Mr. WIGGIN. If you will wait a minute, I will find out. [After
consulting an associate.] Yes, sir.
Mr. PECORA. NOW, upon receipt by the Shermar Corporation of
this letter, Committee Exhibit No. 13, October 19,1933, did you cause
the Shermar Corporation to send to the Chase Securities Corporation
a reply thereto in the form of the photostatic copy which I now show
you?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. I offer that
in evidence and ask that it may be spread
on the record.
The CHAIRMAN. Let it be received and made a part of the evidence.
(A letter dated Aug. 2, 1929, on the letterhead of the Shermar
Corporation was marked " Committee Exhibit No. 14, October 19,
1933 ", and will be found below where it was read by Mr. Pecora.)
Mr. PECORA. It is on the letterhead of the Shermar Corporation,
20 Pine Street, New York, and is as follows:
AUGUST 2, 1929.
CHASE SECUBITIES CORPORATION,
New York.
GENTLEMEN: We acknowedge receipt of your letter of even date relating to
the option given to Dominick & Dominick on Chase stock, and confirm that of
the 80,000 shares they have the right to purchase on or before January 22, 1930,
the following will be for our account: 10,000 shares at $225 per share; 10,000
shares at $230 per share; 10,000 shares at $235 per share; 10,000 shares at $240
per share.
Yours very truly,
THE SHERMAR CORPORATION,
3y J. F. WERNERSBACH,
Treasurer,
2446
STOCK EXCHANGE PRACTICES
Judging by the dates of the last two exhibits, namely, August 2,
1929, in each case, and having in mind the fact that the option agreement given or made between Chase Securities Corporation and
Dominick & Dominick for these 80,000 shares which was entered into
on July 19, 1929, isn't it a fact that the arrangement made between
the Shermar Corporation and Chase Securities Corporation, evidenced by committee exhibits 13 and 14 now in evidence, was made
some 2 or 3 weeks after the granting of the option to the 80,000
shares to Dominick & Dominick by Chase Securities Corporation ?
Mr. WIGGIN. No, Mr. Pecora. I t was all agreed to before they
gave the option. I understand the letter from the Chase Securities
Corporation to Dominick & Dominick accepting it was sent on July
24,1 think it was. Now, the remaining few days between that letter
and the other letter I do not understand except that I was away
and they may have thought there was no hurry on it. But it was
all arranged before that.
Mr. PECORA. Was it all arranged in the three-party conversation
participated in by Dominick & Dominick, Chase Securities Corporation, and the Shermar Corporation?
Mr. WIGGIN. I do not think I talked with Dominick & Dominick
at all. I think Chase Securities Corporation talked with Dominick
& Dominick, and Chase Securities Corporation talked with me, and
then made their trade with Dominick & Dominick.
Mr. PECORA. Did Dominick & Dominick ever know, or did they
know at any time before the termination of this trading account,
some time in 1930, that the Shermar Corporation had entered into
this arrangement with Chase Securities Corporation in respect of
this option?
Mr. WIGGIN. I do not know whether they did or not.
Mr. PECORA. Have you any reason to believe that they did or did
aiot know, whichever it was?
Mr. WIGGIN. I think they probably knew.
Mr. PECORA. What makes you think they probably knew ?
Mr. WIGGIN. It was an open subject. There was no secret about it.
Mr. PECORA. NOW, Mr. Wiggin, I notice that the option given to
Dominick & Dominick by Chase Securities Corporation, and which
in form consists of committee's exhibit no. 12, being this letter of
July 19, 1929, options 10,000 of these shares at $225 a share, another
10,000 shares at $230 a share, another 10,000 shares at $235 a share,
and another 10,000 shares at $240 per share, and that these four
blocks at these prices represent the highest prices to be paid by
Dominick & Dominick under this option agreement for its 40,0()0
shares that they took down under this option agreement. I also
notice that the 40,000 shares, out of the 80,000 shares that your
corporation, the Shermar Corporation, agreed to furnish to Chase
Securities Corporation to enable it to comply with its option to
Dominick & Dominick, for the 80,000 shares, was given at the highest
prices. Was there any reason for that?
Mr. WIGGIN. That was to let Chase Securities Corporation, or
Metpotan Corporation out first.
Mr. PECORA. And also to let the Shermar Corporation in last, at
the highest prices.
STOCK EXCHANGE PBACTICES
2447
Mr. WIGGIN. And to run the risk of not getting rid of it.
Mr. PECORA.. And run the risk of not getting rid of it, did you say?
Mr. WIGGIN. Yes.
Mr. PECORA. Did you
consider that there was any risk being run
by the Shermar Corporation?
Mr. WIGGIN. We doubted very much that they would sell the
whole amount.
Mr. PECORA. Was it considered that Chase Securities Corporation,
or its subsidiary, Metpotan Corporation, was also running a risk,
when it entered into this trading account on July 19th?
Mr. WIGGIN. Yes, sir; a risk of not selling.
Mr. PECORA. Well, whatever risk there was. Was it running anjr
risk at all in their opinion ?
Mr. WIGGIN.. Very little.
Mr. PECORA. Very little risk?
Mr. WIGGIN. But they wanted to sell.
Mr. PEOORA. They wanted to sell?
Mr. WIGGIN. I wanted them to have the privilege of selling first.
Mr. PECORA. Was that your sole reason for participating in this
option at the four highest unit prices, for the benefit of the Shermar Corporation?
Mr. WIGGIN. I t was the last stock. They had to get rid of theirs
first.
Mr. PECORA. What risk did you think you were taking?
Mr. WIGGIN. Of not selling it.
Mr. PECORA. Yes.
Mr. WIGGIN. The risk of not selling it.
Mr. PECORA. Were you anxious to sell your stock at that time?
Mr. WIGGIN. I wanted to reduce our holdings.
Mr. PECORA. YOU had made up your mind to reduce your holdings
by 40,000 shares?
Mr. WIGGIN. I made up my mind to reduce my holdings or hoped
to do so.
Mr. PECORA. By 40,000 shares.
Mr. WIGGIN. Whatever we could sell.
Mr. PECORA. Why did you undertake such an operation whollj
outside, then, of the trading account ?
Mr. WIGGIN. Because we wanted Chase Securities Corporation to
have an opportunity of disposing of their stock first.
Mr. PECORA. Well, if
Mr. WIGGIN (interposing). I should have said the Metpotan
Corporation.
Mr. PECORA. Yes, the Metpotan Corporation.
Mr. WIGGIN. Yes.
Mr. PECORA. If you
had sold your 40,000 shares at the four lowest
unit prices, that is, the four lowest prices established by the option
agreement of July 19, 1929, would you have sold them at a loss to*
your corporation?
Mr. WIGGIN. I do not think so.
Mr. PECORA. YOU still would have made a profit ?
Mr. WIGGIN. I think so.
Mr. PECORA. If you had sold anywhere from $219 to $220 a*
share ?
2448
STOCK EXCHANGE PEACTICES
Mr. WIGGIN. I would have to make sure, but I am quite sure it
would have been at a profit.
Mr. PECORA. NOW, was there any other agreement entered into
between the Shermar Corporation and Dominick & Dominick that
had anything to do with this trading account or this option ?
Mr. WIGGIN. Might I have that question read?
Mr. PECORA. Yes, the committee reported will read it for you.
(Which was done.)
Mr. WIGGIN. Not that I know of.
Mr. PECORA. What was that?
Mr. WIGGIN. Not that I knew of.
Mr. CONBOY. Mr. Pecora, you say any other agreement between
the Shermar Corporation and Dominick & Dominick. There was no
agreement between the Shermar Corporation and Dominick &
Dominick.
Mr. PECORA. I show you a photostatic copy of a letter addressed to
the Shermar Corporation on September 21, 1929, and will ask you
to look at it and tell us if you ever saw the original of that letter?
Mr. WIGGIN. This is from whom—if you know ?
Mr. PECORA. I presume it is from the Metpotan Corporation.
Mr. WIGGIN. It is undoubtedly, sir.
Mr. CONBOY. From the Metpotan Securities Corporation?
Mr. WIGGIN. It is from Metpotan.
Mr. PECORA. Yes; from the Metpotan Co.
Mr. WIGGIN. That is correct.
Mr. PECORA. DO you recognize this photostatic reproduction which
I have shown you to be a true and correct copy of a letter received
by the Shermar Corporation under date of September 21, 1929, from
the Metpotan Corporation?
Mr. WIGGIN. Correct.
Mr. PECORA. I offer this in evidence and ask that it may be spread
on the record of the subcommittee's hearing.
The CHAIRMAN. Let it be received and the committee reporter will
make it a part of the record.
(A letter dated September 21, 1929, addressed to the Shermar
Corporation, was marked " Committee Exhibit No. 15, October 19,
1933 ", and will be found further on in the record where read by
Mr. Pecora.)
Mr. PECORA. The letter marked "Committee Exhibit No. 15,
October 19, 1933 ", reads as follows:
SEPTEMBER 21,
The
SHERMAR CORPORATION,
1929.
New York, N.Y.
On July 19th we accepted an interest of 20% or 5,000 shares
in an account formed to trade in Bankers Trust Co. receipts for Chase National
Bank and Chase Securities Corporation Stock with the understanding that the
aoeount would be on the basis of 25,000 shares. Messrs. Dominick & Dominick
are managers of the account.
The account will terminate at the close of business January 22, 1930, but the
managers reserve the right in their discretion to extend it for a further period
of 30 days or to terminate the same at an earlier date.
Dominick & Dominick will receive as compensation for their services in
forming and managing the account a sum equivalent to 10 percent of the net
profits and they are also to receive a commission of 50£ per share on purchases
and sales of stock made by them in the market.
GENTLEMEN:
STOCK EXCHANGE PRACTICES
2449
We are pleased to allot you an interest of 25% of our 20 percent interest
in the account and one quarter of any portion of the managers' compensation
we may retain for our own account and shall thank you to confirm your acceptance of the same.
Yours very truly,
, Secretary.
Now, did you, in behalf of the Shermar Corporation, send or
cause to be sent to the Metpotan Securities Corporation a letter replying to this letter-of September 21, 1929, a photostatic copy of
which I show you?
Mr. WiGG/iN. Yes, sir.
Mr. PECORA. I now offer that in evidence and ask that it may
be spread on the record of the subcommittee's hearing.
The CHAIRMAN. Let it be received, and the cominittee reporter
will make it a part of the record.
(A letter on the letterhead of the Shermar Corporation,"dat^d
Sept. 24, 1929, addressed to Metpotan Securities Corporation, wAs
marked " Committee Exhibit No. 16, October 19, 1933 ", and will
be found later on in the record where read by Mr. Pecora.)
Mr. PECORA. The letter marked " Committee Exhibit No. 16, October 191, 1933 ", reads as follows:
T H E SHERMAR CORPORATION,
Neiv Ych% September 2Jf, 1029.
METPOTAN SECURITIES CORPORATION,
New York, N.Y.
We acknowledge your letter of the 21st instant, advising us of
your acceptance of a 20% interest, or 5,000 shares in1 an account formed
to trade in the CJaase National Bank and Chase Securities Corporation Capital
Stock, based on a total of 25,000 shares.
We note the details in connection with this account, and hereby confirm
our interest in your share of this business to the extent of 25%.
Very truly yours.
GENTLEMEN:
THE SHERMAR CORPORATION,
B y J . F . WERNERSflBAOH,
Treasurer.
Now, it would appear from these two exhibits that Dominick &
Dominick had made some private arrangement with the Metpotan
Co. under which the latter was to share in the fees to be paid to
Dominick & Dominick as managers of this trading account and also
in their commissions, doesn't it?
Mr. WIGGIN. It would appear so; yes, sir.
Mr. PECORA. And in turn it would also appear from these exhibits
that the Metpotan Co. gave to the Shermar Co. 25 percent of its
interest in the fees and commissions to be paid to Dominick & Dominick as managers of this trading account. That is correct, isn't it?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. DO you know
why the Metpotan Co. agreed to give
your private corporation this share of its participation in the fees
and commissions of Dominick & Dominick?
Mr. WIGGIN. NO. I think they were entitled to it. They were
supplying that share of the stock. They were supplying more than
that share.
Mr. PECORA. Weren't you going to be paid for your stock at the top
prices provided for by the option agreement?
Mr. WIGGIN. If they took it.
2450
STOCK EXCHANGE PBAOTIOES
Mr. PECORA. If they took it you were to be paid for it at the top
prices provided by the original option agreement covering the 80,000
shares?
Mr. WIGGIN. Yes,
Mr. PECORA. And
sir.
did the Metpotan Co. also think that in addition
to the profits your company would make by the sale of those 40,000
shares, it also ought to receive a 25 percent division of its share of
Dominick & Dominick's profits and commissions as syndicate manMr. WIGGIN. Undoubtedly.
Mr. PECORA. Did you think that was a fair arrangement for the
Metpotan Co. to make with your corporation?
Mr. WIGGIN. Why, I think the Shermar Corporation was pretty
liberal. They £ut up half of the stock and only got a quarter of
the extra commissions.
Mr. PEOORA. Why should the Shermar Co. have received any part
of the commissions?
Mr. WIGGIN. For supplying a large part of the stocks.
Mr. PECORA. Well, for supplying that stock it was to receive payment in accordance with the option.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. NOW, when
the Shermar Corporation entered into this
arrangement with Chase Securities Corporation, or the Metpotan
Corporation, to furnish 40,000 of the 80,000 shares that Chase Securities Corporation had obligated itself to supply to Dominick &
Dominick under the original option, nothing was said about sharing
in any commissions or profits, was there?
Mr. WIGGIN. Oh, I think undoubtedly there was.
Mr. PECORA. This came as an afterthought, did it not ?
Mr. WIGGIN. I don't think so.
Mr. PECORA. Why were the documents evidencing your right to
share in that, dated in September of 1929?
Mr. WIGGIN. I don't know.
The CHAIRMAN. The committee will now take a recess until 2:15
p.m.
(Thereupon, at 1:10 p.m. Thursday, October 19, 1933, the committee recessed until 2:15 p.m. the same day.)
AFTERNOON SESSION
The hearing was resumed at the expiration of the recess.
TESTIMONY OP ALBERT H. WIGGIN, NEW YORK, N.Y.—Resumed
Mr. PECORA. Mr. Wiggin, referring to this trading account that
was formed on July 19, 1929, of which Dominick & Dominick were
the managers, you were going to look up for us the names of all of
the other participants in this trading account. Have you succeeded in ascertaining who they were?
Mr. WIGGIN. Yes. I have a list. You understand that we never
knew who they were until a few days ago ?
Mr. PECORA. Yes. Who are they?
Mr. WIGGIN. Shall I read it off?
Mr. PECORA. If you will.
STOCK EXCHANGE PBACTICES
2451
Mr. ALDRICH. Mr. Chairman, may I interrupt ?
Senator COTJZENS. Let the witness answer the question, please.
The CHAIRMAN. Yes; he has a list of names there.
Mr. WIGGIN. Blyth & Co., Inc.; Broomhall, Killough & Co.
Mr. PECORA. A S you give the name of each participant, will you
also state, if you can, the interest of such participant in the acaccount?
Mr. WIGGIN. We have not got that, Mr. Pecora. They are all on
Dominick's books, and they have not furnished us with that information.
Mr. PEOORA. All right.
Mr. WIGGIN. Brown Brothers & Co.; Cassatt & Co.; Clark, Dodge
& Co.; Curtis & Sanger; Eastman, Dillon & Co.; W. W. Lanahan &
Co.; McClure, Jones & Co.; National Bond and Share Corporation:
Potter & Company; Edward B. Smith & Co.; Stone & Webster and
Blodget, Inc.; Weld, Grew & Co.; and, you understand, the Chase
Securities Corporation and their participants that were reported before the recess; and Dominick & Dominick2 of course.
Mr. PECORA. And the Shermar Corporation?
Mr. WIGGIN. Metpotan and Shermar Corporation; yes.
Mr. ALDRIOH. May I interrupt for a moment, Mr. Chairman,
with a matter that I consider of the greatest importance ?
The CHAIRMAN. Yes; if there is no objection.
Mr. ALDRICH. I would like to read into the record an article which
appears in one of the Washington papers this morning, headed,
" Chase Loan to Cuba Eyed by Senate." It hints of a scandal. The
subheading is " Millions Squandered in the Building of Capitol and
Great Highway." The article reads as follows:
A campaign by Wall Street influences was directed today toward suppressing
a Senate inquiry into the floating of a $225,000,000 loan by the Chase National
Bank to the now defunct Machado government of Cuba.
Investigators for the Senate Banking and Currency Committee have unearthed
evidence, in connection with the loan, that may provoke a national sensation.
Some of it will reflect upon the State Department.
A series of letters, exchanged between Americans and Cuban officials, in possession of the committee, will furnish the highlights of the inquiry if it is
held. These letters relate to negotiation of the loan.
BONDS ^DEFAULTED
Proceeds of the loan were used to erect a $25,000,000 capitol building in the
poverty-stricken city of Habana and to construct a $200,000,000 central highway boulevard across the island. The bonds, sold by the Chase National to
finance the loan, have been defaulted in interest payments.
Officials of the new Grau San Martin government since have charged that
millions of dollars were squandered in waste, riotous costs, and graft in the
construction of the two projects. They have threatened to prosecute some of
the exiled Machado leaders for the part they played in negotiation and expenditure of the loan.
Wall Street influences have fought the inquiry on the ground it would provoke anti-American feeling in the island republic. One New Yorker was said
to have warned the committee that the revelations would lead to anti-American
riots and attacks on American banks in Havana.
The inquiry was favored by Senator Fletcher (D), of Florida, chairman,
and Senator Couzens (R), of Michigan. Leaders of the opposition were not
identified. Fletcher said:
"We have not decided whether to hold the inquiry. I think we will and
I believe we should."
Couzens said:
" In my judgment, efforts to sidetrack the inquiry will not succeed."
175541—33—PT 5
12
2452
STOCK EXCHANGE PRACI1CES
That is all of that article on Cuba.
Now, Mr. Chairman, I assume that the efforts of Wall Street
interests to block the inquiry on the Chase loan to Cuba are probably
what I said before the executive meeting of this committee yesterday,
and what I said to Mr. Pecora several days ago. What I said to
Mr. Pecora was this, that as far as my own personal investigation
is concerned, I have found nothing which would require this committee to go into the Cuban loan in order to find a foundation foi
further legislation in regard to the matters which you are investigating. I said to Mr. Pecora, " If you find anything which has the
effect of being necessary to be shown, by all means go ahead with it."
At the executive meeting of the committee yesterday I said the
same thing; that I had not been able to find anything, myself, which
I thought required this committee to go into that loan. Senator
Couzens said that he thought a great many things required the
committee to go into it. I felt and still feel now that it is a mistake
to go into that Cuban loan; but that kind of an exaggerated article
is a great deal worse in every possible way than this committee's
going into that loan. Obviously it is going to do more harm in
Cuba than anything else can—that kind of a statement. As a matter
of actual fact, the facts of the matter are these, that in the public
works financing for the Republic of Cuba the Chase National Bank
and its associates employed about $80,000,000 consisting of $20,000,000 for public works, 5y2 serial certificates maturing serially in the
years from 1931 to June 1933; $40,000,000 of public works 5y2 percent
gold bonds, due June 30,1945, and a bank credit of $20,000,000. All
of the serial certificates except $867,000 principal amount now held
by the Chase National Bank and associates, have been paid in full.
Interest on all of these obligations to June 30, 1933, has been paid
promptly when due. Such balance of the serial certificates amounting to $867,000 and a bank credit of $20,000,000 is being carried by
the Chase National Bank and associates pending clearing of the
existing situation in Cuba. Every bit of this public works financing
was paid by the Chase National Bank directly to construction contractors on work certificates approved by the Secretary of Public
Works and countersigned by the Secretary of the Treasury of the
Kepublic of Cuba for construction work actually performed by
such contractors and accepted by the Cuban Government. Not a
dollar was paid to President Machado or any other officer or
employee of the Cuban Government or anyone else, directly or
indirectly, by way of commission or gratuity.
In view ot the existing conditions in Cuba and the delicate relations with this country and because of the danger of publicity being
given to distorted or false statements as illustrated by the article
which I have just read from, representatives of the Chase National
Bank have questioned the wisdom of making the public-works
financing the subject of a public hearing before this committee. Any
statement or implication that the Chase National Bank or any of
its representatives has sought in any way to suppress any facts
concerning this financing or any other of the activities in Cuba is
false.
I think you ought to go into that immediately and investigate it
fully.
STOCK EXCHANGE PRACTICES
2453
The CHAIRMAN. Of course this committee is not responsible for
what is in a newspaper statement.
Mr. ALDRICH. I do not think you are responsible for it, Mr. Chairman.
The CHAIRMAN. The reporters did ask me if the committee had
decided to go into the Cuban loan, and I said that we had not considered the subject fully yet; we had not got to it, in fact; that
there was some question raised as to whether it would be advisable
to do it, and that the committee would consider it further, that it
had not reached any conclusion.
Mr. ALDRICH. I know, Senator; but ex parte statements of that
kind do more harm than any full investigation could do.
The CHAIRMAN. I did not make the ex parte statement.
Mr. ALDRICH. I am not accusing anybody. It is in the newspaper.
The CHAIRMAN. But your reply is that ex parte statements like
that overcome the effect of the hearing. I did not make it. I am
telling you the statement that I made.
Mr. ALDRJCH. I did not say that you did, Mr. Chairman.
The CHAIRMAN. The reporters asked me if we were going into
the Cuban situation and the facts with regard to the transactions
in Cuba. I said we had not yet decided about that, as to whether
we would or would not. One reporter asked me what my own impression was. I said, " I am in favor of doing it, as far as I know now."
That is the extent of the conversation I had. I did not know these
facts that are stated there, myself. Nobody told me what this paper
contained.
Mr. ALDRICH. Mr. Chairman, I think that under the circumstances
this committee should investigate the Cuban loan matter.
The CHAIRMAN. We will do as we please about it, Mr. Aldrich,
without your dictation.
Mr. ALDRICH. I am sure you will.
The CHAIRMAN. We will take it up when we get to it. That is
a matter for the committee to decide, not for you.
Mr. ALDKECH. That is obviously true; but I am simply expressing
my own opinion.
The CHAIRMAN. That may be your opinion, and it might be all
right for us to stop where we are and leave all these other matters
that we are prepared to go on with and take up the Cuban situation
if the committee desires to do that. I have no objection to doing it.
But I want to say that so far as any indication that this comes from
the committee is concerned, it is absurd.
Mr. ALDRICH. Senator, I have made no accusation that it comes
from the committee. I simply read the article in the press and
stated that in view of the. fact that the article has been published,
which I think does more harm in every way than any possible investigation by this committee could do, that this committee owes it
to the bank to conduct an investigation of the Cuban loan at once.
Senator COUZENS. I move that we proceed in an orderly manner.
The CHAIRMAN. Without objection, that will be done.
Mr. PECORA. HOW many of the persons or firms that were mentioned by you as the participants in this trading account that was
formed on July 19, 1929, are firms or persons who hold seats on
the New York Stock Exchange?
2454
STOCK EXCHANGE PKACTXCES
Mr. WIGGIN. I am not sure. I think, 11.
Mr. PECORA. At least 11 ?
Mr. WIGGIN. I think, 11. I t may be less, but I think, 11.
Mr. PECORA. In view of the fact that this trading account, according to the letter of July 19,1929, which is in evidence as exhibit not.
11 of this date, was formed to trade in 25,000 shares of the capital
stock of the Chase Bank and the Chase Securities Corporation, why
was it necessary to give an option for 80,000 shares to the managers
of the trading account?
Mr. WIGGIN (after conferring with associates). Because Dominick & Dominick wanted the option on 80,000 shares.
Mr. PECORA. DO you know why it was necessary, if this account
was to trade in 25,000 shares, for the managers of the account to have
an option on 80,000 shares?
Mr. WIGGIN. Simply because they wanted it.
Mr. PECORA. What purpose could it serve for the benefit of the*
trading account or trading syndicate?
Mr. WIGGIN. I do not know how to answer that question.
Mr. PECORA. YOU mean you cannot answer that question ?
Mr. WIGGIN. I do not know how to answer it.
Mr. PECORA. Answer it in your best way.
Mr. WIGGIN. I cannot answer it.
Mr. PECORA. DO you know of any reason why Dominick & Dominick, as managers of this trading account, should have needed an
option for 80,000 shares if the account was formed to deal in 25,000*
shares?
Mr. WIGGIN. I don't know that they did need it, but the^ wanted it.
Mr. PECORA. They apparently got it as part of the entire trading:
operation, did they not?
Mr. WIGGIN. The option, of course, was for a larger amount, ^a&
you have pointed out.
Mr. PECORA. The option, of course, was for 80,000 shares?
Mr. WIGGIN. The trading account was for 25,000 shares, and they
could make another trading account as it was necessary, as they
took up the stock.
Mr. PECORA. But they said in the letter which they addressed t a
the Chase Securities Corporation on July 19, 1929, that letter being
Committee's Exhibit No. 11—
The account shall be on the basis of 25,000 shares and will become operative
when participations aggregating 25,000 shares have been received by us. As
managers we have obtained on behalf of the acount options to purchase all or
any part of 80,000 shares of said capital stock of The Chase National Bank of
the City of New York at the following prices.
So it would appear from the language employed in this letter that
this option for 80,000 shares which Dominick & Dominick; acquired
from the Chase Securities Corporation was part of the operation for
which the trading account was formed, was it not?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. NOW, why
was it necessary, in order to operate the
trading account of 25,000 shares, for the managers of the account
to get options of 80,000 shares?
Mr. WIGGIN. Because Dominick & Dominick wanted it. I don't
think there is any
STOCK EXCHANGE PRACTICES
2455
Mr. PEOORA (interposing). How could it serve to benefit the conduct of the trading account's operations ?
Mr. WIGCHEN. This meant that they did not want their associates
t o haye at one time any more than the 25,000 shares, but their option
was for a larger amount.
Mr. PEGO&A. DO you think it was ethical practice for the Chase
Securities Corporation or any of its subsidiary corporations to enter
into any agreement to sell short shares of the Chase National Bank?
Mr. WIGGIN. I think it was entirely proper.
Mr. PECORA. YOU think it is entirely proper?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. YOU say
that recognizing that the Chase Securities
Corporation was the securities or investment affiliate of the Chase
.National Bank and had the same body of stockholders ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. D O you think
it would have been proper, irrespective
of any legal inhibition, for the Chase National Bank itself to have
engaged in a trading operation involving the sales of its shares
short?
Mr. WIGGIN. Of the bank?
Mr. PECORA. Yes,
Mr. WIGGIN. NO, sir.
Mr. PECORA. When this
was done by the Chase Securities Corporation in effect was it not being done also for the bank?
Mr. WIGGIN. NO, sir.
Mr. PECORA. Why not?
Mr. WIGGIN. Because they
are two distinct organizations owned
by the same people but not one owned by the other.
Mr. PECORA. But you say that the Chase Securities Corporation
was organized and created at the instance of the bank to enable that,
because the bank could not engage in the investment and securities
business?
Mr. WIGGIN. Yes, sir; I explained the reasons for the organization
of the Chase Securities.
Mr. PECORA. Then what was an improper or unethical or unwise
thing, apart from the question of the legality, for the Chase National Bank to do, was all right and proper and ethical for its
securities affiliates to do?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Why was
it a proper thing in your opinion for the
Chase Securities Corporation to sell short the shares of the bank ?
Mr. WIGGIN. I don't knpw that they did so.
Mr. PECORA. I t entered into an agreement whereby that could have
been done, did it not?
Mr. WIGGIN. It did.
Mr. PECORA. And so
far as the Chase Securities Corporation knew
on July 19,1929, when it entered into this agreement with Dominick
& Dominick as managers of the account, that kind of a transaction
was within the power of the managers of the account to consummate?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. YOU think
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Why?
that was a proper thing?
2456
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. I t gave a buying power to the stock when necessary.
Mr. PECORA. What is that?
Mr. WIGGIN. Provided a buying power for the stock when necessary.
Mr. PECORA. I t provided a buying power for the stock when necessary. What do you mean by that?
Mr. WIGGIN. I mean if they had sold more than they had there
was a supporting purchasing power for that stock in the market.
Mr. PECORA. A short-selling transaction is a speculative transaction essentially, is it not?
Mr. WIGGIN. Not necessarily.
Mr. PECORA. IS it an investment transaction?
Mr. WIGGIN. No, sir.
Mr. PECORA. Isn't it a speculative transaction,
Mr. WIGGIN. I don't think so.
Mr. PECORA. What kind of a transaction is it,
if it is not investment and not speculative? How would you characterize it?
Mr. WIGGIN. I don't consider that it was an investment. I don't
consider that it was a speculation. I think it was a very desirable
position for the securities company to be in for the benefit of the
stockholders of the bank.
Mr. PECORA. HOW do you denominate or characterize or call or
designate such a transaction if it is not an investment and it is not
a speculation?
Mr. WIGGIN. It was a trading account.
Mr. PECORA. Well, speculation might be a trading account, or
speculation might be indulged in through a trading account, too,
might it not?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. YOU think
a short-selling transaction is a trading:
account ?
Mr. WIGGIN. I think this was in the trading account; yes, sir.
The CHAIRMAN. We have conferred, Mr. Aldrich, about this situation and your suggestion. I t happens that tomorrow, Friday,
we have a number of witnesses subpenaed here, and we cannot very
well go into it tomorrow, but we will take it up, I am authorized to
announce, and will set Monday at 10 o'clock.
Mr. ALDRICH. Thank you, Senator. I think that is very satisfactory.
The CHAIRMAN. All right; Monday at 10 o'clock we will go into
this Cuban matter that has been mentioned.
Mr. PECORA. Mr. Wiggin, subsequent to the giving of the option
for 8,000 shares to Dominick & Dominick for the purpose of this
trading account, was another option given to Dominick & Dominick
by anybody, to your knowledge ?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. When was it given and by whom?
Mr. WIGGIN (after examination of documents and a conference).
Yes, sir.
v
Mr. PECORA. N O ; the question was, When was such additional
option given and by whom ?
Mr. WIGGIN. September 9, Chase Securities Corporation to
Dominick & Dominick.
STOCK EXCHANGE PEACTICES
2457
Mr. PECORA. Was that given in writing?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Have you
Mr. WIGGIN. We have
the original or a copy of the agreement ?
a photostatic copy liere of the letter. Do
you have that there ? I t is dated September 9.
Mr. PECORA. Will you let me see your copy of that letter of
September 9?
(Mr. Hargreaves handed document to Mr. Pecora.)
Mr. PECORA. I offer in evidence the copy of the letter produced by
the witness.
The CHAIRMAN. It will be received and entered in the record.
(Letter dated September 9, 1929 from Dominick & Dominick to
Chase Securities Corporation was thereupon designated " Committee
Exhibit No. 17, October 19, 1933.")
Mr. PECORA. The letter marked " Exhibit 17 ", written on the letterhead of Dominick & Dominick, 115 Broadway, New York, reads as
follows (reading):
SEPTEMBER 9,
1929.
T H E CHASE NATIONAL BANK OF THE CITY OP NEW YOBK
CAPITAL STOCK—PAR VALUE $20
TRADING ACCOUNT
CHASE SECURITIES CORPORATION,
New York, N.Y.
(Attention of Mr. McKee.)
DEAR SIRS : We, confirm that you have ceded to us as Managers of the above
account additional options to purchase from you, at any time or from time
to time prior to the close of business-, January 22nd, 1930, Capital Stock of The
Chase National Bank of the city of New York and Chase Securities Corporation
(represented by Bankers Trust Co. receipts) as follows:
5,000 at $230 a share, 5,000 shares at $235 a share, 5,000 shares at $240 a
share, and 5,000 shares at $245 a share.
These options are exercisable whole or in part as we may call them.
While the options are in force you agree to loan us at our request all or any
part of twelve thousand (12,000), shares of stock at the then prevailing market
price, as we may call from time to time. We agree as Managers that the
account shall not be short more than approximately 10,000 shares of stock at
any time.
Please confirm that the above is in accordance with your understanding by
signing and returning to us the enclosed duplicate of this letter.
V^rv truly yours,
DOMINICK & DOMINION
Confirmed and accepted: Chase Securities Corporation, by the initials
"W. L. McK—V.P."
There is an inscription in handwriting at the bottom of the letter
reading as follows:
Spoke to Mr. B. K. Davis September 9 and agreed that on stock they were
borrowing but had not exercised options we were to receive the cash dividend*
The signature I cannot make out.
Does it not appear from that that the managers had sold the bank
stock short some time prior to September 9, 1929, although on that
date it still had,unexercised options on 45,000 shares?
Mr. WIGGIN. I don't see that this would indicate that, Mr. Pecora,
Mr. PECORA. I don't hear you, Mr. Wiggin.
Mr. WIGGIN. I am sorry. I don't see that this would indicate that.
2458
STOCK EXCHANGE PRACTICES
Mr. PECORA. Doesn't it indicate that there was a short position in
that account prior to the date of that letter ?
Mr. WIGGIN. I don't see that it does.
Mr. PECORA. Well, now, who actually furnished the 20,000 shares
of stock that were optioned under that letter of September 9, 1929?
Mr. WIGGIN. The Shermar Corporation.
Mr. PECORA. Were they all actually called for by the managers of
the account?
Mr. WIGGIN (after conferring with associates). I am advised that
10,000 were taken up and 10,000 were not.
Mr. PECORA. At what prices were the 10,000 shares that were taken
«p so taken up?
Mr. WIGGIN. At the first two prices.
Mr. PECORA. Twenty-five thousand shares at $230 and 5,000 at
$235?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And those
10,000 shares were furnished to your corporation by the Shermar Corporation?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. HOW did
the Shermar Corporation happen to furnish
those 10,000 shares, in view of the fact that the option was given to
the managers of the Chase Securities Corporation?
Mr. WIGGIN. The Chase Securities Corporation did not have 10,000
shares.
Mr. PECORA. Then why dicj. the Chase Securities Corporation again
on September 9, 1929, knowing that it did not haije those shares,
•enter into a formal commitment with Dominick & Dominick to give
them an option on those shares at stated pricey?
Mr. WIGGIN. Because they were protected! on their option.
Mr. PECORA. HOW were they protected?
Mr. WIGGIN. By Shermar Corporation.
Mr. PECORA. Was there an arrangement or understanding before
the Chase Securities Corporation entered into that option agreement
with the Shermar Corporation to give them that protection T
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And how
was that arrangement or understanding
•evidenced in writing, if it was evidenced in writing?
Mr. WIGGIN. Haven't you got that, Mr. Pecora?
Mr. CONBOY. September 10, 1929.
Mr. PECORA. I show you photostatic copies of two letters. Will
you please look at them and tell us if they constitute true and correct copies of the writings or letters which evidenced that understanding?
Mr. WIGGIN (after examining documents). Yes, sir.
Mr. PECORA. I offer those two letters in evidence as separate exhibits, the first one I so offer being the one addressed to the Chase
Securities Corporation, the other one being the one addressed to the
Shermar Corporation.
The CHAIRMAN. Let them be admitted and entered in the record.
(Letter dated Sept. 10, 1929, from Dominick & Dominick to
Ohase Securities Corporation was thereupon designated " Committee
Exhibit No. 18, October 19, 1933.")
STOCK EXCHANGE PRACTICES
2459
(Letter dated Sept. 10, 1929, from Chase Securities Corporation
to Shermar Corporation was thereupon designated " Committed
Exhibit 19, Oct. 19, 1933.")
Mr. PECORA. The first of these two letters, marked " Committee's
Exhibit 18 ", reads as follows—I won't read the caption [reading] r
SEPTEMBER 10, 1929.
CHASE SECURITIES CORPORATION,
New York, N.Y.
We wish to advise you that we as managers of the above account
have obtained on its behalf additional options to purchase at any time or times
prior to the close of business January 22, 1930, all or any part of 20,000 shares
of capital stock of the Chase National Bank of the city of New York, and Chase
Securities Corporation (represented by Bankers Trust Co., receipts), asfollows:
5,000 shares, at $230 a share; 5,000 shares, at $235 a share; 5,000 shares, at
$240 a share; 5,000 shares, at $245 a share.
" Beginning today the account shall not be short more than approximately
10,000 shares of stock at any time.
Very truly yours,
Managers,
DEAR SIRS :
I presume it was signed by Dominick & Dominick.
The second letter, marked "Committee's Exhibit 19," reads a&
follows: (Reading.)
September 10, 1929.
SHERMAR CORPORATION,
New York, New York.
We are enclosing copy of a letter dated September 9, 1929,.
received from Messrs. Dominick & Dominick in connection with additional
options to purchase at any time or from time to time, prior to January 22, 1930,
20,000 shares of Chase Stock.
We shall thank you to confirm that the arrangements as outlined in sudb
letter have been entered into by us with Messrs. Dominick & Dominick in your
behalf.
Yours very truly,
GENTLEMEN:
Assistant Treasurer.
I presume this letter was signed by assistant treasurer of the
Chase Securities Corporation?
Mr. WIGGIN. I assume so.
Mr. PECORA. Did the Shermar Corporation send? by way of
acknowledgement or reply to this letter that I have just read, any
letter to the Chase Securities Corporation or the Metpotan Corporation ?
Mr.
WIGGIN. Yes,
sir.
Mr. CONBOY. We have not turned upi any reply to that.
Mr. PECORA. We do not have a copy of it, either.
Mr. CONBOY. Apparently we have none in our file.
Mr. PECORA. From the fact that you have not in the files of the
Shermar Corporation any copy of a letter sent by way of ret"
to this letter, committee s exhibit 19, is it fair to conclude, S
Wiggin, that reply was made orally and not in writing?
Mr. WIGGIN. I don't know. I t may have been that. May have
been some memoranda okayed. I don't know how.
Mr. PECORA. Options apparently were given to Dominick & Dominick as managers of 'this trading account by the Chase Securities
2460
STOCK EXCHANGE PRACTICES
Corporation for an aggregate of 100,000 shares, of which only 90,000
were exercised by Dominick & Dominick.
Mr. WIGGIN. That is as I understand it.
Mr. PECORA. And of those 90,000 shares with respect to which
Dominick & Dojninick exercised their option, your corporation, called
the Shermar Corporation, furnished 50,000 shares under the option
agreement?
Mr. WIGGIN. That is right, sir.
Mr. PECORA. And were paid for those shares at the prices set forth
in the various option agreements?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. When was this trading account close4; Mr. Wiggin?
Mr. WIGGIN. I will find out. [After conferring with associates.]
November 11,1929.
Mr. PECORA. And do you know whether there were any profits that
accrued to the trading account from its entire operations?
Mr. WIGGIN. I will inquire. [After conference with associates.]
Yes, sir.
Mr. PECORA. What was the aggregate amount of such profits ?
Mr. WIGGIN (after conferring with associates). We can only give
you the amount that came to the Chase Securities participants. We
do not know the whole profit.
Senator ADAMS. But you can readily figure that if you know the
relative contributions ot the Chase Securities to the pool—or rather
I should say the trading account?
Mr. WIGGIN. Yes; but we haven't the percentages, you know, of
the participants in the trading account. All we have is the name.
We could only guess, and I don't want to do that.
Senator ADAMS. There is no penalty for guessing as long as it is so
labelled. After all, don't you figure, Mr. Wiggin, most of the
things we do are guesses?
Mr. WIGGIN. Yes; I am afraid they are.
Senator ADAMS. If we restrict ourselves and eliminate all guesses,
why, there would not be any trading accounts conducted.
Mr. BISBEE. There would not be much left of life, either.
Mr. WIGGIN. Was there any question unanswered?
Mr. PECORA. DO you know what the total profit was ?
Mr. WIGGIN. No; I do not know what the total profit was. We
can tell what share was given to Chase.
Mr. PECORA. They do not know what the respective interests were
of the other participants, Senator Adams.
You said before you knew their names and you learned those
names only within the last few days from Dominick & Dominick.
Senator ADAMS. But, Mr. Pecora, they knew this, that they contributed 50,000 shares out of 90,000.
Mr. PECORA. But the trading operations involved many more
shares than that, something like 176,000 shares.
Senator ADAMS. But there were actually 90,000 sold, disposed of.
Mr. PECORA. Drawn down under these option accounts.
Senator ADAMS. Yes. They contributed 50,000. So that their
share, representing five ninths of it, would givfe you what the total
was, even though you could not distribute it.
Mr. PECORA. NO, it would not.
Mr. BISBEE. NO, no; not of the profit.
STOCK EXCHANGE PKACTICES
2461
Mr. CONBOY. Senator, I do not want to disagree with you.
Senator ADAMS. I t would not be the first time someone has disagreed with me.
Mr. CONBOY. It would be the first time that you and I disagreed.
I do not think your basis of computation is accurate, and I do not
think we can give it to you; but we can tell you what Chase Securities Corporation got, and you can draw the inferences that you think
are justified.
Senator ADAMS. That would allow us to guess.
Mr. CONBOY. Allow you to guess. But if you wanted to have
a good guess then you would want to know what these other facts
are as suggested by Mr. Pecora, and we have not got those. We
cannot tell you what they are.
Mr. PECORA. Probably I could expedite this examination if I
state that I received from Dominick & Dominick a statement showing the operations or trades in this account from the time of its
formation in July 1929 to the time of its termination on November
11, 1929.
Mr. CONBOY. What are the dates that are covered by that question,
Mr. Pecora ? From when ?
Mr. PECORA. July 19, 1929, to November 11, 1929. It showed that
there was a total of $2,096 shares bought under options and 80,710
shares bought in the open market, making a total of shares acquired
for the purposes of the trading account of 172,806, and that there
were sold in the market 115,483 shares, and 55,227 shares were distributed to participants on the termination of the account. And
that the profits accruing to the trading account from these transactions amounted to $1,452,314.68.
Senator GOLDSBOROXTGH. I S that the first account?
Mr. PECORA. NO ; the third one, Senator.
I also received from Dominick & Dominick a statement showing
the distribution made of these profits aggregating $1,452,314.68 to
the various participants on November 11, 1929.
I will offer in evidence, subject to any correction that any party
may seek to make, the photostatic reproductions of the statements
of the transactions furnished to us by Dominick & Dominick.
Mr. CONBOY. YOU say " subject to correction." Of course, we did
not prepare the statements.
Mr. PECORA. NO. I say subject to correction by Dominick & Domi
nick or anybody else. I said anybody interested.
Mr. CONBOY. I do not know what facilities we would have. Will
you furnish us with a copy of them?
Mr. PECORA. I will be very glad to do so. We only have one set of
photostatic reproductions, but we would be very glad to let you look
at them overnight.
Mr. CONBOY. Thank you. Is that something that was prepared
for you?
Mr. PECORA. Prepared for us by Dominick & Dominick. These
are their tabulations.
Mr. CONBOY. Did they only give you photostats or did they give
you the originals ?
Mr. PECORA. They gave us photostats.
The CHAIRMAN. Does that include any more shares than the 80,000 ?
Mr. PECORA. Yes, Senator.
2462
STOCK EXCHANGE PRACTICES
Mr. CONBOY. May we look at those so that we may acquaint ourselves with them if we are examined about them?
Mr. PECORA. Yes. (Handing same to Mr. Conboy.) They areoffered in evidence.
The Chairman. The statements will be admitted and spread upon
the record.
(Statement from Dominick & Dominick showing the operations in.
the account from July 19, 1929 to November 11, 1929, was received
in evidence, marked " Committee Exhibit No. 20 of October 19r
1933 ", and is here printed in the record in full as follows:)
COMMITTEE EXHIBIT NO. 20, OCTOBEB 19, 1933
Chase National Bank Trade
Aug. 5,1929,10,000 shares Chase Securities Corporation, at 210—
Aug. 8, 1929,10,000 shares Chase Securities Corporation, at 210—
Aug. 8, 1929, 5,000 shares Chase Securities Corporation, at 215—
Aug. 9, 1929, 2,500 shares Chase Securities Corporation, at 215—
Aug. 14,1929, 2,500 shares Chase Securities Corporation, at 215—
Aug. 19, 1929,10,000 shares Chase Securities Corporation, at 220Aug. 19, 1929,10,000 shares Chase Securities Corporation, at 225_
Aug. 27, 1929, 5,000 shares Chase Securities Corporation, at 230—
Aug. 27,1929, 625 shares Chase Securities Corporation, stock dividend on above.
Sept. 5, 1929, 5,000 shares Chase Securities Corporation, at 230—
Sept. 5, 1929, 625 shares Chase Securities Corporation, stock
dividend on above.
Sept. 10, 1929, 6,768 shares Chase Securities Corporation, at 235Sept. 10, 1929, 846 shares Chase Securities Corporation, stock
dividend on above.
Sept. 19, 1929, 3,232 shares Chase Securities Corporation, at
208. 888_ , ,
Sept. 19, 1929, 6,500 shares Chase Securities Corporation, at
213. 333
Sept. 20, 1929, 3,500 shares Chase Securities Corporation, at
213. 333
Sept. 20, 1929, 2,500 shares Chase Securities Corporation, at
230
Sept. 23, 1929, 2,500 shares Chase Securities Corporation, at
230
Sept. 23, 1929, 5,000 shares Chase Securities Corporation, at
235
Total, 92,096 shares
80,710 shares bought in the market
Sept. 11, dividend 9,291 shares account short
Aug. 28, check, Bowne & Co., circular
Sept. 12, check, Bowne & Co., composition
16,462 shares,
11,730 shares,
16,991 shares,
10,044 shares,
participants,
participants,
participants,
participants,
at
at
at
at
222-2
227-2
240-2
241-2
1,590,480. 0O>
675,126. 02
1
I , 386, 664. 50
746,665.50
575, 000.0O
575, 000. 0O
1,175, 000. 00
19,829,936.02
18, 521,341.13
9,2Q1.0to
$688.20
10.48
1
to
to
to
to
1,150,000.00
-
Balance
172,806 shares
$2,100,000. (K>
2,100,000.00
1,075,000.00
537,500.0ft
537,500.00
2,203,000.00
2,253,000. Otf
1,150,000.0ft
698.681,452,314.68
39,813, 581. ol
3,620,858.40>
2,638,686.96
4,043, 042.36
2,400,033.80'
Total, 55,227 shares
12,702,621.52
115,483 shares, sold in market
27,110,959.99
Aug. 23, 1929, 2,096 shares, 12% percent stock dividend account
short, 16,768 shares.
Total, 172,806 shares
39,813, 581.51
STOCK EXCHANGE PRACTICES
2463
(Statement from Dominick & Dominick showing distribution made
of profits aggregating $1,452,314.68 to the various participants on
.November 11, 1929 was received in evidence, marked "Committee
Exhibit No. 2 1 " , of October 19, 1933, and is here printed in the
record in full as follows:)
COMMITTEE EXHIBIT NO. 21, OCTOBER 19,
1933
Chase National Bank trade
1929
Nor. 11. Checks for profit on partic to the following:
Dominick & Dominick, 5,000 shares
$261,416. 64
Chase Securities Corporation, 5,000 shares
261,416.64
Potter & Co., 1,250 shares
65,354.16
McClure, Jones & Co., 1,250 shares
65,354.16
Broomhall Killough & Co., 1,250 shares
65, 354.16
National Bond and Share Corporation, 1,250 shares65, 354.16
W. W. Lanahan & Co., 1,000 shares
52,283.33
Weld Grew & Co., 500 shares
26,141.66
Clark Dodge & Co., 1,000 shares
52,283.33
Edward B. Smith & Co., 1,000 shares
52,283. 33
Cassatt & Co., 1,000 shares
52,283.33
Stone Webster & Blodget, 1,000 shares
52,283. 33
Brown Brothers & Co., Inc., 1,000 shares
1
52,283.33
Eastman Dillon & Co., 2,000 shares
104,566. 66
Curtis & Sanger, 500 shares
26,141.66
Blyth & Co., Inc., 1,000 shares
52,283.33
Check—Dominiek & Dominick 10 percent commission for acting 12 managers
145,231.47
1,452, 314. 68
Novv 9. Balance
Mr. PECOKA.
1,452,314.68
According to Committee Exhibit No. 21, in the distribution of the profits which this trading account made the Chase
Securities Corporation received the share thereof amounting to
$261,416.64. Does that conform to your record?
Mr. CONBOY. Yes.
Mr. PECORA. Mr. Wiggin,
will you tell us how much of a net profit
accrued to the Shermar Corporation from the sale of the 50,000
shares that it supplied under these options to the managers of this
trading accounts
Mr. WIGGIN. We cannot tell, because it went into an account in
which there were many transactions. We can tell how much of
this $261,000 was passed on, but we cannot tell what the profit was
to Shermar on those particular 50,000 shares.
Mr. PECORA. YOU mean you cannot tell at this time, but you have
records which will inform you of that, have you not?
Mr. WIGGIN. If you bought 1,000 shares and sold the same 1,000
shares, you could tell what the profit was on a thousand shares. But
if you have a long-running account, stock bought at various times,
at various prices, and then sell part of it it, you cannot tell what
the profit was.
Mr. PECORA. Have not you or the Shermar Corporation any records from which it could be ascertained how much profit accrued to
the Shermar Corporation from the sale of the 50,000 shares which
it furnished to Dominick & Dominick as managers of this trading
account?
Mr. WIGGIN. NO, sir. That is impossible.
2464
STOCK EXCHANGE PRACTICES
Mr. PECORA. Why not?
Mr. WIGGIN. Because you cannot tell which stock was sold at these*
prices. I mean you have a great many shares; some are bought at
one price, some at another. Then you sell. Now which stock are
you going to take as this particular sale?
Mr. PECORA. I S it not usual to take the stock that was first:
acquired?
Mr. WIGGIN. Well, perhaps we could do that.
Mr. PECORA. The first stock acquired is regarded as the first stock
sold?
Mr. WIGGIN. You mean for income-tax purposes?
Mr. PECORA. For income-tax purposes.
Mr. WIGGIN. That is a little different from trying to find out,
what the profit is in an account. We could tell the first purchases
in the account, find out what they cost, and then see what these
proceeds were, and then figure the difference. But we have not got
it yet, and we will have to go into that in detail to get it.
Mr. PECORA. HOW long will it take you to get that?
Mr. WIGGIN. Oh, I do not think it would take very long.
Mr. PECORA. HOW much of the $261,416.64 that Domimck & Dominick distributed to the Chase Securities Corporation on November
11,1929, did the Shermar Corporation receive?
Mr. WIGGIN. $65,354.
Mr. PECORA. Did it in addition to that received from the Metpotani
Corporation any moneys on account of the interest which the Metpotan Corporation gave the Shermar Corporation out of the fees and
commissions which Dominick & Dominick received as managers of*
this account?
Mr. WIGGIN. We received part of the management fee, but nopart of the commissions.
Mr. PECORA. HOW much did you receive on that account?
Mr. WIGGIN. $9,682.10.
Mr. PECORA. That makes a total of $75,036.10, does it not?
Mr. WIGGIN. Correct.
Mr. PECORA. From the time of the commencement of this trading
account on or about July 19, 1929, up to the date of the first bigcrash, so called, in the stock market in October 1929, can you tell
the committee whether the daily quotations in the market of the
stock of the Chase National Bank were generally upward? I believe the date of the big crash was October 26, 1929, was it not?
Senator ADAMS. October 29, 1929.
Mr. BISBEE. Another one in November. The first one was inOctober.
Mr. WIGGIN. The trend was upward until about the 22d of August..
The dividend came off there. I t sold ex-dividend, which makes the
price a little lower. And the trend was upward in September, upto the 21st of September, and then the trend was downward until,
about the 5th of October, and then it was up until about the 20th
of October, and then the trend was downward. I can give you any
particular day.
Mr. PECORA. Have you found a copy of the resolution that you
referred to in the course of your testimony during the forenoon
session today in which you said that the officers of the Metpotan Co..
STOCK EXCHANGE PBACTICES
2465
and the Chase Securities Corporation, respectively, had power
to transact the business which it transacted with the Shermar
Corporation?
Mr. WIGGIN. I spoke of a Chase Securities Corporation resolution,
did I not, giving the officers power ?
Mr. PECORA. Well, either the Chase Securities Corporation or the
Metpotan.
Mr. WIGGIN. Yes; I think it was the Chase Securities Corporation.
Mr. PECORA. All right.
Mr. WIGGIN. We have sent to New York for it, Mr. Pecora. We
do not have it here yet.
Mr. PECORA. I S that in the nature of a general resolution that was
adopted a long time before this trading account was opened ?
Mr. WIGGIN. Oh, I think so.
Mr. PECORA. After the termination of this trading account on
November 11,1929, do you know whether or not the Chase Securities
Corporation became a participant in any other trading account dealing with the shares of the Chase National Bank and the Chase Securities Corporation? In connection therewith I suggest that you refer
to records consisting of a letter from Dominick & Dominick addressed to the Chase Securities Corporation dated January 7, 1930.
Mr.4 WIGGIN. I have the letter. Xes.
Mi . PECORA. Does that letter serve to refresh your recollection to
the effect that on or about January 7,1930, another trading account
dealing in the shares of the capital stock of the Chase National Bank
or the Chase Securities Corporation was formed with Dominick &
Dominick as the managers thereof?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. I show you what
purports to be a photostatic copy
of such a letter, and I ask you if you recognize it to be a true and
correct copy thereof? [Handing same to Mr. Wiggin.]
Mr. WIGGIN. Yes.
Mr. PECORA. I offer
it in evidence and ask that it be spread on the
record.
The CHAIRMAN. Let it be admitted and placed in the record.
(Letter dated January 7, 1930, from Dominick & Dominick, addressed to the Chase Securities Corporation, was received in evidence and marked " Committee Exhibit 22 of October 19, 1933.")
Mr. PECORA. The, letter reads as follows, on the letterhead of—
DOMINICK & DOMINICK,
NEW YOKK, January 7, 1930.
T H E CHASE NATIONAL BANK OF THE CITY OF NEW YOEK AND CHASE SECUBITIES
COBPORATION, CAPITAL STOCK (REPRESENTED BY BANKERS TRUST CO. DEPOSITARY RECEIPTS)
TRADING ACCOUNT
CHASE SECURITIES CORPORATION,
New York City.
DEAR SIRS : We are forming an account of which we shall toe the managers,
with full discretionary powers as such, and in which we shall participate, for
the purpose of trading in the capital stock of The Chase National Bank of the
City of New York and Chase Securities Corporation (represented by Bankers
Trust Co. depositary receipts). The account shall be on tfte basis of 15,000
shares and will become operative when participation aggregating 15,000 shares
been received by us.
Digitized forhave
FRASER
2466
STOCK EXCHANGE PRACTICES
As managers, we have obtained on behalf of the account options to purchase,
in whole or in part, capital stock of The Chase National Bank of the. City of
New York and Chase Securities Corporation (represented by Bankers Trust Co.
depositary receipts) as follows: 7,500 shares at $155 a share; 7,500 shares at
$160 a share; 5,000 shares at $165 a share; 10,000 shares at $170 a share; 10,000
shares at $175 a share; 10,000 shares at $180 a share; said options to continue
in full force and effect to and until the close of business on April 7,1930, but in
no event beyond the termination of the trading account.
The account will terminate at the close of business on April 7, 1930, but we
as managers reserve the right, in our discretion, to extend it for a further
period of 90 days or to terminate the account at an earlier date.
As managers we shall have the sole management and entire conduct of the
business and affairs of the account, with all the usual powers, including the right
on behalf of the account to make or procure loans and to pledge the obligations
of the account participants therefor, to pay all commissions and expenses of
every nature, and for the account to purchase, sell, sell short, repurchase, resell,
or hold shares of the capital stock of The Chase National Bank of the City of
New York and Chase Securities Corporation (represented by Bankers Trust Co.
depositary receipts) to such an amount, at such prices, and in such manner as
we may deem advisable, and generally to act in all respects as in our opinion
may be to the best interests of the account, provided only that the account shall
at no time be short or own Or be committed for an amount of stock in excess of
15,000 shares.
Notwithstanding our relations as managers, we shall enjoy as participants in
the account all the rights and benefits and be subject to all the liabilities hereby
respectively granted to and imposed upon other participants.
We shall in no way be liable for any error of judgment or mistake of law
or fact or failure of any party contracting with us to live up to his agreement,
nor shall we be liable except for our own failure to exercise good faith.
The failure of any participant to adhere to the terms of this agreement shall
in no respect relieve the other participants from their account obligations.
It is understood that this agreement shall bind and benefit the several parties
and their respective heirs, executors, administrators, successors, and assigns.
At our option as managers each participant shall take up and pay for in full
or margin to our satisfaction his pro rata share of stock held by the account
and shall meet his other account obligations if any upon call by us. Stock
so taken up and paid for during the life of the account shall be for carrying
purposes only, and shall be subject to call by the account managers at any time.
No partnership relations shall arise herefrom. At the expiration of the
account we as managers shall distribute the stock and/or cash remaining in our
hands among the participants pro rata in the proportion which the number
of shares of their respective participations bears to 15,000 shares. The participants shall share pro rata in the said shares and in the profits or losses of
the account, after allowing for all expenses incurred by the managers, and the
apportionment and distribution of the said shares, profits or losses, shall be
conclusive upon the participants.
As compensation for our services in forming and managing this account we
shall receive a sum equivalent to 10 percent of the net profit. We shall also
receive a commission of 50 cents a share on purchases and sales of stock made
by us in the market for the account.
In accordance with the understanding between us, we have reserved for
you in this account a participation of 3,000 shares.
Please confirm your acceptance of this participation by signing and returning
to us the enclosed duplicate of this letter.
Very truly yours,
DOMINICK & DOMINIOK, Managers.
Confirmed and accepted
J. C. A.
The CHAIRMAN. What is the date of that?
Mr. PECORA. January 7, 1930.
The CHAIRMAN. This was the fourth account?
Mr. PECORA. This was the fourth account, yes.
Mr. PECORA. NOW, Mr. Wiggin, I notice reference
in this letter
I have just read, marked " Committee Exhibit No. 22, October 19,
STOCK EXCHANGE PEACTICES
2467
1933 ", addressed to Dominick & Dominick, of their having obtained
on behalf of the account, a$ its managers, options to purchase up to
50,000 shares. In connection therewith I show you a photostatic
reproduction of what purports to be a copy of a letter addressed by
Dominick & Dominick on January 7, 1930, to Chase Securities Corporation, and ask you if you recognize it to be a true and correct
copy of the letter which constitutes your reference to the option for
such 50,000 shares referred to in the exhibit last offered in evidence.
Mr. WIGGIN. I t is.
Mr. PECORA. Mr. Chairman,
I offer it in evidence, and ask that it
may be spread on the record of the subcommittee's hearings.
The CHAIRMAN. I t will be received, and the committee reporter
will make it a part of the record.
(The letter dated Jan. 7, 1930, from Dominick & Dominick to
Chase Securities Corporation, was marked "Committee Exhibit
No. 23, Oct. 19, 1933", and will be found next following where
Mr. Pecora read it.)
Mr. PECORA. I t reads as follows, being on the letterhead of Dominick & Dominick, 115 Broadway, New York, and I won't read the
entire caption.
CHASE SECURITIES CORPORATION,
t
JANUARY 7, 1930.
New York City.
DEAB SIRS : We propose to form an account of which we shall be the managers
with full discretionary powers as such and in which we shall participate for
the purpose of trading in the capital stock of The Chase National Bank of the
City of New York and Chase Securities Corporation (represented by Bankers
Trust Co. depositary receipts); said account to be on the basis of 15,000 shares
and to terminate at the close of business April 7, 1930, with the right on our
part, however, in our discretion, to extend the account for an additional 90
days or to terminate it on any earlier date.
We hereby beg to confirm that, subject to the formation by us of said account
and in consideration thereof, you have extended to us, for and on behalf of
the account, the right to purchase from you, in whole or in part and at any
time and from time to time, on or before the close of business April 7, 1930
(but in no event after the termination of the account), capital stock of The
Chase National Bank of the City of New York and Chase Securities Corporation (represented by Bankers Trust Co. depositary receipts), as follows: 7,500
shares a $155 a share, 7,500 shares at $160 a share, 5,000 shares at $165 a share,
10,000 shares at $170 a share, 10,000 shares at $175 a share, 10,000 shares at
$180 a share.
It i& also understood that pending the exercise by us of this option and during
its existence, upon our request, you will loan to us on behalf of the account,
all or any part of 10,000 shares of said stock at the market price prevailing at
the time any part of the said shares is borrowed by us.
Please confirm that the above is in accordance with your understanding and
is the agreement between us by signing and returning to us the enclosed duplicate of this letter.
Yours truly,
DOMINICK & DOMINICK.
Confirmed and agreed to:
CHASE SECURITIES CORPORATION,
By J. C. A., Vice President.
Now, let me ask you if there was any arrangement between Chase
Securities Corporation and any other corporation under which Chase
Securities Corporation was to obtain the stock covered by this option.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. YOU say
Mr. WIGGIN. Yes, sir.
175541—33—PT 5
13
there was?
2468
STOCK EXCHANGE PRACTICES
Mr. PECORA. And with what corporation was such arrangement
made by Chase Securities Corporation?
Mr. WIGGIN. By getting 20,000 shares of the Metpoian Corporation and 30,000 shares of The Shermar Corporation.
Mr. PECORA. Did the Chase Securities Corporation on the.date of
this option, namely, January 7, 1930, have or own 50,000 shares of
the capital stock of The Chase National Bank and Chase Securities
Corporation?
Mr. WIGGIN. Did Chase Securities Corporation own it?
Mr. PECORA. Yes.
Mr. WIGGIN. No, sir.
Mr. PECORA. In this instance
again how did it happen that Chase
Securities Corporation entered into a formal option agreement with
Dominick & Dominick if it knew it did not have the shares covered
by the option?
Mr. WIGGIN. I presume it was negotiated with the Chase Securities Corporation, hence the letter was addressed to Chase Securities
Corporation. Chase Securities Corporation protected itself by its
trade with the other two corporations.
Mr. PECORA. Why wasn't the option given directly by those two
other corporations to Dominick & Dominick?
Mr. WIGGIN. I t could have been done.
Mr. PECORA. But why wasn't it done ? I realize that it could have
been done, but why wasn't it so done?
Mr. WIGGIN. Because the negotiations were all with Chase Securities Corporation.
Mr. PECORA. When the officers of Chase Securities Corporation that
had those negotiations with Dominick & Dominick realized that
their corporation did not have those 50,000 shares of stock, why
didn't they tell that to Dominick & Dominiek and suggest to Dominick & Dominick that they negotiate the option agreements directly
with the Metpotan and Shermar Corporations ?
Mr. WIGGIN. I t could have been done. They just did not do it
that way. They did it through Chase Securities Corporation.
Mr. PECORA. Was there any special reason why it was done in that
way and not in the more direct way ?
Mr. WIGGIN. Not that I know of. The negotiations were started
there and they were finished there. That is all that I know.
Senator COTJZENS. Let me ask right there: Did Chase Securities
Corporation make any profit out of it, I mean by doing it in that
way?
Mr. WIGGIN. NO. The profit went to the Metpotan on its shares
and to Shermar on its shares, if there had been any.
Senator COUZENS. And Chase Securities Corporation assumed this
obligation but received no profit?
Mr. WIGGIN. They assumed no obligation, except one on which
they were protected.
Senator COUZENS. There is no evidence in that communication of
theirs that they were protected, and it seems rather peculiar that the
officials of Chase Securities Corporation would do all the negotiating
for these other two corporations without a profit.
Mr. WIGGIN. Well, they owned Metpotan, which had a substantial
profit in it, you know.
STOCK EXCHANGE PBACTICES
246$
Mr. PECORA. NO. Shermar Corporation came in for a loss and.
had no profits, didn't it?
Mr. WIGGIN. No.
Mr. PECORA. AS between
the Metpotan and the Shermar Corporation ?
Mr. WIGGIN. I don't think the Shermar Corporation sold any. I
don't think they got to their option. It let the Metpotan Corporation out first, and it never reached the Shermar Corporation.
Mr. PECORA. Here is a situation where the Metpotan Corporation
was a wholly owned concern by Chase Securities Corporation, yet
Chase Securities Corporation enters into negotiations with Dominick & Dominick leading to the granting of an option of 50,000
shares of stock of the Chase National Bank by the Securities Corporation to Dominick & Dominick, and at a time when the Securities
Corporation officers knew their corporation did not have that stockMr. WIGGIN. They did not have the stock, but they had contracts
for the same amount of stock under option.
Mr. PECORA. Well, they had those contracts with the Metpotan Co.y
which was a wholly owned subsidiary, and with the Shermar Corporation.
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Did the
Metpotan Corporation at that time have
50,000 shares of the Chase National Bank stock?
Mr. WIGGIN. NO, sir.
Mr. PECORA. Did it only have 20,000 shares?
Mr. WIGGIN. They had 20,000 shares?
Mr. PECORA. DO you know that to be a fact?
Mr. WIGGIN Yes. I have looked that up.
Mr. PECORA. Were there any agreements in writing prior to the
granting of this option on January 7, 1930, by Chase Securities
Corporation to Dominick & Dominick, which protected, to us your
term, Chase Securities Corporation in granting this option at a time
when it knew it did not have the stock?
Mr. WIGGIN. The Metpotan Corporation wrote a letter to the
Shermar Corporation on January 9. I t was agreed to verbally on
January 7, but confirmed by letter of January 9.
Mr. PECORA. In other words, the writing which gave Chase Securities Corporation that protection did not come into existence until
2 days after Chase Securities Corporation in writing committed
itself to this option agreement with Dominick & Dominick; is that
right?
Mr. WIGGIN. That is right.
Mr. PECORA. Why didn't Chase Securities Corporation, do you
suppose, have that protection at the time?
Mr. WIGGIN. They had it verbally. They ran no risk. It was all
agreed to. It was simply the machinery of getting around to the
writing of the letter, is all.
Mr. PECORA. Was there any writing between the Shermar Corporation and Chase Securities Corporation, or between Shermar Corporation and the Metpotan Corporation, relating to this option?
Mr. WIGGIN. That is the letter I referred to. That is this letter
which I have here, of January 9.
2470
STOCK EXCHANGE PRACTICES
Mr. PECORA. TO whom is the letter you have in mind addressed ?
Mr. WIGGIN. To the Shermar Corporation.
Mr. PECORA. I show you what purports to be a photostatic copy of
a letter dated January 9, 1930, addressed to the Shermar Corporation, and ask you if that is the copy of the letter to which you have
just referred.
Mr. WIGGIN. There is another letter, I guess, Mr. Pecora. This is
not the one.
Mr. PECORA. Well, by whom is it addressed and to whom?
Mr. WIGGIN. It is a letter from the Metpotan Co. to the Shermar
Co., signed just with an initial.
Mr. PECORA. Well, I haven't a copy of such a letter.
Mr. CONBOY. I t has been furnished to you. I t was identified by
the exhibit no. 75-28. That will probably identify it in your file.
Can't you put your hands on it?
Mr. PECORA. NO, sir.
Mr. CONBOY. Then I will take this one out and give it to you.
Mr. WIGGIN. We will give you this one.
Mr. PECORA. I do not seem to have a copy of that. I have the
others.
Mr. WIGGIN. Here it is.
Mr. PECORA. I offer in evidence the copy of the letter produced by
the witness, dated January 9, 1930, and addressed to the Shermar
Corporation.
The CHAIRMAN. Let it be received and the committee reporter
will make it a part of the record.
(A letter dated January 9, 1930, addressed to the Shermar Corporation, was marked " Committee Exhibit No. 24, October 19,
1933 ", and will be found later on in the record where read by Mr.
Pecora.)
Mr. PECORA. The photostatic copy of letter which has been marked
"Committee Exhibit No. 24, October 19, 1933", reads as follows:
JANUARY 9,
1930.
The SHERMAR CORPORATION,
New York, N.Y.
Dominick and Dominick have formed an account to trade in
Bankers Trust Co. receipts for Chase National Bank and Chase Securities Corporation stock and we have extended to them the right to purchase from us at
any time or from time to time, on or before the close of business April 7th,
1930, all or any part of ,50,000 shares of Chase Stock.
We shall thank you to confirm to us that of the 50,000 shares which they
have a right to purchase, 30,000 shares will be for your account at the following
prices:
10,000 at 170 10,000 at 175 10,000 at 180
Yours very truly,
F.C.
GENTLEMEN:
Vice President.
Do you know which particular officer signed this letter?
Mr. WIGGIN. Mr. Callahan.
Mr. PECORA. I S he vice president of the Metpotan Co.?
Mr. WIGGJN. Yes, sir.
Mr. PECORA. I presume
that the Shermar Corporation caused a
reply or acknowledgment to be sent to Metpotan Corporation to
this letter of January 9,1930?
Mr. WIGGIN. Yes,
sir.
STOCK EXCHANGE PEACTICES
2471
Mr. CONBOY. Mr. Pecora, you have a copy of it. I t was identified
BJB exhibit 75-36,
Mr. PECORA. NOW, the option prices referred to in this letter which
has been marked " Committee Exhibit No. 24, October 19, 1933 ",
were, again, the 3 highest unit prices for the 3 blocks of stock,
each for 10,000 shares, referred to ?
Mr. WIGGIN. Yes,
Mr. PECORA. Did
sir.
Dominick & Dominick ever exercise their option
for any part of those 30,000 shares?
Mr. WIGGIN. NO, sir.
Mr. PECORA. They never did?
Mr. WIGGIN. NO, sir.
Mr. PECORA. Did they exercise
their option to the 20,000 shares out
of those 50,000 shares option?
Mr. WIGGIN. I understand so.
Mr. PECORA. Against the Metpotan Co. ?
Mr. WIGGIN. I understand so.
Mr. PECORA. DO you know why they did not exercise their option
for any part of the 30,000 shares which The Shermar Corporation
agreed to supply ?
Mr. WIGGIN. I do not know why they did not exercise their option.
But the account was terminated on March 7,1930.
Mr. PECORA. It was terminated a month ahead of time, wasn't it?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Was that because the account was operating at a loss ?
Mr. WIGGIN. I do not know.
Mr. PECORA. Well, you know as a matter of fact that it did operate
at a loss, don't you ?
Mr. WIGGIN. I do not know, but I will find out.
Mr. PECORA. All right.
Mr. WIGGIN. I will present a letter, Mr. Pecora, from Dominick
& Dominick to Chase Securities Corporation handing them a check
for the net profit of their participation in the account.
Mr. PECORA. A profit?
Mr. WIGGIN. Yes, sir.
Mr. PECOR^. I should like to see it.
Mr. WIGGIN. Here it is.
Mr. PECORA. Have you got the statement
that according to this
letter you have shown me, accompanied the letter?
Mr. WIGGIN. I think so.
Mr. PECORA. I should like to see it.
Mr. HARGREAVES. Mr. Pecora, might I see that letter and see what
statement it refers to?
Mr. PECORA. Certainly. Here it is.
Mr. WIGGIN. NOW, here is that statement.
Mr. PECORA. Did the Metpotan Corporation furnish to Dominick
& Dominick under this option arrangement that has been put in evidence, all the 20,000 shares that it had agreed to furnish to Chase
Securities Corporation to enable it to live up to its option agreement?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And those
20,000 shares under the option arrangement were turned over to the account managers at the following
prices, were they not: 7,500 shares at $155 a share, 7,500 shares at
$160 a share, 5,000 shares at $165 a share?
2472
STOCK EXCHANGE PRACTICES
Mr. WIGGIN. That is right; yes, sir.
Mr. PECORA. Did the Metpotan Company sustain a loss on those
transactions ?
Mr. WIGGIN. I will find out. I do not know (after conferring
with associate). We cannot tell from our accounts here, the figures
we have here whether there was a profit or not on that stock, because we have not the average prices, but on the Government basis
of income tax return, of first purchase against first sale, it would
have shown a loss of about $35,000.
Mr. PECORA. A loss of $35,362.38?
Mr. WIGGIN. That is approximately correct.
The CHAIRMAN. A loss to whom? To Chase?
Mr. WIGGIN. The Metpotan Corporation. Mr. Pecora, I am reminded that against that loss they had received a distribution of
profits which would have offset that.
Mr. PECORA. Of how much?
Mr. CONBOY. You have it there.
Mr. PECORA. This check of $25,789.85 went to the Chase Securities
Corporation, did it not?
Mr. WIGGIN. It was turned over to Metpotan.
Mr. PECORA. By the Chase Securities ?
Mr. WIGGIN. Yes.
Mr. PECORA. The
letter that you have produced here, with the
accompanying statement referred to in the letter, is dated March 7,
1930, and is addressed bv Dominick & Dominick to the Chase Securities Corporation. Eeierring to this trading,account, it says as
follows:
DEAB SIRS : We, as managers, have terminated the above account as of the
close of business today, and the unexercised balance of the options ceded us
on behalf of the account have been canceled. We inclose herewith our check
to your order for $4,461.34, representing the net profit on your participation
and the selling commission on your total confirmed sales of stock, the details
of which amount are shown on the accompanying statement. Please acknowledge receipt of this check in full in final settlement of your interest.
That is signed by Dominick & Dominick. But the statement accompanying this letter which you have produced shows a profit to the
Chase Securities Corporation on 3,300-share participation at the rate
of $5.14 plus per share, amounting to $16,989.85, and selling commission at the rate of $2 per share on 4,400 shares, or $8,800, making a
total of $25,789.85. What was the amount of the check that was
received inclosed in this letter of March 7, 1930, from Dominick &
Dominick ? The letter says $4,461.34. The accompanying statement
says $25,789.85.
Mr. CONBOY. I S there a correction of the amount in the letter
itself?
Mr. PECORA. There is a lead pencil statement there. I do not know
that that is a part of the original letter.
Mr. CONBOY. I t is apparently a correction to conform to the memorandum that accompanied it. Does the change conform to the
memorandum ?
Mr. PECORA. The change in lead pencil on the letter conforms to
the amount set forth in the statement which accompanied the letter.
Mr. CONBOY. It is the indicated amount there in pencil, as shown
by the statement.
STOCK EXCHANGE PBACTICES
2473
Mr. PECORA. I was just wondering whether the lead pencil amount
is to be adopted as the correct amount, in preference to the typewritten amount.
Mr. CONBOY. I t is the amount that is in that statement; and the
original amount in that letter is apparently an error which was corrected. You can probably check that against such records as you
have from Dominick & Dominick. I assume you have them.
The CHAIRMAN. Were the lead pencil marks made by Dominick &
Dominick?
Mr. CONBOY. I beg your pardon, sir ?
The CHAIRMAN. Were the lead pencil changes made by Dominick
& Dominick?
Mr. CONBOY. I could not tell you that. Would you care to hear
what Mr. Hargreaves has to say about it? He is treasurer of the
corporation.
Mr. PECORA. I would be very glad to hear his statement.
Mr. HARGREAVES. One of our men, in receiving the check, called
the attention of Dominick &j Dominick to the apparent error in the
letter, and they asked us to change it in pencil at the time the check
was received.
Mr. PECORA. Then the check was for the larger amount.
Mr. HARGREAVES. $25,789.85.
Mr. CONBOY. The check conformed to the statement which accompanied the letter.
Mr. HARGREAVES. That is correct.
Mr. PECORA. DO you know why none of the 30,000 shares that the
Shermar Corporation agreed to furnish either to the Metpotan Co.
or the Chase Securities Corporation in order to enable the latter
corporation to live up to its obligation under the option agreement
for 50,000 shares, were ever drawn down?
Mr. WIGGIN. No, I do not; and I do not know why they terminated
the account.
Mr. PECORA. Was it because the market showed a steadily downward trend at that time ?
Mr. WIGGIN. I do not know why they canceled the option. I am
very sorry they did. I would have been glad if they had not.
Mr. CONBOY. Did the market show) a constantly downward trend?
Mr. PECORA. I do not know.
Mr. CONBOY. Your question would imply it did.
Mr. PECORA. I am asking if it was because of any such reason. I
do not know that it was.
Mr. WIGGIN. I do not know.
Senator COUZENS. Have you any record of what happened to the
market after the cancelation of the option?
Mr. WIGGIN. We can get that.
The CHAIRMAN. I understood you a moment ago to say there was
a loss of $35,000 odd.
Mr. PECORA. A loss to the Metpotan Co. of $35,000 odd.
Mr. WIGGIN. I think that profit in Chase went to the Metpotan Co.
Senator COUZENS. SO that reduced Metpotan's loss to about $10,000.
Mr. WIGGIN. Yes. You understand that loss—we have not figured
it on average cost of the stock. It is only a loss based upon incometax return of first sale against first purchase.
2474
STOCK EXCHANGE PEACTICES
Mr. PECORA. Which is a fair rule, is it not, for estimating those
things ?•
Mr. WIGGIN. It may be a fair rule for the income tax, but it is not
good bookkeeping for an account.
Mr. PECORA. What would be a better way of reckoning it?
Mr. WIGGIN. I do not want to be a theorist here, but suppose you
buy stock, and you buy it at various prices running over a period of
time; What does that stock cost you ? I t costs you the average, does
it not?
Mr. PECORA. That is one way of putting it.
Mr. WIGGIN. There is no other way. That is what it has cost, is
it not? If you add it all up, that is what it has cost. The price
per share is the average. They must have some rule on the income
tax, and they have adopted this rule of first sale against first purchase, unless certificates are identified. That is my understanding.
But you would not take the first purchase as the cost of the stock
if it averaged a good deal less than that, or if it averaged more.
You would have to take it at the average.
Mr. PECORA. I t would be all right to take the average if all the
stock had subsequently been sold at various prices.
Mr. WIGGIN. Whether it has been sold or not, I do not think enters
into it, Mr. Pecora. The cost of that stock is the total dollars it
cost you, is it not?
Mr. PECORA. Yes; but where you do not sell that total of the
stock, but only part of it, is not the more equitable rule to apportion the sales as against the first stock received or purchased?
Mr. WIGGIN. I appreciate that the income tax must have some
method of determining it, but first purchase is not the cost of the
stock. I t is just the cost of those particular shares.
Senator COUZENS. What would you suggest as a rule, if it was not
all sold?
Mr. WIGGIN. For income-tax purposes?
Senator COTTZENS. Yes.
Mr. WIGGIN. I do not suggest any change for income-tax purposes.
My only point is that for our own bookkeeping, for our own reckoning of profits, we must take the average cost. I am not speaking of
the income tax.
The CHAIRMAN. The committee will stand adjourned until 10
o'clock tomorrow.
(Whereupon, at 4:30 p.m., Thursday, October 19, 1933, the subcommittee adjourned until 10 o'clock the following morning.)
STOCK EXCHANGE PEACTICES
FRIDAY, OCTOBER 20, 1933
UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON
BANKING AND CURRENCY,
Washington, D.O.
The subcommittee met, pursuant to adjournment on yesterday, at
10 a.m., in the caucus room of the Senate Office Building, Senator
Duncan TL Fletcher, presiding.
Present: Senators Fletcher (chairman), Adams (substitute for
Barkley and proxy for Costigan), Couzens, and Goldsborough (substitute for Norbeck).
Present also: Senator Reynolds of North Carolina.
Present also: Ferdinand Pecora, counsel to the committee; Julius
Silver, David Saperstein, and David Schenker, associate counsel to
the committee; and Frank J. Meehan, chief statistician to the committee; Martin Conboy, counsel for Albert H. Wiggin; Eldon Bisbee, Alfred E. Mudge, Joseph B. Lynch, Julian £. Hagen and C.
Horace Tuttle of Rushmore, Bisbee & Stern, and also William Dean
Embree and A. Donald MacKinnon of Milbank, Tweed, Hope &
Webb, counsel for The Chase National Bank and The Chase Corporation; Roland L. Redmond, counsel for New York Stock
Exchange.
The CHAIRMAN. The subcommittee will1 come to order. Mr. Pecora,
you may proceed.
Mr. PECORA. IS there present in the room a representative of the
brokerage firm of Edward A. Pierce & Co. ?
Mr. PIERCE. Yes,
sir.
Mr. PECORA. Will you please come forward ?
The CHAIRMAN. Hold up your right hand and be sworn. You
solemnly swear that you will tell the truth, the whole truth, and
nothing but the truth regarding the matters now under investigation
by this committee. So help you God.
Mr. PIERCE. I do.
Senator COUZENS.
Mr. Chairman, before you proceed with this
witness I should like to make a statement in reference to an article
that appears in the New York Times of this morning headed:
Wiggin pools sold Chase Bank stock.
I do not desire to take up the time of the committee to read the
whole article, but I direct the committee's attention to the second
paragraph, which is headed:
Agree to the loan inquiry.
2475
2476
STOCK EXCHANGE PRACTICES
Then it goes on to say:
The committee, apparently having decided otherwise, agreed, after the tilt
between Chairman Fletcher and Mr. Aldrich, to investigate the bank's loans to
the Cuban Republic immediately. A special session will be held at 10 o'clock
Monday morning.
I want to say for the record that this is wholly in error. Not
only did the chairman not state that any agreement had been
reached not to go into the examination of those loans, but not a
single member of the subcommittee, at any time, publicly or privately in my hearing, ever opposed going into the question of
the Cuban loans. The writer of this article is wholly in error
when he says that the committees " apparently having decided otherwise " acceded to the request of Mr. Aldrich. The committee never
at any time took a vote, and neither individually nor collectively
ever opposed going into the question of the Cuban loans.
The CHAIRMAN. Senator Couzens is quite right about that. You
may proceed, Mr. Pecora.
TESTIMONY OF EDWARD A. PIERCE, MEMBER OF THE FIRM OF
E. A. PIERCE & CO., NEW YORK CITY
Mr. PECORA. Mr. Pierce, will you give your full name and address
to the committee reporter for the record?
Mr. PIERCE. Edward A. Pierce, 40 Wall Street, New York.
Mr. PECORA. What is your business or occupation, Mr. Pierce ?
Mr. PIERCE. Stockbroker.
Mr. PECORA. Are you a member of the firm known as " Edward
A. Pierce & Co."?
Mr. PIERCE. E. A. Pierce & Co.
Mr. PECORA. I S that a copartnership ?
Mr. PIERCE. Yes, sir.
Mr. PECORA. And where is its principal
Mr. PIERCE. 40 Wall Street.
Mr. PECORA. Does it maintain branch
office or place of business?
offices in any other city
or cities?
Mr. PIERCE. Yes,
sir.
Mr. PECORA. In how many cities does your firm maintain branch
offices ?
Mr. PIERCE. About 40.
Mr. PECORA. And how many branch offices all told does your firm
maintain in those 40 cities?
Mr. PIERCE. Probably 44.
Mr. PECORA. Are there any members of your firm who are members
of the New York Stock Exchange ?
Mr. PIERCE. Yes, sir.
Mr. PECORA. HOW many
such members are members of the New
York Stock Exchange?
Mr. PIERCE. Four.
Mr. PECORA. That is, your firm has or controls four seats on the
New York Stock Exchange ?
Mr. PIERCE. TO the extent that 3 are controlled under the general
partnership and 1 is a special partner.
STOCK EXCHANGE PBACTICES
2477
Mr. PECORA. Yes; I see. And how many seats are owned or controlled by your firm on stock exchanges other than the New York
Stock Exchange?
Mr. PIERCE. Well, that is quite a chore. We have seats on nearly
all the principal exchanges of this country and Toronto, Canada.
Mr. PECORA. About how many are there,, Mr. Pierce ?
Mr. PIERCE. Well, Boston, New York, Chicago, San Francisco,
Detroit—do you refer to stock exchanges only?
The CHAIRMAN. Let us take them all in. Are there any others?
Mr. PIERCE. Stock exchanges ?
The CHAIRMAN. Stock exchanges, produce exchanges, and any
other exchanges.
Mr. PIERCE. Boston Stock Exchange, New York Stock Exchange,
New York Curb, New York Cotton Exchange, New York Produce
Exchange, New York Commodity Exchange, New Orleans Cotton
Exchange, New Orleans Stock Exchange, Detroit Stock Exchange,
Chicago Stock Exchange, Chicago Board of Trade, Toronto Stock
Exchange, Winnipeg Grain Exchange, Liverpool Cotton Exchange,.
San Francisco Stock Exchange. Those are the principal ones as I
remember it, sir.
Mr. PECORA. Mr. Pierce, is your firm what is in the parlance of the
Street denominated a wire house?
Mr. PIERCE. Yes,
sir.
Mr. PECORA. And does a very extensive commission business with
customers throughout the country ?
Mr. PIERCE. Yes, sir.
Mr. PECORA. Mr. Pierce,
have you had any conferences or discussions within the last 2 or 3 weeks with the president of the New
York Stock Exchange with respect to a questionnaire that I caused
to be sent to Mr. Whitney under date of September 30, last?
Mr. PIERCE. Yes, sir.
Mr. PECORA. With request
that he cause such questionnaire to be
circulated among the members of the Exchange?
Mr. PIERCE. Yes, sir.
Mr. PECORA. When did
you last confer with Mr. Whitney on that
subject?
Mr. PIERCE. Yesterday.
Mr. PECORA. Was the conference at your request or at his ?
Mr. PIERCE. Mine.
Mr. PECORA. Had you previously been subpenaed to attend before
this committee this morning?
Mr. PIERCE. Subpena was served on me night before last while I
was in Washington. Or, rather, it was served at my office in New
York while I was in Washington.
Mr. PECORA. Did you indicate to Mr. Whitney that you had been
subpoenaed and were expected to attend before the committee this
morning when you conferred with him yestrday?
Mr. PIERCE. Yes,
sir.
Mr. PECORA. Were there any other members of the exchange, or
brokers, present at your conference with Mr. Whitney?
Mr. PIERCE. Yes,
sir.
2478
STOCK EXCHANGE PRACTICES
Mr. PECORA. Who were they?
Mr. PIERCE. Mr. Dominick, Mr. Prentice—pardon me, Mr. Pecora,
did you ask about members of the stock exchange ?
Mr. PECORA. Or members of brokerage firms holding seats on the
stock exchange.
Mr. PIERCE. Mr. Dominick
Mr. PECORA (interposing). As you give the names of these gentlemen will you indicate the firms that they are connected with,
respectively?
Mr. PIERCE. Yes, sir. Mr. Dominick of Dominick & Dominick,
Mr. Prentiss of Hornblower & Weeks, Mr. Duncan of W. E. Hutton
& Co., Mr. Drevers of Eric & Drevers, Mr. Chapman of Chisholm
& Chapman. For the moment I do not recall any others.
Mr. PECORA. What was that?
Mr. PIERCE. At the moment I do not recall any others.
Mr. PECORA. DO you know that all these gentlemen whose names
you have just mentioned had also been subpenaed to appear before
this committee this morning?
Mr. PIERCE. Yes, sir.
Mr. PECORA. And was
that fact known to all those present at this
conference that you all had with Mr. Whitney on yesterday?
Mr. PIERCE. Yes, sir.
Mr. PECORA. Who else
attended that conference besides Mr. Whitney and the gentlemen whose names you have given us ?
Mr. PIERCE. Representatives of the exchange counsel.
Mr. PECORA. Was that Mr. Redmond?
Mr. PIERCE. Yes,
sir.
Mr. PECORA. Anyone else?
Mr. PIERCE. One of his partners.
Mr. PECORA. Who?
Mr. PIERCE. I am not sure of the name but I think Mr. Mason.
Mr. PECORA. Mr. Pierce, do you know the circumstances under
which this conference was called?
Mr. PIERCE. I do. That was one of my purposes in consulting
Mr. Whitney.
Mr. PECORA. What were the circumstances surrounding the calling
of the conference ?
Mr. PIERCE. I was in Washington when your first questionnaire
was brought out, and was not at all familiar with the surrounding
circumstances, not until I returned to New York. I had not seen
the exchange of correspondence between Mr. Whitney and yourself
in this matter. It was all quite new to me. I had understood that
Mr. Whitney had not, or tne stock exchange as such had not complied with your request as you had expected them to do, and I was
curious to know what the reason's were, and exactly where we
stood.
Mr. PECORA. Have you now completed your answer?
Mr. PIERCE. Yes, sir.
Mr. PECORA. Well, did
you invite these other gentlemen who were
also under subpoena to appear before this committee this morning,
to attend that conference?
Mr. PIERCE. I did
not.
STOCK EXCHANGE PEACTICES
2479
Mr. PECORA. DO you know how it happened that they also were
present at this conference on yesterday?
Mr. PIERCE. NO, sir.
Mr. PECORA. Who fixed
the hour for the holding of this conference, you or Mr. Whitney ?
Mr. PIERCE. I did not fix it. I was invited by Mr. Frank Hope,
president of the stock exchange brokers.
Mr. PECORA. TO attend the conference ?
Mr. PIERCE. Yes.
Mr. PECORA. Were these other gentlement also notified by Mr. Hope
to attend the conference, so far as you know ?
Mr. PIERCE. I think so, so far as I know.
Mr. PEOORA. Will you give the committee in substance what took
place at this conference yesterday ?
Mr. PIERCE. There seems to be considerable difference of opinion as"
between you and gentlemen of the stock exchange as to the cost of
supplying you with the information that you called for in your
original questionnaire
Mr. PECORA (interposing). Just one moment. I do not mean to
interrupt you, but I think it might be well at this time for me to
ask you this: At the conference yesterday was the original questionnaire the only questionnaire discussed ?
Mr. PIERCE. NO, sir. Some of us had had a telephonic conversation with your Mr. Schenker and ascertained that the original
questionnaire would be substantially modified.
Mr. PECORA. But at the conference yesterday with Mr. Whitney
and these other gentlement was the modified form of questionnaire
brought to your attention by anybody ?
Mr. PIERCE. Yes,
sir.
Mr. PECORA. All right. Now you may go ahead and give us the
substance of what was said at this conference yesterday.
Mr. PIERCE. The discussion was purely along lines of the extent
to which we could—or rather to determine the extent to which we
could cojnply with the request contained in your modified questionnaire, as to whether or not you would expect complete exactness
in the replies. Our accountant estimates that if we were allowed
a reasonable latitude in approximating accuracy in the matter of
answering some of your questions, the expense would be nominal
and the time would, perhaps, be some 2 or 3 weeks. On the
other hand, if we must be exact about them, it would take several
months, undoubtedly, and the cost would be great if we had to
have the work done outside. Our purpose of that conference, the
jnain purpose, was to try to find a way in which we could give
you gentlemen the information you require with a sufficient degree of
accuracy, amounts, so as to enable us to get it together without a
large expenditure of time and money ourselves.
Mi*. PECORA. And it would be possible to give us an approximation by way of answer to the various questions embodied in our
questionnaire at what you would call a nominal expense and with
the expenditure of only 2 or 3 weeks' time.
Mr. PIERCE. Well, that would all depend upon the degree of
approximation with which you would permit us to do the work.
2480
STOCK EXCHANGE PRACTICES
Mr. PECORA. Well, with a fair degree of approximation, something that would give the committee reasonable information, a reasonable notion of the kind of business transactions, and so forth,
that are called for in the questionnaire.
Mr. PIERCE. Mr. Pecora, I hope you will believe I am not sparring with you. That would all depend on whether or not we could
agree upon what is fair. I am very sure we are anxious to cooperate
in any reasonable degree. But I can tell you that if we were compelled to answer questions of even the modified questionnaire exactly and precisely, and the markets were sufficiently active so that
we would have to employ outside help, it would take, in the case
of our firm—and I consider our records very complete—at least
$50,000 and several months' time. I can satisfy any auditor whom
you might put up against him on that point. On the other hand,
if we can get together on a questionnaire that will give you all the
information you really need, and at the same time not put too great
a, burden on us, we could put it through without any considerable
•cost and, if the markets are as they are at the present time, without
employing any outside assistance.
Senator COTTZENS. Would you say 10 percent would be an approximation, within 10 percent of accuracy?
Mr. PIERCE. I should say we could come nearer than that.
The CHAIRMAN. Well, the information you would give would be
practically sufficient upon which the committee could rely in attempting to legislate on any of these questions. We wouldn't want
it to misrepresent the situation or to be wholly inadequate, but if
sufficient to give us a basisx for any legislation that we might enact,
why, I think I would consider that probably would be sufficient.
Mr. PIERCE. Well, might I cite an illustration that I think you
would all understand even though you are not accountants or familiar with stock exchange accounting
Mr. PECORA (interposing). Just a moment right there: I would
suggest, Mr. Chairman, that the other gentlemen who may be in the
room now and who were subpenaed to appear before the committee
this morning, and who are members of firms that hold seats on the
New York Stock Exchange, follow the testimony of Mr. Pierce
closely, so that when they are called to the stand their examination
may be abbreviated without losing the substance of it.
The CHAIRMAN. I think that would save time.
Mr. PECORA. NOW you may go ahead, Mr. Pierce.
Mr. PIERCE. Generally speaking, any debit appearing in a trial
balance at the end of a given month represents a margin account.
On the other hand, we are frequently called upon to buy for a bank
or an investor a security which would be paid for a day or two afterwards if we are given an order like that, say, to purchase 100 shares
of steel, an investment purchase on December 30, and that goes
through our clearings and on to our ledgers December 81. The
customer gets the bill December 31, and we will get a check in payment January 2 or 3, a purely cash account. Now, in order to determine whether the December 31 balance item represents a margin
account we would have to refer to our ledgers, our January ledgers,
the following year. That means that every one of those items, every
item appearing in our debit accounts, and we have 26,000 accounts,
STOCK EXCHANGE PBACTICES
2481
would have to be analyzed by referring to the ledgers the following
year. I wouldn't think, in the case of our firm certainly, that more
than 5 percent of the debit balances appearing at the end of any
given month represented investment transactions of that character.
Mr. PECORA. Would it be fair to take the transactions, or to
analyze the transactions, say, for the period of one month, in order
to ascertain the percentage of such transactions of the whole number of your transactions, and then apply that percentage as representing the average? Would that give us a fair approximation of
the facts ?
Mr. PIERCE. Might I have that question read?
Mr. PECORA. Yes; the committee reporter will read it to you.
(Which was done.)
Mr. PIERCE. Quite, I should think.
Mr. PECORA. Are there any other suggestions that you have to
make along these lines, Mr. Pierce ?
Mr. PIERCE. I think if we would be permitted to consult with your
accountants, who are familiar with your requirements, and who no
doubt are familiar with stock exchange methods of accounting, we
probably could arrive at a very helpful result. We <Jo not know
what you purpose showing.
Mr. PECORA. Well, isn't that indicated pretty well by the modified
questionnaire?
Mr. PIERCE. Well, I don't know.
Mr. PECORA. Take the modified questionnaire, and will you point
out the various questions that could not be answered without the
expenditure of a great deal of time and money?
Mr. PIERCE. That would depend upon the particular house to
which it was applied. I can answer only for my house.
Mr. PECORA. Will you do it for your house? Your house is one
of the largest, if not the largest, wire houses in the street, isn't it?
Mr. PIERCE. Yes, sir. But we are hot an underwriting house.
Mr. PECORA. Well, that means that you would not be put to any
expense in furnishing the data or compiling the data to answer
these questions.
Mr. PIERCE. Quite right; but the difficulties of our house in rendering a return to your questionnaire are much less than that of
houses whose business is more complex.
Mr. PECORA. Well, you have before you, I presume, a copy of the
modified questionnaire.
Mr. PIERCE. Yes.
Senator COUZENS.
Mr. Chairman, before that question is answered
let me ask if the modified questionnaire has been made a part of
the record.
The CHAIRMAN. I think not.
Mr. PECORA. This is one of them, Senator Couzens, and I now
offer it for the record.
The CHAIRMAN. Let it be received and the committee reporter
will make it a part of the record.
(The modified questionnaire sent out by counsel to the committee
was marked " Committee Exhibit No. 25, October 20, 1933 ",«and
is as follows:)
2482
STOCK EXCHANGE PRACTICES
COMMITTEE EXHIBIT NO. 25, OCTOBER 20,
1933
QUESTTONNAIBE
A. Give the following data for a current date:
1. Number of members of New York Stock Exchange.
2. (a) Estimate of number of members considered as acting primarily as
traders for their own account, giving names and addresses.
(6) Estimate of number of members considered as acting privately as floor
brokers, giving names and addresses.
(0) Estimate of number of members present on floor.
(d) Number of members who do not maintain regular representation on
the floor of the exchange, giving names and addresses.
(e) Number of registered firms carrying margin accounts for customers and
number of memberships held by such firm.
(f) Number of members who in addition to acting as brokers have also
participated in security offerings and/or pools, syndicates, or joint accounts,
giving names and addresses.
(g) Names of all members engaged in handling odd-lot transactions.
(B) Obtain from each member and member firm the following data for the
year 1929 and for the year 1933 up to September 1.
(a) Number of customers (persons, partnerships, and/or corporations) who
bought or sold any securities on margin or for cash.
(C) Obtain from all odd-lot houses the number of shares bought and the
number of shares sold by them during the period from April 1,1933, to July 31,
1933, inclusive.
(D) Obtain from all members and member firms a statement of the total
number of shares bought and the total number of shares sold for their own
account on the Exchange during the period from April 1, 1933, to July 31, 1933,
inclusive.
(E) Obtain from each member or member firm the following data:
1. The total number of margin accounts on their books as of December 31,
1928; December 31, 1929; December 31, 1930; December 31, 1931; December 31,
1932, and June 30,1933.
2. The total debit balances in such marginal accounts as of those dates.
(F) Obtain from each member and member firm a statement showing
whether member firm or any agent acting for such firm or any partner thereof,
had a participation in an option exceeding 10,000 shares of any single security
during the years 1929 to 1933, inclusive. In replying to this question furnish
the name of each member and his answer for each year of this period.
(G) Obtain from each member or member firm the folio whig data for the
years 1929 to 1933, inclusive, furnishing the name of each member and his
answer for each year during this period:
1. A statement showing whether member firm or any agent acting for such
firm or any partner thereof participated in the profits and/or losses, or in any
distribution of securities in any syndicate, pool, and/or joint account.
2. A statement showing whether any joint, syndicate, or pool accounts were
maintained on the books of such member firm in which such member or member firm had no proprietary interest.
(H) Obtain from each member or member firm the following data for the
years 1929 to 1933, inclusive, furnishing the name of such member or member
firm and his answer for each year during this period:
1. Statement showing whether member or member firm has purchased any
securities-for resale.
2. Whether member or member firm has underwritten or participated in the
underwriting and/or distribution of any securities.
3. Whether member or member firm was a member of/oc associated with any
investment trust.
(1) 1. Obtain from each member or member firm who engaged in brokerage
business and securities selling and/or syndicate, pool, or joint account operations a statement showing whether a segregation or allocation of capital and
of accounts for each department was maintained during the years 1929 to
1933f inclusive. In replying to this question furnish name of each member
or member firm and his answer for each year of this period.
2. Where answer from member or member firm to the previous question is in
the affirmative, give date, in each case, when such segregation took effect.
STOCK EXCHANGE PBACTICES
2483
Submit details of plan, stating If in emergencies capital funds may be switched
back and forth between the departments.
(J) Obtain from each member or member firm the following data for each
year of the years 1928 to September 1, 1933, inclusive:
1. Annual gross charges to customers for commissions for the purchase
and sale of securities.
2. The annual gross charges to customers for interest.
3. A detailed annual income statement showing receipts and disbursements
by classification.
(K) 1. Give the names of all jnembers who acted as specialists on July 1,
19*33, giving the names of the securities in which they were specialists.
2. Furnish copies of all provisions in the constitution and bylaws of the
New York Stock Exchange in effect on December 31, 1929, and copies of all
amendments subsequent thereto up to August 31, 1933.
3. Give the names of all specialists who have been subjected to formal
warning, trial, or disciplinary action of any nature or character whatsoever
by any committee or governing body of the exchange for the period from
January 1, 1928 to September 1, 1933. In each case state the date, the nature
of the alleged violation and the disposition thereof.
(L) Give the following data for each of the years from 1929 to 1933,
inclusive:
1. Number of persons employed by the committee on publicity of the New
York Stock Exchange in publicity and/or public relations activities.
2. Number of persons employed by the Department of Economist of the
New York Stock Exchange.
3. Total yearly expenditures by the New York Stock Exchange for all of
the above enumerated purposes.
4. Total number of pamphlets, brochures, printed addresses, Articles, or
writings of a similar nature circulated or distributed by the exchange or any
of its subsidiaries.
5. The titles and dates of all such publications.
6. The number of copies of the two books, "The Work of the Stock Exchange " and " Short Selling", written by the economist of the New York
Stock Exchange, which were purchased by the exchange or any of its subsidiaries, and general nature of such distribution.
(M) Give the following data for each of the years from 1928 to September
1, 1933:
1. Names of bond issues listed on the New York Stock Exchange which have
been in default in principal or interest during such period.
2. List of members or member houses of the New York Stock Exchange who
were suspended for insolvency.
3. List of members suspended or expelled by the New York Stock Exchange,
giving dates of such suspensions or expulsions, reasons therefor, and where
such members were in partnership, the names of such firms.
(N) Give the following informations for each of the years from 1928 to 1933,
inclusive.
(1) All committees of the New York Stock Exchange and the names of the
members of each committee.
Mr. PECORA. I might say that many of the questions on that ques-
tionnaire are required of the stock exchange as an institution and
not by individual brokers or members.
The CHAIRMAN. Does Mr. Whitney's letter, in which he encloses a
printed copy of correspondence, include the original questionnaire
or the modified questionnaire?
Mr. PECORA. The original one and not the modified one.
Senator COUZENS. Well
Mr. PECORA. (interposing). Pardon me a moment: I notice that
Mr. Redmond, one of counsel for the New York Stock Exchange, is
in the room. Mr. Redmond, Chairman Fletcher has just asked if
the printed questionnaire which appears to have been sent to members of the New York Stock Exchange at the instance of Mr. Whitney, is the original questionnaire or the modified questionnaire. I
175541—33—P* 5
14
2484
STOCK EXCHANGE PRACTICES
replied that it appears to be the original one. Do you know that
it is the original one and not the modified one ?
Mr. REDMOND. I t was the one that was submitted to Mr. Whitney.
The modified questionnaire has never been submitted to him.
Mr. PECORA. What is called the modified questionnaire was modified as a, result of conferences with Mr. Whitney and yourself, and
Mr. Whitney, as I understand it, has all the modifications that were
decided upon at those conferences.
Mr.,REDMOND. That is not true, Mr. Pecora. All the modifications
were not agreecj upon in conference.
Mr. PECORA. Whether agreed upon or not they were proposed
by our representatives, weren't they, Mr. Redmond ?
Mr. REDMOND. Well, in reply to that I wish to say
The COMMITTEE REPORTER (Mr. HART) . I cannot hear Mr. Redmond while standing back in the room.
Mr. PECORA. Mr. Kedmond, will you please come forward.
Mr. REDMOND. Certainly.
Mr. PECORA. I will ask Mr. Redmond to be sworn.
Mr. REDMOND. I have been sworn already, Mr. Pecora.
Mr. PECORA. Not since the amended resolution was adopted.
Mr. REDMOND. NO ; that is true.
Mr. PECORA. That may make a difference.
TESTIMONY OF ROLAND I . REDMOND, MEMBER OF THE FIRM OF
CARTER, IEDTARD & MILBTJRN, NEW YOKK, N.Y.
The CHAIRMAN. DO you solemnly swear that your testimony in
this hearing will be the truth, the whole truth, and nothing but the
truth?
Mr. REDMOND. I do.
Mr. PECORA. YOU are an attorney and counsellor at law?
Mr. REDMOND. I am.
Mr. PECORA. And a member of the firm of Carter, Ledyard
&
Milburn?
Mr. REDMOND. I
Mr. PECORA. I S
am..
that firm counsel for the New York Stock Ex-
change ?
Mr. REDMOND. I t is.
Mr. PECORA. And have
you, as a member of that firm, devoted
yourself with any degree of particularity to the legal interests of the
New York Stock Exchange on behalf of your firm?
Mr. REDMOND. I have been the partner in the firm who has taken
the most active part in representing the exchange.
Mr. PECORA. Are you familiar with the fact that on or about
September 30, 1933, a letter was addressed by me to Mr. Richard
Whitney, president of the New York Stock Exchange?
Mr. REDMOND. I am.
Mr. PECORA. YOU have
Mr. REDMOND. I have.
Mr. PECORA. And you
seen the letter, have you not ?
have conferred with Mr. Whitney, or he
with you, about the contents of that letter?
Mr. REDMOND. He referred the letter to me.
Mr. PECORA. Accompanying that letter was a form of so-called
" questionnaire " which I requested that Mr. Whitney cause to be
STOCK EXCHANGE PEACTICES
2485
circulated among the members of the New York Stock Exchange
and have their return made available to this committee at an early
date.
Mr. REDMOND. That is true.
Mr. PECORA. YOU are familiar with that original form of questionnaire ?
Mr. REDMOND. I am.
Mr. PECORA. Following
the receipt of that questionnaire and my
letter by Mr. Whitney, did you and Mr. Whitney have any conferences with representatives of the investigating staff of this committee with respect to the questionnaire?
Mr. REDMOND. We did.
Mr. PECORA. HOW many such conferences were held ?
Mr. REDMOND. TWO.
Mr. PECORA. HOW long did the first one last, about?
Mr. REDMOND. I would say approximately three hours.
Mr. PECORA. HOW long did the second one last?
Mr. REDMOND. About the same length of time.
Mr. PECORA. DO you know the dates when those conferences
were
held?
Mr. REDMOND. I can verify it, I think, immediately [after referring to memorandum] ; October 10 and 11.
Mr. PECORA. I have before me a printed document which I will
ask you to look at and, after looking at it, will you tell us whether
you ever saw a copy of it before ?
Mr. REDMOND. I have.
Mr. PECORA. I S it a copy of 3, printed document which was prepared and caused to be sent to various members of the New York
Stock Exchange by Mr. Whitney?
Mr. REDMOND. I believe so.
Mr. PECORA. Under what date was that sent out to the members
of the New York Stock Exchange?
Mr. REDMOND. I do not know positively, but I believe it was Tuesday of last week.
Mr. PECORA. Tuesday of last week?
Mr. REDMOND. Of this week.
Mr. PECORA. That was several days after the second conference
that you and Mr. Whitney held with representatives of this committee with regard to the questionnaire, was it not?
Mr. REDMOND. That is true.
Mr. PECORA. I offer that document in evidence.
The CHAIRMAN. Let it be admitted and placed in the record.
(The document referred to, being questionnaire circulated to members of the New York Stock Exchange, was received in evidence,
marked " Committee Exhibit No. 26 ", of Oct. 20, 1933, and will be
found on page 2527.)
Mr. PECORA. Embodied in this printed document, which has just
been marked " Comnrittee's Exhibit 26," in evidence, is what purports to be a questionnaire, or a copy of the original form of the
questionnaire, that was sent to Mr. Whitney by me with the letter
of September 30, 1933, that has already been referred to.
Mr. REDMOND. I so understand.
2486
STOCK EXCHANGE PRACTICES
Mr. PECORA. At the conferences that you and Mr. Whitney held
with representatives of this committee on October 10 and 11 were
changes and modifications in that original form of questionnaire
proposed and discussed by anyone?
Mr. REDMOND. They were.
Mr. PECORA. Were any of those modifications or changes agreed to
in form or substance?
Mr. REDMOND. Some of them were.
Mr. PECORA. DO you know which were and which were not?
Mr. REDMOND. I do.
Mr. PECORA. Will* you indicate to the committee, with reference to
the printed document marked "Committee's Exhibit 26", which
changes were suggested and agreed to and which were not ?
Mr. REDMOND. Subdivision A. The words " October 1, 1929, and
July 1, 1933" were stricken out, and there were substituted the
words " a current date "; so that the question now reads:
Give the foUowing data for a current date.
Subdivision 1 under (a)—"Number of Members of New York
Stock Exchange." That we explained had been the same at both
of the prior dates, and we agreed that that would give the membership in full detail showing the number of members as of a current
date who actually held memberships, those estates that held memberships of deceased members, and those memberships that were in
process of transfer.
Under Subdivision 2 (<ai)—Mr. Pecora, to save time suppose I
read it simply as changed rather than reading it in both forms?
Mr. PECORA. All right.
Mr. REDMOND. That question was changed so as to read:
An estimate of the number of members considered as acting primarily as
traders.
Subdivision (&)
Mr. PECORA. AS traders for their own account?
Mr. REDMOND. Yes; their own account; I beg your pardon.
Subdivision (&) was changed to read:
Estimate of number of members considered as acting primarily as floor
brokers.
The CHAIRMAN. Omitting the words "giving names and addresses " ?
Mr. PECORA. NO. " Giving names and addresses " was included.
Mr. REDMOND. N O ; those words were stricken out because this is
purely an estimate. We pointed out that it was impossible for the
exchange to give accurate addresses of persons acting as floor brokers.
People do not act solely as floor brokers. I t is not a classification
that is rigid.
Mr. PECORA. Was not the phraseology of that question modified in
order to accord with the situation you have just represented, when
the form of the question was changed so as to call for an estimate
of the number of members considered as acting primarily as floor
brokers?
Mr. REDMOND. Precisely; and for that reason the words " giving
names and addresses " went out, because you were not thinking of
individuals; you were simply making an estimate of the aggregate.
Mr. PECORA. GO ahead.
STOCK EXCHANGE PRACTICES
2487
Mr. REDMOND. Subdivision (o) was changed to read:
Estimate of number of members present on floor.
Subdivision (d) was changed so as to read:
Number of members who do not maintain regular representation on the floor
of the Exchange, giving names and addresses.
Subdivision (e) was changed so as to read:
Number of registered firms carrying margin accounts for customers and number of memberships held by such firms.
Subdivision (/) we arrived at no agreement on whatsoever, and
held the question in abeyance.
Mr. PECORA. Just one moment. With regard to that subdivision
(/), question 2#, was it not understood that you were to submit a
form of that question that was to include your definition of a pool ?
Mr. REDMOND. I said that I would submit a definition of a pool,
of a syndicate and of a joint account.
Mr. PECORA. Was such a definition ever submitted?
Mr. REDMOND. NO, because it became academic, as I saw it, upon
the rendition of my opinion which I delivered to Mr. Whitney on
Saturday of last week.
Mr: PECORA. That was one of the reasons why the modified form
of questionnaire was never finally agreed upon?
Mr. REDMOND. NO.
Mr. PECORA. YOU submitted
an opinion eventually to Mr. Whitney?
Mr. REDMOND. Surely.
Mr. PECORA. Which Mr. Whitney adopted and which caused him
to write to me to the effect that the governing authorities of the
New York Stock Exchange did not deem it proper to circulate this
questionnaire among the members, among other reasons, because of
the prohibitive cost to such members?
Mr. REDMOND. And the fact that we found no legal authority for
any such procedure. That was the basis of my opinion.
Mr. PECORA. Upon rendering that opinion to the stock exchange
and Mr. Whitney, as president of the stock exchange, he acted upon
it and adopted your conclusions, did he not?
Mr. REDMOND. Yes.
Mr. PECORA. And immediately
after he did that, we were notified
by him, in substance, that the governing authorities declined to issue
a questionnaire in any form to its members.
Mr. REDMOND. I do not think, " in any form ", Mr. Pecora.
Mr. PECORA. Was there anything left open for us to agree to with
the officers of the Stock Exchange after Mr. Whitney's letter to me?
Mr. REDMOND. We were perfectly ready and willing to sit down
and agree to a sensible form of questionnaire.
Mr. PECORA. I thought that had already been done in the two days
of conferences that had been held?
Mr. REDMOND. It had not, Mr. Pecora.
Mr. PECORA. Then why did you not defer your opinion until after
those conferences had been concluded and a final form of questionnaire decided upon?
Mr. REDMOND. Because, Mr. Pecora, unless I am mistaken—at
least I was informed by Mr. Schenker, of your staff, that you insisted
2488
STOCK EXCHANGE PRACTICES
upon that opinion being rendered and you fixed Friday as the deadline, and Mr. Schenker spoke to me on Saturday, and it was only
when I told him that Mr. Whitney would have it Saturday afternoon,
that I was relieved of being constantly called on the telephone to find
out when my opinion was g;oing to be given—there was constant
pressure on me to get that opinion out.
Mr. PECORA. Will you continue pointing out the modifications in
the form of questionnaire that were discussed at these two conferences that were held by our representatives with you and Mr.
Whitney?
Mr. REDMOND. There was no change in subdivision (g) of the first
major section. In the second major section, subdivision (B), the
subheading a in that was changed by striking out the words " excluding bonds, debentures, and notes " and striking out the words " or
credit accounts ".
Mr. PECORA. That modification was suggested by either you or
Mr. Whitney, was it not?
Mr. REDMOND. We pointed out the practical impossibility of
answering the question as' it was originally presented.
Mr. PECORA. And pointed out that to answer that question as
originally presented would involve the expenditure of a great deal
of time and money by the members ?
Mr. REDMOND. True.
Mr. PECORA. And our representatives immediately recognized that
and agreed to modify that question?
Mr. REDMOND. Not immediately.
Mr. PECORA. They did before the conference was over, did they
not?
Mr. REDMOND. After 6 hours; yes.
Mr. PECORA. They permitted themselves the right to debate the
question with you, did they not, but they finally agreed to adopt
the views of yourself and Mr. Whitney?
Mr. REDMOND. Yes, sir.
SUBDIVISION (6). I t was
indicated that that would probably be
dropped; and the subheading, the separate paragraph which purported to ask the members of the exchange to state which of their
customers resided in New York City, was likewise eliminated.
In regard to Subdivision (C), so the record will be informative,
it seeks information from the odd-lot houses in regard to the number of shares bought or sold by them during certain days in this
year. We agreed that we would consult the odd-lot houses and find
out whether they wished the exchange to act as a conduit in the
giving of that information to the committee, leaving it up to them
to determine whether they would follow that method or supply the
information direct to the committee.
Subdivision (D) was changed so as to read:
Obtain from all members a statement of the total number of shares bought
and the total number of shares sold by them on the exchange during the
period from April 1, 1933, to. July 31, 1933, inclusive, for their own account
or account of their firms and the account of each partner of their firms.
Shall I go on?
Mr. PECORA. GO ahead.
Mr. REDMOND. Subdivision (E). There was a long discussion
Digitized forabout
FRASER
that, but no final conclusion. At the end, Mr. Flynn, who took
STOCK EXCHANGE PRACTICES
2489
the burden of the discussion, indicated that he might consider changing the dates which now appear as of July 31, 1929, 1930, 1931, and
1932, and July 15,1933, to December 31 of 1928, and subsequent years
to June 30, 1933
Mr. PECORA. Pardon me. Did not Mr. Flynn indicate that the
adoption of those dates, namely, December 31, 1928, the same date
in the years 1929,1930,1931, and 1932, and the date of June 30 in the
year 1933, would be agreed to by us ?
Mr. REDMOND. He withheld final decision on that. We pointed
out to him that the information for the December dates from 1929
on had been already called for or was in process of being furnished to
the Internal Revenue Department, and we pointed out that to go
back another year to December 31, 1928, would impose a very considerable additional burden on the members of the Exchange.
Mr. PECORA. Did not Mr. Flynn specifically indicate agreement
with that suggestion that those dates be changed from July 31 of each
year to December 31 ?
Mr. REDMOND. He did not, Mr. Pecora. I have my original
memorandum here in which I noted the agreements, and I do not
find that that is agreed to.
In subdivision 2 of subdivision (E), the question reads, so as
to make the record informative:
The total debit balances in such marginal accounts.
We pointed out that, first of all, there was grave doubt as to
what constituted a marginal account on a particular date. Mr.
Pierce has this morning illustrated that an account that has a debit
balance on a particular date may in fact be a cash account. I t is
also true that on any particular date an account which, by its nature,
is really a margin account, may have no balance, either debit or
credit, or may have a credit balance.
Mr. PECORA. DO you maintain that it is a practical impossibility
for a stock brokerage firm to tell this committee the number of
marginal accounts carried on the books of the firm within a certain
given period of time, and the number of so-called cash accounts ?
Mr. REDMOND. I am advised by practical men in the business that
if you make it as of a particular date they might, by analysis of their
ledgers, answer the question.
Mr. PECORA. Was not this question modified so as to call for the
daily debit balances in such marginal accounts as of those dates, the
term "those dates " referring to the specific dates set forth in the
preceding question?
Mr. REDMOND. But I was addressing myself to the difficulty of
determining what is a margin account on a particular date. In other
words, if you take as of a particular date, the broker may have a
record of whether the accounts have a debit balance in them, no balance, or a credit balance. A credit balance may be a margin account.
You have to analyze the account to find out whether it is or not.
Mr. PECORA. Don't you think the brokers could give us a reasonable
interpretation of that and give us answers correspondingly ?
Mr. REDMOND. Mr. Pecora, I suggested to Mr. Flynn that that
first subdivision be made to read, " (jive the total number of accounts
having a debit balance as of a certain date ", but Mr. Flynn did not
find that suggestion acceptable.
Mr. PECORA. GO ahead.
2490
STOCK EXCHANGE PRACTICES
Mr. REDMOND. Still, on this subdivision 2, when you get to the
term " debit balances ", do you want the gross or the net debit balances—because frequently a firm carries for a certain customer a
debit balance in a long account and a credit balance in the short
account? Do you want the net debit balance or the gross?
Mr. PECORA. Was that discussed in these conferences?
Mr. REDMOND. I t was.
Mr. PECORA. And what
did you and Mr. Whitney advocate that
the question should call for?
Mr. REDMOND. We suggested that the question be changed to ask
simply what number of accounts had a debit balance and then take
simply the total of such debit balances.
Mr. PECORA. HOW would you phrase a question that would be
understood by the brokers as calling for data showing on a given
date the number of margin accounts carried by the broker and the
number of cash accounts carried by the broker?
Mr. REDMOND. I think if you want that information you would
have to ask that direct question and have the brokers analyze each
account to see whether it is a margin account or not.
Mr. PECORA. DO you think that would present any difficulty to the
individual broker?
Mr. REDMOND. I could only answer second hand; and you have in
this room a number of practical men
:
Mr. PECORA. Well, answer the second, then.
Mr. REDMOND. I should prefer not to give just an opinion. I do
not consider myself an expert on the mechanics of the brokerage
business.
Senator COUZENS. Perhaps Mr. Pierce can answer that question.
Mr. PIERCE. That involves the point, Mr. Pecora, that I raised
a little while ago. Practically all debit balances represent margin
accounts, and the debit balance in one of those accoiints may be paid
off 2 or 3 days later. I t may be a pure cash account, but thel debit
balances in pratically 95 cases out ox 100 represent margin accounts.
Mr. PECORA. With that understanding, that we do not want or
would not require the exact number of margin accounts carried
on your books at a given date, as distinguished from cash accounts,
the result would be a very fair approximation of the answer, would
it not?
Mr. PIERCE. Yes, sir. Now, may I add to that
The CHAIRMAN. Suppose the question called for the best possible
estimate, not an exact statement of the number, but an estimate.
That would giye you leeway enough, would it not?
Mr. PIERCE. In my opinion the accounts of any house—the estimate would fall within 5 percent of absolute accuracy. If you only
want the number of cash accounts in our office today, under our system of bookkeeping, although we have about 26,000 accounts in seven
different offices in the United States, we probably could tell you
exactly within 4 or 5 hours. If you asked us today which of our
accounts were margin accounts and which were cash accounts a week
ago, we would have to go through our ledgers; and while many
of the accounts we would not have to analyze, because a number of
them are sufficiently well known to us to determine by merely glancing at the heading which was margin and which was cash, it would
require at least a passing glance at every one of our 26,000 accounts.
STOCK EXCHANGE PBACTICES
2491
Mr. PECORA. But you could furnish that information with regard
to a current period of time?
Mr. PIERCE. Today we could tell you within a very few hours
how many are cash and how many margin.
Mr. PECORA. HOW much time would be required to give us the same
information with respect to a specific date some time in the past, not
with absolute accuracy, but allowing for the 5 percent latitude that
you referred to before, giving you the benefit of that?
Mr. PIERCE. Only a very few weeks, Mr. Pecora.
Mr. REDMOND. I would like to put on the record here that the suggestion was made to Mr. Flynn that this question be changed so as
to call for estimates, to frankly call for estimates, but Mr. Flynn
was unwilling to adopt that suggestion.
Mr. PECORA. My information is, Mr. Redmond, that it was representatives of the exchange that insisted upon accuracy in the returns
to these questions, and not our representatives that insisted upon
that accuracy.
Mr. REDMOND. Mr. Pecora, we insisted upon accuracy if you ask
a definite question. If you ask for an estimate—and you will notice
in that subdivision (<?), which is the question to be answered by the
exchange, we agreed upon estimates. If you ask us for definite
information we have got to give an accurate answer. If you ask us
for an estimate, we can give you an estimate.
Mr. PECORA. Will you go ahead, Mr. Redmond, and refer to whatever other modifications were discussed?
Mr. REDMOND. Subdivision ( / ) :
Obtain from each member and member firm a statement showing whether
member firm or any agent acting for such firm or any partner thereof participated in the profits and/or losses resulting from the exercise of any option
I beg your pardon. This was the suggestion which was made on
our behalf and, I understood, tentatively agreed to. "An option of
10,000 shares or more in any single security during the years 1929
to 1933, inclusive."
Mr. PECORA. Our representatives agreed to the suggestion, at least
the limitation in that question as to participation in an option of
10,000 shares or more.
Mr. REDMOND. My record indicates that they took a receptive attitude toward it, but it was not finally agreed to. Those things which
were finally agreed to I changed on my record where the suggestion
seemed to meet with approval.
Mr. PECORA. All right.
Mr. REDMOND. We had a great deal of discussion in regard to
subdivisions (^), (A), and (^), and all three of those questions were
withheld for further consideration by Messrs. Flynn and Schenker.
Mr. PECORA. I t was in connection with the discussion relating to
those questions that you indicated you would define a pool for the
purpose of reference to a pool in the questionnaire.
Mr. REDMOND. AS to some of them.
Mr. PECORA. And that definition has not yet been forthcoming.
Mr. REDMOND. It became academic, as I say. If you want it I will
furnish it.
Mr. PECORA. I thought you were going to give it.
Mr. REDMOND. If you still want it, I will be delighted to furnish
you.
2492
STOCK EXCHANGE PRACTICES
Mr. PECORA. We have been trying to get a definition of a pool
from many witnesses who have appeared before, this committee. We
continued our efforts up until yesterday, and I, for one, would be
personally grateful to any representative of Wall Street institutions
that will give this committee a definition of a pool.
Mr. REDMOND. I will furnish it to you today—or I would even take
a shot at doing it right now, if you want.
Senator COUZENS. Let us have it now.
Mr. PECORA. All right; we will have it now.
Mr. REDMOND. I would say that a pool is an agreement between
several people, usually more than three, for the purpose of trading
actively in a single security.
I would say that a syndicate is an agreement between several people, usually a much larger number than in the case of a pool, for
the purpose of buying or selling or dealing in a security or securities, not solely for the purpose of actively trading in them.
And I would say that a joint account is an account in which
several people have joined together for the purpose of buying or
selling securities generally, not concentrating on a particular
security.
Senator COUZENS. And simply for profit?
Mr. REDMOND. For profit or for other purposes that it may be
engaged in. It might be a group in a family that wanted to make
sure that each member of the family got a fair aliquot part in their
holdings.
Senator COUZENS. Would stabilization be a factor in it?
Mr. REDMOND. I t might, but rarely in a joint account, I should
think. That would come more closely to being a syndicate or a
pool.
Senator ADAMS. Yesterday it was suggested that there was some
taint of some kind attached to the term " pool." I think Mr. Wiggin
intimated that he was very reluctant to have a certain transaction
designated as a pool. But from your definition I do not observe
just why a syndicate would be free from taint and a pool be tainted.
Can you point out the differentiation?
Mr. REDMOND. I personally do not see any reason why either
should be considered as tainted. I would say this, that it has occurred in the past that dishonest people have traded actively in
securities, and at the same time they gave out false information
in regard to the security in which they were trading.
Senator ADAMS. Dishonest people have been in syndicates and
have been in joint accounts; so that does not differentiate them.
Mr. REDMOND. I think dishonest people have been everywhere,
Senator.
As I said, we arrived at no agreement on subdivisions (g1), (A),
and (i).
In regard to (j) we pointed out, first of all, the difficulty of separating the gross commissions on stock transactions from gross commissions on bonds or debenture or note transactions. }Mr. Flynn
therefore agreed to strike out from subdivision 1 of (j) the words
" excluding bonds, debentures, and notes ", and to strike out in toto
subdivision 2.
We pointed out to Mr. Flynn that unless there was some definition
of the term " customers " and some limitation upon what was meant
STOCK EXCHANGE PEACTICES
2493
in this case by securities, the resulting figure would be completely
false. For instance, an out-of-town firm—members of the exchange
may charge an individual who is their customer the stock exchange
commission, but the out-of-town firm to effect the transaction in
New York pays part of that commission to the New York clearing
house, the house that carries the transactions in New York for them.
That house, in turn, may pay part of the commission to the member
of the exchange who executes the order on the floor of the exchange.
Now, each one of those members of the Exchange is receiving a
commission from a customer, because the commission houses are the
customers of the floor brokers, and the New York clearing firms count
the out-of-town firms as their customers. Therefore, a single commission, if half of it were paid to the clearing house in New York
and a floor brokerage paid in addition, and each one of them reported
it, you would have a duplication •which would multiply even the gross
commissions. So it would produce a completely false statistic.
Mr. PECORA. HOW false would it be ?
Mr. REDMOND. Almost impossible to say, Mr. Pecora. But at
least, I should think, on the average, by 30 or 40 percent.
Mr. PECORA. I S that your ^opinion, Mr. Pierce?
Mr. PIERCE. I would not suppose that over the past year the average—of course, this market is more or less of a guess, perhaps naturally—but over the past 2 years the average nonmember commission
would be something like $13 or $14. The wire house charges to its
out-of-town member connection anywhere from 40 to 50 percent as
a nonmember commission. The New York Clearing House pays to
the floor broker who executes the order from $1.75 to $2.5G—is it,
Mr. Eedmond? Our books show that the average that we paid in
1932 to the floor broker, I think, was about $1.90.
Senator COUZENS. YOU mean by that per share ?
Mr. EEDMOND. A hundred.
Mr. PIERCE. $1.90 a hundred.
Senator COUZENS. Hundred dollars?
Mr. PIERCE. A hundred shares. Which means that if each group,
that is, out-of-town house, clearing broker in New York, that is, wire
house, and broker executing the order on the floor, were all to report
their earnings under the commission head, the chances are that it
would be out more than, well, certainly more than 50 percent.
Mr. PECORA. NOW, Mr. Redmond, with regard to question ( J ) ,
subdivisions 1, 2, and 3, thereof, was it not indicated to you in these
conferences with our representatives that we would modify those
subdivisions 1, 2, and 3 of question (J) so that they would read as
follows:
1. Annual gross charges to customers for commissions for purchase and sale
of securities.
2. The annual gross charges to customers for interest.
3. A detailed annual income statement showing receipts and disbursements
by classification.
Mr. REDMOND. That is true, but you asked whether we reached an
agreement. The answer is that we did not agree upon it, because
Mr. Whitney took the position that it would be highly improper to
be a party to furnishing statistics that he knew would be misleading
and false.
2494
STOCK EXCHANGE PRACTICES
Mr. PECORA. YOU saw what information was desired in the form
of those questions as I have just read them, did you not?
Mr. REDMOND. I don't know; frankly.
Mr. PECORA. Well, what is there unintelligible in this question:
" Give the annual gross charges to customers for commissions for
purchase and sale of securities " ?
Mr. REDMOND. First of all, I pointed out the possibility of the
duplication in these reports.
Mr. PECORA. Apart from duplication, the question itself is a simple
one, is it not ?
Mr. REDMOND. N O ; I would not say so. When you get to the
question of the sale of securities you are asking the members of the
New York Stock Exchange to give the gross charges for commissions
on the sale of all securities. Now many of the member firms are
members of the out-of-town exchanges. Many of them deal oyer
the counter for commissions. Therefore, you would have gotten
as the gross annual charges from members of the New York Stock
Exchange, and therefore presumably, and in the minds of the public,
for the transactions on the New York Stock Exchange, the commissions of the security business of the entire United States.
Mr. PECORA. I S there anything in the question there that shows
that the answer to such a question would be considered as the gross
charges to customers for commissions on transactions executed
through the New York Stock Exchange only?
Mr. REDMOND. I think the implication is clear when the question
is asked only of the members of the New York Stock Exchange.
Mr. PECORA. I S there anything else about that question that you
think is misleading ?
Mr. REDMOND. I frankly see no point in getting a gross statement
of commissions.
Mr. PEOORA. But the question itself is simple, is it not? I t is a
question that calls for a statement of the gross charges to customers
for commissions ?
Mr. REDMOND. Yes. The question in form is simple, but as I
pointed out, it would produce a false and misleading statistic.
Mr. PECORA. False and misleading in what respect ?
Mr. REDMOND. I have already stated, Mr. Pecora, in the sense of
duplication, in the sense also that it would call for the commission
business on all forms of security transactions, and the implication
that flows from the fact that the question is addressed only to members of the New York Stock Exchange.
Senator COUZENS. I t would simplify matters if we used "net
charges ", and then that would eliminate duplications so far as your
division of commissions is concerned?
Mr. REDMOND. It should be " net", Senator Couzens. and I think it
ought to be in regard to purchase and sale of securities on the New
York Stock Exchange if it is being addressed to members of the
New York Stock Exchange; but I am fearful that an answer to any
such question would entail an enormous amount of work.
Mr. PECORA. Was any such suggestion made to our representatives
with regard to that modification of this question ?
Mr. REDMOND. N O ; we pointed out the difficulties, and Mr. Flynn
took the position that, admitting that the thing might not be accu
STOCK EXCHANGE PEACTICES
2495
rate3 at least it would be a good start toward getting statistics, and
our discussion ended at that point, because we could not agree with
him to produce for him statistics which we knew would not be
accurate.
Mr. PECORA. What is there difficult about answering subdivision
2 of question (J) which calls for the annual gross charges to
customers for interest?
Mr. REDMOND. We had very little discussion about that, because,
frankly, I did not know how difficult it would be for members of
the exchange to answer that question. I believe it can be answered
much more easily than subdivision 1.
There is, of course, another danger of duplication that would
have to be guarded against, because an out-of-town member having
customers with debit balances on his books charges them interest.
He carries those securities through, a New York correspondent, who
in turn has a debit account standing in the name of the out-of-town
firm. Now the New York firm would report the interest charge
on that debit, and in turn the out-of-town man would show the same
interest charged to his customers.
Mr. PECORA. Don't you think that could be easily guarded against
by the individual broker or firm making return to this questionnaire,
pointing in the return such duplications and approximating the
extent of such duplications?
Mr. REDMOND. I do not know that approximation is possible. I
wouldn't think
Mr. PECORA (interposing). Would it be possible, Mr. Pierce?
Mr. PIERCE. If I may make a suggestion—and I want to repeat
that I hope that you all will believe that we are here to be helpful.
I have not given this close study, but the thought has just come to
me that perhaps you come nearer to accuracy in this way than any
other without absolute analysis that would take many, many months,
and that is to permit the New York clearing houses to report and
not to have the out-of-town houses which clear through the New
York clearing houses report. That would eliminate duplication in
some respects.
Mr. PECORA. We have no objection to that. Now, will you resume?
Mr. REDMOND. I think this should go on the record, Mr. Pecora:
There are a number of New York houses that clear through other
New York houses. So Mr. Pierce's suggestion would be to get the
information, only from such New York houses as clear for themselves or for the accounts of others.
Senator COTJZENS. I S that correct?
Mr. PIERCE. That is my suggestion to Mr. Redmond.
Mr. PECORA. NOW, will you resume the history of the discussion
with regard to the original questionnaire, Mr. Redmond?
Mr. REPMOND. Subdivision 4, we simply pointed out that the net
income statements of the members of the exchange are of course
already on file with the United States Government.
Mr. PECORA. Subdivision 4 we agreed to eliminate, did we not;
that is, our representatives did?
Mr. REDMOND. I have no such record.
Mr. PECORA. NOW pass on to a consideration of question denominated as (K) in the original question.
2496
STOCK EXCHANGE PRACTICES
Mr. REDMOND. We agreed that under subdivision 1 we would
give the names of the members who acted as specialists in the
active stocks as of a current date and as far back as possible, preferably July. We have since verified and find that we cannot give it
as of a date as far back as that. We will give it as of the current date
where the records now exist. It was understood that for the inactive
stocks we would not have to give the names of the specialists.
Mr. PECORA. Was not that suggestion agreed to by our representatives, Mr. Redmond?
Mr. REDMOND. That was agreed to.
Mr. PECORA; It was; all right.
Mr. REDMOND. (K-2) We furnished the information by giving
them copies of the constitution and rules x>i the exchange down to
date.
Subdivision 3 was changed by inserting simply the word " formal *'
in front of the word " warning " in the second line.
Mr. PECORA. And we agreed to that change ?
Mr. REDMOND. It was, I think, Mr. Flynn's suggestion.
ID. (L-l) it was changed to read " the number of persons employed by the committee on publicity of the New York Stock Exchange."
Mr. PECORA. And that was agreed to by our representatives, was
it not ?
Mr. REDMOND. Yes; it
was.
Subdivision 2 was eliminated by mjitual consent, as the library
committee ceased to exist prior to 1925.
Subdivision 3 was unchanged.
Mr. PECORA. When you say it was unchanged—there was no dispute raised by either side?
Mr. REDMOND. It was agreed to.
Subdivision 4 was changed so as to read " the total yearly expenditures ", rather than " the total yearly appropriation."
Mr. PECORA. And that was agreed to by us ?
Mr. REDMOND. Entirely.
Subdivision 5 was changed so as to read as follows:
The approximate number of president's addresses or statements, year book,
annual reports of the president, and similar publications circulated or distributed by the exchange or any of its subsidiaries.
Mr. PECORA. And that was agreed to by us?
Mr. REDMOND. I so understood.
Subdivision 6 there was no question about.
Subdivision 7 was changed so as to read:
The number of copies of the two books, The Work of the New York Stock
Exchange, and Short Selling, written by the economist of the New York Stock
Exchange, which were purchased by the exchange or any of its subsidiaries
and were distributed gratis and the general nature of such distribution.
Mr. PECORA. And that
Mr. REDMOND. Yes.
was agreed to, was it not, by us?
Subdivision 8 was stricken out by mutual consent.
Subdivision 9 was agreed to by both parties.
Subdivision (N)
Mr. PECORA. YOU mean question (N) ?
STOCK EXCHANGE PRACTICES
2497
Mr. REDMOND. Question (N), subdivision 1, was changed so as to
read as follows—
The names of bond issues listed on the New York Stock Exchange which have
been in default in the payment of principal or interest during such period.
Mr. PECORA. We agreed to that, did we not?
Mr. REDMOND. Yes; as soon as we pointed out that default might
exist for all sorts of different reasons.
Mr. PECORA. Yes.
Mr. REDMOND. Subdivision 2—
A list of members or member houses of the New York Stock Exchange who
were suspended for insolvency.
Mr. PECORA. We agreed to that?
Mr. REDMOND. I t is a change of words, and it was your own sug-
gestion, of course, Mr. Pecora.
Mr. PECORA. We agreed to the form of the question suggested by
you or Mr. Whitney.
Mr. REDMOND. We were simply making it more accurate, that is
all.
Mr. PECORA. Yes.
Mr. REDMOND. In
subdivision 3 we pointed out that you asked
for a list of members who were suspended, and we asked if you did
not also want a list of those who were expelled, and that was treated
as an oversight on your part, so we agreed to put it in.
Subdivision 4 was by mutual consent stricken out.
So was the intervening paragraph between questions (M) and
(N), and with regard to question (N) we agreed that we would
give the list of the committees of tne New York Stock Exchange
as they existed each year after the annual election, when these
standing committees are regularly appointed.
Mr. PECORA. When this printed document, marked " Exhibit 26 ",
in evidence of this date was mailed by Mr. Whitney, as president
of the exchange, to the members of the exchange none of the
changes in the form of any of the questions embodied in the original
questionnaire were shown?
Mr. REDMOND. We were simply printing the exhibit which was
attached to your letter, Mr. Pecora.
Mr. PECORA. Without the modifications that had been agreed upon;
isn't that so?
Mr. REDMOND. Without the modifications that had been agreed
upon; yes.
Mr. PECORA. Yes.
Mr. REDMOND. But remember, there were many questions, as my
letter to Mr. Whitney points out, that were still open for discussion
on which we had had no final agreement, and I must say that
throughout the conference Mr. Schenker and Mr. Flynn, while indicating agreement between Mr. Whitney and myself, certainly reserved the right for you to pass upon what they had agreed to.
Mr. PECORA. And then you finally came to the conclusion and
rendered to the exchange an opinion setting forth that conclusion
that the exchaiige had no right or authority to require its members
to make returns to the questionnaire ?
Mr. REDMOND. My opinion has already been put into the record.
2498
STOCK EXCHANGE PRACTICES
Mr. PECORA. And the opinion is to that effect in part?
Mr. REDMOND. I t is.
The CHAIRMAN. That would have applied no matter what changes
were made or modifications in the questionnaire ?
Mr. REDMOND. AS far as the legal proposition was concerned,
Senator?
The CHAIRMAN. Yes.
Mr. REDMOND. I do not think any question of the changes in it
would have changed the legal opinion; no. I point out, however,
Senator Fletcher, that in a number of instances during the course of
this investigation, when either the committee itself or its counsel
have indicated to the stock exchange irregular practices which might
improperly affect the market, we have not hesitated to seek that information and ascertain the facts, and we have done it entirely at
our own expense.
We have just completed, as Mr. Pecora knows, an examination of
the charges that pool activities in the alcohol stocks in the early part
of this year were responsible for the rapid rise of the market.
We investigated through our accountants over 100 firms, and the
detailed reports have been furnished to Mr. Pecora.
Mr. PECORA. Does not the exchange from time to time send out
questionnaires of its own to its members and require them to make
returns thereto ?
Mr. REDMOND. Yes.
Mr. PECORA. Under
what right or authority does the exchange do
that which you think the exchange does not possess or would not
possess for the purpose of circulating a questionnaire on behalf of
this committee?
Mr. REDMOND. I have pointed out—I do not know whether anybody
has taken the trouble to read my opinion, but I think my opinion
makes perfectly clear the difference between the two. I pointed
out in the next to the last paragraph the undoubted power under
the constitution of the exchange of the governing committee to secure
information. Suppose I read these two paragraphs ?
Mr. PECORA. If you will.
The CHAIRMAN. I think it would be very well. We received that
only this morning. We have not had time to read it very carefully;
at least I have not. This came in this morning. This is the first
time I ever saw the opinion.
Mr. REDMOND. I was not aware that that had not been generally
circulated, Senator.
The CHAIRMAN. Yes; all right.
Mr. REDMOND (reading) :
Under the constitution of the exchange the governing committee has the
power to secure information by questionnaire from the members of the excnange. This power has been used whenever the governing committee felt
that it was necessary to investigate irregular transactions or practices which
might improperly affect the market. Without attempting to record all of the
instances in which questionnaires have been sent to members of the exchange
in recent years, I should perhaps- remind you that it was used in the alleged
corner in Wheeling & Lake Brie stock some years ago; in the Manhattan
Electrical Supply Co. cases in 1917 and 1930; and for the statistics in regard
to short selling not only at the time of the panic in 1929 but again currently
since the early part of 1931. In each instance where the Senate Committee
represented to the exchange that the market had been affected by irregular
STOCK EXCHANGE PRACTICES
2499
or unfair practices, this power was invoked to secure the facts, I refer, of
course, to the special questionnaire sent in regard to the short position on
April 8, 1932; to the investigation of the trading in Kreuger & Toll securities
at the time of Ivar Kreuger's death; and to the investigation, recently concluded, of the rumors that pool transactions in the so-called alcohol stocks had
affected the market in the early part of this year. In other instances, where
the testimony before the Senate Committee seemed to have a direct bearing
upon the conduct of members of the exchange, the governing committee has
used its power to ascertain the facts by requiring the members of exchange
to furnish it with information. These instances, however, furnish no precedent
for the present case.
The information sought by the proposed questionnaire has no direct bearing
on market practices or on the conduct of members of the exchange. On the
contrary, it consists primarily cf what might be described as general statistics.
Mr. PECORA. Did you want to read any other portion ?
Mr. KEDMOND. I thought I would read my conclusion. It is in
the next paragraph.
Mr. PECORA. All right.
Mr. KEDMOND (continuing):
There is no doubt that a committee of Congress has power to secure, by
subpena, information which is necessary or pertinent to the framing of legislation. Our courts have upheld the existence of this power and by liberal interpretation have given legislative committees the right to seek any information
which is proper and relevant to the work of the Congress. Although the Senate committee may directly seek information by requiring citizens to testify
before it, we have found no authority which would support the theory that
it has power to compel one citizen to secure for its use information from
another citizen.
The Committee's counsel frankly recognizes that the information sought
by this questionnaire is not in the possession of the exchange. A subpena,
therefore, served upon the exchange would not produce the information which
he seeks. He likewise realized that he may, if it is proper and relevant to the
pending inquiry, secure the information which he desires by serving subpenas upon the individual members of the exchange and by compelling them
to appear before the Senate committee in Washington. Instead of using this
recognized method, he has asked the exchange to secure this information for
him by sending a questionnaire to. its members. He urges that this procedure
be followed, as it will be "the speediest and most convenient method" of
securing the information. In other words, he wishes the governing committee
of the exchange to use its power to compel the members of the exchange to
answer the questions contained in the questionnaire. Under the constitution
of the exchange any member who fails to furnish information required of him
by the governing committee may be suspended or expelled. If, therefore, the
exchange should undertake to send out the proposed questionnaire, the members
of the exchange would not only be compelled, at the risk of being disciplined
by the governing committee, to answer, but they would also be effectively deprived of the right, which they would possess if they were subpenaed to appear
before the Senate committee, to raise the question of whether the information
sought from them was proper and relevant to the pending investigation.
Much as the exchange may desire to facilitate the investigation which the
Senate committee is conducting, I do not believe that it should even for this
purpose, use a method which will deprive the members of the exchange of a
substantial right. For this reason, it is my opinion that the exchange should
refuse to send to its members the suggested questionnaire.
Mr. PECORA. That opinion would apply to any questionnaire proposed by this committee to be sent by tne exchange to its members
then, would it not?
Mr. KEDMOND. Seeking statistical information or such like data.
Mr. PECORA. Seeking any information?
Mr. KEDMOND. NO, Mr. decora; because when this committee represented to the exchange that there was to be a great bear raid on
175541—33—PT 5
15
2500
STOCK EXCHANGE PRACTICES
the market in April 1932 we did send out a questionnaire and we did
ascertain the facts.
Mr. PECORA. Does not the exchange in your opinion possess the
same power to address a questionnaire to its members in the form
generally or substantially of the questionnaire that was discussed
and modified to its members at this time ?
Mr. REDMOND, I don't quite understand your question. The power,
of course
Mr. PECORA. The exchange has the power and exercises it from
time to time to address questionnaires to its members ?
Mr. REDMOND. TO secure information which is necessary or relevant to the government of the exchange or to prevent improper practices on the exchange. That I agree to heartily; yes.
Mr. PECORA. And is that the only kind of questionnaire that, in
your opinion, the exchange has the right or the power to submit
to its members ?
Mr. REDMOND. The wording of the constitution is very broad.
I would like to see the particular case before I give an opinion
beyond that point.
Mr. PECORA. If the wording of the constitutional provision in the
constitution of your exchange is so broad, why did you place any
limitation upon it in the opinion that you rendered to the stock,
exchange which furnished part of this pamphlet marked " Committee's Exhibit 26"?
Mr. REDMOND. Because as I point out, Mr. Pecora, the information
which is being sought here from the members would be required
of them under the danger of being expelled from the exchange,
whereas if they were subpenaed they would have the right to come
here and claim that the information sought from them was not
relevant to this inquiry.
Mr. PECORA. YOU say in your opinion under the constitution of
the exchange the governing committee "has power to secure information by questionnaire from the members of the exchange. Is there
any limitation on the information that the governing committee
has power to secure by questionnaire?
Mr. REDMOND. I would prefer not to express a general opinion
on that question, Mr. Pecora. I do not want to establish a precedent
that may annoy me in the future.
Mr. PECORA. YOU say further:
This power has been used whenever the governing committee felt that it
was necessary to investigate irregular transactions or practices which might
improperly affect the market.
Did you indicate that to be a limitation upon the kind of questionnaire that under its constitution the governing committee of the
exchange has the power to send to its members ?
Mr. REDMOND. That opinion does not purport to consider the scope
of the power, Mr. Pecora. As I just said, I pointed out:
Mr. PECORA (interposing). That is why I asked you if you intended that language to indicate a limitation.
Mr. REDMOND. I think the letter is perfectly clear as it stands.
There is no implication of a negative in it.
Mr. PECORA. Can't you answer the question, Mr. Redmond,
directly ?
STOCK EXCHANGE PRACTICES
2501
Mr. EEDMOND. The opinion did not purport to consider the question that you asked, Mr. Pecora.
Mr. PECORA. All right; that is an answer. Now, the questionnaire
that we proposed and which was discussed and to which some modifications at least were agreed to, if I properly understand your testimony this morning, calls for statistical data, among other things,
does it not?
Mr. EEDMOND. Yes.
Mr. PECORA. DO you
think that the Exchange has no power to submit to its members a questionnaire calling for such statistical data
under its constitution?
Mr. REDMOND. " For such statistical data " ? I doubt it.
Mr. PECORA. Why? What provision in the constitution of the
exchange is there which would preclude the exercise of such a
power by its governing committee?
Mr. REDMOND. Not in express words, but to place an enormous
burden of expenditure upon the members to produce statistics which
could be demonstrated were completely inaccurate, I doubt whether
any court would allow the governing committee, if it so lost its
reason, to carry it out.
Mr. PECORA. Wasn't this the situation that we had since Mr.
Whitney received the original questionnaire with my letter under
date of September 30 last, that at the request of Mr. Whitney,
conveyed to me by his letter dated October 5, 1933, and which is
part of the printed pamphlet marked " Committee's Exhibit 26'',
conferences were held between him and yourself on the side of th2
exchange and Mr. Flynn and Mr. Schenker on the side o£ the
investigating staff of this committee, for the purpose of reaching
some conclusion with respect to the form of the questionnaire1?
Mr. REDMOND. There were such conferences.
Mr. PECORA. And those conferences, lasting hours, were held, and
certain agreements arrived at, at least informally, with respect to
modifications of the original form of the questionnaire.
Mr. REDMOND. Correct.
Mr. PECORA. Then, under date of October 14, some 2 weeks after
the receipt of the original questionnaire by Mr. Whitney, you rendered an opinion, as counsel to the exchange, in which, in substance,
you advised the exchange that it had no power to send out the questionnaire at all and require its members to make returns thereto.
Mr. REDMOND. If you will change the date so as to make it appear
that- your letter to Mr. Whitney, although dated September 30, was
not received until October 2, the answer is yes.
Mr. PECORA. That was because of the intervention of a Saturday
and Sunday. Mr. Whitney was not at his office on Saturday.
Mr. REDMOND. I t was not received in the mail until Monday morning, October 2.
Mr. PECORA. We sent it out the preceding Friday, September 30.
With that modification of dates only in my question, that is the fact ?
Mr. R^>MOND. Yes.
Mr. PECORA. SO that whatever time was spent in discussing the
form of the questionnaire and in discussing changes in the questionnaire was all spent in vain, because ultimately you advised the exchange that it had no power to send any such questionnaire, regard
2502
STOCK EXCHANGE PRACTICES
less of any modifications in its form, to its members and require
them to make returns thereto.
Mr. REDMOND. That is true; but, Mr. Pecora, you were aware of
the fact that that fundamental question was involved, because when
you called me on the telephone late in the afternoon of October 9
and said you regretted you could not see Mr. Whitney personally in
regard to the questionnaire, and urged me to arrange an appointment with him for the following morning for Mr. Schenker and Mr.
Flynn, it was then clearly understood that I was still considering
the question whether the exchange could or could not, as a legal matter, send out the questionnaire.
Mr. PECORA. YOU recall that in our conversation I indicated that
I was willing and anxious to meet Mr. Whitney that same day,
Saturday, or on the following Monday, but that I was informed
that Mr. Whitney would not be in town Saturday, and that he would
be so occupied on Monday that he could not meet me; and do you
recall, therefore, that in answer thereto I said, then, I would have
to appear before the committee on Tuesday, October 3, at public
sessions of the committee to be held here in Washington, and would
remain in Washington for the purpose of attending such sessions
continuously thereafter the balance of the week?
Mr. REDMOND. Our conversation took place, of course, Monday
afternoon, but your statement is perfectly true, that you were willing
to try to see Mr. Whitney on Saturday or Monday, and that he found
it impossible on account of his other engagements.
Mr. PECORA. I was even willing to see him on Sunday.
Mr. REDMOND. I think we have all had to do things on Sunday in
the course of this investigation.
Senator COTJZENS. May I ask whether or not all the information
the stock exchange gets from its members is available to all the
members of the exchange?
Mr. REDMOND. NO.
Senator COTJZENS. In
other words, under the constitution of the
New York Stock Exchange, the information it gets from its members
is available only to the controlling committee?
Mr. REDMOND. TO the governing committee and the standing committees of the exchange.
Senator COTJZENS. And cannot be obtained by other members of the
exchange?
Mr. REDMOND. Not unless they have some direct interest, and the
standing committee permits them to.
Mr. PECORA. I S it now your opinion that the stock exchange should
not send this questionnaire that has been proposed by this committee,
with such modifications thereof as have been agreed to or discussed?
Mr. REDMOND. I still stand by my original opinion, Mr. Pecora,
that it would be depriving the members of the exchange of a substantial right. Any one of them may feel that some of these questions are an invasion of his privacy, which is protected by the Constitution, and may urge before this committee that the information
is not relevant or proper to its investigation.
Mr. PECORA. DO I understand that the governing authorities of
the exchange will be guided by that opinion, so that it would be
futile to ask them to send out any questionnaire along the lines proposed, with such modifications as might be agreed upon?
STOCK EXCHANGE PEACTICES
2503
Mr. EEDMOND. I cannot undertake to prophesy the future action
of an instiution like the exchange, Mr. Pecora.
The CHAIRMAN. Mr. Eedmond, let me ask you this. If that is the
position you hold, and assuming that would be agreed to by the governing board, would you advise the exchange that it might, then,
within its power and authority, submit this questionnaire to its
members with the statement that they are not ordered nor directed
to answer the questions, but that the exchange recommends that they
answer them if feasible, and leave it to the discretion of the members
as to whether they answer the questionnaire or not, without imposing
any penalties upon them in case they did not ?
Mr. EEDMOND. Senator, Mr. Whitney not only was receptive to
such a suggestion, but actually, in the case of question (C) which
sought information from the odd-lot houses, suggested that we
voluntarily undertake to approach those houses and find out whether
they wanted us iio act as a conduit of the information to this committee.
Mr. PECORA. There are only six odd-lot houses, are there not?
Mr. EEDMOND. Yes.
The CHAIRMAN. What
Mr. EEDMOND. I have
did they say?
only been informed casually. I believe
some of them have taken the position that they would prefer to
furnish this information directly, if it is necessary, as it is highly
competitive information, the public disclosure of which might be
harmful to them.
The CHAIRMAN. In those cases where the members refused to
answer, and where you submit the questionnaire to them, we could,
of course, subpena those members.
Mr. EEDMOND. YOU have undoubted power to do so.
The CHAIRMAN. I t seems to me it would be entirely reasonable not
to put all the members to the expense of coming here and testifying
when this information may be furnished without that. If they are
willing to do that without coming here, it is for them to decide,
without your ordering or directing then* to do anything, and imposing any penalties on them if they did not. And, of course, the
returns would show what members declined, and in those cases we
could issue subpoenaes and bring them here.
Mr. EEDMOND. I do not doubt, Senator, that practically all members of the exchange would he willing to open their books to representatives of this committee. They did so in the past, at the time
Mr. Gray was counsel to this committee and was seeking information.
I do not think there was a single member of the exchange that stood
on his rights and required that his books be produced before the
committee in Washington. They all voluntarily opened their books
and allowed the representatives of this committee to get whatever
information they wanted.
Mr. PECORA. Mr. Chairman, obviously for the committee to resort
to such measures would require a tremendous amount of time. I t
would stretch through months, if not years. If accountants representing the committee were to go and examine the books of all the
members of the exchange in their respective houses, the amount of
time that would be required to obtain the data that such an examination was designed to obtain would be 'tremendous. I t seems to me,
2504
STOCK EXCHANGE PRACTICES
and it always has seemed to me, that the most expeditious and the
cheapest method of obtaining this information would be for the
members themselves to furnish it from their own examination of
their own books and records, and that was the purpose, and essentially the purpose, as was set forth in my letter to Mr. Whitney of
September 30 last, of our having framed this questionnaire, and
entered into conferences with Mr. Whitney and his associates with
regard to any modifications of the questionnaire, and requesting
them to circulate it among their members. To say that members'
books are open to the inspection of investigators employed by the
committee is simply to say to this committee that you can spend the
next 2 or 3 years examining those books, if you want to wait that
long, for the results. I t seems to me a much shorter cut could be
taken, and from advices I have received informally from different
members of the exchange, they would be willing to reply to our
questionnaire and give us the information themselves, rather than
have our accountants examine hundreds of such books and extract
it from those books.
Senator COUZENS. May I ask, Mr. Redmond, if there is anybody
here to speak for the New York Stock Exchange, other than yourself?
Mr. REDMOND. NO. AS a matter of fact, I came down merely as
an observer, Senator. I did not expect at all to testify.
Senator COUZENS. It seems to me the chairman's suggestion is a
very simple one, and I would like to have information from the
^tock exchange as to whether the chairman's suggestion can be
carried out.
Mr. REDMOND. Of course, I assume that these questions which
would clearly produce duplicated or false statistics would have to be
modified, because I do not think the exchange would be justified
in sending out a questionnaire which it knew was going to produce
false figures.
The CHAIRMAN. We do not want that. What particular questions
fall within your objections,?
Mr. PECORA. We have been all over that, Mr. Chairman, and our
representatives have indicated throughout, as far as those things
have been reported to me, a willingness and a desire on the part of
the representatives of the committee to agree to any proposal that
would eliminate, to any substantial degree, any false information.
The CHAIRMAN. Of course, we do not want any false information.
Mr. PECORA. We are willing to obtain approximations. We do
not insist upon absolute accuracy, because absolute accuracy would
involve an expenditure of time and money wholly out of proportion
to the results.
Mr. REDMOND. Mr. Pecora, the suggestion that these things
frankly be made in the form of questions for estimate was made
at our meeting, and Mr. Flynn was not satisfied with it.
Mr. PECORA. The modifications you have already mentioned show
that we agreed
Mr. REDMOND. AS to some items.
Mr.'PECORA (continuing). To obtain estimates instead of exact
data.
Mr. REDMOND. AS to some items, Mr. Pecora.
STOCK EXCHANGE PRACTICES
2505
Mr. PECORA. What is the difference, Mr. Eedmond? You tell us
now that your opinion, submitted to the exchange, is that it has
no power to send out any kind of a questionnaire.
Mr. EEDMOND. But the chairman, Mr. Pecora, has suggested a different form, in which it would not be a questionnaire. It would be
simply a voluntary transmission of this so-called " questionnaire "
to the members, allowing each member to determine whether he
wished voluntarily to furnish the information.
Mr. PECORA. Whether you call it a-voluntary submission or whether
you call it a questionnaire, it refers to the same thing.
Senator ADAMS. Mr. Pecora, if they are going to do it on a voluntary basis, you might just as well send it direct to the members of the
stock exchange, rather than in a round-about way, if it is going to
be purely voluntary.
The CHAIRMAN. I think we ought to have the recommendation of
the exchange to its members, if it is willing to do it.
Senator ADAMS. I t would depend somewhat upon the form in
which the recommendation was made. It might be the recommendation of this committee would be more effective than the kind of recommendation the stock exchange would make.
Mr. REDMOND. I do not think so, necessarily, Senator.
The CHAIRMAN. I just wanted to see what their attitude was.
Mr. REDMOND. We did not see how* we could use the power of the
exchange to compel its members to furnish information.
Senator ADAMS. If, as a matter of fact, it was an improper thing,
the members could answer to you that you have exceeded your
authority.
Mr. REDMOND. They could; but, of course, our power is fairly
drastic in regard to their business life.
Senator ADAMS. But you would not hesitate to advise them if there
was any trespassing on their individual rights, that they did not have
to answer.
Mr. REDMOND. I do not know. If it had to do with practices which
were improperly affecting the market, I am afraid we would rather
subordinate the rights of the individual members of the exchange.
Senator ADAMS. YOU would think that perhaps the stock exchange
powers of investigation were somewhat broader than you intimate
the powers of the committee are.
Mr. REDMOND. NO, Senator. I would not say that, because I know
of no power that is broader than the power of this committee to
investigate.
Senator ADAMS. There have been some challenges made.
Mr. REDMOND. There have been in the past, and some that have
been supported by the Supreme Court. But when I read those old
cases and find that the persQnal liberty of the citizen was considered
sacred, I think how many years have rolled by, and what changes
time Has brought.
Senator ADAMS. We are made conscious of that every day.
The CHAIRMAN. Did the governing board consult the members,
and does it express the sentiments of the members in this opinion
of yours ?
Mr. REDMOND. The governing committee are elected by the members, and therefore act for them as a representative body, Senator.
2506
STOCK EXCHANGE PRACTICES
Mr. PECORA. The question of the chairman was, Did the governing
committee consult the members with regard to this particular questionnaire and the request of the committee for its circulation among
the members before you rendered your opinion to the exchange with
respect to its power to circulate the questionnaire ?
Mr. REDMOND. NO, Mr. Pecora. My opinion was rendered without
consultation with anybody except my own partners.
Mr. PECORA. I S it fair to assume that the decision indicated by
Mr. Whitney in his letter to me of October 16, 1933, which forms a
part of this printed document called " Committee's Exhibit No. 26 ",
was likewise adopted without first conferring with members of the
exchange ?
Mr. REDMOND. I do not know, Mr. Pecora. I t was sent with the
approval of the governing committee of the exchange, as is so stated
in the first paragraph. As to whether individual members of the
1,375 members were personally consulted, that I would not know.
Mr. PECORA. Outside the information that may have been given
to the gentlemen who attended the conference held yesterday, the
conference that Mr. Pierce has referred to in his testimony here this
morning, have any of these members of the exchange been told anything about the modifications of the original form of the questionnaire that were either agreed to by us or discussed by us with you?
Mr. REDMOND. Some of them have; because Mr. Schenker, over
the telephone, sent or gave to certain individuals a typewritten record indicating the modifications. I did not receive a copy of that
myself until yesterday at lunch time.
Mr. PECORA. I mean, did the exchange circulate among the members, or call to the attention of any of its members, the questionnaire,
with such modifications as had been agreed to by us in conference
with you?
Mr. REDMOND. NO, Mr. Pecora; because 90 percent of the modifications that were agreed to affected the information that the exchange itself is to furnish to you, and we had still held up in the air
all the major questions affecting the information to be secured from
the members of the exchange.
Mr. PECORA. DO you feel that the exchange, or the governing
authorities of the exchange, have no power to require its members
to make returns to a questionnaire designed to develop, among other
things, data indicating, out of the total volume of trading, the proportion representing trading on margin and the proportion representing trading for cash ?
Mr. REDMOND. I realty, Mr. Pecora, hesitate to express a legal
opinion on such short notice. You are asking me to give my opinion
as to the power of the governing committee of the New York Stock
Exchange. That is a very important legal question, and I will not
give a curbstone opinion on it.
Mr. PECORA. Mr. Redmond, was not some such question actually
embodied in our questionnaire?
Mr. REDMOND. NO, Mr. Pecora.
Mr. PECORA. Could you readily point to any provision of the constitution of the New l^orfc Stock Exchange or its regulations which
would in your opinion deprive the governing authorites of the
exchange of the power and rght to circulate such a questionnaire
among its members?
STOCK EXCHANGE PEACTICES
2507
Mr. REDMOND. I cannot at the present moment, Mr. Pecora, but
that verges again on the question of my legal opinion; and, as I
said, I do not think it is fair or proper to ,ask me that question. I
am counsel for the New York Stock Exchange, and you are asking
me for a legal opinion upon one of its basic powers.
Mr. PECORA. I thought you considered that legal opinion in rendering the opinion that you submitted to the stock exchange under
date of October 14 last.
Mr. REDMOND. On the contrary, the point at issue in my opinion
was whether the exchange had the right to exact information from
its members for the benefit of this committee and by so doing deprive
the members of their right to state that the information was not relevant or proper to this inquiry, a right which they would have if
they were subpenaed to appear here; and, as I said at the conclusion
of my opinion, I felt that the exchange, no matter how much it
wanted to facilitate this investigation, did not have the right to
deprive its members of the substantial protection which they would
have if subpenaed.
Mr. PECORA. TO what extent do you think the exchange has the
power or the right to cooperate with this committee in its desire to
obtain the information generally called for by the proposed questionnaire ?
Mr. REDMOND. It has the power and the right to cooperate, and
has done so, Mr. Pecora, many times in the past.
Mr. PECORA. With regard to the question of giving us such cooperation for the purpose of enabling us to elicit and obtain the data
that the questionnaire, in substance, calls for ?
Mr. REDMOND. The power to cooperate would exist almost anywhere, Mr. Pecora.
Mr. PECORA. DO you know what its disposition is at the present
time to give the committee that cooperation in the form in which it
is now being sought ?
Mr. REDMOND. Mr. Whitney, in his letter to you, in the next to the
last paragraph, said [reading] :
In declining, therefore, to compel the members of the exchange to answer the
questionnaire which you submitted to me, we are merely adhering to an established precedent and in no way seeking or wishing to delay the investigation
now in progress.
Mr. PECORA. What does that mean with respect to their present
attitude toward giving us the kind of cooperation that we are now
seeking?
Mr. REDMOND. If you mean by " cooperation " the effective deprivation from members of the exchange of a fundamental right, I do
not think the exchange will give that kind of cooperation.
Mr. PECORA. We do not mean any such thing, Mr. Redmond, and
I am surprised to think that you feel that we have any such purpose in mind. What we want to get, specifically, is the cooperation
of the governing authorities of the exchange to the end that this
committee may obtain from the members of the exchange the kind
of information set forth in the questionnaire.
Mr. REDMOND. MJ answer, Mr. Pecora, is that we are ready to give
you every proper kind of cooperation we can, which has been our
consistent attitude throughout this whole investigation.
2508
STOCK EXCHANGE PRACTICES
Senator ADAMS. Mr. Redmond, you concede that tHe stock exchange has the power to compel its members to furnish the information contained in the questionnaire, if it saw fit to exercise the power.
Mr. REDMOND. Senator, that question verges on the question of
the legal opinion as to the scope of the power.
Senator ADAMS. YOU have the right——
Mr. REDMOND. Let us assume it for the purpose of this discussion.
Senator ADAMS. Let us assume it. We have had before us from
time to time, for instance, such men as Mr. Wiggin, who is sitting
over here. We have asked him questions and he has said to us, " I
don't know." We have said to him, " Will you get your secretary or
the treasurer of your company to furnish that information ? " Suppose he should say to us, " No; I won't do that. I won't ask them.
You will have to bring them in." Would we have any authority to
compel anybody to get information from anybody else who is subject
to his orders? The stock exchange has the power to do it. Mr.
Wiggin has the power to tell his secretary or his bookkeeper to give
information, but suppose he should say to us, " I will not do it."
Could we compel him, or could he stand on his rights ?
Mr. REDMOND. I have found no authority, Senator, that would
support the idea that a citizen has, at his peril, got to go out and
secure information from another citizen.
Senator ADAMS. If that other citizen is subject to his control?
Mr. REDMOND. Even if he is subject to his control.
Mr. PECORA. What peril does the exchange face in sending out
this questionnaire to its members?
Mr. REDMOND. I did not say it faced any peril.
Mr. PECORA. What peril do you think it might incur ?
Mr. REDMOND. I said that was depriving the members of the exchange of a substantial right, and that we did not feel, in fairness,
we could do it.
Mr. PECORA. Would the exchange sent out the questionnaire to its
members at the request of this committee and reserve to each member
of the exchange receiving the questionnaire the right to determine
for himself whether any of the information called for by the questionnaire is information which the committee has no right to obtain
from him?
Mr. REDMOND. That is, in substance, the chairman's suggestion of
a few minutes ago.
Mr. PECORA. What is your answer to it ?
Mr. REDMOND. My answer is, of course—I cannot speak for the
exchange, I am nothing but its counsel, but I certainly think any
such suggestion would be received receptively, and a very prompt
answer given to it. I am sorry I cannot give a definite answer, but
I did not come down here to testify, and I am certainly not in a
position to bind the governing committee of the New York Stock
Exchange.
Mr. PIERCE. Mr. Chairman, would a suggestion be in order?
The CHAIRMAN. I will be very glad to have it.
Mr. PIERCE. I am not speaking for the stock exchange as such,
but simply for my own firm, and as reflecting, I believe, the ideas
of a good many. That is that one of the legal representatives of
Mr. Pecora's staff, and one of his accountants, could meet two or
STOCK EXCHANGE PRACTICES
2509
three of those of us who have come down here and go over that
questionnaire and ascertain to what extent it can be boiled down,
and have it sent out by the committee, if you like. You do not care
whether you get this information, I take it, through the stock exchange or direct from the members. There are only 1,375 members.
Then send that questionnaire yourself to the different members and
and let them determine whether they want to answer it.
Mr. PECORA. If the stock exchange is unwilling to cooperate with
us to the extent that has been indicated, by having it send out the
questionnaire under circumstances that would leave each member
free to determine whether or not he could or should furnish the
information, I think we will have to resort to some such thing
as you have suggested, Mr. Pierce; and the committee has already
indicated, I think, its willingness to do that. We thought we would
get the cooperation of the stock exchange. Apparently we cannot
get it.
Mr. EEDMOND. Mr. Pecora, that is not a fair statement.
Mr. PECORA. I think it is. N
Mr. REDMOND. That question has not been submitted
Mr. PECORA. We have spent a whole hour or more here in colloquy
as to what the exchange can do, and as to what the exchange will
do. The net result seems to be zero.
Mr. REDMOND. Mr. Pecora, I would like to have the record show
that no suggestion similar to the one just made has even been submitted to the exchange.
Mr. PECORA. I have asked you about it, and you have dodged the
question. You have stated you are not in a position now to tell
us what you would advise the exchange to do, as to whether or not
it had the power to do any such thing legally.
Mr. REDMOND. Mr. Pecora, I have dodged nothing, but you can
not ask me, in fairness, to give a legal opinion in regard to the
powers of the exchange under the Constitution on 5 minutes' notice.
If you wish to submit the question which the chairman propounded
originally, to the exchange, as I said a minute ago, I am sure it
will be receptively received, and that you will have a very prompt
answer. I do not want to seem to bind the exchange by saying yes
or no, because I have not the authority to do so.
Mr. PECORA. Within what period of time do you think we would
get an answer that you would call prompt ?
Mr. REDMOND. By tomorrow—probably by 4 o'clock—to give the
governing committee an opportunity to be called in session, and allow
them to consider it. I think it would be very helpful if Mr. Pierce's
suggestion were followed, that some of your experts consider, with
some of the important gentlemen who have been summoned here
today, whether further revision of some of these questions might not
produce the information you desire, but in a form that would be
much less burdensome on the members of the exchange.
The CHAIRMAN. I think Mr. Pierce's suggestion is quite a reasonable one, and perhaps we can get together to-day with these
people whom you suggest, and arrive at a form of questionnaire that
would bring the information we want. We do not want to put people
to unnecessary trouble and expense. We want the facts, or approximately the facts, anyhow. We do not want any misinformation or
2510
STOCK EXCHANGE PRACTICES
false information, but it seems to me we could probably reach, the
facts by modifying these questions in such a way as would enable
the members to answer them, reserving any rights they may have
about it. I think that suggestion is a very good one. I do not
know what the members of the committee think about it.
Mr. PECORA. Mr. Chairman, we have always taken the position
that we are willing to modify the questionnaire to any reasonable
extent and to meet any situation that would seem to impose upon
the members of the exchange any undue burden, either of time or
of expense of money. Hours of conference, by Mr. Redmond's own
statement here this morning, were spent by representatives of the
committee with representatives of the exchange for the purpose of
discussing such modifications or changes in the original form of the
questionnaire. We would *not have wasted time in those conferences
if we had not been willing to recognize that perhaps some of the
original questions were too broad, or called for information that
made it almost a physical impossibility for the members to furnish
this committee with the information. Then, after a lapse of 2 weeks,
we are told that the exchange will not send out any questionnaire,
because they have been advised by counsel that they have not the
power to do it and to require the members to submit to it.
We could have been told that at the very outset. Then we might
have taken the question up with members .of the exchange individually.
Senator GOLDSBOROUGH. Mr. Chairman, I move that the committee
go into executive session and see if we cannot reach some practical
agreement on this subject.
Mr. PECORA. May I ask how many gentlemen who represent stock
exchange houses are here this morning, in addition to Mr. Pierce,
in response to the subpenas of this committee. Would they kindly
give their names and the firms they represent to the stenographer,
one after the other?
Mr. GAYER G. DOMINICK. Gayer G. Dominick, of Dominick &
Dominick. My partner, who is also comptroller of the business, is
here with me, and I should like to have him come in the meeting.
Mr. JULES S. BACHE. Jules S. Bache, of J. S. Bache & Co.
Mr. JOHNSON. Herbert R. Johnson, of the firm of Orvis Bros. &
Co.
Mr. DUNCAN. J. C. Duncan, of W. E. Hutton & Co.
Mr. LOEWENSTEIN. V. T. Loewenstein, of Bears, Stearns & Co.
Mr. CHAPMAN. M. A. Chapman, of Chisholm & Chapman.
Mr. AI^BERT F. CLEAR. Albert F . Clear, of Hirsch, Lilienthal & Co.
Mr. E L U S . George A. Ellis, Jr., of E. F. Hutton & Co.
Mr. PRENTISS. John W. Prentiss, Hornblower & Weeks.
Mr. DAVIS. Edward K. Davis, of Dominick & Dominick.
Mr. PECORA. And Mr. Pierce of E. A. Pierce & Co. Are there
any other gentlemen present under subpena, who represent the
stock exchange houses?
(There was no further response.)
The CHAIRMAN. The committee will now take a recess until 2
o'clock. We will now have an executive session in the hearing room
of the Senate Committee on Banking and Currency, room no. 303,
and those gentlemen who have announced their presence and given
STOCK EXCHANGE PEACTICES
2511
their names here will be welcome there. We will be glad to have
them meet with us.
Mr. PECORA. I suggest also that the invitation similarly be
extended to Mr. Redmond, if he cares to attend.
The CHAIRMAN. Yes; we are glad to invite Mr. Eedmond to
attend. The committee will now be adjourned and meet in room
303 in executive session.
(Thereupon, at 12:25 p.m. the committee adjourned to go into
executive session, the regular hearing being adjourned until 2 p.m.
of the same day, Friday, October 20, 1933.)
AFTER RECESS
The subcommittee resumed at 2 p.m. at the expiration of the
recess.
The CHAIRMAN. The subcommittee will come to order. Mr. Pecora, you may proceed.
Mr. PECORA. Mr. Wiggin will resume the stand.
TESTIMONY OP ALBERT H. WIGGIN—Resumed
Mr. PECORA. Mr. Wiggin, your testimony yesterday afternoon
closed with an inquiry into the trading-account operations managed
by Dominick & Dominick, which terminated on or about April 8,
1929.
Mr. CONBOY. Mr. Pecora, I think your year is wrong, isn't it?
Mr. PECORA. 1930; yes. I t terminated on March 7, 1930. Now,
Mr. Wiggin, I want to ask you if you are familiar with the trading
account participated in by the Metpotan Corporation, Potter & Co.,
McClure, Jones & Co., and Broomhall, Killough & Co., which was
formed on or about April 10,1929, and was terminated on or about
July 3, 1930.
Mr. WIGGIN. I know that there was such an account, but I am
not familiar with it.
Mr. PECORA. When you say you are not familiar with it do you
mean that you have no knowledge whatever about it ?
Mr. WIGGIN. Well, I would have to investigate to get figures or
dates,
but I do know that there was such an account, and that it
w asMr. PpcoRA (interposing). Have you readily at hand any records
which would enable you to inform this committee somewhat in detail
with respect to this trading account?'
Mr. WIGGIN. I think my associates will furnish it to me promptly.
Mr. PECORA. Who formed that trading account ?
Mr. WIGGIN. When you say who formed it, what do you mean?
Mr. PECORA. Who took the initiative or who caused it to be formed ?
Mr. WIGGIN. Let me find out.
The CHAIRMAN. Mr. Pecora, is this the fifth such account?
Mr. PECORA. Yes, sir.
Mr. WIGGIN. The Metpotan
Co. took the leadership in the organization of the account.
Mr. PECORA. Was the formation of the account as well as the terms
and provisions thereof evidenced in writing?
Mr. WIGGIN. Yes, sir.
2512
STOCK EXCHANGE PRACTICES
Mr. PECORA. Can you produce as one of the writings relating
thereto a letter dated April1 10, 1929, addressed by Metpotan Securities Corporation to Broomhall, Killough & Co., Inc. ?
Mr. CONBOY. We have it now.
Mr. PECORA. Mr. Wiggin, I show you what purports to be a photostatic reproduction of such a letter. Will you please look at it and
tell us if you can identify it as a true and correct copy of such a letter.
Mr. WIGGIN. I do.
Mr. PECORA. Mr. Chairman,
I offer it in evidence and ask that it
may be spread on the proceedings of the subcommittee.
The CHAIRMAN. Let it be received and the committee reporter will
make it a part of the record.
(A photostatic copy of letter dated Apr. 10, 1929, from Metpotan
Securities Corporation to Broomhall, Killough & Co., Inc., was
marked "Committee Exhibit No. 27, Oct. 20, 1933", and will be
found on page 2533.)
Mr. PECORA. I will read the essential provisions of the exhibit,
which will be spread in full on the record. It is dated April 10,
1929, and I read as follows:
We have this day formed an account for the purchase and sale of stock of
the Chase National Bank and Chase Securities Corporation.
The account may trade in such stock and/or rights to subscribe for stock
and/or new stock with the understanding that, as a result of such trading, the
account shall not be long or short at any one time more than the equivalent
of 6,000 shares of old stock.
Any stock in the account will be carried by Metpotan Securities Corporation
any we will charge the account at the end of the month 5 percent interest
per annum for carrying. The account will run for a period of 90 days from
April 10, 1929, but may be further extended by mutual consent of all the
members. The account has today purchased 5,394 shares at $1,150 per share.
Members of the account and their respective interests are as follows:
McOlure, Jones & Co., one sixth; Potter & Co., one sixth; Broomhall, Killough
& Co., Inc., one sixth; Metpotan Securities Corporation, one half.
Are the other three parties of this account whose names I have
;just read from committee exhibit no. 27, persons or associations that
^are members of the New York Stock Exchange ?
Mr. WIGGIN. I think two of them are members of the stock exchange.
Mr. PECORA. Which are the two?
Mr. WIGGIN. McClure, Jones & Co.5 and Potter & Co. The other
is just a corporation, as you probably know.
Mr. PECORA. What was the purpose of the formation of this trading
account in behalf of Metpotan Securities Corporation?
Mr. WIGGIN. I think the same as before.
Mr. PECORA. TO distribute stock?
Mr. WIGGIN. TO distribute stock.
Mr. PECORA. By that do you mean to sell the stock to the public ?
Mr. WIGGIN. TO sell stock to investors; yes, sir.
Mr. PECORA. NOW, at the time that this pool—no, I withdraw that.
At the time that this trading account was formed isn't it a fact that
there was in existence and in operation one of the other trading
accounts with respect to which you have already been examined and
which was managed by Dominick & Dominick?
Mr. WIGGIN. Yes,
sir.
STOCK EXCHANGE PRACTICES
2513
Mr. PECORA. NOW, if that other account was formed for the same
purpose on the part of the Metpotan Corporation, why was it necessary to form this trading account?
Mr. WIGGIN. It was to provide an increased distribution on the
theory that these other houses would reach a different list of customers than those that were to be reached through Dominick &
Dominick.
Mr. PECORA. Weren't the purchases and sales that were made by
the trading account managed by Dominick & Dominick made through
the open market ?
Mr. WIGGIN. Of course, I do not know where they sold, as I stated
yesterday or the day before. I take it they had a long list of their
own customers, but, undoubtedly, a large part of it was done through
%\\.e open market.
Mr. PECORA. Was the distribution of Chase Bank stock that this
present account was formed to effect also made through the open
market ?
Mr. WIGGIN. I should think that probably it was made in the same
way. Each one of these houses has a line of customers of its own.
Mr. PEOORA. DO you mean that these houses—and by which term
I believe you mean brokers?
Mr. WIGGIN. Yes, sir.
Mr. PECORA (continuing).
Were boosting the stock among their
own respective customers?
Mr. WIGGIN. I do not know that they were boosting it.
Mr. PECORA. Well, if the purpose of these trading accounts was
to obtain distribution of the stock, that could have been done by
any firm of brokers through the open market, couldn't it?
Mr. WIGGIN. Each to his own ability; yes, sir.
Mr. PECORA. Why was it necessary to have more than one trading
account in operation at the same time for the same purpose?
Mr. WIGGIN. Because we wanted to get increased distribution.
Mr. PECORA. Well, was the obtaining of that increase of distribution due to the fact that the various brokers that entered into these
trading accounts were boosting the stock among their own respective
customers and in that way obtaining a wider distribution ?
Mr. WIGGIN. I cannot say that they were boosting the stock, but
I do think that they probably approached their own customers.
Mr. PECORA. DO you know whether or not Dominick & Dominick
as managers of the other trading account were given information
concerning the formation and existence of this trading account?
Mr. WIGGIN. I assume so. [After consulting an associate:] My
associates tell me unquestionably they were posted.
Mr. PECORA. HOW many shares were traded in through the medium of this account that was formed on April 10, 1929?
Mr. WIGGIN. I will find out. [After consulting an associate:]
Twelve thousand six hundred and thirty shares of the old stock;
that is, the stock at $100 par value, and 442,934 shares of the new
stock of $20 par value.
Mr. PECORA. What was the total cost of those purchases for the
purpose of this account?
Mr. WIGGIN (after conferring with associates). $103,216,184.88.
2514
STOCK EXCHANGE PEACTICES
Mr. PECORA. The moneys necessary to acquire those shares were
advanced by the Metpotan Securities Corporation from time to time
as those moneys were required, were they not?
Mr. WIGGIN. That is right, sir.
Mr. PECORA. According to Exhibit No. 27, in evidence, it was the
purpose of the participants in this account, when it was formed on
April 10, 1929, to conduct it for a period of 90 days, with the proviso that it could be further extended by mutual consent of all the
members. You will observe that this account was not terminated
until July 3, 1930, or nearly a year and a quarter after the account
was formed. Were there any special reasons for continuing the account for that period of time instead of concluding it within the
original period of 90 days?
Mr. WIGGIN. I t was continued for the same purposes for which
it was started—the same reasons.
Mr. PEOORA. Well, were all these four-hundred-odd thousand
shares that were accumulated during the life of the account also
sold by the time the accoupt wag closed on July 3,1930?
Mr. WIGGIN. No, sir.
Mr, PECORA. HO.W many
shares were in the account at the time it
was closed?
Mr. WIGGIN (after conferring with associates). Thirty-eight
thousand four hundred and forty shares.
The CHAIRMAN. What became of those, Mr. Wiggin?
Mr. WIGGIN (after conferring with associates). The account was
divided. McClure, Jones & Co. took 1over their share
Mr. PECORA. Which was one sixth?
Mr. WIGGIN. Yes. Potter & Co. took over their share; Metpotan
took over their share; Broomhall, Killough & Co., Inc., were in difficulties and Metpotan purchased their share at the market price.
Mr. PECORA. Did that purchase represent a loss?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. Why did Metpotan Securities Corporation shoulder
that loss and relieve Broomhall, Killough & Co., Inc., o«f it?
Mr. WIGGIN. YOU mean the snares they purchased from Broomhall,
Killough & Co. showed a loss? Is that the question?
Mr. PECORA. Yes.
Wr. WIGGIN. Let me find out. [After conferring with associates.]
Yes; it did result in a loss to the account.
Mr. PECORA. My question was, Why did the Metpotan Securities
Corporation take over the one-sixth share of the stock that the
account was long in at the close of the account if by so doing the
Metpotan Securities Corporation took a loss ? In other words, why
were Bromhall, Killough & Co. relieved of the burden of that loss
and that burden saddled on to the Metpotan Securities Corporation?
Mr. WIGGIN. Then I have not made it clear, because that is not
the case. The stock was taken over at the market price and the loss
on that share of the stock charged against the whole account.
Mr. PECORA. What was the total loss in this account at the time
it was closed ?
Mr. WIGGIN. I will have to get that. [After conferring with
associates.] I am a little confused, Mr. Pecora. There was a loss
on the transaction taken over from Broomhall, but the whole account
was a profitable account.
STOCK EXCHANGE PEACTICES
2515
Mr. PECORA. What was the profit in the whole account ?
Mr. WIGGIN. $321,250.14.
Mr. PECORA. What loss did the Metpotan Securities Corporation
sustain as result of taking over, at the time of the closing of the
account, the proportion of the shares then in the account which
Broomhall, Killough & Co. were obligated to take over under their
agreement ?
Mr. WIGGIN. The stock was taken over at the market, 140 at that
time
Mr. PEOORA. What loss was sustained?
Mr. WIGGIN. Wait a minute—and each participant took his pro
rata of the stock. The account showed a profit.
Mr. PECORA. Are you sure the account showed a profit?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Of how much?
Mr. WIGGIN. $321,250.14
Mr. PECORA. On the date of the termination of this account,
namely, July 3,1930, the account was long 38,440 shares, was it not?
Mr. CONBOY. That is the figure you got before; that is right.
Mr. PECORA. Thirty-eight thousand four hundred and forty and
three quarters shares?
Mr. WIGGIN. Yes.
Mr. PECORA. And
it was incumbent, under the terms of the trading account agreement, for the participants to take over pro rata
those shares?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. And under
that agreement Broomhall, Killough &
Co. would have Been required to take over on the termination of the
account one sixth of those 38,440 shares ?
Mr. WIGGIN. Correct.
Mr. PECORA. At wKat price were they to be taken over—at the
market on that day ?
Mr. WIGGIN. At the average cost.
Mr. PECORA. At the average cost. Now, what was the average
cost of those 38,440 long shares ?
Mr. WIGGIN. 167 and a fraction.
Mr. PECORA. And at what price were they actually taken over by
the syndicate participants on July 3?
Mr. WIGGIN. At that price.
Mr. PECORA. At what price ?
Mr. WIGGIN. The same price.
Mr. PECORA. What was the market price of the shares on July 3 ?
140 I believe you said, or something like that.
Mr. WIGGIN. That is about right; yes, sir.
Mr. PECORA. Broomhall, Killough & Co., Inc., was not in a position to take over its one sixth of these thirty-eight thousand odd
shares because they went into bankruptcy that day; is not that the
fact?
Mr. WIGGAN. Yes,
sir.
Mr. PECORA. And that one-sixth part of those shares therefore
were taken over by the Metpotan Securities Corporation at the
average cost of 167?
Mr. WIGGIN. NO, sir.
175541—33—PT 5
16
2516
STOCK EXCHANGE PEACTICES
Mr. PECORA. At what price were they taken over?
Mr. WIGGIN. At 140.
Mr. PECORA. At what
price did the other participants take over
their pro rata proportions?
Mr. WIGGIN. I am sorry, but these fellows can do this better than
I can. (After conferring with associates.) Each participant took
over his stock at 167.851.
Mr. PECORA. That 167.851 represented the average cost of those
shares to the account?
Mr. WIGGIN. At 167.851; but there had been a profit already distributed in the account.
Mr. PECORA. I know that; but let us confine ourselves to what
happened on July 3, 1930, when this account was closed with 38,440
shares to its credit which had been acquired at an average cost of
$167 plus. On the termination of the account each of the participants was required, under the terms-of the agreement, to take over
his or its pro rata share in the long stock at the average cost, was
it not?
Mr. WIGGIN. Yes.
Mr. PECORA. Hence
Broomhall, Killough & Co. were required, on
the termination of this account, to take over 6,406 shares, being one
sixth or 38,440 shares, that were in the account at the close. Is that
right?
Mr. WIGGIN. That is right.
Mr. PECORA. And the price Broomhall, Killough & Co. were obligated to pay for those shares was at the rate of 167.851?
Mr. WIGGIN (after consultation). They tell me that is right, sir.
Mr. PECORA. NOW, the market on that day was not 167.851, but
about $140 per share ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. SO that each
participant on the day of closing, who
took over his or its share of the long stock, would have done so at
a loss?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. Broomhall,
Killough & Co., because they had gone
into bankruptcy that day, were unable to take over their proportion
of that long stock ?
Mr. WIGGIN. Yes,
Mr. PECORA. And
sir.
the Metpotan Securities Corporation took that
long stock over itself; that is, took over the share that Broomhall,
Killough & Co. was required to take over ?
Mr. WIGGIN (after conferring with associates). The Metpotan took
over that portion of the stock in the account at 140, the market price
at that date.
Mr. PECORA. That loss which was represented by the difference
between $140 and $167 per share for these 6,407 shares was charged
off against the account in its entirety?
Mr. WIGGIN. Yes.
Mr. PECORA. NOW,
if, as you have said, the purpose that the Metpotan Securities Corporation had in forming this account on April
10, 1929, was to sell its shares and to obtain a wider distribution of
it, why was it necessary for the account to be formed for the purchase
as well as the sale of the capital stock of The Chase National Bank
and the Chase Securities Corporation ?
STOCK EXCHANGE PEACTICES
2517
Mr. WIGGIN. We must have some purchasing power in a longselling campaign.
Mr. PECORA. Why?
Mr. WIGGIN. TO assist in the selling campaign.
Mr. PECORA. DO you mean to help make the market ?
Mr. WIGGIN. TO keep the market steady. To take back stock that
<5omes in the market.
Mr. PECORA. YOU mean to give the market an appearance of
activity that would make it easier to dispose of the shares that you
wanted to sell?
Mr. WIGGIN. NO, sir.
Mr. PECORA. Well, what
is the reason it is necessary in a selling
•campaign to also purchase shares ?
Mr. WIGGIN. TO keep a steady price.
Mr. PECORA. " To keep a steady price." There was no way foi
the public to know, was there, during the operation of these accounts
that purchases and sales were currently being made by the same
people in order to enable those people to sell their own shares ?
Mr. WIGGIN. NO ; I don't know whether the public knew it or not.
The public undoubtedly know that that is a common way of doing
business.
Mr. PECORA. DO you think the investing public undoubtedly knows
that interests that desire to sell their shares of a certain security
organize trading accounts such as this for the purpose of enabling
them to sell their shares ?
Mr. WIGGIN. Oh, I think so.
Mr. PECORA. You_do?
Senator ADAMS. Don't you really think it is for the purpose of
deceiving the public rather than otherwise ?
Mr. WIGGIN. It is not either one or the ether. It is just a necessity
in order to sell the stock.
Mr. PECORA. And you think the investing public generally knows
that that is a common practice ?
Mr. WIGGIN. Oh, I think so.
Mr. PECORA. DO you consider that it is a common practice ?
Mr. WIGGIN. Yes, sir.
Mr. PECORA. A very common one ?
Mr. WIGGIN. Very common.
Senator ADAMS. It does lead to a
false impression on the part
of the public, does it not?
Mr. WIGGIN. NO ; I don't think so, Senator. It is like merchandise
of any kind.
Senator ADAMS. But you are creating the appearance of an active
market of ready purchasers, when as a matter of fact that is not
the situation?
Mr. WIGGIN. Well, I don't think it creates an active market.
There is no listing of the number of shares sold anywhere. Nobody
inows how many shares are sold.
Senator ADAMS. Then why should it have the effect of maintaining a steady market, if nobody knows about it?
Mr. WIGGIN. Because you buy it and keep the price there.
Senator ADAMS. Well, who knows about it?
Mr. WIGGIN. The quotations.
2518
STOCK EXCHANGE PRACTICES
Mr. PECORA. Who knows that the quotations are influenced by
buying and selling operations conducted at the same time by the
same interests?
Mr. WIGGIN. The Street knows it very thoroughly.
Mr. PECORA. By the " Street" you mean the professional traders;
you don't mean the general investing public, do you ?
Mr. WIGGIN. Oh, I think so; yes, sir.
Mr. PECORA. DO these trading accounts announce to the public
that they are operating, or do they take pains to prevent that fact
from becoming known? What is your opinion about it?
Mr. WIGGIN. I don't think that—certainly they do not go out
and advertise it. There is no concealment of it.
Mr. PECORA. There is no concealment of it, but there is no announcement of it to the public at any time, is there ?
Mr. WIGGIN. No; no formal announcement.
Mr. PECORA. HOW do you think the public knows of the operations of these trading accounts currently then, if no announcement
of their operation is made to the public?
Mr. WIGGIN. Some know and some don't know. You cannot sell
a large quantity of securities without having some purchasing power
on the market at the same time.
Mr. PECORA. And that purchasing power is supplied or obtained
in part by the organization, formation, and operation of trading
accounts of the kind that you have been examined about here ?
Mr. WIGGIN. Frequently.
Mr. PECORA. DO you think that the operations of these trading accounts, which are not announced to the public as being in operation,
contribute to the maintenance of a normal, natural law of supply and
demand in fixing prices, or do you think that they, on the other hand,
interfere in the operation of that law of supply and demand as a
factor in fixing of prices ?
Mr. WIGGIN. It might influence the supply and demand from day
to day, but in the long run it does not affect it*
Mr. PECORA. What is the practical difference, in your opinion, Mr.
Wiggin, between operations consisting of buying and selling at the
same time by trading accounts and the making of wash sales f What
is the practical difference between the two ?
Mr. WIGGIN. One is a real purchase and a real sale and the other
is not.
Mr. PECORA. " One is a real purchase and a real sale and the other
is not." What is the purpose and effect of a wash sale, Mr. Wiggin,
as a rule?
Mr. WIGGIN. I don't know. I am not a broker, and I only know
this term " wash sale " by newspaper talk. Now, I don't know what
the purpose is.
Mr. PECORA. DO you believe that wash sales have been made ?
Mr. WIGGIN. I think they have been. I don't know that they are
now. There is a world of reform going on now.
The CHAIRMAN. Both of these operations really fix an artificial
price, do they not? I t is an artificial price that is fixed by these
buying and selling operations, and the same in wash sales?
Mr. WIGGIN. I don't think so.
STOCK EXCHANGE PEACTICES
2519
Senator ADAMS. The wash sale had rather a different purpose, did
it not? They rather looked to that to aid the Government in its
income tax operations?
Mr. PECORA. "Aiding the Government", did you say, Senator ?
Mr. WIGGIN. Is there any question unanswered ? I don't think so.
Mr. PECORA. Yes; I asked you to describe the purpose and effect
of wash sales.
Mr. WIGGIN. I am not an expert. I don't know how to describe the
purpose and effect. We are led to believe that it is to deceive people.
Senator ADAMS. It is a curious thing, Mr. Pecora, how those away
out in the wilderness become familiar with these Wall Street terms
and think they know what they mean, and the fellows who come down
here from Wall Street do not know about them.
Mr. WIGGIN. A wash sale, as I understand it, in effect is a fictitious
sale, not a sale at all.
Mr. PECORA. A wash sale is where there is no real parting of title,
is it not ? That is another attribute of a wash sale ?
Mr. WIGGIN. I would describe it as a fictitious sale—no sale at all.
Mr. PECORA. In the case of a trading account buying and selling
the same kind of security at the same time, don't you recognize elements which make it similar in its influence on market prices to the
wash sale?
Mr. WIGGIN. Not at all, Mr. Pecora. Oh, no. One is real and
genuine and the other is a fictitious sale.
Mr. PECORA. The buying and selling conducted by a trading account which has for its object, as you have said, these trading accounts had for their object the selling of their shares, tended to
create an appearance in the market of a very active demand for the
stock, whereas that demand, or part of it, came from the buying
operations of the trading account that really bought in order to
effect a sale of their own shares ? Isn't that so ?
Mr. WIGGIN. AS I said, nobody knows how many shares were
traded in a day. There is no report like the stock exchange listing,
you know. I don't know whether it misled anybody in any way.
Senator COTJZENS. Let us assume, Mr. Wiggin, that you lived out
in Flint, Mich., and that you were a shrewd investor, as we assume
you are. How would you go about to know whether you were buying Chase National Bank and Cha^e Securities Corporation stock
at a right price?
Mr. WIGGIN. Well, I think events have shown that we do not have
any way of knowing.
Senator COTTZENS. Well now, supposing that you, as I say, were
living out in Flint, Mich., and you wanted to buy some Chase stock.
How would you be guided in determining whether you should or
should not purchase it and at what price you think you ought to
pay for it?
Mr. WIGGIN. Simply a study of the company and its record.
Senator COUZENS. YOU would not be influenced by the market
price in New York?
Mr. WIGGIN. Certainly.
Senator COTTZENS. YOU would ?
Mr. WIGGIN. I would want to know what the price was.
2520
STOCK EXCHANGE PRACTICES
Senator COUZENS. And they you would analyze the statement to>
see what the book value was and its earning capacity ?
Mr. WIGGIN. I suppose so.
Senator COUZENS. Then the price on the New York Stock Exchange
or the Curb or over the counter would not make much difference,,
would it, if you used those other factors in determining whether
you should or should not buy?
Mr. WIGGIN. I think everybody who studied it and made up his
mind to buy it would want to know the price before he did buy.
Senator COUZENS. But you would make your study first?
Mr. WIGGIN. Yes, sir.
Senator COUZENS. Have
you any indication, Mr. Wiggin, as to
how many people adopt that method in deciding whether they should
or should not buy a stock?
Mr. WIGGIN. Oh, I don't know how to answer that question,.
Senator. We all know that many people buy stocks because somebody else tells them to.
Senator COUZENS. Are they not influenced by the New York overthe-counter or market price ?
Mr. WIGGIN. Undoubtedly; and yet, as you know, the losses have
been just about as severe, perhaps more severe, in the securities
that people studied carefully and devoted a great deal of attention
to, as they have in those that they took on the hit-and-miss principle.
Senator COUZENS. SO you do not think there is much use in studying them because the hit-and-miss principles work just as well ?
Mr. WIGGIN. SO I think that when you get a depression of this
kind where everything goes, why, some are worse than others, but
my experience has been that people that study it do not come out
much better than the fellows that take it on somebody else's tip.
Mr. Pecora, you must remember this, speaking of buying and selling securities, that the greatest operator in the world in buying of
securities and selling securities, keeping the market steady, is the
United States Treasury Department.
Senator COUZENS. Are you not confusing the operations of the
Federal Reserve System with the Treasury Department ?
Mr. WIGGIN. Perhaps so, yes. I think that is right.
Mr. PECORA. Mr. Wiggin," you said in answer to one of the questions put to you by Senator Couzens in the last few minutes that
one living, as he put it, in Flint, Mich., who wanted to buy shares
of the Chase National Bank stock would be guided, or should be
guided in your opinion, not only by the market quotations but by
a study of the record of the bank income to ascertain its book value—
is that what you had in mind?
Mr. WIGGIN. Well, I said I assumed that if a person were to buy
a stock and wanted to study it the first thing he would do would be
to study the statement of the institution and its earnings.
Mr. PECORA. That would be the most sensible way of doing it?
Mr. WIGGIN. I think it would be a natural way. I do not think
that they would come out any better, but it would be a natural way.
Mr. PECORA. I S that the way that you have pursued in your own
operations and transactions ?
Mr. WIGGIN. NO ; I don't know how I pursued it, Mr. Pecora.
STOCK EXCHANGE PRACTICES
2521
Mr. PECORA. Will you look at what purports to be a photostatic
copy of a telegram addressed to you under date of February 1,
1929, which I now show you, and tell us if you recognize it to be
a true and correct copy of a telegram received by you about that
time?
Mr. WIGGIN (after examining document). I had forgotten all
about it, but I have no doubt it is correct.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted and entered in the record.
(Telegram dated Feb. 1, 1929, to Mr. Wiggin from " Tom " was
thereupon designated " Committee Exhibit 28, Oct. 20, 1933.")
Senator COTJZENS. Will you read it, Mr. Wiggin ?
Mr. PECORA. Let me read it.
Mr. WIGGIN. Yes; let Mr. Pecora read it.
Mr. PECORA. The exhibit reads as follows, on the form of the Western Union :
NEW YORK, N.Y., February 1, 1929.
Albert H. Wiggin, Golden State Limited, Car No. 27, Room A, arriving
Douglas, Arizona, 101 p.m. today, Douglas, Ariz.
The Van Ess boys of Cleveland have just organized Alleghany Corporation,
being a holding company, to take over their principal investment in railroad
shares. Yesterday we issued 35 million of collateral trust bonds. Today
Guaranty is offering 25 million preferred stock. We are making no offering
of common stock, but have set aside for you and immediate associates 10,000
shares at cost to us, namely, $20. The counter market is quoted at $35.
Please wire promptly your wishes. I am sailing for Paris tonight. With best
regards,
TOM.
Who is the " Tom " referred to at the end of that telegram ?
Mr. WIGGIN. I think I know. Just a second. I will make sure.
There are two Toms. I do not want to charge it to the wrong fellow. [After consulting with associates.] I think it was Mr. Lamont.
Mr. PECORA. Mr. Thomas W. Lamont of J. P. Morgan & Co. ?
Mr. WIGGIN. I think so.
Mr. PECORA. YOU had not looked up any book value of Alleghany
Corporation at that time, had you ?
Mr. WIGGIN. NO, sir.
Mr. PECORA. And you
took this participation without any question, did you not?
Mr. WIGGIN. Entirely.
Senator COUZENS. In other words, that was $15 below the market,
is that right, at the time ?
Mr. WIGGIN. Well, I don't know.
Mr. PECORA. According to the information embodied in the telegram, Mr. Lamont was letting you in on 10,000 shares at 20 when
the market was 35. Isn't that the fair implication of that telegram?
Mr. WIGGIN. I don't know about the prices, but I assumed it was
a favor and I was very glad to take it.
Senator COUZENS. Did you make any money out of it ?
Mr. WIGGIN. NO ; I lost money.
Mr. PECORA. That is because you did not take advantage of the
market at that time ?
Mr. WIGGIN. Exactly.
Mr. PECORA. Yesterday in the course of your testimony, Mr. Wiggin, you were asked to define a pool account as applied to a stock
2522
STOCK EXCHANGE PRACTICES
market transaction. I show you what purports to be a photostatic
copy of a letter addressed to the Shermar Corporation by W. E.
Hutton & Co., dated October 31, 1928. Will you please look at it
and tell us if you recognize it to be a true and correct copy of such
a letter sent to the Shermar Corporation on or about the date which
that bears ?
Mr. WIGGIN. I do not remember it at all, but I have no doubt that
it is perfectly correct.
Mr. PECORA. I offer it in evidence and ask that it be spread upon
the record.
The CHAIRMAN. It will be received and placed in the record.
(Letter dated Oct. 31, 1928, from W. E. Hutton & Co. to the
Shermar Corporation was received in evidence and marked " Committee Exhibit No. 29 of Oct. 20,1933.")
Mr. PECORA. This letter is on the letterhead of—
W. E. HUTTON & Co.,
New Yorh, October 31, 1928.
The
SHERMAB CORPORATION,
New York, N.Y.
GENTIJIMESN: Enclosed please find check for $105,467.49, being the amount
of your subscription and profit on the Hudson Motor Car Co. pool account.
Kindly acknowledge receipt of this and oblige.
Yours very truly,
W.
E. HUTTON & Co.
Mr. PECORA. Did you have any doubt in your mind when this
letter was written and received on or about October 31, 1928, as to
what a pool account was ?
Mr. WIGGIN. I suppose I had as much doubt as I have today.
Mr. PECORA. What did you think that a pool account meant in
October 1928?
Mr. WIGGIN. I do not know how to describe it today. I am more
at a loss now than I was the other day.
Senator COUZENS. YOU did not refuse the check because of the
odium on a pool ?
Mr. WIGGIN. NO, sir.
Mr. PECORA. Who were the managers of the last trading account
that I examined you about this afternoon—the account with Potter
& Co., Broomhall, Killough & Co., Inc., and McClure, Jones & Co. ?
Mr. WIGGIN. Metpotan Corporation.
Mr. PECORA. The Metpotan Corporation managed the operations
of that trading account ?
Mr. WIGGIN. Yes.
Mr. PECORA. I thought you said yesterday that the Chase Securities Corporation did not know how to sell its securities. Apparently
the Metpotan Securities Corporation, which was wholly owned by
the Chase Securities Corporation, knew how to sell securities through
the medium of the trading account.
Mr. WIGGIN. I do not think they knew how very well. That is the
reason these other houses were in it.
Mr. PECORA. The Metpotan Corporation managed the trading
account?
Mr. WIGGIN. Yes,
sir.
Mr. PECORA. They must have been familiar with the machinery for
the operation of the trading account if they assumed the manage
STOCK EXCHANGE PEACTICES
2523
merit of it with the consent of the two stock exchange houses? Is
that not a fair inference?
Mr. WIGGIN. I do not think they knew how to sell stock.
Mr. PECORA. Why did they undertake the management of this,
then, if they did not know to do it ?
Mr. WIGGIN. They had the biggest interest in the account.
Mr. PECORA. What is that?
Mr. WIGGIN. They had the biggest interest in the account, and
they depended on the brokers to sell the stock.
Mr. PECORA. DO you think that the participants in that trading
account, which consisted of stock exchange houses, felt that the
Metpotan Securities Corporation did not know how to manage the
account?
Mr. WIGGIN. I did not say that.
Mr. PECORA. What?
Mr. WIGGIN. I did not say they did not know how to manage the
account.
Mr. PECORA. Well, the purpose of the account was to sell securities,
sell the Chase Bank stock, was it not?
Mr. *WIGGIN. Yes; that was the purpose.
Mr. PECORA. And the Metpotan Corporation undertook to manage
such a selling campaign through the medium of that trading
account?
Mr. WIGGIN. They managed the account.
Mr. PECORA. Upon the closing of this trading account on July 3,
1930, was a new trading account formed within a few days thereafter
with the same participants, except for Broomhall, Killough & Co.?
Mr. WIGGIN. Yes,
sir.
Mr. PEdoRA. Who managed that account?
Mr. WISGIN. Metpotan.
Mr. PECORA. HOW long did it operate?
Mr. WIGGIN. Until August 5,1931.
Mr. PECORA. HOW many shares were purchased for this account
during its life?
Mr. WIGGIN. Twenty-five thousand four hundred and fifty-four.
Mr. PECORA. At what cost?
Mr. WIGGIN. $3,471,340.07.
Mr. PECORA. HOW many of these shares were sold by the account
during its life ?
Mr. WIGGIN. All but 539 shares.
Mr. PECORA. Were those 24,915 shares that accordingly were sold
by the account sold at a profit or a loss to the account?
Mr. CONBOY. What figure did you use, Mr. Pecora ?
Mr. PECORA. I used the figure of 24,915, which represents the difference between 25,454 shares and 539 shares which Mr. Wiggin said
were left in the account at the termination of it.
Mr. CONBOY. I misheard you. I thought you said 44,000.
Mr. PECORA. N O ; 24,000.
Mr. WIGGIN. The 539 shares which were taken down pro rata by
the interests in the account was the profit. There was no cash profit
and no cash loss.
Mr. PECORA. What was the market value of these 539 shares ?
2424
STOCK EXCHANGE PEACTICES
Mr. WIGGIN. Wait a minute. They tell me I am wrong, Mr.
Pecora. Let me correct that. The 539 shares were distributed
against the total payment of $68,489.64, that payment being made
pro rata by the syndicate interests.
Mr. PECORA. Did a profit accrue to this account from its operation ?
Mr. WIGGIN. We will have to get the market to see what they
took it at and what the market was. [After conferring with his
associates]. At the time they took down the stock the market value
was less than the price at which they took it down.
Mr. PECORA. NO, but during the operation of this entire account
from July 10, 1930, to its termination on August 5, 1931, was there
a profit or was there a loss to the account from the operations ?
Mr. WIGGIN. If thejr had sold the stock of course there was a loss,
because the market price was less than the distribution price. They
took it down at the equivalent of 126 and a fraction, and the market
was a great deal less than that.
Mr. PECORA. That is, on the date of the closing of the account?
Mr. WIGGIN. Yes.
Mr. PECORA. This
account operated for a period of over 1 year,
and during that year it purchased 25,454 shares at a cost of $3,471,340, and sold 24,915 shares. Did those transactions result in a profit
or in a loss to the trading account?
Mr. WIGGIN. There had been no distribution of profit. Consequently, when the account was closed and the stock delivered at a
cost of 126 and a fraction and the market was less, there was a loss
in the account at that time.
Mr. PECORA. Let me get at it in another way. What was the aggregate amount of the proceeds that the account obtained for the sale
of the 24,915 shares that it made during the life of the account?
Mr. WIGGIN. The proceeds were exactly the same as the cost price.
The margin and the difference being those 539 shares.
Mr. PECORA. Have you got the proceeds in dollars and cents ?
Mr. WIGGIN. Yes, sir. $3,471,340.07.
Mr. PECORA. That was the cost of all the 25,454 shares ?
Mr. WIGGIN. That was the sole proceeds; yes.
Mr. PECORA. And they sold 24,915 shares for a sum exactly corresponding to the cost price to the syndicate of the 25,454 shares?
Mr. WIGGIN. Yes, sir. That is not a coincidence. It simply meant
that they gave the profit in stock, you see, so that the cash offset. 539
shares was the adjustment that made it come out.
Mr. PECORA. What is that?
Mr. WIGGIN. The 539 shares was the adjustment to close the account.
The CHAIRMAN. DO you know what they finally brought?
Mr. WIGGIN. Of course, we do not know what the others did, and
I suppose ours went into a general account. We cannot identify the
particular stock. The Metpotan's went into a general account as the
other stock had, and we do not know what the other houses did.
Mr. PECORA. HOW many shares of Chase Bank and Chase Securities Corporation stock did the Metpotan Co. have on July 10, 1930,
which it desired to sell to the public through the medium of this
trading account?
Mr. WIGGIN. Read the question please.
(The reporter read the pending question.)
STOCK EXCHANGE PRACTICES
2525
Mr. WIGGIN. I t had on hand at that time, in all accounts, about
100,000 shares, but I cannot tell whether, with respect to any of
it or part of it, it was the desire to sell it to the public, because they
were accumulating the stock for another purpose.
Mr. PECORA. I understood you to say that the purpose of the
formation of this trading account was to enable the Metpotan Co.
to sell to the public shares of stock which it had. Now, how many
of the shares, which it had on July 10, 1930, when this trading
account was formed to effectuate that purpose, did it actually sell
through the medium of this trading account ?
Mr. WIGGIN. I do not think any of them were sold.
Mr. PECORA. SO, this trading account did not accomplish any of
the purposes for which it was formed by the Metpotan Co.?
Mr. WIGGIN. Apparently not.
Mr. PECORA. And it continued in existence for something like 13
months.
Mr. WIGGIN. Of course, the account was formed—it had other
purposes besides distribution. I t was to stabilize. When a stockholder wanted to sell, it enabled him to get a fair price for it. It
was a purchasing account as well as a selling account, as you know.
:So that when I say it did not accomplish any of those purposes, I do
not know that that is strictly so.
Mr. PECORA. Which of its purposes with which it formed this
trading account were accomplished or attained by the operations of
the trading account?
Mr. WIGGIN (after conferring with associates). I think it accomplished the purpose of stabilizing the market, and of having the
stock on hand when it could be used to advantage.
Mr. PECORA. When ^ou s^y that it accomplished the purpose of
stabilizing the market, is not that another way of saying that it had
the purpose of creating an outward or public appearance of a steady
demand for the stock in the market?
Mr. WIGGIN. Oh, I do not think so.
Mr. PECORA. DO you not think that that was one of the results
that emanated from the operations of this trading account?
Mr. WIGGIN. Oh, I do not think so. If you were listing it on
the stock exchange, with so many shares traded in a day, that might
be an influence, but nobody knew how many shares of" Chase Bank
stock were traded in.
Mr. PECORA. Why should these other houses have been concerned
with stabilizing the market?
Mr. WIGGIN. They were in it to make money.
Mr. PECORA. Did the market need stabilizing at that time ?
Mr. WIGGIN. I think most of the time bank stocks need stabilizing.
Mr. PECORA. AS a matter of fact, that is sort of a constant condition of the market, is it not ?
Mr. WIGGIN. I think so.
Mr. PECORA. It needs stabilization, and the stabilization is furnished through the formation and operation of trading accounts?
Mr. WIGGIN. Sometimes.
Mr. PECORA. SO it would seem, would it not ?
Mr. WIGGIN. I do not want to speak for anybody else.
Mr. PECORA. I mean, it would seem to you?"
Mr. WIGGIN. N O ; but we have cited several trading accounts.
2526
STOCK EXCHANGE PEACT1CES
Mr. PECORA. From your general experience and knowledge of
market conditions, would you say that that is a constant condition
of the market ?
Mr. WIGGIN. Not constant; no, sir.
Mr. PECORA. Frequent?
Mr. WIGGIN. More frequent on inactive stocks than on active
stocks.
Mr. PECORA. And are not public quotations thereby created which
are artificially stimulated through the activities 01 these trading
accounts ?
Mr. WIGGIN. I beg your pardon ?
(The reporter read the pending question.)
Mr. WIGGIN. There may be cases.
Mr. PECORA. DO you think they are a good thing for the investing
public ?
Mr. WIGGIN. I t may be a benefit to them sometimes. I do not
know.
Mr. PECORA. Frequently it is a distinct disadvantage to themy
is it not? In the light of what you know has happened in recent
years, can you not answer that question " yes " or " no " ?
Mr. WIGGIN. I should think that anybody who bought anything
3 years ago would have been very much better off if he had not;
and I should think, 3 years before that, if he bought anything he
would have been a great deal better off for buying it. It was the
times.
Mr. PECORA. Would you advocate the enactment of laws that would
place some kind of limitation or require some kind of publicity to
be given to the activities of trading accounts such as these ? [Addressing one of Mr. Wiggin's associates.] Won't you let Mr. Wiggin
answer that question without any suggestion from you, sir. This
calls for his own opinion.
Mr. WIGGIN. Let me think that over.
Mr. PECORA. Think it over.
Mr. WIGGIN. That is a big order.
Mr. PECORA. This gentleman does not have to presume to help you
out.
Mr. CONBOY. He was making the very same comment that you
are making, without suggesting anything to the witness at all.
Mr. PECORA. I do not know what he was saying, because it was
said in a whisper.
Mr. CONBOY. I am telling you.
Mr. PECORA. But, in view of the fact that the question was something that called for the opinion of the witness himself, his answer
should represent his opinion, uninfluenced by anything he hears from
anybody else.
Mr. CONBOY. And it is going to be.
Mr. WIGGIN. Eead the question, will you please ?
(The reporter read the pending question.)
Mr. WIGGIN. I can see no harm. Whether they would accomplish
the purpose or not I do not know. I can see no harm in the attempt.
Mr. PECORA. What purpose did you think I had in mind that such
legislation should accomplish, or could accomplish ?
Mr. WIGGIN. I had in mind that you wanted the public to have
more information than they have; is that correct?
STOCK EXCHANGE PEACTICES
2527
Mr. PECORA. That was one of them—so that the public would be
in a better position to determine whether market quotations were the
result of a free and open market operating in accordance with the
law of supply and demand.
Mr. WIGGIN. That is as I understood the question.
The CHAIRMAN. The committee will stand adjourned until Monday morning at 10 o'clock.
Mr. PECORA. All witnesses under subpena return at that time.
(Whereupon, at 3:45 p.m., Friday, Oct. 20, 1933, the subcommittee adjourned to meet Monday, Oct. 23, 1933, at 10 a.m.)
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,
New York City, September SO, 193S.
Mr. BICHABD WHITNEY,
President New York Stock Exchange, New York City.
counsel for the Senate Committee on Banking and
Currency in its pending investigation of the practices and conduct of stock exchanges and their members with respect to the buying, selling, borrowing, and
lending of securities, I send you herewith enclosed a questionnaire, which I take
the liberty of requesting you to address to all members of the New York Stock
Exchange. You will observe that some of the information sought to be elicited
through the medium of such questionnaire is of a character which can be furnished by the exchange itself; the balance of the information desired will, of
course, have to be obtained from its members.
DEAB ME. WHITNEY: AS
QUESTIONNAIRE
(A) Give the following data for October 1, 1929, and July 1, 1933:
1. Number of members of New York Stock Exchange.
2. (a) Number of members acting exclusively as- traders for their own account, giving names and addresses.
(&) Number of members acting exclusively as floor brokers, giving names and
addresses.
(c) Number of members acting in the capacity of both individual traders and
floor brokers, giving names and addresses.
(d) Number of members who are investment bankers who do not maintain
regular'representation on the floor of the exchange, giving names and addresses.
(e) Number of members who engage exclusively in commission brokerage
business, giving names and addresses.
(f) Number of member houses who in addition to acting as brokers* have also
participated in security offerings, and in pools, syndicates, or joint accounts,
giving names and addresses.
(g) Names of all member houses engaged exclusively in handling odd-lot
transactions.
(B) Obtain from each member and member firm the following data for the
year 1929 and for the year 1933 up to September 1:
I am resorting to this means of obtaining the information because I think it
affords the speediest and most convenient method therefor. It certainly seems
to me to be preferable to subpenaing the individual members to attend as witnesses before the committee in Washington, B.C., with their books and records.
I earnestly trust that we will have the hearty cooperation of your institution
in the pursuit of this process. I further hope it will be possible for the exchange to obtain this information and to submit it to me in time to enable me
to present a compilation and analysis thereof to the Senate Committee by
November 6th next.
Very sincerely yours,
FERDINAND PECORA,
Counsel, United States Senate Subcommittee on Banking and Currency.
QUESTIONNAIRE
(A) Give the following data for October 1, 1929, and July 1, 1933:
1. Number of members of New York Stock Exchange.
2. (a) Number of members acting exclusively as traders for their own acgiving names and addresses.
Digitized forcount,
FRASER
2528
STOCK EXCHANGE PRACTICES
(&) Number of members acting exclusively as floor brokers, giving names^
and addresses.
(c) Number of members acting in the capacity of both individual traders and1.
floor brokers, giving names and addressee
(d) Number of members who are investment bankers who do not maintain'
regular representation on the floor of the exchange, giving names and addresses.
{e) Number of members who engage exclusively in commission brokerage
basiness, giving names and addresses.
if) Number of member houses who in addition to acting as brokers have also
participated in security offerings, and in pools, syndicates, or joint accounts,
giving names- and addresses.
(g) Names of all member houses engaged exclusively in handling odd-lot
transactions.
(B) Obtain from each member and member firm the following data for theyear 1929 and for the year 1933 up to September 1:
(a) Number of customers (persons, partnerships, and/or corporations) who
bought or sold any securities, excluding bonds, debentures, and notes, separately
tabulating the number of customers buying or selling securities on margin or
credit accounts, and the number buying or selling securities! for cash.
(&) The number of customers (persons, partnerships, and/or corporations)
who purchased or sold bonds, debentures, and notes, separately tabulating thenumber of customers buying or selling on margin or credit accounts, and thenumber buying or selling for cash.
In tabulating the information under (a) and (&) give number of customersresiding in the city of New York and those residing outside of the city of NewYork.
(C) Obtain from all odd-lot houses the number of shares bought and the
number of shares sold by them during the period April 1 to July 31, 1933,,
inclusive.
(D) Obtain from all individual floor traders a statement of the total number
of shares bought and the total number of shares sold by them on the exchangeduring the period April 1 to July 31, 1933, inclusive.
(E) Obtain from each member or member firm the following data:
1. The total number of margin accounts on their books as of July 31, 1929;
July 31, 1930; July 31, 1931; July 30, 1932; and July 15, 1933.
2. The total debit balances in such marginal accounts as of July 31, 1929;
July 31, 1930; July 31, 1931; July 30, 1932; and July 15, 1933.
(F) Obtain from each member and member firm a statement showing;
whether member firm or any agent acting for such firm, or any partner thereof,
participated in the profit and/or losses resulting from the exercise -of any
options to purchase securities during the years 1929 to 1933 inclusive. In
reply to this question furnish the name of each member and his answer for*
each year-for this period.
(G) Obtain from each member or member firm the following data for theyears 1929 to 1933, inclusive, furnishing the name of each member and his.
answer for each year during this period.
1. A statement showing whether member firm or any agent acting for such
firm or any partner thereof participated in the profits and/or losses, or in any
distribution of securities in any syndicate, pool, and/or joint account, giving
the nature of the account—whether syndicate, pool, or joint account.
2. A statement showing whether any joint, syndicate, or pool, accounts w*ere
maintained on the books of such member Qr member firm in which such member or member firm had no proprietary interest, giving nature of the account—
whether syndicate, pool, or joint account.
(H) Obtain from each member or member firm the following data for theyears 1929 to 1933, inclusive, furnishing the name of each member and his
answer for each year during this period:
1. A statement showing whether member or member firm has purchased any
securities for resale.
2. Whether member or member firm has underwritten or participated in theunderwriting and/or distribution of any securities.
3. Whether member or member firm is a member of/or associated with any
investment trust.
(I) 1. Obtain from each member or member firm who engaged in brokeragebusiness and securities selling and/or syndicate, pool, or joint account, ,®perations, a statement showing whether a segregation or allocation oC€&f$J$aI and:
STOCK EXCHANGE PRACTICES
2529
of accounts for each department was maintained during the years 1929 to 1933,
inclusive. In replying to this question furnish name of each member and his
answer for each year for this period.
2. Where answer from member or member firm to the previous question is
in the affirmative, give date, in each case, when such segregation took effect.
Submit details of plan, stating if, in emergencies, capital funds may be
switched back and forth between the departments.
(J) Obtain from each member or member firm the following dara for
each year of the years 1928 to September 1, 1933, inclusive:
1. Annual gross charges to customers for commissions for the purchase
and sale of securities, excluding bonds, debentures, and notes.
2. Annual gross charges to customers for commission for purchase and sale
of bonds, debentures, and notes.
3. The annual gross charges to customers for interest.
4. A detailed annual income statement showing receipts and disbursements
by classification.
(K) 1. Give the names of all members who acted as specialists on October 1,
1929, and July 1, 1933. Give the names of the securities assigned to each.
2. Furnish copies of all provisions in the constitution and bylaws of the
New York Stock Exchange relating to specialists in effect on December 31, 1929,
and copies of all amendments subsequent thereto up to August 31, 1933.
3. Give names of all specialists wno have been subjected to warning, trial, or
disciplinary action of any nature or character whatsoever by any committee
or governing body of the exchange for the period from January 1, 1928, to
September 1, 1933. In each case state the date, the nature of the alleged
violation and the disposition thereof.
(L) Give the following data for each of the years from 1929 to 1933, inclusive:
1. Number of persons employed by the New York Stock Exchange in publicity
and/or public relations activities.
2. Number of persons employed by the New York Stock Exchange in any
capacity under the direct on or jurisdiction of the library committee.
3. Number of persons employed by the department of economist of the New
York Stock Exchange.
4. Total yearly appropriation by the New York Stock Exchange for all of
the above enumerated purposes,
5. Total number of pamphlets, brochures, printed addresses, articles, or
writings of a similar nature circulated or distributed by the Exchange or any
of its subsidiaries.
6. The titles and dates of all such publications.
\
7. The number of copies of the two books—" The Work of tjje Stock Exchange " and " Short Selling", written by the economist of the New York
Stock Exchange, which were purchased by the exchange or any of its subsidiaries, officers, or governors, and itemize and specify to which institutions such
volumes were sold or distributed gratis, and the number so distributed or sold.
8. Names of any and all persons employed by the New York Stock Exchange
in publicity or public relations work of any character.
9. Furnish copies of all the articles, speeches, pamphlets, brochures, or writings of Richard Whitney, president of the New York Stock Exchange, published
since 1928.
(M) Give the following data for each of the years from 1928 to September
1, 1933:
1. Names of bond issues listed on the New York Stock Exchange which
have been in default during such period.
2. List of members or member houses of the New York Slock Exchange
who became insolvent.
3. List of members suspended by the New York Stock Exchange, giving
dates of such suspension, reasons therefor, and where such members were in
partnership, the names of such firms.
4. List of members or member firms who have either sold or transferred
their seats upon the New York Stock Exchange, giving dates of such sale or
transfer.
Where member or member firm has been suspended, or has ceased doing
business, information requested should be obtained from successor firms. If not
so obtainable, list the names of such members or member firms from which
the data has not been obtained, and the approximate date when such members
or member firms discontinued their association with the exchange.
2530
STOCK EXCHANGE PRACTICES
(N) Give the following information for each of the years from 1928 to
1933, inclusive:
1. All committees of the New York Stock Exchange and the names of the
members of each committee.
NEW YORK STOCK EXCHANGE,
New York, October 5, 1988.
FERDINAND PEOORA, Esq.,
Counsel, United States Senate Subcommittee on Banking and Currency
New York, N.Y.
DEAR MR. PEOORA : I duly received your letter of September 30, 1933, enclosing
a proposed "questionnaire." I have examined the latter with great care. As
you point out, the exchange itself has in its possession certain of the information necessary to answer a number of the questions. These facts we will make
available to you as promptly as possible.
In many instances, however, the information would have to be obtained
from members of the exchange. I have noted your suggestion that this be
secured by having the exchange address a questionnaire to its members. I
have grave doubt that this procedure could be followed. Much of the information which you seek through us from our members could only be had, if
at all, at great expense and trouble to them. Much of it involves questions
of purely private affairs of members and their customers. There is the further
difficulty that throughout the questionnaire a number of general terms are used
without any precise definition. This, I am sure, might lead to confusion, and
might result in securing answers which would not give the precise information
which you are seeking.
In view of the number of questions raised by your request, I think it would
be very helpful if we could have a personal conference on the entire subject.
I will, of course, be pleased to see you at any convenient time.
I understand that Mr. Meehan of your office has been informed of the
progress which the accounting department of the exchange has made in regard
to the investigation of the trading in the so-called " alcohol stocks" during
the period from May 15 to July 24 of this year. I have just been advised
that the examination of some 99 member firms has been completed and that
a final report is in course of preparation. We have made every effort to
expedite this work, but the number of houses which had to be visited and the
number of accounts that had to be analyzed was so great that it has been
impossible to complete it more promptly.
Faithfully yours,
RICHARD WHITNEY,
President.
CARTER, LEDYARD & MH-BURN,
New York, October U, 1988.
RICHARD WHITNEY,
Esq.,
President New York Stock Exchange, New York City.
have referred to us a copy of the letter addressed to you under date of September 30, 1933, by Mr. Ferdinand Pecora,
counsel for the Subcommittee of the Banking and Currency Committee of the
United States Senate, and have asked our opinion as to whether the exchange
may require its members to furnish the information requested in the so-called
" questionnaire " which was annexed to his letter.
This letter was not received until October 2. Under date of October 5 you
replied stating that, aside from the question of whether the exchange might
require the information sought by the questionnaire from its members, you
doubted whether informative answers could be secured to questions which were
phrased in such vague and general terms. You, therefore, suggested a personal
interview in which these questions could be clarified. On Friday evening,
October 6, Mr. Pecora asked your secretary to arrange for an interview on
the following Monday. This proved to be impossible, on account of your existing engagements. On Monday afternoon, October 9, Mr. Pecora telephoned to me
and asked whether you would be willing to see some of his subordinates,
as he would be engaged throughout tjxe week in conducting the hearings before
the Senate committee in Washington. A conference was arranged for the
MY DEAR MR. WHITNEY: YOU
STOCK EXCHANGE PBACTICES
2531
following day at which Mr. David Schenker, an assistant counsel to the Senate
committee, and Mr. John T. Flynn, an employee of the Senate committee, spent
several hours going over with us the form of the questionnaire. A second
interview was held on Wednesday and Mr. Schenker and Mr. Flynn again
visited your office and spent several hours in further revising the questionnaire.
As a result of these conferences, the situation stands as follows:
The questions asked under the subheading (A) of the questionnaire, with
one single exception, are now in such form that the information requested can
be furnished by the exchange. This single exception and the questions asked
under the subheadings (B), (D), (E), (F), and (J), all require information
which is not in the possession of the exchange.
The questions asked under subheading (0), in regard to the odd lot houses,
we have agreed to submit to the firms involved and to act as a conduit for the
information or not as the particular firms desire.
The questions asked under the subheadings (G), (H), and (I) have been
temporarily held in abeyance, so that Messrs. Schenker and Flynn may consider further whether this information is necessary or desirable.
The questions asked under the subheadings (K), (L), (M), and (N) are now
in such form that the information requested can be furnished by the exchange.
You have already advised Mr. Pecora that where the information requested
is in the possession of the exchange it will be furnished to him as promptly
as possible. The sole remaining question, therefore, is whether the exchange,
by sending out a questionnaire to its members, should require them to furnish
the information which is being sought.
Under the constitution of the exchange the governing committee has power
to secure information by questionnaire from the members of the exchange.
This power has been used whenever the governing committee felt that it was
necessary to investigate irregular transactions or practices which might improperly affect the market. Without attempting to record all of the instances
in which questionnaires have been sent to members of the exchange in recent
years, I should perhaps remind you that it was used in the alleged corner in
Wheeling & Lake Erie stock some years ago, in the Manhattan Electrical
Supply Co. cases in 1927 and 1930, and for the statistics in regard to short
selling not only at the time of the panic in 1929 but again currently since the
early part of 1931. In each instance where the Senate committee represented to
the? exchange that the market had been affected by irregular or unfair practices
this power was invoked to secure the facts. I refer, of course, to the special
questionnaire sent in regard to the short position on April 8, 1932; to the
investigation of the trading in Kreuger & Toll securities at the time of Ivar
Kreuger's death; and to the investigation, recently concluded, of the rumors that
pool transactions in the so-called "alcohol stocks" had affected the market
in the early part of this year. In other instances where the testimony before
the Senate committee seemed to have a direct bearing upon the conduct of members of the exchange the governing committee has used its power to ascertain
the facts by requiring the members of the exchange to furnish it with information. These instances, however, furnish no precedent for the present case.
The information sought by the proposed questionnaire has no direct bearing
on market practices or on the conduct of members of the exchange. On the
contrary, it consists primarily of what might be described as general statistics.
There is no doubt that a committee of Congress has power to secure, by
subpena, information which is necessary or pertinent to the framing of legislation. Our courts have upheld the existence of this power and by liberal
interpretation have given legislative committees the right to seek any information which is proper and relevant to the work of the Congress. Although
the Senate committee may directly seek information by requiring citizens to
testify before it, we have found no authority which would support the theory
that it has power to compel one citizen to secure for its use information from
another citizen.
The committee's counsel frankly recognizes that the information sought by
his questionnaire is not in the possession of the exchange. A subpena, therefore, served upon the exchange would not produce the information which he
seeks. He likewise realizes that he may, if it is proper and relevant to the
pending inquiry, secure the information which he desires by serving subpenas
upon the individual members of the exchange and by compelling them to appear
before the Senate committee in Washington. Instead of using this recognized
method he has asked the exchange to secure this information for him by
175541—33—PT 5
17
2532
STOCK EXCHANGE PEACTICES
sending a questionnaire to its members. He urges that this procedure be
followed as it will be " the speediest and most convenient method " of securing
the information. In other words, he wishes the governing committee of the
exchange to use it power to compel the members of the exchange to answer
the questions contained in the questionnaire. Under the constitution of the
exchange any member who fails to furnish information required of him by the
governing committee may be suspended or expelled. If, therefore, the exchange
should undertake to send out the proposed questionnaire, the members of the
exchange would not only be compelled, at the risk of being disciplined by the
governing committee, to answer, but they would also be effectively deprived of
the right, which they would possess if they were subpenaed to appear before
the Senate committee, to raise the question of whether the information sought
from them was proper and relevant to the pending investigation. Much as the
exchange may desire to facilitate the investigation which the Senate committee
is conducting, I do not believe that it should even for this purpose, use a
method which will deprive the members of the exchange of a substantial right.
For this reason, it is my opinion that the exchange should refuse to send to
its members the suggested questionnaire.
Yours very truly,
ROLAND L. REDMOND.
NEW YORK STOCK EXCHANGE,
New York, October 16, 1988.
FERDINAND PECORA, Esq.,
Counsel United States Senate Subcommittee on Banking an&jCurrency,
New York, N.Y.
MY DEAR MR. PECORA : I enclose herewith a copy of Mr. Redmond's opinion in
regard to the question of whether the exchange should require its members to
furnish the information called for by the questionnaire which was attached
to your letter of September 30. In view of this opinion I have decided, with
the approval of the governing committee of the exchange, that we would not
approve the suggestion contained in your letter that the exchange should send
the questionnaire to its members.
As to the information sought by the questionnaire which is in the possession
of the exchange, the work of compilation is going forward rapidly and should
be in your hands by the latter part of this week.
I am sending you under separate cover the report of the accountant of the
exchange in regard to the alleged pool trading in the alcohol stocks during the
spring and early summer of this year. This is now complete except for the
report on one firm, which I will furnish you as soon as possible.
There are certain practical considerations in regard to the information which
you asked the exchange to secure from its members which I feel I should bring
to your attention. As originally submitted, your questionnaire would have
required the members of the exchange to furnish detailed facts in regard to
their transactions over a period of almosjt 5 years. In many instances it would
have been necessary to have each customer's account examined and analyzed.
This would have required a stupendous amount of work and the expenditure
by members of the exchange of many millions of dollars. Mr. Schenker and
Mr. Flynn apparently realized that the expense of answering the questions as
originally drafted was prohibitive and they, therefore, suggested a modification of some of the questions so as to make them less burdensome. Even in the
modified form the work which would be imposed on the members of the exchange would be indeed oppressive and I estimate its cost would in the aggregate amount to several millions of dollars. I do not believe, therefore, that
the exchange should, in justice to its members, adopt your suggestion and
impose any such huge expenditure upon them for the sole purpose of securing
economic statistical information.
Another fundamental objection to the proposed questionnaire is that it
would certainly produce inaccurate and incomplete results. I am advised that
similar questionnaires have been sent to a number of stock exchanges throughout t i e country. Many members of the New York Stock Exchange are also
members of these exchanges. There was therefore a serious danger of duplication which would have destroyed the true and accurate value of any statistics
sought in this manner.
STOCK EXCHANGE PEACTICES
2533
Furthermore, certain of the questions, particularly those referring to the
income of members of the exchange and to the number
of, and the debit balances in, margin accounts carried by them in 19291 and in 1933, would have
required the members of the exchange to furnish to you information which
they have already given or are currently furnishing to the Department of Internal Revenue. I was advised by your associate that the records of the Treasury
Department are available to you and it therefore seemed grossly unfair to
compel the members of the exchange to furnish the same information, almost
duplicate in certain aspects, to two departments of the Government.
In closing, I should perhaps remind you that the position taken by the
exchange in regard to this questionnaire is consistent with the position which
it has taken ever since the Senate investigation started in 1932. We have
always been willing to cooperate to the fullest possible degree in securing information for the Senate committee. We have at very great expense furnished
it with a vast amount of information. We have, however, always taken the
position that information in regard to the particular and personal affairs of
members of the exchange should be sought directly from them and not indirectly
through the exchange. Mr. Gray, who was formerly counsel to the Senate* committee, recognized the propriety of this position and I am advised that the
detailed information which he sought of members of the exchange was secured
through the service of subpenas upon such members and the examination' of
their books and records either before the Senate committee itself or by accountants employed by the committee in New York, if the counsel to the Senate committee and the members agreed that this method was preferable to presenting
the records publicly in Washington. In declining, therefore, to compel the
members of the exchange to answer the questionnaire which you submitted to
me, we are merely adhering to an established and consistent precedent, and In
no way seeking or wishing to delay the investigation now in progress.
As I have received a great many inquiries from members of the exchange
regarding the proposed questionnaire—inquiries which were undoubtedly due
to the publication of the fact that a questionnaire had been sent to the exchange—I am sending the members copies of our correspondence on this subject.
Faithfully yours,
RICHARD WHITNEY, President*
NEW YORK STOCK EXCHANGE,
October 16, 193S.
To all members:
To make entirely clear the position taken by the exchange in regard to the
suggestion contained in the letter of September 30, 1933, received from Mr.
Ferdinand Pecora,- counsel to the United States Senate Subcommittee on
Banking and Currency, witii respect to the sending of the questionnaire accompanying his letter to the members of the exchange, I attach herewith the
following data:
1. Copy of Mr. Pecora's letter of September 30,1933.
2. Copy of the questionnaire accompanying his letter.
3. Copy of my reply of October 5, 1933.
4. Copy of opinion of Mr. Roland L. Redmond, of Messrs. Carter, Ledyard
& Milburn, counsel to the exchange, under date of October 14, 1933.
& Copy of my further answer to Mr. Pecora, dated October 16, 1933.
Faithfully yours,
RICHARD WHITNEY, President*
COMMITTEE EXHIBIT NO. 27, OCTOBER 20, 193a
MBTPOTAN SECURITIES CORPORATION?;
New York, April 10<, 19OL
BBOOMHALL, KILLOTTGH & Co., INC.,
New York City.
GENTLEMEN : We have this day formed an account for the purchase and! sale
of stock of The Chase National Bank and Chase Securities Corporation.
The account may trade in such stock, and/or rights to subscribe for stock,
and/or new stock, with the understanding that, as a result of such, trading,
2534
STOCK EXCHANGE PRACTICES
the account shall not be long or short at any one time more than the equivalent
of 6,000 shares of old stock.
Any stock in the account will be carried by Metpotan Securities Corporation,
and we will charge the account at the end of the month 5 percent interest per
annum for carrying. The account will run for a period of 90 days from April
10, 1929, but may be further extended by mutual consent of all the members.
The account has today purchased 5,394 shares at $1,150 per share.
Members of the account and their respective interests are as follows: McClure, Jones & Co., one sixth; Potter & Co., one sixth; Broomhall, Killough &
Co., Inc., one sixth; Metpotan Securities Corporation, one half.
Kindly confirm that the above is in accordance with your understanding.
Very truly yours,
"MT. W. DOWNING, Secretary,
STOCK EXCHANGE PEACTI0E8
MONDAY, OCTOBER 23, 1933
UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON
BANKING AND CURRENCT,
Washington^ D.C*
The subcommittee met, pursuant to adjournment on Friday, October 20, 1933, at 10 a.m., in the caucus room of the Senate Office
Building, Senator Duncan U. Fletcher presiding.
Present: Senators Fletcher (chairman), Gore (substitute for Barkley), Adams (proxy for Costigan), Couzens, Townsend, and Goidsborough (substitute for Norbeck).
Present also: Ferdinand Pecora, counsel to the committee; Julius
Silver, David Saperstein, associate counsel to the committee; and
Frank J. Meehan, chief statistician to the committee; Martin Conboy,
counsel for Albert H. Wiggin; Eldon Bisbee, Alfred E. Mudge,
A. M. Williams, Joseph B. Lynch, Julian L. Hagen, and C. Horace
Tuttle of Rushmore, Bisbee & Stern, and also William Dean Embree
and A. Donald MacKinnon of Milbank, Tweed, Hope & Webb,
counsel for The Chase National Bank and The Cha&e Corporation.
The CHAIRMAN. The subcommittee will come to order. Mr.
Pecora, who is your first witness ?
Mr. PECORA. Mr. Charles Batchelder.
The CHAIRMAN. IS Mr. Batchelder present?
Mr. BATCHELDER. Yes, Mr. Chairman.
The CHAIRMAN. Please stand, hold up your right hand, and be
sworn: You solemnly swear that you will tell the truth, the whole
truth, and nothing but the truth regarding the matters now under
investigation by this committee. So help your God.
Mr. BATCHELDER. I certainly do.
TESTIMONY OP CHARLES F. BATCHELDER, NEW YORK CITY, A
VICE PRESIDENT OP THE CHASE NATIONAL BANE OF THE CITY
OF N E W YORK
Mr. PECORA. Mr. Batchelder, will you give your full name and
address to the committee reporter?
Mr. BATCHELDER. Charles F . Batchelder, B-a-t-c-h-e-1-d-e-r; 18
Pine Street, New York.
Mr. PECORA. Are you connected with the Chase National Bank of
the City of New York?
Mr. BATCHELDER. I am.
Mr. PECORA. In what capacity?
Mr. BATCHELDER. A S a vice president.
2535
2536
STOCK EXCHANGE PEACT1CES
Mr. PECORA. HOW long have you been connected with that bank?
Mr. BATCHELDER. I was made a vice president of the Chase Bank,
I think in June or thereabouts of this year.
Mr. PECORA. Prior to June of this year were you connected with
the Chase Bank in any other capacity?
Mr. BATCHELDER. NO.
Mr. PECORA. Are you connected or were you connected with a corporation called Chase Securities Corporation?
Mr. BATCHELDER. I
was.
Mr. PECORA. When did you first become connected with that
corporation?
Mr. BATCHELDER. In November of 1923.
Mr. PECORA. In what capacity?
Mr, BATCHELDI3R. I returned to this country after 4 years abroad,
or, that is, of being outside the country, and simply entered their
employ, without title.
Mr. PECORA. Did you thereafter become an officer, or director ?
Mr. BATCHELDER. I became an officer, but was never a director.
Mr. PECORA. What office did you first hold?
Mr. BATCHELDER. I think I was first assistant vice president—and,
you will understand, I am speaking now entirely from memory—
but it must have been the latter part of 1929, and later than that,
and perhaps after a couple of years, I was made a vice president.
Mr. PECORA. And have you continuously served as a vice president
of that corporation since that time?
Mr. BATCHELDER. That is right.
Mr. PECORA. That corporation is now known as the Chase Corporation?
Mr. BATCHELJ>ER. That is right. I was never an officer of the
Chase Corporation.
Mr. PECORA. Well, it became the Chase Corporation in May of this
year by virtue of a change or an amendment to its charter and bylaws, I believe. Is that right?
Mr. BATCHELDER. Well, I cannot verify the date. I had no interest
in that. But I think it is so.
Senator COUZENS. What did you specialize in if you did specialize
in anything when you were acting for Chase Securities Corporation ?
Mr. BATCHELDER. I wouldn't say that I was specializing, Senator
Couzens. I went abroad for them, and was in Germany, and I had
done a good deal of Canadian business for them. My whole experience and training has been of a general nature, and I do not suppose
I am an expert on anything, but I think I have had a good deal of
knowledge in a practical way at least of the operation of the security
business.
Senator COUZENS. But did you specialize in foreign loans. You
said you went abroad, I believe.
Mr. BATCHELDER. Yes, sir.
Senator COUZENS. And did you specialize in foreign loans?
Mr. BATCHELDER. NO ; I, perhaps, did more of that than anything
else, however.
Senator GORE. When was Chase Securities Corporation organized?
Mr. PEOORA. In 1917 Senator Gore, which is already in the record.
Senator
GORE. All right.
STOCK EXCHANGE PEACTICES
2537
Mr. BATCHEIJDER. Mr. Pecora, might I make a statement as I go
along here, for the purpose
Mr. PECORA (interposing). Yes.
Mr. BATCHEIDER. The first I heard that I was going to be, possibly,
called on this Cuban matter was last night and, perhaps, a little
after 10 o'clock. On Saturday I was in New York. A list of the
officers who were expected to be wanted down here was telephoned
to New York, and my name was not on that list. The first I heard
I was going to be called this morning was, perhaps, 15 minutes ago.
I am not as well informed for the moment on all of the details of
this Cuban matter as I should like to be, but
Mr. PECORA (interposing). Well, who is ?
Mr. BATCHELDER. Let me finish the story, if you please.
Mr. PECORA. Talk up a little louder. I cannot hear you.
Mr. BATCHEIDER. From the record, Mr. Shepard Morgan has made
an intensive study, from start to finish, of the Cuban loan, in cooperation with Mr. Geiger, who is sitting here on my left. Mr.
Rosenthail, who is an active man in the Habana branch, is also here.
Mr. Shepard Morgan, whom I have referred to, is a man who has
made over a period of time an intensive study of this matter, from
the record. My contact with the Cuban loan, aside from the
$40,000,000 loan, was in connection with a preliminary study, beginning with 1925, I think it was, or 1926, to get a first impression of
this public-works program and of the revenues and the way it would
operate, which involved a discussion with the Secretary of the
Treasury and the secretary of public works
Mr. PECORA (interposing). I do not hear you.
Mr. BATCHEM)ER. AS I s,ay, aside from that, my connection did
have to do with the $40,000,000 loan negotiated in February of 1930,
as I recall. That was the last financing under the public-works
program. I was in Habana perhaps 6 weeks altogether from start
to finish on that. That involved a number of discussions and negotiations with departmental officials, and particularly a negotiation
with the President, General Machaao, which was, as far as I know,
one of the most complete that I had with him on this program. That
resulted in the negotiation for and the purchase and sale of
$40,000,000 5%-percent public-works bonds. In the short time at my
disposal after 10 o'clock at night I have refreshed my memory on
that. But as regards the intermediate pieces of financing, I am not
anything like as well informed as are other men, who, as I say, I
am sure can give you a very satisfactory explanation of the details
of all those transactions.
Mr. PECORA. TO your knowledge did Mr. Shepard Morgan have
anything to do personally with the negotiations that led up to the
making of those loans?
Mr. BATCHELDER. I do not know. He was down there several
times. I do not know just exactly how extensive and comprehensive
his connection was with that phase of it. But I should think he
ought to know the whole story from start to finish.
Mr. PECORA. There was some inquiry made into these Cuban loans
by the Finance Committee of the United States Senate in the early
part of 1932. At that time Mr. Carl Schmidlapp was put forward,
tly fcy the Chase National Bank, as the officer of the bank
ed to submit to examination with regard to those loans.
2538
STOCK EXCHANGE PBACTICES
Mr. WILLIAMS. Mr. Pecora, might I explain that ?
Mr. PECORA. Will you please give your name for the record?
Mr. WILLIAMS. My name is A. M. Williams.
Mr. PECORA. All right.
Mr. WILLIAMS. At that time Mr. Shepard Morgan, who has been
in charge of Cuban financing since 1931, was out of the country, in
Cuba. He was not available to be sent down before the committee at
that time, so Mr. Schmidlapp, as the only one available, came down
to testify from the record, but not as having personal knowledge of
any phase of the Cuban business from beginning to end.
Mr. PECORA. I understood that Mr. Batchelder had something to
do with the active negotiations that led to the making of those loans,
and that he could testify from personal knowledge as well as from
hearsay. Whereas, Mr. Morgan, as I understood it, had very little
if anything to do with the active negotiations that led to the making
of the loans, and that his testimony, hence, would be based solely
upon hearsay.
Mr. WILLIAMS. Based upon the records.
Mr. PECORA. But almost entirely upon hearsay.
Mr. WILLIAMS. His testimony would be based upon the records of
the bank.
Mr. PECORA. Well, that is hearsay so far as he is concerned, isn't
it, Mr. Williams?
Mr. WILLIAMS. Except in so far as the official records of the bank
are the evidence of that institution.
Mr. PECORA. Well, he knew nothing about the events that are
chronicled in those records. His knowledge is based upon the
records, isn't it?
Mr. WILLIAMS. Yes, except
Mr. PECORA (interposing). Are there any witnesses here, Mr.
Williams, connected with the bank, or connected with the Chase
Corporation, who can testify with regard to the negotiations that
were actively conducted and which led to the making of those loans,
and who can give their testimony upon personal knowledge rather
than based upon hearsay?
Mr. WILLIAMS. Mr. fecora, in 1926^ when the negotiations were
begun, Mr. Robert I. Barr, a vice president of the Chase Bank, was
in charge of the Havana end of it and of all the Cuban business.
He was also in charge of the branches of the bank in Panama and
Colon. Mr. Barr personally handled the negotiations which led to
the fir^t stage of the financing, namely, the 10 million dollar credit
granted in 1927.
He personally handled the negotiations which led up to the second
stage of the financing, namely, the conversion of that 10-milliondollar credit into the revolving credit of 60 million dollars. Mr.
Barr handled the situation right down to about February of 1930,
at a time when I think he was in Germany, or at least was not
available, and then Mr. Batchelder went to Cuba with Mr. Bisbee,
on the last loan, namely, the 40-million-dollar public-worts bonds,
and the 20-million-dollar credit. So in the first stage of the financing the only officer of the bank directly familiar with it was Mr.
Barr, who, unfortunately, died in 1930.
The CHAIRMAN. Mr. Williams, you are a member of the firm of
attorneys for the Chase National Bank, are you?
STOCK EXCHANGE PRACTICES
2539
Mr. WILLIAMS. Yes, Mr. Chairman. And I may say that from
the beginning I have been connected with this Cuban financing,
either on the ground in Cuba or at the New York end, connected by
telephone or by cable or by letter.
The CHAIRMAN. Are you at present attorney for the Chase
National Bank?
Mr. WILLIAMS. I am a member of the firm of Kushmore, Bisbee &
Stearn, and we do counsel work for the Chase. We are not under
a retainer from the bank, but we are regularly its counsel on matters
referred to us.
The CHAIRMAN. The hearings held before the Finance Committee,
under Senate Resolution 19, part 4, pages 1943-1945 and on to subsequent pages, show that Mr. Schmidlapp seems to have been the
principal witness, and he made quite an extensive statement, and
was cross-examined quite fully on that matter.
Mr. WILLIAMS. He did, but he made his statement from the records of the bank and not from the standpoint of his knowledge on
the ground.
Mr. PECORA. And that is what you purpose Mr. Morgan to do before this committee, to give his statement from records made by
somebody else. He would have to rely on the records of the bank
made by somebody other than himself, as I understand it.
Mr. WILLIAMS. Yes, sir. Mr. Morgan was not on the ground when
the first two stages were negotiated. That is perfectly true. But
there is no one else connected with the bank who was. The one
who handled those stages is now dead, as I told you a moment ago.
Mr. PECORA. YOU are now putting forward Mr. Morgan in the
same way that Mr. Schmidlapp was put forward before the Senate
Finance Comimittee, as the one who was best qualified to answer
questions, because he had examined the records and made a study
of them. He was put forward for that reason rather than because
he had personal knowledge from active participation of the matters
that were the subject of inquiry.
Mr. WILLIAMS. AS the one who is best informed from an examination of the records, and from his own experience since 1931, to
give this committee a complete, accurate, and true statement of facts
concerning this Cuban financing from beginning to end.
Mr. PECORA. Well, I prefer to have those facts testified to by persons having personal knowledge of them rather than by persons
who have prepared themselves by an examination of the records in
the making of which they had no part. That sort of thing was done
with Mr. Schmidlapp before the Senate Finance Committee, and
my experience is that it is not calculated to get the best evidence.
Senator COTTZENS. Well, let us go ahead with Mr. Batchelder.
The CHAIRMAN. IS Mr. Schmidlapp present?
Mr. PECORA. I am willing to examine Mr. Schmidlapp on this, if
desired. He was put forward 2 years ago as the expert on these
loans. Now let him take the stand, and I am willing to examine
him. He is here, as I understand.
Mr. WILLIAMS. We merely suggest Mr. Morgan, Mr. Pecora, in
order to aid this committee.
Mr. PECORA. Well, all right. But I do not think you aid the committee by asking that one take the stand who, so to speak, is going
2540
STOCK EXCHANGE PEACTICES
to tell us something he has prepared himself to tell merely from an
examination of the records, and not from personal knowledge.
Mr. WILLIAMS. Mr. Schmidlapp would have to testify on that
basis during the years 1927 and 1928, because he did not personally
handle those transactions.
Mr. PECORA. But the bank put him forward as its witness before
the Senate Finance Committee nearly 2 years ago.
Mr. WILLIAMS. As the only witness who could
Mr. PECORA (continuing). Now, you want to put Mr. Shepard
Morgan forward for the same reason.
Mr. WILLIAMS. We are merely suggesting it in order to try to be
helpful to you in the circumstances.
Mr. PECORA. I S Mr. Freeman here ?
Mr. WILLIAMS. Yes,
Mr. BATCHELDER. I
sir.
should like to make clear in the matter of the
40-million-dollar loan
Mr. PECORA (interposing). I understand that Mr. Batchelder has
stated, either in words or in substance, to our examiners that he
was waiting for a chance to come before this committee to give
some testimony, and that he would show something.
Mr. BATCHELDER. NO ; I did not. That is absolutely incorrect.
Mr. PECORA. I wanted to accommodate Mr. Batchelder^ that is all.
Mr. BATCHELDER. Well, that is absolutely incorrect. I can testify
on the 40-million-dollar loan. I think I explained my position
thoroughly. I came down here prepared on another subject entirely.
Mr. PECORA. According to the testimony that you can give regarding this 40-million-dollar loan, it would seem to me, you could also
testify rather in detail with regard to the loans that preceded it,
because those loans were refunded by the 40-million-dollar loan.
Mr. BATCHELDER. Only in part.
Mr. PECORA. All right, in part.
Mr. BATCHELDER. And that was all preliminary work, and it was
all of very little practical value in considering the problems surrounding the $40,000,000 loan. That was very elemental.
The CHAIRMAN. DO I understand, Mr. Batchelder, that you know
about the $40,000,000 loan?
Mr. BATCHELDER. I was down in Cuba for a matter of 6 weeks
and carried on the negotiations. The contract was drawn down
there and signed.
The CHAIRMAN. And that is the only loan of which you have
personal knowledge?
Mr. BATCHELDER. That is the only loan of which I have/absolutely any first-hand knowledge or experience.
The CHAIRMAN. YOU might let him testify as to that.
Mr. PECORA. But, Mr. Chairman, that would take up the story
about in the middle. I want the beginning.
Mr. BATCHELDER. That is the last loan.
Mr. EMBREE. Mr. Pecora, might I say a word?
Mr. PECORA. Surely, Mr. Embree.
Mr. EMBREE. Although counsel are not prominent in this proceeding, we do bear a certain responsibility in the matter. Mr. Williams and I have worked on this case endeavoring to prepare this
testimony in a way that it would be most helpful to the committee.
STOCK EXCHANGE PEACTICES
2541
We were confronted at the outset with the deaths of Mr. Barr and
Mr. Callahan.
We then set about preparing for this hearing the man whom we
thought could give the clear and consecutive story; and I thoroughly
agree with you, Mr. Pecora, that wherever you can get direct
testimony you want that. But I do suggest in the interest of orderly
procedure that you allow us to put forward the witness we have
prepared to tell the consecutive story; with the understanding, of
course, that the committee would then call Mr. Batchelder and Mr.
Schmidlapp and Mr. Geiger, or anybody else, who (may have any
direct knowledge of the matter. But counsel would feel that they
had not done their duty, sir, if we did not urge that the testimony
go in in as orderly a way as possible.
Senator GORE. Can Mr. Morgan tell the story from beginning to
end?
Mr. EMBREE. Yes, Senator Gore; he can do so. He came prepared
to do that very thing,
Mr. WILLIAMS. Mr. Morgan has been in direct charge ®f all this
Cuban situation since 1931.
Senator GORE. That might make a good background.
Mr. WILLIAMS. And during that period of time of course he had
familiarized himself with*all that went on before, in order to be
in position to handle efficiently his current duties after that date.
Mr. PECORA. Well, then, if Mr. Morgan will indicate throughout
the course of his testimony when he testifies on the basis of personal knowledge and when he testifies on the basis of hearsay; and,
if the source of his hearsay are gentlemen who are present, he will
so indicate in the course of his testimony, I have no objection to
proceeding in that way.
Mr. WILLIAMS. Mr. Morgan will be very glad to do that.
Mr. PECORA. All right.
The CHAIRMAN*. Mr. Batchelder will stand aside for the present.
Is Mr. Morgan here ?
Mr. MORGAN. Yes, sir.
The CHAIRMAN. Please
stand, hold up your right hand, and be
sworn: You solemnly swear that you will tell the truth, the whole
truth, and nothing but the truth regarding the matters now under
investigation by this committee. So help you God.
Mr. MORGAN. I do.
TESTIMONY OF SHEPARD MORGAN, NEW YORK CITY, A VICE
PRESIDENT OF THE CHASE NATIONAL BANE OF THE CITY OF
NEW YORK
Mr. PECORA. Mr. Morgan, give us your full name and address for
the record.
Mr. MORGAN. Shepard Morgan, 18 Pine Street, New York.
Mr. PECORA. Are you connected with the Chase National Bank
of the city of New York?
Mr. MORGAN. I am.
Mr. PECORA. In what capacity?
Mr. MORGAN. AS a vice president.
Mr. PECORA. HOW long have you been
Mr. MORGAN. Since June 1,1930.
a vice president?
'2542
STOCK EXCHANGE PEACT1CES
Mr. PECORA. Prior to that time were you associated with the bank
in any other position or capacity?
Mr. MORGAN. N O ; I was a vice president of the Equitable Trust
Co. for about 5 weeks prior to the merger.
Mr. PECORA. And it was merged with the Chase National Bank
in 1930?
Mr. MORGAN. Yes.
Mr. PECORA. Were
you ever connected with the Chase Securities
Corporation ?
Mr. MORGAN. Never.
Mr. PECORA. Did you have any personal participation in any of
the negotiations that led to the making of these so-called " Cuban
loans " that are to be the subject of your examination?
Mr. MORGAN. Small credits of June 1932, December 1932, June
1933; yes. As to the others, no.
Mr. PECORA. The loans that preceded those credits are the principal loans and credits, are they not?
Mr. MORGAN. In dollars; yes. The later loans were for the purpose of maintaining Cuba's credit and the interest of the American
investor and of the Cuban Government, and included among the
American investors, of course, are the Chase Bank itself and its
associates, the participants in the so-called Bankers Credit.
Mr. PECORA. I t has been indicated here this morning by the gentlemen representing The Chase National Bank and the Chase Securities Corporation, that you had made a special study of some kind
of all the facts and records and the transactions relating to all
these Cuban loans in which the Chase Bank and the Chase Corporation took any part. Have you done so?
Mr. MORGAN. It was inevitable that I should, Mr. Pecora. I have
been in charge since 1931 of the Cuban finances.
The CHAIRMAN. What do you mean by " small credits " ?
Mr. MORGAN. Senator, in June 1932 it became apparent that the
revenues of the Cuban Government would not be sufficient to meet
the interest and maturing principal due on June 30 of that year. We
then organized a small group to assist Cuba in the emergency at that
time. There was a very large maturity of serial certificates then due,
in the amount of 6 millions and a quarter. For that reason we arranged a small bankers credit and assisted Cuba over that period.
The same procedure in general form was followed the following
December and in the following June, that is to say, June of 1933.
The CHAIRMAN. YOU spoke about organizing a small group. Who
composed that group ?
Mr. MORGAN. The Chase National Bank in the first instance, together with the Chase Securities Corporation, the National City
Bank, the Continental Illinois National Bank & Trust Co. of Chicago. These 3, or as the case may be, 4 institutions, were the participants in the bankers credit.
Senator GORE. When was the first series of loans now under consideration made ?
Mr. MORGAN. I beg pardon, Senator ?
Senator GORE. When was the first of the series of Cuban loans
now under consideration made?
Mr. MORGAN. On February 19, 1927.
STOCK EXCHANGE PEACTICES
2543
Senator GORE, HOW much?
Mr. MORGAN. $10,000,000.
Senator GORE. HOW many have been made altogether ?
Mr. MORGAN. Three major, three minor.
Senator GORE. The majors aggregate how much?
Mr. MORGAN. The amount of money involved in the three major
arrangements—80 million dollars.
Senator GORE. And the minor?
Mr. MORGAN. Aggregating about seven and a half millions.
Senator GORE. YOU will put the date of each one in the record,
will you not?
Mr. MORGAN. The date of the first agreement was February 19,
1927.
Mr. PECORA. That was the 10-million-dollar one?
Mr. MORGAN. Ten million dollars. The date of the second agreement was June 22, 1928.
Mr. PECORA. What amount?
Mr. MORGAN. That converted the original 10-million-dollar credit
into a revolving credit of 60 million dollars.
Senator GORE. That was " inflation " ?
Mr. MORGAN. That is a subject that I am not sympathetic with;
that is to say, inflation, Senator.
Senator GORE. I agree with you there.
Mr. MORGAN. The third agreement February 26, 1930.
Mr. PECORA. For what amount?
Mr. MORGAN. That was in part a refunding agreement refunding
30 million dollars of serial certificates, turning the 10 million dollars
of deferred payment work certificates into a 40-million-dollar bond
issue maturing in 1945; that is, into 15-year bonds. In addition the
banking group provided 20 million dollars of bank credit for the
further^ prosecution of the public works undertaken. In other
words, the banks went along with the public in the financing at that
time.
Senator COTJZENS. What date was that?
Mr. MORGAN. February 26, 1930.
The CHAIRMAN. Have you examined the hearings before the
Finance Committee that I referred to, printed in part 4 of those
hearings ?
Mr. MORGAN. Senator, I am sorry, I cannot hear.
The CHAIRMAN. I say, have you examined the hearings before the
Finance Committee printed in part 4, January 22 and February 20,
I think it is, 1932?
Mr. MORGAN. Yes, sir.
The CHAIRMAN. Those
hearings contain all those agreements, do
they not?
Mr. MORGAN. They do.
The CHAIRMAN. Then I submit there is no need to reprint them
here.
Mr. PECORA. NO. YOU may make references from time to time
to certain extracts from those agreements.
The CHAIRMAN. Beginning at page 1978.
Senator ADAMS. Mr. Morgan, just one inquiry: You speak of the
conversion of the 10-million-dollar loan into an 80-million-dollar
fund.
revolving
2544
STOCK EXCHANGE PRACTICES
Mr. MORGAN. Sixty million, Senator.
Senator ADAMS. Sixty. Would you give just a brief statement
as to how that was accomplished and the other contributions to that
fund?
Mr. PECORA. Senator Adams, I was going to suggest to you, before you press that question, that I am going to go into that in
detail in its chronological order, but if you want this information
3iow, very well.
Senator ADAMS. NO ; I was rather suspended in the air about that,
sand I am perfectly willing to wait.
Senator GORE. Can you state the total amount of Cuba's indebtedness when the first loan was made in '27?
The CHAIRMAN. YOU mean total indebtedness or indebtedness to
the bank?
Mr. PECORA. N O ; outstanding.
Senator GORE. Total external debt at the time that loan was made.
If you cannot answer it, why, all right.
Mr. MORGAN. Yes; we have it here, Senator. The total external
debt on June 30,1927, was $79,441,900.
Senator GORE. HOW jnuch is it now?
Mr. MORGAN. On May 31,1933, $77,929,700.
Senator GORE. I t has been reduced?
Mr. MORGAN. I t has been reduced.
Senator GORE. And how much did the Chase or your associates
lend during that interval altogether ?
Mr. MORGAN. I want to have this testimony as accurate as possible, Senator. In addition to the 77 millions wEIch I mentioned is
$81,250,000 of public-works debt, making a total of $159,179,700.
Senator GORE. HOW much did this public-works debt amount to
back in '27?
Mr. MORGAN. It had not yet begun to form itself.
Senator GORE. HOW is that?
Mr. MORGAN. There was no public-works debt in 1927. That was
the beginning of the project.
Senator GORE. That has all been incurred in the interval?
Mr. MORGAN. Yes.
Senator GORE. From
'27 down to date; and the other indebtedness
has remained practically the same, 77 millions?
Mr. MORGAN. I t has been slightly reduced, but in the meantime has
been included this sugar stabilization debt, which tended to maintain a level of debt.
Senator GORE. HOW much is that?
Mr. MORGAN. Originally 37 millions, and now in round figures 22
millions.
Senator GORE. When was that first made ?
Mr. MORGAN. The date of the sugar stabilization credit when first
'opened I have not in mind, but I should say about 1931 [after confering^dth associate]—1930; I am told.
Senator GORE. HOW much of this 81 millions public works now has
the Chase lent or participated in ?
Mr. MORGAN. Sixty.
Seimtor GORE. Who lent the other?
Mr. MORGAN. Sixty-one million two hundred and fifty thousand,
of May 31,1933.
Digitized foras
FRASER
STOCK EXCHANGE PRACTICES
2545
Senator GORE. And who lent the other?
Mr. MORGAN. That is the debt to the contractors, so-called; a third
lien on the public-works debt.
The CHAIRMAN. YOU did not mention the internal debt?
Senator GORE. Yes; how much is the internal debt?
Mr. MORGAN. The funded debt is $7,816,400 on June 30,1933.
Senator GORE. And how much was it in '27 ?
Mr. MORGAN. And in 1927, $10,614,200.
Senator GORE. NOW, can you insert at this place the annual revenues of Cuba during these years from ' 27 down to date ?
Mr. MORGAN. Yes, Senator. I will give the figures, Senator, exclusive of public-works revenues, and I will give them, if you desire,
as an addendum.
Senator GORE. Yes.
Mr. MORGAN. I should say that the Cuban fiscal year is the same as
that of the United States, from July 1 to June 30. The fiscal year
1927 to 1928 the revenues were $81,973,000; 1928-29, $79,325,000;
1929-30, $77,136,000; 1930-31, $59,581,100; 1931-32, $47,969,000;
1932-33, 1 month estimated, $43,969,000.
I should say by way of explanation that the figures for the last 3
years—that is, from 1930-31 to date—are preliminary and subject
to revision; but we believe them to be substantially correct.
Mr. PECORA. Will you give the expenditures for those years for
which you have given the revenues?
The CHAIRMAN. YOU did not give the revenue from public works.
Mr. MORGAN. I will give that in a moment, Senator, if I may.
Senator GORE. Insert it at this place.
Mr. MORGAN. YOU would like the public works revenues at this
point?
Senator GORE. I wanted it printed in the record at this point.
Mr. MORGAN. Beginning with 1927 and 1928 as before, the original estimates $16,000,000, the actual collections $17,147,925, a surplus of $1,147,927; 1928-29, original estimate $18,000,000, actual
collections $18,501,817, a surplus of $501,817; 1929-SO, original
estimates $18,000,000
Senator COTJZENS. YOU just read that.
Mr. MOGRAN. The same. Actual collections $18,121,937; surplus
of $121,537.
1930-31, again $18,000,000 original estimate; actual collections
$15,307,011, a minus difference of $2,692,989.
1931-32, original estimate $18,000,000; actual collections $10,756,485,
a minus difference of $7,243,515.
1932-33, the original estimate $18,000,000; the actual collections,
$9,380,431. That figure is subject to correction, but is approximately
correct.
Senator GORE. I S that all?
Mr. MORGAN. That is all, sir.
Mr. PECORA. Senator, I asked him to give the expenditures respectively for these years. I do not believe Mr. Morgan has done
that yet.
Mr. MORGAN. NO ; not yet, Mr. Pecora.
Senator GORE. This estimate, running around 17 or 18 million
dollars, does that cover interest and amortization? Those are all
serial bonds?
2546
STOCK EXCHANGE PEACTICES
Mr. MORGAN. These are the estimated collections from taxes,
Senator.
Senator GORE. I understand, but were these public-works securities serial bonds?
Mr. MORGAN. The second issue was composed of serial certificates.
Senator GORE. HOW much ?
Mr. MORGAN. All told, $50,000,000.
Senator GORE. What I was trying to get at was, the annual estimate
seems to run around 17 or 18 millions. Now I suppose part of that
covered interest and part amortization or sinking fund?
Mr. MORGAN. NO ; it is an estimate of receipts, not of expenditures.
Senator GORE. An estimate, in other words, of the special revenues
created by the public works law enacted in July 1925 ?
Mr. MORGAN. Quite true.
Mr. PECORA. And those apart from the ordinary revenues?
Mr. MORGAN. Quite true.
Senator GORE. And was designed to cover the debt service on these
public works?
Mr. MORGAN. Precisely.
Now, may I give the expenditures and ordinary budget?
Mr. PECORA. If you will.
Mr. MORGAN. 1927-28 actual expenditures, $32,893,000; 1928-29,
$86,765,000.
Mr. PECORA. What were the revenues that year?
Mr. MORGAN. The actual revenues, $79,325,000.
Mr. PECORA. SO there was a deficit, of about
Mr. MORGAN. $7,000,000.
Mr. PECORA. All right; go ahead.
Mr. MORGAN. 1929-30, $83,840,000.
Mr. PECORA. What were the revenues?
Mr. MORGAN. $77,136,000.
Mr. PECORA. SO there was a deficit there of about 6 million dollars?
Mr. MORGAN. Yes; 1930-31, $67,112,000.
Mr. PECORA. Compared to revenues of what amount?
Mr. MORGAN. $59,581,000.
Mr. PECORA. Another deficit of around 8 million dollars?
Mr. MORGAN. Seven and a half.
Mr. PECORA. All right.
Mr. MORGAN. In 1931-32, $47,189,000 actual expenditures.
Mr. PECORA. Compared with revenues of what amount?
Mr. MORGAN. $47,969,000, a small surplus of $780,000.
1932-33 expenditures of $45,369,000 against revenues of $39,491,000.
Mr. PECORA. A deficit of around 6 million?
Mr. MORGAN. Five million eight.
I should say again for the sake of complete accuracy that these
figures are subject to revision, but we believe them to be substantially correct.
Mr. PECORA. NOW, Mr. Morgan, I understand that you have made
some special study of the records and fact$ with regard to these
Cuban loans and are prepared to answer questions thereon?
Mr. MORGAN. From the record, yes.
Mr. PECORA. From the record. Are you familiar with that provision of the Cuban Constitution that is commonly known as the
Platt amendment?
STOCK EXCHANGE PRACTICES
2547
Mr. MORGAN. Yes, Mr. Pecora.
Mr. PECORA. That Constitution was adopted back in 1901, was
it not, or rather the amendment known as the Platt amendment was
adopted that year, is that right ?
Mr. MORGAN. Yes.
Mr. PECORA. And
it is known as article I I of the Constitution.
Have you before you the text of that provision?
Mr. MORGAN. We can turn to it. Here it is.
Mr. PECORA. It is very brief. Will you read it into the record ?
Mr. MORGAN. Article I I ?
Mr. PECORA. Yes.
Mr. MORGAN (reading):
That said Government shall not assume or contract any public debt to pay
the interest upon which, and to make reasonable sinking fund provisions for
the ultimate discharge of which, the ordinary revenues of the Island of Cuba,
after defraying the current expenditures of the Government, shall be inadequate.
Mr. PECORA. That constitutional provision was in full force and
effect during the times of the making of these loans that you have
already made a general reference to?
Mr. MORGAN. Quite true.
Mr. PECORA. Who was the President of Cuba at the time of the
extension of the first credit of 10 million dollars on February 19,
1927?
Mr. MORGAN. Gerardo Machado.
Mr. PECORA. When had he become the President of Cuba ?
Mr. MORGAN. May 20, 1925.
Mr. PECORA. At that time do you
know what the external indebtedness of Cuba was?
Mr. MORGAN. I have it here only for June 30,1926.
Mr. PECORA. What was it?
Mr. MORGAN. $84,768,800.
Mr. PECORA. DO you know anything about a message said to have
been made by President Machado when he was elected in 1925 that
he would not during his term of office increase the public debt of
Cuba?
(Mr. Morgan conferred with Mr. Geiger.)
Mr. PECORA. NOW, Mr. Geiger, I thought Mr. Morgan had made
a special study of all of this. If you have to advise and confer with
him to enable him to answer these questions, I have no objection to
your doing it, but let the record show that he needs it.
Mr. MORGAN. Will you repeat the question, please ?
Mr. PECORA. The reporter will read it.
The shorthand reporter (reading) :
Do you know anything about a message said to have been made by President Machado when he was elected in 1925 that he would not during his
term of office increase the public debt of Cuba?
Mr. MORGAN. President Machado in his public utterances during
the campaign was reported to have said that he would not increase
the external debt of Cuba for the sake of carrying out the publicworks program which he then had in mind.
Mr. PECORA. Are you familiar with testimony given before the
Senate Finance Committee of the Seventy-second Congress or an
inquiry held by that committee pursuant to Senate Resolution 19 as
175541—33—PT 5
18
2548
STOCK EXCHANGE PEACTICES
that testimony is recorded in part 2 of the printed minutes of that
investigation at page 740 thereof? I refer to the particular testimony of a Mr. Grosvenor Jones. Are you familiar with that
testimony?
Mr. MORGAN. I have not read it in probably a year and a half,
Mr. Pecora.
Mr. PECORA. Who was Mr. Grosvenor Jones?
Mr. MORGAN. He was in the Department of Commerce. What
his position was there I do not recall. He went to Habana at the
request of the Ambassador to make an inquiry.
Mr. PECORA. For whom?
Mr. MORGAN. For the Ambassador.
Mr. PECORA. Acording to the testimony of Mr. Jones appearing
at page 740 of those minutes he testified as follows in part—I am
reading from page 740 [reading] :
President Machado was elected to office on the pledge that during his term
of office Cuba would not increase her public debt. His predecessor, Dr.
Zayas, had had to issue $50,000,000 of bonds to clear up a lot of debt incurred
under his predecessor's regime. That was the regime of Menocal. But
Machado said solemnly that he was not going to increase the public debt of
Cuba.
Proposals were instituted after President Machado took office in
1925 for the construction of a series of public works which included
the State Capitol in Habana and a central highway, were they not?
Mr. MORGAN. Correct.
Mr. PECORA. And when was that public-works program first
adopted?
Mr. MORGAN. The date of the law which made that program effective was July 15, 1925.
Mr. PECORA. And that is known as the public-works law?
Mr. MORGAN. Correct.
Mr. PECORA. Under that law were any special revenues created
for the purpose of servicing any indebtedness that would be incurred in carrying out this public-works program?
Mr. MORGAN. Yes, Mr. Pecora.
Mr. PECORA. And do you know how much these special revenues
so created by this act of July 15, 1925, were estimated would be
yielded per annum?
Mr. MORGAN. At the beginning 16 million, and running from
then on 18 million per annum.
Mr. PECORA. And what proportion of these special revenues so
created were required to be set aside for the servicing of any indebtedness that might accrue in the furtherance of this publicworks program?
Mr. MORGAN. YOU mean by law in the beginning ?
Mr. PECORA. In the beginning; yes.
Mr. MORGAN. I don't know that. [After conferring with counsel.]
The whole thing was dedicated to the prosecution of the public
works.
Mr. PECORA. Are you sure of that?
Senator GORE. Can you break those figures down ?
Mr. MORGAN. 90 percent of the revenues.
Mr. PECORA. 90 percent of those revenues yielded from these
special revenue laws were to be set aside for the servicing of the
STOCK EXCHANGE PRACTICES
2549
indebtedness that was to be incurred in connection with the public
works program; that is right, is it?
Mr. MORGAN. Quite true.
The CHAIRMAN. The public works themselves did not yield any
revenues, did they? For instance, the Capitol and the highway?
Mr. MORGAN. Senator, it is my opinion that the public works
themselves were so designed as very largely to encourage, to stimulate, the revenues which were to pay for the works themselves.
For example, the major part of the public works revenues was the
gasoline tax and the license plates on automobiles. Prior to the
time of the construction of the highway obviously there was relatively small opportunity for the use 01 automobiles and the consumption of gasoline in Cuba. I t is a practice rather similar to
what we have adopted in many parts of our country, to apply a
gasoline tax to pay the service on road bonds. And you can find
indirect benefits in many of these revenues of a similar sort.
For instance, there were some port improvements.
I have one point there that I would like to introduce, with your
permission.
Mr. PECORA. Mr. Morgan, I will come to all that.
Mr. MORGAN. May I respond to the Senator's question first, Mr.
Pecora?
Mr. PECORA. We will get to that, step by step.
Mr. MORGAN. May I respond to the Senator's question first? This
is very pertinent to the whole operation. The Acting British Consul, in his report to his own Government in November 1925, said,
relative to the public works legislation, the following:
The public works law was passed on July 15, 1925, providing, among many
improvements, the building of a central highway from one end of the island
to the other, with branches connecting it with all the towns and ports along
the coast. The necessity for this road from every standpoint is very apparent.
It will be a means of obtaining better transport facilities for the sugar products and Cuba's source's of wealth, which up to the present have been inaccessible, will be placed on the market, thereby giving a great impetus to commerce.
It will also give employment over a period of years to many who are at present
-suffering from the general trade depression.
Mr. PECORA. When was that communication of the British Consul?
Mr. MORGAN. November 1925.
Mr. PECORA. When was it brought to the notice or attention of
anyone connected with the Chase National Bank on the Chase
Securities Corporation for the first time?
Mr. MORGAN. I can only say when it was brought to my attention.
Mr. PECORA. When was that?
Mr. MORGAN. In the course of the study made 2 weeks ago, on
rehearsing the economic conditions in Cuba for the last 20 years.
Mr. PECORA. YOU state 2 weeks ago ?
Mr. MORGAN. Reported to me 2 weeks ago. But the fact remains that this memorandum was written in 1925. Whether the
statement was made to me now, or then
Mr. PECORA. What I am trying to find out is what knowledge anyone in the Chase Bank or the Chase Securities Co. had of those
official advices by the British consul to his Government.
Mr. MORGAN, i t was a matter of universal knowledge in Cuba at
:the time, and it was observed by our own people who went there.
2550
STOCK EXCHANGE PRACTICES
Mr. PECORA. I do not think that answers the question. I have not
asked you for matters of universal knowledge. I am asking you
when, for the first time, so far as you have been able to ascertain in
your special study of this whole situation, anyone connected with
the Chase Bank or the Chase Securities Corporation learned of these
official advices conveyed in November 1925 by the British consul
to his Government.
Mr. MORGAN. 1925.
Mr. PECORA. Who first learned of it then, in
Mr. MORGAN. I did, Mr. Pecora.
Mr. PECORA. In 1925 you first learned of it?
Mr. MORGAN. I learned of it 2 weeks ago.
your institution?
I cannot see what
the pertinency of this inquiry is. The fact is there, that the report
was made in 1925.
Mr. PECORA. Please let us judge of the pertinency. You just
answer the questions, will you? You first learned of this communication 2 weeks ago, is that right.
Mr. MORGAN. I have so testified.
Mr. PECORA. NOW, to your knowledge did anybody
Mr. MORGAN. May I
Mr. PECORA. I t is rather
unsatisfactory to be interrupted in askingyou a question by one of your associates conferring with you, so asto distract your attention from my question.
Mr. GEIGER. I apologize, Mr. Pecora.
Mr. MORGAN. Will you repeat the question, please ?
Mr. PECORA. I had not finished it. I had just barely got startedwhen Mr. Geiger distracted your attention from my question.
To your knowledge did anybody in either the Chase Bank or theChase Securities Corporation learn of the sending of this communication at the time it was sent?
Mr. MORGAN. I have no information on that whatever.
Mr. PECORA. Was there any estimate as to what would be the
aggregate cost, the total cost of this public-works program, at the
time of the enactment of this public works law on July 15,1925 ?
Mr. MORGAN. There were a great variety of estimates, dependingupon the individual who made them.
Mr. PECORA. What were the official estimates that were to beverified by the Government ?
Mr. MORGAN. Again there were variations.
Mr. PECORA. What were they, giving us the range?
Mr. MORGAN. One estimate that was reported at the time was
$325,000,000 for a very large and ambitious program.
Mr. PFCORA. What was the final estimate as to the total cost of
this entire public-works program, which included the construction
of the capitol and the building of this central highway from one
end of the island to the other?
Mr. MORGAN. I do not think one can answer that, Mr. Pecora,.
because the program was progressively diminished as time went on
and economic conditions became more severe.
Mr. PECORA. But this program was first brought to the attention*
of the law-making body of Cuba at the time of the enactment of"
the public works law in July 1925.
Mr. MORGAN. Quite correct.
STOCK EXCHANGE PRACTICES
2551
Mr. PECORA, Were not any final estimates arrived at by that time ?
Mr. MORGAN. The contemporary estimate I have already given.
Mr. PECORA. $325,000,000.
Mr. MORGAN. I t was an estimate for the whole ambitious program.
I t covered a very ambitious program, which was not carried out.
Mr. PECORA. Fbr what period of time were the special revenues
that were designed to meet carrying charges on indebtedness to be
incurred for the construction of this public works program?
Mr. MORGAN. Ten years.
Mr. PECORA. Was it not 5 years ?
Mr. MORGAN. Ten.
Mr. PECORA. Were
not these temporary revenues or special revenues provided to be collected for a period of 5 years expiring on June
30, 1930?
Mr. MORGAN. 1935.
Mr. PECORA. Will you
point to any provision of the law which
makes it 1935?
Mr. MORGAN (after conferring with associates). I am reading from
article 20, Mr. Pecora, under the heading " Duration of the Taxes ".
^Heading:]
The taxes specified in nos. 14, 15, 10, 17, 18, and 19 are established as tempoxary and shall be in force only for a period not longer than 10 years as may be
required to pay in full for the works that are carried out, after which period
iflieir collection shall cease.
Mr. PECORA. Thereafter was that law amended?
Mr. MORGAN. May I finish the clause ? [Continuing reading:]
And there shall remain in force as permanent taxes only the tax on traffic
-and locomotion of vehicles and the tax on gasoline specified in nos. 12 and 13,
in order to apply the proceeds therefrom to the conservation and improvement
of the works constructed, particularly the highway.
Mr. PECORA. Thereafter was that law amended so as to extend the
time for which these special revenues have been created?
Mr. MORGAN. I t was.
Mr. PECORA. HOW much
of an extension of time was provided for
!by the amendatory act?
Mr. MORGAN. An additional 10 years.
Mr. PECORA. After the enactment of this law of July 15, 1925, the
Government embarked upon the construction of these public improvement^, did it not?
Mr. MORGAN. Yes.
Mr. PECORA. What
provision was made for meeting the current
^expenses of those public improvements at first?.
Mr. MORGAN. The preliminary expenses, naturally, were small>
because they were mostly studies, surveys, and so forth. They were
paid out of the current revenue.
Mr. PECORA. Out of the current special revenues?
Mr. MORGAN. Yes.
Mr. PECORA. Created by the law of 1925.
Mr. MORGAN. Yes.
Mr. PECORA. Were so-called public works certificates
given in payment for the work done up to the time of the extension of this
$10,000,000 credit in February 1927?
Mr. MORGAN. I never heard of any.
2552
STOCK EXCHANGE PRACTICES
Mr. PECORA. NOW, The Chase National Bank, in conjunction with
the banking firm of Blair & Co., were the successful bidders.
Mr. MORGAN. On a competitive bid.
Mr. PECORA. On a competitive bid to finance to the extent of
$10,000,000 these public works.
Mr. MORGAN. Correct.
Mr. PECORA. And the contract entered into between the Cuban
Government and The Chase National Bank and Blair & Co. was
entered into, I believe you have already said, on February 19, 1927.
Mr. MORGAN. A year and 7 months after the passage of the act.
Mr. PECORA. Can you give the essential features of that agreement,
briefly?
Mr. MORGAN. I want this to be accurate (after consulting papers)^
The agreement provides, first, that the Republic of Cuba was empowered to issue and deliver to the contractors of the central highway deferred-payment work certificates up to but not exceeding
$10,000,000.
Mr. PECORA. That was for the work already done.
Mr. MORGAN. Already under way.
.Mr. PECORA. Under way; and a portion of it which has progressed
up to that time.
Mr. MORGAN. Yes.
Mr. PECORA. In other
words, the contractors who did that work for
the Government received so-called " public-works certificates."
Mr. MORGAN. Countersigned by the Secretary of the Treasury and
issued by .the Secretary of Public Works.
Mr, PECORA. And certificates of that kind had been issued by the
Government to those contractors to an aggregate amount of about
$10,000,000.
Mr. MORGAN. NO, they had not.
Mr. PECORA. When were they issued?
Mr. MORGAN. They were issued currently, under the terms of the
agreement, but the amount issued was never over $4,000,000,1 think.
[After consulting an associate:] The amount issued actually under
this agreement was only about $4,250,000.
Senator COUZENS. Were they complete obligations of the Cuban
Government?
Mr. MORGAN. They were; yes.
Mr. PECORA. Did the Chase National Bank and its associate in
this financing, namely, Blair & Co., in substance agree under this
agreement ox February 19, 1927, to purchase from the contractors
deferred-payment work certificates which had been issued by the
Government for this construction work, to an amount not exceeding
$10,000,000, and that it would so purchase those certificates during
the period commencing on July 1, 1927, and terminating on June
30, 1930?
Mr. MORGAN. If you agree, or approve, I would rather develop
this in a completely orderly way, as an analysis of the agreement.
I can answer the questions piecemeal if you like.
Mr. PECORA. I just want to get certain important features, and not
get all the details of the agreement into the record, because I think
it would be needlessly encumbering the record.
Mr. MORGAN. The answer to the question is yes.
STOCK EXCHANGE PRACTICES
2553
Mr. PECORA. What rate of interest did those certificates bear?
Mr. MORGAN. 6 percent.
Mr. PECORA. HOW were they secured as to payment?
Mr. MORGAN. AS a first lien on the revenue.
Mr. PECORA. That is, on the special revenues created by the act of
1925.
Mr. MORGAN. Correct.
Mr. PECORA. Not the ordinary revenues, but the special revenues
under the act of 1925.
Mr. MORGAN. Yes.
Mr. PECORA. AS a matter
of fact, Mr. Morgan, had not the Chase
Bank sought to enter into financing agreements with the Cuban
Government as far back as 1926 with regard to this public-works
program ?
Mr. MORGAN. Numerous plans were explored, Mr. Pecora. I do
not know whether you can call it seeking to enter into an engagement. It was in the normal course of business, inquiring what could
be done.
Mr. PECORA. With a view of getting a contract to do the financing.
Mr. MORGAN. Quite true; naturally.
Mr. PECORA. Who was the American Ambassador to Cuba in 1926
and 1927?
Mr. MORGAN. Enoch Crowder.
Mr. PECORA. General Crowder?
Mr. MORGAN. General Crowder.
Mr. PECORA. Had any question been raised in 1926 and in 1927,
prior to the making of this agreement of February 19, 1927, with
regard to the legality or validity of this public-works program, on
the ground that it involved or might involve an expenditure of
moneys and the contraction of an indebtedness in violation of the
provisions of the so-called " Platt amendment? "
Mr. MORGAN. I never heard of it.
Mr. PECORA. YOU never heard of it. Now, in your special study
of this subject, in order to qualify you to testify to it before this committee, did you by any chance come across a memorandum addressed
to a Mr. Tinker, of the Chase Bank, dated March 22, 1926? For
your guidance, Mr. Morgan, you might look among your records for
a document marked " 56-4-A."
Mr. MORGAN. I have the material before me.
Mr. PECORA. I S this the first time your attention has been called
to that memorandum?
Mr. MORGAN. NO.
Mr. PECORA. When I asked you about it before, you apparently
did not recall it.
Mr. MORGAN. Quite.
Mr. PECORA. Who was Mr. Tinker, the gentleman to whom this
memorandum was specifically addressed?
Mr. MORGAN. Edward R. Tinker, president of the Chase Securities
Corporation.
Mr. PECORA. He is now traveling about the country, is he not?
Mr. MORGAN. I do not know where Mr. Tinker is.
Mr. PECORA. Can any of your associates inform us about that?
Mr. AU)RICH. Mr. Pecora, Mr. Tinker is on an automobile trip,
and
I have done everything I can to locate him, and I have asked
2554
STOCK EXCHANGE PRACTICES
his secretary to get in touch with me. I have not asked him myself,
but I have asked our people to tell him to get back.
The CHAIRMAN. IS he now connected with the Chase Securities
Corporation?
Mr. AiiDRiCH. He is not at present connected with the Chase Securities Corporation. To make the record perfectly clear, he is doing
some special work for the bank in connection with the reorganization
of the Wesco Theaters Co., but he is not an officer of the bank.
Mr. PECORA. I have just been advised, Mr. Aldrich, by Mr. Tuttle
that word has been received from Mr. Tinker by telephone substantially to the effect that he will be here later this week.
Mr. TuTTiiE. Mr. Tinker was given a release by Mr. Meehan until
Friday. He will get in touch with Mr. Sandefur Friday and find
out when he will be required. Mr. Meehan said he would not be
required until next week.
Mr. PECORA. On the first page of this memorandum to Mr. Tinker,
which bears date March 22, 1926, is it not set forth as follows
[reading]:
On Sunday, March 21, about 3 o'clock in the afternoon, General Crowder
approached Mrs. Graves at the Jockey Club, stating he was very anxious to see
me at once. Upon learning that I was at the Country Club he immediately
came there and sent for me on the golf links. He seemed to be much exercised. He stated that he had heard persistent rumors that Blair & Co. and
the Chase Securities Corporation were attempting to negotiate a loan to the
Cuban Government of $100,000,000, and that, in view of the fact that their
indebtedness was already $98,000,000 and the financial and economic condition
of the country was in such a deplorable state, he found it very difficult to
credit the above statement. He stated that the character of his information
was such, however, that he could not disregard it, and, as a matter of fact,
Cespedes. was supposed to present to him a proposed project today (Monday,
March 22) ; that as he understood it, they were attempting to make a loan to
the government, but under another name, and that we all know, if any difficulty arose, the United States Government would be appealed to to make
Cuba comply with her engagements.
Senator GORE. What are you reading from?
Mr. PECORA. I am reading from a memorandum addressed to a
Mr. Tinker, on March 22, 1926, by a Mr. Graves. Is that right,
Mr. Morgan?
Mr. MORGAN. Yes.
Mr. PECORA. The initials
at the end of this memorandum are the
initials of a Mr. Graves.
Mr. MORGAN. Correct.
Mr. PECORA. Who was Mr. Graves at that time?
Mr. MORGAN. He was on detached service from the bank, at the
Havana branch; now vice president of the Chase National Bank.
Mr. PECORA. Does this memorandum of Mr. Graves to Mr. Tinker
further say:
General Crowder stated that he and I had been friends for a long time,
and he thought it was only fair to tell me of the situation, because, as he
saw it, it placed upon him the responsibility of making an immediate protest
to the State Department in Washington. He called my attention to Article 2
of he Platt amendment and further said that he supposed these people had
secured advice from American lawyers who really were insufficiently acquainted
with the proper construction of the constitution of Cuba, of which the Platt
amendment was a part.
Do you find that in that memorandum, Mr. Morgan?
Mr. MORGAN. I beg your pardon?
STOCK EXCHANGE PRACTICES
2555
Mr. PECORA. DO you find that in the memorandum?
Mr. MORGAN. I t is there; yes.
The CHAIRMAN. When was the branch of the Chase National Bank
established in Habana?
Mr. MORGAN. I t was a successor institution to an office of the
American & Foreign Banking Corporation, which the Chase Bank
took over in January 1925. [After conferring with an associate:] It
was not a successor organization. It purchased the assets and assumed the liabilities of this office of the American & Foreign
Banking Corporation.
Mr. PECORA. I show you, Mr. Morgan, what purports to be a photostatic reproduction of the entire memorandum from which I have
read only a part which was addressed by Mr. Graves to Mr. Tinker
on March 22, 1926. Will you be good enough to look at it and tell
us if you can identify it as being a true and correct copy of such a
memorandum sent by Mr. Graves to Mr. Tinker ?
Mr. MORGAN (after examining paper). I do identify it.
Mr. PECORA. I offer it in evidence and ask that the entire memorandum be spread on the record.
The CHAIRMAN. Let it be admitted.
(The document referred to, memorandum, March 22, 1926, Graves
to Tinker, was received in evidence, marked "Committee Exhibit
No. 30 ", and the same will be found on page 2608.)
Mr. MORGAN. Mr. Pecora, I would like to call your attention at
this point to the fact that this relates to an undertaking that never
took place.
Mr. PECORA. It had relation to a public-works program, did it not?
Mr. MORGAN. But it never took place.
Mr. PECORA. I say, it had relation to a public-works program contemplated by the Cuban Government.
Mr. MORGAN. It was a $100,000,000 external loan, according to this
statement, and that loan was not placed.
Senator COUZENS. What was the purpose of the $100,000,000 loan?
Mr. MORGAN. This was one of the numerous plans exploring the
public-works situation in Cuba, Senator, and, of course, this $100,000,000 was for the purpose of financing a public-worts program.
Senator COUZENS. SO, your answer to Mr. Pecora's question is yes,
that it was in connection with public works.
Mr. MORGAN. But a project that never took place.
Senator COUZENS. I understand; but you are evading the question*
Mr. MORGAN. But he is discussing the legality of a project that
never took place.
Senator COUZENS. He was not doing anything of the kind. He
asked you the question whether this was in connection with public
works, and you evaded the question. I want to know whether it was
yes or no.
Mr. PECORA. DO you know, Mr. Morgan
Senator COUZENS. DO you want an answer to that question?
Mr. PECORA. Yes; I do.
Mr. MORGAN. I supposed
I had answered it. If I did not, I apologize to you. I meant to say yes.
Senator GORE. DO you know whether it was abandoned on account
of this Crowder protest or not?
2556
STOCK EXCHANGE PEACTICES
Mr. MORGAN. Senator Gore, would you repeat that? I did not
hear it.
Senator GORE. DO you know whether or not it was abandoned on
account of this Crowder protest?
Mr. MORGAN. NO ; I do not.
Mr. PECORA. Have you read
this memorandum of Mr. Graves to
Mr. Tinker in full at any time heretofore?
Mr. MORGAN. Yes.
Mr. PECORA. When did you read it for the
Mr. MORGAN. About 3 or 4 weeks ago.
Mr. PECORA. Was that the first knowledge
first time ?
you had of the existence
of this memorandum ?
Mr. MORGAN. I t was.
Mr. PECORA. Are you
familiar with the last paragraph of this
memorandum of Graves to Tinker, which reads as follows (reading) :
It is clear that the bank should preserve cordial relations with the United
States Ambassador, but, while not telling him anything that would damage
our interests in Cuba, to be careful not to make any statements which he
might easily learn were contrary to facts.
Are you familiar with that statement in this memorandum?
Mr. MORGAN. Yes.
Mr. PECORA. Have
you, from any sources that have become available to you in any way in order to enable you to make this special
study oi this Cuban loan situation, learned what Mr. Graves and
Mr. Tinker had in mind at that time.
Mr. MORGAN. Yes; I have.
Mr. PECORA. What did you learn about that?
Mr. MORGAN. Some 4 years before, or 3 years before, a large piece
of financing was done by an important banking house in New Y ork,
in which General Crowder was deeply interested—and when I say
u
deeply interested " I mean precisely that
Senator GORE. YOU mean in an official way?,
Mr. MORGAN. Completely so, Senator; and he naturally felt, or
our representatives, so I am informed, naturally felt that Ambassador Crowder believed that any further financing should go to
the same house. Accordingly our representatives told him everything that had happened, but they did not say what was, in their
minds, to happen in the future.
Mr. PECORA. What do you mean when you say they told him
everything that had happened, but did not tell him what they had
in mind regarding any future relations ?
Mr. MORGAN. They were entirely prepared to report to him on
matters on which we had come to an agreement.
Mr. PECORA. In other words, they were willing to tell him what
was already a matter of public record ?
Mr. MORGAN. NO, indeed. Before it became a matter of public
record. But they were willing to inform him of conclusions reached.
Mr. PECORA. DO you know what reason they might have had at
that time not to take the American Ambassador into their confidence
with regard to future plans for financing the Cuban Government?
Mr. MORGAN. Simply banking competition.
Mr. PECORA. What is that?
Mr. MORGAN. Banking competition.
SIOCK EXCHANGE PRACTICES
2557
Mr. PECORA. Were they afraid that General Crowder might break
the confidence for the benefit of some competitor?
Mr. MORGAN. There was no use in embarrassing the general with
confidences when he was already anxious to see that the financing
should continue the line already set down.
Mr. PECORA. Let us see what further Mr. Graves said to Mr.
Tinker in this memorandum that you first learned about 3 or 4
weeks ago. I am reading from the memorandum, our committee
JExhibit No. 30 in evidence as of this date:
I pointed out to him that I represented neither Blair & Co. nor the Chase
•Securities, although both organizations were friendly with the Chase Bank;
that any financial plans or discussions they may have had with the Cuban
•Government were matters which I was not in a position to discuss. I told
him that I would assume, however, the first thing any group of bankers would
toe sure of was that any plans they had would not run counter to the provisions
of the Cuban Constitution or the Platt amendment, and that I would presume
that any such groups would not only have the best legal advice from American lawyers, but from the most outstanding legal talent in Cuba as well.
General Crowder said, you know, I believe in treating all American interests
alike, to which I replied that I was well aware of this. He said that 2 or 3
years ago representatives of Blair & Co. came to Cuba in an attempt to loan
the Cuban Government 40 million dollars, but they did not call on him and they
had not even had the courtesy of calling on him this time either.
I made no comment on these statements, but told him that I would attempt
to find out something about the situation that night, and if I were successful
I would communicate with him as soon as I was in position to do so.
And then further on he says:
In view of the fact that General Crowder was to have the plans submitted
to him today and he knows that Mr. Tinker and Mr. Benard had been here and
that I had been with them, it would be foolish to pretend utter lack of knowledge of their interest in the public-works program, and in view of the fact that
General Crowder expected to hear from me in some form it was better I
should communicate with him and tell him that Mr. Benard had not returned
but I would get in touch with him immediately upon his arrival in Habana,
so that he might explain to General Crowder any ideas they might have on
the financing plan. Failing to do so, I expected to get into communication with
Mr. Tinker during the course of the day and would let him know whatever
Mr. Tinker wished to communicate to him.
Do you believe that these statements embodied in this memorandum, relating, as they purport to do, to conversations between
Mr. Graves and General Crowder, then the American Ambassador
to Cuba, indicate a disposition on the part of Mr. Graves and the
interests he represented to keep General Crowder in the dark with
regard to their proposed financing plans for the Cuban Government?
Mr. MORGAN. I do not want to judge their motives, Mr. Pecora.
Mr. PECORA. I beg your pardon ?
Mr. MORGAN. I do not want to judge their motives. All that I
know is that this was a preliminary project. That this was entirely in the exploratory stage. That the State Department was
always advised in advance of any conclusion of a program.
Mr. PECORA. Well, what do you suppose Mr. Graves had in mind
then when he said to Mr. Tinker in this memorandum " it would
be foolish to pretend utter lack of knowledge of their interest in
the public-works program * * * " ? Was he counselling Mr.
Tinker not to commit himself to a profession of ignorance with
regard to these proposed financing plans?
Mr. MO&GAN. I should assume that the 'memorandum means
2558
STOCK EXCHANGE PRACTICES
Mr. PECOBA (interposing). That the memorandum speaks for
itself?
Mr. MORGAN (continuing). That the memorandum means exactly
what it says.
Mr. PECOKA. And it might be construed as meaning just what I.
have indicated, might it not?
Mr. MORGAN. I will not go as far as that, Mr. Pecora.
Mr. PECORA. Your special study has not qualified you to go that
far?
Mr. MORGAN. Certainly not.
Mr. PECORA. All right. What do you suppose, if you can tell
us, Mr. Graves had in mind when he said in the concluding paragraph of this memorandum to Mr. Tinker:
It is clear that the bank should preserve cordial relations- with the United
States Ambassador, but while not telling him anything that would damageour interests in Cuba, to be careful not to make any statements which hemight easily learn were contrary to facts.
Mr. MORGAN. I have already explained the background of that.
The statement can speak for itself.
Mr. PECORA. What meaning does it convey to you with regard
to what was in the minds of Mr. Graves and Mr. Tinker at this
time?
Mr. MORGAN. Mr. Pecora, I cannot enter into the mentalities of
those men so long ago, or even now, for that matter.
Mr. PECORA. Mr. Morgan, I understand you made a special study
of this whole situation, and that in the course of that special study
you came across this memorandum 3 or 4 weeks ago.
Mr. MORGAN. Quite true.
Mr. PECORA. And I presume you have read it, digested it, and f ulljr
considered its import, meaning, and significance, have you?
Mr. MORGAN. Quite true ; and I have already stated it, Mr. Pecora.
Mr. PECORA. DO you think it is a violent assumption to say that,
from the language of this concluding paragraph of Graves' memorandum to Tinker, Graves was advising Tinker that the representatives of the Chase Bank or Blair & Co. or the Chase Securities Corporation should be careful not to disclose anything to the
American Ambassador to Cuba, at that time General Crowder, that
might be harmful to the interests of those financial institutions?
Mr. MORGAN. I leave the paragraph as it stands. I cannot explain,
the mentalities of those men, Mr. Pecora. I think that it is not
proper to ask me.
Mr. PECORA. Well, on the basis of your own understanding of the
meaning of the words employed by Graves in this memorandum to>
Tinker do you think that it is a violent assumption that what Graves
was advising Tinker to do was to preserve cordial relations with the
American Ambassador, but at the same time refrain from telling;
him anything that might be detrimental to the best interests of the
bank?
Mr. MORGAN. I can only stand bv the record.
Mr. PECORA. What is that?
Mr. MORGAN. I can only stand by the record.
Mr. PECORA. What record are you referring to now?
Mr. MORGAN. This.
STOCK EXCHANGE PRACTICES
2559
Mr. PECORA. This memorandum?
Mr. MORGAN. Quite true.
Mr. PECORA. Well, can you not answer my question which
Ibased upon the meaning of this last paragraph?
Mr. MORGAN. I cannot interpret this paragraph beyond what
says.
Senator COUZENS. May I ask you: When you discovered that
the files did you confer with Mr. Graves or with Mr. Tinker
ivith anybody «lse in the company?
Mr.
is
it
in
or
MORGAN, NO.
Mr. PECORA. YOU do not know what interpretation Mr. Graves or
Mr. Tinker placed on this memorandum then, do you?
Mr.
MORGAN. NO.
The CHAIRMAN. YOU say that the proposal that was in the minds
of Mr. Tinker or Mr. Graves never went through. When did that
proposal terminate?
Mr. MORGAN. It died aborning, I think, Senator.
Mr, PECORA. AS a matter of fact, Mr. Morgan, while the immediate
plan of financing referred to in this memorandum might have died
aborning, is it not true that subsequent to March 22, 1926, the date
of this memorandum, the interests that were represented bj Graves
and by Tinker at that time did in February of the following year
enter into an agreement to finance these deferred payment publicworks certificates in the amount of 10 millions of dollars, issued
under this public-works program?
Mr. MORGAN. A totally different project in conception and in kind
Mr. PECORA. I S it not & fact that in this memorandum of Graves
to Tinker the question of whether or not any part of this public-works
program would constitute a violation of the Platt amendment was
in General Crowder's mind, and he brought it up for discussion with
Mr. Graves?
Mr. MORGAN. The document relates exclusively to the 100-milliondollar project as Ambassador Crowder had it in mind, which was
an external loan, and which General Crowder gave as a horseback
opinion to be contrary to the Platt amendment.
Mr. PECORA. It was his horseback opinion that it was, contrary to
the Platt amendment. Did your people discard that opinion from
your calculations or their contemplation of the future financing that
they were to do?
Mr. MORGAN. Indeed not. The future financing was scrutinized
most carefully from the standpoint of the Platt amendment.
Senator GORE. This 100-million-dollar loan that was proposed and
was rejected
Mr. MORGAN, Senator Gore, will you pardon me a moment so that
I may finish the answer I.was giving to Mr. Pecora's question?
Senator GORE. Yes. I beg your pardon for interrupting you.
Mr. MORGAN. I t was scrutinized most carefully from the standpoint of the Platt amendment. I t was passed upon by competent
attorneys in New York and competent attorneys in Habana. The
attorney in Habana, by the way, is a judge who is a member of the
World Court, and at one time was its president. The subsequent
financing—not this program, which never went through, but the
subsequent financing was always reported to the State Department,
2560
STOCK EXCHANGE PRACTICES
and the State Department answered in its usual form that it
no objection.
Senator GORE. This 100-million-dollar proposal, which was rejected, which you say was entirely different from the one that was
afterward adopted, did that include either the capitol building or
this highway that was subsequently constructed?
Mr. MORGAN. The 100-million-dollar—I do not know, Senator.
Mr. PECORA. What was this 100-million-dollar program that is*
referred to in this memorandum ?
Mr. MORGAN. That is all I know about it.
Mr. PECORA. That is all you know about it?
Mr. MORGAN. Yes.
Mr. PECORA. All you
know about it is the reference to it in this
memorandum?
Mr. MORGAN. Yes.
Mr. PECORA. Your
special study did not prompt you when youc
came across this portion of the memorandum to make further inquiries as to what that 100-million-dollar program was?
Mr. MORGAN. Mr. Pecora, there were an immense number of plansthat were explored all the way through this Cuban financing from*
beginning to end.
Mr. PECORA. That does not answer my question, Mr. Morgan. Areyoiian attorney?
Mr. MORGAN. Oh, no.
Mr. PECORA. I thought
you were, because you answer questionsthe way lawyers are reputed to answer them.
Mr. MORGAN. That is a compliment that I supposed I would never
be good enough to get.
Mr. PECORA. That is not a compliment, because it is said thafc
lawyers make the worst witnesses.
Senator GORE. YOU do not know anything about the projects t h a t
were included in this original proposal of 100 million dollars?
Mr. MORGAN. NO ; I do not, Senator.
Mr. PECORA. SO far as you know to the contrary, this 100-milliondollar program referred to in this memorandum was part and parcel
of the program initiated under the enactment of the public works
law on July 15,1925?
Mr. MORGAN. Quite true.
Mr. PECORA. Wait a minute. [Continuing:] Which you have already said was estimated to cost a total of $325,000,000?
Mr. MORGAN. Yes.
Mr. PECORA. SO that
this $100,000,000 program referred to in the&
memorandum could very well have been part of that program?
Mr. MORGAN. Oh, I think it was.
Mr. PECORA. All right. And General Crowder, according to Mr;.
Graves' advices to Mr. Tinker, had serious and grave doubts at
that time, in March 1926, as to whether or not that program would!
constitute a violation of the Platt amendment, did he not?
Mr. MORGAN. He appears to have; yes.
Mr. PECORA. Yes. Was that concern of General Crowder's brought
to the attention of the attorneys representing the Chase Bank or*
the Chase Securities Corporation of Blair & Co.?
Mr. MORGAN. TTnauestionablv.
STOCK EXCHANGE PEACTIOES
2561
Mr. PECORA. Who were the attorneys?
Mr. MORGAN. Kushmore, Bisbee & Stern, in New York, and
Antonio S. de Bustamante, in Havana.
Senator COUZENS. Have you a copy of those opinions here?
Mr. MORGAN. N O ; I have not.
Senator COUZENS. I would like to have them.
Mr. PECORA. I was just going to call for them, Senator, because
we have no copies of them.
Did they submit any opinions in writing about their conclusions
on this subject?
[Mr. Williams submitted opinions on the validity of the financing that actually went through.]
Mr. PECORA. I would suggest that the gentleman who made a special study of this whole program tell us what the knows about it
Mr. WILLIAMS. I beg your pardon.
Mr. PECORA. Because I imagine that a special study, which includes a consideration of the question of the legality of these loans,
ought to include attention to this particular subject.
Mr. WILLIAMS. Naturally includes all the legal details involved
in it.
Mr. PECORA. DO you know anything about any such opinions, Mr.
Morgan?
Mr. MORGAN. At the time of such financing as was actually put
through, unquestionably.
Mr. PECORA. Have you seen any such opinions rendered by counsel
to the bank or to the Securities Corporation or to Blair & Co.?
Mr. MORGAN. NO ; I have not.
Senator COTJZENS. He did not make a very extensive study, then,
did he?
Mr. PECORA. In your consideration or special study of this subject, Mr. Morgan, did it not occur to you that it was important for
jrou to ascertain all the facts with regard to any controversy or ques• tion that might have arisen or liad arisen with respect to the legality
of this public works program as being in violatfon of the Platt
amendment.
Mr. MORGAN. Mr. Pecora, it seemed to me to be obvious that it
was within the meaning of the Platt amendment inasmuch as the
action was approved by the lawyers and was reported to the State
Department and no exception taken.
Mr. PECORA. Well, to whom did it seem obvious? To you?
Mr. MORGAN. TO me.
Mr. PECORA. TO you?
Mr. MORGAN. Yes.
Mr. PECORA. Just look
a moment at the provisions of that Platt
amendment, reading as follows:
That said Government—
meaning the Cuban Government—
shall not assume or contract any public debt to pay the interest upon which
and to make reasonable sinking-fund provision for the ultimate discharge
of which the ordinary revenues of the island of Cuba, after defraying the
current expenses of the Government, shall be inadequate.
I see that you have the text of this Platt amendment before you.
Let me ask you with reference to this, Mr. Morgan: In view of the
2562
STOCK EXCHANGE PEACTICES
fact that under the public works law of 1925 special revenues were
created to meet the service charges of the indebtedness to be incurred in the construction of that public-works program, do you
not think that the mere necessity for creating special revenues was
in and of itself evidence that the ordinary revenues of the island
were insufficient?
Mr. MORGAN. I think you are reading too much into the word
" ordinary." As I read that, the ordinary revenues to my mind are
the revenues from taxation. An extraordinary revenue, within the
meaning of the Platt amendment, would be a loan.
Mr. PECORA. Extraordinary revenues would be a loan?
Mr. MORGAN. Quite true.
Mr. PECORA. Well then, what in the world is the value of this
Platt amendment if that construction of it is correct? Will you
point that out?
Mr. MORGAN. That is to say that any debt incurred by Cuba should
be self-supporting; that it should be within the means of Cuba to
repay.
Mr. PECORA. TO repay out bf the ordinary revenues, is that not
what the Platt amendment says?
Mr. MORGAN. Out of taxation.
Mr. PECORA. N O ; it does not say out of taxation at all. Look at
the text [reading]:
* * * the ultimate discharge of which the ordinary revenues, of the Island
of Cuba after defraying the current expenses of the Government shall be
inadequate.
Is that not the language of the amendment?
Mr. MORGAN. I repeat, Mr. Pecora, that the ordinary revenues do
not have the restricted sense to my mind that they have to yours.
Senator GORE. DO you figure that they were going to borrow
money to repay their debts ?
Mr. MORGAN. DO I figure that they were going to borrow money
to repay their debts? Yes.
Senator GORE. I know that is a new method of finance. I did
not know that it was that old. Did the State Department make any
written response to the inquiry about the eli^ibiliy of this loan?
Mr. MORGAN. The State Department wrote in the usual form that
it did not take exception to the financing.
Senator GORE. I S that in the record?
Mr. MORGAN. I do not know whether you have it in.
Senator GORE. I wish you would put it in at this point.
Mr. PECORA. That was the stereotyped form used by the State
Department in regard to all foreign issues which were brought out
in this country.
Mr. MORGAN. Quite true.
Mr. PECORA. And the State Department has always been specific
to state that by using that expression it did not mean to approve a
loan at all.
Mr. MORGAN. Quite true.
Senator GORE. Mr. Pecora, I would like to get the State Department's records down here to see what Ambassador Crowder said to
the State Department when t|ie State Department had this matter
up. Have you got them?
Mr. PECORA. NO, Senator.
STOCK EXCHANGE PRACTICES
2563
Senator GORE. I would like to have them.
The CHAIRMAN. Did you have it up with Ambassador Crowder
at all? Was that subject taken up with the Ambassador? You
say it was taken up with the State Department, but was it taken up
with the Ambassador? Was he aware of what was going on?
Mr. MORGAN. Again let me make perfectly clear, Senator Fletcher,
that the project to which Mr. Pecora is referring here, and upon
which he is examining me, never went through. That when the
final financing went through on February 19, 1927, Ambassador
Crowder and the State Department were fully informed.
Mr. PECORA. Mr. Morgan, that was not the nnal financing, was it?
That was only the beginning of it? This $10,000,000 loan of February 1927 was only the beginning of a series of financing?
Mr. MORGAN. Yes; I meant when the financing was finally put
through.
Mr. PECORA. Well, it was not finally put through until some years
after 1927? And involved eventually an aggregate of 80 millions of
dollars, did it not ?
Mr. MORGAN. Yes; quite true, but
Mr. PECORA. And au was part of this public-works program, was
it not?
Mr. MORGAN. Quite true.
Mr. PECORA. A i d so far as you know to the contrary this $100,000,000 program referred to in this Graves' memorandum to Tinker
was also in relation to that public-works program; was it not?
Mr. MORGAN. Yes.
Senator COTJZENS.
When did General Crowder resign? Do you
know?
Mr. MORGAN. We have got the date here somewhere, Senator.
Senator COUZENS. I would like to know it.
Mr. MORGAN. I suggest about 1928. I do not know.
Senator COTJZENS. About 1928?
Mr. MORGAN. Yes.
Senator COUZENS. And who succeeded him? Do you know?
Mr. MORGAN. Ambassador Judah, of Chicago.
The CHAIRMAN. Did not Mr. Guggenheim succeed General
Crowder?
Mr. MORGAN. NO. Ambassador Judah, from Chicago, succeeded
General Crowder.
The CHAIRMAN. HOW long did he serve?
Mr. MORGAN. About 2 years.
Mr. PECORA. General Crowder is now dead; is he not?
Mr. MORGAN. Yes.
Mr. PECORA. Mr. Morgan,
let me recall to your attention this
statement from Graves' memorandum to Tinker:
HeMeaning General Crowder—
called my attention to article II of the Platt amendment and further said that
he supposed these people—
Meaning the bankers—
had secured advice from American lawyers who really were insufficiently acquainted with the proper construction of the constitution of Cuba of which,
the Platt amendment was a part.
175541—33—PT 5
19
2564
STOCK EXCHANGE PRACTICES
Does not that iiidicate to you, Mr. Morgan, that back in March
1926 General Crowder had expressed to Mr. Graves a conviction
on his part, on General Crowder's j>art, that any financing of this
public-works program would constitute a violation of the Platt
amendment, and that if any American lawyers had advised American bankers to go ahead with it, that those American lawyers were
insufficiently versed in the Cuban law and in the Platt amendment?
Mr. MORGAN. NO ; it does not.
Mr. PECORA. What does it mean to you then?
Mr. MORGAN. It means this project.
Mr. PECORA. This 100-million-dollar project?
Mr. MORGAN. Yes.
Mr. PECORA. YOU
have already said that the 100-million-dollar
project was part of the public-works program of 1925.
Mr. MORGAN. NO. I am sorry. That is not what I said; or if I
did say it, the context was different. I said it related to the publicworks program without question.
Mr. PECORA. All right. Well, that is what I am asking you about.
Mr. MORGAN. But it was not a part of the public-works program
because it never happened.
Mr. PECORA. We know it never was finally consummated, and has
not been yet.
Mr. MORGAN. Well, that is what I am after.
Mr. PECORA. Because there has not been any $325,000,000 publicworks program consummated as yet, but when Mr. Tinker and Mr.
Graves were considering this matter in the light of the concern which
General Crowder expressed as to whether or not the financing of
that program would be a violation of the Platt amendment General
Crowder had in mind the entire program, did he not?
Mr. MORGAN. I cannot conceive of it.
Mr. PECORA. YOU cannot?
Mr. MORGAN. NO.
Senator GORE. DO
you know any difference in the state of facts
underlying the loan that was proposed and never went through that
differentiates it from the state of fact underlying the loan that did
go through, that would put one outside of the Constitution and bring
the other inside of the Constitution?
Mr. MORGAN. Yes, Senator Gore; I think that I can state that
perfectly.
Senator GORE. DO.
Mr. MORGAN. This was an external loan to be offered to the public
in the amount of 100 million dollars.
Senator GORE. When you say " this ", do you mean the original
one?
Mr. MORGAN. The one upon which Mr. Pecora is so industriously
examining me.
Senator GORE. YOU mean the $100,000,000?
Mr. MORGAN. Yes; the $100,000,000.
Senator GORE. Yes?
Mr. MORGAN. The project that went through on February 19,1927,
was a $10,000,000 operation, and was designed for the financing in
anticipation of revenues of the actual day-to-day construction of the
public-works program. I t had a 4-year maturity and the amounts
STOCK EXCHANGE PRACTICES
2565
Involved were amply within the revenues not only anticipated but
actually received.
Senator GORE. I t could be serviced out of the ordinary revenues and
the $100,000,000 could not?
Mr. MORGAN. Well, my interpretation of "ordinary revenues1'
includes the taxation.
Senator GORE. Yes?
Mr. MORGAN. The special taxes provided for this operation.
Mr. PECORA. What did you think ordinary revenues meant, as that
term is used in the Platt amendment?
Mr. MORGAN. The proceeds of taxation.
Mr. PECORA. And the amendment prohibited the contracting of
any public debt of any kind where the servicing thereof could not be
affected out of those ordinary revenues, did it not ?
Mr. MORGAN. Quite.
Mr. PECORA. NOW the servicing of this public works program was
accomplished through the medium not of the ordinary revenues but
special revenues created by special acts, was it not?
Mr. MORGAN. But it is impossible to conceive Mr. Pecora, under
the reading of the Platt amendment, that the taxes of Cuba should
remain in exactly the same position that they were in at the time that
the Platt amendment was put through. I cannot conceive of its
being possible that it would prohibit an increase in taxation.
Mr. PECORA. What did you understand or what do you now
understand was the purpose of this Platt amendment?
Mr. MORGAN. TO prevent Cuba incurring a debt which she could
not properly manage.
Mr. PECORA. Which she could not properly manage out of what?
Mr. MORGAN. Out of her revenues.
Mr. PECORA. Out of what revenues?
Mr. MORGAN. Out of taxation.
Mr. PECORA. The ordinary revenues?
Mr. MORGAN. Out of taxation.
Mr. PECORA. Well, it does not say " out of taxation ", does it? I t
says " out of ordinary revenues."
Mr. MORGAN. I would say that an extraordinary revenue, in my
interpretation of the meaning of the Platt amendment, is a loan.
Mr. PECORA. Then in effect you are saying that extraordinary revenues are the same as ordinary revenues, are you not?
Mr. MORGAN. NO ; I am saying no such thing.
Mr. PECORA. I thought you just said that. What was his answer
to the last question before that?
(Thereupon the answer was read by the reporter as above recorded, as follows:)
Mr. MORGAN. I would say that an extraordinary revenue, in my interpretation of the meaning of the Platt Amendment, is a loan.
Senator ADAMS. I should say that a loan was the most extraordinary revenue.
Mr. MORGAN. I should, too.
Mr. PECORA. DO you as a banker in the ordinary acceptation of
the term " loan " regard that in the same way as you do " revenue"?
Mr. MORGAN. It is frequently.
2566
STOCK EXCHANGE PRACTICES
Mr. PECOKA. I say, do you as a banker in the ordinary acceptation
of the term " loan" regard that in the same way that you do
" revenue"?
Mr. MORGAN. In public financing it is frequently set up that way,
Mr. Pecora.
These revenues were provided for by act of the Cuban Congress
on July 15, 1925. The financing was arranged for on February 19,
1927.
Mr. PECORA. The initial financing?
Mr, MORGAN. The initial financing. For a year and seven months
revenues had been coming in
Mr. PECORA. Ordinary or special?
Mr. MORGAN. I would say that we would designate them adas ordinary revenues, earmarkedMr. PECORA. Even the special revenues?
Mr. MORGAN. An earmarked revenue does not indicate an extraordinary revenue.
]Str. PECORA. Are you using the terms "special revenues" and
" ordinary revenues " as synonymous terms?
Mr. MORGAN. N O ; as an earmarked revenue
Mr. PECORA. A S distinguished from ordinary revenue?
Mr. MORGAN. Yes. That has a special advantage; first, from the
standpoint of the Cuban Government, that it restricted the improvements to the field set up by taxation; and from the standpoint of the
creditor it had a special advantage in having earmarked revenues
which could not be diverted except for the service of those obligations, unless that was already taken care of.
Mr. PECORA. In the course of your special study of these loans,
Mr. Morgan, what, if anything, (fid you ascertain as to the attitude
or opinion of the Chase Bank or the Chase Securities Corporation
or Blair & Co. with respect to making any loan to the Cuban Government at that time, in view of this statement which General
Crowder had made to Mr. Graves? I am reading again from exhibit 30:
He-
meaning General Crowder—
seemed to be much exercised. He stated that he had heard persistent rumors
that Blair & Co. and the Chase Securities Corporation were attempting to
negotiate a loan to the Cuban Government of $100,000,000, and that in view*
of the fact that their indebtedness was already $98,000,000, and the financial
and economic condition of the country was in such a deplorable state, he found
it very difficult to credit the above statement
Mr. MORGAN. I would say that the form that the financing initially
took gave full effect to even the extreme interpretation of this opinion.
Mr. PECORA. Of which opinion?
Mr. MORGAN. General Crowder's opinion.
Mr. PECORA. DO you think General Crowder's opinion was an
exaggerated one, that he remarked that the external indebtedness
of Cuba at that time was already $98,000,000 and that the financial
and economic condition of the country was in a deplorable state?
Mr. MORGAN. I did not say that.
Mr. PECORA. I am asking you if that is what you thought?
Mr. MORGAN. I said, even the exaggerated interpretation
STOCK EXCHANGE PRACTICES
2567
Mr. PECORA. It is because you used that term "exaggerated",
that I am asking you now if you think that General Crowder,
when he made that observation^ was exaggerating the situation.
Mr. MORGAN. I have no opinion on that at all. I would say that
General Crowder was amply competent to express himself, if he is
adequately reported here.
Mr. PECORA. And General Crowdtfr's expression, if adequately
and properly reported by Mr. Graves, was to the effect that
the financial and economic condition of Cuba at that time was
deplorable?
Mr. MORGAN. SO he says.
Mr. PECORA. DO you think he spoke within the bounds of facts
or not?
Mr. MORGAN. The conditions were not good; no. There was unemployment, and that was one of the mam reasons for this public
works program following very much the line that we are following
now in the United States, Mr. Pecora.
Mr. PECORA. YOU think the Government today is borrowing this
plan that the Machado government embarked upon in 1925?
Mr. MORGAN. I am saying that the Machado government embarked upon this public-works program in order to improve economic conditions in Cuba, providing for improved instrumentalities
for commerce and trade, to provide for unemployment within the
couф to relieve the economic situation generally. I sa^ that is
one of the reasons why we are embarking upon a public-works
program in the United States.
Senator GORE. Did it improve the economic conditions of Cuba ?
Mr. MORGAN. Yes; it did temporarily.
Mr. PECORA. For how long?
Mr. MORGAN. Until the whole world depression caught us.
Mr. PECORA. I S it not a fact that the expenditures exceeded the
revenues right shortly after that ?
Mr. MORGAN. Pernaps because the budget was too generously
drawn. The public-works revenues exceeded anticipation right
through to 1929 and 1930; and, of course, it is the public-works revenues that are relevant.
Senator GORE. YOU say that it improved economic conditions
until the crash came ?
Mr. MORGAN. I t was not sufficient to avert the crash in Cuba.
Mr. PECORA. YOU commenced this special study about 4 weeks ago ?
Mr. MORGAN. Mr. Pecora, I have been in charge, for the bank, of
Cuban financing since September of 1931.
Mr. PECORA. But did you commence this special study—I am talking about your special study—about 4 weeks ago ?
Mr. MORGAN. I reviewed a great many things that I was already
in part familiar with, and learned some things that I had not known<
before.
Mr. PECORA. The term " special study " did not originate with me7
but was used here by associates of yours who urged that you be put
on the stand and examined on this subject. Did you commence this
special study of this subject about 4 weeks ago?
Mr. MORGAN. I intensified my study of Cuba beginning .5 or 6
weeks ago.
2568
STOCK EXCHANGE PRACTICES
Mr. PECORA. Five or six weeks ago. That might be regarded as a
species of "cramming" for an examination?
Mr. MORGAN. Quite.
Mr. PECORA. During the cramming process did you come across
a letter that was written by Mr. Batchelder, dated July 29, 1926?
Mr. MORGAN. Can you give me the number of that?
Mr. PECORA. The number is 56-7a. Did you come across that in
the cramming process?
Mr. MORGAN. Yes.
Mr. PECORA. I show
you what purports to be a photostatic reproduction of that letter, dated July 29,1926. Will you kindly look at
it and tell me if it is a true and correct copy of such letter written
by Mr. Batchelder?
Mr. MORGAN. Yes.
Mr. PECORA. I offer
it in evidence, and I would like to read it to
the committee.
(The letter referred to, dated July 29, 1926, addressed "Dear
Ned " and signed by Batchelder, was received in evidence as Committee's Exhibit No. 81, of October 23,1933.)
Mr. PECORA. The letter marked " Committee's Exhibit 3 1 " , in
evidence of this date, reads as follows: In handwriting across the
top of the front page thereof is the inscription " Cuban Highway."
Then in typewriting it is as follows:
JULY 29,
1920.
DEAR NED: I returned from Habana on Tuesday of this week, having stayed
down there at least 2 weeks too long, just so that everybody up here would
feel that we were leaning over backward in giving the Cubans plenty of time
to decide whether or not they wanted to do any business with us at this time,
and also as evidence of our desire to cooperate with them. I was sorry to
hear that you had left before my return so that I could have spoken to you
about this situation, not that it was of pressing importance but more as a
matter of general policy.
The chances of any business being done on financing the public-works program
are just as real now as they have ever been, not more nor less. At the moment
the situation is about as follows: Notices have been published calling for bids to
be submitted September 1, first publication having t*een made on July 23,
which gives the contractors 40 days' notice to file their bids. Details, specifications, surveys, etc., are on file with the Public Works Department. A general
clause has been inserted in the notices to the effect that the Government
reserves to itself the right to accept any propositions which might be submitted
on September 1 involving the financing of all or any part of the work, and the
other b}|iders shall have.no right to object. They hope this will bring forth
some financing^"ideas from the contractors that will meet the views of the
Secretary of the Treasury. I can tell you, however, that the Public Works
Department feels that it will not get any acceptable propositions, and so certain
are they of this opinion that I am told they are planning to start piecemeal
operations with the money on hand on the so-called secondary roads which
can be built locally and at less cost.
You are familiar with the President's statement that he would not make
any foreign1 loans. I agree that the institute idea is the most practical and
will enable him to save his face, but there is this difficulty in connection with
this situation at this time. The general elections throughout the island will
take place on November 1, all the Representatives and Senators are out campaigning in their districts, and it would be difficult to get legislative action
necessary to create and authorize in a satisfactory manner the machinery for
the institute plan. This is particularly so, as I am told the President would be
besieged with demands from the politicians that he support them in their
district in return for their voting the necessary legislation. This does not mean
that the President has not sufficient prestige and power to insist upon the
passing of the legislation, but rather that he does not want at this time to be
STOCK EXCHANGE PRACTICES
2569
put in this position. As near as I could gather, this seems to be the crux of
the difficulty at this time insofar as the indirect loan is concerned.
Looking forward there are two dates to keep in mind—September 1, when
the bids are to be submitted, when we should be represented, and shortly after
November 1, when it seems to me the chances would be more favorable for
getting the necessary legislation. There is, without question, a great local
demand that something on an intensive scale be done on, the public-works
program. The administration has made ambitious promises, and it will be
difficult for them to fulfill them without financing. The taxes have been coming
in satisfactorily, but are working an unusual hardship on the people by
reason of their selections during this time of acute economical depression
throughout the island plus the fact that the money is withdrawn from
circulation, being loaded up in the treasury.
I am absolutely of the opinion that we must consider this business only
with a guarantee direct or indirect of these public-works revenues. There
is a good deal of agitation for the reduction of the transportation and sales
taxes, and with the power which the President has to suppress or reduce all
taxes, any bankers would be foolish not to insist upon protection against such
actions.
Regarding our position, it seems to me that we are as well situated as any
of our competitors. In order to have had two strings to our bow I should like
to have been allowed to impress our own individuality upon the President
rather than relying entirely upon intermediaries. As far as I could gather,
the President is looked upon with increasing favor and his administration is
considered a remarkably honest one for the Island. The Secretary of the
Public Works, who has all the money he wants, is apparently out to make a
record for himself by making the best trade possible for the government on
all construction work and purchases. The Secretary of the Treasury presents
a difficulty. He is looked upon as a thoroughly honest man, but is more theoretical than practical. However, he can be satisfied provided the President will
change his idea about any loan and secure the necessary simple legislation.
The Secretary of the Treasury objects to the limitations imposed by the present authorizations much in the same manner as we do.
The City Co. people are doing nothing more than to keep an eye on the
business inquiring once or twice a week if there is any progress. I feel that
their activities stopped about 3 weeks before we got down there; they having
then reached about the same conclusions as ourselves.
The Morgan people, if they have any interest in the indirect loan, have it
through the City Co., but if a direct loan does come out of all this they
probably expect to get it in their own name.
During my absence I asked Strahan & Sieglie to make inquiries from time
to time from the Public Works Department and through Grau as to any
progress. Whatever information they do get will probably come from the
Public Works Department because I am quite of the opinion that Grau is of
very little real assistance.
Very sincerely yours,
C. F . BATCHELDER.
Senator COUZENS. TO whom is that addressed ?
Mr. PECORA. TO " Ned." Who was Ned?
Mr. MORGAN. Mr. Tinker.
Mr. PECORA. The same Mr. Tinker to whom Graves addressed the
memorandum of March 22, 1926?
Mr. MORGAN. Yes.
Senator GORE. What is the difference between a direct and an
indirect loan?
Mr. PECORA. Perhaps Mr. Morgan can tell us that.
Mr. MORGAN. A direct or indirect loan? At this time, Senator
Gore, a proposal was being explored—one of the many explored at
the time—wnich contemplated the erection of an institute, so called,
which would be owned in full by the Cuban Government. This institute should have the right to borrow and, at the same time, should
make contracts in connection with the public-works program. That
would
be an indirect loan rather than a direct one.
2570
STOCK EXCHANGE PBACTICES
Senator GORE. The Government would guarantee the loan?
Mr. MORGAN. Presumably so. I should think anyone would want
to have a guarantee by the Cuban Government in that case, or else
a prior lien on the taxes.
Senator GORE. The direct loan method was finally decided on?
Mr. MORGAN. Yes.
Senator COUZENS. Was
that to get around the Platt amendment,
that proposed organization of the institute?
Mr. MORGAN. I think not.
Mr. PECORA. This institute that you have referred to was designed
to be the medium through which the financing of the public-works
program was to be effected, was it not?
Mr. MORGAN. Yes.
Mr. PECORA. Whose idea was that institute, by the way ?
Mr. MORGAN. I think that that idea was given birth to in several
banking quarters, not simply in the Chase, but elsewhere.
Mr. PECORA. Did a Mr. Catlin have anything to do with giving
birth to this idea?
Mr. MORGAN. I do not know.
Mr. PECORA. DO you know the Mr. Catlin to.whom I refer?
Mr. MOGRAN. Yes.
Mr. PECORA. Who is he?
Mr. MORGAN. Mr. Catlin
was a lawyer who at that time was a
member of the advisory committee
Mr. PECORA. What advisory committee?
Mr. MORGAN. Of the branch in Habana.
Mr. PECORA. Of the Chase Bank branch in Habana?
Mr. MORGAN. Yes; and an officer of the Electric Bond & Share Co.
of New York.
Mr. PECORA. It was while he was an officer of the Electric Bond
& Share Co. in New York that he was also an officer of the Chase
Bank branch ?
Mr. MORGAN. NO ; not an officer. He was a member of the advisory
committee.
Mr. PECORA. Of the bank?
Mr. MORGAN. AS is usual in such cases, the advisory committee
is made up of people having important business relations.
Mr. PECORA. Mr. Morgan, in your cramming for this examination
did you come across many references to Mr. Catlin's activities?
Mr. MORGAN. I
did.
Mr. PECORA. What is his full name?
Mr. MORGAN. Henry W. Catlin.
Senator COUZENS. Where is he now?
Mr. MORGAN. Dead.
Mr. PECORA. Mr. Morgan, in the consideration which you gave,
be it much or little, if any at all, to this letter of Mr. Batchelder's
to Ned, dated July 29,1926, did it occur to you that Mr. Batchelder,
in July 1926, himself expressed grave concern about the financial
and economic condition of Cuba?
Mr. MORGAN. NO.
Mr. PECORA. Does he not indicate some such opinion in this letter?
Senator COUZENS. Mr. Batchelder is here. Is he not the best
witness?
STOCK EXCHANGE PRACTICES
2571
Mr. PECORA. Apparently not; according to these gentlemen, Mr.
Morgan is the best witness.
Mr. MORGAN. On the whole subject. If you choose to examine
Mr. Batchelder on his own letter, he is entirely prepared to do so,
I am sure.
Mr. PECORA. My recollection of the brief statement Mr. Batchelder made when I put him on the stand this morning wus that he
had no knowledge of the whole steps of this financing. Apparently,
back in July 1926, before the initial financing was effected in Febraary 19&7, he was down in Cuba, making observations and writing
the result^ of his observations to Mr. Tinker. At least, that is how
I construe the letter which has just been offered in evidence. You
have no different notion about that, have you, Mr. Morgan?
Mr. MORGAN. NO.
Mr. PECORA. All right.
Mr. MORGAN. Mr. Batchelder's references to economic conditions in
Cuba were strictly relative to the withholding of public works taxes
if I mistake not.
Mr. PECORA. Let us see what he says about it. Let me quote from
the second page of his letter:
The taxes have been coming in satisfactorily, but are working an unusual
hardship on the people by reason of their collection during this time of acute
economical depression throughout the island, plus the fact that the money is
withdrawn from circulation and being laid up in the Treasury.
He is referring to the general economic situation of the island, isn't
he?
Mr. MORGAN. N O ; and that is precisely what I had in mind, Mr.
Pecora, when I started to answer your question, that
Mr. PECORA (interposing). What did you have in mind?
Mr. MORGAN. When you impound a very substantial revenue in
the Treasury and take it out of circulation, you naturally restrict
business activity. I t is one of the commonplaces of monetary theory,
and that is exactly what Mr. Batchelder was talking about.
Mr. PECORA. YOU are not willing in these circumstances to have
Mr. Batchelder's words speak for themselves, and now
Mr. MORGAN (interposing). That is what he says.
Mr. PECORA (continuing). And now you are placing on the words
your interpretation.
Mr. MORGAN. NO, that is what he isays.
Mr. PECORA. Let us see if that is a fact. Exactly what he says
in this letter is the following:
The taxes have been coming in satisfactorily but are working an unusual
hardship on the people by reason of their collection during this time of acute
economical depression throughout the island, plus the fact
Mr. MORGAN (interposing). That is just the
point.
Mr, PECORA (continuing). One minute: l
plus the fact that the money is withdrawn from circulation and being laid up
in the treasury.
And that is the fact, that the money was withdrawn from circulation, which is in addition to the acute economical depression existing
throughout the island. I$n't that what Mr. Batchelder says?
Mr. MORGAN. I t seems to me that the two are joined inescapably
together, and necessarily augmented the depression, the economic
2572
STOCK EXCHANGE PRACTICES
situation. If you remove revenues at the rate of $18,000,000 a year
and tie them up in the treasury of the island, that is what it will do.
Senator GORE. DO you know what the circulating medium down
there in Cuba is? I do not want to embark on that field of inquiry
particularly, but would like to know about this matter.
Mr. MORGAN. Kather less than $100,000,000 at the present time. I
do not know what it was in those days.
Senator GORE. YOU say it is $100,000,000 now?
Mr. MORGAN. Something under $100,000,000 now.
Mr. PECORA. If I correctly understand your interpretation of this
statement in Mr. Batchelder's letter, what he called the acute economical depression throughout the island was due to the fact that
the money was withdrawn from circulation and was laid up in the
treasury.
Mr. MORGAN. That augmented it.
Mr. PECORA. YOU say it augmented it?
Mr. MORGAN. Yes.
Senator COUZENS. I t augmented what?
Mr. MORGAN. The depression in the island.
Mr. PECORA. There was acute depression irrespective
of this element of the money collected from taxes and being withdrawn from
circulation by reason of its being hoarded in the treasury.
Mr. MORGAN. I suppose you understand that I testified to that
before, that economic conditions in the island were not good.
Mr. PECORA. NO ; I did not understand it that way.
Mr. MORGAN. Well, that is what I said.
Mr. PECORA. I understood you to tell this committee
Mr. MORGAN (interposing). That was the reason why the President of Cuba was anxious to prosecute his public-works program.
Mr. PECORA. I understood you to tell this committee that your
opinion of what Mr. Batchelder had in mind when he wrote this
letter was that the acute economical depression was due to moneys
collected
Mr. MORGAN (interposing). Not exclusively.
Mr. PECORA (continuing). Was being withdrawn from circulation.
Mr. MORGAN. Not exclusively.
Mr. PECORA. YOU did not say that?
Mr. MORGAN. NO. Not exclusively.
Mr. PECORA. Well, I wish I had known that. I would have saved
my voice a little bit. Now, Mr. Morgan, who is the Mr. Strahan
referred to in this letter of Mr. Batchelder?
Mr. MORGAN. A member, or possibly at that time an assistant,
in the office of Rushmore, Bisbee & Stern.
Mr. PECORA. An attorney in their office?
Mr. MORGAN. An attorney; yes, sir.
Mr. PECORA. Who is Mr. Sieglie, who is referred to in this letter ?
Mr. MORGAN. He was associate manager of the branch in Havana.
Mr. PECORA. What is his first name?
Mr. MORGAN. I t is Mario.
Mr. PECORA. Mario?
Mr. MORGAN. Yes,
sir.
Mr. PECORA. DO you know Mr. Octavio Sieglie?
Mr. MORGAN. His brother, but I do not know him.
STOCK EXCHANGE PRACTICES
Mr. PECORA. He is a brother of Mario?
Mr. MORGAN. Yes, sir.
Mr. PECORA. Did you ever hear of Octavio Sieglie ?
Mr. MORGAN. Yes, sir.
Mr. PECORA. What was his business ?
Mr.5 MORGAN. Revolutionary.
Mr . PEC<JRA. I t is quite an active business down there,
2573
isn't it?
[Laughter.]
Mr. MORGAN. I t is one of the leading businesses.
Mr. PECORA. And because it is one of the leading businesses the
Chase National Bank financed these loans, did it?
Mr. MORGAN. Not at that time.
Senator GORE. There is no depression in his business, is there?
[Laughter.]
Mr. MORGAN. Hardly.
Mr. PECORA. Mr. Chairman, it is now 10 minutes to 1. At this
point I am going to resume the questioning of this witness in detail
with regard to Institute Plan that has already been referred to by
him. May I ask that you take a recess until 2 o'clock? My voice
is a little bit hoarse and I should like to rest it.
Senator GORE. May I ask a question right now, Mr. Chairman?
The CHAIRMAN. Certainly, Senator Gore.
Senator GORE. I may not be back this afternoon, and 1 should
like-to-ask the question now.
The CHAIRMAN. YOU may proceed, Senator Gore.
Senator GORE. Mr. Morgan, I am not familiar with the history
of the vicissitudes of this loan which was the final loan. But the
Chase National Bank, or Chase Securities Corporation, took over
those bonds as an investment or as an underwriting, which?
Mr. MORGAN. I t was divided among a group of bankers, Senator
Gore, and not offered to the public.
Senator GORE. Well, didnx the group of bankers distribute it?
Mr. MORGAN. Pardon me, Senator Gfore, but which one of the
operations are you now referring to ?
Senator GORE. Well, the $80,000,000 loan, $60,000,000 of which
was handled by the Chase institution.
Senator COUZENS. Senator Gore, Mr. Aldrich testified to that on
Thursday or Friday of last week.
Senator GORE. Well, I want to lay the foundation for something
else. Did those banks to which the bonds were distributed in turn
market them throughout the country or did they hold them?
Mr. MORGAN. They marketed $40,000,000 of bonds, and they
marketed,$20,000,000 of serial certificates. The financing other than
that was held by the bankers, retained by them.
Senator GORE. HOW much has the Chase Bank now of those bonds
and certificates?
Mr. MORGAN. The certificates have been entirely retired, with the
exception of $867,000, of which the Chase Bank has about one half.
Senator GORE. Are you in a position to state
Mr. MORGAN (continuing). And we have about $3,000,000 of the
bonds, par value.
Senator GORE. Are you in a position to state whether or not the
other institutions to whom the bonds were allotted still retain them
or have disposed of them?
2574
STOCK EXCHANGE PEACTICES
Mr. MORGAN. They disposed of them.
Senator GORE. Are the bonds in default?
Mr. MORGAN. They are not in default.
Mr. PECORA. What are they quoted at today?
Mr. MORGAN. About 30.
Senator GORE. Has Cuba a fiscal agent or disbursing agent in this
country through which we could ascertain who holds those bonds
now?
Mr. MORGAN. That is an almost impossible thing. I have frequently attempted to get information of that sort.
Senator GORE. AS to interest that is paid to holders of the bonds,
who is the fiscal agent in this country ?
Mr. MORGAN. The Chase National Bank.
Senator GORE. When you make disbursements semiannually, or
whenever it may be, you know to whom the interest goes, don't you?
Mr. MORGAN. NO J they come in the form of coupons from all over
the country, and banks ordinally send them in.
Mr. PECORA. Could you ascertain how many banks send in coupons
irom all over the country?
Mr. MORGAN. But they may not send the coupons in for themselves.
.Senator GORE. That is not the point. How many banks send in
coupons ?
Mr. MORGAN. I can find that out, I think, and will be delighted to
let you know.
Senator GORE. I wish you would.
The CHAIRMAN. DO you say the bonds are in default now ?
Mr. MORGAN. N O ; the bonds are not in default now.
The CHAIRMAN. And you paid 95 for them, did you not?
Mr. MORGAN. Yes.
The CHAIRMAN. And
Mr. MORGAN. At 98.
The CHAIRMAN. And
Mr. MORGAN. SO the
you sold them at how much?
now they are worth 30 ?
market appraises them. There has been a
revolution.
The CHAIRMAN. NOW, Mr. Morgan, I am interested a little in these
figures you have given us as to expenditures. In 1927-28 the expenditures of the Cuban Government were $82,893,000, and in 192829 they were $86,765,000. In 1929-30 they were $83,000,000 plus.
Then in 1930-31 the expenditures dropped to $67,112,000. In 193132 expenditures dropped to $47,189,000. And in 1932-33 they
dropped to $45,389,000. Can you tell us why that decrease in
expenditures occurred, and what caused it?
Mr. MORGAN. It was $ue to two causes. One was a radical reduction, or successive reductions, in the budget. And, second, because
some of the current expenses were not paid.
Senator GORE. Could you break down this 16 to 18 million dollars
estimate per annum to service this loan? At 6 percent it would not
be anything like that amount. Was the other set aside for
amortization?
Mr. MORGAN. NO ; for current construction in Cuba.
Senator GORE. I t did not go to extinguish the debt?
Mr. MORGAN. The bonds had a lien on the revenues to the extent
of 90 percent, but once the lien was satisfied the surplus could pass
STOCK EXCHANGE PEACTICES
2575
into the budget or be utilized for public-works purposes. You see^
we did not finance anything like the total cost of the work.
Senator GORE. I see. Tnen a part of the construction cost was
paid out of current revenue.
Mr. MORGAN. The whole thing was designed as far as possible on
a pay-as-you-go basis.
Senator GORE. DO you know what the whole budget was or what
the two projects cost over all?
Mr. MORGAN. I have got an elaborate calculation on that here
which I will be glad to tell you about.
Senator GORE. This $89,000,000 loan did not take care of the entire
transaction, then?
Mr. MORGAN. NO. There was a third lien of $20,000,000 and >
Senator GORE (interposing). What was that?
Mr. MORGAN. A third lien of $20,000,000, with which we have
nothing whatever to do.
Senator GORE. I did not get that answer.
Mr. MORGAN. There was a third lien of $20,000,000 which the
Chase Bank has had nothing whatever to do with. Based on
official statements and on our own calculations the total income of
the public-works fund, including loan proceeds, during the fiscal
years 1925-26 to 1932-33, inclusive, amounted to approximately
$236,000,000.
Senator GORE. NOW, that is revenue from taxes and proceeds from
loans?
Mr. MORGAN. Yes; excluding short-term advances the total income
aggregated approximately $227,000,000, of which $80,000,000, or 35percent, represents financing done by the Ciiase group.
Senator GORE. I had not understood that before. That is all, Mr.
Chairman.
The CHAIRMAN. The subcommittee will now take a recess until
2 pan.
(Thereupon, at 1 p.m. Monday, Oct. 23, 1933, the subcommittee
recessed until 2 p.m, the same day.)
AFTERNOON SESSION
Upon the expiration of the noon recess the hearing was resumed5
at 2 p.m.
The CHAIRMAN. The committee will come to order. Mr. Pecora,
may we interrupt long enough to put in the record a letter just
received from Mr. Whitney, president of the New York Stock
Exchange, and my reply thereto. I do not think it is necessary to*
read those. It refers to revision of questionnaire and the course
the committee decided to pursue about that.
(The letter from Mr. Whitney and reply of Senator Fletcher
thereto are as follows:)
NEW YOBK STOCK EXCHANGE,
October 21, 1933.
To the Hon. DUNCAN U. FLETCHER,
Chairmom Committee on Banking and Currency,
United States Senate, Washington, D.C.
MY DEAR SENATOB FLETCHER: I have just received a copy of the transcript
of the hearing before the committee yesterday and have noted your questionasFRASER
to whether the exchange would submit a modified questionnaire to its memDigitized for
2576
STOCK EXCHANGE PRACTICES
l>ers "with the statement that they are not ordered or directed to answer
the questionnaire but that the exchange recommend that they answer them if
feasible and leave it to the discretion of the members as to whether they
answer the questionnaire or not, without imposing any penalties upon them
in case they did not."
This, of course, is the first time that such a suggestion has been made to the
exchange. When Mr. Pecora submitted his original questionnaire, he asked
that the exchange obtain the information from its members. This, in effect,
would have compelled them to answer or run the risk of being disciplined by
the governing committee of the exchange. For the reasons stated in my letter
of October 16, 1933, to Mr. Pecora, we did not feel that we could comply with
his request. Your suggestion presents an entirely different question.
I am advised there was a meeting yesterday afternoon with representative
members of the exchange to consider further modifications of the questionnaire with a view to reducing to a minimum both the cost and the burden
of work which would be imposed upon the members in answering it and
also with a view to clarifying certain of the questions so as to eliminate
the possibility of duplication or other errors which would have tended to produce inaccurate answers. As soon as these modifications have been agreed
upon we shall be glad, if it is your wish, to transmit the modified questionnaire
to the members of the exchange with the recommendation that they, in order to
facilitate the pending investigation, send their replies to the exchange. The
replies so received will be tabulated and the information furnished to the
committee. If any members of the exchange feel that they cannot or should
not furnish the information, we shall inform you of their position so that
the committee may take such action in regard to them as it deems necessary.
Faithfully yours,
RIOHABD WHITNEY,
President.
OCTOBER 23, 1933.
Hon. RICHAED WHITNEY,
President Stock Ewchangv, New York, N.Y.
MY DEAE MB. WHITNEY : Referring to yours of the 21st, just received.
I am advised that the form of questionnaire has been agreed upon, in a
conference with Mr. Pecora's assistants and representatives of members of the
stock exchange.
When my question was propounded, which you mention, Mr. Redmond replied
there was no one here authorized to speak for the exchange.
The subcommittee, in executive session, decided that day that the questionnaire be taken up, as was done, and also that when revised and perfected
it be submitted directly to the members of the stock exchange.
Very truly yours,
DUNCAN U. FLETCHER, Chairman.
Mr. PECORA. Mr. Chairman, with respect to the letter that has
st been put into the record and which was addressed to you by
r. Whitney as president of the New York Stock Exchange under
date of October 21, 1933, may I make this very brief statement: In
this letter Mr. Whitney states as follows [reading] :
S
When Mr. Pecora submitted his original questionnaire, he asked that the
exchange obtain the information from its members. This, in effect, would have
compelled them to answer or run the risk of being disciplined by the governing
committee of the exchange. For the reasons stated in my letter of October
16, 1933, to Mr. Pecora, we did not feel that we could comply with his request.
I want to say with respect to that statement, Mr. Chairman, that
at no time did I say to Mr. Whitney or any other representative of
the New York Stock Exchange, in words or substance, that I wanted,
or the committee wanted, the governing authorities of the exchange
to compel their members to answer the questionnaire, and there was
no suggestion at any time made in the conferences that were held
with Mr. Whitney and Mr. Bedmond by my representatives, as the
results of those conferences were reported to me, that the request
STOCK EXCHANGE PRACTICES
2577
I made to Mr. Whitney to circulate the questionnaire among his
members would be tantamount to compelling the members to answer
whether they wished to do so or not.
In my letter to Mr. Whitney forwarding the questionnaire originally there is not a single word or phrase or sentence that could be
construed as any understanding on my part or any request on my
part or statement on my part that I wanted the exchange to compel
its members to answer the questionnaire.
TESTIMONY EESXTMED OF SHEPAED MOEGASf
Mr. PECORA. NOW, Mr. Morgan, referring again to the memorandum of Mr. Graves to Mr. Tinker, dated March 22, 1926, which
is known as " Committee's Exhibit 30 " in evidence here, will you
tell me what connection Mr. Graves then had with either the Chase
National Bank, the Chase Securities Corporation, or Blair & Co.?
Mr. MORGAN. He was vice president of the Chase National Bank
on detached service in Cuba at the branch.
Mr. PECORA. NOW, let me call your attention to this statement of
Mr. Graves in his memorandum to Mr. Tinker, referring to his conversation with General Crowder:
I pointed out to him—
meaning General Crowder—
that I represented neither Blair & Co. nor the Chase Securities, although both
organizations were friendly with the Chase Bank; that any financial plans or
discussions they may have had with the Cuban Government were matters which
I was not in a position to discuss.
Do you think that that is a comprehensive statement of the fact?
Mr. MORGAN. I should say so, Mr. Pecora.
Mr. PECORA. Of Mr. Graves' knowledge that he professed to have
in his conversation with General Crowder?
Mr. MORGAN. While the negotiations were being conducted by the
Securities Corporation and he was there as a representative of the
bank in the branch at Habana, I should say that was a fair and comprehensive statement.
Mr. PECORA. The Chase Securities Corporation and the Chase National Bank were owned and controlled by identically the same interests, were they not?
Mr. MORGAN. Quite true.
Mr. PECORA. And don't you think this statement was a bit disingenuous?
Mr. MORGAN. They were different corporations.
Mr. PECORA. We know that. Don't you think this statement to
General Crowder by Mr. Graves was a bit disingenuous?
Mr. MORGAN. I t seems to me it asserted the fact.
Mr. PECORA. I t technically asserted the fact, but wasn't he as an
officer of the Chase National Bank in its branch at Havana, Cuba, in
a position to know fully all that was going on with regard to these
proposed financing plans in behalf of the Chase Securities Corporation?
Mr. MORGAN. I think it entirely probable that he was not fully
informed.
2578
STOCK EXCHANGE PEACT1CES
Mr. PECORA. Why did he then undertake to communicate on that
very subject with Mr. Tinker, if he was not fully informed? Why
wasn't that left to somebody who was more fully informed?
Mr. MORGAN. TO tell Mr. Tinker what he was informed of.
Mr. PECORA. Was Mr. Tinker an officer of the Chase National Bank
then?
Mr. MORGAN. N O ; he was an officer at that time of the Chase
Securities Corporation.
Mr. PECORA. Was he also an officer of the Chase National Bank?
Mr. MORGAN. I think not at that time.
Mr. PECORA. What officer of the Chase Securities Corporation at
that time in Cuba had charge of the negotiations for this proposed
financing with the Cuban Government?
Mr. MORGAN. Mr. Tinker either was there or had recently been
there at that time himself.
Mr. PECORA. What officer of the Chase Securities Corporation was
there on March 22, 1926, the date of this memorandum that Mr.
Graves gave to him?
Mr. MORGAN. Probably no one, Mr. Pecora.
Mr. PECORA. Well, who was on the ground looking after the interests of the Chase Securities Corporation with respect to this
financing ?
Mr. MORGAN. Mr. Graves was there looking after the interests of
the Chase National Bank.
Mr. PECORA. And does that mean in substance that he was also
there in position to look after the interests of the Chase Securities
Corporation with regard to the same matter ?
Mr. MORGAN. Not within his official obligation.
Mr. PECORA. Was he in a position to do that?
Mr. MORGAN. TO give advice or to represent the Chase Securities
Corporation?
Mr. PECORA. TO look after the interests of it in the absence of any
regular representative?
Mr. MORGAN. He could not sign for the Chase Securities Corporation nor carry on a definitive negotiation for the Chase Securities
Corporation.
Mr. PECORA. In order for him to look after their interests was it
necessary for him to have authority to sign anything? There was
nothing to sign then, was there?
Mr. MORGAN. TO carry on a definite negotiation, Mr. Pecora, it
seems to me you have got to have your own man, haven't you?
Mr. PECORA. Then at this time the Chase Securities Corporation
had nobody in Cuba looking after its interests with regard to this
proposed financing?
Mr. MORGAN. I think that is correct.
Mr. PECORA. Well, do you think that Mr. Graves was pinch-hitting
then for the Chase Securities Corporation in conferring with General Crowder about the interests of the Chase Securities?
Mr. MORGAN. He was reporting a conversation to Mr. Tinker.
Mr. PECORA. After Mr. Tinker received this communication from
Mr. Graves do you know whether Mr. Tinker caused an immediate
STOCK EXCHANGE PEACTICES
2579
representative of the Chase Securities company to go down to Cuba
and continue the discussions with General Crowder on that subject?
Mr. MORGAN. NO, I do not.
Mr. PECORA. What?
Mr. MORGAN. I do not.
Mr. PECORA. Your special study
has not brought you any knowledge of any such thing, has it ?
Mr. MORGAN. YOU probably can find the occasion of the next visit.
I think you have it in the
Mr. PECORA (interposing). No—will you confine yourself to the
question before you?
Mr. MORGAN. Which was whether there was any representative of
the Chase Securities Corporation at that time. No.
Mr. PECORA. I asked you, the Chase Securities Corporation then
sent a special representative down there to resume these conversations with General Crowder on the subject of this financing. That
is what I asked.
Mr. MORGAN. There was no one sent down immediately, I understand. As the record has amply shown and the testimony this morning, others went down later.
Mr. PECORA. What, if anything, was done by the Chase Securities Corporation when Mr. Graves called the attention of its president, Mr. Tinker, to the concern of General Crowder with respect
to the illegality of this public works indebtedness?
Mr. MORGAN. Doesn't the record on that speak for itself?
Mr. PECORA. NO ; I am asking you.
Mr. MORGAN. All right.
Mr. PECORA. YOU are familiar with the record.
Mr. MORGAN. I would say that the record on that speaks for itself.
Mr. PECORA. What record are you now referring to which so
speaks?
Mr. MORGAN. The record that on February 19, 1927, a totally
different piece of financing was put through.
Mr. PECORA. That does not answer my question, Mr. Morgan,
please. I did not ask you what financing eventually was done; I
asked you what, if anything, Mr. Tinker, the president of the Chase
Securities Corporation, did after Mr. Graves called to his attention
in March 1926 General Crowder's concern over the legality of this
public-works program.
Mr. MORGAN. Nothing appears in the record to my knowledge on
that subject.
Mr. PECORA. Does that mean that nothing was done until February
19, 1927?
Mr. MORGAN. NO ; because you have ample record in the meantime
of other operations undertaken.
Mr. PECORA. Well, now, you have those records, too, and you have
made a special study of them for this examination, have you not?
Mr. MORGAN. Precisely.
Mr. PECORA. What was the thing that was first done by Mr. Tinker
following the receipt by him of Graves' memorandum of March 22,
1926?
Mr. MORGAN. A continued study was made, Mr. Pecora.
175541—33—PT 5
20
2580
STOCK EXCHANGE PRACTICES
Mr. PECORA. By whom and when?
Mr. MORGAN. By the officers of the Chase Securities Corporation,
by their lawyers, by their representatives, of conditions which ultimately led to the financing of February 19, 1927.
Mr. PECORA. Who were the persons that made that continuous
study in behalf of the Chase Securities Corporation?
Mr. MORGAN. YOU have in your files a letter dated May 6,1928.
Mr. PECORA. NOW, you are talking about 1928. I thought this
financing was commenced in February 1927.
Mr. MORGAN. Excuse me. The letter may be misdated. Mr.
Barr, who was the vice president of the Chase National Bank at that
time in charge, Mr. Batchelder, Mr. Freeman, various other officers
and representatives of the Chase Bank and the Chase Securities
Corporation, went to Habana for a discussion of this program. Mr.
Callahan, of the Chase Securities Corporation, also Mr. Williams,
of Eushmore, Bisbee & Stern, Mr. Mudge, of Eushmore, Bisbee &
Stern, I believe.
Mr. PECORA. Mr. Barr, whose name you mentioned, is now dead,
is he not?
Mr. MORGAN. Yes.
Mr. PECORA. Mr. Callahan, whose name you mentioned, is now
dead?
Mr. MORGAN. Yes.
Mr. PECORA. The other
gentletnen whose names you mentioned-—
are Mr. Freeman, Mr. Batchelder,
and Mr. Williams of the law
firm of Eushmore, Bisbeex & Stern ?
Mr. MORGAN. Yes. And Mr. Mudge of Eushmore, Bisbee & Stern.
Mr. PECORA. NOW let us take the first of those: What did Mr.
Barr do so far as your personal study indicates?
Mr. MORGAN. I will have to answer that in a very general way.
He investigated conditions to see what could be done.
Mr. PECORA. Have you any memoranda or records that show
you that he did any such thing?
Mr. MORGAN. There exists so far as I know no memorandum
from Mr. Barr showing the results of his study.
Mr. PECORA. Well, how do you know that he did anything at all?
Mr. MORGAN. I know he went there.
Mr. PECORA. HOW do you know that he did anything at all?
Mr. MORGAN. Counsel advises me that he did.
Mr. PECORA. When did counsel so advise you?
Mr. MORGAN. Then and now.
Mr. PECORA. What do you mean by then; back in 1926?
Mr. MORGAN. I was in Germany at that time, Mr. Pecora.
Mr. PECORA. Did they call you up in Germany and tell you that
Barr had gone to Cuba in 1926?
Mr. MORGAN. That was several weeks ago, at the time my study of
this started.
Mr. PECORA. And counsel advised you now, you said?
Mr. MORGAN. Yes.
Mr. PECORA. Then
Mr. MORGAN. Yes.
Mr. PECORA. When
and now?
you say " now " do you mean at the moment that
I asked you the question or right thereafter?
Mr. MORGAN. At this moment.
STOCK EXCHANGE PRACTICES
2581
Mr. PECORA. And what did counsel either then or now advise you
Mr. Barr had done outside of having gone to Cuba?
Mr. MORGAN. Only in general terms to study the situation.
Mr. PECORA. Well, what? What did they advise you he had done?
Mr. MORGAN. Studied the situation to find out what could be done.
These were preliminary explorations. They resulted in nothing until
JWuary 195 1927.
Mr. PECORA. But they did result in this financing eventually, did
they not? Did they not, these preliminary explorations, as you call
them? They did result in this financing that was undertaken by
the Chase National Bank eventually?
Senator COUZENS. The witness answered yes to that.
Mr. MORGAN. Yes.
Mr. PECORA. IS that the answer?
Mr. MORGAN. Yes.
Mr. PECORA. NOW, can you tell this
committee more specifically
than you have what Mr. Barr did in those preliminary explorations
that led to this financing?
Mr. MORGAN. I cannot.
Mr. PECORA. All right. Now, do you know what Mr. Freeman
did in that respect?
Mr. -MORGAN. The same general response, Mr. Pecora.
Mr. PECORA. DO you know what anybody specifically did in those
preliminary explorations?
Mr. MORGAN. Mr. Pecora, various groups worked on this business,
not simply our own bank, but other groups of bankers, during April
or the early part of May of 1926. It then seemed that some form of
agreement satisfactory to the Government had developed with
another
Mr. PECORA (interposing). Are you reading that answer from
something beforeyou?
Mr. MORGAN. Yes.
Mr. PECORA. What
is the document from which you are reading
this answer, which, by the way, does not answer the question I
have put to you?
Mr. MORGAN. NO. YOU have asked me for detailed information
about this period.
Mr. PECORA. I have asked you what you know or what you
learned.
Mr. MORGAN. Yes.
Mr. PECORA. NOW, what are you reading that answer from?
Mr. MORGAN. I am reading this from a document which I
have
jointly prepared with my associates in order to refresh my memory
at this stage.
Mr. PECORA. A document that you prepared with others?
Mr. MORGAN. Yes.
Mr. PECORA. I thought
you said you knew nothing except what
others told you concerning the activities of these representatives of
the Chase Securities Corporation in these preliminary explorations?
Mr. MORGAN. From the record.
Mr. PECORA. What record did you consult that enabled you to join
in the preparation of that statement from which you are reading?
2582
STOCK EXCHANGE PBACTICES
Mr. MORGAN. Many of the photostats which you now have in
your possession and from the other documents in the files of the
Chase Bank.
Mr. PECORA. I will call on you now to produce any record toshow
what part Mr. Barr had or took in this preliminary exploration, as
you call it.
Mr. MORGAN. I have not testified to Mr. Barr at this point. I
have given you all I know about Mr. Barr.
Mr. PECORA. Have you given us practically all you know about
what Mr. Freeman did?
Mr. MORGAN. Yes.
Mr. PECORA. And what Mr. Batchelder did ?
Mr. MORGAN. NO.
Mr. PECORA. What did Mr. Batchelder do to your
knowledge or so
far as you have been informed by anybody?
Mr. MORGAN. That is what I was engaged in producing. (Referring to memorandum.) I t was contemplated, as was developed
this morning, in the middle of 1926, that expenditures aggregating
125 to 130 million dollars upon the works provided for by the Public
Works law during a 4-year period would be involved. The Chase
Securities Corporation sent Mr. Batchelder and Mr. A. M. Williams
and Mr. Strahan of Messrs. Rushmore, Bisbee & Stern to work upon
the business. Mr. Batchelder and Mr. Williams talked with the
Secretary of the Treasury and learned that no concrete plan had
been developed by the Government, but the Government would be
interested to have a group arrange a credit of up to $30,000,000.
By the end of June, that is to say 1926, the Chase Securities
Corporation concluded that a satisfactory financing plan could not
be devised under the existing law, and Mr. Freeman reported that
the Government ought to return to the institute plan which had been
discussed earlier in the year.
Mr. Batchelder reported that on July 23 bids had been called
for to be filed on September 1. By decree of the President no. 1338
of August 23 this date was extended to September 20, and the date
was later extended to September 27.
Our best information is that on September 27 Messrs. Warren
Brothers Co. of Cambridge, Mass., George A. Fuller Co. of Jersey
City, N.J., Mellon-Stewart & Co. of Pittsburgh, Pa., and Messrs.
Dwight Robinson & Co. of New York, working in conjunction with
the National City Bank of New York, bid for the highway work
and financing to be handled through a private corporation to be
known as the Institute of Public Works for the Republic of Cuba.
The Foundation Co. of New York, together with two local contractors and TJlen & Co. of New York, submitted a bid for highway construction^ and Messrs. James Stewart & Co. submitted a bid
for all construction work. No definite action was taken on these
bids, and on October 17, Dr. Enrique Hernandez y Cartaya of the
Treasury, reported that the proposals were not satisfactory and
advanced a plan which he had developed.
Would you like me to outline the plan that Cartaya had in mind
at that time ?
Mr. PECORA. Did you read that answer from some prepared statement before you?
Mr. MORGAN. Yes.
STOCK EXCHANGE PRACTICES
2583
Mr. PECORA. And that is the document you say you prepared
jointly with others?
Mr. MORGAN. Yes.
Mr. PECORA. Who were the others that participated with you in
the preparation of that statement?
Mr. MORGAN. Mr. Geiger and Mr. Williams.
Mr. PECORA. I S the institute that you have just referred to, in
reading from that prepared statement, the same institute that you
mentioned just prior to the taking of recess this morning?
Mr. MORGAN. Not the same one, Mr. Pecora, because Mr. Freeman
himself, quite independently of this group that was working in
conjunction with the National City BanE, had the idea of the
Institute of Public Works.
Mr. PECORA. What was the institute to which you referred during
the forenoon session?
Mr. MORGAN. That was Mr. Freeman's idea.
Mr. PECORA, What was it?
Mr. MORGAN. It was an institute, as I then testified, which would
by owned wholly by the Kepublic of Cuba. I t would have as its
board of directors leading Cuban citizens, together with certain
Americans. This institute would be qualified to issue bonds on the
security of the public-works revenues. At the same time, it would be
the agency through which contracts would be let for the prosecution
of the public-works program.
Mr. PECORA. DO you know what the purpose was of creating that
institute ?
Mr. MORGAN. I t was on the parallel of similar successful institutions in Italy, Brazil, and this country.
Mr. PECORA. YOU are telling us what it was similar to, not what
its purpose was. I want to know what its purpose was.
Mr. MORGAN. TO issue bonds for the prosecution of the highway
and the other public improvements, and to handle the contracts.
Mr. PECORA. TO issue bonds in behalf of whom?
Mr. MORGAN. For the public works program.
Mr. PECORA. In behalf of whom ?
Mr. MORGAN. On its own faith and credit, supported by the
revenue
Mr. PECORA. And the bonds to be paid by whom?
Mr. MORGAN. , Out of the proceeds of the revenue.
Mr. PECORA. By whom?
Mr. MORGAN. YOU mean physically by whom? By the trustee.
Mr. PECORA. NO. I mean whose responsibility lay back of the
bonds to be issued.
Mr. MORGAN. The institute.
Mr. PECORA. HOW about the Cuban Government's responsibility?
Mr. MORGAN. I am not informed whether the Cuban Government
was to guarantee the bonds or not, but the taxes which would otherwise have inured to the Cuban Government were, under this plan,
to be diverted to the institute.
Mr. PECORA. DO you know what occasion there was for the creation of such an institute to enable the Cuban Government to go
ahead with its public works program?
Mr. MORGAN. The occasion, I think, was General Machado's insistence upon a pay-as-you-go policy.
2584
STOCK EXCHANGE PRACTICES
Mr. PECORA. Upon what?
Mr. MORGAN. A pay-as-you-go policy.
Mr. PECORA. And could not the Cuban Government undertake
such a policy without the intervention of such an institute?
Mr. MORGAN. Mr. Williams was on the spot at that time. Do you
want him to explain?
Mr. PECORA. I know, but you put yourself on. the spot this morning with regard to this examination after you httd made a special
study.
Mr. MORGAN. Quite true.
Mr. PECORA. Was your special study exclusive of this particular
feature of the question?
Mr. MORGAN. N O ; certainly not.
Mr. PECORA. DO you feel that you cannot answer this question^
about the purpose for the creation of this institute?
Mr. MORGAN. NO.
Mr. PECORA. Then go ahead and answer the
Mr. MORGAN. All right. Kepeat the question.
Senator ADAMS. May I ask a question? As
question.
I understand, thisinstitute was a private corporation, to be governed by a board of
directors of Cuban citizens.
Mr. MORGAN. Quite true.
Senator ADAMS. At the same time, a private corporation was to
issue its bonds, -these bonds to be seeure^by the pledge of Cuban
revenues.
Mr. MORGAN. Yes.
Senator ADAMS. And
this private corporation was to construct
public works in Cuba.
Mr. MORGAN. But, Senator, the corporation was owned by the
Cuban Government, in the same way the Farm Board here was owned
by the United States, and issued its own bonds.
Senator ADAMS. That leads right back to the question Mr. Pecora
has been asking you.
Mr. PECORA. Then it was not a private corporation?
Mr. MORGAN. I did not say it was a private corporation.
Mr. PECORA. YOU just said so, in answer to Senator Adam's question.
Mr. MORGAN. I am sorry; I misspoke if I said it was a private
corporation. I had testified this morning and this afternoon both
that it was a corporation to be owned by the Cuban Government.
Mr. PECORA. What occasion was there, Mr. Morgan, for the creation of this institute in order to enable the Cufcan Government to
carry out the public-wor£& program that was authorize^ by the
enactment of July 15, 1925, and for which special revenues were
authorized by that law?
Mr. MORGAN. I can give you the answer as & banker. Whether it
is an answer as a lawyer, I will leave it to you to decide.
Mr. PECORA. I want the answer, whatever it be.
Senator ADAMS. It ought to be the same in either event, ought it
not?
Mr. PECORA. I should think so. The purpose was the same, whether
you are going to answer from the standpoint of the banker or the
standpoint of the lawyer.
STOCK EXCHANGE PRACTICES
2585
Mr. MORGAN. Very good. We agree. The Secretary of Public
Works, Carlos Miguel de Cespedes, was very ambitious to carry on
this public-works program at maximum speed. This involved an
expenditure annually in an amount greater than the revenues of the
public-works taxes.
Mr. PECORA. What revenues do you now mean ?
Mr. MofcGAN. $18,000,000 a year.
Mr. PECORA. Those are the special revenues authorized by the
public-works law of 1925.
Mr. MORGAN. Just so. Those revenues, by the way, were merely
segregated revenues. They were all, for the most part, in existence
prior to the law of 1925.
Mr. PECORA. Then why were they referred to as special revenues
created by the law of 1925 ?
Mr. MORGAN. Earmarked for the purpose. I described them this
morning as earmarked for this purpose.
Mr. PECORA. Were they kept apart as a fund?
Mr. MORGAN. Yes.
Mr. PECORA. Are you sure of that?
Mr. MORGAN. On the books of the Cuban Government, yes.
Mr. PECORA. Were they actually segregated and kept apart,
or
were they commingled with the National funds generally?
Mr. MORGAN. YOU are asking me something that lies in the archives
of the Cuban Government. So far as our records go, they were paid
to us punctually when due.
Mr. PECORA. GO ahead and continue your answer. You are trying
to tell us what the reason was for the creation of this institute in
order to enable the Cuban Government to carry out this public-works
program under the special act of 1925.
Mr. MORGAN. I have indicated the ambitious program of the secretary of public works.
Mr. PECORA. Yes; to spend $325,000,000.
Mr. MORGAN. Not at that time. It had already become somewhat
more delimited.
Mr. PECORA. All right.
Mr. MORGAN. Obviously that program could not be carried through
to that ambitious scale without financing, as promptly as he desired,
and it was in order to meet that desire to prosecute more rapidly
the public-works program that the bankers devised this method
Does that answer your question?
The CHAIRMAN. Who furnished the capital for it? Didn't it
have some capital?
Mr. M6RGAN. I t never went through, Senator. This is a purely
exploratory program, which never went through.
The CHAIRMAN. The institute never was established?
Mr. MORGAN. I t never went through. I t is one of the numerous
ideas that was proposed from time to time for dealing with the
public-works program.
The CHAIRMAN. Who was to furnish the capital in case it did go
through ?
Mr. MORGAN. The Government of Cuba.
Mr. PECORA. What, if anything, was done in behalf of or at the
instance of the Chase Securities Corporation, or any of its associates
on this plan to advance the public-works program, toward meeting
2586
STOCK EXCHANGE PRACTICES
the cpncern that had been expressed in the early part of 1926 by
General Crowder, the American Ambassador to Cuba, with respect
to the validity of this public-works program, under ihe Platt amendment and the Cuban Constitution?
Mr. MORGAN. The program to which you referred, and to which
Ambassador Crowder referred, was abandoned. I t seems to me that
is pretty explicit.
Mr. PECORA. What was done with respect to meeting General Crowder's concern as to whether or not any indebtedness could be contracted for this public-works program without violating the Platt
amendment?
Senator COUZENS. I think the witness testified that they got opinions from both New York and Cuban lawyers.
Mr, MORGAN. What actually was done-r—
Mr] PECORA. Before that
Mr. MORGAN. May I just make a record of this, so that I think
this thing can go to sleep ?
Mr. PECORA. I do not know whether it will go to sleep, Mr.
Morgan, after you are through telling us about it.
Mr. MORGAN. This is a matter of record.
Mr. PECORA. I might go to sleep.
Mr. MORGAN. The credit of February, 1927
Mr. PECORA. February 19.
Mr. MORGAN. The credit of February 19, 1927, was reported in
full to Ambassador Crowder and to the State Department. The
State Department consulted Ambassador Crowder, and ultimately
gave to the Chase National Bank a letter stating that it took no
exception to the operation.
Mr. PECORA. What documents can you produce in substantiation
of that?
Senator ADAMS. That was the $10,000,000 loan that you were
referring to ?
Mr. MORGAN. Yes, sir.
Senator ADAMS. That is
Mr. MORGAN. American
figured in American dollars?
dollars. It is identical. Cuba uses
American currency.
I read a copy of a letter dated February 15, 1927, addressed to
the State Department, State Department Building, Washington,
D.C., attention of Dr. Young.
DEAB SIB: On December 6, 1926, I submitted to you on behalf,of my client a
•copy of the proposal made to the Cuban. Government in connection with the
financing of the construction of the central highway. At that time I was
reminded that inasmuch as this matter might involve a public offering, it
would be advisable to give your department further notice before the definite
agreement was concluded in case the preliminary proposal was accepted by the
Ouban Government.
I am therefore enclosing herewith, on behalf of my client, the Chase National
Bank of the City of New York, a copy of the proposed definitive agreement
(revise of Feb. 9, 1927) which has been negotiated with representatives
of the Cuban Government to give effect to the preliminary proposal, a copy
of which is already on file with you. It is expected that the definitive agreement, in substantially the form submitted herewith, will be approved by the
Cuban Government for execution by the end of this week, and I shall therefore
appreciate if you will advise my client, at their principal ofiice, No. 57 Broadway, New York City, as to whether your department sees any objection to
the making of the credit arrangement outlined in the proposed contract.
Very truly yours,
A. E. MUDGE.
STOCK EXCHANGE PRACTICES
2587
Mr. PECORA. He is a member of the firm of Kushmore, Bisbee &
Stern, attorneys for the bank?
Mr. MORGAN. Yes.
I now read from a copy of a letter dated February 21, 1927, from
the Department of State, Washington, D.C., addressed to the Chase
National Bank, 57 Broadway, New York:
SIRS: The Department is in receipt of a letter from Messrs. Itushinore,
Bisbee & Stern, dated February 15, 1927, stating that your firm is interested
in the proposed loan to the Cuban Government of a sum not to exceed
$10,000,000 for the purpose of facilitating the carrying out of the construction
of the proposed central highway of Cuba.
I beg to state that in the light of the information before it the State Department offers no objection to this financing.
You, of course, appreciate that, as pointed out in the Department's announcement of March 3, 1922, the Department of State does not pass upon the merits
of foreign loans as business propositions, nor assume any responsibility in
connection with such transactions. Also that no reference to the attitude of
this Government should be made in any prospectus or otherwise.
I am, sirs,
Your obedient servant,
For the Secretary of State:
LELAND HARBISON,
Assistant Secretary.
Mr. PECORA. Will you let me look at those two documents, please?
[Mr. Morgan hands papers to Mr. Pecora.]
Mr. PECORA (after examining papers). Now, Mr. Morgan, I note
that in the letter of Mr. Mudge to the State Department dated February 15, 1927, reference is made by Mr. Mudge to the fact that on
December 6, 1926, he had submitted to the State Department, on behalf of the Chase National Bank, a copy of the proposal made to the
Cuban Government in connection with the financing of the construction of the central highway.
Mr. MORGAN. That also
Mr. PECORA. Have you got that letter ?
Mr. MORGAN. That also was supplied to General Crowder.
Mr. PECORA. Have you got a copy of it?
Mr. WILLIAMS. Mr. Pecora, Mr. Mudge stopped at Washington on
his return from Habana and delivered that proposal personally to
the representative in the State Department.
Mr. PECORA. Then there was no correspondence on the subject?
Mr. WILLIAMS. NO. There was no letter transmitting the proposal.
He delivered it in person.
Mr. PECORA. Have you a copy of the proposal that he delivered to
the State Department at that time in person ?
Mr. MORGAN. I have the text of it here, Mr. Pecora. [Handing
paper to Mr: Pecora.]
Mr. PECORA (after examining paper). Mr. Morgan, I have very
hastily glanced through the document that you have just handed to
me, and which purports to be the proposal that was submitted to the
State Department by Mr. Mudge on December 6,1926. I see in it no
reference whatsoever to any consideration of the question as to
whether or not this public-works program would be in violation of
the Platt amendment and the Cuban Constitution.
Mr. MORGAN. This was addressed to the secretary of public works,.
Mr. Pecora, of Cuba. This is a proposal of the Chase National
Bank.
2588
STOCK EXCHANGE PRACTICES
Mr. PECORA. Well, I specifically asked you, Mr. Morgan, if you
could tell the committee what if anything was done on behalf of
the Chase Securities Corporation or the Chase National Bank, or any
of its associates in this financing of the public-works program to
meet the concern expressed by General Crowder in March 1926.
Mr. MORGAN. The legality—that is to say, the legality within the
Platt amendment of this financing
Mr. PECORA. Yes; now that is the question that I thought you
were answering.
Mr. MORGAN. I t was passed upon in detail by the lawyers in New
York, and by Antonio S. De Bustamente in Habana, who, as I testified this morning, was once president of the World Court, and is
now a member of the World Court, and therefore amply qualified
to pass upon a question of international law.
Mr. PECORA. Dimply because he is a member of the World Court
he is amply qualified to pass upon a question of international law,
is he?
Mr. MORGAN. He is absolutely the leading lawyer in Cuba; at the
top of the Cuban bar.
Mr. PECORA. Well, let us see the opinions that these lawyers rendered, will you?
Senator COXTZENS. YOU said this morning that you did not have
them here, did you not?
Mr. MORGAN. Yes; I do not.
Mr. PECORA. Have you ever
read those opinions before, Mr.
Morgan?
Mr. MORGAN. I am not a lawyer.
Mr. PECORA. Well, have you ever read them?
Mr. MORGAN. NO ; I never have.
Mr. PECORA. SO that your special study of this whole subject did
not include a reading even of the opinions upon which the legality
of these loans, so far as any provision of the Platt amendment was
concerned, dealt with ?
Mr. MORGAN. The question of legality of that sort is preferably
left in the hands of the lawyers, Mr. Pecora.
Mr. PECORA. Can you produce their opinions now ?
Mr. MORGAN. We are looking for the opinion, Mr. Pecora, if you
want to proceed with the examination.
Mr. PECORA. I will proceed, and will you let me know when they
have beqn found, please?
Mr. MORGAN. Yes.
The CHAIRMAN. May I ask you, do you know whether that proposal conforms to or complies with the agreement which was finally
made on the 19th day of February 1927 which is recorded at page
1978 of part 4 of the Hearings before the Finance Committee,
held in January and February 1932?
Mr. MORGAN. I t is substantially the same. I t was clarified in certain respects, and in one important respect, for instance, the commission was reduced in the final agreement.
Mr. PECORA. After the sending of this letter by Mr. Mudge to the
State Department, dated February 15, 1927, the agreement with respect to the $10,000,000 credit was entered into, was it not?
Mr. MORGAN. Yes.
STOCK EXCHANGE PRACTICES
2589
Mr. PECORA. And when was it entered into?
Mr. MORGAN. February 19, 1927.
Mr. PECORA. Apparently the official advices you got from the
;State Department were not dated until February 21,1927. Did your
people go ahead on t"he 19th on the assumption that the State
^Department was going to say, "Amen"?
Mr. MORGAN. I notice the discrepancy in dates, and I cannot explain it except on the ground that the State Department had notified us by telegram or by telephone beforehand.
Mr. PECORA. What did you say?
Mr. MORGAN. I can only explain the discrepancy of dates on the
assumption that the State Department notified by telegram or telephone that its written approval was forthcoming.
Mr. PECORA. Why do you assume any such thing, Mr. Morgan?
Mr. MORGAN. Because of the dates.
Mr. PECORA. What is that?
Mr. MORGAN.. Because of the discrepancy of dates. Mr. Williams
tells me that during this period the State Department made an examination of this whole question with General Crowder in Habana.
Mr. PECORA. Why do you assume that the State Department in
.advance of writing its letter of February 21,1927 had communicated
its judgment to your people?
Mr. MORGAN. Because we are looking for the telegram, Mr. Pecora.
Mr. PECORA. I hope you find it.
The CHAIRMAN. Did you find the opinion^ Mr. Morgan?
Mr. MORGAN. I hold in my hands the opinion of Doctor De Bustamente on this financing, giving his complete approval of legal
details.
Mr. PECORA. In what language is it?
Mr. MORGAN. Spanish and English.
Mr. PECORA. I S there an English translation of it with the Spanish
text there?
Mr. MORGAN. Yes; both.
Mr. PECORA. Have you got the opinion that was given by Rushmore,^Bisbee & Stern?
Mr. MORGAN. We are still looking for that one.
Mr. PECORA. Have you found the telegram that you assumed was
•sent by the State Department?
"Mr. MORGAN. NO ; not yet.
Mr. PECORA. While they are
looking for that telegram and for
the opinion of Rushmore, Bisbee & Stern, I will proceed to something else. May we see that opinion?
Mr. MORGAN. Yes. [Handing paper to Mr. Pecora.]
Mr. PECORA. I see it is rather voluminous. I will ask that it be
marked for identification, and then I will look it over at the conclusion of this session, and probably put it in the record tomorrow.
Mr. WILLIAMS. We would like to get that back Mr. Pecora.
Mr. PECORA. Oh, yes. That is why I am having it marked for
identification, so it will be identified and you will get it back. Have
you a copy of that here ?
Mr. MORGAN. We have a copy in New York. We have no copies
here.
Mr. PECORA. We will take good care of it, and I will see that it
t back to you.
2590
STOCK EXCHANGE PRACTICES
(Opinion of Dr. Antonio Sanchez de Bustamante was marked
" Committee Exhibit No. 32 " for identification of Oct. 3,1933.)
Mr. PECORA. Mr. Morgan, perhaps it would shorten your examination if I read to you part of the testimony given by Mr. Grosvenor
Jones before the Senate Finance Committee, the Seventy-second
Congress, at the hearings which it held pursuant to Senate Resolution 19, as that testimony is shown on pag^s 739 and 740, 741, and
742 of part I I of the printed minutes of those hearings. Part of
question put by Senator Johnson to Mr. Jones:
Do you know of any connection between the loans granted to Cuba, and the
contracts granted simultaneously for the construction of roads in Cuba?
Mr. JONES. It happens that I spent about 10 months in Cuba as economic
advisor to Ambassador Guggenheim. It was during that time that a $40,000,000
special public-works loan came to the attention of the Embassy and State Department. I do not know anything about the earlier arrangements. Apparently Warren Bros., of Boston, got the contract for building the central highway, and I think they got that quite independently of the banking house that
did the financing of the special public works. It looked for a time as though,
the National City Co. had the inside track on the financing. There was quite a
little competition among American bankers to place that financing for theCuban Government, but the Chase National Bank, or the Chase Securities Co.,
really won out, and I do not know that there is any connection between Warren
Bros, and the Chase Securities Co.
Then followed some colloquy, and then these questions and theanswers which I will read from pages 740, 741, and 742. Question
by the chairman:
The CHAIRMAN. DO you know, in the case of the loan which is mentioned,,
whether the State Department was requested to approve it or not?
Mr. JONES. I am not altogether clear.
The CHAIRMAN. Was not that a commercial loan?
Mr. JONES. President Machado was elected to office on the pledge that during
Ms term of office Cuba would not increase her public debt. His predecessor,.
Dr. Zayas, had had to issue $50,000,000 of bonds to clear up a lot of debt
incurred under his predecessor's regime. That was the regime 1of MenocaL
But Machado said solemnly that he was not going to increase the public debt
of Cuba.
There came along this grand project for building a highway from one end
of the island to*the other, at a time when all Latin America was stirred: up
by the possibilities of economic development through highway construction.
General Machado was in a rather awkward position. He wanted the highway.
He felt it would relieve unemployment in Cuba, and yet he did not want to
increase the public debt. So, they conceived an original plan down there.
They first created a lot of special revenues which they said should be set asidef
for public-works construction. "It will not go through the regular budget \
they said. "We will call it the special public-works fund. In fact, we will
make a contribution to that fund from our regular budget, and we will pay
as we go in the the construction of this highway."
Well, they were a little slow in getting their plans drawn arid the revenue
assigned to. this .fund amounted up much more rapidly than anybody anticipated^ and iir a short time—^in a year's time—they had a great fund; a great
balance to the credit of this fund. So, then, they began to build this central
highway. For political reasons, they had to build it in each of thefiveProvinces.
Bach Province felt that it had to have its part started, and the result was
that you had the highway started at five different points, getting nowhere. Then
there came the agitation, "Let us link up these vaiious portions, so that
we will get some use out of them." The only way they could do that was to<
speed up construction, and the only way they could speed up construction was
to arrange for some temporary financing, and yet they did not want to issue
bonds, so they conceived the brilliant idea of having the public works department issue to the contractors, as bits of work were completed, public-works
certificates saying that the Government owes the contractor so much for sucht
and such a job.
STOCK EXCHANGE PRACTICES
2591
Senator SHOKERIDGE. Rather clever, wasn't it?
Mr. JONES. Yes. Then they said, " We will have to arrange with the bankers
to discount these." So, that is where the financing of the public works in
Cuba originated.
Then came a question. The bankers wondered, I believe, whether the Platt
amendment applied, because the Platt amendment requires that Cuba shall
float no loan, or issue no obligation the interest and service of which cannot
be met out of the ordinary revenues. WeU, this was not the ordinary budget.
This was a special fund.
-^
.», There is a little question whether the public-works fund,;,was considered
a part of the ordinary budget, but I think their idea, as I learned from
talking with Cuban officials afterward, was that that was something apart
from the ordinary budget.
In any case the Cuban .Government succeeded in getting bankers to discount
,1or the contractors these deferred public-works certificates.
The CHAIRMAN. American bankers?
Mr. JONES. American bankers. First it was started in a modest way, only
$10,000,000, and with these revenues coming in the way they were, it looked
as though those could be paid off very easily. The Chase Securities Co., after
some competition, got that business. Then, of course, like all taose things,
once you start it you are in for it. The Cuban Government began to spend
more and more money on these projects. They thought they ought to complete the capitol. The result is that they have a $20,000,000 capitol with a
gilt dome, and all that sort of thing. Then they ought to build that fine sea
wall, which General Wood restored. That ought to be extended a few miles
further. Money was coming easy. But they neglected the public highway, a
bit, you see. In order to get the money to make the central highway worth
anything, it had to be completed. There were all these different links started,
and not joined together. So that credit had to be extended to $60,000,000.
They had asked Chase for another credit of $50,000,000, bringing up the .total
credit to $60,000,000. That got a little large for Chase to swing, although they
had a syndicate to handle it, so it was arranged with the Cuban Government
that a part of those public-works certificates should be sold to the public in this
country, and so there were two issues of $10,000,000 each of these, public works
certificates sold on a serial basis to the American public.
As far as I have read this testimony of Mr. Jones to you, Mr.
Morgan, do you think that he had a fairly comprehensive grasp
of the situation or the facts with regard to this financing?
Mr. MORGAN. I cannot certify to the detailed accuracy of Mr.
Jones' statement. I t seems to me to be rather a general and cursory
description.
Mr. PECORA. Does it in any way conflict with any information
that you acquired or any conclusions which you reached as the
result of your special study of this whole situation?
Mr. MORGAN. AS a general and cursory and very casual description of what occurred, I think it is fair enough.
Mr. PECORA. The opinion rendered by this great lawyer, Mr.
Bustamante, which you have submitted to us, has been read by
one of our associates while I was examining you, and he informs
me that the opinion in no way refers even to the Platt amendment.
Mr. MORGAN. That is* correct. It certifies to all the legal aspects.
Mr. PECORA. I t merely states a conclusion without setting forth
the grounds upon which the conclusion is based; is that it?
Mr. MORGAN. Yes.
Mr. PECORA.' D O you
know whether my special consideration was
given by any lawyer—whether or not he is a member of the World
Court—on the question of whether or not this whole public-works
program and the expenditures it would entail would be in violation
of the Platt amendment to the Cuban constitution?
Mr. MORGAN. It was examined in detail by Rushmore, Bisbee &
Stern
and orally with Dr. Bustamente.
2592
STOCK EXCHANGE PRACTICES
Mr. PECORA. What do you mean when you say, " examined oralljr
by Dr. Bustamante"? Just a conversation with him, and then he*
wrote that opinion?
Mr. MORGAN. Repeated conferences with him.
Mr. PECORA. By whom?
Mr. MORGAN. The lawyers, Eushmore, Bisbee & Stearn, Mr. Williams, and Mr. Mudge.
Mr. PECORA. Have you yet found the opinion rendered by Eushmore, Bisbee & Stearn on this question?
Mr. MORGAN. We will produce it. We apparently do not have it
in Washington. We are still looking for it; but apparently it is
not here.
Mr. PECORA. Were any statements made by Mr. Jones in his testimony before the Senate Finance Committee in the early part of
1932, which I have just read to you, which are in any way in
conflict with your conception or knowledge of what the facts were?
Mr. MORGAN. I would have to examine that statement in detail
myself.
Mr. PECORA. I just read it to you.
Mr. MORGAN. Yes; you did.
Mr. PECORA. It is wholly understandable,
Mr. MORGAN. It was a general and very
is it not?
casual conversational
expose of the whole matter, and as for its general approach I take
no particular exception to it; but I will not certify to its accuracy.
Mr. PECORA. AS you heard me read it—and I hope you followed
me with some care—as you heard me read it, was there anything to
be testified to which is in conflict with anything you have learned
concerning the facts of this financing as a result of your special
study of it?
Mr. MORGAN. Mr. Pecora, I must ask you not to ask me to certify
to something which I have heard orally across the table and which
I have had no opportunity to examine in detail. I do not certify to
anybody else's work.
Mr. PECORA. DO you recall a single statement made by Mr. Jones
in his testimony beiore the Senate Finance Committee which I read
to you which is in conflict with anything in your mind, based upon
either personal knowledge on your part or examination of records or
hearsay from any source?
Mr. MORGAN. In answering that question I would give a negative
assent to the accuracy of his statement.
Mr. PECORA. Wb&t does that mean—a negative assent?
Mr. MORGAN. It means that if I take no exception to it I approve
it in toto. I do no such thing. I cannot approve anybody else's
work read to me casually like that. If you would like a memorandum prepared carefully in response to that, I would be glad to
doit.
Mr. PECORA. NO; I do not.
The CHAIRMAN. YOU can go
as far as the statement* and say jou
see no occasion to raise any objection to it.
Mr. PECORA. Whether you read it or not, did you ever see the
opinion rendered by Eushmore, Bisbee & Stern on the question
of the Platt amendment applying to the expenditure for the publicworks program?
Mr. MORGAN. NO.
STOCK EXCHANGE PRACTICES
2593
Mr. PECORA. When did you first learn, or when were you first
informed by anybody, that such an opinion had actually been
rendered?
Mr. MORGAN. I cannot fix whether it was 2 years ago or more
recently, but at the time I read the form of the contract and saw
it was approved by Kushmore, Bisbee & Stern and by Dr. Bustamante.
Mr. PECORA. That approval of the contract may have related only
to the form of the contract, may it not?
Mr. MORGAN. All of its legal aspects.
Mr. PECORA. In the opinion rendered by Dr. Bustamante which I
have already called to your attention, there was no discussion whatsoever of the applicability of the Platt amendment to the expenditures called for by this public works program, was there?
Mr. MORGAN. I t was not necessary to do so, because he approved
it in toto, all of its legal aspects.
Mr. PECORA. HOW do you know that he considered that particular
question?
Mr. MORGAN. I have been so informed today by our lawyers.
Mr. PECORA. When were you so informed?
Mr. MORGAN. Today.
Mr. PECORA. YOU mean, this afternoon?
Mr. MORGAN. Today.
Mr. PECORA. Well, this afternoon is part of today.
Mr. MORGAN. This morning and this afternoon—several times.
Mr. PECORA. YOU were informed twice on that?
Mr. MORGAN. Several times.
Mr. PECORA. Was your mind in any doubt about it after you first
got the information this morning, so that you had to be informed
about it several times ?
Mr. MORGAN. I have not been in doubt on this question at any time,
Mr. PECORA. At this time I will offer in evidence for the record
a copy of the so-called proposal referred to in Mr. Mudge's letter to
the State Department of February 15, 1927, as a proposal submitted
on September 6,1926.
The CHAIRMAN. Let it be admitted and entered on the record.
(Copjr of document headed " Financing Proposition " referred to
was received in evidence as Committee's Exhibit KTo. 33, of October 23,
1933, and will be found on page 2610.)
The CHAIRMAN. Mr. Morgan, let me ask you this. In January
and February 1927, who were the officers in charge of the branch
of the Chase Bank in Cuba?
Mr. MORGAN. William Ignatius Quealley and Jose Obregon.
The CHAIRMAN. What positions did they hold?
Mr. MORGAN. They were joint managers.
The CHAIRMAN. Mr. Obregon was the son-in-law of President
Machado, was he not ?
Mr. MORGAN. Excuse me, Senator. I have got to correct that.
Obregon did not come into the bank until May 1927.
The CHAIRMAN. Before that you only had one man?
Mr. MORGAN. Mario Seiglie.
The CHAIRMAN. Obregon was the son-in-law of President
Machado ?
2594
STOCK EXCHANGE PRACTICES
Mr. MORGAN. He came in as new-business man in the Habana
branch in May 1927, 4 or 5 months after this.
The CHAIRMAN. What was his relation to President Machado?
Mr. MORGAN. Son-in-law.
The CHAIRMAN. Did the other manager go down from New York,
then?
Mr. MORGAN. He lived there, Senator; Quealley lived there.
Mr. PECORA. NOW, Mr. Morgan, have you succeeded as yet in
finding either the opinion of Rushmore, Bisbee & Stern or the
telegram that you think was received from the State Department?
Mr. MORGAN. NO, Mr. Pecora.
Mr. PECORA. This forenoon in the course of your testimony you
made some reference to General Crowder, as I recall it, a$ having
been interested at that time in some other company. What did you
mean by that?
Mr. MORGAN. I attempted to explain that at the time, Mr. Pecora.
If you will remember the situation in 1923 in Cuba, there was a very
large refunding operation put through under the Crowder regime,
soon after General Crowder ^ot down there. The house that put
that financing through did a piece of public service, I might say.
Mr. PECORA. And what was that house?
Mr. MORGAN. J. P . Morgan & Co. And I have been told that
General Crowder felt a certain sense of obligation toward this other
house with respect to any further financing that wa^s to come through.
That is the sole extent of the interest, and I used the word " interest",
as I explained at that time, in the most laudatory way with respect
to General Crowder.
Mr. PECORA. DO you mean by that, among other things, that General Crowder felt that the bankers that had done that financing in
1923 should have been permitted to do all the external financing subsequently for the Cuban Government?
Mr. MORGAN. That was the impression that 6ur people then derived. And yet the field was open. I t was a government with financing in prospect, and the field was open to anyone who could do the
business in the most satisfactory way for the debtor. General
Crowder consistently—well, I should say that there were innumerable conversations with General Crowder during this whole period,
and many; of them very frank.
Mr. Williams tells me that he probably lunched with General
Crowder a hundred times
Mr. WILLIAMS (interposing). Not lunched but discussed.
Mr. MORGAN. Well, that it was discussed a hundred times with
General Crowder, I mean these various questions. So that there
was nothing secretive at all so far as the relations between our counsel
and General Crowder were concerned.
The CHAIRMAN. J. P. Morgan & Co. were not one of the competitors for this 10 million dollar business, were they?
Mr. MORGAN. They did not put in a bid.
Mr. PECORA. Didn't Mr. Batchelder in his communication which
has been placed in evidence and marked " Committee Exhibit* No.
31, October 23,1933 ", in July of 1926, refer to J. P . Morgan & Co.'s
interest in securing this financing as an interest that was being promulgated through the National City Co. ?
Mr. MORGAN. Well9 now3 let me
STOCK EXCHANGE PRACTICES
2595
Mr. PECORA (continuing). For instance, let me refer to these two
paragraphs in Mr. Batchelder's letter, on the last page of it:
The City Co. people are doing nothing more than to keep an eye on the
business, inquiring once or twice a week if there is any progress. I feel that
their activity stopped about 3 weeks before we got down there, they having
then reached about the same conclusion as ours. The Morgan people, if they
have any interest in the indirect loan, have it through the City Co.; but if a
direct loan does come out of all this they probably expect to get it in their
own name.
Don't you think that was what Mr. Batchelder had in mind when
he wrote that?
Mr. MORGAN. That is what he said.
Mr. PECORA. NOW, while I am on this subject of Mr. Batchelder's
letter
Mr. MORGAN (continuing). Mr. Batchelder didn't say they had
an interest, but he said if they had any interest. That is what
I understood you to say.
Mr. PECORA. While I am on the question of this letter of Mr.
Batchelder's I want to ask you specifically about this statement in
it, on the second page, last paragraph:
The secretary of public works, who has all the money he wants, is apparently out to make a record for himself by making the best trade possible for
the Government on all construction work and purchases.
What do you think Mr. Batchelder had in mind when he said, in
referring to the secretary of public works: " He has all the money he
wants " ?
Mr. MORGAN. I t means, as you have already read in the testimony
of Grosvenor Jones, that the proceeds from taxation had accumulated
rather rapidly and that he therefore had funds with which to prosecute the work then in process, such as the making of plans and
surveys.
Mr. PECORA. YOU do not mean that the secretary of public works,
having all the money he wanted, was out to make a record of public
service, then?
Mr. MORGAN. I did not interpret it that way.
Mr. PECORA. NOW, were any instrumentalities or intermediaries
used by the Chase people for the purpose of securing this financing
from the Cuban Government?
Mr. MORGAN. Are you referring to the word " intermediaries " in
Mr. Batchelder's letter?
Mr. PECORA. I am referring to it in its ordinary meaning.
Mr. MORGAN. NO. We went after it directly.
Mr. PECORA. YOU went after it directly?
Mr. MORGAN. Yes.
Mr. PECORA. Well,
did you employ or use any intermediaries, any
other agencies, than the immediate representatives or officers of
Chase Securities Corporation?
Mr. MORGAN. The intermediaries referred to in the letter of Mr.
Batchelder are the secretary of public works and the Secretary of
the Treasury. He complained, if you recall, that he was unable
to go directly to the President.
Mr. PECORA. NOW, in your special study of the history of these
Cuban loans, did you come across a memorandum addressed to Mr.
175541—33—PT 5
21
2596
STOCK EXCHANGE PEACTICES
Callahan and Mr. McKee by Mr. A. K. Geiger, dated January 21,
1932? In connection with this question I invite your attention to a
document which you will probably find in your files bearing the
number 56-69 in the upper right-hand corner.
Mr. MORGAN. Yes.
Mr. PECORA. DO you
Mr. MORGAN. Yes.
Mr. PECORA. I show
find such a memorandum ?
you what purports to be a photostatic copy
of it and will ask you to kindly look at it and tell us if it is a
true and correct copy of such a memorandum.
Mr. MORGAN. That is correct.
Mr. PECORA. I now offer it in evidence, Mr. Chairman, and ask
that it may be spread on the record of our hearings.
The CHAIRMAN. Let it be admitted, and the committee reporter
will make it a part of the record.
(A memorandum dated January 21, 1932, addressed to Mr. Callahan and Mr. McKee was marked " Committee Exhibit No. 34,
October 23, 1933," and will be found in full below where read by
Mr. Pecora.)
Mr. PECORA. NOW, the memorandum in question, marked " Committee Exhibit No. 34 " in evidence as of this date, reads as follows:
MEMORANDUM
JANTJABY 21, 1932.
To Mr. CAIXAHAN and Mr. MCKEE :
As you know references to the Cuban public-works financing have on at
least two occasions been made in the recent Senate testimony. While there
is no intimation as yet that we may be called before the committee on this
transaction, I have drafted roughly my ideas of a statement which we might
use in event we are called. I would very much appreciate it if at your convenience you would go over this statement from the point of view of—
(a) Whether or not I have approached the subject in the proper way, and
(&) Whether the statement should contain a flat denial that we made any
commission payment
Now, the Senate testimony referred to in this memorandum was
testimony that had recently, theretofore, been elicited before the
Senate Finance Committee, in the early part of 1932, under Senate
Resolution No. 19 of the Seventy-second Congress, wasn't it?
Mr. MORGAN.
Mr. PECORA.
Yes.
And that is the committee which after the date of
this memorandum actually did call Mr. Carl Schmidlapp, one of the
officers of Chase, before it, and examined him with regard to these
loans. Is that right?
Mr. MORGAN. That is true.
Mr. PECORA. DO you know whether Mr. Schmidlapp in the testimony which he gave after the date of that memorandum before the
Senate Finance Committee read a statement which corresponded to
the rough draft which had been prepared by Mr. Geiger and submitted by him, with this memorandum which has been just marked
in evidence, to Mr. Callahan and Mr. McKee for their possible
approval ?
Mr. MORGAN. I do not know whether that statement as given by
Mr. Schmidlapp was the direct outgrowth of this memorandum or
not.
STOCK EXCHANGE PRACTICES
2597
Mr. PECORA. Have you seen the statement which Mr. Geiger apparently forwarded to Mr. Callahan and Mr. McKee with this memorandum of his dated January 21, 1932?
Mr. MORGAN. I have no recollection of it.
Mr. PECORA. DO you find any copy of it in the records or files?
Mr. MORGAN. NO.
Mr. PECORA. DO you
know anything at all about the contents of
such a statement?
Mr. MORGAN. None other than appears from the memorandum as
you have read it.
Mr. PECORA. Well, the memorandum which has been read into the
record does not give the substance of the statement, does it?
Mr. MORGAN. NO.
Mr. PECORA. Or make any allusion to those contents, does it?
Mr. MORGAN. NO.
Mr. PECORA. Well, now, in view of the fact that you undertook
either 3 or 4 or 5 or 6 weeks ago to make a special study of this
subject in order to testify before this committee thereon, did you
come across this memorandum of Mr. Geiger's and see the reference
therein to a statement which he prepared for possible use before
the Senate Finance Committee in behalf of your bank or of the
Chase Securities Corporation; did you speak to Mr. Geiger about it ?
Mr. MORGAN. I did not. I knew the subject that was under discussion, and the answer to it is so palpable, so complete, that it
seemed to me that there was no sense in pursuing the question
further.
Mr. PECORA. YOU would rather, then, that I would not pursue it
further?
Mr. MORGAN. Indeed no. I am prepared to answer any question
along that line that you may ask.
Mr. PECORA. HOW can you answer any question about a statement
that you have never seen and the contents of which you are not
informed about?
Mr. MORGAN. I am talking about the subject. I am talking about
the alleged commission paid by the Chase Bank, and no commission
of that sort was ever paid.
Mr. PECORA. I asked you whether you ever discussed the memorandum with the other gentlemen.
Mr. MORGAN. The photostat which you have just placed in the
record refers to a commission. I can answer to that commission
matter, and I know how silly the whole canard was in the beginning, and I would be glad to explain it to you in whatever way
you may wish. That is what has already been done before the
Senate Finance Committee.
Mr. PECORA. What are the sources of your information about it?
Mr. MORGAN. The records of the Chase National Bank.
Mr. PECORA. What specific records?
Mr. MORGAN. The accounting records of the Chase National Bank;
the statements uniformly of the officers who had to do with it, and
the correspondence from beginning to end.
Mr. PECORA. Well now, Mr. Chairman, I think in view of the fact
that Mr. Geiger is actually present here and has been sitting alongside Mr. Morgan throughout all the testimony that Mr. Morgan has
2598
STOCK EXCHANGE PEACTICES
given today, that this is one point where we might temporarily suspend the examination of Mr. Morgan and take up the examination
of Mr. Geiger. So I ask that he now be sworn.
The CHAIRMAN. Mr. Geiger, will you stand up and hold up your
right hand: You solemnly swear that the testimony you will give
in the proceeding now before this committee will be the truth, the
whole truth, and nothing but the truth. So help you God.
Mr. GEIGER. I do.
TESTIMONY OF A. K. GEIGER, A SECOND VICE PRESIDENT OF
THE CHASE NATIONAL BANE, 8CABSDALE, N.Y.
Mr. PECORA. Mr. Geiger, are you connected with the Chase National Bank?
Mr. GEIGER. I am.
Mr. PECORA. In what capacity?
Mr. GEIGER. A S a second vice president.
Mr. PECORA. Will you please give your residence for the record?
Mr. GEIGER. Scarsdale, N.Y. My business address is 18 Pine
Street.
Mr. PECORA. Mr. Geiger, how long have you been connected with
the Chase National Bank in any capacity?
Mr. GEIGER. Since June 1, 1930.
Mr. PECORA. Prior to that were you connected with Chase Securities Corporation?
Mr. GEIGER. NO, sir. I was connected with the Equitable Trust
Co. of New York.
Mr. PECORA. And the Equitable Trust Co. of New York was
merged with the Chase National Bank some time in 1930?
Mr. GEIGER. Yes.
Mr. PECORA. HOW
long prior to the merger had you been connected with the Equitable Trust Co., and in what capacities?
Mr. GEIGER. I believe I went with the Equitable around 1919.
or it may have been 1920.
Mr. PECORA. Did you continue in its service continuously until
it was merged with the Chase National Bank?
Mr. GEIGER. Yes, sir.
Mr. PECORA. And upon such merger you became a second vice
president?
Mr. GEIGER. NO, sir; I did not. I was taken into Chase Securities
Corporation as an assistant manager. I became a second vice
president of the Chase National Bank in September of 1931.
Mr. PECORA. Who was the Mr. Callahan and who was the Mr.
McKee whom your memorandum marked in evidence here as " Committee's Exhibit No. 34 " of this date, was addressed ?
Mr. GEIGER. Mr. Callahan was a vice president of Chase Securities Corporation at the time that memorandum was addressed—or the
Chase Company—no, it was still Chase Securities Corporation. He
is dead. Mr. McKee was likewise a vice president of that corporation.
Senator COTTZENS. Where is he now ?
Mr. PECORA. He is here.
What prompted you, Mr. Geiger, to write this memorandum and
submit it to Mr. Callahan and Mr. McKee?
STOCK EXCHANGE PRACTICES
2599
Mr. GEIGER. I wanted to be prepared for any testimony that might
be called for before the Senate committee.
Mr. PECORA. That is, the Senate Finance Committee that was conducting an inquiry under Senate Resolution 19 of the Seventy-second
Congress ?
Mr. GEIGER. Correct.
Mr. PECORA. YOU knew at that time that there was actually under
way before that committee an investigation 01^ inquiry into these
Cuban loans among other foreign loans?
Mr. GEIGER. I knew there was an inquiry into foreign loans.
Mr. PECORA. And had the public-works financing been referred to
as yet in the testimony adduced before the Senate Finance Committee up to January 21, 1932 ?
Mr. GEIGER. I do not recall whether it was a reference to the
public-works financing, but certainly it was a reference either to
Cuba or the public-works financing.
Mr. PECORA. And was it upon your initiative that you prepared a
statement and submitted it to Mr. Gallahan and Mr. McKee with
this memorandum?
Mr. GEIGER. Entirely.
Mr. PECORA. What did you mean when you in this memorandum
asked those gentlemen to advise you, first, whether or not in the
preparation of that statement you had approached the subject in the
proper way ?
Mr. GEIGER. Whether or not it was logical to develop the situation
step by step or to attempt just a flat statement as to what the
total of the financing was.
Mr. PECORA. And what did you have in mind when you asked these
gentlemen to advise you in connection with your statement whether
that statement should contain a flat denial that you made any
commission payment?
Mr. GEIGER. Whether it was more advisable to come out through
questioning or to give voice to it in the very beginning.
Mr. PECORA. What if anything had been said up to that time on
the matter of whether or not the Chase Securities Corporation or
the Chase Bank had paid any commissions to anybody in connection with its obtaining of the Cuban public financing business ?
Mr. GEIGER. Not one thing, but the inquiry before the Senate
committee seemed to be directed at that one particular point.
Mr. PECORA. And, although nothing had yet been said before that
committee by anyone with regard to whether or not any commissions had been paid by your institutions in connection with this
Cuban public-works financing, you felt it necessary or wise or proper
as a precautionary measure to be prepared to meet questioning in
advance of your being called upon, is that right ?
Mr. GEIGER. Yes, sir.
Mr. PECORA. NOW, do
you know that Mr. Carl Schmidlapp, at
that time an officer of the bank, testified 6 days after the date of
this memorandum before the Senate Finance Committee?
Mr. GEIGER. I know it now.
Mr. PECORA. And do you know that he read a statement to the
committee at the outset of his testimony?
Mr. GEIGER. I do.
2600
STOCK EXCHANGE PEACTICES
Mr. PECORA. DO you know what statement it was that he read ?
Mr. GEIGER. I could not repeat it. I know it in general terms.
Mr. PECORA. Was it in words or substance the statement that you
submitted to Mr. Callahan and Mr. McKee on January 21, 1932,
with this memorandum?
Mr. GEIGER. In general form I think it was. I could not make
the specific answer without a comparison.
Mr. PECORA. Did you help Mr. Schmidlapp or anyone else in the
preparation of the statement which Mr. Schmidlapp actually read
to the committee 6 days later?
Mr. GEIGER. Only in a general way.
Mr. PECORA. Did you see the statement which he read?
Mr. GEIGER. I
did.
Mr. PECORA. And, you helped to prepare it?
Mr. GEIGER. Only in a general way.
Mr. PECORA. Well, you helped to prepare it, didn't you, whether
in a general way or any other way, you helped to prepare it?
Mr. GEIGER.
Mr. PECORA.
Yes.
Did that statement contain any flat denial that the
Chase interests had made any commission payments to anyone for
the purpose of securing this Cuban public-works financing?
Mr. GEIGER. My recollection is it did.
Mr. PECORA. Did that statement also contain an averment that the
Chase interests had not used any intermediaries whatsoever in getting
that financing?
Mr. GEIGER. It is my recollection that it did, Mr. Pecora.
Mr. PECORA. I S that statement true?
Mr. GEIGER. TO the best of my knowledge it is absolutely true.
Mr. PECORA. NOW, when you assisted in the preparation of that
statement had you had access to the letter which Mr. Batchelder
wrote under date of July 29, 1926, a copy of which has been received
in evidence here today marked " Committee's Exhibit 3 1 " ?
Mr. GEIGER. I do not recall that letter specifically, but undoubtedly I must have had access to it. I had access to the files.
Mr. PECORA. Let me read to you from the testimony of Mr.
Schmidlapp given before the Senate Finance Committee on January 27, 1932, the following: Immediately after he was sworn Mr.
Schmidlapp said, reading from page 1945 of part IV of the printed
minutes of that hearing. [Beading:]
Mr. SCHMIDLAPP. Mr. Chairman, if permitted, I have a brief statement which
has been prepared in regard to Cuban Government finance that I would like
to read if you will bear with me.
The CHAIRMAN. There are no objections to that, Mr. Schmidlapp.
Mr. SCHMIDLAPP. The financing by The Chase National Bank and its associates for the Cuban Government was in connection with the construction of
public works, pursuant to the Public Works Law of July 15, 1925, effective
originally until 1935 and later extended to 1945. This financing consisted of
three operations, each of which was negotiated directly with the Cuban Government, and no intermediaries were used and no commissions paid.
Do you find that statement?
Mr. GEIGER. I do.
Mr. PECORA. Let me
now refer you to the following extract from
the letter of Mr. Batchelder to Mr. Tinker, whom he addressed as
STOCK EXCHANGE PEACTICES
2601
" Dear Ned ", dated July 29, 1926, being Committee's Exhibit No.
31 of this date, reading from the second page thereof:
Regarding our position, it seems to me that we are as well situated as any
of our competitors. In order to have had two strings to our bow I should
like to have been allowed to impress our own individuality upon the president
rather than relying entirely upon intermediaries.
Now doesn't it appear to you, Mr. Geiger, that Mr. Batchelder at
that time had some knowledge of the fact that the Chase interests
were at that time or had been prior to that time relying upon intermediaries ?
Mr. GEIGER. NO, sir.
Mr. PECORA. What do
you think was the reason for that statement of his in his letter to Mr. Tinker ?
Mr. GEIGER. Mr. Batchelder says here very clearly that he would
like to have impressed his individuality upon the president.
Mr. PECORA. But he also said that he wanted to have that in order
to have two strings to the bow.
Mr. GEIGER. Yes,
sir.
Mr. PECORA. The other string being intermediaries?
Mr. GEIGER. NO ; the Secretary of Public Works and Secretary of
the Treasury, with whom he dealt.
Mr. PECORA. Who?
Mr. GEIGER. The secretary of public works and the Secretary of
the Treasury.
Mr. PECORA. Were not being used as intermediaries ?
Mr. GEIGER. By no means. He was dealing with them.
Mr. PECORA. Who were the intermediaries that Mr. Batchelder
had in mind when he made this statement in his letter ?
Mr. GEIGER. There are no intermediaries that I read from this
letter.
Mr. PECORA. Well, now, you do read it clearly, don't you, that Mr.
Batchelder in July 1926, through the medium of this letter, was
trying to impress upon Mr. Tinker, the president of the Chase Securities Corporation at that time, the advisability of the Chase
Securities Corporation having two strings to their bow in their
competition with other banking interests and that one of those two
strings would consist of impressing his own or the Chase's own
individuality upon the president, and the other one was the reliance
upon intermediaries?
Mr. GEIGER. I read that very clearly.
Mr. PECORA. Well.
Mr. GEIGER. But " intermediaries" there refers to Machado's
ministers, who were his intermediaries.
Mr. PECORA. Was the Chase Corporation relying upon two other
officers of the Machado Government for the purpose of impressing
the President?
Mr. GEIGER. N O ; he was dealing with those. He could not go
direct to the president.
Mr. PECORA. They were not intermediaries; they were principals,
were they not? If he was dealing with themf, he was dealing with
them as principals, not as intermediaries for the Chase ?
Mr. GEIGER. I believe that financing was all accepted by decree of
the President himself.
2602
STOCK EXCHANGE PRACTICES
Mr. PECORA. What is that?
Mr. GEIGER. I believe that this financing of Cuba was accepted bydecree of the President himself, after being advised by his board of
awards, and in this letter it is quite consistent that Mr. Batchelder
was referring to the ministers 01 public works and of finance.
Mr. PECORA. YOU believe that they were the persons he had in
mind when he made this reference to intermediaries in this letter ?
Mr. GEIGER. I firmly believe that, Mr. Pecora.
Mr. PECORA. Well, now; these two gentlemen whom you mentioned
were part of the Cuban Government at that time, were they not ?
Mr. GEIGER. Yes.
Mr. PECORA. Officially connected with it?
Mr. GEIGER. Yes.
Senator ADAMS. TO carry out your idea he
would have more appropriately used the word "subordinates", would he not?
Mr. GEIGER. He certainly would have, Senator.
Senator ADAMS. And he is pretty accurate in his use of langauge,
isn't he, Mr. Geiger?
Mr. GEIGER. Well now, I don't know.
Mr. PECORA. DO you recall, Mr. Geiger, a Mr. Catlin, whose name
has already been referred to in testimony here given by Mr. Morgan, the preceding witness ?
Mr. GEIGER. I recall that name in the records.
Mr. PECORA. Did Mr. Catlin receive any compensation for any
services he rendered to Chase in connection with its attempt to get
this financing business ?
Mr. GEIGER. He received compensation from the Chase.
Mr. PECORA. In what amount?
Mr. GEIGER. In three payments.
Mr. PECORA. What was the aggregate?
Mr. GEIGER. The aggregate was $55,000.
Mr. PECORA. $55,000. What did he receive that compensation for?
Mr. GEIGER. That compensation, pardon me, Mr. Pecora, was received over a period I believe of about 5 years.
Mr. PECORA. I t was charged against expenses in connection with
the acquisition of this financing, was it not?
Mr. GEIGER. Over that period.
Mr. PECORA. I say it was charged against expenses in connection
with this financing, which was not commenced until February 1927?
Mr. GEIGER. Precisely.
Mr. PECORA. What was the first payment that he received for his
services in connection with this financing?
Senator COTJZENS. While he is looking that up, what was his
connection at that time?
Mr. PECORA. Mr. Morgan has already testified that he was connected with the Electric Bond & Share and was also connected with
the branch of the Chase National Bank in Havana, Cuba, at that
time.
Mr. GEIGER. His first payment, Mr. Pecora, wa^s $15,000 in connection with the February 19,1927, agreement.
Mr. PECORA. Did not the Chase also pay Kushmore,*Bisbee &
Stern and Dr. Bustamante for their legal services in connection
with this financing?
Mr. GEIGER. They did.
STOCK EXCHANGE PEACTICES
2603
Mr. PECORA. Catlin at that time was an officer of the Chase
National Bank or manager of its Havana, Cuba, branch?
Mr. GEIGER. NO, sir.
Mr. PECORA. What was he at that
Mr. GEIGER. He was a member of
time?
the advisory committee, not an
officer.
Mr. PECORA. Member of the advisory committee of the Chase
branch in Habana. Did he receive any compensation for any
service he rendered as a member of its advisory committee?
Mr. GEIGER. I do not know, sir.
Mr. PECORA. He was also connected actively with the Electric
Bond & Share Co., I believe?
Mr. GEIGER. A lawyer.
Mr. PECORA. A lawyer connected with the Electric Bond & Share.
Did he render any legal services in connection with the obtaining
of this financingbj the Chase?
Mr. GEIGER. Not in obtaining it.
Mr. PECORA. Did he render any legal services in any way relating
to the obtaining of this financing business by the Chase interests ?
Mr. GEIGER. When the bank first entered on the negotiations for
the public works financing in 1926 New York counsel suggested to
Mr. Barr, vice president in charge of the Habana office, that it would
be advisable and desirable to have available in Habana an American
with a thorough understanding of Spanish with whom they could
consult on Spanish documents, translations, and conditions in Cuba
and the personalities with whom they had to deal.
Mr. PECORA. Are you reading that from a prepared statement?
Mr. GEIGER. I am,
sir.
Mr. PECORA. Who prepared it?
Mr. GEIGER. We prepared it jointly, Mr. Morgan, Mr. Williams,
and myself, from the records.
Mr. PECORA. When?
Mr. GEIGER. In connection with the study which Mr. Morgan has
made.
Mr*. PECORA. When; within the last 3 or 4 weeks ?
Mr. GEIGER. Within the last 4 to 5 weeks.
Mr. PECORA. All right. Apparently that refers to activities of
Mr. Catlin long prior to the time that you became connected with
the Chase?
Mr. GEIGER. Yes, sir.
Mr. PECORA. SO that all
the knowledge you have about it is purely
hearsay, is it not?
Mr. GEIGER. I t is from study.
Mr. PECORA. I say it is purely hearsay, is it not?
Mr. GEIGER. Study. If study is hearsay, yes.
Mr. PECORA. Yes; study is hearsay. Mr. Williams will agree to
that, will you not, Mr. Williams ?
Mr. WiiiiiiAMS. I t depends on what you are studying, Mr. Pecora.
Mr. PECORA. That is a lawyer's answer.
How were you in a position to join in the preparation of a statement concerning what Mr. Catlin did or was supposed to do back
in 1926 for the Chase interests?
Mr. GEIGER. I studied these Cuban records yery thoroughly; sir.
2604
STOCK EXCHANGE PEACTICES
Mr. PECORA. Did you find anything in the records which, apart
from what you may have heard from anybody, informed you what
Mr. Catlin did?
Mr. GEIGER. I t is hard to differentiate, Mr. Pecora, between what
I found in the files and what I was informed by those with whom
I am working.
Mr. PECORA. YOU can easily tell us what you found in the files
by looking at your files and calling our attention to anything you
found in the files bearing on that.
Mr. GEIGER. Specifically I did not find statements that New York
counsel suggested that. I was informed of that.
Mr. PECORA. Did you find anything in the files that gave you any
information concerning what Mr. Catlin did for the $55,000?
Senator GOLDSBOROTJGH. Mr. Geiger, do you know whether it is
commonly reported that Mr. Catlin was really a promoter in the
ordinary sense of that word ?
Mr. GEIGER. I have never heard him referred to as such.
Mr. PECORA. Did you answer Senator Goldsborough's question ?
Mr. GEIGER. Yes; I did.
Mr. PECORA. In the study
which you made, or helped Mr. Morgan
make, on these Cuban loans for the purpose of informing this committee about them, did you come across a letter dated February 257
1931, addressed to Mr. Joseph Eovensky, vice president of the Chase
National Bank in New York City? Let me refer you to your files
by exhibit no. 55-81-A.
Mr. GEIGER. I have that letter.
Mr. PECORA. Will you turn to page 4 of it? Do you find this
statement in that letter ? [Reading:]
I think that at the moment the President is so hard up that he will jump
at anything that looks like additional cash.
Mr. GEIGER. What part of that page, Mr. Pecora? The copy I
have is very bad. [After a pause.] I have it now.
Mr. PECORA. While you are looking for that particular portion
of the letter
Mr. GEIGER. I have it now.
Mr. PECORA. Let me ask you who wrote this letter to Mr. Rovensky.
Mr. GEIGER. I t is not signed, but I believe it was written by Mr.
James Bruce.
Mr. PECORA. What relationship did Mr. James Bruce bear at that
time to the Chase interests ?
Mr. GEIGER. He was a vice president of the Chase National Bank.
Mr. PECORA. Was he down in Cuba at the time this letter was
written, namely, February 25, 1931?
Mr. GEIGER. He was either there or had been there recently. My
impression is that he was not there at the time this letter was
written, sir.
Mr. PECORA. NOW, if you have found the portion of the letter from
which I started to read, will you please follow me while I resume
the reading of the portion I want to bring to your attention? [Continuing reading:]
I think that at the moment the President is so hard up that he will
jump at anything that looks like additional cash. In this regard, Henry Oatlin
arrived on the scene just two days before I left, and although I have no
STOCK EXCHANGE PRACTICES
2605
particular objection to Henry personally, he would have complicated my
position very much had I remained, because he runs in and out of the palace
every little while, and is trying to get his own taxes reduced, and would be
delighted to play Lady Bountiful with the funds of the Chase Bank.
Do you find that?
Mr. GEIGER. I have that.
Mr. PECOEA. DO you find also that Mr. Bruce, in this letter to Mr.
Kovensky, said as follows (reading):
Another thing that although Henry is on our advisory committee, it is
impossible to talk frankly with him, as you know what you say will be repeated
in the palace.
Mr. GEIGER. I have that.
Mr. PECORA (continuing reading):
He told me—which I think is entirely true—that the President is desperately
in need of the money for the Government, and that it was most important
for us to put up $1,500,000. In fact, he had at least 10 very good reasons why
we should do this. He stated, among other things, the $30,000 which the
President borrowed from us in his private account, he loaned to the Government.
Do you find that in that letter ?
Mr. GEIGER. I do, Mr. Pecora.
Mr. PECORA. Did you have that letter before you when you helped
prepare the statement which Mr. Schmidlapp read to the Senate
Finance Committee on January 27, 1932?
Mr. GEIGER. I do not recall that I had it before me.
Mr. PECORA. When, for the first time, was your attention ever
called to that letter of Mr. Bruce ?
Mr. GEIGER. I do not recall the specific date. I have been in and
out of the files relating to Cuban matters many times. I have,
within the last 5 weeks, seen this letter.
Mr. PECORA. Did you see it for the first time within the last 5'
weeks ?
Mr. GEIGER. I cannot testify yes or no to that.
Mr. PECORA. Have you any recollection at all of ever having seen
it prior to the time, within the last 5 weeks or so, that you assisted
Mr. Shepard Morgan in making this special study ?
Mr. GEIGER. I have no special recollection of it.
Mr. PECORA. I think that is all for today.
Mr. MORGAN. May I interject at this point, before the hearing is
closed ?
Mr. PECORA. It is not closed. I t is going to be resumed tomorrow
morning.
Mr. MORGAN. But before this session is closed. You have been
good enough to ask me certain questions during the day, and I would
like to clarify this point before we leave it.
Point 1: The date of this letter of Mr. Bruce's is February 23,
1931.
Senator COTJZENS. That is in the record.
Mr. PECORA. That needs no clarification, does it ?
Mr. MORGAN. Yes, because the reference is to Henry Catlin, and
the prior discussion was with respect to Henry Catlin's activities
in and about the year 1927, some 4 years previous.
Mr. PECORA. Are you through clarifying that ?
Mr. MORGAN. The reference to Machado's shortness of cash is perfectly
clear from the subsequent reference in Mr. Bruce's own letter,
2606
STOCK EXCHANGE PKACTICES
where he speaks of the Government being short of money. I can not
allow anybody to have any misapprehensions that Mr. Bruce had in
mind, or that anybody dealing with this financing had in mind, the
Chase Bank acting as Lady Bountiful in a private way.
Mr. PECORA. I do not toiow what they had in mind. Mr. Bruce
might tell us, or Mr. Catlin might.
Mr. MORGAN. That is precisely what I want to make clear at
this date.
Mr. PECORA. Apparently what Mr. Bruce had in mind he expressed in plain words in this letter.
Mr. MORGAN. Yes;
but
Mr. PECORA. DO you want to attempt to explain his language?
Mr. MORGAN. I have done so.
Mr. PECORA. This morning you preferred to let certain statements in another document which was put in evidence speak for
themselves, without any elaboration or explanation or interpretation.
Mr. MORGAN. YOU see, Mr. Pecora, I think that improper inferences might be drawn from the reading of this letter, and the two
or three isolated passages in this letter, and I must correct them
before the testimony is cleared for the day. The Chase Bank has
not acted through intermediaries. I t has not paid commissions in
any respect, in the whole course of this financing.
Mr. PECORA. That is what you believe—not what you know, but
what you believe, because you have no personal knowledge, have
you?
Mr. MORGAN. Neither I nor anyone else has any evidence to the
contrary.
Mr. PECORA. I say, you have no personal knowledge to support
what you say.
Mr. MORGAN. I have the knowledge from men whom I believe,
from records which I believe, and I can not let any false inferences
pass out before the public.
Mr. PECORA. Perhaps you will tell this committee what you think
Mr. Bruce meant when he referred to Henry Catlin in this letter
in the way in which he referred to him.
Mr. MORGAN. With reference to Mr. Catlin—I do not want to
be unkind to a man who is dead, but he refers to Henry Catlin here
as a nuisance, and I am afraid that is precisely the fact, at this stage.
Mr. PECORA. At the time he wrote this letter
Mr. MORGAN. Prior to that time he was very useful, as Mr. Geiger
has already indicated, in advising the Chase Bank with respect to
Latin customs in Habana, as a lawyer.
Mr. PECORA. DO you think you knew more about Mr. Catlin's
activities and relationship to this whole question than Mr. Bruce
did when he wrote this letter and was in contact with Mr. Catlin
right on the ground there?
Mr. MORGAN. I have not altered in any sense Mr. Bruce's utterances here in this letter. I have simply pointed out the facts
which were not, I think, amply clear, that is, that this letter was
written 4 years after the financing which has been previously in
discussion, and second, that the reference was with respect to loans
to be granted to the Cuban Government, which Machado then
desired, and which he did not receive.
STOCK EXCHANGE PEACTICES
2607
Mr. PECORA. DO you know anything about any relationship between Mr. Catlin and President Machado ?
Mr. MORGAN. I know that they were both interested in an electrical concern in Santiago.
Mr. PECORA. What was the name of that concern?
Mr. MORGAN. I cannot give it in Spanish, but I think it was the
Santiago Electric Co.
Mr. PECORA. What relationship did Mr. Catlin have to that company?
Mr. MORGAN. This was long before Mr. Machado became President.
Mr. PECORA. I know; but what relationship did he have to it?
Mr. MORGAN. I want to get the dates completely straight.
Mr. PECORA. What relation did he have to it?
Mr. MORGAN. Mr. Catlin was president and Machado was vice
president.
Mr. PECORA. What relationship did General Machado have to it
at that time?
Mr. MORGAN. He was vice president.
Mr. PECORA. That was when?
Mr. MORGAN. Prior to the time General Machado became President.
Mr. PECORA. That was in 1925, was it not ?
Mr. MORGAN. Or prior to that date.
Mr. PECORA. I t was in 1925 that General Machado became President, was it not?
Mr. MORGAN. On May
20.
Mr. PECORA. Yes; and Mr. Catlin, according to the testimony
which you have given before this committee today, and according to
the testimony which Mr. Geiger has given before this committee this
afternoon, received $55,000 by way o f compensation for legal services
from the Chase interests in connection with services rendered by him
in relation to this financing.
Mr. MORGAN. Over a period of 5 years.
Mr. PECORA. Beginning when?
Mr. MORGAN. And
Mr. PECORA. Beginning when?
Mr. MORGAN. Three years.
Mr. PECORA. Beginning when?
Mr. MORGAN. 1927, concluding in 1930. His services began in
1926—a period of 4 years.
Mr. PECORA. He was the same Catlin to whom Mr. Bruce referred
in this letter of February 23, 1931, as the man who was always
running in and out of the palace, as the man whom the Chase people
should not trust because everything that was said to him was repeated
by him in the palace ? He is that same man ?
Mr. MORGAN. Mr. Catlin was not physically the same man in 1931.
that he was in 1926 and 1927.
Mr. PECORA. He was the same personality, the same individual,,
was he not? I have not asked you about the condition of his health.
Mr. MORGAN. In the eyes of the Almighty, yes; but physically and
mentally, no. And you must not overlook, in this whole connection,
that this financing was all awarded on public letting, fully known,
to
everyone, open to public examination.
2608
STOCK EXCHANGE PRACTICES
Mr. PECORA. YOU had better not give your testimony on that now,
because I am going to ask you about it in detail tomorrow.
Mr. MORGAN. All right. We will be glad to come in.
Mr. PECORA. May I ask if there is any officer or representative
of the Chase National Bank who can give this committee all the
salaries and bonuses that are now being paid by the Chase Bank
to its officers—vice presidents and other officers? I think we put
in a tabular statement last week. That is in the record as committee's Exhibit No. 7, of October 17, 1933. All right.
The CHAIRMAN. We will adjourn until 10 o'clock tomorrow
morning.
(Whereupon at 4.30 p.m. Monday, Oct. 23, 1933, the subcommittee adjourned until 10 o'clock the following morning.)
COMMITTEE EXHIBIT NO. 30
CUBA—MEMORANDUM TO MB. TINKER
MARCH 22,1926.
On Saturday, March 20, Mr. Benard suggested that I see Tarafa promptly
on Monday and point out the convenience to him, in an indirect way, of a
prompt decision on the part of the Cuban (Government as to this matter of
financing. He called attention to the present unsatisfactory state of the security
market and stated that whereas a substantial amount of securities could
be absorbed at this time without difficulty, that a sudden change in market
conditions is not improbable, in which case this financing might be rendered
much more expensive, if not impossible. I stated that I would get in touch
with Tarafa today.
On Sunday, March 21, about 3 o'clock in the afternoon, General Orowder
approached Mrs. Graves at the Jockey Club, stating he was very anxious to
see me at once. Upon learning that I was at the Country club, he immediately
came there and sent for me on the golf links. He seemed to be much exercised.
He stated that he had heard persistent rumors that Blair & Co. and the Chase
Securities Corporation were attempting to negotiate a loan to the Cuban
Government of 100 million dollars, and that in view of the fact that their
indebtedness was already 98 million and the financial and economic condition
of the country was in such a deplorable state, he found it very difficult to
credit the above statement. He stated that the character of his information
was such, however, that he could not disregard it and, as a matter of fact,
Cespedes was supposed to present to him the proposed project today, Monday,
March 22; that, as he understood it, they were attempting to make a loan
to the Government but under another name, and that we all knew if any
difficulty arose, the United States Government would be appealed to, to make
Cuba comply with her engagements.
General Crowder stated that he and I had been friends for a long time and
he thought it was only fair to tell me of the situation because as he saw it,
it placed upon him the responsibility of making an immediate protest to the
State Department in Washington. He called my attention to article 2 of the
Platt amendment and further said that he supposed these people had secured
advice from American lawyers who really were insufficiently acquainted with
the proper construction of the Constitution of Cuba of which the Platt amendment was a part.
I pointed out to him that I represented neither Blair & Co. nor the Chase
Securities, although both organizations were friendly with the Chase Bank;
that any financial plans or discussions they may have had with the Cuban
Government, were matters which I was not in a position to discuss. I told
him that I would assume, however, the first thing any group of bankers
would be sure of was that any plans they had would not run counter to the
provisions of the Cuban constitution or the Platt amendment, and that I
would presume that any such groups would not only have the best legal
STOCK EXCHANGE PRACTICES
2609
advice from American lawyers but from the most outstanding legal talent in
Ouba as well.
General Crowder said, you know, I believe in treating all American interests
alike, to which I replied that I was well aware of this. He said that 2 or 3
years ago, representatives of Blair & Co. came to Cuba in an attempt to loan
the Cuban Government $40,000,000 but they did not call on him and they
.had not even had the courtesy of calling on him this time either.
I made no comment on these statements but told him that I would attempt
to find out something about the situation that night and if I were successful,
I would communicate with him as soon as I was in position to do so.
It was impossible to communicate with Mr. Benard as he had not returned
from his fishing trip either Sunday night or Monday morning. I left word at
the Hotel Sevilla that he should call me as soon as he arrived.
I communicated with Bustamante this morning regarding the whole situation and he was present during my conversation by long distance telephone
with Mr. Freeman, at about 10 o'clock.
In view of the fact that General Crowder was to have the plans submitted
to him today and he knows that Mr. Tinker and Mr. Benard had been here
and that I had been with them, it would be foolish to pretend utter lack
of knowledge of their interest in the public-works program, and in view of
the fact that General Crowder expected to hear from me in some form, it
was better I should communicate with him and tell him that Mr. Benard had
not returned but I would get in touch with him immediately upon his arrival
in Habana, so that he might explain to General Crowder any ideas they might
have on the financing plan. Failing to do so, I expected to get into communication; with Mr. Tinker during the course of the day and would let him know
whatever Mr. Tinker wished to communicate to him.
In the presence of Dr. Bustamante, I called General Crowder this morning
and told him I was unable to get in touch with Mr. Benard but would do so
immediately on his arrival in Habana and would ask him to communicate with
the general; failing this, I would talk with Mr. Tinker upon his arrival in
New York and would tell him what Mr. Tinker had to say. The general
expressed himself as extremely appreciative of my activities in the matter
and his attitude showed distinctly less concern than it did yesterday and he
appeared much more friendly and appreciative.
Pursuant to my arrangement with Mr. Benard, I had an interview with
Colonel Tarafa today and explained to him the attitude of General Crowder.
Tarafa said at once that, in his opinion, Cespedes would not submit the matter
to Crowder and Crowder had tried to deceive me in this respect; that Cespedes
was the last man in the Cabinet to submit anything to the American Government and if he were obliged to do so, he would certainly have it done by some
other member of the Cabinet.
When I suggested to Tarafa the possibility that Crowder had secured his
information from Field, former secret-service agent of the United States, a
friend of Cespedes and who now does secret-service errands for Crowder, he
stated that he was sure this was what had happened when Field had learned
from Cespedes, in a general way, of the plan, and that he had given Crowder
his own digest of the matter.
Tarafa stated that General Machado, Cespedes, and Cartaya were at this
very moment (1: 30 p.m.) in conference about the plan and that he had heard
rumors that they were favorably impressed with it.
He again suggested that any information we wished to convey to Cespedes,
or any discussions that might be had as to the plan, should go through Cortina
rather than anybody else.
As to the probability of a change in the status of the security market which
might hinder the contemplated flotation of these securities, Tarafa, in common
with almost everybody in Cuba, is very greatly discouraged and felt that a
change in the security market in the United States was a possibility, if not a
probability, and that the Cuban Government ought to act quickly. Tarafa
further stated that Powell had left for the United States on the boat this
morning.
I talked with Mr. Tinker about 3:15 p.m., setting forth the above facts. He
said that I should not communicate with Crowder again unless he called me,
2610
STOCK EXCHANGE PEACTICES
in which case I was to tell him that Mr. Tinker had left for Florida last
Thursday, and I was not sufficiently informed of his plans to be able to discuss
them—that I should get in touch with Mr. Benard as soon as possible and turn
the whole matter over to him, giving Mr. Tinker's opinion that it was not
necessary to communicate our plans at the present time to Crowder, but to say
that when the proper moment arrived a discussion would be had.
Although I have not kept a copy of this memorandum, I have given a copy
to Mr. Benard and preserved a copy for Mr. Panthen, in order that he may
know all I do in view of my contemplated absence from Cuba shortly.
I saw Mr. Benard about 4 p.m. He stated that he had talked with Mr.
Tinker and agreed that I should not call Crowder, but in case I ran into him
anywhere I should talk to him along the lines suggested by Mr. Tinker to me,
and we agreed that I should say practically the same thing in regard to Mr.
Benard, stating that Mr. Benard was a French subject and a French banker,
and that he would be very glad indeed to pay his respects to General Crowder,.
but that he had not even called as yet on the French Minister.
I ran into Crowder about 9:30 p.m. at the country club. I told him exactly
what had been agreed on by Mr. Tinker and Mr. Benard. Crowder seemed
entirely satisfied and conveyed to me again that as yet he had not communicated
with the State Department regarding this matter.
It is clear that the bank should preserve cordial relations with the United
States Ambassador but, while not telling him anything that would damage our
interests in Cuba, to be careful not to make any statements which, he might
easily learn, were contrary to facts.
COMMITTEE'S EXHIBIT NO. 33 OF OCTOBER 23,1933
FINANCING PROPOSITION
Hon. CARLOS MIGUEL DE CESPEDES,
Secretary of Public Works, City.
SIR: The undersigned, a representative of the Chase National Bank of the
City of New York, duly authorized as evidenced by the accompanying power
of attorney executed before the notary of this city, Dr. Ramon J. Martinez
Pedro, on September 24,1925, under no. 199, states:
"That in accordance with the invitation extended by the Government for
proposals to finance payment's to contractors under agreements entered into
pursuant to the Public Works Law up to a maximum aggregate limit of
|l0,000,000, in accordance with the conditions set forth in the official statement of November 19, 1926, I take pleasure in submitting for your consideration
the proposal set forth below, which is designed to meet the conditions of your
Government as set forth in the official statement referred to."
-PROPOSAL
The general terms and conditions of this proposal are as follows:
1. This proposal is not conditioned upon the acceptance by the Government
of any particular construction contractor or contractors, the Government being
entirely free thereunder to select such contractors for the work as it may consider proper. We assume, however, that the detailed provisions of the construction contracts will be made to harmonize and coordinate with the provisions of this proposal which are designed to effect the prompt payment to the
contractors of the amounts due for the completion of the work.
2. The Government will, to such extent as it deems advisable, but not exceeding the maximum aggregate face amount below specified, from time to time*
during the 4-year period ending June 30, 1930, issue under such construction
contracts entered into under the public-works law as it may determine, deferredpayment certificates covering work completed under such contracts. Such,
deferred-payment certificates shall certify that the Government will pay tothe Chase National Bank of the city of New York as registered assignee or on
its order, at the maturity date or dates therein specified which shall not be
earlier than July 1, 1930, nor later than June 30, 1931, the face amount of such
certificates not exceeding in the aggregate $10,000,000, with interest at the rateof 6 percent per annum, calculated from the date of payment to the contractor,.
STOCK EXCHANGE FEACTICES
2611
as provided in paragraph 5 hereof, to the date of payment by the Government
payable semiannually on such dates as the Government may determine and fix
in the definitive agreement. The interest payable on such certificates is fixed
at the rate aforesaid to cover all customary discounts. The principal and
interest of such deferred-payment certificates are to be payable by the Government at its option either at our principal office, No. 57 Broadway, New York
City, or at our Habana branch, in official gold dollars of the present standard,
but if paid at our Habana branch the Government will add to the amount
then payable the amount of any Cuban taxes payable by us in respect of the
transfer of said funds to New York City.
3. The deferred-payment certificates are to be the irrevocable and incontestable contact obligations of the Government to pay the face amount thereof
with interest at the respective due dates subject to no offsets or counter claims
and are to constitute a first lien or charge upon the public-works fund created
under the public-works law for the payment of the amounts due for principal
and interest at the dates when the same shall become payable pursuant to the
terms thereof.
4. All deferred-payment certificates issued under any construction contract
entered into under the public-works law shall be issued in our name and shall
be payable, principal and interest, to us or upon our order in place of the contractor under such contract and shall be registered as so payable at the Treasury Department of the Government. As we shall pay the face amount of
any such deferred-payment certificates to the contractor entitled to receive the
same, as provided in paragraph 5 of this proposal, the amount and date of
such payment will be registered at the Treasury Department and the department of public works will likewise deliver to us, in duplicate, the corresponding works certificates as issued during construction.
5. We agree that upon presentation to us within the period of 4 fiscal years
before mentioned, which end June 30, 1930, of deferred-payment certificates
issued in accordance with this proposal and the definitive agreement to be
entered into to give effect thereto, we will pay at our Habana branch to the
contractor or contractors specified in such certificates the face amount thereof
up to the maximum aggregate amount of $10,000,000, such payment to be made
at such time after receipt of any of such certificates as the Government may
order.
6. As compensation for our commitment and services in this matter we are
to receive for each fiscal year of the 4-year period above mentioned the
following amounts:
For the first year an amount equal to IY2 percent of the maximum aggregate
face amount of the deferred-payment certificates contemplated to be issued
under this proposal payable upon the execution of the definitive agreement, and
for each of the remaining 3 fiscal years of the said 4-year period an amount
equal to 1 percent of said face amount of certificates payable on July 1 of
each of said years.
7. In case the foregoing proposal should meet with the approval of the Government, we are to be notified of the Government's acceptance and approval
before December 15, 1926.
8. If this proposal is accepted by your Government, the definitive agreement
in form and substance satisfactory to your Government and to ourselves will
be entered into by not later than January 15, 1927, for the purpose of proceeding to increase the requisite continuing security and giving effect to
the detailed provisions essential to carry out the proposal.
9. All legal details in connection with said definitive agreement are to be
carried out under the supervision and subject to the approval of our counsel,
Dr. Antonio S. de Bustamante. In case this proposal is not accepted and
such definitive arrangement is not entered into by the dates above'mentioned
or by such later dates as we may agree upon, all our obligations hereunder
shall terminate and the security which we have deposited in order to comply
with the conditions established, shall be returned to us.
10. In accordance with condition 10, for the financing of work, we accompany herewith our certified cashier's check for $500,000 as well as a certificate
from the secretary of the Habana clearing house showing us to be members'
of the same, and we agree to increase this amount to $1,000,000 if we are
awarded the financing on the closing of the definitive contract utilizing for
175541—33—PT 5
22
2612
STOCK EXCHANGE PEACTICES
the total any of the forms of finance permitted under the conditions of this
subasta.
11. Also, in compliance with the provisions of article II of the general conditions for all the contractors of the State, we submit herewith the receipt
which shows our having paid the opening tax on industry chargeable to us.
Wherefore we ask you to please have this proposal presented with the accompanying documents and the declarations and offers which it contains to
all legal effects.
Habana, the 30th of November, 1926.
THE CHASE NATIONAL BANK OP THE CITY OF NEW YOBK,
MARIO SEIGLIE, Representative.
Post office address: Aguiar no. 86, Habana.
Attached:
1. Power of attorney of bank.
2. Municipal tax receipt.
3. Receipt for profits tax.
4. Certified check for $500,000.
5. Certification of the clearing house.
STOCK EXCHANGE PEACTICES
TUESDAY, OCTOBER 24, 1933
UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE
ON BANKING AND CURRENCY,
Washington, D.O.
The subcommittee met, pursuant to adjournment on yesterday, at
10 a.m., in the caucus room of the Senate Office Building, Senator
Duncan XJ. Fletcher, presiding.
Present: Senators Fletcher (chairman), Gore (substitute for
Barkley), Adams (proxy for Costigan), Townsend, Couzens, and
Goldsborough (substitute for Norbeck).
Present also: Ferdinand Pecora, counsel to the committee; Julius
Silver and David Saperstein, associate counsel of the committee; and
Frank J. Meehan, chief statistician to the committee; Martin Conboy for Albert T. Wiggin; Eldon Bisbee, Alfred E. Mudge, A. M.
Williams, William Dean Embree, and A. Donald MacKinnon, of
Milbarik, Tweed, Hope & Webb, counsel for The Chase National
Bank and the Chase Corporation. Joseph B. Lynch, Julian L.
Hagen, and C. Horace Tuttle, of Eushmore, Bisbee & Stern, and
also Albert G. Milbank.
The CHAIRMAN. The subcommittee will come to order, please. Mr.
Pecora, you may proceed.
Mr. WILLIAMS. Mr. Chairman.
The CHAIRMAN. Mr. Williams.
Mr. WILLIAMS. At the session yesterday we were requested to produce advices of the State Department on the financing which took
place in the fall of 1926; also the opinion of my firm as counsel in
connection with the validity of that financing. Since that time we
have received the papers from New York on the subject, and inasmuch as my partner, Mr. Mudge, handled the legal details of that
financing on the ground in Habana, and also with the State Department in Washington, I ask your permission that he be permitted to
make a statement of just what transpired, in order that you may
have full and first-hand knowledge of what was done in connection
with the Platt amendment and also in connection with the relations
of the State Department to that financing.
The CHAIRMAN. Before you proceed, Mr. Mudge, the committee
has decided to investigate the conditions in connection with closed
banks in Cleveland and Detroit to ascertain their relations with the
Federal Eeserve banks and investment banking houses. I want to
make that announcement now because we have had a number of
inquiries about it.
2613
2614
STOCK EXCHANGE PEACTICES
Now, Mr. Mudge, if you will hold up your right hand and be
sworn: You solemnly swear that you will tell the truth, the whole
truth, and nothing but the truth regarding the matters now under
investigation by this committee. So help you God.
Mr. MUDGE. I do.
The CHAIRMAN. YOU may proceed.
TESTIMONY OP ALFRED E. MUDGE, OP THE LAW PERM OF RUSHMORE, BISBEE & STERN, NEW YORK CITY, COUNSEL FOR THE
CHASE NATIONAL BANK
Mr. MUDGE. I might say that
Mr. PECORA. Just give ybur name and whom you represent.
Mr. MUDGE. My name is Alfred E. Mudge. I am a member of the
firm of Eushmore, Bisbee & Stern, counsel for the Chase National
Bank.
In order to develop the whole thing very briefly I ask your permission to explain one or two documents as I present them to you.
In November of 1926 I was in Habana in connection with the
formulation of the final proposal which was submitted on behalf of
The Chase National Bank on November 30,1926, to the Cuban Government in connection with and in response to an invitation to submit competitive bids for that financing.
I actually drafted the proposal that was submitted at that time.
That proposal was submitted on November 30, and published in the
papers on that date or the date succeeding.
As soon at the proposal had been submitted a copy of it was delivered to General Crowder, the American Ambassador to Cuba. General Crowder had been frequently consulted with during the period
of time immediately preceding the submission of that proposal. I
personally conferred with him on several occasions. And during
those conferences we had considerable discussion of the application
of the Platt amendment to the type of financing that was embodied
in the proposal we were submitting.
During that discussion it was pointed out by me that the type of
financing we were submitting at that time did not involve what was
commonly known as a public debt or a public bond issue. We were
proposing a banking credit of $10,000,000, to be represented by deferred-payment work certificates, which the bank discounted on presentation of those certificates by the contractors who had performed
work on the highways. The theory was that the bank, as assignee
of those deferred-payment work certificates took the place of the
contractors in their position in reference to the Cuban Government.
During those discussions General Crowder said he thought it
would be the policy of the State Department, notwithstanding the
type of financing that was being proposed at the time, to initiate
an investigation because of the fact that the Platt amendment, so
called, is embodied in a treaty between the United States and Cuba,
and because of the fact that the policy initiated under the administration of Secretary Knox went further than the mere letter of the
amendment and laid down the general policy that in all important
fiscal operations of Cuba the United States would take the position of
STOCK EXCHANGE PBACTICES
2615
a sort of fiscal adviser or supervisor. He also stated that he expected he would be requested to make a study of the matter and report
to his Government at Washington.
Shortly after November 30, the date our proposals were submitted,
•General Crowder told me that he had received a message from Washington which requested or asked him to make representations to the
President of Cuba requesting the President of Cuba to suspend final
action upon the award until an investigation could be made by the
State Department to ascertain that the proposed financing was in all
respects in accordance with the Platt amendment as embodied in the
treaty between the United States and Cuba.
•Shortly after being so advised I proceeded to Washington on
my way back to New York. I arrived in Washington on the morning of December 6, 1926. I had an extended conference with Mr.
Hackworth, who was then Solicitor of the State Department. J
explained to him that my client, The Chase National Bank, had submitted a proposal for this financing; that I understood the State
Department had initiated an investigation to see whether it complied in all respects with the Platt amendment; and that I had
stopped on my way to New York to see whether there was any information that the bankers might supply that might be of aid
and to discuss the matter generally with Mr. Hackworth.
I also conferred, at Mr. Hackworth's suggestion, with Mr. Baker,
one of his assistants, on the same day. Mr. Baker was making a
special study at the moment of the application of the Platt amendment and of the terms of the financing proposal.
I was told that the economic features of the proposal were also
being discussed by Dr. Young, who was then economic adviser of the
State Department. I accordingly saw him at the same time, and
I believe I left with him, or with Mr. Hackworth, not only a copy
of the proposal, but also certain financial data which had been compiled at the time and which showed an estimate of the revenues to
be derived from the public-works taxes, and other data.
I then returned to New York, and on the following day, December
7, I prepared a memorandum of my interview with Mr. Hackworth
and with Mr. Baker and with Dr. Young. I have here the original
of that memorandum, signed by me on December 7, and which contains a correct statement, dictated at the time, of my conferences in
Washington with the gentlemen named. With the permission of
the committee I will offer this for the record.
The CHAIRMAN. Without objection it may be received.
(The memorandum of conferences fen Monday, Dec. 6, 1926,
was marked "Witness' Exhibit No. 35, Oct. 24, 1933", and will
be found immediately following:)
WITNESS' EXHIBIT NO. 35, OCTOBER 24,
1933
DECEMBER 7,
1926.
CUBAN HIGHWAYS LOAN, MEMORANDUM OF CONFERENCES OF MONDAY,
DECEMBER 6, 1926
I conferred with Mr. Green H. Hackworth, explaining to him the substance
of my talk with General Crowder, and impressing upon him the importance
of reaching a conclusion on the matter as soon as possible. He stated he
2616
STOCK EXCHANGE PBACTICES
appreciated the importance of prompt action, and that the matter was nowbeing studied by Mr. Baker, his assistant, occupying room no. 16 on the main
floor. He suggested that I speak to Mr. Baker. While I was there, he called
up Mr. Baker explaining that I was in his room and the purpose of my visit,
and arranged that I should talk with Mr. Baker.
While talking with Mr. Baker, Mr. Hackworth mentioned the cable that
had been sent to General Crowder, asking him to make the representation to
the President, and I gathered the impression that Mr. Baker mentioned to Mr.
Hackworth that Dr. Young was familiar with or had seen the cable in question..
At any rate, Mr. Hackworth suggested that it would be advisable for me to
talk with Dr. Young also.
I went from Mr. Hackworth's office to Mr. Baker's office and went over the
situation fully with him, discussing the matter generally, and in particular the
question of what was meant by the term " general taxes " in the Platt amendment. I told him that I had a copy of the offer which Chase had made, and
also a statement which I had prepared showing how it had been worked out.
He said he was not very much concerned about details, as General Crowder
had already submitted a report which would be entirely sufficient, on the
working out of the financing. He suggested, however, that Dr. Young might
be glad to have these papers, including the statement which I had prepared,,
and requested that I see him. I left Mr. Baker with the impression that he
would find no difficulty in recommending that there would be no objection to
the method of financing, and that he would also take prompt action.
I then visited Dr. Young, economic adviser of the State Department, and went
over the situation fully with him. I left with him a copy of our proposal and
also a copy of the statement I had worked out giving the effect to the financing
and the receipt of the taxes. He told me he appreciated the importance of
reaching a prompt conclusion and thanked me for going over the matter
with him.
During my conference with Dr. Young, he reminded me that it would be
necessary to give the State Department official notice of the conclusion of the
definitive agreement in line with, the circular which had been generally distributed to bankers and security houses. I told him that we had not as yet
given any notice pursuant to this circular, as all we had done to date was to*
make an offer on the public invitation. I assured him, however, that we would
give such notice prior to the making of the definitive agreement.
A. E. M.
Mr. MUDGE. Shall I proceed, or wait for you to read that
memorandum, Mr. Pecora?
Mr. PECORA. YOU may go ahead.
The CHAIRMAN. YOU may proceed, Mr. Mudge.
Mr. MUDGE. While I was in Washington on December 6, 1926, I
arranged with Mr. Charles Henry Butler, a Washington lawyer^
who was one of the correspondents of our firm in Washington, to
contact with the members of the State Department whom I have
mentioned, to see whether we could be of any further aid in supplying data, and also to ascertain from time to time how soon we might
expect advices as to the conclusion of the State Department.
Under date of December 13, 1926, a week following my conference
with the officials of the State Department, I received a letter from
Mr. Butler, thh original of which I now present. If there is no
objection, I request that it be put on the record.
The CHAIRMAN. Without objection that will be done. Did you
have anything from the State Department itself?
Mr. MUDGE. I should like to read this letter first, Mr. Chairman.
The CHAIRMAN. All right.
(The letter from Charles Henry Butler-John A. Kratz to Eushmore, Bisbee & Stern, dated Dec. 13, 1926, was marked "Witness*
Exhibit No. 36, Oct. 24, 1933", and will be found immediately
following:)
STOCK EXCHANGE PKACTICES
WITNESS* EXHIBIT NO. 36, OCTOBER 24,
2617
1933
LAW OFFICES, CHAKLES HENRY BUTLER, JOHN A. KRATZ,
Washington, D.O., December 13, 1926.
Messrs. RTJSHMORE, BISBEB & $TERN,
New York, N.Y.
(Attention of Mr. Mudge.)
GENTLEMEN : We were informed by the State Department today, as our Mr.
Butler telephoned your Mr. Mudge, that the American Government has notified
the Cuban Government that it is raising no objection under the Platt amendment as to the method of Cuba's financing its internal improvements, and wewere authorized to transmit that information forthwith to you.
We were requested to simultaneously state to you that the Department
would appreciate it if you would notify them that you did propose to proceed
under the draft proposition which you had already submitted to the Department, and to give the Department any further information that you could in
regard to this transaction.
As you know, it is the present attitude of the Department for the sake of
better protecting American financial interests abroad to keep itself advised
of all the large financial transactions which are entered into between Americans and foreigners involving the placing of capital abroad.
We were told that the message had actually been transmitted to the Cuban
Government through the American Ambassador in Habana before the message
was received by us.
We expressed to the gentlemen having the matter in charge the appreciation,
of your office and ours that this matter had been expedited, for we know that
the Department is really overwhelmed with business at the present time.
Your Mr. Mudge asked us to transmit a bill. We will send a memorandum,
of our disbursements for telegrams and telephones, and our Mr. Butler will
be in New York in the course of the next few days and will give himself
the pleasure of calling at your office, but please understand that the matter
of compensation is entirely in your own hands and any amount that you
suggest will be satisfactory to us, and believe us to be,
Yours very truly,
CHABLES HENRY BUTLER-JOHN A. KRATZ,
By C. H. BUTLER.
Mr. MXJBGE. The letter which I have just mentioned and read to
you brought forth this result. In compliance with the suggestion
contained in that letter, indicating to us a desire on the part of the
State Department officials, I sent in behalf of my client a letter dated
February 15, 1927. That is the letter with which we transmitted to
the State Department the definite agreements which had been finally
prepared and were then ready for execution. That letter was offered
in evidence, I believe, by Mr. Pecora at the hearing on yesterday.
In response to that letter, and under date of February 21, 1927,
Assistant Secretary of the Department of State, Mr. Leland Harrison, wrote to the Chase National Bank referring to the letter I have
just mentioned and advising that the State Department had no objection to the proposed $10,000,000 financing.
Senator COUZENS. And that letter was put in our record on yesterday.
Mr. MUDGE. That letter was put in the record on yesterday.
The CHAIRMAN. YOU may proceed.
Mr. MUDGE. I believe under date of February 19 the definitive
agreement was actually executed in Habana. That was after we
had been definitely notified by the State Department, through Mr.
Butler, that the State Department was entirely satisfied that the
proposed financing complied in all respects with the Platt amendment. I t was 2 days before we had actually received the final comDigitized munication
for FRASER of February 21.
2618
STOCK EXCHANGE PBACTICES
In connection with this financing I had made a careful study of
the Platt amendment and its relationship to financing of this sort.
I was aided very greatly by the numerous conferences I had with
General Crowder in Habana. General Crowder, if you may recall,
was quite a student, and he had the considerable contact with the
Platt amendment, especially as a result of the $50,000,000 loan which
had been approved by the State Department, I think, in the summer
of 1922. That was the loan to the Cuban Government.
Senator COUZENS. By whom was that loan made?
Mr. MUDGE. J. P. Morgan & Co.
As a result of my study of the situation^ and, of course, especially
in reliance upon the fact that the State Department had made a
careful and thorough investigation of the situation, the terms of
the financing, the probable revenues of the Republic of Cuba, and
had finally and definitely, as we were advised, communicated with
the President of Cuba to the effect that the State Department was
satisfied that the financing complied in all respects with the Platt
amendment, I advised my clients to proceed with the consummation
of the financing. That advice was not embodied in a written opinion
but was given to them in connection with the conclusion of the mat*
ter. No formal written opinion was requested or required in connection with this particular financing, because, unlike the two succeeding types of financing, it did not involve a public offering but was
simply a bank credit.
That, I think, to the best of my knowledge, is a complete statement
of the relationship of my client to the consideration of the application of the Platt amendment to this financing, and although I have
not had access to and know nothing of my own knowledge about
what the State Department files may show—I feel certain that
if you 'make inquiry in that direction you will find a series of
telegrams or letters or communications between the Republic of
Ouba and the State Department bearing upon this matter.
Mr. PECORA. Are you through, Mr. Mudge, with your statement?
Mr. MUDGE. Yes.
Mr. PECORA. When
did you first go to Habana in connection with
this proposed financing?
Mr. MUDGE. I think I was probably down there 4 or 5 weeks. I
cannot recall. I know it was about that time.
Mr. PECORA. When did you first go there ?
Mr. MUDGE. I should say 4 or 5 weeks before November 30, 1926.
That was the date the proposal was submitted, and I left within a
day or two afterward, because I arrived in Washington on December
6.
Mr. PECORA. Were you charged with any special mission by your
client in connection with that trip?
Mr. MUDGE. Only the usual mission counsel generally carries going
on a trip of that nature, to advise the client on the legal aspects of
the problem, to prepare the legal documents, and handle the matter
generally from a legal standpoint.
Mr. PECORA. Had any legal question arisen up to that time with
respect to the applicability of the Platt amendment to this proposed
form of financing?
Mr. MUDGE. I think we had considered it in a preliminary way,
yes, sir.
STOCK EXCHANGE PRACTICES
2619
Mr. PECORA. Had anybody raised the question specifically with
your client?
Mr. MUDGE. Not to my knowledge.
Mr. PECORA. There is some evidence here, Mr. Mudge, introduced
yesterday, that as far back as March 1926, and 6 or 8 months before
you went to Cuba charged with this mission in behalf of your client,
the question had specifically been raised by General Crowder with
regard to the applicability of the Platt amendment to the carrying
out of the public-works program that was authorized by the special
enactment of July 13, 1925. Did you know of that?
Mr. MUDGE. I knew nothing of it.
Mr. PECORA. NO one connected with your client, the Chase Bank>
told you anything about that?
Mr. MUDGE. Nobody at all; and I assume, of course, the reason
was that the financing which we were then proposing was of an entirely different character. As I say, the financing that we proposed
was a credit operation. I believe, if my memory serves me correctly,
that the memorandum referred to an external loan of upwards of
$100,000,000. I suppose that the matter was not considered, if it
was in the minds of my clients at all, of any relevance.
Mr. PECORA. YOU knew this proposed financing with regard to
these public-works certificates aggregating $10,000,000, that actually
was the subject of agreement between your client and the Cuban
Government on February 19, 1927, had to do with a part of this
public-works program authorized to be initiated by the act of July
13,1925, did you not?
Mr. MUDGE. Surely.
Mr. PECORA. Did it occur to you that any part of that program,,
or the furtherance of it, might require the contracting of a debt that
might be in violation of the Platt amendment?
Mr. MUDGE. I never thought that it would be in violation of the
Platt amendment. I thought that the Platt amendment, because it
was embodied in a treaty between the United States and Cuba, was
a subject-matter which would have to be considered in connection
with the proposal. As I have already stated, General Crowder in
his numerous talks with me on the subject developed the idea that
there had been a definite policy initiated and followed in the State
Department to investigate, as a matter of policy, all financing of this
sort. If you read the liistory of the various episodes in which the
Platt amendment has been involved you will see the reason for that.
If you will examine the notes from Secretary Knox, Secretary of
State, to the Cuban Administration in connection with the Zapata
swamp deal you will see the reason for that policy, and it was pursuant to that policy that General Crowder told me, irrespective of
the type of financing that was then under consideration, he was
satisfied that the Department of State would insist upon an opportunity of checking up this financing, an opportunity of examining
the fiscal position of Cuba at the moment, to see whether, in their
judgment, there was any reason for representation and to be entirely
satisfied that all provisions of the Platt amendment were complied
with.
Mr. PECORA. Mr. Mudge, what were the essential features of the
proposed financing that you went down to discuss in behalf of your
2620
STOCK EXCHANGE PRACTICES
client with General Crowder, which caused it to differ from external
financing?
Mr. MUDGE. External financing involves a general credit obligation of a Government, for the most part payable to bearer, bearing
coupons, and circulating throughout the world almost like currency.
The obligation that was embodied in the proposal we made was what
is called a deferred-payment work certificate. I t was made originally in the name of the contractor who had performed the work
on the highways and who was entitled to receive the money. That
contractor assigned it to the Chase National Bank, and it became,
not a " bearer " obligation, but simply an obligation payable to the
order of the Chase National Bank, and the theory upon which it
was issued was that by virtue of that situation the Chase National
Bank, having advanced the amount of the certificate to the contractor, became the assignee of the contractor or became surrogated to
the rights of the contractor to receive the amount specified in the
certificate from the Government.
Senator COUZENS. Did not subsequent financing diverge from that
plan?
Mr. MUDGE. It diverged in some respects from that plan.
Senator COUZENS. When the divergence took place was the Platt
amendment considered at that time ?
Mr. MUDGE. Yes.
The CHAIRMAN. These
certificates had to be signed by the minister
of public works.
Mr. MUDGE. Yes,
The CHAIRMAN.
Mr. MUDGE. The
sir.
And the Secretary of the Treasury.
engineer in charge of the work, I believe. I think
also by the Secretary of Public Works or his representative, and I
think by the Secretary of the Treasury. I am not certain as to the
details.
The CHAIRMAN. Were they signed in that way before they were
presented to the bank?
Mr. MUDGE. They were signed in that fashion and delivered to the
contractor.
Mr. PECORA. Did they not represent
Mr. MUDGE. The contractor then presented them to the bank, and
the bank paid over to the contractor the amount called for in accordance with the certificate contained in the^ face of the instrument.
Mr. PECORA. Did not those deferred work payment certificates
represent directly the obligation of the Government in favor of the
contractors to whom they were originally issued?
Mr. MUDGE. I think they did, unquestionably.
Mr. PECORA. And to that extent represented public indebtedness.
Mr. MUDGE. They certainly represented an obligation of the Cuban
Government.
Mr. PECORA. And, considered in that light, represented public indebtedness of the Government.
Mr. MUDGE. I do not think they represented the same type of indebtedness as is generally understood by the phrase " public loan "
or " public bonds " or " public indebtedness."
Mr. PECORA. Regardless of the type, and regardless of terminology,
did they not represent an indebtedness owed by the Cuban Government for work done, by way of construction of public improvements?
STOCK EXCHANGE PRACTICES
2621
Mr. MUDGE. We certainly thought so when we took them.
Mr. PECORA. What did you think the Platt amendment related to,
or, rather, let me put it this way. What do your regard as the essential principle of the Platt amendment?
Mr. MUDGE. AS I have said, the history of the Platt amendment is
contained in the various state documents that have considered it in
its. application to various situations that have developed from time
to time. In connection with the Zapata swamp concession in Cuba, a
controversy arose between the Cuban President and the State Department, as the result of which Secretary of State Knox sent to
President Gomez a note—and these matters I am referring to are
all matters of public record in the publications of the State Department. That note stated the rights of the American Government in
the premises as a result of the treaty obligations between Cuba and
the United States. The note called attention to the right of the
Government of the United States, under article 3 of the treaty of
1903, which is one of the so-called " Platt amendments." Article 3
is the one which imposes the duty on the United States to maintain
a stable government in Cuba.
Mr. PEOORA. Could you confine yourself to that article?
Mr. MUDGE. I was just about to bring my observations on this
point to a head by reading a portion of that note, and you will see
its application to this particular problem.
Mr. PECORA. GO ahead.
Mr. MUDGE. This note called attention to the right of the Government of the United States, under article 3 of the Platt amendment,
to intervene to maintain an adequate government in Cuba. This
right—the note continued—and from now on I am quoting from the
note [reading]:
entitles this Government to caution the Cuban Government against adopting
an improvident or otherwise objectionable fiscal policy, on the ground that
such policy might ultimately, either by itself or in connection with the general
conditions in Cuba, produce a situation there requiring the United States to
intervene for any of the purposes recited in this article.
Now, it was General Crowder's
Senator COTJZENS. Have you ended the quotation?
Mr. MUDGE. I have ended the quotation.
I t was General Crowder's position that any important piece of
financing of this nature, whether what you might call a "public
debt" or a " public bond issue ", or what looked to be more or less
of a purely private or internal operation, was a matter in which the
State Department must interest itself, from the point of view of the
policy to which I have just referred, as contained in this communication from Secretary Knox.
That same policy was followed, I think, a year or two later, and
it was also the policy followed in connection with the State Department's approval of the so-called " Morgan loan " of 1922, in connection with which, as you may recall, there were certain conditions
imposed by the United States Government.
Mr. PECORA. The principle that you are referring to is a principle
arising out of the provisions of article 3 of the so-called " Platt
itmendment ", and that seemed to vest the United States Government
with power to see to it that proper order was maintained in Cuba.
2622
STOCK EXCHANGE PRACTICES
The portion of the Platt amendment that has come into question
here, Mr. Mudge, is the one known as article 2, which I will read.
Mr. MUDGE. I am familiar with it.
Mr. PECORA. YOU are familiar with it. You know that is says
that [reading] :
The said Government—
Meaning the Cuban Government.
shall not assume or contract any public debt to pay the interest upon which and
to make reasonable sinking-fund provision for the ultimate discharge of which
the ordinary revenue of the island of Cuba, after defraying the current
expenses of the Government, shaU be inadequate.
Would you confine yourself to that provision of the Platt amendment in your discussion of the applicability of it to this form of
financing, with respect to which you went to Cuba at the behest of
your clients in the latter part of 1926?
Mr. MUDGE. I t was that feature of the matter that caused the
Department of State to make a thorough examination of the financial
situation of Cuba at the time, through Dr. Young, the economic
adviser of the State Department, and also—in this respect I am
informed by the communication of Mr. Butler—from a report that
they expected to receive from General Crowder, who was on the
ground.
General Crowder told me, before I left Cuba, that he expected he
would be called upon to make a report, and he said he was thoroughly
conversant with the situation, and had been down there some time,
and he would be in a position to expedite such a report. He also
told me that he was entirely satisfied that the economic situation
was such at the time that there would be no difficulty in sustaining
the financing from the standpoint of the adequacy of the revenues
of Cuba.
Mr. PECORA. YOU have already said that these deferred-payment
public-works certificates that were issued by the Cuban Government to the contractors for work already completed under this
public-works program represented a form of public indebtedness.
Mr. MUDGE. I said I thought that they represented an indebtedness of the Cuban Government.
Mr. PECORA. That is another way of saying that they represented
a public indebtedness, is it not?
Mr. MUDGE. I said I did not know that they represented—and in
fact, I thought that they did not represent the type of public indebtedness that was probably intended to be covered by article 2 of
the Platt amendment. But I went further
Mr. PECORA. Did they, in your opinion, represent a public indebtedness ?
Mr. MUDGE. They represented a contractual indebtedness of the
Republic of Cuba.
Mr. PECORA. I S not that another definition for a public indebtedness?
Mr. MuDGip. I do not think it is synonymous with the term " public indebtedness" contained in article 2 of the Platt amendment.
Mr. PECORA. Did these certificates represent a debt payable by
the Cuban Government?
STOCK EXCHANGE PEACTICES
2623
Mr. MUDGE. They were an obligation of the Cuban Government
to pay a definite amount on a special date, with interest.
Mr. PECORA. Are you using the term " obligation " in that answer
as meaning something other than debt?
Mr. MUDGE. I would say that an obligation of that nature involved a debt of the Government. I would say that an obligation
of that nature was not the type of obligation designated as a public
debt in the Cuban Constitution and in the Platt amendment, but,
Mr, Pecora, I have gone one step further in my presentation of the
legal aspects of it, and I have said that, irrespective of the type of
financing, irrespective of whether it was a public debt, or what you
might call a private debt, the policy of the United States Government has been to assume jurisdiction, to examine into the whole
question, to consider the adequacy of the revenues set aside for the
service of the loan, and, after that stage, to advise the Cuban Government whether or not it had any point to raise under the Platt
amendment. It has done that in connection with the Morgan loan
of 1922, and it did it in connection with the Chase financing of 1927.
It was only after it had made that thorough examination and
come to that conclusion that I was willing to advise my client
to go ahead.
Mr. PECORA. Had you given your client any opinion, either of a
formal or informal character, with respect to the applicability of
article 2 of the Platt amendment to this form of financing?
Mr. MUDGE. I had told my client that the Platt amendment would
certainly have to be considered, and cleared with the State Department before they could go ahead. That was the purpose of my
visit to Washington.
Mr. PECORA. It was also the purpose of your visit to Cuba before
you went to Washington, was it not?
Mr. MUDGE. NO ; because I thought the Platt amendment centered
in Washington because of the fact that it is embodied in the treaty
between the United States and Cuba.
Mr. PECORA. Before you went to Washington
Mr. MUDGE. The Cuban aspect of the constitution, which embodies
the same language, was thoroughly covered by Dr. Bustamante. We
relied, of course, upon the opinion of Dr. Bustamante in connection
with Cuban constitutional matters.
Mr. PECORA. What is there in the opinion of Dr. Bustamante which
devotes itself to a discussion of the applicability of the Platt
amendment ?
Mr. MUDGE. I do not think there is anything.
Mr. PECORA. Not a thing.
Mr. MUDGE. It was frequently discussed between himself and
myself, and obviously, like most opinions of that sort, it expressed
his conclusion as to the entire legality of the transaction, and did not
express in detail the reasoning by which he arrived at that conclusion,
Mr. PECORA. I S it your experience that most opinions on such
subjects merely express conclusions and not the reasoning upon which
the conclusion is based?
Mr. MUDGE. That is my experience.
Mr. PECORA. I S there anything in the opinion itself which indicates
that the question of the applicability of the Platt amendment was
especially considered in reaching that conclusion?
2624
STOCK EXCHANGE PRACTICES
Mr. MUDGE. Only the fact that the conclusion sustains the complete
validity of the loan.
Mr. PECORA. Then it is merely an assumption that the Platt amendment is one of the things considered in reaching that conclusion.
Mr. MUDGE. I t is not an assumption on my part, because I discussed the matter with him.
Mr. PECORA. With Dr. Bustamante?
Mr. MUDGE. With Dr. Bustamante.
Mr. PECORA. Did you discuss it with Dr. Bustamante in connection
with your discussions of the subject with General Crowder?
Mr. MUDGE. Not in the presence of General Crowder, no.
Mr. PECORA. I S there in existenceMr. MUDGE. It was on the same trip.
Mr. PECORA. I S there in existence anywhere to your knowledge any
opinion based upon a specific consideration of the applicability of
the Platt amendment to the financing of this public works program
or any part of it, whether that opinion was written by the Solicitor
of the State Department, or by counsel for the Chase Bank, or by a
representative of the Cuban Government, or by anybody whatsoever?
Mr. MUDGE. I assume you will find that thoroughly discussed in
the files of the State Department.
Mr. PECORA. Have you any knowledge of any such opinion existing
anywhere ?
Mr. MUDGE,. I have knowledge that on my visit to Washington
the matter was being discussed and considered by the Solicitor of the
State Department and by his assistant. I assume that as a result
of their careful consideration of the matetr they reached a conclusion, and possibly embodied that in a memorandum or opinion. I
do not know.
Mr. PECORA. My question asked for any knowledge on your part
of the existence of any such opinion.
Mr. MUDGE. I have no personal knowledge, but I assume that the
circumstances I have given would lead to the assumption that there
was such an opinion in the State Department's files.
Mr. PECORA. Upon what basis do you think, as an attorney, Mr.
Mudge, the conclusion would rest that this particular type of financing that was entered into on February 19, 1927, is not in violation
of the Platt amendment ?
Mr. MUDGE. I would base it on the fact that the Department of
State, in pursuance of the treaty obligations between Cuba and the
United States, had made a careful study of the available revenues
and had come to the conclusion that there was sufficient to pay the
service of the proposed loan, and accordingly had advised the Cuban
Government that so far as they were concerned there was no question
involved under the Platt amendment.
I would assume, from the standpoint of the Cuban administration,
looking at it solely from the standpoint of the constitution of
Cuba, that they were satisfied that the available revenues were amply
sufficient to pay the interest and amortization of the proposed
financing, and were therefore within what is contemplated in article
2, if this particular type of financing was embodied in article 2.
If it was not embodied in article 2, then, of course, article 2 has
no application.
STOCK EXCHANGE PEACTICES
2625
Mr. PECORA. Your answer, so far as I can understand it, Mr.
Mudge, is, in substance, that you consider that this financing did
not conflict with the Platt amendment, simply because somebody
in the State Department, or somebody in the Cuban Government,
reached that conclusion.
Mr. MUDGE. I reached that conclusion as a result of my own study
of the matter, and I was naturally gratified that it was concurred
in, or fortified by the fact that the State Department had reached
the same conclusion.
Mr. PECORA. Am I to understand from that statement that you
made an independent study or research into the question?
Mr. MUDGE. Yes, sir.
Mr. PECORA. And upon
what basis did you reach the conclusion that that form of financing did not conflict with the Platt
amendment ?
Mr. MUDGE. I personally felt that the operation of 1927 wa§ not
a public debt, within the meaning of article 2; but whether or
not it was a public debt, I knew that it was an important piece
of financing for the Cuban Government, and I was convinced, as
a result- of the statistics! and figures that were available at the time,
that there was ample revenue in sight to take care of the service on
the loan, and I did not go beyond that.
The CHAIRMAN. Did you study the question of revenue in general
or " ordinary revenue"? Would you draw a distinction between the
" revenues " and " ordinary revenues ", as mentioned in that article?
Mr. MUDGE. I discussed that phase of the matter with the officials
of the State Department.
The CHAIRMAN. But did you study the question of ordinary revenues, the amount of ordinary revenues to be applied to this debt?
Mr. MUDGE. I did, sir.
Mr. PEOORA. Mr. Mudge,
what kind of public debt do you think is
referred to in article I I of the Platt amendment ?
Mr. MUDGE. Well, beyond any question, the public debt represented by the so-called " Morgan issue of 50 million dollars in 1932."
Mr. PECORA. YOU are aware of the fact that the language of the
Platt amendment refers to any public debt?
Mr. MUDGE. I am.
Mr. PECORA. Those terms
do not imply any limitation on the nature
of public debt; do they?
Mr. MUDGE. Well, there is a good deal in the what you might call
international relationship which bears on what is public debt and
what is not public debt. I made a study of that, and I have references to the various situations in which it has arisen; in 1902, for
example. There is a definite view on the subject that the term
" public debt" generally speaking is supposed to represent a general credit obligation of the Government, or it may be in some instances a secured obligation of the Government in the form of
bearer bonds with coupons attached circulating generally throughout the world. I think that that point of view is in contrast with
what is frequently termed " private debt", sometimes an international obligation, which is the result sometimes of a complicated
contract, sometimes- of different situations which resiilt in a private
obligation.
2626
STOCK EXCHANGE PRACTICES
My feeling was that this particular financing of 1927 was of a
private nature and not a public matter, but
Mr. PECORA (interposing). Mr. Mudge, are you not drawing a
distinction between a public debt as such and a means for meeting
a public debt when you speak of this particular type of financing not
being in violation of the Platt amendment? I was not discussing
any particular type of financing; I was devoting myself to the precise and specific question of what is or is not a public debt, regardless
of the type of financing that might be adopted to meet it with. The
question we are now discussing is whether or not these deferred payment public works certificates which have been issued by the Cuban
Government to contractors for work done under this public works
program authorized by tl\e law of July 15,1925, represented a public
debt or indebtedness of the Cuban Government. Now, did they or
did they not? Can't you answer that?
Mr. MUDGE. I think they represented an indebtedness of the Cuban
Government.
Mr. PECORA. TO that extent did they represent a public debt on the
part of the Cuban Government?
Mr. MUDGE. From the standpoint of advising my client I said and
I took the position that we had better consider these a public debt,
because, obviously, we wanted to have the matter thoroughly covered
by the investigation of the State Department, and we wanted of
course to have the support of a conclusion by the State Department
that all requirements of the Platt amendment had been complied
with. Therefore, we did not concern ourselves with the technical
distinction between a public debt and a private debt.
Mr. PECORA. Then you started out with either the assumption or
the conclusion that these certificates represented a public debt, did
you not?
Mr. MUDGE. We started out with the point of view that it would
be wise and good judgment to proceed on the theory that they did
represent or were equivalent to public debt.
Mr. PECORA. Did you ever thereafter depart from that conclusion ?
Mr. MUDGE. NO, sir.
Mr. PECORA. Then throughout
they constituted in your mind a
public debt on the part of the Republic of Cuba ?
Mr. MUDGE. Well, of course, those did not last very long. They
were superseded by obligations of an entirely different nature, of a
quite different nature.
Mr. PECORA. I am talking about these certificates before they were
superseded by anything else. Did they continue throughout to represent a public debt on the part of the Republic of Cuba 1
Mr. MUDGE. They certainly represented a debt of the Republic
of Cuba, and we continued throughout to regard them as a public
debt.
Mr. PECORA. NOW, if they represented a public debt, how were you
able to reach a conclusion^ if you did actually reach such a conclusion, that they did not represent that kind of public debt within the
fair meaning and intendment of article I I of the Platt amendment,
which says t h a t " said Government shall not assume or contract any
public debt", and so forth?
Mr. MUDGE. On the assumption that they were a public debt and
therefore came within article I I of the Constitution, we concluded
STOCK EXCHANGE PRACTICES
2627
that the situation was such at the time as to the anticipated revenues
of the Kepublic as to comply in all respects with the provisions of
that article.
Mr. PECORA. The provisions of that article refer to prohibition
upon the Government and not assuming or contracting any public
debt " where the ordinary revenues of the island of Cuba, after defraying current expenses of the Government, should prove inadequate
to pay the interest and to make reasonable sinking fund provisions
for their ultimate discharge "; isn't that so?
Mr. MUDGE. I t is provided; yes.
Mr. PECORA. NOW, if the ordinary revenues of the Island of Cuba,
after defraying therefrom current governmental expenses, should
have been inadequate to meet the interest charges on these publicworks certificates and to allow provision for reasonable sinking
fund requirements for their ultimate payment, would such portion
of the public debt or would a public debt thereby created conflict
with the Platt amendment in your opinion?
Mr. MUDGE. Not in the slightest.
Mr. PECORA. Not in the slightest?
Mr. MUDGE. The whole situation
Mr. PECORA (interposing). Then what does the Platt amendment
mean, Mr. Mudge? What does article I I of the Platt amendment
mean?
Mr. MUDGE. It means that at the time the obligation is incurred
there must be in sight sufficient revenue to take care of the interest
and of the sinking fund of the public debt. I t does not mean
Mr. PECORA (interposing). What kind of revenues?
Mr. MUDGE. The Constitution uses the expression " ordinary revenues." I t does not mean that if whatever estimates are made at
the time prove to be inadequate or wrong the obligation is invalid
or improperly contracted, because no one can foresee the future.
Mr. PECORA. AS a matter of fact, when this public-works program
was authorized by the law of 1925 didn't that law also create special
revenues with which to meet the indebtedness?
Mr. MUDGE. I t created special taxes and forms of revenues which
in some cases were increases of taxation already existing. I t simply
allocated a commonly known type of taxation to the specific purposes set forth in the public works law. That did not mean that they
were any less ordinary reveneus within the contempation of this
particular provision.
Mr. PECORA. Were they not referred to throughout as special revenues or revenues specially created for the purpose of meeting the
obligations which the Government would contract or assume in the
furtherance of this public-works program?
Mr. MUDGE. I don't think so. I think they were referred to as
taxes which were to be utilized for a special purpose.
Mr. PECORA. Haven't you found that, in correspondence or documents in the files of your own client, these revenues provided for
by the Public Works Act of July 15, 1925, are referred to as special
revenues, as distinguished from ordinary revenues?
Mr. MUDGE. I do not recall the phraseology.
175541—33—PT'5
23
2628
STOCK EXCHANGE PRACTICES
Mr. PECORA. Then, you think that the adjective "ordinary"
before the word " revenues" ih the Platt amendment is just
meaningless ?
Mr. MUDGE. I do not think it has any particular significance. I
discussed that phase of the matter, as I tried to explain, in my inter ^
view with the Solicitor General of the State Department, and I
know that from what they told me at the time there was not any
line of demarcation in their minds between what you refer to as
" ordinary revenues " and what might be referred to as these taxes,
increased taxes, paid into this special fund. We discussed that
very question.
Mr. PECORA. Can you point to a single authority that you ever
found, Mr. Mudge, which bears out your conclusion that the word
" ordinary " as an adjective qualifying the noun " revenues " in this
article I I of the Platt amendment does not mean anything?
Mr. MUDGE. I do not know of any such authority bearing on the
question. I think it is just a question of giving effect to what was the
spirit and purpose of this amendment. That is the reason for the
interview with the State Department.
Mr. PECORA. Don't you think that the original meaning and in*
tendment of this amendment was that the Cuban Government was
embarking upon an expenditure of public moneys that it could not
meet out of ordinary revenues?
Mr. MUDGE. I do not think that there was any intent by the use
of the term " ordinary revenues " to prevent the creation from time
to time of new forms of taxation.
Mr. PECORA. Well, you know, of course, that the power of taxation
is unlimited, don't you, where it is exercised as a sovereign power?
Mr. MUDGE. Fairly unlimited.
Mr. PECORA. Fairly unlimited. It may be exercised to the point of
confiscation—an elementary principle, isn't it?
Mr. MUDGE. Well, I would not want, to say that it can go too far,
but generally speaking it is very broad.
Mr. PECORA. YOU know of the legal phrase that " the power to tax
is the power to destroy ", and that that arises from the fact that the
power to tax is a power to tax to 100 percent, you might say.
Now if, as a matter of fact, the term " ordinary revenues ", as
embodied in the Platt amendment does not draw any distinction
between revenues of usual character and the revenues tnat under the
right to tax a Government may derive through the exercise of its
unlimited power of taxation, then what was the sense of having any
such provision in the amendment at all ?
Senator COUZENS. I would like to ask Mr. Pecora in that connection, I'think the whole discussion is unreasonable, in view of the
fact that the gasoline tax was not known at that time, that the
Platt amendment was agreed upon and it seems to me it would be
ridiculous to freeze the Cuban Government to such an extent that it
could not pass a gasoline tax to build roads. I think to interpret
the word " ordinary " to exclude the Cuban Government from adopting a well-known tax in other countries would be absurd interpretation of the word " ordinary " in that amendment. I think we are
wasting a lot of time.
Mr. PECORA. I want to see if the witness attaches any significance
or meaning at all to the word " ordinary " as qualifying 44 revenues ",
STOCK EXCHANGE PRACTICES
2629
because, if it has no meaning at all, why, then, the Cuban Government could at any time pass laws imposing special revenues under
its unlimited right to tax, and could thereby contract any kind of
public debt and say, " Well, we will pay for it out of these revenues
which we will create."
Senator COTJZENS. It was all passed upon by the State Department, and that represents our Government. If they passed upon it
I do not know why it could be considered as an extraordinary tax.
Mr. PECORA. I have not seen anything yet on that.
Senator COUZENS. I asked yesterday to have the file «of the .State
Department to see what conclusion they reached, and I think we
are wasting a lot of time in discussing it before we do see .the xeaord
of the State Department.
The CHAIRMAN. I think it is a reasonable suggestion tih&t we are
taking up too much time in arguing this matter. We can argue it
in executive session of the committee, but there is no need to .argue
it out here in these hearings. Let us go on and get the facts, and
then we can discuss the facts when we get in session to consider what
is developed at the hearings.
Mr. PECORA. I did not call Mr. Mudge as a witness. He is offered
as the witness, and I thought we were going to get a copy of a written
opinion submitted by him or his firm covering the whole legal
question, but I see now that there was no written opinion rendered.
The written opinion of Dr. Bustamante does not embark upon .any
discussion at all of the Platt amendment. It states ,a general
conclusion.
The CHAIRMAN. I think we need not argue any more on it. Let
us go on.
Mr. PECORA. All right. Then, I will continue with the examination of Mr. Geiger at the point where I left off yesterday.
TESTIMONY OF ADAM K. GEIGER, SECOND VICE PRESIDENT OF
THE CHASE NATIONAL BANK—Resumed
Mr. PECORA. NOW, Mr. Geiger, at the time that your exaaminatiom
yesterday was suspended I asked you concerning certain statements
embodied in a letter addressed to Mr. Joseph Rovensky, vice president of the Chase National Bank, by Mr. Bruce under date o f JFebruary 23, 1931. I show you what purports to be a photostatic reproduction of such a letter. Will you kindly look at it and tell us
if it is a true and correct copy of the letter in question ?
Mr. GEIGER (after examining document). I t is.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted in evidence and entered on
the record.
(Letter dated February 23, 1931, to Joseph Rovensky from James
Bruce was thereupon designated " Committee Exhibit No. 37, October 24, 1933,")
Mr. PECORA. I will read the letter for the information of the committee, because of its importance. It is dated February 53, 193L
1 Reading:]
2630
STOCK EXCHANGE PRACTICES
Mr. JOSEPH ROVENSKY,
Vice President, Chase National Bank, New York City.
am sending this letter to you. I would appreciate it if you would
have copies made of information which different officers in the bank will be
interested in and send same to Messrs. McHugh, McCain, Aldrich, Schmidlapp,
Freeman, Charles Smith, Campbell, and Eddy.
DEAE JOE : I
Mr. GEIGOR. The name is Sherrill Smith.
Mr. PECORA (continuing reading):
First of all, one of the things we should do in Habana is to have a secretary
there that we can write letters with; and my suspicions may be unfounded, but
I think that any communications made from the office at the moment are known
at the palace before they are known in New York.
To start first with the banking under Kosenthall, he is doing a fine job and
has really not made one mistake since he has been there. He has collected a
lot of loans which looked very precarious and he has not made any new loans
except on proper securities, with the proper margins, and has increased the
operating efficiency of the bank very much. The first 6 months of last year,
before he came there, I forget just what the figure was, but I think that the
branch ran in red about $25,000, whereas for the first 6 months of this year it
will run in the black somewhere between $60,000 and $70,000.
With regard to further write-offs, I do not believe that the head office will
have to appropriate any more money for this branch. The figures have not
changed much since they were first made last summer. On January 1 we
appropriated $300,000. This leaves on ordinary accounts about $200,000 still
to write off. As against this we have made a settlement which had already
been written off against Larea which will net us about $70,000, leaving a balance to be retained of $130,000. This I think the branch can do out of earnings. The above, however, does not take into consideration any loss that we
might have in the following items:
1. Central Habana.
2. Garcia Beltran.
With regard to this letter, when I was in Habana they offered $65,000 of
the new Cuban Government sugar bonds in place of a $50,000 payment that
they were to make on their loan, and we took the same, as it was a question
of that or nothing. Although their indebtedness is higher, I figured that our
risk on them is now down to about $380,000, and it may be that we shall have
good enough luck to get out, but it is very hard to tell.
3. The interests of the President: The President's personal loan is now
$130,000, and he promises to pay it off within 30 days. I should doubt very
much whether he does this.
The loan of Mistre Machado is now about $45,0<00 unsecured. We had a
proposition from them stating that they would pay this off if we would loan
them $145,000 on Cuban internal government bonds at market value without
margin. We decided that we would rather take our chances on losing $45,000
than to put up an adidtional $100,000 in unmarketable securities, so this item
remains the same.
With regard to the shoe factory belonging to the President, when Rosenthall took over the office this loan was altogether $89,000, and he has reduced
the same to $9,000. Undoubtedly, in my opinion, if this had been allowed to
run along for a year or two the same would have been a total loss. Xou are
familiar, of course, with the transaction by which Sherrill and Rosenthall collected $200,000 from Cespedes, as I think this should have also been eventually
a loss, and collection was really the best single thing that has been done for
the bank this year.
In view of all the above, it seems to me our worries are pretty well over as
regards the branch, and the great day for the same was the day you found
Rosenthall and sent him down there, because he has handled things most
intelligently and in my opinion is away above all the other fellows running
branches in Habana, certainly of those that I know, and I know all of them
except the fellow running the branch for First National.
To touch for a moment on Obregon.
By the way, Mr. Geiger, who was this Obregon that is referred to
in this letter?
Mr. GEIGER. I think that was Jose Obregon, an employee of the
bank.
STOCK EXCHANGE PEACTICES
2631
Mr.
Mr.
Mr.
Mr.
Mr.
PECORA. I S that all you know^ibout him, about his identity?
GEIGER. That is all you asked.
PECORA. I asked you who he was.
GEIGER. He is a son-in-law of president Machado.
PECORA. All right. [Continuing reading:]
As we know, from any business standpoint he is perfectly useless—
[Laughter.]
He has neither any ability for banking, nor has he the slightest ability in
negotiating, which was something which we thought it might be possible to
build him up to do. The only use that Joe has would be to do a certain amount
of entertaining of our more important customers when they come to Habana
in the winter, and also to do a certain amount of contact with regard to new
business, etc' This latter of course can be much better done by Lopez. From
what I could gather in listening to some of the Cubans' talk is that Joe has
very little standing with the President, and I think this is probably true.
On the other hand, where the rub comes in is that if we did not pay him his
salary the President would have to give him an allowance—
[Laughter.]
and, in times as hard as these this might be fairly difficult to do, so it would
seem to me that the best thing to do at the moment would be to let things
go on as they are.
Eosenthall is very much concerned because he says that when he goes off on
his vacation in the summer that if Obregon is next in charge he will make aU
the bad loans all over again, and Rosenthall is very anxious to get a second
man and would like to have a fellow who is now with Kemmerer and wiU be
back on the 1st of April. I do not believe that Findley would be a good second
man, although he is a very hard worker and an exceUent bank man. I think
that we should fin
@FedFRASER